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[1. Call General Session to Order]
I'M BILL FLORES AND I'M CALLING THE, UH, ERCOT FINANCE AND AUDIT COMMITTEE TO ORDER, UH, THE MEETING.THE MEETING IS BEING WEBCAST LIVE TO THE PUBLIC ON ERCOT WEBSITE.
AND BEFORE WE BEGIN, I WOULD LIKE TO ASK P U C CHAIRMAN PETER LAKE, IF HE WOULD LIKE TO, UH, CALL, UH, RECALL AN OPEN MEETING OF PUBLIC UTILITY COMMISSION OF TEXAS ORDER THE PUBLIC UTILITY COMMISSION MEETING THAT WAS RECESSED YESTERDAY AFTERNOON, WILL NOW RECONVENE, UH, FOR THE RECOMMENDATION.
PETER LAKE, WE HAVE CHAIR, UH, WILL MCADAMS AND KATHLEEN JACKSON.
SO, UH, THANK YOU CHAIRMAN LAKE.
BEFORE WE PROCEED, I'D LIKE TO HIGHLIGHT TO COMMITTEE MEMBERS THAT THE ANTITRUST ADMONITION SECURITY MAP ARE INCLUDED WITH THE POSTING MEETING MATERIALS.
UM, AND I, THERE ARE NO QUESTIONS ABOUT THAT.
UH, FIRST UP IS, UH, ITEM TWO, NOTICE OF PUBLIC COMMENT, IF ANY.
TODAY'S MEETING AGENDA WAS POSTED PUBLICLY ON APRIL 11TH AND PROVIDED INSTRUCTIONS FOR THE PUBLIC FOR COMMENTING IN PERSON.
TO DATE, NO ONE HAS EXPRESSED AN INTEREST IN COMMENTING.
IS THAT STILL CORRECT, CHAD? THAT IS CORRECT.
[3. February 27, 2023 General Session Meeting Minutes]
NEXT UP IS A AGENDA.GENERAL SESSION MEETING MINUTES.
THERE IS A DRAFT THAT'S BEEN CIRCULATED TO MEETING MATERIALS.
DOES ANYONE HAVE A COMMENT OR WISH TO MAKE A MOTION TO APPROVE? I'LL MAKE A MOTION TO APPROVE.
MOVING, UH, ALL IN FAVOR? AYE.
ANY OPPOSED? ANY ABSTENTIONS? OKAY.
[4.1 Review of Requirements for Annual Audit of Financial Statements and Annual Servicer’s Certificate]
ON TO A AGENDA.ITEM FOUR, PERIODIC MEETING WITH INDEPENDENT FINANCIAL AUDITOR OR BAKER TILLEY IS HERE TODAY, AND WE'LL JOIN RICHARD SHIELD AND LEADING THIS DISCUSSION.
THE FIRST COMPONENT OF THIS DISCUSSION IS A REVIEW OF THE REQUIREMENTS FOR ANNUAL AUDIT OF FINANCIAL STATEMENTS AND ANNUAL SERVICER CERTIFICATE, WHICH RICHARD SHIELD WILL TAKE US THROUGH, FOLLOWED BY BAKER TILLEY'S, UH, REPORT ON THE DECEMBER 31ST, 2022 FINANCIAL AUDIT AND ANNUAL SERVICER CERTIFICATE, FOLLOWED BY RICHARD'S REVIEW OF THOSE AUDITED FINANCIAL STATEMENTS AND THE ANNUAL SERVICE SERVICERS CERTIFICATE.
AFTER THESE PRESENTATIONS, THE COMMITTEE WILL VOTE ON THREE ITEMS, AND THAT IS WHETHER TO RECOMMEND TO THE BOARD THAT IT ACCEPT THE FINANCIAL STATEMENTS, UH, AUDITED AND AUDIT REPORTS FOR ERCOT INC.
CONSOLIDATED, AND ALSO FOR THE TWO SECURITIZATIONS OF, UH, SPECIAL PURPOSE ENTITIES, M AND N.
SO, RICHARD, THE FLOOR IS YOURS THERE.
IT'S, UH, RICHARD SHIELD CONTROLLER.
I'LL BE REVIEWING, UH, ITEM 4.1.
UH, WE'RE BRINGING TODAY THREE ITEMS FOR A VOTE, WHICH YOU'VE DISCUSSED.
THE ERCOT AUDIT OF FINANCIAL STATEMENTS.
UH, TEXAS ELECTRIC MARKET STABILIZATION FUNDING.
M AS WELL AS M UH, WILL BE, UH, WALKING YOU THROUGH THE SERVICER'S ANNUAL CERTIFICATE OF COMPLIANCE, UH, THAT IS A NON-VOTING ITEM.
UM, IMMEDIATELY FOLLOWING THIS WILL BE ITEM 4.2, BAKER HILLY PRESENTING THEIR REPORT.
OUR ANNUAL AUDIT, UH, REQUIRES, UH, IS REQUIRED BY THE ERCOT BYLAWS TO SELECT QUALIFIED INDEPENDENT PUBLIC ACCOUNTING FIRM TO AUDIT FINANCIAL STATEMENTS.
OUR PROTOCOLS, WE'LL HAVE AN AUDIT, UM, MADE EACH YEAR RECOMMENDED TO THE BOARD OUR CHARTER REQUIREMENTS.
WE'LL REVIEW WITH MANAGEMENT INDEPENDENT AUDITOR AND PROVIDE A RECOMMENDATION TO THE BOARD ON WHETHER THE FINANCIAL STATEMENTS AUDIT SHOULD BE ACCEPTED FOR TIM FEM, UH, TIM FEM REQUIRES THAT WE MAINTAIN A FULL BOOK OF ACCOUNTS AND RECORDS AUDITED ANNUALLY, AS WELL AS TIM FIN, UH, AUDITED ANNUALLY.
AND THEN WE HAVE OUR ANNUAL SERVICING AGREEMENT, UM, FOR TIM FIN, WHICH IS AN ERCOT REQUIREMENT.
WE'LL BE PRESENTING THAT CERTIFICATE AT THE END, UH, TO TALK THROUGH THAT PIECE.
UH, THAT'S DUE MARCH 31ST OF EACH YEAR.
IT'S COMPLETED MARCH 30TH OF THIS YEAR.
AND THEN THE THREE VOTING ITEMS.
[4.2 Report on December 31, 2022 Financial Audit and Annual Servicer’s Certificate]
AND THEN LET ME INTRODUCE JEFF CINDRA, OUR, UH, PARTNER WITH BAKER TILLEY.JEFF, OH, LET ME TAKE YOU THROUGH THE OPENING SLIDE.
UM, PURPOSE OF THIS IS TO RECEIVE THE REPORT ON THE 2022 FINANCIAL STATEMENTS AUTO AUDIT PRIOR TO VOTING FOR THE ERCOT CONSOLIDATED, TIM FEM AND TIM FINN.
UH, WE RE EXPECT TO RECEIVE UNMODIFIED REPORTS FOR ERCOT, TIM FEM AND TIM FINN.
AND, UH, WE'VE RECEIVED THE, AND RECEIVING THE INDEPENDENT CERTIFIED ACT CONDUCTS REPORT REGARDING THE ANNUAL SERVICE ASSESSMENT OF COMPLIANCE.
MORNING, MR. CHAIRMAN AND MEMBERS OF
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THE COMMITTEE, VERY PLEASED TO BE WITH YOU.UH, TODAY IS, UH, RICHARD MANCHIN.
I'M THE AUDIT PARTNER, UH, FROM BAKER TILLY THAT, UH, SERVES THE, UH, ERCOT ACCOUNT.
UH, AND, UH, I'M PLEASED TO SHARE WITH YOU THE RESULTS OF THIS YEAR'S AUDIT WORK.
UM, I HAVE A COUPLE WORDS OF THANKS, UH, TO CERTAIN MEMBERS, UH, OF MANAGEMENT.
THERE'S ALWAYS DANGER WHEN YOU DO THIS BECAUSE THERE'S A LOT OF PEOPLE, UH, THAT, UH, PLAY A ROLE, UH, IN, UH, COMPLETING AND SUPPORTING THE AUDIT PROCESS.
BUT I CERTAINLY WANTED TO ACKNOWLEDGE THE EFFORTS.
UH, LESLIE WILEY, UH, RICHARD SHIELD, JEAN NE AND CHAD SEALEY, UH, WHO ARE VERY INSTRUMENTAL IN THE PROCESS.
AND I KNOW THEY'VE GOT A CAST OF ANY NUMBER OF PEOPLE BEHIND THEM, UH, THAT, UH, UH, SUPPORT THE EFFORTS.
BUT, UH, MANAGEMENT WAS VERY RESPONSIVE, COOPERATIVE AS IT RELATES TO, UH, OUR WORK THIS YEAR.
WE FELT WE HAD DIRECT AND UNRESTRICTED ACCESS TO BOOKS AND RECORDS AND ANY PEOPLE IN THE ORGANIZATION THAT WE FELT WERE NECESSARY TO SPEAK WITH AND, AND TO OBTAIN INFORMATION FROM AS WE COMPLETED OUR WORK.
UH, WE ARE, UH, SUBSTANTIALLY COMPLETE, UH, WITH OUR AUDITS.
AND WHEN I SAY SUBSTANTIALLY COMPLETE, UH, I UNDERSTAND YOU'VE BEEN PROVIDED DRAFTS OF, UH, THE REPORTS THAT, UH, RICHARD MENTIONED IN HIS REMARKS.
UH, THE ITEM THAT IS, YOU KNOW, CURRENTLY OUTSTANDING EFFECTIVELY IS, IS, UH, MANAGEMENT REPRESENTATION, LETTERS FOR THE THREE AUDITS.
AND THOSE ARE, UH, WITH MANAGEMENT, UH, FOR SIGNATURE.
AND UPON RECEIPT, UH, OF THE REPRESENTATION LETTERS AND THE APPROVAL OF THIS COMMITTEE, UH, WE WILL BE PREPARED TO ISSUE OUR REPORTS, UH, YOU KNOW, IN THE NEXT, UH, DAY OR SO.
I WOULD ANTICIPATE, UH, AS RICHARD MENTIONED, UM, OUR REPORTS, WHICH ARE INCLUDED IN THE PACKET OF INFORMATION THAT YOU RECEIVED, ARE, UH, ON ALL THREE, UH, AUDITS ARE UNMODIFIED REPORTS.
UH, UNMODIFIED IS A GOOD TERM IN OUR INDUSTRY.
UH, WHEN YOU START TALKING MODIFICATIONS, UH, YOU START, UH, LOOKING FOR WORDS LIKE ADVERSE OPINIONS OR, OR QUALIFIED OPINIONS.
UH, THOSE ARE GENERALLY NOT, UH, NOT NOT GOOD THINGS.
AND SO, UM, SO CONGRATULATIONS TO, UH, THE MANAGEMENT TEAM HERE FOR THE QUALITY OF THE WORK THAT THEY PERFORMED.
AND, UM, I PROBABLY WOULD JUST HIGHLIGHT, WE PREPARED THESE SLIDES A COUPLE WEEKS AGO IN ANTICIPATION OF TODAY'S MEETING.
THERE'S A NOTE IN HERE ABOUT OPEN ITEMS, UH, INCLUDING, UH, RESPONSES TO LETTERS OF INQUIRY FROM EXTERNAL AND INTERNAL LEGAL COUNSEL.
THOSE HAVE ACTUALLY ALL BEEN RECEIVED AT THIS POINT.
SO WE ARE SQUARED AWAY AS IT RELATES TO, UH, LEGAL INQUIRIES THAT WE MAKE OF, OF EXTERNAL AND INTERNAL COUNSEL.
OUR REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF ERCOT INC.
CAN YOU PROBABLY RECALL THIS FROM YEARS PAST, UH, HAS INCLUDED AN EMPHASIS OF MATTER PARAGRAPH DUE TO THE SIGNIFICANCE OF THE UNCERTAINTY OF, UH, VARIOUS MATTERS, UH, INVOLVING, UH, WINTER STORM URI IN 2021, WHICH, UH, UH, HAVE MANIFESTED THEMSELVES IN A NUMBER OF LEGAL MATTERS, UH, THAT ARE PENDING AGAINST, UH, THE ORGANIZATION.
AND, UH, WE BELIEVE THAT IT'S IMPORTANT TO CALL THAT OUT TO A READER OF THE FINANCIAL STATEMENTS.
AND SO YOU PROBABLY NOTICED, UH, THAT ADDITION OF A PARAGRAPH IN OUR AUDIT REPORT RELATED TO THAT PARTICULAR ITEM, JUST WANTED TO GIVE YOU A LITTLE BIT OF A SKETCH OF, OF SOME OF THE MORE SIGNIFICANT AUDIT AREAS WHERE WE SPEND THE MAJORITY OF OUR TIME.
UH, IT'S A LONG LIST OF ITEMS THAT ARE ON THE PAGE HERE.
I, UH, PROBABLY NOT GONNA GO INTO THOSE, UH, IN ANY GREAT DETAIL OTHER THAN I WANT TO HIGHLIGHT SEVERAL OF THEM FOR YOU.
UM, FIRST OF ALL, UH, AUDITS ARE A RISK-BASED APPROACH.
UH, AND SO WE LOOK FOR WHAT WE CALL SIGNIFICANT RISKS OR POTENTIAL AREAS OF SIGNIFICANT RISK FOR MATERIAL MISSTATEMENT, WHETHER DUE TO FRAUD OR ERROR.
AND SO THE PROFESSIONAL STANDARDS PRESUME, UH, THAT THERE ARE TWO, UH, IN CONNECTION WITH ANY AUDIT OF A FINANCIAL STATEMENTS, THOSE TWO BEING REVENUE RECOGNITION AND RISK OF MANAGEMENT OVERRIDE OF INTERNAL CONTROLS.
AND SO YOU CERTAINLY SEE ON THE SLIDE HERE THAT WE SPEND, UH, TIME, UH, ADDRESSING, UH, THOSE PARTICULAR ITEMS. WITH RESPECT TO REVENUE RECOGNITION, WE, UH, OBVIOUSLY LOOK AT THE SYSTEM ADMINISTRATION FEES THAT ARE CHARGED, UH, AND DO BOTH, UH, TESTS OF DETAILS AS WELL AS, UH, UH, ANALYTIC PROCEDURES TO CORROBORATE THE AMOUNT OF THE RECORDED REVENUE.
UH, THERE'S ALSO OTHER REVENUE STREAMS THAT ERCOT HAS WHERE WE PERFORM ALSO TESTS OF DETAILS ASSOCIATED WITH THOSE, UH, REVENUE STREAMS. MANAGEMENT OVERRIDE IS A LITTLE MORE DIFFICULT, UH, TO AUDIT, UH, IN CERTAIN RESPECTS.
AND SO OUR PR PROCEDURES ASSOCIATED WITH LOOKING FOR EVIDENCE OF MANAGEMENT OVERRIDE IS TO, TO
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TEST IN DETAIL THE JOURNAL ENTRY PROCESS, LOOKING FOR JOURNAL ENTRIES THAT HAVE UNUSUAL CHARACTERISTICS, BUT ALSO LOOKING TO SEE THAT THE ENTRIES THAT WE'VE SELECTED TO TEST ARE APPROPRIATELY SUBSTANTIATED AND APPROVED BY SOMEBODY THAT'S INDEPENDENT OF THE PREPARER.WE ALSO, UH, CONDUCT VARIOUS INTERVIEWS, UH, OF PEOPLE THAT WE COME INTO CONTACT WITH IN THE COURSE OF OUR WORK TO INQUIRE ABOUT, UH, THE EXISTENCE OF FRAUD OR ALLEGATIONS OF FRAUD, OR WHETHER OR NOT THEY'VE BEEN ASKED, UH, BY ANYONE IN UPPER MANAGEMENT TO CIRCUMVENT THE INTERNAL CONTROL STRUCTURE OF THE ORGANIZATION.
WE'VE GOT NOTHING TO REPORT TO YOU, UH, WITH RESPECT TO TO THAT.
THE OTHER AREA THAT'S A LITTLE MORE UNIQUE, UH, TO ERCOT INC.
IS, UH, THE ONE THAT I MENTIONED, UH, AROUND THE EMPHASIS OF MATTER PARAGRAPH IN OUR REPORT.
AND THAT IS, UH, THE COMPLETENESS, THE ACCURACY OF DISCLOSURES AND POTENTIALLY ACCRUALS FOR LITIGATION OR LEGAL RELATED AND REGULATORY RELATED MATTERS.
AND AS YOU SAW ON THE PREVIOUS SLIDE, UH, OUR PROCEDURES THERE REALLY INVOLVE, UM, UH, INQUIRING OF EXTERNAL COUNSEL AS WELL AS INTERNAL COUNSEL AS TO THE STATUS OF MATTERS THAT ARE PENDING OR THREATENED, UH, AGAINST THE ORGANIZATION IN EVALUATING THE COMPLAINANTS, THE ACCURACY OF THE DISCLOSURES OF WHETHER OR NOT THERE SHOULD BE ANY ACCRUAL IN THE FINANCIAL STATEMENTS RELATED TO THOSE ITEMS. JUST, UH, MAYBE ANOTHER NOTE OR TWO WITH RESPECT TO ITEMS ON THE PAGE.
THERE'S A REFERENCE TO SUBSEQUENT EVENTS IN THE LOWER RIGHT HAND CORNER.
UH, THERE IS A SUBSEQUENT EVENT THAT'S REFERRED TO IN NOTE 13 OF THE ERCOT INC.
AND IT REALLY RELATES TO, UH, THE PAYDOWN, UH, OF, UH, MAIN BONDS, UM, WHICH OCCURRED ON FEBRUARY 1ST, AND THE PAYDOWN WAS, UH, MADE POSSIBLE BY THE SETTLEMENT, UH, THAT OCCURRED WITH RESPECT TO BRAZOS, UH, IN 2022.
NEXT SLIDE SPEAKS TO JUST THE OBJECTIVE OF A FINANCIAL STATEMENT AUDIT.
UH, AND YOU'LL SEE THIS WORDING, UH, REFERRED TO IN OUR OPINION.
I GUESS THE SECOND BULLET POINT ON THE PAGE IS PROBABLY THE ONE THAT, UH, I THINK MAYBE MERITS, UH, SOME, SOME COMMENT IN THE SENSE THAT, AND I THINK I MAY HAVE MENTIONED THIS, UH, THE LAST TIME I HAD THE OPPORTUNITY TO VISIT WITH YOU FOLKS, BUT, UH, MANY OF YOU, I, I'M SURE NO DOUBT, ARE FAMILIAR WITH THE FACT THAT PUBLIC COMPANIES ISSUERS, UH, OF, UH, REGISTERED, UH, SECURITIES, UH, WITH THE S E C ARE REQUIRED TO UNDERGO, UH, BASED ON THEIR SIZE, MAY BE REQUIRED TO UNDERGO AN AUDIT OF THEIR INTERNAL CONTROL OVER FINANCIAL REPORTING.
UM, THAT IS A VERY SIGNIFICANT UNDERTAKING, UH, FOR THE ORGANIZATIONS THAT ARE SUBJECT TO THAT IN THE PRIVATE SECTOR.
UH, THERE ISN'T A CORRESPONDING REQUIREMENT, UH, THAT THAT BE THE CASE.
YOU CAN ACTUALLY OPT IN IF YOU CHOSE TO DO THAT.
MOST ORGANIZATIONS DO NOT, UH, BECAUSE OF THE TIME AND INTENSIVE EFFORT ASSOCIATED WITH, UH, WITH DOING THAT.
AND SO, UH, AS PART OF A FINANCIAL STATEMENT AUDIT, WE ARE REQUIRED TO UNDERSTAND THE DESIGN, THE IMPLEMENTATION OF SOME OF THE KEY CONTROLS IN THE VARIOUS TRANSACTION CYCLES, UH, THAT ARE IMPORTANT TO THE PREPARATION OF THE FINANCIAL STATEMENTS.
UH, BUT IN DOING THAT WORK, WE'RE NOT SAMPLING, UH, AND TESTING THE OPERATING EFFECTIVENESS OF THOSE CONTROLS THROUGHOUT THE PERIOD.
AND SO WE DO NOT, UH, PERFORMS SOME STA ENOUGH PROCEDURES, IF YOU WILL, TO ACTUALLY ISSUE AN OPINION AS TO WHETHER OR NOT THE, UH, THE INTERNAL CONTROL STRUCTURE IS OPERATING EFFECTIVELY.
NOW, THAT BEING SAID, IF WE FOUND, UH, EXCEPTIONS TO THE DESIGN, THE IMPLEMENTATION OF CERTAIN KEY CONTROLS THAT WE FELT WERE OF A SIGNIFICANCE THAT THEY WERE, UH, EITHER IN OUR TERMINOLOGY, WE WOULD CALL THEM A SIGNIFICANT DEFICIENCY OR A MATERIAL WEAKNESS, WE WOULD BE REQUIRED TO REPORT TO YOU, UH, IN WRITING ANY OF THOSE MATTERS.
AND I'M PLACED TO REPORT TO YOU THAT WE HAVE NOTHING, UH, THAT ELEVATES TO THAT LEVEL OF SIGNIFICANCE IN THE COURSE OF OUR WORK.
SO THAT'S THIS STATEMENT, AND, AND THAT APPLIES TO THE THREE STANDALONE AUDITS OF INC UH, M N N.
THE NEXT, UH, SEVERAL SLIDES ARE, I GUESS, MAYBE THEY TEND TO BE, OH, I MAY HAVE, UH, SKIPPED OVER, HOW DO I GO BACK? SORRY, I'M GONNA BACK UP ONE SLIDE.
UH, THE SERVICER'S AGREEMENT EXAMINATION, UH, ENGAGEMENT, WHICH, UH, RICHARD ALLUDED TO IN HIS COMMENTS.
UH, THIS WAS A FIRST TIME, UH, ENGAGEMENT.
IT'LL, IT'LL HAPPEN ON A RECURRING BASIS.
AND AS RICHARD MENTIONED, IT'S, IT'S A REQUIREMENT
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OF ERCOT AND IT'S, UH, FULFILLING ITS RESPONSIBILITIES AS SERVICER UNDER THE N BONDS.AND SO, UM, I THINK YOU'RE GONNA SEE THERE WAS A REPORT, A COPY OF THE REPORT OR THE CERT CERTIFICATION CERTIFICATE THAT ERCOT PREPARES.
AND IN THAT CERTIFICATION STATEMENT, UH, ERCOT IS MAKING A ASSERTION THAT THEY'VE COMPLIED WITH THE REQUIREMENTS, UH, ASSOCIATED WITH THE SERVICING AGREEMENT, AND THAT THEY'VE ALSO CONDUCTED A SELF-ASSESSMENT, UH, AS TO THEIR COMPLIANCE WITH THE KEY REQUIREMENTS OR THE APPLICABLE REQUIREMENTS OF THE SERVICING AGREEMENT.
THE PURPOSE OF OUR ENGAGEMENT IS TO, UH, PERFORM PROCEDURES TO EVALUATE WHETHER THAT ASSERTION IS MATERIALLY CORRECT IN ALL MATERIAL RESPECTS.
AND SO WE ACTUALLY CONDUCT INDEPENDENT OF MANAGEMENT'S PROCESS, UH, TESTS OF THE VARIOUS REQUIREMENTS AND LOOK FOR EVIDENCE THAT THOSE REQUIREMENTS WERE COMPLIED WITH.
AND THIS REPORT WAS ISSUED, UH, BECAUSE IT WAS DUE ON MARCH 31ST, UH, OF THIS, THIS YEAR.
AND PLEASED TO REPORT TO YOU THAT, UH, WE HAD NO EXCEPTIONS.
AND SO OUR REPORT IS THAT MANAGEMENT'S ASSERTIONS ARE FAIRLY STATED IN ALL MATERIAL RESPECTS.
THE NEXT SERIES OF SEVERAL SLIDES IS REALLY, UH, SOMEWHAT BOILERPLATE IN THE SENSE OF, UH, THE REQUIRED COMMUNICATIONS.
UM, AND I'LL JUST MAYBE HIGHLIGHT A FEW THINGS ON EACH OF THE PAGES.
UH, THE FIRST IS, UH, WE'RE REQUIRED TO DISCUSS WITH YOU, UH, OUR VIEWS ON THE QUALITATIVE ASPECTS OF MANAGEMENT'S, UH, ACCOUNTING PRACTICES AND POLICIES.
THE SIGNIFICANT ACCOUNTING POLICIES ARE INCLUDED IN THE NOTES TO THE FINANCIAL STATEMENTS FOR BOTH, UH, FOR ALL THREE, UH, STANDALONE AUDITS.
SOME OF THE MORE SIGNIFICANT ESTIMATES THAT MANAGEMENT BANKS IN PREPARATION OF THE FINANCIAL STATEMENTS INCLUDE, UH, THE ORGANIZATION AS SELF-INSURED FOR GROUP HEALTH.
AND SO THERE'S AN ESTIMATE OF THE LOSS RESERVES THEY INCURRED, BUT NOT REPORTED RESERVES THAT EXIST AS OF, UH, THE BALANCE SHEET DATE, UM, DEPRECIATION, THE USEFUL LIVES OF ASSETS.
A LOT OF THE ORGANIZATION'S ASSETS TEND TO BE, UH, INFORMATION TECHNOLOGY BASED, UH, ASSETS.
THERE'S ALSO SOME JUDGMENT THAT GOES INTO DETERMINATION OF WHAT GETS CAPITALIZED, PARTICULARLY FOR SOFTWARE THAT'S DEVELOPED FOR INTERNAL USE.
AND SO WE PERFORM PROCEDURES AROUND, UH, THE CAPITALIZATION OF ITEMS, UH, IN THE FINANCIAL STATEMENTS.
AND I, I GUESS PROBABLY THE MOST NOTABLE ESTIMATE IN MY VIEW IS, IS REALLY THE, THE FOOTNOTE THAT DEALS WITH, UM, THE CONTINGENCIES AND THE COMMITMENTS, UH, AND THE MATTERS RELATED TO WINTER STORM URI, UH, WHICH ARE DISCUSSED IN NO 12.
AND SO, SO YOU CAN SEE THROUGHOUT THE FOOTNOTES TO THE FINANCIAL STATEMENTS, A LOT OF THESE ITEMS, UH, ARE REFERRED TO.
SO I MENTIONED NOTE 12 FOR COMMITMENTS AND CONTINGENCIES.
EARLIER I MENTIONED SUBSEQUENT EVENTS, WHICH IS NOTE 13, WHICH INCLUDES THE DISCUSSION OF THE PAYDOWN OF, UH, UH, THE M BONDS THAT OCCURRED ON FEBRUARY 1ST.
UH, THERE'S A LOT OF CHANGE IN THE STATEMENTS THIS YEAR, PARTICULARLY WITH THE SECURITIZATION ENTITY AND GETTING CONSOLIDATED.
AND SO, NOTE SEVEN IN PARTICULAR HAS A LOT OF DISCUSSION ABOUT DEBT AND MATURING DEBT, UH, RELATED TO BOTH MAINE AND NEBRASKA.
AND THEN, UH, LASTLY, UH, REVENUE RECOGNITION, UH, WHICH IS DISCUSSED IN NOTE TWO.
AND THERE'S VARIOUS TABLES IN THERE THAT SPEAK TO THE DIFFERENT, UH, FORMS OF REVENUE THAT I MENTIONED EARLIER.
UH, IN ADDITION TO THE SYSTEM ADMINISTRATION FEES, AS WELL AS WHETHER THOSE REVENUES ARE, UH, PAID OR ARE EARNED OVER TIME, OR WHETHER THEY'RE EARNED AS OF A PARTICULAR, UH, POINT IN TIME, UH, WE BELIEVE THAT MANAGEMENT'S, UH, METHODOLOGIES TO RECORD THEIR ESTIMATES APPEAR TO BE A CONSISTENTLY APPLIED, UH, AND MAKE USE OF REASONABLE ASSUMPTIONS.
AND WE ALSO BELIEVE THE NOTES ARE PRESENTED IN A WAY THAT ARE NEUTRAL, UH, CONSISTENT, UH, WITH PRIOR PERIODS AND CLEAR.
UM, I MENTIONED, UH, I HAVE NOTHING TO REPORT TO YOU WITH RESPECT TO FRAUD OR SIGNIFICANT AREAS OF NON-COMPLIANCE.
UH, WE HAD NO SIGNIFICANT DIFFICULTIES AS IT RELATES TO THE CONDUCT OR COMPLETION OF OUR WORK.
