MCWG Update to WMS

1. MCWG Update to WMS 3/9/2010

2. Exposure / Collateral Update Nodal Total Potential Exposure reported by ERCOT as of 1/31/11 remains less than Zonal Estimated Aggregate Liability (TPE = ↓27% since 10/31) Collateral Posted has increased since 10/31 Cash/LOCs ↑225% Guarantees ↑14% Net Impact – Secured MPs are posting 6.2xTPE vs. 2.0xEAL Unsecured Credit Limits have increased Dollar % ∆ = ↑224% [Dollar / CPTY] ∆ = ↑19.6MM from $13.2MM # MPs ↑+6 from 20 Note – Exposure reported does not include DAM Credit Exposure nor CRR Auction Credit Exposure as calculated in Section 4 and 7 of the Protocols Source: Finance And Audit Committee Meeting Materials, ERCOT Market Credit Status, Sept 2010 – February 2011

3. 2011 Status Update

4. Real Time Invoicing Update Two options are being considered Invoice 10 days after the Operating Date Invoice 9 days after the Operating Date Benefit to be evaluated Reduce working capital at risk by reducing ADTE multiple Reduce unbilled risk with comparable contractions in unsecured risk limits For further evaluation at an undetermined date Invoicing consolidated by Operating Date (net DAM and RT) Further reducing the Real Time statement / invoicing cycle Average ≈ 6.5 days

5. Default Risk Timeline Mass Transition Timeline MCWG is evaluating the risk associated with permitting a market participant 4 days to cure a financial obligation related to a margin call Industry Best Practices PJM & NYISO currently only provide 2 days to cure FERC is requiring all ISOs/RTOs to adopt a 2 day cure limit Reducing the cure period risk associated with a margin call may also provide for an opportunity to decrease the ADTE multiple Approximately +50% of the ADTE multiple covers future exposure (20-26 days) Retail Market Guide, Section 7.11, 9F2, 9F3 Nodal Protocols 16.11.5 Nodal Protocols 16.11.6 Weekend Risk Cure Period Mass Transition Risk Margin Call Provides 2 Bank Business Days to post financial security 2 Non Bank Business Days Provides 2 Bank Business Days to cure a “Payment Breach” 1800 CPT Default confirmed & Mass Transition Notification e-mail sent Eliminating 2 days from the cure period reduces the default uplift timeline associated with a mass transition by 2.8 days on average

6. Real Time Load Estimates • 2/21 SEWG Meeting Summary • MCWG requested SEWG to assist in improving the load estimates used to equate real time imbalance values before a statement is produced • ERCOT is evaluating the following potential inputs • Current = Load ratio share from 2 weeks prior • Proposed = • Using profile data that has been adjusted for actual weather • Using state estimator data • Update will be provided at next SEWG Meeting on 3/21

7. CRR Auction Credit Concerns • Credit improvements for the balance of term auction have not been identified • Netting/Mutuality Solutions: • Provide municipalities an AR lien exemption to obtain netting • ERCOT establish a Central Counterparty (PJM & FERC Solution) • Third Party Clearing • 2/18 CRR Credit Subcommittee Results – Brainstorm yet to be evaluated • Positive Attributes: constraint based on cleared MWhs, auction credit limit tools, use of unsecured credit, FCE daily calc with inventory updates • Pre Auction: decrease collateral on negative bids , shorten credit lock down period , schedule around other ISO annual auctions , calculate max exposure or use shadow price as the price input • Pre & Post Auction: path/term specific risk adders, increase frequency of auctions & use ACP in MTM, revise settlement schedule, outsource to a 3rd party, unsecured credit availability

8. NPRR Discussion • NPRR 320 - Minimum PTP Option Bids and CRR Auction Fees • NPRR 323 - Correct DAM Credit Exposure Language and Enable Qualified Expiring CRRs to Offset PTP Bid Exposure

9. Upcoming Meetings • 3/10 – CWG/MCWG Meeting • NPRR Voting Items • Continue review of default timeline & forward exposure • 3/TBD – Next CRR subcommittee meeting • Evaluate brainstorming session • 3/30 – Joint MCWG/CWG Meeting • Agenda not yet determined