September Board Materials carried forward

1. September Board Materialscarried forward [Presentation Title] [Date] [Location]

2. Member Classes • Class 1 – Electric line of business entity > 1000 circuit mile of transmission line – 23 members (6%) • Class 2 – Electric line of business entity < 1000 circuit mile of transmission line – 54 members (15%) • Class 3 – Electric line of business entity without any distribution or transmission lines – 71 members (20%) • Class 4 – End-users of significant amount of electricity – 17 members (5%) • Class 5 – State and Provincial representatives 22 members (6%) • Class 6 – Canadian members – 20 members (6%) • Class 7 – Member at large – 148 members (42%) • Total members 355

3. 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.

4. 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

5. 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

6. 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

7. 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

8. Thoughts on Bifurcation as a Structural option • The two companies must cooperate on planning related activities – fix via bylaws • The two companies should contract between them for common needs to achieve lowest cost Interconnection result • The two companies should address data sharing • Bifurcation provides new Optionality: Non-Regional Entity able to cleanly add value in a range of emerging options • Allows more focus on both sides: unclouded by inappropriate considerations on the other side.

9. Thoughts on most common governance model for RE – Small Stakeholder Board • While the dominant model, NERC itself has an Independent Board. • Appearance of conflicts can be made: • Board control of standards to which they will be accountable • Board control of budget that regulates the ability of management • Board pressure on findings – e.g. Find, Fix, Track determination • NERC is willing to accept this option, larger Boards are an issue with NERC • Lowest cost approach

10. 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

11. 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

12. 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

13. Approved Resolutions

14. Resolution – Regional Entity Governance Resolved, That the Western Electricity Coordinating Council (WECC) Board of Directors (Board) directs the Chief Executive Officer to work with staff, the Governance and Nominating Committee, the Finance and Audit Committee, and the Human Resources and Compensation Committee to complete work on a governance model for the new Regional Entity Company based on an Independent Board with a strong Member Advisory Committee.   Work should commence immediately and advance so that sufficient details of this governance structure are available to the Board at the December 2012 Board meeting to permit further approvals and actions which would lead to final work products needed for membership approval at the 2013 Annual Meeting.

15. Resolution – Non-Regional Entity Governance Resolved, That the Western Electricity Coordinating Council (WECC) Board of Directors (Board) directs the Chief Executive Officer to work with staff, the Governance and Nominating Committee, the Finance and Audit Committee, and the Human Resources and Compensation Committee to complete work on a governance model based on a Hybrid Board with one vote per Member Class, said Board and voting to be structured so that the Independent Director votes comprise a majority of the total number of votes eligible to be cast.  Work should commence immediately and advance so that sufficient details of this governance structure are available to the Board at the December 2012 Board meeting to permit further approvals and actions which would lead to final work products needed for membership approval at the 2013 Annual Meeting. The intent of this motion is that prior to the December 2012 Board meeting, the GNC will make a recommendation to the Board on either a hybrid or independent board structure based on then-current information.

16. Resolution – Structure Resolved, That the Western Electricity Coordinating Council (WECC) Board of Directors (Board) determines that WECC should pursue bifurcation into two separate and distinct companies – one Regional Entity Company containing Regional Entity functions (for example, Compliance Monitoring and Enforcement, Standards Development, and Event Analysis) and other functions as appropriate to the mission of that company as a Regional Entity, and a second Registered Entity Company containing the current WECC Registered Entity functions (Reliability Coordinator and Interchange Authority) and other functions as appropriate to the mission of that company. The Board directs the Chief Executive Officer to work with staff, the Governance and Nominating Committee, the Finance and Audit Committee, and the Human Resources and Compensation Committee to take all necessary action so that full details regarding the mission, functional allocation and organizational structure of both companies are available to the Board at the December 2012 Board meeting to permit further approvals and actions which would lead to final work products needed for membership approval at the 2013 Annual Meeting.

17. Coordination • Management: • Primary resources for the Committee • Coordination point for the Committee • “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” – September Board • “provide support to GNC, Finance and Audit Committee (FAC), and Human Resources Compensation Committee (HRCC) associated activities” September Board • Project Management – John Stout, David Godfrey, Kwin Peterson - Overall Project, GNC, Schedule, Deliverables

18. Project Elements • Regional Entity: • Opportunity Statement • Mission • Functions • Independent Board defined • Advisory Board defined • Non-Regional Entity: • Opportunity Statement • Mission • Functions • Hybrid Board defined • Independent Board Defined • Advisory Board Defined • Committees • Board • Member • Other bylaw considerations • GNC Outreach and Communications • GNC long term plan

19. Advisory Board Principles • Pre-engagement with BOD on resolutions • Engagement on issues at each BOD meeting • Required response to specific AB advice • Heavy linkage with Management teams • Advice in writing, AB voting shows strength of AB advice.

