CEO Report Thomas F. Schrader ERCOT Board of Directors July 19, 2005.

CEO Report Thomas F. Schrader

ERCOT Board of DirectorsJuly 19, 2005

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CEO Report

• Budget Preparation• QSE/REP Default• Management Dashboard• Legislation• Annual Report

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ERCOT’s Mission is to direct and ensure reliable and cost-effective operation of the electric grid and to enable fair and efficient market-driven solutions to meet customers’ electric service needs.

For the benefit of Texas, we will…• Operate the high-voltage electric grid reliably,

efficiently, and securely• Provide open and non-discriminatory access to

electric transmission services and the competitive electricity market

• Enable robust and efficient wholesale and retail electricity markets

• Plan a reliable and efficient electric transmission system for the future

Mission Statement

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ISO Cost Comparisons2004 Normalized

ExpendituresBasis for Comparison

ERCOT Rank

% of Median

Population ($/person)With Retail $Without Retail $

53

10897

Peak Load ($/Gw) 2 56Electric Use ($/Gwh) 1 58Generator ($/Unit) 4 100Transmission Mile ($/mile) 2 50Daily Schedule 1 20Market Participant 2 90Source: ERCOT Cost Comparison Study, KEMA, December 2004

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Corporate Goal Descriptions Executive Summary

Goal 1 : Reliability and Congestion Management

Goal 2 : Retail Transaction Processing

Goal 3 : Wholesale Access, Settlement & Billing

Goal 4 : Management Systems and Business Practices

Goal 5 : Financial Management and Cost Effectiveness 1330

Goal 6 : External and Stakeholder Affairs

Goal 7 : Organizational Readiness 8

Corporate Performance Summary by Goal

Goal Area WeightingActual Goal

ScoreWeighted

Score

Reliability and Congestion Management 20.0% 2.6 0.5 Retail Transaction Processing 17.5% 2.0 0.4 Wholesale Access, Settlement & Billing 17.5% 2.3 0.4 Management Systems and Business Practices 15.0% 2.5 0.4 Financial Management and Cost Effectiveness 10.0% 2.6 0.3 External and Stakeholder Affairs 10.0% 2.1 0.2 Organizational Readiness 10.0% 2.2 0.2

Average Score 100.0% 2.3

Score Score

3 13

2 0

Performance Level % by Goal

Goal Performance Level Descriptions and Dashboard Ratings

● Goal 2 - YELLOW rating - 814 Transactions - Enrollment and Meter Reading Scheduling reporting at 93.8% which is between Minimum and Target levels. -- See Goal 2 page for additional information.

● Goal 3 - YELLOW rating - % of completed dispute filings in accordance to protocol at 94% which is between Minimum and Target levels. - See Goal 3 page for additional information.

Goal % Rating Summary

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Goal 1 Goal 2 Goal 3 Goal 4 Goal 5 Goal 6 Goal 7

% o

f goa

l

Meets Stretch Meets Target Meets Minimum Below Minimum

BLUE - Performance Meets Stretch. The critical path milestones for a goal element exceeds expectations and are on track to meet or exceed the stretch goal.

GREEN - Performance Meets Target. All critical path milestones for a goal element are on track, on schedule, or within budget. Any Risks or problems have been mitigated or are in the process of being mitigated.

YELLOW - Performance Meets Minimum. One or more critical path milestones in a goal element are behind schedule and may have a negative impact. Risks and problems have been identified, but not yet mitigated.

RED - Performance is Unsatisfactory. The Goal element is delayed and at risk of not meeting schedule or budget. A goal element does not get out of RED status until all problems and risks are resolved by the manager to restore the element to a satisfactory status.

ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTSummary of Corporate Goals

For YTD June 30, 2005

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Corporate Goal Information Goal Performance Analysis

Goal Description: Reliability and Congestion Management

Goal Definition: Evaluation of how well ERCOT manages the performance of the electricgrid in terms of loss of service, complying with Standards, Protocols, and other key objectives.

