UFE Workshop Co-sponsored by RMS/COPS September 14, 2004

1. UFE Workshop Co-sponsored by RMS/COPS September 14, 2004

2. Agenda • Antitrust Admonition. (Ernie Podraza) • Agenda Review (Ernie Podraza) • A Primer on UFE • History of UFE Discussions in the ERCOT Market (Calculation, Allocation, and Analysis) • What do Protocols say about UFE? (ERCOT Staff) • Protocol Section 11 Calculation, Allocation and Analysis • Protocol 13.4.2 Deemed Actual Transmission Losses for UFE Analysis • Protocol 18.2.8.2 Models (… coordinate with … UFE analysis function…) • 2002 UFE Analysis Report Review. (ERCOT Staff) • Open brainstorming session. (Ernie Podraza) • Confirm next meeting and review assignments of action items before adjourning.

3. A Primer on UFE

4. What is UFE? • Unaccounted-For-Energy is the difference between the total generation supplied to a specific physical region and the total load plus losses in that same physical region during each settlement interval • UFE may be positive or negative in any single settlement interval ( ) ( ) Generation + Gen. Metered Inflows - Gen. Metered Outflows Total Generation End-Use Load + Distribution Losses + Transmission Losses Total Load UFE • Negative UFE generally indicates load/loss overestimated

5. CALCULATION OF UFE UFE Net Load (Generation) for Settlement Interval (Includes Actual Losses in the UFE Zone) GAP - - - - - - > ERCOT Wide (Postage Stamp) Transmission Line Losses Distribution Line Losses Profiled Energy Usage Non-Interval Data Non-Metered Accounts Net Generation compared to Retail Load Build-up Interval Data Metered Accounts

6. Requirements for UFE Zones • Assignment of following to correct zones: • a. All Loads • b. All Generation • c. Zonal Metered Inflows & Outflows • Any metering used to calculate UFE by zones will: • meet the same requirements for settlement as generation metering (EPS Metering Protocols) • be polled remotely by the ISO • be capable of allowing the ISO to adjust time remotely • collect interval data internally the meter

7. DISTRIBUTION UTILITY • Inaccuracy of method used • to calculate distribution losses. • Unrecorded services. • ERCOT SYSTEMS • Inaccuracy of load • profiles on a settlement • interval basis. • Incorrect aggregation of • retail load or zonal • generation. • Inaccuracy in method • used to calculate • transmission losses. • Incorrect assignment of • customer to profile type. • Incorrect assignment of • customers to UFE zone. • Theft • METERING AGENT • Incorrect meter data. • Inaccuracy in calculation of • un-metered service • consumption. • Meter reading errors. • Errors in estimation of meter • readings. Contributors to UFE

8. UFE’s Effect on Settlements

9. History of UFE Zone Discussions

10. History of UFE Decisions • Discussion began in Settlement Technical group in October 1999 and continued into March 2000 with a “UFE sub-team” formed in late December 1999. • February 3rd and 10th, 2000 Settlement Technical Meetings focused on narrowing zone options and refining allocation data. Also started analysis of old control zone metering points to determine option feasibility for market open. • February 24, 2000 Settlement Technical Meeting - Group developed alternative hybrid recommendation for individuals to present to their respective companies for future decision making. • March 03, 2000 - Settlement Technical group detailed two options to be forwarded to the Retail Users Group for voting.

11. Original UFE Decision Points 1. What is the appropriate area for UFE administration? • One zone versus many zones • Value of multiple zones • Market readiness concerns 2. What is the appropriate methodology for allocation of UFE among REPs in a zone?

