[1. Call General Session to Order]
[00:00:04]
GOOD MORNING MEMBERS OF THE FINANCE AND AUDIT COMMITTEE AND GUEST.
I'M BILL FLORES, THE COMMITTEE CHAIR.
WELCOME TO THE OCTOBER 16TH, 2023 FINANCE AND AUDIT COMMITTEE MEETING.
I HEREBY CALL THIS MEETING TO ORDER.
THIS MEETING IS BEING WEBCAST LIVE TO THE PUBLIC ON ERCOT WEBSITE.
THIS BEFORE MOVING ON TO TODAY'S BUSINESS, I'LL HIGHLIGHT THE COMMITTEE MEMBERS THAT THE ANTITRUST ADMONITION AND THE SECURITY MAP ARE INCLUDED WITH THE POSTED MEETING MATERIALS.
[2. Notice of Public Comment, if Any]
THE FIRST ORDER OF BUSINESS ON TODAY'S AGENDA IS ITEM TWO.NOTICE OF PUBLIC COMMENT, IF ANY.
TODAY'S MEETING AGENDA WAS POSTED PUBLICLY ON OCTOBER 9TH AND PROVIDED INSTRUCTIONS FOR THE PUBLIC FOR COMMENTING IN PERSON.
TO DATE, NO ONE HAS EXPRESSED INTEREST IN COMMENTING.
IS THAT STILL CORRECT, CHAD? THAT IS CORRECT.
[3. August 30, 2023 General Session Meeting Minutes]
UH, NEXT IS THE AGENDA.ITEM THREE, THE AUGUST 30TH, 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'LL MOVE TO APPROVE.
ANY OPPOSED? ANY ABSTENTIONS? OKAY.
THE MEETINGS ARE, THE MINUTES ARE APPROVED.
[4. Notice of Annual Committee Self-Evaluation Questionnaire]
ITEM IS UH, OR THE PURPOSE OF AGENDA ITEM FOUR.THE NOTICE OF THE ANNUAL COMMITTEE SELF EVALU EVALUATION QUESTIONNAIRE IS TO DRAW COMMITTEE MEMBERS' ATTENTION TO THE 2023 ANNUAL COMMITTEE SELF-EVALUATION QUESTIONNAIRE.
THE COMMENTS AND FORMAT OF WHICH THE COMMITTEE REVIEWED DURING OUR MEETING ON APRIL 17TH, 2023.
ERCOT STAFF WILL ELECTRONICALLY ADMINISTER THE QUESTIONNAIRE TO COMMITTEE MEMBERS FOLLOWING TODAY'S MEETING AND THE COMMITTEE WILL REVIEW THE RESULTS DURING THE MEETING SCHEDULED FOR DECEMBER 18TH, 2023 AT THE AUGUST BOARD MEETING.
THE BOARD ALSO APPROVED CHANGES TO THE MEMBERSHIP OF COMMITTEES IN CONNECTION WITH THE FORMATION OF THE NEW TECHNOLOGY AND AND SECURITY COMMITTEE.
FEEDBACK FROM FORMER FINANCE AND AUDIT COMMITTEE MEMBERS IS ENCOURAGED DURING THIS YEAR'S EVALUATION OF THE F AND A COMMITTEE.
WOULD ANYONE LIKE TO SHARE ANY FINAL FEEDBACK REGARDING THE CONTENT OF THE QUESTIONNAIRE? OKAY WITH THAT.
SO YOU'LL EXPECT TO SEE THAT BEING CIRCULATED BY THE STAFF ELECTRONICALLY OVER THE COMING DAYS.
[5.1 Review 2023 Financial Summary]
NEXT UP ARE THE COMMITTEE BRIEFS.SEAN TAYLOR IS GONNA PRESENT ITEM, UH, EXCUSE ME, AGENDA ITEMS 5.1 THROUGH 5.3 STARTING WITH THE 2023 FINANCIAL SUMMARY FOLLOWED BY THE PERIODIC REPORT ON INVESTMENTS.
AND FINALLY BY THE PERIODIC REPORT ON DEBT COMPLIANCE.
SEAN, PLEASE PROCEED WHEN YOU'RE READY.
WHAT WE'RE GOING TO SEE TODAY IS VERY CONSISTENT WITH WHAT WE'VE BEEN SEEING ALL YEAR LONG THAT WILL PROVIDE THE UPDATES OF HOW THIS COMPARES TO WHAT WE SAW LAST TIME WE LOOKED AT THIS.
SO OVERALL, FROM THE PERSPECTIVE OF NET AVAILABLE AVAILABLE YEAR-END FORECAST, VARIANCE TO BUDGET THAT IS NOW AT $72.9 MILLION FAVORABLE.
THAT IS UP ABOUT $10 MILLION FROM THE LAST TIME WE MET ON A REVENUE SIDE, WE'RE MORE FAVORABLE BY ABOUT $5.6 MILLION.
THAT INCLUDES A $2 MILLION INCREASE IN SYSTEM ADMIN FEES BASED ON THE RESULTS OF THE SUMMER FROM A DEPARTMENT REVENUES.
