RISK MANAGEMENT COMMITTEE UPDATE

PRESENTED BY:

Cory KuchinskyInterim VP, Strategic Pricing & Enterprise Risk Management & Solutions

(ERMS)

Shane BemisInterim Sr. Manager, Power Generation (PG)

December 6, 2019

I n f o rma t i ona l Upda t e

OBJECTIVES & TAKEAWAYS

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• REVIEW ERMS RISK FRAMEWORK• HIGHLIGHT RISK MITIGATION PLAN (RMP)

ENHANCEMENTS• REVIEW RMP EXAMPLE

o COMBUSTIBLE DUST RISK • LEVERAGE KEY PARTNERSHIPS

AGENDA

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• ERMS RISK FRAMEWORK• RMP ENHANCEMENTS• RMP IN ACTION

o COMBUSTIBLE DUST RISK

• ERMS & PG PARTNERSHIP • RECAP

Competitive Benchmarking with APPA, LPPC, Gartner, Deloitte, etc.

Annual Strategic Risk prioritization exercise, through inputs from Strategies, Business Unit Leads, Audit exceptions, and other Business trends

Board Risk Committees & Governance, Risk & Compliance (GRC) Alignment

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4

1

Audit Services to consider RMPs implemented by business units in the annual Audit Plan

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RISK PROGRAM ALIGNMENT

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Board of Trustees & Committees

Our program is designed to support multiple stakeholders across the enterprise.

2. CompetitiveBenchmarking

& Mgt.Strategy

4. Governance Structure

5. Audit Services

1. Annual Risk Assessment

3. Priority Areas & Targeted Reviews

Enterprise Risk

Management Identification of Priority Areas and Partner Vetting –Plant Admin., Underground, etc. and Self-Assessments

3

5

We take a cohesive approach by incorporating excerpts from risk management frameworks & lessons learned from peers.

ERMS FRAMEWORK

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ERMS PROGRAM ALIGNMENT

CPS Energy Risk Activities ISO 31000 Framework Elements

Risk ScanEach Business Unit develops / updates risks for their area that are challenged by all the Chiefs.

RMPsDetailed RMPs are developed for each High & Swan Risk.

Active Risk ManagementRisk Owners work on RMPs that address key risk drivers.

Risk Identification,Analysis, Evaluation

Risk Treatment

Monitoring & Review

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RMP ENHANCEMENTS

We have added new components to drive better quality & effectiveness for our risk owners.

CURRENT YEAR

• FY 2020 RMP Enhancementso Addresses key drivers (impact x

probability) & status of fundingo Defines success in a way that is

measurableo Considers gaps in plan design RMP Template

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RMP EXECUTION

SYSTEM OF

INTERNAL CONTROL

IMPACT ON INTERNAL CONTROL

Procedures Developed / Revised

Validated to Industry Standard

Approval Implementation

Internal Control Example:

Through RMP development & execution, we are identifying actions that could impact our system of internal control.

RMP

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RISK MANAGEMENT FRAMEWORK BEST PRACTICE

• Integrating ERMS with PG enhances decision-making & performance through:

o Anticipation of risks earlier, which provides more options in mitigation strategy

o Enhanced analytics & improved responses to deviations in critical components

o Improved collaboration, trust & information sharing

Integrating risk into the business is a best practice & a key element of risk management frameworks.

RMP OVERVIEWCOMBUSTIBLE DUST RISK

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GLOBAL TAIFFS

SUPPLY CHAIN

FINANCIAL CUSTOMER

• Historyo Combustible dust risk is a major hazard that spans across multiple industries

OSHA National Emphasis Program (NEP) on Combustible Dust

o PG identified risk on Enterprise Register in FY 2015

• Objectiveo Protect our employees and infrastructure

o Reduce coal spillage & dust accumulation

o Mitigate risk of fire or explosion

• RMPo Perform third-party engineering assessment to identify & prioritize dust

mitigation projects

o Multi-year phased approach for project implementation

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RMP STATUSCOMBUSTIBLE DUST RISK

Successful completion of RMP actions reduced the risk level from high to medium.

Phase 1 Phase 2 Phase 3• Belt wetting• Dust suppression• Dust collector

demolition• High priority chutes

& load zones

• Rebuild remaining chutes & load zones

• Equipment upgrades to crusher & tripper

• Automated wash down system

• Spruce1 dust collector removal

100% Complete

100% Complete

75% Complete

2015 2016 2017 2018 2019

Phase 1 Start

Phase 1 Complete

Phase 2 Start

Phase 3 Start

Phase 2 Complete

Phase 3 Complete

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RMP IN ACTIONCOMBUSTIBLE DUST RISK

RMP actions have resulted in a safer work environment.

Before Mitigation After Mitigation

• Enclosed structures are washed down at least twice per week

• Open structures are washed down weekly

• Coal dust suppression systems have been installed

RMP brought to life

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Ris

k P

rofi

le

Risk Lifecycle Stages

FY 2019FY 2019

FY 2020FY 2020

Introduction Growth Maturity Reduced Mitigated

RISK LIFECYCLECOMBUSTIBLE DUST RISK

FY 2015

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AVR Plant518 MW

Gas

Spruce Plants

1345 MWCoal

Sommers Plants

830 MWGas

Braunig Plants

859 MWGas

Milton B Lee Plants

375 MWGas

Rio Nogales Plant

752 MWGas

CPS Energy Solar Plants

(PPAs)547 MW

Solar

CPS Energy Wind Plants

(PPAs)1067 MW

Wind

PG has worked with

ERMS to expand its

risk program

South Texas Project1036 MWNuclear

• Developed PG Risk Matrix

• Expanding PG Risk Matrix to include plant specific risk registers

• Developing RMPs for all plant-specific risks

ERMS & PG INTEGRATION IN ACTION

Each plant now has its own specific risk register.

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RISK ANALYTICSILLUSTRATIVE EXAMPLE• Asset 360 is an equipment condition monitoring system used by PG

We utilize risk analytics tools to mitigate risk for PG assets.

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RISK ANALYTICS

• Partnering with ERMS & FM Global (Property Insurance Carrier) to reduce our potential risk exposure by: o Taking advantage of risk

assessments & inspection programs

o Utilizing engineering plan review services for power plant projects

o Accessing loss prevention tools & resources to incorporate leading practices into the organization

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RECAP

• Grow existing partnerships with business units• Continue to develop & execute on RMPs• Management is working & engaged in making

improvements to their risk environment

Thank You

Appendix

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GLOSSARY / DEFINITIONSAcronym or Word Definition Acronym

or Word Definition

APPA American Public Power Association MW Megawatt

Represents Board of Trustee feedback that has been implemented into the Risk Program

NEP National Emphasis Program

COSO Committee of Sponsoring Organizations of the Treadway Commission

OSHA Occupational Safety & Health Administration

ERMS Enterprise Risk Management & Solutions PG Power Generation

GRC Governance, Risk & Compliance PPA Purchase Power Agreement

ISO International Organization for Standardization

RMP Risk Mitigation Plan

LPPC Large Public Power Council