Agenda Finance and Audit Committee Conference Call

Transcription

1 Agenda Finance and Audit Committee Conference Call November 2, a.m. EST Dial-In: Introductions and Chairman s Remarks Antitrust Compliance Guidelines *1. Minutes Review and Approve a. August 4, 2009 Meeting b. August 20, 2009 Conference Call *2. Management Recommendations Concerning Change in Committee Mandate Review and Recommendation a. Responsibility for Annual Review of Corporation s Computer Systems *3. 3rd Quarter (unaudited) Statement of Activities and projected year end expenses Review and Approve Business Plan and Budget Update Review *5. DOE Stimulus Grants and WECC 2010 Business Plan and Budget Review 6. NERC and Regional Entity Working Capital Approaches Review 7. Management Recommendation on Outside Auditor Review and Approve *Background Material Included Village Blvd. Princeton, NJ

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 Village Blvd. Princeton, NJ

3 Discussions concerning the exclusion of competitors from markets. Discussions concerning boycotting or group refusals to deal with competitors, vendors or suppliers. 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. Antitrust Compliance Guidelines 2

4 Agenda Item a Draft Minutes Finance and Audit Committee August 4, :30-Noon The Delta Hotel 350 St. Mary Ave Winnipeg, Manitoba Chairman Bruce Scherr convened a duly noticed open meeting of the Finance and Audit Committee (FAC) of the North American Electric Reliability Corporation on August 4, 2009 at 10:30 a.m., CDT. The agenda and list of attendees are attached as Exhibit A and B respectfully. Antitrust Compliance Guidelines Chairman Scherr directed the participants attention to the NERC Antitrust Compliance Guidelines. Minutes The committee approved the minutes of the July 17, 2009 conference call (Exhibit C.) Third Quarter Calendar of FAC Responsibilities Michael Walker, Chief Financial and Administrative Officer, reviewed the third quarter calendar of FAC responsibilities. The first item reviewed was the policy for approving senior management expenses. Mr. Walker reminded the committee the process begins with NERC s accounting department and CFO reviewing the expenses submitted for reimbursement. Upon meeting NERC s reimbursement policy, the expenses are forwarded to either the Chairman of the Board of Trustees (BOT) or Chairman of the FAC for approval. Once approved, the CFO will authorize processing of the expenses. Expenses for other senior management are also reviewed by the accounting department and their supervisor. No changes to the current procedures were recommended. The second item was the review of the corporation s computer systems. Mr. Walker explained that due to the security aspects, a separate confidential memorandum had been prepared by Lynn Costantini, Vice President and Chief Information Officer, and had been circulated to the committee. Any questions or concerns should be directed to Ms. Costantini privately. The next item reviewed was the 2 nd quarter (unaudited) Statement of Activities. Susan Turpen, Controller, informed that at this point in time, NERC is under budget. After some discussion, BOT Chairman John Q. Anderson requested for Mr. Walker and CEO Rick Sergel make efforts to Village Blvd. Princeton, NJ

5 ensure the budget is kept on track and not exceeded. A further update will be provided to the FAC at their next meeting. The last item was an evaluation of the performance of the external auditor. Mr. Walker indicated that based on discussions with NERC s previous CFO, Bruce Walenczyk, the accounting staff, and his own experiences at NERC thus far, NERC would benefit from using a larger auditing firm that has more depth and resources. He informed that NERC had already to begun to explore this option, and the plan is to solicit proposals from several firms and hopefully have a recommendation to the committee at its next meeting. Comments from FAC members confirmed the committee was in agreement, and therefore Mr. Walker will move forward with the search. Form 990 Mr. Walker provided a review of the company s Form 990. He explained that each of the committee members, as well as the BOT, had been provided with a copy of NERC s Form 990 for the 2008 calendar year. Under company policy, the Corporate Governance and Human Resources Committee (CGHR) reviewed the governance aspects and the FAC reviewed the financial aspect. The form had been reviewed and approved by Mr. Walker, David Cook, Vice President and General Counsel, and Rick Sergel. The form will be filed with the IRS by August 15. MRO 2009 Supplemental Budget Request Mr. Walker informed the committee of a request from the Midwest Reliability Organization (MRO) for approval of a supplemental funding request applicable to their 2009 budget, related to a conversion from a defined benefit plan to a defined contribution plan for their employees. Dan Skaar, MRO President, provided an overview of the need for the supplemental 2009 funding, which was summarized in a document prepared by MRO and provided to the FAC and BOT. Fred Gorbet moved for approval of a recommendation by the FAC to the BOT for approval, with a second from Jan Schori. All committee members voted in favor of the motion, and MRO s request will be referred to the BOT for approval. NPCC Assessment Update Mr. Walker explained that as a follow up to the last FAC meeting, Ed Schwerdt, Northeast Power Coordinating Council (NPCC) President and CEO, would give an update on the NPCC Assessment, as a result of the FERC 2009 budget order. The FERC rejected NPCC s proposal to allocate compliance costs in the U.S. portion of the NPCC region by applying, in part, an audit based methodology, instead requiring the use of NEL. The Commission did not reject NPCC s use of the composite cost methodology to determine allocations between the U.S. and Canada, nor did the Commission choose to undo NPCC s allocation of costs for 2009 based on the composite cost methodology. NPCC was however directed to apply the NEL cost allocation methodology within the U.S., with respect to its 2010 Business Plan and Budget. Mr. Schwerdt confirmed that NPCC followed the FERC s directive in connection with the NPCC board s approval of its 2010 Business Plan and Budget. NERC and Regional Entities 2010 Business Plan and Budget Mr. Walker reported that at the last committee meeting he had provided a summary of management s recommended 2010 budget for NERC, the comments received, and an update Finance and Audit Committee Meeting Draft Minutes August 4, 2009

6 on the status of the nuclear CIP audits and TFE s. Mr. Walker gave a brief overview of a reconciliation of the FTE s in the 2009 budget to the proposed FTE s in the 2010 budget. Mr. Walker then provided an update on nuclear CIPS auditing and the processing of Technical Feasibility Exceptions (TFE s.) He informed that with respect to the CIPS audits at nuclear generating facilities, Mike Assante, Vice President and Chief Security Officer, and other NERC managers, have been working with the NRC and FERC on an agreement pursuant to which the NRC would perform the audits. He pointed out that while there are still some unresolved details, from a budget perspective it does not appear significant resource requirements would be added to the 2010 budget, and that the workload would likely be managed using existing resources. With respect to TFE s, Mr. Assante and other NERC management continue to work out details with the Regional Entities. The goal is to have the program document and resources finalized by the end of September. While NERC expects an increase in workload, the current plan is to attempt to absorb this workload with existing resources. A discussion then ensued with respect to potential amendments to the Regional Entities 2010 Business Plans and Budgets to address resource needs associated with TFE processing. The Committee decided that an additional meeting would be jointly scheduled with the BOT before August 24th to further discuss potential amendments to the Regional Entity Business Plans and Budgets regarding TFE processing resources, as well as to review and approve 2010 assessments. Mr. Walker stated that each committee member had received a copy of each of the Regional Entity Business Plans and Budgets, along with a chart that provided a summary comparison of the budgets, and a summary of significant increases and decreases by program area. He noted each of the Regional Entity budgets had been approved their respective boards. With a motion from Fred Gorbet and a second from Jan Schori, the FAC approved the NERC and the Regional Entity 2010 Business Plan and Budgets for submittal to the BOT for review and approval, subject to further consideration at the Committee s next meeting, with respect to potential amendments regarding TFE processing costs and resource needs. Savings and Investment Plan Governance Structure Mr. Walker reviewed proposed changes to the governance of NERC s 401k plan ( the Plan. ) These changes included an amendment of the CGHR Mandate to delegate the responsibility to the CGHR the ability to appoint a committee to oversee the Plan, replacing the existing BOT appointed committee, and amend the FAC Mandate to remove the requirement that the FAC review the financial statements and plans and then report its findings to the CGHR. The overall effect of the proposed governance changes would be to place oversight of the Plan with a committee appointed by, and periodically reporting to, the CGHR and eliminate the role of the FAC in Plan oversight. Mr. Walker also reported that the CGHR also adopted a resolution that appointed a committee ( Investment Policy Committee ) to oversee the administration of the Plan. The Investment Policy Committee will be comprised of the NERC CFO, Vice President of Human Resources, and Controller of the Corporation. The CGHR adopted a resolution that Finance and Audit Committee Meeting Draft Minutes August 4, 2009

7 approved an Investment Policy Statement that provides guidance to the Investment Policy Committee. Both of these resolutions were subject to the BOT s amendments to the CGHR and FAC charters. Mr. Walker noted that the FAC has been requested to approve the CGHR recommendation to the BOT, concerning modification of the FAC Mandate. The committee unanimously approved this request. Renewal of Line of Credit Mr. Walker informed the committee that for many years NERC has maintained a line of credit with PNC Bank. The current lines of credit were up for renewal, and NERC management has requested that the FAC recommend the BOT adopt a resolution that will authorize the execution and delivery of the necessary documentation with PNC to renew the line of credit. On motion by Fred Gorbet, and a second from Jan Schori, the committee approved the recommendation. Lastly, Mr. Scherr requested a joint conference call of the FAC and BOT to be held before August 20 to discuss the approval of the 2010 Regional Entities TFE Related Business and Budget Plan Amendments and 2010 ERO Assessments. Future Meetings The committee agreed on the following dates and times for future meetings: a. October 29, 2009 Conference Call (2 p.m. EDT) There being no further business; the committee adjourned at noon. Submitted by, Michael Walker Chief Financial and Administrative Officer Finance and Audit Committee Meeting Draft Minutes August 4, 2009

