MINUTES OF BOARD OF COMMISSIONERS' MEETING

LANSING BOARD OF WATER AND LIGHT

___________________________
Tuesday, February 27, 2001
___________________________

Motion made by Commissioner Christian, seconded by Commissioner O’Leary, to approve the minutes of regular session held January 23, 2001.

#2001-2-1
FINANCE COMMITTEE REPORT

Committee members in attendance were Commissioners Mark A. Murray (Chair), Ernest J. Christian, David O’Leary, and Board Chair Diane Royal. Also present were Commissioners Ronald C. Callen, and Nancy W. Duncan. Absent was Committee Member Charles M. Creamer.

Growth and Expansion Status. General Manager Pandy reviewed highlights of a memo dated January 23, 2001, from Assistant General Manager Bill Cook on the status of Utility Growth and Expansion. He also showed a series of graphs indicating the Board of Water and Light’s (BWL) levels of capital expenditures, debt service, and related indicators over the past several years. General Manager Pandy said his goal was to come to the Board with an assessment of the actual financial performance of the various expansion projects by geographic area. He noted that the water system expansion and chilled water projects are like new start-up businesses. They are long-term investments that will benefit the BWL in the future. Assistant General Manager Bill Cook then reviewed the status of Utility Growth and Expansion in greater detail. Commissioner Murray expressed appreciation that the status report identified key issues, and expressed a hope that additional detail would be forthcoming to address the issues raised. Mr. Cook said that his approach has been to address systemic problems first so future projects will be consistently and rigorously evaluated. He expects new processes and procedures to be in place within another month. Within two months he expects to have specific economic parameters to discuss with the Finance Committee for their review and subsequent Board approval in their capacity as the BWL’s regulatory body. Commissioner Murray expressed concern about the BWL issuing more bonds at this time and about BWL’s ability to accurately estimate project costs in the future. Commissioner Murray asked that the Growth and Expansion topic be placed on the agenda for the February 27, 2001, Finance Committee meeting with the expectation that staff will have well-defined solutions to the issues they have identified.

Proposed Revenue Bond Issue. Chief Financial Officer Dana Tousley outlined for the Board the steps required for issuing bonds. He said that he expects the BWL will keep its AA rating on this proposed small bond issue, but BWL’s rating in the future may be lowered because of the high level of fixed obligations. He reviewed a worksheet that forecasts the BWL’s effective fixed obligation coverage taking into account the Belle River obligations and payment of return on equity to the City.

Commissioner Murray asked staff to check with the BWL’s financial advisors on the following: (1) the feasibility of using a one-year note and (2) on sizing the bond issue for current capital needs only, then issuing more bonds the following year when capital needs have been more thoroughly identified and evaluated.

Mr. Pandy noted that the BWL has to move more toward the direction of a financial focus. Commissioner Murray observed that in recent years BWL management has active ly used debt to expand and care will be needed with future issuances to ensure that BWL’s bond rating is not put at risk. This means that substantially greater care is now required and that in the future, the BWL will have to bypass some deals or find others to finance them. He also cautioned against dipping into BWL’s cash reserves during these good economic times.

Mr. Pandy informed the Commissioners that Sue McCormick, the Marketing Manager responsible for much of the BWL’s growth and expansion, has taken a position as Director of Utilities with the City of Ann Arbor. Mr. Pandy praised her many accomplishments and acknowledged that while her new position is a career opportunity, her decision to leave the BWL was also due to her frustration with other company areas and with the way expansion was portrayed in the System Growth and Expansion Report.

Ottawa Station Redevelopment. Staff Attorney Larry Wilhite briefed the Commissioners on real estate matters associated with the proposed redevelopment of the Ottawa Station Power Plant by Convergency Centers. The building has been appraised at $2.8 million. Also, a potential tenant has expressed interest in the remaining 55,000 square feet not needed by Convergency Centers. Mr. Wilhite said that area unions are actively opposed to the contractor selected by Convergency Centers and this will be a major issue to be addressed.

