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4.1 ERMUSR 09-12-2017 Elk River Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: ERMU Commission Troy Adams,P.E. - General Manager MEETING DATE: AGENDA ITEM NUMBER: September 12, 2017 4.1 SUBJECT: Delegation to Management Policies ACTION REQUESTED: Adopt the proposed Delegation to Management Policies. BACKGROUND: In 2016 the Commission approved contracting with Collaboration Unlimited to update and develop core governance policy. The decision to implement and the schedule for completion were largely based on two factors. First,the existing policy book and by-laws had not been reviewed or updated on a routine basis. Second, with the March 2017 expansion for the ERMU Commission from three to five members it was determined to be beneficial to develop and update core governance policy to serve as a guide for the expanded Commission. The work was divided into two phases,the first being the core governance policies and the second addressing the development of delegation to management policies. DISCUSSION: Presented for consideration are the next four delegation to management policies that our consultant John Miner has developed. Staff worked with ERMU's legal counsel to review the proposed delegation to management policies. The results of that review are reflected in the ° following proposed policies: • G.4k MMPA Relationship, Representation, and Governance • G.41 Protection of Assets • G.4m Corporate Risk Management • G.4n Legal and Regulatory Compliance With only the first fifteen policies of Phase 2 developed,there are gaps and overlap in policy. These gaps and overlaps are intended to be resolved as the Commission reviews and considers policy updates and revisions throughout this project. It is the intention to bring policy back for consideration at every Commission meeting. The remaining policies to be developed in the delegation to management are reflected in the tentative table of contents which is attached for reference. Additionally,the proposed policies on Protection of Assets and Corporate Risk Management included significant"new work."Most of the policies that have been adopted through this process either document existing practices or define overarching policy consistent with existing Page 1 of 2 46 policy. For the proposed Protection of Assets and the Corporate Risk Management policies,there are requirements which have not been developed yet. These downstream requirements will take additional time to develop. This will be further discussed during the Commission meeting. FINANCIAL IMPACT: None ATTACHMENTS: • Proposed ERMU Policy—G.4k—MMPA Relationship, Representation, and Governance • Proposed ERMU Policy—G.41—Protection of Assets • Proposed ERMU Policy—G.4m—Corporate Risk Management • Proposed ERMU Policy—G.4n—Legal and Regulatory Compliance • ERMU Governance Policy Manual Table of Contents—For Reference Only Page 2 of 2 47 Elk River Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: Minnesota Municipal Power Agency G.4k Relationship, Representation, and Governance PURPOSE: With this policy,the Commission sets forth its expectations for the General Manager concerning the relationship between Elk River Municipal Utilities(ERMU) and the Minnesota Municipal Power Agency (MMPA). By ERMU accepting the provisions of the Agency Agreement and By-Laws of MMPA through Resolution 13-5, and as parties to a full- requirements Power Sales Agreement and Membership Agreement,ERMU and MMPA have long-term obligations to each other with respect to wholesale power supply and delivery in which MMPA is the service provider and ERMU is the member. As parties to these agreements,ERMU represents the interests of its electric customers and the City of Elk River as one of MMPA's Member communities. ERMU also participates in the governance of MMPA through its representation on MMPA's Board of Directors. POLICY: The ERMU General Manager shall be ERMU's representative on the MMPA Board of Directors and a Commissioner shall serve as the alternate representative. The General Manager shall ensure that ERMU's contractual and working relationships with MMPA are handled in a collegial manner and with diligent attention to ERMU's best interests when ERMU is acting as an MMPA customer, and to balance the best interests of MMPA when ERMU is acting as an MMPA member. The General Manager shall make every reasonable effort to prevent the relationship between ERMU and MMPA from becoming contentious or unproductive. Consistent with this general statement,the General Manager shall: 1. Support MMPA by providing the staff time and other resources that may be reasonably ice to and ongoing business relationship by MMPA in connection with its services g g with ERMU as a customer. Page 1 of 2 48 ERMU Commission Policy—G.4k MMPA Relationship,Representation, and Governance 2. Make available to MMPA the leadership, staff support, and other resources of ERMU as determined necessary to support ERMU's interests as a member-owner while also ensuring that such support to MMPA does not jeopardize ERMU's own needs and interests independent of MMPA. 3. Communicate routinely about MMPA and its relationship with ERMU to the Board, employees,customers, and other stakeholders. POLICY HISTORY: Adopted Month, Day, Year Page 2 of 2 49 Elk River Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: G.41 Protection of Assets PURPOSE: With this policy,the Commission sets forth its expectations for the General Manager concerning the protection of ERMU's assets. POLICY: The General Manager shall not allow ERMU's assets to be unprotected, inappropriately used or disposed of, inadequately maintained, or placed at undue risk. Consistent with this general statement,the General Manager shall: 1. Maintain comprehensive security program,property insurance program and loss prevention program which adequately protect ERMU from significant damage or loss to its corporate assets including, but not limited to,physical assets,real property, rights-of-way, corporate image or credibility, intellectual property, and information. 