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HomeMy WebLinkAboutMinutes - City Council - Special - 2/20/2003 (5)CITY OF LUBBOCK SPECIAL CITY COUNCIL MEETING FEBRUARY 20, 2003 1:00 P. M. The City Council of the City of Lubbock, Texas met in special session on the 20th day of February, 2003, in the Committee Room 103, City Hall, 1625 13th Street, Lubbock, Texas at 1:00 P. M. 1:14 P. M. CITY COUNCIL CONVENED Committee Room 103, 1625 13th Street, Lubbock, Texas Present: Mayor Marc McDougal, Mayor Pro Tem Victor Hernandez, Council Member Gary O. Boren, Council Member Tom Martin, Council Member Frank W. Morrison, Council Member T.J. Patterson Absent: Council Member Cooke Mayor McDougal called the meeting to order at 1:14 P. M. Also present: Viance Vialle, First Southwest; Mike Liner with City Bank; Judge J. Q. Warnick; Bob Matthews, former FBI field agent; and John Wilkerson with Wilkerson Cold Storage; Matt Wade, Interim Director of Electric Utilities; Bill DeHaas, Contract Attorney ( 1.) Receive report on the audit of the West Texas Municipal Power Agency. (IA.) Due to the volume of discussion this topic, the following is a transcript of the meeting. MCDOUGAL: I guess we're going to start out. What I thought we would do this afternoon is start out and let Bob go through his report. We have the four members of the committee that served on this and as soon as Bob is complete, then I will turn it over to any comments the four of you would like to make and then I guess we can get into discussion and questions. BOREN: I have a question, Mayor. Is Bob going to make the total presentation? Because I want to hear from the committee. MCDOUGAL: Yes. Well, I think Bob is going to go through - -. CASS: I'm going to go through an overview and summarize some of the recommendations that have been made. Then all of the committee members have indicated that they have some comments to make as well. And of course we've got all of the staff and the committee to answer any of the questions you may have. MCDOUGAL: Okay. CASS: Let me emphasize. I will be going through, through this in very broad terms so that you can get to the committee and I realize a lot of the meat of your discussion will lie in the questions to staff and the members of the committee. First of all, Mayor, I want to publicly thank the four members of the citizens' group that I asked to assist me in this. Mike Liner with City Bank; Judge J. Q. Warnick; Bob Matthews, former FBI field agent; and John Wilkerson with Wilkerson Cold Storage. These men have gone above and beyond I think should be required to do. This was a very unsavory task, a very difficult task, a very complicated task and I want to tell you that they have served this community well. They've done a good job. I asked these men to help because I knew them to be men of unblemished image and basically men who would tell me what I needed to hear, what this Council needed to hear, and what this community needed to hear regardless of how Special City Council Meeting February 20, 2003 Page 158 pleasant it was. And they have done that and they have met that task and I appreciate that. I also want to commend Bill DeHaas and Harold Dominguez, Herman Boatmun, Beverly Hodges and Andy Burcham and other members of the LP&L staff who have worked with us as well, doing an excellent job. Let me go very quickly through the origins. I don't want to spend a great deal of time on the background of WTMPA. I think that is fairly well out here. At Councilman Hernandez' request, we created a time line that goes back to day one of the WTMPA. I won't spend a great deal of time on it except to point — and I think the Council has that in handouts there — except to point out that it obviously goes back to 1983. Apparently in its origins, it was designed as a mechanism whereby the City of Lubbock and the other member cities could purchase wholesale power. It also, I believe, had some utility in terms of its ability to serve as an agency whereby we could focus our mutual interest regarding issues by the Federal Energy Regulatory Commission or the Public Utility Commission. One point of interest that I might point out that we found out as we went through this. One of the, one of the, one of the concerns came to be the continuing provision of accounting services for this entity that were not allowed under contract. As I was visiting with Andy Burcham, he indicates that there are records that far predate the issuance of the debt on the Massengale unit that would indicate that the City of Lubbock was providing the services. So as best I can determine, this probably goes into the 80s, that particular practice. Nevertheless, working through that, as you get — really the problems with the agency, in my opinion, began in the late 1990's. When you get for example here in March 12 of 1998, the City of Lubbock ratifies a November decision to participate in a WTMPA project to build a 40-mega watt cogeneration facility. I think the issues surrounding the failure of that facility in its inception to perform are well chronicled. I won't go through those in a great deal of detail but simply point out that we have enumerated all of those. You get over here to this particular slide here in 1999, September 1", obviously that is when the testing started and the plant failed. That started all of the — many of the problems that we are dealing with now. The fact that the unit failed, the fact that still a stream of revenue had to ongoing in order to handle the debt and basically the City of Lubbock became the guarantor of that debt without any participation of the others. I will tell you as I have looked at the matters and the decisions that were made, in many cases a plausible argument could be made that the business decisions were the only ones that could have been made. No argument can be made though that those decisions were made under the appropriate umbrella of authority extended by this Council and no argument can be made that this information was communicated well. Anyone who attempts to do so is misleading you and you need to be aware of that. When we get into some other issues, I think it's important to point out, let's see, December 22"d, 1999, one of the issues that has come out in all of this concerns the payment of office expenditures for the Chairman, the Chairman Mr. Cooke. That took place December 22"d of 1999. Now, I have, anticipating the question, I have spoken to all members of the 158 Special City Council Meeting February 20, 2003 Page 159 City Council who were serving at that time. That would involve some current members, former Mayor Windy Sitton, former Councilman Nelson, former Councilman Max Ince. When I learned that WTMPA was contemplating taking this action, recognizing it was outside of my scope of responsibility, outside my scope of authority, I informed Mr. Cooke that he owed it to other members of Council to inform them of that. It is my understanding now that Mayor Sitton was informed, but that no other member of the Council was informed. Now when you get over into the issue of January 17, WTMPA amended their rules and regulations to create the position of the Chairman of the Board. Prior to that time, each member city had two appointed representatives, individuals appoint by the Council. City of Lubbock's appointees were Councilman Cooke and former City employee, Robert Massengale, currently with the Lubbock Power & Light Board as well. January 17 of 2001, WTMPA amended their rules to create that position. Councilman Cooke assumed that position. That was an appointment by the Board, not by the Lubbock City Council and the Lubbock City Council replaced him with Paul Thompson, the Director of Lubbock Power and Light. February of 2001, 51.6 million in bond funds were expended and Bill DeHaas can go through the details of all that. But basically 51.6 million that was withheld for failure of the GE unit to perform, that 51.6 million was expended as a debt service payment. The City Attorney has visited with Fulbright & Jaworski, bond counsel on that. A legal expenditure, again an expenditure that was not done under the cover of at least cognizance of the Lubbock City Council. You get over to May 18th, you see the commencement of the litigation issues there. You get over to September 17, 2002, we are down in mediation, the City of Lubbock representatives are down in mediation. Councilman Hernandez representing the City of Lubbock. Councilman Cooke in his capacity as Chairman of the WTMPA. At that point, Councilman Hernandez might be able to provide additional — expound on that more should the Council so desire. But at that point in time, it is apparent, I believe to Councilman Hernandez, at least, and to Councilman Cooke that the SI.6 million had been withheld as retainage. I can only assume, Councilman Hernandez, that the inference was, that was liquid. That was there. That there was cash in that account when that was in fact not the case. You get over to September 26th, that was the date in which in Council Executive Session the matter was finally discussed in terms of the settlement and the information was then conveyed to the public regarding the 51.6, which was in fact not liquid. That then, as you recognize, started unraveling the whole matter and we are where we are today. So that is a very quick background in terms of the WTMPA issues. Obviously a lot of details, a lot of points, we could into more depth and certainly be happy to do so. But that's the big picture. BOREN: Just for clarification purposes, when you say not liquid, you meant did not exist. CASS: By cash, yes sir. MCDOUGAL: Do we know if the WTMPA Board was aware of that expenditure? 159 Special City Council Meeting February 20, 2003 Page 160 CASS: Bill, I believe that they were. The question was: Was the WTMPA aware of that expenditure? DEHAAS: There is no specific entry in their minutes that indicates one way or the other except that they on a monthly basis approved their expenditure report. They also maintained a listing of when their principal and interest payments were due. HERNANDEZ: But there is no evidence of a board action being taken by WTMPA to make that expenditure? DEHAAS: That's correct. CASS: What went wrong? You can slice it, you can dice it any number of ways on this matter and again, we will be glad to discuss every detail and excruciating detail should the Council so desire. This is my summary. There may be others who would summarize it in a different way. Frankly, in an overview, when I pull back and look at this the phrase "lack of institutional control" comes to mind. We saw that before in this community with regard to some activities and I must indicate to the Council, that's the way I view this. Management oversight issues. Any number of issues there that we can speak to in substantial detail. My general observations would be these. Obviously there were problems with regard to the day-to-day management of the contract. Council is aware, as is the public I hope, as are others that the WTMPA has never been required to get the insurance that they should have received. That is well documented. I find substantial problems, and I believe we need to get help to come in for us to precisely define the extent of those problems. I find substantial problems with regard to the manner in which costs have been billed and power has been allocated to the member cities. Bill DeHaas did yeoman's work in that. Harold Dominguez did yeoman's work in that. They have gone in and they have analyzed and they have analyzed and they have brought back to me plausible explanations which lead me to conclude that we have no consistent patterns in terms of the way we are billing. That there is no rhyme or reason to the way we are billing. I believe and I will show you my recommendations that we need to engage an outside firm specializing in these matters. An accounting firm and auditing firm specializing in these matters to get to the bottom and that we can get the Council a true accounting. All I can tell you right now with confidence is that I believe we have not handled it according to the contract or even the way that makes any sense to me. Reporting and oversight duties were not reported. Obviously, substantial problems with regard to communications. Substantial problems that I have already indicated with regard to getting a proper authority to undertake actions. A variety of other issues. But again no point in hiding, no point in saying those didn't exist. They did exist and we need to correct them. Looking at the complexity of WTMPA. The mission was simple. I've outlined the mission. The mission was simple in its origin. Come together for the joint purpose of buying bulk purchased power. Not much more complicated than that. You will occasionally add in the situation where the four member cities will share a common interest relative to the Federal Energy Regulatory Commission and relative to the Public Utility Commission. That might take some additional activity. Obviously we complicated it in my opinion, needlessly, but further complicated it with the advent of the decision to purchase the Massengale unit under the umbrella of WTMPA, 160 Special City Council Meeting February 20, 2003 Page 161 rather than under the umbrella of Lubbock Power & Light. I will tell you, looking back at the documentation, there were reasons for that that seem sound and basically may have been sound. It's just in its evolution, here's what happened. Now if anybody can look at that organizational chart and make sense of it they're a better man than I am. This was developed by Matt Wade who purports to understand it and I believe he does. I'm saying that jokingly, Matt and Bill DeHaas who can understand it. But basically, how could an organization not lend itself? How could the whole relationship not be fraught with difficulty when it's got that much complexity? A mission that was in its essence so simple has been overly complicated and part of the recommendations that you will see before you state that if you want to retain a relationship with WTMPA and I respect the fact that you may or may not come to that conclusion. But if you do, in my opinion, those contracts and those relationships need to be substantially simplified. That is simply too complicated an organism there. Finally, a blurring of lines of accountability. You had at one time, at any point in time, you had a member of the City Council serving in the capacity as both a member of the Lubbock City Council and as a member of the Board. You had a member of the Lubbock city staff serving as both a member of this organization and as a member of the Board. You had members of the Lubbock Power & Light Board also serving in capacities as member of the WTMPA Board. Not implying that anybody did anything wrong. Implying that we put ourselves and we put those individuals in extremely awkward positions. We all understand the old admonition "that an individual cannot serve two masters". There was always the assumption and I believe the committee has very well pointed that out. There was always the implicit assumption "We are the WTMPA and the WTMPA is us". We lost sight of that fact and we did it to ourselves by appointing ourselves to work in a dual capacity. We further complicated that by the fact that members of the City staff were in fact acting as the staff of WTMPA. WTMPA has no employees. Never had an employee and basically contracted with the City of Lubbock to operate and manage that plant and provide certain accounting services related to that. And so again we placed employees in that untenable position of serving two masters and the lines became blurred. Not excusing it, simply pointing out garbage in, garbage out. That's the problem. Action to the recommendations. Let's speak first to the directives, the actions that have already been taken with regard to the Lubbock City Council. Following this issue coming to light in the September, October time frame, your direction to me was to put together a process to get to the bottom of this matter. We have done so. Replacements to the WTMPA Board. Early on in this process, I indicated to the Council that I saw a substantial problem with putting City of Lubbock staff members who work for me in the untenable position of acting both as employees and then acting as board members of outside boards. Not only did I see a problem with this Board, I also asked staff members who served in other capacities, for example on the Lubbock Emergency Communications District, to resign their positions. 161 Special City Council Meeting February 20, 2003 Page162 That was not a good situation for them to be in. We have done SO. We still have a problem in my opinion, and I respect the fact that Council may differ with me. I respect the fact that the WTMPA Board may disagree with me. I respect the fact that many people may differ with me. I still believe we have a problem with regard to the fact that we are placing your appointees in an awkward position of serving on both the Lubbock Power & Light Board and serving on the WTMPA Board. I recognize the fact that you may differ with me on that. Council has also taken the wise action of directing us to consolidate our financial management structure that under the general umbrella of the discussions with regard to the City Treasurer position, we will be effectively cutting out two layers of bureaucracy between the City Manager and the Director of Finance. That is a good move and we will be consolidating a number of those functions under the CFO. The Council has also taken a wise step, the initial step of creating an audit committee and the group working on that hopes to have some recommendations back to you in the not too distant future. Here are the actions that I have taken to date: I have notified WTMPA regarding contract compliance issues. We have gone through the audit. Obviously, we have determined that they are out of compliance with regard to insurance requirements. They are out of compliance with regard to having the ability to handle their own finances, to handle their own bookkeeping, to handle their own accounting. I am convinced and I have informed them in the same letter I sent to them and that is a public document and anybody that wants — and I know Council Members have it — and anybody that wants a copy of that can get that from our Public Information Office. I have also informed them that I see substantial problems with regard to the manner with which billing and power allocations have been handled and that those need to be corrected and we expect them to do so. They will have a board meeting next week. I assume that will be on their agenda and that way I will attend that. I wanted you to be aware of that. I have directed the accounting department to cease the provision of services, of accounting services to the WTMPA. Councilman Hernandez and I have spoken to WTMPA member cities regarding potential repayment issues. Recognizing that individuals are not authorized to commit their cities or the WTMPA, nevertheless we sat down with the three City Managers of the other member cities who are board members and have indicated to them that we see major problems with regard to the manner in which we are handling the billing. We have indicated to them that my recommendation to the City Council will be that we engage an outside accounting firm that specializes in electric facility auditing to come in and give us a true accounting of that and at least Councilman Hernandez and I have posed the question to them, the observation to them I should state, that we felt that they should participate in that. Their initial responses were favorable; although I must again point out to you that they were not in a position to commit their cities or the WTMPA. But we have initiated those discussions. MCDOUGAL: Bob, you said WTMPA has a board meeting next week. CASS: Yes, sir. 162 Special City Council Meeting February 20, 2003 Page 163 MCDOUGAL: Would it be possible for maybe you and Matt to get on that agenda and maybe go formally request that they participate in that audit? CASS: Yes, sir, I believe it would be. MCDOUGAL: I think you have done that, but I would feel better if we did that formally. PATTERSON: It would be 15% that we are talking about? CASS: Well, again, I do not want to even, I do not want to speculate on how much that may be. What I am telling you is that two good people, two very talented people, Bill DeHaas and Harold Dominguez, got in and went through those billing things. Got a law degree in there, got an MBA in there, got an MPA in there, but do not have that accounting kind of expertise. I would hesitate to speculate on a number that we might have over or perhaps under billed them. I think it's premature to do that but I will again tell you I am convinced that the process is flawed and we need to go in and get a firm specializing in these matters to come in and give a true accounting of that. HERNANDEZ: A point of clarification. When you and I met with the City Managers of the member cities, we were talking about them participating in the costs of hiring an outside accounting firm to determine those costs and that's really I think what the Mayor was referring to. That shouldn't be a problem to get on next week's agenda. BOREN: I don't know if I want an answer right now, but you need to be thinking about it. You directed the City of Lubbock to cease accounting services for WTMPA. Realizing that Chairman Ty Cooke receives $3,000 a month, part of that is for him to handle accounting services. There is a big investment that we have Power Plant Massengale No. 8 WTMPA generator, which is worth on our bonds $28m. For us to say, forget it that's it, I don't want to get cluster screwed again by no accounting, no proper who's handling what, where and how much and how is this being accounted for and this and that. It's going to run up more auditing fees if you bring someone else in. Likewise, I am concerned. I read your letter about the insurance issue. Because we are telling them they need to get insurance. We got a big investment out there. Who's covering now. Let's say something blows, is it under our insurance currently? CASS: Yes, sir. BOREN: Be thinking on that accounting — CASS: Well, that's a good point. That's a good point and I believe what I've heard the Council say the last few weeks though, is staff has no authority to deviate from contracts enacted by this Council and so basically — but there's a practical, there's a practical and if the Council wants to direct me to it to change that directive I will certainly be happy to do that. MARTIN: Certainly, I assume we are going to continue, we are going to do our own accounting of our side of this equation? CASS: Oh, sure. MARTIN: We certainly have information available and since we are keeping those figures I think it should enable us until they gear up, if they choose to start their own accounting firm and so forth at least we can keep tract of the current expenditures and services provided. 