MRO 2 O 2019 B Budge dget R Revi view June 21, 2018 Thomas - PowerPoint PPT Presentation

ARITY ▪ A SSU SURANCE ▪ R E S C LAR E SULT S T S MIDWEST RELIABIL BILIT ITY ORGANIZATION MRO 2 O 2019 B Budge dget R Revi view June 21, 2018 Thomas Kent, Finance and Audit Committee Chair Sara Patrick, Interim President and CEO Sue Clarke, VP-Finance and Administration Improving RE RELIABILITY a and nd mitigating RI RISKS KS t to the B Bulk P Power System em

Highligh Highl ghts Budget Reflects Strategic Direction 2019 MRO Budget Budget costs increase by $4.3 million (36%), from $11.7m to $16.0m • 2018 board-approved budget: $11.7m • 2019 budget: $16.0m Assessments increase by $4.7 million (44%), from $10.7m to $15.5m • 2018 MRO assessment per board-approved budget: $10.7m • 2019 MRO assessment: $15.5m TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 2

Highligh Highl ghts Integrated Budget 2019 Integrated Budget Integrated budget costs decrease by $4.8 million (23%), from $20.8m to $16.0m • Combined MRO and SPP 2018 budgets: $20.8m  2018 MRO board-approved budget: $11.7m  2018 SPP board-approved budget at 84%: $9.1m • 2019 MRO budget: $16.0m Assessments decrease by $3.4 million (18%), from $18.9m to $15.5m • Combined MRO and SPP 2018 assessments: $18.9m  2018 MRO assessment: $10.7m  2018 SPP assessment at 84%: $8.2m • 2019 MRO assessment: $15.5m TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 3

Highlights cont. The 2018 MRO NEL assessment rate is $0.037090915/GWh based on a total MRO load of 289,292,028 for registered LSEs The 2018 SPP RE NEL assessment rate is $0.041074045/GWh based on a total SPP RE load of 198,931,044 for registered LSEs The 2019 MRO NEL assessment rate is $0.031689754/GWh based on a total MRO load of 488,223,072 for registered LSEs • Net NEL savings of 14.6% for entities registered in MRO in 2018 • Net NEL savings of 22.8% for entities registered in SPP RE in 2018 TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 4

Highligh Highl ghts Budget Reflects Strategic Direction 2018 transition costs are estimated at $1.5 million • MRO has provided the cost estimate and funding options to NERC • A separate budget has been established to track all transition costs • On February 15, the MRO Board identified three options for transition cost recovery: o Reset the reserves, which would be a one-time impact to the 2019 budget o Capitalize costs and amortize over three years o Transfer the SPP RE assessments to MRO in 2018 TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 5

Highligh Highl ghts Budget Reflects Strategic Direction Managing productivity • Over 70% of costs are in staff • FTEs increase by 14 in 2018 (45 to 59) o 5 in Compliance o 5 in RAM o 2 in Operations o 2 in Administrative Support • Need for additional FTEs will be evaluated in 2019 TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 6

Strategic Priorities for MRO There are three strategic priorities for MRO in 2019: integrate new registered entities in MRO; execute NERC-delegated functions including oversight, analysis, and assessment for the entire expanded MRO footprint; and align with the ERO Enterprise and provide support to the ERO Enterprise goals. TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 7

Strategic Priorities for MRO Integrate new registered entities into MRO. • Provide new registered entities with opportunities to: o be included in stakeholder committees and other regional activities; o share their expertise with MRO staff and other stakeholders; and o get to know MRO staff. Execute NERC-delegated functions. • Continue to identify, prioritize, and mitigate risks to the bulk power system during integration • Continue to conduct high quality execution of delegated functions o for all MRO registered entities o pursuant to MRO principles o including oversight, analysis, and assessments • Understand new registered entities’ strengths and vulnerabilities • Share and learn practices Align with the ERO Enterprise and provide support to the ERO Enterprise goals. • Support the ERO Enterprise Long-Term Strategy • MRO’s Strategic Plan and Metrics adopts o the ERO Operating Plan and goals and o the ERO Enterprise Metrics as applicable to MRO TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 8

Budget Comparison 2018/2019 2018 VERSUS 2019 $25,000,000 Assessments per NEL $20,000,000 84% of 2018 0.0500000 SPP Budget, 2018 NEL $9,066,284 84% of 2018 0.0450000 2019 Budget, SPP 2018 NEL 2019 Assessments, $15,980,354 Assessments, 22.8% reduction 14.6% reduction 0.0400000 $15,471,669 $8,170,902 $15,000,000 2019 NEL 2019 NEL 0.0350000 0.0300000 0.0250000 0.0200000 $10,000,000 0.0150000 0.0100000 2018 MRO 0.0050000 2018 MRO $5,000,000 Budget Assessments, 0.0000000 $11,726,736 $10,730,106 SPP MRO $- BUDGE T A S S E S S ME NT S TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 9

