Preliminary – Subject to Board Approval on March 28, 2006

MINUTES OF THE BOARD OF COMMISSIONERS' RESCHEDULED MEETING

LANSING BOARD OF WATER AND LIGHT

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Thursday, January 26, 2006

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The Board of Commissioners met in the Boardroom of the Administrative Offices, 1232 Haco Drive, Lansing, Michigan.

The Secretary declared a quorum present.

Chairperson Smith called the meeting to order at 5:30 p.m.

APPROVAL OF MINUTES

Motion by Commissioner Wonch, seconded by Commissioner Joseph, to approve the minutes of the rescheduled meeting held November 8, 2005.

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.

Joseph Davis, Business Manager for IBEW Local 352, gave each Commissioner a binder containing information regarding issues between the union and management.  Mr. Davis stated that a number of incidents that have taken place over the past 18 to 24 months have given the union reason to question the commitment of BWL management on the issue of safety of employees and satisfaction of BWL customers.  The most recent issue raised between the union and management was that of three-person versus two-person line crews.  Mr. Davis stressed several times that the main issue of contention between the union and management is safety of employees and not wages.  He asked that these issues be addressed.

Richard Bell, 3800 West Holmes Road reported that he purchased a home at 710 N. Chestnut Street, Lansing, last August and attempted to get the utilities turned on in the home.  He was informed by the BWL that there was an outstanding bill of $1,600.  This bill arises from service at 425 S. Chestnut from 1998 to 2001.  During that time frame, Mr. Bell’s father lived in the home at 425 S. Chestnut.  He stated that he did not have the service at 425 S. Chestnut placed in his name.  Mr. Bell further stated that he would prefer to not press identify-theft charges against his 74-year-old father.

Chair Robin Smith explained the process by which this claim will be addressed.  She referred this matter to management for a report back to the board.  The appropriate management person will be in touch with Mr. Bell on behalf of the board.

COMMUNICATIONS

Letter from White, Schneider, Young & Chiodini, P.C., providing notice of an Unfair Labor Practice filing in the matter of Board of Water and Light and International Brotherhood of Electrical Workers, Local 352.

Chair Smith announced that this matter has been settled and the letter was placed on file.

Letter from Thomas Woods of 1917 Holly Way, Lansing, regarding water shut-off at his residence.

Chair Smith reported that Senior Vice-President of Finance and Administration, Dennis McFarland will be working with Mr. Woods on this matter.

Letter from White, Schneider, Young & Chiodini, P.C., regarding a BWL Manager.

Chair Smith reported that since this matter is subject to grievance, it is being referred to management.  Management will report their findings back to the Board.

COMMITTEE REPORTS

Resolution 2006-1-1
COMMITTEE OF THE WHOLE

The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 5:30 p.m., Tuesday, December 13, 2005.

Chair Pro Tem Joseph Graves, Jr. called the meeting to order and asked the secretary to call the roll.  The following members were present:  Commissioners Ron Callen, Gary Calkins, Joseph Graves, Jr., Tim Haggart, Ifield Joseph, Robin Smith, and Nancy Wonch.  Commissioner Santiago Rios was absent.

Public Comment

There were no public comments.

FISCAL YEAR 2006 OBJECTIVES FOR BOARD STAFF APPOINTEES

In keeping with the Board’s timeline of reviewing and adopting a set of objectives for the General Manager and Corporate Secretary for this fiscal year, the Commissioners considered the proposed objectives (attached) and gave feedback.  On motion by Commissioner Joseph, seconded by Commissioner Wonch that the performance objectives as submitted be presented for approval to the Board.  Carried.

Resolution 2006-1-2
FISCAL YEAR 2006 OBJECTIVES FOR BOARD-STAFF APPOINTEES

RESOLVED, That the Fiscal Year 2006 Objectives for General Manager Sanford Novick and Corporate Secretary Mary Sova be adopted as submitted and be placed on file in the Secretary’s Office.

REPORT ON CONTROLS AND RISK ASSESSMENT

Internal Auditor Glenn Holloway presented his report on Controls and Risk Assessment.  He noted that the purpose of the presentation was to provide a foundation to continue moving toward best practices in internal auditing by identifying sources of best practices and establishing a common framework for discussions of controls and risk.

