November 29, 2011

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 Commissioner Jeff McClure, Commissioner Mike Murphy and Legal Counsel Jon Sitkin. Staff: Steve Jilk, General Manager; Ann Grimm, Administrative Assistant; 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; Duane Holden, Director of Engineering and Project Development; Alec Strand, Project Manager; and Lew Gaskill, Accountant 1. Public attending: Rick Maricle, ConocoPhillips; Tom Perry, Murray, Smith and Associates; Frank Imhof, IMCO General Construction.

• Public Comment
No comments made.

• Approve Amendment No. 3 to Task Order 15 - Murray, Smith and Associates
Background: The District approved a contract services agreement with Murray Smith and Associates (MSA) for engineering services to the District. The District is completing certain capital improvements including Capital Projects RW-3 and RW-18 as Interim Improvements to the Whatcom PUD's Water Treatment Plant 1.

Task Order No. 15 and Amendment No. 1 and Amendment No. 2 to Task Order No. 15 was approved with MSA to provide engineering services related to design and construction of CIP RW-3 and RW-18. A scope of work was developed by Whatcom PUD and MSA defining the work MSA was to provide on these projects. Amendment No. 3 to Task Order No. 15 provides additional budget so that MSA could continue as Project Manager for Water Treatment Plant 1 Interim Improvements. Walters said that due to delays created by the contractor on the project, the budget approved in Amendment No 2. To Task Order No. 15 was insufficient to cover the extended time needed to complete the project.

This Amendment identifies the additional cost of these services to be provided by Murray Smith in order to complete the project(s) RW-3 and RW-18. Staff has requested that the amendment be approved prior to the approval of the claims so that final invoices submitted by MSA for payment of Task Order No. 15 can be included in the claims at the November 29, 2011 Commission Meeting. Jilk said the total of the project was under budget but costs were related to out-of-pocket expenses. McClure asked if there is a set amount per day for delay of contract. Walters said there is a set amount per day but it was agreed that actual costs would be covered instead.

The fiscal impact will add $12,919.00 to the cost of the projects RW-3 and RW-18. 90% of these costs will be recovered from liquated damages collected from the contractor as per the contract. Total cost to complete these projects including this Amendment is still under the amount budgeted in the District's Capital budget.

Agenda Item No. 2, to approve Amendment No. 3, Task Order 17 provides additional budget so that MSA could continue as Project Manager for Water Treatment Plant 2 Intake Equipment Upgrades. Due to delays created by the contractor on the project, the budget approved in Amendment No 2. To Task Order No. 17 was insufficient to cover the extended time needed to complete the project. The fiscal impact of this adds $25,311.00 to the cost of the projects RW-10 and RW-17. 100% of these costs will be recovered from liquated damages collected from the contractor as per the contract. Total cost to complete these projects including this Amendment is still under the amount budgeted in the District's Capital budget. Staff has requested that the amendment be approved prior to the approval of the claims so that final invoices submitted by MSA for payment of Task Order No. 17 can be included in the claims at today's meeting.

ACTION: Commissioner Murphy motioned to approve both MSA Task Order Amendments on the agenda together: (1) Approve Amendment No. 3 to Task Order No. 15 - Water Treatment Plant 1 Interim Improvements with Murray Smith Associates for engineering services in the amount of $12,919.00; and, approve Amendment No. 3 to Task Order No. 17 - Water Treatment Plant 1 Interim Improvements with Murray Smith Associates for engineering services in the amount of $25,311.00. Commissioner McClure second the motion. Motion passed unanimously.

• Approval of the Meeting Minutes and Claims
The Commissioners were presented with the minutes of the regular meeting held November 8, 2011 and the following claims of November 29, 2011.

ACTION: Commissioner McClure motioned to approve the Minutes of November 8, 2011 and the claims of November 29, 2011. Commissioner Murphy second the motion. Motion passed unanimously.