8 Agenda Item b Draft Minutes Concurrent Meeting of Finance and Audit Committee and Board of Trustees August 20, 2009 Conference Call Committee Chair Bruce Scherr convened a duly noticed open meeting by conference call of the Finance and Audit Committee (FAC) concurrently held with a meeting of the Board of Trustees, called by Chairman John Q. Anderson, of the North American Electric Reliability Corporation on August 20, 2009 at 10 a.m. EDT. As required by the bylaws of the Corporation, dial-in access was provided to members of the Corporation and the public for the meeting. The meeting agenda is attached as Exhibit A. Trustees present on the call in addition to Chairman Anderson and Committee Chair Scherr were Paul Barber, Thomas Berry, Janice Case, Jim Goodrich, Fred Gorbet, Ken Peterson, Jan Schori and Rick Sergel. Regional Manager Gerry Cauley and NERC staff members Mike Walker, Susan Turpen, and David Cook were also on the call. Additional attendees are listed in Exhibit B. Antitrust Compliance Guidelines Committee Chair Scherr directed the participants attention to the NERC Antitrust Compliance Guidelines. Finance and Audit Committee Agenda Requests by Midwest Reliability Organization, Reliability First Organization, Southwest Power Pool Regional Entity and Texas Regional Entity for Approval of Amendments to 2010 Business Plans and Budgets to Address Technical Feasibility Exception (TFE) Resource Requirements Mike Walker, Chief Financial and Administrative Officer, informed the committee that the first agenda item was for the FAC to review and recommend to the Board the approval of proposals by four regional entities regarding amendments to their 2010 Business Plan and Budgets in order to provide additional resources for TFE processing. Each of these proposed amendments had been approved by the boards of the applicable Regional Entity. Mr.Walker reviewed the proposed 2010 Business Plan and Budget amendments by Midwest Reliability Organization (MRO), Reliability First Corporation (RFC), Southwest Power Pool Regional Entity (SPP), and Texas Regional Entity (TRE), noting that the FAC and Board members had been provided with summaries of the proposals together with information concerning the working capital reserves and line of credit arrangements for each of the Regional Entities. Mr. Walker also indicated that the Florida Reliability Coordinating Council (FRCC), Northeast Power Coordinating Council (NPCC), SERC Reliability Corporation (SERC), and the Western Electricity Coordinating Council (WECC) elected not to increase their budgets for TFE processing at this point in time and will use existing resources and reserves to carry out these duties. However, if additional resources are needed, these Regional Entities will seek approval of amendments to their business plans and budgets from their board, NERC Board, and FERC. After some discussion, with a motion by Fred Gorbet and a Village Blvd. Princeton, NJ

9 second from Jan Schori, the committee approved the motion to recommend to the Board that they approve the requested business plan and budget amendments by MRO, RFC, SPP, and TRE. Review of 2010 Business Plan and Budget Assessments David Cook, Vice President and General Counsel, reviewed the 2010 Business Plan and Budget Assessments, regarding the allocation of the NERC and Regional Entity budgets among the Load Serving Entities (LSEs) or their alternates. Mr. Cook informed the FAC that the assessments use the same allocation methodologies as used in the 2009 Business Plan and Budget, updated with the numbers from the 2010 Business Plan and Budget, with the exception of a recent FERC order directing NPCC to utilize NEL for the NPCC allocation within the United States for Mr. Cook indicated that the Ontario Independent System Operator and the Québec Régie de l énergie staff had reviewed and were comfortable with their proposed allocations Mr. Cook noted that the assessments listed in Appendix 2A of the agenda package are the NEL from 2008 for each LSE, and this is the most current data available. Appendix item 2B lists the total assessment for each entity, and items 2C and 2D include the details of the calculations that make up the total assessments. Susan Turpen, NERC Controller, provided a more detailed explanation of the NPCC allocation, including the compliance cost credit calculations applicable to Ontario and New Brunswick With a motion from Jan Schori, and a second from John Q. Anderson, the committee approved a motion to recommend to the Board that they approve the 2010 Business Plan and Budget Assessments. Board of Trustees Agenda Chairman Anderson opened the meeting of the Board of Trustees indicating that all of the Board members present for the Board meeting were also present for the FAC meeting, which just concluded, and inquired whether any of the Board members had any further comments or requests for discussion of the two items set forth on the agenda. Tom Berry inquired about whether at a later meeting, the FAC could hold a discussion on the philosophy of the working capital reserve. Chairman Anderson agreed with Mr. Berry s suggestion, and asked Mr. Walker to add this discussion as an agenda at a later FAC meeting. There were no further requests for discussion of the agenda items. On a motion from Mr. Scherr and a second from Jan Schori, the Board approved the 2010 Regional Entities TFE Related Business and Budget Plan Amendments for MRO, RFC, SPP, and TRE. On a motion from Mr. Scherr and a second from Jan Schori, the Board also approved the 2010 ERO and Regional Entity Assessments. Mr. Walker stated that the full budget package would be submitted to FERC on August 24. There being no further business, the meeting ended at 10:30 a.m. Submitted by, David N. Cook Corporate Secretary Minutes of Concurrent Meeting of Board of Trustees and Finance and Audit Committee August 20, 2009

10 Agenda Item 2 Change in Committee Mandate Annual Review of Computer Systems Action Required Approve and Recommend Approval by the Board of Trustees Management is recommending that the Technology Committee assume responsibilitly for the annual review of NERC s computer systems, including the security aspects. Attached is a proposed change to the Finance and Audit Committee Mandate to remove responsibility for review of the corporation s computer systems. A corresponding change is being made to add this responsibility to the Technology Committee Mandate. A request is also being submitted to the Corporate Governance and Human Resources Committee to approve these changes.

11 Board of Trustees Finance and Audit Committee Mandate Approved by Board of Trustees: August November 5, The Finance and Audit Committee (FAC) shall be composed of not less than three and not more than six trustees. 2. The members of the FAC shall be appointed or reappointed by the board at the regular meeting of the board immediately following each annual meeting of the Member Representatives Committee. Each member of the FAC shall continue to be a member thereof until his/her successor is appointed, unless he/she shall resign or be removed or shall cease to be a trustee of the corporation. Where a vacancy occurs at any time in the membership of the FAC, it may be filled by the Board of Trustees. The president of the corporation shall not be eligible for appointment to the FAC. 3. The Board of Trustees or, in the event of their failure to do so, the members of the FAC, shall appoint a chair from among their members. The FAC shall also appoint a secretary who need not be a trustee. 4. The place of meetings of the FAC and the procedures at such meetings shall be the same as for regular board meetings of the corporation, or as determined by the members of the FAC, provided that: (a) A quorum for meetings shall be a majority of the number of members of the FAC. (b) The FAC shall meet as required and at least twice a year. 5. The compensation of the members of the FAC and chair shall be the same as established by the board for its other committees. 6. The objectives of the FAC are as follows: (a) To assist the board in the discharge of its responsibility to monitor the component parts of the audit process and the integrity of the corporation s financial reporting. (b) To receive reports from the external auditor and to provide independent communication between the board and the external auditor. (c) To monitor the independence of the external auditor and to ensure that the external auditor remains ultimately accountable to the board and the FAC. (d) To maintain the quality, credibility, and the objectivity of financial reports and to satisfy itself as to the adequacy of the supporting systems of internal accounting controls Village Boulevard, Princeton, New Jersey Phone: Fax:

12 (e) To develop, in conjunction with management, proposals for the annual business plan and administrative budget and any other special budget of the corporation, for consideration by the Board of Trustees. (f) To ensure that a sufficient cost/benefit analysis and financial feasibility analysis is performed for each project included in a special budget that is submitted to the Board of Trustees. (g) To consult with and receive input from the Member Representatives Committee and the standing committees of the corporation with respect to (i) the development of the proposals for the annual business plan and administrative budget and any special budget to be submitted to the Board of Trustees, and (ii) the final draft of the annual business plan and administrative budget and any special budget prior to its adoption by the Board of Trustees, and to convey the advice and comments received from the Member Representatives Committee and the standing committees to the Board of Trustees. (h) To develop, in conjunction with management, proposals for the amount of the assessments to be paid by the members of the corporation in conjunction with the annual business plan and administrative budget and any special budget, for consideration by the Board of Trustees. (i) To consult with and receive input from the members of the corporation on the amount of and manner of determining the assessments to be paid by the members in conjunction with the annual business plan and administrative budget and any special budget prior to the approval of a business plan and budget by the Board of Trustees, and to convey the comments of the members to the Board of Trustees. 7. The FAC has the responsibility to exercise the powers set out in this mandate. However, it is not the duty of the FAC, inter alia, to plan or to conduct audits or to determine that the corporation s financial statements are complete or constitute a fair presentation or are in accordance with generally accepted accounting principles. These matters are the responsibility of management and the external auditor. It is also not the duty of the FAC to conduct investigations, to resolve disagreements, if any, between management and the external auditor or to ensure compliance with laws and regulations. The FAC has the responsibility to see that systems and processes for assuring a fair presentation of the corporation s financial statements are implemented. 8. To achieve its objectives, the FAC shall: (a) Review the corporation s annual financial statements. This review will include: discussions with management and the external auditor and a consideration of a report by the external auditor to the FAC of matters related to the conduct of the audit; discussions with the external auditor with respect to the auditor s judgment with regard to both the acceptability and quality of the financial statements, the selection of changes in significant accounting policies, the method used to account for significant unusual transactions, the effect of significant accounting policies in controversial or emerging areas, the degree of aggressiveness or conservation, as the case may be, of the accounting policies adopted by the corporation, the process used by management in formulating particularly Board of Trustees Finance and Audit Committee Mandate 2 Approved by Board of Trustees: August November 5, 2009

13 significant accounting estimates, and the basis for the external auditor s conclusions regarding the reasonableness of those estimates; a review of significant adjustments arising from the audit; a review of disagreements with management over the application of accounting policies and the disclosures in the financial statements; a review of the external auditor s suggestions for improvements to the corporation s operations and internal controls; compliance with various covenants; and the selection of and changes in accounting policies and consideration of the appropriateness of such selections and changes. (b) Determine, based on its review and discussion, whether to recommend the acceptance by the board of such audited financial statements. (c) Review with management, the external auditor and legal counsel, the corporation s procedures to ensure compliance with applicable laws and regulations, and any significant litigation, claim, or other contingency, including tax assessments, that would have a material effect upon the financial position or operating results of the corporation and the disclosure or impact on the results of these matters in the annual financial statements. (d) Review and approve estimated and actual audit fees and expenses for the current years. (e) At least once each year: Meet privately with management to assess the performance of the external auditor. Meet privately with the external auditor, amongst other things, to inquire about time pressures on the external auditor, to understand any restrictions placed on them or other difficulties encountered in the course of the audit, including restrictions on the scope of their work and access to requested information and the level of cooperation received from management during the performance of their work and their evaluation of the corporation s financial, accounting, and personnel systems. (f) Evaluate the performance of the external auditor, and if so determined, recommend that the board propose to the members of the corporation reappointment of the external auditor or steps to replace the external auditor. (g) Obtain from the corporation s external auditor the major audit findings and internal control recommendations reported during the period under review, the response of management to those recommendations, and review the follow-up performed by management in order to monitor whether management has implemented an effective system of internal accounting control. (h) Annually obtain a report of management assessing the corporation s internal controls. (i) Review significant emerging accounting and reporting issues, including recent professional and regulatory pronouncements, and assess their impact on the corporation s financial statements. (j) Review policies for approval of senior management expenses, including those of the chief executive officer. Board of Trustees Finance and Audit Committee Mandate 3 Approved by Board of Trustees: August November 5, 2009

