Nodal Protocols Revision Request

NPRR Number / 077 / NPRR Title / Incorporating the ERCOT Internal Audit Department and Other Clarifications
Date Posted / 8/7/07
Nodal Protocol Section(s) Requiring Revision (Include Section No. and Title) / 1.4.2, ERCOT Audit Committee (renamed “ERCOT Finance and Audit Committee”)
1.4.3.1, External Audit (renamed “Audits to be Performed”)
1.4.3.1.1, Material Issues (renumbered 1.4.3.2)
1.4.4, Audit Results
1.4.5,Availability of Records
1.4.6, Confidentiality of Information
Revision Description / This PRR incorporates the ERCOT Internal Audit Department into the Protocols, clarifies the audits to be performed, and the treatment of audit results. Responsibility for performing the annual operational or “settlements” audit, otherwise commonly known as the Statement on Auditing Standards (SAS) No. 70 (“SAS 70”), Type II report, will continue to be performed by an external independent certified public accounting firm. Upon approval of this PRR, responsibility for performing the other audits referenced in Protocol Section 1.4, Operational Audit, will transition to the Internal Audit Department.
Reason for Revision / Because ERCOT now has an Internal Audit Department, this section of the Protocols should be revised to account for the responsibilities of this department to perform relevant audits. Protocol Section 1.4, Operational Audit, dates from January of 2001. The Internal Audit Department was created in August of 2003, went through a transition period in 2004-2005, and was not sufficiently staffed with internal ERCOT resources until 2006.
Overall Market Benefit / Documentation of the responsibilities of the ERCOT Internal Audit Department and clarification of audits to be performed and treatment of audit results.
Overall Market Impact / None.
Consumer Impact / None.
Credit Implications
(Yes or No, and summary of impact) / No.
Reason for Revision (from Transition Plan Task Force (TPTF) Charter Scope) / (1) Revisions resulting from Commission orders;
(2) Clarifications of Protocol language that do not change the intent or technical specifications of the Protocols;
(3) Correction of technical errors or processes that are found to not be technically feasible;
(4) Revisions to the Protocols necessary to implement the results of the value engineering analysis or to otherwise avoid severe cost impacts; or
(5) Other (describe): Revise Protocols to account for the responsibilities of the ERCOT Internal Audit Department and clarification of audits to be performed and treatment of audit results.
TPTF Review (Yes or No, and summary of conclusion) / No.
Sponsor
Name / William G. Wullenjohn, Sr., on behalf of ERCOT Staff
E-mail Address /
Company / ERCOT
Company Address / 2705 West Lake Drive; Taylor, Texas76574
Phone Number / (512) 248-3165
Cell Number / (510) 501-0007
Market Segment / N/A
ERCOT/Market Segment Impacts and Benefits

Instructions: To allow for comprehensive NPRR consideration, please fill out each block below completely, even if your response is “none,” “not known,” or “not applicable.” Wherever possible, please include reasons, explanations, and cost/benefit analyses pertaining to the NPRR.

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Impact Area / Monetary Impact
MarketCost / 1 / None / None
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Additional Qualitative Information / 1 / Documentation of the responsibilities of the ERCOT Internal Audit Department and clarification of audits to be performed and treatment of audit results.
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Proposed Nodal Protocol Language Revision

1.4.2ERCOT Finance and Audit Committee

The ERCOT Board has shall have overall audit responsibility for ERCOT. The ERCOT Board may fulfill audit the responsibilities itself or delegate them to of the ERCOT Finance and Audit (“F&A”) Committee. or it may create a subcommittee made up of Board members to function as an ERCOT Audit Committee. The ERCOT F&AAudit Committee shall appoint an external independent certified public accounting firm or firms (“Appointed Firm”) to conduct certain audits.an Operations Audit and a Code of Conduct Audit as described herein and shall make recommendations to the ERCOT Board in relation to the The F&A Committee may also direct the ERCOT Internal Audit Department to conduct certain audits. For audits to be performed by an Appointed Firm, the F&A Committee shall make recommendations to the ERCOT Board in relation to the approval, initiation, and scheduling of such audits. The ERCOT F&A Committee shall approve an annual audit plan for the ERCOT Internal Audit Department. ERCOT shall require such firm to sign a confidentiality agreement, with terms substantially similar to terms in Section 1.3, Confidentiality, with ERCOT before appointing the firm or firms.

1.4.3.1External Audits to Be Performed

(1)At least annually, thean Appointed Firm shall review ERCOT management’s compliance with its market operations policies and procedures. The scope of the audit must(s) shall include the following: (a)Examination examination of the processing of ERCOT’s receipts and disbursements as the agent on behalf of Market Participants in compliance with these Protocols; and any audit required by the PUCT. ERCOT may incorporate the scope of this audit into its annual Statement on Auditing Standards (SAS) No. 70 (“SAS 70”), Type II report.

