MINUTES OF THE MEETING

OF
THE GOVERNANCE COMMITTEE

 

 

                                             November 15, 2011

 

 


A meeting of the Governance Committee was held at the Authority’s offices at 123 Main Street, White Plains, New York at approximately 8:30 a.m.    The following Members of the Governance Committee were present:

 

Trustee Eugene L. Nicandri, Chairperson

Trustee Johnathan Foster

Trustee D. Patrick Curley

Trustee John S. Dyson

Trustee Mark O'Luck

 

Also in attendance were:

 

Gil Quiniones                             Acting President and Chief Executive Officer

Judith McCarthy                       Acting General Counsel

Donald Russak                          Acting Chief Financial Officer

Thomas Antenucci                    Senior Vice President – Power Supply Support Services

Joan Tursi                                  Senior Vice President – Corporate Support Services

Randy Crissman                        Vice President – Technical Compliance

Joseph Gryzlo                             Vice President and Chief Ethics and Compliance Officer

Patricia Leto                              Vice President Procurement

Lesly Pardo                                Vice President – Internal Audit

Jill Anderson                              Director – Business Integration

Brian McElroy                           Treasurer

Karen Delince                            Corporate Secretary

Dennis Eccleston                       Chief Information Officer

Rod Mullin                                 Director – Fuel Planning and Operations

Mark O’Connor                         Director – Real Estate

Lorna Johnson                           Assistant Corporate Secretary

Louise Nestler                            Assistant Ethics Officer

Sheila Baughman                      Senior Secretary, Corporate Secretary’s Office

 

 

Chairman Nicandri welcomed staff members to the meeting.

 


1.              Adoption of the Proposed Meeting Agenda

 

By motion made and seconded, the November 15, 2011 meeting agenda was adopted.

 


2.              Minutes of the Regular Meeting of September 27, 2011

 

            The minutes of the Committee’s September 27, 2011 meeting were adopted.


3.              Procurement and Real Estate Reports

 

Ms. Joan Tursi said that status reports on procurement and real estate activities for the period ended September 30, 2011 will be presented.

 

3.1     Procurement Contract Activity

 

         Ms. Patricia Leto highlighted the following procurement contract activities:

 

·       The total expenditures for procurement contracts for the period ended September 30, 2011 exceeded

       $261 million;

 

·       12% of the contracts were for construction work;

 

·       44% for the purchase of equipment and commodities;

 

·       15% for personal service contracts (engineering, consulting and legal services);

 

·       29% for other services service-based contracts;

 

·       approximately 97% of the total amount expended were for contracts that were competitively bid.

 

 

        


3.2     Disposal of Personal Property

 

Ms. Leto said that under the Public Authorities Accountability Act (“PAAA”), the Authority is required to prepare a report listing all personal property over $5000 in value disposed of during the reporting period.  For the period ended September 30, 2011, the Authority received $106,467.50 for the sale of scrap copper cable and $22,563.71 for miscellaneous surplus inventory material at the Charles Poletti Project; the Authority also received $5,100 for scaffolding at the Blenheim-Gilboa Project. 

 

Fleet Operations

 

Ms. Leto said that during the reporting period ended September 30, 2011 the Authority participated in one fleet-related auction conducted by JJ Kane Auctioneers.  This auction resulted in the sale of 55 units of property.

 

The total amount for all personal property with a value in excess of $5,000 for the reporting period is approximately $497,776.71.

 

In response to a question from Chairman Eugene Nicandri, Ms. Leto said that the Authority conducts auctions twice per year and that JJC Auctioneers was the lowest bidder for this service.
3.3     Acquisition and Disposal of Real Property

 

Mr. Mark O’Connor reported on the acquisition and disposal of real property, as well as leasing and permitting activities for the period July 1 through October 31, 2011. 

 

Danger Tree Permits

This program allows the Authority to acquire property rights of the transmission right-of-way to remove vegetation which has grown to a sufficient height to threaten the safe operation of the Authority’s transmission system.  During this reporting period, staff obtained 79 danger tree permits.  Of note, the recent snow storm in October resulted in the disruption of electric power, a vast majority of which was caused by trees and high growth vegetation.

 

Land Use Permits

The Real Estate division issued six land use permits during the reporting period.  These permits are issued by the Authority to allow others to use the Authority’s land holdings (normally easement rights) in a safe and productive way and consistent with the safe operation of the Authority’s transmission facilities.

