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Thursday, January 9,2014

The BWL on thin ice

by Andy Balaskovitz

Are payments to the city limiting BWL’s emergency response planning?

The city of Lansing’s demands for payments from the Board of Water and Light contributed to the utility’s poor response to the region’s ice storm power outages, according to BWL’s vice chairman.

“Overall, there are things probably we would have moved more quickly on if we didn’t have (that) money taken out of our budget,” BWL Vice Chairman Dennis Louney said Monday.

Case in point: The BWL’s outage-management and customer-service systems, which struggled to work together for at least a week during the outage. “That is one thing we probably would have moved quicker to move to fix,” Louney said. “It’s one example. I’m sure there are others, too.”

BWL Chairwoman Sandra Zerkle offered a more nuanced view of the payments to the city, but she didn’t disagree with Louney’s assessment. “We are very crucial to the operation of the city,” Zerkle said. “Obviously, when you take that much money out of our budget every year, it does put a crimp on what you can do and improvements you can make.”

Lansing’s relationship with the BWL is such that, as the city has had to scale back the size of its operation, it has also leaned on the BWL for higher annual payments.

Lansing’s planning to get $17 million in lieu of taxes from BWL this fiscal year, which makes up 15 percent of the city budget. In FY12, the BWL contributed nearly $12.2 million to the city’s General Fund, according to budget documents. It’s a fraction of BWL’s projected $345 million in operating revenue this year. The BWL projects a net income of $2.7 million this year after expenses.

“You can’t keep coming back to that,” Louney said of increasing the annual payments. “What happens is we can’t do as much infrastructure improvement as we want.

It’s a fine balance there.”

BWL General Manager J. Peter Lark disagrees with his board members. “The additional PILOT (payment in lieu of taxes) has no effect on this restoration,” he said Tuesday night.

In the past two budget cycles, Mayor Virg Bernero and his opponents on City Council debated proposals that would have funneled more money from the BWL to the city. Facing years of deficits, some on the Council were calling for higher payments in lieu of taxes from the BWL to help patch the gap.

Those seeking lower limits on what the BWL should pay, including Bernero and his allies on Council, warned that going too far would inevitably lead to rate increases on customers to offset the hit on BWL’s budget. Which is exactly what’s happening, though in light of the storm, there’s hesitation about a planned rate increase.

City Councilwoman Carol Wood, who wants higher payments to the city and is calling for Lark’s resignation, dismissed the idea as “ludicrous.”

Ongoing funding for capital improvements — not the least of which are modern communication systems and preparing for major outages — is just one of the challenges facing Lark in the days, weeks, months and perhaps years ahead.

What about a rate increase?

Ultimately, Louney said, the city’s position is a result of declining state revenue sharing. “It goes back to the state not fulfilling its obligations. They’ve strapped our cities with services.

“For us to continue to upgrade infrastructure, we’ve got to increase our rates.”

In November, the BWL placed proposed electric, water, steam and chilled water rate changes on file with the City Clerk’s Office, to be effective March 1. The increases, which vary by customer, are expected to generate over $18 million in billings. For example, residential electric customers could see a monthly increase from $2.45 to $4.80, based on usage. A public hearing is scheduled for Jan. 23 on the rate increases. (See public notice on page 6.)

BWL spokesman Steve Serkaian said while the hearing is scheduled, it is “yet to be determined” whether management will recommend the rate increase to the board.

Based on the recent situation, Louney said, “I am not in favor. I can’t speak for the entire board, but I’m not in favor of moving on a rate increase until we have our house in order. I think it would be a slap in the face of consumers when we failed in some ways to properly communicate with them. And then to go to them for a rate increase — I think that’s wrong.”

Wood, though, is not buying the suggestion that higher annual payments could impede the BWL’s infrastructure investments without a rate increase.

“To say that because the payment that is coming to the city has an impact on them having an emergency management plan and them having appropriate infrastructure they need to handle emergencies is ludicrous,” she said.

“When you look at what they’re paying for PR, Peter Lark’s salary ($258,502 a year) — it’s pittance compared to the millions coming into the city. But again, the taxpayers and residents own the Board of Water and Light … I think the correlation, again, just doesn’t make any sense.”

Critics also question the need for spending $2.8 million to restore the Grand Trunk Western Railroad depot as part of its new cogeneration power plant and headquarters. Or how about $10 million to renovate the John F. Dye Conditioning Plant on South Cedar Street? Overall, the BWL plans nearly $84 million in capital projects in 2014 and $384 million over the next six years, according to the budget ending June 30.

 What if another ice storm hits tomorrow?

The BWL is moving quickly to address restoration and communications issues that would have improved its response to the ice storm outages.

Already, press communications from the BWL have improved. Responding to heavy snowfall and frigid temperatures earlier this week, the BWL was even tracking when it had as few as two outages.

Based on Tuesday’s presentation, Lark and BWL management are already preparing should a similar ice storm hit Lansing tomorrow.

It announced new retainer agreements with contractors that “immediately triple the number of line crews in an emergency,” BWL GM J. Peter Lark said. It’s hiring additional line workers and a dispatcher; it tripled the number of tree-trimming crews. Within a week, the BWL will have an online outage map;

“problems” within its outage management system have been identified, Lark reported. The BWL adopted a temporary crisis communication plan and hired PR firm Martin Waymire to finalize it and offer additional assistance during an emergency. The BWL is also hiring a “social media manager” to improve communications.

George Stojic, the BWL’s executive director of strategic planning and development, spent time Tuesday night comparing the BWL’s storm response to similarly hit areas throughout the country.

