Approved by the Board:
May 23, 2006
_________________________
_________________________
The
Board of Commissioners met in the Boardroom of the Administrative Offices, 1232
Haco Drive, Lansing, Michigan.
Present: Commissioners
Gary Calkins, Ron Callen, Robert Cochran, Joseph Graves, Tim Haggart, Semone
James, Santiago Rios, and Robin Smith
Absent: None
The Secretary declared a quorum present.
Chairperson Smith called the Special Meeting to order
at 4:30 p.m.
Commissioner Gary Calkins led the Pledge of
Allegiance.
THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE
WELCOME TO SPEAK TO THE BOARD ON ANY AGENDA SUBEJCT OR ON ANY OTHER SUBJECT
NOW, OR AT THE END OF THE MEETING.
Joseph
Davis, Business Manager of IBEW Local 352, stated that at the March 28th
regular meeting he spoke to the Board about the union’s concern with trust and
relevance and reiterated that the lack of communication has caused an
atmosphere of mistrust at the Board of Water and Light. Mr. Davis stated that although the Human
Resources Department prepared a report in response to concerns he raised at the
last Board meeting, he has not had the opportunity to review the report nor
share it with the IBEW’s executive board.
He announced that because the union believes the issues raised are of
utmost importance, an amount of $2,000 has been approved by the union’s
executive board to contribute towards management’s cost of an independent
evaluation of the BWL’s work climate.
Mr. Davis noted that although there is a grievance procedure in place,
it does not solve all their concerns and communication problems.
Chair
Smith thanked Mr. Davis for his comments and stated that the report prepared by
the Human Resources Department would be forwarded to the union’s executive
board for comments and to determine if management’s recommendations address
their concerns.
Addition to Agenda
Moved by Commissioner Calkins, seconded by Commissioner Graves, to amend the Special Meeting agenda to add an item regarding “Board Input into Top Management Positions” for Board consideration.
Discussion: Commissioner Cochran stated that this topic has not been reported out by the Committee of the Whole. Commissioner Calkins stated that this topic was initially placed on the Special Meeting Agenda when the meeting was scheduled; however, it was pulled from the agenda this morning. Chair Smith stated that she would prefer that this topic be discussed at a Committee of the Whole meeting.
Action: Commissioner Calkins called for the question. The motion to add to the agenda, “Board Input into Top Management Positions” was adopted by the following vote:
|
Voting Aye: |
Calkins, Callen, Graves,
Haggart |
|
Voting Nay: |
Cochran, Smith |
|
Absent |
James, Rios |
Six-Year Financial Forecast
General Manager Novick told the Board that the March
14th Committee of the Whole meeting was the first of several
meetings on the six-year forecast. The
purpose for that presentation was to present a layout base of the current
financial situation and decisions that would have to be made with respect to
rates and other issues. At that
meeting, the Commissioners asked staff for additional information with respect
to other options and scenarios for discussion and planning purposes.
Commissioner
Rios entered the room at 4:40 p.m.
General Manager Novick reported that in response to
the Commissioners’ request, staff has prepared six scenarios to continue
planning discussions. He emphasized
that management is not making recommendations or asking for a final decision at
this meeting. Instead, it is the intent
to lay out the various scenarios for the Commissioners to better understand the
implications of various decisions the Board will eventually have to make. He invited other suggestions the
Commissioners may have during the presentation. Mr. Novick noted that staff is working on the Fiscal Year 2007
O&M budget to present to the Finance Committee in May. With this in mind, the six-year planning
process would need to include the proposed FY ‘07 budget. He asked for the Board’s sense of direction
in order to create a budget that reflects the scenario for FY ’07.
Commissioner
James entered the room at 4:45 p.m.
Senior Vice President of Finance and Administration
Dennis McFarland reviewed certain aspects of his March 14th
presentation to the Committee of the Whole to set the stage as to why staff is
now presenting the various scenarios.
