1. MCWG Update to WMS 08/14/2013

2. MCWG Update to WMS General Update -July 31 st Joint MCWG/CWG Meeting Review NPRRs All operational except – NPRR 552 – Additional Counter-Party Criteria -Additional language since last meeting: » CWG / MCWG has reviewed the NPRR and feels that the NPRR provides additional language to comply with the Commodity Futures Trading Commission’s (CFTC’s) final order and has positive credit implications » ERCOT will require that all Counter-Parties be in compliance by September 20, 2013. NPRR 554 – Clarification of Future Credit Exposure Calculation -CWG/MCWG has reviewed the NPRR with the following comments: » This NPRR adds additional clarifying language in section 16.11.4.5 to appropriately align the intent of NPRR 484, Revisions to Congestion Revenue Rights Credit Calculations and Payments

3. MCWG Update to WMS – PTP Obligation Discount Update Carrie Bivens at ERCOT mentioned there is no short pay in the June CRR Balancing account, except in May, a significant short fall between 17-20%. Participants attempted to reset the PTP Obligation Discount from 80% to 90% or 95%. -The is due to to the fact that too much collateral is being held in the bid cost of a DAM PTP Obligation bid while the settling price is low. Participants proposed that ERCOT can consider to rollover the CRR Balancing account amount and payout every six (6) months or even longer period. The group requested an update report of the CRR Balancing account from ERCOT for the next meeting to further discuss this topic.

4. MCWG Update to WMS – Concepts of EAL Calculation for Non-Load/Generation Counter- Party ERCOT presented a proposal to the group to re-evaluate the current credit exposure methodology for Counter-Parties with no load or generation - Current methodology: » No mass transition risk » Current Protocols are silent as to IEL when there is no load or generation » MCE doesn’t cover potential real time exposure until after activity is completed - Potential methodology: 1) For Counter-Parties representing no load or generation, reduce M1 multiplier (representing potential forward exposure) from 20 to 12 days. 2) For Counter-Parties representing no load or generation, reduce lookback for RTLE and URTA from 40 to 20 days to better reflect current trading activity 3) Introduce a dollar-based component in MCE for Counter-Parties. More discussion will follow up in the next meeting. The group may also invite COPS to discuss the Real-Time settlement timeline if they intent to reduce M1 further down.

5. MCWG Update to WMS – Settlement Point-based Real-Time and Day Ahead Market (DAM) Exposure Market Participants have expressed interest in re-looking at seasonality-adjusted credit exposure. ERCOT presented a proposal to the group to addressed Seasonality Adjustment Factor (SAF) by using ‘Settlement Point Specific Exposure’ which can be leveraged by using information used in the implementation of NPRR 484. Goal: Is to better shape exposure calculations to price risk. » To ensure collateral is sufficient to cover the credit exposure when the market is experiencing in high price from different circumstance Focus of adjustments should be not just seasonality but: » Incorporating path-specificity » Transparent and replicable by Market Participants » Forward-looking to the extent feasible (increase exposure headed into summer, reduce heading into autumn)

6. Current methodology: »SAF is a component of MCE. This has a default value of 100% and maybe changed by ERCOT with notice to the market »This was based on the ratio of monthly to annual average historic prices Proposed methodology Parameters » Adjust the exposure calculation not just for seasonality, but on a path- specific basis » Disaggregate DALE, (URTA) and RTLE exposure factors into path-specific price and volume components; use actual settlement volumes for the Counter-Party » DA and RT price components based on daily average historical prices for the settlement points at which the Counter-Party has exposure. » For each settlement point, price based on historical prices looking back up to three years (as with NPRR484). » Prices computed as the P84 (~1 Std. Devn.) of daily settlement point prices, measured over historic calendars three weeks forward and one week back from current date (increases computed price based on sample period volatility) » Replace 14-day averaging period in RTLE and URTA with M2 (10 days effective September 1 st ) to reflect RT settlement cycle - NEXT STEP There was some theory discussions in regarding to have a better “future price indicator” to monitor our forward credit exposure. The matter will be further discussed at the next join CWG/MCWG meeting MCWG Update to WMS