Minutes of the regular meeting of the New York Power Authority’s Governance Committee held at the Authority’s offices at 123 Main Street, White Plains, New York at approximately 8:40 a.m.

The following Members of the Governance Committee were present:

Trustee Eugene L. Nicandri, Chairperson

Chairman John R. Koelmel

Trustee Terrance P. Flynn

Trustee Joanne M. Mahoney

Also in attendance were:

R. Wayne LeChase Trustee

Gil Quiniones President and Chief Executive Officer

Judith McCarthy Executive Vice President and General Counsel

Edward Welz Chief Operating Officer

Donald Russak Chief Financial Officer

Jill Anderson Chief of Staff and Director – Energy Policy

Joan Tursi Senior Vice President – Corporate Support Services

Randy Crissman Vice President – Technical Compliance

Joseph Gryzlo Vice President and Chief Ethics and Compliance Officer

Patricia Leto Vice President Procurement

Lesly Pardo Vice President – Internal Audit

Brian McElroy Treasurer

Karen Delince Corporate Secretary

Dennis Eccleston Chief Information Officer

Rod Mullin Director – Fuel Planning and Operations

Mark O’Connor Director – Real Estate

Gary Schmid Manager – Network Services

Louise Nestler Assistant Ethics Officer

Lorna Johnson Assistant Corporate Secretary

Sheila Baughman Senior Secretary, Corporate Secretary’s Office

Chairman Eugene Nicandri presided over the meeting. Corporate Secretary Delince kept the Minutes.

Introduction

Chairman Eugene Nicandri welcomed committee members, Trustee LeChase and Authority senior staff to the meeting. He said the meeting has been duly noticed as required by the Open Meetings Law and called the meeting to order pursuant to Section B(4) of the Governance Committee Charter.

1. Adoption of the Proposed Meeting Agenda

By motion made and seconded the agenda for the meeting was adopted.

2. Approval of the Minutes

The Minutes of the Committee’s Regular Meeting of March 27, 2012 and the Special Meetings of April 24 and June 26, 2012 were approved.

3. Procurement and Real Estate Reports

Ms. Joan Tursi submitted the following report:

SUMMARY

“This memorandum is to advise the Governance Committee of certain 2012 YTD activities of the Corporate Support Services/Enterprise Shared Services (‘CSS/ESS’) Business Unit, including: procurement contract activity, disposal of personal property, acquisition and disposal of real property, Supplier Diversity Program activities and plant inventory statistics, as well as fossil fuels and corporate finance activities of the Energy Resource Management and Business Services Business Units, respectively. This memorandum also advises the Committee of a proposed Corporate Policy relating to Authority vehicles and equipment.

BACKGROUND

“Pursuant to Subsection C.5 of the Authority’s Governance Committee Charter relating to Reports, the Vice President Procurement and the Director Real Estate are required to report to the Committee at all regularly scheduled meetings and the Committee has the authority to require Procurement and Real Estate staff to prepare additional reports and to produce documents for Committee review.

“The reported activities are governed by various State laws and regulations and are set forth in the attached Reports.

DISCUSSION

“As more fully described in the individual reports attached hereto as Exhibits 3.1 - 3.8, the Procurement Contract Report summarizes activity for procurements of $5,000 or greater awarded since January 1, 1990 that were active in 2012, as identified by the Authority’s SAP computer system. The Disposal of Personal Property Report lists all personal property disposal transactions over $5,000 conducted during the reporting period. The Real Estate Report includes all transactions over $15,000 for the acquisition or disposal of real property. The Supplier Diversity Program Activity Report summarizes dollars awarded to New York State-certified Minority and Women-owned Business Enterprises (‘MWBEs’) based on reportable expenditures. The Plant Inventory Analysis lists current stock value and compares it to that of the same period last year, with a brief explanation for any significant increase or decrease. The Fossil Fuels and Corporate Finance Reports list the fuel- and finance-related transactions conducted by the Fuel Operations and Treasury work groups, respectively.

“The proposed Corporate Policy sets forth the use of GPS/Telematic technologies in Authority Fleet vehicles and equipment, with the goal of improving driver safety, optimizing vehicle utilization, lowering costs and increasing productivity.”

