Board Members present: Susie Smith, Dorothy Anderson, Peter Bartel, Sandra Bishop, and Mike Dyer.
Others present: Randy Berggren, General Manager; Tom Buckhouse, Sandra DeLuna, Dick Helgeson, Garry Kunkel, Jim Origliosso, Dick Varner, and Krista Hince of the EWEB staff; and Daniel Lindstrom, Minutes Recorder.
President Smith called the Work Session of the Eugene Water & Electric Board (EWEB) to order at 6:15 p.m.
General Manager Randy Berggren stated that the Work Session was intended to be a continuation of the February 5-6, 1999, Board Planning Session and establish a platform for strategic Planning for work plans and resource requirement plans for the year 2000 and beyond.
Mr. Berggren said the Work Session would begin with the presentation of a five-year financial forecast. He pointed out that the overview would be a "do nothing" scenario in which EWEB would take no actions in reaction to current trends and issues. He suggested that it should become obvious that such a strategy would not be appropriate.
Mr. Berggren said the second element of the Work Session would be consideration of the process and schedule EWEB should follow to deal with the financial trends and issues identified. He said it was hoped that determining strategies could be completed by fall to enable their implications to impact planning for the year 2000 budget. He indicated that staff had prepared a "straw dog" schedule which could be followed to accomplish the projected tasks.
Mr. Berggren said the goal of the Work Session was to develop an initial approach to the process and timing useful to the Board in development of a long-term strategy to deal with current financial trends and issues.
Financial Services Supervisor Dick Varner said his presentation would seek to identify reasonable financial assumptions in the face of uncertainty and identify risk in areas where it would be difficult to make assumptions. He pointed out that capital expenditures would not be addressed because the water resource plan and 1999 capital plan were closely matched with available rate revenues.
Mr. Varner referred to a chart which described current and projected electric utility loads for residential, commercial and industrial customers of EWEB. It showed a steady increase in required loads from 1998 through 2010. The chart also identified levels of power generated and power purchase contracts over the same period of time. He noted that without addition resources or renewal of purchase contracts, EWEB would be unable to meet its load requirements in the very near future.
Mr. Varner pointed out that the financial implications of the need to renew power purchase contracts could lead to a 30 percent increase in power costs in the next five years. He said assumptions made in the projection included:
Mr. Varner said that unknown factors which also might affect power supply costs included the effects of Endangered Species Act listings on Carmen-Smith, the effects of Habitat Conservation Plan on Priest Rapids and Wanapum, and the effects of the new Integrated Energy Resource Plan.
Mr. Varner referred to a chart which described a projected 30 percent increase in EWEB labor costs between 1998 and 2003. He said the increase was not connected with any increase in personnel, assumed that the Public Employee Retirement System rates recently assigned were not reduced, projected a double digit increase in medical benefit costs, and accepted that there would be four percent annual growth in wages and salaries.
Mr. Varner referred to a chart which listed outstanding EWEB bond issues. He said refinancing of any issue to gain a lower interest rate was unlikely.
Mr. Varner referred to a chart which compared average monthly electric rates of utilities in the northwest. He said the figures indicated that consideration of rate increases would not likely jeopardize EWEB's position among those with the lowest rates.
Mr. Varner referred to a chart which compared average monthly water rates for 15 northwest communities. He pointed out that only two cities had rates lower than those of EWEB.
Mr. Varner referred to a chart which showed the Electric Utility's Capital, General Account, Operation, and Self-Insurance reserves would dwindle from over $25 million in 1998 to under $10 million in 2003. He said assumptions made in the chart were that $6.5 in accumulated assets would be spent on identified projects, that $9 million would be spent for Leaburg and Walterville re-licensing, of the $19 million in capital costs would be required as a result of the re-licensing, and that 1999 budget would be met by using $2 million of operating reserves.
Mr. Varner referred to a chart which showed that Water Utility reserves would remain relatively steady between 1998 and 2003.
Mr. Varner referred to charts which showed that the Electric Utility would begin to operate with a negative cash flow in 2000 and that the negative flow would reach more than $20 million in 2003, the Water Utility would begin to operate with a negative cash flow in 2000 and that the negative flow would reach more than $1 million in 2003, and the Steam Utility would return to operating with a negative cash flow in 2000 and that the negative flow would reach $100,000 in 2003. He noted that rate increases would likely be needed in each utility to bring its cash flow back into balance.
