(Approved by the Board:  May 23, 2006)

 

MINUTES OF THE BOARD OF COMMISSIONERS’ REGULAR MEETING

LANSING BOARD OF WATER AND LIGHT

_________________________

Tuesday, March 28, 2006

_________________________

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

Present:            Commissioners Gary Calkins, Robert Cochran, Joseph Graves, Tim Haggart,
Semone James, Santiago Rios, and Robin Smith

Absent: Commissioner Ron Callen

The Secretary declared a quorum present.

Chairperson Smith called the meeting t order at 5:50 p.m.

APPROVAL OF MINUTES

There being no objections, the minutes of the January 26, 2006 regular meeting were approved.

PUBLIC COMMENTS

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.

Paul Zamarron of 500 South Pine, Lansing, expressed concern with the closing of the BWL paystation that was located in City Hall.  He said customers should have been notified and provided some options.

 

Senior Vice President of Finance Dennis McFarland explained that the closure of the pay station was based on two factors:  (a) it   handled the fewest number of payments as compared to other pay stations and (b) payments were regularly submitted back to the Board in an untimely manner.  The Board requested that a written response be sent to Mr. Zamarron with a copy to the Commissioners.

Joseph Davis, Business Manager of IBEW Local 352, addressed the Board on behalf of the union regarding the issues of trust and relevance.  He handed out a copy of his presentation and elaborated on specific concerns relative to the future of electric generation in Lansing and the potential sale of generating assets due to losses of retail load.  Mr. Davis commented that the lack of open communication has created an environment of mistrust.  He cited recent controversies regarding lead pipes, CSO inspections, and the attempt to reconfigure line crews from three persons to a two-person crew.  He discussed employee work rule disagreements and safety complaints.  He asked the Board to give some consideration to conducting an external evaluation of the workplace climate at the BWL.  Finally, he asked for a clarification of the Board’s overall strategic business direction to satisfy financial challenges resulting from recent General Motors plant closures, environmental regulations, increased fuel costs, etc. 

Commissioner Rios stated he is concerned with the issues raised by the union and the apparent breakdown of trust in the integrity of the human resources process.  Whether the complaints are real or perceived, they should be taken seriously because of an undercurrent that seems to exist.  He noted that these issues have been persistent, at least since he has been on the Board over the past two years.  He spoke on the importance of mutual trust and productive and positive communication between all involved parties.  Additionally, he expressed concern that certain employees feel that processes are not being managed properly nor are certain directions being followed at all levels of the organization.  He urged the Board to consider retaining an independent human resources professional to conduct an independent assessment of the BWL work climate.

Commissioner Cochran agreed with Commissioner Rios and noted that although he is new on this Board, some of the union concerns were found quite by accident even before he knew he was going to serve on this Board.  He reported that he and Mr. Davis co-chaired one of the Mayor’s transition teams called Infrastructure and Information Technology.  Through this association, Commissioner Cochran got to know Mr. Davis.  He pointed out that there are always two sides to a story, but where there is smoke, there is fire.  He expressed his belief that whether it is a failure to communicate or something that has caused the trust to be breached, there is no way of knowing how substantive and correct the allegations are due to lack of objective data.  He supports an external workplace assessment to identify the problems and find solutions.

General Manager Novick reminded the Commissioners that there is an independent outside entity that oversees human resources-related matters, and it is an arbitrator.  He stated that this has been previously discussed with the Board, thus he wanted to make it clear, that when grievances occur, the employee goes through a formal process with an arbitrator to evaluate the legitimacy of the concern.  If the arbitrator determines the employee’s complaint is not legitimate, then the employee has the option to bring this matter before the Board. 

Commissioner Graves told Mr. Davis that he appreciates his sharing concerns with the Board.  He commented that Mr. Davis mentioned some of the organizational cultural issues have been existent for some time.  Commissioner Graves noted that the Board has a responsibility to ensure that management is doing what it needs to do to change the culture, if in fact the issues are real.  To undertake an organizational change has to involve both sides of the equation.  He further stated that Mr. Davis spent some time talking about trust and a lack of trust.  Commissioner Graves said that part of him thinks that it is not necessarily an absence of trust, but rather fear.  He alluded to the flatness of the economy, the fact that Fisher Body has closed, and that General Motors is downsizing and facing serious fiscal challenges.  He said that this is happening across the country.  And in this global competitive environment, we all are feeling some fear.  He suggested that perhaps this contributes to seeing incidents in a way that perhaps magnifies them larger than they perhaps are.  

Mr. Davis responded that without trust, fear is the underlying issue because people are afraid their jobs are not going to be there and that the organization will not consider their needs. 

Chair Smith agreed with sentiments that an undercurrent of mistrust seems to exist in the organization.  She referred this matter to the Committee of the Whole to address the following issues:  (1) to consider retaining an independent human resources professional to conduct an independent evaluation of the organization’s work climate and (2) to discuss how to clearly articulate the Board’s overall strategic direction and implement cultural change.

COMMUNICATIONS

Letter from IBEW, Local 352, Business Manager Joseph D. Davis, regarding issues of concern by the union. 

Received and placed on file.  (This item was discussed during Public Comments, above.)

Addition to Agenda

There being no objection, Chair Smith waived the order of business to consider a pending item concerning a property sale agreement with River Street Triangle, LLC.  Chair Smith invited Jerry Ambrose, Chief of Staff to Mayor Bernero, to give the Board a status report on the City administration’s effort to move forward with the development of Lansing’s riverfront and to make a request.

