1. March 20 & 22, 2013 ERCOT Public ERCOT NPRR463 Market Call NPRR463/CRR Rolling Auction Implementation Update ERCOT CRR Team Manager: Matt Mereness

2. 2 Antitrust Admonition ANTITRUST ADMONITION ERCOT strictly prohibits Market Participants and their employees who are participating in ERCOT activities from using their participation in ERCOT activities as a forum for engaging in practices or communications that violate the antitrust laws. The ERCOT Board has approved guidelines for members of ERCOT Committees, Subcommittees and Working Groups to be reviewed and followed by each Market Participant attending ERCOT meetings. If you have not received a copy of these Guidelines, copies are available at the Client Relations desk. Please remember your ongoing obligation to comply with all applicable laws, including the antitrust laws. DISCLAIMER All presentations and materials submitted by Market Participants or any other Entity to ERCOT staff for this meeting are received and posted with the acknowledgement that the information will be considered public in accordance with the ERCOT Websites Content Management Operating Procedure. Mar 2013

3. 3 Outline of Market Call Discussion NPRR463- CRR Long-Term Auction Sequences –Overview of NPRR463 Including refinements/decisions for go-live –CRR Calendar review –What changes will market need to adapt to? Transaction limits for the Auctions Naming convention for Auction Credit Lock sequences CRR Auction data entry and results CRR Settlement –Questions/Answers ERCOT PublicMar 2013

4. 4 ERCOT PublicMar 2013

5. 5 ERCOT PublicMar 2013 NPRR463 “CRR Auction Structure Enhancements” Board Approved June 2012 A.K.A. 6-month Rolling Auction or Long-Term Auction Sequence Key market design changes -NPRR Link and Details: -http://www.ercot.com/mktrules/issues/nprr/451-475/463/indexhttp://www.ercot.com/mktrules/issues/nprr/451-475/463/index -Reason for design change: -“The current CRR Auction structure offers only one point in time per year where forward hedging (beyond the next month) can be accomplished, and when those long-term auction events do occur they cause a large concentration of credit requirements for Market Participants and workload for Market Participants and ERCOT Staff. This NPRR would distribute the release of network capacity to be more evenly spread out over time, enabling Market Participants to manage their positions incrementally as they evolve over time.” -High level impacts and changes: -Rather than two 12-month auctions, it is four 6-month auctions (see slide 7) -Helps mitigate bidding and credit constraints -Occurs 2x/year (rather than just 1x/year) to increase liquidity and get hedge in place sooner -Mechanically almost identical to annual auction sequence (multi-month auction/optimization) -NPRR included a correction to properly scale prior ownership in auction Stakeholder history in developing NPRR463

6. 6 ERCOT PublicMar 2013 Milestones and Key Dates -Internal -September development of Nexant scope/requirements -Oct/Nov focus on Integration issues/scope -October FTE hired to support rolling auction started -December 19 project moved into Execution -Internal testing Jan/Feb/Mar (FAT and iTest) -External -Dec 31 ERCOT released draft CRR Calendar inclusive NPRR463 Long-Term Auction -WMS reviewed CRR Calendar (Jan 9 th )- unanimously approved two changes: -Deferral/Suspension of auction sequences during December holidays -Remove overlapping month/long-term bid windows with earlier monthly auction -TAC approval of CRR Calendar (February TAC) -No market-facing trials planned hosting Q&A WebEx/calls (today) -Review of Bid Transaction Limits in March (CMWG/WMS) -Board approval of NPRR521 on March 19th increasing capacity for transitional purposes -Protocols live on April 1, 2013 -TAC approval of Bid Transaction Limits (April 4 meeting) -Systems live in April (Models post April2, Auction Notice April 10, Credit Lock April 29) Stakeholder history since approval of NPRR463

7. 7 ERCOT PublicMar 2013 Auction Structure - 1x/Year OnPeak WkDay OffPeak OnPeakWkEnd OnPeak WkDay OffPeak OnPeakWkEnd In 4 th Quarter of each year, sell next 2 years of CRRs at monthly granularity in an annual 12-month optimization - Year 1 on 55% Model - Year 2 on 15% Model - Optimize each time-of-use across multi-period months for annual - Monthly auction is 90% and optimize across 3 times of use

8. 8 ERCOT PublicMar 2013 2013 Auction Structure - 2x/Year In 2 nd and 4 th Quarter of each year, sell next 2 years of CRRs at monthly granularity in an 6-month optimization - First 6-months at 60%, Second 6-months 45%, Third at 30%, Fourth at 15% - Optimize each time-of-use across multi-period months for annual - Monthly auction is 90% and optimize across 3 times of use

