Board Members present: Patrick Lanning, Sandra Bishop, Dorothy Anderson, Mel Menegat, and Ron Farmer.

Others present: Randy Berggren, Deborah Brewer, Mark Oberle, Jim Wiley, and Krista Hince, EWEB staff; Lynn Taylor, Minutes Recorder for the City of Eugene.

President Lanning called the Special Board Meeting of the Eugene Water & Electric Board (EWEB) to order at 11 a.m.

AGENDA CHECK

There were no changes to the agenda.

PUBLIC INPUT

Bob Cassidy, 1401 E. 27th Avenue, Eugene, thanked the Commissioners for taking the position, as reported in a recent newspaper article, that ratepayers would not pay for additional expenses associated with EWEB's move. He addressed the issue of overall planning and noted that there were a number of major projects under way and several potential projects, but without any apparent long-range planning. He urged the Board to participate in assuring that the transportation system in downtown Eugene was not adversely affected.

ITEMS FROM BOARD MEMBERS

There were not items from Board members.

CORRESPONDENCE

General Manager Randy Berggren reminded the Board to return evaluation forms from the July 14, 2004, retreat and to provide comments on the goals and initiatives. He said that the Strategic Thinking Group would meet on August 10, 2004, and any comments should be submitted by August 4.

Mr. Berggren said that invitations to the August 5, 2004, Water Resource Commission workshop had been sent. He said that EWEB would host the function.

BOARD AGENDAS

Mr. Berggren reported the following:

• An updated Board agenda was provided.
• The agenda for the August 3, 2004, Board meeting had changed slightly. The placeholder for discussion of a steam head had been removed.
• It appeared there would not be a quorum for the September 7, 2004, Board meeting, which was a critical date because the first public hearing on fall rate proposals was scheduled. Commissioner Farmer said that he would be able to attend. President Lanning suggested that he confirm that at the August 3, 2004, Board meeting when all of the other Commissioners' calendars would be available.

REVIEW RESULTS OF THE 2004 HEADQUARTERS SITE APPRAISALS

Mr. Berggren referred to a memorandum from Mark Oberle, Property Manager, that was included in the agenda packet. He said the memorandum reconciled the 2000-2001 appraisal that was used in the 2002 Hovee Study with the more recent appraisal and addressed the differences between the two appraisals. He said the earlier appraisal was about $31.5 million and the 2004 appraisal range was $22 to $25 million, representing a reduction in value. He indicated that the first appraisal had treated each parcel in the site as a separate appraised unit and the 2004 appraisal looked at the entire site as a combined sale.

According to Mr. Berggren, other factors influencing the appraised value were shifts in easements and how easements were valued, changes in zoning because of the land use code update, and the headquarters remodel. He said those variations resulted in a $7 to $10 million difference in value between the two appraisals. He referred to a map prepared by Mr. Oberle that illustrated features of the site.

Commissioner Anderson said she was not surprised by the impact of easements on value.

REVIEW STATUS OF SITE SALE DISCUSSIONS

Mr. Berggren reported that discussions with McKenzie Willamette Medical Center (MWMC) regarding potential use of the site were continuing. He said that EWEB' role to date had been to obtain an appraisal and look at the site from the standpoint of readiness to sell. He said the City of Eugene was working on issues of transportation access as it related to a hospital being on the site. He noted that the Hovee Study had been commissioned in part to examine site access and the long-term viability of the site for EWEB's continued operation. He referred to updates to the Hovee Study related conceptual estimates of costs to relocate EWEB facilities, which was $50 million to relocate all operations from the site. He noted that there was a bond measure for approximately $24 million in 1988 to finance construction on the site of EWEB's headquarters and ancillary operations.

