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Regular Ketchikan City Council meeting was called to order by Mayor Williams at 7:02 p.m., February 16, 2012, with the following members present: Sam Bergeron, Dick Coose, Kj Harris, DeAnn Karlson, Matthew Olsen, Robert Sivertsen and Marty West. The Pledge of Allegiance was given by all persons in the Chambers. Staff present were Manager Amylon, Assistant Manager Martin, Finance Director Newell, City Attorney Seaver, Human Resources Manager Miller, Information Technology Manager Thomas, Port and Harbors Director Corporon, Police Chief Bengaard, Public Works Director Allen, Electric Division Manager McConnell, Acting Telecommunications Division Manager Cushing and City Clerk Suiter. COMMUNICATIONS Included in the packet material was a letter from Representative Peggy Wilson to the US Environmental Protection Agency requesting exclusion from the National Emissions Standards for Hazardous Air Pollutants for Stationary Reciprocating Internal Combustion Engines. Mayor Williams noted a substitute motion for the procurement of E911 system hardware and software as well as a memorandum from the Port and Harbors Director Corporon regarding support of the harbor bond initiative from the Port & Harbors Advisory Board. PERSONS TO BE HEARD Amanda Painter, President of Ketchikan Area Arts and Humanities Council Board, spoke in support of the consideration to fund their community grant request at the full level. Chris Rose, representing Ketchikan Area Arts and Humanities Council, spoke to the Salmon on the Creek Replacement Project. He handed out pictures of the original piece, and requested funding to the entire $75,000. He cited KPAW’s assistance on other art projects. Randy Johnson, representing Alaska Ship and Drydock, requested support for the item assigning the power sales agreement to the new Alaska Ship and Drydock, LLC. He thanked the Council for their support, noting the new company represents an opportunity for growth and takes it to the next level. He felt Alaska Ship and Drydock, LLC may be able to double the size of the shipyard during the next five to ten years. He stated they have the bonding capacity and capital to move it forward, making it a great opportunity for the shipyard, Ketchikan and the state. He addressed the 30-year operating agreement and some of the requirements, and he answered questions from the Council. Adam Beck, Director of Regional Operations for Vigor Industrial, stated Vigor has admired Alaska Ship and Drydock from afar, citing the working relationship between private, public and state entities. He said Vigor sees a tremendous opportunity to grow the business, stating there is very little competition between their shipyards. He explained

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there is a very strong financial motive to employ local people, and in cases where there are short-term surge periods they have the critical mass to bring in people for that short time. Ted Leonard, Executive Director for Alaska Industrial Development and Export Authority, emphasized the shipyard and the agreement doesn’t mean that AIDEA is selling the shipyard. He said it is a very important asset of AIDEA’s and it will continue to be for a long time. He explained AIDEA is in the process of due diligence until the end of next week, and they will be presenting to the Borough. He stated the goal of due diligence is to see whether the company under Vigor would still be a qualified operator of the shipyard. He noted they need to be technically qualified and they must maintain a high commitment and ability to operate the shipyard as a viable enterprise that creates and maintains permanent jobs in Ketchikan and long-term economic development in the region. He said AIDEA will continue to verify and ensure that jobs are being created in Ketchikan as well as economic development. Debra Milam, representing Alaska Legal Services, thanked the Community Grant Committee for their work. She said Alaska Legal Services uses the funding from the City only for City clients. David Nesje, chairman of the Port and Harbors Advisory Board, said the PHAB endorses the bond issue before the Council. He noted they felt the bond issue for $10 million would not only address the needs of the fishermen in terms of the drive-down dock but would also start to address those needs we have in terms of long-range maintenance, a critical item. He also said they really appreciate the Raw Fish Tax funds to help pay for the bond, and he noted his intention to address the Ketchikan Gateway Borough relative to their role in the funding. He commented on the executive session on the IBEW contract, stating these employees are here and contributing to the community. Dave Kiffer, representing Historic Ketchikan, thanked the Council for its past support. He also thanked the Grant Committee for its work. CONSENT AGENDA Mayor Williams suggested moving several items to the Consent Agenda, including: Ordinance No. 11-1681; Ordinance No. 11-1670; the award of Contract No. 12-02, the 4x4 one-ton cab over flatbed truck; Amendment No. 1 to Contract No. 11-24; and the Federal Fiscal Year 2012 legislative priority list. No objections were heard.

Approval of Minutes

Moved by West, seconded by Coose approval of the minutes of the special meetings of January 26 and 30, and regular meeting of February 2, 2012.

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Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Contract No. 12-23, Bar Harbor South Net Float Engineering Inspection & Condition Assessment, PND Engineers, Inc.

