The regular meeting of the Board of Commissioners of Public Utility District No. 1 of Whatcom County was called to order at 8:00 a.m. by Commissioner Paul Kenner. Said meeting was open to the public and notice thereof had been given as required by law. Those present included Commissioners Jeff McClure and Mike Murphy and Legal Counsel Jon Sitkin. Staff: Steve Jilk, General Manager; Brian Walters, Director of Utility Operations; Barb Shosten, Director of Finance; Annette Smith, Assistant Finance Director; Lew Gaskill, Accountant I; Fred Disch, Water Systems Supervisor; Rebecca Schlotterback, Water Resource Technician; Paul Siegmund, Process and Control Engineer; Dennis Yabsley, Electric System Supervisor, and Duane Holden, Project Manager. Public attending: Rick Maricle, ConocoPhillips, Tom Perry and Nate Hardy, Murray, Smith and Associates; and Tom Mortimer, District legal counsel.

• Public Comment
Maricle commented on two issues. First issue is the water supply request from the City of Lynden. Maricle stated that at one point the PUD had turned down a request from a potential industrial customer because there no water was available to contract. His concern is that if water is provided to help Lynden resolve its water quantity issues that there will not be water available for future potential industrial development. Second issue is the North County digester project. Maricle stated that this is not new technology and it has not been used on a large scale because it is not economically feasible. Digester projects are driven by regulation of the dairy industry. The PUD is asking its customers to subsidize the dairy industry. A number of organizations have requested funding from the PUD and Maricle questioned if the purpose of the PUD is to provide funding for "pet" projects. Maricle stated that this type of funding should be provided by other organizations, not the PUD.

• Approval of the Meeting Minutes and Claims
The Commissioners were presented with the minutes of the special meeting held December 16, 20010 and the regular meeting held December 21, 2010, and the following claims of January 11, 2011.

ACTION: Commissioner Murphy motioned to approve the minutes of the special meeting held December 16, 20010 and the regular meeting held December 21, 2010, and the following claims of January 11, 2011. Commissioner McClure second the motion. Motion passed unanimously.

• North County Digester Project-Interlocal Agreement with Port of Bellingham/City of Lynden
Representatives of the City of Lynden, the Port of Bellingham, Farm Friends of Whatcom County, Western Washington University, Washington State University, Whatcom County Conservation District, Natural Resources Conservation Services, private agriculture production businesses and the District have been meeting for several months to consider the idea of the construction of a anaerobic digester in North Whatcom County to generate methane gas and utilizing that product for several different purposes including but not limited to generating electricity, heat for central heating services, vehicle fuel and sale of a refined methane product as natural gas.

The group has identified several offsetting benefits potentially developed by the construction and operation of such a facility including the reduction of greenhouse gasses, additional revenue to farmers, lower energy costs to residents, improvement of ground and surface water resources, the sale of electricity and other marketable by products.

This working group has determined that continued consideration of such a project should be given and identified the next step in the process to be the completion of a feasibility study to be completed by a team of technical, legal and business/economic experts to identify the costs, location, operating parameters, funding sources and alternative and highest and best use of methane produced by such a facility, i.e. the generation of electricity, use as a vehicle fuel, waste heat distribution or natural gas.

The Port and the City of Lynden and the District representatives agreed to recommend to their governing boards to develop a working interlocal agreement to jointly lead in this phase of the project to complete the feasibility study which will help determine if the project should move forward or not.

This is a recommendation to approve, in principle, the Interlocal Agreement between the Port, the District and the City of Lynden. This will allow the others, the Port and the City of Lynden to act on the Interlocal Agreement and finalize the cost shares of the others before the District approves the final agreement. A decision will also need to be made on who will be the lead for administering the feasibility study.

Commissioner McClure requested a high level of analysis early in the process to make sure that it is feasible for the District to remain involved. Jilk stated that the Andgar Corporation may be interested in becoming involved in this project. Andgar built the Vander Haak digester and several others throughout the Northwest. Jilk stated that there are other examples of digester projects that will be looked at as part of the feasibility study. Commissioner Murphy stated that he strongly supports the opportunity to assist agriculture, improving water quality, providing potential fuel and electric power and carbon credits.

ACTION: Commissioner McClure motioned to approve to approve, in principle, the Interlocal Agreement between the Port, the District and the City of Lynden. Commissioner Murphy second the motion. Motion passed unanimously.

• Murray Smith Associates - Overview of Plant 2 Design Process
Tom Perry and Nate Hardy presented an overview of the Plant 2 design process. Highlights included discussion on improvements to the intake building, building a second water transmission line, improvements to the water treatment building and basins, building a new high head pump house , and building a new maintenance facility. Perry and Hardy will meet with District staff to review final comments on the draft report "Preliminary Design of Water Treatment Plant 2 Improvements" and have the final report completed by the end of January. Commissioner Murphy requested a workshop to review the final design. Jilk stated that when MSA and District staff meet to discuss final design elements Commissoners will be invited to attend and as the design is 60% and 90% completed other updates will be provided to the Commission.

• Manager's Report
No report.

• Executive Session
Commissioner Kenner called an Executive Session to discuss potential water right litigation, water supply request from City of Lynden, and personnel issues possibly with formal action to be taken afterwards. Legal Counsel was present. There being no further business for the regular meeting, the Commission adjourned at 9:15 a.m. to Executive Session.

ACTION: No formal action taken on water right litigation. Action tabled on water supply request from City of Lynden. Action on personnel issue: Commissioner Kenner recommended a resolution be developed by legal counsel for General Manager compensation that provides a 2% increase in salary and two weeks additional vacation. Commissioner McClure second the motion. Motion passed unanimously.

• There being no further business for the regular meeting, the Commission adjourned the regular meeting at 10:40 a.m.

President/Commissioner

Secretary/ Commissioner

Commissioner