MINUTES OF THE ANNUAL MEETING

OF THE

POWER AUTHORITY OF THE STATE OF NEW YORK

 

April 27, 2004

 

Table of Contents

 

 

1.                    Approval of the Minutes of the Meeting held on  March 30, 2004

2.                    Financial Reports for the Three Months Ended  March 31, 2004, ‘2-A’

3.                    Report from the President and Chief Executive Officer  

4.                    Allocation of 3,700 kW of Hydro Power, Resolution    ‘4-A, 4-A1’, ‘4-B, 4-B1 & 4-B2’

 5.                    2003 Annual Report of Procurement Contracts and  Annual Review of Open Procurement Service Contracts,
Resolution, ‘5-A1 – 5-A3’,‘5-B’

6.                    Election of Authority Non-Statutory Officers, Resolution

7.                    Municipal and Rural Cooperative Economic Development Program – Allocation to the Delaware County Electric
Cooperative, Resolution

8.                    Oneida-Madison Electric Cooperative, Inc. – Increase in Retail Rates – Notice of Adoption, Resolution,  ‘8-A – 8-C’

9.                    Authorization of Commodity Broker Agreements for Hedging Purposes, Additional NYMEX Transaction Authorizations and Creation of Margin Reserve Fund, Resolution,  ‘Appendix 9-1’

10.                 Procurement (Services) Contract – Robert Moses Niagara  Power Project – Dam Face Rehabilitation – Crane-Hogan, Inc.– Award, Resolution

 11.                 Procurement (Services) Contract – St. Lawrence/FDR Power Project – Federal Energy Regulatory Commission –                 Approved Independent Consultant’s Inspection and Analysis, Resolution

12.                 Procurement (Services) Contract – Short-Term Load  Forecasting – Nexus Energy Software, formerly ICF
Energy Solutions, Inc. – Increase in Compensation Ceiling, Resolution

13.                 New York State 2004 “Stay Cool!” Program, ENERGY STAR® and New York Energy $martSM Public Awareness Programs, Resolution

14.                 Bond Purchases to Satisfy Internal Revenue Service Private Use Requirements Relating to White Plains Office Building Leasing, Resolution

15.                 Motion to Conduct an Executive Session

16.                 Motion to Resume Meeting in Open Session

17.                 Procurement (Services) Contract – Independent Accounting Services
Resolution

18.                 Next Meeting 

19.                 Closing 


 

Minutes of the Regular Meeting of the Power Authority of the State of New York held at the White Plains Office at 11:14 a.m.

 

 

Present:                  Louis P. Ciminelli, Chairman

                                Frank S. McCullough, Jr., Vice Chairman

                                Timothy S. Carey, Trustee

                                Joseph J. Seymour, Trustee

 

                                Michael J. Townsend, Trustee – Excused

 

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Eugene W. Zeltmann                           President and Chief Executive Officer

David E. Blabey                                    Executive Vice President, Secretary and General Counsel

Vincent C. Vesce                                  Executive Vice President – Corporate Services and Administration

Peter A. Barden                                    Senior Vice President – Public and Governmental Affairs

H. Kenneth Haase                                Senior Vice President – Transmission

Robert L. Tscherne                              Senior Vice President – Energy Services and Technology

Carmine J. Clemente                             Deputy Secretary and Deputy General Counsel

Joseph J. Carline                                  Assistant General Counsel – Power and Transmission

William Ernsthaft                                 Assistant General Counsel – Finance and Risk Management /
Ethics and Regulatory Compliance

Thomas P. Antenucci                          Vice President – Project Management

Arnold M. Bellis                                   Vice President – Controller and Acting Chief Financial Officer

Robert J. Deasy                                    Vice President – Energy Resources Management and Fuels Operations

John M. Hoff                                        Vice President – Procurement and Real Estate

Charles I. Lipsky                                  Vice President and Chief Engineer

Donald A. Russak                                Vice President – Finance

Thomas Warmath                                Vice President and Chief Risk Officer

James H. Yates                                     Vice President – Major Accounts Marketing and Economic Development

Stephen P. Shoenholz                         Deputy Vice President – Public Affairs

Michael E. Brady                                  Treasurer

Dennis T. Eccleston                            Chief Information Officer

Angela D. Graves                                 Deputy Secretary

Janis E. Archer                                     Director – Production Design and Development

Craig D. Banner                                    Director – Electrical System Marketing and Customer Billing

Jordan Brandeis                                   Director – Supply Planning, Pricing and Power Contracts

Thomas J. Concadoro                         Director – Accounting

Helen L. Eisenfeld                                Director – Cost Control and Electric Transportation

Angelo S. Esposito                              Director – Energy Services

Paul F. Finnegan                                  Director – Upstate Public and Governmental Affairs

John L. Murphy                                   Director – Public Relations

William V. Slade                                   Director – Environmental Programs

Daniel Wiese                                        Director – Corporate Security/Inspector General

Edward Hubert                                     General Manager Transmission Maintenance – CEC / STL

Peter Scalici                                           Deputy Inspector General – Investigations

Albert Swansen                                    Deputy Inspector General – Security

Daniel J. Cappiello                               Manager – Performance Planning

Gerard R. Mullin                                   Manager – Fuel Planning

Roger W. Busha, Jr.                             Investigator

Mary Jean Frank                                  Associate Secretary

Lorna M. Johnson                               Assistant Secretary

Bonnie Fahey                                       Executive Administrative Assistant

Philip S. Astuto                                    Senior Business Planner

Lynnette J. Taylor                                Senior Legal Secretary

Brian G. Warner                                    Senior Policy Specialist

Diane Gil                                                Procurement Program Specialist

Joann M. Duffy                                    Strategic Change Consultant

Felix E. DeJesus                                    Consultant

Anthony C. Savino                              Marketing Consultant

Richard J. Ardolino                              Project Manager

John Cashin                                          Executive Administrator, Battery Park City Authority

Kent Gardner                                        Center for Governmental Research

Michael Gettings                                  Executive Vice President, Pace Global

 


 

Chairman Ciminelli presided over the meeting.  Executive Vice President, Secretary and General Counsel Blabey kept the Minutes.

 

 


 

1.       Approval of the Minutes of the Meeting held on March 30, 2004

The minutes of the meeting of March 30, 2004 were unanimously adopted.

2.       Financial Reports for the Three Months Ended March 31, 2004

Mr. Bellis provided the Financial Report for the three months ended March 31, 2004. 

 

3.       Report from the President and Chief Executive Officer

President Zeltmann stated that the recent Authority-wide Culture Committee meeting was one of the best meetings of that committee in its four-year history.  He cited the excellent presentation given by Mr. Edward Hubert, General Manager – Transmission Maintenance on the Transmission Maintenance Organization’s (“TMO”) Culture/Productivity Initiative.  President Zeltmann then asked Mr. Hubert to give an abbreviated version of his presentation to the Trustees.

                Mr. Hubert began by discussing the Authority-wide June 2003 Culture Survey, in which 61% of the Clark Energy Center employees and Blenheim-Gilboa linemen participated.  TMO management followed up by meeting with all TMO employees to share the survey results and by making a commitment to address the major issues raised in the survey.  A union/management cooperative committee was established to address these issues.  In the six months since this follow-up process started, noteworthy improvements have been made in complying with weekly schedules, estimating monthly labor needs and meeting preventive maintenance targets.  In addition, strides have been made to confront nonperformance and increase accountability in the areas of safety, metrics, sick leave and start/stop/break times.  Improved communication is being accomplished by including planners at department meetings, posting all schedules, increasing supervisors’ availability, improving feedback from the crafts and holding quarterly union/management cooperative meetings.  Enhanced recognition of employee accomplishments is evidenced by the TMO’s Employee Recognition Committee, “BRAVO” cards and an accounting audit that resulted in no reportable deficiencies.

 4.       Allocation of 3,700 kW of Hydro Power

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve one allocation of available Replacement Power (‘RP’) and two allocations of available Expansion Power (‘EP’), totaling 3,700 kW.

BACKGROUND

“Under the RP Settlement Agreement, Niagara Mohawk Power Corporation (‘NiMo’), with the approval of the Authority, identifies and selects certain qualified industrial companies to receive delivery of RP.  Qualified companies are current or future industrial customers of NiMo that have or propose to have manufacturing facilities for the receipt of RP within 30 miles of the Authority’s Niagara Switchyard.  RP is the 445,000 kW of firm hydro power generated by the Authority at its Niagara Power Project (‘Project’) that has been made available to NiMo pursuant to the Niagara Redevelopment Act.

“Under Section 1005 (13) of the Power Authority Act, the Authority may contract to allocate or reallocate directly, or by sale for resale, 250 MW of firm hydroelectric power as EP to businesses in the state located within 30 miles of the Project, provided that the amount of power allocated to businesses in Chautauqua County on January 1, 1987 shall continue to be allocated in such county.

DISCUSSION

“On October 22, 2003, the Authority, NiMo, Empire State Development Corporation and the Buffalo Niagara Enterprise signed a Memorandum of Understanding (‘MOU’) that outlines the process to coordinate marketing and allocating Authority hydro power.  Its intent is to better use the value of this resource to improve the economy of Western New York and the State of New York.  Nothing in the MOU changes the legal requirements applicable to the allocation of hydro power.  The entities noted above have formed the Western New York Advisory Group (‘Group’).

