Agenda Finance and Audit Committee November 6, :00-9:45 a.m. Eastern

Transcription

1 Agenda Finance and Audit Committee November 6, :00-9:45 a.m. Eastern Grand Hyatt Atlanta in Buckhead 3300 Peachtree Rd NE Atlanta, GA Conference Room: Grand Ballroom Lower Lobby Level Call to Order and Chair s Remarks NERC Antitrust Compliance Guidelines Agenda 1. Minutes* Approve a. August 15, 2018 Meeting 2. Fourth Quarter Calendar of FAC Responsibilities a. Third Quarter Statement of Activities* Review and Accept i. NERC Summary of Results as of September 30, 2018 ii. ERO Enterprise Combined Summary of Results as of September 30, 2018 iii. Regional Entity Variance Reports as of September 30, Business Plan and Budget Status Update Business Plan and Budget Schedule* Review 5. Overview of Internal Controls* Review 6. 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 DRAFT Minutes Finance and Audit Committee Meeting August 15, :30-9:30 a.m. Mountain The Westin Calgary 320 4th Avenue SW Calgary, AB T2P 2S6, Canada Call to Order and Chair s Remarks 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 or the Company ) on August 15, 2018, at 8:30 a.m. Mountain, and a quorum was declared present. The agenda is attached as Exhibit A. Present at the meeting were: Agenda Item 1a Finance and Audit Committee Meeting November 6, 2018 Committee Members Jan Schori, Chair Robert G. Clarke David Goulding Suzanne Keenan Roy Thilly Board of Trustee Members Janice B. Case Kenneth W. DeFontes, Jr. Frederick W. Gorbet George S. Hawkins Robin E. Manning James B. Robb, President and Chief Executive Officer NERC Staff Charles A. Berardesco, Senior Vice President, General Counsel, and Corporate Secretary Tina Buzzard, Associate Director Scott Jones, Senior Vice President, Chief Financial and Administrative Officer, and Corporate Treasurer Mark G. Lauby, Senior Vice President and Chief Reliability Officer Janet Sena, Senior Vice President and Director of Policy and External Affairs Michael Walker, Senior Vice President and Chief Enterprise Risk and Strategic Development Officer Chair s Remarks Ms. Schori welcomed the participants to the meeting and noted the Committee s responsibility at this meeting to recommend the 2019 Business Plans and Budgets for Board approval. NERC Antitrust Compliance Guidelines Ms. Schori directed the participants attention to the NERC Antitrust Compliance Guidelines included in the agenda, and indicated that all questions regarding antitrust compliance or related matters should be directed to Mr. Berardesco.

5 Minutes Upon motion duly made and seconded, the minutes from the July 19, 2018, May 30, 2018, and May 9, 2018 meetings were approved as presented to the Committee. Third Quarter Calendar of FAC Responsibilities Mr. Jones reviewed the Second Quarter Unaudited Financial Statements for NERC and for the ERO Enterprise, referencing the materials included in the advance agenda package. He noted that NERC was slightly under budget for the quarter, but explained that this was largely due to the expected timing of expenditures, and that the net impact is a temporary increase in operating reserves. Mr. Jones noted that NERC s expenses are tracking as expected, and NERC is projected to be on budget for the year. He also stated that the company s cash position may be favorable, potentially allowing for reduced borrowing at year end. Mr. Jones noted that the timing of hiring for the E-ISAC is largely responsible for the lower-than-budgeted spending on E-ISAC staffing, but that there has been a recent acceleration in hiring and discussion of accelerating 2019 hiring to late Mr. Jones reported that the ERO Enterprise is expected to be under budget for the year, due largely to the effects of the SPP RE dissolution offset some by increased spending at MRO and SERC. After discussion, and upon motion duly made and seconded, the Committee recommended the Second Quarter Unaudited Financial Statements for acceptance by the Board. NERC and Regional Entity Proposed 2019 Business Plans and Budgets and Associated Assessments Ms. Schori thanked everyone who worked on the budget, including NERC and Regional Entity staff, and all who provided input and comments. Ms. Schori highlighted several aspects of the budget, including the growth of the E-ISAC under the strategic plan endorsed by the Member Executive Committee ( MEC ), the ongoing investment in technology and tools, the implementation of cost controls and decreases in non-e-isac personnel, and a release from the assessment stabilization reserve that is consistent with past practice. Mr. Jones provided an overview of the overall budget, referencing the materials in the advance agenda package. He summarized the ERO Enterprise s long-term strategy focus areas, operating plan goals, and the 2019 budget areas of focus. He reviewed the stakeholder comment process and how comments were addressed, including those regarding the CMEP technology project, the situational awareness tool ( SAFNR ) upgrade project, office expansion, and achieving long-term savings for meetings. While reporting that the final budget was very close to the initial draft, he assured stakeholders that NERC takes comments seriously. He also described the release from the assessment stabilization reserve, medical benefit costs, and Canadian E-ISAC interaction. Mr. Jones reviewed the NERC budget, reporting that the non-e-isac budget is up approximately 2.5%, with more aggressive E-ISAC growth. Mr. Jones reviewed the key aspects of the budget, including personnel costs, the CMEP Technology Project, the entity registration tool project, and the E-ISAC budget. He noted that, although funds are budgeted for the SAFNR project, the project will go through the standard vetting process before funds are disbursed. He also reviewed the budget by program areas and strategic goals. Assessments were reviewed by country. Mr. Jones provided the 2020 and 2021 projections, noting an expected decrease in growth but that it is subject to variance by continued Finance and Audit Committee Meeting 2 Draft Minutes August 15, 2018

6 growth in the E-ISAC. He also discussed the factors regarding why assessments do not necessarily correspond with expenditures. A member of the MRC thanked NERC management for being responsive to issues, including Canadian cost pressures. He noted that work would soon begin on the 2020 budget and this budget would hopefully reflect the work that has been done to improve effectiveness and efficiency. He suggested consideration of other budget development approaches for future years. Mr. Jones then reviewed the ERO Enterprise budgets, noting that each Regional Entity budget had been approved by its respective board. He noted an increased budget at MRO due to the dissolution of the SPP RE. He summarized Regional Entity budgets for key program areas. Mr. Jones explained that NERC reviews regional budgets with a goal of ensuring that Regional Entities have the necessary resources to perform their functions and that items are described appropriately. Mr. Jones also reviewed the assessments, noting that small corrections are made to the assessment schedules from time to time. After discussion, and upon motion duly made and seconded, the Committee recommended the NERC and Regional Entity Proposed 2019 Business Plans and Budgets and Associated Assessments for approval by the Board. Adjournment There being no further business, and upon motion duly made and seconded, the meeting was adjourned. Submitted by, Charles A. Berardesco Corporate Secretary Finance and Audit Committee Meeting 3 Draft Minutes August 15, 2018

7 Agenda Finance and Audit Committee August 15, :30-9:30 a.m. Mountain The Westin Calgary th Avenue SW Calgary, AB T2P 2S6, Canada Conference Room: Britannia/Belaire/Mayfair Conference Level Call to Order Introductions and Chair s Remarks NERC Antitrust Compliance Guidelines Agenda 1. Minutes* Approve a. July 19, 2018 Meeting b. May 30, 2018 Meeting c. May 9, 2018 Meeting 2. Third Quarter Calendar of FAC Responsibilities a. Second Quarter Unaudited Financial Statements* Review and Recommend to Board of Trustees for Acceptance i. NERC Summary of Results as of June 30, 2018 ii. Combined ERO Enterprise Summary of Results as of June 30, 2018 iii. Regional Entity Variance Reports as of June 30, 2018 b. NERC and Regional Entity Proposed 2019 Business Plans and Budgets and Associated Assessments* Review and Recommend to Board of Trustees for Approval i. NERC 2019 Business Plan and Budget ii. Combined ERO Enterprise 2019 Business Plans and Budgets iii. Regional Entity and WIRAB 2019 Business Plans and Budgets iv Assessment Schedule 3. Other Business 4. Adjournment *Background materials included.

8 Agenda Item 2a.i Finance and Audit Committee Meeting November 6, 2018 Summary of Unaudited Results For the Month Ending September 30, 2018 Table of Contents Page I. Executive Summary Projected Year End Results 2 Year to Date Actual Results 3 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

9 Executive Summary Projected Year End Results ($ millions) Over FUNDING Projected Budget (Under) Revenues $ 72.5 $ 72.4 $ 0.1 Funding from Reserves Assessment Stabilization Reserve TOTAL FUNDING $ 73.1 $ 73.0 $ 0.1 EXPENDITURES Expenses (excluding Depreciation) $ 70.3 $ 69.3 $ 1.0 Fixed Asset Additions (0.6) TOTAL EXPENDITURES $ 73.6 $ 73.2 $ 0.4 RESERVE INCREASE (DECREASE) $ (0.5) $ (0.2) $ (0.3) FUNDING Revenues o Projected to be close to budget at year end. Interest income and workshop fees are projected to be above budget, while testing fee income and CRISP revenues are expected to be below budget. EXPENDITURES Expenses (excluding depreciation) o Personnel expenses expected to be over budget primarily due to increased medical insurance costs and search fees, and are partially offset by lower retirement costs. o Contracts and consultants projected to be over budget primarily due to costs for SPP RE transition work, and a cyber security supply chain risk study. o Office costs projected to be over budget due to higher software license, support, and hosting expense. Fixed Assets o Projected to be below budget at year end due to anticipated lower spending in IT to manage overall department costs to the annual budget. RESERVE INCREASE (DECREASE) Projected decrease in total reserves is $0.5M versus a budgeted decrease of $0.2M. Summary of Results as of September 30,

10 Year to Date Actual Results ($ millions) Over FUNDING Actual Budget (Under) Revenues $ 54.4 $ 54.3 $ 0.1 Funding from Reserves Assessment Stabilization Reserve TOTAL FUNDING $ 55.0 $ 54.9 $ 0.1 EXPENDITURES Expenses (excluding Depreciation) $ 50.7 $ 52.2 $ (1.5) Fixed Asset Additions (2.0) TOTAL EXPENDITURES $ 51.6 $ 55.1 $ (3.5) RESERVE INCREASE (DECREASE) $ 3.4 $ (0.2) $ 3.6 FUNDING Revenues o Interest income and workshops are over budget year to date, which is offset by lower than budgeted testing fee revenue. EXPENDITURES Expenses (excluding depreciation) o Contracts and Consultants, Office Costs, and Professional Services are under budget due to the expected timing of expenditures versus budget. Fixed Assets o Under budget due to the expected timing of expenditures and lower than budgeted spending in IT. OPERATING RESERVE INCREASE (DECREASE) Reserve increase higher than budget by $3.6 million o Additional net increase of reserves from operating results, primarily due to the expected timing of expenditures versus budget, and anticipated lower spending in IT to manage overall department costs to the annual budget. Summary of Results as of September 30,

11 Detailed Operating Results Total NERC (including CRISP) Variances by Revenue and Expense Category YTD Actual YTD Budget YTD Over (Under) % Inc (Dec) Annual Projection Annual Budget Annual Over (Under) % Inc (Dec) TOTAL FUNDING $ 54,982,092 $ 54,892,166 $ 89, % $ 73,107,152 $ 72,981,221 $ 125, % EXPENDITURES Personnel $ 30,987,867 $ 31,030,004 $ (42,137) (0.1%) $ 41,399,667 $ 40,969,105 $ 430, % Meetings, Travel, and Conference Calls 2,521,391 2,555,700 (34,309) (1.3%) 3,481,777 3,395,100 86, % Contracts and Consultants 9,239,784 10,215,458 (975,674) (9.6%) 14,039,122 13,724, , % Rent and Facilities 2,198,298 2,318,853 (120,555) (5.2%) 3,038,960 3,091,804 (52,844) (1.7%) Office Costs, Professional, and Misc.* 5,669,165 5,962,011 (292,846) (4.9%) 8,190,897 7,942, , % Other Non Operating Expenses 74, ,159 (30,143) (28.9%) 149, ,878 10, % Fixed Asset Additions* 908,455 2,905,500 (1,997,045) (68.7%) 3,340,658 3,874,000 (533,342) (13.8%) TOTAL EXPENDITURES $ 51,598,976 $ 55,091,684 $ (3,492,707) (6.3%) $ 73,640,254 $ 73,135,156 $ 505, % RESERVE INCREASE (DECREASE) $ 3,383,116 $ (199,518) $ 3,582,634 (1795.6%) $ (533,102) $ (153,935) $ (379,167) 246.3% FTEs (9.6) (4.8%) (7.4) (3.7%) * Excludes depreciation expense Following is a brief summary of variances by major categories: Personnel Expense o Year to date actuals are slightly under budget, and annual projection is over budget due to higher than expected medical insurance costs and search fees. Contracts and Consultants Expense o Under budget year to date because of the expected timing of expenditures versus budget. o Projected to be over budget primarily due to costs for SPP RE transition work, and a cyber security supply chain risk study (see table below). CONTRACTS and CONSULTANTS YTD Actual YTD Budget YTD Over (Under) Annual Projection Annual Budget Annual Over (Under) Reliability Standards $ 100,000 $ $ 100,000 $ 100,000 $ $ 100,000 Compliance Assurance 32,944 37,500 (4,556) 53,750 50,000 3,750 Compliance Analysis, Registration and Certification Compliance Enforcement 42,131 42,131 48,500 48,500 Reliability Assessment and System Analysis 142, ,750 (251,250) 370, ,000 (155,000) Reliability Risk Management 1,476,591 1,542,963 (66,372) 1,938,475 1,867,525 70,950 E ISAC 739, ,150 (85,285) 1,200,000 1,100,200 99,800 Training, Education, and Personnel Certification 222, ,175 (226,707) 552, ,900 (46,000) General and Administrative and Executive 41,000 41,000 80,000 80,000 Legal and Regulatory Policy and External Affairs 14,225 16,250 (2,025) 41,500 20,000 21,500 Information Technology 1,438,428 1,592,975 (154,547) 2,345,403 2,123, ,437 Human Resources 365, ,750 46, , ,000 (50,000) Finance and Accounting 265, ,250 (54,813) 427, ,000 TOTAL (excluding CRISP) $ 4,880,762 $ 5,496,762 $ (616,000) $ 7,747,528 $ 7,432,591 $ 314,937 CRISP 4,359,022 4,718,696 (359,674) 6,291,594 6,291,594 TOTAL (including CRISP) $ 9,239,784 $ 10,215,458 $ (975,674) $ 14,039,122 $ 13,724,185 $ 314,937 Summary of Results as of September 30,

