California Independent System Operator MONTHLY FINANCIAL REPORT October Blue Ravine

California Independent System Operator MONTHLY FINANCIAL REPORT October 2008 151 Blue Ravine Road Folsom, CA 95630 (916) 351-4000 CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION MONTHLY FINANCIAL REPORT - October 2008 Table of Contents Page Number Summary, Discussion and Commentary THE ISO Statement of Operations Balance Sheet Capital Projects Report i, ii 1 2 3 Summary Financial Data Cumulative Operating Revenues Monthly GMC Revenues Operating and Maintenance Expenses Cumulative Capital Expenditures CAISO Market Costs by Quarter - 3rd Quarter 2002 through 2nd Quarter 2008 CAISO Market Costs by Month - July 2006 through June 2008 Outstanding Obligations of Market Participants Backing for Estimated Aggregate Liability (EAL) by Credit Quality 4 5 6 7 8 9 10 11 Finance and Accounting Departments 11/19/08 CALIFORNIA ISO SUMMARY, DISCUSSION AND COMMENTARY For the ten-month period ended October 31, 2008 OPERATIONS: (pages 1, 5, 6, and 7) Operating Revenues for October were $15.2M, $0.7M lower than budget. - The variance was primarily due to a lower estimated Grid Management Charge (GMC) for the month as a result of lower than forecasted load and exports brought about by the relatively mild weather, partially offset by higher than forecasted congestion management and market usage volumes. Operating Revenues for the year to date were $167.1M, $0.9M higher than budget. - The variance is primarily due to higher GMC revenues, due to increased Instructed Energy and Uninstructed Imbalance Energy, the likely result of the disruptions caused by wildfires in May-July. - Forecast for the year reflects revenues at about the budget level. Certain GMC rates were adjusted effective October 1 due to volume forecast variances. Operation and maintenance (O&M) expenses for October were $11.9M, $0.2M higher than budget. - The variance was primarily due to timing of payments during the month. O&M expenses for the year to date were $128.8M, $0.1M lower than budget. - The variance was primarily due to timing of payments during the period offset by higher salaries and benefits expenses. The increased labor expenses were primarily due to higher than anticipated overtime costs and staffing above the level assumed in the 2008 budget (which included a 2.5% vacancy factor). - Outlook for the year: O&M will be $0.5M over budget. There were 556 full-time employees compared to the 545 full-time employees budgeted (excluding the vacancy factor of 2.5%). The overage is primarily related to the in-sourcing of services previously performed by an outside vendor. INTEREST COSTS and INTEREST INCOME: (page 1) Through June, the average interest rate on ISO bonds was 5.17%, 1.51% higher than the budgeted rate of 3.57%. The higher rates were attributable to investor concerns about the financial health of the bond insurers that support CAISOs variable rate demand bonds. In June 2008, the ISO issued new debt and refinanced existing debt by issuing fixed rate bonds with an effective interest rate of 3.56%. Interest cost for the for the year will exceed budget by $1.0 million. Interest income for the year to date is $1.8M, which approximates the budget. The interest income is lower due to unrealized losses on its investments and declining interest rates. In past years, interest earnings have been higher than budget due to the earnings of the generator fines accounts, which are excluded from the budget. UNREALIZED LOSS ON INVESTMENTS: (page 1) Due to the recent turbulent events in the financial markets, the ISO has unrealized losses on its investment portfolio of approximately $6.4M in a total portfolio of $240M. The ISO is actively monitoring its portfolio and is carefully assessing its options. However, the ISO expects that losses will be reflected in the Statement of Operations in the financial statements prepared using Government Accounting Standards Board (GASB) requirements, but will be excluded from FERC reports (including rates) prepared under Financial Accounting Standards Board (FASB) rules. Page i Finance and Accounting Departments 11/19/08 CALIFORNIA ISO SUMMARY, DISCUSSION AND COMMENTARY For the ten-month period ended October 31, 2008 BALANCE SHEET: (page 2) The changes in receivables and investments are primarily due to normal business activities during the month. CAPITAL PROJECTS: (pages 3 and 7) 2008 capital projects were budgeted for the year at $43.0M and include $13.0M for Market Redesign and Technology Upgrade (MRTU) projects. 