“The Group recommends that the available power be allocated among three companies, as set forth in Exhibits ‘4-A’ and ‘4-B.’  The exhibits show, among other things, the amount of power requested by each company, the recommended allocation and additional employment and/or capital investment, payroll information and contract term.  These projects will help maintain and diversify Western New York’s industrial base and provide new employment opportunities.  They are projected to result in the creation of 899 jobs.

RECOMMENDATION

“The Manager – Business Power Allocations and Compliance recommends that the Trustees approve the allocation of 600 kW Replacement Power and 3,100 kW of Expansion Power to the companies listed in Exhibits ‘4-A’ and ‘4-B.’

“The Executive Vice President, Secretary and General Counsel, the Senior Vice President – Marketing, Economic Development and Supply Planning, the Vice President – Major Accounts Marketing and Economic Development and I concur in the recommendation.”

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the allocation of 600 kW of Replacement Power and 3,100 kW of  Expansion Power, as detailed in Exhibits “4-A” and “4-B” be, and hereby is, approved on the terms set forth in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolutions, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

 

APPLICATION SUMMARY

 

Replacement Power

 

Company:                                              Time Release Sciences, Inc.

 

Location:                                               Buffalo, New York

 

County:                                                  Erie

 

IOU:                                                       Niagara Mohawk Power Corporation

 

Business Activity:                               Manufacturer of consumer cleaning products 

 

Project Description:                           The company plans to add five to eight new packaging lines for the Magic Eraser, which is a foam sponge product  Included in each line will be die-cutting and debasing operations. The company is currently using 53,000 sq. ft. and will be moving to a new 90,000-sq.-ft. facility.  The total project cost is $3,600,000, including building improvements and new equipment.

 

Prior Application:                               No

 

Existing Allocations:                          None

 

Power Request:                                    600 kW

 

Power Recommended:                        600 kW

 

Job Commitment:     

                   Existing                              108 jobs

                   New                                     206 jobs

                                                                  

New Jobs/Power Ratio:                      343 jobs/MW

 

New Jobs –

Avg. Wage and Benefits:                   $22,000

 

Capital Investment:                             $3,600,000

 

Capital Investment                              $6,000,000/MW

Per MW:

 

Summary:                                             Time Release Sciences, Inc. is a leading producer of custom-blended foam formulations and material used in a wide variety of industries, from automotive and health care to industrial and electronics. The company’s customers meet the requirements of a broad range of applications, such as cushion pads, shock insulation, medical devices and consumer products. The company provides turnkey solutions for custom-blended foam formulations.

 

APPLICATION SUMMARY

 

Expansion Power

 

Company: Government Employees Insurance Company (GEICO)

 

Location:                                                  Amherst, New York

 

County:                                                     Erie

 

IOU:                                                           Niagara Mohawk Power Corporation

 

Business Activity:                                  Automobile insurance company 

 

Project Description:                               The nation’s fifth largest auto insurer is setting up a new national service center in Amherst that will ultimately house up to 2,500 employees in customer, sales and claims positions. The 250,000-square-foot building, which will be leased for 20 years, is expected to be completed within 18 months.

 

Prior Application:                                  None

 

Existing Allocations:                             None

 

Power Request:                                       1,600 kW

                                                                  

Power Recommended:                            1,600 kW

 

Job Commitment:     

                   Existing                                 86 jobs

                   New                                        650 over three years (2,500 jobs once at full capacity)

                                                                           

New Jobs/Power Ratio:                          406 jobs/MW

 

New Jobs –

Avg. Wage and Benefits:                       $39,000

 

Capital Investment:                                $40,000,000

 

Capital Investment                                  $25,000,000/MW

Per MW:

 

Summary:                                                Incorporated in 1937, GEICO is the largest direct marketer and the fifth largest private passenger auto insurance company in the United Stated, based on direct written premiums. GEICO is a wholly owned subsidiary of Berkshire Hathaway, Inc. The company is requesting power for two locations:  John Muir Drive, which is a temporary site, and Crosspoint Parkway, the company’s main site. Once the Crosspoint Parkway site is fully occupied, the company’s allocation will be used solely at that site.

 

APPLICATION SUMMARY

 

Expansion Power

 

Company: Wilson Greatbatch Technologies, Inc.

 

Location:                                                  Alden, New York

                                                                            

County:                                                     Erie

 

IOU:                                                           New York State Electric and Gas Corporation

 

Business Activity:                                  Developer and manufacturer of batteries used in medical devices 

 

Project Description:                               The company is purchasing and expanding a building that will be used to manufacture medical-grade implantable batteries. The investment in the facility is expected to be nearly $40 million. The investment includes property acquisition, construction, manufacturing equipment and other miscellaneous expenses.

 

Prior Application:                                  Yes

 

Existing Allocations:                             PFJ - 1,200 kW (expires 12/31/05)

 

Power Request:                                       1,500 kW

                                                                  

Power Recommended:                            1,500 kW

 

Job Commitment:     

                   Existing                                 325 jobs

                   New                                        43 jobs

                                                                           

New Jobs/Power Ratio:                          29 jobs/MW

 

New Jobs –

Avg. Wage and Benefits:                       $28,000

 

Capital Investment:                                $40,000,000

 

Capital Investment                                  $26,666,666/MW

Per MW:

 

Summary:                                                Wilson Greatbatch is a leading developer and manufacturer of power-source wet tantalum capacitors and precision-engineered components and sub-assemblies used in implantable medical devices, as well as for demanding commercial applications. Additionally, the company provides the power to meet the rigorous demands of aerospace, military, oil and gas exploration/extraction and oceanographic applications.

 

5.       2003 Annual Report of Procurement Contracts and Annual Review of Open
Procurement Service Contracts                                                                           

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the 2003 Annual Report of Procurement Contracts (Exhibit ‘5-A3’) and the Guidelines for Procurement Contracts (Exhibit ‘5-A2’), and to review open service contracts exceeding one year that were active in 2003 (Exhibit ‘5-A3’).  An Executive Summary of the Annual Report is attached as Exhibit ‘5-A1.’.

BACKGROUND

“Section 2879 of the Public Authorities Law (‘PAL’) governs the administration and award of procurement contracts equal to or greater than $5,000.  Section 2879 of the PAL requires public authorities to adopt comprehensive guidelines detailing their operative policy and instructions concerning the use, awarding, monitoring and reporting of procurement contracts.  The Authority’s Guidelines were approved by the Trustees at their meeting of October 31, 1989 and were implemented on January 1, 1990 and have been amended annually as necessary.

“Section 2879 of the PAL also requires authorities to review and approve such guidelines annually and to file a report regarding procurement contracts with the Division of the Budget, the Department of Audit and Control, the Department of Economic Development, the Senate Finance Committee, and the Assembly Ways and Means Committee.  The Annual Report must include a copy of the Authority’s current Guidelines, details on any changes to the Guidelines during the year and specific information regarding procurement contracts.  The following information must be provided:

[A] listing of all procurement contracts entered into [by the Authority], all contracts entered into with New York State business enterprises and the subject matter and value thereof, all contracts entered into with foreign business enterprises, and the subject matter and value thereof, the selection process used to select such contractors, all procurement contracts which were exempt from the publication requirements of article four-C of the economic development law, the basis for any such exemption and the status of existing procurement contracts.

“Lastly, Section 2879 of the PAL requires an annual review by the Trustees of open service contracts exceeding one year.  Those long-term service contracts exceeding one year and awarded after January 1, 1990, are also included in the Annual Report.

DISCUSSION

“The 2003 Annual Report of Procurement Contracts is attached for review and approval by the Trustees (Exhibit ‘5-A3’).  This report reflects activity for all procurement contracts equal to or greater than $5,000, as identified by the Authority’s SAP computer system, that were open, closed or awarded in 2003, including contracts awarded from 1990 through 2003 that were completed in 2003 or were extended into 2004 and beyond.  All additional information required by the statute is also included.  The Trustees are requested to approve the attached Annual Report pursuant to Section 2879 of the PAL prior to submittal thereof to the Division of the Budget, the Department of Audit and Control, the Department of Economic Development, the Senate Finance Committee, and the Assembly Ways and Means Committee.

“A copy of the Guidelines for Procurement Contracts, effective April 27, 2004 (Exhibit ‘5-A2’), is attached to the Report.  These Guidelines have been amended with two substantive changes to the version approved last year.  The revisions are indicated below.

“In response to Executive Order 127, the Authority has adopted a policy (the ‘Policy’) consistent with New York State policy providing for increased disclosure in the public procurement process through identification of persons or organizations whose function is to influence procurement contracts, public works agreements and real property transactions.  The Guidelines have been amended as follows:

Page 10, Section 7 ‘Contract Provisions,’ Paragraph B listing of ‘Contract Attachments,’ insert:

‘9. Appendix ‘J’ (Bidder/Contractor Compliance with Authority Policy Providing for Certain Procurement Disclosures)’ (see Exhibit ‘5-B’).

“Also, to further define the category of non-procurement contracts, funding agreements, co-funding agreements and grants have been included in the definition as follows:

Page 1, Section 2 DEFINITIONS, Paragraph A, fourth sentence shall be amended to read:

‘In addition, Procurement Contracts shall not include funding agreements, co-funding agreements, grants or memberships in various industry groups, professional societies, and similar cooperative associations, nor any cooperative projects and procurement activities, conducted or sponsored by such organizations, in which the Authority participates; advertising agreements with radio, television, and print media shall also be excluded.’

