1. TEXAS NODAL Board Review and Approval August 19, 2003

2. 2 Approve Texas Nodal Design Process Approve selection of Independent Facilitator and Independent Coordinator Identify process for selecting additional resources AGENDA

3. 3  Board directed TAC and ERCOT to consolidate recommendations (and provided direction via straw votes)  TAC and ERCOT agreed (in principle) to a single approach  Board sub-group chaired by Bob Manning directed ERCOT to submit proposed approach and recommendations on Independent Facilitator and Independent Coordinator to Board for approval Background

4. TEXAS NODAL Market Design Structure and Process August 19, 2003

5. 5  Process  Facilitation & Coordination Team  Roles and Responsibilities Overview of Proposal

6. 6 Stakeholders Process Overview Board of Directors Timely Compliance with PUCT Order PUCT Oversight, Direction & Protocol Approval Implement Board Directives Stakeholder vetting Member voting MOD Advice / Updates Independent Facilitator Independent Coordinator ERCOT Coordinator ERCOT Staff Support MOD Guidance CBA Consultants TAC Unresolved Positions Request Approval Request Approval Remand Unresolved Positions Economic Experts

7. 7 Roles and Responsibilities Public Utility Commission: - Resolve appeals from the Board - Resolve disputes arising from Board decisions - Monitor progress and provide feedback - Final approval of protocols Market Oversight Division: - Actively participate in all Design and Protocol Development activities - Advise PUCT on Design and Protocol Development phase developments - Ensure compliance with PUCT rules and orders

8. 8 Roles and Responsibilities ERCOT Board: - Approve design and protocols - Approve facilitators/experts as needed - Rule on disputes and appeals - Provide guidance to MPs and ERCOT staff on financial parameters

9. 9 Roles and Responsibilities Independent Facilitator: - Chair “RUG – like” group facilitation process - Ensure and administer Design and Protocol Development phase voting on all issues - Consolidate and present recommendations to Board - Report monthly status to Board and TAC - Report status to PUCT as requested Market Participants: - Development of straw dogs - Participate actively - Right to appeal minority position(s) through TAC

10. 10 Roles and Responsibilities Independent and ERCOT Coordinators: - Establish agendas and provide notice of meetings - Coordinate development of work plans and schedules - Organize flow of issues consideration and discussion - Plan/coordinate stakeholder education activities about nodal markets - Ensure communications with stakeholders, e.g., website, webex, etc. - Gather white papers, diagrams or other materials as necessary - Track and follow up on schedules, issues, and assignments - Coordinate presentation and as needed development of straw dogs - Assigns presenters for recommendations in the “RUG-like” group facilitation process - Request engagement of economic experts and CBA consultants

11. 11 Roles and Responsibilities Technical Advisory Committee: - Co-Sponsor (with ERCOT) Facilitation and Coordination - Review unresolved positions - Present briefing materials for ERCOT Board on unresolved positions - Advise ERCOT staff during implementation phases Standing TAC Subcommittees: - Primary focus on on-going market operations - Provide advice as necessary during Design and Protocol Development - Coordinate with ERCOT staff during the implementation phases

12. 12 Roles and Responsibilities ERCOT Staff: - Co-Sponsor (with TAC) Coordination Group process - Continue to operate and fine tune existing market systems - Maintain website with agendas, straw dogs, minutes, issue resolutions, etc. - Provide program logistical and staff support - Provide technical advice as necessary during design, protocol and cost benefit analysis phases - Develop cost estimates of proposed alternatives - Prepare design and protocols filings for PUCT consideration - Lead responsibility for implementation phases

13. 13 Design and Protocol Development Phase Voting Structure 1.All persons attending the “RUG-like” group meetings may participate, but may vote only if representing an ERCOT member (“Member”). 2.For each “RUG-like” group meeting, each Member must designate a representative to vote each of their fractional votes on their behalf. 3.A representative may only represent multiple fractional votes that belong to up to “n” Members in one ERCOT segment as defined below. 4.Members will be grouped into the same seven segments as those that will apply to the ERCOT Board of Directors in December 2003. Corporate members must vote in their segment. Other members must designate a segment. This designation shall be in force throughout the “RUG-like” group meetings. 5.Each segment shall have one vote. Members in each segment shall have fractional votes adding up to one per segment. 6.Except for the Consumer segment, the fractional vote for each Member shall be equal to one divided by the number of Members present and voting in their segment. For example, if a segment has ten Members present and voting, then each Member would have a fractional vote equal to one-tenth. 7.The Consumer segment will be grouped into three sub-segments – Residential, Commercial and Industrial. Members in each sub-segment shall have fractional votes adding up to one divided by the number of sub-segments present and voting. The fractional vote for each Member shall be based on the number of Members present and voting in their sub-segment. For example, if all three sub- segments are present and voting and if a sub-segment has three Members present and voting, then each Member would have a fractional vote equal to one-ninth.

14. 14 Design and Protocol Development Phase Voting Structure Cont. 8.Abstentions. For purposes of voting, representatives who abstain from voting shall not have their votes included in the total number of votes from which the requisite percentage of affirmative votes is required for action. In the event of such abstentions, however, there must be an affirmative vote of (I) the requisite percentage of the remaining non-abstaining votes and (ii) at least 50% of the total members. 9.Representation from four of seven segments is required for a quorum. 10.If 67% or more of the sum of all fractional votes are in favor of a motion, then the motion will pass. 11.If a motion fails to get a 67% vote, then the Independent Facilitator shall determine if further efforts to get a 67% vote appear achievable within a reasonable time frame. If it is determined that further efforts are not reasonable, then the motion will fail. The Independent Facilitator shall either (i) remand the failed motion to the Independent Coordinator for further stakeholder work or modification, or (ii) report the failed motion to the Board and TAC as an unresolved position, or (iii) request urgent resolution by TAC, Board or the Commission.

15. 15 Recommendation Independent Facilitator: Trip Doggett  25 Years of Experience, 20 Years Energy Market Experience, including other ISO’s  Phase 2 and EMS Release 3.0 Business Team Lead and Facilitator  Strong, yet inclusive facilitation skills, ideal for this effort Independent Coordinator: Vikki Gates-Cuddy  12 Years of Experience, 8 Years in the Energy Market, including other ISO’s  Market Testing and Protocol lead during initial ERCOT market implementation  Delivery record is exemplary on ERCOT projects  Capable of delivering on required efforts Note: Both are well-known to Market Participants, have exemplary delivery records, and and are currently under contract to ERCOT

16. 16 Other Resources Goal: Develop Pool of Available Resources  Create Request for Qualifications “RFQ” template for outside resources using industry standard job definitions  Issue RFQ via ERCOT website; actively solicit interest among known vendors and others who have been identified to ERCOT  Create master list of outside resources, their skill sets, and rates (sourcing matrix)

17. 17 Other Resources (Cont’d)  Provides entry point for vendors and other experts to make themselves known to the Texas Nodal Design team  ERCOT sourcing team will review candidates and make recommendations  Services will be selected from this pool as needed

18. 18 Conclusions A market design process has been developed that is acceptable to (almost) all It incorporates many opportunities for stakeholder input It recognizes the growing capability of ERCOT staff to manage such efforts Recommend approval of the process -- and the leaders who will make it work