California Independent System Operator MONTHLY AND YEAR END FINANCIAL REPORT

California Independent System Operator MONTHLY AND YEAR-END FINANCIAL REPORT December 2005 Preliminary and Unaudited 151 Blue Ravine Road Folsom, CA 95630 (916) 351-4000 CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION MONTHLY AND YEAR-END FINANCIAL REPORT - December 2005 (Preliminary and Unaudited) Table of Contents Page Number Summary, Discussion and Commentary THE ISO Summary of Financial Results Statement of Operations Balance Sheet Capital Projects Report Operating Reserves and Revenue Requirement The ISO Markets Monthly Market Summary By Charge Type Summary Financial Data Cumulative Operating Revenues Monthly GMC Revenues Operating and Maintenance Expenses Cumulative Capital Expenditures Cumulative Revenue Requirement Monthly Operating Reserve ISO Monthly Debt Rates CAISO Market Costs by Quarter - 2nd Quarter 1998 (Inception) through 3rd Quarter 2005 CAISO Market Costs by Month - August 2003 through September 2005 Outstanding Obligations of Market Participants Timeliness of Monthly Collections Impact of Bilateral Settlements on ISO Market i, ii 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Finance and Accounting Departments 01/13/06 CALIFORNIA ISO SUMMARY, DISCUSSION AND COMMENTARY For the year ended December 31, 2005 (Preliminary and Unaudited) The ISO OPERATIONS: (pages 1, 2, 7,8 and 9) Operating Revenues for December were $18.3M, $1.1M higher than budget. - The variance was primarily due to higher interest income and to higher other non-GMC operator fees. Operating Revenues for the year were $221.3M, $8.6M higher than budget. - The variance was primarily due to higher interest income generated by the invested balance of the capital bond fund. O&M expenses for December were $10.7M, $0.7M lower than the budget. - The variance was primarily due to lower building, leases and facility costs and lower legal/audit expenses. O&M expenses for the year were $141.3M, $5.5M lower than budget. - The variance was primarily due to lower salaries and benefits, lower third-party contracts cost, and reduced transportation and travel, partially offset by higher professional and consulting services and other costs resulting from the realignment process. At year end, there were 484 full-time employees compared to the 596 full-time employees budgeted. BALANCE SHEET: (page 3) The changes to the accounts are due to normal business activity during the month. CAPITAL PROJECTS: (pages 1, 4 and 10) 2005 approved capital expenditures were budgeted for the year at $62.4M. Period to date actual expenditures for 2005 capital projects totaled $36.8M. Expenditures for 2004 approved capital projects totaled $3.6M. Capital expenditures for 2005 approved projects will be funded by the proceeds of the 2004 bonds. 2005 capital projects approved through December totaled $60.2M and include $50.3M for MRTU projects. OPERATING RESERVES AND REVENUE REQUIREMENTS: (pages 1, 5, 11 and 12) During December, the Operating Reserve increased by $1.6M to $71.3M. The increase during the month, as compared to the projected increase of of $2.5M, is due primarily to lower collection of GMC than projected, partially offset by higher interest income. Year-end Operating Reserve is lower by $7.1M compared to the projected balance of $82.4M, primarily due to higher interest expenses and to the