“The Guidelines generally describe the Authority’s process for soliciting proposals and awarding contracts.  Topics detailed in the Guidelines include solicitation requirements, evaluation criteria, the contract award process, contract provisions, change orders, Minority/Women Business Enterprise (‘M/WBE’) requirements and employment of former officers and reporting requirements.  The Guidelines have been designed to be self-explanatory.

RECOMMENDATION

“The Vice President – Procurement and Real Estate recommends that the Trustees approve the 2003 Annual Report of Procurement Contracts, the Guidelines for Procurement Contracts and the review of open service contracts as attached hereto in Exhibits ‘5-A2’ and ‘5-A3.’

“The Executive Vice President – Power Generation, the Executive Vice President, Secretary and General Counsel, the Executive Vice President – Corporate Services and Administration, the Vice President – Controller and Acting Chief Financial Officer and I concur in the recommendation.”

Mr. Hoff presented an overview of staff’s recommendations to the Trustees and recognized Ms. Gil for her work on the annual report.  On behalf of the Trustees, Chairman Ciminelli thanked Mr. Hoff and Ms. Gil for their efforts.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to Section 2879 of the Public Authorities Law and the Authority’s Procurement Guidelines, the Annual Report of Procurement Contracts (Exhibit “5-A3”) and the Guidelines for the use, awarding, monitoring and reporting of Procurement Contracts (Exhibit “5-A2”), as amended below, be, and hereby are, approved as follows:

Page 10, Section 7 “Contract Provisions”, Paragraph B listing of “Contract Attachments,” insert:

“9. Appendix “J” (Bidder/Contractor Compliance with Authority Policy Providing for Certain Procurement Disclosures)” (see Exhibit “5-B”)

 

 

 

Page 1, Section 2 DEFINITIONS , Paragraph A, fourth sentence shall be amended to read:

 

“In addition, Procurement Contracts shall not include funding agreements, co-funding agreements, grants or memberships in various industry groups, professional societies, and similar cooperative associations, nor any cooperative projects and procurement activities, conducted or sponsored by such organizations, in which the Authority participates; advertising agreements with radio, television, and print media shall also be excluded.”

AND BE IT FURTHER RESOLVED, That the open service contracts exceeding one year (Exhibit “5-A3”) be, and hereby are, reviewed; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolutions, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

6.       Election of Authority Non-Statutory Officers

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to consider the election of certain non-statutory officers of the Authority.

BACKGROUND AND DISCUSSION

“Article IV, Section 2 of the Authority’s By-Laws provides for the election of certain non-statutory officers by the Trustees.  Section 3 of the same Article provides that such non-statutory officers shall hold office for a term expiring at the next annual Trustees’ meeting or until their successors are elected.

RECOMMENDATION

“The following non-statutory officers provided for in Article IV of the By-Laws, adopted December 18, 1984, and last amended on April 30, 2002, be elected by the Trustees to hold office for terms expiring at the next annual Meeting of the Trustees in April 2005, or until their successors are elected:

Eugene W. Zeltmann                                           President and Chief Executive Officer

David E. Blabey                                                    Executive Vice President, Secretary
and General Counsel

Robert A. Hiney                                                   Executive Vice President – Power Generation

Vincent C. Vesce                                                  Executive Vice President – Corporate
Services and Administration

Mr. Clemente presented an overview of staff’s recommendations to the Trustees as to the election of four non-statutory officers for the Authority.  Following the election of such officers, Trustee Carey and Vice Chairman McCullough thanked President Zeltmann, Mr. Blabey, Mr. Hiney and Mr. Vesce for a job well done.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the following non-statutory officers of the Power Authority of the State of New York be, and each hereby is, elected pursuant to Section 2 of Article IV of the By-Laws, as adopted on December 18, 1984, and last amended on April 30, 2002, to hold office for terms expiring at the next annual Trustees’ meeting or until their successors are elected:

Eugene W. Zeltmann                                          President and Chief Executive Officer

David E. Blabey                                                    Executive Vice President, Secretary and
General Counsel

Robert A. Hiney                                                   Executive Vice President – Power Generation

Vincent C. Vesce                                                 Executive Vice President – Corporate
                                                                                                Services and Administration

7.       Municipal and Rural Cooperative Economic Development Program –
Allocation to the Delaware County Electric Cooperative                       

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve an allocation of power under the Municipal and Rural Cooperative Economic Development Program (‘Program’) to the Delaware County Electric Cooperative (‘Cooperative’).

BACKGROUND

“The 1991 amendment to the power sales agreement between the Authority and the Municipal and Rural Cooperative Systems reserved 108,000 kW of power for economic development in the systems.  As of April 22, 2003, 32,550 kW has been allocated.

“Power from this block can be allocated to individual systems to meet the increased electric load resulting from eligible new or expanding businesses in their service area.  Under the guidelines established for the Program, an allocation to a system should meet a target number of new jobs per megawatt (‘MW’).  The guidelines provide that for businesses new to a system, the jobs-per-MW ratio is considered on a case-by-case basis.  For projects involving existing businesses, the number of jobs per MW is the number of new jobs compared to the level of employment prior to the expansion.  Specifically, for companies employing 100 or less, the target ratio is 25 jobs per MW; for companies employing 101 to 250, the ratio is 50 jobs per MW; for companies employing 251 to 500, the ratio is 75 jobs per MW; and for companies employing more than 500, the ratio is 100 jobs per MW.

“The Cooperative has submitted an application for Program power for the Trustees’ consideration.

DISCUSSION

“An application has been submitted by the Cooperative on behalf of Sportsfield Specialties, Inc. (‘Sportsfield’).  Sportsfield, a privately-held corporation formed in 1998 as a marketing company, is a subsidiary of Clark Companies (‘Clark’).  The company markets sports construction-related products such as long-jump pits, foul poles, vault boxes, press boxes, lane gates, football goalposts, soccer goals and various other track and field equipment.  Until now, all marketed products were manufactured by other companies, but Sportsfield is now venturing into the manufacture of those products.  Its objectives are to increase market penetration, enter new markets and introduce new products.

“Sportsfield will be moving into a new 16,400-square-foot building attached to an existing 6,000-square-foot storage building on State Highway 10 in Delhi.  The total investment in this project is approximately $1.5 million, $750,000 for the building and $750,000 for manufacturing and fabrication equipment.  The new facility will create 25 new jobs in the first year, adding revenue to the state and local economy.  The estimated electrical load for the new facility is 400 kW.  It is recommended that the Trustees approve an allocation of 400 kW to the Cooperative, on behalf of Sportsfield.

“The Municipal Electric Utilities Association Executive Committee supports the recommended allocation to the Cooperative.

“The recommended allocation under the Program comprises half hydro power and half incremental power.  In accordance with the Authority’s marketing arrangement with the municipal and cooperative customers, the hydro power will be added to the recipient system’s contract demand at the time a project becomes operational.  The hydro power earmarked for this Program is presently sold to the municipal and cooperative customers on a withdrawable basis.  Since the Cooperative is a full-requirements customer, the incremental power will also be purchased from the Authority.

RECOMMENDATION

“The Senior Vice President – Marketing, Economic Development and Supply Planning recommends that the Trustees approve the allocations of power under the Municipal and Rural Cooperative Economic Development Program to the Delaware County Cooperative, Inc. in accordance with the above memorandum of the President and Chief Executive Officer.

“The Executive Vice President, Secretary and General Counsel and I concur in the recommendation.”

Mr. Banner presented an overview of staff’s recommendations to the Trustees.  In response to a question from Chairman Ciminelli, Mr. Banner said that half of the 400 kW being allocated is part of the 752 MW of hydro power assigned to the State’s 51 electricity cooperatives and municipal utilities and that the other half is non-hydro incremental power.  Vice Chairman McCullough said that it was gratifying to see the allocation tied into capital improvements.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the allocation of power to the Delaware County Electric Cooperative, Inc. under the Municipal and Rural Cooperative Economic Development Program is hereby approved as set forth in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Senior Vice President – Marketing, Economic Development and Supply Planning or her designee be, and hereby is, authorized to execute any and all documents necessary or desirable, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all certificates, agreements and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

8.       Oneida-Madison Electric Cooperative, Inc. – Increase in Retail Rates
Notice of Adoption                                                                                     

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Board of the Oneida-Madison Electric Cooperative (‘Cooperative Board’) has requested the Trustees to approve revisions in the Oneida-Madison Electric Cooperative’s (‘Cooperative’) retail rates for each customer service classification.  These revisions will result in additional total annual revenues for the Cooperative of about $224,000, or 13.9%.

BACKGROUND

“The Cooperative Board has requested the proposed rate increase primarily to provide revenues to allow for sufficient working funds to meet significant forecasted increases in operation and maintenance expenses, meet debt service for current and planned debt, allow for sufficient working capital funds, build cash reserves to maintain Federal Government Regulatory financial ratio level requirements and for Coop Members’ Patronage Capital distribution.  The last time the Cooperative’s electric system revenues were increased was in 1988.  

“The Cooperative Board has planned additions to plant-in-service amounting to $1,070,000, to upgrade and expand its electric system.  The capital program includes $860,000 for upgrades to its extensive distribution system and to accommodate future growth.  The remaining $210,000 is planned for the purchase of three trucks, one Bucket truck and two Pick-up trucks.  The Cooperative Board plans to debt-finance all new expenditures by issuing a 30-year, $1,070,000 Serial Bond. 

