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 Mike Murphy. Said meeting was open to the public and notice thereof had been given as required by law. Those present included Commissioner Jeff McClure, Commissioner Paul Kenner and Legal Counsel Jon Sitkin. Staff: Steve Jilk, General Manager; Brian Walters, Director of Utility Operations; Barbara Shosten, Director of Finance; Annette Smith, Assistant Director of Finance; Fred Disch, Water System Supervisor; Paul Siegmund, Process Engineer; Mike Macomber, IT/SCADA Technician; Rebecca Schlotterback, Water Resource Technician; Dennis Yabsley, Electric System Supervisor and Lew Gaskill, Accountant 1. Public attending: Rick Maricle, ConocoPhillips; Tom Perry, Murray, Smith and Associates; Pat Pollock, BP Refinery; Russ Angus, Foothills Chamber.

• Public Comment
No comments made.

• Approval of the Meeting Minutes and Claims
The Commissioners were presented with the minutes of the regular meeting held October 25, 2011 and the following claims of November 08, 2011.

ACTION:  Commissioner Murphy motioned to approve the Minutes of October 25, 2011 and the claims of November 8, 2011. Commissioner McClure second the motion. Motion passed unanimously.

• Approve Resolution No 638
Gaskill reported that on October 11, 2011, the District issued a warrant in the amount of $52,337.40 to Kemp West, Inc. (Vendor). The District was notified by the vendor that the check was accidentally destroyed by the vendor and has asked that a new check be reissued. The County has requested that the District cancel Warrant No. 868075 and reissue a new warrant.

ACTION: Commissioner Murphy motioned to Approve Resolution No. 638 authorizing cancellation and reissue of Warrant No. 868075. Commissioner McClure second the motion. Motion passed unanimously.

• Approve Amendment and Exhibit C to District's Interlocal with the City of Sumas
Walters stated that he District entered into an Interlocal Agreement with the City of Sumas on September 25, 2006. The purpose of the Agreement as stated in Section 1 is:

"...to establish procedures whereby the Parties can combine, share, and uses their respective skills and assets, thereby expediting their respective receipt and delivery of electric energy and related services to customers within their respective service areas. The cooperative efforts enabled by this Agreement are intended to reduce the cost of electric system planning, construction, and operation over what would otherwise be achieved if the Parties acted independently."

The Interlocal Agreement's initial term expired in June of 2011.

Amendment to Agreement
The Amendment to the Interlocal Agreement accomplishes two things: (1) The term of the Agreement is extended through December 31, 2016 and (2) A new subsection (3.4) is added to Section 3 (General Scope of Services) of the Agreement. Subsection 3.4 describes the transfer of BPA conservation budget funds between the District and the City of Sumas. Such transfers would be on a case by case basis and could be rejected by either party. No actual funds would transfer, but rather BPA conservation budget funds available to the parties would be re-allocated.

Exhibit C to Agreement
Exhibit C is a new exhibit that addresses transfers of BPA conservation budget funds between the District and the City of Sumas. It covers the first re-allocation of funds from the District to the City in the amount of $80,000, which the City has requested to apply to a industrial conservation project that have ready for implementation during BPA's fiscal year 2012.

Any other agreed to transfers of BPA conservation budget funds will be subject to Commission approval and if approved be executed by amendment to Exhibit C.

Sitkin stated that he revised language in Exhibit C to clarify that the funds were strictly a reallocation from BPA to Sumas.

ACTION: Commissioner Murphy motioned to Approve Amendment and Exhibit C to the Interlocal Agreement with the City of Sumas as revised by legal counsel and authorize the District's General Manager to sign the documents. Commissioner McClure second the motion. Motion passed unanimously.

• East County Broadband Project
Jilk provided the background information stating that a group of business and residential representatives from the foothills area of Mt Baker have worked for ten years to establish high speed broadband and cellular services to areas of east Whatcom County, more specifically, Kendall, Silver Lake, North Columbia Valley, Maple Falls, Glacier and South Fork Valley areas. This area continues to be underserved and un-served by these kinds of services. Businesses, residents, public safety and public works providers all lack high speed broadband services and communication connectivity. Private sector providers are not willing to make the investment in communication infrastructure to provide these services in these areas because the density of potential connections is not sufficient to support the capital cost required.

