Download ppt - ERCOT 2005 Budget Public Meeting September 1, 2004

ERCOT 2005 BudgetPublic MeetingSeptember 1, 2004

Aug 2004AgendaAgenda

Introductory Comments Review Budget Schedule

Review Operating Budget Process and Assumptions

Review Project Process and Assumptions

Input, Questions and Wrap-up

Aug 2004Budget Schedule

September 1 - Public Meeting on 2005 Budget - Input from Public September 20 - Finance and Audit Committee meeting to review

preliminary budget (Special meeting) September 23 - Financial Briefing with PUCT Staff (Tentative) October 7 - Finance and Audit Committee meeting to review draft budget

(Special meeting) October 12 - Public Meeting on Proposed 2005 Budget October 14 - Meeting with PUCT staff on Proposed 2005 Budget October 19 - Finance and Audit Committee Recommendation to Board at

monthly meeting November 16 - Board Approval of 2005 Budget November 23 - Preliminary PUCT Filing Review (if needed) November 30 - PUCT Filing






Aug 2004

ERCOT - ANNUAL BUDGET PROCESS

TAC (Stakeholders) F&A Committee Board of Directors PUCTERCOT

Gather PrelimData for Major

Assumptions (e.g.,Mwh projections,

major capitalprojects)

High-level PrelimBudget Review by

Finance(target est July)

Gather Detail Datafrom Cost Center& Project Mgrs

DataComplete?

Proposed BudgetReviewed by

ERCOT Officers(target approval

est August)

Proposed BudgetApproved by

ERCOT Officers?


Finance & AuditCommittee(target est

September)

Proposed BudgetApproved by F&A

Committee?


Board of Directors(target approval

est October)

Proposed BudgetApproved by Board

of Directors?

RequiresIncrease to $/

Mwh Fee?

File Fee Case w/PUCT & Request

Approval of Increaseto $/Mwh Fee (target120 days prior to new

fee effective date)

PUCT ApprovalOrder Received

within 120 days ofeffective date?

Request InterimOrder to Allow FeeIncrease PendingResolution of Fee

Case

Implement New $/Mwh Fee

Effective 120 daysafter filing w/

PUCT

NO

YES

YES

NO

YES

YES

NO

YES

YES

NONO

July 2004

NO

Note: Diagram does not show all iterativecommunications among ERCOT, market participants,

the F&A Committee, the Board and/or the PUCT.

Maintain $/MwhFee Level

Analyze systemenhancement andProtocol change

recommendationsfrom RMS, WMS,ROS, POS, etc.

Makerecommendations(with TAC priorityand ranking) to

Board of Directors

RecommendationsApproved by Board

of Directors?

Provideproject

specificationsto ERCOT

YES

NO

TAC - TechnicalAdvisory Committee

START HERE

Stakeholderrequests/inputs Hold Public

Meeting(target month of

September)

Review ProposedBudget with PUCTStaff prior to Fee

Filing (est October)

Project and OtherRequests (e.g.,

Orders)

Review of Detail

Aug 2004Budget Process

ERCOT Revenue RequirementsOperating ExpensesDebt Service ObligationsRevenue-funded Portion of Capital Investment

Most of Revenue Requirements recovered through the ERCOT System Administrative Fee

ERCOT System Administrative Fee assessed to Qualified Scheduling Entities

Aug 2004Major Budget Assumptions

Operating ExpensesLabor

Staff to perform long-term, base operating activityReevaluate staffing needs and reallocate resources across the

organization as necessaryMerit pool estimated at an average of 3-5%Adjust loading for benefits to reflect changes effective in 2004

Consultants and contractorsReview use of all consultants and contractors to ensure appropriate

balance between ERCOT staff and consultants is maintainedHire to perform highly specialized tasks and to provide short-term

assistance during times of peak resource demand


Operating Expenses (continued)

Hardware and software support and maintenance costsBase on actual historical spendingRule of thumb 15% - 20% of original acquisition cost

Facilities costs Base on actual historical spendingProtect investment in facilitiesComplete TCC Phase 2 in late-2004 or early-2005

Employee expensesBase on actual historical spending


Capital ExpendituresAssumed $35 million capital programProject funding consistent with ERCOT’s

