Board Members present: Susie Smith, Mike Dyer, Dorothy Anderson, Sandra Bishop, and Peter Bartel.
Others present: Randy Berggren, Tom Buckhouse, Sandra DeLuna, Dick Helgeson, Garry Kunkel, Roseanna McArthur, Dick Varner, and Krista Hince of the EWEB staff.
President Smith called the Budget Work Session of the Eugene Water & Electric Board to order at 5:40 p.m.
General Manager Randy Berggren said the Work Session was a special opportunity for staff to "check-in" with Commissioners regarding the Draft 2000 Budget before November and December Board meetings when details of division programs and work plans would be considered. He reminded Commissioners that the draft Budget had been distributed at the October 19 meeting. He said the session was intended to clarify the continuity between the budget and previously held Board Planning Sessions. He reviewed the agenda of the Work Session.
FINANCIAL STRATEGY ALTERNATIVES
Treasurer Jim Origliosso distributed copies of a document entitled "Financial Strategy Alternatives Review" and reviewed the current status of proposals for increasing revenue and decreasing expenses previously considered by the Board, as follows:
Mr. Origliosso determined Commissioners had no questions regarding his presentation.
RESERVE ACCOUNTS
Mr. Origliosso distributed copies of a document entitled "Cash Projections." He reviewed additions, draws, and projected 1999 through 2003 year-end balances for the following reserve accounts:
Electric Utility
Water Utility
President Smith pointed out that the projections did not incorporate inflation factors. Mr. Origliosso replied that the possible range of error in the estimates for "out years" was larger than any generally anticipated inflation impact.
Mr. Berggren said staff could re-create reserve projections incorporating inflation factors. President Smith replied that such projections should not create meaningless work, but that some rough estimates could be beneficial to Board budget planning. Mr. Origliosso said conclusions drawn from the projections presented could be tempered by taking assumptions not incorporated into account. Mr. Varner said inflation would likely have an annual impact on Working Cash reserves of $150,000.
Commissioner Bishop said she believed it was important to consider the margin of error possible in the projections under consideration. She suggested that adding inflation factors would have little meaning. Mr. Berggren said such considerations were the reason it was important to annually update five-year projections.
Mr. Origliosso said it was most important to note from the projections that estimated reserves were less than half current levels at the end of the five-year period. He noted that the projections were anticipations from a "do nothing" strategy and that additional work required would come into better focus as preparation of the 2001 Budget began.
Commissioner Bishop asked what was meant by the noted reimbursement of transmission line right-of-way work. Fiscal Services Manager Dick Varner replied that the Capital Improvement Plan included approximately $3 million over the next three years to acquire such right-of-ways in West Eugene and that the 2000 expenses for that work would be taken from Capital Improvement Reserves. He explained that revenue from bonds issued in 2001 would reimburse expenditures from the fund.
DRAFT 2000 BUDGET
Mr. Varner distributed copies of a document entitled "Electric Utility/Water Utility -- Comparison of Pro-Forma Strategies to Budget." He reviewed reasons for differences between previously anticipated impacts of proposed financial strategy alternatives on the budgets of the Electric and Water utilities with those actually included in the Draft Budget, as follows:
Electric Utility
Commissioner Bishop asked if a decision regarding the power cost adjustment practice would require Board approval. Mr. Varner said the Board would be asked to agree to the adjustment practice as part of 2000 rate setting decisions.
Mr. Berggren said he had heard the Board generally favor the possibility of such a practice, but that no decision regarding it had been made. He said early Board approval of the practice would enable staff to develop an implementation strategy for it.
Commissioner Bartel suggested that background information regarding the practice be prepared for Board consideration at a meeting in the near future. Commissioner Bishop said she also believed full Board discussion of alternatives resulting from the concept would be positive. Mr. Berggren said he would prepare such background information, providing comparisons between the proposed practice and current rate practices.
President Smith said she hoped the background information to be provided would include parameters for the volatility of the proposed practice. Mr. Berggren said he would include options for "capping" the practice if its implementation created extreme rate swings.
Mr. Berggren said a reduction of fewer positions would need to be compensated for by reduction of the proposed the non-power operating reserves. He explained that options for avoiding reductions in force were to draw down Operating Reserves to as low as $2 million, to implement a 6.5 percent rate increase, and to draw down Capital Improvement Reserves.
Commissioner Dyer asked what created the difference between the previously anticipated impact of the Reduction in Force strategy and what was included in the Draft Budget. Mr. Varner replied that the $347,000 difference was caused by anticipated delays in the implementation of the reductions and unaccounted for costs of the Early Departure Incentive program.
