Apr 22, 2024 Finance and Audit Committee Meeting

[00:00:01]

GOOD MORNING,

[1. Call General Session to Order -- Chair]

I'M BILL FLORES, THE COMMITTEE CHAIR, AND I WANNA WELCOME YOU TO THE APRIL 22ND, 2024 FINANCE AND AUDIT COMMITTEE MEETING.

I HEREBY CALL THIS MEETING TO ORDER.

THIS MEETING IS BEING WEBCAST LIVE TO THE PUBLIC ON OUR COTS WEBSITE.

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

BEFORE MOVING ON TO TODAY'S BUSINESS, I'LL HIGHLIGHT TO COMMITTEE MEMBERS THAT THE ANTITRUST ADMONITION AND SECURITY MAP ARE INCLUDED WITH THE POSTING MEETING MATERIALS.

YOU CAN SEE THOSE ON THE SCREEN RIGHT NOW.

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 APRIL 15TH AND PROVIDED INSTRUCTIONS FOR THE PUBLIC FOR COMMENTING IN PERSON.

TO DATE, NO ONE HAS EXPRESSED INTEREST IN COMMENTING.

IS THAT STILL CORRECT, CHAD? YES.

CHAIR.

THAT'S CORRECT.

OKAY.

THANKS CHAD.

UH, NEXT

[3. February 26, 2024 General Session Meeting Minutes]

GENERAL SESSION MEETING MINUTES.

THERE'S A DRAFT AND A MEETING MATERIALS.

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

COURTNEY'S MOVED APPROVAL.

DO I HEAR A SECOND? SECOND.

BOB IS SECOND.

THANK YOU.

ALL IN FAVOR? ANY OPPOSED? ANY ABSTENTIONS? OKAY.

THE MINUTES ARE APPROVED.

[4.1 Review of Requirements for Annual Audit of Financial Statements and Annual Servicer’s Certificate]

WE HAVE THREE SUB ITEMS UNDER THIS, UH, AGENDA.

FIRST IS AGENDA ITEM 4.1, REVIEW OF REQUIREMENTS FOR ANNUAL AUDIT OF FINANCIAL STATEMENTS AND ANNUAL SERVICER CERTIFICATE.

UH, RICHARD SHIELD WILL PRESENT RICHARD GREEN.

OKAY.

GOOD MORNING.

HOW ARE Y'ALL DOING? I AM RICHARD SHIELD CONTROLLER.

HAPPY TO BE HERE.

I'M JOINED TODAY BY AARON WORKMAN AND, UH, SARAH SLAUGHTER.

WE ARE GOING TO RUN THROUGH A FEW ITEMS. UH, ITEM 4.1 IS THE REVIEW OF REQUIREMENTS FOR THE ANNUAL AUDITED FINANCIAL STATEMENTS AND ANNUAL SERVICER CERTIFICATE.

RICHARD, CAN I ASK YOU TO PULL THE MICROPHONE CLOSER PLEASE? ABSOLUTELY.

FOR ALL THE SPEAKERS, PLEASE PULL THE MICROPHONE CLOSER.

SURE.

OKAY.

UM, OKAY.

TODAY WE'RE REQUESTING A VOTE FROM THE F AND A COMMITTEE TO RECOMMEND THAT THE BOARD ACCEPT THE AUDITED FINANCIALS AND REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR ERCOT TIM TIM FINN, AND TO PROVIDE THE COMMITTEE WITH AN OPPORTUNITY TO REVIEW THE SERVICER'S ANNUAL CERTIFICATE OF COMPLIANCE.

ERCOT BYLAWS REQUIRE A FINANCIAL STATEMENT AUDIT.

THE PROTOCOLS REQUIRE THIS COMMITTEE TO APPROVE AND REPORT ON SUCH AUDITS, AND THIS COMMITTEE'S CHARTER, UH, REQUIRES A RECOMMENDATION FROM THIS COMMITTEE ON WHETHER TO ACCEPT AND RECOMMEND THE AUDITED FINANCIALS AND AUDIT REPORT TO THE BOARD.

ADDITIONALLY, TIM'S FM AND TIM'S F HAVE THEIR OWN ANNUAL AUDIT REQUIREMENTS, AND THE ERCOT SERVICING AGREEMENT FOR TIM'S F REQUIRES A REPORT ON ERCOT ASSESSMENT OF COMPLIANCE WITH THE SERVICING CRITERIA, WHICH DOES NOT REQUIRE A VOTE, AND IS PRESENTED TODAY FOR YOUR REVIEW.

A VOTE TO RECOMMEND BOARD ACCEPTANCE OF THE THREE ENTITIES AUDITED FINANCIALS AND REPORTS WILL FOLLOW EXECUTIVE SESSION AND GENERAL SESSION ITEM EIGHT.

ANY QUESTIONS ON THIS ONE? ALL RIGHT.

WE'LL MOVE

[4.2 Report on December 31, 2023 Financial Audit and Annual Servicer’s Certificate]

UH, AARON AND SARAH WILL JOIN ME AND GIVE THEIR PRESENTATION AND REPORT ON THE DECEMBER 31ST FINANCIAL AUDIT AND ANNUAL SERVICER CERTIFICATE.

UH, KEY TAKEAWAYS.

UH, WE EXPECT UNMODIFIED OPINIONS FOR ALL THREE ENTITIES, AND OF COURSE, UH, YOU'LL RECEIVE THE INDEPENDENT, UM, REPORT REGARDING THE ANNUAL SERVICES ASSESSMENT OF COMPLIANCE.

AARON, SO WELCOME AARON AND SARAH.

SOUNDS GOOD.

GOOD MORNING.

UH, AND AGAIN, UH, MY NAME IS AARON WMAN.

I'M THE LEAD AUDIT PARTNER ON THE AUDIT, AND I'M ALSO HERE WITH, UH, SARAH SLAUGHTER, WHO'S A SENIOR MANAGER ON THE AUDIT ENGAGEMENT.

AND I'M PLEASED TO PRESENT THE FISCAL 2023 AUDITS AND EXAMINATION.

AND WHAT I WANT TO DO FIRST IS JUST GO THROUGH A STA OF, OF THE AUDIT ENGAGEMENT.

YOU KNOW, WHERE IS IT THAT WE'RE AT TODAY? UH, THEN GO THROUGH AN AUDIT OVERVIEW.

YOU KNOW, WHAT EXACTLY IS IT THAT WE DO AS PART OF THE AUDIT PROCESS? I WANT TO TALK A LITTLE BIT ABOUT INTERNAL CONTROLS, UH, TOUCH ON THE SERVICES AGREEMENT EXAMINATION THAT WE HAD DONE, AND THEN GO THROUGH THE REQUIRED COMMUNICATION THAT WE HAVE AS AUDITORS WITH YOU CHARGE WITH GOVERNANCE, AND THEN OPEN UP TO ANY QUESTIONS ANYONE MIGHT HAVE.

[00:05:01]

UH, THERE'S A COUPLE ITEMS WE HAVE LEFT.

UH, REALLY THE ONLY THING WE HAVE LEFT IS RECEIPT OF THE MANAGEMENT REPRESENTATION LETTERS, WHICH I'LL TALK ABOUT LATER IN THE PRESENTATION.

UH, THERE IS A NOTE HERE THAT DISCUSSES THE EXTERNAL AND INTERNAL LEGAL COUNSEL LETTERS.

UH, PLEASE REPORT THAT WE HAVE RECEIVED THOSE LAST FRIDAY.

SO AGAIN, WE SHOULD BE READY TO ISSUE FINAL REPORTS ON APRIL 24TH.

UH, BUT JUST AGAIN TO CONFIRM, UH, THERE'S THREE ITEMS THAT WE'RE OPINING ON.

ONE IS THE CONSOLIDATED FINANCIAL STATEMENTS, ERCOT, THEN THE TEXAS ELECTRIC MARKET STABILIZATION OF FUNDING M AND THEN TEXAS ELECTRIC MARKET STABILIZATION FUNDING.