Ms. Patricia Leto presented highlights of the report on the Disposal of Personal Property (Exhibit 3.2). Responding to a question from Chairman Nicandri, Ms. Tursi said the Fleet auctions are conducted two or three times per year by JJ Kane Auctioneers of Rome, NY. She added that the next auction is scheduled for August.

Mr. Mark O’Connor presented highlights of the report on the Acquisition and Disposal of Real Property (Exhibit 3.3). Responding to a question from Trustee Mahoney regarding the St. Lawrence Lands Program, Mr. O’Connor said the state of New York under the jurisdiction of the Authority owns most of the lands that borders the St. Lawrence project; therefore, the Authority does not need to receive permission from the State Parks to convey the lands. Also, the Program is a part of the Comprehensive Settlement Plan of the St. Lawrence Project Relicensing Settlement Agreement which was reviewed and approved by the Authority and the Attorney General.

Mr. Rod Mullin presented highlights of the report on Fossil Fuel (Exhibit 3.6). Responding to a question from Chairman Nicandri, Mr. Mullin said there has been a lot of activity in the natural gas Industry; natural gas prices are down and, therefore, a number of companies are now building gas lines to take advantage of that supply and use it commercially. As a result, coal units are not able to compete with them. President Quiniones added that there has been reports and analysis done which results show that gas prices will have to go up to the $5 range before coal plants can be competitive in terms of generating electricity. Statistics have shown that, in the past, 50 % of the electricity produced in the U.S. was from coal- fired power plants; it is now down to 33% -- a substantial decrease in electricity produced from coal because of the much lower price of natural gas.

Ms. Joan Tursi presented highlights of the report on the use of GPS/Telematic Technologies on the Authority’s Fleet Vehicles and Equipment (Exhibit 3.8). Responding to a question from Trustee Mahoney, Ms. Tursi said the Authority is currently discussing the GPS system with the union. Mr. Welz added that the Authority is discussing the impacts of the GPS system and monitoring of employee licenses with the union. In response to a comment from Trustee Flynn, Ms. Tursi said the Authority is implementing the licensing monitoring program to ensure that employees driving its fleet vehicles have valid driver’s licenses. In response to a question from Chairman Nicandri, Ms. McCarthy said the Authority will be using the license monitoring system only to check that employees have a valid driver’s license or if it has been suspended or revoked. In response to further question from Trustee Mahoney, Ms. Tursi said the Authority will use a licensing monitoring program currently used by other agencies and authorities, which will alert the Authority, on a continuous basis, if there is a change in the status of an employee’s driver’s license. The Authority has also contracted a maintenance company, ARI, which will monitor employees with out-of-state driver’s licenses. The company will issue a report to the Authority periodically. She reiterated that the Authority will not be notified if an employee has, for example, violations as the result of a DWI or speeding ticket. Responding to further question from Chairman Nicandri, Mr. Welz said some job descriptions require that the employee have a driver’s license; if there is an issue with such an employee’s driver’s license, it will have an impact on the employee’s ability to perform their job. However, the Authority will deal with such instances on a case by case basis. Ms. McCarthy added that any disciplinary action taken would depend on the information received regarding the status of the license. The Business Unit would evaluate the issue; however, it could have an effect on the employee’s job.

4. Recent Developments and Status of NYPA’s

Ethics and Compliance Program

Mr. Joseph Gryzlo submitted the following report:

ETHICS and COMPLIANCE

SUMMARY

“The Office of Ethics and Compliance advises NYPA’s trustees, officers and employees on the applicable ethics and compliance standards relating to NYPA’s employees and operations. It coordinates the investigation of allegations and concerns involving NYPA’s assets and employees. This report highlights significant developments in NYPA’s ethics and compliance program for the period March 27, 2012 to July 31, 2012.

BACKGROUND

“The principal substantive issues arising under the NYS ethics laws and NYPA’s Code of Conduct investigated or researched since the most recent Governance Committee report on March 27, 2012 include various requests to engage in outside activities and employment and issues concerning conflicts of interest, gifts inquiries, post-employment restrictions and unwarranted privileges. The Office receives inquiries from all NYPA facilities and headquarters’ business units. Issues raised by and concerning NYPA’s bargaining unit employees have increased since the inclusion of the represented workforce within the scope of the Code of Conduct in late 2009.

