1. Lead from the front Texas Nodal http://nodal.ercot.com 1 Integrated ERCOT Readiness and Transition (IRT) TPTF – December 4 th, 2006 ERCOT Qualification Approach

2. Lead from the front Texas Nodal http://nodal.ercot.com 2 Agenda –Qualification vs. Readiness –Types of Market Participants requiring qualification –Qualification for the nodal market –Qualification Timeline –Next steps

3. Lead from the front Texas Nodal http://nodal.ercot.com 3 Qualification vs. Readiness Readiness Criteria Qualification Based on Transition PlanBased on the protocols Developed for all Market Participants including ERCOT Required for certain Market Participants Continuously assessed and reported during transition A series of tests administered upon request by the qualifying entity Used to make readiness decisions for market trials and market open Used to determine eligibility of the qualifying entity to participate in the nodal market Assessment made by the Readiness Advisor Qualification determined by ERCOT on a case

4. Lead from the front Texas Nodal http://nodal.ercot.com 4 Types of Market Participants requiring qualification  Market Participants in the nodal market:  Congestion Revenue Rights (CRR) Account Holders  Load Service Entities (LSE)  Qualified Scheduling Entities (QSE)  Renewable Energy Credit Account Holders  Resource Entities  Transmission Service Provider (TSP)  Distribution Service Provider (DSP)  Qualification Required for the following  Congestion Revenue Rights (CRR) Account Holders  Qualified Scheduling Entities (QSE)  Qualification based on market participation level  Level 1 – Inter-QSE trades only  Level 2 – May represent load  Level 3 – May represent load and resources – No Ancillary Services  Level 4 – May represent load and/or resources – Participates in Ancillary Services market

5. Lead from the front Texas Nodal http://nodal.ercot.com 5  CRR Account Holders:  Registration  Submit CRR Account Holder Registration Forms  Agreements  Submit Executed Standard Form Agreements  Satisfaction of credit requirements  Creditworthiness determined at the “counter-party” level (Includes a QSE, sub-QSEs and CRR Account Holder registrations that an entity may have registered with ERCOT)  CRR system connectivity test  Verification that an authorized user is able to access the CRR System  Access CRR system using required certificates  Download required applets  Etc… Qualification for the nodal market Company X Counter-Party QSE A CRR Sub QSE A1 Sub QSE A2

6. Lead from the front Texas Nodal http://nodal.ercot.com 6 Qualification Types of Market Participants requiring qualification Registratio n Agreeme nts Communica tion Functional Testing Site Visit Current Zonal Market QSE qualification activities QSE Level 1234 Registration Agreements Credit Worthiness Requirements CommunicationCircuit Installation (WAN)N/A Connectivity - Real-Time System Operations (RTU / ICCP) N/A Connectivity - Market Operations (Portal / API) Market Operations Functional TestingPortal Transactions (MIS) Programmatic Transactions (API) System Operations Functional Testing (Ancillary Services) Regulation ReserveN/A Responsive ReserveN/A Non-Spinning ReserveN/A Balancing EnergyN/A Site Visit Required Optional

7. Lead from the front Texas Nodal http://nodal.ercot.com 7 Qualification for the nodal market Registration Agreements Credit Worthiness Requirements Communication –Circuit Installation (Voice and data circuits) –Connectivity –System Operations - Real Time Telemetry – RTU/ICCP –Market Operations) Portal Transactions (MIS) Programmatic Transactions (API) Market Operations Functional Testing –Portal Transactions (MIS) –Programmatic Transactions (API) System Operations Functional Testing (Ancillary Services) –Regulation Reserve –Responsive Reserve –Non-Spinning Reserve –Balancing Energy Service Site Visit Changes by nodal transition? Required for new and existing QSEs Required for new QSEs Only Yes No  Qualification approach  Existing QSEs  Will only be required to complete those activities that have had significant changes due to nodal transition  New QSEs  Will be required to complete all activities required for qualification in the nodal market

