Board Members present: Susie Smith, Sandra Bishop, Dorothy Anderson, and Peter Bartel. Vice President Dyer was absent and excused.

Others present: Randy Berggren, Manda Bednarczyk, Ken Beeson, Cathy Bloom, Marty Douglass, Dick Helgeson, Dale Kissinger, Garry Kunkel, Jim Maloney, Mat Northway, Jim Origliosso, Jan Tatala, Dick Varner, Debra Wright, and Krista Hince of the EWEB staff; members of the public; and Daniel Lindstrom, minutes recorder.

President Smith called the regular February meeting of the Eugene Water & Electric Board (EWEB) to order at 7:35 p.m.

AGENDA CHECK

President Smith determined that there was consensus to approve the agenda as distributed.

ITEMS FROM BOARD MEMBERS

Commissioner Anderson distributed copies of the Winter 1999 edition of McKenzie Meanderings, a newsletter of the McKenzie Watershed Council.

APPROVAL OF MINUTES

Commissioner Bartel noted that paragraph 8 on page 2 of the minutes of the January 19, 1999, Special Board Meeting contained an amendment of a statement he had made as reported in the minutes of the January 5 meeting. He said the change was correct, but that he wanted to clarify that he also hoped time would be allowed during the Board retreat for Commissioners to discuss how they would relate and do business together, and to engage in "visioning" of the future of EWEB.

Commissioner Bishop requested that paragraph 4 on page 5 of the minutes of the January 19, 1999, Work Session be changed, as follows:

Commissioner Bishop said that in her two years on the Board she had spent a great deal of effort in studying the effects of utility deregulation. She said she believed restructuring efforts 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 deregulated restructured environment because 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.

She, 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 small less importance than establishing but that it would be important to establish limits beyond which EWEB would not go to determine support or opposition to any legislative proposal.

President Smith determined that there was no objection to the request of Commissioner Bishop and stated that the minutes were amended as requested.

Commissioner Anderson asked if paragraph 3 on page 2 of the minutes of the January 19 Work Session was accurate in its report that EWEB had taken a position during the 1997 Legislative Session that it would accept power sales in its territory by outside providers, but that it would not seek to sell power outside its own territory. General Manager Randy Berggren replied that the minutes correctly reported the position taken.

Commissioner Bishop requested that sentence 2 of paragraph 8 on page 6 of the minutes of the January 19 Special Meeting be changed, as follows:

She suggested acknowledged the General Manager's earlier comment and agreed that since the proposed cost schedule was had to do with rate setting, it needed to be acted on by the Board at its next meeting, following appropriate public notice and participation.

President Smith determined that there was no objection to the request of Commissioner Bishop and stated that the minutes were amended as requested.

Commissioner Bartel moved, seconded by Commissioner Anderson, that the minutes of the January 19,1999, Work Session and Special Board Meeting of the Eugene Water & Electric Board, as amended, be approved. The motion was adopted unanimously, 4:0.

CORRESPONDENCE

General Manager Randy Berggren referred to a memorandum from Electric Division Director Garry Kunkel dated January 26 regarding tree issues distributed with the agenda of the meeting. He said it provided an update of recent experiences and adjustments of EWEB procedures.

President Smith said that she appreciated staff work which went into the review reflected in the memorandum. She said the openness to re-evaluate procedures to meet customers' wishes was commendable.

Mr. Berggren referred to the memorandum from Environmental Manager Laurie Power dated January 26 providing a progress report on a study of establishing an irrevocable land trust distributed with the agenda of the meeting. He invited Commissioners to submit questions or concerns for staff response.

Mr. Berggren reported that $1.7 million for cooling towers had been included in the Federal Budget submitted by President William Clinton to the US Congress. He said that it was included as a result of the work of EWEB's Washington DC lobbyist Marty Kanner.

Mr. Berggren stated that Director of Corporate Services Roseanna McArthur had distributed memoranda and information to Commissioners regarding his evaluation and contract for 1999. He said he had suggested that a draft contract proposal be created by the Board because it did not seem appropriate that he should prepare such a proposal.

Commissioner Anderson said that she supported forming a Board subcommittee to prepare a draft contract proposal. President Smith said that she was willing to work with Commissioner Dyer on such a subcommittee. She said she anticipated that the subcommittee could begin with the existing contract, flag elements which seemed inconsistent with current operating procedures or changes which should be made, and present it for Board consideration.

Commissioner Bishop said she believed the entire Board should be involved in evaluating the contract of the General Manager. She suggested that each Commissioner could contact Ms. McArthur by a certain date to discuss the current contract and make suggestions for its revision.

