[1. Call General Session to Order and Announce Proxies]
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GOOD MORNING TO THE MEMBERS OF THE ERCOT FINANCE AND AUDIT COMMITTEE MEETING AND ALL OF OUR GUESTS.
UH, I'M BILL FLORES, THE COMMITTEE CHAIR, AND I WANNA WELCOME YOU TO THE AUGUST 30TH, 2023 FINANCE AND AUDIT COMMITTEE MEETING.
I HEREBY CALL THIS MEETING TO ORDER.
THIS MEETING IS BEING WEBCAST LIVE ON THE TO THE PUBLIC ON ERCOT WEBSITE.
UH, BEFORE MOVING ON TO TODAY'S BUSINESS, I'LL HIGHLIGHT TO COMMITTEE MEMBERS THAT THE ANTITRUST ADMONITION AND SECURITY MAP WERE INCLUDED WITH THE POSTING MEETING MATERIALS, UH, JUST LIKE THE H R AND G COMMITTEE, UH, CHAIR, UH, PEGGY HAGUE SAID EARLIER.
UH, WANT TO WELCOME OUR NEW BOARD MEMBER, LINDA CAPANO.
UH, WE LOOK FORWARD TO WORKING ALONGSIDE YOU.
THE BOARD WILL BE TAKING OUT BOARD COMMITTEE ASSIGNMENTS FOR ALL BOARD MEETING ALL BOARD MEMBERS AT TOMORROW'S MEETING.
UH, LINDA, WHILE YOU HAVEN'T BEEN ASSIGNED TO ANY COMMITTEE YET, UH, WE WELCOME YOUR PARTICIPATION TODAY, JUST LIKE ALL THE BOARD MEMBERS THAT, THAT ARE HERE AS WELL.
[2. Notice of Public Comment, if Any Discussion Chair]
ORDER OF BUSINESS ON TODAY'S AGENDA IS ITEM TWO.NOTICE OF PUBLIC COMMENT, IF ANY.
TODAY'S MEETING AGENDA WAS POSTED PUBLICLY ON AUGUST 23RD AND PROVIDED INSTRUCTIONS FOR THE PUBLIC FOR COMMENTING IN PERSON.
TO DATE, NO ONE HAS EXPRESSED INTEREST IN COMMENTING.
IS THAT CORRECT, CHAD? THAT IS CORRECT.
[3. June 19, 2023 General Session Meeting Minutes]
MOVE ON THEN.NEXT IS AGENDA ITEM NUMBER THREE, THE JUNE 19TH, 2023, GENERAL SESSION MEETING MINUTES.
THERE'S A DRAFT IN THE MEETING MATERIALS.
DOES ANYONE HAVE ANY COMMENTS OR WISH TO MAKE A MOTION TO APPROVE? I MOVE TO APPROVE.
UH, ANY, ALL OF ALL IN FAVOR? AYE.
ANY OPPOSED? ANY ABSTENTIONS? OKAY.
THE MINUTES ARE PASSED OR THE APPROVAL OF MINUTES IS PASSED.
[4. Recommendation regarding Acceptance of 2022 ERCOT 401(k) Savings Plan Audit Report]
ITEM FOUR, THE RECOMMENDATION REGARDING ACCEPTANCE OF THE 2022 ERCOT 4 0 1 K SAVINGS PLAN AUDIT REPORT.UH, MAURA IS GOING TO PRESENT THIS ITEM ALONG WITH BAKER TILLY.
AFTER DISCUSSION, WE'LL VOTE ON A RECOMMENDATION TO THE BOARD ON ACCEPTANCE OF THE AUDITED FINANCIAL STATEMENTS OF THE 4 0 1 K SAVINGS PLAN.
UH, SO MAURA AND BAKER TILLY, WE'RE GONNA TURN IT OVER TO YOU.
THIS AGENDA ITEM PERTAINS TO THE RECOMMENDATION FOR THE AUDITED 4 0 1 K SAVINGS PLAN, FINANCIAL STATEMENT, EFFECTIVE DECEMBER 31ST, 2022.
ERCOT MAINTAINS AN ERISA QUALIFIED 4 0 1 K SAVINGS PLAN, AND AS SUCH, WERE REQUIRED EVERY YEAR TO FILE A FORM 5,500 INCLUSIVE OF AN AUDITED FINANCIAL STATEMENT.
BAKER TILLY IS HERE IN ATTENDANCE WITH ME THIS MORNING TO PRESENT THE DETAIL OF THEIR SUMMARY, JUST A HIGH LEVEL OVERVIEW FOR YOU OF OUR 4 0 1 K PLAN, EXCUSE ME.
IN 2022, OUR AVERAGE PARTICIPATION RATE WAS HIGH AT 94%.
AND THIS SLIDE PROVIDES YOU AN OVERVIEW OF HOW WE COMPARE TO THE BENCHMARKS OF FIDELITY.
FIDELITY IS OUR PLAN SPONSOR OVERALL.
THE BENCHMARKS INDICATE THAT WE HAVE HIGH ENGAGEMENT, HIGH SAVINGS RATES, AND HIGH PARTICIPATION.
UM, TOMORROW WE DO AN ANTICIPATE THAT THE F AND A COMMITTEE WILL RECOMMEND TO THE BOARD OF DIRECTORS TO ACCEPT THE AUDITED FINANCIAL STATEMENTS PREPARED BY BAKER TILLY OF THE ERCOT 4 0 1 K SAVINGS PLAN FOR DECEMBER, 2022.
AND I'LL TURN IT OVER NOW TO SARAH SLAUGHTER FROM BAKER TILLY.
UM, I'M SARAH SLAUGHTER, A SENIOR MANAGER WITH BAKER TILLY, AND I WILL BE PRESENTING TO YOU, UM, THE AUDIT RESULTS FOR THE FORM ONE K.
SO WHAT I'LL BE PRESENTING OVER, UH, DURING THIS PRESENTATION IS I WILL BE GOING OVER OUR RESPONSIBILITIES AS PART OF THIS AUDIT.
I'LL BE GOING OVER MANAGEMENT'S AND THE BOARD'S RESPONSIBILITIES.
