Agenda Finance and Audit Committee May 9, :30-9:30 a.m. Eastern

Transcription

1 Agenda Finance and Audit Committee May 9, :30-9:30 a.m. Eastern The Ritz-Carlton, Pentagon City 1250 S. Hayes Street Arlington, VA Conference Room: Ritz Carlton Grand Ballroom (2 nd Floor) Call to Order Introductions and Chair s Remarks NERC Antitrust Compliance Guidelines Agenda 1. Minutes* Approve a. February 7, 2018 Meeting 2. Report on April 17 and May 8, 2018 Closed Sessions 3. Second Quarter Calendar of FAC Responsibilities* a Financial Statement Audit Results Review and Recommend to Board of Trustees b. First Quarter Statement of Activities Review and Recommend to Board of Trustees i. NERC Summary of Results as of March 31, 2018 ii. Total ERO Enterprise Summary of Results as of March 31, 2018 iii. Regional Entity Variance Reports as of March 31, Business Plan and Budget* Update 5. Adjournment *Background materials included.

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

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

4 DRAFT Minutes Finance and Audit Committee Meeting February 7, :15-11:00 a.m. Eastern Hilton Fort Lauderdale Marina 1881 SE 17 th Street Fort Lauderdale, FL Call to Order and Chair s Remarks Ms. Jan Schori, Chair, called to order a duly noticed open meeting of the Finance and Audit Committee (the Committee ) of the Board of Trustees ( Board ) of the North American Electric Reliability Corporation ( NERC or the Company ) on February 7, 2018, at 10:15 a.m. Eastern, and a quorum was declared present. The agenda is attached as Exhibit A. Present at the meeting were: Agenda Item 1a Finance and Audit Committee Meeting May 9, 2018 Committee Members Jan Schori, Chair Robert G. Clarke David Goulding Roy Thilly Board of Trustee Members Charles A. Berardesco, Interim President and Chief Executive Officer Kenneth W. DeFontes Frederick W. Gorbet George S. Hawkins Janice B. Case NERC Staff Tina Buzzard, Associate Director to the Office of the President and CEO Stan Hoptroff, Vice President, Chief Technology Officer, and Director of Information Technology Scott Jones, Vice President, Chief Financial and Administrative Officer, and Corporate Treasurer Mark G. Lauby, Senior Vice President and Chief Reliability Officer Sonia C. Mendonҫa, Vice President, Acting General Counsel and Corporate Secretary, and Director of Enforcement Janet Sena, Senior Vice President and Director of Policy and External Affairs Michael Walker, Senior Vice President and Chief Enterprise Risk and Strategic Development Officer NERC Antitrust Compliance Guidelines Ms. Schori directed the participants attention to the NERC Antitrust Compliance Guidelines included in the agenda, and indicated that all questions regarding antitrust compliance or related matters should be directed to Ms. Mendonça. Minutes Upon motion duly made and seconded, the minutes from the November 8, 2017 meeting were approved as presented to the Committee.

5 2017 Year-End Unaudited Statement of Activities Mr. Jones reviewed the NERC 2017 Year-End Unaudited Statement of Activities, referencing the detailed information provided in the advance Committee materials. The Committee discussed the reports, and upon motion duly made and seconded, the Committee recommended Board acceptance of the 2017 Year-End Unaudited Statement of Activities. Internal Audit Plan Ms. Schori discussed the allocation of oversight responsibilities for internal audits between the Enterprise-wide Risk Committee and the Committee, noting the focus areas for each such committee. The Committee approved general principles for financially focused internal control reviewed at a previous meeting. She noted that the Committee will focus on oversight of activities related to safeguarding the financial assets of the company (e.g., accounts payable, vendor management), financial covenants, and compliance with relevant regulations. In reviewing the proposed multi-year internal audit plan, Ms. Schori noted that approximately 80 percent of such internal audit resources will be focused on strategy and policy audits and 20 percent focused on financially-focused audits. The Committee approved the 2019 financial internal audit plan at the prior day s closed meeting. Investment Policy Mr. Jones reviewed the Company s Investment Policy proposed amendments, noting that the Committee had discussed the proposed amendments and related approaches at previously closed meetings. The Committee discussed various issues related to the proposed amendments, including earnings, management of fees and risk considerations. It was noted that the proposed amendments would continue to focus on low risk investments, given the nature of the Company s funding. Upon motion duly made and seconded, the Committee recommended Board acceptance of the Investment Policy. Annual Review of Committee Mandate Ms. Schori noted that the Committee is required to review its mandate on an annual basis. Based on Legal department s review and the recent updating of the mandate, no changes are recommended. The Committee concurred with the approach. Adjournment There being no further business, and upon motion duly made and seconded, the meeting was adjourned. Submitted by, Sonia C. Mendonҫa Acting Corporate Secretary

6 Agenda Item 3b.i Finance and Audit Committee Meeting May 9, 2018 Summary of Unaudited Results For the Month Ending March 31, 2018 Table of Contents Page I. Executive Summary Projected Year-End Results 2 Year-to-Date Actual Results 3 II. III. Detailed Operating Results Variances by Revenue and Expense Category 4 Variances by Department / Program 6 Supplemental Schedules Schedule 1 Reserves 7 Schedule 2 IT Projects 8 Schedule 3 E-ISAC & CRISP 10

7 Executive Summary Projected Year-End Results ($ millions) Over FUNDING Projected Budget (Under) Revenues $ 72.4 $ 72.4 $ - Funding from Reserves Assessment Stabilization Reserve TOTAL FUNDING $ 73.0 $ 73.0 $ - EXPENDITURES Expenses (excluding Depreciation) $ 69.9 $ 69.3 $ 0.6 Fixed Asset Additions TOTAL EXPENDITURES $ 73.8 $ 73.2 $ 0.6 RESERVE INCREASE (DECREASE) $ (0.8) $ (0.2) $ (0.6) FUNDING Revenues o Projected to be on budget Funding from Reserves o No reserve funding expected other than the budgeted amount from the Assessment Stabilization Reserve EXPENDITURES Expenses o Personnel expenses expected to be over budget because of increased medical insurance, retirement, and executive search fee costs o Contracts and consultants projected to be over budget primarily due to costs for SPP RE transition work and a cyber-security supply chain risk study Fixed Assets o Expected to be on budget RESERVE INCREASE (DECREASE) Projected decrease in total reserves is greater than budget by $0.6M Summary of Results as of March 31,

8 Year-to-Date Actual Results ($ millions) Over FUNDING Actual Budget (Under) Revenues $ 18.0 $ 18.1 $ (0.1) Funding from Reserves Assessment Stabilization Reserve TOTAL FUNDING $ 18.6 $ 18.7 $ (0.1) EXPENDITURES Expenses (excluding Depreciation) $ 17.3 $ 18.2 $ (0.9) Fixed Asset Additions (0.9) TOTAL EXPENDITURES $ 17.4 $ 19.2 $ (1.8) RESERVE INCREASE (DECREASE) $ 1.2 $ (0.5) $ 1.7 FUNDING Revenues o Testing fees and workshop fees slightly below budget EXPENDITURES Expenses o Meetings, Contracts and Consultants, and Office Costs are under budget due to the expected timing of expenditures versus budget Fixed Assets o Project expenditures are under budget because of the expected timing of expenditures versus budget OPERATING RESERVE INCREASE (DECREASE) Reserve increase higher than budget by $1.7 million o Additional net increase of reserves from operating results, primarily due to the expected timing of expenditures versus budget Summary of Results as of March 31,

9 Detailed Operating Results Total NERC (including CRISP) Variances by Revenue and Expense Category YTD % Annual Annual Annual % YTD Actual YTD Budget Over (Under) Inc (Dec) Projection Budget Over (Under) Inc (Dec) TOTAL FUNDING $ 18,623,957 $ 18,714,055 $ (90,098) (0.5%) $ 73,018,216 $ 72,981,221 $ 36, % EXPENDITURES Personnel $ 10,853,675 $ 10,810,451 $ 43, % $ 41,450,947 $ 40,969,105 $ 481, % Meetings, Travel, and Conference Calls 645, ,900 (221,894) (25.6%) 3,331,353 3,395,100 (63,747) (1.9%) Contracts and Consultants 3,243,623 3,733,003 (489,380) (13.1%) 14,096,841 13,724, , % Rent and Facilities 749, ,951 (23,206) (3.0%) 3,087,919 3,091,804 (3,885) (0.1%) Office Costs, Professional, and Misc.* 1,757,032 1,994,198 (237,166) (11.9%) 7,821,916 7,942,084 (120,167) (1.5%) Other Non-Operating Expenses 8,704 34,720 (26,015) (74.9%) 138, , % Fixed Asset Additions * 149, ,500 (819,403) (84.6%) 3,874,000 3,874, % TOTAL EXPENDITURES $ 17,406,882 $ 19,180,722 $ (1,773,840) (9.2%) $ 73,801,855 $ 73,135,156 $ 666, % RESERVE INCREASE (DECREASE) $ 1,217,075 $ (466,667) $ 1,683,742 (360.8%) $ (783,639) $ (153,935) $ (629,704) 409.1% FTEs (6.4) (3.2%) (8.0) (4.0%) * Excluding depreciation Following is a brief summary of variances by major categories: Personnel Expense o On-budget year-to-date o Expected to be over budget at year-end because of increased medical insurance, retirement, and executive search fee costs Meetings, Travel, and Conference Calls Expense o Under budget year-to-date due to the expected timing of expenditures versus budget o Expected to be near budget at year-end Summary of Results as of March 31,

10 Contracts and Consultants Expense o Under budget year-to-date because of the expected timing of expenditures versus budget o Projected to be over budget at year-end primarily due to SPP RE transition costs and an unplanned cyber-security supply chain risk EPRI project CONTRACTS and CONSULTANTS YTD Actual YTD Budget YTD Over (Under) Annual Projection Annual Budget Annual Over (Under) Reliability Standards $ - $ - $ - $ 100,000 $ - $ 100,000 Compliance Assurance - 12,500 (12,500) 50,000 50,000 - Compliance Analysis, Registration and Certification 28,670-28,670 49,950-49,950 Compliance Enforcement Reliability Assessment and System Analysis 30, ,250 (100,750) 525, ,000 - Reliability Risk Management 754, ,338 (86,717) 1,867,525 1,867,525 - E-ISAC 297, ,050 22,204 1,100,200 1,100,200 - Training, Education, and Personnel Certification 77, ,725 (72,115) 598, ,900 - General and Administrative and Executive ,000 80,000 - Legal and Regulatory Policy and External Affairs - 6,250 (6,250) 41,500 20,000 21,500 Information Technology 425, ,992 (105,933) 2,325,172 2,123, ,206 Human Resources 54, ,250 (51,453) 640, ,000 - Finance and Accounting 33, ,750 (73,144) 427, ,000 - TOTAL (excluding CRISP) $ 1,702,116 $ 2,160,104 $ (457,988) $ 7,805,247 $ 7,432,591 $ 372,656 CRISP 1,541,506 1,572,899 (31,392) 6,291,594 6,291,594 - TOTAL (including CRISP) $ 3,243,623 $ 3,733,003 $ (489,380) $ 14,096,841 $ 13,724,185 $ 372,656 Office Costs and Professional Fees o Under budget year-to-date because of the expected timing of expenditures versus budget o Projected to be near budget at year-end Fixed Asset Additions (excluding depreciation) o Under budget year-to-date because of the expected timing of expenditures versus budget o Projected to be near budget at year-end Summary of Results as of March 31,

11 Variances by Department / Program DIRECT EXPENSES and NET FIXED ASSETS YTD Actual YTD Budget YTD Over (Under) Annual Projection Annual Budget Annual Over (Under) Reliability Standards $ 681,104 $ 876,532 $ (195,428) $ 2,894,287 $ 3,293,666 $ (399,378) Compliance Assurance 1,248,172 1,147, ,330 4,647,111 4,520, ,561 Compliance Analysis, Registration and Certification 703, ,075 (8,548) 2,906,759 2,748, ,996 Compliance Enforcement 733,125 1,009,370 (276,245) 4,084,925 3,894, ,802 Reliability Assessment and System Analysis 1,046,751 1,087,851 (41,101) 4,362,443 4,105, ,967 Reliability Risk Management 2,203,586 2,359,501 (155,914) 7,516,969 7,654,264 (137,296) E-ISAC 1,521,768 1,891,010 (369,242) 7,167,371 7,357,222 (189,851) Training, Education, and Personnel Certification 370, ,631 (62,043) 1,726,311 1,706,574 19,737 General and Administrative and Executive 1,854,166 2,007,330 (153,164) 7,688,441 7,874,321 (185,880) Legal and Regulatory 738, ,440 (32,022) 3,035,046 2,914, ,669 Policy and External Affairs 613, ,833 19,451 2,327,338 2,221, ,512 Information Technology 2,588,767 2,881,570 (292,803) 11,766,931 11,266, ,305 Human Resources 301, ,378 (83,808) 1,682,659 1,704,459 (21,799) Finance and Accounting 1,019,538 1,043,941 (24,403) 4,227,342 4,008, ,016 TOTAL (excluding CRISP) $ 15,624,364 $ 17,199,306 $ (1,574,941) $ 66,033,932 $ 65,270,572 $ 763,360 CRISP 1,782,517 1,981,416 (198,899) 7,767,923 7,864,584 (96,661) TOTAL EXPENSES and NET FIXED ASSETS $ 17,406,882 $ 19,180,722 $ (1,773,840) $ 73,801,855 $ 73,135,156 $ 666,699 Reliability Standards: Projected to be under budget primarily because of reduced personnel costs resulting from the reallocation of resources to other departments. Reliability Assessments and System Analysis: Projected to be over budget because of increased personnel costs related to the reallocation of resources from other departments. Information Technology: Projected to be over budget due to largely to the unanticipated costs of the SPP RE transition, particularly related to the transfer of systems and data between regional entities. Additionally, the department is expected to be slightly over budget in personnel and software maintenance/license costs. Summary of Results as of March 31,