Mr. Ambrose reported that for several years, two portions of the riverfront were subject to development agreements with the River Street Triangle.  The first parcel, referred to as the “Triangle,” is located along the Grand River at Kalamazoo and Grand Avenue.  The second parcel, known as the former coal storage site, is located along the Grand River at Shiawassee and Grand Avenue.  After several years, these two prime pieces of real estate have not been developed.  On behalf of the City administration, Mr. Ambrose asked the Board to help move this development process along.  He noted that in 2001, the BWL entered into a Buy/Sell Agreement with River Street Triangle, LLC for the coal storage site.  Following the sale agreement, the City of Lansing entered into a development agreement with River Street Triangle, LLC for the coal storage site on December 2002 and a revised agreement on November 3, 2004.  With the new Mayoral administration on board, River Street Triangle, LLC entered into a tolling agreement, which kept the status quo in place through March 31, 2006 to provide time for the new administration to negotiate with River Street Triangle.  Discussions regarding the coal storage site have been held between Mayor Bernero and developer Joel Ferguson.  At this time, the administration is asking the Board of Water and Light to exercise its rights under the coal storage agreement to authorize its General Manager to provide notice of termination to River Street Triangle and to refund the $100,000 deposit they paid under its agreement with BWL.  Mr. Ambrose stated that the City administration believes this is the next step in moving forward on developing Lansing’s riverfront and he urged the Board to act on this request.  Bob Tresize, Executive Director of the Lansing Economic Development Corporation and City Attorney Brigham Smith were also present to respond to questions.

Resolution 2006-3-1
Termination of Property Sale Agreements
with River Street Triangle, LLC

RESOLVED, That the Board of Commissioners authorizes the General Manager to issue an immediate notice of termination to River Street Triangle, LLC, terminating the “Amended and Restated Agreement to Sell Between the Board of Water and Light and River Street Triangle, LLC Regarding the Sale of the Property Located on the Corner of Shiawassee Street and Grand Avenue” dated May 31, 2005 (Restated Agreement) pursuant to Article V, Section 501.

FURTHER RESOLVED, That the Board of Commissioners authorizes the General Manager to refund River Street Triangle, LLC’s $100,000 deposit related to the Restated Agreement as soon after delivering the notice of termination as practical.

FURTHER RESOLVED, That the Board of Commissioners authorizes the General Manager to issue an immediate notice of termination to River Street Triangle, LLC terminating the Agreement to Sell Between the Board of Water and Light and River Street Triangle, LLC Regarding the Sale of the Property Located on the Corner of Shiawassee Street and Grand Avenue dated May 17, 2001 pursuant to Article V, Section 501.

Staff Comments:  These Agreements were signed in 2005 and 2001, respectively.  The Restated Agreement permits termination “by giving written notice” to River Street Triangle if the conditions precedent are not met by July 31, 2005.  Because the City Council never approved the Restated Agreement, the conditions precedent were not met.  Upon termination, the BWL must return River Street Triangle’s $100,000 deposit.  In addition, because the Restated Agreement was never approved, the 2001 Agreement was not superseded.  Therefore, to fully terminate the property sale agreement with River Street Triangle, the 2001 agreement must also be terminated.  The 2001 Agreement permits termination “by giving written notice” to River Street Triangle, LLC if the conditions precedent to that agreement are not met by May 31, 2004.  Because River Street Triangle never closed on a purchase of property from the City of Lansing in accordance with the “City Agreement,”the conditions precedent were not met. 

Motion by Commissioner Rios, seconded by Commissioner Graves, to approve Resolution 2006-3-1 on the termination of the property sale agreements with River Street Triangle, LLC.

Commissioner Rios remarked that the Board was in full agreement to cooperate with the City and the Mayor’s Office to extend the time so that the project could be developed.  Since the project is not going forward, then there is no reason for the Board to continue the agreement.

Action:  Carried unanimously.


Resolution 2006-3-2

Election of the Chair Pro Tem

Chair Smith announced that the officer position of Vice Chair is vacant due to the term expiration of former Commissioner Ifield Joseph.  Under the Board’s Rules of Procedure, in the absence of the Vice Chair, the Chair Pro Tem then assumes the post of Vice Chair.  She welcomed Commissioner Graves as the new Vice Chair.  In light of this change, a vacancy now exists for the Chair Pro Tem position.  She asked for nominations from the floor.

Commissioner Graves nominated Commissioner Calkins for the position of Chair Pro Tem. 

Chair Smith nominated Commissioner Rios for the position of Chair Pro Tem.

Commissioner Calkins announced that he was not interested in serving as an officer at this time.

Commissioner Graves withdrew his nomination.

Commissioner Haggart moved that nominations be closed

Commissioner Rios’ nomination as Chair Pro Tem was carried unanimously.

COMMITTEE REPORTS

Resolution 2006-3-4
 COMMITTEE OF THE WHOLE REPORT

The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 4:30 p.m., Tuesday, January 31, 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

The following employees spoke regarding safety concerns surrounding management’s recent practice of reorganizing the line crews from a three-person standard configuration crew to a two-person crew.  Joseph Davis, IBEW Business Manager, Local 352; Jack Houghtaling, IBEW President, Local 352; and Jayne Hoxie from the Overhead Line Department.  The employees said they have safety issues with two lineworkers in the bucket to repair high voltage lines and no one on the ground to act as a safety observer.  They said these are threats that could jeopardize the safety of their electrical crews.

After discussion, the Commissioners thanked the employees for coming to the meeting to share their thoughts and experiences of working in higher voltages and heights.  They assured the employees that their remarks and concerns would be taken under advisement and discussed with management to find a satisfactory solution to this controversy.

