Agenda Finance and Audit Committee February 7, :15-11:00 a.m. Eastern

Transcription

1 Agenda Finance and Audit Committee February 7, :15-11:00 a.m. Eastern Hilton Fort Lauderdale Marina 1881 SE 17 th Street Fort Lauderdale, FL Conference Room: Grand Ballroom (1 st Floor) Call to Order Introductions and Chair s Remarks NERC Antitrust Compliance Guidelines Agenda 1. Minutes* Approve a. November 8, 2017 Meeting Year-End Unaudited Statement of Activities* Review and Recommend Board Acceptance a. NERC 2017 Unaudited Results b. Combined ERO Enterprise 2017 Unaudited Results c. Regional Entity Reports 3. Internal Audit Plan Update 4. Investment Policy* Review and Recommend Board Approval 5. Annual Review of Committee Mandate* Review 6. Other Business 7. Adjournment *Background materials included.

2 Antitrust Compliance Guidelines I. General It is NERC s policy and practice to obey the antitrust laws and to avoid all conduct that unreasonably restrains competition. This policy requires the avoidance of any conduct that violates, or that might appear to violate, the antitrust laws. Among other things, the antitrust laws forbid any agreement between or among competitors regarding prices, availability of service, product design, terms of sale, division of markets, allocation of customers or any other activity that unreasonably restrains competition. It is the responsibility of every NERC participant and employee who may in any way affect NERC s compliance with the antitrust laws to carry out this commitment. Antitrust laws are complex and subject to court interpretation that can vary over time and from one court to another. The purpose of these guidelines is to alert NERC participants and employees to potential antitrust problems and to set forth policies to be followed with respect to activities that may involve antitrust considerations. In some instances, the NERC policy contained in these guidelines is stricter than the applicable antitrust laws. Any NERC participant or employee who is uncertain about the legal ramifications of a particular course of conduct or who has doubts or concerns about whether NERC s antitrust compliance policy is implicated in any situation should consult NERC s General Counsel immediately. II. Prohibited Activities Participants in NERC activities (including those of its committees and subgroups) should refrain from the following when acting in their capacity as participants in NERC activities (e.g., at NERC meetings, conference calls and in informal discussions): Discussions involving pricing information, especially margin (profit) and internal cost information and participants expectations as to their future prices or internal costs. Discussions of a participant s marketing strategies. Discussions regarding how customers and geographical areas are to be divided among competitors. Discussions concerning the exclusion of competitors from markets. Discussions concerning boycotting or group refusals to deal with competitors, vendors or suppliers.

3 Any other matters that do not clearly fall within these guidelines should be reviewed with NERC s General Counsel before being discussed. III. Activities That Are Permitted From time to time decisions or actions of NERC (including those of its committees and subgroups) may have a negative impact on particular entities and thus in that sense adversely impact competition. Decisions and actions by NERC (including its committees and subgroups) should only be undertaken for the purpose of promoting and maintaining the reliability and adequacy of the bulk power system. If you do not have a legitimate purpose consistent with this objective for discussing a matter, please refrain from discussing the matter during NERC meetings and in other NERC-related communications. You should also ensure that NERC procedures, including those set forth in NERC s Certificate of Incorporation, Bylaws, and Rules of Procedure are followed in conducting NERC business. In addition, all discussions in NERC meetings and other NERC-related communications should be within the scope of the mandate for or assignment to the particular NERC committee or subgroup, as well as within the scope of the published agenda for the meeting. No decisions should be made nor any actions taken in NERC activities for the purpose of giving an industry participant or group of participants a competitive advantage over other participants. In particular, decisions with respect to setting, revising, or assessing compliance with NERC reliability standards should not be influenced by anti-competitive motivations. Subject to the foregoing restrictions, participants in NERC activities may discuss: Reliability matters relating to the bulk power system, including operation and planning matters such as establishing or revising reliability standards, special operating procedures, operating transfer capabilities, and plans for new facilities. Matters relating to the impact of reliability standards for the bulk power system on electricity markets, and the impact of electricity market operations on the reliability of the bulk power system. Proposed filings or other communications with state or federal regulatory authorities or other governmental entities. Matters relating to the internal governance, management and operation of NERC, such as nominations for vacant committee positions, budgeting and assessments, and employment matters; and procedural matters such as planning and scheduling meetings. NERC Antitrust Compliance Guidelines 2

4 Agenda Item 1a Finance and Audit Committee Meeting February 7, 2018 DRAFT Minutes Finance and Audit Committee November 8, :15-10:00 a.m. Central JW Marriott New Orleans 614 Canal Street New Orleans, LA Ms. Jan Schori, Chair, called to order a duly noticed open meeting of the Finance and Audit Committee (the Committee ) of the Board of Trustees ( Board ) of the North American Electric Reliability Corporation ( NERC ) on November 8, 2017, at 9:15 a.m. Central, and a quorum was declared present. The agenda is attached as Exhibit A. Present at the meeting were: Committee Members Jan Schori, Chair Janice B. Case Robert G. Clarke David Goulding Roy Thilly Board Members Gerald W. Cauley, President and Chief Executive Officer Kenneth W. DeFontes Frederick W. Gorbet George S. Hawkins NERC Staff Charles A. Berardesco, Senior Vice President, General Counsel, and Corporate Secretary Tina Buzzard, Associate Director Stan Hoptroff, Vice President, Chief Technology Officer, and Director of Information Technology Scott Jones, Vice President, Chief Financial and Administrative Officer, and Corporate Treasurer Mark Lauby, Senior Vice President and Chief Reliability Officer Marcus H. Sachs, Senior Vice President and Chief Security Officer Janet Sena, Senior Vice President and Director of Policy and External Affairs Michael Walker, Senior Vice President, Chief Enterprise Risk and Strategic Development Officer NERC Antitrust Compliance Guidelines Ms. Schori directed the participants attention to the NERC Antitrust Compliance Guidelines included in the agenda package, and indicated that all questions regarding antitrust compliance or related matters should be directed to Mr. Berardesco. Minutes Upon motion duly made and seconded, the minutes from the August 9, 2017 meeting were approved as presented to the Committee.

5 Report on Third Quarter Unaudited Results Mr. Jones presented the unaudited third quarter variance reports for NERC and for the combined ERO Enterprise, referencing the materials included in the advance agenda package. NERC is currently under budget but expects year-end results to be close to budget. Mr. Jones reviewed the new format of the variance report. Funding is expected to be slightly over budget, due largely to the addition of new CRISP members. Mr. Jones reviewed reserve levels across the ERO Enterprise, noting that the variance between budget and actual is projected to decline through the remainder of the year. Upon motion duly made and seconded, the Committee recommended the Third Quarter Unaudited Statement of Activities for acceptance by the Board Business Plan and Budget Status Mr. Jones noted that FERC had approved the 2018 Business Plans and Budgets. Ms. Schori thanked the Committee and the MRC Business Plan and Budget Input Group Business Plan and Budget Schedule Mr. Jones reviewed the tentative 2019 ERO Enterprise Business Plan and Budget Schedule, which had been included in the advance agenda package. CMEP Technology Project Mr. Hoptroff provided an update on the CMEP Technology Project. He reviewed the financials of the project to date and projected, including capital investment, estimated annual operating costs, and productivity gains. Mr. Hoptroff reported receipt of four responses to NERC s request for proposal that are currently under review. Adjournment There being no further business, and upon motion duly made and seconded, the meeting was adjourned. Submitted by, Charles A. Berardesco Corporate Secretary

6 Agenda Item 2a Finance and Audit Committee Meeting February 7, 2018 Summary of Unaudited Results For the Year ending December 31, 2017 Table of Contents Page I. Executive Summary Year to Date Actual Results 2 II. Detailed Operating Results Variances by Revenue and Expense Category 4 Variances by Department / Program 6 III. Supplemental Schedules Schedule 1 Reserves 8 Schedule 2 IT Projects 9 Schedule 3 E ISAC & CRISP 12

7 Executive Summary NERC 2017 Actual Results As of December 31, 2017 ($ millions) Over FUNDING Actual Budget (Under) Revenues $ 68.8 $ 69.1 $ (0.3) Funding from Reserves Assessment Stabilization Reserve SOCCED Reserve Future Obligation Reserve TOTAL FUNDING $ 70.4 $ 70.2 $ 0.2 EXPENDITURES Expenses (excluding Depreciation) $ 66.1 $ 65.3 $ 0.8 Fixed Asset Additions (1.8) TOTAL EXPENDITURES $ 68.7 $ 69.7 $ (1.0) OPERATING RESERVE INCREASE (DECREASE) $ 1.7 $ 0.5 $ 1.2 FUNDING Revenues o CRISP revenue and testing fee revenue below budget o Interest income above budget Funding from Reserves o SOCCED Planned use of reserve funding for operations and new system project o Future Obligation 1 Planned use to finish IT projects from 2016 EXPENDITURES Expenses o Personnel costs were above budget primarily due to a lower attrition rate o Contractor and consultant costs were slightly under budget, including CRISP o Office costs were over budget 1 Excludes the budgeted use of deferred rent reserves, which is recorded as a direct adjustment to rent expense. Office rent expense is being budgeted and amortized on a straight line basis over the lease term, which varies from the actual cash amount paid. Summary of Results as of December 31,

8 Executive Summary (continued) EXPENDITURES (continued) Fixed Assets o Some project expenditures, such as the audio/visual lease and a portion of the E ISAC portal, were budgeted as fixed assets but are recorded as expense o E ISAC portal project under budget OPERATING RESERVE INCREASE (DECREASE) Reserve increase of $1.7 million o Includes a budgeted increase in operating reserves of $519k o $465k of reserves used for operating costs, primarily in SOCCED and Future Obligation o Additional net increase of reserves from operating results, primarily due to lower than expected spending in fixed assets and non CRISP contractors and consultants Summary of Results as of December 31,

9 Detailed Operating Results Total NERC (including CRISP) as of December 31, 2017 Variances by Revenue and Expense Category Actual Budget Variance Over (Under) % TOTAL FUNDING $ 70,378,893 $ 70,151,660 $ 227, % EXPENDITURES Personnel $ 39,322,782 $ 38,641,331 $ 681, % Meetings, Travel & Conference Calls 3,376,880 3,372,886 3, % Consultants & Contracts 13,065,499 13,127,749 (62,249) 0.5% Office Costs, Professional and Misc. 7,269,180 6,864, , % Fixed Asset Additions 2,612,373 4,372,000 (1,759,627) 40.2% TOTAL EXPENDITURES $ 68,669,668 $ 69,602,175 $ (932,507) 1.3% RESERVE INCREASE (DECREASE) $ 1,709,225 $ 549,485 $ 1,159, % FTEs % Following is a brief summary of variances by major categories: Total Funding Slightly over budget due to: o $465k use of reserves, primarily in SOCCED and Future Obligation o Revenues under budget for CRISP ($155k) and testing fees ($290k) o Interest income over budget by $161k Personnel Expense Over budget primarily due to lower attrition rate Consultants and Contracts Slightly under budget in total. Over budget in the following areas: o Additional PNNL costs for CRISP (new participant start up costs, security review) o E ISAC portal improvement project budgeted as custom development project in fixed assets, project contract labor costs are recognized here o System operator certification (SOCCED) database replacement project o Compliance Assurance over budget due to CMEP costs transferred from the IT department Summary of Results as of December 31,