“The Office of Ethics and Compliance provides annual training to all trustees, officers and employees to reaffirm NYPA’s commitment to prevailing ethics principles and raise awareness of the laws and regulations with which all NYS public employees are required to comply. NYPA’s positive culture of ethics and compliance is further reinforced by various training initiatives, including the May 2012 NYS Office of Inspector General program, as well as targeted employee communications relating to the NYS financial disclosure program, gifts restrictions, honoraria guidelines, periodic ‘Ethics Challenges’ appearing in NYPA’s Currents publication and customized presentations for NYPA’s Compliance Work Group and business units and departments.

DISCUSSION

Ethics Caseload

“Annual ethics training related to Outside Activities and Employment was provided during the fourth quarter of 2011 and first quarter of 2012 and continues to result in various requests to review the external activities of NYPA employees. These requests include approvals to perform services as part-time municipal law enforcement officials, Justice of the Peace and fire investigator; engineering consultants and professional board memberships. In all instances, the Office of Ethics and Compliance evaluates employees’ reported outside activities and employment to ensure there are no conflicts of interest with NYPA’s business interests and the employees’ NYPA job duties. Written guidelines are provided which identify the circumstances under which employees may participate in part-time outside endeavors. Employees affirmatively agree to adhere to the guidelines which include the need to perform their outside pursuits solely on their own time and without the use of any NYPA assets or resources. Those employees holding ‘policy-making’ positions and others who are required to file annual financial disclosure forms with the NYS Joint Commission on Public Ethics (‘JCOPE’) are instructed to include their outside employment and related compensation in their filing. Requests to engage in outside employment by employees holding ‘policy-making’ positions are also required to be approved by the JCOPE. Those approvals are coordinated by the Office of Ethics and Compliance.

“Gifts inquiries remain a top issue for the Office of Ethics and Compliance. In the recent reporting period, thirteen inquiries were reviewed, including a request to re-visit a prior opinion relating to an employee’s participation on an external organization’s board and the propriety of his being able to accept complimentary travel and lodging from a program sponsor. An organization offered to pay the out-of-state travel and lodging expenses for the NYPA employee who was asked to moderate a panel discussion at the organization’s annual meeting. The Office of Ethics and Compliance previously advised the employee not to accept complimentary travel and lodging since the employee’s role on the external board and participation in the meetings were related to his NYPA job duties and had benefited NYPA. The Office of Ethics and Compliance reaffirmed its prior opinion after researching the applicable provisions of the NYS Public Officers Law and related regulations.

“NYPA’s Sustainability Program is the culmination of the ‘triple-bottom line’ approach of environmental stewardship, social equity and economic prosperity. The Green Team, NYPA’s voluntary sustainability committee, sought to implement an internal blog to engage employees in discussions related to green products and services found or used by other NYPA employees. The blog poses potential improper endorsement and unwarranted privilege ethical issues for employees who may post information related to the products they use. By naming a particular product on an officially sponsored NYPA website, it may appear that NYPA and the employee are endorsing the product or the services of a particular vendor in violation of NYS Public Officers Law § 74(3)(d). Violations of the Public Officers Law are enforced against public employees, not state agencies. In an attempt to help the Sustainability Group and NYPA reach their eco-friendly goals, the Office of Ethics and Compliance has agreed to act as moderator of the blog to assist employees in making posts that share valuable ‘green’ information, while helping them to avoid violations of the Public Officers Law or create the appearance of such violations.

Collaboration with the New York State Inspector General’s Office

“The Ethics and Compliance Office continues to collaborate with the NYS Inspector General’s Office on investigations of allegations and complaints involving NYPA employees and business partners. Issues of corruption, fraud, criminal activity, conflicts of interest or abuse by state officers and employees relating to their office or employment, or by anyone having business dealings with covered agencies are included within the Inspector General Office’s jurisdiction. Details of pending cases will be provided during the Governance Committee Executive Session.

