MINUTES OF THE SPECIAL MEETING
OF
THE GOVERNANCE COMMITTEE
September 27
, 2011

 

A meeting of the Governance Committee was held via videoconference at the Authority’s offices at 123 Main Street, White Plains, New York at approximately 8:30 a.m.

The following Members of the Governance Committee were present:

 

Trustee Eugene L. Nicandri, Chairperson

Trustee Jonathan Foster

Trustee D. Patrick Curley

Trustee John S. Dyson

Trustee Mark O’Luck – excused

 

Also in attendance were:

Gil Quiniones                                       Acting President  & Chief Executive Officer
Judith McCarthy                                 Acting General Counsel
Edward Welz                                        Acting Chief Operating Officer – Power Supply
Joan Tursi                                             Senior Vice President – Corporate Support Services
Paul Finnegan                                     Senior Vice President – Public, Government & Regulatory Affairs
Randy Crissman                                  Vice President – Technical Compliance
Joseph Gryzlo                                      Vice President – Labor Relations and Chief Ethics and
Compliance Officer
Patricia Leto                                        Vice President – Procurement
Lesly Pardo                                          Vice President – Internal Audit
Brian McElroy                                     Treasurer
Karen Delince                                      Corporate Secretary
Dennis Eccleston                                 Chief Information Officer
Rod Mullin                                           Director – Fuel Planning and Operations
Mark O’Connor                                   Director – Real Estate
Shannon Sramek                                 Senior Investment Analyst
Lorna Johnson                                     Assistant Corporate Secretary
Louise Nestler                                      Assistant Ethics Officer
Sheila Baughman                                   Senior Secretary, Corporate Secretary’s Office

 

Chairman Nicandri welcomed staff members to the meeting.


 

By motion made and seconded, the September 27, 2011 meeting agenda was adopted.


 

                The minutes of the Committee’s March 14, 2011 meeting were adopted.


Mr. Joseph Gryzlo provided an update of the Authority’s Ethics and Compliance program.  He gave an overview of the functions of the Ethics and Compliance office stating that, under the Public Officers Law, the Ethics office develops and implements the Authority’s code of conduct.  They also develop ethics training, provide guidance to staff and Trustees and interface with the states Ethics Commission on matters pertaining to the laws that are applicable to the Authority.  In addition, working closely with the Authority’s business units and departments, they provide general oversight for the Authority’s compliance with the laws, regulations, policies and other standards applicable to the Authority.  He explained that inquiries typically are received from employees and, externally, from interested members of the public and referrals from other state entities.

In response to a question from Trustee Foster, Mr. Gryzlo said a number of Authority employees and officers seek outside employment to supplement their compensation and this could be a factor of the weak economy.  In response to further question from Trustee Foster, Mr. Gryzlo said, as a general rule, if an employee is interested in pursuing outside employment, whether or not they will be compensated for it, that employee should first obtain approval from their supervisor or department head.  The Ethics office then evaluates the request based on the employee’s specific job responsibilities and the Authority’s interest in the company the employee is seeking to join.  In response to still further question from Trustee Foster, Mr. Gryzlo said the majority of employees that request approval for outside employment receive that approval.  He added that the Ethics office has to obtain additional approval from the state for employees and officers if they are in policy-making positions and based on the annual income to be earned from the outside employment, the minimum threshold of which is $4,000.  Responding to another question from Trustee Foster, Mr. Gryzlo said some examples of the types of jobs employees seek approval for are consultants, municipal judges, part-time professors, tax and financial preparers. 

In response to a question from Chairman Nicandri, Mr. Gryzlo said that union employees are evaluated for outside employment.  In response to a question from Trustee Curly, Mr. Gryzlo said that outside employment include political office and board memberships.  In response to a question from Trustee Foster, Mr. Gryzlo said that all employees are subject to the approval process.

Mr. Gryzlo continued that the Ethics office also evaluates post-employment and conflicts of interest issues.  He said there were two laws that govern post-employment: the two-year bar which is the timeframe an employee is precluded from working with the Authority after they have left its employment; and the life-time bar which, based on the employee’s job responsibility at the Authority, precludes that employee from working on behalf of another organization on matters they were responsible for while employed by the Authority.  In response to a question from Chairman Nicandri, Mr. Gryzlo said that post-employment would apply to hiring employees back as consultants and contractors which would require additional approval from the State Ethics office and the State Controller’s office; however, the Authority would consider hiring employees in an emergency situation such as the recent flood at the Blenheim-Gilboa project in order to obtain the necessary skills when time is of the essence. 