“Under the Cooperative’s new rate structure, a new class for seasonal customers (‘Seasonal’) has been created.  These customers currently pay 11.3 cents per kWh and will pay 12.9 cents per kWh under the new class and after the rate increase.  The residential class rate increases from 8.5 cents per kWh to 9.7 cents per kWh, and the commercial class from 10.4 cents per kWh to 12.0 cents per kWh after the rate increase.      

“The proposed rate revisions are based on a cost-of-service study prepared by the Cooperative and reviewed by Authority staff.  Pursuant to the approved procedures, the Senior Vice President – Marketing, Economic Development and Supply Planning requested the Secretary to file a notice for publication in the New York State Register of the Cooperative’s proposed revisions in retail rates.  Such notice was published on March 10, 2004.  A public hearing was held by the Electric Cooperative on February 10, 2004.

DISCUSSION

“No comments from the rate payers were received at the public hearing held by the Oneida-Madison Electric Cooperative on February 10, 2004.  In addition, no comments concerning the proposed action have been received by the Authority’s Secretary.  Therefore, the Cooperative Board is requesting that the proposed rates be approved. 

“An expense and revenue summary, comparisons of present and proposed total annual revenues and their corresponding rates by service classification are attached as Exhibits ‘8-A,’ ‘8-B’ and ‘8-C,’ respectively.

RECOMMENDATION

“The Director – Electric Systems Marketing and Customer Billing recommends that the attached schedule of rates for the Oneida-Madison Electric Cooperative be approved as requested by the Cooperative Board, to take effect beginning with the first full billing period following the date this resolution is adopted. 

“It is also recommended that the Trustees authorize the Secretary to file notice of adoption with the Secretary of State for publication in the New York State Register and to file such other notice as may be required by statute or regulation.

“The Executive Vice President, Secretary and General Counsel, the Senior Vice President – Marketing, Economic Development and Supply Planning and I concur in the recommendation.”

Mr. Banner presented an overview of staff’s recommendations to the Trustees.  In response to a question from Trustee Seymour, Mr. Banner said that the relatively high cost per kilowatt-hour (average of 9.9 cents) for the co-op was due to the fact that the co-op has more than 200 miles of distribution line to serve its rural customers, while municipal utilities generally have only 20-25 miles of distribution line.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the proposed rates for electric service for the Oneida-Madison Electric Cooperative, New York, as requested by such Cooperative Board, be approved, to take effect with the first full billing period following this date, as recommended in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Secretary of the Authority be, and hereby is, authorized to file a notice of final adoption with the Secretary of State for publication in the New York State Register and to file any other notice required by statute or regulation; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

 

Oneida-Madison Electric Cooperative, Inc.

Expense and Revenue Summary

 

 

                                                                                                                                    Five-Year          

                                                                                                                                    Average               Proposed1

 

Purchase Power Expense

(NYPA hydro and incremental)                                                                             $ 410,593                $ 524,594

 

Distribution Expense (Coop-owned facilities)                                                        295,009                   306,950

 

Depreciation Expense

(on all capital facilities and equipment)                                                                   148,755                   196,091

 

General, Administrative & Others

(Salary, Insurance, Management services and

Administrative expenses)                                                                                          329,099                   331,867

 

Rate of Return – (average 6.8%, proposed 7.7%)

(Includes debt service on current and planned debt,

Federal Government Regulatory financial ratio

level requirement, Coop Members’ Patronage

Capital distribution and cash reserves for contingencies)                                   290,190                   482,213

 

Total Cost of Service                                                                                             $1,473,646             $1,841,715

 

 

 

Revenue at Present Rates                                                                                                                       1,617,676

                                                                                                              

Deficiency at Current Rates                                                                                                                      224,039

 

Revenue at Proposed Rates                                                                                                                 $1,841,715

 

Increase % at Proposed Rates                                                                                                                  13.9%

 

 

 

1Based on five years of historical and projected data.

 

 

 


 

Oneida-Madison Electric Cooperative

Comparison of Present and Proposed Annual Total Revenues

 

 

SERVICE                                                               PRESENT                  PROPOSED                                   %

CLASSIFICATION                                             REVENUE                   REVENUE                            INCREASE         

 

 

Residential SC1                                  $1,476,849                      $1,679,889                                                13.8

 

 

Seasonal SC2                                                           $71,810                           $82,401                                                14.8

 

 

Commercial SC3                                                       $42,305                           $49,026                                                15.9

 

 

Security Lighting SC4                            $26,712                           $30,398                                                13.8

 

 

Total                                                                     $1,617,676                      $1,841,715                                                13.9

 

 


 

Oneida-Madison Electric Cooperative

Comparison of Present and Proposed Net Monthly Rates

 

 

Present1                                                                                                                                       Proposed1

  Rates                                                                                                                                               Rates

 

                                                Residential SC1

 

$6.80                                       Customer Charge                                                                       $10.00

 

$ .07848                                 Energy Charge, per kWh                                                           $   .08700

 

 

                                                Seasonal  SC2

 

$6.80                                       Customer Charge                                                                       $10.00

 

$  .07716                                 Energy Charge, per kWh                                                          $    .07700

 

 

                                                Commercial SC3

 

$6.00                                       Demand Charge, per kW                                                             $9.00 

 

$  .08448                                 Energy Charge, per kWh                                                           $   .09128        

 

 

                                                Security Lighting SC4

                                                (Charge per lamp, per month)

 

$7.00                                       175 Mercury Vapor                                                                     $ 7.97              

 -------------------

1Average annual purchase power adjustment (PPA) reflected in present and proposed rates.                                                                                            


 

9.       Authorization of Commodity Broker Agreements for Hedging Purposes,
Additional NYMEX Transaction Authorizations and Creation of Marginal

Reserve Fund                                                                                                       

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize: (a) the selection of commodity brokers and the execution of commodity broker agreements by the Vice President – Energy Resource Management to allow the effectuation of gas and oil price hedging strategies; (b) providing collateral pursuant to such commodity broker agreements; (c) the President and Chief Executive Officer, the Executive Vice President – Power Generation and the Vice President – Energy Resource Management to approve hedging transactions of up to 36 months in duration on the New York Mercantile Exchange (‘NYMEX’), with the aggregate value of such outstanding NYMEX transactions not to exceed $90 million at any one time;  (d) the Vice President – Energy Resource Management to take such actions relating to such NYMEX hedging transactions as he deems necessary or advisable; and (e) the creation in the Authority’s Operating Fund of a NYMEX Margin Reserve Fund.

DISCUSSION

“The Authority’s customer electric rates are specified by contract, but the Authority’s fuel costs are variable and often volatile.  To implement effective gas or oil price hedging strategies, staff intends, subject to Trustee approval of this approach, to execute transactions on NYMEX.  The use of NYMEX futures and options contracts would reduce or eliminate revenue uncertainty related to fuel price volatility.  Examples of the use of such a transaction for hedging purposes are the purchase of natural gas futures contracts and the purchase or sale of options on natural gas futures contracts to lock in a ‘spark spread.’  A ‘spark spread’ is a measure of the difference between fuel costs and electric market clearing prices.  Other transactions could involve the purchase of futures contracts relating to fuel oil or the purchase or sale of options relating to fuel oil contracts.  Appendix 9-1 provides more detail concerning the mechanics and advantages of the use of futures and options contracts.

“Transactions on the NYMEX have the advantage of eliminating counterparty credit risk for the Authority since the NYMEX stands behind all transactions conducted on the exchange.

“Transactions on the NYMEX are executed through commodity brokers licensed to conduct such transactions.  The Trustees are requested to authorize the selection of one or more of such brokers by the Vice President – Energy Resource Management and the execution of commodity broker agreements with such brokers selected by the Vice President – Energy Resource Management, including any collateral requirements of such agreements.

“In order to participate in such transactions, the Authority would be required to post collateral, called ‘margin,’ pursuant to these commodity broker agreements.  These margin deposits are in amounts determined in accordance with NYMEX rules, and the deposited monies or securities are kept in segregated depositories.

“To accommodate possible calls for increased margin to be provided by the Authority under the commodity broker agreements due to price volatility (discussed in more detail in Appendix 9-1), staff requests that up to an aggregate of $25 million in collateral be authorized, with additional collateral aggregating up to $10 million in such amounts authorized upon the approval of the President and Chief Executive Officer or, in his absence, the Executive Vice President – Power Generation, and either the Vice President – Energy Resource Management or the Vice President – Chief Risk Officer.   

“The Trustees are also requested to allow withdrawal of monies or securities from the Operating Fund to meet these margin requirements even in instances where the Operating Reserve Fund is below $150 million.

“To effectuate these NYMEX transactions, it may become necessary for the Authority to enter into NYMEX contracts of up to 36 months in duration, provided that the aggregate value of such outstanding NYMEX transactions are not to exceed $90 million at any one time. Consequently, in addition to the authority granted by the Trustees to employees and officers under their October 2002 resolution relating to hedge contracts, the Trustees are requested to grant authority to the President and Chief Executive Officer, the Executive Vice President – Power Generation and the Vice President – Energy Resource Management to enter into NYMEX contracts of up to 36 months, subject to the $90 million restriction discussed above.

“In addition, it may be necessary or advisable to terminate these NYMEX contracts prior to their normal expiration, which, in the case of a futures contract, would entail either a payment to the Authority (if market prices have risen) or a payment by the Authority (if market prices have fallen).  Consequently, the Trustees are requested to authorize the Vice President – Energy Resource Management or, in his absence, his designee, to take such actions relating to NYMEX contracts as he deems necessary or advisable, including, but not limited to, termination of such contracts and a determination in the case of a futures contract, of whether to financially settle or take physical delivery under the contract.

