Congestion Management Work Group 2008 Overview

1. Congestion Management Work Group 2008 Overview CMWG 4-28-08 Marguerite Wagner, Reliant Energy Inc.

2. 2008 Activities • Competitiveness Constraint Test Support • NodalShadow Price Cap Development • CSCs for 2009

3. Constraint Competitiveness Test (CCT) • Used to determine mitigation in RT SCED • All energy offers in SCED are subject to Offer Caps and Floors in PUCT Rule 25.505 and the Protocols • SCED Texas Two Step uses Energy Offers to dispatch energy to serve load and solve congestion • Energy Offers used to solve congestion on competitive constraints are not mitigated through SCED • Energy Offers used to solve congestion on non-competitive constraints are mitigated under Protocols 4.4.9.4.1

4. Identification of Competitive Constraints • Section 3.19 of the Nodal Protocols describes process • Test evaluates capacity availability and concentration of control • Constraint is competitive if there are sufficient Generation Resource MW to resolve constraint, controlled by a sufficient number of different QSEs

5. CMWG will work with ERCOT to: • Understand process used to set up base case for CCT annual evaluation • Ensure that QSE - Resource mappings are up to date so that the Resource ‘control’ can be identified • Develop list of potential Competitive Constraints • Timeline Now-Summer

6. Competitive Constraints Must be Approved by TAC • At the absolute latest: November TAC • (3.19(5) also says CCs must be approved by TAC one month prior to annual CRR auction. Nodal begins with one month CRR auctions…to support the one month CRR auctions we would need to target a September TAC—meaning August WMS) • Need ERCOT support to develop CSCs for 2009 • To Support 168 hour test need to recommend Competitive Constraints to WMS by 8/16

7. CCT Methodology • Also need business process documents from ERCOT about CCT assumptions • Will any upgrades will be included in annual CCT? • Or would upgrades only be part of monthly evaluations? • Should upgrades match those for CRR auctions? (CRR auction model does not include upgrades until the month after they go into service) • What about generation additions? • Same assumptions (month after interconnection) as transmission upgrades? • 3.19.9(2)(a)(i): “…The monthly peak case must include planned transmission and generation outages for the month.” Does this mean all outages? What, if anything, does this mean for outage scheduling calendar? • 3.19.9(2)(a)(i): “For voltage, stability, and thermal-limited constraints, as well as interfaces represented by thermal limits on monitored Transmission Elements, the “Base Shift Factors,” which are the shift factors used from the monthly peak case with no other contingencies included, must be used. For contingency-limited constraints, the outage shift factors relative to the import terminal of the limiting Transmission Element must be used.” • How are the two sets of SFs managed? • What is the ongoing process for validating Resource “management”? • 3.19.9(2)(c)(i): “Managed Capacity for an Entity is a Resource or portion of a Resource for which the Entity or its Affiliates has the decision-making authority over how the Resource or portion of the Resource is offered or scheduled.”

8. CCT Methodology, ctd. • What is the ongoing process for validating Resource “management”? • 3.19.9(2)(c)(i): “Managed Capacity for an Entity is a Resource or portion of a Resource for which the Entity or its Affiliates has the decision-making authority over how the Resource or portion of the Resource is offered or scheduled.” • Test requires dispatch at Resource HSL, except for wind • 3.19.9(1)(b): “For wind generation, the expected on-peak wind generation output,” • Does this mean ERCOT should use Wind Forecast Tool to develop an average on peak output for the month? What assumptions should go into development of this forecast? • Other assumptions?

9. Backstop for CCT • Backstop: CSCs are deemed to be competitive 3.19(1) need to determine CSCs for 2009 • Timeline: late Summer 2008 • Timing may require PRRs to amend timeline for CSC determination • Zonal Protocols (Section 7.2) require: • ERCOT analysis complete: 8/1 • CSCs & CREs determined by 11/1 (means Oct TAC & BOD) • Likely will not have analysis done by 8/1, targeting 9/1 with CMWG consideration early Sept and Sept WMS • May need PRR to change timeframe for consideration to 9/1

10. Nodal Shadow Price Cap • Protocols 6.5.7.1.11 require ERCOT to “establish a maximum Shadow Price for each constraint…” • Each contingency used in SCED must have a max SP cap • CMWG will develop proposals for how to establish SP cap and bring to WMS for consideration and recommendation to TAC • Target completion of draft by start of 168 hr test • TAC approval by Oct  Sept WMS consideration

11. Nodal Protocols Definitions • Shadow Price: A price for a commodity that measures the marginal value of this commodity, that is, the rate at which system costs could be decreased or increased by slightly increasing or decreasing, respectively, the amount of the commodity being made available. • Locational Marginal Price (LMP): The offer-based marginal cost of serving the next increment of Load at an Electrical Bus, which marginal cost is produced by the DAM process or by the SCED process.

12. High Level--Why SP Cap Matters: • At a high level, a locational price can be considered as: system marginal cost + congestion component • Congestion component varies by location “i” and can be calculated as • SUMc (SFi * SPc) • Where SP is the shadow price of constrained element, “c” • Choice of shadow price cap bounds range for system production of LMPs

13. CMWG Work Products for WMS • Recommended list of Competitive Constraints for 2009 • Recommended CSCs for 2009 • Proposal for developing SP Cap in SCED