Corporate Governance

1. Basic Approach Regarding Corporate Governance

   Under the management philosophy of the HEPCO Group, we recognize that "the development of the HEPCO Group is not possible without the sustainable development of local communities." We will fulfill our responsibilities as a member of society and provide products and services centered on electricity, aiming for sustainable growth and improvement of corporate value.
   In order to promote these initiatives aimed at enhancing corporate value, we believe it is essential to strengthen corporate governance that supports transparent, fair, and prompt decision-making. Based on this fundamental belief, we will actively work towards these goals based on the following basic policies.

2. Basic policies

   1. (1)

      Appropriate collaboration with shareholders

      1. a.Protection of shareholders' rights
         HEPCO is committed to treating all shareholders equally according to the nature and number of their shares, and we will take appropriate measures in accordance with laws and regulations to ensure that shareholders' rights, including voting rights at general meetings of shareholders, are properly secured.
      2. b.Dialogue with shareholders
         HEPCO strives to provide timely, appropriate, and fair information disclosure and disseminate information to help our shareholders understand our business activities, while also building relationships of trust with our shareholders and investors through continuous dialogue.
   2. (2)Appropriate collaboration with stakeholders other than shareholders
      To ensure that HEPCO acts in line with our corporate social responsibility throughout all our business activities, we have established the "HEPCO Group CSR Behavior Charter" and strive to collaborate with various stakeholders, including our shareholders, employees, customers, business partners, and local communities.
   3. (3)Ensure appropriate information disclosure and transparency
      HEPCO will disclose financial information such as financial condition and operating results, as well as non-financial information such as management strategies, management challenges, risks, and governance, to our shareholders and other stakeholders in a timely and appropriate manner in accordance with laws and regulations, and will also endeavor to provide information other than that required by law.
   4. (4)Responsibility of the Board of Directors
      Under the system for companies with an Audit & Supervisory Committee, HEPCO will respond promptly to changes in the business environment in the electricity business, recognize our fiduciary duty and accountability to our shareholders, and strive for sustainable growth and enhancement of corporate value. Furthermore, aiming for highly transparent management, we will endeavor to improve the mechanisms and support so that independent outside directors can appropriately fulfill their roles and responsibilities.

   [HEPCO Group Management Philosophy]

   <Purpose> Light up your future

   • Together with local communities, HEPCO Group will continue to ensure Hokkaido stays an attractive region that people are proud to share with the world and enrich the lives of people who call Hokkaido home.

   <Mission> Create the future of energy and new value by transformation

   • We will never relent in our drive to continuously transform so that we always fulfill our responsibility as an energy provider. We will deliver new value to our customers and communities, and, with Hokkaido as our foundation, we will support its further development and realization of a sustainable society.

   <Values>

   • Challenge:We will aim to grow further and surpass everyone's expectations as we continue to enthusiastically take up challenges.
   • Co-creation:With our roots in Hokkaido, we will collaborate with communities, companies, local governments, and everyone in the region to harness ingenuity and create our future together.
   • Trust:We will live up to the trust placed in us by always acting with integrity and fairness and taking even better care of our stakeholders while respecting the diversity of values.

Amidst significant changes in the business environment surrounding HEPCO, we believe it is necessary to establish a structure that enables us to respond quickly and flexibly to important management issues, as well as to further enhance the transparency of decision-making by the Board of Directors and the effectiveness of management oversight. Therefore, we have adopted the system of a company with an Audit & Supervisory Committee.
Furthermore, by adopting an operating officer system and delegating some of the decisions regarding important business operations to the directors, the Board of Directors aims to strengthen its supervisory function and expedite business execution.

In principle, the board of directors holds monthly meetings to make decisions on important business execution matters stipulated by laws, regulations, the articles of incorporation, and internal standards, and to receive reports on the status of operation being undertaken from members of the board, who supervise the performance of each other's duties. In addition, the Audit & Supervisory Committee meets, in principle, once a month to receive reports from accounting auditors, the internal audit department, etc., on important matters concerning audits as stipulated by laws, regulations, the articles of incorporation, and internal standards, and to discuss and make decisions. Also, in principle, the Management and Operations Committee, which is comprised of the President & Director, Executive Vice President, and Executive Officers, etc. meets weekly to consider policies and plans pertaining to overall HEPCO Group management as well as important matters relating to business execution. In addition, committees have been established to deliberate and coordinate the direction of the entire company and other matters relating to key management issues, such as compliance and risk management.

The Articles of Incorporation stipulate specific provisions including that there are up to 18 directors, that the voting rights for electing these directors are exercised at the shareholders' meeting by a majority of voting rights of attending shareholders where shareholders holding one-third or more of the voting rights of all voting shareholders are in attendance, and that cumulative voting shall not be accepted for such resolutions.

The Articles of Incorporation also stipulate that the company may acquire its own shares upon a resolution of the Board of Directors pursuant to Article 165.2 of the Companies Act, in order to implement an agile capital policy in response to changes in the business environment.

