MRO 2020 Budget Review April 18, 2019 Tom Kent, Finance and Audit Committee Chair Sara Patrick, President and CEO Sue Clarke, VP Finance and Administration
Basis for 2020 Business Plan & Budget Increase February 2018, NERC Board of Trustees approved dissolution of SPP RE and transfer of 100 registered entities to MRO July 1, 2018, transfer of registered entities from SPP RE to MRO 2018 Business Plan & Budget did not include transition costs; transition costs were tracked separately and totaled $2.2M Efficiency gains were recognized with the substantial combination of MRO and SPP RE • Savings recognized in total budget and NEL assessments 2
Basis for 2020 Business Plan & Budget Increase 2019 Business Plan & Budget is “best guess” at a “new normal,” and, as dictated by the established BP&B approval timeline, was developed and approved by the MRO Board of Directors prior to the transition date 2020 Business Plan & Budget is our first “normalized” plan and incorporates more informed decisions on the necessary staffing, as well as increased registered entity engagement and outreach 2020 Business Plan and Budget continues to recognize efficiency gains from the substantial combination of MRO and SPP RE • Savings continue to be recognized in total budget and NEL assessments 3
Budget Highlights Budget costs increase by 9.8 percent from $16.0 million to $17.5 million Assessments increase by 9.8 percent from $15.5 million to $17.0 million • Neutralized swing in assessments due to penalty and working capital reserve changes • Assessment stabilization adjustment of $557,718 4
Budget Comparison 2018/2019/2020 $25,000,000 2018 Budget, $20,800,000 2018 Assessments, 2020 Budget, $18,900,000 $20,000,000 2020 Assessments, 2019 Budget, $17,540,969 $16,983,251 2019 Assessments, $15,980,354 $15,471,669 $15,000,000 $10,000,000 $5,000,000 $0 Budget Assessments 2018 (Combined) 2019 2020 5
Budget Savings 2020 budget increases by $1.6 million • The integrated budget savings in 2019 was $4.8 million (23 percent) over 2018 ─ Budget experienced a reset • 2020 budget savings is $3.2 million (16 percent) over 2018 2020 NEL rate remains lower than original 2018 NEL rate before integration • NEL rate in 2019 experienced a net integrated savings of 19% • 2020 NEL rate saves 10% over 2018 6
MRO Budget Assumptions Salary increases • Average 3 percent • Internal staff promotions • Alignment of salaries and the incentive program to compete with market Benefit increase of 6 percent MRO facilities will be used to host all outreach workshops with the exception of one offsite workshop Addition of 4 FTEs (59 to 63) 7
2020 Budget Risks Transition of SPP RTO Compliance Enforcement Authority responsibilities to MRO • Effort may consume more time and resources than anticipated Appropriate staffing to manage the CMEP work • Recruiting, onboarding, and integrating four additional staff • Continued integration of entities’ transition from SPP RE Increased participation of staff and advisory councils • Councils to support a number of initiatives that may result in increased travel and meeting expenses • Active participation in industry and regional projects or efforts could consume more resources than anticipated 8
2020 Budget Risks Implementation of emerging matters including directives from NERC/FERC • Need for travel, meeting costs, systems, etc. to implement Regional investments • As NERC develops centralized systems, could lead to back-end investments at Regions (i.e. the Align tool) Large scale event • Need for external resources, diversion of staff from other work, more travel, etc. 9
Cash Management Day-to-day cash requirements (short-term) • MRO’s targeted operating reserves requirement shall be the amount necessary to satisfy projected annual cash flow and cash balance requirements to support planned operations, including reasonable contingencies • Projected reserves are held for future budget stabilization or for unforeseen changes in operations that materially influence the organization’s ability to meet its functions under delegated authority. MRO may propose to set aside funds in a separate reserve account to be released in future periods to mitigate year-to-year variations in assessments. MRO has $2.0m in credit line (intermediate) MRO can request special assessment approval from NERC/FERC (long-term) 10
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) 11
Strategic Priorities for MRO Integrate entities into MRO • Provide registered entities with opportunities to: be represented in stakeholder committees and other regional activities; o share their expertise with MRO staff and other stakeholders; and o learn and grow in the MRO region o Understand registered entities’ strengths and opportunities for improvement o 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 deployment of the ERO Enterprise Align project • Support development and implementation of an ERO Enterprise Compliance Oversight Plan process 12
2018, 2019, 2020 Budget Comparison 2018 Budget, 2018 SPP Budget, 2018 Combined, 2019 Budget, and 2020 Budget 2018 2018 SPP 2018 2019 2020 Budget Budget* Combined Budget Budget Expenses Total Personnel Expenses $ 8,564,796 $ 5,220,356 $ 13,785,152 $ 11,569,667 $ 12,482,691 Total Meeting Expenses $ 749,380 $ 469,502 $ 1,218,882 $ 1,051,164 $ 1,284,632 Total Operating Expenses $ 2,126,390 $ 3,383,406 $ 5,509,796 $ 3,114,523 $ 3,538,646 Fixed Assets $ 286,170 $ 286,170 $ 245,000 $ 235,000 TOTAL BUDGET $ 11,726,736 $ 9,073,264 $ 20,800,000 $ 15,980,354 $ 17,540,969 FTEs 45.00 32.00 77.00 59.00 63.00 *Note: This represents 87 percent of the SPP RE Budget, which is the portion transferred to MRO. 13
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