2012 BUDGET REVIEW Sue Clarke, VP of Finance and Administration

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1 2012 BUDGET REVIEW Sue Clarke, VP of Finance and Administration June 2, 2011 Promoting RELIABILITY and Mitigating RISKS to the Bulk Power System

2 Overview MRO staff imposed a budget target with a flat headcount and a single digit increase for the 2012 budget using a topdown / bottom-up approach Increase from 2011 to 2012 is budgeted at 7.86%, MRO staff and MRO FAC recommend to recognize the overage in Working Capital Reserves reducing the funding (assessments) increase to 3.15% (costs remain the same) Key drivers Budget to budget increase of 2.5 FTE s, flat with actual projected FTE s in 2011 (MRO Board approved additional FTE s above 2011 budget in March) Move to different facility Stabilizers to the increases Reduced benefits costs (ex. medical premiums) Working Capital Reserve requirement met from past years accumulations 2

3 2011 and 2012 Change in Budget 2011 Budget 2012 Budget Increase (Decrease ) to 2011 Budget Funding Assessments 8,397,501 9,057, , % Membership Fees & Non-Stat Assessments Testing Serv ices & Softw are Interest Misc Penalty Sanctions Total Funding 8,397,501 9,057, , % Expenses Personnel Ex penses Salaries 4,065,185 4,513, , % Pay roll Tax es 305, ,540 (4,675) -1.53% Employ ee Benefits 632, ,898 (219,592) % Sav ings & Retirement 561, ,472 12, % Total Personnel Expenses 5,564,517 5,800, , % Meeting Expenses Meetings 174, ,254 (39,796) % Business Trav el 369, ,866 (8,152) -2.21% Member Trav el Reimbursement 241, ,574 (23,817) -9.87% Conference Calls 41,680 50,500 8, % Total Meeting Expenses 826, ,194 (62,945) -7.62% Operating Expenses Consultants 256, , , % Contracts 301, , , % Building Rent and Facilities 223, , , % Office Costs 432, ,719 39, % Professional Serv ices 214, ,000 (20,053) -9.37% Depreciation 270, , , % Total Operating Expenses 1,698,859 2,242, , % Other Non-Operating Expenses - 77,484 77,484 Total Expenses 8,089,515 8,884, , % Net Change in Assets 307, ,939 (135,047) % Fixed Assets Depreciation (270,805) (388,498) (117,693) 43.46% Computer Equipment 246, ,732 33, % Capitalized Softw are 66,000 70,703 4, % Furniture and Equipment Leasehold Improv ements - 211, ,000 Change in Fixed Assets 41, , , % TOTAL CHANGE IN ASSETS 266,676 2 (266,675) % FTE % 3 5/25/2011

4 Summary of Full Time Equivalents (FTEs) Total FTE's by Program Area Budget 2011 Projection 2011 Direct FTEs 2012 Budget Shared FTEs 2012 Budget Total FTEs 2012 Budget Change from 2011 Budget STATUTORY Operational Programs Reliability Standards (0.49) Compliance and Organization Registration and Certification Training and Education Reliability Assessment and Performance Analysis Situation Awareness and Infrastructure Security (0.72) Total FTEs Operational Programs Administrative Programs Technical Committees and Member Forums General & Administrative Information Technology (0.28) Legal and Regulatory Human Resources Finance and Accounting Total FTEs Administrative Programs Total FTEs

5 Working Capital Reserve Analysis Working Capital Reserve Analysis STATUTORY Beginning Working Capital Reserve (Deficit), December 31, ,139,666 Plus: 2011 MRO Funding (from LSEs or designees) 8,397,503 Less: 2011 Projected expenses & capital expenditures (8,130,825) Projected Working Capital Reserve (Deficit), December 31, ,406,344 Desired Working Capital 1 Reserve, December 31, ,116,645 Less: Projected Working Capital Reserve, December 31, 2011 (1,406,344) Increase(decrease) in assessments to achieve desired Working Capital Reserve (289,699) 2012 Expenses and Capital Expenditures 9,057,229 Less: Penalty Sanctions 3 (246,500) Less: Other Funding Sources 0 Adjustment to achieve desired Working Capital Reserve (289,699) 2012 MRO Assessment 8,521,030 1 For the purpose of this schedule, the Working Capital Reserves are equivalent to cash reserves. 2 On April 2008, the MRO Finance and Audit Committee approved a desired working capital reserve of 45 days of cash. 3 Represents collections on or prior to June 30,

6 2011 to 2012 Change in Funding w/ Reserve Adjustment Departments 2011 Funding 2012 Funding Variance 2012 vs 2011 Variance % Compliance $ 2,390,376 $ 2,718,084 $ 327, % Assessments $ 1,333,232 $ 1,473,295 $ 140, % IT $ 1,019,734 $ 1,084,317 $ 64, % HR & Finance $ 656,281 $ 729,567 $ 73, % G&A $ 491,744 $ 534,504 $ 42, % Enforcement $ 943,159 $ 935,181 $ (7,978) -0.85% Legal $ 361,309 $ 342,227 $ (19,082) -5.28% NERC Forums $ 319,983 $ 296,233 $ (23,750) -7.42% Standards $ 363,730 $ 285,918 $ (77,812) % Training $ 111,407 $ 153,878 $ 42, % Situation Awareness $ 25,100 $ 41,565 $ 16, % Infrastructure Security $ 168,653 $ 10,696 $ (157,957) % Increase/Decrease in Working Capital Reserves $ 212,793 $ (289,699) $ (502,492) % Less: Penalty Sanctions $ (137,000) $ (246,500) $ (109,500) 79.93% New Facility (Savings reflected in programs) $ 451,764 $ 451,764 $ 8,260,501 $ 8,521,030 $ 260, % $296,233 $342,227 $(289,699) $10,696 $41,565 $153,878 $285,918 $935,181 $534,504 $729, Budgeted Funding Requirements by Program $(246,500) $451,764 $1,084,317 $2,718,084 $1,473,295 Departments Compliance Assessments IT HR & Finance G&A Enforcement Legal NERC Forums Standards Training Situation Awareness Infrastructure Security Increase/Decrease in Working Capital Reserves Less: Penalty Sanctions New Facility (Savings reflected in programs) 6

7 Dealing with the Unexpected For the unexpected, MRO has the following approach: First 45 day Working Capital Reserves (ex. timing issues); and/or, Second Line of credit of $2 million (ex. roll payback to next year s funding); and/or, Third Request for additional funds (ex pension termination.) 7

8 Three Years Projection Assumptions 2012 Budget 2013 Projected % Increases/(Decrease) 2014 Projected % Increases/(Decrease) FTEs % % TOTAL BUDGET $ 9,057,228 $ 9,313, % $ 9,860, % Key Assumptions Section 215 of FPA and delegation agreements remain stable Canadian arrangements remain stable Fill in the Blank standards are assigned to registered functions (rather than legacy RRO ) Scope of delegation agreement, including CIP remain the same No extraordinary items 2013 Assumptions 1.0 FTE 4.0 % Labor Rates for Merit Increases plus Promotions 10 % Health and Dental Increases 5 % Other than Labor Increase Stablizers to increase one time costs in 2012 Moving costs to new facility $ 77,484 Leasehold improvments to new facility $ 211, Assumptions 1.0 FTE 4.0 % Labor Rates for Merit Increases plus Promotions 5 % Health and Dental Increases 5 % Other than Labor Increase 8 5/25/2011