20. Committees • While the specific structure of the member committees should be decided by the new Boards of Directors and/or Members Advisory Boards the functions considered by the committees are expected to align with the functional split • Regional Entity • Stakeholder process for standards and regional criteria development • Technical input into Regional Entity analysis and coordination • Non-regional Entity • Regional Business practice and guideline development • Direction on new and evolving processes, projects and priorities • Technical input into Non-regional Entity projects

21. Committees – Needs • Scope – for the RE and the NRE Companies, what is the transition from the Committee structures of today • For each of today’s committees – where do they go and how do they change?

22. Regional Entity = NERC +

23. Resolution – Regional Entity Governance Resolved, That the Western Electricity Coordinating Council (WECC) Board of Directors (Board) directs the Chief Executive Officer to work with staff, the Governance and Nominating Committee, the Finance and Audit Committee, and the Human Resources and Compensation Committee to complete work on a governance model for the new Regional Entity Company based on an Independent Board with a strong Member Advisory Committee.   Work should commence immediately and advance so that sufficient details of this governance structure are available to the Board at the December 2012 Board meeting to permit further approvals and actions which would lead to final work products needed for membership approval at the 2013 Annual Meeting.

24. Regional Entity Opportunity Statements • Reliability through independent, unbiased oversight aligned with FERC, NERC and other jurisdictional requirements and expectations • Consistent, fair monitoring and enforcement activities • 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

25. Regional Entity Mission [Regional Entity Name] is the steward of reliability for the Western Interconnection. To accomplish this role, [Regional Entity Name] will: • Provide impartial and independent review and analysis, • Incorporate system experience and knowledge into standards development, • Ensure the delivery of consistent and fair monitoring and enforcement activities, and • Identify root causes and lessons learned for major system events.

26. Regional Entity Functions

27. Regional Entity Committees • Governance and Nominating • Finance and Audit • Human Resources and Compensation • Standards • Compliance • Reliability Policy Issues • Member Representatives

28. RE Board Composition – Independents – Management Recommendation • Selection • WECC NADs • Nominated by GNC, elected by membership as a whole • Efficient, successful in obtaining qualified NADs for the Board • Considerations – efficiency, consistency, quality • Recommendation • Committee of Board and MRC members nominates slate of Independent Director candidates • MRC votes on slate of candidates for membership vote • Elected by membership as a whole

29. RE Board Composition – ElectionGNC Consensus • Nominating Committee consisting of Board and MRC members • Directors standing for re-election excluded

30. RE Board Composition – ElectionGNC Individual Recommendations • Number of nominees equal to number of seats • GNC consensus with comments • Shetler is concerned about tying the hands of future boards • Chamberlain would like to consider a method to allow members to place candidates into nomination • Nominating Committee: 50/50 Board/MRC • Casey, Shetler, Stout, Kelly, Chamberlain, MacLaren support to promote consensus and electability • Nominating Committee: Board > MRC • Feldman supports to optimize board productivity and observes this model is most commonlyused

31. RE Board Composition – ElectionGNC Individual Recommendations • Directors elected directly by the membership as a whole rather than having an MRC vote • Chamberlain supports because the MRC is represented on the Nominating Committee • Casey supports to avoid a potential cycle of vetoes by MRC • Shetler supports because MRC can express their view by holding an advisory vote • Feldman supports to dampen ability of MRC to control the Board • Stout and Kelly oppose because a membership vote does not preclude an MRC vote Additional information on this subject

32. RE Board Composition – Independents – Management Recommendation • Number • WECC NADs – 7 NADs • Considerations – efficiency, cost, satisfactorily populate Board committees, term rotation/overlap • Recommendation • 7 Independent Directors

33. RE Board Composition – NumberGNC Individual Recommendations • Nine Directors • Casey, Shetler, Stout, Kelly, Chamberlain, MacLaren support in order to staff committees/engage MRC • Casey supports in order to facilitate board nomination process • Seven Directors • Feldman supports a seven-member board in order to lower cost and observes organizations more complicated than the RE do it with seven Additional information on this subject

34. RE Board Composition – Independents Management Recommendation • Qualifications • WECC NADs • Demonstrated experience – exec mgmt/Board, law, finance, economics, accounting, engineering, regulation, natural resources, markets; or representing end users; Canadian issues • No affiliation with Classes 1-3 or entities eligible for Class 1-3 • Recommendation • Adopt current WECC NAD qualifications as a starting point • No affiliation with a Registered Entity for whom WECC serves as Compliance Enforcement Authority

35. RE Board Composition – IndependentsGNC Consensus • Independent Director Qualifications: • Adopt current WECC NAD qualifications • No affiliation with any Registered Entity in North America Additional information on this subject

36. RE – CEO on BoardManagement Recommendation • Recently added to WECC Board • Intended to attract more qualified candidates, enable more effective leadership • CEO may not cast tie-making or tie-breaking vote, may not be a member of Board Committees • Considerations – Similar interests apply to RE • Recommendation • RE Board retain authority to make the CEO a member of the Board, subject to voting and committee membership limitations

