ERCOT Update Management of the Balancing Account CMWG

1. ERCOT UpdateManagement of the Balancing Account CMWG Pamela Shaw Settlements & Billing 10/6/2013

2. Agenda • Why are we considering alternative methodologies for management of the Balancing Account? • Concepts for an alternative methodology • Next Steps • NPRR at November PRS

3. Why? • Large CRR Shortfall in May 2013 prompted questions about the cause of the scenario and how to remedy it going forward • Questions of equity in the current methodology • We are NOT talking about CRR Auction Revenue that is always a revenue stream to QSEs with load • We ARE talking about the Balancing Account Distribution that varies month to month

4. Why? • In 10 of 31 months, CRRs were not fully funded • ~$30M not funded, in total • Percentage of CRR Payments not funded • Worst case March 2011: ~29% • Dec 2010 through June 2012: ~ 3% • Excess funds distributed to QSEs representing load in the other 21 months • ~$164M distributed, in total

5. Concept for Proposed Methodology Current Methodology • Current: after refunds for CRR shortfalls, distribute any excess funds to load (“close out” the balancing account for the month) • Current: CRRs remain short-paid if not enough funds to cover the shortfall • Establish a Rolling Balancing Account Fund • Proposed: on a monthly basis, after refunds for CRR shortfalls, deposit any excess into a “Rolling Balancing Account Fund” to be used to cover shortfalls in future months. Distribute to load when the funds exceeds a specified threshold.

6. Establish a Rolling Balancing Account Fund • Rolling Balancing Account Fund concepts • Continue to execute the monthly Balancing Account closure process to try to pay CRRs that were not fully funded through DAM Settlements • Remaining funds accumulate in the Rolling Balancing Account Fund • This Fund can be used to supplement refunds of shortfall charges in subsequent months. • In a month where additional funds are available in the Balancing Account and shortfalls are fully refunded, the Rolling Balancing Account Fund is refilled before allocating to QSEs with load. • If the “refill” activity brings the Rolling Balancing Account Fund over the designated Fund Cap, allocate the overage to QSEs with Load • Each month, maintain a Rolling Balancing Account Fund balance <= to the designated Fund Cap

7. Defining the Fund Cap • The Stakeholder Process will determine the correct value for the Fund Cap. • Statistics for consideration: Total Calculated CRR Shortfall not refunded, current method (all months 12/10 - 8/13 (33 months)) Full Refunds - 23 months Not fully refunded 10 months total: $ 29M Min (12/2012) $ 82K Max (5/2013) $ 9M Average $ 2.9M

8. APPENDIX

9. Settlement Data – Current Methodology *Data included in spreadsheet posted with meeting materials

10. Example Data – Proposed Methodology *Estimated datasets included in spreadsheet posted with meeting materials

11. Distribution to Loads – Nodal Go-Live through June 2013