February 12, 2009
The regular meeting of the Board of Directors of the Omaha Public Power District was held in the Board Room on the Atrium Level of Energy Plaza East, on February 12, 2009, at 10:00 a.m.
Present were Directors M. J. Cavanaugh, N. P. Dodge Jr., J. K. Green, G. C. Hall, A. L. McGuire, F. J. Ulrich and D. D. Weber. Director Thompson was absent. Also present were W. G. Gates, President; M. C. Bodammer, Corporate Secretary; and S. M. Bruckner, General Counsel for the District. Mr. Ulrich, Board Chair, presided, and Mrs. Bodammer, Corporate Secretary, recorded the minutes. Other members of Management present were D. J. Bannister, T. J. Burke, E. E. Easterlin, A. J. Minks, C. P. Moriarty, D. F. Widoe, G. R. Williams, J. J. Hanson, M. R. Jones, J. W. Thurber, A. M. Davis, L. L. Kapustka, T. R. Monroe, and R. C. Shaneyfelt. Others present were C. E. Perkins of I.B.E.W. Local Union #763; Nancy Gaarder from the Omaha World-Herald; J. Tritsch and J. Petr from Kutak Rock, the District’s Bond Counsel and Underwriters’ Counsel, respectively; C. Snider from Barclays Capital Inc.; B. Beavers from Ameritas Investment Corp.; Lynn Moorer; Mark Welsch; and approximately 11 additional customer-owners and employees of the District.
The Corporate Secretary read the following:
“Notice of the time and place of this meeting was publicized by notifying the area news media; by publicizing same in the Omaha World-Herald and Outlets; by displaying such notice on the Arcade Level of Energy Plaza since February 6, 2009; and by mailing such notice to each of the District’s Directors on that same date.
“A copy of the proposed agenda for this meeting has been maintained, on a current basis, and is readily available for public inspection in the office of the District’s Corporate Secretary.
“Additionally, a copy of the Open Meetings Law is available for inspection in the public meeting book located in this meeting room.”
It was moved and seconded that the Board reviewed the December 2008 Comprehensive Financial and Operating Report and that the minutes for the last meeting be approved. The vote was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absent; Weber – Yes; and Ulrich - Yes. The motion carried.
Thereafter, the Corporate Secretary read the following:
“Persons wishing to address the Board on a particular item are asked to approach the microphone as that agenda item is discussed. Comments will be heard following Board discussion of the item and prior to a vote by the Board.”
The following resolutions were then read, and upon motion duly seconded, were placed on roll call. The vote on each resolution is indicated following the description of that resolution.
The next order of business was the Board’s consideration of the Electric System Revenue Bonds, 2009, Series A.
Director Dodge reported that in January 2009 the Board of Directors authorized the District to proceed with preparations to sell up to $85 million of 2009 Electric System Revenue Bonds Series A (hereinafter referred to as the 2009 Series A Bonds) which he said will be used as follows: approximately $18 million will be used to reimburse previously incurred capital expenditures, an estimated $55 million is needed to finance improvements to the District’s transmission and distribution system, and about $12 million will be used to purchase additional supplies of nuclear fuel. He said these bonds will have maturities from 14 through 30 years with final maturity in 2039. Moody’s Investors Service has rated the bonds Aa1 (or AA+) and Standard and Poor’s Rating Services has rated them as AA. Director Dodge noted this is the highest rating category attainable by a public power district. Director Dodge there will be two resolutions presented during the meeting: one (Resolution No. 5756) creates the Bonds and the second (Resolution No. 5757) authorizes the sale of the Bonds. He said Resolution No. 5756 was mailed to the Board on February 5, 2009 and the directors have had the opportunity to review the lengthy resolution. Thereafter, Director Dodge requested that a motion be made to dispense with reading the resolution.
