1 Nodal Day Ahead Invoice Taskforce Update COPS, May 8, 2007

2 Nodal Day Ahead Invoice Task Force – Update Purpose of the Task Force Market Discussion Task Force Conclusion

3 Nodal Day Ahead Invoice Task Force – Purpose To discuss pros and cons of Nodal DAM Invoices – Daily versus weekly and If prudent, draft an NPRR

4 Nodal Day Ahead Invoice Task Force – Discussion Reasons for wanting a weekly invoice:  No other Market invoices Daily  ERCOT will have credit limits in place for the DAM and will prevent activity once exceeded  To decrease the risk of paying in an untimely manner. Making daily wire transfers to one entity creates an environment prone to mistakes.  To reduce/avoid administrative costs associated with processing daily invoices. Daily invoice processing requires personnel to be in the office every day, therefore backup personnel and procedures must be put into place for all departments involved in the settlement, authorization, and wire transfer process.  Market Participants with good credit should not be penalized with the burden of processing daily payments.

5 Nodal Day Ahead Invoice Task Force – Discussion (Cont.) Reasons for wanting a weekly invoice (cont):  To allow Market Participants sufficient time to obtain internal authorizations and approvals for invoice payment and wire transfer. Market Participants that are bureaucratic in their invoice authorization processes due to oversight requirements currently do not have the ability to obtain daily authorizations.  To allow more Market Participants to participate in the DAM  Daily invoicing obstacles will cause some Market Participants to go into the Real Time Market un-hedged because they are unable to participate in the DAM. Market Participants that are un-hedged in the Real Time Market are more susceptible to default.  Daily invoices will not relieve the potential of daily collateral calls

6 Nodal Day Ahead Invoice Task Force – Discussion (Cont.) Reviewed current Nodal protocols Learned of criteria and constraints  ERCOT DAM Statements include revenues and charges related to energy, ancillary services, and congestion revenue rights  ERCOT Settlements require some RT data inputs in order to create the DA Statement, such as Validated DAM LMPs, Congestion Rents, DA Make-Whole payments (based on Breaker Status)  ERCOT Settlements need 2 days after the operating day to produce the statement  Market Credit Exposure should not be increased  The concept of statements should not be significantly altered

7 Nodal Day Ahead Invoice Task Force – Discussion (Cont.) Credit perspective (CWG and MP’s Credit Departments)  Invoicing daily decreases the total amount of collateral required to be posted by Market Participants; increasing DAM participation  Invoicing daily allows credit invoice recipients to collect more timely  Invoicing daily allows ERCOT to collect more timely, therefore reducing total market credit exposure. However, this should not impact the credit risk since ERCOT will stop operation if an entity runs out of credit until they post sufficient collateral, regardless of daily or weekly invoice payment.

8 Nodal Day Ahead Invoice Task Force – Conclusions TF participants learned a lot about the invoicing process and credit Unable to overcome perception of increasing Market risk (credit exposure) Credit issues were placed ahead of Market Participants’ concerns No other market invoices daily Some Market Participants will be highly taxed due to administrative burden of daily invoicing Market Participants should not assume that paying daily invoices will relieve the potential of daily collateral calls Any Market Participant is able to submit an NPRR The Task Force decided to take a ‘wait and see’ approach; with experience and historical data the decision to submit an NPRR may be looked at again

9 Nodal Day Ahead Invoice Task Force – Conclusions Alternatives to making daily wires transfers: Pre-pay once a week, ERCOT is willing to manage accounts and withdraw daily payments before the due date and notify MPs of insufficient funds so they will not miss the due date Group-pay several invoices at a time, every four days (4 to 6 invoices at a time)  Each invoice stands on its own, no netting  MPs would have to be careful that they grouped the right invoices together  MPs would have to let ERCOT know which invoices are being paid and for what amounts  If a MP combined several invoices into one payment and there was a short payment, ERCOT would need to know which invoice to short pay.