12 Office Costs and Professional Fees o Under budget year to date because of the expected timing of expenditures versus budget. o Projected to be slightly over budget at year end due to higher than budgeted software license, support, and hosting expense. Fixed Asset Additions (excluding depreciation) o Under budget year to date because of the expected timing of expenditures versus budget. o Projected to be below budget at year end due to anticipated lower spending in IT. Summary of Results as of September 30,

13 Variances by Department / Program DIRECT EXPENSES and NET FIXED ASSETS YTD Actual YTD Budget YTD Over (Under) Annual Projection Annual Budget Annual Over (Under) Reliability Standards $ 2,218,671 $ 2,499,492 $ (280,821) $ 2,974,652 $ 3,293,666 $ (319,014) Compliance Assurance 3,632,716 3,393, ,857 4,887,804 4,520, ,254 Compliance Analysis, Registration and Certification 1,711,511 2,077,528 (366,017) 2,545,486 2,748,762 (203,277) Compliance Enforcement 2,675,020 2,936,977 (261,957) 4,264,044 3,894, ,921 Reliability Assessment and System Analysis 2,998,707 3,112,336 (113,629) 4,024,436 4,105,476 (81,040) Reliability Risk Management 5,960,212 5,928,267 31,945 7,921,198 7,654, ,934 E ISAC 4,772,762 5,546,793 (774,031) 7,004,448 7,357,222 (352,774) Training, Education, and Personnel Certification 972,083 1,291,585 (319,502) 1,505,994 1,706,574 (200,580) General and Administrative and Executive 5,639,205 5,880,043 (240,838) 7,939,879 7,874,321 65,558 Legal and Regulatory 2,164,118 2,206,653 (42,535) 2,982,211 2,914,377 67,834 Policy and External Affairs 1,838,596 1,682, ,591 2,477,470 2,221, ,643 Information Technology 7,802,739 8,482,738 (679,999) 11,507,268 11,266, ,643 Human Resources 999,820 1,122,224 (122,404) 1,657,004 1,704,459 (47,455) Finance and Accounting 3,197,698 3,026, ,287 4,255,166 4,008, ,839 TOTAL (excluding CRISP) $ 46,583,858 $ 49,186,910 $ (2,603,052) $ 65,947,060 $ 65,270,572 $ 676,488 CRISP 5,015,118 5,904,773 (889,655) 7,693,193 7,864,584 (171,390) TOTAL EXPENSES and NET FIXED ASSETS $ 51,598,976 $ 55,091,684 $ (3,492,707) $ 73,640,254 $ 73,135,156 $ 505,098 Reliability Standards: Under budget year to date and projected to be under budget primarily due to reduced personnel costs resulting from the reallocation of resources to other departments. Compliance Assurance: Over budget year to date and projected to be over budget mainly because of additional personnel costs resulting from the reallocation of resources from other departments. Compliance Analysis, Registration and Certification: Under budget year to date and projected to be under budget largely due to reduced personnel costs resulting from the reallocation of resources to other departments. Compliance Enforcement: Under budget year to date mainly due to the expected timing of CMEP technology project expenditures versus budget. Projected to be over budget primarily because of personnel and SPP RE transition costs. Reliability Risk Management: Projected to be over budget due to personnel and workshop meeting expenses, which is partially offset by increased revenues from workshop fees due to higher than budgeted conference attendance. E ISAC: Under budget year to date largely because of decreased personnel costs due to lower FTEs and the expected timing of expenditures versus budget. Projected to be under budget at year end because of lower than expected personnel costs. Training, Education, and Personnel Certification: Under budget year to date and projected to be under budget primarily because of reduced personnel costs resulting from lower than budgeted FTEs, as well as lower than budgeted testing fee revenue. Summary of Results as of September 30,

14 Policy and External Affairs: Projected to be over budget at year end because of higher personnel costs related to lower than budgeted attrition. Information Technology: Under budget year to date mainly due to the expected timing of expenditures versus budget. Projected to be over budget by year end due to SPP RE transition costs. Finance and Accounting: Projected to be over budget at year end largely due to higher personnel costs related to lower than budgeted attrition. CRISP: Under budget year to date mainly due to the expected timing of expenditures versus budget. Projected to be under by year end because of lower than budgeted office costs. Summary of Results as of September 30,

15 SUPPLEMENTAL SCHEDULE 1 Year End Projected Reserves Expected Beginning Budgeted Budgeted Other Net Financing Ending Reserve Account Balance (2) Funding Uses Funding (Uses) (1) Activity (3) Balance Operating Contingency $ 3,680,094 $ 600,000 $ (231,393) $ (964,996) $ 714,726 $ 3,798,431 Future Obligations 3,015,787 (480,457) (15,759) 2,519,571 Assessment Stabilization 2,671,000 (600,000) 2,071,000 System Operator 477,484 77,458 (14,171) 540,771 CRISP 500, ,000 Total Reserves $ 10,344,365 $ 677,458 $ (1,311,850) $ (994,926) $ 714,726 $ 9,429,773 NOTES: (1) 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. (2) Some 2018 beginning balances have been adjusted from the 12/31/2017 variance report balances as the result of a reconciliation to the final audited balance sheet. (3) Net Financing Activity is projected to be favorable to budget by $483k due to lower debt service requirements in 2018, primarily as a result of no capital borrowing in Summary of Results as of September 30,

16 SUPPLEMENTAL SCHEDULE 2 IT Projects Expected Project Actual Expected Over (Under) Projects in Progress Budget (1) Spend Spend Budget CMEP Technology Project $ 5,103,000 $ 882,338 $ 5,103,000 $ E ISAC Portal Enhancements 743, , ,475 Entity Registration 600, , ,000 CFR Enhancements 113, ,000 SPP RE Transition 335, , ,637 Actual Project Actual Over (Under) Projects Completed in 2018 Budget (1) Spend Budget NERC.com Phase 2 $ 300,000 $ 281,530 $ (18,471) E ISAC Document Management 215, ,000 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. * 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 September 30,

17 SUPPLEMENTAL SCHEDULE 2 (continued) CMEP Technology Project (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 processes and related data are managed across three separate systems that have to be synchronized (webcdms, CITS, and CRATS). E-ISAC Portal Enhancements (Started Jan 2018/ Planned Completion Dec 2018) As requested by and prioritized by the Member Executive Committee (MEC), certain enhancements will be made to the E ISAC portal during 2018 related to areas such as notifications, user communities, and STIX TAXII. Entity Registration (Started Dec 2017 / Planned Completion Dec 2019) NERC is undertaking an effort to both standardize and modernize the Entity Registration process. The discovery phase of the Centralized Organization Registration Entity System (CORES) project includes the capture of Region specific needs, variations, and exceptions in the registration process. CORES will be a centralized entity registration process, which will require the retirement of registration in CDMS, CITS, and CRATS. The Joint Registration Organization (JRO) portion of the project will be combined with the CORES production release in CFR Enhancements (Started Sep 2018/ Planned Completion Dec 2018) This project is an enhancement to the Coordinated Functional Requirement (CFR) functionality, which is going to update the standard requirements that appear in the system, as well as performance improvement. SPP RE Transition (Started Mar 2018 / Planned Completion Oct 2018) With SPP RE dissolving, NERC is assessing the changes required to applications that contain SPP RE data and the reassignment/classification of such information. The inventory will require the mapping utility, functionality, migration, and support efforts by both Region and entity. Activities include facilitated discussions with IT and business owners of impacted applications to capture and document high level, as well as more detailed requirements necessary to support the transition of registered entities from SPP RE to MRO and SERC. NERC.com Phase 2 (Started May 2017 / Completed Feb 2018) In response to feedback from stakeholders, this project was a first step to improve the usability and search capability of the public NERC.com website. The project also enhanced the stability of the NERC.com platform with a technology upgrade from SharePoint 2010 to SharePoint 2016 in Azure. Summary of Results as of September 30,

18 E-ISAC Document Management (Started Apr 2018 / Completed Oct 2018) 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. The E ISAC was the final business unit to be implemented. Summary of Results as of September 30,

19 SUPPLEMENTAL SCHEDULE 3 E ISAC and CRISP Summary of Activity TOTAL E ISAC (including CRISP) YTD Annual Annual Projected FUNDING Actual Projection Budget Over (Under) Assessments $ 10,723,144 $ 14,297,524 $ 14,297,524 $ Other Funding 5,715,686 7,614,497 7,553,073 61,424 TOTAL FUNDING $ 16,438,830 $ 21,912,022 $ 21,850,597 $ 61,424 EXPENDITURES Personnel Expense $ 3,964,778 $ 5,558,855 $ 6,004,182 $ (445,326) Meeting Expense 342, , ,000 75,589 Operating Expenses (excluding Depreciation) 5,480,972 8,395,198 8,549,624 (154,427) Fixed Assets (including Allocations) (283,957) 9, ,377 (349,395) Indirect Expenses 4,370,493 6,203,111 6,519,415 (316,304) TOTAL EXPENDITURES $ 13,874,415 $ 20,660,734 $ 21,850,597 $ (1,189,864) RESERVE INCREASE (DECREASE) $ 2,564,415 $ 1,251,288 $ 0 $ 1,251,288 Summary of Results as of September 30,

20 SUPPLEMENTAL SCHEDULE 3 (continued) CRISP YTD Annual Annual Projected FUNDING Actual Projection Budget Over (Under) Assessments $ 1,028,826 $ 1,371,768 $ 1,371,768 $ Other Funding 5,567,042 7,261,770 7,348,144 (86,375) TOTAL FUNDING $ 6,595,868 $ 8,633,537 $ 8,719,912 $ (86,375) EXPENDITURES Personnel Expense $ 494,100 $ 949,451 $ 944,070 $ 5,381 Meeting Expense 58,658 72,818 48,000 24,818 Operating Expenses (excluding Depreciation) 4,462,360 6,570,925 6,772,514 (201,589) Fixed Assets (including Allocations) (39,038) 62, ,113 (51,963) Indirect Expenses 600, , , ,978 TOTAL EXPENDITURES $ 5,576,927 $ 8,633,537 $ 8,719,912 $ (86,375) RESERVE INCREASE (DECREASE) $ 1,018,941 $ 0 $ 0 $ 0 E ISAC (excluding CRISP) YTD Annual Annual Projected FUNDING Actual Projection Budget Over (Under) Assessments $ 9,694,318 $ 12,925,757 $ 12,925,757 $ Other Funding 148, , , ,799 TOTAL FUNDING $ 9,842,962 $ 13,278,485 $ 13,130,686 $ 147,799 EXPENDITURES Personnel Expense $ 3,470,678 $ 4,609,405 $ 5,060,112 $ (450,708) Meeting Expense 283, , ,000 50,771 Operating Expenses (excluding Depreciation) 1,018,612 1,824,273 1,777,110 47,163 Fixed Assets (including Allocations) (244,919) (52,169) 245,263 (297,433) Indirect Expenses 3,769,645 5,224,918 5,678,200 (453,282) TOTAL EXPENDITURES $ 8,297,488 $ 12,027,197 $ 13,130,686 $ (1,103,489) RESERVE INCREASE (DECREASE) $ 1,545,474 $ 1,251,288 $ 0 $ 1,251,288 Summary of Results as of September 30,

21 NERC Summary of Unaudited Results Third Quarter 2018 Andy Sharp, Controller Finance and Audit Committee Meeting November 6, 2018

22 2018 Third Quarter Results Total funding is on budget Interest income is over budget, offset by lower testing fee revenue Total expenditures were $3.5M (6.3%) under budget Primarily due to the expected timing of expenditures versus budget Net impact was $3.6M increase in operating reserves 2 RELIABILITY ACCOUNTABILITY

23 2018 Year-End Projections NERC projecting to be on budget for funding Interest income and workshop fees projected to be above budget, while testing fee income and CRISP revenues expected to be below budget NERC projecting to be slightly over budget for total expenditures ($400k or 0.7%) Primarily costs associated with SPP RE dissolution activity Projected operating reserve usage of $500k, which is $300k over budget Net impact of financing activity (new borrowings and loan payments) is a $483k favorable variance to projected reserves 3 RELIABILITY ACCOUNTABILITY

24 2018 Projected Year-End Reserves Total projected reserves balance is $9.4M Operating Contingency Reserve (OCR) $3.8M Assessment Stabilization Reserve (ASR) $2.1M Future Obligation Reserve $2.5M System Operator Reserve $541k CRISP Reserve $500k 4 RELIABILITY ACCOUNTABILITY

25 5 RELIABILITY ACCOUNTABILITY

26 Agenda Item 2a.ii Finance and Audit Committee Meeting November 6, 2018 Combined ERO Enterprise (NERC and Regional Entities) Summary of Unaudited Results September 30, 2018 The ERO Enterprise was under budget $8.3M (5.7%) for combined expense and fixed asset (capital) spending. The budget variances ranged from 34.6% under budget to 11.9% over budget. The year-end projection for the ERO Enterprise is to be under budget by 1.8%. Total Budget (Total Expenses plus the Increase (Decrease) in Fixed Assets) 2018 YTD 2018 YTD Over (Under) 2018 Year-End 2018 Year-End Over (Under) Entity Actual Budget $ % Projected Budgeted $ % NERC $ 51,598,976 $ 55,091,684 $ (3,492,707) -6.3% $ 73,640,254 $ 73,135,156 $ 505, % FRCC 5,589,862 5,684,504 (94,642) -1.7% 6,993,282 7,514,110 (520,828) -6.9% MRO 9,168,572 8,192, , % 14,129,275 11,726,736 2,402, % NPCC 10,608,176 11,153,513 (545,337) -4.9% 14,878,967 15,106,967 (228,000) -1.5% RF 15,069,941 16,081,010 (1,011,069) -6.3% 20,930,560 21,393,899 (463,339) -2.2% SERC 12,064,434 12,736,786 (672,352) -5.3% 17,496,921 17,182, , % SPP RE 5,297,878 8,094,898 (2,797,020) -34.6% 5,363,498 10,793,195 (5,429,697) -50.3% Texas RE 8,361,319 9,012,269 (650,950) -7.2% 12,384,921 12,656,953 (272,032) -2.1% WECC 19,915,344 19,964,000 (48,656) -0.2% 27,208,763 27,090, , % $ 137,674,502 $ 146,011,230 $ (8,336,728) -5.7% $ 193,026,441 $ 196,599,930 $ (3,573,489) -1.8% NERC was under budget $3.5M (6.3%) primarily due to timing of expenditures for contracts and consultants, office costs, professional services, and fixed assets. The company expects to be slightly over budget $505k (0.7%) at year-end. FRCC was under budget $95k (1.7%) largely as a result of a reduction in staff travel and timing of meeting expenses, lower rent expense, and fewer enhancements to compliance software. The company expects to be under budget by $521k (6.9%) at year-end. MRO was over budget $976k (11.9%), which is attributable primarily to higher than budgeted salaries resulting from organization changes, and personnel, meeting, and operating costs associated with SPP RE transition. The company expects to be over budget $2.4M (20.5%) at yearend primarily due to the SPP RE transition. MRO s total expected transition cost for the SPP RE dissolution is $2.2 million, an increase from the originally projected $1.5 million. This will not impact the 2018 assessments since transition costs will be funded through a transfer of SPP RE assessments to MRO; however, it is anticipated that the transfer of SPP RE assessments will exceed $2.2 million and impact the year-end working capital balance. A reassessment of funding will take place at year-end to determine the management of excess funding. NPCC was under budget $545k (4.9%) mainly as a result of staff retirements, timing of expenditures for meetings, office space costs, and software development projects, and lower negotiated office internet rates and cell phone contract. The company expects to be close to budget at year-end.

