2005 Annual Report - Corporate Governance Practices

Overview

The Provincial Government has established guiding principles on corporate governance for its Crown agencies that describes roles, responsibilities and accountabilities. A Shareholder’s Letter of Expectations describes the relationship between Government as Shareholder and BC Hydro on issues of mandate, performance expectations, public policy and strategic priorities. This Letter is reviewed annually, updated as required and signed by the Chair on behalf of the Board of Directors of BC Hydro and by the Minister of Energy and Mines as Government’s representative.

BC Hydro’s governance framework was originally adopted in 1998 and has been regularly reviewed since that time to ensure its various components meet the Corporation’s ongoing business needs from a governance perspective while being consistent with Government’s guiding principles on Crown agency corporate governance.

Board Operations

Board and Committee meetings are scheduled together on a quarterly basis to make the best use of the time of all those involved. Time is also allotted during the quarterly session for continuing Director education. This tutorial provides an opportunity for ongoing Board development – either to discuss strategy, a complex business issue or a specific aspect of the Corporation’s operations.

Through its Committees, the Board of Directors has been kept regularly informed of business issues during the past year, with continued focus on operational risk. Significant changes to accounting practices and principles, or related legislation, is presented to the Board or its Committees as they develop.

As with any business there are times when special Board meetings are required during the year outside the regular meeting schedule to address a particular business issue. A number of special meetings were necessary during the past year.

Environmental Oversight

The Board of Directors expects assurance that processes are in place to assure environmental compliance and that any deviation is identified in a timely way and reported to the Audit and Risk Management Committee, the Board Committee assigned with this responsibility.

At a special environmental briefing session last summer, Directors reviewed environmental management, current trends and triple bottom line decision-making in more depth. Looking at the continuum of environmental leadership, the Board considered where the Corporation is currently placed – as well as where it could be in the future.

Security and Emergency Preparedness

The Chief Risk Officer reports quarterly to the Board on the status of security measures in place at all levels of the organization.

Last October Directors had the opportunity to visit the Corporate Emergency Centre at BC Hydro’s Edmonds facility in Burnaby where an exercise simulating a magnitude 7 earthquake was underway. Exercise Energy Challenge was an exercise developed by BC Hydro, BC transmission Corporation, Terasen Gas and Duke Energy that assisted in evaluating procedures for responding to large-scale emergency events.

The Board was not only able to see first-hand how BC Hydro would respond while communicating with the emergency services, customers, stakeholders, the media and our employees, but received the assurance that effective planning, so far as possible, is in place to respond to a large-scale emergency.

Strategy Formulation

The Corporation’s long-term strategy was thoroughly reviewed at the Board’s annual Retreat held in Prince Rupert last summer, culminating in the Board’s formal endorsement last fall of BC Hydro’s long-term goals and new purpose statement – “reliable power, at low cost, for generations.”

During its Retreat weekend, Directors and senior management had the opportunity to meet with local community leaders in Prince Rupert at a reception hosted by the Board. Time was also set aside for a fly-over of some of the more remote communities north and west of Prince Rupert which BC Hydro serves, providing the Board with insights into the special challenges faced by our employees in “keeping the lights on.”

Financial Whistleblower Protection

Adopted in 1998, BC Hydro’s Director and Employee Code of Conduct provides the means for confidential disclosure on any Code issue to an independent Code of Conduct Advisor when events warrant.

In the spirit of U.S. Sarbanes Oxley legislation, certain aspects of which the Board views as best practice, new processes to deal with whistleblower protection for any audit or accounting impropriety were incorporated into the Code of Conduct earlier in 2004. In the event a complaint is received, the Audit and Risk Management Committee is advised and the Committee concerned (whether it be the Audit and Risk Management Committee of BC Hydro or Powerex Corp.) will direct further investigation and follow-up consistent with these new guidelines.

Continuous Improvement

Subscribing to the principle of continuous improvement, Board performance is evaluated annually to assure that the Board of Directors performs its due diligence and policy oversight role in the most effective manner.

With the benefit of ongoing examination, awareness of best practices and benchmarking of other organizations, Directors are assured that BC Hydro’s governance framework is appropriate. However, the Board understands that while process and structure drive good governance, success is only assured when the appropriate behaviors, attitudes and leadership are demonstrated at all levels of the organization.

During the past year an assessment of the Board’s competency base was undertaken to confirm that the Board of Directors as a whole has the appropriate balance of skills and experience to provide balanced oversight consistent with the Corporation’s strategic direction. The Corporate Governance Committee undertook this responsibility, the outcome of which will be an effective planning tool for long-term Board renewal.

Governance and Disclosure Guidelines for British Columbia Public Sector Boards

Looking to the future, the Board has reviewed Government’s new Best Practice Guidelines on Governance and Disclosure issued in February 2005. Organizations are requested to meet the disclosure standards by April 2006 and BC Hydro will work to that end, publishing its disclosure on the BC Hydro web site.

More information on the Shareholder’s Letter of Expectations, the Director and Employee Code of Conduct, BC Hydro’s Board of Directors, its Committees and Subsidiary appointments.

As a provincial Crown corporation, BC Hydro has a number of important reporting relationships within the overall provincial government structure. These are detailed in the above chart. Included are the direct reporting relationship to the ministry of Energy, the governance function of the Crown Agencies Secretariat and the role that our regular - BC Utilities Commission - plus on behalf of the interest of our customers.

Footnotes

Committees of the Board of Directors

Committees of the Board of Directors of BC Hydro are composed entirely of independent Directors.

The Peace River/Williston Reservoir Advisory Committee is composed of local community members and chaired by an independent member of the BC Hydro Board.

The Board of Directors of BC Hydro’s wholly owned subsidiary, Powerex Corp., has also appointed an Audit and Risk Management Committee composed of independent Directors.

Board and Committee Meetings held from April 1, 2004 - March 31, 2005

BC Hydro

Quarterly and Special Board Meetings - 11
Strategic Retreats - 1
Executive Committee* - 0
(*meets by exception. No meetings required)
Audit and Risk Management Committee - 5
Human Resources Committee - 4
Corporate Governance Committee - 3
Peace River/Williston Reservoir Advisory Committee - 4

Powerex Corp.

Quarterly and Special Board Meetings - 8
Audit and Risk Management Committee - 5

Powertech Labs Inc.

Regular Board Meetings - 4
Strategic Retreats – 1