Ad Hoc Committee
October 23, 2007
Attendees:
Douglas Athas, Chairman
Laura Perkins Cox, Committee Member
Rick Williams, Committee Member
UAB Members:
Lowell Hyatt
Wayne Dalton
Michael Pentecost
Staff:
Ray Schwertner
Kathy Cumbie
Brad Neighbor
1. Chairman Douglas Athas called the Meeting to order at 5:39 p.m.
2. Approval of the minutes from September 25, 2007 as amended.
Motion made to approve the Minutes by Laura Perkins Cox. All were in favor and the minutes were approved and signed.
3. Discussion of board structures for electric utilities.
Received input from UAB board members to Ad Hoc Committee: will report in November at work session. Wayne Dalton read comments into record for Ad Hoc committee. (See attachment 1.)
UAB members commented.
Lowell Hyatt: keep in mind, to have a strong UAB board would really be the same thing as setting up an autonomous board which in effect you go the route of developing a strong advisory board, then you are at the position to keep it as an advisory board. You do not have to make a decision now. Take a year and use that time to make a decision.
Wayne Dalton: making it clear that we are really pulling the plug on the UAB. We would not have a board that meets, not talking about the GP&L board, talking about the other utilities; it would be a duplication of efforts. If it has to go to the Council, why go to the UAB first and waste all this staff time?
Michael Pentecost: upcoming market changes, significant improvements for Ray to buy more than pads and pencils. Rarely does a CEO have to meet with board members to make crucial decisions. The board as I see it would be a benefit as a sounding board. Concern is that whoever in the decision making circle has the authority to do so and have confidence in the individual running GP&L to make the decisions. Board would be to bounce suggestions off of, another set of eyes, real benefit. I don’t know if there is any real benefit if we transition at all away from the Council having authority overall; my concern is that if we gravitate to a semi-autonomous board that does not have to answer to the City of Garland.
Wayne Dalton: Council would still have oversight on budget, day to day operations trying to give more freedom to GP&L management. Board would not interact on day to day activities where the trigger has to be pulled quickly.
Rick Williams: no reason for a separate board for the water/wastewater group? You did not see any value in having them come to the board?
Wayne Dalton: suggesting that they go straight to Council rather than thru the board; no changes in past years.
Lowell Hyatt: never saw any changes made in the past; that doesn’t mean that they (other COG utilities) may become a sounding board or changes may come that require decision making prior to council, could be handled on a case by case basis. Real benefits would be that the board would have the credibility that he (Ray) needs, a sounding board for him but also a sounding board for Council.
Perkie Cox: Lowell weren’t you at the USC meeting where drawing was on board, that complicated structure that Randall drew. Nobody followed it. I think that we all agree that the USC/UAB meeting structure is not working. Consensus is that everyone believes that a professional board would be of great benefit. I don’t see that that is such an issue.
Douglas Athas referred to documents that were shared with USC, are confidential, and gave GP&L more control over their expenditures, subsequent study arrangements with other departments. Doug referenced a spreadsheet over all the utilities, Water, Sanitation, Wastewater – percentage of the total revenue each utility is being transferred back to general fund “in lieu of taxes”; suggestions in that study are suggestion each area might be able to manage themselves a little better. If they could be paralleled, would you all still want to separate the utilities if this happened?
Wayne: If you are saying the other utilities with a professional board; not contemplated by the UAB members with the other utilities on the back board, believing that the focus was on GP&L.
Douglas: Bryan’s presentation is electric only. Lubbock is all, but is the exception rather than the rule.
Lowell: One of the things I think we are missing is what are the problems that GP&L is encountering; not a good idea/handle on what are the things that are getting in the way of the GP&L operation; can it be fixed in house? What is getting in the way today and for tomorrow? But if you decide to go with the other, some time to get a handle on it.
Douglas: From my perspective, in a lot of ways, most concise information delivered in the case study. Looking through there at the problems they identified back in 2001 and still exist today. They talked then about being able to move fast. A number of areas were concerned then during pre-nodal days. RW Beck study emphasized that also; setting up a utility that can function quickly rather than taking 3 months on a decision that should be made overnight. Mentioned was a procurement process; GP&L could go to the ACM, ACM would go to whoever was over procurement. Operate a business, to me the analogy, can’t touch any of the levers, you have to ask to turn those levers for you.