10 Lower than expected spending in other departments offset the departments over budget CONSULTANTS and CONTRACTS YTD Actual YTD Budget YTD Variance Over (Under) STANDARDS $ 58,829 $ $ 58,829 COMPLIANCE ASSURANCE 221,102 50, ,102 RELIABILITY ASSESSMENTS and SYSTEM ANALYSIS 397, ,000 (127,505) RELIABILITY RISK MANAGEMENT 1,594,236 1,823,932 (229,696) E ISAC 863, ,835 (36,371) TRAINING, EDUCATION & OPERATOR CERTIFICATION 783, , ,521 POLICY and EXTERNAL AFFAIRS 7,373 15,000 (7,627) INFORMATION TECHNOLOGY 1,838,358 2,312,787 (474,429) HUMAN RESOURCES 464, ,000 (110,979) FINANCE and ACCOUNTING 292, ,000 (164,125) TOTAL (excluding CRISP) $ 6,557,496 $ 7,239,155 $ (681,659) CRISP 6,508,004 5,888, ,410 TOTAL CONTRACTS and CONSULTANTS $ 13,065,499 $ 13,127,749 $ (62,249) Office costs, professional services and miscellaneous Over budget primarily due to the expense treatment of the audio/video lease agreement. Software maintenance and support costs were above budget, but were offset by lower spending on telephone expense, and professional and legal services. Fixed Asset Additions (excluding depreciation) Under budget primarily due to lower than anticipated costs on the E ISAC portal project, and the accounting treatment of the E ISAC portal and the A/V lease. Summary of Results as of December 31,

11 Variances by Department / Program DIRECT EXPENSES and NET FIXED ASSETS 2017 Actual 2017 Budget Variance Over/(Under) RELIABILITY STANDARDS $ 3,152,495 $ 3,629,945 $ (477,450) COMPLIANCE ANALYSIS, CERTIFICATION and REGISTRATION 2,712,280 1,686,689 1,025,590 COMPLIANCE ASSURANCE 4,346,890 3,816, ,966 ENFORCEMENT 2,427,003 2,371,347 55,655 RELIABILITY ASSESSMENTS and SYSTEM ANALYSIS 3,828,594 3,861,344 (32,750) RELIABILITY RISK MANAGEMENT 7,900,050 7,529, ,726 E ISAC 5,339,907 5,813,801 (473,894) TRAINIING, EDUCATION and OPERATOR CERTIFICATION 1,953,189 1,920,376 32,813 GENERAL and ADMINISTRATIVE and EXECUTIVE 7,639,725 8,171,444 (531,719) POLICY and EXTERNAL AFFAIRS 2,374,177 2,034, ,644 LEGAL and REGULATORY 2,765,241 3,292,379 (527,138) INFORMATION TECHNOLOGY 11,143,297 12,480,846 (1,337,549) HUMAN RESOURCES 1,421,776 1,608,583 (186,806) FINANCE and ACCOUNTING 4,135,809 3,827, ,759 TOTAL (excluding CRISP) $ 61,140,432 $ 62,044,585 $ (904,153) CRISP 7,529,237 7,557,591 (28,354) TOTAL EXPENSES and FIXED ASSETS $ 68,669,668 $ 69,602,175 $ (932,507) Following is a brief summary of significant variances (+/ $500k): Compliance Analysis, Certification and Registration o Additional resources added to support ongoing program activities o ERO Entity Registration projects, transferred from IT ($548k) Compliance Assurance o Transfer of personnel budgeted in other departments o CMEP project costs transferred from IT ($215k) General, Administrative & Executive o Under budget in personnel, professional services and building expenses Legal and Regulatory o Lower personnel costs o Lower professional services costs (offset by higher professional service costs in Policy and External Affairs) Summary of Results as of December 31,

12 Information Technology o Under budget primarily due to the transfer of certain ERO development projects, budgeted in IT but recognized in the relevant program area (see table below): 2017 Information Technology YTD Actual $ 11,143,572 Budget 12,480,846 Variance Over (Under) $ (1,337,274) Transferred Projects Entity Registration (Registration) $ 548,154 ERO Portal MIDAS (Reliability Risk Management) 174,725 Enterprise Reporting MIDAS (Reliability Risk Management) 167,400 FERC 824 (Reliability Risk Management) 67,350 CMEP (Compliance Assurance) 215,000 BESnet (Reliability Assessment & System Analysis) 31,145 Standards Balloting System R4 (Standards) 68,114 Total Transferrred $ 1,271,888 Adjusted Variance Over (Under) $ (65,386) Summary of Results as of December 31,

13 SUPPLEMENTAL SCHEDULE 1 Reserves 2017 Year end Actual As of December 31, 2017 Expected Beginning Budgeted Budgeted Other Net Financing Ending Balance Funding Uses Funding (Uses)* Activity ** Balance Operating Contingency Reserve (OCR) $ 2,307,531 $ 519,083 $ $ 1,190,142 $ (719,522) $ 3,297,234 Future Obligations Reserve (FOR) 2,875,467 (396,119) 86,600 2,565,948 Assessment Stabilization Reserve (ASR) 2,271,000 (1,100,000) 1,000,000 2,171,000 System Operator Reserves (SOCCED) 828,013 (350,529) 477,484 CRISP 500, ,000 Total Reserves $ 8,782,011 $ 519,083 $ (1,496,119) $ 1,926,213 $ (719,522) $ 9,011,666 NOTES: * The column Other Funding (Uses) primarily reflects the net impact of normal operations. For example, under normal circumstances, if NERC was tracking well under budget in actual expenditures, this would reflect additional funds into the reserve account. ** No borrowing in 2017 for ERO Software Development projects, principal debt repayment only Summary of Results as of December 31,

14 SUPPLEMENTAL SCHEDULE 2 IT Projects Actuals through December 2017 Expected Project YTD Expected Over (Under) Projects in Progress Budget (1) Spend Spend Budget CMEP Program Discovery $ 280,000 $ 215,000 $ 280,000 $ CMEP Program Design & Development 4,823,000 4,823,000 NERC.com Phase 2 300, , ,600 (81,400) SOCCED Replacement 225, , ,700 90,700 Actual Project Actual Over (Under) Projects Completed in 2017 Budget (1) Spend Budget Standards Balloting System (SBS) $ 125,000 $ 125,000 $ Enterprise Reporting GADS 500, ,589 (2,411) BESnet 111, ,145 GADS Wind 142, ,515 (3,595) User Management and Registration (UMR) 569, ,601 3,322 ERO Portal MIDAS 174, ,725 Document Management 2,211,000 2,215,650 4,650 Entity Registration CFR 600, ,532 (88,468) E ISAC Portal 575, ,437 (52,486) Enterprise Reporting MIDAS 201, ,400 (34,200) NOTES: (1) The Project Budget noted above usually corresponds to the approved business case for each project and funds for each project are drawn from the available budget. In some projects, business cases may not be prepared, particularly when a project is smaller and/or may be in response to a FERC order. (2) The SOCCED project overage is being funded by PCGC reserves. * Some of these projects span multiple years, so the amounts above do not represent a single budget year expenditure. * The amounts noted above do not include internal labor and reflect only external (consultant) costs of the projects. Summary of Results as of December 31,

15 SUPPLEMENTAL SCHEDULE 2 (continued) CMEP Discovery (Started Apr 2017 / Planned Completion April 2018) This initial phase of the CMEP Technology Project aims to discover the high level business and technical requirements needed to launch an ERO Enterprise wide CMEP tool, and to conduct a rigorous vendor selection for the tool itself. This discovery will transition into the full scope project expected over the next three years. CMEP Design & Development (Started May 2017 / Planned Completion Dec 2020) This project will provide registered entities, Regional Entities and NERC the ability manage the compliance and enforcement processes and data in a single ERO Enterprise system. Today, those process and related data is managed across three separate systems that have to be synchronized (webcdms, CITS and CRATS). NERC.com Phase 2 (Started May 2017 / Planned Completion Feb 2018) In response to feedback from stakeholders, this project is a first step to improve the usability and search capability of the public NERC.com website. The project will also enhance the stability of the NERC.com platform with a technology upgrade from SharePoint 2010 to SharePoint 2016 in Azure. SOCCED Replacement (Started Oct 2016 / Planned Completion Feb 2018) This project will replace the current SOCCED credential management tool to enhance reliability and improve ease of maintenance. Standards Balloting System (SBS) (Started Jul 2016 / Completed Feb 2017) This 4 th release of SBS addressed several business enhancements that included user interface updates, social survey access, sorting and filtering capability, and the ability to provide comments. Enterprise Reporting - GADS (Started Jun 2016 / Completed Feb 2017) This project is the second installment of the Enterprise Reporting Data Warehouse program, to include the loading of GADS data into the data warehouse. In future installments, the data warehouse will include data from other areas and be connected to each other via common fields. That will enable analytics across the enterprise not available today. BESnet (Started Oct 2016 / Completed Mar 2017) This provided enhancements to the existing BESnet application launched in Those enhancements included various user interface updates and automatic process notifications. Summary of Results as of December 31,

16 SUPPLEMENTAL SCHEDULE 2 (continued) GADS Wind (Started Jun 2016 / Completed Jun 2017) The Generating Availability Data System (GADS) Wind Data Capture and Reporting project enabled consistent and reliable submission, processing, and reporting of wind generation data from Registered Entities to NERC for reliability and performance analysis. User Management and Registration (UMR) (Started Jan 2016 / Completed Jun 2017) This project consolidated three legacy applications and their functions (User Management Program, NERC MyAccount and AppBroker) into the xrm platform. The result is one core identification and authentication system to manage access to NERC online resources. The project also provided the foundation for the xrm portal, by which stakeholders can access their authorized applications via one interface and single sign on. ERO Portal-MIDAS (Started Jan 2017 / Completed Oct 2017) The ERO Portal Misoperations Information Data Analysis System (MIDAS) project enhanced the secure access point to the MIDAS application for Functional Entities (FEs). New functionality will allow the FEs more flexibility in managing their Misoperations data, while enhancing security through integration with the new User Management and Records account management system. Document Management (Started Aug 2015 / Completed Nov 2017) NERC launched the Document Management Program to provide a secure and efficient method of creating, collaborating, storing and disseminating the vast amount of information produced at NERC. Entity Registration - CFR (Started Jan 2017 / Completed Nov 2017) This first project addresses Consolidated Functional Registration (CFRs). Currently, this is a manual process using and spreadsheets to request, approve and track CFRs. NERC IT leveraged the xrm platform (used for many other enterprise applications) to create an interface by which registered entities and Regions may request and track CFRs. E-ISAC Portal (Started Mar 2017 / Completed Dec 2017) A replacement of the current portal platform with a more feature rich content management solution (CMS), which could flex, grow, and change per the needs of the E ISAC and sector over time. Enterprise Reporting - MIDAS (Started May 2017 / Completed Dec 2017) This project is the next installment of data into the NERC data warehouse, providing the ability in the future to run data analytics on previously segmented and unrelated data elements and making that data securely available outside of the native application. Summary of Results as of December 31,