capital expenditures for projects approved prior to 2005. The uncommitted Operating Reserve balance is $68.0M including the reserve requirement of $22.0M (which is to equal 15% of 2005 budgeted expenses). The Revenue Requirement for the year was $224.0M, $2.9M lower than budget, primarily due to higher interest and other revenue and to to lower O&M costs. INTEREST COSTS: (page 13) During December, the ISO bond interest rates averaged 3.91%, 0.26% higher than the budgeted rate of 3.65%. The December rate was lower than the 2004 average rate of 4.13%. Page i Finance and Accounting Departments 01/13/06 CALIFORNIA ISO SUMMARY, DISCUSSION AND COMMENTARY For the year ended December 31, 2005 (Preliminary and Unaudited) The ISO Markets MARKET CHARGES: (page 6 ) Charges for the market (including GMC and FERC Fees) settled in December amounted to $140.4M (September Preliminary and Final) vs. $152.3M settled in November (August Preliminary and Final). ISO MARKET COSTS: (page 14 and 15) The total costs managed by the ISO include GMC, RMR, A/S Capacity, Real Time Energy and Transmission. OBLIGATIONS OF MARKET PARTICIPANTS: (pages 16 ) PG&E has posted security to collateralize their market obligations and SCE is now only required to collateralize their GMC obligations. IMPACT OF BILATERAL SETTLEMENTS: (page 17) Graph shows effects of the Williams ($240M), Dynegy ($241M), Duke ($256M), and Mirant ($210M) settlements on receivables from the PX. Past due obligations at the end of September 2005 trade month were $1.51B, which represents amounts due from Cal PX. TIMELINESS OF MARKET COLLECTIONS: (page 18) Fifteen payments (of 255 invoices) in the September 2005 clearing were received late compared to nine late payments (of 245 invoices) in the August 2005 clearing. Page ii Finance and Accounting Departments 01/13/06 California ISO Summary of Financial Results For the year ended December 31, 2005 (Preliminary and Unaudited) (dollars in thousands) Category Actual Operating Revenues Operating Expenses Capital Expenditures (Approved 2005 Projects) Operating Reserve (Committed and Uncommitted) Revenue Requirement $ 18,279 $ 10,677 $ 5,917 $ 71,343 $ 17,002 Current Month Budget $ 17,155 $ 11,413 Variance $ $ 1,124 (736) Actual $ 221,275 $ 141,277 $ 36,809 $ 82,378 $ 18,034 $ (11,035) $ (1,032) $ 71,343 $ 223,999 Year to Date Budget $212,658 $146,802 Variance $ 8,617 Annual 2005 Budget $ $ $ 212,658 146,803 62,382 83,738 226,869 $ (5,525) $ 82,378 $226,869 $ (11,035) $ (2,870) $ $ Finance and Accounting Departments Page 1 01/13/06 CALIFORNIA ISO Statement of Operations For the year ended December 31, 2005 (Preliminary and Unaudited) (dollars in thousands) Actual Revenues: Grid Management Charge Fines, WSCC & Other Fees Interest income & other Total revenues Operating Expenses: Salaries and Benefits Building, Leases and Facility Insurance Third Party Vendor Contracts Professional and Consulting Services Legal and Audit Training, Travel and Professional Dues Other Total operating expenses Net operating income (loss) Interest and Other Expenses Interest expense Depreciation and amortization Total interest and other expenses Excess (Deficiency) of Revenues Over Expenses Number of Full-time Employees $ $ 16,994 548 737 18,279 Month Budget Variance $ 16,779 288 88 17,155 $ 215 260 649 1,124 Var (%) 1% 90% 738% 7% Actual $ 208,093 5,044 8,138 221,275 Year to Date