1. Mark Ruane Vice President, Credit and Enterprise Risk Management
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 1

2. 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

3. 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

4. Recommendation regarding Risk Management Verification Fee <Vote>
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

5. Request for Recommendation <Vote>
ERCOT staff respectfully requests that the F&A 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 F&A Committee votes to recommend such User Fees at its November or December 2012 meetings.
<Vote>
Tab 6.1
ERCOT Public