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, Semone James, Santiago Rios, Julee Rodocker, Robin Smith, and Sandra Zerkle.

APPROVAL OF MINUTES

By motion of Commissioner Calkins, seconded by Commissioner Rodocker the minutes of the November 28, 2006 regular meeting were unanimously approved.

PUBLIC COMMENT

THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE WELCOME TO SPEAK TO THE BOARD ON ANY AGENDA SUBJECT AND ANYONE WISHING TO COMMENT ON ANY MATTER NOT ON THE AGENDA MAY DO SO IMMEDIATELY PRIOR TO ADJOURNMENT.

Joseph Davis, Business Manager of IBEW Local 352 encouraged the Board to move forward with the process in addressing the issues found within the human resource audit. He advised that many persons were energized with the audit and would like to move forward as it has been a month since the results were shared with the BWL. Mr. Davis also advocated for utilizing an open and shared interview process in the hiring of a new General Manager as was practiced in the past. He further noted that the previous shared process allowed for employee, bargaining unit and public input. Mr. Davis went onto report that they have met to discuss the pension survey, which will be broader than initially anticipated in trying to help employees with their future plans. He also advised that they hope to have the survey to employees within a month.

COMMUNICATIONS

A letter was received from Jim Dravenstatt-Moceri to Commissioner James regarding pension fund issues.

COMMITTEE REPORTS

SUMMARY REPORT FOR THE BOARD OF COMMISSIONERS

The Pension Fund Trustees held their annual meeting on November 28, 2006, to receive the financial statements for the Defined Benefit Pension Plan, Defined Contribution Pension Plan and Retiree Benefit Plan (VEBA). Performance reports for the three plans were reviewed in detail for the period ended September 30, 2006.

Representatives from LCG Associates reviewed the Defined Benefit Pension Plan Performance Report and staff presented the Defined Contribution Pension and Retiree Benefit Plan Performance Reports.

Staff did not propose any changes to the existing policies that include the Defined Benefit Pension Plan Investment Policy, Defined Contribution Pension Plan Investment Policy and the VEBA Trust Investment Policy.

Present: Trustees Gary L. Calkins, Robert W. Cochran (arrived at 4:16 p.m.), Joseph E. Graves (arrived at 4:18 p.m.), Semone M. James (teleconferenced), Julee M. Rodocker, and Robin M. Smith.

Staff Present: Interim General Manager Richard Peffley, Senior Vice President of Operations William Cook, General Counsel Amy Cavanaugh, Acting Human Resource Director Sheryl Hudson, Communications Director Mark Nixon, Manager of Finance and Planning Sue Flores, Senior Financial Analyst Charmaine Shellman, Human Resource Systems Consultant Darold Oxender, Associate Attorney Brandie Ekren, Communications and Public Relations Representative Cheval Breggins, Executive Administrative Assistant Beverly Bishop, Secretary Rosemary Sullivan, and Corporate Secretary Rhonda Jones.

Consultant Present: Richard Babcock, Senior Vice President of LCG Associates and David Emerson, Consultant of LCG Associates.

Manager of Finance and Planning Sue Flores reported that the financial statements for the Defined Benefit, Defined Contribution and Retiree Benefit Reports (VEBA) each received a clean opinion by the auditors, Plante & Moran and there were no audit comments. Ms. Flores explained that a clean audit indicates that the auditors did not have any areas of concern or issues relative to the plans that the BWL needed to address. She further advised that the BWL typically does not receive auditor comments on any of the three audit reports.

Moved by Trustee Smith, seconded by Trustee Rodocker and carried, to approve the following resolution:

ACCEPTANCE OF 2006 AUDITED FINANCIAL STATEMENTS FOR DEFINED BENEFIT PENSION PLAN, DEFINED CONTRIBUTION PENSION PLAN, AND RETIREE BENEFIT PLAN AND TRUST (VEBA).

Resolved, that the Corporate Secretary receive and place on file the Defined Benefit, Defined Contribution, and Retiree Benefit Pension reports presented during the Pension Trustee Meeting.

David Emerson, Consultant of LCG Associates presented the third quarter market returns for the Defined Benefit (DB) Pension plan for the period ending September 30, 2006. He indicated that the majority of the major indexes show positive market returns in the third quarter and all of them are in the black for the longer term. There are a couple of major themes that investors and portfolio managers have reviewed that include: 1) housing market, 2) energy crisis – fluctuating oil prices and 3) consumers. Mr. Emerson advised that although mortgage is refinancing is slowing down and energy prices are starting to stabilize, consumers are finding available funds to spend in the marketplace. All of these factors including that of interest rates and inflation are major areas that portfolio managers review when investing in stocks and bonds.

Richard Babock, Senior Vice President of LCG Associates reviewed the total fund allocation and discussed the following associated charts and reports for the quarter ending September 30, 2006:

Mr. Babcock reported that we are slightly above the target goal in domestic equity and 3.8% above in international equity. The reason being that the international market has increased significantly which means that the asset allocation has shifted to the BWL’s benefit. In order to rebalance the funds LCG Associates recommends the sell of approximately $6,300,000 from the Wachovia Equity Account (Large Cap Core), which will lighten domestic equity. Mr. Babcock further stated that he would like to leave in place the overweight in the international sector because on a relative basis it appears to have more long- term value than the domestic market.

Trustee Smith advised that last year they spoke about the risks involved in the international market versus the domestic market. It now appears that LCG is stating that the international market is stronger than the domestic market. What are the risks of being involved in what is normally deemed a riskier marketplace?

Mr. Babcock responded by stating that more than half of the productivity exists outside of the United States. There are two different managers in all of the G7 countries as well as the other countries. Therefore, between the two of them there is enormous diversification, as we become a global economy and society. He went onto state that he thinks the risks are no more so than the domestic market, the only difference being the near term currency as the dollar strengthens and weakens against currencies around the world. There is that risk but over time it tends to balance out. Mr. Babcock went onto clarify that they will transfer the funds from domestic equity to fixed income to reduce overall equity exposure.

Mr. Babcock noted that in the past two quarters passive index managers have had an advantage over active index managers and there are two reasons why. One is that in the large cap arena one may have mega stocks and because these are caperated indexes then it is a self-fulfilling prophesy because as they get bigger, they count more and drive the index up. Conversely, in the small cap market that has a cap limit to it, it forces small cap managers to buy the less attractive stocks in the index because they have to place the monies somewhere. Mr. Babcock also reported that the figures in the comparative performance data are net after all fee numbers. He further noted that the diversification of managers’ dramatically reduces risk. They now have five managers whereas, before when they started there was only one. Overall, performance has been quite good, as they have benefited by going into small cap international funds.

· Total Fund Five-Year Return vs. Risk. Mr. Babcock noted that the BWL’s fund has outperformed the market benchmarks from the T-Bill to the S&P 500. Therefore, the cadre of managers over the last five years has added value versus the risk index in the capital market.

· Equity Sector Allocation. (The pie charts indicate the level of diversification achieved since the September, 2005 report.)

· Equity Performance for individual managers for the current quarter and historical performance.

Mr. Babcock reported that American Beacon Small Cap Value/Instl is behind in its performance and he would like to see it improve to his expectations. It is a mini-fund of funds and there are five underlying managers that manage the portfolio on a cost effective basis. He also noted that if they were to replace them right now then they could not locate a candidate. Small cap value is the single best performing asset class since 1970, which makes it difficult to locate additional candidates. Therefore, we do not have anywhere to go right now but if it continues then they could move to the index. However, Mr. Babcock reported that he still thinks that American Beacon Small Cap Value/Instl is a good choice but if things do not perk up then they will make a change.

Trustee Graves asked that you typically make these types of changes when you do not see the type of performance that you are looking for?

Mr. Babcock noted that they look at performance, underlying process and philosophy, and people. Do they have the same team in place; did they bring in some other individuals that have a different view? He went onto state that they want them to hire what we hire to make sure they continue to do what they do best. The worse thing that could be done is to eliminate the fund while at the bottom when it is about to come back strong. Recognizing that there will be years in which they under perform, as they all do.

Trustee Graves asked what happens when you are dealing with a particular fund management group and the principle that has been directing that activity departs and forms their own fund? His understanding is that that history follows that principle.

The Trustees advised that they passed a policy in which they wanted to place value on the diversity of fund managers and make sure that there is diversity within their management group. As a result, they inquired as to whether or not there had been opportunity to diversify and if there is an established timetable to periodically facilitate the search for diversification.

Mr. Babcock responded by noting that they monitor the fund managers on a continual basis and they have since expanded from 2 to 8 managers. At the time the policy was passed, he believes they had already initiated and nearly completed the process of adding additional managers. Staff noted that none of the managers have been changed since the inception of the resolution and they did not take the policy to mean that that would prompt them to change managers at that time. Their interpretation was that if the opportunity presented itself then they would take into consideration everything passed in the resolution. They went onto advise that performance with the existing fund managers has been good and so in essence the opportunity to change managers has not presented itself.

Trustee James asked when you say the opportunity has not presented itself what specifically will you be looking for? She took it to mean that it would just be performance from the fund manager?

Mr. Babcock reiterated that they would look at performance, people, and process. He noted that there are three other asset classes that they are presently reviewing that they are allowed to invest in by policy. The current market conditions suggest that this might be the best time to invest in international emerging markets, real estate and high yield bonds. These are three additional areas that they are going to continue to research for potential investment.

Trustee James suggested that they narrow down the search, as the premise could always be that they are searching and continuing to do so. She went onto recommend that the Trustees establish a timetable in which to effect this change relative to diversification.

Mr. Babcock explained that they would be delighted to accommodate the Trustees request. He noted that they have several clients who ask them to be proactive in finding a fund manager, which can certainly be accomplished being that they conduct these types of searches on a regular basis.

Trustee Smith asked if they would need additional guidance or a resolution that says that we would like to initiate this task on a quarterly or yearly basis?

Trustee Calkins stated that based on previous statements he thought that LCG Associates were already doing this on a continual basis. Thus far, he thinks they have done a lot from where they initially started. He went onto state that they were originally in one big basket and have diversified significantly since that time and so except for one fund it appears to have done well. Trustee Calkins further noted that he is not knocking LCG Associates as they have done what was requested and so he is unsure what more can be done other than to continue to do that search.

Trustee Smith noted that they are not criticizing what they has been done at this point and she thinks the statement made by Trustee Calkins is a fair assessment. She went onto state that it is not so much that they are not pleased with what LCG Associates are doing but that they want them to be more proactive in searching for fund managers.

Amy Cavanaugh, General Counsel advised that Proposition 2 was just passed in the state of Michigan and it will go into effect mid-December 2006. The proposition essentially states that no one can give preference on the basis of race, age, sex, gender, or national origin. She went onto state that they need to evaluate what that means in terms of the resolution that was passed by the Board in going forward to look for diversity in terms of the funds and its managers. Ms. Cavanaugh further explained that they do not have an answer yet and many public entities are trying to define what they can and cannot do to diversify themselves. In the meantime, she just wanted everyone to know that it is an issue in this context as well as many others for the BWL.

Trustee Smith clarified that the proposition does not prohibit the BWL from looking for diversity. It is only when you are seeking preferential treatment and that is not what they are asking them to do. The Trustees are suggesting that they see what is available and if it makes sense to change it then they will do so.

Trustee Graves advised that he understood that General Counsel has not had the opportunity to give a legal opinion. However, his understanding of what just passed does not in anyway precludes in his mind the Board looking to have a diverse portfolio. He went onto state that there are minority owned firms that meet the criteria that the Board set out in terms of performance, dollar amounts, and years of operation which is relevant to the question regarding a principle. Trustee Graves noted that he wants to be sure that what they are tracking is in principle and that they consider the fund managers track record. He further noted that he thinks they can still be proactive and if our Legal Department develops an opinion that we need to discuss then that can be done at the appointed time. Nevertheless, he thinks one needs to be proactive when there is opportunity because they are not talking about preference when you say that all parties have to meet this standard. Trustee Graves went onto explain that you are simply saying diversify this pool but they need to meet this standard and there are firms out there that can accomplish that goal.

The Trustees agreed that they need further guidance from the Legal Department in terms of the effects of Proposition 2 on current BWL policies and resolutions. They also support referring the issue of developing a timetable for diversification to the Finance Committee.

Trustees Graves further clarified that there is nothing at this point that precludes LCG Associates from being proactive. He further advised that they do not need to wait for the Trustees to act.

Trustee Smith stated that during the previous discussions they mentioned international emerging markets. She knows it was stated that they are currently performing but they keep getting into the now. How long do we know that they are going to perform and how much of a greater risk is it for us to be involved in emerging markets?

Mr. Emerson noted that emerging markets are totally different than what they were ten years ago. Certainly there is a fair amount of volatility but the risk factor has gone down. There is exposure to emerging markets through our two international managers. It is a very small portion at approximately 10% of each. Mr. Emerson continued to note that emerging markets have become what the United States markets were in the late 1970’s and we have seen what they have done since that time. He further explained that as the overall economy continues to globalize then those are the growth areas and it should continue. There it maybe overvalued right now but over long periods of time emerging markets will be a potential asset when the economy is right.

Mr. Babcock also noted that there is one thing that makes it slightly less volatile which is the fact that you do not have as much currency risk in the emerging markets because they pay good currency to the U.S. dollar.

The complete report on Investment Management Analysis of Comparative Risk and Return for the quarter ending September 30, 2006 is on file with the permanent minutes.

Finance and Planning Manager Sue Flores reviewed the status of the VEBA (Retiree Benefit Plan and Trust) for the third quarter ending September 30, 2006. The total fund allocation for the VEBA Retiree Benefit Plan and Trust as of September 30, 2006 is $46,933,982. However, the actuarial accrued liability for the VEBA fund as of February 2006 was estimated to be $216,161,111. Compared to the current balance $178,496,807 is unfunded. Ms. Flores noted that the BWL is in better shape than most municipalities. Other governmental entities will need to start making progress towards their unfunded liability, whereas the BWL has started early and is ahead of many other governmental bodies.