14 (k) Review with management the corporation s computer systems, including procedures to keep the systems secure and contingency plans developed to deal with possible computer failures. (l) Whenever it may be appropriate to do so, to retain and receive advice from experts, including independent legal counsel and independent public accountants, and to conduct or authorize the conduct of investigations into any matters within the scope of the responsibility of the FAC as the FAC may consider appropriate. (ml) Develop, in conjunction with management, a schedule for the preparation and development of the annual business plan and administrative budget and each special budget that provides sufficient time for preliminary development by management, review by the FAC, consideration and submission of input by the Member Representatives Committee and the standing committees of the corporation, consideration of the proposed business plan and budget by the Board of Trustees, review and submission of comments by the Member Representatives Committee and the standing committees on the final draft of a proposed business plan and budget prior to its final approval by the Board of Trustees, and final approval of the annual business plan and budget or special budget by the Board of Trustees, in accordance with the overall business plan and budget cycle established by the Board of Trustees. (nm) Develop, in conjunction with management, a schedule for the development of proposed assessments to be paid by the members of the corporation in conjunction with the annual business plan and budget and each special budget that provides sufficient time for preliminary development by management, review by the FAC, consideration and submission of input by the members of the corporation, consideration of the proposed assessments by the Board of Trustees, review and submission of comments by the members on the final draft of the proposed assessments prior to final approval by the Board of Trustees, and final approval of the assessments by the Board of Trustees, in accordance with the overall business plan and budget cycle established by the Board of Trustees. (on) Develop, in conjunction with management, a system of reporting to the FAC and to the Board of Trustees that provides for the tracking of actual expenditures against the amounts approved in the annual administrative budget and each special budget. (po) Report regularly to the board on the activities, findings, and conclusions of the FAC. (qp) Review this mandate on an annual basis and recommend to the board Corporate Governance and Human Resources Committee any changes to it that the FAC considers advisable. (rq)complete a self-assessment annually to determine how effectively the FAC is meeting its responsibilities. (sr) Review the financial aspects of the Corporation s Form 990 prior to it being filed with the Internal Revenue Service. (ts) Perform such other functions as may be delegated from time to time by the board. Board of Trustees Finance and Audit Committee Mandate 4 Approved by Board of Trustees: August November 5, 2009

15 Agenda Item 3 (In Whole Dollars) 2009 TOTAL ERO SUMMARY Consolidated Statement of Activities From 1/1/2009 to 9/30/2009 (Unauditied) 2009 YTD Actual 2009 YTD Budget 2009 YTD Variance Over(Under) 2009 Projection 2009 Budget 2009 Projected Variance Over(Under) Funding ERO Funding $ 98,147,160 $ 98,147,176 (16) ERO Assessments $ 118,338,239 $ 118,338,255 (16) Penalty Sanctions $ - $ - - $ 98,147,160 $ 98,147,176 $ (16) Total ERO Funding $ 118,338,239 $ 118,338,255 $ (16) $ 664,830 $ 643,179 21,651 Membership Dues $ 1,027,106 $ 857, , , ,000 41,239 Testing Fees 980, , , ,832 (131,027) Services & Software 382, ,082 (187,224) 1,186,569 1,192,251 (5,682) Workshops 1,343,450 1,444,970 (101,520) 286, ,909 (550,368) Interest 348, ,593 (616,726) 59,783 6,975 52,808 Miscellaneous 72,283 9,300 62,983 $ 101,438,927 $ 102,010,322 $ (571,395) Total Funding $ 122,492,803 $ 123,165,772 $ (672,969) Expenses Personnel Expenses $ 39,368,367 $ 41,387,771 (2,019,404) Salaries $ 54,437,140 $ 54,585,901 (148,761) 2,812,260 3,361,851 (549,591) Payroll Taxes 3,970,798 4,088,394 (117,596) 4,569,654 5,836,947 (1,267,293) Benefits 6,300,939 7,760,950 (1,460,011) 4,501,068 4,838,294 (337,226) Retirement Costs 6,366,542 6,421,422 (54,881) $ 51,251,349 $ 55,424,863 $ (4,173,514) Total Personnel Expenses $ 71,075,418 $ 72,856,667 $ (1,781,249) Meeting Expenses $ 2,121,622 $ 2,664,396 (542,774) Meetings $ 3,148,039 $ 3,541,466 (393,427) 3,819,609 4,652,319 (832,710) Travel 5,635,833 6,180,662 (544,829) 456, ,579 91,068 Conference Calls 665, , ,238 $ 6,397,878 $ 7,682,294 $ (1,284,416) Total Meeting Expenses $ 9,448,972 $ 10,211,991 $ (763,019) Operating Expenses $ 10,222,116 $ 12,107,745 (1,885,629) Consultants & Contracts $ 16,093,538 $ 16,124,716 (31,178) 2,589,454 2,747,053 (157,599) Office Rent 3,479,678 3,662,740 (183,062) 3,690,746 4,383,361 (692,615) Office Costs 6,557,017 6,242, ,554 4,377,856 4,793,174 (415,318) Professional Services 6,144,089 6,363,543 (219,454) 93,747 36,662 57,085 Miscellaneous 120,884 47,278 73, ,519 57, ,114 Depreciation 3,603,521 76,540 3,526,981 $ 21,969,438 $ 24,125,400 $ (2,155,962) Total Operating Expenses $ 35,998,727 $ 32,517,280 $ 3,481,448 $ 79,618,665 $ 87,232,557 $ (7,613,892) Total Direct Expenses $ 116,523,117 $ 115,585,937 $ 937,180 $ 1,315,595 $ 2,442,332 $ (1,126,737) Indirect Expenses $ 2,484,608 $ 3,256,442 $ (771,834) $ 3,010,105 $ 5,062,960 $ (2,052,855) Other Non-Operating Expenses $ 3,354,415 $ 5,866,642 $ (2,512,227) $ 83,944,365 $ 94,737,849 $ (10,793,484) Total Expenses $ 122,362,140 $ 124,709,021 $ (2,346,881) $ 17,494,562 $ 7,272,473 $ 10,222,089 Change in Assets $ 130,663 $ (1,543,249) $ 1,673,912 Fixed Assets (995,519) (57,405) (938,114) Depreciation (3,603,521) (76,540) (3,526,981) 2,419,649 1,597, ,406 Computer & Software CapEx 3,034,428 2,084, , , ,609 (258,253) Furniture & Fixtures CapEx 506, ,328 (38,989) 408, , ,925 Equipment CapEx 417, ,750 (27,000) 596, , ,093 Leasehold Improvements 963, , ,849 $ (2,741,045) $ (2,702,988) $ (38,057) (Inc)Dec in Fixed Assets $ (1,318,633) $ (3,559,258) $ 2,240,625 $ 14,753,517 $ 4,569,485 $ 10,184,032 TOTAL CHANGE IN ASSETS $ (1,187,970) $ (5,102,507) $ 3,914, (2.5) FTEs

16 BUDGET TO ACTUAL VARIANCE ANALYSIS AT SEPTEMBER 30, 2009 and 2009 PROJECTED VARIANCE ANALYSIS As of September 30, 2009, total expenses and capital expenditures were $63.4k less than total revenues, creating a positive YTD budget variance of $1.7M. As explained in further detail below, we are currently projecting NERC will be approximately $741k under budget by year end. We expect that some of the projected surplus may be further reduced by expenses which may arise in connection with various compliance and critical infrastructure initiatives. However, even with some increase, we still expect not to exceed our budget. TOTAL FUNDING (Actual - $87.6k under budget; 2009 Projected - $62.5k under budget) Both the YTD and Projected 2009 variances are the result of historically low rates of return on NERC s cash balance and reduced income from GADS Services. Interest income is ($139.0k) under budget as of September 30 th and is projected to be ($186.0k) under budget at year end. GADS Services revenues are ($104.2k) under budget at September 30 th and are projected to be at that same level by year end. These variances are offset by higher than budgeted Membership Fees from the Transmission Forum, unbudgeted Workshop Fees and unbudgeted Miscellaneous Funding. EXPENSES Personnel Expenses (Actual - $265.1k under budget; Projected $355.5k over budget) o Salaries - There were FTEs on staff at the end of the third quarter versus a budget of Salaries are under budget by ($71.6k) as a result of lower costs per FTE, a lower than budgeted bonus pool and the timing of new hires. By year end, Salaries Expense is expected to be over budget by $534.4k, as total FTEs on staff will be versus a budget of In order to address workload requirements and resource commitments made in connection with the 2009 Business Plan and Budget compliance filing at FERC, several employees were hired at the end of third quarter and two additional employees are being added early in the fourth quarter, which account for 0.5 FTE in the total count. The shift from an under budget variance to being over budget at year end is the result of having full staff on payroll for the entire quarter. o Payroll Taxes were over budget by $90.7k at the end of the third quarter and are expected to be $93.6k over budget by year end. The third quarter variance is to some degree a timing issue since the budget for these costs Village Blvd. Princeton, NJ

17 is spread equally over 12 months, but actual costs in the first quarter are higher as a result of the bonus payment in February. Higher payroll taxes are also driven by having additional FTEs on staff above budget. Since most payroll taxes are capped, with not all wages being subject to tax, an increase in the number of FTEs on staff will increase taxable wages. o Employee benefits are ($86.9k) under budget at September 30 th and are projected to be ($104.7k) under budget by year end. This is primarily due to lower than budgeted group medical insurance rates, which was partially offset by additional benefit costs for new employees. A 7% increase was assumed for budget purposes, but the average increase in the new rates, which became effective on April 1, 2009, was 3.75%. o Savings and Retirement expenses are under budget by ($197.2k) at September 30 th and are projected to be under budget by ($167.8k) at year end as a result of a lower bonus pool for staff employed as of January 1, 2009, and unanticipated attrition. As a result of the waiting period for eligibility for new hires, the FTEs added over budget have not adversely impacted this under spend. Meeting Expenses (Actual - $25.5k over budget; 2009 Projection - $54.0k over budget) The strong effort in 2009 to control total meeting expenses has allowed NERC to maintain a reduced budget from prior years. Meeting cost reductions have been achieved by holding meetings at member facilities instead of hotels and by increasing the use of conference calls, which reduces both meeting and travel costs. Operating Expenses (Actual - $163.0k over budget; 2009 Projection - $1.0M over budget) o Rent $63.0k over budget as of September 30 th and projected to be $96.3k over budget at year end due to an increase in utilities costs and a true-up of operating expenses for the Princeton office which were not budgeted. o Contracts - ($120.5k) under budget at September 30 th and projected to be $192.7k over budget by year end. Most contract costs are consistent with budget, except for the following: Costs associated with the NERCnet or frame relay network have been running over budget throughout The 2009 budget for this contract was not reflective of actual costs and there have been some increases during the course of the year. At September 30 th, NERCnet expenses were $112.4k over budget and the expected variance at year end is $143.9k over budget. Spend for Phase I of TADS development was ($74.3k) under budget at September 30 th, but this is a timing issue and the annual 2