I'LL DISCUSS AND GO OVER, UM, OUR AUDIT RESULTS AND HOW IT RELATES TO OUR AUDIT PLAN.
AND THEN I WILL DISCUSS OUR REQUIRED COMMUNICATIONS THAT WE HAVE AS PART OF YOUR AUDIT, WHICH IS A SUPPLEMENT TO THE AUDIT RESULTS LETTER.
SO OUR RESPONSIBILITIES FOR THE AUDIT REALLY HASN'T CHANGED OVER THE YEARS.
WE ARE RESPONSIBLE TO PLAN AND PERFORM THE AUDIT, UM, ASSESS THE RISK OF MATERIAL MISSTATEMENT, UM, PERFORM APPROPRIATE PROCEDURES AND EVALUATE THE APPROPRIATENESS OF YOUR POLICIES.
AND, UM, THE ONE CHANGE THAT WAS THIS YEAR IS IN THE PAST, THIS WAS A LIMITED SCOPE AUDIT, UM, WITH THE NEW, UM, REGULATIONS THAT CAME OUT IN, IN WORKING WITH D O L.
IT IS NOW CALLED, UM, THE ERISA SECTION 1 0 3, A THREE C.
SO WHAT USED TO BE A TWO PAGE OPINION THIS YEAR, YOU'LL SEE IT BE A LITTLE BIT LONGER, BUT ESSENTIALLY IT IS THE SAME TYPE OF AUDIT.
UM, MEANING THAT BECAUSE YOU HAVE A CERTIFIED TRUSTEE THAT PREPARES AND MANAGES THE INVESTMENTS, THAT IS NOT IN OUR SCOPE OF THE AUDIT.
[00:05:02]
SO OUR RESPONSIBILITIES, UM, WE ARE REQUIRED TO COMMU, REQUIRED TO COMMUNICATE TO YOU AS PART OF THE AUDIT ARE LISTED HERE.AND I WILL BE GOING OVER THOSE IN MORE DETAIL AS PART OF THAT.
UM, IF THERE WERE ANY SIGNIFICANT CHANGES AS PART OF THE AUDIT, WE WOULD HAVE TO REPORT THAT TO YOU AND DISCLOSE TO YOU WHAT EXACTLY CHANGED AND WHAT WE DID AS PART OF THAT CHANGE.
UM, I'M PLEASED TO REPORT THAT WE, THE AUDIT WENT ON AS PLANNED AND WE DIDN'T HAVE TO CHANGE ANY OF OUR PROCEDURES, UM, AS PART OF OUR AUDIT, UM, OUR PLAN SCOPE AND TIMING, UM, WE DO A LOT OF THINGS.
I MENTIONED EARLIER THAT WE HAVE A LIMITED SCOPE, SO WE DON'T LOOK AT INVESTMENTS, BUT WE ALSO LOOK OVER ALL THESE DIFFERENT ITEMS HERE, WHICH ARE A LOT OF DIFFERENT THINGS BESIDES THE INVESTMENTS.
SO WE LOOK AT THE INTERNAL CONTROLS OVER FINANCIAL REPORTING, UM, PAYROLL AND PARTICIPANT DATA, THE FAIR VALUE MEASUREMENT IN DISCLOSURES, WHICH IS A BIG KEY PIECE WITHIN THE AUDIT STATEMENTS.
UM, OBVIOUSLY LOOKING AT, UM, REVENUE RECOGNITION, ANY NOTES, RECEIVABLES THAT YOU HAVE, UM, AND ANY OTHER AREAS THAT WE'VE DISCUSSED WITH MANAGEMENT THAT WE SEE AS RISKS.
SO, SIGNIFICANT RISKS THAT WE LOOK AT AND WE TAKE INTO ACCOUNT AS PART OF THE AUDIT IS ALWAYS GONNA BE LOOKING AT THE MANAGEMENT OVERRIDE OF CONTROLS.
SO THIS IS ALWAYS A KEY RISK WITHIN ALL OF OUR AUDITS.
AND WE PLAN AND PERFORM TO MAKE SURE THAT WE ASSESS THIS RISK SPECIFICALLY WHEN WE LOOK AT INTERNAL CONTROLS, UM, AND TO SEE IF THERE'S ANY POSSIBILITY THAT MANAGEMENT COULD OVERRIDE CONTROLS.
UM, WE DISCOVERED NO ISSUES AS PART OF THIS RISK.
THE OTHER AREA THAT WE LOOK AT AS PART OF THE 4 0 1 K AUDIT, UM, SINCE IT IS VERY REGULATED, WE LOOK AT, UM, THE PLAN PROVISIONS IN THE REGULATIONS IN, IN ACCORDANCE TO D O L.
SO WE PERFORM, UM, THOSE TESTS THAT I MENTIONED EARLIER AROUND PARTICIPANT TESTING, ELIGIBILITY, PROPER CLASSIFICATIONS, MAKING SURE THAT YOU'RE FOLLOWING THESE REGULATIONS.
AND I'M PLEASED TO REPORT THERE WERE NO, UM, ISSUES NOTED AROUND THIS OTHER AUDIT AREA EMPHASIS.
SO AS PART OF OUR AUDIT, UM, YOU KNOW, WE PROVIDE AN OPINION, UM, LIMITED SCOPE OPINION ON, UM, THE FINANCIAL STATEMENTS THAT THEY'RE MATERIALLY MISSTATED AS PART OF THIS.
WE ALSO DO LOOK AT INTERNAL CONTROLS, AS I MENTIONED EARLIER.
UM, BUT WE DO NOT TEST CONTROLS AND PUT AN OPINION ON THE CONTROLS.
UM, BUT IF THERE WAS SOMETHING THAT CAME TO OUR ATTENTION, UM, WHENEVER WE'RE REVIEWING THE CONTROLS, DOING WALKTHROUGHS THAT WE DEEMED TO BE SIGNIFICANT OR MATERIAL, WE WOULD HAVE TO BRING THAT TO YOUR ATTENTION.
AND I'M PLEASED TO REPORT THAT WE NOTED NO, UM, DEFICIENCIES WITHIN CONTROL WITHIN CONTROLS THAT WE HAVE TO BRING TO YOUR ATTENTION AS PART OF THIS AUDIT.