He reported that the “do nothing” base case would result in a projected
$118 million shortfall over the six-year period. Mr. McFarland asked the Commissioners to keep two variables in
mind when he presents the six scenarios; namely, (1) rate impact and (2)
financial strength of the BWL: He noted
that the BWL is currently competitive and starting from a point where our
financial goals have been met and our credit rating is strong at an AA. The issue is how these two variables move
through time in the different scenarios.
He reminded the Commissioners of the financial sensitivities previously
discussed on March 14th; these include: (1) employee count, (2) weather, (3) wholesale electric prices,
(4) inflation, (4) General Motors, and (5) fuel costs (wholesale effect). These sensitivities can affect the BWL’s
financial results over the next six years.
The strategic issues that came out of the March 14th analysis that staff is looking through in the
alternative scenarios are:
Mr. McFarland presented the six scenarios to use as a
framework for policy discussion. He
stated that by evaluating the financial results of these scenarios, the Board
will better understand how each impacts the BWL’s financial health.
Revised Base
Case Assumptions:
- To achieve average 1% rate of return (ROR),
energy cost adjustment (ECA) affect
included in base rate
- To achieve average 1% ROR
- Existing 6.5% increase in FY ‘07
- FY‘07 = 35%, FY’08 = 20%, FY’09 = 15%, FY’10 = 10%,
FY’11 = 5%, FY’12 = 10%
- To achieve average 1% ROR
- Water = $20,000,000, Electric =
$15,000,000
Cost
Management Case Assumptions:
Aggressive
Cost Management case Assumptions
Monetize Belle River Case Assumptions
- Sale of Belle River entitlement at $1,500 per kw
($225,000,000)
- Wholesale sales eliminated, Belle River expenses
eliminated
- Supplement power purchased at Market
Prices
Monetize Eckert Case – Assumptions
- Sale of Eckert Plant at $500 per kw ($181,000,000)
- Eckert Fuel Cost eliminated, 27.86% of Electric
non-fuel O&M eliminated
- Wholesale sales eliminated
- Supplement power purchased at Market
Prices
Monetize Eckert 132 Case Assumptions
- Sale of Eckert Plant at $367 per kw
($132,800,000)
There was extensive discussion with respect to each of
the six scenarios. General Manager
Novick pointed out that the options are not appealing. The BWL is not large enough to offset a $118
million deficit over a six-year period in a painless way.
Senior Vice President of Finance and Administration
Dennis McFarland stated that trade offs among customers, employees, and
retirees are an important element in the mix of options.
Commissioner Rios stated that he finds it difficult to
analyze a group of scenarios as presented because the vision and strategy of
core values of the BWL have not been incorporated into the overall
situation. He said it would be more
productive if management came forward with a comprehensive evaluation of the
scenarios and recommendations with appropriate justification. He further stated that even if twenty
scenarios were presented, he is more interested in hearing the thinking and
recommendations of management based on where they see the organization going. This explanation is essential to assist the
Board in setting a policy direction.
Commissioner Smith stated that she would like to see
recommendations and options with justification as to why those scenarios were
presented. She would also like to see a
mix of cost management and rate options.
This information would be helpful to weigh the various options. She
noted that monetizing an asset is not an alternative at this point.
Commissioner Graves commented that his first priority
is to minimize the impact on the ratepayers.
He would prefer to keep the rates competitive while having the least
impact on retirees and employees.
Commissioner Calkins stated that he is willing to
consider a combination of scenarios with a mix between a rate increase and
sharing of costs by employees. This
would balance the impact on customers and employees.
Commissioner
Callen stated that relying only on rate increases to cover the projected
deficit is unrealistic for the customers that Commissioners represent. The strategic issues discussed earlier in
the meeting need to be considered to fairly distribute the pain.
- Dependence
on Wholesale Markets
-
Environmental Regulations
- Cost
Management
-
Financing/Credit Options
- Rate Options
Commissioner Cochran stated that he would prefer to
implement a rate increase sooner rather than later. He challenged management to apply some of the cost management
points discussed with a balance so that everybody shares equally. He does not support monetizing facilities at
this time. He asked for staff
recommendations and options regarding cost sharing with the appropriate
rationale.
