Market Trials Congestion Revenue Rights

1. Market TrialsCongestion Revenue Rights Weekly Update August 20, 2010 http://nodal.ercot.com 1

2. Antitrust Admonition ANTITRUST ADMONITION ERCOT strictly prohibits Market Participants and their employees who are participating in ERCOT activities from using their participation in ERCOT activities as a forum for engaging in practices or communications that violate the antitrust laws. The ERCOT Board has approved guidelines for members of ERCOT Committees, Subcommittees and Working Groups to be reviewed and followed by each Market Participant attending ERCOT meetings. If you have not received a copy of these Guidelines, copies are available at the Client Relations desk. Please remember your ongoing obligation to comply with all applicable laws, including the antitrust laws. DISCLAIMER All presentations and materials submitted by Market Participants or any other Entity to ERCOT staff for this meeting are received and posted with the acknowledgement that the information will be considered public in accordance with the ERCOT Websites Content Management Operating Procedure. http://nodal.ercot.com 2

3. Agenda • Anti-trust Admonition • Environment Report • Planned / unplanned outages • Known Issues • Standing Reports and Updates • Future activities • Question and Answers / General Discussion • FAQ ERCOT asks that Market Participants log into the WebEx session using their company name and then their name. This will allow ERCOT to take roll-call offline http://nodal.ercot.com 3

4. Market Trials 2010 Roadmap http://nodal.ercot.com 4

5. Day-to-day operations summary: Planned / Unplanned Outages of EDS Planned Outages None Unplanned Outages None http://nodal.ercot.com 5

6. Known Issues • Topology Processor (software that creates the PSS/E file from the Network data) does not export the outages to CRR’s PSS/E file • Vendor has fixed the issue in the software, and it is being tested now • CRR team has a workaround by using the TCR PSS/E file with outages and augmenting it for the CRR application • The credit constraint has not been implemented properly in previous auctions (see Q/A section for more details) • Application is correct, parameters were not set properly • For September auction OBL bids will need more collateral than previously

7. Standing Reports and Updates: General reminders / updates • September Auction Market Trials Activities • 2010 September Monthly Auction NEW DATES** 2010 September Network Model, with outages, posted to MIS on Monday, 8/16 2010 September Market Notice and Auction Credit window opens on Tuesday, 8/17 Note: ACL’s are received from CMM and updated daily at 4:30pm 2010 September Credit Lock date on Monday, 8/23 at 5:00pm 2010 September Credit remedial period (eCollateral) ends at noon, Tuesday, 8/24 2010 September Auction Bid Window – shortened to 2 days for this auction Monday, 8/23 at 00:00:01am until Tuesday, 8/24 at 11:59:59pm 2010 September Auction 2nd Round if required on Wednesday, 8/25 noon-midnight 2010 September Auction execution and verification of results on Thursday, 8/26 2010 September Auction Market Results Posted on Friday, 8/27 by 2am 2010 September Auction Market Results visible in CRR application on Friday, 8/27 by 8am 2010 September Auction Market Invoices Posted on Monday, 8/30 2010 September Auction release of CRR Credit Exposure on Monday, 8/30 at 4:45pm ** Market Trials Handbook has been updated with these new dates http://nodal.ercot.com 7

8. Q&A Q&A / Open Forum http://nodal.ercot.com 8

9. What are the ‘A’ and ‘M’ values? 7.5.5.3 Auction Process (1) The auction must be a single-round, simultaneous auction for selling the CRRs available for all auction products, with the following steps: (a) ERCOT shall enter into the CRR Auction engine model a credit constraint for each Counter-Party. A Counter-Party’s CRR Auction credit limit is equal to the lesser of the credit limit as determined in Section 16.11.4.6.1, Credit Requirements for CRR Auction Participation, or, if provided, the Counter-Party’s self-imposed CRR Auction credit limit. The credit constraint for each Counter-Party ensures that the following sum for all of the Counter-Party’s CRR Account Holders is less than or equal to the Counter-Party’s CRR Auction credit limit: (i) All awarded CRR Auction Bids multiplied by the absolute value of the corresponding bid price; plus (ii) All awarded CRR Auction Offers with negative offer prices multiplied by the absolute value of their corresponding offer price; plus (iii)The additional credit requirement for all awarded PTP Obligations, which is $A per MW per hour, plus the absolute value of the PTP Obligation bid price multiplied by M. The values of A and M Shall be posted on the MIS Public Area. TAC shall review these values at least annually and may recommend, to the ERCOT Board, changes to these values that become effective at least 30 days prior to a monthly CRR Auction and 60 days prior to an annual CRR Auction. Any changes to these values shall be posted on the MIS Public Area within three Business Days of ERCOT Board approval.