Moved by West, seconded by Coose the City Council authorize the city manager to enter into Contract No. 12-23, Bar Harbor South Net Float Engineering Inspection & Condition Assessment, with PND Engineers, Inc. in an amount not to exceed $4,950 and approve funding from the Small Boat Harbors Department’s 2012 Bar Harbor South Net Float Repairs Capital Account. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Change Order No. 2 to Contract No. 11-58 – Creek Street Water and Sewer Emergency Repairs, CBC Construction, Inc.

Moved by West, seconded by Coose the City Council approve Change Order No. 2 in the amount of $3,018.75 to Contract No. 11-58, Creek Street Water and Sewer Emergency Repairs, between the City and CBC Construction, Inc.; authorize funding from the Streets Division’s Creek Street Trestle Repairs Capital Account; and direct the city manager to execute the change order on behalf of the City Council. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Resolution No. 12-2441 – Authorizing an Application for Department of Transportation National Infrastructure Investments (TIGER) Discretionary Grant Funding for the Water Street Trestle No. 2 Replacement Project

Moved by West, seconded by Coose the City Council approve Resolution No. 12-2441 authorizing an application for Department of Transportation National Infrastructure Investments (TIGER) Discretionary Grant funding for the Water Street Treastle No. 2 Replacement Project; and establishing an effective date. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Amendment No. 9 to Contract No. 10-22, Professional Services Agreement between the City of Ketchikan and RISE Alaska, LLC – Fundraising Support Services

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Associated with the $500,000 Rasmuson Foundation Challenge Grant

Moved by West, seconded by Coose the City Council authorize the city manager to enter into Amendment No. 9 to Contract No. 10-22, Professional Services Agreement between the City and RISE Alaska, LLC at a cost not to exceed $34,300 to provide fundraising support services associated with the $500,000 Rasmuson Foundation Grant for the construction of the new Ketchikan Public Library; and approve funding from the Library Facilities Replacement Capital Account. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Ordinance No. 11-1681 – Authorizing Junior Lien Obligations Payable from the City’s Sewer Fund in the Principal Amount of Not-to-Exceed $1,700,000 to finance the Costs of the Alaska Avenue Sewer Main Replacement Project; Approving a Loan Agreement with ADEC for an Initial Junior Lien Loan in the Amount of $1,183,640, Subject to A $177,546 Funding Subsidy (ADEC Loan #481111) – Second Reading

Copies of Ordinance No. 11-1681 were available for all persons present. Moved by West, seconded by Coose the City Council approve in second reading Ordinance No. 11-1681 authorizing junior lien obligations payable from the City’s Sewer Fund in the principal amount of not to exceed $1,700,000 to finance the costs of the Alaska Avenue Sewer Main Replacement Project; approving a loan agreement with ADEC for an initial junior lien loan in the amount of $1,183,640, subject to a $177,546 funding subsidy (ADEC Loan #481111); and establishing an effective date. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Ordinance No. 11-1670 – Amending Ordinance No. 09-1641 to Modify an Existing Loan Under the City’s Low-Cost Drinking Water Loan Program with the Alaska Department of Environmental Conservation; Authorizing Additional Borrowing Under This Loan Program; Confirming the Junior Lien Pledge of Municipal Utilities Revenue to Secure Such Loans, as Authorized by Resolution Nos. 04-2101 and 05-2146 of the City Council and Approved By the Voters at Elections Held on October 5, 2004 and October 4, 2005 – Second Reading

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Copies of Ordinance No. 11-1670 were available for all persons present. Moved by West, seconded by Coose the City Council approve in second reading Ordinance No. 11-1670 amending Ordinance No. 09-1641 to modify an existing loan under the City’s low-cost drinking water loan program with the Alaska Department of Environmental Conservation; authorizing additional borrowing under this loan program; confirming the junior lien pledge of municipal utilities revenue to secure such loans, as authorized by Resolution Nos. 04-2101 and 05-2146 of the City Council and approved by the voters at elections held on October 5, 2004 and October 4, 2005; and establishing an effective date. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Budget Transfer – Award of Contract No. 12-02, 4x4 One-Ton Cab Over Flatbed Truck with Plow – Bickford Motors, Inc.