2. Not allow any investment of ERMU funds that violates State of Minnesota law, any provision of ERMU's bond indentures (as adopted and amended), or the provisions of any present or future Commission-approved investment policy(See Investments Policy). 3. Implement and maintain management policies and procedures that establish effective and sufficient controls with appropriate checks and balances, including separation of duties, which are regularly tested for adequacy and compliance. Functions that require such management policies and procedures include, but are not limited to designation of banking signatories and transactions, cash management, accounting, and procurement of goods and services. 4. Maintain a comprehensive physical asset inspection and proactive maintenance program consistent with accepted utility industry practice. Page 1 of 2 50 ERMU Commission Policy—G.41 Protection of Assets 5. Maintain comprehensive operating procedures aimed at safeguarding equipment and preventing improper wear and tear consistent with accepted utility industry practice. 6. Maintain a corporate records management program to safeguard paper and electronic files from loss, significant damage, or improper disposition in accordance with applicable laws and regulations (See Legal and Regulatory Compliance Policy). 7. Maintain competitive positions or business arrangements that safeguard's the business purpose and financial return of ERMU's assets. POLICY HISTORY: Adopted Month, Day, Year Page 2 of 2 51 Elk River Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: G.4m Corporate Risk Management PURPOSE: With this policy,the Commission sets forth its expectations for the General Manager concerning ERMU's corporate risk management. POLICY: The General Manager shall not allow ERMU to operate without a corporate risk management program which both identifies and assesses the risks which ERMU faces, and then prudently manages and mitigates risks which could negatively affect achievement of the Results Policies. Consistent with the preceding general statement,the General Manager shall: 1. Conduct, at least once every five(5) years, a risk identification and assessment that describes significant risks in terms of the cause or type and estimates ERMU's exposure to each including the potential range of financial loss (See Protection of Assets Policy). 2. Maintain, communicate and enforce an active risk management, mitigation and reporting program, including policies and practices. 3. Prudently protect ERMU,the Commission, management, and staff from claims of liability. 4. Protect ERMU against significant risks of loss using prudent levels of insurance coverage (See Protection of Assets Policy). 5. Maintain and comply with the Financial Reserve Policy(See Reserve Funds Policy) in conjunction with the Annual Business Plan. 6. Maintain an emergency/disaster preparedness and business restoration plan that is � reviewed annually and adjusted as needed to cover changing risks and business requirements. Page 1 of 2 52 ERMU Commission Policy—G.4m Corporate Risk Management 7. Engage competent legal counsel and maintain sufficient staff resources, internal review procedures, and controls to avoid imprudent contractual and legal risks (See Legal and Regulatory Compliance Policy). 8. Engage competent legal counsel/regulatory consultants and maintain sufficient staff resources and internal review procedures and controls to avoid regulatory risks due to non- compliance with applicable present and proposed future regulations (See Legal and Regulatory Compliance Policy). POLICY HISTORY: Adopted Month, Day, Year Page 2 of 2 53 Elk River Municipal Utilities COMMISSION POLICY Section: Category: Governance Delegation to Management Policies Policy Reference: Policy Title: G.4n Legal and Regulatory Compliance PURPOSE: With this policy,the Commission sets forth its expectations for the General Manager concerning ERMU's compliance with laws and regulations that are applicable to ERMU. POLICY: The General Manager shall not cause or intentionally allow any practice,decision, action or circumstance within the ERMU organization that is unlawful or in violation of any applicable regulation. Consistent with this general statement,the General Manager shall: 1. Keep the Commission informed of legal and regulatory developments that could potentially impact ERMU and its operations, either positively or negatively 2. Retain the services of legal counsel and/or regulatory consultants and use such services as required to obtain timely and accurate advice and counsel on existing and proposed laws and regulations that are or may be applicable to ERMU. 3. Inform the Commission and the Commission's legal counsel of any known, suspected,or potential material violations of this policy as soon as practical after they are discovered. 4. Advise the Commission of appropriate responses to any known, suspected,or potential material violations of this policy based on advice from legal counsel,regulatory consultants, and ERMU management or staff. POLICY HISTORY: Adopted Month, Day, Year Page 1 of 1 54