1. Transmission Congestion Rights – Credit Perspective April 17, 2014

2. Presentation Goals  Provide a detailed flow of how credit requirements are impacted by the TCR Market  Come away with an understanding of how Credit will be evaluated and assessed during the TCR Auction and TCR Award Periods 2

3. AO – Asset Owner ACP – Auction Clearing Price ARR – Auction Revenue Right CH – Credit Holder CMS – Credit Management System DA – Day Ahead ENS – Estimated Not Settled (Represented as ETCRE in Tariff) ETCRE – Estimated TCR Exposure TCR – Transmission Congestion Rights MCC – Marginal Congestion Component MP – Market Participant OD – Operating Day RT – Real Time Common Acronyms 3

4. Transmission Congestion Rights A TCR serves as a financial hedge against congestion costs 4 DA MCC at Sink location DA MCC at Source Location TCR MW TCR Hours TCR Value

5. Transmission Congestion Rights TCR positions can be submitted in TCR Auctions by: 5 TCR Portfolio ARRs Bids Offers Bid to buy TCR Offer to sell existing TCR Self-convert ARRs Bids, Offers, and ARRs make up a TCR Portfolio during an auction period

6. Sign Conventions A negative TCR Hold means SPP estimates that the potential value of the TCR will result in a liability to the Credit Customer A positive TCR Hold means SPP estimates that the potential value of the TCR will result in a asset to the Credit Customer A positive invoice total will result in a payment by the Credit Customer A negative invoice total will result in a payment to the Credit Customer 6

7. TCR Reference Prices are a two-tiered statistical estimate : TCR Mean Price: Weighted average of what a given TCR might have been worth in an historical reference period TCR Stress Test Price: Weighted percentile value based on adverse market price congestion differentials in a historical reference period TCR Mean Price Max (0, TCR Stress Test Price) TCR Final Reference Price TCR Reference Prices 7

8. TCR Reference Prices are used in: Assessment of TCR Bids and Offers in the various TCR Auctions TCR valuation during the TCR Hold period Determining credit requirements for Secondary Market Transactions A Final Reference Price will be calculated for each source/sink combination for each TCR Product and posted publicly for MP reference 8

9. TCR Netting During TCR Auction period: Exposure for each TCR is evaluated individually There is NO netting between positively and negatively valued Bids and Offers. Netting will take place between ARR’s During TCR Award period: SPP DOES permit netting of positively and negatively valued TCRs Per FERC Order 741: TCR positions are not netted with other trading groups (Virtuals, DA/RT, etc.) 9

10. ARR Netting During TCR Auction period: ARRs will net on a weighted basis. 90% value for positive (positive Reference Prices) ARR’s bid into the Auction. 100% value for negative (negative Reference Prices) ARR’s bid into the Auction. Example: Portfolio of 2 ARR’s bid into the Auction. 10 ARR ValueWeightWeighted Value used for Credit Check ARR1$(90)100%$(90) ARR2$10090%$90 Collateral Requirement$0

11. TCR Lifecycle TCR Bids, Offers and Self- Converted ARRs Received in TCR Auction TCR Awards Published TCR Settled on Day-Ahead Market Results Marketplace Invoices Sent 11 TCR Bid ENS, TCR Offer ENS TCR ARR ENS, and TCR Batch ENS TCR Bid ENS, TCR Offer ENS TCR ARR ENS, and TCR Batch ENS TCR Forecast Award (Acquisition; Disposal and Hold) TCR Award Exposure Roll Off TCR Invoiced

12. TCR Pre-Conditions CH ABC Energy has $100,000 in secured credit Their AO, ABC Energy 1, is participating in the TCR Auction and has been awarded a TCR in a previous auction 12

13. TCR AUCTION Section 1 13

14. TCR – AuctionPeriod The CMS receives a Batch of TCR Bids/Offers/ARRs from the TCR system CMS then determines that all Bids and ARRs contained in the Batch have available TCR Product Final Reference Prices and all Offers have either a TCR Hourly Final Reference Price or a TCR Product Final Reference Price 14

15. TCR – AuctionPeriod TCR Reference Price calculations: We will look at two examples of TCR Hourly Final Reference Price calculations 15 TCR Product Final Reference Price TCR Hourly Final Reference Price TCR Hours TCR Hourly Final Reference Price Mean Price Max (0, TCR Stress Test Price)

16. TCR – AuctionPeriod Mean Price Calculation: 16 Mean Price 75%Mean Y-1 Sink MCCSource MCC 25%Mean Y-2 Sink MCC Source MCC Calculation of Mean Price 75% * ($6.00 - $2.00) + 25% * ($7.00 - $4.00) 75% * $4.00 + 25% * $3.00 $3.00 + $.75 = $3.75 Example #1 TCR Hourly Final Reference Price – Normal Flow Mean Price

