Market Credit Working Group Update to WMS

1. Market Credit Working Group Update to WMS Wed. January 12, 2011

2. MCWG January 2011 Overview Confirmation of MCWG Chair and Vice-Chair 2011 • MCWG Activities Since December 2010 WMS Update • January 7, 2011 Joint CWG/MCWG Meeting • 2010 Parking Lot • Next Meeting MCWG

3. MCWG Activities Since December 2010 WMS Update • Met January 7, 2011 (Joint MCWG/CWG) • Nominations for MCWG Chair / Vice Chair • Review Nodal Exposure / Collateral as of end of December, 2010 • NPRR’s, including NPRR 300 • Review of Investments • Prioritization of Projects for 2011 • Parking Lot

4. Confirmation of 2011 MCWG Leadership • Chair: Tim Coffing, Luminant Energy • Vice-chair: Loretto Martin, Lower Colorado River Authority

5. NPRR 300 • Would provide for an exemption for Municipals from the requirement to provide a first priority security interest to net CRR’s from other market activity • NPRR tabled • MCWG/CWG agreed to expedite a review of addressing the issue of how best allow for netting • Set-up a sub-group on this issue • Review of CCRO (Committee of Chief Risk Officers) Netting Paper, Power Market Netting Best Practices • Part of Review of FERC Order 741 • Concurrently review credit requirements for CRR’s

6. MCWG /CWGPrioritization of Projects for 2011

7. MCWG /CWGPrioritization of Projects for 2011

8. MCWG /CWGPrioritization of Projects for 2011

9. MCWG –Next meeting • Late January/ early February 2011

10. Appendix ERCOT Market Credit Status FERC Order 741 MCWG Parking Lot at the end of 2010

12. FERC ORDER 741 (1) Shorten both the billing period and the period for payment to no more than seven days each. Reduce the allocation of unsecured credit to no more than $50 million per market participant, and no more than $100 million per corporate family. Eliminate unsecured credit in all financial transmission rights (FTRs) markets. Establish minimum criteria for market participation. Clarify circumstances in which a market administrator may invoke a “material adverse change” and demand additional collateral from a market participant. Establish a two-day grace period for “curing” collateral calls.

13. FERC Order 741 (2) Ability to Offset Market Obligations • In the NOPR, the Commission requested that each ISO’s/RTO’s include in their Tariff provisions to clarify their status as a party to each transaction so as to eliminate any ambiguity or question as to the ability to manage defaults and to offset market obligations. • Take title to transactions, [becoming the central counterparty] for transactions in an effort to establish mutuality in the transactions as legal support for set-off in bankruptcy. • In the final Order the Commission , as well as the central counterparty above, provided the following alternatives: • Granting a security interest in their transactions to the market. • Propose another alternative, which provides the same degree of protection as the two above-mentioned methods. • Choose none of the three above alternatives, and instead establish credit requirements for market participants based on their gross obligations

14. MCWG Parking Lot (at end of 2010) • Direction of invoice timing change • Perform bottom up review of existing creditworthiness standards Reduction of settlement cycle due to PRR 568 (7days) • Further reductions in settlement cycles • This includes looking at the potential to reduce the settlement cycle 30% with improved metering • These items are captured in the Prioritization of Projects for 2011