MINUTES OF SPECIAL MEETING OF THE
AUBURN MUNICIPAL POWER AGENCY
MONDAY, APRIL 5, 2010
AT 4:00 P.M.
Members Present: Dennis Zach Chairperson, John Montone, Nancy Hussey, Mike Luksa, Nicholas Brindak, and Luke Rybarczyk
Member Absent: Vijay Mital, William Graney, and Krste Biljanoski
Staff Present: Andy Fusco, Christina Selvek, Vicky Murphy, Tony DeCaro and Bruce Ross
Staff Absent: Mark Palesh, Mayor Michael Quill (ill), and William Lupien
Chairperson Dennis Zach called the special meeting to order at 4:10 p.m. on Monday, April 5, 2010. Basic question at this point is consideration we got from people on the stuff we have seen in the paper about the troubles that Canadian Turbines seems to be having with Potsdam and some of their other customers and the meeting is basically to hear your side of the story before we can make any kind of a decision.
Mr. Fusco: Before we begin the discussion Mr. Chairman I would recommend that you ask the members for a motion and second to go into Executive Session as we know from having reviewed the newspaper articles there is litigation pending in Jefferson County. That is a matter worthy of Executive Session that Mr. Kuiper and Mr. Thurston and all of us can speak more freely. Motion made by Luke Rybarczyk to go into Executive Session seconded by Mike Luksa. All in agreement. Board went into Executive Session. Executive Session held. Motion to reopen meeting made by Luke Rybarczyk and seconded by John Montone. All in agreement. Meeting reopened.
Mr. Fusco: We aired all of the various issues here. I don’t think we have much of a downside risk if we are to cut lose and start over again now. I dare state the amount of work that he has involved with this guy in Massachusetts and the guy who apparently hasn’t started the design yet so he would have a tough time proving that we reached our agreement with him and recover for damages so that if it is the desire of the board to start over again from somewhere else I think legally you don’t have a lot of exposure. The flip side of it is something I touched upon last week. The reality is the only proposer that we got who really gave us what we wanted is
Richard. And unlike Bancroft and Potsdam the tax payers of the City of Auburn haven’t spend a farthing we are not out a dime right now. I am not in a position Mr. Chairman to say that I recommend that you give the guy a chance that is a legislative question and you are a legislative body actually you are recommending to a legislative body. I am aware what we heard last week but I thought he had a reasonable explanation for what it is he wishes to do. He is willing to bond the project unfortunately not with a New York carrier as it appears, but I will check on that. I don’t see necessarily the harm of sharing with him the document that Derek has generated as far as the license agreement between the two of us with a couple of additions. We have to talk about bonding, Denny made that a must and I agree with that, some deadlines, construction by such and such a date and then the ball is in their court if they see a license agreement that
saves our license exemption yet they say look we don’t want to do business under those circumstances or we can’t do business, then we are going to be free to go elsewhere any how. I read the contract, Christina has read the contract, Bruce went over the contract, I don’t think there is anything that is going to jump off the paper and make them say oh, boy, Auburn is trying to take advantage of us.
As far as that chicken and egg situation we will show you are financials once we have the contract that sort of thing, I am not necessarily as concerned about that as I was when I asked the question. I think we have a little bit of luxury of time he now has 2 city concerns with 1 solution, he has to make Potsdam happy and he has to make Auburn happy and he has to deliver to do both. If he does so within a reasonable period of time maybe 3 weeks is optimistic but maybe 6 weeks is realistic then I think all of our situations are easier and I always try to look at these questions from the standpoint of Mike Quill and Bill Graney because they are the ones that have to run for election, they are the ones that will get the headlines, what were you thinking when you did this kind of stuff. If we can take, we
as the APA can take adequate steps to protect them and be able to say yea we didn’t do any of this we didn’t hop into bed with these guys until we knew we had a performance bond in place and until he made his peace or he lived up to his end of the bargain with Potsdam. I think that gives them something to talk about if they approve recommend of this board and this board recommends that we continue going forward with CIT. There are the pluses and minuses.