Rick: Ray do you feel like the way GP&L is currently structured that you are bogged down, not able to make decisions fast because you don’t have an independent board? Do you feel like those are serious problems or do you feel like you can go to Bill Dollar and he will understand it and work with you?
Ray: Not here long enough to say exactly, some areas you could do better, some areas could do worse. Not a fix that works perfectly with the Council or one that works perfectly for the management of GP&L and one that works for COG that ensures that their assets are performing correctly. Inherently some conflicts, advantages and disadvantages and recognize them, the reality is that there is no quick fix. What I think, from experience, what you get with a board of professionalism, is having the ability to spend the time with a group of people committed to spending the time on their part is the ability to understand new markets, regulation in our business, that we cannot adequately do when standing before the council. I could take a year and still not help the council understand all the pros, cons and challenges we encounter. But if you start the process, with some authority, you begin to have this communication of understanding. Opportunities present themselves, the time to analyze that opportunity is much shorter because you know the parameters of the market/players, constraints, rights, and privileges. I can’t sit down with you as a council and spend the time it would take to get you to the level where we would speed up the process. The question is if it is important to speed those things up because the window of opportunity does not wait. 90% of our business is done over the phone prior to 8 a.m. everyday; must be able to understand the day to day operations. Talking about it says to you that nothing is broken but we can make improvements, more complicated as director of GP&L with trust to make our decisions. You say, “Okay Ray we trust you and we will just have to use our trust period to make the decision”; there needs to be more information and understanding of all that is going on with us.
Rick: making the case for a more professional group, we should have a group of citizens that are knowledgeable enough; job as advisory board is to know if any thing you bring is off course.
Perkie: are we talking about a professional utility advisory board or are we talking about a board of directors for GP&L?
Ray: Board needs to feel that they have a value; not feel their time is not utilized or ignored, council can convey maybe slowly or over time certain authority to take certain kinds of action. One of the other problems, I think, in typical government and the reason more utilities have gone to a professional board with more governance is because there is more continuity on the boards, longer terms engaged and focused over a longer period of time. Working on CIP and O&M budget one council leaves and another comes in, better if you have some stability in the utility board because again they are going to be your experts over time and so it takes some of the politics out and gives them a longer term.
Perkie and Rick: We can deal with that.
Douglas: Let me ask some basic questions and start tapering down discussion. That we should have a UAB, whatever that means, as an independent or as now as an advisory and a USC – do you feel that like that there should be some advisory function or do away with it and put all the power in the council?
Perkie: I think that it is valuable to have citizen input in a professional board; as I wrote in my paper here the USC can go away. I think the UAB is the way to go.
Rick and Douglas agree to go the UAB way.
Douglas: General consensus is to focus on UAB whatever structure that should be; that it should be professional. All USC agree to a professional board; maybe a council liaison and TMPA member. Focus our attention on UAB whether it includes only electric or all utilities. So within these parameters what do you want to talk about?
Michael: Are we ready to talk numbers?
Douglas: Let’s talk about that, the makeup of the board, not political appointments.
Perkie Cox: Would like to see them nominated and voted on by the council.
Rick: Understand that a suggestion was made to include the two representatives from TMPA.
Wayne: The TMPA was discussed and pretty well accepted. But we made the decision not to discuss the make-up.
Douglas: What would your suggestions be for the number on the perfect board?
Perkie: A working board – number of 5;
Rick: (7) and Larry (9).
Cox will go 7 with TMPA members involved.
Douglas: these are suggestions not votes. If there was a path to an autonomous board, we cannot recommend what that path would be but I have not heard a consensus to go that way. What would be the perfect advisory board, let’s look at it today. Make effective as possible – I as a council member would not be a very good as a council member as a director over GP&L and I don’t see anyone that has ever had the time to do both. There has to be a board that can give good professional advice.
Rick: a board having enough expertise knowledge that when Ray says this is the way to go, they would say go with it. I don’t see this board giving operational or management advice to GP&L.
Douglas: one of the things that it said in this report was that GP&L should have a corporate structure.