18 budget for this project of $150.0k is expected to be spent by year end. Contracted spend with Electric Power Group for a variety of reliability tools was under budget through September 30 th by ($61.3k), but this is also a timing issue as the total budgeted expense of $355.0k for these tools is expected to be incurred by year end. The Training and Education Program is under budgeted spend for various projects by ($126.4k) through September 30 th. At year end, the Program expects to spend $68.1k against a total budget of $210.0k. The Situation Awareness and Infrastructure Security Program has contracted to develop a secure alert system that was not budgeted in The unbudgeted spend for this project was $66.7k through September 30 th and an additional $133.3k is expected to be spent during the fourth quarter. The total unbudgeted spend for this project at year end is projected to be $200k. o Consultants - (Actual - $763.4k under budget; 2009 Projection - $856.8k under budget) Compliance is ($151.6k) under budget at September 30 th and projected to be at budget by year end. YTD spend for the C-RATS (Compliance) database is under budget by ($33.8k) and is expected to be under budget at year end by ($54.2k); YTD spend for audits of the Regional Entities is over budget $270.7k and is expected to be over budget at year end by $298.2k; Spend for subject matter experts needed in support of Compliance Violation Investigations is under budget by ($172.7k) at September 30 th and is expected to be under budget by close to that amount by year end. The under budgeted spend for the C-RATS database and for subject matter experts is expected to offset the over spend on the audits of the Regional Entities so that in total, the Compliance Program will not exceed total budgeted Consultant Expenses of $1.1M. Spend on the NASPI project is ($427.3k) under budget as of September 30 th as a result of a delayed start by the Tennessee Valley Authority with their portion of the project. At year end, the NASPI project is expected to be ($266.8k) under budget, but this is not a reduction in costs. It is a timing issue as these costs will be incurred in Legal ($615.5k) under budget through September 30 th due to lower costs associated with completing the 3-year ERO assessment. The total budget for this project of $1.05M was spread equally throughout 2009, but since all costs have been recorded, the total under spend at year end will be ($434.5k). 3

19 o Office Costs (Actual - $221.2k over budget; 2009 Projection - $515.7k over budget) Computer supplies and maintenance over budget by $108.5k at September 30 th and is projected to be $200k over budget at year end. However, please note the ($351.8k) under spend in capitalized computer hardware, software and equipment as detailed under Fixed Assets on the Statement of Activities. The budgets for these line items should be added to computer supplies and maintenance and reviewed in total, since the final cost of an item determines whether it is capitalized or expensed and the allocation for budget purposes between these line items was not correct. Projected spend at year end is expected to be at budgeted levels for these costs when considered in total. Telephone, internet and office supply costs are $149.8k over budget, due to added FTEs which were not considered in the budget estimate. The overspend is projected to increase to approximately $200k during 4 th quarter. Sales and Use Taxes are $38.2k over budget and are projected to be $45.0k over budget at year end. An audit by the State of NJ in the second half of 2008 revealed that sales tax is not being charged by numerous vendors. This unpaid sales tax was not budgeted. o Professional Services (Actual - $162.3k over budget; 2009 Projection - $290.4k over budget) Trustee fees are over budget due to added meetings and conference calls associated with the 3-Year ERO Assessment Executive and Trustee search fees and Trustee search fees were not budgeted o Depreciation Expense (Actual - $420.4k over budget; 2009 Projection - $560.6k over budget) Depreciation expense was not a budgeted item in 2009, as the Statement of Activities was a cash basis report. As noted above, a GAAP presentation of financial results has been adopted, and as a result, depreciation expense will be reported as over budget throughout the course of o Fixed Assets (Actual - $698.7k under budget; 2009 Projection - $703.7k under budget) Capital expenditures for computer and software needs are under budget by ($473.8k) and are projected to be under budget ($301.5k) under budget by year end. However, as discussed above, the total 2009 Budget for computers was not properly allocated between Office Costs and Capital Expenditures. 4

20 Situation Awareness has spent $84.2k YTD against a YTD budget of $93.8k, for an under spend of ($9.6k) to build-out space in the Princeton, NJ office for ES-ISAC operations. The budget for this project was all in Furniture and Fixtures. Actual costs are charged to Furniture and Fixtures, Equipment and Leasehold Improvements. Since this project is complete with a total budget of $125.0k, the total under spend at year end ($40.8k) The unplanned expansion of the DC office and the purchase of additional cubicals in the Priceton office have contributed to the projected over budget spend at year end for Furniture and Fixtures and Leasehold Improvements. Also contributing to the 2009 Projected under spend is the reversal of depreciation expense. Depreciation expense is reversed because it is a non-cash item. Funding is not requested to support depreciation expense but for additions to capital assets. 5

21 NORTH AMERICAN ELECTRIC RELIABILITY CORPORATION Statement of Activities From 1/1/2009 through 9/30/2009 (Unaudited) (In Whole Dollars) 2009 YTD Actual 2009 YTD Budget 2009 YTD Actual Variance from Budget 2009 Projection 2009 Budget 2009 Projection Variance from Budget Funding Assessments 24,065,145 24,065, ,925,049 31,925,048 0 Membership Fees 663, ,179 20,652 1,027, , ,534 Testing 776, ,000 41, , ,000 - Services & Software 271, ,750 (92,692) 337, ,000 (147,222) Workshop Fees 26,300-26,300 32,750-32,750 Interest 11, ,000 (138,953) 14, ,000 (185,953) Misc. 55,848-55,848 68,348-68,348 Total Funding 25,869,467 25,957,074 (87,606) 34,385,077 34,447,620 (62,543) Expenses Personnel Expenses Salaries 11,683,369 11,755,018 (71,649) 15,491,530 14,957, ,415 Payroll Taxes 788, ,693 90, , ,209 93,552 Employee Benefits 1,181,070 1,268,015 (86,944) 1,569,020 1,673,686 (104,665) Savings & Retirement 1,364,531 1,561,770 (197,239) 1,897,829 2,065,661 (167,833) Total Personnel Expenses 15,017,419 15,282,496 (265,078) 19,955,140 19,599, ,469 Meeting Expenses Meetings 476, ,240 (63,379) 663, ,320 (55,887) Travel 1,360,776 1,391,454 (30,677) 1,804,070 1,848,938 (44,868) Conference Calls 261, , , , , ,737 Total Meeting Expenses 2,098,820 2,073,347 25,473 2,811,111 2,757,130 53,981 Operating Expenses Rent & Improvements 596, ,642 62, , ,523 96,349 Contracts 2,334,203 2,454,750 (120,547) 3,465,719 3,273, ,719 Consultants 2,952,289 3,715,702 (763,413) 4,097,429 4,954,270 (856,841) Office Costs 1,044, , ,591 1,414, , ,710 Professional Services 1,182,295 1,020, ,295 1,650,433 1,360, ,433 Miscellaneous 36,653 3,000 33,653 48,280 4,000 44,280 Depreciation 420, , , ,561 Total Operating Expenses 8,566,932 8,403, ,955 12,044,391 11,201, ,212 Other Non-Operating Expenses - 1,045,122 (1,045,122) - 1,393,496 (1,393,496) Total Expenses 25,683,172 26,804,943 (1,121,772) 34,810,642 34,951,476 (140,834) Net Change in Assets 186,296 (847,869) 1,034,165 (425,566) (503,856) 78,290 Fixed Assets Depreciation (420,421) - (420,421) (560,561) - (560,561) Computer & Software CapEx 149, ,856 (473,820) 488, ,750 (301,539) Furniture & Fixtures CapEx 93, ,000 (41,375) 122, ,000 (57,236) Equipment CapEx 185,688 63, , ,688 85, ,688 Leasehold Improvements 114, , , ,936 (Incr)Dec in Fixed Asstes (122,865) (821,606) 698,742 (351,039) (1,054,750) 703,711 TOTAL CHANGE IN ASSETS 63,431 (1,669,476) 1,732,907 (776,604) (1,558,606) 782,002 FTE's

22 (In Whole Dollars) 2009 YTD Actual 2009 REGIONAL ENTITY SUMMARY Consolidated Statement of Activities From 1/1/2009 to 9/30/2009 (Unauditied) 2009 YTD Budget 2009 YTD Variance Over(Under) 2009 Projection 2009 Budget 2009 Projected Variance Over(Under) Funding ERO Funding ERO Assessments $ 74,082,015 $ 74,082,031 (16) $ 86,413,191 $ 86,413,207 (16) Penalty Sanctions - - Total ERO Funding $ 74,082,015 $ 74,082,031 $ (16) $ 86,413,191 $ 86,413,207 $ (16) Membership Dues 1,000-1, Testing Fees Services & Software 46,747 85,082 (38,335) 45,080 85,082 (40,002) Workshops 1,160,269 1,192,251 (31,982) 1,310,700 1,444,970 (134,270) Interest 275, ,909 (411,415) 334, ,593 (430,773) Miscellaneous 3,935 6,975 (3,040) 3,935 9,300 (5,365) Total Funding $ 75,569,460 $ 76,053,248 $ (483,788) $ 88,107,726 $ 88,718,152 $ (610,426) Expenses Personnel Expenses Salaries $ 27,684,998 $ 29,632,753 (1,947,755) $ 38,945,610 $ 39,628,785 (683,175) Payroll Taxes 2,023,812 2,664,158 (640,346) 2,974,037 3,185,185 (211,148) Benefits 3,388,584 4,568,932 (1,180,348) 4,731,919 6,087,264 (1,355,345) Retirement Costs 3,136,537 3,276,524 (139,987) 4,468,713 4,355, ,951 Total Personnel Expenses $ 36,233,931 $ 40,142,367 $ (3,908,436) $ 51,120,278 $ 53,256,995 $ (2,136,717) Meeting Expenses Meetings $ 1,644,761 $ 2,124,156 (479,395) $ 2,484,606 $ 2,822,146 (337,540) Travel 2,458,833 3,260,865 (802,032) 3,831,763 4,331,724 (499,961) Conference Calls 195, ,925 (28,461) 321, ,991 20,500 Total Meeting Expenses $ 4,299,058 $ 5,608,946 $ (1,309,888) $ 6,637,860 $ 7,454,861 $ (817,001) Operating Expenses Consultants & Contracts $ 4,935,624 $ 5,937,293 (1,001,669) $ 8,530,390 $ 7,897, ,944 Office Rent 1,992,857 2,213,411 (220,554) 2,671,806 2,951,217 (279,411) Office Costs 2,646,272 3,706,478 (1,060,206) 5,142,920 5,344,077 (201,157) Professional Services 3,195,561 3,773,174 (577,613) 4,493,656 5,003,543 (509,887) Miscellaneous 57,094 33,662 23,432 72,604 43,278 29,326 Depreciation 575,098 57, ,693 3,042,960 76,540 2,966,420 Total Operating Expenses $ 13,402,506 $ 15,721,423 $ (2,318,917) $ 23,954,336 $ 21,316,101 $ 2,638,235 Total Direct Expenses $ 53,935,495 $ 61,472,736 $ (7,537,241) $ 81,712,474 $ 82,027,957 $ (315,483) Indirect Expenses $ 1,315,595 $ 2,442,332 $ (1,126,737) $ 2,484,608 $ 3,256,442 $ (771,834) Other Non-Operating Expenses $ 3,010,105 $ 4,017,838 $ (1,007,733) $ 3,354,415 $ 4,473,146 $ (1,118,731) Total Expenses $ 58,261,195 $ 67,932,906 $ (9,671,711) $ 87,551,497 $ 89,757,545 $ (2,206,048) Change in Assets $ 17,308,265 $ 8,120,342 $ 9,187,923 $ 556,229 $ (1,039,393) $ 1,595,622 Fixed Assets Depreciation (575,098) (57,405) (517,693) (3,042,960) (76,540) (2,966,420) Computer & Software CapEx 2,270, ,387 1,296,226 2,546,217 1,295,182 1,251,035 Furniture & Fixtures CapEx 217, ,609 (216,878) 383, ,328 18,247 Equipment CapEx 223, , , , ,750 (127,688) Leasehold Improvements 481, ,591 61, , , ,913 (Inc)Dec in Fixed Assets $ (2,618,181) $ (1,881,382) $ (736,799) $ (967,595) $ (2,504,508) $ 1,536,913 TOTAL CHANGE IN ASSETS $ 14,690,084 $ 6,238,960 $ 8,451,124 $ (411,366) $ (3,543,901) $ 3,132,535 FTEs (5.4)

