MCWG Update to WMS 5/11/2011 1

Exposure / Collateral Update Nodal Total Potential Exposure reported by ERCOT as of 4/30/11 remains less than Zonal Estimated Aggregate Liability (TPE = ↓38% since 10/31) Collateral Posted has increased since 10/31 Cash/LOCs $894MM Guarantees $759MM Net Impact – Secured MPs are posting 5.3xTPE vs. 2.0xEAL Unsecured Credit Limits have increased Dollar % ∆ = $856MM [Dollar / CPTY] ∆ = ↑19.7MM from $13.2MM # MPs ↑+6 from 20 Note – Exposure reported does not include DAM Credit Exposure nor CRR Auction Credit Exposure as calculated in Section 4 and 7 of the Protocols Source: Finance And Audit Committee Meeting Materials, ERCOT Market Credit Status, Sept 2010 – May

2011 Status Update Action ItemDeliverable Target Date Status ERCOT unsecured credit policiesReview of the unsecured credit capQ1 Reviewing- $50MM cap & eliminate use for satisfying CRR posting obligations Pre-DAM Credit Validation Determine if PTP Obligations can be offset with CRRs Q2 In Progress – Board Approved and September 2011 Implementation Goal CMM Core Systems Tighten invoice timelines and collateral requirements In Progress – NPRR 347 revises RT invoicing to OD+10; CWG recommended tabling the NPRR CMM Core Systems Examine adequacy of collateral held for forward risk In Progress – NPRR 347 (1) ERCOT and Luminant proposed Minimum Collateral Exposure calculations (2) Luminant proposed decreasing the default timeline and revising the EAL/AIL equations ERCOT unsecured credit policiesExamine Form of LCs and guarantees In Progress – Chad Seely to circulate comments Netting/Mutuality Determine alternatives to First Priority Secured Interest agreements In time for balance of year or annual auction Reviewing –ERCOT Credit/Legal evaluating the creation of a central counterparty CMM Core SystemsExamine FCE calculations In Progress – NPRR 357 filed by Luminant CRR Auction Credit Validation Examine Initial Margin (A&M) and Collateralization of purchase price In Progress – NPRR 357 filed by Luminant Pre-DAM Credit Validation Review e-factors or replacement for e-factors Q3 TBD ERCOT unsecured credit policiesComparison to best practices TBD Review Investment Practices Recommend changes to current investment practices TBD ERCOT unsecured credit policies Comprehensive review of unsecured credit assignment Q4 In Progress – NPRR 347 (1) ERCOT and Luminant proposed Minimum Collateral Exposure calculations 3

May 4 th Meeting Summary CFTC Update – ERCOT met with CFTC and received positive feedback on obtaining exemption – Key Dates: (1) June 20 th – Submit exemption application, (2) Late July - proposed exemption order to be published, (3) August -30 day public comment DAM Collateral Parameters – ERCOT requested a change to the DAM collateral process document Provide ERCOT discretion to revise DAM credit parameters – Loosen credit parameters with less than 2 Bank Business Days notice – Tighten credit parameters after 2 Bank Business Day notification Tabled for further review after StarTex comments Abacus Update – Short $731, ; Allocation based on 1/2011 ; Uplift month 9/2011 ERCOT Legal Update – LOC Form & Guarantee FormLOC Guarantee – Chad Seely will provide MPs opportunity to provide additional comments on LOC & Guarantee forms NPRR 347 – Daily Settlement Invoice and Minimum Collateral NPRR Multi-Month CRR Auction and Revisions to Collateral Requirements 4

NPRR 347 Protocol Section Revision TopicERCOT’s ProposalLuminant’s Proposal Section 9Revise RTM invoicing to 10 th BD rather than Thur. following the 10 th BD Same Proposal Require Minimum Collateral (1) Conditional – required for CPTYs that do not meet a rating standard or Equity/Asset metric (2) MRTFL = Max[ {Max RT Imbalance in 30days}, {20% * Max Gen in 30days}] *1.2 * 2 (1) Applies to all CPTYs (2) Minimum Collateral Exposure is a max of (a) generation outage risk plus bilateral replacement OR (b) mass transition risk of load less probable generation plus bilateral replacement Combine EAL & AIL in to a single equation that separates unbilled risk from forward exposure N/A (1)Separate ADTE into unbilled risk (URTA) and forward risk (RTLE)] (2)Unbilled & FWD Multiples TBD (3)DALE multiple = RTLE multiple (4)Eliminate AIL and combine AIL inputs into EAL calculation that separates forward risk from unbilled risk MCE Reporting N/A Requires ERCOT to publish MCE Summary Report & Security Agreement Reduce Margin Cure Period N/A (1) Reduce Cure Period, (2) Provide ERCOT discretion to extend to 4 th BD 5 NPRR Summary – (1) Reduce RT invoicing cycle to the 10 th BD following the operating day, (2) Revise forward exposure calculations Status Update 4/18 – SEWG filed comments to revise invoicing back to the MP level rather than Counter-Partycomments 4/21 - Passed by PRSPassed by PRS 5/04 - Tabled by CWG

NPRR 357 Luminant filed NPRR 357 and presented key concepts to MCWG/CWG Key Concepts Settlement Revise the CRR settlement terms from payment being required post the auction clears to prior to the delivery month Auction Attributes Increase the frequency of multi-month auctions from once per year to monthly Temporarily reduce the term of the auction Revise the amount of capacity made available in the auction Revise the collateral requirements by: – Recognizing max bid exposure (i.e. similar to DAM Bid Exposure calculation included in NPR 323) – Path/Term/Product specific adders (i.e. revise values A and M) – Not requiring collateralization of the entire bid value since settlement terms have been revised Forward Exposure Revise the Forward Credit Exposure calculations by incorporating an initial margin requirement that is path/term/product specific and a mark-to-market value that is derived from the difference between the latest ACP and CPTY’s award price for Forward Months not settled Incorporate into the Forward Credit Exposure calculation an estimate for CRR Balancing Account Revenue 6