THOSE ARE ACTUALLY LESS FAVORABLE BY $1.4 MILLION AS WE'VE SEEN LESS INSPECTION REVENUE THAN WE ORIGINALLY HAD FORECAST.
AND THEN ON THE INTEREST INCOME SIDE, THIS HAS GROWN BY ANOTHER TWO AND A HALF MILLION DOLLARS SINCE THE LAST TIME WE MET WITH THE INCREASED RATES ON THE EXPENDITURE SIDE.
THOSE ARE LESS UNFAVORABLE BY ABOUT FOUR AND A HALF MILLION DOLLARS THAT SPLIT EVENLY ACROSS THE THREE PRIMARY CATEGORIES.
FIRST, FROM A PROJECT PERSPECTIVE, THAT IS UNFAVORABLE VARIANCE HAS DECREASED BY A MILLION AND A HALF, SO IT'S MORE FAVORABLE THAN IT IS WAS BEFORE BECAUSE OF PUSHING SOME SPEND TO NEXT YEAR WITH TIMING ASSOCIATED WITH YEAR END PURCHASES.
FROM THE RESOURCE MANAGEMENT PERSPECTIVE, THAT'S ABOUT A MILLION AND A HALF DOLLARS LESS UNFAVORABLE AS WELL.
AND THAT'S DRIVEN BY A SLIGHT DIP IN WHAT OUR ONBOARDING RATE WAS.
WE HAVE A FEW LESS PEOPLE THAN WE HAD ANTICIPATED HAVING, BUT THAT HAS SINCE PICKED BACK UP.
SO WE'RE STILL FORECASTING TO BE AT A FA GOOD POSITION AT THE END OF THE YEAR FROM A HEADCOUNT PERSPECTIVE.
AND THEN FINALLY ON OTHER EXPENDITURES, THAT'S ABOUT 1,000,006 MORE FAVORABLE THAN THE LAST TIME WE SAW IT AND THAT'S A LOT OF THAT IS ASSOCIATED WITH THE REDUCED INSURANCE PREMIUMS VERSUS PRIOR TO OUR RENEWAL.
AND THAT SAVES ABOUT A MILLION LITTLE, ABOUT 1,000,004 VERSUS LAST TIME WE SAW IT.
THERE'S A BUNCH OF OTHER SMALLER SAVINGS THAT ARE PARTIALLY OFFSET BY A COMMON INFRASTRUCTURE PURCHASE THAT WE'LL BE MAKING FOR HARDWARE, WHICH WE NEED TO PULL INTO THE END OF THIS YEAR.
WE'LL ACCELERATE IT FROM NEXT YEAR WHEN IT WAS ORIGINALLY PLANNED TO BE PURCHASED, BUT THAT'S A LITTLE BIT OVER A $2 MILLION
[00:05:01]
ACCELERATION AND THEN WE'LL MAKE SURE THAT WE DON'T SPEND THAT MONEY NEXT YEAR.ANY QUESTIONS ON THIS BEFORE WE MOVE ON? YES, PEGGY? YES.
SEAN, YOU MAY HAVE THIS IN THE APPENDIX, BUT ON THE STAFFING MANAGEMENT, UH, DO YOU HAVE A BREAKDOWN ON HOW MUCH OF THAT'S ADDITIONAL HEADCOUNT VERSUS UH, INCENTIVE COMP? YES, WE DO.
IT IS IN THE APPENDIX SAW SLIDE FORWARD TO PAGE 24 OF THE BOOK.
CAN YOU WALK US THROUGH THAT? THIS IS THE, THIS IS THE WATERFALL THAT WE STARTED ADDING A WHILE BACK AND SO YOU CAN SEE THE BREAKOUT BETWEEN THE SHORT TERM INCENTIVE LONG AT 11.8 MILLION.
THE LONG-TERM INCENTIVE, THE ALL EMPLOYEE ADJUSTMENT WE DID AT THE END OF LAST YEAR.
THE MERIT ITSELF, THE UNFUNDED POSITION, SO THOSE UNFUNDED POSITIONS I BELIEVE IS A SPECIFIC PIECE YOU'RE TALKING ABOUT.
SO THAT'S THE $6.1 MILLION THAT REPRESENTS ABOUT 33 EMPLOYEES AND THAT INCLUDES SALARIES, BENEFITS, HEALTH TAXES, ET CETERA.
AND THEN WE DO HAVE SOME SAVINGS IN THERE THAT IS ASSOCIATED THE $5.2 MILLION THAT'S ASSOCIATED WITH UH, LOWER PAY RATES THAN WHAT WE BUDGETED FOR SOME PEOPLE WHEN THEY ACTUALLY CAME IN AT.
WE HAVE SOME OF THAT BEING FUNDED BY THE WEATHERIZATION REVENUES AND EXPENDITURES AND ALSO WE HAVE HEALTH AND A COUPLE OF OTHER ITEMS THAT ARE FAVORABLE, OUR HEALTH EXPENDITURES FOR THE YEAR AND THEN WE HAVE A CONTINGENT LABOR NUMBER IN THERE AS WELL TO GET TO THAT TOTAL PIECE.
