ERCOT: A Work In Progress

1. ERCOT: A Work In Progress Board of Directors Austin, TX July 16, 2002

2. Introduction • Two Part Process: • Perspective on ERCOT’s role (Noel) • Retail activities update (Jones)

3. Background • ERCOT began as a stakeholder organization • It hired professional staff to qualify as an “Independent Organization” under PURA • The transition of leadership responsibility from stakeholders to ISO staff is evolving (as it did with PJM and others) • Size and composition of the ERCOT Board will also change over time

4. Requirements of SB 7 • Ensure open access to transmission and distribution systems on a nondiscriminatory basis • Ensure the reliability and adequacy of the regional electrical network • Ensure timely conveyance of information relating to customer choice in the retail market • Ensure accurate accounting for production and delivery services in the wholesale market

5. Some Successes • Reliability of the grid has been maintained • Inter-zonal congestion issue was resolved and TCR auctions have functioned well • More than 20% of retail market has switched, moved-in, or moved-out • NewPower customers have been switched to new providers

6. And, Some Failures • Too many customers are not being billed accurately or on a timely basis • Transactional processes remain problematic • ERCOT’s response to identified problems has not met expectations • As a result, confidence in the retail market is lower than expected

7. Retail Issues • Billing • Move-in/Move-out process • Meter data • Inter-participant settlement (Synchronization) • Reliability of transactional systems • Hardening of systems • Transparency

8. Wholesale Issues • Intra-zonal Congestion • Short-term fixes in place • Mid- to long-term changes in market design are being considered • Balanced schedules • Relaxed rules are being evaluated • Control measures needed to ensure reliability

9. Retail Focus • Correct deficiencies • Accelerate change • Measure performance

10. Correct Deficiencies • Document problems using Quick Response Team • Enlist assistance of market participants via TAC committees • Focus activities and prioritize requests • Develop and implement a well-defined work plan

11. Accelerate Change • Communicate effectively to all participants • Improve interaction with TAC committees • Strengthen ERCOT staff with expertise and partnering skills needed to succeed • Supplement critical skills by outsourcing • Integrate ERCOT’s internal processes more effectively (planning, budget, protocols, etc.)

12. Measure Performance • Establish clear goals • Customer expectations drive metrics • Verify resource allocations • Provide scheduled updates to Board, PUC, Legislative Oversight Committee, and media • Track progress

13. Actions Taken • Feld Group has been hired to supplement transactional skills within ERCOT • ERCOT staff is assuming direct responsibility (and accountability) for TAC outcomes • Relationships with PUC staff have been formalized • Lists of “key contacts” are being developed

14. ERCOT’s Dual Roles • Provide technical and administrative support to the stakeholder committee process (TAC and its subcommittees) • Provide independent recommendations to the ERCOT Board of Directors on behalf of electricity customers in Texas

15. Potential Issues • Several “models” have been suggested for ERCOT: • “Order givers, not order takers” • “Independent, self-governing organization like TMTA or NYSE” • “ERCOT staff is there to implement stakeholder wishes” • “Need to focus on ratepayers, not stakeholder interests” • “Consensus” decision making is democratic, but the process can be inefficient

16. Examples • Inter-zonal congestion (Resolved) • Intra-zonal congestion (Pending at PUC) • “Single REP” move-ins (Pending at TAC) • Relaxed scheduling (Pending at TAC)

17. Conclusions • Board structure will evolve as part of ERCOT’s maturation as an organization • Stakeholders are ERCOT’s “technical backbone” • Consensus processes can be “messy” • Additional specialized skills are needed to manage transactions “as a business”