1. 1 Draft NPRR – Revisions to Certain Price Components of EAL CWG/MCWG ERCOT Public January 22, 2014

2. 2 Settlement Point Exposure Goal is to better shape exposure calculations to price risk. Focus of adjustments should be not just seasonality but: –Forward-looking to the extent feasible (increase exposure headed into summer, reduce heading into autumn) –Price adjustments specific to Counter-Party’s risk –Transparent and replicable by Counter-Parties –Parameterize constants to allow revisions without NPRRs As reviewed in earlier CWG/MCWG meetings, ERCOT staff have been working to address market concerns over seasonality of prices. The methodology included in the Settlement Point Exposure White Paper circulated to CWG/MCWG has been incorporated into a draft NPRR. ERCOT Public

3. 3 Disaggregate RTLE and DALE exposure factors into energy and ancillary services components based on billing determinants. Disaggregate energy exposures into price and volume components. Energy volume components computed based on billing component values / applicable settlement point prices. Price components based on daily average historical prices for the settlement points at which the Counter-Party has exposure. For each settlement point, price based on historical prices looking back up to three years (consistent with NPRR484 approach). Compute prices as the P84 (~1 standard deviation) of average daily settlement point prices, measured over historic calendars three weeks forward and one week back from current date (weights for forward prices). Draft NPRR methodology: ERCOT Public Settlement Point Exposure

4. 4 Replace existing 14-day averaging period in RTLE and URTA with M2 (10 days) to reflect RT settlement cycle. Redefines RTLF as FRTEU (Forward Real-Time Exposure Uninvoiced). –Average estimated RTL for the most recent M2 days * M1 Renames RTLE to FRTEI (Forward Real-Time Exposure Invoiced). Changes lookback periods to parameters to allow future revisions without an NPRR. Includes lookback period in DALE for Counter-Parties with no load or generation to parallel Real-Time calculation. Simplifies EAL calculation for clarity. Eliminates RTLE a, RTLCNS a and URTA a for CRRAHs. As these variables are defined they do not capture any values. Draft NPRR methodology: ERCOT Public Settlement Point Exposure

5. 5 TPEA and TPES ERCOT Public

6. 6 FRTEI ERCOT Public

7. 7 DALE ERCOT Public

8. 8 Settlement Point Exposure Questions