17 SUPPLEMENTAL SCHEDULE 3 E ISAC and CRISP 2017 Summary of Activity As of December 31, 2017 TOTAL E ISAC (including CRISP) YTD YTD Actual Budget Over (Under) Assessments $ 11,270,705 $ 11,270,705 $ 0 Other Funding 7,188,660 7,244,636 (55,976) Total Funding $ 18,459,365 $ 18,515,341 $ (55,976) Personnel Expenses $ 4,443,327 $ 4,382,370 $ 60,957 Meeting Expense 436, ,198 (56,763) Operating Expenses, excluding Depreciation 7,736,906 7,395, ,081 Fixed Assets, including Allocations 164,718 1,433,765 (1,269,047) Indirect Expenses 5,016,732 4,810, ,548 Total Expenditures $ 17,798,117 $ 18,515,341 $ (717,224) Net Position $ 661,248 $ (0) $ 661,248 CRISP only YTD YTD Projected Actual Budget Over (Under) Assessments $ 1,275,681 $ 1,275,681 $ (0) Other Funding 6,898,244 7,016,760 (118,516) Total Funding $ 8,173,924 $ 8,292,441 $ (118,516) Personnel Expenses $ 725,513 $ 768,371 $ (42,858) Meeting Expense 38,528 69,692 (31,164) Operating Expenses, excluding Depreciation 6,685,969 6,369, ,442 Fixed Assets, including Allocations 67, ,681 (329,933) Indirect Expenses 656, ,169 (31,003) Total Expenditures $ 8,173,924 $ 8,292,441 $ (118,516) Net Position $ 0 $ (0) $ 0 Summary of Results as of December 31,

18 SUPPLEMENTAL SCHEDULE 3 (continued) E ISAC (without CRISP) YTD YTD Projected Actual Budget Over (Under) Assessments $ 9,995,024 $ 9,995,024 $ 0 Other Funding 290, ,876 62,539 Total Funding $ 10,285,440 $ 10,222,900 $ 62,540 Personnel Expenses $ 3,717,814 $ 3,613,999 $ 103,815 Meeting Expense 397, ,505 (25,599) Operating Expenses, excluding Depreciation 1,050,937 1,026,297 24,640 Fixed Assets, including Allocations 96,970 1,036,084 (939,114) Indirect Expenses 4,360,566 4,123, ,551 Total Expenditures $ 9,624,193 $ 10,222,900 $ (598,708) Net Position $ 661,247 $ (0) $ 661,247 Summary of Results as of December 31,

19 NERC Summary of Unaudited Results 2017 Scott Jones Vice President, Chief Financial and Administrative Officer Finance and Audit Committee Meeting February 7, 2018

20 Summary of 2017 Unaudited Results Total Funding was $227k (0.3%) over budget Includes planned use of SOCCED and Future Obligation Reserves CRISP and testing fees were lower than budget Interest income higher than budgeted Total Expenditures were $933k (1.3%) under budget Personnel and office costs over budget Fixed assets under budget Net impact was $1.7M increase in operating reserves 2 RELIABILITY ACCOUNTABILITY

21 2017 Year-End Reserves Total Reserves Balance - $9.0M Operating Contingency Reserve (OCR) - $3.3M Assessment Stabilization Reserve (ASR) - $2.2M Future Obligation Reserve - $2.6M System Operator Reserve - $477k CRISP Reserve - $500k 3 RELIABILITY ACCOUNTABILITY

22 OCR and ASR Details in 2017 Operating Contingency Reserve ($3.3M) Began year with $2.3M Budgeted $500k replenishment Generated additional $1.2M from normal operations Used $700k for budgeted debt service Assessment Stabilization Reserve ($2.2M) Began year with $2.3M Received $1.0M in penalties Used $1.1M for budgeted offset to assessment 4 RELIABILITY ACCOUNTABILITY

23 Next Steps Financial audit by Grant Thornton will begin in March Auditor s report and findings will be presented to FAC in May Likely adjustments between budget presentation and accounting guidance (leases, capitalized labor, others) In 2018, planning to match variance reporting with budget, make adjustments before audit Transfer of IT projects between departments Treatment of capital leases Treatment of capitalized labor 5 RELIABILITY ACCOUNTABILITY

24 6 RELIABILITY ACCOUNTABILITY

25 Agenda Item 2b Finance and Audit Committee Meeting February 7, 2018 Combined ERO Enterprise (NERC and Regional Entities) Summary of Unaudited Results December 31, 2017 The ERO Enterprise was under budget $3.3M (1.7%) for combined expense and fixed asset (capital) spending. The budget variances ranged from 5.6% under budget to 1.7% over budget. Total Budget (Total Expenses plus the Increase (Decrease) in Fixed Assets) 2017 YTD 2017 YTD Over (Under) Entity Actual Budget $ % NERC $ 68,669,669 $ 69,602,174 $ (932,505) 1.3% FRCC 6,888,403 7,177,855 (289,452) 4.0% MRO 10,642,824 11,226,668 (583,844) 5.2% NPCC 14,579,919 15,147,055 (567,136) 3.7% RF 20,017,840 19,908, , % SERC 16,715,497 17,482,403 (766,906) 4.4% SPP 11,055,018 10,865, , % TRE 11,486,653 12,167,257 (680,604) 5.6% WECC 27,023,522 26,790, , % $ 187,079,345 $ 190,368,240 $ (3,288,895) 1.7% NERC was under budget $933k (1.3%) primarily due to lower spending on fixed assets, which was partially offset by an increase in personnel costs due to a low attrition rate. FRCC was under budget by $289k (4.0%) largely as a result of lower than anticipated medical premiums, budgeted seminar costs, staff travel, use of CMEP contractors, and Compliance software maintenance costs. MRO was under budget by $584k (5.2%) primarily attributable to reduced travel expenses due to utilization of internal facilities for more meetings, as well as lower than budgeted contracts and consultants costs. NPCC was under budget $567k (3.7%) mainly as a result of holding more meetings onsite, as well as lower personnel, contracts and consultants costs, and office costs.

26 SERC was under budget $767K (4.4%) primarily because of staffing vacancies and lower than expected training and education expenses, which was partially offset by higher than anticipated hardware/software costs. SPP RE was over budget $190k (1.7%) mainly attributable to a retention payout, which was partially offset by lower personnel expenses related to the open staff positions and lower travel costs. TRE was under budget $681k (5.6%) largely as a result of lower health benefit plan costs and reduced participation in the retirement plan, as well as increased efforts to hold more meetings onsite. Variances by Expense and Fixed Asset Categories Personnel Expenses For the ERO Enterprise, personnel expenses, consisting of salaries, payroll taxes, benefits, and retirement costs, were collectively under budget $484k (0.4%). FTEs were 4.8% under budget, and staffing levels ranged between 19.7% under budget and 2.1% over budget. Personnel Expenses FTEs* Over (Under) Over % of Entity Actual Budget $ % Actual Budget (Under) Budget NERC $ 39,322,783 $ 38,641,330 $ 681, % % FRCC 5,428,713 5,472,437 (43,724) 0.8% (2.4) 8.0% MRO 8,043,631 8,045,427 (1,796) 0.0% (1.0) 2.4% NPCC 9,291,762 9,426,072 (134,310) 1.4% (0.5) 1.2% RF 16,684,398 16,356, , % % SERC 11,830,503 13,208,500 (1,377,997) 10.4% (14.8) 19.7% SPP RE 5,589,601 5,254, , % (4.7) 14.0% TRE 9,068,723 9,374,520 (305,797) 3.3% (4.0) 6.7% WECC 19,265,575 19,229,726 35, % (7.7) 5.5% $ 124,525,689 $ 125,009,423 $ (483,734) 0.4% (32.6) 4.8% * Represents equivalent full time positions from a budget and actual financial perspective and does not necessarily represent headcount. NERC was over budget $681k (1.8%) primarily due to a low attrition rate. NPCC was under budget $134k (1.4%) mainly as a result of an employee vacancy, reduced enrollment in benefit plans, and lower medical insurance premiums. Summary of Unaudited December 31, 2017 Results ERO Enterprise (NERC and Regional Entities Combined) 2

27 RF was over budget $328k (2.0%) largely due to salary increases resulting from staff promotions, organizational changes, and utilization of college interns for various legal and data analytics projects. SERC was under budget $1.4M (10.4%) primarily because of staffing vacancies and lower than expected training and education expenses. SPP RE was over budget $335k (6.4%) mainly attributable to the first payout under the Trusteeapproved retention plan related to SPP RE s dissolution, for which the first payout was made on December 31, TRE was under budget $306k (3.3%) largely as a result of lower health benefit plan costs and reduced participation in the retirement plan. Travel, Meeting, and Conferencing Expenses For the ERO Enterprise, travel, meeting and conferencing expenses were collectively under budget $1.3M (12.5%). Meeting, Travel, and Conferencing Expenses Over (Under) Entity Budget Meeting Travel Conferencing Actual $ % NERC $ 3,372,886 $ (20,615) $ (58,305) $ 82,915 $ 3,376,881 $ 3, % FRCC 264,579 (25,187) (30,582) 2, ,089 (53,490) 20.2% MRO 720,000 (20,811) (271,170) ,113 (291,887) 40.5% NPCC 1,269,332 (90,401) (39,595) (7,361) 1,131,975 (137,357) 10.8% RF 1,058,640 12,058 (209,581) (907) 860,210 (198,430) 18.7% SERC 845,289 64,112 (120,464) (15,491) 773,446 (71,843) 8.5% SPP RE 657,000 (13,011) (238,933) 405,056 (251,944) 38.3% TRE 438,875 (31,005) (86,166) (3,098) 318,606 (120,269) 27.4% WECC 2,082,329 (167,979) (28,795) (23,778) 1,861,777 (220,552) 10.6% $ 10,708,930 $ (292,839) $ (1,083,591) $ 34,653 $ 9,367,153 $ (1,341,777) 12.5% FRCC was under budget $53k (20.2%) largely because of lower than budgeted seminar costs and staff travel. MRO was under budget $292k (40.5%) primarily attributable to reduced travel expenses due to utilization of internal facilities for more meetings. NPCC was under budget $137k (10.8%) mainly as a result of limiting the number of attendees participating in off site meetings and an effort to hold more on site meetings when possible. RF was under budget $198k (18.7%) largely due to travel activity being lower than anticipated. Summary of Unaudited December 31, 2017 Results ERO Enterprise (NERC and Regional Entities Combined) 3