SO WITH OUR REQUIRED COMMUNICATION, SO, UM, THERE'S SEVERAL DIFFERENT ONES THAT WE HAVE TO DO AS PART OF THE QUALITATIVE ASPECT OF ACCOUNTING PRACTICES.
I MENTIONED EARLIER THAT WE LOOK AT, UM, YOUR POLICIES AND PROCEDURES, UM, AND FOR ONE, WE LOOK AT THOSE TO MAKE SURE THAT THEY IN REFER TO NOTE ONE, THOSE ARE YOUR LIST OF ALL OF YOUR, UM, POLICIES AND PROCEDURES.
WE LOOK TO MAKE SURE THAT THOSE ARE IN LINE WITH GAP AND THAT MANAGEMENT IS FOLLOWING THOSE PROCEDURES.
WE ALSO LOOK TO SEE IF THERE WAS ANY NEW, UM, IMPLEMENTATION OR CHANGE OF ACCOUNTING PRINCIPLES.
UM, AND THERE WERE NO ISSUES NOTED THIS YEAR AS PART OF THE AUDIT.
THE OTHER AREA THAT WE LOOK AT AS PART OF OUR AUDIT ARE ESTIMATES AND THE REASON WHY WE LOOK AT ESTIMATES, BECAUSE IF THERE WAS ANYTHING THAT COULD GO WRONG WITH THE FINANCIAL STATEMENTS, IT WOULD BE AROUND THESE ESTIMATES.
SO WE LOOK AT THOSE TO MAKE SURE, UM, THAT THEY'RE BEING TREATED THE SAME FROM YEAR TO YEAR AND IF THERE WAS ANY CHANGES AND TO MAKE SURE THAT THEY'RE FAIRLY STATED.
SO THE SIGNIFICANT ESTIMATE THAT YOU HAVE, OBVIOUSLY WITH THE 4 0 1 K PLAN, ARE YOUR FAIR VALUE OF YOUR INVESTMENTS ON THE STATEMENTS.
SO, UM, WE NOTE THAT MANAGEMENT RELIES ON THE TRUSTEE'S VALUATION OF THESE, AND WE EVALUATE THE KEY FACTORS AND THE ASSUMPTIONS THAT GO INTO, UM, THESE ESTIMATES.
AND WE NOTED THERE WERE NO SIGNIFICANT CHANGES MADE BY MANAGEMENT TO THE PROCESS OF THESE ESTIMATES AND WHAT'S DISCLOSED IN YOUR FINANCIAL STATEMENTS.
I ALSO WANNA POINT OUT THAT THOSE DISCLOSURES IN THE STATEMENTS ARE NEUTRAL, CONSISTENT, AND CLEAR.
UM, OTHER REQUIRED COMMUNICATION.
SO IF THERE WAS ANY SIGNIFICANT UNUSUAL TRANSACTIONS, ANY SIGNIFICANT DIFFICULTIES OR ANY DIS DISAGREEMENTS WITH MANAGEMENT, WHETHER RESOLVED OR UNRESOLVED, WE WOULD HAVE TO DISCLOSE THAT TO YOU.
AND AS PART OF OUR AUDIT THIS YEAR, WE DON'T HAVE ANY OF THESE INSTANCES.
UM, WE WOULD ALSO HAVE TO DISCLOSE TO YOU IF THERE WAS ANY DEPARTURES, UM, FROM THE AUDITOR'S REPORT.
UM, THERE WERE NO DEPARTURES AT ALL THIS YEAR, AND AS FAR AS WE ARE AWARE, THERE WERE NO OUTSIDE, UM, CON AUDIT CONSULTANTS OUTSIDE
[00:10:01]
OF OUR, UM, AUDIT AND ENGAGEMENT TEAM.OTHER REQUIRED COMMUNICATIONS ARE, IF THERE ARE OTHER AUDIT FINDINGS OR ISSUES WE WOULD HAVE TO DISCLOSE TO YOU.
UM, AND THOSE WOULD BE VARIOUS MATTERS THAT WE DISCUSS WITH MANAGEMENT THROUGHOUT THE AUDIT.
UM, AND WE DON'T HAVE ANY OF THAT.
UM, WE WOULD HAVE TO DISCLOSE ANY, UM, CONSULTATION WITH ANY OTHER ACCOUNTANTS, UM, WHICH WE ARE NOT AWARE OF ANY.
WE WOULD HAVE TO DISCLOSE IF THERE WAS ANY, UM, NON-COMPLIANCE WITH LAWS OR REGS OR IF WE IDENTIFIED OR SUSPECT FRAUD, WHICH WE DID NOT, UH, COME ACROSS OF EITHER OF THESE AS PART OF THE AUDIT.
UM, RECENTLY THIS CHANGED, UM, WITH, UH, AUDITING STANDARDS THAT WE WOULD HAVE TO COMMUNICATE TO YOU.
UM, IF WE SUSPECTED THAT THERE WAS A GOING CONCERN ISSUE WITHIN THE STATEMENTS AND WE DO NOT, UM, THERE IS NO EVIDENCE OF THAT.
UM, AS ALWAYS, WE ARE HAVE TO BE INDEPENDENT OF ERCOT AND I'M PLEASED TO REPORT THAT WE ARE, UM, INDEPENDENT, UM, WITH ERCOT AND THE 4 0 1 K PLAN.
THE ADDITIONAL THING THAT WE HAVE TO DO AS PART OF THE 4 0 1 K PLAN IS WE HAVE TO OBTAIN AND READ THE FORM FIVE 50, UM, PRIOR TO DATING THE REPORT.
AND WE NOTED NO MATERIAL INCONSISTENCIES WITH THAT.
WE WOULD ALSO HAVE TO DISCLOSE TO YOU IF THERE WERE ANY ISSUES RELATED TO, UM, RELATED PARTIES AS PART OF THE AUDIT.
AND, UM, WE NOTED NONE THAT WE HAD TO DISCLOSE TO YOU.
UM, OTHER MATTERS TO, UH, DISCLOSE TO YOU ARE REGARDING THE SUPPLEMENTAL INFORMATION THAT ACCOMPANIES THE FINANCIAL STATEMENTS.
