DR QSE

1. This slide deck contains animations. Please open this deck in slide show mode (“View” menu, then click on “Slide Show”). • To move through the animations, left-click your mouse. Clicking too quickly will cause you to jump ahead. • NOTES: • The following examples assume there are no congestion costs • The LSE is fully hedged • “G” is a negotiated price between the LSE and the customer 1

2. LRIS Settlement Examples “LMP – G” To facilitate contracting options and provide information to the LSE and customer, this curtailed usage (representing energy that would have been consumed) will be sent to the LSE QSE. To ensure the LSE is kept whole, usage for the curtailed volumes will be sent to the LSE to bill the customer. (If this had been a RT index-based contract, the customer avoids the LMP for a small fee). At this point, absent the LMP-G adjustment, the LSE would not bill the retail Customer for the 10 MWs as the usage is not measured by the TDSP meter. • The LMP hits $3,000. The DR Service Provider curtails 10 MWs of usage from the retail customer and provides to ERCOT. • ERCOT pays the DR Service Provider LMP. Benefits of this approach: Avoids double payment to Customer (collecting both DR payment and avoiding energy cost) LSE is not impacted; they are made whole ERCOT not involved in retail pricing (volumetric flow) • The customer contracts with a DR Service Provider to curtail 10 MWs when LMPs hit $3,000 and pays a fee for the enabling technology and services. • The LSE hedges that power in the bilateral market or Day Ahead market, locking in a profit of $5/MW. • The LSE sells power to a retail customer. • In this example, this is for a block of 10 MWs at a retail price of $70/MW. • The 10 MWs are consumed by all customers taking power in the Real Time Market and pay ERCOT the LMP. • ERCOT is revenue-neutral. All RTM Customers $30,000 10 MWs ERCOT $30,000 10 MWs 10 MWs DR QSE LSE QSE DR Service Provider Wholesale Counterparty / DAM 10 MWs LSE $650(WhlsleP=$65/MW) 10 MWs 10 MWs $30,000 - Fee $700 (“G” = $70/MW) 8 10 11 9 2 3 4 5 6 7 Customer

3. The LSE hedges that power in the bilateral market or Day Ahead market, locking in a profit of $5/MW. The LSE still pays for the wholesale power, but delivers to ERCOT instead. In this case, the LSE is rewarded with high LMP (which doesn’t always have to be the case), but the market sees an uplift to Revenue Neutrality to cover the payment. • At this point, the LSE would not bill the retail Customer for the 10 MWs as the usage is not measured by the TDSP meter. • The 10 MWs are consumed by all customers taking power in the Real Time Market and pay ERCOT the LMP. • ERCOT is revenue-neutral. • The LMP hits $3,000. The DR Service Provider curtails 10 MWs of usage from the retail customer and provides to ERCOT. • ERCOT pays the DR Service Provider LMP. • The customer contracts with a DR Service Provider to curtail 10 MWs when LMPs hit $3,000 and pays a fee for the enabling technology and services. • The LSE sells power to a retail customer. • In this example, this is for 10 MWs at a retail price of $70/MW. LRIS Settlement Examples “Full LMP” Benefits to this approach: Encourage more DR Customer not billed for MWs not used ERCOT is not involved in retail pricing All RTM Customers $30,000 10 MWs ERCOT $30,000 10 MWs 10 MWs $30,000 10 MWs $30,000 DR QSE LSE QSE All Customers (Revenue Neutrality Adj.) DR Service Provider Wholesale Counterparty / DAM 10 MWs LSE $650(WhlsleP=$65/MW) 10 MWs 10 MWs $30,000 - Fee $700 (“G” = $70/MW) 12 19 18 16 14 17 15 13 20 Customer