Commissioner James echoed Commissioner Cochran’s
sentiments. She spoke about recent
state employee cost management efforts that involved health insurance premium
sharing and pay cuts. She noted that if
it means everybody has to bite the bullet just a little bit to save jobs, she
would support that effort. She
expressed concern with rate increases because of the impact on those who are on
fixed incomes and elderly citizens. She
noted that the BWL must serve the best interest of the public.
Commissioner Haggart said he would like to concentrate
on the Fiscal Year 2007 Budget. He
noted that the Board will have to take the utility’s financial outlook into consideration
when the FY’07 budget is considered in May.
He would prefer to look further than 2012 and suggested moving away from
100% reliance on coal and focusing on gas turbines or combined cycle.
Board Input into Top Management Positions
Moved by Commissioner James, seconded by Commissioner Rios,
to reopen the vote to place the item, “Board’s Input into top Management
Positions” on the agenda because they were not present to vote on this item or
hear the reasoning for placing it on the agenda.
Discussion: Chair Smith
stated that she pulled this item from the agenda prior to this meeting was
because in her judgment it would be a more appropriate topic for discussion at
a Board Retreat.
The question being to reopen the vote:
Action: The motion
failed by the following vote:
|
Voting Aye: |
James, Rios, Smith |
|
Voting Nay: |
Cochran, Calkins, Callen,
Graves, Haggart |
|
Absent |
None |
Moved by Commissioner Callen, seconded by Commissioner
Graves that recognizing management continues to operate under the current policy
with respect to filling employee positions, that the Board of Commissioners not
be involved in filling the position of the Director of Communications.
Discussion: Commissioner James stated that this is a key
top management position and that she would like to discuss it further at a
Board Retreat.
Commissioner Rios stated that at the last Committee of
the Whole meeting he expressed interest in having the Board discuss and make
input into the decision-making process for key management positions. This is an appropriate and not an uncommon
practice that is seen in all types of public entities where certain key
management positions require the approval of a board, city council or
senate. He referred to the minutes of a
retreat held in the fall of 2003 that reported on the Board’s consensus with
respect to Board and Management responsibilities in order to provide a
framework to guide the General Manager in the management of staff and the
day-to-day operation of the BWL.
Commissioner Rios noted that the minutes provide an indication of the
thinking at that time, and most of the Commissioners who were on the Board at
that time are not currently serving.
Based on recent written comments received from a couple of Commissioners,
he was persuaded that discussing this issue at a Board Retreat would provide an
opportunity to have some dialogue.
Commissioner Graves stated that he appreciates the remarks made by Commissioners James and Rios, but this is one of those instances where the Board simply has to disagree. All the Commissioners received copies of the 2003 Board Retreat minutes that clearly set out what the responsibilities of the Board were and the responsibilities of the General Manager. He noted that the BWL is not a legislative body. Commissioner Graves stated that it has been his experience that policy-making boards are not involved in the hiring of a direct report to the chief operating officer. It becomes very difficult to hold an individual accountable when a board decides that they are going to have some involvement in the hiring of direct reports.
Commissioner Cochran echoed Commissioner Graves’
sentiments. He stated that the General
Manager has to have the trust of direct reports and the power to supervise
them. The Board must separate itself
from the hiring of direct reports. He
reminded that the “buck stops” with the General Manager.
Chair Smith stated that the notion of the Board having
final approval of key executive staff positions is usurping itself into the
process and takes away the authority of the General Manager is a fallacy. She said that in her opinion it may be a
philosophy issue, because there are institutions that have given boards final
approval of key executive positions.
Commissioner Callen stated that he agrees that it would
be appropriate to discuss the issue of Board input into top management
positions in a Board Retreat. He
reminded that there was a strong agreement as to the role of the Board and the
General Manager, which is reflected in the Board’s contract with the General
Manager. Commissioner Callen said that
if the Commissioners want to make a change on the Board assuming some
responsibility for the selection of key executive positions, that is another
matter, and it would require amending the contract, none of which he
favors. He noted that his motion goes
to the point of specifically filling the position of Director of Communications
because it is a key position that needs to be filled soon.