• Chemical Bid Award
The bid opening for Poly Aluminum Chlorhydrate Chemical Supply Contract from January 1-December 31, 2012 was held on Thursday, November 17 at 2:00 p.m. A total of 2 bid packets were distributed to nationwide producers/suppliers of water treatment chemicals and two bid proposals were submitted. The results of the bids are as follows:

Unit Prices include Washington State sales tax and shipping; including all costs associated with the delivery of the material including, but not limited to, labor, taxes, insurance, fuel and/or fuel surcharge.

All submittals required for the proposals, non-collusion affidavit and addendum acknowledgement were completed as well as the inclusion of the product Material Safety Data Sheets. Holden said these chemicals are from a different supplier than the District has used in the past. Disch said Thatcher has provided totes of the chemical to test in actual river conditions at both plants and feels confident in its performance and added it is almost the identical makeup of as what is purchased from Summit Research Labs.

There is no fiscal impact to the District and results in a reduction in costs of approximately 20% or $36,000 per year.

ACTION: Commissioner McClure motioned to approve the Poly Aluminum Chlorhydrate (Water Treatment) Chemical Supply Contract to Thatcher Company of Montana. The bids were opened on November 17, 2011 at 2:00 PM with the bid price for each chemical quoted at $0.320 per pound for the period from January 1, 2012 through December 31, 2012. Commissioner Murphy second the motion. Motion passed unanimously.

• Approve Bargaining Unit Contract for 2012 - 2015
The District has employees represented by the Teamsters Union. The District and the Union have a four-year employment contract that terminates December 31, 2011. The District and the Union have been in negotiation on terms of a new contract for several weeks. Tentative agreement has been reached on a draft contract and the bargaining unit has voted to approve the agreement contingent upon Commission approval.

Jilk said the new contract proposed to be a four-year contract with adjustments in wages and benefits is consistent with regional cost of living adjustments and comparative wages and benefit packages paid. The District surveys local smaller cities and the City of Bellingham. Murphy inquired if the City of Ferndale is used as a comparison. Jilk said yes, although positions/job descriptions are not exactly equivalent as Ferndale's operators handle water and wastewater.

The overall cost for adjustments made under the terms of the contract will be about 3.5% for 2012, which includes wage and benefit costs. The Seattle/Tacoma/Bremerton Consumer Price Index (CPI) that is used by the District for comparison was 3.6% for the period ending August 31, 2011. The direct wage adjustment is 2% each of the four years.

ACTION: Commissioner McClure motioned to approve the Collective Bargaining Unit Agreement between PUD #1 of Whatcom County and Teamsters Union Local 231 for period of January 1, 2012 to December 31, 2015, and authorize the General Manager to sign. Commissioner Murphy second the motion. Motion passed unanimously.

• Public Hearing Regarding the 2012 Draft Operating and Capital Budget and Rates
Commissioner Kenner opened the public hearing for the Draft 2012 Operating and Capital Budget and Rates at 8:15 a.m. Barb Shosten, Finance Director presented the second draft 2012 budget. The first draft 2012 Budget was presented to the Commission on November 8, 2011. The Public Hearing notice was advertised in the Bellingham Herald as per legal requirements.

Changes since the first draft budget:
- Bonds will be issued in late 2013 instead of 2014 for the Raw Water Utility and 2012 for Electric Utility. Projected bond issue amounts are as follows:
-Water bond proceeds will be for $6 million instead of $5 million.
- Electric bond proceeds will be for $1.5 million instead of $2.5 million.
- The 2012 rates per unit for industrial water will remain the same as projected in 2011 - most likely for 2013 and 2014 as well.
-An approximate 9% water rate increase will be needed in 2015 to meet debt coverage of 1.5 (instead of an inflationary increase only). Shosten said this will cover the share of the new operations/maintenance facility and the transmission pole replacement projects. The bond rating agency suggested the 1.5 amount.