Mr. Berggren related that in determining what was required from a sale of the site it was assumed that existing debt service in rates could be used to pay for refinancing the debt of about $22 million and $10 million of the proceeds of refinancing would be used to pay off the remaining debt 1988 debt. He said the remaining $11.5 million would be invested in the relocation, leaving $38.5 million required from proceeds or funding to achieve relocation without adding any cost in rates. He stated that there was a $14 to $17 million gap between the appraised value of the site and the conceptual estimate of relocation costs.

Mr. Berggren related that staff had performed an initial comprehensive title search for the 27 tax lots that comprised the site and estimated it would take six months to a year to resolve all of the issues in anticipation of a title transfer. He also noted that the City was looking at transportation access issues related to a hospital site and changes to the traffic configuration could include an underpass beneath the railroad tracks using an extension of Patterson Street to the south and extending Agate Street north of the railroad tracks into the site. He indicated that those transportation improvements could create some site conflicts in the context of relocating the Willamette Substation; however, relocation of the substation was in EWEB's five-year capital plan and there was an assumption that EWEB would pay for the cost of relocation as it was consistent with planned work in a compatible timeframe. He said the conflicts would also involve the steam facility relocation and cost was estimated at $2 million, although an alternate site had not yet been identified, in addition to the underground vaults and equipment associated with the Willamette Substation. He estimated the relocation costs for which funding was not identified as $18 to $22 million.

Commissioner Anderson asked if the University of Oregon had been consulted regarding the proposed street extension across the Riverfront Research Park. Mr. Berggren replied that the University was working with the City and expressed an interest in the extension.

Commissioner Farmer asked if there was a sense of how the planned transportation improvements would affect the value of the property and whether the improvements would make the site more efficient for EWEB if a sale did not occur. Mr. Berggren replied he did not feel the improvements would affect efficiency for EWEB. He said that the transportation improvements would likely be paid for in part from urban renewal district funds, which assumed there was incremental tax revenue available from a private entity. EWEB was not a private entity, raising the question of how the improvements would be funded. Deborrah Brewer, Intergovernmental Affairs Coordinator, agreed that the transportation improvements would not result in more efficient operations for EWEB. Mr. Oberle doubted that the improvements would have any significant affect on the value of the property as an adequate crossing for current zoning already existed. He said the urgent nature of ambulance traffic prompted the City's examination of site access.

Vice President Bishop noted that there were 27 tax lots and asked if any of the lots owned by EWEB were not being used. Mr. Oberle responded that all lots were used, although the area west of the steam plant was underutilized, being currently used for vehicle storage. In response to follow-up questions from Vice President Bishop, he stated that two-thirds of the upstairs portion of the Midgley's building was rented to a tenant and the remainder of the building was used by the EWEB and the Child Development Center as well as the property being used for employee parking on the north side of 4th Avenue. Those four tax lots would be included in a sale. Mr. Berggren noted that the two most easterly parcels were not included in the appraisal and the steam plant was looked at both as included and not included.

Vice President Bishop asked if the estimate of $2 million to relocate the steam plan included the costs of disposing of the remaining steam plant buildings. Mr. Berggren said it did not.

Vice President Bishop commented on the need to rebuild the Willamette Substation to expand capacity and the constraints imposed on relocation by the major Bonneville Power Administration (BPA) line coming into the substation. Mr. Berggren said the original concept was to rebuild the substation and relocate it on top of the coal gasification site but in order to do that in combination with expanding service capability, EWEB would have to go to a new technology, which would increase the cost to $7 to $8 million as compared to $4 to $5 million to rebuild with traditional construction .

Vice President Bishop asked how much money was currently in the capital plan to rebuild the substation and whether there was cash on hand. Mr. Berggren responded that the project was in the capital plan for 2006-2007 and revenues planned to provide the funding, but there were no cash reserves currently available. Mr. Berggren said there were options available to change the cash flow if construction was necessary sooner than planned.

