1 Nodal Market Readiness Cut-Over Activities Kick-Off Meeting May 25, 2010

2 Antitrust Admonition ANTITRUST ADMONITION ERCOT strictly prohibits Market Participants and their employees who are participating in ERCOT activities from using their participation in ERCOT activities as a forum for engaging in practices or communications that violate the antitrust laws. The ERCOT Board has approved guidelines for members of ERCOT Committees, Subcommittees and Working Groups to be reviewed and followed by each Market Participant attending ERCOT meetings. If you have not received a copy of these Guidelines, copies are available at the Client Relations desk. Please remember your ongoing obligation to comply with all applicable laws, including the antitrust laws. DISCLAIMER All presentations and materials submitted by Market Participants or any other Entity to ERCOT staff for this meeting are received and posted with the acknowledgement that the information will be considered public in accordance with the ERCOT Websites Content Management Operating Procedure.

Agenda Introduction Kenneth Ragsdale Cut-Over and Market Transition Lisa Hoover/Kenneth Ragsdale –Background –Scope of Cutover Project –Assumptions for Cutover Approach –Key Cutover Activities –Cutover Timeline –Market Participant Roles & Responsibilities Cut-Over Communication Kenneth Ragsdale Next Steps Lisa Hoover 120 Day Outlook – What’s on the Horizon? Scott Middleton 3

4 Nodal Cut-Over and Market Transition Topics That Will Be Covered Today - ERCOT’s Cut-Over Scope - Cut-Over Assumptions, Decisions and Implications - Key Cut-Over Dates - High-Level Timeline Topics That Will Not Be Covered Today - Post Go-Live Activities Go-Live Procedure Document - Contingency Plans - System Decommissioning/Retirement Plans

ERCOT Nodal Program Operational Readiness & Testing (ORT) Cut-Over and Market Transition 5 Nodal Cut-Over and Market Transition - Background ERCOT’s Cut-Over Structure

10/19/ Background

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What Does “Cut-Over” Mean? -Essentially to migrate or in some cases, to “cut-over” to a new application or system 8 Nodal Cut-Over and Market Transition - Background What Type Of Cut-Over Approach is ERCOT Choosing for Go-Live? -Big-bang -Incremental -Parallel

10/19/ Scope of Cut-Over Project

How Time Frame Was Defined –First triggering event necessary to support Cut-Over; includes both business and technical aspects o Pre Go-Live Activities currently ~120 days out (August) o Post Go-Live Activities related to Nodal currently ~180 days after go-live (June 2011) Scope of Cut-Over for ERCOT –Cut-Over Planning Activities –Training on System and Business Processes –Security and Compliance –Data Preparation, Migration and Reconciliation –Contingency / Fall-Back Plans –Organization and Support Structure –Communication 10 Scope Nodal Market Readiness

11 Timeline Development Nodal Market Readiness How We Worked Through the Development Process: -Started with Timeline of Business Applications with Earliest Go-Live Dates -Looked at Predecessors and Successors Applications -Incorporated Mid-Stream Dependency Applications -Captured Outstanding Questions o Developed List of Decisions, Proposed Assumptions and Implications Example of Artifacts Taken into Account: –Texas Nodal Market Go-Live Procedure –Texas Nodal Market 168-Hour Test Procedure –Market Trials Real-Time Market Testing Market Participant Handbook

10/19/ Cut-Over Decisions

13 Decisions Nodal Market Readiness Key Decisions in Developing Nodal Cut-Over Sequence Timeline No.DecisionBenefitsRisks 1 The 168-Hour Test is considered the end of Market Trials. After that time, there will be no commitment to have the Nodal systems available to Market Participants for testing Market Participants and ERCOT may focus on preparing for go- live Market Participants are still not ready after Market Trials (MOTE/ Submission Testing will be available) 2 No additional Nodal tests are currently scheduled past the 168-Hour Test for Market Participants. It will be at ERCOT’s determination to have additional testing. Market Participants and ERCOT may focus on preparing systems for go- live ERCOT would still have the option to call for additional test if deemed necessary If Market Participants are still not ready after Market Trials (MOTE will be available) 3 ERCOT has no plans of making test data available to Market Participants after Market Trials Will allow the transition into the go-live sequence to begin right after Market Trials end Will not have old history available

14 Decisions Nodal Market Readiness Key Decisions in Developing Nodal Cut-Over Sequence Timeline No.DecisionBenefitsRisks 4 Zonal invoices and statements will be included in the Nodal Exposure Calculation. As a result the credit limit (collateral) will be a shared pool between Zonal and Nodal A single pool of collateral for zonal and nodal activity Reconciliation issues

