1. March 7, 2008 Credit Work Group Nodal – Weighting Factors for CRR Future Credit Exposure

2. 2 Credit Work GroupMarch 7, 2008 CRR mark to market valuations Forward Mark to Market exposure for all CRRs owned where price is determined based on a weighted average of 1) Auction clearing price 2) Today’s most recent value 3) Most recent five day’s average value 4) Previous month’s value e.g. for PTP Obligations: FMMOBLo = (W1*ACP h, (j,k) + W2 * TOBLV h, (j,k) + W3 * FDOBLV h, (j,k) + W4 * PMOBLV h, (j,k) ) * OBLMWo, h, (j,k)

3. 3 Credit Work GroupMarch 7, 2008 Weighting factors There are four components for each CRR Product – W1, W2, W3, and W4 –The sum of weighting factors must equal to 1 Weighting factors may vary by type of CRR (PTP Options, PTP Obligation, Flow Gate Rights) Weighting factors may vary by month Weighting factors must be approved by CWG Initial weighting factors for use in valuations at Nodal go-live to be based on assumptions agreed to by CWG On going determination after Nodal go-live to be done periodically (quarterly/annually) based on historical data

4. 4 Credit Work GroupMarch 7, 2008 Proposal for initial weighting factors MonthW1 (ACP)W2 (Today)W3 (Five Day)W4 (Monthly) Current month0.2 0.50.1 CM + 10.2 0.40.2 CM + 2 & beyond 0.40.10.20.3 For example: Current month - January in January CM + 1 - February in January CM+ 2 - March through xx in January

5. 5 Credit Work GroupMarch 7, 2008 Proposal for on going determination of weighting factors At the end of auction, Auction Clearing Price (ACP) is assumed to be an indicator of forward value of CRR After the auction, the variability in the historical CRR pay-off is a possible indicator of forward value of CRR Monthly trend, five day trend and latest price available provide information on the historical variability of the CRR pay-off Are historical pay-off for all CRRs of given type (i.e. pay off for all CRR Options or CRR Obligations) normally distributed? The mean and standard deviation provide information on expected value and variability (a.k.a. volatility) of the distribution Periodically, for each CRR type, determine the (a) Monthly average of all CRR of given type in the previous ‘x’ months (b) Rolling 5 day average of all CRR of given type in the previous ‘x’ months (c ) Daily average of all CRR of given type in the previous ‘x’ months. From the analysis, determine the probability measure that the CRR pay-off would be less than or equal to the ACP in (a) monthly trend (b) five day trend and (c) daily trend Convert the probability measure to weighting factor by normalizing these probability values (each probability measure divided by total sum of probability measures)