MINUTES OF THE BOARD OF COMMISSIONERS' MEETING

LANSING BOARD OF WATER AND LIGHT

_________________________

Tuesday, May 27, 2003

___________________________


The Board of Commissioners met in regular session at 5:30 PM on May 27, 2003, in the Boardroom of the Administrative Offices, 1232 Haco Drive, Lansing, Michigan.

Present:

Commissioners Ronald C. Callen, Nancy W. Duncan, Tim Haggart, Ifield P. Joseph (arrived at 6:10 p.m.), Connie Marin, Diane R. Royal, Robin M. Smith, and Nancy A. Wonch (arrived at 5:40 p.m.).

Absent:

None.

The Secretary declared a quorum present.

Chair Callen called the meeting to order at 5:30 p.m.


APPROVAL OF MINUTES

Motion made by Commissioner Smith, seconded by Commissioner Marin, to approve the minutes of the regular meeting held April 8, 2003.

Carried unanimously.

Motion made by Commissioner Duncan, seconded by Commissioner Haggart, to approve the minutes of the special meeting held May 6, 2003.

Carried unanimously.


PUBLIC COMMENTS

THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE WELCOME TO SPEAK TO THE BOARD ON THE SUBJECT OF THE SPECIAL MEETING.

Allan E. Booth, Business Representative, International Union of Operating Engineers, Local Union No. 324, spoke on the Hulett Road water main project.  Mr. Booth stated that he has discussed this issue with General Manager Elashkar and has further questions on the project.  Mr. Booth noted that Kamphuis Pipeline Co. of Grand Rapids was awarded this project.  He raised the following questions:  1) Was the project bid or was it just given to this company?  2) Did the contractor meet the qualifications of BWL to be doing this work?  3) Did BWL know that the company had a history of violations through OSHA?  He also questioned the safety aspect of the project and noted that safety has to be an important qualification.  Mr. Booth also spoke on the issue of prevailing wage.  He has not been able to find out if prevailing wage is being paid on this contract to the employees.  He said the operators on the job from Kamphuis would not give him any of this information, other than they were given pick-ups to drive back-and-forth, which is not included in the prevailing wage.  The laborers on the project told him that they were making between $12.00 and $14.00, which in the Lansing area is not prevailing wage.  Mr. Booth stated that this is not a union/non-union issue.  Labor unions spend millions of dollars on the issue of prevailing wage.  He expressed concern that contractors continue to come in and do the work and pay substandard wages instead of prevailing wage.  There is concern that contractors who pay prevailing wages are not granted the opportunity to bid on jobs.  Mr. Booth stated that this practice erodes the industry, the BWL, the workers, and their reputation.

Commissioner Haggart asked whether the Hulett Road job is a customer choice project, and also if the BWL bid against this contractor.  General Manager Elashkar responded that the project is not a customer choice job and that it was bid completely by outside contractors in 2002.  This specific contractor left it open.  The proposal was open a couple months ago when the BWL acted on the award.  Commissioner Callen assured Mr. Booth that his concerns would be addressed in writing in a timely manner.

Eugene Buckley spoke on the natural gas crisis.  He stated that this is the best time of the year to replace gas supplies, but it is not being done.  He noted that currently there is a net draw on the natural gas supplies.  The price of natural gas is $6.00 per MBTU at a time when historically it never got above $3.00.  He anticipates that by this coming winter, there could be a natural gas crisis making it prohibitive for some people to heat their homes.  Mr. Buckley offered to make a presentation to staff and commissioners on natural gas.  He also reminded everyone that this is the one-year anniversary of the rail accident in Potterville.  He said that two weeks prior to that accident he made a presentation to the City Council cautioning on the potential danger of a gasoline pipeline and far worse are the train cars carrying liquid propane gas and sulfuric acid.  Mr. Buckley had a map showing Canadian National accidents in this area over the past several years.  He said hazardous materials are not limited to liquid propane and sulfuric acid.  Every fire engine has HAZMAT control, but there are no evacuation procedures in some areas in Lansing.  He stated that it would be a critical situation if Lansing were to experience an accident similar to Potterville.  Mr. Buckley named several hazardous materials, and handed out a sheet showing critical areas in Lansing.  Eckert Station and the General Motors Plant were cited as areas where catastrophic events could happen.  He also noted that if a train car broke apart near Trowbridge Road, it would only take eight minutes for a toxic cloud to reach Spartan Stadium, and liquid propane would also risk the Grand River.

Commissioner Callen asked for written material on this subject if it is available.


COMMUNICATIONS

Memo from Councilmember Larry Meyer re: Irrigation for Cherry Hill Neighborhood. 

Staff is working on a response to Councilmember Meyer.

Letter from Urban Options re: BWL goals and practices.

Received and placed on file.