He reviewed the evolution of best practices noting that the 1970’s briberies and illegal contributions resulted in enacting the Foreign Corrupt Practices Act of 1977 requiring accounting controls and accounting reporting.  The 1980’s savings and loans scandals resulted in the COSO (Committee of Sponsoring Organizations) report in 1992 and revised in 1994.  The COSO was formed in 1985 by five financial professional associations to sponsor the National Commission on Fraudulent Financial Reporting:

·         The Institute of Internal Auditors

·         American Institute of Certified Public Accountants

·         American Accounting Association

·         Institute of Management Accountants

·         Financial Executives Institute

Mr. Holloway reported that the COSO is dedicated to improving the quality of financial reporting through business ethics, effective internal controls, and corporate governance.  He further reported that in the 1990’s and early 2000’s, a series of high-profile business scandals and failure where investors, company personnel, and other stakeholders suffered tremendous loss causing bank failures, crises with Global Crossing, Enron, WorldCom, Adelphia, and Arthur Andersen.  This resulted in legislating the Sarbanes-Oxley Act, (SOX), a single most important piece of legislation affecting corporate governance, financial disclosure and the practice of public accounting.  Mr. Holloway noted that Section 302 of SOX requires management to sign off on financial statements and internal control effectiveness.  Section 404 requires a separate management report on internal control effectiveness.  The evaluation must be based on an accepted internal control framework.  The need for an enterprise risk management framework, providing key principles and concepts, a common language, and clear direction and guidance, became even more compelling.  Mr. Holloway noted that COSO believes the ERM (Enterprise Risk Management) integrated framework fills this need and expects it will become widely accepted by companies and other organizations and all stakeholders and interested parties.  The Enterprise Risk Management integrated framework expands on internal control, providing a more robust and extensive focus on the broader subject of enterprise risk management.  He further noted that among the most critical challenges for the Board and management is determining how much risk the BWL is prepared to and does accept as it strives to create value.  He reviewed three risk assessments steps, which include:  (1) Risk Identification, (2) Risk Measurement, and (3) Risk Prioritization.

Mr. Holloway discussed limitations of internal controls as summarized below:

·         Judgment – decisions are made by humans, often under pressure and time constraints, based on information at hand.

·         Breakdowns – Employees may not understand instructions or may simply make mistakes.  Controls tend to erode over time due to new systems, processes, and employees.

·         Management override – High level personnel may be able to override prescribed policies and procedures.

·         Collusion – Two or more individuals, working together, may be able to circumvent controls.

·         Cost vs. Benefit – The risk of failure and the potential effects must be weighed against the cost of establishing controls.

Mr. Holloway noted that the prior year’s risk assessment is available for reference.  He explained that the Audit Universe is being defined in terms of processes, and Risk Identification is being updated.  He stated that identified risks can be measured in terms of risk factors and prioritized.  He also emphasized that controls in many processes need to be evaluated using a systematic, disciplined approach.  A listing of the major processes for utility services was distributed with the Committee of the Whole packet for the meeting.

Following discussion, the Commissioners concurred that identifying the level of risk the Board is willing to tolerate will guide staff in drafting a policy statement and objectives for Board action.

Commissioner Haggart left the meeting at 7:05 p.m.

The Committee of the Whole recessed at 7:05 p.m. for dinner and reconvened at 7:24 p.m.

EXECUTIVE SESSION

Moved by Commissioner Wonch, seconded by Commissioner Calkins, to go into executive session to receive a report from the Internal Auditor protected by the Freedom of Information Act (FOIA) exemption MCL 15.243(1)(y). (7.25p.m.).  The roll was called.

Yeas:  Commissioners Calkins, Callen, Graves, Joseph, Smith, and Wonch.

Nays:  None

Absent:  Commissioners Haggart and Rios.

Carried unanimously.

Moved by Commissioner Calkins, seconded by Commissioner Smith, that the Committee of the Whole return to open session.

Carried unanimously.

The Committee of the Whole reconvened in open session at 8:12 p.m.

Commissioner Wonch left the meeting at 8:12 p.m.

In the closed session, Internal Auditor Glenn Holloway discussed additional internal controls he recommends be implemented to prevent a recurrence of the recent employee theft.  The commissioners suggested issuing a news release to local media announcing that a federal grand jury has issued an indictment in the alleged theft of approximately $441,000 in computer equipment from the BWL.  Communications Director John Strickler indicated he would issue a release and suggested referring follow-up questions to the FBI.

