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

Others present: Randy Berggren, General Manager; Cathy Bloom, Tom Buckhouse, Nancy Cook, Marty Douglass, Dick Helgeson, Garry Kunkel, Roseanna McArthur, Jean Meyers, Jim Origliosso, Dick Varner, and Krista Hince of the EWEB staff; other EWEB employees; Peter Bartel and other members of the public; and C. Daniel Lindstrom, Minutes Recorder.

President Smith called the special meeting of the EWEB Board of Commissioners meeting to order at 7:45 p.m.

AGENDA CHECK

Vice President Osanka suggested that the time allotted for consideration of correspondence be extended by ten minutes. General Manager Randy Berggren replied that he believed the time allotted for consideration of the Klamath Falls Cogeneration Project could be shortened by ten minutes, making up the time for Correspondence.

President Smith determined there was consensus to approve the agenda, as modified by the suggestions of Vice President Osanka and Mr. Berggren.

ITEMS FROM BOARD MEMBERS

Commissioner Anderson said she wanted to alert Commissioners to the potential of needing to take action on a Bonneville Power Administration (BPA) proposal to give a three percent discount to utilities with public purpose programs. She said previous concern raised about such a discount involved whether a threshold of participation in such a program should be required before a discount was offered.

President Smith said she believed facts regarding the proposal should be presented to the Board and, if it did not contain a threshold provision, the Board should consider issuing a statement regarding it. Mr. Berggren suggested that such a statement could be made by staff based on previous positions taken by the Board.

President Smith determined there was consensus to accept the suggestion of Mr. Berggren and request staff to study the BPA proposal for a discount to utilities with public purpose programs, determine if it contains a threshold proposal consistent with levels previously agreed upon, and issue a statement on behalf of the Board regarding it.

President Smith stated that she was concerned about the number of "back of the bill" comments EWEB had received regarding expansion of bill formats to require two pages. She asked if such an expansion was required in light of the very large number of bills potentially involved. Treasurer Jim Origliosso replied that reporting use of wind power and other unbundled utility elements required expansion of some, but not all EWEB bills.

President Smith said that she hoped expansion of bills to a two page format could be avoided wherever possible. Mr. Origliosso replied that consideration could be given to reducing printing font sizes, but that he did not believe two page bills could be avoided in all cases.

Vice President Osanka asked if it would be possible to print EWEB bills on two sides of a single page. Mr. Origliosso replied that the reverse side of bills was already dedicated to a feedback form and other information.

Commissioner Bishop asked that consideration be given to returning to previous practices which eliminated mailing bills in separate envelopes to single addresses with two or more meters. Vice President Osanka stated that he agreed with the request of Commissioner Bishop.

Commissioner Bishop said she was concerned about changes made to billing periods which resulted in allowing customers less time to pay.

Mr. Berggren said that a copy of a memorandum to customers had been provided to Commissioners outlining changes made to billing practices. Commissioner Bishop replied that she believed shortening time for customers to pay was a mistake that needed to be corrected.

Mr. Origliosso explained that the previously used customer billing program had a dual system for payment due dates--"Due on Receipt" for poor credit risk customers and "Due in 28 Days" for good credit risk customers. He said that the new system provided a single "Due in 15 Days" date for all customers, except those who requested alteration of the standard. He said that extending the payment date to 28 days for all customers would result in an inability to take action with credit risk customers for nearly 100 days.

Mr. Origliosso said he believed staff understood the concern of commissioners, would study the available options and report back on corrective action taken. He said customer relations employees would also be instructed to not respond to customer concerns regarding shortened billing dates with the inaccurate information that doing so was the result of a Board of Commissioners decision.

APPROVAL OF MINUTES

Commissioner Dyer requested that sentence 1 of paragraph 7 on page 2 of the minutes of the November 3, 1998, Work Session be changed, as follows:

Commissioner Dyer said he thinks an increase to 100 percent funded liability is beyond absurd. He said that he has never experienced an employer's PERS pension contribution approaching 28 percent of salaries.

President Smith determined there was no objection to the request of Commissioner Dyer.

Commissioner Anderson requested that sentence 1 of paragraph 3 on page 4 of the minutes of the November 3, 1998, Regular Board Meeting be changed, as follows:

Mr. Bloch stated that an additional process, known as both the Free Three Sovereigns Process and the Columbia River Basin Forum, involved a myriad of policy representatives from four states, the Federal government, Indian tribes, and the public at-large.

President Smith determined there was no objection to the request of Commissioner Anderson.

President Smith requested that sentence 3 of paragraph 3 on page 5 of the minutes of the November 3, 1998, Regular Board Meeting be changed, as follows:

She said the community of interest that wants to get the power conservation and public purpose issue off the table is large and has ample resources; however, the public purposes community is smaller and has fewer resources and therefore had a difficult time keeping the issues on the table.

President Smith determined there was no objection to her request.

Vice President Osanka moved, seconded by Commissioner Dyer, that the minutes of the October 20, 1998, Work Session and Special Board Meeting be approved as submitted; and that the minutes of the November 3, 1998, Work Session and Regular Board Meeting be approved as amended.