28 SERC was under budget $72k (8.5%) primarily because of reduced travel needs for the Compliance group, as well as discontinuation of the Regional Entity Management Group. These costs were partially offset by higher meeting expenses. SPP RE was under budget $252k (38.3%) mainly attributable to lower travel expenses due to open staff positions. TRE was under budget $120k (27.4%) largely as a result of an increase in in office meeting participation resulting in less travel, as well as cost savings from an on site workshop originally budgeted as off site. WECC was under budget $221k (10.6%) primarily due to less than anticipated attendance at stakeholder outreach meetings and cancellation of one compliance workshop. Operating Expenses For the ERO Enterprise, operating expenses, consisting of consultants and contracts expense, office rent, office costs, professional services, miscellaneous costs, and depreciation expense, were collectively under budget $1.0M (2.0%). Operating Expenses 2017 Contracts & Professional 2017 Over (Under) Entity Budget Consultants Office Rent Office Costs Services Miscellaneous Depreciation Actual $ % NERC $ 24,800,690 $ (62,250) $ (213,638) $ 674,502 $ (272,745) $ 2,948 $ 993,643 $ 25,923,150 $ 1,122, % FRCC 1,395,570 (183,494) 2,368 49,111 (9,900) (18,839) 1,234,816 (160,754) 11.5% MRO 2,648,460 (203,289) 6,401 (18,975) 50,824 (13,706) 2,469,715 (178,745) 6.7% NPCC 4,838,800 (101,556) (31,531) (113,519) (48,487) (2,391) (12,076) 4,529,240 (309,560) 6.4% RF 2,580,681 (140,946) (9,744) (89,196) (65,565) (1,199) 55,803 2,329,834 (250,847) 9.7% SERC 3,420,496 (169,323) 42, ,860 93,276 70, ,700 3,930, , % SPP RE 1,242,810 45,311 3,270 76,827 1,368, , % TRE 2,581,141 (36,483) (18,025) (110,040) (49,990) 14,721 2,381,324 (199,817) 7.7% WECC 6,344, ,532 21,509 4,873 (122,282) 26,217 6,692, , % $ 49,853,531 $ (434,498) $ (200,446) $ 758,886 $ (348,042) $ 69,904 $ 1,160,463 $ 50,859,798 $ 1,006, % NERC was over budget $1.1M (4.5%) mainly due to the expense treatment of the audio/video lease agreement. Software maintenance and support costs (office costs) were above budget but were partially offset by lower spending on telephone expense. FRCC was under budget $161k (11.5%) largely because of lower than planned use of CMEP contractors and lower Compliance software maintenance costs. This variance was partially offset by higher than budgeted office costs due to a change in the fixed asset capitalization policy. Summary of Unaudited December 31, 2017 Results ERO Enterprise (NERC and Regional Entities Combined) 4

29 MRO was under budget $179k (6.7%) primarily attributable to lower contracts and consultants costs related to network security maintenance, use of IT tools for an external audit, and placement of SharePoint development on hold in anticipation of the CMEP project reducing the need. This variance was partially offset by higher than anticipated professional services during the year. NPCC was under budget $310k (6.4%) mainly as a result of greater use of in house subject matter experts along with the prudent use of independent contractors for compliance audits, efficiencies gained from the risk based approach to compliance monitoring and enforcement, and lower telephone expense. RF was under budget $251k (9.7%) largely due to lower contract support, postponement and reevaluation of various IT purchases, and a search for a new independent director that has not been conducted yet. This was partially offset by the costs associated with the additional work for financial internal controls and support costs to implement a budget software tool. SERC was over budget $510k (14.9%) primarily because of higher spending on hardware and software and candidate search fees that exceeded the budget for an open position. This variance was partially offset by significantly lower than budgeted CSI related expenses due to the use of internal resources. SPP RE was over budget $125k (10.1%) mainly attributable to SPP RE s funding of the Engineering Data Validation Tool. TRE was under budget $200k (7.7%) largely as a result of cost savings in internet expense, software and software maintenance, leased equipment, and computer supplies, as well as security services scheduled for the fourth quarter that were deemed unnecessary and a vacant Board of Directors position in the fourth quarter. WECC was over budget $348k (5.5%) primarily due to unbudgeted gas/electric interface consulting fees, which was partially offset by updates to the Board Director compensation structure and less than anticipated insurance premiums. Indirect Expense Allocation NPCC and WECC allocate overhead to their non statutory functions, and SPP RE receives an allocation of overhead from SPP, Inc. Year to date, NPCC allocated $41k (10.0%) less than expected mainly as a result of lower administrative services expenses. WECC allocated $93k (15.3%) less than expected primarily due to higher labor float in the non statutory area, as well as the budget underrun in the statutory programs. SPP RE s allocation from SPP, Inc. was close to budget. Summary of Unaudited December 31, 2017 Results ERO Enterprise (NERC and Regional Entities Combined) 5

30 Fixed Asset (Capital) Additions For the ERO Enterprise, fixed asset (capital) additions, excluding the reversal of depreciation expense, were under budget $1.4 (24.7%). Fixed Asset Additions (Excludes Depreciation) 2017 Computer & Furniture & Equipment Leasehold Allocation of 2017 Over (Under) Entity Budget Software Fixtures CapEx CapEx Improvements Fixed Assets Actual $ % NERC $ 4,372,000 $ (839,348) $ $ (935,128) $ 14,849 $ $ 2,612,373 $ (1,759,627) 40.2% FRCC 187,894 (107,840) 57, ,571 (50,323) 26.8% MRO 316,781 (30,313) 31,827 (126,636) 191,659 (125,122) 39.5% NPCC 276,000 (75,898) , ,671 (39,329) 14.2% RF 269, ,300 13, , , % SERC 243, ,968 6, ,628 26, , , % SPP RE 0.0% TRE 40,000 (40,000) (40,000) 100.0% WECC 112,000 22,318 (41,692) 21, ,906 1, % $ 5,817,175 $ (686,813) $ 38,752 $ (740,637) $ (50,233) $ $ 4,378,244 $ (1,438,931) 24.7% NERC was under budget $1.8M (40.2%) mainly due to costs associated with the audio/video system lease and E ISAC portal project. Both the E ISAC portal and the audio/visual system were originally budgeted in fixed assets, but the majority of costs were expensed. FRCC was under budget $50k (26.8%) largely because of fewer enhancements being made to Compliance software, partially offset by a new capital lease for audio equipment used for conference rooms. MRO was under budget $125k (39.5%) primarily due to the acceleration of leasehold improvements for the approved facility expansion and reconfiguration in 2015 and 2016 left capital dollars budgeted in 2017 unspent. NPCC was under budget $39k (14.2%) mainly as the result of software development projects, which was partially offset by an unbudgeted capital expenditure to replace the telephone system. RF was over budget $286k (106.2%) largely due the costs associated with the redesign and development of the corporate internal and public websites, which were not budgeted. SERC was over budget by $287k (118.3%) primarily because of the data center relocation, sound system upgrades in conference rooms, and phone system upgrades, as well as unbudgeted Consortium User Group expenditures. TRE was under budget $40k (100.0%) because of budgeted costs that were not incurred. Summary of Unaudited December 31, 2017 Results ERO Enterprise (NERC and Regional Entities Combined) 6

31 Working Capital and Operating Reserves (excluding CRISP) 2017 Beginning Reserve Balances Entity Actual Budget Over (Under) NERC $ 8,282,011 $ 7,328,700 $ 953,311 FRCC 1,858,526 1,425, ,413 MRO 2,384,548 1,488, ,733 NPCC 5,327,887 3,897,079 1,430,808 RF 3,625,420 3,246, ,931 SERC 1,987,942 2,020,855 (32,913) SPP 3,140,957 1,403,208 1,737,749 TRE 4,872,967 4,702, ,211 WECC 5,250,299 4,990, ,186 $ 36,730,557 $ 30,503,128 $ 6,227,429 The ERO Enterprise began the 2017 year with approximately $6.2M more in reserves than anticipated in the 2017 budget. This was primarily because of under budget variances from the 2016 year Change in Reserve Balances Entity Actual Budget Over (Under) NERC $ 229,655 $ (1,036,263) $ 1,265,918 FRCC (537,058) (826,959) 289,901 MRO 17,771 (566,073) 583,844 NPCC (246,662) (827,995) 581,333 RF 133, ,868 (19,015) SERC (534,996) (1,020,855) 485,859 SPP (1,589,300) (1,403,208) (186,092) TRE (1,828,077) (2,520,001) 691,924 WECC (60,831) 213,998 (274,829) $ (4,415,645) $ (7,834,488) $ 3,418,843 During 2017, the ERO Enterprise budgeted a reduction of $7.8M in reserves while actually reducing reserves by $4.4M. This resulted in the unanticipated addition of $3.4M in total reserves. Summary of Unaudited December 31, 2017 Results ERO Enterprise (NERC and Regional Entities Combined) 7

32 2017 Year End Reserve Balances Entity Actual Budget Over (Under) NERC $ 8,511,666 $ 6,292,437 $ 2,219,229 FRCC 1,321, , ,314 MRO 2,402, ,742 1,479,577 NPCC 5,081,225 3,069,084 2,012,141 RF 3,759,273 3,399, ,916 SERC 1,452,946 1,000, ,946 SPP 1,551,657 1,551,657 TRE 3,044,890 2,182, ,135 WECC 5,189,468 5,204,111 (14,643) $ 32,314,912 $ 22,668,640 $ 9,646,272 The combined effect of higher balances at the beginning of the year and generating additional reserves during 2017 resulted in a combined year to date reserve balance of $32.3M, which is $9.6M more than was anticipated in the 2017 budget Ending Reserves vs 2018 Beginning Reserves Entity 2017 Year End Actual Balance 2018 Beginning Budgeted Balance Over (Under) NERC $ 8,511,666 $ 7,478,733 $ 1,032,933 FRCC 1,321,468 1,134, ,843 MRO 2,402,319 1,818, ,846 NPCC 5,081,225 4,499, ,332 RF 3,759,273 3,789,535 (30,262) SERC 1,452, , ,217 SPP 1,551, , ,727 TRE 3,044,890 2,352, ,923 WECC 5,189,468 4,894, ,913 $ 32,314,912 $ 27,431,440 $ 4,883,472 As we approach the 2018 budget year, the ERO Enterprise is expected to begin the year with $4.9M in additional reserves above what was planned in the combined budgets. Summary of Unaudited December 31, 2017 Results ERO Enterprise (NERC and Regional Entities Combined) 8

33 Combined ERO Enterprise Summary of Unaudited Results 2017 Scott Jones Vice President, Chief Financial and Administrative Officer Finance and Audit Committee Meeting February 7, 2018

