MCWG Update to WMS

11/13/2013

MCWG Update to WMS

MCWG Update to WMS- Day Ahead Available Credit Limit (ACLs) for POLRs during a mass

transition • ERCOT presented the Mass Transition Timing to the group. In the event of a Mass Transition, POLRs (Provider of Last Resort) acquiring volume will be unhedged for a minimum of one day

- ERCOT proposed two potential options to the group:» ERCOT could adjust POLR TPE to reflect additional volume based on pro rata allocation of the TPE of the defaulting entity» Investigate revisions to Retail Market Guide/PUCT rules to allow PLRs sufficient time to hedge» Alternatively, in the event of a Mass Transition ERCOT could allocate additional DAM credit to the POLRs based on respective shares

- There was discussion in the group, which included:» Request more capital requirement for POLRs» Do a load vs. Price distribution analysis to see at what level of load will see a pricing event» Set M1, forward risk multiplier for DALE (day-ahead exposure) and RTLE (real-time exposure) at different level to address activities occur in different day

- Next StepsThe matter will be further discussed at December join CWG/MCWG meeting

MCWG Update to WMS- Review dollar-based minimum collateral for Counter-Parties with no

load or generation (MCE for Traders)• ERCOT presented a proposal to the group for non-load/generation Counter-Parties- Proposed financial MCE (IMCE, initial Minimum Current Exposure)» IMCEt = TOA * (nq * cif * SWCAP)» TOA – Trade Only Activity (Counter-Party that does not represent either a Load or a generation QSE. – May have a value of “0” or “1.” Flag to indicate whether activity corresponds to a Counter-Party that does not represent either a Load or a generation QSE. Set to “0” if Counter-Party represents a QSE that has an association with a Load Serving Entity (LSE) or a Resource Entity (RE), or if Counter-Party does not represent any QSE; otherwise set to 1.)» nq = Notional quantity of 50MW» cif = Cap interval factor. Represents the historic largest percentage of SWCAP intervals during a calendar day. The factor shall initially be set at 9%. » SWCAP = System-Wide Offer Cap, as determined in accordance with PUCT Substantive Rules

*Both nq and cif factor will be recommended by TAC and approved by the ERCOT Board. ERCOT shall provide notice to Market Participants prior to implementation of a revised value.*

•The group request IMCE be $40,500, and set the SWCAP at 9000

- Next Steps» ERCOT will draft an NPRR

MCWG Update to WMS- Review Letter of Credit Concentration Limit

• Per the direction of the F&A Committee on May 13, 2013, ERCOT staff agreed to test the proposed letter of credit limit structure on a trial basis before seeking approval from F&A• The proposed limit structure was tested throughout the summer months• ERCOT presented a sample report to the group, which contains the top ten letter of credit issuer bank» Results: Top 10 issuers comprise 90% of the value issued. No issuer met or exceeded the overall limit nor had constrained capacity. » Testing was conducted based on the following proposed limited structure: Letter of Credit Limit calculated as the maximum of –$750M per Letter of Credit issuer–Tangible Net Worth adjusted for credit rating–Per F&A request, ERCOT also computed limits based on issuing bank Tier 1 Capital instead of Tangible Net Worth

- Next Steps• ERCOT will report results to the Finance & Audit Committee on November 18th • ERCOT supports use of the Total Net Worth parameter rather than Tier 1 capital:

- TNW more transparent for Market Participants - Consistent with current ERCOT credit calculations• ERCOT will continue to report outstanding LC concentration and unused limit by issuer

MCWG Update to WMS- Status update on NPRR 484

• Since NPRR 484 Phase 1 A go-live date on October 21, 2013, no system issue has found; implementation processes is going smooth

• ERCOT has scheduled the last NPRR 484 training session on November 15, 2013, from 9:00 a.m. to 12 noon. A market notice has been sent out on October 31, 2013.

- Other Items

• SCR update for PTPOBLO » ERCOT finished the impact analysis. It costs $20k to $30k for system change. ERCOT needs more time to resolve some other question or concern arise from internal• No Joint CWG/MCWG meeting in November, next meeting will be in December 2013• The group also set up year 2014 meeting calendar