UM, AND I GUESS PROBABLY THE MOST SIGNIFICANT TRANSACTION, WHICH I MENTIONED JUST A FEW MOMENTS AGO, REALLY WAS, UH, THE SECURITIZATION OF, UH, NEBRASKA, UH, WHICH OCCURRED, UH, IN 2022 IN THE ISSUANCE OF DEBT.
AND, UH, FOR THE MOST PART, IF YOU LOOK AT, UH, THE FINANCIAL STATEMENTS, YOU SEE BIG CHANGES, UH, PERIOD OVER PERIOD.
MOST OF IT IS REALLY, UH, IN SOME WAY, SHAPE, OR FORM RELATED TO, UH, THE SECURITIZATION OF N UH, WHICH OCCURRED THIS PAST YEAR.
UH, WE'RE REQUIRED TO DISCUSS WITH YOU ANY UNCORRECTED MISSTATEMENTS OR CORRECTED MISSTATEMENTS.
UH, WE HAVE NONE TO REPORT TO YOU.
UM, WE HAVE NO DISAGREEMENTS WITH MANAGEMENT OVER
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MATTERS RELATIVE TO ACCOUNTING STANDARDS OR AUDITING.UM, AND I MENTIONED THE OTHER FINDING OR ISSUE, WHICH IS CONSISTENT WITH YOURS PAST AS, AS IT RELATES TO, UH, THE MATTERS, THE REGULATORY, THE LEGAL MATTERS, UH, RELATED TO WINTER STORM URI, WHICH ARE DISCLOSED IN THE NOTE 12.
I MENTIONED, THE REPRESENTATION LETTERS, UH, GOING CONCERN.
UM, APART FROM THE MATTERS RELATIVE TO THE UNCERTAINTY OF LITIGATION, THERE REALLY IS, UH, NOTHING THAT MANAGEMENT IS IDENTIFIED THAT WOULD GIVE RISE TO CONDITIONS THAT THEY'VE IDENTIFIED THAT WOULD GIVE RISE TO SUBSTANTIAL DOUBT ABOUT, UH, ANY OF THE ENTITIES TO CONTINUE AS A GOING CONCERN.
WE CONCUR WITH THAT ASSESSMENT.
WE'RE NOT AWARE THAT MANAGEMENT HAS BEEN OUT OPINION SHOPPING, UH, LOOKING FOR A DIFFERENT, UH, INTERPRETATION OF ACCOUNTING OR AUDITING LITERATURE.
UH, IT'S ANOTHER AREA THAT WE'RE REQUIRED TO REPORT ON.
AND THEN LASTLY, WITH RESPECT TO AUDITOR INDEPENDENCE, UM, WE HAVE NO MATTERS TO REPORT TO YOU TODAY THAT, UH, WOULD BEAR ON OUR INDEPENDENCE AS OF THE DATE, UH, THAT WE WOULD RENDER OUR REPORTS.
SO I THINK WITH THAT, UM, THOSE ARE MY PREPARED COMMENTS WITH RESPECT TO THE THREE AUDITS AND, UH, THE SERVICER EXAMINATION ENGAGEMENT.
AND I'D BE HAPPY TO ANSWER ANY QUESTIONS AND ANY OF YOU MAY HAVE AT THIS TIME.
UH, DO WE HAVE ANY QUESTIONS FOR, UH, JEFF OR ANY OF BAKER TILLEY'S REPRESENTATIVES HERE TODAY? I GUESS WE SHOULD HAVE RICHARD WALK US THROUGH THE FINANCIAL STATEMENTS NOW.
JEFF, YOU'LL, YOU'LL BE STANDING BY FOR QUESTIONS, RIGHT? OKAY, THANKS.
[4.3 Review of Audited Financial Statements and Annual Servicer’s Certificate]
UH, THANK YOU FOR GIVING ME TIME TO WALK THROUGH THE AUDITED FINANCIAL STATEMENTS TODAY, RICHARD SHIELD CONTROLLER.UH, PURPOSE OF THIS PRESENTATION IS TO REVIEW THE FINANCIAL STATEMENTS PRIOR TO VOTING BEFORE YOU.
WE HAVE THE CONSOLIDATED FINANCIAL STATEMENTS FOR ERCOT INC.
UH, TIM FINN AND TIM'S FEM, AND ALSO WE'RE GONNA REVIEW THE ERCOT ANNUAL SERVICERS ASSESSMENT OF COMPLIANCE.
FINANCIAL STATEMENTS THEMSELVES.
MOST IMPORTANT, UH, PIECE OF THESE, UH, REPORT WAS ALREADY MENTIONED BY JEFF IN HIS REPORT.
WE HAVE THE OPINION, UH, UNMODIFIED, UH, FINANCIAL STATEMENTS ARE PRESENTED FAIRLY IN ALL MATERIAL RESPECTS.
UH, FURTHER DOWN THE PAGE, YOU'LL SEE THIS EMPHASIS OF MATTER, UH, THAT WAS DISCUSSED BY JEFF.
UH, WE HAVE A NO 12, WHICH GOES INTO THE DETAILS OF THE EMPHASIS OF MATTER RELATING TO WINTER STORM MURI, AS, AS JEFF MENTIONED, AND AS YOU'VE HEARD FROM SEAN PREVIOUSLY, UH, THIS YEAR, WE HAD A LOT OF CHANGES WITH OUR FINANCIAL STATEMENTS DURING 2022.
UM, SIGNIFICANT IMPACTS FROM THE BRAZO SETTLEMENT FROM THE SECURITIZATION OF, UH, NEBRASKA AND, UH, THE, UH, PAYDOWN OF OUR CRS.
SO YOU'LL SEE OUR CASH AND CASH EQUIVALENCE WENT UP SIGNIFICANTLY, UM, UH, DRIVEN, UH, PARTIALLY BY THE INCREASE IN CRS.
OUR SECURITIZATION CHARGES RECEIVABLE ON ITEM TWO.
UM, WE HAVE THE ADDITION OF NEBRASKA FOR THE FULL YEAR AND, UH, MAINE AS WELL.
UH, INTEREST RECEIVABLE, UH, WITH THE CHANGES AND OUR INTEREST RATES THIS YEAR, WE'VE SEEN SIGNIFICANT INCREASES IN INTEREST INCOME.
THE INTEREST RECEIVABLE REPRESENTS, UM, INTEREST BOTH FROM MARKET PARTICIPANT AND FROM ERCOT CASH.
THERE'S ABOUT 5 MILLION OF MARKET CASH IN THAT RECEIVABLE.
UM, ITEM FOUR, RESTRICTED CASH AND CASH EQUIVALENTS.
UM, THAT INCLUDES THE BRAZOS FUNDS, UM, THAT ARE BEING HELD AT YEAR END, OR WERE HELD AT YEAR END PRIOR TO THE REPAYMENT, ABOUT 382 MILLION, UM, SECURITIZATION PAYMENTS.
UM, WE HAVE SOME SECURITY DEPOSITS INCREASES, AS WELL AS CAPITAL CONTRIBUTIONS.
WE'LL GO OVER THAT LATER WHEN WE'RE WALKING THROUGH THE NOTES.
ITEM FIVE, YOU'LL SEE SHORT TERM INVESTMENTS HAVE RETURNED TO THE ERCOT, UH, BALANCE SHEET AFTER A, A BRIEF HIATUS, UH, DUE TO THE WINTER STORM URI FUNDING, UM, UH, PROPERTY AND EQUIPMENT, UH, YOU'LL SEE SMALL INCREASE THERE, OR IT'S A SIGNIFICANT INCREASE THERE.
WE HAVE HARDWARE, SOFTWARE INCREASES, UM, TECHNOLOGY INVESTMENTS THAT ACOS MAKING OVER TIME.
AND THEN, UM, ON ITEM SEVEN, YOU'LL SEE, PARDON ME, SECURITIZATION CHARGES RECEIVABLE ARE NON-CURRENT PORTION, UH, DRIVEN LARGELY
[00:25:01]
BY THE, UH, NEBRASKA CHANGE AND THE ISSUE OF THOSE DEBT SECURITIES ON THE LIABILITY SIDE.UH, FINANCE LEASE LIABILITIES ON ITEM EIGHT, THAT WAS THE MET CENTER, WHICH WE'VE SINCE PURCHASED.
SO THAT'S MOVED OUT OF, UM, THE FINANCE LEASE LIABILITIES, MARKET SETTLEMENT LIABILITIES INCREASED, UM, AS WELL AS THE LONG TERM CR LIABILITIES, AND WE'LL GO THROUGH THAT A LITTLE BIT LATER.
PRINCIPLE, UM, ON ITEM 10, UH, LARGELY NEBRASKA, YOU'LL SEE A SWITCH.
I DIDN'T NUMBER THIS LINE, BUT YOU'LL SEE AT THE DEBT PAYMENT DEBT PAYABLE CURRENT PORTION, THE FOUR 36,506, REPRESENTING THE EARLY REPAYMENT OF THE MAIN SECURITIES.
SO THAT LONG TERM LIABILITY SHIFTED TO THE SHORT TERM AS WE ANTICIPATED THAT REPAYMENT IN FEBRUARY, AS WELL AS UPCOMING DEBT PAYMENTS FOR, UH, MAINE AND NEBRASKA.
I WANTED TO CALL ONE THING OUT THAT WE MADE A CHANGE ON, ON THE ASSETS PREVIOUSLY WE DIDN'T HAVE, UH, ITEM TWO SECURITIZATION CHARGES RECEIVABLE BROKEN OUT SEPARATELY, SO THAT WAS ALL WRAPPED UP IN ACCOUNTS RECEIVABLE.
SO TO MAKE THAT MORE CLEAR FOR PRESENTATION, THAT LINE'S BEEN BROKEN OUT, AND WE'LL, WE'LL CARRY THAT GOING FORWARDS FOR FINANCIAL STATEMENT PURPOSES.
OPERATING REVENUE, UH, SECURITIZATION CHARGES FEES, UH, FOR M AND N, UH, FOR THE FULL YEAR.
UH, YOU'LL SEE THAT ON ITEM 13.
UH, THAT'S OFFSET, UH, BY ITEM 16.
UH, INTEREST EXPENSE AND DEBT ISSUANCE COST IZATION.
UM, ITEM 14, OTHER IS MAINLY DRIVEN BY INCREASED, UH, INSURANCE COSTS.
ITEM 15, UH, INVESTMENT RETURN NET.
ONCE AGAIN, WE HAVE, WE HAVE SIGNIFICANT, UM, EARNINGS FROM OUR CRS AND, UH, DEBT PORTFOLIO.
AND, UH, THE DEBT PORTFOLIOS REFLECTED HERE ON ITEM 15 OPERATING ACTIVITIES.
UM, I WANT, JUST WANTED TO JUMP IN THE INVESTING ACTIVITIES, UH, THAT PURCHASE OF INVESTMENTS.
SO WE'RE SEEING THAT ROLLING IN THAT, THAT WE HAVE BOTH PURCHASE AND PROCEEDS FROM INVESTMENTS, UH, DISPLAYED THERE ON ITEM 17 IN THE LINE RIGHT BELOW IT.
AND THEN ON FINANCING ACTIVITIES, YOU SEE NEBRASKA AND MAIN YEAR OVER YEAR.
SO MAIN REFLECTING IN THE 20 21 21 RESULTS.
NEBRASKA PROCEEDS REFLECTED IN ITEM 18 FOR 2022.
UM, AS, UH, JEFF MENTIONED, AND, AND AS I'VE ALREADY SPOKEN TO, WE HAVE NEBRASKA, UH, TIM FINN HAS BEEN INTRODUCED TO OUR CONSOLIDATED FINANCIAL STATEMENTS AND HAS HAD A SIGNIFICANT IMPACT.
SO THAT'S CALLED OUT HERE IN THE NOTES, AND YOU'LL SEE THAT THROUGHOUT THE NOTES.
AGAIN, HERE WE HAVE A LARGER INTRODUCTION TO TIM FINN ON THIS PAGE.
UH, THIS IS OUR RESTRICTED CASH AND CASH EQUIVALENCE.
SO JUST BREAKING OUT, UH, THAT ON A, UH, INDIVIDUAL ENTITY LEVEL.
SO YOU'LL SEE THE CHANGES THERE.
WE HAVE THE FUNDS HELD FOR SUB-CHAPTER M BOND, EARLY REDEMPTION THREE AND 82 MILLION.
WE HAVE THE PAYMENTS COLLECTED FROM SECURITIZATION, CHARGES RECEIVABLE ON THAT ITEM 20, AND THEN THE CAPITAL CONTRIBUTION ON ITEM 21.
AND OF COURSE, THIS LINE WENT AWAY, UH, DURING, UH, 2022 AS THOSE 50 MILLION FUNDS WERE USED.
UH, SECURITIZATION CHARGES FEES.
WE HAVE INCLUDED A NEW PARAGRAPH HERE, UM, ON ITEM SEVEN, UH, DOWN THERE AT THE BOTTOM, UH, FOR TIM'S.
JUST SCROLL AHEAD A LITTLE BIT.
UH, MARKET SETTLEMENT LIABILITIES HERE IS DRAWING THE PICTURE FOR YOU OF WHAT HAPPENED WITH, UH, CR FUNDS THROUGHOUT THE YEAR.
SO WE HAVE OUR SHORT-TERM CR FUNDS, WHICH SEAN HAS DISCUSSED WITH Y'ALL PREVIOUSLY, HAS GONE UP.
UH, WE'VE REPAID THE CRS USED FOR MARKET, UH, LIQUIDITY, THE 274 MILLION, AND THEN WE HAVE LONG TERM CR AUCTION FUNDS HAVE INCREASED AS WELL.
SO ACROSS THE BOARD, UM, C R FUNDS HAVE INCREASED.
[00:30:10]
UM, ITEM SEVEN, DEBT PAYABLE.OF COURSE, WE HAVE THE REVOLVING LINE OF CREDIT, OUR SENIOR NOTES, UH, MAIN, WHICH WAS INCLUDED PREVIOUSLY.
AND NOW WE HAVE THE SECTION, UH, FOR THE END BONDS, AND WE HAVE THE DETAIL HERE.
ADDITIONAL, UH, INFORMATION ON THE TRANCHES ON THE FOLLOWING PAGE.
UM, EXPENSES BY NATURE AND FUNCTION, SORRY, I SKIPPED AHEAD.
I THINK, UH, YOU'LL SEE THIS, UH, AGAIN AS WE GOING THROUGH THE NINE 90 PROCESS, UH, CHANGES TO THE LEASES, LARGELY RESULT OF PURCHASING THE MED CENTER.
UH, ITEM 12 ON NOTE 12 RATHER, UH, WHICH JEFF MENTIONED SEVERAL TIMES.
THIS IS, UH, GONNA DISCUSS OUR WINTER STORM URI AS A PRIMARY IN OUR RESULTING LITIGATION ITEM.
SUBSEQUENT EVENTS, UH, WHERE WE DISCUSS THE, UH, BRA SETTLEMENT AND THE EARLY PAYDOWN OF THE M BONDS AMORTIZATION OF THAT PIECE, WE HAVE CONSOLIDATED, UH, CONSOLIDATING RATHER STATEMENTS OF POSITION.
ONCE AGAIN, UH, AS JEFF DISCUSSED EARLIER, UH, WE HAVE A UNMODIFIED OPINION.
UH, THIS IS, UH, JUST A REINFORCEMENT OF WHAT WE SAW EARLIER.
SO AT THE ERCOT LEVEL, WE SAW THESE, THESE CHANGES.
WE HAVE THE RECEIVABLE FROM ERCOT FOR THE BRAZOS FUNDS, WHICH WERE HELD ON THE ERCOT BOOKS.
UH, SO AT THE CONSOLIDATED LEVEL, THIS, YOU DIDN'T SEE THIS ENTRY, BUT IT EXISTED.
WE HAVE SECURITIZATION, CHARGES RECEIVABLE, NON-CURRENT THAT WERE BROUGHT FORWARD FROM LONG-TERM TO SHORT-TERM.
AND OUR DEBT PAYABLE LESS CURRENT PORTION, YOU'LL SEE THE DROP, UH, MIRRORED THERE.
OKAY, UH, TIM SPEND STATEMENTS, ONCE AGAIN, CLEAN OPINION UNMODIFIED, UH, WE HAVE OUR RESTRICTED CASH AND CASH EQUIVALENT, AND THEN WE HAVE THE ACCRUED LIABILITIES FOR THE FIRST, THIS IS OUR FIRST YEAR STATEMENTS.
SO OUR RESTRICTED CASH IS SECURITY DEPOSITS, UH, LARGELY ABOUT 66.7 MILLION SECURITY CHARGES COLLECTED SO FAR.
CAPITAL CONTRIBUTION FROM ERCOT FOR 10 MILLION.
UM, THE DEBT INTEREST IS THE 55, UM, SIX ON LINE 31 WITH THE BALANCE BEING OTHER ACCRUED LIABILITIES, NEBRASKA, VERY SIMILAR TO MAIN.
AND FINALLY, WE HAVE THE, UH, SERVICING AGREEMENT, UH, OPINION.
SO MANAGEMENT ASSERTION, THEY COMPLIED IN ALL OUR MATERIAL RESPECTS WITH THE APPLICABLE SERVICING CRITERIA THAT JEFF MENTIONED EARLIER.
THE, UH, NOTES TO THE SELF-ASSESSMENT.
SO THIS IS THE ANNUAL SERVICES CERTIFICATE.
IT INCLUDES THE STEPS IN THE NOTES COLUMN THAT WE UTILIZED FOR OUR SELF-ASSESSMENT.
[00:35:08]
OKAY.THAT TEXT ME TO THE END OF MY PRESENTATION.
ANY QUESTIONS FOR RICHARD ON THE FINANCIAL STATEMENTS OR FOR, UH, JEFF WITH BAKER TILLEY? PEGGY? YES.
UH, I DON'T KNOW IF THIS IS RICHARD OR JEFF, BUT JEFF'S PRESENTATION ON PAGE 29 OF THE DECK REFERENCES A GOING CONCERN, UH, EVALUATION.
WHERE IS THAT? WHERE IS THE GOING CONCERN EVALUATION ITSELF? YEAH, YEAH.
UH, THANK YOU FOR YOUR QUESTION.
UM, SO THE EVALUATION OF GOING CONCERN KIND OF RESIDES, IF YOU WILL, BEHIND THE FINANCIAL STATEMENTS AND FOOTNOTES, BECAUSE THERE WERE NO MATTERS THAT ROSE TO A LEVEL OF CREATING CAUSE FOR GOING CONCERNS, SUCH AS YOU WOULD HAVE TO ADD ANY DISCLOSURE TO EITHER THE NOTES, TO THE FINANCIAL STATEMENTS OR FOR THAT MATTER, FOR OUR, OUR PURPOSES TO THE OPINION.
IF WE FELT THAT THERE WAS SUBSTANTIAL DOUBT ABOUT THE ABILITY OF ERCOT OR THE TWO STANDALONE SECURITIZATION ENTITIES TO CONTINUE AS A GOING CONCERN, WE WOULD ACTUALLY ADD AN ADDITIONAL PARAGRAPH TO OUR REPORT THAT WOULD EXPRESS, UH, THOSE CONCERNS.
SO, SO TO YOUR QUESTIONING ABOUT WHERE, WHERE'S THE EVALUATION? IT, IT, I GUESS IT EFFECTIVELY RESIDES BEHIND, UH, THE STATEMENTS THEMSELVES.
MANAGEMENT PREPARED AN EVALUATION, WHICH THEY SHARED WITH US.
WE READ THAT, UH, CONCURRED WITH MANAGEMENT'S ASSESSMENT AS IT RELATES TO THEIR CONCLUSION THAT THERE WERE NO CONDITIONS THAT GAVE RISE TO SUBSTANTIAL DOUBT.
AND SO THAT'S HOW IT'S REFLECTED.
DOES THAT ANSWER YOUR QUESTION? YES.
A LITTLE CONFUSED BY THE WORDING ON YOUR SLIDE.
IT SAYS, APART FROM, UH, THE WINTER STORM U ISSUES, I'M SORRY, MISSED THE LAST, YEAH, YOUR, IS THIS A LITTLE CONS? THAT MAY ALL MADE SENSE TO ME, BUT AS A LITTLE CON CONFUSED BY THE WORDING ON YOUR SLED 14 ABOUT, UH, NO ISSUES APART FROM THE, THE WOMENS ORDINARY, I THINK IT'S FAIR TO SAY THERE, THERE STILL IS THIS UNCERTAINTY THAT EXISTS RELATIVE TO THE PENDING LEGAL AND REGULATORY MATTERS, UH, WHICH I THINK IT SOUNDS LIKE, UH, WE'RE HOPEFUL THAT WE'LL HEAR, YOU KNOW, SOME, SOME DEVELOPMENTS ON THAT IN, IN JUNE.
SO THAT CERTAINLY IS, IS AN ITEM, UH, THAT I THINK HAS A ABILITY TO, UH, BEAR ON QUESTIONS AROUND GOING CONCERN.
AND SO WE'VE HANDLED IT A LITTLE BIT DIFFERENTLY, PARTLY BECAUSE THE EVIDENCE THAT WE OBTAINED, WHICH WAS LETTERS OF INQUIRY FROM EXTERNAL LEGAL COUNSEL, AS WELL AS INTERNAL LEGAL COUNSEL, UH, EXPRESSED, UH, OPINIONS THAT EITHER, UH, THOSE MATTERS WERE REMOTE, UH, OF CAUSING, UH, CONDITIONS TO EXIST THAT WOULD RAISE SUBSTANTIAL DOUBT ABOUT GOING CONCERN, OR THEY INDICATED THAT AT THIS TIME THERE ISN'T ENOUGH INFORMATION WITH WHICH TO, YOU KNOW, PROVIDE SOME SORT OF ADDITIONAL, UH, ACCRUAL IN THE FINANCIAL STATEMENTS.
UM, AND THEREFORE THE, THE RESULT OF THAT IS DISCLOSURE, THE DISCLOSURE THAT YOU SEE IN NOTE 12.
AND JUST TO ADD ONTO THAT FOR YOU, PEGGY, IF WE GO BACK TO 2021 AND AFTER THE STORM, THEN WE SPENT SEVERAL MONTHS WITH THE AUDITORS GOING THROUGH ALL THE GOING CONCERN POSSIBILITIES AND HAVING CONVERSATIONS WITH THEM ABOUT THAT.
SO IT WAS AN EXTENSIVE ANALYSIS BACK THEN, AND SOME OF THAT STILL CARRIES FORWARD THROUGH TO THESE STATEMENTS, BUT IT WAS MONTHS OF WORK TO DETERMINE WHAT EVERYTHING LOOKED LIKE AND WAITING FOR LEGISLATURE TO COME THROUGH AND WHAT THE FUTURE OF THE ORGANIZATION LOOKED LIKE.
SO WE WERE STILL SEEING SOME OF THAT IN THERE.
PEGGY, ANY OTHER QUESTIONS? YES, KATHLEEN.
SO I GUESS THIS IS MORE FOR THE AUDITING FIRM.
I WAS JUST WONDERING, BASED ON YOUR, UM, BACKGROUND AND EXPERIENCE, IF YOU NOTICED ANY OPPORTUNITIES FOR CONTINUOUS IMPROVEMENT? UM, IT'S ALWAYS A GREAT QUESTION.
UM, YOU KNOW, INTERESTINGLY, I, I HAD THE OPPORTUNITY TO SPEND, UH, SOME TIME WITH, UH, ANOTHER CLIENT, UH, OF MINE, MIDWEST RELIABILITY ORGANIZATION THE OTHER DAY.
AND THEY, THEY HAD A GUEST SPEAKER, UH, FROM THE FBI.
AND, UH, IT WAS A LITTLE EYE-OPENING
[00:40:01]
SOME OF THE COMMENTS WERE THAT, UM, CERTAINLY IN THE AREA OF CYBER, UH, SECURITY AND THINGS OF THAT NATURE, UM, IT'S ONLY GETTING WORSE, UH, DAY BY DAY IN TERMS OF WHAT THE FBI IS SHARING THAT THEY'RE SEEING, UH, WITH RESPECT TO VULNERABILITIES.AND, AND IT'S, IT'S EVOLVED, UH, IN A WAY THAT, UM, YOU KNOW, USED TO BE SPEARFISHING KINDS OF CAMPAIGNS AND THINGS OF THAT NATURE.
AND RIGHT NOW THEY'RE, UH, THEY'RE SEEING MORE AND MORE, UH, INSTANCES INVOLVING INSIDE ACTORS, UH, AND, UH, AREAS OF, UH, OF VULNERABILITY AS IT RELATES TO, UM, THOSE KINDS OF SITUATIONS ARE ACTUALLY TAKING VALID LOGIN CREDENTIALS OR FINDING WAYS TO EXPLOIT AND OBTAIN VALID LOGIN CRED CREDENTIALS TO, YOU KNOW, GAIN ACCESS TO SYSTEMS. AND, YOU KNOW, THIS IS FARFIELD FROM WHAT A FINANCIAL STATEMENT AUDIT, YOU KNOW, IS INTENDED TO COVER.
UM, BUT I JUST THINK, UH, RIGHT NOW, UM, YOU KNOW, THE, IT, IT CALLS FOR CONTINUED VI VIGILANCE WHEN IT COMES TO SECURING, UH, THE ORGANIZATION'S INFRASTRUCTURE ASSETS AS IT RELATES TO INFORMATION TECHNOLOGY.
AND I THINK ALSO, YOU KNOW, WORKING WITH EMPLOYEES, UH, TO, TO CONTINUE TO RAISE THE LEVEL OF EDUCATION AND AWARENESS.
UM, I KNOW IN OUR ORG OWN ORGANIZATION IN THIS NEW WORLD, UH, WE'RE STILL IN KIND OF A HYBRID KIND OF A MODE WHERE WE HAVE PEOPLE THAT ARE COMING TO THE OFFICE, CERTAIN DAYS WORKING REMOTELY, OTHERS, AND I THINK THIS GENTLEMAN FROM THE FBI, YOU KNOW, MENTIONED TOO, THAT IN PARTICULAR, IN THIS KIND OF DIS DISTRIBUTED ENVIRONMENT WITH WHICH WORK IS GETTING DONE TODAY, IT PRESENTS NEW CHALLENGES AND VULNERABILITIES.
IT PROBABLY WEREN'T PRESENT, UH, PRE C O V D.
AND SO, UM, I GUESS, YOU KNOW, MAYBE IT ISN'T SO MUCH OF AN OPERATIONAL EFFICIENCY, UH, KIND OF A RESPONSE TO YOUR QUESTION.
BUT, UH, IT SEEMS TO BE, UH, ONE OF THE TOPICS THAT SEEMS TO BE, UM, OF GREATEST INTEREST.
UH, CERTAINLY THOSE CHARGED WITH GOVERNANCE, UH, IN ORGANIZATIONS.
AND I KNOW YOU DO A LOT HERE WITH RESPECT TO, UH, INFORMATION TECHNOLOGY, CYBERSECURITY, AND I, I, I GET COPIES OF AUDIT REPORTS THAT INTERNAL AUDIT IS DOING RELATIVE TO WORK IN THOSE, UH, AREAS.
BUT, UM, IT JUST FEELS LIKE THAT'S ONE AREA WHERE RIGHT NOW, UM, YOU KNOW, GIVEN THE PREVALENCE OF BAD ACTORS
AND MAYBE EVEN, YOU KNOW, TRYING TO BRAINSTORM AND THINK ABOUT NEW WAYS, UH, WITH WHICH, UM, YOU KNOW, IN THIS NEW WORK WORLD, UH, THE ORGANIZATION MAY HAVE VULNERABILITIES THAT WEREN'T PRESENT, SAY, YOU KNOW, SEVERAL YEARS AGO.
AND SO, SO I KNOW THAT'S MAYBE NOT A, A RESPONSE SO MUCH ABOUT ARE THERE AREAS WHERE YOU COULD BE MORE EFFICIENT? BUT THAT IS AN AREA THAT I THINK IS TOP, TOP OF THE LIST, TOP OF MIND FOR ORGANIZATIONS THAT, UH, WE'RE SPEAKING WITH TODAY.
SO I'M THINKING DIRECTLY, UM, IMPACTS, UM, THE ABILITY TO MANAGE RISK.
I JUST WHAT THE ABILITY TO MANAGE RISK, WHICH IS WHAT YES, AN AUDIT'S ON ABOUT.
