2a SUMMARY OF ACTIONS REGULAR MEETING OF THE BOARD OF PUBLIC UTILITIES OF SPRINGFIELD, MISSOURI, HELD THURSDAY, JULY 29, 2010 Board Members Present: Thomas Finnie Brian Hamburg Mark McNay Lisa Officer Dianna Parker Mike Peters Patrick Platter Tom Rankin Dan Scott 1. Opening Remarks Chairman Officer reminded the Board of the Special Board Meeting on Tuesday, August 10, to review the proposed 2011 Annual Operating Plan and Board Retreat. 2. Approval of Minutes Unanimously approved the Minutes of the Regular Board Meeting held June 17, 2010. 3. Public Comment None. 4. Committee Reports --MANAGEMENT & FINANCE COMMITTEE Unanimously adopted a resolution approving the acceptance and sale of Smurfit-Stone stock to be applied toward the utility debt of Smurfit-Stone Container Corporation and to authorize the General Manager to proceed in the future on similar matters without additional specific Board approval. 5. Financial Statements Unanimously approved the financial document, including the budget disbursements for the year-to-date through June 30, 2010. 6. General Manager's Report Received various reports. The meeting adjourned at 4:28 PM. 1 MINUTES OF A REGULAR MEETING OF THE BOARD OF PUBLIC UTILITIES OF SPRINGFIELD, MISSOURI The Regular Meeting of the Board of Public Utilities of Springfield, Missouri, was held at 301 East Central Street, Springfield, Missouri, on Thursday, July 29, 2010, at 3 PM. Present: Thomas Finnie Brian Hamburg Mark McNay Lisa Officer Dianna Parker Mike Peters Patrick Platter Tom Rankin Dan Scott Absent: Krystal Compas Brooks Miller Ex-Officio Board Member Present: Greg Burris constituting a majority of the Board, and a quorum. In addition to the above Board Members, the following persons were present at the meeting: Joel Alexander Renee Armstrong Amy Austin John Black Pam Elsaesser Mike Finch Gary Gibson Cheri Hamlin Janet Hudson Wes Johnson Gayla Jones Jerry Kennard Kyle McClure Scott Miller Stephanie O’Connor Brenda Putman Ray Ross Cara Shaefer Dawn Smith 2 Dean Thompson Lisa Turner John Twitty Mark Viguet Mrs. Lisa Officer, Chairman of the Board, presided and called the meeting to order, and Mr. Tom Rankin, Secretary of the Board, served as Secretary of the meeting. 1. Chairman Officer welcomed everyone to the meeting and reminded the Board of the Special Board Meeting on Tuesday, August 10, to review the proposed 2011 Annual Operating Plan and Board Retreat. She stated that the meeting would begin at noon in City Utilities’ Training Center Classroom. 2. Next, Chairman Officer presented Minutes of the Regular Board Meeting held June 17, 2010. Upon a motion duly made by Mr. Peters, and seconded by Mr. Rankin, the Board unanimously approved the Minutes. 3. Next, Chairman Officer asked if there were any members of the public who wished to address the Board; there were none. 4. The next order of business to come before the meeting was Committee Reports by Committee Chairmen. MANAGEMENT & FINANCE COMMITTEE Mr. Mark McNay, Chairman of the Management & Finance Committee, called the committee to order. Mr. Twitty stated that a quorum of the Management & Finance Committee was not present, and asked that all attending board members vote on the committee. Mr. McNay asked Mr. John Black, General Counsel, to present item (4a) a resolution regarding authorization to sell stock: WHEREAS, Smurfit-Stone Container Corporation (“Smurfit-Stone”) and its affiliated corporations filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court in the District of Delaware, Case No. 09- 10235, on January 26, 2009; and WHEREAS, City Utilities of Springfield, Missouri, filed an unsecured claim against the bankrupt estate in the amount of $59,399.91 for prepetition utility services provided to Smurfit-Stone; and WHEREAS, as part of the Smurfit-Stone plan of reorganization, City Utilities received a distribution of 1,835 shares of Smurfit-Stone stock; and WHEREAS, Smurfit-Stone (the Debtor) has made available to its creditors through a Direct Registration System, a means by which it can sell the stock it received from the bankruptcy proceedings; and WHEREAS, City Utilities can reduce its loss from the bankruptcy by selling the shares of Smurfit-Stone stock distributed to it through the program; and 3 WHEREAS, similar bankruptcy proceedings occasionally occur, and it is in the best interest of the utility to be able to efficiently resolve these claims by authorizing the General Manager to take such action necessary to sell stock received through such proceedings. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF PUBLIC UTILITIES OF THE CITY OF SPRINGFIELD, MISSOURI, that the General Manager and his designees be and hereby are authorized to take such action and execute such documents as may be necessary or convenient to sell 1,835 shares of Smurfit-Stone Container Corporation stock received as a distribution from the reorganized bankruptcy estate credited to the Debtor’s account, for the benefit of City Utilities, and to authorize the General Manager and designees to execute, sell, and proceed in future similar cases without additional board approval. Mr. Black stated that the bankruptcy of the Smurfit-Stone Container Corporation resulted in the utility having an unsecured claim of approximately $59,000. During the bankruptcy proceedings, stock was made available that can be sold and applied to the utility debt for Smurfit-Stone Container Corporation. Mr. Black said the result would be a recovery against the utility debt of approximately $45,000 should the Board approve the resolution. The procedures of the bankruptcy court and the requirements of the transfer agent require that the governing body specifically authorize the officer, designated as Mr. Twitty, to proceed. Mr. Black stated that the resolution would authorize Mr. Twitty to sell the stock and would further authorize the General Manager to proceed in the future with circumstances such as these without specific Board approval. Mr. Black answered various questions from committee members. Mrs. Parker arrived at the meeting at this time. Mr. McNay asked for a motion to approve the resolution and to recommend same to the Board. Mr. Scott made a motion and Mr. Peters seconded the motion. Mr. McNay moved to recommend Board adoption of item (4a) a resolution approving the acceptance of 1,835 shares of Smurfit-Stone Container Corporation stock and authorizing the sale of said shares to apply toward the utility debt of Smurfit-Stone Container Corporation. The resolution also authorizes the General Manager to proceed in the future on similar matters without additional specific Board approval. Mrs. Officer stated that Mr. McNay has made a motion to adopt a resolution approving the acceptance of 1,835 shares of Smurfit-Stone Container Corporation stock and authorizing the sale of said shares to apply toward the utility debt of Smurfit-Stone Container Corporation. The resolution also authorizes the General Manager to proceed in the future on similar matters without additional specific Board approval. Mr. Platter seconded that motion. The Board unanimously adopted the foregoing resolution. 5. Next, Mr. Mike Finch, Associate General Manager – Finance/CFO presented the Financial Statements (Item 5a) and supporting documents (charts attached) for the year-to-date through June 30, 2010, for Board consideration. Upon a motion duly made by Mr. Rankin, and seconded by Mr. Hamburg, 4 the Board unanimously approved the Financial Statements and supporting documents, including the attached budget disbursements. 5 City Utilities of Springfield, Missouri Board of Public Utilities Additional Information Summary of Disbursements June 30, 2010 ($ In Thousands) Line Notes No. 1 Public Utility Operating Fund: 2 Claims And Accounts $ 30,659 3 Wages And Salaries (Net) 3,885 4 Other Payments 0 5 Public Utility And Water Utility Debt Service 0 6 Interfund Transfers (Net) 0 7 Interfund Transfers to Reimburse Public Utility for SW2 Disbursements (549) 8 Intrafund Transfers to SW2 Equity Fund 0 9 Intrafund Transfers (Net) 19 10 Disbursements For Current Month 34,014 11 Prior Months Disbursements 239,883 12 Fiscal Year-to-date Disbursements 273,897 13 Non-disbursed Budget Balance 240,788 * 14 Total Budgeted Disbursements (Note 3) 514,685 15 Other Funds (Excluding SW2): 16 Interfund Transfers 0 17 Intrafund Transfers (19) 18 Disbursements For Current Month (19) 19 Prior Months Disbursements 7,767 20 Fiscal Year-to-date Disbursements 7,748 21 Non-Disbursed Budget Balance 9,549 * 22 Total Budgeted Disbursements (Note 3) 17,297 23 All Funds Disbursements (Excluding SW2) 24 Fiscal Year-to-date Disbursements 281,645 25 Non-disbursed Budget Balance 250,337 * 26 Total Budgeted Disbursements (Note 3) $ 531,982 27 SW2 28 Claims And Accounts 8,625 29 Wages And Salaries (Net) 0 30 Insurance Refunds 0 31 Debt Service 0 32 Intrafund Transfers from Public Utility to SW2 Equity Fund 549 33 Interfund Transfers