President Lanning asked if aging infrastructure at the existing site was factored into the relocation cost estimate. Mr. Berggren replied that the Hovee Study was prompted in part by EWEB's awareness of the need to make major investments in its aging infrastructure with respect to buildings, specifically the operations center and warehouse, and evaluate the economics of staying at the current site long-term. He said the $11.5 million that would be realized from refinancing the debt on the headquarters building was approximately the amount required to construct a new operations center and warehouse facilities, either at the current site or a new location.

Commissioner Farmer asked if MWMC would use the entire site for the hospital. Mr. Berggren replied that MWMC had indicated it would require the entire site, including the headquarters building.

Commissioner Farmer remarked that the appraisal assumed that one-third of the property was zoned high-density residential and asked if MWMC was assuming that a zoning change could be obtained. Mr. Berggren agreed that was the assumption. Ms. Brewer noted that a hospital was permitted in any zone in Eugene.

Commissioner Farmer observed that one-third of the site was appraised as high-density residential; however, if a hospital used the entire site, that could increase the value of the residentially zoned area by approximately $20 per square foot. Mr. Oberle agreed that the value would increase, but said that fair market value was based on current zoning and use, not future planned use.

Commissioner Farmer said there was a hidden value of about $6.5 million from a zoning perspective if MWMC could use the property as commercial rather than high-density residential. He pointed out that the contingency figure was somewhat inflated and the actual cost to replace was likely to be in the $37 million range instead of $50 million. He noted that the 35 percent contingency was a very conservative approach and lowering that percentage would narrow the gap in financing. Mr. Berggren responded that under the current direction from the Board, EWEB would need to realize $38.5 million from the sale of the property. He added that the cost estimate was purely conceptual because no site was identified and there were no site-specific estimates and the 35 percent contingency was recommended in the Hovee Study.

REVIEW STATUS OF ALTERNATE SITE ACQUISITION

Mr. Berggren referred to the site selection criteria previously approved by the Board and commented that there were a limited number of large, appropriately zoned parcels. He said that staff, using the assumption of $2 per square foot to acquire 25 to 30 usable acres along with the selection criteria, had researched several potential sites. He said that one offer had been made on a parcel on West 11th Avenue and the counter-offer was so substantially different from initial discussions about the property that it was not in EWEB's interests to pursue it. He said that staff had identified some properties of interest and suggested that a tour of those properties could be arranged for the Board. He indicated that an option the Board could consider was splitting locations and operations and encouraged them to keep that in mind as they toured potential sites. He also suggested that site selection criteria be reviewed more critically and perhaps refined.

President Lanning asked staff to proceed with scheduling a site tour for Board members.

Vice President Bishop agreed there was value to engaging the Board in a discussion of splitting operations. She noted there had been past concerns about splitting operations because of communications and function and the fact that certain parts of EWEB were understaffed and employees were cross-trained. She said it was important for the Board to understand the impact of splitting operations on employees and get their feedback. She stated that the primary consideration was cost and efficiency of operations. Mr. Berggren said that another consideration would be a review of what staff and functions needed to be at the headquarters building.

Commissioner Farmer commented that he agreed with Vice President Bishop's remarks that cost and efficiency were the highest priority and other factors were secondary. He said the higher cost of maintaining a presence in the downtown core was not offset by the social value and he opined that as technology evolved fewer and fewer people would need to come to the administration building.

Mr. Berggren declared that was the type of direction he needed from the Board to help focus his efforts.

Vice President Bishop asked that a review of the site selection criteria be included in the Board's discussion. Mr. Berggren suggested that the Board could consider refining the criteria following the tour of sites.

POLICY DISCUSSION OF SITE SALE/ALTERNATE SITE ACQUISITION

Mr. Berggren asked if the Board wished to confirm its previous position that the sale price for the Headquarters site needed to fund the estimated cost to relocate net of using existing rate revenues for Headquarters debt refinancing.

Commissioner Farmer used the analogy of buying a new car and attempting to trade in an older vehicle without additional cash. He said he felt there was room for flexibility between EWEB's existing site and a new location and did not expect that it would be an even trade. He said he was willing to consider incremental values and benefits of a new location.