ANY OTHER QUESTIONS FOR BAKER TILLEY OR FOR RICHARD? OKAY, THANK YOU GENTLEMEN.
[Items 4.4 - 4.6]
THIS POINT IN TIME, I RECOMMEND THAT, THAT WE COMBINE THE, UM, RECOMMENDATION THAT THE BOARD ACCEPT THE FINANCIAL STATEMENTS INTO ONE VOTE.SO THE, UH, THE MOTION WOULD BE TO APPROVE OR TO EX, UH, RECOMMEND THE BOARD ACCEPT THE FINANCIAL STATEMENTS FOR ERCOT INC.
UH, CONSOLIDATED, CONSOLIDATED INC, UH, FOR SPECIAL PURPOSE ENTITY M AND SPECIAL PURPOSE ENTITY.
UH, IS THERE SOMEONE WHO WOULD LIKE TO MAKE THAT MOTION? OKAY, CARLOS, THANK YOU.
UH, ANY DISCUSSION? ALL IN FAVOR? AYE.
ANY OPPOSED? ANY ABSTENTIONS? OKAY.
THE FINANCIAL STATE WILL RECOMMEND THE BOARD ACCEPT THE FINANCIAL STATEMENTS.
[5.1 Review 2023 Financial Summary ]
WE'RE GOING TO, UH, MOVE TO AGENDA ITEM 5.1, UH, COMMITTEE BRIEFS, UH, WHICH IS A REVIEW OF THE FINANCIAL SUMMARY FOR, UH, THUS FAR, FOR 2023, AND SEAN IS GOING TO MAKE THIS PRESENTATION.THIS IS ONE OF THOSE CHRISTMAS AND APRIL EXPERIENCES FOR THE FINANCE COMMITTEE BECAUSE WE GET TO SEE ALL THE DETAIL FROM THE LAST TWO YEARS THROUGH THE AUDIT.
I HAVE TO ASK YOU TO SPEAK UP
ALL RIGHT, I'LL START OVER AGAIN THEN.
SO THIS IS ONE OF THOSE CHRISTMAS AND APRIL EXPERIENCES FOR THE FINANCE COMMITTEE.
[00:45:01]
ACTUAL RESULTS FOR THE LAST COUPLE YEARS THROUGH THE AUDIT.WE GET TO SEE THE FORECAST FOR A 2023 IN THIS PRESENTATION.
AND THEN WE HAVE THE 24 25 BUDGET REQUEST, INCLUDING THE OUT YEAR PROJECTIONS LATER ON.
SO YOU GET THE FULL SPECTRUM OF ERCOT FINANCES.
SO START WITH FROM OUR 2023 FINANCIAL SUMMARY FORECAST.
THIS IS VERY SIMILAR TO WHAT YOU'VE BEEN SEEING FOR THE PAST SEVERAL MONTHS AS WE LOOKED AT 22, BECAUSE WE HAVE THAT 22 AND 23 BIENNIAL BUDGET PROCESS, WHICH WE'LL ALSO SEE FOR 24, 25 COMING UP.
THE VARIANCES, ASSUMING THAT OPERATIONAL CONDITIONS ARE CONSISTENT, THE VARIANCES WOULD THEN BE CONSISTENT THIS YEAR AS WELL FOR THE ENTIRE YEAR.
SO THAT'S WHAT WE'RE SEEING ON THIS FIRST PAGE.
OVERALL, FOR THE END OF YEAR FORECAST, WE'RE LOOKING AT A 32 MILLION FAVORABLE VARIANCE TO BUDGET THAT'S DRIVEN BY WHAT WE'VE SEEN FOR SEVERAL MONTHS NOW.
AND WITH THE INCREASED INTEREST RATES FROM INTEREST INCOME ON THE LEFT HAND SIDE, YOU SEE THAT OUR INTEREST INCOME IS CURRENTLY SCHEDULED TO BE FORECAST TO BE 72 MILLION FAVORABLE TO WHAT WE BUDGETED BECAUSE WE BUDGETED ZERO BECAUSE WHEN WE WENT TO LAST BUDGET CYCLE, THAT INTEREST RATE WAS AT ZERO.
ADDITIONALLY, ON THE REVENUE SIDE, WE HAVE THE TWO LARGE VARIANCES THAT WE HAVE CONSISTENTLY SEEN.
WE HAVE THE INSPECTION FEE REVENUE SHORTFALL, BECAUSE WHEN WE DID THE BUDGET, WE DIDN'T HAVE A GOOD IDEA OF HOW THAT WAS GOING TO WORK OUT.
AND SO THIS IS CONSISTENT WITH WHAT WE'VE SEEN ALL THROUGH 2022.
AND THAT'S OFFSET ON THE COST SIDE AS WELL.
SO THOSE TWO NUMBERS OFFSET AND THAT'S OUT TO ALMOST ZERO.
ADDITIONALLY, WHEN WE WENT THROUGH THE LAST BUDGET CYCLE, WE DIDN'T HAVE THIS SERVICING REVENUES AND ADMINISTRATION REVENUES FROM THE SPECIAL PURPOSE ENTITIES FROM SECURITIZATION.
SO WE'LL SEE THAT 1.7 MILLION VARIANCE FOR THIS ENTIRE YEAR.
ON THE EXPENDITURE SIDE, WE HAVE TWO LARGE OVERAGES THAT WE'VE BEEN DISCUSSING FOR SEVERAL MONTHS NOW, THE, THAT CARRY OVER INTO THIS YEAR AND ACTUALLY GET BIGGER IN THIS YEAR.
THE FIRST I WANNA HIGHLIGHT IS THE RESOURCE MANAGEMENT, AND THAT IS A RESULT OF A LOT OF THE STAFFING CHANGES THAT WE'VE MADE AT ERCOT 2023.
AS YOU'LL SEE IN THE BUDGET PRESENTATION IS ALMOST A BRIDGE BETWEEN THE 23 FORECAST.
EXCUSE ME, THE 23 FORECAST IS A BRIDGE BETWEEN THE 22 BUDGET AND THE 24 BUDGET.
AND WE'LL SEE THAT IN GREAT DETAIL LATER.
BUT THIS IS IMPLEMENTING THE ADDITIONAL HEADCOUNT THAT WE BROUGHT ON BOARD AS WELL AS THE NEW RETENTION PROGRAMS THAT WE'VE BEEN DISCUSSING.
AND FINALLY, WE HAVE THE 9 MILLION VARIANCE IN PROJECT SPEND FOR THE YEAR, AND THAT IS DUE TO TIMING DIFFERENCES ASSOCIATED WITH THE DATA CENTER REFRESH AND OTHER PROJECTS AS WE MOVE FORWARD WITH THOSE.
BUT WE'LL SEE ALL OF THESE CONS.
WE SHOULD SEE THESE VARIANCES THAT WE'RE SEEING HERE CONSISTENT THROUGH MOST OF THIS YEAR.
LOOK AT ALL THESE PRESENTATIONS GOING FORWARD.
SEAN? YES, THE, ON THE EXPENDITURE ONE, THE 31.8 MILLION SAYS THE 30.3 M STAFFING MANAGEMENT, WHAT I'M, IS THAT 30 MILLION THAT RIGHT? CAN YOU EXPLAIN THAT ALL THE WAY AGAIN? SURE.
SO THAT $30 MILLION, 26 MILLION OF THAT IS ACTUALLY STAFF COSTS.
AND THAT STAFF COST IS BROKEN OUT IN BETWEEN MULTIPLE COMPONENTS.
WE HAVE, UH, HEADCOUNT, WHICH IS MUCH HIGHER THAN WHAT WE BUDGETED AS WE WENT FORWARD.
IF YOU LOOKED AT THE RATES THAT WERE PROJECTING FOR THIS YEAR, WE HAVE ADDITIONAL HEADS.
YOU'LL SEE THE DETAILS OF THOSE HEAD COUNTS WHEN WE LOOK AT THAT BUDGET PRESENTATION AS WELL.
SO THAT ACCOUNTS FOR A FEW MILLION DOLLARS OF IT.
WE HAVE BASE PAY INCREASES THAT WERE HIGHER, SO TO KEEPING UP WITH INFLATION IN THE, THE MARKETS, INSTEAD OF THE 4% THAT WE HAD BUDGETED, WE IMPLEMENTED HIGHER INCREASES.
SO WE'RE SEEING THAT, AND THAT'S APPROXIMATELY SEVEN OR $8 MILLION.
WE'VE ALSO IMPLEMENTED THE NEW RETENTION PROGRAMS AND INCENTIVE PROGRAMS, AND SO THOSE THAT THE BOARD APPROVED LAST YEAR, AND THOSE ARE INCLUDED IN HERE, WHEREAS WE DIDN'T HAVE THOSE IN THE BUDGET AS WELL.
YOU'LL SEE THAT WHEN WE LOOK AT THE FINANCIAL STATEMENTS TOO, WHERE WE'VE STARTED ACCRUING THOSE EXPENSES.
AND THEN WE ALSO HAD SOME PAYOUTS OF THOSE IN JANUARY.
SO NOW I'LL EXPLAIN THE VARIANCES ON THE INCOME STATEMENT THERE, AND THOSE ARE THE PRIMARY DRIVERS FOR THAT.
IN ADDITION TO THAT, WE HAVE THE, EXCUSE ME, WE HAVE THE COMPOUNDING IMPACTS OF THAT ASSOCIATED WITH THE, THE BENEFITS WITH THE DIGITAL HEADCOUNT.
AND THEN WE ALSO HAVE, UH, CONDI THE VACATION, LA VACATION LIABILITY.
SO WE ACCRUE VACATION LIABILITIES, SO THE HIGHER OUR HEADCOUNT GETS, THE HIGHER OUR SALARIES GET ONCE WE PAY OUT ON UP TO 160 HOURS, YOU'RE GONNA NEED, I DIDN'T, I HAVE ONE FOR THE NEXT PRESENTATION.
I DIDN'T REALIZE I WAS GONNA HIT ME IN THIS PRESENTATION.
SO WE HAVE THOSE IN THERE AS WELL.
[00:50:01]
HIT WHEN WE START ACCRUING VACATION TILL PEOPLE TAKE THAT LATER IN THE YEAR AND WE'RE AROUND THE HOLIDAYS.ADDITIONALLY, THERE'S MORE CONTINGENT LABOR IN HERE ABOUT, OF THAT $30 MILLION, ABOUT 4 MILLION OF IT IS CONTINGENT LABOR THAT WERE BROUGHT ON BOARD THIS YEAR.
WE'LL SEE SOME OF THAT TRANSITION TO, UH, EMPLOYEES AS WE LOOK AT THAT 24 25 BUDGET AS WELL.
BUT THIS WAS NOT BUDGET FOUR AND 23.
WHEN WE GO THROUGH THE 24 25 BUDGET, WE'LL GET INTO MORE DETAIL ABOUT HOW THAT WAS BUILT UP AND SOME OF THE POTENTIAL GAPS THAT ARE LEADING TO THESE VARIANCES THAT YOU'RE SEEING HERE.
SEAN, IF YOU DON'T MIND, CAN YOU RECAP THOSE THREE ELEMENTS AGAIN IN TERMS OF THE ADDITIONAL, UH, EMPLOYEE COST? I THINK YOU HAD INCREASED HEADCOUNT, YOU HAD, UM, HIGHER THAN EXPECTED, UM, UM, SALARIES TO KEEP UP WITH INFLATION AND ALSO WITH COMPETITION HERE IN AUSTIN.
AND THEN THE THIRD THING WAS THE, UH, RETENTION PLANS.
CAN YOU CORRECT, GIVE US KIND OF THE HIGH LEVEL, UH, NUMBERS FOR EACH OF THOSE COMPONENTS? AGAIN, UH, FROM A HEADCOUNT PERSPECTIVE, WE'RE LOOKING IN THE NEIGHBORHOOD OF ABOUT $5 MILLION.
THEN FROM A BASE PAY PERSPECTIVE, IT'S EIGHT TO $10 MILLION DEPENDING ON THE INCENTIVE IS 11 $12 MILLION.
THAT'S INCLUDED IN THESE NUMBERS.
AND THEN THERE'S THE ADDITIONS ON TOP OF THOSE FOR THE, THE BENEFITS OBVIOUSLY THE MEDICAL WILL HAVE ADDITIONAL EMPLOYEES WILL LEAD TO ADDITIONAL MEDICAL COSTS.
AND AGAIN, THE, THE ONE OF THE DRIVERS, OF COURSE IS THE HEADCOUNT.
THE HEADCOUNT IS DRIVEN BY THE ADDITIONAL REQUIREMENTS THAT WERE PUT ON ERCOT INC IN TERMS OF, UH, MARKET REDESIGN AND IMPLEMENTATION AND ADDITIONAL, UH, REQUIREMENTS FROM THE LEGISLATURE AND ALSO FROM PUC.
AND WE HAVE THAT DETAIL WE'LL GO INTO IN OUR BUDGET PRESENTATION AS WELL ASSOCIATED WITH THE TECHNOLOGY REQUIREMENTS, THE, THE RELIABILITY REQUIREMENTS AND MARKET DESIGN REQUIREMENTS, ALL OF THOSE, WE, I DIDN'T WANT TO DUPLICATE IT IN BOTH PRESENTATIONS, BUT THE QUESTION LEADS TO MUCH OF THAT PRESENTATION.
AND SEAN, THE INCENTIVE PAY THAT 11 MILLION, WAS THAT NOT PART OF THE BUDGET EARLIER IN THE YEAR? CAUSE THAT'S, IS THAT SOMETHING THAT WAS NEW DURING THE COURSE OF THE YEAR THAT'S, YOU MAY REMEMBER Y'ALL APPROVED THAT LAST YEAR.
THE 23 BUDGET WAS SET IN 2021.
SO IT JUST WAS AN UNBUDGETED ITEM.
THAT'S WHAT THE, AND THAT'S WHY THESE VARIANCES, THAT'S WHY I MEANT WHEN I SAID THAT THESE VARIANCES ARE VERY CONSISTENT WITH WHAT YOU WOULD SEE RELATIVE TO ANY CHANGES THAT HAVE BEEN MADE IN THE LAST TWO YEARS.
IT GETS TO BE WITH THE BIENNIAL BUDGET PROCESS WHEN YOU'RE MAKING CHANGES, THEY SHOW UP PRETTY BLATANTLY ON THIS SLIDE.
ANY OTHER QUESTIONS FOR SEAN ON THIS PAGE? UH, OKAY, PAUL, SO THERE'S A $72 MILLION INCREASE IN, IN, UH, INTEREST IN INTEREST REVENUE, UH, CHANGE VERSUS WHAT WAS BUDGETED.
WE DID NOT, RIGHT? WHEN WE DID THAT LAST BUDGET, IT WAS AT BUDGETED AS ZERO BASICALLY, AND WE'RE EXPECTING 72 MILLION THIS YEAR.
THAT IS, AND WE'LL TALK ABOUT THIS TOO.
AND WE HAD OVER 20 MILLION LAST YEAR BECAUSE OF THE INCREASE IN RATES.
AND THEN WE ALSO HAD THOSE, ALL THOSE CONGESTION REVENUE RIGHTS REPLENISHED LAST YEAR AS WELL.
SO THOSE INCREASING BALANCES AND INTEREST RATES LEAD TO THIS HIGHER INTEREST INCOME.
AND WHEN WE GO THROUGH THE BUDGET, YOU'LL SEE THAT THAT WAS ONE OF THE THINGS THAT EVEN ALLOWED US TO MAINTAIN BEYOND BE EVEN BEFORE 22 AND 23.
IF WE GO ALL THE WAY BACK TO 18 AND 19, WE HAD SOME UNBUDGETED INTEREST INCOME THERE THAT ALSO ALLOWED US TO PROLONG THE DURATION BEFORE WE DO A FEE INCREASE BECAUSE NORMAL COURSE OF BUSINESS LOAD IS OUTPACED BY INFLATION.
SO WE WILL ALWAYS NEED FEE INCREASES JUST TO KEEP UP WITH INFLATION.
THE INTEREST INCOME THAT WE'VE RECEIVED HAS ALLOWED US TO DEFER THAT LONGER THAN ORIGINALLY ANTICIPATED.
IF YOU GO BACK TO WHEN WE FILED THAT 2016 BUDGET, WE LOOKED AT A FOUR YEAR CYCLE OF WHERE WE'D BE ABLE TO HOLD THE FEE FLAT THROUGH REMOVING A LOT OF REQUESTS FROM THE BUDGET REQUESTS AND THE INTEREST INCOME.
WE ARE ABLE TO MAINTAIN THAT FOR EIGHT YEARS INSTEAD OF THOSE FOUR YEARS.
AND WE'RE NOT ABLE TO ANTICIPATE.
IT JUST SEEMS TO GO FROM ZERO TO 72.
SORRY, RATES 21 WE'RE YEAH, THE BUDGET RATES IN 21 WE'RE ESSENTIALLY ZERO.
THAT'S WHEN THIS BUDGET WAS SET.
THAT'S THE PROBLEM WITH TWO YEAR BUDGETING.
MAYBE WE SHOULD THINK ABOUT 'EM MORE LIKE AN ANNUAL BUDGET PROCESS.
AND IF YOU GO BACK AND SO WHAT WE DO IS WE, WE LOOK AT WHAT JOHN HAS MENTIONED MULTIPLE TIMES BEFORE AND THE
[00:55:01]
MEETINGS IS WHILE YOU'RE LOOKING AT THE FORWARD CURVE.SO WE LOOK AT THE INTEREST RATES THAT WE'RE RECEIVING, WE LOOK AT WHAT THEY'RE PROJECTED, AND IF YOU LOOK AT, I DON'T HAVE THE DETAIL, AND THEN ONE OF THESE PRESENTATIONS OF LOOKING BACK AT THE SHORT TERM INTEREST RATES FOR THE PAST SEVERAL YEARS, BUT WHEN WE GO THROUGH THE BUDGET CYCLE, WE HAD BOTH THINGS HAPPEN IN ONE YEAR.
WE BUDGETED AT 2% INTEREST RATE AND WE HAD LOWER CR R BALANCES THEN.
SO IT WAS 20 SOME MILLION DOLLARS OF BUDGETED INTEREST INCOME.
IT CAME IN AT ZERO BECAUSE THE INTEREST RATES DROPPED.
SIMILAR TO THIS LAST TIME, INTEREST RATES ARE HIGHER THAN THEY'VE BEEN IN A LONG, LONG TIME.
AND IF YOU LOOK AT THE CHARTS WHERE THEY'RE PROJECTING THOSE, SOME OF 'EM REFER TO 'EM AS HAIR CHARTS BECAUSE YOU CAN SEE THE PROJECTIONS AND THEN YOU SEE THE ACTUALS AND THE ACTUALS AND PROJECTIONS OF THOSE FORECASTS ARE SO FAR OFF.
AT THAT TIME, WHEN YOU LOOK AT THOSE PROJECTIONS, NOBODY WOULD'VE SEEN RATES LIKE THIS IN ANY OF THEM TOO.
WELL, IT WOULD'VE BEEN A HUGE OUTLIER IF SOMEBODY WOULD'VE GUESSED THIS.
BUT WE DIDN'T HAVE ANY UNBUDGETED INTEREST EXPENSE OR I DON'T SEE ANY ON THE NO, WE HAVE OUR DEBT IS, SO WE HAVE 3% FIXED NOTES FROM ERCOT PERSPECTIVE SO THAT WE KNOW WHAT THOSE ARE GOING FORWARD.
WE HAVEN'T HAD TO USE THE REVOLVER BECAUSE WE USE THE CONGESTION REVENUE RIGHTS FUNDS AVAILABLE FOR THEIR TO THAT AT ZERO INTEREST PERCENT RATE INSTEAD.
YEAH, THAT MAKES SENSE TO MANAGE THAT.
SO SHAUNA, RELATED QUESTION TO THE INTEREST INCOME, THE INTEREST IS BEING GENERATED BY WHAT, WHAT SOURCE? JUST CR AND WHAT ELSE? THAT'S, THAT'S BASICALLY IT.
WE WILL HAVE SOME OPERATIONAL CASH WHEN WE LOOK AT THE CONGESTION REVENUE RIGHTS, AND I CAN JUST MOVE FORWARD TO THOSE SLIDES RIGHT NOW.
SO WHEN YOU LOOK AT THIS SLIDE, THEN YOU CAN SEE THE INTEREST THAT WE GENERATE IS BASED OFF THE CONGESTION REVENUE RIGHTS FUNDS THAT WE'RE HOLDING.
THIS IS AS A REMINDER, THIS IS THE FOUR YEARS MONTHLY HISTORICAL VIEW OF OUR CONGESTION REVENUE RIGHTS WE'RE HOLDING.
THE RED IS THE MONEY'S USED TO TEMPORARILY PROVIDE LIQUIDITY TO THE MARKET.
SO THAT'S WHAT THIS BALANCE IS DROPPED.
BUT OUR INTEREST THAT WE'RE TALKING ABOUT GENERATING IS BASED OFF OF THESE FUNDS.
AND THEN OUR OPERATING CASH THAT WE HOLD, OPERATING CASH THAT WE HOLD IS NOT VERY HIGH, IF AT ALL FOR THE PAST SEVERAL MONTHS.
WHEN YOU SEE THE YELLOW APPEAR ON HERE, ANYWHERE WHERE THAT YELLOW APPEARS MEANS THAT WE HAVE NEGATIVE OPERATING CASH BECAUSE WE'RE USING THOSE CONGESTION REVENUE RIGHTS.
SO IT'S THE AMOUNT OF CRS THAT WE, LIABILITIES THAT WE HAVE, LESS THE AMOUNT OF CRS THAT WE'RE USING, OR PLUS THE AMOUNT OF OPERATING CASH THAT WE HAVE.
THIS SHOWS AT THE END OF FEBRUARY WHERE YOU HAD 31 MILLION OF CR R USAGE FOR OPERATING PURPOSES AT THE END OF MARCH.
IF WE GO BACK TO FEBRUARY OF LAST YEAR, WE HAD ABOUT 10 OR 11 MILLION OF CASH.
SO IT'S REALLY THE CR MONIES THAT WE'RE TALKING ABOUT THAT WE'RE HOLDING THAT ARE EARNING THAT INTEREST RATE.
AND THIS IS THE 2 BILLION YOU'LL SEE IN THE BUDGET FORECAST OF ASSUMING WE HAVE THAT 2 BILLION.
AND THAT 2 BILLION IS WHAT'S LEADING TO THE 72 MILLION FORECAST FOR THIS YEAR.
AND ACTUALLY WHEN WE GET INTO THE CONVERSATIONS ABOUT THE 24 25 BUDGET, YOU'LL SEE SOME REALLY GOOD ANALYSIS OF HOW, UH, WE'VE TRIED TO, OR HOW MANAGEMENT HAS TRIED TO ADDRESS THIS AND FORECAST IT FOR THOSE YEARS, UH, MOVING FORWARD WITH SOME PRETTY GOOD TABLES ON HOW TO LOOK AT, UH, THE PRICING CURVE VERSUS THE, UH, THE ESTIMATED, UH, CASH BALANCES THAT ARE INVESTED.
AND THEN THIS IS THE, THIS IS THE LAST SLIDE, BUT I'LL BACK UP TO THE BALANCE SHEET.
THIS IS IN LINE WITH WHAT YOU JUST SAW FROM THE FINANCIAL STATEMENTS PERSPECTIVE WHEN YOU WENT THROUGH THE DETAIL OF YEAR END 2022.
WE HAVEN'T HAD THE SUBSTANTIAL CHANGES OTHER THAN THAT DEBT PAY DOWN COMPONENT THAT WAS MENTIONED DURING THAT AS WELL.
BUT THIS IS CONSISTENT WITH WHAT YOU SAW THERE.
I DON'T THINK I NEED TO SPEND ANY MORE TIME ON THIS PAGE FROM THAT PERSPECTIVE.
WHEN WE LOOK AT THE YEAR TO DATE INCOME STATEMENT, THEN THIS IS WHERE YOU'RE SEEING THE IMPACT OF THE THINGS THAT WE WERE JUST MENTIONING IN THE FORECAST AS WELL.
AND THESE CHANGES ACROSS TIME, HOW THEY'RE BEING IMPLEMENTED.
WE DO HAVE A SMALL DECREASE IN OPERATING REVENUES FOR THE YEAR TO DATE, AND WE'LL SEE ON THE SLOT NEXT SLIDE WHERE WE LOOK AT THE SYSTEM ADMINISTRATION FEE REVENUES, WHAT'S WHAT THAT LOOKS LIKE FOR THE REST OF THE YEAR.
THERE IS A DECREASE IN THESE GENERATION INTERCONNECTION REVENUE THAT LOOKS LIKE IT'S A MATERIAL DECREASE FOR A YEAR TO DATE.
AND SOME OF THAT'S JUST DUE TO THE WAY THAT THE TIMING OF HOW THOSE REVENUES ARE RECOGNIZED WITH THE NEW REVENUE RECOGNITION STANDARD, THE FORECAST FOR THE YEAR, WE DON'T EXPECT IT TO BE NEGATIVE LIKE THAT.
AS WOODY SPOKE YESTERDAY, DURING R AND M, YOU SAW HOW MANY ITEMS ARE IN THE QUEUE.
SO WE EXPECT THAT REVENUE TO CONTINUE TO FLOW.
THIS IS JUST A TIMING DIFFERENCE
[01:00:01]
FROM THAT REVENUE RECOGNITION PERSPECTIVE PRIMARILY.THEN ON THE OPERATING EXPENSES SIDE, WE HAVE THE SALARIES AND RELATED BENEFITS IS THE BIGGEST PIECE WHICH WE JUST DISCUSSED.
AND THEN WE ALSO HAVE AN INCREASE IN DEPRECIATION EXPENSE AND HARDWARE AND SOFTWARE.
AND A LOT OF THAT'S DUE TO THE DATA CENTER REFRESH THAT'S GOING ON.
ADDITIONALLY, WE ACTUALLY HAVE A SAVINGS AND OUTSIDE SERVICES THIS YEAR VERSUS LAST YEAR.
AND THEN THE HUGE INTEREST INCOME CHANGED.
SO YOU CAN SEE BACK TO THE POINT ABOUT CAN YOU FORECAST THIS INTEREST INCOME.
IF YOU LOOK AT THROUGH FEBRUARY LAST YEAR, WE BASICALLY HAD NO INTEREST INCOME.
WE WERE STILL HOLDING SOME OF THOSE BALANCES, AT LEAST THROUGH THE STORM, BUT BECAUSE THOSE INTEREST RATES WERE SO LOW AT THAT POINT THERE'S, THERE WAS JUST NONE BEING GENERATED VERSUS THIS YEAR TO DATE, SO FAR WE'RE TALKING ABOUT 18 MILLION.
AND YES, I WOULD BE VERY HAPPY IF I FIGURED OUT HOW TO PROPERLY FORECAST INTEREST RATES.
I DID MISS THE SLIDE ON THE MONTHLY REVENUES.
SO THIS IS WHERE WE SEE THIS MONTHLY REVENUE AMOUNT AND HOW JANUARY AND FEBRUARY FROM THE SYSTEM ADMINISTRATION FEE PERSPECTIVE WE'RE BELOW BUDGET.
AND THAT WAS DRIVEN PRIMARILY, THAT WAS DRIVEN BY WHETHER THE ECONOMIC IMPACT WAS ACTUALLY FAVORABLE.
MARCH CAME IN RIGHT ON BOARD, THIS SHOWS A FORECAST, BUT MARCH CAME IN AT 31.9 VERSUS THE 32 BUDGET FROM A TERAWATT HOUR PERSPECTIVE.
SO YOU SEE THIS TURNING FAVORABLE, ACCUMULATIVELY FAVORABLE IN MAY, AND THEN BY THE END OF THE YEAR, WE EXPECT THAT $5 MILLION FAVORABLE VARIANCE, ABOUT 2%.
AND THANK YOU FOR THE, THE TRANSITION TO THE BUDGET PRESENTATION, WHICH WE'LL HAVE IN A COUPLE OF MINUTES, BUT I WILL GO TAKE A BREAK AND LET LESLIE PRESENT HER STUFF BEFORE WE GET BACK TO THAT.
AND UNLESS Y'ALL HAVE SOME OTHER QUESTIONS.
SEAN, SO AND I, AND I GUESS THE CHALLENGE HERE IS THE TIMING OF WHEN A BUDGET'S PREPARED, BUT HOW DO YOU ACTUALLY USE THE 2023 BUDGET? I MEAN, IT SEEMS, THIS IS PROBABLY A NOT AN ACCURATE STATEMENT.