“The Inspector General’s Office concluded one case involving a NYPA employee during the current reporting period. A Security Sergeant at the Clark Energy Center was arrested on charges that he used a NYPA credit card to purchase gasoline for his personal vehicle and falsified records to cover up his theft. NYPA identified the employee’s wrongdoing and referred the matter to the Inspector General and cooperated fully with the external investigation. The employee remains on unpaid disciplinary suspension status pending the resolution of the criminal proceedings.

MATTERS BEFORE THE JOINT COMMISSION ON PUBLIC ETHICS

“Financial Disclosure forms were due to be submitted to the JCOPE by May 15, 2012. All NYPA trustees, employees holding ‘policy-making positions’ and those earning an annual salary greater than $88,256 were required to file their financial disclosure information for the 2011 filing period. The great majority of NYPA filers continue to utilize the online filing process. JCOPE experienced website challenges during its initial administration of the program throughout the filing period. The Office of Ethics and Compliance intervened on many employees’ behalf and facilitated the successful filing of financial disclosure forms and requests for exemptions. JCOPE anticipates that these program filing difficulties will be resolved prior to the 2013 filing period.

TRAINING AND OUTREACH

“The Ethics and Compliance Office offered a Supervisory Development Training module to approximately 15 new supervisors during this reporting period. This training session is conducted twice annually in conjunction with the Human Resources Talent Development Group and is designed to provide supervisors with an overview of the types of ethical issues they may encounter from their employees and to offer them an opportunity to ask any ethics-related questions they may have in their new roles.

“The NYS Inspector General Office’s Director of Training made four presentations to headquarters staff in May. The purpose of these training sessions was to review the jurisdiction of the Inspector General and highlight employees’ legal responsibility to report wrongdoing, including bribery, conflicts of interest, fraud, theft and governmental waste. The Inspector General’s Office cited its favorable working relationship with NYPA and also encouraged employees to report their concerns through NYPA’s internal resources and the outsourced employee concerns hotline (1-877-TEL-NYPA). The Law Department and Office of Ethics and Compliance intends to communicate the Inspector General’s message to NYPA’s facilities during 2012 and tailor the presentations to NYPA’s business and operations.

COMPLIANCE PERFORMANCE MEASURES

“The Office of Ethics and Compliance has developed and is facilitating the implementation of two NYPA performance measures. These measures are designed to create a centralized inventory of (i) all statutory and regulatory mandated reports NYPA must prepare and file with external entities and (ii) all statutory and regulatory mandated training initiatives NYPA must provide to its trustees, officers and employees. The centralized database has been created and business units and departments are in the process of identifying and entering the mandatory reports and training applicable to their groups. The Office of Ethics and Compliance will monitor inventories for compliance and work with the Law Department to verify the accuracy and timeliness of the data.

RELIABILITY STANDARDS COMPLIANCE

SUMMARY

“This report highlights important aspects of NYPA’s reliability standards compliance program for the period March 27, 2012 to July 31, 2012. A brief background statement is followed by discussion of specific reliability standards-related topics affecting the enterprise.

BACKGROUND

“Following the 2003 Northeast blackout, the Energy Policy Act of 2005 was passed and gave the Federal Energy Regulatory Commission (‘FERC’) the power to establish mandatory standards for electric reliability. FERC named the North American Electric Reliability Corporation (‘NERC’) as its Electric Reliability Organization (‘ERO’) and charged it with developing and enforcing reliability standards. The Northeast Power Coordinating Council (‘NPCC’) is NERC’s enforcement agent for the Northeast U.S. NERC established an organization and processes for developing, implementing and enforcing standards. The initial set of standards became enforceable on June 18, 2007. Since then, the standards have continued to be expanded and revised to address known gaps in the standards or gaps discovered from lessons learned from analyses of more recent system disturbances and blackout events.

“NYPA is currently registered, under the NERC functional registration model, as a Transmission Owner, Generator Owner, Generator Operator, Purchasing and Selling Entity, and Load Serving Entity. Recently, NYPA requested de-registration as a Load Serving Entity. Under these registrations, NYPA is subject to 115 standards containing 379 requirements. The standards cover a wide range of NYPA’s operation and maintenance activities and processes. In addition, NYPA is subject to some more stringent standards and reliability requirements established by NPCC.