17. TCR – AuctionPeriod Stress Test Price calculation: 17 Source MCCSink MCC Mean Y-2 Source MCC Sink MCC 75 th Percentile Y-1 Stress Test Price 75% 75 th Percentile Y-2 25% Since the Mean Price is positive, the Stress Test price is stressed at the 75 th percentile Calculation of Stress Test Price 75% * ($3.00 - $1.00) + 25% * ($4.00 - $2.00) 75% * $2.00 + 25% * $2.00 $1.50 + $.50 = $2.00 Example #1 TCR Hourly Final Reference Price – Normal Flow

18. TCR – AuctionPeriod Then we calculate the TCR Hourly Final Reference price using the Mean and Stress Test price 18 TCR Hourly Final Reference Price $1.75 Mean Price $3.75 Stress Test Price $2.00 TCR Product Final Reference Price $1,386 TCR Hourly Final Reference Price $1.75 TCR Hours 792

19. TCR – AuctionPeriod Mean Price Calculation: 19 Mean Price 75%Mean Y-1 Sink MCCSource MCC 25%Mean Y-2 Sink MCC Source MCC Calculation of Mean Price 75% * ($4.00 - $8.00) + 25% * ($2.00 - $4.00) 75% * $-4.00 + 25% * $-2.00 $-3.00 + $-.50 = $ (3.50) Mean Price Example #2 TCR Hourly Final Reference Price – Counter Flow

20. TCR – AuctionPeriod Next we calculate the Stress Test Price: 20 Source MCCSink MCC Mean Y-2 Source MCC Sink MCC 90 th Percentile Y-1 Stress Test Price 75% 90 th Percentile Y-2 25% Since the Mean Price is negative, the Stress Test price is stressed at the 90 th percentile Calculation of Stress Test Price 75% * ($2.00 - $1.00) + 25% * ($3.00 - $2.00) 75% * $1.00 + 25% * $1.00 $.75 + $.25 = $1.00 Example #2 TCR Hourly Final Reference Price – Counter Flow

21. TCR – AuctionPeriod Then we calculate the TCR Hourly Final Reference price using the Mean and Stress Test price 21 TCR Hourly Final Reference Price $ (4.50) Mean Price $-3.50 Stress Test Price $1.00 TCR Product Final Reference Price $ (3,024) TCR Hourly Final Reference Price $ (4.50) TCR Hours 672

22. TCR – AuctionPeriod TCR Bids and Offers impact on Credit 22 TCR Bids: CMS evaluates whether you have enough credit to buy the TCR and Hold it A TCR Bid curve is defined by at least two and up to eleven TCR Point Numbers and CMS creates one or more segments based on the TCR Point Numbers TCR Offers: CMS evaluates whether you have enough credit to sell the TCR (in the event of a loss on the sale) and remove the Hold from the Portfolio (if it is an asset) A TCR Offer curve is defined by at least two and up to eleven TCR point Numbers and CMS creates one or more segments based on the TCR Point numbers

23. TCR – AuctionPeriod Next CMS will determine the Liability Maximizing quantity for each Bid Segment ABC Energy 1 submits a Bid for a 2015 Spring, On-Peak TCR consisting of 4 segments (Bid ID 1) 23 Up to MWBid PriceTCR HoursSegment CostTCR Product Final Reference Price Segment HoldTCR Bid ENS 5$5672$ (25)$ (3,024)$ (15,120)$ (15,145) 12$4672$ (48)$ (3,024)$ (36,288)$ (36,336) 20$3672$ (60)$ (3,024)$ (60,480)$ (60,540) 25$2672$ (50)$ (3,024)$ (75,600)$ (75,650)

24. TCR – AuctionPeriod Next CMS will determine the Liability Maximizing quantity for each Offer Segment ABC Energy 1 submits an Offer of a 2015 Spring, On- Peak TCR consisting of 4 segments. (Bid ID 2) 24 Up to MWOffer Price TCR HoursSegment Offer Loss TCR Product Final Reference Price Segment Asset Loss TCR Offer ENS 5$ (10)672$ 0$ (3,024)$ 0 7$ (9)672$ (50)$ (3,024)$ 0$ (50) 9$ (8)672$ (63)$ (3,024)$ 0$ (63) 11$ (7)672$ (72)$ (3,024)$ 0$ (72)

