Board Members present: Susie Smith, Mike Dyer, Sandra Bishop, Dorothy Anderson, and Peter Bartel.

Others present: Randy Berggren, Manda Bednarczyck, Deborrah Brewer, Tom Buckhouse, Mel Damewood, Marty Douglass, Libby Henry, Dale Kessinger, Garry Kunkel, Jim Maloney, Roseanna McArthur, Kris Middlewood, John Mitchell, Jim Origliosso, Scott Spettel, and Krista Hince of the EWEB staff; Lance Robertson, The Register-Guard; members of the public;.and C. Daniel Lindstrom, Minutes Recorder.

President Smith called the Work Session of the Eugene Water & Electric Board (EWEB) Board of Commissioners to order at 5:40 p.m.

Legislative Representative Libby Henry previewed the presentation she and Senior Financial/Rates Analyst Dale Kessinger would make on likely proceedings in the 1999 Session of the Oregon State Legislature related to electric industry restructuring. She said that she would happily provide additional background information on deregulation of the electric industry to Commissioners. She explained that she was seeking general direction on how to begin working with general issues and said Board positions on specific bills would be developed later in the legislative process.

HOT ISSUES

Mr. Kessinger stated that electric industry deregulation issues have generally remained the same since the 1997 session of the Legislature. He said that during that period of time the Customer Choice Plan and rate case of Pacific General Electric (PGE) had "crystallized" the positions of all involved and that there had been some changes in power pricing structures and the way large customers gained access to the market.

Mr. Kessinger reviewed four categories of deregulation issues receiving the most attention, as follows:

• Direct Access/Portfolios -- Direct access is defined as the ability of retail customers to acquire power supply on a competitive basis. PGE is the only Oregon utility supporting direct access for residential customers at this time. The questions of whether direct access should be accompanied by a portfolio of options and who should have direct access are those primarily at issue.

A direct access threshold for commercial and industrial customers of an annual average demand of 30 kilowatts will be established by the Public Utilities Commission (PUC). EWEB argued that any threshold should be utility-specific, a decision under local control based on unique characteristics of each service territory.

Load Aggregation, combining individual customer power requirements in a single-purchase agreement, has become a major issue. Companies with numerous distributors throughout the state could realize significant overall cost and management savings through a single-purchase direct access agreements. It is feasible to have individual utilities bill for distribution charges through a central power supplier.

EWEB took a position during the 1997 Legislative Session that it would accept the possibility of power sales in its territory by outside providers, but that it would not seek to sell power outside its territory.

The PUC determined that portfolios of power source options would be required to be offered by local utility companies at some time in the future, that power providers and the resource mix should be identified in portfolios, and Bonneville Power Administration (BPA) power would be accessible to residential and small farm customers.

• Metering, Billing and Collections -- EWEB has opposed ownership of meters by customers and self-billing on the basis of reliability and security. The PUC has determined that utilities will bill, at least, for the services they provide.

Commissioner Bishop observed that it was impossible to allow full direct access and maintain private billing.

• Public Purpose Funding -- Governor Kitzhaber has declared that he will veto any electric industry restructuring legislation which does not include a requirement that at least 3% be charged to customer bills to fund conservation, renewable energy, and low income programs. It is generally agreed that the requirement should exist, since direct access is expected to decrease support for such programs. The PUC has taken the position that such a dictate will require legislation. If such a requirement is determined to be a tax, a two-thirds majority vote will be required for adoption in the Legislature.

EWEB has taken the position that public purpose funding should be locally administered. If electric service providers (ESP) deposit such funding to a central agency for administration, it is more clearly identifiable as a tax and an element of local control is lost.

Criteria for qualification of programs for public purpose funding and whether there should be credits for self-investment have not yet been determined.

• Local Franchises -- It will be important that cities continue to be paid fees for the use of right-of-ways, to keep them whole, and to ensure benefits. The design and collection of such fees will be difficult for an ESP serving customers nationwide. Contributions in Lieu of Taxes (CILT) will need to be replaced with a proxy such as a fee per kilowatt hour of power provided. Questions such as whether fees are required for system benefit charges (SBC) have not been resolved.

It is likely that mutually beneficial cooperation between territorial utilities will end with direct access. Attempts to provide bypass power and on-site generated power will likely increase.

ASSUMPTIONS AND WHAT'S HAPPENED

Ms. Henry said that she was aware of four bills related to electric industry restructuring being submitted to the 1999 Oregon Legislative Session.

• The Fair and Clean Energy Coalition will submit legislation similar to the bill passed in 1997. Provisions for local decision making authority, recovery of stranded costs, and portfolio concerns will be added.
• Public Power associations will submit legislation which has not yet been determined, but will likely include support for not requiring direct access and a loosely defined public purpose requirement.
• Senate Public Affairs Committee Chair Gene Defler will submit a bill which no one has yet seen, but could include provisions to enable direct access through load aggregation by commercial and industrial groups.
• The PUC will submit a bill which will seek statutory authority for its recent decisions.

