MINUTES OF THE BOARD OF COMMISSIONERS' MEETING

LANSING BOARD OF WATER AND LIGHT

___________________________
Tuesday, January 22, 2002
___________________________

The Board of Commissioners met in regular session at 5:30 p.m. in the Boardroom of the Administrative Offices, 1232 Haco Drive, Lansing, Michigan.  Chairman Ronald Callen called the meeting to order.

The Secretary declared a quorum present.

All said the Pledge of Allegiance.

APPROVAL OF MINUTES

Motion made by Commissioner Royal, seconded by Commissioner Haggart, to approve the minutes of special session held November 27, 2001.

Carried unanimously.

PUBLIC COMMENTS

THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE WELCOME TO SPEAK TO THE BOARD ON ANY AGENDA SUBJECT OR ON ANY OTHER SUBJECT NOW, OR AT THE END OF THE MEETING.

BWL Employee Richard Taylor of System Integrity & Customer Projects stated that he has been charged under Rule 30 of the BWL’s Rules of Conduct.  He requested a hearing with the Board rather than going through internal BWL procedures because it is his opinion he did not receive a fair hearing with management.  He reported that he made a request to have his appeal added to the Board meeting agenda, but it was denied.  Mr. Taylor said that he prepared a summary of events that have taken place since 1996 and sent them to Commissioners Royal, Christian and Haggart for review.  Mr. Taylor stated that he would appreciate receiving a response from the Commissioners in the near future with respect to his request to appeal his discipline before the Board.

Customer Attitude Survey Presentation.  Andrew Morrison, President of Market Strategies, Inc. (MSI), presented the results of the Fall Customer Attitude Survey.  He reported that the BWL has been conducting a semi-annual residential customer satisfaction and performance survey for several years.  This survey assesses the relationship between the BWL and its residential customers, and the BWL market position in the changing energy utility marketplace.  The methodology and summary of key findings were reviewed.  Mr. Morrison noted that survey results were very positive in which the BWL recorded higher than average scores on all questions included in MSI’s benchmarking database.  He reviewed the perspectives on the energy utility industry in 2001 and BWL events and activities over the past year.  In summary, the findings indicate the following:

• The BWL continues to have a strong overall relationship with its customers.

• Overall favorability has increased to 84% and overall electric and water satisfaction remain stable at high positive levels.

• Perceptions of the value of electricity have generally remained stable, but perceptions of the value of water have significantly improved since May 2001.

• Perceptions of the BWL’s ability to restore power after an outage have improved significantly, from 78% in May 2001 to 90%.

• The largest decline among the items measured was “educating children about electric safety.”   This may correspond to a decrease in advertising of Louie the Lightning Bug in the school safety program.

• Readership of the Connections newsletter also significantly declined from 66% to 60% between May 2001 and November 2001.

• Connections readers and those aware of the BWL’s involvement in three community projects tend to give significantly higher scores on brand attributes than non-newsletter readers or customers unaware of the utility’s involvement in the community projects.

General Manager Pandy congratulated all the employees who achieved these positive results.  He noted that the level of service provided by front-line employees makes a significant impact on customer satisfaction scores.  There are over sixty large utilities represented in the Market Strategies benchmark comparisons.  BWL employees can be proud of BWL’s ranking among the sixty utilities, with four first-place scores, five second-place scores, and one third-place score in thirteen benchmark comparisons.

COMMUNICATIONS

There were no communications.

COMMITTEE OF THE WHOLE REPORT

The Committee of the Whole met on January 8, 2002 to receive the R. W. Beck draft report results on the performance audit of the Board of Water and Light’s (BWL) Growth and Expansion Processes and Associated Performance Measurement.

Chair Pro Tem Creamer called the meeting to order at 5:30 p.m.  Present were Commissioners Callen, Creamer, Christian, Duncan, Marin, Royal and Wonch.  Absent was Commissioner Haggart.

In June 2001, the Board authorized hiring R. W. Beck to perform an objective and systematic examination of the BWL’s growth and expansion processes and associated performance measurement methods.  The Board met with R. W. Beck in Special Session on October 8, 2001 to kick off the project and clarify assignment expectations.  The consultants agreed to present a draft report for review with the Commissioners in January 2002 for feedback in a working session.