12. To the extent that energy consumption in an area can be measured, that energy should be paid for by the load serving entities in that area. Principle: • Facilitate market opening on time • Seek cost effective solutions • Facilitate the ISO’s investigation and correction of • abnormal UFE • Allow for audit to support and minimize dispute • resolution • Appropriate assignment of UFE cost causation under • the new market structure Evaluation Objectives: UFE Zone Principles and Evaluation Objectives

13. Create zones based upon metering at distribution substations. Option A: Use existing interchange metering to define zones that closely match existing control boundaries or where appropriate metering exists. (e.g. muni, coop, distribution utility area) Option B: Use existing interchange metering, where available, to create four contiguous zones. Metering will be required to be installed in locations where it currently does not exist to accomplish zone closure. Option C: ERCOT wide calculation and allocation of UFE with use of zonal UFE investigation (which may or may not include revenue quality metering) and analysis for UFE correction. Option D: Options Defined

14. Create zones based upon metering at distribution substations. Option A: Option A Cons Pros COMMENTS: Requires estimated $270 million metering investment by market at distribution substation transformers. • 4500 substations • 2 transformers per station • Approximately $30,000 per meter installation. • Facilitates ISO investigation of UFE to the greatest extent of any option. • Allows for Isolation of UFE to the most granular extent, thus facilitating dispute resolution and maximizing cost causation allocation. • Potentially mitigates UFE associated to inaccuracy in transmission loss calculation. • Difficult if not impossible to have meters installed by market open. • Cost prohibitive due to current lack of metering at substations. OPTION ELIMINATED AS COST PROHIBITIVE & ADMINISTRATIVELY DIFFICULT AT 02-10-00 MEETING

15. Use existing interchange metering to define zones that closely match existing control boundaries or where appropriate metering exists. (e.g. muni, coop, distribution utility area) Option B: Option B Cons Pros COMMENTS: • This option is basically the “Utility Zone as the UFE zone” option. • Requires investment in metering for upgrades to meet new “zone” requirements. • Facilitates market opening by using existing metering infrastructure. • Low cost solution anticipating minor metering modifications. • Allows for investigation and correction of UFE by providing moderate granularity. • Allows for considerable audit-ability. • Localizes cost causation to the existing utility service area. • Potentially administratively troublesome as this option could create as many UFE zones as the number of distribution utility service areas. • Market readiness concerns due to number of participants involved. OPTION RE-DEFINED AT 02-24-00 MEETING SEE PAGE 19

16. Use existing interchange metering, where available, to create four contiguous zones. Metering will be required to be installed in locations where it currently does not exist to accomplish zone closure. Option C: Option C Cons Pros COMMENTS: • New metering locations not defined. • Facilitates market opening on time. • Minimizes cost due to limited number of zones. • Minimal audit capability due to combining utility service areas. • The smaller number of zonal boundaries does not facilitate cost causation issues. • Ignores the ability to use existing metering to better allocate cost to a specific area. • Minimal granularity for investigation and correction of UFE. OPTION ELIMINATED AT 02-10-00 MEETING

17. Option D ERCOT wide calculation and allocation of UFE with use of zonal UFE investigation (which may or may not include revenue quality metering) and analysis for UFE correction. Option D: Cons Pros COMMENTS: • Not acceptable to some participants due to perceived inadequacy for capturing and allocating UFE by a specific area. • Facilitates market opening on time by utilizing existing metering infrastructure. • Allows for investigation and correction of abnormal UFE. • Ignores the ability to use existing metering to better allocate cost to a specific area. • May caused additional disputes where analysis area UFE is less than ERCOT wide UFE. • A single UFE area does not allow for cost causation mitigation at all. OPTION DETAILED AT 03-02-00 MEETING SEE PAGE 20

18. Zonal UFE Option • Existing ERCOT control area interchange metering points shall be used to define mandatory zones for UFE calculation. • Installation of appropriate metering, as specified by ERCOT, for mandatory • UFE zones shall be in place by the ISO system test deadline. • ERCOT may extend this deadline for mandatory UFE zones if just cause is • demonstrated. However, areas with control area metering in place will be • treated as zones for the pilot program and market open. These zones will be • utilized for UFE settlement purposes. • Additionally, where appropriate metering exists or is installed, UFE zones of greater granularity may be created. • Minimum level of UFE Zone definition is limited to muni, coop • or distribution service area.