One-year performance on the VEBA fund as of September 30, 2006 was 8.5% overall. The current asset allocation is 34.4% fixed income, 58.4% equity, and 7.1% cash equivalents, which is close to the allocation targets. The comparative performance graph shows that each of the asset allocation classes were either close or have surpassed their benchmarks. The charting also indicated that although they added more to the VEBA fund and it earned money, the actual liability also grew from one year to the next. Ms. Flores noted that staff would like the Trustees to consider giving consist to move forward in evaluating and engaging financial investment firms similar to LCG Associates relative to VEBA. There is $50,000,000 invested with additional contributions of $11,000,000 each year. This fund will continue to grow and staff thinks that it would be wise to go out for bids for investments firms similar to the function that LCG currently performs. They will evaluate the cost of that service and bring forth a recommendation to the Board. The VEBA fund is currently managed internally and most of the equities are in an index fund, mirroring the asset allocation with approximately 15 individual bonds.

Ms. Flores provided a high level summary report of the Defined Contribution (401A) Plan as of September 30, 2006.

The allocation of this fund is based on the individual employee preferences in how they choose to direct their investments. They have the option to select their funds online, by telephone or in writing. They can also choose the Goalmaker option that places money in a combination of investments that automatically rebalances. The selection is based on a combination of age, expected retirement date, and risk tolerance. Approximately 15% of employees are enrolled in Goalmaker.

Trustee Smith asked that based on the Goalmaker category how did employees do in the market?

Ms. Flores reported that this is based on employee’s individual preferences and she looks at age comparisons in how people invest. There are individuals in there 50’s and 60’s heavily into equity investments, which she would question. However, they may have other investments outside of the BWL and this maybe their choice. Therefore, it is difficult for the BWL to pick the perfect fund because they are not financial advisors. Ms. Flores continued to note that the funds perform really well and they conduct an annual review and evaluation with Prudential on all of the funds.

Trustee Graves asked if there is a service available to employees if they want it?

Ms. Flores advised that there are monthly meetings available for employees to meet with either a Prudential and/or ICMA representative. Appointment notifications are sent via email and posted on bulletin boards. The representatives’ role is to speak in general terms about investments relative to age, length of service, financial goals, etc. They typically fall short of making specific fund recommendations. Ms. Flores also explained that the BWL has a self-directing brokerage option available with approximately $700,000 in employee funding. The option allows employees to self-direct from the Prudential Family Fund.

Ms. Flores briefly addressed Proposal 06-02, Pension Protection Act of 2006 and Resolution 2005-3-13.

Proposal 06-02. There is language that was added to the investment policy last year to give consideration to diversity candidates. They have been asked by the BWL’s internal legal staff to bring to their attention all the policies that have this type of language contained within the document. At this time, they are not saying that it is right, wrong or indifferent. They are however raising the issue and they will review it with all of the other policies that may have been affected by the passing of Proposition 06-02.

Pension Protection Act of 2006. There was sweeping pension legislation changes that affected both public and private funds. Several of the changes were on private funds and will be phased in over a period of years. They are reviewing those changes and will be working with internal legal staff, external counsel, and the actuaries to determine how everything will affect the BWL. It is also possible that they may need an actuarial update to determine the financial impact.

Resolution 2005-3-13. Interim General Manager Dick Peffley stated that Resolution 2005-3-13 prompts management to review consideration of a cost of living adjustment to the Defined Benefit Plan within 30 days of Board of Commissioners’ approval of the BWL-IBEW contract. He met with retirees Ron Byrnes and Roger A. Jeffers who submitted a proposal for the Board’s consideration. Mr. Peffley noted that he had staff cost the initial proposal and included it in the packet for informational purposes only. He further noted that any increase to the cost of living would come from the DB plan, which is currently over funded. However, the over funding is also used to fund VEBA. Mr. Peffley went onto suggest that this topic be referred to the Finance Committee for further discussion and a plan to move forward.

The Trustees supported moving the Cost of Living Adjustment proposal to the Finance Committee.

There being no further business, the Pension Fund Trustees meeting adjourned at 4:57 p.m.

Motion by Commissioner Calkins, seconded by Commissioner Graves, to receive the Pension Fund Trustees’ Committee Report as presented.

Present: Commissioners Gary Calkins, Robert Cochran, Semone James, Santiago Rios, Julee Rodocker, and Robin Smith.

The Commissioners met to discuss various issues that included public power governance, strategic planning for public power systems, key issues, strategies in the selection of a new General Manager (GM) and Board relations. The goal of the Board retreat was to have open and effective discussion regarding the above topics in relation to the Board of Water and Light (BWL).

Public Power Governance

Bryan Singletary, President of Practical Energies facilitated the Board retreat. As such, Mr. Singletary advised that outside influences and employee concerns that outweigh those of the ratepayers has too much influence over the Board. Individual groups or persons are only subsets. If it does not benefit the ratepayer then it is not good for the organization. Effective Board governance can be achieved through individual Board members who are interested, engaged, effective, and meet their fiduciary responsibilities. Board interests must stay at the policy level.

The Commissioners expressed concern regarding inclusiveness, whereas individual Commissioners speak for the entire Board without Board input. Mr. Singletary suggested that Commissioners keep in mind that an individual’s opinion is seen as the Board’s viewpoint. Therefore, everyone has a right to their opinion but they must exercise caution in this respect. Mr. Singletary also advised that the strategic plan should be the focus of all boardroom discussions. The Commissioners also noted that the Board’s role is to establish policy and not manage the BWL. The strategic plan should be a working document and hence the focus of the Board. It was noted that in the past, lack of policy has lead to several issues.

One of the Commissioners asked if they should avoid criticizing staff during a Board meeting? Mr. Singletary explained that it would be more appropriate to advise the GM that something maybe amiss and needs to be revisited thereby, allowing the GM to address the issue. He also clarified that it is ok to make a public declaration of positivity to staff but one must keep things targeted. Mr. Singletary observed that once the Board starts making operational decisions then they have moved away from governance, which increases the likelihood of a lawsuit. Interference in day-to-day activities is an indication that the Board has stepped outside of their fiduciary responsibilities. The more operational decisions are made, the more personal exposure.

Statutory Duties: General Responsibilities, Ethics, Public Access and Federal Laws

Under the guise of Public Power Governance Mr. Singletary also noted the following:

· Legal issues should be referred to the GM and he/she can refer it to General Counsel or perhaps have Counsel contact the Board directly.

· The Board should not have informational lunches with employees; assumptions and rumors do far more harm than good because you are speaking as many voices and not as one. He also advised that if an employee calls a Commissioner for lunch then they should decline.

· Email is public record. Do not conduct debates via email, as this is an inappropriate form of communication.

· Commissioners should keep their special and personal interests out of Board business.

Key Issue Review

Mr. Singletary met with executive staff on Friday, December 1^st to discuss the questionnaire responses and review several key issues. Listed below are some of those observations as well as those of the Commissioners and that of Mr. Singletary.

· Executive staff indicated their comfort level with the Board but noted that those directly below them do not know the Board and hence things become that of perception and rumor.

· Staff also expressed concern regarding stepping outside of existing bounds due to the Board’s history of terminations. It was also indicated that the Board is working well together right now. However, when hotly contested issues arise that cause dissention amongst Board members and/or staff, will they continue to work well together?

· The Commissioners noted that they do not think staff provides enough guidance to the Board regarding what needs to be enacted at the BWL in terms of policy decisions.

· Sidebar meetings with individual Commissioner’s and staff should not be allowed, as the GM is the key. A Commissioner explained that they noticed a lot of these meetings occurring and felt it to be very disconcerting. The Commissioners explained that they believe this practice stemmed from issues with a previous GM in which concerns were not being addressed. Therefore, individuals were approaching the Commissioners’ as there was a severe lack of trust with management.

· The question was asked, should individual Board members give the GM direction? Mr. Singletary responded by stating that direction should come from the Board as a whole or the Chair but not as individual Commissioners.

As a result of the discussion, the Commissioners recommended that they develop a Memorandum of Understanding to govern the Board. The documentation will help avoid some of the past governance issues that were discussed. Mr. Singletary added that it is ok to argue in the Boardroom but not in the court of public opinion. As a Board, the Commissioners should communicate with one another why they did what they did.

1. Add a training session on parliamentary procedure (recommend Colleen Trohand with American Public Power Association). Board may want to also consider having a parliamentarian sit in on regular Board meetings for direction and clarification when needed.

2. Review the strategic plan and revisit it after the new General Manager is hired. He advised that this would require a 2-day retreat.

3. The Board should read everything sent to BWL customers prior to their receipt. Mr. Singletary suggested that they should not get involved with proofing, approving or having input; just be aware of what the BWL is communicating to its customers.

4. The Commissioners suggested a follow-up session with Mr. Singletary at which he recommended another Board retreat in approximately 6-months but definitely after the new GM is hired so that he/she may participate.

5. Develop a Communication Policy that would govern the Board’s internal and external communications.

6. The Board should consider having a strategic planning session in January 2008 as it is going to affect the budget process.

Strategic Planning for Public Power Systems

2. Are you asking questions for information that you need to make policy decisions?

· The utility business is stagnate and there are relatively small changes or surprises. However, the Board should approve a long-term business plan and periodically review and update it.

· Review the strategic plan once a year. Consider utilizing an outside consultant or facilitator once every other year to provide an outside objective viewpoint.

· Independent System Operator (ISO) training is in order for Board members and as such, staff should provide the training. This will give the Commissioners background and understanding on information relative to generation, transmission, power plant building, etc.

· Mr. Singletary suggested that the Board look at branding the BWL to advise customers of the benefits of the services that the BWL provides.

Strategies in the Selection of a New General Manager

The Board should have an open declaration that the new GM will be held to the Strategic Plan.

Mr. Singletary encouraged the Board to conduct a national search for the GM to ensure that they have done their due diligence, which is not to say that they do not already have talented persons in house.

It was noted that the standard Request For Proposal (RFP) search firm charges 25% of the GM’s yearly salary. Mr. Singletary also explained that he believes the Board should utilize a search firm with utility experience, American Public Power Association, or public power experience. He cautioned against hiring a non-public utility person. However, if the Board chooses to do so then they need to make sure adequate training is provided. Lack of training and experience in the public arena can be the downfall of a GM.

Mr. Singletary also explained that the GM should be given his/her evaluation at least 2-weeks prior to having discussion. He also suggested that the Board should not see the GM’s self-evaluation until they have completed their own evaluations to ensure that there is no duplication.

Musts & Wants – Board must decide what they want in a GM prior to the interview process.

Be honest about the compensation package, the Lansing community and its attributes as possible; and allow for a flexible benefit package. It is also recommended that the Human Resource department should thoroughly explain the benefit package to prospective candidates.

1. Develop a Communication Policy that Speaks to Internal and External Board Communications

a. Add a component of education to the Board meetings in which staff educates the Board on relevant industry-wide issues

Submitted by Rhonda Jones

Motion by Commissioner Cochran, seconded by Commissioner Calkins, to receive the Board Retreat Report as presented.

The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing beginning at 4:00 p.m. on Monday, December 18, 2006.

Commissioner Rios called the meeting to order and asked the secretary to call the roll. The following members were present: Commissioners Gary Calkins, Robert Cochran, Joseph Graves, Semone James, Santiago Rios, Julee Rodocker (arrived at 4:16 p.m.) and Robin Smith.

Public Comment

Joseph Davis, Business Manager of IBEW Local 352 thanked the Board for bringing in an outside consultant to conduct the Human Resource Audit without any parameters. He also applauded them for presenting the findings in an open forum so that everyone could receive the information. Mr. Davis noted that the New Year would bring forth many new tasks including that of the General Manager (GM) search. He went onto state that the previous search method used by Charles Blockett was an admirable attempt as it included employee and retiree groups and also allowed for public input.

Discuss and Reach Consensus on Top 5 Candidates for Internal Auditor Position – Charles Blockett

Charles Blockett of Charles Blockett, Jr. and Associates, Inc. explained that they have two objectives: 1) narrow the candidate pool to five and 2) determine the balance of the remaining process. He went onto suggest that since four of the ten candidates received a minimum number of votes, then he asked if the Commissioners would like to reduce the candidate pool to four or add an additional person? Mr. Blockett advised that based on his experience he recommended that they interview at least five people. He also noted that the background checks and subsequent information would be provided to the Commissioners prior to their vote for the final candidate.

Motion by Commissioner Calkins, seconded by Commissioner Smith to accept the top four candidates: James A. Felch, Kenneth L. Johnson, Susan M. Pifer, and Shirley T. Smith.

Discussion: Commissioner Graves advised that he wants to be supportive of Mr. Blockett’s suggestion that they select a minimum of five individuals. Given that premise Commissioner Graves made a friendly amendment to add Glenn Holloway to the list of candidates due to his experience with the BWL.

Discussion: Commissioner James suggested that Martin S. Wood also be included in the interviewing process in addition to Glenn Holloway being that they both received the same number of votes.

Discussion: Commissioner Smith advised that she would rather stay with five candidates as opposed to six because it would extend the interview process from one to two days. She suggested having discussion on the other candidates that received an equal number of votes.

Commissioner James noted an interest in interviewing Martin Wood an as additional candidate and expressed concern regarding Mr. Holloway’s previous departure.

Commissioner Rios suggested that in the interest of giving themselves the benefit of another candidate and the fact that they each received the same number of votes, he recommended that they interview six, which would include both Mr. Holloway and Mr. Wood.

Mr. Blockett noted that in his experience when there are more than five candidates it makes for an extremely long day. He did not recommend interviewing six candidates, as the interviewees on the first day would be at a disadvantage. Mr. Blockett cautioned against six interviews due to the time factor and the validity of the process.

Commissioner Cochran supported Commissioner James’ comments in regards to Glenn Holloway as a finalist for the Internal Auditor position.