Mr. Gryzlo also reported that there has been an increase in activity in the employee concern Hotline.  The Ethics office evaluates the concerns by conducting investigations, usually in partnership with other internal resources of the Authority, e.g. Human Resources, Internal Audit, Corporate Security.  Also, depending on the nature of the allegation, the Ethics office can use resources outside of the Authority.  The Inspector General’s Office also refers matters to the Authority’s Ethics office for investigation.  Mr. Gryzlo said that during the reporting period the Ethics office did not have any allegations that resulted in termination; however, corrective action has been taken with respect to some allegations.  Mr. Gryzlo ended by stating that Governor Cuomo has signed new ethics reform legislation into law which the Ethics office is reviewing for impacts, if any, on the Authority's Code of Conduct. 


Compliance Update

Mr. Randy Crissman gave an update of the Authority’s Environmental Health and Safety audit program and the North American Electric Reliability Corporation (“NERC”) Reliability Standards Compliance audit program.  

Environmental Health and Safety

Mr. Crissman said that the environmental health and safety audits, performed by outside consultants, confirmed that the Authority continues to be in compliance with the applicable environmental health and safety laws, regulations, permits, policies and procedures.   The audits identified more than 400 findings, three of which were identified as high level regulatory findings; these have since remediated and closed.  Most of the other findings were also remediated and closed.  Staff is currently developing an addendum to a 2009 Environmental Risk Assessment.  The addendum will include health and safety compliance requirements which were added to the program.  The risk assessment results are being used as a benchmark for future audits requirements of high risk to the Authority.  Internal Audit conducted an audit of the program in 2011.  The audit recommended certain actions to strengthen the program which are being implemented and will be completed by the end of 2011.

 In response to a question from Trustee Curley, Mr. Crissman said that one of the recommendations from Internal Audit was to ensure that oversight of the program is strengthened to ensure that it is properly communicated the Committee.  In response to an additional question from Trustee Curley, Mr. Crissman said the recommendations from Internal Audit were not technical in nature, but, rather, related to administration of the program.

NERC Reliability Standard Compliance Program

Mr. Crissman stated that the Authority has been subject to NERC’s mandatory reliability standards since June 2007 under FERC Order 693 and the mandatory Critical Infrastructure Protection (“CIP”) or cyber security standards since January 2010 under FERC Order 706.  These standards are applicable to the Authority’s current NERC registrations as a Transmission Owner, Generator Owner, Generator Operator, Purchasing and Selling Entity, and a Load Serving Entity.
Audits
Mr. Crissman reported that in July, the Northeast Power Coordinating Council (“NPCC”), the regional entity that oversees NERC’s Compliance Monitoring and Enforcement Program, completed an on-site, FERC Order 706 audit (“CIP standards”) and an off-site FERC Order 693 audit (non-CIP standards) of the Authority.  There were no findings from those audits.   Notably, the auditors identified several areas of excellence in the Authority’s internal compliance program.  The reports are expected to be completed and submitted to NERC in October.
Self-Reported Potential Violations
Mr. Crissman said that, as part of the Compliance Program, to date, the Authority has self-reported sixteen potential violations of the NERC reliability standards; four of the potential violations were subsequently dismissed.  The Authority submitted mitigation plans for the remaining twelve potential violations which were approved by NPCC and NERC and filed with FERC.  The Authority has completed ten of the mitigation plans; the two remaining mitigation plans are in progress and will be completed in December.
 Settlements
Mr. Crissman stated that in 2011, the Authority had settlement discussions with NPCC for the ten potential violations with completed mitigation plans.  These discussions resulted in two separate settlement agreements that required penalty payments by the Authority in the amount of $11,000.  NPCC gave the Authority credit for its well-established internal compliance program and culture in determining these penalties.


Mr. Crissman ended by saying that the Authority’s “best-in-class” internal reliability standards compliance program and culture have positioned the Authority to have less stringent oversight by NPCC and NERC under a new enforcement program which recognizes excellent performance and which NERC will implement in 2012.  This is a significant outcome from the recent audits and the management of the Authority’s self-reported violations.  Also, FERC and NERC are in the process of developing a revised definition of the Bulk Electric System to obtain greater consistency in the application of the standards across North America.  The new definition will be in effect in 2012 and will apply to all assets at or above 100 kV.   Authority staff is tracking these developments and assessing the potential impacts on the Authority in terms of its NERC registrations and compliance program.

