February 10, 2009 Uplift update Cheryl Yager / Amanda Bauld

2 February 10, 2009 Overview Uplifts – historical perspective 2008 Short Payments and Uplifts Late Fee Recovery Calendar for final uplift and late fee recapture

3 February 10, 2009 Uplifts – historical perspective Situations in the market that necessitate short payment and uplift of unpaid invoices are always difficult –Entities have left the market under difficult situations and have left with unpaid invoices –Historically, these have been administratively “messy” for QSEs and ERCOT given our extended settlement process. The process can result in Weekly short payments over a six month period, often for very small amounts Up to six monthly uplifts as finals and true-ups are processed When Late Fees are not paid by the defaulting entity, short paid QSES end up with multiple invoices with unpaid balances for Late Fee amounts –2006 / 2007 was the last time we went through a series of short payments and uplifts

4 February 10, Short Payments and Uplifts ERCOT approached the short payment / uplift process differently this time in an attempt to ease some of the administrative aspect for QSEs and to try to provide an easier audit trail –It does requires a final reconciliation or “true up” (rather than weekly small transactions), however –QSEs will end up in the same place under either approach QSE’s representing load will have the same amount of uplift under either approach Short paid QSE’s will receive the same amount of funds under either approach It is time for the final reconciliation Shortpayment on Friday January 30 th –For a final $188 for Late Fees –ERCOT oversight - Notice went out late (on Monday rather than Friday)

5 February 10, Short Payments and Uplifts The market experienced short payments when 5 market participants left the market. All collateral was applied before short payments were made.

6 February 10, Short Payments and Uplifts After the short payments in June/July 2008, defaulting entities were due credits arising from Finals and True Ups. ERCOT held these payments. –Cash from credits held were used to pay subsequent invoices pending a final reconciliation of activity Eliminated weekly short payments of $100 to $10,000 Allowed uplift to occur in 2 rather than 6 installments –Final credits held will be distributed with final uplifts –Late fees initially paid (totaling less than $200,000 market-wide) will be recovered through a Miscellaneous Debit Therefore, back up for unpaid Late Fees will be available in one place and can be tracked back to original amounts –All short paid invoices in 2006 will be reflected as “paid” in full –Reconciliation summary will be provided

7 February 10, 2009 Late Fee Recovery Over the last 6-7 months, QSEs received late fee credits on their invoices (in total, less than $200K market wide) A Miscellaneous Debit will be used to recover Late Fees –The Miscellaneous Debit will be applied on the regular Settlement Invoice (Settlement Invoice due date = Uplift Invoice due date) –Money collected via the Misc DB will be used to repay principal balances associated with the default, thus the money will be paid out as part of the Uplift Invoice payout the following day –In Lodestar all historical balances will show paid in full –See calendar slide for details This Late Fee recovery is Late Fee credits associated with the defaults

8 February 10, 2009 Calendar for final uplift and late fee recapture February 2009 SundayMondayTuesdayWednesdayThursdayFridaySaturday COPS 11 - Market Notice for Uplift Invoice 12 - Market Notice for Misc Debit for Late Fee Recovery 13 - Misc Debit for Late Fee Recovery added to Initial TD 02/05/ Initial Statement for TD 02/05/09 posted w/Misc Debit Settlement Invoice posted for Initial that contains the Misc Debit - Feb Uplift Invoice issued (30 days after Jan Uplift Invoice issued on 01/20/09) Settlement Invoice Due Date for invoices that contain the Misc Debit - Feb Uplift Invoice Due Date 27 - Feb Uplift Invoice Pay Out which includes the Late Fees collected from the Settlement Invoice due 1/26/09 28