to Reimburse Public Utility for SW2 Disbursements 0 34 Intrafund Transfers (Net) 0 35 Disbursements For Current Month 9,174 36 Prior Months Disbursements 126,668 37 Fiscal Year-to-date Disbursements 135,842 38 Prior Fiscal Year-to-date Disbursements 418,645 39 Non-Disbursed Budget Balance 97,056 * 40 Total Budgeted Disbursements (Note 3) $ 651,543 41 All Funds Disbursements 42 Fiscal Year-to-date Disbursements 417,487 43 Non-disbursed Budget Balance 347,393 * 44 Total Budgeted Disbursements (Note 3) 1,183,525 * See Accompanying Notes to Financial Statements May not add due to rounding Page 20 Working Capital By Month Millions of Dollars $120 FY 2010 $100 $80 $60 $40 5 Year (FY2005 – FY2009) $20 High - Low $0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Operating Income Millions of Dollars $9.8 $5.7 $4.1 Actual Budget Variance Fiscal Year To Date Through June 30, 2010 Net Income, excluding MVA Millions of Dollars $12.4 $6.2 $6.2 Actual Budget Variance Fiscal Year To Date Through June 30, 2010 Days Cash 102 82 75 60 Actual Budget Target June 30, 2010 Restricted Fund Balances, SW2 Millions of Dollars $497.9 Operating Fund 7.2 $295.7 Construction Funds 373.0 5.7 $167.4 187.6 Capitalized 3.6 Interest Funds 73.9 50.8 26.7 14.2 Debt Service Funds 52.8 52.8 52.8 14.1 22.9 22.9 Equity Funds 2008 2009 2010 September 30 June 30 Accounts Receivable Millions of Dollars $13.4 $12.9 2.1 3.0 Arrears 11.3 9.9 Current Actual Budget June 30, 2010 Investment in Coal and Natural Gas Millions of Dollars $24.1 $20.7 $21.2 5.3 $16.5 $16.5 7.2 Coal 8.9 $11.7 9.7 12.4 18.8 5.1 Natural 14.0 11.8 Gas 6.8 6.6 4.1 Oct 1 Jun 30 Oct 1 Jun 30 Oct 1 Jun 30 FY 2008 FY 2009 FY 2010 Community Services Thousands of Dollars City of Springfield: Cash Payments in Lieu of Taxes $ 8,289 Utility Services 6,567 Public Transit Services 2,347 Relocations 1,340 Other Community Services 157 Total City of Springfield 18,700 Property Transfers and Other 44 Total $18,744 Actual: 6.9% Target: 7% - 8% 6. The next item to come before the Board was the General Manager’s report. Mr. Gary Gibson presented the operations report. Regarding electric transmission and distribution, Mr. Gibson reported that work on the PIC west substation is progressing well and is estimated to be completed in August 2010. He said City Utilities received a credit memo from the transformer supplier, WEG Electric Corporation. Mr. Gibson stated that WEG was approximately 90 days late delivering a transformer; the credit memo for liquidated damages totaled approximately $250,000. He said the project is estimated to finish $350,000 under budget, and work was conducted by City Utilities’ employees to reduce costs. Mr. Gibson stated that during the time the Tree Management Policy was last updated in 2008, City Utilities committed that the goal would be to have the same tree canopy in the year 2029 that existed in 2009. He said an analysis was performed by ROLTA using aerial photography from 2009 which determined the service territory currently has 28.98 percent tree canopy. Mr. Gibson said that an analysis is planned for 2014 to track progress. He noted that efforts with education and tree replacement coupons to customers will be used to increase the tree canopy. Regarding natural gas, Mr. Gibson reported that the current 12-month futures price is $4.97/Dth versus $5.14/Dth last year, down approximately 3 percent. Last month’s futures price was $5.24/Dth. The current cash price is $4.36/Dth versus $3.10/Dth last year, up approximately 41 percent. Last month’s cash price was $4.40/Dth. Mr. Gibson reported that the natural gas service to SW2 is complete. He reviewed a photograph of the plant contractor purging and commissioning at SW2. Regarding water distribution and supply, Mr. Gibson stated that lake storage is currently at 88.4 percent. The historical average is 86.9 percent. Mr. Gibson stated that construction is complete on the Southeast Booster Station. He said this station monitors pressures in the southeast portion of the system and automatically ramps up or down to ensure adequate pressures. Mr. Gibson reviewed a photograph of the booster station and said the station will allow City Utilities to delay future capital projects for a new water tank in the southeast portion of the water system. He said this project was also conducted by City Utilities’ crews in order to reduce costs. Regarding SpringNet, Mr. Gibson reported that plans have been developed to provide Internet