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Joint Statement: The City of Calgary and ENMAX Corporation

/ Calgary

Moving Forward Together

Joint Statement - May 20, 2011

A joint statement from The City of Calgary and ENMAX Corporation regarding the results of Mayor Naheed Nenshi Review of ENMAX Corporation

I) REVIEW Process

Following several meetings between Mayor Naheed Nenshi and ENMAX Board Chair Cliff Fryers, it was agreed that a formal review of ENMAX’s Mandate, Business Strategies, Principles of Compensation and the Shareholder/ Board Relationship would be undertaken.

Three in-camera working sessions between the ENMAX Board of Directors and City Council, with Council sitting as the Shareholder of ENMAX, were held in February through April to discuss and reach consensus on the following:

  • Tone at the Top - City Council’s expectations relative to the manner in which ENMAX would conduct business.
  • Mandate – The expectation of City Council regarding business strategy and financial advancement.
  • A review of ENMAX’s vertical integration strategy with an emphasis on the previously approved Shepard generation facility and an update on the Downtown District Energy Centre and the Bonnybrook generation facility.
  • “Say on Pay” for Council – Ensuring Council, as Shareholder, has an opportunity to comment on the philosophy behind executive compensation.
  • Shareholder/ Board Relations - The process and philosophy to nominate Board members, set Board of Directors compensation and review current Board of Director’s composition and structure.

The endeavour of the discussions was to achieve alignment between the Council and the Board on the direction of ENMAX. The Council and Board recognize the need for strong two way communication with increased openness by the Board and increased support from Council.

II) Outcome of the Meetings

As a result of these exchanges between the City and ENMAX, agreement was reached on a framework for moving forward together. The following Ten Principles form the basis of that agreement:

Tone at the Top

  • There will be a stronger cultural emphasis on prudence and transparency at ENMAX.
  • ENMAX understands that how they earn profits is equally as important as the level of profits they earn.
  • ENMAX is accountable to the citizens of Calgary for ensuring prudence in their management of the company and will demonstrate the highest standards of shareholder engagement and transparency with the City.

Mandate and Vertical Integration Strategy

  • A strong acceptance of ENMAX’s pursuit of entrepreneurial goals by the City of Calgary with the twin benefits of strong dividends to the City and being a technological and environmental leader.
  • A strong acceptance that ENMAX’s continued competition in the de-regulated retail, wholesale and generation marketplace for electricity is necessary for ENMAX to fulfill its mandate.
  • Recognition by the City that vertical integration through building generation facilities mitigates risk and facilitates both future profitability and fair prices for customers. Building generation facilities to support ENMAX’s substantial retail book is a key element of that strategy.

Executive Compensation and Shareholder/ Board Relationship

  • City Council will have a “Say on Pay”, on the philosophy behind executive compensation through direct interaction with the Board of Directors.
  • Given the competitive requirements of ENMAX, City Council recognizes the Board of Directors must continue to recruit talent from and maintain comparable pay with its competitors. Consistent with Council’s “Say on Pay”, Council has had input into the comparator Peer Group for executive compensation. The Board and Council believe in “pay for performance” and the Board is redesigning its compensation programs to more tightly link Executive incentive compensation to performance measures. Using these parameters, compensation for the five main executives at ENMAX has been reduced by as approximately 20 per cent.
  • The Board will continue to nominate business leaders to the Shareholder to fill vacancies on the Board. City Council wishes the Board of Directors to remain focused on the business of ENMAX. City Council has no desire to create a community or constituency style Board of Directors. *The methodology for, the terms for members of, the selection criteria for, and the nomination process for Board members, as presented by ENMAX was reviewed and affirmed by City Council.
  • City Council will continue to set Board member compensation. It will review the comparator Peer Group annually, recognizing both the competitive environment and ENMAX’s ownership by the citizens of Calgary.

* City Council will undertake its own review regarding Councilor positions remaining on the Board of Directors. The review will be completed by the end of 2011.

III) Current ENMAX direction

As a result of the alignment achieved with this Review the ENMAX Board is:

  • Launching its search for a new President and Chief Executive Officer;
  • Proceeding vigorously with its Shepard and Bonnybrook generation facilities;
  • Shortly undertaking a brand enhancement campaign to more directly connect the citizens of Calgary with the success and benefits of its corporation.
  • Considering Board composition (in the context of finding a new President, starting Shepard construction, and the City’s decision relative to Councilors on the Board), prior to the semi-annual shareholders meeting usually held in November and any changes resulting there from to be in keeping with the agreed upon process for selection.

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