Commissioner Menegat stated that the sales price should cover the costs of relocation because of uncertainties about the actual costs, and until a site was identified; however, he was willing to be flexible about considering some additional costs to be incurred by ratepayers whether in connection with a new site or upgrades to the existing site.

Commissioner Anderson agreed with the previous comments about maintaining the position that the sale price should fund relocation, but remain flexible about the added value of a new facility. Referring to the issue of who should pay for relocation or undergrounding of existing facilities associated with transportation improvements or site development, she said that EWEB would be foolish not to require as a quid pro quo that the City return to three percent on the Contributions-In-Lieu-of-Taxes (CILT) and the additional three percent that was charged over the years be used to help pay for relocation. She said that EWEB should defend its ratepayers by having a three percent CILT. She asked staff to calculate the value to the ratepayers over the long term.

Vice President Bishop agreed that if at all possible the cost of relocation should be obtained from the sale, but remained flexible with regard to options. She asked staff to investigate the realistic value of individual parcels or tax lots and consider the possibility of a sale of less than the entire property. She said that the amount of surface parking planned for the new hospital was a point of criticism in the community. She suggested that a parking structure, to which the City could contribute, be looked at as a long-range possibility. She said it would fit with the City's long-range transportation goals to consolidate parking and would free other parcels for sale, the proceeds of which could potentially assist with the cost of relocation. Mr. Berggren said there was value in that task for staff to the degree that EWEB would be selling individual parcels, but that was not the context of conversation with MWMC. He said it could be part of a conversation about split operations, with the headquarters building remaining in its current location as part of a strategy to maintain a downtown presence.

Vice President Bishop clarified that her intent with the request was to look at the value of selling part of the property to finance relocation for the entire operation and not splitting operations.

President Lanning supported maintaining the position that the sale price needed to fund the cost to relocate. He said his questions related to the true cost of relocation, instead of the estimates currently available to the Board. Referring to the appraisal, he said the assumption with respect to residential zoning did not fit the intended use of the property and it was important to base the sale price on what the true value or use would be.

Mr. Berggren said he had made the assumption that EWEB would not be paying for the cost of relocating facilities associated with either transportation improvements or future site development preparation, consistent with existing policies and excluding the Willamette Substation that was already scheduled to be rebuilt.

Commissioner Anderson reiterated her position that ratepayers should come out "even" and not pay more if there was no value to them.

Vice President Bishop affirmed Mr. Berggren's assumption that those costs would not be paid by ratepayers with the exception of the substation and depending on how far the substation was moved. She stated that before EWEB moved any facilities that would be paid for by another party a written contract with clear, explicit terms would be in place.

Commissioner Farmer noted that the City had committed to spending $15 to $20 million for traffic improvements for the hospital and he wanted to see the same level of enthusiasm for any site to which EWEB relocated.

Commissioner Menegat supported the general policy that EWEB and its ratepayers should not bear the costs, but there could be situations in the future where it could be to EWEB's advantage to assume some costs.

President Lanning agreed with Commissioner Menegat's comments. He said that while EWEB needed to consider the immediate rate implications for its current ratepayers, it also had a responsibility to think 50 or more years ahead and take that into consideration when making decisions.

Mr. Berggren summarized that staff would organize a tour of sites for Board members, a discussion of consolidated operations and site selection criteria would be scheduled following the sites tour, and meetings would continue with MWMC and the City. He related that MWMC was preparing an initial offer to begin negotiations.

Vice President Bishop thanked staff for their work and advice to hold a public meeting to discuss the site sale and relocation issues.

President Lanning announced that two Board meetings were scheduled on August 3, 2004. He said there would be a special meeting at 11:30 a.m. and a Work Session and Regular Board Meeting at 5:30 p.m.

President Lanning adjourned the meeting at 8:10 p.m.

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Assistant Secretary President