Board Members present: Susie Smith, Mike Dyer, Sandra Bishop, Dorothy Anderson, and Peter Bartel.
Others present: Randy Berggren, Ken Beeson, Tom Buckhouse, Ed Case, Roseanna McArthur, Jim Origliosso, Dick Varner, Debra Wright, and Krista Hince of the EWEB staff; and Daniel Lindstrom, Minutes Recorder.
President Susie Smith called the Work Session of the Eugene Water & Electric Board to order at 5:45 p.m.
BUDGET AND WORK PLAN
Financial Strategies and Employee Reductions
General Manager Randy Berggren referred to a memorandum dated November 19 distributed with the agenda of the meeting from Director of Corporate Services Roseanna McArthur related to concerns and questions raised at the Special Meeting held November 16 regarding the status of Financial Strategies and employee reductions
Commissioner Anderson asked why the number of employee changes identified in the memorandum of Ms. McArthur did not equal what was identified in the 2000 Budget. Fiscal Services Manager Dick Varner replied that the Telecom marketer and Telecom engineer were included in the information included in the memorandum but not in the budget because they were paid from Telecom revenue.
Ms. McArthur pointed out that the Account Processing Fee Strategy Alternative impact on the 2000 Budget noted as "none" in her memorandum should have been identified as $420,000.
Commissioner Bartel said that he recalled the Telecom positions referred to by Mr. Varner were to be filled by contractors, not EWEB employees. Mr. Berggren said that the positions were included as employees in the budget and that filling them through contracts continued to be an option.
Commissioner Bishop stated she was concerned that the words "Majority indicated OK to move forward" used in the memorandum regarding Financial Strategies did not provide differentiation between whether the Board had voted to approve a strategy or only informally reached consensus to move forward. She said she hoped strategies would not be instituted until the Board had taken positions on them. Mr. Berggren agreed that there had often not been a formal vote taken on approving a strategy. He said none would automatically be included in the Budget until it was reconsidered.
Ms. McArthur pointed out that the 2000 Budget impact of the Public Employees Retirement System (PERS) strategy had been identified as being $3 million, but that the impact was actually on the 1999 Budget and that no additional impact was anticipated until 2001
Conservation Capital Loan Budget Administration Overhead
President Smith referred to a document entitled "Conservation 2000 Budget Context," which she asked to have distributed to Commissioners. She said it was prepared by Mr. Berggren in response to concerns she had raised regarding the Conservation Program.
President Smith asked the Board to discuss past concerns related to a seven percent administration overhead fee proposed to be charged on Conservation loans. She said she had asked staff to ensure that such a charge was not already being made. She said she believed having such a fee may be appropriate if it is an approximate estimate of overhead.
President Smith said she was concerned that if seven percent was the appropriate administration overhead fee for other capital projects, it seemed higher than necessary for Conservation loans because they were more simple to manage than other capital projects. She said she had asked that actual overhead requirements be calculated because they impacted the cost of a conservation measure and could negatively affect determination of its cost-effectiveness
Mr. Berggren said he agreed that Conservation should not be double-charged overhead fees and stated that the proposed seven percent amount had been an attempt to apply a fee consistently throughout all departments. He said the unique characteristics of each department were not analyzed because doing so required an extensive administrative process. He said a more refined view of the use of overhead services by Conservation loans would be attempted since, although they required most included services, it was likely that they did not use purchasing services. He said initial evaluation indicated that an equitable charge for use of overhead services for Conservation loans might be closer to four or five percent than seven percent.</P>
Vice President Mike Dyer suggested that a great deal of effort could be expended to calculate
more accurate overhead services charges, but that, in the end, all calculations would be "educated
guesses" because all such expenses needed to be allocated. Mr. Varner pointed out that only
10 percent of EWEB's overhead expenses were allocated to capital budgets and that the remainder
were charged to operating budgets.
President Smith said she appreciated the caution of Vice President Dyer, but that she believed it would be more appropriate to incorporate a five percent overhead charge on Conservation capital loans in the 2000 Budget.
Commissioner Bishop asked the cost of the proposed overhead charge to the Conservation
loans. Mr. Varner replied that each percentage point added approximately $40,000 to its budget.
Vice President Dyer asked if overhead charges could be calculated before the five percent of retail revenues to be allocated to conservation were determined.
President Smith said she believed following the suggestion of Vice President Dyer would create budget difficulties in the future
Commissioner Bishop said she did not like the concept proposed by Vice President Dyer.
Commissioner Anderson asked to have an explanation of the budgetary effect of the proposal
of Vice President Dyer. Mr. Varner replied that the suggestion of Vice President Dyer could reduce
the levels of available cash.
Commissioner Bartel said he believed the policy commitment to dedicating five percent of retail revenue to conservation was confused by combining it with requiring a percentage for overhead charges. He suggested that an specified amount for such charges be established.