(b) Verification that ERCOT in its administration of these Protocols is operating independently of control by any Market Participant or group of Market Participants; and(c) Verification that ERCOT is operating in compliance with the following:

(i)The confidentiality and Protected Information provisions of these Protocols;

(ii)ERCOT’s policies that prohibit employees from:

(2) The ERCOT Internal Audit Department will conduct an annual audit of the following:

(a)Compliance with ERCOT’s policies that prohibit employees from:

(iA) being involved in business decisions where the individual stands to gain or lose personally from the decision;

(iiB) having a direct financial interest in a Market Participant;

(iiiC) serving in an advisory, consulting, technical or management capacity for any business organization that does significant business with ERCOT (other than through service on ERCOT Committeescommittees); and

(ivD) accepting any gifts or entertainment of significant value (not to exceed $100.00 annually) from employees or representatives of any Market Participant doing business in ERCOT. Such gifts and entertainment shall not exceed the limits specified in ERCOT’s Code of Conduct and Ethics Corporate Standard and other applicable policies.

(iii)ERCOT’s policies and agreements requiring substantially full time consultants and contractors to comply with:

(A)(b)Whether ERCOT is operating in compliance withthe confidentiality and Protected Information provisions of these Protocols; and

(c) Verification that ERCOT, in its administration of these Protocols, is operating independently of control by any Market Participant or group of Market Participants; and

(d)Any audit required by the PUCT.

(B) high standards of legal and ethical conduct in their activities in ERCOT’s service.

1.4.31.1.2Material Issues

(1)The audits performed under 1.4.3.1, Audits to be Performed, This audit may also include material issues raised by ERCOT Members and/or Market Participants if:

(a)Such issues have been presented to TAC, approved by TAC, and approved by the ERCOT F&Audit Committee for inclusion in the audit scope; or

(b)Such issues are part of a random sample of complaints selected by the auditors for review, and affected Market Participants have agreed in writing to the examination of their related information in the compliance audit.

(2)Members and Market Participants shall send any requests regarding such issues to the ERCOT TAC Chairperson designee identified on the Market Information SystemMIS for inclusion on the TAC agenda.

1.4.4Audit Results

TheseUnless a longer time frame is reasonably necessary (e.g., for the market settlements audit [SAS 70, Type II Audit], which is performed over a significant period of time), each audit reportsmustwill be prepared and finalized no later than four months after the initiation of the audit. All audit reports must be addressed to the ERCOT Board of Directors; copies must be provided to the ERCOT Audit Committee and, upon request, to Market Participants and ERCOT Members. Findings and recommended actions identified as a result of an audit must be reviewed by the ERCOT Audit Committee. Results of all audits performed pursuant to this Section shall be reported to the FA Committee. These audits will be filed with the PUCT in accordance with PUCT Rules. ERCOT may file an audit as confidential and Protected Information in order to protect Protected Information and other confidential or sensitive information therein. Findings and recommended actions identified as a result of an audit will be reviewed by the FA Committee. The results of the audits required by this Section and recommended actions to be taken by ERCOT mustshall be provided to ERCOT Members and Market Participants upon request. ERCOT shall post the availability of audit reports, results of audits, and recommended actions on the MIS Public Area within one week of availabilityto the extent these items do not contain Protected Information or other confidential or sensitive information.

1.4.5Availability of Records

Subject to the requirements of Section 1.4.6, Confidentiality of Information, ERCOT shall will provide the ERCOT Internal Audit Department, and/or the Appointed Firm and any other staff augmentation resources full and complete access to all financial books, cost statements, accounting records, and all documentation pertaining to the requirements of the specific audits being performed. ERCOT shallwill retain records relating to audits for at least four years after the audit report is delivered to ERCOT and after that until the later of (1) when the otherwise-applicable records retention requirements of ERCOT are satisfied; or (2) whenuntil the audit issues are fully resolved; in any event, however, ERCOT is never required to keep the audit records longer than seven years after the audit report is delivered to ERCOT. , whichever is the later. Such retention shall be a term of not less than four years and not be required for more than seven years. This Section 1.4, Operational Audit, is not intended to require ERCOT to create any new records, reports, studies, or evaluations.

1.4.6Confidentiality of Information

All Protected Information as defined in these Protocols obtained by the Appointed Firm or other staff augmentation resources through any audits remainswill remain strictly confidential. To retain control of Protected Information, ERCOT shall will require that each Appointed Firm and each individual staff augmentation resource to either: (i) sign a confidentiality agreement with terms substantially similar to the terms of Section 1.3, Confidentiality,above before being allowed access to any ERCOT records or documentation; or (ii) observe the Appointed Firm’s internal confidentiality policies and procedures, whichever is acceptable to ERCOT’s Legal Department. Audit reports and/or results provided to Market Participants or ERCOT Members must shall not contain any Protected Information.

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