Commissioner Graves noted that he supported the perspective of both Commissioners Cochran and James. However, he thought the interview process would allow them to explore and examine the concerns that they may have with regards to Mr. Holloway’s potential employment with the BWL and his previous departure. He went onto state that he does have some concerns as to why he left. However, he understood that circumstances change and that Mr. Holloway has a lot of familiarity with the BWL. Therefore, he would support the five by keeping Mr. Holloway in the pool and he would not support six for the reasons just presented by Mr. Blockett.

After further discussion, Commissioner Rios withdrew his friendly amendment to interview six candidates by adding Martin Wood to the finalist pool.

The original motion to accept the top four candidates that included James A. Felch, Kenneth L. Johnson, Susan M. Pifer, and Shirley T. Smith carried by the following vote:

The motion to add Glenn Holloway as the fifth candidate failed by the following vote:

Motion by Commissioner Smith, seconded by Commissioner James to add a fifth candidate, Martin S. Wood to the finalist pool.

As a summary to the motions, the following five candidates will be extended an opportunity to interview as a finalist for the Internal Auditor position with the Board of Water and Light: James A. Felch, Kenneth L. Johnson, Susan M. Pifer, Shirley T. Smith, and Martin S. Wood.

Mr. Blockett noted that he would notify all five candidates and advise them of where they stand in the process. He would also ask that they sign an authorization form to allow background checks. The background search will include a civil and criminal record check, education verification, verification of previous employment, bankruptcy check, and newspaper article search. Mr. Blockett went onto state that he will request each candidate to prepare a written plan of action as to how they would develop an internal audit plan for the BWL, no more than 10 pages in length. This document would display their individual writing style, ability to communicate, and their organizational thoughts. This instrument would also act as an additional source in evaluating the candidates and obtaining the best ideas from all five persons. In addition to the above, Mr. Blockett stated that he would send them a copy of the survey responses, annual report, and strategic plan. Mr. Blockett will work with Secretary Jones to obtain copies of the materials needed to provide to the candidates.

Charles Moore, Interim Internal Auditor suggested that Mr. Blockett provide a copy of the external audit report as it will be a better source of information to draw questions and help with the internal auditor process. The Commissioners agreed with the suggestion.

Mr. Blockett further noted that the background check firm would have all of their materials returned to him by January 4, 2007. He also stated that he would give the candidates until January 5, 2007 to complete and submit their internal audit plans.

Commissioner Smith asked Mr. Blockett if he would want a time lag from the date of the interviews to the date of the final selection?

Mr. Blockett responded by stating yes. He also strongly recommended that they take 3-4 workdays to think about the candidates and review the reports. While also keeping in mind that the Open Meetings Act covers the position, which means that they must interview and deliberate in public. He went onto state that between now and January he will ask each Commissioner to develop three job related interview questions that he will use to determine a standard set of interview questions.

The Commissioners charged Secretary Jones to work with Mr. Blockett in establishing the interview dates, the remaining schedule and to also provide whatever materials necessary for the candidates in relation to the Internal Auditor action plan.

Commissioner Calkins asked for a copy of the interview questions used during the last process to use as a basis for the new questions. Commissioner Rios asked Secretary Jones to distribute those materials to the entire Board.

Commissioner Cochran, Human Resource Chair introduced Michael Goree of Growth Strategies Consulting, Inc. who conducted a Human Resource Audit of the BWL at the request of the Board of Commissioners. Mr. Goree explained that part of the process involved in the Human Resource audit was trust in which there were three facets, 1) trusting individuals to do their job, 2) trusting the General Manager and leadership to learn to do their job, and 3) trusting the Board of Commissioners to do their job. He went onto note that he considered various options in delivering the report such as, sharing it with the Board of Commissioners only, sharing it with senior management only, or opening the door and sharing the document with the entire organization. Of all three options he chose the later. Mr. Goree advised that no one including the Commissioners had seen the final report prior to today’s meeting. He also explained that everyone must believe that he did his job. The organization was open to him, individuals were open and honest in their conversations, and he was not prohibited from receiving anything that he requested of the organization. Mr. Goree noted the Commissioners and staff’s cooperation in this endeavor and advised that it was a huge step forward for the BWL. He went onto explain the challenge he faced was in how to convey the employee’s passion, dedication, and commitment in a report. Mr. Goree advised that he spoke to hundreds of people at the BWL and not once did people blame others for the problems at the BWL. What he did hear was the passion for doing a better job with the tools and resources that are available and whether or not they are available to the persons at the BWL. He noted that throughout the report one would hear the employee’s passion for the organization. However, Mr. Goree also noted that there are challenges at the BWL. He explained that he was hired because he is very direct and to the point, which his final report reflects. Mr. Goree proceeded to present the preliminary analysis and findings of the Human Resource Audit. Listed below is a brief synopsis of the information presented:

· Truths and Rumors – With any project of this nature you will hear both truths and rumors. Some of the truths included:

o No interference by the Commissioners, Leadership, Union, or outside influences

· Process Followed – Met with Human Resource Committee to review plan, reviewed key documents, interviewed employees, developed preliminary findings and recommendations, and presented those findings to the Board of Commissioners on December 18, 2006.

o Some directors and managers have an “I’m a Director, therefore I get what I want” mentality. Completely unnecessary and demoralizing for staff.

o Somewhat insular in understanding what other organizations offer, are faced with, competition, etc.

o Main focus on power generation and less on water – partial product of the rate structure.

o The Call Center – Needs greater intervention to re-establish a strong team environment; also not receiving the support from HR that it needs to move forward.

o 4 General Manager’s in 10 years – Little time to heal and yet another change. Recommend cooling off period of 6-9 months before hiring another General Manager.

o Destroyers of Trust within BWL – Inconsistent messages and standards, false feedback, failure to trust others, rumors in a vacuum and consistent underperformance.

· 100 Year Plus Companies – The most difficult to duplicate, therefore the most sustainable, advantages are those that rest in people and their processes.

· Human Resource Realities – Mr. Goree noted that the comments listed below are not single line items from one individual but sentiments heard several times from various persons throughout the organization including that of Managers, Directors, and employees. Some of the Human Resource realities include the following:

o Currently, 12 employees. Normal staffing ratio is approximately 1:100 employees. Appears excessive given the poor response time, lack of visibility in certain areas, limited access, etc.

· Mr. Goree also reported on major areas of review that included recommendations for each respective subject relative to his findings. The areas of review included the following and are found in detail within the body of the report.

· Change and movement come from the “right” attitude. A weak/no foundation invites trouble down the road.

· This comes in the form of the right vision and strategy and guiding it through your organization.

· We can communicate all we want about where we want to go but, if employees don’t have the Aptitude to get us there.

· Without the right skills and knowledge, employees feel anxiety and frustration.

· We want action! But, without aptitude through development you face even greater hurdles.

Mr. Goree closed by reiterating that the BWL has a highly dedicated workforce with an underutilized Human Resource department that is not as responsive as it could be. He also noted that the BWL has a workforce with some managers and supervisors that have an investor owned attitude. Mr. Goree further stated that the BWL has to break that cycle. He also advised that the problems at the BWL are not necessarily a personality or knowledge issue as much as it is an execution issue.

Commissioner Graves observed that Mr.Goree had done an excellent job in conducting the Human Resource audit. In the beginning, he was given the flexibility to look throughout the organization and while the report in large part focuses on the Human Resource Department and function, it also looks at the organization as a whole. He went onto note the physiological, emotional, and personality changes discussed in the report would perhaps take longer than a 100-day plan to accomplish.

Mr. Goree noted that a 100-day plan gives employees the opportunity to step up to the challenge and secondly, do they have the ability in which to do the job? He explained that as a dedicated and committed organization to the staff at hand and the success of the employees that currently work at the BWL, he believes it is imperative that people are given the opportunity to step up to the plate. Everyone will not have the ability to meet the challenge. However, without giving people the opportunity to try then it sends a bad message to the organization. Mr. Goree further noted that he is a conceptual person and not a detailed person. He went onto advise that he is much better suited as a conceptual individual as opposed to a detail oriented individual.

Commissioner Smith noted that it was well stated when Mr. Goree implied conceptualism since some of the physiological and emotional issues cannot be dealt with in a bullet point presentation. She went onto state that she believes Mr. Goree outlined and gave them a good overlay as to the organization and not just Human Resources but how HR strategically fits into the organization. Commissioner Smith also noted that Mr. Goree dealt with the system issues, the flexibility of the organization, its rigidness, and fragmentation. She went onto state that the wheels of change are slow but that there needs to be a comprehensive plan as to how they address the issues as an institution.

Mr. Goree responded by stating in his opinion, the BWL has approximately 6 – 9 months to have a large impact if they start the first of 2007. Therefore, the BWL can state that by September 2007 all of “these” things will be done and you must start immediately. The 100-day plans create a sense of urgency but not a sense of panic. Mr. Goree explained that once you become accustomed to it then it becomes a part of the system of always improving every 100-days.

Commissioner Rios noted that they should keep in mind the key purpose of the audit. The Board has heard a lot of the information that suggested the problems that were presented in the report. Commissioner Rios went onto note that they wanted to have an independent objective person to evaluate the BWL and he was pleased that Mr. Goree accomplished what they asked him to do. Part of that process was to receive recommendations from an outside objective viewpoint from someone who is professionally trained and experienced in dealing with organizational opportunities so that they could move the BWL forward. Commissioner Rios stated that to him it is very important as they discuss the report that they also keep in mind its purpose. The second item is that the Board of Commissioners is not where the changes are going to take place. It is their role to look at the report and either accept it, to the extent that it is accepted and they agree with the direction that the Mr. Goree is recommending, then to discuss it with management and give policy direction in terms of addressing some of the needs and opportunities. The third point is that the Board must keep it simple; part of the simplicity is having a doable plan. Commissioner Rios noted that because of the enthusiasm, they might think that they can accomplish these goals overnight but they are not going to be able to do so. He went onto explain that the Commissioners job is to take the report in its entirety and keep in mind its purpose and understand their respective roles as a Board versus that of management and employees. And to also address with management, the extent to which they agree and acknowledge some of items within the report. Commissioner Rios advised that there would be different views on the priorities of some of the actions that can be taken. He went onto state that there are perhaps some operational difficulties that will not allow them to do everything that they want to do in the first 100-days as it might carryover to the second 100-days. Commissioner Rios stated that from his perspective, up to this point they have fully accomplished their objective as a Board. Their challenge as he sees it is for the Board to come to terms with management and to set a plan in motion that makes sense and delivers the types of results that they can all be proud of and continue to be better. Commissioner Rios advised that Mr. Goree has done a lot of research and knows the organization as well as anyone could and probably better. He went onto suggest that he would like to see Mr. Goree continue with the execution stage. Commissioner Rios advised that as of right now he is the Board’s employee but once they receive the report and give him additional assignments then he thinks the ball is passed to management. He also stated that one of the things he would encourage management to consider is taking advantage of this very important resource and developing an action plan for the future.

Commissioner Smith stated that she thinks time after time it has to be a doable plan and that whatever is implemented, simplicity must be paramount. She also noted that it must be something that is doable, as they can clearly see there are some areas that need to be addressed and the execution of the plan is not something that the Board of Commissioners will do. Commissioner Smith explained that their job is to implement policy, make sure that policy supports the document so that new things can be implemented in the organization. She further advised that trust was the paramount issue and the report was presented to everyone at the same time. How people interpret it maybe somewhat different but they are all on the same page in that there must be change and change must begin now. Commissioner Smith noted that there is a wonderful opportunity to implement some very important ideas. She also commented that she did not always believe that the answers are not there but that sometimes they are not asking those that have the answers.

Commissioner Cochran indicated that he has the utmost respect for Mr. Goree and he has fulfilled his every wish. He further acknowledged that Mr. Goree is worthy of his trust and thanked him for his wonderful performance. Commissioner Cochran then asked Mr. Goree if he had anything that he would like to comment on to the Board of Commissioners with prior counsel approval that would require a closed session?

Mr. Goree responded by stating that his understanding is that a closed session requires conversation about specific individuals. He then asked if that was a fair statement?

Amy Cavanaugh, General Counsel responded by stating that if he wanted to talk about specific individuals then that that would be classified as a remark or a complaint. Therefore, that individual person has the right to request a closed session.

Mr. Goree stated that at this point, the challenge is that the role of the Commissioners versus the role of the management and he believes that the Board is in governance and management is in operations. Therefore, if there are individuals that he believes need some intervention then that is a conversation that he would prefer to have with the General Manager and not with the Board of Commissioners. The Board of Commissioners sets policy and the daily operational executable issues reside with senior management.

Commissioner Cochran asked Mr. Goree if he is available to do what Commissioner Rios has suggested in continuing with this work? Mr. Goree noted that he has two passions: 1) the success of his clients and 2) achieving his goal of doing whatever he can to not be here. As a result, he will do whatever he can to help the BWL and his calendar is always adjustable depending upon the circumstances.

Commissioner Rios asked Dick Peffley, Interim General Manager if he wanted to make any comments?

Mr. Peffley responded by indicating that he had just received the report and did not have any comments at this point. However, he did note that he looks forward to working with Mr. Goree. Mr. Peffley went onto state that as with any audit he is looking at how to improve. The BWL had an engineering audit and will conduct a production audit. Mr. Peffley noted that he saw the Human Resource Audit as another tool to help improve the BWL.

Motion by Commissioner Cochran, seconded by Commissioner Smith to accept the Human Resource Audit report as presented and forward it to full Board for consideration.

A complete copy of the “Lansing Board of Water and Light, Human Resource Audit, Preliminary Analysis and Findings” report is on file with the permanent minutes.

The Committee of the Whole took a meeting break at 6:03 p.m. and resumed at 6:20 p.m.

Discuss Executive Search Firm RFP’s Received for the GM Position

The Commissioners discussed the number of firms that they would like to interview in awarding the Request for Proposal (RFP) to an executive search firm for assistance in hiring a new General Manager. They also discussed the possibility of changing Dick Peffley’s title from “Interim General Manager” to “General Manager” for a term of one-year, based on Michael Goree’s recommendation to delay the process for up to 9-months.