service to the new Expedia center in the old airport terminal. He said this work will be completed on a very aggressive time schedule to meet the requirements of the opening of this location. Service will be conducted in a staged approach with a 50 Mbps circuit in place by the August 20, 2010, deadline and the full 1,000 Mbps circuit will be completed on November 15, 2010. Mr. Gibson stated that City Utilities and Expedia entered into a 60-month agreement after the traditional provider for Expedia was unable to meet their requirements. He said City Utilities received a commendation from Expedia for quick response. Regarding management services, damage claims & prevention and telecommunications, Mr. Gibson reported that bids were received and opened on July 15, 2010, for the demolition of the Edge Supply and Comstock buildings. He noted that these bids are currently being evaluated. 15 Regarding transit, Mr. Gibson reported that ridership in June experienced a slight decrease. June’s ridership totaled 120,541 rides compared to 122,044 rides in June of last year, a decline of 1,503 rides or one percent. He stated that farebox revenues in June increased from $69,198 in June 2009 to $72,676 in June 2010; an increase of $3,478 or five percent. Mr. Gibson said City Utilities participated in the American Public Transportation Association’s (APTA) national “Dump the Pump” day on June 17, 2010, by offering free bus rides to all passengers. Bus ridership for that day totaled 7,005 rides. The average summer weekday ridership is 4,600. Mr. Gibson reported that a media event was held on Friday, July 16, 2010, to unveil City Utilities’ new fleet of paratransit buses. He said the new fleet offers the low- floor feature making it much easier for passengers that have difficulty negotiating steps to enter and exit the coach. A ramp for passengers traveling in wheelchairs replaces the lift that is used in the current fleet. Mr. Gibson stated that the new paratransit coaches also have the “blue wave” design featured on the outside of the coach. This design is being carried over to the bus stop signs and will be featured on the fixed route fleet of buses when they are replaced. Mr. Gibson said the purchase of the coaches is being fully funded through the American Recovery and Reinvestment Act of 2009. Regarding energy management and conservation, Mr. Gibson reported that 383 rebates and audits were processed in May 2010. The current total for the fiscal year is 5,749. Mr. Gibson stated that funds have almost been depleted; however, the programs will remain open through August 2010 due to savings realized in other areas. Mr. Gibson stated that rebates will not be processed in September, but there will be little impact on customers. He said there will only be a delay in processing rebates until after the new fiscal year beginning October 1, 2010. Mr. Gibson said that customers will be informed of any delays. Mr. Gibson stated that a total of 667 units have been collected for the Refrigerator & Freezer Recycling program, with 75 more units schedule to be collected this week. Mr. Gibson reported that City Utilities has applied for the Neighborhood Challenge Grant through the Missouri Department of Natural Resources – Energize Missouri program. If successful, this grant would provide $500,000 to deliver an EnergyWise Home Energy Report to an estimated 40,000 residential customers over a period of 12 consecutive months. Mr. Gibson stated that this report will provide a comparison of each customer’s own energy usage to a group of similar size homes in their general geographic area to encourage voluntary energy reduction. The report will likely create a peer competition atmosphere, which has proven to be a very effective method to affect behavior change. Mr. Gibson said that additional information will be provided if the utility is successful in receiving the grant; the expected award date is August 30, 2010. Next, Mr. Scott Miller, Associate General Manager – Electric Supply, gave an electric supply update. Regarding electric transmission, Mr. Miller reported that the Southwest Power Pool rate increase for the cost allocation for high voltage transmission was approved by the Federal Energy Regulatory Commission (FERC) and the rate increase has been implemented. Mr. Miller said that City Utilities and four other utilities have jointly filed a request for a rehearing with FERC. He stated that a timeline has not 16 been set for the