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

Respectfully submitted,
Joseph E. Graves, Jr., Chair Pro Tem
Committee of the Whole

Motion by Commissioner Graves, seconded by Commissioner Wonch, to receive the Committee of the Whole report as presented.

Action:  Carried unanimously.

Motion by Commissioner Graves, seconded by Commissioner Wonch, to approve Resolution 2006-1-2 regarding the Fiscal Year 2006 Objectives for the Board-Staff Appointees.

Action:  Carried unanimously.

Resolution 2006-1-3

SUMMARY REPORT FOR THE BOARD OF COMMISSIONERS

PENSION FUND TRUSTEES REPORT

The Pension Fund Trustees held their annual meeting on December 13, 2005, to receive the financial statements for the Defined Benefit Pension Plan, Defined Contribution Pension Plan and Retiree Benefit Plan.  Performance reports for the three plans were reviewed in detail for the period ended September 30, 2005.

Three proposed policies were presented by staff for approval by the Trustees and recommendation to the Board of Commissioners for adoption:

Defined Benefit Pension Plan Investment Policy

Mr. McFarland reported that the Pension Trustees approved an investment policy for the DB Pension Plan last November 2004.  Staff has revised an interpretation of the DB Pension Plan documents, which states that the Board of Commissioners must approve the investment policy based on a recommendation and referral from the Pension Trustees.  The proposed investment policy explicitly states the investment goals and philosophy underlying the fund, including risk tolerance and prohibited investments.  Importantly, the new investment policy changes the asset allocation for the fund to be 65% equity securities and 35% fixed income securities from the previously existing 50/50 allocation.  The new policy also permits the use of professional, independent investment managers.  The policy also allows the Asset Manager to consider ethnic and gender diversity in the process of selecting investment managers once a pool of candidates has been selected that meet qualitative and quantitative criteria, which is incorporated in Section 7(B)(1) of the policy.  The change states:

Once the Asset Manager has considered all quantitative and qualitative criteria and has formulated a pool of potential candidates, the Asset Manager may consider the ethnic and gender diversity of the investment management firm.

Finally, the policy updates certain titles and investment performance benchmarks.

Moved by Trustee Joseph, seconded by Trustee Calkins and carried, to recommend the following resolution to the Board of Commissioners:

Resolution 2006-1-4

REVISED DEFINED BENEFIT PLAN INVESTMENT POLICY

Whereas, the Lansing Board of Water and Light desires to revise the asset allocation mix for the investments in the Trust Fund, and

Whereas, they further desire to utilize professional, independent investment managers, and

Whereas, they further desire to explicitly state the investment goals and philosophy underlying the management of the Defined Benefit Pension Fund.

Resolved, That the Lansing Board of Water and Light rescind the resolution dated November 23, 1999 establishing the pre-existing investment policy, and

Further Resolved, That the attached Defined Benefit Pension Fund Investment Policy dated December 13, 2005 is hereby adopted.

Defined Contribution Pension Plan Investment Policy

Mr. McFarland reported that the pre-existing funding policy statement for the Defined Contribution Pension Plan was approved in September 1997.  The proposed investment policy removes references to specific funds and updates Asset Class descriptions to be consistent with market terminology.  The existing policy was adopted when the plan was originally established and contains names of specific funds available at that time.  This change identifies asset classes rather than specific funds, which will be reviewed and revised as appropriate by staff.  Finally, the policy updates appropriate titles and terminology.

Moved by Trustee Calkins, seconded by Trustee Wonch and carried, to recommend the following resolution to the Board of Commissioners:

Resolution 2006-1-5
Revised defined contribution plan investment policy

Whereas, the Lansing Board of Water and Light desires to revise the Defined Contribution Plan Investment Policy Statement, and

Whereas, the Lansing Board of Water and Light further desires to update the existing Investment Options descriptions, and

Whereas, the Lansing Board of Water and Light further desires to remove references to specific fund names from its Investment Options.

Resolved, That the Lansing Board of Water and Light rescind the resolution dated September 7, 1997 establishing the pre-existing Funding Policy Statement, and

Further Resolved, That the attached Investment Policy Statement for the Lansing Board of Water and Light Employees’ Defined Contribution Pension Plan dated December 13, 2005 be adopted.