19. ERCOT Wide UFE Option • Open the competitive electric market in ERCOT with an ERCOT wide UFE calculation and allocation (allocation methodology defined separately) and move to a different mechanism, possibly multiple UFE areas, if deemed necessary by the ERCOT ISO. • DETAILS: • From the start of the Retail pilot (6/1/01) until June 1, 2003, UFE will be calculated on an ERCOT wide basis to be used for settlements. • Allocation of UFE will be ERCOT wide to REPs based on load ratio share as defined in the UFE Allocation Method. • Additionally, the ISO will perform investigation and analysis of UFE and this information will be used for UFE improvement. • UFE areas will be defined and developed that facilitate the investigation of UFE improvement. • To keep cost to a minimum, existing metering and SCADA data will be utilized to define “zones”. This includes revenue quality and relay quality metering and instrumentation. • ISO will monitor UFE and formulate plans for improving the method for calculation and/or allocation of UFE. • The Settlement System developed for market operations should maintain the flexibility to manage UFE at a more granular level as it becomes necessary in the market. • By April 2003, the ISO will provide a report and make recommendations on UFE Calculation Process Improvement and changes; including moving to a zonal allocation methodology.

20. Some of the reasoning behind the Decision for an ERCOT Wide UFE Zone Zonal ERCOT Wide • Facilitates market opening. • - No additional metering required. • - Least cost impact to market as a • whole. • - Easily understood and • implemented. • Zonal UFE calculation is not imperative for market open. • Use of zones does not reduce UFE. • Defined zonal boundaries do not capture all UFE contributing factors within a zone therefore cost causation remains unknown. • Utilizes existing metering infrastructure to its fullest extent for analysis of UFE. • UFE in the future market is an unknown quantity therefore zones attempt to solve a problem without knowing the extent of the problem. • Allows for future decision making regarding zones based upon factual and historic data. • Cost/benefit analysis has not proved zonal necessity. • Difficult to have all zone meters installed by customer choice pilot.

21. History of UFE Allocation Discussions

22. UFE Allocation Discussion History • Utility survey performed to determine estimate of percentage of UFE by each contributing factor. • • Nine companies responded to reformatted survey • • Categorized contributing factors to customer type • • Final allocation algorithms were developed based upon the survey results

23. Allocation methodology must recognize that high voltage customers and interval data recorders contribute less to UFE on an interval by interval basis. Principle: UFE Allocation Principle

24. Utility Survey of UFE Contributing Factors

25. UFE Allocation Factors by Delivery Point Type

26. UFE Allocation Discussion History • Decision was made to accept the Allocation mechanism defined by a representative of Austin Energy as the output of the algorithm most closely matched the results of the UFE Allocation survey data • Results were incorporated into Protocols

27. History of UFE Analysis Group

28. History of UFE Analysis Group • UFE Analysis Team was established in December 2000, once in January and one more time in February of 2001 (See Protocols Section 11.5.1) • Analysis Team’s Pressing Objective • 11.5.2 …. Sub-divide ERCOT into a practical granularity of “UFE Analysis Zones,” but no more than ten (10) zones, which can provide reliable and accurate data to be used for Cost/Benefit Analysis and decision making purposes. ….. • Decision was made to survey utilities and determine extent on metering at “old control boundaries” – This information would be used to define the UFE Analysis Zones • Excerpt from 11.5.2.1 • … The UFE analysis team will determine the initial set of UFE Analysis Zones to be used by January 1, 2001 to provide adequate time for installation of any required metering. …

29. History of UFE Analysis Group • Surveys were sent to the Old Control Areas requesting identification of existing “10”control area interchange metering points: • Identify transmission stations on either side of the meter for potential zonal assignment • Identify metering upgrades required to ensure IDR, time synchronized, data is available • At the February 2001 meeting, ERCOT reported it had completed responses from all areas with one area providing a partial response.

