Approved by the Board: July 24, 2007
LANSING BOARD OF WATER AND LIGHT
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Tuesday, May 22, 2007
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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, and Sandra Zerkle.
Absent: Commissioner Robin Smith
The Secretary declared a quorum present.
Acting Chairperson Rios asked all to rise for the Pledge of Allegiance to the Flag.
Acting Chairperson Rios called the meeting to order at 5:35 p.m.
By motion of Commissioner Cochran, seconded by Commissioner Calkins the minutes of the March 27, 2007 regular meeting were unanimously approved.
THE ACTING 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, handed out a copy of a USA Today newspaper article and read a prepared statement. The prepared statement pertained to concerns regarding water department staffing issues, a special conference request, and succession planning. A copy of the letter will be placed on file and entered under communications.
Letter from IBEW Local 352, Assistant Business Manager Jim Dravenstatt-Moceri dated April 10, 2007 regarding the General Manager search.
Received and placed on file.
Letter from IBEW Local 352, Business Manager Joseph D. Davis dated April 12, 2007 regarding Water Department staffing levels.
Received and referred to management.
Letter from IBEW Local 352, Business Manager Joseph D. Davis dated April 27, 2007 regarding a special conference request for water.
Received and referred to management.
Letter from IBEW Local 352, Business Manager Joseph D. Davis dated May 22, 2007. (The letter was read during Public Comment and briefly addressed during Commissioner Remarks.)
Received and placed on file.
Joint Meeting
Lansing City Council and
Board of Water and Light Commissioners
March 29, 2007
Council President Leeman called the joint meeting to order at 11:42 a.m. The meeting was held at the Clara’s Lansing Station, 637 E. Michigan Avenue, Lansing.
Councilmember’s Present: Sandy Allen, Harold Leeman, Derrick Quinney and Carol Wood. Absent: Councilmember’s Kathy Dunbar, Brian Jeffries, Tim Kaltenbach, and Randy Williams.
Commissioners Present: Gary Calkins, Robert Cochran, Santiago Rios, Julee Rodocker, Robin Smith, and Sandra Zerkle. Absent: Commissioners Semone James and Joseph Graves.
City Staff Present: City Attorney Brigham Smith, Mayor Chief of Staff Jerry Ambrose (arrived at 12:40 p.m.), and Interim Administrative Assistant Diane Bitely.
BWL Staff Present: Interim General Manager Dick Peffley, Senior Vice President of Operations Bill Cook, Manager of Finance and Planning Sue Flores, Director or Internal Audit Susan Pifer, Corporate Secretary Rhonda Jones, and Governmental Affairs Analyst Calvin Jones.
The purpose of the joint meeting was to present an update to City Council on the following topics:
Public Comment
Bryan Smith, 1007 Park Lane, noted that he was upset by some of the things that had taken place regarding tree trimming. However, he was pleased with the committee that was formed and further advised that the BWL has gone out of its way, including that of Mark Nixon, Communications Director to address the issue. Mr. Smith also noted that the committee would soon bring forth recommendations and he thought the process was going well.
Board Chair Smith introduced the new BWL Director of Internal Audit, Susan Pifer.
1. Update on Delta Township Water Agreement. Board Chair Smith noted that the BWL is continuing to work with Delta Township to resolve its contractual differences. BWL staff advised that they are narrowing the areas of concern that amount to four primary items. It was also reported that Delta Township wants to remove the interruptible service clause in their contact due to its sensitivity and if done they would have to operate independently. Staff also noted that they are unsure of the financial impact at this time and they do not expect to resolve by June 2007.
2. Update on Tree Trimming. Board Chair Smith
reported that the BWL is thru its first 5-year trim cycle and they are
returning to Delta Township this calendar year. It was further noted that they
do not anticipate doing much work in the City of Lansing until 2007 2008
and it would begin in the southwest quadrant of the city. The anticipated
FY2008 budget for tree trimming is $1.3 million, with 40% of the FY2008 budget
slated for work in the city. It was further advised that the BWL anticipates
that most of the work will occur on private property after January 1, 2008.
Council asked if the BWL is looking at working with the City in the tree trimming process? They also asked if copies of the materials that were supplied to the focus group could be sent to Council to help in their continued review of the process?
Staff noted that the BWL is looking to work with the City of Lansing for tree trimming work that would amount to $70,000 in the FY2008 budget. They also noted that they would send Council a copy of the focus group materials and any recommendations made from said group.
3. Update on Human Resource Audit. Board Chair Smith reported that the Human Resource audit was presented in December 2006 and subsequently made available to all employees. It was also noted that Dick Peffley, Interim General Manager updated employees in February 2007 of an action plan in response to the audit issues.
4. Update on the General Manager Search. Board Chair Smith gave a brief overview and noted that the General Manager position was posted and is scheduled to close on March 30, 2007. In response to Council’s questions, it was further advised that the names of the candidates will not be released until the finalists are announced. It was also reported that they hope to fill the position by early June 2007.
Council noted that during the previous process they were allowed to meet with the candidates for approximately 5-minutes and receive information during the meet and greet session. However, it was advised that the length of time given to Council was not sufficient.
Board Chair Smith responded by noting that the Board of Commissioners has not made a decision regarding a meet and greet. However, they will take Council’s concerns into consideration.
5. Update on Other Management Positions. Interim General Manager Peffley advised that the BWL received sixty-one (61) applications for the Human Resource Director position that included two internal candidates. It was reported that the interview team was comprised of bargaining and non-bargaining persons, and the candidates were sent to Varnum Consulting for additional testing. He also noted that there were high quality applicants with diversity and an offer had been made and accepted. The tentative start date for the new director is Monday, April 2nd pending physical and drug test results.
Board Chair Smith noted that Susan Pifer who started on March 27, 2007 filled the Director of Internal Audit position. The Chief Financial Officer position will be filled by the new General Manager to allow them opportunity to establish their own team. The Director of Production position is currently being held for Dick Peffley (Interim General Manager).
6. IBEW – Union/Management Relationship. Board Chair Smith advised that they believe Union relations are improving. Grievances and employee comments at Board meetings have decreased and morale seems to be improving. She noted that an emphasis on increasing communication has begun and the BWL IRP results were presented to employees. It was further advised that Human Resource audit issues are also being addressed.
Joseph Davis, Business Manager of IBEW Local 352 commented that the union-management relationship has improved and they are waiting for the Human Resource Director to begin the Healthcare Taskforce. He further commented that the human resource audit raised issues and one of questions is how does an organization train persons to move at the Board whether they are journeyman or professionals. Mr. Davis went onto advise that they are working with Delta Township and they see growth in that respective area. He closed by noting that they are looking forward to moving forward.
Board Chair Smith noted that the BWL is making a cultural change that has been slow but good. It was also advised that the BWL has changed the CSO project process and currently have John Matuszak coordinating the project, which has resulted in decreased complaints.
7. Update on City/BWL Mutual Cooperation Present & Future. Board Chair Smith advised that BWL staff have been working with the City in the pursuit of mutual benefits. Those efforts include: BWL offered assistance in energy conservation program development and joint Purchasing Department efforts to identify combined purchasing opportunities such as fuel and office supplies. Other efforts include a pilot program in which the City may perform BWL tree trimming work and the coordination of CSO engineering, design, scheduling and contractors.