His research took him to the East Coast and the South, areas devastated at various times in the past 10 years from ice and hurricanes. His research showed the BWL’s restoration time was comparable to other publicly owned utilities that lost as many customers — 40 percent, according to Lark.

“Our response time was very typical of what you’d expect, even though we don’t have a lot of experience with it,” Stojic concluded, though he set up Lark for the next response.

“There have been people seated behind me (whose) service did not come back as timely as they would have liked it. To those, showing a graph that says we are where everyone else is is not going to be satisfactory,” Lark said.

“We’ve already undertaken steps today and tomorrow morning to make it better.”

Change in governance?

While a majority of BWL’s customers are in the city of Lansing, the utility’s title may be a slight misnomer. It provides water or electricity (or both) to East Lansing, DeWitt and nine townships, including Delta, Lansing Meridian and Delhi.

Because of that, calls for a governing body to include these customers are growing.

Yet some officials interviewed for this story are hesitant to call for a change in the BWL’s board structure.

The board comprises eight members appointed by Lansing’s mayor and confirmed by the Council. Like the Council, it’s made up of representatives from each of Lansing’s four wards as well as four at-large members. But restructuring that would require a change in the City Charter, which would be put to Lansing voters. Speaking on “City Pulse Newsmakers” last week (which is available to view at lansingcitypulse.com), Lark sees “probably positives and negatives of that.”

At this point, Wood said she wouldn’t support a Charter amendment because “it’s a public utility owned by the residents of the city of Lansing.” However, she does support an advisory board made up of representatives outside of Lansing.

Perhaps, though, such a move would decrease speculation that Lansing’s mayor can simply stack the board in his political favor.

Former Mayor David Hollister downplays the idea, suggesting that the mayor could do that for any board, whether he appoints members to a fire, police or planning board.

“He’s going to have influence over the board, but I don’t think he particularly dictates to the board they must do this or do that,” Hollister said. “I think he would have subtle ways to send them a message.” For instance, he said, calling for a higher payment in lieu of taxes.

But he thinks it would be a good idea to change the Charter. “That board has always been considered a plum kind of appointment.”

As one of 54 public speakers at a special board meeting Tuesday night, Delta Township Supervisor Ken Fletcher asked BWL commissioners for such representation.

“Find a way to have a long-term structure in place so those voices (from outside) are either included on this board or some other citizens panel,” he said.

BWL board members Anthony McCloud and Sandra Zerkle said they wouldn’t oppose adding representation from outside communities.

Louney agrees with Fletcher, suggesting two additional members to represent the Meridian Township/East Lansing area and another to represent Delta Township.

“In any governing situation, you should have representation for people who are provided services or affected,” he said.

Long-term, outside representation relates to short-term calls for an independent, ex ternal review of BWL’s restoration efforts.

“The fact that they weren’t as prepared as they could have been, with a weak response initially in the first couple days, it kind of underestimated the severity,” Hollister said. The former mayor called for a thorough and objective review.

“In order for the mayor to restore confidence, you’ve gotta have a thorough investigation with no holes,” he said.

Those calling for an outside review seem to agree it should include utility experts, citizens, elected officials or community leaders, or all of the above. It appears one is coming.

While giving a presentation to the board Tuesday night, Lark said the internal review process is underway and a report should materialize in February.

“I expect very shortly an announcement of an independent investigation and study of our response,” he told commissioners.

Who is J. Peter Lark?

Before joining the BWL in July 2007, General Manager J. Peter Lark, 62, was chairman of the Michigan Public Service Commission, appointed by Gov. Jennifer Granholm in 2003. In that role in 2006, he wrote a 48-page report for Granholm called “Michigan’s 21st Century Electric Energy Plan,” a roadmap for developing more renewables and energy efficiency.

In 2003, Granholm named Lark to serve on a joint U.S.-Canada task force to investigate a widespread energy blackout that year.

After receiving his law degree from Western New England College School of Law in 1976, Lark spent most of his career as an attorney. He was an assistant prosecuting attorney in Wayne County and taught at Cooley Law School as an adjunct professor. In 1979, he was an assistant attorney general in the state’s AG Office, heading the special litigation division where he argued before the state Public Service Commission and federal Energy Regulatory Commission, among others.

Lark started his BWL job in 2007 amid a swirl of controversy. Former BWL GM Sanford Novick was voted out in 2006 with a $250,000 severance. Prior to that in 2002, former GM Joseph Pandy was fired and filed suit against BWL, settling claims for $730,000 that were paid by insurance companies but reportedly cost BWL $223,000 in legal fees.

Soon after taking the BWL job, Lark fired three top officials from the utility’s management team: Bill Cook, senior vice president of operations; general counsel Amy Cavanaugh; and Bob Van Ells, electric and steam production manager. Lark put together a team of former Public Service Commission colleagues to replace them.

After his first year on the job, the Lansing City Council unanimously approved a resolution opposing a $49,000 raise for Lark that the BWL commissioners had approved. Former Councilman Brian Jeffries called it “outrageous” for coming after only one year on the job. Lark’s salary has continued to increase during his time there, the latest $10,000 raise coming in his latest contract put him at $258,502.

Yet the BWL has increased its renewable energy supply during his tenure. In his first year, Lark announced a 21-year agreement to buy electricity generated from landfill gases, which was up and running by November 2008. Later that year, BWL powered up its first solar array along South Cedar Street. While he first proposed a new coal-powered plant replace the aging Eckert station in 2008, he heeded community input against it and proposed the latest natural-gas powered cogeneration plant in REO Town.

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