2018 Business Plan and Budget. Texas Reliability Entity, Inc. Approved by Texas RE Board of Directors. Date: May 24, 2017

Transcription

1 2018 Business Plan and Budget Texas Reliability Entity, Inc. Approved by Texas RE Board of Directors Date: May 24,

2 Table of Contents Table of Contents... 2 Introduction... 3 Section A Statutory Programs...10 Reliability Standards Program...11 Compliance Monitoring and Enforcement and Organization Registration and Certification Program...15 Reliability Assessment and Performance Analysis Program...23 Training, Education, and Continuing Education Program...28 Administrative Services...31 General and Administrative...31 Legal and Regulatory...31 Information Technology...32 Human Resources...34 Finance and Accounting...35 Section B Supplemental Financial Information...37 Table B1 Reserve Balance...38 Table B2 Penalty Sanctions...40 Table B3 Supplemental Funding...41 Table B4 Personnel Expenses...42 Table B5 Meeting & Travel Expenses...43 Table B6 Consultants and Contracts...44 Table B7 Office Rent...45 Table B8 Office Costs...46 Table B9 Professional Services...48 Table B10 Miscellaneous Expense...49 Table B11 Other NonOperating Expenses...50 Table B12 Fixed Assets...51 Table B and 2020 Projection...52 Section C 2018 State (NonStatutory) Activities...53 Section D Supplemental Information Consolidated Statement of Activities by Program, Statutory and State (Non Statutory)...60 Statement of Financial Position Texas RE Combined Statutory and NonStatutory Organization Chart

3 2018 Business Plan and Budget Introduction Introduction Statutory FTEs Nonstatutory FTEs 5.0 Total FTEs Statutory Expenses $ 12,795,453 NonStatutory Expenses $ 1,091,743 Total Expenses $ 13,887,196 Statutory Inc(Dec) in Fixed Assets $ (138,500) NonStatutory Inc(Dec) in Fixed Assets $ Total Inc(Dec) in Fixed Assets $ (138,500) Statutory Working Capital Requirement $ (1,107,967) NonStatutory Working Capital Requirement TOTAL RESOURCES (in whole dollars) Total Working Capital Requirement $ (1,107,967) Total Statutory Funding Requirement $ 11,548,986 Total NonStatutory Funding Requirement $ 1,091,743 Total Funding Requirement $ 12,640, Budget U.S. Canada Mexico Statutory Funding Assessments $ 11,271,986 NonStatutory Fees $ 1,091,743 NEL 353,021, ,021,556 NEL% % % *Refer to Table B1 Reserve Analysis on page 38 in Section B. Organizational Overview Texas Reliability Entity, Inc. (Texas RE) is a Texas nonprofit corporation that is the Regional Entity for the Electric Reliability Council of Texas, Inc. (ERCOT) region, pursuant to its Amended and Restated Delegation Agreement (Delegation Agreement) with North American Electric Reliability Corporation (NERC) effective January 1, Texas RE ensures the reliability of the ERCOT region bulkpower system (BPS). Texas RE also performs nonstatutory activities as the Reliability Monitor for the ERCOT region, on behalf of the Public Utility Commission of Texas (PUCT). As the Reliability Monitor, Texas RE monitors and reports to the PUCT regarding market participants compliance with reliabilityrelated ERCOT Protocols, Operating Guides, and Texas rules (ERCOT Regional Rules). 3

4 2018 Business Plan and Budget Introduction The ERCOT region is the geographic area located within the state of Texas that operates under the jurisdiction of the PUCT and is not synchronously interconnected with any electric utilities operating outside of Texas. The ERCOT region includes approximately 90% of Texas load and 75% of the Texas land area. Membership and Governance Members Texas RE has the following six membership sectors under its Bylaws: System Coordination and Planning Transmission and Distribution Cooperative Utility Municipal Utility Generation LoadServing and Marketing Membership in Texas RE is voluntary and open to any entity that is a user, owner, or operator in the ERCOT region BPS, who registers with Texas RE as a member and complies with the Texas RE Bylaws requirements. There is no charge for membership with Texas RE. Any person or entity that has a direct and material interest in the BPS has a right to participate in the Texas RE Standards Development Process, even if not a Texas RE member. Texas RE has one stakeholder committee, the Member Representatives Committee (MRC). The MRC includes representatives from members in each of the six membership sectors and provides advice and recommendations to the Board on administrative, financial, reliabilityrelated, or any other matters, through its elected Chair and Vice Chair, who also serve as Affiliated Directors on Texas RE s Board. In addition, the MRC facilitates the Regional Standards Development Process, and coordinates the development of regional standards and variances with the development of national standards. A subcommittee of the MRC, the NERC Standards Review Forum (NSRF), monitors, reviews, and discusses NERC (continentwide) standards under development and standards interpretation requests. Board of Directors Texas RE is governed by a hybrid Board of Directors (Board), comprised of the following nine individuals: The Texas RE President and Chief Executive Officer (CEO) Four Independent Directors (elected by membership) Two Affiliated Directors (the Chair and ViceChair of the Member Representatives Committee) Chairman of the PUCT or another PUCT Commissioner designated by the Chairman, as an ex officio nonvoting member 4

