Texas Nodal Market Implementation TPTF Readiness Advisor November 29, 2006

1. Texas Nodal Market ImplementationTPTFReadiness AdvisorNovember 29, 2006

2. AGENDA • Overview of approach taken at MISO • Contrast MISO situation with ERCOT situation • Approach recommended for ERCOT readiness advisor function • Schedule of readiness advisor activities over the next 12 weeks

3. Readiness Advisor Team • Steve Balser • Jesse Harmon • Don McCormick

4. Readiness Advisor Readiness Advisor at the Midwest ISO

5. Readiness Advisor at the Midwest ISO MISO engaged in a dialogue with its members and stakeholders to provide a greater degree of transparency and certainty about its commitment to successfully launch its energy markets • One common characteristic of well-run projects is that they have specific interim goals or milestones which can be identified and measured so that progress toward achievement of an ultimate objective can be transparently understood. • The Midwest ISO stakeholders requested that additional milestone reports be disseminated so that the stakeholders can better monitor the Project’s progress. • This resolution also requested that the Midwest ISO make monthly reports to the Advisory Committee regarding progress towards satisfying such performance criteria. • In an attempt to respond to stakeholders’ requests for additional milestone and metrics reports, the Midwest ISO conducted a series of stakeholder consultations to determine the milestones and related performance criteria stakeholders believe should be used to evaluate the Project’s progress in each milestones report • The MISO’s interaction with stakeholders, including especially the Transmission Owners Core Working Group (“TOCWG”), led to development of a set of Readiness Metrics • Accordingly, the Midwest ISO agreed with the TOCWG and the RA that a Metric Interpretive Guidance document (“MIG”) would be created for each metric to clarify its meaning, as well as to identify the principal pieces of information that would be considered to determine whether or not the metric had been met and the specific standards against which each piece of relevant information would be judged. • Another feature of the MISO’s metrics process is the development of a completion review processby the MISO for each metric, once the MISO believes that the metric has been completed. Input to the review process summarizes the evidence that demonstrates completion. Once the review process for each metric is completed and has passed internal MISO review, it is then provided to a Readiness Advisor for further review and verification of whether or not the metric has indeed been successfully completed.

6. Readiness Advisor at the Midwest ISO The Readiness Advisor was formed as an independent advisor to the Midwest ISO (MISO) senior management, MISO Board of Directors, MISO Market Participants, and the Organization of MISO states on the status of preparation of activities leading up to and including launch of the day-ahead and real-time energy markets. Readiness Advisor Activities • Facilitate the development of metrics with the Metric Interpretive Guidance Task Force (MIGTF) • Examine the evidence for each Metric and render the decision of when the Metric has been verified as met • Follow up with MISO on any outstanding questions or issues that are preventing the completion of Metric verification • Provide regular periodic readiness assessments to the CEO and the MISO Board of Directors and Stakeholders • Produce regular interim reports that cover all milestones and metrics, providing information such as (and not limited to), any observed issues potentially impeding progress • Produce an Executive Reportprior to the start of Market Trials and send the report to all stakeholders in advance of its final presentation • Produce an Executive Report prior to the launch of the Markets and send the final report to all stakeholders in advance of its final presentation • Provide presentations on readiness to the CEO and the Board of Directors and the Advisory Committee and the Organization of MISO States as requested

7. Readiness Advisor at the Midwest ISOOrganization

8. Readiness Advisor at the Midwest ISOOrganization • Market Participants Representing 15 states and 1 Canadian Province • Presented Readiness Status Monthly • Met with as requested

9. Readiness Advisor at the Midwest ISOOrganization • 30+ member committee representing the Market Participants and Organization of MISO States • Presented Readiness Status Monthly as part of standing agenda

10. Readiness Advisor at the Midwest ISOOrganization • Organization of state regulators within MISO footprint • Presented Readiness to OMS on an “as required” basis • Interacted with frequently on FERC filings

11. Readiness Advisor at the Midwest ISOOrganization • MISO Board of Directors meet monthly • Presented Readiness Status Monthly as part of BOD standing agenda

12. Readiness Advisor at the Midwest ISOOrganization • MISO CEO and Direct Reports • Report Readiness Project Status weekly • Met frequently

13. Readiness Advisor at the Midwest ISOOrganization • MISO personnel responsible for metric development and completion • First line of communication for Readiness Advisor during the verification process, observations and interviews

