Regular Meeting Minutes of the Board of Directors 2000 East Horsetooth Road, Fort Collins, Colorado Thursday, July 30, 2015 ATTENDANCE Board Members Representing Estes Park: Mayor Bill Pinkham and Reuben Bergsten Representing Fort Collins: Mayor Wade Troxell and Mayor Pro Tem Gerry Horak Representing Longmont: Mayor Dennis Coombs and Tom Roiniotis Representing Loveland: Mayor Cecil Gutierrez and Steve Adams Platte River Staff Jackie Sargent (General Manager) Joe Wilson (General Counsel) Jason Frisbie (Chief Operating Officer) Dave Smalley (Chief Financial & Risk Officer) Deb Schaneman (Chief Compliance Officer) Karin Hollohan (Corporate Services Director) John Bleem (Strategic Planning & Customer Service Director) Pete Hoelscher (Communications & Marketing Director) Heather Banks (Fuels & Water Manager) Wade Hancock (Financial Planning Manager) Ryan Donovan (Associate General Counsel) Chris Wood (Environmental Services Manager) Brad Decker (Strategic Planning Manager) Paul Davis (Customer Services Manager) Debbie Seidman (Energy Technology Project Manager – Generation) Shannon Craig (Executive Assistant) Guests Greg McNutt (Principal and Compensation Consultant, Milliman) Gary Vicinus & Pat Augustine (Pace Consultants) Rick Coen (Commercial System Designer, Namaste Solar) CALL TO ORDER Chairman Roiniotis called the meeting to order at 9:00 a.m. A quorum of Board Members was present and the meeting, having been duly convened, was ready to proceed with business. ACTION ITEMS (1) Approval of the Regular Meeting Minutes of May 28, 2015 Director Gutierrez moved to approve the Minutes as amended. Director Bergsten seconded, and the motion carried 8-0. Regular Board Meeting Minutes: July 30, 2015 (2) Public Comment None. (3) Retirement Committee Report (presenter: Bill Pinkham) The retirement committee met on Thursday May 28. The Plan’s investment consultant, Innovest, presented their firm’s long term outlook for the economy and capital markets. The firm expects modest economic growth for the US and other markets for the next several years. They expect lower returns from equities and modest returns from fixed income securities. Based on Innovest’s projections, the Committee agreed to maintain the Plan’s current asset allocation mix. The Committee also agreed to have the actuary analyze the impacts of a potential reduction in the Plan’s return assumption. Innovest provided a report showing the performance of the Plan for the March quarter. Plan assets increased $1.8 million from $91 million to $93 million. The increase in assets is due to net cash outflows of about $300,000 and investment gains of $2.1 million. The return for the quarter was 2.2%, which was slightly above the benchmark return. Mr. Dave Smalley, chief financial officer, provided an overview of the annual Actuarial Valuation Report prepared by Towers Watson, which contained the required funding contribution to the Plan for 2016. The recommended contribution for 2016 is $2.9 million compared to a contribution of $3.3 million in 2015. The Plan’s funded status as of January 1, 2015 was 109%. The ratio indicates that the Plan has assets sufficient to cover accrued benefits Mr. Smalley also reviewed new Governmental Accounting Standards that impact reporting and disclosure for both the pension plan and Platte River’s financial statements. Platte River’s net pension liability per GASB is $6.7 million, which will be reflected on the balance sheet in 2015. The Committee adopted Plan appeal hearing procedures. The procedures will be used in the event that a participant or beneficiary requests a hearing before the Committee for review of the Plan Administrator’s determination with respect to a claim of a denial of benefits. The next Committee meeting is scheduled for August. The Retirement Committee report is for informational purposes, no board action is necessary. In response to a Director’s question at this time, 164 current employees are participating in the Plan. Fifty-six terminated employees have not yet started to participate. The Plan was closed for participation in 2010 and any employee hired before the 2010 closing date is 100% vested. Employees hired after 2010 participate in the defined contribution plan. (4) Legal & Governmental Affairs Report (presenter: Joe Wilson) Mr. Wilson, general counsel, noted that the full report is in the Board packet and stated that unless there were specific questions, the report is current without need of further comment. Page 2 of 8 Regular Board Meeting Minutes: July 30, 2015 A Director requested detail regarding the prognosis on FERC’s denial decision on the approval of the JDA. In response, Public Service Company (PSCo) submitted a petition for a re-hearing on July 23. In addition, the parties will be making modifications to the application and plan to submit a new application based on the FERC feedback. Presently, there is not a timeframe in which FERC will take action. The