27 RF was under budget $1.0M (6.3%), largely due to staff vacancies, less than budgeted travel expenses, and reevaluation and rescheduling of various IT projects. The company expects to be under budget by $463k (2.2%) at year-end. SERC was under budget $672k (5.3%) primarily because of staffing vacancies, timing of travel expenses, lower depreciation resulting from less-than-projected fixed asset purchases, and limited Consortium User Group (CUG) expenses. The company expects to be over budget $314k (1.8%) due to executive search expenses and unbudgeted SPP RE transition expenditures, which will be offset by a distribution of funds from SPP RE. SPP RE was under budget $2.8M (34.6%), which is attributable to changing operations associated with the dissolution of SPP RE. SPP RE ended operations on August 31, 2018 with costs lower than its 2018 budget by $5.4M (50.3%). Excess funding, as well as approximately $435k of penalty monies held for 2019, will be transferred to MRO and SERC accordingly. Texas RE was under budget $651k (7.2%) due to a lower than expected health insurance benefit increase, timing of meetings and travel costs as well as meeting and travel cost savings efforts, and timing of contracts and consultants, professional services, and utility expenses. The company expects to be under budget $272k (2.1%) at year-end. WECC was slightly under budget $49k (0.8%) predominately due to reduced meetings and lessthan-anticipated meeting participation and conference call usage. The company expects to be over budget by $119k (0.4%) at year-end. 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 $2.4M (2.5%). FTEs were 9.3% under budget, and staffing levels ranged between % under budget. The year-end projection for ERO Enterprise expenses is under budget 1.7% with FTEs under budget 8.1%. Personnel Expenses FTEs* Projected Projected Over (Under) Year-End Over % of Year-End Entity Actual Budget $ % Variance Actual Budget (Under) Budget Variance NERC $ 30,987,867 $ 31,030,004 $ (42,137) -0.1% 1.1% (9.6) -4.8% -3.7% FRCC 4,453,497 4,433,603 19, % -8.5% (8.2) -26.7% -22.8% MRO 7,027,505 6,423, , % 19.3% (3.5) -7.8% 4.4% NPCC 7,125,943 7,427,293 (301,350) -4.1% -2.5% (0.3) -0.9% -0.9% RF 12,932,653 13,618,414 (685,761) -5.0% -2.6% (2.9) -3.8% -1.7% SERC 8,847,150 9,752,616 (905,466) -9.3% -5.7% (12.8) -17.0% -5.3% SPP RE 3,000,390 3,951,698 (951,308) -24.1% -42.8% (14.6) -45.2% % Texas RE 6,793,967 7,122,781 (328,814) -4.6% -1.2% (4.0) -6.7% 0.0% WECC 14,559,927 14,407, , % 0.3% (9.2) -6.5% -4.2% $ 95,728,899 $ 98,167,211 $ (2,438,312) -2.5% -1.7% (65.1) -9.3% -8.1% * Represents equivalent full time positions from a budget and actual financial perspective and does not necessarily represent headcount. Summary of Unaudited September 30, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 2

28 NERC was slightly under budget and expects to be over budget $431k (1.1%) at year-end due to higher-than-expected medical insurance costs and search fees. FRCC was slightly over budget primarily due to unbudgeted retention bonuses, which is partially offset by a higher than budgeted attrition rate, a 2018 new budgeted position that has not been filled, and lower-than-budgeted education expenses. The company expects to be under budget $499k (8.5%) at year-end. MRO was over budget $604k (9.4%) predominately due to organization changes, as well as personnel costs related to the SPP RE transition. The company expects to be over budget $1.7M (19.3%) at year-end due to the impact of the SPP RE transition. NPCC was under budget $301k (4.1%) mainly as a result of staff retirements, which were filled through a combination of in-house promotions, resource reallocation, and the retention of lessseasoned successors with the net result of lower-than-budgeted salaries and related benefits. The company expects to be under budget $248k (2.5%) at year-end. RF was under budget $686k (5.0%) largely due to personnel being below approved staffing levels. The company expects to be under budget $466k (2.6%) at year-end. SERC was under budget $906k (9.3%) primarily because actual staff vacancy rates are higher than budgeted. The company expects to be under budget $737k (5.7%) at year-end. SPP RE was under budget $951k (24.1%), which is attributable to the loss of SPP RE staff throughout 2018 and the retention of only four SPP RE employees for the period of July 1 to August 31, 2018, the date of the Regional Delegation Agreement termination. SPP RE ended operations with personnel costs lower than the 2018 budget by $2.3M (42.8%). Texas RE was under budget $329k (4.6%) largely as a result of a lower-than-expected increase in health insurance benefits and lower-than-expected participation in savings and retirement plans. The company expects to be under budget $123k (1.2%) at year-end. WECC was over budget $152k (1.1%) mainly because of lower than budgeted vacancy rates and labor float estimates. The company expects to be close to budget at year-end. Travel, Meeting, and Conferencing Expenses For the ERO Enterprise, travel, meeting, and conferencing expenses were collectively under budget $1.1M (14.6%). The year-end projection for the ERO Enterprise is to be under budget 8.2%. Meeting, Travel, and Conferencing Expenses Projected Year Over (Under) End Variance Entity Budget Meeting Travel Conferencing Actual $ % to Budget NERC $ 2,555,700 $ (48,288) $ 1,953 $ 12,026 $ 2,521,391 $ (34,309) -1.3% 2.6% FRCC 202,432 (11,144) (17,221) (572) 173,495 (28,937) -14.3% -22.4% MRO 241,000 11,888 40, ,332 52, % -22.3% NPCC 829,035 (72,524) (152,200) (5,573) 598,738 (230,297) -27.8% -2.4% RF 816,612 (22,097) (84,725) (7,416) 702,374 (114,238) -14.0% -9.1% SERC 658,815 5,410 (174,750) (12,991) 476,484 (182,331) -27.7% -3.3% SPP RE 418,875 (42,901) (254,713) - 121,261 (297,614) -71.1% -75.6% Texas RE 294,712 (8,207) (72,051) (1,005) 213,449 (81,263) -27.6% -11.3% WECC 1,631,405 (224,174) 42,246 (20,523) 1,428,954 (202,451) -12.4% -5.4% $ 7,648,586 $ (412,037) $ (671,017) $ (36,054) $ 6,529,478 $ (1,119,108) -14.6% -8.2% Summary of Unaudited September 30, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 3

29 NERC was under budget $34k (1.3%) primarily due to timing of expenditures versus budget. The company expects to be over budget $87k (2.6%) at year-end. FRCC was under budget $29k (14.3%) largely because of reduced staff travel and timing of meeting expenses. The company expects to be under budget $56k (22.4%) at year-end largely due to lower travel expenses resulting from an attrition rate that is projected to be higher than expected. MRO was over budget $52k (21.7%) due to the impact of the SPP RE transition. The company expects to manage costs moving forward and be under budget $167k (22.3%) at year-end. NPCC was under budget $230k (27.8%) mainly from timing of planned meetings (the heaviest meeting schedule will occur in the fourth quarter). The company expects to be under budget $30k (2.4%) at year-end due to streamlining the NPCC Spring and Fall Compliance and Standards Workshops from a three-day format to a two-day format. RF was under budget $114k (14.0%) largely due to travel activity being less than budgeted. The company expects to be under budget $96k (9.1%) at year-end. SERC was under budget $182k (27.7%) primarily because of the timing of compliance audits. The company expects to be over budget $31k (3.3%) at year-end. SPP RE was under budget $298k (71.1%) due to the loss of SPP RE personnel throughout the year and the completion of SPP RE CMEP activities at the end of the second quarter. SPP RE ended operations with meeting and travel costs lower than the 2018 budget by approximately $422k (75.6%). Texas RE was under budget $81k (27.6%) due to timing of expenses and costs savings efforts. The company expects to be under budget $48k (11.3%) at year-end. WECC was under budget $203k (12.4%) primarily due to reduced meetings and less-thananticipated meeting attendance and conference call usage. The company expects to be under budget $121k (5.4%) at year-end. Operating Expenses For the ERO Enterprise, operating expenses, consisting of consultants and contracts expenses, office rent, office costs, professional services, miscellaneous costs, and depreciation expense, were collectively under budget $415k (1.1%). The year-end projection for the ERO Enterprise is to be over budget 5.9%. Operating Expenses Projected Year Contracts & Professional 2018 Over (Under) End Variance Entity Budget Consultants Office Rent Office Costs Services Miscellaneous Depreciation Actual $ % to Budget NERC $ 19,692,045 $ (975,674) $ (120,555) $ (47,686) $ (248,832) $ 3,672 $ 1,155,392 $ 19,458,363 $ (233,682) -1.2% 7.8% FRCC 1,037,853 27,771 (62,534) (8,350) 13,538 - (4,489) 1,003,789 (34,064) -3.3% 4.4% MRO 1,816, ,214 3,530 23, ,116 - (160) 2,135, , % 23.8% NPCC 3,325,025 18,580 (48,603) (59,767) 39,604 (9,874) (11,925) 3,253,040 (71,985) -2.2% 2.4% RF 1,728, ,426 (29,659) (10,043) 4,956 50,637 1,759,494 31, % 4.9% SERC 2,430, , ,040 69,087 96, (94,918) 2,878, , % 24.9% SPP RE 990,066 (602,305) - (1,089) 52, ,965 (551,101) -55.7% -65.9% Texas RE 1,706,933 (98,709) (37,505) (19,691) (98,430) - 1,205 1,453,803 (253,130) -14.8% -4.8% WECC 4,435,727 (49,126) 27,579 (63,175) (18,434) - 33,635 4,366,206 (69,521) -1.6% 2.4% $ 37,162,978 $ (1,264,204) $ (107,622) $ (136,425) $ (36,269) $ (261) $ 1,129,377 $ 36,747,575 $ (415,403) -1.1% 5.9% Summary of Unaudited September 30, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 4

30 NERC was under budget $234k (1.2%) mainly due to timing of expenditures for contracts and consultants, office costs, and professional services fees. The company expects to be over budget at year-end by $2.1M (7.8%) primarily due to costs for SPP RE transition work, a cyber security supply chain risk study, and higher-than-budgeted software license and support expenses. FRCC was under budget $34k (3.3%) largely because of lower rent expense due to lower than budgeted lease cash obligations and a decrease in allocated rent costs, as well as timing of software costs. This is partially offset by consulting costs that are $46K over budget due to increased use of consultants resulting from a higher than budgeted attrition rate as well as an increase in legal and accounting expenses. The company expects to be over budget $60k (4.4%) at year-end. MRO was over budget $320k (17.6%) due to the impact of the SPP RE transition. The company expects to be over budget $645k (23.8%) at year-end due to this same reason. NPCC was under budget $72k (2.2%) mainly because of timing of office space costs and lower negotiated office internet rates and cell phone contracts. The company expects to be over budget $110k (2.4%) at year-end due to unbudgeted risk assessment initiatives, including increased probabilistic assessments, a gas disturbance study, and a tie-benefits study. RF was over budget $31k (1.8%) primarily due to higher depreciation as a result of last year s expenditures for the corporate internal and public websites, and office improvements being more than budgeted. RF expects to be over budget $126k (4.9%) at year-end due to this same reason and because of the purchase of corporate laptops. SERC was over budget $448k (18.4%) mainly because of contractors being used in lieu of FTEs, lease of additional office space, increased office supply and maintenance costs, timing of property tax payments, legal fees associated with employment matters and a review of SERC bylaws, and lower depreciation resulting from fixed asset purchases that were less than projected. The company expects to be over budget $855k (24.9%) at year-end. SPP RE was under budget $551k (55.7%), which is mainly attributable to the completion of audit activities in the second quarter. SPP RE ended operations with costs lower than the 2018 budget by $870k (65.9%). Texas RE was under budget $253k (14.8%) due to timing of contracts and consultants and professional services expenses versus budget, as well as lower-than-expected utility expenses. The company expects to be under budget $115k (4.8%) at year-end. WECC was over budget $70k (1.6%) primarily because of higher depreciation due to higher thananticipated purchases of fixed assets in The company expects to be over budget $135k (2.4%) at year-end. 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 $120k (38.4%) less than expected due to lower administrative services expenses. NPCC expects to be on budget at year-end. SPP RE s allocation from SPP, Inc. was $393k (21.6%) less than expected, and SPP RE ended operations with indirect costs lower than the 2018 budget by $2.0M (56.0%). WECC allocated $35k (8.6%) less than budgeted for the third quarter and expects to allocate $26k (4.8%) less than expected at year-end. Summary of Unaudited September 30, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 5

