Agenda Finance and Audit Committee - NERC Finance and Audit Co… · additional reserves for certain preliminarily identified E-ISAC projects, which were ultimately authorized and

Agenda Finance and Audit Committee October 27, 2016 | 2:00-3:00 p.m. Eastern Conference Call Participant Dial-in: 1-855-331-9631 | Conference ID: 1874466 Call to Order Introductions and Chair’s Remarks NERC Antitrust Compliance Guidelines Agenda

1. Minutes*— Approve

a. August 10, 2016 Meeting

2. Fourth Quarter Calendar of FAC Responsibilities

a. Third Quarter Statement of Activities*— Review and Accept

i. NERC Summary of Results as of September 30, 2016

ii. Total ERO Enterprise Summary of Results as of September 30, 2016

iii. Regional Entity Variance Reports as of September 30, 2016

3. 2017 Business Plan and Budget Status — Update

4. 2018 Business Plan and Budget Schedule*— Review

5. Review of Committee Mandate* — Review

6. Adjournment

*Background materials included.

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.

· 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

DRAFT Minutes Finance and Audit Committee August 10, 2016 | 11:00 a.m.–12:00 p.m. Atlantic

Halifax Marriott Harbourfront 1919 Upper Water Street Halifax, NS B3J 3J5, Canada

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”) on August 10, 2016, at 11:00 a.m. Atlantic, and a quorum was declared present. The agenda is attached as Exhibit A.

Present at the meeting were:

Committee Members: Board Members: Jan Schori, Chair Paul F. Barber Janice B. Case Gerry W. Cauley, President and Chief Executive Officer Robert G. Clarke David Goulding Kenneth W. DeFontes, Jr. George Hawkins Frederick W. Gorbet Roy Thilly Kenneth G. Peterson

NERC Staff: Charles A. Berardesco, Senior Vice President, General Counsel, and Corporate Secretary Tina Buzzard, Associate Director Scott Jones, Vice President of Finance and Treasurer Mark Lauby, Senior Vice President and Chief Reliability Officer Marcus H. Sachs, Senior Vice President and Chief Security Officer Janet Sena, Senior Vice President and Director of Policy and External Affairs Michael Walker, Senior Vice President and Chief Financial and Administrative Officer

NERC Antitrust Compliance Guidelines Ms. Schori directed the participants’ attention to the NERC Antitrust Compliance Guidelines included in the agenda package, and indicated that all questions regarding antitrust compliance or related matters should be directed to Mr. Berardesco.

Minutes Upon motion duly made and seconded, the minutes from the May 4, 2016 and July 21, 2016 meetings were approved as presented to the Committee.

Agenda Item 1a Finance and Audit Committee Open Meeting October 27, 2016

Report on Second Quarter Unaudited Results Mr. Jones presented the unaudited second quarter variance reports for NERC and for the ERO Enterprise, referencing the materials included in the advance agenda package. NERC is currently under budget, mostly due to timing. Personnel is slightly over budget, but management is taking a careful approach to hiring that should bring personnel costs very close to budget by year end. Current projections are that NERC will be at budget at year end (prior to the use of authorized reserves and excluding the CRISP program). Mr. Jones reviewed the approach in the 2016 Budget that allocated additional reserves for certain preliminarily identified E-ISAC projects, which were ultimately authorized and for which the reserves will be utilized. The CRISP program is projected to be over budget at year end, but this is due to additional CRISP participants which will provide fees to cover the additional costs. Mr. Jones reviewed the various reserve levels, noting that operating reserves are slightly lower than projected, but that the proposed 2017 Budget provides for replenishment to the target level. The ERO Enterprise is under budget, primarily due to timing and personnel costs, with current FTEs 4.8 percent under budget. It is expected that the ERO Enterprise will be slightly under budget by year end. Mr. Jones reviewed reserve levels across the ERO Enterprise, noting that they were $8 million over budget at the beginning of the year, and are currently $13.2 million over budget. It is expected that the ERO Enterprise reserve levels will be back to $8.6 million over budget by year end. Management continues to focus closely on reserve levels and has experienced steady improvement in budgeting in projecting reserve levels across the ERO Enterprise. Upon motion duly made and seconded, the Committee recommended the Second Quarter Unaudited Statement of Activities for acceptance by the Board. NERC and Regional Entity Proposed 2017 Business Plans and Budgets and Associated Assessments Mr. Jones presented the proposed 2017 Business Plan and Budgets for NERC, the Regional Entities and WIRAB, referencing the detailed materials included in the advance agenda package. He noted the significant interactions with the Board and stakeholders leading up to this meeting. Mr. Jones reviewed the major areas of focus for the NERC Budget, and then reviewed the minimal updates since the last draft, particularly the additional funding for the E-ISAC portal project, which adds 1.1 percent to the total NERC Budget increase and 0.4 percent to the assessment increase. The assessment increase is lower than the overall Budget increase due to the proposed use of the Capital Financing program. The Budget assumes the release of $1.1 million from the Assessment Stabilization Reserve, as reviewed during prior Committee meetings. With respect to major costs drivers, Mr. Jones noted that personnel costs are well over 50 percent of the total Budget, and that while projected FTEs are essentially flat compared to 2016, there is a continuing challenge due to various personnel related cost increases. Overall, while FTEs are flat, management is moving personnel within the organization to carry out key initiatives without increasing the actual number of FTEs. Mr. Jones reviewed how other costs are declining year to year. He also reviewed the Budget by program area and by strategic goal. Mr. Jones concluded the Budget review by noting that the Budget authorized the addition of $500,000 to the Assessment Stabilization Reserve as a result of penalty funds that will be received pursuant to a multi-year settlement.

Mr. Jones reviewed the budgeted reserve balances, assessments by North American country, and total Canadian assessments by province. He noted that NERC assessments are increasing more than some Regional Entity assessments as NERC assumes the costs of certain ERO Enterprise initiatives and due to increased E-ISAC costs that are not duplicated at the Regional Entity level. Ms. Schori noted the effort to analyze the Budget in alignment with NERC’s Strategic Plan, which is an ongoing effort. She also thanked the E-ISAC Member Executive Committee and Jim Fama for their support of the E-ISAC budget. Mr. Fama spoke in support of the new E-ISAC projects. Mr. Sylvain Clermont, a member of the MRC, complimented management on its approach with the MRC Budget working group in developing the Budget, and also spoke in favor of the proposed use of the Assessment Stabilization Reserve. Mr. Jones then reviewed the combined ERO Enterprise budgets (noting the individual Regional Entity budgets had been reviewed during the Committee’s recent webinar), and then provided a three-year budget forecast. Upon motion duly made and seconded, the Committee recommended the 2017 NERC Business Plan and Budget and the business plan and budgets for each of the Regional Entities and WIRAB, including the related assessments and contributions to and distributions from the Assessment Stabilization Reserve, for Board approval. Extension of Capital Financing Program Mr. Walker reviewed the proposed extension of the Capital Financing program, referencing the materials included in the advance agenda package. Upon motion duly made and seconded, the Committee recommend the extension for Board approval. Audio Visual Project Implementation Mr. Jones provided an update on the audio-visual project, referencing the materials included in the advance agenda package. He noted that due to the use of vendor financing, there was no impact on 2016 results, and repayment of the financing would be reflected in future budgets. Adjournment There being no further business, and upon motion duly made and seconded, the meeting was adjourned. Submitted by,

Charles A. Berardesco Corporate Secretary

North American Electric Reliability Corporation Summary of Unaudited Results September 30, 2016 Through September 30, 2016, NERC was $2.5M (4.9%) under its expense and fixed asset budget, including costs related to the Cyber Risk Information Sharing Program (CRISP). NERC is projecting to be approximately $926k (1.4%) over budget at year-end primarily due to higher than projected costs associated with the CRISP program which will be funded by CRISP participants.

Excluding the approved use of reserves, NERC was $2.7M (5.4%) under its expense and fixed asset budget and is projecting to be very close to budget at year-end ($290k or 0.4% over).

Actual vs Budget (YTD) and Projection vs Total Budget (including CRISP)

NERC VARIANCES - excluding CRISP

NERC was $1.9M (4.1%) under its expense and fixed asset budget and is projecting to be $227k (0.4%) over budget at year-end. The following expenditures, representing the approved or anticipated use of reserves, are expected to be mostly offset by reduced spending in other areas, as further explained below:

(1) Approved use of reserves for data analysis software to collect and analyze system inertia data; (2) Approved use of reserves for enhancements to webTADS related to interface and data import; (3) Approved use of reserves for SAFNR-Data Modification; (4) Approved use of reserves for IT contract support during periods of staff vacancies; (5) Anticipated use of reserves for E-ISAC STIX/TAXII.

Actual Budget Variance Over

(Under) % Annual

Projection Annual Budget

Variance Over (Under) %

TOTAL FUNDING 54,983,441$ 50,921,373$ 4,062,067$ 8.0% 68,234,109$ 67,502,155$ 731,953$ 1.1%

EXPENSES and FIXED ASSETSPERSONNEL EXPENSES 28,494,940$ 28,138,788$ 356,152$ 1.3% 37,695,509$ 37,283,807$ 411,702$ 1.1%

MEETINGS, TRAVEL and CONFERENCE CALLS 2,598,921 2,692,948 (94,027) -3.5% 3,593,803 3,620,286 (26,483) -0.7%CONSULTANTS and CONTRACTS 8,059,564 9,649,449 (1,589,885) -16.5% 13,176,799 12,865,914 310,885 2.4%

RENT 2,415,855 2,290,716 125,139 5.5% 3,224,287 3,054,287 170,000 5.6%OFFICE COSTS, PROFESSIONAL SERVICES and MISC. 4,177,878 4,681,064 (503,186) -10.7% 6,006,969 6,341,372 (334,402) -5.3%

OTHER NON-OPERATING EXPENSES 99,313 95,000 4,313 4.5% 100,668 110,000 (9,332) -8.5%FIXED ASSET PURCHASES (excluding depreciation) 2,183,134 2,933,250 (750,116) -25.6% 4,314,606 3,911,000 403,606 10.3%

TOTAL EXPENSES and FIXED ASSETS 48,029,604$ 50,481,215$ (2,451,611)$ -4.9% 68,112,641$ 67,186,665$ 925,976$ 1.4%APPROVED USE of RESERVES 273,528 - 273,528 636,338 - 636,338

TOTAL EXPENSES and FIXED ASSETS (excluding reserves) 47,756,077$ 50,481,215$ (2,725,139)$ -5.4% 67,476,303$ 67,186,665$ 289,638$ 0.4%

FTEs 194.45 192.48 1.97 1.0% 193.32 192.48 0.84 0.4%

Agenda Item 2a.iFinance and Audit Committee Open Meeting October 27, 2016

Summary of Results as of September 30, 2016 2

The following table and summary of variances by category reflect 2016 year-to-date (YTD) actual and projected results without CRISP. A summary of results for CRISP is provided on page 5.

Actual vs Budget (YTD) and Projection vs Total Budget (Excluding CRISP)

Following is a brief summary of significant variances by major categories:

• Personnel expenses were over budget $445k (1.6%) resulting from an additional 2.39 (1.3%) more FTEs than budgeted. Personnel expenses are projected to be $412k (near 1%) over budget at year-end. This near-budget projection is based on current staffing assumptions and reflects a stabilizing work force resulting from the successful implementation of a hiring strategy to fill key resource needs and efforts to close the histrionic gap between budgeted and actual FTEs to reduce overall attrition. The 2016 personnel budget was based on 210 positions, reduced by a vacancy rate of 7.8% (accounting for attrition and timing of new hires).

• Consultants and Contracts expenses were under budget $1.4M (26.2%) and are projected to be $598k (8.6%) under budget at year-end. E-ISAC has a projected over budget variance that is related to the approved use of reserves for STIX/TAXII, a pilot project supported by the E-ISAC Members Executive Committee which is intended to enhance voluntary cyber risk information sharing. That projected over budget variance is offset by expected under budget variances in other departments, which are primarily due to: (1) lower costs related to implementation of risk-based compliance monitoring in Compliance Assurance; (2) lower costs for ERO application support in Information Technology; (3) lower costs for compensation consulting expenses in Human Resources; and (4) lower than budgeted costs in Accounting and Finance due to the use of internal resources in place of anticipated external resources to support NERC’s Internal Audit function.


(Under) % Annual



TOTAL FUNDING $ 44,966,836 $ 44,933,214 $ 33,622 0.1% $ 59,562,309 $ 59,529,136 $ 33,172 0.1%

EXPENSES and FIXED ASSETSPERSONNEL EXPENSES 28,025,293$ 27,580,214$ 445,079$ 1.6% 36,954,418$ 36,542,135$ 412,283$ 1.1%

MEETINGS, TRAVEL and CONFERENCE CALLS 2,572,238 2,640,856 (68,618) -2.6% 3,546,348 3,550,831 (4,483) -0.1%CONSULTANTS and CONTRACTS 3,860,407 5,233,005 (1,372,598) -26.2% 6,379,310 6,977,320 (598,010) -8.6%

RENT 2,415,855 2,290,716 125,139 5.5% 3,224,287 3,054,287 170,000 5.6%OFFICE COSTS, PROFESSIONAL SERVICES and MISC. 4,069,238 4,321,599 (252,362) -5.8% 5,673,269 5,862,095 (188,825) -3.2%

OTHER NON-OPERATING EXPENSES 99,313 95,000 4,313 4.5% 100,668 110,000 (9,332) -8.5%FIXED ASSET PURCHASES (excluding depreciation) 2,125,092 2,858,250 (733,158) -25.7% 4,256,564 3,811,000 445,564 11.7%

TOTAL 43,167,435$ 45,019,640$ (1,852,205)$ -4.1% 60,134,863$ 59,907,668$ 227,196$ 0.4%FTEs 192.10 189.71 2.39 1.3% 190.55 189.71 0.84 0.4%


SUMMARY OF CONSULTANT AND CONTRACT EXPENSES BY DEPARTMENT

• Rent expense was over budget $125k (5.5%) and projected to be $170k (5.6%) over budget at year-end due to higher than budgeted building maintenance and real estate taxes expense.

• Office Costs, Professional Services, and Miscellaneous expenses were collectively under budget $252k (5.8%) and projected to be $189k (3.2%) under budget at year-end, primarily due to lower than budgeted costs for outside counsel, which are included in professional services expenses.

• Fixed Asset Purchases (excluding depreciation) were under budget $733k (25.7%) due to timing of expenses compared to budget allocation. This category is projected to be over budget $446k (11.7%) at year-end, largely due to the GADS Wind project (originally budgeted in contracts and consultants but recognized in fixed assets) and the authorized use of reserves in connection with a data analysis software that collects and analyzes system inertia data.

CONSULTANTS and CONTRACTS Actual Budget Variance Over

(Under) Annual


Variance Over (Under)

COMPLIANCE ANALYSIS and CERTIFICATION -$ 37,503$ (37,503)$ -$ 50,000$ (50,000)$ COMPLIANCE ASSURANCE 5,347 150,003 (144,656) 5,347 200,000 (194,653)

RELIABILITY ASSESSMENTS and SYSTEM ANALYSIS 261,208 431,253 (170,045) 442,425 575,000 (132,575) RELIABILITY RISK MANAGEMENT 1,453,973 1,332,387 121,586 1,781,367 1,776,514 4,853

E-ISAC 278,497 497,502 (219,005) 886,756 663,335 223,421 TRAINING, EDUCATION & OPERATOR CERTIFICATION 358,567 506,853 (148,286) 706,400 675,800 30,600

GENERAL & ADMINISTRATIVE 65,710 60,003 5,707 80,000 80,000 - POLICY and EXTERNAL AFFAIRS 10,332 11,250 (918) 15,000 15,000 - INFORMATION TECHNOLOGY 883,375 1,571,004 (687,629) 1,845,046 2,094,671 (249,625)

HUMAN RESOURCES 356,484 412,497 (56,013) 418,078 550,000 (131,922) FINANCE and ACCOUNTING 186,915 222,750 (35,835) 198,891 297,000 (98,109)

TOTAL (excluding CRISP) 3,860,407$ 5,233,005$ (1,372,598)$ 6,379,310$ 6,977,320$ (598,010)$

CRISP 4,199,157 4,416,444 (217,287) 6,797,489 5,888,594 908,895

TOTAL CONTRACTS and CONSULTANTS 8,059,564$ 9,649,449$ (1,589,885)$ 13,176,799$ 12,865,914$ 310,885$


SUMMARY OF VARIANCES BY PROGRAM The following table reflects variances by department as of September 30, 2016.

Following is a brief summary of significant variances:

• Reliability Standards; Compliance Analysis, Certification and Registration; Compliance Assurance – Under budget YTD and projected to be under budget at year-end primarily due to resource allocations and timing of new hires, and lower than budgeted outside contract support related to risk-based compliance monitoring, as noted above.

