1 Arguments for Continuing Residential Validation Improves Settlement Accuracy Improves UFE Profile Assignment is more correct Arguments to Stop Residential Validation PWG concluded the current Residential Algorithm to be flawed and is working to define new methodology Settlement Accuracy is driven more by data loading improvement UFE more dependent on underlying data Assignment process uses last year’s data to set the profile type for the next year thus the assignment is somewhat dated Profile assignment appears to change with occupancy/usage pattern Residential profiles intended to show electric vs. non-electric heat continues to show > 10% change each year Financial instability exists by initial settlement UFE being out of synch with Final and True-up Annual Validation Continue Residential Profile Changes or Not?

2 UFE – Before Annual Validation Sept. 2003Sept General Magnitude of UFE in 2003 and 2004 the same Slight difference in shape shows less negative UFE in off peak hours in 2004 Restarting Annual Validation may cause shift back to 2003 UFE Shape

3 UFE – After Annual Validation Nov Nov Residential Annual Validation suspended for 2004 Initial Settlement followed Final and True-Up w/o Annual Validation Reduced UFE 2003 vs 2004 due to Improved Data Loading not Validation

Estimate of Annual Validation Changes Active & De-Energized ESIIDs ERCOT data reported to RMS and PWG

Estimate of Annual Validation Changes Active & De-Energized ESIIDs ERCOT data reported to RMS and PWG

6 Annual Validation Continue Residential Profile Changes or Not? Conclusion: If the Residential Assignment Algorithm is broke – STOP using Residential Algorithm until it’s fixed. Work to redefine the Algorithm is expected to be completed in time to make changes for 2006 Validation