Commissioner Graves stated that there is agreement
among Commissioners that Board input into top management positions should be
discussed at a retreat. However, he
fundamentally disagrees that the Commissioners should be injecting themselves
into the business of hiring or having input into the General Manager’s hiring.
Action: Following
lengthy discussion on this question, the motion was adopted by the following
vote:
|
Voting Aye: |
Cochran, Calkins, Callen,
Graves, Haggart |
|
Voting Nay: |
James, Rios, Smith |
|
Absent |
None |
There was no comment.
Commissioner Calkins stated that self-nomination forms
will be sent to the Commissioners by the Corporate Secretary in May to survey
Commissioners on their interest in serving as an officer. He inquired as to who might be interested in
serving as the chair or vice chair for the next fiscal year. Commissioner Graves indicated that he would
be interested in serving as vice chair.
Commissioner Calkins said that he might be interested in the chair
position.
Commissioner Graves stated that the Board engaged in
difficult discussions at this meeting where there was not a consensus,
particularly on the General Manager’s authority to fill the position of
Director of Communications without Board input. He stated that it is all right to have a different point of view
and a different perspective. He said
that he would hope all the Commissioners would understand that nothing he says
really should be taken as a personal issue.
There are issues the Board should discuss in a retreat setting, but the
vote taken this evening on the Communications Director position was necessary
so that the General Manager can move forward with the hiring process.
Commissioner Rios acknowledged that there will be
times when the Commissioners disagree, and that is all right because that is
the way life is. He stated that issues
discussed at this meeting relate to an important fact that sometimes the Board
does not adequately talk about. It
relates to how he views his responsibility as a Commissioner. At the end of the day, the Board shares in
the responsibility and accountability for decisions made. He urged that the Board Retreat be scheduled
soon to discuss accountability issues for all employees.
Commissioner Cochran noted that each Commissioner was
put on the Board of Commissioners by a political process and confirmed by City
Council. The Board is arranged the same
way that the City Council is with one member from each of the four wards and
four at-large members. This brings
diversity and differences of opinion.
Hopefully through discussion and enlightenment, the Board would vote for
the best solution based on all the options presented. He agreed that there are issues that require more dialogue,
preferably at a Board Retreat.
Chair Smith commented that sometimes spirited
discussions result from the Board’s commitment in performing its due
diligence. The Board has a fiduciary
responsibility to ratepayers and employees of the BWL. Some difficult decisions are on the horizon,
therefore, it is in the best interest for all concerned that these issues be
thoroughly discussed.
Joseph Davis, Business Manager of IBEW Local 352,
stated that these are stressful times.
He said that conversations concerning the BWL’s six-year financial
forecast were held between management and the union. Relationships between “employee and employer” are currently being
tested as discussions about future restructuring takes place. He noted that there are organizational
problems that need to be addressed in a positive manner. He renewed his request made at the last
Board meeting for an independent evaluation of the BWL’s work climate. Mr. Davis commented that union employees
attending today’s Board meeting are listening to discussions regarding health
care, jobs, and at some point in the future monetizing Eckert Station. He urged combined efforts between management
and the union to look at new markets and new ways of approaching things to
better position the utility for the future.
Ron Byrnes, a 31 year employee of BWL and retiree,
stated that the Board’s discussion regarding equity particularly applies to
retirees. He commented that because of
extenuating circumstances last year, he incurred over $40,000 of out-of-pocket
expenses for health care on his immediate family. He voiced his opposition for the suggested 5% health care premium
sharing for retirees.
On motion by Commissioner Graves, seconded by
Commissioner Cochran, the meeting adjourned at 7:35 p.m.
/s/ Mary E. Sova, Corporate Secretary
Filed
with Lansing City Clerk
April
28, 2006