The Commissioners received a copy of R. W. Beck’s comprehensive draft report, dated December 2001, titled “Performance Audit of the Board of Water and Light Growth and Expansion Processes, Capital Improvement Program and Associated Performance Measurement,” for review prior to the meeting.   Lynn Coles and Terry Myers of R. W. Beck were present to review the project scope and approach and their findings and recommendations.  The study covered the following phases:

Following the briefing and discussion, the Commissioners requested that the draft report be submitted in final form to the Committee of the Whole at their next meeting for referral to the Finance Committee.  Management is being requested to respond to the report at a future Finance Committee meeting.

There being no further business, the meeting of the Committee of the Whole adjourned at 8:15 p.m.

Respectfully submitted,
/s/ Charles Creamer, Chair Pro Tem
Committee of the Whole

Moved by Commissioner Creamer, seconded by Commissioner Duncan, that the Report of the Committee of the Whole be approved as presented.

Action:  Carried unanimously.

HUMAN RESOURCES Committee Report

The Human Resources Committee met on December 17, 2001 and January 14, 2002 to discuss the fiscal year 2002 goals and performance objectives for the General Manager.

Committee members Royal, Callen, Haggart, and Marin attended both meetings.  Commissioners Creamer and Wonch attended the December 17^th meeting.

The Human Resources Committee developed a working draft of evaluation targets for use in reviewing the performance of the General Manager and assessing the results at the end of the fiscal year.  The Committee discussed the process and sources of information to be used in assessing the General Manager’s performance.  A first draft of a performance planning and appraisal form was reviewed and was the basis in developing and defining objectives for a second draft of the Performance Planning and Appraisal for the General Manager – Fiscal Year 2001-02.  The proposed goals and performance objectives include key financial and non-financial targets.

The Committee met with the General Manager on January 14, 2002 for feedback and input on the proposed FY 2002 goals and objectives as filed with Human Resources.  The Committee suggests that the Commissioners’ rating should be balanced by other key information such as ratings from customers and employee satisfaction surveys.  The survey questionnaire should combine open-ended questions with those that use a rating scale.  Open-ended questions allow people the flexibility to consider factors that fixed scales and targets may overlook.

RESOLVED BY THE HUMAN RESOURCES COMMITTEE:

1.   That the goals and objectives appended with the official minutes titled:  “Performance Planning and Appraisal for the General Manager – Fiscal Year 2001-02” be approved.

2.   That an outside consultant be retained to review the fiscal year 2002 performance goals and objectives for the General Manager, to ensure they are realistic and challenging, and that they are being carried out.

3.   That feedback sources for the performance evaluation for the end of the fiscal year come from managers, directors, customers, employee survey results and the management consultant.

Respectfully submitted,
/s/ Diane R. Royal, Chair
Human Resources Committee

Moved by Commissioner Royal, seconded by Commissioner Marin, that the Report of the Human Resources Committee be received as presented.

Action:  Carried unanimously.

Discussion:  Commissioner Creamer stated that he does not object approving the FY 2002 Performance Planning and Appraisal form for the General Manager, but he suggested a couple of  friendly amendments to the resolution of the Human Resources Committee.  He proposed inserting “pending review by the outside consultant” at the end of item number 1 to make sure the goals and objectives are fair.  He also proposed inserting the words “assisting the Board in determining” near the end of item number 2 to clarify that the outside consultant is to assist the Board in making that ultimate determination as to whether or not the goals and objectives are being carried out.

Moved by Commissioner Creamer, Seconded by Commissioner Haggart to approve the following resolution of the Human Resources Committee, as amended:

RESOLVED BY THE HUMAN RESOURCES COMMITTEE:

(amended language in capital letters)

1.   That the goals and objectives appended with the official minutes titled:  “Performance Planning and Appraisal for the General Manager – Fiscal Year 2001-02” be approved, PENDING REVIEW BY THE OUTSIDE CONSULTANT.

2.   That an outside consultant be retained to review the fiscal year 2002 performance goals and objectives for the General Manager, to ensure they are realistic and challenging, and TO ASSIST THE BOARD IN DETERMINING that they are being carried out.

3.   That feedback sources for the performance evaluation for the end of fiscal year 2002 come from managers, directors, customers, employee survey results and the management consultant.

Action:  Carried unanimously.

