Approved by the Board: March 26, 2009 MINUTES OF THE BOARD OF COMMISSIONERS MEETING LANSING BOARD OF WATER AND LIGHT Tuesday, The Board of Commissioners met in the Boardroom of the Administrative Offices, 1232 Haco Drive, Lansing, Michigan. LAIN WAS CHAIR Present: Absent: Commissioners Tony DeLuca, Semone James, Peter Kramer, Frank Lain, Tracy Thomas and Sandra Zerkle. (Note: 2 nd Ward vacancy exists.) Commissioner Robert Cochran The Secretary declared a quorum present. Chairperson Lain called the meeting to order at 5:40 p.m. APPROVAL OF MINUTES Motion by Commissioner Zerkle, seconded by Commissioner Thomas, to approve the minutes of the rescheduled regular board meeting held November 18, 2008. Carried unanimously. PUBLIC COMMENTS THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE WELCOME TO SPEAK TO THE BOARD ON ANY AGENDA SUBJECT. ANYONE WISHING TO COMMENT ON ANY MATTER NOT ON THE AGENDA MAY DO SO IMMEDIATELY PRIOR TO ADJOURNMENT. There were no public comments. COMMUNICATIONS Email received January 6, 2009 from Donald Hillman, PhD, Michigan State University regarding CFL emissions. Email received January 9, 2009 from Donald Hillman, PhD, Michigan State University regarding mitigating electrical exposure.
Page 2 of 11 Email received January 13, 2009 from Cecilia Garcia, Lansing, opposing the proposed BWL coal-fired plant. Letter received January 16, 2009 from Lisa Webb Sharpe, Director of the Michigan Department of Management & Budget opposing the proposed 2.5% rate increase. Card received January 21, 2009 from Sharon Monod opposing the proposed BWL coalfired plant. Letter of resignation received January 22, 2009 from BWL Board Commissioner Julee M. Rodocker. Letter received January 26, 2009 from Jacquiline MacGillivray opposing the proposed 2.5% rate increase. Phone message received January 26, 2009 from Susan Keeney opposing the proposed 2.5% rate increase and a new coal-fired power plant. COMMITTEE REPORTS FINANCE COMMITTEE January 13, 2009 The Finance Committee of the Board of Water and Light met at the Executive Offices, Lansing beginning at 4:00 p.m. on Tuesday, January 13, 2009. Finance Committee Chairperson Peter Kramer called the meeting to order and asked the Secretary to call the roll. The following members were present: Commissioners Robert Cochran, Peter Kramer, Julee Rodocker and Tracy Thomas. Alternate committee member Tony DeLuca was also present in addition to Commissioner Frank Lain. Absent: None. Public Comments There were no public comments.
Approval of Minutes Motion by Commissioner Lain, seconded by Commissioner Thomas to approve the minutes of the November 18, 2008 Finance Committee meeting. Board Meeting Page 3 of 11 Defined Contribution Plan Document General Manager J. Peter Lark summarized the transitional change for the Defined Contribution administrator. ICMA Retirement Corporation has replaced Prudential as the Defined Contribution administrator. As part of that transition, ICMA Retirement Corporation shall be responsible for the Defined Contribution Plan document compliance. As such, the Defined Contribution Plan document was presented. The Plan document has two components; one that is specific to the Lansing Board of Water and Light (BWL) and the other contains boilerplate statutory language, which is maintained by the ICMA Retirement Corporation. In response to a Commissioner inquiry, General Counsel Brandie Ekren noted that the normal retirement age of 55 (not to exceed age 65) is language specific to Internal Revenue Service Code 401, which is a restriction directed to the BWL not to set normal retirement age beyond 65. On motion by Commissioner Thomas, seconded by Commissioner DeLuca to approve the Defined Contribution Plan Document and forward it to the full board for consideration and approval. Update on Internal Auditor Search Commissioner Kramer updated the Committee on the Internal Audit candidate search that was provided by Global Business Resource Group (GBRG) on behalf of the Board of Commissioners. A copy of their work product along with a memorandum from Commissioner Kramer was distributed during the meeting. GBRG provided an interview synopsis of their screening process, which highlights technical attributes of the candidates. GBRG s report also includes a recommendation for interviewing six applicants. Commissioner Kramer s memorandum supplemented GBRG s report with selection process recommendations. A summary of the recommendations are as follows: 1. Interview six candidates recommended by Global Business Resource Group. GBRG to coordinate candidate notifications and assist with interview question preparation and selection criteria. 2. Selection Committee members will consist of the four primary Finance Committee members. The Chief Financial Officer and Director of Human Resources will participate as non-voting resources. 3. The Selection Committee will forward their recommendation to the Committee of the Whole, and present the recommended candidate for final review and approval by the entire Board of Commissioners.
