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WECC RESTRUCTURING PHASE III GNC UPDATE TO BOARD OF DIRECTORS

WECC RESTRUCTURING PHASE III GNC UPDATE TO BOARD OF DIRECTORS. February 22, 2013 Salt Lake City, UT. Agenda. Board Direction – Resolutions from 12/6-7/12 meeting Current Recommendations for Board Review and Approval Governance proposals for WECC RE Clean-up issues for RCCo

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WECC RESTRUCTURING PHASE III GNC UPDATE TO BOARD OF DIRECTORS

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  1. WECC RESTRUCTURING PHASE IIIGNC UPDATE TO BOARD OF DIRECTORS February 22, 2013 Salt Lake City, UT

  2. Agenda • Board Direction – Resolutions from 12/6-7/12 meeting • Current Recommendations for Board Review and Approval • Governance proposals for WECC RE • Clean-up issues for RCCo • Future Activities

  3. Board Direction – 12/6-7/12 Meeting Spin Out Reliability Centers Resolution Whereas, • Work to develop the RE and NRE for the purpose of separating registered functions from delegated functions has proceeded on the assumption that the RE would only perform ERO delegated functions under the pro forma delegation agreement and the NRE would assume all remaining WECC functions.  • An alternative method of separating the registered functions of WECC from the delegated functions is to revise the WECC Mission and Functions to exclude the Reliability Centers and other registered functions, creating a new entity to handle those functions with a strong focus on that aspect of maintaining the reliability of the Western Interconnection. • Potential difficulty in providing long-term secure funding for the RC and other registered functions that WECC performs that are important to reliability and the length of time required to develop and receive approval for an effective tariff to achieve this goal has suggested that the spin off of the registered functions to a new entity may be the best and most expeditious way to achieve the separation of functions. Resolved,

  4. Board Direction – 12/6-7/12 Meeting Spin Out Reliability Centers Resolution • The Board therefore directs the GNC and Management to develop a detailed proposal for the spin off of the registered functions that would include bylaws for a new section 501(c)(4) corporation that will provide for the governance of that entity by an independent board with a strong Member Advisory Committee. The Board directs the GNC to bring that detailed proposal to the Board at its March meeting. If approved at that time, the Board anticipates incorporating the new entity and making necessary regulatory filings that would be necessary to ensure secure funding for the new entity prior to completion of the cut-over of these functions from WECC to the new entity. • For the remaining WECC, the Board directs the GNC to re-evaluate the governance structure and bring a proposal to the Board for its consideration at the March Board meeting. The Board would like to consider proposed Bylaws amendments that could be voted on by the WECC Membership at its 2013 Annual Meeting to implement an improved governance structure for WECC. • The Finance and Audit Committee should focus on retaining Section 215 funding for the remaining WECC, and on an interim basis for the RC, until a tariff and/or bilateral mechanism can be developed. • The Board directs the GNC and management to develop and begin the implementation of a transition plan for the RC and other registered functions including separate budgets, development of bylaws, a 501(c)(4) corporation, identifying board members, and developing a leadership structure. • The Board directs the GNC and management to recommend policies and procedures for operating the Reliability Centers in a separable and focused manner with distinct budget and resources to facilitate the anticipated cut over to a new company and to expedite progress on the improvement of the Reliability Centers while they remain in WECC. • The Board directs the GNC to work with a member advisory group to present their class ideas and majority and minority opinions, and address stakeholder concerns to assess the extent to which members support the GNC’s recommendations.

  5. Board Direction – 12/6-7/12 Meeting WECC & RCCo Class Issues Resolution Resolved, That the Western Electricity Coordinating Council (WECC) Board of Directors directs the GNC to develop proposed bylaws amendments or other policies that will apply to both WECC and the RCCO that will, following the proposed spin off of the registered functions into the RCCO: (1) Maintain existing classes 1-5; (2) Eliminate Class 7; (3) Modify the definition of Class 3 to include developers, consultants, and members at large with a business interest in WECC; (4) Allow existing Class 7 members to reapply for Class 3 membership; (5) Remove members who are inactive for over 12 months from membership; and (6) Allow access to WECC data by non-members who can demonstrate a legitimate business need for the data, pay the incremental cost of providing the data, and sign a universal Data Access NDA. The Class 6 issues are still under review and will be brought back for discussion at a later date.

