Board Review of MRO 2021 Budget Brad Cox, Finance and Audit Committee Chair Sara Patrick, President and CEO Lam Chung, VP and Engineer for Strategy, Innovation, and Finance Gina Davis, Senior Accountant
MRO Budget Process Summary Step One Step Two Step Three Step Four Staff Develops a Present Budget to Comment Period Final Approval and Preliminary Budget MRO FAC and Board Approval Filing • “Bottoms-up/Zero- • Detailed review and • Budget is • NERC Board based” budget justification, circulated for approves (or may development with includes all line comment to all have questions, program managers items, contracts, stakeholders concerns to and executives etc. address) • Budget is • “Tops-down” • MRO FAC considered at the • Final approval of expectations from recommends second quarter NERC and RE president and chief approval, board meeting BP&Bs are filed executive officer distributes budget with FERC to board and • Reconcile committee chairs “bottoms-up” to (conference call to “tops-down” review) 2
Budget Process Update MRO FAC hosted a budget review with the MRO Board on April 17 • MRO updated its budget assessments as a result of that call MRO staff met with MRO FAC to review budget changes and posted a final draft to the MRO website • The stakeholder comment period lasted through June 1 without further comments reported MRO and the other Regional staff presented their proposed budgets to FERC on May 20 and to the NERC FAC on June 4 • Other regions are experiencing similar budget feedback • Neither FERC nor NERC FAC expressed any budget concerns 3
Budget Highlights Budget costs increase by 5 percent from $17.5 million to $18.4 million Assessments remain flat at $17 million • Used reserves to respond to economic concerns related to COVID-19 • Neutralized swing in assessments due to penalty and working capital reserve changes • Assessment stabilization adjustment of $1,428,951 4
Regional Budget Comparisons Regional budgets experience Budget Change similar percent increases Total FTEs 2020 2021 % Change NERC 82,657,034 82,859,791 0.25% Most regions worked toward MRO 66 17,540,969 18,412,202 5.0% NPCC 42.11 16,601,647 16,440,648 -1.0% a low or flat assessment RF 84.35 23,650,862 24,785,492 4.8% SERC 100 24,525,013 25,829,079 5.3% increase Texas RE 63 13,831,126 14,211,538 2.8% WECC 148.5 27,756,089 28,673,681 3.3% Weighted Average Increase ed Average In 206,562,740 211,212,431 2.25% Average budget increase to the ERO is 2.25 percent Assessments Change 2020 2021 % Change Average assessment increase NERC 72,011,373 72,011,373 0.0% MRO 16,983,251 16,983,251 0.0% to the ERO is 0.55 percent NPCC 15,338,737 15,154,584 -1.2% RF 22,318,623 22,764,995 2.0% SERC 22,459,123 23,513,887 4.7% Texas RE 13,344,128 13,343,000 0.0% WECC (excluding WIRAB) 25,282,000 25,000,000 -1.1% Weighted Average Weighted 187,737,235 188,771,090 0.55% 5
Budget Comparison 2018/2020/2021 $25,000,000 2018 (Combined), $20,800,000 2018 (Combined), $20,000,000 $18,900,000 2021 Budget $18,412,202 2020 Assessments 2021 Assessments 2020 Budget $17,540,969 $16,983,251 $16,983,251 $15,000,000 $10,000,000 $5,000,000 $0 Budget Assessments 2018 (Combined) 2020 2021 6
Budget Savings 2021 budget increases by $871K • 2020 budget savings is $3.2 million (16 percent) in post-integration savings • 2021 budget is $2.4 million (11 percent) in post-integration savings 7
Strategic Priorities for MRO Innovate approaches to reduce risk • Develop and deliver innovative and risk-based programs and tools • Support innovation, initiatives, and the sharing of best-practices • Promote registered entities’ strengths and expertise in identifying and mitigating reliability and security risks Execute NERC-delegated functions • Identify, prioritize, and mitigate risks to the bulk power system • Conduct high quality execution of delegated functions, including oversight, analysis, and assessments • Seek continuous improvement in effectiveness and efficiency Align our efforts with others across the ERO Enterprise • Support development and implementation of the ERO Enterprise Align project • Collaborate across the ERO Enterprise to build strong consensus and information sharing around initiatives to reduce reliability and security risk 8