12 SUPPLEMENTAL SCHEDULE 1 Year-End Projected Reserves Expected Beginning Budgeted Budgeted Other Net Financing Ending Reserve Account Balance (2) Funding Uses Funding (Uses) (1) Activity (3) Balance Operating Contingency $ 3,680,094 $ 600,000 $ (231,393) $ (1,185,147) $ 714,726 $ 3,578,280 Future Obligations 3,015,787 - (480,457) (15,759) - 2,519,571 Assessment Stabilization 2,671,000 - (600,000) - - 2,071,000 System Operator 477,484 77,458 - (44,556) - 510,386 CRISP 500, ,000 Total Reserves $ 10,344,365 $ 677,458 $ (1,311,850) $ (1,245,463) $ 714,726 $ 9,179,237 NOTES: (1) The column Other Funding (Uses) primarily reflects the net impact of normal operations. For example, under normal circumstances, if NERC was tracking well under budget in actual expenditures, this would reflect additional funds into the reserve account. (2) Some 2018 beginning balances have been adjusted from the 12/31/2017 variance report balances as the result of a reconciliation to the final audited balance sheet. (3) Net Financing Activity is projected to be favorable to budget by $483k due to lower debt service requirements in 2018, primarily as a result of no capital borrowing in Summary of Results as of March 31,

13 SUPPLEMENTAL SCHEDULE 2 IT Projects Actuals Through March 2018 Expected Project Actual Expected Over (Under) Projects in Progress Budget (1) Spend Spend Budget CMEP Program $ 5,103,000 $ 288,000 $ 5,103,000 $ - E-ISAC Portal Enhancements 403, , ,975 - E-ISAC Document Management 215, ,000 - Entity Registration - CORES (Discovery) and JRO (On Hold) 600, , ,989 (412,011) SPP RE Transition , ,206 Actual Project Actual Over (Under) Projects Completed in 2018 Budget (1) Spend Budget NERC.com Phase 2 $ 300,000 $ 217,100 $ (82,900) NOTES: (1) The Project Budget noted above usually corresponds to the approved business case for each project and funds for each project are drawn from the available budget. In some projects, business cases may not be prepared, particularly when a project is smaller and/or may be in response to a FERC order. * Some of these projects span multiple years, so the amounts above do not represent a single budget year expenditure. * The amounts noted above do not include internal labor and reflect only external (consultant) costs of the projects. Summary of Results as of March 31,

14 SUPPLEMENTAL SCHEDULE 2 (continued) CMEP Program (Started May 2017 / Planned Completion Dec 2020) This project will provide registered entities, Regional Entities and NERC the ability manage the compliance and enforcement processes and data in a single ERO Enterprise system. Today, those processes and related data are managed across three separate systems that have to be synchronized (webcdms, CITS and CRATS). E-ISAC Portal Enhancements (Started Jan 2018/ Planned Completion Dec 2018) As requested by and prioritized by the MEC, certain enhancements will be made to the E-ISAC portal during 2018 related to areas such as notifications, user communities, and STIX-TAXII. E-ISAC Document Management (Started Apr 2018 / Planned Completion Jun 2018) NERC launched the Document Management Program to provide a secure and efficient method of creating, collaborating, storing and disseminating the vast amount of information produced at NERC. The E-ISAC is the final business unit to be implemented. Entity Registration CORES (Discovery) and JRO (On Hold) (Started Dec 2017 / Planned Completion May 2018) NERC is undertaking an effort to both standardize and modernize the Entity Registration process. The discovery phase of the CORES project includes the capture of region specific needs, variations, and exceptions in the registration process. CORES will be a centralized entity registration process, which will require the retirement of registration in CDMS, CITS and CRATS. The JRO portion of the project was put on hold for construction, to be combined with the CORES production release in SPP RE Transition (Started Mar 2018 / Planned Completion Jul 2018) With SPP dissolving, NERC is assessing the changes required to applications that contain SPP RE data and the reassignment/classification of such information. The inventory will require the mapping utility, functionality, migration, and support efforts by both region and entity. Activities include facilitated discussions with IT and business owners of impacted applications to capture and document high-level, as well as more detailed requirements necessary to support the transition of Registered Entities from SPP RE to MRO and SERC. NERC.com Phase 2 (Started May 2017 / Completed Feb 2018) In response to feedback from stakeholders, this project is a first step to improve the usability and search capability of the public NERC.com website. The project will also enhance the stability of the NERC.com platform with a technology upgrade from SharePoint 2010 to SharePoint 2016 in Azure. Summary of Results as of March 31,

15 SUPPLEMENTAL SCHEDULE 3 E-ISAC and CRISP Summary of Activity TOTAL E-ISAC (including CRISP) YTD Annual Annual Projected FUNDING Actual Projection Budget Over (Under) Assessments $ 3,574,381 $ 14,297,524 $ 14,297,524 $ - Other Funding 1,973,834 7,475,629 7,553,073 (77,444) TOTAL FUNDING $ 5,548,215 $ 21,773,153 $ 21,850,597 $ (77,444) EXPENDITURES Personnel Expense $ 1,272,816 $ 5,874,557 $ 6,004,182 $ (129,625) Meeting Expense 110, , ,000 38,530 Operating Expenses (excluding Depreciation) 1,920,740 8,354,207 8,549,624 (195,418) Fixed Assets (including Allocations) (87,151) 347, ,377 (12,256) Indirect Expenses 1,344,356 5,933,723 6,519,415 (585,692) TOTAL EXPENDITURES $ 4,561,490 $ 20,966,138 $ 21,850,597 $ (884,460) RESERVE INCREASE (DECREASE) $ 986,725 $ 807,016 $ - $ 807,016 Summary of Results as of March 31,

16 SUPPLEMENTAL SCHEDULE 3 (continued) CRISP YTD Annual Annual Projected FUNDING Actual Projection Budget Over (Under) Assessments $ 342,942 $ 1,371,768 $ 1,371,768 $ - Other Funding 1,856,443 7,275,084 7,348,144 (73,060) TOTAL FUNDING $ 2,199,385 $ 8,646,852 $ 8,719,912 $ (73,060) EXPENDITURES Personnel Expense $ 204,501 $ 930,187 $ 944,070 $ (13,882) Meeting Expense 6,484 49,492 48,000 1,492 Operating Expenses (excluding Depreciation) 1,571,532 6,688,243 6,772,514 (84,271) Fixed Assets (including Allocations) (13,325) 114, , Indirect Expenses 205, , ,215 23,560 TOTAL EXPENDITURES $ 1,974,742 $ 8,646,852 $ 8,719,912 $ (73,060) RESERVE INCREASE (DECREASE) $ 224,643 $ - $ - $ - E-ISAC (excluding CRISP) YTD Annual Annual Projected FUNDING Actual Projection Budget Over (Under) Assessments $ 3,231,439 $ 12,925,757 $ 12,925,757 $ - Other Funding 117, , ,929 (4,384) TOTAL FUNDING $ 3,348,830 $ 13,126,301 $ 13,130,686 $ (4,384) EXPENDITURES Personnel Expense $ 1,068,315 $ 4,944,370 $ 5,060,112 $ (115,742) Meeting Expense 104, , ,000 37,038 Operating Expenses (excluding Depreciation) 349,207 1,665,963 1,777,110 (111,147) Fixed Assets (including Allocations) (73,826) 232, ,263 (12,297) Indirect Expenses 1,138,806 5,068,948 5,678,200 (609,252) TOTAL EXPENDITURES $ 2,586,748 $ 12,319,286 $ 13,130,686 $ (811,400) RESERVE INCREASE (DECREASE) $ 762,082 $ 807,016 $ - $ 807,016 Summary of Results as of March 31,

17 NERC Summary of Unaudited Results First Quarter 2018 Scott Jones, Senior Vice President, Chief Financial and Administrative Officer Finance and Audit Committee Meeting May 9, 2018

18 2018 First Quarter Results Total funding was $100k (0.6%) under budget Testing fees and workshop fees slightly below budget Total expenditures were $1.8M (9.4%) under budget Primarily due to the expected timing of expenditures versus budget Net impact was $1.7M increase in operating reserves 2 RELIABILITY ACCOUNTABILITY

19 2018 Year-end Projections NERC projecting to be on budget for funding NERC projecting to be $600k (0.8%) over budget for costs Personnel expenses expected to be slightly over budget Contracts and consultants costs projected to be over budget primarily due to SPP RE transition work and a cybersecurity supply chain risk study Net impact of cost and funding projections is $600k additional decrease in operating reserves Financing activity is projected to be favorable by $500k 3 RELIABILITY ACCOUNTABILITY

20 2018 Projected Year-end Reserves Total reserves balance is $9.2M Operating Contingency Reserve (OCR) $3.6M Assessment Stabilization Reserve (ASR) $2.1M Future Obligation Reserve $2.5M System Operator Reserve $510k CRISP Reserve $500k 4 RELIABILITY ACCOUNTABILITY

21 5 RELIABILITY ACCOUNTABILITY

22 Agenda Item 3b.ii Finance and Audit Committee Meeting May 9, 2018 Combined ERO Enterprise (NERC and Regional Entities) Summary of Unaudited Results March 31, 2018 The ERO Enterprise was under budget $2.6M (5.3%) for combined expense and fixed asset (capital) spending. The budget variances ranged from 12.3% under budget to 3.4% over budget. Total Budget (Total Expenses plus the Increase (Decrease) in Fixed Assets) 2018 YTD 2018 YTD Over (Under) 2018 Year-End 2018 Year-End Over (Under) Entity Actual Budget $ % Projected Budgeted $ % NERC $ 17,406,882 $ 19,180,722 $ (1,773,840) -9.2% $ 73,801,855 $ 73,135,157 $ 666, % FRCC 1,908,561 2,025,286 (116,725) -5.8% 6,993,282 7,514,110 (520,828) -6.9% MRO 2,979,469 2,665, , % 13,225,552 11,726,736 1,498, % NPCC 3,238,979 3,693,645 (454,666) -12.3% 15,044,967 15,106,967 (62,000) -0.4% RF 5,175,578 5,433,403 (257,825) -4.7% 21,241,790 21,241, % SERC 3,921,387 4,251,485 (330,098) -7.8% 17,609,701 17,182, , % SPP RE 2,472,167 2,698,299 (226,132) -8.4% 6,226,675 10,793,195 (4,566,520) -42.3% Texas RE 2,666,166 2,634,146 32, % 12,656,953 12,656, % WECC 6,821,607 6,595, , % 27,152,743 27,090,046 62, % $ 46,590,796 $ 49,177,882 $ (2,587,086) -5.3% $ 193,953,518 $ 196,447,822 $ (2,494,304) -1.3% NERC was under budget $1.8M (9.2%) primarily due to timing of expenditures for meeting and travel, contracts and consultants, office costs, and fixed assets. The company expects to be close to budget at year end. FRCC was under budget $117k (5.8%) largely as a result of staff vacancies and lower than budgeted education expenses, reduced staff travel and timing of meeting expenses, timing of contracts and consultant costs, the amortized rent expense being lower than budgeted lease cash obligations, and fewer enhancements to compliance software. The company expects to be close to budget at year-end. MRO was over budget $314k (11.8%), which is attributable primarily to salaries that are over budget resulting from organization changes. The company expects to be over budget $1.5M (12.8%) at year-end due to the SPP RE transition, which is expected to be funded through a transfer of SPP RE assessments. NPCC was under budget $455k (12.3%) mainly as a result of staff retirements and timing of (1) meetings, (2) contracts and consultants costs, and (3) scheduled software development projects. The company expects to be slightly under budget at year-end. SERC was under budget $330k (7.8%) primarily because of staffing vacancies, timing of travel expenses, timing of contracts and consultant costs, and depreciation resulting from lower-than-

