PUBLIC UTILITY DISTRICT NO. 1 OF SKAGIT COUNTY COMMISSIONERS MEETING. DRAFT AGENDA April 24, :30 PM

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1 PLEDGE OF ALLEGIANCE PUBLIC UTILITY DISTRICT NO. 1 OF SKAGIT COUNTY COMMISSIONERS MEETING DRAFT AGENDA April 24, :30 PM CONSENT AGENDA 1. Approval of Agenda 04/24/18 2. Approval of Minutes 04/10/18 Commission Meeting 3. Ratification of Vouchers 04/10/18 4. Ratification of Vouchers 04/17/18 5. Approval of Vouchers 04/24/18 6. Recommendation to Award NorthStar Work Order (Customer Connect) and Authorize Budget Adjustment 7. Project Acceptance Harbor Freight Tools, Mount Vernon AUDIENCE COMMENTS OLD BUSINESS 8. Manager s Report NEW BUSINESS 9. Skagit PUD-Port of Skagit County Fiber Backbone LLC - Discussion MISCELLANEOUS COMMISSIONER COMMENTS ADJOURNMENT JUDY RESERVOIR ELEVATION

2 Agenda Item #2 MINUTES OF THE REGULAR MEETING OF THE COMMISSION PUBLIC UTILITY DISTRICT NO. 1 OF SKAGIT COUNTY, WASHINGTON April 10, 2018 The regular meeting of the Commission of Public Utility District No. 1 was held in the Aqua Room of the utility located at 1415 Freeway Drive, Mount Vernon, Washington, on April 10, The meeting was called to order at 4:30 PM. Those Commissioners in attendance were: Robbie Robertson, President; Eron Berg, Vice President; and Al Littlefield Secretary. Also in attendance were: George Sidhu, General Manager; Mark Handzlik, Engineering Manager, Sally Saxton, Treasurer, Peter Gilbert, Attorney; and Kim Carpenter, Clerk of the Board; Audience: Judy Littlefield, Bill Swanson, M. Rachael Porter, and District Employees: Kathy White, Mike Fox, Mark Semrau, Kevin Tate, and Luis Gonzalez. Commissioner Littlefield led the Pledge of Allegiance. Commissioner Littlefield moved to approve the Consent Agenda for April 10, 2018: 1. Approval of Agenda 04/10/18 2. Approval of Minutes 03/27/18 Commission Meeting 3. Ratification of Vouchers 04/03/18 No Voucher Nos. (12116 void) , Payroll Nos ($326,591.72) 4. Approval of Vouchers 04/10/18 No Voucher Nos ($504,986.30) 5. Recommendation to Award Real Estate Services Contract to New Ventures Group Commissioner Berg requested moving Agenda Item #5 to Old Business. The motion passed as amended. Under Audience Comments, Bill Swanson announced his candidacy for PUD Commissioner, District 2. Under Old Business: 5. Recommendation to Award Real Estate Services Contract to New Ventures Group Discussion ensued regarding various aspects of the proposal. The Commission requested that the surplus property be pulled from the project and offered for sale under the process typically used by the District, and to postpone action on the proposal from New Ventures Group until such time as further progress has been made with the strategic plan. 6. Manager s Report - Manager Sidhu reported on the following: The second work session with the Strategic Planning Committee was held last week. The ideas from that work session will be assembled by the consultant into a draft plan for presentation at the Commission work session on Monday, April 30 at 2:00 PM. Attorney Gilbert, IT Manager Chrysler and Manager Sidhu attended the Port Commission Meeting 1 April 10, 2018

3 Agenda Item #2 of Skagit County Commission meeting on Monday at which time the Joint PUD/Port LLC was discussed. The same presentation will be brought forward to the District s next Commission meeting on April 24. Thanked the Commission for responding to about future work sessions regarding bargaining unit negotiations. There will be an upcoming work session regarding the Mundt Creek water right with Engineering Supervisor Trueman and Dan Haller of Aspect Consulting. Grand opening for Division Street Tank and Booster Pump Station will be held on Wednesday, April 18 at 2:00 PM. WA PUD Association (WPUDA) will hold a Commissioners Education meeting here at 1:00 PM and members will attend the ceremony. Remaining WPUDA meetings will be held at the Swinomish Resort. The plaque dedicating the tank to Todd Bos is due to be delivered on Friday. 7. Quarterly Report Operations Operations Manager Fox presented the quarterly report for the Operations Department, including updates regarding the Skagit River Diversion (SRD), security, Unregulated Contaminant Monitoring Rule (UCMR) regulating schedule, auctioned vehicles and compactor, Division Street tank site repairs, and the flushing and leak detection program. Discussion ensued regarding various aspects of the updates presented. Under New Business: 7. Recommendation to Award DOH Security Mandates to Aronson Security Group and Authorize Budget Amendment for Same. Commissioner Berg moved to authorize the General Manager to execute agreements with Aronson Security Group for the completion of the 2018 DOH Security Mandates projects at 9 th & Highland, Appaloosa, Cimmaron Ridge, Alger Well and Bayview. The motion passed. 8. Interlocal Agreement with City of Sedro-Woolley for Water System Improvements - State Street; Walley Street to 3 rd Street Commissioner Littlefield moved to authorize the General Manager to execute and enter into an interlocal agreement with the City of Sedro-Woolley in the amount of $7, with future commitment up to $296, for water system improvements along State Street from Walley Street to 3 rd Street. Commissioner Berg stated as a caution he would recuse himself from voting on the motion. The motion passed. Under Miscellaneous, Manager Sidhu indicated that the Commission packets included copies of the H2Ops Newsletter that includes an article regarding District s receipt of the DOH High Five Award for source water protection, which Engineering Supervisor Trueman and Community Relations Manager Tate helped write. Manager Sidhu stated he would share the plaque at the next meeting. The District has been receiving accolades for this project and Commission Meeting 2 April 10, 2018