Executive Session

Moved by Commissioner Calkins, seconded by Commissioner Callen, to go into executive session to discuss an issue related to the General Manager’s performance pursuant to MCL 15.268(a).  (4:50 p.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 Calkins, 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 6:40 p.m.

The Committee of the Whole discussed issues related to the General Manager’s performance and is in support of the General Manager addressing the concerns raised.

There being no further business, the Committee of the Whole adjourned at 6:41 p.m.

Respectfully submitted,

Joseph E. Graves, Jr., Chair Pro Tem

Committee of the Whole

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

Action:  Carried unanimously.

Resolution 2006-3-5
Joint Meeting

Lansing City Council and

Board of Water and Light Commissioners

March 9, 2006

Council President Harold Leeman called the joint meeting to order at 12:15 p.m.  The meeting was held at the Cadillac Club, 1115 South Washington, Lansing.

Councilmembers Present:  Sandy Allen, Joan Bauer, Kathie Dunbar, Brian Jeffries, Harold Leeman, Tim Kaltenbach, and Carol Wood.  Absent:  Councilmember Randy Williams.

Commissioners Present:  Ron Callen, Bob Cochran, Joseph Graves, Jr., Semone James, Santiago Rios, Robin Smith.  Absent:  Commissioners Gary Calkins and Tim Haggart.

City Staff Present:  City Attorney Brigham Smith and City Council Administrative Assistant:  Diana Bitely

BWL Staff Present:  General Manager Sanford Novick, Corporate Secretary Mary Sova, and Governmental Affairs Analyst Calvin Jones.

The purpose for the joint meeting was for the BWL to present an update to the City Council on the following Topics:

1. Union Contract Update.  Commissioner Rios reported that the current Agreement between BWL and IBEW, Local 352, expires October 31, 2006, but remains in effect unless and or until changed.  Either party can request a change no more than ninety days but at least sixty days prior to the end of the contract term.

3. Law Suits.  Board Chair Robin Smith reported that three major lawsuits are pending. One is with the former General Manager.  No activity has occurred in some time.  Total legal cost in calendar year 2005 was $30,000.  The other two suits are with former employees Virginia and David Cluley.  On March 8, 2006, the Court of Appeals upheld, on all counts, the lower court’s dismissal of Mrs. Cluley’s case.  The BWL was denied summary disposition on two issues in Mr. Cluley’s case, and those two issues are in the process of being appealed.  Total cost on the Cluley cases in calendar year 2005 is $168,000.

4. Financial Update.  General Manager Novick reported that although it appears the BWL will outperform budget, the utility is suffering operationally due to reduced wholesale revenues, lower revenues from General Motors (GM) and higher costs in the production area.  However, this is more than offset by funds to be received from the Michigan Public Power Agency for excess SO2 credits associated with the BWL’s ownership interest in the Belle River Plant.

5. Consolidation Options.  General Manager Novick reported that management continues to look at ways to reduce costs through internal consolidations and reorganizations.  In addition, staff has met twice with the City Administration and continues to have dialogue regarding ways to help each other out.  For example, it was agreed to let the City use the BWL as its example to require all those who dig in the street to test the compaction of the backfill before surface paving occurs.  It was agreed to do that for the City with the hope that long-term street repair costs will, if not decrease, at least not increase as rapidly.

6. Future Rate Increases.  General Manager Novick advised the Council that a water increase of 6.5 %, approved in 2005, is already in place to take effect July 1, 2006.  Staff will most likely be requesting a steam rate increase to be effective in September 2006 of approximately 35% due to the GM shutdowns.  Every effort is being made through significant cost cuts to avoid an electric rate increase to stay competitive.

7. Capital Improvements for 2006.  General Manager Novick stated that staff continues to work with the City in replacing water mains as part of the CSO initiative.  Capital replacement of infrastructure is budgeted at a long-term rate of depreciation.  The BWL 2006 capital budget is $33.4 million and it is anticipated at least that much will be spent.

8. Lead Service Replacements.  Board Chair Smith commented that in calendar year 2005, the BWL replaced 2000 lead services of which 400 were for “sensitive” population (families with young children or households with expectant mothers). The replacement project is currently ahead of its ten-year schedule by six months.

9. Update on Riverside Sludge Pond.  General Manager Novick reported that an outside consultant (SME) has been retained to evaluate the structural integrity of the existing dike walls and to test to see if there was any groundwater contamination. The results showed no contamination and sufficient structural integrity.  A plan is being evaluated to place an earthen cap over the site, improve wall integrity due to added load from the earthen cap, reclaim the site for some public use, and the costs to achieve the above.

10. Update on North Lansing Landfill.  General Manager Novick reported that the MDEQ has approved the BWL’s amended consent order to install a below ground slurry wall and an earthen cap. On-site boring for additional geotechnical information is currently underway to confirm the slurry wall approach.

11.  City Council/BWL Pairings.  Council President Harold Leeman distributed a listing of suggested Commissioner and City Councilmember pairings as an effective mechanism to keep communication channels open and maintain close links between the City and the BWL.

Following a question and answer period, the Commissioners and Councilmembers agreed that joint meetings are beneficial for open discussion on issues of mutual concern.  It was agreed to meet twice a year.

The meeting adjourned at 1:05 p.m.

Motion by Commissioner Calkins, seconded by Commissioner James, to receive the Report on the Joint Meeting with the Lansing City Council as presented.

Action:  Carried unanimously.

Resolution 2006-3-6
FINANCE COMMITTEE REPORT

The Finance Committee of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 4:00 p.m., Tuesday, March 14, 2006.