5 2018 Business Plan and Budget Introduction Texas Public Counsel, from the Texas Office of Public Utility Counsel, as an ex officio nonvoting member The Board s primary role is to oversee the management of Texas RE, including assuring that Texas RE meets its requirements under the Bylaws and Delegation Agreement, and appointing a CEO to manage and be responsible for the daytoday ongoing activities of Texas RE. Statutory Functional Scope In accordance with its Delegation Agreement with NERC and in compliance with the NERC Rules of Procedure (NERC ROP), Texas RE performs the following statutory (or delegated) functions: Participation in the development of NERC Reliability Standards, or modifications thereof, and facilitation of developing needed regional standards or variances through Texas RE s Standards Development Process. Identification and registration of responsible entities with NERC and, as needed, certification of such entities within the ERCOT region. Monitoring and enforcement of compliance with approved Standards and regional standards, in accordance with the NERC ROP, in the ERCOT region. Analysis and assessment of system events and disturbances. Assessment of the present and future reliability, adequacy, and security of the BPS. Promotion of effective training and education of personnel, and assistance in the certification of operating personnel. Promotion of situation awareness and the protection of critical infrastructure. Financial Policies Texas RE has policies and procedures in place that address its overall financial management, including procurement and business expense reimbursement. Additionally, Texas RE has a working capital and operating reserve policy to ensure the stability of the ongoing operations of the organization. This policy is intended to provide funds for situations such as a sudden unanticipated increase in expenses, onetime unbudgeted expenses, unanticipated loss in funding, or uninsured losses Overview of Cost Impacts In developing the Texas RE 2018 Business Plan and Budget, Texas RE, NERC, and the other Regional Entities collaborated and agreed upon common foundational and program assumptions which are contained in the Shared Business Plan and Budget Assumptions ( ) and Key Focus Areas (2018), which is provided as Exhibit A to the NERC 2018 Business Plan and Budget. Texas RE used these shared assumptions as well as the Electric Reliability Organization Enterprise Strategic Goals in developing this 2018 Business Plan and Budget. Texas RE also seeks input from its MRC. Prior to obtaining final approval from its Board, Texas RE seeks NERC input and review of its annual Regional Entity Business Plan and Budget, including coordination 5

6 2018 Business Plan and Budget Introduction of program requirements and any related key initiative for the Electric Reliability Organization (ERO) Enterprise. Overall, the Texas RE 2018 statutory expenses ($12,795,453) increased by 3.2% from the 2017 statutory expenses ($12,394,535). The 2018 statutory assessment ($11,271,986) represents an increase of 17.5% from the 2017 assessment ($9,595,256). Significant statutory expense changes (including capital expenditures) include: Total Personnel expenses are increasing by 6.2%. Salaries expense is increasing 6.1%, which includes an allowance for 3% salary increases and reflects a 3.1% increase due to market adjustments and promotions in 2016 that were not included in the 2017 budget. Payroll taxes are increasing 7.3% to better align with actual experience. Total Benefits expense is increasing 2.9%. Healthplan expense is projected to increase 15% in Employee Benefits also include education reimbursement and relocation expenses, which has been reduced 22% based on the past two years of actual costs. Training and professional development costs have increased 5.7%; these costs are included in Employee Benefits. Including these expenses in Employee Benefits is consistent with the NERC budget guidelines. Retirement costs are increasing 11.3% due to aligning actual employee participation and salary increases. Retirement Plan expense is included in this category for the first time. Total Meeting and Travel expenses are decreasing 3.5% primarily due to a 51.5% decrease in meeting expenses. These expenses are decreasing due to the cost for one workshop hosted offsite being removed from the 2018 budget. Travel expense is increasing 1.9% due to employees attending more NERCled meetings. Conference calls are increasing 13.5% due to holding more onsite meetings and working to reduce travel costs. Total Operating Expenses are decreasing by 6.5%. The Consultants and Contracts category is decreasing 18.9% due to reducing the executive coaching program expenses in Rent cost is increasing 11.1% due to an escalation in utilities and maintenance. Office cost is decreasing 13% primarily due to the lower costs for renewal of the IT Leased equipment. Professional Services costs are increasing 7.1% due to increased security testing and SOCII audit. Depreciation expense is decreasing 37% due to assets fully depreciating. All statutory activity in the 2018 Business Plan and Budget aligns with the NERC Enterprise Strategic Plan. 6

7 2018 Business Plan and Budget Introduction Summary by Program The following table summarizes the Texas RE budget by program area. Base Operating Budget Budget 2017 Projection 2017 Budget 2018 Variance 2018 Budget v 2017 Budget Variance % Reliability Standards $ 446,168 $ 446,168 $ 462,175 $ 16, % Compliance Enforcement and Organization Registration 9,171,887 9,171,887 9,593, , % Reliability Assessments and Performance Analysis 1,984,476 1,984,476 2,053,795 69, % Training, Education and Operator Certification 564, , ,832 (16,893) 3.0% Total by Program $ 12,167,256 $ 12,167,256 $ 12,656,953 $ 489, % 7

8 2018 Business Plan and Budget Introduction FTEs by Program Area Personnel Analysis The following table displays total FTEs by program area. Total FTEs by Program Area Budget Projection STATUTORY Direct FTEs 2018 Budget Shared FTEs 2018 Budget Total FTEs 2018 Budget Change from 2017 Budget Operational Programs Reliability Standards Compliance and Organization Registration and Certificat Training and Education Reliability Assessment and Performance Analysis Total FTEs Operational Programs Administrative Programs General & Administrative Legal and Regulatory Information Technology Human Resources Finance and Accounting Total FTEs Administrative Programs Total FTEs A shared FTE is defined as an employee who performs both Statutory and NonStatutory functions. For an explanation of the variances, refer to the Resource Requirements section in each program area in Section A. 8

