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Presentation for ERCOT ETWG FERC Notice of Proposed Rulemaking: Frequency Regulation Compensation in the Organized Whole

Presentation for ERCOT ETWG FERC Notice of Proposed Rulemaking: Frequency Regulation Compensation in the Organized Wholesale Power Markets (RM11-7-000) Judith Judson Beacon Power Corporation April 6, 2011. Safe Harbor Statement.

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Presentation for ERCOT ETWG FERC Notice of Proposed Rulemaking: Frequency Regulation Compensation in the Organized Whole

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  1. Presentation for ERCOT ETWG FERC Notice of Proposed Rulemaking: Frequency Regulation Compensation in the Organized Wholesale Power Markets (RM11-7-000) Judith Judson Beacon Power Corporation April 6, 2011

  2. Safe Harbor Statement This presentation contains forward-looking statements, including the Company's beliefs about its business prospects and future results of operations. These statements involve risks and uncertainties. Among the important additional factors that could cause actual results to differ materially from those forward-looking statements are risks associated with the overall economic environment, the successful execution of the Company's plan of operation, changes in the Company's anticipated earnings, continuation of current contracts, changes in energy and other applicable regulations, and other factors detailed in the company's filings with the Securities and Exchange Commission, including its most recent Forms 10-K and 10-Q. In addition, the factors underlying Company forecasts are dynamic and subject to change and therefore those forecasts speak only as of the date they are given. The Company does not undertake to update them; however, it may choose from time to time to update them and if it should do so, it will disseminate the updates to the investing public. 2

  3. Background • Emergence of new technologies (such as batteries, flywheels, V2G, demand-side resources) capable of responding more quickly and accurately than traditional Regulation resources prompted the Commission to evaluate Regulation market rules • May 26, 2010: FERC held Technical conference • System benefits of faster-ramping resources • Whether the compensation mechanism reflects the value of the service provided • February 17, 2011: FERC issued a Notice of Proposed Rulemaking (NOPR) on Frequency Regulation Compensation in the Organized Wholesale Power Markets • Proposing to require regional RTOs and ISOs to adopt a two-part payment structure • May 2, 2011: Comments due (60 days)

  4. FERC NOPR: Need for Reform • Current market rules “may be unjust and unreasonable because faster-ramping resources are compensated at the same level as slower ramping resources, even though they can respond more quickly and provide more ACE correction.” NOPR - Appendix A In all RTOs (except ISO-NE) both resources are compensated the same

  5. Specific Proposal • Compensation should take into account the amount of service (ACE Correction) that is being provided by each resource • All RTOs/ISOs must implement a two-part payment • Capacity Payment (what most RTOs have today) • Compensates resources for setting aside a certain amount of capacity to provide regulation service • Payment should use a uniform clearing price per MW based on marginal resource’s marginal cost, including opportunity cost • Performance Payment (new*) • Payment that recognizes contribution to ACE Correction • Sum of resources up and down movement in response to a dispatch signal multiplied by a price-per-MW of ACE correction • In addition payment should reflect the resource’s accuracy in following the system operator’s dispatch signal *ISO New England implemented this type of performance payment in 2005

  6. Potential Cost and Reliability Benefits • “Use of faster-ramping resources for frequency regulation has the potential to improve operational and economic efficiency and, in turn, lower costs to consumers in the organized markets” • Allows RTOs and ISOs to use less regulation capacity to meet current NERC standards, thus lowering regulation costs • PNNL Study: 1 MW of a fast-ramping resource with limited energy could replace 1.2 MW of the current generation mix providing regulation • Example: ISO-NE, has a “fast-first” priority dispatch and a performance payment, procures least amount of Regulation as % of load • On average 60% less than other ISO/RTOs • Commission anticipates secondary effect of lowering Energy prices • Frees slower-ramping resources to operate at stable output levels and, therefore, at more efficient heat rates

  7. Judith Judson Vice President, Asset Management and Market Development Phone: 978-661-2070 Email: judson@beaconpower.com

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