“The Trustees are also requested to authorize the creation of a NYMEX margin reserve fund (the ‘NYMEX Margin Reserve Fund’) in the Operating Fund, from which monies or securities may be drawn to pay margin requirements, as described above. The NYMEX Margin Reserve Fund will be funded from monies or securities in the Operating Fund in such amounts as deemed advisable by the Treasurer, up to a maximum at any one time of $35 million, and any margin requirements will be satisfied first by monies or securities drawn from such Fund and then from other monies or securities in the Operating Fund, if necessary. The Treasurer would have the discretion as he deems advisable to transfer monies or securities from the NYMEX Margin Reserve Fund to the Operating Reserve Fund in the Operating Fund.

FISCAL INFORMATION

“Staff estimates that the aggregate cost of such broker services would not exceed $40,000 annually.

“Any payments to be made under NYMEX contracts will be treated as fuel payments to be paid from the Operating Fund.

RECOMMENDATION

“The Vice President – Energy Resource Management recommends that the Trustees:  
(1) authorize the selection by the Vice President – Energy Resource Management of one or more commodity brokers and the execution by the Vice President – Energy Resource Management of broker agreements with such brokers that have such terms and conditions as he deems necessary or advisable, subject to the approval of the Vice President – Chief Risk Officer and further subject to the approval of the form of such agreement by the Executive Vice President, Secretary and General Counsel or his designee; (2) authorize providing collateral pursuant to such contracts within the above-described limitations;  (3) authorize the Vice President – Energy Resource Management to take such actions relating to such NYMEX hedging transactions as he deems necessary or advisable; (4) grant the additional authorizations to the President and Chief Executive Officer, the Executive Vice President – Power Generation, and the Vice President –Energy Resource Management  specified above relating to New York Mercantile Exchange contracts; and (5) authorize the creation of  the NYMEX Margin Reserve Fund, as described above.

“The Executive Vice President – Power Generation, the Executive Vice President, Secretary and General Counsel, the Vice President – Chief Risk Officer, the Vice President – Controller and Acting Chief Financial Officer and I concur in the recommendation.”

Mr. Deasy presented an overview of staff’s recommendations to the Trustees.  In response to a question from Trustee Carey, President Zeltmann said that the Trustees would be provided with a monthly update on this matter as part of the financial report.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Vice President – Energy Resource Management is hereby authorized to select one or more commodity brokers to effectuate transactions on the New York Mercantile Exchange (“NYMEX”); and be it further

RESOLVED, That the Vice President – Energy Resource Management is hereby authorized to execute commodity broker agreements with brokers selected by such officer pursuant to the foregoing resolution, having such terms and conditions as such officer may deem necessary or advisable, subject to the approval of the Vice President – Chief Risk Officer and further subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel or his designee; and be it further

RESOLVED, That it is hereby authorized that Authority monies or securities may be used as collateral for such commodity broker agreements, if the terms of such agreements require such collateral, and monies or securities may be transferred from the Operating Fund for such purpose, notwithstanding the fact that at the time of withdrawal the Operating Reserve Fund is below $150 million, provided that:

(1)           if a proposed transfer of monies or securities for margin purposes would result in the aggregate amount of such collateral outstanding after such proposed transfer exceeding $25 million, such transfer shall not occur unless the transfer is approved by  the President and Chief Executive Officer or, in his absence, the Executive Vice President – Power Generation, and either the Vice President – Energy Resource Management or the Vice President – Chief Risk Officer, and provided further that the aggregate amount of all collateral for margin purposes outstanding at any one time shall not exceed $35 million, and

(2)           that prior to any withdrawal for such collateral purpose the Treasurer or the Vice President – Finance shall certify that such amount to be withdrawn is not then needed for any of the purposes specified in Section 503(1)(a)-(c) of the Authority’s General Resolution Authorizing Revenue Obligations; and be it further

RESOLVED, that the creation of a NYMEX margin reserve fund (the “NYMEX Margin Reserve Fund”) in the Operating Fund, from which monies or securities may be drawn to pay margin requirements, as described in the foregoing report of the President and Chief Executive Officer, is hereby authorized; that the NYMEX Margin Reserve Fund shall be funded from monies or securities in the Operating Fund in such amounts as deemed advisable by the Treasurer, up to a maximum amount in such Fund at any one time of $35 million; that any margin requirements will be satisfied first by monies or securities drawn from such Fund and then from other monies or securities in the Operating Fund, if necessary; and that the Treasurer shall have the discretion as he deems advisable to transfer monies or securities from the NYMEX Margin Reserve Fund to the Operating Reserve Fund in the Operating Fund; and be it further.

RESOLVED, That the President and Chief Executive Officer, the Executive Vice President – Power Generation and the Vice President – Energy Resource Management are, and each hereby is, in addition to authority granted to them and other employees and officers by the Trustees in their October 2002 resolution, authorized to approve the entry into contracts on the New York Mercantile Exchange relating to the hedging of natural gas and fuel oil prices, of up to 36 months in duration, having such terms and conditions as the approving officer deems necessary or advisable, subject to the approval of the form of such contracts by the Executive Vice President, Secretary and General Counsel or his designee, provided that the aggregate value of such outstanding NYMEX transactions are not to exceed $90 million at any one time; and be it further

RESOLVED, That the Vice President – Energy Resource Management or in his absence, his designee, is authorized to take such actions relating to New York Mercantile Exchange contracts as he deems necessary or advisable, including, but not limited to: (1) approval of the termination of NYMEX contracts prior to their expiration; and (2) the determination of whether to financially settle futures contracts or take physical delivery of such contracts; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer, and all other Authority officers are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolutions, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

 

Futures Contracts, Options, Margin Requirements

 

Futures Contracts

 

A futures contract is a standardized NYMEX-traded contract purchased by the Authority through a broker.  The futures contract would allow the Authority to purchase a specified amount of gas (or fuel oil) in a given time period at a fixed price.  Under the futures contract, the Authority could accept delivery or, alternatively, opt for a financial settlement of the contract instead of actual physical delivery.  Under a financial settlement, which is the predominant and preferred means of settlement, the Authority would either (1) receive the difference between the futures contract price and the market price, if the market price is higher than the contract price at the time of settlement; or (2) pay the difference, if the market price is lower than the futures contract price. 

 

The financial settlement of a futures contract can be used to fix the price paid by the Authority for natural gas it purchases on the spot market.  For example, if the Authority bought a futures contract at the beginning of 2005 for 100,000 MMBtus of natural gas for delivery in July 2005 at $5 per MMBtu, and then at the time of financial settlement at the end of June 2005 (or some earlier time, prior to contract expiration, should the Vice President – Energy Resource Management determine it advantageous to settle at the earlier time), the market price had increased to $6 per MMBtu, the Authority would receive $100,000 in settlement.  This $100,000 would, in turn, be used by the Authority to offset the price paid by the Authority on the spot market at the time of settlement (i.e., $6 per MMBtu) for the purchase of 100,000 MMBtus of natural gas.

 

Purchases of these futures contracts on a periodic basis would serve to mitigate the price volatility in natural gas and fuel oil prices arising from changing market conditions.

 

Options

 

The Authority may choose to buy a call option on the NYMEX.  A call option on a futures contract would permit the Authority to buy the futures contract if the market price went above a specified, or “strike,” price, with such option having a premium associated with it to be paid by the Authority.  In effect, it would give the Authority the option to buy at a given time a specified amount of gas at a given price, or benefit from the financial equivalent of such purchase. 

 

The Authority may also buy a put option, which would obligate the counterparty to make payments to the Authority if the market price of gas falls below a specified strike price, the payments to the Authority being equal to the difference between the strike price and the market price.  This put option would protect the Authority against a drop in the price of gas, which would result in the sale of its power being uncompetitive. 

 

The Authority may also opt to sell a put option, which would obligate it to pay the difference between a specified, or “strike,” price and the market price, if the market price dropped below the “strike” price.  As a seller of a put option, the Authority would receive a premium.  The put option would only be done in conjunction with a call option to offset the cost of the premium on the call option.

 

Margin  Requirements

 

In the case of both futures and options, the Authority would be required to post collateral, or “margin,” with the broker.  The margin would consist of an initial margin deposit and any additional margin deposit required thereafter due to fluctuations in the market price, each as determined in accordance with NYMEX rules.  For example, if the Authority purchased a natural gas futures contract, an initial margin would have to be deposited on the day of execution of the contract.  However, if the market price of the natural gas decreased on a given day below a specified point, additional margin (also called a “variation” or “maintenance” margin) would have to be deposited by the Authority the next day to compensate for the drop in price of the natural gas.

 

Portions of margin deposits may also be returned to the Authority under certain circumstances specified in the NYMEX rules if an Authority’s futures contract has sufficiently increased in value. 

 

 


 

10.    Procurement (Services) Contract – Robert Moses Niagara Power Project –
Dam Face Rehabilitation – Crane-Hogan, Inc. – Award                                 

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the award of a three-year contract in the amount of $13,400,000 to Crane-Hogan, Inc. (‘Crane-Hogan’) for the refurbishment of the dam face of the Robert Moses Niagara Power Project (‘Niagara Power Project’).