163 Special City Council Meeting February 20, 2003 Page 164 CASS: And obviously, we'll use common sense in working through them with the transitional issues. We don't want to compromise the City, but the alternative, history has shown is that to continue to extend the service continues to extend the problem. HERNANDEZ: Well and let me at least throw this out there. WTMPA did some time ago and Matt or Harold can give me the specific date, but the WTMPA Board did in fact give a directive to its Chairman to have the City of Lubbock stop doing its accounting and instead go out and acquire the services of an accounting firm in order for them to be doing that on their own. For whatever reason, the Chairman chose not to do that and for some reason, the WTMPA Board has chosen not to call him on it. So I think, Gary's, Councilman Boren's point is well taken. But I think at least as far as the accounting services are concerned, from my perspective, it's something that not only should they be doing, but something that the Board of Directors of WTMPA told their Chairman they ought to be doing and directed him to go out and get those accounting services performed. So if there is a problem in this regard, it's between their Board and their Chairman and I really don't see where we should be deviating from the contractual terms at all. BOREN: I just want to be sure we do not put in jeopardy our investment. CASS: I understand, I understand. BOREN: That's my point. CASS: And we will make sure that the accounting staff keeps that in mind as we work through that. Again, this is just sort of a different way of saying what the action of the Council has directed us to take with regard with --- the restructuring relative to the CFO they are recommending. Got two processes going. Obviously, this leads to questions with regard to contract management and education and training on contract management. We had the discussion last week with regard to the airport parking contract. I need to report to you that there are other contracts equally large in magnitude where I can point with great pride to the job that our employees are doing. I am no longer going to assume though that every one of our 2,500 contracts, and that is a lot, is being handled well. I have no reason to believe they are not, but I'm not going to assume that. Basically, what I have instructed Matt Wade to do and Matt has graciously agreed to serve in what he emphasizes is an interim capacity as the Director of Lubbock Power and Light. One reason I asked Matt to do that is because in his capacity as attorney for that organization he is familiar with the contracts and is familiar with the problems that can befall us when the contracts are not well administered and I have instructed Matt to get in there and make sure that that staff understands those contracts. Make sure that that staff understands what they must do to protect the public interest and make sure that processes are set in place to be certain that that happens. In a larger sense, I have instructed Quincy White to do the same with regard to all contracting management in the City organization. With regard to the contract compliance staff, I mentioned last week in the discussion with regard to the APCOA contract that it is apparent to me and the WTMPA has only made it more so that we need to have more aggressive, more proactive contract 164 Special City Council Meeting February 20, 2003 Page 165 compliance auditing. We have financial compliance auditing. We have a very aggressive environmental compliance auditing process. That was explained to you by Mike Cunningham on behalf of the Treasurer search committee. Bill DeHaas does a great job there. Bill DeHaas is one man. We've got 2,500 contracts. I have indicated to the Council and one of the directives I will give to the staff as we go through the budget process is we need to figure out how to shift some personnel into that area where we can get out more proactively. Not only to protect the public interest, but frankly to take care of our employees. This doesn't need to happen. It didn't need to happen this time. And finally, with regard to restructuring. I have made no secret in my discussions with my senior staff and with the organization over the past few months, that I am contemplating some restructuring organization wide. Obviously, that will take Council action and we will bring that back to you. It is no secret that part of that is the restructuring with regard to the CFO issue that is out there. Beyond that though, I am contemplating some restructuring in the administrative levels at Lubbock Power & Light and hopefully will be able to bring that forward to you soon. In my opinion, Lubbock Power & Light is a unique enough entity and operates in such, at least for governmental services, such a different environment because it is competing door-to-door with a service that is in every way private, except for the fact that this owned by the public. And if they need to have effectively a CFO and somebody with extensive financial management expertise in a senior management position over there and we will be making a recommendation to Council along those lines as well. Other actions, other recommendations that have come up again. You will hear this I believe as you read through the recommendations and as you listen to these men regarding the relationships and the contracts. They need to be simplified. This is a bad model. If we want to have a relationship with WTMPA, it needs to be substantially simplified and I would again say with regard to relationships, that again this is the City Manager talking; it is not the Council talking. I am just simply giving you the best advice I can. In terms of the relationships, it is an awkward position and in my opinion, and these are good people, it is an awkward position to put our Board appointees in the position of working on behalf of Lubbock Power & Light and WTMPA. We should not be seduced into thinking our interests are always the same. Many times they will be. Sometimes they will not be and that is not a position, in my opinion, that we should be putting people in. I require separate audits - - yes, sir — yes, sir — HERNANDEZ: Before you go on, Bob, and this could be an awfully long afternoon because I have taken days and days to take a look at the audit committee's report and I have come up with sixty-one different areas that we could delve into. But this is one that I want to address right now and I'm putting basically what you're saying in writing. I put "How can a person who serves on the LP&L Board and WTMPA Board at the same time not have a conflict of interest if there exists a fiduciary responsibility to both entities?" I asked the City Attorney to specifically look at that issue and they've rendered an opinion and basically from a legal perspective, I think the answer is there is no conflict of interest. But in our discussions over the 165 Special City Council Meeting February 20, 2003 Page 166 last few days, I think from a practical perspective there could and have arisen instances of where there are actual conflicts of interest. If not, and I'm still trying to figure out how you can have a conflict of interest and still be legal. But I will cite an example: You have a WTMPA Board member who happens to be our appointee, the City of Lubbock's appointee, and they are part of the group that agrees not to obtain insurance for example. And they agree not obtain insurance simply because it's going to save WTMPA some money. So as they are acting as a WTMPA Board member, they are looking out for WTMPA's interest and that is, well we want to save ourselves some money. Yet, they are also serving on the LP&L Board and their responsibility there is to protect LP&L's interest. So the analysis there could very easily be, we need to make sure WTMPA has insurance because if they don't, it's going to be something that LP&L is going to have to pick up and pay for. You know, you can't have it both ways is my point and that Board member is going to have to take off one hat in one instance and put on another hat in another instance. Sometimes it seems to me they are wearing both hats at the same time and it's just, I just don't see how we can continue that practice and place these folks in that position and subject them to criticism. Which to the outside folks, to the folks in this community, quite frankly, I think to this Council, might just be justified criticism. CASS: I would, again, we can come to the same conclusion for different reasons. I would not lay failure at the feet of these individuals. I think they have done the best they can. I think they were failed in terms of being educated and educated as to the complexity of the relationship. I think they were failed in terms of being educated as to the requirements of the contract. And that would be my observation. BOREN: I want to — I agree with Councilman Hernandez on that. I think there is certainly confllicts of interest. There may not be a legal conflict, but I think it is certainly a very practical, obvious conflict of interest. However, I would like to state that our practice is our policy and at City Hall, you can't tell LP&L is a separate corporation. Therefore, at City Hall ,you can't tell WTMPA is a separate corporation. Therefore, with that being the case, as Councilman Martin and myself and I don't know about the other Councilmen here, when we came on the City Council, no one gave us any indoctrination, which I lay at the feet of the City management - - CASS: I agree, I agree. BOREN: --but you know, how we learned about WTMPA, how I learned about it was in executive session asking questions. So I agree with Councilman, but I would point out that our practice is our policy and that's why we have this blurred line, this umbilical cord that runs from City Hall to LP&L to WTMPA's office. And that's why it is all cluster screwed. MCDOUGAL: What I'm hearing Mr. Cass say is and you can look at the chart over there if you can read it, I can't. I think what I am hearing Bob say in these recommendations is that he is trying to separate the two entities. And I heard him say that the Board members from LP&L need to be on the LP&L Board and separate members or two appointments to WTMPA need to be separate individuals apart from those on that board. Is that not right? CASS: That's correct. 166 Special City Council Meeting February 20, 2003 Page 167 MCDOUGAL: I understand what ya'll are saying, but I think Bob's, what I heard him say is here's a solution to move forward with and that is to completely separate them regardless of what has happened for the last twenty years. HERNANDEZ: And I totally agree with the recommendation, but it also kind of leads to another discussion because from my perspective, if you've got board members who are currently serving on both boards, and there is a conflict of interest. I think one of the solutions that's being recommended is, we just ask them to pick or choose one of the other and to me once you have a conflict of interest, it doesn't' go away simply by you just picking or choosing another — one of the two boards you serve on. You know, and that's I think there's going to be some disagreement along those lines as well. My suggestion would be to thank Robert Massengale for his service, thank Randy Andrews for his service, but you need a whole new slate of folks serving on WTMPA and on the LP&L Board who have not been placed in that position and who are not and who have not experienced a conflict of interest. It just, you know, it just strikes me as odd is we are going to be able to wave a magic wand and say "Oh, conflict of interest goes away." It just doesn't work that way. At least, not in my mind. BOREN: These individuals did not put themselves in a conflict of interest by who they are. The conflict of interest would arise from the nature of WTMPA with LP&L. So I don't think it's fair to single out the individuals. CASS: I agree. BOREN: They are just citizens that we asked to serve and to give up their time to come and give us some expertise and to help us. So, I want to be sure that when we mention these names, we are not saying they have done anything wrong. Because they haven't. Randy's only been there two months, you know, so it's just a matter of trying to get fresh people, fresh input, and see what in the world is going on. And so the conflict may rise as far as the entity, but not the individuals. CASS: I agree. HERNANDEZ: I totally agree. MARTIN: And the same thing to follow up on the Mayor Pro Tem's comments, you could extend that same logic that he brings up to other entities that we as a city government have had contractual relationships and have offered financial support to. Like Fiesta del Llano, for example. HERNANDEZ: Or the MPO. MARTIN: You could bring those up. I'm not sure that that's productive in this particular situation. HERNANDEZ: Well, and the reason I mentioned the MPO, is Tom and I and Bob Cass serve on that one as well. MARTIN: That's established by government. HERNANDEZ: So is this other one. MARTIN: By the federal government. HERNANDEZ: And the reason I mentioned those is because and I've had this discussion not just in relationship to WTMPA, but in relationship to placing people in very awkward positions. Because they, and again it goes back to having to serve two masters at the same time. There are a lot of entities on which either Council serves or city staff members serve, that are 167 Special City Council Meeting February 20, 2003 Page 168 being placed in the same predicament. The MPO was an example that we talked about. SPAG, the SPAG Board was another one we talked about. CASS: I've been concerned for example that we have staff potentially in an awkward spot, not appointees, with regard to Civic Lubbock. That basically we are working contractually with. We are working, I sat down for example with Murray Hensley, the Chairman of Civic Lubbock, basically to admonish him to look at those issues and my staff as well, and have no reason to believe there are problems. Again, I'm not going to assume there are not. So we are looking at those issues. An issue that came up concerns the provision of fidelity insurance for the folks that you appoint to those boards. Are we covering them in those capacities? Those are issues we are evaluating. HERNANDEZ: I hope we are. I would hope we are. CASS: Again, that would be the responsibility of those entities, not the City. Again, we've got to look into those issues. HERNANDEZ: And again, I would just, you know, expound on Councilman Boren's point, that we shouldn't look at these from an individual's perspective. In other words, who's serving on there, but what sort of problem it creates and what solution is there. And that's exactly the way I'm looking at it and that's why I am saying, "Well, if we are going to be looking at WTMPA in this regard, we need to look at other instances where we have a similar situation." CASS: I agree. BOREN: Bob, let me ask you this and I'm going to start taking my hat off and be a citizen. If I come down to City Hall to serve as a councilman or on a board or something, I would assume that the City has accounting expertise, legal expertise, that you would have set up these municipal corporations with the best accounting, the best — you know, you just assume these sort of things take place and I don't know how you guys work. You know, I'm sorry, I do not know how it works down here yet. Because, you know, you keep saying LP&L is a separate entity, but it's not. It's just like scrambled eggs, you can't tell the yellow from the white. It's so intermingled and I would just think that if we are a municipality that sets up all these little corporations, Market Lubbock and whichever ones we do and everything is so clearly defined, so clearly, and it's not. I guess it just amazes me that expertise has not been utilized, asked or I don't know what. CASS: I have no argument on WTMPA. MORRISON: Gary, I empathize with you a little bit on lack of understanding of how the system, if you will, operates. Being in my first term, two years into my term, and I still didn't feel comfortable that I had my feet on the ground. It's just been in the last six months or so — and I still don't believe I have as good a handle on it as I will a year or two years from now. I come from or to this issue with a different perspective. Looking back on what's happened, take WTMPA out of the picture or that circle over there. We needed a generator. We needed additional electricity. We would have been buying purchased power from somewhere. We needed generation power. The City of Lubbock, LP&L, likely would have bought and built their own generator. Is that a reasonable conclusion? CASS: Yes. 168 Special City Council Meeting February 20, 2003 Page 169 MORRISON: Because if we are taking 85% of the power, we needed it and so everything that happened would have happened anyway. Up to the generator damage, the law suit, the settlement all of that would have taken place. Granted there are some billing questions in there that probably should have been and will be clarified. This type of arrangement with, in this case, four entities, Lubbock, Floydada, Brownfield and Tulia coming together happens every day in businesses. In my business, the livestock feed business, two competing companies come together to form a joint partnership, limited liability corporation, to do research and it's basically just a paper organization where the two entities are coming together and working together. So I don't see that there is a systemic problem here in having WTMPA or in having members of LP&L Board on the WTMPA Board. It looks to me like the situation just evolved without anyone sitting back and thinking about what we are fixing to do. What this relationship is going to be. What is going to happen when WTMPA owns a generator. And as I am looking at what happened, for instance, in the report when the committee visited with one of the members, he informed us that he thought the recalculation of the expenses and underpayment would present no problem. But they hadn't talked about. There hadn't been any discussion about it and resolution of these issues. So, I'm a little hesitant to make the conclusion that board members serving on two cannot not effectively represent both, because the objective is the same. And granting that there were problems may mean that we didn't think through weaving the City of Lubbock, LP&L, the board members, everyone involved, didn't think through what we were doing. And given the same circumstances, forethought and planning and understanding of where we were going and what the objective was would have prevented a lot of this. But that the same steps would have taken place at any rate. MCDOUGAL: Let me, Council, if we can, let's let Bob go ahead and get finished with his, so we can hear from the members of the committee that helped put this together. A couple of them have got to be gone before 3:00 and certainly, I think we owe it to them to hear and certainly, I want to hear from them as well. Bob, and then we will just hold our questions until they get completed. CASS: The next point was recommendation from the committee with which I concur that we require separate audits of Lubbock Power & Light, WTMPA and the