Pennichuck Water Special Committee

REPORT OF THE PENNICHUCK WATER SPECIAL COMMITTEE AUGUST 22, 2013 A meeting of the Pennichuck Water Special Committee was held on Thursday, August 22, 2013 at 7:00 p.m. in the Aldermanic Chamber. Alderman-at-Large Brian S. McCarthy presided. Members of the Committee present: Alderman-at-Large Barbara Pressly Alderman Michael J. Tabacsko Alderman-at-Large Mark S. Cookson, Arrived After Roll Call @ 7:30 p.m. Alderman-at-Large Lori Wilshire Also in Attendance: Alderman Daniel T. Moriarty John Patenaude, CEO, Pennichuck Corporation Thomas J. Leonard, Chairman, Board of Directors, Pennichuck Corporation PUBLIC COMMENT DISCUSSION General Update from Pennichuck Corporation Chairman McCarthy Welcome gentleman. We had asked you to come in for some general discussion on a number of things that are outstanding from the last time we met which I believe was before the shareholder’s meeting. The two oldest things are you were going to go take a look at the procedure for the minutes and see if we could do better than what it turns out is required of us apparently. How are we doing with that? Mr. Leonard My name is Thomas J. Leonard. I’m the Chairman of the Board of Directors at Pennichuck. I have with me Mr. John Patenaude, just for the record. Taking that specific question first, Mr. Chairman, very soon after the annual meeting the full Board of Directors had a discussion on what it thought would be appropriate for our minutes. What we did was we considered other corporate practices, talked about it among ourselves, the advantages and disadvantages of different process, and decided we agreed with I believe it was this committee actually to some extent and that is that we wanted to add more detail to the minutes. What we now do is have more detailed minutes. We make those available after each meeting as a draft if someone were to request it. Then, of course, we go through the process of formally adopting the minutes later on. There’s a couple other matters that were kind of left open and I can probably address some of those right in advance if that’s appropriate. As you know we extended Mr. Patenaude’s employment with the company. That was kind of the biggest step we’ve taken since the annual meeting. In that process we worked very hard on our general succession plan, developing a plan for the overall staffing of the company. Mr. Patenaude’s extension of his employment was part of that whole process. We feel pretty good about all of that. We also had a director nominated from the Merrimack Valley Regional Water District. I think I wrote a letter to you informing this committee of that. As it turns out, I now understand from our counsel that the nominee has withdrawn his nomination through his counsel but we look to the Merrimack Water Regional Water District, I always have to refer to notes to make sure I have the right title, but we look forward to that group putting forward another nomination. In addition I think the last time we before this committee there was some Pennichuck Water Special Committee -2- 8/22/13 discussion about the nominating process. We spent quite a bit of time on that process and forwarded you a draft, I believe in May. We have since adopted a formal process for nominating and vetting nominees for directorships. I think the only other thing that has been a question that’s been raised over the last couple of weeks, perhaps, you may have seen that for tomorrow’s regularly scheduled Board of Director’s meeting we have a discussion of a proposed dividend. I thought it probably appropriate just to kind of bring that up and let you know what I expect the process to be. As you know there are regular dividends that occur during the course of the year and that is by agreement, if you will, from the beginning. In addition to that we have the option as a Board to provide a dividend to the City of Nashua up to a maximum of $500,000 a year. Chairman McCarthy Just so it’s clear for everybody, when you say regular dividends those are the debt service payments for the acquisition bond. Mr. Leonard Yes. Mr. Patenaude can go into more detail but basically we make regular dividends quarterly and regular payments monthly. This dividend that we’re talking about tomorrow is in addition to that. It is not going to be a regular thing. The Board of Directors will consider resources available, the demand on resources in particular, demand on cash and decide whether the dividend is appropriate at this time. We will follow that process. I expect we’ll have that discussion tomorrow. President McCarthy It’s been a nice, hot summer. Mr. Leonard It’s been wet though. That’s not always good for a water company but it has been a beautiful summer. In any event that’s part of the process, and I don’t think there will be any surprises but we’ll go through the process. Chairman McCarthy You won’t know until tomorrow, of course, what the scope of that dividend might be. Mr. Leonard That’s right. Those are kind of the things that I remember were on the table or recently discussed. I’d certainly be happy to answer any questions but I think I’d like to pass it along to Mr. Patenaude for a minute to talk a little more about the financial side of things and the kind of operations if you will. Mr. Patenaude Thank you, Mr. Chairman, and members of the committee for giving us an opportunity to speak to you. I just want to go through a quick summary. I provided the committee with quarterly financial statements for the last quarter and for the quarter before that and expect to continue that process as we go through. Just as a high level highlight, as of June 30 the year-to-date revenues were at $17.9 million which were three percent over last year. Our operating income which doesn’t include any interest expense or non-operating items was $3.6 million and that compared to $3.1 million last year. The company did have a net loss for the period through June of $1.1 million versus $1.9 million last year. What happens in our business, and people always ask why do you have a loss in the first six months, we’re basically a fixed cost business. If you take our costs and divide it by 12 that’s generally, give or take, what our costs are. Our revenues are what varies seasonal. Pennichuck Water Special Committee -3- 8/22/13 January, February, March are very tough for us because it’s winter. People don’t use that much water. The next three months gets a little better and then during the summer if it’s hot and dry, it’s very good. If it’s rainy it’s not so good but that’s where most of our revenues come in, during the months of July, August and September. That’s where we make up the delta between the lost and then shoot to break even. Chairman McCarthy Is there guidance on whether we assume we’ll break even at the end of the year? Mr. Patenaude We’ll be close to it I think. Last month was a tough month, but when I looked at the budget we’re basically on target with our budget. We had made some headway in the prior six months against what we budgeted. Lost a little but still on target on an operating income level at the end of July but in August the pump had just started to come up again. We can’t predict the weather, we’re really dependent on either hot, dry weather or nice weather for people using water for their lawns, pools, whatever. It’s just the nature of our business. The other thing is you’ve probably seen a lot of construction on the streets. This is our construction season that started. If you drive down Franklin Street you’ll see we’re working with the city there who’s doing some work replacing sewer pipes. We’re also in there replacing water pipes. There’s a number of projects going through the city for updating our water systems. I provided this committee information relative to the rate cases. For those people in Nashua we’re looking at an increase of less than one percent, .12 percent increase is what we’re requesting. I’ll answer a question you sent Alderman Moriarty relative to the differential between what it would have been under the old model which would have been 9.1 percent and the .12 percent. The other companies, Pennichuck East is going up 12 percent, and Pittsfield Aqueduct we requested 9.34 percent. Chairman McCarthy I just want to make sure those numbers are clear to everybody. Under the old ownership the rate case would have been for a nine percent increase. Mr. Patenaude That is correct. Chairman McCarthy The rate case instead is for a .12 percent increase which is approximately 1/100 of the otherwise expected rate increase. Mr. Patenaude Right. I’ll go into reasons why in a minute. Going back to the rate case, we had procedural hearings in July for all three utilities. In October we’ll have hearings for temporary rates and for Pennichuck Water Works the temporary rates will be the existing rates. In July of next year we’ll have the hearings for permanents rates, July of 2014. Just a reminder for people that want to see our filings, they are on our website together with other information. We keep our financial information, monthly financial information on our website and also information relative to the quarterly package that we provided. On other thing that I mentioned in the package that was provided is that we have placed approximately 218 acres of Pennichuck land that’s in Merrimack in permanent conservation with the Society of Protection of New Hampshire Forests. We’ve completed that in the month of July. Pennichuck Water Special Committee -4- 8/22/13 Chairman McCarthy Is that the parcel that’s along Continental Boulevard on the north side of the pond? Mr. Patenaude Yes, parts of those parcels. Yes. Going back a minute, I think Alderman Moriarty had a couple questions that I would like to address. The first question was that Pennichuck Corporation are paying the city $8 million to service the acquisition debt. Given our profitability and the past profit of the company, how does that all affect it. It goes back to our transaction which was approved by the PUC where the PUC is allowing in rates our costs, our operating cost, our