Acting Finance Chair Gary Calkins called the meeting to order and asked the secretary to call the roll.  The following committee members were present:  Commissioners Semone James, Gary Calkins, Robin Smith, and Ron Callen (arrived at 4:15 p.m.). Commissioners Cochran and Graves (arrived at 5:30 p.m.) were also present.

Public Comment

No persons spoke.

Information Technology (IT) Work Plan

Harvey Briggs, Manager of Information Technology, presented an overview of the BWL’s IT work plan to address current systems deficiencies. (A copy of the report is filed with the Corporate Secretary.)  He reported that the BWL has recognized the need to be much more efficient and effective than ever before.  In June of 2003, the IT strategic plan identified the biggest challenge to be the slow speed and high cost to enhance existing applications and implement new applications.  Staff concluded that the solution to enhance the current system is to move development off the mainframe and train staff in new development technologies.  Additionally, investigate ‘web services’ and service-oriented architecture (SOA) to begin building systems with the tools that enable this technology.  Mr. Briggs reported that a ‘Web Service’ is a software component that is coded, tested, installed and ready to use.  It can execute on any computer platform anywhere in the world.  Mr. Briggs gave an overview of where the IT solutions industry is today and discussed the background of each of the following four vendors:  SAP ‘NetWeaver’/ESA, Oracle – ‘Fusion Applications,’ Microsoft – NET/Project Green and Lawson.  He discussed the status of the BWL hardware and software costs for the mainframe and PC environment.  The following BWL technology needs were outlined:

Mr. Briggs noted that the internal IT resources are limited.  He stated that the path to achieve the level of automation needed to run the BWL effectively is to purchase new technology business software packages, phase out the mainframe, continue development moving towards a Web Services environment, and promote more training to change the IT skill set.  Costs associated with the hardware and software direction, which included vendor costs to purchase a financial package and future packages were summarized.  He noted that the BWL’s six-year financial plan includes $6 million to cover the proposed application implementation.

Vendor Selection for the New Financial and Reporting System

Gennie Eva, Manager of General Accounting reviewed the new financial and reporting system project requirements, the timeline and evaluations of vendors.  The scope of the project requirements included:

Future considerations and applications include:

Ms Eva reviewed the entire process, which culminated in selecting the top three vendors for scripted demonstrations.  The vendors are Lawson, Microsoft, and SAP.  She reviewed the strengths and weaknesses for each of the vendors and the project team’s grade in the areas of functionality for accounting and purchasing, technology, implementation timing, implementation/hardware, annual costs, and ease of future expansions.  The vendors were also rated based on core financials, technical, and implementation.  Ms. Eva noted that the three vendors are acceptable in the sense that they do respond to the express needs included in the RFP for financial modules.  They are all minimally acceptable for the specific needs that were included in the RFP.  The project team also evaluated future integration of other applications, quality of underlying technology, cost, and the extent of future commitments.  The next steps involve vendor selection, contract negotiation, and the implementation phase.  Completion of the new Financial and Reporting System is targeted for June 2007.

[Commissioner Graves entered the room at 5:30 p.m.]

The Commissioners asked numerous questions regarding justification for the cost difference and capabilities among the three vendors.  They raised questions regarding training, implementation, the quality of future modules, and integration of the complete plan in years ahead.  They asked for additional information regarding the experiences of other utilities that have moved their computer systems development off the mainframe to web-based systems using one of the three vendors.  The Commissioners emphasized the importance of having a good foundation.  They asked staff to bring forth a resolution that articulates the rationale for the Board to adopt a policy to move from the mainframe to a web-based system with justification for this large expenditure.  Commissioner Smith commented that she would prefer to see additional information on the integration of modules and associated future costs.  Following lengthy discussion, the Finance Committee took the following action:

Resolution 2006-3-7

On motion of Commissioner Calkins, seconded by Commissioner Callen, the Finance Committee recommends that the Board authorize staff to commence contract negotiations with SAP Services for formal approval by the full Board.  Adopted.

Voting Aye:

Callen, Calkins, James

Voting Nay:

Smith

Absent

None

 

BWL Financial Plan – FY 2007 Assumptions

Sr. Vice President of Finance and Administration Dennis McFarland referred to the BWL financial plan for FY 2007 included in the meeting packet.  Due to time constraints, he restricted his comments to the sheet on operating expenses underlying the fiscal year 2007 budget as follows:

·     No increase in full-time employees

- Bargaining Unit – per contract to October 31, 2006, constant thereafter

- Non-Bargaining  - based on market study

·    Increase in underlying health care cost of 5%  ($671K)

An in depth report will be presented to the Finance Committee in May when the FY 2007 budget review is held.

FY2006 Capital Budget Adjustments.  Due to time constraints, items relating to budget adjustments concerning Eckert Station Turbine #4 Steam Path Upgrade Project, the Eckert Station Black Start Project, and Eckert Station’s 4th Black Start Generator Addition Project were referred to the regular Board meeting on March 28, 2006 for review and consideration.

There being no further business, the Finance Committee adjourned at 6:00 p.m.

Respectfully submitted,

Ron C. Callen, Chair

Motion by Commissioner Calkins, seconded by Commissioner Cochran, to approve the Finance Committee Report, including Resolution 2006-3-7 authorizing staff to commence contract negotiations with SAP Services for subsequent approval by the full Board.

Action:  Carried unanimously.


COMMITTEE OF THE WHOLE REPORT

The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 6:05 p.m., Tuesday, March 14, 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, Robert Cochran, Joseph Graves, Jr., Semone James, Santiago Rios, and Robin Smith.  Absent was Commissioner Haggart.

