MINUTES OF THE REGULAR MEETING

8. Resolution – Charles Lipsky

Vice Chairman Townsend read a resolution thanking Mr. Lipsky for his nearly four decades of service to the Authority. Chairman McCullough presented Mr. Lipsky with a framed copy of the resolution, adding that all of the Trustees wished Mr. Lipsky and his wife the very best. He also said that he expected to see Mr. Lipsky around the Authority’s offices on a frequent basis. President Carey said that Mr. Lipsky would be staying on at the Authority as a consultant. Mr. Lipsky said that he was absolutely honored and elated by the resolution, since he’d seen in the past that such resolutions are given only to special people. He thanked everyone for their good wishes.

WHEREAS, Charles I. Lipsky left a lasting legacy of service and accomplishment during an extraordinary career of nearly 37 years at the New York Power Authority, a period of significant growth for the Authority and profound change in the electric utility industry; and

WHEREAS, Mr. Lipsky’s tenure of more than 18 years as Chief Engineer of the Power Authority stands as the record for longevity among the select group of engineers who have held that critical post; and

WHEREAS, Mr. Lipsky brought to this assignment an unparalleled ability to respond quickly and insightfully to the most complex of engineering challenges; to master both the theoretical and the practical; and to absorb and integrate the principles and concepts of diverse engineering disciplines, thereby earning the professional and personal respect of colleagues at the Authority and beyond; and

WHEREAS, after beginning his career at Niagara Mohawk, Mr. Lipsky joined the Power Authority staff as an assistant electrical engineer at the Niagara Project and went on to become Superintendent of Power at Blenheim-Gilboa and at Niagara, acquiring an intimate knowledge of the power system that was to prove invaluable in his role as Vice President and Chief Engineer; and

WHEREAS, by setting design standards and criteria and overseeing other crucial engineering functions, he put his personal stamp on a succession of vital Power Authority initiatives, ranging from the Sound Cable Project and the Flynn Plant to the small, clean power plants, the 500-megawatt combined-cycle plant, and improvements at the hydroelectric projects that will ensure their efficient operation for years to come; and

WHEREAS, through his key part in implementation of a Maintenance Management System and similar efforts, he helped to prepare the Authority for the coming of competition to the power industry; and

WHEREAS, Mr. Lipsky’s technical prowess was matched only by his abiding commitment to teaching and learning—and to his trademark office blackboard; by his calm and confident response to all problems large and small; and by his manifest concern for the wellbeing and professional growth of the members of his staff; and

WHEREAS, Mr. Lipsky contributed significantly to the Power Authority’s standing in the industry, both through his prominent positions in such organizations as the Electric Power Research Institute and Hydro Review magazine and through the high national rankings attained by the Authority’s engineering functions under his leadership; and

WHEREAS, Mr. Lipsky has retired from the Power Authority after nearly four decades in which his singular talents and expertise have brought immense benefit to the Authority and the people of New York State;

NOW THEREFORE BE IT RESOLVED, That the Trustees of the Power Authority of the State of New York express their thanks and admiration to Charlie Lipsky for his many achievements and convey to him; his wife, Carol; and their children and grandchildren sincere wishes for a healthy, happy and rewarding future.

June 27, 2006

9. Informational Item: Disposal of B-G Step-Up Transformer

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The four Brown Boveri Corp. step-up transformers at the Blenheim-Gilboa pumped storage power plant (‘B-G’) will be replaced, starting in 2006, with new transformers from Hyundai pursuant to a contract awarded as a result of competitive bidding. The replaced transformers, which may contain small amounts of PCBs, must be disposed of in accordance with the requirements of the Authority’s Environmental Department. Such disposal must also be in accordance with the Authority’s ‘Guidelines and Procedures for Disposal of Personal Property,’ (‘Guidelines’), which were approved by the Trustees at their meeting of March 28, 2006, and comply with the Public Authorities Accountability Act.

BACKGROUND

“The original Brown Boveri step-up transformers were fabricated in 1972 and were installed when the B-G plant was constructed. A new transformer will be installed in each of the next four years, beginning in 2006, as part of the Life Extension and Modernization Program at B-G. The first transformer is currently scheduled to be replaced in August 2006.

DISCUSSION

“The Authority had two options for disposing of this transformer: (1) selling it to a utility or qualified power organization or (2) having an Authority-qualified firm dispose of it in accordance with the Environmental Department’s disposal requirements. In accordance with the Authority’s Guidelines, both of these options were pursued on a parallel path. The potential sale of the transformer was advertised in a major trade publication, The Engineering News Record, on the New York State Office of General Services’ eBay website and through an industry inventory-sharing consortium called ‘RAPIDS.’ Proposals were also requested from the two firms currently qualified by the Authority to dispose of the transformer: Clean Harbors of Twinsburg, Ohio, and TCI of Hudson, New York.

“The result of these efforts was a high bid from TCI for a payment to the Authority of $165,000, taking into account both the costs of disposal and the salvage value of metals, particularly copper, which have peaked. TCI will also meet all of the environmental requirements for disposal of both the transformer materials and oil. This is an outstanding result considering that the cost to the Authority to dispose of the existing transformer, quoted by Hyundai as the supplier of the new transformers, was $60,000.

“This positive result came about because of the collaborative efforts of staff from Project Management, the Environmental Department and Procurement.”

President Carey said that he requested that this be put on the agenda as an informational item because he wanted to show the Trustees how Authority staff is doing creative things to achieve the Trustees’ program goals. Mr. Hoff said that this had truly been a team effort involving Mr. Antenucci and the Project Management staff; Mr. Slade and the Environmental staff, as well as Procurement staff. He then presented the highlights of staff’s report to the Trustees. Chairman McCullough said that taking a potential expense of $60,000 and turning it into a gain of $165,000 represented a turnaround of $225,000. He commended all of the staff involved.

10. Funding for Energy Efficiency Measures and Fuel Cells at the Port Authority of New York and New Jersey Freedom Tower Building

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize up to $30 million to finance the installation of state-of-the-art energy efficiency measures and natural gas-powered fuel cells at the Port Authority of New York and New Jersey’s (‘Port Authority’s’) to-be-constructed Freedom Tower building in lower Manhattan. All costs of financing these measures will be recovered from the Port Authority, a New York City Governmental Customer of the Power Authority.

BACKGROUND

“The Port Authority, which has facilities in New York City served by the Power Authority, recently executed a long-term supplemental agreement governing the supply of electricity to be provided by the Power Authority (the ‘Long Term Agreement’). The Long Term Agreement includes a minimum commitment of $7.45 million in annual financing to be provided by the Power Authority to fund energy efficiency and clean energy projects at Port Authority facilities in New York City.

“The Port Authority has asked the Power Authority to provide financing to cover the incremental cost of various energy efficiency and clean energy measures. These incremental costs would be the difference in costs necessary to bring the Freedom Tower to a higher level of energy efficiency than would be realized under a more standard Code design, as discussed below. Among the measures is the purchase of up to 1.2 MW of fuel cell capacity to be installed at the Freedom Tower site now under construction at the former World Trade Center location. The design parameters of the Freedom Tower are not fully developed at this time, but it is anticipated that the requested work scope can be completed for $30 million.

DISCUSSION

“While there is existing program authority to proceed with this work, both the size and scope of the proposed conservation and clean energy measures, as well as the fact that this is an endeavor of national significance, make it appropriate for the Trustees to provide their specific approval. By financing the incremental cost of high-efficiency options to be installed at the Freedom Tower site, including the cost of fuel cells to be installed as part of this project, the Power Authority would provide a value-added service to the Port Authority that would assist the Port Authority in achieving an overall building energy performance that is at least 20% more efficient than that required by the New York State Energy Conservation Construction Code. In addition, inclusion of the energy-efficient measures, including the on-site generation options (fuel cells), will allow the Freedom Tower to achieve a U.S. Green Building Council (‘USGBC’) rating of Leadership in Energy and Environmental Design (‘LEED’) Gold. LEED is USGBC’s current standard for energy-efficient or ‘green’ buildings.

“The Power Authority will provide funding to finance the incremental cost of state-of-the-art energy efficiency measures to be installed at the Freedom Tower. It is anticipated that the Freedom Tower design will include, but not be limited to, the following premium efficiency measures: high-efficiency air-conditioning equipment, high-efficiency lighting and lighting controls, variable-frequency motors and drives, demand-controlled ventilation and indoor air quality monitoring and control, radiant heating and cooling, high-performance window glazing, increased roof insulation and other energy measures to meet sustainable energy design guidelines. Power Authority funding will also be used to procure up to 1.2 MW of fuel cell capacity to be delivered to the Freedom Tower site for installation and operation by the Port Authority.

FISCAL INFORMATION

“Funding for these energy options will be provided from commercial paper debt financing. The total cost of these options is not expected to exceed $30 million. All Power Authority costs, including the cost of advancing funds and Power Authority overheads, will be recovered consistent with other Energy Services and Technology programs and according to the terms contained in the Long Term Agreement.

RECOMMENDATION

“The Senior Vice President – Energy Services and Technology recommends that the Trustees authorize up to $30 million to finance energy efficiency and clean energy measures, including fuel cells, to be installed at the Port Authority of New York and New Jersey’s Freedom Tower site.

“The Executive Vice President and General Counsel, the Executive Vice President and Chief Financial Officer, the Senior Vice President – Marketing, Economic Development and Supply Planning, the Senior Vice President – Public and Governmental Affairs, the Senior Vice President – Power Generation and I concur in the recommendation.”