9 2018 Business Plan and Budget Introduction 2017 Budget and Projection and 2018 Budget Comparisons Funding Statement of Activities, Fixed Assets Expenditures and Change in Working Capital 2017 Budget & Projection, and 2018 Budget STATUTORY Variance Variance 2017 Projection 2017 Budget v 2017 Budget 2018 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) ERO Funding NERC Assessments $ 9,595,256 $ 9,595,256 $ $ 11,271,986 $ 1,676,730 Penalty Sanctions 50,000 50, , ,000 Total NERC Funding $ 9,645,256 $ 9,645,256 $ $ 11,546,986 $ 1,901,730 Interest 2,000 2,000 2,000 Total Funding (A) $ 9,647,256 $ 9,647,256 $ $ 11,548,986 $ 1,901,730 Expenses Personnel Expenses Salaries $ 6,739,715 $ 6,739,715 $ $ 7,151,136 $ 411,422 Payroll Taxes 438, , ,791 32,013 Benefits 1,283,357 1,283,357 1,321,116 37,760 Retirement Costs 912, ,670 1,015, ,102 Total Personnel Expenses $ 9,374,519 $ 9,374,519 $ $ 9,958,815 $ 584,296 Meeting & Travel Expenses Meetings $ 49,080 $ 49,080 $ $ 23,800 $ (25,280) Travel 366, , ,900 6,855 Conference Calls 23,750 23,750 26,950 3,200 Total Meeting & Travel Expenses $ 438,875 $ 438,875 $ $ 423,650 $ (15,225) Operating Expenses Consultants & Contracts $ 433,200 $ 433,200 $ $ 351,200 $ (82,000) Office Rent 617, , ,648 72,436 Office Costs 744, , ,440 (96,560) Professional Services 519, , ,200 36,750 Depreciation 267, , ,500 (98,779) Total Operating Expenses $ 2,581,141 $ 2,581,141 $ $ 2,412,988 $ (168,153) Total Direct Expenses $ 12,394,535 $ 12,394,535 $ $ 12,795,453 $ 400,918 Indirect Expenses $ $ $ $ (0) $ (0) Other NonOperating Expenses $ $ $ $ $ Total Expenses (B) $ 12,394,535 $ 12,394,535 $ $ 12,795,453 $ 400,918 Change in Assets $ (2,747,279) $ (2,747,279) $ $ (1,246,467) $ 1,500,812 Fixed Assets Depreciation $ (267,279) $ (267,279) $ $ (168,500) $ 98,779 Computer & Software CapEx 40,000 40,000 30,000 (10,000) Inc(Dec) in Fixed Assets ( C ) (227,279) (227,279) (138,500) 88,779 TOTAL BUDGET (=B + C) 12,167,256 $ 12,167,256 $ $ 12,656,953 $ 489,697 TOTAL CHANGE IN WORKING CAPITAL (=ABC) $ (2,520,000) $ (2,520,000) $ $ (1,107,967) $ 1,412,033 9

10 Section A 2018 Business Plan and Budget Statutory Programs Section A Statutory Programs 2018 Business Plan and Budget 10

11 Section A 2018 Business Plan and Budget Statutory Programs Section A 2018 Business Plan Statutory Programs Reliability Standards Program Program Scope and Functional Description Reliability Standards Program (in whole dollars) 2017 Budget 2018 Budget Increase (Decrease) Total FTEs Direct Expenses $ 294,520 $ 311,392 $ 16,872 Indirect Expenses $ 159,019 $ 155,275 $ (3,744) Other NonOperating Expenses $ $ $ Inc(Dec) in Fixed Assets $ (7,371) $ (4,492) $ 2,879 Total Funding Requirement $ 446,168 $ 462,175 $ 16,007 Texas RE s Reliability Standards Program supports the NERC Reliability Standards program and facilitates the development of regional standards and variances, in accordance with the Texas RE Standards Development Process. Texas RE Standards staff coordinates and publicly posts information regarding the activities of the Texas RE MRC s standards development activities, the NSRF, and all regional standard drafting teams (SDTs). The Texas RE Standards Development Process is open to all individuals and organizations that are directly and materially affected by the ERCOT region BPS, with no undue financial barriers and regardless of Texas RE membership status. Texas RE s Standards Development Process provides for fair and due process by providing sufficient public notice of the intent to develop a regional standard. The Standards Development Process includes an appeals process and an interpretation process. Texas RE Standards staff supports and participates in the NERC Standards Committee and other NERC activities relating to standards development. Texas RE regularly comments and votes on proposed NERC standards and revisions from its perspective as the Compliance Enforcement Authority, based on recommendations and input from subject matter experts employed by Texas RE. In addition, Texas RE reviews proposed reliability standards from NERC and other regions, and staff from NERC and other Regional Entities have the opportunity to review proposed Texas RE regional standards. This Program area supports and facilitates standards activities of the Texas RE MRC and the NSRF. The MRC is a stakeholder committee that oversees the execution of the Texas RE Standard Development Process. The NSRF provides a regional stakeholder forum for education and discussion of NERC standards activities, both regional and continentwide. Texas RE Standards staff provides education and advice to other Texas RE departments regarding issues relating to standards, including applicability and interpretation of requirements in accordance with NERC processes. 11

