Agenda Board of Directors May 24, 2018 • 8:45 AM – 12:00 PM (ET)
ReliabilityFirst Corporation 3 Summit Park Drive, Suite 600 • Cleveland, OH 44131 Room: 5th Floor • New Jersey and Michigan Conference Rooms Attire: Business Casual
Closed Agenda
Board of Directors – Executive Session 8:00 am Room Location: Ohio Conference Room Breakfast Included
Open Agenda
1. Call to Order and Appoint Secretary to Record Minutes 8:45 am Presenter: Lisa Barton, Chair
2. Antitrust Statement Presenter: Jason Blake Reference: Antitrust Compliance Guidelines
3. Chair Remarks 8:50 am Presenter: Lisa Barton, Chair
4. Consent Items Presenter: Lisa Barton, Chair 9:00 am Reference: a) Draft Minutes from March 15, 2018 Board of Directors Meeting b) Draft Minutes from April 26, 2018 Business Plan and Budget Teleconference c) Draft Minutes from April 27, 2018 Special Election to Elect Large LSE Sector Director d) Resolution for Industry Sector Elections (No. 2018-4) Action: Approve Consent Items
5. Resolution in Recognition and Appreciation of Distinguished Service by 9:05 am Sue Ivey Presenter: Lisa Barton, Chair Reference: Resolution in Recognition and Appreciation of Distinguished Service by Sue Ivey (No. 2018-5) Action Adopt Resolution No. 2018-5 Board of Directors • Agenda May 24, 2018
6. President’s Report 9:10 am Presenter: Tim Gallagher
7. Financial Update 9:35 am Presenter: Ray Palmieri Description: Mr. Palmieri will provide a financial update to the Board of Directors and lead a final review of the 2019 Business Plan and Budget. Reference: a) Presentation – Financial Update b) Presentation – Final 2019 Business Plan and Budget c) 2019 Business Plan and Budget d) Resolution for 2019 Business Plan and Budget (No. 2018-3) Action: Adopt Resolution No. 2018-3 (Approving 2019 Business Plan and Budget)
8. Transfer Request of Wisconsin Public Service Corporation and Upper 9:45 am Michigan Energy Resources Corporation Presenter: Jason Blake Description: Mr. Blake will provide an update regarding the pending Rule 1208 request filed by Wisconsin Public Service Corporation and Upper Michigan Energy Resources Corporation to transfer from MRO to RF. Reference: a) Presentation b) ReliabilityFirst Request for Approval of Transfer Request c) Comments on Transfer Request
Action: Information and Discussion
9. Draft NERC Guidance Regarding Board Independence 10:00 am Presenter: Jason Blake Description: Mr. Blake will provide an overview of recently provided draft NERC guidance on expectations regarding independence on Regional Boards. Reference: a) Presentation Action: Approve drafting and submission of policy input on this topic to the NERC Board of Trustees
Break 10:15 am
10. Cyber Security Update 10:30 am Presenters: Larry Bugh Description: Mr. Bugh will present cyber security metrics, and will provide an update on the corporation’s cyber security posture and ReliabilityFirst’s pending CRISP membership. Reference: Confidential Presentation Action: Information and Discussion
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11. PJM Perspective on Recent Generation Retirements in its Footprint 10:45 am Presenter: Michael Bryson Description: Mr. Bryson will discuss PJM’s analysis of the reliability implications of FirstEnergy’s recent generation retirements. Reference: a) Presentation b) Background Materials Action: Information and Discussion
12. Committee Reports 11:10 am Finance and Audit Committee • Pat Cass Compensation Committee • Ken Capps Compliance Committee • Brenton Greene Nominating & Governance Committee • Larry Irving
13. Comments from Stakeholders 11:50 am
14. 2018 Future Meetings: 11:55 am August 30 • Cleveland, OH November 29 • Washington, DC
15. Adjourn 12:00 pm
Roster • Board of Directors
Lisa Barton, Chair • AEP (S • 2020) Simon Whitelocke, Vice Chair • ITC Holdings Corporation (AL • 2018) Michael Bryson • PJM (RTO • 2018) Ken Capps • Southern Maryland Electric Cooperative, Inc. (AL • 2019) Patrick Cass • Independent (2020) Scott Etnoyer • Talen Energy (AL • 2020) Brenton Greene • Independent (2019) Jim Haney • FirstEnergy Services Company (T • 2019) Larry Irving • Independent (2018) Lou Oberski • Dominion Resources Services, Inc. (S • 2018) Matt Paul • DTE Energy (M-LSE • 2019) Susan Sosbe • Wabash Valley Power Association (S-LSE • 2020) Jennifer Sterling • Exelon Corporation (L-LSE • 2019) Lynnae Wilson • Vectren (T • 2020)
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Antitrust Compliance Guidelines
ANTITRUST COMPLIANCE GUIDELINES
I. GENERAL
It is ReliabilityFirst’s policy and practice to obey the antitrust laws and to avoid all conduct that unreasonably restrains competition. This policy requires the avoidance of any conduct which violates, or which might appear to violate, the antitrust laws. Among other things, the antitrust laws forbid any agreement between or among competitors regarding prices, availability of service, product design, terms of sale, division of markets, allocation of customers or any other activity that unreasonably restrains competition.
It is the responsibility of every ReliabilityFirst participant and employee who may in any way affect ReliabilityFirst’s compliance with the antitrust laws to carry out this policy.
Antitrust laws are complex and subject to court interpretation that can vary over time and from one court to another. The purpose of these guidelines is to alert ReliabilityFirst participants and employees to potential antitrust problems and to set forth policies to be followed with respect to activities that may involve antitrust considerations. In some instances, the ReliabilityFirst policy contained in these guidelines is stricter than the applicable antitrust laws. Any ReliabilityFirst participant or employee who is uncertain about the legal ramifications of a particular course of conduct or who has doubts or concerns about whether ReliabilityFirst’s antitrust compliance policy is implicated in any situation should consult ReliabilityFirst’s President. The President will consult with legal counsel as appropriate.
II. PROHIBITED ACTIVITIES
Participants in ReliabilityFirst activities (including those of its committees and task groups) should refrain from the following when acting in their capacity as participants in ReliabilityFirst activities (e.g., at ReliabilityFirst meetings, conference calls and in informal discussions):
Discussions involving pricing information, especially margin (profit) and internal cost information and participants’ expectations as to their future prices or internal costs.
Discussions of a participant’s marketing strategies.
Discussions regarding how customers and geographical areas are to be divided among actual or potential competitors.
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Discussions concerning the exclusion of actual or potential competitors from markets.
Discussions concerning boycotting or group refusals to deal with competitors, vendors or suppliers.
III. ACTIVITIES THAT ARE PERMITTED
There are a number of restrictions guiding and defining permissible activities.
In order to avoid antitrust issues, decisions and actions by ReliabilityFirst (including its committees and task groups) should only be undertaken for the purpose of promoting and maintaining the reliability and adequacy of the bulk electric supply system. If you do not have a legitimate purpose consistent with this objective for discussing a matter, please refrain from discussing the matter during ReliabilityFirst meetings and in other ReliabilityFirst -related communications.
You should also ensure that ReliabilityFirst procedures, including those set forth in the ReliabilityFirst Agreement and the ReliabilityFirst Documents, are followed in conducting ReliabilityFirst business.
In addition, all discussions in ReliabilityFirst meetings and other ReliabilityFirst - related communications should be within the scope of mandate for or assignment to the particular ReliabilityFirst committee, task group or other group, as well as within the scope of the published agenda for the meeting.
No decisions should be made nor any actions taken in ReliabilityFirst activities for the purpose of giving an industry participant or group of participants a competitive advantage over other participants. In particular, decisions with respect to setting, revising, or assessing compliance with NERC and ReliabilityFirst reliability standards should not be influenced by anti-competitive motivations.
Subject to the foregoing restrictions, participants in ReliabilityFirst activities may discuss:
Reliability matters relating to the bulk power system, including operation and planning matters such as establishing or revising operating and planning standards and other reliability criteria, special operating procedures, operating transfer capabilities, and plans for new facilities.
Matters relating to the impact of reliability standards for the bulk electric supply system on electricity markets, and the impact of electricity market operations on the reliability of the bulk electric supply system.
Proposed filings or other communications with state or federal regulatory authorities or other governmental entities.
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Matters relating to the internal governance, management and operation of ReliabilityFirst , such as nominations for vacant committee positions, budgeting and assessments, and employment matters; and procedural matters such as planning and scheduling meetings.
Any other matters that do not clearly fall within these guidelines should be reviewed with ReliabilityFirst’s President before being discussed. The President will consult with legal counsel as appropriate.
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a) Draft Minutes from March 15, 2018 Board of Directors Meeting
DRAFT Minutes Board of Directors March 15, 2018 • Cleveland, OH
ReliabilityFirst Corporation 3 Summit Park Drive, Suite 600 • Cleveland, OH 44131
Executive Session
The Board of Directors met in executive session from 8:30 am until 8:50 am (ET). During the Executive Session, the Board of Directors discussed confidential matters concerning the corporation.
Open Session
Call to Order – Chair Lisa Barton called to order a duly noticed open meeting of the Board of Directors (Board) on March 18, 2018 at 9:01 am. A quorum was present, consisting of the following members of the Board: Chair Lisa Barton, Vice Chair Simon Whitelocke; Michael Bryson; Ken Capps; Patrick Cass; Scott Etnoyer; Brenton Greene; Jim Haney; Larry Irving via phone; Lou Oberski; Susan Sosbe; and Lynnae Wilson.
A list of others present during the Board meeting is set forth in Attachment A.
Appoint Secretary to Record Minutes – Chair Barton designated Jason Blake as the secretary to record the meeting minutes.
Antitrust Statement – Jason Blake advised all present that this meeting is subject to, and all attendees must adhere to, ReliabilityFirst’s Antitrust Compliance Guidelines.
Chair Remarks – Chair Barton welcomed all in attendance. She thanked ReliabilityFirst staff for organizing the dinner with the Board and staff following the Committee meetings. She also thanked Lou Oberski, on behalf of the entire Board, for his leadership and guidance during his term as Board Chair.
Consent Items – Chair Barton introduced the following consent agenda items for approval:
Agenda Item 4(a): Draft Minutes from the November 30, 2017 Board of Directors Meeting
Agenda Item 4(b): Draft Minutes from the November 30, 2017 Annual Meeting of Members
Agenda Item 4(c): Resolution for Special Election for Large LSE Sector (No. 2018-1)
Upon a motion duly made and seconded, the Board approved the consent agenda items. Board of Directors Minutes March 15, 2018
Information Item – Chair Barton introduced the following information item for acceptance:
Information Item 5: 2017 Annual Report
Upon a motion duly made and seconded, the Board accepted the information item.
President’s Report – Tim Gallagher welcomed Scott Etnoyer and Lynnae Wilson to the Board. He noted that Sue Ivey is retiring and has resigned from the Board, and thanked her for her many contributions to ReliabilityFirst. He reported that NERC completed its search for a CEO, and that ReliabilityFirst fully supports NERC’s selection.
Mr. Gallagher provided an update on the SPP Regional Entity (SPP RE) transition. He stated that the NERC Board of Trustees complimented ReliabilityFirst’s work, and was impressed that so many SPP RE entities requested ReliabilityFirst. He reported that MRO’s CEO recently stepped down, and MRO is undergoing a leadership transition. Mr. Gallagher has reached out to MRO’s interim CEO and offered ReliabilityFirst’s support. Additionally, per NERC’s request, ReliabilityFirst will support audits of SPP RTO during the SPP RE transition. Mr. Gallagher also reported that FRCC is planning to merge with SERC, and he will keep the Board apprised of developments in this area.
Mr. Gallagher highlighted the value of ReliabilityFirst’s entity outreach and education efforts, which include assist visits, cold weather preparedness teams, and targeted communications on key topics. He discussed a pending significant CIP compliance matter, and reported that with the help of a remedial assist visit program, the entity is moving in a positive direction. Mr. Gallagher noted that ReliabilityFirst, SERC, and WECC will release a joint CIP themes report in April, and thanked ReliabilityFirst’s industry partners for their collaboration on the report and many other efforts to share lessons learned and best practices.
Mr. Gallagher discussed ReliabilityFirst’s recent innovation retreat and awards ceremony to honor and encourage staff’s efforts to enhance their work and improve reliability. He highlighted staff member Bhesh Krishnappa’s partnership with Old Dominion University to develop an approach to measure grid resiliency, and staff member Brian Thiry’s work on the Risks and Mitigations for Losing EMS Functions Reference Document, which NERC published in January 2018.
Financial Update – Ray Palmieri led a discussion on recent and ongoing financial activity. He reported the year-end financials for 2017, and provided additional detail on the budget variances. He also provided a summary of the 2017 budgets, budget variances, and FTE counts for NERC and the other Regions. Mr. Palmieri provided an overview of the 2017 financial audit, which was successful and identified no material weaknesses or adjustments. He discussed the timeline for the 2019 Business Plan and Budget (2019 BP&B), and the 2019 BP&B assumptions and projections.
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Mr. Palmieri led a discussion on and requested the approval of $1M for the Operating Reserve, noting that the Finance and Audit Committee reviewed and recommended approval of this amount. Upon a motion duly made and seconded, the Board approved the recommended $1M Operating Reserve for 2019.
Cold Weather Performance – Rob Eckenrod, Chief Compliance Officer at PJM Interconnection, LLC (PJM) and Tim Aliff, Director of System Operations at Midcontinent Independent System Operator (MISO) discussed the performance of the Bulk Electric System in the MISO and PJM footprints during the 2017-2018 winter cold snap (lasting from December 27, 2017-January 7, 2018).
Mr. Eckenrod stated that the PJM system performed well during the cold snap, showing that PJM’s grid remains strong, diverse and reliable. He shared PJM’s lessons learned since the Polar Vortex, which resulted in enhanced winterization measures and increased gas-electric coordination. He reported there was a significant reduction of forced outages during the cold snap when compared to the Polar Vortex. There was also a spike in up-lift payments, which highlights the need to reform pricing for energy and reserves.
Mr. Aliff stated that the MISO system also performed reliably during the cold snap, and MISO’s operating procedures allowed access to additional resources during emergency situations. He noted that MISO’s application of the lessons learned from the Polar Vortex improved MISO’s performance during the cold snap. For example, additional staffing and drills on emergency processes, and tools and process enhancements in electric-gas coordination helped position MISO for success.
RTO Resiliency Efforts – Rob Eckenrod and Tim Aliff discussed PJM and MISO’s perspectives on grid resilience in light of FERC’s proceeding (Docket No. AD18-7-000) to evaluate the resilience of the Bulk Electric System in Regions operated by Regional Transmission Operators. Mr. Eckenrod discussed PJM’s definition of resilience as preparing for, operating through, and recovering from low frequency high-impact events. PJM also requested a process for government agencies to verify PJM’s assessments, because PJM may not be privy to certain information that these agencies have. He noted the opportunity for further gas-electric coordination to enhance resilience, and that FERC is in a good position to spearhead these efforts.
Mr. Aliff provided MISO’s perspectives on resilience and discussed examples of MISO’s efforts to further improve resiliency in its footprint. He also highlighted how resolving congestion management issues could further improve resiliency. Mr. Aliff concluded by noting the importance of ensuring the right technology is in place to support resilience initiatives.
EMS Update – Brian Thiry led a discussion on recent trends, themes, and mitigation strategies identified regarding Energy Management System (EMS) challenges. He discussed the recent types of EMS outages, including outages caused by software issues, data issues, settings issues, loss of power, and maintenance. Mr. Thiry also discussed the EMS Working Group’s recently released reference document on Risks and Mitigations for Losing EMS Functions. ReliabilityFirst and NERC partnered on this document, which 3 Board of Directors Minutes March 15, 2018
discusses the risk of losing EMS functions; analyzes the causes of EMS events; and shares mitigation strategies with the industry.
Mr. Thiry discussed key EMS mitigation strategies, including having offline and backup tools, and overlapping EMS situational awareness among Reliability Coordinators, Transmission Operators, and Balancing Authorities. He concluded by discussing ReliabilityFirst’s EMS outreach activities, which include conferences, reports, and lessons learned.
Cyber Security for the Organization – Larry Bugh provided an organizational security update. He discussed ReliabilityFirst’s current security measures and continuing enhancements, and discussed staff’s efforts to benchmark security practices with the other Regions. He reported that ReliabilityFirst, NERC, and the other Regions will be allowed to join the Cyber Security Risk Information Sharing Program (CRISP) at a significantly reduced cost. This will further enhance the corporation’s security posture, and Mr. Bugh thanked Chair Barton for her leadership on this effort.
Mr. Bugh presented proposed cyber security metrics to help inform the Board’s oversight and decision-making, and discussed how ReliabilityFirst is performing under these proposed metrics. The Board agreed that the metrics are a good starting point, and stated the need to continuously refine and improve them. Upon a motion duly made and seconded, the Board moved to approve the metrics conditioned on ReliabilityFirst’s future efforts to refine and improve them going forward.
Wisconsin Public Service Transfer Request – Jeff Mitchell discussed Wisconsin Public Service’s recent request to transfer to ReliabilityFirst. He discussed WPS’s and RF’s respective analyses of the proposed transfer, and their conclusions that the transfer satisfies the requirements of Rule 1208 of the NERC Rules of Procedure. Mr. Mitchell discussed the timeline and next steps in the process, and the Board provided consent to proceed with the transfer request based on the timeline. Charles Milliken, Director of Federal Regulatory Affairs and Policy for WEC Energy Group, thanked the Board for its consideration and stated that the transfer will support reliability.
GridEx Update – Ray Sefchik provided an overview of GridEx IV, including ReliabilityFirst’s participation in the biennial grid security exercise. He discussed GridEx IV’s objectives, which include exercising incident response plans and gathering lessons learned. Mr. Sefchik discussed NERC and ReliabilityFirst’s lessons learned from GridEx IV. NERC’s lessons learned included adding more cross-sector participation, and ensuring the EEI and E-ISAC works together to further operationalize the Cyber Mutual Assistance Program. ReliabilityFirst’s lessons learned included updating processes, procedures, and communications protocols; and updating and enhancing tools. Mr. Sefchik discussed ReliabilityFirst’s follow up activities, including implementation of lessons learned and participation in FERC’s Cyber Planning for Response and Recovery Study.
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Committee Reports
a) Finance and Audit Committee – Patrick Cass, Chair of the Finance and Audit Committee (Committee), reported that the Committee discussed staffing, the 2019 Business Plan and Budget, and the recent independent audit of ReliabilityFirst. The Committee also received an update on the corporation’s financial activities and recommended approval of a three year engagement with RSM US LLP, ReliabilityFirst’s independent auditor. Upon a motion duly made and seconded, the Board approved the three year engagement with RSM US LLP.
b) Compensation Committee – Kenneth Capps, Chair of the Compensation Committee, reported that the Compensation Committee reviewed the corporation’s progress toward the 2018 corporate goals, and discussed staffing and the 2019 Business Plan and Budget. The Compensation Committee also received a positive report on the staff retention and vacancy rates (there is a 1.32% vacancy rate and a 100% retention rate for 2018).
c) Compliance Committee – Brenton Greene, Chair of the Compliance Committee, reported that the Compliance Committee received an update on the Supply Chain Risk Management Standard and ReliabilityFirst’s outreach in this area. The Compliance Committee discussed the second edition of the CIP Themes Report, a joint effort of ReliabilityFirst, WECC, and SERC to identify common deficiencies and mitigation strategies related to the CIP Standards. The Compliance Committee also reviewed ReliabilityFirst’s 2017 Compliance Monitoring and Enforcement activities.
d) Nominating & Governance Committee – Larry Irving, Chair of the Nominating and Governance Committee (NGC), reported that the NGC transferred Lisa Barton to the Finance and Audit Committee, and assigned the incoming Large LSE sector director to the Compensation Committee. The NGC also finalized the agenda for the Board of Directors training event on May 23, 2018, and reviewed the Board governance surveys on the effectiveness of the Board and its Committees.
Next Meeting – Chair Barton noted that the next in-person meeting of the Board of Directors will occur on May 24, 2018 in Cleveland, Ohio at the ReliabilityFirst offices.
Adjourn – Upon a motion duly made and seconded, Chair Barton adjourned the meeting at 12:15 pm (ET).
As approved on this __ day of May, 2018 by the Board of Directors,
Jason Blake Vice President, General Counsel & Corporate Secretary
5 Board of Directors Minutes March 15, 2018
ATTACHMENT A
Others Present During the Board of Directors Meeting
Tim Aliff • MISO Jason Blake • ReliabilityFirst, Vice President, General Counsel & Corporate Secretary Thomas Breene • WEC Energy Group Larry Bugh • ReliabilityFirst Jeff Craigo • ReliabilityFirst Rob Eckenrod • PJM Tim Gallagher • ReliabilityFirst, President & CEO David Godfrey • WECC Deandra Williams-Lewis • ReliabilityFirst Mark Holman • PJM Jill Lewton • ReliabilityFirst Bob Mattiuz • FirstEnergy Charles Milliken • WEC Energy Group Jeff Mitchell • ReliabilityFirst Ray Palmieri • ReliabilityFirst, Senior Vice President Joe Robinson • DTE Energy Ray Sefchik • ReliabilityFirst Jennifer Sterling • Exelon Brian Thiry • ReliabilityFirst Matt Thomas • ReliabilityFirst Jody Tortora • ReliabilityFirst Jim Uhrin • ReliabilityFirst
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b) Draft Minutes from April 26, 2018 Business Plan and Budget Teleconference
DRAFT Minutes Board of Directors Teleconference April 26, 2018 • Cleveland, OH
ReliabilityFirst Corporation 3 Summit Park Drive, Cleveland, OH 44131
Closed Session
Call to Order – Chair Lisa Barton called to order a duly noticed closed meeting of the Board of Directors (Board) on April 26, 2018 at 3:35 pm (ET). A quorum was present, consisting of the following members of the Board: Chair Lisa Barton, Vice Chair Simon Whitelocke, Michael Bryson, Kenneth Capps, Patrick Cass, Scott Etnoyer, Brenton Greene, James Haney, Larry Irving, Lou Oberski, Matthew Paul, and Lynnae Wilson. A list of others present during the Board meeting is set forth in Attachment A.
Appoint Secretary to Record Minutes – Chair Barton designated Jason Blake as the secretary to record the meeting minutes.
Antitrust Statement – Mr. Blake advised those present of the need to adhere to ReliabilityFirst’s Antitrust Compliance Guidelines.
ReliabilityFirst 2019 Business Plan and Budget – Ray Palmieri led a discussion on the draft 2019 ReliabilityFirst Business Plan and Budget (2019 BP&B)(included with the agenda package). He presented the original projections for the 2019 BP&B, and discussed the major expense items in the 2019 BP&B. He reported that the 2019 BP&B constitutes a 5.86% increase over the 2018 BP&B, with an assessment increase of 5.5%. Mr. Palmieri discussed the major drivers behind the increase, which primarily involve personnel expenses, including a request for two additional FTE’s.