Perkie: They have some responsibilities that TXU does not have; they are playing with the citizen’s money not the investor’s money.
Lowell: TXU does not have a CEO reporting to a CEO; Bill Dollar would be the CEO, Ray would not be accountable.
Douglas: It will never be a TXU. Bryan and others with autonomous boards have done that.
Perkie: It wasn’t very pretty in Greenville; privatized the utility at the city at Bryan.
Ray: Bryan made a decision that their utility is going to be the most competitive utility that it can be; when you make that decision you have a different strategy. What is the goal? Do you want to be very competitive, one where you don’t have the citizens coming in asking about other utilities? Electric rates are under 9 cents in Bryan and our rates are over 11 cents, sometimes 12 cents. Is the goal or role today to be as competitive as possible? I think our goal today is to be as competitive as can be but meet the City’s needs. A board does not solve that. What is your expectation or goal going forward? If you want us to sell to our customers for less than 9 cents, and be competitive to BTU, then you will have to take a path similar to BTU. Look at all costs, bid them out, go to Brad, and really based on what do you want GP&L to do. I’m trying to do the best job I can, Brad is trying to do the best job he can, and the City is trying to do the best job they can; sometimes ends in an impasse.
Perkie: Part of what will start that discussion is a crisis.
Douglas: Running a good business is setting strategy to avoid a crisis.
Perkie: True but the problem with Nodal is that we don’t know and we have already had some things articulated to us. I think there are other goals.
Douglas: Our citizens want GP&L to be competitive; better than San Antonio. My concern is that this is something coming and we are not reflexive enough to do it.
Perkie: We need to have a process that works without changing the governance of GP&L.
Ray: Good business practices, organizationally we are in pretty good shape. Are we going to beef up more internally in marketing, a deal which covers us over time or a real time deal.
Douglas: what are our goals?
1. Competitiveness
2. Nodal responsiveness
3. Investment Return
Committee members held general discussion on competitive rates.
GP&L customers benefit from transfers to other departments. TXU customers pay franchise fees. If you wanted to change it how would you change it? Regulated rate of return there is the possibility in the future. Paper talks about strategies for GP&L to be competitive in other ways; all which points to an independent board. Try to beef up more internally or do a deal that covers us over term or more real time, an investment return – part to fund economic. Money coming out of different utilities; water dept $400.000.00
Rick: goal is what? Transfer benefit, lowest rates, etc. Consider ways for GP&L to delete debt. Ray expects that TXU wires will be for sale within 3 years.
Brad: Right direction to eliminate USC; if you go towards an autonomous electric board there are a lot of different ways to make it work. Bryan, two are citizens, one residential, and one a retail; say with a Plastipak or Kraft person on board. Make long term without a lot of turnover, less turmoil and people with electrical background to bring continuity to this board with no term limits. Correct that to short term limits.
Douglas: any other goals that you think GP&L needs? Any thoughts can be added later. Let’s look at numbers of members. Might have a TMPA (1-2), a council presence, an ex-officio, professionally – a commercial user, a residential user, two professional (banking, finance, accounting, marketing), industry (3) generation, production, distribution, transmission, marketing)
TMPA (1-2)
Council (Ex-officio)
Residential (1)
Commercial (1)
Professional (2) (banking, finance, accounting, marketing)
Industrial (3) (transmission, generation, distribution, marketing)
Douglas would like to flip flop professional and industrial numbers; uncomfortable as is. Perkie and Rick okay with way it is. Rick wants more expertise on the board; believes there will be plenty of residential presence. Rick recommends two TMPA members.
Lowell: A question for you, if this board is to be a sounding board for the residents; feed back to citizens; don’t have the individuals there that can speak as the common person, citizens’ role model to speak back to them.
Douglas: All require that they live in the service area; so you have 2 to 3 professionals that are citizens.
Perkie: Does service area include those under the Olinger wires?
Ray: We also serve Farmersville, Caprock and others as wholesalers.
General discussion on having TMPA employees on board:
Douglas: Brad, is it a conflict of interest to have TMPA on this board?
Brad: TMPA has a duty to TMPA so it is conceivable. There could be a conflict.
Lowell: We have had a member of TMPA on the board, it is past history but we have had.