AND SO IF WE TAKE A LOOK AT OUR AUDIT, UH, JUST TO GIVE YOU KIND OF LIKE A, A LOOK BEHIND THE, THE, THE LOOK BEHIND THE, UH, SUMMARY OF WHAT WE'RE LOOKING AT HERE.

SO, 30% OF WHAT WE DO IS SPECIFIC TO INTERNAL CONTROLS.

UH, MOST OF WHICH, AS YOU CAN IMAGINE, IS SPECIFIC TO INFORMATION TECHNOLOGY CONTROLS.

UH, WE AS PART OF OUR AUDIT, UH, DO USE A CERTIFIED INFORMATION SYSTEMS AUDITOR TO HELP AND WORK WITH US ON THAT PART OF THE AUDIT, BUT THAT'S ABOUT 30% OF WHAT WE DO.

UH, 40% OF WHAT WE DO THEN IS WHAT WE CALL OUR SUBSTANTIVE TESTING.

THAT'S THE NUTS AND THE BOLTS OF OUR AUDIT, IF YOU WILL.

THAT WOULD BE TAKING A LOOK AT THE SOURCE DOCUMENTS, WHETHER THAT BE, UH, YOUR INVOICES FOR DISBURSEMENTS.

UH, THAT COULD BE YOUR, UH, CASH AND RECEIPTING TAKING A LOOK AT YOUR, UH, INVESTMENTS AND THINGS LIKE THAT.

BUT THAT'S ABOUT 40% OF WHAT WE DO.

AND THEN 30% OF WHAT WE DO HAS TO DO WITH OUR FINANCIAL REPORTING AND PLANNING OF THE AUDIT ENGAGEMENT.

SO OUR AUDITS WERE PERFORMED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS.

THOSE ARE THE STANDARDS THAT WE'RE REQUIRED TO FOLLOW IS YOUR AUDIT FIRM.

NOW WHAT I'VE DONE HERE IS I'VE, UH, OUTLINED SOME OF THE MAJOR AREAS OF EMPHASIS OR THE MAJOR THINGS THAT WE LOOK AT WHEN WE CONDUCT YOUR AUDIT.

AND I THINK IF YOU LOOK AT THESE, UH, NONE OF THESE SHOULD REALLY COME AS A SURPRISE.

YOU KNOW, WE SPEND A SIGNIFICANT AMOUNT OF TIME TAKING A LOOK AT YOUR UNRESTRICTED AND RESTRICTED CASH AND INVESTMENTS, UH, PAYROLL, UH, YOUR ACCOUNTS RECEIVABLE, INCLUDING DEFAULT CHARGES, RECEIVABLE AND REVENUE RECOGNITION, YOUR MARKET SETTLEMENT LIABILITIES.

UH, TAKING A LOOK AT YOUR PROPERTY EQUIPMENT AND SYSTEMS UNDER DEVELOPMENT.

UH, AGAIN, I'D MENTIONED WE TO, WE TOUCH ON AND, UH, TEST SIGNIFICANT AMOUNT OF CONTROLS.

AND THEN, UH, YOUR ANALYTIC REVIEW OF STATEMENTS OF FINANCIAL POSITION AND STATEMENTS OF ACTIVITIES IN NET ASSETS.

YOU KNOW, COMPARING YOUR RESULTS TO THE PRIOR YEAR, UH, TRYING TO DETERMINE WHAT SHOULD THE CURRENT YEAR, UH, RESULTS LOOK LIKE IN COMPARISON.

AND THEN AGAIN, WE SPEND A SIGNIFICANT AMOUNT OF TIME TAKING A LOOK AT THOSE, UH, FINANCIAL REPORTS AND DISCLOSURES.

SO OUR AUDIT OBJECTIVE IS TO OBTAIN A REASONABLE ASSURANCE THAT YOUR FINANCIAL STATEMENTS ARE FREE FOR MATERIAL MISSTATEMENT.

AND AS WE TOUCHED ON EARLIER, YOUR AUDITS, UH, OR YOUR FINANCIAL STATEMENTS WILL RECEIVE AN UNMODIFIED OPINION, WHICH IS ALSO KNOWN AS A CLEAN OPINION, WHICH IS THE HIGHEST LEVEL OF ASSURANCE THAT WE CAN PROVIDE AS YOUR AUDIT FIRM.

NOW, I HAD JUST MENTIONED THAT WE DO PROVIDE AN OPINION ON YOUR FINANCIAL STATEMENTS.

TALKED A LITTLE BIT ABOUT INTERNAL CONTROLS AND THE TESTING WE DO THERE.

I DID WANNA POINT OUT THOUGH THAT WE DO NOT PROVIDE AN OPINION ON INTERNAL CONTROLS.

HOWEVER, IF WE IDENTIFY ANY SIGNIFICANT DEFICIENCIES OR MATERIAL WEAKNESSES IN INTERNAL CONTROLS, WE'RE REQUIRED TO DISCLOSE THOSE.

SO WHAT THE PROFESSION DOES IS WHEN WE DO DETERMINE OR, UH, IDENTIFY, UH, CONTROL DEFICIENCY, WHAT THE PROFESSION REQUIRES US TO DO IS CATEGORIZE IT IN ORDER OF SEVERITY.

UH, THE MOST SEVERE WOULD BE A MATERIAL WEAKNESS, AND THAT'S ANY BREAKDOWN OF CONTROLS OR LACK OF CONTROLS THAT WOULD LEAD TO MORE THAN A MATERIAL.

THERE'S, UH, I'M SORRY, MORE THAN A REASONABLE POSSIBILITY THAT YOUR FINANCIAL STATEMENTS COULD BE MATERIALLY MISSTATED, AND WE DID NOT IDENTIFY ANY MATERIAL WEAKNESSES.

THE NEXT CATEGORIZATION DOWN, WHICH IS LESS SEVERE THAN A MATERIAL WEAKNESS, IS WHAT WE CALL SIGNIFICANT DEFICIENCY.

UH, IT'S A LARGE ENOUGH DEFICIENCY THAT WOULD WARRANT YOUR ATTENTION AS GOVERNANCE.

AND PLEASE TO REPORT WE DID NOT IDENTIFY ANY SIGNIFICANT DEFICIENCIES AS PART OF THIS YEAR'S AUDIT.

TOUCHED ON EARLIER THAT WE ALSO PROVIDE AN EXAMINATION, SO WE PROVIDE AN EXAMINATION OVER ERCOT COMPLIANCE WITH THE SERVICERS AGREEMENT.

WANTED YOU ALL TO KNOW THAT WE DID NOT IDENTIFY ANY EXCEPTIONS AS PART OF THAT, AND WE ISSUED OUR REPORT IN FINAL ON MARCH 29TH.

SO ONE OF THE ITEMS THAT YOU RECEIVED IS OUR AUDIT.

SURE.

ONE OF THE ITEMS YOU RECEIVED IS OUR AUDITOR'S COMMUNICATION WITH YOU CHARGED WITH GOVERNANCE.

UH, WANTED TO TOUCH ON A COUPLE HIGHLIGHTS THERE.

SO ONE OF THE THINGS, UH, IN NOTE TWO IN YOUR FINANCIAL STATEMENTS, IT CONTAINS YOUR ACCOUNTING POLICIES.

[00:10:01]

UM, WHAT WE DO IS WE AUDIT THOSE POLICIES IN COMPLIANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

AND NOT ONLY THAT YOUR POLICIES COMPLY, BUT THAT YOU'RE FOLLOWING THOSE POLICIES.

UH, IN ADDITION TO THAT, WE OFTEN GET ASKED BY GOVERNANCE, WHEN YOU TAKE A LOOK AT THESE FINANCIAL STATEMENTS, UH, UH, WHAT, WHAT ARE THE LIMITATIONS OF THESE STATEMENTS OR WHAT SHOULD WE REALLY BE CONCERNED WITH WHEN WE LOOK AT THOSE STATEMENTS? AND I'LL SAY, MY ANSWER ALWAYS HAS TO DO WITH SIGNIFICANT ESTIMATES.