Mr. Hackman presented the highlights of staff’s recommendations to the Trustees. In response to a question from Chairman McCullough, President Carey said that, while the Authority’s exposure for this project is $30 million, the Authority is expected to recoup its investment, interest and administrative costs. Responding to a question from Trustee Cusack, Mr. Esposito said it would take 20 years for the Authority to recover its costs for the project. President Carey added that this project is very important to the Governor, everyone at the Authority and the people of New York State. He also pointed out that the Authority is working to make the Rappleyea Building an LEED (“Leadership in Energy and Environmental Design”) rated building, saying that Mr. Esposito’s staff has brought in a team of experts to help accomplish this.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Trustees hereby authorize the expenditure of up to $30 million to finance the incremental cost of energy efficiency and clean energy measures and procurement of natural gas- powered fuel cells for installation at the Port Authority of New York and New Jersey’s Freedom Tower building currently under construction in lower Manhattan; and be it further

RESOLVED, That the expenditures are hereby approved to be committed in accordance with the New York Power Authority’s Expenditure Authorization Procedures for procurement of the above energy-efficiency options in the amount and for the purposes listed below:

Expenditure

Authorization

Commercial Paper Proceeds (not to exceed)

Incremental costs of energy-efficiency $30 million

measures and fuel cell purchases for the

Port Authority of New York and

New Jersey Freedom Tower _________

Total $30 million

AND BE IT FURTHER RESOLVED, That the New York Power Authority’s Commercial Paper Notes, Series 1, Series 2 and Series 3, may be issued and used to finance these costs; and be it further

RESOLVED, That the Senior Vice President – Energy Services and Technology is hereby authorized to enter into agreements with the Port Authority of New York and New Jersey providing for the financing of these costs and fuel cell procurement and the recovery by the Authority of funds expended for this purpose, with such agreement(s) having such terms and conditions as the Senior Vice President – Energy Services and Technology deems necessary or advisable, subject to the approval of the form thereof by the Executive Vice President and General Counsel or his designee; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all certificates, agreements and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

11. Motion to Conduct an Executive Session

“Mr. Chairman, I move that the Authority conduct an Executive Session for the purpose of discussing matters related to threatened, proposed, and pending litigation, as well as matters related to the proposed acquisition and sale of security instruments.” Upon motion moved and seconded, an executive session was held.

12. Motion to Resume Meeting in Open Session

“Mr. Chairman, I move to resume the meeting in Open Session.” Upon motion moved and seconded, the meeting resumed in open session.

13. Niagara Power Project – Authorization of Erie County/City of Buffalo Relicensing Settlement Agreement and Filing of

Supplement to Offer of Settlement

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize the President and Chief Executive Officer (and his designees) to enter into an Erie County/City of Buffalo Relicensing Settlement Agreement (‘ECCBRSA’) with Erie County, the City of Buffalo, the Buffalo Olmstead Parks Conservancy, the Erie Canal Harbor Development Corporation (‘ECHDC’) and the New York State Urban Development Corporation doing business as the Empire State Development Corporation (‘ESDC’), to file with the Federal Energy Regulatory Commission (‘FERC’) a supplement to the Offer of Settlement filed in connection with the relicensing of the Niagara Power Project (‘Project’) on August 19, 2005, and to execute such other documents and take such other action or actions as may be necessary or convenient in connection with the foregoing.

BACKGROUND

“The existing 50-year license issued to the Authority under the Federal Power Act authorizing construction and operation of the Project expires on August 31, 2007. At their meeting of June 28, 2005, the Trustees authorized the President and Chief Executive Officer (and his designees) to file an Application for a New License (‘Application’) with FERC for the Project; to file related applications with the New York State Department of State and the New York State Department of Environmental Conservation and an Offer of Settlement with FERC (‘Offer of Settlement’); to enter into and execute settlement agreements and to execute such other documents and take such other actions as may be necessary or convenient in connection with such actions. The Application was filed with FERC on August 18, 2005, and the Offer of Settlement was filed with FERC the following day.

“The Offer of Settlement included four separate settlement agreements reached by the Authority with parties participating in the Alternative Licensing Process (‘ALP’) commenced by the Authority in 2002 in accordance with FERC regulations. The Relicensing Settlement Agreement Addressing New License Terms and Conditions was executed by the State and federal agencies involved in the relicensing process and by certain public and private entities concerned with ecological issues; the Host Community Relicensing Settlement Agreement Addressing Non-License Terms and Conditions was executed by the Project ‘Host Communities;’[1] the Relicensing Settlement Agreement between the Power Authority of the State of New York and the Tuscarora Nation was executed by the Tuscarora Nation of Indians and the Relicensing Settlement Agreement Addressing Allocation of Niagara Project Power and Energy to Neighboring States was executed by the Authority’s out-of-state hydropower customers.

“At their meeting of May 23, 2006, the Trustees authorized the President and Chief Executive Officer and his designees to enter into a Niagara University Settlement Agreement (‘NURSA’) and to file the same with FERC as a supplement to the Offer of Settlement filed on August 19, 2005. The fully executed NURSA was submitted to FERC on May 26, 2006.

“Further, pursuant to the National Environmental Policy Act, FERC’s action on the Application will be preceded by, and based on, a review of the environmental impacts of the relicensing of the Project, which review will involve preparing both draft and final environmental impact statements.

DISCUSSION

“The Authority owns a parcel of land along the shoreline of the City of Buffalo’s inner harbor and uses the parcel as a storage and maintenance area for the ice boom installed during winter months across the mouth of the Niagara River in accordance with the directives of the International Joint Commission (the ‘Ice Boom Parcel’). Efforts to revitalize the Buffalo waterfront and to enhance tourism and recreational opportunities throughout Erie County received a significant boost through enactment of the Niagara River Greenway Act of 2004. Collaboration between public and non-public entities will be of critical importance as this legislation is implemented, and ESDC and ECHDC, as State-chartered entities, and the Buffalo Olmstead Parks Conservancy (the ‘Conservancy’), as a not-for-profit entity, have already assumed leadership roles in the revitalization and enhancement effort.

“During the course of the ALP, Erie County, the City of Buffalo and the Conservancy identified a number of issues associated with the ice boom and the Authority’s ownership and use of the Ice Boom Parcel. As settlement discussions with these parties progressed, the waterfront development goals of the City of Buffalo and Erie County and the Authority’s continued ownership and use of the Ice Boom Parcel became the predominant feature of these discussions. These discussions eventually grew to include ESDC and ECHDC as participants.

“Erie County, the City of Buffalo, ESDC, ECHDC and the Conservancy have agreed to settle the outstanding issues through the ECCBRSA, which will include the following terms and conditions:

· The parties entering into the ECCBRSA with the Authority will support the Application and the Offer of Settlement as supplemented by the NURSA and the ECCBRSA;

· The Authority will establish an Erie County Greenway Fund to be funded through annual payments of $2 million throughout the term of the new license (representing an estimated net present value in 2007 dollars of $32,359,289);

· The Authority will establish a Buffalo Waterfront Development Fund to be funded in the minimum amount of $2.5 million annually, at least 60% of which ($1.5 million in the first year) will represent the monetized ‘net value’ of five megawatts of firm hydropower (i.e., the difference between the Authority’s cost-based rate for Project power and energy and the prevailing wholesale market price established by the New York Independent System Operator – representing an estimated net present value in 2007 dollars of $40,449,113);

· The Authority will make annual payments of $1,000,000 to ESDC for certain future economic development programs (representing an estimated net present value in 2007 dollars of $16,179,645);

· The Authority agrees to pay two $2 million payments, one in 2006 and one in 2007, to support waterfront revitalization and development activities;

· The Authority will undertake a feasibility study regarding replacement of the Ice Boom Parcel with a suitable replacement parcel and, assuming such parcel is identified and the ice boom is in fact relocated, will make the Ice Boom Parcel available for development; and

· As is the case with all of the Authority’s relicensing settlement agreements, the obligations of the Authority pursuant to the ECCBRSA, with the exception of the $4 million to support waterfront revitalization and development activities, are contingent upon the issuance by FERC of a license fully consistent with the application and Offer of Settlement, both of which call for, among other things, issuance of a new license for a term of 50 years.

The ECCBRSA has been executed by Erie County, the City of Buffalo, ESDC, ECHDC and the Conservancy, and it now awaits approval and execution by the Authority.

“Section 1005(3) of the Power Authority Act authorizes and directs the Authority to seek and receive licenses for its hydroelectric projects and affords to it the discretion to agree to appropriate terms and conditions with FERC (successor to the Federal Power Commission) and other agencies, officials and utility companies relating to the construction or operation of such projects. In addition, Section 1005(9) of the Act authorizes and directs the Authority to ‘cooperate with’ and ‘enter into contractual arrangements’ with municipal corporations with respect to the ‘operation of hydroelectric generating facilities.’ Furthermore, Section 1005(11) of the Act authorizes and directs the Authority to ‘. . . exercise all the powers necessary or convenient to carry out and effectuate the purposes and provisions of this title . . . and generally to do any and everything necessary or convenient to carry out the purposes of this title. . .’

“Entering into the ECCBRSA is a reasonable, appropriate and ‘necessary or convenient’ action in the context of the Authority’s pursuit of a new 50-year license for the Project, and it will provide a mutually acceptable and final resolution of issues of concern to the Authority and to federal, State and local officials. Entering into the ECCBRSA also will promote the realization of the Authority’s ultimate goal in the relicensing, which is to obtain a new license carrying a 50-year term and imposing no changes with respect to Project operations. If and when FERC grants a new license under these terms, the Project will be able to continue to provide low-cost power to the citizens of New York and its out-of-state customers for the next 50 years under favorable license terms and conditions.

FISCAL INFORMATION

“The cost in 2007 dollars associated with the ECCBRSA is estimated to be approximately $68,718,579, exclusive of the value of the power that will be sold in connection with the Buffalo Waterfront Development Fund, which represents no cost to the Authority. Financing of the costs will be accomplished through the issuance of commercial paper along with the use of capital fund and operating fund monies, and such costs will be included in rates charged to Project customers.

RECOMMENDATION

“The Executive Director – Hydropower Relicensing recommends that the Trustees authorize the President and Chief Executive Officer, and his designees, to enter into the Erie County/City of Buffalo Relicensing Settlement Agreement with Erie County, the City of Buffalo, the Buffalo Olmstead Parks Conservancy, the Erie Canal Harbor Development Corporation and the New York State Urban Development Corporation doing business as the Empire State Development Corporation; to file with the Federal Energy Regulatory Commission a supplement to the Offer of Settlement filed in connection with the relicensing of the Niagara Power Project on August 19, 2005; and to execute such other documents and take such other actions as may be necessary or convenient in connection with the foregoing.

“The Executive Vice President and General Counsel, the Executive Vice President – Corporate Services and Administration, the Executive Vice President – Chief Financial Officer, the Senior Vice President – Power Generation, the Senior Vice President – Public and Governmental Affairs and I concur in the recommendation.”