balance of the city organization. I have recommended and we have already discussed that that we bring in an outside accounting firm specializing in utility billing, specializing in utility rate analysis to calculate the proper billing that should have taken place. Then there is some additional issues for the Council to consider. Obviously, a fundamental question that you will have to answer. Not necessarily today, but I think you recognize you will need to answer. Do we continue in our relationship with WTMPA and if so, what changes would we need to make with the relationship? A recommendation which I support and which I recommend, that the Council may not support. Which I recognize the public may not support. But again, it's one made by the oversight group and one that I support that deals with Lubbock Power & Light governance. There is no sense hiding behind my recommendation. I think 169 Special City Council Meeting February 20, 2003 Page 170 it's well documented my recommendation several years ago with regard to the relationship, and I respect the fact that that Council chose to differ with me on that. But nevertheless, I believe there is wisdom in the recommendation that the Council consider a different governance structure for Lubbock Power & Light. Much like, as one of the committee members pointed out, much like the relationship between the Lubbock County Commissioners and the Hospital District Board. In terms of conceptually a body appointed by the Lubbock City Council which otherwise oversees an operation separate and apart from the City of Lubbock operation. I can go through a litany of reasons why I think that's good idea and I will be happy to respond to those questions. This would require, would involve statutory issues and possibly charter issues, but I think it's an item at least worthy of public debate and discussion. We certainly commend that recommendation to you. Mayor, with that in mind, let me turn it over to any members of the Committee that might like to speak. J. Q., did you have some comments to make. WARNICK: Always. Do you want us to go down there? MARTIN: Yes, sir, that's where the television camera can show your shining face. WARNICK: Mayor and Council members, I would say to you so we won't be here all day that I think the first thing you face is a very simple decision. It is an important decision, but you need to make the first before you decide to do anything else. That is, are you going to continue to have the power agency in existence or are you going to do away with it and take over its indebtedness and its property and run it that way and be sure that those other three cities get electric power at that rate. If you do that, that's one answer. If you decide to do the other, then I think you are going to have to, rather than having a lot of hyper -technical discussions and worrying about a lot of things, you are going to have to decide that West Texas Municipal Power Agency is a separate company. I don't think that this city deals with folks that do paving, that do ditch digging, who put in pipes, who build buildings for this city, get dealt with like the power agency has been dealt with. It's an arm's length transaction and by God, if they have a contract, you make them live up to it. And that's what you do here. MCDOUGAL: Anyone else? Bob, John. I knew Mr. Wilkerson had something to say. PATTERSON: You made it clear. You made it very clear, didn't you? WILKERSON: We may be wrong. But as we studied this, the economies of having the City do the accounting, do the insurance coverage, the City undoubtedly has insurance abilities that would far exceed those of WTMPA as a stand-alone, small entity. And with us operating those generators, I would think that always the City has some additional requirement for insurance even if WTMPA gets all their own insurance, I think that the City ought to provide the accounting services and prorata bill the different entities that are in it for services rendered. I think that the insurance should be handled by the City and equally billed in a pro rata manner. I think that that board should be totally separate from the other boards just like Bob had recommended. But I think if we did that properly, we could have better control, far better efficiencies and I think by contract we need to accept all the responsibilities for doing all 170 Special City Council Meeting February 20, 2003 Page 171 of that. If we go out and hire a staff on the other side, we are going to add significant additional costs that probably are not going to contribute anything except additional costs. I don't know that thing so constituted that it ever really ought to be trying to run the business side. I think that if they just worked on the regulatory issues and the purchasing of power and if all the accounting and all the insurance were handled on the City side and billed as it should be billed, I think that would be a far more healthy operation than that which we have now. I think that we need to be certain in the future that our internal and our external auditors point up to the City Manager and his executive staff, however that should be constituted and I don't know how that is, any areas where they find that the contracts that we have entered into are not being complied with exactly the way they are supposed to be. I don't think that what we have been provided that that has been the case on either side. I think with those improvements, WTMPA could operate far more effectively and I don't think it would have to be with excessive costs. If anybody wants to ask a question on that, I would be happy to answer it. MARTIN: John, does that mean that you think we need to keep WTMPA WILKERSON: Well, if I understand correctly, if you disband it, then you are going to have some bond costs that would be fairly significant and I don't think that that would be a wise thing to do. If that is the case and with suggestions and they are not my suggestions, really the committee came up with those thoughts, I think it could work very effectively as I outlined it. MARTIN: Would it work also if it were disbanded? WILKERSON: If you want to pay the bond fees that you are going to have to pay to unglue it. Yeah, I don't know that we ever had to do it. Apparently, we did it because bonding was easier done and maybe more attractively priced doing it the way we did it than if we put it on the City's side of the ledger. Certainly, we don't have to have the other cities, but they entered into these agreements in good faith and I have a problem pitching them out with the bath water. Even if we shouldn't have entered into it, we did enter into it and if it was me, I would honor that I would completely change to where that we have the control, the responsibility, the authority and the ability to bill, as we should all of the costs. We need to run it. We've got the staff. We've got the ability. They don't have staff. They don't have the ability and I don't think they should be doing those things and I don't like the idea of doubling the cost and hiring a full time person over on that side. I don't see any wisdom in doing that personally. MARTIN: But if we are not convinced that whatever structure we might, if we chose to keep WTMPA, how we might choose to restructure, if we are not convinced that it is actually going to be a benefit to us, and the fact that I hear what you are saying about the defeasance cost of the bonds, but in reality it's our debt anyway. Because we guarantee it. WILKERSON: I'm talking about the penalty costs. MARTIN: I understand what you're saying. WILKERSON: I think that may be some significant money. MARTIN: Right. But at the same time, in effect it is our debt anyway. Certainly, the other three cities collectively wouldn't be able to make a drop in being able to retire that debt. Then we would 171 Special City Council Meeting February 20, 2003 Page 172 end up with the cost. And as a matter of fact, under new accounting rules, we basically have to show that as our debt anyway. It's kind of like cosigning a loan. I'm sure at some point you have cosigned, maybe cosigned for one of your sons to buy a car years ago. But you know when you cosign that note, even though that other person is supposed to make the payments, you know that you may end up having to make them if that person doesn't follow through. That's why I'm curious if you felt, because I respect your judgment, I've known you an awful long time, and that is, but you believe we should keep the entity. WILKERSON: Does anybody, I don't know what it cost to unwind those bonds. But what would the penalty portion be? Do we have anyidea? MCDOUGAL: A little over $2 million. CASS: We asked Vince Vialle at First Southwest to speak to that in more detail. But it would require — there would be about a $2 million additional cost in terms of defeasance and also the bond coverage requirements would be greater. BOREN: That's an easy one to decide real quick. That's a no-brainer. WILKERSON: For that reason, I would not recommend doing that. I think you do what we've suggested, you can run it very efficiently and very satisfactorily and I think we can take all the problems that we have been dealing with out of it if it is done correctly. BOREN: My concern has always been this is an unique animal. I haven't quite understood how it roams in Texas between Austin and Lubbock and the outskirts. But my issue has always been with WTMPA, is it's business practices. How are business practices being carried out. It could be WTMPA, it could be ABC, DEF, LP&L, it could be all these different, it is the business practice that bothers me. I'm not technical enough to know whether it serves a good purpose or not. It fascinates me, they can work outside our boundaries and I like the aspect it helps smaller communities. But the business practices that the City has allowed to continue, to me is the most despairing thing to see. So I would add one more comment, Mr. Cass, to your recommendations — issues for City Council to consider. I call it "City Management Governance". You mentioned LP&L governance, I am going to add another category, City Management Governance. We have the City Treasurer Committee that's looking at the finance and accounting functions of City Hall, and then I would say we need to pay close attention to our managing directors of all the enterprise funds and for the sake of the people out there who don't know what enterprise funds would be that's the LP&L, Water, Sewer, Solid Waste, Airport, be sure that we are running these enterprise funds that generate revenue with proper business practices. That means training; that means give them support they haven't had. I don't know what's going on. Look at the audits for the past year. You know, every one of them I quizzed on. I just think we need to pay close attention to these enterprise funds that generate revenue and such a big thing of what the City does. WILKERSON: Gary, as we look at this, we looked at the governance that we thought made sense, and I personally think that the County Commissioners and University Medical Center Hospital Board, I think that model has worked very effectively. They run an excellent operation. Jim Courtney and that Board, I think, are doing an excellent job and if we had an independent 172 Special City Council Meeting February 20, 2003 Page 173 board overseeing LP&L and if we had external auditors that were specialist in the utility business, and you all set up the proper structure, I don't think we would have any problems. But, Tom, I would hate to see us blow $2 million to get out of the thing. Because I think if we did what we have suggested, it would work very effectively and I think if you had that board properly constituted and if they had to report back to you for approval of their budget, just very similar to how UMC and the County Commissioners work and the caveat to all that is nobody ought to be put on that board that doesn't have excellent business background. Because good people with good intentions and no ability financially and no ability personnel wise aren't qualified to help oversee a megabuck deal like that and if you put just any old body on there, I assure you you're going to have more problems. Because if you'll put some of our leading citizens that have worked hard and that have high competence level, they will see that that thing is run right and you men at the front of the room cannot oversee every piece of this City. That would relieve you in my opinion done properly of a huge amount of the responsibility for that particular part of our city operation. MARTIN: One other thing, John. I would say that I like you are not interested in spending $2 million just for the sake of doing it. But at the same time, the big question we have right now and we don't know the answer until we can bring in the outside auditors to determine it is how much has this cost us already. And sometimes in business, every business faces a time when they have to shut something down because the cost of continuing is just either you are losing too much money; either it is impossible to continue and you have to approach that as an alternative. And again, I haven't made up my mind. Everybody on the Council is facing the same issue. WILKERSON: Well, let me make an observation at that point. Our recommendation is that we do this audit and that all of the costs that should have been billed, if that be the case, that have not been billed, if that be the case, be billed with interest. If those cities are unwilling to carry their legal, appropriate, responsible part of that load then I would dismantle it. If they are willing to do their part properly, they contributed to it being messed up because they did not oversee it as it should have been. If they are willing to do their part to straighten it out, then you got no reason not to honor the commitment that we made when we went into that contractual arrangement. You don't have to throw that $2 million away and I have no doubt that we don't have the people on the city side, if we are structured properly, to run it and if they are responsible to a board that runs LP&L and that board is highly qualified people. I think we just need to clean up the way we are doing things and then I think we can make them work well. But I would be adamantly opposed to anybody going on that board that doesn't have the personnel and financial skills and background to be a contributor to running a multi -million dollar business. HERNANDEZ: Let me just play Devil's advocate here for a second, John. As you are saying, well, we need to separate, we need to create the separate board, just like the UMC Board does, has, and then we need to put some business people on there with expertise so that this thing can be run right. But actually if this, if it had been run right under the current structure, we wouldn't even be having this discussion. So I am not too sure I've bought into 173 Special City Council Meeting February 20, 2003 Page 174 this concept of creating a whole other entity to do what should have already been done all this time. I'm not too sure that if we had folks in place who were making sure that audits were being done, that contracts were being complied with, that our interests were being taken care that there would even need to be having this discussion. I'm not too sure creating a whole new board is going to accomplish — WILKERSON: You've got a board, it's just not structured like we're suggesting. HERNANDEZ: Well, I understand. I understand. WILKERSON: It's not a new board. HERNANDEZ: But you're talking about a board for LP&L and I'm saying I'm not too sure that's necessarily the answer. When in fact, you've got a structure in place that if it was working well, if it was working correctly it would serve the same function. But setting that aside, there's another problem aside from the $2 million dollars extra that we would have to pay in order to defease the bonds, if in fact we were no longer wanting WTMPA to exist. It's my understanding the second issue is whether or not the City of Lubbock has the bond capacity to be able to take on that additional debt. Can you answer that, Mr. Cass? CASS: As I understand it, the bond coverage requirements under the current structure are less than they would be were the City of Lubbock to take on the debt on its own and had not done the detail analysis, it would be my understanding that were we to take on the full load in addition to the S2 million defeasance with the penalty which Mr. Wilkerson speaks to, that the cover requirements would impact the rates. HERNANDEZ: Who would do that study for you? CASS: First Southwest and accounting folks. HERNANDEZ: So in addition to that would it, the question is: Would it affect the City's ability to acquire any additional indebtedness for other projects? CASS: Well, again, I don't want to get, to the extent you want to raise rates as high as you want to raise them, you can do what, you know, bonding capacity is a matter of how much revenue you've got coming in to the extent that you've got rates high enough. You've got a lot of capacity there. But all I can tell you is it is my understanding based on the current state of affairs that you would not have the revenue stream coming in to support that kind of bond coverage where you could take that on yourself without impacting the rates. WILKERSON: Victor, I would not agree with you that the existing structure should have worked well. If you as a City Councilman were on the WTMPA Board and you were on the LP&L Board and I were a City employee and I didn't really feel real good about how everything was going, but you were sitting on top of that and you seemed to think it was in good shape. You think I am going to try to nail you. HERNANDEZ: Yeah, and I — WILKERSON: The structure is screwed up. HERNANDEZ: -- I think that's a point well taken because I think there is some of that going on even here. Let me ask you one other thing, John, if I can. Your charge as a committee, and this goes to the judge and everybody else, was to take a look at this issue from 174 Special City Council Meeting February 20, 2003 Page 175 the City of Lubbock's perspective. One of the observations I have made in taking a look at this is that we as a city need to take a look at it from WTMPA's perspective because we basically own 85%, or we have under contract we're required to purchase 85% of their output. We almost have a majority in interest, a majority in interest vote. So basically we are the largest shareholder, if you will, in WTMPA, and so we have an interest to make sure they're operating and doing the things they ought to. Plus we get the right to appoint two members to their board. If that be the case, it seems to me if there were problems as a result of this relationship on our end, and we are taking steps to correct it, then we need to take a look at it from WTMPA's perspective, make recommendations to our appointees so that they can start cleaning house on their end of it as well. Would you agree with that? WILKERSON: Well, I think if what WTMPA did was redefined in a very narrow area and if by contract LP&L did most everything that is required for that entity to function well, I think there would be very little to talk about. But it would certainly be all right to do so. You know, one of the things that I hope you all will consider very strongly is although those cities may not today be of any great consequence in this particular issue, they entered into it in good faith. They did not maliciously plot to cause it to be less than it should have been and unless they are not willing to continually do their fair share as we straighten this thing out, I think you all would not be honoring a contract and a commitment you went into properly to walk off and leave them. Even if there wasn't a $2 million fee and then that further pains me as a significant tax payer around this place that we might throw a couple of million away just to get rid of something that I think can be made to work very effectively. Would anybody on the committee disagree with the way I have described that or add anything else to it? Any other questions? Otherwise, I am going to sit down. MORRISON: John, I would like to ask and any one of the members could, but you are the most business oriented one of them. You see, and you kind of answered this question, but this kind of a structure where you've got several entities operating in a similar environment or let me take it your business. You own a piece of property and you've got a fellow that wants to put a building on it. Well, you got into a joint lease/purchase buyback joint partnership where one of you builds the building and then the other one operates it or something. There are structures like this that work very successfully. WILKERSON: This one could have worked very successfully. It was not properly structured in my opinion. And I still think you can clean up the structuring and it will work properly. Now, unless the other cities refuse to pay interest and to pick up over some reasonable length of time the shortfalls that have not been billed if that be the case. Then, I think we've