Moved by West, seconded by Coose the City Council accept the bid of Bickford Motors, Inc. of Snohomish, Washington in the amount of $63,590 for Contract No. 12-02, 4x4 One-Ton Cab Over Flatbed Truck with Plow; authorize a budge transfer in the amount of $7,590 from Appropriated Reserves of the Public Works Sales Tax Fund to the 2012 Streets Division’s 4x4 One-Ton Cab Over Flatbed Truck with Plow Capital Account; approve funding from the 2012 Streets Division’s 4x4 One-Ton Cab Over Flatbed Truck with Plow Capital Account; and direct the city manager to execute the contract documents on behalf of the City Council. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Amendment No. 1 to Contract No. 11-24 – Project Management Services for Jackson/Monroe Streets and 4th/7th Avenues Reconstruction, DOWL HKM

Moved by West, seconded by Coose the City Council authorize the city manager to enter into Amendment No. 1 to Contract No. 11-24 with DOWL HKM of Juneau, Alaska to provide for Project Management Services for the Reconstruction of Jackson/Monroe Streets & 4th/7th Avenues in the amount of $271,390; establish a 15% contingency in the amount of $40,710, bringing the total project cost to $312,100; and approve funding from the General Government and Ketchikan Public Utilities’ Jackson/Monroe Streets and 4th/7th Avenues Reconstruction Capital Accounts. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

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Federal Fiscal Year 2013 Legislative Priority and Appropriation Requests

Moved by West, seconded by Coose the City Council authorize staff to submit federal FY 2013 legislative and appropriation requests as detailed in the city manager’s report dated February 10, 2012 and as may be modified by the City Council. Manager Amylon’s report detailed the following project requests:

Priority Issue Amount

1 Ketchikan Medical Center Addition and Alterations Project $22,000,000

2 Rehabilitation/Replacement of Off-System City Bridges 7,750,000

3 Rehabilitation/Replacement of City-Wide Storm Drainage Systems 2,673,000

4 FCC’s November 18, 2011 Connect America Fund Order N/A

Total $32,423,000

Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Award of Contract No. 12-03 – Ketchikan Police Department Vehicle Towing, Storage and Disposal, Purdy’s Totem Towing

Moved by West, seconded by Bergeron the City Council accept the bid of Purdy’s Totem Towing for Contract No. 12-03, Police Department Vehicle Towing, Storage and Disposal Contract; authorize funding from the Police Department’s 2012 Towing & Salvage Contract Account No. 64; and direct the city manager to execute the contract documents on behalf of the City Council. Motion passed with West, Olsen, Karlson, Bergeron, Harris and Coose voting yea; Sivertsen voting nay. UNFINISHED BUSINESS – None NEW BUSINESS Mayor Williams requested to consider the items relating to the shipyard power sales agreement and community agency funding be considered first, and no objections were heard.

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Assignment of the September 13, 2005 Power Sales Agreement Between the City of Ketchikan d/b/a Ketchikan Public Utilities and Alaska Ship and Drydock, Inc. to Alaska Ship and Drydock, LLC

Moved by Sivertsen, seconded by Coose contingent upon Alaska Industrial Development and Export Authority approval of the acquisition of Alaska Ship and Drydock, Inc. by Vigor Industrial in connection with the development and operation of the Ketchikan Shipyard, the City Council consent to the transfer of the September 13, 2005 Power Sales Agreement between the City of Ketchikan d/b/a Ketchikan Public Utilities and Alaska Ship and Drydock, Inc. to Alaska Ship and Drydock, LLC. Motion passed with Sivertsen, Bergeron, Coose, Harris, Olsen, West and Karlson voting yea.

2012 Community Agency Funding Agreements

Moved by Sivertsen, seconded by Coose the City Council direct the city manager to enter into 2012 community agency funding agreements with those organizations and for those dollar amounts as recommended by the Community Grant Committee and authorize a total expenditure of $312,977 from the 2012 Community Grant Program Account No. 53. The recommended funding amounts for community agencies was as follows: First City Players - $11,900 Historic Ketchikan - $26,950

Ketchikan Committee for the Homeless - $42,891 Love In the Name of Christ - $9,560

Ketchikan Youth Initiative - $1,250 Ketchikan Wellness Coalition - $10,150

Alaska Legal Services - $15,800 Boys and Girls Clubs - $11,700

Ketchikan Youth Court - $9,330 Ketchikan Senior Center Food/Fuel - $18,000

First City Homeless Services Day Shelter - $7,900 Kanayama Exchange - $200

Big Brothers Big Sisters of Alaska - $7,000 Southeast Senior Services - $40,525

Rendezvous - $37,800 SAIL – $10,000

Ketchikan Area Arts and Humanities Council - $39,880

Women In Safe Homes - $12,141

Moved by West, seconded by Olsen to amend by adding an additional $10,120 to fully fund Ketchikan Area Arts and Humanities Council. Motion to amend failed with West and Olsen voting yea; Coose, Bergeron, Harris, Sivertsen and Karlson voting nay. Moved by Bergeron, seconded by West to amend by increasing the total appropriated amount by $55,000, half to come from Ketchikan Public Utilities appropriated reserves and half to come from General Government appropriated reserves.