IT SEEMS TO ME THESE ARE NUMBERS ON THE PAGE FOR 2023 THAT WERE SET A YEAR AND A HALF AGO OR SO, AND WE'RE GONNA DO WHAT WE'RE GONNA DO.
WE DON'T NECESSARILY TRY TO MANAGE TO THOSE NUMBERS OR THAT'S USUALLY NOT THE CASE.
SO 23 IS AN EXCEPTIONAL YEAR BECAUSE, SO THERE'S A FEW ITEMS, AND THIS AGAIN GOES INTO THE, SOME OF THE STUFF I HAVE IN THE BUDGET PRESENTATION.
WHEN WE WENT THROUGH THE 2223 BUDGET DEVELOPMENT PROCESS, IT WAS RIGHT AFTER WINTER STORM URIE.
SO IT WAS IN THE SUMMER OF 21 WHEN WE WERE DEFINING WHAT THESE BUDGET NUMBERS WOULD BE.
THERE WAS A LOT OF UNCERTAINTY ABOUT WHAT IT WOULD LOOK LIKE.
THERE WAS ALSO A DESIRE NOT TO HAVE A FEE INCREASE.
SO WE'LL TALK ABOUT HOW WE GO THROUGH AND DEVELOP OUR BUDGET.
AND THEN THE, AND I MENTIONED BEFORE, WE TOOK A LOT OF THINGS OUT OF THAT BUDGET THAT WE THOUGHT WE MIGHT NEED, BUT WE WEREN'T CERTAIN ON.
THERE WAS ALSO A, THE FEELING THAT THE NEW BOARD COULD HAVE NEW DIRECTION AND HOW THEY WANTED TO GO WITH THE BUDGET.
SO THERE WAS SOME OF A DESIRE TO LEAVE IT THERE.
SO THERE WERE MORE GAPS IN WHAT WE HAD IN THAT BUDGET FOR OUR NEEDS OR MORE THINGS STRIPPED OUT THAN WE WOULD NORMALLY WANT TO SEE FOR THE SUCCESS OF THE ORGANIZATION.
AND SO THOSE, THAT'S ONE OF THE REASONS WHY THERE'S SUCH A HUGE INCREASE.
THAT'S ONE OF THE REASONS WHY YOU HAVE THIS LARGE VARIANCE IS ALL THE STUFF WE WERE TALKING ABOUT LAST YEAR THAT NEEDS TO BE DONE.
AND SO WE NEED TO FUND IT TO GET IT DONE.
AND THE LAST BUDGET DIDN'T ACCOUNT FOR THAT FOR A FEW REASONS.
A LOT OF IT WAS UNCERTAINTY ABOUT WHAT WAS ACTUALLY GONNA BE REQUIRED.
AND SOME WAS JUST THE ENVIRONMENTAL CONDITIONS AT THE TIME AND THE TRANSITIONS THAT WERE OCCURRING AND THE NEED TO GET A BUDGET APPROVED BY A CERTAIN DEADLINE.
SO JUST UNFORTUNATE THAT IT'S A TWO YEAR CYCLE AND IT WAS THE BEGINNING OF THAT TWO YEAR CYCLE.
SO DOES ANYBODY EVER SAY, I CAN'T DO THAT BECAUSE IT'S NOT IN MY BUDGET? OH, ABSOLUTELY.
AND THEN WHAT ARE THE APPROVAL REQUIREMENTS TO BLOW PAST YOUR BUDGET? THIS BOARD, IF THERE'S ANYTHING, IF WE EXPECT EXPENDITURES TO EXCEED, UH, THE BUDGET, OR IF WE HAVE A REVENUE SHORTFALL AND THIS IS IN THE FINANCIAL CORPORATE STANDARD THAT Y'ALL APPROVE, THEN WE NEED TO BRING THAT BACK TO THE BOARD AND SAY, WHAT ARE WE GOING TO DO TO ADDRESS THIS SHORTFALL TO MAKE SURE THAT ERCOT RETAINS ITS FINANCIAL INTEGRITY.
AND SO IN THIS CASE, TO ADDRESS THESE ITEMS, IT'S TO TAKE THESE CHANGES.
FORTUNATELY IN THIS CASE, IT IS A FAVORABLE VARIANCE OVERALL BECAUSE THAT INTEREST INCOME, THAT MAKES THE DECISION A LOT EASIER.
IF WE DIDN'T HAVE THAT, IT WOULD BE A MUCH HARDER DECISION OF HOW ARE YOU GONNA FILL THAT 40 MILLION EXPENDITURE GAP? SOME OF IT'S TIMING, SO THAT'S NOT TOO BAD, THE PIECE THAT'S NOT AND THAT GOES FORWARD.
THEN WE NEED TO BRING THAT TO THE BOARD AND SAY, HERE'S OUR ISSUE.
WHAT DO YOU WANT US TO DO? ARE WE GONNA GO GET A FEE INCREASE OR ARE WE GONNA STOP DOING THINGS THAT NEED TO BE DONE? AND IF WE STOP DOING HIGH PRIORITY THINGS TO
[01:05:01]
GET TO THAT SUBSTANTIAL BOTTOM NUMBER, WHAT'S IT LOOK LIKE FOR THE ORGANIZATION? AND YOU'VE SEEN SOME OF THE STRESS ON THE ORGANIZATION OVER THE LAST COUPLE YEARS WHEN WE DON'T HAVE THE FUNDS IN PLACE TO DO THAT WORK.SO DOES THIS SERVE AS THE APPROVAL TO SPEND $40 MILLION MORE? IS THAT WHAT WE'RE DOING NOW? THIS AND THEN THE OFFICIAL APPROVAL? YES.
SO UNLESS YOU TELL US TO STOP THESE ACTIVITIES, THEN YES, IT SERVES AS THE APPROVAL FOR US TO TAKE THE APPROACH OF BEING ABLE TO TAKE THE, IT DOESN'T REQUIRE A VOTE, IT'S JUST US PRESENTING WHAT, HOW WE WILL COVER THESE FUNDS.
AND SO IT, IT'S GOING THROUGH THIS PROCESS TO SAY, WE HAVE THIS ADDITIONAL INTEREST INCOME THAT WE'RE PROJECTING TO COVER THIS.
AND THEN WE ALSO KNOW GOING INTO THIS NEXT BUDGET CYCLE TO ACCOUNT FOR THIS GOING FORWARD BECAUSE THAT 30 MILLION ISN'T DISAPPEARING NEXT AT THE END OF THIS YEAR.
THEN IT'S HOW DO WE ACCOUNT FOR THAT IN THE NEXT BUDGET CYCLE? AND I BELIEVE THE BOARD HAS BEEN PRETTY WELL INFORMED ON THIS ALL ALONG.
I MEAN, WE, WE, ONE FACTOR WAS THE TIGHTNESS OF THE LABOR MARKET.
SO WE APPROVED, UH, GIVING MANAGEMENT DISCRETION TO ADJUST THE RAISES THAT THEY WERE GIVING IN ORDER TO DEAL WITH THE MARKET.
WE APPROVED THE SHORT TERM INCENTIVE PLAN, THE LONG TERM INCENTIVE PLAN, UH, AND UH, IN, IN ORDER TO DEAL WITH THE ADDITIONAL, UH, MARKET REQUIREMENTS THAT ARE PUT ON THE ORGANIZATION FROM THE LEGISLATURE AND FROM THE PC, WE'VE AUTHORIZED THE EXPENDITURE FOR VARIOUS BUDGETS.
UH, IT HAS BEEN AN AREA OF CONCERN BECAUSE OF INCREASING COSTS AND SUPPLY CHAINS.
SO WE'VE ACCELERATED SPENDING ON THOSE.
I THINK WE'VE BEEN PRETTY WELL IN THE LOOP.
IT'S JUST WHEN YOU ADD ALL THE NUMBERS TOGETHER AND YOU GET THAT BIG 30 MILLION, UH, LEDGED THERE, IT, IT, UH, IT GETS YOUR ATTENTION.
SO JOHN, YOU WERE GONNA SAY, SO YEAH, I, THE SAME THING.
YOU DID NOTHING ON, THIS SHOULD BE A SURPRISE.
WE'VE APPROVED ALL OF THESE THINGS, WE JUST HAVEN'T SEEN IT THAT'S PRESENTED THIS WAY.
I GUESS WE, WE DO THINGS INDIVIDUALLY, RIGHT? AND IT'S NEVER BROUGHT TOGETHER IN CONTRAST IN COMPARISON TO WHAT IS ACTUALLY THE TARGET.
RIGHT? WE CAN, AND THAT'S VERY GOOD FEEDBACK AND WE CAN MAKE THAT BETTER PROCESS GOING FORWARD.
USUALLY WE DON'T HAVE THINGS OF THIS MANY COMPOUNDING OF THIS MAGNITUDE THAT WE WOULD HAVE TO BRING FORWARD WHERE WE HAVE THIS LARGE OF AN IMPACT, ANYTHING THAT'S NOT IN THE BUDGET, THAT EXCEEDS IN, UM, A MILLION DOLLARS IN A NEW PROGRAM.
AND THAT'S ONE OF THE REASONS WHY WHEN WE WERE TALKING ABOUT THESE PROGRAMS LAST YEAR, NOT ONLY DID THEY HAVE TO GO THROUGH H R AND G, THEY HAVE TO GO THROUGH FNA BECAUSE IF THEY EXCEED THAT DOLLAR THRESHOLD EXCEEDS THE DELEGATED AUTHORITY OF THE BOARD.
AND SO THOSE NEW PROGRAMS WE HAVE TO BRING TO THE BOARD FOR APPROVAL IF THEY WEREN'T APPROVED IN THE BUDGET.
AND SO, TO YOUR POINT, YES, YOU SAW THOSE LAST YEAR, WE JUST DIDN'T SHOW AN AGGREGATED IMPACT THAT SHOWED UP AS CONSOLIDATED AS THIS.
I THINK THAT'S GOOD SUGGESTION, BOB.
CARLOS AND I, I AGREE THAT, UH, THERE AREN'T ANY, ANY BIG SURPRISES IN HERE.
I THINK SEAN DID A GREAT JOB OF, OF EXPLAINING AND LAND IT ALL OUT.
I JUST WANT TO BE CAREFUL THAT WE DON'T GET INTO A FRAME OF MIND THAT BECAUSE WE FOUND THIS EXTRA REVENUE YEAH.
YOU KNOW, I I I THINK WE NEED TO BE CAREFUL TO, YOU KNOW, J JUST BECAUSE WE HAVE THE REVENUE, WE, WE STILL GOTTA COME TO THE BOARD AND, AND APPROVE ALL THE EXPENSES, AND I KNOW, AND WE'VE DONE THAT.
UH, I, AND I'M NOT SUGGESTING OTHERWISE.
I JUST THINK IT'S, WE, WE, WE JUST KINDA HAVE TO CAUTION OURSELVES TO HAVE A LITTLE DISCIPLINE THERE.
SO OH, AND YOU ABSOLUTELY HAVE MY COMMITMENT TO DO THAT.
I HAVE, I HAVE MORE OF THE MINDSET THAT IF THAT, IF THAT 72 MILLION APPEARS, IDEALLY THAT'S $72 MILLION SITTING IN THE BANK AT THE END OF THE YEAR.
BUT WE'VE FACED A LOT OF CHALLENGES THIS LAST YEAR, WHICH CONSUMED SOME OF THAT THE LAST COUPLE OF YEARS, CARLOS.
UM, ACTUALLY I WAS GONNA ADDRESS THAT POINT.
UM, NUMBER ONE, YOU'VE HAD SHARKS DOWN AND NOW UP BECAUSE FROM 2020, THE INTEREST RATE, UH, REVENUE WAS ACTUALLY SOUND MUCH BETTER THAN 21.
SO THERE WAS A DROP THERE AND THAT WAS A SHOCK YOU HAD TO ADJUST TO.
SO THERE WAS A LOSS IN REVENUE THERE.
UH, AND YOU WERE PLANNING THIS BUDGET IN 21, SO THE OUTLOOK WAS NOTHING IN INTEREST RATES, RIGHT? SO THERE'S SOME, UM, REVENUE VARIANCE THAT, UH, DIFFICULT TO ACCOUNT FOR, AND I THINK THERE SHOULD BE SOME METHODOLOGY TO, TO APPLY THOSE FUNDS AS THEY COME IN.
SO MAYBE SOME, AS YOU SAY, TRY TO KEEP IT, UH, AS A RESERVE.
AND IF, IF, UH, THERE'S INCREASES IN BUDGET, OF COURSE THEY'RE APPLIED AND, UH, ALL OF THAT, AS YOU WELL LAID OUT, IS KNOWN TO US.
I MEAN, THIS HAS BEEN PRESENTED BEFORE.
[01:10:01]
BUT, UH, AGAIN, FOR THE OTHER 42 OR WHATEVER IS REMAINING, WHAT PROCEDURE IS IT THAT WE FOLLOW TO, TO APPLY? AND THAT'S ANOTHER KEY PIECE OF THIS PUZZLE TOO, IS THAT WHEN WE FILE THE BUDGET, WOULD THE PUBLIC UTILITY COMMISSION, THEN THEY APPROVE TWO KEY COMPONENTS.THEY APPROVE THE SYSTEM ADMINISTRATION FEE RATE THAT WE WILL CHARGE.
THE USER FEES ARE UP TO THE BOARD, BUT THE SYSTEM ADMINISTRATION FEE RATE, WHICH MAKES UP WELL OVER 90% OF OUR REVENUE SOURCES IS APPROVED BY THEM AND CAN ONLY BE CHANGED IF IT GOES THROUGH THEIR PROCESS.
THE OTHER IS THEY APPROVE OUR EXPENDITURES AND WE ARE NOT SUPPOSED TO GO WITHOUT HAVING THIS BOARD APPROVAL OF WE ARE NOT SUPPOSED TO EXCEED THAT EXPENDITURE.
SO WHEN I VIEW THESE TWO CHARTS, I VIEW THESE TWO CHARTS INDEPENDENTLY OF EACH OTHER.
SO THERE IS, THERE'S NOT THE VIEW INTERNALLY AT ERCOT THAT WE HAVE ADDITIONAL INTEREST INCOME OR WE HAVE ADDITIONAL SYSTEM ADMINISTRATION FEE.
HOW CAN WE GO SPEND THAT MONEY? THAT IS NOT THE OBJECTIVE.
THAT IS, THAT IS JUST AS A COST-BASED ORGANIZATION, WHICH WE ARE, THAT IS SUBJECT TO THE SCRUTINY THAT WE SHOULD BE SUBJECT TO AND RESPONSIBLE USE OF THESE FUNDS FOR THE PEOPLE THAT ARE PAYING THESE RATES.
OUR FOCUS IS ON, ON THIS RIGHT HAND OF THIS SCHEDULE TO SAY, HERE ARE, HERE ARE THIS EXPENDITURES THAT WE ARE SUPPOSED TO MANAGE TOO.
THIS IS WHAT WE'RE SUPPOSED TO DO.
IF WE HAVE RISK IN THE ORGANIZATION THAT CAUSES US TO EXCEED THAT FOR SOME REASON, THEN WE NEED TO BRING IT TO THE BOARD TO SAY, THIS IS WHY WE NEED TO SPEND THIS MONEY.
THE LEFT SIDE OF THIS CHART IS JUST HOW, SO HOW WHATEVER TURNS OUT WITH THIS RIGHT SIDE, WHAT, HOW DOES THE LEFT SIDE ALLOW US TO ACCOMPLISH THAT? OR DO WE REACH THE POINT WHERE WE'RE TALKING ABOUT USING CONGESTION REVENUE RIGHTS, USING A REVOLVER, ISSUING MORE DEBT? HOW DO WE FUND THAT WHEN WE KNOW WHAT THE EXPENDITURE PIECE IS? SO IT'S, WE NEVER LOOK AT THE LEFT SIDE AND SAY, HEY, THERE'S A BUNCH OF GREEN COLUMNS OVER THERE.
HOW CAN WE SPEND THAT MONEY? WE NEVER DO THAT.
BUT SEAN, THERE'S A PROCESS, A AS AS AN EXAMPLE OF THE LEFT BOX THAT'S WE HAVE A VERY MILD YEAR WEATHER-WISE AND THE SYSTEM ADMIN FEES FOR EXAMPLE, SAY, COME IN WELL BELOW BUDGET, THERE'S A PROCESS INTERNALLY THAT SAYS, OKAY, NOW WE GOTTA LOOK AT THE BOX ON THE RIGHT AND SEE HOW WE CAN MAKE UP FOR THOSE REDUCED SYSTEM ADMIN FEES.
THAT AGAIN IS IN ONE OF THE PARTS OF THE, THE LAST SECTION OF THE 24, 25 BUDGET REQUEST MATERIALS.
IT TALKS ABOUT RISK TO MEETING THE BUDGET AND THE MITIGATION FACTORS.
AND SO WE CAN GO INTO THAT IN DETAIL AND WE'LL GET TO THAT PIECE AS WELL.
YEAH, JUST GOING FORWARD, I THINK IT MIGHT BE HELPFUL WHERE YOU LIST OUT LARGE VARIANCES THAT HAVE BEEN, HAVE BEEN APPROVED BY THE BOARD.
IT MIGHT BE HELPFUL JUST TO NOTE WHEN THEY WERE APPROVED AND MAKE SURE THE DOLLARS RECONCILE, LIKE FOR INCREASED SALARIES, INCREASED BENEFITS.
WE DID REVIEW ALL THAT AND APPROVE IT.
UH, BUT IT MIGHT BE HELPFUL JUST TO HAVE IT HERE SO THAT WE KNOW THAT THE NUMBERS TIE AND WE CAN SEE WHEN IT WAS DONE, IF WE WANNA GO BACK AND LOOK.
AND SO I THINK THE REQUEST IS BACK TO WHAT WAS MENTIONED A LITTLE WHILE AGO ABOUT THE FACT THAT WE HAVEN'T SEEN THIS IN AGGREGATE.
AND SO COMPARING THIS, THE BOARD APPROVED ITEMS TO THE TOTAL OF WHERE WE ARE NOW AND WHAT THE COMPONENTS OF IT ARE AND BRINGING THAT TO THE BOARD FOR THEIR RECONCILIATION AND AWARENESS.
SO SEAN, I THINK YOU'VE GOT YOUR MARCHING ORDERS ON F UH, FROM PEGGY AND BOB AND THE REST OF US IN TERMS OF, UH, KEEPING THAT AGGREGATE ANALYSIS AVAILABLE FOR US.
I THINK IT'S IMPORTANT FOR ALL OF US TO SORT OF, UM, ROLL THE CLOCK BACK TWO YEARS WHEN THIS BUDGET WAS PREPARED, UH, TO REMEMBER WHAT WE HAD.
WE HAD LEGISLATURE, IT HADN'T FINISHED ITS WORK IN TERMS OF WHAT IT WAS DOING IN RESPONSE TO WINTER STORM URI.
WE HAD A PUC THAT WAS IN A PROCESS OF BEING REORGANIZED THAT HADN'T HAD A CHANCE TO DEAL WITH THE ACTIONS THAT THE, UH, LEGISLATURE PROMULGATED.
AND SO A LOT OF THE, THIS PARTICULAR BUDGET, UH, WAS DONE IN A VACUUM WITHOUT THAT, THAT INPUT.
UM, THAT SAID, I THINK, UH, THESE TWO RED WEDGES ARE, UH, THINGS THAT WE NEED TO PAY ATTENTION TO.
UH, WE DID APPROVE, UH, THESE ITEMS, BUT IT IS IMPORTANT TO KEEP TRACK OF THEM MOVING FORWARD.
LET, DOES ANYBODY ELSE HAVE ANY QUESTIONS FOR SEAN ON THIS ISSUE? UM, I KNOW YOU'RE GONNA BE BACK IN A MINUTE FOR CHRISTMAS AND APRIL WITH THE, UH, BUDGET.
[5.2 Periodic Report on Investments]
BRING LESLIE UP TO GO THROUGH THE PERIODIC, UH, REPORT ON INVESTMENTS.[01:15:01]
I'M GOING TO PRESENT THE PERIODIC REPORT ON INVESTMENTS.WE ARE IN COMPLIANCE WITH OUR INVESTMENT CORPORATE STANDARD.
AND JUST TO TAKE A MINUTE ON THIS SLIDE, UH, THIS SHOWS THE 2 BILLION THAT SEAN WAS TALKING ABOUT.
YOU CAN SEE THAT IN THE FIRST LINE FOR THE ERCOT INC.
UNRESTRICTED THAT 1.5 BILLION AND TO THE RIGHT, YOU CAN SEE THE 5.4 MILLION OF INTEREST WE'VE RECEIVED.
AND THEN, UH, THE TREASURY BOND PORTFOLIO, UM, OF 500 MILLION IS ALSO, SO THAT'S THE 2 BILLION THAT WE'RE EARNING THE INTEREST ON.
UM, I DON'T HAVE ANY OTHER CHANGES ON THESE SLIDES, BUT I DID WANNA TALK ABOUT DEPOSIT RISK IN LIGHT OF SILICON VALLEY BANK FAILURE.
ERCOT CASH, WHICH INCLUDES ANY COLLATERAL, IS INVESTED PER THE INVESTMENT CORPORATE STANDARD.
CURRENTLY WE HAVE 17 MONEY MARKET MUTUAL FUNDS THAT INVEST IN TREASURIES OR REPURCHASE AGREEMENTS BACKED BY TREASURIES THAT IS OUTLINED HERE.
THE TREASURY TEAM TRIES TO INVEST ALL OF THE CASH THAT COMES INTO THE BANK ACCOUNT INTO THESE FUNDS.
HOWEVER, THE TREASURY FUNDS CLOSE AROUND NOON.
THE REPURCHASE AGREEMENT FUNDS CLOSE AROUND FOUR.
SO ANYTHING THAT COMES IN AFTER THOSE TIMES COULD REMAIN UN UH, INVESTED.
THERE IS ALSO A CHANCE WE CAN LEAVE MONEY IN THE ACCOUNT FOR LIQUIDITY NEEDS OR ANY UNUSUAL SITUATIONS.
UM, ANY OF THE MONEY LEFT IN THE BANK ACCOUNT DOES HAVE THE STANDARD F D I C LIMIT OF 250,000, BUT DEPOSIT RISK CAN OCCUR AT ERCOT.
WE TRY AND MITIGATE IT BY INVESTING MULTIPLE TIMES PER DAY.
THE OTHER CHANGE THAT I WANTED TO GO THROUGH WAS ON OUR BOND PORTFOLIO SLIDE.
WE DID BREAK OUT THE CURRENT MARKET PRICE AND THAT WAS IN RESPONSE TO THE YEAR END FINANCIALS.
YOU SAW THE UNREALIZED INVESTMENT LOSS OF 2.2 MILLION.
HOWEVER, WE DO HOLD OUR BONDS TO MATURITY, SO WE DON'T ANTICIPATE ANY LOSS.
ANY QUESTIONS ON THE INVESTMENT CORPORATE STANDARD? OKAY, LESLIE,
[5.3 Periodic Report on Debt Compliance]
LET'S TALK ABOUT DEBT COMPLIANCE.NEXT I HAVE THE DEBT COMPLIANCE AND WE ARE IN COMPLIANCE WITH ALL OF OUR DEBT REQUIREMENTS.
WE HAVE NO UPDATES TO THESE FIRST FEW SLIDES.
WE WILL HAVE, UM, UPDATES THE NEXT TIME WE MEET, AS WE WILL HAVE ALL OF OUR ANNUAL STATEMENTS COMPLETED.
THE CHANGE THAT WE DID COMPLETE ON THIS IS, UM, AROUND N AND WE DID TAKE ALL FOUR TRANCHES AND ADD THEM TOGETHER TO GET A COMBINED TOTAL AND PUT THAT INTO THE AMORTIZATION SCHEDULES, WHICH IS HERE.
SO THIS IS THE COMBINED AMORTIZATION SCHEDULE FOR N ANY QUESTIONS ON DEBT COMPLIANCE? OKAY.
ANY QUESTIONS FOR LESLIE, MS. LEE? THANK YOU.
SEAN IS GOING TO, UH, WE'RE NOW GOING TO,
[6. Review Proposed 2024-2025 Biennial Budget]
UH, GO TO I, UM, AGENDA ITEM NUMBER SIX, WHICH IS A REVIEW OF THE PROPOSED 24 25 BUDGET.UM, AND IN HERE I THINK YOU'LL SEE, UH, SOME GOOD ANALYSIS OF HOW, UH, THE ORGANIZATION IS TRYING TO DO, IS TRYING TO PREDICT, UH, INTEREST REVENUES AS WELL AS THE REST OF OUR EXPENSES.
AND THEN THIS IS THE ONE I DEFINITELY KNEW I NEEDED THE WATER FOR.
SAVING ME BEFORE, BEFORE I START, I KNOW PABLO HAS SOME INTRODUCTORY REMARKS HE WANTS TO SAY.
APPRECIATE IT AND THANK YOU CHAIRMAN.
SO WHAT I WANT TO OPEN UP WITH IS, UH, FIRST RECOGNIZE THE, UM, SIGNIFICANT WORK THAT THE ORGANIZATION HAS GONE THROUGH TO BUILD UP A VERY DETAILED BOTTOMS UP TYPE BUDGET THAT IS GOING TO REFLECT THE FUTURE NEEDS OF THE ORGANIZATION FOR AN EXPECTATION OF FOUR YEARS, LOOKING AT WHAT WE KNOW IS RIGHT IN FRONT OF US, BUT ALSO TRYING TO LOOK A LITTLE BIT AROUND THE CORNER TO THE THINGS THAT WE DON'T NECESSARILY SEE AS CLEARLY TODAY AS WE WOULD LIKE TO, BUT HAVE TO ANTICIPATE AND BE READY TO DELIVER AND WORK ON IN ORDER TO CONTINUE TO POSITION ERCOT AS A LEADER IN THIS ENERGY TRANSITION.
THE CURRENT SYSTEM ADMINISTRATION FEE HAS BEEN IN PLACE UNCHANGED FOR EIGHT YEARS.
[01:20:01]
AS PROPOSED, WE'RE LOOKING AT A 16 CENT INCREASE FROM THE CURRENT LEVEL OF 55 CENTS UP TO 71 CENTS.THAT WOULD REPRESENT OVER THAT EIGHT YEAR PERIOD, APPROXIMATELY A 3% ANNUAL INCREASE ACROSS THAT TIME.
SO IF YOU THINK ABOUT THAT IN CONTRAST TO WHAT'S HAPPENING IN, UM, CORPORATE WORLD AND AND TYPICAL KIND OF BUDGET INFLATION, WHAT YOU SEE IS TYPICALLY LABOR INFLATION AT AROUND THAT 3% LEVEL.
AND SO THE OVERALL SYSTEM ADMINISTRATION FEE, WHICH LARGELY COVERS THE LABOR AT ERCOT, IS ESCALATING AT A VERY, UH, I'D SAY NORMAL PACE BASED ON WHAT YOU SEE UH, IN THE OUTSIDE BUSINESS WORLD.
IN ADDITION, UM, WE ARE DRIVING THE CAPABILITIES TO ADDRESS THE STRATEGIC PRIORITIES FOR ERCOT AS WELL AS THE INCREASED RESPONSIBILITIES THAT HAVE BEEN PUT ON ERCOT OVER THE LAST FIVE, SIX YEARS, WHICH HAVE CHANGED VERY SUBSTANTIALLY.
TYPICALLY, MOST OF OUR COSTS ARE NOT SENSITIVE TO CHANGES IN LOAD OR ELECTRICITY CONSUMPTION.
MOST OF OUR COSTS ARE REALLY DRIVEN BY CHANGES IN GRID OR WHOLESALE MARKET REGULATIONS IN TECHNOLOGIES IN THE DESIGN OF WHAT WE'RE DOING OR IN THE PARTICIPANTS THAT ARE PARTICIPATING THERE TEND TO BE MORE FIXED IN NATURE VERSUS VARIABLE DRIVEN BY USAGE.
OUR EXPENDITURES, WHAT WE DO IS A VERY HIGHLY LEVERAGED COST, BUT WHAT I MEAN BY THAT IS FOR THE AVERAGE CONSUMER TODAY, THEY PAY ABOUT 55 CENTS A MONTH FOR THE SERVICES THAT ERCOT PROVIDES.