FINANCE COMMITTEE

Committee Members Duncan, Callen, Joseph, Smith and Wonch were present.  Absent:  None

The Finance Committee met on April 8, 2003 at 6:20 p.m. to discuss the following items:

1.         Load Forecast and Cash Flow Projections for FY 2004/2008

2.         Wholesale Water Agreements

Load Forecast Assumptions:

Dave Bolan, Principal Engineer of Bulk Power/Resource Planning, reviewed assumptions used in the load forecast for the Electric, Water, Steam and Chilled Water utilities based on the following projections:

Electric Utility

·        Neutral weather conditions

·        Growth trends between 1995-2001

·        Current General Motors (GM) plant performance along with GM-provided modifications

·        Wholesale sales based on BWL selling all available generation

Water Utility

·        Neutral weather conditions

·        Current GM plant performance along with GM provided modifications

·        Wholesale sales based on historic usage and growth in Delta and Lansing Townships and fulfilling contract amounts for East Lansing-Meridian Water and Sewer Authority (ELMWSA)

Steam and Chilled Water Utilities

·        Neutral weather conditions

·        Growth trends between 1995-2001

·        Use current GM plant performance along with GM-provided modifications

·        Chilled Water load is considered a house service load for the steam utility

·        Chilled Water sales are based on history and engineering estimates for new facilities

·        Outside of GM and Chilled Water, no new growth in sales is anticipated

Cash Flow Projections:


The six-year cash flow projections were based on FY 2003 budget data and results based on the following utility assumptions:

Electric Utility

·        FY 2002 load forecast modified to reflect GM Plant changes

·        NOx compliance, with associated bonding and credit purchase

·        Belle River normal operation

·        Conversion to PRB Coal at Erickson beginning in FY 2004

·        No inter-utility transfers (per Board Resolution # 2003-4-1)

·        GM Delta Township Mid-Michigan Assembly Plant operation in FY 2007.

·        Belle River Bond refinancing and debt service credit

·        GM Plant #6 and #1 ceasing operation in FY 2005

·        BWL Capital Program for Electric Utility capped at $24 million beginning in FY 2004

·        Only existing or approved rate increases included

Water Utility

·        FY 2003 load forecast

·        No inter-utility transfers (per Board Resolution # 2003-4-1)

·        GM Delta Township Mid-Michigan Assembly Plant operation in FY 2007

·        GM Plant #6 and #1 ceasing operation in FY 2005

·        BWL Capital Program for Water Utility averages $ 6.27 million per year from FY 2003 through FY 2008

·        Only existing or approved rate increases included

Steam Utility and Chilled Water Utilities

·        FY 2003 load forecast

·        No inter-utility transfers (per Board Resolution #2003-4-1)

·        GM Plant #6 and #1 ceasing operation in FY 2005

·        Per BWL-GM Steam Service Agreement, includes in FY 2005, $4,270,000 for remaining principal and $4,139,000 recovery of lost return due to GM Plant #6 steam line

·        BWL Capital Program for Steam Utility averages $2,929,000 per year from FY 2003 through FY 2008

·        Only existing or approved rate increases are included

Mr. Bolan reported that during the period of FY 2004 through FY 2008, it is projected the Electric Utility will have a surplus of $22.0 million, whereas the Water, Steam and Chilled Water utilities will have a deficit of $4.9, $10.0, and $3.6 million, respectively. 

General Manager Elashkar noted that the FY 2004 budgeting process is underway.  Capital limitations for all the utilities are being set for FY 2004.  Operations and maintenance costs are being scrutinized to identify potential decreases and produce a more realistic financial plan.  The FY 2004 budget will be presented to the Finance Committee in May for review and consideration.

Wholesale Water Agreements


Assistant General Manager Bill Cook presented an overview on the history of three wholesale water agreements currently in effect.  In 1995 the BWL entered into forty-year agreements with Delta and Lansing Townships.  In 1999 the BWL entered into a ten-year wholesale water agreement with the East Lansing-Meridian Water and Sewer Authority (ELMWSA).

Mr. Cook reported that in November 2000, Director of Metrics and Audits Kellie Willson completed a review of BWL Wholesale Water Agreements.  This analysis stressed the need for an in depth review of the equity, cost recovery, and other issues associated with the agreements.  In February 2001, the Growth and Expansion Study was completed by staff and submitted to the Board.  In December 2001, R. W. Beck and Associates completed a management audit of growth and expansion practices at the BWL.  Beck recommended a cost of service study along with a comparison to the methodology used in the previous study to allow quantitative conclusions to be drawn regarding the equitability of the original wholesale rates.  In February 2003, R. W. Beck and Associates completed a Water Cost of Service Study, which concluded that in FY 2001 the Water Utility did not generate sufficient revenue to cover cash expenditures including capital expenditures above depreciation, repayment of loans from the Electric Utility and debt service principal.

In FY 2002, the production capacity contracted to Delta and Lansing Townships represented 34.4% of the BWL’s total available capacity.  Revenue received from Delta and Lansing Townships was 6.6% of total BWL revenue.

Mr. Cook presented an overview of issues, alternatives, and recommendations concerning the Wholesale Water Agreements.