UH, SEAN, MY QUESTION IS, YOU TALKED ABOUT THE DEFERRAL OF SOME EXPENSES AND THE ACCELERATION OF INTO 2024 AND THEN YOU TALKED ABOUT THE ACCELERATION OF SOME EXPENDITURES FROM 2024 INTO 2023.
UH, WHAT'S THE NET IMPACT OF THAT AND DOES THAT HAVE ANY, UH, WHAT SORT OF AN IMPACT WILL THAT HAVE ON OUR 2024 FINANCIAL PERFORMANCE? SO THE NET IMPACT OF THAT IT AND THE OVERALL VIEW IS CLOSE TO THE 7.1 MILLION THAT YOU'RE WE'RE SEEING HERE.
AND I'LL PROVIDE WHEN WE GET A BETTER NUMBER IN DECEMBER, WHAT WE THINK IT'LL ACTUALLY END UP AT.
THEN I'LL PROVIDE THE AMOUNT THAT HAS BEEN.
IT'S A NET BETWEEN WHAT WE'RE ACCELERATING FROM NEXT YEAR, WHAT WE'RE PUSHING TO NEXT YEAR, AS WELL AS WHAT WAS IN THE 22 BUDGET THAT WAS ALSO A SIMILAR ROLLOVER.
SO I'LL PROVIDE A SUMMARY OF ALL OF THAT AT THE END OF THE YEAR.
AT THIS POINT IN TIME, DO YOU SEE ANY MATERIAL IMPACT TO THE 2024 BUDGET? NO.
WE'LL ACTUALLY ACCOUNT FOR THIS THEN.
SO THE STUFF THAT WAS IN THAT BUDGET WE WILL, THAT WE ARE ACCELERATING TO THIS YEAR, WE WILL WON'T SPEND THAT NEXT YEAR.
ANY OTHER QUESTIONS FOR SEAN ON THE FINANCIAL REPORT? OKAY, SO KEEP GOING.
ALRIGHT, MOVING ON TO THE LOAD BY MONTH.
COUPLE OF ITEMS I WANNA HIGHLIGHT ON THIS PAGE.
AS YOU LOOK DOWN AT THE VERY BOTTOM ROW, THE BOTTOM CUMULATIVE VARIANCE AND CUMULATIVE VARIANCE PERCENTAGES YOU CAN SEE THROUGH SEPTEMBER, WE'RE ABOUT 6.2 MILLION FAVORABLE.
WE EXPECT THAT TO BE ABOUT ANOTHER 3.3 MILLION BY THE END OF THE YEAR ALL THE WAY OVER AT THE FAR RIGHT TO ABOUT 2.7%.
THE ITEM THAT I ALSO WANNA HIGHLIGHT ON THIS PAGE IS UNDER THE LOAD TABLE AT THE BOTTOM WHERE YOU SEE THE VARIANCE AND YOU'RE LOOKING FROM JUNE THROUGH SEPTEMBER, SPECIFICALLY FROM JANUARY THROUGH MAY.
YOU'RE SEEING THAT THOSE WERE ALL UNDER WHERE WE HAD BUDGETED THEN FROM JUNE THROUGH SEPTEMBER.
WE REALLY HAD STRONG POSITIVE VARIANCES BECAUSE OF THOSE CONDITIONS OF THOSE MONTHS.
AND THEN IN THESE LAST THREE MONTHS, IT'S BASICALLY FLAT ACROSS THE MONTHS WITH A SLIGHT VERY SLIGHT POSITIVE VARIANCE, BUT IT REALLY IS HIGHLIGHTING THE IMPACT OF THOSE SUMMER MONTHS AND NOW THAT CREATED THAT $6 MILLION FAVORABLE VARIANCE THAT WE'RE LOOKING AT AND MORE THAN OFFSET IT THE UNFAVORABLE BEFORE.
THEN FROM THE BALANCE SHEET PERSPECTIVE, CONSISTENT WITH WHAT YOU'VE SEEN BEFORE, I DO WANNA HIGHLIGHT A COUPLE OF PA ITEMS ON THIS PAGE AS WELL.
SO FIRST FOR OUR TOTAL UNRESTRICTED CASH AND BOND INVESTMENT BALANCE AT THE TOP YOU CAN SEE THAT THAT'S UP AT ABOUT $3 BILLION NOW, WHICH WE HAD ANTICIPATED SEEING WHEN WE'VE BEEN SEEING IT ALL YEAR.
ONE OF THE THINGS THAT YOU'LL NOTICE WHEN WE COME BACK HERE NEXT TIME IS THE DIFFERENCE BETWEEN THE UNRESTRICTED CASH AND THE BOND INVESTMENTS.