FINANCE COMMITTEE REPORT

(Detailed Reports are Filed in the Corporate Secretary’s Office)

Finance Committee Chair Nancy Duncan called the Finance Committee meeting to order at 5:30 p.m.  Present were Commissioners Callen, Creamer, Christian, Duncan, and Wonch.

The Finance Committee met on January 17, 2002 to receive staff presentations on the following topics:

Fiscal Year 2002 Budget.  Chief Financial Officer Dana Tousley presented an update of the FY 2002 O&M Budget for the period ending December 31, 2001.  Known or expected changes to revenue and expenses due to varied circumstances were reviewed in detail since the last briefing to the Board in November 2001.  After extensive review by staff and additional budget reductions, including revised fuel and purchased power estimates, no budget increases are necessary at this time.  Anticipated FY 2002 O&M expenses are $198.8 million (98% of budget) versus the original budget of $202.1 million adopted by the Board in May 2001.  Operating revenue is not matching the forecasted amount of $216.7 million due to weather and customer delayed use in startups such as (1) delay in the State of Michigan startup of chilled water services, (2) decrease in steam sales due to warm weather, chilled water and the Lansing Grand River Assembly plant and (3) an estimated decrease in electric sales due to lower wholesale sales from the Erickson Station.  The expected FY 2002 revenue is $208.2 million, which represents a decline of $8.5 million.  The FY 2002 estimated net income is $9.4 million versus the original budget of $14.7 million.  Mr. Tousley noted that budget adjustments would have implications to the Share the Success program as corporate measures are tied to net income.  A portion of the process measures is funded by net income as well.  The STS management committee will be reviewing these implications, and a report will be made to the Board in a couple of months.  Staff will continue to monitor the budget situation closely and keep the Board updated at future meetings.

Fiscal Year 2002 Capital Budget Revisions.  Assistant General Manager William (Bill) Cook reported that in November 2001 the Board approved increasing the FY 2002 Capital Budget for the Erickson Cooling Tower Replacement, Erickson Cold Reheat Line, and Erickson Turbine Overhaul projects.  The total impact of these budget additions was to increase the FY 2002 Capital Budget from $38,022,000 to $40,200,000 and $44,700,000, with and without anticipated insurance recovery, respectively.  At that time staff told the Board a thorough review of capital budgets and subsequent budget adjustments would be recommended.  Mr. Cook reviewed proposed FY 2002 capital budget adjustments in detail and also summarized FY 2003 – FY 2007 anticipated capital forecast modifications without Nitrogen Oxides (NOx) or Erickson Western Fuel conversion expenses.  Mr. Cook stated that reliability, safety or customer service targets are not being compromised over the next seven years as a result of the revised budget forecast.

Following lengthy discussion, the Committee authorized the General Manager to bring forth a resolution to the Board in the form presented (attached) with proposed FY 2002 capital budget modifications and a new FY 2002 capital total of $41,105,000 (excluding insurance reimbursement).  This amount includes $1,090,000 for NOx and Erickson fuel conversion.  It was noted that insurance reimbursements are expected to offset capital budget by $4,500,000 (see General Manager’s Recommendations).

Year 2004 Nitrogen Oxides (NOx) Compliance Strategy.  Manager of Bulk Power & Resource Planning Brent Henry gave a detailed presentation on the BWL’s NOx reduction strategy.  In 1990, significant amendments to the Clean Air Act (CAA) were passed.  Title IV of the amendments required the U. S. Environmental Protection Agency (EPA) to establish NOx emission limits for electric generating utility boilers.  The BWL is required by the EPA and the State of Michigan to reduce annual “Ozone Season” NOx emissions beginning in 2004.  The Ozone Season runs from May 1 to September 30 each year.  (Detailed background of regulatory requirements and staff’s analyses and alternatives in support of the strategy recommended are included with the meeting packet materials.)  During the 2001 Ozone Season, the BWL generated 2,479 tons of NOx.  The new limit for the BWL is anticipated to be 946 tons, which represents a reduction of approximately 62%.  BWL options for future generation are:  (1) continue production allowing for wholesale sales at current levels, (2) limit production to provide for wholesale sales to only meet Michigan Public Power Agency member loads, or (3) limit production to meet BWL native load only.  Different technologies evaluated by staff, their ranges of efficiencies and associated capital and O&M costs were reviewed.  The estimated cost to implement the proposed strategy was outlined as follows:

Following a lengthy question and answer period, the Committee authorized the General Manager to bring forth a resolution to the Board in the form presented (attached) on the proposed NOx compliance strategy (see General Manager’s Recommendations).