Measurements: # Exceptions, % of reports completed, Lost intervals and minutes, andrecommendations not completed

13Accountability: Jones 30

Performance Indicator Levels: Performance Meets StretchPerformance Meets Target #Performance Meets MinimumPerformance is Unsatisfactory

Measurement Levels

Minimum Target StretchActual /

EstimateFav/(Unfav)

to TargetDashboard Indicator

Goal Score

Trend Indicator Comments

Objective Description - # Exceptions:Compliance with NERC Reliability Stds & ERCOT Protocols -Annual basis 3 1-2 0 0 1 3Compliance with ERCOT protocols for Congestion Management -Annual Basis 3 1-2 0 0 1 3No interruption of electric svc to customers due to operator error - Annual Basis 1 0 0 0 - 3

Compliance Monitoring:% of Reports provided on time 90% 95% 100% 95% 0% 2 # Completed Audits - Market Participant (QSE & TO) 12 14 16 14 - 2 Delivery Date for Draft Report on ERCOT Operations Compliance Review 9/9/05 9/1/05 8/26/05 9/1/05 On Time 2 Lost RTB Intervals for EMMS Performance Levels - YTD Basis 22 18 9 13 5 2 2 RTB Intervals Lost in June.

Lost Minutes of FC for EMMS Performance Levels - YTD Basis 112 90 45 33 57 3 0 FC minutes Lost in June.

Completed Recommendations on economic projects to alleviate local and 3 1 0 0 1 3 See Note 1 Below.regional transmission congestion in each regional planning area

Goal Score (average) 2.6

Compliance Objectives and Performance Levels

Executive Summary - Highlights (Blue ratings) and Next Steps (Red and Yellow ratings)

Summary % of Performance Achievement Levels

56%

44%

0%

0%

Meets StretchMeets TargetMeets MinimumBelow Minimum

● NOTE 1 - Based on the work performed by the ERM Scoping team in completing their Phase 1 report on May 31, the ERM project is well under way. The team completer the first ERCOT risk inventory along with recommendations on methodology and organization needed to start the Phase 2 of this effort. Phase 2 has started under the lead of Steve Byone.

ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTReliability and Congestion Management Goal (1)


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Goal Description: Retail Transaction Processing

Goal Definition: Evaluation of the Retail Systems Performance levels, ERCOT initiatedSwitch Transactions, and ERCOT initiated MIMO Transactions

Measurements: Weighted Average % within Protocol and% of available Market Processing Services

13Accountability: Giuliani 30

Performance Indicator Levels: Performance Meets StretchPerformance Meets Target 800%Performance Meets MinimumPerformance is Unsatisfactory

Measurement Levels

ERCOT Initiated Switch Transactions Minimum Target StretchActual /

EstimateFav/(Unfav)

to TargetDashboard Indicator Goal Score


814 Transactions - Enrollment and Meter Reading Scheduling 95.0% 98.0% 99.5% 98.8% 0.8% 2 1st Q 2005 data867 Transactions - Historical and Initial Meter Read Deliveries 90.0% 95.0% 100.0% 97.3% 2.3% 2 1st Q 2005 data

ERCOT Initiated MIMO Transactions814 Transactions - Enrollment and Meter Reading Scheduling 90.0% 95.0% 98.5% 93.8% -1.2% 1 1st Q 2005 data - See Note 1 below867 Transactions - Historical and Initial Meter Read Deliveries 90.0% 95.0% 100.0% 97.0% 2.0% 2 1st Q 2005 data

Retail Systems Performance% of time available for Market Processing Services - Retail * 96.0% 97.0% 98.0% 98.68% 1.7% 3

(excluding schedules outages)





20%

60%

20%

0%


● NOTE 1 - These are automated transactions that are heavily dependent on computer system availability. During the 1st quarter measurement period, outage events drove this measurement down slightly below the Target measurement level. IT Staff is diligently working to prevent these outages from occurring again. The Second quarter measurement is anticipated to be above Target due to the successful efforts of IT. This is First Quarter results. Second Quarter transaction numbers should be available by 8/05/05 in preparation of filing date on 8/15/05.

* See attached chart on page 5 for component of Retail Market Processing Service Transaction percentages.

Net Service Availability May 2005

0.93

0.98

#REF! 1

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ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTRetail Transaction Processing Success (2)


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Goal Description: Wholesale Access, Settlement & Billing

Goal Definition: Evaluation of the Wholesale transactions processed in accordance to Protocols

Measurements: Weighted Average % within Protocol, % of available market processing services,and SAS 70 Audit Results

13Accountability: Giuliani 30

Performance Indicator Levels: Performance Meets StretchPerformance Meets Target ##Performance Meets MinimumPerformance is Unsatisfactory

Measurement Levels


EstimateFav/(Unfav) to

TargetDashboard Indicator

Goal Score


% of Transactions processed within the Settlement Calendar 95.0% 98.0% 99.5% 99.2% 1.2% 2 which followed the calendar

% of Transactions processed in accordance with Protocols 95.0% 98.0% 100.0% 100.0% 2.0% 3

% IDR data captured by true-up as requested from MRE 90.0% 95.0% 99.5% 99.6% 4.6% 3

% of completed dispute filings in accordance to protocol - Annual 90.0% 95.0% 99.0% 94.0% -1.0% 1 See Note 1 below.