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Motion to amend passed with Harris, Olsen, West and Bergeron voting yea; Karlson, Sivertsen and Coose voting nay. Moved by Bergeron, seconded by West to amend by increasing proportionately the amounts allocated to each community agency with the $55,000, with no agency to exceed its requested amount. Motion to amend passed with Harris, West, Olsen and Bergeron voting yea; Coose, Sivertsen and Karlson voting nay. Main motion, as amended, passed with Bergeron, Olsen, Harris and West voting yea; Sivertsen, Karlson and Coose voting nay.

2012 Community Agency Funding Agreement Between the City of Ketchikan and the Ketchikan Visitors Bureau, Inc.

Moved by Coose, seconded by West the City Council approve the 2012 Community Agency Funding Agreement between the City of Ketchikan and the Ketchikan Visitors Bureau, Inc. and authorize the city manager to execute the agreement on behalf of the City Council. Motion passed with West, Olsen, Karlson, Bergeron, Sivertsen and Coose voting yea; Harris voting nay. The Council took a break at 8:12 p.m. and reconvened at 8:21 p.m.

Exempting the Procurement and Installation of E911 System Hardware and Software from ProComm Alaska LLC from Competitive Bidding/Written Quotation Requirements of the Ketchikan Municipal Code

Moved by Sivertsen, seconded by Bergeron pursuant to subparagraph 6 of Section 3.12.050(a) of the Ketchikan Municipal Code, the City Council exempt the procurement and installation of E911 System Hardware and Software from ProComm Alaska LLC at a cost of $397,133; establish a five percent contingency in the amount of $19,857, bringing the total project cost to $416,990; approve a budget transfer of $16,990 from Appropriated Reserves of the Public Works Sales Tax Fund to the Police Department’s 2012 Central Dispatch and E911 System Upgrade & Enhancement Capital Account; authorize funding from the Police Department’s 2012 Central Dispatch & E911 System Upgrade & Enhancement Capital Account; and direct the city manager to execute the contract documents on behalf of the City Council.

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Motion passed with Coose, Bergeron, West, Harris, Sivertsen, Olsen and Karlson voting yea.

Budget Transfer – Alaska Miners Association, Inc. Membership

Moved by Bergeron, seconded by Sivertsen the City Council approve a budget transfer in the amount of $5,000 from Appropriated Reserves of the General Fund to the City Council’s 2012 Dues & Publications Account No. 54 to fund City membership in the Alaska Miners Association, Inc. Councilmember West said this motion failed last time, and no one brought it back up for reconsideration. Mayor Williams said that was his fault, and Councilmember Coose reminded the mayor said to put it back on the agenda at the meeting. Councilmember West said the mayor cannot move to reconsider. Clerk Suiter confirmed, noting that it should be changed somewhat in order to bring it back. Mayor Williams asked if a motion could be made with a different dollar amount if that could be considered; Clerk Suiter affirmed this statement. The motion was withdrawn with the consent of the second. [Clerk’s note: For appropriate Robert’s Rules procedure, the motion could have been rescinded to remove the action entirely, or reconsidered in order to put it back before the Council.] Moved by Bergeron, seconded by Coose the City Council approve a budget transfer in the amount of $4,999.99 from Appropriated Reserves of the General Fund to the City Council’s 2012 Dues & Publications Account No. 54 to fund City membership in the Alaska Miners Association, Inc. Motion passed with Karlson, Olsen, Bergeron, Sivertsen and Coose voting yea; Harris and West voting nay. After discussion, the Council designated the following people as representatives: Councilmembers Coose, Bergeron, Karlson, Sivertsen and Electrical Systems Engineer Andy Donato.

Public Works Department’s 2012 Programmed Maintenance of City Streets

Moved by Coose, seconded by Sivertsen the City Council approve the Public Works Department’s programmed maintenance of City streets for 2012 as detailed in the senior project engineer’s report dated February 8, 2012 and authorize the city manager to

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transfer $299,548 from Appropriated Reserves of the Public Works Sales Tax Fund to the Streets Division’s 2012 Asphalt Overlay Capital Account for additional overlay work. Councilmember Sivertsen discussed the merits of concrete vs. asphalt, and Public Works Director Allen said a rule of thumb is concrete costs more than asphalt and it balances out in life cycle costs per year. He expressed reluctance to spend extra dollars on concrete anytime there are old utilities underneath. Manager Amylon endorsed looking at concrete concepts, but he felt it prudent to look at in the context of moving ahead with a fully planned infrastructure replacement. He offered for staff to engage the DOT in conversation related to some improvements in the downtown area, cautioning that the City may be required to fund part of the improvements. In response to Councilmember Olsen, Public Works Director Allen said an old rule of thumb is that concrete will add 50% or more in up-front costs. He reminded the City has gotten some bad concrete in the recent past, and the same with asphalt. Motion passed with Karlson, Harris, Olsen, West, Bergeron, Sivertsen and Coose voting yea.

