1. TEXAS NODAL Proposed Structure August 6, 2003

2.  TAC/ERCOT Staff converged approach is close to final  straw vote on six issues  selection of Independent Facilitator(s) is an open item – preferred process is to approve or remand TAC/ERCOT Staff recommendation Board of Directors Direction

3. member voting (20-2-0 for member only voting) centralized voting (15-2-5 for centralized voting over concept group voting) proxies in some form ( 22-0-0) independent facilitator (12-7-3 for an independent facilitator chair over an ERCOT staff chair) quorum = 4 of 7 segments (22-0-0) Board oversight (11 for TAC oversight, 9 for ERCOT staff oversight, 2 undeclared) Board of Directors Direction straw vote on six issues

4.  Process  Facilitation Team  Roles and Responsibilities  Phase I and II Voting Structure  Independent Facilitator Candidates Overview of Proposal

5. Stakeholders Process Overview Board of Directors Timely Compliance with PUCT Order PUCT Oversight, Direction & Protocol Approval Stakeholder vetting Member voting MOD Advice / Updates Independent Facilitator Implement Board Directives ERCOT Staff Support MOD Guidance Economic/ CBA Experts TAC Minority Positions Request Approval Request Approval Remand Coordination Group

6. ______________ ERCOT Sponsor: VP Market Ops TAC Sponsor: TAC Chair Issues per draft Order: - Resource specific bid curves - Nodal energy prices - Zonal pricing for loads - Simultaneous optimization of ancillary capacity services - Multi-settlement system for procuring energy and ancillary capacity services - Congestion pricing and direct assignment - Congestion revenue rights - Ex ante market power mitigation - Day ahead energy market - Identify HUB(s) Independent Facilitator _____________________________

7. Roles and Responsibilities Public Utility Commission: - Resolve appeals from the Board - Resolve disputes arising from Board decisions - Monitor progress and provide feedback - Final approval of protocols Market Oversight Division: - Actively participate in all Facilitation Team activities - Advise PUCT on Phase I and Phase II developments - Ensure compliance with PUCT rules and orders

8. Roles and Responsibilities ERCOT Board: - Approve design and protocols - Approve facilitators/experts as needed - Rule on disputes and appeals - Provide guidance to MPs and ERCOT staff on financial parameters

9. Roles and Responsibilities Independent Facilitator: - Chair “RUG – like” group facilitation process - Ensure and administer Phase I and II voting on all issues - Consolidate and present recommendations to Board - Report monthly status to Board and TAC - Report status to PUCT as requested Market Participants: - Development of straw dogs - Participate actively - Right to appeal minority position(s) through TAC

10. Roles and Responsibilities Coordination Group: - Establish agendas and provide notice of meetings - Coordinate development of work plans and schedules - Organize flow of issues consideration and discussion - Plan/coordinate stakeholder education activities about nodal markets - Oversee communications with stakeholders, e.g., website - Gather white papers, diagrams or other materials as necessary - Track and follow up on schedules, issues, and assignments - Coordinate presentation and as needed development of straw dogs - Assigns presenters for recommendations in the “RUG-like” group facilitation process - Request engagement of economic experts

11. Roles and Responsibilities Technical Advisory Committee: - Co-Sponsor (with ERCOT) Coordination Group process - Review minority positions - Present briefing materials for ERCOT Board on minority positions - Advise ERCOT staff during implementation phases Standing TAC Subcommittees: - Primary focus on on-going market operations during Phases I and II - Provide advice as necessary during Phases I and II - Coordinate with ERCOT staff during the implementation phases

12. Roles and Responsibilities ERCOT Staff: - Co-Sponsor (with TAC) Coordination Group process - Continue to operate and fine tune existing market - Maintain website with agendas, straw dogs, minutes, issue resolutions, etc. - Provide logistical and staff support - Provide technical advice as necessary during Phases I and II - Develop cost estimates of alternatives upon request of Coordination Group - Prepare design and protocols filings for PUCT consideration - Lead responsibility for implementation phases

