Feb 26, 2024 Finance and Audit Committee Meeting

[00:00:01]

THAT'S TRUE.

TAKE ONE.

UH,

[1. Call General Session to Order]

MEMBERS OF THE FINANCE AND AUDIT COMMITTEE AND GUEST, UH, I'M BILL FLORES, THE CHAIR OF THE AUDIT COMMITTEE, AND I WANNA WELCOME EACH OF YOU TO THE FEBRUARY 26TH, 2024 FINANCE AND AUDIT COMMITTEE MEETING.

I HEREBY CALL THIS MEETING TO ORDER.

THE MEETING IS BEING WEBCAST LIVE TO THE PUBLIC ON KO'S WEBSITE.

ERCOT HAS LEGAL HAS CONFIRMED THAT A QUORUM IS PRESENT IN PERSON.

BEFORE WE BEGIN, UH, NEVERMIND.

THERE'S ONLY ONE PUC COMMISSIONER HERE, SO WE WON'T, DON'T HAVE TO CALL AN OPEN MEETING THERE.

UH, BEFORE MOVING ON TODAY'S, UH, BUSINESS, I'LL HIGHLIGHT TO COMMITTEE MEMBERS THAT THE ANTITRUST ADMONITION, AS WELL AS THE SECURITY MAP ARE INCLUDED IN THE POSTED MEETING MATERIALS.

UH, 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 FEBRUARY THE 19TH AND PROVIDING INSTRUCTIONS FOR THE PUBLIC FOR COMMENTING IN PERSON.

UH, TO DATE, NO ONE HAS EXPRESSED INTEREST IN COMMENTING.

IS THAT CORRECT, CHAD? THAT IS CORRECT.

CHAIR.

UH, THANK YOU, JEFF.

THE NEXT IS

[3. December 18, 2023 General Session Meeting Minutes]

COMMIT GENERAL SESSION MEETING MINUTES.

THERE'S A DRAFT IN THE MEETING MATERIALS.

DOES ANYONE HAVE ANY COMMENTS OR WISH TO MAKE A MOTION? I'LL MOVE TO APPROVE.

UH, PEGGY HAS MOVED APPROVAL.

BOB HAS MOVED THE SECOND.

ANY, UH, COMMENTS? ALL IN FAVOR? AYE.

AYE.

ANY OPPOSED? ANY ABSTENTIONS? THE MINUTES ARE APPROVED.

THE UH, NEXT ITEM IS AGENDA ITEM FOUR, ANNUAL CHARTER REVIEW AND APPROVAL.

WE HAVE TWO SUB ITEMS UNDER THIS, UM, ISSUE.

[4.1 Recommendation regarding Committee Charter]

ERCOT LEGAL RECOMMENDS MINOR REVISIONS TO THE CHARTER, AND A RED LINE OF PROPOSED WAS INCLUDED WITH THE MEETING MATERIALS.

UNLESS ANYONE HAS ANY COMMENTS OR QUESTIONS, I'LL ENTERTAIN A MOTION TO RECOMMEND BOARD APPROVAL.

THE REVISED F AND A COMMITTEE CHARTER AS PRESENTED.

SO COURTNEY HAS, UH, UH, MADE THE MOTION.

BOB IS SECONDED.

ALL IN FAVOR? AYE.

AYE.

ANY OPPOSED? ANY ABSTENTIONS? OKAY.

THE F AND A COMMITTEE CHARTER IS APPROVED.

THE

[4.2 Internal Audit Department Charter]

THIS IS A VOTING ITEM FOR THE COMMITTEE, BUT DOES NOT REQUIRE BOARD APPROVAL.

UH, FINAL BOARD APPROVAL.

UH, PENNY, UH, WILL PRESENT THE, UH, THE COMMITTEE CHARTER, THE, THE DEPARTMENT CHARTER.

AS BILL SAID, THIS IS JUST THE ANNUAL REQUIREMENT TO APPROVE THE FIN, THE FINANCE, AND THE APPROVAL OF THE INTERNAL AUDIT CHARTER BY THE FINANCE AND AUDIT COMMITTEE.

UH, THERE ARE NO CHANGES FOR THIS YEAR AND IT DOES MEET ALL THE REQUIREMENTS FOR THE INTERNAL AUDITING STANDARDS.

OKAY.

ANYBODY HAVE ANY QUESTIONS FOR PENNY ON THE DEPARTMENT CHARTER? WITH THAT, I'LL, UH, ENTERTAIN A MOTION TO APPROVE COURTNEY.

UH, SECOND.

OKAY, PEGGY, THANK YOU.

UH, ALL IN FAVOR? AYE.

ANY OPPOSED? ANY ABSTENTIONS? OKAY.

THE INTERNAL AUDIT DEPARTMENT CHARTER IS APPROVED.

THE

[5. Annual Policy Review]

THERE ARE THREE SUB ITEMS THAT ARE NON-VOTING ITEMS THAT RICHARD SHIELD WILL TAKE US THROUGH.

UH, AGENDA ITEMS 5.1 IS THE HANDLING OF COMPLAINTS REGARDING FINANCIAL MATTERS.

5.2 IS A POLICY ON HIRING FORMER EMPLOYEES OF THE INDEPENDENT AUDITOR AUDITOR, AND 5.3 IS A POLICY ON INDEPENDENT AUDITOR SELECTION.

RICHARD, THE FLOOR IS YOURS.

THANK YOU.

I'M RICHARD SHIELD ERCOT CONTROLLER.

HAPPY TO BE HERE AT COMMITTEE REQUEST.

I'M HERE TO REVIEW THESE NEXT THREE ITEMS WITH YOU.

UM, THE FIRST ITEM, ITEM 5.1 IS PROVIDE THE, UM, ANNUAL REVIEW OF PROCEDURES FOR THE RECEIPT, RETENTION AND TREATMENT OF COMPLAINTS REGARDING ACCOUNTING, INTERNAL CONTROLS AND AUDITING.

UH, THE PROCEDURES AND PROCESSES ARE IN PLACE AND CONSISTENT WITH LAST YEAR.

UM, WE HAVE COMPLAINTS THAT CAN BE RECEIVED THROUGH A VARIETY OF SOURCES, UM, DIRECT, INDIRECT AND ANONYMOUSLY.

ANONYMOUSLY VIA ETHICS POINT.

EMPLOYEES AND CONTRACTORS RECEIVE TRAINING AT LEAST ANNUALLY TO MAKE THEM AWARE OF THESE OPTIONS.

OUR RETENTION OF COMPLAINTS IS RETAINED IN MEETING MINUTES, INVESTIGATIVE WORK PAPERS, AND SYSTEMATICALLY IN OUR ETHICS POINT SYSTEM AND TREATMENT OF COMPLAINTS ARE COMPLAINTS ARE INVESTIGATED AS APPROPRIATE AND REPORTED TO THE FNA COMMITTEE OR BOARD UNTIL RESOLVED.

ANY QUESTIONS? ANY QUESTIONS FOR RICHARD REGARDING THE COMPLAINTS POLICY? OKAY,

[00:05:02]

ITEM 5.2, POLICY ON HIRING FORMER EMPLOYEES OF THE INDEPENDENT AUDITOR.

THE, THIS IS AN ANNUAL REVIEW FOR THE HIRING POLICIES OF EMPLOYEES WHO ARE FORMER EMPLOYEES OF ERCOT INDEPENDENT AUDITORS, WHICH REMAIN IN PLACE AND ARE CONSISTENT WITH LAST YEAR.

