MINUTES OF MEETING OF THE CLEVELAND UTILITIES BOARD

February 4, 2014

The Board of Public Utilities met at 11:30 a.m. at the Tom Wheeler Training Center. Present were the following: Aubrey Ector, Chairman; Eddie Cartwright, Vice Chairman; Tom Rowland, Mayor; Chari Buckner, Cleveland Utilities Board ; Joe Cate, Cleveland Utilities Board; John Kimball, Attorney; Ken Webb, President/CEO; Connie Cooke, Utility Board Secretary; Marshall Stinnett, Controller; Bart Borden, Electric Division VP; Craig Mullinax, Water and Wastewater VP; Walt Vineyard, Information Technology VP; Tim Henderson, VP Administrative Services; Jan Runyon, Assistant VP Administrative Services; Rev. Richard Snyder; John Corum, Safety Director; Greg Clark, Sewer Rehabilitation Manager; Travis Wilson and Scott McDonald, Littlejohn Engineering ; Rick Norton, Cleveland Daily Banner; and Paul Leach, Chattanooga Times Free Press. Following the Pledge of Allegiance to the American Flag, President/CEO Ken Webb introduced Richard Snyder, pastor of Blue Springs Baptist Church and Network Systems Manager for Cleveland Utilities, who gave the invocation. Mayor Rowland stated he worked with Richard every day and appreciated everything he does for the City of Cleveland, including all the computer issues he resolves.

MINUTES OF JANUARY 7, 2014 On motion by Mayor Tom Rowland and seconded by Eddie Cartwright, the Board of Public Utilities voted unanimously to approve the January 7, 2014, minutes as written.

MANAGER'S UPDATE AND ANNOUNCEMENTS Offices Closed Cleveland Utilities will be closed Monday, February 17, 2014, to observe Presidents' Day. Regular emergency and standby service will be maintained. Citvwide Budget Retreat The citywide Budget Retreat will be held at the Cleveland Municipal Building on Monday, March 24, 2014.

DIVISION REPORTS Financial Marshall Stinnett reported on the following :

1. A chart tracking the kilowatt-hour cost in residential retail electric rates for the months of January 2010 through February 2014 was reviewed. For the month of February 2014, residential customers will see a rate increase of 0.6 percent to a rate of 8.932 cents per kWh. TV A amends the fuel cost adjustment monthly to help recover fuel and purchased power costs. A variety of factors affect these costs, including weather and demand issues.

2. The December 2013 financial and statistical statements were presented to the Utility Board. In the electric division, December continued to regain ground compared to the FY 2014 budget. The cost of purchased power as a percentage of retail sales decreased to 80.3 percent as compared to 81.6

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percent for the month of November. This continued decrease in purchased power expense as a percentage of electric revenues allowed the division to exceed budgeted operating margin and net income. The decrease was driven by a positive unbilled revenue adjustment and a continued consistent temperature range for December. As demonstrated by a chart, December 2013 realized an increase of 112 degree days over December 2012. In addition, the number of degree days during January 2014 far exceeded January 2013 by 338 days. This was expected due to the extreme winter temperature experienced over the past month. This increase in the number of heating days will cause an increase in the wholesale demand charge that is part of the monthly electric bill from TVA. Stinnett stated we must continue to work efficiently and effectively as Cleveland Utilities' January power bill from TV A stands to be the largest one to date. During December 2012, kilowatt-hours sold totaled 81,581,408 compared to 87,511,950 for December 2013. This is an increase of approximately 6,000,000 kWh sold. Revenue for the month from the sale of electricity was $8,190,029, which was offset by purchased power of $6,573,425. This resulted in an operating margin of $1,616,604. Other revenue sources contributed $110,134. These revenue numbers were driven by a customer base of 30,096. Expenses for December were $1,318,370, leaving a net income for the month of $408,368.

3. For the month of December, the water division sold 196,819,500 gallons of water as compared to 187,840,500 gallons for December 2012. This was a 4.8 percent increase over last year's total. Total division revenue was $1,023,007, and operating expenses for the month were $1,031,382. As a continued trend, the division exceeded budgeted operating loss of $66,110, with an operating loss of $8,375 for the month. This was an increase of $57,735 over budget. The division serviced 30,337 customers during the month of December.