14. Readiness Advisor at the Midwest ISOOrganization • Task force consisting of MISO personnel, Market Participants and OMS members acting as final authority of metric development • Provided SME expertise for MIGTF monthly and adhoc meetings

15. Readiness Advisor at the Midwest ISOOrganization • Federal Energy Regulatory Commission • Available to FERC personnel for Readiness Status on an as-required basis

16. Readiness Advisor at the Midwest ISOOrganization • On Site Readiness Advisor Team • Review and verify submitted metrics • Provide scheduled status reports • Provide the Verification Report • Conducted weekly “Call” inviting all parties to ask Readiness Status questions • Provide milestone reports to include a Final Report

17. Readiness Advisor at the Midwest ISOMetric Development A “metric” in the MISO definition is a further definition of milestones that give a more transparent view of progress being achieved. A description and achievement verification criteria for each metric was defined by the metric “owner” and final approved by a joint team of MISO staff and MPs with additional facilitation by the RA team. One hundred and twenty-six (126) “metrics” were identified for measurement representing ten (10) areas key to a successful market launch

18. Readiness Advisor at the Midwest ISOMetric Development • The 126 MISO metrics were aggregated into 10 groups called metric categories. The metric categories provided the means to visibly track and report progress. The following is a list of the 10 MISO metric categories. • Business Practice Manual Readiness (7) • Market Participant Readiness (18) • Control Area Readiness (11) • Joint Operating Agreement Readiness (16) • State Estimator / LMP Readiness (17) • Financial Transaction Rights (FTR) Readiness (10) • Market Monitor Readiness (3) • Contingency Readiness (11) • Systems Readiness (14) • Participant-Side Readiness (3)

19. Readiness Advisor at the Midwest ISOMetric Development Sample of actual metrics for 3 selected metric categories: • Market Participant Readiness • Ninety percent (90%) of Market Participant Applicants who have started registration and provided all required data on or before April 30, 2004 [per metric 42.1] complete asset registration. • State Estimator / LMP Readiness • Real-Time Performance Criteria – For thirty (30) consecutive days a Valid State Estimator solution must be achieved for ninety-seven percent (97%) of the five (5) minute periods within that thirty (30) day period. There will be no more than three (3) consecutive five (5) minute periods without a valid solution (except when there is a planned system software migration as required by the Energy Markets project or when ICCP data is unavailable due to remote CA ICCP node errors). Valid solution is defined as one converged solution in a 5 minutes period using converge tolerance of .002 per unit voltage magnitude and/or angle and maximum power mismatch of 50MW inside the State Estimator model within the Midwest ISO Market footprint. • Contingency Readiness • For failure to achieve the Real-Time solution, Midwest ISO shall have a process for evaluating and approving the future operation that manages congestion and maintains reliability. The processes shall be tested and shall include for each geographical area: Demonstration of generation dispatch.

20. Readiness Advisor at the Midwest ISOMetric Development

21. Readiness Advisor at the Midwest ISOMetric Verification

22. Readiness Advisor at the Midwest ISOMetric Verification • Step 1 Planning - The planning step ensures that all parties agree, up front, to the way the project will be conducted. It baselines the scope, schedule, and approach of the effort and forms the basis for all subsequent steps

23. Readiness Advisor at the Midwest ISOMetric Verification • Step 2 MISO & Stakeholder Objectives, Criteria, and Metrics - This step focuses on reviewing MISO’s MMI with respect to its objectives, commitments, and requirements. It will begin immediately after the planning activity and encompass collection of pertinent objectives around MMI

24. Readiness Advisor at the Midwest ISOMetric Verification • Step 3 Infrastructure - The purpose is to institute a repeatable, defensible collection and analysis process for the MISO-defined metrics

25. Readiness Advisor at the Midwest ISOMetric Verification • Step 4 Performance and Progress Analysis - The goal is to aggregate, relate to the critical path for tariff implementation, and document the selected MISO MMI metrics, analyze development performance, and project progress against the success criteria and critical path for MMI. This goal includes observation of MISO testing and validation of the network model, the LMP calculation, and other key calculation tools like load forecasting and the commercial model underlying FTR allocations and markets

26. Readiness Advisor at the Midwest ISOMetric Verification • Step 5 Trends - This step will synthesize the information of the Analysis step, develop trend functions that provide additional information about performance and progress often of predictive value, and identify metrics that (during specific periods) may provide forward-looking cues of emerging critical issues

