WMS Presentation to the TAC Regarding TCR Issues

1. WMS Presentation to the TAC Regarding TCR Issues November 7, 2001

2. Meeting Overview Priority Issues • TCR quantity computation • Derating • Closely related elements (CRE) • Components of TCR credits ERCOT Congestion Management Working Group

3. CSC Process andTransfer Capabilities • CSCWG • 4 CM zones & 3 CSCs • Outstanding Issues of TTC for CM zones • As of Nov 1, 2001 meeting • Questions regarding calculated values (ERCOT) • Discussion of process • Target date to finalize TTCs (CSC flow limits) ERCOT Congestion Management Working Group

4. Function/Definition of TCRs • Financial right • No use-it-or-lose rule • 60%/40% annual/monthly awards • Based on annual/monthly determined by CSC flow limits • Net of pre-assigned TCRs • Options for awarding/crediting ERCOT Congestion Management Working Group

5. Shadow Prices andCSC Congestion Costs • What is CSC/Zonal congestion • “Closely related” elements ERCOT Congestion Management Working Group

6. How to Identify Closely Related Elements (CRE) • Identification • In advance • Criteria to limit ID/use • Zonal average shift factor impacts < .01 • Additional criteria to limit ID/use • Gen MW as a percent CSC flow limit • Other (i.e. number of units) ERCOT Congestion Management Working Group

7. Impacts of Managing the CRE With Zonal Bids • ERCOT will “hold” units to their resource plan that have counter impacts. • Units to hold to resource plan, i.e. restricted from BES • No limitations on A/S • No limitations in Adjustment Period ERCOT Congestion Management Working Group

8. Shadow Prices andCSC Congestion Costs • What is CSC congestion • “Closely related” elements • Components of CSC congestion • BES, OOM, and RPRS? • How to determine shadow price • Components to include in shadow prices? • All adjusted final schedules across CSC pay/paid SP (i.e. direct assignment) ERCOT Congestion Management Working Group

9. TCR Auction • ERCOT develops credit standards. • ERCOT issued RFP for auction software. • Auction will be single round, single clearing price • CSC auctioned separately and sequentially • Annual TCRs through December 31, 2002 • First monthly TCRs for March 2002 ERCOT Congestion Management Working Group

10. Distribution of TCR Revenues • Auction revenues paid to QSEs • Annual revenues paid monthly throughout each year • Monthly revenues paid throughout each month • Annual/monthly payments incorporated into each 15 minute settlement interval on a load ratio share basis • Any shortfalls in TCR credits paid by QSEs • Uplifted on load ratio share basis ERCOT Congestion Management Working Group

11. TCR Settlements • TCR holder need not be a QSE. • TCR credits based on: • CSC/CRE shadow prices • Other potential components • TCR credits paid to holder of record at time of settlement • TCR holder responsible for recording changes in ownership with ERCOT ERCOT Congestion Management Working Group

12. WMS Decisions • Closely Related Elements CREs • CREs must be identified by the ERCOT to be included in the notice of auction on an annual basis • Identified generators with impacts counter to zonal balancing will be held at their resource plan and will not be able to participate in BES ERCOT Congestion Management Working Group

13. WMS Decisions cont. • Deration of TCRs • 60% of the summer peak case will be auctioned on an annual basis • The ERCOT will determine the number of TCRs to be auctioned each month with a goal of revenue neutrality • Once auctioned TCRs are not deratable • Auction revenues and TCR shortfalls will be distributed on a load ratio share basis ERCOT Congestion Management Working Group

14. WMS Decisions cont. • Distribution of TCR Auction Revenue • Annual TCR auction revenues will be distributed in 12 monthly increments based on the ERCOT 12 month weighted average. • Monthly auction revenues will be distributed at the end of each month • TCR shortfalls will be deducted from the auction revenue prior to distribution • Auction revenues will be distributed on a load ratio share basis to the QSEs ERCOT Congestion Management Working Group

15. WMS Decisions cont. • Shadow prices, direct assignment and TCR holder payment • The weighted average zonal shift factors used for financial settlement shall be as indicative as practicable as the shift factors used in operations • Components contained within direct assignments charges must be equal to the payments made to holders of TCRs ERCOT Congestion Management Working Group

16. WMS Decisions cont. • A motion not to limit the number of TCRs that one party could purchase in the TCR auction failed. • Subsequent motions to limit purchases or quantities held were withdrawn • Proposals have been made to limit the number of TCRs purchased, held or settled, but have not been approved ERCOT Congestion Management Working Group

17. TCR Timetable Date Action this week ERCOT Meets with vendors 11/6/2001 Update preassigned TCRs 11/8/2001 TAC Meeting 11/19/2001 ERCOT Board Meeting 1/4/2001 Market notice PRR 299 Jan 02 TCR training 2/4/2002 TCR auctions 2/15/2002 Annual TCRs effective 3/1/2002 Monthly TCRs effective ERCOT Congestion Management Working Group