Offer of Employment – Engineer-In-Training/Project Inspector

Moved by West, seconded by Harris the City Council authorize the city manager to offer the position of engineer-in-training/project inspector to Mark Saari of Ketchikan, Alaska based on placement within the Compensation Plan at Grade 3-55 I, which provides for an annual salary of $53,082. Motion passed with Bergeron, Sivertsen, Olsen, Karlson, Coose, Harris and West voting yea.

Budget Transfer – Professional Services Agreement with the Ketchikan Area Arts & Humanities Council for the Selection and Procurement of Public Art, Salmon on the Creek Replacement

Moved by Olsen, seconded by Sivertsen the City Council direct the city manager to enter into a professional services agreement with the Ketchikan Area Arts and Humanities Council at a cost not to exceed $5,250 for the selection and procurement of public art for placement at Ketchikan Creek; authorize a $75,000 transfer from non-CPV Appropriated Reserves of the Port Enterprise Fund to the Port Department’s 2012 Ketchikan Creek Public Art Procurement Capital Account; and approve funding in the amount of $5,250 from the 2012 Port Department’s Ketchikan Creek Art Procurement Capital Account. Councilmember Bergeron expressed his hope the project would only be open to Ketchikan artists, to which Mr. Rose stated the proposal indicates there is a clear

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indication that Southeast artists will be given preference. Manager Amylon said if other Southeast artists are not entertained, Ketchikan artists may suffer in the ability to submit art to other communities. Mayor Williams summarized the preference will be toward local artists. Motion passed with Harris, Coose, Sivertsen, West, Karlson, Olsen and Bergeron voting yea.

Ordinance No. 11-1672 – Authorizing the Issuance of General Obligation Bonds in an Amount Not to Exceed $10,000,000 to Finance All or a Portion of the Cost of Certain Improvements to Harbor Facilities of the City; Providing for Submission to the City’s Voters, At a Special Election to be Held on May 15, 2012, of A Proposition Approving These Capital Projects, Approving This Ordinance, and Ratifying the Authorization of the General Obligation Bonds – First Reading

Moved by Coose, seconded by Olsen the City Council approve in first reading Ordinance No. 11-1672 authorizing the issuance of general obligation bonds in an amount not to exceed $10,000,000 to finance all or a portion of the cost of certain improvements to harbor facilities of the City; providing for submission to the City’s voters at a special election to be held on May 15, 2012, of a proposition approving these capital projects, approving this ordinance, and ratifying the authorization of the general obligation bonds; and establishing an effective date. Motion passed with West, Olsen, Karlson, Sivertsen and Coose voting yea; Bergeron and Harris voting nay.

Fixtures, Furnishings & Equipment Procurement

Mayor Williams felt the City should look at locals to get prices as much as possible, and while he recognized concern about the potential costs, he didn’t feel it would be as high as anticipated. He felt we should ask the contractor to at least talk to our local businesses to provide this service. Similar sentiments were expressed by other councilmembers, and some felt the locals would need to be competitive.

Offer of Employment – Telecommunications Division Manager

Moved by West, seconded by Sivertsen the City Council authorize the general manager to offer the position of Telecommunications Division manager to Ed Cushing of Ketchikan, Alaska based on placement within the Compensation Plan at Grade 7-84 R, which provides for an annual salary of $126,709.

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Motion passed with Sivertsen, Bergeron, Coose, Harris, Olsen, West and Karlson voting yea.

Phase 2 Review of Electric Division Rate Structure Presentation – D. Hittle & Associates