23 expected fixed asset purchases in The company expects to be over budget $427k (2.5%) due to unbudgeted SPP RE transition expenditures, which are expected to be offset by a distribution of funds from SPP RE. SPP RE was under budget $226k (8.4%), which is mainly attributable to changing operations associated with the dissolution of SPP RE, including planned staff travel reductions, reduction of contract auditors, and lower indirect cost allocation. SPP RE projects total transition costs to be lower than its 2018 budget by $4.6M (42.3%). Variances by Expense and Fixed Asset Categories Personnel Expenses For the ERO Enterprise, personnel expenses, consisting of salaries, payroll taxes, benefits, and retirement costs, were collectively under budget $262k (0.8%). FTEs were 6.6% under budget, and staffing levels ranged between 23.8% and 0.9% under budget. Personnel Expenses FTEs* Over (Under) Over % of Entity Actual Budget $ % Actual Budget (Under) Budget NERC $ 10,853,675 $ 10,810,450 $ 43, % (6.4) -3.2% FRCC 1,521,894 1,543,228 (21,334) -1.4% (5.1) -16.5% MRO 2,450,083 2,141, , % (1.7) -3.7% NPCC 2,387,609 2,549,823 (162,214) -6.4% (0.3) -0.9% RF 4,550,091 4,745,716 (195,625) -4.1% (3.6) -4.7% SERC 2,977,559 3,260,372 (282,813) -8.7% (14.8) -19.7% SPP RE 1,352,907 1,317,232 35, % (7.7) -23.8% Texas RE 2,199,603 2,169,774 29, % (4.0) -6.7% WECC 4,760,464 4,778,383 (17,919) -0.4% (2.6) -1.8% $ 33,053,885 $ 33,316,177 $ (262,292) -0.8% (46.0) -6.6% * Represents equivalent full time positions from a budget and actual financial perspective and does not necessarily represent headcount. MRO was over budget $309k (14.4%) predominately because salaries are over budget due to organization changes that have occurred. The company expects to be over budget $761k (8.9%) at year-end due to the impact of the SPP RE transition. NPCC was under budget $163k (6.4%) mainly as a result of staff retirements, where were filled through a combination of in-house promotions, resource re-allocation, and the retention of lessseasoned successors with the net result of lower-than-budgeted salaries and related benefits. The company expects to be under budget $212k (2.2%) at year-end. SERC was under budget $283k (8.7%) primarily because actual staff vacancy rates are higher than budgeted. The company expects to be close to budget at year-end. SPP RE was over budget $36k (2.7%), which is attributable mainly to the accrual of employee retention pay and the loss of five SPP RE employees since January 1 who received lump-sum payments for unused 2018 vacation. SPP RE projects transition year costs to be lower than the 2018 budget by $2.4M (45.7%). Summary of Unaudited March 31, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 2

24 Travel, Meeting, and Conferencing Expenses For the ERO Enterprise, travel, meeting, and conferencing expenses were collectively under budget $569k (23.6%). Meeting, Travel, and Conferencing Expenses Over (Under) Entity Meeting Travel Conferencing Actual $ % NERC $ 866,900 $ (160,993) $ (53,657) $ (7,244) $ 645,006 $ (221,894) -25.6% FRCC 102,811 (9,009) (10,896) (281) 82,625 (20,186) -19.6% MRO 64,000 (611) 1, ,043 1, % NPCC 216,760 (6,276) (92,342) (3,928) 114,214 (102,546) -47.3% RF 218,212 9,242 (48,836) (3,415) 175,203 (43,009) -19.7% SERC 172,061 (10,512) (37,125) (5,721) 118,703 (53,358) -31.0% SPP RE 139,625 (11,797) (74,824) - 53,004 (86,621) -62.0% Texas RE 48,786 (3,477) (552) 2,765 47,522 (1,264) -2.6% WECC 579,219 (76,464) 41,018 (5,730) 538,043 (41,176) -7.1% $ 2,408,374 $ (269,897) $ (275,607) $ (23,507) $ 1,839,363 $ (569,011) -23.6% NERC was under budget $222k (25.6%) primarily due to timing of expenditures versus budget. The company expects to be close to budget at year-end. FRCC was under budget $20k (19.6%) largely because of reduced staff travel and timing of meeting expenses. The company expects to be under budget $56k (22.4%) at year-end largely due to lower travel expenses resulting from an attrition rate that is projected to be higher than expected. MRO was close to budget. The company expects to be over budget $45k (6.0%) at year-end due to the impact of the SPP RE transition. NPCC was under budget $103k (47.3%) mainly as a result of timing of planned meetings (the heaviest meeting schedule will occur in the fourth quarter). The company expects to be close to budget at year-end. RF was under budget $43k (19.7%) largely due to the travel budget being evenly allocated across the year and travel activity being less than budgeted for this quarter. The company expects to be close to budget at year-end. SERC was under budget $53k (31.0%) primarily because of the timing of compliance audits, in part due to postponements of scheduled audits as a result of extreme weather. The company expects to be over budget $142k (15.5%) at year-end due to largely due to travel and meeting expenses for increased training and stakeholder outreach. SPP RE was under budget $87k (62.0%), which is mainly attributable to unfilled budgeted SPP RE staff positions and planned staff travel reductions. SPP RE projects transition year costs to be lower than the 2018 budget by $332k (59.4%). WECC was under budget $41k (7.1%) primarily due to a net of less than anticipated attendance at stakeholder outreach meetings and higher than anticipated costs of committee meetings. The company expects to be under budget $188k (8.4%) at year-end for this reason. Summary of Unaudited March 31, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 3

25 Operating Expenses For the ERO Enterprise, operating expenses, consisting of consultants and contracts expense, office rent, office costs, professional services, miscellaneous costs, and depreciation expense, were collectively under budget $410k (3.3%). Operating Expenses 2018 Contracts & Professional 2018 Over (Under) Entity Consultants Office Rent Office Costs Services Miscellaneous Depreciation Actual $ % NERC $ 6,898,727 $ (489,380) $ (23,206) $ (97,821) $ (131,286) $ (8,059) $ 347,158 $ 6,496,133 $ (402,594) -5.8% FRCC 375,710 (39,964) (19,239) 7, , ,991 (49,719) -13.2% MRO 600,282 10,488 (1,409) (2,653) (2,215) - (7,156) 597,337 (2,945) -0.5% NPCC 1,069,675 (60,870) (34,120) (34,847) (44,791) (7,263) (4,358) 883,426 (186,249) -17.4% RF 562,806 5,307 2,622 (19,763) (5,345) (2,012) 20, , % SERC 844,889 (20,506) 38,680 (5,439) 13,862 5,880 (21,511) 855,855 10, % SPP RE 330,022 (153,766) - 2,307 74, ,835 (77,187) -23.4% Texas RE 473,809 (230) (374) 3, (8) 477,256 3, % WECC 1,416, ,602 6,863 (33,953) (7,753) - 14,018 1,710, , % $ 12,572,662 $ (434,319) $ (30,183) $ (181,333) $ (101,862) $ (11,454) $ 349,566 $ 12,163,077 $ (409,585) -3.3% NERC was under budget $403k (5.8%) mainly due to timing of expenditures for contracts and consultants, office costs, and professional fees. The company expects to be close to budget at year-end. FRCC was under budget $50k (13.2%) largely because of contracts and consultants costs, which are below budget due to timing of invoices and expenses as well as the amortized rent expense being lower than the budgeted lease cash obligations. This variance is partially offset by higher than budgeted office supplies expense. The company expects to be close to budget at year-end. MRO was close to budget. The company expects to be over budget $57k (19.5%) at year-end due to the impact of the SPP RE transition. NPCC was under budget $186k (17.4%) mainly as a result of contracts and consultant costs due to the timing of the use of independent contractors for compliance audits. The company expects to be close to budget at year-end. SERC was over budget $11k (1.3%) for total operating costs. Contracts and consultants costs were under budget $20k due to the deferment of reliability studies to later in the year; office rent was over budget $39k because of a sublease of additional space; and professional services expenses were $14k over budget due to legal, audit, and human resources fees. The company expects to be over budget $355k (11.3%) due to the impacts of the SPP RE transition. SPP RE was under budget $77k (23.4%), which is mainly attributable to audit activities not beginning in full until later in the first quarter. In addition, the use of contract auditors has been reduced as audit teams are augmented with NERC, MRO, and/or SERC staff. SPP RE projects transition year costs to be lower than the 2018 budget by $468k (35.4%). WECC was over budget $294k (20.7%) primarily due to the timing of expenditures for contracts and consultant costs. The company expects to be close to budget at year-end. Summary of Unaudited March 31, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 4

26 Indirect Expense Allocation NPCC and WECC allocate overhead to their non-statutory functions, and SPP RE receives an allocation of overhead from SPP, Inc. Year-to-date, NPCC allocated $18k (17.0%) less than expected due to lower administrative services expenses. NPCC expects to be close to budget at year-end. SPP RE s allocation from SPP, Inc. was $98k (10.8%) less than expected, and SPP RE projects transition year costs to be lower than 2018 budget by $1.8M (49.3%) due to the a lower number of Reginal Entity employees and a cap being placed on the use of shared staff FTEs. WECC allocated $17k (12.7%) less than expected primarily due to higher labor float in the non-statutory area as well as the budget underrun in the statutory programs. WECC expects to be close to budget at year-end. Fixed Asset (Capital) Additions For the ERO Enterprise, fixed asset (capital) additions, excluding the reversal of depreciation expense, were under budget $908k (80.8%). Fixed Asset Additions (Excludes Depreciation) Computer & Furniture 2018 Software and Fixtures Equipment Leasehold Allocation of 2018 Over (Under) Entity CapEx CapEx CapEx Improvements Fixed Assets Actual $ % NERC $ 968,500 $ (488,153) $ - $ (293,750) $ (37,500) $ - $ 149,097 $ (819,403) -84.6% FRCC 31,834 (15,000) - (9,174) - - 7,660 (24,174) -75.9% MRO 4, , % NPCC 28,750 (25,705) ,045 (25,705) -89.4% RF % SERC 77,500 (66,818) - 13,676 26,738-51,096 (26,404) -34.1% SPP RE % Texas RE % WECC 12, (12,000) (12,000) % $ 1,122,934 $ (595,676) $ - $ (301,248) $ (10,762) $ - $ 215,248 $ (907,686) -80.8% NERC was under budget $819k (84.6%) mainly due to timing of expenditures versus budget. The company expects to be close to budget at year-end. FRCC was under budget $24k (75.9%) largely because of fewer enhancements being made to compliance software and the company expects to be under budget $28k (22.4%) at year-end primarily for this reason. MRO was on budget. The company expects to be over budget $165k (57.7%) due to the impacts of the SPP RE transition. NPCC was under budget $26k (89.4%) mainly as the result of the timing of scheduled software development projects, which include the continued roll out of a document management system. The company expects to be close to budget at year-end. SERC was under budget $26k (34.1%) due to timing of expenditures versus budget. The company expects to be under budget $123K (35.7%) mainly because of computer-related purchases that were budgeted but are no longer planned for Summary of Unaudited March 31, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 5

27 Working Capital and Operating Reserves (excluding CRISP) The ERO Enterprise began the 2018 year with approximately $5.8M more in reserves than anticipated in the 2018 budget. This was primarily because of under budget variances from the 2017 year Beginning Reserve Balances Entity Actual Budget Over (Under) NERC $ 9,844,365 $ 7,478,733 $ 2,365,632 FRCC 1,321,468 1,134, ,843 MRO 2,384,548 1,818, ,075 NPCC 5,017,751 4,499, ,858 RF 139,566 (558,612) 698,178 SERC 1,359, , ,993 SPP RE 1,015, , ,306 Texas RE 2,422,616 2,352,967 69,649 WECC 5,418,773 4,894, ,218 $ 28,924,045 $ 23,083,293 $ 5,840,752 During the first quarter, the ERO Enterprise budgeted the addition of $22.8M in reserves while actually generating $23.6M. This resulted in the unanticipated addition of $832k in total reserves during the first quarter Change in Reserve Balances Over Entity YTD Actual YTD Budget (Under) NERC (54,579) (859,315) 804,736 FRCC 97,319 (24,211) 121,530 MRO (261,443) 52,695 (314,138) NPCC 426,466 (33,198) 459,664 RF 1,022,321 1,489,383 (467,062) SERC 1,148, , ,750 SPP RE 32,785 (193,983) 226,768 Texas RE 436, ,351 (22,496) WECC 20,758,733 21,040,185 (281,452) $ 23,606,492 $ 22,774,192 $ 832,299 The combined effect of higher balances at the beginning of the year and adding additional reserves during the first quarter of 2018 resulted in a combined year-to-date reserve balance of $52.5M, which is $6.7M more than was anticipated in the 2018 budget. During the remainder of 2018, the ERO Enterprise anticipates using some of these reserves for normal operations and expects the year-end balance to be $26.1M, which is approximately $4.8M over the 2018 budget amount of $21.3M. Summary of Unaudited March 31, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 6

28 2018 YTD and Projected Year-End Reserve Balances Year-End Entity YTD Actual YTD Budget Over (Under) Entity Projected Balance Year-End Budgeted Balance Over (Under) NERC $ 9,789,786 $ 6,619,418 $ 3,170,368 NERC $ 8,679,236 $ 6,975,734 $ 1,703,502 FRCC 1,418,787 1,110, ,373 FRCC 1,333, , ,671 MRO 2,123,105 1,871, ,937 MRO 1,529, , ,075 NPCC 5,444,217 4,466, ,522 NPCC 4,458,569 3,873, ,856 RF 1,161, , ,116 RF 152, ,108 - SERC 2,507,757 1,530, ,743 SERC 2,328,185 1,700, ,185 SPP RE 1,048, , ,074 SPP RE Texas RE 2,859,471 2,812,318 47,153 Texas RE 1,337,649 1,245,000 92,649 WECC 26,177,506 25,934, ,766 WECC 6,292,821 5,801, ,262 $ 52,530,537 $ 45,857,485 $ 6,673,051 $ 26,112,333 $ 21,338,133 $ 4,774,200 Summary of Unaudited March 31, 2018 Results ERO Enterprise (NERC and Regional Entities Combined) 7

