Discussion Points On PRR 396

General Comments

• While we have made considerable progress, the protocols is not ready for approval/publication at this time.

• Implementing something that is cheaper, but broken is not in the best long-term interest of the ERCOT market.

• We do not believe the proposed RMR changes represent an agreement that a responsible generator could accept.

Examples of PRR 396 Problems

• Cost eligibility and the process for cost recovery is not clearly defined. – Language intended to clarify eligibility of non-fuel cost

inappropriately excludes some expenses. Such exclusions will lead to either a failure to recover appropriate expenses and/or perform maintenance necessary to ensure target availability of the unit.

– References intended to be clarification in the fuel cost recovery provisions, instead refer to sections discussing specifically non-fuel cost.

– Such ambiguity will only lead to disputes.

Examples of PRR 396 Problems

• Performance targets and penalties fail to recognize the change in the structure of the RMR agreement.– The availability of a unit is dependant upon the maintenance

performed. The protocol contemplates an 85% availability target, but the cost recovery provisions are not clear that the expense required to achieve such a target will be recoverable.

– The penalties for failing to meet the target availability reduce the Standby Payment, not just the Incentive Factor (margin). This could quickly turn the meager profit provided for under the agreement into a loss.

Recommendation

• The Board should remand PRR 396 to TAC and PRS for further work.

• This continuing effort should utilize the existing language as a starting point. The objective being to review and clarify the changes so that in aggregate they: (1) are capable of being administered by ERCOT; and (2) provide assurance of payment and profit to an RMR resource owner.

Other Items

• Cost eligibility and verification need to be clarified.

• 90 day termination language needs to be clarified and/or eliminated.

• Proposed revisions to the outage scheduling need to be taken into consideration.

• Proposed compensation level is low and need to be revisited. The Incentive factors inconsistent with compensation levels for OOM services and the remaining risks in providing RMR services.

• Updating of fuel cost needs to be much more frequent or eligible costs need to include fuel supply contract reservation costs that would be required to provide for fixed fuel prices.

• RMR payments should not be subjected to short payments.