9. 9 ERCOT Public Ownership Scaling Changes A potential issue in the original design of the CRR Auction was in the method of scaling existing inventory -Currently for an auction all CRR Ownership is reduced by the same percentage as the model -This compressing of inventory allows overselling on paths since ownership is not fully represented -Has not been an issue to date with only 3 auctions (2 annual + monthly) -Would be an issue if not changed for 5 auctions (4 + monthly) -With NPRR463 the scaling is changed to be: -Most CRR Ownership will now be maintained at 100% of sold volume -Except NOIE PCRRs which are reduced with network model (since pre-allocated) Mar 2013

10. 10 ERCOT PublicMar 2013 Transitional Auction capacities (NPRR521) 55% System previously sold in Year1 15% System previously sold in Year2 First auction Increased capacity to 70% for scenario of oversell on 100MW line: Sold Y2 2013 as 15% model -> 15MW award cleared in Y2 Sold Y1 2013 as 55% model Y2 inventory was scaled to 55% of 15MW = 8.25MW reserve Y1 clears remaining 46.75MW (55MW-8.25MW reserved) Sequence 1 Inventory = 15MW + 46.75MW = 61.75MW reserved In sequence 1, no longer scaled with NPRR463 60% Model = 60MW, but already sold 61.75MW Potentially no new sales unless counterflow

11. 11 ERCOT PublicMar 2013 Spring 2013 CRR Calendar- Long-term Auction Sequences Credit Lock and Run dates April29-May17, 2013 Credit Lock and Run dates May20-Jun7, 2013 Credit Lock and Run dates June10-28, 2013 Credit Lock and Run dates Jul1-19, 2013 MAYJUNEJULY

12. 12 ERCOT PublicMar 2013 Winter 2013 CRR Calendar- Long-term Auction Sequences Credit Lock and Run dates Oct28-Nov15, 2013 Credit Lock and Run dates Nov18-Dec6, 2013 NOVDECJAN Credit Lock and Run dates Jan6-Jan24, 2014 Credit Lock and Run dates Jan27-Feb14, 2014 FEB

13. 13 ERCOT PublicMar 2013

14. 14 ERCOT Public NOTICE DATE: March 1, 2013 / NOTICE TYPE: M-A030113-01 CRR / DAY AFFECTED: April 1, 2013 SHORT DESCRIPTION: Implementation details for NPRR463 INTENDED AUDIENCE: CRR Account Holders, Counter-Parties, and credit personnel LONG DESCRIPTION: On April 1, 2013, Nodal Protocol Revision Request (NPRR) 463, CRR Auction Structure Enhancements, shall become effective. NPRR463, which was approved by the ERCOT Board on June 19, 2012, replaces the annual Congestion Revenue Right (CRR) Auction with a semi-annual sequence of four consecutive six-month CRR Auctions, defined as CRR Long-Term Auction Sequences. As presented to and approved by the Technical Advisory Committee (TAC) on February 7, 2013, ERCOT will implement and execute the first Long-Term Auction Sequence in accordance with the TAC approved CRR Activity Calendar. The implementation of NPRR463 is a significant change in CRR market design, structure, and timing. In order to help the market with transitional issues, ERCOT will be hosting two WebEx meetings to present an implementation overview, key dates, and to answer any questions from Market Participants. The intent is to cover the same standard material with each WebEx, so Market Participants are not expected to attend both sessions. The meeting dates are as follows: Wednesday, March 20, 2013 (14:00 – 15:30 CPT) http://www.ercot.com/calendar/2013/03/20130320-CRR Friday, March 22, 2013 (10:00 – 11:30 CPT) http://www.ercot.com/calendar/2013/03/20130322-CRR Protocols for NPRR463 will become effective on April 1, 2013, followed by the key dates and activities below that will be further reviewed on the market calls. Long-Term Auction Sequence 1 (CRRs for July – December 2013) Post Network Model – April 2, 2013 Post Auction Notice and open Credit Window – April 10, 2013 Credit Lock – April 29, 2013 Bid submission close – May 2, 2013 Results posted – May 16, 2013 Long-Term Auction Sequence 2 (CRRs for January – June 2014) Summary of dates from Credit Lock to CRR Results being posted – May 20 – June 6, 2013 Long-Term Auction Sequence 3 (CRRs for July – December 2014) Summary of dates from Credit Lock to CRR Results being posted – June 10 – 27, 2013 Long-Term Auction Sequence 4 (CRRs for January – June 2015) Summary of dates from Credit Lock to CRR Results being posted – July 1 – 18, 2013 Reminder that monthly auction activities are not changed by NPRR463 and will continue to run in parallel to the Long-Term Auction Sequences. As part of this implementation, CRR Auction Revenue (CARD) Extracts will start containing Bill Determinants with suffixes in the format of “YYYY-N-S” representing the year, number and sequence used for the corresponding Annual CRR Auctions. This will start with the July 2013 CARD Extract. ERCOT also plans to discuss NPRR521, Transitional CRR Auction Capacity Value for Initial CRR Long-Term Auction Sequence, on the market calls. NPRR521, which is on an urgent timeline for March TAC and Board consideration, requests for the first auction sequence network model capacity to be increased from 60% to 70%. A Market Notice will be sent with the status of this NPRR after consideration by the ERCOT Board. Market Notice with Market Call information: Mar 2013

