Audit/Finance Committee Meeting 12 January 2007 Meeting Minutes

The Audit/Finance Committee of the Board of Trustees of Illinois Valley Community College District No. 513 met at 10 a.m. on Friday, January 12, 2007 in the Board Room (C307) at Illinois Valley Community College.

Committee Members Present

David L. Wilcoxson
Thomas C. Setchell
Dennis N. Thompson

Others Board Members Present

David O. Mallery
Megan Guilfoyle, Student Trustee

Others Present

Larry Huffman, President
Jerry Corcoran, Vice President for Business Services Finance
Cheryl Roelfsema, Controller
Gary Johnson, Director of Facilities
B.J. Hilton, Midwest Energy Alliance LLC
Doc Kotecki, Energy Systems Group
Frank Colacicco, Energy Systems Group
Kevin Caufield, News-Tribune Reporter

The meeting was called to order by Chairman David Wilcoxson. Mr. Wilcoxson asked Larry Huffman to take minutes of the meeting.

ENERGY SYSTEMS GROUP INTRODUCTION AND PRESENTATION

Dr. Huffman indicated that as part of the administration’s efforts to identify opportunities the college might pursue to reduce energy costs through renovation/retrofitting of building mechanical and electrical systems and/or cogeneration of electricity, a meeting had been held with Energy Systems Group (ESG) representatives, and as a result, the administration wanted the Audit & Finance Committee to hear what a company such as ESG could do. Dr. Huffman emphasized that the administration was only providing this opportunity and was not recommending this particular company, nor this approach as being the best alternatives.

Doc Kotecki noted that IVCC was (among Illinois’ community colleges) the 4^th highest user of energy per square foot of building space. He mentioned some of ESG’s previous work with institutions such as Northern Illinois University, Knox College, and Rockford College, as well as K-12 schools and veterans hospitals. ESG provides a turnkey approach to planning and renovating electrical controls, mechanical systems, and lighting systems to achieve energy savings, and if desired, can assist with financing arrangements. ESG handles all aspects—architectural, engineering, bidding processes, construction supervision, and punch list close-out, with no change orders that increase costs to the client.

In response to Mr. Mallery’s question about how the bidding process would be handled if the Board was interested in ESG’s approach, Mr. Kotecki indicated that IVCC would issue a Request for Proposals (RFP), interested companies would submit their proposals, and IVCC would select the company best meeting the college’s selection criteria. Regardless of the company selected, an annual report must be provided to the client to document the energy savings realized from the work completed. Ms. Hilton noted that the savings are generally expressed in terms of therms of gas or kilowatt hours of electricity saved, which may or may not reduce the college’s costs. Mr. Colacicco indicated that ESG does provide projections of potential cost savings, by applying an assumed cost per therm or kwh. Mr. Mallery expressed interest in seeing a concrete example of such report done by ESG for one of the NIU projects—the lighting retrofitting work done there, for example.

Mr. Wilcoxson noted the Campus Master Plan provisions for two new buildings and relocation of some functions within existing permanent buildings as a result—and asked how ESG would develop their plans to take those future implications into account. Mr. Colacicco responded that ESG would focus on mechanical systems and controls renovations that are as energy efficient as possible, regardless of how the areas of the buildings might eventually be used.

It was noted that cogeneration of electricity was probably not a feasible consideration for IVCC, due to the significant upfront costs likely not being recoverable. Cogeneration equipment also brings with it some substantial maintenance issues. However, an application of geothermal concepts to heating and air conditioning might be possible, but not without substantial upfront costs.

ESG could evaluate the college’s current HVAC systems and controls and suggest energy-conserving alternatives for renovation. At the conclusion of ESG’s work, they train the college’s maintenance staff on the equipment, so the college’s staff maintains it—ESG is not in the business of being a maintenance provider.

The ESG representatives were thanked for their presentation, and they departed the meeting.

The meeting was recessed at 11:30 a.m.

The meeting resumed at 11:40 a.m.

DISCUSSION OF CONTRACT REVISION WITH MIDWEST ENERGY ALLIANCE LLC

Dr. Corcoran noted that B.J. Hilton’s firm, Midwest Energy Alliance LLC (MEA), has worked with IVCC for over ten years in acquiring natural gas and electricity in more economical bases. Because a new provision regarding electricity purchase just became available as a result of Interstate Commerce Commission (ICC) approval, it would be beneficial to revise the college’s contract with MEA.