President Smith asked if it was true that several of the drivers of increased costs facing EWEB would also affect other utilities. Mr. Varner replied that the observation was true, but that only EWEB was facing an extremely large PERS rate increase. Mr. Berggren added that EWEB was possibly the only utility in the Oregon PERS system.
Mr. Berggren said that initial assumptions which needed to be made regarding the financial crisis facing EWEB were that a 20 percent increase in operating costs was unacceptable, and that avoiding an electric rate increase was unlikely. He suggested that a "tool set" to be used to set rates, charges, cost reductions, and other strategies needed to be determined. He said it would be necessary to determine the political ceiling possible for rate and charges increases.
President Smith said she believed consideration of rate increases was only one of several to be made in facing the financial crisis. She suggested that employee compensation levels could also be taken into consideration. Commissioner Dyer added that the "pickup" of the employee tax on pensions could be reconsidered, if it did not affect contract agreements.
Commissioners discussed various interpretations and remembrances of labor cost issues.
Human Services Manager Sandra DeLuna referred to a chart which described "straw dog" subject matter and scheduling to be considered at Board Planning Sessions proposed by staff, as follows:
Commissioner Bartel asked when financial options would be considered in the proposed Planning Sessions. Mr Varner replied that financial issues would be a part of Planning Session Two and a major consideration during Planning Session Three.
Commissioner Bartel asked what was the total magnitude of the financial problem identified by Mr. Varner. Mr. Varner replied that all factors presented led to a cumulative deficit of approximately $20 million over five years. He said many strategies to meet the challenge were possible, including increasing EWEB's authority to issue bonds.
President Smith said she hoped the Board could "put bookends" (limits beyond which it was not willing to go) on the table by the second proposed planning session. She determined that there was consensus among Commissioners regarding her proposal.
Mr. Berggren suggested that the work of the Board proposed for Planning Sessions could easily require additional time and that portions of regular meetings might need to be devoted to periodic updates on work in progress.
President Smith said she would appreciate having staff proposals related to Planning Sessions available for Board review as much as a month before each session. She suggested that it might be helpful to spend a portion of a regular Work Session considering material to be presented at a special Planning Session.
Commissioner Bishop said she agreed with President Smith and asked for a further description of the purpose and subject of the first suggested Planning Session. Mr. Berggren replied that the format of the first session would be determined by needs identified by the Board. Treasurer Jim Origliosso said he could envision such a session becoming a basic orientation process.
President Smith said she would appreciate a basic re-orientation to EWEB because the nature of the business had changed to such an extent during her tenure as a commissioner that she felt out-of-step with its fundamental operation.
Commissioner Anderson said she believed it would be important to have identified issues to be considered in an orientation experience in advance. Commissioner Bishop said she agreed and suggested that it would be a challenge to determine what information about EWEB operations would be of strategic importance for the Board.
Mr. Berggren commented that he was concerned that staff had a tendency to create perfect solutions to issues which were identified and that they needed to be constrained from idealism in their presentations to the Board.
Commissioners and staff continued to discuss concerns and proposals for Planning Session One.
Ms. DeLuna determined that there was consensus to include staff presentations giving basic orientations as part of Planning Session One.
Water Division Director Dick Helgeson suggested that all presentations be linked to work plans.
President Smith suggested that presentations include references to the budget. Ms. DeLuna proposed that references to the budget be kept to a "high level," be highly rounded, and be focused on various work aspects of EWEB business.
Ms. DeLuna said that staff would need a significant amount of time to prepare information to be presented at Planning Session Two. She suggested that the SWOT analysis would be the basis for most of the work to be done.
Mr. Helgeson suggested that the Board might benefit from becoming involved in the process more quickly and that Planning Session One might be scheduled in March. Ms. DeLuna replied that doing so would not make it possible to schedule Planning Session Two any earlier.
President Smith suggested the SWOT analysis "did not need to be perfect" and should only be considered as a tool. Mr. Berggren said he agreed, but that it needed to surface all possible issues.
Vice President Dyer suggested that creating "levels of work" was a helpful methodology in developing priorities--what would have to be done to keep EWEB in business, what would have to be done to show progress, and what would have to be done to accomplish all that was dreamed could be done.
President Smith suggested that another methodology which could be used was to consider short- mid- and long-term goals in a project.
Ms. DeLuna said that she believed the Board was expressing a desire for the Executive Management Team (EMT) provide in broad action proposals for the Board to shape.
Commissioner Bishop said she hoped proposals to be considered would identify issues and proposed solutions in a basic fashion.