got an obligation to stay with it and I have no questions that we can't structure where it will work and work very effectively. I'm going to let some of the other — MCDOUGAL: John, what I heard you say. Just like to make sure I am correct, we already have the structure. We just need to reorganize it. WILKERSON: That's correct. MCDOUGAL: Is that what I am hearing you say? 175 Special City Council Meeting February 20, 2003 Page 176 WILKERSON: That's correct, and Bob and our committee have gone over that in very great detail and if anybody wants to sit down with us further later and go over it again, we will be happy to do that. But we don't see it being something that can't work properly, properly restructured. PATTERSON: Mayor, I got to correct Frank. You said only one businessperson. We got Mike Liner. Give them all credit. They are all businessmen. MCDOUGAL: We've got a friendly banker over here. PATTERSON: That's what I'm saying. HERNANDEZ: Well, John, let me just before you leave, I just have one last question because you keep going back to it and you — the committee refers to it on page 12 and it says, "However" and this was in talking about dissolving the price we would, you know, the suggestion where one of the options is to dissolve WTMPA. It goes: "However for that to be done, City of Lubbock would have to insure that the other three cities would enjoy the same financial benefits they have under the present arrangement, since these cities have entered into this electricity purchasing agreement in good faith." And I think that's what you are referring to. WILKERSON: Well, we can change the relationship as I have suggested and which our committee has suggested and I want to sit down and let them improve on what I have said and correct anything I have said wrong. But I don't think our words were intended to dissolve WTMPA totally. HERNANDEZ: No, no, I understand that. WILKERSON: I think we just feel that the current structure never has worked and is not likely ever going to work and that with these changes it could be made to work very effectively. HERNANDEZ: Right, and I think you were just throwing that out as an alternative, an option that you could dissolve it. I am not saying you were advocating that. But my question is: In your review and in the committee's review of what went, on you never, the committee never came to the conclusion that the WTMPA was in breach of contract. That they also had not complied with the contractual obligations owed to the City. WILKERSON: I think we came to the conclusion that no party to any of this did anything they were supposed to do like they should have. HERNANDEZ: So fault could go both ways is my — WILKERSON: If there was anybody that did what they were supposed to, it was not brought to our attention. HERNANDEZ: Thanks, John. WILKERSON: Bankers are several notches above businessmen. MORRISON: My apologies. LINER: No, no problem, he was referred to recently on one of the radio talk shows as the Cold Storage King. Not to belabor the point and with respect to Councilman Hernandez, I would like to endorse Mr. Cass' recommendation for the restructuring as he outlined it and as John eloquently put it. Back to your last question, Councilman, about the fault. We weren't really there to find fault or lay blame, we were trying to find out what happened. The contract between the Authority and the City of Lubbock called for the City of Lubbock to be billing them on a monthly basis for what was 176 Special City Council Meeting February 20, 2003 Page 177 being done. That didn't happen. So therein starts the problem in my opinion. It would be hard for the authority to do their side of the contract if the side that was generating electricity and creating the expense was not forwarding those on properly. Now it was done to some extent, but I don't believe it was done the way the contract was called for. So it gets back to the root of the problem. Let's restructure how we do our electricity and go with the model he has put forward. I believe that if you set up a board like that, not trying to complicate the issue; a board in my opinion has two jobs. That is to set policy and hire someone to follow that policy. Short of that, you know, they are probably out of line trying to micromanage the business of any kind. So to simplify what they say is to take the load off of the Council. There's no way, going to back to what Councilman Boren said coming in, the orientation within itself has got to be tremendous for you all do. I empathize Mr. Cass' position. I sit in a CEO position myself. There is no way a CEO in an organization the size of the City of Lubbock with as many entities you've got can possibly have his thumb or finger on everything that is going on. You have to rely upon a real good organization underneath you to bring that forward. That's why I think that a very empowered board to see over LP&L much like the model of UMC and I make no apologies, I serve on the UMC Board and it works very, very well. There's two things that this board would come to you for: bring you your budget on an annual basis for you to approve, and as I understand it on a monthly basis, they would have to bring you the rates to set. By law, you would have to set the rates. That board wouldn't have the power to do that. They would have to do that on at least a monthly basis. So you would still have the ultimate governing authority of LP&L. But put a board there that would actually govern that thing, hire the proper accounting services, hire the proper auditing services and be responsible for that. Not be a board that is there in name only that meets once a month and drinks coffee or whatever. You've got to have a working board. So that's my two cents worth. But I think it goes back to the root of the problem. If we have somebody to oversee the contract then again we wouldn't be here today. BOREN: I had this similar discussion with Mr. Cass and he made an interesting comment, which I agree with. He says with fifteen hundred employees there is just no way I can know everything that is going on. I agree with that. But what I said was he has a team called managing directors. He's got those five players on the floor every game to compete and do their best. He's got to coach those managing directors. He's got to give them the equipment. He's got to give them the training and support they need to carry out their mission, and if they can't do it, he's got to bench them. That is his team. That's who he has go to coach and they will coach all the way down. I agree totally with the concept of LP&L being a separate stand alone entity and I agree that in any of these areas like the Airport Board, whatever we go with, Civic Lubbock, we need to empower these boards with good people, with good financial information, so they can start making decisions and help. This City's too large, too big and has such great assets that we need to be taking advantage of all the kinds of folks in this community that can lend hands to these sort of things to be sure that we get delivery of services at the lowest cost possible. So I certainly agree with that. LINER: If nobody else has got any questions for me, I will sit down. 177 Special City Council Meeting February 20, 2003 Page 178 MCDOUGAL: I don't. Anita, does — is that going to require a charter change? Charter election? BURGESS: The prototype I think that this audit committee has put forward is going to require potentially some legislative changes; potentially some charter changes. We've talked about that among ourselves at length, and we're thinking through those possibilities. Some of the issues that are going to arise with regard to this type of governance would such things as whether or not certain matters could be considered in executive session because they are now competitive under the new law. That privilege runs to the governing body. At this point, it would not run to a board. Certainly those are things that can be addressed legislatively and if this Council chooses to give us that kind of direction, we will certainly move in that way. MCDOUGAL: We should be two years from being able to do that. BURGESS: We would have to; particularly in regard to the competitive aspects and the competitive discussion. I don't think we could get it before the legislature this year. MCDOUGAL: Since you have less than two weeks to file any bills. BURGESS: That could be true, yes, sir. MARTIN: Of course we do operate under a Council/Manager form of government, and as the Board Members of this Council so eloquently put last week in the discussion of the treasurer position, you all aren't interested in anything else that doesn't report to the City Manager. I could make the argument based upon you all's argument last week, that we don't even need a board over at LP&L. So under the current deal is they work for the City Manager. We don't need a board over at the airport. We don't a board over a lot of things. We could do away with those under the current structure and under you all's dictates that we just hold Mr. Cass responsible, and when the ship goes wrong, we deal with him. PATTERSON: Also, Councilman, we made that decision with common sense. MARTIN: I understand. I'm all for it. You've made the decision and I support you, Mr. Patterson. But my point is, is to change if we want to give a stand alone board, it will require a charter change. That's actually, it's always that unspoken thing, isn't it, Mr. Cass, that we have these boards and commission and that have been created over the years by previous city councils, and we have lots of boards and commission, we don't want them to do too much. Don't want them to; I'm talking about -- PATTERSON: Let's -- MARTIN: Just a minute. I'm talking about Councils don't want them to meddle too much in what's going on. PATTERSON: Let's look at one thing. Let's look at — MARTIN: We just want to have them out there. PATTERSON: Councilman. Let's look at the — also the City. There's different kinds of boards. MARTIN: I understand. But we all, I know and you know too, if you have sat on this Council, we want them to be proactive as long as they do what we want them to do. We don't want them to meddle too much in what goes on. Would you say that's a fair statement, Mr. Cass? 178 Special City Council Meeting February 20, 2003 Page 179 CASS: Mr. Martin and I have known each other for twenty-seven years. I would emphatically agree with him. We use them and we support them when it is convenient to do so and we basically ignore them when it is not convenient to do so. That is absolutely my feeling. HERNANDEZ: We need to get a priest in here and have confession. MARTIN: So I just want to bring it up since we are all being honest and we are not keeping anything from the citizens. That when you hear the pontificating about we need an independent board, if we are going to do that we need to make sure that that's what we do. Because anything else would be window dressing just like we have now; and if we are going to have a Council/Manager form of government; then we need to have a Council/Manager form of government. If we want to go to some other form of government that requires a charter amendment. And when we open that can of worms, I will have you know that will not be the only worm that has to be dealt with. PATTERSON: I don't think we are trying to change the kind of government we have. We're not talking about that. BOREN: You're trying to zip up the wall. PATTERSON: We're not talking about that. MCDOUGAL: Judge, do you have something else? WARNICK: Bob may want to say something. MATTHEWS: As the junior member of this committee, I was deferred of the wisdom and comments of my fellow committee members. But one brief comment I would like to make. I have long been accused of living in a black and white world and what we have here is epitome of gray. Our society has long ago gotten used to doing things that maybe weren't quite right or what we didn't want to do because we didn't feel like it, and we called it "gray area" and we'd get away with it. And the one thing I want to stress is a point that Councilman Hernandez made is that it is very important the people who were in the positions representing the City of Lubbock. Because some of the people who were intimately involved in the dealings between LP&L and the WTMPA had no problem with the gray area. They didn't even know what was in the contract. Now if you have a contract, it's black and white, and you feel it needs to be honored, then you need people who will express that opinion for you. BOREN: Let me ask you, Bob, is that I notice on the recommendation on page 12, the legal relation between City of Lubbock and WTMPA you all start out with a certain concept. But secondly, you mention or the committee mentioned that no one in the City of Lubbock was specifically in charge of the WTMPA relations in dealings with the City of Lubbock. No one seemed to know what was actually occurring with regard to contract relations, which you just mentioned. Then this sentence catches my eye. It says, "Consequences did not seem to matter." So does that mean, I operate in the gray and if it's wrong, there is no consequence? MATTHEWS: There was a lack of concern, yes, that it was being done right, or anything should be changed about the way it was being done. 179 Special City Council Meeting February 20, 2003 Page 180 BOREN: So it didn't matter what the contract said. It didn't matter what I should do. It's, I am going to do what I think is right in my own eyes, because there are no consequences. MATTHEWS: Correct. Thank you. MCDOUGAL: Thank you. WARNICK: There's one thing perhaps we should have said at first so that you will understand. The report you have from this committee in your hands was written by this committee. We wrote this report, and we met on three different occasions, went over it very carefully together, made changes, moved a paragraph, took a sentence out, added a sentence. What you have in your hands is what we intended to say and what we intended to mean and we think it's very important. I don't mean any insult, but we didn't ask that it couldn't have been done as well. We didn't ask someone on the staff to write it for us. The four of us are the people who wrote this report that Bob Cass asked us to write. There are a couple of things about the report and perhaps it was not worded this way, but it strikes me that there is an imperative in this matter that you need to sit and look at. I am going to show you two instances in which this City had its liability on the line for something like one time, $28m and another time, $21m, which you could have been required to pay because the contract was not complied with. When the generator was finished, WTMPA had no insurance. If that generator had been burned up, blown up, fallen down, completely destroyed, then this City would have been on the line as a guarantor of the indebtedness, for the entire indebtedness out there because WTMPA has no assets. When that was discovered when the damage was done, it seems to me that should have been the signal that something is wrong in this situation and needs to be done. It was not done and one day we were discussing that when the four of us were together with Bob Cass. John Wilkerson just casually said to Bob, we do know that they have insurance now, don't they? Bob said I will check that for you. What we found out was that WTMPA had no insurance on the present generator when the indebtedness may be down to $22m or $21m, and so this City was on the line again for the bonds if that thing burned up out there. To Cass' credit, he immediately went out and bought the necessary insurance. As a lawyer, I had a concern about insurable interest and we consulted with Ms. Hutcheson and I would like to compliment her. She is a very knowledgeable risk manager and has done a good job of buying and now protects the interest. The second thing is that when we wrote this in our report in talking about this relationship. Let me give you an example. There is somebody building a fire station for this city at the corner of 36`h and Indiana. I am sure we have a contract with someone, don't we? If one of his trucks is driving down the street and had a wreck, injured two people and he was at fault, would you expect this city to be liable for that wreck? Would you? Well, of course, you are all shaking your head no. We wrote this in our report and I am going to give you the backup for it. At this very minute, legally speaking for liability purposes, there is no WTMPA. There is the City of Lubbock. That's who's on the line. That's not just me saying that. This lady over here wrote a report in which she said that the majority in interest vote where the City has a veto power at the board of the West Texas Municipal Power Agency simply Special City Council Meeting February 20, 2003 Page 181 makes that power agency the City of Lubbock. So whatever they do over there, whatever mistake they make and if one of them should steal the roughly S3.5m that runs through their bank account monthly, there is no fidelity bond, then this is this city's problem. You need to decide early, I said it before, that if you are going to do business with them, then you are going to be two separate business entities and you are going to deal with them at arm's length. If you don't do that, then it strikes me that it is foolish to talk about well, we may not want to do away with it because what you have done by your inaction and what has gone on in the past is there no such animal as the power agency. It's the City of Lubbock that's on the line for everything over there. Car wrecks, theft, destruction of property and anything else you owe it all because it's your alter ego. That's a legal term we lawyers use meaning that it's yours and you run it and you need to make a decision right away what you are going to do about that and get it straight. Bob has written a wonderful letter and told them get the insurance, get the fidelity bonds, we are going to tote up the accounting. But you need to decide that you are going to do something to separate yourself from that entity and let them be a separate entity. Regardless of whether you decide you are going to put two councilmen on there as your representatives or two members of the LP&L Board, that's immaterial. You are going to have to decide to do business at arm's length and under your contracts, and if you don't, then frankly nothing has changed. You just well go ahead and provide the accounting services for free because you are going to be responsible for the cost of them anyway if somebody decides to sue them over there. And I just hope that you will do that because I think that's the responsible way to act. One other thing. You said something, Councilman Hernandez, about the breach of contract and perhaps we hadn't said anything. At the top of page 10, I thought we said it, I hope very plainly. It is abundantly clear that (and we use COL) the City of Lubbock has permitted by omission WTMPA to be in breach of a majority of the essential provisions of the three contracts. That's exactly where you are. Every essential provision, every important provision has not been complied with. That's exactly where this situation is and you are at the present time WTMPA. Anybody have a question? HERNANDEZ: I've got a question, Judge. So if I am hearing you correctly, you are saying that the City of Lubbock would be responsible should WTMPA get in some sort of trouble? WARNICK: Yes, sir. HERNANDEZ: But that we should continue to treat them as separate entities? WARNICK: If you treat them as a separate entity, that's the problem. It never has been treated as a separate entity. HERNANDEZ: Correct. WARNICK: Whether by accident or on purpose, it doesn't make any difference. HERNANDEZ: Do you see there being any benefits in us going through the exercise of reviewing the policies, procedures, practices since we would ultimately be responsible and since we are a majority stakeholder in WTMPA, to insure that through our members or appointees they are doing the things they ought to be doing in the manner in which they ought to be doing them? 181 Special City Council Meeting February 20, 2003 Page 182 WARNICK: We recommended in our report that in the future that we thought you should set up a regular scheduled meeting, whether you do it once a month or at these work sessions and have the two representatives of the City of Lubbock come to the board meeting to the Council work sessions and sit down and talk with you about what goes on over there and what the attitude is of this city towards that entity so they will know what your policies and things are as they go. If they are going to represent you. If that's what they are there for. HERNANDEZ: Well, in fact, that was one of my observations and unfortunately it came late this morning and my question was: Is Robert Massengale and Randy Andrews, were they even invited to be here this morning? WARNICK: Of course, I don't know. I didn't send out the invitations. HERNANDEZ: It would seem to have been proper to have had them here for this discussion and yet they're not. So I think your point