Board Members present: Sandra Bishop, Peter Bartel, and Susie Smith. President Mike Dyer arrived at 6:00 p.m. Commissioner Dorothy Anderson was absent and excused.
Others present: Randy Berggren, Ken Beeson, Terry Bequette, Cathy Bloom, Tom Buckhouse, Ed Case, Marty Douglass, Cathy Hamilton, Dick Helgeson, Garry Kunkel, Roseanna McArthur, Jim Origliosso, Dick Varner, Pat Ventura, Debra Wright, John Yanov, and Krista Hince of the EWEB staff; General Council Win Calkins; Warren Wong; and Daniel Lindstrom, Minutes Recorder.
In the absence of President Mike Dyer, Vice President Sandra Bishop called the Work Session of the Eugene Water & Electric Board (EWEB) to order at 5:40 p.m.
WATER AND ELECTRIC RATE CASES
Senior Rates/Financial Analyst John Yanov described presentations to be made during the Work Session as a preliminary discussion with the Board regarding assumptions and issues involved in electric and water rate revision proposals. Fiscal Services Supervisor Dick Varner encouraged Commissioners to raise issues and concerns related to the rate change proposals.
Water Rate Proposal
Accounting Analyst Pat Ventura stated that the 2000 Budget assumed a six percent increase in EWEB water rates. He said the increase would apply to all customers; was tentatively scheduled to become effective April 2000; was driven by increased funding for water conservation, replacement of existing infrastructure, and increased power costs. He said it followed an every-other-year pattern of rate increases.
Hyundai Demand
Mr. Ventura stated that differences in the demands of Hyundai from that anticipated in its EWEB contract raised issues related to cost allocations of water rates. He said the contract indicated expected peak demands of 3.2 million gallons per day (mgd), peak hour demands of 3.5 mgd, and average day demands of 2.9 mgd. He said actual demands were significantly less than expected - 2.1 mgd (peak day, 2.6 mgd (peak hour), and 1.6 mgd (average day) respectively. He explained that reduced demands affected allocation of operating costs which were keyed to peak ratios. He said it appeared changes would significantly increase Hyundai's capital repayment cost per 1000 gallons.
Vice President Sandra Bishop asked if the rate revision would reduce Hyundai's water rates. Mr. Ventura replied that the amount paid per year would be less, higher per unit of water, and the same overall. He said issues related to Hyundai would not affect other rate payers in any way.
Water District Rates
Mr. Ventura stated that, in the past, it had been assumed that water districts contracting with EWEB were drawing "surplus water" and were not charged for new source development in rates. He said recent summer peak demands had approached EWEB's daily pumping capacity and had led to questioning whether surplus water would continue to be available to water districts. He said preliminary rate adjustment proposals included a new capital reserve requirement for the districts. He said an increase in the per meter charge was also included in the preliminary water district rate adjustment proposal because it was supported by study of the actual cost per unit.
Commissioner Peter Bartel asked if the preliminary rate increase proposals had been discussed with the water districts. Water Division Director Dick Helgeson replied that he had attended the most recent meeting of representatives of district users of EWEB water and shared preliminary study information. He said additional discussions would be held when final proposals were developed.
Vice President Bishop asked if use of the water district capital reserve fund to be established would be restricted to new capital projects. Mr. Varner replied that it would not legally be so restricted, but that it was the EWEB intention to use the funds only for purposes which would increase the capacity of the system. General Manager Randy Berggren added that it was a good faith commitment to use the funds only for capital improvements.
Commissioner Susie Smith said she did not believe EWEB could discontinue supplying to water districts because of the years supplying their needs - even though doing so had always been used as a leveraging possibility. She asked if the elective nature of providing water to the districts would be further reduced by instituting a capital reserve charge based on usage. Mr. Helgeson replied that a full answer to the question would require a legal opinion, but that he believed it would not reduce the possible option because the cost of improving or increasing the quantity of water is normally paid by users. He added that connections between EWEB and the districts made it possible to discontinue providing water. He suggested that the requirement for EWEB to assume responsibility for water service to areas previously served by water districts upon their annexation into the City of Eugene complicated the nature of what would be appropriate to fund with the proposed capital reserve fund.
General Service Tier 1 Rates
Mr. Ventura stated that, in previous rate adjustments, General Service Tier 1 rates had been kept the same as residential rates on the theory that the costs of serving both were comparable. He said current studies were indicating that a smaller overall percentage rate increase was appropriate for the general service class as a whole than for the residential customer class. He explained that if Tier 1 rates were maintained at the residential level, Tier 2 rates would need to decrease to not exceed revenue requirements for the class. He said that previously expressed Board policy to close the percentage gap between Tier 1 and Tier 2 General Service rates would be met by the change.
Mr. Ventura stated that the rate adjustment proposal would be to "unhook" Tier 1 General Service Rates from the residential flat rate, establish a Tier 1 rate approximately six percent less than residential rates, and decrease the gap between Tier 1 and Tier 2 rates from ten percent to eight percent.
Mr. Berggren asked if the rate proposal reflected the actual cost of providing service to the involved rate classes. Mr. Yanov replied that current studies showed it to be so.