 

Leasing

The Authority owns the building at 123 Main Street and occupies approximately 60% of it.  Approximately 40% of the building is occupied by lease-paying tenants.  This leasing operation generates about $2.7 million of gross revenue.   One of the tenants, JPMorgan Chase, has vacated its leasehold of 29,300 square feet on the 4th floor.  With the assistance of the Authority’s broker, Newmark Knight Frank, staff is in the process of marketing this space; however, market conditions are not favorable.  More than 20% of the 5.9 million square-feet of office in the White Plains Central Business District are considered open and available for leasing.  Further, the trend is currently showing more commercial space available in the market than is being absorbed.  The trend is also showing more deals for smaller spaces being requested.  In addition, some of the tenants recently contacted staff requesting concessions in their leases.  Staff is working to address this issue which reflects the overall economic conditions for the businesses involved. 

 

With regards to the Authority’s leasehold at 501 Seventh Avenue, staff has made a determination not to renew this leasehold when it expires on August 31, 2012.  This leasehold has an annual net rental of $277,000. 

 

St. Lawrence Lands

One of the major commitments the Authority made during the relicensing of the St. Lawrence/FDR Power Project was to convey certain Authority-owned lands, identified as surplus, to either municipalities or landowners who owned adjoining property to these lands.  To date, staff has conveyed all of the lands committed to various municipalities of Lisbon, Louisville, Waddington and Massena.  In addition, of the 520 parcels committed to private landowners, approximately 412 parcels have been conveyed. 

 

In response to a question from Trustee Jonathan Foster, Mr. O’Connor said that staff is developing a model office to show prospective tenants how smaller spaces can be utilized.

 

In response to a question from Chairman Nicandri, Mr. O’Connor said that staff has been contacted by two tenants requesting that the Authority take back some of the space leased to them.  Staff will be working with these tenants and will report the outcome to the Committee at the next meeting.

 

In response to further question from Chairman Nicandri, Mr. O’Connor said that the creation of a trail at St. Lawrence for horseback riding would require some funding from the Parks Department which has indicated that it does not have the revenues for such project. 

 


3.4     Supplier Diversity Program Activities

 

Ms. Leto reported that for the period July 1 through September 30, 2011, the Authority awarded $34.6 million (15.11%) of its reportable expenditures to New York State Certified Minority and Women-Owned Business Enterprises (M/WBEs).   M/WBEs financial dealers transacted over $267.4 million (27.01%) in principal sales and purchases for the Authority.  The Authority’s efforts with regard to M/WBEs were recognized and applauded by the Empire State Development Corporation for yielding the highest expenditures in the State for SFY 2009-2010.  Also, the Authority’s Director of Supplier Diversity, Ms. Debra White, is listed as a “2011 Champion of Diversity” in the September/October 2011 issue of Diversity Plus Magazine.

 

In response to a question from Chairman Nicandri, Ms. Leto said that based on discussions with Ms. White, it is more prudent to set the Authority’s M/WBE goal plan at 10% rather than setting it too high. 

 

Responding to a question from Trustee Mark O’Luck, Ms. Leto said that the Authority’s energy efficiency projects will help it exceed the Governor’s goal for M/WBE firms to account for 20% of the State’s business.

 

In response to a question from Trustee Curley, Ms. Leto said that staff will look into the issue of contractors who use specialized equipment not manufactured in the United States being removed from the denominator when computing the Authority’s results for M/WBE contracts.

 


3.5        Inventory Statistics

 

Ms. Leto reported that as of September 30, 2011, the total stock value of the Authority’s inventory was $89,796,575.  This includes the $1.6 million for field poles issued for the Niagara Project’s Rotor Poles Replacement Project in December 2010.

 

         The Construction of the new Niagara Warehouse which began in March 2010 is complete and procurement and warehouse staffs have relocated to the new facility.  The remainder of the staff is scheduled to relocate by January 2012.

3.6     Fossil Fuels Activity

 

Mr. Rod Mullin said that the total fuel purchases and related costs for the period July 1 thru September 30, 2011 was $94.5 million.  Of this total, $86 million was spent on Natural Gas purchases and associated costs and $8.5 million on Fuel Oil purchases and related costs.  There were 28 natural gas and oil contracts in total, all of which were competitively bid.  To date, the Authority has transacted approximately $4 million of business with the firm of YAKA Energy, a certified M/WBE.

 

Two oil purchases associated with the Commercial Operation Date of the Astoria Energy II plant on July 1, 2011were made.  The first purchase was made directly with Astoria Energy for the oil remaining in the storage tank after the plant completed its testing (the quantity covered 2 days worth of oil operation) and the second was made in order to increase the inventory level to provide for 3 additional days of operation on oil.  Pursuant to the Authority’s Gas Transportation Agreement with Con Edison, the Authority needs to maintain sufficient oil inventory to sustain plant operation for 5 days on oil in the event of gas system curtailments or plant operational issues.

