Recovery of Additional Costs for OOME Down for Wind Resources

Market Operations Bulletin #9 – December 13, 2002

A. Background

Section 6.8.2.3(5) of the ERCOT Protocols provides guidelines on compensating OOME Down Service when a Wind Resource is called upon to provide that service and the QSE believes the normal payment for OOME Down Service does not cover the actual verifiable costs of the unit which provided the service (“Subject Unit”). Pursuant to the Protocol, the QSE can ask for a payment in addition to the amount it received as part of the original settlement process. The Protocol reads as follows: If a wind Resource is called upon to provide OOME Down Service and the normal payment for OOME Service is insufficient to cover actual verifiable costs of providing the service, then that Resource may file a claim with ERCOT to be paid the lower of: (a) All verifiable costs that are directly attributable to the OOME service; or (b) MaxCap * CCF * Curtail% * Hrs *CRP The verifiable costs of providing the service shall be provided to ERCOT in writing from the QSE, certified by an authorized representative of the Resource and within a timeframe to allow resolution by the end of the dispute process for Settlement True-Up. Verifiable costs under section (a) above shall be based on the actual verifiable MW production that the unit could have produced based on actual operating and maintenance conditions and actual wind speeds. Verifiable costs must be established in order for a claim to be valid even if paid under method (b) above. A wind Resource filing a claim under this Section 6.8.2.3(5) must provide actual production and actual wind speed data for the entire month of the claim. ERCOT will review this data for all hours of the month. In the event ERCOT determines that it paid the Resource for any OOME down service in any hour of the month that the actual wind speed data show could not have actually been provided, then ERCOT shall deduct any such excess payment from the payment otherwise payable under (a) or (b) above. A wind Resource filing a claim under Section 6.8.2.3(5) shall also provide an affidavit indicating that the wind Resource, or its Affiliate(s), has tax liability sufficient to fully utilize any lost credits claimed to offset taxes for the year in which the credit would have been received. This document describes the methodology for compensating QSEs who schedule Wind Resources when the QSE believes the OOME Down payment is insufficient to cover all the costs of providing the Service. The document also provides several examples.

B. OOME Down Recovery Cost Verification Procedures

In implementing this Protocol, the following should take place:

Market Bulletin 9 – OOME Down recovery cost for wing energy December 13, 2002 1) The QSE provides ERCOT in writing the verifiable costs of providing the service if its Wind Resource is called to provide OOME Down Service and the payment for the service is insufficient to cover all the costs of providing the service. The information that the QSE should provide includes:

a) The deployment instruction received from ERCOT to provide OOME Down service. b) The specific ERCOT assigned name of the Unit which received the instruction and provided OOME Down service. c) The settlement interval ending time for the interval the Unit provided OOME Down service (“Subject Interval”). d) Actual wind speed data for that interval. e) The Unit’s performance curve (wind power vs. wind speed). Test data and/or Manufacturer’s manual should be provided in sufficient detail if needed to allow for validation of the performance curve provided. f) IOL: Instructed Output Level for the Subject Interval. g) MR: Meter Reading of the Unit for the Subject Interval. h) MOL: Maximum Output Level according to wind speed for the Subject Interval. i) Production Tax Credit (PTC). The QSE should provide verifiable support documentation sufficient to support its claim for this item. j) Renewable Energy Credit (REC). The QSE should provide verifiable support documentation sufficient to support its claim for this item. k) The QSE should provide verifiable support documentation for any other costs for which it seeks compensation.1 l) OOME Down payment to the QSE in the current Settlement Statement.

2) The concept behind the Protocol revision was: First step: (1) determine the amount the QSE received as part of the current settlement for the OOME Down Service from the Subject Unit; (2) determine whether the MOL was either higher or lower than the POL submitted by the QSE for the Subject Unit for that interval. ERCOT will calculate the amount of money the QSE should have been paid depending on whether its POL for the Subject Unit closely matched the MOL of the Subject Unit.2 1 All verifiable information must be entered into the format of ERCOT’s provided “Verifiable Cost of OOME Down for Wind Energy” template. This means the format of the template spreadsheet must not be changed (i.e. no additional rows or columns). Any additional costs per interval not shown in ERCOT’s template format must be listed in the column “Add’l Costs” and linked to support documentation in an additional tab in the template’s spreadsheet. 2 In the current Settlement, the QSE will have received payment for the number of MWhs based on the difference between the minimum of: (i) the POL minus the meter reading, or (ii) the POL minus the Instructed Output Level. Occasionally, a QSE’s POL for a wind unit will be higher than the MOL. In those instances, the market will “recoup” the over-payment (because the Subject Unit could not have operated at the level shown in the Resource Plan). Alternatively, if the MOL is higher than the POL, in order to encourage forecasting output levels which closely match wind forecasts, the market will pay the QSE for the MWhs above the POL at which the Subject

