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

Others present: Randy Berggren, Ken Beeson, Steven West, Chuck Bodine, Jill Hoyenga, Scott, Spettel, Dick Varner, others, 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 & Electric Board, (EWEB), order at 6 p.m.

PRELIMINARY 2002 WORK PLAN & BUDGET RESULTS

Dick Varner, Fiscal Services Supervisor, provided a presentation on the 2002 work plan and budget results. The presentation included a 2002 budget issues update, major impacts on the 01/02 budget, figures on purchased power cash reserves from 2001 - 2004, a proforma and budget on electric operations and maintenance, and brainstorm ideas to address budget issues.

Mr. Varner cited the BPA rate increase, the drought, and wholesale market volatility as the major impacts to the 2001-02 budget. He said that the drought of the previous summer had cost the utility $30-$35 million in lost power production to be sold on the market. Moving on to market volatility he noted that forward power purchases when the whole sale market was very high had cost the utility an additional $35 million because prices had now dropped so low on the wholesale market. He stressed that at the time when market prices were rising so rapidly, forward power purchases, locking in a set price, had been a wise thing to do.

In response to a question from Commissioner Bishop regarding the definition of secondary surplus, Mr. Varner explained that, for hydro-generation, there was a certain amount of generation that could be relied upon at critical water. He defined critical water as the equivalent of the third or fourth driest water year on record. He said that secondary surplus was the difference between generation at critical water and generation at anything above that.

Mr. Varner said that purchase power reserves would be used up by the end of the month and the utility would have to do substantial borrowing in the next 4 -5 months to cover power costs.

Mr. Varner noted that purchase power cash reserves graph, presented in the meeting packet, assumed that BPA would reduce its rates in April.

In response to a question from Vice President Bartel regarding why staff were making that assumption, Mr. Varner said BPA's needs only justified 50 percent of what their rate increase was. He noted that the danger was that wholesale prices would shoot back up.

In response to a question from Vice President Bartel regarding the reason for not extending debt payments, Mr. Varner said, from a financial operations standpoint, he had concerns about extending short term debt into multiple years. He added that he did not know how politically difficult it would be for the utility if the Bonneville Power Administration, (BPA), lowered their rates without EWEB lowering theirs as well.

General Manager Randy Berggren added that EWEB's financial situation was not unusual in the northwest. He stressed the importance of maintaining a "AA" bond rating and repaying EWEB's short term borrowing within 18-24 months. He stressed that the market could change at any time and that he was concerned with taking longer than two years to repay short term debt.

In response to a question from Commissioner Smith regarding the brainstorming ideas as presented in the meeting packet, Mr. Berggren said that the utility was examining all of its assets to see where money could be saved.

Mr. Varner summarized the brainstorm ideas as presented in the meeting packet.

In response to a question from Commissioner Bishop regarding whether it was unusual to use bond money to pay off debt service , Jim Origliosso said that it would have no effect on the bond rating as long as the debt remained short term.

Commissioner Smith acknowledged that the utility was weathering a storm but urged caution in any financial undertakings that might impact the utility at a later date.

The work session adjourned at 7 p.m.

_____________________________________ ______________________________________

Assistant Secretary President