8. Lead from the front Texas Nodal http://nodal.ercot.com 8 Qualification for the nodal market Nodal Market QSE qualification activities for QSEs in the zonal market* QSE Level 1234 RegistrationResource Registration Agreements Credit Worthiness Requirements CommunicationCircuit Installation (WAN)N/A Connectivity - Real-Time System Operations (ICCP**) N/A Connectivity - Market Operations (Portal / API) Market Operations Functional TestingPortal Transactions (MIS) Programmatic Transactions (API) System Operations Functional Testing (Ancillary Services) Regulation ReserveN/A Responsive ReserveN/A Non-Spinning ReserveN/A Site Visit * New QSEs will complete all applicable qualification activities Not Required Required Optional ** Pending Approval of Protocol Revision

9. Lead from the front Texas Nodal http://nodal.ercot.com 9 Qualification for the nodal market  Registration  QSE Registration –Not required for existing QSEs  Resource Registration –Significant changes (Resource Parameters) –Resource asset registration forms required –QSEs with Generation or Load Resources will be required to submit and maintain Resource Parameters –New asset registration forms required –Section 3.7 of the nodal protocols  Agreements  A new Standard Form Market Participant Agreement required from all Market Participants  Section 22 of the nodal protocols

10. Lead from the front Texas Nodal http://nodal.ercot.com 10 Qualification for the nodal market  Credit Worthiness Requirements  Creditworthiness determined at the “counter- party” level (Includes a QSE, sub-QSEs and CRR Account Holder registrations that an entity may have registered with ERCOT)  New QSEs  ERCOT will confirm initial credit worthiness for qualification  ERCOT will monitor credit and make collateral calls as needed  Existing QSEs  No special nodal qualification requirements for entry into the nodal market  ERCOT will monitor credit and make collateral calls as needed according to the nodal protocols Company X Counter-Party QSE A CRR Sub QSE A1 Sub QSE A2

11. Lead from the front Texas Nodal http://nodal.ercot.com 11 Cisco 7206VXR Cisco 7206VXR Cisco 75XX CSU/DSU ATM Point to Point Frame Relay Point to Point FRAME Relay Network ERCOT - Austin ERCOT - Taylor QSE Frame Port Cisco 7206VXR ATM Port ATM PORT DACS NETWORK Qualification for the nodal market  Communication Installation  Wide Area Network (WAN) circuits for real-time voice and data communications with ERCOT  New QSEs  A Wide Area Network circuit installation required for new QSEs with Resources (Level 3 and 4)  Existing QSEs  Existing QSEs already meet this requirement

12. Lead from the front Texas Nodal http://nodal.ercot.com 12  Communications (Connectivity)  Testing connectivity between ERCOT and QSEs control centers  Market operations  Portal and/or API (Web Services)  Required for all QSEs  System Operations - Real-time Telemetry  Required for QSEs with Resources (Level 3 and 4)  Inter-Control Center Protocol (ICCP). [Pending approval of NPRR]  Point by point telemetry verification expected to be completed as part of EDS-1 for most QSEs  Redundant communication link requirements  Any single element of the communication system fails can fail and;  For server failures – complete information re-established within five minutes by automatic failover  For all other failures – complete information continues with updates at a 30 second or less scan rate Qualification for the nodal market QSE EMS SCADA ICCP ERCOT EMS SCADA ICCP Link

13. Lead from the front Texas Nodal http://nodal.ercot.com 13 Qualification for the nodal market  Market Operations Functional Testing  Required for all QSEs  Verification that QSEs are able to submit valid market transactions  Offers, Bids, Schedules, Trades, COP  Will be performed using a Market Operations sandbox  May be performed in stages ahead of each EDS phase  EDS-3 – Real Time Operations Transactions  EDS-4 – DAM Transactions  MIS Portal  Required for all QSEs  API (Web Services)  Applicable for all QSEs using programmatic interfaces  Required – Level 3 and 4  Optional – Levels 1 and 2