Council made several inquires and observations that included an awareness that some streetlights were off in the district and the status of joint mowing and plowing projects. They also asked if the BWL has discussed delaying the rate break repayment agreement granted by the BWL a few years ago? Council went onto advise that they are interested in discussing the BWL’s external audit performed by Plante & Moran at the Ways and Means Committee.
In response to City Councils inquires, staff responded by noting that if half the streetlights in a block are off then it is typically a construction related problem or there maybe a fault. It was advised that if one notices a streetlight out then it should be reported to the BWL for repair. Board Chair Smith reported that they could not speak to the issue of a joint mowing and plowing project but they would obtain an update and report back to Council. It was also noted that there has not been any discussion at the BWL relative to delaying the rate break repayment. However, staff will look into the issue and update City Council.
8. Update on BWL Revenues/Expenses for FY06/07 & Future. Sue Flores, Manager of Finance and Planning gave an overview of the BWL Financial Plan, FY08 Assumptions, which were originally presented at the BWL Finance Committee meeting on March 13, 2007 and the Financial Report, Seven Months Ended January 31, 2007. Ms. Flores briefly reviewed the sales forecast, revenue assumptions, operating expenses, capital expenditures, and net income. It was reported that the BWL expects a higher payment in lieu of taxes (PILOT) of $10,000,000 as opposed to the original projected amount of $9,200,000. Ms. Flores also noted that although she would prefer a 2-year rate strategy the BWL is currently looking at a January 2008 rate increase.
During the rate discussion, City Council asked the BWL to be sensitive to the fact that sewer rate increases typically occur in October. They also asked the BWL what was being done relative to replacement generation?
Interim General Manager Peffley responded by stating that they need to move forward in looking at replacement generation. He also advised that coal is the least expensive. However, they are still looking at biomass, wind, and solar energies.
Council went onto ask about the vacancy rate at the BWL and whether or not they are currently employing contractors?
Staff reported that the existing vacancy rate is 3-5% and the monetary cost is approximately $1,200,000 with 737 employees. It was also advised that while contractor numbers are decreasing they are currently involved in capital work, plant and CSO projects.
Board Chair Smith departed at 1:00 p.m. due to a prior obligation.
9. Update on Maintenance of Lights. Senior Vice President of Operations Cook advised that streetlight re-lamping for 2007 is on schedule. To date 5,000 of the 9,000 lights scheduled for re-lamping have been re-lamped. It was further noted that lamp out replacements are being accomplished on average within seven (7) days and streetlight plant replacements (cable faults) are being repaired on average within thirteen (13) days. He also reported that the BWL is working with the Michigan Department of Transportation relative to streetlight replacements on I-496.
Council President Leeman asked the BWL to look at antique lights relative to having a BWL employee drive by to ensure that they are working properly. It was noted that they are particularly interested in preventative maintenance for the antique lights in the downtown area, stadium district, and Michigan Avenue.
10. Update on Removal of Lead Pipes. Senior Vice President of Operations Cook gave a brief overview of the Lead in Drinking Water Status Update. The review discussed program objectives, lead service replacement statistics, typical lead service installation diagram, and the program budget.
Council asked how much was outsourced and if the BWL expected additional federal regulations?
It was noted that approximately 27-29% of the wok is contracted. It was also advised that the BWL is currently exceeding federal regulations in terms of lead pipe replacement. Furthermore, it was reported that BWL water quality presently meets or exceeds existing regulations.
11. Rules of Procedure. Vice Chair Rios noted that minor changes and clarification to the Rules of Procedure were presented to the City Attorney. The BWL asked for an update on where the rules stood relative to council approval.
City Attorney Brigham Smith advised that he had spoken to General Counsel Amy Cavanaugh and the Rules of Procedure are currently on his desk waiting for review.
12. Legal Update Regarding the Pandy Matter, Cluley Matter and Any Other Litigation Pending Against the BWL. Staff noted that in the matter of the Virginia Cluley case, the Supreme Court ruled in favor of the BWL, and the Dave Cluley matter is currently in mediation. It was also reported that Mr. Pandy is seeking a reversal of the court of appeals decision regarding the issue related to his pension. It is anticipated that the matter would be resolved in the BWL’s favor and at this point, insurance is covering the majority of cost for legal expenses. Staff further advised that there are no other employee suits of significance pending at this time.
Shut-off’s for Non-payment. City Council asked the BWL what have they dealt with regarding turn off of services for non-payment.
Staff noted that they have not seen an increase at this time. However, it was further advised that the BWL has a strict process that it follows before turning services off for non-payment, which is a combination of timing and the monetary amount owed. Staff also reported that there is $700,000 in write-offs and there are currently eighty (80) limiters in the system. It was also noted that they are working to improve the process.
Steam Utility. Interim General Manager Peffley noted that the BWL is working on a steam utility plan that it will soon present.
City Council asked if the BWL held the steam rate increases for downtown area churches, as they have not received any complaints since the rate increase took effect?
Staff advised that the steam rate increase of 35% was not held for downtown area churches and it took effect accordingly.
Chiller News. Council President Leeman asked if there was a projected sales increase for the chilled water system?
Staff noted that sales are flat and there are no new customers coming onboard at this time.
Ottawa Station. City Council inquired as to the status of Ottawa Station.
Staff noted that the City of Lansing is making an effort to sale the Ottawa Station and the BWL is currently working with Robert Trezise in whatever way possible to aid in the process. It was also advised that there is interest in the property but the BWL is unaware of the developers involved and have only received limited information to that respect.
Wellness Center. Council President Leeman noted that there is graffiti writing on the exterior walls of the Wellness Center. He asked if the BWL is responsible for maintenance and if there are any deals in the works to sale the facility?
Interim General Manager Peffley reported that the Wellness Center is a package deal and developers are currently looking at it. It was also noted that they would drive by the facility to check for graffiti, as they were unaware of such problems.
The meeting adjourned at 1:24 p.m.
Motion by Commissioner Zerkle, seconded by Commissioner Graves, to receive the Joint City Council/BWL Commissioner report as presented.
Action: Carried unanimously.
COMMITTEE OF THE WHOLE
The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 4:12 p.m. on Tuesday, April 10, 2007.
Acting Chair Commissioner Cochran 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 (4:24 p.m.), Julee Rodocker, and Robin Smith (4:15 p.m.).
Absent: Commissioner Sandra Zerkle.
Jim Dravenstatt-Moreci, Assistant Business Manager for IBEW Local 352, 3315 S. Pennsylvania Avenue advised that Joseph Davis could not attend the meeting. Therefore, he came to speak on behalf of IBEW Local 352. Mr. Dravenstatt-Moreci read a prepared statement, which essentially advised that the IBEW is interested in the General Manager search and would expect it to be a fair and transparent process that could withstand scrutiny. He went onto note that in the past non-bargaining employees and retirees were made a part of the interviewing process and they would hope that that would occur again with the current search. A copy of the prepared statement was given to Secretary Jones to be included as part of the minutes. See attachment.
Acting Chair Commissioner Cochran turned the meeting over to Board Chair Smith at 4:16 p.m.
Sandra Soltysiak, Varnum Consulting (also known as Hiring Solutions) introduced Kathy Tungate, Senior Consultant, who assisted with the review of applicant credentials. The General Manager job posting closed on March 30, 2007 and a total of one hundred seventeen (117) applicants were received. All applicants were assigned a number in the interest of confidentiality. Ms. Soltysiak presented the Board with a packet, which contained details of the top seventeen (17) applicants based on the criteria established within the job announcement. Also included was additional information about those applicants that were current or former BWL employees. The top 17 applicants were grouped in terms of strongest and possible candidates. The presentation and assessment of each applicant was solely based on the written materials submitted by the applicant. Ms. Soltysiak recommended that the Board move forward the top eleven (11) candidates to the prescreening process and suggested further narrowing the pool to three (3) finalists.
