Agenda Conference Call Finance and Audit Committee

Transcription

1 Agenda Conference Call Finance and Audit Committee July 19, :00-3:00 p.m. EDT Dial-In: (No Code Needed) Introductions and Chairman s Remarks NERC Antitrust Compliance Guidelines *1. Minutes Approve a. May 11, 2010 *2. NERC and Regional Entity Draft 2011 Business Plans and Budgets Review/Provide Input *Background materials included Village Blvd. Princeton, NJ

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

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

4 Draft Minutes Finance and Audit Committee May 11, :30 Noon EDT Hyatt Regency Baltimore on the Inner Harbor 300 Light Street Baltimore, MD Chairman Fred Gorbet convened a duly noticed open meeting of the Finance and Audit Committee (FAC) of the North American Electric Reliability Corporation on May 11, 2010 at 11:00 a.m. EDT. The agenda is attached as Exhibit A. Chairman Gorbet and the full Board of Trustees were present including President and CEO Gerry Cauley. NERC staff members present included Michael Walker, David Cook, Susan Turpen, and Tina McClellan. Additional attendees are listed in Exhibit B. Antitrust Compliance Guidelines Chairman Gorbet directed the participants attention to the NERC Antitrust Compliance Guidelines. Minutes The committee approved the minutes of the February 11, (Exhibit C) Second Quarter Calendar of FAC Responsibilities Michael Walker, chief financial and administrative officer, reviewed the second quarter calendar of FAC responsibilities. Mr. Walker reported on the performance of the external auditor, Weiser Mazars, LLP and their audit findings noting the auditors will file their report with an unqualified opinion. Next, the 2009 financial statements were reviewed and on motion by Dave Goulding the committee approved to recommend the 2009 financial statements to the Board of Trustees for approval. Mr. Walker continued with a review of the Statement of Activities for the first quarter of 2010 and after discussion by members and on motion by Janice Case, the committee agreed to recommend the Statement of Activities to the Board of Trustees for acceptance. Concluding the review, Mr. Walker reported that Form 990 would be filed in August and an extension has been filed with the IRS. General Discussion and Update on Status of Draft Business Plan and Budget for 2011 Gerry Cauley, president and CEO, and Mr. Walker offered a presentation on the draft 2011 Business Plan and Budget. Mr. Cauley reviewed the goals, significant challenges, and key deliverables. Mr. Walker presented an overview of the organization of the 2011 Business Plan and Budget, reviewed the draft budgetary projections by program area, including a breakdown of cost for current operations and proposed additions, working capital requirements, application of penalty funds and the schedule for the remainder of the year including approval of NERC and Regional Entity Village Blvd. Princeton, NJ

5 budgets by the Board of Trustees on August 5, 2010 and filing of the budgets with FERC by August 24, Chairman Gorbet opened to questions and Chairman of the Member Representatives Committee Mr. Ed Tymofichuk commented that he recently participated in a presentation by CISCO with respect to current audio and visual capabilities that assist companies in reducing their travel expenses. He recommended the committee look to holding a presentation by CISCO and consider it as a means to reduce costs if not in the 2011 business plan and budget, then the 2012 budget. Future Meetings The committee agreed on the following dates and times for future meetings: a. July 19, 2010 Conference Call b. August 4, 2010 Meeting (Toronto, Canada) c. October 28, 2010 Conference Call There being no further business; the committee adjourned at noon. Submitted by, Michael Walker Chief Financial and Administrative Officer Finance and Audit Committee Meeting Draft Minutes May 11, 2010