UH, THE POLICY IS CENTERED ON A CONDITIONAL TEST, UH, WITH TWO QUALIFIERS, AND IT EMPHASIZES A COOLING OFF PERIOD BETWEEN WORKING AND ERCOT INDEPENDENT AUDIT ENGAGEMENT AND POTENTIAL EMPLOYMENT BY ERCOT.

ANY QUESTIONS FOR RICHARD ON THE HIRING OF FORMER AUDIT, INDEPENDENT AUDIT EMPLOYEES? OKAY, CONTINUE TO THE NEXT ONE.

5.3 POLICY ON INDEPENDENT AUDITOR SELECTION.

THIS IS AN ANNUAL REVIEW, UM, TO PROVIDE THE, UH, RULE THE PROCEDURES AROUND SOLICITING THE ENGAGEMENT OF INDEPENDENT AUDIT SERVICES, WHICH, UH, REMAIN IN PLACE AND ARE CONSISTENT WITH LAST YEAR.

FINANCE AND AUDIT COMMITTEE REQUIRES COMPETITIVE SOLICITATION OF AUDIT SERVICES, UH, RATHER THAN, UH, A MANDATORY AUDIT FIRM ROTATION CYCLE.

THE NEXT RFP IS SLATED FOR 2026.

UH, CURRENT AUDIT PARTNER IS AARON WMAN.

HE'S COMPLETING THE FIVE YEAR TERM FOR AN NOW RETIRED AUDIT PARTNER, JEFF RO, AND THE NEXT ROTATION WILL BE IN 2025.

OKAY.

THANK YOU RICHARD.

ANY QUESTIONS OR COMMENTS FOR RICHARD? IS THAT RICHARD WE'LL ASK YOU TO? OH, I'M SORRY.

I WANT TO GO BACK, UH, TO THE FIRST ITEM.

I THINK IT'S PRETTY CLEAR, BUT I JUST WANT TO CLARIFY IT ON THE HANDLING OF COMPLAINTS.

UH, SLIDE THE SECOND SIDE.

YEAH, THAT'S IT.

JUST WANNA CONFIRM THAT ANY FINANCIAL COMPLAINT, REGARDLESS OF HOW IT COMES IN OR IS LOGGED AND REPORTED IN THIS SPREADSHEET THAT WE GET IT? YES.

AND I BELIEVE YOU HAVE A PRESENTATION LATER TODAY ON THE ETHICS POINT.

OKAY.

OKAY.

LET'S MOVE TO AGENDA ITEMS SIX.

DOES THAT ANSWER YOUR QUESTION? YES, PEGGY.

OKAY, COOL.

NEXT IS AGENDA ITEMS, UH, SIX RISK ASSESSMENTS.

THERE ARE TWO NON-VOTING DISCUSSION ITEMS. UH, FIRST OF

[6.1 Forecast Adequacy of the Budgeted System Administration Fee Rate]

THIS WILL ALSO INCLUDE AN UPDATE ON A RESETTLEMENT ARISING FROM AN ERROR IN THE SYSTEM ADMIN FEE RATE FOR OPERATING DAYS, UH, ONE JANUARY THROUGH FOUR JANUARY OF THIS YEAR.

RICHARD, THANK YOU.

ERCOT MADE A COMMITMENT TO MARKET PARTICIPANTS TO PROVIDE, UM, THE FORECAST ADEQUACY OF THE BUDGET ADMINISTRATION FEE RATE FOR THE FOLLOWING CALENDAR YEAR AT THE FIRST FINANCE AND AUDIT COMMITTEE MEETING OF EACH CALENDAR YEAR.

WE'RE HERE TO PRESENT THAT, UM, THE BUDGETED SYSTEM ADMINISTRATION FEE RATE IS CURRENTLY FORECAST TO BE ADEQUATE FOR 2025.

UM, TO THE SECOND ITEM.

UH, WE CHANGED OUR SYSTEM ADMINISTRATION FEE RATE THIS YEAR FROM 55 AND A HALF CENTS TO 63 CENTS.

UM, THE NOTICE WENT OUT CORRECTLY ON NOVEMBER 6TH, UH, SUBSEQUENT TO THE MARKET NOTICE FOR THE 63 CENT, UH, FEE INCREASE.

I'M SORRY, CAN YOU SPEAK UP JUST A LITTLE BIT, RICHARD? SURE.

UM, SORRY I WAS AWAY FROM THE MICROPHONE.

SUBSEQUENT TO THE MARKET NOTICE THAT WE SENT OUT ON NOVEMBER 6TH, WITH, WHICH HAD THE CORRECT 63 CENT NOTICE TO THE MARKET, UM, WE ADMINISTRATIVELY UPDATED THE SETTLEMENT SYSTEM, UH, FROM THE 55 AND A HALF CENT, AND UNFORTUNATELY AN ERROR WAS MADE AND THE ORIGINAL BOARD APPROVED BUDGET FROM JUNE WAS UTILIZED AND THE 71 CENT FEE RATE WAS ENTERED.

WE CORRECTED THAT, UH, AS SOON AS IT WAS BROUGHT TO OUR ATTENTION BY OUR MARKET PARTICIPANT, IT WAS, UM, A SUB $400,000 ERROR THAT WAS NOTICED.

UM, AND THEN RESETTLED ON JANUARY 12TH, THE MARKET NOTICE WENT OUT.

AND IN THE FUTURE, WE'VE AUGMENTED OUR CONTROLS AROUND THAT PROCESS TO ENSURE THAT WE REFER TO THAT MARKET NOTICE AND TO THE FINAL APPROVED PC ORDER.

OKAY.

ANY QUESTIONS FOR RICHARD ON THE, UH, THE FEE UPDATE OR THE FEE ADEQUACY? OKAY.

OKAY, THANK YOU.

JUST, JUST A QUICK QUESTION, RICHARD.

WE BOTH TALKED BRIEFLY THIS MORNING, BUT YOU FEEL YOU'VE GOT THE RIGHT CONTROLS IN PLACE NOW, SO, YES, SIR.

SO WE WOULD DETECT IT IF IT ACTUALLY DID HAPPEN, BOTH THE CONTROL GET IT RIGHT, BUT ALSO THE DETECTIVE CONTROL TO ENSURE THAT IF SOMETHING WENT WRONG, WE COULD SEE IT BEFORE A MARKET PARTICIPANT.

[00:10:01]

IF AT THE NEXT FEE INCREASE, WE, WE WILL HAVE CONTROLS IN PLACE THAT WE'LL DETECT AND, AND MAKE SURE THAT THE RIGHT AMOUNT IS ENTERED TO BEGIN WITH.

YES.

OKAY.

AND YOU SAID THE QUANTITY OF THAT QUANTUM WAS ABOUT $400,000 SUB? 400,387 OR SO.

OKAY.

AND THAT'S ALL BEEN CORRECTED AND THE MARKET PARTICIPANTS ACCOUNTS ARE SETTLED? THAT'S CORRECT.

THE JANUARY, THE ERROR OCCURRED BETWEEN JANUARY 1ST AND JANUARY 4TH.

THERE WAS A RESETTLEMENT THAT OCCURRED ON JANUARY 12TH THAT, THAT CORRECTED EVERYONE'S ACCOUNTS.

YES.

OKAY.

THANK YOU.

YOU'RE WELCOME.

NEXT WE'LL

[6.2 Review of Financial Institutions that are Market Participants]

GOOD MORNING.

UH, THIS ITEM IS AN ANNUAL DISCLOSURE ITEM FOR THE FINANCE AND AUDIT COMMITTEE TO REVIEW.