SO MUCH SO IN FACT, THAT WE'RE REQUIRED AS YOUR AUDITORS TO POINT OUT WHAT THOSE SIGNIFICANT ESTIMATES ARE WITHIN YOUR STATEMENTS.

AND YOU HAVE THREE OF THOSE.

ONE IS YOUR CRUDE COMPENSATED ABSENCES, YOUR SELF-INSURANCE, AND THEN YOUR DEPRECIATION.

IF WE HAD ANY SIGNIFICANT DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT OR DETECTED ANY FRAUD OR NON-COMPLIANCE ISSUES, UH, WE WOULD NEED TO DISCLOSE THOSE AND PLEASE REPORT WE DID NOT IDENTIFY ANY, UH, FRAUD, NON-COMPLIANCE ISSUES OR SIGNIFICANT DIFFICULTIES.

IF WE HAD ANY SIGNIFICANT AND UNUSUAL TRANSACTIONS, WE WOULD NEED TO DISCLOSE THOSE.

AND WE DID NOT HAVE ANY SIGNIFICANT OR UNUSUAL TRANSACTIONS THIS YEAR.

IF WE HAD ANY ADJUSTING JOURNAL ENTRIES AS PART OF OUR AUDIT OR WAIVED ADJUSTING JOURNAL ENTRIES, WE WOULD BE REQUIRED TO DISCLOSE THOSE.

AND WE DID NOT HAVE ANY ADJUSTING JOURNAL ENTRIES.

IF WE HAD ANY DISAGREEMENTS WITH MANAGEMENT, UH, WE WOULD NEED TO DISCUSS THOSE.

AND AGAIN, THIS YEAR'S AUDIT WENT VERY WELL.

UH, WE DID NOT HAVE ANY DISAGREEMENTS WITH MANAGEMENTS OR ANY OTHER SIGNIFICANT FINDINGS OR ISSUES.

UH, JUST KNOW IF IN FACT WE DID HAVE SIGNIFICANT ISSUES OR SOMETHING CAME TO OUR ATTENTION, THIS WOULD NOT BE THE FIRST TIME YOU'D BE HEARING ABOUT THAT.

WE WOULD REACH OUT TO HAVE THOSE DISCUSSIONS ON A TIMELY BASIS.

I TOUCHED ON EARLIER THE MANAGEMENT REPRESENTATIONS.

UH, ATTACHED TO THIS LETTER, YOU'LL SEE OUR MANAGEMENT REPRESENTATION LETTER.

UH, IF YOU HAVEN'T, I'D URGE YOU TO TAKE A LOOK AT THAT.

IT GOES THROUGH ALL THE REPRESENTATIONS THAT YOUR MANAGEMENT TEAM MAKES AS PART OF THE AUDIT PROCESS.

TALKS ABOUT THEIR THOUGHTS REGARDING INTERNAL CONTROLS, UH, FRAUD, UH, ACCOUNTING POLICIES, THINGS TO THAT EXTENT.

SO AGAIN, I'D URGE YOU TO TAKE A LOOK AT THAT LETTER.

IF WE HAD ANY ISSUES WITH WHETHER OR, UH, RELATIVE TO WHETHER YOUR ENTITY HAD ISSUES WITH A GOING CONCERN, WE WOULD NEED TO DISCLOSE THOSE.

AND WE DO NOT HAVE ANY ISSUES RELATIVE TO GOING CONCERN.

OFTENTIMES ENTITIES MIGHT REACH OUT TO OTHER ACCOUNTING FIRMS, UH, EITHER ABOUT ACCOUNTING POLICIES OR IMPLEMENTATIONS OF ACCOUNTING TRANSACTIONS, THINGS LIKE THAT.

IF THOSE COMMUNICATIONS OCCUR, UH, THE FIRM IS REQUIRED TO REACH OUT TO YOUR AUDITORS AND HAVE THOSE DISCUSSIONS.

AND WE ARE NOT AWARE OF ANY DISCUSSIONS TAKING PLACE THIS YEAR.

UH, THE PROFESSION CONTINUES TO LOOK AT AUDITOR INDEPENDENCE AND CONTINUES TO TAKE A CLOSE LOOK AT THAT.

UH, ONE OF THE THINGS WE'RE REQUIRED TO COMMUNICATE IS THAT OUR FIRM AND EVERY INDIVIDUAL ON THE AUDIT ENGAGEMENT IS INDEPENDENT WITH YOUR ENTITY, IN FACT, AN APPEARANCE.

THEN LASTLY, WE'D LIKE TO, UH, THANK EVERYONE FOR ALL THEIR HELP DURING THE AUDIT PROCESS.

YOU KNOW, SPECIFICALLY RICHARD JONH, THEIR ENTIRE TEAM, YOU KNOW, OUR TEAM SPENDS ABOUT, I'D SAY ABOUT 950 HOURS AS PART OF THIS PROCESS WITH THE EXAMINATION AND THE AUDIT REPORTS.

UM, AND ALTHOUGH YOUR MANAGEMENT TEAM MAY NOT SPEND 950 HOURS, THERE IS A SIGNIFICANT AMOUNT OF TIME THAT THEY SPEND NOT ONLY PREPARING THOSE STATEMENTS, BUT THEN ANSWERING OUR QUESTIONS AND GETTING READY FOR AUDIT.

UM, SO AGAIN, UH, I THINK AS EVIDENCED BY, UH, WE DID NOT HAVE FINDINGS, THIS YEAR'S AUDIT WENT VERY WELL.

UH, THAT'S A TESTAMENT TO THAT MANAGEMENT TEAM.

SO WE THANK THEM FOR ALL OF THEIR HELP AND SUPPORT.

AND WITH THAT, UH, WE'LL OPEN IT UP TO ANY QUESTIONS THAT ANYONE MIGHT HAVE.

UH, THANK YOU, AARON.

THANK YOU, SARAH.

ANY QUESTIONS FOR, UH, EITHER OF THE INDIVIDUALS FROM THE FIRM TODAY? WE WILL BE VOTING ON THE, UH, THE FINANCIALS IN EXECUTIVE SESSION OR AFTER WE COME OUT OF EXECUTIVE SESSION.

EXCUSE ME.

SOUNDS GREAT.

UH, AND WE'LL HAVE AN EXECUTIVE SESSION WITH, UH, YOU IN A FEW MINUTES SO WE CAN DIG DEEPER IF WE NEED TO.

THANK YOU.

IF THAT'S OKAY.

WE

[4.3 Review of Audited Financial Statements and Annual Servicer’s Certificate]

AND RICHARD'S GOING TO COME BACK AND REVIEW THE AUDITED FINANCIAL STATEMENTS AND THE ANNUAL SERVICER CERTIFICATE.

[00:15:02]

YEAH, THE .

OKAY, THAT SHOULD BE GOOD.

NOW TEST ONE, TWO.

ALL RIGHT.

I AM GOING TO WALK YOU THROUGH THE THREE SETS OF FINANCIAL STATEMENTS AND THE ANNUAL SERVICER CERTIFICATE.

I HAVE A FEW ITEMS HIGHLIGHTED THAT I WANTED TO TOUCH ON.

PURPOSE IS TO HAVE THE REVIEW.

KEY TAKEAWAYS ARE THE UNMODIFIED AUDIT OPINIONS FOR THE THREE ENTITIES.

CONSOLIDATED FINANCIAL STATEMENTS FOR ERCOT, FOR TIM'S FEM AND TIM'S F.

AND TO REPORT THAT ERCOT IS IN COMPLIANCE WITH THE REQUIREMENT OF THE SERVICING CRITERIA.

THIS IS A DRAFT OF THE OPINION THAT AARON MENTIONED EARLIER.

IF YOU'LL NOTICE, THERE IS NO EMPHASIS OF MATTER THIS YEAR IN 2022, WE HAD THE EMPHASIS OF MATTER THAT'S BEEN REMOVED.

UH, I THINK THAT'S PART OF THE OVERARCHING THEME THAT WE HAVE ON THIS YEAR'S FINANCIAL STATEMENTS IS RESOLUTION OF THE WINTER STORM ITEMS AS LEGISLATION HAS COMPLETED, AS WE'VE MOVED THROUGH ISSUING THE BONDS, YOU'RE GONNA SEE SOME CHANGES THIS YEAR.