is well taken. We need better, greater, more effective communication even with our appointees, whether it be on this board or any of the others. WARNICK: Why, I think you would want to have effective communication with them when you make a decision what you are going to do about this thing. So that they will know where you stand on it and what you expect of the power agency and how you are going to deal with them in the future. You know, another thing that, and I'm sorry I hesitate to use the term ludicrous, but that's the way I feel about it. That power agency has never had a single employee. That's a multimillion -dollar business that we spend, I asked Bill earlier and he thinks that the electric bill that we pay each year to them is about $40m and I don't know what the other three cities pay. That is a huge corporation. If we ask for a raise of hands and ask how many people in here are in charge of $40m corporations, I wonder how many would raise their hand. Not many. And it's just kind of run loose. If we wanted to talk to somebody today, if you did, or you designated Cass and you said we want you to go and talk to the person at WTMPA who is in charge of whatever and tell them this and this and this, there is no such person. The only way you can talk to them is when they have a board meeting. Because they have no designated representative that you required them to have in the contract. They have some problem out here at the generating plant that they need to talk to WTMPA about, there is no one they can speak with. They must wait for the next board meeting to get something done about that. BOREN: Judge, wouldn't the custodian of the records be the representative of the WTMPA? WARNICK: I don't think so. You said something earlier, too, and I am just talking until you can read it because it's in our report that the Chairman of that Board over there was in charge of keeping their books. The resolution that they passed made him in charge of the office and the machines and the supplies and that sort of thing and it did not make him a person who was in charge of the bookkeeping. In fact, they had passed a resolution to hire somebody. They did that as a result of Senate Bill 7 as I understand it, you know, which was the competitive thing and it just never did get carried out. 182 Special City Council Meeting February 20, 2003 Page 183 BOREN: Well, didn't, Mr. DeHaas, didn't they have a checkbook they were keeping over there with accounts to different banks in town; that was supposed to be for office expense and accounting? DEHAAS: Well, literally there was a checkbook and that's what it was for was for the small amounts of money. Not the large transactions, which were handled by, wire transfers. But Donna Justice, the personal secretary of Ty Cooke, would simply be performing a simple bookkeeping function. Not an accounting function. She was literally writing checks delivering them to the bank, or picking them up. No more than that. BOREN: If you had by resolution a designated office and you had custodian of records and you sent a letter to the Chairman of the Board Ty Cooke, I would say that's your designated — would that not be correct? WARNICK: I don't think so. They're going to have to send a letter or do something official to notify Bob Cass. That's who I suspect you'd notify would be the City Manager. Our designated representative is Joe Blow and he's at 1801 Broadway or wherever he's located. His telephone number is 7 ... BOREN: That's pretty amazing because the designated representative would travel, would engage legal services from the San Antonio law firm, from a Washington D.C. law firm, have these law firms ask for opinions from the Attorney General to try to get things changed. I would say by practice, how could it not be, how — WARNICK: Well, you may have a point well taken. We didn't look at it from that point of view. We just knew that officially they had no one that the City could turn to who had been authorized to state things on their behalf and make representations that would bind them. MARTIN: Judge Warnick, to paraphrase Walt Kelley's -- WARNICK: You've met the enemy. MARTIN: --we have met, we have — his creation Pogo, we have met the enemy and he is us. In effect, what you are saying is there really is no WTMPA in practice, it is us. WARNICK: That's exactly right. MARTIN: In other words, you know a lot has been made of getting the accounting straightened up and figured up and figured how much they owe us. In reality, we owe ourselves and we pay ourselves, and it's a circular deal that goes around and around and around. And to paraphrase another old phrase, where she stops nobody knows. WARNICK: Well, of course those other cities, you know whatever their percentages are and I am just rounding them off. They owe 15% of that; the City of Lubbock owes 85% of it. Not the City, but it really should be its customers in the electric power business. That's where you're going to get your money back from. MARTIN: Right. So it's a, you mean, it's one thing to say that we need to constitute WTMPA as a stand alone organization, and I would agree that if this Council decides that we don't need to disband it, that it needs to be created and do the arms and legs transaction. I think you are right as rain. 183 Special City Council Meeting February 20, 2003 Page 184 WARNICK: Well, when we discussed the possibility and saying it could be disbanded, but you have to take care of those good faith cities, Bob always represented to us about the defeasance of the bonds was the major problem. And we didn't discuss how much it was because a financial decision in that regard would not be ours and it would need to be looked at very carefully, and there is a lot of other factors to be weighed in that. But our position was and I thought John adequately made it plain was that if you're, and me too, I'm always a little stronger than others. Probably comes from legal training. If you're going to have them there, then you are just going to have to be two separate businesses. If not, then just admit it and say, well it isn't really a business after all, it's us. HERNANDEZ: But let me ask you this, Judge, there is a legal entity that is called West Texas Municipal Power Agency, is there not? WARNICK: There's a piece of paper that says there's a corporation, yes. HERNANDEZ: But it exists legally. WARNICK: It does, but that doesn't HERNANDEZ: And let me ask you this. They have a Board of Directors, do they not? WARNICK: Sure. HERNANDEZ: They have an Executive Director, do they not? They have board meetings — WARNICK: They don't have an Executive Director. HERNANDEZ: Excuse me, a President. WARNICK: I think he's called a Chairman. HERNANDEZ: Chairman of the Board. They have got regularly scheduled meetings. They conduct business. They make decisions. Are you telling me there is nothing that we can lay at their feet on this deal? WARNICK: Not as individuals and the corporation doesn't have any asset except that generator out there. HERNANDEZ: So it's all the City of Lubbock's fault? WARNICK: I don't know about fault. We're not necessarily talking about fault. But let's just look at what — what do they do for themselves? HERNANDEZ: Well, what I'm trying to do is figure out, I mean if this thing had been run the way it should have been run, there were certain duties, responsibilities on their end that they should have been complying with. WARNICK: We said that over and over. We said in our report over and over that they didn't do what they should have done. But, by omission, the City did not require them to do that. HERNANDEZ: Well, and I understand that, but at the same time there were duties and responsibilities that didn't require the City to take any action that they didn't do any way. WARNICK: I understand. HERNANDEZ: And so, I mean, I'm not trying to get the City off the hook here, but what I am trying to do is put it in perspective. There's enough blame to go all the way around. WARNICK: You know, and I told you this the other day and I hate to repeat myself and it's not really that important and I think in 184 Special City Council Meeting February 20, 2003 Page 185 looking at the history of it, it's plain sort of, maybe this explains it what happened. In 1983, a paper deal was created to buy electricity. Add no assets, add no employees and all it was, was a front for these four cities. And it didn't get in anybody's way and it didn't have to buy insurance and it didn't have to have fidelity bonds or any of those kind of things. And it operated until 1998, when it decided then and all the cities knew that it would be a good deal to have a generating plant and it goes $29m in debt. And it's a grand new ballgame and nothing changed. It was just business as usual. We kept their books for them. We made all their decisions for them and then when they got a generating plant we were running it. We didn't even bill them properly for that. We never added our 5% for overhead. We didn't demand that they prove that they had all those insurance policies they were supposed to have. Even after we found out they didn't have them. And that sort of thing. And granted, they didn't do what they should do and if there had been the proper, you know the kind of communication there should have been, even with just the board members, that wasn't the City of Lubbock over there and they would have demanded I suspect that those things be done over there. It's all just kind of — you know, there never seemed to be anyone in charge of what ought to be done. HERNANDEZ: On either end. WARNICK: On either side. Correct. HERNANDEZ: I had another question, Judge. On page 4, your last sentence of the first paragraph, it said, "Thus, the payment of $1.6 million on the bonded indebtedness was legal and valid." And I don't know if you were privy to this information or not, or if it even makes any difference in your analysis, but I kind of questioned whether it was legal or at the very least valid if in fact there was no board action on WTMPA's part to authorize that payment? WARNICK: I think we looked at it in the point of view what was done with the money. And what was done with the money was to pay a legal debt of the power agency that had to be paid. In addition to that, as we understood it, and maybe we didn't understand it correctly, that the discussions that took place about the $1.6 million was simply this: do you have the $1.6 million? And when it was all said and done, there wasn't any agreement as to what would be done with the $1.6 million. And so then when the bond payment became due and they had no money, that money was used to make a bond payment. HERNADNEZ: And I think, correct me if I'm wrong WARNICK: If that money hadn't been used, guess who gets to pay it. HERNANDEZ: And correct me if I'm wrong, Judge, you look at it in terms of the bond covenants and their authority to use that money for bond payment. WARNICK: Surely. HERNANDEZ: But you never looked at it from the perspective of WTMPA Board authority given to make that payment? WARNICK: Never looked at it to see if the Board rules required "that they have a vote every time they made a bond payment." HERNANDEZ: Right. 185 Special City Council Meeting February 20, 2003 Page 186 WARNICK: Yes, you're right, they did not. We didn't look at their affairs on -- MARTIN: You were looking at "somebody put that in their pocket" is what you were looking at. WARNICK: That's exactly what we were looking — had somebody used it for some purpose that was not kosher. MARTIN: The good news is, in addition to all the other procedural mistakes and policy mistakes and oversight mistakes and other stuff, the good news is it was made, at least it was used to make a legal bond payment that was due and payable. WARNICK: Yes, sir. Well, I think one of the greatest reliefs the four of us have, and I see that Mike has had to go, he had to leave town, was when it was all said and done that we had not seen anything that indicated to us any fraudulent or criminal activity at all. Acts of omission, folks who did things without authority and should have gotten authority and that sort of thing, but nobody ever lined his pocket or did something wrong. It's kind of like the keeping of the books. As we understood the story back in '83 or '84, the first time the City worked up its books after the power agency was in business, they had to see the records from the power agency. The City employee went over and they hadn't done their accounting and he did it for them. And guess what, that started the ball rolling. And to this very day that's what's gone on. The City just simply kept the books. Even after they got in the S29 million business, the City just simply kept their books for them. And they recognized that and the two resolutions that they passed with regard to that, they recognized it twice that the City was keeping their books for them and it didn't seem to concern anybody over there that the City kept their books. That was okay. BOREN: When the $1.6 million was asked to be — asked to be located at. This really will be addressed to Matt. How did we find out that we didn't have $1.6 to deal with this settlement? WARNICK: Well, that was the retainage. There was $1.9 million of retainage and after it broke down and as I understand it and Matt can correct me, then they didn't pay G.E. when they realized they were in a mess. And they sat on the money and then when it got settled over there, then G.E. let them agree as their part of the settlement to let them keep that retainage. Isn't that right, Matt? WADE: Yes, sir. That is correct. HERNANDEZ: Well, and that's actually not correct. It is my understanding that they basically did not pay the last two invoices sent to the City of Lubbock to be paid on the project and that pretty much equaled the retainage. But — and it's not a real big difference in the point, but it's — they didn't actually say, well we kept the retainage and here it is and we are going to withhold it. They actually received two invoices, which equaled to approximately the retainage amount and they just didn't pay those two invoices. A minor point, but there is a difference. WADE: That's right. BOREN: I mean, how did you rind it, is what I am asking? WADE: Okay. Well, I guess let me go ahead and kind of address a little bit of what Councilman Hernandez says and then I will 186 Special City Council Meeting February 20, 2003 Page 187 answer your question. And what the Judge was referring and certainly didn't want this to be confusing. But initially when the turbine did break down, there was brought to the attorneys this point that these invoices have been given to us. Should they be paid? And under the contract that was between WTMPA and G.E. S&S Energy, there was a provision that you could not pay invoices and withhold those payments as liquidated damages pending resolution of your — of whatever dispute you have with them. That obviously became part of the lawsuit that was, that WTMPA and the City of Lubbock had against Energas. That was part of the claim that the City was making and that WTMPA was making against them. Up until the fall of 2002, it was certainly the attorney's belief that that money had been retained and then at that point in time, when we were talking to the Council about that issue and then there was a request by Council that there be a presentation be made in open session regarding that. BOREN: Freeze that thought. Bill DeHaas, would you come to the mike real quick. Was the $1.6 million retainage we are talking about; was that on any financial statement balance sheet? DEHAAS: No. There was a footnote that indicated no provision whatsoever had been made to account for? So in essence, it recognized that there was something, but it didn't say one way or the other. You look at the balance sheet and there was nothing in cash restricted or cash equivalence restricted. It simply stated, no provision. Balance sheet showing nothing. BOREN: Okay. Go ahead, Matt. WADE: Well, after briefing the Council that morning, then the attorneys and our outside counsel met with the Director of Electric Utilities because he was going to be the one who made the presentation. We were asked to try to simplify matters and not make things confusing. So we referred to the $1.6 million as retainage, as opposed to liquidated damages. Because we were talking about the settlement with G.E. and that was the presentation that was made to the Council at that time. It was during that time period, when there was the connection made between the fact that while that money had never been paid to GE, that there was not actually cash in WTMPA's account that was the equivalent of the withholdings for the liquidated damage. BOREN: When did you find that out? That there was no cash. WADE: Well, it was during the meeting with Paul Thompson between the executive session and between the open session. Deputy City Manager, Debra Forte came into the meeting and said there was no cash in the account. And I asked her what she meant and she explained. Then I said, "Let me explain to you how I understand the situation." Then I explained to her that we believe that the situation was that these invoices were given to the City of Lubbock, well actually to WTMPA. WTMPA did not pay those invoices. Therefore, there was a withholding of liquidated damages. She said, "Okay, let me go check on that" and then she left the room. We went on ahead and made the presentation to the City Council. Then there was later that day, I went to talk to Beverly Hodges. It was late in the day, five o'clock, and she had to leave. The next day, I talked to Andy Burcham. He explained the situation that that money most likely had been used. That there was no cash in WTMPA's account. That that money had most likely been used for a bond payment. Then I went up my chain of 187 Special City Council Meeting February 20, 2003 Page 188 command and spoke with the City Attorney about the situation and then she spoke with the City Manager and to the City Council about it. WARNICK: Anything else? MORRISON: Matt, in your line of discussion — not for you, Judge. I wanted to ask Matt a question about the timing. When the invoices were presented from GE, was there money there to pay those invoices or had that money already been used to make the bond payment? WADE: I would probably have to defer to our finance individuals to say for certain. I would suppose if there was money there, because it would have been still the money from the bond issuance to pay for the actual turbine itself. In other words, when they went and issued the bonds, S28 million worth of bonds, there was slowly you pay out the bond money as the invoices come in. And these were legitimate invoices from General Electric. So there would have been money at that point in time. That would have been in the Fall of 1999. There would have been money actually in WTMPA's account at that time for those invoices. MORRISON: When did the first bond payment come due? WADE: I will have to defer to finance. I think it would be the first part of 2000, or maybe 2001. BURCHAM: February 15, 2000. WADE: February 15, 2000. MORRISON: So, for several months there, there was an amount of money and invoices that weren't being paid. So there was some what could be called retainage or withholding? WADE: Yes, sir. Yes, sir, there was — and those invoices never were paid to GE. That was part of the settlement with General Electric. They did not pay — MARTIN: But the money had been spent making a bond payment actually before you got on the Council, Frank. WARNICK: I would like to say this before I sit down. And I know I speak for John and Mike and Bob, that we appreciate, Mr. Cass, the trust that you placed in us to do something. We hope what we did has been helpful to the City. But I would like to give a warning to others who might decide to serve on a committee, so they will know exactly where they are. Because as we got here today, we received our usual pay for helping Bob Cass, which was a bottle of water. WILKERSON: I would like to make one other observation as it relates to the governance set up. And I served as Chairman of the Lubbock Central Appraisal District Board several years ago. Quite a few now. MCDOUGAL: We have some questions for you. WILKERSON: I would make the observation that that Board hired and that Board fired who ran that operation and he did not have the luxury of ignoring us and reporting to some city staffer that was going to report to some other city staffer. Which was ultimately maybe going to get to the City Manager and maybe never get to the City Manager. And I am absolutely amazed that LP&L had a gas line that allegedly, if what we understood was correct, was corroded and rusted and for some reason, it wasn't flushed out, best we understand. There wasn't a filter put on it. We hooked up an Energas line to that line. Energas Special City Council Meeting February 20, 2003 Page 189 didn't question that issue. They didn't put a filter on their part of the line. GE hooked up to the gas line and they should have had a filter. Based on what I know about ammonia refrigeration, if trash gets in my ammonia system, my