2017 Budget Presentation to MRO Board of Directors

Transcription

1 MIDWEST RELIABILITY ORGANIZATION 2017 Presentation to MRO Board of Directors June 30, 2016 Silvia Parada Mitchell, Finance and Audit Committee Chair Dan Skaar, President and CEO Sue Clarke, VP-Finance and Administration Improving RELIABILITY and mitigating RISKS to the Bulk Power System

2 Overall Summary MRO s obligation is to meet the principal responsibilities under the delegation agreement in an efficient and effective manner, using our funding wisely must be: Lean zero-based, every dollar is cost-justified; looks for efficiencies Focused reflects our continued theme of rational, cost-effective regulation Aligned has continuity with MRO strategic objectives and NERC s goals and objectives 2

3 Highlights Reflects Strategic Direction 2017 costs decrease by $127,971 or (1.1%) (from $11.3m to $11.2m) Assessments decrease by $397,215 or (3.7%) (from $10.9m to $10.5m) Managing Productivity Over 70% of costs in staff; flat headcount Focused Efforts on Strategic Objectives Continued implementation of risk-based oversight and practices; a rational regulator Outreach Themes Stakeholder survey points to continued need for outreach, especially related to CIPv5 3

4 Comparison 2016/2017 $11,500,000 $11,000, , $11,354, , $11,226, Assessments, $10,891,562 $10,500, Assessments, $10,494,347 $10,000,000 BUDGET ASSESSMENTS 4

5 MRO Process Summary Step One Staff Develops a Preliminary Step Two Present to MRO FAC Step Three Comment Period and Board Approval Step Four Final Approval and Filing Bottoms-up/Zerobased budget development with program managers and executives Tops-down expectations from president and chief executive officer Reconcile bottomsup and tops-down Detailed review and justification, includes all line items, contracts, etc. MRO FAC recommends approval, distributes budget to board and committee chairs (conference call to review) is circulated for comment to all stakeholders is considered at the second quarter board meeting NERC Board approves (or may have questions, concerns to address) Final approval of NERC and RE BP&Bs are filed with FERC 5

6 Assumptions NERC and Regions review and discuss the shared business plan and budget assumptions For salary assumptions, MRO conducts research in the metropolitan and national markets to compare with NERC and Regions assumptions and pay ranges for positions Region Salary Assumptions FRCC 3% RF 3% TRE 2%/2%* SERC 3% NPCC 3% WECC 3% SPP 3% MRO 3% NERC 2-3% *Merit & COLA 6

7 2017 Risks Implementation of emerging matters including directives from NERC/FERC Need for travel, meeting costs, systems, etc. to implement Large scale event Need for external resources, diversion of staff from other work, more travel, etc. Regional consistency investments (resulting from regional consistency hotline) Development of new process or coordination resulting in more staff travel, investments in new systems and/or procedures to improve consistency MRO budget assumptions Salary increases average 3% Using compensation study and comparison with NERC/Regions Kept assumptions flat for 2017 Reflects the average increase across the Regions Benefit increase of 7% Average staff age increases from 43 to 45 Average years of service increase from 6 to 7 Facilities used to host all outreach workshops 7

8 Staff Demographics Average Age Average Years of Service Avg Age Avg Years of Service

9 Key Aspects of Funding (Assessments) Responsibility to adequately fund functions under delegated authority Use of working capital reserves to manage short-term contingencies Penalties are never budgeted Funding or Assessments are required to be based on end-use load 9

10 Improving Accuracy of End-Use Load Data for Assessments There are efforts across NERC and Regions to improve the accuracy of end-use load figures, which may result in additional entities being assessed NERC and Regions use different methods of obtaining end-use load data Complicating factors have been changes in balancing authorities over the last decade and relationships between entities MRO staff still finalizing impacts Legacy arrangements, such as balancing authority reporting, have resulted in corrections to end-use load data (as balancing authorities or reporting arrangements have changed) MRO will have more end-use entities, but overall impact will be about 1% of total assessments New end-use load entities will receive letters in April/May 10

11 Operating and Working Capital Reserves Policy and Procedure 13: Operating and Working Capital Reserves Policy MRO s Operating and Working Capital Reserves are identified and quantified each year in the Business Plan and, submitted first to the FAC for review and then to the BOD FAC and Board approved 30-day reserve More of an art than a science, and an analysis is performed that establishes the targeted operating and working capital reserves amount process resets the working capital at the current level of 30 days for the start of the budget year Adjustment to achieve targeted operating and working capital reserves in 2017 will be a decrease of $566,073 11