Mr. Palmieri led a discussion on the proposed addition of two FTEs. Management staff and the Board discussed the enforcement department’s increased workload and its request for an additional case manager, to prioritize timely disposition of noncompliances and provide quality support to entities. Mr. Palmieri noted that the manpower analysis for the enforcement department supports this need, and that staff is currently working overtime to meet corporate goals. Management staff and the Board also discussed the information technology (IT) department’s request for an additional employee, to keep up with increased workload from security advancement initiatives and ERO Enterprise technology initiatives. This need is also supported by a manpower analysis.
Mr. Palmieri stated that the 2019 BP&B includes plans to overlap key personnel who have indicated they are near retirement, to allow for adequate knowledge transfer and training of their successors. This will result in a minor (0.8%) impact on the 2019 BP&B.
Board of Directors Minutes April 26, 2018
Mr. Palmieri compared ReliabilityFirst’s total budget amount and customer cost per MWh with the other Regions, noting that ReliabilityFirst is among the lowest in customer cost per MWh. There was also discussion on the assessment stabilization analysis; the 2020 and 2021 budget projections; and the timeline for the 2019 BP&B. Upon a motion duly made and seconded, the Board approved the public posting of the 2019 BP&B for a 30 day comment period; and the submission of the 2019 BP&B to NERC.
Renewal of Line of Credit – Mr. Palmieri led a discussion on the renewal of the corporation’s line of credit for $1M with JP Morgan Chase Bank, NA. He stated that there is no cost to maintain the line of credit, and that the resolution to renew the line of credit (Resolution No. 2018-2) has been endorsed by the Finance and Audit Committee for Board approval. Upon a motion duly made and seconded, the Board adopted Resolution No. 2018-2.
Next Meeting – Chair Barton noted that the next Board meeting will occur on May 23, 2018 in Cleveland, Ohio at the ReliabilityFirst offices.
Adjourn – Upon a motion duly made and seconded, Chair Barton adjourned the Committee meeting at 4:20 pm (ET).
As approved on this __ day of May, 2018 by the Finance and Audit Committee,
Jason Blake Vice President General Counsel & Corporate Secretary
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Attachment A
Others Present During the Finance and Audit Committee Meeting
Jason Blake – ReliabilityFirst, Vice President and Corporate Secretary Jeff Craigo – ReliabilityFirst, Vice President Tim Gallagher – ReliabilityFirst, President and CEO Megan Gambrel - ReliabilityFirst Deandra Williams-Lewis – ReliabilityFirst Jill Lewton - ReliabilityFirst Ray Palmieri – ReliabilityFirst, Senior Vice President and Treasurer
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c) Draft Minutes from April 27, 2018 Special Election to Elect Large LSE Sector Director
Draft Minutes Industry Sector Director Election for Large LSE Sector
Special Telephonic Meeting of the Members of the Large LSE Sector April 27, 2018
Open Session
Call to Order – Corporate Secretary Jason Blake called to order a duly noticed open Special Telephonic Meeting of the Members of the Large LSE Sector on April 27, 2018, at 10:05 am (ET). A quorum of the members of the Large LSE Sector were present. A list of these members is set forth in Attachment A.
Antitrust Statement – Mr. Blake advised all present that this meeting is subject to, and all attendees must adhere to, ReliabilityFirst’s Antitrust Compliance Guidelines.
Elections for Directors for Large LSE Sector – Mr. Blake presided over the election for Director for the Large LSE Sector.
The nominee for the Large LSE Sector was Jennifer Sterling - Vice President of NERC Compliance & Security for Exelon Corporation.
The election resulted in the election of Ms. Sterling as director for the Large LSE Sector. The Certificate of Inspector of Elections and the Oath of the Inspector of Elections are attached as Attachment B.
Adjourn – Mr. Blake adjourned the Special Telephonic Meeting at 10:08 am (ET).
As approved on this ____ day of May, 2018 by the Board of Directors,
Jason Blake Vice President, General Counsel and Corporate Secretary
Minutes • April 27, 2018 Special Telephonic Meeting of the Members of the Large LSE Sector
Attachment A
MR. DANIEL L. SNIDER ON BEHALF OF AMERICAN ELECTRIC POWER MR. CHRISTOPHER SCANLON ON BEHALF OF EXELON CORPORATION
2 Minutes • April 27, 2018 Special Telephonic Meeting of the Members of the Large LSE Sector
Attachment B
3 Minutes • April 27, 2018 Special Telephonic Meeting of the Members of the Large LSE Sector
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Resolution for Industry Sector Elections (No. 2018-4)
RESOLUTION NO. 2018-4
Resolution for Industry Sector Director Elections
WHEREAS, the Corporation’s Bylaws provide that the Corporation’s Industry Sectors may elect sector directors prior to the Annual Meeting of Members;
NOW, THEREFORE, BE IT RESOLVED, that the election of directors by the Regional Transmission Organization (RTO) and Supplier Industry Sectors shall be conducted prior to the 2018 Annual Meeting of Members at a special telephonic meeting to be held on August 8, 2018, at 10:00 a.m., Eastern Time;
FURTHER RESOLVED, that the close of business on July 13, 2018 is designated as the record date for the determination of the Regular Members in the respective Industry Sectors entitled to receive notice of, and to vote in, the election;
FURTHER RESOLVED, that the nominees submitted by members of each of the Industry Sectors on or prior to July 13, 2018 be submitted to the respective Industry Sectors for election to the Board of Directors for terms expiring as provided in the Bylaws or until their respective successors are duly elected and qualify;
FURTHER RESOLVED, that the authorized officers, each acting alone or together with the other, are hereby authorized and directed to solicit and transmit a notice and proxy to each Regular Member entitled to receive notice of, and to vote in, the election;
FURTHER RESOLVED, that Jason Blake and Megan Gambrel of the Corporation are hereby appointed and authorized to tabulate proxies on behalf of the Corporation and to act as inspectors of election in connection with the Industry Sector Director Elections Meeting;
FURTHER RESOLVED, that the President or the Corporate Secretary, or such other officer of the Corporation as may be appointed by them, shall preside at the special meeting;
FURTHER RESOLVED, that all actions heretofore taken by the authorized officers of the Corporation in connection with the subject matter of any of the foregoing resolutions be, and they hereby are, approved, confirmed and ratified in all respects; and
FINALLY RESOLVED, that the appropriate officers of the Corporation be and they hereby are authorized and directed to take all actions and execute all such documents as they deem necessary or appropriate to effectuate the foregoing resolutions.
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As adopted on this ___ day of May, 2018 by the Board of Directors,
Jason Blake Vice President, General Counsel & Corporate Secretary
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Resolution in Recognition and Appreciation of Distinguished Service by Sue Ivey (No. 2018-5)
RESOLUTION NO. 2018-5
Resolution in Recognition and Appreciation of Distinguished Service by Sue Ivey
WHEREAS, ReliabilityFirst Corporation’s mission is to preserve and enhance the reliability and security of the bulk power system across its footprint, which stretches from Lake Michigan to the Eastern Seaboard and includes all or parts of 13 states and the District of Columbia;
WHEREAS, Sue Ivey has devoted her career to furthering the reliability and security of the bulk power system through her service, and by holding positions of significance, with Exelon Corporation;
WHEREAS, in furtherance of this devotion, Sue Ivey graciously volunteered her time and expertise as a founding member of the Board of Directors for the ReliabilityFirst Corporation from its inception in 2005 to 2018;
WHEREAS, during her service on the Board of Directors, Sue Ivey provided invaluable insight, perspective, and guidance to the Board of Directors to assist the Corporation in fulfilling its mission;
WHEREAS, ReliabilityFirst Corporation seeks to publicly recognize Sue Ivey’s commitment, dedication, and invaluable contributions to the Corporation and its mission;
NOW, THEREFORE, BE IT RESOLVED, that ReliabilityFirst Corporation acknowledges and extends its gratitude to Sue Ivey for her distinguished service to the Board of Directors and her lasting contributions to the Corporation and its mission.
BE IT FURTHER RESOLVED, that this Resolution is saved in the permanent minutes of the Corporation and a copy of this Resolution is given to Sue Ivey.
As adopted on this ___ day of May, 2018 by the Board of Directors,
Jason Blake Vice President, General Counsel and Corporate Secretary
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Presentation – Financial Update Financial Update
Ray Palmieri, Senior Vice President and Treasurer May 24, 2018 Cleveland, OH 2018 First Quarter Financials
Quarter ending March 31, 2018 • $258K; 4.75% under budget Major Contributors to Operating Budget • Salaries $ 144K under • Employee Benefits $ 29K over • Savings and Retirement Costs $ 77K under • Travel $ 49K under • Investment Income $ 27K under Major Activities in 2018 • 2017 Financial Audit completed March 22, 2018 • 2019 Business Plan and Budget • Assessment Stabilization – 5 year projection • 2017 Actual Cost to Budget Comparison Report • Hire Finance and Accounting Manager • Implement a Corporate Fraud Policy and Procedure • 990 Tax Report – Due May 15th/November 15th
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Presentation – Final 2019 Business Plan and Budget 2019 Business Plan and Budget
Ray Palmieri, Senior Vice President and Treasurer May 24, 2018 Cleveland, OH 2019 Budget Overview
Total 2019 Budget: $22,648,458
Total 2019 Budget Change vs 2018 5.86% $1,254,558 • Personnel Expense 6.35% $1,139,231 • Operating and Fixed Asset 3.33% $115,326
Total 2019 Assessment: $21,255,831
• Assessment Change 5.5% $1,108,124
Total 2019 FTEs: 78.2
• 2019 FTE Increase 2 FTEs • Budget includes 3 overlap FTEs
2 Forward Together • ReliabilityFirst 2019 Budget vs 2018 Budget
2019 Total Budget Increase: 5.86%; $1,254,558 • Personnel Expenses: 6.35%; $1,139,231 • Operating Expenses: 3.33%; $115,326
Personnel Expenses Total Change % of Budget From 2018 Increase Direct Salaries 5.4% $694,136 55.3% Merit Increases 3.0% Promotions 1.7% Intern Program .4% Payroll Taxes 5.5% $41,728 3.3% Medical Benefits 14.2% $228,184 18.2% Retirement Costs 5.3% $114,411 9.1% Operating Expenses Meeting 4.6% $13,825 1.1% Travel (4.9%) ($34,650) (2.7%) Contractors 35.5% $138,480 11.0% Data Warehouse 90,000 Penetration Testing/ Incident Response 100,000 Office Costs (2%) $16,587 (1.3%) Professional Services 3% $12,277 1% Fixed Assets (2.2%) ($4,500) (.4%) Only includes major expenses
3 Forward Together • ReliabilityFirst FTE Supporting Information
All departments have performed man-hour analyses and advanced efficiencies through Value Stream Mapping
Management has reallocated, shared, and leveraged a matrix approach to maximize capacity of existing staff
Enforcement continues to prioritize timely disposition of noncompliance’s and quality support of Registered entities • CIP V5 impact and future revisions • Complexity of noncompliance’s • Proactive targeted entity outreach • Risk based data analysis and trend identification
IT staff demands continue to expand with Risk Based approach and ERO Initiatives • Security advancement • Data Warehouse initiative and analytics • Business Intelligence advancement • Database administration • Staff increases • Increased technological demands
4 Forward Together • ReliabilityFirst Recruitment Strategy
In 2019, 13% of RF staff at or over retirement age
Proactive recruitment approach • Managing risk of vacancies • Delays in recruitment and training of talent • Presently available SPP talent “ready to go”
Less availability of “ready to go” talent • Internal prioritization of skillset/organization needs • Targeted knowledge transfer approach
Talent Overlap strategy • 3 FTE overlap hires (2 in Q3 2018; 1 in Q2 2019)
Budget Impact • $180K • Increase of .8%
5 Forward Together • ReliabilityFirst Assessment Stabilization Trend
$3,500,000 $30,000,000 $29,500,000 $29,000,000 $28,500,000 $3,000,000 $28,000,000 $27,500,000 $27,000,000 $2,500,000 $26,500,000 $26,000,000 $25,500,000 $2,000,000 $25,000,000 $24,500,000 $24,000,000 $23,500,000 $1,500,000 $23,000,000
$22,500,000 ASSESSMENT AND BUDGET
WORKING CAPITAL RESERVE CAPITAL WORKING $22,000,000 $1,000,000 $21,500,000 $21,000,000 $20,500,000 $20,000,000 $500,000 $19,500,000 $19,000,000 $18,500,000 $0 $18,000,000 2016 2017 2018 2019 2020 2021 2022 2023
Working Capital Reserve at December 31 Total Budget Total Assessment
6 Forward Together • ReliabilityFirst Regional Cost per Registered Entity
Region 2015 2016 2017 2018 2019 Budget # RE Cost Budget # RE Cost Budget # RE Cost Budget # RE Cost Budget # RE Cost per RE per RE per RE per RE per RE FRCC $7,162,233 68 105,327 $7,261,527 66 110,023 $7,177,854 47 152,720 $7,514,112 40 187,853 $6,695,787 40 167,395 MRO $10,328,687 135 76,509 $11,354,641 98 115,864 $11,226,670 94 119,433 $11,726,736 119 98,544 $15,980,354 119 134,289 NPCC $14,778,539 302 48,936 $15,152,837 220 68,877 $15,147,054 212 71,448 $15,106,967 213 70,925 $15,802,955 213 74,192 RF $18,756,763 330 56,839 $19,367,209 228 84,944 $19,908,939 227 87,705 $21,393,899 241 88,771 $22,648,458 246 92,067 SERC $15,995,840 236 67,779 $15,706,004 191 82,230 $17,482,403 192 91,054 $17,182,868 198 86,782 $18,144,949 198 91,641 TRE $11,983,701 222 53,981 $11,782,215 229 51,451 $12,167,258 197 61,763 $12,656,953 215 58,870 $13,069,599 216 60,507 WECC $26,300,035 458 57,424 $27,384,957 349 78,467 $26,796,928 353 75,912 $27,097,344 373 72,647 $26,950,566 372 72,448
Regional Cost Comparison Per Registered Entity 200,000 180,000 2015 2016 2017 2018 2019 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - FRCC MRO NPCC RF SERC TRE WECC
7 Forward Together • ReliabilityFirst Regional Entity Budget Change
40.00% 36.27%
30.00%
20.00%
10.00% 5.86% 5.60% 4.61% 3.26%
0.00% FRCC MRO NPCC RF SERC TRE WECC -0.54%
-10.00% -10.89%
2015 Budget 2016 Budget 2017 Budget 2018 Budget 2019 Budget -20.00%
8 Forward Together • ReliabilityFirst NERC and Regional 2019 Budget and Assessment (Preliminary)
50.0%
40.0%
30.0%
20.0%
10.0%
0.0% NERC FRCC MRO NPCC RF SERC TRE WECC
-10.0%
-20.0% 2019 Budget Change 2019 Assessment Change
9 Forward Together • ReliabilityFirst 2020 and 2021 Projections
Budget Projections 2020 2021 Personnel Expense 4.3% 6.9% • Wages: 3%; Market Adjustments/Promotions: 1% x x • Medical/Dental/Vision Premiums: 15% /8% /8% x x • 2 Positions from 2020 - x Meeting Expense 1.0% 1.0% Travel Expense 2.5% 2.5% Operating Expense 4.6% (2.5%) • Search for Board - $100K x x New Line Items • Office Modifications - $200K x - • CMEP Data Migration - $100K x x • Situation Awareness Software - $30K x - Projected Budget Low Range 5.6% 4.5% Additional Budget Items Personnel Expense 7.3% 9.9% • 2 Positions CIP EASA/Entity Development • Aging Workforce Initiative - $200K x x Projected Budget Range 5.6% to 8.2% 4.5% to 7.0%
10 Forward Together • ReliabilityFirst 2019 Business Plan and Budget
No comments received from RF posting Minor comments from NERC Legal and Staff • All incorporated Pending no comments to date from NERC public posting June 2018 • Board conference call ONLY if any comments are received from NERC posting and deemed material by Executive Management and Finance and Audit Committee Chair. June 28, 2018 • Submit to NERC August 24, 2018 • NERC submit to FERC
11 Forward Together • ReliabilityFirst Requested Board Action
The Board of Directors adopt Resolution No. 2018-03 to approve the 2019 Business Plan and Budget, to be dated June 2018, and authorize its submittal to NERC and FERC for their approval.
12 Forward Together • ReliabilityFirst Questions & Answers Forward Together ReliabilityFirst
Forward Together • ReliabilityFirst Separator Page
2019 Business Plan and Budget
RELIABILITYFIRST CORPORATION 2019 BUSINESS PLAN AND BUDGET
MAY 24, 2018
Table of Contents Introduction ...... 4 Organizational Overview ...... 4 Membership and Governance...... 5 2019 Key Assumptions ...... 5 2019 Key Deliverables ...... 6 2019 Overview of Budget ...... 7 Summary of Budget by Program Area ...... 9 2019 Versus 2018 Cost Allocation by Program Summary of Expenses ...... 9 FTEs by Program Area ...... 10 2018 Budget and Projection and 2019 Budget Comparisons ...... 11 Section A: Statutory Programs ...... 12 Reliability Standards Program ...... 13 Compliance Monitoring and Enforcement, and Organization Registration and Certification Program ...... 15 Reliability Assurance ...... 17 Compliance Monitoring ...... 21 Enforcement ...... 27 Reliability Assessment and Performance Analysis Program ...... 32 Training, Education, and Operator Certification Program ...... 36 Situation Awareness and Infrastructure Security Program ...... 40 Administrative Services ...... 46 General and Administrative ...... 48 Legal and Regulatory Affairs ...... 49 Information Technology ...... 51 Human Resources ...... 54 Finance and Accounting ...... 56 Section B: Supplemental Financial Information ...... 58 Table B-1: Working Capital and Operating Reserve Analysis ...... 59 Table B-2: Penalty Sanctions Received ...... 60 Table B-3: Supplemental Funding ...... 61 Table B-4: Personnel Expenses ...... 62 Table B-5: Meeting Expenses ...... 63 Table B-6: Consultants and Contracts ...... 64
ReliabilityFirst 2019 Business Plan and Budget: Final Version 2
Table B-7: Office Rent ...... 64 Table B-8: Office Costs...... 65 Table B-9: Professional Services ...... 66 Table B-10: Miscellaneous ...... 66 Table B-11: Non-Operating Expenses ...... 66 Table B-12: Fixed Assets ...... 68 Table B-13: 2020 and 2021 Projections ...... 69 Section C: Non-Statutory Activities...... 73
Section D: Additional Consolidated Financial Statements ...... 74 2019 Consolidated Statement of Activities by Program...... 75 Statement of Financial Position ...... 76 Appendix A: 2018 – 2019 Organization Chart ...... 77
ReliabilityFirst 2019 Business Plan and Budget: Final Version 3
Introduction Introduction The following table summarizes ReliabilityFirst Corporation’s (ReliabilityFirst) budget for 2019.
2019 Budget (in whole dollars) U.S. Canada Mexico Statutory FTEs 78.2 Non-statutory FTEs - Total FTEs 78.2 Statutory Expenses $ 22,904,361 Non-Statutory Expenses $ - Total Expenses $ 22,904,361 Statutory Inc(Dec) in Fixed Assets $ (255,903) Non-Statutory Inc(Dec) in Fixed Assets $ - Total Inc(Dec) in Fixed Assets $ (255,903) Statutory Working Capital Requirement $ (1,015,412) Non-Statutory Working Capital Requirement $ - Total Working Capital Requirement $ (1,015,412) Total Statutory Funding Requirement $ 21,633,046 Total Non-Statutory Funding Requirement $ - Total Funding Requirement $ 21,633,046
Statutory Funding Assessments $ 21,255,831 $ 21,255,831 $ - $ - Non-Statutory Fees $ - $ - $ - $ - NEL (MWH) - - - - NEL% 100% 100% 0% 0% Organizational Overview ReliabilityFirst is a not-for-profit company incorporated in the State of Delaware and authorized by the Federal Energy Regulatory Commission (FERC) to operate as a Regional Entity. ReliabilityFirst is responsible for promoting and improving the reliability of the Bulk Electric System (BES) in all or parts of thirteen states and the District of Columbia. As a Regional Entity, ReliabilityFirst performs key reliability functions delegated to it by the Electric Reliability Organization (ERO), the North American Electric Reliability Corporation (NERC). These include:
• Active participation in the development of North American Reliability Standards for the Bulk Electric System (BES), and as needed, development of Reliability Standards applicable within the ReliabilityFirst Region. • Monitoring and enforcement of approved Reliability Standards, including the registration of responsible entities, and as needed, certification of such entities. • Assessment of the present and future reliability, resiliency, security, and risks of the BES. • Promoting effective training and education of personnel and entities. • Promoting situational awareness and the protection of critical infrastructure.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 4
Introduction ReliabilityFirst intends to perform only the functions delegated to it by the ERO in 2019. Membership and Governance
Members ReliabilityFirst has an open membership policy that permits participation of all industry stakeholders through their designated representatives. There are six (6) Industry Sectors: Suppliers, Transmission Companies, Regional Transmission Organizations (RTOs), Small Load Serving Entities (LSEs), Medium LSEs, and Large LSEs. There are three (3) Classes of Members: Regular Members, Associate Members, and Adjunct Members (an Associate Member is an affiliate or related party of a Regular Member, and an Adjunct Member is an entity that does not qualify to join an Industry Sector but has been approved for membership).
There are currently 58 Members of ReliabilityFirst; 42 are Regular Members with voting rights, 6 are Associate Members, and 10 are Adjunct Members. ReliabilityFirst’s foundation has been and continues to be the broad, active participation of volunteer technical and policy experts representing electricity industry stakeholders within the Region who are committed to the reliability, security, and resiliency of the BES. ReliabilityFirst believes that partnering with industry expert resources, combined with a competent and independent ReliabilityFirst staff, provides a cost effective approach that is consistent with the industry self-regulatory model envisioned by Congress in the Energy Policy Act of 2005.
Board of Directors ReliabilityFirst is governed by a hybrid, independent, and balanced stakeholder Board that consists of 14 directors.
• Eight (8) directors are elected by the Industry Sectors as follows:
o Suppliers elect two (2) directors; o Transmission Companies elect two (2) directors; o RTOs elect one (1) director; o Small LSEs elect one (1) director; o Medium LSEs elect one (1) director; and o Large LSEs elect one (1) director. • Three (3) directors are at-large. At-large directors are elected by all of the Industry Sectors voting together as a single class. • Three (3) directors are independent from ReliabilityFirst, any Member, Affiliate or Related Party of any Member. Independent directors are elected by all of the Industry Sectors voting together as a single class. 2019 Key Assumptions The NERC and Regional Entity business plans and budgets reflect a set of strategic and operating objectives developed jointly by NERC and the Regional Entities. These strategic and operating
ReliabilityFirst 2019 Business Plan and Budget: Final Version 5
Introduction objectives are set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan1. 2019 Key Deliverables • Promote a culture that addresses reliability risks across the ReliabilityFirst Region and the ERO.
o Ensure that the industry understands the essential reliability purpose of Reliability Standards and the corresponding expectations for those Reliability Standards.
o Work with the industry to maintain and continuously improve effective risk control programs for reliability, security, and resiliency.
o Use efficient processes and proportional exercise of discretion to verify that the industry meets reliability objectives. • Identify the risks to reliability in the ReliabilityFirst Region.
o Identify, understand, and prioritize risks based on reliability impacts, projected resources, and emerging issues.
o Analyze events and system performance consistently to determine sequence, cause, and remediation. Identify reliability risks and trends to define reliability, resiliency, and security related activities.
o Ensure that the industry is well informed of emerging trends, risk analysis, lessons learned, and expected actions. • Mitigate reliability risks.
o Ensure that the industry understands identified risks and addresses them promptly and effectively.
o Facilitate information sharing among the industry, Regions, ERO, and government. o Work with the ERO to track industry accountability for critical reliability recommendations. • Communicate reliability risks.
o Communicate identified and prioritized risks and mitigation strategies to the ERO Enterprise, across the ReliabilityFirst footprint, and/or to targeted entities, as appropriate.
o Share staff expertise and leverage the expertise of ReliabilityFirst entities to advance industry practices surrounding risk identification, mitigation, and prevention. • Promote a culture of reliability excellence, and facilitate and encourage continuous improvement through training and education.