VEBA Trust Investment Policy

Mr. McFarland reported that the last investment policy for the VEBA was approved in 2001.  The proposed investment policy explicitly states the investment goals and philosophy underlying the fund, including risk tolerance and prohibited investments.  Importantly, the new investment policy changes the asset allocation for the fund to be approximately 65% equity and 35% fixed income securities from the previously existing 50/50 allocation.  The new policy also permits the use of professional, independent investment managers.  The policy also allows for the consideration of diversity when selecting investment managers.  Finally, the policy updates certain titles and investment performance benchmarks.

Moved by Trustee Wonch, seconded by Trustee Calkins and carried, to recommend the following resolution to the Board of Commissioners:

Resolution 2006-1-6
REVISED VEBA TRUST INVESTMENT POLICY

Whereas, the Lansing Board of Water and Light desires to revise the asset allocation mix for the investments in the VEBA Trust Fund, and

Whereas, the Lansing Board of Water and Light further desires to utilize professional, independent investment managers, and

Whereas, the Lansing Board of Water and Light further desires to explicitly state the investment goals and philosophy underlying the management of the VEBA Trust Fund.

Resolved, That the Lansing Board of Water and Light rescind the resolution dated April 24, 2001 establishing the pre-existing investment policy, and

Further Resolved, That the attached VEBA Trust Investment Policy dated December 13, 2005 be adopted.

There being no further business, the meeting adjourned at 5:40 p.m.

Respectfully submitted,
Robin M. Smith, Chair
Pension Fund Trustees

Motion by Commissioner Joseph, seconded by Commissioner Calkins, to receive the Report of the Pension Fund Trustees as presented.

Action:  Carried unanimously.

Motion by Commissioner Joseph, seconded by Commissioner Wonch, to approve Resolution 2005-104 the revised Defined Benefit Plan Investment Policy.

Action:  Carried unanimously.

Motion by Commissioner Joseph, seconded by Commissioner Wonch, to approve Resolution 2006-1-5 regarding the revised Defined Contribution Plan Investment Policy.

Action:  Carried unanimously.

Motion by Commissioner Joseph, seconded by Commissioner Calkins, to approve Resolution 2006-1-6 regarding the VEBA Trust Investment Policy.

Action:  Carried unanimously.

Resolution 2006-1-7
COMMITTEE OF THE WHOLE

The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 5:30 p.m., Tuesday, January 10, 2006.

Chair Pro Tem Joseph Graves, Jr. called the meeting to order and asked the secretary to call the roll.  The following members were present:  Commissioners Ron Callen, Gary Calkins, Joseph Graves, Jr., Tim Haggart, Ifield Joseph, Santiago Rios, Robin Smith, and Nancy Wonch.

Public Comment

There were no public comments.

DEFINED BENEFIT AND DEFINED CONTRIBUTION PLAN AMENDMENTS

General Counsel Amy Cavanaugh presented an overview of a required change to the Board of Water and Light (BWL) Defined Benefit (DB) and Defined Contribution (DC) Plan to comply with the Internal Revenue Service (IRS) Code Section 401(a)(31)(B).  She described the circumstances under which the benefit may be involuntarily cashed out after a participant terminates employment.  The proposed plan amendments reduce the involuntary cash out limit from $5,000 to $1,000 effective for distributions made on or after March 28, 2005.  While the retroactive effective date is required by IRS rules to be March 28, 2005, governmental plans have until the close of the first regular legislative session of the legislative body with authority to amend the plan that begins on or after January 1, 2006 to amend the plan documents.  For that reason, the plan documents must be in compliance by June 30, 2007.

Under the proposed plan amendments, three options are available to the BWL; namely, (1) remove the involuntary cash out and manage funds regardless of the amount the employee has vested at departure; (2) remove the “trigger” to reduce the involuntary cash out limit from $5,000 to $1,000 and manage all sums above $1,000; or (3) keep the cash out “trigger” at $5,000, but roll anything exceeding the $1,000 into an IRA.  The pros and cons of the different options were discussed.  The Commissioners requested a cost benefit analysis for the various options for review prior to the Board meeting.  The proposed resolution on material modifications of the DB and DC Plans for Employees’ Pensions will be brought to the Board for further consideration.