Commissioner Dyer stated that he would abstain from voting on the minutes of the October 20 meeting minutes because he had not been present.

The motion to approve minutes was adopted unanimously, with Commissioner Dyer abstaining from voting on the October 20 meetings minutes.

CORRESPONDENCE

Mr. Berggren referred to his memorandum dated November 12, 1998, the memorandum of Garry Kunkel dated November 9, 1998, and the memorandum of Dave Koski and Everett Jordan dated October 20, 1998, regarding compensation issues for EWEB Electric Crafts' employees, distributed with the agenda of the meeting. He said he would appreciate comments on the position of management regarding the issues.

Commissioner Dyer asked if changing Electric Crafts' employees target market position from the 65^th to the 60^th/55^th percentile would require any wage adjustments. Mr. Berggren replied that he did not believe any reductions in pay would result from the change.

Commissioner Bishop said she did not fully understand all of the implications of the issue being considered.

President Smith said she believed the positive effects of a merit-based pay system should be evaluated when discussing the issue of a changed target market position.

Vice President Osanka said he believed the merit-based system was the crux of the concern of Electric Crafts' employees. He said he had heard employees' representatives say that such a system was inappropriate for their job family.

Commissioner Anderson said she appreciated that the memoranda had dealt with issues related to "redlining."

President Smith said she believed following the recommendation of the General Manager would develop a common compensation system throughout EWEB.

Commissioner Bishop said she understood the concern of Electric Crafts' workers regarding the appropriateness of merit-based pay, but did not accept the rationale that one group of employees should have different target market positions than all others in the organization.

President Smith asked each Commissioner to make a limited final comment.

Commissioner Dyer said he agreed with the General Manager's recommendation and that he believed it would be possible to develop a fair merit-based pay system for Electric Crafts' workers.

Vice President Osanka said he disagreed with the recommendation of the General Manager and believed problems raised were more systemic than it appeared. He suggested that calculations for the compensation plan might not be correct.

Commissioner Anderson said she agreed with the recommendation of the General Manager and did not believe it was appropriate to separate out a single group of employees for unusual consideration.

Commissioner Bishop said she believed it was important that communications be as open as possible and that management listen to the concerns of employees. She said she did not believe is was appropriate for the Board to re-open management decisions regarding employees.

President Smith stated that she believed management had dealt fairly with employees. She said she was concerned that employees had distinguished differences between the value of job families to the organization. She said she was not convinced that such differences existed. She suggested that team building take place to bring employment groups into closer unity. She said she supported the recommendation of the General Manager.

PUBLIC INPUT

Rob Dotson, 3240 Kevington, Eugene, stated that he represented Electric Crafts' workers and that he appreciated the opportunity to raise the issue discussed by the Commissioners. He said that any issue affecting wages was of significance to EWEB employees. He suggested that discussion of the issue by members of the Board had shown that various positions were a matter of personal interpretation. He said he and his fellow workers were opposed to merit-based compensation, but that they would re-visit the issue to determine how to respond to proposals of management.

Mr. Berggren reviewed the program of a tour of the Hayden Bridge facility scheduled for December 17.

Mr. Berggren reviewed items to be included on the agenda of the December 12 Work Session and Board Meeting.

1999 BUDGET AND WORK PLAN

Fiscal Services Supervisor Dick Varner presented an abbreviated version of the review of the 1999 Budget and Work Plan he had presented during the Work Session which had preceded the Meeting.

Mr. Varner stated that the 1999 Budget and Work Plan showed that the Electric Utility would, for the sixth consecutive year, not require consideration of a rate increase. He said that proposed operating expenditures would remain relatively consistent with those of 1998 and that capital expenditures included drawing on reserves to pay for expenses of issues related to Year 2000 computer alterations.

Mr. Varner said that the 1999 budget for the Water Utility was balanced and that the practice of not seeking a rate increase in odd-numbered years would be followed. He said expenses for conservation would increase and that Capital reserves would be built in anticipation of implementing the Water Supply Plan.

Mr. Varner said that no base rate increase would be proposed in the 1999 budget for the Steam Utility, as had been the case since 1990. He noted that generation credit would be eliminated and that contributions in-lieu-of taxes to the City of Eugene would be reduced from 6% to 4%.

Vice President Osanka asked why labor costs for the General Manager Division were listed in the budget proposal, even though Commissioners had not yet set the compensation package for the General Manager. Mr. Varner replied that the assumption had been made in the proposal that compensation for the General Manager would remain the same in 1999 as it was in 1998.

PUBLIC HEARING ON THE 1999 BUDGET

President Smith opened the public hearing on the 1999 Budget.

President Smith determined there was no one present who wished to testify at the public hearing.

President Smith closed the public hearing.

THIRD QUARTER FINANCIAL STATEMENTS

Assistant Treasurer Cathy Bloom reviewed EWEB financial statements for the period ending September 30, 1998, distributed with the agenda of the meeting. She commented on highlights of the financial results, as follows:

Electric Utility

• Current cash position is $5.1 million, plus $21.6 million in reserves.
• Net operating revenue is $7.1 million lower than at the third quarter in 1997.
• There is an overall $817,000 contribution margin surplus.