The Corporate Secretary read a motion to dispense with the reading in full of Resolution No. 5756 as follows:
“BE IT RESOLVED THAT, because a copy of Resolution No. 5756 and the Preliminary Official Statement incident to the 2009 Series A Bonds have been furnished to each Director in advance of this meeting, the reading in full of that Resolution and the Official Statement in this meeting by the Secretary be dispensed with except for those portions of the Resolution and the Official Statement which have been materially revised and the additions necessary to complete said Resolution and the Official Statement.”
It was moved and seconded to dispense with the full reading of RESOLUTION NO. 5756. The vote was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absent; Weber – Yes; and Ulrich - Yes. The motion carried.
Following the preceding vote, Board Chair Ulrich called upon Mr. Jerre Tritsch, a partner with the law firm of Kutak Rock, the District’s Bond Counsel, for a legal opinion on Resolution No. 5756 and the Official Statement. Mr. Tritsch introduced himself as Bond Counsel serving the District in connection with the issuance of the 2009 Series A Electric System Revenue Bonds. Mr. Tritsch stated his firm assisted management with the preparation and finalization of both Resolution No. 5756 and the Official Statement which were circulated to the Board of Directors during the previous week. Thereafter, he said the final form of Resolution No. 5756 which is included in their current board books contains the actual terms of the bonds consistent with the anticipated offer which will be made later this morning from the underwriting team. He affirmed that both Resolution No. 5756 and the Official Statement are identical to the forms submitted in the previous board packets other than the insertion by the underwriting team of the proposed terms of the Bonds, including interest rates, maturities and principal amounts. Mr. Tritsch stated it is his opinion that the Bonds being considered for approval are validly issued and the interest on the bonds is exempt from both federal income tax and Nebraska state income tax.
At this time, Director Dodge introduced Mr. Steve Bruckner, representing the District’s General Counsel. Mr. Bruckner provided a legal opinion on behalf of his firm, Fraser Stryker PC LLO, with respect to the adoption of Resolution No. 5756. He said the Preliminary Official Statement dated January 29, 2009 for the issuance of the 2009 Series A Bonds, and also the form of Series Resolution No. 5756, have both been examined by General Counsel. Thereafter, he recommended the OPPD Board of Directors may legally adopt the Series Resolution and the Official Statement and authorize the issuance of the 2009 Series A Bonds in accordance with the terms and conditions of the Series Resolution. Mr. Bruckner presented the original legal opinion to the Corporate Secretary to be made a part of the permanent records.
Director Dodge then requested Mrs. Bodammer to read the following statement summarizing Resolution No. 5756:
“Creates and authorizes issuance of one series of Additional Bonds: a series of Electric System Revenue Bonds in the principal amount of $85,000,000 to be designated “Electric System Revenue Bonds, 2009, Series A.”
Board Chair Ulrich requested and received a motion and second to proceed. There being no further discussion by the directors or the public, the vote was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absent; Weber – Yes; and Ulrich - Yes. The motion carried.
The next item of business was consideration of RESOLUTION NO. 5757 which accepts the retention of Ameritas Investment Corp., Merrill Lynch; Pierce, Fenner & Smith Incorporated; and RBC Capital Markets Corporation as Senior Managers, and the co-managers identified in the Investment Banking Agreement (the “Underwriters”); and authorizes the execution of the Bond Purchase Agreement by certain District officials and its use in connection with the public offering of the sale of the 2009 Series A Bonds; and grants certain investment authority regarding the investment and reinvestment of proceeds and additional moneys available for investment in the funds established by the Resolution authorizing the issuance and sale of the 2009 Series A Bonds.
Director Dodge called upon Mr. Bill Beavers from Ameritas Investment Corp. Mr. Beavers stated his purpose was to offer a proposal to the Board with respect to the 2009 Series A Bonds. Mr. Beavers said the transaction being considered will provide funds for the general maintenance and upkeep of the District. He commented that the entire senior management team has provided tremendous foresight in their combined activities for the benefit of the District.