AND ERCOT IS PROVIDING A SERVICE TO OVERSEE THE RELIABILITY OF AN AVERAGE 20 BILLION A YEAR ENERGY MARKET DELIVER THE CYBER SECURITY, THE GRID RELIABILITY, THE MARKET CONNECTION AND INTERCONNECTION CAPABILITIES, THE TRANSMISSION PLANNING AND OPERATIONAL SUPPORT FOR THE ENTIRE ENERGY GRID ACROSS 26 MILLION CUSTOMERS FOR 55 CENTS.
AND SO THE 16 CENT INCREASE, WHICH IS GONNA COVER NEW REQUIREMENTS THAT ARE COMING INTO ERCOT, CONTINUE TO MAINTAIN A HIGHLY LEVERAGED MEANING WE ARE IMPACTING A SIGNIFICANT IMPORTANT ASSET FOR THE STATE IN TERMS OF ECONOMIC DEVELOPMENT IN TERMS OF SUPPORT FOR DAY-TO-DAY LIFE AND DOING SO IN A VERY, VERY COST EFFECTIVE WAY.
WE'RE GONNA BE TALKING ABOUT SOME MEANINGFUL INCREASES IN SCOPE DURING THIS BUDGET.
UM, SOME OF THOSE INCLUDE THE NEW WEATHERIZATION REQUIREMENTS THAT WE NOW TAKE ON AND WE GO OUT AND ENSURE THAT OUR TRANSMISSION PARTNERS AND GENERATION PARTNERS HAVE DONE THE WEATHERIZATION EXPECTATIONS.
WE ARE RIGHT NOW THE ONLY ISO IN THE COUNTRY THAT IS DOING THAT KIND OF WORK.
WE ALSO HAVE TAKEN ON THE ROLE OF THE RELIABILITY MONITOR FOR THE ERCOT REGION.
IT'S A NEW SIGNIFICANT RESPONSIBILITY THAT WE TOOK OVER FROM TEXAS RE AND WE ARE NOW, UH, SUPPORTING THAT WE HAVE TO MODEL, STUDY AND ENGINEER THE GRID TO REFLECT A HIGHLY CHANGING RESOURCE MIX.
THE INTERMITTENT RESOURCES HAVE NOT ONLY GROWN, BUT THEY'VE CREATED VERY SIGNIFICANT CHANGES IN OPERATIONAL PARAMETERS AND UH, STABILITY.
WE HAVE NEW TEAMS THAT ARE BEING GROWN AND DEVELOPED TO BE ABLE TO MANAGE THE MULTIPLE MODELS AND STUDIES THAT ARE REQUIRED IN ORDER TO ASSESS EACH INCREMENTAL CHANGE IN THE GRID.
AS A RESULT OF THAT, WE ALSO SEE A VERY SIGNIFICANT INCREASE IN THE NUMBER OF MARKET PARTICIPANTS THAT NOW INCLUDES STORAGE RESOURCES AND LARGE FLEXIBLE LOADS IN ADDITION TO THE VERY LARGE AND FAST GROWING RENEWABLE RESOURCE MIX.
AND IN ADDITION, WE'RE LOOKING AHEAD AND ANTICIPATING WHAT'S COMING IN TERMS OF DISTRIBUTED ENERGY RESOURCES.
WE'RE RUNNING A MODEL TODAY, A PROTOTYPE THAT IS LOOKING AT THE POTENTIAL FOR HOW WE WOULD INTERCONNECT DISTRIBUTED RESOURCES INTO THE GRID, EITHER IN AGGREGATION OR DIRECTLY.
AND AS THAT CONTINUES TO GROW AND PROLIFERATE, WE CAN EXPECT TO SEE THE VOLUME EXPLODE IN THE FUTURE BECAUSE TECHNOLOGY AND INNOVATION IS MOVING TOWARDS THE CAPABILITIES FOR DISTRIBUTED RESOURCES TO PROVIDE REAL VALUE IN DELIVERING ENERGY SERVICES ON THE GRID, EITHER FOR RELIABILITY, FOR COST EFFECTIVENESS, OR FOR RESILIENCY.
AND SO WHILE THAT IS NOT A CURRENT MANDATE, WE NEED TO START PREPARING TODAY TO BE ABLE TO NOT ONLY RESPOND WHEN IT BECOMES A PREVALENT AND SCALED, UH, SET OF TECHNOLOGY RESOURCES, BUT WE REALLY WANNA POSITION THIS ORGANIZATION TO LEAD HOW WE GET THERE SO THAT WE GET THERE IN A WAY THAT MAXIMIZES THE VALUE DELIVERED TO CONSUMERS ACROSS THE STATE.
AND SO THAT THE ERCOT GRID IS READY TO TAKE THOSE RESOURCES AND USE THEM IN THE OPTIMIZATION OF DELIVERING ENERGY SERVICES.
THAT'S SOMETHING THAT WE CAN'T DO IF WE REACT TO IT WHEN IT COMES TO US, WE WANT TO BE ANTICIPATING IT AND HELPING TO PLAN THAT PATH FORWARD.
SO WE NEED RESOURCES TO BE ABLE TO DO THAT PLANNING TODAY, TO CONSIDER THOSE CHANGES AND TO BE ABLE TO ENGAGE NOT ONLY INTERNALLY IN TEXAS, BUT TO ENGAGE WITH THE OUTSIDE COMMUNITY OF ENERGY TRANSITION THAT'S HAPPENING ALL OVER THE COUNTRY AND ALL OVER THE WORLD.
AND THAT REQUIRES HAVING RESOURCES TO PARTICIPATE AND TO ENGAGE AND TO BE THOUGHT LEADERS AND TO, AND NOT ONLY WITH WITH OUTSIDE ISOS AND OTHER ENERGY PARTICIPANTS, BUT ALSO WITH RESEARCH INSTITUTIONS
[01:25:01]
AROUND THE COUNTRY AND AROUND THE WORLD.AND SO AGAIN, WE NEED TO BE IN A POSITION TO BE ABLE TO LEAD IN THAT DIRECTION.
SO WHILE THE INCREASE ON A BLOCK LEVEL LOOKS SUBSTANTIAL, I WANNA MAKE SURE THAT WE UNDERSTAND IT'S FOR ACROSS THAT EIGHT YEAR PERIOD OF TIME WHERE IF YOU JUST LOOK AT A REGULAR LABOR INFLATION WOULD COVER THIS CHANGE IN AND OF ITSELF.
BUT IN ADDITION, WE HAVE ALL THESE NEW ADDITIONAL RESPONSIBILITIES THAT WE'RE COVERING AND WE ARE PLANNING FOR A VERY DIFFERENT LOOKING ENERGY SYSTEM FIVE, 10 YEARS DOWN THE ROAD AND TRYING TO POSITION OURSELVES TO BE READY FOR THAT.
SO AT THAT, I'LL TURN IT BACK OVER TO YOU, SEAN.
I LOOK FORWARD TO THE DISCUSSION ON WHAT MAKES UP THIS BUDGET.
TO START WITH, I DO WANT TO GO OVER THE KEY TAKEAWAYS AND SUMMARY, SOME OF WHICH WE ALREADY BRIEFLY MENTIONED IN OUR PRIOR CONVERSATION IN THIS MEETING AND PRIOR MEETINGS AS WELL.
BUT WE DO HAVE A PRETTY SUBSTANTIAL PRESENTATION FOR YOU TODAY.
THE GOAL IS FOR THIS TO BE THE PRIMARY CONVERSATION ABOUT THE BUDGET AND REQUEST AND CONCERN FOR YOU TO TAKE THAT AWAY.
IF YOU HAVE ANY ADDITIONAL FEEDBACK BEYOND TODAY, PLEASE INTERRUPT ME ANY TIME, TIME DURING THE COURSE OF THIS TO ASK QUESTIONS AS I BELIEVE YOU ALL FEEL FREE TO DO.
AND AS WE MOVE FORWARD, IF THERE'S ANY CHANGES THAT WE WANT TO MAKE TO THESE THAT WE GET THOSE IN PLACE BECAUSE WE HOPE TO BRING BACK A BUDGET FOR YOU TO APPROVE IN JUNE FOR US THEN TO SUBMIT TO THE PUBLIC UTILITY COMMISSION AND TO MEET OUR DEADLINES ASSOCIATED WITH THAT.
AS I MENTIONED BEFORE, THERE ARE TWO MAJOR ITEMS THAT THE PUC APPROVES.
THEY'RE ON THIS SLIDE AS WELL.
THE FIRST IS THE USE OF FUNDS ON HERE.
YOU CAN SEE THAT'S FOUR 22 MILLION, FOUR 23 MILLION IN 2024 AND FOUR 25 MILLION IN 2025.
THAT GOES BACK TO OUR FOCUS ON THE EXPENDITURE SIDE OF THINGS.
AS WE LOOK, WE DON'T, IF WE GET ADDITIONAL REVENUES IN, WE DON'T LOOK AT HOW TO SPEND THOSE REVENUES.
WE HAVE A BUDGET THAT'S ASSOCIATED WITH EXPENDITURES AND THAT'S WHAT OUR FOCAL POINT IS.
IT'S ALL ASSOCIATED WITH SPEND.
THE P C ALSO APPROVES THE SYSTEM ADMINISTRATION FREE RATE.
AS PABLO JUST MENTIONED, WE'RE TALKING ABOUT MOVING THAT TO 71 CENTS PER MEGAWATT HOUR BEGINNING IN JANUARY 1ST, 2024.
THAT'S MORE THAN WHAT WAS ORIGINALLY PROJECTED WHEN WE GO BACK TO THE LAST BUDGET CYCLE WHERE WE PROJECTED A 24 INCREASE TO 66 AND A HALF CENTS, YOU'LL SEE THAT A LITTLE BIT LATER ON IN THIS PRESENTATION AS WELL.
PABLO MENTIONED ACROSS THE EIGHT YEAR TIMEFRAME THAT WE'VE HAD THE 55 AND A HALF CENT FEE IN PLACE.
THAT'S A 3% INCREASE IN THAT FEE.
I'M USING A COMPOUND ANNUAL GROWTH RATE.
THIS DOES INCLUDE SUBSTANTIAL INTEREST INCOME.
WE JUST SAW THE $72 MILLION, THAT'S IN 2023.
THEN WE HAVE ABOUT 50 MILLION IN 2024, DROPPING THAT TO 40 MILLION IN THE OUT YEARS, AND WE'LL GO THROUGH THE CO.
WE CALCULATED ALL OF THOSE ASSUMPTIONS AND THEN AT THE BOARD'S DIRECTION ASSOCIATED WITH OUR DEBT STRATEGY, THIS CALLS FOR NO PROJECTED USE OF CONGESTION REVENUE RIGHTS AT THE END OF 2027.
THAT FOUR YEAR TIME PERIOD WHERE OUR GOAL IS TO KEEP THE FEE FLAT AT 71 CENTS FROM 24 THROUGH 27.
THE OTHER ITEM, THE FIRST BULLET ON HERE UNDER OUR INITIAL RECOMMENDATION IS THAT EXPENDITURE IN HEADCOUNT INCREASES TO ADDRESS KNOWN AND ESTIMATED REQUIREMENTS.
SO THERE'S THREE PUBLIC TOUCHED ON THESE AS WELL, BUT THERE'S THREE PRIMARY COMPONENTS OF THIS.
FIRST IS JUST STATUS QUO, NORMAL INFLATIONARY GROWTH FROM LABOR COST AS WELL AS JUST INFLATIONARY GROWTH OF HARDWARE, SOFTWARE, EVERYTHING ELSE THAT WE INVEST IN HERE AT ERCOT SECONDARY, THOSE NEW RESPONSIBILITIES AND PROBABLY WENT THROUGH THOSE.
WE'LL GO THROUGH THOSE IN DETAIL TOO.
THE THIRD IS THE WAY THAT PROJECT SPEND APPEARS IN ERCOT BUDGET.
ERCOT BUDGET DOES NOT USE DEPRECIATION AS A SPEND COMPONENT.
SO OUR PROJECT SPEND HAS PEAKS AND VALLEYS AS WE LOOK AT IT WHEN WE LOOK AT THE FORECAST.
SO WE'LL HAVE SOME YEARS THAT HAVE HIGH SPEND, WE'LL HAVE SOME YEARS THAT HAVE LOW SPEND.
ONE OF THE THINGS THAT WILL REALLY POP OUT IN HERE WHEN YOU'RE COMPARING THIS 23 BUDGET, SO THE 24 BUDGET IS A 23 BUDGET WAS A LOW YEAR OF SPEND.
THE 24 YEAR BUDGET IS A HIGH YEAR OF SPEND.
BUT BECAUSE WE ARE BRIDGING THE 23 BUDGET TO THE 24 BUDGET THAT REALLY POPS OUT, IT'S A 25 ISH MILLION DOLLAR INCREASE JUST FROM THAT ITEM ALONE, WHICH CAN BE CONSIDERED TIMING TO A CERTAIN EXTENT.
IF WE WERE COMPARING THE 22 BUDGET OR THE TO THE 24 OR THE 23 TO THE 25, YOU'D SEE DIFFERENT RESULTS IN THERE THAT ARE NOT JUST ASSOCIATED WITH INFLATION.
ADDITIONALLY, THERE'S SOMETIMES CONFUSION.
PABLO MENTIONED THE IMPACT TO THE AVERAGE RESIDENTIAL HOUSEHOLD AND THAT BEING THAT 55 AND A HALF CENTS, THE 71 CENTS IN THE FUTURE WORLD, THAT DIFFERENCE OF ABOUT 16 CENTS.
BUT SOME OF THE CONFUSION ALSO ARISES THAT RESIDENTIAL CUSTOMERS SEE THINGS USUALLY IN DOLLARS PER KILOWATT
[01:30:01]
HOUR.SO THAT 71 CENTS PER MEGAWATT HOUR, AND I'M SURE YOU CAN ALL DO THIS MATH, BUT IS 0.07 CENTS PER KILOWATT HOUR.
SO WHEN YOU LOOK AT YOUR PER KILOWATT HOUR, WE'RE TALKING ABOUT 0.07 CENTS OF THAT PER KILOWATT HOUR CHARGE IS WHAT ERCOT SYSTEM ADMINISTRATION FEE WHEN WE INCREASE ITS 71 CENTS REPRESENTS.
SO MOVING ON TO OUR AGENDA FOR TODAY.
WE'LL START WITH THE TIMELINE, WHICH I BELIEVE YOU'RE FAMILIAR WITH.
WE'LL COVER IT AGAIN, WE'LL TALK ABOUT THE OVERVIEW OF OUR BUDGET PROCESS AND HOW THAT'S CONDUCTED HERE AT ERCOT.
WE TOUCHED ON A LITTLE BIT OF THIS EARLIER AND PABLO MENTIONED IT.
GO THROUGH THE BUDGET DRIVERS IN DETAIL, START WITH THE EXPENDITURES, THEN TALK ABOUT OUR REVENUE ASSUMPTIONS, OUR INTEREST INCOME ASSUMPTIONS, WHICH ARE MATERIAL THAT THIS YEAR, AND THEN OUR DEBT STRATEGY.
THEN WE'LL GO THROUGH THE OPTIONS OF A ANNUAL BIENNIAL OR QUADR, INCREASES IN THE SYSTEM ADMINISTRATION FEE RATE AND THE OPTION THAT WE CHOSE, WHICH IS THE QUAD OPTION AND WHY.
AND THEN WE'LL SHOW THE DETAILS OF THAT.
AND FINALLY, WE'LL TALK ABOUT THE RISK TO MEETING THE 20 24 20 25 BUDGET, WHICH IS SIMILAR TO THE 20 CONVERSATION WE HAD DURING THE 23 FORECAST, BUT WE'LL GO INTO MORE DETAIL ON IT THAN WE DID THERE.
SO STARTING WITH THE TIMELINE, SO THIS IS THE FIRST PUBLIC PRESENTATION OF THE BUDGET.
THEN IN JUNE, WHAT WE WANT TO DO IS BRING IT BACK FOR COMMITTEE AND BOARD APPROVAL.
AFTER THAT APPROVAL, WE HAVE TO WAIT 35 DAYS BEFORE WE CAN FILE IT WITH THE PUC.
THEN WE'LL FILE IT WITH THE PUC, THE P BE, AND THE DEADLINE FOR FILING WITH THE C IS SEPTEMBER 1ST, BEFORE SEPTEMBER 1ST.
THEN P C CAN HOLD A PUBLIC HEARING AND THEN THEY HAVE TO APPROVE IT AT AN OPEN MEETING, THEIR VOTE TO APPROVE, ASSUMING THAT WE CHANGE THE SYSTEM ADMINISTRATION FEE RATE NEEDS TO OCCUR AT LEAST 45 DAYS BEFORE THAT FEE GOES INTO EFFECT.
SO THIS SCHEDULE IS WHAT'S TIME DRIVING OUR TIMELINE OF A JUNE APPROVAL OF THE BUDGET.
THE OVERVIEW OF OUR BUDGET PROCESS AND THIS PROCESS HAS BEEN RELATIVELY CONSISTENT FOR SEVERAL YEARS AT A HIGH LEVEL.
SO WE START WITH WHAT OUR STRATEGIC PLAN IS, OUR MISSION, OUR VISION, OUR STRATEGIC OBJECTIVES AS WE WERE TALKING ABOUT WITH THE BOARD RECENTLY ABOUT THE REFRESH OF THAT STRATEGIC PLAN THAT WE'LL THEN FILE WITH THE BUDGET AS A PORTION OF OUR FILING.
WHEN WE DO FILE IT AFTER THE JUNE MEETING, WE OPERATIONALIZE THAT STRATEGIC PLAN BY GOING THROUGH WITH ALL THE DEPARTMENT MANAGERS AND LOOKING AT THE OBJECTIVE AND KEY RESULTS AND THE KPIS AND SEEING WHAT THEY NEED TO DO TO ACCOMPLISH A BUSINESS.
ONCE WE GET THAT, WE TURN THAT INTO TWO SEPARATE BUDGETS, BUT RELATED BUDGETS THAT THEY'RE REFERRED TO IN ERCOT OF THE DEPARTMENT BUDGET, WHICH IS THE OPERATIONS FOR O OTHER WORD, EVEN THOUGH IT DOESN'T EXACTLY REPRESENT THAT AS WE'VE SEEN BEFORE.
AND THEN THE PROJECT BUDGET, WHICH IS THE PPL.
THERE'S DIFFERENT WAYS TO APPROACH THIS BUDGET DEVELOPMENT.
ERCOT APPROACH IS TO TAKE A BOTTOMS UP VIEW TO MAKE SURE THAT WE'RE CAPTURING ALL THE NEEDS AND THE RISKS THAT ARE SEEN AT ALL LEVELS OF THE ORGANIZATION AND SEEING WHAT THAT DEMAND IS.
THEN WE TAKE A TOP-DOWN CUT OF THAT AND WE, AS I MENTIONED EARLIER, WHEN WE DID THIS FOR THE 2223 BUDGET CYCLE, WE CUT A LOT OF THINGS OUT OF THAT INITIAL BUDGET THAT CAME UP.
WE CUT THINGS OUT THIS TIME AS WELL, BUT THAT TIME WAS EXTREME.
WE ACTUALLY HAD THE EXECUTIVE TEAM SIT IN A ROOM FOR TWO DAYS AND ALL WE DID WAS CUT THINGS OUT OF THAT BUDGET TO MAKE IT SO THAT WE COULD MEET THAT SYSTEM ADMINISTRATION FEE RATE WITHOUT AN INCREASE AND TO NOT PUT ERCOT INTO TOO MUCH FINANCIAL HEALTH DEBT.
AT THAT TIME, WE HAD NO IDEA WE WERE GONNA HAVE THIS TYPE OF INTEREST INCOME, BUT THAT WAS WHAT WE DID FOR TWO DAYS WAS SIT THERE AND JUST STRIP OUT MILLIONS OF DOLLARS OF SPEND OUT OF THAT BUDGET.
AND THAT'S WHAT YOU'RE SEEING SOME OF THE IMPACT OF THE STUFF WE'RE SEEING TODAY AS WELL.
WHEN YOU ASK ABOUT ARE THERE THINGS THAT PEOPLE ARE SAYING THEY CAN'T GET DONE BECAUSE THEY DON'T HAVE THE MONEY TO DO IT? YES, EVERY DAY WE WORK WITH THE PUC STAFF AS WELL THROUGHOUT THIS PROCESS.
AND WHEN WE START THE DEVELOPMENT PROCESS, WE REACH OUT TO THEM AND HAVE THE CONVERSATION.
BECAUSE OF THE BIENNIAL CYCLE OF OUR BUDGET, IT WAS CHANGED TO THAT BIENNIAL CYCLE.
EVEN THOUGH WE DON'T HAVE THE STATE YEAR END, WE HAVE A CALENDAR YEAR END.
IT STILL COINCIDES IN THE YEARS THAT THE BUDGET GETS APPROVED, THE PUC HAS THE OPTION TO HAVE US DO ANNUAL BIENNIAL BUDGETS AND THE REQUEST IS BIENNIAL BUDGETS.
ANY QUESTIONS ON THIS APPROACH BEFORE WE GET INTO THIS NEXT SECTION IS QUITE MEATY.
ALL RIGHT, STARTING WITH THE EXPENDITURES, PABLO GAVE A VERY GOOD OVERVIEW AND INTRO OF WHAT WE'RE SEEING, WHAT
[01:35:01]
OUR COSTS ARE, HOW THEY WORK, THE FACT THAT WE HAVE STEP UPS WHEN WE'RE TALKING ABOUT ADDITIONAL RESPONSIBILITIES.WE ACTUALLY HAVE SOME MATERIALS WHERE WE'LL DO SOME COMPARISONS IN EXECUTIVE SESSION TODAY AS WELL.
WE DO THAT AT DID THAT LAST FALL AS PART OF THE PREP FOR THIS MEETING AS WELL, WHERE WE SHOW SOME INFORMATION THAT WE HAVE THAT IS NOT SUITABLE FOR THE PUBLIC SESSION ASSOCIATED WITH SOME OF THOSE COMPS BECAUSE IT'S CONFIDENTIAL INFORMATION AND SO WE'LL HAVE OPPORTUNITY TO DISCUSS SOME OF THOSE THEN.
BUT WHEN WE'RE TALKING ABOUT THE EXPENDITURES AND HEADCOUNT, THESE ARE SUBSTANTIAL INCREASES.
WHEN YOU LOOK AT THIS WATERFALL CHART, IT POPS RIGHT OUT AT YOU SIMILAR TO THAT $31 MILLION IN THAT FINANCIAL SUMMARY.
BUT ALL OF THESE HAVE REASONS, STRONG REASONS BEHIND THEM OF WHY WE HAVE THESE INCREASES.
SO WE'VE TAKEN OUR PRIMARY EXPENDITURE GROUPS AND OR PRIMARY EXPENDITURES, WE PUT 'EM INTO SIX GROUPS.
SO THIS IS ALSO ONE OF THE REQUIREMENTS WHEN WE FILE THE PUBLIC UTILITY COMMISSION.
THERE'S A FEW SCHEDULES THAT WE HAVE TO FILE WITH THEM.
ONE IS TO EXPLAIN THE VARIANCES AND SO IT'S SIMILAR TO THE STATE OR IT IS THE STATE STRUCTURE.
WE ACTUALLY USE THE STATE CHART OF ACCOUNTS.
WE CONVERT OUR CHART OF ACCOUNTS TO THE STATES AND SO WE GET IT COORDINATED THAT WAY AS WELL.
BUT WE PUT 'EM IN THESE PRIMARY EXPENDITURE DRIVING GROUPINGS.
NOW THESE REPRESENT REASONS FOR THESE INCREASES.
THESE AREN'T NECESSARILY DIRECTLY TIED TO EXPLICITLY TIED TO VICE PRESIDENTS IN THE AREAS OF THE ORGANIZATION.
THERE'S OVERLAP BETWEEN THEM BECAUSE THERE'S PEOPLE THAT DO WORK IN DIFFERENT AREAS THAT AFFECT THESE THINGS AND WE CAN TALK ABOUT THAT.
SO IT WON'T TIE DIRECTLY ALL THE WAY THROUGH THERE.
WE ALSO, FROM THE PERSPECTIVE OF THE PUC FILING, ONE OF THE UNIQUE THINGS THAT CAN GET A LITTLE CONFUSING TOO THAT BECAUSE THAT FILING AND THAT SCHEDULE IS FOCUSED ON THAT SYSTEM ADMINISTRATION FEE RATE, WHICH THEY'RE APPROVING, THEY'RE NOT APPROVING THE OTHER FEES.
SO WHEN YOU SEE THIS WATERFALL CHART, IT IS THE DEPARTMENT NET EXPENDITURES AS WE REFER TO 'EM, WHICH MEANS THE ONES THAT AREN'T FUNDED BY THE SYSTEM ADMINISTRATION FEE.
SO FOR EXAMPLE, WEATHERIZATION HAS ITS OWN SOURCE OF FUNDING.
CAUSE THERE'S WEATHERIZATION INSPECTIONS.
GENERATION INTERCONNECTION HAS ITS OWN SOURCE OF FUNDING.
SECURITIZATION HAS ITS OWN SOURCE OF FUNDING.
UH, TEXAS RELIABILITY MONITOR.
THE DUTIES THAT WE TOOK OVER FOR THAT HAS PREVIOUSLY BUDGETED NUMBERS.
SO THERE MAY NOT BE A NUMBER IMPACT, BUT THERE IS A HEADCOUNT IMPACT.
SO THE HEADCOUNT AND THE DOLLARS IN THESE CHARTS AREN'T DIRECTLY TIED FOR THOSE REASONS THERE.
THEY'RE DIRECTLY RELATED, BUT THEY DON'T NECESSARILY EQUAL CUZ YOU COULD HAVE SECURITIZATION HEADCOUNT INCREASE WITHOUT HAVING A NEED FOR THE SYSTEM ADMINISTRATION FEE TO INCREASE BECAUSE OF IT, BECAUSE IT'S COVERED BY THE SECURITIZATION REVENUES ASSOCIATED WITH SERVICING AND ADMINISTRATION TO SERVICE SECURITIZATION DEBT.
NOW BOTH THE, AS I SAID, BOTH GROUPING BY THESE CATEGORIES CAUSE WE HAVE TO HAVE A CERTAIN NUMBER OF CATEGORIES TO MAKE IT MANAGEABLE AND USING THOSE NET REVENUES ARE DRIVEN BY THAT FILING REQUIREMENT.
THE SIX CATEGORIES THAT WE HAVE, THE TWO ARE I'D LIGHT ON THIS PAGE, ARE TECHNOLOGY, INFRASTRUCTURE AND COMMUNICATIONS.
AND WE HAVE GRID RELIABILITY, WE HAVE MARKET DESIGN, WE HAVE RETENTION AND RECRUITMENT, WE HAVE LEGAL AND COMPLIANCE.
AND THEN FINALLY WE HAVE NORMAL GROWTH.
I DON'T THINK ANYBODY IN HERE WILL FIND ANY OF THESE TO BE ITEMS THAT THEY'RE SURPRISED TO SEE ON THIS LIST TO POINT BEFORE.
BUT SEEING THEM AGGREGATED IN THE DOLLAR IMPACT IS SUBSTANTIAL.
SO IF WE START WITH TECHNOLOGY, INFRASTRUCTURE AND COMMUNICATIONS, AND THIS WAS BROUGHT UP YESTERDAY, THE FIRST ITEM ON THIS LIST AND IT'S ABOUT 27 MILLION FOR THIS SECTION.
ADDITIONAL TESTING ENVIRONMENT.
WE'VE TALKED ABOUT THIS IN THE PAST.
THIS IS ONE OF THOSE ITEMS THAT HAS BEEN ON THE TO-DO LIST FOR A LONG TIME.
IT COSTS OVER 10 MILLION TO DO THIS, AND SO IT KEEPS GETTING PUNTED.
NOW IT GETS PUNTED AT THE RISK OF REDUCING THROUGHPUT, ESPECIALLY IN A TIME OF HIGH DEMAND FOR CHANGES.
IT GETS PUNTED AT A RISK OF NOT BEING ABLE TO DO ACCELERATED PATCHES, WHICH IS A REAL RISK TO THE ORGANIZATION.
IT GETS PUNTED AS A LACK OF A GEOGRAPHICALLY DIVERSE TESTING ENVIRONMENT IN CASE THE PRIMARY GOES DOWN.
SO THERE ARE VERY SOUND REASONS WHY WE SHOULD DO THIS, BUT IT HAS BEEN CUT IN THE PAST CYCLES MANY TIMES.