Mr. Chase presented the highlights of staff’s recommendations to the Trustees. Chairman McCullough said that all of the Trustees understand how much work has been involved in getting to this point in the relicensing process. He commended Mr. Chase and everyone who worked with him on the success of their efforts, saying that the lessons learned in the St. Lawrence relicensing process had served them well. Chairman McCullough said that this was a job well done and that Mr. Chase and all of the other staff involved were to be complimented on it. Trustee Cusack added that she appreciated all of the hard work that had gone into these settlement agreements and agreed that staff had done a great job. Mr. Chase said that it had truly been a team effort involving staff from all different levels and departments throughout the Authority. President Carey said that this particular settlement agreement represented the last piece as the Authority goes forward with the Federal Energy Regulatory Commission (“FERC”) process. In response to a question from President Carey, Mr. Chase indicated that FERC has published a notice indicating that it is expected to issue the new license in or about February 2007. Mr. Chase said that the next step in the process is for FERC to issue the draft Environmental Impact Statement (“EIS”), after which there would be a public comment period and possibly a public hearing. In response to a question from Chairman McCullough, Mr. Chase said that Authority staff had prepared the Environmental Assessment (“EA”) at the level of an EIS so that FERC staff would be able to use the EA to develop the draft EIS. Responding to a question from President Carey, Mr. Chase said that the cost to customers for all of the Niagara relicensing settlements was 1 mill, or 1/10^th of a cent, per kilowatt hour. Chairman McCullough said this was a terrific result.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the President and Chief Executive Officer and his designees be, and hereby are, authorized to enter into the Erie County/City of Buffalo Relicensing Settlement Agreement with Erie County, the City of Buffalo, the Buffalo Olmstead Parks Conservancy, the Erie Canal Harbor Development Corporation and the New York State Urban Development Corporation doing business as the Empire State Development Corporation; to file with the Federal Energy Regulatory Commission a supplement to the Offer of Settlement filed in connection with the relicensing of the Niagara Power Project on August 19, 2005; and to execute such other documents and take such other actions as may be necessary or convenient in connection with the foregoing; and be it further

RESOLVED, That the Authority’s Series 1, Series 2 and Series 3 Commercial Paper Notes and its Extendable Municipal Commercial Paper Notes may be issued and the proceeds of such issuance may be used, along with capital fund and operating fund monies, to fund payments called for or contemplated by the Erie County/City of Buffalo Relicensing Settlement Agreement; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

14. Approval of Hedge Transaction Authority for 2007 Long-Term Energy Supply Agreements with New York City Governmental Customers

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize the Vice President – Energy Resource Management, with the concurrence of the Executive Vice President and Chief Financial Officer, the Senior Vice President – Power Generation and the Vice President – Chief Risk Officer, to execute fuel- and energy-related hedging transactions (‘Hedge Transactions’) for the 2007 energy cost-recovery option selected by the New York City governmental customers (‘Governmental Customers’) under the long-term energy supply agreements with the Authority (‘Agreements’), specifically Energy Charge Adjustment (‘ECA’) with Hedging Options (‘ECA Option 3’), provided that the aggregate nominal value of all Hedge Transactions does not exceed the monetary cap for ECA Option 3.

BACKGROUND

“On February 9, 2005, the Trustees approved Agreements between the Authority and the Governmental Customers, effective 2005 for annual rate years commencing 2006 through December 31, 2017, unless terminated earlier. By executing the Agreements, each of the Governmental Customers agreed to be a full-requirements electricity customer of the Authority and to support and pay for its share of the Authority’s supply portfolio dedicated to the Governmental Customers. The Agreements require that the Authority and the Governmental Customers engage in an ‘Annual Process’ each year prior to the next calendar year (‘Rate Year’) to determine the fixed and variable costs of service, future energy and fuel market risks, hedging strategies, submission of load forecasts and supply resource planning. During this process, the Governmental Customers are obligated to propose three cost-recovery options for analysis by the Authority. The Authority must develop estimated costs for the cost-recovery options in accord with the specified criteria and offer them to the Governmental Customers for selection. The Governmental Customers are required by the Agreements to select one of the energy cost-recovery options by June 15^th of the year preceding the applicable Rate Year. In the event the Governmental Customers are not able to agree on and/or do not select an option by June 15^th, the Authority implements the Default Option.

“Once the option is determined, the Authority is obligated to obtain market prices for the Hedge Transactions components of the selected option. If the option is an ECA with Hedging Option and the prices of the option are within a 5% tolerance of the prices contemplated by the option, the Authority is authorized to proceed with the execution of the Hedge Transactions. Should the actual cost exceed 5%, the Authority cannot proceed without the consent of the Governmental Customers, and in the event there is no consent within 10 days, the Authority will implement the Default Option. An ECA option is a full variable-cost pass-through option using an energy charge adjustment, and once selected, is the only type of option permitted by the Agreements for at least two consecutive Rate Years.

“Generally, Hedge Transactions serve to fix the price paid for actual purchases of energy or fuel in the future. For example, if the Authority entered into an energy swap where it paid $40 per MWH and the counterparty paid the market price, and the price fell to $30 per MWH, the Authority would have to pay $10 per MWH to the counterparty. However, at the same time, the Authority would be buying energy in the market at the price of $30 per MWH. If one adds the $10 per MWH payment made to the counterparty to the $30 per MWH price paid by the Authority for the physical purchase of energy, the effective price paid for the energy is $40 per MWH, thereby fixing the Authority’s price. A similar result would result if market prices went above the Authority’s fixed price and the Authority would then be paid the difference between the fixed price and the market sale amount by the counterparty. That payment would then be used by the Authority to offset physical purchases in the market at the higher price.

“Last year, the first year the Agreements were in effect, the Governmental Customers did not select one of the cost-recovery options defined by them, so the Default Option designed and developed by the Authority was implemented for the 2006 Rate Year. On May 24, 2005, the Trustees approved a request for increased Hedge Transaction authority necessary to implement the 2006 Default Option. A dramatic increase in fuel and energy prices, attributable in large part to hurricanes in the southeastern U.S., necessitated Trustee approval on September 20, 2005, of an additional increase in Hedge Transaction authority for implementation of the Default Option for the 2006 Rate Year.

DISCUSSION

“For the 2007 Rate Year, the Governmental Customers submitted three ECA with Hedging Options for analysis. In accordance with the Agreements, the Authority developed a ‘Default Option’ for 2007 that was a ‘Sharing Plan.’ By letter dated and received on June 15, 2006, the Governmental Customers selected one of their proposed ECA Options (‘ECA Option 3’) as the hedging strategy option for the 2007 rate year. Although not obligated by the Agreements, the Authority has agreed to collaborate with the Governmental Customers during the implementation of the hedging strategy to achieve the best outcome. Because the Hedge Transactions are market based and could influence the market, a summary analysis of the Hedge Transactions associated with, and presently contemplated by, ECA Option 3 will be presented to the Trustees for discussion in executive session. The monetary cap that needs to be authorized to implement ECA Option 3 is included in the summary analysis. In the event the cost of ECA Option 3 exceeds anticipated cost by 5% and the Governmental Customers do not give the Authority the requisite consent to proceed with execution of the Option, the monetary cap authorized by the Trustees for ECA Option 3 will not be sufficient to implement the Default Option and Trustee authorization for an increase in the monetary cap will be required.

“As with the 2006 rate year, multiple and varied hedges will be necessary to implement the hedging strategy option selected by the Governmental Customers. The need for timely implementation of the hedging strategy and the dollar value of the individual Hedge Transactions will likely exceed the maximum individual transactional authority granted to Authority officers by the Trustees on January 31, 2006. Since delay in executing the Hedge Transactions could be very costly, it is critical for the Authority to have the flexibility to immediately proceed in executing fiscally advantageous Hedge Transactions.

“The expanded authority would essentially permit the Vice President – Energy Resource Management to approve Hedge Transactions that exceed both (i) the fuel and electric per- transaction limits for financial hedge transactions and (ii) the spot trade limits for physical transactions established by the Trustees at their January 31, 2006 meeting. The aggregate nominal value of the Hedge Transactions will be limited to the monetary cap for Hedge Transactions set forth to meet ECA Option 3, the selected hedging strategy option for the Governmental Customers’ 2007 rate year. The Hedge Transactions will include both purchases and sales and involve significantly lower net outlays for the cost-recovery options than the monetary cap for the authorized Hedge Transactions.

“While the cumulative authority sought represents a significant commitment, the value of the commitment does not give rise to a dollar-for-dollar financial exposure for the Authority. As explained earlier, the Authority’s financial exposure created by the proposed authorization for Hedge Transactions (most typically swaps and NYMEX contracts) would be measured by the difference between the fixed price the Authority would pay and the floating price to be paid by the counterparty. If the market price rises above the fixed price, payments would be made to the Authority based on the difference. If the market price falls below the fixed price, the Authority would make payments based on the difference. It is these differences that will determine the Authority’s (and counterparties’) financial obligations. The costs associated with the Governmental Customers’ selected hedging strategy will be recovered in their 2007 rates.

“The Vice President – Energy Resource Management will report to the Trustees on the implementation of ECA Option 3 upon final execution of all transactions comprising the elements of ECA Option 3, or as may otherwise be requested by the Trustees.

FISCAL IMPLICATIONS

“Since the costs associated with the Authority’s implementation of hedging strategy ECA Option 3 will be fully recovered in the Governmental Customers’ 2007 rates, there will be no costs to the Authority for implementation of ECA Option 3. If, however, circumstances warranted implementation of the Default Option, costs in excess of anticipated prices for the Default Option would have to be shared as provided for in the Agreements.

RECOMMENDATION

“The Vice President – Chief Risk Officer recommends that the Trustees grant authority to the Vice President – Energy Resource Management, with the concurrence of the Executive Vice President and Chief Financial Officer, the Senior Vice President – Power Generation and the Vice President – Chief Risk Officer, to execute Hedging Transactions consistent with ECA Option 3 selected by the Governmental Customers and integral to the Authority’s hedging strategy obligations under the Agreements with the Governmental Customers.

“The Executive Vice President and General Counsel, the Executive Vice President and Chief Financial Officer and I concur in the recommendation.”