6 Agenda Item 2 Finance and Audit Meeting July 19, 2010 NERC and Regional Entity Draft 2011 Business Plans and Budgets Action Required Review Information Update on 2010 Year-End Projections Management is currently projecting a total change in year-end Net Assets of ($503,994) compared to a budget of $469,043, representing a negative variance of $972,740. Net Assets represents the difference between the Company s projected Total Funding (revenues) and projected total spend for operating expenses and fixed assets. The projected negative variance is primarily in personnel costs ($668k) and is a direct result of the change from cash to accrual accounting. Approximately one-third of the variance is a result of the accrual of the budgeted bonus pool for 2010 new hires, since the approved budget accounted for bonuses on a cash rather than accrual basis, and approximately two-thirds of the variance resulting from the accrual at the 70% versus 50% of targeted bonus pool which is more reflective of past practices. The unbudgeted loss of $300,000 in revenue from the Transmission Owners and Operators Forum also contributed to the projected variance in operating expenses. The year-end projections reflect recent staffing additions and adjustments in the timing of 2010 hires, including the deferral of the open technical writer position in Operations and Engineering until The Contracts and Consultant forecast was reduced by $325k to reflect a reclassification of certain expenses associated with the Guidance database to Fixed Assets. Further evaluation is needed to determine whether there may be additional opportunities to reduce projected year-end expenditures for Contracts and Consultants in the Standards and CIP areas based on current projected workload requirements and internal staffing resources. Our current year-end working capital projection is a deficit of ($2,527,109), which is approximately $1M better than our last forecast. The improvement is in large part due to an increase in revenues (funding) associated with Training and Education programs as a result of higher than anticipated participant registrations which were expected to be lower as a result of the fee increases implemented in December, Other factors influencing the improved projection were a reduction in meeting expenses based upon 2009 actual results and year-to-date trends. Update on 2011 NERC Budget Projection The 2011 budget projection has been updated to reflect recent personnel additions, as well as certain 2010 expense trends. Personnel expenses are projected to be approximately $630,000 higher than the previous forecast due to recent personnel additions, but this increase is largely

7 offset by projected increase in funding. Assessments are projected to increase slightly from the initial forecast to 8.52% from 7.8% Year-end Working Capital is projected to be approximately $1.5M, which is approximately $500,000 less than desired working capital level included in the initial draft of the budget. The current posted draft of the 2011 budget (Draft #2) does not include expenses for the opening of the new headquarters office in Atlanta and expansion or relocation of the D.C. office, employee retention, relocation, or severance costs. We have engaged professional relocation assistance and assembled preliminary office space requirements for relocating and establishing a new headquarters office in Atlanta, Georgia and an expanded D.C. office in Both the Atlanta and Washington D.C. markets are currently very attractive commercial rental markets, with significant office space available and aggressive competition among building owners for new tenants. The availability of relocation incentives, including free rent and tenant improvement allowances associated with the new lease space in Atlanta should significantly mitigate cash flow impacts in 2011, as well as cover a significant portion of leasehold improvement costs. Similar incentives and resulting mitigation is expected to be available in the D.C. market. Management is projecting positive unrestricted net assets of approximately $4.5M at December 31, Both the timing and cost of relocation will be carefully managed to avoid adversely affecting the Company s ability to continue to satisfy ongoing operating and cash flow requirements, as well as the Company s ability to continue to satisfy the covenants under its existing credit facility with PNC Bank. Management s very preliminary estimate of incremental capital and operating costs associated with the office relocation is approximately $2.5-$3M and assumes some revenue from subletting portions of the Company s existing lease space, with approximately 65% of these incremental costs associated with the establishment of the new headquarters in Atlanta and the remaining 35% associated with the expansion of the D.C. office. On a per square foot basis, leasehold and lease related operating costs associated with the Atlanta office are projected to be less than the operating costs of the Company s current Princeton headquarters. Leasehold and lease related operating costs for the Company s expanded D.C. office are projected to be no greater on a square foot basis than current D.C. leasehold and operating costs. The final draft of the proposed 2011 budget, which is scheduled to be posted on July 21, 2010 for consideration by the Finance and Audit Committee at its August 4, 2010 meeting, will include preliminary projections of expenses associated with the relocation of NERC s headquarters to Atlanta and the expansion of NERC s D.C. office. Funding for the relocation, including associated 2011 operating costs, will be achieved through a combination of reductions in contractor and consulting costs, other expenses and use of working capital. Final office selection, leasing arrangements, build out and furnishing will be determined through use of competitive procurement procedures. No increase in assessments is anticipated to be proposed in 2011 in connection with the office relocation.

8 An updated comparative statement of activities, including the updated 2010 year-end projection, and working capital reserve analysis is attached. Update on 2011 Regional Entity Business Plans and Budgets Final versions of the Regional Entity business plans and budgets are posted on NERC s Web site [ A chart providing summary information regarding the Regional Entity budgets by program area is attached.