Issues:

1.         Financial Impact

·        Not full cost of service based (never intended to be a fully embedded cost of service study analysis)

·        Currently covers short-term variable and some fixed costs

·        Wholesale contract limits future rate increases to expense items and percentages included in original agreement

·        As loads shift, retail to wholesale relationship will shift

2.         Valuation of Facility Charge

·        Lansing and Delta Township paid a facilities charge based on present value of the cost differential between cost of production facilities required to serve combined BWL township load and solely BWL load

·        Such a method leaves BWL at potential risk due to freezing assumptions at contract signing date for a ninety-year analysis

3.         Loss of BWL Production Capacity

·        BWL takes forecast risk

·        Reserved indefinitely until townships agree to sell back

·        Townships’ load growth not restricted in agreements

·        Township loads are growing six times faster than BWL load

4.         Term of Agreements

·        Forty years with termination only upon mutual agreement

·        Upon termination, BWL must negotiate to obtain capacity reservation back

5.         Operational Issues

·        Four hour interruptible provision of limited value cost wise to BWL

Alternatives:

1.         Maintain Status Quo – Continue to Index Wholesale Rate Increases with Retail Rate        Increases

·        In 2001 interruptible wholesale rates in place by BWL under recovered by 1.90% from what the cost of service study indicated

·        BWL has raised rates twice since January 1, 2002 and January 1, 2003

2.         Strict Adherence to Wholesale Agreements

·        Rate increases for January 1, 2002 and January 1, 2003 would require a cost of service study

·        The cost of service study for 2001 projected to 2004 indicates that wholesale rate increases based on the current arrangement will be less than the anticipated retail rate increases

3.         Work with Townships to Negotiate Agreement Changes

·        First Priority:  Clarify the intent of the capacity reservation in the contract, i.e. for load growth in the township.

·        Contract provisions to handle operating issues and contract dispute resolution

·        Long-term work to address cost issues.  This may include discussion with the townships to removing the limitation on the expense items to be included in future wholesale cost of service studies, as well as other issues related to system ownership or system operation by BWL.

Recommendations:

1.         Work with Townships to renegotiate certain provisions of the agreement

·        Capacity usage

·        Dispute resolution

·        Type of service and/or cost allocations

2.         Do not consider extending the East Lansing-Meridian Water and Sewerage Authority (ELMWSA) Wholesale Agreement under current arrangements.

The Committee concurred with the recommendations presented.  No formal action was taken.

Following discussion, it was moved by Commissioner Wonch, seconded by Commissioner Smith to meet in closed session to discuss a confidential written legal opinion with General Counsel Larry Wilhite. (7:40 p.m.)

Approved by roll call vote:

Yes:  Commissioners Callen, Duncan, Joseph, Smith, Wonch

Nays:  None

Absent:  None

The Committee reconvened in open session at 8:07 p.m.

There being no further business, the meeting adjourned at 8:07 p.m.

Respectfully submitted,
Nancy Duncan, Chair
Finance Committee

Moved by Commissioner Callen, seconded by Commissioner Wonch, to approve the Finance Committee Report.

Action:  Carried unanimously.


HUMAN RESOURCE COMMITTEE

Committee Members Royal, Callen, Haggart, and Marin were present.  Absent:  None.

The Human Resources Committee met on May 6, 2003 at 12:00 p.m. to discuss the following matters:

1.         Employee Survey

2.         Non-Bargaining Employees’ Compensation

3.         Quarterly Review of Pension and Retiree Benefit Plans

Employee Survey

Acting Human Resources Director, Mary Dwyer, reported that the results of the 2003 employee survey, conducted by Market Strategies in March, show improvements in all 23 components and in 63 of 68 specific questions over the 2002 survey results.  The following details were summarized:

Objectives of the Survey:

·        Provide basis information on employee performance, perceptions of the work environment, employee satisfaction, and employee retention;

·        Explore the link between employee satisfaction and customer satisfaction; and

·        Provide information on the key drivers of employee satisfaction and retention

Survey Methodology:

·        738 self-administered mail surveys were distributed to all BWL employees with a cover letter from General Manager John Elashkar

·        375 surveys were returned for a completion rate of 51% (sampling error of +5%)

Areas of Improvement:

·        Employees rated 63 out of 68 items higher in 2003 than in 2002

·        19 of the 68 items were significantly higher

·        49% of the item scores are at their highest level since BWL began surveying in 1999

Areas of Concern:

·        11 items scored relatively strong (71+)

·        18 items scored needs improvement (61-70)

·        23 items scored poor (51-60)

·        16 items need improvement (<50)

Key Areas Impacting Employee Satisfaction:

·        Work Environment and Support

- Feedback and Evaluation

- Autonomy

- Teamwork

·        Senior Management Performance

- Employee Information

- Senior Management Direction

- Customer Satisfaction

      - Customer Service Performance

Ms. Dwyer reported that management will continue to work on areas most likely to improve employee satisfaction.  These will include:

·        Improving the work environment, particularly by providing more and better feedback and evaluation, and encouraging job autonomy;

·        Fostering a team-oriented environment;

·        Improving communications between upper management and employees;

·        Improving the information flow about and between Processes;

·        Communicating the BWL’s strategic direction to employees; and

·        Communicating customer needs to employees.