Market Bulletin 9 – OOME Down recovery cost for wing energy December 13, 2002 Second step: the QSE will receive compensation for any additional costs associated with the OOME Down instruction not covered by the original OOME Down settlement payment (e.g. lost Production Tax Credits and Renewable Energy Credits), subject to a cap. The QSE may include in its submittal to ERCOT any verifiable costs for which it seeks compensation. The examples used in this document are not intended to be exclusive.

(a) Therefore, the formula for the first step of the procedure will be:

Verifiable OOME Down Payment Based on MOL – OOME Down Payment in Current Settlement Statement  [Min(MOL/4-MR, MOL/4-IOL/4)*MCPE] – OOME Down Payment in Current Settlement Statement3

This calculation will either lead to an adjustment up (if MOL exceeded POL) or an adjustment down (if POL exceeded MOL) of the current Settlement made to the QSE for a certain interval. All interval adjustment amounts will be summed up to obtain the monthly adjustment up or down of the original payment made to the QSE for that month.

(b) The formula for the second step of the procedure will be:

[Min(MOL/4-MR, MOL/4-IOL/4)*(PTC + REC+X4)]

This calculation will compensate the QSE for the lost PTC, REC and other costs associated with the OOME Down instruction for that interval (subject to a cap). All interval values will be summed up to obtain the monthly Verifiable Recovery Payment for PTC, REC, and other costs associated with the OOME Down instructions in that month.

Then, ERCOT will calculate the monthly OOME Down Recovery Payment Cap:

MaxCap * CCF * Curtail% * Hrs *CRP

Where: MaxCap: Registered Maximum Capacity of the Resource (MW) CCF: Capacity Conversion Factor (defined as 30%) Curtail%: 15% for the period July 1, 2002 through June 30, 2003;

Unit could have run. 3 The second part of this equation represents the original settlement payment to the QSE for the OOME Down Service. 4 The term “X” here is intended to refer to any additional costs for which the QSE seeks compensation.

Market Bulletin 9 – OOME Down recovery cost for wing energy December 13, 2002 10% for the period July 1, 2003 through June 30, 2004; and 5% from July 1, 2004 and thereafter Hrs: Total number of hours in the month during which the QSE provides OOME Down service CRP: Price paid for curtailment, $27/MWH

ERCOT will then apply the cap to the calculated compensation amount for PTC, REC, and any other additional costs:

Min[Total Monthly Verifiable Recovery Payment to QSE(PTC + REC + Add’l Costs), monthly OOME Down Payment Cap)

(c) ERCOT will calculate the monthly incremental OOME Down Recovery Payment to QSE:

Monthly Incremental OOME Down Recovery Payment to QSE Monthly Sum [Verifiable OOME Down Payment Based on MOL - OOME Down Payment to QSE in Current Settlement Statement] + Min[Monthly Verifiable Recovery Payment(PTC + REC + Add'l Costs), OOME Down Recovery Payment Cap] Monthly Sum [(MCPE * Min(MOL/4 - MR, MOL/4 - IOL/4) - OOME Down Payment to QSE in Current Settlement Statement)] + Min{monthly sum[(PTC + REC + Add'l Costs) * Min(MOL/4 - MR, MOL/4 - IOL/4)], (MaxCap * CCF * Curtail% * Hrs * CRP)}

(d) ERCOT will also verify all information and documentation provided by the QSE.

C. Examples

The following examples are intended to assist in understanding the process. Only one hour, instead of one month, of data is considered in the example. It is assumed that POL, MOL, and IOL are the same for the four intervals in the hour in the example:

(a) Hypothetical #1

Assumptions: (POL/4) * 4 = 10 PTC = $27 (MOL/4) * 4 = 8 REC = $16 MR * 4 = 6 MaxCap = 30 (IOL/4) * 4 = 0 Hrs in Month = 744 MCPE = $24

Calculations:

Original OOME Down Payment to QSE = [Min(POL/4-MR, POL/4-IOL/4)*4*Max(0,MCPE)] [Min(10-6,10-0)*Max(0,24)] [4*24] $96

Market Bulletin 9 – OOME Down recovery cost for wing energy December 13, 2002 First step:

[Min(MOL/4-MR, MOL/4-IOL/4)*4*MCPE] – [Min(POL/4-MR, POL/4-IOL/4)*4*Max(0,MCPE)] [Min(8-6,8-0)*24] – [Min(10-6,10-0)*Max(0,24)] [2*24] – [4*24] 48 – 96 -$48

As a result, ERCOT will adjust the Original OOME Down payment to the QSE from $96 to $48.