12 Section A 2018 Business Plan and Budget Statutory Programs When developing regional Reliability Standards, Texas RE is responsible for adhering to the approved Regional Reliability Standards development processes, and for assisting NERC as needed with obtaining Board approval and subsequent filing(s) with FERC and other regulatory authorities, as appropriate, including developing the record necessary to support approval Key Assumptions It is expected that the number of continentwide standards development projects will remain relatively stable, except as required to address any new FERC directives to create or modify Reliability Standards, or industry submittals of standard authorization requests. Continentwide standards projects will consist primarily of conducting enhanced periodic reviews on existing standards to improve the content and, respond to identified risks to reliability (including those that may be identified through the implementation of riskbased Compliance Monitoring and Enforcement), and addressing FERC directives that may arise. This activity will require the allocation of technical resources from several internal NERC departments (e.g., Reliability Assessment and Performance Analysis (RAPA), Reliability Risk Management (RRM), Compliance Analysis and Certification (CAC), and Compliance Assurance) and support from across the ERO Enterprise. During the enhanced periodic review of ERO standards, any associated regional standards will be reviewed for potential incorporation as variances or as improvements to the continentwide requirements. Regional and NERC standards development processes may require modification to accomplish efficiently this task. Each Regional Entity will work with NERC and possibly other Regional Entities on projects where there is a regional standard/variance. Regional standards development activity will be driven by requests the Regional Entity may receive or reliability issues the Regional Entity may identify. Regional standards development activity is expected to remain low. In coordination with SDTs and consistent with current approaches, Regional Entities may support outreach during standards development. Additionally, following FERC approval, Regions will assist the transition of standards to compliance monitoring and enforcement supporting industry and auditor training, or providing information regarding the intent of the standard. The number of interpretations are expected to remain low. However, guidance requests associated with the implementation of standards may increase. Regional Entities will be asked to participate in teams to help develop application business requirements and test business functionality for ERO Enterprise applications projects. 12

13 Section A 2018 Business Plan and Budget Statutory Programs 2018 Goals and Key Deliverables Encourage stakeholder awareness and participation in the NERC standards development process through educational outreach efforts and participation in Standard Drafting Teams, the NERC Standards Committee and related subcommittees. Participate in and provide outreach to regional stakeholders regarding nationwide standards development to help ensure that the ERCOT region perspective is represented in continentwide Reliability Standards. Facilitate Texas RE participation in NERC standards development activities, including preparation of recommendations for voting and comments on NERC ballots, and provide standardsrelated expertise to other Program areas. Work closely with other Texas RE departments to ensure that staff is appropriately educated and informed regarding proper application and interpretation of standards and requirements while performing functions under the Compliance Monitoring and Enforcement Program (CMEP), and receive feedback for future standards development. Continue to enhance communication to and education of the registered entities in the ERCOT region to increase awareness of regional standards development activities and to ensure adequate representation on the Registered Ballot Body. Resource Requirements Personnel Expenses The number of FTEs assigned to this Program are remaining constant in Consultants and Contracts No consulting support and contracts are budgeted for 2018, which is consistent with the 2017 budget. 13

14 Section A 2018 Business Plan and Budget Statutory Programs Reliability Standards Program The following table shows the funding sources and related expenses for the Reliability Standards Program for Explanations of variances by expense category are included with the Supplemental Tables found in Section B. Funding Statement of Activities, Fixed Assets Expenditures and Change in Working Capital 2017 Budget & Projection, and 2018 Budget RELIABILITY STANDARDS Variance Variance 2017 Projection 2017 Budget v 2017 Budget 2018 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) ERO Funding NERC Assessments $ 311,198 $ 311,198 $ $ 365,578 $ 54,380 Penalty Sanctions 1,622 1,622 8,919 7,297 Total NERC Funding $ 312,819 $ 312,819 $ $ 374,497 $ 61,678 Interest Total Funding $ 312,884 $ 312,884 $ $ 374,562 $ 61,678 Expenses Personnel Expenses Salaries $ 198,994 $ 198,994 $ $ 209,027 $ 10,033 Payroll Taxes 12,372 12,372 13,666 1,294 Benefits 39,470 39,470 43,131 3,661 Retirement Costs 27,935 27,935 29,268 1,333 Total Personnel Expenses $ 278,770 $ 278,770 $ $ 295,092 $ 16,322 Meeting & Travel Expenses Meetings $ $ $ $ $ Travel 13,950 13,950 14, Conference Calls 1,700 1,700 1,700 Total Meeting & Travel Expenses $ 15,650 $ 15,650 $ $ 16,200 $ 550 Operating Expenses Consultants & Contracts $ $ $ $ $ Office Rent Office Costs Professional Services Miscellaneous Depreciation Total Operating Expenses $ 100 $ 100 $ $ 100 $ Total Direct Expenses $ 294,520 $ 294,520 $ $ 311,392 $ 16,872 Indirect Expenses $ 159,019 $ 159,019 $ $ 155,275 $ (3,744) Other NonOperating Expenses $ $ $ $ $ Total Expenses $ 453,539 $ 453,539 $ $ 466,667 $ 13,128 Change in Assets $ (140,655) $ (140,655) $ $ (92,105) $ 48,550 Fixed Assets Depreciation $ $ $ $ $ Computer & Software CapEx Allocation of Fixed Assets (7,371) (7,371) (4,492) 2,879 Inc(Dec) in Fixed Assets ( C ) $ (7,371) $ (7,371) $ (4,492) 2,879 TOTAL BUDGET $ 446,168 $ 446,168 $ $ 462,175 $ 16,007 TOTAL CHANGE IN WORKING CAPITAL $ (133,284) $ (133,284) $ $ (87,613) $ 45,671 14