BWL SAFETY POLICY

Jack Hill, Director of Environmental, Industrial Health and Safety, reported that an outside consultant from the National Safety Council recently performed an audit of the BWL’s safety culture to offer recommendations for opportunities to improve.  The consultant advised that within the cornerstone of any successful safety program, lays a concise and well-communicated safety and health policy that is supported at the highest level within an organization.  The audit has been completed and 23 priority items have been identified.  The proposed BWL Safety and Health Policy is the first of the priorities.  A schedule to implement the other 22 priorities is under development for management to implement.  The objective is to have a safe workplace, and the proposed policy will help set the tone and direction for the BWL.  Following discussion, the Committee concurred with the proposed policy and authorized the General Manager to bring forth a resolution on the approval of a BWL Safety and Health Policy.

Mr. Hill distributed a graph depicting that the BWL’s total safety incident rate for fiscal year-to-date through December 2006 is at 6.6 as compared to 11.1 last year.  This is a 40% improvement this fiscal year.  The statistics will be supplied to the American Public Power Association (APPA) for their annual safety award competition.  It was noted that last year the BWL’s safety incident rate submitted to APPA was 10.9, which is a 38% improvement over last year.  General Manager Novick noted that the BWL’s next step is to strive for Best in Class in safety.

Amend Resolution to Extend Authority to Refinance Certain Outstanding Bonds

Dennis McFarland, Senior Vice-President of Finance and Administration, reported that last July, the Board authorized the refinancing of Series 1999A and Series 2002A bonds if there was a present value savings of at least 3% of the principal amount of the bonds to be refunded.  In the event the refunding bonds are not sold and delivered within six months from the date of adoption of the bond resolution, the authorization to issue the refunding bonds would lapse and the Ninth Supplemental Revenue Bond Resolution will expire on January 27, 2006.  Mr. McFarland reported that conditions in the municipal bond market have deteriorated such that the targeted savings may not be attainable.  Consequently, staff is recommending an extension of the period in which the bonds could be issued by an additional six months.  He noted that staff and financial and legal advisors are continuously monitoring the bond market.  It is conceivable that a small rally in the market could result in savings of 3% or more before the next Board meeting.

[NOTE:  On January 12, 2006, the BWL successfully priced and sold $12,325,000 of revenue bonds in order to refund $12,345,000 of outstanding bonds.  The sale will enable BWL to realize a net 3% present value savings or $370,000 over the life of the bonds.  The average yield on the new bonds was 3.9% with an average maturity of 7.5 years.  The bonds will be delivered and the sale closed on January 25, 2006.  As a result of this sale, there will be no need to amend the bond resolution at the Board meeting on January 26, 2006.]

Internal Auditor’s Report on Board Travel

Internal Auditor Glenn Holloway reported that a Travel Expense Audit for Commissioners and Staff Appointees has been completed for the period covering December 2004 through November 2005.  The purpose of the audit was to determine:  (1) if the policies and procedures regarding the travel expenses of Commissioners and Staff Appointees are adequate to provide proper controls, (2) if they are being followed, and (3) if travel expenses are being properly recorded.

Mr. Holloway’s audit concluded that policies and procedures regarding travel expenses for Commissioners and Staff Appointees are adequate to provide proper controls and are being followed.  He reported that travel expenses are being properly recorded, except for a minor discrepancy in the use of a FERC account.

Mr. Holloway noted that in scrutinizing the processing of receipts, he observed that consideration of a per diem allowance for meal expenses would expedite the administrative processing of forms.  Following discussion, the Commissioners concurred with the Internal Auditor’s recommendation to implement a per diem rate.  There was consensus to base the meal per diem on the $50.00 rate currently in effect.  Staff was directed to research travel guides and other public bodies regarding meal allowances for Commissioners, Board appointees, and BWL employees when traveling to various cities and states to substantiate the rate and method.  A report is requested for the next Committee of the Whole meeting.

The Committee of the Whole submits the following resolution to the full Board for action:

Resolution 2006-1-8
RESOLUTION TO AMEND TRAVEL POLICY FOR THE BOARD OF COMMISSIONERS AND STAFF APPOINTEES

RESOLVED, That the “Meal” section of the Travel Policy for the Board of Commissioners and Board Appointees be amended as follows:

Reimbursement will be made based on actual documented costs, but will not exceed a maximum daily amount of  a per diem meal rate of  $50.00 with receipts.