29 Combined ERO Enterprise Summary of Unaudited Results First Quarter 2018 Scott Jones, Senior Vice President, Chief Financial and Administrative Officer Finance and Audit Committee Meeting May 9, 2018

30 2018 First Quarter Results (by expense) Combined ERO Enterprise was under budget $2.6M (5.3%) Personnel expenses were close to budget Meeting and travel expenses were under budget (-23.6%) due mainly to timing of expenditures Operating expenses were slightly under budget (-3.3%) primarily because of timing of expenditures Fixed assets were under budget (-80.8%) largely due to timing of expenditures and lower spending 2 RELIABILITY ACCOUNTABILITY

31 2018 First Quarter Results (by Region) NERC and five Regional Entities are under budget NERC (-9.2%) lower meeting, travel, and fixed asset expenses FRCC (-5.8%) lower personnel, meeting, travel, and operating expenses NPCC (-12.3%) lower personnel, meeting, travel, and operating expenses RF (-4.7%) lower personnel, travel, and operating expenses SERC (-7.8%) lower personnel, travel, operating, and fixed asset expenses SPP RE (-8.4%) lower travel, operating, and indirect cost allocation expenses Three Regional Entities are over budget MRO (11.8%) higher personnel WECC (3.4%) higher operating costs Texas RE was slightly over budget 3 RELIABILITY ACCOUNTABILITY

32 2018 Projected Year-end Results Combined ERO Enterprise expects to be $2.5M (1.3%) under budget at year-end SPP RE projects $4.6M under budget due to transition MRO expects to be $1.5M over budget due to transition SERC projects $427k over budget due to transition 4 RELIABILITY ACCOUNTABILITY

33 Combined ERO Enterprise 2018 Operating Reserves $28.9M Total reserves as of January 1, 2018 Started $5.8M over combined budgets $23.6M Total reserves as of March 31, 2018 $832k more than expected for Q1 $26.1M Year-end projection for 2018 Ending $4.8M more than budgeted 5 RELIABILITY ACCOUNTABILITY

34 6 RELIABILITY ACCOUNTABILITY

35 Agenda Item 3b.iii Finance and Audit Committee Meeting May 9, 2018 FRCC Regional Entity Division Budget to Actual Variance Comparison as of March 31, 2018 Summary For the quarter ending March 31, 2018, FRCC is $117k under budget (5.8%). Funding Total Funding is $5k favorable to budget 0.2% due to timing of the collections for the SOS training event. Expenses Personnel Expenses (Actual - $21K under budget) o The favorable variance is primarily due to a higher than budgeted attrition rate, a 2018 new budgeted position that has not been filled and lower than budgeted education expenses. This favorable variance is partially offset by unbudgeted retention bonuses. Meeting Expenses (Actual - $21K under budget) o The favorable variance is mainly due to reduced staff travel and timing of meeting expenses. Operating Expenses (Actual - $50K under budget) o The favorable variance is primarily due to contracts and consultants which is below budget by $40K due to timing of invoices, timing of usage of the CMEP contractors, and timing of CEA and ERAG expenses. $20K of the favorable difference is due to the amortized rent expense being lower than the budgeted lease cash obligations. This favorable variance is partially offset by higher than budgeted office supplies expense. Fixed Assets (Actual - $25K under budget) o The favorable variance is mainly due to fewer enhancements to the Compliance software, which are projected to come in under budget by $20K at year end.

36 Quarterly Statement of Activities - Total Actual To Total Budget TOTAL Statutory Only March 31, 2018 (In Whole Dollars) 2018 YTD Actual 2018 YTD Budget 2018 YTD Variance % 2018 Full Year Projection 2018 Budget 2018 Projected Variance % Funding ERO Funding ERO Assessments $ 1,665,130 $ 1,665,130 $ - $ 6,660,518 $ 6,660,518 $ - Penalty Sanctions 253, ,145 $ - 253, ,145 - Total ERO Funding $ 1,918,275 $ 1,918,275 $ - 0.0% $ 6,913,663 $ 6,913,663 $ - 0.0% Membership Dues $ - $ - - $ - $ - $ - Testing Fees Services & Software Workshops 87,605 82,800 4,805 92,000 92,000 - Special Assessment Non Cash Postretirement Total Funding $ 2,005,880 $ 2,001,075 $ 4, % $ 7,005,663 $ 7,005,663 $ - 0.0% Expenses Personnel Expenses Salaries $ 1,083,173 $ 1,072,354 10,819 $ 4,033,343 $ 4,289,416 $ (256,073) Payroll Taxes 105,895 94,405 11, , ,708 1,817 Benefits 131, ,171 (40,076) 535, ,683 (149,379) Retirement Costs 201, ,298 (3,567) 559, ,985 (95,181) Total Personnel Expenses $ 1,521,894 $ 1,543,228 $ (21,334) -1.4% $ 5,379,976 $ 5,878,792 $ (498,816) -8.5% Meeting Expenses Meetings $ 48,889 $ 57,898 (9,009) $ 64,790 $ 72,593 $ (7,803) Travel 30,229 41,125 (10,896) 116, ,498 (48,140) Conference Calls 3,507 3,788 (281) 14,654 15,150 (496) Total Meeting Expenses $ 82,625 $ 102,811 $ (20,186) -19.6% $ 195,803 $ 252,241 $ (56,438) -22.4% Operating Expenses Consultants & Contracts $ 104,425 $ 144,389 (39,964) $ 579,075 $ 481,554 $ 97,521 Office Rent 137, ,323 (19,239) 586, ,292 (39,213) Office Costs 36,916 29,664 7, , ,071 2,712 Professional Services 17,957 17, ,694 35,823 1,871 Miscellaneous Depreciation 29,609 28,296 1, , ,182 (3,287) Total Operating Expenses $ 325,991 $ 375,710 $ (49,719) -13.2% $ 1,428,527 $ 1,368,922 $ 59, % Total Indirect Expenses $ - $ (1) $ % $ % Other Non-Operating Expenses - - $ - $ - - $ - 0.0% Total Expenses $ 1,930,510 $ 2,021,748 $ (91,238) -4.5% $ 7,004,306 $ 7,499,955 $ (495,649) -6.6% Change in Assets/Additions (Use) of Reserves $ 75,370 $ (20,673) $ 96, % $ 1,357 $ (494,292) $ 495, % Fixed Asset Expenditures Depreciation $ (29,609) $ (28,296) $ (1,313) $ (109,895) $ (113,182) $ 3,287 Software CapEx - 15,000 (15,000) 40,000 60,000 (20,000) Furniture & Fixtures CapEx Equipment & Computers CapEx 7,660 16,834 (9,174) 58,873 67,337 (8,464) Leasehold Improvements Increase/(Decrease) in Fixed Assets $ (21,949) $ 3,538 $ (25,487) % $ (11,022) $ 14,155 $ (25,177) % Total Budget $ 1,908,561 $ 2,025,286 $ (116,725) -5.8% $ 6,993,284 $ 7,514,110 $ (520,826) -6.9% CHANGE IN WORKING CAPITAL $ 97,319 $ (24,211) $ 121, % $ 12,379 $ (508,447) $ 520, % FTEs (5.05) (7.00) Beginning Working Capital 1/1/2018 1,321,468 1,134, ,843 1/1/2018 1,321,468 1,134, ,843 Change in Working Capital 97,319 (24,211) 121,530 12,379 (508,447) 520,826 Working Capital at 3/31/2018 1,418,787 1,110, ,373 3/31/2018 1,333, , ,669

37 April 20, 2018 Sue Clarke, Vice President Finance and Administration P: F: E: Mr. Scott Jones Mr. Andy Sharp North American Electric Reliability Corporation (NERC) RE: Unaudited Midwest Reliability Organization (MRO) 2018 First Quarter Statement of Activity and Cash Flow through March 31, 2018 Dear Mr. Jones and Mr. Sharp: MRO prepared the 2018 first quarter variance report in response to NERC s guidelines for reporting. 1. MRO has not had any formal changes to its 2018 budget as approved by FERC. The assessment funding projection for 2018 is reported as the assessment funding amount in MRO s FERCapproved 2018 budget (refer to Table 2). 2. The budget amount of expenses and fixed assets for this reporting period does match the budget amounts approved by FERC. 3. MRO s year-end projected expenses are expected to be higher than budgeted. Over-budget variances are quantified and explained for each cost category related to the SPP RE transition (refer to Table 1). 4. The budget-to-actual variances greater than $10,000 and 10 percent are explained below. Personnel Expenses (Variance of $308,885 (14.4%) over budget) Salaries are over budget due to organization changes that have occurred. MRO anticipates that it will be able to manage these costs. The following tables address the above reporting results: Table 1: Preliminary Year-End Projected Expenses (Combine tables 2 and 3) Table 2: Preliminary Unaudited FERC-Approved 2018 Budget Table 3: Preliminary SPP RE Transition Costs Budget Outlook The NERC Board has approved the dissolution of the Southwest Power Pool Regional Entity (SPP RE) and upon FERC approval, MRO s footprint will expand to include 109 additional registered entities. This change will significantly impact the work that MRO planned for The 2018 budget does not include expected transition costs of $1.5 million related to the SPP RE dissolution and the growth to MRO s footprint. This change will not impact the 2018 assessments because transition costs will likely be funded through a transfer of SPP RE assessments to MRO.

38 If you have any questions regarding this report, please contact me. Thank you, fâx VÄtÜ~x Sue Clarke Vice President Finance and Administration Cc: Sara Patrick, MRO Interim President and CEO

39 Table 1: Preliminary Year-End Projected Expenses (In Whole Dollars) 2018 YTD 2018 YTD 2018 YTD Unaudited 2018 End Of Year Projected Actual Budget Variance % Projection Budget Variance % Funding ERO Funding ERO Assessments $ 2,682,526 $ 2,682,526 - $ 10,730,104 $ 10,730,104 - Penalty Sanctions 35,500 35, , ,000 - Total ERO Funding $ 2,718,027 $ 2,718,026 $ - $ 10,872,105 $ 10,872,104 $ - Federal Grants Membership Dues Testing Fees Services & Software Workshops Interest Miscellaneous/Transitional Funding ,498,816-1,498,816 Total Funding $ 2,718,027 $ 2,718,026 $ - $ 12,370,921 $ 10,872,104 $ - Expenses Personnel Expenses Salaries $ 1,879,410 $ 1,562, ,798 $ 6,806,044 $ 6,250, ,596 Payroll Taxes 108,547 97,831 10, , ,324 34,784 Benefits 153, ,805 (12,778) 722, ,221 58,952 Retirement Costs 309, ,951 (5,852) 1,371,787 1,259, ,984 Total Personnel Expenses $ 2,450,084 $ 2,141,199 $ 308, % $ 9,326,112 $ 8,564,796 $ 761, % Meeting Expenses Meetings $ 9,389 $ 10,000 (611) $ 93,950 $ 93,950 - Travel 55,607 54,000 1, , ,430 45,000 Conference Calls Total Meeting Expenses $ 65,043 $ 64,000 $ 1, % $ 794,380 $ 749,380 $ 45, % Operating Expenses Consultants & Contracts $ 106,270 $ 95,782 10,488 $ 635,127 $ 535, ,000 Office Rent 188, ,000 (1,409) 733, ,700 - Office Costs 84,347 87,000 (2,653) 968, , ,000 Professional Services 80,785 83,000 (2,215) 317, ,550 87,500 Miscellaneous Depreciation 137, ,500 (7,156) 578, ,000 - Total Operating Expenses $ 597,337 $ 600,282 $ (2,944) -0.5% $ 3,231,890 $ 2,704,390 $ 527, % Indirect Expenses Midwest Reliability Organization Statement of Activity From 1/1/2018 to 03/31/2018 PRELIMINARY YEAR-END PROJECTED EXPENSES (COMBINED) Total Direct Expenses $ 3,112,464 $ 2,805,481 $ 306, % $ 13,352,382 $ 12,018,566 $ 1,333, % Other Non-Operating Expenses $ - $ - - $ - $ - - Total Expenses $ 3,112,464 $ 2,805,481 $ 306,983 $ 13,352,382 $ 12,018,566 $ 1,333,816 Change in Assets $ (394,437) $ (87,455) $ (306,983) $ (981,461) $ (1,146,462) $ 165,000 Fixed Assets Depreciation (137,344) (144,500) 7,156 (578,000) (578,000) - Computer & Software CapEx 3,336 3, , ,170 45,000 Furniture & Fixtures CapEx ,000-60,000 Equipment CapEx Leasehold Improvements 1,014 1,014-60,000-60,000 Inc(Dec) in Fixed Assets $ (132,994) $ (140,150) $ 7, % $ (126,830) $ (291,830) $ 165,000-57% Total Budget (B + C) $ 2,979,469 $ 2,665,330 $ 314, % $ 13,225,552 $ 11,726,736 $ 1,498, % Change in Working Capital (A B C) $ (261,442) $ 52,696 $ (314,139) $ (854,631) $ (854,632) $ - Head Count (1.50) FTEs (1.67) Beginning WC-1/1/18 $ 2,384,548 $ 1,818,473 $ 566,075 $ 2,384,548 $ 1,818, ,075 Change to WC-2018 (261,442) 52,696 (314,138) (854,631) (854,632) 1 Working Capital at March 31,2018 $ 2,123,106 $ 1,871,169 $ 251,937 $ 1,529,917 $ 963,841 $ 566,076