9 Attachment 1 Statement of Activities and Capital Expenditures 2010 Budget & Projection, and 2011 Budget STATUTORY Variance Variance Variance 2010 Projection 2010 Projection 2011 Budget Variance to 2010 Budget 2010 v 2010 Budget w/o Forum v 2010 Budget 2011 v 2010 Budget 2011 Budget Prior Draft Budget Forum w/o Forum Projection Over(Under) Over(Under) Budget Over(Under) Draft 2 Over(Under) Funding ERO Funding NERC Assessments $ 37,063,569 $ 37,063,569 $ 37,063,570 $ 1 $ 1 40,220,673 $ 3,157,104 $ 40,059,877 $ 160,796 Penalty Sanctions ,175,000 10,175,000 10,175,000 0 Total NERC Funding $ 37,063,569 $ - $ 37,063,569 $ 37,063,570 $ 1 $ 1 $ 50,395,673 $ 13,332,104 $ 50,234,877 $ 160,796 Membership Dues 1,617,808 1,617,808 - (1,617,808) - (1,617,808) - - Testing Fees 1,118,750 1,118,750 1,820,000 $ 701, ,250 1,940, ,250 1,500, ,000 Services & Software 250, , , , ,000 - Workshops 92,500 92,500 92, ,500-92,500 - Interest 10,000 10,000 10, ,000 2,000-12,000 Miscellaneous 404, ,781 25,000 (379,781) (379,781) 150,000 (254,781) - 150,000 Total Funding $ 40,557,408 $ 1,617,808 $ 38,939,600 $ 39,261,070 $ 321,470 $ (1,296,338) $ 52,840,173 $ 12,282,765 $ 52,077,377 $ 762,796 Expenses Personnel Expenses Salaries $ 17,187,146 $ 839,989 $ 16,347,157 $ 16,963,970 $ 616,813 $ (223,174) $ 21,095,939 $ 3,908,795 $ 20,583, ,331 Payroll Taxes 1,082,240 46,349 1,035,891 1,045,503 9,612 (36,737) 1,285, ,059 1,271,958 13,341 Benefits 2,345,684 77,775 2,267,909 2,258,266 (9,643) (87,418) 3,263, ,008 3,201,188 62,504 Retirement Costs 2,381, ,695 2,262,846 2,314,254 51,408 (67,286) 2,977, ,261 2,936,454 41,346 Total Personnel Expenses $ 22,996,610 $ 1,082,808 $ 21,913,803 $ 22,581,994 $ 668,191 $ (414,615) $ 28,622,731 $ 5,626,122 $ 27,993, ,523 Meeting Expenses Meetings $ 1,116,200 $ 30,000 $ 1,086,200 $ 879,000 $ (207,200) $ (237,200) $ 861,500 $ (254,700) $ 861,500 - Travel 2,308,803 78,000 2,230,803 2,228,900 (1,903) (79,903) 2,635, ,734 2,598,870 36,667 Conference Calls 190, , ,600 88,600 88, ,800 37, ,800 - Total Meeting Expenses $ 3,615,003 $ 108,000 $ 3,507,003 $ 3,386,500 $ (120,503) $ (228,503) $ 3,724,837 $ 109,834 $ 3,688,170 36,667 Operating Expenses Consultants & Contracts $ 8,919,357 $ 300,000 $ 8,619,357 $ 8,118,417 $ (500,940) $ (800,940) $ 9,764,116 $ 844,759 $ 10,188,716 (424,600) Office Rent 967, ,134 1,018,033 50,900 50,900 1,020,151 53,018 1,020,988 (837) Office Costs 1,580,475 59,000 1,521,475 1,642, ,593 61,593 2,413, ,009 2,401,294 12,190 Professional Services 1,533,000 68,000 1,465,000 1,646, , ,543 1,959, ,854 1,945,000 14,854 Miscellaneous 4,000-4,000 10,000 6,000 6,000 4,000-4,000 - Depreciation 752, , ,615 (96,373) (96,373) 752, ,988 - Efficiency Savings (750,000) (750,000) - 750, , , Total Operating Expenses $ 13,006,954 $ 427,000 $ 12,579,954 $ 13,091,676 $ 511,722 $ 84,722 $ 15,914,594 $ 2,907,640 $ 16,312,987 $ (398,393) Total Direct Expenses $ 39,618,567 $ 1,617,808 $ 38,000,760 $ 39,060,169 $ 1,059,409 $ (558,396) $ 48,262,161 $ 8,643,596 $ 47,994,365 $ 267,796 Indirect Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Other Non-Operating Expenses $ - $ - $ - $ - $ - $ - $ - $ - $ - - Total Expenses $ 39,618,567 $ 1,617,808 $ 38,000,760 $ 39,060,169 $ 1,059,409 $ (558,396) $ 48,262,161 $ 8,643,596 $ 47,994,365 $ 267,796 Change in Assets $ 938,841 $ 0 $ 938,840 $ 200,901 $ (737,939) $ (737,942) $ 4,578,012 $ 3,639,170 $ 4,083, ,000 Fixed Assets Depreciation $ (752,988) $ (752,988) $ (656,615) $ 96,373 $ 96,373 $ (752,988) $ - $ (752,988) $ - Computer & Software CapEx 1,122,785 1,122,785 1,261, , ,425 1,290, , , ,000 Furniture & Fixtures CapEx 100, , , (100,000) - - Equipment CapEx ,800 40,800 40,800 - Leasehold Improvements (Incr)Dec in Fixed Assets $ (469,797) $ - $ (469,797) $ (704,595) $ (234,798) $ (234,798) $ (578,012) $ (108,215) $ (83,012) $ (495,000) Allocation of Fixed Assets $ - $ 0 $ - $ - $ - $ (0) $ - $ (0) Change in Fixed Assets (469,797) - (469,797) (704,595) (234,798) (234,798) (578,012) (108,215) (83,012) (495,000) TOTAL CHANGE IN NET ASSETS $ 469,043 $ (1) $ 469,042 $ (503,694) $ (972,737) $ (972,740) $ 4,000,000 $ 3,530,954 $ 4,000,000 $ 0

