January 10, 2012

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; 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; 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 and Nate Hardy, Murray, Smith and Associates; and Jim Oakley, Energy Northwest.

• Public Comment
No comments made.

• Approval of the Meeting Minutes and Claims
The Commissioners were presented with the minutes of the regular meeting held December 20, 2011 and the following claims of January 10, 2012.

• Energy Northwest - Jim Oakley
Oakley is the Senior Member Relations Representative for Energy Northwest (ENW). Highlights from the update include:

Columbia Generating Station
Columbia had its longest run on record: 505 days. The recent shutdown for refueling and routine maintenance lasted longer than planned. With the additional downtime, maintenance scheduled to be performed in 2013 was moved up and completed in this shutdown. Condensers were changed out as well. In combination with all maintenance performed, Columbia has increased generation by 20 megawatts. The Nuclear Regulatory Commission made routine inspections and none of which were safety related. Every safety related requirement has been met and Columbia ranks in the top 20% in the nation. Columbia's license renewal expires in 2023 and Energy Northwest is seeking to add 20 years to the term.

Packwood Dam
The BPA filed an economic dispatch data violation against Packwood. The BPA has temporarily rescinded the fines to review/compare their own data information against Packwood's on the dispatch. The dam went offline in October for maintenance and no major projects were scheduled during the outage. Two fish biologist were hired to capture over 1300 salmon and trout that were stranded by the shut down and then released into the Cowlitz River.

Nine Canyon Wind Farm
Gearbox equipment purchased from Siemens has been experiencing failures due to a design flaw. The equipment is being repaired by Siemens as breakdowns occur.

Jilk inquired about the potential BPA fine on Packwood. Oakley said it is due to "too much power" on the system. These fines are mainly geared towards wind farms and the ability to balance the grid. BPA claims that Packwood did not shut down fast enough but data from Energy NW shows was compliant. Storms come in from the coast and affect wind farms in the Gorge or Snoqualmie Pass and affect the Kittitas wind farm. Winds are generally not as strong by the time they reach Nine Canyon near the Tri-Cities, thus reducing the need to power down.

Commissioner McClure inquired about Radar Ridge wind farm on the coast. Oakley said due to issues on permitting, environmental impacts and study regarding possible endangerment to birdlife, U.S. Fish and Wildlife would only grant a five year operating permit. Financing would be practically unobtainable for such a minimal permit and Energy Northwest has opted to end the project.

Commissioner Murphy mentioned the anerobic digester coming to Whatcom County and inquired about possible partnering with ENW on the project and who he should talk to about it. Oakley suggested Jack Baker and said he would mention the interest and possibly have Baker attend a future Commission meeting.

Commission President Murphy thanked Oakley for the update.

ACTION: For information only. No action requested of the Commission.

• Approve Retirement of Renewable Energy Certificates (WREGIS Account)
Background - The District began purchasing wind generated energy from BPA several years ago. The amount of energy purchased annually was a small percentage of the total amount of power the District purchased to meet its customer's and water plants' electric load requirements. The power, because of its deemed environmental attributes due to its renewable energy source, was purchased from BPA at a unit price premium above the basic preference rate charged for power form BPA's federal system.

As a result of an amendment to the BPA standard power purchase agreement entered into by the District, BPA provided the District with Renewable Energy Certificates (RECs) associated with the wind power product purchased by the District. The District could then bank these RECs with the Western Renewable Energy Generation Information System organization (WREGIS). The District has had three basic options for dealing with the RECs it received from BPA and deposited with WREGIS.

1. Retire the RECs banked with WREGIS, so that they would be counted as part of the District's power supply portfolio. Under this scenario, the District could claim that (x) percent of its power supply was from deemed "green" or "new renewable" energy resources.
2. Sell the RECs received to the highest bidder and use the funds received to offset electric system expenses.
3. Trade the RECs for comparable value received. For example, sell the RECs to a power producer, who would supply a negotiated amount of actual power at a future date.

In July 2009, the Commission approved Resolution No. 597, authorizing the General Manager to exercise options (2) or (3) above, without seeking Commission approval first. The one caveat to this authority was that the General Manager must obtain Commission approval prior to selling any RECs at a unit price less than the original purchase price. Retiring the RECs could only be accomplished through approval of the Commission.

Commissioner McClure inquired if there is a downside to holding on to the RECs. Walters said that the market is oversaturated. The major factors depressing the market have been the general economic downturn; politics regarding RECs in California, and an over abundance of RECs available from large scale Northwest wind projects. The market for RECs has never fully developed as originally anticipated. The District has not purchased RECs since September 30, 2011 and does not anticipate purchasing any renewable energy from BPA in the near future that would have associated RECs.

Maricle added that most RECs were at no direct cost to public utility districts and came in as an offset from BPA for conservation rate credits.

Walters said that membership in WREGIS costs the District $1,500 per year. Washington State legislation requires electric utilities with 26,000 customers or more to buy renewable energy or renewable energy credits (RECs) in a prescribed amount. This would exclude the District from that requirement. Utilities like Puget Sound Energy market the "green power" directly to their customers. In the California market, up to 30% of a regulated utility's power portfolio has to be renewable energy. These utilities can only take a certain percentage as un-bundled RECs from suppliers outside of California. It is a very uncertain renewable energy market and complicated. In the past, California utilities had been buying un-bundled RECs from out of state suppliers, then meeting their power needs with purchasing from coal plants in Utah and Nevada. The Northwest does not have enough transmission capacity to move all the renewable energy generated locally to the California market.

