Market Credit Working Group Update to WMS

1. Market Credit Working Group Update to WMS Wed. March 18, 2009

2. MCWG March 2009 Update Overview • Meetings by MCWG since Feb WMS meeting • Market Credit Risk Standard Update • Committee of Chief Risk Officers Update to MCWG • Call for Vice-Chair • Other business

3. MCWG Meetings • MCWG has met twice since the last WMS meeting • Friday March 6, 2009 • Friday March 13, 2009 • March 6, 2009 Meeting • Updated MCWG on update to CWG • Discussed Market Credit Risk Standard (MCRS) and decided to table for separate meeting on March 13, 2009 (also to discuss CCRO efforts on ISO/RTO best practices) • Discussed NPRR 147 • Discussed alternative proposal by Reliant. Second alternative raised by ACES • Need to consider the cap on the amount of the Reserve Fund • Refund Mechanism • Need for a joint CMWG and MCWG meeting • Timing (??) Question for WMS –do we put this into the parking lot for now?? • Other items raised for future discussion/consideration • Direction of invoice timing change • Perform bottom up review of existing creditworthiness standards

4. March 13, 2009 Market Credit Risk Standard Meeting • Attended by 18 stakeholders • Bob Anderson of the Committee of Chief Risk Officers updated MCWG on CCRO efforts on ISO/RTO best practices (discussed after) • Consensus reached on MCRS with the following caveats (next page)

5. Consensus Recommendations for the MCRS • ERCOT will modify the MCRS to bifurcate all scenarios > 99% as a new bullet titled “large impact stress scenarios” to clearly delineate that these runs represent “black swan” events • ERCOT will revise the MCRS to incorporate previous CWG recommendation to have an entity that is relying on a guarantor, to take on the rating of the guarantor, up to the amount of the guaranty • previously the unrated entity would take the midpoint between the guarantors rating and CCC+ • Presently the models engine will not allow for this and Staff is investigating what is needed to run the model with the revised methodology • ERCOT will provide the MCWG with its plan to manage the MCRS, including plans for staffing with persons with the requisite skill set in financial engineering • ERCOT will report back to MCWG on the feasibility of running the MCRS on a frequency greater than quarterly • ERCOT will run a simulation of the MCRS using the present methodology and the revised methodology for entities providing a guarantor, for the same period, to demonstrate the difference from applying the different methodologies • ERCOT will publish the detail components of the MCRS engine as a procedure document for stakeholders

6. CCRO Update to MCWG • Bob Anderson, Executive Director of the CCRO spoke to MCWG • Detailed the mission of the CCRO, prior efforts and whitepapers • Discussed current initiatives in the area of ISO/RTO best practices • CCRO planning a task force of senior industry participants to look at ISO/RTO best practices • Outreach will include regulators including FERC, PUCT and the CFTC, other stakeholders • Timing….Panel set by end of March. Work product released by June 2009

7. Call for Vice-Chair • If interested, let Vanessa Spells know, and we will work to nominating someone for WMS to approve for the April WMS meeting

8. Other Business • Will schedule a meeting of MCWG to update the group on action items from March WMS meeting • Plan to update CWG on MCWG activities • Plan for a face-to-face meeting of MCWG (May-June??), to discuss NPRR-147 and other items to be added • Anything else?