Mr. Brindak: When you asked for a reference he gave you Mike Weil who was totally against him.
Mr. Fusco: I thought the same thing; I knew that I read all the articles and I knew that Michael Weil had said some uncomplimentary things about Richard in the paper. Maybe now their relationship is patched up.
Mr. Rybarczyk: Or the reporter exaggerated some of the information.
Mr. Brindak: Weil said they gave him $1.1 million and he said they only received $290,000.
Mr. Rybarczyk: He admitted to that and he said he has the equipment ready to go and it is not any construction that they have to do it is delivery. Now all they are waiting for is their approval and approval of the money to release this from the suppliers.
Mr. Brindak: What was the problem with the lease?
Mr. Fusco: That was Bancroft.
Mr. Rybarczyk: Bancroft was tied into construction and equipment.
Mr. Zach: Installation.
Mr. Fusco: What he had go wrong for him in Bancroft as I heard it we all heard the same thing but because there were existing infrastructure problems in Bancroft, the penstock leaked, the canal flooded, the debris came downstream which he didn’t expect made his situation more difficult. The City hears that explanation and says what if our penstock starts leaking. There are potential for problems here too.
Mr. Luksa: Is there anything in our agreement that they can’t come back for that?
Mr. Fusco: I don’t think I could put that in an agreement because I really don’t know the conditions
Mr. Luksa: If he is taking over that structure right there however he obtains the ownership not ownership but takes control
Mr. Fusco: We are saying you have our goods as is, where is.
Ms. Selvek: Staff has been talking and we do want to get this moving.
Mr. DeCaro: Let’s make sure we know what we are talking about because in order for us to make money he has to, that is not the same situation for the other things that we heard and the other things that we have read. Our contract is completely different as Andy pointed out we haven’t put up a farthing and we don’t do that. His profit and his ability to do that is based on our license and our granting him a license. He has to be able to make the money in order for us to get ours out of it. When our site last generated there was not a problem with penstock there was not a problem with the p3nstock leaking through in a manner such as he described and that was
2003. In order for him to install this equipment he is going to have to do a complete rehab in order to change the type of turbine that he is putting in he is going to a Caphlon was is installed is a Francis completely different equipment. So he is going to have to do modification to site any way. He is going to have to do work on the penstock and he is going to have to do work depending on how the water is going to be brought in there are going to be some changes there anyway. It was a completely different set of circumstances physically it is a different arrangement completely so that is one set of circumstances that are different than what we have here. Will adapt Mill Street and in order to do that our equipment has to come out and he would have to make modifications. Like I said a Francis and a Caphlon are two completely different types of turbine.
Mr. Montone: Historically you worked with this guy for 8 or 9 years or more?
Mr. DeCaro: I worked with all the people that were responding to the RFP so I worked with everyone that came through here, as did Bruce. So we go to know them and we got to become quite familiar with the process and became more familiar with each of the sites. When I met Richard I only met him through research that I was doing and looking at a reactivation because if you remember originally in 2003/2004 was when a decision to retire, I wasn’t a part of the project then to not generate Mill Street for a number of reasons. In 2007 when I got that responsibility I originally contacted (could not hear name) turbines in Czechoslovakia and discovered that the Canadian branch had
gone independent and that is CTI. We invited him here to talk and give a presentation but at the time I also contacted some other people as well because we as a group here we had to decision whether or not we were going to make a rehab of that turbine or replace it. Over time it has evolved to take advantage of generating power there across the greater flow with conditions in the river had to increase the capacity. The Francis needs over 350 cubic feet per second to generate a max of 410 kw but with the Caphlon we can generate up 800 but we can also capture power down to about 60 cubic feet per second and that was his decision to adapt it with a Caphlon instead to take advantage of greater flows. That is the history that is how far back my links with Richard goes.
Mr. Montone: Originally he came and gave us a proposal on his part.
Mr. DeCaro: Gave us a proposal on replacement of the turbine that was there.