interest and the $8 million of debt service that’s due to the city. That’s all factored into our rates. We are not an income producing company. We will not be going forward unless we have extremely hot summers and variability going forward. Basically the structure was to break even so that the ratepayers would not have to pay more than the operating costs plus the city debt which is about $8.5 million, the cost to service that debt. Just as an aside, the model that we presented, when I say we I don’t mean Pennichuck but the team that helped on the acquisition, when I was going back and looking at that model, we’re pretty close to what we said would happen in that model. We actually projected a loss of half a million dollars or close to half a million dollars for this year. We’ll be within a range. We projected a loss of $200,000 for next year. We haven’t completed our budget yet so I’m not sure where we’ll be but it will probably be in the range. Things are pretty much what we predicted on the expense side and the revenue side. The question of what creates the difference between the 9 percent and the .12 percent. There are two things. One we reduced cost. When Pennichuck was taken over we reduced cost by about $1.8 million. There was cost associated with being a public traded company and a restructuring of the management team. We took out about five people. Again the cost of being a public company, audit costs came down. We didn’t have to file with the SCC, just a myriad of costs of being a public company that disappeared. About $1.5 million of that related to PWW because the other pieces went to the other two utilities. Also there is a difference in the rate of return allowed on a prior basis and the current basis. On the prior basis the company would have been allowed to earn roughly 8 percent, a little over 8 percent, on its rate base or asset base which was $95 million. Currently in our filing with the PUC, you’ll see that our rate of return is 5.9 percent based on $51 million of rate base. That creates the delta between the two filings if we would have been still a public company or if after the acquisition. Chairman McCarthy To go back to the $8 million question about the payment for the bond, I think it’s important to stress again one of the differences there is we’re servicing a very low interest bond for the acquisition versus the 9 percent approximately statutory rate of return on equity under the previous corporation. Mr. Patenaude Right and our current financials include the interest. When the acquisition was established there were two pieces. The city borrowed $150 million. There was $120 million that was treated as a note between the city and between Pennichuck Corporation. Then $30 million was treated as equity. That was to comply with tax rules since the company is still a taxable entity. What that does is in 2013 there’s $6.9 million of interest that will flow through our P&L. Roughly $3.5 million has already flowed through. We make payments of $707,000 every month to the city to service that debt. It’s held in an account at the city. Then quarterly what we do is we actually declare a dividend of close to $70,000 that makes up the difference between the $707,000 we pay per month and the amount needed to service the city’s debt. In total, we’re providing the city the total amount of the roughly $8.5 million for services. The ratepayers pay for that and not the property owners in the city. The other piece of that is this year we will also have paid down $1.6 million in principal of our note between the City and Pennichuck. Pennichuck Water Special Committee -5- 8/22/13 Alderman Pressly I’m pleased with those numbers. That’s what we had been told to expect so that’s wonderful. I’m glad that is happening. I did notice that one of the reduced cost is sort of a one-time cost reduction. The rate of return will that be the same from now on? Mr. Patenaude The rate of return is based on what our borrowing rates are. It will change year-to-year depending on the market for rules. I would argue the 1.8 is not one time because we’re not adding that back ever again. We’re going to stay there at our current level of the management team. We’re not going to add more people to the staff. Alderman Pressly Could we expect that differential every year? Mr. Patenaude It’s already come out and it will stay out. We’re not going to have another $1.8 million come out next year. Alderman Pressly The President of the Board pointed out, and rightly so, the difference of what the rate increase would be had it stayed as what it had been before as a corporation publicly owned to what we have now. That differential is what’s important to us and to a lot of the ratepayers. That’s what I’m wondering, if we can expect that 9 percent versus the .1 percent. Do we expect every year? Mr. Patenaude Yes, and not the 1.2 percent. But if you remember the model that was prepared, we showed a 2.9 percent increase per year. We did that for modeling. I can’t tell you if it will be less than that but that’s what we had used in preparing the model for the transaction. It depends on the facts and circumstances during the time in which we operate. But clearly that $1.8 million is gone forever. Chairman McCarthy If I can try to address that. The question is: We have some set of inflationary costs that go into the rate case. In this particular case those are offset by the fact the operating costs went down in the transaction by $1.8 million. One would expect the next rate case to have inflationary costs that are not offset by a similar savings so the delta between the private company rate increase and the public entity rate increase would not be as much. Mr. Patenaude Not as much, but there will be some. Chairman McCarthy However, a great portion of what’s in the rate increase is essentially the expected return on investment on the capital costs that have gone into the rate base since the last time and we won’t’ have that uplift under this model. The revenue requirement will not be as high in the future rate cases. Pennichuck Water Special Committee -6- 8/22/13 Alderman Pressly I guess my point is I think what you’ve told us is really great and we can be really comfortable telling the ratepayers that to purchase the company was the right thing to do and the expectations have been fulfilled as far as the difference if we had not purchased it. I don’t want all of our expectations to remain that high every year so that differential will fluctuate depending upon the circumstances. Chairman McCarthy Not as much as you’d think because the way the future construction is capitalized is different. For example, right now we’re holding $150 million worth of debt. Some of that has been paid off. As we do future improvements, we’ll basically just replenish that $150 million debt to pay for those so the economics of the out year will look like the economics of the first year which means that you don’t have any additional revenue requirements if the company expands and to keep the mixture between stockholder equity and debt that the PUC required required increasing the equity upon which the return is paid. We don’t have that issue now the way we capitalize expansion. I don’t think it’s ever quite as good as this year but it’s never as bad as it would have been under the old model. Mr. Patenaude That’s correct. Alderman Pressly I just think that’s important to clarify. I think we’re happy about this year but I think it’s important not to get expectations out of reason. Mr. Leonard The other reason for that is this year there is a very great savings because of the change in operations and the change just discussed. Those savings will continue but year over year it won’t be the delta that there is for this year. Alderman Moriarty Mr. Patenaude, I was wondering if you could go through the numbers again and somehow if we could simplify it. What I heard, it’s roughly $40 million per year in revenues. Is that true? Mr. Patenaude That’s correct. Alderman Moriarty This year the costs are approximately $40 million a year. Mr. Patenaude When you say costs, that includes the interest payable to the city. Alderman Moriarty Right. You listed that there are three things that are different if I caught them right. One was the $1.8 million in reduced costs due to reduction in staff and the ease of it no longer being a public corporation. Pennichuck Water Special Committee -7- 8/22/13 Mr. Patenaude That’s correct. Alderman Moriarty Then there was a second one, I don’t know if this is right, that had to do with the previous profit-making company was allowed to earn 8 percent and now we’re only allowed to earn 5.9 percent. Mr. Patenaude That is correct. In the past filings the interest rate was actually 9.75. This year when we recalculated what it would have been, it would have been 8 percent on the new calculation. If you go to the rate filing that’s on our website in my testimony you’ll see schedules relative to that. Chairman McCarthy The decrease from 9.75 to 8 percent, if I understand things correctly, is because the debt to equity ratio has gotten out of whack over the past few years and is no longer one-to-one. The debt outweighed the shareholder equity substantially on the day we made the purchase. Is that correct? Mr. Patenaude Right but again we’re giving benefit to the structure and the PUC has allowed us to make up the $8.5 million on an annual basis. The $40 million currently reflects the $8.5 million payable to the city which includes principal and interest plus our operating expenses and that’s what we’re allowed. We agreed with the PUC that we would not become a profit-making entity on a consolidated basis. Alderman Moriarty The 8 percent versus 5 percent, you used to be able to earn a 8 percent profit? Mr. Patenaude They would have been. They used to make 9.75 percent profit on the rate base. Chairman McCarthy I think you need to look at it a little differently. In the private company, they were allowed to make 9.75 percent on the rate base which is actually comprised of some debt of lower than