Page 1 of 4 · Ms. Malinda See Mr. Don Shipley, via telephone Ms. Bernard began the meeting with recognition of Darrell Dorsey’s service to the committee. Darrell is retiring on

Southwest Power Pool

HUMAN RESOURCES COMMITTEE MEETING

January 23, 2012

Kansas City Airport Marriott

Kansas City, Missouri

• Summary of Action Items •

1. Approved minutes of the October 19, 2011 meeting with amendments.

2. Approved funding for the 2011 Performance Compensation Plan.

• Summary of Follow-Up Items •

3. The Committee requested staff review the use and scope of defined benefit plans among SPP members.

4. SPP staff to follow up on the legal status of the SPP Medical Plan trust.

5. SPP staff to investigate various options for conducting stakeholder surveys and present a draft document to the committee for their review.

Page 1 of 4


January 23, 2012

Kansas City Airport Marriott Kansas City, Missouri

• M I N U T E S •

Agenda Item 1 – Call to Order Phyllis Bernard called the meeting to order at 10:05 am, CST, on January 23, 2012. The following members were in attendance: Ms. Phyllis Bernard, Chair Director

Mr. Larry Altenbaumer Director Mr. Mike Palmer Empire District Electric Company Ms. Trudy Harper Tenaska Mr. Noman Williams Sunflower Electric Power Corporation Mr. Darrell Dorsey Board of Public Utilities, Kansas City, KS

Southwest Power Pool staff in attendance: Mr. Tom Dunn Mr. Nick Brown

Ms. Malinda See Mr. Don Shipley, via telephone Ms. Bernard began the meeting with recognition of Darrell Dorsey’s service to the committee. Darrell is retiring on April 1, 2012. Phyllis noted Darrell’s contribution of steady goodwill and common sense to the committee. The committee wished Darrell all the best in his retirement. Phyllis led the committee in a review of action items from the previous meeting. SPP staff is currently working on following up with the external benefit attorney concerning the status of the SPP medical plan trust. Staff is also working on a survey of retirement plans and practices. These reports will be presented at the April HRC meeting. The committee reviewed the discussion about the challenges involved in conducting a meaningful stakeholder survey and using those results to drive performance compensation metrics. SPP staff is working on alternatives and supplements to the stakeholder survey and performance compensation metrics and will present this report to the committee in April. The agenda was modified to move the Human Resources Report from Agenda Item 6 to Agenda Item 4. Agenda Item 2 – Approval of Minutes The minutes of the October 19, 2012 meeting were reviewed. Phyllis Bernard noted a few minor changes to Agenda Item 3 (page 2), and Agenda Item 5 (page 3). Mike Palmer moved that the minutes be approved as amended. The motion was seconded by Larry Altenbaumer and approved via unanimous voice vote. Agenda Item 3 – Shift Workers Darrell Dorsey had requested a report on shift worker policies and practices in place at Southwest Power Pool. Malinda See presented a brief memorandum about current policies in place at SPP. Mr. Don Shipley, Director of Operations at Southwest Power Pool joined the meeting via telephone to discuss the unique challenges of shift workers and practices SPP is using to address these concerns. Malinda reported that great care has been taken to engage input from operations personnel in the development and design of the new operations center. Members of operations have representation on the construction and migration teams for the new facility. Operations personnel took an active role in the

Page 2 of 4

Southwest Power Pool Human Resources Committee Minutes January 23, 2012

layout and design of the operations consoles at the new center. The new consoles are very ergonomic and include a special “sit/stand” feature that lifts a section of each desk and monitors to a comfortable height for standing. This feature allows workers to stand and move around during their shift. In response to requests from operations, the new operations area has enhanced lighting features to ease eye strain. Workers will also be able to control air flow (but not temperature) at each console. All new 24 hour rated chairs will be purchased for the new facility. The operations personnel were provided with demo models of each chair under consideration and were allowed to vote for their choice. In addition to training required to maintain their certifications, operations conducts quarterly “all hands” meetings that typically include a dinner and fellowship time. SPP staff members from other functional areas are invited to present reports about items of interest in SPP such as the new facility, human resources and the integrated market project. Operations staff is included in career planning and training opportunities. SPP annually conducts an eight week training session focused on leadership. This training class is hand selected and includes staff from across the organization, including operations. Provisions are made for the operations staff included in this training to cover their shift as needed to allow them to attend this training. Operations staff is encouraged to attend training programs, both internally and externally to enhance their knowledge and skills. Don Shipley reported that operations staff has created an “Operator Committee” that consists of a representative from each desk and two supervisors. This group meets to evaluate issues and discuss solutions. This group has had great success in providing a forum for operator questions and concerns. Don reported on the initiative to train operations staff to move through the desks, from the Operator in Training program to the Reliability Desk. This training program exposes the operators to a breadth of experience and information about all of operations. In addition to this training, SPP has plans to provide a “knowledge transfer” from more senior level operators to the less experienced staff. Trudy Harper commented that she found this report very interesting and valuable. She suggested that SPP should consider hosting an operations “best practices” workshop to share with the members the great things that SPP is doing for shift workers and operations. Agenda Item 4 – Human Resources Report Malinda See presented the HR Dashboard Report for the fourth quarter of 2011. The committee requested additional metrics from the report, including a comparison of metrics from the Little Rock metro area.