4 Agenda Item #2 Engineering Supervisor Trueman made a presentation at the American Water Works Association (AWWA) Sustainable Water Management Conference in Bellevue and has been invited to make a presentation at the annual conference in Las Vegas. Commissioner Robertson recommended that Engineering Supervisor Trueman be acknowledged for his efforts regarding the Gilligan Creek Watershed Protection Project. He stated he had received numerous congratulatory s and calls thanking the District for a job well done. Also under Miscellaneous, Commission packets include a copy of a Skagit Valley Herald article regarding Bill Swanson running for PUD Commissioner District 2. Under Commissioner Comments, Commissioner Littlefield commented on the good program of WPUDA meetings that will be held here in Skagit County next week. Commissioner Berg announced that he and his wife welcomed a new baby girl, Tuuli, born at home on March 28 weighing a little over nine pounds. Commissioner Berg also offered to step in and patrol RCW 42.17A (Campaign Disclosure and Contribution) and RCW 42.17A.575 (Public Service Announcements); Commissioner Robertson replied he would appreciate that. Having no further business to come before the Board, Commissioner Littlefield moved for adjournment. The motion passed and the meeting of April 10, 2018 was adjourned at 5:55 PM. Respectfully submitted: Kim Carpenter Clerk of the Board Commission Meeting 3 April 10, 2018

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9 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Interest Rate PUBLIC UTILITY DISTRICT NO. 1 OF SKAGIT COUNTY TREASURER REPORT AS OF MARCH 31, 2018 Balance of District Funds Investment of District Funds % 26% General Revenue Fund $4,952,514 Local Govt Investment Pool $13,953,929 75% 0% Capital Project Fund 0 Cash 1,266,861 7% 44% Construction Fund 8,292,408 Govt Agencies/ Securities 3,500,000 0% 14% System Development Fund 2,703,104 19% 12% Debt Service Fund 2,226,597 3% Bond Funds 546,166 0% Rate Stabilization Funds 0 100% Total Funds $18,720,790 Total Funds $18,720, % District Fund Segments General Revenue Fund Bond Funds Debt Service Fund System Development Fund Construction Fund Investment of District Funds Govt Agencies/ Securities Cash Local Govt Investment Pool ## Rates of Investment Interest Received Market Value vs. Face Value of Government Securities FFCB FNMA LGIP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1,000, , , , , , , , , , , ,000 Fed Farm Credit Bank (mat 2/18) Fed Home Loan Mtg Corp (mat 7/18) Fed Natl Mtg Assn (mat 10/19) Resolution Funding Corp (mat 7/20) Face Value Fed Natl Mtg Assn (mat 2/19) $500,000

10 PUBLIC UTILITY DISTRICT NO. 1 OF SKAGIT COUNTY TREASURER REPORT For the month ending March 31, 2018 Mar 2017 Mar 2016 Mar 2015 SYSTEM REVENUE FUND DEVELOPMENT CAPITAL PROJECT FUND FUND DEBT SERVICE FUND Capital Projects Restricted Debt Reserve Bond Sinking Bond Reserve COMBINED COMBINED COMBINED COMBINED Resources: External Revenue: Water Customer Receipts 1,914,032 1,914,032 1,484,816 1,463,875 1,381,456 System Development Fees 165, , , , ,020 Capital Contributions 180, , , , ,984 Grants LUD Assessments, Interest, Penalties 28,572 28,572 42,702 38,117 30,544 Investment Income 1,710 10,612 1,769 4, ,571 5,824 1, Non-Operating Revenues 4,428 4,428 20,408 14,077 17,220 Total External Revenue 2,100, , ,179 4,150 28, ,311,116 1,842,211 1,808,033 1,777,109 Debt Proceeds: Debt Proceeds - DWSRF Loan Draws , ,163 Debt Proceeds - Dept. of Ecology Loan Debt Proceeds - Bonds Total Debt Proceeds , ,163 Transfers from Other Funds: To Debt Reserve Fund from Revenue Fund 243, , , , ,442 To Revenue Fund from Debt Reserve Fund To Debt Reserve Fund from Bonk Sinking Fund 0 85,771 56,510 67,685 To Bond Reserve Fund from Revenue Fund To Debt Reserve Fund from System Development Fund To Capital Project Fund from Reveue Fund To Capital Project Fund from System Development Fund Total Transfers to Other Funds , , , , ,127 Total Revenue 2,100, , , ,415 28, ,554,381 2,128,115 2,470,193 2,445,399 Uses: Operating Expenditures: Operations and Maintenance 959, , , , ,938 Utility and Excise Taxes 177, , ,665 76,508 74,319 Total Operating Expenditures 1,136, ,136,340 1,009, , ,257 Capital Expenditures: Capital Projects 563, , ,170 1,027, , ,111 Total Capital Expenditures 563, , ,170 1,027, , ,111 Debt Service Payments: Interest Expense Federal Tax Credit for 2009B Bonds Principal Payments Total Debt Service Payments Transfers to Other Funds: From Revenue Fund To Debt Reserve Fund 243, , , , ,442 From Debt Reserve Fund To Revenue Fund From Bond Sinking Fund To Debt Reserve Fund 0 85,771 56,510 67,685 From Revenue Fund To Bond Reserve Fund From System Development Fund To Debt Reserve Fund From Revenue Fund To Capital Project Fund From System Development Fund To Capital Projects Fund Total Transfers to Other Funds 243, , , , ,127 Total Expenditures 1,942, , ,048,774 2,322,554 1,835,438 2,022,495 Increase (Decrease) in Fund Balance 157,620 0 (95,508) 167, ,415 28, ,606 (194,439) 634, ,904 Services sold: ERU's Services Re-Activations (under 10 years) Re-Activations (over 10 years)

