Sep 22, 2025 Finance and Audit Committee Meeting

UH,

[00:00:01]

MEMBERS OF

[1. Call General Session to Order]

I HEREBY CALL TO ORDER THE SEPTEMBER 22ND, 2025 FINANCE AND AUDIT COMMITTEE MEETING.

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

I HAVE CONFIRMED THAT A QUORUM OF COMMITTEE MEMBERS IS PRESENT IN PERSON.

AND BEFORE WE BEGIN, I'D LIKE TO ACKNOWLEDGE THAT WE HAVE THREE NEW DIRECTORS JOINING THE BOARD.

UH, BEGINNING WITH THIS MEETING, THERE ARE BILL MO, CHRIS RUMMEL, AND KATHLEEN MCALLISTER WITH THREE NEW BOARD DIRECTORS JOINING US.

I AS, UH, UH, BOARD CHAIR AND CONSULTATION WITH PEGGY.

HE, THE VICE CHAIR, HAVE MADE SOME CHANGES TO THE OVERALL COMMITTEE MEMBERSHIPS, AND WE'VE APPOINTED NEW COMMITTEE MEMBERS FOR F AND A IN THAT REGARD.

CHRIS CRUMBLE AND BILL MOELLER ARE NOW, UH, GOING TO BE ON F ON F AND A.

BEN BARKLEY AND JULIE ENGLAND WILL CONTINUE TO SERVE ON THE COMMITTEE AND FOR THE REMAINDER OF THE YEAR.

WE ARE A COMMITTEE OF FIVE WITH FOUR VOTING MEMBERS, AND I WILL CONTINUE TO SERVE AS THE FNA CHAIR IN A NON-VOTING CAPACITY.

UH, WE DON'T HAVE SEE IT.

OKAY, WE'RE GONNA SUSPEND FOR JUST A SECOND.

UH, WITH THAT, I'D LIKE TO ASK PUC CHAIR, UH, THOMAS GLEASON IF HE WOULD LIKE TO CALL AN OPEN MEETING OF PUBLIC UTILITY COMMISSION.

THANK YOU, MR. CHAIRMAN.

THIS MEETING OF THE PUBLIC UTILITY COMMISSION OF TEXAS WILL COME TO ORDER TO CONSIDER MATTERS THAT HAVE BEEN DULY POSTED WITH THE SECRETARY OF STATE FOR SEPTEMBER 22ND, 2025.

THANK YOU, MR. CHAIR.

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

THE FIRST AGENDA ITEM IS ITEM TWO, THE NOTICE OF PUBLIC COMMENT, IF ANY.

TODAY'S, UH, MEETING AGENDA WAS POSTED PUBLICLY ON SEPTEMBER 15TH, 2025, AND PROVIDED INSTRUCTIONS FOR THE CO FOR THE PUBLIC TO COMMENT IN PERSON.

AS I UNDERSTAND IT, TO DATE, NO ONE HAS EXPRESSED AN INTEREST IN COMMENTING.

IS THAT STILL CORRECT, JEFF? THAT IS CORRECT.

CHAIRMAN.

OKAY.

THANK YOU, JUDGE.

NEXT IS

[3. June 23, 2025, General Session Meeting Minutes]

THERE'S A DRAFT IN THE MEETING MATERIALS.

DOES ANYONE WISH TO MAKE, UH, HAVE ANY COMMENTS OR IS CORRECTIONS OR WISH TO MAKE A MOTION FOR APPROVAL? MR. CHAIRMAN, I'LL MAKE A MOTION TO APPROVE.

UH, THANK YOU JULIE.

IS THERE A SECOND? I'LL SECOND.

THANK YOU, BENJAMIN.

ALL IN FAVOR? AYE.

ANY OPPOSED? ANY ABSTENTIONS? OKAY, THE MINUTES ARE APPROVED AS WRITTEN.

NEXT IS AGENDA

[4. Notice of Annual Committee Self-Evaluation Questionnaire]

THE PURPOSE OF THIS AGENDA ITEM IS A NOTICE OF ANNUAL COMMITTEE SELF EVALU EVALUATION QUESTIONNAIRE.