Now an opportunity has developed to utilize federal and local grant funding to pay for the infrastructure/system components to build a system that private sector ISP (internet service providers) and cellular companies can lease and provide these types of service at market rates. Through a federal grant program, part of the federal stimulus program, known as BTOP, states could apply for funds to build high speed broadband systems in areas that were "underserved or un-served" by these services.

In Washington State NoaNet applied for these funds and received an allocation of over $150 million dollars for these projects. This grant program requires a 30% portion of the project cost to come from a local "participant" and 70% to come from the BTOP funds.

The grant program was in two phases or rounds and in the second round a project was included to bring fiber (high speed connectivity) from Deming to Kendall to Maple Falls. In reviewing the value of the connection from Kendall to Maple Falls the Mt Baker Foothills group proposed that a different system, wireless instead of fiber, would be more effective and could establish a much broader area of service and create a higher level of interest from private sector providers to use the system and provide "last mile" services to businesses, residents and public safety services.

In order to move the project forward there are several steps required. Pre-design/feasibility, design build, operations and maintenance and last mile or retail services. Financing would come from a split of BTOP/federal funds and local match.

Over the last two years the Mt. Baker Foothills working group has been completing the first phase work, pre-design/feasibility. Included in this work is a cost estimate for the wireless system. This cost estimate, which includes final design, permitting and construction, is now estimated at $725,000. The system would provide access to broadband services in the areas recited above. This would require a local match of $217,500.

Under the terms of the BTOP program, NoaNet would build and operate the system and would enter into an agreement with a "local provider" to own the system long term to assure its' sustainability. The Mt Baker Foothills group has asked the District to sponsor a grant application to the Whatcom County EDI program to fund the local match as the EDI funds have to be used for economic development purposes and they have to be used by a public agency for infrastructure that is owned by the public agency. The District submitted an application for funds and is in discussion with Whatcom County Administration on amending that application to reflect updated cost estimates and District ownership of the project.

Additionally, the BTOP grant now needs to be amended to reflect the different type of system being proposed, wireless versus fiber and the larger service area to be established and the increased cost to be allocated for the different system/cost.

NoaNet is in agreement to move the project forward and has been working with the District and the Mt Baker Foothills group in finalizing the "project proposal/feasibility" report and is in support of moving the District into position as "local participant" for the grant/project and is supportive of the District entering into a "ownership position" as the long term owner/operator of the system under terms agreeable to the District.

This is a request for the Commission to Request NoaNet to designate the District as the "sub-participant" for the East County Broadband project and advise NoaNet that the District is willing to accept ownership of the project under the terms of an Interlocal agreement between NoaNet and the District. This action will allow the District to work with NoaNet to establish an Interlocal agreement setting out terms of "ownership", define for the BTOP grant purposes the "local agency", allow the District to amend the EDI fund application to confirm the local match and provide for the project sustainability.

Jilk stated that there are no fiscal impacts to the District other than staff time. Future costs, if incurred, will be recouped from the project funding from federal and county grant programs. Jilk stated that there could be the risk that an ISP provider may not want to take on the project but all indications point to strong interests from ISP providers to serve this area of the County.

Russ Angus, Foothills Chamber, stated that the broadband group has improved the business plan and it will cover several organizations and issues including school connectivity, public safety issues and economic connections for businesses

ACTION: Commissioner Murphy motioned to approve the request to NoaNet to designate Public Utility District No. 1 of Whatcom County as the "sub-participant" for the East County Broadband project and advise NoaNet that the District is willing to accept ownership of the project under the terms of an Interlocal agreement between NoaNet and the District. Commissioner McClure second the motion. Motion passed unanimously.

