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 53 to complete

6 Projected Audit Point Progress

7 Actionable Internal Control Gaps - Status

8 Credit Stats – Cheryl Yager

9 PMO Update

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 Fourth Quarter Results (to 11/30)

11 Projected Completions to Year End CompletedInitiationPlanningExecutionTotal Active IO CO00268 MO RO50538 SO Totals PMO Stats through 11/30/05 1st Quarter2nd Quarter3rd Quarter4th QuarterProjectedTotalTotal Portfolio Jan - MarApr - JunJul-SeptOct-NovDecYear EndAll Projects Completed On-Time71%100%47%86%91%72%75% On-Budget86%100%95%100% 95%93% Deliverables100%95% 100% 97%

12 Large Project Update- PR (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 (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/Q 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 RMR Automation  PR Lodestar Enhancements PRR420 Modified Competitive Solution for Settlements  PR Lodestar Enhancements PRR 488 and PRR 572 Weather Responsiveness Determination and Reporting  PR IPC Line Networking Upgrade  Projects Completed in November  PR-40090_01 OTS Center  PR 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 Center  Furniture 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 September 2005 Planning 10 Months Execution 4 Months September – December 2005

16 PR 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. oProject initiated due to Market driven PRR515 in 2Q2005 oSolution designed in new Enterprise Data Warehouse and Reporting Application oSolution uses Portal to post information on ERCOT.com oInformation is available to public  Current Activity  Lessons Learned  Closing out project. February-June 2005 Planning 5 Months Execution 4 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. Planning 18 weeks Execution 20.5 weeks February 2005 – June 2005June 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

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