In the period 2007 to 2010, NYPA strengthened its internal compliance program to guide the organization and provide oversight of the processes required to maintain evidence required to demonstrate compliance to the standards. This involved organizational restructuring, the establishment of a governance program through the creation of new or the modification of existing policies and procedures, and the provision of training of the staff.

DISCUSSION

NERC Reliability Standards Compliance Enforcement Actions

“During the reporting period, NYPA staff managed compliance enforcement actions related to several of the NERC Reliability Standards that are applicable to NYPA’s NERC registrations. The actions and statuses are briefly stated below:

1. PRC-005-1 R2 - Transmission and Generation Protection System Maintenance and Testing (NERC Violation ID: NPCC201100236): NYPA self-reported to NPCC a potential violation of the requirement R2 of PRC-005-1 on February 11, 2011. The associated mitigation plan closure documents are being reviewed by NPCC staff. NPCC has not yet contacted NYPA about settlement discussions related to this violation.

2. CIP-004-3 R2 - Cyber Security - Personnel and Training (NERC Violation ID: NPCC2012200446): NYPA self-reported to NPCC a potential violation of requirement R2 of CIP-004-3 on February 16, 2012. The mitigation plan and associated closure documents were submitted to NPCC for review and approval in April 2012, submitted to NERC for approval on May 18, and were approved by NERC and submitted to FERC on June 14.

3. CIP-004-3 R4.2 - Cyber Security - Personnel and Training (NERC Violation ID: NPCC2012-200459): NYPA self-reported to NPCC a potential violation of requirement R4 of CIP-004-3 on March 12, 2012. The mitigation plan was submitted in April 2012 and completed in late June 2012. The mitigation plan closure documents are being assembled for submittal to NPCC in July 2012.

4. CIP-006-3 R4 – Cyber Security – Physical Security of Critical Cyber Assets: (NERC Violation ID: NPCC2012-200657): NYPA self-reported to NPCC a potential violation of requirement R4 of CIP-006-3 on June 21, 2012. The self-report is being reviewed by NPCC staff.

Audits of the NERC Reliability Standards

“NPCC notified NYPA on March 14, 2012 that it would conduct a spot check audit of two Purchasing and Selling Entity (‘PSE’) standards applicable to NYPA as a registered PSE. The audit was conducted for the following standards:

1. IRO-005-3 R10: Reliability Coordination - Current Day Operation

2. VAR-001-2 R5: Voltage and Reactive Control

“The NPCC Spot Check team evaluated compliance with two (2) applicable requirements out of the twenty-four (24) requirements associated with the above standards for the period of June 21, 2011 to May 9, 2012. The NPCC Spot Check team determined that the remaining twenty-two (22) requirements were not applicable to NYPA. Based on the information and documentation provided, the NPCC Spot Check team found NYPA to have no findings of non-compliance with two (2) applicable requirements. The NPCC Spot Check team identified zero (0) Possible Violations, zero (0) Areas of Concern and zero (0) Recommendations. The NPCC Spot Audit report is expected to be finalized by the end of July 2012.

BULK ELECTRIC SYSTEM DEFINITION

“In 2010, FERC issued its final rule on the Electric Reliability Organization Definition of the Bulk Electric System (‘BES’) to include assets greater than 100 kV. Pursuant to FERC Order 743, NERC established a Standard Drafting Team (‘BES SDT’) to develop a new BES definition and RSC staff is monitoring the work of the BES SDT. The definition and an exception process were developed and approved by the industry in 2011. The NERC Board of Trustees approved the new BES Definition and the Exception Process in January 2012. NERC filed both with FERC on January 25, 2012.

“On June 21, 2012 FERC issued a proposal that would approve NERC’s revisions to the definition of the bulk electric system to provide greater clarity and ensure consistency in identifying system elements across the nation’s reliability regions. Under the new definition, all assets operating at 100 kV or greater will be elements of the bulk electric system. NERC’s Notice of Proposed Rulemaking (‘NOPR’) also proposes to approve NERC’s new rules of procedure for adding elements to and removing them from the definition on a case-by-case basis. While proposing to approve the revisions to the definition of the BES, the NOPR also seeks comment on certain issues, including the exclusion of certain facility configurations from the definition.

