2009 ERCOT CSCs and Congestion Zones October 21, 2008

1. 2009 ERCOT CSCs and Congestion Zones October 21, 2008 C. Richard Ross American Electric Power Service Corporation

2. Background • PURA & the Substantives rules hold ERCOT to a standard of providing nondiscriminatory access to the transmission system. • (§25.361(b)) “.. to ensure access to the transmission and distribution systems for all buyers and sellers of electricity on nondiscriminatory terms…” • Procedure: a traditional or established way of doing things; a series of steps followed in a regular definite order • Excuse: A defense of some offensive behavior or some failure to keep a promise etc. • Reasonable: not extreme or excessive; fair • Fair: free from self-interest, prejudice, or favoritism

3. What is or defines the procedure? • Defined in Protocols Section 7.2 and by the historical actions taken in each of the prior years • Selection of CSCs and the clustering of generation and loads having similar impacts on the CSCs • Utilizing the defined Summer Peak Case • Identification of Closely Related Elements • Identification of Boundary Units • Calculation of Average Weighted Shift Factors • Utilizing only units deemed likely to move

4. Challenges The CSC & Zonal selection process requires the balance of numerous and often competing issues: • Needs for reliable grid operations • Overall commercial/operational impact • Uncertainty • Individual commercial/operational impact • Self interest If left unchecked, these challenges can allow self interest to inappropriately influence the final outcome.

5. Keeping Challenges in Check • Clear/transparent process, rules and procedures • Follow the procedure • Apply them to everyone and every situation consistently • Apply discretion only when called for by the process • Number of CSCs • Number of Zones You can not simply apply discretion when you don’t like the outcome of the process.

6. Procedure Comparison • 3h is consistent with procedures • 3i is not consistent with procedures • assumed the 345 Kv lines between Oklaunion and Bowman do not exist for the clustering process

7. Anomalies Assumption anomalies related to Oklaunion: • Outage of Oklaunion Bowman for clustering process • conflicts with Protocol 7.2.1 • Similar outage assumptions of key elements for other CSCs would have likely impacted clustering of other units • Classifying Oklaunion as a unit likely to vary its output for the CRE selection process • Conflicts with Protocol 7.2.4 and its historical application • Although other coal units meet the same standards used to justify this exception to the historical process, it was only applied to Oklaunion

8. Results Comparison • Scenarios results are virtually identical • CSCs • CREs • Boundary Units • Average Zonal Shift Factors • The major exception is the clustering of Oklaunion • 3h places it in the North zone • 3i moves it to the West zone by assuming major 345 KV lines do not exist

9. What was the problem with 3h? At the conclusion of the process for the development of 3h: • The system could be operated reliably • There is sufficient generation in the West zone to resolve zonal congestion • Oklaunion’s Power System Stabilizer mitigates its contribution to stability issues There is no real problem and hence no need to alter the process.

10. What do we lose with 3i? • Efficient utilization of the Transmission system. • If Oklaunion is placed in the North zone, a Special Protection Scheme (“SPS”) could be put in place for 2009 to automatically runback/curtail the units production in the event of a trip of the Oklaunion to Bowman circuit. • This creates the opportunity to export 300 (possibly up to 650 MW) from the historically low cost area of the region. • This opportunity is lost under scenario 3i.

11. Recommendations • Approve Scenario 3h CSCs, Zones, CREs and Boundary Units. • Request that ERCOT and AEP work cooperatively to investigate, develop and if possible implement an SPS for 2009 to rapidly reduce generation at Oklaunion in the event of an unexpected outage of the Oklaunion to Bowman circuit. • Given the risk the zonal market could still be in place in 2010, ERCOT and TAC should consider reviewing the procedures in preparation for the 2010 cycle: • ERCOT should determine whether the clustering process should be based on a pre-contingency or post-contingency system topology. • If a post-contingency system topology is preferred it should develop procedures to apply this standard to all CSCs on a nondiscriminatory basis.