Board Members present: Sandra Bishop, Dorothy Anderson, Susie Smith, and Peter Bartel.

Others present: Randy Berggren, JoAnn Andersen, Terry Bequette, Tom Buckhouse, Cathy Hamilton, Garry Kunkel, Roseanna McArthur, Jim Maloney, Dick Helgeson, Eric Hiaasen, Cathy Grey, Mat Northway, Scott Spettel, and Lamonte Smith of the EWEB staff; John Lebens, Elly Adelman, Bonneville Power Administration, and Patrick Lanning, members of the public.

Vice President Bishop called the Work Session of the Eugene Water & Electric Board (EWEB) to order.

BPA SUBSCRIPTION

Referring to a memorandum entitled BPA Subscription Analysis, copies of which were included in the meeting agenda packet, Power Marketing Analyst Eric Hiaasen explained that EWEB's current 20-year Partial Requirements contract with the Bonneville Power Administration (BPA) was due to expire on September 30, 2001. He stated that for the past three years, BPA has been holding public meetings to craft a subscription process to define:

1. who can purchase BPA power;
2. the types of products BPA will offer; and
3. the rates at which those products will be offered.

Mr. Hiaasen referred Commissioners to BPA's recently published Final Record of Decision for the 2002 Rate Case, a summary of which was attached to the aforementioned memorandum.

Noting that the purpose of this Work Session was to review staff's analysis of the BPA subscription products, Mr. Hiaasen stated that for the next contract BPA is offering two new alternative rate plans. He said the first is called "Block" power, which delivers power at constant levels across all hours of the month. He said the second is called "Slice of System," in which EWEB could purchase a percentage share of the Federal Base System (FBS), pay that percentage of BPA's costs, and receive that share of the output of the FBS, including its available flexibility. Mr. Hiaasen noted that while BPA is still offering to sell power under a Partial Requirements contract, it has significantly reduced or eliminated much of the flexibility that was included in the current Requirements contract.

With regard to EWEB staff's analysis of BPA's subscription products, Mr. Hiaasen said EWEB utilized a utility production simulation program called "Strategy Manager" to provide analytic results. He said the program combines utility cost simulation with uncertainty analysis.

Mr. Hiaasen referred Board members to "Figure 1" and "Figure 2," copies of which were attached to the memorandum, for a comparative analysis of BPA's "Block" power, "Slice of System," and "Partial Requirements" alternative rate plans. Mr. Hiaasen said that interpreting the charts were relatively easy. He said "Partial Requirements" was always more expensive than purchasing block power; however, the choice between a "Block" and "Slice" was less obvious. Mr. Hiaasen said that on an expected value basis the "Slice" was less expensive, but in a dry year the cost of "Slice" exceeds that of the "Block" because of the lost wholesale revenues and increased power purchases.

Mr. Hiaasen stated that BPA allows customers to take part of their power in a "Block" contract and part in a "Slice" contract. He stated that although this alternative was not shown on the charts provided to the Board, staff found it attractive because it can reduce the dry year risk while continuing to provide EWEB increased operational flexibility.

With regard to analysis work remaining, Mr. Hiaasen said staff has yet to factor in the potential for Fish and Wildlife (F&W) increases or decreases. He said there was a wide range of possible F&W costs under discussion for the post-2006 period, including possible removal of the lower Snake River dams. He said it was staff's belief that any significant increase in F&W costs would show up equally in all three products.

Mr. Hiaasen stated that should the Board be interested in purchasing the "Slice," or the "Slice/Block" combination, staff would then analyze alternatives for reducing the sum of the impact that a dry year would have on EWEB's finances. He said there were several alternative approaches, and staff may want to use a combination of additional winter power purchases, additional cash reserves or lines of credit, financial hedges, or hydro runoff insurance. He said these approaches would constitute the majority of additional analysis completed by staff prior to the August 1 Board Meeting, during which Board action on this matter would be requested.

