WECC Strategic Planning Session

1. WECC Strategic Planning Session Paul Feldman Shelley Longmuir Graham Edwards

2. Agenda • Decisions to be made today • Existing WECC structure • Whitepaper summary • Structure • Governance • Options • Funding

3. Decisions to be made today • Structure • Governance

4. Existing WECC Structure

5. External Challenges • Focusing on compliance risks instead of enhancing reliability • Constrained from participating in Event Analyses (EA) of significant system events • Potential  gaps and inefficiencies in monitoring compliance  and assuring reliability   in the Western Interconnection   • Budgeting process and funding mechanism

6. Project Scope • Phase One: (July – September): • Identification of external challenges • Identified options for: • Structure • Governance • Funding mechanism • Board decision on recommended options

7. Project Scope (continued) • Phase Two: (September – December) • Three-year budget assessment for the recommended organization and associated governance and funding mechanisms. • Additional governance considerations (e.g. bylaws)

8. Future Strategic Issues • Additional functions and roles for WECC • Transition Plan • Corporate Services sharing under bifurcation • Company locations • Potential recruitment/retention issues during planning and transition • Canada and Mexico roles • Exact number of Board members • Is the CEO on the Board? • Western Renewable Energy Generation Information System (WREGIS)

9. Roles and Responsibilities • WECC Management – develop and present options for governance, structure, and funding mechanisms to the Governance and Nominating Committee (GNC) for its review and recommendation to the Board • WECC Staff – provide support to GNC, Finance and Audit Committee (FAC), and Human Resources Compensation Committee (HRCC) associated activities

10. Roles and Responsibilities (continued) • GNC – assess alternative structures and governance. Make recommendation on structure and governance to the Board.    • FAC – identify and propose recommended funding mechanism(s), and multi-year budgets. • HRCC – develop staffing plans, assess management capability, identify people issues.

11. Process – Phase I • Posted GNC, FAC, and HRCC meetings and work on the WECC website. • Posted draft whitepaper for comment on August 22 • Performed outreach with interested stakeholders, e.g. WEIL, WIRAB, FERC, and NERC. • Initiated internal communications to all WECC employees • Conducted Board Webinar (open to all stakeholders) – August 29, 2012. • Noticed all WECC member representatives, Registered Entities, WECC employees and other interested stakeholders. • Conducting Strategic Planning session at September Board

12. Process – Phase II • Continue posting GNC, FAC and HRCC meetings and work on the WECC website • Continue seeking comment from membership, registered entities and industry groups • Continue outreach with interested stakeholders, e.g. WEIL, WIRAB, FERC and NERC • Continue internal communications with WECC employees • Conduct follow-up strategic planning session at December Board focused on implementation steps

13. Process – Phase III • Develop a detailed implementation plan, with costs and approval milestones • Amend the bylaws for the Regional Entity and develop new bylaws for the Non-regional Entity • Continue seeking comment from membership, registered entities and industry groups • Continue outreach with interested stakeholders, e.g. WEIL, WIRAB, FERC and NERC • Obtain necessary Board approvals at March 2013 Board meeting • Conduct a membership vote at the June 2013 Annual Membership Meeting

14. Structure

15. Structural Considerations: • Single Company – continue with a single company model and address external challenges via governance options. • Two Companies (Bifurcation) – divide into Regional Entity functions and non-Regional Entity functions.

16. Single Company • Cons • Does not address issue of exclusion from events analysis • Does not address issue of compliance monitoring gap • May reinforce the compliance focus (rather than reliability) Pros • May address budgeting process issues through governance • May partially address focus on compliance rather than reliability • Avoid incremental costs of bifurcation • Facilitates coordination between functions

17. Bifurcation Pros • Clarification of roles and responsibilities with resulting focus • Allows participation in events analysis • Closes compliance monitoring gap • Can address budgeting process issues through governance • Helps bring focus on reliability rather than compliance • Cons • Increased costs • Potential coordination gaps between functions

18. How are other Regional Entities structured? • Management examined how WECC’s current functions are performed by other Regional Entities and non-Regional Entities. • The other seven Regional Entities perform similar functions • Compliance • Standards Development • Event Analysis • Reliability Assessments and Performance Analysis

26. Observations about other Regional Entity with Registered Functions: • SPP • One company with separate Boards and Leaders • Some shared services • Does not audit self (SERC audits) • Does not perform Events Analysis where RC is involved • ERCOT/TRE • Companies completely separated • TRE audits ERCOT • TRE performs Event Analysis for ERCOT

27. Regional Entity: Guiding Principles and Functions: • Guiding Principles: • Reliability through independent, unbiased oversight • Functions: • Compliance Monitoring and Enforcement • Standards Development • Events Analysis • Reliability Assessment/Performance Analysis • Planning Services (e.g. Base case oversight, path rating review and oversight. etc.)

28. Non-Regional Entity: Guiding Principles and Functions: • Guiding Principles: • Reliability through planning and operations • Functions: • Reliability Coordinator • Interchange Authority • Transmission Expansion Planning • Planning services (e.g., Base case development, path rating studies, etc.) • System Operator Training • Regional Criteria • Interconnection tools (WISP, WIT, webSAS) • Member Committees

29. Governance

30. Governance Defined: Corporate governance involves a set of relationships between a company’s management, its board, and its stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

31. Current WECC Governance

32. Existing WECC Governance • Board of Directors (34 members hybrid – stakeholders and Non-Affiliated Directors) • Management Team • Advisory Channels • Members/member committees • WIRAB

33. Board of Director Trends • More transparency • More Independent Directors • More diligence • More professionalism • More accountability • Avoidance of “appearance of conflicts of interests”

34. Board Governance Considerations: • Independent Board – Independent Directors only. • Large Hybrid Board – Mix of stakeholder representatives and Independent Directors, expanded for geographical diversity. • Small Hybrid Board –Mix of stakeholder representatives and Independent Directors. • Balanced Stakeholder Board – Stakeholder-only Board, balanced for stakeholder types.