Public Comment

There were no public comments.

Six-Year Forecast

Dennis McFarland, Sr. Vice President of Finance and Administration, presented the BWL Financial Plan for 2007 – 2012.  He told the Commissioners that this is the first of several meetings on this topic.  The purpose for this presentation is to give a layout base of the current financial situation and decisions that ultimately have to be made regarding rates and other issues.  Mr. McFarland presented the following base case assumptions:

- No additional rate increases

- General Motors contractual obligations met

- Wholesale sales 25-30% of total electric sales

- 2.7% general inflation

-5% health care inflation

- Coal prices at market

- Continuation of the existing PILOT agreement with the City of Lansing

- Eckert Station remains in service

- Moores Park remains in service

- No new environmental regulations

He reviewed various graphs depicting data relative to the following:

·        Electric Load Forecast by Customer Class

·        Electric Generation Forecast

·        Projected Revenue and Expense from January 2005 shows a six-year cumulative net loss of $63 million.

·        Projected Revenue and Expense:  Base Case March 2006 shows a six-year cumulative net loss of $118 million.

·        Projected Consolidated Net Income and Cash:  Base Case 

·        Net Income by Utility:  Base Case

·        Cash Flow by Utility:  Base Case

·        Capital Expenditures by Utility

·        Energy Cost Adjustment Factor

·        Credit Statistics:  Base Case

Mr. McFarland presented a “Rate Reliant” case showing rate increases by year required in each utility to obtain a 4% rate of return.  Also reviewed were cumulative rate increases required in each utility to obtain a 4% rate of return.  It was noted that the water rate increase in July 2006, which is already set at 6.5%, does not achieve a 4% rate of return.  Graphs depicting a “Rate Reliant” case were reviewed:

·        Consolidated Net Income and Cash:

·        Net Income by Utility

·        Cash Flow by Utility

·        Credit Statistics

·        Comparative Credit Statistics for Base + “Rate Reliant” Case

Financial Sensitivities comparing the impact of various scenarios were discussed:

 

Category

 

Description

~ Average Effect on Annual Net Income

Six-Year Effect on Annual Net Income

Employee Count

Change to 10 employees

+ $740,000

+$4,440,000

Weather

Affect on Electric Retail Revenue for 10% change in CDDS

+ $560,000

+$3,350,000

Wholesale Electric Prices

5% change from projection

+ $1,900,000

+$11,400,000

Inflation

Change of 1% per year

+$1,000,000

+$4,870,000

General Motors

Risk of Bankruptcy

Na

-$18,000,000

Fuel Costs (Wholesale Effect)

5% change from projection

+$1,500,000

+$9,000,000

 

Strategic issues that need to be discussed include:

·        Dependence on Wholesale markets

·        Environmental Regulations

·        Cost Management

·        Financing and Credit Options

·        Rate Options

General Manager Novick reported that the Board would have to make significant decisions about rate sufficiency in future years.   He stated that staff plans to return with additional analysis for Board consideration of strategic issues and determination of a rate strategy. 

Following discussion, the Commissioners indicated they would prefer to see a comprehensive package, rather than a piecemeal analysis with different scenarios, including worse case scenarios.  Risk factors dealing with tough issues related to environmental regulations and power supply need to be discussed.  General Manager Novick pointed out that a long-range projection with dire alternatives would be difficult to complete in a couple of weeks due to long-term questions, which in part, are affected by environmental issues and the Integrated Resource Plan (IRP).  Staff is building a knowledge base to address underlying unknowns. Mr. McFarland stated that by narrowing a range of options, it would be feasible to present a combination of options in a couple of weeks that would provide good credit stats and rate competitiveness.  The Commissioners concurred.

Mercury Presentation

Nick Burwell, Senior Environmental Affairs Representative, presented an environmental overview.  He reported that staff and consultant Sargeant & Lundy are in the process of developing an Integrated Resource Plan (IRP) that looks at issues and alternatives for existing and new electric generation.  The IRP should be completed around the end of the fiscal year.  The IRP has a section that identifies potentially significant environmental compliance and other environmental issues.  Mr. Burwell stated that over the next few Commissioner meetings, he plans to present a background of these environmental topics as a preview of the IRP.  He reported that some of these issues include:

Mr. Burwell summarized some of the most important aspects of the Clean Air Mercury Rule (CAMR) and the Industrial Boiler MACT.  The following rule-making timelines were reviewed:

-  Compliance monitoring begins in 2009

-  Phase 1 begins in 2010 and reduces emissions from approximately 48 tons to 38 tons

-  Phase 2 begins in 2018 and further reduces emissions from 38 tons to 15 tons. 

In reviewing Mercury planning issues, Mr. Burwell stated that there is no proven high-level control technology.  Activated carbon injection currently leads the list, but because of the lack of technology, Phase 1 of CAMR was aimed at Mercury reduction entirely due to co-benefits of controls on NOx and SO2 emissions, while mercury specific controls are developed and tested.  A significant problem for the BWL and most Michigan utilities is that Western PRB coal does not use other controls, such as flue gas desulphurization baghouses, selective catalytic reduction, although Western coal is more environmentally friendly.

Currently no EPA certified monitoring technology exists.  The small amounts make it difficult to monitor.  The development of Michigan rules to implement CAMR have not started.  Michigan and other states have sued EPA for more strict levels of control.