11 PUBLIC UTILITY DISTRICT NO. 1 OF SKAGIT COUNTY TREASURER REPORT For the three months ending March 31, % YTD 2017 YTD 2016 YTD 2015 REVENUE FUND SYSTEM PERCENTAGE ANNUAL DEVELOPMENT OF BUDGET CAPITAL PROJECT FUND COMBINED BUDGET FUND DEBT SERVICE FUND REALIZED Capital Projects Restricted Debt Reserve Bond Sinking Bond Reserve COMBINED COMBINED COMBINED connections: 25,669 25,492 24,578 24,286 Resources: External Revenue: Water Customer Receipts 5,348,325 5,348,325 22,889, % 4,756,144 4,145,739 3,886,712 System Development Fees 430, ,924 1,100, % 365, , ,595 Capital Contributions 465, ,672 1,319, % 351, , ,065 Grants 0 427, % LUD Assessments, Interest, Penalties 41,911 41, , % 124,149 73,563 63,332 Investment Income 15,017 27,518 7,212 7, ,021 78, % 24,389 11,306 2,319 Non-Operating Revenues 10,537 10,537 45, % 34,730 20,030 33,622 Total External Revenue 5,839, , ,136 7,549 42, ,355,390 25,972, % 5,656,349 4,877,621 4,616,645 Debt Proceeds: Debt Proceeds - DWSRF Loan Draws 1,962,004 1,962, , % 1,289, , ,163 Debt Proceeds - Dept. of Ecology Loan 0 1,192, % Debt Proceeds - Bonds 0 2,694, % Total Debt Proceeds 0 0 1,962, ,962,004 4,187, % 1,289, , ,163 Transfers from Other Funds: To Debt Reserve Fund from Revenue Fund 801, ,697 3,893, % 600, , ,326 To Revenue Fund from Debt Reserve Fund To Debt Reserve Fund from Bonk Sinking Fund To Bond Reserve Fund from Revenue Fund 0 1,211, % To Debt Reserve Fund from System Development Fund , , ,055 To Capital Project Fund from Reveue Fund To Capital Project Fund from System Development Fund 0 1,050, % Total Transfers to Other Funds , ,697 6,154, % 857, , ,381 Total Revenue 5,839, ,989, , ,246 42, ,119,091 36,314, % 7,803,791 6,066,679 5,777,189 Uses: Operating Expenditures: Operations and Maintenance 2,763,216 2,763,216 12,328, % 2,426,078 2,690,961 2,501,784 Utility and Excise Taxes 280, ,554 1,158, % 259, , ,550 Total Operating Expenditures 3,043, ,043,770 13,486, % 2,686,002 2,902,219 2,710,334 Capital Expenditures: Capital Projects 1,155, ,381 1,796,090 19,900, % 3,252,207 1,404,506 1,416,775 Total Capital Expenditures 1,155, , ,796,090 19,900, % 3,252,207 1,404,506 1,416,775 Debt Service Payments: Interest Expense 91,474 91, , % 133, , ,457 Federal Tax Credit for 2009B Bonds 0 0 (63,201) 0.00% Principal Payments 0 0 3,416, % Total Debt Service Payments 91, ,474 4,219, % 133, , ,457 Transfers to Other Funds: From Revenue Fund To Debt Reserve Fund 801, ,697 3,893, % 600, , ,326 From Debt Reserve Fund To Revenue Fund From Bond Sinking Fund To Debt Reserve Fund From Revenue Fund To Bond Reserve Fund 0 1,211, % From System Development Fund To Debt Reserve Fund , , ,055 From Revenue Fund To Capital Project Fund From System Development Fund To Capital Projects Fund 0 1,050, % Total Transfers to Other Funds 801, ,697 6,154, % 857, , ,381 Total Expenditures 5,092, , ,733,031 43,761, % 6,929,671 5,252,329 5,039,947 Increase (Decrease) in Fund Balance 746, ,349, , ,246 42, ,386, , , ,242 Services sold: ERU's Services Re-Activations (under 10 years) Re-Activations (over 10 years)