AND THIS DETAIL IS INCLUDED IN THE INVESTMENT REPORT THAT I'LL GET TO, BUT AT THE END OF SEPTEMBER WE, FOLLOWING THE COMMITTEE'S GUIDANCE, WE TOOK $1.3 BILLION
[00:10:01]
OF THAT MONEY THAT WAS IN MONEY MARKET MUTUAL FUNDS AND MOVED IT TO A BOND LADDER THAT COVERS THE ALIGNS WITH WHEN THE C R R MATURITIES ARE.SO YOU'LL SEE THAT IMPACT AND THAT WORKS TO STABILIZE THAT INTEREST INCOME RATE OVER THE NEXT YEAR AND A HALF.
THE OTHER ITEM THAT I WANNA HIGHLIGHT ON THIS PAGE IS A ANOMALY THAT'S DRIVING PART OF THAT $3 BILLION.
IF WE LOOK DOWN UNDER LIABILITIES AND NET ASSETS, YOU CAN SEE THE INCREASE IN THE CONGESTION, REVENUE RIGHTS, AUCTION LIABILITIES.
SO THE SHORT TERM, SO LESS THAN 12 MONTH EXPIRATION IS UP ABOUT $280 MILLION LONG TERM'S UP A LITTLE OVER A HUNDRED MILLION DOLLARS.
THE NEXT LINE, OTHER MARKET LIABILITIES IS THE ANOMALY THAT WE'RE NOT USED TO SEEING.
SO THAT IS UP ABOUT $700 MILLION YEAR OVER YEAR.
THAT IS JUST BECAUSE OF TIMING AT THE END OF THE MONTH OF AUGUST.
SO AT THE END OF THE MONTH OF AUGUST, WE HAD MULTIPLE DAYS OF DAY AHEAD MARKET ACTIVITY THAT WAS OUT THAT WE HAD BROUGHT IN, HAD NOT PAID OUT YET.
SO OF THAT AMOUNT, ABOUT 650 MILLION OF THAT AMOUNT WAS ACTUALLY PAID OUT ON SEPTEMBER 1ST.
SO THAT'S JUST A TIMING ASSOCIATED WITH SETTLING THE MARKET.
OTHERWISE IT'D BE $650 MILLION LESS THAN WHAT YOU SEE ON THIS PAGE.
AND THAT'S ALL ROLLS UP INTO THAT 3 BILLION AS WELL.
NEXT SLIDE IS THE INCOME STATEMENT.
SO ON THIS SIMILAR TO WHEN WE WERE TALKING ABOUT THE BUDGET VERSUS ACTUAL, WE CAN SEE THAT THE OPERATING REVENUES ARE ACTUALLY FAVORABLE BY ABOUT $3.4 MILLION.
THAT'S SPLIT BETWEEN THE SYSTEM ADMIN FEE RATE, WHICH IS UP ABOUT $2 MILLION VERSUS LAST YEAR.
SO EVEN THOUGH IT'S 6 MILLION FAVORABLE TO BUDGET, IT'S ONLY 2 MILLION FAVORABLE VERSUS LAST YEAR.
WE LOOK AT THE INSPECTIONS, THOSE ARE UP A COUPLE MILLION DOLLARS VERSUS LAST YEAR.
AND THEN THOSE ARE OFFSET BY SOME INTERCONNECTION STUDY DUE TO REVENUE RECOGNITION CHANGES THAT WE MADE AND THAT WERE MADE BY ACCOUNTING STANDARDS WHICH DRIVE THROUGH ON THE EXPENDITURE SIDE.
THESE ARE CONSISTENT PERCENTAGE INCREASES TO WHAT WE SAW LAST TIME.
SO THE BIGGEST PIECE IS THE INCREASE IN SALARIES AND RELATED BENEFITS EXPENSE.
THAT WAS A 27% INCREASE YEAR OVER YEAR.
LAST TIME WE SAW IT, NOW IT'S AT A 28% INCREASE.
YEAR OVER YEAR DEPRECIATION WAS A 37% INCREASE.
THE OTHER ITEMS ARE ALL SIMILARLY ALIGNED AS WELL.
THE LAST ITEM OF COURSE IS INTEREST INCOME, WHICH WE'VE BEEN TALKING ABOUT, WHICH WAS ABOUT $50 MILLION INCREASE AT OUR LAST MEETING AND NOW IT'S UP TO 64 MILLION VERSUS LAST YEAR WHEN IT WAS ALMOST NOTHING.
AND MY FINAL SLIDE IN THIS SECTION ARE THE C R R FUNDS, THE BALANCES THAT WE'RE HOLDING.
ONE OF THE UNIQUE THINGS WE'RE SEEING NOW AS WE LOOK AT THIS CHART IS IF YOU LOOK AT THE LAST FOUR MONTHS ON THE RIGHT HAND SIDE, YOU'LL SEE THAT THAT BALANCE HAS ACTUALLY STOPPED GROWING.
IT HAS FLATTENED DEEP, EVEN DECREASED A LITTLE BIT.
SO WE'RE STARTING TO SEE POTENTIALLY THAT CAP OUT AND THAT THAT $2 BILLION IS THE AMOUNT THAT WE USED IN OUR BUDGET TO DETERMINE THAT INTEREST INCOME RATE AS WE MOVE FORWARD.