  6. GNC Activities – Work PlanScope (Deliverables) & Schedule

  7. Current RecommendationsWECC RE Governance

  8. Current RecommendationsWECC RE Governance – Proposal (1) • Vision Statement – WECC RE shall seek to achieve the appropriate level of BES reliability at the least cost considering all costs throughout the economy. • Mission Statement - WECC will lead the stakeholders in the Western Interconnection to achieve optimal system reliability, be the premier source of unbiased information, and serve as the trusted thought leader for the Western Interconnection by providing: • Impartial independent review and analysis of reliability issues impacting the Western Interconnection; • Standards development incorporating Western Interconnection experience and knowledge; • Consistent and fair monitoring and enforcement activities for standards compliance; • Event analysis and lessons-learned from system events; • Value for its membership through cost effective and efficient services and practices including: • Centralized repository of reliable information relating to the planning and operation of the BES; • Coordinated system planning and modeling; • Sharing of, and providing feedback on adherence to, recognized industry best practices; • Facilitating resolution of market seams and coordination issues; • Secure sharing of critical reliability data, and; • Robust stakeholder forum.

  9. Current RecommendationsWECC RE Governance - Proposal (2) Corporate IRS Structure • IRS 501(c)(4) status as a public welfare corporation Funding Mechanism • The WECC RE should continue under Section 215 funding and Canadian and Mexican funding through bilateral contracts. [December Board Resolution] • To the extent there are functions performed by the WECC RE that are determined to not fall under Section 215, other bilateral funding mechanisms will be needed (e.g., WREGIS).

  10. Current RecommendationsWECC RE Governance - Proposal (3) Membership Structure • Membership Classes (approved in December) • five classes with the same definitions as existing WECC classes 1-5, except that the definition of Class 3 will be altered to include developers, consultants, and members at large with a business interest in the RCCo; • Members who are classified as inactive for over 12 months will be removed from membership; • Policies will allow access to WECC RE data by non-members who can demonstrate a legitimate business need for the data, pay the incremental cost of providing the data, and sign a Universal Data Access Non-Disclosure Agreement; • Canadian and Mexican members who participate in the RCCo will qualify for membership in existing classes 1-5. Ongoing negotiations between WECC Management and WECC’s non-U.S. members may provide for different MAC participation.

  11. Current RecommendationsWECC RE Governance - Proposal (3) (cont’d) Membership Structure (cont’d) • Sub-Class Organization • A Member Class may sub-divide in up to three sub-classes based on a majority desire within that class for purpose of electing MAC representation. • Membership Rules, Rights, and Obligations • Section 4 of existing WECC Bylaws should be included in the bylaws for WECC RE, except the requirement to provide non-discriminatory transmission access, which was considered no longer relevant to the WECC RE.

  12. Current RecommendationsWECC RE Governance - Proposal (3) (cont’d) Membership Structure (cont’d) • Member Advisory Committee (MAC) • Relation to Current WECC Standing Committees • MAC will report directly to the Board as will the PCC, OC, and MIC • Cooperate and share information with all WECC RE standing committees in providing input to the Board • Funding • MAC will be self-funded by the member companies for labor and travel. MAC members may apply for travel reimbursement similar to current WECC director travel policy. WECC RE staff will provide facilitation and coordination support, including meeting facilities expenses.

  13. Current RecommendationsWECC RE Governance - Proposal (3) (cont’d) Membership Structure (cont’d) • Member Advisory Committee (MAC) (cont’d) • Roles and Responsibilities • a standingcommittee reporting directly to the Board of Directors that will advise the Board on any matter the MAC deems appropriate, as well as when required by the Board. • MAC chair or designee will sit at the Board table to provide advice or clarifications and respond to Director’s questions • MAC will meet in open session separately from the Board of Directors meeting • Upon 2/3 affirmative vote, MAC may meet in closed session to receive and discuss any information that is privileged, trade secret, cyber security, critical energy infrastructure information (as defined by the FERC), protected from public disclosure by law. • Directors may attend MAC meetings, including closed sessions • A quorum is required for the MAC to take any action by a simple majority vote • MAC Members have a responsibility to expose all opinions (both majority and minority) to the Board

  14. Current RecommendationsWECC RE Governance - Proposal (3) (cont’d) Membership Structure (cont’d) • Member Advisory Committee (MAC) (cont’d) • Composition and Leadership • Each class will determine the need for diversity (e.g., geographic, stakeholder issues, etc.). • Leadership will consist of a Chair and Vice Chair whom will be elected by the membership of the MAC. Chair and Vice Chair of the MAC cannot be affiliated with the same Member Class, or be from the same group of affiliated companies. • Nomination/Election • Nominations can only be made by members of respective classes /subclass. Member representatives need not be from the class they represent. • MAC elections will be held at the annual meeting Each class/subclass will need to have a quorum MAC members will be elected by the nominee(s) receiving the most votes Allowance for preferential block voting

