1. March 13, 2013 ERCOT Public CRR Transaction Limits NPRR463 Implementation Update Matt Mereness ERCOT Manager Day-Ahead Market and CRR Auction

2. 2 Agenda Implementation timeline of NPRR463 TAC approval needed for transaction limits per protocols Limited analysis and evidence Recommended options for WMS/TAC consideration ERCOT PublicFebruary, 2012

3. 3 ERCOT PublicMarch 2013 NPRR463 “CRR Auction Structure Enhancements” Board Approved June 2012 A.K.A. 6-month Rolling Auction or Long-Term Auction Sequence Milestones and Key Dates -Internal -September development of Nexant scope/requirements -Oct/Nov focus on Integration issues/scope -October FTE hired to support rolling auction started -December 19 project moved into Execution -Internal testing Jan/Feb/Mar (FAT and iTest) -External -Dec 31 ERCOT released draft CRR Calendar inclusive NPRR463 Long-Term Auction -WMS & TAC reviewed and approved CRR Calendar -Market Notice of CRR Calendar released and posted Feb 7 -Market Notice of NPRR463 Go-Live Released March 1, 2013 Included details of NPRR463 Q&A webex/calls March 20 & 22 -Review of Bid Transaction Limits (CMWG/WMS- March) -Seeking March Board Approval of NPRR521 (increase Seq 1 from 60% to 70%) -TAC approval of Bid Transaction Limits (April 4 meeting) -Go-Live April (Models post April 2, Auction Notice post April 10, Credit Lock April 29) Outline of key dates for Rolling Auction Transition

4. 4 TAC Approval needed for CRR transaction limits 7.5.2CRR Auction Offers and Bids (b)The Technical Advisory Committee (TAC) shall establish transaction limits for the CRR Auctions for Participating CRR Account Holders. As part of TAC consideration to establish or change transaction limits, ERCOT shall provide upon TAC request to TAC or a TAC-designated subcommittee the historical number of transactions submitted by each CRR Account Holder and the number of active CRR Account Holders aggregated up to the associated Counter-Party for each requested CRR Auction without identifying the names of the CRR Account Holders or Counter-Parties. Upon TAC approval of a change in transaction limits, ERCOT shall post these values as part of the next regularly scheduled CRR Auction Notice. Only Participating CRR Account Holders are allowed to submit transactions in the relevant CRR Auction. Current approved TAC limits are: –7,500 transactions (offers and bids) for monthly –2,500 transactions for Year 1 Annual Auction (retired) –3,500 transactions for Year 2 Annual Auction (retired) Needed are TAC limits for Long-term Auction Sequences –Sequence 1 – First 6-months (60-70% model) –Sequence 2 – Second 6-months (45% model) –Sequence 3 – Third 6-months (30% model) –Sequence 4 – Fourth 6-months (15% model) ERCOT PublicFebruary, 2012

5. 5 Limited analysis and evidence CRR transaction limits Issue at hand: With the current market design and vendor capabilities, no CRR auction can process more than 200,000 CRRs (potential increase by end of year) Existing inventory is counted as transactions, so a “compounding effect” as discussed at TAC last year prior to annual auctions (Y2+Y1+Monthly ownership) Rolling auctions increase compounding effect (see below) ERCOT PublicFebruary, 2012 200,000 Transaction Limit PCRR Yr2- Ownership Yr1- Ownership PCRR Seq4- Ownership Seq3- Ownership Seq2- Ownership Seq1- Ownership Prior AnnualRolling Auction Bid transaction capacity remaining for Monthly bids/offers

6. 6 Limited analysis and evidence CRR transaction limits The only market data to consider multi-month bidding effects are annual CRR Auctions: ERCOT PublicFebruary, 2012 200,000 Transaction Limit PCRR Yr2- Ownership Yr1- Ownership PCRR Seq4- Ownership Seq3- Ownership Seq2- Ownership Seq1- Ownership Prior Annual 12-months Rolling Auction 6-months 2500 limit > 133k trans > 39k CRRs 3500 limit > 121k trans > 23k CRRs - Transaction bid limit - Number of transactions in auction - CRR Inventory awarded

