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MCWG Update to WMS

MCWG Update to WMS. 6/15/2011. Exposure / Collateral Update. Collateral = $ 3.3 Billion. Nodal Total Potential Exposure reported by ERCOT as of 4/30/11 remains less than Zonal Estimated Aggregate Liability (TPE = ↓15% since 10/31) Collateral Posted has increased since 10/31

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MCWG Update to WMS

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  1. MCWG Update to WMS 6/15/2011

  2. Exposure / Collateral Update Collateral = $ 3.3 Billion Nodal Total Potential Exposure reported by ERCOT as of 4/30/11 remains less than Zonal Estimated Aggregate Liability (TPE = ↓15% since 10/31) Collateral Posted has increased since 10/31 Cash/LOCs ↑302% @ $1,575MM Guarantees ↑30% @ $866MM Net Impact – Secured MPs are posting 5.74xTPE vs. 2.0xEAL Unsecured Credit Limits have increased Dollar % ∆ = ↑228% @ $866MM [Dollar / CPTY] ∆ = ↑18.8MM from $13.2MM # MPs ↑+7 from 20 Note – Exposure (“TPE”) reported does not include DAM Credit Exposure nor CRR Auction Credit Exposure as calculated in Section 4 and 7 of the Protocols Source: Finance And Audit Committee Meeting Materials, ERCOT Market Credit Status, Sept 2010 – June 2011

  3. 2011 Status Update

  4. CFTCUpdate • NASDAQ-OMX and ERCOT staff have met to discuss NASDAQ’s proposal to act as a third party central counterparty • CFTC Workshop scheduled for 6/16/2011 from 1:00 PM to 3:00 PM • Agenda Items • Dodd-Frank provisions affecting ERCOT transactions • Process for obtaining exemption • Issues to be addressed in exemption petition • Timeline for issues to be addressed by ERCOT

  5. NPRR 347 - Possible Vote • NPRR Summary – (1) Reduce RT invoicing cycle to the 10th BD following the operating day, (2) Revise forward exposure calculations • Status Update • 4/18 – SEWG filed comments to revise invoicing back to the MP level rather than Counter-Party • 4/21 - Passed by PRS • 5/04 - Tabled by CWG • 6/09 – CWG deferred voting until 6/16/2011

  6. NPRR 357 - Possible Vote Luminant filed NPRR 357 and presented key concepts to MCWG/CWG Key Concepts Settlement • Revise the CRR settlement terms from payment being required post the auction clears to prior to the delivery month Auction Attributes • Increase the frequency of multi-month auctions from once per year to monthly • Temporarily reduce the term of the auction • Revise the amount of capacity made available in the auction • Revise the collateral requirements by: • Recognizing max bid exposure (i.e. similar to DAM Bid Exposure calculation included in NPR 323) • Path/Term/Product specific adders (i.e. revise values A and M) • Not requiring collateralization of the entire bid value since settlement terms have been revised Forward Exposure • Revise the Forward Credit Exposure calculations by incorporating an initial margin requirement that is path/term/product specific and a mark-to-market value that is derived from the difference between the latest ACP and CPTY’s award price for Forward Months not settled • Incorporate into the Forward Credit Exposure calculation an estimate for CRR Balancing Account Revenue

  7. DAM Collateral Parameters - Possible Vote • Hyperlinks to DAM Collateral Parameters Process • Current • ERCOT Proposal • Revisions • “ERCOT may adjust DAM credit parameters up or down at ERCOT’s sole discretion with at least two Bank Business Day’s notice. ERCOT may loosen credit parameters with less notice, if needed.” • ERCOT previously only had the discretion to adjust the “e” factors and the “u” percentile • Revision will enable ERCOT to use discretion to revise percentile values “d”, “a”, “b”, “y”, “z”, “t” • Removed parameters related to nodal market inception

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