Mark Ruane

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Tab 6.1 Recommendation regarding User Fee - Risk
Management Verification Fee

• Mark Ruane
• Vice President, Credit and Enterprise Risk
  Management

Finance and Audit Committee Meeting ERCOT
Public November 12, 2012
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Background

• NPRR438, approved by the ERCOT Board in July 2012
  and effective January 1, 2013, requires ERCOT to
  assess a fee to eligible Counter-Parties for all
  or part of the costs of verifying the risk
  management framework for specified
  Counter-parties.
• At the request of the Board, ERCOT issued a
  Request for Proposal to identify the terms and
  conditions of having an external party perform
  verification services.

Tab 6.1 ERCOT Public
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Risk Management Verification Fee

• Cost comparison of internal ERCOT and external
  risk management verification

ERCOT Staff External Vendor
Estimated total cost 177k (1) 346k - 1,340k
Annual amount per Counter-Party 730 (2) 1,506 - 5,516
(1) One full-time equivalent (FTE) (2) Assumes
243 Counter-Parties

• Use of an external vendor would not likely
  relieve ERCOT of risk.
• Considering potential lack of risk transfer and
  relative costs, ERCOT proposes a fee based on
  costs of internal verification.

Tab 6.1 ERCOT Public
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Recommendation regarding Risk Management
Verification Fee ltVotegt

• The Counter-Party risk management verification
  process was budgeted as requiring one additional
  ERCOT FTE.
• ERCOT proposes that the risk management
  verification fee be based on the estimated FTE
  cost, allocated equally to eligible
  Counter-Parties.
• Based on the current number of eligible
  Counter-Parties, this would result in an annual
  charge of approximately 750 per eligible
  Counter-Party.
• ERCOT proposes the fee be computed annually as of
  December 31st and billed once during the first
  quarter.
• ERCOT will re-assess the fee amount annually.

Tab 6.1 ERCOT Public
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Request for Recommendation ltVotegt

• ERCOT staff respectfully requests that the FA
  Committee recommend that the Board of Directors
  approve the Risk Management Verification Fee, as
  recommended by ERCOT staff.
• ERCOT staff expects to bring both User Fees of
  the Risk Management Verification Fee and the
  Digital Certificate Fee to the Board for approval
  at its December 2012 meeting, assuming that the
  FA Committee votes to recommend such User Fees
  at its November or December 2012 meetings.
• ltVotegt