The survey included the following open-ended questions:

1.         What qualities would you like to see in the new Director and General Manager?

Qualities

% Responses

Honesty/Integrity/Ethics

35

Leadership/Management Skills

20

Forward Thinking/Vision

18

Employee Focused

16

Fairness

14

Good Communication

13

Accessible/Approachable

12

Professional Competence

11


2.         What should be the three most important goals of the next Director and General
             Manager?

Goals

% Responses

Employee Satisfaction

35%

Customer Satisfaction

26%

Goals/Strategic Plan

20%

Qualified Managers/Directors

16%

Boost Employee & Company Morale

15%

Better Relations with Union

13%

Financial Health of BWL

12%

Accountable/Honest

11%


Non-Bargaining Employees Compensation

Human Resources Employment/Compensation Administrator, Wendy Bradley, presented the results of the market analysis of non-bargaining employees’ compensation conducted by Human Resources in conjunction with Dorey, Reagan & Associates.

Ms. Bradley reported that the BWL pay philosophy is to attract, retain, develop and reward a quality workforce and to ensure the pay plans are competitive in the market while being cost effective to the BWL.  The following activities that support the BWL pay philosophy were summarized:

Competitive Market Reviews for eight skill families (Range Adjustments):

1.                              Engineering & Scientific

2.                              Technical

3.                              Information Technology

4.                              Customer Service & Office

5.                              Human Resources & Legal

6.                              Finance & Purchasing

7.                              Marketing & Communications

8.                              Directors

- 27 Surveys used with 170 jobs matched and 1 to 6 matches for each job

- Comparisons:  Current Structure (Average Skill Family Midpoint) and
   Market Data aged to January 1, 2004 (Average Midpoint of Benchmark Job)
- Competitive Pay:  Range of values based on market averages + 10%
- Analyze Data:  Look at historical (FY 2003) and current data (FY 2004); market
   average/midpoint average.  The goal is to keep the midpoint within + 10% of
   market average.

·        Performance Based Pay emphasizes paying employees per individual, group or BWL-wide performance (Performance Level Matrix):

- Review external salary budget surveys

- State of the economy

- Financial outlook of the BWL

- Commitment to BWL employees to award 0.0% to 7.5% performance increase
   based on performance


The Human Resources Committee recommends approval of the following resolutions:

Resolution 2003-05-01
FY 2004 Skill Family Range Adjustments for Non-Bargaining Unit Employees

RESOLVED, That the following adjustments to the skill family ranges for non-bargaining unit employees be adopted for FY 2004:

Skill Family

FY 2004 Range Adjustment

Customer Services and Office

3.0%

Directors

3.0%

Engineering & Scientific

4.0%

Finance & Purchasing

2.0%

Human Resources & Legal

3.0%

Information Technology

3.0%

Marketing & Communications

5.0%

Technical

4.0%


Resolution 2003-05-02
FY 2004 Salary Increase Percentage Ranges for Non-Bargaining Unit Employees

RESOLVED, That the following performance increase matrix for non-bargaining unit employees be adopted for FY 2004:

Appraised Level of Performance

Salary Increase Percentage Range1

451 points or higher      “Outstanding”

6.0%, 6.5%, 7.0% or 7.5%

376-450                       “Exceeds Expectation”

4.0%, 4.5%, 5.0% or 5.5%

276-375                       “Meets Expectation”2

2.0%, 2.5%, 3.0% or 3.5%

226-275                       “Needs Improvement”3

0.0%, 1.0% or 1.5%

225 or less                   “Fails Expectations”

0.0%


1Salary increase percentage range within specified limits.  Managers may recommend performance increase percentages in ½ percent increments

2The “meets expectation” performance level has been expanded to include 2.0% and 2.5% as options for performance awards, along with the former 3.0% and 3.5%.

3The “needs improvement” performance level has been expanded to include 0.0%, along with the former 1.00% and 1.50%.  Two consecutive years of repeated performance of “needs improvement” will be an automatic 0.0% increase.

RESOLVED FURTHER, That the General Manager is authorized to develop all procedures to implement the skill family adjustments and performance increase matrix.

Quarterly Review of Pension and Retiree Benefit Plans

Defined Benefit and Defined Contribution Pension Plans

Chief Financial Officer, Dana Tousley, reviewed the quarterly financial reports for the Defined Benefit, Defined Contribution, and the Retiree Benefit Plans.

At the January 9, 2003 Human Resources Committee meeting, the Commissioners requested a review of internal control procedures in the management of pension fund assets with a report to the committee at the next meeting.  Mr. Tousley presented a picture/flowchart of the pension disbursement process.  A “Report on Controls Placed in Operation and Tests of Operating Effectiveness” for the pension fund custodian, Comerica Bank, was reviewed by staff and is available for Commissioner review.  Mr. Tousley stated that the only change in procedures recommended by staff is in the handling of statements relating to pension fund disbursements and assets held.  Currently, all month end statements are addressed to the Chief Financial Officer, who would then forward them to the General Accounting Department.  Since the CFO authorizes the sale or purchase of these assets, it is more appropriate that the third party proof of their existence be mailed directly to the General Accounting Department for recording, verification and filing purposes.  All third party receipts, safekeeping receipts and asset statements from this day forward will be mailed directly to General Accounting.

