HomeMy WebLinkAbout~Master - Special Meeting of the Ames City Council 06/19/2012M INUTES OF THE SPECIAL M EETING O F THE AM ES CITY COUNCIL
AM ES, IOW A JUNE 19, 2012
The A mes City Council m et i n sp e c ia l se ssi on at 7:00 p.m . on the 19 day of June, 2012, in the Cityth
Council Cham bers in City Hall, 515 Clark Avenue, pursuant to law with Mayor Ann Campbell presiding
and the following Council M em bers present: D avis, G oodman, Larson, Orazem, Szopinski, and Wacha.
Ex officio m em ber Ba ker was also present.
RESOLUTION W AIV IN G P AR K ING E NF O R CEM E NT O F LO T M O N SATU RD AY , JUNE 23,
2012 : M ayor Cam pbell explained that the fam ily of Howard Snider found another location for his funeral
services, so the resolution is not necessary.
BRIEFING O N PROPERTY INSURANCE COV ERAGE: Mayor Cam pbell asked E lectric
Services Director Donald Kom to update the Council on the power outage. Mr. Kom joined the
meeting telephonically and explained that the major portion of a tree touched the 161kV transm ission
line and power was lost throughout the entire city shortly after 3:00 p.m . He updated the Council on
how power was restored to the city. Mr. Kom said City staff has been working diligently the Iowa
Utilities Board to install anot her 161kV line to the south. He said if that transmission line was in
pla ce an outage like this wou ld not have occurre d.
City M anager Steve Scha inker said it is im portant to discuss property insurance coverage. He told
the Council that FM Global has been the City’s provider for m any years, and beca use of rising
prem ium s Risk M anager Dave Eaton has been pursuing other options. Mr. Schainker told the
Council that a decision must be made at the meeting on June 26, 2012. He said historically, cities
have tried to insure the full value of all their buildings, assum ing one catastrophic event could destroy
all buildings at the same tim e. He said that staff is now looking at not insuring up to 100% of every
bu ilding and assuming m ore risk, whic h could save the City up to $250,000 per year.
Risk Manager Dave Eaton reviewed the report, discussing the risk mana gem ent process and how
an organization can handle risk. He also revie wed letters and prem ium history from FM Global.
Cou ncil M em ber Larson asked if the City has submitted any claims. Mr. Eato n s a id t here was a
CyRide claim of about $800,000 for floo d damage. Discussion ensued on the FM Global premium s.
Council Mem ber Wac ha asked why total insured values have increased. Mr. Eaton said appraisals
were done on the Power Plant, CyRide, City Hall, and the gas turbines to m ake sure insured values
are current. He said the appraisals resulted in about a $12 m illion increase to insured values. Mr.
Eaton said a category termed “multiple unnamed locations” was also analyzed which unveiled about
$7 m illion worth of properties and im provements that need added to the insurance policy. Mr. Eaton
said the Intermodal Facility adds $7 .7 m illion and the ice arena will be insured in the m ain property
pro gram at $4.1 m illion.
Mr. Eaton said the num ber of insurance companies with lim it capacities to match the City’s needs
is very low, and also limiting the City is the number of companies that insure power generation. He
said that the insuranc e broker contacted 16 insuranc e com panies, of whic h seven provided terms,
conditions, and rates, and the final four options are being presented.
Council Mem ber Szopinski asked if it is in the best interest of the City to work with one insurance
com pany. Mr. Eaton said it’s not unusual to put together insurance programs involving more than
one insurance com pany. Mr. Eaton said that flood exposure is an additional challenge. Council
Member G oodman asked if there are opportunities to be added to an insurance pool as a m em ber of
Midwest Independent System Operator (M ISO). Mr. Eaton said the brok er w as not aware of any
active poo ls.
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Mr. Ea ton show ed Federal Em ergency Man age m en t Agency (FE M A ) flood m aps of City
locations located in flood zones. He said for facilities in a flood zone, insurance companies are
restrictive in what they can offer for coverage. Mr. Schainker sa id CyRide will stay at its current
location, but is planning to flood-proof the building during the next expansion. Finance Director
Duane Pitcher said the culvert at the Water Pollution Control facility was widened and did not flood
during the last flood event. There was also discussion on the location of the Intermodal Facility and
the airport.