BUT WHAT HAPPENS TO THAT IN THE FUTURE IS STILL UNCERTAIN OF COURSE.
AND THEN IN THE BOTTOM RIGHT YOU CAN SEE THAT THE, WE DID NOT HAVE ANY USE OF C R R FUNDS FOR OPERATING PURPOSES.
WE ACTUALLY HAD ABOUT A $31 MILLION CASH OPERATING BALANCE AT THE END OF THAT MONTH.
AND THAT'S ALL I HAVE ON THIS SECTION BEFORE I MOVE ON TO INVESTMENTS.
ANY QUESTIONS FOR SEAN? FINANCIAL STATEMENTS? OKAY, SEAN PURPORTING, OH, GO AHEAD.
I'M WITH THE UM, INTERESTING INCOME BEING WHERE IT IS A HUNDRED MILLION DOLLARS FORECAST FOR THE YEAR.
DO YOU, DOES THAT JUST STAY WITH ERCOT OR IS THERE A REBATE IF YOU WILL, BACK TO MARKET PARTICIPANTS OF KIND OF THE NET ACCESS OVER EXPENDITURES? WE DO NOT HAVE A TRUE UP SIMILAR TO SOME OTHER ISOS, SOME ISOS TRUE UP ON A MONTHLY BASIS, SOME TRUE UP ANNUALLY, SOME DON'T TRUE UP.
WE'RE ONE OF THE ONES THAT DON'T TRUE UP.
WE ROLL THAT INTO OUR BUDGET FORECAST AND OUR NEED FOR SYSTEM ADMINISTRATION FEE RATE INCREASES.
SO THAT'LL ALL JUST ROLL INTO OUR FUTURE BUDGET CYCLE AND OUR FUTURE FEE CALCULATIONS.
SO THE BUDGET THAT'S BEEN SUBMITTED NOW, WOULD THAT BE UPDATED FOR FOR THIS OR IT HAS NOT BEEN UPDATED FOR THIS? IS THAT WHAT HAPPENS THOUGH? UH, TYPICALLY WE DON'T GO THROUGH AND UPDATE IT AFTER WE'VE APPROVED IT BY THE BOARD AND SUBMITTED IT.
IT'S STILL UP TO THE COMMISSION WHAT AMOUNTS THEY'LL ACTUALLY DETERMINE IF THEY APPROVE THE BUDGET AS SUBMITTED OR IF THEY WANT TO MAKE CHANGES TO IT, THEN IF THEY MAKE A CHANGE TO IT THEN WE'LL BRING IT BACK TO THE BOARD TO APPROVE WHATEVER CHANGES WE NEED TO MAKE TO MAKE THAT BUDGET WORK IF THAT WERE TO HAPPEN.
THAT'S NOT HAPPENED SINCE I'VE BEEN HERE, BUT IF THAT WERE TO HAPPEN.
ANY OTHER QUESTIONS ON THE FINANCIAL REPORTS?
[00:15:02]
OKAY, DEBT COMPLIANCE OR[5.2 Periodic Report on Investments]
A SUMMARY REPORT ON INVESTMENT.SO FROM THE INVESTMENT PERSPECTIVE THEN WE ARE IN COMPLIANCE WITH ALL OF OUR INVESTMENT REQUIREMENTS.
WE, WE HAVE SEEN THAT MONEY MARKET MUTUAL FUND YIELDS INCREASE.
THEY WE'RE AT ABOUT 5.2% AT THE END OF AUGUST AND THE, OUR LONGER TERM TREASURY OBLIGATIONS WE'RE AT ABOUT 4.8%.
AND THEN I MENTIONED THE $1.3 BILLION.
SO I WANNA QUICKLY LOOK AT THAT INVESTMENT.
SO THESE ARE THE PURCHASES THAT WE MADE ON SEPTEMBER 27TH.
AS YOU'RE LOOKING AT THIS, THERE'S A COUPLE OF THINGS THAT I WOULD LIKE TO HIGHLIGHT.
THE FIRST DOWN AT THE BOTTOM, YOU CAN SEE IT'S THE $1.3 BILLION.
THIS IS BASICALLY TAKING THAT OUTTA THOSE MONEY MARKET MUTUAL FUNDS AND MOVING 'EM INTO THESE INVESTMENTS SO THAT WE CAN LOCK IN SOME OF THOSE RATES FOR LONGER PERIODS OF TIME.
THE AVERAGE YIELD ON ALL OF THAT ACROSS THOSE MONTHS WAS THE 5.4%.
AND THEN WHEN WE LOOK AT THESE YIELDS BASED ON THESE MATURITY MONTHS, YOU CAN SEE WHAT EVERYONE IS TALKING ABOUT ABOUT HOW THAT YIELD CURVE GOES UP.
SO WHEN WE'RE LOOKING OUT ABOUT SIX OR SEVEN MONTHS TO APRIL AND THEN THE FOLLOWING FIVE MONTHS AFTER THAT, YOU CAN SEE THAT THOSE ARE THE PEAK YIELD RATES BEFORE THEY START COMING BACK DOWN.