cold storage warehouse, it will go to the filter and the filter will stop up and the system will shut down. And I think that prob — I don't know anything about electric filters. But I think that's probably should have happened. But, if whoever runs LP&L is responsible, and can be fired as well as hired by a board that is tough business people, that are going to look after that thing correctly, I think that board somewhere would have become aware of all those kinds of issues. And I assure you had I been on such a board, it would have been fixed and it would have been fixed very quickly and anybody that messed that board around would have had a short life as an employee. An extremely short life. And I don't think the structure is any good and I don't think it's going to work if you continue on with that structure. And I don't want to change the city governance, but Bob Cass cannot oversee, nor he with a dozen top people, they can't oversee the intricacies of every piece of this City. And if you had a board that was running that thing right, I don't think that they would have allowed, I mean, if they looked at the contracts, they would have thrown the flag that WTMPA is not doing what they ought to do. And if WTMPA had been looking after their side, they would have said, hey, the City's not doing what they are supposed to do. But we had a Council member in the middle of all that and that may have contributed to everybody being willing to leave it alone. I don't know. But there's no way that that gas line should have been able to be hooked up and LP&L not put a filter on their rusty line. There's no way that Energas should have accepted gas out of a line that was rusted up and corroded. If that's true, and I think it is, there's no way they shouldn't have put a filter on theirs. There's no way GE should have hooked up to that thing and in my opinion, there's no way that that filter had it been properly installed should have allowed it to go through them. It doesn't make any difference how much trash you put in the line, a filer is supposed to either filter it out or stop up and cut off the system. And if we had the right kind of management overseeing that operation; if we had the right kind of board overseeing that operation, I guarantee they would have been tough enough to be on top of that. But there's nobody reports to anybody. And it's such a long, involved process. And I'm not critical of Bob Cass. I have a great respect for Bob. I am very sorry that we find ourselves where we find ourselves. I cannot for the life of me understand how it could have happened. But I don't think it's a gigantic problem to find some ways and I doubt that there's not — I think there would be some ways that Anita and the staff could help you. Even if we don't have charter changes and all that, I think there could be some more effective ways determined to help make that work properly than what are now being used. And I would encourage you all to really dig diligently and find some effective way to make that work like it ought to work. I don't think that's an impossible issue. But if you are going to make Bob Cass be responsible for everything, everywhere and you don't help him get structures underneath him that cover those areas effectively, I don't think he or any other human can ever run it like it ought to be run. 189 Special City Council Meeting February 20, 2003 Page 190 BOREN: Mr. Wilkerson, I will disagree with that. I think if we can't correct it, we need to resign ourselves and sit down. But I still hold the City Manager responsible because we are citizens serving and we are not going to be down here all the time. The only thing we can go on is financial reports, audit reports and performance reports. And if two plus two equals five, or two plus two equals three, it doesn't matter whether I have a pro philosophy or an anti philosophy, we are screwed because the numbers don't give. So I intend to hold the City Manager — I think any elected citizen needs to hold their City Manager in our type of government responsible and accountable. And like I said, he cannot understand what goes on maybe with someone working in a ditch or something. But he has managing directors, and I think any time anything's a half million dollars up — up to $28 or $29 million, I would think more attention would be really paid to that type of project than your normal type of attention. So I think that — one thing I do want to say is, I don't want to, all this is certainly beyond my imagination. To be honest with you, all my life in Lubbock. But I don't want, I think we need to take a point here and say that just because we had some misguided individuals who had agendas of their own for whatever reason, I don't think this should reflect on the employees of the City of Lubbock or of LP&L. I think they are certainly outstanding, and I think T. J. made a point to say last meeting that the City employees do a great job. I think we all concur with that. The employees of LP&L, of all these different enterprise funds, do great jobs. But unfortunately, sometimes you get misdirected directors or misdirected city managers, and even people who sit on city council to take it upon themselves to take it in a certain direction, which sometimes reflects on everybody. And I don't think all the good people that are out there doing the work need to take — think that their values are misunderstood or they are not doing a good job. I think they are doing a great job, in spite of tremendous roadblocks put up in front of them. So I don't know how all of this works. To be honest with you, I am totally amazed. I know if I worked for somebody or I wouldn't be surviving a business, I wouldn't have a job for stuff like this. But that's why I went back to that statement on your committee's report that people were acting without fear of consequence. And that just, that thought, that there's no consequence to what we do. You know, it's a pretty phenomenal thought. WILKERSON: Let me put that in a different context. Bob Cass did not draw up all these contracts. He did not design all the structure that's in place. The structure, in my opinion, is impossibly flawed and will never work as it is currently set up. And when you give a city manager an impossible task, you are probably going to get the same kind of result out of some other city manager that you got out of this one. And I can't say that he shouldn't have had some knowledge of some of these things. But I don't understand why he didn't have management letters every year pointing up all these things and telling him why we need to do one, two, three, four and five to see that everything is like it ought to be. But I think, I agree that we've got a lot of wonderful employees in this city. I have a hard time finding people that I don't have a high respect for in all the dealings I have at City Hall. Sure, there's got to be a few bad ones. But I'm not dealing with any of them. And I'm very respectful and very appreciative of the quality of people that I work with. And I'm telling you that I don't think that it's so much a 190 Special City Council Meeting February 20, 2003 Page 191 matter of bad people as it is a matter of impossibly flawed structure that cannot work as it is currently structured. And I don't give Bob Cass the credit for being responsible for that. I think current and past Council members certainly would share in that responsibility. And I think we just need to get busy and clean it up. And I think it can be cleaned up. And I, you know, you can throw rocks at everybody. But the structure was not, is not and if you leave it like it is, will never work like it should. BOREN: Just for the record. Mr. Cass, is there any other entity in your organization that you feel like that you are being overwhelmed with that you haven't told us about that we need to correct? CASS: No, sir. BOREN: Okay. I want to be sure. Because I didn't know that this thing was screwed or messed up until I found out when I first read a financial statement. And I'm no financial genius, so you can't fix something if you don't know about it. So I want to be sure for the record, we, you are telling us that there is nothing you are aware of that needs, that is an impossible job for you to correct. CASS: I have also stated that I am going to assume nothing though, and that we need to get out there and proactively start looking for these things. MORRISON: John, I for one really do appreciate the work that you and the rest of the committee did. Seems like you have done a tremendous job in a short amount of time. My final thought as you were making your comments. One of my pet peeves is responsibility without authority. We have a board that we have given a responsibility, but haven't given the authority. And regarding the accounting and some of the other functions, there was neither responsibility nor authority. And so it just happened. And it looks like there are a lot of things, which the Council, which is the responsible party, needs to get straightened up. And I really do appreciate the information and conclusions and the recommendations you all have brought to us. WILKERSON: Well, I would just point up that every city employee that we worked with, starting with Bob Cass and with no exceptions, demonstrated very significant skills, very great concern, was very responsive and they did all they could to help us in every way they could. And if we had all the information that is there, and if there's nothing that either they nor us knew about that comes up later, I think we have given you a good analysis of the situation. But Bob Cass did not design all that convoluted mess. And I'm telling you that I couldn't run that right. If I had his job and I saw that mess, I would tell you all you can get you a new city manager right now or we're going to change it to where it will work. And we are going to get it where everybody is responsible. And everybody cannot be responsible to Bob Cass and I think that having a City Council member in the middle of this is a mitigating circumstance. Had a very significant factor. Not in a malicious way. Not in any kind of way other than, you know, there's nobody up at the head of the table that I wouldn't challenge on anything if I felt like I needed to. But if I worked down here and I needed a job, my position would probably change pretty quickly. And you all need to keep that in mind as you look at this. If I were a city employee, I would be hard pressed to try to come straighten any of you all out. Because you are the governing 191 Special City Council Meeting February 20, 2003 Page 192 body and if you like it how it is, even if I don't agree, I would have a hard time telling you, you'd better change it. You don't know what you're doing. And if I did, I think I know what you all would do. MCDOUGAL: All right. Thanks, John. HERNANDEZ: Mayor, were we — Mr. Cass asked a question earlier on in response to something Councilman Boren said. And that was, you know, he's gotten marching orders in relation to WTMPA and the direction the City wants us to go. And that is, strict contract compliance. And I'm wondering whether or not that has changed or if Mr. Cass needs any further direction from this Council. Because really in taking a look at my notes, a lot of this, you know, I certainly agree with Councilman Boren that ultimately it's this Council. If you put together a chain of command, ultimately at the very top, you've got the citizens of Lubbock and right below them, you've got this Council. And below this Council, you've got the City Manager. So ultimately our bosses will decide whether or not we keep our jobs. But since we have that second tier and we're the ones who are the policy makers, I am wondering whether or not the discussion from this point forward is going to be more toward policy decisions and what direction the City of Lubbock is going to go in relationship to WTMPA. Because in looking at my notes, really the majority of my notes are very specific in nature and really could go toward managing the situation, which I've always taken the position it's not my job to manage this organization. It's my job to set policy. So really I don't see any need for me to go any further into any of my different areas. I just didn't know if we were going to start having policy discussions at this point. MCDOUGAL: Well, I don't know if we are going to today or not. But I certainly think we need to. I think the direction that we have given Bob to this point has been to start the process of getting WTMPA and LP&L separated. I think he has started that. Certainly with the actions that are already taken, the letters that have been — that have gone over to the Chairman of WTMPA. And after hearing what the Committee has had to say today, after hearing Bob's statements today and you know, we have had this for a week and reading through the document that we have, I think the Council has a policy decision on what direction we want to head. As the Judge said, the first question is do we even want to continue with WTMPA? If not, then we have answered the question. If the answer to that is yes, then we need to go to the second level and determine how that relationship is going to exist. Give Bob that direction and let him go put it together. HERNANDEZ: Well, let me, and let me jump in here right quick. In relationship to that question, which I agree is probably the initial question we need to answer. I know I'm not equipped at this point with all information necessary to make a good — to be able to answer that question. I, you know, I hate for us to make a decision concerning WTMPA based on what's happened in the past as opposed to the pros and cons of keeping or not keeping an organization like WTMPA in existence. And I know I've never been briefed or educated on the pros and cons of whether or not we should keep WTMPA. And so I would suggest that if that is the initial question that needs to be answered, we need to either get a work session scheduled to discuss that and to educate ourselves on the entity and its purpose and its future in relationship to deregulation 192 Special City Council Meeting February 20, 2003 Page 193 that's going to occur and it is occurring in this state and across this country. And in relationship to other energy issues in which it might play a vital role. BOREN: I don't know all this stuff either. Because I am a small businessman and these numbers overwhelm me. I would love to see these kind of numbers in my business. But the only thing I do know is, I think first and foremost, I request that Anita Burgess do everything she can to protect our assets, LP&L, City of Lubbock for the citizens of Lubbock. I don't know much about stuff, but I sure want to protect what we've got. And the second thing is, and I think you've already done this Mr. Cass. You do have some auditing firms that specialize in utility accounting coming to our meeting next month. I hope -- MARTIN: Next week. BOREN: And I want to engage that as quickly as possible due to termination — an analysis of where we are at and what we've got. And in between that and Anita Burgess' legal work, I think we can see where we need to go pretty quick. With Matt here, also. So, that's pretty much where I'm at. MCDOUGAL: Well, and I agree. I'm not sure we can answer all these questions today. But I do think we get the audit in and move forward. I mean my opinion is going to be much like the Judge said or John, one of the committee members said a while ago. If the three member cities aren't willing to participate in this audit. If they aren't willing to pay if there is something due. I don't know if there is or not, with interest. And that answers a lot of questions on what kind of interest they have here. And then we have another decision to make. I think a lot of that is going to depend on how that audit comes out. I think in the mean time, you know, this Council needs to give Bob some direction. Do we want to continue in the direction that we have headed in? And that is, starting the process of separating the two entities. And that's certainly my opinion at this point, until we get those audit reports back. MARTIN: We certainly do need to separate the two. Because the issue, as Judge Warnick started his presentation off with, and that we have kind of beat across the head and shoulders here this afternoon, is do we continue WTMPA? But whether we can continue it or not, we need to separate it out and quit pretending like it's a part of the City of Lubbock. So I agree that that's the first thing that should be done. And I am going to thank you for allowing me to have the mike here for a moment. A couple of things I am going to say. And they are not in particularly in any order. As we go about our discussions about the future of Lubbock Power & Light, with or without WTMPA, we need to also make sure that we engage in a meaningful policy discussion about the issue of whether we look at LP&L as a viable electric service company for the citizens of this community. Which was what it was created to do. Most of you are aware, that Lubbock Power & Light was started by the citizens of this City back in the late 1920s. Because the then investor -owned or the privately -owned power company shut off at 5:00 o'clock in the afternoon and people wanted the ability to have some electricity after quitting time. As so that is how LP&L came about in the first place. We have a number of issues once we get passed this issue with WTMPA that has to be thought out. But what's happened 193 Special City Council Meeting February 20, 2003 Page 194 also, kind of insidiously over many, many years, is LP&L has been looked at by councils and by management in the past as nothing more than a cash cow to help provide money for the general fund to offset taxes or to do pet projects. And the business model, the business model has been, the councils decide each year in adopting budget, what kind of dividend LP&L's going to pay. Now, go out and make it. And we've kept rates up and down, up and down, and we've kept them where in effect, we've predetermined that we want'Y' amount of dollars out of LP&L each year. Whether it makes sense or not. And if we are going to set it up as an independent agency, with an independent board, and so forth, we need to probably look at a model where it is truly run that way and then the board of directors declares the dividend. Say, just roughly, March or April of each year based upon the previous year's profit and then we the City Council and the City management knows how much is going to be available that we can then utilize that dividend in the next year's budget. But we've always, I mean, it's been going on since the `70s that I am aware of, and probably before that, that it's always been looked at as gosh, generate all the cash you can and yeah, we want to compete, but yeah, we want this money so that we can use it. And it's kind of having the cart before the horse. And so that's one of the many business things, that if we pursue this line of stand alone business that we are going to have to determine. Number two. I spent my career in police work, as you all well know. And police departments have what are called general manuals, administrative manuals and rules and regulations or whatever you want to call them. And they are rather thick and over the period of my career, in every department they get thicker and thicker. And the rules always come about, generally from some bad experience. Bobby Matthews sitting back there, member of this committee, had a distinguished career with the FBI, and I guarantee you it's the same way in the FBI. In a law enforcement agency, the rulebooks get bigger when some catastrophe happens; when something happens that went awry. And so we write new rules and regulations. And even though it's well documented that I believe in responsibility of people in this city government, I want to caution myself and I want to caution my brethren here and I want to caution the citizens who are watching this that we don't want to-- we want to avoid the possibility of overreacting and setting up so restrictive an atmosphere that we can't get the job done. We can set too many restrictions. The next thing is, and Mr. Boren alluded to this, and everyone is giving it, but it needs to be said and it needs to be said daily. Mr. Mayor, I really think that it's important enough that this Council needs to spend some time very quickly, and I don't mean here in a couple of months, but I mean very quickly, meeting with the employees of Lubbock Power & Light. Having been in the career that I was in, I can guarantee you there was nothing more disruptive than the change in police chiefs. I can't stress to you how stressful that is to a police organization. And my guess is, is the same thing applies in other lines of endeavor and particularly in organizations like Lubbock Power & Light. And it is important that this Council, even if it means we don't go to the Big Twelve tournament, if we do it that week or some time before then, but this Council as a body go down and meet with groups of Lubbock Power & Light employees soon. To let them know 194 