31 Fixed Asset (Capital) Additions For the ERO Enterprise, fixed asset (capital) additions (excluding the reversal of depreciation expense) were under budget $2.4M (64.7%). The year-end projection for the ERO Enterprise is to be under budget 3.7%. Fixed Asset Additions (Excludes Depreciation) Projected Year- Computer & Furniture 2018 Equipment Leasehold Allocation of 2018 Over (Under) End Variance Software and Fixtures Entity Budget CapEx CapEx CapEx Improvements Fixed Assets Actual $ % to Budget NERC $ 2,905,500 $ (1,093,067) $ - $ (791,477) $ (112,500) $ - $ 908,455 $ (1,997,045) -68.7% -13.8% FRCC 95,503 (45,000) - (11,024) ,479 (56,024) -58.7% -22.4% MRO 114, , % 95.5% NPCC 86,250 (73,414) ,836 (73,414) -85.1% -52.2% RF 197,500 (191,449) ,051 (191,449) -96.9% 19.1% SERC 227,500 (191,647) 11,394 7,527 45, ,568 (126,932) -55.8% 24.3% SPP RE % 0.0% Texas RE 30,000 13, ,462 13, % 44.9% WECC 62,000 (347) - 27, ,655 26, % 43.0% $ 3,719,223 $ (1,581,462) $ 11,394 $ (767,972) $ (66,706) $ - $ 1,314,476 $ (2,404,747) -64.7% -3.7% NERC was under budget $2.0M (68.7%) mainly due to timing of expenditures versus budget. The company expects to be under budget $533k (13.8%) at year-end primarily from the deferral of equipment purchases in the IT department to manage the 2018 budget. FRCC was under budget $56k (58.7%) largely because of fewer enhancements being made to compliance software. The company expects to be under budget $28k (22.4%) at year-end primarily for this reason. MRO was on budget. The company expects to be over budget $273k (95.5%) due to the impacts of the SPP RE transition. NPCC was under budget $74k (85.1%) mainly as the result of the timing of scheduled software development projects, which include the continued roll out of a document management system. The company expects to be under budget $60k (52.2%) because no new functionality is planned for the CDAA and CITS tools. RF was under budget $192k (96.9%) due to the re-evaluation and rescheduling of various budgeted IT projects. The company expects to be over budget $40k (19.1%) at year-end as a result of the expected completion of some of these IT projects in the fourth quarter, as well as due to the completion of minor unbudgeted office modifications. SERC was under budget $127k (55.8%) due to limited CUG development costs. The company expects to be over budget $84K (24.3%) mainly because of leasehold improvements for new office space. SPP RE did not budget any fixed asset costs for Texas RE was over budget $14k (44.9%), which is attributable to software renewals being higher than expected. The company expects to have the same variance at year-end. WECC was over budget $27k (43.0%) primarily due to the unbudgeted purchase of video conferencing equipment. The company expects to have the same variance at year-end. Summary of Unaudited September 30, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 6

32 Working Capital and Operating Reserves (excluding CRISP) The ERO Enterprise began the 2018 year with approximately $5.5M more in reserves than anticipated in the 2018 budget. This was primarily because of favorable budget variances from the 2017 year Beginning Reserve Balances Entity Actual Budget Over (Under) NERC $ 9,844,365 $ 7,478,733 $ 2,365,632 FRCC 1,321,468 1,134, ,843 MRO 2,384,548 1,818, ,075 NPCC 5,017,751 4,499, ,858 RF 4,457,805 3,759, ,178 SERC 1,359, , ,993 SPP RE 725, ,930 (50,694) Texas RE 2,422,616 2,352,967 69,649 WECC 5,418,773 4,894, ,218 $ 32,952,284 $ 27,401,532 $ 5,550,752 Through the third quarter, the ERO Enterprise budgeted the addition of $7.4M in reserves while actually generating $14.3M. This resulted in the unanticipated addition of $6.9M in total reserves through the third quarter Change in Reserve Balances Entity YTD Actual YTD Budget Over (Under) NERC 1,347,749 (900,468) 2,248,217 FRCC (250,854) (343,970) 93,116 MRO (1,014,494) (38,489) (976,005) NPCC 269,544 (290,173) 559,717 RF 1,184, , ,423 SERC 1,769,942 1,136, ,623 SPP RE 2,724,390 (509,449) 3,233,839 Texas RE 408,659 (281,779) 690,438 WECC 7,852,935 7,771,650 81,285 $ 14,291,886 $ 7,405,233 $ 6,886,653 The combined effect of higher balances at the beginning of the year and adding additional reserves during the through the third quarter of 2018 resulted in a combined year-to-date reserve balance of $47.2M, which is $12.4M more than was anticipated in the 2018 budget. During the remainder of 2018, the ERO Enterprise anticipates using some of these reserves for normal operations and expects the year-end balance to be $34.6M, which is approximately $9.1M over the 2018 budget amount of $25.5M. Summary of Unaudited September 30, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 7

33 2018 YTD and Projected Year-End Reserve Balances Year-End Entity YTD Actual YTD Budget Over (Under) Entity Projected Balance Year-End Budgeted Balance Over (Under) NERC $ 11,192,114 $ 6,578,265 $ 4,613,849 NERC $ 8,929,773 $ 6,975,734 $ 1,954,039 FRCC 1,070, , ,959 FRCC 1,333, , ,671 MRO 1,370,054 1,779,984 (409,930) MRO 4,165, ,841 3,201,200 NPCC 5,287,295 4,209,720 1,077,575 NPCC 4,632,141 3,873, ,428 RF 5,641,820 4,621,219 1,020,601 RF 4,786,752 4,318, ,514 SERC 3,129,664 1,823,048 1,306,616 SERC 2,778,915 1,700,000 1,078,915 SPP RE 3,449, ,481 3,183,145 SPP RE Texas RE 2,831,275 2,071, ,087 Texas RE 1,634,681 1,245, ,681 WECC 13,271,708 12,666, ,503 WECC 6,301,216 5,801, ,657 $ 47,244,170 $ 34,806,765 $ 12,437,405 $ 34,562,368 $ 25,504,263 $ 9,058,105 As we approach the 2019 budget year, the ERO Enterprise is expected to begin the year with $4.5M in additional reserves above what was planned in the combined budgets Ending Reserves vs 2019 Beginning Reserves Entity 2018 Year-End Projected Balance 2019 Beginning Budgeted Balance Over (Under) NERC $ 8,929,773 $ 8,453,020 $ 476,753 FRCC 1,333,849 1,629,719 (295,870) MRO 4,165,041 1,762,886 2,402,155 NPCC 4,632,141 4,453, ,570 RF 4,786,752 4,318, ,514 SERC 2,778,915 2,328, ,731 Texas RE 1,634,681 1,314, ,032 WECC 6,301,216 5,838, ,815 $ 34,562,368 $ 30,098,668 $ 4,463,700 Summary of Unaudited September 30, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 8

34 Combined ERO Enterprise Summary of Unaudited Results Third Quarter 2018 Andy Sharp, Controller Finance and Audit Committee Meeting November 6, 2018

35 2018 Third Quarter Results (by expense) Combined ERO Enterprise was under budget $8.3M (5.7%) Personnel expenses were slightly under budget (-2.5%) predominately due to staff vacancies Meeting and travel expenses were under budget (-14.6%) mainly due to timing of expenditures and lower-than-expected travel activity Operating expenses were slightly under budget (-1.1%) primarily because of timing of expenditures Fixed assets were under budget (-64.7%) largely due to timing of expenditures and lower spending 2 RELIABILITY ACCOUNTABILITY

36 2018 Third Quarter Results (by Region) NERC and seven Regional Entities are under budget NERC (-6.3%) lower operating and fixed asset expenses FRCC (-1.7%) lower travel, operating, and fixed asset expenses NPCC (-4.9%) lower personnel and operating expenses RF (-6.3%) lower personnel, travel, and fixed asset expenses SERC (-5.3%) lower personnel, travel, and operating expenses SPP RE (-34.6%) lower expenses overall due to dissolution of operations Texas RE (-7.2%) lower personnel, meetings, travel, and operating expenses One Regional Entity over budget MRO (11.9%) higher personnel, meeting, and operating expenses 3 RELIABILITY ACCOUNTABILITY

37 2018 Projected Year-end Results Combined ERO Enterprise expects to be under budget $3.5M (1.8%) at year-end FRCC projects to be $521k under budget due to lower personnel and meeting expenses SPP RE projects $5.4M under budget due to transition MRO expects to be $2.4M over budget due to transition SERC projects $314k over budget due to transition 4 RELIABILITY ACCOUNTABILITY

38 Combined ERO Enterprise 2018 Operating Reserves $33.0M Total reserves as of January 1, 2018 Started $5.5M over combined budgets $47.2M Total reserves as of September 30, 2018 $12.4M more than expected through Q3 $34.6M Year-end projection for 2018 Ending $4.5M more than budgeted 5 RELIABILITY ACCOUNTABILITY

39 6 RELIABILITY ACCOUNTABILITY

40 Agenda Item 2a.iii Finance and Audit Committee Meeting November 6, 2018 FRCC Regional Entity Division Unaudited Budget to Actual Variance Comparison as of September 30, 2018 Summary For the nine months ending September 30, 2018, FRCC is $95K under budget. Total Funding Unfavorable Variance $2K Workshop funding is $5K unfavorable to budget due to less participation in the SOS training event than originally anticipated. Interest income is $3K favorable due to a reclassification from expense to income in Total Expenses Favorable Variance $43K Personnel Expenses (Actual - $20K over budget) o The unfavorable variance is primarily due to unbudgeted retention bonuses partially offset by a higher than budgeted attrition rate, a 2018 new budgeted position that has not been filled and lower than budgeted education expenses. Meeting Expenses (Actual - $29K under budget) o The favorable variance is primarily due to a reduction in staff travel and the timing of meeting expenses. Operating Expenses (Actual - $34K under budget) o The favorable variance is primarily due to the following: $63K lower rent expense due to lower than the budgeted lease cash obligations and a decrease in allocated rent costs $19K due to timing of software costs The favorable variance is partially offset by consulting costs which are $46K over budget due to increased use of consultants resulting from a higher than budgeted attrition rate as well as an increase in legal and accounting expenses. Total Fixed Asset Expense Favorable Variance $52K Software CapEx (Actual - $45K under budget) o The favorable variance is primarily due to fewer enhancements to the Compliance software which is projected to come in under budget by $20K by year end.

41

42 October 22, 2018 Sue Clarke, Vice President Finance and Administration P: F: E: Mr. Scott Jones Mr. Andy Sharp North American Electric Reliability Corporation (NERC) RE: Unaudited Midwest Reliability Organization (MRO) 2018 Third Quarter Statement of Activity and Cash Flow through September 30, 2018 Dear Mr. Jones and Mr. Sharp: MRO prepared the 2018 third quarter variance report using NERC s guidelines for reporting. 1. MRO has not had any formal changes to its 2018 budget as approved by FERC. The assessment funding projection for 2018 is reported as the assessment funding amount in MRO s FERCapproved 2018 budget (refer to Table 2). 2. The budget amounts of expenses and fixed assets for this reporting period match the budget amounts approved by FERC. 3. MRO s year-end projected expenses are expected to be higher than budgeted. Over-budget variances are quantified and explained for each cost category primarily related to the SPP RE transition (refer to Table 1). The following tables address the above reporting guidelines: Table 1: Preliminary Year-End Projected Expenses (Combined) Table 2: Preliminary Unaudited FERC-Approved 2018 Budget Table 3: Preliminary SPP RE Transition Costs The budget-to-actual variances greater than $10,000 and 10 percent are explained below. Personnel Expenses (Variance of $603,909 (9.4%) over budget) Salaries are over budget due to organization changes that have occurred. Additionally, 7.2 percent or $462,551 in over budget personnel costs are directly related to the SPP RE transition. Projected salaries are expected to be over budget by 19.3 percent due to the SPP RE transition. It is anticipated that distribution of funds from SPP will offset the unbudgeted portion. Meeting Expenses (Variance of $52,332 (21.7%) over budget) MRO s FERC-approved budget for 2018 meeting and travel expenses is currently on budget. 1

43 Projected meeting and travel expenses are expected to be over budget by 50.7 percent due to unbudgeted SPP expenses. It is anticipated that distribution of funds from SPP will offset the unbudgeted portion. Operating Expenses (Variance of $319,606 (17.6%) over budget) MRO s FERC-approved budget for 2018 operating expenses is currently on budget. Projected operating expenses are expected to be over budget by 23.8 percent due to unbudgeted SPP expenses. Budget Outlook The preliminary unaudited FERC-approved 2018 budget is anticipated to be on budget within 1.7 percent. The 2018 projected combined budget is anticipated to exceed MRO s FERC-approved budget by $2,402,539 or 20.5 percent. The 2018 FERC-approved budget does not include expected transition costs of $2.2 million, an increase from the originally projected $1.5 million, related to the SPP RE dissolution. This will not impact the 2018 assessments since transition costs will be funded through a transfer of SPP RE assessments to MRO; however, it is anticipated that the transfer of SPP RE assessments will exceed $2.2 million and impact the year-end working capital balance. A reassessment of funding will take place at year-end to determine the management of excess funding. If you have any questions regarding this report, please contact me. Thank you, Sue Clarke Sue Clarke Vice President Finance and Administration Cc: Sara Patrick, MRO President and CEO 2

