B i fi Briefing on Draft 2011 Budget D ft 2011 B d t Ryan Seghesio Treasurer & Interim Chief Financial Officer Stakeholder Meeting October 14, 2010
Timeline for 2011 budget and GMC rates e e o 0 budget a d G C ates You are here FERC Filing Board Request Board Not Approval GMC Board Board meeting meeting Overview of Overview of B d Budget t B d Budget t later of GMC Call approval Nov 1, GMC Process Call meeting than Extension Aug of 2010 and June Nov 1, 19, Oct 14, Budget Sept 9, Convergence 23, 2010 2010 2010 Dec 13, 2010 bidding 2010 2010 2010 April 21, 2010 Opportunities for Stakeholder Input Slide 2
The budget development timeline extends from J June through December. th h D b Previous Events Date Introduction of budget process to stakeholders June 2010 Status update of budget process to stakeholders August 2010 Internal budgeting process Internal b dgeting process J l July – November No ember Board review of preliminary budget (Executive Session) September 2010 Preliminary budget posted to website September 2010 Upcoming Events Date Board meeting November 2010 Board decision on budget (General Session) December 2010 Posting of rates / informational filing with the FERC December 2010 Slide 3
There is no change in 2011’s revenue requirement. e e s o c a ge 0 s e e ue equ e e t Revenue Requirement ($ in millions) � Anticipate no change in the revenue $200 requirement of $195M requirement of $195M $195 $195 � $190 Includes O&M, capital spending and debt service � $185 $2M under $197M rate cap $180 2007 2008 2009 2010 2011 Transmission Volume (in TWh) � 260 Anticipated transmission volume lower 255 Budget than 2010 budget forecast, but higher 250 forecast 245 than forecasted actuals for this year 2010 240 Forecasted Forecasted 235 Actual 230 2007 2008 2009 2010 2011 � 2011 pro-forma bundled rate at $0.81, a 2.5% increase from 2010, due to Bundled Rate (in $ per MWh) $0 90 $0.90 lower volumes $0.85 $0.80 $0.75 $0.70 $0.65 2007 2008 2009 2010 2011 Slide 4
A summary of the 2011 revenue requirement compared to 2010. d t 2010 2010 2010 2011 2011 Final Draft Revenue Requirement Component Change Budget Budget ($ in millions) $162.7 $162.5 $(0.2) Operations & Maintenance budget (8.1) 0.5 Miscellaneous revenue (7.6) Debt service (including 25% reserve) ( g ) 61.0 43.7 (17.3) Out-of-pocket capital funding 15.0 27.0 12.0 Revenue credit (35.5) (30.5) 5.0 $195.1 $195.1 $ - Total Revenue Requirement Transmission volume in TWh 246.0 240.0 (6.0) Pro-forma bundled GMC in $ per MWh P f b dl d GMC i $ MWh $0 793 $0.793 $0 813 $0.813 $0 020 $0.020 Slide 5
The O&M budget decreased by $0.2 million, or 0.1%, to $162.5 million in 2011. 0 1% t $162 5 illi i 2011 A reconciliation of the change across the major resource components follows ($ in millions): 2010 O & M budget $162.7 Salaries and benefits S l i d b fit 0 9 0.9 Occupancy and equipment leases 1.1 Telecommunications and technology maintenance costs (1.0) Consultants and contract staff (0.7) Outsourced contracts and professional fees - - Training travel and other costs Training, travel, and other costs (0 5) (0.5) 2011 O & M preliminary budget $162.5 Slide 6
Salaries and benefit costs increased $0.9 million, or 1.0%, to $110.9 million. 1 0% t $110 9 illi 2010 Salaries and benefits budget ($ in millions) $110.0 Compensation adjustments and elimination of the vacancy factor 2.2 Anticipated overtime budget adjustment 0.8 Decreased staffing (budgeted headcount declined to 601 from 615) (1.7) Other staffing costs, primarily performance compensation Other staffing costs, primarily performance compensation (0.4) (0.4) 2011 Salaries and benefits budget $110.9 Slide 7
Occupancy and equipment lease costs increased b $1 1 by $1.1 million, or 10.8%, to $11.3 million. illi 10 8% t $11 3 illi 2010 Occupancy and equipment lease budget ($ in millions) $10.2 Increase in annual facility leases and operating expenses* 1.1 2011 Occupancy and equipment lease budget $11.3 * Increase is primarily related to the addition of the Iron Point building while still maintaining the leased facility on Blue Ravine Road. g y Slide 8
