Topics:

• Board of Directors Consider Reduction of Fee in 2006 and Review Nodal Implementation Issues
• Texas Nodal: Wholesale Market Redesign
• Impact of Federal Energy Legislation
• Operations Update: RMR Cancellation, Transmission Expansion
• Market Operations Update: Residential Switches up to 30% of Load
• Potomac Economics Releases Report on ERCOT Markets
• New Directors of Security, HR Announced
• ERCOT Meeting Calendar

Board of Directors Consider Reduction of Fee in 2006 and Review Nodal Implementation Issues

ERCOT Board of Directors’ Finance and Audit (F&A) Committee tentatively recommended to the ERCOT Board a 1 1/2-cent reduction of the system administration fee* from the current $.42 per megawatt-hour to $.4054/MWh in 2006.

Steve Byone, ERCOT’s acting vice president of finance, reported at the Aug. 17 Board meeting that the staff’s proposed 2006 budget of $139.4 million represents a decrease of $6.5 million, or 4.5 percent compared to the approved 2005 budget.  Byone said the proposed budget was based on a very rigorous review process which included feedback from the Aug. 3 public workshop and the F&A budget hearings, plus more stringent cost containment of outside services and employee costs, and elimination of budget contingencies.  The proposed budget does not include funding for wholesale market redesign or independent market monitor, expected activities the Public Utility Commission (PUC) is working to define.

The 2006 operating expenses include an increase of 15 staff positions for a total of 551 funded positions.  Ten of the proposed new positions are replacements for outside contractors, and 10 are positions recommended by the recent audits and the internal control management plan.  (Five positions were eliminated.)  The proposed capital projects budget is $23.4 million, compared to $24.2 million in the current year, $40 million last year, and $57 million in 2003.

F&A chair Clifton Karnei of Brazos Electric Power Cooperative commended CEO Tom Schrader and ERCOT staff on their work to reduce expenses and lower the administration fee.  The board will consider approval of the 2006 budget at the Sept. 20 meeting, to be followed by a filing with the PUC by Sept. 30.

Texas Nodal: Wholesale Market Redesign

Chief of Market Operations Ray Giuliani and Chief Information Officer Ron Hinsley made presentations to the board regarding the impact of changing to a nodal market design and tentative cost estimates and timelines.  PUC commissioners voiced unanimous support of moving to a nodal market at their July 29 open meeting.  Proposed implementation dates range from January 2008 to October 2009.  Additional details on several issues related to the protocols and a transition plan have not been completed.

Hinsley said the change to nodal will have a significant impact on ERCOT staff, hardware and software, as well as implications for facilities.  Giuliani presented a 42-month timeline for a transition and compared it to market redesign timelines at New York ISO (35 months) and New England ISO (25 months, but not including the same design elements).  Giuliani also presented a cost estimate from a low of $71.1 million to a high of $88.5 million.  NYISO and NEISO costs were in the $90- $100 million range, he said.  Giuliani invited comments from market participants and other interested parties regarding the preliminary timeline and estimates.

Impact of Federal Energy Legislation

Chief Operating Officer Sam Jones reviewed the impact of the Energy Policy Act of 2005 which will implement federal oversight of electric reliability standards development and enforcement.  ERCOT has been an active participant in the development of voluntary industry reliability standards as a Regional Reliability Council within NERC, Jones said.  Under the new energy legislation, reliability standards will become federally enforceable, including within the ERCOT Region.  ERCOT’s exemption from other FERC regulation (utility and wholesale transactions) remains intact.

Operations Update: RMR Cancellation, Transmission Expansion

In his operations update, Jones reported that ERCOT recently sent a letter canceling the Robinson #2 unit (461 MW, Houston zone) from Reliability-Must-Run status. The termination will take effect in approximately 90 days.

Bill Bojorquez, ERCOT’s director of transmission services, presented a report on transmission expansion.  More than $2 billion has been spent on transmission projects since 1999.  Projects recommended for 2005 included Houston import projects, DFW 2006 congestion reduction upgrades, and the Blessing-Lane City series reactor.

Market Operations Update: Residential Switches up to 30% of Load

Giuliani reported on market metrics in the ERCOT Region, including end-user migration from native provider to a new provider, noting that residential switching has crossed the threshold of 30 percent of load.  Small non-residential switching represented 75 percent of load.  Large non-residential switching was at 73% of load.

Board presentations and meeting materials are posted on the ERCOT Web site Meeting Calendar by date of the board meeting.

Potomac Economics Releases Report on ERCOT Markets

Potomac Economics has completed its “2004 State of the Market (SOM) Report for the ERCOT Wholesale Electricity Markets.”  The report analyzes resource plans and shortages in the balancing energy market in addition to areas analyzed in previous SOM reports.  The executive summary recognizes “improvements in a number of areas over the results in prior years that can be attributed to changes in the market rules or operation of the markets."  The report also acknowledges that energy costs and capacity costs declined by more than 30 percent in 2004 compared to 2003.  Some concerns identified in the report regard the difficulties of offering all available ramping capability from online or quick-starting resources and provides recommendations for improvements.  In addition, the report highlights the importance of modifying the current rules and procedures to minimize barriers or disincentives to full participation in the balancing energy market.

The The 206-page report is posted on the PUC Web site.

New Directors of Security, HR Announced

Jim Brenton has joined ERCOT as the director of security, CEO Tom Schrader announced Aug. 5.  Brenton has more than 30 years experience in network and IT security management and in information systems security, most recently as director of IT security for Aquila.  His security background includes six years at Sprint Corporate Security and five years at Global Systems and Strategies, Inc.

Brenton has been a Certified Information System Security Professional since 1998 and recently received certification as an Information Systems Security Architecture Professional and Certified Information Security Manager.  He teaches graduate-level, distance-learning courses for Johns Hopkins University in MS-Information and telecommunication systems.  Ann Delenela, manager information systems security, and Ron Berry, manager of physical security, will report to Brenton.

Schrader thanked Jeyant Tamby, director of enterprise architecture, for serving as acting director of security and leading the implementation of the security plan formulated following the audits last year.

Lynn Adams is filling the new position of director or human resources and organizational development.  She has more than 20 years of professional experience, including human resources, organizational development, change management, and long-term roles within Exxon and Accenture.  In addition to her undergraduate and master’s degrees, Adams is certified as a Senior Professional in Human Resources.  In addition to management of human resource support activities, Adams will be directing the activities related to leadership training and development, one of ERCOT’s strategic organizational readiness objectives for 2005.

Also, Paige Allen is assuming the position of manager of human resources/staffing, which includes responsibility for managing the key processes of internal/external staffing and on-boarding activity.  Allen has been with ERCOT since 2003 in the role of senior human resources generalist.  Before arriving at ERCOT, she was a regional human resources director with Mariner Health Care.  She has a bachelor’s degree from Abilene Christian University.

ERCOT Meeting Calendar

August 2005

* The system administration fee is assessed on wholesale energy transactions in the ERCOT market and, therefore, embedded in the overall cost of all electric energy.  If the costs were passed straight through to the consumer, the current fee would translate to about $.42 per month for a residential customer consuming 1,000 kWh of electric energy per month.