40 Table 2: Preliminary Unaudited FERC-Approved 2018 Budget (In Whole Dollars) 2018 YTD 2018 YTD 2018 YTD Unaudited 2018 End Of Year Projected Actual Budget Variance % Projection Budget Variance % Funding ERO Funding ERO Assessments $ 2,682,526 $ 2,682,526 - $ 10,730,104 $ 10,730,104 - Penalty Sanctions 35,500 35, , ,000 - Total ERO Funding $ 2,718,027 $ 2,718,026 $ - $ 10,872,104 $ 10,872,104 $ - Federal Grants Membership Dues Testing Fees Services & Software Workshops Interest Miscellaneous/Transitional Funding Total Funding $ 2,718,027 $ 2,718,026 $ - $ 10,872,104 $ 10,872,104 $ - Expenses Personnel Expenses Salaries $ 1,879,410 $ 1,562, ,798 $ 6,250,448 $ 6,250,448 - Payroll Taxes 108,547 97,831 10, , ,324 - Benefits 153, ,805 (12,778) 663, ,221 - Retirement Costs 309, ,951 (5,852) 1,259,803 1,259,803 - Total Personnel Expenses $ 2,450,084 $ 2,141,199 $ 308, % $ 8,564,796 $ 8,564,796 $ - 0% Meeting Expenses Meetings $ 9,026 $ 10,000 (974) $ 93,950 $ 93,950 - Travel 50,976 54,000 (3,024) 655, ,430 - Conference Calls Total Meeting Expenses $ 60,049 $ 64,000 $ (3,951) -6.2% $ 749,380 $ 749,380 $ - 0% Operating Expenses Consultants & Contracts $ 83,939 $ 95,782 (11,843) $ 535,127 $ 535,127 - Office Rent 188, ,000 (1,409) 733, ,700 - Office Costs 84,347 87,000 (2,653) 628, ,013 - Professional Services 80,692 83,000 (2,308) 229, ,550 - Miscellaneous Depreciation 137, ,500 (7,156) 578, ,000 - Total Operating Expenses $ 574,913 $ 600,282 $ (25,369) -4.2% $ 2,704,390 $ 2,704,390 $ - 0% Indirect Expenses Midwest Reliability Organization Statement of Activity From 1/1/2018 to 03/31/2018 PRELIMINARY (Unaudited) FERC-APPROVED BUDGET Total Direct Expenses $ 3,085,045 $ 2,805,481 $ 279, % $ 12,018,566 $ 12,018,566 $ - 0% Other Non-Operating Expenses $ - $ - - $ - $ - $ - Total Expenses $ 3,085,045 $ 2,805,481 $ 279,564 $ 12,018,566 $ 12,018,566 $ - Change in Assets $ (367,018) $ (87,455) $ (279,564) $ (1,146,462) $ (1,146,462) $ - Fixed Assets Depreciation (137,344) (144,500) 7,156 (578,000) (578,000) - Computer & Software CapEx 3,336 3, , ,170 - Furniture & Fixtures CapEx Equipment CapEx Leasehold Improvements 1,014 1, Inc(Dec) in Fixed Assets $ (132,994) $ (140,150) $ 7, % $ (291,830) $ (291,830) $ - 0% Total Budget (B + C) $ 2,952,051 $ 2,665,330 $ 286, % $ 11,726,736 $ 11,726,736 $ - 0.0% Change in Working Capital (A B C) $ (234,024) $ 52,696 $ (286,721) $ (854,632) $ (854,632) $ - Head Count (1.50) FTEs (1.67) (1.46) Beginning WC-1/1/18 $ 2,384,548 $ 1,818,473 $ 566,075 $ 2,384,548 $ 1,818, ,075 Change to WC-2018 (234,024) 52,696 (286,720) (854,632) (854,632) - Working Capital at March 31,2018 $ 2,150,524 $ 1,871,169 $ 279,356 $ 1,529,916 $ 963,841 $ 566,075

41 Table 3: Preliminary SPP RE Transition Costs (In Whole Dollars) 2018 YTD 2018 YTD 2018 YTD Unaudited 2018 End Of Year Projected Actual Projected Transitional Transitional Variance % Transitional Transitional Variance % Funding ERO Funding ERO Assessments $ - $ - - $ - $ - - Penalty Sanctions Total ERO Funding $ - $ - $ - $ - $ - $ - Federal Grants Membership Dues Testing Fees Services & Software Workshops Interest Miscellaneous/Transitional Funding ,498,816 1,498,816 - Total Funding $ - $ - $ - $ 1,498,816 $ 1,498,816 $ - Expenses Personnel Expenses Salaries $ - $ - - $ 555,596 $ 555,596 - Payroll Taxes ,784 34,784 - Benefits ,952 58,952 - Retirement Costs , ,984 - Total Personnel Expenses $ - $ - $ - 0.0% $ 761,316 $ 761,316 $ - 0% Meeting Expenses Meetings $ 363 $ $ - $ - - Travel 4,631 4,631-45,000 45,000 - Conference Calls Total Meeting Expenses $ 4,994 $ 4,994 $ - 0.0% $ 45,000 $ 45,000 $ - 0% Operating Expenses Consultants & Contracts $ 22,331 $ 22,331 - $ 100,000 $ 100,000 - Office Rent Office Costs , ,000 - Professional Services ,500 87,500 - Miscellaneous Depreciation Total Operating Expenses $ 22,424 $ 22,424 $ - 0.0% $ 527,500 $ 527,500 $ - 0% Indirect Expenses Midwest Reliability Organization Statement of Activity From 1/1/2018 to 03/31/2018 PRELIMINARY SPP RE TRANSITION COSTS (TRANSITIONAL) Total Direct Expenses $ 27,419 $ 27,419 $ - 0.0% $ 1,333,816 $ 1,333,816 $ - 0% Other Non-Operating Expenses $ - $ - - $ - $ - $ - Total Expenses $ 27,419 $ 27,419 $ - $ 1,333,816 $ 1,333,816 $ - Change in Assets $ (27,419) $ (27,419) $ - $ 165,000 $ 165,000 $ - Fixed Assets Depreciation Computer & Software CapEx ,000 45,000 - Furniture & Fixtures CapEx ,000 60,000 - Equipment CapEx Leasehold Improvements ,000 60,000 - Inc(Dec) in Fixed Assets $ - $ - $ - 0.0% $ 165,000 $ 165,000 $ - 0% Total Budget (B + C) $ 27,419 $ 27,419 $ - 0.0% $ 1,498,816 $ 1,498,816 $ - 0.0% Change in Working Capital (A B C) $ (27,419) $ (27,419) $ - $ - $ - $ - Head Count FTEs Beginning WC-1/1/18 $ - $ - $ - $ - $ - - Change to WC-2018 (27,419) (27,419) Working Capital at March 31,2018 $ (27,419) $ (27,419) $ - $ - $ - $ -

42 Table 4: MRO GAAP Report Midwest Reliability Organization For the Three Months Ending March 31, 2018 (Unaudited) Statement of Expenses For the Three Months Ending March 31, 2018 (Unaudited) Statement of Financial Position For the Three Months Ending March 31, 2018 (Unaudited) 2017 YTD 2018 YTD 2018 YTD 2018 YTD ASSETS Actual Budget Actual Variance 3/31/2017 3/31/2018 $ Chg Revenues (Funding) CURRENT ASSETS Assessments $2,623,586 $2,682,526 $2,682, Cash and cash equivalents $ 3,505,411 $ 3,424,812 $ (80,599) Services & software Restricted cash Workshops Accounts receivable Penalty Sanctions 41,562 35,500 35,500 - Prepaid expenses 316, ,186 (95,874) Total Revenues (Funding) $2,665,148 $2,718,026 $2,718,026 $ - Total Current Assets 3,821,471 3,644,998 (176,473) PROPERTY, IMPROVEMENTS AND EQUIPMENT, NET 1,696,497 1,335,915 (360,582) Expenses OTHER ASSETS Personnel Expenses Restricted cash - non-current 308, ,302 (106,028) Salaries $1,467,369 $1,562,612 $1,879,410 $316,798 Restricted accounts receivable - non-current Payroll taxes 96,040 97, ,547 10,716 Security Deposit - non-current 39,858 39,858 - Employee Benefits 132, , ,027 (12,778) Capitalized software costs, net of accumulated amortization 26,132 55,716 29,584 Retirement Benefits 290, , ,099 (5,852) TOTAL ASSETS $ 5,892,288 $ 5,278,789 $ (613,499) Total Personnel Expenses $1,986,070 $2,141,199 $2,450,084 $308,885 Meeting Expense LIABILITIES AND MEMBERS' EQUITY Meetings $11,597 $10,000 $9,389 ($611) CURRENT LIABILITIES Travel-Staff Business Travel & Member Reimb 57,484 42,000 44,808 2,808 Accounts payable - trade $ 106,775 $ 21,537 $ (85,238) Travel-Member Reimbursement 21,517 12,000 10,799 (1,201) Accrued liabilities 479, ,128 67,535 Conference Calls Retirement plan contribution 648, ,478 38,507 Total Meeting Expense $90,598 $64,000 $65,043 $1,043 Deferred assessments Deferred rent Operating Expenses Total Current Liabilities $ 1,235,339 $ 1,256,143 $ 20,804 Consulting $34,464 $20,000 $16,735 ($3,266) OTHER LIABILITIES Contracts 51,355 75,782 $89,536 13,754 Postretirement medical benefit obligation 577,600 1,154, ,034 Building Rent & Facilities 171, , ,591 (1,409) Deferred assessments - non-current 266, ,802 (99,966) Office Costs 108,653 87,000 84,347 (2,653) Deferred rent - non-current 520, ,606 48,638 Professional Services 55,640 83,000 80,785 (2,215) Total Liabilities 2,600,675 3,147, ,510 Depreciation 108, , ,344 (7,156) MEMBERS' EQUITY 3,291,613 2,131,604 (1,160,009) TOTAL LIABILITIES AND MEMBERS' EQUITY $ 5,892,288 $ 5,278,789 $ (613,499) Total Operating Expenses $530,363 $600,282 $597,337 ($2,944) Other Non-Operating Expenses $2,882 $0 $0 $0 Statement of Cash Flows For the Three Months Ending March 31, 2018 (Unaudited) Total Expense $2,609,913 $2,805,481 $3,112,464 $306,983 CASH FLOWS FROM OPERATING ACTIVITIES 3/31/2017 3/31/2018 Net Revenues $55,235 ($87,455) ($394,438) ($306,983) Change in members' equity $ 55,235 $ (394,438) Adjustments to reconcile excess of revenues over expenses Head Count (1.50) to net cash provided by operating activities FTE (1.67) Depreciation and software amortization 115, ,344 Amortization of deferred rent 20,643 (5,831) Postretirement benefit obligation 70,043 74,112 Change in assets and liabilities: Accounts Receivable Prepaid expenses 29,387 85,874 Security Deposit - Accounts payable - trade (308,110) (200,103) Statement of Capital Expenditures Accrued liabilities (311,444) (407,911) For the Three Months Ending March 31, 2018 (Unaudited) Retirement plan contribution 137, ,263 Deferred assessments 100,493 (7,559) Change from Operating Activities (90,278) (572,249) 2017 YTD 2018 YTD 2018 YTD 2018 YTD Actual Budget Actual Variance CASH FLOWS FROM INVESTING ACTIVITIES Change in restricted cash (142,055) (27,941) Fixed Assets as of January 1 $1,859,712 $1,564,484 $1,564,484 - Purchases of property, improvements and equipment and software (11,417) (4,350) Change from Investing Activities (153,472) (32,291) Purchases of Computer Equipment $16,007 $3,336 $3,336 $0 Purchases of Capitalized Software (1,087) CASH FLOWS FROM FINANCING ACTIVITIES Purchases of Furniture and Equipment (2,882) Repayments of long-term debt - - Purchases of Leasehold Improvements (621) 1,014 1,014 0 Payments on debt - - Purchases of property, improvements, equipment, software $11,417 $4,350 $4,350 $0 Withdrawal on L/T Deferred Rent - - Depreciation and Software Amortization (108,642) (144,500) (137,344) (7,156) Net Fixed Assets $1,762,487 $1,424,334 $1,431,490 ($7,156) Net Change in Cash and Cash Equivalents (243,750) (604,540) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 3,755,883 4,029,351 CASH AND CASH EQUIVALENTS - END OF YEAR $3,512,133 $3,424,811