Commissioner Bartel said that he did not want to receive a "luxurious" type of scenario analysis. He said proposals should identify strategies which could be easily developed.
Mr. Helgeson said that the Board could identify boundaries beyond which it should not go in developing proposals. He said if critical interests which needed to be balanced were identified, staff could prepare alternatives to deal with all of the contingencies which might be faced.
Mr. Origliosso said he agreed with Mr. Helgeson. He said he believed a role of the Board was to bring "political reality" to EWEB considerations.
Commissioner Bishop said it was helpful to know that the Board should identify lines which should not be crossed. She suggested that it would also be helpful for the Board to identify the most basic elements needed to keep EWEB operating.
Mr. Berggren said"opportunity areas" could be identified in the future which could change the way EWEB looked and operated. He suggested that providing a natural gas distribution service or developing decentralized small scale power production were examples of such changes.
Ms. DeLuna said that strategic planning needed to be carried into a broad context and was an ongoing process, not a project for a single year.
Commissioner Bartel asked for an estimate of the certainty of the assumptions made in the presentation of Mr. Varner. Mr. Varner replied that it was likely that the estimates of a cumulative deficit of approximately $20 million over five years was accurate to within plus-or-minus $5-$10 million. He said the most significant variables were the uncertainty in the power purchase market, and how PERS rate issues would be resolved. He said that other operating cost variables were more predictable. Mr. Helgeson added that there was not much volatility in costs of the Water Division, but that the labor and operating cost increases predicted by Mr. Varner were likely fairly accurate.
Commissioner Bishop asked if there were any regional or local circumstances which might produce positive or negative impacts on EWEB's financial picture. Mr. Origliosso replied that if Weyerhauser Corporation should drop its EWEB contract or if Hyundai were to "ramp up" its power needs more slowly than anticipated, EWEB would be significantly impacted. Mr. Varner stated that a regional recession predicted by some econmists in 2001-2002, or if Hyundai determined that the next generation of computer chips should be built elsewhere would significantly impact EWEB.
President Smith said that it would be helpful if a "better handle" could be provided for revenue and expenditure changes. Mr. Varner said he would provide a written background report on economic forecasting for the northwest during the first week in April. President Smith said that such a report could be as simple as a list of the assumptions made in his earlier presentation.
President Smith said that she was concerned about the impression she had received at the February Planning Session that staff considered themselves experts in utility concerns and that the only role of the Board was to provide big-picture policies. She said she hoped the Board could become involved in "real issues" because she believed insights of Commissioners could prove valuable. She said she also hoped time could be spent in discussion at the Planning Sessions to clarify the role of the Board.
Ms. DeLuna said she appreciated the comment of President Smith and suggested that her concern was underlying much discussion in the Work Session. She proposed that Planning Session Two be extended into a two-day meeting to allow for full discussion of the issues involved.
Mr. Helgeson asked if it might be appropriate for the five-year plan under discussion to deal exclusively with the electric utility because most of the issues involved only related to it. Mr. Origliosso replied that he did not believe a strategy for resolving five-year financial issues would be adequate if it only dealt with concerns related to the Electric Division.
Commissioner Bishop said she was interested in incorporating issues related to work groups "imbedded" within departments in considerations related to developing a five-year financial plan.
Commissioner Anderson said she believed it would be important to have an ability to "check in" during implementation the five-year plan to make adjustments to its assumptions. Electric Division Director Garry Kunkel suggested that re-licensing procedures could provide natural re-evaluation procedures. Mr. Berggren said re-evaluation "milestones" could also be built into the process. Mr. Varner said he could easily provide updates to the assumptions before each of the Planning Sessions.
Commissioner Bartel asked if EWEB assets would be considered in development of the five-year plan. He suggested that criteria for future use of currently unused property could be important. Facilities Director Tom Buckhouse said that such criteria had been recently developed and that he would provide information regarding them to the Board. Commissioner Bartel said that if rate increases were to be considered, the public deserved a thorough consideration of all of EWEB's assets for possible savings which could mitigate their effects.
Mr. Berggren suggested that staff could review the current inventory of EWEB assets and separate it into categories such as what was in use and critical for operations and what was less essential, and report to the Board on any opportunities for financial gain which might exist.
Ms. DeLuna determined there was consensus that Planning Session Two would include a "high level" review of SWOT.
Commissioner Bishop said she was concerned about potential timing for the Planning Sessions. Mr. Berggren said that he would provide suggestions for holding the Planning Sessions at the next meeting of the Board.
The work session adjourned at 8:10 p.m.