Commissioner Rios resumed Chair responsibilities at 4:24 p.m.
It was further advised that both Ms. Soltysiak and Ms. Tungate would participate in the prescreening interview process to ensure its accuracy and completeness. Ms. Soltysiak cautioned against adding additional candidates to the initial 11 and advised if the Board decided to do so then she would recommend a discussion on reposting the position because the parameters would have changed in her opinion. She also noted that if a case could not be made for moving an individual from one specific grouping to another then the respective candidate should not be moved.
After lengthy discussion, the Board requested additional lead-time to review all materials presented by Ms. Soltysiak and agreed to the following process:
Subsequently, the Board must also determine the following items in addition to the above.
1. Length of the final interviews
Meet and Greet. The Board discussed the possibility of hosting a meet and greet so that BWL employees, government officials and ratepayers would have opportunity to meet the finalists. It was noted that Lansing City Council expressed a desire to expand the timeframe granted to them to meet the candidates relative to the time allotted in the previous General Manager search. The specifics of the meet and greet still need to be determined. However, the Board was receptive to the concept in which finalists would give a brief introduction and greet the persons in attendance thereafter. Planning for the event is forthcoming.
On motion by Commissioner Calkins, seconded by Commissioner Cochran, the Committee of the Whole unanimously agreed to host a meet and greet with light refreshments.
The Board of Commissioners also agreed to move the next Committee of the Whole meeting from April 17th to April 24th at 4:30 p.m. to further discuss the General Manager applicants and the remaining selection process.
There being no further business, the meeting adjourned at 5:25 p.m.
Respectfully submitted,
Santiago Rios, Chair Pro Tem
Committee of the Whole
Motion by Commissioner Graves, seconded by Commissioner Calkins, to receive the Committee of the Whole report as presented.
Action: Carried unanimously.
COMMITTEE OF THE WHOLE
The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 4:30 p.m. on Tuesday, April 24, 2007.
Acting Chair Commissioner Cochran 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, Robin Smith, and Sandra Zerkle.
Absent: None.
There were no public comments.
Sandra Soltysiak, Varnum Consulting advised that she received the memorandum correspondence on behalf of the Board of Commissioners. The memorandum indicated that seven (7) of the eight (8) Commissioners recommended moving the top seventeen (17) General Manager applicants forward in the process. As such, Ms. Soltysiak discussed the job announcement criteria relative to the weight given to the applicants skill set and experience level.
The Board noted that changing the weight relative to different skill sets does not change the job criteria. They would also look at the applicants as a whole and the General Manager’s skill sets can be balanced against those already present at the Board of Water and Light (BWL). After further discussion, the Board introduced the following motion:
Motion by Commissioner Calkins, seconded by Commissioner Cochran, to have Varnum Consulting prescreen all 17 candidates and return the results to the Board of Commissioners.
Discussion: Commissioner James advised that the Board should define the prescreening parameters.
Commissioner Graves noted that for clarification purposes, the Board would review the top 17 applicants, except for those who eliminate themselves from the process.
Commissioner Rios requested that Varnum Consulting report to the Board all candidates that are eliminated (for whatever particular reason) prior to the Commissioners evaluation.
Ms. Soltysiak reported that she removed one applicant from the process due to a lack of interpersonal skills.
Commissioner Calkins noted that interpersonal skills were not one of the items that the Board asked Varnum Consulting to prescreen. The prescreening should include items such as, do they want the job, do they have bad credit, and did they falsify their credentials? It was noted that the Board would have judgment on the remaining items.
The Board reiterated that they want Varnum Consulting to proceed with their normal prescreening evaluation process and bring the information forward to the Board. They want all top 17 applicants prescreened unless the applicant withdraws from the process. Once that information is received then the Board will decide how to move forward.
Ms. Soltysiak confirmed that she would prescreen the top 17 applicants, provide a comment on all of them and forward that information to the Board for further action.
The Board noted that this is the normal next phase in the process and that they have only given specific direction relative to the top 17 applicants and not the reduction of the number of candidates as a whole.
Action: Carried unanimously.
Further Discussion: Ms. Soltysiak advised that she would notify the applicants that their candidacy would be revealed at the next Commissioner meeting. She then asked the Board when should the names of the applicants be revealed in an effort to adhere to the Freedom of Information Act?
After brief discussion and in response to Ms. Soltysiak’s question, the Board introduced the following motion:
Motion by Commissioner Calkins, seconded by Commissioner Cochran, to withhold the applicant names from the next list that they expect to receive from Varnum Consulting.
Action: Carried unanimously.
Ms. Soltysiak finalized the interview questions with edit comments received from the Board in the memo dated April 17, 2007 and noted that they will complete the background information and telephone screen.
Varnum Consulting will appear before the Board at the next Committee of the Whole meeting scheduled for Tuesday, May 17th at 5:30 p.m.
Item was removed from the agenda.
Mark Nixon, Communications Director gave a brief overview of the proposed Silver Bells sponsorship. The new sponsorship, which totals $50,000, would include a $40,000 cash contribution and a not to exceed contribution of $10,000 for in-kind services. The increased contribution to the Arts Council of Greater Lansing would allow the BWL to become the events, “Presenting” sponsor (also referred to as the “Signature” sponsor). It is a win-win situation that would enhance the BWL’s recognition and provide much needed funding to the Arts Council of Great Lansing. Mr. Nixon will monitor the event to ensure that the BWL receives the appropriate recognition for its contribution and efforts. The sponsorship would not increase the communication budget, as they are reallocating funds from advertising.
On motion by Commissioner Calkins, seconded by Commissioner James, the Committee of the Whole unanimously agreed to approve the Silver Bells Sponsorship proposal.
Bill Cook, Senior Vice President of Operations advised that the Wholesale Power Sales presentation was for informational purposes only. The presentation materials spoke to pricing, how the operators work and how they leverage the BWL’s assets. Fiscal year 2007 anticipates $45,000,000 in wholesales sales with an expectation that it will significantly decrease in FY2008 due to planned maintenance outages. The BWL leverages every asset it has and schedules to keep the units available so that the BWL may sell all megawatt hours. FY2008 wholesale sales are projected at $39,000,000, which is made up of capacity energy sales to the Michigan Public Power Agency (MPPA) power pool. During the mid-1990’s the BWL received 10% of its revenue from the wholesale market. However, during FY2007 it is approaching 30%. The volatility of the wholesale market speaks to the issue of how much does one invest to support it. It was suggested that the margin on the wholesale market would be elastic because of where the BWL will receive the units.
Commissioner Graves advised that there was reference in the packet materials to the withdrawal from MPPA. He inquired as to whether there was any additional information or legal challenges that the Board needed to be aware of.
Mr. Cook did not have additional information. However, it was advised that since the MPPA contract provides preference on BWL power and describes to an extent how the power is priced, the BWL believes that it could do better in the wholesale market. There are no legal challenges with respect to the exit in 2010, as the BWL has already given appropriate notice accordingly. Although, it is a negotiated issue, the BWL would like to accelerate the timeframe for its exit. Currently, there are issues relative to increasing the BWL’s margin, which the BWL is trying to address.