AND THEN HOPEFULLY WE, WE SETTLE OUT SOON.

OKAY, SO, UH, FIRST PAGE OF THE FINANCIAL POSITION.

WHAT YOU'LL SEE IS, UH, A FEW CHANGES THAT ARE RUNNING THROUGH THE FINANCIAL STATEMENTS.

IN ADDITION TO THE RESOLUTION OF THE WINTER STORM ITEMS, WE HAVE THIS INCREASE IN CRR CASH BALANCE, WHICH HAS BEEN INVESTED.

SO WHEN WE'RE LOOKING AT ITEMS ONE AND FOUR AND FIVE, YOU'LL SEE THAT THAT MOVEMENT FROM CASH INTO INVESTMENTS.

UM, ITEM TWO, UM, INTEREST RECEIVABLE, 6.5 OF THAT, UH, RECEIVABLE IS SECURITY DEPOSITS RELATED TO MARKET PARTICIPANTS.

SO THE FULL 17 ISN'T ERCOT AND THAT'S DETAILED LATER IN THE NOTES.

RESTRICTED CASH AND CASH EQUIVALENTS.

THIS IS PRIMARILY CASH COLLATERAL, THAT'S ITEM THREE.

ITEM SIX.

YOU'LL SEE OUR PROPERTY AND EQUIPMENT NET HAS GROWN.

WE CONTINUE TO MAKE INVESTMENTS IN OUR TECHNOLOGY AND FACILITIES AT ERCOT.

ITEM SEVEN, UM, MARKET SETTLEMENT LIABILITIES PRIMARILY, UH, CRR, UH, WE HAVE 58 MILLION IN SETTLEMENT.

UM, SETTLEMENT OBLIGATIONS THERE.

ITEM EIGHT, DEBT PAYABLE CURRENT PORTION.

YOU'LL SEE A LARGE CHANGE FROM 22 TO 23 IN FEBRUARY OF 2023.

WE HAVE THE REPAYMENT OF PART OF THE, UH, SUB SUBCHAPTER M UH, BONDS.

AND WHAT WE'RE SEEING NOW IS THE ONGOING PAYMENTS THAT WE HAVE FOR OUR CAPITAL, UH, CAPITAL BONDS AND M AND N ITEM NINE, UH, SECURITIZATION CHARGES FEES, THAT'S, UH, OFFSET AGAINST, UH, LINE 13.

THE INTEREST EXPENSE ON THE M AND N NOTES.

ITEM 10, UH, IT'S A GROWTH, GROWTH STORY I THINK YOU'RE ALL FAMILIAR WITH.

AS, UH, HEADCOUNT HAS INCREASED AND SALARIES AND BENEFITS HAVE INCREASED THAT THAT LINE HAS INCREASED.

ITEM 11, UM, IT'S PRIMARILY INSURANCE.

THERE'S SECONDARY ITEMS IN THERE WITH THE DATA SERVICE SUBSCRIPTION AND EMPLOYEE EXPENSES.

YOU'LL SEE ITEM 12, INVESTMENT RETURN NET.

I KNOW WE TALKED ABOUT THIS IN THE FEBRUARY BOARD GOING THROUGH THE FINANCIAL SUMMARY.

THAT INCLUDES THE FAIR MARKET VALUE ADJUSTMENT, UM, FOR THE BOND PORTFOLIO DUE TO OUR HEALTH MATURITY SECURITIES.

STATEMENT OF CASH FLOWS REFLECTS SOME OF THESE EARLIER THEMES.

UM, 15 AND 16 IS INS AND OUTS ON THE INVESTMENT PORTFOLIO PURCHASES AND MATURITIES.

UM, LINE 17, UM, THERE'S NO ISSUANCE IN 2023.

THAT 2022 WAS FOR THE SUB CHAPTER.

N ITEM 18 REPAYMENT OF, UH, DEBT PAYABLE.

THAT WAS THE FEBRUARY PAY DOWN.

MOVING AHEAD A FEW PAGES JUST TO RUN THROUGH OUR RESTRICTED CASH AND CASH EQUIVALENT

[00:20:01]

YOU'LL SEE LAST YEAR IN 2022 ONLINE ITEM 21, WE HAD THE FUNDS THAT WE HELD FOR THE REPAYMENT OF THE SUB-CHAPTER M.

THOSE WERE HELD ON THE ERCOT BOOKS AND TRANSFERRED SUBSEQUENT TO YEAR END FOR THE REPAYMENT FOR M.

AND THEN WE HAVE THE PAYMENTS COLLECTED IN ITEM 19 AND ONGOING CAPITAL CONTRIBUTIONS FROM ERCOT AND LINE 20.

I'M JUST GONNA SKIP AHEAD.

MOST OF THE ITEMS HERE ARE FAIRLY ROUTINE LIQUIDITY AND AVAILABILITY.

ONCE AGAIN, WE'RE LOOKING AT THE IMPACTS OF UH, A FULLY FUNDED CRR BALANCE WHERE WE ARE ABLE TO INVEST.

UH, AND SO WE HAVE THAT CHANGE BETWEEN 22 AND 23.

WE WENT FROM THE 1.9 IN 2022 DOWN TO THE 6.6 IN UM, 2023 AND THE SHORT TERM INVESTMENTS PICKED UP AS WELL.

THIS IS ONLY LOOKING AT, UM, SHORT TERM.

SO THERE'S LONG TERM OUTSIDE OF THIS, ALL THIS RELATIVELY STRAIGHTFORWARDS.

I THINK I MISSED, NO I DID NOT.

LISA'S UM, 2022 WAS THE MED CENTER TRANSACTION.

SO THAT FELL OFF IN 2023 AND WE'RE BACK TO NORMAL IN OUR LEASE DISCLOSURE.

UM, I DIDN'T HIGHLIGHT IT.

AND THE SUBSEQUENT EVENTS IS, UM, MINIMAL FOR 2023.

THERE'S NOTHING DISCLOSED HERE VERSUS 2022.

AND THIS IS A MORE EXCITING SECTION, CONSOLIDATED STATEMENTS.

I WILL SKIP THROUGH THOSE.

AND THEN WE'RE TO THE SUB M TIM'S F ONCE AGAIN, AS WE DISCUSSED EARLIER, UNMODIFIED OPINION, A COUPLE OF ITEMS HERE THAT I'VE ALREADY CALLED OUT ON THE ERCOT SIDE, BUT I'LL CALL OUT HERE AS WELL.

WE HAD THE RECEIVABLE FROM ERCOT ON 25 AND THEN WE HAD THE DEBT PAYABLE CURRENT PORTION IN 26.

UH, AND THAT RECEIVABLE WAS TRANSFERRED OVER TO M AND THEN WE REPAID IN FEBRUARY.

I DIDN'T HAVE ANY OTHER COMMENTS ON M AND ONCE AGAIN UNMODIFIED OPINION AND IS FAIRLY STRAIGHTFORWARD YEAR OVER YEAR.

I'LL SKIP THROUGH THAT.

AND THEN WE HAVE THE SERVICER CERTIFICATE, WHICH IS ALL THE WAY AT THE VERY END AND ONCE AGAIN, UH, COMPLIED IN ALL MATERIAL SPECS WITH THE SERVICING CRITERIA.

THAT'S THE END OF MY PREPARED COMMENTS.

THANK YOU RICHARD.

ANY QUESTIONS FOR RICHARD ON THIS? ALRIGHT, WE'LL HAVE ANOTHER CHANCE TO TO LOOK AT THIS AND WHEN WE GO INTO EXECUTIVE SESSION.

UH, NEXT AGENDA

[5.1 Review 2024 Financial Summary Discussion Sean Taylor]

UM, 5.1 THROUGH 5.3.

WE'RE GONNA, SEAN TAYLOR IS GOING TO START WITH 5.1, UM, WHICH IS THE UH, FINANCIAL SUMMARY.