that and shareholder equity that received more like 11 percent. Our agreement with the PUC is we would at worse have the same rate structure that Pennichuck had. When you take the revenue and you subtract out the $8.5 million to service the debt and you do the math, that works out to be 5.9 percent. The 5.9 percent is the end result. The starting thing is the rates were the same on day one. The $8.5 million represents a 5.9 percent return in the current structure of the company. Alderman Moriarty If the revenues are $40 million a year, 8 percent of $40 million is only $3.2 million. If the profit used to be 9 percent that means the profit used to be $3.6 million. Pennichuck Water Special Committee -8- 8/22/13 Chairman McCarthy No. It’s not a return on revenue. It’s a return on equity in the rate base which is substantially larger than when there’s revenue. Mr. Patenaude Right. It was $95 million at the time. Alderman Moriarty If you only bring in $40 million in cash per year and now you have to give $8 million to the city that means now you’re only bringing in $32 million. You’re keeping $32 million. Mr. Patenaude For expenses. Alderman Moriarty To cover the expenses. That means that in the past there was $8 million that was going to somebody’s profit. Chairman McCarthy Yes. Mr. Patenaude There were dividends paid to the shareholders in the past. Alderman Moriarty So a simple way of saying this rather than saying there was equity and this and that and whatever, a hundred million, the cash was coming in at $40 million. The $8 million that is currently going to the city to pay off debt used to go to profit as shareholder’s profit. Mr. Patenaude In simplistic terms, yes. Chairman McCarthy If you look at $95 million, 8 percent of that is $7.2 million. Then you add the 1.8 in operating expenses. There was about $9 million that went away and was replaced by $8 million on the day the transaction took place. Alderman Moriarty I think that’s a much simpler way of saying it is that the $8 million is going to the city used to go to the shareholders. Mr. Patenaude A large piece of it. Pennichuck Water Special Committee -9- 8/22/13 Alderman Moriarty Of course there’s a difference in that. Now we have a $1.8 million reduced cost. Maybe it wasn’t $8 million. Maybe it was only $6.2 million. Also you said there was some interest on the cash now. I missed that part. There was $120 million but some of it went into equity and equity is currently drawing interest? Mr. Patenaude When we established the company, the city borrowed $150 million. Alderman Moriarty Right. Mr. Patenaude To get the money to Pennichuck, it was split into two pieces. One, equity of $30 million. In other words the shares. And then $120 million of debt from Pennichuck to the city. That’s how we got to pay back the annual debt service cost to the city. We also get a deduction for the interest. Alderman Moriarty How it’s booked and justified, I’m just thinking in terms of a cash flow basis. Per year, $40 million comes in and $40 million goes out and everything is even. Is there $30 million in a bank somewhere? Mr. Patenaude No. Chairman McCarthy It’s buried. Mr. Patenaude The $150 million was all accounted for in the transaction costs. Again if you go back to the rate case you would see that we provided that breakdown in our filing. Alderman Moriarty So it’s just paper assets and cash. There’s no bank account with $30 million drawing interest anywhere. Mr. Patenaude There’s no $30 million of cash, no. Mr. Leonard Like the chairman said, it’s in the ground. Chairman McCarthy This is the one and only business on the earth where you can bury money and it bears interest. Pennichuck Water Special Committee -10- 8/22/13 Alderman Moriarty That would make sense that somewhere along the line there were shareholders and they were earning money and that was roughly $6 million a year. And you reduced costs by $1.8 million and low and behold we have $8 million to pay back the city. Mr. Patenaude Right. Alderman Moriarty Bold but yet truthful statement. Mr. Patenaude That’s correct. Chairman McCarthy There is another complication that shows up when you look at it which is previously the dividend was paid out of profit. It shows up at the very bottom of the balance sheet. The $8 million reimbursement is actually an inside agreement so it shows up on the prior-to-profit. If you look at the bottom line it looks like the company went from being very healthy and making a lot of money to losing money, but really what happened is an expense that used to be below the profit line is now above it. The bottom line is the same, the lines in the middle where it says “profit” went down substantially. Alderman Moriarty Okay, I can accept that because you moved it from profit into expense. I have one other question. The Parcel F that was sold, the $2 million, where is that? Mr. Patenaude The $2 million was put into our cash account. Rather than borrowing money, we use that money to fund the business but we can borrow money anytime we want. Rather than pay interest on the money that would be charged to the ratepayers we use those funds to put pipes in the ground which we’ll get back because we have the equity line. If I wanted to write a check for $2 million tomorrow, I’d just draw it out of the credit line. Alderman Moriarty Over a year ago when we were talking about that, I think it was Attorney Westgate said along the lines that it was written to Pennichuck Corporation at $2 million. It wasn’t written to Southwood Corporation. Is that true? Mr. Patenaude I don’t know; I’d have to go back. It doesn’t make any difference because in reality we have a concentrated cash account for all entities. Alderman Moriarty Does Southwood Corporation exist anymore? Pennichuck Water Special Committee -11- 8/22/13 Mr. Patenaude It exists as a separate, legal entity. Chairman McCarthy I think the issue comes up around whether the land when it was sold was taken out of the rate base. Mr. Patenaude It was never in the rate base. Southwood is an unregulated entity. Alderman Moriarty Does Southwood have its own Board of Directors? Mr. Patenaude They are the same Board of Directors that are the Board of Pennichuck Corporation. Alderman Moriarty One Board of Directors. Does Southwood have any other property that it owns everywhere? Mr. Patenaude Just land in Merrimack. Alderman Moriarty The $2 million, I’m sure there’s all kinds of different account numbers. You must have like dozens of them. Some people have two or three different account numbers. This $2 million cash in some account, is that Pennichuck account? Mr. Patenaude We have a concentration account for all entities. Regardless of where the cash comes from, it goes into one account. Chairman McCarthy In your normal debt service is the debt held by the regulated utility or the parent? Mr. Patenaude The credit line is held by the parent. The other debt is held by the individual entities. A piece is owed by PWW, a piece is owned by Pennichuck East, and then Pittsfield. Chairman McCarthy I understand that when we had discussions about the Parcel F money , it is basically not possible to use that for anything else but financing the corporation. Pennichuck Water Special Committee -12- 8/22/13 Mr. Patenaude Correct. We have a limitation put on us by the banks that say we cannot bring money to the shareholder other than to pay down the city acquisition debt of $500,000 per year. Mr. Leonard One of the most difficult things for the utility is cash because we’re not allowed to make a profit. It’s very much a part of the business model to be able to use cash from a sister corporation. There’s no sense in borrowing if you’ve got the cash. Alderman Pressly Although the $2 million from Parcel F went into sort of your general fund, it looks like you have purchased or paid some money by putting 218 acres into a conservation easement. Mr. Patenaude We didn’t pay. We received money for doing that. Alderman Pressly You received money? Mr. Patenaude Yes, we did. We received around $900,000 to put that into conservation. Alderman Pressly From who? Mr. Patenaude From the Forestry. What happened is if you remember back when I got involved in the transaction back in June of 2010, I guess it was, the airport had paid $2.1 or $2.4 million into the ARM fund because they had used up some of the wetlands to extend their runway. We were looking at ways to benefit that money for people in Nashua. We started looking at ways of selling the conservation easement on some of the properties to get money back from the ARM fund that Nashua had paid in. At the end of the day what we got was out of the $2.4 million we got roughly $750,000 out of the ARM fund for the airport extension. There was another couple hundred thousand for the Broad Street Parkway and then another $40,000 the Manchester Street Bridge. Had we not done that, that money would have gone into the ARM fund and gone to other communities and not benefited our ratepayers. Mr. Leonard But the end result of the transaction was that land which the corporation owned in different entities, but the corporation owned overall, land on Continental Boulevard in Merrimack became encumbered with a conservation easement that is very appropriate because the land is in the watershed. The water is now protected in perpetuity. Pennichuck Water Special Committee -13- 8/22/13 Alderman Pressly The 218 acres that was placed in the conservation easement, that is not part of the approximately 450 acres that Southwood continues? Chairman McCarthy It is. Mr. Patenaude It is. Alderman Pressly It is part so what would it take to purchase for land conservation the land that is left in Southwood? Mr. Patenaude I’d have to go through an appraisal. We did the appraisal for that piece to make it a fair value. We looked at it from the point of view that the other piece of the land if conservation money comes up, we’ll try to use it to get conservation money. Chairman McCarthy We don’t have to purchase the Southwood land. We already own it. What we did was sell the development rights to the