Board Members Present: Dorothy Anderson, Peter Bartel, Susie Smith, Patrick Lanning, and Sandra Bishop.
Others present: Randy Berggren, JoAnn Andersen, Tom Buckhouse, Ken Beeson, Marty Douglass, Dick Helgeson, Roseanna McArthur, Jim Origliosso, Lance Robertson, Dick Varner, John Yanov, Jim Wiley, Debra Wright, and Krista Hince of the EWEB staff; and Joe Sams, City of Eugene Minutes Recorder.
President Anderson called the Work Session of the Eugene Water and Electric Board, (EWEB), to order at 5:15 p.m.
2002 WORK PLAN AND BUDGET
Dick Varner, Fiscal Services Supervisor, provided a presentation on the utility issues in the 2002 work plan. The presentation included:
Electric
Commissioner Smith raised concern over promises of future rate reductions when there were major items that remained unfunded.
In response to a question from Vice President Bartel regarding a time line for rate reductions, Mr. Varner opined that a the Board, over the next six months, needed to position itself for what it would do in 2003. General Manager Randy Berggren said that there could be a substantive discussion of options at the October Board Retreat.
In response to a question from Vice President Bartel regarding changes in the bond market, Mr. Varner said that the utility's expected interest rates were expected to drop three quarters of a percent from where they were in August. He noted that such a drop might hurt the utility's income but added that the current cash reserves were so low that it might actually help since the cost of borrowing would be much less. Jim Origliosso, Treasurer, added that if Bonneville Power, (BPA), reduced its current rate in April and the utility kept its proposed rate, then it would be in a better position to pay back its debt/borrowing costs. He said that BPA would give an indication of its intentions in February.
In response to a question from Vice President Bartel regarding how the utility would educate rate payers about the rate increase when power costs were now dropping, Mr. Varner noted that rate payers had been protected against the hugely inflated power costs in 2001 and the utility had not recovered the costs incurred for that protection.
Water
Steam
MetroNet
In response to a question from Commissioner Lanning regarding whether it was appropriate to be lining up customers for MetroNet, Mr. Origliosso and Mr. Berggren stressed the importance of lining up customers as soon as possible to help finance the project.
In response to a question from Commissioner Smith regarding which capital improvements were targeted for deferral to a future year, Mr. Wiley, Director of Electric Division, said that staff was working on trimming the annual budget by 2.5 to $3 million each year over the next 3-5 years. He cited facilities for the Hawkins Substation, Trail Bridge automation, downsizing the cable replacement budget, and getting more years out of the vehicle fleet as specific examples. He stressed that the cuts would not create reliability risks.
Commissioner Smith raised concern with cutting too deeply into the budget.
Mr. Berggren said the basic idea was to brainstorm all possible ideas for saving as much as possible in each year. Mr. Origliosso said that it would also be possible to lay aside a significant amount of contingency money that would aid in projects that became necessary to complete.
In response to a question from Commissioner Lanning regarding the effects of dropping power prices, Mr. Origliosso noted that when the market prices were climbing so sharply, the utility had locked in prices on future power purchases and, now that the prices were dropping, those prices no longer were a bargain. Mr. Varner added that with the lack of rainfall, the power generation that the utility could usually depend on was also no longer available.
In response to a question from Vice President Bartel regarding the total amount of money locked into prices that were no longer beneficial, Mr. Varner said the amount was on the order of $35 million above what the Federal Energy Regulatory Commission, (FERC), price caps were currently at.
Mr. Varner said that EWEB was not alone in its situation. He said that every utility that tried to mitigate the market instability and locked in prices on forward power with long-term purchases was having the same problem.
In response to a question from Commissioner Lanning regarding what would happen if the market instability returned, Mr. Berggren said staff was assuming that the FERC price caps would still apply. He added that the cap was set at a $91 ceiling until September of 2002.
In response to a question from Vice President Bartel regarding at what price levels the utility had purchased forward power, Mr. Varner said the prices ranged from the twenties to a couple of contracts in the three hundreds. He noted that, at the time, the price was beneficial since soon after the power was purchased the price rose to five hundred.
Mr. Berggren stressed that the utility could have handled an energy crisis or a drought but that the combination of the two was overwhelming. He said that the value of the lost power generation from the drought was over $33 million (+ or - $5 million).
Commissioner Lanning stressed the importance of sharing that information with the public.
Mr. Varner and Mr. Berggren stressed that all predictions were assuming normal rainfall for each year.
In response to a question from Commissioner Bishop regarding how long of a delay there would be between the time BPA reduced their rates and the time EWEB could reduce its rates, Mr. Varner commented that there was no guarantee that BPA would reduce its rates, but stressed that if there was a rate reduction EWEB would have to pay off its debts before implementing a rate reduction.
Mr. Berggren added that staff were trying to keep the delay to less than a year.
In response to a question from Commissioner Smith regarding the Regional Transmission Organization, (RTO), Mr. Varner said, in the near term, the utility had firm rights, under BPA, to have its own loads served. He noted that there was some danger of congestion at certain points in the system until new transmission capacity was built.
In response to a question from Vice President Bartel regarding spreading out repayments on borrowed funds, Mr. Varner acknowledged that it was possible but no more than seven years. He added that the length would depend on interest rates.
In response to a question from Commissioner Bishop regarding whether the drought costs were related to less power generation by the utility, Mr. Berggren said that, due to reduced generation capability, the utility had been forced to replace lost power on the open market.
In response to a question from Commissioner Bishop regarding what would happen if there was a drought in 2002, Mr. Varner said the utility would have to begin tapping its water operating reserves.
In response to a question from Mr. Varner regarding whether the Board had any objection to following an URBA process for groundwater in 2002, there was no Board opposition.
The work session adjourned at 7:10 p.m.
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Assistant Secretary President