Notice of Intent to Issue Bonds.  General Manager Pandy reported that approval to begin the bonding process for the anticipated $24.5 million of NOx-related expenditures for FY 2003 and FY 2004 to implement proposed modifications would be needed.  A draft “Resolution Declaring Official Intent to Reimburse Project Expenditures with Bond Proceeds and Authorizing Publication of Notice of Intent to Issue Bonds” up to $30 million was handed out for review.  Additional borrowing may be an alternative to address the Water Utility cash flow deficiency.  This will be evaluated during the Water Utility Strategic Plan review process.  Chief Financial Officer Tousley reported that the financing strategy at this point is to have all capital projects paid for by internal funds with the exception of the NOx project.

Following discussion, the Committee authorized the General Manager to bring forth a resolution to the Board in the form presented (attached), which authorizes the publication of a Notice of Intent to issue bonds (see General Manager’s Recommendations).

FY 2002 – FY 2007 Cash Flow Forecast.  Assistant General Manager Cook provided a snapshot of the six-year cash flow forecast for each of the three BWL utilities, based on the current sales forecasts except for FY 2002 in the Steam Utility.  The forecasts reflect recent changes in fuel and chemical purchase agreements, a new ten-year agreement for payment to the City of Lansing, large changes in fuel and purchase power as a result of Erickson Station being off line, and only approved rate increases.  Some Electric Utility scenario observations were reviewed, based on Electric Strategic Plan recommendations to be presented to the Board in late January for consideration.  An update was presented on the Water and Steam Utilities.  Capital spending in the Water Utility over the next six-year period is anticipated to average $5.7 million per year, resulting in a total cash deficit of $15.4 million for that period.  Major known deviations in FY 2002 steam sales indicate the FY 2002 sales values must be adjusted.  The Water and Steam Strategic Plans are targeted for completion by the end of February for Board review and consideration.

Public Comment - Electrical Theft at the BWL.  Jim Dravenstatt of BWL Customer Field Services reported on the history of deliberate electrical thefts at the BWL from 1995 – 2001.  Reported energy thefts have been on the rise and are becoming a safety issue.  In year 2001, there were 157 reported thefts in the City of Lansing as compared to 178 in 2000.

A tampering fee of $100 charged to customer has not alleviated the problem according to Mr. Dravenstatt, since there are many repeated offenders.  Mr. Dravenstatt suggested a proactive approach to the crime.  He urged the Board to consider prosecution to address serious harm and injury to BWL employees and customers.

This matter will be reviewed by management for a report to the Board at the next meeting.  The report is to include loss rates in comparable locations.  The BWL’s Connections newsletter would be an excellent tool to inform customers on the dangers of energy theft.

Eastwood Towne Center Development.  Assistant General Manager Cook reported that negotiations for the BWL to provide electric supply and delivery service to the Eastwood Towne Center has been in process for over one year.  Mr. Cook reported that since that time frame, the BWL has significantly changed how projects are evaluated, the Rules and Regulations on growth and expansion projects have been modified, and the economic analysis is more extensive than provided to the Board on previous projects.  The proposal being reviewed reflects staff’s objective to meet the original intent of negotiations in good faith with the developer while at the same time meeting the BWL’s economic criteria in growth and expansion.  Follow-up analysis is to be completed annually from the actual operating data.

Mark Taylor, Manager of Strategic Account and Product Development, reviewed the Eastwood Towne Center project located on Lake Lansing Road and U.S. 127.  He discussed the conceptual alternatives:

• Project evaluation economic proforma, developed to analyze projects that build out over a number of years

• Base Case Cost, Revenue and Schedule

• Present Worth Analysis (Net Present Value of Ten-Year Cash Flows)

• Sensitivity Analysis

• Easement Costs as capitalized, unless specifically stated otherwise

• Risk Analysis/Mitigation

A list of signed tenants for the Eastwood Towne Center project was presented.