Page 4 of 11 4. Once Board approved, the recommended candidate will receive a contract offer for employment. On motion by Commissioner Lain, seconded by Commissioner DeLuca to approve the recommendations contained within the memorandum provided to the Finance Committee on January 13, 2009 regarding the Internal Auditor Selection Process. There being no further business, the meeting adjourned at 4:43 p.m. Respectfully submitted, Peter W. Kramer, Chair Finance Committee COMMITTEE OF THE WHOLE January 13, 2009 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 13, 2009. Committee of the Whole Chairperson Sandra Zerkle called the meeting to order and asked the secretary to call the roll. The following members were present: Commissioners Robert Cochran, Tony DeLuca, Semone James, Peter Kramer, Frank Lain, Julee Rodocker, Tracy Thomas and Sandra Zerkle. Absent: None. Public Comments There were no public comments. Approval of Minutes Motion by Commissioner Kramer, seconded by Commissioner Thomas to approve the minutes of the November 11, 2008 Committee of the Whole meeting. Presentation for Rate Increase General Manager J. Peter Lark summarized the presentation materials for the upcoming public hearing for the Board of Water and Light s (BWL) proposed rate increase. The proposed 2.5% increase for electric, water, steam and chilled water is responsive to the current economic environment for the Michigan and Lansing area, which also affects other utility companies such as Consumers Energy and DTE. Consumers Energy is seeking a rate increase of 16.4% and DTE is seeking a rate increase of 4.6%. However,
Page 5 of 11 despite the current economic environment the BWL s proposed 2.5% increase is much lower than the previously proposed percentage increase. Mr. Lark also summarized the previous and current efforts to reduce cost so as to decrease the necessity for a rate increase. Such cost-cutting efforts include, but are not limited to, reduction in overtime and travel, as well as consolidation of management positions. If the BWL approves the 2.5% rate increase, its rates will be approximately 25% lower than Consumers Energy based on their current rate structure. Mr. Lark also summarized the water rate increases for other utilities across Michigan. Research found that the City of Detroit will increase water rates by 10%, Grand Rapids 8.2% and Grand Traverse 46%. Mr. Lark further emphasized the BWL s solid economic position and the diligent efforts to avoid utilizing cash reserves. In response to Commissioner inquiries, Mr. Lark clarified the following: a) amount of cash on hand as compared to what amount is recommended by bond rating agencies, b) net income at the end of the fiscal year will be zero with the rate increase, and c) public relation efforts that have and will be taken to notify customers of the proposed rate increase and public hearing. Mr. Lark further discussed the appropriateness of service charges based on the cost of service study. The Commissioners discussed with staff the importance of highlighting the BWL s efforts to minimize the necessity of a rate increase. They also complimented staff on the work done thus far and the current cost of service study currently in place. In response to a Commissioner inquiry, staff noted that there is minimum mercury and radiation exposure regarding CFL bulbs, which the average person does not need to be concerned about. Renewable Portfolio Standards J. Peter Lark noted that Public Act (PA) 295 requires all electric utility companies in the state of Michigan meet minimum renewable energy standards effective 2012. As such, staff developed a plan that complies with PA 295. The BWL must submit its plan to the Michigan Public Service Commission (MPSC) by April 4, 2009. PA 295 also requires each utility to solicit public comments, which will be included in the plan and submitted to the MPSC for compliance approval with respect to the law. In an effort to comply with PA 295, the BWL will solicit comments through its website and the February edition of Connections. PA 295 also allows for a service charge relative to renewable portfolio standards based on the incremental cost of energy. The service charge cannot take effect for at least 90 days after the MPSC s approval is received. Hence, staff will make further recommendations to the Board regarding this matter within the next 3-6 months. Update on Internal Auditor Search Commissioner Kramer summarized the Finance Committee s discussion on the Internal Auditor search process. As such, it was noted that Global Business Resource Group conducted an independent executive search on behalf of the Board of Commissioners. A copy of their work product that reported the search results along with a supplemental