30. UFE Analysis Zonal Metering Issues • 1. Survey responses are inconsistent: • Combination of Network Stations, Planning Stations and others used a utility naming identity. • ERCOT will have to contact each entity individually to resolve issues and reconcile the meter locations to the new ESCA model. • 2. ERCOT is in a transition state to the ESCA model as the standard. • Transition will not be final until ???? • Planning model will be updated to ESCA Model or cross referenced to ESCA Model. 3. There is no mechanism to map the interconnect points to the existing transmission system model. (This is necessary for the working group to make determinations as to zonal breaks)

31. UFE Analysis Zonal Metering Issues • Timing – • It will be impossible for the Working Group to have the data necessary to define UFE Analysis zone any time in the near future. • The January 01, 2001 deadline is already passed. • ERCOT is focusing on testing and implementing systems necessary for successful pilot implementation on June 01. 5. Market participants in the UFE Working group and Metering Working Group have expressed concern at having to get UFE analysis metering in place by May 01, 2001 - especially with all the other timelines that have to be meet. 6. Is UFE Analysis necessary for a successful pilot?

32. Output of UFE Analysis Group Modify Protocols to provide a more realistic implementation timeline for defining UFE Analysis Zones: a. UFE Zone definition date be moved to July 01, 2001 b. TDSPs would have until December 01, 2001 to get required meter in place c. UFE Analysis would begin on January 01, 2002 Reasoning: a. We have already missed the January 01, 2001 deadline in the protocols. b. Gives ERCOT time to reconcile survey data and implement mapping system. c. Allows Market to focus on items critical to the pilot. d. Allows UFE Working group to make a more informed decision.

33. Output of UFE Analysis Group • Redline of Section 11.5 was submitted and adopted: • UFE Zone definition date be moved to July 01, 2001 • TDSPs would have until December 01, 2001 to get required meter in place • UFE Analysis Team will Analyze UFE data from January 01, 2002 to December 31, 2002 • UFE Analysis Team will Provide a recommendation by April 2003 to the ERCOT Board • Condition added to Protocols: A TDSP will not remove existing metering facilities that have the potential to be used to define UFE analysis zones until such time as UFE analysis zones have been defined according to this protocol section.

34. Output of UFE Analysis Group • Issues uncovered during the Pilot and Full implementation took precedence over further meetings - No further action by Working Group • ERCOT placed mapping exercise on-hold until system was in place to provide adequate mapping for UFE Analysis Group decision making • Although dates for zonal definition and analysis have not been met, Section 11.5 has not been revisited

35. Output of UFE Analysis Group • Pilot and Start-up issues pushed the UFE Analysis discussion to a lower priority • No further meeting were held and no Market Participants requested additional meetings • Market Participants focused on correcting and addressing larger data and data model issues which would necessarily need to be corrected before addressing UFE further.

36. UFE References in Protocols

37. Section 11.3.6 Unaccounted for Energy Calculation (UFE) and Allocation • The Data Aggregation System shall adjust the net loss adjusted Load for each aggregated group for Unaccounted for Energy (UFE). • The Data Aggregation process will calculate the difference between net loss adjusted Load for the entire ERCOT System, which has been adjusted for Distribution Losses and Transmission Losses, and the total system Load (generation) in order to determine the total UFE. • The calculated UFE for each Settlement Interval is then allocated to Loads. • Net flow out of ERCOT on a DC Tie will be deemed as Load, and net flow into ERCOT on a DC Tie will be deemed as a Resource

38. Section 11.3.6.1 Calculation of ERCOT-Wide UFE • The Data Aggregation System will calculate ERCOT-wide UFE as the difference between the total generation supplied to a specific physical region (ERCOT) and the total Load, adjusted for losses in that same physical region (ERCOT) during each Settlement Interval. • UFE may be positive or negative in any single Settlement Interval. • UFEi (MWh) = ERCOT Generationi Total ERCOT Net Loss Adjusted Loadi Total –

39. Section 11.3.6.2 Allocation of UFE • ERCOT will allocate UFE to specific categories based upon adjusted Load Ratio Share. The adjusted Load Ratio Share will be determined using the following UFE category weighting factors: (1) 0.00 - Transmission Voltage level IDR Non Opt-in Entities (2) 0.10 - Distribution Voltage level IDR Non Opt-in Entities (3) 0.10 - Transmission Voltage level IDR Premises (4) 0.50 - Distribution Voltage level IDR Premises (5) 1.00 - Distribution Voltage level Profiled Premises • The ERCOT Data Aggregation System shall provide a mechanism to change the UFE category weighting factors for specific transition periods.

