Credit Updates Vanessa Spells Credit Work Group ERCOT Public April 19, 2017

Credit Updates Approved Revision / Change Requests * Estimated Target Release Date is May 2018 (not firmed up until the project moves to Execution (E) phase) Project Status Codes: NS = Not Started, I = Initiation, P = Planning, E = Execution, H = On Hold TBD = To Be Determined

Credit Updates CMM Tech Refresh Project (phrase 1) execution in process Project (phrase 2) planning in process Audited financials and Standard Form Agreement Attachment A required by April 30th for Counter-Parties with December 31, 2015 financial year ends Regular CWG/MCWG update at June F&A/Board Seasonal Adjustment Factor (SAF) revision: June 110% July 125% August 200% September 100%

Credit Updates Implemented Change Requests NPRR 673 - Correction to Estimated Aggregate Liability (EAL) for a QSE that Represents Neither Load nor Generation NPRR 671 – Incorporation of DAM Credit Parameters into Protocols NPRR 670 – Clarification of Portfolio-Weighted Auction Clearing Price (PWACP) NPRR 612 – Reduction of Cure Period Subsequent to Event of Default SCR 778 – Credit Exposure Calculations for NOIE Options Linked to RTM PTP Obligations NPRR 559 – Revisions to MCE Calculation NPRR 597 - Utilize Initial Estimated Liability (IEL) Only During Initial Market Activity NPRR 601 - Inclusion of Incremental Exposure in Mass Transitions to Counter- Parties that are Registered as QSEs and LSEs and Provide POLR Service NPRR 639 - Correction to Minimum Current Exposure NPRR 690 – Incorporation of Creditworthiness Standards in Protocols NPRR 692 – Removal of MIS Posting Requirement of DAM Credit Parameters NPRR 728 - Removal of Language Related to NPRR484, Revisions to Congestion Revenue Rights Credit Calculations and Payments, and NPRR554, Clarification of Future Credit Exposure Calculation ERCOT Public

Credit Updates Implemented Change Requests NPRR 741 - Clarifications to TPE and EAL Credit Exposure Calculations Implemented only language clarifications part Change for removal of “abs” from MCE formula is not yet implemented NPRR 773 – Broadening Scope of Acceptable Letter of Credit Issuers NPRR 791 – Clarifications to IEL, MCE, and Aggregate Amount Owed by Breaching Party NPRR 803 – Remove Grey-boxed Language from NPRR 439, Updating a Counter-Party’s Credit Limit for Current Day DAM Withdrawn Change Requests SCR 785 – Update RTL calculation to include Real-Time Reserve Price Adder-based components NPRR 811 – Two Day Cure Period for Foreign Market Participant Guarantee Agreements

2017 Credit Working Group Goals Provide support to the ERCOT stakeholder process incorporating a forward price curve-based methodology (NPRR800) in collateral requirement calculations Clarify the market’s risk tolerance/appetite level and provide regular updates on credit exposure to the ERCOT Board Evaluate and quantify potential market risk under current credit rules and examine a framework for reviewing rules in flight Explore methodologies to incorporate Counter-Party specific ratings into ERCOT collateral requirement calculations Participate in TAC/WMS-lead discussions related to credit in the event of a market continuity business interruption Explore potential usage of letter of credit/credit insurance

2017 Credit Working Group Goals Pursue a calculator to allow market participants to calculate their requirements for CRR auctions ERCOT’s comments: Prior to the auction, the CRR Calculator would estimate the collateral needed to participate in the CRR auction. The CRR Calculator would require an SCR for implementation. Also, the SCR would allow for an IA to estimate the cost of the application.

Credit Updates Questions