1 Letter of Credit Issuer Concentration CWG/MCWG October 30, 2014 ERCOT Public

2 In its April 26, 2013 meeting CWG approved a methodology for setting Letter of Credit concentration limits F&A agreed to this approach in July. The Committee also requested that an alternative limit structure be tested that utilized Tier 1 Capital It was agreed that the proposed limit structure would be tested throughout the summer months before seeking approval from F&A Letter of Credit Concentration Limits ERCOT Public Sample report:

3 Letter of Credit Limit calculated as the maximum of –$750M per Letter of Credit issuer –Tangible Net Worth adjusted for credit rating Proposed Limit Structure ERCOT Public Per F&A request, ERCOT also computed limits based on issuing bank Tier 1 Capital instead of Tangible Net Worth

4 Results Top 10 issuers comprise 90% of the value issued No issuer met or exceeded the overall limit nor had constrained capacity ERCOT Public

5 Next Steps ERCOT will report results to the Finance & Audit Committee on November 18 th ERCOT supports use of the Total Net Worth parameter rather than Tier 1 capital: -TNW more transparent for Market Participants -Consistent with current ERCOT credit calculations ERCOT will continue to report outstanding LC concentration and unused limit by issuer ERCOT Public