43 April 20, 2018 North American Electric Reliability Corporation 3353 Peachtree Road NE Suite 600, North Tower Atlanta, GA Attention: Mr. Scott Jones Subject: NPCC Regional Entity Division Variance Comparison and First Quarter 2018 Statement of Activities Dear Scott: The variance comparison for the period ended March 31 st, 2018 is included along with Northeast Power Coordinating Council, Inc. s unaudited First Quarter 2018 Statement of Activities. Please do not hesitate to contact me via at jhala@npcc.org or via telephone at (212) should you have any comments or questions with regard to the materials provided. Enclosures Sincerely, cc: Mr. Christopher Weir, CPA NPCC Treasurer Mr. Edward A. Schwerdt NPCC President & CEO Ms. Jennifer Budd Mattiello NPCC Senior Vice President & COO ERO Finance Group Jessica Hala Jessica Hala Senior Manager, Finance and Accounting

44 NPCC Regional Entity Division Budget to Actual Variance Comparison as of March 31, 2018 TOTAL EXPENSES INCOME For the quarter ending March 31, 2018, the NPCC Regional Entity Division is $455k or % under budget year to date. Based on planned activities, NPCC s current full year projection is an under budget variance of $62k or -0.41%. NPCC will reprioritize resources as necessary to attain all of its 2018 goals and objectives. Penalty Sanctions (Actual income of $75k remitted to NPCC as of June 30, 2017 has been applied to reduce 2018 assessments to NPCC U.S. load serving entity designees.) All penalty sanctions remitted from July 1, 2017 through June 30, 2018 will be included in the NPCC 2019 Business Plan and Budget and applied to reduce 2019 assessments to NPCC U.S. load serving entity designees. Interest Income (Actual income of $5k year-to-date, not included in budget) NPCC accounts for but has not budgeted for interest income for operating fund investments as returns on U.S. treasury securities fund are negligible and corporate money market fund returns are minimal. o NPCC allocated $5k as a portion of total interest income (93%) to the Regional Entity Division consistent with the ratio of Regional Entity (RE) to Criteria Services (CS) Division 2017 funding. A common system of accounts, with divisional separation, is used for both RE and CS revenue tracking and financial reporting. EXPENSES Personnel Expenses (Variance of $163k under budget year-to-date, and $212k under budget FYP) o NPCC is currently fully staffed. Three vacancies resulted from the retirement of seasoned professionals. Those vacancies were filled through a combination of in-house promotions, resource re-allocations and the retention of less seasoned successors with the expected net result of lower than budgeted salaries and related benefits. Meetings and Conference Calls (Variance of $103k under budget year-to-date, and as budgeted FYP) o The current underage is primarily due to timing of planned meetings, with the heaviest meeting schedule occurring in the fourth quarter. Efforts to limit the number of attendees sent to off-site meetings, and to hold more meetings onsite, at member facilities or via webinar where effective, will continue. 1

45 Consultants and Contracts (Variance of $61k under budget year-to-date, and $150k over budget FYP) o Year-to-date under budget is due to the timing of the use of independent contractors for compliance audits. The full year projection for compliance contractors continues to be as budgeted. Over budget projection of $150k is related to unbudgeted risk assessment initiatives including increased probabilistic assessments, a gas disturbance study and a tie benefits study. These resource needs were not identified prior to the approval of the 2018 Business Plan and Budget which was finalized in June of Fixed Assets (Variance of $21k under budget year to date and as budgeted FYP) o Year to date under budget variance is primarily due to the timing of scheduled software development projects, which include the continued roll out of a document management system. (Unaudited) Submitted April 20 th,

46 Northeast Power Coordinating Council, Inc. - Regional Entity Division Statement of Activities, Fixed Assets and Change in Working Capital (Unaudited) For the Period Ended March 31, YTD Actual 2018 YTD Budget 2018 YTD Actual Variance from Budget % 2018 Projection 2018 Annual Budget 2018 Projection Variance from Budget % Funding Assessments 3,585,447 3,585,447-14,341,787 14,341,787 - Penalties 75,000 75,000-75,000 75,000 - Testing Services & Software Workshop Fees ,000 64,000 - Interest 4,998-4,998 4,998-4,998 Miscellaneous Total Funding 3,665,445 3,660,447 4, % 14,485,784 14,480,787 4, % Expenses Personnel Expenses Salaries 1,662,219 1,776,900 (114,681) 6,937,599 7,107,599 (170,000) Payroll Taxes 191, ,491 (5,571) 406, ,440 (5,000) Employee Benefits 349, ,094 (19,559) 1,472,378 1,476,378 (4,000) Savings & Retirement 183, ,338 (22,404) 792, ,353 (33,000) Total Personnel Expenses 2,387,609 2,549,824 (162,215) -6.36% 9,608,770 9,820,770 (212,000) -2.16% Meeting Expenses Meetings 34,334 40,610 (6,276) 353, ,050 - Travel 74, ,900 (92,342) 834, ,500 - Conference Calls 5,322 9,250 (3,928) 37,000 37,000 - Total Meeting Expenses 114, ,760 (102,546) % 1,224,550 1,224, % Operating Expenses Consultants & Contracts 349, ,710 (60,870) 2,027,640 1,877, ,000 Rent & Improvements 166, ,525 (34,120) 810, ,700 - Office Costs 131, ,190 (34,847) 664, ,760 - Professional Services 167, ,500 (44,791) 960, ,000 - Miscellaneous 5,237 12,500 (7,263) 50,000 50,000 - Depreciation 62,892 67,250 (4,358) 269, ,000 - Total Operating Expenses 883,426 1,069,675 (186,249) % 4,782,100 4,632, , % Indirect Expense Allocation (86,423) (104,113) 17, % (416,453) (416,453) % Other Non-Operating Expenses n/a n/a Total Expenses 3,298,826 3,732,146 (433,320) % 15,198,967 15,260,967 (62,000) -0.41% Net Change in Assets 366,619 (71,699) 438, % (713,183) (780,181) 66, % Fixed Assets Depreciation (62,892) (67,250) 4,358 (269,000) (269,000) - Computer & Software CapEx 3,045 28,750 (25,705) 115, ,000 - Furniture & Fixtures CapEx Equipment CapEx Leasehold Improvements Incr(Dec) in Fixed Assets (59,847) (38,500) (21,347) 55.45% (154,000) (154,000) % Total Budget (Expenses plus Incr(Dec) in Fixed Assets) 3,238,979 3,693,646 (454,667) % 15,044,967 15,106,967 (62,000) -0.41% Change in Working Capital (Total Funding less Total Budget) 426,466 (33,199) 459, % (559,183) (626,181) 66, % Equivalent Full Time Employees (0.33) (0.33) Headcount Beginning Total Reserves - 1/1/18 5,017,751 4,499, ,858 5,017,751 4,499, ,858 Change to Reserves - YTD ,466 (33,199) 459,664 (559,183) (626,181) 66,998 Projected Total Reserves at 12/31/18 5,444,217 4,466, ,522 4,458,568 3,873, ,856

47 Jill S. Lewton Controller 3 Summit Park Drive, Suite 600 Cleveland, OH Office: Jill.lewton@rfirst.org April 20, 2018 Mr. Scott Jones North American Electric Reliability Corporation 3353 Peachtree Road, N.E. Suite 600, North Tower Atlanta, Georgia ReliabilityFirst s st Quarter Statement of Activities Variance Report - Unaudited Dear Mr. Scott Jones: As requested, the attached st Quarter Statement of Activities (unaudited) provides a comparison of budgeted and actual expenses relative to the 2018 ReliabilityFirst Corporation s Budget. For more information, please contact me at or jill.lewton@rfirst.org. Very truly yours, RELIABILITYFIRST CORPORATION Jill S. Lewton Jill S. Lewton Controller Forward Together ReliabilityFirst

48 ReliabilityFirst s st Quarter Statement of Activities Variance Report - Unaudited Significant Variances For the quarter ending March 31, 2018 ReliabilityFirst Corporation is $258K (4.75%) under budget. The major contributors to this variance are: Budget Funding Investment Income: $27K (214%) under budget for YTD o The variance in Investment Income is due to the change in value of the company s investment portfolio. Budget Expenses Personnel Expenses o Salaries: $144K (5%) under budget for YTD Salaries is under budget due to personnel being below the approved staffing levels. ReliabilityFirst had four vacant positions in the 1 st quarter. o Employee Benefits: $29K (5%) over budget for YTD Employee Benefits is over budget as result of variances in Medical Benefits and Relocation Expense. Medical Benefits is over budget due to the annual contribution made to the employee s Health Savings Accounts. Relocation Expense is over budget due to relocating an employee to the corporate office, which was not budgeted. o Savings & Retirement Costs: $77K (11%) under budget for YTD Savings & Retirement Costs is primarily under budget due to the fact that the budget amount is based upon total calendar days in a month and the actual amounts are recorded based upon the pay periods in a month. Meeting Expenses o Travel: $49K (28%) under budget for YTD Travel expenses are under budget primarily due to the travel budget being evenly allocated across the year and travel activity being less than budgeted for this quarter. Operating Expenses o Office Costs: $20K (10%) under budget for YTD Office Costs is under budget due to the difference in how an amount for a service agreement was budgeted and how it is actually being recorded. The total budget amount for this agreement was recorded in the first quarter, however, the cost of the agreement is being evenly allocated across the year. Forward Together ReliabilityFirst

49 Depreciation o Depreciation: $20K (22%) over budget for YTD Depreciation expense directly correlates to current and prior years fixed asset activities. Therefore, as a result of last year s fixed asset purchases being more than budgeted, more depreciation is being recorded than budgeted. Reserves Working Capital Reserve The Working Capital Reserve of $3,318,239 will be utilized to satisfy projected cash flow for daily operations and to stabilize and minimize volatility in future years assessments. This amount is slightly less than what was projected in the 2018 Business Plan and Budget as a result of utilizing some working capital to fund daily operations in Operating Reserve The Operating Reserve of $1,000,000 has been designated with the intention of providing for any unbudgeted and unexpected expenditures for the organization. Year-End Projection Due to the timing of the first quarter statement of activities and the limited actual data available, the year-end projections are equal to budget. Forward Together ReliabilityFirst

50 ReliabilityFirst Corporation Statement of Activities, Fixed Assets and Change in Working Capital (unaudited) From 01/01/2018 Through 03/31/2018 (in Whole Numbers) 2018 YTD Actual 2018 YTD Budget YTD Variance Over/(Under) % Variance Total 2018 Projection Total 2018 Budget Total 2018 Projected Variance Over/(Under) % Projected Variance Funding 5,036,927 5,036,927 (0) 0.00% Assessments 20,147,707 20,147, % 1,912,877 1,912, % Penalty Sanctions 1,912,877 1,912, % % Membership Dues % (14,209) 12,500 (26,709) % Investment Income 50,000 50, % % Miscellaneous Income % 6,935,595 6,962,304 (26,709) -0.38% Total Funding 22,110,585 22,110, % Expenses Personnel Expenses 3,047,411 3,191,670 (144,259) -4.52% Salaries 12,953,770 12,953, % 254, ,408 (3,259) -1.27% Payroll Taxes 779, , % 606, ,186 28, % Employee Benefits 2,001,213 2,001, % 641, ,452 (76,617) % Savings & Retirement Costs 2,041,900 2,041, % 4,550,090 4,745,716 (195,626) -4.12% Total Personnel Expenses 17,776,880 17,776, % Meeting Expenses 37,917 28,675 9, % Meetings 300, , % 128, ,937 (48,836) % Travel 713, , % 9,185 12,600 (3,415) % Conference Calls 50,400 50, % 175, ,212 (43,009) % Total Meeting Expenses 1,064,025 1,064, % Operating Expenses 25,307 20,000 5, % Contracts & Consultants 390, , % 133, ,586 2, % Rent & Utilities 519, , % 170, ,629 (19,763) % Office Costs 831, , % 114, ,986 (5,345) -4.45% Professional Services 411, , % 6,262 8,274 (2,012) % Miscellaneous 40,696 40, % 113,441 93,331 20, % Depreciation 373, , % 563, , % Total Operating Expenses 2,566,710 2,566, % % Non-Operating Expenses % 5,289,019 5,526,734 (237,715) -4.30% Total Expenses 21,407,615 21,407, % 1,646,576 1,435, , % Net Change in Assets 702, , % Fixed Assets (113,441) (93,331) (20,110) 21.55% Depreciation (373,325) (373,325) % % Computer Hardware & Software 207, , % % Furniture & Fixtures % % Leasehold Improvements % (113,441) (93,331) (20,110) 21.55% Increase/(Decrease) in Fixed Assets (165,825) (165,825) % 5,175,578 5,433,403 (257,825) -4.75% Total Budget (Expenses + Incr/(Decr) in Fixed Assets) 21,241,789 21,241, % 1,760,018 1,528, , % Change in Working Capital (Total Funding less Total Budget) 868, , % (3.59) -4.71% FTE % 139,566 (558,612) 698,178 WC - 12/31/ ,566 (558,612) 698,178 (698,178) 0 (698,178) Less: Adjustment for future liabilities (698,178) 0 (698,178) (558,612) (558,612) 0 Available Working Capital (558,612) (558,612) 0 1,760,018 1,528, ,117 Change to WC , ,796 0 (39,518) (39,518) 0 Other Adjustments to Reserves (158,074) (158,074) 0 1,161, , ,117 Total Working Capital 152, , ,318,239 3,318,239 0 Working Capital Reserve 3,318,239 3,318, ,000,000 1,000,000 0 Operating Reserve 1,000,000 1,000, ,480,126 5,249, ,117 Total Working Capital and Operating Reserve 4,470,349 4,470,349 0