Mr. Burwell noted that it is anticipated the CAMR will be implemented “as is” in Michigan.  In a 2004 study prepared by Sargeant & Lundy, the estimated costs of CAMR Phase 1 were projected to be $38 million for capital and $4.3 million for annual operating expenses (O&M).  Mr. Burwell stated that it his “best guess” the industry should know a lot more about Mercury by the 2009–2012 time range.

After lengthy discussion, the Commissioners discussed concerns with the impact the environmental issues will have on the ratepayers.  General Manager Novick reported that staff would be coming to the Board by the end of the fiscal year to discuss the integrated resource plan recommendations.

Internal Auditor Hiring Process

Human Resources Director Mary Dwyer updated the Commissioners on the applications received for the Internal Auditor position.  She requested clarification from the Commissioners as to how they wish to proceed with the hiring process before moving forward.  There was lengthy discussion as to whether to proceed with interviewing the current pool of candidates or expanding the search using a recruiter.  The Commissioners agreed to retain a recruiter. 

Resolution 2006-3-8

On motion by Commissioner James, seconded by Commissioner Rios, the Committee of the Whole recommended that the Board proceed with a Request for Proposal for Executive Search Services for the Director of Internal Audit.   Adopted.

Voting Aye:

Callen, Cochran, James, Rios, Smith

Voting Nay:

Calkins, Graves

Absent

Haggart


There being no further business, the Committee of the Whole adjourned at 8:55 p.m.

Respectfully submitted,

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

Motion by Commissioner Graves, seconded by Commissioner Calkins, to approve the Committee of the Whole Report, including Resolution 2006-3-8 to proceed with a Request for Proposal for Executive Search Services for the Director of Internal Audit.

Action:  Carried unanimously.


Report of the Special Committee on Rules of Procedure

The Special Committee on Rules of Procedure met January 10, February 7 and March 21, 2006 to review the Rules of Procedure in their entirety and to propose amendments that will ensure the Board has a better understanding and guide on how it operates by including more specific procedures as needed.  The Rules of Procedure were last amended on November 19, 2002.

Committee Members were Commissioners Gary Calkins, Joseph Graves, Jr., Santiago Rios, and Robin Smith. 

The Committee wishes to thank all the Commissioners for their participation in the review effort.

The Special Committee recommends Board approval to amend the Rules of Procedure as reflected in Exhibit 1.

Resolution 2006-3-9
Resolution to Amend the Rules of Procedures of
the Board of Water and Light Commissioners

RESOLVED, That the Board of Commissioners hereby approves the Rules of Procedure, as amended, with an effective date of July 1, 2006, subject to City Council concurrence.

RESOLVED FURTHER, That the Rules of Procedure be submitted to the City Attorney for approval as to form.  The City Charter specifies that the Rules shall then be submitted to the City Clerk for transmission to the City Council for concurrence. 

Respectfully submitted,

Robin M. Smith, Chair
Special Committee on Rules of Procedure

Motion by Commissioner Rios, seconded by Commissioner Cochran, to approve the Report of the Special Committee on Rules of Procedure, including Resolution 2006-3-9 amending the Rules of Procedure.

Action:  Carried unanimously.

MANAGER’S RECOMMENDATONS

Resolution 2006-3-10

A.

FY 2006 Capital Budget Increase for Eckert Station Turbine #4 Steam Path Upgrade Project


RESOLVED, That the budget for the Eckert Station Turbine #4 Steam Path Upgrade Project (Proj. No. 2005-111) be increased from $504,000 to $1,150,000 to accommodate costs for additional repair work identified after the turbine was disassembled.

Project Background:

Senior VicePresident of Operations Bill Cook reported that the original project scope and budget estimate were developed based on anticipated normal deterioration to the turbine internal components based on previous overhaul projects.  After the turbine was disassembled, field inspections identified extensive unanticipated damage to the turbine low-pressure blades and casing.  Due to this damage, major components of the turbine had to be shipped to an outside facility for repair.  This resulted in significantly increased vendor repair payments and extended the outage.  Extension of the outage resulted in increased internal labor costs due to the interference of this project with other planned maintenance and capital project schedules.

It was determined that the root cause of the low-pressure blade damage was from excessive iron carry-over from the boiler caused by extending the frequency of boiler chemical cleaning from the Original Equipment Manufacturer’s (OEM) recommended seven year cycle to twenty years.  Damage to the casing was caused by extended low load operation in the 1997-1998 timeframe.  Also, a contributing factor to the overall increased cost was due to extending the time between turbine overhauls from seven to nine years. 

The BWL has been working for a number of years to return to the OEM recommended boiler cleaning recommendation and turbine overhaul schedule of seven years.  Only one unit remains to get back on this schedule and that is Eckert #5 scheduled to be worked on during the next fiscal year.  Given what has been learned in this instance, next years budget will be adjusted to reflect anticipated similar findings for the overhaul of Eckert #5.  In addition, operational parameters for low load operations were adjusted in 1999 such that no additional damage due to this issue should have been inflicted after that time.

Motion by Commissioner Cochran, seconded by Commissioner Graves, to adopt Resolution 2006-3-10 regarding FY 2006 Capital Budget increase for Eckert Station Turbine #4 Steam Path Upgrade.

Action:  Carried unanimously.

Resolution 2006-3-11

B.

FY 2006 Capital Budget Increase for Eckert Station Black Start Generator Project Cost Overruns


RESOLVED, That the budget for the Eckert Station Black Start Project (Proj. No. 2005-116) be increased from $1,365,000 to $1,750,000 to accommodate project cost overruns.

Project Background:

Senior Vice President of Operations Bill Cook reported that the original project scope involved the purchase and installation of three used diesel generators (2 MW each) to provide for the emergency start-up of Eckert generators 1, 2 or 3 in the event of an area blackout.  This project also provides for wholesale revenues associated with the addition of 6 MW.  