Mr. Berggren reported that Ms. McArthur would be away from her office through the time scheduled for his evaluation. He suggested that Commissioners could work with Human Resources Manager Sandra DeLuna to prepare comments and make suggestions about a contract. He said that Ms. DeLuna could combine the comments and suggestions of Commissioners with his own to create a draft contract to be presented to the Board.

President Smith suggested that incorporating comments from each Commissioner could be confusing. She proposed that Commissioners prepare individual comments and suggestions regarding the current contract to be discussed and reconciled at the next Board meeting.

Commissioner Bartel said that he supported creating a subcommittee to prepare a draft contract because it would allow for efficiencies and shorten the time required for its consideration at a Board Meeting.

Commissioner Bishop said that she was concerned that work on a contract with the General Manager completed in a subcommittee would be done out of the view of the public. President Smith replied that the report of a subcommittee to the Board could contain both current contract provisions and any changes which would be proposed.

Commissioner Anderson asked if it would improve the process for the subcommittee to distribute its work in progress to other Commissioners by electronic mail. President Smith replied that doing so could become a de facto meeting of the Board.

President Smith stated that she would meet with Mr. Berggren, review the existing contract, and draft a new contract proposal. She said the Board could discuss and act upon it at the next meeting.

PUBLIC INPUT

Evelyn McConnaughey, 1653 Fairmount Boulevard, stated that she believed the public should be involved in the development of performance evaluation criteria for the EWEB General Manager. She said she did not believe it was appropriate for the evaluation to take place in Executive Session. She also said she believed the next General Manager's contract should include provisions requiring that decisions to furnish power or water to large industrial customers be open to public scrutiny and that such contracts be for the full price paid by other EWEB customers.

President Smith explained to Ms. McConnaughey that criteria for evaluation of the General Manager had been determined at the previous public meeting of the Board. She said that an Executive Session was used for the evaluation of the General Manager because it enabled Commissioners to be candid and open. She said the evaluation would be summarized in a public meeting of the Board and that any kind of a contract with the General Manager would be reviewed and approved in a public session.

Baynard McConnaughey, 1653 Fairmount Boulevard, said that articles in The Register Guard led readers to believe EWEB was a private organization, rather than a public one. He said that he believed members of the public had a right to all desired information about the utility. He recommended that meetings dealing with criteria to evaluate the General Manager be held in public. He said he felt that it would be inappropriate to increase the salary of the General Manager when the salaries of some lower paid EWEB workers were being fixed or decreased.

President Smith determined that there were no other members of the public wishing to make general comments to the Board.

WIND POWER OPTIONS AND PRICING

Senior Rates/Financial Analyst Dale Kessinger said that he would summarize his presentation about the methodology used to determine the cost of service and rates for EWEB's Wyoming WindPower Generating Project presented at the January 19 Board meeting as a preamble to the public hearing to be held regarding wind power options and pricing.

Mr. Kessinger displayed charts which illustrated that proposed prices of wind power were based on production costs as reduced by renewable energy credits provided by the National Energy Policy Act and by paying off construction bonds. He reviewed alternate rate calculation options and explained operation of the three-year step pricing option chosen. He said positive features of the three-year step option were that it provided stable prices with pre-determined 4.5 percent increases every three years, enabled affordable initial rates, eliminated negative cash flow after the first year, and fully recovered all capital and operational costs.

Mr. Kessinger reviewed the impact on the power bill of typical EWEB customers who chose to use wind power. He explained that residential customers could choose to utilize 10 percent, 25 percent, 50 percent, or 100 percent wind power. He said that general service customers had the option of choosing to utilize 10 percent wind power.

President Smith determined that Commissioners had no questions of Mr. Kessinger and opened the public hearing on wind power options and pricing.

Marian Frank, 2009 Elk Drive, expressed appreciation to the Board for its commitment to generating electric power using renewable resources. She said that she did not understand the proposed pricing of EWEB wind power because she was uncertain of whether the cost included building the project or only generating its power. She said the public could not be expected to choose to use wind power if the basis for its price was not clear. She said she believed all EWEB customers should pay the cost of generating wind power.

Evelyn McConnaughey, 1653 Fairmount Boulevard, stated that she shared the opinions of Ms. Frank regarding wind power options and pricing. She noted that she had submitted written testimony in which she advocated that all EWEB customers should pay for wind power. Her written testimony also deplored the Board's position that it was required to provided unlimited power and water to all requesting it without public input or consideration of capacity. She said it was illogical for residential customers to pay higher rates for environmentally friendly wind power when a single large customer could cancel out its benefits by buying a large quantity of cheaper power generated by nuclear energy.

John Flanery, 878 Almaden, said that he agreed with previous speakers that all EWEB customers should pay for wind power. He suggested that customers choosing to use power generated without environmental responsibility should be taxed in some way. He said that media reports of wind power pricing options did not coincide with those presented by Mr. Kessinger. He asked for an explanation of the difference between the reported approximately five cent/kilowatt hour cost to produce wind energy and the approximately seven cent/kilowatt hour price to be charged.