1 See, ERO Enterprise Long-Term Strategy and ERO Enterprise Operating Plan.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 6
Introduction • Ensure useful and reliable data modeling. Verify that the data represents system behavior accurately. Facilitate data sharing among entities. • Serve as a leading resource to industry and policy makers to supply reliability information. • Serve as an independent, objective, and fair compliance monitoring and enforcement authority, without conflicts of interest.
o Register entities commensurate to the risk they pose to the BES and ensure that all key entities are certified to have essential capabilities.
o Ensure that all compliance monitoring and enforcement activities are risk-based, reliability-focused, and adhere to the requirements of the ReliabilityFirst delegation agreement and the Risk Based Compliance Monitoring and Enforcement Program.
o Ensure that all violations of mandatory Reliability Standards are mitigated in a timely, thorough, and comprehensive manner to prevent reoccurrence. • Improve transparency, consistency, quality and timeliness of results; collaborate with NERC and the other Regions; improve efficiencies and cost effectiveness.
o Identify, understand, and manage internal risks. o Ensure processes are effective, efficient, and continually improving. 2019 Overview of Budget This Business Plan and Budget reflects ReliabilityFirst’s best estimate of the costs it will incur in carrying out its delegated functions in support of the ERO in 2019. Overall, the ReliabilityFirst 2019 budget of $22,648,458 increased 5.86% over the 2018 budget of $21,393,899. The 2019 assessment of $21,255,831 represents a 5.5% increase over the 2018 assessment of $20,147,707.
Personnel costs increased by $1,139,233, an increase of 6.4% over the 2018 budget. Incorporated into the personnel costs are 2 additional Full Time Equivalent (FTEs), a 3% general wage increase, and a 15% medical premium increase. For 2019, ReliabilityFirst did not include a personnel vacancy rate because the corporation has recently reached full staffing levels and operates with a turnover rate well below 5%. Any remaining personnel dollars resulting from vacancies could be used to fund the company’s recruitment activities to attract necessary employee candidates.
The meetings, operating and fixed asset costs of $3,580,236 increased by 3.3% over the 2018 budget of $3,464,909.
The ReliabilityFirst Board has approved a $1,000,000 operating reserve for 2019, which is the same level that existed in 2018. This level of operating reserve is believed to be sufficient for any unbudgeted and unexpected expenditures of the organization, and is consistent with Board Policy.
The ReliabilityFirst Board also approved a decrease in the working capital reserve. Historically, the working capital reserve has consisted of the amount necessary to satisfy projected cash flow for daily operations. In concert with the ERO Enterprise wide effort to better manage and stabilize
ReliabilityFirst 2019 Business Plan and Budget: Final Version 7
Introduction assessments, the working capital reserve is managed to include additional funds that will be used to enhance day to day cash flow management of expenditures, while providing the capability to stabilize future assessments. The operating and working capital reserves have been differentiated to enable more granular identification and control in the utilization and monitoring of these funds in the appropriate manner.
The executive management group for NERC and the Regional Entities (known as the ERO EMG) concentrates on various initiatives to improve efficiency and consistency across NERC and the Regional Entities, including the development of enterprise-wide applications. As enterprise-wide projects are identified and prioritized by the ERO EMG, they are managed at NERC. ReliabilityFirst assumes agreed upon ERO Enterprise wide applications will be available, and has only included appropriate funding for applications and supporting systems necessary to satisfy its business needs that are not within the mutually agreed upon scope of the ERO Enterprise wide applications funded by NERC.
In the development of each annual Business Plan and Budget, ReliabilityFirst examines projected workload using the operating and strategic objectives referenced above and conducts a manpower analysis to determine staffing levels required to complete necessary tasks and meet the obligations of the Regional Delegation Agreement. The manpower analysis for 2019 yielded a requirement of 84.4 FTEs in order to fully address the expected workload.
Although ReliabilityFirst’s manpower analysis justifies a need for 84.4 FTEs, its philosophy is to seek and achieve greater efficiencies in its tasks and workload each year. On this basis, ReliabilityFirst believes a staffing level of 78.2, which includes 2 additional FTE’s, will be sufficient to perform its work. The need for these additional FTE’s are described in the Information Technology and Enforcement sections below.
ReliabilityFirst will continue to ensure enhancements are being made in many process areas and that the maturation of the organization will continue to result in expected efficiency improvements.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 8
Introduction Summary of Budget by Program Area The following table and figure summarize and illustrate ReliabilityFirst’s budget by program area.
Variance Budget Projection Budget 2018 Budget v Program 2018 2018 2019 2019 Budget Variance %
Reliability Standards - - - - 0.00% Reliability Assurance and Compliance Monitoring 13,622,989 13,622,989 13,908,238 285,249 2.09% Enforcement 2,337,124 2,106,600 2,177,382 (159,742) -6.83% Reliability Assessments and Performance Analysis 2,929,290 2,852,449 2,895,671 (33,619) -1.15% Training, Education and Operator Certification 1,019,452 1,019,452 1,214,414 194,962 19.12% Situation Awareness and Infrastructure Security 1,485,044 1,792,409 2,452,752 967,708 65.16% Total 21,393,899 21,393,899 22,648,458 1,254,559 5.86% 2019 Versus 2018 Cost Allocation by Program Summary of Expenses
ReliabilityFirst 2019 Business Plan and Budget: Final Version 9
Introduction FTEs by Program Area
Total FTEs Change Budget Projection 2019 from 2018 Total FTEs by Program Area 2018 2018 Budget Budget STATUTORY
Operational Programs Reliability Standards 0.00 0.00 0.00 0.00 Reliability Assurance and Compliance Monitoring 37.00 37.00 37.00 0.00 Enforcement 8.25 6.00 7.00 -1.25 Reliability Assessment and Performance Analysis 8.35 7.60 7.60 -0.75 Training and Education 3.00 3.00 3.00 0.00 Situation Awareness and Infrastructure Security 4.00 7.00 7.00 3.00
Total FTEs Operational Programs 60.60 60.60 61.60 1.00
Administrative Programs General & Administrative 3.00 3.00 3.00 0.00 Legal and Regulatory Affairs 2.00 3.00 3.00 1.00 Information Technology 5.00 5.00 6.00 1.00 Human Resources 3.00 2.00 2.00 -1.00 Finance and Accounting 2.60 2.60 2.60 0.00
Total FTEs Administrative Programs 15.60 15.60 16.60 1.00
Total FTEs 76.20 76.20 78.20 2.00 For an explanation of the variances, refer to the Resource Requirements section in each program area in Section A.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 10
Introduction 2018 Budget and Projection and 2019 Budget Comparisons The following table lists the 2018 budget and projection compared to the 2019 budget.
2018 Budget and Projection, and 2019 Budget STATUTORY Variance Variance 2018 Projection 2019 Budget 2018 2018 v 2018 Budget 2019 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) Funding ReliabilityFirst Funding ReliabilityFirst Assessments $ 20,147,707 $ 20,147,707 $ - $ 21,255,831 $ 1,108,123 Penalty Sanctions 1,912,877 1,912,877 - 327,215 (1,585,662) Total ReliabilityFirst Funding $ 22,060,585 $ 22,060,585 $ - $ 21,583,046 $ (477,539)
Membership Dues $ - $ - $ - $ - $ - Federal Grants - - - - - Services & Software - - - - - Workshops - - - - - Interest 50,000 50,000 (0) 50,000 - Miscellaneous - - - - - Total Funding 22,110,585 22,110,585 (0) 21,633,046 (477,539)
Expenses Personnel Expenses Salaries $ 12,975,641 $ 12,975,641 $ - $ 13,701,387 $ 725,746 Payroll Taxes 765,357 765,357 - 807,085 41,728 Benefits 2,049,654 2,049,654 - 2,307,002 257,347 Retirement Costs 2,138,337 2,138,337 - 2,252,748 114,411 Total Personnel Expenses $ 17,928,989 $ 17,928,989 $ - $ 19,068,222 $ 1,139,233
Meeting Expenses Meetings $ 300,375 $ 300,375 $ - $ 314,200 $ 13,825 Travel 713,250 713,250 - 678,600 (34,650) Conference Calls 50,400 50,400 - 52,200 1,800 Total Meeting Expenses $ 1,064,025 $ 1,064,025 $ - $ 1,045,000 $ (19,025)
Operating Expenses Consultants & Contracts $ 390,132 $ 390,132 $ - $ 528,612 $ 138,480 Office Rent 519,595 519,595 - 521,086 1,491 Office Costs 831,717 831,717 - 815,130 (16,587) Professional Services 411,245 411,245 - 423,522 12,277 Miscellaneous 40,696 40,696 - 43,886 3,190 Depreciation 373,325 373,325 - 458,903 85,578 Total Operating Expenses $ 2,566,709 $ 2,566,709 $ - $ 2,791,139 $ 224,429
Total Direct Expenses $ 21,559,724 $ 21,559,724 $ - $ 22,904,361 $ 1,344,637
Indirect Expenses $ - $ - $ - $ - $ -
Other Non-Operating Expenses $ - $ - $ - $ - $ -
Total Expenses $ 21,559,724 $ 21,559,724 $ - $ 22,904,361 $ 1,344,637
Change in Assets $ 550,861 $ 550,861 $ (0) $ (1,271,315) $ (1,822,176)
Fixed Assets Depreciation (373,325) (373,325) - (458,903) (85,578) Computer & Software CapEx 207,500 207,500 - 180,000 (27,500) Furniture & Fixtures CapEx - - - - - Equipment CapEx - - - - - Leasehold Improvements - - - 23,000 23,000 $ (165,825) $ (165,825) $ - $ (255,903) $ (90,078)
Allocation of Fixed Assets $ - $ - $ 0 $ - $ -
Inc/(Dec) in Fixed Assets $ (165,825) $ (165,825) $ 0 $ (255,903) $ (90,078)
Total Budget $ 21,393,899 $ 21,393,899 $ 0 $ 22,648,458 $ 1,254,559
Change in Working Capital $ 716,687 $ 716,686 $ (0) $ (1,015,412) $ (1,732,098)
FTEs 76.20 76.20 - 78.20 2.00
ReliabilityFirst 2019 Business Plan and Budget: Final Version 11
Section A: Statutory Programs
Section A – Statutory Programs Reliability Standards Program Reliability Standards Program
Reliability Standards Program (in whole dollars) Increase 2018 Budget 2019 Budget (Decrease) Total FTEs 0.00 0.00 0.00 Direct Expenses $ - $ - $ - Indirect Expenses $ - $ - $ - Inc(Dec) in Fixed Assets $ - $ - $ - Total Funding Requirement $ - $ - $ - Program Scope and Functional Description ReliabilityFirst provides input to the NERC Reliability Standards development process to help ensure the Standards adequately mitigate the risks they are intended to address, particularly those risks facing the ReliabilityFirst footprint. ReliabilityFirst also may develop Regional Reliability Standards as necessary. ReliabilityFirst Standards must be developed in accordance with the ReliabilityFirst Reliability Standards Development Procedure and must be more stringent than a NERC Reliability Standard, addressing a regional matter that the NERC Reliability Standard does not, or a regional difference necessitated by a physical difference in the BES.
ReliabilityFirst may also develop regional criteria, which are good utility practices used to enhance the reliability of the BES and may augment Reliability Standards. Regional criteria are not Reliability Standards, and therefore are not enforceable. ReliabilityFirst regional criteria are developed in accordance with the ReliabilityFirst Reliability Standards Development Procedure.
2019 Key Assumptions The Reliability Standards Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan.
ReliabilityFirst previously reallocated the resources and expenses associated with the Reliability Standards Program to the Reliability Assurance and Compliance Monitoring Program, due to decreased activity in the Reliability Standards Program. If ReliabilityFirst needs to develop any Reliability Standard or regional criteria, ReliabilityFirst will temporarily redeploy the necessary resources from the existing Reliability Assurance and Compliance Monitoring and Reliability Assessment and Performance Analysis Programs.
2019 Key Deliverables • Review and provide feedback on potential reliability, security, or resiliency concerns associated with NERC Reliability Standards and RSAWs under development. • Although none are anticipated, submit to NERC, and subsequently file with FERC any new Regional Reliability Standards that:
o May be needed to support revised NERC Reliability Standards.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 13 Section A – Statutory Programs Reliability Standards Program
o May address reliability gaps not currently covered by NERC Reliability Standards. • Although none are anticipated, submit to ReliabilityFirst Board any new regional criteria that:
o Address issues not within the scope of NERC Reliability Standards. o Promote more consistent implementation of a NERC Reliability Standard within the Region. • Initiate and coordinate revisions to Regional Reliability Standards or regional criteria in any stage of development to align with NERC and FERC requirements.
o Support for enhanced periodic reviews focused on conducting measured, in-depth reviews to further improve Reliability Standards.
o Support for ERO activities necessary to incorporate Regional Reliability Standards into continent-wide Standards.
o Retire Regional Reliability Standards and regional criteria that are duplicative with NERC Reliability Standards or no longer needed for reliability.
Resource Requirements • Personnel No increase in personnel is budgeted in this year. • Contractors and Consultants No contractor or consultant support is budgeted in this year.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 14 Section A – Statutory Programs Compliance Monitoring and Enforcement, and Organization Registration and Certification Programs
Compliance Monitoring and Enforcement, and Organization Registration and Certification Program
Compliance Monitoring, and Enforcement, and Organization Registration and Certification Program (in whole dollars) Increase 2018 Budget 2019 Budget (Decrease) Total FTEs 45.25 44.00 (1.25) Direct Expenses $ 11,311,462 $ 11,269,889 $ (41,574) Indirect Expenses $ 4,760,031 $ 4,986,395 $ 226,363 Inc(Dec) in Fixed Assets $ (111,381) $ (170,663) $ (59,282) Total Funding Requirement $ 15,960,112 $ 16,085,620 $ 125,508
Program Scope and Functional Description The Compliance Monitoring and Enforcement, and Organization Registration and Certification Program performs a variety of risk-based and dynamic activities to identify, communicate, and mitigate reliability, security and resiliency risks facing the ReliabilityFirst footprint. To achieve maximum effectiveness and consistency, ReliabilityFirst has delineated the responsibility to execute the Compliance Monitoring and Enforcement, and Organization Registration and Certification Program among three coordinated groups: Reliability Assurance, Compliance Monitoring, and Enforcement.
The Reliability Assurance group performs activities to drive continuous improvement; assess risk; and scope compliance monitoring and enforcement activities in accordance with risk. These activities, discussed in further detail in the Reliability Assurance section, include: (1) conducting Inherent Risk Assessments to assess the risk posed by each entity and help determine the scope of compliance monitoring activities; (2) conducting Internal Controls Evaluations to drive continuous improvement and refine the scope of compliance monitoring activities, based upon the maturity of the entity’s internal controls; (3) conducting industry training and education; (4) developing lessons learned and identifying key trends to share with the industry; (5) performing registration and certification activities; and (6) conducting risk assessments and supporting mitigation plan activities associated with noncompliances.
The Compliance Monitoring group monitors compliance to the NERC Reliability Standards (Reliability Standards) across 243 registered owners, operators, and users of the BES through a variety of risk-based activities. These monitoring activities are key to reliability, as they ensure that entities have effective controls in place and are following the requirements of the Reliability Standards. These activities, discussed in further detail in the Compliance Monitoring section, include compliance audits, spot checks, guided self-certifications, investigations, assessing complaints, and assessing system events from a reliability and compliance perspective to identify and ensure the mitigation of potential risks.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 15 Section A – Statutory Programs Compliance Monitoring and Enforcement, and Organization Registration and Certification Programs
The Enforcement group is responsible for performing ReliabilityFirst’s delegated function to enforce, where necessary, compliance with the Reliability Standards. These efforts, discussed in further detail in the Enforcement section, involve ensuring that the selected disposition method for any noncompliance is (1) clearly communicated; (2) appropriately supported by the record in light of the risk posed by the noncompliance; and (3) promotes the desired entity behavior. The Enforcement group focuses on understanding the risks behind each noncompliance and how to effectively mitigate those risks, as well as sending the appropriate message to the noncompliant entity and the broader regulated community (whether deterrent-driven for undesired behavior or incentive-driven for desired behavior).
Major activities for the Reliability Assurance, Compliance Monitoring, and Enforcement groups include the continued implementation of the Risk-Based Compliance Monitoring and Enforcement Program, and efforts connected to the continuing transition to the CIP Version 5 Standards (CIP V5) and future revisions. These are joint ERO Enterprise level initiatives that benefit NERC, the Regional Entities, and the Registered Entities.
A detailed Program Scope and Functional Description for the Reliability Assurance, Compliance Monitoring, and Enforcement groups, as well as the Key Assumptions and Deliverables for each of these groups, can be found in their respective sections below.
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Reliability Assurance and Compliance Monitoring (in whole dollars) Increase 2018 Budget 2019 Budget (Decrease) Total FTEs 37.00 37.00 0.00 Direct Expenses $ 9,819,591 $ 9,854,668 $ 35,077 Indirect Expenses $ 3,892,180 $ 4,193,105 $ 300,924 Inc(Dec) in Fixed Assets $ (88,783) $ (139,535) $ (50,752) Total Funding Requirement $ 13,622,989 $ 13,908,238 $ 285,249 Reliability Assurance
Program Scope and Functional Description The activities performed by the Reliability Assurance group include: Inherent Risk Assessments (identifying risks impacting an entity); Internal Controls Evaluations (evaluating the effectiveness of entity internal controls around specific Standards and Requirements); Management Practice Appraisals (evaluating an entity’s capability in key management practice areas); and Assist Visits (tailored training centered on the needs of the entity). The group’s activities also include organization registration and certification activities; mitigation plan acceptance, approval, and verification; processing and assessment of periodic data submittals; winter preparedness evaluations; risk-harm analysis of non-compliances and participating in the review of self-logged minimal risk issues; creating compliance oversight plans to align monitoring activities with potential risks; providing industry training; BES Definition Exception Process activities; and serving as a technical resource for the Corporation.
2019 Key Assumptions The Reliability Assurance group incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan. The Reliability Assurance group also includes the following regional assumptions: 1. Inherent Risk Assessment and Internal Controls Evaluation activities are expected to increase with the ongoing implementation of the Risk-Based Compliance Monitoring and Enforcement Program. This implementation includes completing Inherent Risk Assessments for all Registered Entities, implementing refinements to the Internal Controls Evaluation process and conducting Internal Controls Evaluations upon request by an entity, and ensuring that compliance oversight plans address emerging risks to reliability and are tailored to the inherent risks posed by specific entities.
2. Monitoring and management of compliance monitoring and enforcement metrics in support of NERC’s Strategic Plan and Oversight Program is expected to continue.
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3. The Multi-Regional Registered Entity (MRRE) process expanded in 2018 and is expected to continue maturing in 2019. To date, ReliabilityFirst has been designated Lead Region for 12 MRRE Groups encompassing 41 entities, and Affected Region for 13 MRRE Groups encompassing 78 entities. It is anticipated, taking into account ReliabilityFirst’s location and impact on the eastern interconnection, that ReliabilityFirst may be designated as the Lead Region for additional MRREs. The expansion of the MRRE program has increased the workload associated with coordinating compliance monitoring and enforcement processes under the MRRE process.
4. In accordance with FERC’s Order approving NERC’s Risk-Based Registration Initiative, registration staff continues to participate in the NERC-led review panels described in the NERC ROP, Appendix 5A, Section III.D.
5. Assist Visits, Management Practice Appraisals, and Internal Controls Evaluations will continue to take place to collaboratively assist an entity’s drive for continuous improvement and reliability excellence and its capability in key management practice areas. There was continued high demand for Assist Visits in 2017 and 2018, most of which focused on the transition to and implementation of the CIP V5 Standards. The demand for Assist Visits, including requests for onsite Assist Visits at entity offices, is expected to continue and potentially expand in 2019.
6. ReliabilityFirst has seen an increase in “Extended Assist Visits” in 2018, to support entities who have experienced major challenges related to Reliability Standards compliance or program implementation. These Extended Assist Visits require resource commitments beyond a normal Assist Visit, and can consist of multiple meetings and visits to the entity spread over the course of six to twelve months. These Extended Assist Visits are expected to continue and potentially increase in 2019.
7. There will be an effort to ensure that a specific risk targeted by a particular Reliability Standard is being adequately addressed (i.e., whether the Reliability Standard as written, monitored and enforced for compliance, is effectively mitigating the identified risk.)
8. Work with NERC will continue on the development of educational materials for Registered Entities regarding the Risk-Based Compliance Monitoring and Enforcement Program, Risk-Based Registration, and new and revised Reliability Standards.
9. There will be continued ERO Enterprise-wide collaboration and implementation of consistent risk-based compliance monitoring and enforcement practices and new tools.
2019 Key Deliverables • Process all registration requests and implement the Risk-Based Registration Initiative. • Process BES Exception Requests submittals. • Provide technical assessment of periodic data submittals.
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• Provide technical subject matter expertise and support for compliance monitoring and enforcement activities, regional outreach activities, and other initiatives as identified within ReliabilityFirst and/or the ERO. • Support the development and integration of advanced analytical capabilities for identifying and determining reliability risks, and conducting various risk assessments (i.e. Regional Risk Assessments, Inherent Risk Assessments, Risk-Harm Assessments, and explorative Probabilistic Risk Assessment). • Support ERO Enterprise-wide data collection and analysis efforts. • Participate in the annual Winter Preparedness program designed to help ensure the readiness of generating units to perform during extreme cold weather. • Support the ongoing implementation of the Risk-Based Compliance Monitoring and Enforcement Program, with a focus on the ongoing assessment of ReliabilityFirst Regional Risk Elements, and maturation of the Inherent Risk Assessment and Internal Controls Evaluation processes. • Support development of the annual CMEP implementation Plan with a focus on Risk Elements and alignment of Areas of Focus. • Perform Inherent Risk Assessments of entities in alignment with the ERO Guide for Compliance Monitoring to define the scope, recommended process (e.g., audit, spot check, guided self-certification), and interval of compliance monitoring activities for a given entity. • Conduct risk-harm assessments and develop associated risk statements for all possible noncompliances to assess the potential risk posed by each noncompliance and inform the proper enforcement action(s). • Perform mitigation plan activities in an effort to return entities to compliance and prevent reoccurrence by:
o Reviewing proposed mitigation plans and accepting those that contain effective corrective and preventative actions.
o Communicating with Enforcement and the entity throughout the mitigation plan review process to ensure defined corrective and preventative actions will mitigate the noncompliance.
o Verifying mitigation plan completion through the evaluation of evidence provided by the entity to demonstrate that agreed-to actions have been implemented according to established milestones.
o Conducting outreach activities to help entities move beyond baseline compliance. • Perform reviews of self-logged non-compliances, submitted quarterly by entities granted logging privileges, to assess the non-compliances and their associated risk determinations and mitigating activities.