THE SECOND ON THIS LIST IS BUILDING SYSTEM MAINTENANCE.
SIMILARLY, THIS IS ASSOCIATED WITH RELIABLE CONTINUED OPERATIONS OF THE FACILITIES.
WE'RE TALKING ABOUT REPLACING END OF LIFE CHILLERS AND ADDING REDUNDANT CHILLERS, INCREMENTAL CHILLERS FOR REDUNDANCY AND WHEN WE NEED THOSE.
AND SO THIS IS ANOTHER ITEM THAT HAS BEEN CUT BEFORE BECAUSE IT DIDN'T MAKE THAT FINAL LIST WHEN WE'RE LOOKING AT THOSE MILLIONS OF DOLLARS THAT WE WANTED TO CUT OUT OF THIS BUDGET.
BUT IT IS STILL VERY IMPORTANT FOR
[01:40:01]
CONTINUED RELIABLE OPERATIONS.THE THIRD ITEM ON THIS LIST I'M SURE IS NO SURPRISE TO ANYBODY AND WE WERE JUST TALKING ABOUT A LITTLE WHILE AGO AND YOU HEARD JEFF TALK ABOUT IT AND THE QUESTIONS THAT WAS ASKED OF HIM, THE COMMISSIONER ABOUT CYBERSECURITY.
SO WHEN WE'RE LOOKING AT THE EVER-EVOLVING DEMANDS AND RISK ASSOCIATED WITH CYBERSECURITY, ERCOT CONTINUES TO LOOK AT AT THE MATURE, AT MATURING ITS CYBERSECURITY ENVIRONMENT.
THERE ARE CONSTANT CHALLENGES.
ONE OF THE THINGS ON THIS LIST THAT'S BEING ADDED IS RELATIVE MEASURES ACROSS TIME AGAINST NIST AS MEASURED BY NEST RATHER AND THE N CYBERSECURITY FRAMEWORK.
WE HAVE EXPANDED PARTICIPATION WITH KNOWLEDGE SHARING GROUPS LIKE CRISP, WHICH WE'VE DISCUSSED BEFORE ABOUT HOW SOME OF THESE ITEMS WITH THIS INFORMATION SHARING AND THIS THOUGHT LEADERSHIP HAVE BEEN CUT PREVIOUSLY.
FROM THESE BUDGETS, WE HAVE REFRESHING OUR THREAT DETECTION RESPONSE SOLUTIONS AS WELL AS ADDITIONAL STAFF FOR THREAT OPERATIONS, CYBER ADMINISTRATION AND SECURITY ARCHITECTURE FUNCTIONS, ALL OF WHICH ARE CRITICALLY IMPORTANT TO ERCOT.
SO WE START SEEING HEADCOUNT INCREASES ALREADY WITH THIS ITEM.
WE HAVE EXPANDED IT HARDWARE AND SOFTWARE INFRASTRUCTURE.
SO WE HAVE MATERIAL GROWTH IN BOTH THE NUMBER OF APPLICATIONS AND THE VOLUMES OF THE DATA THAT FLOWS THROUGH ERCOT IN ADDITION TO ALL THE AUGMENTATION OF THESE SYSTEMS. FOR ALL THESE CHANGES THAT ARE GOING TO PLACE, IT'S A CONSTANT NEED.
THIS IS OVER 6 MILLION IN THIS BUDGET.
JUST TO ADDRESS THIS ITEM, THE NEXT ONE OF GR NEW GRID AND MARKET SOLUTIONS OR GMS EMPLOYEE DEVELOPMENT PROGRAM.
THIS IS BACK TO THOSE RISKS THAT WE'VE TALKED ABOUT OF STAFFING AND HIRING DIFFICULTIES AND HOW DO WE DEVELOP THE NEXT GENERATION? HOW DO WE MAKE SURE WE HAVE STAFF ON HAND? THIS IS ONE OF THE AREAS THAT IS MOST CHALLENGING FOR ERCOT, IS THESE GMS DEVELOPERS.
SO WHEN WE LOOK AT THE GMS GROUP, THEN WHAT WE'RE GOING TO DO IS CAPITALIZE ON THE SUCCESS WE'VE HAD WITH THE ENGINEERING DEVELOPMENT PROGRAM.
WE'RE GONNA TAKE THAT MODEL, WHICH HAS BEEN EXTREMELY SUCCESSFUL FOR WOODY.
YOU'VE HEARD WOODY MENTIONED THAT MANY, MANY TIMES WE'LL DEVELOP SOMETHING VERY SIMILAR IN IT ORGANIZATION.
AND SO THIS IS LOOKING AT AN ADDITIONAL SIX HEADCOUNT FOR THAT PROCESS.
WE HAVE RESTRUCTURED AND ENHANCED COMMUNICATION CAPABILITIES.
ROBERT WAS MENTIONING SOME OF THIS YESTERDAY TO Y'ALL ABOUT THE CHANGES THAT WE'VE MADE IN THAT AREA.
SO THIS BUDGET RESTRUCTURED AND REALIGNED SOME OF THE DOLLARS THAT WE SPEND ON COMMUNICATIONS AND HOW WE SPEND IT TO MAKE SURE THAT WE PROVIDE THE BEST COMMUNICATION FOR ERCOT, BOTH INTERNALLY AND EXTERNALLY.
THEN WE HAVE ADDITIONAL SUPPORT STAFF WHERE WE HAVE SOME OF THE ITEMS THAT YOU'VE BEEN NEAR AND DEAR TO THIS GROUP'S HEART WHERE WE'RE TALKING ABOUT IMPROVING QUALITY ASSURANCE.
SO WE'RE TALKING ABOUT A HANDFUL OF PEOPLE FOR THAT.
WE HAVE ANOTHER HANDFUL OF PEOPLE ASSOCIATED WITH JUST FLEDGING, FLESHING OUT THE GMS, CORE GMS TEAMS. WE HAVE INCREASED IT REQUIREMENTS FOR SUPPORTING THE SETTLEMENTS AND CREDIT SYSTEMS, BOTH WITH SECURITIZATION AND THE MARKET CHANGES THAT WE'RE TALKING ABOUT.
WE HAVE ADDITIONAL SUPPORT FOR SOME OF THE OPERATIONAL SYSTEMS LIKE RIO AS THE, THE RESOURCE INTEGRATION CONTINUES TO GROW.
AND THEN BACK TO THE DIFFERENCE BETWEEN DOLLARS AND HEADCOUNT.
ABOUT 50% OF THESE ADDITIONAL IT RESOURCES, OUR CONVERSIONS FROM CONTINGENT WORKERS TO EMPLOYEES.
SO THAT'S WHERE YOU SEE THE EMPLOYEE COUNT INCREASE, BUT IT'S NOT NECESSARILY IMPACTING THE COST.
SIMILARLY, INTO THIS SECTION WE HAVE THE PROJECT MANAGEMENT OFFICE.
THE PORTFOLIO DEMANDS CONTINUE TO INCREASE OVER TIME.
YOU SEE THAT WHEN TROY BRINGS THAT INFORMATION FORWARD IN RELIABILITY AND MARKETS MEETING.
AND SO WE ACTUALLY HAVE ANOTHER HANDFUL OF NEW FTES ASSOCIATED WITH PROJECT MANAGEMENT TO MAKE SURE THAT WE HAVE THOSE PEOPLE IN PLACE TO DO ALL THE WORK THAT IS COMING THROUGH ERCOT, SOME OF THOSE AS WELL, OUR CONVERSIONS OF CONTINGENT WORKERS TO EMPLOYEES AS WE LOOK FORWARD TO THE NEXT SEVERAL YEARS.
ONE OF THE NEW THINGS THAT WE ALSO TOOK ON WAS AN OUTSIDE SERVICE THAT PROVIDES US SERVICES SPECIFICALLY BECAUSE OF THE LACK OF ABILITY FOR US TO NECESSARILY COULDN'T GET ALL OF THE RESOURCES THAT WE NEEDED IN THAT AREA.
ARE THERE ANY QUESTIONS ON THE FIRST TECHNOLOGY INFRASTRUCTURE AND COMMUNICATION BEFORE I MOVE ON TO GRID RELIABILITY? SO THE SECOND ITEM IS GRID RELIABILITY.
WHEN YOU LOOK AT THE WATERFALL CHART NET IMPACT, THIS IS WHERE YOU'RE GONNA SEE THE LARGEST INCREASE IN HEADCOUNT ASSOCIATED WITH THIS DRIVER AND THIS DRIVER'S PRIMARILY DAN AND WOODY'S AREA.
AND THERE'S A LOT GOING ON IN THERE.
I'VE HEARD ABOUT ALL OF THESE THINGS.
SEVERAL OF THEM JUST YESTERDAY IN R AND M, WE TALKED ABOUT THESE ITEMS.
[01:45:01]
SO WE START WITH ENHANCED CONTROL ROOM MONITORING.AND SO THIS ACTUALLY IS TALKING ABOUT ADDITIONAL DESKS IN THE CONTROL ROOM AND ON ONCALL SUPPORT TO, FOR TAKING ACTION RELATED TO ALL THE CRITICALLY MAN OR CRITICALLY MANAGING ALL OF THE, THE CHANGES THAT ARE OCCURRING IN THE SYSTEM FROM ASSOCIATED WITH GENERATION LOSS, MANAGING STABILITY LIMITS, MONITORING, FUEL SUPPLY LOSSES.
THIS IS NINE FTES TO FULFILL THIS CAPACITY.
THIS IS ANOTHER ITEM THAT WAS IN THE PRIOR BUDGET BEFORE IT GOT CUT.
WE HAVE IMPROVEMENTS IN FORECASTING.
THIS ALSO WAS DISCUSSED YESTERDAY.
SO ALL THE CHANGING LOAD CHARACTERISTICS THAT WE'VE SEEN ASSOCIATED WITH FORECAST FOR FOUR CP UH, ELECTRIC VEHICLES, LARGE FLEXIBLE LOAD ROOFTOP, SOLAR PRICE SENSITIVITY DEMANDS, ALL OF THOSE THINGS.
AND WE WERE TALKING ABOUT THAT YESTERDAY AND FORECASTING ACCURACY AND HOW WE NEED TO IMPROVE THAT.
I BELIEVE THAT WAS BROUGHT UP IN MEETINGS AS WELL OR THE DESIRE TO IMPROVE THAT.
SO THIS IS ANOTHER HANDFUL OF FTES ASSOCIATED WITH THAT ITEM HAVE IMPROVEMENTS IN TRANSMISSION ANALYSIS BULLET, IT'S NOT ON HERE, BUT THAT IS ALSO ANOTHER RELATED HANDFUL OF FTES FOR TRANSMISSION STUDIES AHEAD OF REAL TIME, DAY AHEAD OPERATIONS PLANNING TIMEFRAME FOR THE INCREASED ANALYSIS AND CAPABILITY DEVELOPMENT IN NEW TOOLS.
IMPROVED MONITORING PERFORMANCE ANALYSIS WITH ALL THE TRANSMISSION WORK THAT'S GOING ON HAVE INCREASED STABILITY LYSES, THAT'S EIGHT FTES THAT'S ASSOCIATED WITH INCREASING NEED FOR NUMBER OF ACCURACY, STABILITY ANALYSIS, ESPECIALLY WITH INVERTER BASED RESOURCES.
AND LARGE LOADS HAVE DYNAMIC MODEL VALIDATION DEVELOPMENT, NEW STANDARDS, ROOT CAUSE ANALYSIS OF THE EVENTS, ALL OF THOSE ITEMS THAT WE'VE BEEN DISCUSSING IN R AND M MEETINGS.
WE HAVE THE INTEGRATION OF ENERGY STORAGE RESOURCES, WHICH IS A HOT TOPIC.
WE HAVE A FEW FTS SET IN THE BUDGET TO ACCOMPLISH THAT FOR THE INCREASING THE CAPABILITY TO ANALYZE THE COMPLEXITY OF STATE OF CHARGE RELATED ISSUES AND PERFORMANCE AND PROVIDING ANCILLARY SERVICES, HOW THAT WORKS WITH FREQUENCY CONTROL.
WE HAVE THE INTEGRATION OF LARGE FLEXIBLE LOADS.
SO THIS IS SOMETHING THAT DIDN'T EXIST A FEW YEARS AGO, BUT HERE WE ARE FACED WITH IT.
WE HAVE NINE FTES AND IN CREATING AN ENTIRELY NEW DEPARTMENT, WE HAVE PEOPLE IN PLANNING AND MODELING FOR THIS AS WELL.
AND THIS IS ONE OF THE ONES WHERE THE FTE IMPACT OF THIS COULD CHANGE AS BILLS ARE PASSED AND WE UNDERSTAND BETTER WHAT THE REQUIREMENTS WILL BE GOING FORWARD.
BUT WE'VE PUT THE NINE IN THERE FOR NOW TO MAKE SURE THAT WE'RE NOT SURPRISED BY THIS LATER.
AND WE HAVE A PLACEHOLDER FOR IT BASED ON WHAT OUR BEST GUESS IS.
NOW WE HAVE A NEW OPERATOR DEVELOPMENT PROGRAM.
THIS IS SIMILAR TO THE ENGINEER DEVELOPMENT PROGRAM THAT WE TALKED ABOUT FREQUENTLY AND ALSO THE NEW GMS PROGRAM.
AND SO THIS IS ANOTHER FEW EMPLOYEES TO HELP INCREASE THE CANDIDATE POOL BY HIRING LESS EXPERIENCED CANDIDATES WITH HIGH POTENTIAL IN TRAINING THEM IN THE POWER SYSTEM OPERATION.
WE HAVE SUPPLY DELIVERABILITY IN DIRECT CURRENT DC TIE STUDIES.
SO WE HAVE A COUPLE OF PEOPLE IN HERE TO HELP WITH THE MODELING, INCORPORATING DC TIES INTO THE, INTO OUR ECONOMIC MODELS AND ESPECIALLY AS WE START TALKING ABOUT REQUIRING US TO HAVE KNOWLEDGE OF THEIR ADJACENT ISO MARKETS.
WE HAVE THE WEATHERIZATION INSPECTIONS.
WOODY MENTIONED THAT YESTERDAY AND DAVID WAS HERE TO TALK THROUGH THE WEATHERIZATION AND HOW THIS IS ALREADY STAFFED.
THERE'S 12 FTS IN THIS BUDGET FOR THAT.
AND AS FAR AS AN INCREASE, BECAUSE BEFORE WE WERE LOOKING AT USING IT FROM AN OUTSIDE SERVICE PERSPECTIVE AND NOT NECESSARILY A HEADCOUNT.
WE BROUGHT THAT IN-HOUSE BECAUSE IT SAVES MONEY AND PROVIDES BETTER SERVICE AND IS REVENUE NEUTRAL FROM THE SYSTEM ADMINISTRATION FEE PERSPECTIVE BECAUSE WEATHERIZATION HAS ITS OWN USER FEE.
WE HAVE THE GENE GENERATION INTERCONNECTION STUDIES.
THIS WAS ALSO DISCUSSED YESTERDAY AND WE HAVE ANOTHER DOZEN FTES IN THERE FOR THE EXPANDED INTERCONNECTION STUDIES.
ANOTHER ITEM THAT AFFECTS THE HEADCOUNT TABLE AND CHART WHILE WE'RE ADDING 12 FTES, BUT IT SHOULDN'T AFFECT THE SYSTEM ADMIN FEE RATE REQUIREMENT BECAUSE IT SHOULD BE OFFSET BY GENERATION INTERCONNECTION STUDY FEES, THE USER FEES ASSOCIATED WITH THEM.
THEN WE ALSO HAVE THE ADDITIONAL STILL PORT STAFF ON THIS ITEM WHERE WE'RE TALKING ABOUT FIVE FTES TO AUGMENT THE ENGINEER DEVELOPMENT PROGRAM BEFORE WE HAD BUDGET FOR SOME AND WE WOULDN'T BUDGET FOR OTHERS EVEN THOUGH IT WOULD HAPPENED WHEN WE WOULD BALANCE IT OUT.
SO WE'RE TRYING TO FLESH OUT THAT, AND YOU COULD ARGUE THAT SOME OF THEM WEREN'T EVEN BUDGETED FOR WHEN THEY SHOULD HAVE BEEN PREVIOUSLY.
BASED ON OUR STRATEGY, WE HAVE AN ADDITIONAL FIVE FTES ASSOCIATED WITH, OOPS, SORRY, ASSOCIATED WITH SOME OF THE OTHER MODELING REQUIREMENTS AND WHAT HE WAS TALKING ABOUT YESTERDAY.
[01:50:01]
WE HAVE A FEW FTS ASSOCIATED WITH PLANNING AND BASED ON THE REQUIREMENTS FOR NEW REPORTS, NEW ECONOMIC STANDARDS AND RESILIENCY STANDARDS, WE HAVE ADDITIONAL PEOPLE FOR TO ENHANCE PROCESS IMPROVEMENTS AND REPRE, UH, EVENT AND ANALYSIS AND METRIC REPORTING.SO WE HAVE ANOTHER SEVEN PEOPLE FOR THAT ACROSS DAN AND WOODY'S TEAMS. SO THERE ARE A LOT OF INCREASES THERE.
WHEN YOU PUT 'EM ALL ON ONE PAGE, IT ADDS UP QUICKLY.
BUT IT'S ALL STUFF THAT WE'VE BEEN DISCUSSING FOR A WHILE AND WE TRY TO BE VERY TRANSPARENT ON WHAT KIND OF QUESTIONS DO YOU HAVE ON THE GRID RELIABILITY REQUIREMENTS BEFORE WE MOVE FORWARD.
LET'S GO ON TO THE NEXT SECTION.
OKAY, MR. CHAIRMAN, UH, ON THAT ONE.
UH, OKAY, PABLO, ARE THE DISTRIBUTION LEVEL STUDIES AND ANALYSIS, IS THAT IN GRID RELIABILITY OR IS THAT IN ANOTHER SUBSECTION IN TERMS OF THOSE COSTS, THE DISTRIBUTION LEVEL STUDIES THAT YOU REFERENCED EARLIER AND ANALYSIS, ARE YOU DOING THAT IN GRID RELIABILITY OR ARE YOU DOING THAT IN A, IN ANOTHER MARKET DESIGN BUDGETARY SEGMENT? JUST SO WE CAN KIND OF SEE THAT IN THE OUT YEARS, HOW THAT EVOLVED? THAT WOULD, THAT WOULD LIKELY BE IN THE GRID RELIABILITY SE SEGMENT.
SO IT'S THOSE MODELERS AND AND PLANNERS IN WOODY'S GROUP.
THAT AND IN MARKET DESIGN BOTH.
SO IT WOULD BE, I I IT'S SOME OF IT IS ANTICIPATED AND NOT EXACTLY PLANNED YET BECAUSE RIGHT NOW WHAT WE HAVE, UH, WHAT WE ARE EXECUTING IS FOR THE CURRENT PROTOTYPE, BUT WHAT WE EXPECT TO CONTINUE TO ADVANCE OVER THE NEXT FEW YEARS IS BUILDING AND DEVELOPING A CAPABILITY TO DO SOME OF THESE TYPES OF STUDIES.
WE WOULD DO THAT BETWEEN THE MARKET DESIGN GROUP AS WELL AS BETWEEN AND THE, UH, GRID RELIABILITY TEAM IN BOTH.
AND THEN THAT LEADS INTO THIS NEXT ONE OF MARKET DESIGN AS WELL.
AND SO THIS IS ABOUT 17 TO 18 MILLION AND THIS INCLUDES OVER A DOZEN HEADCOUNT AND THEN ALSO HAS OUTSIDE SERVICES ASSOCIATED WITH IT.
SO WE HAVE THE DESIGN STUDY PIECE THAT YOU WERE JUST REFERENCING, WHICH DOES INCLUDE RESOURCE ADEQUACY, DISTRIBUTION LEVEL RESOURCES, BATTERY ENERGY STORAGE, UH, THE NEW LOAD PLUS GENERATION INTERCONNECTIONS THAT REQUIRE ADDITIONAL REVIEW FROM THE SETTLEMENT METERING TEAM.
SO SOME OF THESE CROSS BETWEEN THOSE AREAS AS WELL.
SO IT IS, THAT'S WHY I WAS SAYING IT'S NOT ALWAYS A ONE-TO-ONE RELATIONSHIP.
THAT'S A CLEARLY DEFINED LINE.
WE TRY TO PUT IT IN IN GROUPS THAT MAKE SENSE.
UH, ADDITIONALLY YOU HAVE THE GAS UNIT UNIT VIABILITY IN THE CURRENT MARKET AND STUDIES ASSOCIATED WITH THAT ARE IN HERE AND FROM INCORPORATED COSTS FOR THAT.
WHEN YOU LOOK AT THE MARKET REDESIGN EFFORTS, THE SECOND ONE ON HERE, THEN WE HAVE, MAN, I'M SORRY, I CAN'T CONTROL MYSELF.
THEN WE HAVE CHANGES TO EMERGENCY RESPONSE SERVICE.
WE'VE COME FOR CHANGES TO THE OPERATING RESERVE DEMAND CURVE.
WE HAVE BRIDGE MONEY IN HERE FOR THE BRIDGE SOLUTION WORK.
WE HAVE THE FIRM FUEL SUPPLY SERVICES PHASE ONE AND TWO.
WE HAVE MONEY FOR A NEW NODAL PROTOCOL REVISION REQUEST THAT WE'RE EXPECTING.
WE HAVE SOME EFFORTS SET ASIDE FOR REEXAMINING THE CREDIT AND COLLATERAL AREAS.
TALK SOME MORE ABOUT THAT LATER.
WE HAVE THE FINISHING DELIVERY OF REAL-TIME CO-OPT OPTIMIZATION.
EVERYBODY KNOWS THE POTENTIAL VALUE THAT THAT BRINGS TO THE CUST THE CUSTOMERS.
AND WE HAVE BATTERY ENERGY STORAGE INITIATIVES ALSO IN HERE.
WE HAVE, UH, MANY OF THESE AS I BRIEFLY MENTIONED, BUT MANY OF THESE INITIATIVES REQUIRE OUTSIDE EXPERTISE TO MODEL AND PROVIDE KNOWLEDGE THAT WE DON'T CURRENTLY HAVE IN HOUSE.
WE ALSO HAVE ADDITIONAL SUPPORT STAFF NECESSARY FOR DEALING WITH HIGH VOLUME OF CR CONGESTION REVENUE RIGHTS ACTIVITY THAT WE HAVE BACKING THE DAY AHEAD TEAM AND THE ABILITY TO CLEAR THE DAY AHEAD MARKET.
AND THEN WE ALSO HAVE ADDITIONAL HEADS ASSOCIATED WITH THE MARKET RULES AND STAKEHOLDER SERVICES AS WE TALK ABOUT ALL THE CHANGES THAT ARE COMING THROUGH HERE AS AN IMMENSE AMOUNT OF CHANGES THAT ARE MAKING SURE THAT WE HAVE RESOURCES AVAILABLE TO DO THIS WORK.
AND IN SOME PLACES WE ARE SINGLE THREADED AND SO WE DON'T WANT TO BE IN THAT SITUATION.
MOVING ON TO NUMBER FOUR, THE RETENTION RECRUITMENT PIECE.
THIS IS ABOUT 24 MILLION IN TOTAL AND THESE ARE THE ITEMS THAT WE'VE DISCUSSED SOMEWHAT IN THE EARLIER PRESENTATION TODAY AND THEN OVER THE PAST SEVERAL MONTHS WITH Y'ALL.
SO THE HIGHER COST RELATED DIFFICULT TO FILL POSITIONS, THAT'S ONE OF THE ONES THAT HAS DRIVERS AND COSTS THAT OVERLAP WITH OTHER AREAS.
WE HAVE THE NEW EMPLOYEE RETENTION PROGRAMS WHERE WE HAVE THE SHORT-TERM AND LONG-TERM INCENTIVE PROGRAMS IN THERE.
WE HAVE, UH, MONEY INCLUDED IN THE BUDGET FOR NECESSARY MARKETED ADJUSTMENTS FOR THOSE HIGH DEMAND AREAS.
[01:55:01]
WE HAVE MONEY IN THE BUDGET TO ALLOW FOR NEW PROGRAMS TO HELP HEIGHTEN THE EMPLOYEE EXPERIENCE AS WELL AS TOOLS TO EVALUATE THE EFFECTIVENESS OF THOSE PROGRAMS. WE'VE TALKED ABOUT SOME OF THAT WITH YOU ALL BEFORE.WE ALSO HAVE INCREASED NEED FOR INCREASED ORGANIZATIONAL SUPPORT.
AS YOU WOULD IMAGINE WHEN WE'RE TALKING ABOUT THIS INCREASE IN HEADCOUNT AND THE INCREASE IN THAT FOCUS ON THE ENHANCING THE EMPLOYEE EXPERIENCE, THAT LEADS TO ADDITIONAL HEADS IN THE HR TEAM AS WELL TO COVER THAT ACTIVITY, ESPECIALLY FROM A RECRUITING AND RETENTION PERSPECTIVE.
OUR FOURTH ITEM, OUR FIFTH ITEM RATHER, IS LEGAL AND COMPLIANCE.
THESE, AGAIN, ARE MOSTLY THINGS THAT WE'RE FAMILIAR WITH.
WE HAVE THE ENHANCING OUR INTERNAL KNOWLEDGE ASSOCIATED WITH THE NATURAL GAS FIRM FUEL INITIATIVES, FEDERAL ENVIRONMENTAL RULE CHANGES THAT MAY IMPACT DISPATCHABLE RESOURCES.
WE WANNA MAKE SURE THAT WE'RE ABLE TO LEVERAGE EXTERNAL EXPERTISE ON THOSE THINGS.
WE HAVE THE RELIABILITY MONITOR, WHICH IS NOW IN-HOUSE AS I MENTIONED BEFORE, THAT INCREASES THE HEADCOUNT.
IT DOESN'T NECESSARILY INCREASE THE COST BECAUSE WE HAD MONEY BUDGETED FOR TRE BEFORE TEXAS RELIABILITY ENTITY.
SIMILARLY FOR SECURITIZATION, THAT INCREASES THE HEADCOUNT AND ALSO OUR SOFTWARE EXPENDITURES, BUT WE DO RECEIVE REVENUE TO OFFSET THOSE AND WE RECEIVE COST OFFSET THE PROJECTS AS WELL.
WE HAVE WINTER STORM URI LITIGATION, WHICH Y'ALL ARE VERY FAMILIAR WITH, AND THAT IS INCREASED DEMANDS ACROSS THE ORGANIZATION, MOSTLY IN THE LEGAL AREA.
AND THEN WE HAVE ADDITIONAL SUPPORT STAFF FOR CORPORATE GOVERNANCE, INFORMATION GOVERNANCE, COMPLIANCE AUDIT WORK, AS WELL AS THE OVERALL INCREASED REGULATORY REQUIREMENTS WE'RE FACING.
AND THE FINAL ITEM ON THIS PAGE IS JUST THE NORMAL GROWTH, AND WE ALWAYS PUT THAT IN THERE AS A CATEGORY TO SAY, IF NONE OF THIS OTHER STUFF CHANGED, WHAT WOULD IT HAVE LOOKED LIKE? AND THAT'S WHERE YOU'RE TALKING ABOUT THE LABOR INFLATION AND THE COST INFLATION.
THAT'S ABOUT 13 MILLION IN THIS PRESENTATION.
SO THAT'S MY LAST, THAT COVERS ALL SIX OF THESE AS FAR AS THE BUDGET DRIVERS FOR EXPENDITURES, WE'LL GO INTO THE ASSUMPTIONS AND THEN SEE THE WATERFALL IN A SECOND AS WELL.
WE'RE GONNA TALK A LITTLE BIT MORE ABOUT IT THEN.
BUT ANY ADDITIONAL QUESTIONS ON THIS PAGE BEFORE WE MOVE FORWARD? I DID HAVE A QUESTION ON THE TECHNOLOGY INFRASTRUCTURE AND COMMUNICATIONS.
YOU MENTIONED, UM, PROJECT MANAGEMENT.
AND SO I WAS WONDERING, DID YOU INCLUDE, UH, A COST ASSOCIATED WITH, UM, EITHER DEVELOPING INTERNAL SOFTWARE OR PROCURING SOFTWARE TO SUPPORT IT IN ADDITION TO THE HEADCOUNT? YES.
WE RECENTLY, IF I UNDERSTOOD THE QUESTION CORRECTLY, WE RECENTLY IMPLEMENTED A PROJECT ONLINE AS WELL.