Staff further advised that the MPPA has not taken any action at this time that would appease the BWL’s concerns. However, a new General Manager was recently hired and they hope to forge better relations in moving forward.
Commissioner Rios advised that the risk management analysis would be very important to the BWL in moving forward. He indicated hope that Susan Pifer, Director of Internal Audit will be up to speed, since it is going to be a critical topic, as the BWL moves forward in 2008. Commissioners Rios and Cochran also congratulated staff for their efforts in the area of wholesale power.
Mr. Cook went onto briefly discuss the liabilities associated with futures trading and the real time energy market. The number of wholesale counterparts is decreasing due to market changes. It was advised that most of the Midwest Independent System Operators (MISO) transactions are financially firm, which means that once an organization commits then one has to supply the energy no matter the price. The BWL’s standards and guidelines do not allow the organization to accept that level of risk. If the BWL offers a financially firm product then there are financial instruments that one can put into place to hedge against the volatility in the market. The BWL would not venture into this project lightly and intend to have the consultants return to speak about a very limited pilot program with quantifiable risk. Staff did not want to move forward until an Internal Auditor was in place and they are working to improve their position through the risk management efforts previously brought forth. The National Electric Reliability Council (NERC) guidelines may prevent the BWL from providing certain services. As a result, the action plan is to exit MPPA early, and reconfigure within MISO, in order to retrieve the revenue.
Commissioner Calkins noted that he looked at another issue in that the BWL is anticipating a certain amount of revenue from a sale that could be higher/lower. It appears that it should be higher but while on tour he saw prices of $50 to $150, which he viewed as another variable.
Charles Moore, Interim Internal Auditor advised that the futures market relative to electric wholesale sales was extremely volatile. The futures market, unlike the stock market, demands payment today and not in the future. The risk management consultant is not going to accept any responsibility for the BWL’s decisions. It was noted that the BWL is not in the wholesale sales market, which is typically very low but growing, as a result Mr. Moore cautioned the Board with respect to the risk level involved.
Mr. Cook acknowledged Mr. Moore’s sentiment and reported that the consultant advised companies, the size of the BWL’s are moving slowly. Therefore, the BWL would start with a policy recommendation and a small pilot program. If the BWL starts to have problems with the unit then its limited counterparties would back out. Currently, it is beneficial for buyers to stay with the BWL but they are not going to continue to do so if the BWL starts to recall. Mr. Cook closed by noting that it is a situation in which doing nothing may not be the solution.
Copies of the Electric Wholesale Power Sales presentation are on file in the Office of the Corporate Secretary.
Dick Peffley reported that in 2006, 1,645 lead services were replaced; BWL employees completed 625 (40%), of which 146 were priority services. Once the priority services were complete, the crews remained with the lead replacement program as opposed to returning to spot services and maintenance work, and subsequently replaced an additional 479 services. The BWL outsourced 30% of the lead replacement project cost, which represented 60% of the work. Therefore, BWL employees replaced 40% of the services and contractors 60%. According to staff, there was no record of any documentation, which stipulated BWL employees would account for 50% of the work for said program. Different scenarios for completing the project were presented to the Committee of the Whole in 2005. One of the recommendations suggested utilizing a combination of CSO contractors and BWL contractors with BWL crews completing sensitive populations and spot service work. In March 2005, a Board meeting took place in which there was management action to assemble and assign two BWL crews for lead service replacement. The BWL’s cost compared to contractors was initially very high. However, the BWL has since increased efficiencies, decreased costs, and provided good workmanship. The contractors contractual agreement expires this year and the BWL will look at whether or not BWL employees should increase the number of services it currently replaces. Staff continues to look at this area and would like more conversation regarding the matter with Joseph Davis, Business Manager of IBEW Local 352. Presently, the Water and Steam Distribution Department is budgeted for forty-eight (48) employees, of which they have forty-five (45) individuals with one on long-term disability.
Commissioner James departed the meeting at 5:33 p.m.
Commissioner Rios noted that he did not recall specific numbers relative to BWL employees and outside contractors. When the project budget was approved he recalled discussion, agreement, and clear policy direction by the Board to ensure BWL employees would complete as much of the work as was reasonably and economically feasible. He clearly recalls that the Water Department has an apparent inability to maintain adequate staffing levels and is consistently understaffed by five (5) to eight (8) employees. Commissioner Rios noted that a determination of the proper number of employees necessary for the department and staff should be made, as they consider the budget for FY2008. It is not acceptable for the budget request to represent a number of employees but the department itself is staffed well below that number. He further commented that capacity besets volume so that if one does not have capacity then you will not achieve your goals.
Commissioner Smith advised that this was not a new situation, as staffing levels have been a source of aggravation. The initial problems included the number of inspectors, who was going to do the inspections, and were the BWL able to commit to employees where it made economic sense to do so. It was advised that once a Project Manager was hired then greater oversight occurred. However, it was assumed that the project was going well since Commissioners were no longer receiving complaints. Prior to the acquisition of a Project Manager, the Board received several complaints and customer’s regularly attended Board meetings to express their concerns. Aside from complaints, the other issues were the lack of foresight to ensure adequate staffing levels relative to the project and appropriate training. The Board advised that they agreed that it would not do anything to the detriment of the BWL, which meant that they would look at the economical feasibility of using BWL employees as opposed to outside contractors.
Joseph Davis noted that staffing issues have been an ongoing item in the Water Department for several years. He referenced a report entitled, “2004 Annual Report – Lead Service Line Replacement Team”, dated November 30, 2004. After further discussion, it became apparent that staff had not recently viewed the document in question. The report acted as a source document that was utilized in developing the program of which modifications were made. It spoke to issues involving the Water Department budget, contractors and the RFP process, and the workforce among other items. Mr. Davis gave an overview of the history of service replacements prior to 2004 and noted changes that occurred since inception of the lead service replacement program. He advised that he did not believe it necessary to present the report again, as it is a working document that was given to him as a team member.
Commissioner James rejoined the Committee of the Whole meeting via teleconference at 5:49 p.m.
Staff clarified that Mr. Davis’s report was a draft document that occurred early in the lead service replacement program process in route to determining the final document. The final result indicated that the BWL would outsource the majority of the work, outsource two CSO contractors while they were in the area for CSO replacements, BWL employees would handle all priority services, and a BWL inspector would oversee all outsourced work. The Board of Commissioners also authorized the addition of two water crews and an administrative clerical person assigned to the project, which has since been completed. In addition, it was noted that customers are opting for customer choice, which has lead to a decrease in workload for the Water Department.
Commissioner Graves advised that the document in question is not an operational plan for how to address the lead replacement issue. He separated normal Water Department staffing issues from staffing concerns relative to the lead replacement program. It was noted that decisions were made to address lead replacement for public safety and other considerations and he did not want to re-debate those choices. However, it was noted that regardless of the department staffing concerns should be addressed with the employee group and management. It is not his role to determine staffing levels, due to lack of experience, and expertise, nor is it their role as a Board to get involved in those types of discussions. To the extent that they allow themselves to debate those issues then they are becoming a part of management and usurping managements daily discretion as it relates to appropriate staffing levels throughout the BWL.