Responding to a question from Chairman Nicandri, Mr. Crissman said the Authority has established an internal procedure for identifying potential violations to be self-reported.  Potential violations are evaluated by staff members who are experts on the subject matter to determine if it requires self-reporting by the Authority.  In response to further question from Chairman Nicandri, Mr. Crissman said that the process involves review and recommendation of the violations; the ultimate decision, however, is made in consultation with the Messrs. Gil Quiniones and Edward Welz and the Law Department.  Mr. Quiniones added that that, in the past, reliability compliance reporting was done voluntarily by agencies; however, since the 2003 “black-out,” Federal legislation was passed making it mandatory and NERC was assigned to enforce this requirement.


Ms. Joan Tursi said that status reports on procurement and real estate activities for the period January - June 2011 will be presented.

4.1      Procurement Contract Activity

            Ms. Patricia Leto highlighted the following procurement contract activities:

         $173 million;

 

 

 

           


4.2      Disposal of Personal Property

Ms. Leto said that under the Public Authorities Accountability Act (“PAAA”), the Authority is required to prepare a report listing all personal property over $5000 in value disposed of during the reporting period.  For the period ended June 30, 2011, the Authority received $106,467.50 for the sale of scrap copper cable and $22,563.71 for miscellaneous surplus inventory material at the Charles Poletti Project. 

Fleet Operations

Ms. Tursi said that during the reporting period ended June 30, 2011 the Authority participated in one fleet-related auction conducted by JJ Kane Auctioneers.  This auction resulted in the sale of 55 units of property.

The total amount for all personal property with a value in excess of $5,000 for the reporting period is approximately $345,000.

In response to a question from Trustee Dyson, Ms. Tursi said that the Authority sends the reports to the Controller’s Office.  Ms. Judith McCarthy added that the report to the Controller’s Office is to ensure accountability and transparency on the part of agencies.
4.3      Acquisition and Disposal of Real Property

Mr. Mark O’Connor reported on the acquisition and disposal of real property, as well as leasing and permitting activities for the period January 1, thru June 30, 2011. 

Acquisitions
With regards to acquisitions, of note is the acquisition of easements from Astoria Energy II for construction of a substation and associated underground facilities.  These easements will allow the Authority to use the output from the Astoria Energy II Plant and transmit it through the Poletti transmission leads into the Manhattan market through Con Edison’s substation.

Danger Tree Permits
This program allows the Authority to acquire property rights off the transmission right-of-way to remove vegetation which has grown to a sufficient height to threaten the safe operation of the Authority’s transmission system.  During this reporting period, staff obtained 73 danger tree permits.

Land Use Permits
The Real Estate division issued six land use permits during the reporting period.  These permits are issued by the Authority to allow others to use the Authority’s land holdings (normally easement rights) in a safe and productive way and consistent with the safe operation of the Authority’s transmission facilities.

Dispositions
During the reporting period, the Real Estate division conveyed a 24-acre site to Niagara University.  This parcel adjoins the Niagara University campus and it concludes an important commitment the Authority made during the relicensing.  Staff is currently working on the conveyance of the Authority’s old ice-boom storage site.  This 14-acre site will be conveyed to the Erie Canal Development Corporation as part of the Western New York region’s effort to renovate the Lake Erie waterfront.

Leasing
The Authority owns the building at 123 Main Street and occupies approximately 60% of it.  Approximately 40% of the building is occupied by lease-paying tenants.  This leasing operation generates about $3.8 million of gross revenue.  As of the reporting period, the building was 100% occupied.  However, JPMorgan Chase has now vacated their leasehold on the 4th floor.  Staff is currently attempting to market this space and have had some interest; staff will seek the Trustees’ approval as soon as suitable tenant is engaged.  Also, the lease for the Authority’s New York Office space located at 501 Seventh Avenue has been renewed for a period of one year and will expire on August 31, 2012.