34 Summary of 2017 Unaudited Results (by expense) Combined ERO Enterprise was under budget $3.3M (1.7%) Personnel expenses were on budget Meeting expenses were under budget (-12.5%) mainly due to less travel Operating expenses were slightly over budget (+2.0%) due primarily to higher office costs Fixed assets were under budget (-24.7%) as a result of lower spending, as well as reclassification of expenses to office costs 2 RELIABILITY ACCOUNTABILITY

35 Summary of 2017 Unaudited Results (by Region) NERC and five Regional Entities ended under budget NERC (-1.3) lower fixed asset expenses FRCC (-4.0%) lower personnel, meeting, travel, and operating expenses MRO (-5.2%) lower operating and fixed asset expenses NPCC (-3.7%) lower personnel, meeting, travel, and operating expenses SERC (-4.4%) lower personnel expenses TRE (-5.6%) lower personnel, meeting, travel, and operating expenses Three Regional Entities ended at or over budget SPP (1.7%) higher personnel and operating expenses RF and WECC were slightly over budget 3 RELIABILITY ACCOUNTABILITY

36 2017 Year-End Reserves $36.7M Total reserves as of January 1, 2017 Budgeted release of $7.8M to offset assessments/budgets in 2017 Generated $3.4M in reserves during 2017 from operations Net decline in reserves for 2017 of $4.4M $32.3M Total reserves as of December 31, 2017 Started 2017 with $6.2M more than budgeted Starting 2018 with $4.9M more than budgeted 4 RELIABILITY ACCOUNTABILITY

37 5 RELIABILITY ACCOUNTABILITY

38 FRCC Regional Entity Division Budget to Actual Variance Comparison as of December 31, 2017 Summary For the year ending December 31, 2017, FRCC is $289k under budget (4.0%). Funding Total Funding is flat to budget. Expenses Personnel Expenses (Actual - $44K under budget) o The favorable variance is primarily due to lower than anticipated medical premiums for the year, partially offset by a lower than anticipated attrition rate. Meeting Expenses (Actual - $53K under budget) o The favorable variance is mainly due to lower than budgeted SOS Seminar costs and staff travel. Operating Expenses (Actual - $161K under budget) o The favorable variance is primarily due to contracts and consultants which is below budget by $183K due to lower than planned usage of CMEP contractors and lower Compliance software maintenance costs. These are partially offset by higher than budgeted office costs of $49K due to a change in the fixed asset capitalization policy. Fixed Assets (Actual - $31K under budget) o The favorable variance is mainly due to fewer enhancements being made to the Compliance software, partially offset by a new capital lease for audio equipment used for conference rooms.

39 Quarterly Statement of Activities - Total Actual To Total Budget TOTAL Statutory Only December 31, 2017 (In Whole Dollars) 2017 YTD Actual 2017 YTD Budget 2017 YTD Variance % Funding ERO Funding ERO Assessments $ 6,163,895 $ 6,163,895 $ - Penalty Sanctions 95,000 95,001 $ (1) Total ERO Funding $ 6,258,895 $ 6,258,896 $ (1) 0.0% Membership Dues $ - $ - - Testing Fees Services & Software Workshops 92,450 92, Special Assessment Non Cash Postretirement Total Funding $ 6,351,345 $ 6,350,896 $ % Expenses Personnel Expenses Salaries $ 4,022,614 $ 3,958,699 63,915 Payroll Taxes 243, ,832 10,014 Benefits 604, ,962 (83,214) Retirement Costs 557, ,944 (34,439) Total Personnel Expenses $ 5,428,713 $ 5,472,437 $ (43,724) -0.8% Meeting Expenses Meetings $ 56,025 $ 81,212 (25,187) Travel 139, ,086 (30,582) Conference Calls 15,560 13,281 2,279 Total Meeting Expenses $ 211,089 $ 264,579 $ (53,490) -20.2% Operating Expenses Consultants & Contracts $ 346,836 $ 530,330 (183,494) Office Rent 554, ,603 2,368 Office Costs 181, ,513 49,111 Professional Services 27,599 37,499 (9,900) Miscellaneous Depreciation 123, ,625 (18,839) Total Operating Expenses $ 1,234,816 $ 1,395,570 $ (160,754) -11.5% Total Indirect Expenses $ - $ - $ - 0.0% Other Non-Operating Expenses - - $ - Total Expenses $ 6,874,618 $ 7,132,586 $ (257,968) -3.6% Change in Assets/Additions (Use) of Reserves $ (523,273) $ (781,690) $ 258, % Fixed Asset Expenditures Depreciation $ (123,786) $ (142,625) $ 18,839 Software CapEx 28, ,977 (107,840) Furniture & Fixtures CapEx Equipment & Computers CapEx 109,434 51,917 57,517 Leasehold Improvements Increase/(Decrease) in Fixed Assets $ 13,785 $ 45,269 $ (31,484) -69.5% Total Budget $ 6,888,403 $ 7,177,855 $ (289,452) -4.0% CHANGE IN WORKING CAPITAL $ (537,058) $ (826,959) $ 289, % FTEs (2.39) Beginning Working Capital 1/1/2017 1,858,526 1,425, ,413 1/1/2017 Change in Working Capital (537,058) (826,959) 289,901 Working Capital at 12/31/2017 1,321, , ,314 12/31/2017

40 380 St. Peter Street, Ste. 800, Saint Paul, MN MidwestReliability.org P F January 22, 2018 Sue Clarke, Vice President Finance and Administration P: F: E: Mr. Scott Jones Mr. Andy Sharp Mr. Michael Walker North American Electric Reliability Corporation (NERC) RE: Unaudited Midwest Reliability Organization (MRO) 2017 Fourth Quarter Statement of Activity and Cash Flow through December 31, 2017 Dear Mr. Jones, Mr. Sharp, and Mr. Walker: 2017 Year-End Projection Preliminary end-year results show that actual expenses are approximately 5 percent under budget. MRO budget-to-actual variances greater than $10,000 and 10 percent are explained below. Meeting and Travel Expenses (Variance of $291,887 (40.54%) under budget) MRO saw a reduction in meeting and travel costs due to: (1) reduced face-to-face working group meetings; and (2) reduced staff travel due to an increase in the use of MRO s facilities to host meetings. Consultants & Contracts (Variance of $203,289 (30.01%) under budget) The 2017 budget variance was primarily due to: (1) consulting support for network security maintenance was less than budgeted because maintenance was provided by internal staff; (2) costs for an external security audit were avoided and substituted with IT tools that performed this function, together with staff training and an internal audit; these IT tools were less costly than the planned external audit; (3) SharePoint development and other business improvement projects were placed on hold in anticipation of the CMEP project reducing the need for those efforts. Professional Services (Variance of $50,824 (22.24%) over budget) External professional services are difficult to budget because these costs typically incur in response to specific situations that develop during the year. Fixed Assets (Variance of $126,636 (88.49%) under budget) The acceleration of leasehold improvements for the approved facility expansion and reconfiguration in 2015 and 2016 left capital dollars budgeted in 2017 unspent. CLARITY ASSURANCE RESULTS

41 380 St. Peter Street, Ste. 800, Saint Paul, MN MidwestReliability.org P F Outlook At this time, we expect to meet the 2018 budget. However, the 2018 budget does not include the expected transition costs of $1.1 million related to the SPP RE dissolution, which will not impact 2018 assessments as we plan to fund through reserves. At this time, MRO has provided to NERC a cost estimate and funding options; we are awaiting NERC s direction on the matter. If you have any questions regarding this report, please contact me. Thank you, Sue Clarke Sue Clarke Vice President Finance and Administration Cc: Daniel Skaar, MRO President and CEO CLARITY ASSURANCE RESULTS

42 380 St. Peter Street, Ste. 800, Saint Paul, MN MidwestReliability.org P F (In Whole Dollars) 2017 YTD 2017 YTD 2017 YTD Actual Budget Variance % Funding ERO Funding ERO Assessments $ 10,494,345 $ 10,494,345 - Penalty Sanctions 166, ,250 - Total ERO Funding $ 10,660,596 $ 10,660,595 $ - Federal Grants Membership Dues Testing Fees Services & Software - - Workshops Interest Miscellaneous Total Funding $ 10,660,596 $ 10,660,595 $ - Expenses Personnel Expenses Salaries $ 5,993,033 $ 5,874, ,344 Payroll Taxes 395, ,600 29,381 Benefits 530, ,752 (78,587) Retirement Costs 1,124,452 1,195,386 (70,934) Total Personnel Expenses $ 8,043,631 $ 8,045,427 $ (1,796) -0.02% Meeting Expenses Meetings $ 64,189 $ 85,000 (20,811) Travel 363, ,000 (271,170) Conference Calls Total Meeting Expenses $ 428,113 $ 720,000 $ (291,887) % Operating Expenses Consultants & Contracts $ 470,788 $ 674,077 (203,289) Office Rent 708, ,900 6,401 Office Costs 520, ,933 (18,975) Professional Services 279, ,550 50,824 Miscellaneous - - Depreciation 490, ,000 (13,706) Total Operating Expenses $ 2,469,716 $ 2,648,460 $ (178,744) -6.75% Indirect Expenses Midwest Reliability Organization Statement of Activity From 1/1/2017 to 12/31/2017 PRELIMINARY (Unaudited) Total Direct Expenses $ 10,941,460 $ 11,413,887 $ (472,427) -4.14% Other Non-Operating Expenses $ - $ - $ - Total Expenses $ 10,941,460 $ 11,413,887 $ (472,427) Change in Assets $ (280,864) $ (753,292) $ 472,427 Fixed Assets Depreciation (490,294) (504,000) 13,706 Computer & Software CapEx 143, ,670 (30,313) Furniture & Fixtures CapEx 31,827-31,827 Equipment CapEx Leasehold Improvements 16, ,111 (126,636) Inc(Dec) in Fixed Assets $ (298,634) $ (187,219) $ (111,415) 59.51% Total Budget (B + C) $ 10,642,826 $ 11,226,668 $ (583,842) -5.20% Change in Working Capital (A-B-C) $ 17,770 $ (566,073) $ 583,842 Head Count (0.50) FTEs (1.03) Beginning WC-1/1/17 $ 2,384,548 $ 1,488,815 $ 895,733 Change to WC ,770 (566,073) 583,843 Working Capital at December 31,2017 $ 2,402,318 $ 922,742 $ 1,479,576 CLARITY ASSURANCE RESULTS