27. Readiness Advisor at the Midwest ISOMetric Verification • Step 6 State of Readiness - This step will synthesize the information of the metrics and trends steps to enable a valuation of the state of readiness of the MMI systems and processes, including key models and calculation tools

28. Readiness Advisor at the Midwest ISOMetric Verification • Step 7 Executive Reports and Presentation - This step will develop the reports and presentations necessary to properly communicate the state of readiness, performance and progress metrics, and performance and progress trends

29. Readiness Advisor at the Midwest ISOMetric Verification Completion Review Diagram (CRD) • Summarizes the evidence that demonstrates completion. Once the CRD for each metric is completed and has passed internal MISO review, it is then provided to the RA as part of the RA’s review and verification of whether or not the metric has indeed been successfully completed.

30. Readiness Advisor at the Midwest ISOMetric Verification Completion Review Document verification process:

31. Readiness Advisor at the Midwest ISO Metric Verification • Verification Report • The Verification Plan document sets forth, on a metric-by-metric basis, the approach that the RA will take to verify that each metric has been completed or achieved. • The Verification Plan indicates the types of approaches that will be applied by the RA to verify different metrics and establishes the minimum set of activities that will reasonably establish that the metric has been met.

32. Readiness Advisor at the Midwest ISOReporting • Reported market status directly to the MISO Chief Executive Officer and his direct reports weekly. • Presentation to the Board Of Directors monthly. • Presentation to the Market Participants and Stakeholder Advisory Committee monthly. • Presentation to the Organization of MISO States, an organization represented state regulators for the 15 states residing within the MISO footprint. These sessions were scheduled on an as-requested basis. In person presentations were performed on 3 occasions. • Readiness Advisor formal reports evaluating market readiness was delivered prior to Day-In-The-Life, Market Trials, Parallel Operations I & II and for the MISO filing to FERC requesting approval for subsequent market launch on April 1, 2005.

33. Readiness Advisor at the Midwest ISOReporting

34. Readiness Advisor at the Midwest ISOReporting

35. Readiness Advisor at the Midwest ISOReporting

36. Readiness Advisor at the Midwest ISOReporting

37. Readiness Advisor at the Midwest ISOReporting

38. Readiness Advisor at the Midwest ISOReporting

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40. Readiness Advisor at the Midwest ISOReporting

41. Readiness Advisor at the Midwest ISOReporting

42. Readiness Advisor at the Midwest ISOReporting

43. Readiness Advisor Readiness Advisor at ERCOT

44. ERCOT Metric Category Framework ERCOT Metric Category Framework as derived from the ERCOT Business Process Architecture (appendix) and the known MISO Metric Categories: • Power System Readiness • Power System Operation Readiness • Wholesale Market Operation Readiness • Wholesale Market Settlement Readiness • Wholesale Market Services Readiness • Compliance Readiness • Market Monitor Readiness • Market Participant Readiness • Participation-Side Readiness • External Business Readiness • Management Readiness • Contingency Operation Readiness

45. Readiness Advisor at ERCOT ERCOT Readiness Advisor Project Plan

46. Readiness Advisor at ERCOT • Proposed Project Plan Overview - Approach to Establishing a Readiness Advisor at ERCOT • Aligning the organization • Metric Task Force (MTF) – Subgroup of TPTF responsible for assisting the RA in developing the Metric Category Framework and for oversight in providing the detailed Metrics associated with each category • Metric Category Managers (MCM) – Person in charge of a particular category of Metric.; Metric Owners report to the Metric Category Managers. • Metric Owner (MO) – Person responsible for developing the criteria and executing the measurements associated with a particular Metric. Metric Owner is responsible for developing the measurement system, ensuring the measurements are completed, and the determination the status of the Metric. • Readiness Advisor (RA) – Entity responsible for facilitating the development and execution of the Readiness Program • Establishing the infrastructure • Metric Category Framework – List of activity/process/calculation categories that require Metric definitions • Metric Category – A grouping of metrics associated by business function, the responsibility of a Metric Category Manager. • ERCOT Metrics – Measurable criteria that is used to determine whether a particular activity/process/calculation is being correctly performed • ERCOT Metric Landscape - Collection of Metrics used to determine whether the Nodal implementation is ready to go live. • Preparing for “Verification” • Ongoing Process

47. ERCOT Readiness Advisor Schedule

48. ERCOT Readiness Advisor Project Plan

49. ERCOT Readiness Advisor Project Plan

50. ERCOT Readiness Advisor Project Plan