23 Fronron Relngrury CoonorNRl lo Cou cl, luc N. Wesrsnone Buvo., Sulre 1002 r nvrìtr e r!'' eù TRueR, FloRroR Pn0rue Fnx Third Quarter Year to Date Budget Variance Explanations Statutory Funding Total Actual Over Budget $28k: Revenues were budgeted over a full year for Training V/orkshops while the actual came in first and second quarter when the training actually occurred. Maintenance pass throughs were not budgeted. Statutory Expenditures Statutory Personnel Expenses Total Over Budget $28k Total Actual Over Budget $61k: More time was spent in Training and Situational Awareness than was budgeted, while Compliance has just come to full staff. Benefits are up due to moving costs, defened compensation expenses and educational reimbursements. Statutory Meeting Expenses Total Actual Under Budget $(67k): Compliance and Reliability Assessment travel expenses have not been as much as expected and budgeted. Additionally, the Compliance Workshops have not been held yet, but were budgeted evenly throughout the year. Statutory Operating Expenses Total Actual Over Budget $34k The cost of the legal fees associated with the FERC audit were not budgeted. Fixed Assets Total Actual Under Budget $(92k): The net effect from the consortium group savings for Software and the Situational Awareness for FERC, NERC and the Regional Entity Project software and hardware that was not budgeted.

24 Florida Retiability Coordinating Council, Inc. Quarterly Statement of Activities - Total Actual To Total Budget Statutory Only September 30,2009 (Unaudited) (In fhole Dollars) Funding ERO Funding ERO Assessments Penalty Sanctions Total ERO Funding Membership Dues Testing Fees Services & Software Workshops Interest Miscellaneous Total Funding 200!, Proicct d 2m9 YTI) 2lXB ytd 2lXD YTII 2lXD Full Yc r Actûsl Budgct V rl cc PrcJcctlon 2lXD Buftct V rhncc $ 2,923,828 $ 3,898,438 $ 3,898,438 t0,080 77, I ,573 t ,080 77, r ,430 Q.t37\ $ 3,011,401 $ 2,983,401 $ 28,000 $ 3,986,011 $ 3,977,868 $ 8, Expenses Personnel Expenses Salaries Payroll Taxes Benefits Retirement Costs Total Personnel Expenses s r,s21,490 s l,sr3,33l 97,590 98,3t (727), 194, , , ,849 g.osg $ 2,035,007 S 1,973,581 $ 61,425 $ 2,112,588 $ 2,0t7, ,t24 l3l, ,043 t98, , ,799 t2.724 $ 2,795,278 S 2,631,442 $ ló3,836 Meeting Expenses Meetings Travel Conference Calls Total Meeting Expenses Operating Expenses Consultants & Contracts Offìce Rent Ofïice Costs Professional Services Miscellaneous Depreciation Total Operating Expenses Total Direct Expenses $ 62,81ó $ 88,790 es.97s\ I I1, ,145 ø3.295] S 66,t67 $ 118,387 :2.220) 146, ,860 (60.696) 1.7?8 13,871 10, $ 184,392 $ 251,884 $ (67,491) $ 226,202 S 335,845 $ (109,643) $ 7s,2r8 $ 189,278 6l,087 l7l,r89 9, ,481 $ 89,350 $ 256,nt 91, ,359 t0,643 t ,604 fl40.386) 287, t22) t77,656 n ,87s t , \ 183,423 (92.398) 77,882 X3Oj 103,843 I (9,788) r8,886 (ls,l82) 2s,82s 125,481 t $ 631,350 $ 597,323 $ 34,027 $ 840,421 $ 796,43t $ 43,990 s 2,850,750 S 2,822,789 S 27,961 $ 3,861,901 $ 3,763,718 $ 9E,lE3 Other Non-Operating Expenses Total Expenses Change in Assets $ 2,850,750 $ 2,822,789 $ 27,961 s 160,652 $ t60,6t2 $ 3,861,901 $ 3,763,718 $ 98,183 $ t24,tt0 $ 2t4,t50 Fixed Assets Depreciation Computer & Software CapEx Fumiture & Fixtures CapEx Equipment CapEx Leasehold Improvements Change in Fixed Assets (r25,48r) 94,000 4,685 94,928 - (r25,48r) 94, ,613 (15s,927) 94,928 (173,933) n9,928 4, ,000 - (173,933) 119,928 4,685 2t4,ts0 (r l0,ls0) $ 68,132 $ t60,6t3 $ $ 54,680 $ 2t4,t50 $ TOTAL CHANGE IN ASSETS FTEs $ (0) $ $ $ t t 9.33 r 8.33 $

25

26

27

28 INCOME NPCC Regional Entity Division Budget to Actual Variance Comparison at September 30, 2009 Interest Income (Actual of $7,661 recorded on Balance Sheet but not included in 2009 NPCC Budget returns on 100% U.S. treasury security fund and corporate money market funds have thus far been minimal for current operating funds investments) o NPCC has allocated a portion of total interest income (90%) to the regional entity division consistent with the ratio of regional entity (RE) to criteria services (CS) division funding. A common system of accounts, with divisional separation, is used for both RE and CS revenue tracking and financial reporting. EXPENSES Personnel Expenses (Actual - $598k under budget YTD and $204k under FYP) o YTD Under budget is due mainly to at-risk incentive compensation component which is earned over the full year with projections accrued at year end based upon goal attainment. NPCC is currently understaffed due to a resignation. While recruiting is ongoing, the position remains unfilled. Benefit costs are lower than budgeted as most of NPCC s newest hires continue to waive health insurance coverage, keeping superior health insurance coverage available to them from a prior employer. Pension funding is higher than budgeted consistent with Board approved supplemental funding for plan year 2009 aimed at supporting an appropriate funding level. Payroll taxes are as anticipated for the first three quarters of the year. o FYP Under budget in the aggregate primarily due to staffing challenges and anticipation of less than budgeted incentive compensation. Meetings (Actual - $31k under budget YTD and nearly as budgeted FYP) o YTD Under budget due to continued efforts to keep meeting costs down by holding more meetings via teleconference as well as meeting space rental rate negotiations in the wake of the current economic market. o FYP While expenses are currently tracking slightly under budget, expenses for the remainder of the year are projected to remain virtually in line with budget. Travel (Actual - $169k under budget YTD and $151k under budget FYP) o YTD Advance bookings, adjustments to class of hotel being used, along with on-site meetings and meetings by teleconference have kept expenditures under budget. o FYP With continued efforts to keep travel costs at a minimum, is it expected that total travel costs for the year will be under budget. Conference Calls (Actual $25k over budget YTD and 41k over budget FYP) o YTD With efforts to keep meeting and travel costs contained, more conference calls have been scheduled to cut down on overall expenses during the 3 rd quarter. o FYP Continued efforts to keep meeting and travel costs at a minimum result in higher volume of and thus higher than budgeted costs for conference calls.

29 Contract & Consultants (Actual - $203k over budget YTD and over $418k FYP) o YTD NPCC retained independent contractors in association with the mandated 100kV Regional impact assessment, the Situation Awareness near real-time data display, compliance technical writer support, as well as gap analyses in preparation for the year Regional Entity NERC audit. These initiatives were not budgeted, resulting in reprioritization of organizational efforts and the projection of an over budget YTD. o FYP Expenses are projected to be over budget due to unbudgeted but authorized expenditures associated with the 100kV Bright Line assessment, the Regional Entity Operational Awareness project, and activities associated with NERC s performance assessment of NPCC. With the office relocation successfully deployed early and under budget and personnel costs lower than anticipated, a majority of unfunded but approved activities will be offset by under expenditure in various sub-accounts. Office Rent (Actual $59k under budget YTD and $60k under budgeted FYP) o YTD NPCC was able to negotiate some $200,000 plus in free rent related to fiscal 2009 and 2010 budgets in association with its execution of a new lease for the relocated offices. o FYP Due to required straight line accounting treatment and the obligation to spread savings over the fifteen year lease term, reporting of expenses are projected to be slightly under budget. Professional Services (Actual - $91k under budget YTD and 92k under budget FYP) o YTD Under budget due to judicious use of counsel resulting in lower Legal Fees than budgeted. o FYP While legal consultations are generally higher in the 4 th Quarter, professional services are expected to remain under budget. Other Non-Operating Expenses (Actual 57k under budget YTD and 52k under budget FYP) o YTD Office Relocation expenses are under budget due to negotiated terms and in part due to the economic downturn. o FYP Expenses for the remainder of the year are projected to be under budget due to negotiated terms and in part due to the economic downturn. Furniture & Fixtures CapEx (Actual - $22k over budget YTD and 32k under budget FYP) o YTD The majority of office furniture expenditures occurred during the first three quarters due to the timing of the office relocation. o FYP Expenses for the remainder of the year are projected to be under budget due to negotiated discounts. Equipment CapEx (Actual - $19k over budget YTD and 18k under budget FYP) o YTD During the first three quarters of 2009, NPCC had more equipment purchases than YTD budget due to the timing of the office relocation. o FYP Expenses for the remainder of the year are projected to be under budget due to negotiated discounts. Leasehold Improvements (Actual - $43k over budget YTD and under $181k FYP) o YTD During the first three quarters of 2009, NPCC realized a majority of its expenses relating to the office relocation project, such as architectural fees, space buildout expenses, signage, etc. resulting in a quarterly overage. Additionally, the landlord contribution to construction of some $540,000 while not included in the budget, is being spread over the fifteen year term per auditor instruction. o FYP Expenses for the remainder of the year are projected to be under budget due to landlord concessions, the effects of straight line accounting and negotiated landlord concessions. (Unaudited) Submitted October 20 th, 2009

