Market Credit Working Group Update to WMS Wed. Sept 16, 2009

MCWG August 2009 Update Overview Update on MCWG work on the two motions approved by WMS in July Update on MCWG work on the two motions approved by WMS in July Mechanics of Options 1, 2, and 3 for Default Methodology Mechanics of Options 1, 2, and 3 for Default Methodology Possible direction on preference by WMS…. Possible direction on preference by WMS…. Future Items for MCWG Future Items for MCWG Next MCWG Meeting Next MCWG Meeting

Update on motions approved by WMS at July Meeting (1) Review options for shared short-pay fund (Participants and ERCOT Inc) Review options for shared short-pay fund (Participants and ERCOT Inc) Expanded loss mutualization for entire market AND accelerated DAM Expanded loss mutualization for entire market AND accelerated DAM Work towards PRR’s to provide to WMS for review Work towards PRR’s to provide to WMS for review

Update on motions approved by WMS at July Meeting (2) August 18 th MCWG Conference Call August 18 th MCWG Conference Call August 28 th MCWG Face-to-face Meeting (plus Webex) August 28 th MCWG Face-to-face Meeting (plus Webex) September 2nd MCWG Conference Call September 2nd MCWG Conference Call

MCWG August Meetings Focus, loss methodology Focus, loss methodology Options Identified for Losses Options Identified for Losses Three options identified Three options identified

Option 2 –Default Methodology Option 2: 180 days later, ERCOT uplifts default amounts using an allocation based on the absolute value of payments and charges where a participant’s allocated portion relative to the corresponding total activity is equal to the absolute value of: 1. The payment for Energy Offers cleared in the DAM at the Settlement Point; plus 2. The charge for Energy Bids cleared in the DAM at the Settlement Point; plus 3. The payment or charge for congestion for its Self-Schedules at the Settlement Point; plus 4. The Real Time Energy Imbalance payment or charge at the Settlement Point less amounts paid to RMR Resources; plus 5. The payment for DC Tie imports at the Settlement Point; plus 6. The Base Point Deviation Charge at the Settlement Point; plus 7. The payments and charges for CRR ownership – Real Time Obligations, Day Ahead Obligations and Obligations with Refunds, Day Ahead Options and Options with Refunds, Real Time Options and Options with Refunds; plus 8. The payment for Flow Gates Rights

Assumptions –Option 2 a. Consider the absolute value of payments and charges at all Settlement Points – Resource Nodes, Load Zones and Hubs b. When payment or charge not available for CRRAH or QSE – assume zero value c. Exclude the following RMR compensation RMR compensation Emergency – BLTR DCTIE Emergency – BLTR DCTIE Oklaunion Oklaunion Capacity payments and Voltage Support Capacity payments and Voltage Support

Participant Activity Ratio Share – Option 2 ( | DAESAMT | p + | DAEPAMT | p + | DAMWAMT | p + | RTCCAMT | p + ( | RTEIAMT | p – | RTEIAMT | p, rmr ) + | RTDCIMPAMT | p + | BPDAMT | p + | RTOBLAMT | source p + | DAOBLAMT | source p + | DAOBLRAMT | source p + | DAOPTAMT | source p + | DAOPTRAMT | source p + | RTOPTAMT | source p + | RTOPTRAMT | source p ) + | DAFGRAMT | ( | DAESAMT | p + | DAEPAMT | p + | DAMWAMT | p + | RTCCAMT | p + ( | RTEIAMT | p – | RTEIAMT | p, rmr ) + | RTDCIMPAMT | p + | BPDAMT | p + | RTOBLAMT | source p + | DAOBLAMT | source p + | DAOBLRAMT | source p + | DAOPTAMT | source p + | DAOPTRAMT | source p + | RTOPTAMT | source p + | RTOPTRAMT | source p ) + | DAFGRAMT | ( ( | DAESAMT | p + | DAEPAMT | p + | DAMWAMT | p + | RTCCAMT | p + ( | RTEIAMT | p – | RTEIAMT | p, rmr ) + | RTDCIMPAMT | p + | BPDAMT | p + | RTOBLAMT | source p + | DAOBLAMT | source p + | DAOBLRAMT | source p + | DAOPTAMT | source p + | DAOPTRAMT | source p + | RTOPTAMT | source p + | RTOPTRAMT | source p ) + | DAFGRAMT | ( ( | DAESAMT | p + | DAEPAMT | p + | DAMWAMT | p + | RTCCAMT | p + ( | RTEIAMT | p – | RTEIAMT | p, rmr ) + | RTDCIMPAMT | p + | BPDAMT | p + | RTOBLAMT | source p + | DAOBLAMT | source p + | DAOBLRAMT | source p + | DAOPTAMT | source p + | DAOPTRAMT | source p + | RTOPTAMT | source p + | RTOPTRAMT | source p ) + | DAFGRAMT |