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• Support the development, training, and outreach for entities to continue successful transition to the CIP V5 Standards. • Perform Assist Visits, facilitate and support regional workshops, and support monthly “open” reliability and compliance calls to educate entities on reliability and compliance topics. • Support the integration and use of the ERO Enterprise Learning Management System. • Assist NERC with the coordination, planning, delivery, and management of training and outreach activities across the ERO Enterprise in concert with Region-specific training and outreach activities. • Participate in the ERO Enterprise staff learning development process through the ERO working groups and functional area program leaders.
Resource Requirements • Personnel As noted above in the 2019 Key Assumptions, the demand for Assist Visits and Extended Assist Visits is expected to continue and potentially expand in 2019. Additionally, the MRRE process expanded in 2018 and is expected to continue maturing in 2019. Coordination and workload associated with administering the program has increased in the Inherent Risk Assessments area under the MRRE process. ReliabilityFirst is not adding FTE’s in this area in 2019, but will monitor this area and will reassess whether to add FTE’s to this area in the 2020 Business Plan & Budget. Additionally, plans have been developed to overlap key personnel who have indicated they are near retirement, to allow for adequate knowledge transfer and training of their successors. The potential impact on the budget will be managed and monitored closely as these personnel commit to specific retirement dates. • Contractors and Consultants Contractor and/or consultant support is budgeted for 2019 to support risk and mitigation activities in the event workload exceeds available resources.
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Compliance Monitoring
Program Scope and Functional Description The activities performed by the Compliance Monitoring group to monitor and help ensure the reliability, security, and resiliency of the BES include: Operations and Planning (O&P) and Critical Infrastructure Protection (CIP) audits; guided self-certifications; investigations; spot checks; assessing complaints; assessing system events from a reliability and compliance perspective to identify and ensure mitigation of potential risks; assisting in the review, approval, and verification of mitigation plans for noncompliances identified during compliance monitoring activities; and managing Technical Feasibility Exceptions (TFEs). The group also serves as industry subject matter experts and technical resources for the Corporation.
2019 Key Assumptions The Compliance Monitoring group incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan. The Compliance Monitoring group also includes the following regional assumptions:
1. Assure reliability by monitoring compliance to the Reliability Standards through CMEP processes (e.g., audits, spot checks), using a risk-based approach, ensuring that all pre- audit, onsite or offsite, and post audit activities are completed per the established process and timelines.
2. Pursuant to the Risk-Based Compliance Monitoring and Enforcement Program, all entities will have an Inherent Risk Assessment completed to determine their Compliance Oversight Plans and the scope of their engagements. As required by the NERC ROP, Balancing Authority, Transmission Operator, and Reliability Coordinator audits will continue to occur on a three year cycle. For all other entities, ReliabilityFirst will evaluate the entity’s Inherent Risk Assessment results to determine if its engagement will continue, be delayed, or be replaced by an alternate compliance monitoring method.
3. NERC has instructed all the Regional Entities to perform Internal Controls Evaluations as part of the compliance monitoring engagement process. This will add time to the monitoring process and increase workload.
4. The implementation of the entity Compliance Oversight Plans has resulted in (and is expected to continue to result in) more frequent touch points across each calendar year, especially in the O&P area, and increased workload.
5. ReliabilityFirst will continue to implement the guidance and process steps contained in the ERO Auditor Handbook and Checklist, and support the continued use and development of ERO auditor tools. ReliabilityFirst will support the training requirements necessary to meet the criteria set forth by the ERO Auditor Manual and Handbook and the Compliance Auditor Capabilities and Competency Guide.
6. ReliabilityFirst and NERC will continue to collaborate and define ongoing training needs, priorities, and implementation schedules for the compliance staff. Through NERC training
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and other available training courses, ReliabilityFirst will provide the necessary training to continue to provide a credible, skilled, competent, and respected compliance monitoring staff.
7. ReliabilityFirst will continue to seek and implement initiatives to increase efficiencies and productivity. Staff will continue to collaborate with NERC as it develops an ERO Enterprise-wide audit management tool, which will improve the efficiency of monitoring processes and NERC oversight for all the Regions.
8. With the CIP V5 Standards in place, the ERO Enterprise continues to evaluate:
a. Whether the approved and ongoing changes in the CIP area will materially change the amount of rigor and time Regional Entities will need to spend on compliance monitoring activities for entities with High, Medium, and Low BES Assets, and BES Cyber Systems, including whether field visits will be required; and
b. Whether material changes or additions will be required by the Regional Entity and NERC outreach efforts to communicate requirements to these entities.
Results of this evaluation may impact the audit scope, regional resource requirements, and expectations that will need to be factored into future resource recommendations for the budget.
9. The increased complexity of the new CIP Standards, and the substantial increase of assets within scope for the CIP Standards has increased the workload for CIP auditors. Moreover, the time required to complete onsite CIP audit reviews often includes site and field visits, based on the scope of the audit and whether initial evidence provided is sufficient to substantiate that an entity is compliant. This has increased the time required for CIP audits, and has added workload in the CIP Monitoring area that is expected to continue. The supply chain management Reliability Standard that is currently being developed is also expected to add workload in the CIP Monitoring area.
The transition to the CIP V5 Standards has also resulted in an additional workload to provide outreach and training to entities owning Low Impact BES Cyber Systems who are new to the monitoring process; and to all entities on the effective implementation of the CIP Standards. Entity outreach is expected to be an ongoing need, given the increasing complexity and continually evolving nature of cybersecurity and the CIP Standards
10. A Technical Feasibility Exception (TFE) Task Force was formed to assure consistency in the administration of TFE requests and to support the preparation of the TFE annual report submitted to FERC. The immediate impact of required changes will be determined as the TFE Task Force moves forward. ReliabilityFirst will continue to support the TFE program with existing CIP staff and will monitor the impact, which will guide the development of any future resource recommendations.
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11. CIP Staff will support ERO and Regional outreach and training efforts including the NERC Security Reliability Program, CIP Small Group Advisory Sessions, ReliabilityFirst CIP Workshops, ReliabilityFirst CIP Focus Group Sessions, and CIP-related Assist Visits.
2019 Key Deliverables • Manage all compliance monitoring activities in a risk-based, fair, and consistent manner, affording all entities appropriate due process. • Conduct thorough and professional compliance audits consistently with all Regions through the incorporation of the Auditor Handbook and Checklist. Audit teams will consist of staff supplemented, when necessary, by independent contractors. • Prepare and distribute compliance monitoring process reports to NERC and Registered Entities. • Ensure all auditors receive adequate training and meet all NERC auditor training requirements. • Provide efficiencies in compliance monitoring processes through continued auditor training, development and enhancement of auditor tools, and process improvements. • Support outreach activities, including two reliability workshops, monthly "open" reliability and compliance calls, bimonthly newsletter articles, CIP V5 Outreach Workshops and training sessions, Assist Visits (as needed), and provide Registered Entity assistance as required. • CIP audits will be performed as separate audits from Operations/Planning audits unless agreed to otherwise between ReliabilityFirst and the audited entity. The number of CIP audits targeted for 2019 is defined below:
o 15 CIP audits of entities on the three year cycle (onsite). . These audits will be conducted on larger entities with High, Medium, and Low impact BES Cyber Systems.
o CIP audits of entities with only Low impact BES Cyber Systems will begin in 2019. Historically these audits have been performed as off-site engagements, but it is anticipated that a number of these entities will need to be monitored on site. This will add additional workload to the CIP monitoring team. • The number of Operations/Planning engagements planned for 2019 is defined below and will be based on the entity’s Inherent Risk Assessment and risk the entity poses to the BES.
o 9 audits of entities on the three year cycle (onsite). o 40 audits of entities based upon the Inherent Risk Assessment (previously six year entities). o 45 other engagements of entities based upon the Compliance Oversight Plans, which include either Spot Checks and or Guided Self-Certifications.
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o Participating as Affected Regional Entity on MRRE Spot Checks, Guided Self- Certifications and Audits: to be determined, based upon risk and the entity’s compliance oversight program.
• Spot Checks and Guided Self-Certifications will be used: (1) to assess performance to selected Reliability Standards when an audit is delayed; (2) as an alternate means of monitoring lower risk entities; and (3) on an as-needed basis to address identified risks. Guidance on when a Spot Check or Guided Self-Certification may be appropriate is outlined in the annual CMEP Implementation Plan and will be augmented by ReliabilityFirst’s Regional Risk Assessment, Inherent Risk Assessments, and results from compliance monitoring activities that identify emerging risks. Spot Checks and Guided Self-Certifications may also be used to confirm prior self-certifications, self- reports, and the status of mitigation plans or agreed-to mitigation activities associated with settlement agreements. • Support NERC in continuing the training and outreach for Registered Entities to successfully implement revisions to the CIP standards and Operations/Planning standards. • Lead development of the annual CMEP implementation Plan with a focus on overall content in coordination with cross-functional groups. • Complete Compliance Assessment Reviews of system events according to the ReliabilityFirst Compliance Assessment process, to determine if reliability issues associated with the system event require the initiation of a compliance monitoring process; performance of mitigation activities by involved entities; and/or industry outreach and education.
Resource Requirements • Personnel As discussed above in the 2019 Key Assumptions, the workload in the O&P and CIP monitoring area has continually increased and is expected to continue increasing. This is primarily driven by the expanded CIP scope for entities with only Low Impact BES Cyber Systems, and the fact that more Compliance Oversight Plans also include either Spot Checks or Guided Self-Certifications. Additionally, the MRRE process expanded in 2018 and is expected to continue maturing in 2019. Coordination and workload associated with administering the program has increased in the compliance monitoring area under the MRRE process. ReliabilityFirst is not adding FTE’s in this area in 2019, but will monitor this area and will reassess whether to add FTE’s to this area in the 2020 Business Plan & Budget. Additionally, plans have been developed to overlap key personnel who have indicated they are near retirement, in order to allow for adequate knowledge transfer and training of their successors. The potential impact on the budget will be managed and monitored closely as these personnel commit to specific retirement dates.
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• Contractors and Consultants Contractor and consultant support is budgeted in 2019 to temporarily supplement staff in the event workload exceeds available resources.
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Reliability Assurance and Compliance Monitoring Budget Detail The following table shows funding sources and related expenses for the Reliability Assurance and Compliance Monitoring section of the 2019 Business Plan and Budget. Explanations of variances by expense category are included with the Supplemental Financial Tables found in Section B.
2018 Budget and Projection, and 2019 Budget Reliability Assurance and Compliance Monitoring Variance Variance 2018 Projection 2019 Budget 2018 2018 v 2018 Budget 2019 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) Funding ReliabilityFirst Funding ERO Assessments $ 12,424,532 $ 12,424,532 $ - $ 13,747,063 $ 1,322,530 Penalty Sanctions 1,167,928 1,167,928 - 196,542 (971,387) Total ReliabilityFirst Funding $ 13,592,461 $ 13,592,461 $ - $ 13,943,605 $ 351,144
Membership Dues $ - $ - $ - $ - $ - Federal Grants - - - - - Services & Software - - - - - Workshops - - - - - Interest 30,528 30,528 - 30,032 (496) Miscellaneous - - - - - Total Funding 13,622,989 13,622,989 - 13,973,637 350,648
Expenses Personnel Expenses Salaries $ 6,499,775 $ 6,499,775 $ - $ 6,588,226 $ 88,450 Payroll Taxes 389,918 389,918 - 403,367 13,449 Benefits 1,000,275 1,000,275 - 1,052,759 52,483 Retirement Costs 1,012,231 1,012,231 - 1,028,338 16,107 Total Personnel Expenses $ 8,902,200 $ 8,902,200 $ - $ 9,072,689 $ 170,490
Meeting Expenses Meetings $ 44,675 $ 44,675 $ - $ 20,900 $ (23,775) Travel 456,300 456,300 - 413,000 (43,300) Conference Calls - - - - - Total Meeting Expenses $ 500,975 $ 500,975 $ - $ 433,900 $ (67,075)
Operating Expenses Consultants & Contracts $ 111,600 $ 111,600 $ - $ 88,950 $ (22,650) Office Rent - - - - - Office Costs 293,885 293,885 - 250,379 (43,506) Professional Services - - - - - Miscellaneous 3,500 3,500 - 3,750 250 Depreciation 7,432 7,432 - 5,000 (2,432) Total Operating Expenses $ 416,417 $ 416,417 $ - $ 348,079 $ (68,338)
Total Direct Expenses $ 9,819,591 $ 9,819,591 $ - $ 9,854,668 $ 35,077
Indirect Expenses $ 3,892,180 $ 3,892,180 $ - $ 4,261,174 $ 368,994
Other Non-Operating Expenses $ - $ - $ - $ - $ -
Total Expenses $ 13,711,772 $ 13,711,772 $ - $ 14,115,843 $ 404,071
Change in Assets $ (88,783) $ (88,783) $ - $ (142,206) $ (53,423)
Fixed Assets Depreciation (7,432) (7,432) - (5,000) 2,432 Computer Hardware & Software CapEx 20,000 20,000 - 30,000 10,000 Furniture & Fixtures CapEx - - - - - Equipment CapEx - - - - - Leasehold Improvements - - - - - $ 12,568 $ 12,568 $ - $ 25,000 $ 12,432
Allocation of Fixed Assets $ (101,351) $ (101,351) - $ (167,206) $ (65,855)
Inc/(Dec) in Fixed Assets $ (88,783) $ (88,783) $ - $ (142,206) $ (53,423)
Total Budget $ 13,622,989 $ 13,622,989 $ - $ 13,973,637 $ 350,648
Total Change in Working Capital $ - $ - $ - $ - $ (0)
FTEs 37.00 37.00 - 37.00 -
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Enforcement
Enforcement (in whole dollars) Increase 2018 Budget 2019 Budget (Decrease) Total FTEs 8.25 7.00 (1.25) Direct Expenses $ 1,491,871 $ 1,415,220 $ (76,651) Indirect Expenses $ 867,851 $ 793,290 $ (74,561) Inc(Dec) in Fixed Assets $ (22,598) $ (31,128) $ (8,530) Total Funding Requirement $ 2,337,124 $ 2,177,382 $ (159,742)
Program Scope and Functional Description The Enforcement group performs ReliabilityFirst’s delegated function to enforce compliance with the Reliability Standards. This effort involves ensuring that the selected disposition method for any noncompliance is consistent with the risk posed by the noncompliance; is adequately supported by the record; and promotes desired entity behaviors to enhance reliability.
In the event that a noncompliance is enforced, Enforcement staff is responsible for (1) drafting and negotiating with entities all necessary disposition documents; (2) ensuring all requisite notices are timely issued; (3) post-filing support and advocacy with NERC and FERC; (4) ensuring that the record and related disposition documents comply with all applicable (a) FERC orders, rules, and regulations, (b) NERC ROP and Appendices, guidance, and ERO-wide program documents, and (c) ReliabilityFirst policies and procedures (collectively, “applicable orders, rules, and procedures”); and (5) performing hearings where necessary. In the event that a noncompliance is not enforced (e.g., compliance exception or dismissal), Enforcement staff is responsible for (1) drafting all necessary internal disposition reports and external disposition documents and notices; (2) ensuring all requisite notices are timely issued; (3) post-filing support and advocacy with NERC and FERC; and (4) ensuring that the record and related disposition documents comply with all applicable orders, rules, and procedures.
For continuity and stakeholder convenience, Enforcement staff serve as a single point of contact for entities for noncompliance-related communications, including answering entity questions and providing regular updates on disposition matters. The Enforcement staff is heavily involved in external outreach to help entities understand noncompliance trends and themes that may be early indicators of programmatic or systemic challenges. The Enforcement staff also partners with the Risk Analysis and Mitigation staff to provide targeted training to entities focusing on quality self- reporting and mitigation plans.
ReliabilityFirst frequently serves as the lead Region in resolving multi-regional enforcement actions for designated MRREs. Consequently, Enforcement staff devotes substantial resources to coordinate the enforcement work of various Regions, obtain consensus on a myriad of issues, and negotiate acceptable resolutions.
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Enforcement staff regularly works with FERC, NERC, the other Regions, and industry to shape risk-based, effective enforcement policies that drive desired entity behavior. This work includes drafting, or supporting the drafting, of ERO-wide enforcement program documents and enforcement related regulatory filings, presenting and training on enforcement programs in various forums, and monitoring and managing enforcement metrics in support of NERC’s strategic Plan and Oversight Program. Enforcement staff also works with NERC and the other Regions to promote and otherwise ensure collaboration and implementation of consistent enforcement practices focused on higher reliability risks.
2019 Key Assumptions
The Enforcement group incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan. It also includes the following regional assumptions:
1. The number of CIP noncompliances may continue to increase due to implementation of the CIP V5 Standards, which increased the scope of assets covered. The number of Operations and Planning noncompliances may increase due to revisions of certain Reliability Standards and new Reliability Standards becoming effective.
2. ReliabilityFirst anticipates that the majority of noncompliances will continue to trend as minimal or moderate risk, however the complexity of these noncompliances will continue to increase as entities are expected to grow and mature. In light of these developments, an increase in staff would ensure the sustainability of continued success in meeting corporate goals, while continuing to provide substantive support to entities and avoiding the creation of any backlog.
3. Complex, higher-risk noncompliances disposed as Settlement Agreements will require approximately 50% of Enforcement resources. These matters often involve more complex mitigation, above and beyond action items, and the negotiation of sanctions.
4. The Find Fix and Track (FFT) disposition method will be used for moderate risk issues. It will continue to be used less often in favor of the Compliance Exception disposition method, which will be used for almost all qualified minimal risk noncompliances.
5. Enforcement staff will spend significant time ensuring adequate records are created for minimal risk issues. The expenditure of this time will be driven by anticipated receipt of minimal risk issues for the CIP V5 Standards, as well as increased participation in the self- logging program and case by case compliance exception mechanisms.
6. ReliabilityFirst will frequently serve as the lead Region for MRREs. The disposition of MRRE noncompliances takes additional time to coordinate dispositions, review mitigation and negotiate acceptable solutions with Affected Regions.
7. Enforcement staff will work with FERC, NERC, the other Regions, and the industry to shape effective and risk-based enforcement policies that drive desired behavior and ensure consistency.
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8. The number of hearings to be conducted is unknown, and therefore no internal or external resources have been budgeted for hearings.
9. Enforcement staff will provide outreach to industry through internal support of functional initiatives (e.g., Inherent Risk Assessments; Regional Risk Assessments; Internal Control Evaluations); workshop presentations and participation in panel discussions; webinars; targeted entity training; identification and sharing of lessons learned; and contributions to the RF newsletter.
2019 Key Deliverables • Continue to focus on resolving enforcement actions in a thoughtful, risk-based, reliability focused manner. • Ensure that the use of discretion in Enforcement is internally documented, repeatable, and consistent with NERC directives and FERC orders, rules, and regulations. • Conduct initial fact and circumstance reviews of noncompliances and communicate with the entity through each step of the enforcement process. • Continue to work with the Reliability Assurance group to refine the risk-harm assessment process, a key input into enforcement decision making. • Continue to increase efficiency, through process improvement, in dispositioning enforcement actions and preparing settlement agreements. • Continue to work with NERC and the other Regions to shape a well-reasoned Enforcement philosophy that results in risk-based, uniform, repeatable, transparent, and reliability-focused approaches. • Use knowledge obtained in the context of Inherent Risk Assessments and Internal Controls Evaluations to assure informed decision-making • Draft and negotiate with entities all necessary disposition documents • Ensure all requisite notices are timely issued, and provide post-filing support and advocacy with NERC and FERC • Ensuring that the record of a noncompliance and the related disposition documents comply with all applicable orders, rules, and procedures.
Resource Requirements • Personnel An increase of one FTE is budgeted for 2019 in an effort to ensure the department’s continuous improvement, ability to timely and effectively enforce complex noncompliances while remaining an accessible single point of contact for our Registered Entities. The quality of risk communication, deeper understanding of our Registered Entities risk profiles and our ability to identify trends, share lessons learned and proactively target and train entities based on risk and compliance history are necessary to the Enforcement department’s effectiveness. As described in the Assumptions section, there has been an
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increase in the number of noncompliances with the CIP V5 Standards, due to the increased scope of the assets covered and prescriptiveness of the standards which creates more opportunity for noncompliance. There has been a slight increase in the number of noncompliances with the Operations and Planning Standards, due to revised Operations and Planning Standards becoming effective. While Operations and Planning Standards noncompliances have decreased over time, upcoming technical requirements and maintenance and testing standards that drive longer durations before being identified and corrected will continue to provide opportunities for proactive outreach and shared lessons learned. The complexities of our entities and the nature of our industry continue to evolve requiring more in-depth analysis to appropriately dispose of noncompliances. Under the MRRE program, the Enforcement department serves as the Lead Regional Entity for twelve (12) parent registered entities and their subsidiaries. The MRRE Program and efforts to increase transparency and consistency across the Regions has also resulted in additional workload. Currently the Enforcement group has three (3) Case Managers dedicated to the disposition of noncompliances while also serving as the single point of contact for 246 registered entities. Working at maximum capacity (~200 hours overtime annually per employee), the Enforcement group has struggled over the years to meet internal metrics focused on the timely and efficient processing of noncompliances. In addition to processing noncompliances, the Case Managers also contribute to cross-functional support of risk communication, mitigation, and identification. The 2019 Manpower FTE analysis indicates an additional FTE to support Enforcement’s current responsibilities. Noncompliance intake continues to trend upwards which will continue to strain the current Case Manager’s ability to process violations in a timely and efficient manner. An additional FTE will better position the Enforcement department to balance caseloads in an effort to be more responsive to the foreseen and unforeseen future needs of the organization and industry. The Enforcement group has evaluated its processes, workload, and staffing levels and has determined that, due to the volume and complexities of noncompliances, and the criticality of resolving dispositions within a timely manner, an additional staff Case Manager is necessary. The Enforcement group has and will continue to identify and implement various process improvements going forward. Although the Enforcement group is budgeting an increase of one FTE, the 2019 Business Plan and Budget reflects a net decrease of 1.25 FTEs in the Enforcement group, due to the reallocation of one FTE to the Training, Education, and Operator Certification group; one FTE to the Legal group; and .25 FTE to the Situation Awareness and Infrastructure Security Program. The reallocation of these FTEs was necessary to provide the needed resources and skill sets in these areas, and better reflects work these employees are performing. • Contractors and Consultants No contractor and consultant support is budgeted in this year.
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Enforcement Budget Detail The following table shows funding sources and related expenses for the Enforcement section of the 2019 Business Plan and Budget. Explanations of variances by expense category are included with the Supplemental Financial Tables found in Section B.