UM, IF THE FINANCIAL INSTITUTION IS ALSO A MARKET PARTICIPANT OR CO WILL HAVE A CONFIDENTIALITY AGREEMENT IN PLACE WITH THAT FINANCIAL INSTITUTION.

THIS IS DONE TO ENSURE THERE IS NO COMPETITIVE ADVANTAGE TO ANY OF THE FINANCIAL INSTITUTIONS IN THE MARKET.

THESE ARE THE SAME QUALIFIED FINANCIAL INSTITUTIONS AS LAST YEAR.

THERE ARE NO UPDATES ON THIS ONE.

AND THEN THIS LAST SLIDE JUST LISTS THE OTHER QUALIFIED FINANCIAL INSTITUTIONS THAT ERCOT DOES BUSINESS WITH FOR TRANSPARENCY.

AND THIS IS JUST FOR DISCUSSION FOR OUR REVIEW, BUT ARE THERE ANY QUESTIONS OR COMMENTS? SO, LESLIE, THE, UM, THE CONFIDENTIALITY AGREEMENT IS BETWEEN US AND THE QUALIFIED FINANCIAL INSTITUTIONS SAYING THAT THEY WON'T SHARE THE INFORMATION WITH THE MARK PARTICIPANT.

THAT'S THE TRIANGLE THERE.

WE'RE CLOSING, CORRECT? YEAH.

YEAH.

SO IF THE FINANCIAL INSTITUTION, UM, LIKE THE, THE LENDERS THAT I WORK WITH WILL NOT COMMUNICATE TO THE TRADERS IN THE MARKET.

OKAY.

WITH THAT WE'LL

[7.1 Recommendation regarding Financial Corporate Standard]

LESLIE HAS THAT ITEM AS WELL.

UH, AND YOU'RE MAKING A RECOMMENDATION FOR CHANGES TO THE STANDARD FOR THIS YEAR, CORRECT? UH, THE CHANGES THAT WE'RE PROPOSING ARE MINOR.

UH, THERE ARE SOME MINOR FORMATTING ISSUES.

AND THEN, UM, TO UPDATE A TITLE, THE TITLE, UH, PREVIOUSLY SAID VICE PRESIDENT AND CHIEF FINANCIAL OFFICER AND WE'RE CHANGING IT TO JUST READ FI CHIEF FINANCIAL OFFICER.

OKAY.

THIS IS A VOTING ITEM.

UH, ARE THERE ANY QUESTIONS OR COMMENTS? IF NOT, I'LL ENTERTAIN A MOTION FOR APPROVAL.

SO PEGGY, THANK YOU A SECOND.

UH, BOB, ALL IN FAVOR? AYE.

ANY OPPOSED? ANY ABSTENTIONS? OKAY.

THE NEW FINANCIAL CORPORATE STANDARD OR THE FINANCIAL CORPORATE STANDARD AS REVISED.

AS APPROVED.

THE

[7.2 Recommendation regarding Investment Corporate Standard]

UH, LESLIE IS GONNA WALK US THROUGH THE RECOMMENDATION REGARDING THE INVESTMENT CORPORATE STANDARD.

YES, THE INVESTMENT CORPORATE STANDARD, UH, IS ALSO FOR REVIEW, UM, AND UP FOR VOTE.

UH, THE STANDARD OUTLINES, UH, THE INVESTMENT, UM, OBJECTIVES WHICH INCLUDE PRESERVATION OF PRINCIPLE LIQUIDITY, AND FINALLY RETURN ON INVESTMENT.

THE CHANGES IN THIS UH, STANDARD ARE ALSO TO UPDATE TITLES.

UH, WE HAD TWO TITLES, SAME PRESIDENT AND CHIEF EXECUTIVE OFFICER AND VICE PRESIDENT, CHIEF FINANCIAL OFFICER.

WE REMOVED THE PRESIDENT AND VICE PRESIDENT AND WE'RE SEEKING A VOTE ON THIS ONE AS WELL.

THANK YOU LESLIE.

ANY QUESTIONS ON THE INVESTMENT CORPORATE STANDARD COMMENTS THAT I'LL ENTERTAIN A MOTION TO APPROVE THE REVISED INVESTMENT CORPORATE STANDARD.

UH, PEGGY? UH, SECOND IS BOB.

ALL IN FAVOR? AYE.

ANY OPPOSED? ANY ABSTENTIONS? THE REVISED INVESTMENT CORPORATE STANDARD IS APPROVED.

THE NEXT

[8. Committee Briefs]

THE REVIEW OF OUR 2023 FINANCIAL PERFORMANCE PERIODIC REPORT ON DEBT COMPLIANCE, THE TIMING OF THE SUBCHAPTER M AND N REFINANCE, OR THE SUBCHAPTER M REFINANCING.

[00:15:01]

SEAN, THE FLOOR IS YOURS.

THANK YOU.

GOOD MORNING EVERYONE.

[8.1 Review 2023 Financial Summary]

A REMINDER, THESE ARE PRELIMINARY RESULTS.

WE'RE CURRENTLY UNDERGOING OUR ANNUAL AUDIT.

WE'LL BE BACK IN APRIL TO PRESENT THOSE RESULTS TO YOU.

WE DO NOT EXPECT ANY MATERIAL CHANGES FROM THESE NUMBERS TO THOSE AUDIT RESULTS, BUT THERE WILL BE A VARIETY OF MINOR DIFFERENCES.

THESE RESULTS ARE MOSTLY CONSISTENT.

WHAT WE'VE BEEN SEEING FOR THE YEAR AND WHAT YOU SAW LAST TIME, OUR PRELIMINARY NET AVAILABLE YEAR END VARIANCE TO BUDGET IS UP TO THE $94 MILLION THAT YOU SEE ON THIS PAGE.

IT'S ABOUT $14 MILLION MORE FAVORABLE THAN LAST TIME YOU SAW IT.

THE MAJORITY OF THAT IS ASSOCIATED WITH INTEREST INCOME, WHICH INCLUDES OUR YEAREND MARK TO MARKET ADJUSTMENT AND THE MARKET MARKET ADJUSTMENT REVERSAL FROM THE PRIOR YEAR.

SO I'LL TALK ABOUT THOSE MORE IN A LITTLE MINUTE AS WE GET TO THOSE FROM THE SYSTEM ADMINISTRATION FEE SIDE, THE $6.6 MILLION PAYROLL VARIANCE IS THE SAME AS WHAT YOU SAW LAST TIME.

THERE'S A VERY MINOR DIFFERENCE, BUT IT ROUNDED TO THE SAME 6.6 MILLION.

YOU SEE THE DETAIL ON THAT IN THE NEXT SLIDE WHEN WE GET TO IT.

THIS WAS DRIVEN BY BETTER THAN ORIGINALLY BUDGETED ECONOMIC CONDITIONS.

THE WEATHER, EVEN THOUGH WE HAD THE STRONG FAVORABLE REVENUE FROM THE WEATHER IN THE SUMMER MONTHS, THAT WAS OFFSET BY LESS FA, LESS THAN FAVORABLE OR UNFAVORABLE RESULTS.

IN THE OTHER MONTHS, WE HAD THREE MONTHS WHERE THE WEATHER WAS PROVIDING MORE REVENUES, THE REST WERE ALL UNDER BUDGET FOR LAST YEAR.

SO THE ECONOMIC CONDITIONS OFFSET THAT.

FROM THE DEPARTMENT REVENUE SIDE, THIS IS ABOUT 800,000 MORE FAVORABLE THAN THE LAST TIME YOU SAW IT.

AND THAT IS DUE TO INSPECTION REVENUES COMING IN.