re-filing will address the two main concerns. Another Director requested the final Fort Collins Community Solar Garden agreement be shared with the Board. Mr. Wilson noted that the intent of this document is that it is to be drafted in a generalized manner for use by other communities. The memorandum of understanding (MOU) is not an intergovernmental agreement requiring approval from this Board. The original MOU drafts were shared with the Board, and as the Community Solar Garden program unfolds the plan is to share any new information with the Board. (5) Operating Report, May and June 2015 (presenter: Jason Frisbie) Mr. Frisbie, chief operating officer, reviewed the May and June operational budget variances and noted the full report is in the Board packet. Platte River finished each month with zero lost time incidents. All base-load generation operated with high reliability for both May and June. The lower capacity factor at Craig is a result of a continued soft surplus market and holding reserves on both Craig units. Holding reserves at Craig reduces the capacity factor of the facility by 6.5%. Mr. Frisbie noted a new section on wind in the operational report. With the addition of Spring Canyon over 140,000 MWh of wind energy have been supplied to our system year to date. Wind was 37.8% below budget in June representing about 8,000 less MWh than anticipated. Year-to-date (YTD) wind is 11.6% below budget. Mr. Frisbie responded to a Director’s question regarding the seasonality of wind. The Platte River team uses forecasts based on historical data from each site for projections. June proved to be a less windy month at all three sites. Another Director asked about other losses in relation to wind integration that may have other impacts. Our relationship with PSCo allows Platte River to coordinate interval schedule changes that will allow the flexibility to manage overall regulation costs based on a Tariff. (6) Financial Report, May and June 2015 (presenter: Dave Smalley) Mr. Smalley highlighted the financial budget variances for May and June. The full report is in the Board packet. May and June below budget revenues were partially offset by lower expenses. YTD net income is $1.7 million below our expectation at $3.2 million. The revenue short fall is $6.8 million with $1.1 million due to lower municipal sales and $5.7 million due to lower surplus sales revenue. The YTD expenses are $5.4 million under budget primarily due to purchase power, fuel, operating and maintenance (O&M) expenses and Craig operations lower than anticipated. Page 3 of 8 Regular Board Meeting Minutes: July 30, 2015 Regarding year-end projections for Platte River, if trends continue for lower surplus sales revenue and lower O&M expense, we estimate $8 million net income for 2015. Staff will include year-end earnings estimates in the monthly financial reports. Due to Platte River’s financial strength, work will continue as planned and expenses will not be curtailed at this point. Staff does not believe it would be prudent to make short term decisions to curtail projects that may negatively impact long term performance and reliability. Staff is working to generate additional revenues and control expenses. One example of this is the increased sales from the gas turbines this year; $500,000 of the surplus sales number is from utilizing the natural gas combustion turbines. Staff understands the importance of responding to future budgets and projections. The 2016 budget will reflect changing market conditions. (7) Management Report (presenter: Jackie Sargent) Ms. Sargent, general manager & CEO, highlighted the safety, environmental, legal, operational, and financial updates that were covered in the Board packet. In addition, the following items were discussed. Platte River staff attended the recent Larimer County multi-jurisdictional hazard mitigation planning session. Ms. Sargent thanked Director Adams for the information regarding this session. As a result Platte River intends to actively participate in this regional collaborative effort for emergency preparedness. Latest intelligence suggests that the EPA final rule may issue as early as August 4th. However, the rule may not be published in the federal register until November after the Paris Climate Change Conference. On Monday, June 29, the Supreme Court held that EPA violated the Clean Air Act when it determined that regulation of mercury and other hazardous air pollutants from certain power plants was “appropriate and necessary” without consideration of costs. A summary on the Mercury and Air Toxics (MATS) Ruling has been prepared by PACE and distributed to the Board as a handout to provide information on this ruling and the potential implications for the proposed Clean Power Plan. The Supreme Court’s rejection of the MATS rule is not expected to delay or have direct impacts regarding the progress of the Clean Power Plan. The MATS rule and CPP are