Impact of EPA RICE Rule on ERCOT Demand Response Programs

1. Impact of EPA RICE Rule on ERCOT Demand Response Programs Presented to: Demand Side Working Group August 20, 2015

2. Disclaimer • This presentation and its contents are provided for informational purposes only. The application and impact of laws can vary widely based on the specific facts involved. • This information is based on publicly available information and is not advice or a recommendation regarding the matters described or any related commercial transactions. You should not place undue reliance on this information. • ERCOT is not responsible for any inaccuracies or omissions in the information contained herein or for any results obtained or decisions or actions taken from the use of this information. • ERCOT makes no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness, fitness, or completeness of the information or analysis contained herein and accepts no liability associated therewith.

3. History Of RICE NESHAP Final Rules • 2004 NESHAP allowed back up generators to operate w/o emissions controls for: • Unlimited periods in emergency situations and routine testing/maintenance • An additional 50 hours/year in non-emergency situations • No income can be generated supplying power to an electric grid or through a financial arrangement with another entity • 2010 NESHAP allowed back up generators to operate w/o emissions controls for 15 hours/year as part of “demand response programs” during “emergency conditions that could lead to a potential electrical blackout” • 2013 NESHAP allowed back up generators to operate w/o emissions controls: • Up to 100 hours/year for “emergency demand response” defined as • During “Reliability Coordinator” declared an EEA Level 2 events • During voltage or frequency deviation >5% below standard • During actual emergency situations and maintenance

4. History of Legal Challenges • 2010 NESHAP subject to petitions for reconsideration/legal challenges • 2013 NESHAP was developed and finalized in response • Petitions for reconsideration and, ultimately, legal challenges ensued • On May 1, 2015 U.S. Court of Appeals for the District of Columbia Circuit ruled on the legal challenges • Reversed/Remanded 100 hour exemption in 2013 NESHAP/ Performance Standards • In July 2015, EPA filed a Motion For Voluntary Remand, a Motion to Stay the Mandate, and a Motion For Rehearing • Motion for Rehearing addressed maintenance and readiness testing • Motion was granted; May 1, 2015 Order and Opinion revised • No ruling yet on Stay or Remand Requests

5. What Rules Are Effective Right Now? • Following rehearing, maintenance/readiness exemptions remain effective • Mandate is not effective until ruling on Stay Request is issued • If mandate becomes effective, rules are reverted to previous versions: • RICE subject to MACT reverted to 15 hour/year exemption as part of “demand response programs” during “emergency conditions that could lead to a potential electrical blackout.” • Unless they do not meet the criteria for emergency engines • RICE subject to NSPS have no exemptions for participation in “demand response programs” • Mandate did not impact operation in emergency situations or for 50 hours/year in non-emergency situations • No income can be generated supplying power to an electric grid or through a financial arrangement with another entity