John Heberling of D. Hittle & Associates, Inc. explained his company was retained by KPU to provide a cost of service analysis for electric rates. He reminded they completed Phase I last year, where they reviewed the current rate structure and looked at some of the issues affecting KPU as the electric operations move forward. He said they developed revenue requirement projections by examining a ten-year period and multiple scenarios and assumptions. He explained this was done in conjunction with KPU staff. Mr. Heberling outlined the results of the study, stating the bottom line is residential customers in Ketchikan right now are paying on average 10.1 cents per kilowatt hour for power, and the cost of service indicates it should be approximately 9.9 cents per kilowatt hour. He explained this means that residential customers are over paying a little bit. He continued by pointing out the required adjustments to reflect the cost of service for the different classes, noting that residential would drop a bit, commercial would go up, industrial would rise and the shipyard would also rise, making an overall increase of approximately 3.4% increase. He emphasized this is looking at 2012 budgeted costs and 2012 estimated energy sales and demands on the part of KPU’s customer base. He said there is approximately $577,634 of undercollection right now that needs to be collected in some way, shape or form. He said the cost of service analysis looks at how the costs are attributed to the various customers around the system and who should be paying what. He pointed out if there is no ability to increase charges to the shipyard because it is based on a fixed contract, so it means everyone else’s rates would need to increase to cover that. Mr. Heberling outlined the existing rates and projected energy sales for 2012, then summarized electric revenue requirements. He reminded the rates need to be set to recover costs and normally, for most electric utilities, the power supply component is roughly 50% of the overall cost structure. In KPU’s case, he said a portion of the O&M block of revenue requirements is actually power supply because it is the cost of operating and maintaining the hydro and diesel units. In explaining projected net revenues, he noted in 2011 KPU is undercollecting by $335,000, in 2012 by $576,000 and in 2013 by $1,152,000. In explaining potential changes in revenue requirements, Mr. Heberling pointed out there are inflationary impacts, additional customer loads, additional capital expenditures, and the retirement of old debt in a few years. He showed a graph of the projected cost of power for the next 20 years, both with Whitman Lake and without Whitman Lake. He continued by outlining the process for determining a cost of service analysis, and the cost allocation factors allocated to each user group. He explained the assumptions used in the cost of service analysis included the budgeted 2012 costs, estimated 2012 loads, the

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average annual hydro generation, a rebate from SEAPA and the recovery of costs through diesel fuel surcharge. Mr. Heberling explained the cost of service results, and went on to describe ways to accomplish a cost of service rate system. Mr. Heberling answered questions from the Council. Manager Amylon felt a number of things needed to be determined before even discussing rate adjustments, primarily where we are going with Whitman relative to SEAPA. Electric Division Manager McConnell cautioned that right now KPU is within 1% for residential customers, which is fairly close. He said if we penalize our residents by putting tiers on them, we run the risk of decreasing the population. He felt if we left the residential rates alone right now, we may be better off in transferring the $166,000 to mitigate the increasing rates for commercial and industrial. He also addressed the 5% discount for our metered commercial and industrial customers, and if we brought that to 2% by changing the Code, we’d still give them credit to depreciate and amoritize the transformer they bought and recover about $200,000. He felt this wins the battle short term. Manager Amylon agreed with Electric Division Manager McConnell, cautioning there is a flip side. He said if we don’t do something on the residential side and the price of oil continues to escalate, it will just induce more people to convert and we have limited hydro power. He said it is a delicate balancing act.

Budget Transfer – KPU/SEAPA Energy Resources Modeling

Moved by West, seconded by Olsen the City Council direct the general manager to enter into a professional services agreement with Hatch Associates Consultants in an amount not to exceed $71,000 to undertake energy modeling of the Southeast Alaska Power Agency and KPU’s energy and diesel resources as detailed in the February 6, 2012 memorandum of the senior project engineer; approve a budget transfer in the amount of $71,000 from Appropriated Reserves of the KPU Enterprise Fund to the Electric Division’s Whitman Lake Hydroelectric Project Capital Account; and authorize funding from the Electric Division’s Whitman Lake Hydroelectric Project Capital Account. Motion passed with West, Olsen, Karlson, Harris and Sivertsen voting yea; Bergeron and Coose voting nay.

Offer of Moving and Transportation Expenses – Hosted IP Technician

Moved by West, seconded by Karlson the City Council authorize the general manager to offer the position of hosted IP technician to Mike Pitcher of Colorado based on reimbursement of moving and transportation expenses up to $17,000.

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Motion failed with Karlson, Harris and West voting yea; Olsen, Bergeron, Sivertsen and Coose voting nay. VOUCHERS Moved by West, seconded by Sivertsen for approval of vouchers to Ketchikan Daily News in the amount of $1,934.69. Motion passed with Coose, Bergeron, West, Harris, Sivertsen, Olsen and Karlson voting yea. CITY MANAGER’S REPORT

Schedule of General Government and KPU Appropriated Reserves Through the City Council Meeting of February 2, 2012

Manager Amylon provided the Council a schedule of the current balance of Appropriated Reserves of various funds of General Government and KPU through the City Council meeting of February 2, 2012.

Police Department Canine Activity Report – January 2012

Manager Amylon transmitted the Police Department’s report of canine activities for January 2012.

Contract No. 10-31 – (Construction Manager/General Contractor Construction Services for the Construction for a New Municipal Fire Station) Update – Minutes of Weekly Construction Progress Meeting Nos. 44 and 45

Manager Amylon advised Weekly Construction Progress Meeting Nos. 44 and 45 were held in Ketchikan/Anchorage/Bellingham on January 31 and February 7, 2012 for Contract No. 10-31, Construction Manager/General Contractor Construction Services for the construction of a New Municipal Fire Station. He provided copies of the minutes.