Moved by Commissioner Duncan, seconded by Commissioner Creamer, that the Finance Committee Report (Resolution 2001-2-1) be considered as read in full and approved.

#2001-2-2
Board of Commissioners’ Ad Hoc Committee
on Payments in Lieu of Taxes

The Board’s Ad Hoc Committee met on February 13, 2001, to discuss issues relative to the payments in lieu taxes to the City of Lansing.

Committee Members present were: Commissioners David O’Leary (Chair), Diane R. Royal, Mark A. Murray and General Manager Joseph Pandy, Jr.

The Committee reviewed schedules and agreed that it would be prudent to attempt to schedule a meeting with the City before March 15, 2001. Committee Chair O’ Leary agreed to contact the Mayor’s Chief of Staff, Joseph Graves, Jr., to attempt to schedule the initial meeting.

Respectfully submitted,
David O’Leary, Chair
Ad Hoc Committee on Payment In Lieu of Taxes

Moved by Commissioner O’Leary, seconded by Commissioner Callen, that the report of the Ad Hoc Committee on Payment in Lieu of Taxes (Resolution 2001-2-2) be considered as read in full and approved.

GENERAL MANAGER’S RECOMMENDATIONS

#2001-2-3
AMENDMENT TO PENSION PLANS

RESOLVED, That

• The Second Amendment to the Lansing Board of Water and Light Defined Contribution Plan for Employees’ Pensions, and the
• Fourth Amendment to the Lansing Board of Water and Light Defined Benefit Plan for Employees’ Pensions, and the
• First Amendment to the Post-Retirement Benefit Plan for Eligible Employees of the Lansing Board of Water and Light

are hereby adopted as indicated therein.

The amendment to the Post-Retirement Benefit Plan above is correcting language describing how the benefits are paid (Section 1) and correcting language describing employees eligible for the plan (Section 2). Since these are technical corrections, they don’t require participant disclosure.

Moved by Commissioner Duncan, seconded by Commissioner O’Leary, that the resolution be approved.

Whereas, Susan "Sue" McCormick has worked tirelessly and tenaciously on behalf of all people dedicated to achieving safe, sufficient drinking water, increasing consumer confidence and improving satisfaction. Sue McCormick left her position as Manager of Business Development at the Lansing Board of Water and Light to accept the position of Director of Utilities for the City of Ann Arbor effective January 29, 2001, and

Whereas, Among Sue McCormick’s recent accomplishments was her election as Vice President of the National American Water Works Association’s (AWWA) Board of Directors in January 2000. The AWWA is the world’s largest scientific and professional association dedicated to drinking water. Ms. McCormick has served in key leadership roles for both the State Section and National levels of AWWA. She is the recipient of the AWWA, Michigan Section, Raymond J. Faust Award (1994) for outstanding personal service to the water industry and the George Warren Fuller Award (2000) for outstanding service to AWWA, and

Discussion: The Commissioners commended Sue McCormick’s excellence and professionalism during her employment with the Board of Water and Light.

Initial Discussions Begin on Return on Equity Agreement. General Manager Pandy reported that the Board’s Ad Hoc Committee on Payment in Lieu of Taxes will meet on March 13 with a special committee of City officials appointed by the Mayor to discuss the Return on Equity Agreement, due to expire June 30, 2002. Mr. Pandy handed out a one-page informational sheet summarizing the Board’s position on this issue for Commissioner input prior to the meeting on March 13th.

Financial Performance Reviewed. General Manager Pandy presented an overview of the BWL’s financial performance for fiscal year to date.

Mr. Pandy noted that based on unit sales and expenses remaining the same as last year for the remainder of this fiscal year, the BWL could achieve a Return on Assets of 4.0% and an Operating Ratio of 93.6%. The forecast assumes $2.9 million of additional revenue due to rate increases implemented January 1, 2001. The decline in expenses is also credited to the BWL’s conversion from Eastern to Western coal, which has resulted in lower fuel costs. Dick Peffley, Director of Production, was present and briefed the Board on process changes implemented in Production aimed at higher efficiency and better service to our customers.