UH, THIS GIVES US AN OPPORTUNITY TO DISCUSS THE 2025 ANNUAL COMMITTEE SELF-EVALUATION QUESTIONNAIRE.

THE R AND G COMMITTEE DISCUSSED THE SURVEY FORUM DURING THEIR MEETING ON JUNE 23RD, 2025.

THE ERCOT STAFF, THE WAY IT'S CURRENTLY STRUCTURED, THE ERCOT STAFF WILL ELECTRONICALLY ADMINISTER THE QUESTIONNAIRE TO THE FINANCE AND AUDIT COMMITTEE MEMBERS FOLLOWING TODAY'S MEETING AND WILL REVIEW THE RESULTS DURING THE MEETING SCHEDULED FOR DECEMBER 8TH OF THIS YEAR.

I'D LIKE TO REQUEST THAT ALL COMMITTEE MEMBERS SUBMIT SURVEY RESPONSES BY OCTOBER 31ST.

WOULD ANYONE LIKE TO SHARE ANY FINAL FEEDBACK REGARDING THE CONTENT OF THE QUESTIONNAIRE? SO THIS, UH, QUESTIONNAIRE IS PRETTY CLOSE TO WHAT WE'VE HAD IN THE PAST WITH SOME UPDATES TO TRY TO REFLECT WHAT WE'VE LEARNED FROM, FROM PRIOR QUESTIONNAIRES.

WITH THAT,

[5. Periodic Meeting with Independent Financial Auditor]

BAKER TILLEY IS PRESENT AND AVAILABLE TO ANSWER COMMITTEE, UH, MEMBERS' QUESTIONS.

SO I'M GONNA ASK, UH, SO DO WE HAVE ANY QUESTIONS FOR BAKER TILLEY LEE? I'M NOT SEEING ANY.

OKAY.

THE NEXT

[6.1. Review 2025 Financial Summary]

OKAY, I'LL BE RICHARD SHIELD PRESENTING THE 2025 FINANCIAL SUMMARY.

JUST WANTED TO WALK US THROUGH A COUPLE OF ITEMS IN THIS.

WE HAVE OUR YEAR TO DATE RESULTS EXPENDITURES.

UM, REVENUES NET OF EXPENDITURES ARE 89.6 MILLION FAVORABLE TO BUDGET.

THAT'S AN INCREASE OF 6.9 MILLION OVER THE LAST, UH, PRESENTATION WE GAVE WITH INTEREST INCOME FORECAST TO BE FAVORABLE BY 58.1 SLIGHT DECLINE AND SUCH.

ADMINISTRATION FEE REVENUE OF 8.9 MILLION IN UNBUDGETED LEGAL FEE RECOVERY OF 7.1 MILLION.

BEING PRIMARY PRIMARY DRIVERS.

I'LL RUN YOU THROUGH THIS YEAREND FORECAST, UM, VARIANCE TO BUDGET.

WE HAVE 70.1 MILLION, SAME AS AT THE LAST BOARD.

WE HAD SOME CHANGES WITHIN THE ITEMS, BUT

[00:05:01]

SO IT'S BEEN ADMINISTRATION FEE RATE INCREASED BY 1.8 MILLION BOARD TO BOARD 0.9 MILLION, DECREASE IN DEPARTMENT NET REVENUES, PRIMARILY DRIVEN BY, UM, INTERCONNECTION REVENUE, AND THEN A 0.9 MILLION DECREASE IN FORECAST INTEREST INCOME THROUGH YEAR END.

ON THE EXPENDITURE SIDE, WE HAD A 6.9 MILLION CHANGE.

IT'S LARGELY DRIVEN BY 1.3 MILLION IN OTHER PROJECT SPEND.

THAT'S A DEFERRAL.

UM, WE EXPECT TO SEE THOSE EXPENSES IN 2026.

UH, RTC PLUS B SAW 1 MILLION SHIFT IN, UH, YEAR THE YEAR SPENDING FOR 2025, AND WE SAW A 0.2 MILLION CHANGE IN THE TREASURY, UH, SINGLE SOURCE OF TRUTH PROJECT AS WE SHIFTED SOME OF THAT WORK TO 2026 AS WELL.