Mr. Eaton reviewed with the Council the self-insured risks that the City assum es. He also discussed
a maximum foreseeable catastrophic loss scenario affecting all C ity facilities down the Lincoln Way
corridor with devastation sim ilar to the tornado that devastated Joplin, Missouri in May, 2011. M r.
Eaton discussed full replacement costs and cash values of City facilities. He said the question being
considered is whether or not the City should continue buying about $500 m illion worth of coverage.
.
Mr. Kom said the likelihoo d of repla cing the Power Plant with ano the r coal plant is un likely because
of new environmental regulations, and that m ost likely the C ity w ould build a gas turbine. He said
the current insurance provider w as asked if the City can insure partial value of the plant. The City
was told that it must insure the full value, but if it m ust be replaced the City would not receive what
it would cost to rebuild a coal plant, but rather what it w ou ld cost to build a gas turbine. M r.
Schainker told the Council the City is not sure it could ever replace the plant given the tight
restrictions, so the City could be over-insuring itself. Mr. Pitcher said the City is buying covera ge
for som ething it like ly co uld not do anyw ay.
Council M em ber Larson asked if, under any scenario, the City would receive a settlem ent if it didn’t
rebu ild a facility. Mr. Eaton said if the City did not rebuild, then actual cash value of the damage
would be received, which is the replacem ent cost less depreciation. H e said if the entire Power Plant
was lost, according to the recent appraisal, the actual cash value of the Power Plant would be
$112,663,000.
He discussed the current program with FM Global that will be expir ing a nd th e renewal quote
from FM Global, which com prises O ption A. Benefits and drawbacks of w orking w ith FM Global
were discussed. M r. Schainker said the prem ium proposal is $823,915 which is a substantial
inc rease. Discussion ensued on FM Global’s loss co ntrol priorities. Mr. Schainker said there have
been some disagreem ents with their recomm endations. M r. Kom said one of their recomm endations
was to directly sprinkle the turbines with water, which would destroy the turbines according to the
manufacturer. Mr. S c ha inker said working with another company with a new perspective may be
helpful.
Option B, a split program , was discussed. M r. Eaton said for this option, p ro pert y w ou ld be split
between power-related and municipal-related with a premium of $691,011. M r. Schainke r said with
Option B there is $300 million in coverage for power-related and $141 m illion in municipal-related
coverage. Council M em ber Goodm an asked if FM Global has a lower value option. M r. Ea ton said
FM Global refused to offer a lower value option as they are not permitted to insure the power plant
for less than its full rep lacem ent c ost.
Mr. Eaton said that the City of Cedar Falls went through the same process of having an independent
team evaluate broke rs, and also en ded up choosing W illis to do the m arketing and ultim ately ch ose
AE GIS for its coverage. He said Cedar Falls went from insuring at 100% replacement values at $170
million down to $120 million in coverage. Discussion ensued on the expense of rebuilding a Power
Plant.
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Mr. Eaton reviewed Option C, which would be a sp lit program with $200 m illion in coverage for
power-related, and $141 million in municipal-related. M r. Eaton said this option more closely lines
up w ith the maxim um foreseeable loss worksheet, and the prem ium would be $601,089. He said this
option does not include m o re coverage than the functional cost to replace m egawatt capacity. M r.
Schainker asked for clarific a tion on the replacem ent cost of the Power Plant. Mr. Eaton said the
replacem ent cost, of which it is very unlikely the City could rebuild, is $296 million, and the actual
cash value of the Power Plant is $112,663,000. M r. Schainke r reviewed the differences in power-
related coverage for Options B and C.
Mr. Eaton reviewed Option D, a split pro gram , with $150 million in power-related coverage and
$141 million in municipal-related coverage at a prem ium of $575,839. Mr. Eaton said this amount
of coverage would still match up with the functional replacement cost of megawatts. He said it
would be the lowest cove ra ge th e C ity could go with and still maxim ize the prem ium savings.
Discussion ensued on possible scenarios given the United States Environmental Protection Agency
(EPA) regulations and damage to the Power Plant.
