Market Credit Working Group Update to WMS

1. Market Credit Working Group Update to WMS Wed. July 22, 2009

2. MCWG May 2009 Update Overview • Face-to-face MCWG Meeting Monday June 29, 2009 • Future Items for MCWG • Next MCWG Meeting

3. Face-to-face MCWG meeting Monday June 29, 2009 • Topic: DAM Proposals for Short Pay • Good attendance, in person, phone and webex including: • Co-ops (Brazos, LCRA) • IOU’s (AEP) • Generator (Calpine, Luminant, PSEG, Suez) • Muni (CPS, Austin, BTU, Denton) • Power Marketers (Exelon, Keystone, Morgan Stanley, EPIC, NECC, Reliant) • REP’s (Direct, Stream)

4. MCWG Face-to-face Meeting June 29th ( Discussion NPRR 147) • MCWG DAM Short-pay Strawman • Funding of Short-pays • Proposal to Fund the Pool • Loss Allocation (Mutualization)

5. Funding of Short-pays(Preferred Method by MCWG) • ERCOT Inc. to obtain a financing Vehicle to finance, which is then repaid by the stakeholders • Open Questions Include • ERCOT Inc. ability to obtain the necessary approvals to obtain such a Vehicle • Size of the Vehicle –Also, how to allocate/charge losses greater than the amount of the Vehicle • Who pays the financing fees for the Vehicle (who pays…DAM, CRR, RTM, all?)

6. Funding of Short-pays(Alternative 1) • If ERCOT Inc. is unable to obtain a financing Vehicle to finance short-pays, then establish a Pool funded by the stakeholders • Open Questions Include: • Is the ‘fee’ assessed pre or post transaction • How is the Pool funded (who pays…DAM, CRR, RTM, all?) • Entities entering or exiting the market refunds and new charge for entry? • Size of the Pool –Also, how to allocate/charge losses greater than the amount of the Pool

7. Funding of Short-pays(Alternative 2) • A blended approach where ERCOT Inc. obtains a financing Vehicle to finance short-pays and stakeholders contribute to a Pool (blended approach), which is then repaid • Open Questions Include: • Is the Pool ‘fee’ assessed pre or post transaction • How is the Pool funded (who pays…DAM, CRR, RTM, all?) • Entities entering or exiting the market refunds and new charge for entry? • Size of the Pool and size of the Vehicle –Also, how to allocate/charge losses greater than the amount of the Pool and Vehicle • Is the Vehicle or stakeholder’s Pool accessed first when there are losses?

8. Proposal to Fund the Pool (if Preferred Method is not Viable) • Proposed charge to fund the Pool: • A rate of $0.01/MWh for generation and load • A rate of $0.001/MWh for CRR’s • Further analysis on the correct amounts would need to be undertaken (including how fast to fill the fund) • Cap amount TBD but analysis to be undertaken to determine the amount (ideas ranged from $20-50MM)

9. Loss Allocation (Mutualization) • Losses for ALL market activity allocated to all market participants on a TBD gross basis (with the DAM settlements being further accelerated, either settlement timeline or payment timeline) • Open Questions Include: • How many more days can be reduced from DAM settlements or payment timeline before go live and analyzing if further days can be accelerated post go live • Are some market participants currently unable to accelerate DAM payments further without process changes on their end • How to perform the loss mutualization calculation • Maximum Loss Allocated to Market in a Single One Month Period • Open Questions Include: • Is the current $2.5MM per month the right amount • If the loss methodology is expanded to all market participants, could the amount be doubled (to $5MM) or higher?

10. 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

11. Next Meeting ~MCWG • Monday July 27, 2009 9:30 AM -11:00 CST (phone)