• Enforcement – Over budget YTD and projected to be over budget at year-end due to lower personnel attrition, as well as enhancements to the current CRATS database that was budgeted in 2015 but not completed until 2016. Funding for this project was reserved in the Future Obligations Reserve at the end of 2015.

• Reliability Assessments and System Analysis – Over budget YTD and projected to be over budget at year-end due to the allocation of additional resources to support ongoing program activities in specific departments within this program area.

• Reliability Risk Management (includes Event Analysis, Performance Analysis, and Situation Awareness departments) – Over budget YTD and expected to be over budget at year-end primarily due to (1) allocation of additional staff resources to support ongoing program activities, (2) the approved use of reserves for enhancements to webTADS related to interface and data import, and (3) development of Enterprise Reporting for GADS data, which was budgeted in IT but charged to the Performance Analysis program to align costs with the program utilizing the system.

• E-ISAC – Projected to be over budget at year-end due to the planned use of reserves for STIX/TAXII.

DIRECT EXPENSES and NET FIXED ASSETS 2016 YTD

Actual 2016 YTD

Budget Variance

Over/(Under) 2016

Projection 2016

Budget Variance

Over/(Under)

RELIABILITY STANDARDS 2,604,637$ 2,766,223$ (161,585)$ 3,584,433$ 3,678,708$ (94,275)$ COMPLIANCE ANALYSIS, CERTICATION and REGISTRATION 1,443,757 1,572,889 (129,132) 1,889,111 2,086,784 (197,673)

COMPLIANCE ASSURANCE 3,044,772 3,440,683 (395,911) 4,001,439 4,559,234 (557,794) ENFORCEMENT 1,864,535 1,677,975 186,561 2,490,038 2,225,816 264,222

RELIABILITY ASSESSMENTS and SYSTEM ANALYSIS 2,835,084 2,565,756 269,328 3,715,376 3,392,571 322,805 RELIABILITY RISK MANAGEMENT 5,849,016 5,065,512 783,504 8,039,506 6,719,091 1,320,415

E-ISAC 3,372,412 3,535,929 (163,518) 4,921,207 4,742,862 178,345 TRAINIING, EDUCATION and OPERATOR CERTIFICATION 1,341,032 1,549,032 (208,001) 2,024,283 2,060,167 (35,884)

GENERAL and ADMINISTRATIVE and EXECUTIVE 6,220,140 5,977,420 242,720 8,132,717 8,024,564 108,153 POLICY and EXTERNAL AFFAIRS 1,544,456 1,401,888 142,568 2,053,889 1,856,747 197,142

LEGAL and REGULATORY 2,337,659 2,610,899 (273,240) 3,234,120 3,465,966 (231,846) INFORMATION TECHNOLOGY 7,130,939 9,134,010 (2,003,071) 11,374,748 12,156,674 (781,926)

HUMAN RESOURCES 903,862 1,134,773 (230,910) 1,221,116 1,510,177 (289,060) FINANCE and ACCOUNTING 2,675,134 2,586,651 88,482 3,452,879 3,428,307 24,572

TOTAL (excluding CRISP) 43,167,435$ 45,019,640$ (1,852,205)$ 60,134,863$ 59,907,668$ 227,196$


• Information Technology – Under budget year-to-date and projected to be under budget at year-end. The under budget variance is related to ERO Application development costs that are budgeted in IT but recorded in the programs utilizing the applications. The 2016 budget included $1.5M in ERO Applications, of which $1.2M was actually spent or expected to be spent. Approximately $650k of that actual spend has been allocated from the IT department to the relevant operating programs utilizing the application.

• Human Resources – Under budget year-to-date and projected to be under budget at year-end due to lower than budgeted outside compensation and general HR consulting services.

BOARD OF TRUSTEES EXPENSES Board of Trustees expenses were under budget YTD by $73k (5.8%) and expected to be approximately on budget at year-end.

CRISP VARIANCES (including indirect expenses and allocation of fixed assets) CRISP was $723k (12.1%) under budget YTD and is projected to be $699k (8.8%) over budget at year-end primarily due to the additional costs associated with start-up expenses for new participants not originally included in the budget. These additional start-up costs will be funded by the new CRISP participants.

Board of Trustee Expenses Actual Budget Variance Over

(Under) %

Meetings and Travel ExpensesQuarterly Board Meetings and Conference Calls 145,685$ 185,000$ (39,315)$ -21.3%

Trustee Travel 86,617 118,000 (31,383) -26.6%Total Board of Trustees Meetings and Travel Expenses 232,303$ 303,000$ (70,697)$ -23.3%

Professional ServicesIndependent Trustee Fees 841,564 844,767 (3,203) -0.4%

Trustee Search Fees 101,134 100,000 1,134 0.0%Total Board of Trustee Professional Services Expenses 942,698$ 944,767$ (2,069)$ -0.2%

Total Board of Trustee Expenses 1,175,001$ 1,247,767$ (72,766)$ -5.8%


OPERATING RESERVES – Current Balances

The balance in working capital and operating reserves YTD was $14.8M, which was $6.5M higher than budget. The increase was primarily due to higher CRISP reserves, which increased $4.8M due to timing differences between receipt of third-party funding for CRISP and expenses incurred throughout the year.

** Represents transactions recorded only on the Statement of Financial Position (balance sheet) and do not impact the Statement of Activities (income statement), including recording of capitalized leases, amortization of future obligations and funding the 457f plan. *** Represents $500k of insurance reserves, plus 2016 CRISP funding billed, net of 2016 actual YTD expenses.


(Under) % Annual

Projection Annual Budget Variance Over

(Under) %

TOTAL FUNDING $ 10,016,604 $ 5,988,160 $ 4,028,445 67.3% $ 8,671,800 $ 7,973,019 $ 698,781 8.8%

EXPENSES and FIXED ASSETSPERSONNEL EXPENSES 469,647$ 558,574$ (88,927)$ 741,091$ 741,671$ (580)$

MEETINGS, TRAVEL and CONFERENCE CALLS 26,683 52,092 (25,409) 47,455 69,455 (22,000) CONSULTANTS and CONTRACTS 4,199,157 4,416,444 (217,287) 6,797,489 5,888,594 908,895

OFFICE COSTS, PROFESSIONAL SERVICES and MISC. 108,640 359,465 (250,824) 333,700 479,277 (145,577) FIXED ASSET PURCHASES (excluding depreciation) 58,042 75,000 (16,958) 58,042 100,000 (41,958)

INDIRECT EXPENSES and ALLOCATION OF FIXED ASSETS 397,276 520,516 (123,240) 694,022 694,022 (0) TOTAL EXPENSES and FIXED ASSETS 5,259,445$ 5,982,091$ (722,646)$ -12.1% 8,671,800$ 7,973,020$ 698,779$ 8.8%

Actual Budget Variance

Over (Under)

Future Obligations

Reserve

Operating Contingency

Reserve

System Operator Reserves

***CRISP Reserves

Assessment Stabilization

Reserve

2016 Beginning Reserve Balances 6,075,782$ 6,313,523$ (237,741)$ 3,431,795$ 1,213,419$ 930,568$ 500,000$

Change in Reserves from Current Year OperationsChange in Reserves from budgeted operations 7,516,657 440,158 7,076,499 - 2,787,662 (28,165) 4,757,160

Approved use of reserves (562,820) - (562,820) (289,293) (273,528)

Capital FinancingProceeds from Financing Activities (non-current only) 589,375 589,375 589,375

Debt Service (758,190) (703,333) (54,856) (758,190) Other adjustments to reserves** 1,923,647 2,271,000 (347,353) (347,353) - 2,271,000 Reserve Balance 14,784,451$ 8,321,348$ 6,463,104$ 2,795,149$ 3,558,740$ 902,403$ 5,257,160$ 2,271,000$

September 30, 2016 Reserve Balances


OPERATING RESERVES – Year-End Projection The current year-end projection in total operating reserves is $8.4M, including $2.2M in the Operating Contingency Reserve (OCR) and $2.3M in the Assessment Stabilization Reserve (ASR).

OCR: The 2016 projected ending balance is above the assumed starting balance of $1.7M in the 2017 budget.

The 2017 budget included additional funding for the OCR of $500k and an ending balance for 2017 of $2.2M. Therefore, NERC is currently tracking to be above the reserve target to start the 2017 budget year.

The following items reflect the anticipated or authorized use of reserves during 2016: • E-ISAC STIX/TAXII project, which was not yet defined as of the 2016 budget approval (anticipated)

• Data analysis software to collect and analyze system inertia data (authorized - $172k)

• Enhancements to webTADS related to interface and data support (authorized - $113k)

• SAFNR data modification (authorized - $50k)

• IT contract support during periods of staff vacancies (authorized - $52k)

ASR: The 2016 projected ending balance agrees to the projected beginning balance for the 2017 budget. The 2017 budget anticipates $500k in penalties to be deposited in the ASR and the use of $1.1M in ASR funds to offset 2017 assessments. The ending ASR balance for 2017 is projected and budgeted to be $1.7M.

** Represents transactions recorded only on the Statement of Financial Position (balance sheet) and do not impact the Statement of Activities (income statement), including recording of capitalized leases, amortization of future obligations and funding the 457f plan.

*** Represents $500k of insurance reserves.

2016 Projection

2016 Budget

Variance Over (Under)

Future Obligations

Reserve

Operating Contingency

Reserve

System Operator Reserves

***CRISP Reserves

Assessment Stabilization

Reserve2016 Beginning Reserve Balances 6,075,782$ 6,313,523$ (237,741)$ 3,431,796$ 1,213,419$ 930,568$ 500,000$ -$

Change in Reserves from Current Year OperationsChange in Reserves from budgeted operations 1,047,098 315,490 731,608 1,310,268 (263,170) -

Approved use of reserves (925,631) - (925,631) (289,293) (636,338)

Capital FinancingProceeds from Financing Activities (non-current only) 1,391,375 1,000,000 391,375 1,391,375

Debt Service (1,044,253) (1,055,000) 10,747 (1,044,253) Other adjustments to reserves** 1,806,132 2,170,614 (364,482) (464,868) - 2,271,000 Reserve Balance 8,350,504$ 8,744,627$ (394,123)$ 2,677,634$ 2,234,473$ 667,398$ 500,000$ 2,271,000$

2016 Projected Year End Reserve Balances


NORTH AMERICAN ELECTRIC RELIABILITY CORPORATION Statement of Activities and Fixed Assets Budget (Unaudited) For the period ended 09/30/2016

Actual Budget Variance

Over (Under) % Annual



Funding Assessments $ 42,811,092 $ 42,811,092 - 57,081,445$ 57,081,445$ -$ Assessment Stabil ization Reserves - Penalties 1,439,000 1,439,000 - 1,439,000 1,439,000 - Assessment Stabil ization Reserves - Non-Penalties - - - - - - Third-Party Funding (CRISP) 9,150,333 5,123,053 4,027,280 7,528,287 6,830,738 697,549 Testing 1,323,760 1,400,976 (77,216) 1,867,972 1,867,972 - Services & Software 41,000 37,502 3,498 50,000 50,000 - Workshop Fees 192,970 107,500 85,470 231,304 230,000 1,304 Interest 25,083 2,250 22,833 35,898 3,000 32,898 Miscellaneous 202 - 202 202 - 202 Total Funding $ 54,983,441 $ 50,921,373 $ 4,062,067 8.0% $ 68,234,109 $ 67,502,155 $ 731,953 1.1%

Expenses Personnel Expenses Salaries $ 22,140,766 $ 21,663,383 $ 477,384 29,425,809$ 28,842,336$ 583,473$ Payroll Taxes 1,524,153 1,593,151 (68,998) 1,785,932 1,871,367 (85,435) Employee Benefits 2,739,387 2,684,520 54,867 3,622,484 3,579,280 43,204 Savings & Retirement 2,090,634 2,197,735 (107,101) 2,861,284 2,990,823 (129,539) Total Personnel Expenses $ 28,494,940 $ 28,138,788 $ 356,152 1.3% $ 37,695,509 $ 37,283,807 $ 411,702 1.1% Meeting Expenses Meetings $ 672,841 $ 800,113 $ (127,272) 1,130,868$ 1,096,500$ 34,368$ Travel 1,765,553 1,652,832 112,721 2,242,955 2,203,786 39,169 Conference Calls 160,527 240,003 (79,476) 219,980 320,000 (100,020) Total Meeting Expenses $ 2,598,921 $ 2,692,948 $ (94,027) -3.5% $ 3,593,803 $ 3,620,286 $ (26,483) -0.7% Operating Expenses Consultants and Contracts $ 8,059,564 $ 9,649,449 $ (1,589,885) 13,176,799$ 12,865,914$ 310,885$ Rent & Improvements 2,415,855 2,290,716 125,139 3,224,287 3,054,287 170,000 Office Costs 2,455,007 2,846,714 (391,707) 3,594,545 3,795,572 (201,027) Professional Services 1,711,941 1,806,975 (95,034) 2,371,922 2,509,300 (137,378) Miscellaneous 10,930 27,375 (16,445) 40,502 36,500 4,002 Depreciation 1,809,122 1,981,467 (172,345) 2,614,736 2,641,943 (27,207) Total Operating Expenses $ 16,462,418 $ 18,602,696 $ (2,140,278) -11.5% $ 25,022,792 $ 24,903,515 $ 119,276 0.5%

Other Non-Operating Expenses $ 99,313 $ 95,000 $ 4,313 4.5% 100,668$ 110,000$ (9,332)$ -8.5%

Indirect Expenses $ - $ - $ - -$ -$ -$

Total Expenses $ 47,655,592 $ 49,529,432 $ (1,873,841) -3.8% $ 66,412,771 $ 65,917,608 $ 495,163 0.8%

Net Change in Assets $ 7,327,849 $ 1,391,941 $ 5,935,908 426.4% $ 1,821,337 $ 1,584,547 $ 236,790 14.9%

Fixed Assets Depreciation $ (1,809,122) $ (1,981,467) $ 172,345 (2,614,736)$ (2,641,943)$ 27,207$ Computer & Software 1,798,213 1,760,250 37,963 2,800,934 2,347,000 453,934 Furniture & Fixtures - - - - - - Equipment 384,921 1,173,000 (788,079) 1,513,672 1,564,000 (50,328) Leasehold Improvements - - - - - -

- - - - - - Allocation of Fixed Assets - - - - - -

Incr(Dec) in Fixed Assets 374,012$ 951,783$ (577,771)$ -60.7% 1,699,870$ 1,269,057$ 430,813$ 33.9%

Total Budget (Expenses plus Incr(Dec) in Fixed Assets) $ 48,029,604 $ 50,481,215 $ (2,451,611) -4.9% 68,112,641$ 67,186,665$ 925,976$ 1.4%

Change in Operating Reserves (Total Funding less Total Budget) 6,953,837 440,158 6,513,678 1479.8% 121,468 315,490 (194,022)

FTE's 194.45 192.48 1.97 1.0% 193.32 192.48 0.84 0.4%


Unaudited Audited9/30/2016 12/31/2015 9/30/2016 12/31/2015

ASSETS

Cash 45,407,645$ 40,308,955$ 45,407,645$ 40,308,955$

Accounts receivable, net of allowance for uncollectible 13,522,676 3,986,346 13,522,676 3,986,346 accounts of $0

Prepaid expenses and other current assets 1,561,602 1,291,805 1,561,602 1,291,805

Security deposit 125,416 125,416

457(b) – Non-Qualified Deferred Compensation 744,439 744,438

457(f) - Non-Qualified Def Comp 473,741 271,200

Property and equipment 8,621,340 8,301,731

Total Assets 70,456,859$ 55,029,891$

LIABILITIES AND NET ASSETS

Liabil itiesCurrent Portion

Accounts payable and accrued expenses (includes vacation accrual) 3,373,771$ 5,326,723$ (3,373,771)$ (5,326,723)$ Accured incentive compensation 3,687,008 4,721,278 (3,687,008) (4,721,278) Deferred rent-current 377,752 322,016 (377,752) (322,016) Deferred compensation - current 6,818 - (6,818) - Capital lease obligations - current 64,728 64,728 (64,728) (64,728) Accrued retirement l iabil ities 1,514,807 1,878,830 (1,514,807) (1,878,830) Debt service - current portion 1,038,940 744,253 (1,038,940) (744,253) Deferred income 14,356,939 7,961,316 (14,356,939) (7,961,316) Deferred revenue - CRISP - 2,508,514 - (2,508,514) Regional assessments 20,786,709 12,273,666 (20,786,709) (12,273,666)

Total Current Portion 45,207,472$ 35,801,324$

Long-Term PortionDeferred compensation1 1,132,171 1,038,350 Long-Term Debt 511,497 680,311 Penalties-Assessments stabil ization 2,271,000 - Deferred Rent-non-current 3,119,263 3,412,298 CRISP Insurance Reserve 500,000 500,000 Capital lease obligations - non-current 151,752 151,752

