Seasonal Adjustment Factor Mark Ruane Credit Work Group ERCOT Public July 23, 2014

ERCOT Public Seasonal Adjustment Factor High price intervals can significantly increase ERCOT market exposure. ERCOT has performed stress testing to approximate the relative impact of higher cap prices on RT credit exposure.

Seasonal Adjustment Factor The Seasonal Adjustment Factor (SAF) is a component of the Minimum Current Exposure (MCE) calculation that serves as a price multiplier ERCOT Public MCE = Max[{ [[[L o, i, d, k * T2 - G o, i, d, k * (1- NUCADJ o ) * T3] * RTSPP i, d, k *SAF] + [RTQQNETES o, i, d, k * T1]]/n}, { [G o, i, d, k * NUCADJ o * T1 * RTSPP idk *SAF]/n}, { DARTNET o, i, d, k * T4/n}] RTQQNETES o, i, d, k = Max [0, [[RTQQES o, i, d, k, c * RTSPP i, d, k *SAF] - [RTQQEP o, i, d, k, c * RTSPP i, d, k *SAF]]] Determination of Total Potential Exposure for a Counter-Party Note that the SAF is not applied to the Estimated Aggregated Liability component of the credit calculation, which is typically larger than MCE.

Seasonal Adjustment Factor The Seasonal Adjustment Factor (SAF is a component of the Minimum Current Exposure (MCE) calculation that serves as a price multiplier. ERCOT Public SAF = Seasonal Adjustment Factor—Used to provide for the potential for Seasonal price increases based on historical trends. ERCOT shall initially set this factor equal to 100%. This factor will not go below 100%. ERCOT will provide Notice to Market Participants of any change at least 14 days prior to effective date along with the analysis supporting the change Determination of Total Potential Exposure for a Counter-Party

Seasonal Adjustment Factor ERCOT Public The current Seasonal Adjustment Factor variable replaced the former SAF with the implementation of NPRR 347/400. The former SAF was a fixed value for each month based on the ratio of prices during historic months with average annual prices. The current SAF has remained at 100% since implementation of NPRR 347/400. The impact of SAF at different values is shown on the following slides using data from August 2013, March 2014, April 2014 and May 2014.

Impact of changing SAF (based on August 31, 2013 market data) ERCOT Public Seasonal Adjustment Factor * Total collateral and unsecured credit, less amounts locked for CRR auction

Impact of changing SAF (based on March 31, 2014 market data) ERCOT Public Seasonal Adjustment Factor * Total collateral and unsecured credit, less amounts locked for CRR auction

Impact of changing SAF (based on April 30, 2014 market data) ERCOT Public Seasonal Adjustment Factor * Total collateral and unsecured credit, less amounts locked for CRR auction Approx. March 2014 impact

Impact of changing SAF (based on May 31, 2014 market data) ERCOT Public Seasonal Adjustment Factor * Total collateral and unsecured credit, less amounts locked for CRR auction

Impact of changing SAF ERCOT Public Seasonal Adjustment Factor

Impact of changing SAF ERCOT Public Seasonal Adjustment Factor

ERCOT Public ERCOT staff recommends increasing the Seasonal Adjustment Factor to a value of 200% effective July 15, 2014, 300% effective August 1, 2014, 150% effective September 1, 2014, and 100% effective October 1, 2014.

Questions ERCOT Public Seasonal Adjustment Factor