15 Section A 2018 Business Plan and Budget Statutory Programs Compliance Monitoring and Enforcement and Organization Registration and Certification Program Compliance Monitoring and Enforcement and Organization Registration and Certification Program Program Scope and Functional Description (in whole dollars) 2017 Budget 2018 Budget Increase (Decrease) Total FTEs Direct Expenses $ 5,507,068 $ 5,949,230 $ 442,162 Indirect Expenses $ 3,842,957 $ 3,752,476 $ (90,481) Other NonOperating Expenses $ $ $ Inc(Dec) in Fixed Assets $ (178,138) $ (108,554) $ 69,584 Total Funding Requirement $ 9,171,887 $ 9,593,152 $ 421,265 Texas RE s Compliance Monitoring and Enforcement and Organization Registration and Certification Program (CMEP) includes the key activities of registering (and where required, certifying) responsible entities, monitoring and assessing compliance with the NERC Reliability Standards and regional standards, and enforcing and ensuring mitigation of violations of Standards in accordance with the NERC ROP. The primary monitoring and assessment methods include audits, selfreports, selfcertifications, complaints, spot checks, compliance investigations, exception reporting, and data submittals. There are several major EROwide activities that are expected to benefit NERC, the Regional Entities, and registered entities. The riskbased Compliance and Enforcement Program (riskbased CMEP) formerly known as the Reliability Assurance Initiative (RAI), is a multiyear effort to identify and implement changes to enhance the effectiveness of the ERO s compliance and enforcement functions. Riskbased CMEP is designed to improve BES reliability by refocusing efforts on serious and substantial reliability risks and on the internal controls that mitigate those risks. In addition, NERC, the Regional Entities, and registered entities will continue the transition to apply Critical Infrastructure Protection (CIP) Version 5, which adopted new cybersecurity controls and extended the scope of the systems that the CIP standards protect. Two elements of riskbased CMEP continued CIP Version 5 transition and Coordinated Oversight of MultiRegion Registered Entities are expected to be major activities for Texas RE in Riskbased CMEP will require Texas RE to appropriately allocate resources to provide continuous improvement in the processes necessary to implement riskbased CMEP for both compliance and enforcement. Based on the high level of coordination between Regional Entities that is necessary for an efficient and effective program, the Coordinated Oversight program will increase workload levels for the Lead Regional Entity, which Texas RE is serving as for several nationwide registered entities. Additionally, increased resources may be required to meet the training requirements for the compliance and enforcement staff associated with riskbased CMEP 2018 Key Assumptions. Because resource demands are not fully known, consideration will be given to reallocating existing staff or using available reserves to provide the resource support, if 15

16 Section A 2018 Business Plan and Budget Statutory Programs Texas RE determines this to be necessary to support the successful execution of these major activities Key Assumptions The implementation of the riskbased CMEP will continue to require the allocation of dedicated resources from both NERC and the Regional Entities for both compliance and enforcement. Regional Entities created a plan that will require resources to complete Inherent Risk Assessments (IRAs) for all registered entities in In addition, Regional Entities will require resources to update previously done IRAs based on identified triggers, and focus on creating compliance oversight plans that include compliance monitoring tools, the frequency of compliance monitoring, and the standards that are to be monitored as well as the depth of testing of those standards. An assessment project was completed to evaluate software systems used for compliance, registration, analysis and tracking, which has resulted in the approval the Compliance Monitoring and Enforcement Process Tool project by the ERO Executives. This project will unify processes and systems across the ERO, promoting greater efficiencies in work and use of resources. Additional resources will be needed to incorporate the system being developed. As noted in the assumptions for IT, Regional Entities will be asked to participate in teams to help develop application business requirements and to test business functionality for ERO Enterprise applications projects. These teams will primarily be business area subject matter experts, not IT staff. The success of the Compliance Monitoring and Enforcement Process Tool project will be dependent on Regional Entity participation. When planning, Regional Entities should consider allocating resources at an adequate level of participation to support the success of this project. Planning and operating Reliability Standard violations are expected to remain constant as most registered entities have been audited and, thus, have a greater understanding of compliance expectations. A modest increase may also occur as revisions of certain standards or new Reliability Standards become effective. NERC and the Regional Entities will continue to evaluate business practices, implementation, and consistency within the riskbased compliance monitoring and enforcement program. CIP compliance personnel will need to support implementation and evaluation of CIP Requirements for low impact entities and any updated CIP Standards. NERC will continue to lead the CIP V5 training development, coordination, and facilitation for the CMEP staff and industry outreach. Texas RE will support these activities in collaboration with NERC, as needed, to ensure appropriate knowledge and guidance are developed, understood, and administered. NERC and the Regional Entities are planning to support the training and education requirements and guidelines necessary to meet the criteria set forth by the ERO 16

