Proposed Schedules: Reserves (D) and Intra-Hour Firming (E) October 13, 2009

1. Proposed Schedules: Reserves (D) and Intra-Hour Firming (E)October 13, 2009

2. Where are we? • Both schedules are largely completed. • Both have been reviewed and discussed at multiple meetings. • Both are stuck on the last small percent of content, having to do with damages provisions. Would like to get these wrapped up and on the street. • Damages provisions greatly dictate what products are.

3. Summary of the two schedules • Reserves • Created to allow the buying and selling of actual reserves products required to satisfy reliability criteria. • Designed to be applicable nationwide • Relies on regional definitions for regional applicability.

4. Summary of two schedules • Intra-Hour Supplemental Power- Schedule E • Reserved capacity product. Can be called on either dynamically or via schedule. • Allows within-hour energy to flow to purchaser. • Likely used to manage variable loads or generation.

5. Damages • Generally, most agree that failure to perform should result in more than simple replacement of energy (like Schedule C does). • Several ways to accomplish: • Actual damages, including NERC fines • Capacity component • Proxy • Merits of each:

6. Damages • Actual damages • Failure to deliver these products could result in a failure to satisfy NERC/WECC reliability criteria, and therefore financial penalties. • Pros – purchasers could cover actual costs, gives incentive to provider to perform. • Cons - can be difficult to quantify, untimely, difficult to separately identify how lack of performance contributed to ultimate penalty, discourages providers because of risk.

7. Damages • Capacity component • These products require an amount of capacity (beyond the typical amount of energy delivered) to be paid for by the purchaser. Failure to deliver implies the purchaser did not get the capacity he paid for. • Pros – captures capacity component, can be defined. • Cons – many ways to price capacity, little transparency, disagreement over time period to charge for.

8. Damages • Proxy • Rather than attempt to quantify actual damages, but still capture the essence of charging more than replacement cost, a proxy is a form of “settlement.” • Pros – Limits exposure, which can attract suppliers. Can still provide incentive to perform. Easy to quantify. • Cons – could be viewed as lacking principle.

9. Current Structure – Sch D • Lesser of: • (capacity and xmiss chrg) X (days w/o service/days in the month), plus • Lesser of: • energy not delivered X index, or • mtm of energy and transmission • energy not delivered X 1.2 X contract price, plus • NERC penalties • OR • 3 months of capacity charges

10. Possible structure – Sch D • Lesser of: • (capacity and xmiss chrg) X (days w/o service/days in the month) X 1.1, plus • Lesser Greater of: • energy not delivered X index, or • mtm of energy and transmission, or • energy not delivered X 1.2 X contract price • NERC penalties

11. Coming to agreement • Questions? • Discussion • Straw poll

12. Next steps • OC meeting on the 20th. • EC meeting on November 3 (notice must be out by October 23).