25. TCR – Auction Period Lets look at how Segment Offer Loss is calculated –First, we must calculate the Slope of the Offer Curve for Segment 2 25 Slope 0.5 (TCR Offer Price Segment2 – TCR Offer Price Segment2-1 ) $ (9) – $ (10) (TCR Offer MW Segment2 – TCR Offer MW Segment2-1 ) 7 - 5

26. TCR – Auction Period Then we must calculate the Intercept for Segment 2 We use these to determine the TCR Offer Maximum Loss MW 26 Intercept (12.50) Offer Price Segment2 $ (9) Slope * TCR Offer MW Segment2 0.5 * 7 = 3.5 TCR Offer Loss MW (12.50) Intercept (12.50) 2* Slope 2* 0.5

27. TCR – Auction TCR Offer Maximum Loss MW IF < THEN 27 TCR Offer Loss MW (12.50) TCR Offer MW Segment2-1 5 TCR Offer Loss MW 5 TCR Offer MW Segment2-1 5

28. TCR – Auction Period Then we must calculate the TCR Maximum Offer Cost Offer Price for Segment 2 Then we use these to calculate the Segment Offer Loss for Segment 2 28 TCR Maximum Offer Price $ (10) Intercept (12.50) TCR Offer Loss MW 5 Slope 0.50 Segment Offer Loss $ (50) Min of 0, TCR Offer Loss MW * TCR maximum Offer Price 5 * $ (10)

29. TCR – AuctionPeriod Next, lets assume ABC Energy submits two ARR’s into the Auction. One positive (Asset) and one negative (Liability) 29 ARR Bid MWTCR Product Final Reference Price ARR Estimated Value ARR Weighting TCR ARR ENS 10$ 1,386$ 13,86090%$ 12,474 9$ (375)$ (3,375)100%$(3,375) Netted position for ARR’s (If net is > $0, then $0):$ 0

30. TCR – AuctionPeriod Once TCR Bid, Offer and ARR ENS is calculated, CMS then determines the TCR Auction ENS for the Batch 30 TCR Auction ENS $ (75,722) TCR Bid ENS $ (75,650) TCR Offer ENS $ (72) TCR ARR ENS $0 TCR Batch ENS∑ TCR Auction ENS

31. TCR – AuctionPeriod ABC Energy has Secured Credit Limit Available (CLA) of $100,000 31 Secured CLA $ 100,000 TCR Batch ENS $75,722 Secured CLA $24,278

32. TCR AWARD Section 2 32

33. TCR – Award Period CMS received the Auction Transaction payload from the TCR System CMS then determines the TCR Start Date, End Date and Time of Use (TOU) for each TCR in the payload –CMS uses these dates to calculate the following:  TCR Hours  TCR Days  Count of Calendar Days from the Start Date to the End Date without consideration of the TOU. For example, a Spring On- Peak TCR would have a Start Date of 4/1/2015 and an End Date of 5/31/2015. The count of calendar days is 61 33

34. TCR – Award Period CMS will then calculate the Acquisition or Disposal Price for each TCR 34 TCR Award Type = BUYAcquisition Price TCR Award Type = SELLDisposal Price

35. TCR – Award Period 35 TCR Acquisition ENS MIN 0, -1 (Sink ACP – Source ACP) TCR Award MW TCR Days Remaining Ratio TCR Disposal ENS MIN 0, (Sink ACP – Source ACP) TCR Sale MW TCR Days Remaining Ratio

36. TCR – Award Period So based on the Auction bid curve for ABC Energy, lets assume they are awarded the following: 36 Bid IDBid Type ARRAwarded MW TCR Product Final Reference Price 1BuyNo15$ (3,024) 2SellNo8$ (3,024) 3BuyYes10$ 1,386 4BuyYes9$ (375)

37. TCR – Award Period Based on the Awarded numbers, CMS will now calculate ABC Energy’s Acquisition and Disposal ENS for each Bid ID 37 TCR Awarded MW 15 TCR Days Remaining Ratio 1 TCR Acquisition ENS $ (150.00) MIN (Sink ACP – Source ACP) $10.00 0, -1 Bid ID 1

38. TCR – Award Period Based on the Awarded numbers, CMS will now calculate ABC Energy’s Acquisition and Disposal ENS for each Bid ID 38 TCR Sale MW 8 TCR Days Remaining Ratio 1 TCR Disposal ENS $ (96.00) MIN (Sink ACP – Source ACP) $ (12.00) 0, Bid ID 2