Second Step: [Min(MOL/4-MR, MOL/4-IOL/4)*4*(PTC + REC)] [Min(8-6,8-0)*(27+16)] [2*43] $86

Calculation of Cap on incremental payments (“OOME Down Payment Cap”):

MaxCap * CCF * Curtail% * Hrs *CRP (30*.30*.15*744*$27)/7445 $36.45

Because the OOME Down Payment Cap ($36.45) is less than the calculated incremental payment ($86), the OOME Down incremental payment is adjusted down to $36.45.

Final Total Payment to QSE = $48 + $36.45 = $84.45 Incremental Recovery Payment to QSE = $84.45 – $96 = $-11.55

(b) Hypothetical #2

Assumptions: ROL = 10 PTC = $27 MOL = 12 REC = $16 MR = 6 MaxCap = 30 IOL = 0 Hrs in Month = 744 MCPE = $24

Calculations:

Original OOME Down Payment to QSE = [Min(POL/4-MR, POL/4-IOL/4)*4*Max(0,MCPE)] [Min(10-6,10-0)*Max(0,24)] [4*24] $96

First step:

5 The OOME Down Payment Cap is calculated for a month (i.e. 744 hours for a month with 31 days); this calculation is for one hour and, therefore, the OOME Down Payment Cap formula is divided by 744.

Market Bulletin 9 – OOME Down recovery cost for wing energy December 13, 2002 [Min(MOL/4-MR, MOL/4-IOL/4)*4*MCPE] – [Min(POL/4-MR, POL/4-IOL/4)*4*Max(0,MCPE)] [Min(12-6,12-0)*24] – [Min(10-6,10-0)*Max(0,24)] [6*24] – [4*24] 144 – 96 +$48

As a result, ERCOT will adjust the Original OOME Down payment to the QSE from $96 to $144.

Second Step: [Min(MOL/4-MR, MOL/4-IOL/4)*4*(PTC + REC)] [Min(12-6,12-0)*(27+16)] [6*43] $258

Calculation of Cap on incremental payments (“OOME Down Payment Cap”):

MaxCap * CCF * Curtail% * Hrs *CRP (30*.30*.15*744*$27)/7446 $36.45

Because the OOME Down Payment Cap ($36.45) is less than the calculated incremental payment ($258), the OOME Down incremental payment is adjusted down to $36.45.

Final Total Payment to QSE = $144 + $36.45 = $180.45 Incremental Recovery Payment to QSE = $180.45 – $96 = $83.55

D. OOME Down Recovery Cost Calculation Spreadsheet

A QSE should request the OOME Down Recovery Cost Calculation spreadsheet from ERCOT’s client relations department and submit OOME Down Recovery Costs for each month. The spreadsheet includes six tabs: 1. Signature Page. A responsible party from a QSE who submits claims for OOME Down Recovery Costs needs to sign this page to affirm that the Out-of-Merit Energy (OOME) deployment information submitted for this ERCOT settlement period is complete, true and correct to the best of the responsible party’s knowledge and that any and all documentation (invoices, contracts, calculations, tests) are true and available for audit. 2. Template and Instruction. This tab provides detailed instructions (in addition to this document) for the QSE to submit a claim for OOME Down Recovery Costs in a standard format. 3. OOME Down Recovery Costs. This tab is where the QSE provides detailed deployment information on OOME Down deployment and calculation of OOME Down Recovery Costs. This should be done interval by interval.

6 The OOME Down Payment Cap is calculated for a month (i.e. 744 hours for a month with 31 days); this calculation is for one hour and, therefore, the OOME Down Payment Cap formula is divided by 744.

Market Bulletin 9 – OOME Down recovery cost for wing energy December 13, 2002 4. MOL Support Documents. The QSE should use this tab to provide support documents for its claimed MOL (Maximum Output Level based on actual wind speed). If multiple wind units have provided OOME Down services, then the QSE must provide a performance curve (output vs. wind speed) for each unit and related support documents. 5. PTC Support Documents. The QSE should use this tab to provide support documents for its claimed Production Tax Credit. 6. REC & Add’l Costs Support Docs. The QSE should use this tab to provide support documents for its claimed Renewable Energy Credits and any other costs for which it seeks compensation.

Market Bulletin 9 – OOME Down recovery cost for wing energy December 13, 2002