Mr. Warmath presented the highlights of staff’s recommendations to the Trustees. Chairman McCullough said that staff has spent a lot of time on this issue, including reaching out to individual Trustees to address their questions and concerns. He said that both the information staff provided and the time devoted to this effort had been very helpful and said that he and the other Trustees appreciated it. President Carey said that he wanted to personally thank Ms. Morman, Mr. Del Sindaco, Mr. Bellis, Mr. Kelly and all of their staff for their efforts. He said that this is the first year the Authority has taken this kind of action, which will be repeated annually for the next 12 years.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Vice President – Energy Resource Management, with the concurrence of the Executive Vice President and Chief Financial Officer, the Senior Vice President – Power Generation and the Vice President – Chief Risk Officer, is hereby authorized to approve and enter into, on behalf of the Authority, in connection with ECA Option 3, the Governmental Customers’ selected cost-recovery hedging strategy option under the New York City Governmental Customers’ Long Term Agreements for 2007:

(1) hedging transactions relating to energy and fuel, including, but not limited to, swaps, including contracts for differences, calls, puts, covered calls, covered puts, swap options, covered call options, transmission congestion contracts, NYMEX contracts , other Over the Counter (‘OTC’) hedging instruments and options on NYMEX or OTC contracts; and

(2) fuel-related transactions, including, but not limited to the physical purchase of natural gas and oil;

that may (i) exceed the fuel and electric per-transaction limits for financial hedge transactions and (ii) the spot-trade limits for physical transactions established by the Trustees at their meeting of January 31, 2006, provided, however, that, in addition to any other cumulative or per-day limits, the aggregate nominal value of all such transactions outstanding at any one time shall not exceed the monetary cap for ECA Option 3, the selected hedging strategy option, with the term ‘nominal value’ meaning, for the purposes of this limitation, as applied to a particular transaction, (1) the aggregate amount of the hedging transactions executed by the Authority determined as of the date of entry into the transaction by the Vice President – Energy Resource Management, (2) in the case of a NYMEX contract, the value of the contract based on the price per dekatherm of the contract on the date of execution of the contract and (3) in the case of option contracts (e.g., puts or calls), the cost of the premium associated with the transaction; and be it further

RESOLVED, That the Vice President – Energy Resource Management is hereby authorized to execute agreements and to authorize his designees to execute agreements to effectuate transactions approved by the Vice President – Energy Resource Management pursuant to the foregoing resolution, including ISDA Master Agreements and schedules and confirmations relating to such new or existing Master Agreements, having such terms and conditions as the Executive Vice President and Chief Financial Officer, Vice President – Energy Resource Management and Vice President – Chief Risk Officer deem necessary or advisable, subject to the approval of the form of such agreements by the Executive Vice President and General Counsel; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all certificates, documents and agreements to effectuate the foregoing resolutions, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

15. Procurement (Services) Contracts – Business Units and Facilities – Awards

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the award and funding of the multiyear procurement contracts listed in Exhibit ‘15-A’ for the Authority’s Business Units/Departments and Facilities. Detailed explanations of the nature of such services, the bases for the new awards if other than to the lowest-priced bidders and the intended duration of such contracts are set forth in the discussion below.

BACKGROUND

“Section 2879 of the Public Authorities Law and the Authority’s Guidelines for Procurement Contracts require the Trustees’ approval for procurement contracts involving services to be rendered for a period in excess of one year.

“The Authority’s Expenditure Authorization Procedures (‘EAPs’) require the Trustees’ approval for the award of non-personal services, construction or equipment purchase contracts in excess of $3,000,000, as well as personal services contracts in excess of $1,000,000 if low bidder, or $500,000 if sole source or non-low bidder.

DISCUSSION

“The terms of these contracts will be more than one year; therefore, the Trustees’ approval is required. Except as noted, all of these contracts contain provisions allowing the Authority to terminate the services for the Authority’s convenience, without liability other than paying for acceptable services rendered to the effective date of termination. Approval is also requested for funding all contracts, which range in estimated value from $24,260 to $20,000,000. Except as noted, these contract awards do not obligate the Authority to a specific level of personnel resources or expenditures.

“The issuance of multiyear contracts is recommended from both cost and efficiency standpoints. In many cases, reduced prices can be negotiated for these long-term contracts. Since these services are typically required on a continuous basis, it is more efficient to award long-term contracts than to rebid these services annually.

Contracts in Support of Business Units/Departments and Facilities:

Corporate Services and Administration

“Earlier this year, the Authority’s Employee Benefits Unit, assisted by its benefits consultant, Buck Consultants, sought proposals (Q-02-3760) from providers of Third Party Administrative (‘TPA’) services for its self-insured major medical (including Participating Provider Organizations, ‘PPOs’), prescription drug, dental, vision care, flexible spending accounts and short-term disability claims programs. Prospective bidders were invited to submit proposals for one or more categories of the aforementioned services for the Authority’s various employee groups and retirees, with eligible participants including active and retired salaried employees, members of the International Brotherhood of Electrical Workers (‘IBEW’) and the Utility Workers’ Union of America (‘UWUA’), as well as retired members of Teamsters’ Local 887. The potential number of enrollees offered such coverage is approximately 2,571, of which approximately 1,787 are currently enrolled.

“Bid documents were downloaded electronically from the Authority’s Procurement website by 23 firms, including those that may have responded to a notice in the New York State Contract Reporter. Proposals were received from 11 firms for one or more service categories in the Authority’s Request for Proposals (‘RFP’). Buck Consultants assisted Authority staff in collecting and sorting the data submitted in the proposals through the use of an automated template that recorded the vendors’ responses to questions. After an initial review of all bids, five firms were selected to attend finalists’ meetings. Bidders were invited to present their proposals in detail and to provide any additional data that were requested during the meetings. Such meetings also afforded Authority staff the opportunity to meet the respective account representatives and to clarify any outstanding questions or issues. In addition, staff conducted a site visit to the claims facility of one new bidder to inspect its respective operations, review its processes for claim payment, customer service, program technology and implementation and clarify any outstanding issues prior to final recommendations. A more detailed evaluation and analysis of the proposals and clarifications provided during the finalists’ meetings was subsequently performed based on the following evaluation criteria: network availability of participating provider organizations, disruption analysis of current vs. proposed networks, rate comparisons and cost savings, company size and staffing levels, administrative and technical capabilities, past vendor performance and financial stability of the bidders.

“Based on the aforementioned detailed evaluation and analysis of all the proposals, clarifications and evaluation criteria, staff recommends the award of four contracts to the following firms: UnitedHealthcare (‘UHC’), Delta Dental, Maurice W. Pomfrey & Associates, Ltd. (‘POMCO’) and EyeMed Vision Care (PO#s TBA) to provide TPA services for the Authority’s health and benefits programs, on a self-insured basis. Services would be provided as follows: (1) UHC would continue to provide TPA services for the major medical program for the Authority’s active and retired salaried and UWUA employees, the flexible spending account program for active salaried and UWUA employees, the prescription drug program for all non-HMO active employees and retirees and hospitalization for the UHC ‘NYPA Choice’ Plan only; (2) Delta Dental would provide TPA services for the dental program for all active employees; (3) POMCO would continue to provide TPA services for both major medical and hospitalization for IBEW active employees and retirees and for retired members of Teamsters’ Local 887, as well as short-term disability for active IBEW and UWUA employees only and (4) EyeMed would continue to provide TPA services for the vision care program for active salaried employees only. In addition, it was decided that the current arrangement for the hospitalization program with EmpireHealth (Blue Cross/Blue Shield) would be continued on a fully-insured basis and that the HMO and POS programs would also continue to be offered. The intended term of these contracts is five years (comprising an initial award for three years, with an option to extend for two additional years), subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total amount expected to be expended for the five-year term of the contracts: $3,183,000 for UHC, $336,000 for Delta Dental, $1,318,600 for POMCO and $28,700 for EyeMed, as further delineated on the attached Exhibit ‘15-A.’

“In recent years, it has become increasingly difficult to identify and attract qualified personnel for certain engineering, analytical and technical positions at the Authority, due to increased competition for and the decreased number of capable, experienced potential candidates. In order to remain competitive, Authority staff recommended augmenting the current recruiting approach (which consists of print ads, web postings, employee referrals and college outreach) to include the use of external recruitment firms in order to attract such technical personnel. It is anticipated that the use of such firms would provide a rigorous pre-screening process, as well as shorten the time needed to fill such positions with a diverse, local and on-target pool of qualified applicants. To this end, the Authority solicited proposals for the services of recruitment firms to assist the Authority in filling certain difficult-to-fill positions, when necessary. Bid documents were downloaded electronically from the Authority’s Procurement website by 10 firms, including those that may have responded to a notice in the New York State Contract Reporter. Three proposals were received and evaluated. Based on a review of their qualifications, experience and compensation terms, staff recommends award of contracts to Apple One Employment Services (‘Apple One’) and Think Energy Group (‘Think Energy’) (Q-02-3786; PO#s TBA), the two lowest-priced bidders. The award of contracts to two firms would provide for more flexibility and a larger pool of qualified potential candidates, as well as enable Authority staff to perform other more essential activities in the future. The subject contracts would become effective on July 1, 2006, for an intended term of two years, subject to the Trustees’ approval, which is hereby requested. Funding and assignments will be based on the assessment of each firm’s performance and ability to meet the Authority’s needs. Approval is also requested for the combined total estimated amount expected to be expended for the term of both contracts, $400,000.

“During the last several years, the Authority has refined its strategic planning approach with the use of performance measures. To this end, the Authority implemented the Integrated Measurement System (‘IMS’) plan, incorporated a Balanced Scorecard approach and refined its measurement system. In order to continue the development and implementation of this process, the Authority solicited proposals for consulting services to assist staff in: measuring organization performance for process improvement, advancing the process from measurement to performance improvement and strategy implementation, and continuing the development of the Authority’s IMS plan towards its defined ‘future state’ vision. Bid documents were downloaded electronically from the Authority’s Procurement website by 38 firms, including those that may have responded to a notice in the New York State Contract Reporter. Four proposals were received and evaluated. The three lowest-priced bidders were invited for clarification meetings regarding their respective proposals, proposed work methodology, relevant work experience, qualifications of assigned personnel and pricing. The Authority’s Evaluation Team then rated each bidder based on a matrix of the foregoing criteria that assigned specific weights to each component of the proposals. Based on its having the highest rating in each category, as well as its broad experience and demonstrated methodology in evaluating and cascading measurement systems, staff recommends award of the subject contract to Bywater, Inc. (‘Bywater’; Q-02-3827; PO# TBA), the most qualified bidder with reasonable pricing estimates. The subject contract would become effective on July 1, 2006, for an intended term of three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount that may be expended for the term of the contract, $500,000.

“The contract with Crowley Webb and Associates, Inc. (‘Crowley Webb’; Q-02-3761; PO# TBA) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for media consulting services for ‘branding’ the Authority in order to begin a communication and education program of the Authority’s benefits to the people of New York State. Thirty-one firms were invited to bid, including those that downloaded bid documents electronically from the Authority’s Procurement website and/or those that may have responded to a notice in the New York State Contract Reporter. Seven proposals were received and evaluated. After a detailed review of the submittals, including pricing, two firms were further evaluated and requested to meet with Authority staff. Based on these meetings, as well as its strategic experience, media buying knowledge, research understanding and credible creative services, especially in broadcast media, staff recommends award of the subject contract to Crowley Webb, the most qualified bidder with reasonable pricing. The intended term of this contract is one year (with an option to extend for one additional year at the Authority’s discretion), subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the initial award amount of up to $400,000, with additional funding to be requested after a definitive media branding program is developed.