39. TCR – Award Period Now we know the Acquisition and Disposal ENS for all three Bid IDs 39 Bid IDBid TypeARRAwarded MW Acquisition / Disposal Price Acquisition / Disposal ENS 1BuyNo15$ (150) 2SellNo8$ (96) 3BuyYes10$ 0 4BuyYes9$ 0

40. TCR – Award Period The next step in the Award process is CMS will calculate the TCR Hold ENS to determine how much collateral will be needed to “Hold” the TCR for the life of the product 40 TCR Hold ENS TCR Product Final Reference Price TCR Current MW Months Remaining Ratio

41. TCR – Award Period The Monthly Remaining Ratio is calculated because TCR Hold is rolled off on a monthly basis at the conclusion of a full month. For example, since the product we have used in this presentation is the Spring 2015, we know that it will consist of 2 months (April and May). Therefore our Monthly Remaining Ratio will be 1 at the time of the Award 41

42. TCR – Award Period Now that we understand the TCR Hold ENS calculation, we can look at how much it will cost to Hold each of the three TCRs in our example 42 TCR Hold ENS $ (45,360) TCR Product Final Reference Price $ (3,024) TCR Current MW 15 Months Remaining Ratio 1 Bid ID 1

43. TCR – Award Period Now that we understand the TCR Hold ENS calculation, we can look at how much it will cost to Hold each of the three TCRs in our example 43 TCR Hold ENS $ 24,192 TCR Product Final Reference Price -1 * $ (3,024) TCR Current MW 8 Months Remaining Ratio 1 Bid ID 2

44. TCR – Award Period Now that we understand the TCR Hold ENS calculation, we can look at how much it will cost to Hold each of the three TCRs in our example 44 TCR Hold ENS $ 13,860 TCR Product Final Reference Price $ 1,386 TCR Current MW 10 Months Remaining Ratio 1 Bid ID 3

45. TCR – Award Period Now that we understand the TCR Hold ENS calculation, we can look at how much it will cost to Hold each of the three TCRs in our example 45 TCR Hold ENS $ (3,375) TCR Product Final Reference Price $ (375) TCR Current MW 9 Months Remaining Ratio 1 Bid ID 4

46. TCR – Award Period Now we know how much collateral will be needed for ABC Energy to Hold all 4 TCRs in their Portfolio 46 TCR Award Type ARR Self- Convert? Awarded MW TCR Product Final Reference Price TCR Hold ENS Acquisition / Disposal ENS BuyNo15$ (3,024)$ (45,360)$ (150) SellNo8$ (3,024)$ 24,192$ (96) BuyYes10$ 1,386$ 13,860$ 0 BuyYes9$ (375)$ (3,375)$ 0 TOTAL$ (10,683)$(246)

47. TCR – Award Period Now that we have the TCR Hold, Acquisition, and Disposal ENS calculated, lets look at how these roll off over the life of the product –Acquisition and Disposal ENS both roll off daily over the life of the product based on the Days Remaining Ratio –TCR Hold ENS rolls off monthly based on the Monthly Remaining Ratio 47

48. TCR – Award Period The TCRs we are using in our example are all Spring 2015 TCRs therefore they are all 4/1/2015 through 5/31/2015 To fully understand how TCR Hold ENS Roll-off is calculated, lets assume the maximum operating day (OD) that has been settled is 4/4/2015 48 4/1/20155/8/20156/8/2015 Monthly Remaining Ratio 2/2= 11/2= 0.50/2= 0 Bid ID 1$ (45,360)$ (22,680)$ 0 Bid ID 2$ 24,192$ 12,096$ 0 Bid ID 3$ 13,860$ 6,930$ 0 Bid ID 4$ (3,375)$ (1687.50)$ 0

49. TCR – Award Period There are 61 days in the life of a Spring 2015 TCR 49 ACPDay 61Day 51Day 41Day 31Day 21Day 11Day 0 Daily Remaining Ratio - 61/61= 1 51/61= 0.84 41/61= 0.67 31/61= 0.51 21/61= 0.34 11/61= 0.18 0/61= 0 Bid ID 1$ 10$ (150)$ (126.00)$ (100.50)$ (76.50)$ (51.00)$ (27.00)$ 0 Bid ID 2$ 12$ (96)$ (80.64)$ (64.32)$ (48.96)$ (32.64)$ (17.28)$ 0 Bid ID 3-$ 0 Bid ID 4-$ 0

50. TCR – Secondary Market Calculations used for Secondary Market Transaction –TCR Award ENS for both the Buyer and the Seller –TCR Hold ENS for the AO’s proposed Secondary Market transfer for both the Buyer and the Seller  We use the Transferred MW value rather than the Awarded MW 50

51. Questions? Jared Barker jbarker@spp.org