30 Northeast Power Coordinating Council, Inc. - Regional Entity Division Statement of Activities (unaudited) January 1st - September 30th, 2009 (In Whole Dollars) NPCC REGIONAL ENTITY DIVISION 3rd QUARTER RESULTS YTD Actual 2009 YTD Budget Funding ERO Funding ERO Assessments $ 7,506,664 7,506, YTD Variance Over(Under) 2009 Projection 2009 Budget 2009 Projected Variance Over(Under) $ - $ 10,008,885 $ 10,008,885 - Penalty Sanctions Total ERO Funding $ 7,506,664 $ 7,506,664 $ - $ 10,008,885 $ 10,008,885 $ - Membership Dues Testing Fees Services & Software Workshops Interest 7,661-7,661 10,215-10,215 Miscellaneous Total Funding $ 7,514,325 $ 7,506,664 $ 7,661 $ 10,019,099 $ 10,008,885 $ 10,215 Expenses Personnel Expenses Salaries $ 2,116,141 $ 2,753,528 (637,388) $ 3,350,000 $ 3,671,371 (321,371) Payroll Taxes 175, ,396 25, , ,528 (1,099) Benefits 510, ,677 (85,126) 680, ,236 (114,236) Retirement Costs 494, ,483 99, , , ,689 Total Personnel Expenses $ 3,296,950 $ 3,895,085 $ (598,135) $ 4,989,428 $ 5,193,446 $ (204,018) Meeting Expenses Meetings $ 110,706 $ 141,515 (30,809) $ 185,000 $ 188,686 (3,686) Travel 394, ,883 (168,820) 600, ,510 (150,510) Conference Calls 65,403 40,408 24,995 95,000 53,877 41,123 Total Meeting Expenses $ 570,172 $ 744,805 $ (174,633) $ 880,000 $ 993,073 $ (113,073) Operating Expenses Consultants & Contracts $ 939,494 $ 736, ,694 $ 1,400,000 $ 982, ,600 Office Rent 356, ,012 (59,249) 494, ,683 (60,183) Office Costs 207, ,295 7, , ,060 (2,935) Professional Services 488, ,897 (90,554) 680, ,862 (91,862) Computer Equipment & Leases 90,933 99,986 (9,053) 131, ,315 (1,409) Miscellaneous 19,532 20,475 (943) 27,000 27,300 (300) Depreciation 81,681-81, , ,000 Total Operating Expenses $ 2,184,696 $ 2,052,465 $ 132,231 $ 3,097,532 $ 2,736,621 $ 360,911 Total Direct Expenses $ 6,107,679 $ 6,804,856 $ (640,537) $ 9,065,313 $ 9,073,141 $ 43,820 Other Non-Operating Expenses $ 55,861 $ 112,501 $ (56,640) $ 98,352 $ 150,001 $ (51,648) Total Expenses $ 6,107,679 $ 6,804,856 $ (697,177) $ 9,065,313 $ 9,073,141 $ (7,828) Change in Assets $ 1,406,646 $ 701,808 $ 704,838 $ 953,787 $ 935,744 $ 18,043 Fixed Assets Depreciation (81,681) - (81,681) (100,000) - (100,000) Computer & Software CapEx Furniture & Fixtures CapEx 192, ,796 22, , ,728 (32,407) Equipment CapEx 128, ,200 19, , ,600 (17,538) Leasehold Improvements 377, ,591 (42,902) 379, ,788 (180,925) Change in Fixed Assets $ (617,159) $ (700,586) $ 83,427 $ (603,245) $ (934,115) $ 330,870 TOTAL CHANGE IN ASSETS $ 789,487 $ 1,222 $ 788,265 $ 350,542 $ 1,629 $ 348,913 FTEs* (3.8) (3.8) *The NPCC 2009 Business Plan and Budget included 3.8 independent contractors in the Regional Entity division FTE count. To promote cons with NERC and the other Regional Entities, NPCC removed independent contractors from its FTE count during 2009.

31 North American Electric Reliability Corporation Village Blvd. Princeton, NJ Attention: Michael Walker NERC Subject: Statement of Activities Variance Report for the Quarter ending 09/30/09 Dear Mr. Walker: As requested: 1. ReliabilityFirst Corporation 2009 Statement of Activities (Attached). 2. Significant variances explained at the statutory level (see below). Significant Variances: Actual $400K (4.73%) under budget Year-to-Date and $334K (2.92%) under budget for Projected Year End. The major contributors for year to date variance were Total Personal Expenses, Meeting Expenses, Contracts & Consultants, Professional Services and Computer Hardware & Software. Personnel Expenses: Actual $331K (5.91%) under budget Year-to-Date and $596K (7.82%) under budget for Projected Year End. A lag in hiring of employees for compliance compared to budget, coupled with cheaper labor rates are the causes for the variance. Employee benefits are an additional cause for being under budget due to underutilized employee education reimbursement, relocation and cheaper medical expenses. Personnel expenses are projected to end the year about 8% under budget. Meeting Expenses: Actual $231K (33.37%) under budget Year-to-Date and $232K (25.12%) under budget for Projected Year End. Many face to face meetings were eliminated due to our virtual meeting capabilities thus reducing our travel costs. We expect this trend to continue for the remainder of the year for a $232K savings. Operating Expenses: Actual $117K (5.71%) over budget Year-to-Date and $313K (11.45%) over budget for Projected Year End. Contract & Consultants ($408K (328.81%) over budget Year-to-Date and $544K (238.81%) over budget for Projected Year End). Contractor use is necessary until permanent staff is hired in preparing, supporting and documenting our Audits. Due to the lag in hiring employees for compliance along with the unanticipated resources needed for Compliance Violation Investigations (CVI) our projected expense will exceed our budget by $544K. CVI's are difficult to forecast as they are significantly influenced by bulk electric system events. This overrun is offset somewhat by an under run in personnel costs (see above)..

32 Professional Services ($388K (36.41%) under budget Year-to-Date and $517K (36.41%) under budget for Projected Year End). The majority of this line item is due to Legal Services that are budgeted to support compliance violation hearings and settlements. There were no major challenges to the enforcement process in This particular expense is always difficult to forecast and manage due to the uncertainty and no past experiences. Fixed Assets: Computer Hardware & Software ($212K (202.91%) over budget Year-to-Date and $396K (284.74%) over budget for Projected Year End). ReliabilityFirst entered into a contract for the development and delivery of a Data / Document Management & System Interface (DMSI) application. The application is used to increase the efficiency and effectiveness of the registered entity-region compliance interface, document tracking, electronic storage and court docket tracking for compliance purposes, and to improve the efficiency of all other delegated functions. The DMSI Project began in 2008 and will be completed in It will be implemented in three phases. The first phase is the base system to support the oversight of compliance activities of the registered entities. The second phase is the definition and pilot of docket/document management system to support compliance informational needs. The third phase was implemented June, 2009 (defined as essential in the second phase). Two thirds of the project was completed in 2008 with the remaining completed in Contact information: jack.istvan@rfirst.org or Sincerely, Jack A Istvan Jack A. Istvan CFO/Treasurer

33 (In Whole Numbers) ReliabilityFirst Corporation Preliminary Statement of Activitites (unaudited) From 01/01/2009 Through 09/30/2009 Total YTD Actual 2009 YTD Budget YTD Variance Over/(Under) % Variance Total 2009 Projection Total 2009 Budget Projected Variance Over/(Under) % Projected Variance Funding 6,625,376 6,625, % Assessments 8,833,834 8,833, % 1, ,000 #DIV/0! Membership Dues 0 13,413 60,000 (46,587) % Investment Income 12,519 80,000 (67,481) % 6,639,789 6,685,375 (45,586) -0.68% Total Funding 8,846,353 8,913,834 (67,481) -0.76% Expenses Personnel Expenses 4,020,809 4,123,210 (102,401) -2.48% Salaries 5,361,077 5,655,931 (294,854) -5.21% 262, ,151 (9,979) -3.67% Payroll Taxes 349, ,577 15, % 364, ,208 (139,963) % Employee Benefits 485, ,668 (195,008) % 625, ,356 (78,839) % Savings & Retirement Costs 834, ,610 (122,588) % 5,272,743 5,603,925 (331,182) -5.91% Total Personnel Expenses 7,030,322 7,626,786 (596,464) -7.82% Meeting Expenses 109, ,625 (104,680) % Meetings 146, ,600 (143,007) % 332, ,250 (143,201) % Travel 517, ,500 (110,768) % 4,388 3, % Conference Calls 5,851 5, % 446, ,625 (247,243) % Total Meeting Expenses 670, ,100 (252,924) % Operating Expenses 547, , , % Contracts & Consultants 729, , , % 212, ,250 (20,687) -8.87% Rent & Utilities 283, ,000 (27,583) -8.87% 510, ,324 (55,484) -9.80% Office Costs 840, ,015 83, % 676,860 1,064,475 (387,615) % Professional Services 902,480 1,419,300 (516,820) % 13,805 15,000 (1,195) -7.97% Miscellaneous 18,407 20,000 (1,593) -7.97% 167, , % Depreciation 223, , % 2,128,846 2,050,049 78, % Total Operating Expenses 2,997,461 2,735, , % 7,847,971 8,347,599 (499,628) -5.99% Total Expenses 10,697,959 11,285,201 (587,242) -5.20% Fixed Assets (167,645) 0 (167,645) % Depreciation (223,527) 0 (223,527) % 301, , , % Computer Hardware & Software 520, , , % 2,559 7,500 (4,941) Furniture & Fixtures 10,000 10, % 6, , % Leasehold Improvements 8, , % 143, ,750 31, % Total Fixed Assets 315, , , % 7,991,057 8,459,349 (468,292) -5.54% Total of Expenses and Fixed 11,013,772 11,434,201 (420,429) -3.68% (1,351,268) (1,773,974) 422, % Total Change in Assets (2,167,419) (2,520,367) 352, % Head Count FTE