Agenda Item5 – 2011 Performance Compensation Nick Brown noted that this is the sixth year of the performance compensation program. He presented his report on 2011 goals, accomplishments and disappointments. SPP had a good year and made progress on many key initiatives. Based on quantitative metrics, the plan funding was calculated at 16.7% of base salaries paid. SPP staff recommended a corporate modifier of 100% of this calculated metric. The committee was in agreement with the assessment provided. Larry Altenbaumer made a motion to approve the staff recommendation to the SPP board. The motion was seconded by Noman Williams and approved via unanimous voice vote. Agenda Item 6 – Executive Session The committee went into executive session to discuss the 2011 performance and determine 2012 compensation for the SPP President. Agenda Item 7 – Other Items None noted.

Page 3 of 4

Southwest Power Pool Human Resources Committee Minutes January 23, 2012

Page 4 of 4

Agenda Item 8 – Future Meetings The committee reviewed the future meetings for 2012. Future meeting dates include: April 12, 2012 (Thursday) Oklahoma City, OK 9:00 am – 2:00 pm NOTE: This is the day after the MOPC meeting Agenda Items:

• Review SPP Benefits Program • Review SPP Compensation Plans • Review 2011 Performance Compensation Process/payout • Review HRC Scope

August 8 & 9, 2012 (Wednesday & Thursday) HRC Planning Retreat Little Rock, Arkansas 1pm – 5pm Wednesday, August 8th 8am – noon Thursday, August 9th Strategic HR Planning Session • SPP Benefit Plans • Compensation Plans • Career and Organizational programs • Approve 2013 Meeting schedule and agendas

October (TBD)

• Review training and development programs • Review HR Committee effectiveness • Review external audit report • Investment Management Meeting

Review Investment Policy Statements Review/evaluate investment manager performance Approve 2013 funding levels for retirement plans

Agenda Item 11 - Adjourn Phyllis Bernard adjourned the meeting at 2:15 pm on Monday, January 23, 2012. Respectfully Submitted, Thomas P. Dunn Secretary

Relationship-Based • Member-Driven • Independence Through Diversity

Evolutionary vs. Revolutionary • Reliability & Economics Inseparable

Southwest Power Pool, Inc. HUMAN RESOURCES COMMITTEE MEETING

January 23, 2012 Kansas City Airport Marriott

Kansas City, Missouri

• A G E N D A • 10:15 am – 2:15 pm (Central Standard Time)

1. Call to order ...................................................................................................................... Phyllis Bernard

2. Approval of Minutes .......................................................................................................... Phyllis Bernard

3. Shift Workers ........................................................................................................................ Malinda See

Report on SPP practices, plans and identification of issues for shift workers

4. 2011 Performance Compensation .......................................................................................... Nick Brown

Presentation and discussion of the SPP staff 2011 performance compensation recommendation

5. Executive Session - President Performance Review and Compensation ........................ Phyllis Bernard

Review of the 2011 performance and determine 2012 compensation for the SPP President

6. Human Resources Report ................................................................................................... Malinda See

Report on Human Resources activities

7. Other Items ........................................................................................................................................... All

8. Future Meetings .................................................................................................................................... All

9. Adjourn ............................................................................................................................. Phyllis Bernard

Agenda Item 2 Page 1 of 4

Southwest Power Pool


October 19, 2011

Dallas Ft. Worth Airport Hyatt

Dallas, Texas

• Summary of Action Items •

1. Approved minutes of the July 18 & 19, 2011 meeting and October 3, 2011 teleconference.

2. Reviewed and approved the 2011 external audit reports for the Southwest Power Pool Retirement Plan, 401(k) Savings Plan and Medical Plan.

• Summary of Follow-Up Items •

3. The Committee requested staff review the use and scope of defined benefit plans among SPP members.

4. SPP staff to follow up on the legal status of the SPP Medical Plan trust.

5. SPP staff to investigate various options for conducting stakeholder surveys and present a draft document to the committee for their review.



October 19, 2011

Dallas Ft. Worth Airport Hyatt Dallas, Texas

• M I N U T E S •

Agenda Item 1 – Call to Order Phyllis Bernard called the meeting to order at 8:50 am, CDT, on October 19, 2011. The following members were in attendance: Ms. Phyllis Bernard, Chair Director

Mr. Larry Altenbaumer Director Mr. Mike Palmer Empire District Electric Company Ms. Trudy Harper Tenaska Mr. Noman Williams Sunflower Electric Power Corporation Mr. Darrell Dorsey Board of Public Utilities, Kansas City, KS