10/19/ Proposed Assumptions for Cut-Over

16 Proposed Assumptions Nodal Market Readiness Proposed Assumptions in Developing Nodal Cut-Over Sequence Timeline No. Proposed AssumptionBenefitsRisks 5 Grid operations will switch to Nodal control beginning at 14:00 on 11/30/10 to stabilize on the Real-time systems. From a financial standpoint, the switch will occur at mid-night Can treat 14:00 to mid-night as LFC test More staff available during the day Similar to all LFC tests, Zonal congestion costs are lost for 10 hours 6 The Nodal Go-Live Plan originally included that the DAM would not be run until 7-days after nodal go-live. Note that ERCOT has the system flexibility to consider executing the Day-Ahead Market as part of the go-live sequence. All systems, including DAM, will be running, the question is whether to procure energy along with the Ancillary Services on Nov 30 th for December 1 Nov30/Dec1-DAM QSE ability to voluntarily procure energy in the DAM and hedge real-time energy costs on Dec 1 along with co-optimizing ancillary services If there is a need to fail- over during the first seven days back to the Zonal Balancing Market, there are significant re- settlement implications If there is a need in first 7-days of real-time to fail-over back to the Zonal Balancing Market, there are minimal financial implications (no unwinding of a Day-Ahead Market) Dec7/Dec8-DAM QSEs subject to real-time prices and no AS co- optimization (note that CRRs will carry into Real- time)

17 Proposed Assumptions Nodal Market Readiness Proposed Assumptions in Developing Nodal Cut-Over Sequence Timeline No. Proposed AssumptionBenefitsRisks 7 Production outages occurring in the month of December will require dual entry/management in both Nodal and Zonal systems. Additionally, Outages applicable to October and November are only required to be entered in Zonal unless they cross into December. In this case, outages will require dual entry. Can begin approving outages ahead of go- live day Manpower necessary to maintain both Zonal Nodal 8 Once ERCOT begins posting the ACL and TPE details on Nodal, the Zonal reports will be discontinued Single source of reporting Reconciliation issues

10/19/ Nodal Market Readiness Key Cut-Over Activities

19 Key Cut-Over Activities Nodal Market Readiness OctoberNovember Market Trials Market Trials Completes Network Model Deadline to Submit Changes for December Model Network Model Posted to Market December Network Model in Production Outage Scheduler Enter Production Outages for December and Beyond CMM Post ACL Can Post Additional Collateral for December 2010 Auction CRR Begin Accepting PCRR Nominations for December 2010 Auction Run December 2010 CRR Auction Settlements & Billing Payment Due for December 2010 CRR Auction ERCOT Financially Cut-Over to Nodal DAM Market Submission OpensDAM Live RTM Market Submission Opens SCED Live (Set All Competitive Constraints as Non-Competitive) September2010December

10/19/ Cut-Over Timeline

21 Cut-Over Timeline Nodal Market Readiness

10/19/ Market Participant Role and Responsibilities

23 Roles and Responsibilities Nodal Market Readiness A Glance at Market Participant Roles and Responsibilities Network Model Nodal Protocol Section 3.10 goes into effect (Sept. 1) TAC Approval – July 1 st Board Approval – July 20 th Market Notice – July 30 th September 1 st Deadline to Submit Changes for the December Network Model October 15 th Market Validation of the December Network Model December 1 st December Network Model in Effect* * load date tbd

24 Roles and Responsibilities Nodal Market Readiness A Glance at Market Participant Roles and Responsibilities Outage Scheduler Nodal Protocol Section 3.1 goes into effect (Sept. 1) TAC Approval – July 1 st Board Approval – July 20 th Market Notice – July 30 th September 1 st Market Participants to Enter Production Outages for December and Beyond September 15 th Market Participants Having Outages Occurring in December and Beyond Should Be Synchronized Between Zonal and Nodal September 15 th ERCOT to Begin Approving/Rejecting Outages in Production using Both Zonal and Nodal Systems

25 Roles and Responsibilities Nodal Market Readiness A Glance at Market Participant Roles and Responsibilities Credit, CRR and Settlements Nodal Protocol Section 7 goes into effect (Oct. 13) TAC Approval – August 5 th Board Approval – August 17 th Market Notice – September 13 th October 2 nd ERCOT to Pull Network Model and Outage Data October 12 th – 20 th ERCOT to Determine Creditworthiness October 13 th ERCOT to Begin Accepting PCRR Nominations for the December 2010 Monthly CRR Auction October 20 th ERCOT to allocate PCRRs for NOIEs for the December 2010 Monthly CRR Auction Network Model for the December 2010 Monthly CRR Auction Posted October 20 th Model Posted for December 2010 Monthly CRR per Nodal Protocol October 21 st ERCOT to Post ACLs October 24 th ERCOT to Post the December 2010 Monthly CRR Auction Notice November 3 rd ACLs Posted via MIS

26 Roles and Responsibilities Nodal Market Readiness A Glance at Market Participant Roles and Responsibilities Credit, CRR and Settlements (continued) November 4 th – 10 th Start of the Bid/Offer Submission Window for December 2010 Monthly CRR Auction November 7 th CRR Locks Credit November 9 th Can Post Additional Collateral for December 2010 Monthly Auction November 11 th Run the December 2010 Monthly CRR Auction November 16 th Publication of the December 2010 Monthly CRR Auction Results November 17 th Publication of the December 2010 Monthly CRR Invoice November 22 nd Payment Due for December 2010 Monthly CRR Auction November 23 rd ERCOT to Pay CRR Account Holders Owed from December 2010 Monthly CRR Auction