12 Cash Management Day-to-day Cash Requirements (short-term) MRO s Operating and Working Capital Reserves requirement shall be the amount necessary to satisfy projected annual cash flow and cash balance requirements MRO has $2.0m in credit line (intermediate) MRO can request additional funding through NERC/FERC (longterm) 12

13 Assessment Impacts Working Capital Reserve Analysis Working Capital Reserve Analysis STATUTORY Beginning Working Capital Reserve (Deficit), December 31, ,448,755 Plus: 2015 MRO Funding (from LSEs or designees) 9,426,019 Less: 2015 Projected expenses & capital expenditures (10,614,687) Projected Working Capital Reserve (Deficit), December 31, ,260,087 Working Capital Reserve Analysis STATUTORY Beginning Working Capital Reserve (Deficit), December 31, ,951,892 Plus: 2016 MRO Funding (from LSEs or designees) 10,891,562 Less: 2016 Projected expenses & capital expenditures (11,354,641) Projected Working Capital Reserve (Deficit), December 31, ,488,813 Targeted Working Capital Reserve, December 31, 2016 (($11,354,641 / 365 days) X 30 days) 933,258 Less: Projected Working Capital Reserve, December 31, 2015 (1,260,087) Increase(decrease) in assessments to achieve targeted Working Capital Reserve (326,829) Targeted Working Capital Reserve, December 31, 2017 (($11,226,670 / 365 days) X 30 days) 922,740 Less: Projected Working Capital Reserve, December 31, 2016 (1,488,813) Increase(decrease) in assessments to achieve targeted Working Capital Reserve (566,073) 2016 Expenses and Capital Expenditures 11,354,641 Less: Penalty Sanctions 2 (136,250) Less: Other Funding Sources 0 Adjustment to achieve targeted Working Capital Reserve (326,829) 2016 MRO Assessment 10,891, Expenses and Capital Expenditures 11,226,670 Less: Penalty Sanctions 2 (166,250) Less: Other Funding Sources 0 Adjustment to achieve targeted Working Capital Reserve (566,073) 2017 MRO Assessment 10,494,347 1 MRO's projected reserve December 31, 2015 assumes that there will not be a material difference between BOD approved 2015 revised budget versus actual/projected results from Represents collections on or prior to June 30, MRO's projected reserve December 31, 2016 assumes that there will not be a material difference between BOD approved 2016 budget versus actual/projected results from Represents collections on or prior to June 30,

14 (In Whole Dollars) 2016 and 2017 Comparison Variance 2017 v 2016 % Change Expenses Personnel Expenses Salaries $ 5,682,871 $ 5,874,689 $ 191, % Payroll Taxes 361, ,600 4, % Benefits 582, ,751 26, % Retirement Costs 1,094,515 1,195, , % Total Personnel Expenses $ 7,721,466 $ 8,045,429 $ 323, % 4.20% Meeting Expenses Meetings $ 85,500 $ 85,000 $ (500) -0.58% Travel - Staff Business 389, ,000 (29,030) -7.46% Travel - Member Reimbursement 291, ,000 (16,300) -5.60% Conference Calls (900) % Total Meeting Expenses $ 766,730 $ 720,000 $ (46,730) -6.09% -6.09% Operating Expenses Consultants $ 353,500 $ 401,000 $ 47, % Contracts $ 326, ,077 (53,104) % Office Rent 648, ,900 52, % Office Costs 534, ,933 5, % Professional Services 218, ,550 10, % Depreciation 480, ,000 23, % Total Operating Expenses $ 2,562,667 $ 2,648,460 $ 85, % 3.35% Indirect Expenses Total Direct Expenses $ 11,050,863 $ 11,413,889 $ 363, % 3.29% Other Non-Operating Expenses $ - $ - $ % (B) Total Expenses $ 11,050,863 $ 11,413,889 $ 363, % 3.29% Salary increase 3% Benefit increase 7% Meetings Kept outreach flat Travel Staff travel 0400 ($30k) Member travel ($16k) The security committee anticipated in 2016 has yet to be formed, Operations reflects current costs, and Legal reimbursements are reflected in G&A Consultants $47k 0400 & 0407 addition of CIP consultant 2016 communication consultant was replaced with alternative training in 2015 ($10k) Contracts ($53k) Majority of costs for computer software maintenance captured in Fixed Assets Depreciation (480,722) (504,000) (23,278) 4.84% Computer Equipment CapEx 317, ,500 (173,000) % Computer Software CapEx - 29,170 29,170 Furniture & Fixtures CapEx Equipment CapEx - Leasehold Improvements 467, ,111 (323,889) % (C) Inc(Dec) in Fixed Assets $ 303,778 $ (187,219) $ (490,997) % % Total (B + C) Total $ 11,354,641 $ 11,226,670 $ (127,971) -1.13% -1.13% Office Rent 12 mos. of expanded lease Facility reconfiguration in 2017 operating decrease (1.13%) 14