BACKGROUND

“Section 2879 of the Public Authorities Law and the Authority’s Guidelines for Procurement Contracts require Trustees’ approval for procurement contracts involving services to be rendered for a period in excess of one year.

“In accordance with the Authority’s Expenditure Authorization Procedures, the award of non-personal services or equipment purchase contracts in excess of $3,000,000, as well as personal services contracts in excess of $1,000,000 if low bidder, or $500,000 if sole source or non-low bidder, require Trustees’ approval.

DISCUSSION

“The Niagara Power Project was designed and constructed in the late 1950s.  Over the years, normal aging has deteriorated the dam face as a result of water leaking through the concrete from the dam interior, road salts, deterioration of the expansion joint seals and weathering.

“This dam face deterioration is apparent in the form of spalling and delaminated concrete. The spalling and delaminated concrete is exposing the reinforcing steel to corrosion, which in turn accelerates the deterioration of the concrete.  This condition has not been cited as a structural deficiency, but if left untreated, it could become a safety issue.  An inspection of the dam face performed in 1996 showed that approximately 7% of the dam face concrete was delaminated or spalled.  Based on subsequent visual inspections, this spalled area is increasing annually.

“To remediate this condition, Authority staff prepared a bid specification to rehabilitate the dam face over a three-year period.

“On March 15, 2004, proposals were received from four bidders in response to a public bid process. The bid prices are summarized below:

Bidders

Bid Prices

 

Abhe & Suoboda Inc.

$9,990,093

Crane-Hogan, Inc.

$13,348,178

Scrufari Construction

$15,685,360

Oakgrove Construction

$15,836,274

 

“Consistent with the Authority’s bid evaluation procedure, the two lowest bid price proposals were evaluated on the basis of cost, completeness, schedule, warranty, exceptions taken to the bidding documents, experience, quality control, safety and adherence to the Authority’s M/WBE participation goals and Equal Employment Opportunity requirement.

“An Evaluation Committee comprising representatives from Procurement, Engineering and Project Management analyzed the bids, met with the bidders to obtain additional information and reviewed all pertinent factors to determine the lowest evaluated and technically qualified proposal.  The lowest bidder, Abhe & Suoboda Inc., was disqualified because its construction methodology did not meet the Authority’s specification.  Abhe & Suoboda Inc. proposed using an alternative methodology which was used by the Authority in the past and found to be inadequate.  The next lowest bidder, Crane-Hogan, was then evaluated.  The results of the evaluation indicated that Crane-Hogan’s proposal was the lowest qualified bid in terms of price and that it met all the technical and commercial requirements of the bid inquiry.  Accordingly, based on Crane-Hogan’s low price and technically acceptable proposal, the Trustees are requested to approve the award of a contract to Crane-Hogan for a term of three years.

FISCAL INFORMATION

“Payment will be made from the Operating Fund.

RECOMMENDATION

“The Vice President – Project Management, the Vice President – Procurement and Real Estate, the Vice President and Chief Engineer – Power Generation, the Regional Manager – Western New York and the Project Manager recommend that the Trustees approve the award of a three-year contract to Crane-Hogan, Inc. in the amount of $13,400,000 for the refurbishment of the Dam Face at the Robert Moses Niagara Power Project.

“The Executive Vice President – Power Generation, the Executive Vice President, Secretary and General Counsel, the Executive Vice President – Corporate Services and Administration, the Vice President – Controller and Acting Chief Financial Officer and I concur in the recommendation.”

Mr. Ardolino presented an overview of staff’s recommendations to the Trustees.  In response to a question from Trustee Seymour, Mr. Ardolino said that the process the low bidder proposed to use was unacceptable, since it had been used by the Authority in the past and found to be ineffective.  Responding to a question from Chairman Ciminelli, Mr. Ardolino said that the budget for the process had originally been $12 million, but the price of the project was now estimated to be $13.4 million.  In response to a question from Trustee Seymour, Mr. Ardolino responded in the affirmative that the price was a lump sum for the work.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That approval is hereby granted to award a multiyear contract to Crane-Hogan, Inc. in the amount and for the purpose listed below:

Contract Award

Award Amount

Projected Completion

 

Crane-Hogan, Inc. for Refurbishment of RMNPP Dam Face

$13,400,000

Dec. 30, 2006

AND BE IT FURTHER RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

 

11.    Procurement (Services) Contract – St. Lawrence/FDR Power Project –
Federal Energy Regulatory Commission – Approved Independent

Consultant’s Inspection and Analysis                                                        

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the award of a procurement (services) contract to the firm PB Power, Inc. (‘PB Power’) for inspection and consulting services in support of an independent consultant’s inspection and report for the St. Lawrence/FDR Power Project (‘Project’), as mandated by the Federal Energy Regulatory Commission  (‘FERC’).  The intended term of the contract is five years for a total projected amount of $190,000.

BACKGROUND

“Section 2879 of the Public Authorities Law and the Authority’s Guidelines for Procurement Contracts require Trustees’ approval for procurement contracts involving services to be rendered for a period in excess of one year.

DISCUSSION

“FERC regulations require the Authority to hire an independent consultant to perform an independent dam safety inspection and review at licensed projects every five years.  FERC sent a letter to the Authority in November 2003 indicating that these reports were due for submittal in 2004.  In February 2004, staff solicited bids from 14 consulting and engineering firms recognized for their experience in providing dam safety and inspection services at FERC-licensed projects.  One additional bidder was added to the list as a result of the Authority’s notice in the New York State Contract Reporter.

“Bidders were required to submit a detailed proposal in accordance with the request for proposal and scope of work.  The five bids received were opened on March 11, 2004.  These bids were analyzed and evaluated by a team of staff members from the Power Generation’s Engineering Division and the Project. 

“PB Power’s proposal is complete, competitive and fully responsive to the scope of work.  PB Power has allocated proper resources to complete this work thoroughly and on time.  FERC’s new failure-modes analysis requires the degree of staffing allocated by PB Power and the company has the knowledge and expertise to perform this work. 

“PB Power was the lowest evaluated bidder of the five bids received and demonstrates a complete understanding of FERC’s requirements for this work.  Based on its qualifications and ability to perform such work, staff recommends awarding a contract to PB Power.

“FERC must approve the résumé of the specific independent consultants employed by PB Power to proceed with this work.  Historically, FERC has required the Authority to use the FERC-approved independent consultant to conduct follow-up work; therefore, the intended term of the contract is five years.  This contract will permit the Authority to comply with FERC’s mandate that the Authority conduct independent consultant inspections of its licensed hydropower projects every five years.

FISCAL INFORMATION

“Funds required to support this contract are included in the 2004 Approved O&M Budget.  Funds for subsequent years, where applicable, will be included in budget submittals for those years.  Payment will be made from the Operating Fund.

 

RECOMMENDATION

“The Vice President and Chief Engineer – Power Generation, the Vice President – Procurement and Real Estate and the Regional Manager – Northern New York recommend that the Trustees approve the award of a multiyear contract to PB Power for inspection and consulting services, as discussed above. 

“The Executive Vice President – Power Generation, the Executive Vice President, Secretary and General Counsel, the Executive Vice President – Corporate Services and Administration and I concur in the recommendation.”

Mr. Lipsky presented an overview of staff’s recommendations to the Trustees.  In response to a question from Trustee Seymour, Mr. Lipsky said that the relatively low price for the project had to do with the fact that the inspection and analysis involved documentation review, modeling and a walk-through.  He also noted that the Authority  previously completed a dam failure analysis for the Project.  Vice Chairman McCullough thanked Ms. Lipsky for his efforts on this project.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to the Guidelines for Procurement Contracts adopted by the Authority, the award and funding of a five-year procurement contract to PB Power in the amount of $190,000 is hereby approved, as recommended in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

 

12.    Procurement (Services) Contract – Short-Term Load Forecasting –
Nexus Energy Software, formerly ICF Energy Solutions, Inc. –

Increase in Compensation Ceiling                                                         

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve an increase in the compensation ceiling of the contract with Nexus Energy Software, formerly ICF Energy Solutions, Inc. (‘Nexus/ICF’; Contract 4600000906) in the amount of $1,500,000 for a revised total contract value of $3,000,000.  A detailed explanation of the nature of services provided by Nexus/ICF under this contract and the reason for the increase are set forth below.

BACKGROUND

“Section 2879 of the Public Authorities Law and the Authority’s Guidelines for Procurement Contracts require the Trustees’ approval for procurement contracts involving services to be rendered for a period in excess of one year. 

“The Authority’s Expenditure Authorization Procedures require Trustees’ approval when a personal services contract exceeds a cumulative change order value of $500,000, or when a non-personal services or equipment purchase contract exceeds a cumulative change order limit of $3,000,000.

DISCUSSION

“At their meeting of September 17, 2002, the Trustees approved the award of a three-year contract totaling $1,500,000 to ICF Energy Solutions, Inc., now Nexus Energy Software, for design and implementation of a software solution for Short-Term Load Forecasting.  This award was made after careful evaluation of the 11 bids received in response to the Request for Proposals.  Nexus/ICF was found to have a superior software product suite, as well as deep technical expertise in load forecasting methodologies.

“In October 2002, the Authority and Nexus/ICF began work on Phase I of the Short-Term Load Forecasting project.  Four phases of Short-Term Load Forecasting were envisioned, but approval of anticipated costs for only the first two phases was sought.  This conservative approach was taken because, while the scope and value of the first two phases were known at that time, the remaining two phases were not clearly defined.