WE'LL THEN TALK, GO THROUGH THE PERIODIC REPORT ON INVESTMENTS.

AND FINALLY THE PERIODIC REPORT ON DEBT COMPLIANCE.

SEAN STAGE IS YOURS.

MORNING EVERYONE.

STARTING WITH THE FINANCIAL SUMMARY AS WE MOVE FORWARD.

THIS IS OUR FIRST FULL LOOK AT 2024 FORECAST.

NOW WE'VE MADE IT PARTWAY THROUGH THE YEAR.

THESE RESULTS ARE THROUGH THE END, THE ACTUAL RESULTS ARE THROUGH THE END OF FEBRUARY.

AND THEN THIS FORECAST IS A FULL FORECAST AS CREATED FOR MARCH.

YOU CAN SEE THE NET YEAR END AVAILABLE FORECAST VARIANCE TO BUDGET IS AT 72 AND A HALF MILLION DOLLARS CURRENTLY.

OF THAT, ABOUT 62 MILLION OF IT IS FAVORABLE VARIANCE ON THE REVENUE SIDE AND ABOUT 10 AND A HALF FAVORABLE ON THE EXPENDITURE SIDE.

STARTING WITH THE REVENUE PIECE, YOU SEE THAT THE SYSTEM ADMIN FEE IS FAIRLY FLAT VERSUS BUDGET.

WE'RE LOOKING AT A $700,000 FAVORABLE VARIANCE AT THE END OF THE YEAR.

YEAR TO DATE, NUMBERS ARE A LITTLE

[00:25:01]

THE DEPARTMENT REVENUE SIDE, WE HAVE A UNFAVORABLE VARIANCE ABOUT $0.6 MILLION.

AS WE LOOK AT THAT, THAT'S DRIVEN BY AN UNDER BUDGET EXPECTATION FOR WAN REVENUES.

BUT THOSE UNDER BUDGET REVENUES ARE ALSO ASSOCIATED WITH UNDER BUDGET EXPENDITURE FORECASTS.

SO THOSE OFFSET, AND YOU'LL SEE THAT ON THE EXPENDITURE SIDE.

SO NO NET IMPACT OF THAT.

WE ARE CURRENTLY FORECASTING A SLIGHTLY FAVORABLE INSPECTION REVENUE AND THEN SLIGHTLY FAVORABLE ON THE SERVICING AND ADMIN FEE SIDE FROM THE WORK DONE FOR THE SPECIAL PURPOSE ENTITIES FOR SECURITIZATION, THE BIG PIECE BY FAR IS WHAT WE'VE BEEN DISCUSSING FOR A WHILE NOW.

THE INTEREST INCOME CURRENTLY IS AT ABOUT $61.8 MILLION FAVORABLE VARIANCE.

YOU SEE THE DETAILS OF THAT IN THE INVESTMENT UPDATE AND AS WE'VE HEARD AS RECENTLY AS LAST WEEK, EXCUSE ME, AS WE HEARD AS RECENTLY AS LAST WEEK, THE PREVIOUSLY PROJECTED RATE DECREASES MAY NOT OCCUR.

THEY CERTAINLY DON'T LOOK TO APPEAR, DON'T APPEAR TO BE OCCURRING AS QUICKLY AS PREVIOUSLY EXPECTED.

SO OUR BUDGET FOR THIS WAS AT ABOUT A 2.5% RATE.

RIGHT NOW, OUR FORECAST THAT'S INCLUDED IN HERE IS BASICALLY DOUBLE THAT AT ABOUT 5% RATE.

AND THAT RESULT IN THAT FAVORABLE VARIANCE.

THAT FAVORABLE VARIANCE AS WE DISCUSSED BEFORE, IS NOT USED TO CREATE ADDITIONAL EXPENDITURES FOR THE ORGANIZATION.

ANY ADDITIONAL EXPENDITURES WILL RUN THROUGH THE BOARD AND PUC PROCESS IN THIS CASE.

AND WHAT WE WOULD DO WITH THAT IS TO HOLD THAT MONEY AND THAT WILL IMPACT THE NEXT CYCLE AS THIS CURRENT RATE IS GOOD FOR THE NEXT TWO YEARS.

ON THE EXPENDITURE SIDE, LOOKING AT ABOUT 10 AND A HALF MILLION DOLLAR FAVORABLE VARIANCE RIGHT NOW FOR THE YEAR.

THIS IS CONSISTENT.

THE BIGGEST PIECE OF THIS OR CONSISTENT, WHAT WE'VE BEEN TALKING ABOUT AND WHAT WE TALKED ABOUT WHEN WE WENT THROUGH THE BUDGET CYCLE.

AS YOU CAN SEE THAT 10 POINT A HALF MILLION EQUATES TO ABOUT 2.8%.

OUR PROJECT SPEND IS CURRENTLY FAVORABLE AT 200,000.

THAT OBVIOUSLY WILL CHANGE THROUGHOUT THE REMAINDER OF THE YEAR, BUT IT'S BASICALLY FLAT.

THE BIG PIECE OF THIS IS THE STAFFING MANAGEMENT PIECE, WHICH HAS TO DO WITH OUR VACANCIES.

AS YOU REMEMBER, WE WENT FROM BUDGETED STAFF OF 840 SOME PEOPLE TO 1,014 FOR THIS YEAR, AS OF TODAY, WE'RE AT ABOUT 928 PEOPLE.

SO WE ARE ON OUR WAY OF STAFFING THAT UP, DOING A GREAT JOB OF BRINGING PEOPLE ON BOARD AND INCREASING THAT YEAR OVER YEAR.

THE AVERAGE WE'RE CURRENTLY FORECASTING FOR THE REMAINDER OF THE YEAR TO OR ACROSS THE REMAINDER OF THE YEAR IS ABOUT 945, 950 PEOPLE AND ENDING THE YEAR JUST UNDER A THOUSAND, ABOUT 970, 980 IS OUR CURRENT PROJECTION.

SO WHAT THAT IMPACT OF THAT IS, IS THAT INSTEAD OF THE BUDGETED 3% VACANCY, WE'D HAVE A BUDGET OR WE'D HAVE A FORECAST OF ABOUT SIX AND A HALF PERCENT VACANCY.

AND THAT RESULTS IN THIS $7.9 MILLION VARIANCE YOU'RE SEEING ON THIS PAGE.

SO SEE HOW THAT PROGRESSES FOR THE REMAINDER OF THE YEAR.

YEAH, ON ON THAT POINT, DOES IT SAY THAT WE MAYBE UNREALISTICALLY PROJECTED THE ABILITY TO STAFF UP? WE KNEW IT WOULD BE A STAFFING RAMP.

UH, WE HAD AVERAGED OUT ACROSS THE TWO YEARS OF 24 AND 25.

WE USED A SAME VACANCY RATE FOR BOTH YEARS.

WE EXPECT IT TO BE ABOVE IT A BIT IN 24 AND BELOW IT A BIT IN 25.

I DON'T KNOW, I THINK WE'RE ON TRACK FOR WHERE WE THOUGHT WE WOULD BE GENERALLY SPEAKING.

THANK YOU.

UH, FOR THE OTHER EXPENDITURE PIECE OF THIS, THAT'S ABOUT $3 MILLION FAVORABLE.

THIS IS DRIVEN BY TWO POSITIVE VARIANCES THAT WE SEE ON THIS PAGE.

THE INSURANCE PREMIUMS ARE SIGNIFICANT SAVINGS.

YOU SAW SOME OF THAT AND WHAT WE'RE TALKING ABOUT IN THE YEAR OVER YEAR AUDITED FINANCIALS.

AND THAT CAME AT THE END OF LAST YEAR WHEN WE HAD OUR RENEWAL CYCLE.

WHEN WE BROUGHT THE INSURANCE RENEWAL TO THE BOARD THE END OF LAST YEAR, WE CHANGED SOME OF THE STRUCTURE OF THAT, THAT AND ALSO MORE FAVORABLE PREMIUMS THAN WHAT WE HAD PREVIOUSLY RECEIVED.