Special City Council Meeting February 20, 2003 Page 195 that we do support them; we do support Lubbock Power & Light. And just because we had a few folks that took it upon themselves to operate without the boundaries of what is required to be a, to either be an administrator, an elected official or whatever, that we do value those employees. And that we do support them. And I'm certainly going to do and I certainly hope, Mr. Mayor, the rest of this Council, as a body, completely goes and does that. And I think if we don't, we're sending a signal to the employees of Lubbock Power & Light as, hey, guys, we're throwing you to the wolves even though you men and women didn't have anything to do with this. Now, one other thing. MCDOUGAL: Just so you will know, I've already started that process. MARTIN: That's very good. But it needs to be the entire Council, Mayor. We need to make sure that we spend the time making these decisions. Because they are very, very important. And I will give you an example. Mr. Cass, I would like to know if we can get Vince Vialle up here for just a moment. Our City financial advisor. Vince, would you mind coming up. WILKERSON: While he's coming up, Tom, let me point out one other thing that's really changed over the years. LP&L was very insignificant in the formative years. And it has now become the major provider and it may well be that the organization was well suited for those days when it was a far smaller operation. And it may be that that is one of the additional challenges that you face is that you now are the primary provider of in power Lubbock and it's a far larger organization. And I might say a more highly respected organization than it was back in those other years. So the structure may have outlived its usefulness. And that could be part of why we are where we are. MARTIN: Sure. Would you mind introducing yourselves. Particularly for the folks at home who are wondering who you are and what your job is, please. VIALLE: Sometimes I wonder that, too. My name is Vince Vialle. I am with First Southwest Company. We represent the City as a financial advisor on bond issues. MARTIN: So you're our financial bond issue guru that we employ. And First Southwest is a company that is well respected and used all over the state by state and local VIALLE: governments everywhere. Yes, sir. MARTIN: And that's your primary business. One of the things that's been mentioned before today; and I want to use, the term has been used, defeasance of bonds. Does that mean like paying off these bonds over here and reissuing them in our name. Is that what that means? VIALLE: That is one way to do that. When we say defeasance of bonds, what we mean basically is paying the bond issue off like you would pay a mortgage off on a house before — MARTIN: Refinancing. VIALLE: You have a couple of ways you can defease bond issues. One is like you suggested. You could do a new bond issue. Take the proceeds from a new bond issue and then pay off the old bond issue. You could use cash you have on hand to defease an old bond issue. There are a couple of ways to do it, but defeasance basically means to pay it off. 195 Special City Council Meeting February 20, 2003 Page 196 MARTIN: And put it in someone else's name. In other words, currently the issue is there's $22 million roughly in bonds outstanding that are issued by the West Texas Municipal Power Agency. VIALLE: Yes, sir. MARTIN: And as a legal requirement, they are legally responsible for repaying that debt. Bonds are basically a loan and just like a mortgage on a house or any other type of debt instrument. They've borrowed money and they have to pay it back. Is that right? VIALLE: That's correct. MARTIN: So, the term defeasance, I think is being used here to mean some plan where those bonds would be paid off and the debt assumed not in the name of West Texas Municipal Power Agency, but in the name of the City of Lubbock, for example. VIALLE: That would be a good assumption. It would be a scenario where the City of Lubbock probably through Lubbock Power & Light would issue electric system revenue refunding bonds. Take the proceeds of the refunding bond issue and pay off or defease the WTMPA bond issue. MARTIN: And by doing that, the figure of $2 million has been thrown out. Would you mind kind of explaining what that means? VIALLE: I will try my best, sir. The $2 million number is the bottom line impact of a refunding issue over the term of the outstanding bonds currently. If we were to issue refunding bonds to pay off WTMPA, the last maturity date on the WTMPA bond issue is 2018. So naturally, we would want to first of all look at if LP&L would issue refunding bonds, we would have that refunding issue go out to 2018 also. We the maturity unless we were told to by wouldn't want to extend the Council. So if we keep the same maturity schedule as existing issues, over that approximately 15 period, the bottom line impact of the refunding issue would be a negative $2 Now, on a cash million to the City of Lubbock by doing that. flow basis, on an annual basis, if you look at the impact of the City, it's approximately $250,000 - $280,000 a year to the in negative to the City if you were to do a refunding issue and off that existing today's interest rate environment paid WTMPA bond issue. So, and again, I'm doing this for the benefit of most people in MARTIN: the world that have absolutely no idea what you're talking about. Okay. VIALLE: Yes, sir. MARTIN: It's kind of like refinancing the mortgage on your house. Get a lower mortgage rate; change from a 30-year mortgage to a 15- year mortgage so you can pay it off quicker. It's kind of the same thing. And it's kind of the — the defeasance is kind of like the points you pay to be able to refinance. Again, it's not the same, but people can understand points because most everybody that owns a home has refinanced one here in recent years to get a lower interest rate. VIALLE: Yes, sir. MARTIN: I realize it's not exactly the same thing. But isn't it pretty close to the same concept? VIALLE: That's a pretty good analogy. That's a pretty good analogy. MARTIN: And when you say the annual cost to amortize $2 million is about $250,000 - $280,000, that's kind of like the extra cost 196 Special City Council Meeting February 20, 2003 Page 197 you're paying each year to make that happen over the period of the life of the bond. VIALLE: That's correct. Basically your payments are going up about $250,000 more a year than the current debt service on the WTMPA issue. MARTIN: So, if we are sitting here as a Council trying to make good business decisions and to set up this — to reconstitute WTMPA with good business practices and have their own accounting, and have their own staff and do all these things, that quite frankly, we can buy power and do it cooperatively ourselves. We have many, many intergovernmental cooperative purchasing agreements. We do it all the time. So, but if in the process of reconstituting this thing the way it "should be done", it cost us a hundred thousand dollars to do that, because there will be overhead when you're talking employees and so forth, it cost us $250,000 to defease the bonds, then it sounds like it might make sense to reconstitute WTMPA. But if it cost us $300,000 a year, $400,000 a year of extra overhead to reconstitute WTMPA and it only cost us $280,000 a year on a yearly basis to pay the bonds off, assume ourselves, shut that thing down and don't have to pay that $300,000 a year, then that might make a better business decision. I'm not expecting you to answer yes or no. VIALLE: That's a rhetorical question. Thank you. MARTIN: It's a rhetorical question. But point is, a lot has been made of this $2 million defeasance cost. And it is a real cost, right? If we refinance, basically, you got to pay $2 million. VIALLE: That is a actual dollar cost in today's interest rate environment. MARTIN: But if I make this point to the Council, if to reconstitute this animal called WTMPA and fully staff it and fully run it and get the accounting and continuing paying lawyers hundreds of thousands a year like they've been doing and go all these places and it cost us a lot more than that. And in effect, it's bought us nothing more than what we were able to do on our own. I submit to the Council that that may be one reason why we want to look at shutting it down. And I make the point, Mr. Mayor, that these are the kind of issues that we need to make some decisions and not just say, well, the defeasance is $2 million. Let's keep WTMPA and we end up spending half a million, three-quarters of a million dollars a year. Because Mr. Vialle, what is your sense of who would pay this extra money. Let's say it's $500,000 a year to really beef up and staff up WTMPA and get them some nice offices and have some staff and some accountants and all this stuff. Who ends up paying that ultimately in the end. VIALLE: Well, the only assets WTMPA truly has is the contracts it has with its member cities for revenues. Those revenues are provided by the utility ratepayers, of course. MARTIN: So when you say utility ratepayers, now we are talking in terms people can understand. Lubbock Power & Light customers and power customers theoretically of Floydada, Brownfield and Tulia to a much lesser extent. VIALLE: That's correct. MARTIN: But it's Lubbock Power & Light customers paying overhead in effect for the privilege of us buying power through WTMPA, 197 Special City Council Meeting February 20, 2003 Page 198 which is really us and they bill us back and we pay us. Correct? VIALLE: I will agree with that. MARTIN: Thank you. VIALLE: You bet. HERNANDEZ: Well, and again, Mr. Mayor, I think that's why we need to have all the pros and cons as to why we need to either keep or discontinue WTMPA. Because there is another side of the story. I don't disagree with Councilman Martin that we need to take a look at it from the perspective of the costs that are being incurred now and potentially could be costs in the future. But nothing's been mentioned about WTMPA's legislative efforts, either at the federal level or the state level, and the value associated with those. Nothing's been said about the role it could potentially play as this state and nation go into a deregulated environment in relationship to having other cities become member cities. You know, there's, it's just, I don't disagree that we need to look at the money end. But we need to take a look at it in a holistic approach and I don't think we're doing that. And I'm not advocating we keep WTMPA. I'm saying we need to get educated on all aspects of WTMPA before we make that decision. BOREN: We need to see the numbers. The numbers will give us a lot of truth. MCDOUGAL: Well, what I'm hearing is, Bob, you have the direction to continue to move forward like you have been. We have on the agenda next week to engage a firm. If you and Matt can get on the WTMPA agenda to make that formal request to them. Then we can move forward from there. One other thing I would like to ask is that we continue at every meeting to have WTMPA posted. Just in case something comes up, we are not caught to where we can't; it's not posted. Let's have it posted even if we aren't sure we have something. HERNANDEZ: I would also recommend, Mayor, that we invite our two appointees to attend those meetings. If in fact we are going to be talking about some of these issues, so that they don't have to get it second and third hand. Also, and it could be that this Council just does not feel comfortable giving this direction. I'm not sure. There was a global agreement prepared by our legal department in September 2002, which dealt with the accounting services, which dealt with a bunch of other services that were being provided at no cost and dealing with those issues. Now, I understand we are going down the road of saying, no, we're not going to do any of that. So it could be argued, we don't need that global agreement. I would say, we need to decide, you know, as a contingency what happens if WTMPA continues not to respond. And there is a need, as Councilman Boren was saying, from a practical perspective, we need to keep doing what we have been doing in the past. Do we keep doing it and not charging them or do we start sending them a bill? And so, I think as a practical matter, we're going to have to deal with that. And again, it could be that this Council decides well, that's a judgment call on Mr. Cass's part and if so, that's fine with me. The second issue and the last issue I'll bring up today is, I am beating a dead horse and I know and I'm not hearing any support on this. But I'll throw it out there again. For me to 198 Special City Council Meeting February 20, 2003 Page 199 make an informed decision on whether or not WTMPA should continue to exist or not, I really do believe we need to have someone take a look at their policies, procedures and practices and come up with a laundry list of things they ought to be changing. In order for me to feel comfortable in that regard, whether they should continue or not. Because if they are going to continue doing business the way they have in the past, and I'm just talking about their policies, practices and procedures, then I say they should not exist. Because if they are going to have a filing cabinet with contracts in there with absolutely no filing system, no tickler system, if they are going to have some secretary putting entries on some ledger and just doing it haphazardly, if they are going to continue to do all this stuff, then I say, you know, we are better off without them. If we are going to keep them, then I think we need to identify those issues where they are falling short and we need to tell our board members you need to get them straight. PATTERSON: I would be remiss if I didn't comment on what Councilman Martin said a few moments ago. The employees of LP&L. I keep hands off LP&L. I supported it tremendously going in. I feel very strongly about that. I did the last time it came around, about 1992, wasn't it, Bob. I feel the same today as I felt then. So I may not visit all of the employees of LP&L, but I support that posture for the record as we sit today. MARTIN: Are you ready to go in groups and let's talk to them? BOREN: T. J. don't talk; he'll preach them — MARTIN: Okay, whatever. My point was this and I -- PATTERSON: I heard what you said — MARTIN: -- support LP&L. But are you ready to go with us and let's go tell them that in person. PATTERSON: They'll hear it tonight. I know they will. I stand tall with them. They know where I stand. I don't waive on that. MARTIN: Then the answer is no? PATTERSON: You can't get the words out of my mouth. MCDOUGAL: Okay. Does anybody else have anything? MORRISON: I know that Victor had a number of questions and I think that this entire issue needs to be discussed and maybe at length over time or at length, given the way we went through the budget process and then there was some dissatisfaction that we didn't have as much discussion. I'm prepared to sit here and participate and be involved in as much discussion and question and answer and deliberation as is necessary. I think the issues that Councilman Martin brought up are very important. I think the issues Councilman Hernandez and Councilman Boren have brought up. The other issues that have been discussed, I think are all issues. Certainly, the future is something I believe requires a significant amount of deliberation and discussion. So that all of our citizens, the ratepayers, our constituents, even our neighboring cities know the direction we are going and why we are going there. I agree with Tom that we have got to reassure the employees of LP&L that we support them. I am interested in moving forward. I've got some ideas on organization and how we can do it that will be part of the overall discussion. But I believe that it does need to be discussed and we can either do it now, do part of it now, do it next week when we have an accounting firm that is looking at it. Do part of it then. I am interested in 199 Special City Council Meeting February 20, 2003 Page 200 participating in the discussion and having a discussion about this. And so it's — whatever those who have specific question prefer. But I am prepared to be involved. MCDOUGAL: Well, I think what we need to do today is give Bob some direction on what we are going — which direction we are going to head. I mean, I'll sit here as long as people have questions. But I'm not interested in sitting here until the auditing firm comes back. So, so, I think a lot of that can't be answered until we get. MORRISON: Well, you're right. There are those questions and I believe the direction that we have been going in getting, making sure that the security of the city and the security of the LP&L customers is provided for. We've taken some of those steps and we are continuing to. So, I think the direction we've given the City Manager is satisfactory. MCDOUGAL: Do you need, do you have a flair of direction? CASS: To be candid. No. I have been directed to force the contract, which I intend to do. I am hearing some members of the Council say we need more information, which is valid. I've seen other members of the Council say hire the auditing firm and let's wait. Basically, the document I have in front of me is the contract and I will enforce the contract. If you want additional information in the work session, I think that's a valid, that's a valid direction and I recognize that may affect your thinking. Lacking any other direction from the Council, this would be my plan. Go ahead and enforce the contract and instruct WTMPA that I intend to do so. Because that's the only document in front of me. Bring back a work session item outlining the points Councilman Martin has raised regarding the relative costs that WTMPA running their own shop versus the additional costs that would be imposed like defeasance and additional bond coverage requirements. Coupled with the information that Councilman Hernandez has requested regarding operating procedures. Pros and cons and those types of things coupled with the additional information mentioned by Councilman Hernandez regarding the other intangibles that are provided by WTMPA, lobbying efforts, those types of things. That would be the direction I would take lacking any direction from the Council. MCDOUGAL: And we have it on the agenda next week to engage an auditing firm. CASS: You have that. I will go ahead and place a work session item on next week as well — BOREN: Let me reiterate since you didn't hear me. I said take whatever position you have to, Anita, to protect the assets of the City of Lubbock, LP&L and the citizens of Lubbock. And we will not know accounting wise or number wise what numbers are until you get those to us. That's my position. You protect what we have to protect. But I want to be sure you don't misunderstand me. MCDOUGAL: Which is enforcing the contract. BURGESS: Bob, because I sense and feel my subordinate, and I emphasize my subordinate, not your subordinate, over here wiggling a little bit, let me just make sure that my direction is clear also. And that is we are in a transition phase. And that is we are sort of at a wind down, where are we going kind of direction. 