Commissioner Smith asked how it was possible to determine lower service costs for General Service Tier 1 customers when studies were of full classes, not individual elements. Mr. Ventura said rate analyses factored in various levels of customer size and usage in determining service costs.
Mr. Varner said that there was such a diversity in the General Service class that it was difficult to accurately determine if proposed reductions reflected actual usage. Mr. Yanov said over half of General Service customers were included in Tier 1.
President Dyer joined the meeting at 6:00 p.m.
Commissioner Smith asked what alternatives to the rate revision proposals had been considered. Mr. Yanov replied that it would have been possible to have left the Tier 1 rates tied to residential rates, but that doing so would have exaggerated the difference between the Tiers.
Mr. Ventura said another alternative would have been to create a new rate class for the Tier 1 General Service customers. Mr. Varner said such an alternative was being considered in connection with revision of Electric Division rates.
Conclusion
Mr. Ventura asked if Commissioners had direction to give regarding development of water rate revision proposals.
Commissioner Smith stated she understood the dilemma faced in the rate revision proposal, but that she was concerned it would create negativity among rate payers. She said she did not believe the proposal was erroneous, but that she was not happy with it, even though the cost difference amounted to approximately 95 cents a month.
Vice President Bishop asked when discussions with Hyundai would take place. Facilities Services Division Director Tom Buckhouse replied that the discussions would likely conclude within one month and that the next meeting between EWEB and Hyundai representatives was scheduled for February 1.
Water Rate Proposal
Mr. Yanov stated that the 2000 Budget assumed a six percent increase in electric rates. He said EWEB had not had an electric rate change since October 1993, which had occurred to pass through an increase in BPA power costs. He said the most recent change prior to that was April 1991.
Mr. Yanov said that changes at EWEB and in the electric industry since 1993 included competition, which had significant impact on rates. He said a load research program had been implemented to accurately charge customers for incurred costs and that a Cost of Service Analysis was leading to a recommendation to restructure the General Service class into three classes to more appropriately assign costs. He reviewed factors involved in changes to proposed rates, as follows:
President Dyer asked for an explanation of potential hydro power fluctuations. Mr. Varner replied that weather, and variations caused by fish mitigation and re-licensing costs created the changes and that purchase contracts for hydro power expired in mid-2000.
President Dyer asked if it would be possible to use market prices as the basis for EWEB rates. Mr. Varner said study of the possibility was being undertaken.
Commissioner Smith asked if EWEB would be able to provide class-by-class rates. Mr. Yanov replied that there was more analysis required for such rates than had been anticipated and that they would not be proposed. Mr. Varner added that since power cost had the most influence on rate increases, residential and small General Service customers would likely receive the lowest rate increase proposals.
Commissioner Smith requested that specific rate adjustment proposals be provided to Commissioners before public hearings on the rates.
Mr. Yanov stated that two presentations and public hearings were scheduled for the rate revision proposals - February 1 and March 7. He said Board approval would be requested on March 7 and the new rates, if adopted, would become effective for billings between April 6 and April 16.
Vice President Bishop said she heard from customers that EWEB should compensate for potential fluctuations in market power costs through rates. Mr. Varner said previously held Board discussions had indicated that EWEB should anticipate covering 80 to 90 percent of market power cost swings and that the balance could be a pass through.
Mr. Berggren stated that Board discussion of financial strategies and recent authorization of a line of credit had dealt with power cost fluctuations. He said adjustments were accomplished through borrowing which was paid back through future rate adjustments. He suggested following such a practice provided more realistic long-term cost anticipations for customers.
Commissioner Smith said she viewed the use of a line of credit as a positive alternative to use of stockpiled reserves. She said she believed the threshold for applying a surcharge should be no more than two percent variance from anticipated power costs. She said EWEB reserves should be used to buffer year-long fluctuations.
Commissioner Bishop said she believed adjustments to EWEB's low rates could be used to provide increased customer security from power cost fluctuations.
Mr. Varner said the proposed surcharge allowed the Board to decide to add a power cost recovery without adjusting rates. Commissioner Smith replied that she appreciated the opportunity of tying customer costs to power cost and avoiding having surplus investment in reserves. She said a surcharge would be easy to explain to customers.
President Dyer said he believed a surcharge could lead to misuse of reserves and that they should be refunded to customers. Mr. Varner replied that a fuller description of the mechanisms to be used in applying surcharges would be presented at a later time.
TELECOMMUNICATIONS PHASE II DEVELOPMENT
Telecommunications Development Manager Ken Beeson reviewed the EWEB Telecommunications System Phase II Vision, as follows:
Develop a locally owned and managed high speed broadband network throughout the City of Eugene that provides capability for utility operating and business applications; advanced telecommunications; multiple service providers; universal service; and public agency applications.
Mr. Beeson reviewed the proposed amendment of Section 44 of the Eugene Charter, as follows:
The power of the city to generate, collect and distribute electricity, steam, and other kinds of physical energy and the power to provide advanced telecommunications capability and associated services including, but not limited to, voice, video, data, internet, and telecommunications services is hereby vested in the Eugene Water & Electric Board.