St. Lawrence Relicensing
One of the major commitments the Authority made during the relicensing of the St. Lawrence/FDR Power Project was to convey certain lands, identified as surplus, to either municipalities or landowners who owned adjoining lands to these properties.  To date, staff has conveyed all of the lands committed to various municipalities of Lisbon, Louisville, Waddington and Massena.  In addition, of the 520 parcels committed to private landowners, approximately 407 parcels have been conveyed. 

In response to a question from Trustee Foster, Mr. O’Connor said that the average rental for space in the Clarence D. Rappleyea building in White Plains is $26 per square foot.  He added that staff endeavors to keep the rental costs fairly consistent for all of the tenants in the building.

In response to a question from Trustee Curley, Mr. O’Connor said that the Authority acquired a new ice boom storage facility and is working with staff from the Erie Canal Harbor Development Corporation (“ECHDC”) to transfer the old ice boom site to ECHDC.  The Authority has transferred a draft deed  for the “old site” to the Erie Canal Harbor Development Corporation and they have requested additional environmental testing.  In response to further question from Trustee Curley, Mr. O’Connor said that the deal is not yet completed; however, staff is expecting to close the transaction by the end of the year.

 


4.4      Supplier Diversity Program Activities

Ms. Leto reported that for the period ended June 30, 2011, the Authority had awarded $20.9 million (13.57%) of its reportable expenditures to New York State Certified Minority and Women-Owned Business Enterprises (M/WBEs).  A major component of the Authority’s M/WBEs 2011-2012 goal plan was to increase its reportable expenditures to 8% to help meet the Governor’s goal for minority and women-owned firms to account for 20 percent of the state’s business. 

 


4.5      Inventory Statistics

Ms. Leto reported that as of June 30, 2011, the total stock value of the Authority’s inventory was $86,378,889.  This is slightly lower than 2010 because of  field poles issued out at the Niagara Project ($1.6 million) and inventory sold in 2010 from the Poletti Project ($2 million).

            The Construction of the new Niagara Warehouse which began in March 2010 is near completion.  Of note, the firm contracted to construct the warehouse is SLR Contracting and Service Co., Inc., a New York State Certified Minority and Women-Owned Business Enterprises (M/WBEs) based in Buffalo.  In response to a question from Trustee Dyson, Ms. Leto said that the contract for the construction of the warehouse was competitively bid.
4.6      Fossil Fuels Activity

Mr. Rod Mullin said that the total fuel purchases and related costs for the period January 1 thru June 30, 2011 was $116.5 million.  Of this total, $116.2 million was spent on natural gas purchases and associated costs and $300,000 on oil storage and inspection.  There were 28 natural gas and oil contracts in total, all of which were competitively bid.  Of note, the firm contracted for the gas procurement, transaction of value of which was approximately $2 million, was YAKA Energy, a certified M/WBE.

 

Fuel Prices for products that impact the Authority’s cost of doing business are as follows:

 

Prices for Natural Gas, the primary fuel for the Authority’s downstate units, are comparatively low due to weak demand, high storage levels and increased supply and deliverability to the Northeast.


4.7      Corporate Finance Activity

            Mr. Brian McElroy said that the “Corporate Finance Addendum” lists non-procurement agreements that the Authority has with specialized financial institutions for the management of its debt program.  Of note is the Authority’s revolving line of credit (65 basis point or $3.5 million per year) with the syndicate of JPMorgan Chase and four other highly-rated financial institutions to support the Authority’s commercial paper program which is required under the Authority’s Commercial Paper Notes Resolution. 

In response to a question from Trustee Dyson, Mr. McElroy said that financial institutions were selected through the bidding process.  The services are bid-out to selected financial firms that meet the Authority’s credit quality standards.  Based on the proposals, the Authority selected the syndicate as it was the only proposal that bid for the entire line amount and represented the lowest cost as compared to combining several individual proposals.

 


5.             Motion to Conduct an Executive Session

Mr. Chairman, I move that the Authority conduct an executive session pursuant to the Public Officers Law of the State of New York section §105 to discuss matters leading to the appointment, employment, promotion, demotion, discipline, suspension, dismissal or removal of a particular person or corporation.
On motion made and seconded, an Executive Session was held.


Mr. Chairman, I move to resume the meeting in Open Session.  On motion made and seconded, the meeting resumed in Open Session.


                The next regular meeting of the Governance Committee will be held on Tuesday, October 25, 2011, at 8:30 a.m., in the White Plains Office.  On motion made and seconded the meeting adjourned at approximately 9:30 a.m.