  15. Current RecommendationsWECC RE Governance - Proposal (3) (cont’d) Membership Structure (cont’d) • Member Advisory Committee (MAC) (cont’d) • Number and Term • Three members per Member Class serving 3 year staggered terms • Qualifications • No required qualifications or class affiliation requirements

  16. Current RecommendationsWECC RE Governance - Proposal (4) – Option 1 Board Governance Structure – Independent Board - Majority Recommendation • Composition • 9 independent directors. • Gives serious consideration and response to MAC and WIRAB recommendations and serious consideration of input from other interested parties in deciding issues, but ultimately bases those decisions on what it deems best promotes the  public welfare. • Nomination/Election • Board Chair appoints Nominating Committee of three MAC Members selected by the MAC, with at least one from Member Classes 1 through 3 and at least one from Member Classes 4 or 5, and three Independent Directors not standing for re-election. • Nominating Committee puts forth two names for each vacant Director position, recommending one of the two nominees to the full Board for consideration; except that the Nominating Committee may elect to put forward only one name for consideration in the case of an existing Independent Director standing for re-election. • The candidates put forth to the Board will be based on the candidate(s) with the most supporting votes (and a minimum of three supporting votes) of the nominating committee. When submitting the name(s) of the candidates, the nominating committee will identify to the Board the nominating committee members who have voted in support of the candidate(s). • Board will select,after discussion with the full Nominating Committee, one candidate for each vacant position and present the membership with a slate of one candidate per vacancy • Membership will vote on each position separately. Election requires majority vote of the members as a whole, and by a majority of the Member Classes. • Process for selection of temporary directors.

  17. Current RecommendationsWECC RE Governance - Proposal (4) – Option 1 (cont’d) Board Governance Structure – Independent Board - Majority Recommendation (cont’d) • Director Qualifications – Skills/Experience • The Board of Directors shall ensure that the Independent Board Directors at all times includes at least three directors who have at least ten years of experience in the utility industry, including at least one director who has transmission operations experience, at least one director who has transmission planning experience, and at least one director who has generation experience. • Should Canada and Mexico elect to participate in the WECC RE, the Independent Board of Directors shall also include one director with international experience, which could be provided from one of the three required independent directors discussed above or from the remaining independent directors. • The remaining independent directors shall be selected in an effort to create a board with a diversity of experience. Desirable categories of experience include: Regulatory/Legal, Accounting/Finance/Economics, Environmental, End User Advocacy, IT, Compliance/Standards, International, and Public Sector.

  18. Current RecommendationsWECC RE Governance - Proposal (4) – Option 2 • Board Governance Structure – Hybrid Board – Minority Recommendation • Composition • 6 independent directors and 5 member class directors with three year staggered terms (i.e., independent director majority). • Gives serious consideration and response to MAC and WIRAB recommendations and serious consideration of input from other interested parties in deciding issues, but ultimately bases those decisions on what it deems best promotes the  public welfare. • Nomination/Election • Board Chair appoints Nominating Committee of three Member Class Directors, with at least one from Member Classes 1 through 3 and at least one from Member Classes 4 or 5, and three Independent Directors not standing for re-election. • Nominating Committee puts forth two names for each vacant Director position, recommending one of the two nominees to the full Board for consideration; except that the Nominating Committee may elect to put forward only one name for consideration in the case of an existing Independent Director standing for re-election. • The candidates put forth to the Board will be based on the candidate(s) with the most supporting votes (and a minimum of three supporting votes) of the nominating committee. When submitting the name(s) of the candidates, the nominating committee will identify to the Board the nominating committee members who have voted in support of the candidate(s). • Board will select,after discussion with the full Nominating Committee, one candidate for each vacant position and present the membership with a slate of one candidate per vacancy • Membership will vote on each position separately. Election requires majority vote of the members as a whole, and by a majority of the Member Classes. • Process for selection of temporary directors.

