TEXAS NODAL Board of Directors Austin, Texas July 15, 2003

Overview  Anticipated PUCT Order  Guiding Principles  Key Features  Proposed Process  Resources  Voting Structure

Anticipated PUCT Order  Phase I: Conceptual & Detailed Design Process  Phase II: Protocol Development and Cost/Benefit Analysis  Phase III: Commission Review & Approval of Protocols  Phase IV: Software Development, Integration & Testing  Phase V: Market Participant Testing  Full Implementation of Texas Nodal Model

Anticipated PUCT Order  Phase I: Conceptual & Detailed Design Process Aug ‘03 – Apr ’04  Phase II: Protocol Development and Cost/Benefit Analysis May ‘04 - Oct ’04  Phase III: Commission Review & Approval of Protocols Nov ’04 – May ’05  Phase IV: Software Development, Integration & Testing Jun ’05 – Mar ’06  Phase V: Market Participant Testing Jan ‘06 – Sept ’06  Full Implementation of Texas Nodal Model Oct 1, 2006

Guiding Principles  Timely compliance with PUCT Order  Regular updates to the PUCT, ERCOT Board and TAC  Participative industry standard process to include: - Adequate meeting notice - Thorough issue identification - Reasonable opportunity for comment - Open forums for inclusive and diverse involvement - Representative voting structure - Documentation of majority and minority positions - Standardized presentation format  ERCOT staff shall: - Manage the process - Engage third parties to assist in process facilitation - Engage economic experts (in consultation with the Board)

Key Features  Provides clear ownership, leadership, and accountability  Maintains integrity of stakeholder role in setting both market design and market rules  Leverages existing open processes and procedures  Leverages existing ERCOT governance structure  Leverages existing resources  Provides consistent leadership and resource commitments through all phases

Process Overview Board of Directors Timely Compliance with PUCT Order PUCT Oversight, Direction & Protocol Approval Concept Groups ERCOT EC Allocation of Resources And Funding Coordination Group Facilitation Team Implement Board Directives Concept Groups Concept Groups Concept Groups MOD Advice / Updates Stakeholders Policy and Technical Direction (via Representative Voting Structure) TAC Review of Recommendations And Protocols MOD Guidance

Process – Coordination Group Chair facilitation process Organize Concept Groups and resolve “seams” Establish agendas and assignments with Concept Group Chairs Request engagement of economic experts Provide open forum for process disputes and appeals Present Concept Group recommendations to Board Report monthly status to Board, TAC and TAC Subcommittees Create market design document upon completion of Phases

Process – Concept Groups Chair participative processes Identify Issues Establish agendas and assignments with Coordination Group Gather white papers, diagrams or other materials as necessary Provide open forum for discussions and comments Record Phase I and II voting on all issues Present recommendations resulting from Phase I and II voting to Coordination Group Report weekly status to Coordination Group

Resources System Operations Chair: Kent Saathoff Vice Chair: Facilitator Coordination Group Chair: Ray Giuliani Vice Chair: Facilitator Facilitation Team Concept Groups Forward Markets & Market Mitigation Chair: Rich Gruber Vice Chair: Facilitator Market Operations Chair: Jim Galvin Vice Chair: Facilitator Node/Zone Design Chair: Bill Bojorquez Vice Chair: Facilitator ERCOT Staff Program Management, Meeting Coordination, Communications/Coordination/Website, Market Design Documentation, Protocol Update & Development, Systems Implementation & Migration

Phase I and II Voting Structure 1.All persons attending the Concept Group meetings may participate, but may vote only if representing an ERCOT corporate member (“Member”). 2.Each Member must designate a person to vote each of their fractional votes on their behalf. This designation shall be in force throughout each Concept Group meeting. 3.Persons may only represent multiple fractional votes that belong to a Member or multiple Members in one ERCOT segment as defined below. 4.Members will be grouped into the same segments as those that apply to the ERCOT Board of Directors – Independent Power Marketers, Independent Generators, Municipal Utilities, Electric Cooperatives and River Authorities, Consumers, Independent REPs and IOUs. 5.Members in each segment shall have fractional votes adding up to one per segment. 6.The fractional vote for each member shall be equal to one divided by the number of Members present and voting in their segment. For example, if a segment has ten Members present and voting, then each Member would have a fractional vote equal to one-tenth (see alternative 6a for more flexibility).

Phase I and II Voting Structure Alternative 6a A Member shall have three (3) separate fractional votes each equal to one divided by the number of Members present and voting in their segment multiplied by three. For example, if the Consumer segment has all twenty Members present and voting, then each Member would have three fractional votes. Each fractional vote would be equal to one-sixtieth. Each fractional vote may be represented by a different person as designated by the Member per the above.

Phase I and II Voting Structure 7.Representation from four of seven segments is required for a quorum. 8.If two-thirds or more of the sum of all fractional votes are in favor of a motion, then the motion will pass. Minority positions will be documented by the Facilitation Team. 9.If a motion fails to get a two-thirds vote, but does get at least a 50% vote, then the Concept Group Chair and Vice-Chair shall determine if further efforts to get a two-thirds vote appear achievable within a reasonable time frame. If it is determined that further efforts are not reasonable, then the motion will pass noting that a two-thirds vote was not achieved. Minority positions will be documented by the Facilitation Team. 10.If a motion fails to get a two-thirds vote, but does not get at least a 50% vote, then the Concept Group Chair and Vice-Chair shall determine if further efforts to get a two-thirds vote appear achievable within a reasonable time frame. If it is determined that further efforts are not reasonable, then the motion will fail. Failed motions shall be reported to the Board as a minority position. 11.A proponent of a minority position may request consideration by TAC. TAC may recommend that the Board redirect the Facilitation Team regarding the minority position.

Stakeholders Policy and Technical Direction (via Representative Voting Structure) Process Overview Board of Directors Timely Compliance with PUCT Order PUCT Oversight, Direction & Protocol Approval Concept Groups ERCOT EC Allocation of Resources And Funding Coordination Group Facilitation Team Implement Board Directives Concept Groups Concept Groups Concept Groups MOD Advice / Updates TAC Review of Recommendations And Protocols MOD Guidance Minority Positions