APX is pleased to provide you with the latest ERCOT information and activities to keep you informed of the on-going market updates.

APX is the leader in hosted Scheduling, Settlement, SCADA, and Operational Support services for ERCOT and the nation's other power markets. We enable market participants to be up and running fast, with a low initial investment, full 24x7 service and support, and lower predictable on-going expenses.

• New APX PowerSuite™ Helps APX Clients in EDS Testing
• New Clients Continue to Join APX
• ERCOT Continues Leading All U.S. Electricity Markets in Wind Resources
• Legislative and Regulatory Issue Update
• ERCOT Nodal Team and Stakeholders Continue Addressing Increasing Challenges to Meet December 1, 2008 Deadline
• The New EILS Auction Is Around the Corner Covering June-September, 2008 Timeframe
• APX Experts Share their Expertise with Market Participants at Leading Power and Environmental Market Events

APX provided its next generation technology, The APX PowerSuite^TM , to support our clients' EDS 4.9.3 testing activities and to handle increasingly complex market operation under the upcoming nodal market design. The APX PowerSuite replaces the APX Market Window, APX Scheduler, and Settlement Website. The highly functional cross-market capabilities of the APX PowerSuite have been developed specifically for our clients' power business needs. During the ERCOT EDS 4.9.3 Testing phase, clients used the APX ISO Scheduling functionality including Bid/Offer, Resource Parameters, and Checkout to meet the mandatory submissions required during this phase. During each testing period, we worked closely with our clients and with ERCOT to quickly resolve issues and expect that all readiness metrics for this testing phase will be green.

APX continues to add clients as the Texas Nodal Implementation deadline approaches. These clients benefit from APX's Software as a Service solution offering and neutral operations support. Many of the clients that have recently started using APX services are financial institutions and wind project developers. By relying on APX services, these new clients avoid the cost of implementing and maintaining scheduling and settlement software; they also avoid the cost of staffing a 24/7 operations center. In addition, APX is providing unprecedented support of EDS testing and implementation activities for Texas Nodal as part of the APX services. If you know of a market participant that would benefit from APX services or help with Texas Nodal technology testing requirements, please refer them to Wendy Brown at 281-489-7633 (wbrown@apx.com)

According to ERCOT, wind developers have scheduled more than 10,000 MW of capacity to be added to ERCOT grid during 2008 to 2012 period. Most of the expected addition, roughly over 5,000 MW, is expected to come to service by the end of 2008 with twelve projects scheduled for December when the current Production Tax Credit is scheduled to expire.

Some of the most important actions taken by Texas Legislation and/or the Public Utility Commission of Texas during the last few weeks are:

• Texas Legislative Committee on Electric Generation Capacity and Environmental Effects. Representative Bonnen, Chair of the Committee, conducted the second hearing on April 9, 2008 to hear testimony regarding the environmental effects of electric power generation methods, as well as the effects on global warming and climate change. The Committee heard testimony from government officials, environmental groups, and business interests. Various testimonies were presented reflecting opposing views on whether Texas should establish caps on carbon dioxide emissions ahead of a possible action by the federal government. While environmental groups were supportive of a proactive role by government, industry groups highlighted the potential for significant costs that could be imposed due to such regulation. To deal with increasing demand for electricity and its negative impacts on the environment, some participants recommended legislative actions to encourage more reliance on energy efficiency and investment in renewable resources. The meeting was mainly informational to assist Committee members and additional meetings are expected in the next several months. The committee is expected to prepare and submit its energy and environmental impact plan to the 81st Texas Legislature which will meet in January 2009.