Proposed Electric Service Agreement provisions developed during the negotiation process with Michael Eyde were reviewed in detail.  To facilitate completion of an Electric Service Agreement between Eastwood L.L.C. and Michael Eyde as an individual and the BWL, proposed resolutions were reviewed for Board consideration.

Following a lengthy question and answer period, the Committee authorized the General Manager to bring forth proposed resolutions to the Board in the form presented—attached—on:  (1) acquisition of easements for electric distribution facilities, (2) an infrastructure recovery charge, and (3) waiver of electric infrastructure installation fees (see General Manager’s Recommendations).

Financial Reporting to the Commissioners.  Director of Metrics & Audits Kellie Willson presented design ideas for improving financial reporting to the Commissioners.  An outline was presented that combines some of the reports the Board currently receives as well as new ones that would have to be created.  Some preliminary examples were displayed of possible new report formats that compare annual and monthly data including the following:

• High-level data summaries

• Highlight key indicators and significant changes

• Provide clearly written, meaningful explanations of what the numbers, indicators and changes mean

• Include projections of future results along with historical data

• Show the results in graphs to the extent possible.

Suggestions for improvements were offered by the Committee.  After Ms. Willson shared the suggested drafts with the Committee, the Committee asked Financial Services to begin preparing those reports within thirty days.  Ms. Willson will come back to the Finance Committee with other suggestions for additional reports.

Internal Auditor’s Quarterly Report.  Director of Metrics & Audits Kellie Willson presented her written report providing the current status of the following issues:  (The complete report is included with the Finance Committee meeting materials.)

1.  Review of Major Water Extensions

2.  Transfers of Funds Between Utilities

3.  VEBA Trust for Funding Retiree Health Care Benefits

4.  The City Ethics Ordinance Compliance

5.  Financial and Management Information Issues

Committee Chair Nancy Duncan asked General Manager Pandy to present a report on a comprehensive long-term plan for the BWL’s accounting system to the Finance Committee at a future meeting for discussion.

Real Property Matters.  General Manager Pandy reviewed details pertaining to two property matters.  He reported that staff proposes to convey the Dimondale Dam property, consisting of six parcels, to the Village of Dimondale.  Their plan is to rubble the dams to create a natural rapids area and the construction of public recreational facilities on the adjacent property.  The elimination of future BWL financial obligations and liability risks and the public benefits offered by the Village of Dimondale’s recreational development plans support this property transfer.  This property is no longer needed for BWL operations.  This sale is subject to the approval of the Lansing City Council and any other limitations contained in the Lansing City Charter or Codified Ordinances of the City of Lansing.

The Committee authorized the General Manager to bring forth a proposed resolution to the Board in the form presented (attached) on conveying six parcels to the Village of Dimondale for the sum of $1.00, subject to appropriate City of Lansing approvals (see General Manager’s Recommendations).

Mr. Pandy discussed a second pending project that is still in negotiation.

Future Agenda Items.  Committee Chair Nancy Duncan requested that R. W. Beck’s final report on their performance audit of BWL’s growth and expansion processes be referred to the Finance Committee for follow up.  Management is requested to submit its responses to Beck’s recommendations.  Once management’s responses are reviewed and agreement is reached on pending matters, the committee plans to utilize the Director of Metrics & Audits Kellie Willson to assist the Commissioners to follow up and periodically revisit the R. W. Beck Report.

Commissioner Callen requested that the Corporate Secretary send out a draft Board Meeting Agenda to all the Commissioners.  All Commissioners are free to suggest items for inclusion on the agenda prior to publishing the final copy.

Board Retreat:  Commissioner Callen reported on plans for the Board Retreat scheduled for March 15-16.  The Commissioners will be asked for their input as the retreat agenda is finalized.

There being no further business, the meeting adjourned at 8:45 p.m.

Respectfully submitted,
Nancy W. Duncan, Chair
Finance Committee

Moved by Commissioner Duncan, seconded by Commissioner Creamer, that the Report of the Finance Committee be approved as presented.

Action:  Carried unanimously.

GENERAL MANAGER’S RECOMMENDATIONS

Background materials on items presented are on file in the Office of the Corporate Secretary.

