How does ERCOT Review, Verify and Approve RMR Costs?

1. How does ERCOT Review, Verify and Approve RMR Costs? (In response to questions that were asked during PRR 632 discussions) Prepared for the 01-18-05 WMS Meeting Settlements and Billing

2. QSE submits proposed budget. ERCOT reviews proposed budget. (Operations, Legal, S & B, and consultant). Budgets are submitted for each individual unit. ERCOT verifies projects are necessary and approves final budget. Approved budget is used for Initial Settlement. (Same amount each month) Actual costs submitted to ERCOT before Finals and True-ups. “Only Actual and Appropriate Eligible Costs attributable to operating the RMR unit.” . Description of Process

3. “Capacity Payments” (Standby Price) based on “Eligible Costs” in section 6.8.3.1. (Base Cost of Operations, Outage Maintenance Cost, Non-Outage Maintenance Cost, Other Budget Items) --- submitted on monthly basis. “Energy Payments” (Fuel Costs) --- submitted on monthly basis (for each individual unit). “Only Actual and Appropriate Eligible Costs attributable to operating the RMR unit. Costs that are identified as inappropriate are disallowed and not paid. QSE can dispute. Description of Costs

4. QSE submits costs with signed cover sheet for each month for each unit. “These are actual costs attributable to operating this RMR unit” ERCOT reviews monthly submittals. We do not hesitate to ask for more documentation (or explanation letters) to verify costs. Key Parts of the Process

5. ERCOT has had a consultant review budgets and actual costs submitted by RMR service providers. Asked to identify: Excessive costs or errors (including allocations from parent or related companies). Compliance with “eligible costs” as defined by the protocols. Costs or expenses that are inconsistent with other units, plants or projects which are “similar to” the reviewed units. The salvage value of any Capital Expenditure. Use of Consultant

6. QUESTIONS / CONCERNS?