Murphy inquired about the bond issuance in 2013 instead of 2014 for the raw water utility. Shosten said 2013 reserve levels were too low and wanted to move it up to meet bond rating agency concerns. Staff has been meetings with MSA have estimated if projects were done ahead of time debt would have to be issued in 2013. Jilk added that the debt is issued with projected capital costs and that rate coverage and reserves are built into the bond issue. In 2012 - 2013, it is estimated that the majority of the projects should be completed. During this timeframe, costs may be lower or cash flow stream lengthened out therefore the increase may not be as much as is now projected.  Click here to view detailed slides from presentation.

Operating Needs (Costs) by Object - Shosten said that water purification costs are down at -6.1% (lower chemical costs for 2012);  Disch added that the upgrades at Plant 1 (new flocculators/mixers) have contributed to efficiency and cost savings;

Shosten provided information to show comparisons to other industrial water providers in the state compared to PUD#1 of the cost of "industrial water" to the customer. Whatcom PUD is the lowest in the association on annual revenue per 1000 gallons water sold. The source of this information was the Washington Public Utility Association (WPUDA) Sourcebook 2010.otal rate increase by fund average is 8.4%.

Raw Water History and Forecast:
-History dating from 2007 shows increases from 6.8% to 12%, then varying from 16% to 14%.
- Forecasts from 2016 to 2035 demonstrate at 23% revenue increase from $8.3 million to $10.4 million ($2.1 million increase).

The final 2012 budget and rates are scheduled to be approved on December 13, 2011.

In regards to future prospects/customers as suggested in prior Commission budget workshops/ meetings, McClure asked that the District establish a minimal fund of $50,000 in the 2012 budget to study future prospects such as new business by working with other local entities such as the Port of Bellingham. Murphy said a recent conversation with Port Commissioner Scott Walker indicated interest in meeting to see what projects the District and Port can collaborate on.

In terms of fitting this $50,000 into the budget, where the funding comes from would depend on the Commissioners decision. McClure suggested he would like to see funding come from the operating budget. Jilk indicated that staff will include this dollar amount in the 2012 budget.

No public comment was made. Kenner then closed the public hearing at 8:43 a.m. .

• Projects Update
Strand presented a slide show, noting before and after photographs of District projects and improvements over the past year. Highlights included:
- Plant 2 Pond Cleaning including new dirt road and gate construction for trucks (20,000 cu yards of sediment removed);
-Plant 1 Pond Sediment Removal;
-Washington Conservation Core (WCC) vegetation management including mowing and hazardous tree removal;
-115 kV Transmission Line Easement mowing;
-Intertie mowing and mulching;
- Old Grandview Fire Pond pump house demolition and spruce-up of existing pump house;
- Driveway to administration office paved and parking lot resealed and striped.

Other Completed Projects:
• Plant 1 roof repair and new flocculators for treatment plant operating efficiency
• Plant 2 new compressors and supporting systems.

Ongoing major projects:
-115 kV transmission line 3-way switch
-Refinery Substation expansion
-Plant 2 upgrades

ACTION: No requested action. Information only.

• Manager's Report
Department of Revenue - Sitkin reported that the WA Department of Revenue settlement was reached in regards to the Alcoa Electric Services revenue and how it was taxed. The District pays a lower interest, non-retail rate on this. The DOR auditors decided that the District should pay a "retail" tax rate on this revenue and the District appealed that decision. An Administrative Law judge agreed with the District and the matter is settled with no further tax owed. Jilk thanked Sitkin, Smith and Shosten for a job well done.

Potelco Change Order - Jilk approved a change order for the Imhof Road 115 kV line project. The change order will cover the added cost for the contractor to remove soil taken from drilling holes to place new transmission poles on this project. In the original project contract the District did not require it but now Whatcom County has indicated that it needs to be removed from the site. Potelco, the contractor, will remove the soil as per the Change Order. The amount is less than $5,000 and is within the General Manager's delegation authority for approval.

• There being no further business for the regular meeting, the Commission adjourned the regular meeting at 9:05 a.m. to an Executive Session for the General Manager's evaluation. No action is expected to be taken afterwards.

• The Executive Session adjourned at 10:04 a.m. and there being no further business for the regular meeting, the Commission adjourned the regular meeting at 10:05 a.m.

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