BEYOND THAT, WE HAD 1.4 MILLION IN STAFFING MANAGEMENT, PRIMARILY AROUND CONTRACTORS WE HAVE SOME DIFFICULTY WITH.

THERE ARE ALWAYS CHALLENGES WITH, UH, STAFFING.

UH, IN THIS CASE, WE'RE LOOKING FOR SOME SPECIFIC CONTRACT TALENT, UH, THAT WE HAVEN'T BEEN ABLE TO FIND, SO WE'VE HAD TO PUSH SOME OF THAT SPEND BACK.

IN ADDITION, WE HAVE LEGAL SERVICES.

UH, THE DELTA THERE IS 1.7 MILLION.

I BELIEVE THIS IS GONNA BE FAIRLY STABLE THROUGH YEAR END.

OUTSIDE SERVICES, 1.5 MILLION, UH, DELTA AND 1.4 MILLION OTHER MISCELLANEOUS EXPENDITURES, UH, PRIMARILY DRIVEN BY WAN REVENUE, UH, WAN EXPENSES, UH, LOWER THAN EXPECTED ELECTRICITY COSTS OVER THE SUMMER.

AND, UH, NOW THAT WE HAVE SECURED OUR INSURANCE, UM, THAT, THAT WE SAW A DECREASE THERE AS WELL OVER BUDGET.

NO NEW STORY HERE.

UM, AUGUST, 2025 IS, UH, SHOWN AS FORECAST.

THAT'S ACTUALLY THE ACTUALS AMOUNT FOR AUGUST.

SO WE'RE LOOKING FOR, UH, A LARGER THAN EXPECTED VARIANCE.

IN OCTOBER YEAR END.

WE'RE EXPECTING 2.9% VARIANCE OVER BUDGET.

NO NEW STORY ON THE STATEMENTS OF FINANCIAL POSITION, PRIMARILY DRIVEN BY INTEREST INCOME.

THE STORY THROUGHOUT, WE'RE LOOKING AT THE EXPENSE SIDE, I JUST WANTED TO CALL OUT THE 8.3 MILLION DECREASE IN OUTSIDE SERVICES EXPENSE.

THAT'S, UH, THE RECOVERY LINE FOR THE LEGAL LEGAL FEE RECOVERIES, WHICH IS DRIVING THAT, THAT VARIANCE ON THE OTHER INCOME, THE INTEREST INCOME IS, UH, AGAIN, DRIVING, DRIVING CHANGES.

HERE WE HAVE DECLINING INTEREST RATES, SO WE'RE SEEING THAT THAT DECLINE.

UH, THE DECREASE IN INTEREST INCOME FOR 2025 VERSUS 2024.

ON THE, UM, FAIR VALUE ADJUSTMENTS WE'RE SHOWING, UH, 3.2 MILLION VERSUS 4.4 MILLION LOSS IN 2024.

AGAIN, JUST TO REITERATE, WE HOLD OUR SECURITIES TO MATURITY.

SO WHILE WE, WE DO, UH, RECOGNIZE THAT FAIR VALUE ADJUSTMENT, WE DON'T EXPERIENCE AN ACTUAL LOSS.

CRR FUNDS CONTINUED TO REMAIN AT AN ELEVATED LEVEL.

UM, OUR PEAK WAS AT 2.26 MILLION, UH, BILLION RATHER IN JUNE OF 2025.

IT'S REMAINING HIGH TO AN EARLIER BOARD QUESTION.

WE INCLUDE THIS SLIDE, THE IMPACT ESTIMATED IMPACT OF RTC PLUS B ON THE CRR AUCTION REVENUE.

IF YOU'LL NOTICE THE SECOND BULLET IN THE KEY TAKEAWAY, UH, THE ORIGINAL MODELING, WE SHOWED 10 TO 25% POTENTIAL IMPACT ON AUCTION REVENUES.