Telecommunications and maintenance costs d decreased by $1.0 million, or 6.1%, to $15.9 million. d b $1 0 illi 6 1% t $15 9 illi 2010 Telecom and maintenance costs budget ($ in millions) $17.0 Decrease in software maintenance costs* (0.7) Decrease in hardware maintenance costs (0.2) Decrease in telecommunication costs (0.1) 2011 Telecom and maintenance costs budget 2011 Telecom and maintenance costs budget $15.9 $15.9 * Maintenance contracts arising out of the new market software were not as high as originally anticipated high as originally anticipated. Slide 9
Consultants and contract staff costs decreased by $0 7 $0.7 million, or 7.1%, to $9.2 million. illi 7 1% t $9 2 illi 2010 Consultants and contract staff budget ($ in millions) $9.9 Decreases in contract staff among MID, HR, Ops, and Ext Affairs di isions divisions (1 1) (1.1) Increase in contract staff in Technology division 0.4 2011 Consultants and contract staff budget $9.2 Slide 10
Outsourced contracts and professional fees remained flat at $8.5 million. i d fl t t $8 5 illi 2010 Outsourcing and professional fees budget ($ in millions) $8.5 Increases in outsourced contracts (security certificate management, locational marginal price alidation locational marginal price validation, weather and wind forecasting, eather and ind forecasting and credit rating services) 0.4 Decreases in professional fees (lower outside legal fees) (0.3) 2011 O 2011 Outsourcing and professional fees budget i d f i l f b d $8 $8.5 Slide 11
Training, travel and other costs decreased $0.5 million, or 6.8%, to $6.7 million. illi 6 8% t $6 7 illi 2010 Training, travel, and other costs budget ($ in millions) $7.2 Decreases in transportation and travel costs (0.3) Decreases in training fees and supplies (0.2) Decreases in office and meeting costs (0.1) Increases in insurance premiums Increases in insurance premiums 0.1 0.1 2011 Training, travel, and other costs budget $6.7 Slide 12
The divisional changes are largely driven by internal and external personnel costs. i t l d t l l t $ in millions 2010 2011 $ % Final Draft Division Budget Budget Change Change Chief Executive Officer Division 5.6 5.0 (0.6) (10.7)% Human Resources 6.1 5.8 (0.3) (4.9)% Market and Infrastructure Development 14.1 13.3 (0.8) (5.7)% Technology Technology 50 1 50.1 50 1 50.1 - - - - - - - - Operations 57.2 58.5 1.3 2.3% Legal & Administrative 20.6 21.3 0.7 3.4% Policy and Client Services 9.0 8.6 (0.4) (4.4)% Totals 162.7 162.5 (0.2) (0.1)% Slide 13
We are moving towards an activity based costing structure to further analyze the budget. t t t f th l th b d t � Support Plan & Activity based costing (ABC) Activity based costing (ABC) customers & manage manage A ti iti Activities stake- business commenced third quarter of 2009 ($ in millions) holders $12.8 $7.6 � Six summary activities were Operate markets & identified at the first level id tifi d t th fi t l l grid $50.4 � Level II activities are being rolled Support out to the organization in 2010 out to the organization in 2010 business services $70.3 � ABC will provide further insight Develop markets & into resource utilization infra- Manage structure structure h human $15.6 capabilities $5.9 Slide 14
Debt service component of revenue requirement declines by $17.3 million in 2011. d li b $17 3 illi i 2011 Net Debt Service with 25% Reserve ($ in millions) $70.0 $60.0 $50.0 $40.0 Reserve 2009 Bonds $30.0 2008 Bonds $20.0 $10.0 $0.0 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 There- There after Slide 15
The planned 2011 capital will be financed through GMC GMC. � Total non-facility spending targeted at $27M for further market Total non-facility spending targeted at $27M for further market enhancements and regular capital � Detailed draft of capital project list contained within the budget document. Areas of focus include: � Renewable integration and smart grid technology projects Renewable integration and smart grid technology projects � FERC mandated items (within 3 years of new market launch) � Other operational improvements to market systems � Hardware/software upgrades and office equipment Hardware/software upgrades and office equipment � Capital budgeting process continues through November Slide 16
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