MINUTES OF THE MEETING
THE GOVERNANCE COMMITTEE
A meeting of the Governance Committee was held 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:
Michael J. Townsend Chairman
Gil Quiniones President and Chief Executive Officer
Judith McCarthy Executive Vice President and General Counsel
Edward Welz Acting Chief Operating Officer
Donald Russak Acting Chief Financial Officer
Joan Tursi Senior Vice President – Corporate Support Services
Joseph Gryzlo Vice President 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
Saul Rojas NERC Reliability Compliance Program Manager
Gary Schmid Manager Network Services, Infrastructure
Lorna Johnson Assistant Corporate Secretary
Louise Nestler Assistant Ethics Officer
Sheila Baughman Senior Secretary, Corporate Secretary’s Office
Chairman Nicandri welcomed committee and staff members to the meeting.
1. Adoption of the Proposed Meeting Agenda
By motion made and seconded, the March 27, 2012 meeting agenda was adopted.
2. Minutes of the Regular Meeting of November 15, 2011
The minutes of the Committee’s November 15, 2011 meeting were adopted.
3. Review and Recommendation of Employee Corporate Policies
Ms. Joan Tursi presented the highlights of staff’s recommendation to the Committee. She said Section 2824 of the Public Authorities Law requires the Authority’s Trustees to establish policies regarding the payment of salary, compensation, reimbursements and time and attendance of the Authority’s employees. Also, Section 2 of the Authority’s By-laws requires the Authority’s Trustees to annually review and approve these policies.
Ms. Tursi said the proposed changes to the policies are to provide clarity, transparency and accountability and address organizational changes. She then outlined the significant changes to each policy. The policies are as follows:
3.1 Salary Administration Policy (EP 2.1)
3.2 Salaried Non-Exempt and Facility-Based Exempt Overtime (EP 2.4)
3.3 Employee Benefits Eligibility (EP 3.1)
3.4 Reimbursement of Employee Meal Costs (CAP 1.5)
3.5 Attendance & Flexible Hours (EP 4.6)
3.6 Vacation (EP 3.2)
3.7 Travel (CP 2-1)
In response to a question from Trustee Mark O’Luck, Ms. Tursi said the Salary Administration Policy was revised to provide restrictions on promotional increases. If a promotional increase is more than 10%, it has to be approved by the Compensation Committee, with final approval by the President and Chief Executive Officer. President Quiniones added that promotions for Vice President and above, has to be approved by the Governance Committee and the Board of Trustees.
Responding to further question from Trustee O’Luck, Ms. Tursi said that the incentive pay is usually a lump-sum payment awarded for special achievements. The language was added back to the policy in order that management would be able to make an award for outstanding achievements by employees working on major projects.
Responding to a question from Chairman Nicandri, Ms. Tursi said she would explore and report to the Committee the feasibility and advisability of monetary awards as it relates to employees acting above and beyond the call of duty in instances such as the flood at the Blenheim-Gilboa plant last August, where no parameters are established.
On motion made and seconded the revised corporate policies relating to salary, compensation, reimbursements and time and attendance of the Authority’s employees were unanimously approved.
4. Review and Recommendation of Guidelines and Procedures
Ms. Tursi said Ms. Patricia Leto will report on the recommendations for the Authority’s Guidelines for Procurement Contracts and the Guidelines and Procedures for the Disposal of Personal Property and Mr. Mark O’Connor will report on the recommendations for the Guidelines and Procedures for the Disposal of Real Property and Guidelines and Procedures for the Acquisition of Real Property.
4.1 Guidelines and Procedures for Procurement Contract
Ms. Leto said the Guidelines for Procurement Contracts have been revised to make it consistent with the law; clarify or improve the Authority’s procurement process; and reflect any organizational changes in the Authority. Ms. Leto then highlighted the major revisions relating to the Comptroller’s approval or filing of certain Change Orders and prohibitions regarding preparation of specifications by outside consultants.
4.2 Guidelines and Procedures for the Disposal of Personal Property
Ms. Leto said staff reviewed the Guidelines for Personal Property and no substantive changes were being recommended; only organizational changes were recommended.
4.3 Guidelines and Procedures for the Disposal of Real Property
Mr. O’Connor said the Guidelines have been developed by staff pursuant to the Public Authorities Accountability Act to ensure that the Authority’s transactions as it relates to the acquisitions and dispositions of real property are transparent to the public while preserving the Authority’s ability to assist in economic development.