UH, WE'RE EXPECTING AN IMPACT CLOSER TO 10% WHEN THAT IS APPLIED AGAINST OUR FINANCIAL RESULTS.

THE RESULTS THERE ARE, ARE FAIRLY MINIMAL OVER TIME.

WE ARE CURRENTLY RUNNING AT A LARGER THAN EXPECTED CRR AUCTION REVENUES BALANCE.

SO WE'RE RUNNING WELL OVER THE 2.1 WE BUDGETED.

SO WE CONTINUE TO, UH, EXPERIENCE ADDITIONAL ADDITIONAL INTEREST DUE TO THE SIZE OF OUR PORTFOLIO.

ANY QUESTIONS ON THIS SLIDE? IF SO, KEITH IS AVAILABLE TO ANSWER ANY OF YOUR QUESTIONS.

THE HIGHER REVENUES FROM THE CONGESTION RIGHTS, IS THAT BECAUSE OF HIGHER PRICING OR A HIGHER CONGESTION? IS IT VOLUME OR PRICING? SO THIS IS KEITH HERE.

IT'S ACTUALLY REFLECTING A LOWER PRICE.

SO OUR MODELING SHOWED THAT WITH THE RTC PLUS B, UM, WE ANTICIPATE A DECLINE IN, UH, THE PRICE OF, OF CONGESTION.

AND THAT'S REFLECTED IN THE MODELING WE'VE DONE HERE.

NO, I I THINK, RICHARD, I THINK YOU SAID THAT OUR CONGESTION REVENUE RIGHTS REVENUE IS CONGESTION, REVENUE IS RUNNING AHEAD OF BUDGET.

IT IS FOR 2025, NOT FOR 2026 AND 2027.

AND SO THAT, THAT'S MY QUESTION IS FOR 2025.

SO IS THAT BECAUSE OF CONGESTION OR BECAUSE OF PRICING? YOU KNOW, I DON'T GET BACK TO ME, WE CAN GET BACK TO YOU.

THIS, THIS ISN'T A CLEAR CORRELATION BETWEEN, BETWEEN THESE FIGURES, BETWEEN THE TOTAL AUCTION RECEIPTS AND TOTAL CONGESTION.

SO, AND THAT'S, THAT'S LAID OUT HERE TO SOME EXTENT.

WE

[00:10:01]

OKAY, THANKS.

AND THAT'S THE END OF MY PRESENTATION.

ANY QUESTIONS FOR RICHARD ON THE 2025 FINANCIAL SUMMARY? UM, BOTTOM LINE IS WE'RE CONTINUE TO RUN A BETTER THAN PLAN BOTH ON BOTH EXPENSES AND REVENUES.

UM, ON REVENUES PRIMARILY BECAUSE OF BETTER THAN PROJECTED INTEREST INCOME? THAT'S CORRECT.

OKAY.

WITH THAT, UH,

[6.2. Periodic Report on Investments]

LESLIE, THE PODIUM IS YOURS.

GOOD AFTERNOON.

WE ARE IN COMPLIANCE WITH THE INVESTMENT CORPORATE STANDARD.

UM, THE ONLY UPDATE I HAVE FOR YOU GUYS ON THE INVESTMENTS WAS, UH, WITH THE FED MEETING LAST WEEK.

UH, THEY DID CUT RATES.

IT'S THE FIRST TIME THEY'VE CUT RATES SINCE DECEMBER OF LAST YEAR.

UM, SO WE'LL, WE'LL KEEP MONITORING THAT.

BUT, UH, ANY QUESTIONS ON THE INVESTMENT COMPLIANCE? GREAT.

SO FOR

[6.3. Periodic Report on Debt Compliance]

I DID WANT TO DRAW YOUR ATTENTION TO SLIDE 14.

WE HAVE A PRESENTATION COMING UP ON THE M REFI, BUT I WANTED TO LET YOU KNOW THAT IT IS REFLECTED HERE IN THIS PRESENTATION AS WELL.

WE, UM, WERE ABLE TO LOCK IN OUR INTEREST RATE AT 5.147 DOWN FROM THE 6.07 AND EVERYTHING ELSE FOR THE M REFI.