“The contract with Design Collaborative Inc. (‘DCI’; Q-02-3809; PO# TBA) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for on-call architectural and interior design services for the Authority’s Clarence D. Rappleyea Building in White Plains. Bid documents were downloaded electronically from the Authority’s Procurement website by 34 firms, including those that may have responded to a notice in the New York State Contract Reporter. Two proposals were received and evaluated. Staff recommends award of the subject contract to DCI, the lowest-priced bidder. The intended term of this contract is five years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $800,000.

Business Services

“At their meeting of September 17, 2002, the Trustees approved the award and funding of a competitively bid contract with ICF Energy Solutions (now Nexus Energy Solutions) for the purchase, implementation, enhancement and maintenance of a suite of proprietary software modules (Energy Vision Enterprise, or ‘EVE,’ system), as well as related consulting services to support the Authority’s short-term load forecasting project. Periodic programming support for various module and feature updates, modifications and enhancements, which are not included in the maintenance contract, was subsequently required to meet the emerging needs of the Authority’s unique business processes. The Authority’s Marketing, Economic Development and Supply Planning Business Unit staff has identified numerous additional improvements to the software that are required to meet the Authority’s current and emerging business needs. They include, but are not limited to, the following areas: automated forecast submission to the New York Independent System Operator; new interfaces for Finance and the new Billing System; load aggregation and weather variable enhancements to improve load forecasts and weather normalization techniques and streamlining business processes and additional analytical capabilities to support forecasting functions. To this end, the award of a new sole source contract to Nexus Energy Software (‘Nexus’; Q-02-3791; PO# TBA) would provide for such programming services to enhance existing proprietary EVE system software in order to implement planned short- and long-term load and revenue forecasting improvements in the aforementioned areas, as well as related consulting services and load forecasting expertise, as needed. This award is made on a sole source basis, since Nexus currently maintains this proprietary software and the required enhancements are specific to the Authority. In addition, Nexus has demonstrated that it is uniquely qualified to make such programming changes/enhancements, possessing the requisite technical skills and application knowledge, as well as the proprietary source code (to which the Authority’s Information Technology division does not have access); and it has implemented previous enhancements on time and within budget. Furthermore, there were no responses to a notice in the New York State Contract Reporter of an intended sole source award to Nexus. The subject contract would become effective on July 1, 2006, for an intended term of three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $900,000.

“In 2004, the Authority implemented an Energy Trading Portal (‘Portal’), providing a single gateway of information for traders, business analysts and executives, in order to meet the evolving business needs of its Energy Resource Management group. The Authority has used outside consulting services for the past year to address functional and technical enhancements to the Portal. Since the Authority will have an ongoing need for such services, a Request for Proposals (Q-02-3807) for consulting services to enhance the Authority’s Portal application was prepared. Bid documents were downloaded electronically from the Authority’s Procurement website by 25 firms, including those that may have responded to a notice in the New York State Contract Reporter. Three proposals were received and evaluated. Based on its depth of staff knowledge and experience with Portals, TIBCO software and the energy industry, interviews and qualifications of the prospective candidates for this work and company size and satisfactory resources, staff recommends award of the subject contract to Perficient Inc. (PO # TBA), the most qualified bidder. The contract with Perficient would become effective on July 1, 2006, for an intended term of three years, subject to the Trustees’ approval, which is hereby requested. Services would include, but not be limited to, designing, developing and implementing technical improvements and functional enhancements, as well as providing ‘best practice’ expertise and guidance, as needed. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $800,000.

“The contract with Professional Flight Management, Inc. (‘PFM’; 4500125826) would become effective on July 3, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for hosting services and technical support for PFM software utilized by the Authority’s Travel and Flight Operations groups for corporate aircraft scheduling and recordkeeping. The PFM hosting agreement provides the software platform for the PFM application, including all requisite hardware, software, enhancements and production support in a secure environment at PFM. The transfer of the software from the Authority’s IT server to PFM’s server will provide for quicker and more uniform maintenance and Internet access for users. Additional benefits also include remote access for pilots via laptop or Blackberry, enabling them to update their own flight log and other data directly, immediately and easily through a secure website while on the road, thereby improving the reliability and timeliness of data and reports. The award is made on a sole source basis, since PFM is uniquely qualified as the original developer of the software application (which was acquired by the Authority in 1998, subsequently customized by PFM to meet the Authority’s needs, and used successfully by the Authority for the last eight years). The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $24,260.

“The two contracts with Public Financial Management, Inc. (‘PFM’) and PFM – Asset Management, LLC (‘PFM - AM’) (Q-02-3810; PO#s TBA) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of these contracts is to provide for financial advisory and swap advisory services, respectively, in connection with the Authority’s debt issues or other special financial issues, as needed. Bid documents were downloaded electronically from the Authority’s Procurement website by 14 firms, including those that may have responded to a notice in the New York State Contract Reporter. Proposals were received from six firms for one or both service categories set forth in the Authority’s RFP (four for financial advisory services and four for swap advisory services). Staff evaluated the proposals based on rating criteria, which included municipal experience, public power experience, analysis and reporting, and advisory fees for the financial advisory services, and municipal experience, quantitative analysis and reporting, and advisory fees for the swap advisory services. Staff recommends award of the subject contracts to the two highest-rated firms in each service category: PFM for financial advisory services and PFM – AM for swap advisory services. PFM is the leading financial advisor in both the municipal and public power sectors and is the most technically qualified bidder. PFM – AM, the lowest-priced bidder for swap advisory services, is also a leader in this field, having successfully executed 456 derivative transactions totaling over $43 billion during the last five years (more than the other three bidders combined). The intended term of these contracts is five years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amounts expected to be expended for the term of the contracts, $675,000 for PFM and $250,000 for PFM – AM, respectively.

Energy Services and Technology

“At their meeting of December 16, 2004, the Trustees approved a funding increase in the Statewide Energy Services Program (‘Statewide ESP’) in the amount of $250 million. Of this amount, the Trustees approved the allocation of $230 million to three Implementation Contractors (‘ICs’) to assist Authority staff with the audit, design and construction of Statewide ESP projects. While all three ICs have performed well, one has decided to withdraw from the statewide market. Since the demand for the Statewide ESP program has increased dramatically, staff concluded that it would be necessary not only to replace the IC that withdrew from the market, but also to retain a fourth IC in order to provide the resources necessary to meet the increased program demand for such services. To this end, staff prepared a new Request for Proposals (Q-02-3774) for program management and implementation services for the Authority’s ESP projects in selected facilities statewide. Bid documents were downloaded electronically from the Authority’s Procurement website by 40 firms, including those that may have responded to a notice in the New York State Contract Reporter; nine proposals were received and evaluated. The four lowest-cost proposals were evaluated in detail, based on a number of technical criteria that included each firm’s relevant experience, energy analysis capabilities, construction management experience, project team organization and qualifications, building and electrical code familiarity, financial resources, location of support offices and proposal format. After a clarification and recalculation of the fee submitted by the apparent lowest-priced bidder determined it to be non-competitive, staff recommended award of contracts to Einhorn Yaffee Prescott Architecture & Engineering, PC (‘EYP’; 4600001644) and Wendel Energy Services, LLC (‘Wendel’; 4600001645), the two lowest-priced (as well as highest-scored) bidders. Due to the urgent need to commence services, the subject contracts with EYP and Wendel became effective on May 23, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and Expenditure Authorization Procedures (‘EAPs’). Initial award amounts of $1,500,000 per contract were authorized in accordance with the Authority’s Guidelines for Procurement Contracts and EAPs. The intended term of these contracts is five years (to be awarded for an initial three-year term, with an option to extend for up to two additional years), subject to the Trustees’ approval, which is hereby requested. Approval is also requested to increase the initial award amount to $20 million per contract (to be released/allocated from the $187.5 million remaining from the aforementioned aggregate $230 million). It is anticipated that additional projects will be assigned and additional releases will be made over the contract term to all four ICs from the remaining $147.5 million, based on the assessment of each contractor’s performance. It should be noted that all costs will be recovered by the Authority.

Inspector General’s Office - Security

“The contract with Allied Barton Security Services (‘Allied’; Q-02-3806; PO# TBA) would become effective on August 16, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for security personnel services for 10 Authority SENY sites, including the White Plains Office and the 500 MW, Flynn and Small Clean Power Plants. Bid documents were sent to eight firms pre-approved by the New York State Office of General Services as certified and qualified to perform such services in three SENY/Westchester County regions. Five proposals were received and evaluated. Staff recommends award of the subject contract to Allied, the lowest-priced bidder. The intended term of this contract is four years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $7,019,472.

Law Department

“Due to the immediate need to retain a firm with a particular expertise in maritime claims, it was not feasible to solicit formal or informal proposals for such services. On the recommendation of long-time counsel at an outside law firm retained by the Authority, two law firms experienced in handling maritime actions were contacted by the Authority. Based on its experience handling defense work, including maritime claims, and its reasonable quoted rate, the Authority retained the firm of Burgio, Kita & Curvin (‘Burgio’) as the result of an expedited competitive search. The agreement with Burgio (4500122768) became effective on February 1, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for legal representation services for the Authority’s indemnitee, First Buffalo River Marina, in connection with a pending action in Erie County (Notaro v. Power Authority of the State of New York and First Buffalo River Marina). Since the Authority will have an ongoing need for such services until this matter is resolved either through settlement or litigation, staff recommends an intended term of up to three years, subject to the Trustees’ approval, which is hereby requested. The current contract amount is $25,000; if the matter goes to trial, staff projects that an additional $25,000 may be required. Approval is also requested for the total estimated amount that may be expended for the term of the contract, $50,000.

“Due to the immediate need to retain a firm with a particular expertise in legislative and New York State Budget issues, it was not feasible to solicit formal or informal proposals for such services. Staff reviewed the legal firms already under contract with the Authority and determined that they do not have the necessary experience in this area of the law. Based on its unique qualifications and its familiarity with litigation of this nature, as well as its reasonable quoted rate, the Authority retained the firm of Cravath, Swaine & Moore, LLP (‘Cravath’; 4500125893) on an emergency and sole-source basis. The agreement became effective on June 6, 2006, in the amount of $250,000, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for legal representation services in connection with likely litigation arising out of the adoption of the current New York State Budget for State Fiscal Year 2006-07, in order to effectively protect the legal, financial and contractual interests of the Authority for the People of New York State. Since the Authority will have an ongoing need for such services until this matter is resolved, staff recommends an intended term of up to two years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount that may be expended for the term of the contract, $250,000.