Resolution # 2002-1-4

RESOLVED, that the Board of Water and Light (BWL) enter into a Rail Transportation Agreement (Agreement) with the Canadian National Railroad (CNRR) for the transport of Powder River Basin (PRB) and Colorado, Uinta Basin coal from Union Pacific Railroads interchange at Proviso, Illinois, to BWL Plants in Lansing, MI.  The Agreement particulars are as follows:

Staff Comments:  A two-year term was selected to coincide with the best rates received for the lease of private railcars.

Moved by Commissioner Creamer, seconded by Commissioner Royal, that the resolution be approved.

Action:  Carried unanimously.

RESOLVED, that the following six (6) parcels, including without limitation all associated dams and structures, located in the Village of Dimondale, are no longer needed for the operation of the Board of Water and Light.

RESOLVED FURTHER, that the General Manager and Corporate Secretary are authorized to sign all documents necessary to convey these parcels to the Village of Dimondale for the sum of $1.00.  This sale is subject to the approval of Lansing City Council and any other limitations contained in the Lansing City Charter or Codified Ordinances of the City of Lansing.

A drawing and description of the six (6) parcels is shown in the attached Exhibit “A” sheets 1 through 4.

Staff Comments:  The BWL has never utilized this property for utility purposes and the dams pose a liability risk to the BWL and safety hazard to the public.  The dams have been deteriorating for several years and are in need of extensive repairs.  Estimates for removal of the dams as recommended by the Department of Natural Resources are projected to exceed the appraised $357,400 value of the property.  Portions of the property have limited marketability other than to adjacent property owners and a significant portion of the property is located in the 100-year flood plain.  The Village of Dimondale has developed a recreation plan, which they hope to implement with the support of state grants.  Their plan includes rubbling the dams to create a natural rapids area and the construction of public recreational facilities on the adjacent property.  The elimination of future BWL financial obligations and liability risks and the public benefit offered by the Village’s recreational development plans support this property transfer.

Moved by Commissioner Royal, seconded by Commissioner Duncan, that the resolution be approved.

Action:  Carried unanimously.

WHEREAS, the Board of Water and Light (BWL) and Eastwood L.L.C. and Michael G. Eyde (Eyde), as an individual, desire to enter into an Electric Service Agreement for a term of 15 years covering the furnishing of electric supply and delivery service to a commercial development known as Eastwood Towne Center located on 192 acres on the northwest corner of Lake Lansing Road and U.S. 127; and

WHEREAS, the BWL desires to purchase easements from Eyde to construct, install and maintain its electric distribution infrastructure and such easements are in excess of $15,000.

RESOLVED, that the General Manager and Corporate Secretary or their designee are authorized to purchase such easements from Eyde as are necessary to construct, install and maintain its electric distribution infrastructure for service to Eastwood Towne Center, at a price of $1.18 per sq. ft., not to exceed $392,000.

(See approval resolution below after #2002-1-9)

WHEREAS, the Board of Water and Light (BWL) and Eastwood L.L.C. and Michael G. Eyde (Eyde), as an individual, desire to enter into an Electric Service Agreement for a term of 15 years governing the furnishing of electric supply and delivery service to the commercial development known as Eastwood Towne Center located on 192 acres on the northwest corner of Lake Lansing Road and U.S. 127; and

WHEREAS, Eastwood Town Center is located in an area capable of being served by another electric utility and is expected to generate $1,735,812 of retail revenue based on current published BWL electric rates; and

WHEREAS, Eyde has requested the BWL to waive its normal and customary electric infrastructure installation fees associated with trench footage, and its transformer KVA charges, both as set forth in the current Rules and Regulations for Electric Service.

RESOLVED, that the General Manager is authorized to waive the BWL’s normal and customary trench footage and transformer KVA charges associated with the Eastwood Towne Center in the event that Eyde fulfills the contractual obligations of the Electric Service Agreement.

Moved by Commissioner Creamer, seconded by Commissioner Duncan, that the resolutions on Acquisition of Easements for Electric Distribution Facilities (#2002-1-7), Infrastructure Recovery Charge (#2002-1-8), and Waiver of Electric Infrastructure Installation Fees (#2002-1-9) be approved.

Action:  Carried unanimously.

