Load Participation in Real-Time Market: Loads in SCED version 2

1. Load Participation in Real-Time Market: Loads in SCED version 2

2. Efforts to Allow More Load Participation in Energy Market • State law calls for ERCOT to permit demand response to participate in markets • Significant potential resource in residential and commercial air conditioning load • REP and third-party demand response providers have sought broader opportunities • Third-party DR providers could bring focus and expertise, could invest in DR equipment at customers’ premises

3. TAC Deliberations • TAC voted to endorse “LMP-G” rather than “Full LMP” as settlement mechanism in 2011 • TAC decision based on a conceptual discussion, rather than detailed examination of LMP-G • Presentation to TAC emphasized avoiding double payment: LMP to DR provider plus customer’s avoided cost of energy • TAC endorsed “volumetric” LMP-VG, in which amount of energy curtailed would be added back to the customers’ consumption

4. Recent Stakeholder Efforts • DSWG’s Loads in SCED subgroup has worked on details of how LMP-G could be implemented • Volumetric LMP-G is not workable for residential and small commercial, because ERCOT believes it cannot estimate load reductions for individual residential and small commercial sites with sufficient accuracy • New approach, LMP-Proxy $G can work for all classes of customers • This approach has broad support in DSWG

5. LMP-Proxy $G Settlement • LMP-G would be implemented at the wholesale market level • ERCOT would pay DR QSEs for customers load reduction at LMP-Proxy $G • ERCOT would charge the customer’s LSE at LMP-Proxy $G for the load reduction • Proxy $G would be based on POLR rates • No new market uplifts under this approach

6. LiSCED Consensus Principles • Loads should be permitted to actively participate in Real Time Market • Loads participating in Real Time Market would contribute to wholesale price formation • Loads should not receive financial benefit more than once for providing demand response • The existing ORDC and Loads in SCED “bid to buy” market structures should be preserved

7. LiSCED Consensus Customer Policies • Customer has the right to select or change a DR QSE • REP would be notified if customer agrees to have his load response managed by a DR QSE • Rules should preclude DR-blocker strategies by REPs • Rules should ensure an adequate transition period for REPs to manage existing customer relationships • For the transition period, rules should define what will happen to a customer’s rate plan when customer joins a DR QSE, if the current rate plan includes an incentive tied to DR capability • Customer engagement rules will be needed, so that REPs and DR QSEs compete on equitable term

8. LiSCED Consensus Implementation Mechanisms • New concept of demand response provider of record (DR-POR) • System to notify ERCOT and current REP or DR provider of customer enrollment in DR program and other key events • System needed to resolve competing claims to be customer’s DR-POR

9. Areas of Particular PUC Interest • Can REP charge customer for energy not consumed or for risks related to customer’s participation in 3d party DR? • What are REP’s options when customer joins a DR QSE, if the current rate plan includes an incentive tied to DR capability • Transition period for REPs to manage existing customer relationships • Prohibition of DR-blocker strategies by REPs • Customer engagement rules: REPs and DR QSEs to compete on equitable term • System to resolve competing claims to be customer’s DR-POR

10. Questions for TAC • Should the PUC be brought into the deliberations on Loads in SCED? If so, when and how? • DSWG has taken a different approach to LMP-G than the one discussed at prior TAC meeting. Is there a problem with this change?