10. Per MWh Credit Constraint use assuming A = 1.5 $/MWh and M = 1 • The CRR calculation engine will apply the following credit constraint as per the Protocols in determining the CRR awards. Section 7.5.5.3(1)(a)(iii) states “The additional credit requirement for all awarded PTP Obligations, which is $A per MW per hour, plus the absolute value of the PTP Obligation bid price multiplied by M”. For example: • Using OblBid$ = 4, $A = 1.5 and M = 1: • | OblBid$ | + additional credit = | OblBid$ | + ( $A + ( | OblBid$ * M | ) ) = | 4 | + (1.5 + ( | 4 * 1 | ) ) = 4 + 5.5 = 9.5 per MWh • Using OblBid$ = -2, $A = 1.5 and M = 1 • | OblBid$ | + additional credit = | OblBid$ | + ( $A + ( | OblBid$ * M | ) ) = | -2 | + (1.5 + ( | -2 * 1 | ) ) = 2 + 3.5 = 5.5 per MWh http://nodal.ercot.com 10

11. What is the CRR Schedule of Activities from now until Go-Live? http://nodal.ercot.com 11

12. What is the CRR Schedule of Activities from now until Go-Live? http://nodal.ercot.com 12

13. What is the CRR Schedule of Activities from now until Go-Live? http://nodal.ercot.com 13

14. The behavior of 24 Hour bids in the CRR Monthly Auctions • 24 hour bids can be entered into CRR Monthly auctions • The auction engine treats a 24 hour bid as a single bid across the three time of use network models (Peak WD, Peak WE, Off-peak) • Single MW amount • Single $/MW-hr bid price (not to exceed) • If the Bid Price is higher than the weighted (by number of hours) average of the three times of use clearing prices(Peak WD, Peak WE, Off-peak) then the CRR bid will be awarded fully (assuming there is no active budget constraint). • If the Bid Price is lower than the weighted average of the three times of use clearing prices then the CRR bid will not be awarded. • If the Bid Price is equal to the weighted average of the three times of use clearing prices then the CRR bid will be awarded at some level between 0 and 100%, but the same in each time of use..

15. 24 Hour Example in Monthly Market • 24 hour CRR bid for February 2013 Monthly Auction • 28 x 8 = 224 Off-peak hours • 8 x 16 = 128 PeakWE hours • 20 x 16 = 320 PeakWD hours • 28 x 24 = 672 total hours • For a certain path prices are as follows • Off-peak 2$/MW-hr (arbitrary number for this example) • PeakWE 3$/MW-hr (arbitrary number for this example) • PeakWD 8$/MW-hr (arbitrary number for this example) • 24 hour = (224x2 + 128x3 + 320x8)/672 = $5.048/MW-hr • Note that a 24 hr bid of $6/MW-hr would be fully awarded in each time of use even though it was less than the clearing price in the PeakWD time of use. • Also note that a 24 hr bid of $4/MW-hr would not be awarded at all, even though it was more than the clearing price in the Off-peak and PeakWE times of use.

16. The behavior of 24 Hour bids in the CRR Annual Auctions • 24 hour bids can be entered into CRR Annual auctions • The auction engine treats a 24 hour bid as a short cut for entering three separate bids in the three time of use network models (Peak WD, Peak WE, Off-peak) • If the Bid Price is higher than the clearing price in a given time of use (Peak WD, Peak WE, Off-peak) then the CRR bid will be awarded fully in that time of use (assuming there is no active budget constraint). • If the Bid Price is lower than the clearing price in a given time of use then the CRR bid will be not be awarded in that time of use. • If the Bid Price is equal to the clearing price in a given time of use then the CRR bid will be awarded at some level between 0 and 100% in that time of use.

17. 24 Hour Example in Annual Market • 24 hour CRR bid for February 2013 in 2012/2013 Annual Auction • For a certain path prices are as follows • Off-peak 2$/MW-hr (arbitrary number for this example) • PeakWE 3$/MW-hr (arbitrary number for this example) • PeakWD 8$/MW-hr (arbitrary number for this example) • Note that a 24 hr bid of $6/MW-hr would be fully awarded in PeakWE and Off-peak, but not awarded in PeakWD • Also note that a 24 hr bid of $4/MW-hr would also be fully awarded in PeakWE and Off-peak, but not awarded in PeakWD

18. How will new Market Participants get Qualified for future CRR markets? • Your Wholesale Client Services Representative will continue to walk you through the Registration Process after Texas Nodal Implementation, just as they have done during Market Trials. • The cutoff date of 8/13 for the December 2010 auction was to allow enough time (i.e., two months) for Legal, Registration, Credit, and CRR to complete their qualification activities.  While this is the only market with a specified “cut-off” date, two months is an adequate timeframe to expect for the registration, qualification and credit approval to be completed.