Exhibit to Agenda Item #2

Transcription

1 Exhibit to Agenda Item #2 Board of Directors Meeting Wednesday,, Scheduled to begin at 5:30 p.m. Customer Service Center, Rubicon Room Powering forward. Together.

2 SD-17 Enterprise Risk Management (ERM) Effectively balancing and managing risk to further SMUD s policies and business goals is a core value of SMUD. Therefore: SMUD will implement and maintain an integrated enterprise risk management process that identifies, assesses, prudently manages and mitigates a variety of risks facing SMUD, including financial, supply, operational, physical security, climate change, legal, legislative and regulatory, and reputational risk. SMUD is in compliance with SD-17, Enterprise Risk Management Policy 2

3 ERM Approach and Methodology Approach Governance Oversight & Accountability Consistent Definitions and Language Integration of ERM with Key Business Processes Methodology Enterprise Risk Analysis Monthly EROC Meetings Annual and Periodic Review of Enterprise Risk Portfolio 3

4 Activities ERM Program Conducted over 30 interviews with senior leadership Conducted enterprise risk survey to better understand organization-wide risks Updated ERM portfolio to increase focus on most important risks EROC Reviewed and discussed 19 enterprise-risk items Approved 1 new trading directive and 2 changes to existing directives Collaborative efforts between ERM & AQS Conducted 13 post audit risk assessments and communicated any impacts to the Board ERM s risk assessment results are a key input for Audit Quality Service s work plan 4

5 Strategic Risk Operational Risk Focus on Top Risks New executive summary report provides the Board with additional insight into SMUD s top risks. Risk Title* Risk Description Risk Trend Current Residual Risk Target Residual Risk Cyber Threats & Privacy Aging Infrastructure Strategic Workforce Agility Changing Customer Expectation Rapid Innovation Increased cyber threats Infrastructure performance could degrade faster than we are able to replace SMUD s ability to hire and retain human talent Our ability to respond to changing customer expectations Disruptive innovations of energy industry may outpace our ability to compete and/or manage the risk appropriately. 5

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7 SD-17 Benchmarking SMUD s Practices NC State & Protiviti Top Risks Regulatory changes and heightened regulatory scrutiny Economic conditions may restrict growth opportunities Rapid speed of disruptive innovations Organization s culture shift is slower than required to respond to external factors and customer expectations Limited opportunities for growth through customer acquisition or enhancement Succession planning and talent management Social media, mobile applications and other internet based applications have potential to impact brand Organization s culture may not sufficiently encourage timely identification and escalation of risk issues Cyber security and privacy Changing customer expectations SMUD s Current Risk Exposure 7

8 External Risk Strategic risk Operational Risk SD-17 Related Activities and Results Since the 2016 Annual Monitoring Report, Staff has reduced the residual risk profile of the following: Category Enterprise Risk Changed From Reduced To Gas & Gas Pipeline Related Assets Labor: Business Disruption Sacramento Entertainment & Sports Center Grant Administration Independent Balancing Authority DOE-PMA Initiative Related Issues 8

9 2018 Risk Mitigation Focus Operational Risks Improve safety performance to meet SD-6 Safety DART goal of 1.4 by 2020 Attract and retain skilled and innovative workforce Continue to make progress in strengthening aging infrastructures Physical security Cyber security and privacy Strategic Risks Providing programs and services to reflect changing customer expectations SMUD s strategy to address the changing utility business model External Risks Continue to positively influence state and federal legislative and regulatory issues 9

10 Questions 10

11 Financial Risks SD-17 ERM Portfolio: Residual Business Critical Risk Exposure: Budget Planning & Rate Setting OP: People Underground Cables Business Model Strategic Risks Financing Employee Safety T&D Substation Assets Technology/Competition Driven Accounting/Financial Report Ethics/Integrity Telecommunications Assets Demand Response Capital Availability/Cashflow Illegal Acts/Fraud New Services & Local Agency Projects Distributed Generation Liquidity Strategic Workforce Agility Labor: Business Disruption Distributed Storage Load Variation OP: Systems and IT Legal Risk Electrification of Transport Sector Retail Load Applications Support Operational Excellence Energy Efficiency Customer owned generation Cyber Security Payroll Disruption Innovation Price Volatility Information Management Pricing & Rate Design Implementation Changing Customer Expectations Commodity Data Governance EAPR Implementation Process Competitive Workforce Total Rewards Hydro Generation Data Availability TOD Implementation Process Corporate Governance Interest Rate Enterprise-Wide Documentation Public Safety Board Driven Project Execution Grid Operational Systems & Support Regulatory Compliance Practices GM Driven Wholesale Credit Default Systems Infrastructure CPUC General Orders Enterprise Grant Integration, Execution OP: Process Environmental Protection and Alignment Balancing Authority Operations Hydro License Sustainable Energy Bulk Power Op & Maintenance NERC/FERC Standards Carbon Emission/AB32 Gas & Gas Pipeline Assets Nuclear Waste Load Serving Capability Power Supply Assets Revenue Collection Ops & Maintenance Renewable Portfolio Standard Transmission Assets Meter to Cash External Risks Business Continuity Supply Chain Economy - Business Agility Communications Material Lifecycle Legislative & Regulatory Internal Communications/Alignment Media & Community Relations Customer Serv Operations Federal Dodd-Frank Implementation General Facilities Op & Maintenance FERC Order 1000 Customer Service Center Energy Management Center Operational Risks Limits on Muni Bond Tax Exemption Local Gov't Legend: by Risk Heat Zone Existing Corporation Yard Bay Delta Flow Issues Extremely High Residual Risk Headquarter Building CEC: Intergrated Resource Planning High Residual Risk Physical Asset Security Post 2020 Carbon Markets Medium Residual Risk Grid Infrastructure: Reliability RPS Eligibility Related Issues Low Residual Risk T&D Line Assets Natural / Other Hazards Extremely Low Residual Risk Poles Wildfire Recent Changes denoted in Purple Secondary Network Climate Change State 11

12 URGENCY (increases exponentially) SMUD s Risk & Opportunity Heat Map Minutes Hours Days Weeks Material sustainable erosion in employee or customer confidence Several opinion leaders/customer groups publicly critical GM and/or executives replaced Significant long-term reputational damage Widespread loss of employee confidence Widespread public criticism from customer and the community Months Years Incremental Impact of $2.5 Million Modest deterioration in Reliability Indices Multiple negative media coverage Watch or Negative Outlook from credit Rating Agencies Incremental Impact of $25 Million Actual violations leading to severe regulatory scrutiny & sanctions Sharp deterioration in Reliability Indices Continuous negative media coverage Downgrade from any credit rating agency Incremental Impact of $100 Million 12 SEVERITY (increases exponentially)