January 20, 2015 North American Electric Reliability Corporation 3353 Peachtree Road NE Suite 600, North Tower Atlanta, GA 30326 Attention: Mr. Michael Walker Subject: NPCC Regional Entity Division Variance Comparison and Fourth Quarter 2014 Statement of Activities Dear Michael: The variance comparison for the period ended December 31st, 2014 is included along with Northeast Power Coordinating Council, Inc.’s unaudited Fourth Quarter 2014 Statement of Activities. Please do not hesitate to contact me via email at jhala@npcc.org or via telephone at (212) 840-1070 should you have any comments or questions with regard to the materials provided. Sincerely,

Jessica Hala Jessica Hala Manager, Finance and Accounting JH: jh Enclosures cc: Mr. Christopher Weir, CPA – NPCC Treasurer Mr. Edward A. Schwerdt – NPCC President & CEO Ms. Jennifer Budd Mattiello – NPCC Vice President & COO ERO Finance Group

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NPCC Regional Entity Division Budget to Actual

Variance Comparison as of December 31, 2014

INCOME

• Penalty Sanctions (Actual income of $153k remitted to NPCC as of June 30, 2013 has been applied to reduce 2014 assessments to NPCC U.S. load serving entity designees.) All penalty sanctions remitted from July 1, 2013 through June 30, 2014 are included in the Board Approved NPCC 2015 Business Plan and Budget and have been applied to reduce 2015 assessments to NPCC U.S. load serving entity designees.

• Interest Income (Actual income of $12k year-to-date not included in budget)

NPCC accounts for but has not budgeted for interest income as returns on U.S. treasury securities fund are negligible and corporate money market fund returns are minimal for operating fund investment.

o NPCC allocated $12k as a portion of total interest income (93%) to the Regional Entity Division

consistent with the ratio of Regional Entity (RE) to Criteria Services (CS) Division 2014 funding. A common system of accounts, with divisional separation, is used for both RE and CS revenue tracking and financial reporting.

EXPENSES

• Personnel Expenses (Variance of $514k under budget at year end) o NPCC had three unanticipated vacancies during 2014; a passing, a relocation due to a spouse’s medical

residency, and a retirement. NPCC, through the significant recruiting efforts of its staff is currently fully staffed with 39 FTEs. These vacancies result in lower salary and associated incentive compensation. In the benefits area, NPCC was able to trim insurance renewal expenses resulting in significant cost savings. Additionally, a substantial number of professionals continue to waive health insurance coverage opting for superior coverage from a prior employer or spousal insurance coverages.

• Meetings and Conference Calls (Variance of $368k under budget at year end)

o Continued efforts to limit the number of attendees sent to off-site meetings, and to hold more meetings onsite or via webinar where effective, have kept meeting and conference call expenses under budget. Conference calls underage of $47k was based on lower negotiated rates with a new provider and credit negotiated for service interruption.

• Consultants and Contracts (Variance of $229k over budget at year end) o Overage is primarily due to additional use of consultants in the Reliability Assessment and Performance

Analysis (RAPA) program area related to implementation of the revised BES definition and providing BESnet support to NERC.

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• Professional Services (Variance of $49k under budget at year end) o This budget line was challenged to remain within full year projections due to the impact of a gap analysis

pertaining to the New York Non-Profit Revitalization Act of 2013 signed into law December, 2013 for implementation July 1, 2014. Outside counsel’s extensive investigative activities and subsequent recommendations with regard to policy and document updates were not included in the 2014 Business Plan and Budget which was approved prior to the law’s approval. Additionally, ERISA counsel along with NPCC’s Actuarial consultant have been engaged in numerous Pension Committee driven assessments regarding a freeze to future pension benefit accruals to pass IRS discrimination cross-testing and the impacts to participants and NPCC in terms of pension plan termination which was subsequently approved effective January 15, 2015. These benefit accrual freeze and pension plan termination activities had not been included in the 2014 Business Plan and Budget either. NPCC has received notification from the IRS that plan termination is now under review.

FIXED ASSETS

• Computer & Software (Variance of $19k over budget at year end)

o Over budget due to changes in the scope of work of CDAA and CITS software development as a result of NERC directed initiatives including, updated TFE process, RAI updates, CITS expansion of scope process, and the FAC-003-3 event reporting form.

TOTAL EXPENSES

• For the year ending December 31, 2014, NPCC is $690k (4.84%) under budget. Areas that were under budget

include Personnel Expenses, Meeting Expenses and Professional Services. Despite not being at a full staff complement for part of the year due to unanticipated turnover, NPCC leveraged volunteerism within its membership, deployed expert independent contractors as necessary, and shuffled its dedicated and innovative staff to attain all of its 2014 objectives. Additionally, cost control and efficiency measures were improved wherever possible.

(Unaudited) Submitted January 20th, 2015

2014 YTD Actual

2014 YTD Budget

2014 YTD Actual

Variance from Budget %

Funding Assessments 13,611,880 13,611,880 - Penalties 153,000 153,000 - Testing - - - Services & Software - - - Workshop Fees 62,579 64,000 (1,421) Interest 11,561 - 11,561 Miscellaneous 5,245 - 5,245 Total Funding 13,844,265 13,828,880 15,385 0.11%

Expenses Personnel Expenses Salaries 5,784,587 5,911,227 (126,640) Payroll Taxes 379,758 384,312 (4,554) Employee Benefits 1,137,290 1,430,261 (292,971) Savings & Retirement 1,034,383 1,124,361 (89,978)Total Personnel Expenses 8,336,017 8,850,161 (514,143) -5.81% Meeting Expenses Meetings 266,691 365,000 (98,308) Travel 667,672 890,000 (222,328) Conference Calls 30,119 77,000 (46,881)Total Meeting Expenses 964,483 1,332,000 (367,517) -27.59% Operating Expenses Consultants & Contracts 2,153,844 1,924,433 229,411 Rent & Improvements 726,115 737,272 (11,157) Office Costs 530,409 536,500 (6,091) Professional Services 917,715 966,500 (48,785) Miscellaneous 40,220 80,000 (39,780) Depreciation 305,016 250,000 55,016 Total Operating Expenses 4,673,319 4,494,705 178,614 3.97%

Indirect Expense Allocation (393,152) (405,859) 12,707 -3.13%

Other Non-Operating Expenses - - - n/a

Total Expenses 13,580,668 14,271,007 (690,339) -4.84%Net Change in Assets 263,597 (442,127) 705,724 -159.62%

Fixed Assets Depreciation (305,016) (250,000) (55,016) Computer & Software CapEx 127,019 108,000 19,019 Furniture & Fixtures CapEx - - - Equipment CapEx 2,335 - 2,335 Leasehold Improvements - - - Incr(Dec) in Fixed Assets (175,662) (142,000) (33,662) 23.71%

Total Budget (Expenses plus Incr(Dec) in Fixed Assets) 13,405,006 14,129,007 (724,001) -5.12%Change in Working Capital (Total Funding less Total Budget) 439,259 (300,127) 739,386 -246.36%

Equivalent Full Time Employees 36.28 36.86 (0.58) Headcount 38.00 38.00 -

Beginning Total Reserves - 1/1/14 5,245,194 2,654,866 2,590,328 Change to Reserves - YTD 2014 439,259 (300,127) 739,386

Total Reserves at 12/31/14 5,684,453 2,354,739 3,329,714

Northeast Power Coordinating Council, Inc. - Regional Entity DivisionStatement of Activities, Fixed Assets and Change in Working Capital

(Unaudited)For the Period Ended December 31, 2014