RMR Task ForceRMR Task Force

Decision Points forDecision Points for

ERCOT Technical Advisory ERCOT Technical Advisory CommitteeCommittee

April 3, 2003April 3, 2003

Six Issues to be ResolvedSix Issues to be Resolved

Criteria/ProcessRMR CategoriesCompensation LevelCost AllocationTransmission Planning ProcessEconomic Trade-Offs

ProcessProcessRMR TF provided options for the six

concerns to PRSPRS reviewed and made recommendationsTAC considers PRS recommendations and

decides on high level options for the open issues (Decision Points)

TAC decisions guide language finalizationPRR returns for TAC/BOD approval in

May

Decision PointDecision PointCriteria/Process

– Allows for multi-year contracts if significant capital expenditures required

– CCGTs treated as a single unit unless separate operation possible

– Qualification for RMR Applicant Applicant attestation that resource is uneconomic to

remain in service Unavailable at least 180 days

Decision PointDecision PointCriteria/Process

– Treatment of RMR ApplicantNon-selected applicant prohibited from

future use unless reinstated during suspension period

– ERCOT not accept schedules or bids during suspension period

– ERCOT may reinstate under certain circumstances

– Owner may petition PUC for reinstatement

Decision PointDecision PointCriteria/Process

– RMR Replacement OptionsERCOT to report on cost-effective

replacement options 90 days after executionIf a cost-effective replacement option exists,

ERCOT will establish an implementation timeline

PRS RecommendationPRS RecommendationNon-selected RMR applicant would not be

prohibited from operating in the market after ERCOT rejects the application– Fits with the “Cost Plus” methodology

Accept other provisions

Decision PointDecision Point

RMR Categories– Short-term RMR Need (180 days during off-

peak season only)– Annual RMR Need

PRS RecommendationPRS Recommendation

Accept both seasonal and annual RMR concepts and reflect in pricing

Decision PointDecision Point

Compensation Level Proposals – Short-Term Contract– Owner compensated for costs avoided by

seasonal mothballing– Owner provides cost information to ERCOT

Decision PointDecision Point

Compensation Level Proposals – Annual Contract– Proxy Price

Uses existing structure with lower payment components (Standby Price at 55% of SCGT; Change in fuel heat rate calculation)

Decision PointDecision PointCompensation Level Proposals

– “Cost Plus” Initial monthly payments based on estimate of eligible

costs then adjusted to actual 10% Incentive Factor applied to non-fuel eligible costs Eligible Costs include labor, materials and supplies to

operate the unit Eligible Costs do not include return on equity, G&A,

allocated general plant, taxes, interest expense, etc. Fuel also based on estimate of cost with true-up Eliminates start-up payment

PRS RecommendationPRS Recommendation

Adopt short-term pricing at costAdopt “cost plus” methodology

Decision PointsDecision Points

Cost Allocation– Options Available

Proposal to allocate local congestion costs, including RMR, on a more local basis

Continue ERCOT-wide uplift of all congestion costs, except for CSC congestion

PRS RecommendationPRS Recommendation

RMR TF not to address the cost allocation issue

Resolved IssueResolved Issue

Transmission Planning Process– Reviewed the developing ERCOT transmission

planning process– Provided input concerning openness and

communication– Reported to TAC

ERCOT already implementing with announcement of transmission planning meetings

Issue Being AddressedIssue Being Addressed

Economic Trade-Offs– Reviewed RMR/OOM Pricing– Goal is to align incentives between market and

OOM/RMR RMR should not be an economic alternative to OOM or the

market ERCOT should not have an incentive to overly rely on RMR

– RMR TF concluded OOMC needs to be addressed Evaluating proposals