Retail consumption was down $1.6 million.

Wholesale revenues were up $2.4 million.

Purchased power costs were up $1.0 million

• The Capital Budget is at 38% of costs.
• The Operating Budget is at 80% of costs.

Water Utility

• Current cash position is $2.5 million plus reserves.
• Net operating revenue is $721,000 higher than at the third quarter in 1998.
• The Capital Budget is at 73% if costs.
• The Operating Budget is at 69% of costs.

Steam Utility

• Receipts are at 70% of budget.
• Fuel costs are at 71% of budget due to increased prices.
• Total expenditures are at 63% of budget.

Payroll Costs

• Payroll costs are tracking according to budget.
• Expenses over budget have resulted from overtime costs.

POWER RISK MANAGEMENT POLICIES

Treasurer Jim Origliosso displayed charts illustrating increased price volatility in the sale and purchasing of wholesale power. He referred to his memorandum dated November 12, 1998, regarding a plan for wholesale power sales risk management distributed with the agenda of the meeting. He said policy proposals in the memorandum were meant to guide and limit specific power marketing activities. He reviewed the proposed policies, as follows:

• A Risk Management Committee will be established to provide oversight control and guidance to the trading operation.
• EWEB will only contract for power supplies that are reasonably related to its needs given sales and generation forecasts and power purchase commitments. EWEB will buy or sell power to balance loads and resources within a range based on the maximum short position and maximum long position.
• The maximum exposure limit for EWEB's net position value will not exceed sixty-five percent of the forecasted year-end cash operating reserve.
• Consistent with Generally Accepted Risk Principles, detailed control procedures will be developed by EWEB and approved by the Risk Management committee. These procedures will incorporate strong dual controls between those groups initiating trades and the risk management/accounting functions.
• The following types of price risk management instruments/transactions are authorized for trading activities: (1) Physical delivery contracts with a term up to twelve months: and (2) Financial agreements with approved counter parties with a term up to twelve months.

President Smith said the proposed policies were helpful, but had convinced her that she continued to know very little about wholesale power sales. She said she was concerned that the Board did not have proper accountability for large risks being taken with EWEB resources and suggested that Commissioners be given a basic education in power sales.

Risk Manager Debra Wright said there was clearly a role for Commissioners in wholesale power sales in Generally Accepted Risk Principles and supported the suggestion of President Smith.

Vice President Osanka also expressed support for the suggestion of President Smith and said he was inclined to ask that additional time be allowed for review of the proposed principles.

President Smith said she hoped a specific role of responsibility for the Board could be developed.

Mr. Berggren suggested that a board educational component could be included in approval of the proposed policies and said that the policies could be revisited at a later time.

Mr. Origliosso said it would be possible to build reporting to the Board into control procedures, but warned that the complexity of wholesale power sales might make a controlling role difficult.

Vice President Osanka said he believed deregulation would bring many changes in the way utility boards governed and that issues raised by power marketing were an example of the difficulties which would be faced.

Commissioner Dyer said he appreciated the proposed policies because they built safeguards for the Board and utility. He said he was unsure if the policies provided adequate or more than adequate protections for what he considered a necessary EWEB activity.

Commissioner Anderson asked when the control procedures identified in the proposed policies would be completed. Mr. Origliosso said creation of the procedures were largely completed. Ms. Wright added that it was hoped the procedures could be implemented by January 1, 1999.

President Smith asked if the administrative and management costs of power marketing would be fully tracked. Mr. Varner replied that such tracking was already being done and kept in relevant financial records.

Vice President Osanka moved, seconded by Commissioner Dyer,

1. that the Board approve the five policies covered in the Wholesale Power Risk Management Board Policy Document to provide, at a high level, guidance in those areas described in the November 12, 1998, memorandum of Mr. Origliosso
2. that approval of the policies be predicated on a mutual commitment by the Board and staff to periodically review the consequences of the implementation of these policies
3. that a mechanism be devised for regular reporting to the Board on EWEB power marketing activities
4. that the Board will review the polices by June 30, 1999

The motion was adopted unanimously.

STATUS OF KLAMATH FALLS COGENERATION PROJECT

Mr. Berggren reported that he and Scott Spettel had spent twelve hours on Monday in Klamath Falls, Oregon, representing EWEB in negotiations regarding the purchase of 80 megawatts of power from the Klamath Cogeneration Project. He reviewed information contained in a memorandum from Mr. Spettel dated November 10, 1998, regarding the purchase distributed with the agenda of the meeting.

Mr. Berggren stated that, although a great deal of effort was exerted in the negotiations, reducing a predetermined distribution payment to the City of Klamath Falls had not been possible. He said the payment eliminated all attractiveness of the purchase to EWEB and the negotiations were halted. He explained that there was less than 1% of a chance that representatives of the City of Klamath Falls would change their position on the distribution payment and that a contract could be completed. He said he would keep the Board informed.

The meeting adjourned at 9:35 p.m.