OOMC and Local RPRS Settlement Alignment

1. OOMC and Local RPRSSettlement Alignment January 2007 WMS Meeting Ino Gonzalez ERCOT Settlements

2. Objectives • Align Settlement of Local RPRS Deployments with that of OOMC

3. Reasons for Proposal • Potomac Economics Recommendation • Both Services Utilized to Solve Local Constraints • Consistent Settlement Methodology • Include Start-Up Claw-Back • Include Claw-Back Three Hours After End of Deployment • WMS Request for PRR proposal

4. Reasons for OOMCDeployments 6.5.10 Out of Merit Capacity and Out of Merit Energy Services ERCOT will use OOMC and OOME Services to procure additional capacity and energy required to provide reliable ERCOT System operation, or to effectively manage Local Congestion as determined by ERCOT.

5. Reasons for Local RPRS Deployments 6.8.1.11 Local Congestion Replacement Reserve Payment to QSE The QSE for a Resource selected to provide RPRS to resolve Local Congestion that actually reconnects to the ERCOT Transmission Grid and starts the unit in order to provide RPRS will be paid both the Resource Category Generic Startup Cost for starting the unit and the Resource Category Generic Minimum Energy Cost less the MCPE for operating at the Low Sustainable Limit (LSL) as set forth in the Resource Plan for that unit during the instructed interval (s). If the MCPE during the intervals of an hour in which ERCOT deploys a Resource for RPRS provides revenue in excess of the hourly cost to start and operates the unit at LSL, the QSE representing the Resource may retain any such excess revenue.

6. Settlement of OOMC Deployments If RPRS Bid Price exists, Then: PCOOM = (-1)*Min [(BPRP * COOMRP), (PS + PO)] Else: PCOOM = -1 * (PS + PO) Where: PCOOM = OOMC Payments ($) BPRP = Bid Price for Replacement Reserve ($/MW) COOMRP = OOMC Awarded Capacity (MW) PS = Start Up Price PO = Operating Price

7. Settlement of OOMC Deployments If the unit is deemed to be on-line, Then: PS = 0 PO = ∑ [(RCGMEC – MCPE) * MIN(LSL/4, MR) ] Else: PS = Max [ 0, ( RCGSC – { ∑ (MCPE * MR) }) ] / # of instructed hours PO = ∑ [(RCGMEC – MCPE) * MIN(LSL/4, MR) ] Where: RCGMEC = Resource Category Generic Minimum Energy Cost RCGSC = Resource Category Generic Startup Cost LSL = Resource Low Sustainable Limit MCPE = Balancing Energy Market Clearing MR = Actual Metered Output of the Resource Clawback

8. Settlement of OOMC Deployments If resource continues to remain online after the instructed intervals Then: CRCGSC = ∑ (MCPE – RCGFC) * MR If CRCGSC > 0 & Total PS>0 PS = Max(0,[ RCGSC – ∑ (MCPE * MR) - CRCGSC ]) / # hours Else PS = Max(0,[ RCGSC – ∑ (MCPE * MR) ]) / # hours Where: CRCGSC = Charge Against the Resource Category Generic Startup Cost Clawback Clawback Clawback

9. Settlement of Local RPRS Deployments Current Methodology LPC = -1 * Max(0, LPS + LPO) If unit is deemed to be Off-line, Then: LPS = RCGSC / N LPO = ∑ [(RCGMEC – MCPE) * MIN(LSL/4, MR) ] Proposed Methodology PS (LPS)= [ RCGSC – ∑ (MCPE * MR) - CRCGSC ] / # hours PO (LPO) = ∑ [(RCGMEC – MCPE) * MIN(LSL/4, MR) ] Where: LPC = PCOOM = Local RPRS Payments ($) LPS = PS = Price for starting the resource LPO = PO = Price for operating the resource N = Number of hours of procurement Clawback

10. Conclusion and Recommendation • No significant difference between OOMC and Local RPRS Settlements • Elimination of significant manual process to identify multiple startup payments for same resource. • Align Settlements of OOMC and Local RPRS