Mr. O’Connor said the Authority has very little surplus real property; all properties deemed surplus has been identified in the recent relicensing process for St. Lawrence and Niagara Plants.
The Guidelines outline the procedures for:
· Acquisition, disposal and valuation of real property
· Inventory control over Authority assets
· Compliance overview
· Duties of the Director of Real Estate
· Ethical considerations
· Annual reporting
4.4 Guidelines and Procedures for the Acquisition of Real Property
Mr. O’Connor said that the only substantive change in the 2012 Guidelines is a change in title, which reflects operational changes made within the past year. The Senior Vice President – Corporate Support Services is named as the Authority’s contracting officer.
Mr. O’Connor also said that under the Authority’s current expenditure authorization procedure, all acquisitions by eminent domain and all acquisitions or disposals greater than $10k must be submitted separately to the Authority’s Trustees for approval.
By motions made and seconded the Guidelines for Procurement Contracts; Guidelines and Procedures for the Disposal of Personal Property; Guidelines and Procedures for the Disposal of Real Property; and Guidelines and Procedures for the Acquisition of Real Property were unanimously approved.
5. Procurement and Real Estate Reports
Ms. Joan Tursi said that status reports on procurement and real estate activities for the period ended December 31, 2011 will be presented.
5.1 Procurement Contract Activity
Ms. Patricia Leto highlighted the following procurement contract activities:
· The total expenditures for procurement contracts for the period ended December 31, 2011 exceeded
· 12% of the contracts were for construction work;
· 47% for the purchase of equipment and commodities;
· 10% for personal service contracts (professional consulting services);
· 2% for architectural and engineering services
· 2% for legal services
· 27% for other service-based contracts;
· approximately 97% of the total amount expended were for contracts that were competitively bid.
5.2 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 December 31, 2011, there were 15 such transactions. The Authority received $803,328.12 for these transactions.
Ms. Leto said that during the reporting period ended December 31, 2011, the Authority participated in four fleet-related auctions conducted by JJ Kane Auctioneers. The Authority received $725,080.85 after commission and transportation costs were deducted.
The total amount for all personal property with a value in excess of $5,000 for the reporting period is $1,528,408.97.
In response to a question from Trustee O’Luck, Ms. Leto said Authority staff estimates the value of the fleet for auction or uses an outside firm. Ms. Tursi added that the Authority usually receives more than estimated at the auctions because bidders are aware that the Authority’s vehicles are properly maintained.
5.3 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 ended December 31, 2011.
The Real Estate division closed on several acquisitions during the reporting period. Of note, is a series of transactions with Noble Wind Energy which has helped to facilitate wind energy development in Clinton County. Also, staff closed on a substation and underground facilities to facilitate construction of the Astoria Energy Generating Facility in Queens, New York.
Danger Tree Permits
This program allows the Authority to acquire transmission right-of-way permits for vegetation which has grown to a sufficient height to threaten the safe operation of its transmission system. One of the components of the North American Electric Reliability Corporation (“NERC”) compliance standards is a successful vegetation maintenance program. During this reporting period, staff closed on a total of 88 danger tree permits.
Land use permits
The Real Estate division issued 16 land use permits during calendar year 2011. These permits are issued by the Authority to allow others to use its land holdings (normally its easement rights) in a safe and productive way and consistent with the safe operation of its transmission facilities.
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 $2.7 million in gross revenue. As indicated at the last meeting, JP Morgan Chase has vacated its leasehold on the 4th floor.
Staff is currently attempting to market this space, with the Authority’s broker, Newmark Knight Frank, but market conditions continue to be unfavorable. In the White Plains Central Business District, with 5.9 million square-feet of office space, more than 20% is considered open and available for leasing. Further, the trend is currently showing more available space placed on the market than is being absorbed. The trend is also toward negotiations of smaller deals. For example, at least three of the Authority’s tenants have requested modifications to their existing leases because they are unable to meet their rental obligations. Staff is working to address this issue which reflects the overall economic conditions for the businesses involved. The Board of Trustees will be requested to approve any concessions made with tenants.
New York Office Lease
The Authority leases a small office space of approximately 7,100 rentable square feet at 501 7th Avenue in midtown Manhattan. This lease, by its terms, expires on August 31, 2012.
St. Lawrence lands
One of the major commitments the Authority made during the relicensing of the St. Lawrence/FDR Power Project was to convey certain identified lands as surplus to either municipalities or landowners who owned adjoining lands to these Authority lands. 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 412 parcels have been conveyed. Staff is working to persuade the landowners to close on the remaining parcels.