Commissioner Calkins introduced a motion to stop the process and remove the word “Interim” from Dick Peffley’s title and allow him to operate as the permanent General Manager for one-year. Commissioner Cochran advised that he did not think they should stop the process of hiring a new General Manager but they should consider delaying it. As such, Commissioner Cochran seconded the motion.

Discussion: The Commissioners expressed their respect and support of Mr. Peffley and the work he has done thus far. They also welcomed him to become a part of the process and apply for the permanent position. The Commissioners agreed that they want to continue with an open process and would like to ensure that they have the best candidate available. The Commissioners agreed to move forward in conducting a national search as had been previously outlined. After further discussion, Commissioner Calkins redrew his motion from the floor.

Motion by Commissioner Smith, seconded by Commissioner James to award the Request for Proposal bid for the Executive Search Firm to Charles Blockett, Jr. & Associates.

Discussion: The Commissioners expressed concern in awarding the bid without conducting interviews with the top 3 candidates. It was recommended that the Board proceed with an open process and interview the executive search firms prior to making a final decision.

Commissioner Graves particularly noted that he believes the Board should continue with the process that they have outlined and therefore, it should not stop. He recognizes the suggestion made by Mr. Goree to delay the process but believes they should move forward. Commissioner Graves also noted Mr. Peffley’s good works and invited him to become a part of the process if he so desires. As such, Commissioner Graves went onto suggest that they proceed with the initial process of interviewing the top 3 RFP respondents. He explained that Charles Blockett, Jr. & Associates, Inc. was the only firm in which all of the Commissioners voted to interview. Based on Mr. Blockett’s national success and success with the Board of Water and Light he supports the motion currently on the floor.

The motion to award the RFP bid to Charles Blockett & Associates, Inc. failed by the following vote:

Motion by Commissioner Cochran, seconded by Commissioner Graves to interview the top 3 firms listed on the voting tally sheet: Charles Blockett, Jr. and Associates, Inc., Varnum Consulting, and ASG Renaissance, LLC.

Discussion: The Commissioners advised that there are actually four top firms on the list based on the number of votes that each firm received. It was indicated that interviewing the top 3 would not be fair to the fourth candidate as they received the same number of votes as the third candidate. It was suggested that perhaps they should either interview the top 2 or 4 candidates based on the voting results.

Commissioner Smith suggested that they see what the voting is like at this point and have each Commissioner state their top 3 candidates that they would like to move forward. At that point, if there is a majority that has a top three firms then those would be the firms that they would interview.

Commissioner Rios made a friendly amendment to interview the top 4 candidates, which included Charles Blockett, Jr. and Associates, Inc., Varnum Consulting, ASG Renaissance, LLC, and The Rehmann Group.

Discussion: Commissioner Smith stated that she thought three firms was a good round number for the RFP’s. She went onto say that if it seemed somewhat challenging then it maybe due to the lengthy meeting. However, this is what the Board meeting is, a discussion of the process.

The motion to interview the top 4 firms of Charles Blockett, Jr. and Associates, Inc., Varnum Consulting, ASG Renaissance, LLC, and The Rehmann Group carried by the following vote:

The Board charged Commissioner Cochran, Human Resource Chair with the responsibility of establishing an interview schedule with the BWL Purchasing Department.

Discuss Separate Forecast by Utility Request

Commissioner Rios advised that Commissioner Graves had requested some information from staff that he felt necessary to evaluate the issue of cross subsidization of utilities. Commissioner Rios asked Mr. Peffley for a status update and whatever other information deemed appropriate.

Mr. Peffley explained that staff has prepared some information, which they are scheduled to send to the Board that addresses most of Commissioner Graves concerns. He went on note that they have met separately with Mr. Beauchamp, Consultant and Charles Moore, Interim Internal Auditor. A policy recommendation will be forthcoming on the six-year forecast strategy.

Commissioner Graves stated that he understood that Mr. Peffley will send a summary of his initial request and they will have opportunity at the next Committee of the Whole or Board meeting to discuss the information and ask questions.

Commissioner Rios asked Mr. Peffley to present a timeframe for the next step in terms of discussing the recommendations.

Discuss Privileged Document

Moved by Commissioner Cochran, seconded by Commissioner James to go into executive session to discuss a privileged document received from Foster, Swift, Collins & Smith, P.C. protected by the Open Meetings Act exemption MCL 15.268(h). (6:51 p.m.). The roll was called.

The motion carried unanimously for the Committee of the Whole to return to open session.

Motion by Commissioner Calkins, seconded by Commissioner Smith to pay the Foster, Swift, Collins & Smith, P.C. invoice number 483218 for services rendered in July 2006.

Motion by Commissioner Calkins, seconded by Commissioner Cochran to meet with counsel from Foster, Swift, Collins & Smith, P.C. in the regards to invoice number 483024 for services rendered in November 2006.

Motion by Commissioner Calkins, seconded by Commissioner Graves, to review the current legal billing process.

Other

Commissioner Calkins inquired as to the BWL’s street lighting process for decorative lighting, repairs and replacements.

Doug Wood, Director of Engineering explained that the City of Lansing, namely Chad Gamble has to approve any decorate light installations. In cases of accidents, where damaged has occurred, the BWL will replace the light fixture with whatever was already in place. It was further noted that streetlights that are out or in need of repair should be reported to the BWL Customer Service Center. It was also stated that the BWL typically repairs streetlights that are out within 5 days and structural repairs within 12 days.

Motion by Commissioner Rios, seconded by Commissioner Rodocker, to receive the Committee of the Whole report as presented.

The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing beginning at 5:30 p.m. on Tuesday, January 9, 2007.

Committee of the Whole Chair, Santiago Rios called the meeting to order and asked the secretary to call the roll. The following committee members were present: Commissioners Gary Calkins, Joseph Graves (teleconference), Semone James, Santiago Rios, Julee Rodocker, Robin Smith and Sandra Zerkle.

Public Comment

Joseph Davis, Business Manager of IBEW Local 352 noted that Michael Goree of Growth Strategies, Inc. was asked to present the Human Resource Audit results to the bargaining unit. After discussions with Sheryl Hudson, Acting Human Resource Director and Dick Peffley, Interim General Manager, meetings were coordinated for the entire Board of Water and Light. The sessions will take place on January 10^th. He went onto advise that Bill Cook, Senior Vice President of Operations, Dick Peffley and himself were asked to appear at the meetings. Mr. Davis also reported that the bargaining unit met with Mr. Peffley in which Commissioner James was present. The meeting allowed them to address some issues that were touched upon in the audit report and move forward. Mr. Davis noted that the BWL had a tough year in 2006 but they are interested in addressing issues and moving forward with the assistance of Ms. Hudson and Mr. Peffley.

Customer Satisfaction Survey

Andy Morrison of Market Strategies presented the summary of June and January 2006 results of the Lansing Board of Water and Light, Customer Satisfaction Research Briefing. The results were originally presented to senior management August 11, 2006. However, due to the Board’s calendar and scheduling conflicts the results were delayed in being presented to the Board of Commissioners. Mr. Morrison gave a high level overview of the results, which are detailed within the body of the report. He advised the Board that natural gas prices in 2005 and 2006 were extraordinarily high across the country and had a specific impact on gas utilities. Mr. Morrison also noted that there were some catastrophic events in the industry, principally the hurricanes in the southeast and a variety of problems related to reliability that have created new demands and tensions. On the electric side, there have been some states that have impacted customers with 50% plus electric rate increases. There have also been customer service issues and demands on the service systems of energy utility clients, which are continuing to increase. He also advised that traditionally, customers are used to 24-hour access to their respective utility company and energy companies are behind the curb in terms of addressing customer service demands. Mr. Morrison reported that all of these items lead to value issues with the customer. He also noted that if you put that in the context of their national model then the issues that they address for all of their utility clients could be summarized into four key performance drivers: reliability and restoration, service reputation, management reputation, and electric rates. Mr. Morrison further explained that the data suggests that customers lag behind politicians with regards to environmental issues, as they appear to be more concerned with monetary cost than environmental impact. Some of the other issues Mr. Morrison addressed included: long-term customer anger and concern over energy prices, commitment to the value proposition(s), and a realistic goal to stay strong as the BWL has done over the last 2-3 years as the industry is going to be very challenged. In summary, Mr. Morrison concluded the following points:

· The Board is regaining a stronger position with customers as the “lead in drinking water” issue fades in terms of close public attention, and customers are feeling somewhat more positive about the rate situation for electricity and water. In 2006, it is rare to find any utility whose customers actually feel a bit more positive about rates.

· Electricity satisfaction and overall favorability are both up five points. Water satisfaction has not recovered yet. The results for all outcomes are still not yet back to the strongest levels of past years.

· The Board’s communication and community involvement activities through January continue to provide important support for and help to improve customer relations and satisfaction. The “Connections” newsletter has been an important channel in the past and may need a review to see how to make it more relevant. Utility websites are becoming an increasingly used and useful channel for customers.

· The question the Board should address pertains to what the “value proposition” will be for customers in the next few years. What can customers expect from the Board, and what will they be asked to consider and do in terms of how they relate to the Board?

Copies of the “Customer Satisfaction Research Briefing” results are on file in the Office of the Corporate Secretary.

Doug Wood, Director of Engineering presented the Restricted Steam Abandonment Policy to the Board of Commissioners. It was explained that the purpose of the policy is to establish the following:

· Abandon selective uneconomic areas of the steam distribution system that meet certain criteria

· The BWL will convert the customer to an alternate energy source at no cost to them

Mr. Wood also noted that some of the criteria used to determine potential abandonment areas include:

Mr. Noted advised that the steam service map indicates potential abandonment areas that meet the criteria previously addressed. Areas 1 and 2 were used as a pilot program and customers were asked if they would voluntarily convert from steam to natural gas. He also noted that they were very successful in converting those customers. However, Oldsmobile Park opted out, which did not deter the project from proceeding due to the location of their facility relative to the remaining customers. The cost of conversion for Area 1 was approximately $300,000 and it saved approximately $500,000 in O&M costs with very little revenue associated with the area.

Bill Cook, Senior Vice President of Operations commented that the CSO project may require the BWL to move or affect a main that they might not otherwise have done. This in essence would change the timing as to when it is economical to convert customers from steam to natural gas. Mr. Cook noted that the BWL is incurring cost that it might not otherwise have but there is no means to recover the cost as the steam mains are in the street right a way.

The Commissioners asked that since they are aware of the CSO project, is there a way for the BWL to overlay their work so that they can approximate the cost of conversion? It was also asked if any of the areas would show that the cost is greater than the recovery?

Mr. Wood noted that based on their estimates of historically replacing steam they know what the project is going to cost. He also advised that based on the CSO planning for the next 20 years, the BWL can determine costs for those respective areas. In regards to the second question, Mr. Wood noted that one might start seeing some other areas (relative to cost being less than recovery) and start paring back. He went onto state that there are definitely some revenue areas in the downtown vicinity such as, Lansing Community College in which there are no structural or manhole problems.

Mr. Cook noted that the BWL has invested a significant amount of money over the last several years in keeping up with the CSO project and there is now some new infrastructure in the downtown area. Mr. Cook went onto report that there might be a pruned back steam system that works for the BWL but they are not yet prepared to make that determination. The question still remains, what is the core downtown business in which they can sustain the steam utility?

Mr. Wood advised that Areas 3 and 4 with a total of 25 customers are two additional areas that the BWL would like to convert from steam to natural gas. The fiscal year 2006 revenues for the two areas were $39,774. The O&M expenses for fiscal year 2007 are $146,135 and the 20-year capital cost requirements are $4,894,000. Staff clarified that the capital cost requirement would not be paid out over the course of 20 years. Typically, the BWL would continue to incur O&M expenses at approximately $100,000 a year for Area 4 and then an additional lump sum cost of $2,500,000 at present value would be incurred at some point in time.

It was also noted that it economically feasible for the BWL to convert Areas 3 and 4 without having to wait for the CSO project. Once the CSO project goes through those areas, then the mains would have been capped, and would only require nominal cost to remove and strap the mains. It was further advised that the difference between this policy proposal and the previous pilot program is that this one would be mandatory as opposed to voluntarily. Staff also noted that based on their experience with Areas 1 and 2, the BWL has estimated a conversion cost for Areas 3 and 4 at a total of $800,000, which is subject to change. A detailed engineering estimate is still needed by outside contractors to determine the final cost.

Commissioner Zerkle asked what would be a customer’s argument to resist conversion?

Mr. Cook noted that to the extent that the price of steam is less expensive than the cost of natural gas. He also reiterated that the conversion project would have no upfront cost to the customer. However, the negative impact would be if natural gas were more expensive than steam.

Commissioner Rios commented that the cost of steam to customers is an unknown factor at this point. As the Board, passed a reduced rate increase that was not sufficient to cover the base, which further created a significant gap in the BWL’s ability to maintain services. Commissioner Rios also noted that they have elected to look at the entire steam system to determine what can they do to reduce their cost and exposure to help avoid significant rate increases.

Mr. Cook explained that one issue that may arise is a customer’s desire to convert but they are not located in a designated conversion area, which is why the BWL needs a steam abandonment policy to address those issues.

Commissioner Rios also noted that he understood why it is called “abandonment” but expressed apprehension with the terminology used as it delivers a negative connotation. Dick Peffley, Interim General Manager advised that they could work with the Communications Department in developing a marketing package for this project. The Commissioners were in agreement with the suggestion.

Commissioner Graves asked Amy Cavanaugh, General Counsel if the BWL is setting precedence by absorbing the conversion cost for some but perhaps making a different decision in the future? For example, the steam utility is not profitable therefore all customers have to convert. Is there a precedence issue that the BWL should be aware of?