THE TIMING AND MATURITIES REMAIN THE SAME AS PREVIOUS.

UM, SO THE EXPECTED FINAL MATURITY IS AUGUST OF 2049.

ANY QUESTIONS ON DEBT COMPLIANCE? THANK YOU, LESLIE.

ANY QUESTIONS FOR LESLIE ON DEBT COMPLIANCE OR INVESTMENTS? OKAY.

CONTINUE TO DO THE RIGHT THING ALL THE TIME.

THAT'S GOOD.

RICHARD'S

[7. Subchapter M Refinancing Update]

OKAY.

WELL INSTEAD OF DRAMATICALLY AND SLOWLY LETTING THIS RISE, I'M JUST GONNA START SPEAKING NOW.

SO WE HAD THE, UH, SUBM, UH, REFINANCING EFFORT THAT'S TAKEN PLACE SINCE, UM, WE BEGAN THIS PROCESS ABOUT THIS TIME LAST YEAR.

IT BEGAN IN EARNEST IN APRIL OF 2025, MOVING FORWARDS, UH, THROUGH THE SUMMER.

JUST, UH, LET ME HIT A COUPLE OF HIGHLIGHT ITEMS. SO THE TOTAL REFINANCING, AGAIN, LESLIE MENTIONED THE 6.07% INTEREST RATE.

THAT WAS, UH, THE RESULT OF AN INTEREST RATE RESET THAT WAS STRUCTURALLY PART OF THE MR M UH, INITIAL ISSUANCE.

UH, THAT, THAT 6.07 RATE WE REFINANCED FROM 6.07 TO 5.147%, WHICH WAS 95 BASIS POINTS OVER THE 10 YEAR TREASURY WHEN OUR PROCESS BEGAN.

THAT WAS ORIGINALLY AT, UM, 110, UH, BASIS POINTS OVER TREASURY.

SO WE HAD GOOD RESPONSE TO THE SUBCHAPTER M REFINANCING.

AND IN TOTAL, WE, WE SAVED ABOUT 60.6 MILLION IN TOTAL ON INTEREST PAYMENTS AND WE AVERTED 20.5 MILLION IN PAYMENTS ON THE SUPPLEMENTAL CAPITAL ACCOUNT.

OVER THE LIFE OF THE BONDS NET PRESENT VALUE, THAT SAVED US AROUND $30 MILLION TO THE, UH, STATE OF TEXAS, UH, RATE PAYERS.

ANY QUESTION ON THOSE DETAILS? I WANTED TO GIVE A THANK YOU TO THE TEAM BEFORE I, I STEPPED AWAY FROM THE PODIUM.

ANY QUESTIONS FOR RICHARD ON THAT? OKAY, NO.

WALK US THROUGH THE RATINGS THAT, UH, THE BONDS CARRIED, IF YOU DON'T MIND.

UM, THE MAJOR RATING, THE, THE HIGHEST RATINGS? YES.

SURE.

YES.

YEP.

I DIDN'T, I DIDN'T INCLUDE THAT HERE.

I SHOULD HAVE, UH, I SHOULD HAVE PULLED THAT INTO THE PRESENTATION.

YEAH, IT WAS VERY WELL RATED.

UH, WE HAD THE SAME MOODY'S RATING TEAM THAT WE USED FOR THE, UH, IN FINANCING DEAL.

UH, THAT CAME THROUGH ON THE M DL AS WELL.

SO EXTREMELY HIGH RATED BONDS FOR THE SERIES 2025 ISSUANCE.

OKAY.

UM, QUICKLY,

[00:15:01]

THIS WAS A, A SIGNIFICANT EFFORT AND A BIG LIFT.

SO THE BOARD EXECUTIVES FINANCE AND RISK AND LEGAL HERE AS WELL, CREDIT SETTLEMENTS, PC, UM, AND OUR ERCOT PARTNERS WHO WORK SO HARD TO MAKE THIS HAPPEN.

ANY QUESTIONS ON THAT? OKAY.

GOOD WORK FOR EVERYBODY.

