On the Horizon: Excellence in Governance Brent Ridge Vice President, Corporate Services and Chief Financial Officer, Oct. 24, 2014 Angela will introduce Brent

What We’ll Discuss Today Energy Northwest’s Excellence in Governance Model How to develop your own utility’s Excellence in Governance Model Good morning and thank you for joining me today to walk you through how the Energy Northwest Executive Board developed their Excellence in Governance Model and how your utility can develop one too.

What is Excellence in Governance Continually improve board and agency performance; hold each other to the highest standards of public power and the energy industry; and conduct business in a manner that best serves the interests of all Northwest ratepayers affected by the agency and agency projects. Sets guidelines for current and future board members What is Excellence in Governance? It is to “Continually improve board and agency performance; hold each other to the highest standards of public power and the energy industry; and conduct business in a manner that best serves the interests of all Northwest ratepayers affected by the agency and agency projects.” Additionally, it sets guidelines for current and future board members. Energy Northwest’s Excellence in Governance began by our Executive Board wanting to strengthen their performance as a governing board. About a year ago, we began the process of developing the Excellence in Governance Model and during the course of several months the Energy Northwest Executive Board finalized an Excellence in Governance Model and associated policies.

Shown here is the final Energy Northwest Excellence in Governance Model First I’ll walk you through each portion of the Model and then I’ll walk you through how to create your own.

Guiding Principles Guiding Principles are positive, general principles that serve as the foundation of how the group conducts business – and leads the agency – as a governing board. The principles are motivational and driving traits for how the board will engage as individual members and as a board in the best interest of the agency and ratepayers. Energy Northwest’s statement of guiding leadership principles: “Strategic, Intrusive, Accountable, Leadership.” The model begins with Guiding Principles which are positive, general principles that serve as the foundation of how the group conducts business – and leads the agency – as a governing board. The principles are motivational and driving traits for how the board will engage as individual members and as a board in the best interest of the agency and ratepayers. Energy Northwest’s statement of guiding leadership principles: “Strategic, Intrusive, Accountable, Leadership.”

Tiers The Excellence in Governance Model consists of three interdependent tiers of attributes. For Energy Northwest, its foundation is based on the guiding principles of strategic, intrusive, accountable leadership. The tiers are: Board Obligations to Excellence Board Member Actions for Excellence Board Enablers of Excellence The model also lists three tiers that consist of attributes to use as guidelines for making board decisions. The foundation is based on the guiding principles. The three tiers include: Tier 1 – Board Obligations to Excellence Tier 2 – Board Member Actions for Excellence Tier 3 – Board Enablers of Excellence

Tier 1 – Board Obligations to Excellence The board’s Obligations to Excellence are commitments by the board to sustain good stewardship of agency assets as public power advocates. Tier 1 is Board Obligations to Excellence The board’s Obligations to Excellence are commitments by the board to sustain good stewardship of agency assets as public power advocates. The attributes in Energy Northwest Tier 1 include: O-1: Strive for Excellence O-2: Comply with Statutory and Regulatory Duties O-3: Set Strategic Direction and Outcomes O-4: Fulfill Fiduciary Responsibilities O-5: Provide Resources O-6: Assure Effective Management O-7: Engage and Be Accountable to Stakeholders

Tier 2 – Board Member Actions for Excellence Members’ Actions for Excellence represent individual and group excellence behaviors that significantly impact overall agency performance. Tier 2 is Board Members Actions for Excellence. Members’ Actions for Excellence represent individual and group excellence behaviors that significantly impact overall agency performance. The attributes in Energy Northwest Tier 2 include: A-1: Place Highest Priority on Public Health and Safety A-2: Provide Clear, Majority-Based Direction A-3: Demonstrate Integrity and Ethical Conduct A-4: Communicate Honestly and Directly A-5: Be Accountable for Board Decisions A-6: Be Fully Engaged in Board Activities A-7: Use Resources Cost Effectively A-8: Obtain Diverse Independent Assessments of Performance

Tier 3 – Board Enablers of Excellence The board’s Enablers of Excellence provide assurance methods to achieve predictable governance outcomes by promoting consistency in Executive Board action. Tier 3 is Board Enablers of Excellence. The board’s Enablers of Excellence provide assurance methods to achieve predictable governance outcomes by promoting consistency in board action. The attributes in Energy Northwest Tier 3 include: E-1: Critical Board Self-Evaluation E-2: Define Board Purpose, Policies and Procedures E-3: Define CEO/Board Working Relationship E-4: Effective Performance Management E-5: Comprehensive Board Education and Development E-6: Periodic Facility Visits

And that’s what makes up the Energy Northwest Excellence in Governance Model. From there, our Executive Board created definitions for each attribute which developed into policy statements. These policy statements then helped developed the overall policies and procedures for each attribute.