15. 15 ERCOT PublicMar 2013 Format of Calendar has been changed Improved calendar to support more CRR Activities - Simplified format for the CRR Calendar (summary of dates rather than all days) - CRR activity calendar timeline through the end of 2014 - Inclusion of additional worksheets separating and detailing NOIE PCRR nomination sequence as well as protocol references that drive the auction and nominations dates - KeyLink http://mis.ercot.com/misapp/GetReports.do?reportTypeId=11180&reportTitle=CRR Activity Calendar&showHTMLView=&mimicKey

16. 16 ERCOT PublicMar 2013 2015 PCRR Allocation Expectations Separate tab on CRR Calendar for PCRR activities (for NOIEs only) - ERCOT targeting to send eligibility forms to NOIEs by end of March 2013, and not later than April 10 th - Eligibility forms due back to ERCOT by May 10, 2013 - Any disputed eligibility amounts to be resolved with ERCOT Legal - PCRR nomination window open May 13 – 17, 2013 - Allocations will be made for the entire year, but pricing will be based on two separate auction sequences - Jan – Jun based on 2015.1st6 auction - Jul – Dec based on 2015.2nd6 auction Annual PCRR Activity Calendar Auction NameAuction TypeERCOT Send Eligibility Forms to NOIEs NOIEs Return Eligibility Forms (any disputes resolved) Nomination Window Opens 8:00am Nomination Window Closes 5:00pm Post Allocations for Entire Year Charges for Jan-Jun PCRRs Pertain to this CRR Auction Charges for Jul-Dec PCRRs Pertain to this CRR Auction CRR Effective Start Date CRR Effective End Date 2015.Annual.PCRR.AllocationPCRRFeb/Mar 20135/10/20135/13/20135/17/20135/28/20132015.1st6.AnnualAuction.Seq42015.2nd6.AnnualAuction.Seq41/1/201512/31/2015 2016.Annual.PCRR.AllocationPCRRFeb/Mar 20145/9/20145/12/20145/16/20145/27/20142016.1st6.AnnualAuction.Seq42016.2nd6.AnnualAuction.Seq41/1/201612/31/2016

17. 17 ERCOT PublicMar 2013

18. 18 CRR Transaction Limits- TAC Approval still needed 7.5.2CRR Auction Offers and Bids (b)The Technical Advisory Committee (TAC) shall establish transaction limits for the CRR Auctions for Participating CRR Account Holders. As part of TAC consideration to establish or change transaction limits, ERCOT shall provide upon TAC request to TAC or a TAC-designated subcommittee the historical number of transactions submitted by each CRR Account Holder and the number of active CRR Account Holders aggregated up to the associated Counter-Party for each requested CRR Auction without identifying the names of the CRR Account Holders or Counter-Parties. Upon TAC approval of a change in transaction limits, ERCOT shall post these values as part of the next regularly scheduled CRR Auction Notice. Only Participating CRR Account Holders are allowed to submit transactions in the relevant CRR Auction. Current approved TAC limits are: –7,500 transactions (offers and bids) for monthly –2,500 transactions for Year 1 Annual Auction (retired) –3,500 transactions for Year 2 Annual Auction (retired) WMS approved last week, and TAC consideration on April 4 for Long-term Auction Sequences –2,000 transactions Sequence 1 – First 6-months (60-70% model) –2,000 transactions Sequence 2 – Second 6-months (45% model) –2,000 transactions Sequence 3 – Third 6-months (30% model) –2,000 transactions Sequence 4 – Fourth 6-months (15% model) Single 2,000 limit for all 4 Sequences –Allows each Counterparty 6,000 bids/offers for each 6-month period –1,000/month - 6,000/multi-month-strips –Can observe market behavior of single limit to assess next auction and consider re-assess –REMINDER- If oversubscribed, we will have a Round 2 as per usual procedure ERCOT PublicMar 2013

19. 19 ERCOT Public Naming Convention for Auction (associated with “Annual”)  2013.2nd6.AnnualAuction.Seq1  What does this sequence name mean?  2013.2nd6.AnnualAuction.Seq1 Year of the auctioned CRRs  2013. 2nd6. AnnualAuction.Seq1 Time period of the auction 1st6 for January through June 2nd6 for July through December  2013.2nd6. AnnualAuction.Seq1 Auction type  2013.2nd6.AnnualAuction. Seq1 Order that is tied to percent capacity Mar 2013

