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ADAM Ballpark Cost Estimate Presentation to WMS Jim Galvin June 8, 2004

ADAM Ballpark Cost Estimate Presentation to WMS Jim Galvin June 8, 2004. Agenda. Summary of ADAM White Paper Credit Assumptions Cost Elements Ballpark Cost Estimate Decisions List. Summary of ADAM White Paper. QSEs only - QSEs make bids and offers

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ADAM Ballpark Cost Estimate Presentation to WMS Jim Galvin June 8, 2004

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  1. ADAM Ballpark Cost Estimate Presentation to WMS Jim Galvin June 8, 2004

  2. Agenda • Summary of ADAM White Paper • Credit Assumptions • Cost Elements • Ballpark Cost Estimate • Decisions List

  3. Summary of ADAM White Paper • QSEs only - QSEs make bids and offers - QSEs responsible for physical schedules • “Market” is a day ahead energy service for 1 – 24 hours • Market clears one time per algorithms set forth in the paper • Market clears prior to Day Ahead Ancillary Services Market • Market clears prior to Day Ahead RUC Market • No specification on when it clears versus Bilateral Market • No credit or settlement specifications

  4. Product(s), Price Discovery, Clearing and Settlement Counterparty/ Underwriter(s) Exposure Parameters Backstop(s) Administrator Bilateral M.P.s set their own M.P.s set their own M.P.s set their own M.P.s set their own Credit Assumptions - Current All QSEs with load Bankruptcy - Chapter 11 Chapter 7 ERCOT • $1,000 price cap • - no trading limits • pay 47 days from • trade date • collateral required per • ERCOT credit policy • Ancillary Services • Balancing Energy • Congestion Management

  5. Counterparty/ Underwriter(s): Exposure Parameters: Backstops: Administrator: Only QSEs trading during day related to short pay No price cap Dollar trading limits based on credit limit Collateral required per ERCOT credit policy Bankruptcy – Chapter 11/Chapter 7 ERCOT Credit Assumptions - ADAM ADAM – Assumptions

  6. Overcoming Credit Concerns • Credit Validation prior to clearing using credit limits and collateral information • Settle “Cash” 1-3 days after clearing (statements sent out the day of clearing, payments due 1-3 days later) • Short Pays allocated among the Day Ahead Market Participants only • Credit Working Group may recommend additional items for consideration

  7. Assumptions QSE QSE Energy Schedules Bids & Offers Energy Schedules of Sales & Purchases ERCOT MUI ERCOT EMMS ERCOT ADAM

  8. General Assumptions • Credit Validation prior to clearing • Transactions are all within zone • Bids/Offers/Settlements with QSEs • System requirements designed to make transition from zonal to nodal market • Results submitted by Market Participants • ERCOT to post results • 1 to 3 business day cash settlement window • Invoices due ERCOT collected on due date, invoices due Market Participants paid next day • Short-pays absorbed by Market Participants participating in ADAM

  9. Cost Elements Elements • Staff – Credit/Finance • Staff - Market Operations • Staff - IT Operations • Software • Hardware • 10% contingency

  10. Ballpark Cost Estimate Elements One-time Annual • Staff – Credit/Finance • Staff - Market Operations • Staff - IT Operations • Lindo Systems • Software • Hardware $100K $2.4M Incl $2.5M 2 FTE 1 FTE 1 FTE $400K Total

  11. Decisions • Funding: Who pays for project? • Assume project list re-prioritization • Credit: What credit policy will be in place? • Current credit policy • Posted collateral for ADAM only • Will virtual bidding be allowed? • If yes, how will we identify Virtual Bids? • Cash must transact on business days, decision to run weekend and holiday markets on business day prior or on actual day. • Physical ADAM schedule characteristics

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