Commissioners present: Dorothy Anderson, Peter Bartel, and Patrick Lanning. Commissioner Sandra Bishop arrived at 6:20 p.m, and Commissioner Susie Smith arrived at 7:05.
Others present: Randy Berggren, JoAnn Andersen, Dean Ahlsten, Ken Beeson, Gale Banry, Tom Buckhouse, Terry Bequette, Mel Damewood, Marty Douglass, Bill Fletcher, Dick Helgeson, Bob Lorenzen, Roseanna McArthur, Mat Northway, Jim Origliosso, Laurie Power, Scott Spettel, Dick Varner, John Yanov, Jim Wiley, and Krista Hince of the EWEB staff; Kris Aanderud, City of Eugene Minutes Recorder; Lance Robertson, representing the Register-Guard, KVAL-TV, KEZI-TV, Jim Brown, Chris Aetneave, and other members of the public.
President Anderson called the Work Session of the Eugene Water and Electric Board (EWEB) to order.
INTERGOVERNMENTAL AGREEMENT FOR PUBLIC AGENCY NETWORK (PAN)
Terry Bequette, Information Services Manager, reviewed the intergovernmental agreement (IGA) for the Public Agency Network (PAN). A memorandum regarding the IGA, dated May 30, 2001, was provided for Commissioners. Mr. Bequette reported that there were eleven agencies participating in the agreement and representatives from Lane Transit District, Lane Council of Government, the University of Oregon and the City of Eugene were present and introduced. Components of the IGA were described, as outlined in the memorandum. One additional clause was added just the day before, which addresses how the IGA will be approved, which will allow for separate signature documents for each agency and that once five agencies have signed, including EWEB, the agreement would be considered valid.
Mr. Bequette reviewed the approval strategy and status, as included below:
Ongoing work and next steps were reviewed:
The recommendation was to authorize the EWEB General Manager to sign the IGA, including subsequent versions containing minor, non-substantive changes.
Vice President Bartel asked what happened to Bethel School District. Mr. Bequette said that Bethel School District was working through Lane Education Service District (ESD).
Vice President Bartel asked how EWEB was determined to be the responsible party to maintain the fiber. Mr. Bequette reported that while other agencies had fiber, they did not have the ability to maintain the fiber as the project moves forward.
Vice President Bartel asked if the budget could be amended. Mr. Bequette said that it was anticipated to be a perfunctory approval. The budget will represent the work plan and should be self- supporting. Debra Wright, Telecommunications Project Manager, added that the initial policies included a policy of being rate-neutral.
Commissioner Lanning asked why EWEB was chosen as the Executive Authority. Mr. Bequette said that it was at the suggestion of counsel, but that with 180 day notice, EWEB could opt out of the IGA or out of the position of Executive Authority.
Commissioner Lanning asked if there was any liability with being responsible for dispute resolution. Mr. Bequette said that there will be no liability and the IGA specifies that there will be no liability for any agency.
Mr. Bequette said that action on this item will be taken at the Regular Board Meeting, following this Work Session.
TELECOMMUNICATIONS BUSINESS PLAN
Debra Wright, Telecommunications Project Manager, outlined the EWEB Draft Telecommunications Business Plan, dated May 30, 2001, a copy of which was provided to Board members in their Board packets. Joining her in the discussion were Terry Bequette, Jim Origliosso, Dale Smith and Steven Brodsky. The purpose of tonight's presentation was to provide information on the MetroNet plan and answer questions from Commissioners. MetroNet is a two-phased Plan B strategy which initially provides high capacity bandwidth to metropolitan areas in Eugene. In the Universal Build phase, the same high speed connections are made available to all commercial and residential customers.
Ms. Wright reported that the plan will be presented to the City Council on June 27, with distribution scheduled for June 18. No action was requested on this item at this time, but approval of the first phase will be requested at the next meeting on July 3, after which, if there is agreement, the EWEB Board and City Council will execute Amendments to the Joint Resolution. A request for approval of Universal Build will come later.
A copy of the presentation materials was also distributed, which included:
Commissioner Bishop asked if there was any strong feeling if the universal access could be brought forward, rather than being put off during the conversation within the citizen participation process. Mr. Bequette said that there was no clear consensus, noting the economic constraints. Ms. Wright added that there was more of an information sharing activity. Vice President Bartel said that there were many rich conversations, in which people were trying to figure out how to make universal access work.
