MINUTES OF THE BOARD OF COMMISSIONERS' SPECIAL MEETING

LANSING BOARD OF WATER AND LIGHT

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Tuesday, October 8, 2001
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The Board of Commissioners met in Special Session in the Boardroom of the Administrative Offices, 1232 Haco Drive, Lansing, Michigan.

Present:

Commissioners Ronald C. Callen, Ernest J. Christian, Charles M. Creamer, Nancy W. Duncan, Diane R. Royal and Nancy A. Wonch.

Absent:

Commissioner Tim Haggart (out of town).

The Secretary declared a quorum present.

Chairperson Callen called the meeting to order at 5:30 p.m.  He announced that the purpose of the special meeting was to receive an overview of the planned project approach for the performance audit of the Board of Water and Light’s growth and expansion program and performance measurement methods from R. W. Beck.  The Board authorized the independent review on June 26, 2001. 

General Manager Pandy introduced the R. W. Beck team comprised of Lynn Coles - Project Manager; Daryl Pullin - Benchmarking and Management; Terry Myers – Rates and Accounting; and Ron Bond (not present) – Water Focus.  Mr. Pandy reported that in November 2000, he appointed Assistant General Manager Cook to review BWL activities related to utility growth and expansion.  His task was to develop and oversee the implementation of an action plan to address issues and concerns outlined in the following two reports:  (1) Review of Major Water System Extensions, dated October 30, 2000, prepared by Director of Metrics and Audits Kellie Willson and (2) System Growth and Expansion, dated November 2, 2000, prepared by Assistant General Manager William Cook.  Mr. Pandy called on Mr. Cook to brief the Board on staff activities over the past nine months related to utility growth and expansion processes and efforts in identifying systemic problems. 

Assistant General Manager Cook reviewed corrective actions discussed with the Finance Committee in February 2001 to address key issues identified in his report to the General Manager, dated January 17, 2001 regarding utility growth and expansion.  Since that time the following improvements have been made:  (1) implementation of new fees and charges for electric, water and steam utilities, (2) revision of the Utility Rules and Regulations, and (3) development of a capital projects justification follow-up process.

R. W. Beck representative Lynn Coles provided an overview of R. W. Beck’s background and reviewed the performance audit assignment.


 

Project Approach

The Scope Phases Include:

Phase 1

Growth & Expansion Program Audit- Water Utility

  • Review documentation, procedures and protocol

  • Review Internal Audit of program

  • Evaluate adequacy of correction action for deficiencies

  • Review existing wholesale and retail water supply contracts

  • Review adequacy of BWL’s administrative and program policies

Phase 2

Performance Measurements Methods Review

  • Conduct interviews with accounting staff to review cost tracking methods

  • Primary focus is water, secondary focus is electric and steam

  • Identify if cross-subsidization occurs

  • Compare BWL methods with industry practices

Phase 3

Customer Profitability Profile

  • Review customer profitability by geographic area for water and electric

  • Segregate customer classes by area

  • Compare existing BWL cost recovery and profitability to industry practices

  • Benchmark with other utilities

Phase 4

General Capital Review – Not being done because Phases 1 and 2
are similar and should adequately address concerns.

Phase 5

BWL Rate and Fee Process Review

  • Beck will conduct a review of BWL rate and fees and the process of identifying rate changes and practices

  • Analyze current rates to look for cross-subsidization between utilities

  •  Determine if ancillary services are provided but not charged

  • Ensure objective of adequate rate recovery, return on investment and profitability

Expected Schedule

What Has Been Learned to Date

Focused on water system needs.  Issues examined included:

Corrective Actions

In response to Commissioner Creamer’s question, Assistant General Manager Cook clarified that the purpose for the independent review is to focus on the BWL’s policies and procedures with respect to growth and development.  The goal is to determine if the right processes are in place in the BWL’s capital project program and if the right information is available to move forward with the growth and expansion program.  General Manager Pandy noted that while the BWL is examining water systems that were installed--some with lower returns than forecasted-- there are also water system expansion projects that have not been awarded to the BWL due to the competitive environment.  Mr. Pandy emphasized that the BWL wants to improve its processes to ensure the right criteria are in place for a return on investment and to protect the Lansing customers.

Commissioner Royal stated that she would hope the results of the report will be forthright to assure important issues related to growth and expansion are identified and addressed.  She urged the consultants to use a glossary to define “terms of art” for ease in translating technical terms.  Commissioner Callen suggested that in addition to the detailed report, an executive summary that provides more depth than what is normally written would be helpful.

The Commissioners were advised that a Confidentiality Agreement between R. W. Beck and the Board of Water and Light has been executed to assure non-disclosure of competitive issues.  Following discussion, the Commissioners requested that a verbal presentation be made to the Board at the draft level for feedback.  Mr. Coles agreed to report back to the Board soon after the draft report(s) are completed, anticipated by the end of December.

ADJOURNMENT

On motion by Commissioner Christian, seconded by Commissioner Royal, the meeting adjourned at 6:30 p.m.

/s/ Mary E. Sova, Secretary


Filed:          October 15, 2001

 

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Steve Dougan, City Clerk