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Explanation of Latest Changesto Draft Reserves Schedule,

Service Schedule D

Contact:Arnie PodgorskyMike Thompson

Wright & Talisman PC202-393-1200

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The Proposed Schedule - general  Product: from generation capacity that can respond within applicable NERC etc. criteria.

Purchaser is BA, RSG or entity having obligation to provide operating reserve to BA or RSG.

Price may have capacity (demand) and energy components

Provide measure of damages tailored to operating reserve product.

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August Revisions to Proposed Schedule D

Section D-3 – Terms of Service

o Most terms are same as in previous draft, but provision is reorganized to create more logical flow and to clarify certain terms in accordance with Subcommittee comments:

o Required designation of RRO/BA/RSG with whose standards/criteria the parties agree to conform is moved to Section D-3.1.

o Section D-3.2 describes scope of Seller’s obligation to provide Operating Reserve Service; D-3.3 describes scope of Purchaser’s right to call on such service.

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August Revisions to Proposed Schedule D (cont’d)

Section D-3 – Pricing (cont’d)

o Section D-3.4, Pricing, is reorganized in effort to clarify anticipated pricing structure and when and to whom FERC-imposed price caps apply.o Generally applicable pricing term now incorporates peak/off-peak pricing per

Subcommittee’s discussion, subject to Parties’ ability to apply a different pricing scheme in Confirmation (e.g., if service is contemplated only during on-peak periods).

The new terms “On-Peak” and “Off-Peak” are NERC-defined terms. Section D-3.4.3 elaborates on Purchaser’s right to return energy to Seller,

incorporates 1.5:1 maximum exchange ratio (like Service Schedule C), and provides for a time limit on such returns, though exact time frame is TBD.

Section D-3.4.5 now provides that monthly energy charge will be determined by value of energy delivered by Seller netted against value of any energy returned by Purchaser.

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August Revisions to Proposed Schedule D (cont’d)

Section D-3 – Pricing (cont’d) Price cap provision is now Section D-3.4.6; terms are the same

as in previous draft (and in other WSPP Service Schedules), but are revised to try to make clearer, per Subcommittee comments, when and to whom the price caps will apply.

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August Revisions to Proposed Schedule D (cont’d) Section D-4 – Damageso Damages provisions are modified from the previous draft to reflect

Subcommittee’s direction to develop objective damages measures while avoiding penalties.

o Prefatory legal language is added in Section D-4.2 stating that damages calculated in accordance with the service schedule are not a penalty.

o For Seller’s non-performance, Section D-4.3 of the new draft provides that damages will be a pro rata share of the capacity charge and any transmission reservation charge based on duration of non-performance, plus the smallest of the following three alternative amounts (but not less than zero):

o The quantity of energy Seller failed to deliver multiplied by an Hourly Index Price (which is yet to be determined/defined), OR

o Replacement Price less Contract Price, plus any net increase in transmission charges incurred to acquire replacement energy, OR

o Quantity Seller failed to deliver multiplied by 120% of Parties’ agreed energy charge.

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August Revisions to Proposed Schedule D (cont’d) Section D-4.3 - Seller Damages cont’do Alternatively, in lieu of any payment under the provisions just

described, Purchaser may require Seller to provide Operating Reserve Service with no capacity or transmission charges for three consecutive business days prior to the end of the Term.

o In addition, Seller will be liable to Purchaser for any NERC or other penalties or fines imposed on Purchaser to the extent such amounts are attributable to Seller’s failure to perform.

o Draft includes for discussion a possible cap on Seller’s penalty liability equal to the amount of one or two months’ capacity charges for Operating Reserve Service.

o Purpose of cap would be to minimize disincentive to market participants to sell Operating Reserve Service.

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August Revisions to Proposed Schedule D (cont’d) Section D-4.4 - Damages for Purchaser’s Unauthorized

Takeso This provision applies in the event Purchaser (or Purchaser’s BA or

RSG) takes energy under Operating Reserve Service for any purpose that does not conform with applicable standards/criteria for deployment of operating reserve.

o In the event of unauthorized takes, Purchaser shall pay Seller as damages the smallest positive amount under the following three alternative calculations:o The quantity of unauthorized energy taken multiplied by an

Hourly Index Price (index yet to be determined/defined), ORo Resale Price less Contract Price for the unauthorized energy,

less the amount of any net additional transmission cost Seller would have incurred to achieve Resale Price, OR

o Quantity of unauthorized energy multiplied by 120% of Parties’ agreed energy charge.

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August Revisions to Proposed Schedule D (cont’d)

Subcommittee may wish to consider whether Section D-4.4 should also include an alternative amount of damages to be paid by Purchaser in the event the provisions just described would result in no payment to Seller.

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