Wholesale Systems Performance% of time available for Market Processing Services - Wholesale * 96.0% 97.0% 98.0% 100.00% 3.0% 3

(excluding schedules outages)

SAS 70 Audit Report type with schedule and budget considerations

Unqualified - Over budget OR Behind Schedule

Unqualified- On budget and On Schedule

Unqualified-Under budget OR Ahead of

Schedule

Unqualified- On budget and On Schedule

On Target 2





50%

33%

17%

0%


● NOTE 1 - Alerts have been implemented for account managers to track disputes by due dates and to help them prioritize to improve goal status to Achieve Target Measurement Levels.

* See attached chart on page 5 for component of Wholesale Market Processing Service Transaction percentages.

ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTWholesale Access, Settlement & Billing (3)


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Percentage of Net Service Availability for Retail and Wholesale Market Processing Services

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RETAIL Wholesale

Goal 2 Measurement Goal 3 Measurement


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Net Service Availability June 2005

100.00% 100.00% 100.00% 100.00%99.79%99.54%

98.68%

93.00%

94.00%

95.00%

96.00%

97.00%

98.00%

99.00%

100.00%

% Available 98.68% 99.54% 99.79% 100.00% 100.00% 100.00% 100.00%

Retail Total Transaction Processing Web Services Report Postings Wholesale Total Settlements Invoices

ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTGOALS 2 & 3 SUPPLEMENT


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Goal Description: Management Systems and Business Practices

Goal Definition: Develop and Implement: Security Plan, Risk Mitication Plan, Audit ResponsePlan, and Business Process development, communication enforcement and Action plan for viloations.

Measurements: % of completion and issues addressed by year end

13Accountability: Jones / Giuliani / Bowman / Schrader 30


Measurement Levels


EstimateFav/(Unfav)



% of completed Security Plan anticipated by year end 90.0% 95.0% 100.0% 95.0% 0.0% 2

% of Risk Mitigation Plans anticipated by year end 90.0% 95.0% 100.0% 100.0% 5.0% 3 See Note 1 Below.

% of Audit Plan issued, addressed by year end 90.0% 95.0% 98.0% 95.0% 0.0% 2

% of completed plans for Business Practice violations anticipated 90.0% 95.0% 100.0% 100.0% 5.0% 3 to be complete by year end





50%

50%


Note 1 - The ERM Scoping Team completed its Phase 1 report on time on 5/31/05. The Executive team has agreed to proceed with phase 2 efforts including the completion of ERCOT risk inventory, initial organization preparedness, and Board briefings. It is anticipated that this should result in the risk mitigation plans being completed by year end.

ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTManagement Systems and Business Practices (4)


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Goal Description: Financial Management and Cost Effectiveness

Goal Definition: Identify permanent cost savings, develop time tracking system, implementPortfolio Management tracking system

Measurements: Identify actual savings, implementation dates, and % of projectscompleted within budget and on time

13Accountability: Bowman 30


Measurement Levels

Minimum Target StretchActual / Estimate

Fav/(Unfav) toTarget

Dashboard Indicator

Goal Score


Operational Cost Savings compared to 2005 BudgetPermanent Cost Savings - Annual Estimate 500,000$ 1,000,000$ 2,000,000$ 1,804,125$ 804,125$ 2 $1,419K savings already identified

Tracking SystemFully developed and implemented time tracking system 4/30/05 3/30/05 2/15/05 2/15/05 43 Days 3 Goal Objective CompletedBi-weekly time card reporting delivered on time 83.0% 92.0% 100.0% 92.0% 92.0% 2 Reporting period - Full month May 2005

Executive Dashboard anticipated delivery date 5/30/05 4/30/05 3/31/05 3/31/05 30 Days 3 Goal Objective Completed

Portfolio ManagementFully developed and implemented Portfolio Management Reporting 4/30/05 3/30/05 2/15/05 1/31/05 58 Days 3 Goal Objective Completed

Project Management% of projects within budgeted amount 75.0% 80.0% 90.0% 90.5% 10.5% 3 19 out of 21 projects - See Note 1 below% of projects within timeframe 75.0% 80.0% 90.0% 81.0% 1.0% 2 17 out of 21 projects - See Note 1 below





57%

43%

0%

0%


● NOTE 1: Three projects related to EMMS Release 4 closed in June resulting in improvement in the measurement level for both of these project goals.