THE INTEREST INCOME, THIS IS ABOUT 12 AND CHANGE MILLION DOLLARS MORE FAVORABLE THAN THE LAST TIME WE SAW IT.

AS A NOTE BELOW, THE CHART SAYS THE END OF YEAR MARK TO MARKET ADJUSTMENT WAS ABOUT EIGHT AND A HALF MILLION $8.4 MILLION.

AS A REMINDER, AT THE BEGINNING OF THE YEAR WE HAD ABOUT A $2.3 MILLION REVERSAL.

BOTH OF THOSE ADDED TOGETHER MEAN THAT OF THIS AMOUNT YOU HAVE $10.7 MILLION OF THIS AMOUNT, WHICH ARE JUST MARK TO MARKET ADJUSTMENTS.

ALSO, AS A REMINDER, ERCOT HOLDS OUR INVESTMENTS TO MATURITY.

SO THE MARK TO MARKET IS WHAT WE NEED TO SHOW FOR PROPER FINANCIAL RECORDING, BUT IT DOESN'T REALLY IMPACT ERCO T'S FINANCIAL RESULTS.

SO THE NUMBER INFLATED BY THAT $10.7 MILLION FOR THOSE MARK TO MARKET ADJUSTMENTS.

SO SEAN, JUST MAKE SURE I UNDERSTAND THE MARK TO MARKET ADJUSTMENTS.

SO IS SOLELY ON OUR INVESTMENTS.

IT'S CORRECT.

IT'S NOTHING TO DO WITH THE MARKET, IT'S THE BOND INVESTMENT.

SO WHAT WE SAW AT THE END OF LAST YEAR WITH THE RISING INTEREST RATES, SO THEN THE BONDS WERE WRITTEN UP AT THE END OF LAST OR WRITTEN DOWN AT THE END OF LAST YEAR AND THEN THAT WAS REVERSED AT THE BEGINNING OF THIS YEAR.

AND SIMILARLY THIS YEAR WITH THE DECREASING INTEREST RATES, THEN THE BOND PRICES INCREASED.

SO WE HAVE EIGHT AND A HALF MILLION DOLLARS, $8.4 MILLION OF A FAVORABLE RESULT.

AND THAT'S ALSO SHOWN IN THE DETAILS.

THIS IS WHERE WE STARTED ADDING THAT SCHEDULE IN THE APPENDIX OF THE INVESTMENT BRIEF TO SHOW WHAT THE MARKET YIELD IS VERSUS THE CURRENT MARKET YIELD VERSUS THE PURCHASE YIELD THAT WE HAVE.

SO YOU CAN SEE THAT DIFFERENCE THAT WE'RE CARRYING AND I, I THINK JUST TO STRESS THAT POINT, THESE ARE UNREALIZED GAINS AND LOSSES BECAUSE WE HOLD EVERYTHING TO MATURITY.

SO THERE ARE NO UNREALIZED GAINS AND LOSSES? CORRECT.

OKAY.

AND WE'LL SHOW IF WE ADDED A SCHEDULE TO THE INVESTMENT BRIEF AS WELL THAT I'LL COVER WHEN I GET TO IT, WHICH SHOWS THOSE NUMBERS AS WE HAVE UM, THE RECOGNIZED AND THE UNRECOGNIZED PORTIONS AND WE'LL CONTINUE TO SHOW THAT IN EVERY MEETING AS WE GO FORWARD.

GIVEN THE IMPORTANCE OF THIS INTEREST INCOME AND THE HIGH VARIABILITY OF IT COMBINED WITH THE FACT THAT WE ARE NOW FOLLOWING THE COMMITTEE'S REVISED GUIDANCE TO INVEST THOSE MONIES IN LONGER TERM BONDS IN ALIGNMENT WITH THE MATURITY OF AND THE USE OF THE CRR FUNDS AS THEY FLOW OUT IN THE FUTURE.

ON THE EXPENDITURE SIDE, THERE'S ABOUT A $400,000 MORE FAVORABLE THAN LAST TIME YOU SAW IT.

IT'S DRIVEN BY A COUPLE OF ITEMS THAT I WANNA HIGHLIGHT.

THE FIRST IS UNDER THE PROJECT EXPENDITURES COMPONENT.

THAT IS ACTUALLY $2.7 MILLION MORE UNFAVORABLE AND THAT IS BECAUSE WE HAD SOME COMMON INFRASTRUCTURE RECEIPTS THAT CAME IN EARLY.

SO THOSE ARE SOME HARDWARE AND SOFTWARE PURCHASES THAT CAME IN EARLY AND EXPECTED.

SO WE RECOGNIZE THEM, WE'LL MAKE SURE THAT WE DON'T SPEND THAT MONEY IN 2024.

IT'S A COMMON PRACTICE AT THE END OF THE YEAR TO, FOR US TO HAVE TIMING DIFFERENCES.

THIS IS ONE OF THEM FROM

[00:20:01]

ABOUT HALF OF THAT IS ASSOCIATED WITH VACANCIES AND THE OTHER HALF IS ASSOCIATED WITH PROJECT FUNDED WORK.

AND THEN UNDER THE OTHER EXPENDITURES, THAT'S ABOUT $2 MILLION MORE FAVORABLE AND THAT'S DRIVEN PRIMARILY BY LESS OUTSIDE LEGAL SERVICES THAN WE ORIGINALLY ANTICIPATED AND BUDGETED.

I WANT TO TAKE A MINUTE TO TALK ABOUT 2024 PRELIMINARY FORECAST BECAUSE WE'VE TALKED ABOUT THIS MULTIPLE TIMES ABOUT SOME OF THESE ESPECIALLY INTERESTING INCOME BEING OFF BY QUITE A BIT AND THE RESOURCE MANAGEMENT BEING OFF BY QUITE A BIT.

SO WHAT DOES THIS LOOK LIKE AS WE'RE HEADING INTO 2024? WELL OBVIOUSLY IN APRIL WE'LL BRING YOU BACK OUR OFFICIAL FIRST VIEW OF OUR PROJECTIONS.

BUT EARLY INDICATOR THAT WE HAVE RIGHT NOW IS AS OF A FEW DAYS AGO, OUR SYSTEM ADMINISTRATION FEE REVENUE IS SLIGHTLY FAVORABLE.

IT'S ABOUT FORECAST FOR ABOUT $3 MILLION FAVORABLE THIS YEAR.

THAT'S AROUND A 1% VARIANCE.

SO AGAIN, SUPER EARLY IN THE YEAR.

SO THAT WILL CHANGE MANY TIMES THROUGHOUT THE REMAINDER OF THE YEAR.

FROM INTEREST INCOME, AND I'LL SHOW YOU THIS WHEN WE GET TO THE IN INVESTMENT BRIEF, A LITTLE MORE DETAIL, BUT THAT WE EXPECT TO BE SUBSTANTIALLY FAVORABLE VERSUS BUDGET BECAUSE THE RATES HAVE CONTINUED TO BE SO HIGH AND WE'VE DONE THOSE OUT YEAR INVESTMENTS SO THAT WE ALREADY EXPECT TO BE AT LEAST $40 MILLION FAVORABLE AS THE YEAR CONTINUES.

OUR EARLY RESOURCE MANAGEMENT IS SHOWING THAT OUR VACANCIES ARE HIGHER THAN WHAT WE BUDGETED ORIGINALLY.

AS WE CONTINUE TO STAFF UP, WE'D USE THE ABOUT A 3% VACANCY RATE IN THE 24 25 BUDGET.

WE EXPECTED TO BE UNDER THAT FROM OUR INITIAL PROJECTIONS TO BE UNDER THAT VACANCY RATE, MEANING I HAVE A HIGHER VACANCY RATE THAN THAT IN 24, BUT A LOWER RATE VACANCY RATE THAN THAT IN 25.

