TPTF Update Credit Requirements for Nodal

1. TPTF UpdateCredit Requirements for Nodal Cheryl Yager June 24, 2008

2. Overview • Credit Work Group involvement • Draft NPRR • Transition thoughts • Other topics

3. Credit Work Group involvement • May 28th meeting • Reviewed interface with CRR and DAM systems • Reviewed TPE report formats • Discussed items to be addressed • Discussed transition plan options • June 27th meeting • Potentially recommend a NPRR • Weighting factors for CRRs • Discuss DAM credit constraints • Will continue to meet monthly to address Nodal topics as needed • Review by CWG being considered as timeline is reviewed

4. Draft NPRR • As the credit portion of the Nodal project has progressed, have noted several areas in Nodal Protocols that should be addressed: • Remove duplicate “90%” of ACL language • Remove forward component for CRR valuation from DALE and ADTE calculation. Forward CRR valuation is captured in the FCE component. • Propose alternate values for forward pricing for CRRs when no price is available. Hub price is discussed in the Protocols but is not readily available. Propose using ACP. • Eliminate the 2 day prepay requirement. All invoice payments made will be removed from credit requirements the next day. • ERCOT has drafted a NPRR and will review with CWG on Friday • If approved by CWG, the NPRR will be filed

5. Transition thoughts • Goals for a transition plan • Ensure that collateral held during transition matches risk • Not too much • Not too little • Use general rules that are understandable and reasonable to implement • Be adaptable • If the general rules don’t fit a company’s circumstances, use flexibility to ensure collateral held matches risk

6. Transition thoughts • Components to consider • Current Credit Exposure (CCE) • Estimated Aggregate Liability (EAL) • ADTE – estimated historical and projected RT activity • OUT – outstanding invoices and historical activity not captured in ADTE • DALE – projected DAM activity • Aggregated Incremental Liability (AIL) • Reasonableness test for ADTE for RT activity • Future Credit Exposure (FCE) • Estimated forward value of CRRs held

7. Transition thoughts • Considered several options • Talked further with project team • Currently developing a plan around • importing historical invoice, settlement statement data and estimates into the Nodal CMM system to establish baseline calculations for ADTE, OUT and AIL. • allowing DALE and FCE components and other DAM and CRR values to “roll in” as activity builds • Note: Using Zonal data to estimate Nodal activity presumes that RT activity will be similar in Nodal • To the extend RT activity in Zonal is expected to differ from Nodal, ERCOT staff expect to adjust ADTE or other components accordingly. • Transition plan is still being developed and will be reviewed with CWG and TPTF.

8. Other topics • Review credit limit example • Review external reports • Review proposed weighting factors • Discussion items for CWG • Application of DAM credit limit – alternate proposals • CRR credit • Review proposed change to the ACPE minimum • “Final check” credit monitoring before CRR auction results are posted?

9. Questions?