Total Long-Term Portion 7,685,682$ 5,782,711$

Total Liabil ities 52,893,154$ 41,584,035$

Net Assets - unrestricted 17,063,705$ 9,735,856$ Net Assets - restricted 500,000 3,710,000 (500,000) (3,710,000)

Total Liabil ities and Net Assets 70,456,859$ 55,029,891$ 14,784,451$ 6,075,782$

Working Capital and Operating Reserves 14,784,451$ 6,075,782$

Financial Covenants1 - WC & OR Balance to Debt Service Ratio > 1.2 to 1.0 14.23 (Working Capital / Debt Service)

2 - Liquidity to Debt Service Ratio > 1.5 to 1.0* 23.22 (= Cash - Regional Assessments - Restricted Net Assets)

1Includes 457b and 457f l iabil ities, l ife insurance for former executive, and retiree medical

(Unaudited)

NORTH AMERICAN ELECTRIC RELIABILITY COPORATIONSTATEMENT OF FINANCIAL POSITION

Working Capital and Operating Reserves

NERCSummary of Unaudited ResultsSeptember 30, 2016Finance and Audit Committee MeetingOctober 27, 2016

RELIABILITY | ACCOUNTABILITY2

• NERC was 4.9% ($2.5M) under budget, including CRISP• NERC was 4.1% ($1.9M) under budget, excluding CRISP Personnel expenses over budget 1.6% ($445k) Contracts expenses under budget 26.2% ($1.4M) Rent over budget 5.5% ($125k)o Due to higher building maintenance and tax expenses

Office Costs and Professional Services under budget 5.8% ($252k) Capital expenditures under budget 25.7% ($733k)o Primarily due to timing of expected expenses versus budget

Third Quarter 2016Significant Variances


Excluding CRISP:• Before authorized reserve expenditures Projecting 0.7% ($409k) under budget

• Including authorized reserve expenditures Projecting 0.4% ($227k) over budget

Including CRISP:• NERC projects to be 1.4% ($926k) over budget at year-end,

including the authorized use of reserves Approximately $700k relates specifically to CRISP, related to start-up

expenses for new members, and will be funded by those members

2016 Year-End Projections


• Future Obligation Reserve - $2.7M• Operating Contingency Reserve - $2.2M• System Operator Reserve - $667k• CRISP Reserve - $500k• Assessment Stabilization Reserve - $2.3M

2016 Year-End Working Capital and Operating Reserve Projections


Combined ERO Enterprise (NERC and Regional Entities) Summary of Unaudited Results September 30, 2016 The ERO Enterprise was under budget 5.6% ($7.7M) for combined expense and fixed asset (capital) spending. NERC and all of the Regions were very close to budget or below. The budget variances comparing actual unaudited results to the annual budget for NERC and the Regions ranged from +1.1% to -11.6%.

• NERC was under budget primarily due to lower contract and consultant expenses compared to budget, aswell as lower than budgeted fixed asset expenses due to timing of expenses compared to the budgetallocation.

• FRCC was under budget primarily due to lower personnel and travel costs, as well as lower than budgeteduse of CMEP contractors.

• NPCC was under budget primarily due to lower personnel costs, as well as the timing of expected costscompared to budget for the use of contractors for compliance audits and meetings scheduled later in 2016.

• RF was under budget primarily because of lower personnel costs due to the delayed timing of new hirescompared to budget, as well as lower travel expenses.

• SERC was on budget with lower personnel expenses because of open positions, lower travel costs, andlower fixed asset expenditures due to timing of expected costs compared to the budget allocation. Theseamounts were partially offset by higher contract costs primarily for IT, in lieu of hiring staff, and higherexpenditures compared to the budget for leasehold improvements.

• SPP RE was under budget with lower personnel expenses due to timing of new hires and open staffpositions, as well as lower than budgeted travel and operating expenses attributable to the delayed auditschedule associated with the CIP V5 implementation.

• TRE was under budget due to lower than budgeted personnel costs associated with the timing ofreplacements in vacant positions, lower travel and meeting expenses attributable to a concentrated effortto conduct more meetings onsite, and lower contracts and consultants cost due to the timing ofcompensation studies that will be completed in the fourth quarter.

• WECC was under budget due to lower personnel expenses because of higher turnover, as well as lowerthan budgeted contract and consultant expenses resulting from delays in project deliverables.

• MRO, NPCC, and TRE expect to be at or close to budget at year end. FRCC, RF, SPP RE and WECC anticipatebeing under budget. SERC is projecting to be over budget driven largely by contractor costs. NERC isprojecting to be over budget due to the approved use of reserves for various projects, but otherwiseapproximately on budget.

Agenda Item 2a.iiFinance and Audit Committee Open Meeting October 27, 2016

Summary of Unaudited September 30, 2016 Results – ERO Enterprise (NERC and Regional Entities Combined) 2

Variances by Expense and Fixed Asset Categories Personnel Expenses The ERO Enterprise was under budget 1.9% ($1.7M) for personnel expenses. FRCC, MRO, NPCC, RF, SERC, SPP RE, TRE and WECC were under budget due to personnel vacancies. NERC was over budget due primarily to higher than budgeted FTEs. NERC, MRO, NPCC, SERC and TRE expect to be close to budget for personnel expenses at year-end. FRCC, RF, SPP RE, and WECC project to be under budget at year-end due primarily to staff vacancies. The ERO Enterprise was 4.3% under budget on combined FTEs. Staffing levels ranged between 101.0% and 84.9% of budget.

Entity 2016

Budget Personnel

Meetings, Travel and

Conferencing Operating

Expenses Other Non-

Operating Indirect

Expenses Fixed Assets 2016

Actual $ Variance

Over(Under) % Variance

to Budget

Projected Year-End

Variance to Budget

($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) % %NERC 50,481 356 (94) (2,140) 4 - (578) 48,030 (2,452) -4.9% 1.4%FRCC 5,469 (298) (52) (262) - - (25) 4,832 (637) -11.6% -5.2%MRO 7,688 (38) (3) (5) - - 3 7,645 (43) -0.6% 0.0%NPCC 11,037 (204) (280) (709) - 71 (22) 9,893 (1,144) -10.4% -0.9%

RF 14,477 (515) (134) (156) (2) - 14 13,684 (793) -5.5% -4.6%SERC 12,029 (110) (16) 151 - - 113 12,166 137 1.1% 3.7%

SPP RE 7,572 (181) (234) (137) - (10) - 7,009 (562) -7.4% -6.9%TRE 8,819 (425) (71) (95) - - (64) 8,163 (655) -7.4% -0.5%

WECC 20,136 (316) 32 (1,743) 0 142 296 18,548 (1,589) -7.9% -5.0%

137,708 (1,731) (851) (5,098) 3 203 (263) 129,971 (7,738) -5.6% -1.1%

Actual Results as of September 30, 2016 - Budget Variances by Expense Category

Entity 2016 Budget Salaries Payroll Taxes Benefits Retirement 2016 Actual $ Variance

Over(Under) % Variance to

Budget

Projected Year-End % Variance to

Budget

NERC 28,138,789$ 477,383$ (68,998)$ 54,867$ (107,101)$ 28,494,940$ 356,151$ 1.3% 1.1%FRCC 4,135,269 (228,659) 4,652 7,113 (80,875) 3,837,500 (297,769) -7.2% -3.7%MRO 5,791,099 (9,994) (16,623) (23,914) 12,800 5,753,368 (37,731) -0.7% 0.0%NPCC 6,928,692 (86,794) (10,949) (73,530) (32,449) 6,724,970 (203,722) -2.9% 0.0%

RF 11,904,988 (141,099) (46,310) (184,041) (143,564) 11,389,974 (515,014) -4.3% -3.7%SERC 9,294,713 77,681 (21,356) (29,478) (136,711) 9,184,849 (109,864) -1.2% -0.8%

SPP RE 3,512,999 (233,993) (60,500) 120,363 (7,164) 3,331,705 (181,294) -5.2% -4.3%TRE 6,922,491 (248,419) (27,049) (64,680) (85,288) 6,497,055 (425,436) -6.1% -0.5%

WECC 13,595,642 (180,378) (96,150) (35,438) (4,432) 13,279,244 (316,398) -2.3% -2.2%

90,224,682$ (574,272)$ (343,283)$ (228,738)$ (584,784)$ 88,493,605$ (1,731,077)$ -1.9% -1.0%

Personnel Expenses


Travel, Meeting and Conferencing Expenses Travel, meeting and conferencing expenses were under budget 10.7% ($851k) for the ERO Enterprise primarily due to cost saving initiatives, timing differences between actual expenses incurred and the budget which is spread equally throughout the year, and fewer FTEs on staff than budgeted. NERC, MRO, and NPCC expect to be close to budget at year-end. FRCC projects to be 7.8% under budget and RF projects to be 17.3% under budget at year-end due to lower travel expenses. SPP RE projects to be 39.0% under budget at year-end because of the delay in the implementation date of CIP V5, which resulted in the delay of related audit activities. TRE projects to be 12.9% under budget at year-end due to a concentrated effort to reduce travel needs by holding more meetings onsite. SERC and WECC project to be slightly over budget at year-end.

2016 Actual 2016 Budget Variance

Over(Under) % of

Budget EntityTotal 2016 Projection

Total 2016 Budget

Variance Over(Under)

% of Budget

194.45 192.48 1.97 101.0% NERC 193.32 192.48 0.84 100.4%25.98 30.59 (4.61) 84.9% FRCC 28.61 30.59 (1.98) 93.5%41.64 43.00 (1.36) 96.8% MRO 41.56 43.00 (1.44) 96.7%36.61 36.86 (0.25) 99.3% NPCC 36.61 36.86 (0.25) 99.3%70.65 72.20 (1.55) 97.9% RF 71.27 72.20 (0.93) 98.7%65.66 76.87 (11.21) 85.4% SERC 66.20 78.12 (11.92) 84.7%28.90 29.30 (0.40) 98.6% SPP RE 29.30 32.25 (2.95) 90.9%58.00 60.00 (2.00) 96.7% TRE 60.00 60.00 - 100.0%

130.44 140.50 (10.06) 92.8% WECC 130.94 140.50 (9.56) 93.2%

652.33 681.80 (29.47) 95.7% 657.81 686.00 (28.19) 95.9%

FTEs**

** Represents equivalent full time positions from a budget and actual financial perspective and does not necessarily represent headcount.

Entity 2016 Budget Meeting Travel Conferencing 2016 Actual $ Variance

Over(Under) % Variance to

Budget


Budget

NERC 2,692,948$ (127,272)$ 112,721$ (79,476)$ 2,598,921$ (94,027)$ -3.5% -0.7%FRCC 205,736 1,102 (53,890) 1,228 154,176 (51,560) -25.1% -7.8%MRO 313,675 (2,223) (2,121) 1,619 310,950 (2,725) -0.9% 0.0%NPCC 916,020 (137,084) (131,799) (11,200) 635,937 (280,083) -30.6% 0.0%

RF 835,200 28,690 (166,679) 3,779 700,990 (134,210) -16.1% -17.3%SERC 571,396 23,839 (38,438) (1,735) 555,062 (16,334) -2.9% 4.2%

SPP RE 577,650 (13,603) (220,243) - 343,804 (233,846) -40.5% -39.0%TRE 307,219 (20,296) (54,027) 3,140 236,036 (71,183) -23.2% -12.9%

WECC 1,522,929 (73,612) 100,723 5,373 1,555,413 32,484 2.1% 3.0%

7,942,773$ (320,459)$ (453,753)$ (77,272)$ 7,091,289$ (851,484)$ -10.7% -4.5%

Meeting, Travel and Conferencing Expenses


Operating Expenses Operating expenses, consisting of consultant and contract expense, office rent, office costs, professional services, miscellaneous, and depreciation expense, were collectively under budget 13.4% ($5.1M) for the ERO Enterprise.

• NERC was under budget $2.1M (-11.5%) primarily due to: (i) lower costs related to implementation of risk-based compliance monitoring, (ii) lower costs related to ERO application development costs in IT, and (iii) lower costs for certain consulting expenses originally budgeted in Human Resources and Finance. Additionally, office costs were under budget primarily due to lower than budgeted costs for outside counsel, which are included in professional services expenses. NERC projects to be on budget by year-end.

• FRCC was under budget $262k (-22.4%) primarily due to: (i) lower than budgeted usage of CMEP contractors, (ii) the use of the Member Services Division instead of contractors for the Eastern Interconnection Model development, (iii) timing of compliance software maintenance, and (iv) lower SOS seminar costs due to providing some of the training by internal staff. FRCC projects to be 11.7% under budget by year-end, primarily because of lower contract and consultants costs than budgeted.

• NPCC was under budget $709k (-20.0%) primarily due to the: (i) timing and use of contractors for compliance audits, (ii) timing of Board Committee meetings supported by outside counsel, and (iii) additional workload taken on by NPCC’s legal staff instead of using outside counsel. NPCC projects to be 4.8% under budget by year-end, primarily due to lower contract and consultants costs than budgeted.

• RF was under budget $156k (-8.2%) due to lower contracting and consulting costs related to (i) IT vulnerability and penetration testing and (ii) compliance monitoring activities that have not occurred yet. Additionally, professional services is under budget due to the reduction in use of outside legal counsel. RF projects to be 6.2% under budget by year-end, largely because of costs that were budgeted but will not be spent on a search for a new director.

• SERC was over budget $151k (+6.4%) for total operating expenses related primarily to (i) additional costs associated with furniture and equipment related to additional office space and (ii) the use of contractors in lieu of hiring for the IT and Project Management roles. SERC projects to be 19.2% over budget by year-end, primarily due to higher contract and consultants costs than budgeted.

• SPP RE was under budget $137k (-15.3%) primarily due to lower contract and consultant expenses related to the timing of the implementation of CIP V5, as noted above. SPP RE projects to be 16.7% under budget by year-end, primarily due to lower contract and consultants costs than budgeted.

• TRE was under budget $95k (-5.5%) primarily due to timing of completion of custom salary survey and an executive compensation study, as well as the timing of purchase of expenses associated with software, maintenance, and leased equipment. TRE projects to be 8.0% over budget by year-end, primarily due to depreciation being greater than the budget for furniture, equipment, and audio visual equipment that was purchased after the 2016 budget was prepared.

• WECC was under budget $1.7M (-28.5%) primarily due to lower contract and consultant expenses resulting from delays in project deliverables, as well as lower depreciation resulting from lower-than-anticipated asset capitalization. WECC projects to be 19.4% under budget by year-end, primarily due to the same reasons as noted above.


Fixed Asset (Capital) Additions Fixed Asset (Capital) Additions, excluding the reversal of depreciation expense, were under budget 20.5% ($777k) for the ERO Enterprise. NERC, FRCC, NPCC, and WECC were under budget due primarily to the timing of expected expenses compared to budget allocation. RF was over budget due to the unbudgeted costs associated with the redesign and development of the corporate website. SERC was over budget primarily due to unbudgeted leasehold improvements. For year-end, NERC expects to be over budget 10.3%, largely due to the GADS Wind project (originally budgeted in contracts and consultants but recognized in fixed assets) and the authorized use of reserves in connection with a data analysis software that collects and analyzes system inertia data. FRCC projects to be over budget 27.4% because of enhancements to compliance software that will exceed the budget. NPCC expects to be over budget 34.9% due to the purchasing of computer equipment rather than the leasing of it as was budgeted. RF projects to be over budget 51.1% due to computer hardware and software costs associated with the redesign and development of the corporate website, as noted above. TRE projects to be under budget 20.5% due primarily to computer and software capital expenditures being lower than budgeted. WECC projects to be under budget 46.4% due to lower-than-anticipated asset capitalization.