AND THOSE OFFSET, WE'RE SEEING THE INITIAL VACANCY RATE FORECAST FOR 24 BEING CLOSER TO THE 7% RANGE FOR THE YEAR.

BUT WE'LL CONTINUE TO ADJUST THAT AS WE GO ALONG.

I BELIEVE JANUARY WAS FIRST MONTH THAT I RECALL ANYWAY, WHERE WE HAD NO TERMINATIONS, WE JUST HAD ADS.

SO THAT WAS A VERY STRONG MONTH FOR THIS NUMBER.

BUT WE FINISHED DECEMBER A LITTLE BIT LOWER THAN WHAT WE HAD ORIGINALLY PROJECTED WAY BACK WHEN WE DID THE BUDGET.

AND FINALLY, BECAUSE OF THE CHANGES WE MADE IN THE INSURANCE AT THE END OF LAST YEAR, AFTER WE'VE FILED THIS BUDGET, THEN WE ARE EXPECTING TO SEE SOME FAVORABLE VARIANCES ON INSURANCE PREMIUMS THIS YEAR.

BUT THAT AGAIN WILL DEPEND ON WHAT HAPPENS WHEN WE GO THROUGH OUR NEXT RENEWAL CYCLE IN SEPTEMBER BEFORE YOU LEAVE THE VACANCY RATE.

UH, THAT ASSUMES WE HAVE LESS HEAD COUNT, WHICH UH, IMPLIES THAT WE HAVE FEWER RESOURCES TO DEDICATE TO OUR PROJECTS.

UH, DOES THAT FURTHER IMPLY THAT WE'LL HAVE CHALLENGES WITH IMPLEMENTATION OF UH, DRRS OR REAL TIME COOPERATION OR DO DOES THE MANAGEMENT TEAM HAVE ANY FEEL FOR THAT AT THIS POINT IN TIME? WE DON'T HAVE AS OF YES, THERE'S THE POTENTIAL FOR THAT ISSUE.

WHENEVER YOU START TALKING ABOUT NOT BEING ABLE TO GET RESOURCES ON HAND, IT DEPENDS ON THE INDIVIDUAL RESOURCES AND THE REPRIORITIZATION.

SO THERE'S HIGH, HIGH PRIORITY ITEMS, WE'LL GET THE RESOURCES FIRST AS APPLICABLE.

WE ARE NOT FORECASTING ANY DELAYS AS OF NOW REGARDING THAT.

OKAY, THANK YOU.

YOU REMEMBER AS WE HAD THIS CONVERSATION, WE JUMPED FROM A BUDGETED 843 STAFF TO A BUDGETED 1,014.

SO THAT WAS A BIG INCREASE AND WE WERE AT, WHAT WAS THE NUMBER 890 AT THE END OF DECEMBER AND WE'RE, WE'RE UP OVER 900 NOW.

OKAY.

YEAH, SEAN, THAT WAS MORE THE DIRECTION I WAS GOING WAS THAT THIS ISN'T REALLY BECAUSE WE HAVE A HAD A LOT OF ATTRITION, IT'S MORE THAT WE HAD A BIG BUDGETED HEADCOUNT INCREASE AND IT TAKES A WHILE TO DO THAT RECRUITING AND ONBOARDING.

IS IT MORE OF THE LATTER VERSUS THE FORMER? CORRECT.

YEAH, EXACTLY.

YEAH, THIS IS THE SLIDE SHOWING THE MONTHLY SYSTEM ADMIN FEE, REVENUE BUDGET VERSUS ACTUAL.

AND THIS IS SHOWING THE FULL YEAR RESULTS.

AS YOU CAN SEE, THOSE MONTHS OF JULY, AUGUST AND SEPTEMBER WERE WHERE WE WERE MORE FAVORABLE THAN THE OTHER MONTHS.

AND THAT WAS DUE TO THAT WEATHER.

AS I MENTIONED BEFORE, THE WEATHER IN THE OTHER MONTHS WAS ACTUALLY A NEGATIVE VARIANCE.

SO IT WAS OFFSET BY BETTER THAN ORIGINALLY BUDGETED ECONOMIC CONDITIONS.

AND WE ENDED AT THE SAME 2.7% VARIANCE TO BUDGET CUMULATIVE VARIANCE IN THE FAR RIGHT COLUMN ON BOTH THE LOAD AND THE SYSTEM ADMIN FEE REVENUE PERSPECTIVE.

FROM THE BALANCE SHEET PERSPECTIVE, THIS IS CONSISTENT WITH WHAT WE'VE BEEN SEEING ALL YEAR AS THE SAME DRIVERS ASSOCIATED WITH IT SINCE THE LAST TIME WE LOOKED AT THIS, WHICH WERE THE RESULTS AT THE END OF OCTOBER,

[00:25:02]

AND THEN WE'VE SEEN A SLIGHT INCREASE IN THE CONGESTION REVENUE RIGHTS, AUCTION RECEIPTS AS WELL AS, WHICH I'LL TALK ABOUT MORE IN THE NEXT PA IN THE COMING PAGES.

AND THEN THE RELATED, UH, UNRESTRICTED CASH AND BOND INVESTMENT INCREASE AS WELL.

BUT EVERYTHING ELSE IS THE SAME STORY THAT WE'VE SEEN ALL YEAR AS FAR AS YEAR OVER YEAR IS CONCERNED.

THE INCOME STATEMENT IS ALSO CONSISTENT WITH WHAT WE'VE BEEN SEEING.

I DO WANNA HIGHLIGHT A COUPLE OF ITEMS ON HERE THAT WHERE THEY ARE LOOKING LIKE THEY'RE ENDING UP.

SO WE HAD THE INCREASE IN OPERATING EXPENSES FOR THE ERCOT NUMBERS FROM THE 2 47 TO THE $285.8 MILLION.

THAT IS THAT $38.7 MILLION INCREASE ARE THE SAME ITEMS WE'VE BEEN DISCUSSING ALL YEAR FROM THE OTHER INCOME PERSPECTIVE WHERE THAT IS ALL THE INVESTMENT INCOME AND INTEREST INCOME.

THIS IS WHERE THE TOTAL OF THOSE YEAR OVER YEAR ADJUSTMENTS OF MARK TO MARKET SHOW UP.

SO THE TOTAL FROM THE END OF 2022 TO THE END OF 2023 WAS ACTUALLY $13 MILLION BECAUSE OF THE COMPOUNDING IMPACTS OF MARKING THEM UP IN ONE YEAR AND MARKING THEM DOWN IN THE OTHER YEAR I OPERATING REVENUES.

THOSE INCREASED BY $14.2 MILLION TO THE 262 MILLION THAT'S SHOWN HERE OF THAT YEAR OVER YEAR.

THAT SYSTEM ADMIN FEE REVENUE WAS LITTLE OVER $8 MILLION INCREASE, LITTLE OVER 3%.

THE INSPECTION REVENUES ARE THE NEXT LARGEST BUCKET ON THERE, WHICH INCREASED BY ALMOST $4 MILLION.

OUR INTERCONNECTION REVENUES INCREASED BY ALMOST $2 MILLION AND THEN WE ALSO HAD A FULL YEAR OF THE SUBCHAPTER N DEBT.

SO WE HAVE MORE REVENUES ASSOCIATED WITH SERVICING AND ADMINISTERING THE SECURITIZATION DEBT.

HERE'S OUR CRR SLIDE.