Creating Your PUD’s Excellence in Governance Model Pre-Workshop Survey Utility board and management review and respond to existing sample Excellence in Governance Model Gather individual input and feedback So how can you develop an Excellence in Governance Model for your own utility? These next several slides walk you through a recommended way of developing your own model, however, the process can easily be modified. Since Energy Northwest has already gone through the process, we encourage you to begin with our model as a reference. Start by developing a survey to be taken by each board member and members of management who will be involved in developing your utility’s model. (We have a survey you are welcome to use if you’d like.) You can use the Energy Northwest Excellence in Governance Model as a reference in the survey. Then gather the results to develop an initial draft of your utility’s Excellence in Governance Model

Creating Your PUD’s Excellence in Governance Model cont’d Workshop: Create Guiding Principles Utility board and management review draft Excellence Model Confirm Tiers Add/delete/modify attributes (as necessary) Attribute definitions From there, we recommend you conduct a day-long workshop to finalize your utility’s model. The Energy Northwest Executive Board consists of 11 members so during our workshop we broke into three smaller groups and then came back together as one large group. However, with a Commission Board of 3 or 5, we recommend you remain in one group. During the workshop, several exercises are done to finalize the Excellence in Governance Model: Create Guiding Principles Utility board and management review draft Excellence Model Confirm Tiers Add/delete/modify attributes (as necessary) - What attributes are appropriate for your utility? Attribute definitions

Creating Your PUD’s Excellence in Governance Model cont’d Workshop: Identify highest value attributes; and attribute strengths/weaknesses Complete a gap analysis on governance policy subject areas that results in alignment on policy subject priorities. Then you’ll: Identify highest value attributes; and attribute strengths/weaknesses Complete a gap analysis on governance policy subject areas that results in alignment on policy subject priorities.

Exercise #1 – Guiding Principles Within the group – Review and discuss what your utilities Guiding Principles should be. The first exercise is to create Guiding Principles. Spend time discussing what your board’s guiding principles should be. As a reminder, our board’s are Strategic, Intrusive, Accountable Leadership. Others you might consider are Inquisitive, Visionary, Directive.

Exercise #2 – Confirm Attributes Review and discuss each tier of attributes on the model to: Validate Modify Add Delete Then you’ll review the draft Excellence Model and confirm the tiers. In the second exercise, as a group, discuss whether the tiers reflect the attributes you want to see and identify, if any, are missing. Add/delete/modify attributes (as necessary) - What attributes are appropriate for your utility. Ensure that the attributes expressed in each tier are easily understandable, and that you share a common understanding of each. Confirm Attributes.

Exercise #3 – Attribute Definitions Assess each attribute definition. Validate Modify Delete Ensure definitions accurately and clearly express the behaviors embodied by each attribute. Now you’ll develop definitions of each attribute as a group. Ensure definitions accurately and clearly express the behaviors embodied by each attribute.

Exercise #4 – High value attributers Vote on your top most valued attributes Then vote on your highest valued attributes. Depending on how many attributes your model has, you can either do this by voting for highest valued attributes in each tier or overall. These results will be used later.

Exercise #5 - Strengths & Weaknesses Vote: from your perspective, select: 3 top strengths 3 top weaknesses (gaps) Now you’ll conduct a gap analysis by using the attributes. You’ll vote for the top strengths and weaknesses. The top weaknesses indicate the biggest gaps.

Next Steps Develop policies and procedures Implement the Excellence of Governance Model From there, compare the highest valued attributes with the gaps (weaknesses). Those attributes that are of the highest value but are also your greatest weaknesses are the attributes that should be focused on first to create policies and procedures.

As a takeaway for your reference, we have our Executive Board Policies pocketbook. This is a condensed version of the full policy handbook. Also, if you are interested in doing a workshop with your utility, I would be happy to come facilitate it.

Questions If any Executive Board members are in the room, ask if there is anything they would like to add. Leave approximately 10 minutes for questions from the audience.