Vice President Dyer suggested that an attempt to correct issues related to overhead charges on Conservation loans be postponed until development of the 2001 Budget.
Mr. Berggren said he believed there was an advantage to not separating overhead costs from conservation, in order to be strategically prepared for separation of charges when open access was enacted. Vice President Dyer said he agreed that creating a track record of assessing such charges would be beneficial in rate case proposals
Commissioners continued to discuss various options for assessing overhead costs on Conservation loans, the advantages and disadvantages of assessing such loans the same or less than other departments, and the Board's continuing commitment to allocation of five percent of retail revenue to conservation.
President Smith determined there was consensus to adopt the 2000 Budget as proposed, with a seven percent overhead charge on Conservation capital loans included; and to establish a commitment to allocate five percent to conservation in the 2001 Budget, net of the overhead charge.
Interest on Conservation Loans
President Smith explained that she agreed interest assessed against conservation loans fundedwith borrowed capital should be charged against the five percent of retail revenue dedicated to conservation, as included in the 2000 Budget. She said she did not agree, however, that interest should be assessed on loans funded with previously allocated funds, or that it should be charged against the five percent.
Mr. Varner stated that previously allocated funds for conservation loans had not been charged against the five percent for conservation, but had been in addition to it. Mr. Berggren added that the funds for the loans had been created with surplus cash since 1991.
Mr. Varner said that approximately $3 million outstanding in conservation loans would be repaid in three to five years. He said the question to be answered was whether interest should be charged on the repaid funds used for new conservation loans.
Vice President Dyer said he believed all interest on loans should go to the "general fund.
President Smith said she believed the funds previously allocated for conservation loans were already an investment in conservation and that interest earned from their being re-loaned should not be returned to the "general fund."
Vice President Dyer said he believed it was possible to legitimately argue that interest earned from re-paid conservation loans should be returned to the "general fund."
President Smith said she believed interest was legitimately earned from funds newly borrowed for allocation as conservation loans and that any interest from repaid loans previously allocated as conservation loans should remain in the conservation fund. She also raised the "general fund" that is actually that the fatuous money has been going back to cash when the staff agreed to.
Commissioners took a ten minutes break at 6:50 p.m.
TELECOMMUNICATIONS PROJECT PHASE II DEVELOPMENT
Telecommunications Project Manager Ken Beeson explained that the purpose of the Telecommunications element of the Work Session was to review development of Phase I of the project, evaluate the purpose and objectives of its Phase II, review its organizational structure, and discuss the issue of authority in the project in the context of a memorandum of understanding (MOU) with the City of Eugene.
Project Status
Mr. Beeson reported that installation of all fiber and electronic equipment for Phase I of the project had been completed, testing of it had started, and that it was anticipated to be operational by mid-December.
Mr. Beeson reminded Commissioners that he had previously reported there had been no formal responses to the dark fiber licensing Request for Proposal issued in connection with Phase I. He said that a strategy to fund Phase II build-out of the project with dark fiber leasing did not appear to be viable and that the feasibility of its continued development needed to be determined.
Mr. Beeson said a ruling by the Oregon Public Utility Commission (PUC) that licensing dark fiber use was not a telecommunications service and had led City of Eugene officials to determine that EWEB could operate Phase I of the project without delegation of authority from the City and without a franchise agreement. He said if EWEB were to provide telecommunications services over the fiber, the officials believed the City needed to grant the authority and issue a franchise, and that a Certificate of Authority from the PUC was required
Mr. Beeson said two telecommunications companies had expressed interest in working with EWEB to jointly develop an operating entity to implement Phase II of the Telecommunications project. He said his proposal to prepare a Request for Proposal (RFP) to identify a company to work with EWEB in such a development had been determined to be overly time consuming and difficult to complete. He reported that, in collaboration with EWEB Purchasing and General Counsel, an alternative process had been developed which would identify potential partners and prepare a detailed assessment of their interest, capabilities, and references in preparation for a bid solicitation process.
Mr. Beeson described the alternative procurement method, as follows:
Mr. Beeson explained that a public hearing was required before final adoption of findings exempting a contract for a public improvement from the requirement of competitive bidding.
Vice President Dyer stated that he had been bothered by the potential of redundant telecommunication systems being created in Eugene since EWEB began its explorations. He said such a condition could render either or all of the systems obsolete. Mr. Beeson replied that if EWEB built its system first, it was unlikely that any other entity would create a second system. Mr. Berggren added that whoever built the first telecommunications "over system" in an area would likely take the largest market share to justify the expenditures involved. He suggested that such systems were currently being constructed in "tier one" cities and that developments in cities the size of Eugene would eventually be seen as market opportunities
Facilities Director Tom Buckhouse suggested that it would be possible for a "cherry picking" telecommunications system to be constructed which would only serve the most lucrative customers and not provide universal access. Mr. Beeson said public ownership of the "over system" would counteract the potential of such a system.