 

Fuel Prices for products that impact the Authority’s cost of doing business are as follows:

 

·       Crude Oil, currently trading at $98/barrel

·       No. 2 Heating Oil (used at the Flynn Plant), currently trading at $132.30/barrel

·       Jet/Kero (used for the 500 MW unit) currently trading at $136.50/barrel

·       ULSD (used at the Astoria Energy II Plant) currently trading at $138.60/barrel

 

Fuel Oil Prices for products that the Authority use in its fossil plants range from $23-24/Mmbtu and are expected to remain high relative to natural gas prices.

 

Prices for Natural Gas, the primary fuel for the Authority’s downstate units, are relatively low at $3.60/Mmbtu ($24/barrel) due to weak demand, high storage levels and increased supply and deliverability to the Northeast.

 


3.7     Corporate Finance Activity

 

            Mr. Brian McElroy said that for the period ended September 30, 2011, the Authority expended approximately $3.4 million on financial-related agreements primarily supporting the administration of the Authority’s debt program.  Eighty percent of these administrative fees are related to Revolving Credit Facilities for the Authority’s Variable Rate Note programs.  The short-term markets continue to be supported by the Federal Open Market Committee’s (“Fed”) decision to target a Federal funds rate between 0 and 25 basis points.  The Authority’s Commercial Paper Notes are currently being remarketed between 15 and 20 basis points.  Staff expects the Fed to maintain its target rate through 2012; therefore, the Authority’s Commercial Paper Notes should continue to be remarketed in its current range for the foreseeable short-term future.

 

 


4.              Recent Development and Status of NYPA’s Ethics and Compliance Program

 

Mr. Joseph Gryzlo provided an update of the Authority’s Ethics and Compliance program.  He said that the Ethics and Compliance office continues to receive ethics inquiries from staff, the main categories of which include outside employment, post-employment, gift restrictions and conflicts of interest.  He then reported that, of note, is an incident whereby one of the Authoritys temporary staff vendors filed a complaint alleging that competitor vendors were not properly accounting for payroll and other taxes in connection with Authority contracts.  The Ethics and Compliance office subsequently evaluated the allegations with the Law Department and, after review by Internal Audit, the allegations were substantiated that two firms were not fulfilling the terms of their contracts with the Authority.  Based on the findings, the Authority rescinded the contracts with the two vendors and terminated the services of the temporary staff employed by those vendors.   

 

In response to a question from Chairman Nicandri, Mr. Gryzlo said, and Mr. Lesly Pardo confirmed, that Internal Audit conducts audits of Authority contracts with vendors and contractors.  In response to further question from Chairman Nicandri, Mr. Pardo said that the contract with the vendors states that all personnel assigned to the Authority shall be employees of the vendor.  It did not provide for “per diem” compensation and they violated that requirement.

 

In response to a question from Trustee Mark O’Luck, Mr. Gryzlo said that after consultation with the Law Department, it was determined that it was not the Authority’s responsibility to report the vendors to the State government; the incident was dealt with as to their compliance with the Authority’s contract.  Ms. Judith McCarthy added that, although it may not have been illegal for the contractors to employ someone on a per diem basis, it was a violation of the Authority’s contract with them which required them to engage salaried employees.  In response to further question from Trustee O’Luck, Ms. Leto said that the vendors are not disbarred from consideration for future contracts with the Authority.

 

In response to a question from Trustee Curley, Mr. Gryzlo said that he would explore whether these companies engaged in an illegal act because of their violation of the Authority’s contract.  Responding to further question from Trustee Curley, Mr. Gryzlo said that the vendor that brought the allegation to the Authority’s attention engages temporary staff employees for the Authority.  This vendor was previously investigated by the Authority for similar practices and that may be the reason for their vigilance with their competitors.  Ms Leto added that the firm did not benefit financially by bringing this allegation to the Authority’s attention, in that, replacement contractors were not hired through this firm.

 

In response to a comment from Trustee Dyson, Mr. Gryzlo said that as regards vendors’ requirements, the Authority plans to compose its contract language to be more specific in order to reduce the prospect of other vendors engaging in similar conduct without the Authority’s knowledge.  Mr. Pardo added that the Internal Audit division schedules several contract audits each year to verify compliance with contract terms.  The Internal Audit staff is committed to conduct audits of similar contracts in the future to determine if there are any unusual activities. 

 

Mr. Gryzlo continued that since the last meeting, the Ethics and Compliance office has conducted supervisor development training for new supervisors.  They have also conducted ethics training with the Payroll department, at their request.  Mr. Gryzlo ended by stating that the Board of Trustees would be receiving the annual Ethics Code of Conduct and FERC Standard of Conduct training for their completion. 

 

Compliance Update

 

Mr. Randy Crissman gave an update of the Authority’s Environmental Health and Safety audit program and the North American Electric Reliability Corporation (“NERC”) Reliability Standards Compliance Program. 