  19. Current RecommendationsWECC RE Governance - Proposal (4) – Option 2 (cont’d) • Board Governance Structure – Hybrid Board – Minority Recommendation (cont’d) • Director Qualifications – Skills/Experience • Independent Directors The Board of Directors shall ensure that the Independent Board Directors at all times includes at least three directors who have at least ten years of experience in the utility industry, including at least one director who has transmission operations experience, at least one director who has transmission planning experience, and at least one director who has generation experience. Should Canada and Mexico elect to participate in the WECC RE, the Independent Board of Directors shall also include one director with international experience, which could be provided from one of the three required independent directors discussed above or from the remaining independent directors. The remaining independent directors shall be selected in an effort to create a board with a diversity of experience. Desirable categories of experience include: Regulatory/Legal, Accounting/Finance/Economics, Environmental, End User Advocacy, IT, Compliance/Standards, International, and Public Sector. • Member Class Directors No affiliation or qualification requirements.

  20. Current RecommendationsWECC RE Governance - Proposal (5) • Board Governance Structure (cont’d) • CEO may be appointed to serve on the Board of Directors • May not be a member of any Board committee • Can not vote to create or break a tie • Shall not serve as Chair or Vice Chair. • Board will elect its own Chair and Vice Chair.

  21. Current RecommendationsWECC RE Governance - Proposal (6) Board Governance Structure (cont’d) • Affiliation Restrictions • An independent director may not be a full-time employee of any Registered Entity in North America and may not be affiliated with any Registered Entity registered within the Western Interconnection. The term “affiliated” means: • An employee of, • A contractor for, • An employee of a contractor for, or • Equity owner of. These affiliation restrictions also include the spouse or minor child of the independent director.However, as in the current WECC Bylaws, the Remaining WECC Bylaws will provide that ownership of broadly based mutual funds that are not focused on the energy sector will not cause a disqualifying affiliation nor will the receipt of pension payments that are not tied to the financial success of the entity. • There should be no affiliation or qualification requirements for Member Class Directors.

  22. Current RecommendationsWECC RE Governance - Proposal (7) • Approval of By-Laws • Amendments by the Board • Provide at least thirty (30) days’ notice to all Members • Affirmative vote of not less than two-thirds (2/3) of the Directors in office • Effective 60 days after approval unless appealed by members. Appeals process: Request by majority of any member class (includes bylaws amendments and changes to vision or mission statements) Vote at annual meeting or special meeting called by Board Requires majority of members and member classes • Board may not amend following bylaws without member approval (majority of members and member classes) Board structure and authority Membership structure and authority Dispute resolution procedures

  23. Current RecommendationsWECC RE Governance - Proposal (7) (cont’d) • Approval of By-Laws (cont’d) • Amendments by the Members • Petition filed with the Secretary by any Member or Director, at any Annual Meeting the Members may amend any provision of the Bylaws; provided: Proposed amendment has first been presented to the Board and not adopted; Members have received not less than sixty (60) days’ notice of the proposed amendment, the reasons there for and a statement of the Board’s position regarding it; Amendment receives the affirmative votes of not less than two-thirds (2/3) of all Members and a majority of Member classes. • Amendments in Response to Mandatory Membership • If at any time, pursuant to legislation or otherwise, membership becomes mandatory for some or all Members, upon the request of the affected Member(s) the Board will consider amendments to these Bylaws appropriate to such mandatory membership. • Amendments proposed by FERC • FERC, upon its own motion or upon complaint, may propose an amendment to these Bylaws pursuant to 18 C.F.R. § 39.10(b).

  24. Current RecommendationsWECC RE Governance - Proposal (8) • Role of State Regulatory Authorities • WIRAB will have a strong advisory role to the Board of the WECC RE – similar to the current structure.

  25. Current RecommendationsWECC RE Governance – Management Comments • Company Overview (Slide 8) • Advocates the use of the term WECC for the Regional Entity (WECC RE) and the Reliability Coordination Company (RCCo) for the registered functions. • Vision and Mission Statements (Slide 8) • Supports continued use of existing WECC mission and vision statements developed and approved by the Board in December 2011. • Board Governance Structure (Slide 16-19) • Support Independent Board Structure with strong MAC • Recommend against MAC if Hybrid Board model chosen • Bylaws Approval (Slides 22-23) • Bylaws should not be overly prescriptive in nature • Board should have as much flexibility as possible to amend bylaws • Appropriate checks and balances can be achieved by providing a backstop for membership to challenge and or rescind bylaws amendments.

  26. Current RecommendationsWECC RE Governance – MAWG Comments • Refer to WECC RE Governance White Paper and MAWG presentation

  27. Current RecommendationsWECC RE Governance – GNC Comments • Refer to WECC RE Governance White Paper

  28. Current RecommendationsWECC RE Governance - GNC Recommendations • The GNC has consensus on the WECC RE governance Proposals 1-3 and 5-8 and recommends approval by the Board. • A majority of the GNC (5/2) supports the WECC RE governance Proposal 4, Option 1 – Independent Board with strong MAC and recommends approval by the Board. A minority of the GNC supports WECC RE governance Proposal 4, Option 2 – Small Hybrid Board with strong MAC and is presented for discussion.

