RISK MANAGEMENT PROGRAM AND PROJECT MANAGEMENT APPLICATION OCTOBER 6, 2006

1. RISK MANAGEMENT PROGRAM AND PROJECT MANAGEMENT APPLICATION OCTOBER 6, 2006 Presented by Don Devieane, CGA, Manager Risk Management Program

2. OVERVIEW(RISK MANAGEMENT PROGRAM)

3. OVERVIEW(RISK MANAGEMENT PROGRAM) • Program History • Framework Components • Risk Categories • Risk Assessment • Measurement Criteria • Corporate Risk Map

4. OVERVIEW(PROJECT MANAGEMENT APPLICATION) • Project Justification • Project Risk Identification • Risk Assessment (Measurement) • Risk Treatment • Residual Risk • Reporting and Monitoring

5. COMPANY PROFILE(MANITOBA HYDRO) • Provincial Crown Corporation • 510,000 electric 258,000 gas customers • 98% of electricity hydroelectric • 14 hydroelectric G.S. • Provide 100 communities with N.G. • 8,700 kilometers of pipeline • Capital assets exceed $11 billion • Approximately $2.4 billion in revenue • Approximately 6,000 employees

6. COMPANY PROFILE(MANITOBA HYDRO) • Major Events • Grand Rapids G.S. • Bi Pole • Drought • Stonewall

7. COMPANY PROFILE(MANITOBA HYDRO)

8. RISK MANAGEMENT PROGRAM(PROGRAM HISTORY) • Started in 1999 - CRMSC established in 2002 - First CRM report in 2003 - Policy and guidelines issued 2004 - Internal web site 2006 • Reasons - Business Failures - Market Changes - Pressure from outside (best practice)

9. RISK MANAGEMENT PROGRAM(PROGRAM HISTORY) • Purpose - Identify risks - Mitigate negative occurrences - Take advantage of opportunities • Benefits - Simple - Systematic - Proactive - Integrated

10. RISK MANAGEMENT PROGRAM(FRAMEWORK COMPONENTS) • Mission / Mandate / Project • Risk Identification • Potential Impact • Risk Treatment • Residual Risk • Reporting and Monitoring

11. EXECUTIVE RISK MANAGEMENT PROCESS (LINE MANAGEMENT) CHAMPION RISK PHILOSOPHY RISK COMMITTEE APPROVALS MISSION / MANDATE M O N I T O R A N D R E P O R T RISK IDENTIFICATION (THREATS TO ACHIEVE) CORPORATE RISK MANAGEMENT STEERING COMMITTEE DETERMINE LIKELIHOOD POTENTIAL IMPACT (PRE RISK TREATMENT) DETERMINE CONSEQUENCE CROSS FUNCTIONAL FORUM GUIDE AND MONITOR LINK TO AREAS OF RESP. PARTICIPATION / LEADERSHIP RISK TREATMENT CRM DEPARTMENT RESOURCE FACILITATE TRAIN COORDINATE RESIDUAL RISK ASSESSMENT RISK TOLERANCE ADDITIONAL ACTION REQUIRED RISK MANAGEMENT PROGRAM(FRAMEWORK COMPONENTS)

12. RISK MANAGEMENT PROGRAM(RISK CATEGORIES) MAIN CATEGORIES • Market • Financial • Environmental • Infrastructure • Human • Business / Operational • Reputation • Governance / • Regulatory / Legal • Aboriginal • Alternative Technology • Strategic

13. RISK MANAGEMENT PROGRAM(RISK CATEGORIES) SUB CATEGORIES (FINANCIAL) • Exchange • Interest Rates • Credit • Inflation • Gas Price Volatility • Gas Derivative Instruments • Capital Structure • Shortage Pricing / Fuel Price • Power Hedging Instruments

14. RISK MANAGEMENT PROGRAM(RISK ASSESSMENT) • “You don’t want the decimal point you want the order of magnitude” • Each risk impact is assessed in terms of: Consequence Likelihood • Consistent across the entire corporation • Worst case scenario

15. RISK MANAGEMENT PROGRAM(RISK ASSESSMENT) • Consequence rated: - As high, medium or low - Either financial, safety, reliability, environment or customer value - Financial Low $0 - $50 million Medium $50 - $150 million High > $150 million

16. RISK MANAGEMENT PROGRAM(RISK ASSESSMENT) • Likelihood rated: - As high, medium or low - Low, not likely to occur within 10 years Medium, likely to occur within 5 - 10 years High, likely to occur within 1 -10 years