SO WE EXPECT THOSE RATES TO CONTINUE TO DECREASE IN THE FUTURE.
REMEMBER TWO THAT THESE ARE THE YIELDS TO THE MATURITY OF THESE, WHICH MEANS THE YIELD ON A, IF WE LOOK AT THE VERY BOTTOM LINE, THE YIELD IN OCTOBER 30TH OF OCTOBER OF 2025 IS NOT EXPECTED TO BE 5.12%, IT'LL BE SUB 5% BASED ON THE CALCULATION.
'CAUSE THE YIELD UP UNTIL THIS FIRST YEAR FROM NOW IS ACTUALLY OVER 5.5%.
SO WHEN YOU COMPOUND THAT, IT GETS TO A MUCH LOWER RATE AND NOT MUCH, BUT IT GETS TO A LOWER RATE IN THE FUTURE.
SO THOSE ANTICIPATED RETURNS WILL BE GOING DOWN IN THE NEXT COUPLE OF YEARS.
THE OTHER THING THAT I WANNA HIGHLIGHT ON HERE IS THAT BECAUSE ALL THIS MONEY HAS BEEN INVESTED NOW, THEN WE WILL HAVE A LOT OF INTEREST COMING IN FOR THIS IN 2024 ALREADY LOCKED IN.
BUT BECAUSE THESE ROLL OFF AND THEN YOU HAVE REINVESTMENT RISK AT THE TIME OF THOSE MATURITIES, THE AMOUNT THAT WE ACTUALLY HAVE LOCKED IN FOR 2025 AND THE MONTHS THAT THESE MATURE IS NOT THAT MUCH AT THIS POINT JUST BECAUSE OF THE WAY THE MATURITY OF THESE WORK.
SO IF YOU LOOK AT, LET'S SAY THE MARCH 31ST, 2025 MATURITY FOR THAT $70 MILLION AT 5%, THAT'S ONLY THREE MONTHS OF THAT $70 MILLION WHEN WE'RE TALKING ABOUT 2025.
UM, SO I DON'T WANT ANYBODY TO GET UH, WRAPPED UP THAT THINKING THAT WE HAVE A BILLION DOLLARS OF INTEREST THAT WE'VE LOCKED IN FOR 2025 OR A BILLION DOLLARS OF INVESTMENTS THAT HAVE LOCKED IN INTEREST FOR 2025.
THAT'S NOT WHAT WE'VE BEEN ABLE TO DO.
BUT THIS DOES STABILIZE STUFF AS WE MOVE FORWARD.
SO AT THIS POINT, WHAT PORTION OF THE 2024 INTEREST INCOME PROJECTION IS LOCKED IN BASED ON THIS LADDER HERE AT THIS POINT WE HAVE LOCKED IN BASICALLY ALL OF THE INTEREST INCOME THAT WE BUDGETED FOR IN 2024.
IN 2025 WE BUDGETED FOR $40 MILLION OF INTEREST INCOME.
THIS SECURES LESS THAN $10 MILLION IN 2025 OF INTEREST INCOME.
SO THE OTHER 30 PLUS MILLION DOLLARS IS NOT LOCKED IN FOR 2025, BUT 2024 IS PRETTY SOLID.
ALRIGHT, ANY OTHER QUESTIONS? UH, BOB, SEAN IS THERE, IS THERE UPSIDE AS WELL? UM, 'CAUSE THIS IS ASSUMING A CERTAIN LEVEL OF INVESTMENT OF OUR CASH FLOWS.
SO THERE IS ADDITIONAL UPSIDE.
SO IF WE STAYED AT A $2 BILLION BALANCE AND WE CONTINUE TO INVEST THIS MONEY, WE STILL HAVE THE OTHER MONEY THAT'S IN THE MONEY MARKET MUTUAL FUND.
SO THAT'S GOING ON THE, THE SHORTER TERM RATE, WHICH WE SAW AT ABOUT 5.2%.
THEN WHAT OUR STRATEGY IS AS WE MOVE FORWARD IS WHENEVER WE HAVE A CR AUCTION AND WE BRING THAT CASH IN AND WE KNOW WHEN IT'S GONNA GO OUT, WHICH IS UP TO SEVERAL MONTHS INTO THE FUTURE, IT'S CONCEDED ON HERE.
THIS IS MATCHING OUR APPROACH.
WE DISCOUNT THREE MONTHS OFF OF THAT TO MAKE SURE THAT WE DON'T HAVE ANY LIQUIDITY CONCERNS.
SO IF SOMETHING IS DUE TO BE PAID OUT IN SAY JUNE OF 2024, WE WOULD MAKE SURE THAT THE BONDS MATURE OR BILLS MATURE THREE MONTHS BEFORE THEN TO BRING THAT CASH BACK IN, MOVE IT BACK OVER TO MONEY MARKET MUTUAL FUNDS, MAKE SURE WE DON'T HAVE ANY CONCERNS AT ALL ABOUT LIQUIDITY OR THAT WE HAVE TO GET OUT OF THESE EARLY BECAUSE AS WE'VE SEEN RECENTLY WITH SILICON VALLEY BANK, IF YOU'VE GOTTA GET OUTTA THESE EARLY AND THE RATES ARE RISING, YOU'RE GONNA LOSE A LOT OF MONEY AND WE ABSOLUTELY DO NOT WANT TO DO THAT.