200 Special City Council Meeting February 20, 2003 Page 201 With regard to are we going to go strict contract compliance or are we going to work into a situation where we've got this separation. Because those are two different courses of conduct. And with regard to Mr. Wade's responsibilities, he's got to determine whether or not we go strict contract compliance, which could be "shut the lights off' type of approach. HERNANDEZ: Well, is that, is that, did she describe it fairly there, Matt. WADE: Well, I certainly have no intentions to shut the lights off. I think the, I mean at this point in time, there was some mention by Councilman Martin and some concern as far as the direction that you want LP&L's staff to do. Regarding some of the activities that we currently do that may not be under contract. There is as you also mentioned that there was a global service agreement that was in draft form that was given to WTMPA's counsel to review and perhaps as a, just as a bridge, if you will, a bridge gap. While the Council is determining on exactly the relationship they want to have with WTMPA and what they want to do, perhaps just to make sure that all activities that are performed by the City of Lubbock that aren't currently under contract, but which might still on occasion need to be performed. And I am thinking more of on the wholesale power purchases. I'm not thinking as much on the accounting and the financial or the insurance. But I am thinking maybe as a stopgap measure that we go ahead and try to get a contract in place to make sure that we can if we are performing those services. Because we do have the expertise. That we are able to go ahead and bill for those services and have it under our contractual agreement with WTMPA. That would be my only major concern right now. Because the way the process works from a wholesale power is that is a day-by- day, hour -by -hour deal. And I want to make sure that I get my guys that are out there that are making those decisions the right authority and the right type of procedure to follow in that regard. And perhaps this global services agreement again as a stopgap measure until the Council decides exactly what the policy that they want to enforce might be something that you would want to look at. To go ahead and make sure that we can follow good procedures. MARTIN: Do we have that agreement pending at this point? WADE: Well, it's in draft form and WTMPA counsel has it to make his comments. MARTIN: Because why would the WTMPA — explain to everybody why WTMPA has to review the thing. We're talking about us buying power. WADE: Well, the way that the — most of the power, in fact contractually all the member cities are required to go to WTMPA first. MARTIN: Because by contract, we, the City of Lubbock, has given up its authority to buy its own power. Contractually, we've now given that to WTMPA. WADE: That is correct. MARTIN: And so if we want to buy our own power, we have to negate that contract, which in effect puts WTMPA out of business except for generating with Massengale No. 8, wouldn't it? WADE: Yes. Councilman, we would have to go, I don't know if we would negate the contract, but as we have done recently ask 201 Special City Council Meeting February 20, 2003 Page 202 them to waive that particular provision of the contract. We can do that. We can't do it on our own though. MARTIN: Sure. But my point is, we at some point in the past, as a city, signed the contract with WTMPA, which basically gave them all of our rights that we have to buy power and we have to solely buy it from them. That's correct, isn't it? WADE: Yes, sir. That is correct. MARTIN: So, you know, this is another thing that folks need to understand is it's not like we can go out and buy our own power until either we go hat in hand to WTMPA and say would you mind letting us out of this contract. And if they say, no, we're not going to let you out of that contract. Then what do we do? WADE: Then we would want to either follow the contract or we would be in breach. MARTIN: Right. Or what would be another option? WADE: Well — MARTIN: We could shut it down, couldn't we? We have 85% of the vote. We could shut WTMPA down. WADE: From a rules and regulations, we do have veto power over a number of issues, including their budget, capital projects and power sales and the rules and regulations. And we have a veto power that I guess could, I don't want to say this, but it would make things difficult for WTMPA if they don't listen to their majority shareholder, if you will. BOREN: Are they listening to their shareholders or is this the action of one individual? And we don't know who this individual is, dealing with a law firm in San Antonio to delay one again or to maneuver and try to get something that may be a, a something they want. I don't know. WADE: I don't think so, Councilman. I think that up to this point and I don't — this might be painting with a broad brush, but up to this point, most issues that the City of Lubbock has gone to WTMPA for and asked them to do, they have done. So I have never been — HERNANDEZ: Well, and specifically in reference to the global agreement that was prepared back in September of 2002 and forwarded to their legal counsel. It is my understanding that that process was interrupted as a result of talk by the City of Lubbock of discontinuing or taking apart WTMPA. So, I don't think it was necessarily an action of their part in order to delay or not comply or not put or not institute. It was just, it was a question of well, if it's not going to exist in a short while, then why even put this in place. I don't happen to agree personally with that assessment or that decision, but — and that's why I'm mentioning it at this point. Because I believe that we should have gone forward even as those discussions were had. And so if it wasn't done up to this point, I think it should be done now. WADE: And we can certainly -- WARNICK: Tom, could I explain the veto power and how it works? TOM: Sure. WARNICK: What it is, there's four items and one of them is the budget, capital project, certain energy sales. I think that's been changed from 20,000 to 100,000. And any amendments to the rules and regulations. When any of those things are done at 202 Special City Council Meeting February 20, 2003 Page 203 one of their meetings, it requires that the quorum has to be seven voting board members present. And if you are going to change something, then you have to have six voting board members vote in favor of it. But there is an and, and the and is that the majority interest vote must also be cast for that. And Lubbock Power & Light has 85% majority interest. So they don't have the power to change it with their 85% vote. They only have the power to veto something. So they could stop it from happening, but they couldn't force it to happen, because you would still have to have six positive votes for it. MARTIN: So the six directors representing 15% of the load could basically run anything through they wanted to? WARNICK: No. You still have that 85% veto. But what I'm saying is, that Lubbock Power & Light couldn't just vote it because you've still got to get those six positive votes. MARTIN: But we could, okay, let's look at the other way then. So the six could stop us from negating the contract? WARNICK: Two. MARTIN: Two of them could. WARNICK: If there were only seven present and only five voted for it, then it is not going to pass. MARTIN: So we're at the mercy of Tulia or Brownfield or Floydada? WARNICK: That's exactly right. PATTERSON: It's called a six seven vote. CASS: As you are under your CRMWA agreement. MARTIN: I understand. But you need to understand that in shutting this down. Let's say our good friends in Floydada says, naw, we ain't going to do it. I don't care what Lubbock wants to do. They effectively can stop shutting that thing down. MCDOUGAL: But I might remind you that according to what I have read in here, they are in breach of their contract today. We have some other alternatives — MARTIN: I understand. But that is a provision of the contract. Right. MCDOUGAL: I think you're right, but there's some other provisions of the contract that we have some outs in, I think if we decide we want to exercise them. CASS: Again, I'm just trying to get clear direction here. I want to be responsive to what the Council want us to do. I am hearing Councilman Hernandez say we need to bring back this agreement that would provide for the services under a appropriate authority that are currently being provided and effectively avoid the duplication of costs that would be imposed — that is, strikes me as being in contradiction to a directive to enforce the contract. HERNANDEZ: Yeah. I would agree with you if you are dealing with all issues including accounting. If you are dealing with all issues except energy contracts, which is the way I understood Matt to find it. We are not talking about a global agreement as to all of those services, plus energy contracts. We are just talking about energy contracts only. WADE: No, sir. That's how I understood and that's exactly what I said. MARTIN: I would think that, Bob, what you've got here is there's obviously one of us maybe that wants to shut WTMPA down. 203 Special City Council Meeting February 20, 2003 Page 204 Period. Lock, stock and barrel. There may be some others that are kind of thinking that way. There's probably some others at this dais that's absolutely opposed to that. So it puts you in the position of you've got to bring us all the alternatives then. When you say you don't hear any consensus. I agree. I don't hear consensus either. And so I would say that you've got to bring all those possibilities to us. And I think one thing we all did agree on is that we want the contract enforced. We did agree on that. PATTERSON: Let's not forget what the Judge said in the beginning. He made a lot of sense in what he said. MARTIN: I understand. You bet. First thing he said was we've got to decide whether we want to keep or shut down WTMPA. HERNANDEZ: Is part of the direction that you got, Bob, this looking at it from WTMPA's perspective. Because I'm telling you that to me in order to decide is going to be critical information. Because even if we, again if we take care of our business on our end and they are not taking care of business on their end, then I am not going to be in favor of keeping WTMPA. MORRISON: Part of my question and uneasiness about this goes back and I'll paraphrase the quote Tom used. We are they. And if we disparage them, we are talking about ourselves. And to make my point, Matt, when you and Tom were talking about purchasing power, who is the individual or where does the individual office who would be making the decision to purchase power? WADE: Right now, how that works is that works in our production department who — MORRISON: Our production department. WADE: Lubbock Power & Light's production department. MORRISON: So it's an employee of Lubbock Power & Light who makes the decision for WTMPA on power to be purchased? WADE: Well, these, the decision as to whether or not, what power is purchased, how much power is purchased, are pursuant to WTMPA contracts. I mean he does have that guidance to follow at least. But yes, yes it is the City of Lubbock's department that receives the information from the production other member cities, including the City of Lubbock, to make the plans as to how much power is being either purchased on the wholesale market or generated. And in one sense, you have to, you have to, since we do by contract operate and maintain generator No. 8, you have to take that operation and maintenance into account also when you are making your wholesale power purchases. So it's all mixed together and it's hard to separate the two. And so it has fallen to LP&L's quite capable production staff. HERNANDEZ: I've heard it said by a couple of Council members today, but I've never taken the position that they is us and we is they. They are two separate legal entities. Now that they were treated differently than they ought to have been treated is something else. But they are two separate legal entities and I will, hopefully you will never hear from me, that they were one. I think that's a mistake. I'll never look at it that way. I think we need to treat them as two separate entities. I think that's the committee came back and told us very strongly. So what for whatever that is worth. 204 Special City Council Meeting February 20, 2003 Page 205 MARTIN: Mr. Cass, have you, last week we got a credit, credit watch from Fitch Bond Rating Agency. Would you mind telling the audience what the significance of that is and what it was? CASS: Basically, Fitch expressed some concerns. I think the triggering factor was obviously all of the news coverage regarding the management, the management departures. We followed up. Basically, they put us on negative, negative, a ratings watch negative. Which basically did not change our rating, but indicated some concerns. We have since visited with all three of the ratings agencies. Vince Vialle, Beverly Hodges, Matt and I as well as others sat in on phone conversations with them indicating that we have a substantial amount of information still to get to them and we will be pulling that together. And so we will be working with them over the next few days. Obviously, there are concerns about the relationship between the two entities. Obviously, there are concerns about what we are going to do relative to management. Obviously, there are concerns about the impact that the current fuel mix has on our structure. So, we are working through all of these issues. We will report that to the Council as well as to the rating agencies. MARTIN: The other rating agencies and I think that's what? Standard and Poor's and Moodv's. There's generally three of them. Do they all share those concerns. You've talked to them all, haven't you? CASS: I believe so. I will defer to Vince on that. Did you have any other concept — so I would say that is a safe statement, sir. MARTIN: What is the — is this — kind of give us an idea of the events — you're the bond guru. And so we've got a credit agency, the bond rating agencies, have expressed some concern about the situation here. One of them's put us on a credit watch negative, which is kind of like we are going to keep a sharp eve on you guys in Lubbock, Texas. But what is the significance of bad credit rating? Why should we care what people in New York City think about the way we run our business down here? VIALLE: What Mr. Cass said, we are in a negative credit watch now. We have not received a downgrade. They are watching what we do. As Mr. Cass also said, what prompted this was the turnover in management and we are reviewing some LP&L numbers right now trying to get our arms around the whole situation. And we are conveying this information to the three rating services, Moody's, Standard and Poor's and Fitch Investor Service. Where ratings come into play. Ratings directly affect your cost of borrowing in the market place. Because it is a credit rating for the City of Lubbock. Investors look toward that credit rating you have as a risk indicator for your ability to pay back your indebtedness. The lower your credit rating is, the higher the interest you will pay in the market place because the investors perceive that to be a higher risk. Conversely, the higher your rating, the more safe your investors feel about loaning you money and as a result you will pay a lower interest rate when you borrow. MARTIN: So in other words, it's to use the example, I keep coming back to people buying houses. But most folks understand that. When you go buy a house, they pull a credit report on you from a credit rating agency. And if you always pay your bills, you have a job, you haven't declared bankruptcy, you've discharged your debts and you haven't served a prison term 205 Special City Council Meeting February 20, 2003 Page 206 and a lot of other things, you generally have a high credit score, or which means the banks are very eager to loan money to you and they will generally give you the lowest rate possible when you borrow money. And if you have any of those things that you have engaged in, then they are less anxious to loan you money or may flat refuse to loan you money. And if they do loan you money, will generally charge you a higher interest rate. That's what they call "with approved credit", right? When you are borrowing money? VIALLE: That's exactly right. It's the risk reward trade off the investor is looking for. MARTIN: So the fact that bond companies in New York City are concerned about what goes on in Lubbock, Texas, whether we are going to take care of our business, whether we are going to straighten this out, whether we are going to make good business decisions, whether we are going to protect the assets of the City and also the ability to repay debt. Because we've borrowed money from people that all over the country that have bought our bonds. So that's why, is that why it is so important that we do everything we can to keep our house in order and make sure that we have the best credit rating that is possible? VIALLE: Yes, sir. That will ensure you will have the lowest cost in borrowing in the future. MARTIN: Has there been any talk about at some point the need for the Council to visit with bond rating agencies? VIALLE: We haven't discussed that at this point yet. There may come a time in the near future where we may want to have discussions with the Council and with the rating agencies. At this time, we are not there yet. MARTIN: Okay. Thank you very much. PATTERSON: You still need communications open, Tom, when you do that. The past few years that hasn't happened at all. I don't think, Bob, Council has not visited the marketplace. CASS: Some members have gone and some have not. But I would say it would be -- PATTERSON: I'm talking about collectively. CASS: Well, I was about to say I think it would be a good idea for the entire Council with them. We can bring them out here. MCDOUGAL: Tom, do you have anything else? Okay, so you don't want to go. The only thing I would ask is if we are going to do next week; we do it after, at lunch, or after. You might post it for 11:30 or so. CASS: Right. Council meets next Thursday. We will bring the — Matt and I will get on the WTMPA agenda. We will go there Wednesday, the day before your Thursday meeting and basically try to get some commitment to participate in the costs and the conduct of the audit. Regardless of the outcome of that, we will bring an item to you on Thursday in which the City of Lubbock is recommending to engage Ernst & Young to conduct the audit. Matt and the City Attorney's office will bring back the global services agreement to the extent that it relates to energy contracts. And then we will lay out, we will work out a work session. Hopefully, we can have it fully detailed, addressing all of the issues that I mentioned earlier. Councilman Martin's request for analysis that would weigh the cost of operation of WTMPA as a second entity and lay it 206 Special City Council Meeting February 20, 2003 Page 207 out next to the cost of issuance and bond coverage. And then the other issues raised by Councilman Hernandez in terms of looking at in terms of WTMPA's perspective. Looking at it from the standpoint of all, the lack of a better term, the intangibles provided by WTMPA recognizing that some of those intangibles cost a lot of money, lobbying issues and those types of things. And try to frame the issue in a form where you can look at it both financially and operationally and I guess, philosophically to determine your course of action relative to your relationship with WTMPA. MCDOUGAL: And if you can't get that all done by next Thursday, I think we meet again the next week. CASS: We meet the next week, which means you will have two meetings the next week. MARTIN: And one other thing I would say too, because you were talking about Council a moment ago. And you know, there's six of us here and we have six different opinions it looks like. At some point, Mr. Cass, if this impasse continues, I am going to expect you to come forward with your recommendation. CASS: You can expect that, sir. MARTIN: And because if — I would like to know publicly what you think about the future of WTMPA. Because I think that it's clear to me that, absence your recommendation, I'm not sure we can reach a consensus up here. CASS: I'll be happy to provide that to you. BOREN: And I would like to be sure you double check the numbers to be sure they are accurate. Secondly, the WTMPA meeting, is that open to the public? CASS: Yes, sir. BOREN: Where would that be held at? CASS: I believe it is in the basement at Lubbock Power & Light at, I don't know the time. We will get that to you. WADE: I think it's already been calendered. It's 11:30 this coming Wednesday at the Business Center basement. MARTIN: The day after the LP&L Board meeting. Same place, same time. CASS: And I would point out that Matt and I will also be briefing LP&L board members bringing them up to speed. MORRISON: Would I be safe in suggesting that this page titled "Recommendations from Reviewers and Auditors" is the range of decisions that need to made? CASS: Well, that would at least be a very healthy first step. Obviously, there are a lot of details that flow out of some of those recommendations. MORRISON: Right. Okay. Thank you. MCDOUGAL: Okay. Anybody else. EXECUTIVE SESSION Mayor McDougal stated the Council would hold an executive session today for the purpose of consulting with the City staff with respect to competitive matters of the public power utility, pending or contemplated litigation, and personnel, as provided by Subchapter D of Chapter 551 of the Government Code, the Open Meeting Law. 207 Special City Council Meeting February 20, 2003 Page 208 4:20 A. M. CITY COUNCIL RECESSED TO EXECUTIVE SESSION City Council/City Manager's Conference Room All council members were present, except Council Member Cooke. ( 2.) Hold an executive session in accordance with V.T.C.A. Government Code, Section 551.086, on the following competitive matters (Electric Utilities): to discuss and deliberate a competitive matter regarding the strategies, goals, funding and strategic purpose of the City of Lubbock's relationship with and membership in the West Texas Municipal Power Agency; ( 3.) Hold an executive session in accordance with V.T.C.A. Government Code, Section 551.071(1)(A), to discuss pending or contemplated litigation (Electric Utilities). ( 4.) Hold an executive session in accordance with V.T.C.A. Government Code, Section 551.074(a)(1), to discuss personnel matters regarding duties, responsibilities, and/or appointments to: Community Relations Commission Youth Commission 208 Special City Council Meeting February 20, 2003 Page 209 5:42 P. M. COUNCIL RECONVENED 5:42 P.M. COUNCIL ADJOURNED There being no further business to come before Council, Council Member Morrison adjourned the meeting. Read and approved this Wh day of , 2005. ATTEST: Re ecca Garza, City Secretary 209