Budget Variance $ 208,160 3,448 1,050 212,658 $ (67) 1,596 7,088 8,617 Var (%) 0% 46% 675% 4% $ 2005 Budget 208,160 3,448 1,050 212,658 6,598 341 2,244 792 155 329 218 10,677 7,602 6,613 709 23 2,367 476 658 317 250 11,413 5,742 (15) (368) (23) (123) 316 (503) 12 (32) (736) 1,860 0% -52% -5% 66% -76% 4% -13% -6% 32% 82,690 7,488 1,936 25,825 10,154 7,094 3,033 3,057 141,277 79,998 85,716 8,506 1,909 28,699 6,155 8,250 4,164 3,403 146,802 65,856 (3,026) (1,018) 27 (2,874) 3,999 (1,156) (1,131) (346) (5,525) 14,142 -4% -12% -10% 65% -14% -27% -10% -4% 21% 85,717 8,506 1,909 28,699 6,155 8,250 4,164 3,403 146,803 65,855 838 1,437 2,275 5,327 484 724 1,437 2,161 $ 3,581 596 $ 114 114 1,746 (112) 16% 5% 49% -19% 12,972 17,810 30,782 $ 49,216 9,351 17,810 27,161 $ 38,695 3,621 3,621 $ 10,521 39% 13% 27% $ 9,351 25,200 34,551 31,304 596 Finance and Accounting Departments Page 2 01/13/06 CALIFORNIA ISO Balance Sheet As of December 31, 2005 (Preliminary and Unaudited ) (dollars in thousands) Current Month ASSETS NET ELECTRIC UTILITY PLANT RESTRICTED AND TRUST FUNDS CURRENT ASSETS Cash and Investments Unrestricted Restricted for Payment of Debt Service Total Cash and Investments Accounts Receivable, net Prepayments and Other Total Current Assets NONCURRENT ASSET AND DEFERRED CHARGES Unamortized debt expenses and other Total Noncurrent Asset and Deferred Charges TOTAL ASSETS CAPITALIZATION AND LIABILITIES CAPITALIZATION Stakeholders' Surplus Long-term Debt TOTAL CAPITALIZATION CURRENT LIABILITIES Long-term debt due within one year Accounts Payable Fines subject to refund Total Current Liabilities NONCURRENT LIABILITY AND DEFERRED CREDITS Other Total Noncurrent Liability and Deferred Credits TOTAL LIABILITIES TOTAL CAPITALIZATION AND LIABILITIES $ 114,441 192,635 307,076 58,800 23,858 45,075 127,733 1,389 1,389 129,122 $ 436,198 $ 109,234 192,635 301,869 58,800 21,768 45,109 125,677 1,389 1,389 127,066 $ 428,935 $ $ 5,207 5,207 2,090 (34) 2,056 2,056 7,263 $ 107,174 $ 4,272 $ 102,713 $ 12,050 $ $ 4,461 (7,778) Prior Month Change 246,100 29,719 275,819 51,043 858 327,720 (2,968) (2,968) $ 436,198 238,276 26,459 264,735 51,329 295 316,359 (2,187) (2,187) $ 428,935 $ 7,824 3,260 11,084 (286) 563 11,361 (781) (781) 7,263 Finance and Accounting Departments Page 3 01/13/06 CALIFORNIA ISO Capital Projects Report For the month ending December 31, 2005 (Preliminary and Unaudited ) (dollars in thousands) Capital Spending Month Actual Facilities Market Redesign Technology Upgrade Main Operating Systems - All Other Systems - Corporate Support Total 2005 Capital Spending 2004 Capital Projects Total Capital $ $ 2,430 1,896 238 1,352 5,917 37 5,954 $ $ YTD Actual 53 13,143 19,000 642 3,972 36,809 3,598 40,407 $ $ Approved Projects Projected 2005 Costs for Approved Approved Projects Projects 118 17,809 32,460 3,065 6,713 60,165 $ 118 17,809 32,460 2,878 6,729 59,994 $ Original 2005 Budget 1,730 18,766 33,441 4,105 4,340 62,382 $ Future O&M 1 12 366 379 60,165 $ 59,994 $ 62,382 $ 379 Finance and Accounting Departments Page 4 01/13/06 CALIFORNIA ISO Operating Reserve and Gross Revenue Requirement For the year ended December 31, 2005 (Preliminary and Unaudited) Actual Revenues GMC revenue collected (75 day lag from month scheduled) Other gross revenue Less: Restricted interest income Total Revenues Operating Expenses Net Before Debt Service and Capital Debt Service