SO, UH, WE, UM, MAKE CERTAIN INQUIRIES RELATED TO THOSE SUPPLEMENTARY INFORMATION AS IT RELATES TO THE FINANCIAL STATEMENTS THEMSELVES, AND WE COMPARE AND RECONCILE THAT, THAT SUPPLEMENT INFORMATION.
AS PART OF OUR AUDIT, WE DO, UM, PERFORM SOME NON-ATTEST SERVICES, WHICH DO NOT IMPAIR BAKER TILLEY'S, UM, INDEPENDENCE, BUT WE ARE REQUIRED TO DISCLOSE TO YOU THAT WE DO THESE SERVICES.
SO THESE WERE, UM, PREPARATION OF THE PLAN'S, FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES, UM, THE PREPARATION OF TRIAL BALANCE FROM THE TRUST REPORTS AND THE PREPARATION OF ANY ADJUSTING JOURNAL ENTRIES IF WE WERE TO FIND THOSE, UM, IF THEY WERE NECESSARY.
UM, ATTACHED TO THE SLIDE ARE SOME AUDIT COMMITTEE RESOURCES IF YOU DO CHOOSE TO, UM, VISIT THOSE.
UM, AND I GUESS WITH THAT, I'D OPEN UP TO ANY QUESTIONS THAT YOU MAY HAVE IN REGARDS TO OUR AUDIT FOR THIS YEAR.
ARE YOU, DO YOU HAVE SOMETHING TO ADD OR JUST, JUST IN CASE? I THINK I WOULD ADD A COMMENT, MR. SHERIFF.
UH, EVERYONE, IT'S, UH, VERY NICE TO BE BACK WITH YOU TODAY.
MY NAME'S JEFF RO, I'M A PARTNER WITH THE FIRM AND, UH, UH, SERVE THE ER ERCOT ACCOUNT.
AND SO, UM, SO VERY CLEAN AUDIT AND, AND SO, UH, BUT THESE ARE VERY UNIQUE AUDITS AND ONE COMMENT I WANTED TO MAKE, UH, THAT SARAH ALLUDED TO IS THIS IDEA OF A LIMITED SCOPE, UH, JUST SO THAT IT'S VERY CLEAR TO YOU WHAT THAT MEANS.
UH, SO IT'S A SPECIAL PROVISION, UH, IN ERISA THAT IF YOU HAVE THE ASSETS UNDER THE CUSTODY OF A TRUSTEE, UH, MANAGEMENT IS ABLE TO ELECT TO CONDUCT A LIMITED SCOPE AUDIT, WHICH MEANS THAT WE CAN RELY ON THE TRUSTEE'S CERTIFICATION OF THOSE INVESTMENTS AND THE INVESTMENT INCOME THEY'RE ON, AND NOT HAVE TO SEPARATELY PERFORM AUDIT PROCEDURES OTHER THAN TO AGREE THE INVESTMENT AMOUNTS AND THE DISCLOSURES, UH, INTO THE FINANCIAL STATEMENTS AND THAT TYPE OF THING.
AND THAT'S, THAT'S A VERY NORMAL, UH, PRACTICE FOR COMPANIES THAT HAVE A RELATIONSHIP LIKE THAT WHERE THE ASSETS ARE UNDER THE CUSTODY OF A, OF A TRUSTEE, UH, OR A CUSTODIAN INSURANCE COMPANY, UH, FOR THAT TO HAPPEN.
AND SO I WANT YOU TO AT LEAST WALK AWAY FROM THAT UNDERSTANDING THAT THIS PRACTICE ISN'T OUT OF THE NORM, OUTSIDE OF THE NORM OR THAT TYPE OF THING.
SO, BUT CERTAINLY IF YOU HAVE QUESTIONS ON THAT, UM, WE'D BE HAPPY TO, UH, TO TAKE THOSE AS WELL AS ANY OTHER QUESTIONS YOU MAY HAVE.
BUT I JUST WANTED TO CLARIFY THAT POINT FOR YOU.
UM, DOES ANYBODY HAVE ANY QUESTIONS OR COMMENTS FOR JEFF OR SARAH OR FOR MARA AS WELL REGARDING THE, UH, BOB, IT'S PROBABLY FOR, FOR MARA, BUT, UM, JUST LOOKING AT THE FINANCIAL STATEMENTS, WHAT'S, CAN YOU DEFINE WHAT A COMMON COLLECTIVE TRUST IS? WOULD YOU LIKE TO TAKE IT? SO IT'S A, UH, MR. CHAIR AND, AND, UH, MEMBERS OF THE COMMITTEE.
A COMMON COLLECTIVE TRUST IS, IS EFFECTIVELY LIKE A POOL OF DIFFERENT INVESTMENTS.
IT'S USUALLY, UM, PACKAGED BY A FINANCIAL INSTITUTION.
UH, AND SO THE UNDERLYING INVESTMENTS IN THE POOL, UH, THE POOL ITSELF HAS A NET ASSET VALUE ATTACHED TO IT.
UM, AND IT'S DERIVED FROM THE UNDERLYING INVESTMENTS,
[00:15:01]
WHICH A LOT OF TIMES ARE INVESTMENTS IN THINGS LIKE STOCKS, BONDS AND THOSE TYPES OF THINGS.SO, UM, IT'S JUST A FORM, DIFFERENT FORM OF AN INVESTMENT VEHICLE.
SO YOU'RE NOT IN INVESTING IN AN INDIVIDUAL STOCK OR A BOND, BUT YOU'RE INVESTING IN THE POOL, IF YOU WILL.
SO IT'S A PRODUCT THAT IS OFTEN OUT THERE IN THE MARKETPLACE AND USED, UH, IN LARGE PART BY BENEFIT PLANS AS AN INVESTMENT OPTION FOR EMPLOYEES.
SO JUST TO CLARIFY, TO MAKE SURE THAT I UNDERSTAND, THIS IS A POOL OF ASSETS THAT FIDELITY HAS PUT TOGETHER? THAT'S CORRECT.
SO THE TRUSTEE'S, SO THAT'S CORRECT.