Page 6 of 11 memorandum from Commissioner Kramer was distributed during the Finance Committee meeting held January 13, 2009. The Finance Committee approved a motion to interview the top six candidates recommended by GBRG and to utilize a Selection Committee that consist of four primary members of the Finance Committee along with the Chief Financial Officer and Director of Human Resources who would act as non-voting resources. The motion also noted that the Selection Committee would make a recommendation to the Committee of the Whole and present the candidate to the Board of Commissioners for final approval and a contract offer for employment. He further clarified that the intent was to hold interviews within the next three weeks. The Commissioners discussed the recommended internal audit selection process relative to past practice. It was noted that traditionally all eight Board members are given the opportunity to participate in the initial screening process of all Board appointees. Following further discussion, Commissioners James and Zerkle agreed that all Board members be notified of the interview dates and times so that those Commissioners interested in attending can participate and deliberate in the process. Commissioner James departed the meeting at 6:31 p.m. due to a prior obligation. Energy Efficiency (Energy Optimization) J. Peter Lark noted that the Energy Efficiency (Energy Optimization) program is a state law similar to the Renewable Portfolio Standards (RPS). Pursuant to 2008 PA 295, the BWL must file an energy optimization plan with the MPSC by April 14, 2009. In addition to public comment, PA 295 requires a retail savings in megawatt hours of 0.30% by 2009 and increased savings up to 1% by 2012. The MPSC will evaluate whether the BWL s plan complies with PA 295. Thereafter, cost recovery mechanisms will be allowed through itemized customer charges. In response to a Commissioner inquiry, it was noted that staff will meet with the citizens advisory group to determine the impact and perception of the rate increases relative to new generation plans. It was also advised that if the BWL is successful with its energy efficiency goals and renewable resources then it might warrant a different size plant. Mr. Lark also referenced a Detroit News article that supported the continued use of coal and noted possible change relative to the new presidential administration. Naming Designated and Alternate Designated Representatives for Environmental Protection Agency On motion by Commissioner Kramer, seconded by Commissioner Thomas to approve and move forward to the full Board the proposed resolution appointing the Designated Representative and Alternative Designated Representative to Comply with the Clean Air Act. Update on FACTA Implementation (Identity Theft) J. Peter Lark summarized Internal Controls Manager Mike Collins leadership in implementing an Identity Theft Prevention Program that complies with Federal
Page 7 of 11 guidelines established November 1, 2008. Although, the Federal Trade Commission extended the compliance deadline to May 1, 2009, the BWL had already written its policy and program and conducted necessary training. Mr. Collins is currently speaking with other municipalities throughout the state to help assist them in their implementation of an identity theft program. Update on Record Retention Policy J. Peter Lark advised that the Board of Commissioners approved a Records Retention Policy and Records Retention and Disposal Schedule on September 23, 2008. The schedule received final approval on November 5, 2008 from the State of Michigan Historical Center s Records Management Services, the State Archives of Michigan and the State Administrative Board. The project lead by Internal Controls Manager Mike Collins is currently moving forward with plans to implement the schedule and conduct appropriate record disposal. FOIA Regarding New Source Review J. Peter Lark advised the Board of a Freedom of Information Act request and its potential implications. Other Commissioner Lain advised that the Executive Committee meeting scheduled for January 2009 is cancelled in light of future internal auditor interviews and other meetings. Commissioner Lain also suggested that Commissioners take into consideration the current budget constraints when considering conference travel and attendance. In addition, given the BWL s current cost cutting efforts, Commissioner Lain also advised of his discussion with J. Peter Lark whereby, he suggested the shared utilization of the Corporate Secretary s Administrative Assistant, Rosemary Sullivan. Commissioner Cochran noted his concerns regarding Commissioner Lain s suggestion and advised that he prefer such discussions take place with the Commissioners prior to addressing staff. Internal Auditor Selection Process. As a reminder, Commissioner Kramer requested that no Commissioners make contact with any of the Internal Auditor candidates outside of the existing process. First Step Program. Commissioner Zerkle provided an update regarding the First Step Program in which over 100 applications were received. Commissioner Zerkle also commented on the quality of the applicants and the outstanding job they did during the interview process. It was noted that 20 high school students were selected to intern with the BWL, with the possibility of future full-time employment. The project is expected to grow based on its anticipated success. Commissioner Lain disclosed that he and Commissioner Thomas knew MLK Commission Chairperson Myron Freeman. parent of a First Step Program candidate. However, they did not discuss anything inappropriate relative to the program.