43 380 St. Peter Street, Ste. 800, Saint Paul, MN MidwestReliability.org P F Midwest Reliability Organization For the Twelve Months Ending December 31, 2017 (Unaudited) Statement of Expenses For the Twelve Months Ending December 31, 2017 (Unaudited) Statement of Financial Position For the Twelve Months Ending December 31, 2017 (Unaudited) 2016 YTD 2017 YTD 2017 YTD 2017 YTD ASSETS Actual Budget Actual Variance 12/31/ /31/2017 $ Chg Revenues (Funding) CURRENT ASSETS Assessments $10,891,562 $10,494,345 $10,494,345 - Cash and cash equivalents $ 3,755,883 $ 4,029,351 $ 273,468 Services & software Restricted cash Workshops Accounts receivable (317) Penalty Sanctions 136, , ,250 - Prepaid expenses 345, ,060 (39,387) Total Revenues (Funding) $11,027,813 $10,660,595 $10,660,595 $ - Total Current Assets 4,101,647 4,335, ,764 PROPERTY, IMPROVEMENTS AND EQUIPMENT, NET 1,786,765 1,464,879 (321,886) Expenses OTHER ASSETS Personnel Expenses Restricted cash - non-current 166, ,361 8,086 Salaries $5,661,967 $5,874,689 $5,993,033 $118,344 Restricted accounts receivable - non-current Payroll taxes 352, , ,981 29,381 Security Deposit - non-current 39,858 39,858 - Employee Benefits 555, , ,165 (78,587) Capitalized software costs, net of accumulated amortization 33,088 59,222 26,134 Retirement Benefits 964,511 1,195,386 1,124,452 (70,934) TOTAL ASSETS $ 6,127,633 $ 6,073,731 $ (53,902) Total Personnel Expenses $7,534,628 $8,045,427 $8,043,631 ($1,796) Meeting Expense LIABILITIES AND MEMBERS' EQUITY Meetings $70,386 $85,000 $64,189 ($20,811) CURRENT LIABILITIES Travel-Staff Business Travel 285, , ,309 (88,691) Accounts payable - trade $ 414,886 $ 204,832 $ (210,054) Travel-Member Reimbursement 156, ,000 92,521 (182,479) Accrued liabilities 791, , ,002 Conference Calls 2, Retirement plan contribution 511, ,215 30,038 Total Meeting Expense $514,676 $720,000 $428,113 ($291,887) Deferred assessments Deferred rent Operating Expenses Total Current Liabilities $ 1,717,100 $ 1,701,086 $ (16,014) Consulting $216,616 $401,000 $192,229 ($208,771) OTHER LIABILITIES Contracts 267, , ,559 5,482 Postretirement medical benefit obligation 507, , ,778 Building Rent & Facilities 670, , ,301 6,401 Deferred assessments - non-current 166, ,361 8,086 Office Costs 486, , ,958 (18,975) Deferred rent - non-current 500, ,437 75,112 Professional Services 185, , ,374 50,824 Total Liabilities 2,891,257 3,118, ,962 Depreciation 477, , ,294 (13,706) MEMBERS' EQUITY 3,236,376 2,955,512 (280,864) TOTAL LIABILITIES AND MEMBERS' EQUITY $ 6,127,633 $ 6,073,731 $ (53,902) Total Operating Expenses $2,303,720 $2,648,460 $2,469,716 ($178,744) Other Non-Operating Expenses ($21,481) $0 $0 $0 Total Expense $10,331,543 $11,413,887 $10,941,460 ($472,427) CASH FLOWS FROM OPERATING ACTIVITIES 12/31/ /31/2017 Net Revenues $696,270 ($753,292) ($280,865) $472,427 Change in members' equity $ 696,264 $ (280,866) Adjustments to reconcile excess of revenues over expenses Head Count (0.50) to net cash provided by operating activities FTE (1.03) Depreciation and software amortization 483, ,294 Amortization of deferred rent 62,931 75,112 Postretirement benefit obligation (14,145) 159,778 Change in assets and liabilities: Accounts Receivable (317) 317 Prepaid expenses (88,367) 39,387 Security Deposit - - Statement of Capital Expenditures For the Twelve Months Ending December 31, 2017 (Unaudited) Statement of Cash Flows For the Twelve Months Ending December 31, 2017 (Unaudited) Accounts payable - trade (275,073) (210,053) Accrued liabilities 36, ,002 Retirement plan contribution 19,841 30,038 Deferred assessments (118,250) 8,086 Change from Operating Activities 803, , YTD 2017 YTD 2017 YTD 2017 YTD Actual Budget Actual Variance CASH FLOWS FROM INVESTING ACTIVITIES Change in restricted cash 118,250 (8,086) Fixed Assets as of January 1 $1,547,314 $1,859,712 $1,859,712 - Purchases of property, improvements and equipment and software (796,338) (194,541) Change from Investing Activities (678,088) (202,627) Purchases of Computer Equipment $363,890 $144,500 $101,048 ($43,452) Purchases of Capitalized Software 5,435 29,170 42,309 13,139 CASH FLOWS FROM FINANCING ACTIVITIES Purchases of Furniture and Equipment 37,323-31,827 31,827 Repayments of long-term debt - - Purchases of Leasehold Improvements 389, ,111 16,475 (126,636) Payments on debt - - Purchases of property, improvements, equipment, software $796,338 $316,781 $191,660 ($125,121) Withdrawal on L/T Deferred Rent - - Depreciation and Software Amortization (477,218) (504,000) (487,412) (16,588) Net Fixed Assets $1,866,434 $1,672,493 $1,563,960 ($141,709) Net Change in Cash and Cash Equivalents 125, ,468 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 3,630,790 3,755,883 CASH AND CASH EQUIVALENTS - END OF YEAR $3,755,883 $4,029,351 CLARITY ASSURANCE RESULTS

44 January 19, 2018 North American Electric Reliability Corporation 3353 Peachtree Road NE Suite 600, North Tower Atlanta, GA Attention: Mr. Scott Jones Subject: NPCC Regional Entity Division Variance Comparison and Fourth Quarter 2017 Statement of Activities Dear Scott: The variance comparison for the period ended December 31 st, 2017 is included along with Northeast Power Coordinating Council, Inc. s unaudited Fourth Quarter 2017 Statement of Activities. Please do not hesitate to contact me via at jhala@npcc.org or via telephone at (212) should you have any comments or questions with regard to the materials provided. Enclosures Sincerely, cc: Mr. Christopher Weir, CPA NPCC Treasurer Mr. Edward A. Schwerdt NPCC President & CEO Ms. Jennifer Budd Mattiello NPCC Senior Vice President & COO ERO Finance Group Jessica Hala Jessica Hala Manager, Finance and Accounting

45 NPCC Regional Entity Division Budget to Actual Variance Comparison as of December 31, 2017 TOTAL EXPENSES For the year ended December 31, 2017, the NPCC Regional Entity Division is $567k or -3.74% under budget based on invoices received to date. Areas that were under budget include Personnel Expenses, Meeting Expenses, Consultants and Contracts and Office Costs. The continuing and much appreciated volunteerism within the NPCC membership contributed to NPCC achieving its reliability objectives while staying under budget. Based on emerging areas of focus within 2017, NPCC successfully reprioritized resources to attain all of its 2017 goals and objectives. Under budget total expenses at year end were driven by cost controls in Travel and Meetings expenses and application of staff resources in place of specific Contracts and Professional Services. INCOME Penalty Sanctions No penalty sanctions were remitted from July 1, 2015 through June 30, All penalty sanctions remitted from July 1, 2016 through June 30, 2017 were included in the NPCC 2018 Business Plan and Budget and applied to reduce 2018 assessments to NPCC U.S. load serving entity designees. Interest Income (Actual income of $8k at year end, not included in budget) NPCC accounts for but has not budgeted for interest income for operating fund investments as returns on U.S. treasury securities fund are negligible and corporate money market fund returns are minimal. o NPCC allocated $8k as a portion of total interest income (93%) to the Regional Entity Division consistent with the ratio of Regional Entity (RE) to Criteria Services (CS) Division 2017 funding. A common system of accounts, with divisional separation, is used for both RE and CS revenue tracking and financial reporting. EXPENSES Personnel Expenses (Variance of $134k under budget at year end) o NPCC had one open position at year end. Medical insurance coverage is currently waived by over 25% of NPCC employees who have superior coverage from a former employer. Additionally, medical insurance premiums are currently lower than budgeted based on NYC small group rates. Meetings and Conference Calls (Variance of $137k under budget at year end) o Continued efforts to limit the number of attendees sent to off-site meetings, and to hold more meetings onsite, at member facilities or via webinar where effective, have kept meeting and conference call expenses under budget. NPCC Spring and Fall standards and compliance workshops, while exceedingly well attended, have been reformatted for greater cost efficiency in terms of information dissemination. 1

46 Consultants and Contracts (Variance of $102k under budget at year end) o Under budget is due to greater use of in-house subject matter experts along with prudent use of independent contractors for compliance audits and efficiencies gained from the risk-based approach to compliance monitoring and enforcement. Office Costs (Variance of $114k under budget at year end) o Underage due to lower telephone expense and timing of IT related enhancements, which are ongoing. Indirect Expense Allocation (Variance of $41k under budget at year end) o Under budget variance is due to lower than budgeted expenditures in the administrative services area. Fixed Assets (Variance of $27k under budget at year end) o Timing of scheduled software development projects, which include the implementation of a document management system, resulted in an under budget variance in Computer & Software cap ex. This underage was partially offset by an unbudgeted Equipment CapEx to replace the office telephone system. (Unaudited) Submitted January 19 th,

47 Northeast Power Coordinating Council, Inc. - Regional Entity Division Statement of Activities, Fixed Assets and Change in Working Capital (Unaudited) For the Period Ended December 31, YTD Actual 2017 YTD Budget 2017 YTD Actual Variance from Budget % Funding Assessments 14,255,060 14,255,060 - Penalties Testing Services & Software Workshop Fees 69,729 64,000 5,729 Interest 8,468-8,468 Miscellaneous Total Funding 14,333,256 14,319,060 14, % Expenses Personnel Expenses Salaries 6,708,750 6,758,926 (50,177) Payroll Taxes 411, ,320 7,339 Employee Benefits 1,365,754 1,415,603 (49,849) Savings & Retirement 805, ,223 (41,623) Total Personnel Expenses 9,291,762 9,426,071 (134,310) -1.42% Meeting Expenses Meetings 286, ,100 (90,401) Travel 815, ,232 (39,595) Conference Calls 29,639 37,000 (7,361) Total Meeting Expenses 1,131,976 1,269,332 (137,356) % Operating Expenses Consultants & Contracts 1,907,444 2,009,000 (101,556) Rent & Improvements 778, ,700 (31,531) Office Costs 565, ,100 (113,519) Professional Services 992,513 1,041,000 (48,487) Miscellaneous 47,609 50,000 (2,391) Depreciation 237, ,000 (12,076) Total Operating Expenses 4,529,239 4,838,800 (309,561) -6.40% Indirect Expense Allocation (371,805) (413,149) 41, % Other Non-Operating Expenses n/a Total Expenses 14,581,172 15,121,055 (539,883) -3.57% Net Change in Assets (247,915) (801,995) 554, % Fixed Assets Depreciation (237,924) (250,000) 12,076 Computer & Software CapEx 200, ,000 (75,898) Furniture & Fixtures CapEx Equipment CapEx 36,038-36,038 Leasehold Improvements Incr(Dec) in Fixed Assets (1,253) 26,000 (27,253) % Total Budget (Expenses plus Incr(Dec) in Fixed Assets) 14,579,919 15,147,055 (567,136) -3.74% Change in Working Capital (Total Funding less Total (246,662) (827,995) 581, % Equivalent Full Time Employees (0.46) Headcount Beginning Total Reserves - 1/1/17 5,327,887 3,897,079 1,430,808 Change to Reserves - YTD 2017 (246,662) (827,995) 581,332 Total Reserves at 12/31/17 5,081,225 3,069,084 2,012,140