Mr. Berggren explained that consideration of options for avoiding reductions in force would need to include risks taken to available cash reserves and the possibility of increasing the size of rate increases.
Commissioner Bartel asked for examples of the cost efficiencies included in the Draft Budget. Mr. Berggren said reductions were taken from Training, Travel, Education, Consultant, and Legal budget allocations.
Mr. Varner said changes were made to retiree and employee health care benefits in the 2000 Draft Budget to compensate for a 13 percent increase in costs. Human Resources Manager Sandra DeLuna explained that the major reasons for the increase were rises in the cost of prescriptions and in Health Maintenance Organization (HMO) rates. Commissioner Dyer said his experience was that a 13 percent health care benefit cost increase was comparatively low. Mr. Berggren discussed the difficulty of implementing the health care benefit changes. Commissioners discussed elements of the EWEB employee health benefits plan.
Mr. Berggren said he hoped it would be possible to reconsider overtime issues at a later date.
Mr. Berggren said the charge was included because of recommendations included in the Eugene/Springfield Metropolitan Area Transportation Plan (TransPlan), but that employees would likely interpret it as to have resulted from EWEB's financial condition.
Commissioner Bartel said he believed the parking charge was far below normal rates for employees in the downtown area, and proposed a $40/month fee. Commissioner Bishop said she believed the often non-traditional hours of many EWEB employees mitigated the appropriateness of a parking charge.
President Smith suggested consideration be given to selling property used for employee parking.
Mr. Berggren determined that Commissioners felt a need to fully discuss inclusion of a parking charge in the Draft Budget.
Commissioner Dyer said he believed full rental or sale of the Midgley Building should be actively pursued as a revenue source for inclusion in the Draft Budget. President Smith said sale of the building was part of the Master Site Plan study.
Mr. Berggren determined there was consensus to consider sale of the Midgley Building as an element of the Master Site Plan, not the Draft Budget.
Mr. Berggren explained that the $600,000 was required because of under-subscription of WindPower and delay in the renewable energy production incentive. It would be covered by a reduction in reserves to create a balanced budget. He said the plan did not prepare for reserves needed in the 2001 Budget and included a forced reduction of 20 positions.
Commissioner Dyer asked what assumptions were made in the $600,000 shortage from WindPower included in the Draft Budget. Mr. Varner replied that there was currently a 25 percent subscription of WindPower and that the Draft Budget assumed it would be 30 percent subscribed by the end of 1999 and as much as 80 percent subscribed by the end of 2000. President Smith added that the success of the Industrial and Large Commercial Customers rate offering would positively or negatively affect the projected shortage.
Commissioner Dyer suggested that assumptions regarding federal WindPower credit be re-evaluated, in light of a reduced appropriation bill under consideration by the U.S. Congress.
Water Utility
Mr. Varner noted that the increased Water Utility revenue included in the Draft Budget would likely make it possible to fund low-income housing Service Development Charges assistance in 2000 and 2001.
Commissioner Bishop asked where the $236,000 surplus would be incorporated into the Draft Budget. Mr. Varner replied that it would be included as Operating Reserve.
Commissioner Bishop asked for an explanation of the Electric Utility Mitigate Cost of Load Regulation strategy. Mr. Varner replied that changes in the Bonneville Power Administration (BPA) power purchase contracts would have required higher service charges for its regulation of EWEB's load. He said an agreement with BPA would allow EWEB to vary production by the Carmen-Smith hydroelectric plant to cover the charges.
Commissioner Bishop asked for an explanation of the Account Processing Fee strategy. Mr. Varner replied that the $10 charge would be imposed when a customer initiated service.
Commissioner Bartel asked if a low-income exemption would be included with the Account Processing Fee. Mr. Berggren replied that such a component of the fee had not yet been considered. President Smith suggested that Energy Share resources could be used to provide low-income exemptions.
Commissioners took a short recess.
STRATEGIC OBJECTIVES AND INITIATIVES
Corporate Services Division Director Roseanna McArthur said she would identify the relationship of Strategic Planning objectives and initiatives to the Draft Budget. She reviewed the most current statement of EWEB 2000-2005 Goals, as follows:
Ms. McArthur distributed copies of a document entitled "EWEB Goals: 2000-2005 - 09/24/99" and pointed out how Strategic Initiatives, Financial Strategies, and Goals were incorporated.
President Smith and Commissioner Bartel suggested that the words "our access to" confused the intended meaning of Goal Four. Mr. Berggren agreed that the editing suggestion was helpful.
