Nodal Credit Limit Overview Credit Work Group May 28, 2008 Cheryl Yager

Overview Calculation of Available Credit Limit (ACL) Timeline for establishing ACL Credit limits are established on Business Days Credit limits for CRR Auction Credit limits for DAM Auction Credit limit examples Clarification needed

Calculation of Available Credit Limit (ACL) Per section , the Available Credit Limit (ACL) is as follows: –ACL = 90% of the net of a Counter-Partys Unsecured Credit Limit; plus Collateral; minus Total Potential Exposure (TPE) TPE will be reviewed in conjunction with the TPE Reports In the next few slides we will review the timeline for determining the ACL

Timeline for establishing ACL ERCOT credit staff receive preliminary TPE and ACL calculations from the Credit Monitoring system (around 7:00 am on Business Days) –Data includes Payments (invoice or collateral) received by ERCOT through prior day New invoices or settlement statements issued through prior day Estimated data through prior day (real time, DAM, etc) ERCOT credit staff review and approve calculations, issue collateral calls, etc –Note: if a collateral call is necessary (e.g. exposure is in excess of collateral), the Counter-Party to whom a collateral call is made will not be able to bid in the DAM or CRR auction the following morning. Post preliminary reports on MIS as soon as verified, around am

Timeline for establishing ACL The Credit Monitoring system is updated intra-day on Business Days for –payments received by ERCOT same day through noon (invoice or collateral) –updates for the mornings DAM energy purchases and sales –updated calculations from overnight, if needed –bilateral trades approved current day –other, as needed By 4:30 pm on Business Days, ERCOT credit staff –provide 90% of Available Credit Limit (ACL) to CRR system for following day auctions The CRR system will send back a confirmation of how much of the credit limit is being retained By 6:00 pm on Business Days, ERCOT credit staff –provide a credit limit to the DAM system that is 90% of the ACL less what was retained by the CRR system. –post final reports on MIS

Credit limits are established on Business Days Credit limits are provided to the CRR and DAM systems on Business Days. The DAM system will use the last credit limit received until a new limit is received. –For example, if a $5,000,000 credit limit is sent to DAM on Friday evening, this limit must accommodate all DAM auction activity for Saturday, Sunday and Monday) If $2,000,000 is used in the Saturday am auction, then $3,000,000 will be available for the Sunday am auction If $2,500,000 is used in the Sunday am auction, then $500,000 will be available for the Monday am auction

Credit limits for CRR Auction Credit Requirements for CRR Auction Participation (1)Each Counter-Party participating in any CRR Monthly, Annual or other auction as permitted by Sections , Repossession of CRRs by ERCOT, and , Declaration of Forfeit of CRRs, shall communicate to ERCOT the credit limit it would like to establish for the CRR Auction (Note: this is accomplished through the CRR system) no later than three Business Days prior to the close of the CRR bid submission window. (2)ERCOT shall assign the credit limit for each Counter-Party participating in any CRR Auction as the lower of 90% of ACL or the Counter-Partys requested credit limit no later than two Business Days prior to the close of the CRR bid submission window. ERCOT, in its sole discretion, may increase the credit limit until the close of the CRR bid submission window. (3)ERCOT shall impose a credit limit in awarding bids and offers in the CRR Auction as described in Section , Auction Process.

Credit limits for CRR Auction Note: Once the credit limit is set for the CRR Auction two Business Days prior to the close of the CRR bid submission window, the CRR limit will not be reduced until the auction is complete even if the available credit is not adequate to cover the assigned credit. However, –ERCOT will issue a collateral call to cover both the TPE and the CRR credit limit assigned –The Counter-Party will not be able to bid in the DAM market until additional collateral is received –CRRs will not be awarded unless paid for –Currently, there is no final check set up to verify that adequate collateral is held before the auction is finalized

Credit limits for DAM Auction Credit Requirements for DAM Participation (1)ERCOT shall impose a credit limit on each Counter-Party participating in the DAM as the difference between 90% of the ACL and any CRR Auction credit limit assigned. (2) ERCOT shall impose the credit limit for DAM Participation calculated in item (1) above on the Counter-Partys QSEs and all Subordinate QSEs combined participation in the DAM as described in Section , Credit Requirement for DAM Bids and Offers.

Credit limit examples

Clarification needed In the Protocol language: ACL is defined as 90% of Total Credit Limit less TPE The Credit Limit available for CRR and DAM auctions is 90% of ACL Is this what was intended?