13. Phase I and II Voting Structure 1.All persons attending the “RUG-like” group meetings may participate, but may vote only if representing an ERCOT member (“Member”). 2.For each “RUG-like” group meeting, each Member must designate a representative to vote each of their fractional votes on their behalf. 3.A representative may only represent multiple fractional votes that belong to a Member or multiple Members in one ERCOT segment as defined below. 4.Members will be grouped into the same seven segments as those that will apply to the ERCOT Board of Directors in December 2003. Corporate members must vote in their segment. Other members must designate a segment. This designation shall be in force throughout the “RUG-like” group meetings. 5.Except for the Consumer segment, Members in each segment shall have fractional votes adding up to one per segment. The fractional vote for each Member shall be equal to one divided by the number of Members present and voting in their segment. For example, if a segment has ten Members present and voting, then each Member would have a fractional vote equal to one-tenth. 6.The Consumer segment will be grouped into three sub-segments – Residential, Commercial and Industrial. Members in each sub-segment shall have fractional votes adding up to one-third per sub-segment. The fractional vote for each Member shall be equal to one-third divided by the number of Members present and voting in their sub- segment. For example, if a sub-segment has three Members present and voting, then each Member would have a fractional vote equal to one-ninth.

14. Phase I and II Voting Structure 7.Representation from four of seven segments is required for a quorum. 8.If 67% or more of the sum of all fractional votes are in favor of a motion, then the motion will pass. 9.If a motion fails to get a 67% vote, then the Independent Facilitator shall determine if further efforts to get a 67% vote appear achievable within a reasonable time frame. If it is determined that further efforts are not reasonable, then the motion will fail. The Independent Facilitator shall either (i) remand the failed motion to the Coordination Group for further stakeholder work or modification, or (ii) report the failed motion to the Board and TAC as a minority position, or (iii) request urgent resolution by TAC, Board or the Commission. 10.A proponent of a minority position may request consideration by TAC. TAC may redirect the Independent Facilitator regarding the minority position with notification to the Board.

15. Independent Facilitation Candidates Corporate Candidates: - Tabors Caramanis & Associates - Navigant Consulting, Inc. - PA Consulting - NERA - Barker, Dunn & Rossi, Inc. - Lexecon - KEMA - Interaction Associates - Northbridge Group Individual Candidates per MOD: - Dr. Jonathan Raab - Chairman Richard Cowart (Representative Group of Candidates for Consideration) Other Individual Candidates: - Trip Doggett - Vikki Gates-Cuddy - Larry Ruff - Tom Madden - John Stauffacher

16. Independent Facilitation Recommendation Pros  National and/or International Energy Market Exposure  Perceived depth of resource bench Recommended Candidates Other Candidates Cons  RFI/RFP Timeline  Lack of “ERCOT” Experience  Varied & Unknown  Cost  Their methodology vs. “ERCOT’s”  Lengthy Learning Curve Pros  “ERCOT” Knowledge & Experience  Known Quantities  Proven Track Record of Success  Leverages Stakeholder & ERCOT Staff  Cost  “ERCOT’s” Current Process and Methodology  Limited or No Learning Curve Cons  Perceived Lack of National and/or International Energy Market Exposure  Perceived depth of resource bench Recommendation: -Utilize Independents to Leverage ERCOT Experience & Teams -Jump Start Design Process (Doggett and Gates-Cuddy)

17. Coordination Group Chair: Vikki Gates-Cuddy Vice Chair: Jim Galvin ERCOT Sponsor: VP Market Ops TAC Sponsor: TAC Chair Issues per draft Order: - Resource specific bid curves - Nodal energy prices - Zonal pricing for loads - Simultaneous optimization of ancillary capacity services - Multi-settlement system for procuring energy and ancillary capacity services - Congestion pricing and direct assignment - Congestion revenue rights - Ex ante market power mitigation - Day ahead energy market - Identify HUB(s) Facilitation Team Independent Facilitator Trip Doggett