It appeared to be disagreement between the bargaining unit and management, as to the spirit of the agreement and whether or not it called for set maintained staffing levels in the Water Department, in addition to the designated staffing for the lead service replacement program. The Board agreed that it is not their role to determine staffing levels. However, if there is an agreement that speaks to set staffing guidelines then management should give rationale as to why it has not occurred and/or a plan to address it for the future. The Commissioners acknowledged both parties concerns and referred the matter to Dick Peffley with a recommendation that the bargaining unit and management meet to address the issue. The BWL must operate in good faith with open and frank discussion and in keeping with its process. The Board also advised they would take this into consideration relative to managements recommendation on how to resolve the matter while reviewing the upcoming fiscal year budget. The issues involving the lead service replacement program to BWL policy, budget, and staffing levels. The Board further noted that it should be a collaborative process in which everyone should share and communicate the same understanding regardless of whether or not they agree.
Copies of the Board of Water and Light, Lead in Drinking Water Annual Status Update report dated March 2007 are available in the Office of the Corporate Secretary.
Sue Flores, Manager of Finance and Planning gave an overview of the BWL Financial Plan FY2008 update. The review specifically noted the budget calendar year and preliminary information relative to sales and revenue forecast, operating expenses, budget and utility comparison, cash flow, rate analysis as well as a discussion regarding allocation methods. The increase in wholesale sales increased cash reserves and staff will look at what role that plays in how the BWL moves forward relative to rate increases and the six-year forecast.
The Board asked staff to ensure that the following items are included at the next budget presentation meeting:
Ms. Flores noted that there are two types of operating expenses, one is direct cost and the other is allocated. The total preliminary FY08 operating expenses are $215,915,585 of which $171,903,139 was direct costs and $44,012,446 was allocated. Direct costs were defined as costs identifiable to a specific utility including direct labor benefits. Allocated costs were defined as those not easily identifiable to a specific utility. The external auditors review the allocation methods at a high level from year to year for reasonableness and consistency. She provided brief scenarios of alternative allocation methods and confirmed that the information is similar to what was presented by Charles Moore but with actual FY2008 figures.
Mr. Moore noted that the Board passed a resolution, which stated that they would approve allocation methods. It was noted that the allocation method chosen would directly affect each respective utility and its potential rate increase.
Commissioner James advised that she wants to ensure that in addition to management, Charles Moore and Susan Pifer would also make a recommendation regarding the allocation methods. She also noted that the auditors should sign off on management’s allocation recommendation once made available.
Susan Pifer, Director of Internal Auditor asked the Board if there were any specific objectives in mind with the rate design, as the allocation methods have a direct result on utility rates?
The Board replied that there was nothing formal and further advised that they would like to receive various allocation options and methodologies as well as the rationale for said allocations. Once the information is received the Board would decide how to move forward.
Staff concurred with the Board’s request and confirmed that once the budget is finalized, they would present different methods with the end results and thereby, receive direction from the Board at that time.
Mr. Moore also asked Ms. Pifer to review bonding because the funds are not actually placed in the bank. If the BWL does not bond for water then they are effectively borrowing from one utility to benefit another, which speaks to the issue of subsidization.
Copies of the BWL Financial Plan Fiscal Year 2008 Update presentation are available in the Office of the Corporate Secretary.
a. Budget Update – Board of Commissioners
The Board of Commissioners reviewed its itemized budget summary for fiscal period 2006 through year-to-date, including 2008 projected budget figures. During the review, the Board discussed the possibility of implementing a Board stipend to cover expenses not already covered and/or reimbursed. The Board discussed the need to proceed with caution and justification for said stipend. A suggestion was also made as to whether or not the stipend could be applied per meeting or per month. They further acknowledged that there are legal questions as to the Board’s authority to implement such a stipend and after brief discussion, suggested that they receive a legal opinion regarding the ramifications for enacting said policy. The Board did not have adequate information to make a decision or move forward at this point and unanimously agreed to move the agenda item to the Finance Committee for further discussion.
The Board also asked to receive additional FY2008 projected budget information for the office of the General Manager, Director of Internal Audit, and Corporate Secretary.
b. Budget Planning
· Black Start Generators – Dick Peffley reported that the project was justified based on reliability issues raised during the August 2004 blackout. The budget overrun occurred because the budgeted amount included the equipment purchase price but not the installation cost. Formal employee discipline did not take place. However, it was noted on the employee’s personnel record and reflected in their annual pay increase.
Charles Moore explained that the biggest issue is reporting data, as the current reporting system is poor and antiquated. It was advised that they are looking at an external audit to review the control mechanisms.
Commissioner Smith noted that in moving forward, the Board wants to ensure that Susan Pifer and Charles Moore work together and that staff acts upon their recommendations.
Copies of the Black Start & Dye/Cedar Generator Projects Update presentation are on file in the Office of the Corporate Secretary.
· East Lansing (E.L.) Substation Retirement - Doug Wood, Director of Engineering reported that the sale and early retirement of the E. L. Substation is complete. The relocation project allowed the BWL to retire a seventy (70) year old substation and upgrade area circuits. Developers paid for the relocation and all BWL distribution rework was finished ahead of schedule in December 2006. There still remain poles with third party fiber attached that will be removed by the BWL after the fiber is removed. The project was a win-win situation that financially allowed the early retirement of an aged facility, which also enabled the advancement of a commercial and residential redevelopment project in the City of East Lansing.
Copies of the East Lansing Substation Retirement presentation are on file in the Office of the Corporate Secretary.
Other
The Board of Commissioners discussed the pre-audit meeting with Plante & Moran and the nature of said meeting. The number of Commissioners who wish to participate would determine whether or not there is need to post the meeting.
In response to the question regarding the nature of the meeting, Commissioner James advised that there was some oversight in the control inventory process that needs to be addressed and the meeting would also act as an educational opportunity for new Commissioners and Ms. Pifer.
Ms. Pifer further advised that the meeting is more for the purpose of gaining an understanding of the genesis of what was presented in the previous management letter.
In light of the above, the Board discussed the necessity and productivity of having a Board member present at such a meeting and suggested having the internal auditors meet with Plante & Moran and report their findings back to the Board. It was also noted that no individual Commissioner should direct information received by the Board.
Commissioner James advised that she thought it important for her to be present as she is the Finance Committee Chair. It was also noted that it is not her intention to direct what materials should be sent to the Board, as she is inclusive and not exclusive.
Moved by Commissioner Cochran, seconded by Commissioner Calkins 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). (7:27 p.m.) The roll was called.
Yeas: Commissioners Calkins, Cochran, Graves, James (teleconference), Rios, Rodocker, Smith, and Zerkle.
Nays: None.
Absent: None.
Carried unanimously.
Moved by Commissioner Cochran, seconded by Commissioner Calkins that the Committee of the Whole meeting return to open session.
Carried unanimously.
The Committee of the Whole meeting reconvened in open session at 7:41 p.m.
There being no further business, the meeting adjourned at 7:42 p.m.
Respectfully submitted,
Santiago Rios, Chair Pro Tem
Committee of the Whole
Motion by Commissioner Graves, seconded by Commissioner Cochran, to receive the Committee of the Whole report as presented.
Action: Carried unanimously.
May 8, 2007
The Finance Committee of the Board of Water and Light met at the Executive Offices, Lansing beginning at 6:00 p.m. on Tuesday, May 8, 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 and Sandra Zerkle. Commissioner Robert Cochran, alternate and Julee Rodocker were also present.
Absent: Commissioner Robin Smith.
There were no public comments.
FY2008 Budget Presentation
Sue Flores, Manager of Finance and Planning presented an overview of the fiscal year 2008 financial plan. The budget presentation included a number of items such as the sales forecast, revenue assumptions, operating expenses, allocated expenses, cash flow assumptions, budgeted net income/cash flow, comparative financials and a preliminary review of the six-year forecast.