rehearing process, and the Board will be advised when more information is available. Mr. Miller reported that City Utilities’ peak record for one hour of energy is 802 MW. For June 2010, the highest energy usage was 757 MW and currently for July 2010 the highest energy usage is also 757 MW. Mr. Miller said although usage has not reached the peak record for June 2010, an all-time June energy delivery record was set. The record was 7 percent higher than June 2009 and 6 percent higher than the previous all- time June record. Regarding SW2, Mr. Miller reported that work is being coordinated as various crews strive to complete final work for the project. He said that a chemical clean was conducted on the boiler and fans and motors have been tested and released for operation. Mr. Miller noted that the original first-fire date has been moved from the week of August 8 to the weekend of August 21, primarily due to workspace constraints around the burner deck areas. He said that coordination has been made with City Utilities’ marketing department to publicly communicate information regarding the first fire. Mr. Miller said that there are approximately 525 current workers on the project, and it is anticipated that this number will drop significantly in August. Mr. Miller reviewed SW2 project contractual highlights charts. He stated that external contracts for SW2 total approximately $8 million over the original budget for these expenses and internal costs are currently $12 million under budget, resulting in approximately $4 million under budget. Mr. Miller reminded the Board that additional disbursement authority would be requested after the new operating plan becomes effective. He stated that the original budget was $541 million and interest earnings are estimated to total $16.7 million. The estimated cost of the project is $555 million. Mr. Miller stated that the requested disbursement authority listed in the 2011 budget totals $557.9 million. He said any funds included in the $557.9 million that are not allocated to the construction and closing of the project would return to City Utilities’ finance department to be applied to debt service. Mr. Miller answered various questions from board members. Next, Mrs. Lisa Turner, Director – Human Resources and Administration, presented an administration update. Regarding marketing and communications, Mrs. Turner reported that preparations are being made for the SW2 dedication ceremony tentatively scheduled for November 10, 2010. A contract has been completed with Jimmy John’s for eight bus advertisements. Mrs. Turner stated that radio spots to build awareness of the Odd-Even watering program and the Refrigerator and Freezer Recycling program will air through August 2010. Regarding benefits, employment and labor relations, Mrs. Turner reported that Mr. Dick Wilson was elected as the new International Brotherhood of Electrical Workers Business Manager. She said prior to being elected, Mr. Wilson was employed as an Instrument Technician/Relief Operator in the water treatment area and previously worked at both of City Utilities’ power stations. Mrs. Turner stated that as a result of the request for proposal process, The Segal Company was selected as the new employee benefits consultant. The company will assist with health care compliance/redesign, analyzing health care reform and analyzing the 17 bids for a new pharmacy benefit manager currently with Medco that expires December 31, 2010. Mrs. Turner said that proposals for Long Term Disability (LTD) Insurance are being requested. The contract is currently with Standard Insurance Company which expires on September 30, 2010. She said included are optional proposals for employee- paid, voluntary LTD insurance for union employees. Mrs. Turner stated that LTD provides a benefit of 65 percent of income for total disability. Regarding safety, training, workers’ compensation and health management areas, Mrs. Turner reported that a “Frontline Supervisor Leadership/Accountability Training” was conducted July 27 through July 29, 2010, which focused mainly on safety. She said this is the first time this type of training was offered and 70 of City Utilities’ frontline supervisors attended. The facilitator for the training, Mr. Dan Raines, was employed with Georgia Power for 41 years, starting as a helper and ending his career as the safety and training supervisor. Mrs. Turner reported that “Safety Day” events are scheduled for the natural