Due to recent developments in pension fund management in the nation, Mr. Tousley suggested that the Commissioners review each policy on Investment, Benefit, Accounting and Funding over the next several meetings of the Human Resources Committee.  The goal is to enhance Commissioner understanding of existing policies and provide a forum for discussion of possible changes in these policies.

Retiree Benefit Plans - VEBA Funding Proposal for FY 2003


Chief Financial Officer, Dana Tousley, reminded the Commissioners that over the past several years BWL has been able to transfer excess money from the Defined Benefit Pension Plan to the VEBA Trust to help fund retiree health care benefits.  However, BWL’s actuaries from Mercer Human Resources Consulting have advised staff that due to the stock market declines of the past several years, no transfer can be made for fiscal year 2003.  The actuaries valued the Defined Benefit Pension Plan assets at approximately 125% of plan liabilities.  Although the Defined Benefit Pension Plan is still significantly overfunded, the law does not allow transfer that would reduce the funding below 125%.


Mr. Tousley reported that BWL had planned to contribute about $483,000 from operating funds to the VEBA trust in fiscal year 2003.  In addition, BWL will pay an estimated $5.5 million during fiscal year 2003 for current retiree health care benefits.  Staff recommended contributing an additional $1,000,000 from the operating funds of BWL to the VEBA trust to cover the estimated normal cost of $1,483,000 for fiscal year 2003 as determined by the actuaries.  Staff further recommended that this additional expense not be counted against the new corporate Incentive Plan.

Mr. Tousley noted that the funding recommendation is consistent with the Retiree Benefits Funding Policy adopted by the Commissioners in April of 2000.  And, that due to the significance of this unanticipated expense, it should not be included in computing the fiscal year 2003 incentive plan financial results.  The Commissioners concurred with both of these recommendations.  No formal action was taken.

Resolution 2003-05-03
ReferRAL OF Pension Fund Documents to the Pension Fund Trustees

RESOLVED, That the Human Resources Committee forward to the Pension Fund Trustees the section of this committee report pertaining to pension fund matters and associated reports for review and consideration at their May 27, 2003 meeting.

There being no further business, the committee adjourned at 1:26 p.m.

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

Moved by Commissioner Royal, seconded by Commissioner Duncan, to approve the Human Resource Committee Report.

Action:  Carried unanimously.

Moved by Commissioner Royal, seconded by Commissioner Haggart, on the approval of the resolution for Fiscal Year (FY) 2004 Skill Family Range Adjustments for Non-Bargaining Unit Employees (Resolution # 2003-05-1) and FY 2004 Salary Increase Percentage Ranges for Non-Bargaining Unit Employees (Resolution # 2003-05-02).

Action:  Carried unanimously.

Moved by Commissioner Royal, seconded by Commissioner Marin, on the approval of the Resolution to Refer Pension Fund Documents to the Pension Fund Trustees (Resolution # 2003-05-03).

Action:  Carried unanimously.


FINANCE COMMITTEE

Committee Members Duncan, Callen, Joseph, Smith and Wonch were present.  Absent:  None

The Finance Committee met on May 13, 2003 at 5:30 p.m. to discuss the following matters:

1.         Purchasing Policy

2.         Fiscal Year 2004 Budget

Purchasing Policy:

General Counsel Larry Wilhite presented an overview on the proposed BWL Purchasing Policy and Procedure.

He acknowledged the following team members who worked on this project:

Steve Brennan

Production

David Cluley

Business Support – Finance

Robert Nicholson

Process Support – Engineering

Doug Wood

Delivery

Kathy Younglove

Process Support-Purchasing

Amy Cavanaugh

Drafting Sub-Committee

Beverly Bishop

Administrative Support

Larry Wilhite

Team Leader


Mr. Wilhite reported that the goals of the new Purchasing Policy and Procedure were to separate policy from procedure, genericize positions and BWL units, and add administrative controls and audit responsibilities.  He noted that upon approval of this policy, all authority will reside in the General Manager until delegated.

The current purchasing policy has been in effect since 1990.  While redrafting the policy, both the executive staff and managers were provided an opportunity for review and input.  Mr. Wilhite stated that the City Charter requires the BWL to have procedures to assure fairness in purchasing and disposition of personal property.  The Charter also requires the BWL to parallel the City’s policy unless it is found that a practice is contrary to good utility practices.  He noted that when the Board adopts a policy it must include a statement to that effect.  The overall goal is to provide purchases that produce the “best value” for our customers.  “Best value” is a defined term in the Policy and is intended to encompass a number of factors, not merely the low price.  It was determined that “best value” should include an attempt to reflect socioeconomic concerns such as the environment and historically disadvantaged businesses.