12 SKAGIT PUD DEBT REPAYMENT AMOUNTS AS OF MARCH 31, 2018 Senior Lien Bond Debt Public Works Trust Fund Loan Debt Drinking Water State Revolving Fund Loan Debt Coupon Rates Current Rate Mature Date Beg Bal Interest Rates Mature Date Beg Bal Interest Rates Mature Date Beg Bal 2008 Refunding 3.5% % 4.25% Jul 2018 $8,835, SRD 0.50% Jul 2021 $10,000, Clearwell 1.50% Oct 2021 $1,803, B BAB 2.7%* %* 3.66% Jul 2029 $3,660, WTP Controls 0.50% Jul 2022 $10,000, SVV Distribution 1.50% Oct 2021 $704, Revenue 2.65% % 2.65% Jul 2036 $6,300, Josh Wilson Rd 0.25% Jun 2031 $3,342, SVV Controls 1.50% Oct 2021 $64, Revenue 2.65% % 2.65% Jul 2037 $4,200, Division St Tank Design 1.00% Jun 2018 $300, Transmission Line 1.50% Oct 2022 $1,758, WTP Controls 1.50% Oct 2022 $77, Division St Tank Const 1.50% draws to date $9,003,645 Year Principal Interest Interest Rate Range Principal Interest Interest Rate Range Principal Interest Interest Rate Total *(after 35% tax credit) ,324, , % 4.25% 1,356,201 31, % 1.00% 266,022 17, % $3,245, , , % 3.72% 1,281,201 25, % 0.50% 266,022 13, % $2,630, , , % 3.79% 1,281,201 19, % 0.50% 266,022 9, % $2,623, , , % 3.79% 1,281,201 13, % 0.50% 266,022 5, % $2,614, , , % 3.79% 738,777 7, % 0.50% 115,706 1, % $1,906, , , % 3.79% 176,282 3, % $1,228, , , % 3.79% 176,282 3, % $1,227, , , % 3.79% 176,282 3, % $1,225, , , % 3.79% 176,282 2, % $1,224, , , % 10.00% 176,282 2, % $1,394, , , % 10.00% 176,282 1, % $1,396, , , % 10.00% 176,282 1, % $1,393, , , % 176, % $1,035, , , % 176, % $1,034, , , % $858, , , % $858, , , % $858, , , % $858, ,051 68, % $858, ,064 7, % $14,367,917 $5,508,297 7,525, ,332 $1,179,794 $48,585 $28,471,809 Total Principal Outstanding: $23,072,834 $ Change from previous month: Total Interest Outstanding: 5,673,214 Total Debt Repayment: $28,746, Weighted Interest Rate: 2.12%

13 SKAGITNET LLC

14 In 2017, the #9 Port, EDASC, and Agenda Item Skagit County in consultation SKAGITNET LLC with every town and city in the county, as well as the Skagit PUD, developed a strategic plan for construction of a countywide fiber optic backbone running from Anacortes to Concrete, connecting every city and town along the way.

15 SKAGITNET Common vision. Joint decision-making. Partnerships.

16 Network Business and PurposeSKAGIT A joint county network interlocal operating agreement of Skagit- Net, LLC a local government owned Washington limited Liability company between Port of Skagit County and Skagit County Public Utility District No.1. COLLABORATION To operate a county-wide fiber network To provide a state-of-the-art county-wide telecommunications system Access to a Point of Presence with transparency to the Westin Exchange To carry out any lawful services business or activity that may be conducted by a Network or LLC as determined by the Members acting through the Manger. To exercise all other powers necessary to or reasonably connected with the Network s business and services provided that it may be legally exercised by LLC companies under the LLC Act. SUSTAINABLE MODEL TOOL KIT

17 Goals COLLABORATION Agenda Item #9 { Operating Plan Capital/Operating Budgeting Selection of the manager Financial Accountability Operational Accountability Annual financial reports P&L balance sheets Audit compliance

18 Goals TOOL KIT Agenda Item #9 Legislation authorizes port districts and PUD s to construct, purchase, finance, lease, operate and maintain telecom facilities. Industry knowledge and experience. Shared resources. Infrastructure Capital contributions Employees, office space, office supplies, and other operational items.

19 Goals SUSTAINABLE MODEL Agenda Item #9 This model is sustainable, with net revenues from operations used to reinvest in system expansion. Annual budget review & adoption by Commissioners. Annual plan of operations review and adoption by Commissioners. Enhance and sustain each members internal operations/it needs.

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21 Concrete Agenda Item #9 ECONOMIC NEED Median income per household: 1 Anacortes: $59, Burlington: $48,399 Mt. Vernon: $44,404 Sedro-Woolley: $44, Lyman: $34,318 6 Concrete: $29,375 * Source: American FactFinder. United States Census Bureau. Retrieved from: Population 724 Median Age 40.2 Male: 32.7; female: 44.6 Total Housing Units 346 Poverty Level 31.9%

22 SkagitNet MANAGEMENT STRUCTURE Agenda Item #9 POSC Commission PUD Commission Manager Outside Plant Committee Network Operating Center (NOC) Public Partners

23 SKAGITNET SCHEDULE Agenda Item #9 DATE APRIL 2018 MAY 31, 2018 JUNE 10, 2018 JULY 1, 2018 OCT. 1, 2018 NOV. 22, 2018 JAN. 1, 2019 ACTION Review Operating Agreement Approve Operating Agreement File Certificate of Formation Complete & Approve Interlocal for Operations Present draft Plan of Operations & Budgets to Commissions Adopt Plan of Operations Budgets Commence Full Operations Commence Planning & Budgeting ACTOR(S) Staff & Commissions Both Commissions Manager Manager, Both Commissions, and Staff Manager Both Commissions Manager

24 QUESTIONS Agenda Item #9

25 JOINT COUNTY NETWORK INTERLOCAL OPERATING AGREEMENT OF SkagitNet, LLC a local government owned Washington limited liability company Dated and Effective as of THE MEMBERSHIP INTERESTS REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH MEMBERSHIP INTERESTS MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE NETWORK, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE MEMBERSHIP INTERESTS REPRESENTED BY THIS AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. M:\Work in Progress\COMMISSION MEETING\Meeting Docs 2018\LLC Agreement (Draft for Review) docx

