MCWG Update to WMS

1. MCWG Update to WMS 11/7/2012

2. MCWG Update to WMS • General Update • October 31 Joint MCWG/CWG Meeting • NPRR 484 Comments • The group believes the credit impact will be positive for the market as a whole and appropriately aligns collateral with the potential credit risk • Each Counter-Party is encouraged to back test the calculations to ensure they understand the credit impact for the organization • This NPPR doesn’t address how the Congestion Revenue Right (CRR) paths with new Settlement points will be addressed for collateralization. Comments will be filed that will address this issue before the November 15th PRS meeting

3. MCWG Update to WMS • ERCOT Creditworthiness Standards • Email vote on proposed changes due on Friday • Proposed changes: • Limits unsecured credit to $50 million per Counter-Party and an overall limit of $50 million per Guarantor • Requires foreign guarantors to provide financial statements on a semi-annual basis, as opposed to quarterly and removes the haircut provision for entities that don’t provide quarterly financial statements • Requires foreign Counter-Parties to provide an opinion letter affirming that the guarantee is enforceable in the United States and in the jurisdiction of the guarantor’s domicile. Previously ERCOT would obtain the opinion and the Counter-Party would reimburse them for the cost • Other cleanup items • Mitigation of letter of credit concentration risk • The language in regards to mitigating letter of credit concentration risk is not included in the document. After extensive discussion it was determined that additional analysis and discussion was needed to come to a consensus on how to address this issue. A sub-group was formed and will be meeting in November

4. MCWG Update to WMS • NPRR 347/400/438 Implementation Update • Implementation is scheduled for Friday, November 9th • Summary of changes: • NPRR 347 • Combines DAM and RTM Invoices into a Single Daily Settlement Invoice • Eliminates separate DAM and RTM Late Fee Invoices by combining them into one invoice • Automates minimum collateral calculation • NPRR 400 • Redefines Available Credit Limit and provides for separate calculations of ACL for DAM and CRR activity • Eliminates unsecured credit for CRR activity • NPRR 438 • Establishes minimum capitalization requirements and the requirement to post an Independent Amount if a Counterparty is unable to meet the requirement or experiences a material adverse change • Provide additional clarity around events that could be considered a material adverse change • Establishes risk management standards for Counterparties as well as an annual certification and verification process

5. MCWG Update to WMS • NPRR 347/400/438 Implementation Update (continued) • Corrections to NPRR 400 • During testing of the system parameters of NPRR400, it was discovered that the Protocol language was not aligned with the intent of the NPRR and that the language may result in certain scenarios in which Available Credit Limits for CRR Auctions (ACLC) and for the Day-Ahead Market (ACLD) may yield negative values. In addition, potential negative Remainder Collateral values may overstate collateral request amounts • ERCOT has submitted NPRR497, Corrections to NPRR400, with a request for Urgent status to align the Protocols with the intent and systems implementation of NPRR400 • ERCOT does not expect Board approval of NPRR497 until after the implementation of NPRR400. During this period, ERCOT will calculate ACLC and ACLD values in accordance with the intent and system parameters of NPRR400 irrespective of the Protocol language which may result in negative credit limit values or overstate collateral request amounts