Vice President Bartel said that he appreciated the work done by Mr. Bequette who facilitated the participation process. He said that he felt the process was very beneficial and recommended that there be a letter from the Board thanking the Technical and Citizen Involvement Committee for their contributions in the process.
Vice President Bartel asked why there was a recommendation to move to a packet based system. Dale Smith, EWEB's technology consultant, said there were several issues involved. He said that TCPIP was well recognized in the industry as the technology of the future. Another consideration was to keep the costs to customers competitive and reasonable. While this may be considered as a new and groundbreaking type of service, there was recognition that the future was for packaged services. Voice based circuits are anticipated to be replaced by TCPIP technology.
Commissioner Lanning said that if it has taken approximately 10 years to outgrow the telephone technology, why move to TCPIP when wireless services are another option. Mr. Smith said that the current challenge with wireless was that it requires "line of sight." He added that wireless gives customers the opportunity for short distance service, which staff sees as a complimentary piece. He said that wireless would be a service provider issue for the last quarter mile of service.
Vice President Bartel asked for a discussion of the top bullet on page 47 of the Draft Telecommunications Business Plan. He expressed concern regarding the construction type of the network hub building, which he characterized as not being suitable for many areas. Ms. Wright said that this was an item that had been flagged by staff for further discussion.
Mr. Brodsky, EWEB's telecommunication's consultant from R.W. Beck, provided feedback on the revenue risk for the EWEB MetroNet and Universal Build Telecommunication Project. A copy of his presentation was provided in writing, which included:
Vice President Bartel asked how likely it was that large providers, like AT&T, were to buy into these services. Mr. Brodsky said that companies like AT&T and other providers were likely to buy and trade services with each other and with EWEB. Mr. Brodsky said that the forecast estimates for penetration may be considered conservative because the purchase of services from these companies was not included in the market survey. Ms. Wright added that the revenue from other long haul service providers was not included in the model.
Vice President Bartel asked how the estimate for installation pricing compared to other areas. Mr. Brodsky said that the pricing analysis was very competitive with what other areas were already realizing. He said that the prices were very close to the existing market in Eugene. Ms. Wright added that independent competitive pricing information was provided by Dennis Gabriel, a member of the Technical Services Advisory Committee. She said that his research showed very similar pricing to that which was developed in conjunction with R.W. Beck.
Commissioner Lanning asked if the 1.5 Mbps standard that was currently available included telephone or cable modem services. Mr. Brodsky said that it was both. He said that direct service line (DSL/broadband services) that were currently available do not provide a reliably consistent speed. The proposed Ethernet system would provide a guaranteed bandwidth, with an extremely high quality of service.
Commissioner Bishop asked for clarification of the "addressable market." Mr. Brodsky said that there was an assumption that business was growing by 1.65 percent annually. He said a select group, which would have an interest in high speed band widths, were identified and considered the addressable market. There was also an assumption that the rise in the number of customers in the addressable market is outweighing the drop in revenue per megabit of service.
Commissioner Bishop said that if competition from other providers in the market was not simulated in the study, why was there an assumption that the prices would decrease. Mr. Brodsky said that the simulations assume that there are competitive pressures. The market forces would suggest that the competition will bring prices down.
Commissioner Lanning expressed concern regarding fiber costs. Ms. Wright discussed the work of the design team and the review by Black and Vetch, which will provide feedback of the capital purchase projections. Commissioner Lanning said that the availability of the fiber has been more of a consideration rather than the price. Mr. Brodsky said that the model considered a high price for fiber, noting that the purchase of fiber in a timely manner was essential.