Ms. Cavanaugh noted that there maybe but the larger concern is that as a public utility you have a responsibility to service your customers. There is an issue as to whether or not the BWL can abandon steam because they have steam customers. Ms. Cavanaugh stated that the conclusion she has reached thus far is that service for the BWL is a contractual matter for some customers. Whereas, there is no obligation to serve them at the end of their contractual period and hence the BWL would have more lead way as to the terms of the conversion costs. However, for customers who are under the Rules & Regulations, then the rules maybe different. She went onto note that for those customers, since the BWL is a public utility and has a duty to serve then the easier course of action would be for the BWL to pay for the cost of conversion. Ms. Cavanaugh noted that she has not been able to locate anything that supports the BWL’s ability to walk away from the steam utility business especially, since this is a vital service – heat. She further stated that she believes the BWL would possibly set itself up for a claim if it did not pay for the cost of conversion.

Charles Moore, Interim Internal Auditor asked if the BWL has any exposure with the difference between the BWL rates and involuntarily conversion? For example, whereas a customer now experiences a significantly higher heating bill compared to what they would have received if they had been allowed to maintain steam service with the BWL? He further noted the difference between voluntary and mandatory conversions and asked if the BWL is imposing any liability associated with a mandatory conversion?

Ms. Cavanaugh reported that the Rules & Regulations has some language that assists the Board in this matter. Primarily to the extent that safety is an issue then there would be no liability to the BWL. In instances of economics, its more of a concern especially, since the current Rules & Regulations speaks about getting customer permissions for doing a project of this nature. Ms. Cavanaugh noted that the Board could change the Rules & Regulations, which would help insulate the BWL from potential liability.

Mr. Cook stated that from a practical stance they are saving $2,500,000 by cutting over 20 customers to natural gas. The argument could be made that if those customers did not convert then the cost of maintaining the service specific to that area could be allocated to respective individuals, which would be a price signal that perhaps it is time to convert to gas. During discussion, it was indicated that the BWL could differentiate the cost for serving different customers if you have a separate rate class in which it could appear as a surcharge. However, staff noted that the BWL does not separate rate classes based on geographical areas. It was further suggested that the cleanest method is voluntary conversion.

Commissioner Rios noted that the reasonableness and viability of the plan is based on the BWL’s financial assessment of the steam business. They have always treated the steam business as one entity in terms of rate increases and there is no rate classification of steam customers. He went onto note that part of the justification has to come from projections in terms of steam rate increases necessary to support the business. Commissioner Rios also reported that he believes that this has to be built into whatever rate policy they develop. Keeping in mind that the last steam rate increase did not cover the BWL’s total cost. He also advised that there is economic justification for steam rate increases that would cover the cost differential for propane.

Mr. Wood continued with the presentation and noted that the recommendations are as follows:

1) Areas that have O&M, low revenues, high capital investments to replace infrastructure and safety to BWL customers.

2) Where O&M costs exceed the annual revenues and/or when the capital improvements show the 20-year present worth is less than capital cost to continue service.

3) For Areas 3 and 4 the BWL will contract, oversee and pay for converting customer’s equipment to another energy source.

5) This policy would only apply to the customers in areas currently identified by the BWL or areas selected by the BWL in the future.

Commissioner Calkins asked how do they decide and establish what type of heating system the BWL is going to install?

Mr. Wood noted that it is based on the minimalist cost possible to convert the customer from to steam to natural. He also explained that if the customer wanted something greater than what the BWL offers then the customer would incur the cost differential. Mr. Wood also advised that in previous projects, customers either had an existing forced air system that the BWL replaced or piping hot water piping in which a boiler installed.

Commissioner Zerkle stated that based on Commissioner Graves’ previous statements what is going to happen after Areas 3 and 4 are converted and the program ends but others want or need to convert? How would the BWL handle that situation?

Mr. Cook responded by stating that if they met the same criteria for Areas 3 and 4 in respect to the 20-year payback and other criteria items then they would be treated the same way.

Commissioner Rios noted that unless it is a mutual benefit for the BWL and the customer based on the criteria then a conversion from steam to natural gas does not make sense. He also stated that crafting the rationalization, the description, articulating the reasons, and giving them plenty of flexibility to determine how far the BWL wants to take the program is a challenge. Commissioner Rios went onto explain that they want to make sure that they do not create a situation where people are going to want to convert at a time in which it does not make sense. He further advised that the standards that they implement in terms of policy will determine how are they make those types of decisions.

Mr. Cook clarified that the Board had previously approved the budget and a voluntarily steam abandonment policy. If the project cost is going to be 15% or more than what was originally budgeted at $812,000 then they would bring the item back to the Board for approval according to policy. However, if the final cost figure were below that amount then they would proceed with the project.

The Commissioners agreed to continue the steam abandonment project on a voluntary basis or at least until they have solidified the overall steam plan. At present, there are still questions relative to cost, public reaction and legalities.

Commissioner James noted that the BWL could legitimately say it is mandatory when you take into account safety issues. She also indicated that one could look at the cost benefit analysis and also review rate categories for the respective areas. Commissioner James further advised that she would like to make sure that the BWL is covered legally as volunteerism may not insulate the BWL.

Mr. Wood noted that safety issues typically occur in the manholes because the crews have to get in them. He also reported that leaks within the main heat up the manhole cover somewhere else and that is how stepping on the hole especially in the summer while barefoot could endanger the public. Staff advised that one could always pay the $2,000,000 in structural repair cost to alleviate the safety issues.

Mr. Cook concluded by stating they will move forward with the project on a voluntarily basis and if issues arise then they would bring them before the Board; no specific action is needed at this time.

Mr. Peffley advised that the item was removed from the agenda, as it has been resolved.

Pete Schimpke, Manager of Resource and System Planning presented an overview of the Renewable Energy Portfolio Standard Resolution. It is noted within the presentation that, “A renewable portfolio standard (RPS) is a policy that requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date.”

· The Energy Policy Act of 2005 amended Title 1 of the Public Utility Regulatory Policies Act of 1978 (PURPA) requires utilities to consider a plan to minimize dependence on one fuel source and to ensure that electric energy is generated from a diverse range of fuels and technologies which includes renewable technologies.

· Governor Jennifer Granholm has required the MPSC to develop an Energy Plan no later than December 31, 2006. (The plan should be released next week, which will require renewable portfolio standards.)

· This 21^st Century Energy Plan is required to include an RPS that establishes targets of Michigan’s energy consumption to be derived from renewable energy sources.

· IRP Study Conclusion: “Adding new generation could better provide for reliability and low-cost utility service over the long term.”

· IRP Study Conclusion: “Wind energy turbine technologies coupled with the available wind resource within Michigan offer the prospect of production costs competitive with coal-fired generation.

· IRP Recommended Action Step: “Consider ownership or long term power purchase from large wind power projects or other renewable portfolio power projects.”

· Appropriate and prudent for the LBWL to explore additional renewable energy supply opportunities, as a part of ongoing efforts of meeting the electricity supply requirements of its customers and in complying with the anticipated statewide RPS.

Mr. Schimpke noted that to his knowledge none of the other Michigan based utility companies have formally approved a RPS policy. Although, Consumers Energy (CE) and DTE are currently working to develop one.

Mr. Cook also reported that although the BWL is not under Michigan Public Service Commission (MPSC) authority, legislation maybe developed that would place the BWL under some form of requirement. He further commented, that by acting now, the BWL could define what they want as opposed to someone defining it on their behalf.

Mr. Peffley advised that other utilities are going to buy up the existing resources and the BWL does not want to be in a position where they cannot located the needed renewable resources for the RPS policy.

Staff explained that the resolution is flexible. The flexibility of the resolution allows the BWL to make changes if deemed necessary and appropriate. It also requires the BWL to report back to the Board of Commissioners on the progress of achieving its goals.

Mr. Schimpke noted that the proposed percentage levels are based on the research they conducted and nationwide information. The proposed RPS Resolution states that: The BWL shall strive to generate or purchase electricity generated from eligible renewable energy sources at the following target levels:

Commissioner Smith asked what types of things would the BWL has to do in order to meet the standards?

Mr. Cook responded by stating that the BWL would probably have to purchase renewable energy to meet the 2008 short-term goals. However, he also advised that some of the recent RPS initiatives at the BWL include the following:

· Working with Traverse City Light and Power regarding a wind site in mid-Michigan.

Commissioner Graves asked if CE has contracts with Granger for biomass and have they set the market rate?

Mr. Schimpke responded by stating that CE has a contract with Granger and others but he is not aware of all of them. He went onto note that based on the responses they received for the Request For Proposals (RFP) then it does not appear that CE has set the market price.

However, Mr. Cook did note that as soon as the RPS standard is set then the price of renewable energy would increase.

Commissioner Calkins asked if the BWL has any idea as to what the State of Michigan is going to propose?

Mr. Schimpke stated that they do not know what the State will propose. However, they believe that the State’s numbers will be similar to what the BWL is proposing.

Mr. Cook clarified that the MPSC is conducting a study initiated by Governor Granholm. Once the study results are presented, then it would probably be a blueprint for some type of legislative action. The MPSC does not regulate the BWL and as such, it would require legislative action for it to affect the BWL. Mr. Cook went onto note that the BWL is attending the 21^st Century Energy Plan meetings and the BWL’s mantra has been that this is a great idea but the plan should allow municipalities to regulate themselves as the charter dictates.

Mr. Schimpke presented the RPS Resolution Parameters that include the following:

· All costs reasonably and prudently incurred in procuring renewable energy sources will be considered cost of service and recoverable through electric sales.

· Each January staff will prepare a report on status of achieving target levels.

Commissioner James asked if the BWL is looking to capture methane gas? She went onto note that the Michigan Land Bank Fast Track Authority (a division of Michigan Department of Labor and Economic Growth) has five landfills in their portfolio in which they are currently looking at methane gas.

Mr. Schimpke noted that methane gas is an option that the BWL has discussed with Granger. He also reported that the reliability of such an asset is very high.

On motion by Commissioner Smith, seconded by Commissioner Calkins, the Committee of the Whole unanimously agreed to move the Renewable Energy Portfolio Standard (RPS) resolution forward to the full Board for consideration.

Moved by Commissioner Calkins, seconded by Commissioner Smith to go into executive session to discuss a privileged document received from Amy Cavanaugh, General Counsel protected by the Open Meetings Act exemption MCL 15.268(h). (7:22 p.m.) The roll was called.

Yeas: Commissioners Calkins, Graves (teleconference), James, Rios, Rodocker, Smith, and Zerkle.

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

In the interest of time, the discussion regarding the Legal Review Process will be moved to a later Committee of the Whole meeting.

Commissioner Calkins stated that he thought the previous interview questions used in the selection of the Internal Auditor were adequate. However, he suggested that Charles Moore, Interim Internal Auditor review the questions to see if he has any additional questions. Commissioner Calkins also clarified that the use of the previous questions would be in lieu of developing new questions and conducting a 2-hour structured interview training session with Mr. Blockett. The Commissioners were in agreement with Commissioner Calkins suggestion. As such, Mr. Moore will review the questions and submit any possible changes to Secretary Jones.

Commissioner Calkins stated that he read the email regarding the designation of proxy rights and indicated that he did not believe that a Commissioner could designate proxy to another party. The Commissioners agreed that a Commissioner could submit information that the Board may consider but that it would not involve voting rights. It was suggested that the Board might need further clarification in the Rules of Procedure, as the existing guidelines are silent on this subject.

Secretary Jones advised the Board that staff needs to present two policy recommendations to the Human Resource Committee before the next Board meeting scheduled for January 23^rd.

Commissioner Rios advised that to the extent possible they should always try to accommodate schedules so that they receive maximum participation. However, they cannot slow down the process due to scheduling conflicts, vacations, etc.

Commissioner Smith advised that they have committee alternates and any committee member or alternate can chair the meeting for the chair if necessary. She went onto explain that if the chair would prefer to decide who should chair in their absence then that is acceptable. Therefore, if one can obtain a quorum with the use of alternates then the meeting should continue.

Commissioner Rios also noted that during the Board retreat they also agreed that they would establish an annual calendar to be more efficient and respectful of their other responsibilities. He went onto note that they would be adjustments in the future and they need to plan for those accordingly.

Commissioner Smith responded by stating that she did not know if there is an actual policy in place, as she believes their Rules of Procedure are silent to the issue. However, in the past if there is a quorum then they proceed with the meeting and typically the chair will ask someone else to chair in their absence.

Commissioner James stated that during the previous Committee of the Whole meeting they gave Michael Goree a directive to work with Dick Peffley. During the meeting, the Commissioners did not establish goals, deliverables, or a monetary amount, which she thinks necessary, as she did not want an open-ended contract. Commissioner James went onto note that the union may want to provide input. As such, she encouraged the formation of a committee that consists of management and employees to facilitate the evaluation and possible implementation of the Human Resource audit recommendations. Commissioner James went onto note that the communication that she put forth before the Board today was an instance in which the union made her aware of an issue.

The Commissioner’s discussed the protocol and appropriateness of the receipt and response of correspondence. After lengthy discussion, they generally agreed to strive for the uniform sharing and response of all communications that maybe sent to individual Board members.

Commissioner Rios stated that everyone that includes, Commissioners, management and employees alike, have to be cognizant of the correspondence process. He went onto note that if an official request is received then it should be forwarded to the entire to the Board.

Commissioner James asked that she receive a copy of the BWL’s response to the FOIA request submitted by Brookover. Secretary Jones advised that she would forward copies of the information to the entire Board.

Mr. Peffley advised that during the previous meeting, the Board instructed him to work with Michael Goree of Growth Strategies, Inc. in regards to the Human Resource audit findings. Mr. Goree prepared a scope of work in which he identified 14 deliverables with an estimated timetable of 4-5 months at 60-70 consulting days at a $1,000/day with a cap amount of $70,000. Mr. Peffley noted that Mr. Goree still has his full support to work with Sheryl Hudson, Acting Human Resource Director to implement the deliverables. He went onto ask the Commissioners for their input and noted that there are five meetings scheduled for Wednesday, January 10th in which Mr. Goree to scheduled to present the report to all BWL employees. Mr. Peffley further stated that he is following up with this request, as was the direction from the Board. He also noted that Ms. Hudson spoke to the Purchasing Department to ensure that the contract extension is not in violation with the existing purchasing policy. Mr. Peffley reported that the scope of work is very aggressive and it was submitted earlier that day and hence he wanted to advise the Board as to its progress.