2018 Budget and Projection, and 2019 Budget Enforcement Variance Variance 2018 Projection 2019 Budget 2018 2018 v 2018 Budget 2019 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) Funding ReliabilityFirst Funding ERO Assessments $ 2,069,900 $ 2,069,900 $ - $ 2,146,889 $ 76,989 Penalty Sanctions 260,416 260,416 - 37,184 (223,233) Total ReliabilityFirst Funding $ 2,330,317 $ 2,330,317 $ - $ 2,184,073 $ (146,244)
Membership Dues $ - $ - $ - $ - $ - Federal Grants - - - - - Services & Software - - - - - Workshops - - - - - Interest 6,807 4,950 (1,856) 5,682 (1,125) Miscellaneous - - - - - Total Funding 2,337,124 2,335,267 (1,856) 2,189,755 (147,369)
Expenses Personnel Expenses Salaries $ 1,058,684 $ 1,058,684 $ - $ 987,123 $ (71,561) Payroll Taxes 71,181 71,181 - 64,657 (6,524) Benefits 163,026 163,026 - 178,498 15,472 Retirement Costs 165,691 165,691 - 152,760 (12,931) Total Personnel Expenses $ 1,458,582 $ 1,458,582 $ - $ 1,383,038 $ (75,544)
Meeting Expenses Meetings $ 2,500 $ 2,500 $ - $ 1,600 $ (900) Travel 23,000 23,000 - 23,000 - Conference Calls - - - - - Total Meeting Expenses $ 25,500 $ 25,500 $ - $ 24,600 $ (900)
Operating Expenses Consultants & Contracts $ - $ - $ - $ - $ - Office Rent - - - - - Office Costs 7,789 7,789 - 7,582 (207) Professional Services - - - - - Miscellaneous - - - - - Depreciation - - - - - Total Operating Expenses $ 7,789 $ 7,789 $ - $ 7,582 $ (207)
Total Direct Expenses $ 1,491,871 $ 1,491,871 $ - $ 1,415,220 $ (76,651)
Indirect Expenses $ 867,851 $ 631,164 $ (236,687) $ 806,168 $ (61,683)
Other Non-Operating Expenses $ - $ - $ - $ - $ -
Total Expenses $ 2,359,722 $ 2,123,035 $ (236,687) $ 2,221,388 $ (138,334)
Change in Assets $ (22,598) $ 212,232 $ 234,830 $ (31,634) $ (9,035)
Fixed Assets Depreciation - - - - - Computer Hardware & Software CapEx - - - - - Furniture & Fixtures CapEx - - - - - Equipment CapEx - - - - - Leasehold Improvements - - - - - $ - $ - $ - $ - $ -
Allocation of Fixed Assets $ (22,598) $ (16,435) 6,163 $ (31,634) $ (9,035)
Inc/(Dec) in Fixed Assets $ (22,598) $ (16,435) $ 6,163 $ (31,634) $ (9,035)
Total Budget $ 2,337,124 $ 2,106,600 $ (230,523) $ 2,189,755 $ (147,369)
Total Change in Working Capital $ - $ 228,667 $ 228,667 $ - $ -
FTEs 8.25 6.00 (2.25) 7.00 (1.25)
ReliabilityFirst 2019 Business Plan and Budget: Final Version 31 Section A – Statutory Programs Reliability Assessment and Performance Analysis Program Reliability Assessment and Performance Analysis Program
Reliability Assessments and Performance Analysis Program (in whole dollars) Increase 2018 Budget 2019 Budget (Decrease) Total FTEs 8.35 7.60 (0.75) Direct Expenses $ 2,076,169 $ 2,071,633 $ (4,536) Indirect Expenses $ 878,370 $ 861,286 $ (17,084) Inc(Dec) in Fixed Assets $ (25,249) $ (37,248) $ (11,999) Total Funding Requirement $ 2,929,290 $ 2,895,671 $ (33,619)
Program Scope and Functional Description ReliabilityFirst’s Reliability Assessment and Performance Analysis (RAPA) staff independently analyzes, assesses, and reports on the reliability and adequacy of the BES within the ReliabilityFirst footprint. RAPA staff helps identify and assess risks across the ReliabilityFirst footprint, and its deliverables are a major contributor to the risk-based efforts of the entire organization. This work includes the performance of resource and transmission assessment studies; special analyses and investigations as warranted; and the collection and dissemination of data, lessons learned, and other information. The RAPA program provides resources and data input for the technical analyses and support of the many risk-based activities described in the Reliability Assurance and Compliance Monitoring sections.
2019 Key Assumptions The Reliability Assessment and Performance Analysis Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan.
There are no additional assumptions unique to the Reliability Assessment and Performance Program.
2019 Key Deliverables • Assessments of Reliability Performance
o Perform seasonal (summer and winter) risk analyses of the projected resource adequacy for PJM Interconnection, LLC (PJM) and Midcontinent Independent System Operator (MISO), the two Regional Transmission Organizations (RTO) that operate within ReliabilityFirst. As part of these risk analyses, produce seasonal RTO “waterfall” risk charts depicting the range of available capacity reserves for the forecasted normal (50/50) and extreme (90/10) seasonal peak demand levels; and historical long-term forecast and demand charts.
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o Perform seasonal (summer and winter); near-term (typically five years into the future); and extreme transmission assessment studies, and produce reports on these transmission assessment studies.
o Collect data and produce assessment reports for the NERC Reliability Assessment Subcommittee's seasonal, special assessment, and long-term reports.
o Provide technical support for the ERO Enterprise’s expanded and enhanced system studies and help perform analyses as needed.
o Work with neighboring Regional Entities within the Eastern Interconnection Reliability Assessment Group (ERAG) to perform Eastern Interconnection assessment studies and produce reports.
o Update power flow base case models as needed for regional study efforts. • Reporting Requirements
o Submit ReliabilityFirst load, capacity, and transmission data and power flow base cases annually for the US Department of Energy’s EIA-411 report.
o Assist NERC in the verification and validation of data for the Transmission Availability Data System (TADS), Generator Availability Data System (GADS), Demand Response Availability Data System (DADS), and the Misoperation Information Data Analysis System (MIDAS). All these systems can be used for data analytics across the ERO Enterprise. • Other Requirements and Activities
o Publish lessons learned that are developed from misoperation reporting and other sources.
o Continue to participate in ERAG, the MMWG, and other ERAG groups. o Analyze protective relay misoperation information and track corrective action plans, as reported in the NERC MIDAS system. Facilitate a peer review process of this data via the ReliabilityFirst Protection Subcommittee.
o Conduct initial and periodic Special Protection System reviews and maintain a database of regional Special Protection Systems.
o Review under-frequency load shed (UFLS) information. o Review under-voltage load shed (UVLS) information. o Develop and maintain a linear contingency database for transmission assessment studies.
o In support of the ERO Enterprise, actively participate (and in some cases serve in leadership roles) in NERC committees, subcommittees, task forces, and other technical groups, such as the Planning Committee, Operating Committee, and associated subgroups, as well as the ERO-RAPA group.
o Continue to support stakeholder participation and interaction through various regional technical groups, including the Reliability Committee (a technical advisory
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body to the ReliabilityFirst Board of Directors) and its subcommittees and task forces. These groups provide technical advice, perform technical reviews, and provide input on emerging reliability issues. These groups also provide the opportunity for stakeholders to debate current issues, share lessons learned, and discuss success stories and near-misses in a technical forum.
o Provide the various regional technical groups with information and knowledge to help entities improve human performance.
o Provide Registered Entities with tailored training and interaction through recurring workshops (such as the Protection Workshop for Technical Personnel and training to the Protection Subcommittee by a relay vendor).
o Provide knowledge, techniques, and data input in support of ReliabilityFirst’s risk- based activities, including the Inherent Risk Assessments and Regional Risk Assessment efforts.
Resource Requirements • Personnel No increase in personnel is budgeted in this year. However, plans have been developed to overlap key personnel who have indicated they are near retirement, in order to allow for adequate knowledge transfer and training of their successors. The potential impact on the budget will be managed and monitored closely as these personnel commit to specific retirement dates. The 2019 Business Plan and Budget reflects a net decrease of 0.75 FTEs in this group. This decrease is due to the reallocation of FTE hours to the Compliance Monitoring Program and the Situation Awareness and Infrastructure Security Program, to better align administrative resources to support these functions. • Contractors and Consultants Contractor and consulting support is budgeted to support:
o ERAG steady state and dynamic base case model assembly through the Multiregional Modeling Working Group (MMWG) processes,
o ERAG event analysis process(es) and tools to develop steady state and dynamic models for analyzing system disturbances,
o ERAG reviews of Planning Coordinator assessments, and o ERAG assessment studies. The total cost of ERAG contractor and consulting support is shared across all five Regional Entities in the Eastern Interconnection.
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Reliability Assessment and Performance Analysis Program Budget Detail The following table lists funding sources and related expenses for the Reliability Assessment and Performance Analysis section of the 2019 Business Plan and Budget. Explanations of variances by expense category are included with the Supplemental Financial Tables found in Section B.
2018 Budget and Projection, and 2019 Budget Reliability Assessment and Performance Analysis Variance Variance 2018 Projection 2019 Budget 2018 2018 v 2018 Budget 2019 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) Funding ReliabilityFirst Funding ERO Assessments $ 2,658,828 $ 2,658,828 $ - $ 2,862,565 $ 203,737 Penalty Sanctions 263,573 263,573 - 40,371 (223,202) Total ReliabilityFirst Funding $ 2,922,401 $ 2,922,401 $ - $ 2,902,935 $ (19,465)
Membership Dues $ - $ - $ - $ - $ - Federal Grants - - - - - Services & Software - - - - - Workshops - - - - - Interest 6,889 6,271 (619) 6,169 (721) Miscellaneous - - - - - Total Funding 2,929,290 2,928,671 (619) 2,909,104 (20,186)
Expenses Personnel Expenses Salaries $ 1,329,564 $ 1,329,564 $ - $ 1,343,225 $ 13,661 Payroll Taxes 83,004 83,004 - 82,910 (94) Benefits 175,455 175,455 - 156,771 (18,684) Retirement Costs 215,123 215,123 - 212,370 (2,753) Total Personnel Expenses $ 1,803,146 $ 1,803,146 $ - $ 1,795,276 $ (7,870)
Meeting Expenses Meetings $ 16,700 $ 16,700 $ - $ 8,000 $ (8,700) Travel 91,500 91,500 - 94,650 3,150 Conference Calls - - - - - Total Meeting Expenses $ 108,200 $ 108,200 $ - $ 102,650 $ (5,550)
Operating Expenses Consultants & Contracts $ 119,812 $ 119,812 $ - $ 126,812 $ 7,000 Office Rent - - - - - Office Costs 42,434 42,434 - 43,443 1,009 Professional Services - - - - - Miscellaneous 200 200 - - (200) Depreciation 2,377 2,377 - 3,452 1,075 Total Operating Expenses $ 164,823 $ 164,823 $ - $ 173,707 $ 8,884
Total Direct Expenses $ 2,076,169 $ 2,076,169 $ - $ 2,071,633 $ (4,536)
Indirect Expenses $ 878,370 $ 799,475 $ (78,896) $ 875,268 $ (3,102)
Other Non-Operating Expenses $ - $ - $ - $ - $ -
Total Expenses $ 2,954,539 $ 2,875,644 $ (78,896) $ 2,946,901 $ (7,638)
Change in Assets $ (25,249) $ 53,027 $ 78,277 $ (37,797) $ (12,548)
Fixed Assets Depreciation (2,377) (2,377) - (3,452) (1,075) Computer Hardware & Software CapEx - - - - - Furniture & Fixtures CapEx - - - - - Equipment CapEx - - - - - Leasehold Improvements - - - - - $ (2,377) $ (2,377) $ - $ (3,452) $ (1,075)
Allocation of Fixed Assets $ (22,872) $ (20,818) 2,054 $ (34,345) $ (11,473)
Inc/(Dec) in Fixed Assets $ (25,249) $ (23,195) $ 2,054 $ (37,797) $ (12,548)
Total Budget $ 2,929,290 $ 2,852,449 $ (76,841) $ 2,909,104 $ (20,186)
Total Change in Working Capital $ - $ 76,222 $ 76,222 $ - $ 0
FTEs 8.35 7.60 (0.75) 7.60 (0.75)
ReliabilityFirst 2019 Business Plan and Budget: Final Version 35 Section A – Statutory Programs Training, Education, And Operator Certification Program Training, Education, and Operator Certification Program
Training, Education and Operator Certification Program (in whole dollars) Increase 2018 Budget 2019 Budget (Decrease) Total FTEs 3.00 3.00 0.00 Direct Expenses $ 712,087 $ 771,893 $ 59,806 Indirect Expenses $ 315,582 $ 345,501 $ 29,918 Inc(Dec) in Fixed Assets $ (8,218) $ (6,557) $ 1,660 Total Funding Requirement $ 1,019,452 $ 1,110,836 $ 91,385
Program Scope and Functional Description Effective training and outreach is critical to leverage and advance industry practices surrounding risk identification, mitigation, and prevention. The ReliabilityFirst Training and Education Program focuses on providing relevant training to entities operating in the ReliabilityFirst region. ReliabilityFirst’s training is structured to provide timely information in a concise format to enable participation at all levels within an organization.
ReliabilityFirst does not provide system operator certification training, as it is provided by the Regional Transmission Organizations within the Region.
2019 Key Assumptions The Training and Education Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan.
There are no additional assumptions unique to the ReliabilityFirst Training and Education Program.
2019 Key Deliverables • Industry Education
o ReliabilityFirst will continue its effort to increase and add greater focus to its activities aimed at helping entities achieve excellence in reliability, security and resiliency. These activities include: . The issuance of announcements, newsletters, and reports on key reliability, security, and resiliency issues facing ReliabilityFirst and the industry. . Communication of key risks and risk mitigation strategies. . In concert with the ERO Event Analysis team, the development and publishing of lessons learned/best practices from system events and disturbances.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 36 Section A – Statutory Programs Training, Education, And Operator Certification Program
. Guidance on the CIP V5 Reliability Standards, including a focus on “Low Impact Only” entities, and on other new and revised Reliability Standards. . Guidance on the implementation of the Risk-Based Compliance Monitoring and Enforcement Program, including on Inherent Risk Assessments and Internal Controls Evaluations . Identification and communication of common themes and root causes of Reliability Standard violations. . Efforts to better prepare entities for compliance audits and enforcement activities. . Open compliance and enforcement calls that cover a span of compliance, CIP V5 transition, and enforcement related topics. . Sharing best practices concerning generator plant winter readiness. . Webinars on the compliance monitoring and enforcement process. . Increased focus on any lessons learned or trends identified from reliability assessments. . Posting educational materials on the ReliabilityFirst public website on pertinent reliability, security, and resiliency topics • Industry Workshops
o Continue workshops and forums to allow for free exchange of information between ReliabilityFirst and its stakeholders. Workshops and forums will focus on understanding and mitigating risks to reliability, security, and resiliency within the ReliabilityFirst footprint. Workshops to be conducted include: . Two Reliability workshops (spring and fall) to promote a culture of reliability focusing on security, resiliency, risk management, and targeted discussion on methods to demonstrate compliance. . Open forums to provide insight into new Reliability Standards developed and approved by the industry, changes in the Compliance Monitoring and Enforcement Program, communications with our registered entities around identified and emerging risks, Critical Infrastructure Protection issues, trends that could develop into a risk or other topics requested by entities. . CIP Standards Workshop to provide insight into the evolution of these Standards and to provide a forum for entities to share thoughts, problems, and solutions. . Additional, targeted workshops to address emerging risks (e.g., misoperations, human performance, and technology) as the need is identified and the sessions can be scheduled.
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Resource Requirements • Personnel Although there was no change in the total number of FTEs in this program, there was a decrease in personnel expenses due to realignment of staff. • Contractors and Consultants Contractor and consultant support is budgeted in 2019 to assist with the initiatives aimed at helping entities achieve excellence in reliability, security, and resiliency.
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Training, Education, and Operator Certification Program Budget Detail The following table shows funding sources and related expenses for the Training, Education, and Operator Certification section of the 2019 Business Plan and Budget. Explanations of variances by expense category are included with the Supplemental Financial Tables found in Section B.
2018 Budget and Projection, and 2019 Budget Training, Education, and Operator Certification Program Variance Variance 2018 Projection 2019 Budget 2018 2018 v 2018 Budget 2019 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) Funding ReliabilityFirst Funding ERO Assessments $ 922,279 $ 922,279 $ - $ 1,092,466 $ 170,186 Penalty Sanctions 94,697 94,697 - 15,936 (78,761) Total ReliabilityFirst Funding $ 1,016,976 $ 1,016,976 $ - $ 1,108,401 $ 91,425
Membership Dues $ - $ - $ - $ - $ - Federal Grants - - - - - Services & Software - - - - - Workshops - - - - - Interest 2,475 2,475 - 2,435 (40) Miscellaneous - - - - - Total Funding 1,019,452 1,019,452 - 1,110,836 91,385
Expenses Personnel Expenses Salaries $ 416,078 $ 416,078 $ - $ 386,731 $ (29,347) Payroll Taxes 28,228 28,228 - 24,369 (3,859) Benefits 65,095 65,095 - 80,980 15,885 Retirement Costs 66,286 66,286 - 61,091 (5,195) Total Personnel Expenses $ 575,687 $ 575,687 $ - $ 553,171 $ (22,516)
Meeting Expenses Meetings $ 136,400 $ 136,400 $ - $ 181,500 $ 45,100 Travel - - - 6,000 6,000 Conference Calls - - - - - Total Meeting Expenses $ 136,400 $ 136,400 $ - $ 187,500 $ 51,100
Operating Expenses Consultants & Contracts $ - $ - $ - $ 20,000 $ 20,000 Office Rent - - - - - Office Costs - - - 8,222 8,222 Professional Services - - - - - Miscellaneous - - - - - Depreciation - - - 3,000 3,000 Total Operating Expenses $ - $ - $ - $ 31,222 $ 31,222
Total Direct Expenses $ 712,087 $ 712,087 $ - $ 771,893 $ 59,806
Indirect Expenses $ 315,582 $ 315,582 $ - $ 345,501 $ 29,918
Other Non-Operating Expenses $ - $ - $ - $ - $ -
Total Expenses $ 1,027,669 $ 1,027,669 $ - $ 1,117,394 $ 89,724
Change in Assets $ (8,218) $ (8,218) $ - $ (6,557) $ 1,660
Fixed Assets Depreciation - - - (3,000) (3,000) Computer Hardware & Software CapEx - - - 10,000 10,000 Furniture & Fixtures CapEx - - - - - Equipment CapEx - - - - - Leasehold Improvements - - - - - $ - $ - $ - $ 7,000 $ 7,000
Allocation of Fixed Assets $ (8,218) $ (8,218) - $ (13,557) $ (5,340)
Inc/(Dec) in Fixed Assets $ (8,218) $ (8,218) $ - $ (6,557) $ 1,660
Total Budget $ 1,019,452 $ 1,019,452 $ - $ 1,110,836 $ 91,385
Total Change in Working Capital $ - $ - $ - $ - $ 0
FTEs 3.00 3.00 - 3.00 -
ReliabilityFirst 2019 Business Plan and Budget: Final Version 39 Section A – Statutory Programs Situation Awareness and Infrastructure Security Program Situation Awareness and Infrastructure Security Program
Situation Awareness and Infrastructure Security Program (in whole dollars) Increase 2018 Budget 2019 Budget (Decrease) Total FTEs 4.00 7.00 3.00 Direct Expenses $ 1,085,245 $ 1,696,667 $ 611,422 Indirect Expenses $ 420,776 $ 806,168 $ 385,392 Inc(Dec) in Fixed Assets $ (20,977) $ (37,710) $ (16,733) Total Funding Requirement $ 1,485,044 $ 2,465,125 $ 980,081
Program Scope and Functional Description In support of the ERO, the Situation Awareness and Infrastructure Security staff, in coordination with members of the Reliability Assessment and Performance Analysis and Reliability Assurance groups, monitors present conditions on and emerging threats to the BES. The Situation Awareness and Infrastructure Security staff also performs event analysis for system disturbances and events. During the event analysis process, ReliabilityFirst works with entities to identify and analyze the root causes of system events, complete event analysis reports, and communicate the resulting information and lessons learned to the industry.
The Situation Awareness and Infrastructure Security activity continues to evolve to provide the tools and information required by the staff and stakeholders to promote infrastructure protection. The Situation Awareness and Infrastructure Security program area addresses two separate but related functions, Situation Awareness and Critical Infrastructure Protection (CIP).
The Situation Awareness and Infrastructure Security program supports the ReliabilityFirst staff and Registered Entities in understanding potential threats to the electricity sector, implementing Reliability Standards developed to reinforce infrastructure security, maintaining an awareness of conditions on the BES, and identifying potential and emerging threats to the BES.
In 2018, as part of a corporate reorganization, the Situation Awareness and Infrastructure Security Program expanded to include Analytics and Configuration Management functions, which support the entire ReliabilityFirst organization. This consolidation of Analytics, Configuration Management, and Situation Awareness will improve the timeliness and value of information used by ReliabilityFirst in its focus on risk-based reliability.
2019 Key Assumptions The Situation Awareness and Infrastructure Security Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan. It also includes the following regional assumptions:
1. National level security exercises will be conducted to examine industry’s cyber security and physical security preparedness and response capabilities through simulation of coordinated cyber and physical attacks on industrial control systems, System Control and
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Data Acquisition, and information technology assets. ReliabilityFirst will participate in these exercises as appropriate.
2. ReliabilityFirst Situation Awareness and Infrastructure Security staff will monitor projects related to grid resilience and security such as the Cyber Resilient Energy Delivery Consortium. Staff will participate in these projects as appropriate, incorporate lessons learned from these projects into ReliabilityFirst’s tools and processes, and share lessons learned with entities as appropriate.
3. The event analysis program was reallocated from the Reliability Assurance and Compliance Monitoring Program to the Situation Awareness and Infrastructure Security Program, in order to group together ReliabilityFirst’s activities connected to event analysis, situational awareness, and emerging threats. This centralizes and clarifies ReliabilityFirst’s work in these three interrelated areas, as the work associated with them was previously dispersed across the organization.
4. The Analytics and Configuration Management functions were recently transferred from the Reliability Assurance and Compliance Monitoring program, respectively, in order to align advanced analytical capabilities and configuration management principles with activities connected to event analysis, situational awareness, and emerging threats. Analytics continues to mature as a service across the entire organization. The intent of the Analytics program at ReliabilityFirst is to develop and evolve the corporation’s statistical analysis capabilities and use of data to gain a better understanding of the risks facing the industry. ReliabilityFirst is poised to integrate Analytics as a key component of the risk based decision-making strategy adopted by ReliabilityFirst. ReliabilityFirst also continues to evolve the Configuration Management program, which organizes and manages changes to RF’s complete library of data, documents, software and hardware.