The sales forecast for FY 2008 was compared with FY 2007:
|
|
|
|
% ’08 Budget To ’07 Budget |
|
Electric – Retail |
2,275,881 |
2,227,675 3,202,477 |
2.2% |
Electric:
· Modest residential & commercial load growth, 1-1.5%
· Industrial forecast is up 6.9% due to Delta Plant at full load
· Wholesale volumes reduced due to anticipated Major Belle River outage
· Retail load is approximately flat
· Wholesale volumes decreased over FY07 budgeted levels for Delta Township and ELMWA
Steam:
· Steam loads for GM approximately flat, reduction in Steam commercial due to conservation efforts
Chilled Water:
· Chilled Water loads approximately flat
· Projected rate increases, January, 2008:
- Electric: 4.0% = $2.7 million additional net revenue
- Water: 6.0% = $608,000 additional net revenue
- Steam: 6.0% = $308,000 additional net revenue
- Note: Requires Public Hearing Process for implementation
· Chilled Water based on minimum bill level, no rate increase
· Electric Wholesale
- Lower revenue due to extended Belle River outage
- Electric Wholesale margin:
FY07 Budget = $10.4 mm
FY07 Projected = $20.4 mm
FY08 Budget = $8.5 mm
· Water Wholesale – Rates being negotiated
· Reviews held with each department
· Increase of 3 full-time employees
· Salary increases
- Bargaining = 3% effective 11-1-2007 per contract
- Non-Bargaining = 3% effective 7-1-2007
+$100K for equity adjustments/top performers
· Increase in Health Care cost = 12%
· 1st Full year of coal contract effective 1-1-2007
· Continue amortization of Environmental Expenditures - $1.1 mm
· Depreciation expense increased ~$3m over FY07 budget, due to one time accounting change (~$1m) and higher capital costs
Current methodology – recommended by Finance Department:
Resulting Allocations:
Electric Water Steam Ch Water Total Expenses
% 75.6% 18.7% 4.7% 1.0%
$ $33,307,350 $8,255,786 $2,090,169 $425,934 $44,079,238
Alternative 1: - Incremental assumptions for Steam & Chilled Water on Support areas – recommended by Senior Staff:
Resulting Allocations:
Electric Water Steam Ch Water Total Expenses
% 76.7% 18.9% 3.8% 0.5%
$ $33,804,974 $8,341,958 $1,689,878 $242,428 $44,079,238
Alternative 2: - Incremental assumptions for Steam & Chilled Water on all allocations:
Resulting Allocations:
Electric Water Steam Ch Water Total Expenses
% 77.5% 19.1% 2.9% 0.5%
$ $34,177,998 $8,423,119 $1,267,171 $210,950 $44,079,238
Alternative 3: - Incremental assumptions for Water, Steam & Chilled Water on Support areas:
Resulting Allocations:
Electric Water Steam Ch Water Total Expenses
% 79.6% 16.0% 3.8% 0.5%
$ 35,093,933 $7,052,999 $1,689,878 $242,428 $44,079,238
· Use of accumulated cash balances to mitigate FY2008 net loss
· Total Capital expenditures = $49.1 million
- Electric: $26.1 mm
- Water: $18.9 mm
- Steam: $ 3.6 mm
- Chilled Water: $ .4 mm
· Proposed Bond issues of $20 million to fund water utility projects in FY08 and FY09
· Electric Utility fund for future environmental, new generation established at $2 million per year
· Projected sales levels – conservative growth
· Rate increases: Cash balances used to stabilize rate increases
- Electric (January) = 4% in FY08, 3% in FY09, 2.5% FY10 - FY13
- Water (January) = 6% each year FY08 - FY13
- Steam (January) = 6% in FY08, 7.5% in FY09 - FY13
- Chilled Water (July) = 3% in FY09 - FY13
· Begins with FY08 Operating expenses (included allocations) with 2.5% inflation in FY09-FY13, benefits at 5%
· Capital and environmental expenditures per six year forecast
· $20 mm bond issue for Water in FY08/09 only
· Conservative assumptions on GM termination fees (Steam) to be received in FY11, amortized with asset deferral, FY09-FY13
· Includes $4m per year drawn from Belle River fund, $2m in fund for future generation, environmental expenditures
· Maintain credit quality
· Ensure adequate liquidity
· Maintain rate competitiveness
· Efficient & appropriate use of capital
· Financially Independent Utilities
Bill Cook, Senior Vice President of Operations presented the FY 2008 Capital Budget. The FY 2008 capital budget includes the following assumptions:
· Revenue producing customer driven capital additions and those projects justified by 7-year cost/benefit analysis (will be noted as “Revenue Projects”)
· Lead service replacement program budgeted at $4,500,000
· CSO related expenses budgeted to coincide with most recent City of Lansing schedule
· Environmental Compliance Projects included as required to meet mercury and other projected future emissions regulations
· Production facility projects reflect GM plant closings, IRP and Steam Utility Plan results
· Next phase of converting financial systems (HR and payroll) to SAP environment
The recommended FY 2008 capital budget itemized by the four utilities, which also includes common facilities totals $49,157,000. The six-year capital forecast for FY 2008 – FY 2013 was also represented.
Following discussion the Finance Committee took the following action:
On motion by Commissioner Calkins, seconded by Commissioner Cochran, the Finance Committee unanimously recommended that the Board approve the proposed annual operating and maintenance budget and the capital budget for FY 2008, which also incorporates proposed utility rates. Further, the Corporate Secretary is to file the budgets with the City Clerk and the Mayor’s Office in accordance with the Lansing City Charter. A formal resolution regarding these items will be placed on the Board meeting agenda under General Manager Recommendations for May 22nd.
Charles Moore, Interim Internal Auditor reviewed the coal and investment letters dated February 28, 2007 and March 5, 2007 respectively. As such, Mr. Moore recommended that the Board issue a Request for Proposal (RFP) for cash management and investment advisory services. It was advised that the RFP would seek to improve efficiencies in the process and help utilize best practices. The second recommendation also included an annual review of the investment portfolio by the Internal Audit Department (IAD).
After lengthy discussion, the Finance Committee unanimously agreed to move forward to the full Board a recommendation for Sue Flores, Charles Moore and Susan Pifer to work together to provide a more concrete proposal and draft RFP relative to the cash management and investment advisory services. They also unanimously agreed to move forward to the full Board Charles Moore’s second recommendation that the Internal Audit Department review the investment portfolio on an annual basis.
Mr. Moore reviewed the construction in progress letter dated April 6, 2007. As such, he noted that the BWL had an antiquated record system that should improve with the implementation of SAP. The recommendation included a suggestion to bid a RFP in which an external firm would assess the internal controls system wide. After which, the IAD would review the SAP process in six (6) months to ensure that it would further strengthen internal controls related to construction in progress. The second item relative to the review of capital projects in going forward recommended either reducing the amount of capital projects to an amount where cash is not significantly hampered, or the consideration of bonding to cover those capital costs. It was noted that staff has already brought forward the issue and acted on the second recommendation.
Mr. Moore noted that in his previous report there were issues with segregation of duties in the coal inventory process. There was a review for potential conflict of interest and a testing of transactions from the beginning of the process to delivery and payment. As part of the testing, Mr. Moore requested a copy of the documented checklist for the receipt of the coal in the inventory system, which he found to be unavailable.