SO THERE IS ADDITIONAL UPSIDE.
THIS IS LOCKED AT THIS POINT IS LOCKED IN INTEREST INCOME,
[00:20:02]
INVESTMENT INCOME BECAUSE IT ALSO, THESE ARE SOME ARE PURCHASED AT A DISCOUNT OF COURSE.SO IT'S NOT JUST ALL INTEREST TECHNICALLY.
ANY OTHER QUESTIONS REGARDING INVESTMENTS FOR SEAN? I HAVE I, I'M JUST CURIOUS IT, IT SAYS INVESTMENTS PURCHASED ON SEPTEMBER 27TH.
DID WE BUY ALL THOSE ON ONE DAY? WE DID.
WHAT IS THERE SOME STRATEGIC REASON THAT WE DID THAT? THIS WAS THE GLOBAL SHIFT IN OUR APPROACH.
WE WON'T DO ANYTHING LIKE THIS GOING FORWARD.
SO THIS WAS A ONE TIME EVENT TO TAKE ALL THAT MONEY THAT WAS SITTING IN THE, NOT ALL OF IT, BUT TAKE THE APPROPRIATE AMOUNT OF MONEY THAT WAS SITTING IN THE, IN THE MONEY MARKET MUTUAL FUNDS AND BUILD THAT LADDER FOR THE FIRST TIME.
AS WE MOVE FORWARD THEN YOU'LL BE SEEING MUCH SMALLER PURCHASES.
IT'LL JUST BE THE AMOUNTS THAT ARE WE RECEIVE IN THE AUCTIONS ON THEM WHEN THOSE OCCUR MUCH, MUCH SMALLER.
SO YOU DID THE TREASURY, SO I MEAN THAT'S AN EFFECTIVE MAKES BASICALLY IT'S AN EFFECTIVE HEDGE VERSUS YOUR BUDGET, RIGHT? IT'S SECURED AT THIS POINT.
THAT'S WHY YOU DID IT THIS WAY VERSUS LETTING IT FLOW.
YEAH, TO, WE HAD MULTIPLE CONVERSATIONS WITH THE COMMITTEE AND THE OTHER BOARD MEMBERS WHO WERE SAT IN ON THESE MEETINGS IN THE LAST SEVERAL MONTHS ABOUT WE SHOULD BE ABLE TO GO IN AND HEDGE THIS AND LOCK THESE MONIES IN SO THAT IF THESE DO GO DOWN, WHICH WE'VE SEEN THE RATES CHANGE, I'M NOT EVEN REMOTELY GOING TO TRY TO PREDICT INTEREST RATES, BUT WE'VE CHANGED, SEEN THEM CHANGE DRASTICALLY IN A SIX MONTH PERIOD.
THERE'S NOTHING TO SAY THAT THESE RATES WON'T BE SUBSTANTIALLY HIGHER OR SUBSTANTIALLY LOWER THAN THIS THIS TIME NEXT YEAR.
IS THERE ANYTHING ELSE ON INVESTMENT SEAN? UH, NO THAT'S ALL I HAVE.
ANY OTHER QUESTIONS FOR SEAN ON INVESTMENTS? OKAY, LET'S UH, HEAR ABOUT DEBT COMPLIANCE
[5.3 Periodic Report on Debt Compliance]
AND ALL OF THE INFORMATION.THE APPENDIX IN HERE IS WHAT YOU ARE USED TO SEEING FROM THE DEBT COMPLIANCE PERSPECTIVE.
WE ARE IN COMPLIANCE WITH ALL OF OUR DEBT REQUIREMENTS BECAUSE THE, THIS DIDN'T TAKE US THROUGH Q THREE.
THIS INFORMATION IS STILL SHOWING Q TWO AS WELL.
WE DID ADD THE RATES FOR THE DEBT TRANSACTIONS THAT WAS ASKED, REQUESTED FROM THE COMMITTEE LAST TIME WE MET AND SHOW YOU BRIEFLY WHERE THOSE ARE IN THE APPENDIX AND THIS IS ASSOCIATED WITH THE TRANCHES.
AND AS WE LOOK AT THE FIRST PART, FOR EXAMPLE FOR THE SUB-CHAPTER M, WHICH WE HAD THE CONVERSATIONS ABOUT THE FACT THAT THIS IS O ONLY HELD BY THE COMPTROLLER GUARANTEED FOR THREE YEARS AND WE'LL LOOK AT THE PROCESS OF WHAT WE NEED TO DO AFTER THAT, WE STARTED THAT PROCESS.
NOW WE'LL BRING THAT BACK TO THE COMMITTEE AS IT MATURES.