Mayor Campbell asked if Mr. Eaton came up with the lim it o ptions. Mr. Eaton said $300 m illion
in power-related coverage is the most coverage available on a cost effective basis from the leading
insurance companies as an alternate to FM Global, and covers the entire replacement cost of the coal
plant. He explained that the option of $150 million in power-related coverage would cover the
replacem ent of the plant with alterna te power and that the $200 m illion in power-related coverage
option c a m e about because of the catastrophic property loss scenario that was looked at, of which
power-related damage s totaled $196 million. H e also said that the municipal-related cove rage stays
the sam e at $141 m illion for O ptions B, C, and D and covers replacem ent values of all facilities in
the municipal category.
Mr. Schainker asked what the power-related and municipal-related coverage breakdown wou ld
be for Option A. Cou ncil Mem ber Goodman agreed that the information would be helpful for
com parison. M r. Eaton said he wou ld provide that to C ou ncil.
Council M ember Larson asked about the broker fee. Mr. Eaton said the fee is $45,000 per year for
rou tine services which includes policy adm inistration and engineering. He said for the first year, a
marketing fee of $25,000 is also charged. Discussion ensued regarding the broker fee and proposed
rates. Council M em ber Davis said FM Global is the only com pany that will work with the City
directly, so the City needs a broker to access other com panies.
Cou ncil M em ber Orazem said the City would not get $515 million as in Optio n A if t here was a
catastrophe, but would only get what the City could rebuild. Mr. Eaton concurred. Mem ber Orazem
said it seems FM Global is deliberately overpricing.
Council Mem ber Goodman said it would be helpful to see the account rates for O ptions B , C, and
D. M r. Eaton said he wou ld provide those figures to the Counc il.
Mr. Eaton reviewed the floo d lim its and dedu ctibles. Discussion ensued regarding the options.
Mr. Schainke r said Council needs to determ ine the level of desired risk. He said protecting the City’s
money is very important and that he doesn’t wan t sa vin g m o ney to be the only driving factor.
Council Mem ber Wacha said the only difference betw een Options B and C lies in the Pow er Plant,
so Council needs to determ ine what the reasonable options would be if the Power Plant was
destroyed. Mem ber Orazem said if it wou ld not cost m ore than $200 m illion to build a new plant,
the City wouldn’t be buying extra coverage under Option C.
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Council M em ber Goodm an asked when the energy resource options stud y will be presented. Mr.
Schainker said it should be com pleted by the end of this calendar year. Mem ber Goodman said he
feels that it is important to know what new generation will cost for insurance purposes. Mem ber
Larson asked if Council is just deciding on insurance coverage for one year. M r. Eaton said the City
will only be com mitting to one year.
Council Mem ber Goodman asked how the deductibles would play out for Options B, C, and D given
a catastrophic loss. M r. Eaton said he would put together som e scenarios. It was decided that the
scenarios would assum e a catastrophic loss dow n the Lincoln Way corridor as shown in the report,
assum ing a catastrophe like the torn ado that devasta ted J op lin, Missou ri in M ay, 201 1.
Council Mem ber Szopinski asked for clarification on the CyRide flood deductible. Mr. E aton said
that the $500,000 floo d d e du ctible for CyRide is insured. He said that the City could also insure
other deductibles. Discussion continue d regarding the options.
Mr. Schainker introdu ced Assistant City Manager M elissa M undt.
CO M M ENTS: Moved by Davis , seco nd ed by Larson , to refer to staff the reque st from Northcrest
Com m unity for an am endment to the Land Use Policy Plan.
Vote on M otion: 5-0-1. Voting aye : Davis, Goodm an, Larson, Orazem , Szopinski. Voting nay:
None. Absta ining: Wacha .
Moved by Davis, seconded by Szopinksi, to refer to staff the m em o from Mr. Schainker regarding
a vendor cart.
Vote on Motion: 5-0-1. Voting aye: Davis, Larson, Orazem , Szopinski, Wacha. Voting naye: None.
Abstaining: Goodman.
Council M em ber Goodm an said his thoughts are w ith the fam ily of Sergeant How ard Snider.
Mayor Cam pbell rem inded the Counc il that T hursday is Council Night at the Bandshell.
Cou ncil M em ber Larson com mend ed staff for the response and efforts during the power outage.
ADJO URNM ENT: The meeting adjou rned at 9:12 p.m.
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Diane R. Voss, City Clerk Ann H. Cam pbell, Mayor
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Erin Thom pson, Recording Secretary