26 PORT OF SKAGIT COUNTY AND SKAGIT COUNTY PUBLIC UTILITY DISTRICT No. 1 INTERLOCAL OPERATING AGREEMENT OF THIS INTERLOCAL OPERATING AGREEMENT (this Agreement ) is made and entered into effective as of, by and between the Port of Skagit County, as Manager ( Manager ) (the Port ), a Washington port district established pursuant to Tile 53 RCW, and Skagit County Public Utility District No. 1 (the PUD ), a Washington public utility district established pursuant to Title 54 RCW (collectively, the Members and/or Parties ). RECITALS A. The Parties are entering into this Agreement under the authority of the Interlocal Corporation Act, specifically RCW , to jointly provide telecommunications in the form of a county-wide fiber optic backbone with the collective goals of: Providing rural and urban state-of-the-art digital communication services; Creating economic opportunities, including sustainable community wage jobs; Consolidating administration; Reducing administrative layering; and Reducing administrative costs, all consistent with the State of Washington s legislative policy as set forth in RCW and RCW B. This Agreement provides a means for each Party to share in the benefits, provision, cost and revenues of telecommunication services. C. This Agreement also serves as an Operating Agreement as provided for in the LLC Act, as defined below, as well as an Interlocal Agreement, as authorized by RCW D. RCW expressly authorizes local government, such as the Parties, to form limited liability companies to carry out their joint activities. E. This Agreement supplements prior agreements between the Port and the PUD concerning telecommunications. F. In adopting this Agreement, in addition to adopting the Articles of the Agreement, the Members hereby also adopt, and agree to, the Recitals and the facts set forth herein. OPERATING AGREEMENT Page 2

27 ARTICLE 1 -- DEFINITIONS The following terms used in this Agreement shall have the following meanings (unless otherwise expressly provided herein): 1.1 Act means the Washington Limited Liability Company Act (RCW Ch ). 1.2 Capital Account means the capital account determined and maintained for each Member pursuant to Section Capital Contribution means any contribution to the capital of the NETWORK in cash or property by a Member whenever made. 1.4 Certificate of Formation means the certificate of formation pursuant to which the NETWORK was formed, as originally filed with the office of the Secretary of State on, and as amended from time to time. 1.5 Distributable Cash means all cash received by the NETWORK, less the sum of the following to the extent paid or set aside by the NETWORK: (i) all principal and interest payments on indebtedness of the NETWORK and other sums paid or payable to lenders; (ii) all cash expenditures incurred incident to the normal operation of the NETWORK s business; and (iii), Reserves. 1.6 Fiscal Year means a calendar year commencing January 1 and ending December Majority Interest means, at any time, more than fifty percent (50%) of the then outstanding Units held by Members. 1.8 Manager means the person or entity designated by the Members as the manager of the NETWORK pursuant to Section 5.1 below and RCW Member or Members shall mean the Port and the PUD and any other entity that may be admitted to the Network as a Member. Any governmental entity that signs a counterpart of this Agreement shall be a "Member" of the LLC formed hereby as that term is defined in RCW (8) and as that term is used in RCW , as amended. Each Member of the Network must be a public agency as provided for in RCW (3)(b) Membership Interest means all of a Member s share in the Net Profits, Net Losses, and other tax items of the NETWORK and distribution of the NETWORK s assets pursuant to this Agreement and the Act and all of a Member s rights to participate in the OPERATING AGREEMENT Page 3

28 management or affairs of the NETWORK, including the right to vote on, consent to or otherwise participate in any decision of the Members Net Book Value means capitalized cost less any accumulated depreciation Net Profits and Net Losses shall have the meaning ascribed to those terms in Section NETWORK means SkagitNet, LLC, governed by this joint operating agreement of the Parties. The NETWORK is a company as that term is used in the LLC Act NETWORK Act means RCW and RCW now or as hereafter amended Percentage Interest means with respect to any Member, the percentage determined based upon the ratio that the number of Units held by such Member bears to the total number of outstanding Units Person means any individual or Entity, and the heirs, executors, administrators, legal representatives, successors, and assigns of such Person where the context so permits Point of Presence or PoP means a physical location that serves as a demarcation point or interface point between communications entities and is the place where a long-haul fiber optic network interfaces with and connects to the local fiber optic network. This location may also serve as a data center location and house servers, routers, switches, and other electronic accoutrements necessary to operate a fiber optic network with access to internet content Reserves means, with respect to any fiscal period, funds set aside or amounts allocated during such period to reserves which shall be maintained in amounts deemed sufficient by the Member for working capital and to pay taxes, insurance, debt service or other costs or expenses incident to the ownership or operation of the NETWORK s business Units means the Units issued to any Member under this Agreement as reflected in attached Exhibit A, as amended from time to time, subject to the provisions of Article 12 and Section 15.3 of this Agreement Plan of Operation means a detailed description of operational objectives, operational activities, including tentative schedules adopted by all Members. It also includes the NETWORK S then current capital improvement plan and a description of those capital assets that will be added, maintained or disbursed over the ensuing twenty-four (24) months. An initial Plan of Operations shall be adopted together with the initial capital improvement plan and capital and operating budgets of the NETWORK within one hundred fifty (150) days of the formation of OPERATING AGREEMENT Page 4