35. Advisory Governance Considerations: • Strong Advisory Member Committee – A committee structured to directly advise management and the Board. • 25% of Board of Directors time in interaction. • Forms committees to work directly with Management on specific issues/areas. • State and Provincial Advisory Board – A committee structured to directly advise management and the Board • 15% of Board of Directors time in interaction. • This is WIRAB for the Regional Entity and WIEB for non-Regional Entity

36. It’s about Governance: • Instructive to consider the structural option of bifurcation initially: • In order to flesh out the pros and cons of the four Governance models. • To inform possibilities for the Single Company structural option.

37. Bifurcation –Governance Options: • Company 1 – Regional Entity • Independent Board • Large Hybrid Board • Small Hybrid Board • Balanced Stakeholder Board • GNC eliminated because it does not address identified challenges • Company 2 – Non-Regional Entity • Independent Board • Large Hybrid Board • Small Hybrid Board • Balanced Stakeholder Board

38. Definitions of Independent Directors: • Independent (A) – Directors with no financial interest in any Member organization (similar to, but less restrictive than, the current definition of a non-affiliated director) • Independent (B) – Directors with no financial interest in any Registered Function organization

39. Independent Board: • Governance Model: • Traditional Management/Board relationship • Strong Advisory Member Committee • State and Provincial Advisory Board • Conceptual Composition: • Regional Entity Independent Board could include a mix of Independent (A) and Independent (B) Directors • Non-Regional Entity Independent Board would be Independent (A) only Directors.

40. Large Hybrid Board: • Governance Model: • Some traditional Management/Board relationship, some Board leadership in Company operations • State and Provincial Advisory Board • Independent directors hold voting strength • Members directors balanced between classes • Conceptual composition • Three members per 1-6 Classes • RE - Independent(A) + Independent(B) Directors outnumber Registered Function Classes • Non-RE – Independent(A) outnumber Registered Function Classes

41. Small Hybrid Board: • Governance Model: • Some traditional Management/Board relationship, some Board leadership in Company operations • State and Provincial Advisory Board • Independent directors hold voting strength • Members directors balanced between classes • Conceptual composition • One member per 1-6 Classes • RE - Independent(A) + Independent(B) Directors outnumber Registered Function Classes • Non-RE – Independent(A) Directors outnumber Registered Function Classes

42. Balanced Stakeholder Board: • Governance Model: • Diminished traditional management/Board relationship, stronger Board leadership in Company operations • State and Provincial Advisory Board • Members directors balanced between classes • Conceptual composition • One member per 1-6 Classes

43. Single Company - Governance • Single Company Models: • SPP model - not able to clear self-auditing hurdle, even with separate Boards, and management heads. • Minimum criterion: • Separate management heads • Separate Boards

44. Options

45. Option – 1 • Pros: • Structure Related: • Clarification of roles and responsibilities • Allows participation in events analysis • Closes compliance monitoring gap • Helps focus on reliability rather than compliance • Governance Related: • Appearance of conflicts deleted • Small focused board • Helps focus on reliability rather than compliance • Cons: • Structure Related: • Increased costs • Potential coordination gaps between functions • Lack of geographical diversity • Governance Related: • Members uncomfortable with loss of direct control • Members need to organize to provide advice

46. Option – 2 • Pros: • Structure Related: • Clarification of roles and responsibilities • Allows participation in events analysis • Closes compliance monitoring gap • Helps focus on reliability rather than compliance • Governance Related: • Appearance of conflicts balanced with voting strength of Independent Directors • Geographic diversity possible • Cons: • Structure Related: • Increased costs • Potential coordination gaps between functions • Governance Related: • Large diverse Board • Appearance of conflicts may linger

47. Option – 3 • Pros: • Structure Related: • Clarification of roles and responsibilities • Allows participation in events analysis • Closes compliance monitoring gap • Helps focus on reliability rather than compliance • Governance Related: • Small focused Board • Appearance of conflicts balanced with voting strength of Independent Directors • Cons: • Structure Related: • Increased costs • Potential coordination gaps between functions • Governance Related: • Geographical diversity diminished • Appearance of conflicts may linger

48. Option - 4 • Pros: • Structure Related: • Clarification of roles and responsibilities • Allows participation in events analysis • Closes compliance monitoring gap • Helps focus on reliability rather than compliance • Governance Related: • Appearance of conflicts deleted • Small focused board • Cons: • Structure Related: • Increased costs • Potential coordination gaps between functions • Governance Related: • Members uncomfortable with loss of direct control • Members need to organize to provide advice

49. Option - 5 • Pros: • Structure Related: • Clarification of roles and responsibilities • Allows participation in events analysis • Closes compliance monitoring gap • Helps focus on reliability rather than compliance • Governance Related: • Appearance of conflicts balanced with voting strength of Independent Directors • Geographic diversity possible • Cons: • Structure Related: • Increased costs • Potential coordination gaps between functions • Governance Related: • Large diverse Board • Appearance of conflict lingers

50. Option - 6 • Pros: • Structure Related: • Clarification of roles and responsibilities • Allows participation in events analysis • Closes compliance monitoring gap • Helps focus on reliability rather than compliance • Governance Relate • Appearance of conflicts balanced with voting strength of Independent Directors • Small focused Board • Cons: • Structure Related: • Increased costs • Potential coordination gaps between functions • Governance Related: • Geographical diversity diminished • Appearance of conflict lingers