Request for Information:

Potential Future Exposure Model Updated Project_11-11_GJ

ERCOT RFI Contact:

Gary Johnson

Vendor Manager

Electric Reliability Council of Texas, Inc. (“ERCOT”)

2705 West Lake Drive

Taylor, TX76574

All respondent communication and Information Requests must be sent to the ERCOT RFI Contact.

RFI Table of Contents

I.INTRODUCTION

II.SCOPE OF WORK

III.General Rules

IV.General Requirements

V.RequireDInformation RequestFormat and Documents

VI. RESPONSEREQUIREMENTS

VII.EVALUATION CRITERIA...... 11

VIII.APPENDICES...... 12

I.INTRODUCTION

A.About ERCOT

Electric Reliability Council of Texas, Inc. (ERCOT) manages the flow of electric power to 23 million Texas customers - representing 85 percent of the state’s electric load and 75 percent of the Texas land area. As the independent system operator for the region, ERCOT schedules power on an electric grid that connects 40,500 miles of transmission lines and more than 550 generation units. ERCOT also manages financial settlement for the competitive wholesale bulk-power market and administers customer switching for 6.6 million Texans in competitive choice areas. ERCOT has two primary office locations: 7620 Metro Center Drive, Austin, Texas 78744 and 2705 West Lake Drive, Taylor, Texas 76574. Additional information about ERCOT can be found on its website at:

B.Purpose

The purpose of this Request for Information (RFI) is to invite suppliers to submit Information for the possible future procurement of services for the Credit Risk Program for ERCOT.

Pursuant to ERCOT’s Market Credit Risk Standard, ERCOT is required to maintain a Potential Future Exposure (PFE) model to estimate forward exposure and defaults and to produce quarterly reports for the Board of Directors. ERCOT developed a PFE model for its Zonal market in 2007. As a result of ERCOT initiating operation of the Nodal market in December 2010, the Zonal PFE model must be updated for Nodal market features and to accommodate other changes resulting from the Nodal design and subsequent Protocol changes.

ERCOT uses a standard Potential Future Exposure framework for estimating credit risk on a portfolio basis.

ERCOT’s portfolio credit risk estimation currently includes the following risk factors:

Estimated Probability of Default for each QSE

Forward electricity price estimation and price correlations,

Electricity price volatility estimation for both Real Time and Day Ahead Markets

Volume escalation behavior estimation, and

Simplified collateral calculations

C.Administrative Information

How to Respond to This RFI

Responses to this solicitation will be in the form of an information request according to the formatdescribed in Section V of this RFI. The Information Requestshall document the respondent’s qualifications to perform the tasks described in the Scope of Work found in Section IIof this RFI.

The title of this RFI is: Potential Future Exposure Model Update Project_12-11_GJ. The Information Request Deadline is by 1 p.m. CST, Thursday (December 29, 2011).

Contact Personnel

This RFI is available through the ERCOTwebsite at under the Procurement tab. Questions for clarification about this RFI should be directed to the ERCOT Contact Person:

Gary Johnson

Vendor Manager

Electric Reliability Council of Texas, Inc. (“ERCOT”)

2705 West Lake Drive

Taylor, TX76574

Where and How to Deliver the Information Request

All Information Requests must be delivered to ERCOT at:

Electric Reliability Council of Texas, Inc. (“ERCOT”)

2705 West Lake Drive

Taylor, TX 76574

Attn: Gary Johnson

Number of Copies to Submit

To be considered timely, the ERCOT RFI Contact must receive three(3) complete hardcopy versions and one (1) complete electronic copy (preferably, PDF format via e-mail) of a Information Request on or before p.m. CST on the above Information Deadline.

Key Activities and Dates

Key activities and tentative dates for this RFI are presented below:

Procurement Schedule
Activity / Dates
RFI release / 12/02/2011
Intent to Participate Notice due / 12/07/2011
Vendor questions due / 12/12/2011
Responses to questions due / 12/15/2011
Information Request deadline / 12/29/2011
Vendor presentations, if required / 1/4/2012
Decision Point / 1/17/2012

II.SCOPE OF WORK

A.Project Scope Overview:

ERCOT plans to continue to utilize significant portions of the Zonal PFE model, including the credit scoring function and the methodology for simulating counterparty default.