THIS POOL COULD BE ACROSS MULTIPLE PLANS AND JUST THIS IS THE SHARE THAT THE ERCOT FOUR ONE K PLAN HAS IN THAT POOL.
ANY OTHER QUESTIONS OR COMMENTS? THERE'S ONE OTHER ON THE FINANCIALS, OH, GO AHEAD.
THE, UM, NET DEPRECIATION OF FAIR VALUE, THAT'S JUST A MARK TO MARKET THAT'S NOT REALIZED.
AND, AND SO AS YOU MIGHT EXPECT, 2022 WAS A VERY CHALLENGING YEAR
AND SO YOU SEE A FAIRLY LARGE ADJUSTMENT, A DOWNWARD ADJUSTMENT, A DEPRECIATION IN THE VALUE OF THE INVESTMENT HOLDINGS, UH, IN THE PLAN.
AND THAT'S, I WOULD SAY, PRETTY COMMON ACROSS WHAT WE SAW THIS LAST YEAR IN OUR AUDITS OF PLANS WAS THAT THERE WAS A SIGNIFICANT DECLINE, UH, IN THE APPRECIATION OR IN THIS CASE THE DEPRECIATION IN, IN, UH, THE INVESTMENT HOLDINGS.
ANY OTHER QUESTIONS, COMMENTS REGARDING THE 4 0 1 K ON IT? OKAY, SEAN, I SEE YOU WALKING UP.
YOU'RE JUST GETTING READY FOR THE NEXT PRESENTATION.
UH, I'LL ENTERTAIN A MOTION NOW TO RECOMMEND THAT THE BOARD ACCEPT THE AUDITED FINANCIAL STATEMENTS OF KOTS 4 0 1 K SAVINGS PLAN AS OF DECEMBER 31ST, 2022, AND FOR THE YEAR THEN ENDED AS PRESENTED IN DRAFT FORM BY BAKER TILLEY.
ALRIGHT, ALL IN FAVOR? ANY OPPOSED, ANY ABSTENTIONS? OKAY.
THE, UH, FINANCIAL STATEMENTS WILL BE RECOMMENDED TO THE BOARD TOMORROW.
UH, BY THE WAY, THANK YOU SARAH, JEFF AND, UH, MA.
[5.1 Review 2023 Financial Summary Discussion]
ITEM 5.1 THROUGH 5.3, STARTING WITH THE 2023 FINANCIAL SUMMARY FOLLOWED BY THE PERIODIC REPORT ON INVESTMENTS AND THE PERIODIC REPORT ON DEBT COMPLIANCE.SEAN, YOU HAVE ALL THREE OF THESE.
STARTING WITH 5.1, THE FINANCIAL SUMMARY.
THIS IS VERY CONSISTENT WITH WHAT WE'VE SEEN TO DATE AND EXPECTED TO SEE.
LOOKING AT OUR YEAR END FORECAST FOR A VARIANCE TO BUDGET VERSUS THE LAST TIME YOU SAW THIS, THIS HAS INCREASED TO ALMOST $63 MILLION.
NOW THAT'S ABOUT A $26 MILLION INCREASE VERSUS THE LAST TIME YOU SAW IT.
OF THAT $26 MILLION INCREASE, $25 MILLION IS ASSOCIATED WITH ADDITIONAL INTEREST INCOME.
AS WE'VE SEEN THE, OUR CASH BALANCE RISE FROM THE CONGESTION REVENUE RIGHTS AUCTION RECEIPTS THAT WE'RE HOLDING, AS WELL AS SEEING THE INTEREST RATES CONTINUE TO RISE THROUGHOUT THE YEAR.
LOOKING AT THE REVENUE SIDE, THAT'S WHERE YOU SEE THAT INCREASE.
OUR VARIANCE TO BUDGET FOR REVENUE IS A LITTLE OVER A HUNDRED MILLION DOLLARS RIGHT NOW.
THAT RE INCREASED $27 MILLION.
WE HAVE THE $25 MILLION INCREASE FOR INTEREST INCOME AND THEN WE HAVE ABOUT 1,000,007 INCREASE IN SYSTEM ADMIN FEES AS THAT IS NOW SHOWING UP AS A SLIGHTLY LARGER POSITIVE VARIANCE OF $2 MILLION.
AND THEN WE HAVE A SLIGHTLY LESS UNFAVORABLE VARIANCE FOR DEPARTMENT REVENUES.
SO THAT INCREASE IS OFFSET BY, UH, LESS FAVORABLE EXPENDITURES ON THE RIGHT HAND SIDE, THAT'S ABOUT A MILLION DOLLARS LESS FAVORABLE THAN THE LAST TIME WE SAW IT, OR MORE UNFAVORABLE RATHER.
AND THAT IS DRIVEN BY AN INCREASE IN OUR STAFF COST AS WE ARE START RAMPING UP AT A PACE BETTER THAN WHAT WE HAD ORIGINALLY FORECAST.
I KNOW THE COMMITTEE RAISED CONCERNS ABOUT THE ABILITY TO RAMP UP THAT NEW STAFFING LEVEL THAT WE HAVE TARGETED FOR 24 AND 25.
AND SO THEN SHOWING THAT WE ARE ON TRACK AND ACTUALLY AHEAD OF WHERE WE EXPECT IT TO BE NOW AND WHAT WE'RE FORECASTING FOR THE REST OF THE YEAR.
MOVING ON TO THE MONTHLY REVENUES FROM THE SYSTEM ADMINISTRATION FEE, THIS IS WHERE YOU'RE SEE THAT VARIANCE AS WE LOOK TO JUNE ON THE VERY BOTTOM OF THIS CHART AND THE SYSTEM ADMIN FEE REVENUE, THAT CUMULATIVE VARIANCE THROUGH JUNE WAS STILL NEGATIVE AT, UH, $2.1 MILLION NEGATIVE VARIANCE.
AND IN JULY THAT ACTUALLY FLIPPED.
SO WE'RE ACTUALLY HAVE A POSITIVE VARIANCE NOW AND WE'RE FORECASTING TO CONTINUE TO HAVE, HAVE THAT INCREASE THROUGH THE REST OF THE YEAR.