Commissioner Rios stated that he wanted to clarify their previous request in which they did not direct Mr. Peffley to contract with Mr. Goree. He noted that his recollection was that the Board suggested continuing to involve Mr. Goree in the process. Commissioner Rios went onto advise that what they did ask was that Mr. Peffley would work to implement the recommendations made within the report. Commissioner Rios then noted that it was his suggestion that Mr. Goree would continue on that basis. He went onto to explain that it is Mr. Peffley’s responsibility to decide the best course of action to take to implement the recommendations or to reject them and to keep the Board abreast of the project.

Mr. Peffley stated that with that understanding these are Mr. Goree’s recommendations and he will provide a list of his own recommendations with a cost analysis associated with it. He went onto note that the scope of work represents everything that Mr. Goree would like to address with the worse case scenario for timing and cost.

Commissioner Rios commented that the BWL has a lot of capable people who are responsible for accomplishing the tasks that are on the list. From his perspective, what they would receive from Mr. Goree is guidance and assistance in developing the tools and processes that might help staff in implementing the changes and adjustments. Commissioners Rios noted that a $70,000 contract seemed excessive.

Commissioner Smith advised that once Mr. Peffley decides which items needs to be handled then it would be up to him to decide Mr. Goree’s level of interaction.

Commissioner Graves noted that he agreed with Commissioner Rios summarization of the previous Committee of the Whole meeting. However, they did say said go forward and work with Mr. Goree and he thought to implement a plan for addressing the issues that are in the report. Commissioner Graves went onto explain that at this point, he thinks they have transitioned from the report to what is clearly operational. He stated that he does not think that Mr. Peffley should bring anything back to the Board other than information that he wants to share in regards to how the BWL is moving forward. Commissioner Graves further reported that in his opinion that they do need the assistance of Mr. Goree as those were his findings and he thinks staff would benefit greatly from his expertise. He went onto speak to the cost issue, which he thinks is something that management needs to review and determine as to whether or not they think it is an appropriate cost. Commissioner Graves further advised that he thinks that staff should be allowed to go forward and engage Mr. Goree in whatever ways are appropriate and keep the Board informed of their progress.

Mr. Moore noted that there should be information in the Rules of Procedure that speaks to the issue of proxy rights. The Commissioners advised Mr. Moore that the existing Rules of Procedure are silent on this issue.

Mr. Moore also stated that the BWL needs to develop a plan of action to determine how they are going to address some of the issues within the Human Resource audit report. He went onto ask how does the BWL will get from Mr. Goree’s report to a clean report?

Commissioner Graves responded by stating that they have now transitioned to management’s discretion. He went onto advise that the Board is not there to manage this process to its conclusion as that is not their role.

Commissioner Rodocker advised Mr. Peffley that she would like a report that determines how the Human Resource audit report should or could be used at the BWL and then work on a plan to implement it. She went onto note that it is management’s responsibility to implement the suggestions and that she does not want to see Mr. Goree in essence become a BWL employee.

Commissioner James stated that the discussion ties back to the possibility of forming a joint committee comprised of management, bargaining unit representatives and two Commissioners.

After further discussion, the Commissioners advised that the joint committee suggestion would blend the lines of policy and operations, as it is difficult to keep the two separated.

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

The Human Resource Committee of the Board of Water and Light met in the Boardroom of the Administrative Offices, Lansing beginning at 11:00 a.m. on Thursday, January 11, 2007.

Acting Human Resource Committee Chair, Santiago Rios called the meeting to order and asked the secretary to call the roll. The following committee members were present: Commissioners Joseph Graves, Santiago Rios, and Julee Rodocker.

Public Comment

Use of LBWL Communication Technologies Policy

The Commissioners met to review and discuss the Use of LBWL Communication Technologies Policy, which if approved will govern the Board of Water and Light’s communications that include, but are not limited to: telephones (including cellular and Voice Over Internet Protocol – VOIP), email, internet use, Virtual Private Network (VPN), radios, pagers, global positioning devices, and personal digital assistant (PDA).

Amy Cavanaugh, General Counsel outlined the policy and its major components. The policy includes governance relative to communication equipment, permitted uses, prohibited uses, monitoring, safety and security, loss or theft, return, and misuse of equipment. She also explained that VOIP would link BWL’s computers to its phone and email system and would also allow for enhanced monitoring capabilities. Ms. Cavanaugh reported that employees should not have an expectation of privacy when using any BWL communication technology. They should also be aware that any documents created using the aforementioned technology is subject to the Freedom of Information Act and thereby, subject to public disclosure.

Ms. Cavanaugh also advised the Commissioners that the Internal Revenue Service has recently determined that cell phones given to employees for business use are 100% taxable. The only exemption to this measure is if one can prove that there is no incidental personal use as the IRS deems the cell phone as a benefit to employees. Ms. Cavanaugh also noted that the new IRS mandate would also govern the Board of Commissioners. As it stands, the BWL does allow for incidental personal use provided there is no additional cost to the BWL and work productivity does not suffer. She further explained that if the Board adopts the Use of LBWL Communications Technologies Policy as presented then staff will develop a means to address the IRS’s cell phone mandate.

The Commissioners expressed concern in approving the policy without supplemental procedures in place to address each respective technology and its application. More specifically, the Commissioners requested that procedures be developed to govern monitoring, its application, the business reasons for monitoring, determining parties with the authority to monitor, tracking requests for monitoring and any other such items relevant to the subject. The Commissioners also advised that it would be prudent to provide training and/or a communication tool for employees to learn of the policy and its implications.

Ms. Cavanaugh agreed that she and staff would develop and send the respective policy and supplemental monitoring procedures to the full Board for review by January 17^th.

On motion by Commissioner Graves, seconded by Commissioner Rodocker, the Human Resource Committee unanimously agreed to move the Use of LBWL Communication Technologies Policy to the full Board subject to procedures being received and reviewed prior to the Board meeting. The Human Resource Committee’s recommendation will be submitted to the Board on January 23^rd pending receipt of supplemental monitoring procedures.

Anti-Harassment Policy

Ms. Cavanaugh reviewed the Anti-Harassment Policy and noted that the primary modification to the existing policy is mandatory reporting. In the past, reporting of discriminatory behavior was the sole responsibility of managers and supervisors only. The proposed policy change would deem it mandatory for all employees to report discriminatory behavior. The policy specifically states that the term harassment is defined as discrimination based on any characteristic protected by applicable law. It also indicates that the characteristics include race, color, sex, religion, national origin, citizenship, age, disability, height, weight, marital status and sexual harassment. Ms. Cavanaugh also briefly discussed the City of Lansing, Human Rights Ordinance.

On motion by Commissioner Graves, seconded by Commissioner Rodocker, the Human Resource Committee unanimously agreed to move the Anti-Harassment Policy to the full Board for approval. The Human Resource Committee’s recommendation will be submitted to the Board on January 23^rd.

There being no further business, the Human Resource Committee adjourned at 11:54 a.m.

Motion by Commissioner Rios, seconded by Commissioner Calkins, to receive the Human Resource Report as presented.

Commissioner James arrived at the Board meeting in person at 5:55 p.m. and the teleconference connection ended.

The Finance Committee of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 3:30 p.m. on Tuesday, January 16, 2007.

Finance Committee Chair, Semone James called the meeting to order and asked the secretary to call the roll. The following committee members were present: Commissioners Gary Calkins, Semone James, Robin Smith and Sandra Zerkle. Commissioner Joseph Graves was also present.

Public Comment

Internal Audit Reports – Charles Moore, Including: Six-Year Forecast, Internal Audit Plan and Coal Inventory Control

Six-Year Forecast

Charles Moore, Interim Internal Auditor presented an executive summary of the six-year forecast, internal audit plan and coal inventory control. During the six-year forecast review, Mr. Moore specifically advised the Commissioners that they should play a larger role in determining the allocation of cost due to the effects that it has on utility rates. He recommended that staff bring allocation methods before the Board for review and approval, for in the past, those decisions were made without Board input. Mr. Moore further noted that the goal of the allocation decisions are to make each utility stand independently by allocating cost more appropriately as it relates to the bottom line. He also provided four examples of cost allocation methods that the Board could use as examples during this process. In addition to the above, Mr. Moore also recommended that the BWL study the capacity for wholesale sales of electricity and water due to its potential revenue generation. He further recommended a thorough review of healthcare cost as the BWL is projecting a 5% increase in years 2 through 6 of the six-year forecast while the rest of the nation is projecting increases of 15% to 20%. Therefore, based on the industry, the BWL’s projections appear to be low. He suggested that the BWL conduct a full study of healthcare to determine baseline costs.

Mr. Moore briefly addressed the payment in lieu of taxes and noted that the figures met the 4%, which is good based on the current 10-year contract. He further clarified that he did not compare the BWL’s existing agreement to other municipalities. Staff reported that the BWL is currently in the sixth year of the payment in lieu of taxes agreement with the City of Lansing.

Mr. Moore presented an executive summary of the Internal Audit Plan that can used as a guideline in determining when and what items should be audited and at what frequency. There are a total of 58 items listed within the scope of the review. One of the items specifically mentioned were random periodic P-card audits.

The Commissioners commented as to the feasibility of whether or not one individual has the capability to accomplish so many tasks on a yearly basis. It was suggested that the Board might need one person to determine the audits and another one to conduct them. As such, the Commissioners asked Dick Peffley, Interim General Manager to review the budget for the upcoming fiscal period and make a recommendation as to potential additional staffing. Mr. Peffley agreed to review the budget in consideration of adding up to two persons to the Internal Auditor Department and/or outsourcing during peak audit periods.

Commissioner Calkins asked Mr. Moore if he has considered utilizing interns in addition to another full-time person?

Mr. Moore responded by stating that he has used interns at his own firm in which the persons then became full-time employees. The use of internships allows an employee and employer to determine whether or not they make a good fit for the organization and if the employee likes the work that they are asked to do. Mr. Moore suggested that the BWL could consider an intern(s) as an additional employment option.

Mr. Moore noted that it is important for the Board to recognize that the BWL is a large construction company with approximately $60,000,000 a year in maintenance, construction, and capital projects.

The question was asked if the BWL has controls in place to monitor construction?

Mr. Moore noted that the software is not in place to assist in this process and the existing controls are not tracked on a consistent basis. He also reported that the information gathering should be simplified and that he has not tested the controls as the construction audit would be a project that the permanent Internal Auditor should undertake.

Staff advised that the SAP project should help with tracking and thereby, provide additional construction controls. They also noted that satellite inventory is an example of one of the controls that will be useful in monitoring construction costs with the inception of SAP project.

Mr. Moore presented an executive overview of the coal inventory control process. During the review, he advised that the process of coal inventory and fuel services, which includes transportation and rail cars are too concentrated within the hands of too few people, primarily that of one BWL employee and one contractor. Mr. Moore did not suggest cause for concern. However, he recommended that the Purchasing Department be involved in the purchase of coal to create separation of duties. He also suggested that someone else be involved in the coal approval process in which that individual would compare the manifest to the national database for accuracy. This would ensure better separation of duties and improved internal controls. Lastly, Mr. Moore also recommended that the new Internal Auditor review past sales and transactions for good measure and due diligence.

The Commissioners were receptive to the recommendations and advised that coal inventory has appeared on previous external auditor reports. They also noted that the previous Internal Auditor, Glenn Holloway had also suggested an audit of this nature.

On motion by Commissioner Calkins, seconded by Commissioner Smith, the Finance Committee unanimously agreed to advance Mr. Moore’s recommendations made within the Coal Inventory Controls report to create separation of duties within the purchasing and contracting for coal process and the coal approval process. The Finance Committee’s recommendation will be submitted to the Board on January 23^rd.

On motion by Commissioner Calkins, seconded by Commissioner Smith, the Finance Committee unanimously agreed to advance Mr. Moore’s Six-Year Forecast report and recommendations to the full Board. The Finance Committee’s recommendation will be submitted to the Board on January 23^rd.

Commissioner Calkins made a friendly amendment to state that cost allocations are to be reviewed by the Board on an annual basis. Commissioner Smith seconded the motion.

Copies of Charles Moore’s Internal Audit Reports are on file in the Office of the Corporate Secretary.

Moved by Commissioner Graves, seconded by Commissioner Smith to go into executive session to receive a legal opinion from Amy Cavanaugh, General Counsel, protected by Open Meetings Act exemption MCL 15.268(h). (4:24 p.m.) The roll was called.

Moved by Commissioner Calkins, seconded by Commissioner Zerkle that the Finance Committee meeting return to open session.

On motion by Commissioner Calkins, seconded by Commissioner Graves, the Finance Committee unanimously agreed that the legal department would prepare new proposed language to replace the existing language within Resolution 2006-1-3. The proposed changes will be reviewed at a subsequent meeting once they are made available to the Board.

Commissioner Smith left executive session at 4:44 p.m. due to a prior obligation and rejoined the meeting by teleconference at 4:50 p.m. Upon completion of the executive session, Commissioner Smith ended her teleconference participation at 5:01 p.m.