Ms. Henry stated that House of Representatives Commerce Committee Chair Jim Hill considered public purpose and low income program funding and franchise fees to be taxes which needed to originate in the House. She said consideration of any bill would begin in a subcommittee chaired by Representative Bill Witt, who was unique for his interest in enacting deregulation legislation.

Ms. Henry said she believed that large commercial interests would support electric deregulation legislation in the 1999 Legislative Session; that the Fair and Clean Energy Coalition and others were concerned that open access would happen by default without control and would support legislation; that the PUC needed legislation to support its decisions; and that electric service providers would support legislation to increase their advantage in direct access.

Ms. Henry suggested that power issue changes which had occurred since the previous session of the Legislature included the new significance given to BPA power and portfolio standards.

Ms. Henry said that the inexperience of committee members which would deal with energy deregulation legislative proposals, lack of an understanding about the significance of such legislation by most legislators, and heavy lobbying from electric service providers led her to consider the possibility that no legislation would be adopted during the 1999 Legislative Session.

President Smith suggested that Commissioners consider alternate scenarios to deregulation effects. She pointed out that a PGE pilot had shown little residential customers interest in direct access to electric service from non-local providers, and that direct access attempts in California and New Hampshire had been unsuccessful. She suggested that since direct access did not seem to benefit a majority of customers, had not shown itself to be successful in other areas, or supported public purpose funding, EWEB should oppose legislation enabling it.

Commissioner Bartel said he believed the comment of President Smith was worthy of consideration, but that it might be important to also support legislation which would provide protection for local utilities in the face of direct access. Ms. Henry added that legislation was also needed to provide direction to the PUC.

Mr. Kessinger said that all states were considering the implications of electric industry deregulation; that 13 states had adopted mandated direct access provisions; and that when large customers of investor-owned utilities had the ability to purchase power from outside providers, there was pressure to provide direct access for all retail customers.

Commissioner Bartel observed that the limited experience of Legislators with power deregulation issues and the probability that the 2001 Legislative Session would include additional members with limited experience, he anticipated that legislation enacted could reflect lobbying efforts of the ESPs.

Ms. Henry discussed local control, public purpose, and fairness issues related to potential legislation to be considered in the 1999 Session.

President Smith said that she felt direct access for retail customers was being forced on local utilities. She suggested that the Board renew its previously adopted stance on the issue.

Commissioner Bishop said that two years previously she had been exactly where President Smith was-opposed to deregulation. She reported that after spending a great deal of effort in studying the issues of utility deregulation, she believed restructuring efforts would not benefit common utility customers in the Northwest, but that the utilities were already operating in a partially restructured environment in which approximately 70 percent of the industrial or large commercial customers were choosing their power provider. She suggested that, because of that, EWEB could not afford to ignore, or resist deregulation.

Commissioner Bishop suggested that "risk management" strategies be studied-what risk does EWEB take by ignoring restructuring? She said that whether or not the Oregon Legislature comes up with legislation dealing with issues involved was of less importance than establishing limits beyond which EWEB would not go to determine support or opposition to any legislative proposal.

Commissioner Bishop said that she would like to learn from staff how the power market was currently affecting EWEB operations.

President Smith stated that she would like to determine if there was a way EWEB could avoid supporting retail access because it was not in the best interest of its customer owners but, at the same time, she felt it was important to prepare strategies regarding deregulation issues to be considered by the Legislature.

Commissioner Anderson stated that she appreciated suggestions of Ms. Henry regarding the potential of allowing local utilities to not be required to allow open access for residential customers. She said that EWEB support for such an option should be made clear.

Commissioner Dyer stated that he was concerned because it appeared that retail direct access was likely with or without a legislative mandate. He said that although a local utility had the ability to not allow such access within its territory with or without legislation, he preferred to have statutory protections for not allowing it. He also suggested that setting wire charges at an appropriate level could compensate for the loss of large customers through direct access.

President Smith said that EWEB Commissioners were elected to represent the citizens of Eugene and that she believed direct retail access was a good deal only for the largest of its customers. She suggested that direct access was "corporate welfare" benefitting only ESPs.

Commissioner Bishop said that she was also most interested in determining the best way to protect the interests of EWEB customers.

Commissioner Anderson pointed out that the PUC had statewide responsibility for utility customers and would also seek to protect their interests. She said she believed EWEB's previously adopted legislative principles included support for local control, metering and billing protection, system benefit charge preservation, and requirement of public purpose funding. She said any legislative proposal which provided for such values should be supported.

President Smith said that she preferred a strong preliminary statement in any legislative policy statement which made it clear that EWEB did not support direct access for retail customers.

Commissioner Bartel said that he believed EWEB had many options regarding direct access without new legislation. He said that he believed proscriptive legislation regarding deregulation issues was not in EWEB's best interest, that the lack of long-term experience with energy issues in the Legislature did not suggest there would be a bill supporting EWEB's principles, and that the preamble suggested by President Smith and previously adopted positions were adequate for a EWEB legislative strategy.

Ms. Henry stated that she would bring specific legislative proposals to the Board for consideration at future meetings.

President Smith determined there was consensus to continue to adhere to the EWEB policy on retail access adopted for the 1997 Oregon Legislative Session.

The work session adjourned at 7:30 p.m.