1 M1 Calculation Options CWG/MCWG ERCOT Public December 16, 2013

2 Mass Transition Timing ERCOT Public Given a system limitation of approximately 75,000 transactions/day, the timing of a Mass Transition will differ greatly depending on the Counter- Party. 82% of Counter-Parties with ESIIDs can be transitioned in three days, but 78% of ESIIDs would require seven days or more.

3 M1 ERCOT Public M1 covers additional actions besides Mass Transition.

4 Mass Transition Timing ERCOT Public The total timing of a Mass Transition could range up to 41 days after the operating day assuming transitions take place on weekends and holidays. Note: Assumes two-day cure period. Weighted average transition-only days M1

5 M1 Proposed Approach Proposed approach: Decompose M1 into two components: M1a – Time period required to cover any termination event M1b – Time period to cover mass transitions only M1a applicable to all entities; M1b applicable only to Counter-Parties with Load In M1b, adjust the mass transition days to reflect the decline in potential exposure during the transition period Give credit against M1b to Counter-Parties meeting ERCOT Creditworthiness Standards

6 Calculation 1.Determine number of Counter-Party ESIIDs (n) 2.Determine estimated ESIID switch rate (assumed 75,000/day) (r) 3.Unscaled number of days = u = n/r (round up to whole days) 4.Weighted average transition number of days = s = 2+max(1, (u+1)/2) (round up to whole days) 5.If Counter-Party meets ERCOT Creditworthiness Standards, reduce s by a defined percentage p, (1-Discount Factor) * M1b Example: M1 Proposed Approach

7 Under the proposed methodology, the M1 value for most ERCOT Counter-Parties would decrease. M1 Proposed Approach

8 Questions ERCOT Public