Contract No. 11-27, Construction Manager/General Contractor Services for the Construction of a New Municipal Public Library – Minutes of Weekly Design/Construction Progress Meeting Nos. 42 and 43

Manager Amylon provided minutes for the weekly design/construction progress meeting Nos. 42 and 43 that were held in Ketchikan/Anchorage/Bellingham on January 31 and February 7, 2012 for Contract No. 11-27, Construction Manager/General Contractor Services for the construction of a New Municipal Public Library.

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Contract No. 11-02, Phase I of Berths I and II Replacement Project Weekly Construction Meeting Minutes of January 27 and February 3, 2012

Manager Amylon transmitted the January 27 and February 3, 2012 minutes for the weekly construction meeting for Contract No. 11-02, Phase I of Berths I and II Replacement Project.

Report of Federal Lobbyist

Manager Amylon included the January 31, 2012 report of the City’s federal lobbyist, Steve Silver.

Public Works Department Project Status Report – January 2012

Manager Amylon copied the Council with the January 2012 Public Works project status report.

General Government Financial Statements for November and December 2011

Manager Amylon transmitted the General Government financial statements for November and December 2011 for Council review.

2011 City of Ketchikan State of Alaska Commercial Passenger Revenue Receipts

Manager Amylon reported the City received a check in the amount of $1,947,247.50 from the Department of Revenue, which represents the City’s share of the State’s 2011 Commercial Passenger Vessel fees that are assessed against cruise ship passengers that traverse Alaska navigable waters. He noted $1,302,148.20 will be used to pay off the remaining amount of the loan that the Port of Ketchikan owes to the Economic & Parking Devleopment Fund, and the remaining balance will be used to finance the Berths 1C and 1D Fender Pile Replacement Project.

He continued it is the intention of City staff to use future receipts to first pay the annual debt service associated with Berth III, then to apply any remaining funds to the annual lease payment and operational costs associated with Berth IV, unless the Council directs otherwise.

Funding of the Proposed Facility Improvements to the Ketchikan Medical Center

In response to previous questions from Councilmember Bergeron, Manager Amylon provided answers to questions posed regarding the proposed improvements to the Ketchikan Medical Center.

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2012 Business/Personal Property Tax Collection

Manager Amylon reported that his office was contacted by State Assessor Steve Van Sant, who alerted the Borough was contemplating a change in its Business/Personal Property tax collection policies. He noted Mr. Van Sant was of the opinion this action is contrary to state statute, because of direction provided to the Borough assessor by the Borough manager. Manager Amylon indicated such action was subsequently verified through one of the Borough manager’s bi-weekly reports to the Assembly. Based on this information, Manager Amylon said his office requested the City attorney to advise the Borough attorney that the contemplated change is not acceptable to the City and, depending on what response may be forthcoming, further action may have to be considered. He provided a memorandum from Finance Director Newell summarizing the discussion he had with the Borough manager. Manager Amylon expressed concern with the decision made by the Borough manager, citing resources the city provides outside City limits at no cost, for the greater good of the entire Ketchikan community. At the meeting, Manager Amylon stated staff has spoken again with State Assessor Van Sant relative to his intent to issue a letter of major error, and that apparently cannot be done until he attempts to negotiate some sort of settlement between the City and the Borough, which he is looking to do sometime in March. He noted, given the fact that he is going to be gone for a period of time during that window, he is not sure it will happen that fast. He continued the Borough manager phoned Finance Director Newell yesterday to advise that Borough staff will be recommending to the Borough Assembly that they eliminate the Borough boat tax, so he assumed it would become an issue as to whether they are willing to collect the City’s. In response to Councilmember Sivertsen, Finance Director Newell said the City realizes about $20,000 to $25,000 per year on the boat tax. Mayor Williams reminded Borough Assessor Brown talked to the Council and if we made an exemption at $100,000, he would have to deal with only 74 instead of over 600. He noted it would drop our revenue from $293,000 to $200,000 but it would save them a lot of headache. He continued if they don’t collect the boat tax on top of that, we are giving up $100,000. K.P.U. MANAGER’S REPORT

Project Status Reports of the KPU Operating Divisions – January 2012

Manager Amylon copied the Council with the project status reports of the KPU operating divisions for January 2012.

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Report of January 25, 2012 Telecommunications Outage

Manager Amylon provided a memorandum from Acting Telecommunications Division Manager Lindgren regarding the January 25, 2012 telecommunications outage.