and Other Interest Bond principal payments Bond interest payments Other interest expense Total Debt Service and Other Interest Capital Projects Funding 2004/2005 Increase (Decrease) Operating Reserve Fund (Committed and Uncommitted) Beginning Balance Ending Balance Month Projected Variance $ (1,800) 912 (381) (1,269) (616) (653) Var (%) Actual Year to Date Projected Variance Var (%) $ (10,279) 8,688 (1,591) (1,708) 117 -5% 66% -1% -1% 0% $ Budget 2005 213,294 4,498 217,792 146,803 70,989 $ 17,276 $ 19,076 1,286 374 (381) 18,181 19,450 10,797 7,384 11,413 8,037 -10% 71% -7% -6% -9% $ 201,655 $ 211,934 13,186 4,498 (3,906) 210,935 216,432 145,095 65,840 146,803 69,629 4,862 838 5,700 65 1,619 4,862 723 5,585 2,452 115 115 65 (833) 14% *% 2% *% 58,300 10,020 2,951 71,271 3,626 (9,057) 58,300 9,351 67,651 1,978 669 2,951 3,620 3,626 (7,129) 7% *% 5% 58,300 9,351 67,651 - 79% 3,338 69,724 $ 71,343 79,926 $ 82,378 (10,202) $ (11,035) -15% -15% 80,400 $ 71,343 80,400 $ 82,378 $ (7,129) 0% -10% $ 80,400 83,738 Gross Revenue Requirement Net Operating Costs Operating Expenses Less Interest & Other Revenue Net Operating Costs Debt Service and Other Interest Principal and interest payments 25% Debt Service Reserve Other Interest Total Debt Service and Other Interest Revenue Requirement $ 10,797 $ 11,413 $ (616) (905) (374) (531) 9,892 11,039 (1,147) -6% 59% -12% $ 145,095 $ 146,803 $ (1,708) (9,280) (4,498) (4,782) 135,815 142,305 (6,490) -1% 52% -5% $ 146,803 (4,498) 142,305 5,700 1,410 7,110 $ 17,002 5,585 1,410 6,995 $ 18,034 115 115 $ (1,032) 2% 0% *% 2% -6% 68,320 16,913 2,951 88,184 $ 223,999 67,651 16,913 84,564 $ 226,869 669 2,951 3,620 $ (2,870) 1% 0% *% 4% -1% $ 67,651 16,913 84,564 226,869 Finance and Accounting Departments Page 5 01/13/06 CALIFORNIA ISO Monthly Market Summary By Charge Type For the Preliminary and Final trade month September 2005 settled in December 2005 Unit Due SC 3,434,709 2,313,071 184,093 20,683,729 26,615,602 631,090 21,356,277 40,389 20,327,254 239,512 42,594,522 992,739 20,038,581 12,998 21,044,317 90,254,441 Settlements Amount Due SC Due ISO $ 1,511,443 1,139,620 3,442,773 286,540 6,380,376 43,744,664 2,630,384 11,175,409 389,988 231,042 239,517 58,411,004 11,121,294 46,296,966 13,015 548 61,284 57,493,108 122,284,488 $ 1,480,799 1,174,793 3,294,386 286,592 143,861 6,380,431 46,428,182 153,433 11,104,954 389,988 231,041 239,517 58,547,116 10,986,221 46,296,966 74,282 860,113 58,217,582 123,145,130 Charge Type Spin Reserve Non-Spin Reserve AGC/Regulation Replacement Reserve No-Pay Provision Rational Buyer Adjustment Total Ancillary Services Energy (Note1) Neutrality Minimum Load Cost Compensation Start-Up Cost Compensation Emissions Cost Compensation Voltage Support Intermittent Resource Deviation Total Energy Inter-Zonal Congestion Wheeling & High Voltage Access Charge Others FERC Fee Penalty and Interest Charge Total Transmission and Other Total Market Billed by Charge Type Other Billings Grid Management Charge Total Market Charges Type MW MW MW MW Due ISO 286,800 197,603 158,169 41,586 6,012,189 6,696,347 16,768,351 7,164 12,040,666 20,327,254 8,273,669 260,044 57,677,149 4,632,538 18,473,973 129,979 23,236,489 87,609,985 $ $ $ $ MWh $ $ $ $ MWh MWh $ $ $ $ - 37,111,951 $ 4,277 $ 17,279,934 90,254,441 124,721,936 122,288,766 140,425,063 Note 1 - Energy includes Supplemental Energy, Imbalance Energy and