2019 Key Deliverables • Support of the ReliabilityFirst Critical Infrastructure Protection Committee (CIPC)
o The purpose of the ReliabilityFirst CIPC is to share information concerning CIP and to promote CIP within the Region. Situation Awareness and Infrastructure Security staff will support the CIPC through the scheduling and facilitation of CIPC meetings and webinars and the dissemination of messages, alerts, and warnings from NERC, the Electricity Information Sharing and Analysis Center (E-ISAC), and the U.S. Department of Homeland Security (U.S. DHS) to the CIPC as permitted. Staff will also work to encourage and support sharing of information between entities and the E-ISAC. • Support/Oversee ReliabilityFirst Staff Compliance to the NERC Cyber Security Standards (CIP-002 - CIP-014)
o ReliabilityFirst is committed to complying with the intent of the NERC Cyber Security Standards. The Situation Awareness and Infrastructure Security staff will provide training, guidance, and oversight to the ReliabilityFirst staff, particularly the Information Technology staff, in achieving compliance to these Standards.
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• Provide Information on CIP-Related Issues
o This activity involves dissemination of information to entities from agencies such as the E-ISAC, the U.S. Department of Homeland Security, and others containing information on events or suspected events representing potential threats to the electricity sector.
o Situation Awareness and Infrastructure Security staff will work with other members of the NERC CIPC and NERC staff to develop a robust messaging system for dissemination of CIP-related messages to the appropriate target audience and will promote the use of this messaging system for exchange of security-related information. • Monitor the Health of the BES
o The use of situation awareness tools by staff has been evolving over the last few years. Situation Awareness and Infrastructure Security staff continues to participate in the Situation Awareness for FERC, NERC, and the Regional Entities (SAFNR) project and uses the SAFNRv2 displays developed through this project. ReliabilityFirst is a signatory to the NERC Operating Reliability Data Confidentiality Agreement and the SAFNR Subscriber Agreement and as such, will use tools such as the Reliability Coordinator Information System (RCIS), System Data eXchange (SDX), Area Control Error (ACE), and Abnormal Frequency System Monitoring, in addition to SAFNR Version 2, to monitor the health of the BES within the ReliabilityFirst geographical area. In addition to the tools just mentioned, ReliabilityFirst will investigate other tools for monitoring the grid. • Facilitate the ReliabilityFirst Threats and Vulnerabilities Team
o In early 2014, ReliabilityFirst created a cross-functional team of subject matter experts to monitor, quantify, and assess new and emerging threats to the BES. The team continues to mature the tools and techniques used to perform this activity in support of the Reliability Assurance program. In 2019, the team will enhance its ability to collect and analyze data, leveraging the Analytics program to better identify and quantify emerging threats to the BES and to provide additional input to the ReliabilityFirst Regional Risk Assessment program. Tools used to quantify threats will continue to be assessed for applicability to the work of the Threats and Vulnerabilities Team. • Maintain and Test Business Continuity/Disaster Recovery and Pandemic Plans for the ReliabilityFirst Office
o A business continuity plan deals with the ability to continue business functions in a degraded situation such as the loss of corporate assets including office space or computer assets.
o A disaster recovery plan deals with a more complete loss of access to corporate assets due to a large-scale event such as a tornado or blackout.
o A pandemic plan focuses on business continuity in the face of a declared pandemic.
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• Assist stakeholders in complying with CIP Standards
o As the NERC Cyber Security Standards (CIP-002 - CIP-011), the Physical Security Standard (CIP-014), and the Supply Chain Standard (CIP-13) evolve, entities will continue to monitor and implement revisions to the Standards. Situation Awareness and Infrastructure Security staff will be available to answer questions concerning these Standards and, in coordination with the ReliabilityFirst CIPC, will sponsor/support regional workshops and webinars as needed to foster the exchange of ideas and solutions developed by entities. • Support the Compliance Monitoring and Enforcement Program
o Support the activities involving CIP-related issues and events in the Compliance Monitoring and Enforcement program, by providing expertise on CIP monitoring, mitigation plans and settlements that include assessment of compliance to the CIP Standards (CIP-002 - CIP-014). • Collect, validate, review, and analyze data for system events and disturbances as described in the NERC ERO Event Analysis Process and the ReliabilityFirst Event Analysis Process.
o For system events and disturbances, cooperate with NERC and FERC staff and other Regional staff to ensure root causes, corrective actions, lessons learned, and recommendations are identified and shared across the ERO Enterprise and the industry.
o Collect and review disturbance reports as required in NERC Standard EOP-004 and as required by the Department of Energy in form OE-417. • Continue to expand and enhance the ReliabilityFirst Analytics capabilities to provide improved statistics and modeling across the organization. • Lead the development and integration of advanced analytic & business intelligence capabilities for identifying and determining reliability risks and conducting various risk assessments (e.g., Regional Risk Assessments and explorative Probabilistic Risk Assessment). • Support ERO Enterprise-wide data collection and analysis efforts. • Support and leverage cross-functional collaboration to use Analytics within RF and across the ERO Enterprise.
o Collaborate with RAPA in the verification and validation of data for the Transmission Availability Data System (TADS), Generator Availability Data System (GADS), Demand Response Availability Data System (DADS), and the Misoperation Information Data Analysis System (MIDAS).
o Collaborate with Reliability Assurance and Monitoring, Enforcement, and Legal, to explore and develop analytical solutions, where applicable. • Lead the development and integration of Data Warehousing Governance, Management, and underlying databases.
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• Lead further integration and use of Configuration Management within RF. • Lead the annual Regional Risk Assessment execution and output, supported by a cross- functional team. • Provide technical subject matter expertise and support for regional outreach activities, and other initiatives as identified within ReliabilityFirst and/or the ERO.
Resource Requirements • Personnel As discussed above in the 2019 Key Assumptions Section, ReliabilityFirst’s Analytics and Configuration Management functions were recently reallocated from the Reliability Assurance and Reliability Standards groups, respectively, to the Situation Awareness and Infrastructure Security group. Two FTEs transitioned into the Situation Awareness and Infrastructure Security group as part of this reallocation. Additionally, one administrative FTE from the Human Resources group was reallocated to the Situation Awareness and Infrastructure Security group as part of a realignment of administrative resources. At this time, no additional FTEs are planned. In the event the workload exceeds available resources, contractors may be used to temporarily supplement staff. • Contractors and Consultants Contractor support is budgeted to support the ReliabilityFirst data warehouse project. The data warehouse project is intended to centralize ReliabilityFirst’s data sets and provide business intelligence capabilities for better integration of disparate data sets and add visualization functions to better identify areas of concern or areas needing additional analysis.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 44 Section A – Statutory Programs Situation Awareness and Infrastructure Security Program
Situation Awareness and Infrastructure Security Program Budget Detail The following table shows funding sources and related expenses for the Situation Awareness and Infrastructure Security section of the 2019 Business Plan and Budget. Explanations of variances by expense category are included with the Supplemental Financial Tables found in Section B.
2018 Budget and Projection, and 2019 Budget Situation Awareness and Infrastructure Security Variance Variance 2018 Projection 2019 Budget 2018 2018 v 2018 Budget 2019 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) Funding ReliabilityFirst Funding ERO Assessments $ 1,355,482 $ 1,355,482 $ - $ 2,422,260 $ 1,066,778 Penalty Sanctions 126,263 126,263 - 37,184 (89,079) Total ReliabilityFirst Funding $ 1,481,744 $ 1,481,744 $ - $ 2,459,443 $ 977,699
Membership Dues $ - $ - $ - $ - $ - Federal Grants - - - - - Services & Software - - - - - Workshops - - - - - Interest 3,300 5,776 2,475 5,682 2,381 Miscellaneous - - - - - Total Funding 1,485,044 1,487,520 2,475 2,465,125 980,081
Expenses Personnel Expenses Salaries $ 740,911 $ 740,911 $ - $ 1,056,516 $ 315,605 Payroll Taxes 43,236 43,236 - 64,475 21,239 Benefits 113,990 113,990 - 217,786 103,796 Retirement Costs 118,000 118,000 - 166,948 48,948 Total Personnel Expenses $ 1,016,137 $ 1,016,137 $ - $ 1,505,725 $ 489,588
Meeting Expenses Meetings $ 1,600 $ 1,600 $ - $ 2,000 $ 400 Travel 53,750 53,750 - 49,450 (4,300) Conference Calls - - - - - Total Meeting Expenses $ 55,350 $ 55,350 $ - $ 51,450 $ (3,900)
Operating Expenses Consultants & Contracts $ - $ - $ - $ 90,000 $ 90,000 Office Rent - - - - - Office Costs 3,738 3,738 - 43,416 39,678 Professional Services - - - - - Miscellaneous - - - - - Depreciation 10,020 10,020 - 6,076 (3,944) Total Operating Expenses $ 13,758 $ 13,758 $ - $ 139,492 $ 125,734
Total Direct Expenses $ 1,085,245 $ 1,085,245 $ - $ 1,696,667 $ 611,422
Indirect Expenses $ 420,776 $ 736,358 $ 315,582 $ 806,168 $ 385,392
Other Non-Operating Expenses $ - $ - $ - $ - $ -
Total Expenses $ 1,506,021 $ 1,821,603 $ 315,582 $ 2,502,835 $ 996,814
Change in Assets $ (20,977) $ (334,084) $ (313,107) $ (37,710) $ (16,733)
Fixed Assets Depreciation (10,020) (10,020) - (6,076) 3,944 Computer Hardware & Software CapEx - - - - - Furniture & Fixtures CapEx - - - - - Equipment CapEx - - - - - Leasehold Improvements - - - - - $ (10,020) $ (10,020) $ - $ (6,076) $ 3,944
Allocation of Fixed Assets $ (10,957) $ (19,174) (8,218) $ (31,634) $ (20,677)
Inc/(Dec) in Fixed Assets $ (20,977) $ (29,194) $ (8,218) $ (37,710) $ (16,733)
Total Budget $ 1,485,044 $ 1,792,409 $ 307,365 $ 2,465,125 $ 980,081
Total Change in Working Capital $ - $ (304,889) $ (304,889) $ - $ -
FTEs 4.00 7.00 3.00 7.00 3.00
ReliabilityFirst 2019 Business Plan and Budget: Final Version 45 Section A – Statutory Programs Administrative Services Administrative Services
Administrative Services (in whole dollars) Direct Expenses and Fixed Assets FTEs Increase Increase 2018 Budget 2019 Budget (Decrease) 2018 Budget 2019 Budget (Decrease) General and Administrative $ 2,343,480 $ 2,395,261 $ 51,780 3.00 3.00 0.00 Legal and Regulatory $ 772,830 $ 999,969 $ 227,139 2.00 3.00 1.00 Information Technology $ 1,595,923 $ 1,814,287 $ 218,364 5.00 6.00 1.00 Human Resources $ 837,049 $ 917,081 $ 80,032 3.00 2.00 (1.00) Finance and Accounting $ 659,482 $ 689,307 $ 29,825 2.60 2.60 0.00 Total Administrative Services $ 6,208,764 $ 6,815,905 $ 607,140 15.60 16.60 1.00
Program Scope and Functional Description Administrative Services is comprised of the following programs: General and Administrative, Legal and Regulatory Affairs, Information Technology, Human Resources, and Finance and Accounting.
Methodology for Allocation of Administrative Services Expenses to Programs The majority of the Operating Expenses are accounted for within the related department’s budget. If an expense cannot be specifically associated to a department, it is included in one of the Administrative Services programs. All expenses for the Administrative Services Programs, referred to as indirect expenses, are allocated proportionately based on FTE count to the direct programs. This allocation provides improved financial perspective for the direct program areas.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 46 Section A – Statutory Programs Administrative Services
Administrative Services Budget Detail The following table shows funding sources and related expenses for the Administrative Services section of the 2019 Business Plan and Budget. Explanations of variances by expense category are included with the Supplemental Financial Tables found in Section B.
2018 Budget and Projection, and 2019 Budget Administrative Services
Variance Variance 2018 Projection 2019 Budget 2018 2018 v 2018 Budget 2019 v 2018 Budget Budget Projection Over(Under) Budget Over(Under) Funding ReliabilityFirst Funding ERO Assessments $ 716,686 $ 716,686 $ - $ (1,015,412) $ (1,732,098) Penalty Sanctions - - - - - Total ReliabilityFirst Funding $ 716,686 $ 716,686 $ - $ (1,015,412) $ (1,732,098)
Membership Dues $ - $ - $ - $ - $ - Federal Grants - - - - - Services & Software - - - - - Workshops - - - - - Interest - - - - - Miscellaneous - - - - - Total Funding 716,686 716,686 - (1,015,412) (1,732,098)
Expenses Personnel Expenses Salaries $ 2,930,629 $ 2,930,629 $ - $ 3,339,566 $ 408,938 Payroll Taxes 149,790 149,790 - 167,306 17,517 Benefits 531,813 531,813 - 620,207 88,394 Retirement Costs 561,006 561,006 - 631,243 70,237 Total Personnel Expenses $ 4,173,237 $ 4,173,237 $ - $ 4,758,323 $ 585,085
Meeting Expenses Meetings 98,500 98,500 $ - $ 100,200 $ 1,700 Travel 88,700 88,700 - 92,500 3,800 Conference Calls 50,400 50,400 - 52,200 1,800 Total Meeting Expenses $ 237,600 $ 237,600 $ - $ 244,900 $ 7,300
Operating Expenses Consultants & Contracts 158,720 158,720 $ - $ 202,850 $ 44,130 Office Rent 519,595 519,595 - 521,086 1,491 Office Costs 483,871 483,871 - 462,088 (21,783) Professional Services 411,245 411,245 - 423,522 12,277 Miscellaneous 36,996 36,996 - 40,136 3,140 Depreciation 353,496 353,496 - 441,375 87,879 Total Operating Expenses $ 1,963,923 $ 1,963,923 $ - $ 2,091,057 $ 127,134
Total Direct Expenses $ 6,374,760 $ 6,374,760 $ - $ 7,094,280 $ 719,519
Indirect Expenses $ (6,374,760) $ (6,374,760) $ - $ (7,094,280) $ (719,519)
Other Non-Operating Expenses $ - $ - $ - $ - $ -
Total Expenses $ - $ - $ - $ 0 $ (0)
Change in Assets $ 716,686 $ 716,686 $ - $ (1,015,412) $ (1,732,098)
Fixed Assets Depreciation (353,496) (353,496) - (441,375) (87,879) Computer Hardware & Software CapEx 187,500 187,500 - 140,000 (47,500) Furniture & Fixtures CapEx - - - - - Equipment CapEx - - - - - Leasehold Improvements - - - 23,000 23,000 $ (165,996) $ (165,996) $ - $ (278,375) $ (112,379)
Allocation of Fixed Assets $ 165,996 $ 165,996 - $ 278,375 $ 112,379
Inc/(Dec) in Fixed Assets $ - $ - $ - $ - $ -
Total Budget $ - $ - $ - $ 0 $ (0)
Total Change in Working Capital $ 716,686 $ 716,686 $ - $ (1,015,412) $ (1,732,098)
FTEs 15.60 15.60 - 16.60 1.00
ReliabilityFirst 2019 Business Plan and Budget: Final Version 47 Section A – Statutory Programs General and Administrative
General and Administrative
Program Scope and Functional Description The General and Administrative Department consists of the President and CEO, Senior Vice President and Treasurer, and Executive Assistant. Responsibilities include leadership, oversight, and management of all of ReliabilityFirst Corporation's activities, interacting with the Board of Directors and other Regional Entity Management Groups, performing the Corporate Treasurer function, and managing relationships with governmental agencies, regulators, members, stakeholders, and other industry organizations.
2019 Key Assumptions & Deliverables The General and Administrative Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan.
There are no additional assumptions or deliverables unique to the General and Administrative Program.
Resource Requirements • Personnel No increase in personnel is budgeted in this year. • Contractors and Consultants No contractor and consultant support is budgeted in this year.
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Legal and Regulatory Affairs
Program Scope and Functional Description The Legal and Regulatory Affairs program is responsible for four key areas: (1) all legal issues germane to the corporation; (2) regulatory affairs (communication and outreach to FERC, NERC, and the States); (3) external affairs (communication and outreach to ReliabilityFirst stakeholders and the public); and (4) corporate governance of the ReliabilityFirst Board of Directors and its committees.
First, the department is responsible for all legal issues germane to the corporation. This includes ensuring legal and regulatory compliance with all applicable laws, orders, rules, and regulations; serving as advisor to the President and CEO and the Board of Directors; providing legal support to all other departments of the corporation; drafting, reviewing, and maintaining the corporation’s contracts, policies and procedures, and governance documents; and overseeing all regulatory filings and interactions.
Second, the department is responsible for ReliabilityFirst’s regulatory affairs. This includes communication and outreach to FERC, NERC, and the States on specific issues relating to ReliabilityFirst and/or the performance of its delegated functions; working to ensure the consistent application of ERO-wide programs and initiatives across NERC and the Regions; advising senior executives on various strategic and tactical initiatives for the corporation in light of the regulatory landscape; and advocating and advancing ReliabilityFirst’s mission and strategic initiatives in a clear and articulate manner.
Third, the department is responsible for ReliabilityFirst’s external affairs. This includes communication and outreach to ReliabilityFirst’s stakeholders, the general public, and media. This work concerns media relations, and the issuance of announcements, newsletters, and reports on key issues facing the corporation and the industry. This work generally ensures that ReliabilityFirst clearly communicates and shares relevant and timely information to help enhance the reliability of the BES.
Finally, the department is responsible for the corporate governance of the ReliabilityFirst Board of Directors and its Committees. This includes the completion of all activities associated with the Corporate Secretary function (the General Counsel serves as the corporation’s Corporate Secretary), such as preparing Board materials and minutes, facilitating and conducting Board training, and ensuring that director elections, Board of Directors and Committee meetings, and Meetings of Members adhere to the ReliabilityFirst Bylaws and other relevant governing documents.
2019 Key Assumptions The Legal and Regulatory Affairs Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan. There are no additional assumptions or deliverables unique to the Legal and Regulatory Affairs Program.
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2019 Key Deliverables • Support all legal and regulatory needs of the corporation. • Provide legal support to all other departments of the corporation to ensure that those departments and their activities are consistent with NERC directives, FERC orders, rules, and regulations, and other applicable law. • Perform the external affairs function for the corporation • Provide legal support to all other departments to make all necessary regulatory filings with FERC, NERC, and any other applicable regulatory body or agency, as well as support NERC in its efforts to do the same. • Draft, review, and maintain the corporation’s contracts, policies and procedures, and governance documents. • Lead interactions with the FERC, NERC, the States, and other governmental agencies regarding ReliabilityFirst and its mission. • Work to ensure the consistent application of ERO-wide programs and initiatives across NERC and the Regions, including its leadership role in the MRRE program. • Provide legal support and perform the Corporate Secretary function for the Board of Directors and support the corporate governance needs of the organization. This work includes creating and issuing the Board materials prior to Board meetings, providing legal advice as needed during the Board and Committee meetings, and recording minutes for the Board and Committee meetings.
Resource Requirements • Personnel One FTE was reallocated from the Enforcement group to the Legal and Regulatory Affairs group. Previously, additional legal workload (equaling approximately one FTE) was shared among four attorneys in the Enforcement group. To improve efficiency, this work was consolidated and is now performed by one attorney who has been reallocated to Legal and Regulatory Affairs. • Contractors and Consultants Contractor and consultant support is budgeted in 2019 for executive coaching services.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 50 Section A – Statutory Programs Information Technology
Information Technology
Program Scope and Functional Description The Information Technology (IT) department provides users with cost-effective information technology tools and proactively delivers enabling technologies to assist the departments in meeting their goals, objectives, and deliverables. The IT department minimizes the outsourcing of any critical infrastructure services and as such must implement and manage controls to maintain a robust security posture that minimizes ReliabilityFirst's risks. The department provides the necessary technical services in the following categories to ensure efficient and effective performance of all corporate functions:
• Infrastructure Maintenance (Data Center Management - Local/Remote) • Website Hosting and Internal Portal • Voice, Web, and Video Conferencing • Vulnerability Management • Mobile Device Management • Wireless Network Management • Audio/Video Management • Document Management • Email Management • Help Desk Support • Telecommuter Support • Application Support and Development • Data Warehousing Management • Database Administration • Business Analysis • Information Security Protection and Monitoring • Business Continuity and Disaster Recovery
ReliabilityFirst supports the ERO’s efforts to implement, operate, and maintain software tools supporting common enterprise-wide IT operations. ReliabilityFirst is committed to working collaboratively with NERC and the other Regions to minimize duplication of effort and investments, and improve operational efficiency. This collaboration continues to refine existing strategies, governance and procurement practices applicable to the development, operation and maintenance of enterprise architecture, software, and data systems supporting combined NERC and Regional Entity operations.
NERC’s business plan and budget will include ongoing funding support for the development, operation, and maintenance of NERC and Regional Entity approved enterprise wide applications. Funding for these applications will be subject to the budget and funding limits set forth in NERC’s approved business plan and budget. If implementation of these applications are delayed or otherwise not available as planned, ReliabilityFirst could incur additional costs to conduct operations pending the availability of these applications. ReliabilityFirst assumes agreed upon ERO Enterprise applications will be available and has only included appropriate funding for
ReliabilityFirst 2019 Business Plan and Budget: Final Version 51 Section A – Statutory Programs Information Technology
applications and supporting systems necessary to satisfy its business needs that are not within the mutually agreed upon scope of the ERO Enterprise wide applications funded by NERC.
The implementation of an offsite Data Management Center will be in its sixth year of operation. Operational experience to date has been excellent and believed to be very effective in IT resource utilization. Performance to date has provided savings in the operation of equipment, while affording the organization many benefits in security, utilities, and back-up capability.
2019 Key Assumptions The IT Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan. This includes the support for building and implementing centralized enterprise applications for the ERO. The IT Program includes the following regional assumptions:
1. Maintain a high-level security posture across the company-wide data infrastructure and remediate any vulnerability to protect sensitive data.
2. Maintain lower fixed asset costs (infrastructure servers) by continuing operations of virtualization technologies, therefore minimizing replacement costs.
3. Maintain a stringent level of control of the Access Management Process that governs physical and electronic access to resources that contain sensitive corporate data.
4. Departmental processes and efficiencies must be continuously improved, including training exercises for implemented technologies in order to maintain proficiency.
2019 Key Deliverables • Perform necessary software upgrades including, but not limited to, the upgrade of various workstation and server applications and targeted server operating systems. • Continue the enhancements in the development, integration, and expansion of databases and applications into a unified company-wide Information Management System. • Continue enhancements of the internal "intranet" website and related applications to further improve employee efficiency and provide better user experience. • Continue supporting Data Warehousing and Analytics efforts that will support improved risk analysis and decision making for customers. • Continue the advancement of data security and defense technologies to provide layered prevention/detection of the latest advanced cyber security threats. • Perform Security Assessment and Penetration Testing Exercise using external vendor to evaluate the corporation’s Security Maturity Level for implemented controls and detectable vulnerabilities. • Continue refinement of security awareness program by providing training documents, questionnaires, simulated exercises, assessment campaigns, and/or seminars on existing workplace vulnerabilities.
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• Continue supporting ERO initiatives of developing, testing, and deploying ERO enterprise solutions.