In response to a question from Trustee O’Luck, Mr. O’Connor said that the land conveyed to the municipalities was in the amount of $1 with payment waived; and the land conveyed to individual landowners was at fair market value. The lands were individually appraised and made public.
In response to further question from Trustee O’Luck, President Quiniones said that with regard to office space in New York City, the Authority is exploring different options including sharing of space with other New York State agencies. However, a final decision has not yet been made.
5.4 Supplier Diversity Program Activities
Ms. Leto reported that for the period ended December 31, 2011, the Authority awarded $61.2 million (18.6%) of its reportable expenditures to New York State (“NYS”) Certified Minority and Women-Owned Business Enterprises (M/WBEs). M/WBEs financial dealers transacted over $421.8 million in principal sales and purchases for the Authority. The Authority also increased its contract allocations to MWBEs from 6% to 20% in support of the Governor’s goal for M/WBEs to account for 20% of NYS businesses. The bulk of these allocations will be through energy services projects.
In response to a question from Chairman Nicandri, Ms. Leto said that staff uses the NYS Registry list of MWBEs to verify that all applications being submitted are certified by NYS.
5.5 Inventory Statistics
Ms. Leto reported that as of December 31, 2011, the total stock value of the Authority’s inventory was $84,046,879. This includes spare part materials for the Blenhein-Gilboa Life Extension and Modernization project, purchase of spare gas compressor, compressor blades and Original Equipment Manufacturer (“OEM”) valves for the 500 MW Project.
5.6 Fossil Fuels Activity
Mr. Rod Mullin reported that the total fuel purchases and related costs for the period ended December 31, 2011 was $260 million. Of this total, $251 million was spent on Natural Gas purchases and associated costs and $9 million on Fuel Oil purchases and related costs. There were 30 natural gas and oil contracts, in total, all of which were competitively bid. To date, the Authority has transacted approximately $5.5 million of business with the firm of YAKA Energy, a certified NYS M/WBE.
Mr. Mullin said that the natural gas industry has been experiencing low prices recently and this is expected to continue for some time. This is due primarily to weak demand, high storage, new sources of natural gas and new technology.
5.7 Corporate Finance Activity
Mr. Brian McElroy stated that for the year ending December 31, 2011, the Authority expended approximately $4.5 million on financial related agreements primarily supporting the administration of the Authority’s variable rate debt program, namely the Commercial Paper Notes and Adjustable Rate Tender Notes. Approximately 80% of the expenditures were related to the 2011 Revolving Credit Agreement which the Trustees approved in January 2011 for a term of three years. Mr. McElroy also noted that the Commercial Paper Notes are trading around 20 basis points and the Adjustable Rate Tender Notes recently reset for a six month term at 15 basis points.
In response to a question from Chairman Nicandri regarding recent headlines of the Port Authority’s use of interest rate hedging instruments, Mr. McElroy said that the Authority has two open interest rate swaps matched with underlying variable rate debt. Therefore, the Authority does not have any un-covered positions.
6. Recent Development and Status of NYPA’s Ethics and Compliance Program
Mr. Joseph Gryzlo provided an update of the Authority’s Ethics and Compliance program. He said that the Ethics and Compliance office continues to receive ethics inquiries from staff, including union employees, the main category being with regard to outside employment. Outside Activities and Employment were the focus of NYPA’s annual ethics training which was administered to all Trustees and employees during the first quarter of 2012. He added that union employees were not subject to the Authority’s Code of Ethics until 2009 when it was revised. The Ethics office also received requests for interpretation of the Public Officers Law and the Authority’s Code of Conduct involving issues related to conflicts of interest, endorsements, gifts and post-employment restrictions.
Mr. Gryzlo said that the deadline for filing Financial Disclosure statements is May 15th. The Ethics office will be sending e-mails to the Trustees and staff who are required to file. Approximately 400 employees are required to file.
Inspector General’s Office - Referrals
Mr. Gryzlo reported that the Ethics and Compliance office received two referrals from the New York State Inspector General’s Office.
Mr. Gryzlo said that the annual Federal Energy Regulatory Commission (“FERC”) Standards of Conduct training has been completed by all Authority employees who are required to do so.