“The first phase of Short-Term Load Forecasting included the purchase and installation of Nexus/ICF’s Energy Vision Enterprise (‘EVE’) suite of software, which was to be used to produce an automated 10-day load forecast on an hourly basis.  On December 17, 2002, automated forecasting was implemented for eight sub zone buses, with 13 additional sub zone buses implemented by April 30, 2003.

“In April 2003, the second phase of Short-Term Load Forecasting began.  The goal of Phase II was to develop ‘bottom-up’ profiles for more than 260 interval-metered and 12,000 non-interval-metered customers within Con Edison’s service territory.  The system developed under Phase II is slated to go into production in June 2004. 

“Since Phase I, the Authority has entered into fixed-price agreements with Nexus/ICF based on a well-defined scope of work.  These fixed pricing agreements have protected the Authority from incurring any additional cost from poor estimation or project management on ICF’s part.  True changes in scope, such as developing load split capability, have warranted valid change orders.  Initial agreements and change orders for work to date have committed funds up to $1,461,900.  

“On April 8, 2004 Nexus Energy Software purchased ICF Energy Solutions, Inc.  The Authority and Nexus/ICF have worked together and identified the scope and implementation plan for Phase III and IV efforts.  The following tasks are planned, for which staff is requesting approval of the increase in contract ceiling:

Phase

Description

Phase III

  • Long-Term Load Forecasting
  • Capacity Analysis
  • Risk Management
  • Peak Load Management
  • Niagara Mohawk Service Territory Bottom-Up Forecasting
  • Load Research
  • Additional Reporting

Phase IV

  • Development of a Graphic User Interface (GUI) Environment for Management of Customer Account Information
  • Addition of ‘Bottom-Up’ Forecasting for Other Transmission Owners and Full-Requirement Munis
  • Potential Enhancements Related to Data Validation, Ad Hoc Reporting, Load Research, Capacity Calculation and Financial Shadow Settlement

 

FISCAL INFORMATION

“This project was identified and approved in the annual IT Initiatives Capital Budget. Payments associated with this project will be made from the Capital Fund.

RECOMMENDATION

“The Senior Vice President – Marketing, Economic Development and Supply Planning and the Chief Information Officer – Information Technology recommend that the Trustees approve the increase in the compensation ceiling for Nexus/ICF Energy Solutions, Inc. for Short-Term Load Forecasting from $1,500,000 to $3,000,000.

“The Executive Vice President – Power Generation, the Executive Vice President, Secretary and General Counsel, the Executive Vice President – Corporate Services and Administration, the Vice President – Controller and Acting Chief Financial Officer and I concur in the recommendation.”

Ms. Archer presented an overview of staff’s recommendations to the Trustees.  In response to a question from Trustee Carey, Ms. Archer said that all of the Phase I goals of the project have been accomplished and that Phase II was nearly complete.  Responding to questions from Trustee Seymour, Ms. Archer said that the original contract for $1.5 million did not include all phases of the project and Mr. Hoff said that increasing the compensation ceiling as proposed was in accordance with the Authority’s procurement procedures.  In response to a question from Chairman Ciminelli, Ms. Archer said that the total contract amount of $3 million is part of Information Technology’s capital budget.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to the Expenditure Authorization Procedures adopted by the Authority, the contract with Nexus Energy Software (“Nexus”; Contract 4600000906) is hereby increased by $1,500,000 to $3,000,000; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

13.    New York State 2004 “Stay Cool!” Program, ENERGY STAR® and New York
Energy $martSM Public Awareness Programs                                                         

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize the President and Chief Executive Officer to enter into an agreement with the New York State Energy Research and Development Authority (‘NYSERDA’) to support the coordinated 2004 statewide ‘Stay Cool!’ program to promote the use of energy-efficient ENERGY STAR® products and increase public awareness of the need for energy conservation through New York Energy $martSM.

BACKGROUND

“To address the urgent energy challenges facing New York State in the summer of 2001, Governor George E. Pataki directed state agencies to engage in a variety of energy demand reduction initiatives. Among those efforts was a coordinated campaign involving NYSERDA, the New York Power Authority (‘Authority’) and the Long Island Power Authority (‘LIPA’) in cooperation with the New York State Public Service Commission (‘PSC’) to promote more prudent use of electricity in New York State with an ENERGY STAR® awareness campaign and an air conditioner bounty program for the purchase of residential ENERGY STAR® room air-conditioning equipment and the return of old, inefficient units.

DISCUSSION

“The focus of the public awareness campaign is to educate consumers on the value of energy efficiency, providing advice on ways to stay cool during the summer months while controlling energy costs.  The public appeal highlights the need to use power sensibly, coupled with ways to be more energy efficient.  The program has used assorted communications media, including television, radio, newspapers and direct mail.  Promotional material directs consumers to ENERGY STAR® retailer partners, participating state government web sites and the toll-free consumer hotline: 1-877-NYSMART. It is noteworthy that more than three-quarters of New York State consumers recognize the ENERGY STAR® label, compared to one-third in 1999.

“The ‘Keep Cool’ Air Conditioner Replacement Bounty Program was designed to ensure that old, inefficient air conditioners were taken out of circulation, recycled and replaced with highly efficient ENERGY STAR® models.  In 2001 and 2002, state residents could receive a $75 bounty when they turned in their old, working room air conditioners and purchased an ENERGY STAR® model.  The bounty was reduced to $35 in 2003. Market share of ENERGY STAR® room air conditioners has increased to approximately 70%, compared to 14% in 1999.  More than 200,000 older units were removed from operation, reducing residential peak demand by 83 megawatts statewide.  Authority participation in the program specifically enabled residential customers of municipal electric systems and rural electric cooperatives to become eligible for the bounty program.  From 2001 through 2003, municipal and cooperative customers turned in more than 4,500 units.

“Given the significant market penetration achieved by ENERGY STAR® room air conditioners, the bounty is no longer viewed as a necessary component of the program.  The new ‘Stay Cool!’ program will work to sustain public awareness of energy-efficient products and focus on energy conservation during the summer peak demand period through New York Energy $martSM, a statewide program to promote ‘clean, energy-efficient products and solutions’.

FISCAL INFORMATION

“In 2001, the Trustees authorized a contribution of up to $2 million for the ‘Keep Cool’ program, of which $1.097 million was transferred to NYSERDA for the program. In 2002, the Trustees authorized a contribution of up to $2 million, of which $1.47 million was transferred to NYSERDA for the program.  In 2003, the Trustees authorized a contribution of up to $1.25 million, of which $1.05 million was transferred to NYSERDA for the program.  In 2004, the Trustees are requested to authorize a contribution of up to $750,000, which would be withdrawn from the Authority’s Operating Fund.

RECOMMENDATION

“The Senior Vice President – Public and Governmental Affairs and the Senior Vice President – Energy Services and Technology recommend that the Trustees authorize the President and Chief Executive Officer to enter into an agreement with the New York State Energy Research and Development Authority for the purpose of providing New York Power Authority support to New York State’s 2004 ‘Stay Cool!’ and New York Energy $martSM  summer energy conservation awareness programs.

“The, Executive Vice President, Secretary and General Counsel, the Executive Vice President – Corporate Services and Administration and I concur in the recommendation.”

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the energy challenges facing New York State require sustained public attention to the need for energy efficiency; and be it further

RESOLVED, That Section 1001 of the Power Authority Act states “that it is desirable that the authority give its fullest cooperation to the energy research and development authority in advancing and promoting the development and implementation of new energy technologies…”; and be it further

RESOLVED, That Section 1854(3) of the Public Authorities Law empowers the New York State Energy Research and Development Authority to contract with the New York Power Authority with respect to “the construction and operation of experimental or developmental facilities which implement new energy technologies which have prospects of reducing the economic, environmental and social costs of energy production and utilization”; and be it further

RESOLVED, That such energy technologies as are referred to in the foregoing statutory provisions include advanced high-efficiency products promoted under the ENERGY STAR® program; and be it further

RESOLVED, That a coordinated effort directed by the Governor of the State of New York among and between New York State agencies and authorities is a proven effective means of educating consumers about the value of energy efficiency, raising public awareness of the availability of high-efficiency ENERGY STAR® products; and be it further

RESOLVED, That the President and Chief Executive Officer of the Authority be, and hereby is, authorized to execute, on behalf of the Authority with the New York State Energy Research and Development Authority, an agreement to provide support by the Authority, including a contribution of up to $750,000 for the New York State 2004 “Stay Cool!” and New York Energy $martSM  summer energy conservation awareness programs, subject to approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

 

14.    Bond Purchases to Satisfy Internal Revenue Service Private Use Requirements
Relating to White Plains Office Building Leasing                                                   

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the purchase of up to $10 million in par amount of New York Power Authority Revenue Bonds, Series 2001A (‘2001A Bonds’), to satisfy the private use requirements of the Internal Revenue Service (‘IRS’) relating to the leasing of White Plains Office (‘WPO’) building space.

BACKGROUND

“In 1991, the Authority purchased the building it currently occupies at 123 Main Street in White Plains, New York.  The portion of the building occupied by the Authority was financed using tax-exempt bond proceeds, and the portion occupied by private businesses was financed with Authority equity.  Under IRS regulations (the ‘Regulations’), if the percentage of the building occupied for private use increases, the Authority must purchase, either in the open market or through a tender offer, a sufficient amount of the Series 2001A bonds to comply with the Regulations.