 


NERC Reliability Standards Compliance Program

NYPA’s Internal Compliance Program and NPCC Culture of Compliance Survey:

·       In 2011, the Northeast Power Coordinating Council (“NPCC”) conducted a Culture of Reliability Compliance survey of its approximately 350 registered entities, which includes the Authority.  Based on the Authority’s response to the survey, NPCC concluded that the Authority met or exceeded all of the minimum characteristics of a favorable culture of compliance.  The philosophy has been that entities with an effective compliance program are given favorable treatment with respect to penalties and sanctions for any violations of the standards.

NYPA’s Registration as a Load Serving Entity (LSE):

·       The Authority registered as a LSE in June 2007 for its municipal customers and ALCOA, an Authority industrial customer. 

·       In 2009, NPCC determined that the Authority’s municipal customers should be registered as LSEs; the Authority should not be acting on their behalf.  These municipal customers have since registered as LSEs.

·       In December 2010, NPCC notified ALCOA that it was reviewing the LSE registration applicable to ALCOA and in July 2011, at NPCC’s request, staff provided NPCC with a position paper on LSE registration for the ALCOA load.  The Authority has not received a response from NPCC; staff plans to have further discussions with NPCC on this matter in the near future.

NERC Recommendation to Industry – Facility Ratings for Transmission Lines:

·       On October 7, 2010, NERC issued a “NERC Alert – Recommendation to Industry” requiring transmission owners to review the clearances for their transmission lines.

·       On January 18, 2011, the Authority submitted a plan for responding to NERC’s recommendation and the initial assessment phase is on track to be completed by the end of the year or shortly thereafter.

·       If issues are discovered, they will need to be discussed with the NYISO so that the Authority can develop a mitigation strategy that will satisfy NERC’s expectations.

·       The Authority’s next report to NERC on this matter is due in January 2012.

 

Mr. Crissman also reported that FERC and NERC are in the process of developing a revised definition of the Bulk Electric System (“BES”) to include transmission assets at or above 100 kV.  The new definition will be effective in 2012.  The Authority’s assets that become part of the BES under the new definition will be subject to enforcement of the applicable standards in 2014.

 

A new version of the Critical Infrastructure Protection (“CIP”) standards is being developed to address FERC’s Order 706 regarding cyber security in the electric utility industry.  It is expected that this new version of the CIP standards will be adopted in 2012 and become enforceable in 2014.

 

Staff will keep the Committee apprised of these new developments as it is expected to have potentially significant impacts on the Authority during the next one to three years.

 

Environmental and Health and Safety Audit Program

 

·       Since the September meeting of the Committee, staff conducted an environmental, health and safety audit at the Poletti Power Project’s decommissioning site.  There were some findings related to required inspections under health and safety regulations and updating of certain plans to notify agencies that the Plant has been decommissioned.

 

·       The scope of the 2011 audit of the Authority’s Southeast New York facilities has been confined to the requirements of the Resource Conservation and Recovery Act hazardous waste management activities. 

Audits of these requirements were conducted at the Hell Gate, Harlem River and Gowanus Power Projects, which generate very little hazardous waste. 

 

·       Several good management practice findings were identified during the audits.

 

Responding to a question from Trustee O’Luck, Mr. Crissman said that although the Authority has 115 kV lines and substation that are not a part of the BES, the Authority has to make sure that the maintenance of the lines are in keeping with the standards.  Acting President Quiniones said that the requirement, which is the same standard for all transmission lines, which authority was delegated by NERC, was implemented as a result of the Northeast blackout in 2003. 

 

In response to a question from Trustee Dyson, Mr. Crissman said that if the Authority discover a potential issue with its transmission lines it would first have to contact the NYISO.
5.         Motion to Conduct an Executive Session

 

Mr. Chairman, I move that the Authority conduct an executive session pursuant to the Public Officers Law of the State of New York section §105 to discuss matters leading to the appointment, employment, promotion, demotion, discipline, suspension, dismissal or removal of a particular person or corporation.

On motion made and seconded, an Executive Session was held.


6.              Motion to Resume Meeting in Open Session

 

Mr. Chairman, I move to resume the meeting in Open Session.  On motion made and seconded, the meeting resumed in Open Session.


7.              Appointments of President and Chief Executive and

Executive Vice President and General Counsel       

 

On motion made and seconded the Governance Committee unanimously approved the selection of Mr. Gil C. Quiniones as President and Chief Executive Officer of the Authority, subject to confirmation by the New York State Senate.   The Committee also unanimously approved the appointment of Ms. Judith C. McCarthy as Executive Vice President and General Counsel of the Authority.
8.         Next Meeting

            The next regular meeting of the Governance Committee will be held on Tuesday, March 27, 2012, at 8:30 a.m., at the Clarence D. Rappleyea Building in White Plains, New York.

            On motion made and seconded the meeting adjourned at approximately 10:20 a.m.