President Smith explained that the proposed price of wind power included the cost of generation and the cost of transporting it to customers.

Mr. Flanery said that he believed the premium paid for "clean energy" should not be the full cost of the wind generation project, but only those costs associated with it which were not required by other sources of generating power.

Bayard McConnaughey, 1653 Fairmount Boulevard, asked if the cost of wind generated power would be lower if its cost was spread among all EWEB customers.

President Smith determined that there were no other persons wishing to testify and closed the public hearing. She asked staff to respond to questions raised in the hearing.

Mr. Kessinger reviewed his presentation on the three-year step pricing option for wind power rates. He noted that the proposals included power generation and delivery charges and the cost of contributions in lieu of taxes (CILT) to the City of Eugene. He said the delivery, or non-power charges, would be the same for all customers.

Mr. Kessinger explained that staff had struggled with whether the cost of wind power should be paid by customers choosing to use it or by all customers. He noted that the benefits and costs were different for each option.

President Smith said that a majority of the Board believed the cost of wind power should be paid by all customers. She said the community believed in clean energy and needed to pay its costs, but that competition resulting from industry deregulation was forcing EWEB to face the reality that it could lose customers to other, less environmentally conscientious power suppliers if its price structure did not remain competitive. She said the loss of a significant number of EWEB customers could lead to a situation in which a small number of customers were left "holding the bag" of the entire utility's infrastructure.

President Smith said she supported the proposed wind power generation pricing options as a pilot project, not as a precedent for the future development renewable energy generation projects. She said the project would provide information about the marketability of such power sources.

Commissioner Anderson said that other utilities who had tried incremental pricing for environmentally sound power had discovered that many businesses decided to use it and advertise that they were doing so. She said another factor to be understood was that it appeared the State of Oregon would soon permit commercial customers in EWEB's service territory to have access to power sold by power providers. She said competitive pricing would be required to keep many customers.

President Smith asked staff to describe what customers choosing to purchase wind power would be buying.

Mr. Kessinger said it was difficult to discuss the physics of electricity because there was not agreement about how it functioned. He said that adding wind power to the energy pool in EWEB's region made a difference because it displaced energy produced with less environmental sensitivity. Manager of Energy Management Services Mat Northway added that benefits of energy produced through the use of renewable resources could be identified by "tracking the money." He said charges paid by EWEB customers for wind power would go to the project and not to producers using resources such as coal or nuclear energy.

Mr. Berggren pointed out that higher prices paid by EWEB customers choosing wind power would only be paying for additional costs of the project.

Mr. McConnaughey asked if the success of the wind power project would be determined by whether all of the power generated was purchased by customers. Mr. Kessinger replied that the effect of the project on the entire EWEB power system was minimal, since it generated less than two percent of its power needs. Mr. Northway added that not selling all of the wind power generated would not have an impact on the project, but would affect how such power was marketed in the future.

Commissioner Anderson said the Board had set a policy that EWEB would increase its portfolio of power generated by renewable sources. She said the pilot project would provide input into how such an increase should be marketed. Resource Planning Analyst Jim Maloney added that the Board had determined that the wind power project should be built on the recommendations of two citizen advisory groups. He said surveys indicated that 50 percent of area residents would be interested in purchasing wind power. He said that other areas had less supportive responses. He suggested that if the proposed marketing plan was not successful, a different strategy would be devised.

FINANCIAL PLAN

Mr. Berggren stated that no Board action was requested in response to the financial plan update to be made by Treasurer Jim Origliosso.

Mr. Origliosso referred to his memorandum dated January 28, 1999, distributed with the agenda of the meeting. He reviewed background for the Financial Management Plan given in the memorandum. He said there had been resolution of some financial management issues identified in the section of the plan dated June 1995 attached to the memorandum. He also said consideration was being given to proposing that the Board establish new policies to deal with other issues.

Mr. Origliosso reviewed "Adequacy of Reserves" financial management issues described in the attachment to his memorandum. He noted that the current operating environment and risks faced in a competitive marketplace had not been envisioned when financial reserves were initially conceived in 1990. He said recently experienced accumulation of excess reserves also pointed to the value of establishing new policies which would deal with the new conditions and recognize the interdependencies of reserve accounts. He suggested that it was likely a policy would be proposed to establish a "reserve floor" of approximately $12 million.

Mr. Origliosso referred to "Industry Deregulation" financial management issues described in the attachment to his memorandum. He said the issues were a major concern when the plan was considered in 1995 and that it was currently generally accepted that industry deregulation would require higher sensitivity to the potential loss of customers. He observed that recent collaboration with Weyerhauser Corporation and the contract established with Hyundai of America were examples of how the sensitivity was expressed.