However, the PFE model must be updated to reflect the current market. Changes include:

  • Impact of adding the Day Ahead Market (DAM)
  • Impact of adding Congestion Revenue Rights (CRRs) that allow for obligations as well as options
  • Impact of increasing the number of price points from 4 to approximately 800
  • Updated collateral requirement calculations, including
  • Requirements that CRR auction and mark to market CRR exposure must be collateralized (cannot be unsecured)
  • Activity in the DAM and CRR is contingent on Counter-Party maintaining some level of excess collateral to have an Available Credit Limit

The current version of the Nodal Protocols can be obtained on the Internet at:

B.Goals:

To update the model and report on initial findings to the Board of Directors.

Timeline:

Phase 1 – Planning and methodology March 23 2012

Phase 2 – Model update May31 2012

Phase 3 – Initial result for F&A and BOD August meeting

C.Contractor Milestones or Deliverables:The overall scope of the PFE Model Update Project includes the following three categories:

  1. Planning and methodology
  2. Determine, in consultation with ERCOT, the appropriate methodology and algorithms to be used in updating the PFE model; recommend the appropriate software/hardware platform for the Nodal PFE model to provide trade-off between features, maintainability, accuracy and speed and support stakeholder communications as needed

DELIVERABLE: Detailed design of updated PFE Model reflecting all pertinent changes from the Zonal configuration

  1. Model update
  2. Determine the test requirements and data; develop, code and test the updated Nodal PFE Model and support stakeholder communications as needed

DELIVERABLE: Fully functioning Nodal PFE model, developed and tested on the selected platform, with supporting documentation

  1. Results and recommendations
  2. Produce and review initial credit loss distribution results.

DELIVERABLE: Summary report of results; Presentation to ERCOT Board of Directors.

III.GENERAL RULES

  1. ERCOT reserves the right to amend this RFI at any time prior to the specified due date for Information Requests (“Information Request Deadline”). After the Intent to supply Informationdue date, amendments to this RFI shall be sent only to respondents who submitted anIntent to Participate Notice.ERCOT will also send to respondents who have submittedan Intent to Participate Noticethe answers to questions received and any clarifications and addenda to the Request For Information. Respondents who submit an Intent to Participate Noticeare not required to submit Information Requests.
  2. At any time prior to the Information Request Deadline, a respondent may withdraw its submitted Information Request by submitting an email, signed request for withdrawal to the ERCOT RFIContact.
  3. ERCOT reserves the right to reject anyInformation Request, to reject all Information Requests, to accept any portion of a Information Request, or accept all Information Requests if deemed in the best interest of ERCOT to do so. ERCOT also reserves the right to accept informalities and minor irregularities in Information Requests received.
  4. ERCOT reserves the right to cancel this Request for Information at any time, without penalty.
  5. All respondents submitting Information Requests shall keep their Information Requests open for acceptance by ERCOT for a period of 120 days, unless otherwise noted.
  6. All material submitted regarding this RFI becomes the property of ERCOT and will only be returned to the respondent at ERCOT’s option.
  7. Any restrictions on the disclosure or use of data and materials contained within a Information Request must be clearly stated in the Information Request itself with the indication of enclosed proprietary information clearly noted as stated in this paragraph. If proprietary information is submitted, it must be placed in a separate, sealed envelope, with the following information clearly and conspicuously marked: “Proprietary Information Enclosed”RFI Name, Information Request Deadline.
  8. No oral or written statements made by ERCOT personnel shall be considered addenda to this RFI unless the statement is confirmed in writing and identified as a written addendum to this RFI by the ERCOT Procurement RFIContact Person.
  9. ERCOT reserves the right to seek Information Request clarification from any respondent to assist in making decisions.
  10. All Information Requests submitted shall contain enough detail to allow for ERCOT evaluation. Vague or incomplete Information Requests may be rejected.
  11. Respondents shall not contact any ERCOT agent, employee, officer or director (except for the ERCOT RFI Contact) regarding this RFI or related services. Violators of this rule may be disqualified.
  12. UNDER NO CIRCUMSTANCES CAN A TELEPHONE OR FAX BID BE ACCEPTED. FAILURE OF A COURIER, OVERNIGHT EXPRESS OR SIMILAR SERVICE TO DELIVER A INFORMATION REQUEST SHALL NOT RELIEVE A RESPONDENT OF THE REQUIREMENT OF SUBMITTING THE INFORMATION REQUEST BY THE INFORMATION REQUEST DEADLINE.
  13. News releases pertaining to this procurement or any part of the subject shall not be made without prior written approval of an authorized ERCOT employee.
  14. Respondents may not use the ERCOT name, logo or any other reference to ERCOT, outside of this Information Request, without prior written approval by an authorized ERCOT employee.