Entity 2016 BudgetContracts & Consultants Office Rent Office Costs

Professional Services Misc Depreciation 2016 Actual

$ Variance Over(Under)

% Variance to Budget


Budget

NERC 18,602,696$ (1,589,885)$ 125,139$ (391,707)$ (95,034)$ (16,445)$ (172,345)$ 16,462,419$ (2,140,277)$ -11.5% 0.5%FRCC 1,169,205 (246,058) (15,589) (3,325) 7,507 - (4,853) 906,887 (262,318) -22.4% -11.7%MRO 1,623,000 (1,105) (634) (278) (130) - (2,825) 1,618,028 (4,972) -0.3% 0.0%NPCC 3,548,241 (539,312) (53,410) (94,960) (22,758) (10,631) 11,836 2,839,006 (709,235) -20.0% -4.8%

RF 1,904,851 (65,982) (11,327) (48,603) (47,998) (2,291) 20,026 1,748,676 (156,175) -8.2% -6.2%SERC 2,369,969 47,505 38,270 99,537 37,158 5,792 (77,683) 2,520,548 150,579 6.4% 19.2%

SPP RE 900,704 (437,726) - 862 355,238 (55,834) - 763,244 (137,460) -15.3% -16.7%TRE 1,728,676 (88,589) (2,217) (65,582) (12,794) - 74,320 1,633,814 (94,862) -5.5% 8.0%

WECC 6,125,449 (1,253,921) 6,413 (116,440) (16,540) - (362,944) 4,382,017 (1,743,432) -28.5% -19.4%

37,972,791$ (4,175,073)$ 86,645$ (620,496)$ 204,649$ (79,409)$ (514,468)$ 32,874,639$ (5,098,152)$ -13.4% -2.8%

Operating Expenses

Entity 2016 Budget Computer &

Software CapExFurniture and

Fixtures CapExEquipment

CapExLeasehold

ImprovementsAllocation of Fixed Assets 2016 Actual

$ Variance Over(Under)

% Variance to Budget


Budget

NERC 2,933,250$ 37,963$ -$ (788,079)$ -$ -$ 2,183,134$ (750,116)$ -25.6% 10.3%FRCC 87,470 (39,039) 2,937 5,783 - - 57,151 (30,319) -34.7% 27.4%MRO 310,080 - - - - - 310,080 - 0.0% 0.0%NPCC 138,000 (106,122) - 96,381 - - 128,259 (9,741) -7.1% 34.9%

RF 95,000 74,258 (40,000) - - - 129,258 34,258 36.1% 51.1%SERC 155,483 (96,191) - - 131,309 - 190,601 35,118 22.6% -8.1%

SPP RE - - - - - - - - 0.0% 0.0%TRE - 10,314 - - - - 10,314 10,314 0.0% -20.5%

WECC 75,268 (38,097) - (22,500) 5,595 (11,521) 8,745 (66,523) -88.4% -46.4%

3,794,551$ (156,914)$ (37,063)$ (708,415)$ 136,904$ (11,521)$ 3,017,542$ (777,009)$ -20.5% 9.8%

Fixed Asset Additions (Excludes Reversal of Depreciation)


Working Capital and Operating Reserves (excluding CRISP) The ERO Enterprise began the 2016 year with approximately $8.7M more in reserves than anticipated in the 2016 budget. This was primarily because of under-budget variances from the 2015 year.

During the first three quarters of 2016, the ERO Enterprise anticipated adding $7.7M in additional reserves, but actually added $14.7M.

Actual Budget Over

(Under)NERC 5,575,782$ 5,813,523$ (237,741)$ FRCC 1,474,647 1,041,197 433,450 MRO 1,951,894 1,781,068 170,826 NPCC 4,489,880 3,932,546 557,334

RF 2,229,609 1,055,079 1,174,530 SERC 4,005,440 3,288,284 717,156 SPP 3,324,959 1,276,068 2,048,891 TRE 6,586,523 4,288,102 2,298,421

WECC 3,944,969 2,394,170 1,550,799 33,583,703$ 24,870,037$ 8,713,666$

2016 Beginning Reserve Balances

YTD Actual YTD Budget Over

(Under)NERC 3,951,507$ 2,007,824$ 1,943,683$ FRCC 347,926 (300,802) 648,728 MRO 625,608 583,006 42,602 NPCC 988,195 (175,905) 1,164,100

RF 1,529,863 677,702 852,161 SERC (704,896) (565,886) (139,010) SPP (391,390) (957,054) 565,664 TRE (655,229) (1,310,703) 655,474

WECC 9,058,063 7,752,789 1,305,274 14,749,647$ 7,710,971$ 7,038,676$

2016 Change in Reserve Balances


The combined effect of higher balances at the beginning of the year and adding additional reserves during the first three quarters of 2016 resulted in year-to-date reserves of $15.7M more than anticipated in the original 2016 budget. The ERO Enterprise now has a combined reserve balance of $48.3M. During the balance of 2016, the ERO Enterprise anticipates using some of these reserves for normal operations and expects the year-end balance for 2016 to be $34.6M. This will still be approximately $11.2M over the 2016 budget amount of $23.4M.

The use of these additional reserves varies among NERC and the Regional Entities. Some are establishing assessment stabilization reserves for 2016 and beyond, while others are increasing their operating reserves or releasing reserve funds in 2017 to off-set assessments, as further detailed in their 2017 business plans and budgets. As we approach the 2017 budget year, the ERO Enterprise is expected to begin the year with $4.1M in additional reserves above what was planned in the combined budgets. On an ongoing basis, the disposition of extra reserves will be considered in each entities’ business plan and budget.

YTD Actual YTD Budget Over

(Under)

Year-EndProjected Balance

Year-EndBudgeted Balance

Over(Under)

9,527,289$ 7,821,347$ 1,705,942$ NERC 7,850,503$ 8,244,627$ (394,124)$ 1,822,573 740,395 1,082,178 FRCC 1,425,122 605,127 819,995 2,577,502 2,364,074 213,428 MRO 1,625,065 1,454,239 170,826 5,478,075 3,756,641 1,721,434 NPCC 4,040,261 3,339,745 700,516 3,759,472 1,732,781 2,026,691 RF 3,764,687 1,645,255 2,119,432 3,300,544 2,722,398 578,146 SERC 2,570,143 2,456,000 114,143 2,933,569 319,014 2,614,555 SPP RE 2,752,074 (1) 2,752,075 5,931,294 2,977,399 2,953,895 TRE 4,762,222 2,404,335 2,357,887

13,003,032 10,146,959 2,856,073 WECC 5,815,087 3,238,548 2,576,539 48,333,350$ 32,581,008$ 15,752,342$ 34,605,164$ 23,387,875$ 11,217,289$

2016 YTD and Projected Year-End Balances

2016 Year-End Projected Balance

2017BeginningBudgetedBalance

Over(Under)

NERC 7,850,503$ 7,328,700$ 521,803$ FRCC 1,425,122 1,425,113 9 MRO 1,625,065 1,488,815 136,250 NPCC 4,040,261 3,897,079 143,182

RF 3,764,687 3,246,489 518,198 SERC 2,570,143 2,020,855 549,288 SPP 2,752,074 1,403,208 1,348,866 TRE 4,762,222 4,702,756 59,466

WECC 5,815,087 4,990,113 824,974 34,605,164$ 30,503,128$ 4,102,036$

2016 Ending Reserves vs 2017 Beginning Reserves


2016 YTDActual

Balance

2016 YTDBudgetedBalance

Over(Under)

2016 Year-End ProjectedBalance

2016 Year-End BudgetedBalance

Over(Under)

FundingERO Funding

130,209,197$ 130,209,193$ 4$ ERO Assessments 165,268,192$ 165,268,188$ 4$ 5,551,387 5,551,388 (1) Penalty Sanctions 5,633,700 5,633,700 -

135,760,584$ 135,760,581$ 3$ Total ERO Funding 170,901,892$ 170,901,888$ 4$

9,150,333$ 5,123,053$ 4,027,280$ Third-Party Funding 7,528,287$ 6,830,738$ 697,549$ - - - Membership Dues - - -

1,323,760 1,400,976 (77,216) Testing Fees 1,867,972 1,867,972 - 65,000 61,502 3,498 Services & Software 74,000 74,000 -

1,003,996 1,221,153 (217,157) Workshops 1,327,685 1,725,575 (397,890) 161,552 69,750 91,802 Interest 191,796 89,000 102,796 375,840 333,000 42,840 Miscellaneous 479,434 444,000 35,434

147,841,065$ 143,970,015$ 3,871,050$ 2.7% Total Funding (A) 182,371,066$ 181,933,173$ 437,893$ 0.2%

ExpensesPersonnel Expenses

67,173,658$ 67,747,930$ (574,272)$ Salaries 90,885,463$ 91,192,111$ (306,648)$ 4,555,136 4,898,419 (343,283) Payroll Taxes 5,755,474 6,059,931 (304,457) 9,063,924 9,292,662 (228,738) Benefits 12,428,818 12,398,925 29,893 7,700,887 8,285,671 (584,784) Retirement Costs 10,532,420 11,101,344 (568,924)

88,493,605$ 90,224,682$ (1,731,077)$ -1.9% Total Personnel Expenses 119,602,175$ 120,752,312$ (1,150,137)$ -1.0%

Meeting Expenses1,855,832$ 2,176,291$ (320,459)$ Meetings 3,035,226$ 3,064,897$ (29,671)$ 4,900,806 5,354,559 (453,753) Travel 7,159,773 7,529,613 (369,840)

334,651 411,923 (77,272) Conference Calls 450,471 548,294 (97,823) 7,091,289$ 7,942,773$ (851,484)$ -10.7% Total Meeting Expenses 10,645,470$ 11,142,804$ (497,334)$ -4.5%

Operating Expenses13,150,112$ 17,325,185$ (4,175,073)$ Consultants & Contracts 21,786,401$ 23,026,713$ (1,240,312)$

5,854,427 5,767,782 86,645 Office Rent 7,834,146 7,552,972 281,174 5,666,440 6,286,936 (620,496) Office Costs 8,070,641 8,465,703 (395,062) 4,543,976 4,339,327 204,649 Professional Services 6,458,218 6,130,320 327,898

62,135 141,544 (79,409) Miscellaneous 123,391 191,585 (68,194) 3,597,549 4,112,017 (514,468) Depreciation 5,123,014 5,469,656 (346,642)

32,874,639$ 37,972,791$ (5,098,152)$ -13.4% Total Operating Expenses 49,395,811$ 50,836,948$ (1,441,137)$ -2.8%

128,459,533$ 136,140,246$ (7,680,713)$ -5.6% Total Direct Expenses 179,643,456$ 182,732,064$ (3,088,608)$ -1.7%

1,991,396$ 1,788,514$ 202,882$ 11.3% Indirect Expenses 2,561,818$ 2,384,685$ 177,133$ 7.4%

99,681$ 96,862$ 2,819$ Other Non-Operating Expenses 101,036$ 112,483$ (11,447)$

130,550,610$ 138,025,622$ (7,475,012)$ -5.4% Total Expenses (B) 182,306,310$ 185,229,232$ (2,922,922)$ -1.6%

17,290,455$ 5,944,393$ 11,346,062$ -190.9% Change in Assets 64,756$ (3,296,059)$ 3,360,815$ 102.0%

Fixed Assets(3,597,549)$ (4,112,017)$ 514,468$ Depreciation (5,123,014)$ (5,469,656)$ 346,642$ 2,098,621 2,255,535 (156,914) Computer & Software CapEx 3,885,506 3,469,411 416,095

31,126 68,189 (37,063) Furniture & Fixtures CapEx 28,189 40,000 (11,811) 507,730 1,216,145 (708,415) Equipment CapEx 1,672,146 1,621,527 50,619 380,065 243,161 136,904 Leasehold Improvements 575,715 467,000 108,715

- 11,521 (11,521) Allocation of Fixed Assets - 15,361 (15,361) (580,007)$ (317,466)$ (262,541)$ 82.7% Inc(Dec) in Fixed Assets (C) 1,038,542$ 143,643$ 894,899$ 623.0%

129,970,603$ 137,708,156$ (7,737,553)$ -5.6% Total Budget (B+C) 183,344,852$ 185,372,875$ (2,028,023)$ -1.1%

17,870,462$ 6,261,859$ 11,608,601$ -185.4% Change in Working Capital (A-B-C) (973,786)$ (3,439,702)$ 2,465,914$ 71.7%

652.3 681.8 (29.5) -4.3% FTEs 657.8 686.0 (28.2) -4.1%

COMBINED EROStatement of Activities, Fixed Assets, and Change in Working Capital

As of September 30, 2016(Unaudited)

Finance and Audit Committee MeetingOctober 27, 2016

Combined ERO EnterpriseSummary of Unaudited ResultsSeptember 30, 2016


• Combined ERO Enterprise was under budget 5.6% ($7.7M)• NERC and all Regions are at or below budget NERC (-4.9%) – lower consulting and fixed asset expenses FRCC (-11.6%) – lower personnel, travel, and consulting expenses NPCC (-10.4%) – lower personnel, meeting, travel, and consulting expenses RF (-5.5%) – lower personnel, travel, and operating expenses SPP RE (-7.4%) – lower personnel, travel, and consulting expenses TRE (-7.4%) – lower personnel, meeting, and operating expenses WECC (-7.9%) – lower personnel and consulting expenses MRO and SERC were at or slightly below budget

• Combined ERO Enterprise was 4.3% under budget on FTEs

Second Quarter 2016Significant Variances


• Combined ERO Enterprise projects to be 1.1% under budget NERC and most REs expect to be very close to budget FRCC projects to be 5.2% under budget due primarily to lower personnel

and consulting costs RF projects to be 4.6% under budget due primarily to lower personnel,

travel, and professional services costs SPP RE projects to be 6.9% under budget due primarily to lower personnel,

travel, and consulting costs WECC projects to be 5.0% under budget due to personnel and consulting

costs

• Combined ERO Enterprise projected year-end FTEs is 4.1% under budget

2016 Year-End Projections


• $33.5M – Total reserves at beginning of 2016 Started $8.7M over combined budgets

• $48.3M – Total reserves as of September 30, 2016 Added another $7.0M in unanticipated reserves through 3Q Now $15.7M above expectations (ERO budget was $32.6M)

• $34.6M – Year-End Projection for 2016 Ending $11.2M more than combined 2016 budgets

• 3Q reserve projections for year-end balances are approximately 13% higher than the beginning balances assumed in the 2017 business plans and budgets

• Based on 3Q projections, variances between beginning reserve balances (budgeted vs actual) are trending down

2016 Working Capital and Operating Reserves (Excludes CRISP)


• 3Q reserve projections for year-end balances are approximately 13% higher than the beginning balances assumed in the 2017 business plans and budgets

• Based on 3Q projections, variances between beginning reserve balances (budgeted vs actual) are trending down

• This topic continues to be an area of focus and is an ongoing discussion item at the EROFG.

2016 Working Capital and Operating Reserves (Excludes CRISP)


FRCC Regional Entity Division Budget to Actual

Variance Comparison as of September 30, 2016

Summary For the Nine months ending September 30, 2016, FRCC is $637K under budget (11.6%).

Funding

Workshop fees (Actual - $12K over budget)o The favorable variance is due to greater attendance than anticipated for the annual SOS

seminar.

Expenses

Personnel Expenses (Actual - $298K under budget)o The favorable variance is primarily due to salaries being below budget by $229K and

retirement costs by $81K due to various unfilled positions in the CMEP program areathroughout the year and a shift of work from the Reliability Assessment program to MemberServices to align Eastern Interconnection Model development with NERC’s expectations forMOD-032 implementation. These are partially offset by employee education which is overbudget by $28K due to unbudgeted management leadership training.

Meeting Expenses (Actual - $52K under budget)o The favorable variance is mainly due to CMEP travel being below budget by $47K due to

timing differences in travel and the effect of unfilled positions. Operating Expenses (Actual - $262K under budget)

o The favorable variance is primarily due to contracts and consultants which is below budgetby $246K due to lower than budgeted usage of CMEP contractors, shifting of contractorwork to the Member Services division to align with NERC’s expectations for MOD-032,timing of Guidance software maintenance work, and lower SOS seminar costs due toproviding some of the training by internal staff.

Fixed Assets (Actual - $25K under budget)o The favorable variance is mainly due to a timing difference for enhancements to the

Compliance software, partially offset by computer equipment that was budgeted over thecourse of the year but primarily purchased during the first quarter. The enhancements to theCompliance software are projected to exceed the budget by $22K by year end.