44 (In Whole Dollars) 2018 YTD 2018 YTD 2018 YTD Unaudited 2018 End Of Year Projected Actual Budget Variance % Projection Budget Variance % Funding ERO Funding ERO Assessments $ 8,047,577 $ 8,047,578 - $ 10,730,104 $ 10,730,104 - Penalty Sanctions 106, , , ,000 - Total ERO Funding $ 8,154,079 $ 8,154,078 $ - $ 10,872,105 $ 10,872,104 $ - Federal Grants Membership Dues Testing Fees Services & Software Workshops Interest Miscellaneous/Transitional Funding ,037,664-5,037,664 Total Funding $ 8,154,079 $ 8,154,078 $ - $ 15,909,769 $ 10,872,104 $ 5,037,664 Expenses Personnel Expenses Salaries $ 5,274,537 $ 4,687, ,701 $ 7,760,728 $ 6,250,448 1,510,280 Payroll Taxes 323, ,493 29, , ,324 75,011 Benefits 500, ,416 2, , ,221 26,035 Retirement Costs 929, ,852 (15,515) 1,300,286 1,259,803 40,483 Total Personnel Expenses $ 7,027,506 $ 6,423,597 $ 603, % $ 10,216,605 $ 8,564,796 $ 1,651, % Meeting Expenses Meetings $ 47,888 $ 36,000 11,888 $ 105,945 $ 93,950 11,995 Travel 245, ,000 40, , ,430 (179,166) Conference Calls Total Meeting Expenses $ 293,332 $ 241,000 $ 52, % $ 582,209 $ 749,380 $ (167,171) -22.3% Operating Expenses Consultants & Contracts $ 495,214 $ 340, ,214 $ 886,130 $ 535, ,003 Office Rent 556, ,000 3, , ,700 8,862 Office Costs 353, ,000 23, , ,013 12,180 Professional Services 327, , , , , ,612 Miscellaneous Depreciation 402, ,000 (160) 578, ,000 - Total Operating Expenses $ 2,135,606 $ 1,816,000 $ 319, % $ 3,349,047 $ 2,704,390 $ 644, % Indirect Expenses Midwest Reliability Organization Statement of Activity From 1/1/2018 to 09/30/2018 TABLE 1: PRELIMINARY YEAR-END PROJECTED EXPENSES (COMBINED) Total Direct Expenses $ 9,456,444 $ 8,480,597 $ 975, % $ 14,147,861 $ 12,018,566 $ 2,129, % Other Non-Operating Expenses $ - $ - - $ - $ - - Total Expenses $ 9,456,444 $ 8,480,597 $ 975,847 $ 14,147,861 $ 12,018,566 $ 2,129,295 Change in Assets $ (1,302,365) $ (326,519) $ (975,847) $ 1,761,909 $ (1,146,462) $ 2,908,370 Fixed Assets Depreciation (402,840) (403,000) 160 (578,000) (578,000) - Computer & Software CapEx 109, , , ,170 (12,770) Furniture & Fixtures CapEx ,000-80,000 Equipment CapEx 4,900 4,900-5,000-5,000 Leasehold Improvements 1,014 1, , ,014 Inc(Dec) in Fixed Assets $ (287,871) $ (288,030) $ % $ (18,586) $ (291,830) $ 273, % Total Budget (B + C) $ 9,168,573 $ 8,192,567 $ 976, % $ 14,129,275 $ 11,726,736 $ 2,402, % Change in Working Capital (A-B-C) $ (1,014,494) $ (38,489) $ (976,007) $ 1,780,495 $ (854,632) $ 2,635,126 Head Count FTEs Beginning WC-1/1/18 $ 2,384,548 $ 1,818,473 $ 566,075 $ 2,384,548 $ 1,818, ,075 Change to WC-2018 (1,014,494) (38,489) (976,006) 1,780,495 (854,632) 2,635,127 Working Capital at September 30,2018 $ 1,370,054 $ 1,779,984 $ (409,931) $ 4,165,043 $ 963,841 $ 3,201,202 3

45 (In Whole Dollars) 2018 YTD 2018 YTD 2018 YTD Unaudited 2018 End Of Year Projected Actual Budget Variance % Projection Budget Variance % Funding ERO Funding ERO Assessments $ 8,047,577 $ 8,047,578 - $ 10,730,104 $ 10,730,104 - Penalty Sanctions 106, , , ,000 - Total ERO Funding $ 8,154,079 $ 8,154,078 $ - $ 10,872,104 $ 10,872,104 $ - Federal Grants Membership Dues Testing Fees Services & Software Workshops Interest Miscellaneous/Transitional Funding Total Funding $ 8,154,079 $ 8,154,078 $ - $ 10,872,104 $ 10,872,104 $ - Expenses Personnel Expenses Salaries $ 4,915,194 $ 4,687, ,358 $ 6,779,370 $ 6,250, ,922 Payroll Taxes 299, ,493 5, , ,324 5,515 Benefits 470, ,416 (27,161) 629, ,221 (33,769) Retirement Costs 880, ,852 (64,567) 1,194,537 1,259,803 (65,266) Total Personnel Expenses $ 6,564,955 $ 6,423,597 $ 141, % $ 9,000,198 $ 8,564,796 $ 435, % Meeting Expenses Meetings $ 35,188 $ 36,000 (812) $ 90,945 $ 93,950 (3,005) Travel 204, ,000 (305) 423, ,430 (232,000) Conference Calls Total Meeting Expenses $ 239,883 $ 241,000 $ (1,117) -0.5% $ 514,375 $ 749,380 $ (235,005) -31.4% Operating Expenses Consultants & Contracts $ 339,767 $ 340,000 (233) $ 626,130 $ 535,127 91,003 Office Rent 552, ,000 (656) 738, ,700 4,862 Office Costs 326, ,000 (3,149) 590, ,013 (37,820) Professional Services 187, ,000 (2,593) 267, ,550 37,612 Miscellaneous Depreciation 402, ,000 (160) 578, ,000 - Total Operating Expenses $ 1,809,210 $ 1,816,000 $ (6,790) -0.4% $ 2,800,047 $ 2,704,390 $ 95, % Indirect Expenses Midwest Reliability Organization Statement of Activity From 1/1/2018 to 09/30/2018 TABLE 2: PRELIMINARY (Unaudited) FERC-APPROVED BUDGET Total Direct Expenses $ 8,614,047 $ 8,480,597 $ 133, % $ 12,314,620 $ 12,018,566 $ 296, % Other Non-Operating Expenses $ - $ - - $ - $ - $ - Total Expenses $ 8,614,047 $ 8,480,597 $ 133,450 $ 12,314,620 $ 12,018,566 $ 296,054 Change in Assets $ (459,968) $ (326,519) $ (133,450) $ (1,442,516) $ (1,146,462) $ (296,053.75) Fixed Assets Depreciation (402,840) (403,000) 160 (578,000) (578,000) - Computer & Software CapEx 28,946 28, , ,170 (100,000) Furniture & Fixtures CapEx Equipment CapEx 4,900 4,900-5,000-5,000 Leasehold Improvements 1,014 1,014-1,014-1,014 Inc(Dec) in Fixed Assets $ (367,981) $ (368,140) $ % $ (385,816) $ (291,830) $ (93,986) 32.2% Total Budget (B + C) $ 8,246,067 $ 8,112,457 $ 133, % $ 11,928,804 $ 11,726,736 $ 202, % Change in Working Capital (A-B-C) $ (91,988) $ 41,621 $ (133,610) $ (1,056,700) $ (854,632) $ (202,068) Head Count (3.50) FTEs (2.11) (2.11) Beginning WC-1/1/18 $ 2,384,548 $ 1,818,473 $ 566,075 $ 2,384,548 $ 1,818, ,075 Change to WC-2018 (91,988) 41,621 (133,609) (1,056,700) (854,632) (202,068) Working Capital at September 30,2018 $ 2,292,560 $ 1,860,094 $ 432,466 $ 1,327,848 $ 963,841 $ 364,007 4

46 (In Whole Dollars) 2018 YTD Actual 2018 YTD Transitional Transitional 2018 YTD Variance % Unaudited 2018 End Of Year Projected 2018 Transitional Transitional 2018 Projected Variance % Funding ERO Funding ERO Assessments $ - $ - - $ - $ - - Penalty Sanctions Total ERO Funding $ - $ - $ - $ - $ - $ - Federal Grants Membership Dues Testing Fees Services & Software Workshops Interest Miscellaneous/Transitional Funding ,037,664 1,498,816 3,538,848 Total Funding $ - $ - $ - $ 5,037,664 $ 1,498,816 $ 3,538,848 Expenses Personnel Expenses Salaries $ 359,343 $ 359,343 - $ 981,358 $ 555, ,762 Payroll Taxes 24,253 24,253-69,496 34,784 34,712 Benefits 29,902 29,902-59,804 58, Retirement Costs 49,052 49, , ,984 (6,235) Total Personnel Expenses $ 462,551 $ 462,551 $ - 0.0% $ 1,216,407 $ 761,316 $ 455, % Meeting Expenses Meetings $ 12,700 $ 12,700 - $ 15,000 $ - 15,000 Travel 40,749 40,749-52,834 45,000 7,834 Conference Calls Total Meeting Expenses $ 53,449 $ 53,449 $ - 0.0% $ 67,834 $ 45,000 $ 22, % Operating Expenses Consultants & Contracts $ 155,447 $ 155,447 - $ 260,000 $ 100, ,000 Office Rent 4,186 4,186-4,000-4,000 Office Costs 27,054 27,054-50, ,000 (290,000) Professional Services 139, , ,000 87, ,500 Miscellaneous Depreciation Total Operating Expenses $ 326,397 $ 326,397 $ - 0.0% $ 549,000 $ 527,500 $ 21, % Indirect Expenses Midwest Reliability Organization Statement of Activity From 1/1/2018 to 09/30/2018 TABLE 3: PRELIMINARY SPP RE TRANSITION COSTS (TRANSITIONAL) Total Direct Expenses $ 842,396 $ 842,396 $ - 0.0% $ 1,833,241 $ 1,333,816 $ 499, % Other Non-Operating Expenses $ - $ - - $ - $ - $ - Total Expenses $ 842,396 $ 842,396 $ - $ 1,833,241 $ 1,333,816 $ 499,425 Change in Assets $ (842,396) $ (842,396) $ - $ 3,204,423 $ 165,000 $ 3,039,423 Fixed Assets Depreciation Computer & Software CapEx 80,110 80,110-87,230 45,000 42,230 Furniture & Fixtures CapEx ,000 60,000 20,000 Equipment CapEx Leasehold Improvements ,000 60, ,000 Inc(Dec) in Fixed Assets $ 80,110 $ 80,110 $ - 0.0% $ 367,230 $ 165,000 $ 202, % Total Budget (B + C) $ 922,506 $ 922,506 $ - 0.0% $ 2,200,471 $ 1,498,816 $ 701, % Change in Working Capital (A-B-C) $ (922,506) $ (922,506) $ - $ 2,837,193 $ - $ 2,837,193 Head Count FTEs Beginning WC-1/1/18 $ - $ - $ - $ - $ - - Change to WC-2018 (922,506) (922,506) - 2,837,193-2,837,193 Working Capital at September 30,2018 $ (922,506) $ (922,506) $ - $ 2,837,193 $ - $ 2,837,193 5

47 October 16, 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 Third Quarter 2018 Statement of Activities Dear Scott: The variance comparison for the period ended September 30 th, 2018 is included along with Northeast Power Coordinating Council, Inc. s unaudited Third Quarter 2018 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 Senior Manager, Finance and Accounting

48 NPCC Regional Entity Division Budget to Actual Variance Comparison as of September 30, 2018 TOTAL EXPENSES INCOME For the quarter ending September 30, 2018, the NPCC Regional Entity Division is $545k or -4.89% under budget year to date. Based on planned activities, NPCC s current full year projection is an under budget variance of $228k or -1.51%. NPCC will reprioritize resources as necessary to fulfill all of its responsibilities under its Regional Delegation Agreement. Penalty Sanctions (Actual income of $75k remitted to NPCC from July 1, 2016 through June 30, 2017 was applied to reduce 2018 assessments to NPCC U.S. load serving entity designees.) No penalty sanctions were received from July 1, 2017 through June 30, All penalties remitted from July 1, 2018 through June 30, 2019 will be applied to reduce 2020 assessments to NPCC U.S. load serving entity designees. Interest Income (Actual income of $13k year-to-date, 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 have been negligible and corporate money market fund returns have been minimal. Should the current trend toward rising interest rates continue, NPCC could experience greater returns on operating cash. o NPCC allocated $13k 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 2018 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 $301k under budget year-to-date, and $248k under budget FYP) o NPCC is currently fully staffed. Three vacancies resulted from the departure of seasoned professionals. Those vacancies were filled through a combination of in-house promotions, resource re-allocations and the retention of less seasoned successors with the net result of lower than budgeted salaries and related expenses. Meetings and Conference Calls (Variance of $230k under budget year-to-date, and $30k under budget FYP) o Cost savings resulted from streamlining NPCC Spring and Fall Compliance and Standards Workshops from a three day format to a two day format. A portion of the current underage is due to the regular timing of planned meetings, with the heaviest meeting schedule occurring during the fourth quarter. 1

49 Efforts to limit the number of attendees sent to off-site meetings, participation via webinar and teleconferences and to hold more meetings onsite, at member facilities or conduct numerous NPCC webinars where effective and pragmatic for NPCC registered entities, will continue. Consultants and Contracts (Variance of $19k over budget year-to-date, and $150k over budget FYP) o Over budget projection of $150k is related to unbudgeted risk assessment initiatives including increased probabilistic assessments, a gas supply disturbance study and a tie benefits study. These activities and associated resource needs were not identified prior to the June 2017 approval of the 2018 NPCC Business Plan and Budget. Rent & Improvements (Variance of $49k under budget year-to-date, and as budgeted FYP) o Under budget variance is primarily due to the timing of billing of office space costs associated with NPCC s existing lease. Office space related expenses are currently projected to be as budgeted. Office Costs (Variance of $60k under budget year-to-date, and $40k under budget FYP) o Lower negotiated office internet rates and cell phone contracts resulted in cost savings of over $30k per year. Other office costs are projected to be as budgeted. Professional Services (Variance of $40k over budget year-to-date, and as budgeted FYP) o Over budget variance is primarily due to timing. Expense for professional services are projected to be as budgeted at year end. Fixed Assets (Variance of $61k under budget year to date and $60k under budget FYP) o Under budget variance is based on no new functionality planned for the CDAA and CITS tools through the end of the year and the timing of scheduled software development projects, which include the continued roll out of NPCC s document management system. Net Change in Assets (Variance of $498k over budget year to date and $181k over budget FYP) o Over budget variance in net change in assets is a result of variance in total expenses. Change in Working Capital (Variance of $560k over budget year to date and $241k over budget FYP) o Over budget variance in change in working capital is a result of variance in total budget. (Unaudited) Submitted October 16 th,

