MINUTES OF THE SPECIAL MEETING
THE AUDIT COMMITTEE
A special meeting of the Audit Committee was held via videoconference at the Authority’s office at 123 Main Street, White Plains, New York and at King Video Center, 14 Suntree Place, Melbourne, Florida at approximately 8:30 a.m.
The following Members of the Audit Committee were present:
Also in attendance were:
Gil Quiniones Chief Operating Officer
Terryl Brown Executive Vice President and General Counsel
Elizabeth McCarthy Executive Vice President and Chief Financial Officer
Donald Russak Senior Vice President – Corporate Planning and Finance
Thomas Davis Vice President – Energy Risk and Assessment
Lesly Pardo Vice President – Internal Audit
Karen Delince Corporate Secretary
Brian McElroy Treasurer
Angela Graves Deputy Corporate Secretary
Thomas Concadoro Director – Accounting
Mary Jean Frank Associate Corporate Secretary
Jamie Cote Senior Manager, KPMG
Dean Bell Transaction Services, KPMG
Emily Sheikh Senior Associate, Transaction Services, KPMG
1. Presentation to the Audit Committee on Derivatives
Audit Committee Chairman D. Patrick Curley said that he had requested KPMG to make this presentation because he wanted the Audit Committee to have more in-depth information on derivatives and Government Account Standards Board (“GASB”) Statement No. 53. Mr. Jamie Cote introduced Mr. Dean Bell and Ms. Emily Sheikh of KPMG, saying that Ms. Sheikh had worked at GASB and had worked on drafting GASB Statement No. 53.
The KPMG presentation is attached as Exhibit “1-A.”
In response to a question from Audit Committee Chairman Curley, Ms. Sheikh said that management can decide whether to look at multiple derivatives together to see if they are effective. Responding to a question from Authority Vice Chairman Foster, Ms. McCarthy said that the Authority’s decision making with regard to derivatives is done through the Energy Risk Committee (which is being reconstituted as a higher-level committee), but that much work is also done in collaboration with the Authority’s SENY governmental customers.
Responding to a question from Authority Vice Chairman Foster, Ms. McCarthy said that staff is working on the Board policy and revising current procedures, which should be improved, especially with regard to reporting to senior management and the Authority’s Board.
In response to a question from Authority Vice Chairman Foster, Ms. McCarthy said that going forward the monthly Chief Financial Officer report would include more about the Authority’s energy commodity swap portfolio and a quarterly report will include disclosures about the Authority’s commodity and interest rate swap portfolios.
Responding to a question from Audit Committee Chairman Curley, Ms. McCarthy said that the Authority’s SENY governmental customers want to be involved in hedging decisions. For instance, in 2010, the SENY customers chose to keep a piece of their energy price risk floating. Responding to a question from Trustee Nicandri, Ms. McCarthy said that the SENY customers have their own experts analyzing the hedges.
Mr. Jamie Cote said that the fair value of a hedge can be deferred on the balance sheet if hedge accounting requirements or the criteria of FAS #71 are met.
In response to a question from Authority Vice Chairman Foster about credit risk, Ms. McCarthy said that the level of risk is mitigated by contracting with multiple counterparties and by putting appropriate credit limits and credit support agreements in place (which could include the posting of collateral). Mr. Thomas Davis added that the Authority’s recently negotiated SENY long-term hedge involves two counterparties and covers five years of activity with negotiated credit support agreements. The credit risk to the Authority is limited to $30 million. In response to a comment from Authority Vice Chairman Foster, Ms. McCarthy said that the Audit Committee will be receiving additional information on these hedging arrangements.
2. Next Meeting
Audit Committee Chairman Curley, Authority Vice Chairman Foster and Trustee Nicandri agreed that the next regular meeting of the Committee would be held at 8:30 a.m. on Tuesday, July 27, 2010. Ms. McCarthy said that the six-month financial statements and Internal Audit report would be presented at that meeting.
On motion made and seconded, the meeting was adjourned at approximately 9:45 a.m.