Resource Requirements • Personnel To effectively manage the increasing demands on IT support, one FTE is being added to the group. With the risk based direction of the ERO, there is a much greater emphasis on data management and associated tools necessary to deal with these changes. Various aspects of the IT functions are affected with these changes from ongoing security initiatives, data management, storage capacity planning, maintenance, to protection of information. The need for data warehousing capability has become apparent and will require programing skills and continual application management going forward. The continuous challenge of security issues is also requiring additional resources to focus on the state of the art tools and applications to assure our stakeholders that we have the latest and most cost effective tools and processes in place to protect critical information. The resource analysis performed for the IT group indicated the need for upwards of two additional individuals, but one additional resource will enable further evaluation going forward. • Contractors and Consultants Contractors and consultant support is budgeted for 2019 as needed for network maintenance projects, maturing the corporation’s incident response program, security assessment activities, enhancing data management systems, and development support of solutions for reliability and resiliency initiatives.
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Human Resources
Program Scope and Functional Description ReliabilityFirst realizes that talented, experienced employees are its greatest assets, and that finding, nurturing, developing, and retaining that talent is one of its most important tasks. The Human Resources program centers on ReliabilityFirst’s greatest resource, the staff. These responsibilities include attraction and retention, employee development through performance management and training initiatives, policy and procedure development and adherence measures, as well as compensation and benefits administration. The Human Resources staff must be vigilant in understanding and complying with federal and state employment laws covering seven states and the respective reporting requirements for each.
ReliabilityFirst will increase its staff to 79 individuals including two part-time positions equaling one (1.2) FTE, which brings the total to an equivalent of 78.2 FTEs. The staff is comprised of qualified management, professional, and technical employees with the expertise necessary to serve its stakeholders and to support the ERO by properly carrying out the organization’s delegated functions.
2019 Key Assumptions The Human Resources Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan.
There are no additional assumptions unique to the ReliabilityFirst Human Resources Program.
2019 Key Deliverables • Recruit highly skilled and excellent employees. • Sustain competitiveness via the use of annual third party salary and market analyses. • Provide staff training and education
o Train and educate staff on relevant technical topics, including emerging issues and technologies (e.g., virtualization, smart grid technologies).
o Train and educate staff on the existing and new competencies required to perform their roles and responsibilities (e.g., identify and assess risks, perform internal controls assessments and evaluations).
o Participate in knowledge management process to gather and utilize expertise from staff subject matter experts. • Explore, develop and provide training on tools to further enhance staff efficiency and effectiveness. • Review and manage employee benefits. • Review succession plans.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 54 Section A – Statutory Programs Human Resources
Resource Requirements • Personnel The 2019 Business Plan and Budget reflects a net decrease of one FTE in the Human Resources group, due to the reallocation of an administrative employee to the Situation Awareness and Infrastructure Security group as part of a realignment of administrative resources. • Contractors and Consultants Contractors and consultant support is budgeted in 2019 for an engagement to conduct an employee survey, along with, executive coaching, third party recruiting, and temporary administrative services.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 55 Section A – Statutory Programs Finance and Accounting
Finance and Accounting
Program Scope and Functional Description The Finance and Accounting department is responsible for linking the strategy of ReliabilityFirst and its major departments to their annual operating budgets, managing accounting practices to ensure the accuracy of reported results, and making meaningful financial information available to decision makers. The Finance and Accounting department is responsible for directing the complete cycle of the financial management activities of ReliabilityFirst Corporation, including:
• Processing the day to day activities such as travel and expense reporting, monthly financial reporting, accounts payables and receivables, and cash flow management; • Leading the creation of the annual business plan and budget that adequately supports its delegated functions; • Establishing and maintaining accounting policies, procedures, and internal controls, including anti-fraud initiatives, to guide the preparation of ReliabilityFirst’s internal and external financial statements in accordance with Generally Accepted Accounting Principles; • Overseeing the annual external audit of ReliabilityFirst’s financials and all required filings; • Supporting the ERO’s funding/collection mechanism, ReliabilityFirst will annually collect and supply the ERO with a list of LSEs within the ReliabilityFirst footprint and their associated Net Energy for Load (NEL) data as mandated by FERC; • Working with the ERO to develop common accounting practices throughout NERC and the Regions; • Managing the retirement and corporate investment activities; and • Developing and implementing the necessary internal audit function.
2019 Key Assumptions The Finance and Accounting Program incorporates the regional specific strategic and operating objectives set forth in the ERO Enterprise Long Term Strategy and the ERO Enterprise Operating Plan.
There are no additional assumptions unique to the Finance and Accounting Program.
2019 Key Deliverables • Work with all Regional Entities through the Electric Reliability Organization Finance Group (EROFG) to provide consistency in budget submittals to the ERO and to FERC. • Provide all ReliabilityFirst program areas, the Board of Directors, the ERO, and ReliabilityFirst stakeholders with financial clarity and understanding of ReliabilityFirst's financial position.
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• Direct the overall financial plans and accounting practices of the organization; oversee treasury, accounting, budget, payroll, tax, audit activities, and financial and accounting internal controls and standards. • Participate with NERC on the annual Regional Entity true-up filing, and the quarterly statements of activity. • In an effort to continuously improve the entire accounting and budgeting process, implement actions to monitor operating expenses at a more granular level with the management staff. • Provide advice from the financial perspective on contracts into which the organization may enter. • Perform financial related internal control reviews and internal audit reviews.
Resource Requirements • Personnel No increase in personnel is budgeted in this year. • Contractors and Consultants No contractor or consultant support is budgeted in this year.
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Section B: Supplemental Financial Information
ReliabilityFirst 2019 Business Plan and Budget: Final Version 58 Section B – Supplemental Financial Information Reserve Analysis
Table B-1: Working Capital and Operating Reserve Analysis
Working Capital and Operating Reserve Analysis 2018-2019 STATUTORY
Working Working Capital Operating Total Capital Reserve Reserve Beginning Reserve Balances, January 1, 2018 3,759,627 360,270 2,399,357 1,000,000 Plus: Penalty Funds Released from Restriction January 1, 2018 1,912,877 1,912,877
Plus: 2018 ReliabilityFirst Funding (from LSEs or designees) 20,147,707 19,198,917 948,790 Plus: 2018 Other funding sources 50,000 50,000
Less: 2018 Projected expenses & capital expenditures (21,393,899) (21,393,899) Other Adjustments to Reserves 1 (158,074) (158,074)
Projected Working Capital and Operating Reserves, December 31, 2018 4,318,238 (29,909) 3,348,147 1,000,000
Targeted Working Capital and Operating Reserves, December 31, 2019 3 3,144,752 0 2,144,752 1,000,000
Less: Projected Working Capital and Operating Reserves, December 31, 2018 (4,318,238) 29,909 (3,348,147) (1,000,000)
Total Adjustments to Reserves (1,173,486) 29,909 (1,203,395) 0
2019 Expenses and Capital Expenditures 22,648,458 Less: Penalty Sanctions 2 (327,215) Less: Other Funding Sources (50,000) Adjustment to Achieve Reserve Balances (1,173,486) Other Adjustments to Reserve 1 158,074
2019 ReliabilityFirst Assessment 21,255,831
1 Represents transactions recorded only on the Statement of Financial Position (balance sheet) that do not impact the Statement of Activities (income statement), including true-up of current versus non-current deferred rent obligation. 2 Represents penalty sanctions collected from July 1, 2017 to June 30, 2018. 3 The Operating and Working Capital Reserves were approved by the ReliabilityFirst Board of Directors on March 15, 2018 and April 26, 2018, respectively. Explanation of the Working Capital Reserve Historically, the working capital reserve has consisted of the amount necessary to satisfy projected cash flow needs for daily operations. In an effort to manage assessments more effectively over a three to five year period, the working capital reserve initially increased in value such that additional funds were available to achieve stabilization of future assessments. For 2019, $1,173K of the working capital reserve is being utilized to offset the assessment and minimize the variance from the 2018 assessment. The Targeted Working Capital balance of $2,145K will be used to stabilize assessments in future years.
Explanation of the Operating Reserve The amount of the operating reserve is determined and recommended for approval by the Board of Directors during the annual budget process. On March 15, 2018, the ReliabilityFirst Board approved a $1,000,000 operating reserve, which is consistent with ReliabilityFirst policy and historical experience and is believed to be appropriate for any unbudgeted and unexpected expenditures of the organization.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 59 Section B – Supplemental Financial Information Breakdown of Statement of Activities
Table B-2: Penalty Sanctions Received
Penalty Sanctions Received Between July 1, 2017 and June 30, 2018 Dates Received Amount Received
9/15/2017 92,283 10/19/2017 25,000 11/17/2017 100,000 12/8/2017 45,000
Collected July 1, 2017 to December 31, 2017 262,283
3/9/2018 39,932 3/29/2018 25,000
Collected January 1, 2018 to June 30, 2018 64,932
Total 327,215
Allocation Method
Penalty monies received have been allocated based upon the number of FTEs to the following direct programs to reduce assessments:
• Reliability Standards; • Reliability Assurance and Compliance Monitoring; • Enforcement; • Reliability Assessments and Performance Analysis; • Training, Education and Operator Certification; and • Situation Awareness and Infrastructure Security
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Table B-3: Supplemental Funding
Variance Outside Funding Breakdown By Program Budget Projection Budget 2019 Budget v (excluding Reliability Asse ssme nts & Pe na lty Sa nctions) First 2018 2018 2019 2018 Budget
Interest Income $ 50,000 $ 50,000 $ 50,000 $ - Miscellaneous Income - - - - Total Outside Funding $ 50,000 $ 50,000 $ 50,000 $ -
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • No explanation is needed.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 61 Section B – Supplemental Financial Information Breakdown of Statement of Activities
Table B-4: Personnel Expenses
Variance Budget Projection Budget 2019 Budget v Personnel Expenses 2018 2018 2019 2018 Budget Variance % Salaries Salaries $ 12,945,519 $ 12,945,519 $ 13,639,655 $ 694,136 5.36% Employment Agency Fees - - - - Temporary Office Services - - - - Vacation Expense 30,122 30,122 61,732 31,610 104.94% Total Salaries $ 12,975,641 $ 12,975,641 $ 13,701,387 $ 725,746 5.59%
Total Payroll Taxes $ 765,357 $ 765,357 $ 807,085 $ 41,728 5.45%
Benefits Workers Compensation $ 20,000 $ 20,000 $ 15,000 $ (5,000) -25.00% Medical Insurance 1,604,591 1,604,591 1,832,775 228,184 14.22% Life-LTD Insurance 103,758 103,758 111,522 7,764 7.48% Education 321,305 321,305 332,704 11,399 3.55% Relocation - - 15,000 15,000 Total Benefits $ 2,049,654 $ 2,049,654 $ 2,307,001 $ 257,347 12.56%
Retirement Discretionary 401k Contribution $ 1,255,523 $ 1,255,523 $ 1,318,372 $ 62,849 5.01% Savings Plan 753,314 753,314 791,023 37,709 5.01% Pension & Savings Admin 129,500 129,500 143,352 13,852 10.70% Total Retirement $ 2,138,337 $ 2,138,337 $ 2,252,748 $ 114,411 5.35%
Total Personnel Costs $ 17,928,989 $ 17,928,989 $ 19,068,220 $ 1,139,231 6.35%
FTEs 76.20 76.20 78.20 2.00 2.62%
Cost per FTE Salaries $ 170,284 $ 170,284 $ 175,210 4,926 2.89% Payroll Taxes 10,044 10,044 10,321 277 2.76% Benefits 26,898 26,898 29,501 2,603 9.68% Retirement 28,062 28,062 28,808 745 2.66%
Total Cost per FTE $ 235,289 $ 235,289 $ 243,839 $ 8,551 3.63%
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • The increase in Salaries is due to the addition of two new FTEs, a 3% general wage increase, market adjustments, promotions, and an intern program. Additionally, costs have been included to fund the plans to overlap key personnel who have indicated they are near retirement, to allow for adequate knowledge transfer, and training of their successors. • The increase in Vacation Expense is due to the expectation of employees banking more vacation. • The increase in Medical Insurance is primarily due to an estimated 15% increase in medical premiums. • The increase in Pension & Savings Admin is due to the increase in administrative costs relating to the management of the company's retirement plans as they continue to increase in size.
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Table B-5: Meeting Expenses
Variance 2019 Budget Budget Projection Budget v 2018 Variance Meeting Expenses 2018 2018 2019 Budget %
Reliability Standards $ - $ - $ - $ - Reliability Assurance and Compliance Monitoring 500,975 500,975 433,900 (67,075) -13.39% Enforcement 25,500 25,500 24,600 (900) -3.53% Reliability Assessment and Performance Analysis 108,200 108,200 102,650 (5,550) -5.13% Training and Education 136,400 136,400 187,500 51,100 37.46% Situation Awareness and Infrastructure Security 55,350 55,350 51,450 (3,900) -7.05% Administrative Services 237,600 237,600 244,900 7,300 3.07%
Total Meeting Expenses $ 1,064,025 $ 1,064,025 $ 1,045,000 $ (19,025) -1.79%
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • The decrease in the Reliability Assurance and Compliance Monitoring program results from a detailed evaluation of historical trends of travel expenses and the expected travel requirements across all of the activities within this program. In some areas, such as CIP, there may be a higher probability that additional travel will be required, however, all other activities are expected to have reduced travel expenses. In addition, the activities aimed at helping entities achieve excellence in reliability, security, and resiliency were allocated from the Reliability Assurance and Compliance Monitoring Program to the Training and Education Program. • The increase in Training and Education is due to the increased costs associated with the semiannual Reliability Workshop, along with the activities allocated from the Reliability Assurance and Compliance Monitoring program that are aimed at helping entities achieve excellence in reliability, security, and resiliency.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 63 Section B – Supplemental Financial Information Breakdown of Statement of Activities
Table B-6: Consultants and Contracts
Variance Budget Projection Budget 2019 Budget v Variance Contractors 2018 2018 2019 2018 Budget %
Reliability Assurance and Compliance Monitoring 111,600 111,600 88,950 (22,650) -20.30% Enforcement - - - - Reliability Assessment and Performance Analysis 119,812 119,812 126,812 7,000 5.84% Training and Education - - 20,000 20,000 Situation Awareness and Infrastructure Security - - 90,000 90,000 Administrative Services 158,720 158,720 202,850 44,130 27.80% Contractors Total $ 390,132 $ 390,132 $ 528,612 $ 138,480 35.50%
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • The decrease in the Reliability Assurance and Compliance Monitoring program is a result of the allocation of the activities aimed at helping entities achieve excellence in reliability, security, and resiliency to the Training and Education Program. • The increase in Training and Education is due to the activities allocated from the Reliability Assurance and Compliance Monitoring program that are aimed at helping entities achieve excellence in reliability, security, and resiliency. • The increase in Situation Awareness and Infrastructure Security is due to the initiation and advancement of data warehousing capabilities. • The increase in Administrative Services is due to instituting an incident response program, including vulnerability and penetration testing in the Information Technology department.
Table B-7: Office Rent
Variance 2019 Budget Budget Projection Budget v 2018 Variance Office Rent 2018 2018 2019 Budget %
Office Rent $ 437,530 $ 437,530 437,530 $ - 0.00% Data Center Rent 63,789 63,789 65,280 1,491 2.34% Utilities 18,276 18,276 18,276 - 0.00% - - - Total Office Rent $ 519,595 $ 519,595 $ 521,086 $ 1,491 0.29%
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • No explanation is needed.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 64 Section B – Supplemental Financial Information Breakdown of Statement of Activities
Table B-8: Office Costs
Variance Budget Projection Budget 2019 Budget v Office Costs 2018 2018 2019 2018 Budget Variance %
Telephone $ 85,890 $ 85,890 $ 76,422 $ (9,468) -11.02% Internet 35,052 35,052 38,496 3,444 9.83% Office Supplies 22,900 22,900 25,220 2,320 10.13% Computer Supplies and Maintenance 624,405 624,405 631,739 7,334 1.17% Publications & Subscriptions 14,886 14,886 13,793 (1,093) -7.34% Dues 17,222 17,222 20,114 2,892 16.79% Postage 1,200 1,200 1,150 (50) -4.17% Express Shipping 300 300 100 (200) -66.67% Copying 24,120 24,120 2,604 (21,516) -89.20% Reports - - - - Stationary Forms 350 350 900 550 157.14% Equipment Repair/Service Contracts 4,792 4,792 3,992 (800) -16.69% Bank Charges 600 600 600 - 0.00%
Total Office Costs $ 831,717 $ 831,717 $ 815,130 $ (16,587) -1.99%
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • The increase in Computer Supplies and Maintenance is primarily due to the following program variances:
o The decrease in the Reliability Assurance and Compliance Monitoring Program is due to the anticipated reduction in change orders for the compliance portal and third party audit management tool. Additionally, as a result of a realignment of resources, annual maintenance costs for the data analytics software programs were allocated to the Situational Awareness Program.
o The increase in the Situational Awareness Program is due to the projected annual costs associated with the Cybersecurity Risk Information Sharing Program, the anticipated purchase of software to support the management of risk information, and the annual maintenance costs for the data analytics software programs allocated from the Reliability Assurance and Compliance Monitoring Program. • The decrease in Copying is due to the decrease in the annual service and maintenance fees associated with the new copiers that were purchased in 2017.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 65 Section B – Supplemental Financial Information Breakdown of Statement of Activities
Table B-9: Professional Services
Variance Budget Projection Budget 2019 Budget v Professional Services 2018 2018 2019 2018 Budget Variance %
Independent Trustee Fees $ 239,100 $ 239,100 $ 246,050 $ 6,950 2.91% Outside Legal 20,000 20,000 20,000 - 0.00% Accounting & Auditing Fees 69,045 69,045 61,520 (7,525) -10.90% Insurance Commercial 83,100 83,100 95,952 12,852 15.47% - Total Services $ 411,245 $ 411,245 $ 423,522 $ 12,277 2.99%
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • The decrease in Accounting & Auditing Fees is a result of the reduction in the fees for the annual financial audit. • The increase in Insurance Commercial is due to the addition of a cybersecurity insurance policy.
Table B-10: Miscellaneous
Variance Budget Projection Budget 2019 Budget v Miscellaneous Expense 2018 2018 2019 2018 Budget Variance %
Miscellaneous $ 40,696 $ 40,696 $ 43,886 $ 3,190 7.84% - - - - Total Miscellaneous Expense $ 40,696 $ 40,696 $ 43,886 $ 3,190 7.84%
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • No explanation is needed.
Table B-11: Non-Operating Expenses
Variance Budget Projection Budget 2019 Budget v Other Non-Operating Expenses 2018 2018 2019 2018 Budget Variance %
Interest Expense $ - $ - $ - $ - Line of Credit Payment - - - - Office Relocation - - - -
Total Non-Operating Expenses $ - $ - $ - $ -
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • No explanation is needed.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 66 Section B – Supplemental Financial Information Breakdown of Statement of Activities
ReliabilityFirst 2019 Business Plan and Budget: Final Version 67 Section B – Supplemental Financial Information Breakdown of Statement of Activities
Table B-12: Fixed Assets
Variance Budget Projection Budget 2019 Budget v Fixed Assets 2018 2018 2019 2018 Budget Variance %
Computer Hardware $ 167,500 $ 167,500 $ 120,000 $ (47,500) -28.36% Computer Software 40,000 40,000 60,000 20,000 50.00% Furniture & Fixtures - - 0 - Leasehold Improvements - - 23,000 23,000
Total Fixed Assets $ 207,500 $ 207,500 $ 203,000 $ (4,500) -2.17%
Explanation of Significant Variances – 2019 Budget versus 2018 Budget • The decrease in Computer Hardware is due to the change in projects planned in 2019 compared to 2018. • The increase in Computer Software is due to the anticipated purchase of additional licenses for the third party audit management tool. • The increase in Leasehold Improvements is mainly due to the configuration of an IT collaboration room.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 68 Section B – Supplemental Financial Information Projections
Table B-13: 2020 and 2021 Projections
Statement of Activities 2020 and 2021 Projections
2019 2020 $ Change % Change 2021 $ Change % Change Budget Projection 19 v 20 19 v 20 Projection 20 v 21 20 v 21 Funding ERO Funding ERO Assessments $ 21,255,831 $ 22,424,902 $ 1,169,071 5.5% $ 23,658,271 $ 1,233,370 5.5% Penalty Sanctions 327,215 1,380,000 1,052,785 322% 300,000 (1,080,000) -78.3% Total ERO Funding $ 21,583,046 $ 23,804,902 $ 2,221,856 10.3% $ 23,958,271 $ 153,370 0.6%
Membership Dues $ - $ - $ - $ - $ - Federal Grants - - - - - Services & Software - - - - - Workshops - - - - - Interest 50,000 50,000 - 0.0% 50,000 - 0.0% Miscellaneous - - - - - Total Funding $ 21,633,046 $ 23,854,902 $ 2,221,856 10.3% $ 24,008,271 $ 153,370 0.6%
Expenses Personnel Expenses Salaries $ 13,701,387 $ 14,166,346 $ 464,959 3.4% $ 15,008,751 $ 842,406 5.9% Payroll Taxes 807,085 812,696 5,611 0.7% 845,545 32,849 4.0% Benefits 2,307,002 2,578,365 271,363 11.8% 2,941,319 362,954 14.1% Retirement Costs 2,252,748 2,327,846 75,098 3.3% 2,460,326 132,480 5.7% Total Personnel Expenses $ 19,068,222 $ 19,885,253 $ 817,031 4.3% $ 21,255,941 $ 1,370,688 6.9%
Meeting Expenses Meetings $ 314,200 $ 317,342 $ 3,142 1.0% $ 320,515 $ 3,173 1.0% Travel 678,600 695,565 16,965 2.5% 712,954 17,389 2.5% Conference Calls 52,200 52,722 522 1.0% 53,249 527 1.0% Total Meeting Expenses $ 1,045,000 $ 1,065,629 $ 20,629 2.0% $ 1,086,719 $ 21,090 2.0%
Operating Expenses Consultants & Contracts $ 528,612 $ 533,898 $ 5,286 1.0% $ 539,237 $ 5,339 1.0% Office Rent 521,086 526,297 5,211 1.0% 531,559 5,263 1.0% Office Costs 815,130 823,281 8,151 1.0% 831,514 8,233 1.0% Professional Services 423,522 527,757 104,235 24.6% 432,035 (95,722) -18.1% Miscellaneous 43,886 44,325 439 1.0% 44,768 443 1.0% Depreciation 458,903 463,492 4,589 1.0% 468,127 4,635 1.0% Total Operating Expenses 2,791,139 2,919,050 127,911 4.6% 2,847,241 (71,809) -2.5%
Total Direct Expenses $ 22,904,361 $ 23,869,932 $ 965,571 4.2% $ 25,189,901 $ 1,319,969 5.5%
Indirect Expenses $ - $ - $ - $ - $ -
Other Non-Operating Expenses $ - $ - $ - $ - $ -
Total Expenses $ 22,904,361 $ 23,869,932 $ 965,571 4.2% $ 25,189,901 $ 1,319,969 5.5%
Change in Assets $ (1,271,315) $ (15,031) $ 1,256,284 -98.8% $ (1,181,630) $ (1,166,599) 7761.5%
Fixed Assets Depreciation $ (458,903) $ (463,492) $ (4,589) 1.0% $ (468,127) $ (4,635) 1.0% Computer & Software CapEx 180,000 310,000 130,000 72.2% 280,000 (30,000) -9.7% Furniture & Fixtures CapEx - - - - - Equipment CapEx - - - - - Leasehold Improvements 23,000 200,000 177,000 769.6% - (200,000) -100.0% $ (255,903) $ 46,508 $ 302,411 -118.2% $ (188,127) $ (234,635) -504.5%
Allocation of Fixed Assets $ - $ - $ - $ - $ -
Inc/(Dec) in Fixed Assets $ (255,903) $ 46,508 $ 302,411 -118.2% $ (188,127) $ (234,635) -504.5%
Total Budget $ 22,648,458 $ 23,916,440 $ 1,267,982 5.6% $ 25,001,774 $ 1,085,334 4.5%
Change in Working Capital $ (1,015,412) $ (61,539) $ 953,873 -93.9% $ (993,503) $ (931,964) 1514.4%
FTEs 78.2 78.2 - 0.0% 80.2 2 2.6%
ReliabilityFirst 2019 Business Plan and Budget: Final Version 69 Section B – Supplemental Financial Information Projections
Explanation of 2020 and 2021 Budget Projections
ReliabilityFirst has projected budget increases for 2020 and 2021. The projected range for 2020 is 5.6% to 8.2%; and the projected range for 2021 is 4.5% to 7.0%. ReliabilityFirst identified a range for its 2020 and 2021 budget projections to reflect both its baseline projections (the lower end of the range) and its projections of significant at-risk initiatives (the higher end of the range).