Oakley added that natural gas is ruling the industry and basically sets the price for power except during the spring runoff when hydroelectric is factored in.

District staff recommends retiring the RECs in the WREGIS account and closing the account to further activity. Under another amendment to the District's power purchase agreement with BPA, BPA has set-up a sub-account, so that if any power purchased by the District from BPA in the future has RECs associated with it, then BPA will deposit them in the sub-account and market them on the District's behalf. Therefore, there is no need for the District to maintain a separate account. Any revenues received by BPA will be credited against the District's power purchases less BPA marketing fees.

Retirement of RECs in the WREGIS account has no financial impact on the District's 2012 budget.

ACTION: Commissioner Kenner motioned to approve the Retirement of the Renewable Energy Credits in the District's WREGIS account. Commissioner McClure second the motion. Motion passed unanimously.

• Approve Declaration of Emergency for Work to Repair Whitehorn Raw Water Supply Line
On Thursday afternoon, January 5, passersby noticed water flowing from the ground along Aldergrove road and contacted the BP Refinery. Staff at the Refinery contacted PSE at Whitehorn and District staff. District staff responded and determined that the problem was a probable leak in the Whitehorn water supply line buried in road right of way near the intersection of Aldergrove and Jackson Roads. This line which provides water to PSE's Whitehorn combustion turbine generation plant is a ten inch ductile iron pipe that was installed in conjunction with the construction of the generating facility in the 1979-81 timeframe. The line connects to the District's twenty-four inch water transmission main on the north side of Aldergrove Road, prior to where the District's line passes under the railroad tracks then enters "D" Station, which serves the BP Refinery. In order to address the problem, staff had to locate and turn off the valve that controlled water flow through the Whitehorn line. Staff coordinated with PSE staff at Whitehorn, since water flow had to be terminated. Fortunately, the Whitehorn plant was not operating at the time.

Staff had two issues to deal with that required immediate action. First, if PSE needed the Whitehorn plant on-line, there wouldn't be any water supply, other than what on-site storage was available. Second, the water flow from the leak was in close proximity to the BP storm water drainage system and BP's petroleum pipelines running from the Refinery to the BP pier.

Due to the above factors, staff responded quickly to contact a contractor on the District's small works roster and had them begin work Wednesday afternoon. The repair was completed on Friday and water supply to Whitehorn was restored. Ten to 12 feet of pipe was replaced but potentially the whole line, approximately one mile in length may need replacement. Walters said fortunately the PSE plant is operated very sporadically. Disch added that the main issue of repair is going under the BP petroleum lines which run 12 or more feet deep. There is no cathodic protection on the line that leaked, only black poly wrap. Due to these circumstances, staff recommends that the Commission declare the event that occurred on Thursday, January 5 to be an Emergency, requiring emergency response. Given the amount of corrosion found in the section of pipe replaced, staff will coordinate with PSE in developing a plan for upgrading or replacing the Whitehorn line.

Jilk said staff will determine ownership of the line, responsibility of repair and consider moving the meter closer to the District line and then add it to the SCADA system. Currently the meter is manually read. The distance between the leak and connection to the District's line is about one-quarter of a mile.

The cost of the repair will not impact the 2012 budget and will be expensed to maintenance. The District will seek reimbursement for the cost of the repair work, including materials, from PSE.

ACTION: Commissioner Kenner motioned to approve a Declaration of Emergency for the contractor work required to repair the Point Whitehorn raw water supply line. Commissioner McClure second the motion.

• Manager's Report
EDI Funding Requests
Jilk had the opportunity to meet with the new County Executive in regards to the District's EDI funding requests on water supply planning and Mt. Baker Foothills/East County broadband project. Executive Louws indicated he will do what he can to support these projects.

Mt. Baker Foothills/East County Broadband Project
NoaNet reports that the "updated" project is currently being reviewed by the National Telecommunications and Information Advisory Committee (NTIA).

2012 Work Plan Workshop
Commissioner Murphy inquired if a date has been established for this year's work plan workshop. Jilk said the workshop is pending individual comments/direction from the Commissioners first. Jilk provided the initial general work plan and has requested individual meetings with the Commissioners to gather input and then combine the information for one workshop as a joint platform. Murphy suggested that the group meet as a whole to go over the initial plan. McClure indicated the individual meetings give way for more preparation time for the full Commission work session as an advantage for one-on-one time. Commissioners will establish meeting times with the General Manager.

• Executive Session
Commissioner Murphy requested an Executive Session to discuss water contract litigation to last approximately 15 minutes. Action may be taken afterwards.

There being no further business for the regular meeting, the Commission adjourned to Executive Session at 8:55 a.m. Legal Counsel was present.

The Commission reconvened the regular meeting at 9:19 a.m.

ACTION: Commissioner McClure motioned to approve the settlement of reimbursement request from the City of Ferndale in the amount of $14,204.73. Commissioner Kenner second the motion. Motion unanimously passed.

• There being no further business for the regular meeting, the Commission adjourned the regular meeting at 9:25 a.m.

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