Society of the Protection of New Hampshire Forests. By extinguishing the right to ever develop it, we also received cash which I think is a good thing. Alderman Pressly What would it take to take all of the land owned by Southwood land and turn it into conservation? Chairman McCarthy If you wanted to, you could do that tomorrow. We’d just have to write the easement and have the Society sign it. The question is whether it’s appropriate to do it all and whether it’s appropriate to do it all tomorrow. In this case we needed to come up with some mitigation for another project that was going on elsewhere. If we committed all of it through a conservation easement today, we wouldn’t have that ability the next time we need to do a similar mitigation nor would we have a revenue opportunity associated with it from an ARM fund for example. Alderman Pressly You are saving the Southwood land to do that very thing, other than to sell it for development? Mr. Patenaude That is correct. Alderman Pressly Is there anything that prevents a future Board from selling it to a developer? Pennichuck Water Special Committee -14- 8/22/13 Chairman McCarthy Ya, real estate transactions have to come back to the shareholder. Alderman Pressly Okay. Further question then. Does Southwood have any other land besides what’s left in Merrimack? Mr. Leonard No. Alderman Pressly Once that is disposed of in any way, Southwood would go away? Mr. Patenaude It still owns the land. It’s the conservation rights that were sold. Chairman McCarthy Some of the rest of that 400 acres is Southwood’s interest in developed parcels like the office parcels in Merrimack, right? Mr. Patenaude No. It’s the parcels up by Continental Boulevard and there’s one small parcel next to our offices if you were going towards the watershed. Chairman McCarthy Parcel M which Southwood stills own some interest in but the city owns a good deal of it has a deed covenant allowing for withdrawal from the aquifer which I think was withheld in anticipation of the development of the parcel in Merrimack. If we’ve actually given up all the rights to develop the parcel in Merrimack, it would seem that the deed restriction is no longer necessary and we could probably figure out a way that extinguishes it. Mr. Patenaude If I’m right, that’s the one on Continental Boulevard. Is that the one you’re talking about? Chairman McCarthy It’s on the property that’s off of Northwest Boulevard. Mr. Patenaude Yes. That was sold, that was no longer with Pennichuck. That was with the developer, but the city bought a conservation easement on all of that property. There are rights only for public water for consumption purposes. That’s my recollection. Pennichuck Water Special Committee -15- 8/22/13 Chairman McCarthy I thought there was a right to withdraw that essentially went with the development rights on whatever the parcel is that you just put the easement on. I forget whether that’s K or whatever. Mr. Patenaude No, they were separate pieces. There was an actual developer that owned Parcel N where the city’s conservation easement is. Alderman Moriarty Did I hear this right? We sold 200 acres for $700,000? Mr. Patenaude Nine hundred thousand. Chairman McCarthy We sold the development rights on it. We retained the property; it just can’t be built on. Mr. Patenaude Most of it is wetlands. The Forestry group was very interested because of the trees. There were flowers, Beggar-ticks, which are on the extinction list in New Hampshire. The birds, there’s a rookery. Mr. Leonard The real impetus for the transaction is the property is an important part of the watershed. The company is very determined to truly protect the watershed. What we did was we retained ownership of the land and we granted in perpetuity a conservation easement to an outside party to oversee and administer that easement. The easement doesn’t allow anything other than nature basically. The two components were an important part of the business plan for the company. Alderman Moriarty That’s a great idea. To that end, was there an effort made to offer the least a number of acres for that $900,000? Mr. Leonard Offer what? Alderman Moriarty Why 200? Why not 50? Mr. Patenaude We had an appraisal done of the property. DES would not release any funds without having an appraisal that was fair value and not overvalued relative to the easement. Pennichuck Water Special Committee -16- 8/22/13 Chairman McCarthy Is the 200 acres based on the scope of the disturbance in the airport project that it required. Those are all on a 10 for 1 match. Mr. Patenaude There were three pieces. The piece that came out of the airport, again it was $2.4 million. The DES only allowed $700,000 or $750,000 to come back to us. The others went to other communities or other projects. Mr. Leonard I think another way of looking at it is there was only so much money available. There’s what? Two hundred seventy acres of land. Mr. Patenaude Probably close to 300. Mr. Leonard We only talked about transferring easements on the 218 because there was only so much money available. That does not mean we intend to develop the balance. We are just leaving our options open for future as John mentioned. Chairman McCarthy I would point out that the city actually is party to very similar conservation easements on a couple of other parcels. Land around Lovewell Pond for example is similar; the rights have been conveyed to the Society for Protection of New Hampshire Forests. What it basically does is if we were ever so foolish as to try to build on it, we’ll get sued. Mr. Patenaude Exactly. Mr. Leonard And it provides some assurance from us, Pennichuck Corporation, to you, the City of Nashua, that we are standing behind our representations. Alderman Pressly We sort of dealt with the fifth item, can we go back and start with the first one they mentioned? You mentioned them, Mr. President, the minutes. Chairman McCarthy Has anybody looked at them since the change was made? Has any of the board members been reading them? Alderman Pressly No. Pennichuck Water Special Committee -17- 8/22/13 Chairman McCarthy I guess the question would be: Are we now satisfied with the content as it is with the more detailed ones. If we are at this point I think the best thing to do is to try to memorialize that in a by-law change that espouses that policy for next year’s shareholder meeting which is much more close than I would have thought at this point. Alderman Pressly I didn’t feel I needed to look at them. I read the minutes of some of our other city boards and none of them are as good as the minutes that this Board keeps. We are the sole shareholder. One thing that you said in your presentation that troubles me was that you studied what the corporate world did with their minutes. The minutes and the Right-to-Know law is the one and only one aspect of this transaction that was supposed to follow the city’s rules. I’m really wondering unless you do them in a similar way to what this Board does, and we are the sole shareholder, why can you not do it the way this Board does it instead of as you said the corporate image. You just added a few details. That’s still means that we don’t get the full picture. Mr. Leonard With all due respect, I would disagree with you. I think you do get the full picture. Going back to the comment about the corporate world, we are acting like a company, like an independent company. Our minutes are probably more detailed than a typical corporation. We are also very much complying with our agreement with the city that we meet the demands of the Right-to-Know law vis-à-vis the city. Our minutes meet those obligations. I would just that you take a look at them; I think you’ll find they’re detailed. Alderman Pressly I will be happy to do that although that’s extremely time consuming. I don’t think that’s part of my job. I do know from having served in so many governing boards that the need and the tendency to gloss over and to cover things is so human. This happens all the time. It happens on a lot of our city Boards. If you go through some of the city boards and they will have a two hour meeting and they will have one page of minutes. It’s very natural not to be clear. I don’t think I will be satisfied until you accept the fact that the one item that is supposed to be under the Right-to-Know law. There’s many different ways to interpret it. You can do it minimally or you can do it really clearly. I’m very proud of this Board because we are as clear as any Board I’ve ever served on as far as covering so there is very little question as to what took place. We’re able to go back ten years and actually quote things that people have said. Most other minutes do not allow that. I would just like to remind you, particularly Mr. Patenaude since you were there, when we had the numerous meetings on negotiating this, every time any one of us brought up an item that we wanted to include and to impose a government belief onto this transaction, you kept saying: “oh, we’re going to come under the Right-to-Know law.” To come under the Right-to-Know minimally is not good enough I don’t think. That is the one and only thing that survived in that lengthy negotiating and balancing municipal law versus corporate law, the one and only thing that survived. Chairman McCarthy I don’t think without looking at the minutes we can make judgments on whether there’s an attempt to skirt the Right-to-Know law or not. We asked for a particular product, and no one has looked to see whether that product is being produced or not. It seems to me we have a responsibility when we ask for something to look at it when it’s done and see if it meets our needs. Alderman Pressly I am happy to have somebody that knows the comparisons to do that. Pennichuck Water Special Committee -18- 8/22/13 Chairman McCarthy I would encourage the members of this committee and the Board to look at that and comment if we think there’s anything that wasn’t covered. It’s very difficult to say something blanket like they will be verbatim because 1) we understand from our attempt to do that with