two different rules with different compliance requirements and legal grounding. Ms. Sargent noted the issue of the upcoming revised ozone rule as discussed in the Board packet. She noted a correction on page 68 of the Management Report concerning the issue of costs of emission controls at Rawhide in the context of new ozone standards: strike out ~$100M and replace this with ‘which will require detailed engineering to accurately estimate costs’. In 2008 Black & Veatch prepared a preliminary high level estimate to add additional equipment, but additional study is required to gain a more accurate estimate of costs. Additionally, permitting of a new facility in a nonattainment area will require offsets to be obtained from existing sources thus potentially limiting our expansion capabilities at Rawhide. A Director had asked what the rate impact would look like for a capital project of this size. Mr. Page 4 of 8 Regular Board Meeting Minutes: July 30, 2015 Smalley responded with roughly a 4% rate increase assuming an estimated $100 million of financed expense. Deb Schaneman, chief compliance officer, prepared a memo for the Board addressing some potential questions about the Proposed Ozone Standard. The final standard is expected to issue in October 2015, the Board will be updated as information becomes available. On the compliance front, compliance staff and multiple Platte River subject matter experts met with representatives from the municipalities to discuss NERC compliance and challenges the cities may be facing with regards to compliance activities. Platte River is currently working on developing a community Solar Pilot Program with municipal staff as well as working on a combined Heat and Power Study with Colorado State University and the City of Fort Collins. Staff believes that information from these studies may help guide future planning for distributed resources. Platte River plans to provide a draft of the 2016-2026 Strategic Plan to the Board in October, and will request approval of the plan at the December Board meeting. In regards to an update on the Rawhide Flats Solar project, Platte River and juwi, inc. executed the final PPA; the final project size will be 30 MW on an estimated 200 acres with the new location and layout as described in the July management report. A Director had a question about the Windy Gap Firming Project update and the preliminary findings that indicate a potential increase of 30% over the 2011 estimate for the construction phase of the project. At this time, Heather Banks, fuels & water manager, estimates this to be roughly a $10M increase for Platte River. The original estimate was based on a preliminary engineering estimate and for preliminary design, whereas the updated cost estimate is based on a more thorough construction budget approach and a more robust market for construction services. a. Fort Lupton Water Lease Extension (presenter: Heather Banks) Fort Lupton is requesting that the Board approve an extension of the current lease for one year for 10 Windy Gap units between Platte River and the City of Fort Lupton. Staff supports the extension. A Director asked the question if the second use of the water units could be oil and gas and could Platte River potentially be losing out on possible revenue by extending this lease. Mr. Wilson stated that Fort Lupton runs the water through their system as firstuse. The second-use could then be used for oil and gas. Platte River dedicates its Windy Gap water to the re-use plan. Mr. Frisbie added that financially there is minimal risk to Platte River by extending this lease for one year. Staff will research and report back to a question asked by a Director on whether the first use of these 10 units must be municipal use. Director Adams moved to approve the Fort Lupton Water Lease Extension - Resolution Page 5 of 8 Regular Board Meeting Minutes: July 30, 2015 08-15 as presented. Director Bergsten seconded, and the motion carried 7-1. Director Horak opposed. b. Resource Planning Update (presenter: John Bleem) John Bleem, strategic planning & customer service director, updated the Board on resource planning and recommendation to move forward with a strategy to exit Platte River’s ownership in Craig Unit 1. The recommendation is based on months of modeling and study related to meeting the resource planning guidelines set by the Board. A director questioned staff on what would happen to the other Craig units should an exit strategy be executed. Ms. Sargent explained that there are many possible scenarios, depending on details of the Clean Power Plan and interests of the other four owners of Craig. The Board discussed how this strategy will help Platte River and the State of Colorado meet the Clean Power Plan. A possible resolution seeking a Board decision on this may come during the summer of 2016. Director Bergsten made a motion that the General Manager enter into negotiations to determine an