Agenda Item 2a.iiiFinance and Audit Committee MeetingOctober 27, 2016

(In Whole Dollars)

2016 YTD Actual 2016 YTD Budget 2016 YTD Variance %

2016 Full Year Projection 2016 Budget

2016 Projected Variance %

FundingERO Funding

ERO Assessments 4,971,343$ 4,971,343$ -$ 6,628,457$ 6,628,457$ -$ Penalty Sanctions 81,000 81,000 -$ 81,000 81,000 - Total ERO Funding 5,052,343$ 5,052,343$ -$ 0.0% 6,709,457$ 6,709,457$ -$ 0.0%

Membership Dues -$ -$ - -$ -$ -$ Testing Fees - - - - - - Services & Software 24,000 24,000 - 24,000 24,000 - Workshops 103,615 92,000 11,615 102,510 92,000 10,510 Special Assessment - - - - - - Non Cash Postretirement - - - - - -

Total Funding 5,179,958$ 5,168,343$ 11,615$ 0.2% 6,835,967$ 6,825,457$ 10,510$ 0.2%


Salaries 2,787,544$ 3,016,203$ (228,659) 3,803,744$ 4,021,604$ (217,860)$ Payroll Taxes 187,182 182,530 4,652 234,583 243,373 (8,790) Benefits 463,671 456,558 7,113 701,232 608,744 92,488 Retirement Costs 399,103 479,978 (80,875) 569,248 639,971 (70,723)

Total Personnel Expenses 3,837,500$ 4,135,269$ (297,769)$ -7.2% 5,308,807$ 5,513,692$ (204,885)$ -3.7%

Meeting ExpensesMeetings 53,484$ 52,382$ 1,102 59,957$ 58,176$ 1,781$ Travel 89,694 143,584 (53,890) 169,206 191,445 (22,239) Conference Calls 10,998 9,770 1,228 12,991 13,027 (36)

Total Meeting Expenses 154,176$ 205,736$ (51,560)$ -25.1% 242,154$ 262,648$ (20,494)$ -7.8%

Operating ExpensesConsultants & Contracts 246,673$ 492,731$ (246,058) 452,700$ 641,975$ (189,275)$ Office Rent 410,529 426,118 (15,589) 561,834 568,158 (6,324) Office Costs 98,691 102,016 (3,325) 143,722 132,021 11,701 Professional Services 27,312 19,805 7,507 27,685 26,406 1,279 Miscellaneous - - - - - - Depreciation 123,682 128,535 (4,853) 173,992 171,380 2,612

Total Operating Expenses 906,887$ 1,169,205$ (262,318)$ -22.4% 1,359,933$ 1,539,940$ (180,007)$ -11.7%

Total Indirect Expenses -$ -$ -$ 0.0% -$ - - 0.0%

Other Non-Operating Expenses - - -$ -$ - -$

Total Expenses 4,898,563$ 5,510,210$ (611,647)$ -11.1% 6,910,894$ 7,316,280$ (405,386)$ -5.5%

Change in Assets/Additions (Use) of Reserves 281,395$ (341,867)$ 623,262$ -182.3% (74,927)$ (490,823)$ 415,896$ -84.7%

Fixed Asset ExpendituresDepreciation (123,682)$ (128,535)$ 4,853$ (173,992)$ (171,380)$ (2,612)$ Software CapEx 27,786 66,825 (39,039) 111,497 89,100 22,397 Furniture & Fixtures CapEx 2,937 - 2,937 - - - Equipment & Computers CapEx 26,428 20,645 5,783 37,093 27,527 9,566 Leasehold Improvements - - - - - -

Increase/(Decrease) in Fixed Assets (66,531)$ (41,065)$ (25,466)$ 62.0% (25,402)$ (54,753)$ 29,351$ -53.6%

Total Budget 4,832,032$ 5,469,145$ (637,113)$ -11.6% 6,885,492$ 7,261,527$ (376,035)$ -5.2%

CHANGE IN WORKING CAPITAL 347,926$ (300,802)$ 648,728$ -215.7% (49,525)$ (436,070)$ 386,545$ -88.6%

FTEs 25.98 30.59 (4.61) 28.61 30.59 (1.98)

Beginning Working Capital 1/1/2016 1,474,647 1,041,197 433,450 1/1/2016 1,474,647 1,041,197 433,450 Change in Working Capital 347,926 (300,802) 648,728 (49,525) (436,070) 386,545 Working Capital at 9/30/2016 1,822,573 740,395 1,082,178 12/31/2016 1,425,122 605,127 819,995

Florida Reliability Coordinating Council, Inc.Quarterly Statement of Activities - Total Actual To Total Budget

TOTAL Statutory OnlySeptember 30, 2016

Sue Clarke, VP of Finance and Administration

P: (651) 855‐1707 F: (651) 855‐1712

E: [email protected] October 20, 2016 Mr. Michael Walker Mr. Scott Jones Ms. Susan Turpen North American Electric Reliability Corporation (NERC) RE: Unaudited Midwest Reliability Organization (MRO) 2016 Third Quarter Statement of

Activity – Cash Flow through September 30, 2016 Dear Mr. Walker, Mr. Jones, and Ms. Turpen: MRO budget to actual variances greater than $10,000 and 10 percent are explained below. Third quarter results show that actual expenses are within 0.55% of budget. Personnel (Variance of $37,732 (-0.65%) under budget) MRO saw fluctuations in benefit costs due to fewer FTEs than budgeted. This quarter saw an increase in FTEs as budgeted. Actual costs are closer to budget and will be closer to budget in the final quarter. Budget Outlook Variances between actual and budget remained relatively flat. The 2016 budget includes funds for our facility expansion that is complete and in use. At this time, expectations are for on-budget performance. If you have any questions regarding this report, please contact me at 651-855-1707. Thank you,

fâx VÄtÜ~x Sue Clarke Cc: Daniel Skaar, MRO

(In Whole Dollars) 2016 YTD 2016 YTD 2016 YTD

Unaudited 2016 End Of Year 2016 2016 Projected

Actual Budget Variance % Projection Budget Variance %Funding

ERO FundingERO Assessments 8,168,672$ 8,168,672$ - 10,891,562$ 10,891,562$ - Penalty Sanctions 102,187 102,188 - 136,250 136,250 -

Total ERO Funding 8,270,860$ 8,270,859$ $ - 11,027,812$ 11,027,812$ $ -

Federal GrantsMembership Dues - - - - - - Testing Fees - - - - - - Services & Software - - - - - Workshops - - - - - - Interest - - - - - - Miscellaneous - - - - - -

Total Funding 8,270,860$ 8,270,859$ $ - 11,027,812$ 11,027,812$ $ -


Salaries 4,252,159$ 4,262,153$ (9,994) 5,682,871$ 5,682,871$ - Payroll Taxes 254,747 271,370 (16,623) 361,827 361,827 - Benefits 412,776 436,690 (23,914) 582,253 582,253 - Retirement Costs 833,686 820,886 12,800 1,094,515 1,094,515 -

Total Personnel Expenses 5,753,368$ 5,791,100$ (37,732)$ -0.65% 7,721,466$ 7,721,466$ $ - 0.00%

Meeting ExpensesMeetings 47,777$ 50,000$ (2,223) 85,500$ 85,500$ - Travel 260,879 263,000 (2,121) 678,171 680,330 (2,159)Conference Calls 2,294 675 1,619 3,059 900 2,159

Total Meeting Expenses 310,950$ 313,675$ (2,725)$ -0.87% 766,730$ 766,730$ (0)$ 0.00%

Operating ExpensesConsultants & Contracts 310,895$ 312,000$ (1,105) 679,681$ 679,681$ - Office Rent 485,366 486,000 (634) 648,946 648,946 - Office Costs 329,722 330,000 (278) 534,818 534,818 - Professional Services 144,870 145,000 (130) 218,500 218,500 - MiscellaneousDepreciation 347,175 350,000 (2,825) 480,722 480,722 -

Total Operating Expenses 1,618,028$ 1,623,000$ (4,972)$ -0.31% 2,562,667$ 2,562,667$ $ - 0.00%

Total Direct Expenses 7,682,346$ 7,727,775$ (45,429)$ -0.59% 11,050,863$ 11,050,863$ (0)$ 0.00%

Indirect Expenses

Other Non-Operating Expenses -$ -$ $ - -$ -$ $ -

Total Expenses 7,682,346$ 7,727,775$ (45,429)$ 11,050,863$ 11,050,863$ (0)$

Change in Assets 588,514$ 543,085$ 45,429$ (23,051)$ (23,051)$ 0$

Fixed AssetsDepreciation (347,175) (350,000) 2,825 (480,722) (480,722) - Computer & Software CapEx 38,730 38,730 - 317,500 317,500 - Furniture & Fixtures CapEx 28,189 28,189 - 28,189 - 28,189 Equipment CapEx - - - - - - Leasehold Improvements 243,161 243,161 - 438,811 467,000 (28,189)

Inc(Dec) in Fixed Assets (37,095)$ (39,920)$ 2,825$ -7.08% 303,778$ 303,778$ $ - 0.00%

Total Budget (B + C) 7,645,251$ 7,687,855$ (42,604)$ -0.55% 11,354,641$ 11,354,641$ (0)$ 0.00%

Change in Working Capital (A‐B‐C) 625,609$ 583,004$ 42,604$ (326,829)$ (326,829)$ 0$

Head Count 42.50 43.00 (0.50) 42.50 43.00 (0.50)FTEs 41.64 43.00 (1.36) 41.56 43.00 (1.44)

Beginning WC-1/1/16 1,951,894$ 1,781,068$ $ 170,826 1,951,894$ 1,781,068$ 170,826 Change to WC-2016 625,609 583,004 42,605 (326,829) (326,829) -

Working Capital at September 30,2016 2,577,503$ 2,364,072$ $ 213,431 1,625,065$ 1,454,239$ 170,826$

Midwest Reliability OrganizationStatement of Activity

From 1/1/2016 to 09/30/2016PRELIMINARY (Unaudited)

2015 YTD 2016 YTD 2016 YTD 2016 YTD Actual Budget Actual Variance 9/30/2015 9/30/2016 $ Chg

Revenues (Funding) CURRENT ASSETS Assessments $7,069,513 $8,168,672 $8,168,672 -- Cash and cash equivalents 3,749,467$ 3,518,218$ (231,249)$ Services & software - - - - Restricted cash - - - Workshops - - - - Accounts receivable - 1,324 1,324 Penalty Sanctions 296,250 102,188 102,187 - Prepaid expenses 197,331 287,553 90,222 Total Revenues (Funding) $7,365,763 $8,270,859 $8,270,859 $ - Total Current Assets 3,946,798 3,807,095 (139,703)

PROPERTY, IMPROVEMENTS AND EQUIPMENT, NET 784,230 1,429,869 645,639 Expenses OTHER ASSETS Personnel Expenses Restricted cash - non-current 136,269 166,267 29,998 Salaries $4,062,599 $4,262,153 $4,252,159 ($9,994) Restricted accounts receivable - non-current - - - Payroll taxes 240,500 271,370 254,747 (16,623) Security Deposit - non-current 39,858 39,858 - Employee Benefits 367,686 436,690 412,776 (23,914) Capitalized software costs, net of accumulated amortization 72,284 40,492 (31,792)

Retirement Benefits 748,143 820,886 833,686 12,800 TOTAL ASSETS 4,979,439$ 5,483,581$ 504,142$

Total Personnel Expenses $5,418,928 $5,791,100 $5,753,368 ($37,732)Meeting Expense Meetings $52,341 $50,000 $47,777 ($2,223) CURRENT LIABILITIES Travel-Staff Business Travel 207,731 213,000 211,156 (1,844) Accounts payable - trade 47,600$ 11,935$ (35,665)$ Travel-Member Reimbursement 136,793 50,000 49,723 (277) Accrued liabilities 716,837 682,788 (34,049) Conference Calls 740 675 2,294 1,619 Retirement plan contribution 365,267 389,536 24,269 Total Meeting Expense $397,605 $313,675 $310,950 ($2,725) Deferred assessments - - -

Deferred rent - - - Operating Expenses Total Current Liabilities 1,129,704$ 1,084,259$ (45,445)$ Consulting $148,047 $152,000 $151,215 ($785) OTHER LIABILITIES Contracts 202,179 160,000 159,680 (320) Postretirement medical benefit obligation 486,303 590,738 104,435 Building Rent & Facilities 379,135 486,000 485,366 (634) Deferred assessments - non-current 235,075 200,354 (34,721) Office Costs 338,398 330,000 329,722 (278) Deferred rent - non-current 437,301 479,683 42,382 Professional Services 82,085 145,000 144,870 (130) Total Liabilities 2,288,383 2,355,034 66,651

Depreciation 318,206 350,000 347,175 (2,825) MEMBERS' EQUITY 2,691,054 3,128,547 437,493 TOTAL LIABILITIES AND MEMBERS' EQUITY 4,979,437$ 5,483,581$ 504,144$

Total Operating Expenses $1,468,050 $1,623,000 $1,618,028 ($4,972)

Other Non-Operating Expenses $0 $0 $0 $0

Total Expense $7,284,583 $7,727,775 $7,682,346 ($45,429)CASH FLOWS FROM OPERATING ACTIVITIES 9/30/2015 9/30/2016

Net Revenues $81,180 $543,085 $588,513 $45,429 Change in members' equity 81,179$ 588,437$

Adjustments to reconcile excess of revenues over expensesHead Count 40.00 43.00 42.50 (0.50) to net cash provided by operating activities

FTE 39.74 43.00 41.64 (1.36) Depreciation and software amortization 318,206 347,175 Amortization of deferred rent (15,640) 42,289 Postretirement benefit obligation 76,007 69,036 Change in assets and liabilities: - Accounts Receivable 6,762 (1,324) Prepaid expenses (8,795) (30,473) Security Deposit - - Accounts payable - trade (168,345) (678,027) Accrued liabilities (16,247) (71,891) Retirement plan contribution (87,961) (101,800) Deferred assessments (254,977) (84,171) Change from Operating Activities (69,811) 79,251

2015 YTD 2016 YTD 2016 YTD 2016 YTD Actual Budget Actual Variance CASH FLOWS FROM INVESTING ACTIVITIES

Change in restricted cash 353,783 118,258 Fixed Assets as of January 1 $1,024,357 $1,547,314 $1,547,314 - Purchases of property, improvements and equipment and software (190,221) (310,080)

Change from Investing Activities 163,562 (191,822) Purchases of Computer Equipment $172,184 $38,730 $38,730 $0 Purchases of Capitalized Software 13,210 - - - CASH FLOWS FROM FINANCING ACTIVITIES Purchases of Furniture and Equipment - 28,189 $28,189 - Repayments of long-term debt - - Purchases of Leasehold Improvements 4,827 243,161 $243,161 - Payments on debt - - Purchases of property, improvements, equipment, software $190,221 $310,080 $310,080 $0 Withdrawal on L/T Deferred Rent - -

Depreciation and Software Amortization (318,206) (350,000) (347,175) (2,825) Net Change in Cash and Cash Equivalents 93,751 (112,572)

Net Fixed Assets $896,372 $1,507,394 $1,510,219 ($2,825)

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 3,655,712 3,630,790

CASH AND CASH EQUIVALENTS - END OF YEAR $3,749,463 $3,518,218

Statement of Financial PositionFor the Nine Months Ending September 30, 2016 (Unaudited)

Statement of Capital ExpendituresFor the Nine Months Ending September 30, 2016 (Unaudited)

Statement of ExpensesFor the Nine Months Ending September 30, 2016 (Unaudited)

Midwest Reliability OrganizationFor the Nine Months Ending September 30, 2016 (Unaudited)

ASSETS

LIABILITIES AND MEMBERS' EQUITY

Statement of Cash FlowsFor the Nine Months Ending September 30, 2016 (Unaudited)

October 18, 2016 North American Electric Reliability Corporation 3353 Peachtree Road NE Suite 600, North Tower Atlanta, GA 30326 Attention: Mr. Michael Walker Subject: NPCC Regional Entity Division Variance Comparison and Third Quarter 2016 Statement of Activities Dear Michael: The variance comparison for the period ended September 30th, 2016 is included along with Northeast Power Coordinating Council, Inc.’s unaudited Third Quarter 2016 Statement of Activities. Please do not hesitate to contact me via email at [email protected] or via telephone at (212) 840-1070 should you have any comments or questions with regard to the materials provided. Sincerely,

Jessica Hala Jessica Hala Manager, Finance and Accounting Enclosures 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

mailto:[email protected]

1

NPCC Regional Entity Division Budget to Actual

Variance Comparison as of September 30, 2016

INCOME

• Penalty Sanctions (Actual income of $67k remitted to NPCC as of June 30, 2015 has been applied to reduce 2016 assessments to NPCC U.S. load serving entity designees.) No penalty sanctions have been remitted since June 30, 2015.

• Interest Income (Actual income of $4k year-to-date not included in budget)

NPCC accounts for but has not budgeted for interest income for operating fund investment as returns on U.S. treasury securities fund are negligible and corporate money market fund returns are minimal.

o NPCC allocated $4k 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 2016 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 $203k under budget year-to-date and as budgeted FYP) o NPCC is fully staffed for 2016. Medical insurance coverage is currently waived by 25% of NPCC

employees who have superior coverage from a former employer. Additionally, medical insurance premium increases are lower than budgeted. NPCC anticipates that it will largely exceed expectations with regard to its 2016 corporate goals.

• Meetings and Conference Calls (Variance of $280k under budget year-to-date and as budgeted FYP) o Continued efforts to limit the number of attendees participating in off-site meetings, and holding as many

meetings as is practical onsite or via webinar where effective, have kept meeting and conference call expenses under budget. Current underage is primarily due to timing of planned meetings, with the heaviest meeting schedule occurring late in the year.

