1. 1 RPRS Market the issue of capacity inadequacy solved by the Local Congestion procurements ERCOT Feb 19, 2004

2. 2 There are concerns that there are probably costs being uplifted to the Market unnecessarily. As an example, if in the first step of the determination for RPRS there are units that are required to operate and the selection of those units creates no need to make additional RPRS procurements that would have been needed due to system inadequacy without the local constraint procurements, these costs are uplifted. WMS 1/22/2004

3. 3 The question to be investigated is, should these costs be charged to those entities that are short in the Market when the system inadequacy is solved by the local constraint procurements. WMS 1/22/2004

4. 4 Option 1: Average RPRS Price 1.Calculate Average RPRS Price: Average RPRS Price = (Total Cost of Steps 1 and 2) / (MW Cleared in Steps 1 and 2) 2.Parties who are short of capacity will be charged using Max (Average RPRS Price, MCPC step3 ) Note:Step 1: solve Local Congestion; Step 2: solve Zonal Congestion and capacity inadequacy; Step 3: calculate MCPC.

5. 5 Option 2: Additional steps Step 1: solve Local Congestion; Step 2: solve Zonal Congestion and capacity inadequacy; Step 3: calculate MCPC. Step 4: Perform Step 2 again ignoring the procurement in step 1. Step 5: Calculate MCPC for Step 4. Parties who are short of capacity will be charged using Max (MCPC step3, MCPC step5 ) Parties who have scheduled CSC impact will be charged using: Max (SP step3, SP step5 )

6. 6 OptionProsCons (1) Average Price Easy to implement Transparent cost calculation Less accurate cost assignment – Includes procurement costs for local and zonal congestion (2) Additional Steps More accurate cost assignment – Isolates cost for capacity inadequacy and zonal congestion Adds complexity to RPRS market clearing

7. 7