Market Credit Working Group Update to WMS

1. Market Credit Working Group Update to WMS Wed. Sept 16, 2009

2. MCWG August 2009 Update Overview • Update on MCWG work on the two motions approved by WMS in July • Mechanics of Options 1, 2, and 3 for Default Methodology • Possible direction on preference by WMS…. • Future Items for MCWG • Next MCWG Meeting

3. Update on motions approved by WMS at July Meeting (1) • Review options for shared short-pay fund (Participants and ERCOT Inc) • Expanded loss mutualization for entire market AND accelerated DAM • Work towards PRR’s to provide to WMS for review

4. Update on motions approved by WMS at July Meeting (2) • August 18th MCWG Conference Call • August 28th MCWG Face-to-face Meeting (plus Webex) • September 2nd MCWG Conference Call

5. MCWG August Meetings • Focus, loss methodology • Options Identified for Losses • Three options identified

6. Option 2 –Default Methodology Option 2: 180 days later, ERCOT uplifts default amounts using an allocation based on the absolute value of payments and charges where a participant’s allocated portion relative to the corresponding total activity is equal to the absolute value of: • The payment for Energy Offers cleared in the DAM at the Settlement Point; plus • The charge for Energy Bids cleared in the DAM at the Settlement Point; plus • The payment or charge for congestion for its Self-Schedules at the Settlement Point; plus • The Real Time Energy Imbalance payment or charge at the Settlement Point less amounts paid to RMR Resources; plus • The payment for DC Tie imports at the Settlement Point; plus • The Base Point Deviation Charge at the Settlement Point; plus • The payments and charges for CRR ownership – Real Time Obligations, Day Ahead Obligations and Obligations with Refunds, Day Ahead Options and Options with Refunds, Real Time Options and Options with Refunds; plus • The payment for Flow Gates Rights

7. Assumptions –Option 2 • Consider the absolute value of payments and charges at all Settlement Points – Resource Nodes, Load Zones and Hubs • When payment or charge not available for CRRAH or QSE – assume zero value • Exclude the following • RMR compensation • Emergency – BLTR DCTIE • Oklaunion • Capacity payments and Voltage Support

8. Participant Activity Ratio Share – Option 2 • (|DAESAMT|p + |DAEPAMT|p + |DAMWAMT|p + |RTCCAMT|p + (|RTEIAMT|p – |RTEIAMT|p,rmr ) + |RTDCIMPAMT|p + |BPDAMT|p + |RTOBLAMT|source p + |DAOBLAMT|source p + |DAOBLRAMT|source p + |DAOPTAMT|source p + |DAOPTRAMT|source p + |RTOPTAMT|source p + |RTOPTRAMT|source p) + |DAFGRAMT| • ( (|DAESAMT|p + |DAEPAMT|p + |DAMWAMT|p + |RTCCAMT|p + (|RTEIAMT|p – |RTEIAMT|p,rmr ) + |RTDCIMPAMT|p + |BPDAMT|p + |RTOBLAMT|source p + |DAOBLAMT|source p + |DAOBLRAMT|source p + |DAOPTAMT|source p + |DAOPTRAMT|source p + |RTOPTAMT|source p + |RTOPTRAMT|source p) + |DAFGRAMT|

9. Option 3 –Default Methodology • Option 3: 180 days later, ERCOT uplifts default amounts using an allocation based on MW where a participant’s allocated portion relative to the corresponding total activity is equal to : • The amount of its Energy Offers cleared in the DAM at the Settlement Point; plus • The amount of its Energy Bids cleared in the DAM at the Settlement Point; plus • The amount of its Energy Trades at the Settlement Point where the QSE is the seller; plus • The amount of its Energy Trades at the Settlement Point where the QSE is the buyer; plus • The amount of its Self-Scheduled quantity at the source and sink Settlement Points; plus • The aggregated generation of its Generators less RMR volumes (multiplied times 4) at the Settlement Point; plus • The aggregated Load (multiplied times 4) at the Settlement Point; plus • The amount of its DC Tie imports; plus • CRR ownership at the source Settlement Point – Real Time Obligations, Day Ahead Obligations and Obligations with Refunds, Day Ahead Options and Options with Refunds, Real Time Options and Options with Refunds; plus • The total ownership of FGRs.

10. Assumptions Option 3 • Count quantities at all Settlement Points – Resource Nodes, Load Zones and Hubs • All quantities at gross – no netting • When data not available for CRRAH or QSE at a settlement point – assume zero value • Quantities in MWs • CRRs counted at Source Settlement Point • Exclude the following • RMR generation volumes • Emergency – BLTR DCTIE • Oklaunion

11. Participant Activity Ratio Share – Option 3 • (DAESp + DAEPp + RTQQESp + RTQQEPp + SSSKp + SSSRp + • (RTMG1p *4) + (RTAMLp * 4) + RTDCIMPp + RTOBLsource p + DAOBLsource p + DAOBLRsource p + DAOPTsource p + • DAOPTRsource p + RTOPTsource p + RTOPTRsource p) + (DAFGR) • ( (DAESp + DAEPp + RTQQESp + RTQQEPp + SSSKp + SSSRp + (RTMG1p *4) + (RTAMLp * 4) + RTDCIMPp RTOBLsource p + DAOBLsource p + DAOBLRsource p + DAOPTsource p + DAOPTRsource p + RTOPTsource p + RTOPTRsource p) + (DAFGR))

12. Option 1 (Shams to Present) • Separate presentation to be provided by Shams

13. Default Methodology Summary • Does WMS have a preference for either Option 1, 2 or 3? • Once Default methodology is completed, then MCWG will begin working on the other part of Motion 2 (further shortening of DAM) as well as Motion 1 (Short-pay fund)

14. Future Items for MCWG • Direction of invoice timing change • Perform bottom up review of existing creditworthiness standards (after CCRO Best Practices efforts) • Reduction of settlement cycle due to PRR 568 (7days) • Further reductions in settlement cycles • This includes looking at the potential to reduce the settlement cycle 30% with improved metering

15. Next Meeting ~MCWG • Thursday September 24, 2009 9:30 AM -11:30 CST (phone –Do we need in person/ Webex/longer?) • Topics • Complete recommendation to WMS on Options 1,2 or 3 for default methodology (if needed) • Then second, Further acceleration of DAM (Completes Motion 2 from WMS) • Third, Short-pay Fund (Motion 1) • Hopefully for the October WMS meeting, work on both WMS motions 1 and 2 will be complete.