Southwest Power Pool staff in attendance: Mr. Tom Dunn Ms. Malinda See Mr. Paul Suskie, via telephone Guests in attendance via telephone: Ms. Pattie Weed Thomas & Thomas LLP Ms. Sherry Chesser Thomas & Thomas LLP Agenda Item – Executive Session The Executive Session, (previously identified as Agenda Item 9), was moved to the beginning of the meeting. The committee met in executive session to discuss personnel and legal matters. Agenda Item 2 – Approval of Minutes The minutes of the July 18 & 19, 2011 meeting and October 3, 2011 teleconference were reviewed. Larry Altenbaumer moved both sets of minutes be approved. The motion was seconded by Noman Williams and approved via unanimous voice vote. Agenda Item 3 – SPP External Audit Report Pattie Weed and Sherry Chesser with Thomas & Thomas, LLP presented the final audit reports for the Southwest Power Pool Retirement Plan, 401(k) Savings Plan and Medical Plan. SPP engages Thomas & Thomas annually to perform a “limited scope audit” of these plans, as required by the Department of Labor. The audit covers internal controls, performance of risk assessment procedures, and tests on: participant data, employee contributions, employer matching funds, forfeitures, benefit payments, administrative expenses and fraud risk factors. In addition, the auditors review the SPP 5500 filings for consistency with financial statements. The auditors reported no deficiencies and material weaknesses were noted for Southwest Power Pool. The auditor’s report of the Medical Plan included a “Summary of Uncorrected Misstatements”. This misstatement was due to a timing issue with claims that were incurred prior to year end. The auditor’s proposed they amend the audit letter to explain the misstatement. The committee inquired about the status of the SPP Medical Plan trust that is used to fund the medical plan expenses. The committee asked SPP staff to follow up on the legal status of the trust with SPP’s external benefit attorney, Mr. Craig Westbrook.

Southwest Power Pool Human Resources Committee Minutes October 19, 2011


Larry Altenbaumer moved that the committee accept all three audit reports (Retirement Plan, 401(k) Savings Plan, and Medical Plan). The motion was seconded by Mike Palmer and approved via unanimous voice vote. The committee requested the auditors amend the Medical Plan letter to include an explanation of the misstatement. Agenda Item 4 – Review of SPP Retirement Benefits The committee held a brief discussion about the prevalence of defined benefit plans among SPP members. This discussion included the strategy behind continuing to offer a defined benefit plan. The committee requested SPP staff review the use and scope of defined benefit plans among SPP members and report their findings to the committee.

Agenda Item5 – Review of SPP Performance Compensation Plan Malinda See reviewed with the committee some highlights of the Performance Compensation Plan. The plan was designed to: increase the commitment of employees to sustaining corporate goals, promote the management of outcomes, encourage qualified and trained employees to remain with SPP, attract new employee by emphasizing opportunity for added compensation beyond base salary, and include all employees to promote camaraderie. The plan measures annual corporate success by three metrics: adherence to budget, stakeholder satisfaction, and reliable provision of services. The committee discussed the relevance of the metrics used to determine corporate success. The committee agreed that the metrics seem to be correct, but might not capture the entire picture of corporate performance. All were in agreement that the metrics might require some refinement. The committee discussed the need to move away from a strict formula, and focus on the achievement of corporate objectives. This would provide more discretionary judgment to the committee.

The largest subjective measure of performance is the stakeholder satisfaction survey. The survey responses are not weighted, and a stakeholder with few interactions with SPP is given the same “weight” as a stakeholder with many SPP interactions. Larry Altenbaumer suggested that perhaps a telephone survey of the SPP Directors might provide valuable feedback and insight into corporate performance. Sometimes a discussion is more valuable in performance determination than a rating number. The committee requested staff investigate various options for conducting stakeholder surveys and present a draft document to the committee for their review.

Agenda Item 6 – SPP HR Report Malinda See presented an HR report that included the quarterly HR Dashboard and an overview of current HR initiatives. The committee suggested additional metrics, including diversity, training, and on-boarding efforts be included in the future reports. Agenda Item 7 – Committee Effectiveness The committee reviewed their major accomplishments from the past year (August 2010 – July 2011), and pending issues for next year. Oversight of corporate culture and organizational development, employee engagement, career path growth and development, and the recognition and support of ways to assure laws, policies and ethics surrounding employment at SPP undergo continuous improvement were noted as duties and accomplishments. Agenda Item 8 – Future Meetings The committee reviewed the future meetings for 2012. The July planning meeting agenda will be adjusted to include more strategic planning discussion. Future meeting dates include: January 23, 2012 (Monday) Kansas City, KS Agenda Items:

• Approve funding for 2011 Performance Compensation Plan • Review SPP President 2011 performance and propose 2011 compensation

Southwest Power Pool Human Resources Committee Minutes October 19, 2011


April 12, 2012 (Thursday) Oklahoma City, OK NOTE: This is the day after the MOPC meeting Agenda Items:


August 8 & 9, 2012 (Wednesday & Thursday) HRC Planning Retreat Little Rock, Arkansas Strategic HR Planning Session • SPP Benefit Plans • Compensation Plans • Career and Organizational programs • Approve 2013 Meeting schedule and agendas

October (TBD) – Perhaps in conjunction with the SPP Board Meeting in Little Rock Oct 30th, 2012



Agenda Item 9 – Executive Session This agenda item was moved to the beginning of the meeting, as noted above. Agenda Item 10 – Other Items None noted. Agenda Item 11 - Adjourn Phyllis Bernard adjourned the meeting at 1:05 pm on Wednesday, October 19, 2011. Respectfully Submitted, Thomas P. Dunn Secretary

Lighting the past … powering the future.