Option 3 –Default Methodology Option 3: 180 days later, ERCOT uplifts default amounts using an allocation based on MW where a participant’s allocated portion relative to the corresponding total activity is equal to : Option 3: 180 days later, ERCOT uplifts default amounts using an allocation based on MW where a participant’s allocated portion relative to the corresponding total activity is equal to : The amount of its Energy Offers cleared in the DAM at the Settlement Point; plus The amount of its Energy Offers cleared in the DAM at the Settlement Point; plus The amount of its Energy Bids cleared in the DAM at the Settlement Point; plus The amount of its Energy Bids cleared in the DAM at the Settlement Point; plus The amount of its Energy Trades at the Settlement Point where the QSE is the seller; plus The amount of its Energy Trades at the Settlement Point where the QSE is the seller; plus The amount of its Energy Trades at the Settlement Point where the QSE is the buyer; plus The amount of its Energy Trades at the Settlement Point where the QSE is the buyer; plus The amount of its Self-Scheduled quantity at the source and sink Settlement Points; plus The amount of its Self-Scheduled quantity at the source and sink Settlement Points; plus The aggregated generation of its Generators less RMR volumes (multiplied times 4) at the Settlement Point; plus The aggregated generation of its Generators less RMR volumes (multiplied times 4) at the Settlement Point; plus The aggregated Load (multiplied times 4) at the Settlement Point; plus The aggregated Load (multiplied times 4) at the Settlement Point; plus The amount of its DC Tie imports; plus The amount of its DC Tie imports; plus CRR ownership at the source Settlement Point – Real Time Obligations, Day Ahead Obligations and Obligations with Refunds, Day Ahead Options and Options with Refunds, Real Time Options and Options with Refunds; plus CRR ownership at the source Settlement Point – Real Time Obligations, Day Ahead Obligations and Obligations with Refunds, Day Ahead Options and Options with Refunds, Real Time Options and Options with Refunds; plus The total ownership of FGRs. The total ownership of FGRs.

Assumptions Option 3 a. Count quantities at all Settlement Points – Resource Nodes, Load Zones and Hubs b. All quantities at gross – no netting c. When data not available for CRRAH or QSE at a settlement point – assume zero value d. Quantities in MWs e. CRRs counted at Source Settlement Point f. Exclude the following RMR generation volumes RMR generation volumes Emergency – BLTR DCTIE Emergency – BLTR DCTIE Oklaunion Oklaunion

Participant Activity Ratio Share – Option 3 (DAESp + DAEPp + RTQQESp + RTQQEPp + SSSKp + SSSRp + (DAESp + DAEPp + RTQQESp + RTQQEPp + SSSKp + SSSRp + (RTMG1p *4) + (RTAMLp * 4) + RTDCIMPp + RTOBLsource p + DAOBLsource p + DAOBLRsource p + DAOPTsource p + (RTMG1p *4) + (RTAMLp * 4) + RTDCIMPp + RTOBLsource p + DAOBLsource p + DAOBLRsource p + DAOPTsource p + DAOPTRsource p + RTOPTsource p + RTOPTRsource p) + (DAFGR) DAOPTRsource p + RTOPTsource p + RTOPTRsource p) + (DAFGR) ( (DAESp + DAEPp + RTQQESp + RTQQEPp + SSSKp + SSSRp + (RTMG1p *4) + (RTAMLp * 4) + RTDCIMPp RTOBLsource p + DAOBLsource p + DAOBLRsource p + DAOPTsource p + DAOPTRsource p + RTOPTsource p + RTOPTRsource p) + (DAFGR)) ( (DAESp + DAEPp + RTQQESp + RTQQEPp + SSSKp + SSSRp + (RTMG1p *4) + (RTAMLp * 4) + RTDCIMPp RTOBLsource p + DAOBLsource p + DAOBLRsource p + DAOPTsource p + DAOPTRsource p + RTOPTsource p + RTOPTRsource p) + (DAFGR))

Option 1 (Shams to Present) Separate presentation to be provided by Shams Separate presentation to be provided by Shams

Default Methodology Summary Does WMS have a preference for either Option 1, 2 or 3? Does WMS have a preference for either Option 1, 2 or 3? Once Default methodology is completed, then MCWG will begin working on the other part of Motion 2 (further shortening of DAM) as well as Motion 1 (Short-pay fund) Once Default methodology is completed, then MCWG will begin working on the other part of Motion 2 (further shortening of DAM) as well as Motion 1 (Short-pay fund)

Future Items for MCWG Direction of invoice timing change Direction of invoice timing change Perform bottom up review of existing creditworthiness standards (after CCRO Best Practices efforts) Perform bottom up review of existing creditworthiness standards (after CCRO Best Practices efforts) Reduction of settlement cycle due to PRR 568 (7days) Reduction of settlement cycle due to PRR 568 (7days) Further reductions in settlement cycles Further reductions in settlement cycles This includes looking at the potential to reduce the settlement cycle 30% with improved metering This includes looking at the potential to reduce the settlement cycle 30% with improved metering

Next Meeting ~MCWG Thursday September 24, :30 AM -11:30 CST (phone –Do we need in person/ Webex/longer?) Thursday September 24, :30 AM -11:30 CST (phone –Do we need in person/ Webex/longer?) Topics Topics Complete recommendation to WMS on Options 1,2 or 3 for default methodology (if needed) Complete recommendation to WMS on Options 1,2 or 3 for default methodology (if needed) Then second, Further acceleration of DAM (Completes Motion 2 from WMS) Then second, Further acceleration of DAM (Completes Motion 2 from WMS) Third, Short-pay Fund (Motion 1) Third, Short-pay Fund (Motion 1) Hopefully for the October WMS meeting, work on both WMS motions 1 and 2 will be complete. Hopefully for the October WMS meeting, work on both WMS motions 1 and 2 will be complete.