34 Budget to Actual Comparison at September 30, 2009 Income Interest (Actual - $22,952 under budget) o Due to reduced market rates, the actual interest earned is lower than budget. Expense Personnel Expenses (Actual - $118,869 over budget) o During 2009, SERC hired a technical analyst position to address increased tracking of alerts, recommendations, and training records, and other reliability services data management needs. This position was not budgeted, but deemed necessary. o During 2009, a half time auditor position was replaced by a full time auditor position. Meeting Expenses (Actual - $296,981 under budget) o Meetings Expense ($123,035 under budget) There has been a greater emphasis on the use of technology by hosting meetings using Webex, which have lowered the meeting costs. o Travel Expense ($128,984 under budget) SERC has emphasized the use of technology by hosting meetings using Webex. By doing this, travel costs have decreased. Additionally, SERC has emphasized the need to only send required staff to meetings, thereby reducing travel costs. o Conference calls ($10,270 over budget) - There has been a greater emphasis on the use of technology by hosting meetings using Webex, which have increased the conference call costs. Contracts/Consultants ($45,623 under budget) o Participation in the OATI schedule checkout tool was lower than planned in SERC budgeted for 24 balancing authorities for the entire year. By September, 21 balancing authorities had joined. The total cost reduction was $13,500. o The budget is allocated evenly over the year, causing SERC to be under budget by approximately $2,700 on the Compliance Issues Tracking System. o The costs for various projects under the Consortium User Group was budgeted based on splitting the costs between four regions. The actual costs have been split by six regions, causing total consortium costs to be under budget by $78,600. o For the first three quarters, SERC has not incurred significant contract costs related to the Eastern Interconnection Reliability Assessment Group s (ERAG) Multiregional Modeling Working Group (MMWG) power flow base case series and margin analysis projects, causing SERC to be under budget by approximately $66,000. o SERC is over budget by approximately $15,000 due to additional IT consulting time incurred for services relating to the consortium and the NERC audit.

35 2 Contracts/Consultants (continued) o SERC is over budget by approximately $4,600 for the industry support relating to the SERC hotline. o The actual costs are higher than budgeted by $16,600 for the hosting and maintenance costs for SERC s server s. o SERC used a consultant to perform a climate survey for a cost of $4,000. This was not budgeted for, but recommended by the Board. o SERC is over budget by approximately $15,000 for the restoration exercise support project. o SERC is using a consultant to redesign the website for a cost of $2,500. This was not budgeted for, but deemed necessary. o SERC used a consultant for training on the new document management system that was purchased, as noted below under Computer and Software CapEx, for an unbudgeted cost of $27,200. o SERC is over budget by $6,000 for the programming of the morning report. o Part of this variance is due to a timing difference. The budget is evenly allocated over all four quarters. SERC is over budget a total of $23,000 on various projects that have been either partially or fully executed through the third quarter, including $5,800 for a system restoration training drill, $4,200 for contractor support in compliance and $13,000 for the dynamic model reduction project. Office Costs ($26,819 under budget) o Part of this variance is due to a timing difference. The budget is evenly allocated over all four quarters. Up through the third quarter, SERC has not purchased as much equipment as budgeted. Professional Services ($166,450 under budget) o Part of this variance is due to a timing difference. The budget is evenly allocated over all four quarters. SERC receives their financial audit during the first quarter and incurs the full expense at that time, causing an overrun of approximately $6,000 as of the second quarter. Additionally, upon request by the board, SERC s outside auditors performed an unbudgeted agreed upon procedure to review the yearend metrics for $7,300. o SERC switched payroll and expense reporting services effective January 2009, increasing the monthly fee, causing an overrun of approximately $6,200. o Budgeted for legal services related to the following which did not occur during the first two quarters, causing an under run of approximately $114,800: Standards Development procedure or any regional standards that required legal review as they were submitted for FERC approval. Contested penalty assessments.

36 3 Computer and Software CapEx ($79,044 over budget) o Part of this variance is due to a timing difference. The budget is evenly allocated over all four quarters. SERC purchased the document management system, an indexing server and a SQL server in order to operate the document management system during the second and third quarters and incurred the full expense at that time, causing an overrun of approximately $74,800 as of the third quarter. o In order to be in accordance with SERC s document retention policy regarding files, SERC purchased equipment totaling approximately $6,300.

37 (In Whole Dollars) SERC Reliability Corporation Statement of Activities From 01/01/09 to 09/30/09 (Unauditied) 2009 YTD Actual 2009 YTD Budget 2009 YTD Variance Over(Under) 2009 Projection 2009 Budget 2009 Projected Variance Over(Under) Funding ERO Funding ERO Assessments $ 7,239,409 $ 7,239,409 $ - $ 9,652,546 $ 9,652,546 $ - Penalty Sanctions Total ERO Funding $ 7,239,409 $ 7,239,409 $ - $ 9,652,546 $ 9,652,546 $ - Workshops 243, ,250 (59,160) 247, ,000 $ (155,985) Interest 7,048 30,000 (22,952) 9,397 40,000 (30,603) Miscellaneous Total Funding $ 7,489,701 $ 7,571,659 $ (81,958) $ 9,909,112 $ 10,095,546 $ (186,434) Expenses Personnel Expenses Salaries $ 4,144,226 $ 4,044,409 99,817 $ 5,536,897 $ 5,392,546 $ 144,351 Payroll Taxes 306, ,330 3, , , ,924 Benefits 411, ,505 (2,143) 549, ,340 (1,500) Retirement Costs 396, ,748 17, , ,997 19,087 Total Personnel Expenses $ 5,258,861 $ 5,139,992 $ 118,869 $ 7,228,185 $ 6,853,323 $ 374,862 Meeting Expenses Meetings $ 352,940 $ 475,975 (123,035) $ 504,634 $ 634,633 $ (129,999) Travel 266, ,876 (184,216) 355, ,168 (245,621) Conference Calls 32,770 22,500 10,270 43,693 30,000 13,693 Total Meeting Expenses $ 652,370 $ 949,351 $ (296,981) $ 903,874 $ 1,265,801 $ (361,927) Operating Expenses Consultants & Contracts $ 647,902 $ 693,525 $ (45,623) $ 868,227 $ 924,700 $ (56,473) Office Rent 137, , , , Office Costs 172, ,495 (26,819) 215, ,992 (50,164) Professional Services 75, ,500 (166,450) 97, ,000 (224,700) Miscellaneous 4,144-4,144 5,000-5,000 Depreciation 2,104-2,104 15,500-15,500 Total Operating Expenses $ 1,039,872 $ 1,271,978 $ (232,106) $ 1,385,817 $ 1,695,969 $ (310,152) Total Direct Expenses $ 6,951,103 $ 7,361,321 $ (410,218) $ 9,517,875 $ 9,815,093 $ (297,218) Other Non-Operating Expenses $ - $ 210,453 $ (210,453) $ - $ 210,453 $ (210,453) Total Expenses $ 6,951,103 $ 7,571,774 $ (620,671) $ 9,517,875 $ 10,025,546 $ (507,671) Change in Assets $ 538,598 $ (115) $ 538,713 $ 391,237 $ 70,000 $ 321,237 Fixed Assets Depreciation $ (2,104) $ - $ (2,104) $ (15,500) $ - $ (15,500) Computer & Software CapEx 133, , , ,648 Furniture & Fixtures CapEx - 52,500 (52,500) - 70,000 (70,000) Equipment CapEx Leasehold Improvements ,000-35,000 Change in Fixed Assets $ (131,544) $ (52,500) $ (79,044) $ (153,148) $ (70,000) (83,148) TOTAL CHANGE IN ASSETS $ 407,054 $ (52,615) $ 459,669 $ 238,089 $ - 238,089 FTEs (1.5)

38 Southwest Power Pool Regional Entity Actual to Budget Comparison as of September 30, 2009 EXPENSES Personnel Expenses (Actual - $98K under YTD budget) Personnel expenses trailed YTD budget due to lower than expected activity in the Reliability Assessment, Training, and Standards Development program areas. The variances are primarily due to timing of actual activities as the budget is prorated evenly across the year. SPP expects expenses to increase over the remainder of the year due to additional staff hired in 2009 primarily in compliance and enforcement and projects full year expenses to be slightly greater than 2009 budget. Travel and Meeting Expenses (Actual - $135K under YTD budget) Both Travel and Meeting expenses trailed YTD budget due to lower than expected activity as described above. As well, SPP projects full year activity to less than 2009 budget. Contracts, Consultants and Professional Services (Actual - $200K under YTD budget) Contracts and Consultants trailed YTD budget due to timing of consulting resources utilized for compliance audits. Additional resources are expected to be engaged and SPP projects full year expenses to be greater than 2009 budget. Additionally, services budgeted for hearings were prorated evenly across the year while no hearings have taken place in SPP projects full year non-hearing related activity to be at or near 2009 budget. Hearing activity cannot be predicted at this time. Indirect Costs (Actual - $1,127K under YTD budget) - Indirect costs include overhead resources such as corporate support services including Information Technology, Human Resources and Accounting. These costs are charged to the regional entity in relationship to the direct and shared staff manhours engaged to perform specific statutory functions. These costs are in place of overhead items such as office rent, depreciation, communications, technology support, etc. YTD indirect costs trail budgeted costs due to a decrease in the actual hourly rate as compared to the budgeted rate and lower than expected resource activity mentioned above. As a result, SPP projects full year costs to be significantly less than 2009 budget.