37. RE – CEO on BoardGNC Individual Recommendations • RE board retains authority to make the CEO a member of the board, subject to voting and committee membership limitations • Casey, Shetler, Stout, Kelly, Chamberlain, MacLaren and Feldman support because this is the NERC structure • CEO not permitted to be on board • Shetler does not support board membership for CEO due to conflict of interest Additional information on this subject

38. RE-MRC – Roles and ResponsibilitiesManagement Recommendation • Nomination of Directors • The MRC will be heavily involved in the nomination process • MRC members will comprise 50% of nomination committee • Election of Directors • The MRC will vote on slate of candidates, but the entire membership will elect individual directors by those candidates receiving the most votes • Bylaws Changes • The MRC will approve changes to the bylaws prior to Board approval

39. RE-MRC – Roles and ResponsibilitiesGNC Consensus With Comments • MRC and not the membership as a whole will vote on certain bylaws changes • Stout supports because the MRC is a balanced body • Chamberlain and Feldman support with the proviso that organization is chartered for public good rather than as a trade organization • Shetler, Kelly, and Feldman support with the proviso that members have a path to petition the board regarding bylaws changes • Action Item: bylaws need to be grouped into 2 areas – Board approval vs. MRC/Board approval Additional information on this subject

40. RE-MRC – Roles and Responsibilities Management Recommendation Cont. • Relationship to the Board • The MRC will be a committee that reports to the Board • Board members are encouraged to attend MRC meetings • The MRC will advise and offer recommendations to the Board on: • Program priorities • Budget • Standards and Criteria • Compliance activities • Policy • The MRC will meet separately from the Board • A quorum is required for the MRC to take any action • The MRC will vote on recommendations, by a simple majority, and then pass those recommendations to the Board • The Chair or Vice-chair of the MRC will sit at the table with the Board, as a non-voting participant, to give advice and clarification • Others MRC members may be invited to Board meetings to give advice and clarification

41. RE-MRC – Roles and ResponsibilitiesGNC Consensus • MRC chair or designee will sit at the table as a non-voting participant to provide advice or clarification Additional information on this subject

42. RE-MRC – Roles and Responsibilities – Management Recommendation Cont. • Relationship to Members • Member Committees • The MRC will develop a member committee structure as needed • The MRC will act as a liaison between the Board and member committees • General Membership • The MRC will act as a liaison to member classes • Members of the MRC will represent the best interest of the Interconnection from their class perspective

43. RE-MRC – Roles and ResponsibilitiesGNC Consensus • GNC agrees with management recommendation • Action Item: GNC undecided on whether MRC represents the interconnection or their class – Maude to write a paper outlining options for consideration. Additional information on this subject

44. RE-MRC – CompositionManagement Recommendation • Class representation • The MRC will be structured to align with the existing classes 1-7 • There will be three (3) representatives from each class • Diversity • Each class will determine the need for diversity, e.g., geographic, stakeholder issues, etc. • Leadership • The leadership of the MRC will consist of a Chair and Vice-chair • The MRC leadership will be elected by the membership of the MRC • The Chair and Vice-chair of the MRC cannot be from the same class or company

45. RE-MRC – Roles and ResponsibilitiesGNC Consensus • GNC agrees with management recommendation Additional information on this subject

46. RE-MRC – Roles and ResponsibilitiesGNC Individual Recommendations • Class 7 – no representation on MRC • Chamberlain points out that the 4.9 review did not identify a set of interests that need to be represented • Class 7 – yes representation on MRC • Feldman supports - rationale = WECC is a for-the-membership organizations and Class 7 is 42% of membership and needed to approve bylaws changes Additional information on this subject

47. RE-MRC – ElectionsManagement Recommendation • Nominating members to the MRC • Nominations can only be made by members of their respective classes • Member representatives will be from the class they represent • Term of MRC members • Each representative will serve for a 3-year term • Terms will be staggered • No term limits • Elections • Each class will have a quorum to elect MRC representatives • MRC elections will be held at the annual meeting (in person or by electronic means) • MRC members will be elected by the nominee(s) receiving the most votes • Members of each class will elect their MRC member

48. RE-MRC – ElectionsGNC Individual Recommendations • Agree with management recommendation with the proviso that a class representative would have a current or former affiliation with the class they represent • Members want to ensure that the member representative has a link to the class • Agree with management recommendation with no proviso • Feldman felt that this proviso is unnecessarily limiting and class should choose whoever best represents them Additional information on this subject

49. RE-MRC – Issues to be Considered • A determination of which bylaws have to go the entire membership for approval and those that can be approved by the Board • A class 4 member requests that GNC look at creating three (3) sub-classes in class 4 • Nomination can only come from sub-classes as applicable

50. RE-MRC – Issues to be ConsideredGNC Consensus • Classes may organize and govern themselves in any way they see fit with the limitation that they cannot have more than three representatives on the MRC. Additional information on this subject