29 the NETWORK and the Plan of Operations shall be evaluated and considered for modification commencing no later than July 1 of each year for completion and adoption during each annual budgeting process and modified, if necessary, upon approval of the annual budgets by the Members. ARTICLE 2 -- FORMATION OF LLC 2.1 Formation. The NETWORK was formed on, when the Certificate of Formation was executed and filed with the office of the Secretary of State in accordance with and pursuant to the Act. The Manager shall promptly execute all amendments to the Certificate of Formation and all other documents needed to enable the Manager to accomplish all filing, recording, and other acts necessary and appropriate to comply with all requirements for the formation and operation of the NETWORK as an LLC under the Act. 2.2 Name. The name of the NETWORK is SkagitNet, LLC. 2.3 Principal Place of Business. The principal place of business of the NETWORK shall be Airport Drive, Burlington, WA The NETWORK may locate its places of business at any other place or places as the Manager may from time to time deem advisable. 2.4 Registered Office and Registered Agent. The NETWORK s initial registered agent and the address of its initial registered office in the State of Washington are as follows: Name Address Bradford E. Furlong Airport Drive, Burlington, WA The registered office and registered agent may be changed by the Manager from time to time by filing an amendment to the Certificate of Formation. 2.5 Term. The term of the NETWORK shall be perpetual unless the NETWORK is earlier dissolved in accordance with either Article 13 or the Act. ARTICLE 3 AUTHORITY, BUSINESS AND PURPOSE OF NETWORK 3.1 Authority. As provided for in the Statutory Authorities, it is the policy of the State of Washington to encourage the development of rural telecommunications services and the availability of telecommunications in rural areas. To this end, the Statutory Authorities provide to the Parties authority to construct and operate regional telecommunications systems, integrating planning, construction, financing, administration, maintenance/repairs and service delivery. This OPERATING AGREEMENT Page 5

30 Agreement is a joint operating agreement among the Members to operate a county-wide broadband network. The purpose of the Members, in entering into this Agreement, is to jointly own and operate the NETWORK for the provision of open access wholesale telecommunication services and to take such other and further actions as are required and/or authorized by the NETWORK Act. The mutual goal of the Members, in entering into this Agreement, is to work together to facilitate the provision of telecommunication services to the residents, businesses and public agencies of Skagit County in an efficient, reliable and stream-lined manner. The Interlocal Corporation Act, specifically RCW , provides, in part, that any two or more public agencies may enter into agreements with one another for joint cooperative action. RCW (3)(b) specifically provides: 1) the Members may form a limited liability company under which each Member is a public agency, as provided for in Section 1.9, and 2) the NETWORK s funds are subject to audit, as provided for in Section 11.5 of this Agreement. The Members have exercised the authority granted to them under the Statutory Authorities, the LLC Act and the Interlocal Cooperation Act to form this NETWORK as an LLC to achieve maximum efficiency in the delivery of telecommunication services and so that their rights and liabilities as to each other and third parties are firmly established and clearly understood. This Agreement serves as such a joint operating agreement among the Members to operate telecommunication services, as provided for by the Statutory Authorities, with: (a) (b) (c) Each Member bearing a share of the cost of telecommunication services provided by the NETWORK; The Treasurer of Skagit County serving as the custodian of funds made available for the purposes of such telecommunication services and that the Treasurer may make payments from NETWORK funds in its possession upon approval of the Manager and audits by the appropriate auditing officer of the Port; Both members adopting a joint annual capital and operating budget, as well as an annual Plan of Operations for the NETWORK at the time each adopts its annual budget. Such Plan of Operations shall provide overall direction for Capital development, operation procedures and goals, and financial policy for the NETWORK. The Plan of Operations shall be reviewed by the Members annually and modified no later than the date of adoption of the NETWORK budget, unless emergent circumstances intervene to require earlier modification or deviation from an adopted Plan of Operations. OPERATING AGREEMENT Page 6

31 (d) (e) The Auditor of the Port serving as the auditing officer of the NETWORK s funds and accounts; and The joint supervision and operation of services and facilities. The foregoing notwithstanding, the Manager, as defined in Section 1.8 of this Agreement and described in Section 5.1 of this Agreement, may by majority vote of the Members change the Treasurer and Auditor designation to another Treasurer and Auditor Business and Purpose. The business and the purpose of the NETWORK shall be: To operate a county-wide digital telecommunications network to provide a state-of-the-art county-wide digital telecommunications system, with access to a Point of Presence ( PoP ) as provided for in in the Statutory Authorities from the date of formation until dissolved pursuant to Article 13 hereof To carry out any lawful, services, business or activity that may be conducted by a NETWORK or LLC as determined by the Members acting through the Manager; and To exercise all other powers necessary to or reasonably connected with the NETWORK s business and services it provides that may be legally exercised by limited liability companies under the LLC Act. ARTICLE 4 -- NAMES AND ADDRESSES OF MEMBERS The names and addresses of the Members are set forth on attached Exhibit A, as amended from time to time. Each of the Parties identified in Section 1.9 of this Agreement, once each executes this Agreement, shall be a Member of the NETWORK. ARTICLE 5 -- MANAGEMENT 5.1 Management Subject to the Members Reserved Powers, the business and affairs of the NETWORK shall be managed by the Manager. Except as otherwise expressly provided in this Agreement and subject to the Member-adopted capital and operating budgets and Plan of Operations, the Manager shall have full, complete and exclusive authority, power and discretion to manage and control the business, affairs and properties of the NETWORK, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the NETWORK s business. The Manager shall act in the best interest of the NETWORK, taking into account, to the extent consistent therewith, the mutual Comment [BF1]: Note to the PUD and Port: The parties will need to discuss the manner by which operations will be conducted. It is anticipated that the LLC will not, at least initially, hire its own employees. We can anticipate that PUD and/or Port employees will conduct the business of the LLC, likely by virtue of a new Interlocal Agreement that allows the use of employees, office space, office supplies, and other operational items with the costs thereof to be charged by the Port/PUD to the LLC for reimbursement. OPERATING AGREEMENT Page 7