Memorandum To: SPP Human Resources Committee From: Malinda See Date: 01/23/2012 Re: Shift worker practices and plans Southwest Power Pool has the following practices and plans in place to address the special concerns of

shift workers:

New Facility

SPP has taken great care to seek input from operations personnel in the development and design of the

new operations center. Members of operations have representation on the construction and migration

teams for the new facility. Operations personnel took an active role in the layout and design of the

operations consoles at the new center. These new consoles are very ergonomic and take into

consideration special needs of shift workers. A portion of each console has a “sit/stand” feature which

lifts that section of the desk and monitors to a comfortable height for standing. This feature allows

workers to stand and move about during their shift.

In response to operations personnel requests, the new operations arena has enhanced lighting features.

The new lighting system “up lights” the ceiling and is customizable for each console. The shift workers

will also be able to control their air flow at each console to adjust their work space to their needs. All new

24 hour chairs will be purchased for shift workers. The operations personnel were provided with demo

models of chairs and allowed to vote on their choice.

Health Concerns

SPP has designated an area in the new facility to accommodate an on-site health clinic. This area includes

a waiting area and exam room. SPP plans on addressing the special health concerns of shift workers

proactively with an on-site medical provider.


Training

The operations staff conducts quarterly “all-hands” meetings that typically include a dinner and

fellowship time. SPP staff members from other functional areas are invited to present reports about items

of interest in SPP such as the new facility, human resources and integrated market.

Operations staff is included in career planning and training opportunities. SPP annually conducts an eight

week training session focused on leadership. This training class is hand selected and includes staff from

across the organization, including operations. Provisions are made for the operations staff included in this

training to cover their shift as needed to allow them to attend training. Operations staff is encouraged to

attend training programs, both internally and externally to enhance their knowledge and skills.

Compensation

Even though shift workers were classified as exempt employees during the recent FLSA audit, SPP

compensates these employees for overtime hours worked because their work schedule routinely requires

more than 40 hours of attendance per week. These employees were consulted regarding options to

address FLSA concerns. The shift workers in operations were adamant that they retain their twelve hour

shift structure (as opposed to eight hour shift schedules). SPP was able to retain the rotating twelve hour

shift structure that operations personnel preferred.

Future Plans

The SPP Human Resources department is planning now for succession, retirement and enhanced career

planning for operations personnel. These plans are in the development stage.

Performance Compensation Recommendation – 1/31/11 Page 1 of 8

Southwest Power Pool, Inc. HUMAN RESOURCES COMMITTEE

Recommendation to the SPP Board of Directors 2011 Performance Compensation

January 31, 2012

Organizational Roster The following members represent the Human Resources Committee:

Phyllis Bernard, Chair Larry Altenbaumer Darrell Dorsey Trudy Harper Noman Williams Mike Palmer

SPP Director SPP Director Board of Public Utilities, Kansas City, KS Tenaska Sunflower Electric Power Corporation Empire District Electric Company

Background The SPP Performance Compensation Plan (“the Plan”) was adopted by the SPP Board of Directors at its October 25, 2005 meeting, and was revised by the SPP Human Resources Committee at its April 14, 2008 meeting. The Plan was designed to increase the commitment of employees to attaining corporate goals, to promote the management of outcomes, to encourage qualified and trained employees to remain with SPP and to attract new employees by emphasizing operating performance through the opportunity for added compensation beyond the base salary. All active employees as of December 31 of the plan year are eligible to participate in the Plan.

SPP management is responsible for providing a written analysis of corporate performance to the Human Resources Committee at their January meeting. The Human Resources Committee will combine management’s analysis with their knowledge and make a recommendation to the Board of Directors for funding for the plan year.

Analysis SPP Management provided the following analysis of metrics designed to determine the corporate performance indicator: Definition of Terms: For purposes of this analysis, the following terms are defined for clarification:

Salary – the base salary paid to each employee Merit Pay – pay allocated to employees to adjust their base salary Incentive Pay – bonus amounts paid, typically in a lump sum, to employees Performance Compensation Pay – bonus amount paid, in a lump sum, to employees for

performance during a calendar year Benefits – health and welfare benefits provided to employees. Some benefits require an

employee contribution, some are fully funded by SPP

Financial Performance: The Financial Performance criteria measures SPP’s actual expenditures with those in its budget. The SPP Board of Directors approved SPP’s 2011 budget at its October 26, 2010 meeting. No changes were made to the budget following its approval.