SO AS YOU CAN SEE ON HERE FROM UH, APRIL-ISH TIMEFRAME, WE'VE BEEN RELATIVELY FLAT.

THERE'S A LITTLE BIT OF AN UPTICK IN DECEMBER AND YOU COULD SEE THIS IF YOU LOOKED AT THE DETAIL ON THE BALANCE SHEET.

BUT WHAT WE'RE SEEING ON HERE TOO IS AS I MENTIONED AT PRIOR MEETINGS, IS THAT WE'RE SEEING LESS LONG-TERM AUCTION RECEIPTS AND MORE OF THE SHORT-TERM AUCTION RECEIPTS AT THE END OF 2023 VERSUS, OR FOR THE FULL YEAR 2023 VERSUS THE YEAR 2022.

THE CURRENT YEAR, MEANING THOSE AUCTION RECEIPTS PAYING PAID OUT WITHIN 12 MONTHS IS WHERE THE INCREASE WAS COMING FROM.

IT WAS ABOUT $200 MILLION INCREASE.

WHEN WE LOOK AT THE AUCTION RECEIPTS GREATER THAN A YEAR OUT, SO THE CURRENT YEAR PLUS TWO YEARS GREATER THAN TWO YEARS OUT, RATHER THE CURRENT YEAR PLUS TWO YEARS, WE ACTUALLY HAVE SEEN A $50 MILLION DECREASE.

SO THAT'S DROPPED FROM A LITTLE OVER 200 MILLION TO AROUND $156 MILLION AS SO IF WE'RE HOLDING THOSE OX, THOSE FURTHER OUT ONES WE HAVE FOR LESS PERIOD OF TIME.

WE'VE ALSO SEEN AN UPTICK IN THE MONTHLY ONES, MONTHLY AUCTION RECEIPTS AS WELL.

AND SO EVEN IF THE BALANCE IS INCREASING, THE AMOUNT OF TIME WE'RE HOLDING SOME OF THESE FUNDS IS ON AVERAGE IS ACTUALLY DECREASING OVER LAST YEAR.

JUST WANTED TO HIGHLIGHT THAT POINT.

AND THEN DOWN AT THE BOTTOM YOU CAN SEE THAT OUR UNRESTRICTED CASH AND BOND INVESTMENTS EXCEEDED OUR MARKET LIABILITIES BY ALMOST $82 MILLION AT THE END OF DECEMBER, WHICH IS THEN OUR OPERATING CASH, WHICH WE THEN CARRY FORWARD TO.

AND AS YOU SAW DURING LOTS OF OUR CONVERSATIONS ABOUT THE BUD THROUGH THE BUDGET CYCLE, HOW WE USE THAT FUNDS THOSE MONIES TO PAY OUR COST IN THE FUTURE AND THEN ALSO DEFRAY FUTURE SYSTEM ADMINISTRATION FEE INCREASES.

WANT TO BRIEFLY GO TO SLIDE 12 OF THIS PRESENTATION, WHICH IS PAGE 73 OF DILIGENT.

SIMILAR WITH WHAT I MENTIONED ON THE PREVIOUS WATERFALL IS THAT WE SAW THESE VARIANCES THIS YEAR.

THIS IS THE STAFFING MANAGEMENT VARIANCE TO BUDGET THAT THE COMMITTEE REQUESTED WE ADD, WE ANTICIPATE THIS IS THE LAST TIME WE WILL SEE THIS SCHEDULE.

WE DON'T PLAN TO CREATE THIS STARTING WITH OUR NEXT MEETING 'CAUSE IT WON'T BE APPLICABLE TO 2024 BECAUSE ALL OF THESE ITEMS ON HERE THAT WE WERE HIGHLIGHTING WERE THE ITEMS THAT WERE UNBUDGETED BUT APPROVED BY THE BOARD AS HOW WE HAD THIS BREAKOUT AND THESE ONE-TIME EVENTS.

SO WE DO NOT ANTICIPATE SHOWING THIS GOING FORWARD UNLESS THE COMMITTEE WANTS TO SEE IT, BUT MOST OF THESE COLUMNS WILL BE, SHOULD BE ZERO AS WE GO FORWARD.

THAT'S ALL I HAVE ON THE FINANCIAL SUMMARY BEFORE I MOVE TO

[00:30:01]

SEAN, THE RESTRICTED CASH ON THE BALANCE SHEET, IS THAT ASSOCIATED WITH THE UH, CRR OR IS THAT SOMETHING ELSE? NO, THE RESTRICTED CASH OR THE SECURITY DEPOSITS THAT ARE HELD.

SO IT'S CASH COLLATERAL HELD BY MARKET PARTICIPANTS.

OKAY.

MM-HMM.

, WHEN YOU HEAR THE CREDIT REPORT, YOU'LL HEAR THE CREDIT REPORT OVER IN R AND M PROBABLY AND IN THERE YOU'LL SEE THE SPLIT BETWEEN CASH VERSUS LETTERS OF CREDIT, SURETY BONDS, ET CETERA.

THIS IS THE CASH PORTION OF THAT.

ANY QUESTIONS ON THE UH, FINANCIAL SUMMARY? OKAY.

TIME FOR THE INVESTMENT REPORT.

WHAT'S THAT? OKAY, THANKS.

[8.2 Periodic Report on Investments]

I, SO WE ARE SEEING CONSISTENT YIELD RESULTS IS WHAT WE SAW LAST TIME.

WE MET THE MONEY MARKET MUTUAL FUNDS AT THE END OF DECEMBER.

WE SAW THEY WERE ABOUT 5.24.

THAT'S THE SAME AS WHAT WE SAW IN OCTOBER.

WE HAVE SEEN A SLIGHT DECREASE IN THE TREASURY APPLICATION PORTFOLIO.

THAT WAS AT 5.36 BEFORE, NOW IT'S AT 5.34.

VERY MINOR CHANGES AS WE MOVE FORWARD.

AND ERCOT IS IN COMPLIANCE WITH ALL OF OUR MONEY MARKET MUTUAL FUND INVESTMENT REQUIREMENTS AS WELL AS ALL OF OUR TREASURY OBLIGATION PORTFOLIO REQUIREMENTS.

THIS SHEET SHOWS THE SUMMARY AND YOU CAN SEE THE, THE LARGE CHANGE IN THE ERCOT INC.

UNRESTRICTED AND THE TOP ROW VERSUS THE BOTTOM ROW, WHICH IS THE ERCOT INC.

UNRESTRICTED AND THE TOP BEING THE MONEY MARKET MUTUAL FUNDS, THE BOTTOM BEING THE TREASURY OBLIGATION PORTFOLIO, THE BONDS.

AND THEN IT'S ALSO WHERE YOU CAN SEE THE, THE YIELDS ON THOSE AS WELL AS THE MONTHLY INCOME.

I MENTIONED THE NEW SLIDE THAT WE ADDED.

SO I WANNA TAKE YOU TO THAT.

IT'S THE LAST SLIDE IN THIS SECTION IN THE APPENDIX.

AND SO THAT IS ON PAGE 11.

SO THIS IS SLIDE THAT WE WILL BE PROVIDING EVERY BOARD MEETING AS WE MOVE FORWARD AND BRIEFLY WALK YOU THROUGH THIS SLIDE.

THIS SHOWS THE CURRENT YEAR, SO IN OUR CASE 2023.

THEN IT SHOWS THE OUT YEARS THROUGH WHICH WE HAVE BOND INVESTMENTS MATURING.

SO WE HAVE BOND INVESTMENTS NOW THAT MATURE ALL THE WAY OUT TO 2026.