Financial PolicyNo Texas Nodal implementation costsProcess of project identification and prioritization

described in detail later in the presentation


Debt Service ObligationsFavorable financial variance realized in 2004, if

any, used to reduce debt obligationsMaintain investment grade creditPrincipal and interest payments as contracted on

Senior NotesTerm NoteRevolving Credit Facility


RevenueApproximately 98% of ERCOT revenue

requirements recovered through the ERCOT System Administrative Fee

No changes to the other miscellaneous fees collected by ERCOTWide-area network feesNon-ERCOT load serving entity feesGeneration interconnection study feesMembership feesOther

Aug 2004Organizational StructureOrganizational Structure

ERCOT

Corporate Market SystemAdministration Operations Operations

* Executive Organization * CMO Administration * COO Administration* Finance * Wholesale PM * Market Operations Support* General Counsel * Settlement Metering * Operations Support* Human Resources * Load Profiling and Data Aggregation * System Operations* NERC Compliance * Settlements and Billing * System Planning* Stakeholder Services * REP/ESI-ID Of Record * Resource Planning* Corporate Communications * Renewables and TCR * Technology Services Administration* Market Rules * Retail PM * System Engineering and Administration* Project Management * Retail Documentation and Reporting * IT Operations* Corporate Applications * Retail Testing and Quality Control * Facilities

* Retail Client Services * Network* Wholesale Client Services * EMMS Development* Market Technology Service * Cyber Security* Data Warehousing * Physical Security* Development & Architecture * EMMS Production* Transaction Services* Web and Data Services* Settlement and Billing* Data Management* IT Delivery

FTE=74 FTE=231

FTE=530

FTE=225

Aug 2004Non-project Outside Services

Non-project outside services include:Production supportAudit feesLegal feesRetail Switch notificationsSecurity guard servicesDefault QSE paymentsCustodial servicesIndependent board member feesProject support

Aug 2004HW & SW Maintenance & Support

Annual support and maintenance costs are approximately 15-20% of the initial purchase price of the hardware item or software license$150 million approximate investment in software

systems $55 million approximate investment in hardware

systems

Aug 2004Outstanding DebtOutstanding Debt

Senior Notes Principal outstanding: $136,363,000 Interest rate: Coupon rate 6.17% (effective rate 6.3%) Term: 12 years, with $ 13,637,000 payable annually

beginning May 2004 (average life of 7 years) Final payment due: May 15, 2014 Issue date: May 15, 2002

Aug 2004Outstanding Debt

Term Note Available capacity: $50,000,000 Principal outstanding at Sept 1: $35,000,000 Interest rate: Floating at LIBOR + 37.5bp or Prime -

reset monthly/quarterly (curr = 2.1%) Term: 4.5 years, with equal payments due annually

beginning November 1, 2005 Final payment due: November 1, 2008 Issue date: May 7, 2004

Aug 2004Outstanding DebtOutstanding Debt

Revolving Credit Facility Available capacity: $50,000,000 Principal outstanding at Sept 1: -0- Interest rate: Floating at LIBOR + 37.5bp or Prime

reset monthly/quarterly Term: 2 years, matures May 6, 2006 Issue date: May 7, 2004

Aug 2004Debt ServiceDebt Service

Dec-00 Dec-01 Dec-02 Dec-03 Dec-04(est.)

Debt Outstanding 40,000 95,741 150,000 150,000 176,363 (1)

Interest expense - 1,471 5,327 8,533 8,700 Principal payment - - - - 13,637 Total - 1,471 5,327 8,533 22,337

Cash interest paid 1,283 4,275 6,159 9,363 9,400 (2)

Notes: (1) Recognizes first payment under the Senior Notes of $13.6 million and assumes Term Loan balance of $40.0 million at year end.(2) Cash interest paid reflects the total interest dollars paid, whether capitalized or expensed.

Aug 2004Estimated 2005 Debt ServiceEstimated 2005 Debt Service

Estimated Range of 2005 Interest Expense 8,500 10,500 Estimated Range of 2005 Principal payment 23,673 26,173 Estimated Range of 2005 Debt Service 32,173 36,673

Dec-05

Notes: (1) Range of the expected increase in debt service from 2004 to 2005 is currently estimated between $10 million and $14 million.(2) Actual debt service obligations in 2005 will depend on many factors including pace and extent of capital investment and variances realized on operating expenses during 2004 and 2005.