SPP’s actual expenditures during 2011 totaled $135.8MM representing 97.2% spending compared to a budget of $139.7MM. Looking at “Foundation” activities (excludes incremental 2011 Integrated Marketplace expenditures), SPP’s expenditures totaled $133.3MM representing 97% of the Foundation budget of $137.5MM. Significant variances between budget and actual expenses were noted in the following areas:

Salaries & Benefits 98% staffing slower than expected,

Assessments and Fees 118% higher FERC assessments

Services 91% in-sourcing legal/regulatory, lower engineering studies

Debt Service 93% lower interest expense

The detail supporting the Financial Performance analysis criteria follows at Attachment A

HISTORICAL FINANCIAL PERFORMANCE MEASUREMENTS

2006 2007 2008 2009 2010 2011

% of Budget 104.8% 100.6% 98.8% 105.6% 94.5% 97.2%

Financial Performance Score 100.0% 100.0% 100.0% 50.0% 125.0% 100%

Stakeholder Satisfaction: SPP’s 2011 Customer Satisfaction Survey was broadly distributed to over 1300 customers with 282 or 20% submitting responses. The response rate was consistent with SPP’s historical experience. Respondents were asked to assess the importance of SPP’s services and to rate each service along with staff’s performance (customer service) and support of meetings. A minor change was made to the rating scale in 2011 which was intended to provide respondents with clearer guidance for ratings. 2010 scale: 1 (poor) - 2 - 3 - 4 - 5 (excellent) 2011 scale: 1-Fails to Meet 2-Almost Meets 3-Meets 4-Exceeds 5-Greatly Exceeds The results for 2011 indicate a significant increase in stakeholders using the “3” ranking which is defined as “meeting expectations” versus prior years’ usage of the “3” ranking which would have indicated a neutral rating. For example, in 2010 only 19% of respondents utilized the “3” ranking in assessing overall customer satisfaction while the 2011 survey had 44% of respondents utilizing the “3”, “meets expectations” ranking. Overall, management views rankings of 3, 4, and 5 as indicative of favorable responses in 2011. The highest satisfaction ratings were for Scheduling (97%), Reliability Coordination (95%), Settlement/Invoicing (95%), and Training (94%). Approximately 87% of respondents are satisfied with staff’s problem resolution, responsiveness, and provision of accurate information. Meeting materials were rated less favorably. This year a new category of service provisioning was added to the survey: Integrated Marketplace. Though this category had the highest score of “fails to meet” at 4%, survey responses indicate 87% satisfaction rating for this new category. Consistent with providing survey respondents greater granularity in the response rankings and to engage greater focus by the SPP staff to customer service management has changed the funding target for


Stakeholder Satisfaction. The weighting for Stakeholder Satisfaction remains at 33%. The target average rankings have been changed and the new targets are detailed below:

Overall Survey Results Funding as % of Target Very Dissatisfied (avg ≤2.5) -100% Somewhat Dissatisfied (2.51<avg<3.0) 75 Satisfied (3.01<avg<4.0) 100 Very Satisfied (4.01<avg<4.5) 125 Extremely Satisfied (avg>4.5) 200 Responses to the question rating overall satisfaction indicate an 88% satisfaction ranking, though only 44% ranked SPP as “exceeding” or “greatly exceeding” expectations. The weighted average calculated response of 3.4 indicates a “Satisfied” ranking. Regarding characteristics of SPP with which respondents are satisfied, the most prominent themes were staff’s knowledge, willingness to help, professionalism, stakeholder focus, and responsiveness. Critical themes expressed in the qualitative responses focused on dissatisfaction with the Aggregate Study process, SPP’s website, and late material (a theme also noted in the Organizational Group surveys). 2006 2007 2008 2009 2010 2011 Stakeholder Satisfaction Ranking

Satisfied Satisfied

Satisfied Satisfied

Very

Satisfied SatisfiedAverage Satisfaction Ranking

3.5 3.5 3.8 ---

3.9 3.4

Stakeholder Satisfaction Score

0.70 0.70 0.70 0.70

1.00 1.00

Operational Effectiveness: Operational effectiveness includes several metrics designed to measure the reliability of SPP hosted systems (OASIS, RTOSS, ICCP, MOS) to ensure the systems are available to customers and members. Additionally, measures are in place to ascertain SPP’s assessment of the transmission system and adherence to reliability criteria.

SPP management reported SPP’s systems availability and transmission system assessments as follows:

2006 2007 2008 2009 2010 2011

OASIS 99.92% 99.88% 99.97% 100.00% 100.00% 100.00%

RTOSS 99.99% 100.00% 100.00% 99.99% 100.00% 99.99%

ICCP 100.00% 100.00% 99.99% 99.99% 100.00% 100.00%

MOS --- --- 99.89% 99.84% 99.98% 99.95%

Day Ahead 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

State Estimator

98.44% 99.59% 99.73% 99.71% 99.68% 98.58%


SPP management reported that SPP had zero NERC RC IROL violations during the 2011 Plan year. SPP had no self-reported violations of NERC’s operating standard on two-way communications.

