DALE MCWG / CWG 3/10/2010

DALE History NPRR 139 - ACL, EAL, FCE Calculation Updates Excluded CRR DAM Settlements from extrapolation “Congestion Revenue Right’s (CRR’s) future exposure is represented by Future Credit Exposure (FCE) calculations. Including the CRR Invoices in Daily DA Liability Extrapolated (DALE) and Average Daily Transaction Extrapolated (ADTE) calculations result in calculating the future exposure more than once for CRR activity. Hence the CRR activity needs to be excluded from DALE and ADTE calculations”

NPRR 139 Oversight Similar to CRR offsets not being recognized in DAM prior to NPRR 323, the exclusion of CRRs from DALE does not recognize that Counter- Parties use CRR Options and Obligations in tandem with purchases of PTP Obligations in DAM for hedging Real Time Congestion risk. The combination of CRR PMT, FCE, ADTE, AIL and the Uth%ile collateralizes the notional value of the CRR and the potential risk of Real Time Source prices exceeding Real Time Sink Prices in the event RT obligations do not materialize. The combination of collateral resembles how PCRRs that flow to Real Time are collateralized for forward risk. A PCRR that is offered into the DAM at a price that exceeds the clearing price, will not result in a Day Ahead invoice value since the PCRR Option was not sold Day Ahead and will settle in Real Time. The DALE forward risk determinant has no reference to a purchase of a PTP OBL since it is not relevant.

Cash Flow / Credit Example Example: CRR Purchase for hedging Real Time Congestion exposure Assumptions: 1MW Award, ACP = $1.00= DA SPPsink-SPPSource = RT SPPsink-SPPSource, Uth%ile =$1.00, PCRR OPT Cost = CRR OBL Cost, FCEOBL = FCEOPT, PCRR Offer > [DA SPPsink-SPPSource] Current – CRR Hedge for RT Congestion CRR Bid CRR PMT FCE DAM (w/NRR 323) OUT (DA) DALE OUT (RT) Max AIL , ADTE CRR OBL -$2.00 -$1.00 -$1.5 -$1.0 $0.0 -$16 WC Balance $-2.5 -$3.5 -$19.5 Current – PCRR Hedge for RT Congestion CRR Bid CRR PMT FCE DAM (w/NRR 323) OUT (DA) DALE OUT (RT) Max AIL , ADTE PCRR OPT N/A -$1.00 -$1.5 $0.0 WC Balance $-2.5 -$2.5 3 Differences: (1) Auction Bid, (2) DAM Bid, (3) DALE

DALE Solution(s) Ideas to evaluate Include all CRR settlements in DALE Exclude DAM PTPs where a CRR expired Include CRRs where a DAM PTP cleared