T&D Losses

1. T&D Losses Reflecting Losses in DR within ERCOT Settlements September 20, 2012

2. Losses Introduction • The proposal is to adjust metered load for Load Resource and ERS participants to account for the true impact this demand reduction has on the ERCOT grid. • The concern is that there may be impacts to ERCOT settlements that have not been considered. • Following are settlement depictions to indicate that no such settlement concerns exist. Reflecting T & D Losses in DR 08-22-12

3. LR Settlements – Current / No Proration Self-arranged generation Self-arranged LR Offered generation Offered LR $5,000 $5,000 ERCOT 500 MWs 800 MWs 1,000 MWs 500 MWs 500 MWs 500 MWs $10,000 QSEs for short LSEs • Through ERCOT settlement, QSEs pay for ancillary service MWs they are short. • The MWs are procured in the DAM and cleared at the MCPC for that AS. • QSEs will only self-arrange up to their total obligation. This price paid by the QSE is a bilateral price outside of ERCOT instead of paying ERCOT the MCPC. • This example assumes 2,800 MWs of RRS at an MCPC of $10. Reflecting T & D Losses in DR 08-22-12

4. LR Settlements – With Adjustment / No Proration Self-arranged generation Self-arranged LR Offered generation Offered LR $4,740 $5,100 ERCOT 474MWs 816 MWs 1,000 MWs 510 MWs 474 MWs 510 MWs $9,840 QSEs for short LSEs • This example assumes the increase in LR self-arranged volumes due to the adjustment is able to be used for QSE obligations (which will not always be possible). • Assuming a loss adjustment of 2%, this reduces the total procurement of MWs by ERCOT to 982 MWs. • Assuming $0 offers from LR, the increased volumes from the loss adjustment in both self-arranged and offered LR will displace 28 MWs of RRS from generation. While not assumed here, it is possible this will have a downward impact of the MCPC. Reflecting T & D Losses in DR 08-22-12

5. LR Settlements – Current / with proration Self-arranged generation Self-arranged LR Offered generation Offered LR $4,000 $6,000 ERCOT 400 MWs 800 MWs 1,000 MWs 600 MWs 400 MWs 600 MWs $10,000 QSEs for short LSEs • This example assumes both the self-arranged LR is maximized and that LRs are either just at maximum, or more likely, being prorated by some percentage to stay within the 50% limitation (1,400 MWs). Reflecting T & D Losses in DR 08-22-12

6. LR Settlements – With Adjustment / with proration Self-arranged generation Self-arranged LR Offered generation Offered LR $4,000 $6,000 ERCOT 400 MWs 800 MWs 1,000 MWs 600 MWs 400 MWs 600 MWs $10,000 QSEs for short LSEs • Because the self-arranged LR was at its maximum, there is no increase in these volumes. It is possible that some resources are now free to offer in the DAM. • The increase in the volumes from the offered LR, including any new resources that would have been self-arranged without the adjustment, only serve to increase the percentage of proration. It does not change the MCPC nor displace any generation-supplied RRS. Reflecting T & D Losses in DR 08-22-12

7. Bottom Line - LR • While the loss adjustments may change the percentage of MWs between self-arranged / offered and between LR / generation, the funding mechanisms will stay the same – bilateral costs of self-arranging QSEs and MCPC of QSEs procuring through the DAM. • ERCOT remains revenue neutral. • The impacts to a REP / customer of reduced consumption during LR deployment would not change. REPs will still continue to bill for energy consumption based upon adjusted metered load. In other words, if a 10 MW metered load goes to zero during a deployment, it does not matter to the REP whether that LR receives 10 MWs or 10.2 MWs of LR payment. Reflecting T & D Losses in DR 08-22-12

8. ERS Settlements – Current Self-arranged ERS Generation Self-arranged ERS Load Offered ERS Generation Offered ERS Load $500 $4,000 ERCOT 50 MWs 50 MWs 50 MWs 400 MWs 50 MWs 400 MWs $4,500 QSEs for short LSEs • Through ERCOT settlement, QSEs pay for ERS MWs they are short. • The MWs are procured by contract / time period and are either paid at offer price (ERS10) or at clearing price (ERS30). • QSEs will only self-arrange up to their total obligation. This price paid by the QSE is a bilateral price outside of ERCOT instead of paying ERCOT weighted average procurement price (ERS10) or clearing price (ERS30). • This example assumes a clearing price of $10 (the total dollars hold true for ERS10) and one hour, but applies to the contract period / time period. Reflecting T & D Losses in DR 08-22-12

9. ERS Settlements – With Adjustment Self-arranged ERS Generation Self-arranged ERS Load Offered ERS Generation Offered ERS Load $500 $4,200 ERCOT 50 MWs 52.5 MWs 50 MWs 420 MWs 50 MWs 420 MWs $4,700 QSEs for short LSEs • This example assumes the increase in LR self-arranged volumes due to the adjustment is able to be used for QSE obligations (which will not always be possible). • Assuming a loss adjustment of 5%, this increases the total procurement of MWs by ERCOT from 550 MWs to 572.5 MWs. Reflecting T & D Losses in DR 08-22-12

10. Bottom Line - ERS • While the total MW procurement will increase, the funding mechanisms will stay the same – bilateral costs of self-arranging QSEs and weighted average / clearing price from ERCOT procurement. • ERCOT remains revenue neutral. • The impacts to a REP / customer of reduced consumption during ERS deployment would not change. REPs will still continue to bill for energy consumption based upon adjusted metered load. In other words, if a 10 MW metered load goes to zero during a deployment, it does not matter to the REP whether that ERS receives 10 MWs or 10.5 MWs of ERS payment. Reflecting T & D Losses in DR 08-22-12

11. Chair Contact Information • Tim Carter • 713-646-5476 • tim.carter@constellation.com Reflecting T & D Losses in DR 08-22-12