Finance & Audit Committee Meeting

December 13, 2005

2

Audit Report Acceptance - Sean Barry

3

Committee Briefs

ICMP – Cheryl Moseley

Audit Point Status – Cheryl Moseley

Credit Stats – Cheryl Yager

PMO Update – (included here but not on this month’s agenda)

4

ICMP & Audit Point Status – Cheryl Moseley

5

Completion Status By Audit

0

25

50

75

100

125

150

175

200

225

250

275

300

Feb 08 Feb 21 Mar 30 Apr-30 May 31 Jun 30 Jul 18 Aug 15 Sep 14 Oct 17 Nov 07 Dec 06Reporting Date

# of

Aud

its

CAN Audit D&T Internal Controls Internal Audits Ernst & YoungPwC D&T Lawson/Fixed Assets Remaining Verified

288

53 to complete

6

Projected Audit Point Progress

0

10

20

30

40

50

60

70

Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06

# of R

emain

ing

Audi

t Poi

nts

# Remaining 59 58 53 23 22 21 9 9 6 2 2 1 1 0 0

Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06

7

Actionable Internal Control Gaps - Status

CHANGES FROM PRIOR REPORT on 11/07/05 - Increase/(Decrease):

Treasury Revenue

Corporate Govern-

anceFinancial Reporting

Capital Projects IT Payroll HR

Contract Mgmt

Fixed Assets

Accounts Payable

Procure- ment Total

Complete - Non Key - - - - - - - - - - - - - Complete - Key 1 - 5 - 1 - - - - - 5 - 12 Execution - Non Key - - - - - - - - - - 3 - 3 Execution - Key (1) - (5) - - - - - 2 - 19 - 15 Planning - Non Key - - - - - - - - - - (3) - (3) Planning - Key - - - - (1) - - - (2) - (24) - (27)

Status of 217 D&T Actionable Internal Control Gapsby Business Process as of 12/06/05

0

10

20

30

40

50

60

70

80

# o

f A

cti

on

ab

le G

ap

s

Planning - Key Planning - Non Key Execution - Key Execution - Non Key Complete - Key Complete - Non Key

Complete - Non Key 3

Complete - Key 2 5 1 1 1 6 3

Execution - Non Key 1 1 5 13 13 7 3 3

Execution - Key 2 6 5 1 3 21 17 24 69

Planning - Non Key

Planning - Key 1

Treasury RevenueCorporate

GovernanceFinancial Reporting

Capital Projects

IT Payroll HR Contract Mgmt Fixed AssetsAccounts Payable

Procurement

1%2%

6% 7%10%

35%

3%1%

4% 5%

11%

15%

% = % of Total

8

Credit Stats – Cheryl Yager

9

PMO Update

10

2005 YTD Project Performance

Project Process Improvements In 2005 7 completed, 47 YTD 5 in Initiation 20 in Planning 43 in Execution

PM Staff Completing PMP Certification Reviewing Prioritization Criteria with PRS & TAC Planning 2006 Program Portfolios PMO Process Improvements Being Implemented

Project Activity Project Performance

05

1015202530354045

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

Completed Initiation Planning Execution

0%

20%

40%

60%

80%

100%

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

On Time On Budget Deliverables

Fourth Quarter Results (to 11/30)

11

Projected Completions to Year End

Completed Initiation Planning Execution Total Active

IO 7 3 8 7 18

CO 0 0 2 6 8

MO 8 0 2 10 12

RO 5 0 5 3 8

SO 27 2 3 17 22

Totals 47 5 20 43 68

PMO Stats through 11/30/05

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Projected Total Total Portfolio

Jan - Mar Apr - Jun Jul-Sept Oct-Nov Dec Year End All Projects

Completed 14 7 19 7 11 58 110

On-Time 71% 100% 47% 86% 91% 72% 75%

On-Budget 86% 100% 95% 100% 100% 95% 93%

Deliverables 100% 95% 95% 100% 100% 97% 97%

12

Large Project Update- PR-30183 (EMMS Release 4)

Scope EMMS Release 4 Execution

Budget Approved Budget $ 8,138,453 Actual/Forecast $ 8,135,075

— 2003 Actual $ 37,815— 2004 Actual $ 4,942,983— 2005 Actual/Forecast $ 3,053,122— 2006 Forecast $ 101,155

Market Deliverables Delivered on October 05, 2005— RPRS Market Redesign (Currently in Monitor Mode)— AS Simultaneous Procurement— Fleet Deployment of OOM and VDI— Resource Plan Improvement (R3 carryover)— Unit Specific Bid Limits— MOMS Sync with Release 4— OOME Participation in providing AS

EMS Deliverables Migrated to production on June 14, 2005— Improvements to VSA/DSA— EMS Archive comparison tool— Special Protection Schemes