51 April 19, 2018 Mr. Scott Jones North American Electric Corporation 3353 Peachtree Road, NE Atlanta, GA RE: SERC 1 st Quarter 2018 Unaudited Financial Statement Budget vs. Actual Scott: Following please find SERC s unaudited 1 st quarter 2018 financial statement, reflecting actual to budgeted amounts with variance explanations. If you have any questions, please let me know. Thank you, George Krogstie Director, Finance cc: Gary Taylor 3701 Arco Corporate Drive, Suite 300, Charlotte, NC Office: Fax:

52 (In Whole Dollars) SERC Reliability Corporation YTD Report to Treasurer From 1/1/2018 Through 3/31/ YTD Actual 2018 YTD Budget 2018 YTD Actual Variance Over/(Under) % 2018 Projection 2018 Annual Budget 2018 Projected Variance Over(Under) % Funding ERO Funding 4,301,284 4,301,284-17,205,136 17,205,136 - Penalties 727, , , ,978 - Workshops 15,010 44,007 (28,997) 126, ,025 (49,975) Interest ,000 1,000 - Miscellaneous 24,804 21,251 3, ,000 86, ,000 Total Funding 5,069,422 5,094,770 (25,348) -0.50% 18,578,164 18,196, , % Expenses Personnel Expenses Salaries 2,308,580 2,458,339 (149,759) 9,842,328 9,833,357 8,971 Payroll Taxes 173, ,917 (8,882) 640, ,668 (86,724) Benefits 228, ,663 (71,618) 1,136,353 1,094,551 41,802 Retirement Costs 267, ,453 (52,554) 1,284,271 1,281,811 2,460 Total Personnel Expenses 2,977,559 3,260,372 (282,813) -8.67% 12,903,896 12,937,388 (33,492) -0.26% Meeting Expenses Meetings 19,838 30,350 (10,512) 348, ,160 82,795 Travel 93, ,575 (37,125) 674, ,865 67,953 Communications 5,415 11,136 (5,721) 36,000 44,544 (8,544) Total Meeting Expenses 118, ,061 (53,358) % 1,059, , , % Operating Expenses Contracts & Consultants 440, ,345 (20,506) 2,096,867 1,855, ,986 Office Rent 195, ,246 38, , , ,000 Office Costs 106, ,361 (5,439) 452, ,496 16,686 Professional Services 22,362 8,500 13,862 87,000 57,000 30,000 Miscellaneous/Contingency 7,980 2,100 5,880 3,000 5,550 (2,550) Capital Depreciation Expenditures 81, ,337 (21,511) 399, ,068 (53,124) Total Operating Expenses 855, ,889 10, % 3,823,976 3,435, , % Other Non-Operating Expenses Total Expenses 3,952,117 4,277,322 (325,205) -7.60% 17,787,645 17,290, , % Net Change in Assets 1,117, , , % 790, ,204 (114,685) % Fixed Assets Depreciation (81,826) (103,337) 21,511 (399,944) (453,068) 53,124 Computer & Software CapEx 10,682 77,500 (66,818) 200, ,002 (145,002) Furniture & Fixtures CapEx Equipment CapEx 13,676-13, Leasehold Improvements 26,738-26,738 22,000-22,000 Increase(Decrease) in Fixed Assets (30,730) (25,837) (4,893) 18.94% (177,944) (108,067) (69,878) 64.66% Total Budget(Exp plus Incr/(Decr) in Fixed Assets 3,921,387 4,251,485 (330,098) -7.76% 17,609,701 17,182, , % Change in Working Capital (Total Funding less Total Budget 1,148, , , % 968,463 1,013,271 (44,808) -4.42% FTE's (14.75) Head Count (14.00) Beginning WC Reserve ,359, , ,993 1,359, , ,993 Change to WC ,148, , , ,463 1,013,271 (44,808) Working Capital Reserve at 3/31/2018 2,507,757 1,530, ,743 2,328,185 1,700, ,185

53 Budget to Actual Comparison as of March 31, 2018 (Unaudited) Overall Summary YTD spending is currently $330K under budget, primarily due to timing of expenditures varying from budget Projected 2018 spending $427K over budget, due to unbudgeted SPP transition expenditures ($432K), offset by projected distribution of funds from SPP (i.e., no net impact to legacy SERC) Income Revenue (Actual - $25,348 under budget) o Timing of workshops varies from budget ($50K projected shortfall for 2018 due to fewer workshops than planned) o Forecast includes expected distribution of $432K from excess SPP working capital funds Expense Personnel Expenses (Actual - $282,813 under budget) o Actual vacancy rates higher than budgeted, driving lower salary, taxes, benefits and retirement costs o Forecast includes $346K related to SPP transition Meeting/Travel Expenses (Actual - $53,358 under budget) o Timing of audits varies from budget, in part due to postponements of scheduled audits as a result of extreme weather o Forecast includes $21K related to SPP transition Contracts/Consultants (Actual - $20,506 under budget) o RAPA studies planned for Q1 have been deferred to later in the year o Forecast over budget by $241K: $117K for EAM contractor support in lieu of FTEs $54K related to SPP transition, primarily for data integration $33K for contractor support in Finance Office Rent (Actual - $38,680 over budget) o Budget and forecast variance due to sublease of additional space Office Costs (Actual - $5,439 under budget) o Forecast includes $12K related to SPP transition Professional Services (Actual - $13,862 over budget) o Legal, audit and HR fees driving variance to budget Capital Depreciation (Actual - $21,511 under budget) o Fixed asset purchases were less than projected in 2017, resulting in lower depreciation in 2018 Miscellaneous (Actual - $5,880 over budget) Fixed Assets (Actual - $4,893 under budget)

54 Southwest Power Pool Regional Entity Unaudited Actual to Budget Comparison as of March 31, 2018 EXPENSES Personnel Expenses (Actual - $36K over budget) Personnel expenses primarily exceeded budget due to the accrual of employee retention pay and the loss of five SPP RE employees since January 1, The SPP RE Trustees approved a transition plan in 2017 to ensure continued operations of SPP RE until the termination of SPP s Regional Delegation Agreement no later than December 31, In addition, the five employees that terminated employment in the 1 st quarter received a lump-sum payment for unused 2018 vacation. SPP RE ended the 1 st Quarter with seventeen employees. SPP RE projects transition year costs to be lower than 2018 budget by approximately $2.4M. Travel and Meeting Expenses (Actual - $87K under budget) Travel expenses primarily trailed budget due to unfilled budgeted SPP RE staff positions and planned staff travel reductions. SPP RE projects transition year costs to be lower than 2018 budget by approximately $331K. Other Operating Expenses (Actual - $77K under budget) Other Operating Expenses primarily trailed budget due to audit activities not beginning in full until later in the 1 st Quarter. In addition, the use of contract auditors has been reduced as audit teams are augmented with NERC, MRO, and/or SERC staff. SPP RE projects transition year costs to be lower than 2018 budget by approximately $468K. Indirect Costs 1 (Actual - $98K under budget) - Indirect costs include identifiable infrastructure and overhead resources associated with SPP s business model. These shared services and costs are allocated to the regional entity based on direct resources engaged to perform specific statutory functions. [see Footnote 1] These costs are intended to replace budgeted overhead items such as office rent, depreciation, communications, technology support, etc. In 2016, the structure of the SPP, Inc. charge was changed to a primarily fixed amount with a small variable component. Due to the lower number of RE employees and a cap being placed on the use of Shared Staff FTEs, SPP RE projects transition year costs to be lower than 2018 budget by $1.8M. Total Costs (Actual - $226K under budget) SPP RE primarily trailed budget in the 1 st quarter due to changing operations associated with the dissolution of SPP RE. SPP RE projects transition year costs to be lower than 2018 budget by approximately $4.6M. 1 Due to timing of the budget schedule, the estimated overhead charge used to develop the 2018 budget was the actual 2016 SPP Overhead costs adjusted for inflation and allocated by an appropriate measure. The Final 2018 actual results will reflect the actual 2018 costs.

55 SOUTHWEST POWER POOL REGIONAL ENTITY STATEMENT OF ACTIVITIES 2018 MARCH YTD DRAFT (UNAUDITED) 2018 MAR YTD ACTUAL 2018 MAR YTD BUDGET VARIANCE VAR % 2018 TRANSITION YEAR PROJECTION 2018 FULL YEAR BUDGET (In Whole Dollars) VARIANCE Funding ERO Funding 2,431,816 2,431,816-9,727,265 9,727,265 - Penalty Sanctions 72,500 72, , ,000 - Total SPP RE Funding 2,504,316 2,504,316-10,017,265 10,017,265 - Testing Fees Workshops Interest Miscellaneous (4,806,461) - (4,806,461) Total Funding (A) 2,504,952 2,504, % 5,211,439 10,017,265 (4,805,826) Expenses Personnel Expenses Salaries 1,142,378 1,103,140 39,238 2,480,525 4,412,561 (1,932,036) Payroll Taxes 57,417 84,390 (26,974) 189, ,561 (147,800) Benefits 106,956 85,576 21, , ,305 (226,956) Retirement Costs 46,156 44,126 2,030 76, ,502 (100,481) Total Personnel Expenses 1,352,907 1,317,232 35, % 2,861,656 5,268,929 (2,407,273) Meeting Expenses Meetings 14,953 26,750 (11,797) 51, ,000 (56,000) Travel 38, ,875 (74,824) 175, ,500 (275,750) Conference Calls Total Meeting Expenses 53, ,625 (86,621) -62.0% 226, ,500 (331,750) Operating Expenses Contracts & Consultants 114, ,275 (153,766) 440,266 1,073,100 (632,834) Office Rent Office Costs 4,807 2, ,307 4,400 10,000 (5,600) Administrative Costs Professional Services 133,519 59,247 74, , ,988 (54,355) Computer Purchase & Maint Services Depreciation Furniture & EquipmMiscellaneous/ Contingency , ,000 Total Operating Expenses 252, ,022 (77,186) -23.4% 852,299 1,320,088 (467,789) Total Direct Expenses 1,658,746 1,786,879 (128,133) -7.2% 3,940,705 7,147,517 (3,206,812) SPP Inc. Indirect Expenses 813, , (97,999) 1,846,893 3,645,678 (1,798,785) SPP RE Indirect Expenses Total Indirect Costs 813, ,420 (97,999) -10.8% 1,846,893 3,645,678 (1,798,785) Other Non-Operating Expenses , ,077 Total Expenses (B) 2,472,167 2,698,299 (226,132) -8.4% 6,226,675 10,793,195 (4,566,520) Net Change in Assets (A-B) 32,785 (193,983) 226,768 (1,015,236) (775,930) (239,306) Fixed Assets Depreciation Computer & Software CapEx Furniture & Fixtures CapEx Equipment CapEx Leasehold Improvements Increase/(Decrease) in Fixed Assets (C) Total Budget (Expenses plus Incr (Dec) in Fixed Assets (B+C)) 2,472,167 2,698,299 (226,132) -8.4% 6,226,675 10,793,195 (4,566,520) Change in Working Capital (Total Funding less Total Budget) (A-B-C) 32,785 (193,983) 226,768 (1,015,236) (775,930) (239,306) FTEs * (7.75) -24.0% (32) Beginning WC - 01/01/2018 1,015, , ,306 1,015, , ,306 Change to WC YTD 32,785 (193,983) 226,768 (1,015,236) (775,930) (239,306) Working Capital as of 3/31/18 1,048, , , *Headcount (RE direct staff count as of 3/31/2018 and shared staff YTD billed hours/1880).