10 Attachment 2 TABLE 5 Working Capital Reserve Analysis STATUTORY Beginning Working Capital Reserve (Deficit), December 31, 2009 (2,023,415) Plus: 2010 Funding (from LSEs or designees) 37,063,570 Plus: 2010 Other funding sources 2,197,500 Less: 2010 Projected expenses & capital expenditures (39,764,764) Projected Working Capital Reserve (Deficit), December 31, 2010 (2,527,109) Working Capital Reserve, December 31, ,472,891 Less: Projected Working Capital Reserve, December 31, ,527,109 Increase(decrease) in funding requirement to achieve Working Capital Reserve 4,000, Expenses and Capital Expenditures 48,840,173 Less: Penalty Sanctions 1 (10,175,000) Less: Other Funding Sources (2,444,500) Adjustment to achieve desired Working Capital Reserve 4,000, NERC Assessment 40,220,673 1 Represents collections on or prior to June 30, On xxxxxxx, 20xx, the RE Finance and Audit Committee approved a desired working capital reserve of $x,xxx,xxx. The reserve consists of the following components:

11 Attachment 3 Comparison 2011 to 2010 Business Plan and Budget Spending by Program Direct, Indirect and CapEx 2011 Business Plan and Budget Total Standards Compliance RAPA Training SAIS Total Standards Compliance RAPA Training SAIS NERC 48,840,173 7,578,307 17,403,735 6,425,405 2,862,991 14,569, % 15.5% 35.6% 13.2% 5.9% 29.8% FRCC 5,588, ,714 3,947, , ,436 68, % 5.2% 70.6% 17.8% 5.1% 1.2% MRO 8,130, ,306 5,118,968 2,023, , , % 7.1% 63.0% 24.9% 1.6% 3.5% NPCC 12,716,809 1,065,714 7,378,977 2,604, ,551 1,469, % 8.4% 58.0% 20.5% 1.6% 11.6% RFC 15,179, ,352 11,376,594 2,349, , , % 2.1% 74.9% 15.5% 5.4% 2.1% SERC 11,911, ,240 8,168,579 1,260, ,024 1,183, % 4.7% 68.6% 10.6% 6.2% 9.9% SPP 9,797, ,549 7,108,226 1,826, , , % 4.9% 72.6% 18.6% 2.8% 1.0% TRE 9,363, ,938 7,142, , , , % 5.3% 76.3% 7.8% 6.0% 4.6% WECC 1 67,729,049 1,111,558 13,942,033 8,990,273 1,020,974 42,664, % 1.6% 20.6% 13.3% 1.5% 63.0% 189,257,323 12,481,678 81,586,386 27,206,082 6,896,322 61,086, % 6.6% 43.1% 14.4% 3.6% 32.3% 1 WECC's RAPA budget includes $3,831,541 associated with federal grant activity and the SAIS budget (which historically has