gas, water and electric areas on August 31, and September 1 and 2, 2010, respectively. She noted that these are full days dedicated to safety that have been very successful in the past. Mrs. Turner stated that a “request for qualifications” has been issued for consulting engineers to conduct the triennial review of City Utilities’ electric, natural gas, transit and water systems. A triennial report is required due to bond ordinance. Mrs. Turner said that the committee’s selection of the consultant is anticipated within two months, with work to commence in the fall. Mrs. Turner stated that Mrs. Cheri Hamlin, Director – Benchmarking/Utility Information gathers information for the Quarterly Scorecard which is part of the Quarterly Update provided today to Board members. Next, Mr. Ray Ross, Director – Pricing, presented a natural gas procurement strategy update. Mr. Ross stated that the primary driver of gas procurement is ensuring that natural gas is available on the coldest winter day while also achieving the lowest overall natural gas cost for customers. He said natural gas supply can be 70 – 85 percent of what customers are actually paying. Managing the supply side is very important and a mix of natural gas storage, fixed price contracts, long-term supply agreements, physical call options and market purchases are used. Mr. Ross presented the following chart for the winter 2010-2011 natural gas options and requirements: 18 Month Firm Storage Contracts Market December 2010 1,620,000 480,000 560,000 570,000 January 2011 1,780,000 740,000 560,000 480,000 February 2011 1,470,000 600,000 540,000 320,000 March 2011 970,000 410,000 270,000 290,000 Winter 2010 - 2011 5,840,000 2,230,000 1,930,000 1,660,000 100% 38% 33% 28% Mr. Ross reported that firm customers will need approximately 5.8 million Dth of natural gas to meet winter heating requirements. He reviewed the percentages supplied by storage, contracts and the market. Mr. Ross said that the inventory volume is currently slightly ahead of what it has been in previous years and the decision was made to hold natural gas in storage at a price less than reinjecting natural gas into storage. He said 1.8 million Dth is currently in storage at an average strike price of $3.62. Call options acquired to date are 780,000 DTh at an average strike price of $6.39. Mr. Ross stated that call options are governed by the TEA Natural Gas Financial Transactions Policy to limit customers’ exposure to natural gas price increases and to allow participation in natural gas price decreases. Mr. Ross discussed the financial tools to accomplish this objective. Mr. Ross noted that policy limits include maximum net annual exposure limited to $4 million. He said this is the most that the program can cost customers on an annual basis. The budgeted annual expenditure is limited to $10 million. Mr. Ross stated that all costs or savings associated with this program are passed through to firm natural gas customers. Mr. Ross discussed the following winter 2010 – 2011 options: Average Volume Purchase Market Option Strike Price (Dth) Price Value* Call – Nov. 2010 $6.38 200,000 $ 37,000 $ 25,202 Call – Dec. 2010 $6.40 200,000 $ 52,610 $ 31,865 Call – Jan. 2011 $6.43 170,000 $ 59,600 $ 38,218 Call – Feb. 2011 $6.41 110,000 $ 42,050 $ 28,322 Call – Mar. 2011 $6.30 100,000 $ 41,500 $ 27,660 December - March $6.39 580,000 $ 195,760 $ 126,065 All $6.39 780,000 $ 232,760 $ 151,267 *July 27, 2010 settle Mr. Ross reviewed the NYMEX winter strip for December 2010 through March 2011. 19 Mr. Ross stated that many investors in natural gas are making decisions based upon the amount of natural gas in storage. He reviewed a chart of U.S. natural gas in storage and noted that this year natural gas has approximately a two percent deficit from one year ago; however, record levels of storage existed one year ago. Mr. Ross said that U.S. natural gas in storage is approximately 10 percent above the five-year average. Next, Mr. John Twitty, General Manager, reported that the SW2 dedication scheduled for November 10, 2010, will recognize this very significant project. Mr. Twitty stated that City Utilities is almost ready to enter into an agreement with two firms that are working together to provide the third study for the potential location for a new bus transfer station. He said that more information will be provided to the Board next month. Mr. Twitty reviewed the nine categories included in the quarterly Strategic