Updated Cost/Benefit Analysis for PRR 5673 Part A/S Bidding

Proposed Methodology

2

Today’s Presentation

• Analysis of historical MCPC (past 12 months, November 2004 – October 2005)

• Methodology for extracting market cost savings by season

• Next Steps

3

Historic MCPC Analysis for Reg Up and Responsive

• Normalize hourly capacity prices to $7.40/mmBtu gas by taking Gas Daily HSC (i.e. MCPC/Actual HSC x $7.40)

• Examined 3 different threshold prices that may be perceived to be “high” ($40/MW, $50/MW and $60/MW)

• Counted the days in the month where at least one hour exceeded the “high” threshold price.

• Define seasons as:

– Winter (Nov, Dec, Jan, Feb)

– Summer (May, Jun, Jul, Aug, Sep)

– Shoulder (Mar, Apr, Oct)

4

RegUp-Jan 05

0

20

40

60

80

100

120

140

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hours

$/M

W

5

Responsive-Jan 05

0

15

30

45

60

75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hours

$/M

W

6

Regulation Up

0

5

10

15

20

25

30

35

N 04 D 04 J 05 F 05 M 05 A 05 M 05 J 05 J 05 A 05 S 05 O 05

Over $40Over $50Over $60

No. of Days

7

Responsive Reserve

0

5

10

15

20

25

30

N 04 D 04 J 05 F 05 M 05 A 05 M 05 J 05 J 05 A 05 S 05 O 05

Over $40Over $50Over $60

No. of Days

8

Calculation of Cost Savings

Calculation is a manually-intensive process (uses data from several different data sources on the ERCOT web site)

Proposed methodology:

• Select three (3) “typical” actual days from each of the 3 seasons (summer, winter, and shoulder) for total of 9 days:

– one day will have a significant number of high priced hours,

– one with a moderate number of high priced hours, and

– one with only a few high priced hours

• Gather hourly MCPE, MCPC, A/S purchased by ERCOT from QSE’s, and A/S bid stacks for Reg Up and Responsive Reserve for each of these days as well as the day ahead gas price for HSC (from a published source)

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Calculation of Cost Savings (continued)

• Calculate a Responsive and a Reg Up bid for two different types of generating units:

1. conventional steam 2. combined-cycle combustion turbine

• Insert these bids into the actual Responsive and Reg Up supply stack and re-clear the RRS and URS markets for all hours in the day.

• Calculate daily savings based on the lower MCPC resulting from the new bid stack (taking into account any required “make whole payments” to the added units, if any).

• Average the daily savings for each season using the 3 typical days within the season.

• Calculate estimated seasonal savings for each threshold price by multiplying the average seasonal daily savings by the number of days with prices above the threshold price (based on the historic MCPC analysis).

• Sum the seasonal cost savings for the 12 months.

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Conservatism in this methodology

• Methodology assumes only one additional unit will come to the market

– In reality, a significant number of additional units should bid into the market that were not bid previously due to the current risk of being dispatched sporadically.

• Calculates savings for only a limited number of days.

– In reality, the presence of more resources bidding into the market associated with PRR 567 will likely effect some hours in every day of the year.

11

Next Steps

• Week of December 12: TXU completes revised analysis based on proposed methodology and distributes results to TAC and PRS.

• Prior to January 2006 TAC meeting: Hold stakeholder meeting to review and achieve consensus on the analysis and calculation of benefits, and update CBA to reflect updated benefits.

• January 2006 TAC meeting: TAC reviews revised CBA and modifies priority and ranking (if appropriate).

• January 2006 ERCOT Board Meeting: Board reviews and approves PRR 567, the revised CBA, priority and ranking (if applicable).

12

Questions?

13

Responsive-Nov 04

0

15

30

45

60

75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

RegUp-Nov 04

0

25

50

75

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Winter

14

RegUp-Dec 04

0

25

50

75

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Responsive-Dec 04

0

15

30

45

60

75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Winter

15

Responsive-Jan 05

0

15

30

45

60

75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

RegUp-Jan 05

-15

5

25

45

65

85

105

125

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Winter

16

RegUp-Feb 05

0

10

20

30

40

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90

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Responsive-Feb 05

0

15

30

45

60

75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Winter

17

Responsive-Mar 05

0

15

30

45

60

75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

RegUp-Mar 05

0

10

20

30

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50

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80

90

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Shoulder

18

RegUp-Apr 05

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10

20

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80

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100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Responsive-Apr 05

0

15

30

45

60

75

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Shoulder

19

Responsive-May 05

0

20

40

60

80

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

RegUp-May 05

0

15

30

45

60

75

90

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Summer

20

RegUp-Jun 05

0

25

50

75

100

125

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Responsive-Jun 05

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Summer

21

Responsive-Jul 05

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

RegUp-Jul 05

-15

5

25

45

65

85

105

125

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Summer

22

RegUp-Aug 05

-15

5

25

45

65

85

105

125

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Responsive-Aug 05

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Summer

23

RegUp-Sep 05

0

25

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75

100

125

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Responsive-Sep 05

0

25

50

75

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Summer

24

Responsive-Oct 05

0

25

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75

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

RegUp-Oct 05

0

25

50

75

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Shoulder