15.ERCOT shall not be liable for any cost incurred by respondents prior to completion of a fully-signed agreementor issuance of a purchase order. Any cost incurred by respondent in the preparation of the Information Request will be borne by respondent.

16.The contents of the Information Request (including persons specified to implement the project) of the successful respondent may become contractual obligations. Failure of the successful respondent to accept these obligations in a contract, purchase order, or similar document may result in cancellation of the respondent’s selection. Under these conditions, ERCOT reserves the right to enter into negotiations with another respondent.

17.ERCOT will evaluate Information Requests and consider cost, reliability, quality of service and other factors. Contracts/Purchase Order(s) will be awarded to the respondent whose final Information Request will be the most advantageous to ERCOT. Due to the evaluation procedure for the Request for Information, lowest dollar price MAY or MAY NOT indicate the successful awardee. Price constitutes only one of several evaluation criteria.

18.Complete payment by ERCOT will be made ONLY after specifications are met and services are accepted by ERCOT. Alternate payment Information Requests will be reviewed and evaluated by the ERCOT Procurement Department and Accounts Payable Department.

19.A respondent may submit any additional information or data not requested in this RFI(which the respondent believes should be considered in the evaluation of a response) by including in its Information Requesta separate section entitled “Additional RFI /Information ”.

20. Upon review and approval of the evaluation committee’s recommendation for award, the ERCOT ProcurementRFIContact will issue a “Notice of Proposed Award”to a respondent. All other respondents may be notified that an award has been made, but ERCOT does not commit to giving specific feedback to individual respondents.

IV. GENERAL REQUIREMENTS

1.Except for current ERCOT suppliers who have completed the Vendor Information Form (VIF) within the last six months, all Bidders must provide a completed Supplier Vendor Information Form, attached hereto as Appendix B, to the person identified in the form itself, when submitting notice of intent to Participate.

  1. Before entering into a contract with ERCOT, respondent must become a qualified vendor. In the event respondent’s staff requires unescorted access to ERCOT facilities, they will be required to undergo identity verification, a background check including a criminal history report, and drug testing.
  1. If the anticipated contract value with ERCOT is equal to or > $250,000.00, the respondent must include the most recent two (2) years audited financial statements (include unaudited statements if supplier is unaudited). Publically held companies must include or provide a link to the most recent Forms 10-K and 10-Q filings.

4.Respondent agrees to accept the ERCOT terms and conditions as set out in the attached document(s) or to include in its Information Request a list of all proposed changes to ERCOT’s standard terms and conditions. Respondent must have each person who will provide services to ERCOT execute an ERCOT Contractor Ethics Agreement (a sample of which is attached hereto as Appendix C).

  1. This RFImay contain information that is confidential and proprietary. Respondent may not use the information contained herein for any purposes other than the preparation of a response to this RFI. Confidential or proprietary information provided by respondent (and marked as such in accordance with the rules of this RFI) will be handled as confidential by ERCOT and all project team members assisting in the evaluation process.
  2. Respondents may be invited to ERCOT to make oral presentations or participate in question and answer sessions. Any such visit to ERCOT will be at the Respondent’s expense. Respondent may be asked to make their facilities available for an onsite visit or inspection by the ERCOT evaluation committee.

V. REQUIRED INFORMATION FORMAT AND DOCUMENTS

This section provides information regarding submittal of the RFIInformation Requests. Bidders must follow all Information Request format instructions, answer all questions, and supplyall requested data. Please mark any non-applicable information as N/A.

  1. Required Information RequestFormat

The following topics constitute the mandatory order of presentation for a Information Request.