Before presenting the specifics of the 2009 Series A Bond issue, Mr. Beavers reviewed in significant detail a series of events contributing to, in his opinion, the recent most historic dilemma in the United States investment world in the past 80 years. He remarked events over the past 15-16 months have stalled and confused the bond market. He said today there are significantly fewer independent investment banking firms and businesses because several have exited the municipal bond business while others have disappeared entirely and clearly there is less capital and liquidity competing for the business. In the fall of 2008, the District’s Board of Directors and management began to notice some of these effects while marketing the 2008 series bonds along with the 2008 separate electric system financings. Mr. Beavers commented that since that time, U.S. Treasury bonds all remained under a 3% yield with one-year maturities and less than 1% at certain times during 2008. Part of that time, short-term treasuries had negative yields. He noted that AA and AAA municipal tax exempt bonds yielded two times greater than taxable government bonds, the highest disparity ever. Mr. Beavers continued stating that rapid deterioration of the mortgage market, which began over a year ago, resulted in asset devaluations and rating downgrades across the financial universe. In the municipal market, the credit crisis was reflected in (1) the near collapse of the bond insurance industry, (2) the failure of the bond auction market and intermittent remarketing failures, and (3) interest rate spikes in the variable rate demand bond market. Mr. Beavers said all these things both reflected and created grave concerns about the capital market system. Highly rated bundled mortgage loans (with no apparent secondary market) and the bond ratings seemed to be in question. Many issuers historically had economic reasons to utilize five or six different bond insurers to lower their interest rate costs. Then suddenly no value was realized by having bond insurance. By the end of the first quarter of 2008, a leading investment banking firm was absorbed due to lack of capital. The insurance industry was beginning to show reserve, regulatory issues and financial institutions started losing stock market value, and equity financing was shelved. Mr. Beavers said Washington Mutual Inc., which was an asset-based company consisting mostly of mortgage assets, eroded to the point of bankruptcy and was absorbed by another bank. This was the largest bank failure in history.
Mr. Beavers continued with his account of the financial dilemmas taking place in 2008, recollecting the high number of failing firms within the municipal bond market that resulted in substantial investment dollars transferring to government securities which drove the yield on 10-to 30-year governments below 3%. At the same time, the long-term tax exempt bond yields were trading in the 6% range. Historically, tax-exempt bonds trade at about 82% of government yields.
In January 2009 the OPPD Board authorized its bond firms to assist with preparation of documents to move toward a bond sale. On February 5-6 the bonds were marketed to retail customers and that effort was completed on February 9. Mr. Beavers reported approximately 67% of the bonds were subscribed for at retail. The balance of the bonds was sold to institutional investors on Tuesday, February 10. Mr. Beavers commented the fact that OPPD was able to successfully market its bonds in such a stressed financial market is an indication that well-managed companies still have a viable market. He commented there still remains no viable market for 30-year bonds and volume is returning to near normal in the tax exempt market, although the steepness of the yield curve is quite noticeable. Mr. Beavers stated considerable research, comparisons and other measurements were considered in the pricing of the District’s $85 million senior lien bonds just marketed. He affirmed they have achieved a very successful net interest cost for the District and are prepared to commit to purchase all bonds. He reported the true interest cost for the 2009 Series A Bonds, with maturities ranging from 2030 through 2039, is 4.9696% or rounded off to 4.97% and said the District’s Financial Advisor will speak next to address some rate comparisons. Mr. Beavers closed his remarks and requested the Board consider accepting the offer presented.
Thereafter, Director Dodge called upon Mr. Chaffin Snider to render his comments on behalf of Barclays Capital Inc., the District’s Financial Advisor for the 2009 Series A Bonds. Mr. Snider stated that, as the District’s Financial Advisor, Barclays Capital Inc. worked closely with the OPPD financial team, Ameritas Investment Corp. and the other Underwriters on the pricing and structure of the 2009 Series A Bonds. He commented his firm looked at several recently priced transactions from comparably rated issuers in Colorado, Massachusetts, Florida, Texas and Oregon, and the District’s pricing compared very favorably against those issuers. Mr. Snider stated his firm is pleased with the marketing efforts of Ameritas and the high level of retail participation and commented the pricing was fair. Thereafter, he recommended the Board accept the bid of the Underwriters and sell all of the 2009 Series A Bonds to them as proposed. He presented the Corporate Secretary with a copy of the letter of recommendation to be included in these minutes.