Process for Filling the Internal Auditor Position

Mary Dwyer, Director of Human Resources, reported that some information regarding filling the Internal Auditor position was recently provided to the Commissioners.  She noted that the hiring process could be expedited if there is agreement to use the same documents as the last time.  These include the job description and specifications, job posting, external advertising options, and related interview documents.  Advertising for the position could start as early as January 14^th.  Ms. Dwyer updated the Commissioners on advertising costs and the names of additional publications that are being included to the original advertising list.  The Commissioners emphasized that hiring a new Internal Auditor is a priority and requested that staff move expeditiously with the recruitment process.  They called attention to the importance of recruiting qualified and diverse applicants.  Upon completion of the advertisement process, staff was asked to provide an update on the applicant pool at the earliest possible date in order for the Commissioners to decide how they wish to move forward with the interview and selection process.  The Commissioners expressed no interest in conducting telephone interviews to narrow the field of applicants.

Capital Project Budget Increase for Erickson Station Repairs

Bill Cook, Senior Vice-President of Operations, reported that the Erickson Station boiler has experienced an increase in tube failures over the last year that has negatively impacted its availability and reliability and increased its maintenance costs.  The existing boiler screen, convection pass, secondary superheater and economizer tubes are 32 years old and have exceeded their life expectancy.  Replacement tube materials will be upgraded as appropriate to increase the tube life expectancy based on the higher furnace gas temperatures and velocities when burning western coal.  This will be the first phase of a two-phase program to address tube failure issues affecting the availability and reliability of the Erickson boiler.  The second phase consisting of replacement of the secondary superheater and economizer tubes will be requested for completion next year as part of the fiscal 2007 capital budget.  Temporary repairs to the secondary superheater and economizer tubes during the western coal conversion and previous outages have allowed these additional phase two tube replacements to be delayed.  Mr. Cook noted that lost opportunity in the market could result upwards of $1 million when the plant is off line for one to three days.  Following discussion, the Committee concurred with the proposed increase to the fiscal year 2006 Planned Capital Project Budget in the amount of $300,000 to cover the maintenance costs at Erickson Station.  The General Manager was authorized to bring forth a resolution on the approval of the increase for action at the next Board meeting.

The Committee of the Whole recessed briefly at 6:58 p.m. and reconvened at 7:12 p.m.

EXECUTIVE SESSION

Moved by Commissioner Graves, seconded by Commissioner Joseph, to go into executive session to discuss a communication within the public body covering other than purely factual materials that is of an advisory nature pursuant to MCL 15.243(1)(m).  The roll was called.

Yeas:  Commissioners Calkins, Callen, Graves, Haggart, Joseph, Rios, Smith, and Wonch.

Nays:  None

Absent:  None

Carried unanimously.

Moved by Commissioner Smith, seconded by Commissioner Wonch, that the Committee of the Whole return to open session.

Carried unanimously.

The Committee of the Whole reconvened in open session at 7:53 p.m.

The Committee of the Whole requests that an exit interview be conducted with the former Internal Auditor.

There being no further business, the Committee of the Whole adjourned at 7:54 p.m.

Respectfully submitted,
Joseph E. Graves, Jr., Chair Pro Tem
Committee of the Whole

Motion by Commissioner Graves, seconded by Commissioner Calkins, to receive the Committee of the Whole Report as presented.

Discussion:  Commissioner Rios expressed that he was quite disturbed by the National Safety Council’s audit of the BWL safety culture.  He recommended that each Commissioner read the report.  General Manager Novick stated that the consultant was brought in to conduct the safety audit at management’s request.  He noted that the results of the audit were not surprising to management as there is a need to improve the BWL’s safety performance.  Several Commissioners agreed that the audit provides objective recommendations to address safety issues that are confronting the BWL.  This item will be brought to the next Committee of the Whole meeting to discuss the implementation of the recommendations.

Action:  Carried unanimously.

Motion by Commissioner Graves, seconded by Commissioner Wonch, to approve Resolution 2006-1-8 to amend the travel policy.

Discussion:  Commissioner Calkins suggested discussion in the future regarding what happens if you are not in travel status for the full day.

Action:  Carried unanimously.

MANAGER’S RECOMMENDATIONS

DISCUSSION REGARDING DB AND DC PLAN AMENDMENTS.

In response to questions raised at the January 10, 2006 Committee of the Whole Meeting, General Counsel Amy Cavanaugh outlined three options regarding required amendments to bring the BWL’s pension plans into compliance with the Internal Revenue Code:

Option 1:  Remove the automatic cash-out provision entirely from both the DB and DC pension plans, which would permit the BWL to manage sums of any amount retained.