Power Generation

“The contract with ABB, Inc. (‘ABB’; RFQ 6000066965, PO # TBA) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for field services and other technical support (including programming to support specialized software components) for the commissioning of the Static Excitation System and tuning of the Power System Stabilizer for 14 units at the St. Lawrence/FDR Power Project as part of the Life Extension and Modernization Program. This award is made on a sole source basis, since ABB is the original equipment manufacturer and, as such, possesses proprietary information and knowledge of its systems and is uniquely qualified to perform such services; in addition, ABB requires that only ABB-approved technicians perform such commissioning and programming services as a warranty requirement. The intended term of this contract is six years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $250,000.

“Due to the need to commence services, the contract with Aquatech Environmental Inc. (‘Aquatech’; 4600001648) became effective on June 1, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for routine weekly zebra mussel sampling and testing/analysis services to determine veliger densities and mortality percentages in the vicinity of the Niagara Power Project. Services include all labor, supervision, equipment and material to complete a weekly sampling program for zebra mussel veligers during the zebra mussel growth season, as well as consulting services, as may be required. Bid documents were sent to eight firms, including any that may have responded to a notice in the New York State Contract Reporter. Three proposals were received and evaluated. Staff recommended award of the subject contract to Aquatech, the lowest-priced bidder. The intended term of this contract is four years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $100,000.

“Due to the need to commence services, the contract with Aquatic Sciences LP (4600001621) became effective on May 1, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for monthly zebra mussel sampling and testing/analysis services to determine veliger densities and mortality percentages in the vicinity of the St. Lawrence/FDR Power Project. Such services will be performed on a weekly basis if veligers are detected. Bid documents were sent to seven firms, including any that may have responded to a notice in the New York State Contract Reporter. Four proposals were received and evaluated. Staff recommended award of the subject contract to Aquatic Sciences, the lowest-priced bidder. Rates will remain firm for the duration of the contract. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $40,000.

“Due to the need to commence services, the contract with Baker Engineering NY, Inc. (‘Baker’; 4500122700) became effective on April 10, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for engineering services for the design of security enhancements to the Charles Poletti Power Project and 500 MW Combined Cycle Plant sites. Such upgrade includes establishing a closed perimeter with fence-mounted intrusion detection, lighting, cameras for alarm assessment, video transmission/display/recording, access control, building intrusion detection, alarm monitoring and relocation and modification or replacement of the existing security console. Services to support this effort include site inspections, data collection, calculations, analysis and detailed design, preparation and submission of technical specifications and drawings, design review meetings, cost estimates, bid proposal evaluation and engineering support during construction, start-up and testing. Bid documents were sent to 13 prequalified firms (including those that may have responded to a notice in the New York State Contract Reporter) after background investigation screenings were performed and mandatory confidentiality agreements were signed. Six proposals were received and evaluated; one proposal was incomplete and disqualified after the bidder was unable to respond in a timely manner. Staff recommended award of the subject contract to Baker, the lowest-priced qualified bidder. The intended term of this contract is approximately 1.75 years (through project construction, currently projected to be December 31, 2007), subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $465,562.

“Due to the need to commence services, the contract with Deangelo Brothers (4600001625) became effective on May 1, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for herbicide treatment services for the grounds of the Charles Poletti Power Project and 500 MW Combined Cycle Plant. Bid documents were sent to eight firms, including any that may have responded to a notice in the New York State Contract Reporter; one proposal was received and evaluated. Staff recommended award of the subject contract to Deangelo Brothers, the sole responding bidder. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $50,000.

“Due to the need to commence services, the contract with GE Packaged Power, Inc. (‘GEPP’), aka GE Aero Energy (4500125518) became effective on June 12, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for hardware, software, installation services and a two-year software service agreement for the Turbine Control System at nine Small Clean Power Plants (excluding the Vernon Boulevard site), in order to accommodate new GE control logic and software upgrades that are expected to improve the operating reliability of the units. The award was made on a sole source basis, since GEPP is the original designer and installer of the system and, as such, is uniquely qualified to perform such work. The intended term of this contract is two years, subject to the Trustees’ approval, which is hereby requested. It should be noted that while the original price of the contract was $374,147, GE has previously agreed to a significant discount of $224,500 for past issues involving the Selective Catalytic Reduction catalysts, resulting in a reduced contract price of $149,647. Since there may be additional emerging installation or other work, approval is hereby requested for the total estimated amount expected to be expended for the term of the contract, $180,000, including contingency.

“Due to the need to commence services, the contract with Guardian Tree & Landscape Maintenance (‘Guardian’; 4600001626) became effective on May 1, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for landscaping/groundskeeping services for the Charles Poletti and 500 MW Combined Cycle plant sites. Bid documents were sent to 14 firms, including any that may have responded to a notice in the New York State Contract Reporter. Three proposals were received and evaluated. Staff recommended award of the subject contract to Guardian, the lowest-priced bidder. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $100,000.

“Due to the need to commence services, the contract with JFK Medport – International Airport (4600001624) became effective on April 1, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for medical examination services, including pre-employment and annual occupational physicals, as well as physicals for return-to-work, fitness-for-duty, on the job injuries and drug testing services for Poletti Project and 500 MW Plant employees. Bid documents were sent to five firms, including any that may have responded to a notice in the New York State Contract Reporter. Three proposals were received and evaluated. Staff recommended award of the subject contract to JFK Medport – International Airport, the lowest-priced bidder. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $50,000.

“The contract with Marine Maintenance & Construction Company (‘Marine Maintenance’; 4600001633) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for diving services to perform underwater inspections and/or repairs on traveling screens and other specified equipment at the Charles Poletti Power Project. Bid documents were sent to 12 firms, including those that may have responded to a notice in the New York State Contract Reporter. Four proposals were received and evaluated. Staff recommends award of the subject contract to Marine Maintenance, the lowest-priced bidder. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $400,000.

“The contract with Miller Environmental Group, Inc. (‘Miller’; Q-02-3803; PO# TBA) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for general environmental services for the Authority’s Poletti, 500 MW, Flynn and Small Clean Power Plants. Such services would consist primarily of cleaning process equipment (including, but not limited to: tanks, oil/water separators, economizers, burners, etc.); transporting and disposing of hazardous materials generated by such cleaning and providing environmental and safety training to the Authority, as may be required. Bid documents were downloaded electronically from the Authority’s Procurement website by 32 firms, including those that may have responded to a notice in the New York State Contract Reporter. Five proposals were received and evaluated. Staff recommends award of the subject contract to Miller, the lowest-priced bidder. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $600,000.

“The three contracts with Miller Environmental Services, Inc. (‘Miller’), OP-TECH Environmental Services (‘OP-TECH’) and Allstate Power Vac (‘Allstate’) (Q-02-3829; PO#s TBA) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of these contracts is to provide for emergency response, clean-up and disposal services for oil spill incidents at Authority facilities statewide, including electric generating stations, electrical substations, transmission facilities and support and maintenance facilities. Bid documents were downloaded electronically from the Authority’s Procurement website by 19 firms, including those that may have responded to a notice in the New York State Contract Reporter. Five proposals were received and evaluated on the following criteria: proposal completeness, response time to the Authority facility, amount and type of equipment at the contractor’s staging facility, U.S. Coast Guard Oil Pollution Act of 1990 certification indicating level of marine environment response capability and calculated costs for typical land and surface water spill scenarios. A contractor response time of two hours or less with sufficient resources to contain, control and clean up discharged oil was a primary factor in bidder selection. A cost associated for response and clean-up was established using contractor-supplied rates for labor and equipment based on postulated oil spills on land and water. Qualified bidders were ranked based on this cost analysis. Where response time and clean-up capability were equivalent among bidders, cost was a factor in determining which bidder would be the primary response contractor for the Authority facility. Staff recommends award of contracts to three firms: Miller, OP-TECH and Allstate, the lowest-priced qualified bidders in each service area, to ensure that each Authority facility will be able to obtain sufficient resources to respond to an oil spill within two hours of contractor notification and to provide each site with one backup-up contractor. The intended term of these contracts is up to three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amounts expected to be expended for the term of the contracts: $1,250,000 for Miller, $750,000 for OP-TECH and $250,000 for Allstate, respectively.

“Due to the need to commence services, the contract with Naeva Geophysics Inc. (4600001620) became effective on June 1, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for equipment and services on an ‘as needed’ basis to locate conduit and reinforcing rods embedded in concrete structures (up to three feet deep) around high electromagnetic fields at sites/locations that are under the control of the Authority’s St. Lawrence/FDR Power Project. Such sites include, but are not limited to, the Massena Substation, Long Sault Dam, Robert Moses Park and the Iroquois Gates at Waddington. Bid documents were sent to two firms, including any that may have responded to a notice in the New York State Contract Reporter. One proposal was received and evaluated. Staff recommended award of the subject contract to Naeva Geophysics, the sole responding bidder, which was deemed qualified to perform the work. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $90,000.

“The contract with National Vacuum Corp. (‘NVC’; 4600001647) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for industrial cleaning services for foundation drainage systems and galleries at the Niagara Power Project. Such services utilize high-pressure water jet and vacuum cleaning processes for various concrete decks, walls, structures and piping systems at the Robert Moses Niagara Power Plant and Lewiston Pump Generating Plant. Bid documents were sent to 13 firms, including any that may have responded to a notice in the New York State Contract Reporter. Three proposals were received and evaluated. Staff recommended award of the subject contract to NVC, the lowest qualified bidder. The intended term of this contract is four years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $300,000.

“Due to the urgent need to commence services, the contract with RCM Technologies, Inc. (‘RCM’; 4600001642) became effective on May 30, 2006, subject to the Trustees’ subsequent approval as soon as practicable, in accordance with the Authority’s revised procurement policies and EAPs. The purpose of this contract is to provide for engineering/design and construction support services for the Seymour-to-Greenwood electrical interconnection project, which will increase the power supply to the Greenwood, Brooklyn/Staten Island load pocket, in order to provide power when it is most needed during the peak summer periods. To this end, bid documents were sent to 21 firms, including those that may have responded to a notice in the New York State Contract Reporter. Five proposals were received and evaluated based upon a rating structure, which compared bidders on various criteria, such as experience, technical presentation, key personnel, commitment to schedule and support during start-up, testing and commissioning (the latter vital to the success of the project). RCM was judged by staff to be the lowest qualified bidder meeting the requirements of the specification. Based on this determination, as well as its higher rating in the technical evaluation, staff recommended award of the subject contract to RCM. The intended term of this contract is 19 months, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $781,900, including contingency.