MOVING OVER TO OUR BALANCE SHEET STATEMENT OF FINANCIAL POSITION, THIS AGAIN IS CONSISTENT WITH WHAT YOU'VE SEEN IN PRIOR MEETINGS.
MAIN DIFFERENCE THIS TIME AROUND IS THE ADDITION OF THE 2022
[00:20:01]
NUMBERS FOR THE SPECIAL PURPOSE ENTITY N FOR THAT FINANCING.JUNE OF 2022 IS WHEN THAT WENT LIVE.
SO YOU'LL SEE COMPARATIVE NUMBERS NOW.
YOU CAN SEE THAT DEBT OUT THERE AS WELL AS THE RECEIVABLE FOR THAT LONG TERM ASSETS.
AND THEN THE INITIAL RESTRICTED CASH AND OTHER CURRENT ASSETS THAT WE HAD GOING INTO EFFECT IN THAT MONTH.
OTHER THING I'LL HIGHLIGHT ON THIS PAGE IS THE INCREASE I ALLUDED TO BEFORE IN OUR CASH BALANCES AND THEN OUR CONGESTION, REVENUE RIGHTS AUCTION RECEIPTS.
WE STILL SEE THAT YEAR OVER YEAR TOTAL UNRESTRICTED CASH AND BOND INVESTMENTS AT A LITTLE OVER 2.2, ALMOST $2.3 BILLION.
AND THAT'S OFFSET BY THAT MARKET SETTLEMENT'S LIABILITIES NUMBER AT THE BOTTOM OF ABOUT $2.3 BILLION.
FROM AN INCOME STATEMENT PERSPECTIVE, THIS AGAIN IS CONSISTENT WITH WHAT WE'VE SEEN.
WE DO STILL HAVE A SLIGHTLY NEGATIVE VARIANCE OF OPERATING REVENUES YEAR OVER YEAR.
AND THEN THE INCREASE IN EXPENDITURES AS WELL.
THE EXPENDITURES ARE DRIVEN BY THE SAME STUFF THAT WE SAW BEFORE.
OF COURSE, YOU'RE ALL FAMILIAR WITH THE SALARIES AND RELATED BENEFITS COMPONENT OF IT, AS WELL AS THE ADDITIONAL HARDWARE AND SOFTWARE SPEND.
LAST SLIDE IN THIS SECTION IS FOR OUR C R R BALANCES THEMSELVES.
AND YOU CAN SEE THAT THIS HAS GROWN TO A LITTLE OVER $2.1 BILLION AT THE END OF JUNE.
WE DID HAVE AN OPERATING USE OF C R R FUNDS OF $2.3 MILLION AT THE END OF THE JUNE, AT THE END OF JULY.
THAT FLIPPED TO AN CASH BALANCE OF ABOUT $10 MILLION AND WE EXPECT THAT TO CONTINUE TO GROW WITH THAT INTEREST INCOME FOR THE REST OF THE YEAR AS WE PREVIOUSLY FORECAST.
ANY QUESTIONS ON FIVE ONE BEFORE WE MOVE ON TO FIVE TWO?
[5.2 Periodic Report on Investments Discussion]
A PERIODIC REPORT OF INVESTMENTS.WE ARE IN COMPLIANCE WITH ALL OF OUR INVESTMENT REQUIREMENTS.
WE HAVE CONTINUED TO SEE THE RATE OF RETURN INCREASE AS THE RATES IN THE MARKET HAVE INCREASED.
AND OUR MONEY MARKET MUTUAL FUND YIELD WAS APPROXIMATELY 5%.
AND THEN THE PURCHASE YIELD ON OUR TREASURY OBLIGATION.
SO OUR BONDS AND BILLS, THIS IS ABOUT 4.6%.
AND THERE'S ADDITIONAL DETAIL IN HERE IF WE, IF ANYBODY HAS ANY QUESTIONS ON THAT AS WE MOVE FORWARD AS WELL.
[5.3 Periodic Report on Debt Compliance Discussion]
MOVING ON TO OUR DEBT COMPLIANCE, AND AGAIN, WE ARE IN COMPLIANCE WITH ALL OF OUR DEBT REQUIREMENTS AS WE MOVE ON.LOOK AT A COUPLE OF CHANGES SINCE THE LAST TIME YOU SAW THIS.
SO THROUGH Q TWO, WE DO HAVE, DID MAKE OUR PAYMENT IN JUNE OF, ON THE 28TH FOR OUR PRIVATE PLACEMENT DEBT.
SO THAT'S THAT MILLION DOLLAR QUARTERLY PAYMENT THAT WE MAKE EVERY, EVERY QUARTER FOR $4 MILLION A YEAR.
WE CONTINUE TO REDUCE THAT OUTSTANDING BALANCE.
AND THEN FROM A SECURITIZATION PERSPECTIVE, IT'S NOT SHOWN ON THIS PAGE THAT EVEN, OR IT IS SHOWN ON THIS PAGE EVEN THOUGH IT'S THROUGH Q TWO.
BUT WE DID MAKE OUR PAYMENTS ON AUGUST 1ST FOR BOTH SUBCHAPTER M AND SUBCHAPTER N SO THOSE BOND PAYMENTS WERE MADE AND EVERYTHING WAS APPLIED AND WE'RE IN COMPLIANCE WITH ALL OF OUR REQUIREMENTS THERE AS WELL.
AND THAT'S ALL I HAVE FOR THE SECTION FIVE ITEMS. OKAY, THANK YOU.
ANY QUESTIONS FOR SEAN ON ANY OF HIS REPORTS? OKAY.
UH, BOB OR PAUL? I, I, THE ONE QUESTION I HAVE IS THE, THE $30 MILLION INCREASE IN, IN, UH, PERSONNEL COST IS I, I'M, I'M YOU, YOU SAID WE RAMPED UP HIRING, BUT THAT'S A BIG, THAT'S A BIG VARIANCE BETWEEN WHAT WE BUDGETED AND, AND WHAT WE'RE SPENDING.
COULD YOU EXPAND ON THAT A LITTLE BIT? YES, I APOLOGIZE.
SO THE INCREASE FOR RAMPING UP THE RAMPING UP THE HIRING WAS ONLY ABOUT $2 MILLION.