15 Decrease 1.13% Variance Summary Personnel: 4.2% increase Meetings: Flat Operating: 3.35% increase Fixed Assets: Less FTE remains flat in 2017 Continued use of on-site workshops Major infrastructure and network system updates being completed; maintenance begins Fewer purchases in equipment; focus is placed on system and infrastructure maintenance Salary increase 3% New asset purchases start to depreciate Benefit increase 7% 15

16 Cost Comparison by Program Area Program Variance 2017 v 2016 % of Change Resources shifted one headcount to RAM; also, fewer on-site audits for 2017 Compliance $ 2,280,537 $ 2,053,526 $ (227,011) -2.00% Reliability Assessments and Performance Analysis 1,711,032 1,588,751 (122,281) -1.08% Resources shifted one headcount to RAM Administrative Services 4,529,410 4,440,013 (89,397) -0.79% Compliance Enforcement 649, ,376 (59,931) -0.53% Reliability Standards, Organization Registration and Certification 390, ,095 (34,139) -0.30% 2016 included Hearing Body training dollars Situation Awareness 38,146 45,706 7, % Infrastructure Security 48,366 75,884 27, % Increased staff travel and training for NERC/Regional and outreach initiatives Training and Education 302, ,279 96, % Expanded resources to RAM Compliance Risk Assessment and Mitigation 1,405,446 1,679, , % TOTAL BUDGET $ 11,354,641 $ 11,226,670 $ (127,971) -1.13% 16

17 Cost Comparison by Program Area $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- Compliance Reliability Assessments and Performance Analysis Administrative Services Compliance Enforcement Reliability Standards and Organization Registration Situation Awareness Infrastructure Security Training and Education Compliance Risk Assessment and Mitigation 17

18 Comparison of Costs Compliance Compliance 302,163 48,366 38, ,234 1,405,446 2,280,537 Reliability Assessments and Performance Analysis Administrative Services Compliance Enforcement 398,279 75,884 45,706 1,679,040 2,053,526 Reliability Assessments and Performance Analysis Administrative Services Compliance Enforcement 649,307 1,711,032 Reliability Standards, Organization Registration and Certification Situation Awareness 356, ,376 1,588,751 Reliability Standards,Organization Registration and Certification Situation Awareness 4,529,410 Infrastructure Security Infrastructure Security Training and Education 4,440,013 Training and Education Compliance Risk Assessment and Mitigation Compliance Risk Assessment and Mitigation 18

19 Trends 2012 % Change Previous 2013 % Change Previous 2014 % Change Previous 2015 Revised % Change Previous 2016 % Change Previous 2017 $8,694, % $9,283, % $9,744, % $10,614, % $11,354, % $11,226, % Actual $8,819, % $8,574, % $9,614, % $10,413, % NA NA NA NA Assessments $8,349, % $9,098, % $8,741, % $9,426, % $10,901, % $10,494, % FTEs % Change Previous $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 ed Expenses Revised Assessments FTE Growth Chart Revised

20 CMEP Cost Trend Shift Resources to Outreach, Less Emphasis on Compliance/Enforcement 2009 % to Total CMEP Costs 2010 % to Total CMEP Costs 2011 % to Total CMEP Costs 2012 % to Total CMEP Costs 2013 % to Total CMEP Costs 2014 % to Total CMEP Costs 2015 Revised % to Total CMEP Costs 2016 % to Total CMEP Costs 2017 % to Total CMEP Costs Compliance $2,011, % $2,485,569 80% $2,390,377 72% $2,718,084 74% $2,292,102 64% $2,089,728 54% $2,102,260 48% $2,280,537 53% $2,053,526 47% RAM 634,636 20% 517,228 16% 496,983 14% 788,797 22% 1,148,955 30% 1,327,929 31% 1,405,446 32% 1,679,040 39% Enforcement 425,931 13% 438,199 12% 505,478 14% 625,508 16% 794,484 18% 649,307 15% 589,376 14% Total $2,011,510 $3,120,205 $3,333,536 $3,653,266 $3,586,377 $3,864,191 $4,224,673 $4,335,290 $4,321,942 20

