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WECC Strategic Planning Session

WECC Strategic Planning Session. Paul Feldman Shelley Longmuir Graham Edwards. Agenda. Decisions to be made today Existing WECC structure Whitepaper summary Structure Governance Options Funding. Decisions to be made today. Structure Governance. Existing WECC Structure.

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WECC Strategic Planning Session

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  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) • Other items not necessary for decision making now

  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. 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

  17. 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

  18. Regional Entity: Guiding Principles and Functions: • Guiding Principles: • Reliability through independent, unbiased oversight • Focus on results and outcomes • High performance organization • Clear responsibility and accountability • Robust stakeholder input • Efficient decision making • Balance budget control with getting the job done appropriately. • Evolves in parallel with NERC

  19. Regional Entity: Guiding Principles and Functions (continued): • 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.)

  20. Non-Regional Entity: Guiding Principles and Functions: • Guiding Principles: • Reliability through planning and operations • Pursue tasks that can be performed at a lower cost centrally that relate to appropriate reliability • Focus on results and outcomes • High performance organization • Clear responsibility and accountability • Robust stakeholder input • Efficient decision making • Business Case focus and Benefit/Cost ratios drive budget. • Evolves as opportunities for Interconnect are surfaced and evaluated

  21. Non-Regional Entity: Guiding Principles and Functions (continued): • 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

  22. Single Company – Structural Considerations • 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

  23. Bifurcation – Structural Considerations 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

  24. Governance

  25. 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.

  26. Current WECC Governance

  27. Existing WECC Governance • Board of Directors (34 members hybrid – stakeholders and Non-Affiliated Directors) • Management Team • Advisory Channels • Members/member committees • WIRAB • In transition to more traditional Board/Management relationship

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

  29. 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.

  30. 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

  31. 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.

  32. NERC and Regional Entities Governance

  33. ISO, RTO and Other Governance

  34. Bifurcation –Governance Options: • Company 1 – Regional Entity • Independent Board • Large Hybrid Board • Small Hybrid Board • Balanced Stakeholder Board • Company 2 – Non-Regional Entity • Independent Board • Large Hybrid Board • Small Hybrid Board • Balanced Stakeholder Board

  35. 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 • Independent Directors elected by organizational membership (al la today)

  36. 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. • Probably circa 7 Independents

  37. Advisory Board Defined: • Necessary condition for Independent Board option • Advise = organized surfacing of issues and perspectives • Participation in setting BOD Agenda • Forms its own committees to advise itself and directly work (via teams) with Management on projects

  38. 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 via vote/member mechanism • Member directors balanced between classes • Conceptual composition • Three members per 1-6 Classes • Regional Entity: { [ Independent(A) + Independent(B) ] – RE} votes > 0 • Non-Regional Entity: { [ Independent(A) ] – RE} votes > 0 • Probably circa 7 Independents

  39. 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 • Regional Entity: { [ Independent(A) + Independent(B) ] – RE} votes > 0 • Non-Regional Entity: { [ Independent(A) ] – RE} votes > 0 • Probably circa 3 Independents

  40. Balanced Stakeholder Board: • Governance Model: • Board operationally directive in 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 • No Independent Directors

  41. Structure + Governance Combination Options

  42. 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

  43. 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

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