OF THAT $30 MILLION, THE REMAINING OF $30 MILLION IS SIMILAR TO WHAT WE HAD SEEN BEFORE.
WHAT'S THE EASIEST WAY FOR ME TO GET BACK HERE? AND I'LL PULL UP A SLIDE FROM THE APPENDIX THAT SHOWS WHAT THAT AMOUNT IS.
SO THIS SLIDE SHOWS THAT STAFFING MANAGEMENT VARIANCE TO BUDGET AND ON THE, THE FIRST SIX COLUMNS ARE RELATED TO EMPLOYEES.
SO WE HAVE THE UNFUNDED POSITIONS WHICH ARE ASSOCIATED AND THAT'S THAT $6.6 MILLION
[00:25:01]
ON HERE THAT'S ASSOCIATED WITH RAMPING UP THAT STAFFING.BEYOND THAT, WE HAVE THE $12 MILLION, WHICH WAS FROM THE IMPLEMENTATION OF THE SHORT-TERM INCENTIVE PLAN THAT WAS NOT PREVIOUSLY BUDGETED.
WE HAVE THE LONG-TERM INCENTIVE AND RETENTIONS AS WELL FOR ANOTHER COUPLE MILLION DOLLARS AS THAT IS BEING ACCRUED.
WE HAD THE ALL EMPLOYEE ADJUSTMENT THAT WE BROUGHT TO THE BOARD LAST YEAR THAT WAS NOT BUDGETED FOR IN 23.
SO THAT'S ABOUT $7 MILLION OF IT.
AND THEN WE HAVE THE REGULAR MERIT AND WE DO HAVE SOME CONTINGENT LABOR VARIANCES AS WELL.
SO THOSE ARE THE TOTAL VARIANCES FOR THAT SECTION, FOR THAT $30 MILLION.
SO OF, AND THE ONLY ONE OF THOSE THAT HAS REALLY CHANGED SINCE THE LAST TIME WE SPOKE WAS THE OTHER VARIANCES HAS CHANGED A LITTLE BIT AS HAVE THE CONTINGENT LABOR AND UNFUNDED POSITIONS, BUT IT'S DRIVEN THAT CHANGE WAS DRIVEN BY THAT NEGATIVE $2 MILLION WAS DRIVEN BY THE UNFUNDED POSITIONS.
DOES THAT BETTER ADDRESS YOUR QUESTION? UH, YEAH, IT DOES.
I, WHEN WHEN I SAW THE CASH FLOW AND WE, WE KIND OF HAD A FOUND EXTRA A HUNDRED MILLION AND I JUST WANNA BE SURE WE DON'T TEND TO TRY TO FIGURE OUT HOW TO SPEND THAT JUST 'CAUSE WE FOUND IT.
NO, THAT IS ABSOLUTELY NOT ONE OF OUR OBJECTIVES.
AND AS WE, OUR, ONE OF OUR KEY PERFORMANCE INDICATORS, OUR FINANCIAL ONE IS TO MAKE SURE THAT WE ALIGN THAT WITH OUR BUDGETED SPEND.
SO WE FOCUS ON THE BUDGETED SPEND, INDEPENDENT OF THE REVENUES, AND THAT IS ALSO A REQUIREMENT FROM THE OUR P U C FILINGS AS WELL.
I I THINK ONE OF THE KEY CHALLENGES WE HAVE IS THAT THE 2023 BUDGET WAS PREPARED LAST YEAR BEFORE THE BOARD LOOKED AT ALL THESE INDIVIDUAL, UH, ISSUES TO ADDRESS THE SHORT-TERM INCENTIVE PLAN, LONG-TERM INCENTIVE PLAN, TRYING TO DO THINGS TO PRO, UH, TO STOP THE, UH, UM, DEPARTURE OF EMPLOYEES AND THINGS LIKE THAT.
ALL TO, TO FIT THE MARKET AS WELL AS EVERYTHING THAT THE LEGISLATURE HAS ASKED AND THE P U C HAVE ASKED THE ORGANIZATION TO DO.
AND JUST TO ADD ON TO THAT, THE 23 BUDGET WAS ACTUALLY PREPARED IN 21 BEFORE ANYBODY, ANY OF YOU WERE EVEN HERE, RIGHT? RIGHT.
AND SO WE'RE STILL LIVING WITH THAT 23 BUDGET AND SO WE'VE, EVERYTHING THAT'S BEEN IMPLEMENTED IN THE LAST TWO YEARS FOR EVERYTHING THAT YOU JUST DESCRIBED WAS NOT CONTEMPLATED IN IT.
AND THIS IS SOME OF THE IMPACT OF THAT.
SO WE WILL NOT SEE, ONE OF THE QUESTIONS THAT OFTEN GETS ASKED IS, IS THIS A VARIANCE THAT WILL CONTINUE ON INTO 24 OR NOT? AND SO THIS WILL NOT BECAUSE WE'VE INCORPORATED THESE ITEMS IN THAT 24 BUDGET.
THAT WAS GONNA BE MY NEXT COMMENT IS THAT COMMENT.
LAST QUESTION IS TO ASK YOU ABOUT THAT.
SO TO THE BEST OF OUR KNOWLEDGE, WE BUILT ALL OF THESE, UH, ACTIONS AND REQUIREMENTS INTO THE 24 BUDGET.
ANY OTHER COMMENTS? 20 IS A HUGE ANOMALY FOR THAT WAS THOSE REASONS.
I'M SORRY, I'M, I MISSED THAT.
23 IS A LARGE ANOMALY FOR THOSE REASONS THAT YOU DESCRIBED MM-HMM.
BUT I, I THINK IT'S IMPORTANT FOR EVERYBODY.
I'M GLAD PAUL ASKED THE QUESTION SO WE COULD DIG INTO THIS.
ANY OTHER COMMENTS OR QUESTIONS? YEAH, JUST BOB UNCONFUSED ME FOR A MOMENT.
UM, WHEN YOU ORIGINALLY SAID ABOUT THAT VARIANCE, YOU SAID IT WAS STAFFING UP FOR NEXT YEAR.