Commissioner Bartel asked why a metropolitan-wide telecommunications system was not being contemplated. Mr. Beeson replied that such an option had been considered in the past, but that the City of Springfield had chosen to develop its own system with a different methodology.
Commissioner Bartel asked if community and EWEB interests in Telecommunications were compatible, or mutually exclusive. Mr. Berggren replied that there was a synergy between the interests which could lead to a significant development
President Smith asked for a description of the development status of the telecommunications system of Springfield Utility Board (SUB). Mr. Beeson replied that SUB had completed development of its core system and was considering licensing available fiber in it. He said it was unlikely that SUB would consider a build-out of its system, similar to that proposed in EWEB's Phase II.
Phase II Vision
Mr. Beeson presented a draft vision of the Phase II development, as follows:
Develop a locally owned and managed high speed broadband network throughout the City of Eugene that provides . . . capacity for utility operating and business applications . . . advanced telecommunications capability . . . capability for multiple service providers . . . universal service capability . . .and capacity for public agency applications.
Phase II Objectives
Mr. Beeson reviewed and explained Phase II Objectives, as follows:
Economically Viable
The new system must provide enough to pay all EWEB costs related to Phase I and II, including debt service and operating cost.
Advanced Telecommunications Capability
The completed network must be capable of switched, digital, broadband services; technically and physically capable of supporting voice, video, data, and Internet services.
Capacity for Multiple Providers
The network must be capable of supporting multi-carrier access and be capable of connection to other networks.
Publically Owned and Provide for Local Governance and Oversight
Final development and operating structure must provide for local management. Service policies, procedures, and rates must be determined locally.
Universal Service
All residential and commercial customers and all public agencies must be able to connect to the network. System connection and basic services must be available for a reasonable cost throughout the community.
Capacity for Utility Applications
The system must provide capacity for various electric and water utility system and business applications, including real time communication access to customer metering and load management.
Minimal Construction Impact
Construction of the system must conform with existing EWEB policies for overhead and underground line development.
President Smith suggested that an additional objective be added, as follows:
Ensure the Viability of Existing Core Utility System
Commissioners Bishop and Anderson expressed appreciation for the suggestion of President Smith.
Vice President Dyer said he was made uncomfortable considering the possibility that EWEB would become a content provider in the Telecommunications Project. He suggested it would be better if the portion of the system providing content was sold to another entity. Mr. Berggren replied that the partnership established in Phase II would determine if it was possible to maintain public/local ownership. He said such control might not be compatible with financial success of the system.
Commissioner Bishop said she believed it was unrealistic for EWEB to consider entering telecommunications without becoming a content provider.
Risk Manager Debra Wright reported that the City of Tacoma, Washington, was creating a market-driven telecommunications system and had discovered that content was the major driver of its development. She said universal service would likely be a reality only if it was paid for with public resources
Mr. Beeson referred to his memorandum dated November 19 distributed with the agenda of the meeting. He reviewed three Phase II alternatives for the ownership structures described in the memorandum, as follows:
•EWEB/Other Entity Joint Venture•EWEB Development and Ownership•Development and Operation Agreement with Partner
Phase II Development Process Open Issues
Mr. Beeson reviewed major issues to be considered when developing a partnership for development of Phase II of the Telecommunications Project, as follows:
Phase II Partner Selection Process
Purchasing Coordinator Ed Case distributed copies of a document entitled "Telecommunications Phase II Selection Process" and provided an overview of a traditional RFP process. He explained that utilizing such a process to select a Telecommunications Partner was complex, involving approximately six to eight months, and dealt with an undefined scope and statement of work. He reviewed an alternative procurement method which could be used to select such a partner, as described in the document, as follows:
Mr. Case explained that EWEB rules required that a public hearing be held before final adoption of findings which exempted a contract from competitive bidding. He said the findings were described in Oregon Revised Statute 279.025(1). He reviewed the requirements, as follows:
Vice President Dyer said he believed seeking a Telecommunications Project partner was more analogous to a consulting contract than a construction contract. Mr. Case replied that the contract would include professional services and construction elements.
Commissioner Bartel suggested that the process was to determine whether EWEB could create a partnership with an entity in Telecommunications. Mr. Berggren replied that it also was to ensure that all requirements were met before construction began when there was a possibility of a legal challenge.
President Smith said she believed the proposed process would build competition and objectiveness into the process of selecting a Phase II partner. She said she would expect that evaluation criteria would be established in advance. Mr. Case replied that consistency in the process was a major concern.