Page 8 of 11 There being no further business, the meeting adjourned at 7:04 p.m. Respectfully submitted, Sandra Zerkle, Chair Committee of the Whole MANAGER S RECOMMENDATIONS Resolution 2009-1-1 A. BWL Restated and Amended Defined Contribution Plan as presented at the January 13, 2009, Finance Committee Meeting. -------------------- Motion by Commissioner Kramer, seconded by Commissioner Zerkle, to approve the resolution regarding the Defined Contribution Plan Document. Resolution 2009-1-2 B. Designated Representative and Alternate Designated Representatives to Comply with Clean Air Act RESOLVED, that Nicholas Burwell be named the BWL s designated representative and Mark Nelson and Steve Brennan be named the BWL s alternate designated representatives, all for the purpose of reporting to the Environmental Protection Agency (EPA) under the Clean Air Act; and RESOLVED FURTHER, that the designated representative and the alternate designated representatives are authorized to bind the BWL by their respective actions, inactions, and submissions with respect to the Clean Air Act. -------------------- Motion by Commissioner DeLuca, seconded by Commissioner Thomas, to approve the Designated Representative and Alternate Designated Representatives to Comply with the Clean Air Act. Resolution 2009-1-3 C. Public Hearing for 2009 Proposed Rate Increase
Page 9 of 11 WHEREAS, the Corporate Financial Targets for each of the Lansing Board of Water and Light s Strategic business units is 6.18% return on fixed assets and materials and supplies that would require $32.1 million of combined net income; and WHEREAS, the Fiscal Year 2009 budget filed with the City of Lansing included the following proposed rate increases: Electric Utility Customers 4%, Water Utility Customers 7%, and Steam Utility Customers 9% to be effective January 1, 2009; and WHEREAS, the proposed Fiscal Year 2009 budget with the proposed rate increases effective January 1, 2009 as filed would result in a combined net income of $4.5 million, or.86% return on fixed assets and materials and supplies; and WHEREAS, unexpected increases in post retirement benefit costs for Fiscal Year 2009 and increased contributions to the Board of Water and Light s Post-Retirement VEBA Trust fund resulting from market declines in the value of the Defined Benefit Plan assets will negatively affect current projections of Fiscal Year 2009 net income beyond that reflected in the original budget projections; and WHEREAS, the revised combined net income projection for Fiscal Year 2009 is $1.0 million; and WHEREAS, the revised Fiscal Year 2009 cash reserves after contributions to pay for budgeted capital expenditures are now expected to be diminished by $3.3 million; and WHEREAS, the Staff recommends that the Electric Residential Basic Service Charge should be changed from $4.76 to $5.00 per month; and WHEREAS, the Staff proposes implementation of an Environmental Surcharge Tariff to recover expenses related to environmental restoration projects; and WHEREAS, the Board recognizes the decline in Michigan s economy has caused financial difficulties for many of its customers; and WHEREAS, on January 26, 2009, the Board held a Public Hearing and solicited public comment on the proposed increases; and WHEREAS, the Board desires to hold a 2 nd Public Hearing for the purpose of soliciting additional public comment on the proposed increase; and WHEREAS, the proposed rate increases for the Fiscal Year 2009 Budget would not take effect until May 1, 2009, following Board action. RESOLVED, the proposed rate increase of 2.5% for electric, 2.5% for water, 2.5% for steam, and 2.5% for chilled water will be subject to further consideration after a public hearing is held.