THE FIRST ROW OF THIS, THE FIRST SECTION OF THIS ARE THE BOND INVESTMENTS, THE US TREASURY OBLIGATION PORTFOLIO.

AND SO WE HAVE THE RECOGNIZED VERSUS UNRECOGNIZED TO BILL'S POINT EARLIER, WE HAVE THE RECOGNIZED INVESTMENT INCOME FOR 2023.

IT'S ALL BEEN RECOGNIZED.

THAT'S ABOUT $49 MILLION.

AND THEN WE HAVE THE UNRECOGNIZED INVESTMENT INCOME.

SO THIS IS ASSUMING WE HOLD THESE BONDS TO MATURITY.

THIS IS THE INVESTMENT INCOME WE'LL RECOGNIZE IN EACH OF THESE YEARS.

YOU CAN SEE IN 2024 THAT'S 61 MILLION, THEN IT DROPS TO 15 MILLION IN 25 AND THEN 800,000 IN 26.

THE BOTTOM PART ARE THE MONEY MARKET MUTUAL FUNDS.

THOSE WE'LL ONLY HAVE RECOGNIZED INVESTMENT INCOME BECAUSE WE RECEIVE THOSE IN SUCH A TIMELY MANNER THAT WE'RE NOT ACCRUING THEM AND WE'RE NOT HOLDING THEM TO MATURITY.

WE'RE JUST TRADING IN AND OUT OF THOSE.

SO YOU CAN SEE THE TOTAL INVESTMENT INCOME FOR 23 IS 120 MILLION THAT WE SAW IN THE FINANCIAL SUMMARY.

FOR 24 WE HAVE THE 61 MILLION AND THEN WE ALSO HAVE A GROWTH BELOW THAT THAT SHOWS THE INTEREST INCOME PER APPROVED BUDGET.

SO YOU CAN SEE BY THIS WITH THE BOND INVESTMENTS WE ARE CURRENTLY HOLDING, WE HAVE ALREADY RECOGNIZED THE 2020 AND WE'VE DISCUSSED THIS PREVIOUSLY.

WE'VE ALREADY RECOGNIZED THE 24 INVE INVESTMENT INCOME FOR THE BUDGET, THAT $50 MILLION AND WE HAVE ABOUT 15 MILLION OF THE 2025 MONIES RECOGNIZED SO FAR.

OR NOT RECOGNIZED BUT SECURED OR LOCKED IN ASSUMING THAT WE HOLD THEM TO MATURITY.

I LIKE THIS ANALYSIS.

THIS IS VERY HELPFUL TO HAVE AN IDEA AS TO WHAT, UH, ABOUT THE ADEQUACY OF THE SYSTEM ADMIN FEE IN TERMS OF THE PORTION, THE PORTIONS THAT ARE DRIVEN BY INTEREST INCOME.

THIS IS VERY HELPFUL.

EXCELLENT.

YES, WE'LL CONTINUE TO PROVIDE THIS AND OBVIOUSLY TAKING THE FORECAST FOR THE REINVESTMENT OF THE BONDS AND THEN ALSO THE MONEY THAT IS INVESTED IN THE MONEY MARKET, MUTUAL FUNDS, ADDING THAT TO THE TOTAL INVESTMENT INCOME ON THIS LINE GETS US OUR FORECAST FOR THE FULL YEAR, WHICH I MENTIONED BEFORE WAS UP IN THE NEIGHBORHOOD OF $90 MILLION.

[00:35:02]

YOU JUST CORRECT THERE'D BE NO PENALTY.

IT'D JUST BE THE POTENTIAL DIFFERENCE BETWEEN THE YIELD AT THAT TIME.

RIGHT.

SO IF YOU COULD, ASSUMING THAT INTEREST RATES WENT UP FOR EXAMPLE, THEN THAT $61 MILLION WOULD NO LONGER BE $61 MILLION, RIGHT? RIGHT.

BUT YES, THEY'RE HIGHLY LIQUID.

YEAH.

SO YOU COULDN'T GET CAUGHT IN A SITUATION WHERE IT COULD IMPACT YOUR LIQUIDITY AND YOU'RE DOING THIS REALLY JUST TRYING TO YOU, YOU LIKE THE RATE IN THOSE OUTWARD YEARS.

SO YOU BOUGHT THE LONGER DATED SECURITIES.

IT'S NOT SO MUCH THAT WHAT WE'VE DONE, UH, YOU MAY RECALL AS I START TO EXPLAIN THIS, WHEN WE TALKED ABOUT THIS LAST YEAR, THE CONGESTION, REVENUE RIGHTS, AUCTION RECEIPTS, AND I MENTIONED THIS EARLIER.

WE HAVE THOSE THAT WE GET IN THAT WE PAY OUT MONTHLY.

WE HAVE THOSE THAT ARE DUE OUT WITHIN THE NEXT YEAR.

WE HAVE THOSE THAT ARE DUE OUT WITHIN THE NEXT TWO YEARS AND WE HAVE THOSE THAT ARE DUE OUT WITHIN THE NEXT THREE YEARS.

SO WHAT WE'VE TAKEN IS AS WE GET THESE MONIES IN, THEN WE FIND OUT WHEN THEY ARE TO BE PAID OUT, WE TAKE SUBTRACT THREE MONTHS FROM THAT FOR THE LIQUIDITY PURPOSE THAT YOU JUST MENTIONED, SUBTRACT THREE MONTHS OUT AND THEN BUY BONDS THAT MATURE THREE MONTHS BEFORE THOSE MONIES ARE DUE OUT.

SO TO LOCK IN THOSE FUTURE RATES, IT'S NOT NECESSARILY BASED ON WHETHER I CAN GET HIGHER RATES TWO YEARS FROM NOW VERSUS RIGHT NOW.

BECAUSE RIGHT NOW THE TWO YEAR RATES ARE LOWER, THE THREE YEAR RATES ARE LOWER THAN WHAT MY CURRENT YIELD IS IF I JUST WENT AND PUT 'EM IN MONEY MARKET MUTUAL FUNDS.

BUT WE'RE LOCKING IT IN IN THE FUTURE TO REMOVE THAT UNCERTAINTY.

SO YOU'RE JUST REALLY MATCHING THE 10 OR ALMOST ONE FOR ONE, RIGHT? CORRECT.

WITH THAT THREE MONTH WINDOW TO MAKE SURE WE HAVE LIQUIDITY.

ANY OTHER QUESTIONS ON THE INVESTMENT REPORT? OKAY.

ALRIGHT, MOVING ON TO

[8.3 Periodic Report on Debt Compliance]

AND WE ARE IN COMPLIANCE WITH ALL OF OUR DEBT REQUIREMENTS.

THE NEW ITEM THAT'S ON HERE ASSOCIATED WITH THE 2012 PRIVATE PLACEMENT, YOU CAN SEE THIRD ROW FROM THE BOTTOM.

WE DID PAY THE PRINCIPAL AND INTEREST ON THAT ON 1227 SECURITIZATION WE'RE IN COMPLIANCE WITH ALL THOSE REQUIREMENTS.

AND FIRST ROW ON HERE SHOWS THAT BOTH PRINCIPLE AND INTEREST WAS PAID ON M AND N, BOTH ON 2 1 20 24.

I WANNA MOVE FORWARD TO SLIDE 15 IN THIS PRESENTATION.

THE APPENDIX.

SO THAT'S PAGE 1 0 9 OF DILIGENT.

[8.3.1 Timing of Subchapter M Refinancing]

AND YOU CAN SEE THE CALCULATED INTEREST RATE ON THE SUB CHAPTER M BONDS.