AS SOME OF THAT IS CALMING DOWN NOW AS RESULTING IN THIS CHANGE THAT YOU'RE SEEING ON THIS PAGE IN THIS SAVINGS.

SO WE EXPECT THAT TO CONTINUE, OBVIOUSLY HAVE THE INSURANCE RENEWAL LATER IN THIS YEAR TOWARD THE END OF THIS YEAR AGAIN.

SO WE'LL SEE WHAT THAT ACTUALLY PLAYS OUT WITH.

BUT WE KNOW THAT THESE NUMBERS ARE GOOD THROUGH THE END OF AUGUST AT LEAST.

DOES THAT INCLUDE EMPLOYEE HEALTH INSURANCE IN THAT NUMBER HERE OR IS THAT SEPARATELY? THAT'S SEPARATE.

THAT'S UNDER THE, THAT'S ACTUALLY UNDER THE RESOURCE MANAGEMENT PIECE.

THE BENEFITS AND TAXES AND HEALTH ARE ALL IN THAT BUCKET.

THE OTHER BIG SAVINGS ON HERE ARE THE PROPERTY TAXES.

SO IT'S ABOUT A MILLION DOLLARS SAVINGS, A LITTLE OVER A MILLION.

AND THAT

[00:30:01]

SO THE ASSESSED VALUES OF THIS BUILDING ITSELF AND THE ASSESSED VALUES OF THE BUSINESS, PERSONAL PROPERTY TAXES CAME IN MORE FAVORABLE WHAT THE AGENCY THAT WE HAVE THAT GOES AND TALKS TO THE COUNTIES ABOUT THAT WORKED SOME GOOD NUMBERS THIS YEAR AROUND FOR US.

SO IT RESULTED IN SIGNIFICANT SAVINGS.

YOU SEE THE WAN IN COST, WHICH I MENTIONED ON THE REVENUE SIDE, OFFSETTING THOSE.

WE HAVE SOME BUILDING SYSTEM MAINTENANCE COSTS ON HERE, WHICH INCLUDES SOME STUFF THAT WAS DELAYED FROM LAST YEAR DEFERRED FROM LAST YEAR TO THIS YEAR.

WE ALSO HAVE SOME, UH, ROOFTOP, UM, UNITS THAT ARE GETTING REPLACED ON THE OUTSIDE SERVICES PIECE.

THIS INCLUDES, UH, COST OVERAGES FOR IMM RELATIVE TO WHAT WE BUDGETED THE NEW CONTRACT AS WELL AS SOME ADDITIONAL STUDIES THAT WEREN'T TECHNICALLY BUDGETED.

SO THIS DOES SPECIFIC IDENTIFICATION OF THOSE STUDIES.

IF THEY WERE NOT SPECIFICALLY IDENTIFIED IN THERE, THEN WE'RE INCLUDING 'EM IN THIS NUMBER AS WELL.

ANY QUESTIONS ON THIS BEFORE I MOVE TO THE NEXT PAGE? MORE DETAIL OF OUR SYSTEM ADMIN FEE FORECAST FOR THE REST OF THE YEAR.

THIS IS THE MONTHLY VIEW.

YOU'LL NOTICE IN THE TABLE AT THE BOTTOM, YOU CAN SEE THROUGH THE END OF FEBRUARY, WE WERE ACTUALLY AT A NEGATIVE VARIANCE AND THEN $1.2 MILLION CUMULATIVE THROUGH THE YEAR THROUGH MARCH.

THAT BECAME MORE NEGATIVE BY ANOTHER MILLION.

THAT'S GOING TO GROW AS WE GO THROUGH THE END OF JUNE OR IS PROJECTED TO GROW TO THE LOW POINT OF NEGATIVE 2.4 MILLION.

BUT THEN WE EXPECT THAT TO TURN AROUND TO GET UP TO THE $0.7 MILLION FAVOR VARIANCE AT THE END OF THE YEAR.

BUT MOST OF THE NUMBER WHICH LEADS US TO ALMOST COMPLETELY FLAT ON A ANNUAL BASIS.

MOVING TO THE STATEMENT OF FINANCIAL POSITIONS OR THE BALANCE SHEET, THIS IS VERY CONSISTENT WITH WHAT WE HAVE BEEN SEEING.

YOU SAW SOME OF THE CHANGES BOTH ON THIS AND THE INCOME STATEMENT WHEN WE WERE LOOKING AT THE 22 AND 23 FINANCIAL STATEMENTS AND THE AUDITED STATEMENTS THAT HAS NOW COME DOWN AS WE HAVE THE FULL YEAR OF THE SUBCHAPTER N DEBT, WHICH WENT ON IN JUNE OF 22.

WE HAVE THE PAY DOWN OF THE M DEBT, WHICH IS ALSO RULED OFF 'CAUSE THAT OCCURRED IN 22.

SO BOTH OF THOSE THINGS ARE MAKING THESE NUMBERS MUCH MORE STABLE.

AND THEN UNTIL THE END OF THIS YEAR, TOWARD THE END OF THIS YEAR, YOU REMEMBER TOWARD THE END OF LAST YEAR IS WHEN WE INCREASED THE BOND PORTFOLIO AND MOVED THAT MONEY FROM THE MONEY MARKET MUTUAL FUNDS TO THE BOND PORTFOLIO.

SO WE'LL STILL SEE THAT LARGE VARIANCE ON HERE UNTIL TOWARD THE END OF THIS YEAR WHEN THAT WILL NORMALIZE AS WELL.

OVERALL, THE TOTAL ASSETS INCREASED ABOUT $310 MILLION.

LET'S SEE ABOUT 128 OF THAT IS DUE TO MARKET SETTLEMENT LIABILITIES AND THOSE CRR FUNDS.

YOU CAN ALSO SEE ON THIS PAGE WHAT WE'VE BEEN SEEING FOR A WHILE AND YOU SAW IT IN THE AUDITED FINANCIALS AS WELL.

WHEN YOU COMPARE THE CRR AUCTION LIABILITY IS CURRENT AND CRR AUCTION LIABILITIES LONG TERM YOU'RE SEEING THAT THAT CURRENT, WHICH ARE THOSE WHICH GO OUT IN LESS THAN 12 MONTHS, CONTINUES TO INCREASE VERSUS THOSE THAT ARE GREATER THAN 12 MONTHS.

SO THE TWO AND THREE YEARS THAT WE'RE HOLDING THAT NUMBER CONTINUES TO DECREASE AND WE'VE SEEN THAT TREND FOR A WHILE NOW.

THAT OBVIOUSLY IMPACTS OUR ABILITY TO INVEST THAT MONEY FOR LONGER TERMS AS WE'RE DOING THE MATCHING WITH THE BOND PORTFOLIO AND THESE CRR REPAYMENTS.

AND THEN THE OTHER BIG DRIVER IS THE SECURITY DEPOSITS, WHICH RICHARD WAS TALKING ABOUT, WHICH THEN INCREASED BY ABOUT $86 MILLION YEAR OVER YEAR.

UH, WHAT YOU'RE SEEING HERE IN BOTH CASES FOR M AND N, THESE SHOULD BE PRETTY CONSISTENT.

WE PROBABLY WON'T BE TALKING ABOUT THESE TOO MUCH ON A BALANCE SHEET OR INCOME STATEMENT SIDE UNTIL WE DO THE M REFINANCING.

THAT'LL BE THE NEXT BIG DEAL.

BUT YOU CAN SEE THAT THE NUMBERS YEAR OVER YEAR ON ALL CATEGORIES ARE BASICALLY CONSISTENT AND FLAT JUST SHOWING THE PAY DOWN OF THAT DEBT AND THE COLLECTION OF IT.

NOW THAT WE DON'T HAVE THE, WE HAVE THE FULL YEAR OF N IN THERE AND THEN WE ALSO HAVE THE HUGE REPAYMENT OF M ROLLED OFF INCOME STATEMENT SIDE, SIMILAR STORY.

SO THIS SHOWS WHAT WE'RE EXPECTING TO SEE FOR THE REST OF THIS IS WHAT WE WERE EXPECTING TO SEE.