• The Independent Market Monitor (IMM) has raised concerns regarding effective operation of Scarcity Pricing Mechanism in ERCOT. Scarcity Pricing Mechanism (SPM) approved by the Commission (Substantive Rule 25.505) has been at the new $2,250 offer cap since March 1, 2008 and the market has already experienced energy prices at that level for three 15-minute settlement intervals on March 3, 2008. The IMM, in a report filed with the Commission on March 24, 2008, concluded that scarcity conditions existed on March 3 to justify high energy prices. In contrast, the ERCOT Balancing Energy Service market did not produce a scarcity pricing during the event of February 26 when ERCOT faced insufficient capacity in seven intervals due to a sudden decline in wind generation during which the maximum energy prices could only reach $299 per MWh. The IMM believes the capacity insufficiency experienced in that event is a good example of scarcity conditions when higher energy prices should be the market outcome. Steps are taken, such as increasing the amount of Responsive Reserve Service or allowing Load acting as Resource (LaaR) to set the market clearing price, to address this concern. Similar actions, while not an optimal solution, should be considered temporary fixes that could be implemented quickly given the limited price responsive demand available in the real-time market. Eventually, in a true competitive market it is real-time load response that should set scarcity prices. Currently, steps are being taken by the Commission, such as requiring installation of advanced meters and creation of adequate load profiles by ERCOT, to enhance real load responses within the next few years. For more information, please visit the PUCT website PUC of Texas Interchange site, select "Login", then search by Control Number: 23100 for the IMM Report or 34610 for advanced metering implementation activities.

  The final increase in offer cap to $3,000 per MWh or MW per hour will take place two months after the full implementation of nodal market operation, which is currently scheduled for December 1, 2008. In addition, it is expected to see improvements in operation under the nodal system. These two developments, along with increasing load responses, should enhance the scarcity pricing mechanism in ERCOT electricity market overtime.

• Rulemaking Project No. 33487 relating to the Commission final approval of the new Amendments to Energy Efficiency Rules and Templates. As was reported in the APX March 2008 ERCOT Newsletter, the final decision by the Commission on March 26 Open Meeting sets a new direction for more contribution by load responses through Texas. The amendments to the PUCT Substantive Rule 25.181 are approved to comply with the requirements of the Texas House Bill 3693 which was passed by the Texas Legislature in 2007. The new rule raises utilities' energy efficiency goals from 10% of growth in demand by residential and commercial customers to 15% by December 31, 2008 and 20% by December 31, 2009. There is a good possibility for the next Texas Legislative Session, which comes to session in January 2009, to further raise these goals as a way to address increasing concerns regarding climate change. In addition, the new rule allows utilities to recover their reasonable expenditures and be rewarded if they exceed their goals. The approval of this rule is expected to significantly enhance energy efficiency programs sponsored by regulated utilities throughout the State. In particular, the revised rule will provide a great opportunity for Retail Electric Providers (REPs) to become more active in exploring various demand response programs that could be offered as new services to retail customers.

  This is another very important step by the Commission to facilitate load response in the electricity market, which is an instrumental part of any successfully competitive electricity market, reduces the effectiveness of any potential market power abuses, and results in effective scarcity pricing, all desired by regulators and market participants. Similar important decisions by the Commission in the last twelve months to facilitate load response include the creation of ERCOT Emergency Interruptible Load Service (please see another piece on EILS in this issue) and a requirement for Transmission and Distribution Service Providers (TDSPs) to install advanced meters for all customers within the next few years. For more information, please visit the PUCT website PUC of Texas Interchange site, select "Login", then search by Control Number: 33487 for the documents regarding the amendments to the Energy Efficiency Rule or 34610 for advance metering implementation activities.

• Activities regarding Docket No. 33672 to determine competitive renewable energy zones (CREZ). On April 2, 2008, ERCOT filed 1) its study, regarding the expected cost of upgrading transmission lines to meet increasing amount of new wind generation resources under several scenarios and 2) an earlier engineering study conducted by General Electric to determine the impacts of adding various levels of wind capacity on ERCOT system and the need for ancillary services. As was reported in the APX March 2008 ERCOT Newsletter, the results of the study by General Electric did not indicate any major concern with regard to ancillary services if an additional 15,000 MW of wind generation resources are added to the grid. However, the study indicated further additions will require a need to procure additional ancillary services.

  In response to an order by the Commission in July 2007, ERCOT filed a 115-page transmission study on April 2, 2008 evaluating the impact of various amounts of wind generation resources on ERCOT transmission network. Five Competitive Renewable Energy Zones and four different scenarios, reflecting various amounts of wind generation resources ranging from 12,000 MW to about 25,000 MW, were evaluated in this study. Each scenario included 6,903 MW of existing wind generation resource, which were either in service or with interconnection agreements as of Fall 2007. In conducting this study, ERCOT considered desired system reliability, transfer capability, and the net economic impacts on consumers from each scenario. According to a news release by ERCOT on April 2, the estimated costs (excluding estimated cost of equipment to connect the wind generation resources to the new CREZ facilities) of the transmission proposals that best meet the desired criteria for each scenario are:

  • Scenario 1, Plan A, 12,053 MW, $2.95 billion
  • Scenario 1, Plan B, 12,053 MW, $3.78 billion
  • Scenario 2, 18,456 MW, $4.93 billion
  • Scenario 3, 24,859 MW, $6.38 billion
  • Scenario 4, 24,419 MW, $5.75 billion

  ERCOT indicated that while Plan A is the least expensive, Plan B can be expanded more cost-effectively to the larger wind scenarios. To view the full report, please visit the following link: ERCOT's CREZ Transmission Optimization Study.

  On a related PUCT Docket No. 35424, CREZ: Settlement Conference Concerning Selection of Transmission Service Providers for the Competitive Renewable Energy Zones , interested parties have begun negotiations to develop a short list of the potential transmission projects and companies who will construct such transmission lines. The results of the settlement, the studies submitted by ERCOT, and other policy and economic factors will be relied upon by the Commission to finalize its decision to order construction of several corridors of transmission lines to facilitate transfer of inexpensive wind resources to population centers in Dallas, Houston, and other areas in Central Texas. The Commission has indicated the possibility of a final decision by June 2008.

While facing increasing challenges, the ERCOT Nodal Team and stakeholders continue their hard work toward achieving full implementation by December 1, 2008. As was reported in the APX March 2008 ERCOT Newsletter, the most critical element among the five deferred functionalities was the "Co-optimizing energy and ancillary services for self-committed resources in Day-Ahead Market". In response, the stakeholder task force, led by Dr. Shams Siddiqi, has developed a practical approach to implement this functionality soon after nodal implementation. Further work by stakeholders and ERCOT is in progress to ensure timely resolution of this and other concerns raised by market participants.

In response to a final decision by the ERCOT Board, ERCOT filed its application with the Commission on March 6, 2008 to get permission to increase nodal administration fee by 4.2 cents to 16.9 cents per MWh (Docket No. 35428). ERCOT has requested the Commission to issue a final order allowing ERCOT to implement revised nodal fee by June 1, 2008. For more details and access to documents, please visit the PUCT website PUC of Texas Interchange site, select "Login", then search by Control Number 35428.

In a recent Technical Advisory (TAC) Meeting on April 4, ERCOT Nodal Executive Director, Jerry Sullivan, focused his attention on readiness and quality of nodal deliveries. While he appeared pleased with several successful outcomes, he remains concerned, particularly with regard to a) lengthy defect resolution time and b) late detection of defects that exacerbate defect resolution time. He has taken mitigation measures, such as a) relying on passive data center site with live data feed to allow for earlier defect detection and b) consideration of other measures (e.g., key vendor resource retention) to address nodal quality. Jerry added that he was still encouraged by the relative low number of Severity 1 and 2 defects in Factory Assessment Test (FAT).

Jerry Sullivan is expected to be prepared to come to the ERCOT TAC and Board meetings on May 8 and May 20, 2008, respectively to critically evaluate and discuss Nodal implementation Schedule and possibility of failing to meet December 2008 deadline. The suggested dates are after April 22, 2008 which is an absolute milestone for ERCOT to stop accepting any new Nodal Protocol Revision Request (NPRRs) unless it is absolutely necessary.

Finally, in the latest report to the ERCOT Board on April 15, Jerry Sullivan made it clear that there are many QSEs without Resources who are behind in Market Participants Readiness and will eventually face with serious problems if they fail to take adequate steps toward their readiness in the short period of time left before full nodal implementation. Jerry emphasized that those who are counting on delays will be wrong and ERCOT will meet the deadline currently scheduled for December 1, 2008. APX has reviewed the Scorecard for various QSEs where "Engagement" is identified as the main area of concern. APX is ready to assist these QSEs to meet their obligations and get ready for full nodal implementation. If you know of a market participant who needs assistance to meet ERCOT expected readiness criteria, please refer them to Wendy Brown at 281-489-7633 (wbrown@apx.com).