AND SO WE WE'RE USING THAT FOR OUR PROJECT MANAGEMENT SOFTWARE.
ARE WERE YOU TALKING ABOUT SOMETHING ELSE? WERE YOU, YOU JUST MENTIONED THE INITIATIVE AND THE CHANGE TO THE BUDGET TO PROJECT MANAGEMENT.
AND SO I WAS JUST WONDERING THAT INITIAL INITIATIVE, DID IT ALSO INCLUDE SOME ADDITIONAL SOFTWARE? ARE YOU'RE GONNA USE WHAT YOU ALREADY HAVE? UH, MOSTLY WHAT WE ALREADY HAVE.
WE HAVE A, WE'RE GOING TO EXPAND ON THE FUNCTIONALITY OF THAT TOO.
THERE MIGHT BE SOME ADDITIONAL COSTS ASSOCIATED WITH THAT IS WE EXPAND ON IT, BUT THE PRIMARY SOFTWARE IS IN PLACE ALREADY.
UH, THERE'S, THIS IS MOSTLY A HEADCOUNT PERSPECTIVE.
OKAY, LET'S GO THROUGH THE ASSUMPTIONS.
SO GOING ON THIS SLIDE THEN FROM LABOR, WHAT WE DO IS WE DO THAT HEADCOUNT BUILDUP AND WE DEFINE OUR NEEDS, OUR KNOWN AND FUTURE ESTIMATED WORK.
THERE'S ALWAYS UNCERTAINTY ABOUT WHAT THAT FUTURE ESTIMATED WORK LOOKS LIKE.
AS WE'RE GOING THROUGH THIS PROCESS, WE ALSO LOOK AT THE THINGS THAT WE NO LONGER NEED TO BE DOING.
WE HAVE HAD THOSE, SOME OF THOSE ITEMS I'VE BEEN ABLE TO ROLL OFF, WE'VE BEEN ABLE TO REPURPOSE HEADCOUNT FROM THAT PERSPECTIVE.
FOR FILLED POSITIONS, WE USE OUR CURRENT SALARIES, VACANT POSITIONS USE THE PAY GRADE MIDPOINTS OF THOSE VACANT POSITIONS, UH, THE APPROVED INCENTIVE AND RETENTION PROGRAMS ARE INCLUDED.
AS A PREVIOUSLY MENTIONED, WE HAVE OUR ANNUAL INCREASES FOR MERIT AND PROMOTION THAT ARE INCREASED INCLUDED.
AND THEN WE HAVE THE VACANCY SAVINGS INCORPORATED.
AND THIS IS ONE OF THE QUESTIONS THAT COMES UP IS HOW SOMETIMES IS HOW DO WE ACCOUNT FOR THE FACT THAT NOT EVERYBODY IS ALWAYS HERE AT THE SAME TIME, WE'RE NOT ALWAYS GONNA HAVE ALL THESE BUDGETED POSITIONS FILLED, ALTHOUGH THIS YEAR WILL BE WELL OVER BUDGET BY THE END OF THE YEAR IF THINGS GO AS PLANNED.
YOU'LL SEE IT IN THE DETAIL MATERIALS WHERE WE TAKE A HAIRCUT, WE ASSUME A RATE OF VACANCY.
WE ACTUALLY WORK WITH THE EXECUTIVES AND THEN WITH HR SPECIFICALLY ON THE HIRING PLAN, BUILD IT OUT MONTH BY MONTH HIRINGS AND TERMS AND ASSUMPTIONS ASSOCIATED WITH THEM TO SEE WHAT WOULD BE A REASONABLE VACANCY RATE AND JUST COME TO ARRIVE AT THESE NUMBERS FROM A NON-LABOR PERSPECTIVE.
THEN THERE WE USE COMPLETE ZERO BASED BUDGETING
[02:00:01]
WHERE WE START UP AND MAKE EVERYBODY BUILD EVERYTHING UP FROM THE GROUND.SAY WHAT ARE WE ACTUALLY NEEDING? NOW SOME OF THESE ARE MULTI-YEAR CONTRACTS, SO WE CONFIRM THAT THEY'RE STILL IN PLACE FOR SOME OF THESE MAJOR ITEMS. SO YOU HAVE THAT ASPECT OF IT.
SO IT'S NOT, MIGHT NOT BE QUITE AS ONEROUS AS IT SOUNDS, BUT EVERYTHING HAS TO GO THROUGH THAT JUSTIFICATION PROCESS.
AND THEN THE PROJECTIONS BEYOND THE TWO BUDGET YEARS ARE USING THE COMPOUND ANNUAL GROWTH RATE, JUST LIKE THE LABOR WOULD USE LABOR GROWTH RATE.
FROM PROJECT EXPENDITURE PERSPECTIVE, WE TAKE THE ROADMAPS THAT WE'VE DEVELOPED.
WE HAVE PRIORITIZATION REVIEW AND THEN WE INCLUDE THOSE FUTURE ESTIMATES, SEE THE DETAIL IN THE BACK OF THIS DOCUMENT WHERE IT HAS RANGES IN 24 AND 25.
FOR THOSE WE HAVE SUMMARY NU NUMBERS AND THEN ALSO BY OUR GROUPINGS AND THE APPENDIX, YOU CAN SEE THE GROUPINGS FOR LIKE TECHNOLOGY, HEALTH FOR HARDWARE, SOFTWARE, INTERNAL ENHANCEMENTS, ALL THOSE GROUPINGS.
AND THEN WE DO HAVE THE CURRENT ESTIMATES FOR THE MARKET DESIGN EFFORTS.
WE EXPECT TO HAVE A REVISED ESTIMATE ON THAT BY THE TIME WE BRING THIS BACK IN JUNE AS WELL.
AS I SAID, WE GROUP THOSE INTO THOSE PRIMARY BUDGET DRIVERS.
AND THEN ALSO, AS I PREVIOUSLY MENTIONED BEFORE WHEN WE WERE TALKING ABOUT EXPENDITURES, THEN OUR KEY PERFORMANCE INDICATOR IS BASED ON SPEND ONLY.
WE DON'T CONSIDER REVENUE WHEN WE'RE LOOKING AT THE KEY PERFORMANCE INDICATOR.
SO SEAN, WHAT UH, INTEREST RATE, ASSUMPTION AND COST OF LIVING ASSUMPTIONS ARE IN THERE? YES.
SO THE INTEREST, SO AS FAR AS THE EXPENDITURE SIDE IS CONCERNED, SO INTEREST INCOME WE'LL TALK ABOUT IN A LITTLE BIT FROM AN INTEREST EXPENSE PERSPECTIVE.
THEN WE HAVE OUR FIXED INTEREST EXPENSE, WHICH WOULD BE OUR PRIMARY ONE AS FAR AS INFLATION.
THAT'S INCLUDED IN INFLATION SLASH COST OF LIVING IS INCLUDED IN OUR MERIT ASSUMPTIONS FOR WHAT THOSE INCREASES WOULD BE GOING FORWARD, AS WELL AS THE INFLATIONARY ASSUMPTIONS THAT WE'LL USE THAT WE GET FROM, UH, OUR HISTORICAL RATES AS WELL AS COMPARING THOSE TO THE ESTIMATES FROM C P I AND PPI.
I WAS LOOKING FOR A NUMBER PLEASE.
OH, SO THE MERIT IS ABOUT 6% THE SAME AS WHAT WE USED LAST YEAR.
ALL RIGHT, THIS IS THE PAGE THAT WE WANNA PUT IN HERE.
IT'S ONE OF THOSE OTHER PAGES THAT REALLY HIGHLIGHTS THE IMPACT OF ALL THIS WHEN YOU PUT IT ON ONE PAGE AND WILL BE VERY IMPORTANT AS WE GO FORWARD.
AND ALSO SHOWS THE DEMANDS THAT THE ORGANIZATION IS FACING.
NOW, THIS SHOWS THE EMPLOYEE POSITION COUNTS BY OFFICE.
AS I SAID, SOME OF THIS WILL TIE DIRECTLY TO THE, MORE DIRECTLY TO THOSE SIX GROUPS, BUT THERE IS OVERLAP.
AND THEN WE KNOW THAT I DON'T THINK ANYBODY CAN QUESTION THAT PEOPLE ARE AIRCRAFT'S MOST VALUABLE RESOURCES AND THEY ARE OUR LARGEST EXPENSE BY FAR.
THERE'S NO QUESTION ABOUT EITHER OF THOSE THINGS.
AND THAT'S WHAT WE SEE ON THIS SLIDE AS WELL.
WHEN WE GO INTO THE LATER SLIDE WHERE WE SHOW IN THE DETAIL IN THE APPENDIX WHERE IT BREAKS IT OUT BY SALARIES, YOU CAN EASILY SEE THAT.
SO THIS SLIDE IS SET UP THE WAY THAT OUR FILING REQUIREMENT SLIDE IS, OTHER THAN THE FACT THAT WE'VE ADDED VARIANCE COLUMNS IN HERE.
AND AS YOU LOOK AT THE SLIDES THROUGH THE REST OF THIS PRESENTATION THAT WE WILL BE PRESENTING, WE SHOW THE LAST YEAR ACTUAL, SO THAT'S 2022.
IN THIS CASE, I'M GOING ACROSS THE TOP OF THIS.
WE HAVE THE 23 BUDGET, THEN WE HAVE THE 23 FORECAST, THEN WE HAVE THE 24 AND 25 REQUESTS, WHICH ARE THE BUDGETS THAT WE'RE ACTUALLY ASKING YOU TO APPROVE THE MATERIALS.
LATER WE'LL HAVE ALSO HAVE, UM, 25, OR SORRY, 26, 27, 28, AND 29 BECAUSE WE ARE REQUIRED TO FILE THE NEXT SIX YEARS IN OUR FILING.
SO THAT WOULD BE 24 THROUGH 29.
AND THAT'S WHY WHEN WE'RE TALKING ABOUT THE PREVIOUS SLIDES WHERE WE USE SOME OF THOSE GROWTH ASSUMPTIONS FROM THOSE OUT YEARS AND WE'RE JUST USING, IN SOME CASES WE KNOW IF WE HAVE LONGYEAR CONTRACTS, BUT IN MOST CASES WE'RE JUST USING THOSE OTHER ASSUMPTIONS AND WE DON'T MAKE THE HEADCOUNT ADJUSTMENTS PER SE IN THOSE OUT YEARS.
AND SO HERE YOU CAN SEE THAT AT THE END OF DECEMBER, SO DECEMBER 31ST, WE HAD 790 PEOPLE.
WHEN YOU LOOK AT THE HR AND G THE HR OPS REPORT, YOU CAN SEE THAT WE'RE DOING A MUCH BETTER JOB NOW OF HAVING RE STARTING TO REDUCE, UM, ATTRITION AS WELL AS DOING A GREAT JOB OF RECRUITING NEW PEOPLE AND GETTING THEM IN HERE AND GROWING THIS OUT, AND THIS IS WHAT I'M TALKING ABOUT WHEN WE LOOK AT THIS 23 FORECAST, THAT IS A YEAR END NUMBER AS WELL, AND THAT IS BASED ON THAT WORK THAT WE'VE DONE WITH HR AND THE REST OF THE TEAMS TO FILL IN THE ASSUMPTIONS OF HOW WE THINK THOSE POSITIONS WOULD GET FILLED.
YOU CAN SEE THAT BY THE END OF THE YEAR OF 2023, WHEN WE'RE TALKING ABOUT THAT NUMBER, THAT MAKES UP THAT 20
[02:05:01]
TO 30 PORTION OF THAT 31 MILLION THAT WE SAW EARLIER AT THE 25 MILLION PORTION AT THE END OF THE YEAR.THAT INCLUDES 55 PEOPLE BEYOND WHAT WAS IN THAT 23 BUDGET TO ACCOMPLISH ALL THESE TASKS THAT WE'RE TALKING ABOUT.
THEN WHEN WE LOOK AT THE 24 REQUEST OVER THAT 23 FORECAST, THEN WE SEE AN INCREASE OF AN ADDITIONAL 109 PEOPLE TO GET TO JUST OVER THAT THOUSAND PERSON THRESHOLD, AND THEN WE HAVE A FEW ADDITIONAL INCREASES IN 25.
YOU CAN ALSO SEE FROM THIS SCHEDULE WHAT I MENTIONED BEFORE, WHEN YOU'RE LOOKING AT THOSE LARGE INCREASES, WE'RE TALKING ABOUT THAT GRID RELIABILITY COMPONENT OF SYSTEM OPERATIONS AND SYSTEM PLANNING ON WEATHERIZATION.
THIS SUMMARIZES WHAT I PRESENTED ON THE PREVIOUS SLIDES FROM A HEADCOUNT PERSPECTIVE, BUT WE WANNA MAKE SURE THAT WE SHOWED THIS TO YOU AND SEE IF THERE WERE ANY ADDITIONAL QUESTIONS ON IT.
THE NEXT SLIDE IS THE WATERFALL, WHICH TAKES THOSE NUMBERS THAT I HAD TOLD YOU BEFORE AND STACKS THEM ON TOP OF EACH OTHER.
AS I PREVIOUSLY MENTIONED, ABOUT 25 MILLION OF THIS INCREASE IS JUST A VARIANCE IN THAT THAT VARIABLE PROJECT SPEND, BUT IT IS, THERE IS NO QUESTION IT IS A SIGNIFICANT INCREASE IN THE DOLLAR AMOUNTS.
AND SO THIS REPRESENTS A FULL 112 MILLION INCREASE.
UH, 45 MILLION OF THAT INCREASE ACTUALLY OCCURS IN THE 23 FORECAST.
SO WE ARE COMMITTING TO THAT SPEND TO MAKE SURE THAT WE GET THE STUFF DONE THAT WE NEED TO GET DONE, AND WE ARE REMOVING RISK FROM THE EQUATION AS MUCH AS WE CAN, AS FAST AS WE CAN AND INCORPORATING THE OTHER NEW DEMANDS THAT WE ARE SEEING.
SEEING SEAN, THE TWO 40 START POINT ON THAT VERSUS THE 2 62 THAT WE SAW EARLIER, WHAT'S THE DIFFERENCE? THE 2 62? YEAH, THAT WAS ON THE, IN THE, UH, FINANCIAL SUMMARIES WHEN YOU HAD THE TWO BOXES, THE REVENUE ON THE LEFT AND THE, OH, THIS IS, SO THE FINANCIAL SUMMARY SHOWS TOTAL EXPENDITURES.
IT DOESN'T NET THE DEPARTMENT REVENUES.
THIS PAGE IS IN THE FORMAT OF THE SYSTEM ADMINISTRATION FEE IMPACT, SO IT NETS THE DEPARTMENT REVENUES AGAINST THOSE EXPENDITURES.
SO WEATHERIZATION REVENUES WOULD BE IN HERE, SO THIS IS WHERE THAT WEATHERIZATION TEAM WOULD APPEAR.
PRETTY REVENUE NEUTRAL IN THIS CASE.
UH, ADDITIONALLY THE SECURITIZATION, IF YOU GO BACK TO THE FINANCIAL SUMMARY ON THE LEFT HAND SIDE, YOU'D SEE THE REVENUES ON THE RIGHT HAND SIDE, YOU'D SEE THE EXPENDITURES, AND HERE THEY'RE NETTED IF THEY'RE NOT SYSTEM ADMINISTRATION FEE FUNDED, I'LL ASK IT DIFFERENTLY.
WHAT IS THE 2023 USING THE SAME MATH AND NETTING OUT THOSE ITEMS YOU JUST MENTIONED? UH, FINAL ESTIMATED COST, NOT JUST THE BU, NOT THE BUDGET FROM 2023, BUT THE FINAL RUN RATE COST.
SO ON HERE YOU CAN SEE THAT BREAKOUT.
WHERE WE HAVE ON THIS PAGE IS SHOWING THAT NET NUMBER.
SO THIS IS WHERE YOU GET THE TWO EIGHT, THE TWO 40.5 IS ON ROW EIGHT IN HERE BECAUSE THAT'S ALL THE NET EXPENDITURES ON THIS PAGE.
YOU SEE THE SOURCES AND USES, WHICH IS WHY I SAY THERE'S TWO THINGS THAT THE PUC APPROVES.
AND THEN THIS PAGE IS WHERE YOU SEE THE DEPARTMENT EXPENDITURES NOT NET GROW FROM A 23 BUDGET OF 2 31 TO A 23 FORECAST OF 2 63 TO A 24 REQUEST OF THREE 14 IN ROW EIGHT.
DID THAT ANSWER YOUR QUESTION CORRECTLY? I DIDN'T WANNA MOVE ON FROM THIS SLIDE IF ANYBODY ELSE HAD ANY ADDITIONAL POINTS.
UH, AGAIN, I THINK THE KEY TAKEAWAY HERE IS, UH, OF THE 112 MILLION NET EXPENDITURE INCREASE, UH, 45 MILLION OF THAT IS BEING INCURRED THIS YEAR ARE PROJECTS THAT ARE BEING ADDED TO THE PROFILE OF THE WORKLOAD HERE.
UH, AND THEN THE, THE NEXT AMOUNT, THE 67 MILLION IS BEING ADDED NEXT YEAR, UH, TO MEET THE REQUIREMENTS, UH, THAT ERCOT IS BEING ASKED TO PERFORM.
LET'S GO ON THE, LET'S KEEP GOING.
SO THIS SLIDE SHOWS THAT REVENUE DETAIL AS WE LOOK AT THE HISTORICAL AND WE SHOWED, ADDED A COUPLE OF EXTRA YEARS OF HISTORICAL IN HERE INFORMATION IN HERE JUST TO SHOW THAT THIS DOESN'T CHANGE ACROSS TIME MUCH.
AND YOU'LL SEE THE DETAIL WHEN WE LOOK AT THE FORECAST OF WHAT THIS LOOKS LIKE OF BREAKING OUT THE SYSTEM ADMINISTRATION FEE VERSUS THE USER FEES, AND THEN BASICALLY THE SURFACING AND ADMINISTRATION FEES.
[02:10:01]
HERE, AND THIS IS WHEN WE'RE TALKING ABOUT THERE'S IN THAT 23 FORECAST, THERE'S 14 MILLION, 14.3 MILLION PLUS THE $1.7 MILLION.SO THE $16 MILLION THAT IS OFFSETTING THOSE EXPENDITURES WHEN YOU NET THEM OUT.
BUT YOU STILL SEE THAT OTHER THAN THE BUDGET WHERE WE HAD FOR 23 WHERE WE HAD A VERY LARGE AMOUNT OF WEATHERIZATION INSPECTION FEES, OVERLY STATED BASED ON OUR AS INITIAL ESTIMATES OF WHERE WE THOUGHT THAT WOULD END UP, THEN IN HERE YOU'RE STILL 94% PLUS OF THE REVENUES COME FROM THIS SYSTEM ADMINISTRATION FEE RATE, WHICH IS THE REASON THAT WE PRESENT A LOT OF THE STUFF THE WAY WE DO.
AND THEN THIS IS ALSO THE PIECE THAT GOES WOOD IN THEORY FLOW THROUGH TO THOSE RESIDENTIAL CUSTOMERS, BUT VERY CONSISTENT.
AND THEN YOU'LL SEE THIS NUMBER ACTUALLY GROW AS WE LOOK INTO THE 24 25 BUDGET REQUEST IN A FEW SLIDES.
SO OVERALL HIGH LEVEL REVENUE ASSUMPTIONS.
SO WE HAVE OUR FEE STRATEGY, WHICH IS TO SEEK TO MAINTAIN STABLE, FAIR AND PREDICTABLE FEES.
YOU'LL SEE THAT IN OUR FINANCIAL CORPORATE STANDARD.
THE LOAD FORECAST WE USE IS USING THE MULTI-YEAR LOAD FORECAST FROM THE LOAD FORECASTING ANALYSIS TEAM, AND IT'S THE SAME MODEL THAT WE USE FOR THE SEASONAL ASSESSMENT OF RESOURCE ADEQUACY AND THE CAPACITY DEMAND AND RESERVE REPORTS.
SOMETHING THAT'S PRETTY UNIQUE ABOUT THIS TIME IS THAT IN ADDITION TO USING THE MOODY'S FORECAST AND CONDITIONS AND THE NORMAL WEATHER FORECAST WE HAVE, THE TEAM ADDS LARGE NUMBER MANUAL ADJUSTMENTS WHEN THEY THINK IT'S APPROPRIATE.
AND THIS MODEL HAS THE LARGEST AMOUNT OF THOSE THAT WE'VE SEEN, AND IT INCLUDES 8% OF THE 24 FORECAST AND 9.5% OF THE CURRENT 25 FORECAST FOR WHAT THIS LOAD WILL BE IS FROM THOSE ADJUSTMENTS FOR THINGS LIKE LARGE FLEXIBLE LOAD AND INDUSTRIAL AND TECHNOLOGY LOAD GROWTH.
I KNOW THAT QUESTION'S COME UP BEFORE ABOUT WHAT ADJUSTMENTS DO WE MAKE TO IT TO ACCOUNT FOR THOSE THINGS.
AND THEN FROM A MA, FROM A USER FEE PERSPECTIVE, AGAIN, IN THAT 5% NEIGHBORHOOD OF COST OF REVENUES THAT WE BRING IN, THEN WE BASE IT ON THE MANAGEMENT ESTIMATES OF THAT ACTIVITY OR CONTRACTUAL REQUIREMENTS IN THE CASE OF SOMETHING LIKE SECURITIZATION.
AND THEN THE PROJECTIONS OF THOSE OUT YEARS ARE JUST GROWN BY THE COMPOUND ANNUAL GROWTH RATE ASSOCIATED WITH EACH ITEM.
THIS SLIDE IS SOMETHING THAT I MENTIONED BEFORE WHEN WE WERE TALKING ABOUT THE NEED FOR PERIODIC FEE INCREASES.
SO THIS SHOWS YOU, SO THE THEORY BEING THAT IF LOAD GREW AT THE EXACT SAME PACE AS PACE IS COST INFLATION FOR ERCOT, YOU WOULD NEVER NEED A FEE INCREASE, RIGHT? BECAUSE THAT TOO WOULD OFFSET.
LOAD GROWS AT A PACE LESS THAN 3%, EVEN IN OUR AREA WHERE IT'S GROWING MORE THAN THE REST OF THE COUNTRY.
BUT EXPENDITURES AND COSTS ARE GROWING AT A RATE CLOSER TO 8% OVERALL.
AND THAT'S BECAUSE THIS INCLUDES, THIS STARTS WITH 23 AND THE 23 TO 24 JUMP IS SUCH A HUGE INCREASE.
BEYOND THAT, IT'S THOSE RATES THAT WE'RE TALKING ABOUT THAT WE JUST WENT OVER WITH AND JULIE ASKED A QUESTION ABOUT THE SIX AND THE 5.6%.
SO WE WOULD ALWAYS EXPECT TO SEE FEE INCREASES UNLESS SOMETHING UNUSUAL REALLY HAPPENED AND JUST BECAUSE OF INFLATIONARY COST GROWTH, AND IT'S HOW WE MANAGE THAT FEE INCREASE ACROSS TIME.
IN OUR RECENT TREND, AND YOU'LL SEE THIS IN DETAIL IN A FEW SLIDES, BUT OUR GOAL GENERALLY NOW IS THE, THE FOUR YEAR TIMEFRAME IS OUR STARTING POINT.
THIS NEXT SLIDE WE'RE SWITCHING OVER TO INTEREST INCOME.
SO OUR INTEREST INCOME ASSUMPTIONS WE'LL HAVE IN A SLIDE, BUT I WANTED TO HIGHLIGHT THE SENSITIVITY GRAPH.
WE HAVE SOME MORE SENSITIVITY GRAPHS IN HERE WHEN WE START TALKING ABOUT RISK.
BUT I WANT TO MENTION, WE HAD TALKED ABOUT THIS BEFORE, IF WE GO BACK TO PRIOR TO 2022 WHEN WE HAD TW LITTLE OVER 20 MILLION OF INTEREST INCOME, THEN THE ONLY YEARS WHERE WE HAD MATERIAL INTEREST INCOME AT ERCOT IN THE PAST 20 WERE IN 2018 WHEN WE HAD ABOUT 13 MILLION.
AND IN 2019 WHEN WE HAD ABOUT 20 MILLION BEYOND THAT, IT'S USUALLY CLOSE TO ZERO, RELATIVELY SPEAKING, IT'S NOT IN THE MILLIONS.
AND SO THIS SHOWS THAT THE SENSITIVITY TO THAT ACROSS THE TOP WE HAVE OUR AVERAGE ANNUAL CR FUNDING BALANCE, AND THIS IS USING THE ONE FROM 24 THROUGH 27, AND OUR BASE ASSUMPTION IS 2 BILLION IN THE MIDDLE.
AND THEN WE HAVE, IF THAT DROPS BY 250 MILLION OR INCREASES BY 250 MILLION.
AND DOWN THE SIDE WE HAVE OUR AVERAGE ANNUAL INTEREST INCOME RATE ASSUMPTION, WHICH WE HAVE DETAILED ON THE NEXT SLIDE AS WELL.
BUT THE AVERAGE ACROSS THOSE YEARS, THOSE FOUR YEARS IS 2.13% STARTS
[02:15:01]
OFF HIGHER AND THEN IT GETS LOWER.SO IN THE FIELD OF THIS CHART, YOU SEE THE IMPACT OF THAT ON THE SYSTEM ADMINISTRATION FEE RATE.
SO THE EASIEST ONE, EASIEST WAYS TO SEE THIS IS IF IT'S GREEN, IT WOULD REDUCE THE NEED OF THE SYSTEM ADMINISTRATION FEE RATE FOR FUNDING.
IF IT'S UH, GOES OVER INTO THE RED, THEN IT INCREASES THE NEED.
SO IF WE'RE LOOKING AT THAT $2 BILLION COLUMN IN THE MIDDLE BY THE BLUE AND WE GO DOWN THE CHART TO 2.5% AND WE SEE A ONE AND A HALF CENT NUMBER, THEN WE GO DOWN TO THE THREE AND A HALF PERCENT.
YOU CAN SEE THAT FOR EVERY 1% CHANGE IN THE INTEREST RATE, GIVEN A 2 BILLION BALANCE, THAT EQUATES TO APPROXIMATELY A 4 CENT CHANGE IN THE SYSTEM ADMINISTRATION FEE RATE.
SO IT IS VERY IMPACTFUL WHERE WE ARE NOW WITH THESE INTEREST RATES.
AND THEN THE ASSUMPTIONS THAT WE'RE USING GOING INTO THIS, YOU CAN SEE IF WE DIDN'T HAVE ANY INTEREST INCOME AT ALL, IF THE INTEREST RATES DROPPED TO ZERO, WE'D BE LOOKING AT IN THE NEIGHBORHOOD OF A 8 CENT ADDITION TO THE SYSTEM ADMINISTRATION FEE RATE, BRINGING IT CLOSER TO THAT 79 80 CENT LEVEL AS OPPOSED TO THE 71 WE'RE AT, OOPS, COMPLETELY SCRIPT THE SLIDE.
SO THIS CHART SHOWS THE EXPECTED PATH OF INTEREST RATES.
SO AS WE DISCUSSED BEFORE, LOOKING AT THAT FORWARD CURVE AND WHAT THAT LOOKS LIKE, THIS CHART GOES FROM JUNE OF 23 TO SEPTEMBER OF 25 AND IS SOURCED FROM THE ATLANTA FED AND THEIR ASSUMPTIONS, AS YOU SAW IN LESLIE'S INVESTMENT UPDATE.
WE DO PUT SOME MONEY IN TREASURY BONDS.
WE'RE LOOKING AT HOW TO CAPITALIZE ON THAT BEST AS WE MOVE FORWARD, BUT WE CAN ONLY DO THAT WITH OUR LONGER TERM FUNDS.
THE SHORTER TERM FUNDS, WHICH ARE MOST OF OUR FUNDS.
WE INVEST IN MONEY MARKET MUTUAL FUNDS, WHICH PATH SIMILARLY TO THIS THREE MONTH AVERAGE FUND RATE.
THIS CHART ALSO SHOWS THE RANGE, UH, OF ESTIMATES THAT ARE OUT THERE.
AND SO EVEN THOUGH THIS STARTS OFF AT ABOUT 4.75% IN JUNE FOR THE, THE DARK LINE AND IT DROPS TO ABOUT 3% BY SEPTEMBER, 2025, THE RANGE OF ERROR ON HERE IS ABOUT 150 BASIS POINTS UP OR DOWN AS WE'RE LOOKING OUT.