4. Total division sewer revenue for the month of December was $850,823 as compared to a budgeted amount of $889,704. Expenses for the month were $765,130 compared to a budgeted amount of $867,094. The wastewater division treated 133,255,500 gallons of wastewater over the month, an increase of 1.3 percent over December 2012. The division serviced a customer base of 17,952 during December. For the sixth straight month, the wastewater division continued to exceed budgeted numbers for FY 2014. For December, operating income was $85,693 compared to a budgeted amount of $22,610. This is an increase of $63,083 over budget.

Electric Division Bart Borden reported on the following:

1. Additional labor and design charges have been reflected in the total cost for the District Substation upgrade. Testing has not been accounted for as of this closing. Also, the construction of the storage building will be charged to the original work order; therefore, this work order will remain in the electric division report until closed out. The foundation for the storage building has been poured.

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2. Work has progressed through December on the relocation of the 69/13 kV transmission/distribution lines for the Durkee Road/Benton Pike road widening project. The need to have Ocoee Substation out of service for the line relocation presented load problems for Wildwood and Lang Street Substations. This resulted in several outages during the extreme weather conditions due to the imbalanced loads and the need to switch heavy loads to other stations. Ocoee Substation was placed back in service, and TOOT's contractor was notified the line relocation would be delayed until the extreme weather ended.

3. In reference to the design to relocate 69/13.2 kV lines for TOOT's APD-40 interchange at Stone Lake Road, TOOT set a very aggressive deadline on utility relocation plans of January 31, 2014, even though many critical decisions had not been resolved on the relocation of TV A and CU transmission and distribution lines. A meeting was held with the consulting engineer, Cannon & Cannon, and plans were finalized. The relocation plans and estimated cost will be submitted to TOOT on February 5, 2014. TOOT granted a verbal okay to extend the deadline for CU's submittal.

4. Work on the Chatata Creek Substation C-214 tie line remained on hold for the entire month due to the Durkee Road TOOT project; however, the project work resumed in January after load issues were experienced during the extreme cold weather. The tie line will provide another source to pick up an Ocoee Substation feeder circuit serving Highway 64, Bates Pike, and a portion of Durkee Road. During the extreme cold weather, this circuit experienced 395 primary amps, which is 9 MW of load during peak times.

5. A capital budget comparison from July 1, 2013, to December 31, 2013, was presented. A total of 31 percent of the capital budget was disbursed through the end of December. Of the 31 percent, 25 percent represents the cost to provide electric service to residential, commercial and industrial customers, 51 percent is cost of substation and line construction projects, 5 percent represents cost to provide street and traffic lighting to the City of Cleveland, and 4 percent is for purchasing vehicles. The remaining 15 percent is for buildings and grounds, computer equipment, meters, fiber optic projects, stores, and office. This comparison demonstrates how the electric division is efficiently controlling its costs.

6. Engineering issued a work order to install 1,745 feet of underground primary conductor along with one 100 KVA and one 50 KVA pad-mounted transformer to serve Stonebriar Subdivision, Phase IV. This addition consists of six new building lots and will result in 24 new residential homes. An anticipated load of 150 kW is anticipated when the project is fully built out.

7. Cleveland Utilities' supervisory control and data acquisition system reported a system peak on January 30, 2014, from 8:00 a.m. to 9:00 a.m. of 247.26 megawatts. The previous peak experienced on January 7, 2014, was 240.48 megawatts. This was a 6.78 megawatt increase in peak load.

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8. An update was presented on traffic lighting: • A photograph of the new crosswalk signals with black decorative

poles and mast arms on North Ocoee Street, south of Billy Graham Avenue for Lee University was reviewed.

• Engineering released a work order to convert the traffic signal and pedestrian signals at Peerless Road and Raider Drive to LED. Currently, 57 percent of the city signals have been converted to LED. Incandescent bulbs can no longer be produced in the United States as of January 1, 2014.

• Cannon & Cannon will present a report on the 25th Street corridor at the next board meeting and will recommend flashing yellow arrow signalization on some of the 25th Street turn signals. The flashing yellow arrow signal configuration is a combination "protected and unprotected permissive signal" that can replace a 5-section head or a "protected only head" if an engineering study determines the permissive period is safe during certain times of the day.

Water Division Craig Mullinax reported on the following:

1. On February 20, 2014, the water division will receive bids for the addition of UV disinfection as part of the improvements to Waterville Springs for compliance with the EPA Cryptosporidium Rule. The UV disinfection project was budgeted at $225,000.

2. Philip Luce, manager of engineering, is working diligently to obtain easements for the second phase of the 20-inch and 24-inch extensive water line project that will extend to the Hiwassee Utilities Commission plant. Fourteen of the 40 easements have been obtained.