Mr. Beeson reviewed changes made to the Draft Ballot Title proposed for presentation with the charter amendment proposal, based on discussion of it at the January 4 Board meeting.
Mr. Beeson referred to responses to questions raised regarding Phase II of the Telecommunications Project, as follows:
Why is it important for EWEB to be in the telecommunications business?
Why is it important for EWEB to obtain authority by charter amendment instead of intergovernmental agreement?
Given the present wording of the proposed amendment, will EWEB be providing content as the system is developed?
Why does the proposed amendment need to be broadly worded: why can't it restrict EWEB to "transport" only?
Will EWEB be competing with private telecommunications companies?
Mr. Beeson asked for Board discussion of issues and concerns related to Phase II of the Telecommunications Project.
Vice President Bishop said she appreciated the re-wording of the charter amendment and ballot title based on Board discussion. She said she also appreciated the draft document entitled "Eugene Water & Electric Board - The Telecommunications Question" dated January 13 distributed at the beginning of the meeting. She suggested that the second bullet of EWEB's Telecommunications Vision on page 3 of the document be changed, as follows:
Open access and capacity for competition between multiple providers.
Vice President Bishop said she did not see adequate emphasis in the document on the value of public ownership of the infrastructure of a telecommunications system.
Commissioner Smith suggested that the document identified by Commissioner Bishop would benefit from "another screening for simplicity." Commissioner Bishop added that it would also be improved if an executive summary was provided.
President Dyer said he had been convinced that charter amendment authority would provide the most flexibility for EWEB's operation of the Telecommunications Project. He said he continued to oppose EWEB being a content provider on the system.
President Dyer referred to a section of the document identified by Vice President Bishop related to Universal Service. He said its information could be misinterpreted to mean that the network would be provided to all customers free of charge. Mr. Beeson replied that the section was intended to mean that the system would be available to all, but not free. He said Universal Service should be defined as a basic level of service available at a reasonable cost to all customers.
President Dyer said he believed it was important to convey that the Telecommunications system was not to be a free service, or that it was a necessity for all customers like electricity and water.
Commissioner Smith said she was concerned that a charter amendment proposal would be presented to voters at approximately the time EWEB was scheduled to make rate changes. She said their proximity might create a negative back-lash leading to defeat of the amendment. She suggested that a contingency plan be created, in case the amendment failed to be approved.
Mr. Beeson said he assumed that if an amendment proposal failed, EWEB would "circle back" and consider how to most effectively use Phase I of the Telecommunications Project.
Commissioner Smith said she did not agree with the assumption of Mr. Beeson. She suggested that undertaking a survey of potential voters could provide an indication of whether a charter amendment proposal would succeed, and if it showed the proposal would not be accepted, EWEB should seek to gain as much telecommunications authority as possible through a Memorandum of Understanding (MOU) with the City of Eugene.
Mr. Berggren said he believed it would be possible to develop a plan following the suggestion of Commissioner Smith.
Vice President Bishop said she believed it was most important to first clarify what it would mean to amend the charter to give EWEB telecommunications authority. She said she did not believe a contingency plan would be needed if a clear understanding of what EWEB planned to do with the authority was conveyed to the community. She said the context for requesting the amendment was missing from explanations so far prepared and that simple, concrete examples of what other utilities were doing in the telecommunications field would also be helpful.
Commissioner Smith said she believed it would be important to thoroughly investigate what telecommunications authority could be provided through a MOU without amending the city charter.
Vice President Bishop said Board hesitation regarding completion of Phase II of the Telecommunications Project was unfortunate and could lead to its failure.
President Dyer said he had always anticipated that there would need to be a decision made about completing Phase II of the project. Vice President Bishop said she had never had such an anticipation and never doubted that Phase II would be completed.
President Dyer said his hesitation about Phase II was that there might not be a viable partner for its development.
Commissioner Bartel said the question which he needed answered was whether a charter amendment giving EWEB telecommunications authority was needed to secure a viable development partner for Phase II of the project. He said discussion of whether EWEB would become an Internet access or cable television provider belonged to the future after decisions about authority were made.
Vice President Bishop said she believed EWEB already had ample authority to move forward with development of Phase II. She said questions raised by Commissioners were supporting potential opposition to a charter amendment proposal.
Commissioner Smith said she believed the Board discussion was appropriate consideration of the issue. She said she would continue to have reservations about Phase II of the project until EWEB's development partner was determined.
President Dyer asked if it was necessary for EWEB to have charter-based telecommunications authority before discussions with potential development partners began. Mr. Beeson replied that such authority was needed before agreements with a partner were established
President Dyer asked if it was appropriate to pursue telecommunications authority through a MOU. Mr. Beeson replied that he did not believe a MOU gave adequate authority and that a charter amendment was stronger and had precedence.
President Dyer observed that leaving the authority decision to the electorate could lead to strange interpretations.
Mr. Beeson reviewed the proposed process and schedule for presenting a charter amendment on a ballot, as follows:
The Work Session adjourned at 7:25 p.m.
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Assistant Secretary President