14. Lead from the front Texas Nodal http://nodal.ercot.com 14  System Operations Functional Testing  Ancillary Services  Regulation Reserve  Responsive Reserve  Non-Spinning Reserve  Zonal market  Ancillary Services providers qualified on a portfolio basis  Nodal Market  Ancillary Services qualification requires  Qualification of the QSEs control system  Qualification of Resource providing the service  Each QSE may only provide Ancillary Services on those Resources for which it has met the qualification criteria  Qualification and testing program to be approved by the TAC and included in the Operating Guides  Detailed Ancillary Services qualification Plan to be presented at a later date Qualification for the nodal market

15. Lead from the front Texas Nodal http://nodal.ercot.com 15  Qualification for Ancillary Services  Will be executed using the Early Delivery System (EDS) environments  Will be performed one QSE at a time  Successful completion results in the qualification of the QSE system and the Resource  Timeline Issue  Resources qualification, performed one resource at a time, requires more time than what could be accommodated by the nodal program schedule  Number of QSEs qualified for Ancillary Services may be a readiness criteria for a market trial phase  To complete the large number of resources expected to require qualification  Qualification tests for resources represented by one QSE will be performed concurrently  Larger QSEs may require multiple grouping of resources  QSEs will be surveyed to identify resources requiring qualification for each ancillary service type and preferred testing dates  Survey results will be used to prepare Ancillary Services testing schedule Qualification for the nodal market

16. Lead from the front Texas Nodal http://nodal.ercot.com 16 Qualification Timeline Qualification ActivityEarly StartLate Finish*Comments Registration (Resource)10/1/20079/30/2008Start requires delivery of registration system Agreements1/1/20079/30/2008All QSEs will sign new agreements Communication – Connectivity Testing Real Time (Telemetry) 5/15/20079/30/2008Most QSEs will complete this activity as part of EDS-1 Communication – Connectivity Testing Market Operations (MIS Portal / API) 2/1/20079/30/2008Start requires delivery of MIS Portal and Web Services test environments Market Operations Functional Testing (MIS) 10/1/20079/30/2008Start requires delivery of nodal Market Management System in MOTE Market Operations Functional Testing (API) 10/1/20079/30/2008Start requires delivery of nodal Market Management System in MOTE System Operations Functional Testing (Ancillary Services) 1/1/20089/30/2008Start requires delivery of nodal Energy Management System (EDS-3) Site VisitAs needed Qualification Freeze10/1/20083/31/2008 * Entry and exit criteria for the market trial phases may require that a given number of QSEs complete some qualification testing steps. Qualification activities will continue after a qualification freeze period

17. Lead from the front Texas Nodal http://nodal.ercot.com 17 Qualification Timeline Q4-08 Q1-09 Q2-08Q1-08Q3-08 Q4-07 Q2- 07Q3-07 Q1 - 07 Agreements Registration MMS Functional Testing (MIS) Real Tine Communications Market Operations Communications Qualification Freeze MMS Functional Testing (API) EDS 3 EDS 4 EDS 2 EDS 1 EDS-1 EDS-2 MMS Sandbox EDS-3 Real Time Operations MMS Sandbox EDS 4 – DAM Operations Qualification Freeze Market Trials Start LMP Market Readiness Criteria MET 12/01/08 Real-time Markets GO LIVE ` 12/08/08 DAM Market GO LIVE ICCP / Telemetry Agreements Resource Registration MMS Connectivity Testing As Testing Market Operations Functional Testing API System Operations Functional Testing (Ancillary Services) Market Operations Functional Testing MIS Portal Qualification Activities Q4-08 Q1-09 Q2-08Q1-08Q3-08 Q4-07 Q2- 07Q3-07 Q1 - 07 Transition Timeline

18. Lead from the front Texas Nodal http://nodal.ercot.com 18  Communication plan for qualification requirements  ERCOT Qualification Approach  Comments due – 12/22/06  TPTF Approval - Jan 07  Qualification Guide - Jan 07  Ancillary Services Qualification Details – Jan 07  ERCOT Registration Approach – Jan 07  MP Registration Guide – Feb 07 Next steps

19. Lead from the front Texas Nodal http://nodal.ercot.com 19 ERCOT Qualification Approach