32 goals, objectives and policies of the Members. Without limiting the generality of the foregoing, the Manager shall have power and authority, on behalf of the NETWORK, to do the following: Work collaboratively with both Members. Such collaboration shall include regular consultation with the staff of each Member and regular reporting to all Members concerning the affairs of the NETWORK, including, but not limited to, no later than May 31 st of each year, an annual report for the previous Fiscal Year that includes: (1) a narrative summary of the NETWORK s operations; (2) a Balance Sheet; and (3) an Income Statement Spend the capital and revenues of the NETWORK in the furtherance of the business of the NETWORK; Acquire property from any Person as the Manager may determine, and the fact that the Member is an affiliate of such Person shall not prohibit the Manager from dealing with that Person; Acquire, improve, manage, operate, sell, transfer, exchange, encumber, pledge and dispose of any real or personal property of the NETWORK, including the Property; Strictly subject to unanimous Member approval, incur indebtedness in the manner consistent with the Members statutory authority in order to finance or refinance NETWORK assets, to meet other NETWORK obligations, to provide NETWORK with working capital and for any other NETWORK purposes; to execute promissory notes, deeds of trust and assignments of NETWORK property and such other security instruments as a lender of funds may require to secure repayment of such borrowing(s); to change, substitute or amend such borrowing, as, in its judgment, is in the best interest of the NETWORK, and to execute any and all documents that may be required by a bank or other financial institution or other source to establish an escrow, trust agreement, a trust account with a bank, institution or other sources for the receipt of funds, sale proceeds and other payments and disbursements thereof to service such loan(s); Purchase at the expense of the NETWORK, such liability, casualty, property and other insurance as the Manager, deems reasonably advisable to protect the NETWORK s assets against loss or claims of any nature, provided, however, the Manager shall not be liable to the NETWORK or to others for failure to purchase any insurance if such coverage should prove inadequate; Invest NETWORK funds temporarily in the manner as allowed under the law for investment of funds by the Members; Execute instruments and documents for the acquisition or disposition of the NETWORK s property, assignments, bills of sale, leases, and any other instruments or OPERATING AGREEMENT Page 8

33 documents necessary, in the opinion of the Manager, to the business of the NETWORK as established in the Plan of Operations; Employ accountants, legal counsel, independent contractors, managing agents or other experts to perform services for the NETWORK and to compensate them from NETWORK funds; Enter into any and all other agreements with any other Person for any purpose, in such form as the Manager may approve; From time to time open bank accounts in the name of the NETWORK, and the Manager shall be the sole signatory thereon, unless the Members determines otherwise; To do and perform all other acts as may be necessary or appropriate to the conduct of the NETWORK s business; Unless authorized to do so by this Agreement or by the Manager, no employee or other agent of the NETWORK shall have any power or authority to bind the NETWORK in any way, to pledge its credit or to render it liable for any purpose; and The Manager shall devote to the NETWORK and apply to the accomplishment of the NETWORK s purposes so much of its time and attention as in his or her judgment is reasonably necessary to manage properly the affairs of the NETWORK Within ninety (90) days of the formation of the NETWORK, the Manager shall, in cooperation with the Members, develop a recommended initial Plan of Operation, a recommended initial capital improvement plan and capital budget and a recommended initial operating budget for adoption by the Members. Additionally, modifications thereto shall be completed in a timely fashion to allow the Members to thoroughly review and adopt each pursuant to the time lines set forth herein. Where the Members cannot agree to a Plan of Operation, a budget or a modification thereto, they shall promptly meet in joint session and work in good faith to reach a mutually agreeable outcome. 5.2 Designation of Manager. The initial Manager shall be the Port of Skagit County, acting through a person designated by the Executive Director of the Port; provided, that the Executive Director of the Port shall consult with and take into account the recommendations of the General Manager of the PUD prior to designating an employee or contractor to act on behalf of the Port as Manager. The Manager may be removed at the request of any Member, which removal shall be effective once a replacement Manger has been designated. Any future manager shall be designated by unanimous consent of the Members. If the Members are unable to agree on the designation of any future Manager, they shall promptly meet in joint session and work in good faith to determine a mutually agreeable designee. OPERATING AGREEMENT Page 9

34 5.3 Compensation. The NETWORK will not pay the Manager any fees or other compensation for its services except as set forth in this Agreement or in an agreement between the NETWORK and a Member or Members. The Manager shall, however be reimbursed by the NETWORK for reasonable out-of-pocket expenses, wages, benefits, reasonable occupancy fees and related overhead incurred by the Manager in connection with the NETWORK s business, including without limitation expenses incurred in the organization of the NETWORK. 5.4 Limitation on Liability; Indemnification. Neither the Manager nor any Affiliate of the Manager shall be liable, responsible or accountable in damages or otherwise to the NETWORK or for any act or omission by any such Person performed in good faith pursuant to the authority granted to such Person by this Agreement or in accordance with its provisions, and in a manner reasonably believed by such Person to be within the scope of the authority granted to such Person and in the best interest of the NETWORK; provided that such act or omission did not constitute fraud, intentional misconduct, or gross negligence. The NETWORK shall indemnify and hold harmless the Manager, and each director, officer, partner, employee or agent thereof, against any liability, loss, damage, cost or expense incurred by them on behalf of the NETWORK or in furtherance of the NETWORK s interests without relieving any such Person of liability for fraud, misconduct, bad faith or negligence. The Manager shall not have any personal liability with respect to the satisfaction of any required indemnification of the above-mentioned Persons. Any indemnification required to be made by the NETWORK shall be made promptly following the fixing of the liability, loss, damage, cost or expense incurred or suffered by a final judgment of any court, settlement, contract or otherwise. In addition, the NETWORK shall advance funds to a Person claiming indemnification under this Section 5.4 for legal expenses and other costs incurred as a result of a legal action brought against such Person if: (i) the legal action relates to the performance of duties or services by the Person on behalf of the NETWORK; (ii) the legal action is initiated by a party other than a Member; and (iii) such Person undertakes to repay the advanced funds to the NETWORK if it is determined that such Person is not entitled to indemnification pursuant to the terms of this Agreement. 5.5 Right to Rely on the Manager. Any Person dealing with the NETWORK may rely (without duty of further inquiry) upon a certificate signed by the Manager as to the identity and authority of the Manager or other Person to act on behalf of the NETWORK. ARTICLE 6 -- RIGHTS AND OBLIGATIONS OF MEMBERS 6.1 Obligations of Members. Each Member shall promptly, and in good faith, carry out its obligations under this Agreement including the adoption of budgets, the Plan of Operations and modifications to each. The Members shall promptly, as necessary, designate the Manager. In addition, each Member shall designate staff and resources to support the Manager and the development of telecommunications facilities and operations contemplated hereby. OPERATING AGREEMENT Page 10