Update on Gas Aggregation Program. General Manager Pandy handed out a 21-month recap of the BWL Gas Aggregation Program (April, 1999 – December, 2000). He reported that the BWL has not been successful in locating new gas supplies at a competitive price; consequently, the natural gas program will conclude on March 31, 2001. Total net revenue from the program through December, 2000, was $203,818.11, with a cumulative income of $81,444.04. Savings to gas customers totaled $468,970.52. Customers are being advised by personal letter and through the Connections Newsletter in March of the BWL’s decision not to offer the natural gas program.

Update on Share the Success Program. General Manager Pandy reported that the BWL’s Share the Success Program (STS) corporate score for the 2000-2001 fiscal year continued to make progress in January. Through the first seven months of the fiscal year, employees have accumulated 128 out of a possible 250 points. There is ample opportunity to add points before the June 30 year-end. A handout was provided summarizing the status of the STS program and the major processes through January.

Update on Proposed Gas Pipeline Route. General Manager Pandy reported that Wolverine Pipe Line Company has proposed an alternate route for an underground gasoline pipeline that would run parallel along Interstate 96 through south Lansing and neighboring communities. The pipeline would run along the power line right-of-way between Interstate 96 and Jolly Road and come within 200 feet off the BWL’s Wise Road Water Plant. Wolverine’s proposed pipeline plan would eliminate the need to build a controversial section through Meridian Township. The BWL is joining City of Lansing officials in expressing concerns that the route is too close to the water plant and a major retail complex.

Possible Road Salt Substitute. General Manager Pandy reported that State Senator Van Regenmorter is introducing legislation to investigate the use of an alternative salt substitute for use in de-icing Michigan roads. The legislation focuses on taking a long-range look at salt substitute options because of the damage road salt causes to automobiles and bridges in the State of Michigan. The State of Michigan is experimenting with calcium magnesium acetate on the Zilwaukee Bridge due to its environmental sensitivity. Mr. Pandy reported that the BWL might have an opportunity to produce a salt substitute known as calcium magnesium acetate. He described an experiment that was conducted by Water Production staff, which caused a simple acid base reaction of the sludge produced in the softening process with an acetic acid (vinegar) to form calcium magnesium acetate. This product has been produced in a limited quantity and worked well in melting ice. The product can be used in liquid form or dried into a solid form. Further analysis is being conducted to determine the product’s feasibility as a salt substitute. If successful, this product would offer the BWL the prospect to dispose of sludge through marketing opportunities. Currently the softening process produces approximately 30,000-32,000 tons of sludge per year. The sale price per ton of calcium magnesium acetate is approximately $600 per ton.

Supreme Court Upholds Clean-Air Standard Method. General Manager Pandy reported on late breaking news that the Supreme Court upheld the way the federal government sets clean-air standards, rejecting industry arguments that officials must balance compliance costs against the health benefits of cleaner air. The court ruled unlawful the EPA’s policy for implementing new ozone rules, saying the agency’s interpretation of a section of the Clean Air Act was unreasonable. Mr. Pandy noted that nitrous oxide (Nox) contributes to the production of ozone; consequently, there may be some effect on the Nox regulations. Michigan, Ohio and Indiana were the three intervening states on the side of industry in this case. More particular information will be provided to the Board once staff completes its review of this important ruling.

Commissioner Callen asked about the status of General Motors’ (GM) new Mid-Michigan Plant in Delta Township.

General Manager Pandy reported that staff is meeting with GM officials on March 1st to further explore the nature and extent of the delay. Assistant General Manager Cook added that staff met with GM on February 27th to discuss the delay and financial impact to the BWL. To date, the BWL has invested approximately $3.5 million in GM’s Mid-Michigan Plant in Delta Township.