been solely for their RC function) includes $24,112,680 for federal grant activitiy Business Plan and Budget Total Standards Compliance RAPA Training SAIS Total Standards Compliance RAPA Training SAIS NERC 38,460,558 6,248,620 14,717,513 6,631,859 2,713,631 8,148, % 16.2% 38.3% 17.2% 7.1% 21.2% FRCC 5,352, ,714 3,570,933 1,190, ,740 53, % 5.4% 66.7% 22.2% 4.6% 1.0% MRO 7,366, ,349 4,690,810 1,804, , % 6.0% 63.7% 24.5% 0.0% 5.9% NPCC 11,354,084 1,101,945 6,198,595 2,833, ,440 1,110, % 9.7% 54.6% 25.0% 1.0% 9.8% RFC 13,842, ,456 10,324,698 2,500,690 70, , % 3.7% 74.6% 18.1% 0.5% 3.1% SERC 10,681, ,597 6,695,079 1,353, ,888 1,352, % 4.7% 62.7% 12.7% 7.3% 12.7% SPP 8,138, ,874 6,195,777 1,212,602 30, , % 5.7% 76.1% 14.9% 0.4% 2.9% TRE 9,216, ,400 6,746, , , , % 6.1% 73.2% 6.8% 5.0% 8.8% WECC 1 59,086, ,927 13,385,975 8,814,011 1,165,657 34,982, % 1.3% 22.7% 14.9% 2.0% 59.2% 163,499,924 10,860,882 72,525,609 26,972,043 5,582,733 47,558, % 6.6% 44.4% 16.5% 3.4% 29.1% 1 WECC's RAPA budget includes $3,991,879 associated with federal grant activity and the SAIS budget (which historically has been solely for their RC function) includes $15,811,845 for federal grant activitiy. Variance 2011 to 2010 Business Plan and Budget Total Standards Compliance RAPA Training SAIS Total Standards Compliance RAPA Training SAIS NERC 10,379,615 1,329,687 2,686,222 (206,454) 149,360 6,420, % 12.8% 25.9% 2.0% 1.4% 61.9% FRCC 235, ,283 (194,288) 38,696 15, % 0.0% 159.5% 82.4% 16.4% 6.4% MRO 764, , , , ,737 (145,382) 10.4% 17.9% 56.0% 28.5% 16.6% 19.0% NPCC 1,362,725 (36,231) 1,180,382 (229,726) 89, , % 2.7% 86.6% 16.9% 6.5% 26.4% RFC 1,336,960 (196,104) 1,051,896 (150,740) 749,842 (117,934) 9.7% 14.7% 78.7% 11.3% 56.1% 8.8% SERC 1,229,325 56,643 1,473,500 (92,761) (38,864) (169,193) 11.5% 4.6% 119.9% 7.5% 3.2% 13.8% SPP 1,658,454 20, , , ,580 (135,643) 20.4% 1.2% 55.0% 37.0% 14.9% 8.2% TRE 147,571 (63,462) 395,829 99,117 96,810 (380,723) 1.6% 43.0% 268.2% 67.2% 65.6% 258.0% WECC 1 8,642, , , ,262 (144,683) 7,681, % 4.3% 6.4% 2.0% 1.7% 88.9% 25,757,399 1,620,796 9,060, ,039 1,313,589 13,528, % 6.3% 35.2% 0.9% 5.1% 52.5%