the Board verbatim is not exactly what you want, and 2) there are some confidentiality issues with minutes from the Board that were uncovered in the Telegraph’s Right-to-Know case where they are somewhat different. There are different privacy requirements to third parties than there are with the city, itself. We have to be sensitive to that. I’d like to take a look at them. If there’s a written policy on what should and shouldn’t be in them that would be good and the more that it says should be in them, the better obviously. If we can figure out a way to enable and encourage such a policy in a simple addendum to the bylaws, I think that would address the issue permanently once we have that. I want to understand that we’re getting it right before we try to write down what it is we’re getting because otherwise we’re likely to have unattended consequences. Alderman Cookson I’m trying to recall what the process was because I remember at the shareholder meeting that it was identified that we would go back or that you would go back and you would try to identify a process that would remedy some of the concerns that were raised with regard to minutes. I thought that was an active action on your part to the Board of Directors of Pennichuck to go back and explore that and come up with a recommendation. Chairman McCarthy And before you came in, they said they did that. Alderman Cookson Understood. Where I was going with that was at that point once you had identified and come up with a recommendation of how minutes were going to be kept, what was your responsibility at that point? Mr. Leonard What was my responsibility? Alderman Cookson Ya. Once you modified, you came up with a process, this is how we’re going to keep the minutes, was there communication back to the President of the Board to say the minutes have now been updated? Chairman McCarthy We had said we would discuss that the next time we got together after that meeting which is this evening. Mr. Leonard is currently addressing that obligation. Alderman Cookson But you’re asking us to react to minutes that we may not necessarily have known had been altered. Chairman McCarthy That’s a fair statement. Pennichuck Water Special Committee -19- 8/22/13 Alderman Cookson Or modified as a result of the comments that were made. Chairman McCarthy Yup. Mr. Leonard To that specific comment, we sent a letter off to the Board in May and said that we had adjusted the minutes and have a new policy of more detail. Alderman Cookson Correct. Mr. Leonard Since May they have been more detailed. Chairman McCarthy And that was conveyed to us in the letter you sent. I know you have sent a number of communications. Mr. Leonard It’s an ongoing process we’re willing to discuss with you. I do think that we should have a careful discussion because there are unintended consequences of minutes that are too detailed. Alderman Cookson Certainly. Mr. Leonard I’m happy to have that anytime you want to. Alderman Cookson May I suggest, and I don’t know when you’re going to have the next special water committee, but versus having a discussion about having a general update from Pennichuck Corporation, can we identify the actions that will be taken by the committee. If you want tor review the minutes and how they’re put together or what they’re still lacking or what they address, I’d much prefer to have that on the agenda so that we can be active and know exactly what we will be discussing. Chairman McCarthy I think we’ll have another meeting not too long from now. What we haven’t discussed yet is the process for the precommunication to the annual meeting. I think what I want to do is get a little more information on that. Then next meeting we can talk about the minutes and we’ll talk about what the process is. The shareholder’s meeting is Marchish? Pennichuck Water Special Committee -20- 8/22/13 Mr. Patenaude March, April. Chairman McCarthy Actions that we would have to take action on will come to the Board at about the end of the calendar year, beginning of January, right? Mr. Patenaude Actually February probably, February or March. Chairman McCarthy Now that we’re out of the summer we’ll try to have another meeting, wrap up what the process looks like and then we can work on what specifics needs to be done for next year. Alderman Pressly I really appreciate that because I think more detail is sort of vague. I think it’s also really totally dependent upon the individual who is taking the minutes. That can change. I would employ you, Mr. Chairman, you have been around when they changed the taking of minutes and the details for this Board. How did you come to define them so that you feel we’re being thorough, not verbatim but detailed enough to make all the business very clear. Chairman McCarthy I think that sentence describes how we’ve always done it. That was the way it was done when Bertha was here and that’s the way it’s been done since Sue took over. One thing is there’s continuity there. Sue, when she came down and took over here, was well versed in how the minutes were being done. There hasn’t ever been any real change in the way we did them. Alderman Pressly Is it fair we’ve never defined them for ourselves? Maybe it would be worthwhile if we could come up with sort of a generic guideline. Alderman Cookson Do we want to adopt Pennichuck’s? Alderman Pressly No. Chairman McCarthy The last time we did that, we broke it. Alderman Pressly I’m pleased we will discuss that in detail and hopefully come up with some reasonable guidelines. Pennichuck Water Special Committee -21- 8/22/13 Chairman McCarthy I know that at least one member of the Board had asked me about the extension of Mr. Patenaude’s term as CEO. Can you shed more light on why we thought moving the succession plan out by a year made sense and how we came to that decision? Alderman Cookson Can we also add into that, I just want an operational definition of succession plan for you. What it meant to the Board of Directors or what it meant to Mr. Patenaude. I think that might also answer some of the questions. I reviewed the minutes actually from the Compensation Benefits Committee. I was surprised at some of the items that they added to the succession plan. I’d like to know what your operational definition of succession plan is and then how you implemented that. Mr. Leonard So that I answer your questions, can you tell me what the surprises were so I can refer to them specifically? Alderman Cookson It was in one of the sealed minutes, I think it was the 29th of May. “The committee reviewed the draft CEO job description prepared by M. Deroche and S. Genest. After discussion, the committee amended the job description as follows.” It added a new item, Item 5, under essential functions to read as follows: “Working with the Chief Operational Officer to ensure accuracy and soundness of the company’s operations, facilities and property.” Amended Item 9, under essential functions to read as follows: “Together with the Chairman of the Board, acts as the Chief’s spokesman for the corporation and its subsidiaries. Then Item 5 under the leadership characteristics to read as follows: “Focuses on action and outcomes, attacks everything with drive and energy with an eye on the bottom line, not afraid to initiate action drives to finish projects.” Mr. Leonard That particular meeting that you’re talking about is the meeting where the focus was the job description for the CEO. Let me step back a little bit to answer the more general question: What did we consider the succession plan and planning. What we did, and when I say we, it does not mean that I did the work. Actually the company staff did and then, of course, the committee and then the full Board all has had parts in this. Basically what we did was we looked at every position and decided it was important to understand how each position would be filled going forward, whether there was a person below that position who would be appropriately trained and skilled when the position became vacant for whatever reason. We looked at each position. Mary DeRoche did a tremendous job and tremendous amount of time. That’s kind of what we called succession planning. As a part of that we also looked at primarily the management position job descriptions. For example, we wanted to make sure that we had more than one person holding the appropriate licenses for some of the upper management positions because licensing is an important part of our business and some of the positions. At the same time we knew that we had to address the position of CEO. We spent some time with defining what the CEO is, what that person should be. That particular meeting you’re referring to we wanted to make sure that our job description for CEO was consistent with our big picture succession plan. For instance, the first surprise change that you had referred to, the relationship with the COO, we view it as the CEO’s job to assist the COO in becoming prepared to be a CEO. That’s what that’s geared towards. I hate to keep using the acronyms here but it probably is a lot easier. Then the same thing with the other two comments. The role, it’s important to make sure that in selecting someone to fill a role, you know what you expect of that someone. We view the CEO as a spokesman for the company in addition to the operations because this is a different kind of company. We refer to it in this committee as a hybrid and we, the Board of Directors, acknowledge that as requiring additional and different skills. The last two surprises are related to that; the committee made Pennichuck Water Special Committee -22- 8/22/13 those decisions. That is pretty much where we are on the succession planning. We feel like we did a pretty good job, but I don’t want you to think for a moment that it’s done. It’s an ongoing thing. Part of what we decided both at the committee and at the Board level was that it would be continuing forever. The same thing is true with looking at the position of a CEO and other high level positions. With regard to Mr. Patenaude and a specific CEO position, we in the