Mr. Wilhite noted that it was also determined the new policy needs to better address the issue of legal and administrative controls.  Over the years, purchasing authority had been delegated downward to the point where purchases were not being effectively controlled.  The policy, when adopted, will revoke each employee’s existing purchasing authority and plenary purchasing authority will remain in the General Manager until delegated.  General Manager Elashkar will be submitting a Purchasing Policy delegated procedure for review at the next Board meeting.  There was discussion regarding developing a procedure on diversity.

Mr. Wilhite noted that the Purchasing Policy includes three new sections:  corporate risk management, debarment, and award appeals.

Mr. Wilhite explained each section of the Purchasing Policy and Procedures and responded to questions.  Three new sections added to the Purchasing Policy include:  Corporate Risk Management, Debarment, and Award Appeals.

Following a lengthy question and answer period, Commissioner Wonch proposed a friendly amendment to the proposed Purchasing Policy:

·                    Section 13-05 (Policy):  Purchases from $5,000 to $100,000 must have a written agreement.

Carried

Commissioner Smith proposed friendly amendments to the Purchasing Procedures as follows:

·                    Local Preference - Procedure No. 7-04:  That the Local Preference procedure be
            changed from Lansing-based preference to BWL service area-based business.

·                    Ethics:  That the Board’s ethics procedure currently in existence be inserted as a
            new procedure on Ethics.

·                    Diversity:  That procedures on diversity be included within the framework of a
            document to be developed on this subject.

Carried.

The Committee recommends that the General Manager present a resolution on the BWL Purchasing Policy and Procedure, as amended, for Board approval at the regular meeting on May 27, 2003.

Fiscal Year (FY) 2004 Budget:


O&M Budget:  Chief Financial Officer Dana Tousley gave a presentation on the proposed O&M budget of $172.4 million for FY 2004, which is 0.5% higher than FY 2003.  The increase is primarily due to the increase in employee cash compensation and benefits that more than offset reductions in other expenses.  Budgeted expenses for materials/outside services and fuel are respectively $2.8 million and $0.9 million less than FY 2003.  However, expenses for employee benefits and cash compensations are $4.5 million higher than FY 2003.  Purchased power will decrease due to the Michigan Public Power Agency (MPPA) bond refunding savings.  FY 2004 expense per unit sold is 1.5% higher for electric, 12.8% higher for steam, 24.3% lower for chilled water and 4.1% higher for water.

Capital Budget:  Proposed capital expenditures during FY 2004 are $47 million versus $41 million in FY 2003.  This represents a 14.6% increase.  The increase is due to capital expenditures for bond projects, primarily the NOx compliance project.  Non-bonded capital projects decreased from $30.6 million last year to $30.1 million in FY 2004.

Assistant General Manager Bill Cook reported that the assumptions used in developing the FY 2004 Capital Budget included:

·                    Maintaining status quo reliability levels

·                    Current Rules for Utility Services are maintained

·                    Annual capital projects are based on “typical” construction activity in the Lansing area

·                    No new bonding (use of the State Revolving Fund for CSO eligible expenses is assumed)

·                    Capital spending for the steam utility has been limited to issues of immediate need pending the retirement of two General Motors plants

The capital budget includes the following capital initiatives:

Northeastern/Central BWL Electric Service Area Upgrade

$533,000

Watertown T&D Upgrades

$305,000

Outage Management System

$900,000

Fire Protection at Eckert

$1,525,000

Capitol Loop Steam Main Replacements

$400,000

Eckert Station Generator Breaker Replacement

$617,000

Western Fuel Conversion Project at Erickson, Bonded

$14,205,000

NOx Compliance Project at Eckert, Bonded

$2,200,000

CSO SRF Eligible (Water)

$748,000

CSO SRF Ineligible (Water)

$468,000

Water System Reinforcement in CSO Development Areas

$2,254,000

Electric CSO/Street Reconstruction

$1,035,000


[Commissioner Smith left the Finance Committee meeting at 7:10 p.m.]

General Manager John Elashkar presented the six-year cash flow forecast and provided the Commissioners with a revised forecast memo dated May, 13, 2003.  The previous forecast included in the committee meeting packet had an error in the Electric Utility expenditures, which was corrected.  The correction changed the Electric Utility six-year cash flow from a positive $22.5 million to a negative $26.5 million.  The forecast is intended to convey the financials of the electric, water, steam and chilled water utilities and their implications on the rates.  The assumptions used in developing the FY 2004-2009 cash flow forecast were summarized.  Results indicate the following:

·                    Electric Utility revenue requirements for the six-year period exceed revenue by $26,499,000.  Return on assets averages 0.9% with capital spending averaging $23,600,000 per year excluding bonded projects.  Bonded projects during the period total $16,405,000.  The Electric Utility is anticipated to begin a cost of service analysis sometime in FY 2004 with possible rate increases sometime thereafter.

