Grabbing Balancing Up Load (BUL) by the Horns December 2006

1. Grabbing Balancing Up Load (BUL)by the HornsDecember 2006

2. Balancing Up Loads (BULs) • Balancing Up Loads, or BULs, are qualified loads that contract with a REP and its QSE to formally submit offers to ERCOT to provide balancing energy by reducing their electricity consumption • BUL Load Resources are paid only if they actually deploy (reduce energy use) in response to dispatch by ERCOT • If a BUL is deployed they receive two separate forms of compensation: • Energy payment for load reduction • Non Spin Capacity Payment (MCPC), if applicable • A BUL may be a portfolio of ESI Ids within a single company that can provide Balancing Up Service

3. BUL Requirements • BUL Settlement Metering • Must have an Interval Data Recorder (IDR) capable meter • BUL Telemetry • No real time data (telemetry) required by Protocols from the Load to the QSE – maybe required by REP’s contract • BUL telemetry between QSE and ERCOT required to indicate to ERCOT estimated Load Response provided in response to a deployment • Deployed electronically to QSEs • A BUL will not be used for Out of Merit Deployment by ERCOT (OOMC or OOME)

4. Paying the Bill • For BUL, the bids consist of blocks in dollars per megawatt hour and megawatts ($/MWh, MW). If the full block cannot be deployed the bid will be skipped. • Capacity Payments are paid based on the lesser of the actual deployment or the historical baseline calculation • The baseline is the ratio of averaged metered QSE BUL load two hours prior to BUL instruction to the average interval metered QSE BUL from the prior ten (weekdays) or six (weekends or holidays) days for the two hours prior to the first BUL instruction • Designed to assure normal shutdowns of process Loads are not compensated • BUL capacity payments will be charged to market participants via load ratio share.

5. Compensation for BUL • Energy Payment for Load Reduction: • An energy payment is typically paid to a provider based on the load’s overall reduction as compared to the load level prior to the deployment interval • Load Response is paid by ERCOT using the normal QSE payment for Load Imbalances • Capacity Payment for Load Reduction: • A capacity payment is paid by ERCOT based on the Market Clearing Price of Capacity for Non-Spinning Reserve Service (MCPCNS). The Capacity payment will be paid to the Customer only if the BUL response (reduction of load) is 100 % of the instructed value

6. BUL vs Voluntary Load Response Balancing Up Load (BUL) Short Term VLR ERCOT REP Sponsor Loads contract with REP/QSE to formally submit Voluntary Load Response Product offers to ERCOT and provide balancing energy by creates a mechanism to capture the economic reducing their electricity use. BULs are paid only benefit of a customer’s ability to respond to high Product if they deploy (reduce energy use) in response to market prices. The customer voluntarily agrees to selection by ERCOT. If deployed they receive two reduce load consumption and receives a credit on Concept separate forms of compensation: an energy their next invoice. This product creates a load payment and a capacity payment. Deployed BULs may set the clearing price of MCPE imbalance with ERCOT which is then shared with the Customer. MCPE not effected by load reduction not the obligation) Customer has the ability to choose what price to The Customer has the ability (but Load transaction. offer their BUL MWs in the ERCOT auction up to to choose the price to create a Reduction two hours prior to real time. REPs act as the Customer has the right to change Price Customer's agent and submits bids to ERCOT. load response price in real time. Customer is paid the Non Spinning Reserve Customer is paid only an Energy Payment (based Value to Capacity Payment and an Energy Payment for on MCPE and consumption prior to event) when Customer periods when dispatched by ERCOT. transactions occur. Customer's offer is placed in ERCOT's Balancing Customer's load reduction in response to a Energy bid stack for the appropriate zone. A BUL Voluntary Load Response Transaction will not Effect on bid can set the Market Clearing Price of Energy effect the Market Clearing Price of Energy. MCPE Price and will reduce the volatility of real time power prices.

7. BUL Implementation Issues • ERCOT only accepts “offers” from QSEs without regard to which Load Resource is actually making the offer • For each $/Mwh, Mw offer point, ERCOT should allow the QSE to note which Load Resource is responsible for the offer • IMM should be aware offers potentially setting MCPE not necessarily being controlled by the QSE submitting them • ERCOT measures performance of the QSE rather than each individual Load Resource. A small Load Resource’s response is overshadowed by a large load’s actual response in the same QSE and thus may not get paid if the large load fails to respond • Performance must be measured by individual Load Resource • Baseline is almost impossible to understand and explain to retail customers • Suggest a minimum offer price to avoid collection of MCPC for normal plant shutdowns

8. Questions??