27 Roles and Responsibilities Nodal Market Readiness A Glance at Market Participant Roles and Responsibilities Markets, Operations and Remaining Protocol Sections November 23 rd Nodal Protocol Sections 3, 4, 5 and 6 go into effect as well as all other unimplemented Protocol Sections (Nov. 23) TAC Approval – October 7 th Board Approval – October 19 th Market Notice – October 23 rd November 23 rd Market Submission Opens (7 Day Operational Window) November 30 th ERCOT Grid Operations to Switch to Nodal Control and Execute a Binding DA Market-- o 10:00 Run DAM for Dec.1 o 14:00 Initiate LFC Control of System o 14:30 Run DRUC o 18:00 Adjustment Period for Dec. 1, and run HRUC hourly o 24:00 Settle Market on Nodal Real-Time Prices and Dispatch

10/19/ Cut-Over Communication

29 Cut-Over Communication Nodal Market Readiness Methods of Communication Continued Market Calls -Cut-Over Communication and Announcements -Upcoming Market Participant Dates and Events Market Notices -Upcoming Protocol Dates -Major Cut-Over Events Monthly Nodal Update Meeting -Updates at Board of Directors, SNPC, TAC ERCOT.com -Cut-Over Planning Activities Reference Presentation

10/19/ Nodal Market Readiness Next Steps

Market Readiness Next Steps  Assess Your Readiness  Continue to Actively Engage in Market Trials  ERCOT to Communicate Network Model Transition Plan (June)  Update on Cut-Over to be released on a market call or seminar (July) -Additional Cut-Over Details  Update on Cut-Over and Retirement to be released on a market call or seminar (September) -End Dates of Parallel Support -Decommissioning of Systems  Market Launch Plan (September) 31 Next Steps Nodal Market Readiness

Market Readiness Next Steps  Update on Cut-Over and Contingency Plans to be released on a market call or seminar (October) o What Do We Do If xyz fails? o How Long Would It Take To Fail Back to Zonal if We Had to?  Be Aware of Nodal Protocol Dates and Actions Requested  Cut-Over 60-Day Outlook Updates Through Board of Directors, NATF, and TAC 32 Next Steps Nodal Market Readiness

10/19/ Day Outlook What’s On The Horizon? May 25, 2010

120 Day Outlook : May Market Activities Functional Area Real-Time Market Congestion Revenue Rights Day-Ahead Market Reliability Unit Commitment Outage Scheduler COMS/Settlements Network Modeling Nodal Reports Credit Full Integration Targeted Activities for May 2010 ERCOT ramps to DAM / DRUC 5x / weekly 2hr LFC closed loop test executed ERCOT completes Balance of Year auction ERCOT executes June Monthly CRR Auction ERCOT releases credit integration SASM executed as needed ERCOT executes limited HRUC ERCOT ramps to reflect protocol timelines on a best effort basis JanFebMarAprMayJuneJulyAug 34

120 Day Outlook : June Market Activities Functional Area Real-Time Market Congestion Revenue Rights Day-Ahead Market Reliability Unit Commitment Outage Scheduler COMS/Settlements Network Modeling Nodal Reports Credit Full Integration Targeted Activities for June 2010 Operational scenarios executed 8hr LFC closed loop test executed ERCOT executes July Monthly CRR Auction DAM / DRUC Continues 5x / weekly SASM executed as needed ERCOT executes limited HRUC Protocol timelines on a best effort basis JanFebMarAprMayJuneJulyAug 35

120 Day Outlook : July Market Activities Functional Area Real-Time Market Congestion Revenue Rights Day-Ahead Market Reliability Unit Commitment Outage Scheduler COMS/Settlements Network Modeling Nodal Reports Credit Full Integration Targeted Activities for July 2010 Exercise ‘Normal State’ processes and procedures, including weekends 48hr LFC closed loop test executed DAM / DRUC executes 7x / weekly for two weeks ERCOT executes HRUC 7x24 during 7 day weeks Protocol timelines during 7 day weeks ERCOT executes August Monthly CRR Auction SASM executed as needed JanFebMarAprMayJuneJulyAug 36

120 Day Outlook : August Market Activities Functional Area Real-Time Market Congestion Revenue Rights Day-Ahead Market Reliability Unit Commitment Outage Scheduler COMS/Settlements Network Modeling Nodal Reports Credit Full Integration Targeted Activities for August 2010 August is reserved for focusing on any issues or scenarios encountered in the first 3 months of Phase 5 Real time submission continue ERCOT executes August Monthly CRR Auction SASM executed as needed JanFebMarAprMayJuneJulyAug 37

10/19/