exit strategy for Platte River’s ownership in Craig Unit 1, to advise the Board of progress and to prepare the Board to take any necessary action. Director Gutierrez seconded, and the motion carried 8-0. The Board reconvened from the 10-minute break with a presentation from Pace, the consulting firm facilitating the August Board work session on resource planning. There was discussion from the Board and staff relating to reconsideration of resource planning guidelines for the Platte River system as a whole. It was noted the municipalities will have different interests due to the demographics of the individual communities, but the communities are more alike than they are different. Additional discussion of resource planning guidelines and other considerations will take place at the August work session. (8) Review Compensation Study Results (presenter: Greg McNutt) Ms. Sargent introduced Greg McNutt, a principal & compensation consultant, from Milliman and explained that the results of the compensation study are within the Board Packet. Mr. McNutt introduced the scope of work and methodology then reviewed the highlights of the compensation study report. He explained the data collected, the findings, and then the recommendations based on the represented market participant group. Mr. McNutt stated that the peer group equals a representative sample to provide a solid compensation and talent reference. Of the twenty-two organizations deemed comparable by the consultant that had received the initial questionnaire, eight organizations responded. Three primary components of total compensation were evaluated as part of the study: base salary, paid incentives and supplemental benefits. The consultant concluded his presentation with a summary of the market results. Page 6 of 8 Regular Board Meeting Minutes: July 30, 2015 (9) Executive Session Director Pinkham made the motion to go into Executive Session for the purposes of considering personnel matters related to compensation of the General Manager and the General Counsel. The General Counsel has advised that an Executive Session is authorized in this instance pursuant to Colorado Revised Statutes, Section 24-6-402, subsection (4)(f); provided that, no formal action will be taken during the Executive Session. Director Coombs seconded, and the motion carried 8-0. (10) Reconvene Regular Session Chairman reconvened the Regular Board Meeting at 12:37 p.m. The Chairman spoke of the positive organizational change that is attributed to the General Manager as well as stating that the Board is pleased with the performance of the General Manager and looks forward to continuing to work with both the General Manager and General Counsel. The Board agreed to adopt the consultant’s recommendation to implement a salary range for both positions that begins at 80% of the survey’s 50th percentile and ends at 120% of the survey’s 50th percentile. Director Coombs motioned to raise the General Manager’s salary to 5% above the 50th percentile as reported by Milliman, retroactive to the first of the year. Director Reuben seconded, and the motion carried 8-0. Chairman Roiniotis encouraged staff to propose additional comparison organizations for the Board to consider during future surveys. In addition, as part of the discussions on the pending compensation policy, the Board requested information on the market pricing methodology used to establish pay at Platte River for positions other than the General Manager and General Counsel, with a specific focus on the General Manager’s direct reports. Ms. Sargent shared that Platte River has engaged a third-party external consulting firm to complete an audit of the compensation methodology. At this time, the study is in process with results expected in September to allow for the annual market pricing review of positions in the fall. Information will not be available to share with the Board until October 2015. Historically and by existing policy, compensation has been delegated to the General Manger with overall approval of the total salary and position budget by the Board of Directors through the budget process. The Board of Directors requested a briefing from staff on the methodology and process for establishing compensation levels within Platte River, with specific focus on senior level management positions. Staff agreed to coordinate this briefing with their review of the current Board policies in the October time frame. ADJOURNMENT Page 7 of 8 Regular Board Meeting Minutes: July 30, 2015 With no further business, the meeting adjourned at 12:44 p.m. The next regular Board meeting is scheduled for Thursday, August 27, 2015, at 9:00 a.m. in the Platte River Power Authority Board Room, 2000 East Horsetooth Road, Fort Collins, Colorado. AS WITNESS, I have executed my name as Assistant Secretary and have affixed the corporate seal of the Platte River Power Authority this day of , 2015. Assistant Secretary Page 8 of 8