• Consultants and Contracts (Variance of $539k under budget year-to-date and $200k under budget FYP) o Year-to-date under budget is primarily due to the timing of the use of independent contractors for

registered entity risk assessments and compliance audits. Use of a third party agency which contracts with subject matter experts identified and vetted by NPCC has created a lag in realization of expenses. The reliability benefits and efficiencies realized earlier than anticipated along with the value expressed by NPCC registered entities with regard to Inherent Risk Assessments and Internal Control Evaluations is a significant accomplishment. Such activities as planned throughout the remainder of 2016 will yield significant savings such that expenses are now projected to be under budget by approximately $200k.

2

• Office Costs (Variance of $95k under budget year-to-date and $36k under budget FYP)

o Underage in office costs is due to purchasing computer equipment rather than leasing. The underage is off-set by an overage in fixed asset acquisitions. Full cost savings resulting from the elimination of financing costs will be realized over the three-year useful life of the computer equipment.

• Professional Services (Variance of $23k under budget year-to-date and as budgeted FYP) o Underage in legal fees is due to timing of Board Committee meetings supported by outside counsel and

additional workload taken on by General Counsel, as well as the Senior Compliance Attorney. The costs for a total remuneration study called for by the Management Development and Compensation Committee, and the Corporate Governance and Nominating Committee led search activity for a successor Independent Director will have offsetting budgetary impacts for the full year.

FIXED ASSETS

• Computer & Software (Variance of $106k under budget year-to-date and as budgeted FYP)

o Current underage is primarily due to project timing. The scope of software development work for the Compliance Data Administration Application referred to as CDAA and the Compliance Information Tracking System referred to as CITS is projected to be as budgeted. The elongated rollout of document management software at NERC has delayed somewhat the timing of NPCC’s expenditures in this area.

• Equipment (Variance of $96k over budget year-to-date and $96k over budget FYP) o Overage in equipment capital expenditures is due to purchasing computer equipment rather than leasing

as budgeted. The purchase decision was an economic one. This overage is partially offset by an underage in office costs. Full cost savings resulting from the elimination of financing costs will be realized over the three-year useful life of the laptop computer equipment.

(Unaudited) Submitted October 18th, 2016

2016 YTD Actual

2016 YTD Budget

Actual

Variance from Budget

Over(Under) % 2016

Projection

2016 Annual Budget

Projection

Variance from Budget

Over(Under) %

Funding Assessments 10,761,897 10,761,897 - 14,349,196 14,349,196 - Penalties 67,000 67,000 - 67,000 67,000 - Testing - - - - - - Services & Software - - - - - - Workshop Fees 48,670 32,000 16,670 64,000 64,000 - Interest 3,563 - 3,563 3,563 - 3,563 Miscellaneous - - - - - - Total Funding 10,881,130 10,860,897 20,233 0.19% 14,483,759 14,480,196 3,563 0.02%

Expenses Personnel Expenses Salaries 4,834,309 4,921,103 (86,794) 6,561,471 6,561,471 - Payroll Taxes 348,203 359,152 (10,949) 399,057 399,057 - Employee Benefits 950,069 1,023,599 (73,531) 1,364,799 1,364,799 - Savings & Retirement 592,389 624,838 (32,449) 833,118 833,118 - Total Personnel Expenses 6,724,970 6,928,692 (203,722) -2.94% 9,158,445 9,158,445 - 0.00% Meeting Expenses Meetings 108,716 245,800 (137,084) 394,000 394,000 - Travel 503,171 634,970 (131,798) 907,100 907,100 - Conference Calls 24,050 35,250 (11,200) 47,000 47,000 - Total Meeting Expenses 635,938 916,020 (280,082) -30.58% 1,348,100 1,348,100 - 0.00% Operating Expenses Consultants & Contracts 1,055,063 1,594,375 (539,312) 2,023,500 2,223,500 (200,000) Rent & Improvements 550,465 603,875 (53,410) 802,500 802,500 - Office Costs 384,665 479,625 (94,960) 603,500 639,500 (36,000) Professional Services 642,992 665,750 (22,758) 1,011,000 1,011,000 - Miscellaneous 20,119 30,750 (10,631) 41,000 41,000 - Depreciation 185,702 173,866 11,836 231,821 231,821 - Total Operating Expenses 2,839,006 3,548,241 (709,234) -19.99% 4,713,321 4,949,321 (236,000) -4.77%

Indirect Expense Allocation (249,535) (320,285) 70,750 -22.09% (427,047) (427,047) - 0.00%

Other Non-Operating Expenses - - - n/a - - - n/a

Total Expenses 9,950,378 11,072,667 (1,122,289) -10.14% 14,792,818 15,028,818 (236,000) -1.57%Net Change in Assets 930,752 (211,770) 1,142,522 -539.51% (309,059) (548,622) 239,563 -43.67%

Fixed Assets Depreciation (185,702) (173,866) (11,836) (231,821) (231,821) - Computer & Software CapEx 31,878 138,000 (106,122) 276,000 276,000 - Furniture & Fixtures CapEx - - - - - - Equipment CapEx 96,381 - 96,381 96,381 - 96,381 Leasehold Improvements - - - - - - Incr(Dec) in Fixed Assets (57,443) (35,866) (21,577) 60.16% 140,560 44,179 96,381 218.16%

Total Budget (Expenses plus Incr(Dec) in Fixed Assets) 9,892,936 11,036,801 (1,143,866) -10.36% 14,933,378 15,072,997 (139,619) -0.93%Change in Working Capital (Total Funding less Total 988,194 (175,904) 1,164,098 -661.78% (449,619) (592,801) 143,182 -24.15%

Equivalent Full Time Employees 36.61 36.86 (0.25) 36.61 36.86 (0.25) Headcount 38.00 38.00 - 38.00 38.00 -

Beginning Total Reserves - 1/1/16 4,489,880 3,932,546 557,334 4,489,880 3,932,546 557,334 Change to Reserves - YTD 2016 988,194 (175,904) 1,164,098 (449,619) (592,801) 143,182

Projected Total Reserves at 12/31/16 5,478,074 3,756,642 1,721,432 4,040,261 3,339,745 700,516

Northeast Power Coordinating Council, Inc. - Regional Entity DivisionStatement of Activities, Fixed Assets and Change in Working Capital

(Unaudited)For the Period Ended September 30, 2016

Forward Together • ReliabilityFirst

October 19, 2016 Mr. Michael Walker North American Electric Reliability Corporation 3353 Peachtree Road, N.E. Suite 600, North Tower Atlanta, Georgia 30326

ReliabilityFirst’s 2016 3rd Quarter Statement of Activities Variance Report - Unaudited

Dear Mr. Michael Walker:

As requested, the attached 2016 3rd Quarter Statement of Activities (unaudited) provides a comparison of budgeted and actual expenses relative to the 2016 ReliabilityFirst Corporation’s Budget. For more information, please contact me at 216.503.0600 or [email protected]. Very truly yours, RELIABILITYFIRST CORPORATION

Jill S. Lewton

Jill S. Lewton

Controller

Jill S. Lewton Controller

3 Summit Park Drive, Suite 600 Cleveland, OH 44131 Office: 216.503.0600

[email protected]


ReliabilityFirst’s 2016 3rd Quarter Statement of Activities Variance Report - Unaudited

Significant Variances For the quarter ending September 30, 2016 ReliabilityFirst Corporation is $793K (5.48%) under budget. The major contributors to this variance are:

Budget Funding • Investment Income: $34K (100%) over budget for YTD

o The variance in Investment Income is due to the change in value of the company’s investment portfolio, which was not budgeted.

• Miscellaneous Income: $25K (100%) over budget for YTD

o The variance in Miscellaneous Income is mainly due to the redemption of the corporate credit card rewards as cash, which was not budgeted.

Budget Expenses • Personnel Expenses

o Salaries and Savings & Retirement Costs: $285K (3%) under budget for YTD Salaries and Savings & Retirement Costs are under budget primarily due to personnel being below the approved staffing levels. ReliabilityFirst began 2016 with four vacant positions, with one position filled in March, another position filled in May, and two positions filled in September.

o Employee Benefits: $184K (14%) under budget for YTD Employee Benefits is under budget mainly due to a variance in Medical Benefits. Medical Benefits is under budget due to personnel being below the approved staffing levels, along with the difference between the medical plans that were included in the budget and the plans that were actually selected by the employees.

• Meeting Expenses

o Meetings: $29K (16%) over budget for YTD Meetings is over budget due to the costs associated with the Reliability, CIP V5, and Protection Systems Workshops.

o Travel: $167K (27%) under budget for YTD Travel expenses are under budget primarily due to travel activity being less than anticipated.


• Operating Expenses

o Contract & Consultants: $66K (18%) under budget for YTD Contracts & Consultants is under budget as a result of the scope of the vulnerability and penetration testing being less than originally anticipated, along with budgeting for compliance monitoring activities that have not occurred yet.

o Professional Services: $48K (15%) under budget for YTD Professional Services is primarily under budget due to the reduction in use of outside legal counsel.

• Fixed Assets

o Computer Hardware & Software: $74K (135%) over budget for YTD Computer Hardware & Software is over budget due to the costs associated with the redesign and development of the corporate website that were not budgeted.

o Furniture & Fixtures: $40K (100%) under budget for YTD Furniture & Fixtures is under budget due to replacing all of the remaining office furniture in 2015 and not needing to replace any office furniture in 2016.

Year-End Projection For the year-end projection ReliabilityFirst is $886K (4.57%) under budget. Personnel, Meetings, Travel, Furniture & Fixtures and Computer Hardware & Software variances will continue through the end of the year. Professional Services will be further under budget due to budgeting for a new director search that will not be conducted. Contracts & Consultants is projected to be aligned with the budget due to the costs associated with the expertise management services being conducted to elicit knowledge from key personnel, the financial internal controls evaluation, and executive coaching services, which were not budgeted.

ReliabilityFirst CorporationStatement of Activities, Fixed Assets and Change in Working Capital

(unaudited)From 01/01/2016 Through 09/30/2016

(in Whole Numbers)

2016 YTD Actual

2016 YTD Budget

YTD Variance Over/(Under)

%Variance

Total 2016Projection

Total 2016 Budget

Total 2016 Projected Variance

Over/(Under)

% Projected Variance

Funding14,525,407 14,525,407 0 0.00% Assessments 19,367,209 19,367,209 0 0.00%

748,250 748,250 0 0.00% Penalty Sanctions 748,250 748,250 0 0.00%0 0 0 0.00% Membership Dues 0 0 0 0.00%

33,821 0 33,821 0.00% Investment Income 33,821 0 33,821 0.00%25,311 0 25,311 0.00% Miscellaneous Income 25,311 0 25,311 0.00%

15,332,789 15,273,657 59,132 0.39% Total Funding 20,174,591 20,115,459 59,132 0.29%

Expenses Personnel Expenses

8,372,198 8,513,297 (141,099) -1.66% Salaries 11,278,526 11,427,306 (148,780) -1.30%552,013 598,323 (46,310) -7.74% Payroll Taxes 645,020 699,888 (54,868) -7.84%

1,156,374 1,340,415 (184,041) -13.73% Employee Benefits 1,535,323 1,786,698 (251,375) -14.07%1,309,389 1,452,953 (143,564) -9.88% Savings & Retirement Costs 1,723,918 1,860,244 (136,327) -7.33%

11,389,974 11,904,988 (515,014) -4.33% Total Personnel Expenses 15,182,787 15,774,136 (591,349) -3.75%

Meeting Expenses206,290 177,600 28,690 16.15% Meetings 251,290 222,750 28,540 12.81%459,421 626,100 (166,679) -26.62% Travel 612,561 836,800 (224,239) -26.80%35,279 31,500 3,779 12.00% Conference Calls 47,039 42,000 5,039 12.00%

700,989 835,200 (134,211) -16.07% Total Meeting Expenses 910,889 1,101,550 (190,661) -17.31%

Operating Expenses299,941 365,923 (65,982) -18.03% Contracts & Consultants 527,508 540,110 (12,602) -2.33%389,637 400,964 (11,327) -2.82% Rent & Utilities 518,649 534,619 (15,970) -2.99%482,412 531,015 (48,603) -9.15% Office Costs 663,582 717,182 (53,600) -7.47%271,865 319,863 (47,998) -15.01% Professional Services 381,250 488,989 (107,739) -22.03%20,294 22,585 (2,291) -10.15% Miscellaneous 34,640 34,640 0 0.00%

284,527 264,501 20,026 7.57% Depreciation 377,749 352,668 25,081 7.11%1,748,677 1,904,851 (156,174) -8.20% Total Operating Expenses 2,503,378 2,668,208 (164,830) -6.18%

67 1,862 (1,795) -96.41% Non-Operating Expenses 67 2,483 (2,416) -97.31%

13,839,707 14,646,901 (807,194) -5.51% Total Expenses 18,597,122 19,546,377 (949,255) -4.86%

1,493,081 626,756 866,326 138.22% Net Change in Assets 1,577,469 569,082 1,008,387 177.20%

Fixed Assets(284,527) (264,501) (20,026) 7.57% Depreciation (377,749) (352,668) (25,081) 7.11%129,258 55,000 74,258 135.02% Computer Hardware & Software 262,133 133,500 128,633 96.35%

0 40,000 (40,000) -100.00% Furniture & Fixtures - 40,000 (40,000) -100.00%0 0 0 0.00% Leasehold Improvements - 0 0 0.00%

(155,269) (169,501) 14,232 -8.40% Increase/(Decrease) in Fixed Assets (115,616) (179,168) 63,552 -35.47%

13,684,438 14,477,400 (792,962) -5.48%Total Budget

(Expenses + Incr/(Decr) in Fixed Assets) 18,481,506 19,367,209 (885,703) -4.57%

1,648,350 796,257 852,094 107.01%Change in Working Capital

(Total Funding less Total Budget) 1,693,085 748,250 944,835 126.27%

70.65 72.20 (1.55) -2.15% FTE 71.27 72.20 (0.93) -1.29%

1,663,072 (590,176) 2,253,248 WC - 12/31/2015 1,663,072 (590,176) 2,253,248(1,078,718) 0 (1,078,718) Less: Adjustment for future liabilities (1,078,718) 0 (1,078,718)

584,354 (590,176) 1,174,530 Available Working Capital 584,354 (590,176) 1,174,530

1,648,350 796,257 852,094 Change to WC - 2016 1,693,085 748,250 944,835(118,488) (118,555) 67 Other Adjustments to Reserves (158,007) (158,074) 67

2,114,216 87,525 2,026,691 Total Working Capital 2,119,433 0 2,119,433

645,255 645,255 0 Working Capital Reserve 645,255 645,255 01,000,000 1,000,000 0 Operating Reserve 1,000,000 1,000,000 0

3,759,471 1,732,780 2,026,691 Total Working Capital and Operating Reserve 3,764,688 1,645,255 2,119,433

(In Whole Dollars)

2016 YTD Actual

2016 YTD Budget

2016 YTD Actual Variance

from Budget Over(Under) %

2016 Annual Projection

2016 Annual Budget

2016 Projection Variance from

Budget Over(Under) %

Funding Assessments 10,298,240 10,298,240 - 13,730,986 13,730,986 - Penalties 648,500 648,500 - 648,500 648,500 - Workshop Fees 161,340 182,575 (21,235) 179,970 210,075 (30,105) Interest 3,254 750 2,504 3,554 1,000 2,554 Miscellaneous 349,903 333,000 16,903 453,497 444,000 9,497

A Total Funding 11,461,237 11,463,065 (1,828) -0.02% 15,016,507 15,034,561 (18,054) -0.12%

Expenses Personnel Expenses Salaries 7,170,971 7,093,290 77,681 9,550,187 9,457,718 92,469 Payroll Taxes 460,538 481,894 (21,356) 637,742 642,524 (4,782) Employee Benefits 715,300 744,778 (29,478) 1,012,562 993,030 19,532 Savings & Retirement 838,040 974,751 (136,711) 1,095,305 1,299,663 (204,358) Total Personnel Expenses 9,184,849 9,294,713 (109,864) -1.18% 12,295,796 12,392,935 (97,139) -0.78% Meeting Expenses Meetings 195,477 171,638 23,839 285,025 247,420 37,605 Travel 327,912 366,350 (38,438) 490,302 488,466 1,836 Conference Calls 31,673 33,408 (1,735) 37,973 44,544 (6,571) Total Meeting Expenses 555,062 571,396 (16,334) -2.86% 813,300 780,430 32,870 4.21% Operating Expenses Consultants and Contracts 1,320,496 1,272,991 47,505 1,951,467 1,497,173 454,294 Rent & Improvements 426,708 388,438 38,270 585,039 517,917 67,122 Office Costs 313,636 214,099 99,537 399,303 310,879 88,424 Professional Services 163,989 126,831 37,158 202,257 155,200 47,057 Miscellaneous 10,792 5,000 5,792 14,041 5,000 9,041 Depreciation 284,927 362,610 (77,683) 387,752 483,480 (95,728) Total Operating Expenses 2,520,548 2,369,969 150,579 6.35% 3,539,859 2,969,649 570,210 19.20%

Other Non-Operating Expenses - - - - - - 0.00%

B Total Expenses 12,260,459 12,236,078 24,381 0.20% 16,648,955 16,143,014 505,941 3.13%

=A-B Net Change in Assets (799,222) (773,013) (26,209) 3.39% (1,632,448) (1,108,453) (523,995) 47.27%

Fixed Assets Depreciation (284,927) (362,610) 77,683 (387,752) (483,480) 95,728 Computer & Software CapEx 59,292 155,483 (96,191) 59,292 207,311 (148,019) Furniture & Fixtures CapEx - - - - - - Equipment CapEx - - - - - - Leasehold Improvements 131,309 - 131,309 131,309 - 131,309

C Incr(Dec) in Fixed Assets (94,326) (207,127) 112,801 -54.46% (197,151) (276,169) 79,018 -29%

=B+CTotal Budget (Expenses plus Incr(Dec) in Fixed Assets) 12,166,133 12,028,951 137,182 16,451,804 15,866,845 584,959 3.69%

=A-B-CChange in Working Capital (Total Funding less Total Budget) (704,896) (565,886) (139,010) (1,435,297) (832,284) (603,013) 72%

FTE's 65.66 76.87 (11.21) 66.20 78.12 (11.92) Headcount 68.00 76.70 (8.70) 73.00 79.70 (6.70)

Beginning WC - 1/1/16 4,005,440 3,288,284 717,156 4,005,440 3,288,284 717,156 Change to WC - 2016 (704,896) (565,886) (139,010) (1,435,297) (832,284) (603,013)

Working Capital at 09/30/16 3,300,544 2,722,398 578,146 2,570,143 2,456,000 114,143

SERC Reliability Corporation Statement of Activities

From 01/01/16 to 09/30/16 (Unauditied)

Page 1

Budget to Actual Comparison as of September 30, 2016

Expense

• Personnel Expenses (Actual - $109,864 under budget) o The 2016 budget included contractor dollars for a Human Resources Director at

SERC. The Human Resources Director became an internal employee in October 2015 and, as a result, SERC incurred additional costs in employee taxes and benefits. The contractor dollars placed in the budget were used to offset the total cost.

o After the development of the 2015 and 2016 budgets, 11 positions have been filled. SERC’s turnover rate has dropped from 23.26% in 2015 to 10.72% in 2016.

o SERC is actively recruiting for three positions.