AS A REMINDER THROUGH JANUARY 25, THAT LOCK RATE IS LOCKED IN AT 2.9699999999999998%.
AFTER THAT IT RENEWS AT A THEN DETERMINED RATE BASED ON THE INDEX AND A TWO AND A HALF PERCENT ADDER AS DEFINED BY THE STATUTE.
THAT WOULD RAISE THAT TO 6.3%.
IF THAT WERE OUR OPTION THEN WE WOULD LOOK AT ISSUING DEBT OUT IN THE AS A 1 44 A SIMILAR TO THE SUBCHAPTER N BECAUSE THAT WOULD GIVE US A LOWER RATE THAN THAT 2.5% ADDER ON TOP OF THAT BASED ON EVERYTHING WE'VE SEEN HISTORICALLY.
BUT WE'LL EXAMINE IT OF COURSE.
AND HERE YOU CAN SEE THOSE INTEREST RATES AND THAT IS WHAT DRIVES ON THIS AMORTIZATION SCHEDULE.
THE DIFFERENCE IN THOSE TOTAL PAYMENT AMOUNTS ONCE THAT INTEREST RATE REFRESHES AND THOSE TOTAL PAYMENTS OBVIOUSLY GO UP SUBSTANTIALLY.
AND THEN FROM THE SUBCHAPTER N PERSPECTIVE THEN WE ADDED BY TRANCHE, WE HAVE THE ORIGINAL BALANCE THAT FOR EACH TRANCHE HOLDS WHAT THE COUPON RATE OF THOSE T TRANCHES ARE, WHICH IS THE RATE THERE'S IN THE A ONE TRANCHE THERE'S A 0.001% DIFFERENCE, BUT JUST BECAUSE OF THE THE CALCULATIONS.
BUT THESE ARE THE COUPON RATES.
WE HAVE THE WEIGHTED AVERAGE LIFE AT THE ISSUANCE AS WELL AS THE EXPECTED FINAL MATURITY AND THE LEGAL FINAL MATURITY.
AND YOU CAN SEE THE DETAILS OF ALL THE TRANCHES WITH THE COUPON RATES AT THE TOP OF THESE, EACH OF THOSE PAGES AS WELL.
ANY QUESTIONS REGARDING DEBT COMPLIANCE? THANK YOU FOR THE ADDITIONAL INFORMATION THAT WE REQUEST AT THE LAST MEETING THAT THAT'S HELPFUL.
[6. Future Agenda Items]
SIX, FUTURE AGENDA ITEMS AND SEAN IS GOING TO PRESENT THAT.LAST ITEM FOR GENERAL SESSION FOR ME IT.
SO AS WE LOOK AT FUTURE AGENDA ITEMS IN DECEMBER, THEN A FEW ITEMS THAT I WANNA HIGHLIGHT, WE WILL HAVE THE CONCLUSION OF THE SELF-EVALUATION THAT WAS REFERENCED EARLIER ON ROW
[00:25:01]
NINE.NOW IF WE MOVE DOWN TO ROW 25, WE HAVE THE REVIEW OF THE PERFORMANCE OF THE CHIEF AUDIT EXECUTIVE, THE ANNUAL EVENT ROW 28.
WE HAVE APPROVAL OF THE ANNUAL INTERNAL AUDIT PLAN AND THEN ROWS 36 THROUGH 38 AT THE BOTTOM WE'LL BE RECEIVING THE INFORMATION FOR THE THE SOC REPORT FOR THE SETTLEMENT SYSTEM.
ONE ITEM THAT'S NOT ON THIS PAGE THAT I'LL HIGHLIGHT IS THAT WE ARE STILL ON TRACK AND EXPECT TO BRING THE INDEPENDENT ACCOUNTANTS IN WHO ARE HIRED TO DO THE FINANCIAL CONTROLS REVIEW THAT IS STILL ON TRACK FOR PRESENTING TO Y'ALL IN DECEMBER.
THAT WORK IS UNDERGOING BEING IS UNDERWAY RIGHT NOW.
OKAY, SOUNDS LIKE WE'RE GONNA HAVE A BUSY DECEMBER MEETING, SO THAT'S GOOD.
ANY QUESTIONS ON FUTURE AGENDA ITEMS? LET'S MOVE TO AGENDA ITEMS SEVEN, OTHER BUSINESS.
DOES UH, ANYONE HAVE ANY OTHER BUSINESS THAT THEY WOULD LIKE TO UH, BRING UP BEFORE WE MOVE TO EXECUTIVE SESSION? I DON'T SEE ANYTHING AT THIS TIME.
THE COMMITTEE WILL ADJOURN GENERAL
[Convene Executive Session]
SESSION AND CONVENE AN EXECUTIVE SESSION.WE DON'T HAVE ANY VOTING ITEMS THAT ARE ANTICIPATED FROM EXECUTIVE SESSIONS.
SO THE GENERAL SESSION WILL NOT RECONVENE AFTER THE CONCLUSION OF EXECUTIVE SESSION.
THIS MEETING IS, THE GENERAL SESSION IS NOW ADJOURNED.