17. RISK MANAGEMENT PROGRAM(CORPORATE RISK MAP) Water Supply Drought UneconomicLoads Power Hedging Instruments

18. PROJECT APPLICATION

19. PROJECT APPLICATION(PROJECT JUSTIFICATION) • Support for the project has already been justified - Reliability - Safety - Opportunity • The best solution has been identified through business case analysis • Environmental concerns are resolved • Prioritize initiatives and opportunities

20. PROJECT APPLICATION(PROJECT JUSTIFICATION) • Well documented cost estimate - Costs should be representative of most likely scenario - Costs must not contain hidden contingencies and allowances

21. PROJECT APPLICATION(PROJECT JUSTIFICATION)

22. PROJECT APPLICATION(RISK IDENTIFICATION) • Risk can be defined as what can cause variability in possible outcomes. • Cost / delay / deliverable (performance) • Brainstorming • History • Corporate risk categories/subcategories

23. PROJECT APPLICATION(RISK IDENTIFICATION) • Listing of possible risks • Proper and detailed analysis can stream line the effort required • Properly developed forms and support information will ensure consistency

24. PROJECT APPLICATION(RISK IDENTIFICATION) • Risk identification - Business Operational (Supply Chain) - Legal (Licensing, Property) - Environmental (Weather, Land) - Human (Availability, Skilled) - Financial (Exchange, Inflation,)

25. PROJECT APPLICATION(RISK ASSESSMENT) • Business operational (supply chain) - Having the right material available when its required (Level of engineering design, - proven / unproven technology) - What are the costs associated with: - 1 month - 2 month - 6 month - What is the likelihood of this occurring (probability)

26. PROJECT APPLICATION(RISK ASSESSMENT) A.1.1 A.1.1 A.1.1 High Note : Can be done for each material item CONSEQUENCE 6 Month Medium Supply Chain A.1 2 Month Low A.1 1 Month A.1 Low Medium High LIKELIHOOD

27. PROJECT APPLICATION(RISK ASSESSMENT) A.1.1 A.1.1 A.1.1 High A.3 A.2 D.3 C.1 C.3 E.2 F.2 E.1 CONSEQUENCE Medium A.3 A.1 B.1 B.3 Low F.1 D.2 B.2 Low Medium High LIKELIHOOD

28. PROJECT APPLICATION(RISK TREATMENT) • RISK MITIGATION - Elimination of risk by exclusion, sharing, insuring or by the use of appropriate legal documentation and financial documents. Risk allowance and acceptance. - Identify what can be done to manage and mitigate the potential for cost overruns or delays. - Adjust risk impact assessment for reduction due to risk treatment efforts (revise risk map)

29. PROJECT APPLICATION(RISK TREATMENT) • Business operational (Supply Chain) - Scheduling - Supplier ( Foreign / Local ) - Transportation - Penalties (Legal Clauses / Performance Bond) - Surplus

30. PROJECT APPLICATION(RISK TREATMENT) A.1.1 A.1.1 A.1.1 High A.3 A.2 D.3 C.1 C.3 E.2 F.2 E.1 CONSEQUENCE Medium A.3 B.1 B.3 Low A.1 F.1 D.2 B.2 Low Medium High LIKELIHOOD

31. PROJECT APPLICATION(RESIDUAL RISK) A.1.1 A.1.1 A.1.1 High A.3 A.2 D.3 C.3 E.2 C.1 CONSEQUENCE F.2 E.1 Medium A.3 B.1 B.3 Low A.1 F.1 D.2 B.2 Low Medium High LIKELIHOOD

32. PROJECT APPLICATION(RESIDUAL RISK) A.1.1 A.1.1 A.1.1 High A.3 A.2 D.3 C.3 E.2 C.3 E.2 C.3 E.2 C.1 C.1 C.1 CONSEQUENCE F.2 E.1 F.2 E.1 Medium F.2 E.1 A.3 A.3 B.1 B.1 B.3 B.3 A.3 B.1 B.3 Low A.1 A.1 F.1 D.2 A.1 F.1 B.2 B.2 F.1 B.2 Low Medium High LIKELIHOOD

33. PROJECT APPLICATION(REPORTING AND MONITORING) • RISK CONTROL Takes place during project execution and consists of a rigorous control of scope, quality, cost and schedule and being constantly alert of potential concerns.

34. PROJECT APPLICATION(REPORTING AND MONITORING) • Establishment of tolerances • Defined as the allowable or permissible variation from a standard • Actions are taken when the risk exceeds its allowable tolerance • Low, zero or limited variability • Medium, some variability is accepted • High, significant variability is accepted

35. PROJECT APPLICATION(REPORTING AND MONITORING) • Monitor Points • Trigger Points • On Site Inspection • Dispute Resolution Mechanism • Who Needs to Know and When (Predetermined)

36. PROJECT APPLICATION(REPORTING AND MONITORING)

37. QUESTI0NS