HISTORICAL OPERATIONAL EFFECTIVENESS MEASUREMENTS

2006 2007 2008 2009 2010 2011

Operational Effectiveness Score

116.0% 116.0% 116.0% 116.0% 134.0% 134.0%

Corporate Performance Score: The three main performance measurement areas (i.e. Cost Control, Stakeholder Satisfaction, and Operational Effectiveness) each contribute 1/3 to the overall Corporate Performance Score which is expressed as a percentage of the target funding level.

2011 Corporate Performance Score: 111.56%

The Plan’s target funding level is 15%; applying the 2011 Corporate Performance Score as developed by SPP Management yields a recommended funding level of 16.7%. Management Assessment: SPP management reviewed corporate achievements and disappointments for the 2011 fiscal year to determine if any adjustments to the Corporate Performance Score are warranted.

2011 Goals, Accomplishments, Disappointments & 2012 Risks & Goals

President’s Report

2011 Goals, Accomplishments & Disappointments 1. Regulatory and Transmission

a. Implement and fine-tune ITP processes for cost effective robust transmission expansion b. Process to ensure no cumulative long-term unintended consequences across the region for

transmission expansion cost allocation c. Develop and implement cost estimation standards for regional transmission projects d. Entergy and AECI membership e. Maintaining effective relationship and interaction with regulatory community f. Implement cost allocation methodology into interregional seams agreements g. FERC fee allocation modification

The Integrated Transmission Planning process and cost allocation methodology products have been affirmed on rehearing and fully exercised in practice. Notices to Construct have been issued for projects totaling $4.1 billion, and we actually started billing and invoicing highway/byway projects. After taking a hit on the chin with revised estimates greatly exceeding original estimates on several projects, the organization rallied to regain trust through process improvements with two important organizational groups: the technically focused Project Cost Task Force (PCTF), and the policy focused Regional Allocation Review Task Force (RARTF). The PCTF developed a standard methodology for estimating costs for project approval consideration, a cost tracking and reporting methodology to understand variances, and cost variance bands to indicate when approved projects should be reconsidered. The RARTF, comprised of three regulators, three members and one Board member, is finalizing a methodology for the three-year review of the highway/byway cost allocation process to ensure equity for all members over time. A valuable by-product of this effort has been greater understanding and buy-in of the cost allocation process by many stakeholders, particularly regulators. In parallel we have worked closely with members in several state proceedings obtaining approval for transmission cost recovery mechanisms. Significant effort went into the development of tariff provisions to implement the Integrated


Marketplace, which have received MOPC approval and are now slated for Board of Directors/Members Committee consideration in January 2012. As evidenced by regulatory orders, public speeches by regulators, requests for presentations at regulatory conferences and news releases, we continue to be held in very high esteem.

We again experienced a high incidence of unplanned initiatives this year, most notably working with OPPD to retain their membership, Entergy’s announcement to join the Midwest ISO, responding to FERC Order 1000, and new EPA requirements. While a large undertaking, our efforts with OPPD were successful and helped us learn how to quantify the true value of membership. The federal and state proceedings related to Entergy’s plan to join MISO have taken a great deal of attention. We remain steadfast in communicating that SPP is a much better alternative, while working to ensure that to the extent their plans are implemented our members are held harmless. We received a favorable initial order from the Arkansas PSC. Entergy’s compliance filing ignores several key provisions, so it will be interesting to see how this all plays out. To further complicate the decision, Entergy recently announced plans to spin off its transmission assets to ITC Holdings. We were pleased by most provisions of FERC Order 1000 on cost allocation since most of the provisions were patterned after our recent efforts. The significant compliance challenge will be the requirements related to interregional seams, but again SPP is taking a strong lead through our Seams Task Force and we are way ahead of others on this issue. The most positive note in the Order is that our goal of implementing cost allocation procedures into our seams agreements is now mandated. We took a leadership role in interaction with the EPA in response to proposed rules applicable to coal plants. Simply put, our members are faced with choosing which regulatory rules to comply with – EPA or NERC Standards. We proposed a reliability safety valve role for SPP in the designation of must run units and despite favorable discussions with the EPA, their final order ignored such language, stating that they could accommodate this role in administrative proceedings. While some have counted this as a win, there is no obligation in the rule providing protection to the electric industry.

I continue to be disappointed that we were unable to get traction at FERC on modification of the annual charge assessment methodology; it has now been three years since they issued a notice of inquiry on the subject. Several commissioners have promised action and have met with us personally on the subject, but staff continues to be concerned about the reaction of those outside RTOs and consider the currently methodology “rough justice.”