Mr. Beeson said that the proposed process was an attempt to "cast a net" for bidders as widely as possible. He said a national organization of telecommunication systems would be used.
Commissioner Bishop asked if the purpose of the proposed process was to pre-qualify bidders. Mr. Buckhouse replied that it was and also to better develop qualification criteria. Mr. Beeson added that the number of bidders sought would not be pre-determined.
President Smith asked what closure would be required of the Board to the issue of an alternative selection process. Mr. Beeson said formal authorization for the process would be sought at the Regular Meeting to be held December 7.
Phase II Authority Issues
Mr. Beeson said that in order for EWEB to effectively implement a Phase II system, it would be necessary to have clear telecommunications authority. He said such authority could be conveyed by the City of Eugene with a MOU or by adoption of an amendment of the City Charter through a referendum process.
President Smith suggested that development of a MOU would be more timely and avoid negative public reaction to the likely rate increases in 2000.
Commissioner Anderson suggested that the Phase II partner could secure any required franchise with the City.
Treasurer Jim Origliosso reminded Commissioners of their previously expressed concerns about partnerships with the City of Eugene. Commissioner Bishop said she had expressed such concerns in the past because she believed EWEB already acted on behalf of the City.
President Smith said that if a Charter amendment was attempted, it would be essential to have the full support of the City Council, which would take "political alignments."
Commissioner Anderson said that even if a Charter amendment was approved giving EWEB telecommunication authority, it would likely be necessary to pay a franchise fee.
Mr. Berggren said that, based on previous Board discussions, he and other EWEB representatives had not discussed issues related to telecommunication authority with City officials.
Commissioner Bishop pointed out that choosing to seek a Charter amendment would require significant expenses not involved with a MOU.
Commissioner Bartel asked for an explanation of the role of the Oregon Public Utility Commission and federal government in issues of telecommunication authority. Mr. Beeson replied that he had done some investigation into the request of Commissioner Bartel in the past and would collate and share it with the Board.
Phase II Public Information Process
Mr. Beeson distributed copies of a document entitled "Public Information Brief - Telecommunications Phase Two." He said the outline was a preliminary plan and had the objective of providing customers and others with clear information about Phase Ii plans in a realistic way. He reviewed potential tools which could be employed, as follows:
Mr. Beeson said he believed much benefit could be gained from development of a Citizen Involvement Committee. Commissioner Bartel suggested that such benefit was possible only if a specific scope of its responsibilities was defined.
Commissioner Bishop suggested that the objectives of the Telecommunications Project were clear and that she did not believe a great deal of value could be gained from involvement of the public at this time.
Commissioner Anderson said that she believed development of a Citizen Involvement Committee was premature at the current stage of the Telecommunications project. She suggested that such a group could prove helpful at a later time.
President Smith suggested that deliberations of a Citizen Involvement Committee could be the basis for a Board decision regarding further business ventures, but that she agreed creation of such a group was premature.
Vice President Dyer said he did not believe a Citizen Involvement Committee could make a meaningful contribution to the process in the short time available.
Project Staffing
Mr. Beeson reviewed preliminary considerations made regarding staffing of the Telecommunications Project. He discussed internal staffing requirements, and the need for a consulting engineer for technical and business issues and a financial advisor. He said Board involvement would be needed and that status reports would be made.
President Smith asked of a Board liaison to the Telecommunications Project would be advantageous. Mr. Beeson replied that he would consider the suggestion and discuss his reaction to it with the Board at a January meeting.
Commissioner Bishop asked if the two Telecommunications Project staff positions included in the 2000 Budget would be required, if there was no Phase II development. Mr. Beeson replied that the core Telecommunications Project system would be operated by using existing staff and that the budgeted positions would be filled when and if they were needed. Mr. Berggren added that including the positions in the budget allowed flexibility in the project.
Summary
Mr. Beeson presented a summary of the next steps in the Telecommunications Project, as follows:
PUBLIC COMMENT
Larry McMullen stated that he was the SUB Telecommunications Project Coordinator. He commended EWEB for its effort in the field. He said that the vision of the SUB project was to encourage economic development in Springfield and that it had adopted strategies of developing partnerships and leveraging public right-of-way. He said his project would cooperate with the EWEB Telecommunications Project in any way possible.
Commissioner Anderson asked if SUB was seeking to provide universal telecommunication service access. Mr. McMullen replied that doing so had been determined to be too expensive and that it would be necessary to acquire a partner with the ability to fund such development.
Commissioner Bishop asked what advantages accrued to the SUB project from its involvement with a consortium of telecommunication system providers. Mr. McMullen replied that the City of Springfield was fortuitously situated as a hub for "long-haul" telecommunications fiber carriers and that the consortium was its means of communication and cooperation with them.
The Work Session adjourned at 9:30 p.m.
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Assistant Secretary President