• Meeting Expenses (Actual - $16,334 under budget) o Meeting Expense ($23,839 over budget) – SERC hosted an unbudgeted meeting

for the CEO Summit, a Board dinner and incurred additional charges for hosting a portion of the Spring Joint meeting off-site due to the renovations of the SERC office, causing an overrun.

o Travel Expense ($38,438 under budget) –The budget is evenly allocated over the year. During the quarters of the year, SERC did not have significant travel costs. Additionally, SERC has put a greater emphasis on hosting meetings in the Charlotte office, causing a decrease in travel expenses.

• Contracts/Consultants (Actual - $47,505 over budget)

o The 2016 budget included contractor costs to support the Human Resource function at SERC. As noted above in personnel, the position was made a full-time employee, causing consultants to be under budget by $120,000.

o SERC budgeted for a contractor to develop training materials, a qualification program, and to implement a systematic approach to training. SERC is not incurring these costs, causing an underrun of $200,000. In lieu of this contractor, SERC auditors will obtain necessary training externally towards auditing credentialing, per the competency guide. These costs will be recorded as benefits.

o SERC budgeted for a contractor to assist in the presentation of the System Operator Conferences. SERC has contracted with a vendor to provide both the training services and tool, causing an underrun of $55,000.

o To assist with staffing needs in IT and Project Management, SERC used consultants in lieu of hiring FTEs causing SERC to be over budget by approximately $441,000.

o SERC engaged a consultant to enhance our document repository, an unbudgeted project, causing an overrun of approximately $42,000.

o SERC Budgeted for disaster recovery. SERC is not incurring these costs, causing an underrun of $60,000.

Page 2

• Contracts/Consultants continued

o ERAG Assessments are budgeted in the second half of the year. Due to a timing overlap, a portion of the ERAG Assessment for 2015 was not completed until the first two quarters of 2016, causing SERC to be over budget by approximately $18,000.

o SERC hired contractors to assist in the Process Excellence initiative and Strategic Planning, an unbudgeted expense of $79,000 causing an overrun.

o The 2016 budget included contractor costs for an Internal and External Security Assessment, which is no longer scheduled. This is causing an underrun of $20,000.

o SERC budgeted for a climate survey to be completed in 2016, however the survey will not be completed this year, causing an underrun of $7,500.

o In the 2016 budget, SERC included costs for software development for Compliance of $27,000. To date, SERC has only incurred costs of $12,000 causing an underrun of $15,000.

o SERC included software maintenance of the SharePoint Enterprise and Reliability Assessment Portal of $45,000 in the 2016 budget. To date, SERC has only incurred costs of $30,000 causing an underrun of $15,000.

o In 2016, SERC budgeted to hire a consultant to assist in management development of $30,000. To date, SERC has only incurred costs of $9,000 causing an underrun of $21,000.

• Rent & Improvements (Actual - $38,270 over budget) o The overrun in Rent and Improvements includes the costs associated with the

office expansion.

• Office Costs (Actual - $99,537 over budget) o The overrun in office costs includes purchase of office furniture to furnish the new

office space of approximately $140,000. Individually, all items were below SERC’s capitalization policy and were therefore expensed.

o SERC is under budget approximately $28,500 in Office Costs due to a reduction in the company’s telephone costs.

o SERC has not incurred costs related to subscriptions or dues causing an underrun of approximately $4,000.

o SERC budgeted for software to assist the Project Server and MS Visio of $8,000 which was not incurred, causing an underrun.

• Professional Services (Actual - $37,158 over budget) o There is an over run in Professional Services due to additional costs for legal

services related to corporate matters.

• Fixed Assets (Actual - $112,801 under budget) o The budget is allocated evenly over the year. Several projects have not been

completed, and therefore have not capitalized and started to be depreciated as of the third quarter.

o As an offset, SERC’s leasehold improvements increased due to the renovation of additional office space, which was not budgeted, causing an overrun.

1 Due to timing of the budget schedule, the estimated overhead charge used to develop the 2016 budget was the actual 2014 SPP Overhead costs adjusted for inflation and allocated by an appropriate measure. The Final 2016 actual results will reflect the actual 2016 costs.

Southwest Power Pool Regional Entity

Personnel Expenses (Actual - $181K under budget) – Personnel expenses are under budget due to four open staff positions. Two auditor positions (one CIP and one O&P) became open in the 2nd and 3rd Quarters respectively; the CIP auditor position has been filled with a start date in the 4th Quarter. SPP RE also has two open positions for which candidates are not currently being sought. Therefore, SPP RE projects costs to be lower than 2016 budget by approximately $200K.

Unaudited Actual to Budget Comparison as of September 30, 2016

Total Costs (Actual - $562K under budget) - Although SPP RE is under budget, SPP RE has completed its required activities principally as a result of the increased experience of the RE direct staff; implementation of risk-based monitoring (Inherent Risk Assessments) and enhanced efficiencies in internal SPP RE processes. SPP RE projects full year costs to be lower than 2016 budget by approximately $700k.

EXPENSES

Travel and Meeting Expenses (Actual - $234K under budget) –Travel expenses primarily trailed budget due to CIP audit activities not beginning until the 3rd quarter (due to the delay in the implementation date of CIP V5). SPP RE projects costs to be lower than 2016 budget by approximately $300K.

Other Operating Expenses (Actual - $137K under budget) – Other Operating Expenses primarily trailed budget due to the delay in the CIP V5 implementation date; four CIP audits scheduled for 2016 have been moved to 2017. SPP RE projects full year costs to be lower than 2016 budget by approximately $200K. Indirect Costs1 (Actual - $10K 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. Due to the change in the structure of the SPP, Inc. charge in 2016 to a largely fixed amount, SPP RE projects no significant variance from the full year 2016 budgeted cost.

SOUTHWEST POWER POOL REGIONAL ENTITYSTATEMENT OF ACTIVITIES

2016 SEPTEMBER YTD DRAFT (UNAUDITED)

(In Whole Dollars)2016 SEPT YTD

ACTUAL2016 SEPT YTD

BUDGET VARIANCE2016 FULL YEAR

PROJECTION2016 FULL

YEAR BUDGET VARIANCE

FundingERO Funding 6,470,063 6,470,063 - 8,626,751 8,626,751 - Penalty Sanctions 144,750 144,750 - 193,000 193,000 - Total SPP RE Funding 6,614,813 6,614,813 - 8,819,751 8,819,751 -

Testing Fees - - - - - - Workshops - - - - - - Interest 3,184 - 3,184 3,184 - 3,184 Miscellaneous - - - - - -

Total Funding (A) 6,617,997 6,614,813 3,184 8,822,935 8,819,751 3,184


Salaries 2,688,376 2,922,369 (233,993) 3,638,354 3,896,492 (258,138) Payroll Taxes 163,062 223,561.50 (60,499) 231,340 298,082 (66,742) Benefits 370,536 250,173 120,363 466,347 333,564 132,783 Retirement Costs 109,731 116,895 (7,164) 147,957 155,860 (7,903)

Total Personnel Expenses 3,331,706 3,512,999 (181,293) 4,483,997 4,683,997 (200,000)

Meeting ExpensesMeetings 53,897 67,500 (13,603) 72,549 90,000 (17,451) Travel 289,907 510,150 (220,243) 397,651 680,200 (282,549) Conference Calls - - - - - -

Total Meeting Expenses 343,804 577,650 (233,846) 470,200 770,200 (300,000)

Operating ExpensesContracts & Consultants 286,056 723,782 (437,726) 328,163 965,042 (636,879) Office Rent - - - - - - Office Costs 6,862 6,000 862 9,254 8,000 1,254 Administrative Costs - - - - - Professional Services 470,326 115,088 355,238 670,312 153,450 516,862 Computer Purchase & Maint. - - - - - -

Services Depreciation - - - - - - Furniture & EquipmMiscellaneous/ Contingency - 55,834 (55,834) (6,792) 74,445 (81,237) Total Operating Expenses 763,243 900,703 (137,460) 1,000,937 1,200,937 (200,000)

Total Direct Expenses 4,438,753 4,991,351 (552,598) 5,955,134 6,655,134 (700,000)

SPP Inc. Indirect Expenses 2,570,634 2,580,514 (9,880) 3,440,685 3,440,685 - SPP RE Indirect ExpensesTotal Indirect Costs 2,570,634 2,580,514 (9,880) 3,440,685 3,440,685 -

Total Expenses (B) 7,009,387 7,571,865 (562,478) 9,395,819 10,095,819 (700,000)

Net Change in Assets (A-B) (391,390) (957,052) 565,661 (572,884) (1,276,068) 703,184

Fixed AssetsDepreciation - - - - - - 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)) 7,009,387 7,571,865 (562,478) 9,395,819 10,095,819 (700,000)

Change in Working Capital (Total Funding less Total Budget) (A-B-C) (391,390) (957,052) 565,661 (572,884) (1,276,068) 703,184

FTEs* 28.9 29.3 (0) 29.3 32.3 (3)

Beginning WC - 01/01/2016 3,324,959 1,276,068 2,048,891 3,324,959 1,276,068 2,048,891 Change to WC - 2016 YTD (391,390) (957,052) 565,661 (572,884) (1,276,068) 703,184

Working Capital as of 9/30/16 2,933,568 319,016 2,614,552 2,752,074 - 2,752,074

*Headcount (RE direct staff count as of 9/30/2016 and shared staff YTD billed hours/1880).

TEXAS RELIABILITY ENTITY, INC. PAGE 1 OF 4 805 LAS CIMAS PARKWAY, SUITE 200 AUSTIN, TEXAS 78746 512-583-4900

October 18, 2016 Ms. Susan Turpen Mr. Scott Jones North American Electric Reliability Corporation 3353 Peachtree Road NE Suite 600, North Tower Atlanta, GA 30326 RE: Texas Reliability Entity, Inc. Third Quarter 2016 Statement of Activities and Fixed Asset Variance Report Dear Susan and Scott, The 2016 third quarter variance report for Texas RE is attached. The variances are explained in the following pages. Please contact me if you have questions or comments. Thank you. Judy Judy Foppiano Judy A. Foppiano, CPA CFO & Director of Corporate Services Texas Reliability Entity, Inc. 805 Los Cimas Parkway, Suite 200 Austin, Texas 78746 [email protected] 512.583.4959


Budget to Actual Comparison as of June 30, 2016 Variances greater than $10,000 and 10% are explained below.

FUNDING

• Penalty Sanctions: (Actual income of $337,000 remitted to Texas RE as of June 30, 2015 has been applied to reduce 2016 assessments.) All penalty sanctions remitted from July 1, 2015 through June 30, 2016 will be included in the Texas RE 2017 Business Plan and Budget and applied to reduce 2017 assessments.

• Interest: $13 greater than budget

EXPENSES

Total Expense Budget and Fixed Assets as of September 30, 2016 is $655,487 less than budget (-7.4%).

• Personnel Expenses: $425,437 less than 2016 budget (-6.1%).

o Employee Benefits are 7.9% less than budget due to timing FTE vacancies which has an impact on the health benefits. Employee benefits include education reimbursement and relocation that has not been utilized. The forecast has been adjusted accordingly.

o Not all employees participate fully in the health benefit plans or the retirement plan.

• Meetings and Travel Expenses: $71,182 less than 2016 budget (-23.2%).

o Meetings are under budget $20,296 (-72.1%). The spring workshop was hosted in the conference center. The budget included costs for an outside facility. There is some offset in the conference center expenses category. The forecast has been adjusted accordingly.

o Travel is $54,027 (-19.9%) less than budget due to the CEO and other employees traveling less. A concentrated effort to have more meetings in the conference center and via WebX results are shown with less actual travel cost. The forecast has been adjusted.

o Conference expenses are $3,140 (39.2%) greater than budget due to the meetings hosted in the conference center as discussed above. The overrun is partially offset in meeting expense and in travel expense.

• Total Operating Expenses: $94,862 less than budget (-5.5%).

o Consultants and Contracts are under budget $88,589 (-31.2%). The budget includes custom salary survey and an executive compensation study which will be completed in the fourth quarter.

o Rent and Improvements are showing a minimal budget under-run (-0.5%). This under-run is expected to increase in fourth quarter due to the conference center. The forecast has been adjusted to reflect the estimated additional costs for the remainder of the year.


o Office costs are $65,583 (-13.4%) less than budget due to Software, maintenance, and leased equipment. Some of the anticipated maintenance was either not renewed or the price decreased at renewal.

o Professional Services are $12,794 (-3.7%) less than budget. $40,000 for legal fees has been added to the forecast for anticipated additional legal costs.

o Depreciation is $74,320 (53.2%) greater than budget due to furniture, equipment, and audio visual equipment purchased for the conference center after the 2016 budget was prepared. The forecast has been adjusted to reflect the actual depreciation expense for the remainder of the year.

The total budget forecast adjustment reflects $59,465 or 0.5% budget under-run for the year ending 2016. The forecast has been adjusted for relevant categories as noted in details above.


Texas Reliability Entity, Inc.