Unaccounted-For-Energy Finance and Accounting Departments Page 6 01/13/06 California Independent System Operator Cumulative Operating Revenues Revenues = GMC, Interest, WSCC Security & Other Fees $250 $225 $200 $175 $ in millions $150 $125 $100 $75 $50 $25 $0 Actual Budget Variance Jan-05 16.93 16.20 0.73 Feb 32.34 31.40 0.94 Mar 49.58 47.72 1.86 Apr 65.69 63.81 1.88 May 83.61 81.75 1.87 Jun 101.93 100.38 1.55 Jul 123.68 121.37 2.31 Aug 144.67 142.02 2.64 Sep 165.12 161.48 3.64 Oct 186.24 179.27 6.97 Nov 203.00 195.51 7.49 Dec 221.28 212.66 8.62 October, November and December revenues are estimates. Finance and Accounting Departments Page 7 01/13/06 California Independent System Operator Monthly GMC Revenues $25.0 $22.5 $20.0 $ in millions $17.5 $15.0 $12.5 $10.0 Actual Budget Variance Cum Variance Jan-05 16.76 15.81 0.95 0.95 Feb 14.70 14.83 (0.13) 0.82 Mar 16.01 15.96 0.05 0.87 Apr 14.56 15.71 (1.15) (0.28) May 16.99 17.56 (0.57) (0.85) Jun 17.05 18.26 (1.21) (2.06) Jul 21.00 20.61 0.39 (1.67) Aug 20.17 20.28 (0.11) (1.78) Sep 17.28 19.08 (1.80) (3.58) Oct 18.71 17.42 1.29 (2.29) Nov 15.82 15.86 (0.04) (2.33) Dec 16.99 16.78 0.21 (2.12) October, November and December revenues are estimates. Amounts do not include SPWL and prior-period adjustments. Finance and Accounting Departments Page 8 01/13/06 California Independent System Operator Operating and Maintenance Expenses (O&M) $175 $150 $125 $ in millions $100 $75 $50 $25 $0 Monthly Actual Monthly Budget Cum Actual Cum Budget Cum Variance Jan-05 8.68 11.99 8.68 11.99 3.31 Feb 12.97 12.63 21.65 24.62 2.97 Mar 11.70 11.79 33.36 36.41 3.05 Apr 10.90 11.56 44.26 47.97 3.71 May 15.16 15.04 59.42 63.00 3.58 Jun 12.50 11.40 71.93 74.40 2.48 Jul 13.72 11.81 85.64 86.21 0.57 Aug 9.80 11.66 95.44 97.87 2.43 Sep 11.60 11.46 107.05 109.33 2.29 Oct 14.83 14.64 121.87 123.97 2.10 Nov 8.73 11.41 130.60 135.38 4.78 Dec 10.68 11.41 141.28 146.79 5.51 Finance and Accounting Departments Page 9 01/13/06 California Independent System Operator Cumulative Capital Expenditures $70 $60 $50 $ in millions $40 $30 $20 $10 $0 Jan-05 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 62.00 Budgeted capital 2005 O&M Impact Cumulative Expenditures Approved projects 0.35 50.44 1.99 50.86 4.93 50.87 7.07 52.48 0.11 12.34 54.21 0.15 15.48 54.21 0.15 18.63 54.21 0.15 20.06 54.42 0.15 22.64 54.42 0.38 27.13 58.99 0.38 30.89 60.17 Finance and Accounting Departments Page 10 01/13/06 California Independent System Operator Cumulative Revenue Requirement Rev Req = O&M costs - Misc Rev + Debt Service + 25% Debt Service Reserve+Funded Capital Expenditures $250 $225 $200 $175 $ in millions $150 $125 $100 $75 $50 $25 $0 ($25) Actual Budget Variance Jan-05 15.65 18.89 3.24 Feb 35.48 38.27 2.79 Mar 54.59 56.80 2.21 Apr 73.62 75.10 1.48 May 94.58 96.76 2.18 Jun 115.13 114.77 (0.36) Jul 135.90 133.20 (2.70) Aug 152.64 151.47 (1.17) Sep 172.45 169.54 (2.91) Oct 192.16 190.80 (1.36) Nov 207.00 208.84 1.84 Dec 224.00 226.87 2.87 Finance and Accounting Departments Page 11 01/13/06 California Independent System Operator Monthly Operating Reserve Op Res = Unrestricted Cash - Accrued Expenses & Payables $90 $80 $70 $60 $ in millions $50 $40 $30 $20 $10 Jan-05 (Beg) 80.4 22.02 35.1 Jan 84.48 22.02 41.02 Feb 82.59 22.02 40.87 Mar 82.67 22.02 42.81 Apr 82.42 22.02 51.08 May 69.59 22.02 40.25 Jun 65.78 22.02 38.5 Jul 60.3 22.02 37.02 Aug 61.89 