Added costs were a result of three major issues: 

1.                  After the project was approved, environmental regulation changes required that $90,000 worth of additional emissions control equipment be installed. 

2.                  BWL staff severely underestimated the cost of working with this used equipment.  This was in part caused by a lack of complete equipment drawings, proprietary system information and vendor support.  As a result, added material, equipment and labor costs were incurred, as well as schedule slippage costs that were not included in the original project budget.

3.                  BWL procedural and process problems involving project scope, estimating, change orders, drawings, supervision and project management all contributed to the increased cost and delay of the project from the anticipated summer installation to winter months.  The schedule being delayed from summer to winter resulted in increased cost due to reduced efficiencies as well as increased outside contract labor resulting from BWL crews being unavailable due to working on other scheduled projects.  The abovementioned procedural problems have been corrected.  (An attachment outlining the procedural changes is included with the Board meeting packet.)

While the project experienced overruns, Mr. Cook noted that as a result of using used equipment the final projected installed cost was very favorable compared to similar new capacity.  While the final cost is expected to be $292/kW, up from $228/kW, a new peaking unit installed on a Greenfield site would cost $550/kW.

Resolution 2006-3-12

C.

FY 2006 Capital Budget Increase to Install a Fourth Emergency Black Start Generator at Eckert Station


RESOLVED, That the FY2006 Capital Budget be increased by $480,000 to accommodate a new project to install a fourth emergency Black Start Generator at Eckert.

Project Background:

Senior Vice President of Operations Bill Cook reported that the original Black Start Project Scope (Project No. 2005- 116) required the minimum installation of three 2 MW generators to provide the Black Start requirement for Eckert Units 1, 2 or 3.  After searching for approximately 9 months, a set of five used 2 MW generators were found.  These five units were being sold as a block, and were significantly less costly than the purchase of three new units needed for the Black Start Project.  Concurrently, under a separate project, the BWL had a need to replace the emergency generator at the Dye Water Conditioning Plant. Consequently, the five generators were purchased.  Three were slated for the Black Start Project, one unit reserved for the replacement of the emergency generator at the Dye Water Conditioning plant, and a fifth unit was obtained under the premise that if it could not be justified, it would be re-sold.  An evaluation examining this last 2 MW generator has been completed, and it is recommended that it also be installed along with the original three units for Black Start at Eckert.  The basis for this recommendation follows:

1.                  Opportunity sales to obtain added wholesale revenue associated with the sale of the added 2 MW is paid back in 5 to 10 years.  This level of payback meets the payback threshold for FY2006 revenue producing capital budget projects.

2.                  Increased operational flexibility in a Black Start situation through the ability to start equipment sooner and simultaneously.  During a blackout, the extra capacity margin provided by the added 2 MW would be used to get a unit back on line sooner.  It would also serve as a contingency in the event that one of the original three Black Start units did not operate.

3.                  The addition of the fourth Black Start unit will permit Eckert Units 4, 5 or 6 to also be started via the Black Start units.  Given that the original project will provide Black Start capability for Eckert 1, 2 or 3 only, at such time as those units are retired, the fourth Black Start generator is required to enable the newer Eckert units (4, 5 or 6) to be started.

The installed cost of the fourth Black Start generator is $240/kW.  Its installed cost/kW is less than the original three Black Start units, due to the ability to use common infrastructure already in place associated with the installation of those units.  This compares to $550/kW for a new peaking unit installed at a Greenfield site. 

Mr. Cook noted that much of the work to install has already been expended.  As a result of some internal communication issues, project management implemented the Black Start Project under the premise that the fourth unit was justified and included.  Unfortunately, this was not fully uncovered until so late in the process that the unit is almost ready for completion.  Once this was uncovered, work was stopped, pending Board approval.

Discussion:  The Board engaged in lengthy discussion regarding management’s corrective actions to improve project management processes and the consequences.  Mr. Cook reviewed the procedural changes implemented to solve the problem of future occurrences.  He also noted that the parties involved starting with himself to the directors, managers, project managers to the supervisors on the job have been told of the displeasure of how the project planning and scope was handled.  Mr. Cook stated that performance reviews this year would reflect the performance on this project.

Motion by Commissioner Calkins, seconded by Commissioner Cochran, to adopt Resolutions 2006-3-11 and 2006-3-12, respectively, regarding FY 2006 Capital Budget increases for the Eckert Station Black Start Generators.

Action:  Carried unanimously.

UNFINISHED BUSINESS

None.

NEW BUSINESS

None

RESOLUTIONS

Resolution 2006-3-13

RESOLUTION HONORING NANCY A. WONCH

WHEREAS, It is with deep appreciation that we offer tribute to Nancy A. Wonch as she brings to a close an outstanding tenure of public service and accomplishment to the Board of Water and Light.  The members of this Board extend our thanks to a thoughtful Commissioner who brought unique insights to the Board’s decision making process; and

WHEREAS, Nancy A. Wonch was appointed as a First Ward Commissioner on July 2, 2001.  She served on the Human Resources, Finance and Nominating Committees; and

WHEREAS, Nancy A. Wonch brought a breadth of experience to all of her work as a Commissioner.  Her commitment to addressing the many complex issues faced by the Board of Water and Light has been of great value to this Board.  She encouraged lively discussions at all meetings of the Board with the priority goal of providing reliable, efficient service to local customers at a competitive price; and

WHEREAS, in all her work, from the practice of law to responsibilities as a professor at the Thomas M. Cooley Law School and membership on numerous boards, Nancy A. Wonch has demonstrated high ideals of personal integrity and a sense of loyalty to make Lansing a better community.  Over the past 15 years, Nancy has worked tirelessly to promote alternative dispute resolution in Lansing schools.  Her warmth, humor, and character touch all who know her and has inspired others to pursue public service.