3. The installation of 4,511 feet of 6-inch water line on Van Davis Road has been completed. The final cost of the project was $84,463, which exceeded the contract amount by $11,969. The increase resulted from rock, and the length of the water line bore under the road being more than anticipated. The budget for this project was $90,000.

4. Engineering has completed the design for water line replacements on Blair Drive, Westview Drive, and Clemmer Street. Bids will be received on February 20, 2014.

5. The meter department set 22 meters through December 2013, compared to 14 for December 2012, and 14 for December 2011. Of the 22 meter sets, 17 were single family homes, 4 were for four various townhomes, and 1 was commercial. The commercial meter set was for Discount Tire Company located off Stuart Road. Also, the company was provided with an 8-inch fire sprinkler connection.

6. Work is progressing on the Wastewater Rehabilitation Project: • Nighttime flow isolations have been completed at Wildwood Avenue

and Inman Street. Areas for CCTV inspection are being selected. The contractor is scheduled to begin CCTV work the week of February 10, 2014.

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• To comply with TDEC and the Capacity, Management, Operations, & Maintenance (CMOM) Program, Cleveland Utilities has issued an invitation to bid for an annual contract for clearing and maintenance of sewer easements. A pre-bid meeting will be held on February 6, 2014, with bids to be received on February 18, 2014.

7. The total amount of rainfall recorded at the Cleveland Filtration Plant was 2.97 inches for January 2014 compared to 10.90 inches for January 2013.

8. Water is provided to Cleveland Utilities' water distribution system from Hiwassee Utilities Commission, Waterville Springs, Cleveland Filter Plant, and Eastside Utilities. In January 2014, 316,670,000 gallons of water were pumped into the system compared to 264,741 ,000 gallons of water a year ago. This is an increase of 51 ,929,000 gallons of water.

9. Due to the extreme cold weather experienced from January 25 through January 31, 2014, water division personnel received 79 calls from customers during regular business hours, and the answering service received 66 calls from customers after regular business hours. Service personnel were extremely busy assisting customers relating to frozen meters and frozen water pipes. In addition, water system personnel worked extremely hard repairing 10 water line breaks.

OLD BUSINESS Approval of Change Order to Purchase Order No. 73470, Cannon & Cannon, Inc. On motion by Mayor Tom Rowland and seconded by Chari Buckner, the Board of Public Utilities voted unanimously to approve a change order to purchase order No. 73470 to Cannon & Cannon, Inc., for additional engineering work at the new interchange on APD-40 at the South Industrial Park. This is the result of a TOOT design change that requires TVA to relocate two of its t ransmission towers. The original purchase order was $37,660, and with additional charges of $12,660 will result in a new purchase order amount of $50,320. This change will require Cleveland Utilities to relocate its 69 kV transmission line that runs parallel to TV A's line. TOOT will reimburse all costs associated with the relocation of CU's electric facilities in the amount of $50,320.

NEW BUSINESS Approval of Contract with American Infrastructure Technologies Corporation On motion by Joe Cate and seconded by Mayor Tom Rowland, the Board of Public Utilities voted unanimously to approve a contract with American Infrastructure Technologies Corporation, low bidder, in the amount of $4,817,100 for the SCOPE 10, 2013 Cleveland Rehabilitation Project, Basin 10-36, Phase 1, and Basin 31-45, Phase 2. The following contractors submitted bids for this project on January 21, 2014: Adams & Sons, $5,888,049; Layne lnliner, $5,723,214; Portland Utilities Construction, $5,396,859; and American Infrastructure Technologies Corporation, $4,817,100. Littlejohn Engineering Associates reviewed the bid documents and recommended American Infrastructure Technologies Corporation. Greg Clark, Sewer Rehabilitation

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Manager, presented an informative PowerPoint presentation on the SCOPE-10, 2013 Rehabilitation Project, along with project statistics. The two-phase project will include the following improvements:

• Approximately 46,000 lineal feet of Cured-in-Place-Pipe (CIPP) in sewer mains ranging from 6 to 10 inches in size.

• A total of 2,141 lineal feet of pipe bursting, which allows to upsize some smaller mains and remove "bellies" in the pipe.

• A total of 2,270 vertical feet of manhole rehabilitation in 280 manholes. • The rehabilitation or replacement of 518 sewer laterals. • The replacement of vented manhole covers with solid covers in areas that

receive sheet flow during rain events. • The insertion of inflow dishes in manholes located in areas susceptible to

sheet flow or ponding water during water events.