Business Objectives Scorecard. Mr. Twitty reviewed the following upcoming activities for the 2011 Annual Operating Budget (AOB) and electric rate increase proposal: • Operating Plan Review - Includes 2011 Annual Operating Budget - Includes additional SW2 disbursement authority • Electric Rate Increase Proposal • Approval Process - Board Study Session August 10, 2010 - Joint Board/City Council Meeting August 17, 2010 - Citizens’ Advisory Council August 19, 2010 • (Rate Increase Proposal Only) - City Council (2011 AOB and Electric Rate Increase Proposal) • First Reading September 7, 2010 • City Council Vote September 21, 2010 Mr. Twitty discussed principles that guided City Utilities’ staff in the preparation of the 2011 Annual Operating Budget. He stated that the utility is aware of the economic realities and hopes the economy will begin to improve. Mr. Twitty said that the 2011 Annual Operating Plan and Budget is a very austere plan with minimum requirements, and because the utility has seen flattening of customer growth and consumption per customer across all three commodities, new capacity projects are being pushed into the future. He said that the plan and budget are committed to customers, as it is each year, and that for the three services provided realize customers have no other sources for these services. Mr. Twitty said the utility is very sensitive about this and wants to ensure that steps are made to put the customer first. Mr. Twitty stated that the theme going forward is that a different regulatory environment exists today and this environment is causing City Utilities to spend funds that were not spent in the past. He noted that this also translates into costs for customers. Mr. Twitty said that City Utilities will always comply with regulatory mandates. 20 Mr. Twitty stated that City Utilities does not take lightly the AA credit rating that has been received from the credit agencies. He said that procedures could be done differently to put this credit rating at risk, but the utility plans to take steps to keep the finances strong so that the AA credit can be maintained. Mr. Twitty said that the 2011 Annual Operating Budget does not include any new debt; debt from last year has been taken out of the plan, most was capacity-related and has been pushed to the future. Mr. Twitty said that if there is new debt to be issued, it should only be issued if there is a specific increase in rates to pay the debt service. He said City Utilities will work very hard to meet financial targets such as cash on hand and debt service coverage, which are two principal pieces that rating agencies review. Mr. Twitty stated that there are significant policy issues that will require Board guidance. He reminded the Board that earlier in the year they were asked to prioritize some potential new expenditures. The following three policy issues would need to be discussed by the Board: • Stockton 2nd Allocation • Energy Management and Conservation • Energy Efficiency Advance Program Regarding the Stockton allocation, Mr. Twitty stated that a letter was sent to the Missouri Corps of Engineers stating City Utilities intends to purchase the second allocation sometime prior to its availability date of 2016. He said the utility has also asked the Corps of Engineers if they will accept payments in the amount of $300,000 per year that will be set aside in the water area beginning October 1, 2010. These funds could be used for this allocation, if accepted, as beginning payment while City Utilities has time for a water rate increase to pay the debt service. Mr. Twitty said that the approximately $8 million cost of the second allocation should be financed over a lengthy period of time. He said if the purchase needs to be made sooner, an out-of-sequence increase in electric or natural gas could be obtained and cross subsidized for a period of time until a water rate increase is in place, or an out-of-sequence water rate increase could be obtained. Mr. Twitty said that a plan will be provided over the next year. Regarding energy management and conservation, Mr. Twitty stated that the Board and City Council approved an increase in electric rates in 2006 to fund $1 million in new energy management and conservation spending. He said that the question is whether to spend more on these efforts, how much, and when. Mr. Twitty noted that Ms. Cara Shaefer, Director-Energy Management and Conservation, provided a presentation at the Board Retreat