40. Section 11.5 UFE Analysis • ERCOT will establish a UFE Analysis Team chaired by ERCOT and consisting of Market Participants and ERCOT personnel who report to the Technical Advisory Committee. • The UFE Analysis Team will: (1) Analyze UFE data from January 01, 2002 to December 31, 2002 (2) Post findings to the MIS on a monthly basis (3) Provide a recommendation by April 2003 to the ERCOT Board • Prior to any recommendation from the UFE Analysis Team, ERCOT has one (1) UFE Zone, which encompasses all of ERCOT.

41. Section 11.5.2 UFE Analysis Process • The UFE analysis team may request additional data from TDSPs to be provided to ERCOT for UFE analysis. Data that is confidential is to be deemed as such. ERCOT may request installation of additional meters for analysis, but TDSPs are not required to do so. • The UFE analysis process will: (1) Sub-divide ERCOT into a practical granularity of “UFE Analysis Zones,” but no more than ten (10) zones, which can provide reliable and accurate data to be used for Cost/Benefit Analysis and decision making purposes; (2) Identify factors that are contributing to UFE and work with the appropriate Entities to rectify problems causing UFE; (3) Compare ERCOT-wide UFE to UFE within UFE Analysis Zones and investigate the differences; (4) Determine if additional UFE Zones are necessary, and if so, identify the appropriate zones and the associated implementation cost; (5) Post UFE analysis findings to Market Participants on a monthly basis; and (6) Provide a recommendation to the ERCOT Board by April 2003

42. Section 11.5.2.1 • 11.5.2.1 Sub-divide ERCOT into a practical granularity of “UFE Analysis Zones,” but no more than ten (10) zones, which can provide reliable and accurate data to be used for Cost/Benefit Analysis and decision making purposes • ERCOT shall make every effort possible during the design and implementation of market systems to implement mechanisms to capture data considered valuable in the UFE analysis effort. This will include but not be limited to integration and storage of “old” Control Area net Real Time Load signals on a Settlement Interval basis.

43. Section 11.5.2.1 (con’t) • ERCOT will determine what data exists in the market and its location and attributes including: (1) Load data (2) Generation data (3) Available import and export data (4) Sufficiency and relative accuracy of the data that exists for UFE analysis with: (a) Revenue quality data preferred and (b) Acceptable SCADA integrated by ERCOT or the TDSP used on a temporary basis (no more than one month) (c) Minimum installation requirements of new IDR meters for the sole purpose of UFE Analysis (5) Zonal criteria (TDSP areas, weather, profiling, etc.) • Based on the existing data, ERCOT will determine all zones that can be defined, and will determine which data is to be stored by ERCOT for UFE analysis purposes.

44. Section 11.5.2.1 (con’t) • The UFE analysis team will determine the initial set of UFE Analysis Zones no later than December 01, 2001 but as soon as practical to provide adequate time for installation of any required metering. • The cost of installing any metering solely for UFE analysis purposes will be recovered through the ERCOT System Administration Fee. • A TDSP shall not remove and shall maintain existing metering facilities that have the potential to define UFE zones, as defined by ERCOT, until such time as UFE analysis zones have been defined according to this Protocol section.

45. Section 11.5.2.2 • Section 11.5.2.2 The UFE analysis team will perform the following steps to identify factors that are contributing to UFE: (1) Calculate UFE for UFE Analysis Zones as described above; (2) Compare ERCOT-wide UFE to UFE within UFE Analysis Zones; (3) Determine possible causes of abnormal UFE; (4) Work with the appropriate Entities to rectify UFE problems when possible; (5) Determine if UFE Analysis Zones need to be modified to identify UFE problems; (6) Perform analysis going forward that will include the additional UFE Analysis Zones;

46. Section 11.5.2.3 • 11.5.2.3 Determine if UFE Zones are necessary, and if so, identify the appropriate zones and the associated implementation cost; • If UFE problems persist through the analysis phase, the UFE analysis team will make a recommendation of proposed UFE Zones according to the following guidelines: (1) Cost-benefit analysis; (2) Installation requirements for Revenue Quality Meters; (3) Impact on the settlement system; (4) Impact on Market Participant systems; (5) Cost of UFE to Market Participants;