50 Northeast Power Coordinating Council, Inc. - Regional Entity Division Statement of Activities, Fixed Assets and Change in Working Capital (Unaudited) For the Period Ended September 30, YTD Actual 2018 YTD Budget 2018 YTD Actual Variance from Budget % 2018 Projection 2018 Annual Budget 2018 Projection Variance from Budget % Funding Assessments 10,756,340 10,756,340-14,341,787 14,341,787 - Penalties 75,000 75,000-75,000 75,000 - Testing Services & Software Workshop Fees 33,810 32,000 1,810 64,000 64,000 - Interest 12,570-12,570 12,570-12,570 Miscellaneous Total Funding 10,877,720 10,863,340 14, % 14,493,357 14,480,787 12, % Expenses Personnel Expenses Salaries 5,073,140 5,330,699 (257,560) 6,907,599 7,107,599 (200,000) Payroll Taxes 363, ,296 (6,354) 404, ,440 (7,000) Employee Benefits 1,101,502 1,107,283 (5,781) 1,468,378 1,476,378 (8,000) Savings & Retirement 587, ,015 (31,656) 792, ,353 (33,000) Total Personnel Expenses 7,125,942 7,427,294 (301,351) -4.06% 9,572,770 9,820,770 (248,000) -2.53% Meeting Expenses Meetings 144, ,135 (72,524) 323, ,050 (30,000) Travel 431, ,150 (152,200) 834, ,500 - Conference Calls 22,177 27,750 (5,573) 37,000 37,000 - Total Meeting Expenses 598, ,035 (230,297) % 1,194,550 1,224,550 (30,000) -2.45% Operating Expenses Consultants & Contracts 1,368,110 1,349,530 18,580 2,027,640 1,877, ,000 Rent & Improvements 561, ,175 (48,603) 810, ,700 - Office Costs 438, ,570 (59,767) 624, ,760 (40,000) Professional Services 667, ,500 39, , ,000 - Miscellaneous 27,626 37,500 (9,874) 50,000 50,000 - Depreciation 189, ,750 (11,925) 269, ,000 - Total Operating Expenses 3,253,040 3,325,025 (71,986) -2.16% 4,742,100 4,632, , % Indirect Expense Allocation (192,556) (312,340) 119, % (416,453) (416,453) % Other Non-Operating Expenses n/a n/a Total Expenses 10,785,164 11,269,014 (483,850) -4.29% 15,092,967 15,260,967 (168,000) -1.10% Net Change in Assets 92,557 (405,674) 498, % (599,610) (780,181) 180, % Fixed Assets Depreciation (189,825) (201,750) 11,925 (269,000) (269,000) - Computer & Software CapEx 12,836 86,250 (73,414) 55, ,000 (60,000) Furniture & Fixtures CapEx Equipment CapEx Leasehold Improvements Incr(Dec) in Fixed Assets (176,989) (115,500) (61,489) 53.24% (214,000) (154,000) (60,000) 38.96% Total Budget (Expenses plus Incr(Dec) in Fixed Assets) 10,608,174 11,153,514 (545,340) -4.89% 14,878,967 15,106,967 (228,000) -1.51% Change in Working Capital (Total Funding less Total Budget) 269,546 (290,174) 559, % (385,610) (626,181) 240, % Equivalent Full Time Employees (0.33) (0.33) Headcount Beginning Total Reserves - 1/1/18 5,017,751 4,499, ,858 5,017,751 4,499, ,858 Change to Reserves - YTD ,546 (290,174) 559,720 (385,610) (626,181) 240,570 Projected Total Reserves at 12/31/18 5,287,297 4,209,719 1,077,578 4,632,141 3,873, ,428

51 Jill S. Lewton Controller 3 Summit Park Drive, Suite 600 Cleveland, OH Office: Jill.lewton@rfirst.org October 20, 2018 Mr. Scott Jones North American Electric Reliability Corporation 3353 Peachtree Road, N.E. Suite 600, North Tower Atlanta, Georgia ReliabilityFirst s rd Quarter Statement of Activities Variance Report - Unaudited Dear Mr. Scott Jones: As requested, the attached rd Quarter Statement of Activities (unaudited) provides a comparison of budgeted and actual expenses relative to the 2018 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

52 ReliabilityFirst s rd Quarter Statement of Activities Variance Report - Unaudited Significant Variances For the quarter ending September 30, 2018 ReliabilityFirst Corporation is $1,011K (6.29%) under budget. The major contributors to this variance are: Budget Expenses Personnel Expenses o Personnel Expenses: $686K (5%) under budget for YTD Personnel Expenses are primarily under budget due to personnel being below the approved staffing levels. ReliabilityFirst currently has three open positions and is actively pursuing qualified candidates. Meeting Expenses o Travel: $85K (16%) under budget for YTD Travel is under budget due to the travel activity being less than budgeted. Depreciation o Depreciation: $51K (18%) over budget for YTD Depreciation expense directly correlates to current and prior years fixed asset activities. Therefore, as a result of last year s expenditures for the corporate internal and public websites, and office improvements being more than budgeted, more depreciation is being recorded than budgeted. Fixed Assets o Computer Hardware & Software: $191K (97%) under budget for YTD Computer Hardware & Software is under budget due to the reevaluation and rescheduling of various IT projects that were budgeted. Reserves Working Capital Reserve The Working Capital Reserve of $3,318,239 will be utilized to satisfy projected cash flow for daily operations and to stabilize and minimize volatility in future years assessments. This amount is slightly less than what was projected in the 2018 Business Plan and Budget as a result of utilizing a small amount of working capital to fund daily operations in 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

53 Year-End Projection For the year-end projection ReliabilityFirst is anticipating to be $463K (2.17%) under budget. The variances in Personnel Expenses, Travel, and Depreciation are expected to continue through the remainder of the year. Office Costs will be over budget due to the purchase of corporate laptops. Computer Hardware & Software will be over budget as a result of the expected completion of some IT projects in the fourth quarter. Furniture & Fixtures and Leasehold Improvements will be over budget due to the completion of some minor office modifications. Forward Together ReliabilityFirst

54 ReliabilityFirst Corporation Statement of Activities, Fixed Assets and Change in Working Capital (unaudited) From 01/01/2018 Through 09/30/2018 (in Whole Numbers) 2018 YTD Actual 2018 YTD Budget YTD Variance Over/(Under) % Variance Total 2018 Projection Total 2018 Budget Total 2018 Projected Variance Over/(Under) % Projected Variance Funding 15,110,780 15,110, % Assessments 20,147,707 20,147, % 1,912,877 1,912, % Penalty Sanctions 1,912,877 1,912, % 41,856 37,500 4, % Investment Income 50,000 50, % 5, , % Miscellaneous Income 5, , % 17,070,689 17,061,157 9, % Total Funding 22,115,761 22,110,585 5, % Expenses Personnel Expenses 9,347,151 9,711,798 (364,647) -3.75% Salaries 12,682,422 12,975,641 (293,219) -2.26% 619, ,343 (40,547) -6.14% Payroll Taxes 737, ,357 (27,979) -3.66% 1,434,438 1,577,646 (143,208) -9.08% Employee Benefits 1,925,764 2,049,655 (123,891) -6.04% 1,531,268 1,668,627 (137,359) -8.23% Savings & Retirement Costs 2,117,878 2,138,337 (20,459) -0.96% 12,932,652 13,618,414 (685,762) -5.04% Total Personnel Expenses 17,463,441 17,928,990 (465,549) -2.60% Meeting Expenses 223, ,250 (22,097) -9.01% Meetings 300, , % 448, ,562 (84,725) % Travel 628, ,250 (84,878) % 30,384 37,800 (7,416) % Conference Calls 38,852 50,400 (11,548) % 702, ,612 (114,238) % Total Meeting Expenses 967,599 1,064,025 (96,426) -9.06% Operating Expenses 209, , % Contracts & Consultants 373, ,132 (16,906) -4.33% 407, ,019 14, % Rent & Utilities 540, ,595 20, % 484, ,084 (29,659) -5.77% Office Costs 885, ,717 54, % 297, ,909 (10,043) -3.26% Professional Services 411, , % 29,328 24,372 4, % Miscellaneous 40,696 40, % 330, ,994 50, % Depreciation 440, ,325 67, % 1,759,494 1,728,478 31, % Total Operating Expenses 2,693,156 2,566, , % % Non-Operating Expenses % 15,394,521 16,163,504 (768,983) -4.76% Total Expenses 21,124,196 21,559,725 (435,529) -2.02% 1,676, , , % Net Change in Assets 991, , , % Fixed Assets (330,631) (279,994) (50,637) 18.09% Depreciation (440,842) (373,325) (67,517) 18.09% 6, ,500 (191,449) % Computer Hardware & Software 220, ,500 12, % % Furniture & Fixtures 7, , % % Leasehold Improvements 20, , % (324,580) (82,494) (242,086) % Increase/(Decrease) in Fixed Assets (193,637) (165,825) (27,812) 16.77% 15,069,941 16,081,010 (1,011,069) -6.29% Total Budget (Expenses + Incr/(Decr) in Fixed Assets) 20,930,559 21,393,899 (463,340) -2.17% 2,000, ,147 1,020, % Change in Working Capital (Total Funding less Total Budget) 1,185, , , % (2.90) -3.81% FTE (1.33) -1.75% 139,566 (558,612) 698,178 WC - 12/31/ ,566 (558,612) 698,178 (698,178) 0 (698,178) Less: Adjustment for future liabilities (698,178) 0 (698,178) (558,612) (558,612) 0 Available Working Capital (558,612) (558,612) 0 2,000, ,147 1,020,601 Change to WC ,185, , ,516 (118,555) (118,555) 0 Other Adjustments to Reserves (158,074) (158,074) 0 1,323, ,980 1,020,601 Total Working Capital 468, ,516 3,318,239 3,318,239 0 Working Capital Reserve 3,318,239 3,318, ,000,000 1,000,000 0 Operating Reserve 1,000,000 1,000, ,641,820 4,621,219 1,020,601 Total Working Capital and Operating Reserve 4,786,755 4,318, ,516

55 October 19, 2018 Mr. Scott Jones North American Electric Corporation 3353 Peachtree Road, NE Atlanta, GA RE: SERC 3 rd Quarter 2018 Unaudited Financial Statement Budget vs. Actual Scott: Following please find SERC s unaudited 3 rd quarter 2018 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:

56 (In Whole Dollars) SERC Reliability Corporation YTD Report to Treasurer From 1/1/2018 Through 9/30/ YTD Actual 2018 YTD Budget 2018 YTD Actual Variance Over/(Under) % 2018 Projection 2018 Annual Budget 2018 Projected Variance Over(Under) % Funding ERO Funding 12,903,852 12,903,852-17,205,136 17,205,136 - Penalties 727, , , ,978 - Workshops 126, ,025 (49,115) 130, ,025 (46,025) Interest 2, ,797 3,000 1,000 2,000 Miscellaneous 73,089 64,500 8, ,000 86, ,000 Total Funding 13,834,376 13,873,105 (38,729) -0.28% 18,916,114 18,196, , % Expenses Personnel Expenses Salaries 6,952,762 7,375,018 (422,256) 9,400,000 9,833,357 (433,357) Payroll Taxes 457, ,751 (87,801) 625, ,668 (102,668) Benefits 670, ,489 (200,331) 1,075,000 1,094,551 (19,551) Retirement Costs 766, ,358 (195,078) 1,100,000 1,281,811 (181,811) Total Personnel Expenses 8,847,150 9,752,616 (905,466) -9.28% 12,200,000 12,937,388 (737,388) -5.70% Meeting Expenses Meetings 118, ,700 5, , ,160 40,840 Travel 337, ,707 (174,750) 550, ,865 (56,865) Communications 20,417 33,408 (12,991) 30,000 44,544 (14,544) Total Meeting Expenses 476, ,815 (182,331) % 887, ,569 (30,569) -3.33% Operating Expenses Contracts & Consultants 1,533,032 1,273, ,346 2,500,000 1,855, ,119 Office Rent 587, , , , , ,017 Office Costs 379, ,632 69, , ,496 54,504 Professional Services 133,919 37,000 96, ,000 57, ,000 Miscellaneous/Contingency 5,785 4, ,000 5,550 1,450 Capital Depreciation Expenditures 238, ,996 (94,918) 310, ,068 (143,068) Total Operating Expenses 2,878,310 2,430, , % 4,291,000 3,435, , % Other Non-Operating Expenses Total Expenses 12,201,944 12,842,282 (640,338) -4.99% 17,378,000 17,290,935 87, % Net Change in Assets 1,632,432 1,030, , % 1,538, , , % Fixed Assets Depreciation (238,078) (332,996) 94,918 (310,000) (453,068) 143,068 Computer & Software CapEx 35, ,500 (191,647) 110, ,002 (235,002) Furniture & Fixtures CapEx 11,394-11,394 11,394-11,394 Equipment CapEx 7,527-7,527 7,527-7,527 Leasehold Improvements 45,794-45, , ,000 Increase(Decrease) in Fixed Assets (137,510) (105,496) (32,014) 30.35% 118,921 (108,067) 226, % - Total Budget(Exp plus Incr/(Decr) in Fixed Assets 12,064,434 12,736,786 (672,352) -5.28% 17,496,921 17,182, , % Change in Working Capital (Total Funding less Total Budget) 1,769,942 1,136, , % 1,419,193 1,013, , % FTE's (12.75) (4.00) Head Count (12.00) (4.00) Beginning WC Reserve at ,359, , ,993 1,359, , ,993 Change to WC ,769,942 1,136, ,623 1,419,193 1,013, ,922 Working Capital Reserve at 9/30/2018 3,129,664 1,823,048 1,306,616 2,778,915 1,700,000 1,078,915

57 Budget to Actual Comparison as of September 30, 2018 (Unaudited) Overall Summary YTD spending $672K under budget, due to timing of expenditures varying from budget Full year projected spending is $314K over budget, offset by funding $720K over budget attributable to projected distribution of funds from SPP o Contractor and office renovations driving increased spending in Q4 o Overall spending variance due to SPP transition and executive search expenses Full year net favorable working capital variance of $406K versus budget Income Revenue (Actual - $39K under budget) o Full-year projection includes $778K projected distribution of funds from SPP Expense Personnel Expenses (Actual - $905K under budget) o Actual vacancy rates higher than budgeted, driving lower salary, taxes, benefits and retirement costs Meeting/Travel Expenses (Actual - $182K under budget) o Timing of audits and meetings varies from budget Contracts/Consultants (Actual - $259K over budget) o YTD variance due to contractors used in lieu of FTEs, primarily for CMEP activities, together with unbudgeted SPP data migration o Additional contractor usage for CMEP activities in Q4 resulting in full-year projections over budget by $644K Office Rent (Actual - $116K over budget) o Budget and forecast variance due to lease of additional office space Office Costs (Actual - $69K over budget) o Property tax ($19K) budgeted in Q4 was expensed in Q3 o Higher than expected IT supplies, office supplies and office maintenance costs Professional Services (Actual - $97K over budget) o Legal fees associated with employment matters and review of SERC bylaws, largely driving YTD and projected variances to budget Capital Depreciation (Actual - $95K under budget) o Fixed asset purchases were less than projected in 2017 and YTD in 2018, resulting in lower depreciation Miscellaneous (Actual - $1K over budget) Fixed Assets (Actual - $127K under budget) o YTD variance due to limited CUG development costs o Projections include leasehold improvements for new office space

58 Southwest Power Pool Regional Entity Unaudited Actual to Budget Comparison as of September 30, 2018 EXPENSES Personnel Expenses (Actual - $951K under budget) Personnel expenses primarily trailed budget due to the loss of SPP RE staff throughout 2018 and the retention of only four SPP RE employees for the period July 1, 2018 to August 31, 2018, the date of the Regional Delegation Agreement termination. Transition year personnel expenses for SPP RE are lower than 2018 budget by approximately $2.3M. Travel and Meeting Expenses (Actual - $298K under budget) Travel expenses primarily trailed budget due to the loss of SPP RE personnel throughout the year and the completion of SPP RE compliance, monitoring and enforcement (CMEP) activities at the end of the 2 nd quarter. Travel and meeting expenses were lower than 2018 budget by approximately $422K. Other Operating Expenses (Actual - $551K under budget) Other Operating Expenses primarily trailed budget due to the completion of all CMEP activities at the end of 2 nd quarter. Other Operating Expenses were lower than 2018 budget by approximately $870K. Indirect Costs 1 (Actual - $1.2M 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. In 2016, the structure of the SPP, Inc. charge was changed to a primarily fixed amount with a small variable component. Due to the lower number of RE employees and a cap being placed on the use of Shared Staff FTEs, SPP RE indirect costs for the transition year were lower than 2018 budget by $2.0M. Total Costs (Actual - $2.8M under budget) SPP RE primarily trailed budget at the end of the third quarter due to changing operations associated with the dissolution of SPP RE. SPP RE ended operations on August 31, 2018 with costs lower than 2018 budget by approximately $5.4M. Penalty Monies Held for 2019 (Approximately $435k) penalty payments collected subsequent to June 30, 2017 and not used to pay for costs associated with the dissolution of SPP RE will be transferred to the appropriate Transferee Regional Entities. 1 Due to timing of the budget schedule, the estimated overhead charge used to develop the 2018 budget was the actual 2016 SPP Overhead costs adjusted for inflation and allocated by an appropriate measure. The Final 2018 actual results will reflect the actual 2018 costs.