Mr. Rybarczyk: But he was the only one that suggested a low flow turbine from all of the people that responded.
Mr. DeCaro: He has been the only one that I recall over all of the RFP’s that we looked at and all the groups that we talked to that was actually looking into capturing power across the broad flow conditions of the river.
Mr. Zach: Bruce you have something to say?
Mr. Ross: Yes it just seem to me that if we were to step forward with a schedule the reason I say that is because we will begin to see how cooperative Richard will be with the schedule of events and that brings up the issue of FERC being involved in this. We told them back in 2008 we gave them a very abbreviated schedule based on what it would cost we had scheduled at costs from AAI
Mr. DeCaro: Actually from Francis Turbine and Philadelphia Gear.
Mr. Ross: That was a real abbreviated schedule but my concern is what FERC is going to say when is the red flag going to come up on someone’s computer at FERC, they are tapping on my door all the time for EAP’s, reprints, for updates of schedules and everything else inspections and all that. They will be here in June for annual inspection. I am waiting for that to come up it didn’t come up last year because we had told them we were working on it so I think it is going to come up again and at that point the question will come up again we are looking at the City of Auburn submitting their exemption they have asked us that we gave them the schedule and I think
they have been kind of gracious in not brining it up. At some point it has to come up again.
Mr. Rybarczyk: Your idea too Bruce would be good if it did come up with FERC in June at least we would have a committed to schedule to show them.
Mr. DeCaro: If they ask for a schedule we will be able to say here it is.
Mr. Rybarczyk: We are ahead of them rather than us catching up to them.
Mr. Fusco: So your recommendation is the timetable reason that we continue to try to do business with Richard.
Mr. Rybarczyk: I really think we picked the right guy. I think he is in unfortunate circumstances in 2 jobs. I really think that this Potsdam thing is going to be resolved by the time we get into any serious presentation as far as it being that far down the road. We are still going to set ourselves back and we are going to put ourselves in jeopardy with FERC if all of a sudden we say ok we are not going to do business with CTI and after to go out for RFP’s again. I still firmly believe we have the guy that we need. Again I would rely on you two and counsel, I think the man has character, I really think he wants to do a good job here.
Mr. DeCaro: There were other people that we took through sites they were very congenial, cared about the City and had plans to do things on the river but none of them had the expertise to be able to make the development that we need especially not the ability to be able to capture power at lower flows.
Ms. Selvek: It won’t hurt the City to continue moving forward with the negotiations between the lawyers looking at the contract agreement, we can wait the 3, 4 weeks by the end of April to see whether or not Potsdam’s contract was fulfilled. That way we still have some forward motion, I mean nothing is going to be resolved here or a go ahead for Richard until this agency brings before Council a recommendation for the Mayor to sign a contract with CTI
Mr. Montone: We already did that.
Ms. Selvek: I don’t believe we have. When did we do that?
Mr. Montone: In December.
Ms. Selvek: You did it when I was out. So Council already authorized the Mayor to sign the agreement?
Mr. Fusco: No we made a recommendation that we enter into negotiations with CTI.
Ms. Selvek: That is what I am saying we have a contract but we can’t do anything until the Mayor’s signature is on it.
Mr. DeCaro: But we still have time to see how tings go.
Ms. Selvek: Yes we have an agreement but there is nothing binding right Andy?
Mr. Fusco: I think either party could have walked right now with little liability
Ms. Selvek: We need to see some type of financials, profit loss, balance sheet that he can show us for his company it would be a benefit for us to see.
Mr. Montone: We put him on notice
Ms. Selvek: So we have an agreement and bonding requirements and if Potsdam gets resolved then I think he has proven himself to be able to finish the project. I am not saying we should give him the green light to go ahead but I think we should still be cautious.
Mr. Zach: I think in order to insulate the City Council the performance is going to have to be in place I mean if they get part of the way through I am hoping that the performance bond are bonded enough so that we can complete the job if they went belly up and the went bankrupt or something hopefully we will still be in the process of getting it done, satisfy FERC requirements and keep our license. An unfortunate situation is not going to be an easy sell at this point.