committee had many discussions. After some discussions, decided that it would probably be best to refer to some outside resources for how other places do this. We actually came upon a couple articles that gave us some pretty good ideas. We talked to John Patenaude who has been in the process before. We developed guidelines so that eventually we had a process of what we would be looking for, how would we go about meeting our goals in the job description and then selecting a person. We feel like the process and the guidelines and all that we’ve developed will work going forward but it, too, is an ongoing process and we expect it to change as we go through time. I think there’s also a question of why Mr. Patenaude at this time. If that’s part of the question here, the answer so far has been primarily process. We applied and used that process and looked at our present situation. It was really a very easy decision in view of all of the circumstances of the company, present circumstances and in view of the fact that Mr. Patenaude was willing to stay on. We kind of looked at what we needed, we kind of looked at where we are in the company. I outlined some of the reasons in my letter to President McCarthy. It’s really that straightforward. Bottom line is Mr. Patenaude is doing an excellent job. There are many reasons to continue with Mr. Patenaude as long as he’s interested. He is interested through the end of 2015. November of 2015, I think is what it is. The committee made a recommendation to the full Board who then voted. I think the committee made a recommendation. It may be that the committee did all of the work and then we, as a full Board, but in any event, the full Board went through lengthy discussions and decided. All of that was done June, July. That’s kind of what we did and where we ended up. Alderman Cookson Can you tell me who extended Mr. Patenaude the initial two-year interim position? Was that the city that extended the opportunity to Mr. Patenaude? Do you recall? Mr. Patenaude It was the city. Alderman Cookson It was the city that extended the two-year offer. Mr. Patenaude Yes. Alderman Cookson And then we closed the deal. Is that correct? You were identified as the interim CEO prior to the closing and then you took on that role upon the closing. Mr. Patenaude If I recollect, the initial agreement, I was interviewed back in February. We had the bonding approved and then the next month, I think it was February, 2011, was then the Personnel/Administrative Committee interviewed me and then the Board voted to appoint me as Interim CEO upon the acquisition of Pennichuck. I could be off a month either way. Pennichuck Water Special Committee -23- 8/22/13 Alderman Cookson Sure. Did we have any expectations of you personally when you took that interim CEO position? As the city extending you the interim CEO position, what were the expectations that the city had of you? Mr. Patenaude I think they wanted me to run the company as a CEO. My commitment to the city at that point in time was through May of 2014. Alderman Cookson Correct. And I also understood at that particular time that we had tasked you with a succession plan as well. Mr. Patenaude That’s correct and we’ve been working on the succession plan. Now keep in mind the succession plan for CEO is not my responsibility but that of the Board. Alderman Cookson That’s what I was going to ask. Mr. Patenaude And the Board has been working on that. My staff on the HR side has been working with the Board for the better part of a year developing some of the plans because they have to be developed not only from the top down but the bottom up so the Board has been dealing with that as well. Alderman Cookson Our expectation that you would have, that you personally would be working on the succession plan, that logic may be faulty because it’s actually your Board of Directors that overtook that responsibility once they were named? Mr. Patenaude I’m working on the succession plan for the lower level positions but not my position, per se. Mr. Leonard It also involves succession into the CEO position because one of the primary goals is that you develop people from within that are able to go to each position. Alderman Cookson I absolutely agree with all of that. Chairman McCarthy We explicitly countermanded that order essentially by approving the Articles of Incorporation which empowered the Board of Directors to hire and retain a CEO. Pennichuck Water Special Committee -24- 8/22/13 Alderman Cookson But it was our expectation that Mr. Patenaude. I vividly recall Mr. Patenaude saying: “I’ll do this for two years. I’m not looking for anything longer. I’m retired. I’m happy to do it for you for two years.” Mr. Patenaude And that was my expectation. I was asked by the Board if I would serve until November of 2015. I deliberated it. I talked to my family about it, and agreed to stay on. There are a number of people that work for me and they are all good people. I want to make sure that they succeed as well. To throw them into turmoil just because I’ve got to leave at 2014 is not fair to them either. Working with the Board, I think the Board has a good plan. There’s also the fact that the rate case is ongoing and that rate case is not going to be done until the fall of 2014. That wasn’t really expected. I thought it would be a much shorter timeframe. Mr. Leonard For the benefit of the minutes, in the letter and some of the reasons our Board decided on Mr. Patenaude was that, as I mentioned, he’s managed the company excellently, very good in every regard as far as we’re concerned it’s in excellent financial condition. We are meeting the expectations of the city and the projections of the city and all of the models. Everything is coming in line. But equally important, this is a difficult transition. Many people that work for the company, they were nervous. The transition has really gone very, very well. We spoke with people within the company, everybody agreed that Mr. Patenaude does a wonderful job at the management side as well as the financial side. He gives credit to people for what they do. He’s a team player. He recognizes the difficulties of the transition. Everything has been good in that regard as well. He’s also very knowledgeable about the process prior to this point in time. That becomes very important in the rate case. We have a rate case that had to be filed by this past spring. It was all filed appropriately, but it is not going to be resolved until next year. It’s very important to have Mr. Patenaude involved in that whole process. That was one of the considerations. I think it probably doesn’t need to be said but there was the consideration, why make a change when there’s no demand for a change? Why through in problems when there are no problems? We didn’t want to create something for no real reason and that’s an important thing. Everything is going smoothly. We have a great deal more to do and Mr. Patenaude has done a great job up until now and he’s willing to stay on. It was really a very easy decision. I understand that it might not have been, and I actually don’t understand this, I hear that it might not have been what some people expected but I think knowing today what we know, there’s no question that it’s the right decision. Alderman Cookson I believe it was explicitly stated and that the expectation of many was that the role was for two years. I think that is what surprised many people. With all due credit to Mr. Patenaude and the job that he has done and the ability for the company to actually deliberate dividends for the sole shareholder, certainly expresses that he is doing a good job, that he is running the company efficiently and that we have the ability to recoup some of those taxpayers’ monies that were expended for the eminent domain process. To that point, thank you. But again the expectation was two years. When we received the letter, it was a surprise to many of us and I think it probably surprised many of the citizens who were following this as well. Thank you. Alderman Pressly I too had the same reaction. I felt that the two years that Mr. Patenaude agreed to stay on was because that he did have the knowledge of how it was all put together. Over those two years the goal was to find a water specialist to be the CEO. I also was taken by surprise. It seems to me that the succession plan was to find a succession for the CEO. Apparently that was not the focus. Not to diminish the success, I think it’s great that things have gone so well but there is some sort of philosophical thinking that if you put together a team to create something like this, you want to make sure that you don’t have a situation where someone creates a job for themselves. It appears as though inadvertently or for a change of circumstances, that seems to be what Pennichuck Water Special Committee -25- 8/22/13 has happened. I, too, thought the general succession was to figure out this new hybrid company, how do they go about selecting their leader. Apparently that really did not happen. I think it has lended certainly some confusion and disappointment. Maybe the request should be that all the Board of Directors go back and read those minutes of what the expectations of their sole shareholder was. Thank you. Alderman Wilshire I certainly don’t share any disappointment with the reappointment of Mr. Patenaude. I think the company is doing well. I think that’s what we have been hearing all night. The company is doing very well. From the Board’s perspective, he’s doing a great job. They’re financially doing well. They’re carrying out the model they brought before us. Whether it was a surprise or a disappointment, I wasn’t either. I wasn’t surprised or disappointed. I think it was a good, smart decision to reappoint Mr. Patenaude. Chairman McCarthy I have to say my opinion is very similar. I’ve been with this effort since the very beginning. I thought it was going to take us a year or two to put this in the bag when we started, and it took ten. It doesn’t surprise me at all that the transition has taken longer than we