Dick Peffley, Interim General Manager noted that he did not have opportunity to communicate with Mr. Moore. However, the term ‘unavailable’ does not mean that the BWL does not have the documented checklist, as they are stored at Eckert and Erickson station. It was noted that the checklist in question was not available at the time of Mr. Moore’s request but the BWL does have possession of said document. The coal operator fills out a sheet and loads the information in the computer system at which time the packing slip is stored at one of the respective stations. Dick Peffley and Susan Pifer visited a station and randomly choose a couple of dates of which the operators were able to produce the sheets. Ms. Pifer advised that she intends to conduct additional work on coal that would include samples of transactions and the following of the entire process.
Mr. Moore also noted that there was follow-up by the Accounting Department to his internal audit recommendation. The subsequent memo by Gennie Eva, Manager of Financial Services dated February 22, 2007 speaks to changes made in the coal approval process to strengthen internal controls.
Susan Pifer, Director of Internal Audit noted that the internal auditor transition also consists of a means to establish an internal shop sustainable within the organization. In discussing the establishment of standards, benchmarks and the audit charter, Ms. Pifer advised that there are a myriad of standards that the BWL is subject to that makes financial reporting difficult. Some of those standards include the Financial Accounting Standards Board (FASB), Governmental Accounting Standards Board (GASB), and the Federal Energy Regulatory Commission (FERC). The combination of standards from the private and governmental sector increases the length of time needed to develop staff and institutionalize. There are few accounting firms that specialize in utility accounting or have the knowledge to make an assessment of whether or not it is accurate. Therefore, it is pivotal that the auditors understand accounting and auditing standards. Ms. Pifer noted that the Internal Audit Charter (Attachment A) was suitable and recommended moving forward with the charter unless the Board of Commissioners felt otherwise.
It was further advised that time was spent with the external, interim and previous internal auditors to understand risks that were identified during the course of their work at the BWL. Although, a formal risk assessment is still warranted a recommendation was made to move forward with the following items:
1. Coal Inventory Control: A systemic approach to an audit with firm objectives and audit programs.
2. Capital Assets: IAD must test transactions and reporting in the new system for accuracy and completeness, as well as make workflow recommendations to correct any deficiencies. The indirect cost rates applied to capital projects must also be reviewed by the IAD for accuracy, including an evaluation of alternative allocation structures for the Commissioners’ review.
3. Internal Controls – SAP: Although external auditors are budgeted to perform a review, the IAD must also provide assurances that the system effectively and accurately processes financial and operational information for internal purposes, e.g. management reporting, interim financial reporting, actionable operational reporting, etc. In addition, it is recommended that the IAD manage the RFP process for these services and that consideration be given to rotating external auditors for purposes of the internal control review, i.e. consider alternatives to the external auditors responsible for financial statements.
4. Cash Management: The Director concurs with Mr. Moore’s recommendation to solicit an RFP for banking and investment services. Consideration for lock-box services to improve current remittance processing and prompt investment of those cash deposits is also recommended, as lock-box services solicited as a “carve-out” from other banking services is cost prohibitive.
5. Mr. Moore intends to complete his review of healthcare, impaired assets (obsolete inventory), contracts and staff overtime. Additional follow up by the IAD may be required after his initial review of these topics. In addition, the external audit of financial statements typically requires extensive involvement of internal audit staff (currently scheduled for late summer).
Furthermore, audit programs and procedures must be developed for the other processes to be considered by the IAD in the first year of operation. Priorities and time lines for these other areas will be presented to the Board at the next Finance Committee meeting.
The former internal auditor and the current interim internal auditor both laid out a comprehensive list of auditable entities. The latter acts as a task list and the initial schedule that lists 29 processes and 70 sub-processes was previously presented to the Committee of the Whole on January 26, 2006. The IAD recommended the inclusion of mapping of key processes in the development of audit programs for each of the entities. A draft copy of a coal procurement audit was presented. It was also stated that a similar audit program should be developed for all of the audit processes within the BWL. This will enhance accountability to the Board of Commissioners and act as a task schedule for the IAD. In reference to coal, two modules were written by the former internal auditor, two written by Susan Pifer and two additional modules are still needed based on the audit plan received from the consulting firm that conducts fuel procurement audits for public utilities. The IAD suggested that the work could be done in approximately 4 – 5 weeks while also pulling samples and reviewing transactions from the beginning to the end. SAP would also need a six-month window to allow transactions to flow into the process before a thorough analysis can be conducted. In the interim, work has already begun in reviewing the system as it is laid out, the infrastructure, and determining how it is meant to operate so that a determination can be made as to whether or not the information is flowing appropriately and being recorded back to the operators.
Ms. Pifer advised a need to play an active role in learning the SAP system, being aware of its internal controls, making sure they are in place, and understanding the configurations. The IAD would also like to play a more critical role in the external audit of financial statements. Plante & Moran have agreed to provide a copy of their narratives and audit programs to enhance understanding, reduce redundancies and create proper synergies between the internal and external auditors. It will take approximately 12 – 18 months to review all of the processes for the first time. Included in the proposed budget for the Office of the Internal Auditor are two full time employees (Director of Internal Auditor and Assistant Auditor) as well as outside services that could be equivalent to an intern or professional auditing services if needed. It was determined that the new Assistant Auditor position would benefit from a senior auditor with 2 – 3 years who could assist in developing programs.
Commissioner Calkins noted that the former internal auditor created a purchasing program relative to procedures. He asked Ms. Pifer if she had opportunity to review the program, determine the impact of SAP on the recommendations and assess its current standings.
Ms. Pifer noted that she had not located a purchasing program and the former internal auditor had not mentioned one. However, she would follow-up and report back to the Board of Commissioners.
On motion by Commissioner Calkins, seconded by Commissioner Zerkle, the Finance Committee unanimously agreed to accept Susan Pifer, Director of Internal Audit, proposal and budget recommendations. She was also charged with the responsibility of initiating the process of seeking an Assistant Internal Auditor subject to budget approval. A formal resolution regarding these items will be placed on the Board meeting agenda under Resolutions for May 22nd.
There being no further business, the meeting adjourned at 8:08 p.m.
Respectfully submitted
Semone James, Chair
Finance Committee
Motion by Commissioner Graves, seconded by Commissioner Cochran, to receive the Finance Committee report as presented.
Action: Carried unanimously.
Resolution 2007-5-5
HUMAN RESOURCE COMMITTEE
May 10, 2007
The Human Resource Committee of the Board of Water and Light met at the Executive Offices, Lansing beginning at 4:00 p.m. on Thursday, May 10, 2007.
Human Resource Committee Chair, Robert Cochran called the meeting to order and asked the secretary to call the roll. The following committee members were present: Commissioners Robert Cochran, Joseph Graves, Santiago Rios and Julee Rodocker.
Absent: None.
There were no public comments.
Wendy Bradley, Human Resource Consultant for Employee Relations, Wage & Salary provided an overview of the Fiscal Year (FY) 2008 Skill Family Range Adjustments and Merit Budget. She noted that since 1999 the Board of Water and Light’s (BWL) pay philosophy is to attract, retain, develop and reward a quality workforce. They also act to ensure BWL pay plans are competitive and cost effective for the BWL. In conjunction with the BWL’s annual review, the HayGroup was hired to evaluate the current compensation, performance management, and rewards performance programs. In conducting the study, the HayGroup held a series of senior management interviews, employee focus groups, a performance management survey, and collected data from the BWL’s department market analysis. As such, the HayGroup’s executive summary findings are as follows:
· Employees do not appear to appreciate all of their employment rewards.