THAT WAS PART OF THAT.

UH, ANY QUESTIONS FOR RICHARD ON THE SUB CHAPTER IN REFINANCING? AGAIN, THE BOTTOM LINE IS IT SAVES, UH, OVER $60 MILLION FOR TEXAS RATE PAYERS.

AND AS I SAID EARLIER, BENJAMIN VOTES I FOR THAT.

SO, UH, I THINK IT WAS, IT WAS WELL EXECUTED.

GOOD JOB.

ONE, ONE QUESTION.

YES, SIR.

SO, RICHARD, DO YOU, UH, FOLLOW THE TRADING OF THE BONDS AFTER THE ISSUANCE? WE DO, WE DO THAT FOR THE SUB END BONDS.

AND HOW ARE THE, HOW IS THE TRADING, HOW HAS THE TRADING GONE SINCE, SINCE ISSUANCE? W WE, CAN YOU GIVE US ANY COMMENTARY? I CAN'T GIVE YOU, I HAVEN'T LOOKED AT THAT DATA IN ABOUT A YEAR.

SO IT, WHEN WE CHECKED ON THIS LAST TIME, WE WERE GETTING SOME GOOD TRADES ON THE, IN THE END BONDS.

I CAN BRING YOU AN UPDATE ON THE DECEMBER BOARD MEETING IF YOU'D LIKE SPECIFICS.

IT WOULD BE INTERESTING TO KNOW IF THERE'S AN ACTIVE MARKET AND HOW IT'S PRICING.

YEAH, YEAH, YEAH, IF YOU CAN ADD THAT TO FUTURE JOHN ITEMS FOR THE NEXT MEETING, THAT'D BE GREAT.

SO SURE, WE'LL DO THAT.

YEAH.

SPEAK OF FUTURE AGENDA ITEMS. WE'RE GONNA GO TO AGENDA,

[8. Future Agenda Items]

SO WE'LL SEE THAT AGAIN IN DECEMBER.

AS WELL AS ALL THE STANDARD COMMITTEE REPORTS.

OUR ETHICS POINTS ACTIVITY, UH, INTERNAL AUDIT ACTIVITY AND EFFECTIVENESS FOR THE INTERNAL AUDIT FUNCTION.

WE WILL LOOK AT THE PERFORMANCE OF THE CHIEF AUDIT EXECUTIVE AS WELL AS APPROVING THE ANNUAL INTERNAL AUDIT PLAN.

AND OF COURSE RECEIVING THE INDEPENDENCE REPORT FROM THE SOC AUDITORS, UH, SELECTING THE SOC AUDITOR FOR THE COMING CYCLE AND REVIEWING AND ACCEPTING THE SOC AUDIT REPORT.

AGAIN, THAT SOC REPORT IS PRIMARILY COVERING OUR SETTLEMENTS AND INVOICING PROCESS AND TRADING INDEED.

OKAY.

THANK YOU.

ANY QUESTIONS FOR RICHARD ON FUTURE AGENDA ITEMS? ALRIGHT, WITH THAT, WE'LL, UH, THANK YOU RICHARD.

WE WILL TRANSITION TO, UH, AGENDA ITEM NINE, OTHER BUSINESS.

IS THERE ANY OTHER BUSINESS THAT ANY DIRECTOR OR ANY MANAGEMENT, UH, TEAM MEMBER WOULD LIKE TO RAISE? I DON'T HEAR ANY, SO

[Convene Executive Session]

WE DON'T EXPECT ANY VOTING ITEMS, UM, TO COME OUT OF EXECUTIVE SESSIONS.

SO AFTER THE EXECUTIVE SESSION IS CONCLUDED, UH, THE COMMITTEE WILL ADJOURN.

THE GENERAL SESSION IS NOW ADJOURNED AND THE WEBCAST BE, WILL BE CONCLUDED AS SOON AS, UH, CHAIR GLEASON DOES HIS MAGIC.

THANK YOU MR. CHAIRMAN.

THIS MEETING, THE PUBLIC UTILITY COMMISSION OF TEXAS IS HEREBY ADJOURNED.