Budget Comparison cont. Revised 2018 Metrics for Budget Submissions (using 2019 Combined MRO Preliminary Budget) Projected MRO Budget Metrics FRCC MRO 2019 NPCC 5 RF SERC SPP RE Texas RE WECC 1 Number of registered entities 42 113 222 205 230 192 120 203 366 2 Number of registered functions 163 342 621 427 477 507 315 379 888 3 Total NEL (GWh) 234,140 289,292 488,223 628,864 894,287 1,022,554 227,489 353,022 857,250 4 NEL (GWh) per registered entity 5,575 2,560 2,199 3,068 3,888 5,326 1,896 1,739 2,342 5 Total ERO Funding 1 $ 6,913,663 $ 10,872,104 $ 15,980,354 $ 14,416,787 $ 22,060,585 $ 17,933,114 $ 10,017,265 $ 11,546,986 $ 27,382,000 6 ERO Funding per registered entity $ 164,611 $ 96,213 $ 71,984 $ 70,326 $ 95,916 $ 93,402 $ 83,477 $ 56,882 $ 74,814 7 ERO Funding per registered function $ 42,415 $ 31,790 $ 25,733 $ 33,763 $ 46,249 $ 35,371 $ 31,801 $ 30,467 $ 30,836 8 Total Budget 2 $ 7,514,112 $ 11,726,738 $ 15,980,354 $ 15,106,967 $ 21,393,899 $ 17,182,868 $ 10,793,195 $ 12,656,953 $ 27,097,344 9 Total Budget per registered entity $ 178,907 $ 103,776 $ 71,984 $ 73,693 $ 93,017 $ 89,494 $ 89,943 $ 62,350 $ 74,036 10 Total Budget per registered function $ 46,099 $ 34,289 $ 25,733 $ 35,379 $ 44,851 $ 33,891 $ 34,264 $ 33,396 $ 30,515 11 Total Statutory FTE 3 30.63 45.00 59.00 36.86 76.20 75.00 32.30 60.00 143.00 12 Registered entity per Statutory FTE 1.371 2.511 3.763 5.562 3.018 2.560 3.715 3.383 2.559 13 Registered function per Statutory FTE 5.322 7.600 10.525 11.584 6.260 6.760 9.752 6.317 6.210 Total Compliance Budget 4 14 $ 5,498,173 $ 7,756,470 $ 10,763,709 $ 8,293,748 $ 15,960,112 $ 12,171,991 $ 8,466,710 $ 9,593,152 $ 14,643,677 15 Compliance budget per registered entity $ 130,909 $ 68,641 $ 48,485 $ 40,457 $ 69,392 $ 63,396 $ 70,556 $ 47,257 $ 40,010 16 Compliance budget per registered function $ 33,731 $ 22,680 $ 17,333 $ 19,423 $ 33,459 $ 24,008 $ 26,878 $ 25,312 $ 16,491 17 Total Compliance FTE 3 19.65 23.02 32.35 16.00 45.25 32.56 21.75 36.25 59.00 18 Registered entity per Compliance FTE 2.1 4.9 6.9 12.8 5.1 5.9 5.5 5.6 6.2 19 Registered function per Compliance FTE 8.3 14.9 19.2 26.7 10.5 15.6 14.5 10.5 15.1 1 ERO Funding is a sum of Assessments and Penalty Sanctions 2 Total Budget is a sum of Total Expenses and Capital Expenditures 3 Each FTE that works 2,080 hours per year is counted as one FTE. An FTE working less than the 2,080 hours per year is counted as a fractional FTE. 4 Total Compliance Budget is a sum of Direct Expenses, Indirect Expenses, and Capital Expenditures 5 Due to the specifics of the compliance program included in the individual provincial MOUs for cross-border regional entities, some of these metrics are not directly comparable. TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 10

MRO Budget Process Summary Step One Step Two Step Three Step Four Staff Develops a Present Budget to MRO Comment Period and Final Approval and Preliminary Budget FAC Board Approval Filing • “Bottoms-up/Zero- • Detailed review and • Budget is circulated • NERC Board approves based” budget justification, includes for comment to all (or may have development with all line items, stakeholders questions, concerns program managers contracts, etc. to address) • Budget is considered and executives • MRO FAC at the second quarter • Final approval of • “Tops-down” recommends board meeting NERC and RE BP&Bs expectations from approval, distributes are filed with FERC interim president and budget to board and chief executive officer committee chairs (conference call to • Reconcile “bottoms- review) up” and “tops-down” TY ▪ ASSU SSURANCE ▪ RESULTS CLA LARITY ULTS 11