1. = © Property of ERCOT 2001 ERCOT Response to the Nov. 5, 2002 Operational Audit Briefing to ERCOT Board of Directors November 19, 2002

2. © Property of ERCOT 2002 Audit Scope  Assess the level of conformity of the actual operating practices of ERCOT staff with the ERCOT Operating Procedures

3. © Property of ERCOT 2002 ERCOT Operating Procedures Purpose: Serve as detailed “Instruction Manuals” for operators in performing their duties Provide transparency to market on ERCOT operating practices Based on: ERCOT Protocol requirements Designed operating system

4. © Property of ERCOT 2002 Audit Findings Total of 68 activities reviewed 45 activities in full compliance with Procedures 17 activities in material compliance with some inconsistencies 6 activities not in compliance In management’s opinion, audit found no threats to system reliability or proper market operation

5. © Property of ERCOT 2002 Non-Compliant Activities Written Operating Procedures in error Applies to 2 of 6 non-compliant activities ERCOT response – correct procedures Operators not checking system data as required Applies to 2 of 6 non-compliant activities ERCOT response – emphasize in operator training and evaluation Operators not properly logging or posting system conditions Applies to 2 of 6 non-compliant activities ERCOT response – emphasize in operator training and evaluation

6. © Property of ERCOT 2002 Inconsistent Activities Activities not performed consistently between Operators Data Verification Exceptions – 9 of 17 activities Logging and Documentation Exceptions – 5 of 17 activities Exceptions in Operating POS/MOS – 3 of 17 activities Not considered materially non-compliant due to frequency or nature of exception ERCOT Response Focus TrainingOrganizational Enhancement Include in Job EvaluationsImprove Procedure content and System Enhancementmaintenance process