Page 10 of 11 FURTHER RESOLVED, that the Board hereby sets the date of March 18, 2009 at 5:30 PM for a public hearing to solicit public input on the proposed 2.5% electric, 2.5% water, 2.5% steam, and 2.5% chilled water rate increases, $5.00 Electric Residential Basic Service Charge change, and implementation of an Environmental Surcharge Tariff. The hearings will be held in the Board of Water and Light offices, 1232 Haco Drive, Lansing. The Corporate Secretary is directed to file with the City Clerk no later than January 28, 2009 information regarding proposed rate increases with an effective date of May 1, 2009. -------------------- Motion by Commissioner Zerkle, seconded by Commissioner Kramer to approve the Public Hearing for the 2009 Proposed Rate Increase. Discussion: Following brief discussion and recommendation by Commissioner James, the Board accepted a friendly amendment to the 12 th paragraph of the resolution to read, Whereas, the proposed rate increases for the Fiscal Year 2009 Budget would not take effect until May 1, 2009 following board action. None. None. None. UNFINISHED BUSINESS NEW BUSINESS RESOLUTIONS MANAGER S REMARKS Economic Environment. J. Peter Lark noted that the BWL is aware of the economic downturn affecting the area and has taken proactive steps to assume the BWL s financial viability. Some of those measures include a proposed rate increase significantly lower than originally anticipated, cost-cutting efforts and budget reductions. The BWL continues to work with management to reduce cost and have had very successful budget discussions thus far. COMMISSIONERS REMARKS Commissioner Rodocker Resignation. Commissioner Lain expressed appreciation for former Commissioner Julee Rodocker s service to the Board of Commissioners.
Page 11 of 11 Cost Cutting Efforts. Commissioner Lain thanked General Manager Lark for his cost cutting efforts and advised that it is an endeavor that must stay in forefront of the BWL. EXCUSED ABSENCE On motion by Commissioner James, seconded by Commissioner Kramer to excuse the absence of Commissioner Robert Cochran. PUBLIC COMMENTS Frank Joranko, on Wellington Road in Lansing spoke in opposition to building a coal plant and expressed his concerns regarding environmental issues. Mr. Joranko also donated to the Board of Commissioners a DVD entitled, Kilowatt Ours A Plan to reenergize America by Jeff Barrie. Rebecca Payne of East Lansing spoke in opposition to building a new coal plant and encouraged the BWL seek other alternatives such as solar and wind technologies. Ms. Payne also expressed concern regarding the effects of coal mining in the Appalachian mountains. Pastor Dan Johnson of Grace Lutheran Church of Lansing noted his scientific background and expressed concern regarding the effects of pollution and global warming on the earth. Pastor Johnson also spoke in opposition to building a coal plant and noted the moral decisions that need to be made relative to community s energy needs. Susan Harley, BWL customer and Policy Associate with Clean Water Action noted the legal landscape regarding carbon dioxide and greenhouse gases. Ms. Harley spoke in opposition to coal and referenced the Clean Air Act and new federal administration. Shirley Murray of Lansing spoke in opposition to building a new coal plant and asked the BWL to look at other alternatives aside from coal. She also encouraged the development of a solar panel program and increased energy efficiency information for customers. ADJOURNMENT On motion by Commissioner James, seconded by Commissioner DeLuca, the meeting adjourned at 6:20 p.m. /s/ Rhonda Jones, Corporate Secretary Filed with Lansing City Clerk February 3, 2009