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

Others present: Randy Berggren, Jim Origliosso, Marty Douglass, Dick Varner, Dick Helgeson, Lance Robertson, Cathy Bloom, Dawne Howard, Ken Beeson, Debra Wright, Tom Buckhouse, Joanne Anderson.

ELECTRIC UTILITY FUNDING OPTIONS

Fiscal Services Supervisor Dick Varner explained with the aid of overhead projections the electric utility funding options. He noted that on the previous Thursday, the Bonneville Power Administration (BPA) had announced the final numbers for projected power costs. He reported that the Load-Based CRAC for the "Slice" product is 40 percent and for the "Block" product is 39 percent, which represents a decrease of 6½ percent for the Slice and 7 ½ percent for the Block. The BPA is still projecting that the October, 2002, Load-Based CRAC will be similar to the current Load-Based CRAC. He noted that the BPA had added that there is a significant probability that a Financial-Based CRAC will be triggered, likely at the maximum allowable level. He related that the BPA is seeking to cut $100 million from their budget.

Mr. Varner stated that the BPA has until the end of September, 2002, to finalize the numbers. He related that the BPA is projecting a Load-Based CRAC in October, 2003, at circa 30 percent.

Mr. Varner reported that a number of assumptions that had been made when preparing the budget are no longer valid. Sales are down, the wholesale price of power came down, but the power generation remained very closely to what had been predicted. He stated that transmission costs vary with the load, as do the ancillary services. He said that instead of a budget that is yielding $6.5 million in replenishment, it is actually projected to yield $3 million.

Mr. Varner provided an overview of the Financial Scenarios and the assumptions that each one makes, including the Optimistic Scenario, the Medium BPA Scenario, the Rate Forecast Scenario, the Conservative Scenario, and the Pessimistic Scenario as delineated in the Board member packets. He explained that the rate forecast scenario is the base scenario.

Treasurer Jim Origliosso delineated proposed options for the proposed Preferred Tool Kit, with the aid of overhead projections.

President Anderson opened the floor for questions.

Vice President Bartel asked, regarding the 17 percent cost increase for medical benefits, what the five-year history prior to this had been. Mr. Varner responded that the utility had signed a "very good deal" in 1994, at the same time as the Clinton health care package was being advanced. General Manager Randy Berggren added that this lasted three years and had saved almost 1/3 of the local costs during that time. Mr. Varner continued, stating that in 1998 there had been a ten percent increase in costs, as well as increases in the following years as well. He noted that this year there had been approximately a "20-plus" percent increase in the health care costs, but that it had been managed more carefully by the utility and, as such, had not had as profound an impact as it could have.

Vice President Bartel stated that there had been several discussions regarding this. He suggested that a cap be put on the utility's contribution to health care. He asked if health care expenses for the current year had been projected. Mr. Varner responded that for employees, it is projected to cost $2.7 million and for retirees, the benefits are slated to cost $2 million. Mr. Berggren added that the unfunded liabilities have increased.

Vice President Bartel reiterated that the health care costs are an expensive part of the utility's budget. He advocated containing costs in all ways, stating that everyone needs to share the burden. He suggested that there be no pay increase in the next year for employees. He also noted that it is not unusual for an employer to cap benefits allowable to employees. He recommended gathering employee feedback regarding possible cutbacks.

Commissioner Smith stressed the importance of maintaining clear communication with employees. She said that she would like to know what other local public agencies require employees to contribute to health care. She related that employees have stressed to her the importance of health care benefits. She commented that she had felt very positive about what the utility has done to manage compensation plans. She felt that there was a general lack of awareness on the part of the public and the employees of what measures the utility has had to institute and the red-lining that has had to occur in the last couple of years.

Commissioner Bishop asked what the phrase "relative to target" translated to in a dollar amount in the budget. Mr. Varner responded that it is the part needed to get "back to zero."

Vice President Bartel asked why there was more money in reserve now with the lower rates. Mr. Varner responded that there is more volatility in what the output was than there had been prior to the present.

Vice President Bartel noted that the city had not been "keen" on the Contributions in Lieu of Tax (CILT). He wondered if there was a money amount that could be reduced in that portion of the budget. Mr. Berggren offered to bring information for the Board to look over in regard to the current status of CILT.

President Anderson endorsed the rate proposal. She expressed concern that the public may find it confusing, stressing that it needs to be well-explained. Commissioner Smith said that she liked that it is tied into what the BPA will do. At her request, Mr. Varner explained that there will only be one additional line on the bills that go out to customers. She advocated building the Tool Kit as she thought it unlikely that this would be the only time the Board would have to address this issue.

Commissioner Lanning advocated applying a short-term surcharge to the bill, rather than a rate increase, during the time that the utility is uncertain of the actions of the BPA. Mr. Berggren said that the BPA has a "big hangover" resulting from the drought and energy crisis of 2001. He felt that the finances of the BPA were not in any better shape than the finances of EWEB. Mr. Origliosso clarified, for President Anderson, that a surcharge would theoretically go away as the budget recovered.

Mr. Varner, responding to a question from Vice President Bartel, stated that the snow-packs are two or three percent less than normal to date.

Vice President Bartel reiterated that he would be willing to look at a variety of options prior to endorsing a rate increase. He felt that the public sentiment will largely be opposed to a rate increase, and vehemently so.

President Anderson noted that of the five scenarios, only the optimistic scenario did not include a rate increase. Commissioner Smith stressed that no Board members like the idea of a rate increase. She noted that the Board does support the tool kit and that the Board and staff need to find ways of reducing the budget even more. President Anderson commended the staff for the work it took to reduce the increase from 15 percent to 3.5 percent.

Commissioner Smith expressed discomfort in that there did not seem to be much direction from the Board to staff to aid them in the work of reducing the budget. She stressed that the Tool Kit plus a rate increase had to equal the money that was needed to fill in the gap.

Vice President Bartel reiterated his opposition to a rate increase, stating that the cost containment has to be "pretty draconian" before he would vote for it. He noted that budget cutting is "gut-wrenching," but necessary.

President Anderson felt that some Board members were not "facing reality." She reiterated that staff needed clear direction from the Board.

Commissioner Lanning asked, given the medium BPA scenario, if California doesn't resolve its issues by summer and wholesale prices increase to close to the cap, how the scenario looks. Mr. Varner answered that there would not be a problem. Commissioner Lanning felt that the utility would likely be salient until October,2002, at which time it would know what was in store for the winter from the BPA. He noted that this did not necessarily mean that he would not vote for a surcharge.

Staff responded that it was important not to act on assumptions about wholesale power prices. Mr. Berggren echoed staff, saying that staff could grab any number and apply it to the future of the budget, but the number would not be accurate.

Mr. Berggren summarized the recommendations he had heard at the Work Session so far: that the low-income energy assistance be reduced and that a wage freeze be instituted.

Mr. Origliosso requested suggestions from the Board as to non-discretionary budget items that could potentially be reduced.

Commissioner Smith asked what the status of the school grants are at this point. Mr. Berggren responded that the grant monies are committed at this point.

Responding to a question regarding tree trimming, Mr. Origliosso stated that the cuts to the tree trimming budget already constitute one-third of the discretionary cuts.

Vice President Bartel said that the rate increase scenario is likely to occur. He stated that the current stand-off could not persist through the night. As such, he moved that the discussion be closed.

Commissioner Lanning reiterated his support for a surcharge, noting that staff has been asked to make cuts and to recommend cuts and that staff has done so. He felt that a surcharge applied to the bill for a finite amount of time would be an improvement over another rate increase.

The work session adjourned at 8:07 p.m.

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Assistant Secretary President