“The new BES definition will have substantive impacts on New York State’s electric utilities, including NYPA, because a larger population of generation and transmission assets will be subject to NERC Reliability Standards. In this regard, the Northeast Power Coordinating Council (‘NPCC’) established a BES Transition Plan that contains actions for assessing the impact of the new BES Definition. As part of NPCC’s BES Transition Plan, in March, NYPA developed and submitted to NPCC a list of newly identified transmission assets that will become part of the BES pursuant to a new definition of the BES. NYPA identified 35 additional assets that will be subject to the NERC Reliability Standards:

1. Five (5) transmission lines

2. Seven (7) transformers

3. Twenty-three (23) reactive devices

“These newly identified BES elements represent a 50% increase in the number of NYPA BES elements. In June, NYPA staff began a reliability compliance gap analysis for these 35 transmission assets, pursuant to NYPA’s current NERC functional registrations.

“More importantly, the adoption of the new BES definition may require NYPA to register as a Transmission Operator (‘TOP’) and/or a Transmission Planner (‘TP’), which will lead to additional compliance responsibilities and accountabilities. Currently, the New York Independent System Operator (‘NYISO’) is the TOP and TP for NYPA’s bulk power system elements. Under the new definition, the NYISO is not expected to take these responsibilities for any of the newly identified transmission elements in New York State. The responsibilities are expected to be distributed among the New York Transmission Owners (‘NYTOs’). In response to these projected impacts, in February 2011, the NYISO and the NYTOs established a team to discuss and develop an action plan to address the statewide impacts of the implementation of the new BES definition. This group has been meeting regularly to clarify the impacts with respect to functional responsibility and compliance accountability for the TOP and TP Standards. The objective is to reach agreement on a registration model that will work for New York State and meet the requirements of NPCC and NERC. The team expects to accomplish its objective before the end of 2012.

NERC RECOMMENDATIONS TO INDUSTRY – Facility Ratings for Transmission Lines

“On October 7, 2010, NERC issued a ‘NERC Alert – Recommendation to Industry’ requiring NYPA to review its current Facility Ratings Methodology for its solely- and jointly-owned transmission lines to verify that the methodology is based on actual field conditions (in particular, line clearances). NYPA continues to implement its work plan for responding to this Recommendation to Industry. NYPA’s assessment revealed that it has about 260 line clearance discrepancies in NYPA’s 1,400 miles of transmission lines; about 50 of which are on lines rated as high priority. Staff has developed and is implementing a plan to eliminate the discrepancies on the high priority lines by the end of 2012; a significant undertaking. Contact has been established with other utilities to seek their assistance in remediating some of the discrepancies related to distribution lines that transect NYPA’s transmission lines. NYPA has met several times with the NYISO, the Reliability Coordinator for New York; to coordinate the implementation of the remediation plan. The NYISO is working with NYPA to schedule transmission line outages required for the remediation work. The last meeting with the NYISO occurred on July 12, 2012. The most recent status report, required by NERC, was submitted to NPCC on July 16, 2012.”

Mr. Randy Crissman provided highlights of the report on Reliability Standards Compliance to the Committee. He added that Version 5 of the Critical Infrastructure Protection (“CIP”) standards being developed regarding Cyber Security in the electricity industry will be approved by the end of the year and will be enforceable in 2014 – 2015. President Quiniones said that since the 2003 blackout, cyber security has been an evolving part of the Authority’s business. Various U.S. House of Representatives and U.S. Senate legislative bills on cyber security are being drafted, which may have an impact on the Authority.

5. Motion to Conduct an Executive Session

Mr. Chairman, I move that the Authority conduct an executive session pursuant to the Public Officers Law of the State of New York section §105 to discuss matters leading to the appointment, employment, promotion, demotion, discipline, suspension, dismissal or removal of a particular person or corporation. Upon motion made and seconded an Executive Session was held

6. Motion to Resume Meeting in Open Session

Mr. Chairman, I move to resume the meeting in Open Session. Upon motion made and seconded the meeting resumed in Open Session.

7. Next Meeting

The next regular meeting of the Governance Committee is scheduled for Tuesday, October 30, 2012 at 8:30 a.m.

Closing

On motion made and seconded, the meeting was adjourned by the Chairman at approximately

10:50 a.m.

Karen Delince

Corporate Secretary