20. 20 ERCOT Public CRR Postings on Market Information System (grouped with Annual) Rolling Auction models will be posted under the “Annual” link Rolling Auction models will have new file names Rpt.00011204.0000000000000000.YYYYMMDD.HHMMSS.2013.2nd6.AnnualCRRNetworkModel.Seq1.zip Rpt.00011203.0000000000000000.YYYYMMDD.HHMMSS.2013.2nd6.AnnualCRRAuctionResults.Seq1.zip Rolling Auction results will be posted under the “Annual” link Rolling Auction results will have new file names Mar 2013

21. 21 ERCOT Public Bid/Offer Portfolio of CRR Submissions (no changes) Mar 2013

22. 22 ERCOT Public Credit Management -Credit is managed like an annual auction (select credit by time-of-use products) -Credit Locks will overlap between a long-term auction and monthly auctions -Credit Locks will never overlap for 2 Long-Term Auction Sequences Mar 2013

23. 23 Settlement- Effect of Naming Convention to CARD Extracts  CRR Auction Revenue Distribution (CARD) Extract  Report name 0000000000000000-CRROUTPUTHEADER_CARD_PUBLIC.csv  Bill Determinants contain suffix of CRR Auction Code – derived from CRR Auction Name  For Annual Auctions, CRR Auction Code will have format YYYY-N-S YYYY is the year for the Auction N is 1 for 1st6 (January-June) or 2 for 2nd6 (July-December) S is sequence number 1 to 4 Sample BDs:OBLPAMTNZTOT_ANN-14 OBLPAMTNZTOT_2014-1-1 OBLPAMTNZTOT_2014-1-2 OBLPAMTNZTOT_FEB-14 OBLPAMTZTOT_HOUSTON_ANN-14 OBLPAMTZTOT_HOUSTON_2014-1-1 OBLPAMTZTOT_HOUSTON_2014-1-2 OBLPAMTZTOT_HOUSTON_FEB-13 Note: ANN-14 is based on old CRR Auction Naming convention that was already completed for year 2014 Mar 2013

24. 24 ERCOT Public Reminder of contact: If you have any questions, please contact your ERCOT Account Manager. You may also call the general ERCOT Client Services phone number at (512) 248-3900 or contact the ERCOT CRR Team via email at CRRInfo@ercot.comCRRInfo@ercot.com Mar 2013

25. 25 ERCOT PublicMar 2013 APPENDIX

26. 26 Limited analysis and evidence CRR transaction limits Issue at hand: With the current market design and vendor capabilities, no CRR auction can process more than 200,000 CRRs (potential increase by end of year) Existing inventory is counted as transactions, so a “compounding effect” as discussed at TAC last year prior to annual auctions (Y2+Y1+Monthly ownership) Rolling auctions increase compounding effect (see below) ERCOT PublicMar 2013 200,000 Transaction Limit PCRR Yr2- Ownership Yr1- Ownership PCRR Seq4- Ownership Seq3- Ownership Seq2- Ownership Seq1- Ownership Prior AnnualRolling Auction Bid transaction capacity remaining for Monthly bids/offers

27. 27 ERCOT PublicMar 2013 Transaction Bid Limits For Year 1/2013 annual auction ran in Nov 2012 (which had 2500 limit): Total number of Transactions (bids and offers) entered by market into the auction 133k Total number of Awards 39k Number of Transactions that were 12-month strips 29k Number of Awards that were 12-month strips 5.5k Number of Transaction that were more multi-month (including the 12-month) 75k Number of Awards that were multi-month 17k Number of CRRAH that bid more than 2,400 bids 21 of 118 Repeat for Year 2/2014 annual auction ran in Dec 2012 (which had 3500 limit) Total number of Transactions (bids and offers) entered by market into the auction121k Total number of Awards 23k Number of Transactions that were 12-month strips 31k Number of Awards that were 12-month strips 3k Number of Transaction that were more multi-month (including the 12-month) 71k Number of Awards that were multi-month 8k Number of CRRAH that bid more than 3,400 bids 5 For monthly auctions in 2012 (7500 limit) Total average number of transactions submitted120k Average number of awards 15k Number of CRRAH that bid more than 7,400 bids5 to10

28. 28 Recommended options Option 1: –Single 2,000 limit for all 4 Sequences Allows each Counterparty 6,000 bids/offers for each 6-month period 1,000/month - 6,000/multi-month-strips Can observe market behavior of single limit to assess next auction Option 2: –Decreasing limits for forward sequences 2,500 / 2,250 / 2,000 / 1,750 (Seq1-4 respectively) Protects future inventory from overselling ERCOT opinion –Start with Option1 in Spring, and consider evolving to Option2 in Fall Sequences (re-vote in fall) ERCOT PublicMar 2013