Jim Origliosso, Treasurer, reviewed a brief history of how the fiber optics project has been funded to date, future plans and the choices for continuing obligations. He noted that initially, electric system bonds were sold and that backbone fiber was constructed. He said that there has been a substantial overbuild of the backbone, which came in $1-$1.5 million under budget. Bond proceeds are now being used to fund laterals to Eugene School District 4J and Bethel School District, which will be repaid through private fund raising, as funds become available. Maintenance costs have also been paid out of bond proceeds, but will be built into the rates to reimburse the bond fund. The proposed budget would be $3 million and bond proceeds are proposed to be used to fund the project. Mr. Origliosso said that repayments to the electric system were included in the pro-forma business plan, although the repayments are not guaranteed. To move forward requires the commitment of $3 million from the Phase I bond proceeds. The requirement to not move forward would mean that the 1998 electric bond proceeds would have to be repaid, $3 million would be available to buy down the obligation, with the remaining principle and interest being paid by electric revenues.
Commissioner Bishop asked if the $3 million would be available through the existing bond proceeds. Mr. Origliosso said that was correct.
Mr. Origliosso spoke about the short-term debt which would result from the capital needs in the first ten years. Ms. Wright noted that the 10 year capital projects budget was approximately $10 million and that only $3 million was from the bond proceeds. The remaining $7 million would be funded though some form of short-term debt. Mr. Origliosso said the project would not require additional bond authorization, but would be funded through an additional line of credit that would be credit enhanced by EWEB and/or available electric cash, if any. He said that there was an issue of the utility being able to establish a line of credit though the EWEB Charter, although the City Charter provides for authorization for working capital requirements for EWEB. He noted that funding through the current stage has been a cost to the utilities. Also, the bond proceeds have funded the schools, the PAN and this proposed project.
Commissioner Bartel asked about the Charter Amendment. Mr. Origliosso said that the bond issue predated the Charter Amendment which authorized EWEB to provide telecommunication services. He said that there was also a bonding authority within the City Charter. He said that there was an $8 million bonding authority for EWEB in the City's Charter.
Commissioner Lanning asked how the repayment would be made. Mr. Berggren said that the assumption was that the MetroNet would reimburse the line of credit. However, at the end of year one, it may be necessary to use the bond rating and credit capability of the electric utility to secure the line of credit. Ultimately, the utility could be liable for the line of credit, if MetroNet is not successful in the revenue projections. He said that the resolution with the City Council speaks to no cross-subsidy and that it could be argued that using the credit enhancement capability of the utility would be considered a deviation. He said that the Board would want to be clear of the feasibility of the plan. Ms. Wright said that to use the $3 million for start-up funding will require a resolution with the City Council. She asked how the Board would like to have that be amended to accomplish both tasks at the same time.
Commissioner Bishop asked if there were models where a utility has set up a separate business line for telecommunications. Ms. Wright said that she did not know. She said that there are usually separate business lines, but there was usually some relationship. Mr. Brodsky said that there was a spectrum of blending of services. He said that EWEB was more separate than most of the examples that he has seen. Commissioner Bishop said that she was concerned about this perception and that telecommunications should be an integral part of the services provided.
Commissioner Smith asked for clarification on the amendment process. Mr. Bequette said that a clause was added to allow for amendment to the process by the member agencies.
Ms. Wright reviewed the next steps. She noted that the advice from City staff has been that if EWEB intends to come back to City Council with a request to amend the resolution, it would be important to let the Council know that during the June presentation and that Win Calkins, EWEB's General Counsel, and the City Attorney be in agreement that an amendment was necessary to the resolution and how that might be approached. Staff hoped that the amendment to the resolution would be resolved before the City Council takes its August recess.
President Anderson said that she hoped that staff could pull together a strong recommendation from the research that has been done, so that the City Council does not feel that this will threaten the electric utility again. Ms. Wright said that this was a start-up venture. She said that Eugene was a Tier three or Tier four city and that the infrastructure was needed by the community. President Anderson said that she was in support of the project. Ms. Wright encouraged Commissioners to provide input prior to June 18, when the plan will be forwarded to City Councilors.
Vice President Bartel said that he believed that this concept was a basic service for the 21st century and that it was a critical part of the community, which will be our economic future. He said that he looked forward to going before the City Council. He expressed appreciation for the work by staff.
Commissioner Bishop said that she was concerned about what would be included in the presentation to the City Council on June 27. Ms. Wright said that the presentation would be a status report. Commissioner Bishop added that she felt the resolution needed to be amended.
The meeting was adjourned at 7:38 p.m.
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Assistant Secretary President