Real Time Settlement Timeline Workshop Debrief To TAC 11/29/2012 Evaluation and consideration of reducing the RT Settlement Timeline Jim Galvin- CSWG Chair

2 In response to PUCT comments on the Open Meeting of 9/28/2012 under Project No –Instituting a settlement timeline that meets the requirements of FERC order 741 and recommendations from CFTC –Consideration of existing changes to Protocols (NPRR 347) As directed by COPS, CSWG and COPS held a joint workshop to discuss and evaluate further reducing the Real Time Settlement timeline The workshop focused on evaluating the history of the RT Settlement process and the challenges experienced in the past –Lessons learned from the evolution of T+3 to T+17, reduced back to T+10 and subsequently T+9 Challenges and issues evaluated potential impacts to systems, processes, data accuracy and integrity and data validation measured against the benefits to credit exposure Workshop Synopsis

3 There was support for reducing the timeline to the 6-8 day period –Status Quo was requested as an option for consideration Even with this support, stakeholders and ERCOT staff indicated there would be impacts –Impacts to systems, processes, staffing and data availability and accuracy were discussed –At 6-8 day reduction, impacts were considered minimal There was consensus that reducing the timeline to 5-days or fewer would create a significant impact to stakeholders and ERCOT staff There was consensus that a transitional approach should be considered –For example, if the goal was to target T+7, begin with a reduction to T+8 and evaluate for a period of time until a determination to move to the T+7 Points of Consensus

4 T+ (6-8) impacts would be minimal, T+<5, impacts would be significant across all stakeholders and ERCOT Impacts focused on data availability and accuracy, concerns increase as the timeline decreases Processes may need to change to accommodate reduction, for example ERCOT running Data Aggregation and Settlements on the same day Data exceptions and validation such as LSE files from TDSPs, VEE responsibilities, remote meter information Data errors in settlements and the dispute process, how soon could errors be resettled –Discussion noted that the transition to NPRR 347 primarily drives this concern regardless of how short the timeline is reduced Staffing concerns, further timeline crunch around holidays for ERCOT staff and stakeholders Impacts-

5 Cash is cleared more timely Credit exposure and default risk are reduced especially during times of volatile settlement activity Reductions in the amount of collateral posted by stakeholders Conform with FERC Order 741 as with other ISO/RTO entities for “best in class” consideration –Currently ERCOT complies 90+% with FERC 741 Benefits to Reduction

6 CSWG/COPs attendees agreed to bring back to TAC the following recommendations: –After review of concerns from all stakeholders and ERCOT staff, consensus was reached on reducing the settlement timeline –The group agreed that targeting a desired reduction to T+7 would be a near term goal to keep impacts in the minimal range –The group also agreed on a transition approach by starting at T+8 for a period of time and evaluating the impacts as we transition to the near term goal –ERCOT,CSWG and COPS would continue to work on determining the success criteria of meeting the goal and other items for consideration –As the timeline reduces, the group would weigh opportunities for reducing the timeline further Workshop Determinations

7 Workshop Other Items for Consideration The reduction of the settlement timeline may bring instances of data errors or inaccuracies Likewise, NPRR 347 now places RT Statements on a daily invoices –Prior to NPRR 347, ERCOT could conduct a resettlement in the event of an identified error and potentially resettle prior to the issuance of the RT invoice –NPRR 347 eliminates that opportunity The group determined that the dispute process and resettlement trigger (“2% Error) should be evaluated to ensure that potential data anomalies and/or errors can be resettled as soon as possible

8 Next Steps Summary Statement: Reducing the Real Time Settlement timeline 1- day provides benefits with minimal impacts; however, as we reduce the timeline further those impacts become moderate to significant. Stakeholders appear to favor a transitional approach to evaluate impacts of a 1-day decrease in the timeline, evaluate impacts of the 1-day decrease and consider opportunities to decrease further based on analysis of impacts and benefits to a 1-day decrease COPS and CSWG suggested next steps: Work with ERCOT Staff on an implementation approach and timeline Draft necessary NPRRs for transition Create of exit criteria to reduce the timeline from starting point Identify metrics and/or methodologies for measuring impacts and benefits to evaluate further reductions in the timeline

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