Option 2:  Retain the automatic trigger at $5,000 but any amount between $5,000 and $1,000 would have to be automatically rolled-over into an IRA plan if the participant did not make a prior election.

Option 3:  Lower the BWL automatic cash-out trigger to $1,000.  Staff continues to recommend option 3.

Resolution 2006-1-9

RESOLVED, That the Code Section 401(a)(31)(B) Automatic rollover Amendments to the Lansing Board of Water and Light Defined Benefit (DB) Plan for Employees’ Pensions and the Lansing Board of Water and Light Employees’ Defined Contribution (DC) Pension Plan to lower the plans’ involuntary cash out limit from $5,000 to $1,000 are hereby adopted, retroactively effective as of March 28, 2005. Such amendments are attached hereto and shall be attached to the respective plan documents  (see Exhibit A and Exhibit B).

FURTHER RESOLVED, That the Chair of the Board of Commissioners and the Corporate Secretary are hereby authorized to execute the amendments and related documents on behalf of the Board.

Staff Comments:  Ms. Cavanaugh reported the summary plan descriptions for the BWL DB pension plan and DC pension plan describe circumstances under which the benefit may be involuntarily cashed out after a participant terminates employment.  The proposed plan amendments reduce the involuntary cash out limit from $5,000 to $1,000 effective for distributions made on or after March 28, 2005, in compliance with Internal Revenue Service (IRS) Code Section 401(a)(31)(B).  This means that if the sum of the combined vested account balances at the time of distribution is $1,000 or less, applicable taxes will be withheld and the benefit will be paid directly to the participant in the form of a single sum cash payment, unless the participant elects within a 30-day election period to have their distribution rolled directly over into another employer plan or an IRA.

While the retroactive effective date is required by the IRS’ rules to be March 28, 2005, governmental plans have until the close of the first regular legislative session of the legislative body with authority to amend the plan that begins on or after January 1, 2006 to amend the plan documents. Therefore, the plan documents must be in compliance by June 30, 2007.

Motion by Commissioner Calkins, seconded by Commissioner Wonch, to approve Resolution  2006-1-9 for the modifications of Defined Benefit and Defined Contribution Plans for Employees’ Pensions.

Action:  Carried unanimously.

Resolution 2006-1-10

Whereas, The Board of Water and Light (BWL) considers safety of its employees and customers paramount, and

Whereas, As part of a concerted effort to greatly enhance and improve the safety program at the BWL, the National Safety Council was hired to perform an audit of the BWL’s safety culture and make recommendations for improvement of the Safety Program, and

Whereas, The BWL Joint Safety Committee formed a subcommittee comprised of two IBEW officials and two management employees for approval by the Board of Commissioners in accordance with one of the National Safety Council’s priority recommendations resulting from their audit.

Resolved, That the Board of Commissioners hereby adopts the Safety and Health Policy.

Staff Comments:  The Policy is one of the recommendations by the National Safety Council as a result of an audit they performed of the BWL’s safety culture.  The Policy was drafted by a subcommittee of the BWL Joint Safety Committee comprised of  Joe Davis, IBEW Local 352 Union Business Agent; Mike Stanley, IBEW Local 352 Union Safety Coordinator; Mike Guerin, Director of Delivery; and Richard Peffley, Director of Production.

Motion by Commissioner Joseph, seconded by Commissioner Graves, to adopt Resolution 2006-1-10 regarding the Board of Water and Safety Policy.

Action:  Carried unanimously.

Resolution 2006-1-11

C.        INCREASE CAPITAL PROJECT BUDGET FOR ERICKSON STATION REPAIRS

RESOLVED, that the FY2006 Planned Capital Budget be increased $300,000 to cover the cost of a new project for the replacement of the existing screen and convection pass tubes in the Erickson Station boiler. The existing tubes have exceeded their life expectancy and this project addition is expected to increase the availability and reliability of the Erickson boiler.

Staff Comments: 

The Erickson Station boiler has experienced an increase in tube failures over the last year that has negatively impacted its availability and reliability and increased its maintenance costs. The existing boiler screen, convection pass, secondary superheater and economizer tubes are 32 years old and have exceeded their life expectancy. Replacement tube materials will be upgraded as appropriate to increase the tube life expectancy based on the high furnace gas temperatures and velocities when burning western coal. This will be the first phase of a two-phase program to address tube failure issues affecting the availability and reliability of the Erickson boiler. The second phase consisting of replacement of the secondary superheater and economizer tubes will be requested for completion next year as part of the FY 06-07 capital budget. Temporary repairs to the secondary superheater and economizer tubes during the western coal conversion and previous outages have allowed these additional phase two tube replacements to be delayed.