DID I, I THOUGHT THAT'S WHAT I HEARD, BUT THIS HAS NOTHING TO DO WITH STAFFING UP FOR NEXT YEAR.
WELL THE UNFUNDED, SO WHAT I POORLY STATED WAS THAT THE EXPENDITURES THAT YOU'RE SEEING THERE, THAT $37.7 MILLION THAT WAS PREVIOUSLY ONLY A MILLION DOLLARS, IT WAS A MILLION DOLLARS LESS THAN THAT.
SO IT WAS $36.8 MILLION PREVIOUSLY.
THE DRIVER OF THAT CHANGE FROM, OF THE MILLION DOLLAR CHANGE FROM THE LAST TIME YOU SAW THESE NUMBERS.
IS THE FACT THAT WE'RE STAFFING UP AT A PACE FASTER THAN WE ANTICIPATED THAT WE WOULD.
I WAS NOT CLEAR WHEN I SAID THAT BEFORE.
ALRIGHT, UM, PEGGY, SO WE APPROVE THE 2024 BUDGET, I GUESS THE LAST MEETING.
UH, AND THEN FILED THAT AT THE P E C, HAS THAT BEEN APPROVED? NO, WE JUST FILED IT, UH, THIS PAST FRIDAY.
SO IT'S OVER AT THE COMMISSION.
THE COMMISSION WILL HAVE A, UH, A HEARING WORKSHOP TYPE EVENT AT SOME POINT IN THE FUTURE.
PROBABLY OCTOBER, EARLY NOVEMBER.
SO OBVIOUSLY WE, WE REQUESTED THAT THE BUDGET AND THE FEE BE APPROVED, UH, TO ALLOW AT LEAST 45 DAYS IN ADVANCE OF JANUARY ONE.
ANY OTHER QUESTIONS OR COMMENTS? OKAY.
[6. Future Agenda Items Discussion]
PROCEED ONTO ITEM SIX,[00:30:01]
WHICH IS ALSO SEAN'S.UM, YES, FUTURE AGENDA ITEMS. THANK YOU.
AS WE LOOK FORWARD TO OUR OCTOBER MEETING, THAT'S A PRETTY STRAIGHTFORWARD MEETING.
A COUPLE THINGS I WILL HIGHLIGHT THAT ARE ADS TO OUR STANDARD PRESENTATIONS IS ROW NINE IN THE BEGINNING OF UNDERTAKING THE ANNUAL SELF-EVALUATION FOR THE COMMITTEE AS WELL AS LINE 27, WHICH IS UH, THE DRAFT AUDIT, INTERNAL AUDIT PLAN, DRAFT ANNUAL INTERNAL AUDIT PLAN.
AND THOSE ARE IN ADDITION TO THE NORMAL PRESENTATIONS.
THEN AS WE GO TO DECEMBER, IN DECEMBER, WE'LL HAVE FOLLOW UP ON THOSE ITEMS AND IN ADDITION TO THE PERFORMANCE OF THE CHIEF AUDIT EXECUTIVE AND GETTING THE FEEDBACK ON OUR SOC, OUR ANNUAL SOC AUDIT.
ANY QUESTIONS FOR SEAN OR, OR COMMENTS? ALRIGHT, THANK YOU SEAN.
[7. Other Business Discussion]
THE LAST ITEM BEFORE WE MOVE INTO EXECUTIVE SESSION IS AGENDA ITEM SEVEN, WHICH IS OTHER BUSINESS.IS THERE ANY OTHER BUSINESS THAT ANY COMMITTEE MEMBER OR ANY BOARD MEMBER WISHES TO RAISE? AT THIS POINT IN TIME? I DON'T SEE ANY HANDS UP OR HEAR ANYTHING.
[Convene Executive Session]
AT THIS TIME THE COMMITTEE'S GONNA ADJOURN GENERAL SESSION, CONVENE AN EXECUTIVE SESSION.THERE WILL BE THREE VOTING ITEMS BEING DISCUSSED IN EXECUTIVE SESSION.
SO THE GENERAL SESSION WILL RECONVENE AT THE CONCLUSION OF THE EXECUTIVE SESSION.
UH, THE GENERAL SESSION IS NOW RECESSED.
I'M BILL FLORES, THE CHAIR OF THE FINANCE AND AUDIT COMMITTEE MEETING.
THE GENERAL SESSION OF THIS MEETING IS NOW RECONVENED BEFORE WE MOVE ON TO UH, UH, OTHER BUSINESS, UH, WELL WE DON'T HAVE A P U C QUORUM, SO WE DON'T NEED TO TO DO ANYTHING THERE.
[8. Vote on Matters from Executive Session]
WE HAVE THREE VOTING ITEMS FROM THE EXECUTIVE SESSION.FIRST, I'LL ENTERTAIN A MOTION THAT THE BOARD SELECT THE AUDITOR DISCUSSED DURING THE EXECUTIVE SESSION.
UNDER, UNDER AGENDA ITEM EES 2.3 AS THE 2023 ERCOT 4 0 1 K SAVINGS PLAN.
I THINK JULIE WAS GONNA MOVE THAT ONE.
ANY OPPOSED? ANY ABSTENTIONS? OKAY, THAT MOTION IS APPROVED.
NEXT, I'LL ENTERTAIN A MOTION TO APPROVE THE REVISION OF NON-AUDIT SERVICES BY THE AUDITOR DISCUSSED DURING EXECUTIVE SESSION UNDER AGENDA ITEM E S 2.4.
ANY OPPOSED? ANY ABSTENTIONS? OKAY.
THAT HAS BEEN APPROVED AS WELL.
AND LASTLY, I'LL ENTERTAIN A MOTION TO, TO RECOMMEND TO THE BOARD TO APPROVE THE CONTRACT MATTER DISCUSSED DURING EXECUTIVE SESSION UNDER ITEM E S 2.7.
ANY OPPOSED? ANY ABSTENTIONS? OKAY, THAT ITEM IS APPROVED AS WELL.
THANK YOU, UH, FOR ALL OUR PARTICIPANTS TODAY.
THIS MEETING OF THE FINANCE AND ALL COMMITTEE IS NOW ADJOURNED AND THE WEBCAST WILL BE CONCLUDED.