* Please see page 8 for Financial Metrics related to Goal 5.

ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTFinancial Management and Cost Effectiveness (5) *


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ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTFinancial Metrics Goal Supplement (5)

For YTD June 30, 2005$ in millions

Expense category Budget Actual Var - # Var - % ERCOT Employee Count Budget Actual Var - # Var - %Labor and benefits 25.08 23.99 1.09 4% Market Operations 132 126 6 5%Contractors 4.84 3.98 0.87 18% System Operations 154 148 6 4%Hardware and software support 3.25 3.57 -0.32 -10% IT Operations 170 161 9 5%Depreciation & Amortization 25.43 24.03 1.40 5% Corporate Operations 98 76 22 22%Other expenses 8.18 6.77 1.41 17% Total 554 511 43 8%Total 66.78 62.34 4.44 7% Total Actual Resource Employee Contractor Total

Market Operations 126 1 127Expense category Budget Actual Var - # Var - % System Operations 148 1 149

Market Operations 6.82 6.42 0.40 6% IT Operations 161 15 176System Operations 7.76 7.91 -0.16 -2% Corporate Operations 76 13 89IT Operations 14.45 13.73 0.72 5% Total 511 30 541Corporate Operations 37.76 34.27 3.48 9%Total 66.78 62.34 4.44 7% Bowman Giuliani Jones Walker McIntire Hinsley Schrader

Contractors 8 1 1 2 2 15 1Project Expenditures Budget Actual Var - $ Var - %

Market Operations 1.44 0.67 0.76 53% Goal Goal Description Hours PercentSystem Operations 4.01 2.40 1.61 40% 1 Reliability and congestion management 146,238 39%Retail Operations 2.19 1.29 0.90 41% 2 Retail transaction processing success 46,776 13%IT Operations 2.67 0.86 1.81 68% 3 Wholesale access, settlement and billing 71,948 19%Corporate Operations 1.35 0.69 0.66 49% 4 Management systems and business practices 28,992 8%Total 11.66 5.91 5.75 49% 5 Financial management and cost effectiveness 39,151 11%

Total Initiation Planning In-progress Complete 6 External and stakeholder affairs 24,214 6%YTD Number of projects by status 69 9 16 23 21 7 Organizational readiness 15,539 4%

Budget Actual Var -$/ # Var - %System Administration Fee 58.29 58.19 -0.10 0%Other Revenue 1.03 1.07 0.05 4%Total 59.32 59.26 -0.06 0% Current Mo. Prior Mo. % ChangeMWH volume (millions) 138.80 138.55 -0.25 0% QSE and TCR security deposits 34.88 27.53 27%

QSE advance receipts and due to generators 19.79 30.59 -35%TCR auction receipts 15.77 15.99 -1%

Total market settlement liability 70.44 74.11 -5%Debt Type Balance Rate Balance Rate Settlement short pmts balance (after uplifts) 0.62 3.12 -80%Senior Notes 122.73 6.17% 122.73 6.17%Term Notes 50.00 3.41% 50.00 3.41%Revolver - Borrowed 0.00 0.00% 0.00 0.00% AmountTotal / Average 172.73 5.37% 172.73 5.37% Beginning Cash (January 1, 2005) 33.49$ TCR Borrowing 6.50 8.00 Cash Provided / (Used) by Operations 8.00 Term Notes - Unused Capacity 0.00 0.00 Cash Used in Investing Activities (Projects) (8.25) Revolver - Unused Capacity 50.00 50.00 Cash Provided / (Used) by Financing Activities (5.64)

Ending Cash (June 30, 2005) 27.60$

Year-to-Date Cash Flow Summary

Market Settlement and Credit

DebtPrior MonthCurrent Month

Year-to-Date Operating Expenses Human Resources

Year-to-Date Capital Expenditures

Year-to-Date Revenue & Billing Determinants

Time Tracking - Hours Allocated to Seven Corporate Goals

Time Tracking through June 15, 2005. ERCOT employees track and record time expended on approximately 175 operational activities. The activities were mapped to seven corporate goals established by the ERCOT management team.