2008 capital projects approved through October totaled $43.8M. Actual expenditures to date for 2008 approved capital projects totaled $33.0M. Expenditures for 2007 approved capital projects totaled $2.7M. The ISO Markets MARKET CHARGES: (page 8 and 9 ) The total costs managed by the ISO include GMC, RMR, A/S Capacity, Real Time Energy and Transmission. OBLIGATIONS OF MARKET PARTICIPANTS: (pages 10 and 11 ) Outstanding obligations of market participants increased during the summer months, reflecting the seasonal high energy usage during the period. While credit monitoring required increased vigilance for the 3rd quarter as a consequence of the financial crisis, no market losses are are anticiapated. Page ii Finance and Accounting Departments 11/19/08 CALIFORNIA ISO Statement of Operations For the ten-month period ended October 31, 2008 (dollars in thousands) Month Budget Variance $ 15,413 468 15,881 $ (609) (137) (746) Year to Date Budget Variance Var (%) $ 161,549 4,674 166,223 $ 879 (19) 860 1% 0% 1% $ 2008 Budget 191,635 5,609 197,244 Actual Revenues: Grid Management Charge Fines, WSCC & Other Fees Total revenues Operating Expenses: Salaries and Benefits Building, Leases and Facility Insurance Third Party Vendor Contracts Consulting and Contracting Services Legal and Audit Training, Travel and Professional Dues Other Total operating expenses Net operating income (loss) Interest and Other Expenses Interest income & other Interest expense Unrealized loss on investments (see Exec Summary) Depreciation and amortization Total interest and other expenses Excess (Deficiency) of Revenues Over Expenses Number of Full-time Employees $ $ 14,804 331 15,135 Var (%) -4% -29% -5% Actual $ 162,428 4,655 167,083 7,509 623 46 1,000 1,757 443 354 180 11,912 3,223 7,114 808 1 1,673 1,059 444 378 239 11,716 4,165 395 (185) 45 (673) 698 (1) (24) (59) 196 (942) 6% -23% 0% -40% 66% 0% -6% -25% 2% -23% 80,848 8,148 2,517 15,319 12,647 4,627 2,735 1,950 128,791 38,292 77,953 8,081 2,011 17,513 11,230 5,733 3,928 2,438 128,887 37,336 2,895 67 506 (2,194) 1,417 (1,106) (1,193) (488) (96) 956 4% 1% * -13% 13% -19% -30% -20% 0% 3% 92,182 9,704 2,012 20,858 13,294 7,031 4,680 2,893 152,654 44,590 169 493 1,092 1,416 1,807 556 184 413 1,092 1,321 $ 2,844 545 $ (15) 80 95 (1,037) 11 -8% 19% 0% 7% -36% 2% 1,838 10,931 10,491 19,584 $ 18,708 1,838 4,616 10,491 13,269 $ 24,067 6,315 6,315 $ (5,359) 0% 137% 0% 48% -22% $ 2,205 5,441 13,800 17,036 27,554 545 Finance and Accounting Departments Page 1 11/19/08 CALIFORNIA ISO Balance Sheet As of October 31, 2008 (dollars in thousands) Current Month ASSETS NET ELECTRIC UTILITY PLANT CURRENT ASSETS Unrestricted Cash and Cash Equivalents Restricted Cash and Cash Equivalents Other Special Deposits Accounts Receivable, net Investments Accrued Interest Prepayments 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 $ 225,424 173,507 398,931 31,000 24,022 84,562 139,584 1,193 1,193 140,777 $ 539,708 $ 223,617 173,874 397,491 31,000 26,249 85,343 142,592 1,193 1,193 143,785 $ 541,276 $ $ 1,807 (367) 1,440 (2,227) (781) (3,008) (3,008) (1,568) $ 238,134 60,789 99,741 21,660 34,872 72,533 2,269 6,464 298,328 3,246 3,246 $ 539,708 $ 236,424 41,809 99,595 21,581 57,751 74,225 1,258 5,520 301,739 3,113 3,113 $ 541,276 $ $ 1,710 18,980 146 79 (22,879) (1,692) 1,011 944 (3,411) 133 133 (1,568) Prior Month Change Finance and Accounting Departments Page 2 11/19/08 CALIFORNIA ISO Capital Projects Report For the ten-month period ended October 31, 2008 (dollars in thousands) Approved Projects 2008 Approved Projects $ 7,186 6,854 5,130 1,682 7,518 5,459 10,000 43,829 3,417 $ 47,246 $ $ Projected Costs for Approved Projects 7,190 6,892 5,130 1,682 16,716 9,142 10,000 56,752 3,417 60,169 $ $ Original 2008 Budget 10,500 7,900 10,100 1,500 7,518 5,459 42,977 42,977 Month Actual YTD Actual $ 3,156 5,606 1,089 641 11,510 7,817 3,134 32,953 2,729 $ 35,682 Compliance/Regulatory Essential / Corporate Infrastructure Strategic Initiatives Future Market Enhancements Market Redesign Technology Upgrade Iron Point Project Phase 2 Total 2008 Capital Spending 2007 Capital Projects Total Capital $ 281 281 227 47 880 342 623 2,682 113 $ 2,795 Notes: Prior year capital projects are funded by prior year rate collections. The Iron Point Project Phase 2 is to be funded from 2008 bond proceeds until permanent facility financing is obtained, which is planned for 2009. Finance and Accounting Departments Page 