Board Members present: Dorothy Anderson, Sandra Bishop, Mike Dyer, and Jeff Osanka.
President Smith was excused.

Others present: Randy Berggren, Marty Douglass, Dick Helgeson, Krista Hince, Dale Kessinger, Garry Kunkel, Roseanna McArthur, Jim Origliosso, and Dick Varner, members of the EWEB staff; Derek Jaros, member of the public; and Kim Kunkel, Minutes Recorder.

In the absence of President Smith, Vice President Osanka called the meeting to order.

ELECTRIC RESTRUCTURING

Referring to both a memorandum included in the meeting agenda packet and a series of overhead displays, copies of which were distributed to the Board, Senior Financial Rates Analyst Dale Kessinger presented an overview of the purpose, methodology, and results of EWEB's 1998 Electric Utility Unbundled Cost of Service Analysis (COSA). In summary, Mr. Kessinger reported that overall COSA results are, as follows:

1. No under-recovery of total costs at current rates (no need for an overall increase in rates at this time)
2. Slight under-recovery of costs from Residential
3. Slight over-recovery of costs from General Service
4. Notable over-recovery of costs from E-2 (high voltage customers)
5. Modest under-recovery of costs from contract customers

Based on the COSA results, Mr. Kessinger said staff proposes the following:

1. No change in overall rates
2. Simple disaggregation of rates between "power," "wires," and CILT (contributions in lieu of taxes) proponents by year end
3. Rate action in late 1999 based on refined model results

Mr. Kessinger explained that rate actions for consideration next year should include:

• sub-dividing the general service class
• adjusting large general service, E-2, and contract rates to ensure consistency
• increasing the amount of costs that are recovered on a flat or demand charge basis
• developing a separate public purpose charge
• creating power portfolio options, including green power
• implementing a low-income rate payer assistance schedule to mitigate the impacts, if any, of the proposed rate changes

In response to a question from Vice President Osanka regarding the possibility that a restructuring bill, if passed, could limit EWEB's flexibility in terms of establishing rate schedules, Mr. Kessinger said EWEB would likely use the COSA in response to any rate scheduling complaint brought to the Board. He said the COSA results will be a useful defense against questions raised about the propriety of EWEB's rate schedule.

The Board and staff discussed the possibility of dividing E-2 into two separate customer classes to ensure accurate and equitable recovery. Mr. Kunkel noted that he would present to the Board, during its next meeting, a proposed set of charges for E-2.

Commissioner Dyer inquired as to how costs such as conservation will be allocated. Mr. Kessinger responded that EWEB is moving toward establishing a public purpose charge that allocates conservation costs according to an established percentage of total revenue. He said conservation costs would be allocated equally among all customer classes based on the amount of revenue they provide to EWEB.

Commissioner Dyer inquired as to whether staff considers the aforementioned allocation methodology a subsidy to customer classes. Mr. Berggren responded that EWEB will want to recover the charge on some basis, and the issue in terms of subsidization is whether the distribution comports with the allocation of revenues.

Commissioner Anderson inquired as to whether staff has considered linking customers' unbundled utility bills to EWEB's Green Marketing Program. Mr. Kessinger responded that establishing such a link is EWEB staff's intention. He said the unbundling of rates accommodates EWEB's wind power pricing program in that it allows for the development of a separate power charge.

In other words, a separate power pricing option that allowed a customer to choose to take no green power whatsoever. Vice President Osanka noted, for the record, his opposition to EWEB making available to its customers a "brown" power option. In response to the comment of another Commissioner who pointed out that Vice President Osanka sounded like President Smith on this point, Vice President Osanka responded that he often agrees with President Smith.

With regard to the unbundling of "wires" and "power" for EWEB's residential customers, General Manager Randy Berggren clarified that a retail market will not tolerate the "dumping" of excess customer service costs into wires charges. Mr. Kessinger said EWEB's intention is to unbundle costs slowly so that customers become accustomed to seeing separate charges on their billing statements. He noted that the unbundling of residential rates includes a customer education component.

Referring to the "common perception" that low-income customers are punished by increases to the basic charge, Mr. Kessinger stated that Chuck Dalton disagrees. He said in many cases, low-income customers, because they tend to live in older homes and own less efficient appliances, use more power than other customers. However, if staff discovers that unbundled rates will have an unfair impact on low-income customers, the Board may elect to include low-income customer rate assistance in the unbundled rate structure.

The meeting adjourned at 7:20 p.m.