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Goal Description: External and Stakeholder Affairs

Goal Definition: Identify accurate approval ratings from Press, Legislators, Staff, PUC, ExecutiveDirector, Senior Staff, and Market Participants

Measurements: Approval ratings on a 10 point scale and overall % ratings

13Accountability: Walker / Giulani / Jones 30

Performance Indicator Levels: Performance Meets StretchPerformance Meets Target #Performance Meets MinimumPerformance is Unsatisfactory

Measurement Levels


EstimateFav/(Unfav)



Approval Ratings from Governing & Reporting entities *Anticipated Survey of Press Contacts Approval Rating 70% 85% 95% 85% 0% 2 See Note 1 Below.Anticipated Survey of relevant Legislators and Staff Approval Rating 70% 85% 95% 85% 0% 2 See Note 1 Below.Anticipated Survey of PUC commissioners, Executive Director, and Senior 70% 85% 95% 85% 0% 2 See Note 1 Below.

Staff Approval Ratings

Approval Ratings from Market Participant Surveys *(Overall score on a 10 point scale)

Anticipated Survey of Nondiscriminatory access to transmission/distribution 8.0 8.4 8.8 8.4 - 2 See Note 2 Below.Anticipated Survey of Ensure reliability/adequacy of grid 7.9 8.3 8.7 8.3 - 2 See Note 2 Below.Anticipated Survey of Accurate accounting of electric production & delivery 6.9 7.4 7.9 7.4 - 2 See Note 2 Below.Anticipated Survey of Timely information about customer's choice of REP 6.8 7.3 7.8 7.3 - 2 See Note 2 Below.

2005 ERCOT Operations Training Seminar Approval Rating 85% 90% 95% 99% 9% 3 Seminar is complete. Ratings are final.





13%

87%

0%

0%


● NOTE 1: Approval Ratings from Governing & Reporting entity surveys are estimated to be on Target. Current year's actual results will be reported in Q3.

● NOTE 2: Approval Ratings for Market Participant surveys are now estimated to be on Target by Director. Current year's actual results will be reported in Q3.

ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTExternal and Stakeholder Affairs (6)


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Goal Description: Organizational Readiness

Goal Definition: Key employee retention, management training, succession planning, performance basedcompensation plan tied to goals

Measurements: Evaluation of employee attrition, % completing training programs, completion ofprocess improvements, succession and performance planning goals

13Accountability: McIntire 30

Performance Indicator Levels: Performance Meets StretchPerformance Meets TargetPerformance Meets MinimumPerformance is Unsatisfactory

Measurement Levels


EstimateFav/(Unfav) to

TargetDashboard Indicator

Goal Score


Readiness Objective Descriptions% retention of key employees - Annual Estimate 85% 90% 95% 92% 2% 2 See Note 1 below.

% of managers completing training - Annual Estimate 75% 90% 100% 90% 0% 2

% of completion for business process review and improvement 70% 85% 100% 100% 15% 3 anticipated by year end

Succession Planning by Level of organization anticipated completed by year endOfficers

Officers / Directors

Officers/ Directors/ Managers

Officers / Directors

On Target 2

Revised Performance Planning Process by level of organization tied to goals Officers / Directors

Officers / Directors / Managers All Employees

Officers / Directors / Managers

On Target 2

Development of Performance Based Compensation Plan for Board Approval Not Board Approved

Board Approved

Approved and Implemented

Board Approved

On Target 2





17%

83%

0%

0%


● NOTE 1 - June YTD attrition (voluntary termination) was 20 FTE or 4.0%. Annualized, this equates to an 8% attrition rate and a 92% retention rate.

ERCOT - MONTHLY EXECUTIVE DASHBOARD REPORTOrganizational Readiness (7)


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REP Default• ERCOT and Market Participant working to

Transition customers to the new REP or POLR Minimize the impact to the market

• Identifying issues Timeline for QSE notice of termination of LSE Clarity of responsibility of transition tasks Clarity of timeline, including the trigger point Need cooperation of losing REP for customer

name and billing address

CEO Report Thomas F. Schrader ERCOT Board of Directors July 19, 2005.

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Transcript of CEO Report Thomas F. Schrader ERCOT Board of Directors July 19, 2005.