35 6.2 Limitation of Members Liability. No Member will be personally liable, merely as a Member, for any debts, losses or liabilities of the NETWORK beyond the Member s respective contributions and any obligation of the Member hereunder to make contributions, except as otherwise specifically provided by law. No Member shall have liability to the NETWORK or its Members for monetary damages for conduct merely as a Member, except for acts or omissions that involve intentional misconduct, fraud, gross negligence, or for any transaction for which the Member has personally received a benefit in money, property or services to which the Member was not legally entitled. If the Act is hereafter amended to authorize NETWORK action further eliminating or limiting the personal liability of Members, then the liability of a Member shall be eliminated or limited to the full extent permitted by the Act, as so amended. Any repeal or modification of this section of the Act shall not adversely affect any right or protection of a Member of the NETWORK existing at the time of such repeal or modification for or with respect to an act or omission or such Member occurring prior to such repeal or modification. The NETWORK shall defend, indemnify and hold harmless the Members and any of their respective representatives, officials, Members, managers, employees or agents thereof, against any liability, loss, damage, cost or expense incurred by them on behalf of the NETWORK or in furtherance of the NETWORK s interests without relieving any such person of liability for fraud, misconduct, bad faith or gross negligence. No Member shall have any personal liability with respect to the satisfaction of any required indemnification of the abovementioned persons. Any tender of defense by an indemnitee arising from any liability, loss, damage, cost or expense incurred that falls within the scope of matters subject to defense, indemnification and being held harmless by this Agreement, shall be promptly accepted by the NETWORK. Any indemnification required to be made by the NETWORK shall be made promptly following the fixing of the liability, loss, damage, cost or expense incurred or suffered by a final judgment of any court, settlement, contract or otherwise. In addition, the NETWORK shall reimburse a person claiming indemnification under this Section 6.2 for legal expenses and other costs incurred as a result of a legal action brought against such person if: (i) the legal action relates to the performance of duties or services by the person on behalf of the NETWORK; (ii) the legal action is initiated by a party other than a Member; and (iii) such person undertakes to repay the advanced funds to the NETWORK if it is determined that such person is not entitled to indemnification pursuant to the terms of this Agreement. 6.3 Inspection of Records. Upon reasonable request, each Member shall have the right to inspect and copy at such Member s expense, during ordinary business hours the records required to be maintained by the NETWORK pursuant to Section No Priority and Return of Capital. Except as expressly provided in Article 12 or 13, no Member shall have priority over any other Member, either as to the return of Capital OPERATING AGREEMENT Page 11

36 Contributions or as to Net Profits, Net Losses or distributions; provided, that this Section 6.4 shall not apply to loans made by a Member to the NETWORK. 6.5 Withdrawal of Member. Except as expressly permitted in this Agreement, no Member shall voluntarily resign or otherwise withdraw as a Member except as set forth in Section below. The remedy for breach of this Section 6.5 shall be monetary damages (and not specific performance), which may be offset against distributions by the NETWORK to which such Person would otherwise be entitled A Member wishes to voluntarily resign or otherwise withdraw as a Member must provide the other Members with written notice of withdrawal at least three hundred sixty-five (365) days prior to the withdrawal. ARTICLE 7 -- MEETINGS OF MEMBERS 7.1 Meetings. Meetings of the Members, for any purpose or purposes, may be called by the Manager or by any Member holding at least twenty-five percent (25%) of the Units held by the Members. A meeting of the Members shall include one Commissioner, or her or his representative, from each Member, designated by the governing body of each Member. 7.2 Place of Meetings. The Member or the Manager calling the meeting may designate any place, either within or outside the State of Washington, as the place of meeting for any meeting of the Members. If no designation is made, the place of meeting shall be the principal office of the NETWORK specified in Section Meeting Compliance. Notice and the conduct of member meetings shall comply with the requirements of the Washington Open Public Meetings Act, Chapter RCW ( OPMA ), now or as hereafter amended. 7.4 Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any distribution, the date on which notice of the meeting is mailed or the date on which the resolution declaring such distribution is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Section, such determination shall apply to any adjournment thereof. 7.5 Member Meeting Quorum. A Majority Interest, based on each party s Units, represented in person shall constitute a quorum at any meeting of Members. In the absence of a quorum at any such meeting, a majority of Units held by Members so represented may adjourn the meeting from time to time for a period not to exceed sixty (60) days without further notice. However, if the adjournment is for more than sixty (60) days, or if after the adjournment a new OPERATING AGREEMENT Page 12