2. Operations and Reliability Improvement a. Continue implementation track for consolidated balancing authority and new markets with

completion of protocols b. Improve NERC and NAESB participation c. Continued improvement in generation interconnection and aggregate study processes d. Operate Acadiana load pocket reliably through transmission upgrades e. Reliably manage wind integration f. Continue to improve seams agreements

Operating protocols for the Integrated Marketplace were approved, and program management was moved to the Operations group as the program shifted from design to implementation. Bruce Rew is serving as executive sponsor and Sam Ellis is project manager. The Operations group was reorganized to accommodate this, and staffing and training have begun in preparation for the 2014 implementation. A very detailed implementation plan was finalized with mapping of dependencies based in large part on what we have learned from other market implementations. Contracts with all vendors have been executed with detailed statements of work and deliverable and payment milestones locking in price and reducing cost overrun exposure. We are on schedule and on budget with tight project management controls in place and periodic independent audits for verification. With new leadership at NERC we have begun to make headway in the battle to improve the quality of reliability standards with less onerous focus on penalties for non-compliance. Much of this progress continues to be due to very candid conversations with FERC commissioners. We successfully managed through one of the toughest years in history from a


system operations perspective with extreme cold temperatures in February, brutal tornadoes in the spring, flooding in early summer, and extreme hot temperatures and drought in late summer resulting in a new peak demand for the region. We successfully managed the Acadiana area in south Louisiana during transmission upgrades on Entergy’s system that were long overdue. We successfully integrated over 1000 MW of additional wind capacity in the footprint and continue to improve operational tools to aid in wind forecasting. Our IT systems are performing with extraordinary up-time, which is extremely important as more and more automation is occurring. And lastly, we are seeing a dramatic improvement in self-reporting and compliance by SPP registered entities.

We continue to struggle operationally with Entergy in this long period of uncertainty between administering the ICT agreement and transitioning to RTO membership, whether it is MISO or SPP, with customers and regulators insisting on more SPP authority. We also continue to struggle with MISO on seams coordination as their operational tools do not appropriately account for parallel flow impacts on SPP facilities due to their wind generation. If this continues unresolved it will have to move to a FERC complaint proceeding. The organization also has yet to deal with Attachment Z2 crediting, which is proving to be a complex and costly tariff provision to implement given the relatively few dollars to be distributed. And lastly, much more work is needed on the aggregate study and generation interconnection processes as they continue to be unduly time consuming for customers and staff.

3. Administrative Process a. Continued improvements in managing stakeholder processes b. Align budgeting processes with Strategic Planning c. Set clear goals on budgeting and cost/fee management d. Determine, document and track process and cost effectiveness e. Determine organizational benefit/value f. Design and start construction of new campus g. Focus more officer and director attention to strategy vs. tactics h. Continued development of future leaders i. SAS70 audit w/o unmitigated exceptions and/or qualifications

Inter-organizational group communication and coordination and stakeholder participation continue to hit record levels. Staff spent significant effort in developing the 2012 budget in alignment with the approved strategic plan and beating the estimates used in the cost/benefit study for the Integrated Marketplace. For the first time our budget contains documentation of business process improvements equaling $6.5 million per year in improvements from 11 specifically identified initiatives. We completed the effort of determining overall organizational value, conservatively determined at ten-fold of costs. These results, which we validated with several large and small members, have also undergone the scrutiny of regulatory proceedings. Construction of the new campus is on schedule and on budget with the operations center and parking deck being complete. Our culture of controls and compliance is now taking hold as evidenced by wonderful results from FERC, NERC and financial audits and our second SSAE16 audit without unmitigated exceptions or qualifications. Employee engagement continues to be extremely high and our management team underwent significant training on managing budgets and scope, valuing work, managing change and employment law. We added 65 employees during the year bringing us to a staff of 514, and with promotions, transfers and terminations, processed 128 hires while maintaining a low turnover rate of 3.4%. We faced two notable unexpected issues during 2011: the need to specify in our governing documents member obligations for transmission obligations due to our new cost allocation methodology, and implementation of new human resources policies related to Fair Labor Standards Act compliance. Significant progress was made on both initiatives with a FERC filing expected in early 2012 on member obligations.

SPP management has considered the Plan’s funding using the Corporate Performance Score calculated earlier as an indicator of potential funding. The indicated funding level of 16.7% of base salaries paid is


consistent with the qualitative performance discussed above. This analysis equates to a corporate modifier recommendation of 100%.

2011 Management Recommendation for Performance Comp Funding: 16.7%

PERFORMANCE COMPENSATION FUNDING CALCULATION

Corporate Target Funding Level 15.0% Multiplied by Corporate Performance Score 111.56% = 16.7% Multiplied by Modifier 100.00% = 16.7%

Plan Funding: The target amount of funding for the plan is 15% of salaries paid during the plan year. Payments to individual plan participants will be based on their individual contributions to overall corporate performance. Compensation under the plan will be distributed in the February 29th payroll based on corporate and individual performance for the previous calendar year. The chart below summarizes the history of SPP’s performance compensation discussions:

Southwest Power Pool Historical Performance Compensation Awards

Quantitative Metric Corporate Modifier

Year (Survey, Operations, Budget) SPP Staff HRC Board Funding Percentage

2006 95% 100% 80% 80% 11.4%2007 96% 105% 105% 105% 15.2%2008 96% 105% 105% to 110% 110% 16%2009 79% 110% 120% 120% 14.3%2010 120% 110% 110% 110% 19.8%2011 111.56% 100%

Allocation of Plan Funding Goal: Distribute performance compensation monies approved by the Board of Directors in recognition of corporate performance to individual employees based on their contribution to the factors leading to that level of corporate performance relative to all other employees.