might have thought it would take. The company is running just fine. I think we have a very, very qualified Board of Directors whose opinions I respect in the utmost. If that set of people got together and thought about what’s the best way to run this company and decided to extend it the way it is for another year, I’m not ready to question that. I think that’s probably just the right thing to do. I think we came up with an agreement with Mr. Patenaude over two years so he wouldn’t leave before that. I don’t know that we said, you have to be packed and ready to go on the last day of the contract. There may have been some expectation on that, but on the other hand, I don’t think Mr. Patenaude has any intention of making a second career at Pennichuck if he can be fishing instead, not on Pennichuck land of course. I think it’s actually very good that the Board has been so careful about the succession plan. My biggest concern is we get to a point where we can’t manage the company as effectively as we are today. I would err on the side of caution which seems to be what we’re doing. Alderman Cookson May I ask if there are any internal candidates that may be considered before 2015? Is that the expectation? Mr. Leonard We certainly don’t want to talk about personnel, but there are definitely internal candidates. Alderman Cookson Thank you. Alderman Pressly I recall there was talk at the time that there were candidates. The question would be: Did you do a search at all? Did you interview any people outside the company or interview anybody inside the company or was it just strictly everybody is happy so we’ll stay with what we’re doing? Did you have any type of a national search? A lot of companies of this size, and particularly in this specialty field, there’s specialist in this type of corporation. Did you make any effort to solicit people or to look around and see what’s out there? Mr. Leonard We may a concerted effort at thinking about what would be best for the company and decided that it would not be best for the company to go outside, that it would cause much too much disruption. We actually I believe, and this might be my interpretation of a policy, but I believe adopted a preference for developing candidates Pennichuck Water Special Committee -26- 8/22/13 from within and being sure that they are properly trained and afforded opportunities to actually gain all the skills necessary for the CEO position if that’s the position we’re talking about. I think we actually have a preference for internal. To answer your question specifically, did we interview people outside of the company for the CEO position, no. We did not seek anyone outside for the CEO position. Alderman Pressly Without naming names, although they may be named in the minutes, there were actual candidates within that were in the running two years ago. Has there been any effort to train or groom or prepare someone from within to step in? Mr. Leonard Most definitely. Alderman Pressly Can you give a number like one, two, ten, twelve? Mr. Leonard I really feel uncomfortable about talking personnel matters. This is a private company. This is not a municipal corporation. We’re very careful about our personnel matters. I think the court showed us that we have to be. I feel uncomfortable talking about that right now in this forum. Alderman Pressly I do know from having attended most of the public utilities commission meetings, there were other employees at the company that did play a very, very active role in that and seemed to be completely knowledgeable of all aspects of the company. It’s a little bit surprising. There were many, many people in the corporation that knew very explicitly what was taking place during the purchase period. Mr. Leonard I agree that we have very expert staff. Alderman Pressly I just want to go through the five points that they brought up. If we’re not going to discuss them tonight, if you could put them on the agenda. Chairman McCarthy We have been discussing them. I just asked if there were any more questions on the points that we heard during the discussion. Alderman Pressly The Merrimack Regional Water District. What’s the problem in getting a candidate? I think by agreement with the public utility, there would be one member from the Merrimack Regional Water District. How come we don’t have someone yet. Pennichuck Water Special Committee -27- 8/22/13 Mr. Leonard We had a nomination from that group. I understand that the nominee has withdrawn his interest. We look to the district to present a new nominee if they’re so inclined. Alderman Pressly Then I’ll turn to the chairman because you’re on that group. Have they been meeting or talking about getting a candidate? Chairman McCarthy No because that’s a very recent development. His name was withdrawn this week as I understand it. Alderman Pressly Oh really? This week? Chairman McCarthy I’m not actually aware that it’s been with withdrawn other than because Mr. Leonard said it this afternoon. I know that it was likely to happen, but the District has not had a chance to react to that yet. Alderman Pressly I know the gentleman came to the shareholder’s meeting. I’m surprised. That was quite awhile ago. I’m just surprised. I’d like to have more of an explanation than what we’re getting. Was he found to be unqualified? Mr. Leonard No, that was not the case. Alderman Pressly The fourth item that they brought up that we haven’t gone into was the nominating process. That’s the nominating for ht Board of Directors? Mr. Leonard Yes. Alderman Pressly What sort of progress have you made in that? Mr. Leonard We submitted the process to you. That would have been part of the May 10th letter that I sent. Alderman Pressly I don’t seem to have a copy of that. I have the June 30th one, but that’s your quarterly report. Pennichuck Water Special Committee -28- 8/22/13 Mr. Leonard There was a letter on May 10 that attached the director nomination process. Alderman Pressly It seems to me that should be going on all the time. You have people whose terms are up every year, is that correct? Mr. Leonard Yes. It’s going on all of the time might be a little bit of an overstatement, but we do have three directors, their term will expire starting this fall. In fact it may have already started and I’m just unaware of it. Sometime soon, if it hasn’t started, they will review those positions and see whether it’s appropriate to re-nominate and that’s all in the works. Alderman Pressly I want to ask the same question, and the reason I do this, one of the dangers I feel is sort of happening and that existed and the problems with the corporation and why we bought was it sort of became a good old boys club and everybody just kept re-nominating themselves over and over and over. There’s one guy that served 40 years on the Board of Directors. I’m wondering, what are you doing to get new ideas, new blood? We had talked, and I think the Mayor was very good at actually advertising to find out if there are people out there that we didn’t know about that might like to apply. Not to be dishonorable to those that have served but to me it’s very important that you constantly be looking for new ideas and new people and new talent and not just have it be a rubber stamp for anyone who served and didn’t cause any trouble, just keep them on. I think you have to always be looking for new ideas. Are you doing anything to search outside of the group that you’ve been meeting with? Mr. Leonard We look at this as a governance issue. We have a committee that addresses those concerns. Actually this committee has also talked about some of the things. For example, the whole question of term limits. There are pros and cons. I would say so far we don’t have enough pros to support term limits, at least in the view of the committee and I think even this committee has at least had some discussion on it. We’re working through that. Right now we don’t feel like anybody’s been there too long. It’s not an urgent question, but we’re always open to new ideas. We look forward to having comments from our present Board. We feel like the present Board is now informed and knows what’s going on and understands this company, and we’re getting good comment. I think we get good comments every meeting. I feel confident that we have a strong Board. Right now there are no vacancies so the urgency isn’t there. Alderman Cookson Could you speak about the communications subcommittee and in particular I know that at the April 10 meeting there was a recommendation to schedule a meeting of the communications committee with the Board of Aldermen in the fall of each year. I’m just curious about that. I know fall is quickly approaching. Mr. Leonard The April 10th meeting, I’m not sure what you mean. You mean our Board of Directors April 10th meeting? Pennichuck Water Special Committee -29- 8/22/13 Alderman Cookson No. It was your communications committee from April 10. That was actually the first meeting of this group where you were hereby elected the chairman of that committee. It’s the only minutes that are available from that group. Mr. Leonard We do have a communications committee. It does not have a regular schedule. Actually none of our committees have regular schedules. The Board does. With the assistance of that committee, we communicate to this committee. My understanding is that we’re trying to develop communication between the two companies, if you will, or the two boards: the Board of Aldermen and the Pennichuck Board of Directors. We view that committee for that purpose. All of the letters that I send out probably get reviewed by the committee. As far as a particular schedule of meetings with this committee, I think that’s up to this committee. I’m not sure I understand your question, but we are certainly willing to communicate and do whatever you would like to see done through this committee and then provide information. I think the other thing the committee said we would do or basically John and I said we would do and then we sent it to the committee is we talked about regular communication, written