17 Section A 2018 Business Plan and Budget Statutory Programs Enterprise Compliance Monitoring and Enforcement Manual and the Competency Guide. A potential increase in resources may be necessary to support compliance and enforcement activities related to CIP V5 Standards in 2018 and Additional resource considerations should be given to managing the increased amount of registered entities applicable to the CIP Standards due to the addition of low impact requirements that will come into effect in Additional resource allocation may be necessary for increased Physical Security compliance monitoring activities for CIP014 and the compliance monitoring activities related to the Supply Chain Risk Management Reliability Standard (CIP 013). ERO Enterprise CMEP staff, particularly staff with visibility into risks existing in the field, will provide feedback to the ERO Enterprise. This feedback may include information on risks seen in the field that are not addressed by a standard, as well as information on where a standard is too broad. ERO Enterprise CMEP staff will participate in the development of a solution, regardless of whether the risk is addressed through a new or modified Reliability Standard, or other means. ERO Enterprise CMEP staff will provide input for standards development teams on the risks seen in the field relating to a standard under development, as well as for how a Reliability Standard would be monitored. As the depth of focused analysis of reliability performance and events across NERC improves, any identification of possible gaps in standards and compliance monitoring could potentially influence this program area. The certification program will be assessed in 2017, which may result in modifications to the program in Planned oversight activities for 2018 will be aligned with the ERO Enterprise Operating Model and may affect 2018 resource allocation, but they should have little effect on overall NERC resource requirements. NERC understands that each Regional Entity will need to evaluate its individual resource needs and allocations. Two central reforms have been identified as a result of the completion of the riskbased registration activity in 2015: 1. Modifications to the NERC Registry Criteria have been approved, including the elimination of three functional entities (PurchasingSelling Entities, Interchange Authorities, and LoadServing Entities), modifications to the threshold criteria for Distribution Providers, and alignment of five registration categories with the BES definition. 2. The NERCled review panel, which vets requests for Deactivation or decisions not to register an entity that does not meet the Registry Criteria, as well as disputes regarding the application of the Registration Criteria and requests for 17

18 Section A 2018 Business Plan and Budget Statutory Programs a subset list of applicable Reliability Standards (which may specify the Requirements/subRequirements), has been incorporated into the rules. These reforms strengthen the registration process and are important milestones in NERC s approach to managing risks to reliability. Deployment and implementation of these revisions began in 2015, with continued work in 2017 and No further enhancements are anticipated to support the ongoing next phases of the riskbased registration activity. The results from the 2016 registration program review will result in modifications to the program in The recommendations from the Organization Registration Program review are summarized below and will be prioritized by the Organization Registration and Certification Group (ORCG) for work to be conducted in 2017 and 2018: NERC and the Regional Entities should develop and conduct outreach for industry to inform how the NERCled review panel is conducted and how a submittal is processed. The Regional Entities will assist NERC with compiling a list of possible ROP enhancements related to the NERCled review panel processes and procedures. NERC and the Regional Entities should conduct an indepth review on Joint Registration Organizations (JROs)/Coordinated Functional Registrations (CFRs). This may include how a JRO/CFR works, what the obligations are, different models implemented across the ERO Enterprise, forms/formats and communication, and examples of how to document the agreements. NERC and the Regional Entities should prioritize any current or future identified issues and focus to resolve the higher priority issues in a timely manner and report progress to the ORCG. The activities associated with the implementation of the BES definition have decreased and, therefore, no additional resource demands are expected in the registration area. However, with applications for SelfDetermined Notifications no longer being accepted through the ERO Enterprise BESnet application, Regional Entities will need to validate, with NERC oversight, submittals to determine complete and proper application of the BES definition. Regional Entities will be asked to participate in teams to help develop application business requirements and to test business functionality for ERO Enterprise applications projects. 18

19 Section A 2018 Business Plan and Budget Statutory Programs 2018 Goals and Key Deliverables COMPLIANCE MONITORING Perform formal, in depth, riskbased compliance engagements for the functions posing risk to the BES. The frequency of engagements will vary as a result of the riskbased CMEP process. The number of anticipated engagements provided below are similar to the current cyclic approach, but may increase or decrease. Perform approximately 3540 engagements, including all aspects of 693 and CIP risks identified through riskbased CMEP processes. Perform spot checks where warranted due to identified risks, system events, complaints, or other reliability concerns. Continue to work with NERC and other Regional Entities to improve consistency of engagements of registered entities. Conduct selfcertifications of registered entities as needed. Increase coordination with Enforcement regarding all compliance monitoring engagements. Enhance feedback loops to the standard development process. Enhance registered entities understanding of standard requirements by capturing lessons learned from compliance monitoring engagements and distributing to registered entities via training programs, newsletters, and announcements. Review and revalidate riskbased CMEP processes and tools. Participation in the RSAW development process. Training related to enhancements to the riskbased monitoring approach. ENFORCEMENT Review, validate, and process or dismiss all possible violations in a timely fashion, to enhance visibility of violations and penalties. Manage all settlements and contested cases to completion, as efficiently as possible. Coordinate appropriate engineering, other subject matter experts, and legal resources for the processing of alleged violations, including all settlements, appeals, and contested cases. Use targeted, aggressive enforcement for the violations posing the most risk to BPS reliability. 19