WHEN WE LOOK AT ERCO INC.

UH, WITHOUT UH, SPES, THEN WE SEE THE FIRST TIME THAT THAT WE'RE SHOWING AT THIS COMMITTEE THE IMPACT OF THE SYSTEM ADMIN FEE RATE INCREASE.

SO THAT INCREASED FROM 55 AND A HALF CENTS TO 63 CENTS.

AND YOU CAN SEE THAT IN THE OPERATING REVENUES THEY INCREASED NINE AND A HALF MILLION DOLLARS YEAR OVER YEAR.

8.6

[00:35:01]

AND 3.4 IS ACTUALLY DUE TO ADDITIONAL LOAD YEAR OVER YEAR FOR THOSE FIRST COUPLE OF MONTHS.

ON THE OPERATING EXPENSES SIDE, THOSE ALSO INCREASED SIMILAR TO WHAT WE WERE EXPECTING TO SEE.

YOU CAN SEE THE BIG INCREASE IN SALARIES AND RELATED BENEFITS.

SO THAT RELATED BENEFITS ALSO INCLUDES THE MEDICAL THAT YOU WERE TALKING ABOUT PEGGY, AND THAT'S ABOUT A HUNDRED EMPLOYEE INCREASE YEAR OVER YEAR.

AND SO WE'RE SEEING THE IMPACT OF THAT.

AND THEN AS RICHARD HAD MENTIONED, CONTINUE TO HAVE THE ADDITIONAL ASSETS BROUGHT ON BOARD AND SO YOU SEE THAT INCREASE IN DEPRECIATION EXPENSE ASSOCIATED WITH THOSE AS WELL.

THE OTHER ITEM THAT LOOKS A LITTLE STRANGE ON HERE TO MOST PEOPLE PROBABLY IS THIS OTHER INCOME AND EXPENSE AS THAT'S A ALMOST A $3 MILLION DECREASE RELATED TO INTEREST INCOME YEAR OVER YEAR.

AND THAT'S DRIVEN BY THE FAIR VALUE ADJUSTMENT LOSS OF $8 MILLION YEAR OVER YEAR.

WHICH COVERS THE DIFFERENCE BOTH IN WHAT WE DID FOR FAIR MARKET VALUE ADJUSTMENTS THIS YEAR VERSUS LAST YEAR.

AND THE CHANGE THAT WE'VE MADE THIS YEAR GOING FORWARD IS WE'RE ACTUALLY BOOKING THIS ADJUSTMENT ON A MONTHLY BASIS NOW.

SO WHEN YOU SEE THIS, IT WILL ALWAYS INCLUDE THAT CHANGE AS WE GO FORWARD.

MOVING ON TO THE LAST SLIDE IN THIS SECTION IS OUR CRR FUNDS.

SO YOU LOOK AT THIS, YOU CAN SEE ACROSS THE TOP THAT IT HAS BEEN PRETTY FLAT TOTAL BALANCE FOR THE LAST 12 MONTHS.

IT IS UP A LITTLE BIT AND AS I MENTIONED PREVIOUSLY, THAT IS AN INCREASE IN THE AMOUNT THAT'S THE CURRENT, SO LESS THAN ONE YEAR, BUT A DECREASE IN THE AMOUNT THAT'S GREATER THAN ONE YEAR.

AND THOSE TWO ARE OFFSETTING TO RESULT IN ABOUT A HUNDRED MILLION DOLLARS INCREASE YEAR OVER YEAR ON THAT OVER $2 BILLION BALANCE.

THE BOTTOM, YOU CAN SEE THAT WE HAVE ABOUT $71.6 MILLION IN OPERATING CASH.

THE, THE UNRESTRICTED CASH AND BOND INVESTMENTS EXCEED THE MARKET LIABILITIES AND AT OUR LAST MEETING THAT WAS ALMOST $82 MILLION.

SO WE GOT ABOUT A $10 MILLION DECREASE VERSUS WHAT WE SAW AT THE END OF THE YEAR.

ANY QUESTIONS ON THIS BEFORE WE MOVE TO INVESTMENTS? OKAY, SO SHAUNA'S GONNA DO THE INVESTMENT REPORT NOW.

SEAN, IS THE CRR FUNDS THAT INCREASE OVER TIME, IS THAT JUST THE MARKET DRIVING THE VALUE OF THE CONGESTION RIGHTS UP? YES.

IS THAT WHAT YES, ABSOLUTELY.

SO THAT'S ALL JUST THE CRR AUCTIONS THAT ARE BEING HELD.

THE CASH THAT WE BRING IN AND THE TIMING DIFFERENCE BETWEEN WHEN WE BRING THAT CASH IN AND WHEN WE PAY IT OUT.

BUT IT'S ALL MARKET DRIVEN.

MM-HMM ON THE INVESTMENT SIDE, LEMME LOOK AT THE PERIODICAL

[5.2 Periodic Report on Investments Discussion Sean Taylor]

SO THIS IS CONSISTENT WHAT WE'RE SEEING.

WE ARE SEEING A SLIGHT DECREASE IN THE RATE.

SO AS WE CAN SEE ON THIS PAGE, THE MONEY MARKET MUTUAL FUNDS YIELDED ABOUT 5.19%.

THAT'S DOWN ABOUT FIVE BASIS POINTS FROM OUR LAST MEETING.

AND THE TREASURY OBLIGATION PORTFOLIO WAS 5.28.

THAT'S DOWN ABOUT SIX BASIS POINTS FROM OUR LAST MEETING.

SO IT'S PRETTY CONSISTENT.

IT'S NOT DROPPING NEARLY AS FAST AS MANY PEOPLE HAD PREDICTED PREVIOUSLY.

WE ARE IN COMPLIANCE WITH ALL OF OUR INVESTMENT CRITERIA, BOTH ON THE MONEY MARKET MUTUAL FUND SIDE AND ON THE TREASURY OBLIGATION PORTFOLIO SIDE.

ON OUR INVESTMENT COMPLIANCE REPORT SHOWING THE DETAIL OF THE AMOUNT SUMMARY LEVEL OF THE DETAIL IS WE SEE THE MONEY MARKET MUTUAL FUNDS AT ABOUT $1.8 BILLION.

THAT'S DOWN FROM ABOUT 1.9 AT OUR LAST MEETING.

AND THEN THE PURCHASE PRICE OF THE TREASURY OBLIGATION PORTFOLIO IS BASICALLY FLAT.

IT'S ONLY CHANGED A COUPLE MILLION DOLLARS.

AND THEN AGAIN, I DON'T PLAN TO SHOW THIS AT EVERY MEETING, BUT WANTED TO MAKE SURE THAT YOU KNEW THAT IT WAS STILL HERE IN CASE YOU WANNA LOOK AT IT.

WE DO HAVE THIS THAT WE ADDED TOWARD THE END OF LAST YEAR, THIS LAST PAGE IN THE APPENDIX, WHICH SHOWS THE AMOUNT OF MONEY THAT HAS BEEN RECOGNIZED VERSUS UNREALIZED FROM THE FAIR MARKET VALUE ADJUSTMENT AND THEN ALSO THE UNRECOGNIZED INVESTMENT INCOME BECAUSE WE ARE PLANNING TO HOLD THESE TWO, TWO MATURITY AND THIS IS WHERE WE GET FOR 2024, WHERE WE HAVE ABOUT $69 MILLION OF INVESTMENT INCOME RELATIVE TO THE $50 MILLION BUDGETED.

SO THAT $69 MILLION,

[00:40:01]

AND THEN WE HAVE THE REINVESTMENT RISK ASSOCIATED WITH EVERYTHING ELSE.

AND THAT'S HOW WE GET TO THE TOTAL.

THAT IS ON THE FIRST PAGE OF THE FINANCIAL SUMMARY MATERIALS.

WE LOOK

[5.3 Periodic Report on Debt Compliance Discussion Sean Taylor]

WE ARE IN COMPLIANCE WITH ALL OF OUR DEBT REQUIREMENTS.

THERE ARE A COUPLE OF THINGS THAT I WANNA HIGHLIGHT ON HERE FOR YOU.