Sue Flores, Manager of Finance and Planning explained that the BWL is obligated under Resolution 2005-3-13 to review consideration of a Cost of Living Adjustment (COLA) to the Defined Benefit Plan within 30 days of an approved BWL-IBEW contract. Upon completion of the contract extension, adopted by the Board on October 30, 2006, the BWL began to consider a request received from the Defined Benefit (DB) Pensioners for the BWL to consider a COLA increase. Ms. Flores advised that the last COLA increase was received in 2001. She also explained that granting an increase in the DB fund would reduce its current over funding and thereby, affect transfers to the VEBA fund. The BWL adopted GASBY 45, which is a commitment to fully fund VEBA. As a result, transfers from the over funded DB fund to the under funded VEBA fund have allowed the BWL to reduce its operating cost because it is able to take advantage of the over funding. Ms. Flores noted that granting a COLA increase would affect the DB fund but to what extent would have to be determined by the amount of the increase and an actuarial assessment. She also reported that fully funded medical health benefits are paid to both the Defined Benefit and Defined Contribution retirees. Ms. Flores further advised that increases in health care medical benefits have been substantial and they continue to be fully funded with no premium sharing for the pensioners. She went onto note that although the pensioners have not received a COLA increase since 2001, they have received a net overall increase benefit from the company in that the BWL has continued to fully fund healthcare. The net increase has resulted in a benefit of 15% during the past five years at an average of 3% each year. Ms. Flores continued by presenting options that the Board may want to consider, which include the following:

Ms. Flores reported that staff recommends a one-time lump sum payment of $15.00 each year retired prior to 7/1/2006, as the most appropriate option until actuarial numbers can be thoroughly reviewed. This option may provide some relief to retirees, especially those who retired several years ago. They would also like to invite a retiree representative to serve on the healthcare taskforce.

Mr. Peffley advised that they are not advocating a decrease in the healthcare benefits that retirees currently possess. However, they want their involvement in the future, as the BWL will need to address healthcare issues. Mr. Peffley also noted that the BWL would revisit this issue again in approximately 1½ year, which will be the end of the current bargaining unit contract extension.

The Commissioners advised that some of the retirees have already expressed an interest in participating on the healthcare taskforce and have not had opportunity to do anything of this nature in the past. It was also asked if the BWL had conducted a survey of the retirees to indicate their preference relative to the COLA options?

Mr. Peffley responded by stating that the BWL has not conducted a survey to determine the retiree’s preference. He also noted that they are required to visit this issue within a timeframe after the bargaining unit contract is settled. Mr. Peffley explained that if the $15 each year retired option is chosen then it would be at a cost of $123,560 to the over funded Defined Benefit plan, which will effect the transfer to the VEBA fund.

Upon further discussion, the Commissioners asked staff what are the negative effects of providing a lump sum payment?

2. Defined Contribution Plan pensioners may be unhappy as they are not scheduled to receive a likewise amount.

3. The Defined Benefit Plan pensioners may not feel that the amount is sufficient and/or they may feel that the increase should be permanent.

On motion by Commissioner Calkins, seconded by Commissioner Zerkle, the Finance Committee, agreed to move forward a recommendation to the full Board to adopt a one-time lump sum Cost of Living Adjustment to the Defined Benefit Plan pensioners in the amount of $20.00 each year retired prior to 7/1/2006, no min/max at a total cost to the BWL of approximately $164,000. The Finance Committee’s recommendation will be submitted to the Board on January 23^rd.

Discussion: Commissioner James asked staff if they have determined the ramifications of the aforementioned COLA increase in terms of the bottom line?

1. The $164,000 lump sum payment would have to be funded from the Operations & Maintenance (O&M) budget.

2. They would have to look for savings internally in some other area or they will be over budget in a line item for $164,000.

Commissioner Zerkle introduced a friendly amendment to include that retirees will be invited to serve on the healthcare taskforce.

Mr. Moore advised that the BWL is over budget in wholesale sales at approximately $2,000,000. Thereby, the BWL has sufficient cash to accommodate the request.

Bill Cook, Senior Vice of Operations noted that the average pensioner receives $15,690 a year and this will result in a bonus payment of approximately $330, which is equivalent 2.1%.

Mr. Moore explained that the Plan of Deliverables advises the Board of his progress for various projects that are scheduled to occur throughout his contractual period with the Board of Commissioners. A copy of the plan is updated and sent on a monthly basis with the billing invoice that includes a forecast of upcoming projects.

Copies of Charles Moore’s Plan of Deliverables are on file in the Office of the Corporate Secretary.

Mr. Peffley advised that the Commissioners were originally told that the budget for the Financial System Software Project (SAP) was $2,664,000. A component of the budgeted amount, $504,000 was an O&M cost. During the budgeting process the $504,000 was not transferred into Capital Projects. The documentation that should have been used to accomplish this task is a Capital Projects Justification (CPJ) form. Under the current administration, a capital project is not approved unless a CPJ is filled out. Mr. Peffley further explained that the $2,664,000 has to be approved as the $504,000 from O&M was not included and hence only $2,160,000 is in the capital budget for the SAP project. He also noted that this is not an increase to capital projects at a cost to the ratepayers, the BWL is essentially moving funds from O&M to capital. Mr. Peffley went onto state that the $504,000 discrepancy is an accounting issue that needs to be rectified with the Board’s approval. He also advised the Board that an additional $67,000 is also being requested at Mr. Moore’s recommendation for capitalized interest. Therefore, the total amount requested is $567,000.

Mr. Peffley also reported that there was a problem in which the software project was bid on time and materials with no cap and the project was not going as quickly as the BWL thought it should. They have since negotiated with the vendors to accept a fixed price. The project is scheduled to go live on April 2, 2007 and the project will cost approximately $2.8 million as opposed to $2.6 million. For clarification purposes, the $2,600,000 would be allotted from capital projects and $200,000 would be allotted from O&M.

Mr. Moore noted that they must keep in mind that it is not a modification but an increase to capital budget by $567,000, as O&M will not experience a decrease.

Commissioner Calkins asked if the form had been filled out at the appropriate time then what would have occurred as opposed to what is happening now?

Mr. Peffley replied that the transfer would have taken place accordingly. However, since it was not filled out then the funds were moved out of O&M but were not placed in capital and thereby, he agrees with Mr. Moore’s statement. He went onto note that not filling out the form created the problem. Staff further clarified that if proper procedure had taken place when the project was originally approved then staff would have requested a budgeted amount of $2,664,000 as opposed to $2,160,000.

On motion by Commissioner Calkins, seconded by Commissioner Graves, the Finance Committee unanimously agreed to move staff’s recommendation to the full Board. The Finance Committee’s recommendation will be submitted to the Board on January 23^rd.

Commissioner James asked management to ensure that the Board receives status updates on the progress of the SAP project in a timely manner. They have requested monthly updates in the past and have not received them as of yet. She also requested that staff present an update on the SAP project at a future Board meeting.

Discussion to Establish Timeframe to Diversify Advisors

In the interest of time, the last agenda item – Discussion to Establish Timeframe to Diversify Advisors will be moved to next Committee of the Whole or Finance Committee meeting.

There being no further business, the Finance Committee adjourned at 5:32 p.m.

Motion by Commissioner James, seconded by Commissioner Rios, to receive the Finance Report as presented.

The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 11:00 a.m. on Tuesday, January 17, 2007.

Acting Committee of the Whole Chair, Robin Smith called the meeting to order and asked the secretary to call the roll. The following committee members were present: Commissioners Gary Calkins, Joseph Graves, Semone James, Santiago Rios, Robin Smith and Sandra Zerkle.

Public Comment

Interview Search Firms for General Manager Position

The Commissioners met to conduct face-to-face interviews with vendors for the Request For Proposal for executive search services for the General Manager position. The first interview was conducted with Scott Edmunds, Director of Business Development and Josh Roberts, Recruiting Manager of ASG Renaissance, LLC. The representatives provided information regarding their organization and a question/answer session followed.

The second interview took place with Sandra Soltysiak, Executive Search Director of Varnum Consulting. Ms. Soltysiak provided information regarding her organization and a question/answer session followed.

The third interview took place with Charles Blockett, Human Resource Consultant of Charles Blockett, Jr. and Associates, Inc. Mr. Blockett provided information regarding his organization and a question/answer session followed.

The fourth interview took place with Lynn Margulies, Director of Executive Recruitment and Mary McCune, Principle of The Rehmann Group. The representatives provided information regarding their organization and a question/answer session followed.

Following conclusion of the interviews, the Commissioners discussed each vendor’s presentation, credentials and subsequent information.

On motion by Commissioner James, seconded by Commissioner Calkins, the Committee of the Whole unanimously agreed to bring forth a recommendation to the full Board to award the Request for Proposal for Executive Search Services for the General Manager position to Varnum Consulting. The Committee of the Whole’s recommendation will be submitted to the Board on January 23^rd.

There being no further business, the Committee of the Whole adjourned at 1:23 p.m.

Motion by Commissioner Smith, seconded by Commissioner Calkins, to receive the Committee of the Whole report as presented.

The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 4:00 p.m. on Tuesday, January 23, 2007.

Public Comment

Legal Opinion re: Delta Township Wholesale Water Contract

Moved by Commissioner Graves, seconded by Commissioner James, to go into executive session to discuss privileged documents received from Amy Cavanaugh, General Counsel and Peter H. Ellsworth of Dickinson Wright PLLC protected by the Open Meetings Act exemption MCL 15.268(h). (4:08 p.m.) The roll was called.

Yeas: Commissioners Calkins, Cochran, Graves, James, Rios, Rodocker, Smith, and Zerkle.

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

Commissioner Rios advised that the Board discussed a legal opinion in regards to the Delta Township wholesale water contract and asked staff to move quickly in resolving the matter.

Continued Discussion on Executive Search Services for the General Manager Position

The Commissioners briefly discussed the RFP for the executive search services and advised that all of the vendors were very well qualified. It was also noted that they selected the firm that they thought would work best with this matter. The Committee of the Whole will make a recommendation to the full Board to award the RFP to Varnum Consulting.

Discussion on Board of Commissioners Travel Policy

The Commissioners discussed the Board’s travel policy in relation to conferences that they could attend. They also addressed the issue of what is reasonable relative to a per diem amount and the location of the respective conference. After further discussion regarding the use of study findings and overall business practices, the Commissioners introduced a motion regarding their travel policy.

On motion by Commissioner Cochran, seconded by Commissioner Rios, the Committee of the Whole passed a motion to increase the per diem amount to $100.00 for the Board of Commissioners only and to charge staff with the responsibility of making a recommendation based on study findings.

Other

Financial Report

Dick Peffley, Interim General Manager presented an updated Financial Report for the six- months ended December 31, 2006. Mr. Peffley noted that the BWL’s net income is $15,500,000, which is $10,000,000 over projected figures. He went onto advise that the net income increase is due to the BWL’s wholesale marketing strategy, which they plan to continue.

Commissioner Rios complimented Mr. Peffley on his progress at the BWL and further advised that all of the feedback he has received has been very positive.

Mr. Peffley thanked Commissioner Rios and acknowledged staff and their contributions in accomplishing various goals.

Board Compensation

Motion by Commissioner Rios, seconded by Commissioner Graves, to accept the Committee of the Whole report as presented.

LANSING BOARD OF WATER AND LIGHT
GENERAL MANAGER'S RECOMMENDATIONS
January 23, 2007

WHEREAS, the Board of Water and Light of the City of Lansing, Michigan, has an obligation to make its best efforts to assure a reliable and cost effective supply of electricity to its customers; and

WHEREAS, renewable energy creates energy diversity for long-term security of our economy and environment and is consistent with assuring reliable, safe, clean and affordable energy for our citizens; and

WHEREAS, consistent with Resolutions #2001-6-7 and #2001-7-14 (Green Power), certain BWL customer-owners want their electricity from cleaner, renewable sources; and

WHEREAS, The Energy Policy Act of 2005 amended Title I of the Public Utility Regulatory Policies Act of 1978 (PURPA) requires utilities to consider a plan to minimize dependence on one fuel source and to ensure that electric energy is generated from a diverse range of fuels and technologies which includes renewable technologies; and

WHEREAS, Twenty one (21) states have already implemented a mandated or voluntary Renewable Portfolio Standard (RPS); and

WHEREAS, an April 2006 Executive Order from Governor Jennifer Granholm to the Michigan Public Service Commission requires an Energy Plan no later than December 31, 2006. This 21^st Century Energy Plan is required to include an RPS that establishes targets of Michigan’s energy consumption to be derived from renewable energy sources. Preliminary reports of the 21^st Century Energy Plan indicate a recommendation of 7 percent renewable resources by 2016; and

WHEREAS, the major investor-owned electric generation systems in Michigan have indicated that they plan to soon issue Request For Proposals to lock up ownership, ownership interest, and long-term contracts with any available or proposed Michigan-based renewable energy source in anticipation of an RPS; and

WHEREAS, it is appropriate and prudent for the Board of Water and Light of the City of Lansing to explore additional renewable energy supply opportunities, as a part of its ongoing efforts of meeting the electricity supply requirements of its customers and in complying with the anticipated state wide RPS.

NOW THEREFORE BE IT RESOLVED, that the BWL shall strive to expand its electric generation from renewable resources. This may include ownership, ownership interest and long term contracts in diverse renewable energy sources, including hydro-electric, wind, solar and biomass (including landfill gas). Source location preference priority shall be: within our service area, within Michigan, and within economic dispatch distance. The BWL shall strive to generate or purchase electricity generated from eligible renewable energy sources at the following target levels:

1. Two percent (2%) of electric retail sales (kWhs) by December 31, 2008;
2. Five percent (5%) of electric retail sales (kWhs) by December 31, 2012;
3. Seven percent (7%) of electric retail sales (kWhs) by December 31, 2016

These levels may be adjusted to meet any legislative requirements. Each year in January, staff will prepare a report to the Board of Commissioners on the progress on achieving these target levels.

All costs reasonably and prudently incurred in procuring renewable energy sources shall be considered a cost of service and recoverable through the electric rates.

Motion by Commissioner Calkins, seconded by Commissioner Cochran, to adopt Resolution 2007-1-9, which pertains to the Renewable Energy Portfolio Standards (RPS).

Discussion: Commissioner Rios complimented staff on bringing the resolution forward as it puts the BWL in a leadership position, as it is consistent with overall policy and direction.

Commissioner Cochran also complimented staff for having the foresight to care about the environment as well as making electricity.

Dick Peffley, Interim General Manager noted that they have done due diligence and a press release will announce the newsworthy resolution. He also advised that the BWL is the first mid-Michigan utility to adopt such a policy. Mr. Peffley went onto report that they are currently negotiating a deal that will allow the BWL to meets its 2008 target within the next 2-months.