48 Jill S. Lewton Controller 3 Summit Park Drive, Suite 600 Cleveland, OH Office: Jill.lewton@rfirst.org January 19, 2018 Mr. Scott Jones North American Electric Reliability Corporation 3353 Peachtree Road, N.E. Suite 600, North Tower Atlanta, Georgia ReliabilityFirst s th Quarter Statement of Activities Variance Report - Unaudited Dear Mr. Scott Jones: As requested, the attached th Quarter Statement of Activities (unaudited) provides a comparison of budgeted and actual expenses relative to the 2017 ReliabilityFirst Corporation s Budget. For more information, please contact me at or jill.lewton@rfirst.org. Very truly yours, RELIABILITYFIRST CORPORATION Jill S. Lewton Jill S. Lewton Controller Forward Together ReliabilityFirst

49 ReliabilityFirst s th Quarter Statement of Activities Variance Report - Unaudited Significant Variances For the year ending December 31, 2017 ReliabilityFirst Corporation is $109K (.55%) over budget. The major contributors to this variance are: Budget Funding Investment Income: $67K (100%) over budget for YTD o The variance in Investment Income is due to the change in value of the company s investment portfolio, which was not budgeted. Miscellaneous Income: $2K (100%) over budget for YTD o The variance in Miscellaneous Income is mainly due to the redemption of the corporate credit card rewards as cash, which was not budgeted. Budget Expenses Personnel Expenses o Salaries: $466K (4%) over budget for YTD Salaries is over budget due to various staff promotions that were made, organization changes that occurred, and the utilization of college interns for various legal and data analytics projects, none of which were budgeted. o Employee Benefits: $118K (7%) under budget for YTD Employee Benefits is under budget as a result of variances in Training, Medical Benefits, and Workers Compensation Insurance. Training is under budget as a result of employees not taking advantage of training opportunities. Medical Benefits is under budget due budgeting for a mid-year rate increase, which did not occur. Workers Compensation Insurance is under budget due to employer premium refund adjustments received, which were not expected. These amounts are offset by a variance in Relocation Expense. Relocation Expense is over budget due to relocating an employee to the corporate office, which was not budgeted. o Retirement Costs: $44K (2%) under budget for YTD Retirement Costs is under budget mainly due to employees not taking full advantage of the company plan benefits. Meeting Expenses o Travel: $210K (27%) under budget for YTD Travel expenses are under budget due to the travel activity being less than budgeted. Forward Together ReliabilityFirst

50 Operating Expenses o Contract & Consultants: $141K (33%) under budget for YTD Contracts & Consultants is under budget as a result of less than expected contract support for the compliance monitoring, and risk and mitigation activities, the costs associated with the development of a web-hosted database application for the MMWG/ERAG being less than expected, the postponement of a social engineering assessment, and the discontinuation of the project management support for the Regional Entity Management Group. These variances are offset by the costs associated with the additional work for the financial internal controls and the support costs to implement a budget software tool. o Office Costs: $89K (12%) under budget for YTD Office Costs is under budget due to the postponement and reevaluation of various IT purchases that were budgeted. As a result, the funds budgeted for these purchases were used to help offset the costs of the corporate websites, which is discussed within the Fixed Assets section below. o Professional Services: $66K (14%) under budget for YTD Professional Services is under budget due to budgeting for a new independent director search that was not conducted. Fixed Assets o Computer Hardware & Software: $272K (124%) over budget for YTD Computer Hardware & Software is over budget due to the costs associated with the redesign and development of the corporate internal and public websites, which were not budgeted. o Leasehold Improvements: $14K (28%) over budget for YTD Leasehold Improvements is over budget due to the additional costs incurred to upgrade the women s restroom. Reserves Working Capital Reserve The Working Capital Reserve of $2,399,357 will be utilized to stabilize and minimize volatility in future years assessments. Operating Reserve The Operating Reserve of $1,000,000 has been designated with the intention of providing for any unbudgeted and unexpected expenditures for the organization. Forward Together ReliabilityFirst

51 ReliabilityFirst Corporation Statement of Activities, Fixed Assets and Change in Working Capital (unaudited) From 01/01/2017 Through 12/31/2017 (in Whole Numbers) 2017 Actual 2017 Budget YTD Variance Over/(Under) % Variance Funding Assessments 19,560,881 19,560,881 (0) 0.00% Penalty Sanctions 659, , % Membership Dues % Investment Income 66, , % Miscellaneous Income 2, , % Total Funding 20,289,017 20,219,881 69, % Expenses Personnel Expenses Salaries 12,361,876 11,895, , % Payroll Taxes 729, ,869 23, % Employee Benefits 1,688,042 1,805,732 (117,690) -6.52% Retirement Costs 1,905,019 1,949,239 (44,220) -2.27% Total Personnel Expenses 16,684,398 16,356, , % Meeting Expenses Meetings 255, ,490 12, % Travel 556, ,950 (209,581) % Conference Calls 48,293 49,200 (907) -1.84% Total Meeting Expenses 860,209 1,058,640 (198,431) % Operating Expenses Contracts & Consultants 290, ,312 (140,946) % Rent & Utilities 510, ,177 (9,744) -1.87% Office Costs 669, ,163 (89,196) % Professional Services 405, ,105 (65,565) % Miscellaneous 41,223 42,422 (1,199) -2.83% Depreciation 412, ,502 55, % Total Operating Expenses 2,329,834 2,580,681 (250,847) -9.72% Non-Operating Expenses % Total Expenses 19,874,441 19,995,941 (121,500) -0.61% Net Change in Assets 414, , , % Fixed Assets Depreciation (412,305) (356,502) (55,803) 15.65% Computer Hardware & Software 491, , , % Furniture & Fixtures % Leasehold Improvements 63,903 50,000 13, % Increase/(Decrease) in Fixed Assets 143,398 (87,002) 230, % Total Budget (Expenses + Incr/(Decr) in Fixed Assets) 20,017,839 19,908, , % Change in Working Capital (Total Funding less Total Budget) 271, ,942 (39,764) % FTE % WC - 12/31/2016 1,282,492 (152,868) 1,435,360 Less: Adjustment for future liabilities (1,056,429) 0 (1,056,429) Available Working Capital 226,063 (152,868) 378,931 Change to WC , ,942 (39,764) Other Adjustments to Reserves (137,324) (158,074) 20,750 Total Working Capital 359, ,917 Working Capital Reserve 2,399,357 2,399,357 0 Operating Reserve 1,000,000 1,000,000 0 Total Working Capital and Operating Reserve 3,759,274 3,399, ,917

52 January 19, 2018 Mr. Scott Jones North American Electric Corporation 3353 Peachtree Road, NE Atlanta, GA RE: SERC 4 th Quarter 2017 Unaudited Financial Statement Budget vs. Actual Scott: Following please find SERC s unaudited 4 th quarter 2017 financial statement, reflecting actual to budgeted amounts with variance explanations. If you have any questions, please let me know. Thank you, George Krogstie Director, Finance cc: Gary Taylor 3701 Arco Corporate Drive, Suite 300, Charlotte, NC Office: Fax:

53 (In Whole Dollars) SERC Reliability Corporation YTD Report to Treasurer From 1/1/2017 Through 12/31/ Actual 2017 Budget 2017 YTD Actual Variance from Budget Over(Under) % Funding ERO Funding 15,706,023 15,706,023 - Penalties 195, ,000 - Workshops 138, ,025 (37,717) Interest 6,667 1,000 5,667 Miscellaneous 134, ,500 (248,997) A Total Funding 16,180,501 16,461,548 (281,047) -1.71% Expenses Personnel Expenses Salaries 9,326,368 10,095,783 (769,415) Payroll Taxes 604, ,086 (142,793) Benefits 828,343 1,087,450 (259,107) Retirement Costs 1,071,499 1,278,181 (206,682) Total Personnel Expenses 11,830,503 13,208,500 (1,377,997) % Meeting Expenses Meetings 329, ,768 64,112 Travel 414, ,977 (120,464) Communications 29,053 44,544 (15,491) Total Meeting Expenses 773, ,289 (71,843) -8.50% Operating Expenses Contracts & Consultants 1,950,858 2,120,181 (169,323) Office Rent 633, ,983 42,214 Office Costs 640, , ,860 Professional Services 269, ,739 93,276 Miscellaneous/Contingency 87,246 16,700 70,546 Capital Depreciation Expenditures 349, , ,700 Total Operating Expenses 3,930,769 3,420, , % Other Non-Operating Expenses B Total Expenses 16,534,718 17,474,285 (939,567) -5.38% =A-B Net Change in Assets (354,217) (1,012,737) 658, % Fixed Assets Depreciation (349,582) (234,882) (114,700) Computer & Software CapEx 211, , ,968 Furniture & Fixtures CapEx 6,394-6,394 Equipment CapEx 285, , ,628 Leasehold Improvements 26,371-26,371 C Increase(Decrease) in Fixed Assets 180,779 8, , % =B+C Total Budget(Exp plus Incr/(Decr) in Fixed Assets 16,715,497 17,482,403 (766,906) -4.39% Change in Working Capital (Total =A-B-C Funding less Total Budget (534,996) (1,020,855) 485, % FTE's (14.75) Head Count (14.00) Beginning WC Reserve ,987,942 2,020,855 (32,913) Change to WC (534,996) (1,020,855) 485,859 Working Capital Reserve at 9/30/2017 1,452,946 1,000, ,946

54 Budget to Actual Comparison as of December 31, 2017 (Unaudited) Income Revenue (Actual - $281,047 under budget) o Budget included revenue for billing out shared REMG expenses to other regions (REMG was discontinued in January) Expense Personnel Expenses (Actual - $1,377,997 under budget) o Actual vacancy rates higher than budgeted, driving lower salary, taxes, benefits and retirement costs o Lower than expected Training and Education expense contributing to favorable benefits variance versus budget Meeting/Travel Expenses (Actual - $71,843 under budget) o Decreased travel needs for Compliance group, together with discontinuation of REMG group resulted in lower travel expense, partially offset by higher meeting expenses. Contracts/Consultants (Actual - $169,323 under budget) o Certain IT related expenses budgeted in Contracts/Consultants were more appropriately charged to Office Costs o CSI related expenses were significantly lower than budget as SERC largely relied on internal resources to accomplish goals Office Rent (Actual - $42,214 over budget) o Budget variance primarily due to lease operating expenses not considered in the original budget Office Costs (Actual - $358,860 over budget) o Variance to budget driven by IT related spending on hardware and software, a portion of which was budgeted in Contracts/Consultants Professional Services (Actual - $93,276 over budget) o Candidate search fees for VP of Operations exceeded budget Capital Depreciation (Actual - $114,700 over budget) o Budget did not consider depreciation for current year fixed asset purchases Miscellaneous (Actual - $70,546 over budget) o Write-off prior year balance in accrued expenses Fixed Assets (Actual - $172,661 over budget) o Consortium User Group (CUG) expenditures of approximately $100K were not budgeted o Other projects included data center relocation, sound system upgrades in large conference rooms, and phone system upgrades