Commissioner Bartel suggested that it was counter intuitive to follow Goal Four, which encourages reduction of rate increases, with an initiative to implement rate increases.
President Smith suggested that words included in a previous statement of the goals ("improve ability to set priorities and manage performance to achieve desired result") were powerful and had not been incorporated in the restated goals. She said the words had intrinsic meaning and including them went beyond the need to keep rates low.
HIGH LEVEL BUDGET STATUS
Mr. Berggren said the Draft Budget to be considered by the Board was balanced, but did not include a $900,000 surplus previously anticipated. He said each Division had been asked to identify "strategic and salient items of impact" creating changes in the Budget and to correlate the items with Financial Strategies, Strategic Initiatives, and risks identified with the changes.
Mr. Berggren said the Draft Budget was the tightest and most challenging in his experience at EWEB.
Corporate Services Division
Ms. McArthur referred to a document entitled "2000 Budget Summary" distributed at the October 19 meeting of the Board. She reviewed Budget Comparisons for 1999 and 2000 it contained regarding the Corporate Services Division - Administration, Information Resource Management, Environmental Management, Public Affairs, and Human Resources.
President Smith said she questioned the likelihood of being able to continue to provide Information Resources system upgrades on a regular basis. Ms. McArthur said the need for upgrades would be most intense in 2000 and less in future years.
Commissioner Anderson asked how many employee positions would be reduced through the 2000 Budget. Ms. McArthur said the Corporate Division anticipated the loss of four positions. Mr. Origliosso said division work plans did not yet reflect position losses because assignment of the overall reduction of 20 positions had not been finally determined.
Commissioner Dyer expressed interest in details of the Information Services budget.
Electric Division
Electric Division Director Garry Kunkel distributed copies of a document entitled "Budget Changes: 1999-2000." He said 1999 budget estimates had not yet been finalized in the Electric Division and that he would focus his presentation on changes from 1999 to 2000, linking them to strategies and risks. He reviewed changes and strategies identified in the document by work area - Generation, Distribution, Wholesale Power Management, Conservation, and Telecommunications.
President Smith asked if the Board would discuss the status of new BPA and other power purchase contracts in the near future. Mr. Kunkel said the discussion would likely take place in April, following final resolution of BPA court litigation.
Mr. Kunkel identified potential risks to maintaining a balanced budget, as follows:
President Smith asked for Mr. Kunkel's assessment of risk associated with Environmental Species Act listings. Mr. Kunkel replied that funds budgeted for analysis of the situation should provide a better estimate of such potential liabilities.
Water Division
Water Division Director Dick Helgeson distributed copies of a document entitled "Water Division - 2000 Budget Summary." He reviewed major reductions and increases in the Water Division Operation and Maintenance and Capital Project budgets identified in the document - water system operation, water permit extensions, water conservation, education grants, sewer billing revenue, transition line construction, and Hayden Bridge Expansion. He noted that the changes were related to the Water Supply Plan Initiatives and A&G Cost Allocation strategies. He said he was concerned about risks in connection to Operation and Maintenance contingency requirements, and impacts of reductions of force in other areas.
Steam Division
Mr. Helgeson distributed copies of a document entitled "Steam Division - 2000 Budget Summary." He reviewed major reductions and increases in the Steam Division Operation and Maintenance budget - higher system costs, steam operations, steam plant update, marketing/customer services, and added services revenue. He noted that the changes were related to Future Contingency Planning and Steam Services Program initiatives and that he was concerned about risks in connection with Operation and Maintenance contingency requirements, and impacts of reductions of force in other areas.
Facilities Services Division
Facilities Services Division Director Tom Buckhouse said the major change in his division in 2000 would be the transfer of the Purchasing Group to Risk Management in the Finance Division. He said completion of the Purchasing, Accounts Payable and Inventory (PAPI) Computer System Conversion would have the most significant budget impact and that there would be 2.5 fewer employee positions - a carpenter and an engineer who would retire and not be replaced, and a temporary landscape worker who would not be hired during the summer months.
Mr. Buckhouse explained that the changes were linked to the A&G Cost Reduction and Master Plan Site Review strategies. He said potential risks were related to reduced internal service capability, graveyard security, and non-labor Operation and Maintenance expenses.
Financial Services Division
Mr. Origliosso said work in the Financial Services Division supported the strategic goals of setting priorities and managing performance, and understanding and leveraging customer satisfaction. He said a new Customer Service Division would be created in 2000.