Statement of Activities and Fixed Assets For period ended September 30, 2016

(Unaudited)

Revenue 2016 YTD

Actual 2016 YTD

Budget

2016 YTD Actual

Variance from Budget % 2016 Forecast

2016 Annual Budget

2016 YTD Actual

Variance from Budget %

ERO Funding Assessments 7,170,345$ 7,170,345$ -$ 9,560,448$ 9,560,448$ -$ Penalty Sanctions 337,000 337,000 - 337,000 337,000 - Interest & Membership Dues 737 750 (13) 1,000 1,000 - Total Revenue 7,508,082$ 7,508,095$ (13)$ 0.0% 9,898,448$ 9,898,448$ -$ 0.0%

Expenses Personnel Expenses Salaries 4,765,411$ 5,013,830$ (248,419)$ -5.0% 6,749,489$ 6,749,489$ -$ Payroll Taxes 340,345 367,394 (27,049) -7.4% 496,723 496,723 - Employee Benefits 757,825 822,505 (64,680) -7.9% 1,045,948 1,075,948 (30,000) -2.8% Savings & Retirement 633,474 718,762 (85,288) -11.9% 953,077 968,077 (15,000) -1.5% Total Personnel Expenses 6,497,055$ 6,922,492$ (425,437)$ -6.1% 9,245,238$ 9,290,238$ (45,000)$ -0.5%

Meeting & Travel Expenses Meetings 7,834$ 28,130$ (20,296)$ -72.1% 18,000$ 50,350$ (32,350)$ -64.3% Travel 217,062 271,089 (54,027) -19.9% 340,000 368,115 (28,115) -7.6% Conference Expenses 11,140 8,000 3,140 39.2% 15,000 10,000 5,000 50.0% Total Meeting & Travel Expenses 236,037$ 307,219$ (71,182)$ -23.2% 373,000$ 428,465$ (55,465)$ -12.9%

Operating Expenses Consultants & Contracts 194,969$ 283,558$ (88,589)$ -31.2% 342,148$ 342,148$ -$ Rent & Improvements 465,678 467,895 (2,217) -0.5% 549,557 489,557 60,000 12.3% Office Costs 424,633 490,215 (65,583) -13.4% 622,307 672,307 (50,000) -7.4% Professional Services 334,626 347,420 (12,794) -3.7% 555,500 515,500 40,000 7.8% Depreciation 213,908 139,588 74,320 53.2% 282,536 159,033 123,503 77.7% Total Operating Expenses 1,633,814 1,728,675 (94,862) -5.5% 2,352,048 2,178,545 173,503 8.0%

Total Expenses 8,366,905$ 8,958,386$ (591,481)$ -6.6% 11,970,286$ 11,897,247$ 73,038$ 0.6%

Change in Assets (858,823)$ (1,450,291)$ 591,467$ -40.8% (2,071,838)$ (1,998,799)$ (73,038)$ 3.7%

Fixed Assets Depreciation (213,908)$ (139,588)$ (74,320)$ 53.2% (282,536)$ (159,033)$ (123,503)$ Computer & Software CapEx 10,314 - 10,314 35,000 44,000 (9,000) Incr(Dec) in Fixed Assets (203,594)$ (139,588)$ (64,006)$ 45.9% (247,536)$ (115,033)$ (132,503)$ 115.2%

TOTAL BUDGET 8,163,311$ 8,818,798$ (655,487)$ -7.4% 11,722,750$ 11,782,214$ (59,465)$ -0.5%

Change in Working Captial (655,229)$ (1,310,703)$ 655,474$ -50.0% (1,824,302)$ (1,883,766)$ 59,465$ -3.2%

FTE's 58.00 60.00 (2.00) 60.00 60.00 -

Beginning WC - 1/1/2016 6,586,523$ 4,288,100$ 2,298,423$ 6,586,523$ 4,288,102$ 2,298,421$

Change to WC - 2016 (655,229) (1,310,703) 655,474 (1,824,302) (1,883,766) 59,465

Working Capital - 6/30/2016 5,931,294$ 2,977,397$ 2,953,897$ 4,762,221$ 2,404,336$ 2,357,886$

Jillian Lessner Director of Finance and Accounting

(801) 883-6872 [email protected]

WESTERN ELECTRICITY COORDINATING COUNCIL 155 North 400 West, Suite 200

Salt Lake City, Utah 84103-1114

October 18, 2016

Mr. Michael Walker

Senior Vice President, Chief Financial and Administrative Officer

North American Electric Reliability Corporation

3353 Peachtree Road N.E., Suite 600, North Tower

Atlanta, Georgia 30326

RE: WECC Q3 2016 Statutory Statement of Activities and Variance Report

Dear Mr. Walker:

Attached is WECC’s third quarter Statutory Statement of Activities (Unaudited) and Variance Report.

WECC’s 2016 year-to-date unaudited results are $1.3 million under budget.

If you have any questions or need additional information, please do not hesitate to contact me.

Regards,

Jillian Lessner

Director of Finance and Accounting

Enclosures

cc: Jim Robb, Chief Executive Officer

David Godfrey, Vice President and Chief Administrative Officer

WECC Finance and Audit Committee

October 18, 2016 Statement of Activities and Variance Explanations 2

WESTERN ELECTRICITY COORDINATING COUNCIL 155 North 400 West, Suite 200

Salt Lake City, Utah 84103-1114

Statutory Statement of Activities (Unaudited)

As of September 30, 2016

Variance Report

Year-to-date variances greater than $10,000 and 10 percent are explained below. The explanations

pertain to all statutory activities.

FUNDING

• Workshop Fees: $310,000 under budget primarily due to lower-than-anticipated attendance at

WECC training and outreach events; projected to be under budget by $380,000 at year-end.

• Interest: $26,000 over budget primarily due to higher-than-anticipated returns on invested

balances; projected to be over budget by $27,000 at year-end.

EXPENSES

• Payroll Taxes: $96,000 under budget primarily due to higher-than-anticipated employee

turnover and labor float.

• Meetings: $74,000 under budget primarily due to lower-than-anticipated expenditures for

board, workgroup and outreach meetings.

• Travel: $101,000 over budget primarily due to unanticipated travel for joint NERC/WECC onsite

reliability assessments, training for new Compliance auditors, and unplanned offsite Joint

Guidance Committee and Standing Committee meetings; projected to be over budget by

$148,000 at year-end.

• Consultants and Contracts: $1.25 million under budget primarily due to delays in project

deliverables and an overall reduction in the RAS modeling and scenario revision consulting in

2016. Approximately $500,000 of expenditures will be carried forward into 2017; projected to

be under budget by $967,000 at year-end.

• Depreciation: $363,000 under budget due to lower-than-anticipated asset capitalization in 2015

and 2016; projected to be under budget by $375,000 at year-end.

• Indirect Expenses: $142,000 under budget due to higher-than-anticipated labor float in the

non-statutory area as well as the budget underrun in the statutory programs; projected to be

under budget by $177,000 at year-end.

FIXED ASSETS

• Computer and Software CapEx: $38,000 under budget primarily due to the timing of and

transition to cloud-based network software applications; projected to be under budget by

$32,000 at year-end.

October 18, 2016 Statement of Activities and Variance Explanations 3

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

(In Whole Dollars)

2016 YTD

Actual

2016 YTD

Budget

2016 YTD

Variance

Over(Under)

% 2016 Projection 2016 Annual

Budget

2016 Projected

Variance

Over(Under)

%

Funding

Assessments 25,032,138 25,032,134 4 0.0% 25,032,138 25,032,134 4 0.0%

Penalties 1,983,700 1,983,700 - 0.0% 1,983,700 1,983,700 - 0.0%

Federal Grants - - - - - -

Testing - - - - - -

Services & Software - - - - - -

Workshop Fees 497,401 807,078 (309,677) -38.4% 749,901 1,129,500 (379,599) -33.6%

Interest 91,910 66,000 25,910 39.3% 110,776 84,000 26,776 31.9%

Miscellaneous 424 - 424 424 - 424

Total Funding 27,605,573 27,888,912 (283,339) -1.0% 27,876,939 28,229,334 (352,395) -1.2%

Expenses

Personnel Expenses

Salaries 10,161,924 10,342,302 (180,377) -1.7% 14,195,013 14,552,825 (357,812) -2.5%

Payroll Taxes 724,893 821,043 (96,150) -11.7% 963,250 1,047,091 (83,841) -8.0%

Employee Benefits 1,497,986 1,533,424 (35,438) -2.3% 2,097,870 2,074,608 23,262 1.1%

Savings & Retirement 894,441 898,873 (4,432) -0.5% 1,253,998 1,259,073 (5,075) -0.4%

Total Personnel Expenses 13,279,244 13,595,641 (316,397) -2.3% 18,510,131 18,933,597 (423,466) -2.2%

Meeting Expenses

Meetings 509,516 583,128 (73,612) -12.6% 738,037 820,200 (82,163) -10.0%

Travel 987,207 886,484 100,723 11.4% 1,321,827 1,173,371 148,456 12.7%

Conference Calls 58,690 53,317 5,373 10.1% 67,429 70,823 (3,394) -4.8%

Total Meeting Expenses 1,555,412 1,522,929 32,483 2.1% 2,127,293 2,064,394 62,899 3.0%

Operating Expenses

Consultants and Contracts 1,376,455 2,630,376 (1,253,921) -47.7% 2,304,435 3,271,170 (966,735) -29.6%

Rent & Improvements 710,189 703,776 6,413 0.9% 943,334 936,988 6,346 0.7%

Office Costs 1,170,812 1,287,252 (116,440) -9.0% 1,499,610 1,655,424 (155,814) -9.4%

Professional Services 776,055 792,595 (16,540) -2.1% 1,019,792 1,051,975 (32,183) -3.1%

Miscellaneous - - - - - -

Depreciation 348,506 711,450 (362,944) -51.0% 573,706 948,609 (374,903) -39.5%

Total Operating Expenses 4,382,016 6,125,449 (1,743,433) -28.5% 6,340,877 7,864,166 (1,523,289) -19.4%

Direct Expenses 19,216,673 21,244,019 (2,027,346) -9.5% 26,978,301 28,862,157 (1,883,856) -6.5%

Indirect Expenses (329,703) (471,715) 142,012 -30.1% (451,820) (628,953) 177,133 -28.2%

Other Non-Operating Expenses 301 - 301 301 - 301

Total Expenses 18,887,271 20,772,304 (1,885,033) -9.1% 26,526,782 28,233,204 (1,706,422) -6.0%

Net Change in Assets 8,718,302 7,116,608 1,601,694 22.5% 1,350,158 (3,870) 1,354,028 -34986.3%

Fixed Assets

Depreciation (348,506) (711,450) 362,944 -51.0% (573,706) (948,609) 374,903 -39.5%

Computer & Software CapEx 3,150 41,247 (38,097) -92.4% 23,150 55,000 (31,850) -57.9%

Furniture & Fixtures CapEx - - - - - -

Equipment CapEx - 22,500 (22,500) -100.0% 25,000 30,000 (5,000) -16.7%

Leasehold Improvements 5,595 - 5,595 5,595 - 5,595

Allocation of Fixed Assets - 11,521 (11,521) -100.0% - 15,361 (15,361) -100.0%Incr(Dec) in Fixed Assets (339,761) (636,182) 296,421 -46.6% (519,961) (848,248) 328,286 -38.7%

Total Expenditures 18,547,510 20,136,122 (1,588,612) -7.9% 26,006,821 27,384,956 (1,378,135) -5.0%

Change in Working Capital (Total Funding less Total

Budget) 9,058,063 7,752,790 1,305,273 16.84% 1,870,120 844,378 1,025,741 121.48%

FTEs 130.44 140.50 (10.06) 130.94 140.50 (9.56)

Headcount 133.00 141.00 (8.00) 135.00 141.00 (6.00)

Beginning WC - 1/1/16 3,944,969 2,394,170 1,550,799 3,944,969 2,394,170 1,550,799

Change to WC - 2016 9,058,063 7,752,790 1,305,273 1,870,120 844,378 1,025,741

Working Capital at 9/30/16 13,003,032 10,146,960 2,856,071 5,815,088 3,238,548 2,576,540

From 1/1/2016 to 9/30/2016

(Unaudited)

Western Electricity Coordinating Council

Statutory Statement of Activities

Tentative 2018 ERO Enterprise Business Plan and Budget Schedule

DATES NERC Regional Entities Related Stakeholder-NERC Committee

Initiatives September-October

2016 NERC BOT posts policy input letter on September 27, 2016, which includes request for input by October 18, 2016 on draft 2017-2020 ERO Enterprise Strategic Plan and metrics

October-December 2016

NERC and Regional Entities develop and finalize common BP&B assumptions and key focus areas for text of respective BP&Bs

October 4, 2016 MRC pre-meeting – agenda will include overview of topics for November NERC BOT meeting, which includes approval of draft 2017-2020 ERO Enterprise Strategic Plan and metrics

October 27, 2016 FAC meeting – agenda will include review of 2018 BP&B schedule

November 1, 2016 MRC meeting – agenda will include review of draft 2017-2020 ERO Enterprise Strategic Plan and metrics

November 2, 2016 NERC BOT meeting – Agenda will include approval of 2017-2020 ERO Enterprise Strategic Plan and metrics. The goals and metrics will inform Draft 1 of NERC and Regional Entity 2018 BP&Bs.

November 2-3, 2016 EROFG meeting in Atlanta November 29-30,

2016 Compliance and Certification Committee meeting

November 2016 MRC BP&B Input Group conference call

Agenda Item 4Finance and Audit Committee Open Meeting October 27, 2016

2018 Business Plan and Budget Schedule – Updated October 13, 2016 2


Initiatives December 13-14,

2016 Operating Committee, Planning Committee, and Critical Infrastructure Protection Committee meetings

December 14, 2016 Standards Committee meeting January 18, 2017 MRC pre-meeting

Policy input letter issued January 2017 Quarterly Trades meeting

February 2, 2017 FAC meeting – agenda will include a preview of 2018 BP&B activities

February 8, 2017 MRC meeting February 9, 2017 NERC BOT meeting

February 2017 MRC BP&B Input Group conference call February 2017 RISC meeting

March 2017 Compliance and Certification Committee meeting

March 2017 Operating Committee, Planning Committee, and Critical Infrastructure Protection Committee meetings

March 2017 Standards Committee meeting March 2017 RISC meeting

April 18, 2017 MRC pre-meeting Policy input letter issued

April 2017 MRC BP&B Input Group conference call April 2017 Quarterly Trades and MRC BP&B Input Group

meetings – agendas will include a discussion of NERC 2018 BP&B



Initiatives April 2017 Closed FAC and CGHRC meetings –

agenda will include review of personnel, contracts, benefits, and other assumptions for NERC 2018 BP&B

May 1, 2017 (Tentative)

1st draft of Regional Entity 2018 BP&Bs due to NERC Note: Regional Entities post draft 2018 BP&Bs for comment by their stakeholders in accordance with individual Regional Entity public review processes and schedules

May 2017 MRC BP&B Input Group conference call May 10, 2017 FAC meeting – agenda will include preview of Draft 1 of NERC, Regional

Entity, and Combined ERO Enterprise 2018 BP&Bs MRC meeting

May 11, 2017 NERC BOT meeting May 18, 2017

(Tentative) Draft 1 of NERC, Regional Entity, and Combined ERO Enterprise 2018 BP&Bs posted on NERC website

May 2017 FAC conference call and webinar – agenda will include review of Draft 1 of NERC, Regional Entity, and Combined ERO Enterprise 2018 BP&Bs

May-June 2017 Regional Entity Board meeting dates for review and approval of Regional Entity final 2018 BP&Bs: May – SPP and RFC June – SERC, MRO, WECC, TRE, FRCC, and NPCC

June 2017 MRC BP&B Input Group and Trades meeting – agenda will include review of Draft 1 NERC 2018 BP&B



Initiatives June 2017 Compliance and Certification Committee

meeting June 2017 Standards Committee meeting June 2017 Operating Committee, Planning Committee,

and Critical Infrastructure Protection Committee meetings

June 29, 2017 Comments due on Draft 1 of NERC 2018 BP&B July 6, 2017 (Tentative)

Regional Entity final 2018 BP&Bs due to NERC (approved by Regional Entity Boards) together with final list of LSEs and NEL data

July 2017 EROFG presents NERC and Regional Entity 2018 BP&Bs to FERC July 6, 2017 MRC BP&B Input Group and Trades meetings –

agendas will include discussion of comments received on Draft 1 of NERC 2018 BP&B and a preview of Draft 2

July 2017

Closed FAC call – agenda will include review of personnel, contracts and other assumptions for NERC 2018 BP&B

July 13, 2017 MRC pre-meeting Policy input letter issued

July 2017 Quarterly Trades meeting July 2017 Draft 2 of NERC, final Regional Entity, and Combined ERO Enterprise 2018

BP&Bs posted on NERC website

July 2017 FAC conference call and webinar – agenda will include review of NERC, Regional Entity, and Combined ERO Enterprise 2018 BP&Bs

July 28, 2017 Comments due on Draft 2 of 2018 NERC BP&B



Initiatives August 2, 2017 Recommended final NERC and Regional Entity 2018 BP&Bs and assessments

posted for August FAC and NERC BOT review and approval at August FAC and NERC BOT meetings

August 9, 2017 FAC meeting – agenda will include recommendation to NERC BOT of approval of final NERC and Regional Entity 2018 BP&Bs and assessments

MRC meeting

August 10, 2017 NERC BOT meeting – agenda will include approval of NERC and Regional Entity 2018 BP&Bs and assessments

August 24, 2017 Submit regulatory filings with FERC and Canadian provincial authorities for approval of 2018 BP&Bs

Agenda Item 5 Finance and Audit Committee Open Meeting October 27, 2016

Review of Committee Mandate

Action Information

Background As part of the annual review of all Board committee mandates, the NERC Legal Department has reviewed the current Finance and Audit Committee (FAC) mandate. The mandate was updated this past year to both conform to FAC practices and to align the mandate with the form of other Board committee mandates. Based on its review of the current mandate, management is not recommending any further revisions at this time.

Documents

Agenda Finance and Audit Committee - NERC Finance and Audit Co… · additional reserves for certain preliminarily identified E-ISAC projects, which were ultimately authorized and