Motion by Commissioner Wonch, seconded by Commissioner Rios, to approve Resolution 2006-1-11 regarding the capital  project budget for Erickson Station Repairs.

Action:  Carried unanimously.

UNFINISHED BUSINESS

No unfinished business.

NEW BUSINESS

The General Manager was directed to prepare a report in response to safety issues raised by the union and the report issued by the National Safety Council.  This information is to be discussed at the next committee of the Whole meeting.

RESOLUTIONS

No resolutions.

GENERAL MANAGER’S REMARKS

General Manager Novick presented a Community Service Award from Michigan Recreation and Park Association to Director of Communications John Strickler for his dedication to the restoration, preservation and promotion of the Grand River as a recreational facility.  Mr. Novick noted that since 1994, Mr. Strickler has taken a lead in community activities such as the Adopt-A-River Program and the annual Chili Cook-Off.  Mr. Strickler humbly accepted the award and acknowledged Nancy Kremsreiter, Pace and Partners, Steve Witter and various agencies who are instrumental in the success of these programs.  Mr. Strickler also announced that Impression 5 Science Center will be the new administrator for Adopt-A-River.

Dennis McFarland, Senior Vice-President of Finance and Administration, presented an update in the mid-year financial status.  The BWL’s financial performance for the first six months of the fiscal year failed to meet budget expectations.  Total operating expenses are nearly $7 million over budget and net income is about $2.4 million below budget.  Turbine repairs at Eckert Station’s unit 4 and 5, and problems with coal deliveries are the main reasons for the budget problems.  The budget anticipated that the utility would experience net income losses of about $2 million this year but revised projections suggest losses could be greater by about $700,000.  Cash reserves could be reduced by about $15 to $20 million.

COMMISSIONERS’ REMARKS

Commissioner Smith gave an overview of the Impression 5 Science Center Water Room Renovation Grand Opening.  She reported the BWL sponsored this project, which received good media coverage.  She commended staff for their participation in this excellent educational partnership with Impression 5.

Commissioner Joseph spoke on the importance for management and the union to intensify their efforts to work together to resolve labor issues.  He noted that he would prefer not reading about BWL union issues in the newspaper without knowing that press releases are going to be published.  His remarks were made in reference to recent articles that appeared in the Lansing State Journal regarding the size of line crews working on high voltage wires.  Commissioner Joseph suggested that if issues cannot be resolved internally between management and the union, they should be brought to the Board before taking them to the press.

EXCUSED ABSENCES

On motion by Commissioner Calkins and seconded by Commissioner Graves, that the absences of Commissioners Callen and Haggart be excused.

Carried unanimously.

PUBLIC COMMENTS

Joseph Davis stated that he agrees with Commissioner Joseph about management and the union working together.  He also stated that he would act in an appropriate manner to protect the interest of those that he is responsible for.  Commissioner Smith also suggested that the Board has the ability to call a special meeting to address issues when the need arises.

EXECUTIVE SESSION

Moved by Commissioner Calkins, seconded by Commissioner Graves, to convene in closed session for a mid-year performance review for the Board-Staff appointees as permitted under Section 8 of the Open Meetings Act (MCL 15.268(a)).  The roll was called at 7:35 p.m.

Yeas:  Commissioners Calkins, Graves, Joseph, Rios, Smith, and Wonch.

Nays:  None

Absent:  Commissioners Callen and Haggart

Carried unanimously.

Moved by Commissioner Wonch, seconded by Commissioner Rios, that the Board return to open session.

Carried unanimously.

The Board reconvened in open session at 8:10 p.m.

The Board discussed the process for hearing a complaint made against the General Manager and his performance.  Following lengthy discussion, the Commissioners were in support to seek legal advice before scheduling another closed session to assure compliance with the Open Meetings Act.  This matter will be taken up at a future Committee of the Whole meeting.

ADJOURNMENT

On motion by Commissioner Wonch, seconded by Commissioner Rios, the meeting adjourned at 8:49 p.m.

/s/ Mary Sova, Corporate Secretary
Filed with Lansing City Clerk
February 7, 2006