On April 8, 2008, ERCOT issued its latest Request for Proposal for Emergency Interruptible Load Service (EILS) covering June 1 through September 30, 2008. Interested QSEs are required to submit their Resource Identification Forms (a new step in the EILS procurement process) to ERCOT by April 25, 2008 and Bids and Self-Provision Offers are due May 9, 2008. One noticeable change in this new RFP is the breakdown of Business Hours into three segments: 1) Business Hours from 8:00 a.m. to 1:00 p.m., 2) Peak Hour 1 from 1:00 p.m. to 4:00 p.m., and 3) Peak Hour 2 from 4:00 p.m. to 9:00 p.m. For more details and access to documents, please visit the ERCOT website at http://www.ercot.com/services/programs/load/eils/index.html.

In the last EILS auction for the contract period of February 1 through May 31, 2008, ERCOT selected a total of 17 resources (including 7 aggregations) for 477 MW at a total cost of $5.34 million. The average costs per MW per hour were $9.73 and $7.86 for Business Hours (8:00 a.m. and 9:00 p.m.) and Non-Business Hours, respectively.

The Commission Rule allows ERCOT to spend up to $50 million for EILS programs during 2008, however, it is completely up to ERCOT to reject offers that may not look reasonable or economical. Given much more potential for loads in ERCOT to participate in the EILS program, it is expected to see more offers in this upcoming ERCOT EILS auction. ERCOT plans to inform selected QSEs by May 26, 2008. If you have any questions, you may send your e-mail to eils@ercot.com.

APX Experts are actively covering a range of electricity market issues in several conferences and workshops. The followings may be of interest to you:

Mr. Sakis Asteriadis, APX Managing Director, spoke recently at the University of Texas Center for Energy Economics' April Think Day on REC Trading in Texas and in the U.S.: Lessons Learned & Way Forward conference on April 11, 2008 in Woodlands, Texas discussing "National Comparisons and Trends in Environmental Markets". In particular, this session covered the existing renewable energy credit programs in the U.S. and the establishment of the environmental commodities market worldwide. For more information go to http://www.apx.com/news/events.asp.

Dr. Reiner Musier, APX Vice President and Chief Marketing Officer, spoke at the Energy Insights and IDC Energy and Utilities Summit on April 16, 2008 in Denver, Colorado discussing "How to Succeed in Carbon Trading Markets". In particular, this session covered the most recent developments in carbon markets and issues related to the construction of a cap and trade market (allocations and auctions, merging the carbon market with the renewable market). In addition, there was a discussion on the role that information technology could play in supporting cap and trade market participants and on how a utility should phase in these investments. For more information go to http://www.apx.com/news/events.asp.

Dr. Parviz Adib, APX Director, will conduct an APX Webinar on April 24, 2008 titled: "Regulatory Compliance in the Texas Electricity Market". The event will include the following topics: Understanding the respective state and federal regulatory responsibilities, identifying critical regulatory compliance areas for market participants, learning how market oversight is used in Texas to promote competition, learning how market oversight and monitoring functions are performed and compare to other electricity markets, and understanding regulatory authority ability to enforce compliance with examples. Registration is available through the following link: https://apx.webex.com/apx/onstage/g.php?t=a&d=330471147.

Mr. John Melby, APX President, will be a speaker in the upcoming 12th Annual EMA Spring Conference on May 1, 2008 in Miami, Florida discussing State and Regional Programs. For more information go to http://www.apx.com/news/events.asp.

Dr. Parviz Adib, APX Director, is invited to participate in a panel discussion in an upcoming conference sponsored by the University of Texas Center for Lifelong Engineering Education on May 2, 2008 in Austin, Texas. The conference is titled ERCOT Energized: the Good, the Bad, and the Ugly of the New Texas Nodal Market Design. Professor Ross Baldick (University of Texas) moderates discussion and Professors Bill Hogan (Harvard University), Shmuel Oren (University of California at Berkeley), and Hugh Outhred (University of New South Wales in Australia) are among several panelists evaluating market design in ERCOT. For more information go to http://lifelong.engr.utexas.edu/ercot/index.cfm.

Ms. Wendy Brown, APX Director, and Andrew Thornton, APX Power Operations Director, will be presenting at the upcoming Wind Power 2008 Conference and Exhibition on June 1-4, 2008 in Houston, Texas on the topic "Bringing Wind Power to Market: The Keys to Successful Communication with ISOs". For more information to go http://www.apx.com/news/events.asp.