· LBWL offers market competitive pay opportunities that are differentiated by the level of impact jobs have on the organization.
· Employee aggregate base salaries are approximately at the market rate.
- 94% of employees have compa-ratios (base salary/market rate) equal to or greater than 90%; 55% of employees have compa-ratios equal to or greater than 100%.
- Almost all job families have aggregate compa-ratios around 100%.
· Salary ranges are constructed consistently and soundly (range spreads and midpoint progressions) and offer market competitive pay opportunities.
· The level of detail of the compensation program for the communication program may be overwhelming to employees.
· LBWL offers market competitive salary opportunities.
· LBWL has an appropriate set of skill families.
· LBWL performs very thorough market pricing.
- LBWL utilizes a robust number of compensation surveys to market price positions.
- Market data cuts are appropriately concentrated on utilities, not-for-profits, and Michigan employers.
- LBWL appears to be appropriately aging market data and applying geographic wage differentials.
- LBWL accurately market price jobs (i.e., job model matches are accurate).
It was noted that the BWL also worked with Michael Goree of Growth Strategies
Consulting, Inc., who disagreed with the HayGroup and felt that the BWL had enough skill families and the current compensation system, was too complicated. Mr. Goree recommended that the BWL collapse some of the common grades with those that shared similarities. As a result, the BWL proposed a reduction of the number of grades from sixty-six (66) to twelve (12) effective FY 2009. The director grades would retain more levels to allow for flexibility, as those positions are typically harder to recruit.
Staff noted that in relation to the first study finding, the BWL must improve employee communication and education relative to the benefit package. The Human Resource Department sends an annual total rewards report but it does not include comparison information. Dick Peffley, Interim General Manager advised that one of the goals of the new Human Resource Director would be to work with Mark Nixon, Communications Director to improve BWL efforts in this area. Ms. Bradley advised that a suggestion was made to have the total rewards report sent from the General Manager to give it renewed emphasis.
The Commissioners encouraged staff to improve its communication efforts in educating employees about the benefits of their existing compensation package. They also suggested highlighting the opportunity to receive shift premiums and overtime when applicable and deemed appropriate by the department’s respective needs. The Commissioners discussed the percentage of employees at or above market rate in relation to the percentage of those who are not.
Commissioner Graves asked staff to provide a copy of the overtime statistics, standby call-in and premium shift information in aggregate form.
Mr. Peffley acknowledged Commissioner Graves request and advised that the information could be provided. He also noted that some of the employees who are under market rate would be addressed during the next fiscal year. Staff has proposed a $100,000 budget for all other increases including that of top performers and equity adjustments. The Human Resource Director, Process Director and the General Manager will manage the additional funding to ensure proper handling. All employees would not be at 100% of market rate, as one must allot for new employees and progression through the pay scale system.
Ms. Bradley noted that in determining the merit budget they took the following internal and external factors into consideration:
· External - state of the economy (CPI); and projections from other businesses and utilities
· Internal – pay for performance system, retention, and the BWL’s ability to pay
BWL compares its locality for the rate of inflation to the Detroit/Ann Arbor/Flint area, which increased by 1.7%. Projected salary increases of areas employers and other utilities were also taken into consideration. It was clarified that ‘other increases’ include promotional equity adjustment reclassification, which is an equity adjustment, made to satisfy a problem that the existing compensation system does not currently resolve. Ms. Bradley noted internal factors to consider and provided summary recommendations for the skill family range adjustments and merit budget for fiscal year 2007 – 2008.
Internal Factors to Consider
· Pay for performance - need to adequately fund in order for it to be effective.
· Retention
- All utilities are losing talent (knowledge, skills, abilities) unique to the utility industry due to an aging workforce.
- Competition for this talent is increasing amongst utilities.
Summary Recommendations
· Maintain current Skill Family Ranges
· 3% Merit Budget
· $100,000 additional budget for other increases (Top Performers and Equity Adjustments)
Staff advised the Commissioners of the performance system in which goals and objectives are annually established on July 1st. Goals are tied to the balanced scorecard and a mid-year review takes place to keep employees abreast of their progress. It was noted that directors report their results on a monthly basis.
Commissioner Cochran noted in his personal opinion, the BWL should think long range about its employees, similar to the thinking associated with long term generation and the wholesale market. It is a little disturbing that all employees are not at market rate because there is competition. He wondered why the BWL does not want to be superior in this area to ensure employees remain with the company. Especially, in light of its financial performance and electric rates significantly below that of Consumers Energy.
The Commissioners went onto discuss the BWL’s overall compensation package in relation to other local entities, and reiterated the need to improve employee communications in this area. It was also noted that employees would eventually have to take more responsibility for the organization, which has provided so much. It further advised that based on the BWL’s competitive rates, the organization should be able to fill vacant positions, or deem them unnecessary and remove the positions from the budget.
After discussion, the Human Resource Committee took the following action:
On motion by Commissioner Rios, seconded by Commissioner Graves, the Human Resource Committee unanimously agreed to forward management’s recommended skill family range adjustments and merit budget for fiscal year 2007-2008 to the full Board for approval. This item will be placed on the regular meeting agenda under General Manager’s Recommendations for Board action on May 22nd.
There being no further business, the Human Resource Committee adjourned at 4:48 p.m.
Respectfully submitted,
Robert Cochran, Chair
Human Resource Committee
Motion by Commissioner James, seconded by Commissioner Zerkle, to receive the Human Resource Committee report as presented.
Action: Carried unanimously.
COMMITTEE OF THE WHOLE
The Committee of the Whole of the Board of Water and Light met at the Executive Offices, Lansing, beginning at 4:30 p.m. on Tuesday, May 15, 2007.
Committee of the Whole Chair, Santiago 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, and Sandra Zerkle.
Absent: Commissioner Robin Smith
Joseph Davis, Business Manager of IBEW Local 352 spoke regarding the General Manager process and indicated the need for a strong leader in moving forward. In the past he has gone on record in support of building a new power plant and putting the Board of Water and Light (BWL) in a position to do so. The BWL has a good workforce but they need to have a trained workforce, as there are over 300 people who could retire within the course of 36-48 months. The BWL needs to think forward, be proactive and work together.
Dick Peffley, Interim General Manager introduced the new Human Resource Director, Denise Mulder.
Sandra Soltysiak, Varnum Consulting forwarded the results of the top seventeen (17) applicants prescreen information to the Board of Commissioners on May 11, 2007. The communication noted that two (2) additional candidates were added to the applicant pool and as such, recommended a total of eight (8) candidates be considered in moving the process forward. The communication materials also asked each Commissioner to review the information and determine their five (5) strongest candidates for discussion at the Committee of the Whole meeting scheduled for May 15, 2007.
During the Committee of the Whole meeting held on May 15th each Commissioner stated their strongest candidates and tally was taken to assess the results. As such, the Committee of the Whole unanimously agreed to move candidate number 2, 8, 16, and 123 forward for interviews for the position of General Manager. The finalist’s names continue to be concealed and Ms. Soltysiak will reveal their names after each applicant is made aware of their candidacy standing. In addition, Ms. Soltysiak suggested that the candidates have opportunity to partake in a facility tour prior to the interviews, which should be lead by a management and bargaining unit representative. Ms. Soltysiak will coordinate the facility tours with Dick Peffley.