RESOLVED That the Board of Water and Light Commissioners, hereby offers this expression of tribute to commend and thank Nancy A. Wonch for her notable contributions to the Board of Water and Light.  In regular session this 28th day of March, 2006, we wish Nancy and her family our best wishes for the future and happiness as new challenges are encountered.

Motion by Commissioner Graves, seconded by Commissioner Rios, to adopt the resolution.

Action:  Carried unanimously.

Resolution 2006-3-14

RESOLUTION HONORING IFIELD PHILINTON JOSEPH

WHEREAS, It is with respect and appreciation that we recognize Ifield Philinton Joseph for his service as a Commissioner of the Board of Water and Light; and

WHEREAS,  Ifield Philinton Joseph was appointed as a Commissioner of the Board of Water and Light on March 3, 2003, as an At-Large member in the City of Lansing.  During his time on the Board, he served with professionalism and integrity on the Human Resources, Finance, and Executive Committees; and

WHEREAS, Ifield Philinton Joseph has led a distinguished mechanical engineering career.  He fulfilled the American dream after leaving his home in Union Island in St. Vincent and the Grenadines as a young man to attend college in America.  After graduating from New York Institute of Technology with a degree in mechanical engineering, he brought his knowledge in engineering design to General Motors.  Through hard work, personal integrity and drive, he also found success as a partner of a small investment company.  Community involvement and his strong sense of responsibility led him to serve on this Board.  His role as a Commissioner provided expertise in technical financial aspects of industry, together with an understanding of the local economy and an excellent knowledge of economic incentive issues that maintain and attract business in Lansing; and

RESOLVED, That the Board of Water and Light Commissioners do express grateful thanks and appreciation to Ifield Philinton Joseph, for his dedicated service on this Board.  In regular session this 28th day of March 2006, we wish “Ifield” success in all his future endeavors.

Motion by Commissioner Haggart, seconded by Commissioner Rios, to adopt the resolution.

Action:  Carried unanimously.

GENERAL MANAGER’S REMARKS

General Manager Sandy Novick reported that the BWL has been named winner of the American Public Power Association (APPA) Customer Service Award.  This is a prestigious award, which only 62 of more than 2,000 public power utilities have received since its inception.  The award will be presented at the APPA National Conference in Chicago this June.

Mr. Novick also reported that the BWL is the recipient of the platinum designation in APPA’s Reliable Public Power Program.  The focus of the program is on operational performance based on four criteria:  reliability, safety, training and system betterment.  The recipient must achieve at least a 90% rating on those criteria.  The award will be presented in April at APPA’s Engineering and Operations Conference.

Mr. Novick invited Director of Engineering Doug Wood to present the 2005 Combined Sewer Overflow (CSO) Year End Report, specifically as it affects the BWL water system.  The same presentation will be given to the Lansing City Council.  The start of the CSO season begins April 10, 2006.  Mr. Wood reported that in 1992, the City begin a 30-year program to separate its combined sewer system as required by EPA to reduce combined sewer overflow discharge into Red Cedar and Grand Rivers.  In 2001, the BWL and City entered into an Intergovernmental Agreement to work cooperatively to include water main improvements in CSO contracts.  The Agreement allows the BWL to participate in the State’s Revolving Funds low interest loans for eligible water improvements.  Mr. Wood addressed the following five areas:

The complete report is filed in the Corporate Secretary’s Office.

Mr. Wood reported that the BWL had a successful CSO year with construction along six street miles, 20,000 feet of water main installed, minimal inconvenience to customers and no significant construction issues.  Recommendations for 2006 include:

Following a question and answer period, Chair Smith commended Mr. Wood and all the workers involved in this project for the progress made over the past five years.

COMMISSIONERS’ REMARKS

Commissioner Calkins stated that the Board’s current Rules of Procedure indicate the Executive Committee shall consist of the three Board officers and one Commissioner elected by the Board.  He expressed an interest in seeking that position along with any others who may also be interested.

Resolution 2006-3-3

Moved by Commissioner Graves, seconded by Commissioner Smith, that Commissioner Gary Calkins be appointed to the Executive Committee for the remainder of this term, ending June 30, 2006.

Action:  Carried unanimously. 

Chair Smith welcomed new Commissioners Bob Cochran and Semone James to the Board and invited them to give a brief overview of their backgrounds.

Commissioner Cochran reviewed his background and stated that he considers it an honor to serve on the Board.  He intends to take his responsibility as a Commissioner very seriously.  He noted that he has already visited various BWL work sites and has spoken with employees with regard to pending issues.

Commissioner James reported on her background.  She has served on various boards in this community and considers it a privilege to serve on this Board.  She pledged that if issues need to be addressed, it is her intent to take employee and customer concerns into consideration and move forward to make the BWL the best utility it can be.

EXCUSED ABSENCES

Moved by Commissioner Calkins, seconded by Commissioner Rios, to excuse the absence of Commissioner Ron Callen.

Action:  Carried unanimously.

PUBLIC COMMENTS

None

ADJOURNMENT

On motion by Commissioner Calkins, seconded by Commissioner Graves, the meeting adjourned at 8:08 p.m.

 

/s/  Mary E. Sova, Corporate Secretary

Filed with Lansing City Clerk

April 12, 2006