Cleveland Utilities wastewater collection system is comprised of 1,894,968 lineal feet (359 miles) of sewer mains and 7,596 manholes. Basin 10-36 is comprised of 216,711 lineal feet (41 miles) of sewer main and 930 manholes. Basin 31-45 is comprised of 196,501 lineal feet (37.2 miles) of sewer main and 879 manholes. Combined, these two basins comprise 21.8 percent of the sewer mains and 23.8 percent of the manholes in the collection system. During the Sanitary System Evaluation Surveys all manholes were assessed, smoke testing was performed on all sewer mains, and CCTV inspection was performed in selected areas of Basins 10-36 and 31-45. Based upon the results of the SSES, the conditions of the collection system at the time of the evaluation showed approximately 40 percent of Basin 31-45 and approximately 35 percent of Basin 10-36 were in need of rehabilitation. The results of the SSES from both basins were combined and the most significant defects from each basin were targeted for remediation during this project. This project was budgeted at $6,015,000 and is anticipated to be completed within 16 months. Approval of TOOT Offer On motion by Chari Buckner and seconded by Eddie Cartwright, the Utility Board voted unanimously to approve an offer from the Tennessee Department of Transportation to purchase 1.103 acres of Cleveland Utilities' property located at 327 Stone Lake Road in the amount of $33,420. This includes the depreciated value of chain link fencing and gate at the South Cleveland Substation entrance on Stone Lake Road and the gravel drive across the 1.103 acres. The land appraisal was determined to be $23,000 per acre. The Utility Board authorized President/CEO Ken Webb to sign the proposal. Approval of Purchase Order with Altec Industries On motion by Chari Buckner and seconded by Mayor Tom Rowland, the Board of Public Utilities took action to approve a purchase order to Altec Industries, low bidder, in the amount of $232,765 for one 2014 model, 47-foot Digger Derrick truck. This truck will replace Unit #126 in full-time service. Cleveland Utilities will retain Unit #126 as a spare and emergency use truck.

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Report on Strategic Plan Development President/CEO Ken Webb reported as part of the transition of president/chief executive officer, Chairman Ector requested the development of key performance indicators to monitor and determine how Cleveland Utilities is progressing in specific areas. John Corum, who recently joined CU's staff as the safety supervisor, is experienced in the development of strategic plans and their implementation. He was asked to lead a team effort to initiate and develop a Strategic Plan for Cleveland Utilities and from that plan, develop key performance indicators to help Cleveland Utilities define and measure progress toward achieving organizational goals and objectives.

Corum brought the Board up to date on the development of the plan. He reported as a result of meetings with Ken Webb, Bart Borden, Craig Mullinax, Walt Vineyard, Tim Henderson, Jan Runyon, Marshall Stinnett, and Connie Cooke, a new Cleveland Utilities' Mission, Vision, and Core Principles Statements was developed as the first phase of the development of the Strategic Plan. Corum acknowledged each of the above individuals for their contribution to the document. He presented an overview of the Mission and Vision Statements.

The next step in the strategic plan process will involve meeting with seven focus groups over a two-day period beginning February 5. These meetings will include approximately one-third of the employees and will involve collecting and categorizing data to develop initiatives for the Strategic Plan that will carry the utility forward over the next three years. Once the key initiatives are established, CU will move forward with very specific action plans and key performance indicators to help measure the progress for meeting those goals. Mayor Rowland stated the strategic plan process was "excellent." Webb said Cleveland Utilities was very fortunate to have Corum leading this process. The Utility Board's endorsement of the Mission, Vision, and Core Principles Statements will be requested at a later date.

OTHER BUSINESS CU Employees Acknowledged President/CEO Ken Webb commended all 185 CU employees for their remarkable work and outstanding dedication during the weather extremes experienced during the month of January, 2014. On behalf of the Board of Public Utilities, Chairman Ector echoed Webb's acknowledgement. Henderson Recognized Mayor Tom Rowland recognized Tim Henderson for serving on the Municipal Planning Commission for the past 20 years and serving as chairman for several years. He commended Henderson for an outstanding job. Walt Vineyard will replace Henderson on the Municipal Planning Commission as the Cleveland Utilities' representative on the Commission.

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Next Board Meeting The next regularly scheduled board meeting will be held on Thursday, February 27, 2014, at 3:00p.m. at the Tom Wheeler Training Center.

C.~ ~ Utility Board Secretary

February 27 . 2014 (Date)