in April 2010. The presentation provided a plan for future energy management and conservation efforts that would spend 1 percent of gross operating revenues by 2015. Mr. Twitty said this is not included in the base rates provided in the Operating Plan; however, it would take an additional .2 percent increase in electric rates in each year of the three-year package which will be discussed. He said that additional information will also be provided over the next month. Mr. Twitty stated that the Energy Efficiency Advance Program is basically a program consisting of funds set aside for customers to improve the energy efficiency of their home or business. The customer would pay funds back to City Utilities over an 21 agreed upon period of time. Mr. Twitty said even if the decision is made not to provide additional funding for energy management and conservation, rate authority could be provided by adding a rider to the current electric rates being presented for approval. He stated that when funds are available, the pilot program could begin. Mr. Twitty stated that a program approved by the General Assembly and signed by the Governor allows cities and counties to issue Property Assessment Clean Energy (PACE) bonds. He said there are approximately 20 states involved in the program. Mr. Twitty said this could perhaps be a companion program to the energy efficiency advance program. He said the programs were similar; however, bonds issued for the energy efficiency advance program are issued by the city or county and the amount borrowed by the customer becomes a lien on the property taxes. Mr. Twitty stated that a meeting regarding this issue has been held with Greene County and a second meeting has been scheduled. Mr. Twitty stated that mortgage buyers Freddie Mac and Fannie Mae have raised questions regarding the PACE bonds. He said it is the understanding that the PACE bonds take a first financial position; however, discussions are being held in an effort to come to an agreement regarding this issue. Mr. Twitty stated that City Utilities could proceed with the electric rate package in order to establish the rider, even if it is not funded at this early stage, so that the rider would not need to be added at a later date. In addition, the PACE program could be added in coordination with the City of Springfield and/or Greene County. Mr. Twitty answered various questions from Board members. Chairman Officer then asked if there were any other items to properly come before the Board; there were none. Chairman Officer then asked if any Board Member had any items for the Board to hear; there were none. The meeting adjourned at 4:28 PM. Tom Rankin, Secretary Board of Public Utilities of Springfield, Mo. 7-29-10 22 NOTICE AND TENTATIVE AGENDA OF A REGULAR MEETING OF THE BOARD OF PUBLIC UTILITIES To be held Thursday, July 29, 2010, 3 PM City Utilities' C. Frank Knox Board Room, 301 E. Central Street 1. Opening Remarks L. Officer 2. Approval of Minutes (2a) L. Officer 3. Public Comment L. Officer 4. Committee Reports Committee Chairmen (any anticipated actions would be listed with the appropriate Committee) Audit Committee L. Officer Good Community Committee T. Finnie Human Resources Committee P. Platter Management & Finance Committee M. McNay • Resolution – Authorization to sell stock (4a) 5. Financial Statements (5a) (reporting required and approved by the Board) M. Finch 6. General Manager's Report J. Twitty • Operations Update (Gibson) • Electric Systems Update (Miller) • Human Resources and Administration Update (Turner) • Natural Gas Procurement Strategy Update (Ross) • Utility Update (Twitty) Any other items that may properly come before the Board. Closed Item. Following completion of its agenda, the Board may, if a majority approves, hold a closed meeting to consider matters included within the purview of Section 610.021 (1, 2, 3, 9, 13 or 17), RSMo. (Supp). (Resolution for any closed session will specify subjects). Posted: July 28, 2010 Estimated Meeting Time: 3 PM – 5 PM Persons addressing the Board of Public Utilities are asked to step to the podium and clearly state their name and address before speaking. All meetings are tape recorded. In accordance with ADA guidelines, if you need special accommodations when attending any Board of Public Utilities Meeting, please notify the Assistant to the Board at 831-8610 at least 3 days prior to the scheduled meeting.
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