Mr. Hiaasen solicited Board members' comments and questions regarding the alternative rate plans. Board members issued the following questions and comments (staff responses are in parentheses:)

• Are there any other BPA products, such as a "green" power choice, for EWEB to choose from? (Smith) ("Green" power could be purchased as part of the "Slice/Block" combination.)
• What might be the political consequence, in terms of BPA's survival as an entity, of EWEB and a number of other utilities purchasing a "Slice?" (Anderson) (That is difficult to predict; however, it would appear that the "Slice" option was created as a means by which to increase subscriptions in response to a perceived threat to BPA's future.)
• Support EWEB's purchase of the "Block/Slice" option at a ratio of ½ to 2/3 "Block," and 1/3 to ½ "Slice," and that the "Slice" serves as a hedge against higher-than-projected market prices. Would like to explore how purchasing a portion of the "Block" as an "environmentally preferred" product might fit into EWEB's overall power purchase portfolio. (Smith)
• Request additional information regarding the "Slice/Block" purchase option prior to Board action on this matter. (Anderson).
• If ensuring that BPA's environmentally preferred product is a success in the region requires EWEB and others to commit as customers for that product, then EWEB should consider participating as an investor. (Smith)

At the request of the Board, EWEB staff member Jim Maloney presented a brief overview of a memorandum entitled Sustainability and IERP, copies of which were included in the meeting agenda packet. Mr. Maloney recalled that during the previous Board Work Session, during which the Board considered its Sustainability Principle, Commissioners identified the following two objectives regarding energy resources: 1) Systematically increase the portion of our energy supply portfolio made up of sustainable resources by at least meeting our projected system load growth with new renewable and demand-side resources; and 2) Systematically reduce the environmental impacts associated with the remainder of our power supply portfolio and seek opportunities to leverage development of additional sustainable resources.

In addition, Mr. Maloney recalled that the Board and staff considered a number of possible indicators or measures by which EWEB can gauge its progress. He said these included the following:

Indicators Related to Objective 1:

• Renewable energy (Mwh;s) added to EWEB portfolio
• New demand-side management energy (Mwh's) savings acquired
• System load estimates (Mwh's)
• Sustainable energy resources as a percentage of system load

Indicators Related to Objective 2:

• Demand-side resources (Mwh's) acquired through "leverage" activities
• Renewable resources (Mwh's) acquired through "leverage" activities
• Fuel chargeable to power heat rates for cogeneration projects
• Staff will assess and propose standards for specific project comparisons to:
• system purchases (on a meet or exceed compliance basis) for commonly attributed impacts such as air emissions and water use
• project and site specific attributes which include a "best-of-batch" test and special consideration for threatened or endangered fish, wildlife, or plant species and their associated habitats.

Mr. Maloney reviewed Oregon's current energy facility siting rules, which require proposed new gas-fired power plants to meet certain rules and a "best-of-batch" test. He said the Siting Council rules do not apply to, nor are they written for, nuclear or coal resources, as they are not considered to be developed within the state. He said the standard primarily focuses on CO2 emissions because other state and federal agencies regulate the emissions of the other criteria pollutants, such as Sox, Nox, volatile organics, particulates, and others.

With regard to alternative definitions of "sustainability," Mr. Maloney referred Board Members to a list of various definitions that were prepared by City of Eugene staff and the American Planning Association in the past.

At the request of the Board, EWEB Power Resource Analyst Jim Maloney and Power Management & Planning Manager Scott Spettel addressed Agenda Item 11, Renewable Energy Project Acquisition, of the Regular Board Meeting.

Mr. Spettel and Mr. Maloney reviewed a number of staff recommendations related to several renewable resource projects that would be formally issued to the Board during the subsequent Regular Board Meeting. Board members asked several clarifying questions regarding the projects.

The meeting adjourned at 7:30 p.m.

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Assistant Secretary President