“The contract with RWB Contracting Corp. (‘RWB’; 4600001649) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for installation of new insulation and repair services for existing insulation at the Charles Poletti Power Project and 500 MW, Flynn and Small Clean Power Plants. Bid documents were sent to three firms, including those that may have responded to a notice in the New York State Contract Reporter. Two proposals were received and evaluated. Staff recommends award of the subject contract to RWB, the lowest-priced bidder. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $512,500.

Transmission

“The contract with Aviation Services Unlimited, Inc. (RFQ PD04246; PO# TBA) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for helicopter patrol services to support high-voltage transmission line inspections. Services include providing a pilot and appropriate aircraft to transport one or more Authority personnel performing such inspections on a typical annual schedule, consisting of two complete patrols of approximately 1,400 miles of the Authority’s transmission lines located throughout New York State. In addition, occasional emergency patrols may be required, for which a maximum two-hour response is required. All operations and maintenance must conform to Federal Air Regulations Part 135, as well as to additional qualifications, specifications and requirements specified by the Authority. Bid documents were sent to five firms, including those that may have responded to a notice in the New York State Contract Reporter. Four proposals were received and evaluated. Staff recommends award of the subject contract to Aviation Services, the lowest qualified bidder meeting the specification requirements. The intended term of this contract is three years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $800,000.

“The contract with Haverfield Corp. (6000069004, PO# TBA) would become effective on July 1, 2006, subject to the Trustees’ approval. The purpose of this contract is to provide for comprehensive aerial helicopter inspection, maintenance and repair of designated sections of the Authority’s transmission lines and associated structures located throughout New York State. Inspection services also include preparation of digital and hard-copy reports containing descriptions and pictures of all conditions found during the inspection. Such inspections will be conducted at the rate of approximately 20% of the lines per year over a five-year cycle. The maintenance is performed from a helicopter platform on energized lines owned and maintained by the Authority in 23 counties in New York State and is scheduled, as necessary, throughout the year. Bid documents were sent to four firms, including those that may have responded to a notice in the New York State Contract Reporter. Four proposals were received and evaluated. Staff recommends award of the subject contract to Haverfield Corp., the lowest-priced bidder, which is also highly qualified to perform such work. The intended term of this contract is five years, subject to the Trustees’ approval, which is hereby requested. Approval is also requested for the total estimated amount expected to be expended for the term of the contract, $1,500,000.

FISCAL INFORMATION

“Funds required to support contract services for various Business Units/Departments and Facilities have been included in the 2006 Approved O&M Budget. Funds for subsequent years, where applicable, will be included in the budget submittals for those years. Payment will be made from the Operating Fund.

“Funds required to support contract services for capital projects have been included as part of the approved capital expenditures for those projects and will be disbursed from the Capital Fund in accordance with the project’s Capital Expenditure Authorization Request. Payment for contracts in support of the Energy Services Programs will be made from the Energy Conservation Effectuation and Construction Fund. All costs, including Authority overheads and the cost of advancing funds, will be recovered by the Authority, consistent with other Energy Services and Technology Programs.

RECOMMENDATION

“The Deputy General Counsel, the Senior Vice President – Public & Governmental Affairs, the Vice President – Procurement and Real Estate, the Vice President – Engineering, the Vice President – Project Management, the Vice President – Environmental Management, the Vice President – Finance, the Treasurer, the Chief Information Officer, the Director – Employee Benefits, the Director – Corporate Support Services, the Director – Energy Services, the Director – Human Capital and Development, the Director – Power Generation Support Services, the Manager – Performance Planning, the Manager – Customer Load Forecasting, the Regional Manager – Northern New York, the Regional Manager – Western New York, the Regional Manager – Central New York, the Regional Manager – Southeastern New York and the Transmission Superintendent recommend the Trustees’ approval of the award of multiyear procurement contracts to the companies listed in Exhibit ‘15-A’ for the purposes and in the amounts set forth above.

“The Executive Vice President and General Counsel, the Executive Vice President – Corporate Services and Administration, the Executive Vice President – Chief Financial Officer, the Senior Vice President – Marketing, Economic Development and Supply Planning, the Senior Vice President – Energy Services and Technology, the Senior Vice President – Power Generation, the Senior Vice President – Transmission and I concur in the recommendation.”

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to the Guidelines for Procurement Contracts adopted by the Authority, the award and funding of the multiyear procurement services contracts set forth in Exhibit “15-A,” attached hereto, are hereby approved for the period of time indicated, in the amounts and for the purposes listed therein, as recommended in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

16. Procurement (Services) Contracts – Business Units and Facilities – Extensions and Approval of Additional Funding

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the continuation and funding of the procurement (services) contracts listed in Exhibit ‘16-A’ in support of projects and programs for the Authority’s Business Units/Departments and Facilities. Detailed explanations of the nature of such services, the reasons for extension, the additional funding required and the projected expiration dates are set forth below.

BACKGROUND

“The Authority’s revised Expenditure Authorization Procedures (‘EAPs’) require the Trustees’ approval when the cumulative change order value of a personal services contract exceeds the greater of $250,000 or 35% of the originally approved contract amount not to exceed $500,000, or when the cumulative change order value of a non-personal services, construction, equipment purchase or non-procurement contract exceeds the greater of $500,000 or 35% of the originally approved contract amount not to exceed $1,000,000.

DISCUSSION

“Although the firms identified in Exhibit ‘16-A’ have provided effective services, the issues or projects requiring these services have not been resolved or completed, and the need exists for continuing these contracts. The Trustees’ approval is required because the terms of these contracts exceed one year and/or because the cumulative change order limits will exceed the levels authorized by the EAPs in forthcoming change orders. All of the subject contracts contain provisions allowing the Authority to terminate the services at the Authority’s convenience, without liability other than paying for acceptable services rendered to the effective date of termination. These contract extensions do not obligate the Authority to a specific level of personnel resources or expenditures.

“Extension of each of the contracts identified in Exhibit ‘16-A’ is requested for one or more of the following reasons: (1) additional time is required to complete the current contractual work scope or additional services related to the original work scope; (2) to accommodate an Authority or external regulatory agency schedule change that has delayed, reprioritized or otherwise suspended required services; (3) the original consultant is uniquely qualified to perform services and/or continue its presence and rebidding would not be practical or (4) the contractor provides a proprietary technology or specialized equipment, at reasonably negotiated rates, that the Authority needs to continue until a permanent system is put in place.

Contracts in Support of Business Units/Departments and Facilities:

Business Services

“The contract with Fujitsu Consulting Inc. (4500108742) provides for implementation and related consulting services for an electronic Records Management System (OpenText ‘Live Link’) for the Authority. The original award, which was competitively bid, became effective on July 5, 2005 for a term of one year. Due to delays in resolving the issues encountered in executing the data conversion from the multiple legacy systems into the new Live Link records management application, a six-month extension is now requested in order to provide additional time to complete implementation of the new system. The current contract amount is $592,065; it is currently anticipated that no additional funding will be required for the extended term. The Trustees are requested to approve the extension of the subject contract through December 31, 2006, with no additional funding requested.

Corporate Services and Administration

“The three contracts with Alexander Building Corp. (‘Alexander’; 4600001432), Capital Construction Management (‘Capital’; 4600001434) and GTL Construction (‘GTL’; 4600001431) provide for general contracting services at the Clarence D. Rappleyea Building in White Plains. The original awards, which were competitively bid, became effective on April 1, 2005 for an initial term of one year, with an option to extend for up to two additional years. A short-term interim extension of all three contracts through June 30, 2006 was subsequently authorized in accordance with the Authority’s Guidelines for Procurement Contracts and EAPs. A two-year extension of the contracts with Alexander and Capital is now requested to exercise the contract options. The current ‘Target Value’ is $400,000 for each of the three contracts; staff estimates that additional funding in the amount of $1,000,000 each for the two contracts with Alexander and Capital will be required for the option years. The Trustees are requested to ratify the previously authorized interim extension of all three contracts and to approve the extension of the two contracts with Alexander and Capital through March 31, 2008, as well as the additional funding requested.

“The three contracts with Angela McRae (‘McRae’; 4500108556), Harrison I. Getz, Jr. (‘Getz’; 4500116013) and Russell Brod (‘Brod’; 4500112184) provide for on-premises computer graphic design and production services for print materials including, but not limited to, the Authority’s Annual Report, marketing and promotional brochures, newsletters, posters, advertising materials, presentations and exhibits using MacIntosh computers, as well as website development in both MacIntosh and PC format and design and production of PowerPoint slide presentations in the PC format. The original awards, which were competitively bid, became effective on June 7, November 1 and August 10, 2005, respectively, for an initial term of one year, with an intended option to extend for an additional year. A one-year extension of each contract is now requested to exercise the intended option in order to continue the aforementioned services, as needed. The current contract amounts are $65,000 each for McRae and Brod and $80,000 for Getz, respectively; it is anticipated that an additional $65,000 each for the contracts with McRae and Brod, and $80,000 for the contract with Getz, will be required for the option year. The Trustees are requested to approve the extension of the subject contracts through June 6, October 31, and August 9, 2007, respectively, as well as the additional funding requested.

“The contract with the firm of Joanne Darcy Crum, L.S., a New York State certified Woman-Owned Business Enterprise (4500104510), provides for land-surveying support services at the Authority’s Real Estate Office at the Blenheim-Gilboa Project. The contractors provide routine surveying support for the Engineering, Licensing and Real Estate divisions, including hydro project relicensing and various other efforts, and also perform work associated with ongoing maintenance and management of the Geographic Information System (‘GIS’) under the direction and supervision of Authority staff. The original contract, which was awarded as the result of a competitive search, became effective on March 7, 2005 for an initial term of one year, with an option to extend for an additional year. A short-term interim extension through June 30, 2006 was authorized in accordance with the Authority’s Guidelines for Procurement Contracts and EAPs. A one-year extension is now requested in order to exercise the contract option. The current contract amount is $140,000; it is anticipated that an additional $70,000 will be required for the option year. The Trustees are requested to ratify the previously authorized interim extension and to approve the extension of the subject contract through March 6, 2007, as well as the additional funding requested.