Mr. Montone: We won’t be going to City Council for a vote for at least 3 weeks.
Mr. Zach: Hopefully in that time frame that is a big criteria he closes out that Potsdam account, he is in a hard spot too but we are kind of at the same time. We have a performance bond, what are we out other than maybe some more time.
Ms. Hussey: What kind of escape provisions for the City are in the proposed contract?
Mr. Fusco: If he defaults when you read it there are two types of default, one for dollar damages and what constitutes abandonment, the equipment becomes ours that is the primary
Ms. Hussey: But if he doesn’t deliver the equipment
Mr. Fusco: That is the need for a construction bond to finish the work and performance bond to perform the job, lot more play to that
Ms. Hussey: He is a nice guy and I want to give him the benefit of the doubt but I respectfully disagree on the issue of financials. He is a corporation and a corporation in order to remain in good standing has to have certain financial information not necessarily project specific to this project because obviously it is not funded yet but it will give us an idea on how he performs and on how his company is performing and I am concerned on that because of the fact that he appears to be a bit of financial difficulty. I think before we take any action on this we need to obtain more references from him. I think we would be at fault on not performing due diligence but I would still
recommend going forward and continuing on negotiating the agreement.
Mr. Fusco: Then I would move as follows; we do not at this time entertain a resolution to rescind our recommendation for CTI, we authorize council to get the references, to get corporate financials which are not project specific, to exchange the original drafts of the license agreement but to include therein construction bond and performance bond language and workable schedule, construction bond to finish the work by “X”.
Ms. Hussey: Is the construction schedule going to be incorporated in the agreement? It has to be reasonable.
Mr. Zach: Andy would you restate that motion for the secretary?
Mr. Fusco: The motion to not rescind our previous recommendation to City Council to go forward with CTI, however contingent upon the provisions of corporate financials to show financial stability need not be job specific, references in addition to Mike Weil and City of Potsdam, and that the agreement include requiring CTI to provide a construction bond to finish the job by a certain schedule and a performance bond performing obligations as our partner if you will for a period of five years or something like that.
Mr. Zach: Do I hear a motion? Motion made by Luke Rybarczyk and seconded by Mike Luksa. Any further discussion Nancy?
Ms. Hussey: I am concerned by being so specific in our motion that we are walking those provisions into the contract where there will be no room for any type of other resolutions or other creative ideas to deal with our issues. I would just say that if we just made a motion not to act this right now until we have further information.
Mr. Fusco: Authorize me to get the financial and the references and the agreement to include the bond and a month from now when we next meet he hasn’t done it, we have a problem.
Mr. Zach: We can pretty well guarantee that he is not going to get a bond unless he has the finances to back it up. Do I hear an amendment to that? Mike Luksa amended according to Nancy’s suggestions. Any further discussion?
Mr. Rybarczyk: I just want to make sure Bruce do you feel by putting an ending date on that that is sufficient as far as the schedule of completion for FERC?
Mr. Ross: Give us credibility with FERC (could not hear the rest).
Mr. Rybarczyk: You feel it is sufficient to put that or having Andy just get a performance bond as of a certain date it has to be completed.
Mr. Fusco: Also ask for the design data because Earle mentioned that I wrote that down, Bruce’s clause, proposed contract, financials so we know we are dealing with a viable entity, I have some references so when FERC comes around in June saying what are you doing, we did this, we did this, we did this.
Mr. Rybarczyk: But just by your design information you know how far along the project is going to be also.
Mr. Zach: Any further discussion? We have a motion on the floor to postpone our decision on CTI until some of this information is filled in and of course Potsdam.
Mr. Fusco: It is more than postponing, it is not rescinding, not rescinding what we recommended back in December.
Mr. Zach: Ok.
Mr. Montone: We are going to have to continue with negotiations. Someone has to relate this information to Derek.
Mr. Fusco: I will.
Mr. Rybarczyk: For no other reason we will at least know what we need in the contract should we do another RFP.