RESOLVED, that the FY 2007 Planned Capital Budget be increased $567,000 to correct the budgeted amount for the Financial System Software Project, 07-121.

Staff comments: When the original capital budget amount was developed for this project, Board of Water and Light staff labor (plus indirect costs) was not included in the budgeted amount of $2,160,000. Internal labor of $504,000 was anticipated when the project was proposed, and was included when the project was presented to and approved by the IT Steering Committee in the amount of $2,664,000; however, due to an internal communication breakdown, the internal labor was not included in the capital budget amount. A Capital Project Justification form was not completed for this project, since Management at that time felt that IT Steering Committee justification was sufficient. Current Management has mandated that Capital Project Justification forms will be filled out for all Capital Projects.

An amount of $67,000 is also being requested as an addition to this project for capitalized interest. At the direction of our external auditors, all projects in excess of $1,000,000 should receive a charge for allocated interest expense. This does not represent an additional cash outlay on the project, but rather a transfer from interest expense to this capital project.

The amount of $567,000 represents an updated amount for internal labor, the allocation of interest, and the net effect of other updated project expenditures including a revised allocation of the cost of the installation contract, savings on software purchases and the cost of temporary offices for the project team.

Motion by Commissioner Graves, seconded by Commissioner Rodocker, to adopt Resolution 2007-1-10, regarding the Increase Capital Project Budget for Financial System Software.

Discussion: Commissioner Rios advised that he was glad to hear that the BWL has implemented a policy that would prevent errors of this nature from happening again.

Mr. Peffley clarified that in this instance the policy was in place but it was not followed. He went onto state that there are only two positions at the BWL who could not follow the policy, which includes the General Manager and the Senior Vice President of Finance. Mr. Peffley further reported that the individual who did not follow the policy is no longer with the BWL.

Commissioner Smith asked Mr. Peffley if the policy is sufficient in his opinion?

Mr. Peffley replied yes and advised that the policy was in place and should have been followed. There are no capital projects that Bill Cook, Senior Vice President of Operations or himself will approve without proper signatures and documentation. He went onto note that it was a simple clerical error and had the forms been filled out then they would have noticed that the Operations and Maintenance (O&M) piece of the project was missing. As a result, the O&M was taken out but was not placed in the capital budget. Mr. Peffley further explained that that is why they have the forms and it is not acceptable that someone does not follow the process.

RESOLVED, that the Board of Commissioners hereby approves the attached Anti-Harassment Policy, dated January 23, 2007.

RESOLVED FURTHER, that the attached Anti-Harassment Policy supersedes the following existing BWL policies: No Harassment Policy, Sexual Harassment Policy, and Freedom from Harassment Policy.

Staff comments: This policy combines the substance of the current No Harassment Policy, Sexual Harassment Policy, and Freedom from Harassment Policy, and removes all duplication and potential conflict between the policies. This policy is in full compliance with state and federal law. The most substantive change in the policy is that it makes reporting of harassment mandatory for all employees and not just supervisory staff. Once approved, Staff will schedule mandatory Anti-Harassment training for all BWL employees consistent with this policy.

Motion by Commissioner Cochran, seconded by Commissioner Rios, to adopt Resolution 2007-1-12, in regards to the Anti-Harassment Policy and Supersede Existing No Harassment, Sexual Harassment, and Freedom from Harassment Policies.

Discussion: Commissioner Smith asked how long had it been since the BWL received harassment training? She also asked if the policy is similar to what other companies utilize?

Amy Cavanaugh, General Counsel advised that it is her understanding that it has been at least seven years since the BWL has conducted harassment training. She also noted that it would bring the BWL into compliance with state and federal law and that the policy is very similar to current industry practice. Ms. Cavanaugh went onto clarify that the BWL was already in compliance with state and federal law.

RESOLVED, that the Board of Commissioners hereby approves the attached Use of LBWL Communications Technologies Policy, dated January 23, 2007.

Staff Comments: This policy is an umbrella policy intended to cover all LBWL communications technologies to set parameters for use, misuse, monitoring, safety and security. In accordance with this policy, Staff will develop procedures particular to certain types of communication technologies, such as email and cellular phones. Attached to this policy are procedures for monitoring and recording of LBWL communications technologies, which will be adopted by Staff if this policy is approved.

Motion by Commissioner Calkins, seconded by Commissioners Graves, to adopt Resolution 2007-1-12, regarding the Use of LBWL Communications Technologies Policy.

Discussion: Commissioner James asked if the policy would affect the Commissioners use of cell phones relative to the IRS mandate?

Ms. Cavanaugh advised that it would also affect the Board of Commissioners. She went onto explain that if you have a business issued phone and you cannot document that every phone call is for business use then the IRS considers the entire amount to be personally taxable. Therefore, the BWL will also have to address Commissioners in terms of the procedure. Ms. Cavanaugh also noted that the policy makes clear that employees and Commissioners are subject to the Freedom of Information Act (FOIA) to the extent that they are using LBWL issued communication technologies.

Commissioner Cochran expressed concern regarding section III, A2 of the Procedures for Monitoring and Recording LBWL Communication Technologies in which the procedure discusses the recording of content. He went onto ask if the BWL were recording all cell phone conversations?

Ms. Cavanaugh advised that if someone leaves a voicemail message on your cell phone then the cell phone company records it verbatim. She went onto state that if someone were to then FOIA that record and the message was still on the cell phone then you would have to provide that record. Ms. Cavanaugh further clarified that only voicemail messages can be recorded by the cell phone company. The BWL does not have the capacity to record cell phone conversations.

Commissioner Rios advised that whenever one talks about monitoring activities then it is a very sensitive subject from a business, employee morale and emotional standpoint. As no one likes to feel as if someone is looking over his or her shoulder, and hence you do not any have privacy or confidentiality. He went onto note that the committee and the Board has been concerned with making sure that it is a fair process with accountability.

Commissioner Rios also stated that staff has done a very good job and suggested that they go a little further. As such, Commissioner Rios made a friendly amendment in which he asked that they 1) change section VI, 1a of the Procedures for Monitoring and Recording LBWL Communication Technologies to state that, “A manager or director must have a documented good-faith reason…” He went onto note that he would like language added that makes it clear that it has to be documented. Commissioner Rios further advised that 2) the BWL should have a specific form that indicates the mandatory information that is necessary in order for monitoring to be approved. Therefore, there is no room for discussion as to whether or not the BWL followed its own policy. He also suggested that 3) the monitoring has to be approved by the General Manager or their designee in addition to Human Resources. Commissioner Rios noted that this is so invasive that he believes they should go through the steps necessary if they are going to conduct this type of monitoring.

Commissioner Rios clarified that he was only referring to the recording of calls for disciplinary purposes.

Ms. Cavanaugh advised that if there was someone who was having problems with their calls and consistently received bad remarks in terms of their monitoring then it could affect their job performance ratings. She went onto note that eventually it is possible that if you had someone who was doing an extremely bad job then one could end up losing his or her job based on monitoring.

Commissioner Rios pointed out that the monitoring Ms. Cavanaugh referred to occur all the time, as there is always an ability to listen in on a call. He went onto state that he is referring to a situation in which someone decides to listen in because there is a good faith reason to believe that someone is violating policy.

Commissioner Zerkle asked if that would apply to all aspects such as, the Global Positioning Devices that the BWL plans to or have installed on BWL trucks?

Commissioner Rios responded by stating that this is a general procedure and so if the intent were to record or monitor for purposes of disciplinary action then these rules would apply.

Commissioner Calkins asked how do you determine if you have documentation regarding something of that nature?

Commissioner Rios advised that the form would spell out the reasoning behind the monitoring request.

Commissioner Graves stated that he was generally in support of the recommendation with one exception. He questioned whether or not they should send the request to the General Manager for all occurrences. Commissioner Graves further clarified that he was not concerned with the volume of the requests but that certain issues could be delegated to senior staff such as, the Human Resource Director.

Commissioner James stated that she questioned the support of the documentation that the manager or the General Manager would serve as the basis for performing the monitoring for disciplinary purposes. She went onto note that she wants to make sure that this is not used as a tool for abuse. Commissioner James further stated that they should make sure that they have everything lined up and it is not superficial.

The Commissioners agreed with Commissioner James’ statement and Commissioner Rios further noted that to take that type of action it has to be extraordinary and it cannot be something that happens quickly. He went onto advise that it has to be documented and several people should review it as individuals should be able to support the recommendation to the General Manager.

Commissioner Rodocker further advised that perhaps a set of guidelines and the assistance of Human Resources prior to reaching the monitoring level would be appropriate. She also noted that some type of documentation stating how long the monitoring would take place is also necessary.

After further discussion, the Commissioners acknowledged that employees do not have an expectation of privacy when using LBWL devices. However, they clarified that the larger issue is, who is going to be accountable, and who will have to sign off on these situations. The Commissioners agreed to accept the Use of LBWL Communications Technologies Policy contingent upon the procedures being changed as directed by the Board.

Mr. Peffley agreed and noted that if the Board approves the policy then staff would implement the suggested changes to the Procedures for Monitoring and Recording LBWL Communication Technologies.

Commissioner Smith departed the meeting at 6:39 p.m. due to a prior obligation and rejoined the Board meeting via teleconference at 6:42 p.m. (after Resolution 2007-1-13).

RESOLVED, that a lump sum payment be made to Defined Benefit Pensioners equal to $20 for each year retired prior to July 1, 2006.

Staff Comments: Pursuant to Resolution 2005-3-13, Management reviewed consideration of a Cost of Living Adjustment to the Defined Benefit Plan. Management’s recommendation is that rather than a permanent increase to monthly pensions, that a lump sum payment be made to Defined Benefit pensioners equivalent to $20 per year for each year retired prior to July 1, 2006.

In addition, Management recommends including a retiree representative on the Health Care Task Force that will be analyzing health care issues identified in Resolution 2006-10-04.

Motion by Commissioner Calkins, seconded by Commissioner Graves, to adopt Resolution 2007-1-13, in regards to the Lump Sum Increase for Defined Benefit Pensioners.

Commissioner Calkins responded by stating that management made two proposals to the Board of $15 and $30. He went onto note that due to the short-term contract agreement, and in wanting a one-time payment as was done in the past, they decided on $20.

UNFINISHED BUSINESS

NEW BUSINESS

RESOLUTIONS

EXECUTIVE SEARCH SERVICES FOR THE GENERAL MANAGER POSITION

WHEREAS, the Committee of the Whole of the Board of Commissioners of the Board of Water and Light met and interviewed each candidate for the Executive Search Services for the General Manager position on January 17, 2007; and

WHEREAS, the Committee of the Whole of the Board of Commissioners of the Board of Water and Light met and discussed each firms presentation and credentials after the interviews held on January 17, 2007.

RESOLVED, That the Committee of the Whole recommends that the Request for Proposal award for the Executive Search Services for the General Manager position be granted to Varnum Consulting.

Motion by Commissioner Graves, seconded by Commissioner Calkins, to receive the Committee of the Whole’s recommendation to award the Request for Proposal of the Executive Search Services for the General Manager Position to Varnum Consulting.

MANAGER’S REMARKS

Mr. Peffley noted that the BWL was one of 13 companies that received the, “National Partnership for Highway Quality Making a Difference Award”, in regards to the BWL’s participation in the Capitol Loop project.

Commissioner Rios advised that there are so many good things happening at the BWL and they have a lot to be proud of. He also noted that when outside persons recognize the work of BWL employees then it is refreshing and rewarding and makes the long hours worthwhile. Commissioner Rios went onto compliment staff and management for all of their hard work that was recognized by the award.

COMMISSIONERS’ REMARKS

EXCUSED ABSENCES

PUBLIC COMMENTS

ADJOURMENT

On motion by Commissioner Cochran, seconded by Commissioner Calkins, the meeting adjourned at 6:45 p.m.

MINUTES OF THE BOARD OF COMMISSIONERS REGULAR MEETING

APPROVAL OF MINUTES

PUBLIC COMMENT

COMMUNICATIONS

COMMITTEE REPORTS

Resolution 2007-1-1

SUMMARY REPORT FOR THE BOARD OF COMMISSIONERS

Resolution 2007-1-2

Public Power Governance

Key Issue Review

Strategic Planning for Public Power Systems

Strategies in the Selection of a New General Manager

Submitted by Rhonda Jones

Resolution 2007-1-3

Public Comment

Discuss Executive Search Firm RFP’s Received for the GM Position

Discuss Separate Forecast by Utility Request

Discuss Privileged Document

Other

Resolution 2007-1-4

Public Comment

Customer Satisfaction Survey

Public Comment

Use of LBWL Communication Technologies Policy

Anti-Harassment Policy

Resolution 2007-1-6

Public Comment

Six-Year Forecast

Legal Opinion re. Impact of Proposal 2 on Resolution 2006-1-3

Discussion on Retirees’ Cost of Living Proposal

Plan of Deliverables – Charles Moore

SAP Update

Discussion to Establish Timeframe to Diversify Advisors

In the interest of time, the last agenda item – Discussion to Establish Timeframe to Diversify Advisors will be moved to next Committee of the Whole or Finance Committee meeting.

There being no further business, the Finance Committee adjourned at 5:32 p.m.

Resolution 2007-1-7

Public Comment

Interview Search Firms for General Manager Position

January 23, 2007

Public Comment

Legal Opinion re: Delta Township Wholesale Water Contract

Continued Discussion on Executive Search Services for the General Manager Position

Discussion on Board of Commissioners Travel Policy

Other

Financial Report

Board Compensation

Resolution 2007-1-10

Resolution 2007-1-11

Resolution 2007-1-12

Resolution 2007-1-13

UNFINISHED BUSINESS

NEW BUSINESS

RESOLUTIONS

Resolution 2007-1-14

EXECUTIVE SEARCH SERVICES FOR THE GENERAL MANAGER POSITION

MANAGER’S REMARKS

COMMISSIONERS’ REMARKS

EXCUSED ABSENCES

PUBLIC COMMENTS

ADJOURMENT