So that directors are able to fully perform their expected roles in the fulfillment of their duties, the Articles of Incorporation provide, pursuant to Article 426.1 of the Companies Act, that directors (including former directors) may be exempted from liability upon a resolution of the Board of Directors to the extent provided in laws and regulations as specified in Article 423.1 of the Companies Act.

To enable the return of profits to shareholders in an agile manner, the Articles of Incorporation stipulate that the Board of Directors may pass a resolution providing an interim dividend in accordance with Article 454.5 of the Companies Act to shareholders and registered pledgees recorded on the shareholder register as of September 30 each year.

To ensure that general meetings of shareholders proceed smoothly, the Articles of Incorporation prescribe that resolutions specified in Article 309.2 of the Companies Act shall be made by two-thirds or more of the votes of the shareholders present at a meeting where shareholders holding one-third or more of the votes of the shareholders who are entitled to exercise their votes are present.

HEPCO has established the "Basic Policy on Internal Control System to Ensure Business Appropriateness," and we set and operate our internal control system in accordance with this basic policy.

Regarding systems ensuring the appropriateness of operations within the HEPCO Group, HEPCO Group companies share policies on compliance and other matters, and we execute our business operations in close cooperation using reports and other communications in accordance with group management policies and group management codes.

Regarding risk management, based on its "Integrated Risk Management Regulations," the Company has established a company-wide integrated risk management system and is implementing initiatives to reduce risks. Each head office department serves as a risk owner, identifying as risks any events that could hinder the achievement of business or organizational objectives, taking into account both internal and external environments, and conducting analysis and evaluation. Based on these evaluations, appropriate countermeasures are formulated and implemented, and their implementation status is regularly reported to the integrated risk management unit. The integrated risk management unit consolidates information gathered from each risk owner across the Company, identifies risks that could have a significant impact on management (management risks), and the "Integrated Risk Management Committee," chaired by the President, reviews response policies for these management risks as well as the status of responses by risk owners, and provides guidance. The Integrated Risk Management Committee is composed of all executive officers with titles, and by including outside directors and others as advisors, it conducts active discussions incorporating external expert perspectives. The management risks discussed by the Committee and the corresponding response policies are reflected in the annual management policy and submitted to the Board of Directors. In addition, the integrated risk management unit works in collaboration with the relevant departments responsible for risks that require cross-organizational responses (such as compliance and information security), aiming to achieve effective risk reduction initiatives.

Regarding compliance, we have established a Corporate Ethics Committee jointly with Hokkaido Electric Power Network Co., Inc., chaired by our President and attended also by external experts, which meets quarterly. Under the auspices of this committee, we strive to ensure thorough compliance with the "HEPCO Group CSR Behavior Charter" and the "Compliance Action Guidelines" by providing education and training for employees in addition to other efforts. We promote company-wide activities aimed at ensuring observance of laws, regulations, corporate ethics and other standards and preventing misconduct in our business activities.

So that legal assessments are available for reference in executing our operations, we have a system in place that allows for advice and other consultations to be provided as appropriate by our corporate attorneys as well as other attorneys well-versed in the law.

[Overview of HEPCO's main organizations]

Name	Purpose and authority	Members
Board of Directors	Makes decisions on important business execution matters stipulated by laws, regulations, the articles of incorporation, and internal standards, and receives reports on the status of operations being undertaken from members of the board, who supervise the performance of each other's duties. We also delegate some important business decision-making to directors.	Chairman of the Board, Yutaka Fujii (Chairman), Susumu Saito Masahiro Ueno, Tsuyoshi Kobayashi, Hiroshi Tsuchida, Akito Niinuma, Takeshi Yoshikawa, Yuichi Tomaki Noriko Narita, Iwao Takeuchi, Mitsuko Ukai, Toshifumi Igarashi (Note)
Audit & Supervisory Committee	Audits the execution of duties by directors (excluding audit and supervisory committee members) and gives its opinions on the appointment and dismissal, and compensation of directors. In addition, receives reports from the accounting auditors, internal audit department, etc., on important audit-related matters stipulated by laws, regulations, the articles of incorporation, and internal standards, and holds discussions and makes decisions on these matters.	Yuichi Tomaki (Chairman, full-time), Noriko Narita, Iwao Takeuchi, Mitsuko Ukai, Toshifumi Igarashi (Note)
Personnel & Remuneration Advisory Committee	Provides appropriate direction and advice on matters such as the selection of director candidates, the appointment and dismissal of senior management, and the determination of directors' compensation.	Chairman of the Board, Yutaka Fujii (Chairman) Susumu Saito, Takeshi Yoshikawa, Mitsuko Ukai Toshifumi Igarashi (Note)
Management & Operations Committee	Deliberates on important matters concerning policies, plans, and business execution related to the overall management of the Group.	President & Director, Susumu Saito (Chairman) Masahiro Ueno, Tsuyoshi Kobayashi, Hiroshi Tsuchida, Akito Niinuma, Hiroyuki Suzuki, Satoshi Takada Takeshi Makino, Shinichi Kimoto, Mizuya Matsumura Akira Takahashi, Sotaro Kaneda

(Note) Takeshi Yoshikawa, Noriko Narita, Iwao Takeuchi, Mitsuko Ukai, and Toshifumi Igarashi are outside directors.