21 MRO FTE Trend Flattening of Resources Total FTEs by Program Area Operational Programs Standards and Organization Registration and Certification MRO FTE Trend STATUTORY Compliance Risk Assessment and Mitigation Enforcement Operations - Assessments, Event Analysis, Other Total FTEs Operational Programs Total FTEs Administrative Programs Total FTEs

22 2017 Business Plan and Schedule NERC and RE Dates FAC Dates Internal MRO Dates DATES NERC Regional Entities Related Stakeholder-NERC Committee Initiatives March 10, 2016 VP packets are due - verbiage Wednesday, March 16, 2016 MRO Board orientation for new members Thursday, March 17, 2016 Q1 MRO Board meeting, 8:00 a.m. March 21, 2016 Dan Skaar review Draft 1 March 25, 2016 Good Friday - MRO Closed March 30, 2016 Send #s and PowerPoint to MRO FAC Wednesday, April 06, 2016 MRO FAC call to review the draft MRO 2017 Business Plan and, 7:30 a.m. MRC Informational Session Webinar and Policy Input Letter issued April [TBD], 2016 MRC BP&B Input Group conference call April 12, 2016 Send #s and PowerPoint to MRO Board April 19, 2016 April [19 or 20], 2016 April 20, 2016 April 29, 2016 May 2, 2016 May 4, 2016 May 4, 2016 May 5, 2016 Thursday, May 12, 2016 Meeting with Trades and MRC BP&B Input MRO FAC-hosted call with board to review Group solely to discuss NERC 2017 BP&B draft 2017 BP&B, 1:30 p.m. Closed NERC FAC and CGHRC Meetings Review of personnel, contracts, benefits and other assumptions for NERC 2017 BP&B Q Regional Entity budget to actual variance reports due to NERC. Regional Entity 2015 budget to actual true-up files due to NERC for NERC review and incorporation into May 2016 FERC annual true up filing. 1st draft of 2017 Regional Entity BP&Bs due to NERC for posting Note: Regional Entities post draft 2017 BP&Bs for comment by their stakeholders in accordance with individual Regional Entity public review processes and schedule FAC Meeting- quarterly (Q2) meeting, includes a review of 2015 year end audited financial statements for NERC. MRC Meeting Board of Trustees meeting Q2 MRO FAC meeting, 7:30-9:00 a.m. 22

23 2017 Business Plan and Schedule NERC and RE Dates FAC Dates Internal MRO Dates May 19, 2016 May 26, 2016 May 27, 2016 DATES NERC Regional Entities Related Stakeholder-NERC Committee Initiatives Draft of NERC, Regional Entity and Consolidated ERO Enterprise 2017 s posted on NERC website NERC Finance and Audit Committee and management conference call and webinar to review 1st draft of NERC, Regional Entity and ERO Enterprise 2017 NERC BP&Bs. Regional Entities participate in webinar presentation NERC and Regional Entity 2015 budget to actual true-up filing due at FERC. NERC management meets with MRC BP&B Input Group and Trades to review NERC draft 2017 BP&B and obtain informal input. Conference call established to allow other MRC members and stakeholders to participate June, 2016 [specific date TBD but target no later than mid- June] June/July 2016 June 7-8, 2016 Regional Entity Board meeting dates for review and approval of Regional Entity 2017 BP&Bs: SPP TBD RFC May --- TRE May 24 SERC June 23 MRO June 30 WECC June NPCC June 29 FRCC June 30 Stakeholders should make comments on Regional Entity business plans and budgets in accordance with Regional Entity procedures OC/PC/CIPC meetings June 15, 2016 [pending approval] Standards Committee meeting June 15-16, 2016 Compliance and Certification Committee meeting Thursday, June 30, 2016 Q2 MRO Board meeting, 8:00 a.m. Comments due on 1st Draft of NERC 2017 BP&B July 6, 2016 July 12, 2015 [tentative] July [TBD], 2016 July 13, 2016 July 15, 2016 Final Regional Entity recommended 2017 budget submittal due to NERC (approved by Regional Entity Boards) together with final list of LSEs and NEL data. NERC management meets with MRC BP&B Input Group and Trades to discuss comments received on draft 2017 BP&B and obtain informal input. Conference call established to allow other MRC members and stakeholders to participate. Tentative Closed FAC call to review personnel, contracts and other assumptions for NERC 2017 BP&B NERC posts final NERC draft 2017 BP&B, final Regional Entity 2017 BP&Bs and consolidated ERO Enterprise 2017 BP&B MRC Informational Session Webinar and Policy Input Letter issued 23

24 Questions? 24