These at-risk initiatives primarily concern projected staffing needs to support increased internal workload to implement various programs currently under way or under consideration in support of the five-year strategic plan. Additionally, plans have been developed to overlap key personnel who have indicated they are near retirement in order to allow for adequate knowledge transfer and training of their successors. The potential impact on the budget will be managed and monitored closely as these personnel commit to specific retirement dates. They also concern the need to mature ReliabilityFirst’s CIP oversight capability along with risk analytics and management applications. Below is an overview of each of these at-risk initiatives.
Explanation of Other Additions • With the accumulation of significant amounts of documentation and data, the present documentation management tools need to be updated to assure improved controls, improved configuration management, and advanced data mining capabilities. The migration of data is becoming more of a challenge and will be critical during the transition to the future NERC initiatives for risk based compliance monitoring data management. • Situational awareness and management software will enable more availability of information and displays from various sources to enhance assessment capability in support of risk based reliability, resiliency, and security activities. • Office modifications are necessary as the growth and needs of the organization continue to grow. After four years in our present facility we have identified the need to more efficiently utilize the office footprint to facilitate the increased number of in office staff versus telecommuters, while maximizing utilization of the entire office space for the necessary support activities.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 70 Section B – Supplemental Financial Information Projections
The following is a breakdown of the projected budget ranges for 2020. 2020 Lower Range: 5.6% • Personnel Expense: 4.3% o Wages Increase: 3% o Market Adjustments/Promotions: 1% o Medical/Dental/Vision Premiums: 15%/8%/8% • Meeting Expense: 1% • Travel Expense: 2.5% • Operating Expense: 4.6% o Independent Director Search Fee: $100,000 • Other Additions: o Situation Awareness Software/Hardware Support: $30,000 o CMEP Data Migration: $100,000 o Office Modifications: $200,000
2020 Higher Range to Address At-Risk Initiatives: 8.2% • Personnel Expense: 7.3% o Wages Increase: 3% o Market Adjustments/Promotions: 1% o Medical/Dental/Vision Premiums: 15%/8%/8% o Aging Workforce Initiative: $200,000 o Hire 2 FTEs • Meeting Expense: 1% • Travel Expense: 2.5% • Operating Expense: 4.6% o Independent Director Search Fee: $100,000 • Other Additions: o Situation Awareness Software/Hardware Support: $30,000 o CMEP Data Migration: $100,000 o Office Modifications: $200,000
Notes:
1. 2020 projections are based on 2019 budget.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 71 Section B – Supplemental Financial Information Projections
The following is a breakdown of the projected budget ranges for 2021. 2021 Lower Range: 4.5% • Personnel Expense: 6.9% o Wages Increase: 3% o Market Adjustments/Promotions: 1% o Includes the 2 FTEs from the 2020 projection o Medical/Dental Premiums: 15%/8% • Meeting Expense: 1% • Travel Expense: 2.5% • Operating Expense: (2.5%) • Other Additions: o CMEP Data Migration: $100,000
2021 Higher Range to Address At-Risk Initiatives: 7.0% • Personnel Expense: 9.9% o Wages Increase: 3% o Market Adjustments/Promotions: 1% o Medical/Dental Premiums: 15%/8% o Aging Workforce Initiative: $200,000 o Hire 2 FTEs • Meeting Expense: 1% • Travel Expense: 2.5% • Operating Expense: (2.5%) • Other Additions: o CMEP Data Migration: $100,000
Notes:
1. 2021 projections are based on the 2020 lower range.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 72
Section C: Non-Statutory Activities ReliabilityFirst performed only those functions delegated to it by the ERO in 2018 and the organization does not intend to perform any functions outside its ERO delegated activities in 2019, therefore Section C is not applicable.
ReliabilityFirst 2019 Business Plan and Budget: Final Version 73
Section D: Additional Consolidated Financial Statements
ReliabilityFirst 2019 Business Plan and Budget: Final Version 74 Section D – Additional Consolidated Financial Statements Consolidated Statement of Activities
2019 Consolidated Statement of Activities by Program
Functions in Delegation Agreement Reliability Assessment Situation Awareness Reliability Assurance and Performance Training and and Infrastructure Reliability Standards and Compliance Analysis Education (Section Security General and Information Accounting and Total Statutory Total (Section 300) Monitoring Enforcement (Section 800) 900) (Section 1000) Administrative Legal and Regulatory Technology Human Resources Finance Funding ReliabilityFirst Funding ReliabilityFirst Assessments 21,255,831 21,255,831 - 13,747,063 2,146,889 2,862,565 1,092,466 2,422,260 (1,015,412) - - - - Penalty Sanctions 327,215 327,215 - 196,542 37,184 40,371 15,936 37,184 - Total ReliabilityFirst Funding 21,583,046 21,583,046 - 13,943,605 2,184,073 2,902,935 1,108,401 2,459,443 (1,015,412) - - - -
Non-statutory Funding ------Federal Grants ------Services & Software ------Workshops ------Interest 50,000 50,000 - 30,032 5,682 6,169 2,435 5,682 - - - - - Miscellaneous ------
Total Funding 21,633,046 21,633,046 - 13,973,637 2,189,755 2,909,104 1,110,836 2,465,125 (1,015,412) - - - -
Expenses Personnel Expenses Salaries 13,701,387 13,701,387 - 6,588,226 987,123 1,343,225 386,731 1,056,516 1,218,909 708,034 718,695 362,686 331,242 Payroll Taxes 807,085 807,085 - 403,367 64,657 82,910 24,369 64,475 38,710 34,550 50,993 19,821 23,231 Benefits 2,307,002 2,307,002 - 1,052,759 178,498 156,771 80,980 217,786 91,417 78,511 154,153 238,048 58,078 Retirement Costs 2,252,748 2,252,748 - 1,028,338 152,760 212,370 61,091 166,948 164,481 103,797 113,014 57,367 192,583 Total Personnel Expenses 19,068,222 19,068,222 - 9,072,689 1,383,038 1,795,276 553,171 1,505,725 1,513,518 924,892 1,036,855 677,923 605,135
Meeting Expenses Meetings 314,200 314,200 - 20,900 1,600 8,000 181,500 2,000 63,700 2,400 1,860 32,000 240 Travel 678,600 678,600 - 413,000 23,000 94,650 6,000 49,450 35,000 30,000 13,500 8,500 5,500 Conference Calls 52,200 52,200 ------52,200 - - Total Meeting Expenses 1,045,000 1,045,000 - 433,900 24,600 102,650 187,500 51,450 98,700 32,400 67,560 40,500 5,740
Operating Expenses Consultants & Contracts 528,612 528,612 - 88,950 - 126,812 20,000 90,000 - 7,500 148,000 47,350 - Office Rent 521,086 521,086 ------455,806 - 65,280 - - Office Costs 815,130 815,130 - 250,379 7,582 43,443 8,222 43,416 62,751 15,177 335,692 10,836 37,632 Professional Services 423,522 423,522 ------246,050 20,000 - 116,672 40,800 Miscellaneous 43,886 43,886 - 3,750 - - - - 12,436 - 3,900 23,800 - Depreciation 458,903 458,903 - 5,000 - 3,452 3,000 6,076 174,804 - 266,571 - - Total Operating Expenses 2,791,139 2,791,139 - 348,079 7,582 173,707 31,222 139,492 951,847 42,677 819,443 198,658 78,432
Total Direct Expenses 22,904,361 22,904,361 - 9,854,668 1,415,220 2,071,633 771,893 1,696,667 2,564,065 999,969 1,923,858 917,081 689,307
Indirect Expenses - - - 4,261,174 806,168 875,268 345,501 806,168 (2,564,065) (999,969) (1,923,858) (917,081) (689,307)
Other Non-Operating Expenses ------
Total Expenses 22,904,361 22,904,361 - 14,115,843 2,221,388 2,946,901 1,117,394 2,502,835 - - - - -
Change in Assets (1,271,315) (1,271,315) - (142,206) (31,634) (37,797) (6,557) (37,710) (1,015,412) - - - -
Fixed Assets Depreciation (458,903) (458,903) - (5,000) - (3,452) (3,000) (6,076) (174,804) - (266,571) - - Computer & Software CapEx 180,000 180,000 - 30,000 - - 10,000 - - - 140,000 - - Furniture & Fixtures CapEx ------Equipment CapEx ------Leasehold Improvements 23,000 23,000 ------6,000 - 17,000 - - (255,903) (255,903) - 25,000 - (3,452) 7,000 (6,076) (168,804) - (109,571) - -
Allocation of Fixed Assets - - - (167,206) (31,634) (34,345) (13,557) (31,634) 168,804 - 109,571 - -
Inc/(Dec) Fixed Assets (255,903) (255,903) - (142,206) (31,634) (37,797) (6,557) (37,710) - - - - -
Total Budget 22,648,458 22,648,458 - 13,973,637 2,189,755 2,909,104 1,110,836 2,465,125 - - - - -
Change in Working Capital (1,015,412) (1,015,412) ------(1,015,412) - - - -
FTEs 78.20 78.20 - 37.00 7.00 7.60 3.00 7.00 3.00 3.00 6.00 2.00 2.60
ReliabilityFirst 2019 Business Plan and Budget: Final Version 75 Section D –Additional Consolidated Financial Statements Statement of Financial Position
Statement of Financial Position
2017 Statement of Financial Position
STATUTORY and NON-STATUTORY
(Per Audit) 31-Dec-17 ASSETS
Current Assets Cash 11,027,327 Accounts receivable, net of allowance for uncollectible accounts 97,738 Prepaid expenses 248,059 Total Current Assets 11,373,124
Fixed Assets Property and equipment 2,450,519
Tota l Asse ts 13,823,643
LIABILITIES AND NET ASSETS
Current Liabilities Accounts payable 291,726 Accrued expenses 4,448,434 Deferred Rent 177,857 Total Current Liabilities 4,918,017
Long Term Liabilities Accrued expenses 98,618 Deferred Revenue 350,000 Deferred Rent 1,870,710 Total Long Term Liabilities 2,319,328
Net Assets - unrestricted 4,411,138 Net Assets - restricted 2,175,160
Total Liabilities and Net Assets 13,823,643
ReliabilityFirst 2019 Business Plan and Budget: Final Version 76 Appendix A Organization Chart
Appendix A: 2018 – 2019 Organization Chart
ReliabilityFirst 2019 Business Plan and Budget: Final Version 77 Separator Page
d) Resolution for 2019 Business Plan and Budget (No. 2018-3)
RESOLUTION NO. 2018-3
Resolution for Approval of the 2019 Business Plan and Budget
WHEREAS, the proposed 2019 Business Plan and Budget has been recommended for adoption by the President & Chief Executive Officer and the Senior Vice President & Treasurer of the Corporation;
WHEREAS, the Board of Directors has reviewed the proposed 2019 Business Plan and Budget and, on April 26, 2018, approved the public posting of the proposed 2019 Business Plan and Budget for a 30-day comment period and submittal to the North American Electric Reliability Corporation (NERC);
WHEREAS, on April 27, 2018, staff publicly posted the proposed 2019 Business Plan and Budget for a 30-day comment period and thereafter submitted it to NERC for review;
WHEREAS, the Corporation has not yet received and does not anticipate receiving during the 30-day comment period or NERC review period, any comment that requests or information that indicates a need for a material modification to the proposed 2019 Business Plan and Budget;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors finds the proposed 2019 Business Plan and Budget adequate and sufficient for the Corporation to perform its statutory functions;
FURTHER RESOLVED, that the Board of Directors approves, substantially in the form presented to the Board of Directors at this meeting, the proposed 2019 Business Plan and Budget;
FURTHER RESOLVED, that all actions heretofore taken by the authorized officers of the Corporation in connection with the subject matter of any of the foregoing resolutions be, and they hereby are, approved, confirmed, and ratified in all respects; and
FINALLY RESOLVED, that the appropriate officers of the Corporation be and they hereby are authorized and directed to take all actions and execute all such documents as they deem necessary or appropriate to effectuate the foregoing resolutions.
Forward Together • ReliabilityFirst
As adopted on this ___ day of May, 2018 by the Board of Directors,
Jason Blake Vice President, General Counsel & Corporate Secretary
2 Separator Page
Presentation Update: Wisconsin Public Service and UMERC Transfer Request
Jason Blake, Vice President and General Counsel May 24, 2018 Cleveland, OH Activity to Date
December 2017: WPS/UMERC requests to transfer from MRO to RF
March 2018: Regions post for public comment • Two commenters – No opposition
April/May 2018: RF finalizes transfer evaluation • WPS/UMERC has a greater geographic, electrical, and operational connection with RF • Promotes effective and efficient administration of BPS reliability • MRO does not oppose transfer request
May 2018: NERC posts for public comment • 21 day comment period (closes May 24, 2018)
2 Forward Together • ReliabilityFirst Next Steps
May 24 - July 19, 2018: NERC to review public comments, Regions’ positions and prepare recommendation for NERC Board
August 16, 2018: NERC Board Action
Q4 2018: FERC Filing
3 Forward Together • ReliabilityFirst Questions & Answers Forward Together ReliabilityFirst
Forward Together • ReliabilityFirst
Exhibit 1
Attachment A - WPSC and UMERC Geographic Boundaries
MIUP Balancing Authority Area 2016: Peak Load 585 MWh Generation: 626 MW Upper Michigan Energy Resources Corp (UMERC) – In RF
Wisconsin Electric (WE) – In RF
WPS Balancing Authority Area 2016: Peak Load 2,565 MWh Generation: 3,171 MW Upper Michigan Energy Resources Corp (UMERC) _ In MRO
Wisconsin Public Service (WPSC) – In MRO
WEC Balancing Authority Area 2016: Peak Load 5,861 MWh Generation: 6,889 MW
Wisconsin Electric (WE) – In RF
MIUP, WPS and WEC BAs (LBAs) • MISO is RC • MIUP, WEC, WPS – CFR With MISO 2017 Emergency Operating Plan • American Transmission Company (ATC) Coordination Workshops is primary TOP Exhibit 2
Public Comment of Michael Dougherty
This transfer of WPS and UMERC energy resources from Midwest Reliability Organization to ReliabilityFirst makes sense if being in two separate reliability organizations causes them to do different actions in each organization on different equipment for the same standards. Reducing the burden of compliance on these organizations is a good thing for BES reliability.
Michael Dougherty, CMRP, MBA Electric Superintendent Cuyahoga Falls Electric Department 330-971-8060 Comments of Glencoe Light and Power Commission on the WPSC and UMERC Request to Transfer NERC Registration to ReliabilityFirst
Tuesday, March 27, 2018
Glencoe Light and Power Commission (GLP) appreciates the opportunity to comment on the request for Wisconsin Public Service Corporation (WPSC) to transfer to the Reliability First (RF) region. GLP has no objection nor condones the transfer.
The NERC Multi Regional Registered Entities (MRRE) process was created to relieve administrative burden of Entities registered in multiple regions. However, the MRRE process may not relieve all administrative burdens and GLP understands the rationale for a Registered Entity desiring a transfer to consolidate in one Region.
GLP is concerned over the lack of transparency of the criteria that is applied to allow such transfer. GLP is concerned that the criteria will not be consistently applied in future transfer requests. The dissolving of the SPP region used a reliability and continuity based criteria The process did not allow for parent companies to consolidate their registrations into a single region.
GLP respectfully requests that the transfer acceptance criteria be transparent to the industry and consistently applied in the future.
Terry L. Volkmann on behalf of Glencoe Light and Power Commission. Separator Page
Confidential Presentation Separator Page
Presentation PJM Reliability Perspective First Energy
Michael Bryson, PJM RF Board Director – RTO Sector May 24, 2018
www.pjm.com PJM©2018 First Energy Events
• February 6, 2018 - Pleasants Power Station retirement announced
• March 29, 2018 – (4) nuclear plants retirement announced
• March 29, 2018 – First Energy submits DOE 202(C) emergency request
• March 31, 2018 – First Energy Solutions announces Chapter 11 bankruptcy
www.pjm.com 2 PJM©2018 PJM Responsibilities
• Retirement analysis – within 30 days – analyze reliability issues and need for either transmission upgrades or Reliability Must Run (RMR) requests
• Capacity analysis – Capacity auction closed May 16, 2018 – ensure sufficient replacement capacity in 2021/2022. Units with capacity obligations remain financially obligated for replacement
• Credit exposure analysis for PJM members – ensure bankruptcy minimizes exposure for PJM members
• Coordination with DOE – response to 202 (C) emergency request
• PJM announced Fuel Assurance approach on April 30, 2018
www.pjm.com 3 PJM©2018 DOE's Use of Federal Power Act Emergency Authority in PJM
• On August 24, 2005 in response to a decision by Mirant Corporation to cease generation of electricity at its Potomac river generating station, the District of Columbia Public Service Commission requested that the Secretary of Energy issue a 202(c) emergency order requiring the operation of the Potomac River generating station in order to ensure compliance with reliability standards for the central D.C. area.
• On June 16, 2017, a 202(c) emergency order was issued authorizing the Dominion Energy Virginia to operate Yorktown Units 1 and 2 only as needed and as determined by PJM that generation from those units is needed in order to address reliability needs.
www.pjm.com 4 PJM©2018 Deactivation Status
Transmission Requested Unit(s) PJM Reliability Status Zone Deactivation Date
Davis Besse Unit 1 (896 MW) ATSI 5/31/2020 Reliability analysis complete. New and existing baselines resolve identified impacts. Perry Unit 1 (1247 MW) ATSI 5/31/2021 Units can retire as scheduled Operational flexibility allows to bridge Beaver Valley Unit 1 (909 MW) DUQ 5/31/2021 any delays with the transmission upgrades Beaver Valley Unit 2 (902 MW) DUQ 10/31/2021
Cumberland County Landfill ACE 1/1/2019 Reliability analysis underway (1.6 MW)
www.pjm.com 5 PJM©2018 Deactivation Update: Deactivation Notifications
ATSI and Duquesne Transmission Zones • Davis-Besse (5/31/2020) – Unit 1 896 MW • Beaver Valley Unit 1 (5/31/2021) – Unit 1 909 MW • Perry (5/31/2021) – Unit 1 (1247 MW) • Beaver Valley Unit 2 (10/31/2021) – Unit 2 902 MW
www.pjm.com 6 PJM©2018 Key Observations From Reliability Studies
Load Deliverability
– Examines whether transmission system can support capacity deliveries into areas impacted by deactivation
– Considers emergency conditions inside LDA with security constrained dispatch outside LDA
– Considers single contingencies only
– ATSI, Cleveland, DLCO & PJM West LDAs
– 2021 RPM & 2020-2021 RTEP
– Conclusion: Sufficient transmission margin remains after deactivations to import emergency power into impacted LDAs
www.pjm.com 7 PJM©2018 Key Observations From Reliability Studies
Generator Deliverability
– Examines whether transmission system can support capacity deliveries from clusters of PJM generators to the rest of PJM
– Considers normal peak conditions without security constrained redispatch
– Considers single contingencies and common mode contingencies
– Operational flexibility allows to bridge any delays with the transmission upgrades
– Conclusion: Transmission upgrades are required to preserve deliverability of all existing PJM capacity resources under various contingency conditions
www.pjm.com 8 PJM©2018 Key Observations From Reliability Studies
N-1-1 – Examines whether transmission system can support normal peak conditions with security constrained redispatch with two transmission or generation facility outages – 2020-2021 RTEP – Conclusion: Sufficient transmission margin remains to ensure that under normal peak conditions there is enough redispatch options to operate the system with two single outages
www.pjm.com 9 PJM©2018 Supplemental Materials
www.pjm.com PJM©2018 Ohio – Existing Installed Capacity (MW submitted to PJM, December 31, 2017)
Solar, 1 MW Hydro, 158 MW Summary: Oil, 361 MW Wind, 92 MW Nuclear, 2,134 Natural gas represents approximately MW 38.2 percent of the total installed capacity in the Ohio territory while coal represents approximately 51.3 percent.
Overall in PJM, natural gas represents approximately 37 percent of installed capacity while coal represents 32 percent.
* Gas Contains *Gas, 10,240 MW Natural Gas 10,182.8 MW Coal, 13,705 MW
Other Gas 57.2 MW
www.pjm.com 11 PJM©2018 PJM – Existing Installed Capacity (MW submitted to PJM, December 31, 2017)
Hydro, 8,371 MW Solar, 373 MW Wind, 1,130 MW Oil, 9,734 MW
In PJM, natural gas and coal Coal, 57,692 MW make up nearly 70 percent total installed capacity. Nuclear, 33,992 MW
* Gas Contains
Natural Gas 66,836.3 MW Waste, 962 MW Other Gas 443.8 MW
*Gas, 67,280 MW
www.pjm.com 12 PJM©2018 Ohio – Energy Production (June 1, 2015 – December 31, 2017)
Amount of energy produced by Ohio generation
Misc., 2.8% Nuclear, 11.2%
Coal, 43.1% Natural gas, 19.4%
Imports, 23.5%
www.pjm.com 13 PJM©2018 Separator Page
Background Materials
PJM Perspective on Recent Generation Retirements in its Footprint - Background Materials
1. FE DOE application - https://statepowerproject.files.wordpress.com/2018/03/fes- 202c-application.pdf
2. FE nuclear deactivation notice - https://www.prnewswire.com/news- releases/firstenergy-solutions-files-deactivation-notice-for-three-competitive- nuclear-generating-plants-in-ohio-and-pennsylvania-300621346.html
3. FES bankruptcy - https://www.reuters.com/article/us-firstenergy- bankruptcy/firstenergy-nuclear-coal-plant-units-file-for-bankruptcy-protection- idUSKCN1H81GX