56 April 19, 2018 Mr. Scott Jones Vice President, Chief Financial and Administrative Officer and Corporate Treasurer North American Electric Reliability Corporation 3353 Peachtree Road NE, Suite 600, North Tower Atlanta, GA RE: Texas Reliability Entity, Inc. First Quarter 2018 Statement of Activities and Variance Report Dear Scott, Attached is the 2018 first quarter Statutory Statement of Activities (unaudited) and Variance Report for Texas RE. Year-to-date Texas RE is 4.9% under budget. Please contact me if you have questions or comments. Thank you. Judy Foppiano Judy A. Foppiano, CPA CFO & Director of Corporate Services Texas Reliability Entity, Inc. 805 Los Cimas Parkway, Suite 200 Austin, Texas TEXAS RELIABILITY ENTITY, INC. PAGE 1 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

57 Budget to Actual Comparison as of March 31, 2018 Year-to-date variances greater than $10,000 and 10% explained below. FUNDING Penalty Sanctions: (Actual penalty income of $275,000 remitted to Texas RE as of June 30, 2017 has reduced 2018 assessments.) All penalty sanctions remitted from July 1, 2017 through June 30, 2018 will be included in the Texas RE 2019 Business Plan and Budget and applied to reduce 2019 assessments. Interest: $9,524 is greater than budget due to Texas RE s banking account being converted to the Business Banking U.S. End of Day Money Market Mutual Fund Sweep account. The change in account type allowed for higher interest and dividend collections than budgeted. The forecast has been adjusted accordingly. EXPENSES Total Budget as of March 31, 2018 is $32,021 greater than budget (1.2%). Personnel Expenses: $29,829 greater than budget (1.4%). o Payroll tax expense for bonuses paid in March were greater than budget. Meetings and Travel Expenses: $1,264 less than 2018 budget (-2.6%). Total Operating Expenses: $3,488 greater than 2018 budget (0.7%). All variances are timing issues and expected to level out as the year progresses. TEXAS RELIABILITY ENTITY, INC. PAGE 2 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

58 Texas Reliability Entity, Inc. Statement of Activities and Fixed Assets For period ended March 31, 2018 (Unaudited) Revenue 2018 Actual 2018 Budget 2018 YTD Actual Variance from Budget % 2018 Forecast 2018 Annual Budget 2018 Forecast Variance from Budget % ERO Funding Assessments $ 2,817,997 $ 2,817,997 $ - $ 11,271,986 $ 11,271,986 $ - Penalty Sanctions 275, , , ,000 - Interest & Membership Dues 10, , % 25,000 2,000 23,000 Total Revenue $ 3,103,021 $ 3,093,497 $ 9, % $ 11,571,986 $ 11,548,986 $ 23, % Expenses Personnel Expenses Salaries $ 1,563,900 $ 1,543,390 $ 20, % $ 7,151,136 $ 7,151,136 $ - Payroll Taxes 142, ,560 15, % 470, ,791 - Employee Benefits 278, ,787 (6,106) -2.1% 1,321,116 1,321,116 - Savings & Retirement 214, ,037 (538) -0.3% 1,015,772 1,015,772 - Total Personnel Expenses $ 2,199,603 $ 2,169,774 $ 29, % $ 9,958,815 $ 9,958,815 $ - 0.0% Meeting & Travel Expenses Meetings $ 673 $ 4,150 $ (3,477) -83.8% $ 23,800 $ 23,800 $ - Tra vel 40,019 40,571 (552) -1.4% 372, ,900 - Conference Expenses 6,830 4,065 2, % 26,950 26,950 - Total Meeting & Travel Expenses $ 47,521 $ 48,786 $ (1,264) -2.6% $ 423,650 $ 423,650 $ - 0.0% Operating Expenses Consultants & Contracts $ 47,469 $ 47,699 $ (230) -0.5% $ 351,200 $ 351,200 $ - Rent & Improvements 143, ,656 (374) -0.3% 677, ,648 - Office Costs 135, ,566 3, % 659, ,440 - Professional Services 93,140 92, % 556, ,200 - Depreciation 58,215 58,223 (8) 0.0% 168, ,500 - Total Operating Expenses 477, ,809 3, % 2,412,988 2,412, % Total Expenses $ 2,724,382 $ 2,692,369 $ 32, % $ 12,795,453 $ 12,795,453 $ - 0.0% Change in Assets $ 378,639 $ 401,129 $ (22,489) -5.6% $ (1,223,467) $ (1,246,467) $ 23, % Fixed Assets Depreciation $ (58,215) $ (58,223) $ 8 0.0% $ (168,500) $ (168,500) $ - Computer & Software CapEx ,000 30,000 - Incr(Dec) in Fixed Assets $ (58,215) $ (58,223) $ 8 0.0% $ (138,500) $ (138,500) $ - 0.0% TOTAL BUDGET $ 2,666,166 $ 2,634,146 $ 32, % $ 12,656,953 $ 12,656,953 $ - 0.0% Change in Working Captial (Total Revenue l $ 436,855 $ 459,352 $ (22,497) -4.9% $ (1,084,967) $ (1,107,967) $ 23, % FTE's Beginning WC - 1/1/18 $ 2,422,616 $ 2,352,967 $ 69,649 $ 2,422,616 $ 2,352,967 $ 69,649 Change to WC , ,352 (22,497) (1,084,967) (1,107,967) 23,000 Working Capital 3/31/2018 $ 2,859,471 $ 2,812,319 $ 47,152 $ 1,337,649 $ 1,245,000 $ 92,649 TEXAS RELIABILITY ENTITY, INC. PAGE 3 OF LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS

59 Jillian Lessner Vice President and Chief Financial Officer April 18, 2018 Mr. Scott Jones Vice President, Chief Financial and Administrative Officer and Corporate Treasurer North American Electric Reliability Corporation 3353 Peachtree Road, N.E. Suite 600, North Tower Atlanta, GA RE: WECC Q Statutory Statement of Activities and Variance Report Dear Scott: Attached is WECC s first quarter Statutory Statement of Activities (Unaudited) and Variance Report. WECC s 2018 year to date unaudited results are $281,000 over budget. If you have any questions or need additional information, please do not hesitate to contact me. Regards, Jillian Lessner Vice President and Chief Financial Officer Enclosures cc: Steve Goodwill, Interim President and Chief Executive Officer WECC Finance and Audit Committee WESTERN ELECTRICITY COORDINATING COUNCIL 155 North 400 West, Suite 200 Salt Lake City, Utah

60 April 18, 2018 Statutory Statement of Activities and Variance Explanations 2 Statutory Statement of Activities (Unaudited) As of March 31, 2018 Variance Report Year to date variances greater than $10,000 and 10 percent are explained below. The explanations pertain to all statutory activities. REVENUE Workshop Fees: $98,000 under budget Workshop Fees are under budget due to less than anticipated attendance at workshops and are anticipated to be under budget by $95,000 at year end. Interest: $50,000 over budget EXPENSES Interest is over budget due to higher than anticipated yields on WECC s short term investments and are anticipated to be over budget by $132,000 at year end. Payroll Taxes: $45,000 under budget Payroll Taxes are under budget primarily due to variance in budgeted versus actual rates. Budgeted payroll tax rates have been adjusted for the 2019 Business Plan and Budget. Meetings: $76,000 under budget Meetings are under budget by a net of less than anticipated attendance at stakeholder outreach meetings and higher than anticipated costs of committee meetings. Meetings are anticipated to be under budget by $187,000 at year end. Travel: $41,000 over budget Travel is over budget primarily due to unbudgeted travel related to assurance visits and the certification of Reliability Coordinators in the West. Consultants and Contracts: $315,000 over budget Consultants and Contracts are over budget primarily due to the timing of expenditures versus when they were originally budgeted. Consultants and Contracts are anticipated to be over budget by $91,000 at year end, primarily due to unbudgeted leadership and organizational development consulting. Depreciation: $14,000 over budget Depreciation is over budget due to higher than anticipated purchases of fixed assets in 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

61 April 18, 2018 Statutory Statement of Activities and Variance Explanations 3 Indirect Expenses: $17,000 under budget Indirect Expenses are under budget due to higher than anticipated labor float in the non statutory program as well as the budget underrun in the statutory programs. FIXED ASSETS Equipment CapEx: $12,000 under budget Equipment CapEx is under budget primarily due to timing of the purchase of a blade server. 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

62 April 18, 2018 Statutory Statement of Activities and Variance Explanations 4 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

63 Agenda Item 4 Finance and Audit Committee Meeting May 9, 2018 NERC 2019 Business Plan and Budget - Draft #1 Overview Scott Jones, Senior Vice President, Chief Financial and Administrative Officer Finance and Audit Committee Meeting May 9, 2018

64 ERO Enterprise Long-Term Strategy Focus Areas Achieving and maintaining risk-based operations Being more effective and efficient Identifying and assessing emerging risks Promoting leading security practices, information sharing and analysis, and resilience Knowledge transfer and effective communications Strengthening engagement across North America 2 RELIABILITY ACCOUNTABILITY

65 ERO Enterprise Operating Plan Goals Goal 1: Risk-responsive Reliability Standards Goal 2: Objective, risk-informed compliance monitoring, mitigation, enforcement, and entity registration Goal 3: Reduction of known reliability risks Goal 4: Identification and assessment of emerging reliability risks Goal 5: Identification and reduction of cyber and physical security risks Goal 6: Effective and efficient ERO Enterprise operations 3 RELIABILITY ACCOUNTABILITY

66 2019 Draft 1 Budget and Assessments Budget 2018 total budget is $73.1M 2019 draft 1 budget is $80.0M Prior year projection for 2019 was an increase of $5.0M (6.7%) Draft budget reflects increase of $6.9M (9.5%) o Key drivers are acceleration of E-ISAC strategy and technology investments Assessments 2018 assessment is $63.0M 2019 draft 1 assessment is $69.5M Prior year projection for 2019 was an increase of $5.6M (8.9%) Draft assessment reflects an increase of $6.5M (10.3%) 4 RELIABILITY ACCOUNTABILITY

67 Budget Increases Excluding E-ISAC Budget is $52.8M, up $1.5M from $51.3M (2.9%) Assessment is $49.8M (additional funding from workshop and training fees) 5 RELIABILITY ACCOUNTABILITY

68 Budget Increases E-ISAC (including CRISP) Budget is $27.3M, up $5.5M from $21.8M (25.2%) Second year of E-ISAC strategy accounts for $3.5M of increase Assessment is $19.7M (additional funding from CRISP) 6 RELIABILITY ACCOUNTABILITY

69 2019 Draft 1 Budget Details Personnel Decrease of five FTEs outside of E-ISAC 3.0% assumed salary increase Increase in medical benefit costs Technology and tools Compliance Monitoring and Enforcement Program (CMEP) tool o Planned increase in 2019 o Investment in complementary solutions for Entity Registration and Standards o Will offset future Regional Entity CMEP licenses and operating costs Situational Awareness tool (SAFNR) o FERC uses tool and supports upgrade o Critical for coordination with E-ISAC, partially funded by E-ISAC strategy o Tool is key resource for Regional Entities, but funded by NERC 7 RELIABILITY ACCOUNTABILITY

70 2019 Draft 1 Budget Details Second year of E-ISAC Long-Term Strategy 11 new FTEs, primarily to support analytics Original 2019 strategy called for 8 FTEs E-ISAC proposes an additional 3 Includes FTEs/costs for support Additional enhancements to new user portal Additional GridEx support Lease/facilities to support growth Shared funding for SAFNR 8 RELIABILITY ACCOUNTABILITY

71 2019 Draft 1 Assessment Details Total assessments for NERC are $69.5M 10.3% increase over 2018 Impacted by capital financing program Additional impacts Other funding (CRISP, workshop fees, etc.) Assessment stabilization program 9 RELIABILITY ACCOUNTABILITY

72 2019 Draft 1 Assessment Details $2.1M in Assessment Stabilization Reserves (ASR) $400k release buys down assessments increase to 9.8% $800k release buys down assessments increase to 9.2% $1.2M release buys down assessments increase to 8.5% Release of $564k results in matching budget and assessments increase of 9.5% 10 RELIABILITY ACCOUNTABILITY

73 ERO Enterprise 2019 Preliminary Budgets Budgets % Change Year Average Preliminary 2019 NERC 0.8% 3.6% 5.1% 3.2% 9.5% FRCC 1.4% -1.2% 4.7% 1.6% -10.9% MRO 9.9% -1.1% 4.5% 4.4% 36.3% NPCC 2.0% 0.5% -0.3% 0.7% 4.6% RF 3.3% 2.8% 7.5% 4.5% 5.9% SERC -0.8% 10.2% -1.7% 2.6% 5.6% SPP RE -14.5% 7.6% -0.7% -2.5% Texas RE -1.7% 3.3% 4.0% 1.9% 3.3% WECC 4.1% -2.1% 1.1% 1.0% -0.5% Weighted Average Budget Increase 1.4% 11 RELIABILITY ACCOUNTABILITY

74 ERO Enterprise 2019 Preliminary Assessments Assessments % Change Year Average Preliminary 2019 NERC 3.2% 4.9% 5.1% 4.4% 10.3% FRCC 9.3% -7.0% 8.1% 3.5% -12.5% MRO 15.5% -3.6% 2.2% 4.7% 44.2% NPCC 2.0% -0.7% 0.6% 0.6% 4.6% RF 3.5% 1.0% 3.0% 2.5% 5.5% SERC 0.0% 14.4% 9.5% 8.0% 1.0% SPP RE -10.9% 5.4% 7.0% 0.5% Texas RE -8.5% 0.4% 17.5% 3.1% 17.5% WECC 0.0% 1.0% 0.0% 0.3% 0.0% Weighted Average Assessment Increase 2.6% 12 RELIABILITY ACCOUNTABILITY

75 Remaining Schedule May 18 (approx) Post first drafts of NERC, Regional Entity, and combined ERO Enterprise 2019 BP&Bs for comment May 18 MRC BP&B Input Group call May 22 NERC and Regional Entity 2019 BP&B briefing with FERC May 23 FAC webinar to review first drafts June 25 MRC BP&B Input Group call June 29 Comments due on first drafts July 10 Quarterly Trades and Forums meeting, closed FAC call July 13 Post final drafts for comment July 17 MRC BP&B Input Group call 13 RELIABILITY ACCOUNTABILITY

76 Remaining Schedule July 19 FAC webinar to review final drafts July 31 Comments due on final drafts August 8 MRC BP&B Input Group call August 15 FAC meeting to recommend approval of final BP&Bs August 16 Board meeting to approve final BP&Bs August 24 Submit BP&Bs to FERC for approval, with subsequent filings with Canadian authorities 14 RELIABILITY ACCOUNTABILITY

77 15 RELIABILITY ACCOUNTABILITY