Aug 20042002-2005 MWH Trends

0

50

100

150

200

250

300

Mil

lion

MW

H's

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year

2002 Actual 2003 Actual 2004 Budget and Projected 2005 Budget

2.5% increase in 2005 over 2004 Actual and Projected

Prepared by ERCOT Planning Department Using: Trend analysis 10-year growth rates for annual energy Result compared to summation of individual TDSP forecasts with minor

discrepancy

Aug 2004Administrative Fee SensitivityAdministrative Fee Sensitivity

$0.01of Administrative Fee equals: $3 million of operating expense

$3 million / 297,000,000 MWH = $0.01 / MWH

$7.5 million of capital spending 60% leverage (40% equity funding * $7.5 million = $3

million)

6.8 GWH 2.3 percent deviation from MWH expected Calculations ($3 million / $0.44 per MWH = 6.8 GWH.

6.8 GWH / 297 GWH = 2.3%)







Project Request Process

Project Budgeting Process

Annual Budgeting & Prioritization

Questions

Aug 2004Process for Market Requests

BoD

TAC

PRSWMS RMS ROS

CMWG

QSE PM WG

DS TF

TFTX Set

WG

TTPT WG

TD WG

PAR

SCRPRR

*Subcommittee will identify if this request requires a change to protocols. If no, then submitted via SCR

*Any system change that does not require a change to the protocols will be submitted via SCR

Note:

SCRs – need to be submitted to TAC. They have to be submitted through a sub-committee.

PRRs – need to be submitted to PRS. They can be initiated from sub-committees, working committees or submitted directly to PRS (ex: from ERCOT).

Sub Committee

Working Committee

Aug 2004Internal ERCOT Requests

Is it an enhancement? Improves operations Fulfills regulatory obligations Supports strategic goals/objectives Positive cost benefit

Complete a project request? Complete a request Obtain manager or director sponsorship Submit to CART for prioritization and rank

Is it a fix? Addresses a system error

Submit as a

SIR/SPR

Submit as a

project request

Aug 2004Overview of Project Requests

ERCOTPMO

ERCOTPMO

ERCOT

PM Process

ERCOT

PM Process

PUCTMarket

Participants ERCOT

Program Management Office• Overall Management of:

Project portfolioProject budgets, priorities and approvals

Project Management Process• Management of:

Project delivery Project resources, costs, timelines

Initiation of Project Requests• PUCT Rulings• System Change Requests (SCRs)• Protocol Revision Requests (PRRs)• Project Requests (PRs)

Aug 2004Annual Prioritization Process

Priority categories are high, medium, and low, with subcategories of high, medium, and low, which result in the following priorities:

High-High (1.1), High-Medium (1.2), High-Low (1.3), Medium-High (2.1), Medium-Medium (2.2), Medium-Low (2.3), Low-High (3.1), Low-Medium (3.2), Low-Low (3.3)

High – Critical to continued operations and reliability of the market, or in response to legal requirements. (Assumes that current services or functions provided are below acceptable level.)

Medium – Important to improve service or efficiency of operations of the market. (Assumes that the current services or functions provided are tolerable but not up to the desired state or target.)

Low – Recommended to further automate operations or improve efficiencies of services currently provided by the market. (Assumes that the current services or functions provided are acceptable but action is needed to prevent degradation of services.)

The subcategories (H/M/L) prioritized the projects within the category in terms of the value/impact to the market.

Aug 20042005 Project Budget Timeline

8/19 – ERCOT completed internal prioritization process

8/27 – PRS Prioritization Meeting

September – Combined Prioritized list goes to TAC

October - Finance & Audit Committee

November Board of Directors

Aug 2004Major Projects for 2005

EMMS Release 4A (2004 Carry Over)

PUCT Market Monitoring and EDW (2004 Carry Over)

EMMS Release 5

Texas SET 2.1






Aug 2004

Input, Questions, and Wrap-up