Mr. Origliosso referred to "Retail Rate Structure" financial management issues described in the attachment to his memorandum. He said that an initial attempt to deal with new challenges faced in setting rates was the unbundling of power generation and transmission costs. He noted that EWEB had no policy about rate competitiveness and that the Board might be asked to consider developing one.

Mr. Origliosso referred to "Management of Energy Resource Plan Finances" issues described in the attachment to his memorandum. He said that the concerns did not appear to be"hot topic" because EWEB was successful in implementing the Energy Resource Plan without causing rates to rise more than 2.5 percent. He noted that maintaining separate financial records for implementation of the plan had been discontinued because it was judged to be a superfluous practice.

President Smith asked how much failure of customers to subscribe to power generated by wind could affect rates and whether an increase could be included in the 2.5 percent limit established. Mr. Origliosso replied that it had been estimated that paying the cost of the wind power project through rates would create an increase of .25 to .50 percent.

Mr. Origliosso referred to "Risk Management of Power Supply Price and Cost" issues described in the attachment to his memorandum. He said that the concerns had been dealt with in 1995 and that adequate policies regarding them were in place.

Mr. Origliosso referred to "Post-Retirement Medical Benefits" issues described in the attachment to his memorandum. He said the issues had not gone away and that problems related to the recent increase in EWEB's contribution to the Public Employee Retirement System (PERS) increased the concern. He said the issues would be a major work item in the near future.

Mr. Origliosso referred to "City Issues" described in the attachment to his memorandum. He said much progress had been made in resolving issues with Eugene financial staff and elected officials. He noted that an agreement had been reached allowing for lower CILT payments related to power marketing sales, and that EWEB was repaid at a cost-based rate for its expenses in billing and collecting City service charges.

Commissioner Bartel asked how the shift of planning responsibilities and annexation of the Glenwood area from Eugene to Springfield would affect EWEB.

Mr. Origliosso said that similar shifts had taken place and been accomplished without significant losses to EWEB.

Mr. Berggren said that all of the implications of the shift were not known and that a great deal of work needed to be completed with the Springfield Utility Board before all of the issues involved were understood. He said that the economic effects of the shift would include many issues which would need to be negotiated.

Mr. Origliosso said that EWEB staff did not favor the shift, but that it appeared it would take place with the support of the Eugene City Council. He said the complexities of the situation could be reduced if all areas currently annexed by Eugene were shifted to Springfield at one time.

Financial Services Supervisor Dick Varner suggested that an issue related to the shift which would need to be considered early would be the splitting of CILT for services between Eugene and Springfield. It said it could create significant accounting problems for EWEB.

Commissioner Bartel said that he suspected the shift would have a short-term negative effect on EWEB.

Commissioner Bishop said that she believed the primary problem EWEB would face in the shift would be to protect its system.

Mr. Origliosso said that the shift of planning responsibilities and annexation of the Glenwood area would be added to the list of City-related financial management issues to be considered for policy recommendations.

President Smith said that she was concerned that a policy on rate competitiveness, as suggested by Mr. Origliosso, might be in conflict with EWEB's commitment to the "public good." Mr. Berggren added that such a policy might also affect EWEB's bond rating. Mr. Origliosso stated that concern about such issues would likely be raised in bond rating processes as part of interest in contingency planning. He said that, in the past, EWEB's commitment to local control, renewable energy generation, and conservation had been significant concerns.

Commissioner Bartel said that he did not believe rate competitiveness and the public good were mutually exclusive.

Mr. Origliosso asked if consideration should be given to developing a policy about EWEB's divesting itself of power generating assets. President Smith determined there was consensus that such a policy should not be considered.

President Smith suggested that policies might be considered to cover contingencies involved in the buying and selling of wholesale power.

Commissioner Bishop suggested that some language used in the Financial Management Plan's "Industry Deregulation" section was confusing and that the following sentence should be dropped from the analysis because enacting its implications would require a major EWEB policy shift:

For instance, future product and services pricing, including real-time pricing, may be market-based rather than cost-based in order to ensure existing or higher market share.

Commissioner Bartel suggested that a policy be considered which might determine when and how withdrawing from PERS should be considered by EWEB. Mr. Origliosso said that additional Board discussion regarding PERS would be scheduled during a March meeting. He said new information regarding rate issues was being developed.

Mr. Berggren commented that policies in the Financial Management Plan created in 1990 had served EWEB well and that it was likely that some needed special review.

President Smith determined there was informal consensus that issues raised in the update were worthy of further consideration.

The meeting adjourned at 9:20 p.m.