RESOLVED, that the Board of Water and Light is required by the U.S. EPA and the State of Michigan to reduce annual “Ozone Season” Nitrogen Oxide (NOx) emissions beginning in 2004.  The Ozone Season runs from May 1 to September 30 each year.  During the 2001 Ozone Season we generated 2,479 tons of NOx.  The new limit for the BWL will be approximately 946 tons, which represents a reduction of approximately 62%.  To comply with the new requirements, the following strategy will be adopted:

1.         Optimize operation of existing “low NOx” burner systems to achieve a reduction of approximately 307 tons.

2.         On specific units, install new technology low NOx burners and “over-fire air” systems to reduce NOx emissions by an additional approximately 672 tons.

3.         Convert Erickson Station to burn Western Powder River Basin coal, which will naturally result in lower NOx than the current fuel.  This will reduce NOx emissions by approximately 281 tons while reducing fuel expenses at the plant by about 25%.

4.         Purchase enough NOx credits each year (approximately 273 tons) to offset the difference between our actual production using the above strategies and the NOx allowance limit.

5.         Continue to investigate new NOx control technologies as they emerge.

Staff Comments:  The total capital required for the proposed strategy is $24,450,000.  The net present value (NPV) of 15-year cash flows, including both capital and O&M expenditures, results in approximately a positive $9 million.  The positive NPV is due to the lower costs of PRB coal.  It will be necessary to issue revenue bonds to finance the capital expenditures.

Moved by Commissioner Duncan, seconded by Commissioner Creamer, that the resolution be approved.

Action:  Carried unanimously.

Resolution # 2002-1-11

WHEREAS, the Board of Water and Light (the ”Issuer”) proposes to issue its tax-exempt bonds (the “Bonds”) to finance the cost of improving the water, steam and electric utilities system of the City of Lansing as hereinafter described (the “Project”); and

WHEREAS, it is anticipated that the issuer will advance all or a portion of the costs of the Project prior to the issuance of the Bonds, such advance to be repaid from proceeds of the Bonds upon issuance thereof; and

WHEREAS, Section 1.150-2 of the Treasury Regulations on Income Tax (the “Reimbursement Regulations”) specifies conditions under which a reimbursement allocation may be treated as an expenditure of bond proceeds, and the Issuer intends by this resolution to qualify amounts advanced by the Issuer to the Project for reimbursement from proceeds of the Bonds in accordance with the requirements of the Reimbursement Regulations; and

WHEREAS, the issuer also desires to authorize certain staff and officers to undertake the preliminary actions to secure approvals, if necessary, from the Michigan Department of Treasury (“Department”),

NOW, THEREFORE, BE IT RESOLVED BY THE ISSUER, as follows:

1.         The project shall consist of modifications to the facilities to reduce the amount of NOx emissions produced.  The planned modifications include, but are not limited to the following: (i) Replacement of, or modifications to the existing burners and the installation of over-fire (OFA) systems on each of the seven (7) electric generating units located at the Eckert and Erickson Stations.  (ii) Conversion of the Erickson station to burn Powder River Basin (PRB) coal, which will significantly reduce the amount of NOx, produced during the combustion process.  This conversion will include the installation of new equipment and modifications to the boiler, combustion and fuel handling systems and associated auxiliary systems.

2.         The maximum principal amount of obligations expected to be issued for the Project is $30,000,000.

3.         The Issuer hereby declares its official intent to issue Bonds to finance the costs of the Project, and hereby declares that it reasonably expects to reimburse the Issuer’s advances to the Project as anticipated by this resolution.

4.         The Bonds shall be authorized by proper proceedings subsequent to this resolution.

5.         Staff is authorized and directed to publish in a local newspaper of general circulation a notice of intention to issue bonds substantially in the form attached, with such changes as are approved by bond counsel, BWL counsel and staff.

6.         The Chairperson, the General Manager and the Chief Financial Officer are each severally authorized and directed to, on behalf of the issuer, (i) apply for an exception from prior approval or an order of approval, as appropriate, from the Department and pay any related fees to and make any other filings for waivers (including, but not limited to, the waiver of good faith deposit, if desired) with the Department in connection with the sale of such bonds; (ii) organize and make presentations to rating agencies, bond insurers and other financial entities, and make any other filings with the Department or any other governmental entity in the event approval is sought pursuant to Act 43, Public Acts of 2001, which becomes effective March 1, 2002.