Ray: GP&L owns 47% of TMPA. Should be on board to represent Garland’s interest; TMPA has no rights to know our overall strategy; can’t see where there could be a conflict.
Perkie: whose interest is paramount?
Douglas: Bryan sued TMPA, don’t know when we might sue TMPA.
Brad: There could be situations where you would have to exclude TMPA members; you cannot serve 2 masters.
Ray: Did Bryan have the board when they sued?
Brad: We had to deal with the same thing.
Douglas: Potential conflicts that might arise; use sister cities as an example, use TMPA and bump up to 9, can exclude them if there is a conflict. Sister cities do not see it as a problem. You can exclude them when there is a conflict of interest.
Rick: Agrees to the 9 with TMPA representation.
Perkie: Disagrees to having TMPA representation.
Douglas: Has reservations, trust current ones; would not want to put them in conflict. We will strike them from the numbers to make up committee.
Rick: Agreed to strike them and not mention them to council.
Perkie: Agreed to strike them and not mention them to council.
Douglas: Ex-officio member.
Rick: Not wild about ex-officio member.
Perkie: Agreed to strike ex-officio member; if council wants information, can show up at board meeting.
The two TMPA members and the ex-officio member were removed from the proposal.
Douglas: Looking at this, much like what Bryan has; narrowed down choices and close to recommendation. To get to where we need to be sometime in the future, we need to get to a totally independent autonomous board; if we were to go this route would have to be well defined, 9 to 12 months to get there and more community discussion. Not continuing the committee meeting to define this. I would like to make a suggestion to put it to the citizens as a vote on the ballot.
Rick: What is our goal, I don’t think our goal is the cheapest rates.
Douglas: But lean as possible.
Rick: Setting up a natural conflict and I don’t believe an autonomous board understands the City as well. The goal is to support the city and competitive rates as well as City Manager and top executives; not convinced setting up an autonomous board that may generate friction. Have reliability, good rates, - don’t head that way
Perkie: I think Council works and making strides to identify and meet the challenges, we are more accountable.
Douglas: The time we spend on GP&L matters is so little and we can’t be good governors spending so little time as we spend.
Perkie: If we can have a stronger UAB, would help us.
Rick: That is why we have Ray to run the company regardless of how much time spent with me to educate me; board needs to be educated enough to understand Ray and what he says. I think this board needs to give advice.
Douglas: I think you are missing a key component; when you are in management you are carrying all the responsibility. No one wants to be in that situation, wants to spread it out a little.
Ray: I think this group of folks will get comfortable with goals, tracking, and strategy that does create some additional comfort and is monitoring while developing more accounting within our own systems; don’t know if who makes the decision makes it more comfortable, it’s whether or not the decision has merit.
Douglas: Don’t go that way for now. Let’s look at something that will satisfy some of the problems that we have had in the past. We should give you more responsibility with Council as final decision. From the reports we can create a list of things from other cities that we can use. Do we want to discuss powers tonight?
Perkie: Do not want to discuss powers tonight.
Wayne: May be able to use revised bylaws from this previous year.
Rick: We could assign this to the UAB members.
Ray: Other than the ones we gave earlier, do not have anything else at this time. Council decides on the goals, UAB review the strategies that the goal is achievable and reviews the performance to determine if strategy worked and goals were met. The council as the board sets the goal; measure the performance.
Brad: Can borrow from the list the other cities have; for example, Bryan does not do transfers, budget, eminent domain, use structure of what others are doing. For example some charter issues if Ray wanted to buy/sell a piece of property – does council really want to be involved? Could give that capacity to the UAB and council does not have to be troubled with the details?
Rick: Give some thought to it and give to UAB the functions; can’t decide tonight.
Douglas: Not finished but narrowed it down to where we want it to be; a list of powers to UAB and look at other cities, make deadline, set next meeting.
Next meeting date: Tuesday October 30 at 5:30 p.m.
Perkie Cox moved to adjourn at 7:24 p.m.
4. Adjourned
Chairman Athas adjourned the meeting at 7:24 p.m.
Submitted by: Kathy Cumbie on 10/25/07
Approved by: Douglas Athas on 10/30/07