Resource Cost Working Group August 3, 2016 WMS Update

1. Resource Cost Working Group August 3, 2016 WMS Update

2. Incentive Factor for Reservation and Transportation Costs • RCWG reviewed the applicability of the Incentive Factor to reservation and transportation costs associated with firm fuel supplies. • The Incentive Factor for RMR Agreements is 10% of the actual costs excluding fuel costs incurred by the RMR Unit and it is not applied to capital expenditures. • RCWG could not reach consensus on whether fuel reservation and transportation costs should be considered fuel cost. • RCWG is asking WMS for guidance on the issue.

3. VCMRR013 Clarifications to Verifiable Cost Appeals Process • RCWG reviewed VCMRR013, per WMS request • The discussion circled around the July 22nd Luminant comments. The comments clarify that regardless the process of appeal, ERCOT will not resettle the market and gives a Filing Entity the choice of using the ERCOT appeals process or proceeding directly to the Alternative Dispute Resolution (ADR) process if the Filing Entity desires. • RCWG requests that WMS to recommend approval of VCMRR013 as amended by the 7/22/16 Luminant comments, and as revised by WMS; and to endorse NPRR769 as amended by the 6/7/16 Luminant comments."

4. Settlement of Switchable Generation Resources (SWGRs) • WMS asked RCWG to look at different settlement options and to discuss the best way to compensate SWGRs. If ERCOT suspends a SWGR’s ability to switch into another grid by committing the unit through a RUC process or if ERCOT requests the SWGR switch into ERCOT during or in anticipation of Emergency Conditions. ERCOT presented three options on how to financially settle the SWGR during suspended switching operation intervals. • 1. A = Make whole to the resource cost + penalty from contractual obligations + penalty from market obligations • 2. B = A + lost opportunity cost • 3. C = B - RUC Clawback

5. Settlement of Switchable Generation Resources (SWGRs) • ERCOT recommended Option 1 with the formula “SWGR Make Whole Payment = Max [(SWGR Guarantee + penalty from contractual obligations + penalty from market obligations), Real-Time Revenues].” • RCWG members were not in agreement this was the right direction • RCWG feels strongly that it should be up the unit owner or its Qualified Scheduling Entity (QSE) to make that final commitment decision about the SWGR.

6. Capital Contributions for RMR units • RCWG reviewed ERCOT’s draft NPRR - Provisions for Refunds of Capital Contributions Made in Connection with an RMR Agreement. • There was general agreement that the concept for refund if the RMR unit re-enters the market. • There was not general agreement about the salvage refund. Mainly due to the lack of process that describes how the value would be set.

7. Long-Term Solution to Coal Index Price • RCWG continuing work on comprehensive NPRR and companion VCMRR • “CFIP” Coal Fuel Index Price: “Delivered to ERCOT” index price based on PRB 8400 coal plus rail transportation • $0/MMBtu fuel adder for coal and lignite • Updating daily calculation for Emissions Costs to include SO2 and NOx price indices for CSAPR allowances used in verifiable costs

8. Additional RCWG Issues • Fixed Cost Components in the Fuel Adder • Generator compensation for Market Continuity • Next RCWG meeting on Tuesday August 31, 2016