20 Section A 2018 Business Plan and Budget Statutory Programs Support streamlined mechanisms implemented to expedite possible violations which pose a lesser reliability risk to the BPS. Improve the consistency and timeliness of all compliance and enforcement data tracking to enable review and reporting for compliance and enforcement staff, management, the Texas RE Board, NERC, and stakeholders. Promote timeliness and transparency of compliance results, including those efforts associated with meeting the caseload index, average violation aging, and mitigation aging metrics. Assure timely mitigation of all violations, assessing all mitigating activities and mitigation plans for effectiveness and reasonableness of implementation, tracking completion of accepted plans to closure, and verifying completion of mitigation plans. Enhanced feedback loops to the standard development process. REGISTRATION AND CERTIFICATION Continue to monitor activity in the region and to register and certify entities in accordance with Texas RE procedures and the NERC ROP, including revisions to registrations and annual maintenance to reflect new and revised NERC standards. The level of activity is expected to be consistent with Continue to work with NERC and other Regional Entities to improve efficiency and consistency in performing registration and certification functions. Register new entities associated with generation and transmission facilities that may be planned and constructed during the applicable period, and conduct any required certifications. Continue to implement the revised Bulk Electric System definition, including execution of the exception process, handling exclusion notices, tracking the status of exclusions and exceptions, and dealing with related issues. Participate on the NERCled panel as required. Resource Requirements Personnel Expenses The number of FTEs assigned to this program is remaining constant in Salaries expense is increasing 9.6% for The 2018 budget allows for 3% salary increases. The additional increase in that category is due to market adjustments and promotions in 2016 that were not included in the 2017 budget. The increase for payroll taxes, benefits and retirement costs are in line with the Salaries increase. Travel Expense is decreasing by 1.5% due to costsaving efforts. 20

21 Section A 2018 Business Plan and Budget Statutory Programs Consultants and Contracts There is a decrease of 17.6% in contracts and consulting services for this department. The decrease is based on projected operating costs for webcdms. 21

22 Section A 2018 Business Plan and Budget Statutory Programs Compliance Monitoring, Enforcement and Organization Registration and Certification Program The following table shows the funding sources and related expenses for the Compliance Enforcement and Organization Registration and Certification Program for Explanations of variances by expense category are included with the Supplemental Tables found in Section B. Funding Statement of Activities, Fixed Assets Expenditures and Change in Working Capital 2017 Budget & Projection, and 2018 Budget COMPLIANCE MONITORING, ENFORCEMENT and ORGANIZATION REGISTRATION and CERTIFICATION Variance Variance 2017 Projection 2017 Budget v 2017 Budget 2018 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) ERO Funding NERC Assessments $ 7,520,606 $ 7,520,606 $ $ 8,834,800 $ 1,314,194 Penalty Sanctions 39,189 39, , ,351 Total NERC Funding $ 7,559,795 $ 7,559,795 $ $ 9,050,341 $ 1,490,545 Interest 1,568 1,568 1,568 Total Funding $ 7,561,363 $ 7,561,363 $ $ 9,051,908 $ 1,490,545 Expenses Personnel Expenses Salaries $ 3,653,924 $ 3,653,924 $ $ 4,004,351 $ 350,428 Payroll Taxes 257, , ,612 23,367 Benefits 693, , ,590 59,500 Retirement Costs 513, , ,596 47,525 Total Personnel Expenses $ 5,117,331 $ 5,117,331 $ $ 5,598,150 $ 480,819 Meeting & Travel Expenses Meetings $ 2,080 $ 2,080 $ $ $ (2,080) Travel 165, , ,900 (4,687) Conference Calls ,600 4,300 Total Meeting& Travel Expenses $ 167,967 $ 167,967 $ $ 165,500 $ (2,467) Operating Expenses Consultants & Contracts $ 205,000 $ 205,000 $ $ 169,000 $ (36,000) Office Rent Office Costs 16,770 16,770 16,580 (190) Professional Services Miscellaneous Depreciation Total Operating Expenses $ 221,770 $ 221,770 $ $ 185,580 $ (36,190) Total Direct Expenses $ 5,507,068 $ 5,507,068 $ $ 5,949,230 $ 442,162 Indirect Expenses $ 3,842,957 $ 3,842,957 $ $ 3,752,476 $ (90,481) Other NonOperating Expenses $ $ $ $ $ Total Expenses $ 9,350,025 $ 9,350,025 $ $ 9,701,706 $ 351,681 Change in Assets $ (1,788,662) $ (1,788,662) $ $ (649,798) $ 1,138,864 Fixed Assets Depreciation Computer & Software CapEx Allocation of Fixed Assets (178,138) (178,138) (108,554) 69,584 Inc(Dec) in Fixed Assets $ (178,138) $ (178,138) $ $ (108,554) $ 69,584 TOTAL BUDGET $ 9,171,887 $ 9,171,887 $ $ 9,593,152 $ 421,265 TOTAL CHANGE IN WORKING CAPITAL $ (1,610,524) $ (1,610,524) $ $ (541,244) $ 1,069,281 22