Ms. Hilton indicated that the contract approved by the Board in May of 2006 addressed her firm’s aggregating IVCC with a number of other community colleges and dissimilar organizations for the purchase of lower-cost electricity. Near the end of 2006, the ICC approved an AmerenIP tariff plan that would provide "real time pricing by the hour," and this plan would be much less expensive for IVCC (2, 3, or 4 cents per kwh, in comparison to 10 cents per kwh) in all but the four warmest weather months when demand for electricity is greatest. As of January 2, 2007, IVCC’s major electricity account defaulted to this new real time pricing rate, and the contract with MEA needs to be amended to include a fee structure for this approach.

MEA will be looking for an alternate retail electricity supplier (ARES) for the four warmer weather months and will move IVCC to that supplier at the appropriate time. IVCC will be moved back to Ameren’s real time pricing by the hour in the fall for continuation through the lower-demand winter and spring months. Ms. Hilton also recommended IVCC switch its minor accounts to Ameren’s default (real time) rate.

The proposed contract revision would call for MEA’s fee to be 25% of the electricity cost savings realized from the college’s use of the real time pricing by the hour rate, because current contract language already addresses savings from using an alternate electricity supplier. Several questions were raised by Trustees Setchell and Wilcoxson regarding how the base for determining MEA’s fee would be established.

Mr. Thompson expressed the feeling that the methodology explained by Ms. Hilton was in the college’s best interests and that the contract amendment was necessary to compensate MEA for monitoring the rates as they may change by the hour and for managing IVCC’s accounts between the hourly rate and the alternative supplier during the summer months. Mr. Setchell noted his reservations in general about any type of percentage-based contracts.

A question was asked about whether the contract contained a provision whereby MEA would pay back to the college if MEA’s strategy resulted in higher costs to the college. Ms. Hilton indicated that while there was no such contractual provision, in the past, they had reduced their fee in "good times" to make up for the college’s increased costs during the "bad times." It was suggested that perhaps a provision of this type should be included in the contract to formalize such a commitment.

An amended contract with MEA will be presented for action at the January 24 Board meeting.

Ms. Hilton departed the meeting.

The meeting was recessed at 1:00 p.m.

The meeting was resumed at 1:10 p.m.

Student Trustee Megan Guilfoyle joined the meeting.

PROTECTON, HEALTH, AND SAFETY PROJECTS FOR 2007

Architect Paul Basalay has asked Dr. Corcoran about moving forward on the Board- and ICCB-approved PHS projects for 2007. Since there were some reservations expressed by Board members about the extent and cost of some of these projects, Mr. Basalay wants to be certain he has the "green light" before incurring more costs related to them.

Mr. Wilcoxson mentioned that he had asked for clarification at the Board meeting when the projects were approved about whether the projects could be modified if better alternatives were later identified. Dr. Corcoran indicated that while this could happen, ICCB staff would expect such instances to be the exception, rather than the rule.

Mr. Thompson suggested that the projects involving the energy audit and the outdoor area between buildings A and C were not really questioned by the Board, but the other three projects (reconstruction of glass display cases; installation of a larger, diesel-powered emergency generator; and relocation of the computer server room) all had some "issues."

Mr. Johnson was asked about the frequency of the glass breaking in the display cases and whether the glass was plate glass or tempered. He indicated the instances of breakage occurred when the large sheets of glass were being slid (hitting the end of the track on contacting another sheet of glass, rather than just falling out) in the process of people changing displays in the cases. Mr. Johnson also expressed the belief that the glass is tempered, as it breaks in smaller pieces, rather than in large chunks, but that needs to be confirmed. Ms. Guilfoyle noted that students often sit on the floor under the display cases while waiting for their next class, so safety of the cases is a concern.

Dr. Huffman noted his concern about the renovation costs and further remarked about the negative feedback received from some staff (art being a prime example, due to that department’s perceived need for display space) regarding the plan to reduce the number of display cases—this was an approach to reduce the overall cost. He wondered if less expensive alternatives might be considered to address the safety concerns with the display cases, in order to maintain the current number of cases. Mr. Wilcoxson asked if a prototype solution could be constructed in one of the cases in the art area, to see if that solution was feasible and less expensive.

The necessity of a larger emergency generator was also questioned, specifically in regard to the power demands for emergency electricity in the event of an outage. Mr. Johnson indicated that with the addition over the years of more electrically-controlled devices, more emergency back-up power is necessary. For example, in an electrical outage in the winter, we might be able to keep the boilers functioning, but without sufficient emergency generator capacity to handle the electrical/electronic sensing/control devices throughout the buildings, there would be no delivery of heat throughout the facilities. It was also noted that IVCC is designated as a facility to accommodate people in the event of a local emergency, and having an emergency generator with a stand-alone fuel source other than natural gas is viewed as beneficial. Dr. Huffman indicated that he has high confidence in Mr. Basalay’s ability to specify an emergency generator that is sized appropriately to meet IVCC’s current and likely future emergency electricity needs, and he recommended Mr. Basalay be authorized to proceed on this project.