2020 and 2021 Budget Comparison (In Whole Dollars) Variance 2021 %Variance 2021 Budget v 2020 Budget v 2020 2020 Budget 2021 Budget Budget Budget Expenses Personnel Expenses 7.77% Salaries $ 9,334,262 $ 10,059,263 $ 725,001 45,287 7.72% Payroll Taxes 586,604 $ 631,891 Benefits 1,061,581 $ 1,064,375 2,794 0.26% 27,965 1.86% Retirement Costs 1,500,244 $ 1,528,209 Total Personnel Expenses $ 12,482,691 $ 13,283,737 $ 801,046 6.42% Meeting Expenses Meetings $ 175,900 $ 204,900 $ 29,000 16.49% (368,765) -33.26% Travel 1,108,732 739,967 - Conference Calls - - Total Meeting Expenses $ 1,284,632 $ 944,867 $ (339,765) -26.45% Operating Expenses 2.56% Consultants & Contracts $ 1,306,319 $ 1,339,701 $ 33,382 394,700 50.99% Office Rent 774,000 $ 1,168,700 (24,630) -2.65% Office Costs 930,327 $ 905,697 (8,500) -1.61% Professional Services 528,000 $ 519,500 - Miscellaneous Total Operating Expenses $ 3,538,646 $ 3,933,598 $ 394,952 11.16% Total Direct Expenses $ 17,305,969 $ 18,162,202 $ 856,233 4.95% Indirect Expenses Other Non-Operating Expenses $ - $ - $ - 0.00% (B) Total Expenses $ 17,305,969 $ 18,162,202 $ 856,233 4.95% Fixed Assets 15,000 6.38% Computer & Software CapEx 235,000 250,000 - Furniture & Fixtures CapEx - - - Equipment CapEx - - Leasehold Improvements - - - (C) Inc(Dec) in Fixed Assets $ 235,000 $ 250,000 $ 15,000 6.38% $ 871,233 Total Budget (B + C) Total Budget $ 17,540,969 $ 18,412,202 4.97% 9 FTEs 63.00 66.00 3.00
MRO Key Budget Assumptions Personnel expense increases: • Average 3 percent Performed alignment of salaries and the incentive program to compete with market in 2020 ─ ─ Internal staff promotions awarded in 2020 • Addition of 3 FTEs (63 to 66) Meeting expense decreases: • MRO facilities will be used to host all outreach workshops with the exception of one offsite workshop • Utilizing historic cost trends to better estimate travel costs in 2021 Operating expense increases: • Higher facility rent and maintenance costs as a result of an office expansion in 2020 Fixed asset increases: • Cyclical capital purchases replacing end-of-life assets 10
Budget Variance Summary Budget Increase: 5% Personnel: Meetings: Operating: Fixed Assets: 6.42% increase 26.4% decrease 11.2% increase 6.4% increase Planning one off-site Facility expansion in 2020 Cyclical capital Salary increase 3% workshop in the expanded leads to increased rent in purchases replacing end- MRO footprint 2021 of-life assets Decreased travel costs FTEs increase to 66 in better reflects historic 2021 trends 11
Cost Comparison by Program Area Variance 2021 %Variance 2021 Budget v 2020 Budget v Total 2020 Budget 2021 Budget Budget 2020 Budget Program Administrative Services $ 5,940,557 $ 7,159,687 1,219,130 6.95% Compliance 3,824,656 4,066,828 242,172 1.38% 3,485,135 3,490,210 5,075 0.03% Risk Assessment and Mitigation 2,100,356 1,998,894 -101,462 -0.58% Reliability Assessments and Performance Analysis Training and Education 747,121 548,033 -199,088 -1.13% Infrastructure Security 462,805 442,078 -20,727 -0.12% Reliability Standards, Organization Registration and Certification 484,696 344,886 -139,810 -0.80% Compliance Enforcement 472,507 344,072 -128,435 -0.73% 23,136 17,515 -5,621 -0.03% Situation Awareness $ 17,540,969 $ 18,412,202 $ 871,233 4.97% TOTAL BUDGET 12
Cost Comparison by Program Area 2020 Budget 2021 Budget $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Administrative Compliance Compliance Reliability Training and Infrastructure Reliability Compliance Situation Services Risk Assessments Education Security Standards, Enforcement Awareness Assessment and Organization and Mitigation Performance Registration Analysis and Certification 13
MRO FTE Trend Increase to Accommodate Growth MRO FTE Trend 2014 2015 2016 2017 2018 2019 2020 2021 Total FTEs by Program Area Budget Budget Budget Budget Budget Budget Budget Budget STATUTORY Operational Programs Standards and Registration and Certification 1.25 1.00 2.00 2.00 2.00 2.00 2.00 1.50 Compliance 11.25 10.50 11.00 10.00 10.00 16.00 16.00 18.00 6.25 7.00 7.00 9.00 11.00 15.00 16.00 Risk Assessment and Mitigation 16.00 3.75 4.50 3.00 3.00 3.00 3.00 3.00 Enforcement 2.00 Operations - Assessments, Event Analysis, Other 7.25 8.00 8.00 7.00 7.00 9.00 10.00 10.50 Cybersecurity Outreach 2.00 2.00 2.00 Total FTEs Operational Programs 29.75 31.00 31.00 31.00 33.00 47.00 49.00 50.00 Total FTEs Administrative Programs 11.00 11.50 12.00 12.00 12.00 12.00 14.00 16.00 Total FTEs 40.75 42.50 43.00 43.00 45.00 59.00 63.00 66.00 * 2018 Budget did not consider the SPP Transition. 14
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