Resource Cost Working Group January 12, 2016 Real-Time Mitigation During Exceptional Fuel Events

1. Resource Cost Working Group January 12, 2016 Real-Time Mitigation During Exceptional Fuel Events

2. Real-Time Mitigation During Exceptional Fuel Events Overview of NPRR664 • Resource can designate a Fuel Index Price (FIPR) of HSC, Waha or weighted-average • Includes Real-Time Make-Whole Payment provision for exceptional fuel cost events (NPRR714) • Exceptional event: Actual price paid for delivered fuel must be greater than the FIPR plus the fuel adder plus a threshold fuel price of $2/MMBtu • Uplift allocated by LRS • Manual process that expired May 1, 2015 • NPRR714 restored the manual process for Make-Whole with a sunset date of 6/1/17 • RCWG/WMS has discussed the options on the following slides

3. Real-Time Mitigation During Exceptional Fuel Events Option 1 - Continue with manual implementation of NPRR 664 • Rationale: Number of exceptional fuel events may be too small to justify significant system changes at this time • Continue with manual calculation of make-whole payments • Lower the priority for implementation of Index Fuel Prices • Revisit if manual process becomes too burdensome • Concerns that exceptional fuel costs are not reflected in LMP’s

4. Real-Time Mitigation During Exceptional Fuel Events Option 2 - Pursue “Exceptional Fuel Cost flag” concept • Resource will not be mitigated if it sets an exceptional fuel cost “flag”, submitted with its Energy Offer Curve (EOC) • If set, Resource will be subject to verification of the exceptional fuel costs used in its EOC • Rationale: Exceptional fuel costs would be reflected in LMP’s, possibly eliminating need for make-whole and new index fuel prices (i.e. NPRR664) • Concerns about LMP’s if fuel costs not verifiable

5. Real-Time Mitigation During Exceptional Fuel Events Option 3 – Increase MOC’s during Cold Weather Events • When ERCOT issues a cold weather event and is allowed to procure more reserves through a SASM, increase the mitigated offer cap (MOC’s) multipliers in 4.4.9.4.1(e) by 0.50. • Retain manual make-whole process if higher MOC’s are not adequate to compensate for Resource fuel costs • Rationale: Increase MOC’s during periods when the risk of gas price spikes is higher and provide headroom to reflect exceptional fuel costs in LMP’s. Keep manual make-whole process as a backstop. • Concerns that it may be an overly broad solution (e.g. if gas prices spike in West TX, but not South TX)

6. Real-Time Mitigation During Exceptional Fuel Events Option 3 proposed multipliers: During ERCOT cold weather event, increase the mitigated offer cap multipliers in 4.4.9.4.1(e) by 0.50. (e) The multipliers for paragraphs (b)(ii) and (c)(ii) above are as follows: (i) 1.60 for Resources running at a ≥ 50% capacity factor for the previous 12 months; (ii) 1.65 for Resources running at a ≥ 30 and < 50% capacity factor for the previous 12 months; (iii) 1.70 for Resources running at a ≥ 20 and < 30% capacity factor for the previous 12 months; (iv) 1.75 for Resources running at a ≥ 10 and < 20% capacity factor for the previous 12 months; (v) 1.80 for Resources running at a ≥ 5 and < 10% capacity factor for the previous 12 months; (vi) 1.90 for Resources running at a ≥ 1 and < 5% capacity factor for the previous 12 months; and (vii) 2.00 for Resources running at a less than 1% capacity factor for the previous 12 months