1 Compliance Update June 2007

2 Control Performance Highlights  NERC CPS1 Performance April Performance  April performance comparison April 2007: April 2006:  12 month rolling average comparison May 2006  April 2007: May 2005  April 2006:  PRR 525 Performance Scores for April indicate 32 QSEs passed / 2 non- wind-only QSEs failed the measure Scores posted on the ERCOT Compliance Website  SCE Performance Scores SCE Performance Scores

3 ERCOT CPS1 Performance Comparison

4 ERCOT’s CPS1 Monthly Trend

5 ERCOT CPS1 by Interval

6 QSE PRR Minute Interval Scoring

7 April 2007 Resource Plan Performance Metrics

8 525 Passing 10-Min Interval Percentage Trends

9 ERO / RE Activities  Entity Registration Continues to be a work-in-progress ERCOT Compliance Staff working with entities to resolve concerns Any entity can challenge its listing and function with NERC Appeals heard by the NERC Board Compliance Committee  Texas Regional Entity Delegation Agreement ERCOT Board approved Texas RE Delegation Agreement on May 16 th Executed Texas RE Delegation Agreement re-filed at FERC on May 18 th FERC directives must be addressed and modifications filed within 180 days of the date of the order (mid-October)  NERC Reliability Standards Mandatory compliance began on June 4 th Regional Entities to focus on most serious Reliability Standard violations until January 1, 2008  ERCOT Bylaws ERCOT Board approved changes to the ERCOT Bylaws incorporating the Texas RE on May 16 th ERCOT Membership vote in mid to late June

Texas RE Budget Activities  First draft of Texas RE Budget and Business Plan submitted to NERC on May 11 th  Special Texas RE Budget Meeting held on May 17 th  Second draft of Texas RE Budget and final Business Plan submitted to NERC on June 1 st  ERCOT Board approval to be requested on June 19 th  Final draft of Texas RE Budget to be submitted to NERC by no later than July 12 th  NERC Board approval anticipated on August 1 st  NERC and Regional Entity budgets to be filed with FERC

Texas RE Budget Summary  Adequate staffing needed to comply with FERC mandates and NERC requirements, including ERO Rules of Procedure Process driven – very structured Audits, investigations, and analyses Tracking, reporting, and documentation Increasing number of FERC approved reliability standards Monetary penalties and non-monetary sanctions Appeals of violations and penalties/sanctions  Must maintain clear independence from all owners, operators, and users of the bulk power system  Includes compliance monitoring of reliability-based ERCOT Protocols and Operating Guides as a separate and parallel process to the NERC Program

Texas RE Budget Summary  2008 proposed budget ~25% less than $5,514,219  $4,144,849  Additional staffing requested to keep pace with anticipated work load and regulatory requirements Positions filled only when/if needed  Projected 2007 statutory spending ~$2.6M under budget Original schedule was for mandatory standards compliance to begin January 1, 2007 – all positions were fully funded Reduction in capital project expenditures Unspent 2007 budget will be applied to the 2008 budget  Penalty money collected applied to subsequent years’ budget ERCOT ISO applied to ERO Budget All other Registered Entities’ applied to Texas RE Budget

13 Reliability Compliance Monitoring & Enforcement  ERCOT Protocols & Operating Guides Texas RE – Monitors compliance and issues violation notices PUCT – Compliance enforcement (issues penalties/sanctions)  NERC & Regional Reliability Standards Texas RE – Monitors compliance and issues violation notices Texas RE – Compliance enforcement (issues sanctions/penalties)  ERCOT ISO 1 of 166 Registered Entities in ERCOT 24/7 Reliability Coordinator Function – responsible for the real-time operating reliability of the ERCOT Region  Texas RE Determines compliance and non-compliance Reports non-compliance in a timely, meaningful manner Does not monitor compliance in real-time  PUCT Texas RE Hearing Body for appeals of NERC and Regional Reliability Standards violations and penalties/sanctions

No TRE issues violation notice & reports to PUCT Issue Closed Yes Protocol Violation? Yes Requirement Delegated? Issue Closed ERCOT ISO owes penalty TRE issues violation notice & penalty to the ERCOT ISO & reports to NERC Issue Closed No TRE issues violation notice & reports to PUCT NERC Standards violation by the ERCOT ISO? No Yes Protocol Violation? Yes No NERC Standards Violation- Delegated Requirements