AND SO THE CURRENT RATE SINCE WE ISSUED THEM THROUGH JANUARY 25, IS THE 2.97 RATE AT THE END OF JANUARY.

SO FEBRUARY ONE, THAT RATE RESETS TO THE THEN CURRENT RATE.

AT THE TIME THIS AMORTIZATION SCHEDULE WAS DONE WHEN WE DID THE PAY DOWN OF THE M DEBT ASSOCIATED WITH THE BRAZOS MONEY, THAT RATE WAS THE 6.266% THAT YOU SEE HERE.

AND SO THAT IS WHAT'S DRIVING PART OF OUR NEXT CONVERSATION OR IS AT LEAST SUPPORTING OUR NEXT CONVERSATION.

AND 8 3 1.

ARE THERE ANY QUESTIONS ON EIGHT THREE BEFORE HEAD TO 8 3 1? SO MOVING OVER TO 8 3 1, THEN THIS IS AN UPDATE ON THE STATUS AND THE TIMELINE OF THE SUBCHAPTER M REFINANCING.

SO AS A REMINDER, THE SUBCHAPTER M BONDS WERE ISSUED TO THE COMPTROLLER, THE TEXAS TREASURY SAFETY BOOM TRUST COMPANY, AN ORIGINAL AMOUNT OF $800 MILLION, UH, NOVEMBER 12TH, 2021.

AND THEY'VE HAD A 2.97 THAT RATE THAT I JUST SHOWED YOU RATE UNTIL THE CONVERSION DATE.

THE AGREEMENT THAT WE ORIGINALLY ENTERED IN TO WITH THE COMPTROLLER WAS FOR THEM TO HOLD THESE BONDS FOR THREE YEARS.

THE DIFFERENCE BETWEEN THE NOVEMBER 12TH, 2024 AND THE JANUARY 31ST, 2025 IS THAT WHEN WE WROTE THE AGREEMENT.

SO WE HAD THE THREE YEARS, BUT THEN WE, THE COMPTROLLER

[00:40:01]

SO THAT'S WHY THERE'S A DIFFERENCE BETWEEN THOSE DATES FOR EASE OF A LOT OF REASONS.

SO NOVEMBER 12TH IS THE THREE YEAR.

AN OF THIS YEAR IS THE THREE YEAR ANNIVERSARY.

AS I MENTIONED.

WE DID PAY DOWN ABOUT HALF OF THIS.

MOST OF THAT'S ASSOCIATED WITH THE BRAZOS MONEY THAT WE RECEIVED FROM THE BANKRUPTCY SETTLEMENT.

SO THE CURRENT AMOUNT WILL BE ABOUT $400 MILLION AND THOSE BONDS ARE REDEEMABLE WITHOUT PENALTY OR PREMIUM UNTIL THEY'RE BASICALLY THE CONVERSION DATE.

AND AS LONG AS THEY'RE HELD BY THE COMPTROLLER, ONCE THE COMPTROLLER TRANSFERS THEM, THAT IS NO LONGER THE CASE.

THEN THERE'S A MAY CALL PREMIUM ASSOCIATED WITH THEM.

SO JANUARY 34TH, 2025 IS THE ACTUAL CONVERSION DATE AND THAT IS WHEN THAT RATE RESETS TO THE THEN CURRENT INDEX PLUS THE TWO AND A HALF PERCENT ADDER AS DEFINED BY STATUTE AND THE BONDS CAN BE TRANSFERRED WITHOUT OUR CONSENT TRANSFERRED OR SOLD AND GI.

SO BECAUSE OF THAT, WE ARE, UH, RECOMMENDING WITH THE ADVICE OF OUTSIDE COUNSEL AND OUR FINANCIAL ADVISOR THAT WE REFINANCE THE BONDS EITHER WITH THE COMPTROLLER OR BY ISSUING OTHER TYPE OF DEBT BEFORE JANUARY 31ST, 2025.

AND WE'LL BE DISCUSSING THIS A LOT MORE IN THE COMING MONTHS, BUT WANTED TO GIVE EVERYBODY A EARLY HEADS UP AS WE HEAD INTO THIS YEAR THAT THIS IS A, THIS YEAR ITEM OR NO LATER THAN JANUARY 31ST, 2025 FOR THIS TO BE ADDRESSED.

AND THAT IS ALL I HAVE ON SECTION EIGHT.

OKAY? OKAY.

THANK YOU.

AND AS, AS A REMINDER, WE'RE GONNA DRILL INTO THIS PARTICULAR ISSUE ON, UH, DURING THE EXECUTIVE SESSION MEETING.

SEAN,

[9. Future Agenda Items]

SO FOR FUTURE AGENDA ITEMS, THIS IS OUR PROJECTED SCHEDULE FOR 2024.

THERE ARE A COUPLE ITEMS I'D LIKE TO HIGHLIGHT.

FIRST, AS WE LOOK TO APRIL, WE CAN SEE ROW 27 IS REVIEWING THE INTERNAL AUDIT DEVELOPMENT PLAN, AUDIT PLAN DEVELOPMENT, AND THEN ROW'S 30 THROUGH 33 ARE ASSOCIATED WITH THE FINANCIAL AUDITORS AND OUR FINANCIAL STATEMENT AUDITS.

SO WE'LL SEE THAT AND BRING ALL THAT INFORMATION BACK IN APRIL.

AND THEN WE'LL TALK ABOUT THIS A LITTLE BIT TOMORROW IN THE BOARD MEETING.

BUT ROW 18, WE, FOR THE JUNE MEETING, WE PLAN TO BRING BACK OUR DRAFT IRS FORM NINE 90 FOR THE BOARD'S REVIEW.

AND THAT IS ALL I HAVE TODAY.

OKAY.

ANY QUESTIONS FOR THE COMMITTEE ON FUTURE AGENDA ITEMS? THANK YOU, SEAN.

THANK YOU.

THAT WILL CONCLUDE THAT AGENDA ITEM.

THE FINAL ITEM FOR THIS PART OF THE GENERAL SESSION IS OTHER BUSINESS.

UH, DOES ANYONE, ANY COMMITTEE MEMBER HAVE OTHER BUSINESS THAT'D LIKE TO BRING UP BEFORE WE MOVE INTO EXECUTIVE SESSION? OKAY.

WITH

[Convene Executive Session]

UH, WE WILL, UH, ADJOURN GENERAL SESSION, CONVENE AN EXECUTIVE SESSION.

WE HAVE ONE VOTING ITEM THAT WE ANTICIPATE WILL ARISE IN THE EXECUTIVE SESSION THAT WILL COME BACK INTO GENERAL SESSION, UH, WHEN WE RECONVENE.

SO THE GENERAL SESSION IS NOW RECESSED AND THE WEBCAST WILL BE CONCLUDED,

[Reconvene General Session]

THE GENERAL SESSION OF THE MEETING IS NOW C RECONVENED.

[11. Vote on Matters from Executive Session]

ACCORDINGLY, I'LL ENTERTAIN A MOTION ON THE RISK MANAGEMENT MATTER DISCUSSED DURING EXECUTIVE SESSION UNDER AGENDA ITEM ES 2.2.

SO MOVED.

UH, PEGGY IS GOING TO MAKE THE MOTION SECOND.

SECOND FROM BOB.

THANK YOU.

ALL IN FAVOR? AYE.

ANY OPPOSED? ANY ABSTENTIONS? ALL RIGHT.

THE, UH, THAT MATTER HAS APPROVED AND THIS BEATING OF THE FINANCE AND AUDIT COMMITTEE IS NOW ADJOURNED.

THE WEBCAST WILL BE CONCLUDED.

SO.