Performance Factors:

• Performance of function • Performance vs. position • Customer Service • Cost Consciousness

• Alignment with Culture • Compliance w/ standards • Contribution to noted “wins” • Contribution to noted “losses”

Process: Each SPP employee is evaluated by their direct manager on the above Performance Factors. The manager assigns a numerical rank for each employee between -5 and +10. Each position within SPP has been assigned a job grade and with each job grade there is an assigned target funding level for performance compensation. The rankings are used to determine the percentage of target funding for each individual employee. Each manager then meets with either SPP’s CEO or COO to discuss each individual employee and their ranking. The CEO and/or COO are charged with ensuring equitable evaluations occur across the company; and may advise mangers to adjust individual or groups of


rankings to achieve equality. The CEO and COO will meet often during the process with the intent of ensuring the rankings fit a curve as displayed below. This curve ensures star performers are recognized with significant financial rewards and weaker performers receive significantly lower or zero rewards. The linear aspect of the curve is designed to help account for latent inequalities in the ranking process. The CEO and COO will review their work with SPP’s officers as a group for final adjustments prior to submitting the allocations to payroll for payment. The Allocation Curve: Below is a representation of the curve utilized to assign the percentage of target funding individual employees are eligible to receive. The vast majority of SPP employees receive rankings between +3 and +6 which results in the vast majority of employees receiving between 90% and 115% of target funding by job grade.

The Human Resources Committee discussed corporate performance indicators as outlined in this recommendation in conjunction with the SPP President’s report on “2011 Goals, Accomplishments, Disappointments & 2012 Risks & Goals for the President and CEO” in determining their recommendation for 2011 SPP Performance Compensation Plan funding.

Recommendation: The Southwest Power Pool Human Resources Committee recommends the Southwest Power Pool Board of Directors approve funding for the 2011 SPP Performance Compensation Plan equal to 16.7% of base salaries paid in 2011 ($39,871,390, excludes the base salaries paid to the Regional Entity employees) totaling $6,658,500. The Regional Entity employees performance compensation funding is approved by the Regional Entity Trustees.

Approved: Human Resources Committee January 23, 2012

Action Requested: Approve Recommendation

Performance Comp Allocation Function

0%

100%

200%

300%

-6 -4 -2 0 2 4 6 8 10

Employee Ranking

Southwest Power PoolAnalysis of Financial Performance Metrics

For the Twelve Months Ending December 31, 2011

Preliminary and Unaudited

SPP TOTAL SPP FOUNDATION

YTD YTD Actual YTD YTD Actual

Actuals Budget Spend Actuals Budget Spend

December December as a % of December December as a % of

(000's) 2011 2011 Budget 2011 2011 Budget

Salary & Benefits $63,911 $65,168 98.1% $61,820 $63,466 97.4%

Employee Travel 1,654 1,896 87.2% 1,522 1,764 86.3%

Administrative 3,058 3,468 88.2% 3,058 3,468 88.2%

Assessments & Fees 16,643 14,119 117.9% 16,643 14,119 117.9%

Meetings 838 1,051 79.7% 823 1,036 79.4%

Communications 3,186 3,408 93.5% 3,186 3,408 93.5%

Leases 1,624 1,876 86.6% 1,624 1,876 86.6%

Maintenance 7,274 7,922 91.8% 7,267 7,915 91.8%

Services 15,916 17,500 90.9% 15,666 17,212 91.0%

Regional State Committee 312 266 117.3% 312 266 117.3%

Principal and Interest Payments 21,427 23,021 93.1% 21,427 23,021 93.1%

Gross Revenue Requirement $135,843 $139,695 97.2% $133,348 $137,551 96.9%

Measurement Grid

Financial

Actual % of Budget Perf Score

> 115% -100%

115% - 110% 0%

110% - 105% 50%

105% - 95% 100%

95% - 85% 125%

< 85% 150%

Attachment A

Agenda Item 8 Page 1

Southwest Power Pool, Inc. HUMAN RESOURCES COMMITTEE

Future Meetings and Agendas April 12, 2012 (Thursday) Oklahoma City, OK NOTE: This is the day after the MOPC meeting Agenda Items:


August 8 & 9, 2012 (Wednesday & Thursday) HRC Planning Retreat Little Rock, Arkansas Strategic HR Planning Session • SPP Benefit Plans • Compensation Plans • Career and Organizational programs • Approve 2013 Meeting schedule and agendas

October (TBD) Perhaps in conjunction with the SPP Board Meeting in Little Rock Oct 30th, 2012



Documents

Page 1 of 4 · Ms. Malinda See Mr. Don Shipley, via telephone Ms. Bernard began the meeting with recognition of Darrell Dorsey’s service to the committee. Darrell is retiring on