55 EXPENSES Southwest Power Pool Regional Entity Unaudited Actual to Budget Comparison as of December 31, 2017 Personnel Expenses (Actual - $335K over budget) SPP RE ended the year with six open staff positions. Because of the planned termination of SPP, Inc. s Regional Delegation Agreement and the dissolution of SPP RE on later than December 31, 2018, open positions are not being filled. A retention plan to continue operations until the RE s effective termination date was approved by the SPP RE Trustees in June. The first payout under that plan occurred on December 31 st resulting in personnel expenses exceeding budget. Travel and Meeting Expenses (Actual - $252K under budget) Travel expenses primarily trailed budget due to the open staff positions. Other Operating Expenses (Actual - $125K over budget) Other Operating Expenses primarily exceeded budget due to SPP RE s funding of the Engineering Data Validation Tool. Indirect Costs 1 (Actual - $19k under budget) - Indirect costs include identifiable infrastructure and overhead resources associated with SPP s business model. These shared services and costs are allocated to the regional entity based on direct resources engaged to perform specific statutory functions. [see Footnote 1] These costs are intended to replace budgeted overhead items such as office rent, depreciation, communications, technology support, etc. The use of Engineering Shared Staff was very close to budget. Total Costs (Actual - $190K over budget) SPP RE ended the year over-budget primarily due to the retention payout, which was partially offset by lower personnel expenses related to the open staff positions. Even with the reduced staff, SPP RE was able to perform its required activities primarily due to the increased experience of the RE direct staff; implementation of risk-based monitoring and enhanced efficiencies in internal SPP RE processes. 1 Due to timing of the budget schedule, the estimated overhead charge used to develop the 2017 budget was the actual 2015 SPP Overhead costs adjusted for inflation and allocated by an appropriate measure. The Final 2017 actual results will reflect the actual 2017 costs.

56 SOUTHWEST POWER POOL REGIONAL ENTITY STATEMENT OF ACTIVITIES 2017 DECEMBER YTD DRAFT (UNAUDITED) 2017 DEC YTD ACTUAL 2017 DEC YTD BUDGET VARIANCE VAR % (In Whole Dollars) Funding ERO Funding 9,092,553 9,092,553 - Penalty Sanctions 369, ,750 - Total SPP RE Funding 9,462,303 9,462,303 - Testing Fees Workshops Interest 3,415-3,415 Miscellaneous Total Funding (A) 9,465,718 9,462,303 3, % Expenses Personnel Expenses Salaries 4,501,080 4,385, ,475 Payroll Taxes 445, , ,330 Benefits 483, , ,822 Retirement Costs 159, ,424 (15,817) Total Personnel Expenses 5,589,600 5,254, , % Meeting Expenses Meetings 106, ,000 (13,012) Travel 298, ,000 (238,933) Conference Calls Total Meeting Expenses 405, ,000 (251,944) -38.3% Operating Expenses Contracts & Consultants 1,066,021 1,020,710 45,311 Office Rent Office Costs 13,270 10,000 3,270 Administrative Costs - - Professional Services 288, ,100 76,826 Computer Purchase & Maint Services Depreciation Furniture & EquipmMiscellaneous/ Contingency Total Operating Expenses 1,368,218 1,242, , % Total Direct Expenses 7,362,874 7,154, , % SPP Inc. Indirect Expenses 3,692,143 3,710,910 (18,767) SPP RE Indirect Expenses Total Indirect Costs 3,692,143 3,710,910 (18,767) -0.5% Total Expenses (B) 11,055,017 10,865, , % Net Change in Assets (A-B) (1,589,298) (1,403,208) (186,090) Fixed Assets Depreciation Computer & Software CapEx Furniture & Fixtures CapEx Equipment CapEx Leasehold Improvements Increase/(Decrease) in Fixed Assets (C) Total Budget (Expenses plus Incr (Dec) in Fixed Assets (B+C)) 11,055,017 10,865, , % Change in Working Capital (Total Funding less Total Budget) (A-B-C) (1,589,298) (1,403,208) (186,090) FTEs * (4.64) -14.0% Beginning WC - 01/01/2017 3,140,957 1,403,208 1,737,749 Change to WC YTD (1,589,298) (1,403,208) (186,090) Working Capital as of 12/31/17 1,551,658-1,551,658

57 January 15, 2018 Mr. Svet Nudelman Ms. Meg Leonard Mr. Andy Sharp North American Electric Reliability Corporation 3353 Peachtree Road NE Suite 600, North Tower Atlanta, GA RE: Texas Reliability Entity, Inc. Fourth Quarter 2017 Statement of Activities Variance Report Dear Meg, Svet and Andy, The 2017 fourth quarter variance report for Texas RE is attached. Please contact me if you have questions or comments. Thank you. Judy Judy Foppiano Judy A. Foppiano, CPA CFO & Director of Corporate Services Texas Reliability Entity, Inc. 805 Los Cimas Parkway, Suite 200 Austin, Texas TEXAS RELIABILITY ENTITY, INC. PAGE 1 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

58 Budget to Actual Comparison as of December 31, 2017 Variances greater than $10,000 and 10% are explained below. FUNDING Penalty Sanctions: (Actual income of $50,000 remitted to Texas RE as of June 30, 2016 has been applied to reduce 2017 assessments.) All penalty sanctions remitted from July 1, 2016 through June 30, 2017 will be included in the Texas RE 2018 Business Plan and Budget and applied to reduce 2018 assessments. Interest: $11,320 greater than budget. Texas RE s banking account was converted to the Business Banking U.S. End of Day Money Market Mutual Fund Sweep account. The change in account type allowed for higher interest and dividend collections EXPENSES Total Budget as of December 31, 2017 is $625,882 less than budget (-5.0%). Personnel Expenses: $305,796 less than 2017 budget (-3.3%). o o o o The SUI rate increased from.45% to 1.39% of the first $9,000 of wages per employee. When the 2017 budget was prepared, the rate was.45%. Cost for the health benefits plan were less than budgeted. Education reimbursement and relocation reimbursement included in the Employee Benefits budget was not spent. Not all employees participated fully in the retirement plan and forfeitures were used as available to fund the employer portion of the retirement plans. Meetings and Travel Expenses: $120,269 less than 2017 budget (-27.4%). o o Meetings Expense is less than budget due to cost for an off-site workshop being included. The variance is caused by the workshop being conducted on-site. Most departments came in under budget in travel due to cost savings efforts and participating in meetings by conference call. Total Operating Expenses: $199,817 less than 2017 budget (-7.7%). o o o o o Consultants and Contracts is less than budget due to executive coaching for all directors and managers not conducted in Utilities and Common Area Maintenance are less than budget causing Rent and Improvements to be under budget. Due to cost savings in Internet expense, software and software maintenance, leased equipment and computer supplies, the Office Costs are less than budget. Professional services are less than budget because a security services scheduled for fourth quarter was determined unnecessary. Board fees are less than budget due a vacant Board of Directions position in fourth quarter. Depreciation is greater than budget due to purchases made after the 2017 budget was finalized. TEXAS RELIABILITY ENTITY, INC. PAGE 2 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

59 Texas Reliability Entity, Inc. Statement of Activities and Fixed Assets For period ended December 31, 2017 (Unaudited) Revenue 2017 Actual 2017 Budget 2017 YTD Actual Variance from Budget % ERO Funding Assessments $ 9,595,256 $ 9,595,256 $ (0) Penalty Sanctions 50,000 50,000 - Interest & Membership Dues 13,320 2,000 11,320 Total Revenue $ 9,658,576 $ 9,647,256 $ 11, % Expenses Personnel Expenses Salaries $ 6,793,893 $ 6,739,715 $ 54, % Payroll Taxes 451, ,778 12, % Employee Benefits 981,922 1,283,357 (301,435) -23.5% Savings & Retirement 841, ,670 (70,898) -7.8% Total Personnel Expenses $ 9,068,723 $ 9,374,519 $ (305,796) -3.3% Meeting & Travel Expenses Meetings $ 18,075 $ 49,080 $ (31,005) -63.2% Travel 279, ,045 (86,166) -23.5% Conference Expenses 20,652 23,750 (3,098) -13.0% Total Meeting & Travel Expenses $ 318,606 $ 438,875 $ (120,269) -27.4% Operating Expenses Consultants & Contracts $ 396,717 $ 433,200 $ (36,483) -8.4% Rent & Improvements 599, ,212 (18,025) -2.9% Office Costs 633, ,000 (110,040) -14.8% Professional Services 469, ,450 (49,990) -9.6% Depreciation 282, ,279 14, % Total Operating Expenses 2,381,324 2,581,141 (199,817) -7.7% Total Expenses $ 11,768,653 $ 12,394,535 $ (625,882) -5.0% Change in Assets $ (2,110,077) $ (2,747,279) $ 637, % Fixed Assets Depreciation $ (282,000) $ (267,279) $ (14,721) Computer & Software CapEx 40,000 (40,000) Furniture & Fixture CapEx - - Equipment CapEx - - Leasehold Improvement CapEx - - Incr(Dec) in Fixed Assets $ (282,000) $ (227,279) $ (54,721) 24.1% TOTAL BUDGET $ 11,486,653 $ 12,167,256 $ (680,603) -5.6% Change in Working Captial $ (1,828,077) $ (2,520,000) $ 691, % FTE's Beginning WC - 1/1/17 $ 4,872,967 $ 4,702,756 $ 691,923 Change to WC (1,828,077) (2,520,000) 862,134 Working Capital 12/31/2017 $ 3,044,890 $ 2,182,756 $ 1,554,057 TEXAS RELIABILITY ENTITY, INC. PAGE 3 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

60 Jillian Lessner Vice President and Chief Financial Officer January 19, 2018 Mr. Scott Jones Vice President, Chief Financial and Administrative Officer North American Electric Reliability Corporation 3353 Peachtree Road, N.E. Suite 600, North Tower Atlanta, GA RE: WECC Q Statutory Statement of Activities and Variance Report Dear Scott: Attached is WECC s fourth quarter Statutory Statement of Activities (unaudited) and Variance Report. WECC s 2017 year to date unaudited results are $275,000 over budget. If you have any questions or need additional information, please do not hesitate to contact me. Regards, Jillian Lessner Vice President and Chief Financial Officer Enclosures cc: Jim Robb, Chief Executive Officer WECC Finance and Audit Committee WESTERN ELECTRICITY COORDINATING COUNCIL 155 North 400 West, Suite 200 Salt Lake City, Utah