22.02 40.81 Sep 60.41 22.02 41.46 Oct 63.07 22.02 52.87 Nov 69.72 22.02 64.92 Dec 71.34 22.02 68.04 Actual - Gross Res Requirement Actual - Uncommitted Reserve requirement set at 15% of 2005 budgeted O&M expenses, which is included in the actual-uncommitted balance. Finance and Accounting Departments Page 12 01/13/06 California Independent System Operator ISO Monthly Debt Rates 5.00% 4.75% 4.50% Net Bond Interest Rate 4.25% 4.00% 3.75% 3.50% 3.25% 3.00% Jan-05 3.15% 3.65% Feb 3.73% 3.65% Mar 3.47% 3.65% Apr 3.81% 3.65% May 4.02% 3.65% Jun 3.66% 3.65% Jul 3.44% 3.65% Aug 3.51% 3.65% Sep 3.60% 3.65% Oct 3.63% 3.65% Nov 3.84% 3.65% Dec 3.91% 3.65% Net Int. Rate (All Bonds) Budgeted Net Int. Rate These rates do not include adjustments for amortization of bond issuance costs and remarketing fees. Finance and Accounting Departments Page 13 01/13/06 California Independent System Operator CAISO Market Costs By Quarter 2nd Quarter 1998 (Inception) through 3rd Quarter 2005 $3,500 $3,250 $3,000 $2,750 $2,500 $2,250 $ in millions $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $0 Q2 98 Q3 98 Q4 98 Q1 99 Q2 99 Q3 99 Q4 99 Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 GMC RMR A/S Capacity Real Time Energy Transmission Finance and Accounting Departments Page 14 01/13/06 California Independent System Operator CAISO Market Costs By Month October 2003 through September 2005 $300 $275 $250 $225 $200 $ in millions $175 $150 $125 $100 $75 $50 $25 $0 Oct03 Nov Dec Jan04 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan05 Feb Mar Apr May Jun Jul Aug Sep GMC RMR A/S Capacity Real Time Energy Transmission Finance and Accounting Departments Page 15 01/13/06 California Independent System Operator Outstanding Obligations of Market Participants $450 $400 $350 $300 $ in millions $250 $200 $150 $100 $50 $0 Jan-05 193 155 Feb 151 104 Mar 117 94 Apr 127 63 May 120 64 Jun 131 86 Jul 101 87 Aug 157 94 Sep 126 104 Oct 126 103 Nov 101 107 Dec 72 133 SCs with approved credit ratings SCs with posted security Chart displays outstanding obligations of SCs to the ISO market. Obligations are estimated using settlements and other operational data, upon which SC collateral requests are based. Finance and Accounting Departments Page 16 01/13/06 California Independent System Operator Impact of Bilateral Settlements on ISO Market $2,500 $2,250 $2,000 $1,750 $ in Millions $1,500 $1,250 $1,000 $750 $500 $250 $0 Jan-05 481 Feb 737 1,721 Mar 737 1,721 Apr 737 1,721 Reduction of Unpaid Amounts from settlements filed with FERC May 947 1,511 Jun 947 1,511 Jul 947 1,511 Aug 947 1,511 Sep 947 1,511 Oct 947 1,511 Nov 947 1,511 Dec 949 1,508 Refund amounts Unpaid amounts 1,977 Unpaid amounts represent receivable from Cal PX and amounts due creditors. Refund amounts represents settlements with generators that have been filed with FERC and funded by Cal PX. Finance and Accounting Departments Page 17 01/13/06 California Independent System Operator Timeliness of Market Collections 24 21 # of Invoices Paid Late 18 15 12 9 6 3 0 # of Invoices Paid Late Total Invoices Oct-04 8 204 Nov 2 173 Dec 5 177 Jan-05 3 214 Feb 2 187 Mar 5 202 Apr 6 253 May 3 245 Jun 21 253 Jul 22 283 Aug 9 245 Sep 15 255 Payment shown late if not paid by close of business on payment due date (Jul 04 - May 05) and by late if not paid by 10AM for Jun 2005 Finance and Accounting Departments Page 18 01/13/06