  1. Section 1-Executive Summary
  2. Section 2 - Table of Contents
  3. Section 3 - Required Documents and Statements
  4. Section 4 -Written acceptance of ERCOT’s terms and conditionsor Respondent’s list of proposed changes
  5. Section 5 - Information Request – detailed response to how Respondent will meet

requirements described in Section II – Scope of Work

  1. Section 6 – Pricing as required in VI. RESPONSE REQUIREMENTS, Section E.
  2. Section 7 – Optional summary (i.e. value add, etc.)
  1. Required Documents

The Bidder shall furnish a Certificate of Insurance or describe how it meets the insurance specifications as described in ERCOT’s Standard Agreement.

All documents described in the appendixes as applicable.

  1. Required Qualifications

1. Company has 5 years experience with similar projects involving stochastic simulation of credit exposures and defaults, including projects in the energy sector

2. Project lead has 5 years experience with similar projects involving stochastic simulation of credit exposures and defaults, including projects in the energy sector

VI. RESPONSE REQUIREMENTS

  1. General Information

1.Provide contact information for the person responsible for Respondent’s Information Request who will coordinate any requests for information or to whom ERCOT may distribute additional information or responses to questions. Contact information shall include contact’s name, mailing address, phone number, fax number, and email address.

2.Provide company profile, including: (a) location of primary office(s), (b) history, (c) executive profiles, (d) financials for the most recent two fiscal years, (e) years in business and (f) customer base.

3.Provide a detailed explanation of any specific requirements in this RFI with which it is unwilling or unable to comply.

4.Provide location(s) of offices that will provide primary support for the proposed requirements.

5.Provide full disclosure of any lawsuits or other legal disputes involving services provided by Respondent.

B.Technical and Financial Information

1. Ability to meet the scope of the RFI

2. Quality of the Information Request

3. Bidder’s previous record of performance, service, and references

4. Ability of bidder to render value-added services (training, etc.)

5. Delivery schedule

6. Price

7. Warranty (if applicable)

8. Terms and conditions

9. Bidders financial analysis

C.Capability

Respondent must provide the following:

1.Detailed description of Respondent’s ability to deploy appropriate resources to serve the needs of ERCOT as described in the Section II (Scope of Work) above. The description should address all requirements set forth in the Scope of Work and include a discussion of areas of functional expertise necessary to fully provide services being requested and Respondent’s capability to provide those specialized resources. The description should also include any current backlog or work in progress.

2.Description of Respondent’s expertise in providing the goods and/or services requested, including examples of similar services delivered in the last five (5) years.

3.Description of the expected level of support from ERCOT resources (staff, facilities, software, etc.) necessary for these services.

4.Additional information Respondent believes may assist ERCOT in its selection process.

D.References

Provide at least five (5) relevant client references (i.e., clients similar to ERCOT) who have used Respondent’s goods and/or services in a similar capacity as those described in this RFI. With each reference, Respondent must include the reference company’s name, address, phone number, and the name and position of a person that ERCOT may contact.

ERCOT reserves the right to contact any current or previous user of Respondent’s services, and by submitting a Information Request, Respondent consents to ERCOT contacting any such person or entity.

E.Conflicts of Interest

By submitting a Information Request in response to this RFI, Respondent warrants that it has no prohibited Conflict of Interest with ERCOT or with any ERCOT employee, officer, director, or Market Participant. A list of ERCOT Market Participants, officers, and directors is available at A prohibited Conflict of Interest exists where:

1.Respondent or any of its employees, officers, partners, or managers stand to gain or lose personally from an ERCOT or ERCOT Market Participant business decision;
2.Any Market Participant, or any employee, officer, or director of ERCOT stands to gain or lose personally from any business by or decisions of Respondent;
3.There is a relationship between Respondent (or any of its officers, partners, managers, or major clients) and ERCOT (or any of its employees, officers, directors, or Market Participants) that would impair Respondent’s objectivity or independence, in fact or by appearance; or
4.Any ERCOT Market Participant, employee, officer, or director has ownership in, is related in any way to, receives money from, or serves in an advisory, consulting, technical, or management capacity for Respondent.

F.Cost of Goods and/or Services