SO WE WANT TO BE SENSITIVE TO THAT IN OUR ASSUMPTIONS BECAUSE US, AS WE JUST TALKED ABOUT A 4 CENT CHANGE FOR EVERY 1% CHANGE IN THIS 4% CHANGE ON THE SYSTEM ADMINISTRATION FEE RATE FOR EVERY 1% CHANGE IN THIS INTEREST ASSUMPTION IS A BIG DEAL TO ERCOT.
SO THE ASSUMPTIONS THAT WE ENDED UP GOING WITH WE'RE TAKING THE, FROM OVERALL PERSPECTIVE IS WE INVEST IN THOSE FUNDS THAT WE ARE ALLOWED TO INVEST IN.
WE'VE ASSUMED THAT $2 BILLION CONGESTION REVENUE RIGHTS FUND BALANCE, AND WE'VE TAKEN THOSE INTEREST RATE ASSUMPTIONS BASED ON TREASURY FORWARD CURVE, AND WE'VE SUBTRACTED A HUNDRED BASIS POINTS FOR 'EM.
AS YOU SAW, THAT RANGE WAS 150 BASIS POINTS.
SO WE DIDN'T GO DOWN AT THE BOTTOM OF THE RANGE.
WE PULLED IT UP A LITTLE BIT AND THERE'S A TONS OF UNCERTAINTY ABOUT THIS USING THAT.
AND THE, AND WE ALSO RAN THIS BY OUR EXTERNAL COUNCILS AS FAR AS OUR FINANCIAL ADVISORS TO GET THEIR FEEDBACK ON IT TOO, TO MAKE SURE THAT IT ALL MADE SENSE.
BUT THE INTEREST RATES THAT WE'RE USING THEN FOR 23 IS ABOUT THREE POINT A HALF PERCENT, 24 IS TWO AND A HALF PERCENT, AND 25 OR 29 IS DOWN TO 2%.
SO WHEN YOU TAKE THAT TWO POINT A HALF PERCENT AND THAT 2% OBVIOUSLY THREE YEARS AND THE 2% TO GET THAT 24 TO 27 AVERAGE, THAT'S WHERE YOU GET THE 2.13% AVERAGE THAT WE'RE TALKING ABOUT INCLUDING IN THESE ASSUMPTIONS AND ALSO THE ASSUMPTIONS OF GETTING IT TO THAT 40 AND 30 MILLION LEVEL.
UH, FROM A STRATEGY PERSPECTIVE, WE CONTINUE TO DO WHAT WE'VE ALWAYS DONE.
THIS WAS ASKED EARLIER TOO, WE HAVE THE DESIRE TO MAINTAIN OR IMPROVE OUR FINANCIAL INTEGRITY, USE THEIR DEBT MATCHING APPROPRIATELY, AND THEN DO THE LOWEST COST THAT WE CAN, WHICH IS GENERALLY THE USE OF THOSE CONGESTION, REVENUE RIGHTS, AUCTION RECEIPTS.
SO WE ARE NOT PLANNING TO ISSUE ANY NEW DEBT.
OUR 3% NOTES PAYABLE, WE'LL CONTINUE TO BE PAID DOWN AT THEIR REQUIRED 4 MILLION PER YEAR PLUS INTEREST.
AND THEN FROM A CR BORROWING BALANCE PERSPECTIVE, OUR OPERATING ASSUMPTIONS ARE THAT IT IS LIMITED AS WE JUST MADE THIS CHANGE FROM THE BOARD THIS YEAR TO LIMIT IT TO THE AVAILABLE CAPACITY OF OUR REVOLVER.
THAT AVAILABLE CAPACITY OF THAT REVOLVER, AS WAS NOTED IN THE FINANCIAL STATEMENTS, IS A HUNDRED MILLION DOLLARS BASED ON SEASONALITY AND WORKING CAPITAL FLUCTUATIONS.
WE ESTIMATE A NEED OF UP TO ABOUT 50 MILLION OF THAT JUST FROM THAT PERSPECTIVE.
WE SAW THAT WE WERE IN THE UP TO 30 MILLION LEVEL AT THE END OF FEBRUARY.
GIVEN THOSE LIMITATIONS, THAT MEANS FROM A FUNDING PURPOSE PERSPECTIVE IN ANY PLAN THAT WE DO, WE WOULD PLAN NOT TO EXCEED A 50 MILLION USE OF CR R FUNDS.
[02:20:01]
THIS IS THE CHART THAT YOU HAVE ALL SEEN BEFORE SHOWING OUR 2 BILLION, AND THAT LEADS US TO OUR OPTIONS.SO FROM OUR OPTION PERSPECTIVE HERE, WE HAVE THE YEARS ACROSS THE TOP 22 ACTUAL ALL THE WAY OUT TO A 31 PROJECTION IN THIS CASE.
SO WE CAN SEE THAT NEXT CYCLE OF FOUR YEARS AFTER 27.
THE BASE SCENARIO IS WHAT WAS IN THE APPROVED BUDGET, WHICH HAD THE INCREASE TO 66 AND A HALF CENTS.
YOU CAN SEE IF WE DID THAT AND LEFT IT THERE BY THE END OF 2027 IN ROW FIVE IN THE HIGHLIGHTED GREEN, YOU CAN SEE WE'D HAVE 86 MILLION USAGE OF CR R FUNDS, WHICH IS NOT VIABLE FROM OUR PERSPECTIVE MANAGEMENT'S PREFERRED OPTION IS OPTION ONE, WHICH IS FOUR YEAR RATE INCREASE.
THAT GIVES US AN INCREASE TO THE 71 CENTS, WHICH GIVES US A $1 MILLION BALANCE AT THE END OF 2027 WITH THE NEXT FEE INCREASE IN 2028.
OPTION TWO WAS TWO YEAR FEE INCREASES, AND YOU CAN SEE AVERAGING THOSE OUT TO ABOUT AN 18 AND THEN A 17% INCREASE.
AND OPTION THREE WAS ANNUAL INCREASES AT ABOUT 10%.
THE PROBLEM WITH BOTH OPTION TWO AND OPTION THREE IS THAT IT REQUIRES FUNDING IN BOTH OF THOSE YEARS, UH, ALREADY IN 2025 OF USE OF CR R FUNDS.
THAT WHEN YOU ADD THAT, WHEN YOU CONSIDER THAT WITH THAT $50 MILLION, IT DOESN'T GIVE YOU MUCH FLEXIBILITY FOR A CHANGE IN THOSE INTEREST RATES AT ALL.
SO NOW THE DETAILS OF OUR FOUR QUADRANT INCREASE, THIS IS A CHART WE ARE JUST LOOKING AT, WHICH SHOWS THE SYSTEM ADMINISTRATION FEE RATE CALCULATION AND OUR 71 CENTS AND HOW IT FLOWS THROUGH ACROSS THE TOP SAME YEARS.
AS A REMINDER, THE 24 AND 25 ARE THE REQUESTS THAT WE'RE PUTTING FORWARD FOR YOU.
THAT WOULD BE YOUR APPROVAL OF THAT BUDGET IN JUNE.
DOWN THE SIDE, YOU CAN SEE THE SYSTEM ADMINISTRATION FREE RATE, OUR ENERGY CONSUMPTION, WE HAVE ROW TWO A WHERE WE SHOW THE LOAD INCREASE YEAR OVER YEAR AND THE ASSUMPTIONS ASSOCIATED WITH IT AS WE GO OUT FOR THAT SIX YEAR PERIOD.
ROWS FOUR THROUGH EIGHT ARE THOSE NET EXPENDITURES.
THEY INCREASE IN THE DEPARTMENT NET EXPENDITURES AS WELL AS THE PROJECT EXPENDITURES IN THE MARKET DESIGN PROJECT.
YOU CAN SEE ON HERE ALSO HOW 23 BUDGET IS A LOW POINT OF ANY, ANY NUMBER ON THIS PAGE, WHICH IS ANOTHER REASON WHY THOSE PROJECTS SEEM TO INCREASE SO MUCH FROM THAT 23 BUDGET BASE EVEN FAR LOWER THAN OUR 22 ACTUALS.
THEN WE GET DOWN INTO OUR DEBT SERVICE, WHICH IS OUR 4 MILLION RO 10, WHICH IS OUR 4 MILLION PER YEAR PLUS INTEREST.
WE HAVE OUR INTEREST INCOME ASSUMPTIONS WHERE WE HAVE THE 72 AND A HALF MILLION, THE 50, THE 40, AND THOSE INTEREST RATE ASSUMPTIONS.
AND THEN DOWN AT THE BOTTOM WE HAVE THE ENDING BALANCES FOR ROW 15 OF OUR NOTES PAYABLE BALANCE, OUR CR BORROWINGS BALANCE, OUR CASH BALANCE, AND OUR CR FUND BALANCE.
AND YOU CAN SEE THAT OUR CASH BALANCE WOULD TURN POSITIVE IS FORECAST TURNED POSITIVE BY THE END OF THIS YEAR, EVEN THOUGH IT'S NEGATIVE RIGHT NOW IN ROW 17.
AND THEN BY THE TIME WE REACH THE END OF 2027, THE 71 CENTS GETS, AND THE INTEREST INCOME ASSUMPTIONS GET US TO A MILLION DOLLARS.
SO PRETTY MUCH FLAT DEAD ON IF IF NOBODY, I'M, I'M ASSUMING THAT WE'VE ALL SPENT A LOT OF TIME LOOKING AT THIS MATERIAL IN PREPARATION FOR THIS MEETING.
SO IF, IF Y'ALL DON'T MIND, UM, I'D LIKE TO GO AHEAD AND GO UP TO, UH, PAGE 31, THE RISK TO THE BUDGET.
YOU DID A GOOD JOB OF LAYING OUT THE DRIVERS.
YOU DID A GOOD JOB OF LAYING OUT THE EXPENSE ASSUMPTIONS AND THE REVENUE ASSUMPTIONS.
LET'S TALK ABOUT THE RISK TO THE BUDGET AND THEN, UH, MOVE FORWARD FROM THERE.
AND THEN THESE ARE THE RISKS THAT WE WERE TALKING ABOUT EARLIER, AND THIS CAME UP IN THAT EARLIER CONVERSATION ABOUT WHAT HAPPENS WHEN ONE OF THESE THINGS HAPPENS.
AND SO FROM A RISK PERSPECTIVE, WE HAVE THAT WE WOULD HAVE HIGHER THAN PROJECTED COST INFLATION.
WE WOULD HAVE NEW COSTS THAT WE'RE REQUIRED TO BRING ON AND HOW WOULD WE FUND THOSE? WE COULD HAVE LOWER THAN PROJECTED LOAD GROWTH.
AS I MENTIONED EARLIER, WE COULD HAVE THAT LOWER THAN PROJECTED INTEREST INCOME RATES OR WE COULD HAVE LOWER THAN PROJECTED CR R BALANCES.
SO THOSE ARE THE PRIMARY COMPONENTS OF THAT ARE DRIVING THESE RISKS THAT CAUSE FINANCIAL HEALTH.
SO THE SENSITIVITY ANALYSIS WE PUT TOGETHER FOR THIS IS A SIMILAR FORMAT TO WHAT YOU SAW BEFORE AND ALL FOUR OF THESE SLIDES ARE THE SAME STRUCTURE.
SO I'LL BE ABLE TO EXPLAIN IT ONCE AND THEN WE'LL BE ABLE TO GO THROUGH 'EM PRETTY QUICKLY.
THESE ARE USING THE GROWTH RATES FROM 23 THROUGH 27 OR THE BALANCES FROM 24 THROUGH 27, DEPENDING ON THE SLIDE.
IN THIS CASE, WE'RE LOOKING AT THE IMPACT OF VARIANCE IN DEPARTMENT NET EXPENDITURE GROWTH AND LOAD GROWTH.
ON OUR ENDING CASH BALANCE OR OUR CR R BALANCE FIELD IS THE ENDING CASH BALANCE OR CR R BALANCE.
ACROSS THE TOP WE HAVE THE COMPOUND ANNUAL GROWTH RATE FOR JUST DEPARTMENT NET EXPENDITURES.
[02:25:02]
AND THEN DOWN THE SIDE WE HAVE THE FOUR YEAR LOAD GROWTH RATE.SO OUR STARTING POINT IS THE 1.3 IN THE MIDDLE CAN SEE IF DEPARTMENT NET EXPENDITURES INCREASE AND LOAD GROWTH DECREASES.
YOU CAN QUICKLY REACH A POINT WHERE YOU'RE, INSTEAD OF, OBVIOUSLY YOU'RE ONLY A MILLION DOLLARS IF ANY OF THOSE THINGS HAPPEN, YOU'RE BASICALLY GOING INTO G R R USAGE.
THE RED OUTLINED AREA IS HIGHLIGHTED BECAUSE THOSE ARE THE NUMBERS GREATER THAN 50 MILLION, WHICH GETS US INTO THAT DANGER ZONE THAT WE'RE TALKING ABOUT, ABOUT NOT HAVING ENOUGH LIQUIDITY FOR THE ORGANIZATION.
SO IF WE REACH THE POINT WHERE ANY OF THESE THINGS WOULD HAPPEN, ONE OF THE ADVANTAGES OF THESE RISKS IS THAT MOST OF THEM DEVELOP OVER A PERIOD OF TIME WHERE WE HAVE TIME TO REACT TO THEM.
WE DON'T HAVE TO MAKE KNEE-JERK REACTIONS ON HOW TO REACT TO 'EM, AND WE'LL BE ABLE TO BRING THAT TO THE BOARD AND DISCUSS A PLAN ON HOW TO ADDRESS THEM.
THIS NEXT SLIDE KEEPS THE DEPARTMENT NET EXPENDITURES ACROSS THE TOP AND SHOWS PROJECT EXPENDITURES DOWN THE SIDE.
SIMILAR STORY IF THE COST INCREASE, THIS SHOWS YOU HOW MUCH THEY CAN INCREASE BEFORE WE'RE IN A DANGER ZONE, AND THEN ALSO HOW MUCH CASH BALANCE WE'D HAVE IF THEY DECREASE.
THIS ONE GETS INTO THE INTEREST INCOME RATES.
SO THIS IS WHERE THE BIG CHANGES CAN HAPPEN VERY QUICKLY.
SO STILL ACROSS THE TOP WE HAVE THE FOUR YEAR DEPARTMENT NET EXPENDITURES, GROWTH RATES, AND DOWN THE SIDE AND THIS, WE HAVE THAT INTEREST INCOME RATE.
SO YOU CAN SEE IF THAT INTEREST INCOME DROPS TO BELOW 1.5% AND WE DON'T CUT EXPENSES, WE GET TO THAT $50 MILLION VERY QUICKLY.
SO IT DOES HAVE A SOUND IMPACT ON ERCOT FINANCIAL HEALTH AND OUR ABILITY TO MEET THOSE LIQUIDITY REQUIREMENTS.
AND FINALLY, ON THIS PAGE, IT'S SHOWING A SIMILAR THING FOR THE CR FUNDING BALANCES ACROSS THE TOP AND THE INTEREST INCOME RATE DOWN THE SIDE.
AND SIMILAR STORY WHERE ONCE THAT INTEREST INCOME RATE DROPS, IT CAN PUT US IN FINANCIAL JEOPARDY.
BUT AGAIN, WE'VE ALREADY TAKEN A HUNDRED BASIS POINT CUT OFF THE MEDIAN FOR THAT.
SO WE'RE COMFORTABLE WITH THIS ASSUMPTIONS GOING FORWARD.
SO HOW DO WE DEAL WITH THESE WITH ANY OF THOSE POTENTIAL RISKS? WELL, THE, THE FIRST ANSWER COMES DOWN TO THE APPROACH OF WHAT THE RISK IS AND WHAT OUR ABILITY TO TOLERATE IT IS.
SO WE CAN INCREASE DEBT OR USE OF CR FUNDS.
THIS USE OF CR FUNDS IS LIMITED BY THE BOARD.
SO WE SAW EARLIER IN THAT CHART YOU CHANGED IT.
WE USED TO BE ABLE TO USE 50%, BUT THAT NUMBER HAS GROWN SO MUCH AND WE DIDN'T HAVE A BACKSTOP FOR IT, SO WE LOWERED THAT TO A HUNDRED MILLION DOLLARS.
THERE'S NOTHING THAT PREVENTS THE BOARD FROM INCREASING THAT AMOUNT.
IF WE NEED TO IN A SHORT PERIOD OF TIME OR IN A PERIOD OF TIME WHILE WE'RE WAITING TO GO FORWARD FOR OUR FEE INCREASE OR TO MAKE SOME MATERIAL CHANGES, WE COULD ALSO INCREASE FEES.
USER FEES, AS I SAID, DON'T NEED TO GO THROUGH THAT OFFICIAL BUDGET PROCESS.
THE SYSTEM ADMINISTRATION FEES DO.
SO WE COULD USE THE CRS AS A BRIDGE TO THAT NEXT FEE SETTING CYCLE WITH THE THE NEXT BUDGET FILING.
AND OF COURSE, WE ALWAYS LOOK TO REDUCE DEPARTMENT NET EXPENDITURES AND MANAGE THOSE.
WE DO THAT THROUGH MANAGING HIRING AND WHEN NUTRITION OCCURS AND SEEING EVERY, AS YOU PROBABLY ARE AWARE, EVERY NEW HIRE, REGARDLESS OF WHETHER A BUDGET OR NOT, GOES THROUGH A JUSTIFICATION PROCESS.
SO WE CRITICALLY REVIEW THAT FOR ALL OF THESE PEOPLE AND WE WOULD MANAGE THAT PROCESS THERE AS WELL AS OTHER OPERATIONAL EFFICIENCIES.
AND FINALLY, WE CAN REDUCE PROJECT EXPENDITURES.
THOSE ARE SOME OF THE, OF THE TASKS THAT HAVE BEEN TAKEN OR SOME OF THE STEPS THAT HAVE BEEN TAKEN IN THE PAST, WHICH HAVE LED TO SOME OF THESE THINGS GETTING PUSHED AND PUSHED AND PUSHED AS WELL.
SO THERE ARE RISK ASSOCIATED WITH THOSE MITIGATION STEPS DEPENDING ON WHICH ONE YOU TAKE OR RISK ASSOCIATED WITH ALL OF 'EM, I GUESS.
BUT AS WE TALK ABOUT, PABLO MENTIONED THIS AT THE BEGINNING, WHEN YOU THINK ABOUT SOME OF THE RISKS ASSOCIATED WITH THIS, AND WE'VE HAD REALTIME CO OPTIMIZATION AS A PRIMARY EXAMPLE, REALTIME CO-OPT OPTIMIZATION HAS BEEN ON THE TABLE FOR A WHILE.
ITS CURRENT ESTIMATE IS TO SAVE THE END USE CUSTOMERS A BILLION DOLLARS A YEAR.
THE TOTAL REVENUE GENERATED FROM THE SYSTEM ADMINISTRATION FEE IN 20 FOURS PROJECTION WITH THE 71 CENT IS 330 MILLION.
SO IMPLEMENTING RTC SAVES THREE TIMES WHAT THE SYSTEM ADMINISTRATION FEE IS EVERY YEAR.
SO DELAYING IT DOES HAVE FINANCIAL CONSEQUENCES TO THOSE CUSTOMERS.
SO IT'S JUST A MATTER OF FIGURING OUT WHAT'S THE BEST THING TO DO AND WHEN TO DO IT WITH THE RESOURCES WE HAVE AVAILABLE.
I DON'T KNOW IF PABLO HAS ANY CLOSING COMMENTS OR A BILL OR IF THERE'S ANY ADDITIONAL QUESTIONS, BUT THAT'S MY LAST SLIDE BEFORE THE APPENDIX.
UH, PABLO, ANY COMMENTS TO, UH, PUT A BOW ON THIS? NOTHING ADDITIONAL.
ANY QUESTIONS? UH, ONE OF THE THINGS I NOTICED WHEN YOU LOOK AT PAGE 48, I'M NOT ASKING YOU TO GO THERE, BUT YOU HAVE ALL THE PROJECT EXPENDITURES YOU HAVE, UH, AND BEFORE THAT PAGE, YOU HAD THE DEPARTMENT NET EXPENDITURES.
UM, ONE OF THE THINGS THAT'D BE NICE TO SEE, I DIDN'T SEE IT HERE, IS HOW THOSE WOULD BE PRIORITIZED IN THE EVENT THAT WE GOT INTO A, UH,
[02:30:01]
SQUEEZE, UH, WITH RESPECT TO LOAD GROWTH OR, UH, INTEREST INCOME, THINGS LIKE THAT.SO BE PREPARED TO TALK ABOUT THAT.
BUT AT THE JUNE MEETING, WHEN WE APPROVE THE BUDGET, YES, WE CAN GO OVER THAT.
WHAT WOULD BE THOSE FIRST THINGS BEYOND JUST A NORMAL PROCESS OF MANAGING? BECAUSE LABOR IS OUR LARGE EXPENSE, RIGHT? THE MANAGING THAT HIRING AND ATTRITION IS USUALLY THE FIRST STEP.
THAT AND THEN THE PROJECT VIEW.
BUT WE'LL GO THROUGH AND PRIORITIZE THOSE IN WHICH AREAS WE HAVE SOME FLEXIBILITY IN OR WE'VE PERCEIVED TO HAVE THE MOST FLEXIBILITY IN.
SO, UH, ANY QUESTIONS AGAIN TO REMIND EVERYBODY THE TIMING, THIS IS THE, THE, THE WORKSHOP, THE IN-DEPTH REVIEW.
WE WILL LOOK AT THIS AGAIN IN JUNE AND, UM, APPROVE WHATEVER THE FINAL VERSION OF THE BUDGET IS AT THAT POINT IN TIME.
AND THEN IT WILL GO TO THE PUC FOR THEIR, THEIR ACTION.
SO WHAT HAPPENS BETWEEN NOW AND JUNE? DO YOU EXPECT TO CHANGE THIS? YES.
WE'LL SEE WHAT, WELL, WE HOPE THAT THERE'S NO MATERIAL CHANGES UNLESS THEY'RE BENEFICIAL TO US.
WELL, WE'LL GO THROUGH THE LEGISLATIVE CYCLE, SEE WHAT THE RESULTS ARE OF THAT, SEE WHAT THE RESULTS ARE OF RULE MAKING THAT OCCURS BETWEEN NOW AND THEN.
WE'LL HAVE BETTER IMPACT ANALYSIS AND BETTER IDEAS, THESE MAJOR EFFORTS AND THE COST.
AND WE'LL REFRESH ALL OF THOSE AS WELL.
SO WE SHOULD HAVE A LITTLE BIT BETTER UNDERSTANDING OF BOTH THE, THE HEADCOUNT DEMANDS AND THE PROJECT DEMAND, BUT WE DON'T EXPECT IT TO BE A MATERIAL CH A VERY MATERIAL CHANGE AT THIS POINT.
AND THEN WE'LL TAKE ANY FEEDBACK THAT WE GET FROM Y'ALL.
YEAH, SO I HAVE GOT NUMEROUS QUESTIONS, WHICH I DON'T THINK WE HAVE TIME FOR, SO I'M NOT GOING TO MAKE ANY COMMENTS, BUT I THINK I WILL NEED A LOT OF HELP BETWEEN NOW AND JUNE TO PROVIDE SOME FEEDBACK ON THIS.
UH, AND THAT OUGHT TO BE ON ALL OF OURS TO-DOS, EXCUSE ME, ON ALL OF OUR TO-DO LISTS TO, UH, PROVIDE FEEDBACK TO THE LEADERSHIP TEAM IN TERMS OF QUESTIONS OR, UH, CONCERNS OR MO PROPOSED MODIFICATIONS OF THE BUDGET MOVING FORWARD, CUZ IT IS A BIG INCREASE.
I, UH, I KNOW THIS TOOK A LOT OF TIME, BUT WE HAD A LOT TO DIG INTO.
UH, IF, IF THERE ARE NO FURTHER QUESTIONS ON THE BUDGET, WE'LL MOVE ON
[7. Review of Draft Committee Self-Evaluation Survey]
TO ITEM SEVEN.UH, AS YOU KNOW, WITH THE OTHER COMMITTEE MEETINGS THAT WE'VE HAD SO FAR, WE'VE HAD A REVIEW OF THE DRAFT COMMITTEE SELF-EVALUATION SURVEY, UM, AND YOU'VE SEEN THAT IN THE MEETING MATERIALS.
IF THERE'S ANY, ANYBODY THAT HAS ANY COMMENTS THEY WANT TO ADD TO THAT, I THINK IT'S THE SAME EVALUATION THAT WE'VE SEEN IN THE OTHER TWO, UH, COMMITTEE MEETINGS.
UM, PLEASE, UH, LET CHAD'S TEAM KNOW ABOUT, UH, ANY CHANGES YOU'D PROPOSE TO MAKE TO THAT.
[8. Future Agenda Items]
NEXT ITEM AFTER THAT IS, UH, FUTURE ITEMS, FUTURE AGENDA ITEMS. UH, SEAN, I THINK YOU STILL AT THE PODIUM? YES.AND THE ONLY THING I WANT TO HIGHLIGHT FOR THIS IS WHAT WE JUST TALKED ABOUT WHILE WE JUST HIGHLIGHTED AND BRINGING THAT BUDGET BACK FOR A VOTE IN JUNE.
AND BY ALL MEANS, PLEASE REACH OUT WITH ALL THOSE QUESTIONS AND WE'LL WORK WITH YOU TO GET ANSWERS TO ALL OF THOSE FOR THAT MEETING.
SO PLEASE CONTACT ME FREELY AND FREQUENTLY.
OKAY? UH, IS THERE ANY OTHER BUSINESS BEF BEFORE WE MOVE INTO EXECUTIVE SESSION? OKAY.
[Convene Executive Session ]
UH, AT THIS POINT IN TIME, WE'RE GONNA RECESS GENERAL SESSION.WE'LL TAKE A FIVE MINUTE BREAK BEFORE RECONVENING INTO EXECUTIVE SESSION.
THERE ARE THREE VOTING ITEMS THAT ARE BEING DISCUSSED IN EXECUTIVE SESSION.
SO WE'LL HAVE TO COME BACK INTO GENERAL SESSION AFTER THAT, UH, TO, UH, VOTE ON THOSE THREE ITEMS. UH, THE GENERAL SESSION IS NOW RECESS.
CHAIRMAN LAKE, THIS MEETING WITH PUC IS HEREBY RECESS.
I'M BILL FLORES, FINANCE AUDIT COMMITTEE CHAIR.
THE GENERAL SESSION OF THE MEETING IS NOW RECONVENED.
UH, BEFORE I MOVE ON TO OUR BUSINESS, I'D LIKE TO ASK P C CHAIRMAN PETER LAKE, IF YOU WOULD LIKE TO RECONVENE THE PUC OPEN MEETING.
THIS MEETING THE PUC IS HEREBY RECONVENE.
[10. Vote on Matters from Executive Session]
WE HAVE THREE VOTING ITEMS, UH, TO, UH, BRING UP FROM EXECUTIVE SESSION.I'D LIKE TO TRY TO ADDRESS THEM AT ALL IN ONE MOTION THEY HAVE TO DO WITH THE APPROVAL OF AUDITOR.
UH, IT'S A GEN ITEM ES 2.2, THE APPROVAL OF AUDITOR, UH, FOR, UH, CALENDAR YEAR 2023 FOR THE FINANCIAL STATEMENTS AUDIT, THE SERVICERS CERTIFICATE REPORT, AND THE FORM NINE 90 REVIEW FOR ERCOT INC.
THE FINANCIAL STATEMENTS AND AUDIT AND CONSOLIDATION PROCEDURES FOR TEXAS ELECTRIC MARKET STABILIZATION FUNDING, M LLC, AND THREE, THE FINANCIAL STATEMENTS.
AUDIT CONSOLIDATION PROCEDURES FOR TEXAS ELECTRIC MARKET STABILIZATION FUNDING N LLC.
MAY I HAVE A MOTION? SOMAN? OKAY.
[02:35:01]
IN FAVOR? AYE.ANY OPPOSED? ANY ABSTENTIONS? OKAY.
THE APPROVAL, THE, UH, APPROVED FOR THE AUDITOR MOTION FOR THE APPROVAL OF AUDITOR IS, UH, UH, APPROVED.
THIS MEETING FINANCE AND AUDIT COMMITTEE IS NOW ADJOURNED AND THE WEBCAST WILL BE CONCLUDED.
CHAIRMAN LAKE, THIS MEETING THE PUC IS HEREBY ADJOURNED.