Maricle stated that the District could consider creating a Special Service District that would encompass the area that the project will serve.

• Draft 2012 Budget Presentation
Shosten stated that he 2012 rates per unit for industrial water will remain the same as projected in 2011. Highlight of the presentation focus on three points:

1. Projected annual retail usage is down 10% from what was projected in 2011.
2. The City of Ferndale will no longer share in cost recovery.
3. Capital costs are higher than projected last year (funding levels were based on a preliminary budget from the consultant).

Shosten reviewed the following methodologies:

• Resource Based Method - our home budgets are usually generated with this method - we know what our income is and that is what drives our budget.
• Needs Based Method - the District has the responsibility to budget according to what is needed to own, operate and maintain the District at a consistent level of service, and generate the income required to recover the cost of those needs.

Shosten stated that in reality, a combined methodology is actually used - needs are defined, revenues calculated and if they are too onerous, the budget is usually reevaluated until resources and needs reach an acceptable balance.

Shosten reviewed the methods rate setting for the raw water utility. In the past, the revenues required to own and operate the District at a consistent level of service were established first. Certain rate setting standards were employed, including sufficiency, affordability, stability, and coverage to determine the overall revenues required over a multi-year period.

--Once the required revenues were establish, unit costs by MGD, mgal, and fire units were developed for the capital, operations and fire protection costs that needed to be recovered through the rate revenues.
--The individual customers were then allocated a portion of the cost recovery according to their individual contracts for fixed capital (contract demand) and fixed operations (operating demand) and estimated annual usage.
--The unit costs are what will remain the same as those projected in 2011 for 2012-2014.

However, the unit costs were generally not shown to the customer as the District's convention has been to show the estimated monthly charges for Fixed Capital, Fixed Operations, and Fire Protection, and volume charges per mgal with an estimate of the annual usage for each customer. Total annual cash flow revenues estimated from each customer were then computed with a comparison to the prior year.  Click here to view detailed presentation slides.

Shosten stated that to continue with capital projects, the District will issue debt in the amount of $5 million dollars in 2014.

Shosten stated that the next steps are budget meetings with customers on November 16 and 17, second budget workshop and public hearing on November 29, and final 2012 budget and rates approved at the December 13 Commission meeting.

Jilk discussed the status of City of Ferndale, stating he received a letter on November 11 from Ferndale stating that Ferndale is expecting their wells to go on-line on January 1, 2012, that Ferndale will not be requesting any long term back-up water supply from the PUD and that they may request a month to month contract until the wells are up and running if the wells do not go on line on January 1.

Murphy asked if the budget cuts were realistic. Jilk stated that in the short term of 12 to 18 months that they will work but any longer term will need to be re-evaluated. The question arose of the potential to place funding aside for economic development and McClure stated that the District may want to identify four to five areas where we might seek out economic development.

• Manager's Report
Grandview Bill Leak Adjustment - Jilk stated, that based on the District's Leak adjustment policy, the District adjusted Whatcom Refinery's bill which had a charge of approximately just under $1700.00 due to a leak. Whatcom Refinery took appropriate action to fix the leak in a timely manner and the District will adjust the bill accordingly.

• There being no further business for the regular meeting, the Commission adjourned the regular meeting at 9:50 a.m. to an Executive Session on potential litigation on a construction contract with action on the Plant No. 2 Intake Interim Improvement Project.

• The Executive Session adjourned at 10:02 am and the regular meeting was reconvened to allow the following action:

• Plant 2 Intake Interim Improvement Project Closeout

ACTION: Commissioner McClure motioned to (1) Approve Addendum to Agreement for construction contract with Seven Sisters, Inc. ("Contractor") for Water Treatment Plant No.2 Intake Interim Improvement Project (2) Accept Contractor's Work as Complete as of November 4, 2011(Completion Date) and (3) Authorize the District's general manager to sign the Addendum. Commissioner Murphy second the motion. Motion passed unanimously.

• There being no further business for the regular meeting, the Commission adjourned the regular meeting at 10:05 am.

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