39 SOUTHWEST POWER POOL STATEMENT OF ACTIVITIES 2009 SEPTEMBER YTD DRAFT (UNAUDITED) 2009 SEPT YTD ACTUAL 2009 SEPT YTD BUDGET 2009 FULL YEAR PROJECTION 2009 FULL YEAR BUDGET (In Whole Dollars) VARIANCE VARIANCE Funding ERO Funding 5,342,871 5,342,871-7,123,827 7,123,827 - Testing Fees Workshops Interest - - Miscellaneous Total Funding 5,342,871 5,342,871-7,123,827 7,123,827 - Expenses Personnel Expenses Salaries 1,257,782 1,331,263 (73,481) 1,800,000 1,775,017 24,983 Payroll Taxes 81, ,842 (20,467) 115, ,789 (20,789) Benefits 131, ,996 (1,119) 185, ,328 7,672 Retirement Costs 50,311 53,251 (2,939) 72,000 71, Total Personnel Expenses 1,521,346 1,619,351 (98,005) 2,172,000 2,159,134 12,866 Meeting Expenses Meetings 47, ,100 (86,477) 115, ,800 (63,800) Travel 105, , (48,940) 198, , (8,000) Conference Calls Total Meeting Expenses 153, ,600 (135,417) 313, ,800 (71,800) Operating Expenses Contracts & Consultants 188, ,745 (108,059) 411, ,660 16,000 Office Rent Office Costs Administrative Costs 5,812-5,812 4,000-4,000 Professional Services 20, ,500 (91,666) 150, ,000 - Regional Entity Trustee Fees 117, ,500 5, , ,000 - Computer Purchase & Maint Servi Depreciation FurniMiscellaneous/ Cotingency Total Operating Expenses 332, ,745 (188,896) 700, ,660 20,000 Total Direct Costs 2,007,378 2,429,696 (422,318) 3,185,660 3,224,594 (38,934) Total Indirect Costs 1,315,595 2,442,332 (1,126,737) 2,484,608 3,256,442 (771,834) Total Costs 3,322,973 4,872,027 (1,549,055) 5,670,268 6,481,036 (810,768) Change in Assets 2,019, ,843 1,549,055 1,453, , ,768

40

41

42

43 (In Whole Dollars) 2009 YTD Actual Western Electricity Coordinating Council Statutory Statement of Activities From 1/1/2009 to 9/30/2009 (Unaudited) 2009 YTD Budget 2009 YTD Variance Over(Under) 2009 Projection 2009 Budget 2009 Projected Variance Over(Under) Funding ERO Funding ERO Assessments $ 37,088,486 $ 37,088,502 $ (16) $ 37,088,486 $ 37,088,502 $ (16) Penalty Sanctions $ - $ - $ - $ - $ - $ - Total ERO Funding $ 37,088,486 $ 37,088,502 $ (16) $ 37,088,486 $ 37,088,502 $ (16) Membership Dues Testing Fees Services & Software - 85,082 (85,082) - 85,082 (85,082) Workshops 659, ,490 (79,211) 805, ,290 (57,505) Interest 244, ,909 (352,649) 298, ,593 (347,053) Miscellaneous 3,581 6,975 (3,394) 3,581 9,300 (5,719) Total Funding $ 37,995,606 $ 38,515,958 $ (520,352) $ 38,196,392 $ 38,691,767 $ (495,375) Expenses Personnel Expenses Salaries $ 10,894,576 $ 11,750,070 $ (855,494) $ 15,594,576 $ 15,624,378 $ (29,802) Payroll Taxes 817,923 1,190,860 (372,937) 1,170,781 1,270,888 (100,107) Benefits 1,310,189 2,446,762 (1,136,573) 1,916,223 3,185,702 (1,269,479) Retirement Costs 693, ,803 (166,674) 1,091,620 1,146,404 (54,784) Total Personnel Expenses $ 13,715,817 $ 16,247,495 $ (2,531,678) $ 19,773,201 $ 21,227,372 $ (1,454,171) Meeting Expenses Meetings $ 763,743 $ 892,108 $ (128,365) $ 1,187,650 $ 1,187,650 $ - Travel 956,312 1,145,255 (188,942) 1,526,096 1,526,096 - Conference Calls 74, ,488 (37,110) 151, ,076 - Total Meeting Expenses $ 1,794,433 $ 2,148,850 $ (354,417) $ 2,864,822 $ 2,864,822 $ - Operating Expenses Consultants & Contracts $ 1,952,903 $ 2,964,559 $ (1,011,656) $ 4,148,868 $ 3,923,868 $ 225,000 Office Rent 748, ,374 15, , ,832 - Office Costs 1,444,906 2,350,292 (905,386) 3,405,122 3,405,122 - Professional Services 1,219,187 1,142,056 77,131 1,520,608 1,520,608 - Miscellaneous 1,793-1,793 1,793-1,793 Depreciation ,225,000-2,225,000 Total Operating Expenses $ 5,367,181 $ 7,190,281 $ (1,823,100) $ 12,279,223 $ 9,827,430 $ 2,451,793 Total Direct Expenses $ 20,877,431 $ 25,586,626 $ (4,709,195) $ 34,917,246 $ 33,919,624 $ 997,622 Other Non-Operating Expenses $ 2,993,876 $ 3,173,599 $ (179,723) $ 3,256,063 $ 3,256,063 $ - Total Expenses $ 23,871,306 $ 28,760,225 $ (4,888,918) $ 38,173,309 $ 37,175,687 $ 997,622 Change in Assets $ 14,124,299 $ 9,755,733 $ 4,368,566 $ 23,083 $ 1,516,080 $ (1,492,997) Fixed Assets Depreciation (2,225,000) - (2,225,000) Computer & Software CapEx 1,264, , , , , ,647 Furniture & Fixtures CapEx 17,595-17,595 35,190-35,190 Equipment CapEx Leasehold Improvements 95,166-95, , ,166 Change in Fixed Assets $ (1,377,742) $ (390,060) $ (987,682) $ 976,917 $ (516,080) $ 1,492,997 TOTAL CHANGE IN ASSETS $ 12,746,557 $ 9,365,673 $ 3,380,884 $ 1,000,000 $ 1,000,000 $ 0 FTEs

44 Jillian S. Lessner Controller Quarterly Statement of Activities (Unaudited) September 30, 2009 Variance Explanations Year-to-date variances greater than $10,000 and 10 percent are explained below, in addition to any other variances that are noteworthy. FUNDING SERVICES & SOFTWARE ($85K under budget YTD) o Service revenue was budgeted that will not be realized. WORKSHOPS ($79K under budget YTD) o Timing of budgeted workshops versus actual class schedule. Some training classes and workshops have been canceled due to low registration numbers. INTEREST ($353K under budget YTD) o Rates of return are less in 2009 than anticipated due to current economic conditions. o Projected 2009 variance of $347K also relates to lower than expected rates of return. EXPENSES SALARIES ($855K under budget YTD) o Lag in hiring (Standards, Training, Reliability Assessment, and Administrative Services), delays in backfilling several positions, and delays in incentive payments. WECC budgets for all new hire salaries and incentive payments effective January first. PAYROLL TAXES ($373K under budget YTD) o Hiring lags and delays in backfilling open positions; Payroll Taxes fluctuate with Salaries. BENEFITS ($1,137K under budget YTD) o Timing of budgeted Training versus actual attendance; budget was evenly allocated and a small number of employees have attended training classes during the first half of the year. o HRA reimbursements are $272K less than the evenly allocated budget. The bulk of reimbursements are submitted in the last quarter of the year.

45 2 o Insurance costs are $769K lower than expected due to hiring lags and the levels of coverage selected (family, single, etc) compared to what was budgeted. o Relocation is $70K under budget; the Situational Awareness budget for Relocation is in the first quarter of the year. o Projected 2009 under run of $1,269K relates mainly to insurance benefits and is based on current levels of participation. RETIREMENT COSTS ($167K under budget YTD) o The level of employee participation in the retirement plan was under-estimated. o Retirement Costs fluctuate with Salaries. o Projected 2009 under run of $55K relates to lower than anticipated levels of participation in the 401(K) plan. MEETINGS ($128K under budget YTD) o Timing due to even budget allocation and uneven actual expenditures. Additionally, some in-person meetings were canceled during the year and webconferences were employed. TRAVEL ($189K under budget YTD) o Timing due to even budget allocation and uneven actual expenditures. CONFERENCE CALLS ($37K under budget YTD) o WECC is attempting to control conference call costs by using a free teleconferencing service for many calls. o Timing due to even budget allocation and uneven call schedule. CONSULTANTS & CONTRACTS ($1,012K under budget YTD) o Software, equipment and computer license costs of $1,394K were budgeted in Contracts in 2009 and the actuals are appropriately recorded in Fixed Assets and Office Costs. o Timing of actual versus budgeted expenditures. o Projected 2009 over run relates to anticipated use of independent contractors for CIP audits in Compliance and a consultant WECC has retained to assist with preparation for the NERC audit of WECC. WECC anticipates greater than anticipated use of independent contractors through the end of the year to eliminate Compliance backlog. OFFICE COSTS ($905K under budget YTD) o Situational Awareness internet/computer/data communications costs are much less than anticipated; $992K of savings were realized through September 30. o Training is over budget by $40K relating to a software license that was not budgeted. Other departments did not budget sufficiently for equipment rental, express shipping, dues and fees, and telephone expenses. PROFESSIONAL SERVICES ($77K over budget YTD) o Non-affiliated Director compensation is $133K under budget; fewer hearings than anticipated; fewer in-person meetings and lower quarterly retainers than budgeted. 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 W W W. W E C C. B I Z A R A P E E N D R I V E S U I T E S A L T L A K E C I T Y U T A H P H F X

46 3 o Insurance is over budget by $68K due to rate increases that occurred after the budget was finalized. Additionally, property coverage increased substantially due to the two new Reliability Coordination offices. o Legal fees are over budget by $166K mainly due to the FERC audit of WECC. o Accounting and auditing fees are under budget by $34K due to the timing of expenditures compared to budget. DEPRECIATION ($2,225K over budget at year-end) o Projected 2009 over run exists because budgets were historically prepared on a cash basis, therefore, depreciation was not in the budget. NERC and the Regional Entities are moving towards GAAP budgeting and reporting, so depreciation is now being included in these statements of activities and is being projected for year-end. OTHER NON-OPERATING EXPENSES ($180K under budget YTD) o Interest expense is under budget due to a lower than anticipated floating rate on the line of credit. FIXED ASSETS COMPUTER & SOFTWARE CAPEX ($875K over budget YTD) o Most of WECC s Computer & Software CapEx was budgeted in Contracts for The main reason for this was that WECC prepared its budget on a cash basis. Now that NERC and the Regions are moving towards GAAP budgeting and reporting, actuals are being appropriately recorded in Fixed Assets. FURNITURE & FIXTIRES CAPEX ($18K over budget YTD) o WECC Corporate and Compliance staff relocated to a new office space in Vancouver in 2009 and some new furniture was purchased which was not in the budget. LEASEHOLD IMPROVEMENTS ($95K over budget YTD) o WECC Corporate and Compliance staff relocated to a new office space in Vancouver in 2009 and some space modifications were required which were not in the budget. 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 W W W. W E C C. B I Z A R A P E E N D R I V E S U I T E S A L T L A K E C I T Y U T A H P H F X

47 Agenda Item 5

48

49

50