The credit exposure impact of higher system-wide offer caps was estimated using an internal ERCOT model under four scenarios: 1.(Base Case) “Normal” summer day in which no peak price intervals are reached 2.Approximate maximum exposure in August 2011 (two days with peak prices over two weeks, 12 intervals at cap) 3.Four days with peak prices over two weeks 4.Six days with peak prices over two weeks Credit Impact of Increased Caps

The following assumptions were used to estimate credit exposure: “Normal” summer daily volume Volume increase on days with peak intervals Number of peak intervals in Real-Time and Day-Ahead markets How net load entity requirements are filled: self-generation, bilaterals, Day-Ahead or Real-Time Market, for both peak- and non- peak periods Average Real-Time and Day-Ahead Market prices In the stress scenarios the variables changed were the price caps and the number of days and intervals with peak pricing. Model Assumptions

The model was calibrated by comparing to historic actual daily exposure levels. However, the following should be noted: The model does not reflect potential changes in behavior in response to higher caps. Load fulfillment strategies will differ by participant. The model was designed to estimate aggregate market exposure, not that of individual market participants. Actual credit exposure calculations are dependent on actual and historical market behavior of individual participants. Credit exposure calculations do not incorporate revisions from NPRR 347/400 expected to be implemented in late Model Assumptions

The chart below shows the modeled sensitivity of credit exposure to different price cap levels. Results August 2011

In the base case price caps have no impact. In Scenario 2 (August 2011) doubling the cap increases credit exposure by a factor of approximately 1.5. Results

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