3 11/19/08 California Independent System Operator Corporation Cumulative Operating Revenues Revenues = GMC, LGIP, WSCC Security & Other Fees $225 $200 $175 $150 $ in millions $125 $100 $75 $50 $25 $0 Actual Budget Variance Jan-08 16.09 15.90 0.19 Feb 30.25 30.42 (0.17) Mar 45.11 45.85 (0.74) Apr 60.17 60.93 (0.76) May 77.64 77.36 0.29 Jun 96.32 94.43 1.90 Jul 115.65 114.11 1.55 Aug 134.79 132.97 1.83 Sep 151.94 150.34 1.61 Oct 167.08 166.22 0.87 Nov Dec 181.26 197.24 August, September and October revenues are estimates. Finance and Accounting Departments Page 4 11/19/2008 California Independent System Operator Corporation Monthly GMC Revenues $20 $19 $18 $17 $ in millions $16 $15 $14 $13 $12 $11 $10 Actual Budget Variance Cum Variance Jan-08 15.68 15.42 0.26 0.26 Feb 13.76 14.06 (0.30) (0.04) Mar 14.18 14.97 (0.79) (0.83) Apr 14.56 14.61 (0.05) (0.88) May 16.93 15.95 0.98 0.10 Jun 18.27 16.62 1.65 1.75 Jul 18.98 19.21 (0.23) 1.52 Aug 18.57 18.39 0.18 1.70 Sep 16.70 16.91 (0.21) 1.49 Oct 14.80 15.41 (0.61) 0.88 14.57 15.52 Nov Dec August, September and October revenues are estimates. Finance and Accounting Departments Page 5 11/19/2008 California Independent System Operator Corporation Operating and Maintenance Expenses (O&M) $160 $140 $120 $100 $ in millions $80 $60 $40 $20 $0 Jan-08 11.87 12.25 11.87 12.25 0.38 Feb 11.49 11.82 23.36 24.07 0.71 Mar 17.55 17.20 40.91 41.27 0.36 Apr 11.93 12.21 52.84 53.48 0.64 May 12.95 12.12 65.79 65.60 (0.19) Jun 9.80 11.84 75.59 77.44 1.85 Jul 13.44 11.80 89.03 89.23 0.20 Aug 15.80 15.86 104.83 105.09 0.26 Sep 12.05 12.08 116.88 117.17 0.29 Oct 11.91 11.72 128.79 128.89 0.10 Nov 11.72 140.61 Dec 12.05 152.66 Monthly Actual Monthly Budget Cum Actual Cum Budget Cum Variance Finance and Accounting Departments Page 6 11/19/2008 California Independent System Operator Corporation Cumulative Capital Expenditures $50 $40 $ in millions $30 $20 $10 $0 Budgeted capital 2008 O&M Impact Cumulative Expenditures Approved projects Jan-08 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 42.98 0.00 0.23 17.89 0.00 2.62 18.13 0.00 5.22 22.77 0.00 10.06 33.17 0.00 15.61 34.06 0.00 18.02 37.95 0.00 22.60 37.95 0.00 27.37 41.37 0.00 30.27 43.73 0.00 32.95 43.83 Finance and Accounting Departments Page 7 11/19/2008 California Independent System Operator Corporation CAISO Market Costs By Quarter 3rd Quarter 2002 through 2nd Quarter 2008 $800 $700 $600 $500 $ in millions $400 $300 $200 $100 $0 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 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 GMC RMR A/S Capacity Real Time Energy Transmission Finance and Accounting Departments Page 8 11/19/2008 California Independent System Operator Corporation CAISO Market Costs By Month September 2006 through August 2008 $350 $325 $300 $275 $250 $225 $ in millions $200 $175 $150 $125 $100 $75 $50 $25 $0 Sep06 Oct Nov Dec Jan07 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan08 Feb Mar Apr May Jun Jul Aug GMC RMR A/S Capacity Real Time Energy Transmission Finance and Accounting Departments Page 9 11/19/2008 California Independent System Operator Corporation Outstanding Obligations of Market Participants $250 $200 $150 $ in millions $100 $50 $0 Sep-07 Backed by UCL or GRN Backed by posted security Outstanding security requests 82 68 1 Oct 109 74 1 Nov 106 70 1 Dec 136 63 0 Jan-08 127 61 0 Feb 122 54 0 Mar 88 102 0 Apr 124 58 0 May 128 56 0 Jun 146 23 0 Jul 162 31 9 Aug 198 46 1 Sep 185 50 1 Oct 184 47 0 Outstanding obligations are estimated using available historical settlements data. The “Backed by UCL or GRN” category includes Unsecured Credit Limits (UCL) and Guarantees (GRN). Posted security includes letters of credit, surety bonds, cash deposits held in escrow, certificates of deposit, payment bonds, and prepayments to the CAISO. Finance and Accounting Departments Page 10 11/19/2008 California Independent System Operator Corporation Backing for Estimated Aggregate Liability (EAL) by Credit Quality $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 ($ in millions) EAL ($ in Millions) Superior AAA to AA9 $40.40 1 $0.45 1 $0.32 Good A+ to A19 $120.42 3 $2.12 0 0 Adequate BBB+ to BBB3 $7.15 2 $0.36 1 $0.03 Speculative BB+ to BB0 $0.00 1 $0.77 0 0 Highly Speculative B+ to D 0 0 0 0 0 0 Unrated 3 $15.93 20 $43.26 0 0 # Backed by UCL or GRN $ Backed by UCL or GRN # backed by security $ backed by security # Outstanding requests $ Outstanding requests Credit Quality Finance and Accounting Departments Page 11 11/19/2008