·                    Water Utility obligations and expenditures exceed revenues by $2,816,000 over the six-year study period.  Return on assets averages 1.52%, and capital spending excluding borrowing averages $4,870,000 per year.  Based on this analysis, as well as a recent cost of service analysis, the Water Utility needs rate relief in 2004.

·                    Steam Utility is significantly impacted by the General Motors Plant changes anticipated during this six-year period.  Utility obligations and expenses are anticipated to exceed revenues by $8,125,000 with an average negative return on assets for the period.  Rate relief appears to be needed as soon as possible.  This is complicated by the current General Motors Agreement that does not permit GM’s rates to be increased prior to December 2005.  Currently, BWL has retained a cost of service consultant investigating steam utility costs with a recommendation due this summer.  It is anticipated a rate increase will be needed in FY 2004.

·                    Chilled Water Utility is also in a negative cash flow situation.  Without rate relief, the utility is expected to continue to generate negative cash flow for a six-year total of $4,882,000.  The same cost of service consultant reviewing the Steam Utility is also investigating Chilled Water Utility.

The Finance Committee recommends the following resolution for Board approval:

Resolution 2003-05-04
Fiscal Year 2004 Budget

RESOLVED, That the annual Operating and Maintenance Budget covering Fiscal Year 2004 is hereby approved as presented.  (Appended to the minutes – Exhibit A.)

RESOLVED FURTHER, That the Capital Budget for Fiscal Year 2004 is hereby approved as presented.  (Appended to the minutes – Exhibit B.).

RESOLVED FURTHER, That the capital projects are authorized in the amount of the project estimate.  Capital expenditures for Fiscal Year 2004 are limited to the net amount included in the budget.

There being no further business, the meeting adjourned at 7:47 p.m.

Respectfully submitted,
Nancy Duncan, Chair
Finance Committee

Moved by Commissioner Haggart, seconded by Commissioner Marin, to approve the Finance Committee Report.

Action:  Carried unanimously.

Moved by Commissioner Duncan, seconded by Commissioner Haggart, on the approval of the Fiscal Year 2004 Budget (Resolution # 2003-05-04).

Action:  Carried unanimously.


MANAGER’S RECOMMENDATIONS

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

Resolution 2003-05-05
Removal and Marketing of Residual Lime

RESOLVED, that the Board enter into an agreement for the Removal and Marketing of Residual Lime with Synagro Midwest, Inc., subject to approval by the BWL’s General Counsel.  The Agreement particulars are as follows:

 

1.             The term shall be for five years commencing July 1, 2003, and terminating June 30, 2008.

2.             Synagro Midwest shall remove all Residual Lime from the Filter Press Facility at the Dye Water Conditioning Plant, seven days per week, as required by the BWL.

3.             The intended use for the Residual Lime will be agricultural land application.

4.             The fee paid to Synagro Midwest shall be $15.55 per dry ton of Residual Lime removed.  This fee shall not be escalated for the term of the Agreement.


Staff Remarks:  Synagro Midwest submitted the best evaluated bid for the work described above.  Sixteen firms were invited to bid, and two proposals were received.  The bidders and their respective bids are as follows:

Cost per Dry Ton


Company

3 Year

Contract

5 Year

Contract

10 Year

Contract

 

 

 

 

Synagro Midwest

$15.55

$15.55

$17.51

Pro-Lime Services

$18.55

$16.48

$18.24

 

The current cost for removal and marketing of the Residual Lime is $16.72 per dry ton.  This new Agreement represents a savings of $1.17 per dry ton, resulting in a projected savings to the BWL and its customers of approximately $196,900 over the five-year term of the Agreement.


Moved by Commissioner Wonch, seconded by Commissioner Royal, on the approval of the resolution to Enter into a Five-Year Agreement with Synagro Midwest, Inc. for Removal and Marketing of Residual Lime (Resolution # 2003-05-05).

Action:  Carried unanimously.


Resolution 2003-05-06
PURCHASING POLICY AND PROCEDURES


RESOLVED, That the Board adopt the attached Policy and Procedures dated May 27, 2003.


RESOLVED FURTHER, That where the adopted policies do not parallel those of the City’s, the Board has determined that the City’s policies are inconsistent with the best practices for the operation of a public utility.


RESOLVED FURTHER, That the Purchasing Policy and Procedures shall be made effective July 1, 2003.


RESOLVED FURTHER, That the Purchasing Policy adopted July 24, 1990 is superseded as of July 1, 2003.


RESOLVED FURTHER, That Resolution 90-7-5, which adopted the Purchasing Policy, is rescinded as of July 1, 2003.


RESOLVED FURTHER, That the General Manager shall establish a timeline for education and training of employees on the Purchasing Policy and Procedures.


--------------------


Staff Remarks:  Section 5-203.4 of the Lansing City Charter requires the BWL to adopt policies and procedures to assure fairness in procuring personal property and services and disposing of personal property.


Section 5-203.4 also requires the BWL’s Policies and Procedures to parallel the City’s unless the Board finds that a City policy or procedure is inconsistent with the best practices for the operation of a public utility.