47. Section 11.5.2.4 11.5.2.4 The UFE analysis team will provide an implementation plan for the proposed UFE Zone(s). Post UFE analysis findings to Market Participants on a monthly basis; • The UFE analysis team will determine the content of the monthly reports. The reports will be posted monthly for Market Participants. • ERCOT will post the following information on the MIS on the same date that other monthly system information is made available for each Settlement Interval during the month, which may include: (1) Total ERCOT-wide UFE MWhs, UFE cost, and percent of total interval MWhs (2) ERCOT-wide UFE MWhs, UFE cost, and percent of total interval MWhs allocated to UFE allocation categories (3) Each UFE allocation categories’ UFE MWhs, zonal UFE cost, and percent of total interval MWhs for each UFE Analysis Zone (4) Results of any monthly UFE Analysis (5) Notice of any factors that may be contributing to UFE, by UFE Analysis Zone (6) Notice of any plan to rectify factors that may be contributing to UFE, by UFE Analysis Zone • ERCOT will facilitate quarterly Market Participant discussion groups to report findings and gather input for areas of further analysis.

48. Section 11.5.2.5 • Provide a recommendation to the ERCOT Board by April 2003 • The UFE analysis team will present a recommendation to the ERCOT Board by April 2003. • By the end of April 2003, ERCOT will provide a report to the ERCOT Board and Market Participants, which provides the following: (1) Summaries of all prior UFE analysis; (2) Factors that have contributed to UFE, by UFE Analysis Zone; (3) Recommendations for UFE Zones (including cost analysis); and (4) Proposed UFE Zone implementation plan (if recommended).

49. Section 11.5.3 • 11.5.3 Data Collection and Metering Requirements For UFE Analysis Zones • TDSP’s have the option of either supplying zonal interval meter data to ERCOT, or providing remote interrogation for ERCOT to directly read the meter on demand. Temporary telemetry arrangements through SCADA may be integrated by either the TDSP or ERCOT. SCADA data will not be used for more than one month for purposes of UFE analysis. • If a UFE Analysis Zone can be created with the addition of minimum metering expense, ERCOT will require the TDSP to install the meter. All meters on the ERCOT Transmission Grid used to define UFE Analysis Zones will be installed, maintained, and read by the associated TDSP. If the meters have the ability to be remotely interrogated, ERCOT can directly read these meters. • ERCOT will be provided remote access to the UFE Analysis meter in accordance with Section 10, Metering, of these Protocols. If the TDSP does not provide for remote interrogation, the TDSP will be required to submit meter data to ERCOT in the same manner defined in Section 10, Metering, of these Protocols. TDSP’s will provide meter data in the same format and method that retail interval meter data is submitted specified in Section 19, Texas SET, of these Protocols. Furthermore, the TDSP is responsible for meeting the time synchronization requirement in accordance with Section 10, Metering, of these Protocols.

50. Section 13.4.2 Deemed Actual Transmission Losses for UFE Analysis • Net Generation data used for UFE analysis zones that contains transmission facilities behind any metering points will be adjusted to the ERCOT wide transmission loss factor. This adjustment requires reducing the Net Generation by the calculated “actual” MWh of transmission losses and adding back the ERCOT Wide transmission loss factor translated into a MWh value. ERCOT will provide the calculation of the “actual” Transmission Losses behind the UFE zonal meters, for each interval, to settlement using actual system conditions for that interval. • The “actual” transmission losses for UFE analysis zones shall be a linear interpolation or extrapolation between the seasonal on-peak and the seasonal off-peak UFE analysis zone transmission loss factors corresponding to the actual UFE analysis zone metered load in the interval. • ERCOT shall calculate seasonal UFE analysis zones Transmission Loss Factors corresponding to the on peak and off peak base case system loads during each of the four seasons of the upcoming year as the basis for the UFE analysis zone Transmission Loss Factors. UFE analysis zone seasonal loss factors will be calculated in the same manner as the loss factors are calculated for the ERCOT wide transmission loss factors.