Mr. Luksa: How far can we go without being bound with them?
Ms. Selvek: We put Earle on notice that if he can perform at Potsdam that is a big issue.
Mr. Montone: Put in the contract won’t sign it until it is done.
Ms. Selvek: How long do we wait for them we can’t wait another year.
Mr. Fusco: What could possibly happen here is he performs they withhold the $277,000 that he is owed and he has to sue them and then they are mad. I do not want to defer to those circumstances that Potsdam is not satisfied because now they are being sued. If he can reasonably perform his obligations to Potsdam, deliver the hardware that they are asking for, they wanted or they paid for, I am comfortable.
Ms. Selvek: Two or three weeks so by next meeting, our May meeting.
Mr. Fusco: A month from today we ought to have a clear picture of Potsdam if in fact what he says is true. It is built; it is ready awaiting delivery, delivery if fairly quick.
Mr. Montone: We want to get this agreement in place.
Mr. Fusco: Tomorrow I know what I am going to be doing, talking to Derek about getting additional language regarding the bonding
Ms. Selvek: I don’t think Council will sign an agreement though until Potsdam is happy.
Mr. Montone: That is ok, at least on our end it will be done.
Ms. Selvek: I don’t want to bring something before them if we are not happy, so there is no point.
Mr. Rybarczyk: By then you should have more of the references back and you will have an explanation of Mike Weil why he has done a reversal.
Mr. Zach: I call the motion as amended criteria being the performance of CTI. All in favor. Carried. My next question is should we have a motion that you amend the agreement
Mr. Fusco: I will be on the phone with Derek in the morning and also with Earle on the things that are needed. I have notes. When is our next meeting?
Mr. Zach: April 12, next Monday.
Mr. Fusco: When is the May meeting?
Mr. Zach: May 10th. So we don’t need a motion just going to go ahead with Derek as far as the contract.
Mr. Fusco: The proposed contract may not be in Earle’s hands by the 10th of May.
Mr. Montone: Is someone going to call this Weil?
Mr. Fusco: Yes, I am going to call him.
Mr. Zach: Quick question from my part as far as quick study on the financials are you going to use the same for the bonding company?
Mr. Fusco: I am meeting with Earle tomorrow and Nancy’s suggestion about coming up with general financials, year to year financial statements, not withstanding any specific job, I think that might give us some type of compromise although he does point out that this is a custom job with a private partner.
Mr. Zach: Even by this month’s meeting you might have some information for us.
Mr. Luksa: What about a New York State agent as opposed to the Canadian Export.
Mr. Fusco: The reason I always ask for that is because if the insurance company goes belly up which happens if it is a New York carrier we have the benefit of what is called the New York State Liquidation Bureau steps in and assumes the claims. Now in the case of a bond, they become your partner that is the trick to bonding.
Mr. Luksa: I understand that but what about the Canadian Export, do you know enough that they can’t get this by us or do we have a leg to stand on in Canada?
Mr. Fusco: My guess is that is going to be a problem.
Mr. Luksa: I sort of know where you are coming from about the New York State thing, but I just wasn’t sure. He said a couple time that that is all he has done business with is Canadian Export.
Mr. Rybarczyk: We should find out what kind of stumbling block that is going to be if we insist on New York company.
Mr. Fusco: What I think it ends up becoming is a situation where you have to hire Canadian counsel to sue on Canadian asset, which is the bond.
Mr. Rybarczyk: Let’s find out as far as he is concerned if that is going to be a major issue for us to say we don’t want the Canadian.
Mr. Fusco: I think it is a major issue because I think given his tract record buying coverage from another Canadian carrier.
Mr. Zach: By our meeting next Monday do you think you can an opinion on that?
Mr. Fusco: By next Monday maybe not. One of the things I will ask Weil when I call him is what did you do as far security bonds.
Mr. Zach: Any other questions? Motion to adjourn made by Luke Rybarczyk and second by John Montone, all in agreement.
Meeting adjourned at 6:00 p.m.
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