communication. You’re getting quarterly information and quarterly financial information. I’m not sure if I’ve answered your question. Alderman Cookson I’m just looking at the minutes. I know you don’t have them in front of you. Mr. Leonard I’m not even sure which minutes you’re looking at. Is it the Communications Committee or the Board of Directors? Alderman Cookson It’s the Communications Committee from April 10, 2013. The very first meeting of that committee where you were elected the chairman of the communications committee. The chairman reported, that would be you, that at a meeting of the Pennichuck Water Special Committee of the Board of Aldermen attended by you and Mr. Patenaude and Mr. Lustig that the company agreed to review its director nomination process, 2) consider ways to communicate financial and other information with the Board of Aldermen and 3) review its board minutes. The committee discussed these issues and agreed to provide the Board of Directors with the following recommendations: provide an outline of the updated director nomination process to the Board of Aldermen. I believe you’ve done that. Public board meetings be recorded and that the meetings be placed on the company’s website for public access. You can check that off your list. Provide a more detailed minutes of meetings. Then possibly schedule a meeting between the Communications Committee and the Board of Aldermen in the fall of each year and then provide those quarterly reports to the Board of Aldermen. Of that list of five, the one we want to circle back around and again as we discuss the minutes and whether they are meeting the needs of the community at large or the Board of Aldermen, the sole shareholder, is your group, are you actively searching out a time to come and jointly meet with this committee, Pennichuck Water Special Committee on a regular basis? You indicate every fall here. That’s what I was asking. Mr. Leonard We’re certainly willing to do that. I think that’s why we’re here today. We’re just taking another step in what we told you we would do. In the list that you just listed for me, I believe we’ve done each and every one of those and continue to do each and every one of those. Pennichuck Water Special Committee -30- 8/22/13 Alderman Cookson Does the invitation have to be extended or are you working with Alderman McCarthy to identify when you can come? I’m just really confused on how that process works. Do you have to be invited to join us? Mr. Leonard As far as I’m concerned this is the Board of Aldermen and a committee of the Board of Aldermen. We are visitors, I suppose technically, and we’d like to think we’re all working towards the same end. But it’s certainly up to you to have us in. Alderman Cookson So you make the recommendation here to possibly schedule this. This is something that you were going to take back to your Board of Directors as a potential solution to help with the communication process, is to meet with this group every fall. Mr. Leonard We’re open to that, and I think we’ve been talking about that. Part of the reason we’re having today’s meeting is we’ve been talking about how are we going to do this. I think. I’m not sure of the question. Alderman Cookson I mean if you’re going to take time out of your evening to come join us in addition to sharing general information about the company, which that’s what was on this evening’s agenda, I think it would possibly be helpful to identify those items that we would like to have discussed. Again very similar to what my initial comment this evening was if we’re going to talk about the minutes, let’s make sure it’s on the agenda and we know we’re going to talk about it. Are there issues, concerns? You’ve identified this as a potential solution to an issue to come and meet with this committee in the fall of each year. Are there issues or topics that you would like discussed? If so, I’d certainly hope that they would be escalated to Alderman McCarthy so that they could make it onto an agenda so it could be a very active and participatory conversation versus us just coming off the cuff and trying to have reactions to statements that are made. Mr. Leonard I’m find with that. Alderman Pressly I just thought of one more thing. I appreciate the fact that Alderman Cookson has read the minutes and referred to them. However, you’re telling me that I should go back and read the previous minutes and figure out. The only way to really understand that would be if they were to take an audio. That’s what a lot of committees do. That’s what the Board of Public Works does, that’s what we do. If you take an audio and put that on line then people can know exactly what took place. Chairman McCarthy Didn’t I just hear that we were doing that? Alderman Pressly No. Did you discuss that? Pennichuck Water Special Committee -31- 8/22/13 Mr. Leonard We discussed it and actually the full Board decided they did not want to. Alderman Pressly I guess no. But in order to really understand if the minutes have sufficient detail, you’d have to hear the audio to understand what all was said and to what extent it was covered. Mr. Leonard Perhaps I misunderstood your question, Mr. Chairman. I think we did agree that it’s a discussion that needs to be had and we need to consider the consequences of either more detailed minutes or whatever but I did agree earlier tonight at we should have a conversation and actually talk about what are the benefits and disadvantages of changing our policy. Alderman Pressly We only talked about your written minutes. We didn’t talk about the advantage of keeping an audio and then have a back up of the minutes. That should be an interesting discussion. NEW BUSINESS – RESOLUTIONS – None NEW BUSINESS – ORDINANCES O-13-37 Endorser:Alderman Daniel T. Moriarty Alderman-at-Large Brian S. McCarthy Alderman-at-Large Barbara Pressly Alderman-at-Large Mark S. Cookson Alderman Arthur T. Craffey, Jr. Alderman-at-Large David W. Deane Alderman Diane Sheehan Alderman Michael J. Tabacsko Alderman-at-Large Jim Donchess Alderman Richard A. Dowd ESTABLISHING RULES FOR PENNICHUCK CORPORATION SOLE SHAREHOLDER VOTING Chairman McCarthy What I would like to do is entertain a motion to table until our next meeting when I’d like to ask Mr. Leonard and Mr. Patenaude to come back. We had a timeline last year for what the interaction process looked like. I’d like to have a skeleton of that for next year. I think O-13-37 and R-13-97 are basically the same issues. When we have that we’ll condense those into one piece of legislation that articulates the process. Looking at the other tabled items, R-13-96 was basically the bylaw’s issue on the depth of the minutes. I think we’ll deal with that one when that discussion takes place as well which leaves us with R-12-39. Alderman Pressly That turned out to be illegal. Would you like to kill that one tonight. Pennichuck Water Special Committee -32- 8/22/13 Chairman McCarthy Before we do that, can I have a motion to put O-13-37 on the table? MOTION BY ALDERMAN WILSHIRE TO TABLE O-13-37 MOTION CARRIED Alderman Pressly Will that be understood that that will be part of the next meeting’s agenda? Chairman McCarthy Yes. Alderman Pressly And that we’ll get the proposal at least a couple days ahead of time if we can. Chairman McCarthy Yup. Alderman Cookson I know that we’ve already made the motion to Ordinance 13-37 to table, does it make sense to table to a date certain? Chairman McCarthy I don’t think it’s necessary. We’ll just take it at the next meeting. I already know that’s what we want to do. Alderman Cookson Very good. Thank you. UNFINISHED BUSINESS – None TABLED IN COMMITTEE MOTION BY ALDERMAN PRESSLY TO TAKE FROM THE TABLE R-12-39 MOTION CARRIED R-12-39 Endorsers: Alderman-at-Large Jim Donchess Alderman-at-Large David W. Deane Alderman-at-Large Barbara Pressly Alderman Daniel T. Moriarty RELATIVE TO ASKING PENNICHUCK TO CONTRIBUTE THE PROCEEDS OF THE SALE OF PARCEL F TO THE CITY CONSERVATION FUND  Tabled 8/2/12 MOTION BY ALDERMAN PRESSLY TO RECOMMEND INDEFINITE POSTPONEMENT Pennichuck Water Special Committee -33- 8/22/13 MOTION CARRIED R-12-65 Endorser: Alderman-at-Large Barbara Pressly REGARDING AN INTENTION TO APPROPRIATE FUTURE FUNDS RECEIVED FROM PENNICHUCK CORPORATION FOR EMINENT DOMAIN COST REIMBURSEMENT INTO THE NASHUA CONSERVATION FUND  Tabled 1/29/13 Alderman Pressly I’d like to have this put on the agenda too because if you do the numbers, it’s going to be more than ten years to get that refund back. I think it behooves the Board of Aldermen to set a general policy, how we’re going to deal with that, instead of having the Mayor add it to one of her budget items as what happened this year or to hint at budget period time that we would have this extra money. I think we should instead as a Board have a policy as to when it arrives, the process of deciding. Chairman McCarthy That’s what the resolution would convey. Alderman Pressly I would like that on the agenda too. Chairman McCarthy Do you want to do that or do you want to handle it tonight? Alderman Pressly The way it’s written it would have to have an amendment so I think just keep it tabled. But I’m hoping there will be an open discussion. R-13-96 Endorsers: Alderman-at-Large Barbara Pressly Alderman-at-Large Mark S. Cookson Alderman Arthur T. Craffey, Jr. Alderman-at-Large David W. Deane Alderman Daniel T. Moriarty Alderman-at-Large Jim Donchess AMENDING THE BY-LAWS OF THE PENNICHUCK CORPORATION  Tabled 2/28/13 R-13-97 Endorsers: Alderman Daniel T. Moriarty Alderman-at-Large Jim Donchess Alderman-at-Large Barbara Pressly Alderman Arthur T. Craffey, Jr. Alderman-at-Large David W. Deane PROCEDURE FOR A PROXY VOTE FOR PENNICHUCK CORPORATION’S ANNUAL MEETING OF THE SOLE SHAREHOLDER  Tabled 2/28/13 Pennichuck Water Special Committee -34- 8/22/13 PUBLIC COMMENT REMARKS BY THE ALDERMEN POSSIBLE NON-PUBLIC SESSION ADJOURNMENT MOTION BY ALDERMAN WILSHIRE TO ADJOURN MOTION CARRIED The Pennichuck Water Special Committee meeting was adjourned at 8:49 p.m. Alderman-at-Large Brian S. McCarthy Acting Committee Clerk