Mr. Saul Rojas provided an update of the North American Electric Reliability Corporation (“NERC”) Reliability Standard Compliance Program. He said that the Authority self-reported four potential violations to the Northeast Power Coordinating Council (“NPCC”) in 2011:
· PRC-005-1 R2 – Maintenance and Testing of Transmission and Generation Protection System: The NPCC is reviewing the results of NYPA’s recently completed mitigation plan. NYPA will soon enter into settlement discussions with NPCC and a penalty is expected.
· PRC-018-1 R6 – Maintenance and Testing of Disturbance Monitoring Equipment: NYPA’s self-reported violation of this requirement was processed through NERC’s Find, Fix and Track process and filed with FERC on February 29, 2012. Therefore, no financial penalty was assessed.
· CIP-004-3 R2 and CIP-0043 R4 - Cyber Security — Personnel and Training: NYPA’s self-reported violation of these requirements will be processed through NERC’s Find, Fix and Track process; therefore, no financial penalty will be assessed.
Responding to a question from Trustee O’Luck, Mr. Eccleston said staff ensures that the security of the Authority’s cyber and transmission systems are protected against attacks. President Quiniones added that the Authority is investing the appropriate resources into the protection of its physical and cyber security. This is an ongoing process and standards are being set by NERC and FERC to address this issue.
Bulk Electric System Definition:
Mr. Rojas reported that FERC issued its final rule on the Electric Reliability Organization Definition of the Bulk Electric System (“BES”) to include assets greater than 100 KV. He said NERC approved the new BES Definition and the Exception Process and filed them with FERC on January 25, 2012. FERC is expected to adopt the new definition and exception process by the end of 2012. The new BES definition will have substantive impacts on New York State’s electric utilities, including NYPA. NYPA has identified 25 additional assets that will be subject to NERC Reliability Standards under the new definition and is working with NPCC and NYISO to address this issue.
CIP Standard Version 5
Mr. Rojas reported that a new version of the Critical Infrastructure Protection (“CIP”) standards regarding cyber security in the electric utility industry is currently being developed and is expected to be adopted by FERC by the end of 2012 and be enforceable in 2014. He said staff will keep the Committee apprised of any new developments as it is expected that the new standards will have significant impacts on the Authority.
7. Proposed Strategic Planning and Energy Committee Charter
Ms. Judith McCarthy provided highlights of the proposed Strategic Planning and Energy Committee Charter.
By motion made and seconded, the Strategic Planning and Energy Committee Charter was unanimously approved.
8. 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.
9. Motion to Resume Meeting in Open Session
Mr. Chairman, I move to resume the meeting in Open Session. On motion made and seconded, the meeting resumed in Open Session.
10. Amendments of NYPA By-laws
Ms. Judith McCarthy stated that the By-laws were amended to establish a set of procedures for the Authority that would be longstanding; this will avoid ongoing amendments to the By-laws. The amendments also address the Trustees concerns with regard to the reporting structures of the Chief Financial Officer and the General Counsel. Ms. McCarthy said the amendments reflect staff’s findings after review of the reporting structures of other utilities and authorities. The By-laws also reflect the establishment of the Strategic Planning and Energy Policy Committee.
President Quiniones added that the Authority’s goal is to conform to best practices with comparable agencies and large utilities of the state. He said the Strategic Planning and Energy Policy Committee is crucial in the Authority’s mission to play an active role in advancing the state’s energy and economic development goals.
In response to a question from Chairman Nicandri, Ms. McCarthy said that the change as it relates to the reporting structure of the Chief Financial Officer was based on staff’s findings. She then suggested that the Committee could discuss this further during the Executive Session before formal adoption of the amendments.
Following the Executive Session, Ms. McCarthy said that the proposed amendments to the By-laws were further amended as follows:
Section (h) Executive Vice President and Chief Financial Officer, page 5:
The Executive Vice President and Chief Financial Officer shall report and give advice to the President and Chief Executive Officer, shall give advice to the Chair and Trustees as they may request and shall supervise and direct the activities of the Business Services Division regarding financial investment policies of the Authority, oversee the Authority’s investment program, recommend and implement financial policies of the Authority and participate in the preparation of the financial reports of the Authority required by the applicable law.
By motion made and seconded the proposed amendments to the Authority’s By-laws were unanimously approved.
11. Next Meeting
The next regular meeting of the Governance Committee will be held on Tuesday, July 31, 2012, at 8:30 a.m., at the Clarence D. Rappleyea Building in White Plains, New York.
On motion made and seconded the meeting adjourned at approximately 10:35 a.m.