MCWG Update to WMS 11/13/2013

MCWG Update to WMS General Update - October 30 th Joint MCWG/CWG Meeting Review September 25 Meeting Minutes - Approved by the group Review NPRRs All operational except – NPRR 568 – Real-Time Reserve Price Adder Based on Operating Reserve Demand Curve - CWG/MCWG has reviewed the NPRR with the following comments: » Implementation of this NPRR will not impact the current credit calculations. However, potential higher prices will increase the risk profile and default risk of the market and increase the frequency of higher prices. It is anticipate that prices will be more volatile and increase credit requirement to Counter-Parties NPRR 570 – Reduce RTM Settlement Timeline to Operating Day Plus Five - CWG/MCWG has reviewed the NPRR with the following comments: » Implementation of this NPRR has positive credit implications and has the potential to offer a reduction of the M2 component of the EAL (Estimated Aggregate Liability) calculation. The credit requirement is minimal because most components of the credit calculation aren’t impacted by this proposed reduction in the settlement timeline

MCWG Update to WMS -Day Ahead Available Credit Limit (ACLs) for POLRs during a mass transition ERCOT presented the Mass Transition Timing to the group. In the event of a Mass Transition, POLRs (Provider of Last Resort) acquiring volume will be unhedged for a minimum of one day - ERCOT proposed two potential options to the group: » ERCOT could adjust POLR TPE to reflect additional volume based on pro rata allocation of the TPE of the defaulting entity » Investigate revisions to Retail Market Guide/PUCT rules to allow PLRs sufficient time to hedge » Alternatively, in the event of a Mass Transition ERCOT could allocate additional DAM credit to the POLRs based on respective shares - There was discussion in the group, which included: » Request more capital requirement for POLRs » Do a load vs. Price distribution analysis to see at what level of load will see a pricing event » Set M1, forward risk multiplier for DALE (day-ahead exposure) and RTLE (real-time exposure) at different level to address activities occur in different day - Next Steps The matter will be further discussed at December join CWG/MCWG meeting

MCWG Update to WMS -Review dollar-based minimum collateral for Counter-Parties with no load or generation (MCE for Traders) ERCOT presented a proposal to the group for non-load/generation Counter-Parties - Proposed financial MCE (IMCE, initial Minimum Current Exposure) » IMCE t = TOA * (nq * cif * SWCAP) » TOA – Trade Only Activity (Counter-Party that does not represent either a Load or a generation QSE. – May have a value of “0” or “1.” Flag to indicate whether activity corresponds to a Counter- Party that does not represent either a Load or a generation QSE. Set to “0” if Counter-Party represents a QSE that has an association with a Load Serving Entity (LSE) or a Resource Entity (RE), or if Counter-Party does not represent any QSE; otherwise set to 1.) » nq = Notional quantity of 50MW » cif = Cap interval factor. Represents the historic largest percentage of SWCAP intervals during a calendar day. The factor shall initially be set at 9%. » SWCAP = System-Wide Offer Cap, as determined in accordance with PUCT Substantive Rules *Both nq and cif factor will be recommended by TAC and approved by the ERCOT Board. ERCOT shall provide notice to Market Participants prior to implementation of a revised value.* The group request IMCE be $40,500, and set the SWCAP at Next Steps » E RCOT will draft an NPRR

MCWG Update to WMS -Review Letter of Credit Concentration Limit Per the direction of the F&A Committee on May 13, 2013, ERCOT staff agreed to test the proposed letter of credit limit structure on a trial basis before seeking approval from F&A The proposed limit structure was tested throughout the summer months ERCOT presented a sample report to the group, which contains the top ten letter of credit issuer bank » Results: Top 10 issuers comprise 90% of the value issued. No issuer met or exceeded the overall limit nor had constrained capacity. » Testing was conducted based on the following proposed limited structure: Letter of Credit Limit calculated as the maximum of – $750M per Letter of Credit issuer – Tangible Net Worth adjusted for credit rating – Per F&A request, ERCOT also computed limits based on issuing bank Tier 1 Capital instead of Tangible Net Worth - Next Steps ERCOT will report results to the Finance & Audit Committee on November 18 th ERCOT supports use of the Total Net Worth parameter rather than Tier 1 capital: - TNW more transparent for Market Participants - Consistent with current ERCOT credit calculations ERCOT will continue to report outstanding LC concentration and unused limit by issuer

MCWG Update to WMS -Status update on NPRR 484 Since NPRR 484 Phase 1 A go-live date on October 21, 2013, no system issue has found; implementation processes is going smooth ERCOT has scheduled the last NPRR 484 training session on November 15, 2013, from 9:00 a.m. to 12 noon. A market notice has been sent out on October 31, Other Items SCR update for PTPOBLO » ERCOT finished the impact analysis. It costs $20k to $30k for system change. ERCOT needs more time to resolve some other question or concern arise from internal No Joint CWG/MCWG meeting in November, next meeting will be in December 2013 The group also set up year 2014 meeting calendar