23 Section A 2018 Business Plan and Budget Statutory Programs Reliability Assessment and Performance Analysis Program Program Scope and Functional Description Texas RE s Reliability Assessment and Performance Analysis (RAPA) Program supports assessment of system adequacy and operating reliability of the BPS in the ERCOT region, both existing and planned, as well as review of system disturbances in the ERCOT region. In addition to these assessments and analyses, Texas RE participates with NERC and stakeholders in ongoing work to evaluate system performance, measure progress in improving current reliability and track leading indicators of future reliability. This program requires validation and analysis of data collected from registered entities, which is used in measurement of ongoing reliability performance of generation, transmission, and demand response. RAPA also identifies risks and analyzes key issues that may affect reliability, such as market practices, legislation, regulation, technology developments, highimpact low frequency (HILF) events, and technology trends. Event analyses will determine causative factors for system disturbances as well as lessons learned upon recovering from them. Texas RE will disseminate these insights to industry and seek broader collaboration among stakeholders to identify and reduce threats to reliability. RAPA also includes Situation Awareness and Infrastructure Security. Situation Awareness covers the assessment of the current condition of and threats to the BPS and development and application of situation awareness tools for monitoring the BPS. Infrastructure Security resources participate in the ongoing development of CIP standards, improving regional coordination and cooperation for the CIP program, and aid the NERCled efforts to develop industry alerts and guidance in support of the Electricity Information Sharing and Analysis Center (EISAC). Most of the Texas RE Infrastructure Security effort is handled by CIP resources within the Compliance, Monitoring, Enforcement and Organizational Registration and Certification Program, while Situation Awareness is closely tied to initial event review, which is primarily performed as part of the Event Analysis Process, in the RAPA Program Key Assumptions Reliability Assessments and Performance Analysis (in whole dollars) 2017 Budget 2018 Budget Increase (Decrease) Total FTEs Direct Expenses $ 1,352,611 $ 1,425,532 $ 72,922 Indirect Expenses $ 662,579 $ 646,979 $ (15,600) Other NonOperating Expenses $ $ $ Inc(Dec) in Fixed Assets $ (30,713) $ (18,716) $ 11,997 Total Funding Requirement $ 1,984,476 $ 2,053,795 $ 69,318 Current staffing levels are expected to meet known and predicted program needs. However, as many RAPA tasks are presently in preliminary stages of definition, particularly those involving support of NERC s System Analysis functions, potential for additional program resource needs including staffing demands are not 23

24 Section A 2018 Business Plan and Budget Statutory Programs established. Additionally, there is some uncertainty regarding the amount of resources that will be required to support joint Enterprisewide modeling and data collection systems. Continued ERCOT stakeholder support is expected in Regional planning activities that meet ERO schedules for the various proposed reliability assessments and Interconnection study case model building activities. Regional Entities will be asked to participate in teams to help develop application business requirements and test business functionality for ERO Enterprise applications projects Goals and Key Deliverables Provide independent reviews of reliability assessments for the ERCOT region and assist NERC in its overall development of the annual longterm reliability assessment, along with continuing support for winter and summer seasonal assessments and with postseasonal reviews. Contribute to two anticipated NERC shortterm special reliability assessments in 2018 that focus on specific risk concerns in a six toeighteen month horizon, including scope development, data collection, analysis and review. These assessments may involve topics such as fuel supply risk, new technologies and environmental regulations, changes in resource mix, or delays in transmission development. Support NERCwide modelling improvement efforts, particularly those related to dynamic loads, inverterbased resources, and generator model validation. As the Interconnection model designee associated with MOD032 and MOD033 standards, Texas RE will continue to work with stakeholders to integrate fidelity and quality tests into Regional studycase development processes. Contribute to Reliability Guidelines and Technical Reference documents developed through technical working groups under the NERC Planning and Operating Committees, including special reports on emerging issues as may be assigned to these groups to address highpriority risks. Provide regional data collection and analysis to meet NERC System Analysis initiatives or FERC Order directives. These may include continuing review of risks associated with geomagnetic disturbances, system strength, and reactive issues, protection system misoperations, system frequency response, human performance, drought, environmental regulations, oscillation analysis, phasor measurement unit (PMU) application, distributed energy resources, and new technology integration. Oversee NERC Rules of Procedure Section 1600 collection of reliability data for the ERCOT region, provide analysis and validation, respond to FERC inquiries, and support stakeholders as enhancements are commissioned. In 2018, Texas 24

25 Section A 2018 Business Plan and Budget Statutory Programs RE will assist in development of application requirements and testing to support development NERC s Enterprise Reporting data warehouse. Systems include: Transmission Availability Data System (TADS) Generation Availability Data System (GADS) WindGADS, a similar but separate system from GADS for wind generation, becoming mandatory for larger facilities in Demand Response Availability Data System (DADS) Protection System Misoperations (MIDAS) Participate in ERO development of an outcomebased approach to achieve measurable improvements in reliability, utilizing the data above and NERC s adequate level of reliability (ALR) metrics. Collect data and perform analysis as needed to evaluate the ALR metrics and contribute to NERC s annual State of Reliability report along with a Regionspecific annual reports and quarterly reviews. While content may change, the number of metrics and level of analysis is expected to remain essentially consistent in 2018 as in Review NERC Standards and process developments. Evaluate against existing and proposed Regional criteria and processes for reliability concerns. Continue to implement the NERC event analysis and causecoding process within the ERCOT region, expecting a similar volume of events as 2017, estimated at 12 Category 1 (minor), and three Category 2 or 3 (moderate impact) events. No Category 4 or 5 events (significant impact) are anticipated but processes and procedures to address this possibility will be maintained. Conduct followup on recommendations and trends from past major events within ERCOT and other power systems. Review approximately 80 lesser system events, such as remedial action scheme misoperations, communications issues, and frequency disturbances, which do not meet the threshold for NERC events analysis, in order to monitor trends and system impacts in these areas. Support the BES Definition exception process and NERCled panels as needed by providing technical review of exception requests and coordination internally and with other Regions and NERC for consistent application. At this time, the number of such requests is uncertain but is expected to be limited to one or two issues handled by existing staff. Promote the work of NERC Reliability Issues Steering Committee (RISC) to identify the most significant system risks and incorporate into RAPA activities and projects. Tailor RISC observations and Regional information to identify impacts within the Region and means to mitigate them. Provide workshops, webinars, and other outreach to support industry participation in RAPA programs and to disseminate lessons learned, best practices, trends and observations. 25