“The contract with Laro Service Systems, Inc. (4500104843) provides for janitorial services to the Authority and its subtenant, the New York State Office of Alcohol and Substance Abuse Services (‘OASAS’), for their offices at 501 Seventh Avenue, 8^th and 9^th floors, in New York City. The original award, which was competitively bid, became effective on April 1, 2005 for an initial term of one year, with an option to extend for up to two additional years. A short-term interim extension through June 30, 2006 was authorized in accordance with the Authority’s Guidelines for Procurement Contracts and EAPs. A two-year extension is now requested in order to exercise the contract option. The current contract amount is $115,000; it is anticipated that an additional $210,000 will be required for the option years. The Trustees are requested to ratify the previously authorized interim extension and to approve the extension of the subject contract through March 31, 2008, as well as the additional funding requested.

Energy Services & Technology

“The four contracts with BGA, LLC (4600001406), Genesys Engineering, PC (4600001407), Greenman-Pedersen, Inc. (4600001408) and RMF Engineering, Inc. (4600001409) provide for engineering and design services and/or specialty engineering consulting services in support of the Authority’s Energy Services projects statewide on an ‘as needed’ basis. The original awards, which were competitively bid, became effective on April 1, 2005 for an initial term of one year, with an option to extend for up to two additional years. A short-term interim extension through June 30, 2006 was subsequently authorized in accordance with the Authority’s Guidelines for Procurement Contracts and EAPs. A two-year extension is now requested to exercise the contract option in order to provide for the continuation of services, as may be required. The contracts were initially funded for the first year only in order to train the consultants and monitor/assess their performance. In addition, when these contracts were awarded, the projected annual volume of energy services implementation project work was $70 million; in 2006, this goal was increased to $100 million. Staff expects this trend to continue and anticipates that all four firms will be used more heavily in the next two years. The current ‘Target Values’ total $200,000; staff estimates that additional funding in the combined amount of $700,000 (to be allocated to the consultant(s) that are best able to meet the Authority’s needs as the work arises) will be required for the option years. The Trustees are requested to ratify the previously authorized interim extension of these contracts and to approve the extension of the subject contracts through March 31, 2008, as well as the additional funding requested. It should be noted that all costs will be recovered by the Authority.

“The contract with Riverdale Electrical Services Inc. (4500108527) provides for lighting and sensor installation services at Lincoln Hospital in the Bronx as part of HELP. The original award, which was competitively bid, became effective on June 20, 2005 for a term of less than one year. Due to the customer’s various design changes and additional work requests, as well as coordination with the concurrent effort by another contractor to install a new boiler for the hospital, completion of this project has been delayed. A six-month extension is therefore requested in order to provide sufficient time to complete all contract services. The current contract amount is $575,923; it is anticipated that no additional funding will be required for the extended term. The Trustees are requested to approve the extension of the subject contract through December 31, 2006 with no additional funding requested. It should be noted that all costs will be recovered by the Authority.

Internal Audits

“The Authority has been providing low-cost power to business and non-profit groups under various Economic Development Programs that were enacted by State legislation. The companies applying for and receiving this low-cost power agree to maintain and/or create jobs in New York State. These customers are required to report their job levels annually to the Authority. If the promised job levels are not maintained, the power allocations may be reduced entirely or in proportion to the job levels reported. Each year, the Authority’s Internal Audit staff selects a sample of customers and performs an on-site verification of the job commitments. The contract with Dannible & McKee, LLP (4500104525) provides for such additional audit resources/ services in connection with customer job commitments to the Authority’s Economic Development and Power for Jobs programs. This contract has enabled the Authority to expand the number of customers that are visited and reviewed annually to verify that job levels reported by customers are accurate and in compliance with contractual requirements. The original award, which was competitively bid, became effective on March 16, 2005 for an initial term of one year, with an option to extend for up to two additional years. A short-term interim extension through June 30, 2006 was authorized in accordance with the Authority’s Guidelines for Procurement Contracts and EAPs. A two-year extension is now requested to exercise the option in order to continue services, as may be required. The current contract amount is $120,000; it is anticipated that an additional $100,000 may be required for the option years. The Trustees are requested to ratify the previously authorized interim extension and to approve the extension of the subject contract through March 15, 2008, as well as the additional funding requested.

Law Department

“The firm Hawkins Delafield & Wood LLP provides legal services under a contract (4500087608) that became effective January 1, 2004 and expires June 30, 2006, as approved by the Trustees at their meetings of September 23, 2003, December 13, 2005 and March 28, 2006, respectively. This firm is currently advising the Authority on financial matters, including bond, note and other debt issuances; issues arising under bond and note resolutions; tax issues; issues relating to hedging instruments; compliance with applicable IRS regulations and miscellaneous issues arising under the Federal Tax Code. The firm also provides general advice as to the Authority’s statutory powers and responsibilities, analyzes the effect of legislation amending the Public Authorities Law and provides advice as to implementation of the public authorities reform legislation and regulations recently issued by the State Comptroller. The Authority, through a notice in the New York State Contract Reporter, solicited submission of proposals (Q-02-3837) for a wide range of outside legal consulting services, including the types of services provided by this firm. In order to provide for additional time to review and evaluate all proposals received on May 30, 2006 for consideration by the General Counsel, staff is requesting an additional extension of the existing contract through September 30, 2006. The current contract amount is $1,725,000 (the approved total); staff anticipates that no additional funding will be required. The Trustees are hereby requested to approve the extension of the subject contract through September 30, 2006, with no additional funding requested.

Power Generation

“The contract with IEM Energy Consultants, Inc. (4500094535) provides for the consulting services of Jeffrey J. Fassett in support of the negotiations with General Electric (‘GE’) regarding a potential new Contractual Services Agreement (‘CSA’) to cover required maintenance and services for the GE gas and steam turbines at the 500 MW Combined Cycle Plant. Services also include financial modeling support and O&M budget preparation assistance. The original contract, which was awarded as the result of a competitive search, became effective on August 20, 2004 for an initial term of less than one year. At their meeting of June 28, 2005, the Trustees approved an extension through December 31, 2005 and additional funding in the amount of $50,000. A further six-month extension, as well as an additional $50,000, was subsequently authorized in accordance with the Authority’s Guidelines for Procurement Contracts and EAPs. A nine-month extension is now requested in order to provide for the continuation of such consulting support for the CSA through execution by all parties, which may extend into 2007. The current contract amount is $150,000; it is currently anticipated that an additional $75,000 may be required for the extended term. Mr. Fassett has the technical and commercial expertise to assist the Authority in negotiating this extremely important contract. The Trustees are requested to approve the extension of the subject contract through March 31, 2007, as well as the additional funding requested.

“At their meeting of September 20, 2005, the Trustees last approved an increase in the compensation ceiling of the contract with Slattery Skanska, Inc. (‘SSI’; 4500064161), which provided for the construction of the 500 MW Combined Cycle Plant, to a maximum amount of $332,310,000. The Trustees are now requested to approve a final settlement up to a maximum amount of $1,640,000, plus any outstanding retention, to be paid to SSI for all additional work performed by SSI for completion of the construction of the 500 MW Combined Cycle Plant. This additional work included electrical and fire alarm work required by the New York City Fire Department, access and personnel protection work, piping and mechanical modifications identified during start-up and commissioning and heat tracing, insulation and cathodic protection work necessitated design deficiencies requiring redesign by General Electric. This additional amount is included in the current 500 MW Capital Expenditure Authorization Request (‘CEAR’). SSI has agreed to a complete waiver of all claims. As part of the settlement, the Authority would also potentially relieve SSI of responsibility for two warranty issues, depending on the estimated cost to re-perform such work. In accordance with the Authority’s EAPs, the Trustees are requested to approve the additional funding requested, thereby increasing the total contract value to a maximum amount of $333,950,000. Such payment is subject to execution by SSI of a final Change Order, the form of which will be approved by the Executive Vice President and General Counsel or his designee.

FISCAL INFORMATION

“Funds required to support contract services for various Headquarters Office Business Units/Departments and Facilities have been included in the 2006 Approved O&M Budget. Funds for subsequent years, where applicable, will be included in the budget submittals for those years. Payment will be made from the Operating Fund.

“Funds required to support contract services for capital projects have been included as part of the approved capital expenditures for those projects and will be disbursed from the Capital Fund in accordance with the Project’s Capital Expenditure Authorization Request (‘CEAR’). Payment for contracts in support of the Energy Services Programs will be made from the Energy Conservation Effectuation and Construction Fund. All costs, including Authority overheads and the cost of advancing funds, will be recovered by the Authority, consistent with other Energy Services and Technology Programs.

RECOMMENDATION

“The Deputy General Counsel, the Senior Vice President – Public and Governmental Affairs, the Vice President – Project Management, the Vice President – Procurement and Real Estate, the Vice President – Internal Audits and Corporate Compliance, the Chief Information Officer, the Director – Energy Services, the Director – Corporate Support Services, the Regional Manager – Central New York and the Regional Manager – Southeastern New York recommend that the Trustees’ approve the extensions and additional funding of the procurement contracts listed in Exhibit ‘16-A.’

“The Executive Vice President and General Counsel, the Executive Vice President – Corporate Services and Administration, the Executive Vice President – Chief Financial Officer, the Senior Vice President – Energy Services and Technology, the Senior Vice President – Power Generation and I concur in the recommendation.”

Mr. Hoff presented the highlights of staff’s recommendations to the Trustees. He said that Procurement had just received proposals for general legal services and anticipated coming back to the Trustees sometime in the fall for approval of new contracts involving these types of services. Chairman McCullough said that closing out the Slattery Skanska, Inc. 500 MW contract was beneficial to the Authority.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to the Guidelines for Procurement Contracts adopted by the Authority, each of the contracts listed in Exhibit “16-A,” attached hereto, is hereby approved and extended for the period of time indicated, in the amounts and for the purposes listed therein, as recommended in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

[1] The Host Communities consist of the seven municipal entities that would exercise taxing jurisdiction over areas encompassed by the Project boundary established by FERC if Project lands were taxable. These communities are the City of Niagara Falls, Niagara County, the Towns of Lewiston and Niagara and three school districts: Lewiston-Porter, Niagara-Wheatfield and the City of Niagara Falls.

Table of Contents

SUMMARY

DISCUSSION

RECOMMENDATION

Public Buildings-Single Phase SC5 4,843 5,243 8.3%

Residential SC1

Small Commercial-Single Phase SC3

Large Commercial-Multi Phase SC4-A

Large Commercial-Single Phase SC4-B

Public Buildings-Single Phase SC5

Security Lighting SC6

RECOMMENDATION

SUMMARY

FISCAL INFORMATION

RECOMMENDATION