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Appeal Process for Verifiable Cost Rejections in WMS Update

The WMS Working Group discussed the appeal process for rejected verifiable costs and the calculation of the minimum fuel requirements fee. They also addressed the allocation of the charge incurred under a fuel contract and the impact on the fuel adder calculation. Additionally, the group discussed the coal index price for verifiable cost calculations.

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Appeal Process for Verifiable Cost Rejections in WMS Update

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  1. Resource Cost Working Group April 6, 2016 WMS Update

  2. Fuel Cost Components in the Fuel AdderAppealing Verifiable Cost Rejections • RCWG reviewed the draft VCMRR and NPRR for Appealing Verifiable Cost Rejections per Section 12 of the VCM. • Filing Entity can initiate an appeal of rejected verifiable cost by submitting a Service Request within 20 days • Review Meeting between Filing Entity and ERCOT representatives not part of the ERCOT’s Verifiable Cost function within 20 days. • If appeal is rejected by ERCOT representatives, Filing Entity can pursue ADR processper Section 20 of the protocols • ERCOT will post the VCMRR and submit NPRR to PRS • RCWG consensus in support of the documents

  3. VCMRR009 Calculation of Minimum Fuel Requirements Fee Fuel Adder Background: • Fuel adder is used in calculation of Offer Caps and Make-whole payments • Default is $0.50/MMBtu, but a Resource can elect to submit an “actual” fuel adder • Resource must submit documentation of actual fuel costs to ERCOT for verification ERCOT seeking clarification on allocating the “minimum requirement fee” incurred under a fuel contract for the purpose of calculating an “actual” fuel adder

  4. VCMRR009 Calculation of Minimum Fuel Requirements Fee Minimum Requirement Fee: Provision in a fuel contract that requires a customer to purchase or transport a minimum annual volume of gas or pay a fee for any volume which falls below the minimum volume level

  5. VCMRR009 Calculation of Minimum Fuel Requirements Fee How should the $140,000 minimum requirement charge be allocated when the fuel contract delivered gas to the Resource, Storage and a 3rd Party? 3rd Party 100,000 Resource 500,000 Min Vol Requirement – 1,500,000, Actual - 800,000 Storage 200,000 • Over the Resource volumes only? • Over the Resource and 3rd Party volumes? • Over the Resource, 3rd Party and Storage volumes?

  6. VCMRR009 Calculation of Minimum Fuel Requirements Fee Impact of allocation options on the fuel adder calculation * Reflects the impact of the minimum requirement fee on the Fuel Adder. The total actual fuel adder includes other cost components.

  7. VCMRR009 Calculation of Minimum Fuel Requirements Fee VCMRR009 History • WMS initially endorsed Option 1 (May 2015) • RCWG drafted and submitted VCMRR009 reflecting Option 1 • IMM submitted comments for Option 3 (Resource, Storage and 3rd Party Volumes) • Luminant submitted comments for Option 1 (Resource Volumes only) • WMS vote to approve VCMRR009 failed and remanded back to RCWG (July 2015)

  8. VCMRR009 Calculation of Minimum Fuel Requirements Fee RCWG has been discussing the following issues: • Existing VCM language allows inclusion of minimum requirement fees, but doesn’t address volume allocation • Should the fuel adder include only “incremental” and “variable” costs, to be consistent with the other components of verifiable cost and market power mitigation? • Should Resources be able to recover their costs for providing the fuel supply, transportation and related services required to make the Resource available to the market? • Does including the minimum requirement fee result in the market bearing the risk and/or cost for Resource fuel contracts? • Should margin from 3rd party volumes be included in the fuel adder? • Should market participants have visibility to the range of approved actual fuel adders?

  9. VCMRR009 Calculation of Minimum Fuel Requirements Fee RCWG requests WMS guidance for Option 1 or Option 3 Option 1 language reflected in existing VCMRR009 http://www.ercot.com/content/wcm/key_documents_lists/66774/009VCMRR_01_Calculation_of_the_Minimum_Requirements_Fee_060315.doc Option 3 language is in IMM comments to VCMRR009 http://www.ercot.com/content/wcm/key_documents_lists/66774/009VCMRR_02_IMM_Comments_063015.doc

  10. Coal Index Price for Verifiable Cost Calculations Parallel path strategy for addressing verifiable cost issues for coal and lignite resources: • Immediate, low-impact change • Update the $1.50 /MMBtu for coal and lignite resources • Continue work on comprehensive NPRR • Coal Index Price: “Delivered to ERCOT” index price based on PRB 8400 coal plus rail transportation • $0/MMBtu fuel adder • Adding SO2 and NOx indices

  11. WMS Open Action Items for RCWG

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