Reports of January 27, 30 and February 2, 2012 Customer Power Outages

Manager Amylon transmitted reports to the Council from Electric Division Manager McConnell regarding power outages that occurred on January 27 and 30, and February 2, 2012.

Ketchikan High School Student Brendan Stanton Selected to Participate in OPASTCO’s Foundation for Rural Education and Development (FRED) Program

Manager Amylon reported that, for the third year in a row, a Ketchikan High School student has been selected to participate in OPASTCO’s Foundation for Rural Education and Development Program. He congratulated Brendan Stanton, who will be spending an all-expenses-paid week in Washington DC learning about government, civic affairs and telecommunications regulation.

Emission Standards

Manager Amylon reported while he cannot tell the Council anything definitive yet, staff seems to be making progress relative to emissions standards with the EPA. CITY CLERK’S FILE – None CITY ATTORNEY’S FILE – None FUTURE AGENDA ITEMS Councilmember Sivertsen said Dave Carlson of SEAPA would like to come and discuss their Four R Plan, which talks about their liabilities and revenue accounts. Mayor Williams asked Councilmember Sivertsen to check with him to see when it is convenient for him. MAYOR AND COUNCIL COMMENTS Councilmember Sivertsen said there was a SEAPA meeting and he felt it went very well. He said SEAPA supported the process of Whitman going forward and has agreed to work on a mechanism for the true-up. He felt it was a little disconcerting when we had the January cold spell with high loads, noting the Tyee plant was running at 40 Mhz and their total capacity is 48 Mhz. He said we are getting to the point where we will need to go to

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diesel. He expressed it was a progressive meeting, and our biggest problem with hydro is our storage capacity. Mayor Williams thanked the Rotary for letting him entertain them this week. OTHER NEW BUSINESS – None EXECUTIVE SESSIONS

Request for Executive Session – Little Susitna Construction Company vs. City of Ketchikan, Case No. 1KE-12-13 Civil

Moved by West, seconded by Olsen the City Council declare that it is in the best interest of the City to go into executive session in accordance with KMC 2.04.025(a)(1) and AS 44.62.310(c)(1) and (3) to discuss Little Susitna Construction Company’s complaint Case No. 1KE-12-13 Civil in the Superior Court for the State of Alaska at Ketchikan, which includes the need to discuss subjects the knowledge of which could have an adverse impact upon the finances of the City and to discuss potential litigation strategies with legal counsel within the attorney-client privilege. Motion passed with Coose, Sivertsen, West, Karlson and Olsen voting yea; Harris and Bergeron voting nay. The Council recessed into executive session at 10:35 p.m. and reconvened at 10:46 p.m. Mayor Williams said the Council has completed an executive session to discuss Little Susitna Construction Company’s complaint Case No. 1KE-12-13 Civil in the Superior Court for the State of Alaska at Ketchikan and no action would be taken tonight.

Request for Executive Session – Collective Bargaining Agreement Between the City of Ketchikan and the International Brotherhood of Electrical Workers, Local 1547

Moved by West, seconded by Sivertsen the City Council declare that consistent with the city manager’s memorandum dated February 9, 2012 it is in the best interest of the City to discuss negotiations regarding a collective bargaining agreement between the City of Ketchikan and the International Brotherhood of Electrical Workers, Local 1547 in executive session; in accordance with that finding, the City Council go into executive session in accordance with KMC 2.04.025(a)(1) and (b)(2) and AS 44.62.310 (c)(1) and (3) to discuss said negotiations and the auxiliary items described in the city manager’s memorandum dated February 9, 2012, which matters include the need to discuss subjects the knowledge of which would have an adverse impact upon the finances of the City and upon the City’s ability to negotiate favorable labor settlements.

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Motion passed with West, Olsen, Karlson, Sivertsen and Coose voting yea; Bergeron and Harris voting nay. The Council recessed into executive session at 10:50 p.m. and reconvened at 10:55 p.m. Mayor Williams said the Council has completed an executive session to discuss negotiations regarding a collective bargaining agreement between the City of Ketchikan and the International Brotherhood of Electrical Workers, Local 1547 and no action would be taken tonight. ADJOURNMENT As there was no further business, the Council adjourned at 10:56 p.m. Lew Williams III, Mayor ATTEST: Katherine M. Suiter City Clerk FYI ITEMS INCLUDED Unapproved Minutes of the January 27, 2012 Ketchikan Gateway Borough/City of

Ketchikan Cooperative Relations Committee Meeting February 3, 2012 Edition of the Legislative E-Bulletin February 10, 2012 Edition of the Legislative E-Bulletin Lake Levels and System Generation Report for the Month of January 2012 Water Utilization Study Report - January 2012 Southeast Alaska Independent Living (SAIL) Quarterly Activity Report - October

Through December 2011