Dr. Huffman remarked that the moving of the computer server room is more problematic, and the very expensive price tag of this project concerns him. While there is no doubt there are potential water damage risks from the 8" water main above some of the equipment in the server room on the lower level, if a significant disaster of the magnitude necessary to sever that pipe (such as a severe earthquake or tornado) were to occur, the college’s facilities would be substantially damaged, and the affected computer equipment would be just one part of more major considerations. Dr. Huffman questions whether the pipes overhead in the server room could be "encapsulated" with another pipe, similar to the container safety redundancies utilized in nuclear power plants, or if a V-shaped trough could be hung below the pipe, to catch and transport any leakage that might occur.

Installation of sensors and alarm/notification mechanisms to alert staff to water leaks or rising room temperature, should the air conditioning units malfunction, would be a less costly approach to these concerns than relocating the equipment to another location.

Committee members concurred with Dr. Huffman’s concerns and questioned if money saved through a simpler approach to addressing the computer server room issues might be better spent on and have pay-back from energy conservation renovations similar to those discussed by the ESG representatives.

Dr. Huffman suggested Mr. Basalay proceed as planned on the emergency generator, the energy audit, and the outside area between buildings A and C projects. Work on the display cases project should examine whether a less expensive solution can be identified to resolve the broken glass safety concerns, thus allowing retention of all the display case areas. With regard to the computer server room, explore some of the approaches suggested above for addressing the water and excessive heat risks/concerns, with relocation of the room being placed on hold for the time being. Committee members were in agreement with these recommendations.

TUITION AND FEE STRUCTURE

The administration would like to take to the full Board at one time all tuition and fee changes proposed for the FY’08 year and requested the committee members’ feedback on this approach. Course fees are reviewed on an annual basis, and changes are recommended for the subsequent year. Approximately 50 course fee changes will be proposed, primarily in science laboratory courses, health-related programs, therapeutic massage, and selected technical courses.

In addition, there will be a recommendation to eliminate the $20 graduation fee and the $2 transcript fee, with an equivalent amount of revenue being collected annually through a 25-cents-per-credit-hour increase in tuition. Elimination of the graduation fee will increase IVCC’s graduation/program completion rate, since graduation will be "automatic" for students who complete program requirements. Both the graduation fee and the transcript fee are currently out-of-pocket expenses, while conversion to collection via tuition will allow these costs to be covered by ISAC MAP or Pell awards for students who receive these financial aid sources.

Also under consideration for FY’08 is a $2.75-per-credit-hour tuition increase, which includes the additional 25-cents-per-hour increase noted above. This would be a 4.2% increase over the current tuition and standard fees rate. Mr. Wilcoxson expressed the opinion that this was too great a percentage increase. Mr. Mallery expressed his opposition to having to increase tuition just because all the other colleges are doing it.

Dr. Huffman noted that the $2.75 increase would increase the cost to a student taking 5 credit hours each semester by about $25 for a year, with increased cost to a student taking 11 hours each semester being about $50 for the year, and about $90 per year for a student taking 18 hours per semester. About half the students in the latter two categories receive MAP and/or Pell

awards that would pick up the additional cost. Given annual tuition increases at the state universities, IVCC’s tuition would still be a "best buy."

Discussion was had about the importance of a comprehensive marketing plan that would lead to increased enrollment. Mr. Wilcoxson and Mr. Thompson questioned whether the marketing segmentation study completed last fall really provided much new insight into population demographics of the district. Dr. Huffman noted that a marketing plan was being developed, and mention was made of a couple of initiatives that are under examination. It will be a minimum of a couple years, however, before the results of new initiatives can be fully evaluated.

FUND 12 INVESTMENT STRATEGY

Dr. Corcoran asked for committee members’ feedback regarding whether the investment strategy for Fund 12 (Tort Liability) should continue as recently practiced or if they had suggestions for other approaches within the college’s investment policy. Most recently, ABM-AMRO has laddered bonds for this fund. Comments from committee members included considering longer maturities and perhaps some leveraged bonds, as well as there being no need to stay in tax-exempt bonds.

There being no other issues to be discussed by the committee, Mr. Setchell moved and Mr. Thompson seconded to adjourn the meeting. By unanimous voice vote, the meeting was adjourned at 3:15 p.m.

Larry Huffman, recorder