59 SOUTHWEST POWER POOL REGIONAL ENTITY STATEMENT OF ACTIVITIES 2018 SEPTEMBER YTD DRAFT (UNAUDITED) 2018 SEPT YTD ACTUAL 2018 SEPT YTD BUDGET VARIANCE VAR % 2018 TRANSITION YEAR PROJECTION 2018 FULL YEAR BUDGET (In Whole Dollars) VARIANCE Funding ERO Funding 7,295,449 7,295, ,727,265 9,727,265 - Penalty Sanctions 724, , , , , ,963 Total SPP RE Funding 8,020,412 7,585, ,963 10,452,228 10,017, ,963 Testing Fees Workshops Interest 1,856-1,856 1,856-1,856 Miscellaneous (5,815,821) - (5,815,821) Total Funding (A) 8,022,268 7,585, , % 4,638,263 10,017,265 (5,379,002) Expenses Personnel Expenses Salaries 2,589,849 3,309,421 (719,572) 2,561,516 4,412,561 (1,851,045) Payroll Taxes 126, ,171 (126,978) 158, ,561 (178,934) Benefits 199, ,729 (57,077) 199, ,305 (142,400) Retirement Costs 84, ,377 (47,679) 92, ,502 (83,607) Total Personnel Expenses 3,000,390 3,951,697 (951,307) -24.1% 3,012,943 5,268,929 (2,255,986) Meeting Expenses Meetings 37,349 80, (42,901) 46, ,000 (60,608) Travel 83, ,625 (254,713) 89, ,500 (361,564) Conference Calls Total Meeting Expenses 121, ,875 (297,615) -71.1% 136, ,500 (422,172) Operating Expenses Contracts & Consultants 202, ,825 (602,305) 210,050 1,073,100 (863,050) Office Rent Office Costs 6,411 7, (1,089) 5,909 10,000 (4,091) Administrative Costs Professional Services 230, ,741 52, , ,988 (2,473) Computer Purchase & Maint Services Depreciation Furniture & EquipmMiscellaneous/ Contingency Total Operating Expenses 438, ,066 (551,101) -55.7% 450,474 1,320,088 (869,614) Total Direct Expenses 3,560,615 5,360,638 (1,800,023) -33.6% 3,599,745 7,147,517 (3,547,772) SPP Inc. Indirect Expenses 1,575,923 2,734, (1,158,335) 1,602,414 3,645,678 (2,043,264) SPP RE Indirect Expenses Total Indirect Costs 1,575,923 2,734,259 (1,158,335) -42.4% 1,602,414 3,645,678 (2,043,264) Other Non-Operating Expenses 161, , , ,339 Total Expenses (B) 5,297,878 8,094,896 (2,797,018) -34.6% 5,363,498 10,793,195 (5,429,697) Net Change in Assets (A-B) 2,724,390 (509,448) 3,233,837 (725,236) (775,930) 50,694 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)) 5,297,878 8,094,896 (2,797,018) -34.6% 5,363,498 10,793,195 (5,429,697) Change in Working Capital (Total Funding less Total Budget) (A-B-C) 2,724,390 (509,448) 3,233,837 (725,236) (775,930) 50,694 FTEs* (14.63) -45.3% (32) Beginning WC - 01/01/ , ,930 (50,694) 725, ,930 (50,694) Change to WC YTD 2,724,390 (509,448) 3,233,837 (725,236) (775,930) 50,694 Working Capital as of 9/30/18 3,449, ,483 3,183, *Headcount (RE direct staff count as of 9/30/2018 and shared staff YTD billed hours/1880).

60 October 15, 2018 Mr. Andy Sharp Controller, Accounting and Finance North American Electric Reliability Corporation 3353 Peachtree Road NE, Suite 600, North Tower Atlanta, GA RE: Texas Reliability Entity, Inc. Third Quarter 2018 Statement of Activities and Variance Report Dear Andy, Attached is the 2018 Third Quarter Statutory Statement of Activities (unaudited) and Variance Report for Texas RE. Year-to-date Texas RE is 7.2% under budget. Please contact me if you have questions or comments. Thank you. Judy Foppiano Judy A. Foppiano, CPA CFO & Director, 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

61 Budget to Actual Comparison as of September 30, 2018 Year-to-date variances greater than $10,000 and 10% explained below. FUNDING Penalty Sanctions: (Actual penalty income of $275,000 remitted to Texas RE as of June 30, 2017 has reduced 2018 assessments.) All penalty sanctions remitted from July 1, 2017 through June 30, 2018 have been included in the Texas RE 2019 Business Plan and Budget and applied to reduce 2019 assessments. Interest: $39,488 is greater than budget due to Texas RE s banking account being 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 than budgeted. The forecast has been adjusted accordingly. EXPENSES Total Budget as of September 30, 2018 is $650,950 less than budget (-7.2%). Personnel Expenses: $328,814 less than budget (-4.6%). o Employee Benefits are 15.4% less than budget. The budget allowed for 12.0% increase in health benefits for Due to broker negotiations, the actual costs for 2018 benefits remained flat causing the budget variance. The education reimbursement budget has not been used to date. o Savings and Retirement plans are under budget 10.0% because not all employees participate fully in the plans. Meetings and Travel Expenses: $81,263 less than 2018 budget (-27.6%). o The actual costs for the workshops were under budget due to cost savings efforts. o Travel is less than budget due to employees taking advantage of remote workshop capability and one workshop being cancelled. Several TOP audits have been local requiring no travel. There will be CMEP Tool Face to Face visits taking place in the fourth quarter. Enforcement has certification reviews scheduled for fourth quarter as well as two meetings outside of Austin. TEXAS RELIABILITY ENTITY, INC. PAGE 2 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

62 Total Operating Expenses: $253,130 less than 2018 budget (-14.8%). o Consultants and Contracts are less than budget due to a benefits survey, director compensation study, and CEO/Executive study not being completed at the end of third quarter. The surveys will be completed in fourth quarter. o Utilities are not as high as anticipated as of September 30. Common Area Maintenance charges are typically adjusted in the last quarter of the year. o Penetration testing along with an IT external audit being pushed until third and fourth quarters is causing Professional Services to be under budget. Legal fees and consultants budgeted but not used add to the variance. Fixed Assets: $13,462 great than 2018 budget (44.9%) o Computer and Software Capital Costs are greater than budget due to Nintex Forms and Veeam BU Software renewals being higher than expected. The forecast has been adjusted based on variances and year end expected costs. TEXAS RELIABILITY ENTITY, INC. PAGE 3 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

63 Texas Reliability Entity, Inc. Statement of Activities and Fixed Assets For period ended September 30, 2018 (Unaudited) Revenue 2018 Actual 2018 Budget 2018 YTD Actual Variance from Budget % 2018 Forecast 2018 Annual Budget 2018 Forecast Variance from Budget % ERO Funding Assessments $ 8,453,990 $ 8,453,990 $ - $ 11,271,986 $ 11,271,986 $ - Penalty Sanctions 275, , , ,000 - Interest & Membership Dues 40,988 1,500 39,488 50,000 2,000 48,000 Total Revenue $ 8,769,978 $ 8,730,490 $ 39, % $ 11,596,986 $ 11,548,986 $ 48, % Expenses Personnel Expenses Salaries $ 4,968,168 $ 5,057,080 $ (88,912) -1.8% $ 7,151,133 $ 7,151,133 $ - Payroll Taxes 357, ,135 (18,503) -4.9% 450, ,794 (20,000) Employee Benefits 822, ,804 (149,387) -15.4% 1,268,619 1,321,119 (52,500) Savings & Retirement 645, ,762 (72,012) -10.0% 965,773 1,015,773 (50,000) Total Personnel Expenses $ 6,793,967 $ 7,122,781 $ (328,814) -4.6% $ 9,836,319 $ 9,958,819 $ (122,500) -1.2% Meeting & Travel Expenses Meetings $ 4,768 $ 12,975 $ (8,207) -63.3% $ 20,800 $ 23,800 $ (3,000) Tra vel 189, ,525 (72,051) -27.6% 327, ,901 (45,000) Conference Expenses 19,207 20,212 (1,005) -5.0% 26,950 26,950 - Total Meeting & Travel Expenses $ 213,449 $ 294,712 $ (81,263) -27.6% $ 375,651 $ 423,651 $ (48,000) -11.3% Operating Expenses Consultants & Contracts $ 174,747 $ 273,456 $ (98,709) -36.1% $ 351,200 $ 351,200 $ - Rent & Improvements 427, ,862 (37,505) -8.1% 662, ,648 (15,000) Office Costs 439, ,718 (19,691) -4.3% 659, ,441 - Professional Services 269, ,740 (98,430) -26.8% 456, ,200 (100,000) Depreciation 143, ,157 1, % 168, ,500 - Total Operating Expenses 1,453,803 1,706,933 (253,130) -14.8% 2,297,989 2,412,989 (115,000) -4.8% Total Expenses $ 8,461,218 $ 9,124,426 $ (663,207) -7.3% $ 12,509,959 $ 12,795,459 $ (285,500) -2.2% Change in Assets $ 308,760 $ (393,936) $ 702, % $ (912,974) $ (1,246,474) $ 333, % Fixed Assets Depreciation $ (143,362) $ (142,157) $ (1,205) 0.8% $ (168,500) $ (168,500) $ - Computer & Software CapEx 43,462 30,000 13, % 43,462 30,000 13,462 Incr(Dec) in Fixed Assets $ (99,900) $ (112,157) $ 12, % $ (125,038) $ (138,500) $ 13, % TOTAL BUDGET $ 8,361,319 $ 9,012,269 $ (650,950) -7.2% $ 12,384,921 $ 12,656,959 $ (272,038) -2.1% Change in Working Captial (Total Rev $ 408,660 $ (281,779) $ 690, % $ (787,935) $ (1,107,973) $ 320, % FTE's Beginning WC - 1/1/18 $ 2,422,616 $ 2,352,967 $ 69,649 $ 2,422,616 $ 2,352,967 $ 69,649 Change to WC ,660 (281,779) 690,438 (787,935) (1,107,973) 320,038 Working Capital 9/30/2018 $ 2,831,276 $ 2,071,189 $ 760,087 $ 1,634,682 $ 1,244,995 $ 389,687 TEXAS RELIABILITY ENTITY, INC. PAGE 4 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

64 October 19, 2018 Mr. Scott Jones Senior 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 third-quarter Statutory Statement of Activities (Unaudited) and Variance Report. WECC s 2018 year-to-date unaudited results are $81,000 under budget. If you have any questions or need more information, please contact me. Regards, Jillian Lessner Vice President and Chief Financial Officer jlessner@wecc.biz Enclosures cc: Melanie Frye, President and Chief Executive Officer WECC Finance and Audit Committee WESTERN ELECTRICITY COORDINATING COUNCIL 155 North 400 West, Suite 200 Salt Lake City, Utah

65 Statutory Statement of Activities (Unaudited) As of September 30, 2018 Variance Report Year-to-date variances greater than $10,000 and 10 percent are explained below. The explanations pertain to all statutory activities. REVENUE Workshop Fees: $152,000 under budget Workshop Fees are under budget due to less-than-anticipated attendance at workshops and the cancellation of two Train-the-Trainer events. Workshop Fees are anticipated to be under budget by $136,000 at year-end. Interest: $183,000 over budget EXPENSES Interest is over budget due to higher-than-anticipated yields on WECC s short-term investments and are anticipated to be over budget by $228,000 at year-end. Meetings: $224,000 under budget Meetings are under budget primarily due to less-than-anticipated attendance at stakeholder outreach meetings and the cancellation of two Train-the-Trainer events. Meetings are anticipated to be under budget by $130,000 at year-end. Conference Calls: $21,000 under budget Conference Calls are under budget primarily due to less-than-anticipated usage and are anticipated to be under budget by $26,000 at year-end. Depreciation: $34,000 over budget Depreciation is over budget primarily due to higher-than-anticipated cost of an AgilePoint upgrade and unbudgeted security system improvements made in FIXED ASSETS Equipment CapEx: $27,000 over budget Equipment CapEx is over budget primarily due to the unbudgeted purchase of video conferencing equipment, to increase effectiveness of web- and telephone-based meetings. WESTERN ELECTRICITY COORDINATING COUNCIL 155 North 400 West, Suite 200 Salt Lake City, Utah