Mr. Origliosso said Budget changes were reorganization of the Purchasing Department, reducing financial analyses, and providing support for customer account processes, retail rate analysis and design, and purchasing controls and limits.
Commissioner Anderson said she was concerned that the Financial Services Division would not be able to support development of a low-income energy assistance program in 2000.
Commissioner Bartel asked how a budget for the Customer Service Division would be created. Mr. Berggren replied that current work would be transferred to the new division with personnel, budgets, work plans, and resources.
Commissioner Bartel suggested that the new division could be housed in the Midgley Building to the benefit of customers and would also provide revenue. Mr. Berggren replied that the suggestion would be a viable use of the facility and should be considered as part of the formation of the division.
Commissioner Bishop asked why it was taking so long to form the new division and find an appropriate Division Director. Mr. Berggren said the nature of the position was unique and that it had proved difficult to recruit a person meeting qualifications identified. Mr. Origliosso said an unusual combination of skills was needed - accounting, technical/engineering, marketing and product development - and that few qualified applicants were available.
Commissioner Bishop said she believed it had taken an inordinate length of time to form the division. She suggested that expectations should be lowered and a Director hired from existing employees. Mr. Berggren said the position would likely be filled within months and offered to provide a full background report of his judgment regarding the suggestion of Commissioner Bishop.
Commissioner Bishop said she believed expectations for the division were beyond reality. Mr. Berggren said he did not agree and that he believed the expectations were well-grounded in reality and on target.
Commissioner Bishop said she did not want any background information, but wanted a division head and operating work area.
Commissioner Bishop said she was concerned that EWEB had lost its lobbyist and explained that Jim Whitty had filed to run for the State Legislature. She said she understood that areas for which he was responsible would be assigned to existing staff. She said she believed it would be wise to fill the lobbyist position during 2000 to provide continuity and give guidance in water rights, river governance, rate case, environmental, and industry restructuring issues.
Ms. McArthur stated that finance shortages, the fact that the Legislature would not be meeting, and the existing work of the General Manager and other staff had led to the conclusion that the risk of not filling the position was not high. She said a lobbyist would be hired near the end of the year in preparation for the 2001 Legislative Session.
President Smith suggested that contracting for lobbying services on specific issues might be considered and that decisions regarding lobbying should be made when it was more clear what would be dealt with in the Legislative Session.
Commissioner Bishop said she believed EWEB's salary for a lobbyist was too high and should be reconsidered. She also said she believed that legislative term limits increased the importance of continuity in dealing with legislative issues.
Mr. Berggren asked for clarification of the lobbyist work to be done in 2000.
President Smith said the Board needed to "size up" the legislative issues to be dealt with in 2001 and decide if a full time lobbyist was needed.
Commissioner Bishop said she would be more comfortable if she had a memorandum identifying staff legislative responsibilities. Ms. McArthur said she would request that Public Affairs Manager Marty Douglas prepare such a memorandum.
Commissioner Bishop said she believed it would be short-sighted to not have a lobbyist during 2000. She said the cost would be negligible for the value received. Mr. Berggren replied that it might be appropriate to consider re-assigning EWEB's Legislative Representative Libby Henry to areas more akin to lobbying.
SUMMARY
Mr. Berggren said he had identified three issues to be returned for further discussion during the meeting:
Mr. Berggren said staff was presenting a balanced budget which was approximately $900,000 short of previously anticipated revenue produced by financial strategy alternatives. He said it assumed a reduction of force of 20 positions, which was not yet final. He said the short-fall could be accepted and anticipate "fixes" to be made during the year. He said he believed such a strategy would put a drain on operating reserves.
Mr. Berggren said he would prepare a report for the Board comparing potential EWEB rate increases with those of other utilities in response to a request of the President to assist Commissioners in budget and rate setting decisions.
President Smith said Commissioners had also requested additional information regarding inclusion of an employee parking fee in the budget.
Commissioner Bishop said she did not believe it was appropriate for any consideration to be given to a parking fee. She said timing of the proposal was detrimental to employee relations.
President Smith said she was concerned that the potential short-fall in the Draft Budget could significantly impinge on the cash position of future years and suggested that consideration be given to preventative action. Commissioner Dyer said he believed the budget could be still be reduced to eliminate the issue. President Smith said she believed the Board should develop a strategy to address the situation. Mr. Berggren said staff would prepare information supporting a discussion of alternatives to address the short-fall.
Mr. Berggren reviewed the agenda of the November 2 Board meeting.
The Work Session adjourned at 9:30 p.m.
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Assistant Secretary President