  29. Current RecommendationsWECC RE Governance – Draft Resolution (1) Whereas, The Western Electricity Coordinating Council (WECC) Board of Directors (Board) on December 7, 2012 directed the Governance and Nominating Committee (GNC) to develop a detailed governance proposal for the spinoff of registered functions into a Reliability Coordination Company (RCCo), as well as for the continuing governance of the Remaining WECC Company which will continue to carry out NERC delegated functions. Therefore, Be It Resolved, that • The WECC Board approves the GNC consensus Proposals 1-3 and 5-8 on WECC RE Governance presented to the Board on February 22, 2013; and • The WECC Board authorizes the GNC, Finance and Audit Committee, Human Resources and Compensation Committee and WECC management to use these approved governance proposals as the basis for development of necessary bylaws and other documents needed to implement the proposed WECC RE.

  30. Current RecommendationsWECC RE Governance – Draft Resolution (2) Whereas, The Western Electricity Coordinating Council (WECC) Board of Directors (Board) on December 7, 2012 directed the Governance and Nominating Committee (GNC) to develop a detailed governance proposal for the spinoff of registered functions into a Reliability Coordination Company (RCCo), as well as for the continuing governance of the Remaining WECC Company which will continue to carry out NERC delegated functions. Therefore, Be It Resolved, that • The WECC Board approves the GNC majority Proposal 4, Option 1, on WECC RE Governance (Independent Board with strong MAC) presented to the Board on February 22, 2013; and • The WECC Board authorizes the GNC, Finance and Audit Committee, Human Resources and Compensation Committee and WECC management to use these approved governance proposals as the basis for development of necessary bylaws and other documents needed to implement the proposed WECC RE.

  31. Current RecommendationsWECC RE Governance – Draft Resolution (2) Alternative Whereas, The Western Electricity Coordinating Council (WECC) Board of Directors (Board) on December 7, 2012 directed the Governance and Nominating Committee (GNC) to develop a detailed governance proposal for the spinoff of registered functions into a Reliability Coordination Company (RCCo), as well as for the continuing governance of the Remaining WECC Company which will continue to carry out NERC delegated functions. Therefore, Be It Resolved, that • The WECC Board approves the GNC alternative Proposal 4, Option 2, on WECC RE Governance (Hybrid Board with strong MAC) presented to the Board on February 22, 2013; and • The WECC Board authorizes the GNC, Finance and Audit Committee, Human Resources and Compensation Committee and WECC management to use these approved governance proposals as the basis for development of necessary bylaws and other documents needed to implement the proposed WECC RE.

  32. Current RecommendationsClean Up Issues for RCCo Governance • Membership Rules, Rights, and Obligations • Section 4 of current WECC Bylaws provides details on what the rules, rights, and obligations are for members. GNC has not discussed the extent to which similar provisions should be included in the RCCo Bylaws. This will be reviewed in the context of proposed Bylaws for RCCo. • MAC Closed Session Allowance • Similar allowance as proposed for WECC RE (Slide 13) • Allowance for Preferential Block Voting for MAC Members • Process for filling Board vacancies on interim basis • Bylaws Approval • Similar process as proposed for WECC RE (Slides 22-23)

  33. Current RecommendationsClean Up Issues for RCCo Governance – Draft Resolution Whereas, The Western Electricity Coordinating Council (WECC) Board of Directors (Board) on December 7, 2012 directed the Governance and Nominating Committee (GNC) to develop a detailed governance proposal for the spinoff of registered functions into a Reliability Coordination Company (RCCo), as well as for the continuing governance of the Remaining WECC Company which will continue to carry out NERC delegated functions; and whereas the WECC Board approved governance resolutions for the RCCo on January 23, 2013. Therefore, Be It Resolved, that • The WECC Board approves the clarification issues on RCCo governance presented to the Board at the February 22, 2013, Board Meeting; and • The WECC Board authorizes the GNC, Finance and Audit Committee, Human Resources and Compensation Committee and WECC management to use these clarifications in the development of necessary bylaws and other documents needed to implement the proposed RCCo.

  34. Future Recommendations for Board Approval • Proposed bylaws for RCCo and bylaws amendments for WECC RE – (March Board Meeting) • Plan for transitioning the registered functions from the current WECC to the RCCo –(June Board Meeting)

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