Thereafter, Director Dodge called upon the legal opinion of General Counsel, represented by Mr. Steve Bruckner, with respect to the adoption of Resolution No. 5757. Mr. Bruckner stated General Counsel has thoroughly examined the Bond Purchase Agreement of the Underwriters dated February 12, 2009, for the purchase of the 2009 Series A Bonds and the form of Resolution No. 5757 accepting this proposal. He said it is the opinion of his firm that the Board of Directors may legally adopt Resolution No. 5757 which accepts the Bond Purchase Agreement of the Underwriters for the purchase of the 2009 Series A Bonds. He presented the Corporate Secretary with a copy of the legal opinion which will be made a permanent record of these proceedings. Board Chair Ulrich congratulated Mr. Moriarty and his financial team for this effort, as well as other bond issue financings, and commented this success demonstrates the stability of OPPD. There being no further discussion, the vote on Resolution No. 5757 was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absent; Weber – Yes; and Ulrich - Yes. The motion carried.
RESOLUTION NO. 5758 approves the Engineer’s Certification and authorizes the District to negotiate and enter into contracts for equipment replacements, upgrades and possible new equipment to implement the Extended Power Uprate project at Fort Calhoun Station. Director Green noted that as contracts are issued they will be reported back to the Board. Following discussion, the vote was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absent; Weber – Yes; and Ulrich - Yes. The motion carried.
RESOLUTION NO. 5759 approves the Engineer’s Certification and authorizes the District to issue a contract to Invensys Process Systems to provide the necessary hardware and software for the turbine control system at Fort Calhoun Station. Following discussion, the vote was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absent; Weber – Yes; and Ulrich - Yes. The motion carried.
RESOLUTION NO. 5760 approves the award of Request for Proposal No. 2965 – Installation of North Omaha Station Unit 1 Low Temperature Superheater – to Southeastern Mechanical Services, Inc. in the amount of $1,626,901. Following discussion, the vote was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absent; Weber – Yes; and Ulrich - Yes. The motion carried.
RESOLUTION NO. 5761 approves the compensation adjustment for Vice President and Chief Nuclear Officer David J. Bannister. Chairman Ulrich commented that Fort Calhoun Station is a very important part of the District. He added that OPPD is fortunate to have Mr. Bannister as the leader of OPPD’s nuclear team and he is a valuable member of the senior management team. Following discussion, the vote was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absent; Weber – Yes; and Ulrich - Yes. The motion carried.
RESOLUTION NO. 5762 approves a resolution honoring Charles P. Moriarty upon his retirement. Each director personally congratulated Mr. Moriarty, commending him on the professional respect he maintains within the financial community and within the company, his unmatched loyalty, ethics and his dedication to uphold the best interests of the District and its customer-owners. Following discussion and an introduction of Mr. Moriarty’s family and friends, President Gates presented Mr. Moriarty with the President’s Award. Mr. Gates stated this is only the second President’s Award to be presented to an OPPD employee and it represents exemplary performance, professionalism and commitment to excellence. Thereafter, the vote was recorded as follows: Cavanaugh – Yes; Dodge – Yes; Green – Yes; Hall – Yes; McGuire – Yes; Thompson – Absenteber – Yes; and Ulrich - Yes. The motion carried.
Copies of the foregoing resolutions are filed in the District’s Corporate Records file.
There being no further business, the meeting adjourned at 10:58 a.m.
C. P. Moriarty M. C. Bodammer
Assistant Secretary Corporate Secretary