UH, THE BOTTOM OF THIS PAGE FOR OUR PRIVATE PLACEMENT AND OUR REVOLVER, YOU SEE THE PROVIDE FINANCIAL STATEMENTS ANNUALLY.

SO WE WILL BE PROVIDING THOSE AUDITED FINANCIAL STATEMENTS ASSUMING WE HAVE BOARD APPROVAL TOMORROW WE'LL, AND THEN GET THEM PROCESSED ON WEDNESDAY AS AARON MENTIONED EARLIER.

AND WE WILL GET THESE OUT TO THE DEBT HOLDERS, UH, NEXT WEEK BEFORE OUR DEADLINE OF FOUR 30 FROM A SECUR COMPLIANCE PERSPECTIVE THEN WE ARE IN COMPLIANCE WITH EVERYTHING.

WE DON'T HAVE ANY UPDATES SINCE THE LAST TIME WE HAD THIS CONVERSATION.

AND THAT IS IT FOR THE COMMITTEE REPORTS.

ANY QUESTIONS ON, UH, DEBT COMPLIANCE OR INVESTMENTS OR THE FINANCIAL STATEMENTS BEFORE WE MOVE TO THE NEXT? BOB SHAUNA? I GUESS THERE'S NO DISCLOSURE YET OR AND DOESN'T NEED TO HAVE ANY YET ON THE POTENTIAL REFINANCING OF THE M SAY THAT AGAIN? WE DON'T HAVE ANY DISCLOSURE AT THIS POINT AND I'M ASSUMING IT'S TOO EARLY ON THE POTENTIAL REFINANCING OF THE M BONDS.

CORRECT.

AND I'LL GIVE A MORE DETAILED UPDATE ON THAT IN EXECUTIVE SESSION AS WELL.

OKAY.

NOTHING RISING TO THE POINT OF A SIGNIFICANT OF A SUBSEQUENT EVENT AS THE AUDITOR FOR OH NO.

YEAH.

OKAY.

UH, FUTURE AGENDA ITEMS.

[6. Future Agenda Items Discussion Sean Taylor]

YOU HAVE THIS ONE AS WELL? YES.

THANK YOU.

SO THIS INCLUDES AS WE'RE LOOKING FORWARD TO BOTH THIS YEAR AND NEXT YEAR.

A HIGHLIGHT FOR THE NEXT MEETING IS PRETTY STRAIGHTFORWARD.

WE ONLY HAVE ONE THING BEYOND THE STANDARD REPORTING REQUIREMENTS AND THAT'S THAT WE'LL REVIEW THE IRS FORM 90 AT THE BOARD MEETING.

AS WE LOOK TOWARDS AUGUST, WE HAVE A FEW MORE ITEMS ON THAT LIST, WHICH INCLUDES A TIMING CHANGE AS WE LOOK AT ITEM 17 FOR THE REVIEW.

OUR INSURANCE RENEWALS, SO WE CAN HAVE THAT CONVERSATION IN AUGUST.

THOSE WILL BE DUE AT THE END, UH, OF AUGUST.

SO THE BEGINNING OF SEPTEMBER IS WHEN WE'LL BE DOING THAT RENEWAL.

SO WE'LL HAVE THAT UPDATE AT THAT TIME.

IF WE LOOK AT ITEM 19, THAT'S A BRAND NEW ITEM FOR THIS YEAR AND THAT'S TO REVIEW THE COMMISSION ORDERED OPERATING BUDGET RECONCILIATION.

THAT'S THE ACTION THAT TAKES PLACE IN THE OFF BUDGET REQUEST YEARS.

YOU CAN SEE THAT THERE IS NOTHING IN ROSE, UH, 20 AND 21 FOR THIS YEAR, BUT THOSE WILL OCCUR NEXT YEAR WHEN WE DO THE BIENNIAL BUDGET.

AND THEN THE OTHER ITEM FOR AUGUST TO HIGHLIGHT IS THAT WE WILL HAVE SOME EXTERNAL AUDITORS BACK.

SO ROW 30, WE'LL HAVE BAKER TILLY BACK FOR THE FINANCIAL AUDIT TO TALK ABOUT THE AUDIT PLAN FOR THIS NEXT YEAR.

AND THEN 34 THROUGH 36 WE'LL HAVE THE 401K SAVINGS PLAN AUDITORS BACK IN HERE TO PRESENT THE RESULTS OF THEIR AUDIT.

OKAY, THANK YOU SEAN.

ANY QUESTIONS ABOUT FUTURE, UH, AGENDA ITEMS? WITH THAT WE'LL TRANSITION TO AGENDA

[7. Other Business Discussion Chair]

DOES ANY OTHER COMMITTEE MEMBER OR ERCOT TEAM MEMBER HAVE ANY OTHER BUSINESS THEY WANNA BRING UP? OKAY, I DON'T HEAR ANYTHING.

SO WE'RE GOING TO, UH, TRANSITION TO

[Convene Executive Session]

UH, THE GONNA RECESS GENERAL SESSION AND MOVE TO EXECUTIVE SESSION.

THERE.

WE HAVE FOUR VOTING ITEMS THAT ARE ANTICIPATED FROM EXECUTIVE SESSION.

SO THE GENERAL SESSION WILL RECONVENE AFTER THE CONCLUSION OF THE EXECUTIVE SESSION.

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

EXECUTIVE SESSION AND CLOSED THE GOOD MORNING AGAIN.

[Reconvene General Session]

UH, WE'LL RESUME OUR REVIEW OF THE 2023 FINANCIAL STATEMENT AUDIT REPORTS.

UNDER AGENDA ITEM EIGHT,

[8. 2023 Financial Statements Audit Reports -- Richard Scheel]

DO I HAVE A MOTION TO APPROVE THOSE? I MOVE TO APPROVE THE, THE THREE FINANCIAL STATEMENTS YOU REFERENCED.

PEGGY HAS MOVED APPROVAL.

SECOND.

ALL SECOND.

ALL IN FAVOR OF APPROVAL OF THE, OF THE ACCEPTANCE OF THESE REPORTS? AYE.

ANY OPPOSED?

[00:45:01]

THE THREE AUDIT REPORTS AND FINANCIAL STATEMENTS ARE APPROVED.

NEXT IS

[9. Vote on Matters from Executive Session Vote Chair]

WE HAVE THREE VOTING ITEMS. ACCORDINGLY, I'LL ENTERTAIN A MOTION TO RECOMMEND THAT THE BOARD SELECT THE AUDITOR, DISCUSS THEIR EXECUTIVE SESSION UNDER AGENDA ITEM ES 2.4 AS THE INDEPENDENT FINANCIAL AUDITOR TO PERFORM FOR THE FOLLOWING YEAR, ENDING DECEMBER 31ST, 2024.

THREE ITEMS. NUMBER ONE IS A FINANCIAL STATEMENTS AUDIT, THE ANNUAL SERVICES CERTIFICATE EXAMINATION AND FORM NINE 90 REVIEW FOR ERCOT INC.

NUMBER TWO IS A FINANCIAL STATEMENTS AUDIT AND CONSOLIDATION PROCEDURES FOR TEXAS ELECTRIC MARKET STABILIZATION FUNDING MLLC.

AND THE THIRD ITEM IS A FINANCIAL STATEMENTS AUDIT AND CONSOLIDATION PROCEDURES FOR TEXAS ELECTRIC MARKET STABILIZATION FUNDING.

AND LLCI BELIEVE PEGGY, WE'RE GONNA MOVE APPROVAL OF THOSE.

SO, OKAY, SECOND.

SECOND IS BOB.

ALL IN FAVOR OF THOSE APPROVALS? AYE.

AYE.

ANY ABSTENTIONS? ANY OPPOSITION? OKAY, THOSE ARE APPROVED.

WANT TO, UH, THANK EVERYONE FOR THE, UH, THE PARTICIPATION IN THE MEETING TODAY? THE MEETING OF THE FINANCE AND AUDIT COMMITTEE IS NOW ADJOURNED AND THE WEBCAST WILL BE CONCLUDED.