July 28, 2010 Market Readiness Seminar Credit Transition to Nodal (Preliminary)

2 Topics Credit Cutover Overview December 2010 CRR Auction held in November January 2011 CRR Auction held in December Approach for estimating initial exposure in CMM Preliminary Credit Cutover Timeline Market Readiness SeminarJuly 28, 2010

3 Credit Cutover Overview Nodal Protocol Section on Credit will light up for the December 1 operating day ( Credit Requirements for CRR Auction Participation will light up beginning with the December 2010 CRR Auction) –Prior to that, credit requirements need to be established for the December 2010 CRR Auction held in November Plan to handle similarly to the current Zonal TCR Auctions Separate collateral posted Available Credit Limits (ACL) viewable in CRR, not MIS –Credit Reports will begin being posted on Tuesday, November 23 rd To support the January 2010 CRR Auction held in December In preparation for the first DAM run on November 30th Market Readiness SeminarJuly 28, 2010

4 Establish ACLs for December 2010 CRR Auction ERCOT Credit will verify creditworthiness of CRRAHs by October 1, 2010 CRRAHs that meet Creditworthiness Standards and are assigned unsecured credit will notify Credit staff of how much unsecured credit (other than that used for QSE activity) to assign to the December 2010 CRR Auction (if any) between October 28 and November 8 CRRAHs that do not meet the Creditworthiness Standards but wish to participate in the December 2010 CRR Auction will: –Send collateral specifically earmarked for the December 2010 CRR Auction to ERCOT via wire transfer between October 28 and November 8 The combination of posted collateral and unsecured credit allocated by the CRRAH will be the ACL provided for the CRR Auction Market Readiness SeminarJuly 28, 2010 December 2010 CRR Auction held in November

5 View ACLs prior to December 2010 CRR Auction ACLs will be viewable in the CRR Application beginning October 29, 2010 –ACLs will be viewable only by CRR Account Holders and Counter-Parties and only in the CRR Application leading up to the December CRR Auction (e.g. not on MIS). December 2010 CRR Auction bid submission window opens on November 9, closes on November 11, and the CRR Auction begins execution on November 12 After the CRR Auction has executed Auction results posted in CRR Application and on MIS on November 15 PCRR and CRR Auction invoices are posted on MIS by November 16 (before midnight) CRR Auction invoice payments are due by November 19 by 5:00 PM (CST) ERCOT to pay CRR amounts on November 22 Market Readiness SeminarJuly 28, 2010

6 December 2010 CRR Auction held in November Release of CRR collateral / Ongoing collateral requirement for CRR obligations Once invoices are paid, CRR collateral or unsecured credit is released and may be refunded, with the following consideration –CRR Obligations - An amount equal to the greater of the ACPE component of the FCE calculation and the Auction Clearing Price (ACP) will be held as collateral for FCE until ACLs are produced by CMM –CRR Options - No collateral will be retained Market Readiness SeminarJuly 28, 2010

7 January 2011 CRR Auction held in December Establish ACLs for January 2011 CRR Auction –ERCOT Credit will verify creditworthiness of CRRAHs prior to the auction –ACLs will be set in CMM Initial exposures will be calculated using available Zonal data until Nodal data becomes available (see next page) View ACLs prior to January 2011 CRR Auction –ACLs will be viewable from CMM Credit Reports posted to MIS beginning November 23, 2010 and in the CRR Application beginning November 24, 2010 –January 2011 CRR Auction bid submission window opens on December 7, closes on December 9, and the CRR Auction begins execution on December 10 After the CRR Auction has run –Timelines for posting Auction results and CRR Auction invoices are per Nodal Protocols –CRR Auction invoice payment requirements are per Nodal Protocols Release of CRR collateral / Ongoing collateral requirement for CRR obligations – Release of CRR collateral and ongoing collateral requirements for CRR obligations are per Nodal Protocols Market Readiness SeminarJuly 28, 2010

8 Approach for establishing the initial exposure in CMM Overview –Utilize Zonal data to the extent possible to establish initial TPE –CRR Obligations from December 2010 auction will be collateralized at the greater of the ACPE component of the FCE calculation and the Auction Clearing Price (ACP) –CRR Options will not have value initially (until DAM values are available) Market Readiness SeminarJuly 28, 2010

9 Approach for establishing the initial exposure in CMM Market Readiness SeminarJuly 28, 2010

10 Preliminary Credit Cutover timeline Thursday, November 18 th –Zonal invoice published –last Zonal EAL credit calculation from which a collateral call will be made (system will be maintained through Go Live and will be available for a period beyond Go Live) Friday, November 19 th –Nodal CRR auction invoice payments due Tuesday, November 23rd –Post first Nodal Credit Reports and send ACL to CRR and DAM No collateral calls sent based on these reports Wednesday, November 24 nd –Last Zonal NLRI credit calculation from which a collateral call will be made (system will be maintained through Go Live and will be available for a period beyond Go Live) Thursday / Friday, November 25 th / 26 th – Thanksgiving holiday Market Readiness SeminarJuly 28, 2010

11 Preliminary Credit Cutover timeline Monday, November 29 th – –Zonal invoice published –First Nodal credit calculation from which a collateral call will be made For example, collateral may be required based on AIL activity (e.g. Zonal NLRI data) Will exclude Zonal invoice from November 29 th from the calculation –send ACL for initial DAM (afternoon) Tuesday, November 30 th –initial DAM “e” factors set at 1/0/1 –Second Nodal credit calculation Will include Zonal invoice from November 29 th in the calculation Wednesday, December 1 st – “Go Live” Market Readiness SeminarJuly 28, 2010