Schedule Project end being extended to June 30, 2006

13

PR-30183 (EMMS Release 4) Status

Project changes to timeline

Extend Task Order 22 term to June 30, 2006 in support of Replacement Reserve System (RPRS) “Go Live” schedule for Q1/Q2 2006 with no additional funding required

Extend project end date to June 30, 2006 to support the 90 day warranty period associated with RPRS

14

Projects Completed 4th Quarter

Projects Completed in October PR-40093 RMR Automation PR-50010 Lodestar Enhancements

PRR420 Modified Competitive Solution for Settlements

PR-40075 Lodestar Enhancements PRR 488 and PRR 572 Weather Responsiveness Determination and Reporting

PR-50143 IPC Line Networking Upgrade

Projects Completed in November PR-40090_01 OTS Center PR-40108 Disclosure of Local

Congestion PR-50121_03 Market Information

Distribution

15

PR-40090_01 Operator Training Simulator (OTS) Center

Scope of OTS Center included : Remodel the TCC Blue Building to create a Training CenterFurniture and classroom PCs (moved planned deliverable from 2006 to 2005)Audio Visual Subsystem (moved planned deliverable from 2006 to 2005)

Features and Deliverables: Training Center to house the Operator Training Simulator (OTS) System, Classroom, Engineers, Instructors, Training team and Admin. A glassed-in area behind the consoles in the control room for role players and instructors OTS furniture, Power Monuments, whiteboards, guest chairs PCs for classroom instruction (10 students and 2 instructors)

Current Activity Punch List Fixes Delivery and installation of Audio-Visual Subsystem

December 2004 - September 2005

Planning10 Months

Execution4 Months

September – December 2005

16

PR-40108 Disclosure of Local Congestion

Scope of Disclosure of Local Congestion Project included : Automation of the process to post OOMC, OOME, and RMR information to help mitigate local congestion costs.

Features and Deliverables: The objective of the project is to automate posting of the report to disclose OOMC, OOME, and RMR information both 2 days after the trade day for instructions and 17 days after the trade day with instructions and energy.

o Project initiated due to Market driven PRR515 in 2Q2005o Solution designed in new Enterprise Data Warehouse and Reporting Applicationo Solution uses Portal to post information on ERCOT.como Information is available to public

Current Activity Lessons LearnedClosing out project.

February-June 2005

Planning5 Months

Execution4 Months

July – November 2005

17

PR-50121_03 Market Information Distribution

Scope of PR-50121_03 Market Information Distribution: This project will deliver the infrastructure to replace existing SeeBeyond EAI components

within Report Explorer functionality with TIBCO EAI components. The completion of this project will establish the infrastructure and configuration tools to allow ERCOT to complete a full migration of existing RMC reports to MID in the future.

Features and Deliverables: Deployed the MID system as a replacement to RMC system within Report Explorer functionality

that delivers reports to the Market Implemented a mechanism to migrate the reports published to RMC into the MID system. This

is used to transfer existing reports and to keep the two systems in sync during the cut over period.

Developed a Delivery Strategy plan for the migration of all remaining reports in Report Explorer

Converted the display of Report Explorer content from I-frame solution to direct display via TIBCO integration

Delivered an SOA infrastructure that provides future options to place information on the Portal and how the portal publishes the information

Implemented a new infrastructure with minimal impact to the Market Current Activity

Lessons learned Subsequent phase under O&M will be implemented in Retail Releases to facilitate a phased

approach to migrating all existing RMC reports Currently in the Closing Phase of the project.

Planning18 weeks

Execution20.5 weeks

February 2005 – June 2005 June 2005 – November 2005

18

ABC Project Overview – Mike Petterson

Background on activity-based costing (ABC) at ERCOT

ABC defined

ERCOT management thoughts on ABC Expected benefits Striking a balance Starting small

Next steps Goals and expectations Cross-functional team Competent external assistance Sustainable, relevant, updateable, and actionable system

19

2006 Finance Division Priorities – Steve Byone

Establish a standing enterprise risk management program with supporting governance structure

Achieve steady-state internal control management program

Complete the following audits with un-qualified/clean opinions:

financial statements internal controls benefits

Support Texas nodal implementation

Update management information reporting package and host quarterly business review session with officers

Complete 2007 budget and fee filing process within agreed schedule

Institute BOD compliance reporting framework

Enhance effectiveness of F&A Committee oversight via improved reporting of key information

Develop and communicate credit risk mitigation alternatives to ERCOT stakeholders

Implement quick hit PMO improvements and develop plan to implement long-term improvements from KEMA report

Organize business continuity planning effort

Maintain access to capital markets and liquidity funding sources and prepare for Nodal financing

Restructure procurement and contract administration to eliminate inefficient processes while maintaining desired controls

Review and streamline key policies and approval authorities

20

Future Agenda Items - Steve Byone

Overview of Corporate Policy Framework (Jan or Feb mtg?)

Quarterly Investment performance Review

Preliminary 2005 Budget Variance

Next FA meeting: January 17, 2005

21

Adjourn to Executive Session