NPRR533 – PCRR Eligibility In support of ERCOT Comments

1. NPRR533 – PCRR EligibilityIn support of ERCOT Comments Shams Siddiqi, Ph.D. shams@crescentpower.net Representing LCRA and Rates and Resources Council (RRC) consisting of 31 NOIEs serving Central Texas TAC Meeting February 27, 2014

2. Guiding Principles • The intent of this NPRR is to clarify ERCOT's policies regarding PCRRs and PCRR-related issues, such as unit retirements and mothballing, that weren't previously addressed and do so consistent with ERCOT's current policies • As guiding principles: - PCRRs should be administered and allocated based on clear definitions in the ERCOT Protocols and PUCT Rules - Pre-1999 contractual arrangements are the basis for PCRR eligibility - All Non-Opt-In-Entities (NOIEs) should be treated fairly and on a non-discriminatory basis

3. PCRR Eligibility • The sole criteria for PCRR Eligibility is clearly defined in Section 7.4(1): “ERCOT shall allocate a portion of available Congestion Revenue Rights (CRRs) as Pre-Assigned Congestion Revenue Rights (PCRRs) to Non-Opt-In Entities (NOIEs) that either have established ownership prior to September 1, 1999 in a specific Generation Resource or have a long-term (greater than five years) contractual commitment for annual capacity and energy that was entered into prior to September 1, 1999 from specific Generation Resources.” • Contrary to KPUB’s assertions, PCRRs are not allocated to NOIEs “as compensation for their historic investment in both generation and transmission” • PCRRs are even allocated from a pre-1999 eligible generation resource having a commercial operation date after 1999 – in this case, there is absolutely no pre-1999 historical payment for the generation nor the transmission system related to that asset.

4. PCRR Eligibility for Portfolio Contracts • Thus, pre-1999 contractual commitments and ownership are the only criteria used in determining PCRR eligibility • The pre-1999 LCRA cost-based contractual commitments make it clear that the NOIEs served by the LCRA portfolio are committed to paying the cost of the contracted LCRA portfolio – not on a fixed percentage and regardless of whether certain NOIE's load decreases or even exits their contract. • After certain NOIEs are no longer served by LCRA’s portfolio, the remaining customers will have the obligation of paying for all the pre-1999 generation resource costs under the pre-1999 contractual arrangement.

5. Non-Discriminatory PCRR Eligibility • Thus, the remaining NOIEs under the pre-1999 LCRA contract "have a long-term (greater than five years) contractual commitment for annual capacity and energy that was entered into prior to September 1, 1999 from specific Generation Resources" (i.e. the eligible pre-1999 LCRA portfolio of Generation Resources) and are, by definition, eligible for PCRRs from the pre-1999 LCRA portfolio of Generation Resources • KPUB’s Comments limit only LCRA’s remaining NOIE customers’ eligible PCRRs in an obviously discriminatory manner and in clear contradiction to PCRR eligibility requirements in Section 7.4(1) • ERCOT Comments treat all the NOIE customers in a non-discriminatory manner, allowing them to grow into the capacity of eligible resources

6. New Discrimination Not Appropriate • ERCOT’s practice has been to allocate PCRRs to each NOIE of a portfolio contract based on that particular NOIE’s load ratio share, which has fluctuated from year to year • The introduction of new limitations have no precedent in ERCOT’s current policies and discriminate against a particular group of NOIEs • KPUB incorrectly treats NOIEs of a portfolio contract as “owning” fixed pieces of the generation and transmission assets of the provider – in reality, no such “ownership” exists. On the other hand, NOIEs with fixed contractual ownership of resources, such as Gentex, remain entitled to be served by that generation capacity and also the corresponding PCRRs

7. KPUB’s Irrational Discrimination • Under KPUB Comments other NOIEs are allowed to nominate greater amounts of PCRRs from their 1999 4 CP amounts from Independent Generators or from their own Generation Resources as their peak load increases • While allocating additional PCRRs with load growth takes away transmission capacity that was previously available for CRRs, the reallocation of PCRRs to remaining members of a portfolio contract results in absolutely no change to the transmission capacity that was previously available for CRRs

8. Bizarre Outcomes of KPUB Comments • Example of 100 MW of eligible PCRRs allocated to two NOIEs that have a common pre-1999 portfolio contract with a supplier • Varying load growth impacts contractual relationship with eligible resources, in which PCRRs should protect ‘99 Allocation with load growth Current allocation with load growth 1999 4CP Allocation

9. Reject Discriminatory KPUB Comments • TAC should reject KPUB Comments for the following reasons: - They contradict the PCRR eligibility requirements defined in 7.4(1) - They are discriminatory against a particular group of NOIEs - They have no precedent in ERCOT policies and practices since the introduction of PCRRs - They are inappropriate for policy making as they are not impartial as opposed to allowing ERCOT as an independent party to ascertain PCRR eligibility

10. Endorse ERCOT’s Independent Comments • This NPRR has involved a year of meetings, workshops, conference calls, and reviews that provided the opportunity for NOIEs and other market participants to provide feedback to ERCOT • ERCOT is an independent organization and ERCOT staff had the opportunity to review NOIE contracts and historical allocation of PCRRs and is in the best position to ensure contracts and the criteria for PCRR eligibility is met in a fair and equitable way across all NOIEs • ERCOT Comments are consistent with ERCOT’s practice of allocating PCRRs • Thus, ERCOT Comments (2/5/14) should be adopted to ensure equitable treatment of all NOIEs contractual relationships with pre-1999 resources