66 October 19, 2018 Statutory Statement of Activities and Variance Explanations 2 (In Whole Dollars) 2018 YTD Actual 2018 YTD Budget Western Electricity Coordinating Council Statutory Statement of Activities From 1/1/2018 to 9/30/2018 (Unaudited) 2018 YTD Variance Over(Under) % 2018 Projection 2018 Annual Budget 2018 Projected Variance Over(Under) Funding Assessments 25,282,000 25,282, % 25,282,000 25,282, % Penalties 2,100,000 2,100, % 2,100,000 2,100, % Federal Grants Testing Services & Software Workshop Fees 141, ,650 (152,338) -51.9% 404, ,050 (135,813) -25.1% Interest 242,657 60, , % 302,657 75, , % Miscellaneous 2,310-2,310 2,310-2,310 Total Funding 27,768,279 27,735,650 32, % 28,091,204 27,997,050 94, % Expenses Personnel Expenses Salaries 11,109,006 10,880, , % 15,334,473 15,199, , % Payroll Taxes 798, ,051 (85,878) -9.7% 1,014,630 1,089,355 (74,725) -6.9% Employee Benefits 1,687,303 1,720,642 (33,339) -1.9% 2,240,104 2,293,855 (53,751) -2.3% Savings & Retirement 965, ,238 43, % 1,335,100 1,288,727 46, % Total Personnel Expenses 14,559,928 14,407, , % 19,924,307 19,871,272 53, % Meeting Expenses Meetings 274, ,052 (224,174) -44.9% 625, ,785 (130,452) -17.3% Travel 1,118,349 1,076,103 42, % 1,436,464 1,401,209 35, % Conference Calls 35,727 56,250 (20,524) -36.5% 49,185 75,000 (25,816) -34.4% Total Meeting Expenses 1,428,953 1,631,405 (202,452) -12.4% 2,110,981 2,231,994 (121,013) -5.4% Operating Expenses Consultants and Contracts 1,608,580 1,657,706 (49,126) -3.0% 2,152,494 2,023, , % Rent & Improvements 736, ,097 27, % 988, ,461 43, % Office Costs 1,162,167 1,225,342 (63,175) -5.2% 1,539,491 1,598,628 (59,137) -3.7% Professional Services 661, ,220 (18,434) -2.7% 881, ,710 (22,590) -2.5% Miscellaneous Depreciation 196, ,362 33, % 261, ,816 43, % Total Operating Expenses 4,366,205 4,435,727 (69,522) -1.6% 5,822,567 5,687, , % Direct Expenses 20,355,087 20,474,337 (119,250) -0.6% 27,857,856 27,791,162 66, % Indirect Expenses (373,940) (408,975) 35, % (518,920) (545,300) 26, % Other Non-Operating Expenses 42,539-42,539 42,539-42,539 % Total Expenses 20,023,686 20,065,362 (41,676) -0.2% 27,381,475 27,245, , % Net Change in Assets 7,744,593 7,670,288 74, % 709, ,188 (41,459) -5.5% Fixed Assets Depreciation (196,997) (163,362) (33,635) 20.6% (261,367) (217,816) (43,551) 20.0% Computer & Software CapEx 49,653 50,000 (348) -0.7% 49,653 50,000 (348) -0.7% Furniture & Fixtures CapEx Equipment CapEx 39,002 12,000 27, % 39,002 12,000 27, % Leasehold Improvements Allocation of Fixed Assets Incr(Dec) in Fixed Assets (108,343) (101,362) (6,981) 6.9% (172,713) (155,816) (16,897) 10.8% Total Expenditures 19,915,343 19,964,000 (48,657) -0.2% 27,208,762 27,090, , % Change in Working Capital (Total Funding less Total Budget) 7,852,935 7,771,650 81, % 882, ,004 (24,561) -2.71% FTEs (9.24) (6.00) Headcount (9.00) (6.00) Beginning WC - 1/1/18 5,418,773 4,894, ,218 5,418,773 4,894, ,218 Change to WC ,852,935 7,771,650 81, , ,004 (24,561) Working Capital at 9/30/18 13,271,708 12,666, ,503 6,301,215 5,801, ,656 W E S T E R N E L E C T R I C I T Y C O O R D I N A T I N G C O U N C I L

67 Schedule for 2020 Business Plan and Budget Agenda Item 4 Finance and Audit Committee Meeting November 6, 2018 Action Review Background Attached is a high-level schedule for the 2020 Business Plan and Budget (BP&B) process related to both NERC and the Regional Entities (the ERO Enterprise). The specific dates will be populated in this schedule in the coming months, but this early draft broadly reflects the process to compile and approve the budget, and the significant interaction with stakeholders across the ERO Enterprise. The compilation, review, and approval process takes several months and numerous stakeholders and groups are involved throughout. Specifically, the process will include interactions with the following: NERC Board of Trustees NERC Finance and Audit Committee of the Board Regional boards Regional finance committees ERO Finance Group (ERO FG), composed of NERC and Regional Entity representatives Other ERO working groups where relevant Members Representatives Committee (MRC) MRC BP&B Input Group Trade associations

68 Proposed ERO Enterprise 2020 Business Plan and Budget Preparation Schedule This schedule shows activities for the development of the 2020 business plan and budgets (BP&Bs) for NERC and the ERO Enterprise 1. This includes public postings and touchpoints with stakeholders as well as meetings of the NERC Member Representatives Committee (MRC), Board of Trustees (Board), and Board committees, particularly the Finance and Audit Committee (FAC). Date October 9, 2018 November 6, 2018 November 7 8, 2018 November 13, 2018 January 2019 February 2019 March 2019 Activity/Touchpoint MRC BP&B Input Group 2 conference call NERC Board committee, MRC, and Board meetings (FAC meeting includes review of 2020 BP&B schedule) ERO Finance Group 3 meeting MRC BP&B Input Group conference call MRC policy input 4 due ERO Finance Group conference call MRC BP&B Input Group conference call NERC Board committee, MRC, and Board meetings ERO Finance Group conference call MRC BP&B Input Group conference call 1 The ERO Enterprise is comprised of NERC and the Regional Entities. Regional Entities post their BP&Bs for comment in accordance with individual public review processes and schedules; please visit the Regional Entity websites or contact your Regional Entity representative for details. 2 The MRC BP&B Input Group is an informal subgroup of MRC members who are tasked with providing input specifically on the BP&B. 3 The ERO Finance Group is composed of finance representatives from NERC and each of the Regional Entities. 4 MRC policy input requests are an opportunity to provide general feedback to the Board in addition to the specific policy input requested.

69 April 2019 May 2019 May June 2019 June 2019 Quarterly Trades and Forums 5 and MRC BP&B Input Group meeting (includes high level overview of NERC 2020 BP&B) Closed joint NERC Corporate Governance and Human Resources Committee (CGHRC) and FAC meeting (includes review of assumptions for NERC 2020 BP&B) ERO Finance Group conference call MRC BP&B Input Group conference call MRC policy input due Draft 1 of 2020 Regional Entity BP&Bs due to NERC NERC Board committee, MRC, and Board meetings (FAC meeting includes preview of Draft 1 of NERC and Regional Entity BP&Bs and combined ERO Enterprise 2020 budgets and assessments) ERO Finance Group conference call MRC BP&B Input Group conference call Draft 1 of NERC and Regional Entity BP&Bs and combined ERO Enterprise 2020 budgets and assessments posted on NERC website, with comments requested on Draft 1 of NERC 2020 BP&B ERO Finance Group meeting with FERC to discuss 2020 BP&Bs FAC conference call and webinar to review Draft 1 of NERC and Regional Entity BP&Bs and combined ERO Enterprise 2020 budgets and assessments Regional Entity board meetings for approval of final Regional Entity 2020 BP&Bs ERO Finance Group conference call MRC BP&B Input Group conference call Comments due on Draft 1 of NERC 2020 BP&B, which are subsequently posted on the NERC website 5 Representatives from industry trades and forums groups meet informally with NERC management on a quarterly basis. ERO Enterprise 2020 Business Plan and Budget Preparation Schedule 2

70 July 2019 August 2019 Regional Entity board-approved final 2020 BP&Bs and list of Load-Serving Entities and Net Energy for Load data due to NERC Quarterly Trades and Forums and MRC BP&B Input Group meeting (includes discussion of comments received on Draft 1 of NERC 2020 BP&B and preview of Draft 2) Closed FAC meeting (includes review of assumptions for Draft 2 of NERC 2020 BP&B) NERC response to comments on Draft 1 of NERC 2020 BP&B posted on NERC website Final Regional Entity and Draft 2 of NERC BP&Bs and combined ERO Enterprise 2020 budgets and assessments posted on NERC website, with comments requested on Draft 2 of NERC 2020 BP&B ERO Finance Group conference call MRC BP&B Input Group conference call FAC conference call to review final Regional Entity and Draft 2 of NERC BP&Bs and combined ERO Enterprise 2020 budgets and assessments Comments due on Draft 2 of NERC 2020 BP&B, which are subsequently posted on the NERC website MRC policy input due ERO Finance Group conference call MRC BP&B Input Group conference call NERC response to comments on Draft 2 of NERC 2020 BP&B posted on NERC website Final NERC and Regional Entity 2020 BP&Bs and assessments posted on NERC website NERC Board committee, MRC, and Board meetings (FAC and Board meetings include recommendation/request for Board to approve final NERC and Regional Entity 2020 BP&Bs and assessments) Regulatory filings for approval of NERC and Regional Entity 2020 BP&Bs submitted to FERC, with subsequent filings to Canadian provincial authorities ERO Enterprise 2020 Business Plan and Budget Preparation Schedule 3

71 Agenda Item 5 Finance and Audit Committee Meeting November 6, 2018 Accounting and Financial Internal Controls Andy Sharp, Controller Finance and Audit Committee November 6, 2018

72 Purpose Update the Finance and Audit Committee (FAC) on internal control environment, documentation, and compliance oversight Provide information to assist the FAC in fulfilling their mandate to review the adequacy and integrity of the corporation s internal accounting and financial controls 2 RELIABILITY ACCOUNTABILITY

73 COSO and Best Practices Committee of Sponsoring Organizations of the Treadway Commission (COSO) is a joint initiative among several private sector organizations COSO provides internal control guidance historically used as the benchmark for companies complying with Sarbanes-Oxley NERC, external audit firms (like Grant Thornton), and internal audit departments use COSO guidance to promote best practices, even outside of Sarbanes-Oxley compliance NERC also receives informal guidance from various sources to work toward best practices (internal and external auditors, regional entities and other companies, and through continuing education) 3 RELIABILITY ACCOUNTABILITY

74 COSO Framework Overall control environment Risk assessment process Policies, procedures, and systems Timely communications Monitoring, reporting, and tracking 4 RELIABILITY ACCOUNTABILITY

75 Elements of NERC s Internal Control Environment Tone at the top Compliance oversight Corporate policies Accounting process documentation Segregation of duties Accounting systems NERC systems overview Control features Reporting and management oversight 5 RELIABILITY ACCOUNTABILITY

76 Tone at the Top Board of Trustees Finance and Audit Committee o Oversee internal accounting and financial controls o Approve internal or external review of controls o Review internal audit staffing and resources for control reviews Enterprise-wide Risk Committee o Overall risk management and controls Management engagement and support of controls Employee guidance on ethics and conflicts of interest Accounting department oversight Ability to report concerns (anonymously) through hotline or various internal paths 6 RELIABILITY ACCOUNTABILITY

77 Compliance Oversight External auditors Perform annual review of NERC policies and process documents Audit procedures to test compliance with documented processes Focus on impact to NERC financial statement reporting Internal audit & risk management Risk-based evaluation of control environment Scheduled review of various accounting and financial areas More detailed in scope than external audit procedures Recent internal audits completed o Payroll processing o Travel and expense reports 7 RELIABILITY ACCOUNTABILITY

78 Corporate Policies Corporate policies Conflict of interest and business ethics Safeguarding NERC assets and accuracy of books and records NERC employee code of conduct Internal policies Travel and expense reimbursement Contract authorization and execution Purchasing and procurement Investments 8 RELIABILITY ACCOUNTABILITY

79 Corporate Policies Employee access to handbook on InfoHub 9 RELIABILITY ACCOUNTABILITY

80 Accounting Process Documents Accounting process document examples Billing, revenue recognition and cash receipts Cash disbursements Payroll processing Fixed assets 10 RELIABILITY ACCOUNTABILITY

81 Accounting Process Documents Stored and organized on InfoHub 11 RELIABILITY ACCOUNTABILITY

82 Accounting Process Documents InfoHub Accounting process and guideline documents 12 RELIABILITY ACCOUNTABILITY

83 Segregation of Duties Accounting department segregation of duties Processes and system access designed to limit the ability for fraud to occur o Example Accounts payable administrator has no system access to add or edit a vendor account Personnel duties defined in accounting process documentation 13 RELIABILITY ACCOUNTABILITY

84 System Overview - Concur Concur Travel reservations o Provides employees lowest airfare and hotel options o Ensures compliance with NERC travel policies Employee expense reports o Electronic workflow of expense reports o Corporate travel cards link spending transactions to expense report o Ensures compliance with travel policies (e.g. daily meal limit) o Expense reports approved by managers and audited by accounting Accounts payable invoice routing o Electronic workflow and audit trail of invoice approvals o Routing rules designed to ensure appropriate approval levels o Mobile access 14 RELIABILITY ACCOUNTABILITY

85 System Overview - Intacct Sage Intacct General ledger and accounting system Preferred accounting software of the American Institute of CPAs Strong audit trail functions and documentation storage Other system benefits o Bi-directional data connection between Concur and Intacct o Visibility of Concur invoices from general ledger transaction o Efficient ACH vendor payment solution and electronic customer billing o Purchase order system and workflow o Dashboards and improved management reporting 15 RELIABILITY ACCOUNTABILITY

86 System Overview Host Analytics Host Analytics Annual budget preparation Projections and forecasting o Personnel projections o Year-end financial projections 16 RELIABILITY ACCOUNTABILITY

87 System Overview UltiPro UltiPro Payroll and human resource information system Implementation - January 2019 Cloud solution with strong customer base and user group Available suite of integrated supporting modules Improved user interface and mobile access 17 RELIABILITY ACCOUNTABILITY

88 Reporting and Management Oversight Current monthly management reports Monthly variance report and year-end projections Individual department statement of activity reports Contracts and consultants report Travel expenses by employee New Intacct system reporting benefits System generated reports versus Excel More granularity of data to answer questions Dashboards with real-time information 18 RELIABILITY ACCOUNTABILITY

89 Next Steps Update accounting process documents with implementation of new systems Continue to leverage system capabilities to enhance control environment Consider future policy and process modifications to balance business process efficiency while maintaining adequate controls Review of new system and process environments by internal audit 19 RELIABILITY ACCOUNTABILITY

90 20 RELIABILITY ACCOUNTABILITY