DISCUSSION

“Staff requests Trustee authorization to purchase 2001A Bonds to comply with IRS requirements relating to the WPO building rental space, up to a maximum aggregate par amount of $10 million.  Such purchases of bonds will be made from amounts in the Operating Fund, and will be in addition to bonds and notes purchased under other authorizations for purchases granted by the Trustees in the past.

FISCAL INFORMATION

“Payment for the bond purchases will be from the Operating Fund, and staff has determined that sufficient monies are available for this purpose.

RECOMMENDATION

“The Treasurer recommends that the Trustees authorize the purchase of New York Power Authority Revenue Bonds, Series 2001A from Operating Fund monies in order to comply with the Regulations, up to a maximum aggregate par amount of $10 million. 

“The Executive Vice President, Secretary and General Counsel, the Vice President – Controller and Acting Chief Financial Officer, the Vice President – Finance and I concur in the recommendation.”

Mr. Brady presented an overview of staff’s recommendations to the Trustees.  In response to a question from Chairman Ciminelli, Mr. Brady said that, if the Trustees approved, the Authority would be making open-market purchases of the tax-exempt bonds issued to pay for a portion of the White Plains office building.  Responding to a question from Trustee Seymour, Mr. Brady explained that the Authority used square footage costs and the revenues from its private entity tenants to determine how much of the White Plains building is taxable.  In response to a question from Vice Chairman McCullough, Mr. Brady said that the Trustees would be notified of the total amount of bonds purchased.  Mr. Vesce pointed out that the Authority would be able to offset a portion of the tax-exempt bonds that need to be purchased by accounting for the space previously used by private companies that is now being used by the Authority.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Trustees of the Authority hereby authorize the payment of funds available in the Operating Fund for the purchase of up to $10 million in aggregate principal amount of the Authority’s Series 2001A Revenue Bonds for the purposes discussed  in the foregoing memorandum of the President and Chief Executive Officer.  The Treasurer may in his discretion select the method by which to effectuate the purposes discussed in the foregoing memorandum of the President and Chief Executive Officer, provided, however, that as a condition to each such payment of monies from the Operating Fund for such purpose, the Treasurer or the Deputy Treasurer shall certify that such amounts to be withdrawn for such purpose are not needed for the purposes specified in Section 503(1) (a)-(c) of the Authority’s General Resolution Authorizing Revenue Obligations, as amended and supplemented; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

15.    Motion to Conduct an Executive Session

“Mr. Chairman, I move that the Authority conduct an executive session to discuss matters leading to the award of a contract to a particular corporation.”

On motion duly made and seconded, an Executive Session was held for the purpose of discussing matters leading to the award of a contract to a particular corporation.

16.    Motion to Resume Meeting in Open Session

“Mr. Chairman, I move to resume the meeting in Open Session.”

On motion duly made and seconded, the meeting resumed in open session.

 

17.    Procurement (Services) Contract – Independent Accounting Services

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve a procurement contract to provide independent accounting services, including the annual audit of the Authority’s financial records and other services, as may be required, for a five-year period (2004-2008).  The audit services shall include preparation of the following reports: (1) opinion on the Authority’s financial statements; (2) review of the Authority’s system of internal accounting controls; (3) review of the Authority’s compliance with its Investment Guidelines, the State Comptroller’s Investment Guidelines and Section 2925 of the Public Authorities Law; and (4) review of the Authority’s compliance with OMB Circular A-133 Requirements.  The Authority may request the successful bidder to perform other services, primarily relating to process and system controls and reviews of debt-offering statements, as may be required.  The contract shall provide for a limit of $3,000,000 for the five- year period.

BACKGROUND

“Section 2879 of the Public Authorities Law and the Guidelines for Procurement Contracts require Trustees’ approval for procurement contracts involving services to be rendered for a period in excess of one year.

“At their meeting of June 25, 2002, the Trustees approved the award of a contract to PricewaterhouseCoopers (‘PwC’), for auditing and other services, for five years (2002 through 2006) in the amount of $ 1,620,000.  In January 2004, PwC indicated that it would not perform the audit for the year 2004 without a significant increase in fees (beyond the maximum annual amount provided for in the contract).  The Authority declined to approve the fee increase and PwC, subsequently and without cause, refused to meet its contractual obligations.  By letter dated February 10, 2004, PwC submitted what it termed its written ‘resignation’ as the Authority’s Independent Auditor effective with the completion of the audit of the Authority’s 2003 financial statements.  At its meeting of February 24, 2004, the Audit Committee requested staff to consider its contract options, as well as to solicit competitive bids from other accounting firms.

DISCUSSION

  1. Bid Evaluation

“In accord with state law and Authority Procurement Guidelines, the Authority published a request for competitive bids in the New York State Contract Reporter on March 8, 2004 for independent accounting and auditing services covering a five-year period (2004-2008).  The Authority received requests for bid documents from five accounting firms.  Bids were ultimately submitted by two firms – Ernst & Young LLP (‘E&Y’) and KPMG LLP.

“The criteria considered by staff in evaluating bids included cost, technical expertise and utility and governmental experience (of the firm and personnel assigned to the engagement).  A summary of the bids received follows:

 

 

 

Bidder

 

Average

Annual

# of Hrs.

 

 

Total

($000)

 

 

 

 

 

Ernst & Young

 

 

 

 

   Audit services

 

1,250

 

 $1,576.4

   Other services:

 

 

 

 

      Debt offer.

 

300

 

481.5

      Process, control reviews & tax

 

375

 

557.1

 

 

1,925

 

$2,615.0

 

 

 

 

 

KPMG

 

 

 

 

   Audit services

 

2,450

 

$2,551.0

   Other services:

 

 

 

 

      Debt offer.

 

300

 

465.0

      Process, control reviews & tax 

 

375

 

513.5

 

 

3,125

 

$3,529.5

 

“KPMG’s total price for audit and other services of $3,529,500 over the five-year period is 35% higher than E&Y’s price of $2,615,000.  E&Y has also provided a written guarantee that the cost of audit services are the maximum amount to be charged to the Authority, even if the actual staff hours exceed the average annual hours noted above.

“Based on their bids, both firms have the technical expertise necessary to perform the audit.  E&Y’s utility audit clients include Memphis Light Gas & Water, the Platte River Power Authority and Oklahoma Gas & Electric, among others.  Both E&Y and KPMG have extensive government auditing practices.  E&Y’s clients include the NYC Housing Authority, the NYC Transit Authority and the Triborough Bridge & Tunnel Authority.  KPMG is the primary auditor for the State of New York and audits many state agencies and authorities.

b.     Subsequent Events

“Subsequent to the Authority staff completing its bid evaluation, the Chief Administrative Law Judge (‘ALJ’) for the U. S. Securities and Exchange Commission (‘SEC’) issued her Initial Decision in the Matter of Ernst & Young LLP (File No. 3-10933) on April 16, 2004.  The ALJ determined that, contrary to SEC regulations, E&Y was not independent when it audited the financial statements of an audit client as E&Y had a direct business relationship with that audit client.  The ALJ ordered, among other actions, that E&Y be suspended from accepting audit engagements for new SEC registrant audit clients for a period of six months and that E&Y disgorge, with interest, the amount of the auditing fees for the fiscal years in question.

“Notwithstanding E&Y’s position that the SEC’s allegations are without merit, E&Y has indicated in a letter to Authority staff that it will not appeal the ALJ’s Initial Decision.  Given these developments, staff will recommend the approval of this contract subject to E&Y agreeing to work under specific protocols to ensure that similar violations do not occur on work performed for the Authority.

FISCAL INFORMATION

“Payments over the term of any contract to be awarded will be made from the Operating Fund.

RECOMMENDATION

“The Vice President – Controller and Acting Chief Financial Officer, the Vice President – Procurement and Real Estate and the Director – Corporate Accounting, recommend that the Trustees approve the award of a five year contract to Ernst & Young LLP to perform the annual audit of the Authority’s financial records for the years 2004 through 2008 and perform other services in an amount not to exceed $3,000,000 subject to Ernst & Young LLP agreeing to work under specific protocols developed by Authority staff.”

Mr. Concadoro presented an overview of staff’s recommendation to the Trustees.  Vice Chairman McCullough stated that he wished to add language to the resolution stipulating that Ernst & Young agree to work within specific protocols established by Authority staff concerning the work they do under the proposed contract.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to the Guidelines for Procurement Contracts adopted by the Authority, the award and funding of a multiyear procurement contract to Ernst & Young LLP that includes specific independence and conduct protocols established by Authority staff is hereby approved for the period of time indicated, as recommended in the foregoing report of the President and Chief Executive Officer in the amount and for the purpose listed below:

                                                                                                               Projected

                                                                                                                 Closing                                 Contract

                O&M                                                                                           Date                                  Approval

                Independent Accounting Services

 

                                                                                                                                                                Not to exceed

                Ernst & Young LLP                                                           06/30/09                                3,000,000

AND BE IT FURTHER RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President, Secretary and General Counsel.

18.     Next Meeting

The next Regular Meeting of the Trustees will be held on Tuesday, May 25, 2004, at 11:00 a.m., at the Charles Poletti Power Project, unless otherwise designated by the Chairman with the concurrence of the Trustees.

19.    Closing

Upon motion duly made and seconded, the meeting was adjourned by the Chairman at approximately
1:15 p.m.

 

David E. Blabey

Executive Vice President,

Secretary and General Counsel