Staff was directed to draft new policies and procedures for presentation to the Board since the current policy and procedure has been in effect since 1990.


The Finance Committee has reviewed these policies and procedures and found that they assure fairness in procuring and disposing of personal property.


Moved by Commissioner Wonch, seconded by Commissioner Royal, on the approval of the Purchasing Policy and Procedures (Resolution # 2003-05-06).

Action:  Carried unanimously.


Resolution 2003-05-07
Ethics Ordinance Compliance

RESOLVED, That Resolution #2001-5-2, City Ethics Ordinance Compliance, be amended as follows:


That the Commissioners endorse both the letter and the spirit of the City’s Ethics Ordinance.


That the Commissioners encourage management to provide ongoing annual training to all BWL employees about its provisions.


With regard to purchasing issues, there was agreement by the Finance Committee that an employee should be able to bring input to the procurement process for business reasons.


This means that all BWL employees:  (a) may provide input to the procurement process for business reasons only and may not derive any income or personal benefit, directly or indirectly, from the selection, (b) should be discouraged from doing business with BWL, (c) should not accept gifts over $50 in value from vendors whether or not they influence a decision or official action, and (d) the General Manager may implement procedures concerning gifts under $50 in value, and any other procedures necessary for the enforcement of this policy.

--------------------


Staff Remarks:  Resolution 2001-5-2 adopted by the Board in May 2001, did not address the issue of gifts of value under $50.00 and employees not accepting these gifts.  General Manager Elashkar indicated he would implement a NO tolerance procedure forbidding BWL employees with purchasing authority from accepting anything of value from vendors or customers.  Employees with no purchasing authority may accept gifts up to $50.00 per year.  Ethics training will begin in June.  Every employee is required to attend.


Moved by Commissioner Haggart, seconded by Commissioner Marin, on the approval of the Resolution on Ethics Ordinance Compliance as amended (Resolution # 2003-05-07).

Action:  Carried unanimously.


NEW BUSINESS

None.


MANAGER’S REMARKS

Twenty-Five Year Dinner.  General Manager Elashkar reminded the Commissioners of the 25-Year Dinner on Thursday, May 29, 2003.

Restructuring Chilled Water Debt.   Chief Financial Officer Dana Tousley is investigating the feasibility of refinancing the chilled water bond issue for 20 to 25 years.  Preliminary analysis indicates that if the bonds are refinanced for twenty years, debt service will decrease on an annual basis approximately $500,000 and $1,000,000 if refinanced for 25 years.  The State of Michigan has to approve the refinancing.  The reason for refinancing now is to take advantage of today’s market rates. 

Charges for Customer Choice Projects.  A management committee is reviewing indirect costs to determine how best to allocate these costs in order to resolve competitive issues related to customer choice projects.  A preliminary review using the historical method updated for last year’s expenditures indicates that indirect costs on labor would increase from 103% to 106%.  Every year, approximately $9 million of O&M costs are transferred to capital.  When a decision is made on a revised method, utilities and fees and charges will be updated accordingly. Staff will present its analysis on utility fees and charges with a recommendation at a future Finance Committee meeting. 

Wolverine Pipeline.  Two BWL employees will be giving deposition on the Wolverine Pipeline.  The BWL is cooperating with the City on this issue.

Update on General Manager Search Process.  Commissioner Duncan asked to be updated on the schedule for the upcoming meetings for the interview and meeting of the five General Manager candidates.

·                    June 5 - Finalists will be available to meet employees, retirees, officials and citizens at a public reception at the Lansing Center from 5:30 p.m. to 7:00 p.m.

·                    June 6 - A BWL committee consisting of non-bargaining and bargaining employees and retirees will conduct separate interviews with each finalist.  Commissioners will receive information regarding feedback and observations from the public and employees’ committee meeting.

·                    June 7 - Final interviews with the Board of Commissioners will be held in public session between 8:00 a.m. to 5:30 p.m. in the Board Room.

·                    June 10 - A Special Board Meeting will be held at 5:30 p.m. to select the finalist and authorize the negotiation of an employment contract and the starting date of the future Director and General Manager.


COMMISSIONERS’ COMMENTS

Commissioner Marin presented a plaque from the Anishinaabegamig Cultural Learning Center in appreciation to the BWL for supporting their “Strengthening Spiritual Roots,” a prevention network project.

Commissioner Smith thanked BWL employees for their efforts and hard work over the past several months.  Commissioner Wonch seconded these comments.


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.

Allan Brooks thanked Commissioners Duncan and Smith for their comments and input to the new Purchasing Policy.  He acknowledged that safety and prevailing wage sections are included in the Purchasing Policy, but questioned whether these issues are being implemented now and for future projects.


EXCUSED ABSENCE

None.


ADJOURNMENT

On motion by Commissioner Smith, seconded by Commissioner Wonch, the meeting adjourned at 6:26 p.m.


/s/ Mary E. Sova, Secretary
Filed with Lansing City Clerk
June 11, 2003