7. 7 ERCOT PublicMarch, 2013 Transaction Bid Limit Details For Year 1/2013 annual auction ran in Nov 2012 (which had 2500 limit): Total number of Transactions (bids and offers) entered by market into the auction 133k Total number of Awards 39k Number of Transactions that were 12-month strips 29k Number of Awards that were 12-month strips 5.5k Number of Transaction that were more multi-month (including the 12-month) 75k Number of Awards that were multi-month 17k Number of CRRAH that bid more than 2,400 bids 21 of 118 Repeat for Year 2/2014 annual auction ran in Dec 2012 (which had 3500 limit) Total number of Transactions (bids and offers) entered by market into the auction121k Total number of Awards 23k Number of Transactions that were 12-month strips 31k Number of Awards that were 12-month strips 3k Number of Transaction that were more multi-month (including the 12-month) 71k Number of Awards that were multi-month 8k Number of CRRAH that bid more than 3,400 bids 5 For monthly auctions in 2012 (7500 limit) Total average number of transactions submitted120k Average number of awards 15k Number of CRRAH that bid more than 7,400 bids5 to10

8. 8 Consideration of Monthly Market Bidding Activity ERCOT PublicFebruary, 2012 Monthly auction activity is 100k-140k To maintain that monthly liquidity, need to consider restricting transaction limits to only sell in previous 4 auctions a total of 60-100k, Else consider curtailing monthly bid transaction limit below 7,500.

9. 9 Recommended options Option 1: –Single 2,000 limit for all 4 Sequences Allows each Counterparty 6,000 bids/offers for each 6-month period 1,000/month - 6,000/multi-month-strips Can observe market behavior of single limit to assess next auction Option 2: –Decreasing limits for forward sequences 2,500 / 2,250 / 2,000 / 1,750 (Seq1-4 respectively) Protects future inventory from overselling ERCOT opinion –Start with Option1 in Spring, and consider evolving to Option2 in Fall Sequences (re-vote in fall) ERCOT PublicFebruary, 2012

10. 10 ERCOT PublicMarch, 2013 APPENDIX

11. 11 ERCOT Public NOTICE DATE: March 1, 2013 / NOTICE TYPE: M-A030113-01 CRR / DAY AFFECTED: April 1, 2013 SHORT DESCRIPTION: Implementation details for NPRR463 INTENDED AUDIENCE: CRR Account Holders, Counter-Parties, and credit personnel LONG DESCRIPTION: On April 1, 2013, Nodal Protocol Revision Request (NPRR) 463, CRR Auction Structure Enhancements, shall become effective. NPRR463, which was approved by the ERCOT Board on June 19, 2012, replaces the annual Congestion Revenue Right (CRR) Auction with a semi-annual sequence of four consecutive six-month CRR Auctions, defined as CRR Long-Term Auction Sequences. As presented to and approved by the Technical Advisory Committee (TAC) on February 7, 2013, ERCOT will implement and execute the first Long-Term Auction Sequence in accordance with the TAC approved CRR Activity Calendar. The implementation of NPRR463 is a significant change in CRR market design, structure, and timing. In order to help the market with transitional issues, ERCOT will be hosting two WebEx meetings to present an implementation overview, key dates, and to answer any questions from Market Participants. The intent is to cover the same standard material with each WebEx, so Market Participants are not expected to attend both sessions. The meeting dates are as follows: Wednesday, March 20, 2013 (14:00 – 15:30 CPT) http://www.ercot.com/calendar/2013/03/20130320-CRR Friday, March 22, 2013 (10:00 – 11:30 CPT) http://www.ercot.com/calendar/2013/03/20130322-CRR Protocols for NPRR463 will become effective on April 1, 2013, followed by the key dates and activities below that will be further reviewed on the market calls. Long-Term Auction Sequence 1 (CRRs for July – December 2013) Post Network Model – April 2, 2013 Post Auction Notice and open Credit Window – April 10, 2013 Credit Lock – April 29, 2013 Bid submission close – May 2, 2013 Results posted – May 16, 2013 Long-Term Auction Sequence 2 (CRRs for January – June 2014) Summary of dates from Credit Lock to CRR Results being posted – May 20 – June 6, 2013 Long-Term Auction Sequence 3 (CRRs for July – December 2014) Summary of dates from Credit Lock to CRR Results being posted – June 10 – 27, 2013 Long-Term Auction Sequence 4 (CRRs for January – June 2015) Summary of dates from Credit Lock to CRR Results being posted – July 1 – 18, 2013 Reminder that monthly auction activities are not changed by NPRR463 and will continue to run in parallel to the Long-Term Auction Sequences. As part of this implementation, CRR Auction Revenue (CARD) Extracts will start containing Bill Determinants with suffixes in the format of “YYYY-N-S” representing the year, number and sequence used for the corresponding Annual CRR Auctions. This will start with the July 2013 CARD Extract. ERCOT also plans to discuss NPRR521, Transitional CRR Auction Capacity Value for Initial CRR Long-Term Auction Sequence, on the market calls. NPRR521, which is on an urgent timeline for March TAC and Board consideration, requests for the first auction sequence network model capacity to be increased from 60% to 70%. A Market Notice will be sent with the status of this NPRR after consideration by the ERCOT Board. Market Notice with Market Call information:

12. 12 ERCOT PublicMarch 2013 Spring 2013 CRR Calendar- Long-term Auction Sequences Credit Lock and Run dates April29-May17, 2013 Credit Lock and Run dates May20-Jun7, 2013 Credit Lock and Run dates June10-28, 2013 Credit Lock and Run dates Jul1-19, 2013 MAYJUNEJULY

13. 13 ERCOT PublicMarch 2013 Winter 2013 CRR Calendar- Long-term Auction Sequences Credit Lock and Run dates Oct28-Nov15, 2013 Credit Lock and Run dates Nov18-Dec6, 2013 NOVDECJAN Jan6-Jan24, 2014 Jan27-Feb14, 2014 FEB

14. 14 ERCOT PublicMarch 2013 Approved calendar posted Calendar posted for next 2 years: http://mis.ercot.com/misapp/GetReports.do?reportTypeId=11180&reportTitle=CRR Activity Calendar&showHTMLView=&mimicKey

15. 15 ERCOT PublicMarch 2013 Oversold Risk (reason for NPRR521) 55% System previously sold in Year1 15% System previously sold in Year2 First auction Potential issue beyond only having 5% incremental capacity in Seq 1 Scenario of oversell on 100MW line: Sold Y2 2013 as 15% model -> 15MW award cleared in Y2 Sold Y1 2013 as 55% model Y2 inventory was scaled to 55% of 15MW = 8.25MW reserve Y1 clears remaining 46.75MW (55MW-8.25MW reserved) Sequence 1 Inventory = 15MW + 46.75MW = 61.75MW reserved In sequence 1, no longer scaled with NPRR463 60% Model = 60MW, but already sold 61.75MW Potentially no new sales unless counterflow

16. 16 ERCOT PublicMarch 2013 CRR Roadmap 20122013 Q3Q4 Q2Q3Q1Q4 NPRR 357/430 Credit Q3 NPRR 453 Yr 1 / Yr 2 Execution Q3/4 CRR Upgrade to Linux Hardware Q3/4 2012-2013 work in parallel on: Stress testing 200,000 bid limit on Linux Potential Future Changes: NPRR407 Phase 2 – CRR Credit (initiate 1Q?) SCR769 - Read-only Role (initiate 1Q?) NPRR455 - CRR Shift Factors NPRR484- CRR Credit Calculations CRR API - Leverage new Nexant functionality PhaseShiftTxfrmr Optimization Refine Hub calculation for outage redistribution NPRR463 – 6 month / Rolling Auction Break-up scaling PCRR/CRR Integration fixes and improvements ERCOT configuration / testing Requirements – Oct 2012, Test - Jan, Prod – April

17. 17 ERCOT PublicMarch 2013 Current Auction Structure - 1x/Year OnPeak WkDay OffPeak OnPeakWkEnd OnPeak WkDay OffPeak OnPeakWkEnd In 4 th Quarter of each year, sell next 2 years of CRRs at monthly granularity in an annual 12-month optimization - Year 1 on 55% Model - Year 2 on 15% Model - Optimize each time-of-use across multi-period months for annual - Monthly auction is 90% and optimize across 3 times of use

18. 18 ERCOT PublicMarch 2013 2013 Auction Structure - 2x/Year In 2 nd and 4 th Quarter of each year, sell next 2 years of CRRs at monthly granularity in an 6-month optimization - First 6-months at 60%, Second 6-months 45%, Third at 30%, Fourth at 15% - Optimize each time-of-use across multi-period months for annual - Monthly auction is 90% and optimize across 3 times of use