1. Public Meeting on ERCOT’s Proposed 2004 Budget September 3, 2003 Preliminary - Subject to ERCOT Board Approval

2. AgendaBackground Business Considerations Assumptions Proposed 2004 Budget ERCOT System Administration Fee Revenue Requirements Operating Expenses Capital Investment Debt Service MWH Forecast Q&A Discussion Preliminary - Subject to ERCOT Board Approval

3. Schedule June 11Kickoff meeting July 10Budget templates due to Finance July 11-17Internal management review July 18Preliminary budget to directors/mgrs July 21-31Budget revisions August 1-15Internal management review August 26Finance & Audit Committee (F&A) review September 3Public meeting on proposed budget September 11F&A review September 16F&A recommendation to Board October 21Board approval October 24Preliminary PUCT fee filing review October 31 PUCT fee filing Preliminary - Subject to ERCOT Board Approval

4. Business Considerations Dynamic Market Needs Transmission/Resource Planning RMR/Congestion Management NERC Reliability/Compliance Security (Physical and Cyber) Escalating Requirements for Implementing Approved Protocol Revision Requests (PRRs) Preliminary - Subject to ERCOT Board Approval

5. Business Considerations Minimal Opportunity to Analyze & Perform Process Reviews & Improvements Manual Workarounds – Startup Additional Manual Workarounds (new PRRs) Recurring Market Needs (e.g., suspension of true- ups) Limited Resources  Unlimited Requirements Preliminary - Subject to ERCOT Board Approval

6. Business Considerations Technology constraints Multiple System Customizations More Complex Upgrades Many Systems Have Limited or No Development/Test Environments Some Single-source Providers Preliminary - Subject to ERCOT Board Approval

7. Assumptions Operating Expenses Additional FTE’s required to: Satisfy existing expectations of the market Meet requirements of protocol revisions Support capital investments Hardware and software support costs increase with capital spending Consulting costs increased in response to complexity of systems in production and new initiatives such as the Texas Nodal project, data warehouse project, and the SAS 70 type 2 audit Preventative maintenance on ERCOT facilities begins in 2004 Preliminary - Subject to ERCOT Board Approval

8. Assumptions Capital Spending $55 million capital program Possible increase at completion of project priority process 80 percent funded with proceeds from ERCOT’s short-term credit facility Debt Service $13.6 million principal Interest on long-term notes and borrowing under short-term credit facility Preliminary - Subject to ERCOT Board Approval

9. Administrative Fee Comparison 2002 - 2004 $0.33 / MWH $0.22 / MWH $0.44 / MWH Preliminary - Subject to ERCOT Board Approval

10. Revenue Requirement Comparison 2002 - 2004 2004 Revenue Requirements - $133.7 million $99.5 million operating expense Labor SW licenses & maintenance Consultants & contractors $55 million capital expense $44 million debt funded $11 million revenue funded $23.2 million debt service $9.6 million interest $13.6 million principal 2% MWH growth $0.22 / MWH $0.33 / MWH $0.44 / MWH Preliminary - Subject to ERCOT Board Approval

11. Revenue Requirement Comparison 2002 - 2008 $0.22/ MWH $0.33/ MWH $0.44/ MWH $0.58/ MWH $0.67/ MWH $0.74/ MWH $0.77/ MWH Preliminary - Subject to ERCOT Board Approval

12. Revenue Requirement Comparison 2009 - 2013 $0.75/ MWH $0.71/ MWH $0.72/ MWH $0.69/ MWH Preliminary - Subject to ERCOT Board Approval

13. Administrative Fee Sensitivity $0.01of Administrative Fee equals : $3 million of operating expense $3 million / 294,000,000 MWH = $0.01 / MWH $15 million of capital spending 80% leverage (20% equity funding * $15 million = $3 million) 6.8 GWH 2.3 percent deviation from MWH expected in 2004 Calculations ($3 million / $0.44 per MWH = 6.8 GWH. 6.8 GWH / 294 GWH = 2.3%) Preliminary - Subject to ERCOT Board Approval

14. Operating Expenses Preliminary - Subject to ERCOT Board Approval

15. Equity-Funded Capital Preliminary - Subject to ERCOT Board Approval

16. Debt Service Preliminary - Subject to ERCOT Board Approval

17. Revenue Requirement Summary Preliminary - Subject to ERCOT Board Approval

18. 2004 Revenue Requirements Utilization of the System Administration Fee Preliminary - Subject to ERCOT Board Approval

19. 2003 Revenue Requirements Utilization of the System Administration Fee Preliminary - Subject to ERCOT Board Approval

20. Monthly MWH 294 million MWH budgeted for 2004 2 percent growth over 2003 budget 2.1 percent year-to-date growth in MWH 2003 vs. 2002 Preliminary - Subject to ERCOT Board Approval

21. Organizational Chart Preliminary - Subject to ERCOT Board Approval

22. Staffing Increases - 2004 Total increase proposed for 2004 - 130 employees Corporate Administration – 12 employees Information Technology – 35 employees System Operations – 32 employees Market Operations – 51 employees Preliminary - Subject to ERCOT Board Approval

23. Corporate Administration Staffing Increases - 2004 Proposed increase of 12 employees Increased NERC and protocols compliance work Increased number of protocols revision requests Support provided to TAC and other committee and subcommittee meetings Texas Nodal project – program management, legal and financial analysis Preliminary - Subject to ERCOT Board Approval

24. Information Technology Staffing Increases - 2004 Proposed increase of 35 employees Strengthen support of existing applications and hardware Provide production support of new applications such as data warehouse Enhance cyber and physical security Bolster architecture, development and project management staff Nodal impact larger in 2005 and 2006 Develop and maintain procedures necessary for internal control (SAS 70 audit) Preliminary - Subject to ERCOT Board Approval

25. System Operations Staffing Increases - 2004 Proposed increase of 32 employees Add a system operator training shift and additional training staff Provide real time evaluation of system operator performance Increased responsibilities and expectations regarding transmission project planning and approval, generation requirements, congestion management Support protocol required tasks such as performance distribution reports, voltage stability studies, black start studies, transient studies, outage coordination support and ancillary service calculations Preliminary - Subject to ERCOT Board Approval

26. Market Operations Staffing Increases - 2004 Proposed increase of 51 employees Validation of retail customer switching (Replace contractors and consultants currently performing tasks relating to the ESI-ID of record) Support direct load control and other new load research work Perform metering site audits required by protocols and support introduction of competitive metering Provide test support for ERCOT projects, maintenance efforts, and more frequent Texas Set test flights Add “business” project management staff Preliminary - Subject to ERCOT Board Approval

27. Staffing Projections Actual or projected in 2000 through 2003 Budgeted in 2004 10 percent growth in 2005 and 2006 5 percent growth in 2007 No growth in 2008 and future years ERCOT Employees Preliminary - Subject to ERCOT Board Approval

28. 2004 Consulting Services Preliminary - Subject to ERCOT Board Approval

29. 2004 Consulting Services Preliminary - Subject to ERCOT Board Approval

30. Debt and Capital Spending Analysis Preliminary - Subject to ERCOT Board Approval

31. Revenue Requirement Summary Preliminary - Subject to ERCOT Board Approval

32. Questions?