7.         All prior resolutions and parts of resolutions insofar as they may be in conflict with this resolution are hereby rescinded.

Moved by Commissioner Duncan, seconded by Commissioner Creamer, that the resolution be approved.

Discussion:  General Manager Pandy stated that italicized language in the resolution indicates new language added by the BWL’s bond counsel after the advance copy was provided to the Commissioners with their Board meeting packet last week.  The remainder of the resolution remains unchanged.

Action:  Carried unanimously.

Resolution # 2002-1-12

The following Capital Projects for fiscal 2002 be adjusted and/or added:

Staff Comments:  This resolution is being submitted in accordance with Board Policy regarding changes to the Capital Budget.

As a result of the recent review of BWL capital projects at the Finance Committee meeting on January 17^th, staff has provided FY2002 Capital Budget modifications and a brief description of the basis for change.  The overall impact on the FY2002 Capital Budget as a result of the changes listed is an overall reduction of $3,595,000.

Moved by Commissioner Duncan, seconded by Commissioner Royal, that the resolution be approved.

Action:  Carried unanimously.

GENERAL MANAGER'S REMARKS

Resources for Language Translation:  General Manager Pandy reported that Human Resources has followed up on a suggestion made by Commissioner Marin to obtain language resources for major foreign languages to assist customer with communication needs.  Translation services for Spanish, Asian, French and Vietnamese languages have been located through Michigan State University, Lansing Community College, and the Refugee Services.

EPA Extends Nitrogen Oxides (NOx) Emission Control Deadline.  General Manager Pandy reported that the Manager of Environmental Services forwarded a document describing that the NOx compliance deadline is now officially May 31, 2004.  The EPA Administrator announced this decision in a letter to the U.S. House Energy and Commerce Committee and to members of Congress in states affected by the caps.  This is essentially a one-year extension for Midwest and Southeast electric generating units to comply with NOx emission caps.

COMMISSIONERS’ REMARKS

Customer Satisfaction Survey Follow Up.  Commissioner Creamer stated that he was very impressed with the positive Customer Attitude Survey results.  He suggested a communication piece from the Board Chair to welcome the news to the employees through a newsletter or the BWL Pipeline.  Chairman Callen agreed with the suggestion and said he would follow up with staff.  General Manager Pandy mentioned that he plans to present the survey findings to all the employees in various meetings throughout the system over the next month to communicate the favorable results and to thank the employees for their role in achieving the high scores.

Board Retreat.  Chairman Callen reported on plans for the Board Retreat to be held on Friday, March 15^th from 3 p.m. to 9 p.m. and Saturday, March 16^th from 8 a.m. to 1 p.m.  Jeff Tarbert, Senior Vice President of the American Public Power Association, is scheduled to conduct an educational session on instruction of being a Commissioner and the ramifications of that responsibility.  Commissioner Callen remarked that a couple of years ago, he enjoyed a 1-1/2- day instructional seminar for policymakers, presented by Mr. Tarbert, which was very insightful.  Commissioner Callen will be meeting with Mr. Tarbert to discuss ways to condense the instructional course to fit the schedule for the retreat on Friday, March 16^th.  On Saturday morning, the retreat will focus on issues specific to the BWL with Mr. Tarbert acting as the facilitator to permit full participation by all Commissioners.  A draft of suggested issues for the Saturday morning discussion will be compiled for Commissioner input as well as the General Manager.  Commissioner Callen noted that the BWL Strategic Plan for electric, water and steam has been suggested as a topic for the retreat, but noted that it may better to address this important subject at a future Committee of the Whole meeting to allow more time for in depth discussion.  He also noted that the Open Meetings Act requires that meetings be reasonably accessible to the public; consequently, the retreat it will be held locally.  The location is yet to be determined.

EXCUSED ABSENCE

On motion by Commissioner Royal and seconded by Commissioner Duncan, that the absences of Commissioners Christian and Wonch be excused.

Carried unanimously.

PUBLIC COMMENTS

THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE WELCOME TO SPEAK TO THE BOARD ON ANY BOARD OF WATER AND LIGHT SUBJECT.

No persons spoke.

ADJOURNMENT

There being no objection, the meeting adjourned by unanimous consent at 6:44 p.m.

/s/ Mary E. Sova, Secretary
Filed with Lansing City Clerk
January 24, 2002