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

Others present: Randy Berggren, JoAnn Andersen, Tom Buckhouse, Dick Helgeson, Marty Douglass, Roseanna McArthur, Jim Origliosso, Dick Varner, Jim Wiley, John Yanov, and Krista Hince of the EWEB staff; members of the public; and Kim Young, City of Eugene Minutes Recorder.

President Anderson called the special board meeting to order at 7:30 pm.

AGENDA CHECK

Commissioner Lanning asked that Item 6, Contributions-in-Lieu-of-Taxes, follow Item 8, the Public Hearing on Electric and Wind Rates. There was no objection.

CONSENT CALENDAR

Commissioner Lanning asked that Item 6, Contributions-in-Lieu-of-Taxes, follow Item 8, the Public Hearing on Electric and Wind Rates. There was no objection.

Minutes

Minutes from February 28, 2001 Special Board Meeting

Minutes of the March 6, 2002 All Utilities Meeting

Business Service Agreements

L.H. Morris - Residential Demand-Side Management Resources Program - $125,000

Bill Print & Mail Operations - Annual renewal of document composition software license (DOCI) used to format and print bills - $31,209.7

Montgomery Watson Harza (MWH) - Trailbridge Spillway Expansion -$37,700

Commissioner Bishop removed the minutes of February 28, 2001, Special Board Meeting from the Consent Calendar.

Vice President Bartel, seconded by Commissioner Lanning, moved to adopt the Consent Calendar with the exceptions of the minutes of February 28, 2001. The motion passed unanimously.

ITEMS FROM BOARD MEMBERS

Commissioner Smith announced her resignation from the Eugene Water & Electric Board, effectively immediately following the meeting. She believed the work staff and the Board had done in regard to the budget allowed her to leave at this time. She believed the Board's operating principles and policies had served the organization and the community well over the last decade, and that the Board would continue to serve the community well. She said that her 12 years with EWEB had been amazing. There had been many rewards and many struggles. It was not always easy, and it was not always fun. Commissioner Smith wished the Board well in the future, and said she hoped the factors that had contributed to recent rate increases did not happen in tandem again in the future. She said she would miss the Board and the caliber of the EWEB staff. She said EWEB was the best municipal utility in Oregon.

Vice President Bartel thanked Commissioner Smith for her work and commended the quality of her service to EWEB.

Vice President Bartel commended a memorandum the Board received from Bob Wilson regarding the work going on at Hayden Bridge.

Responding to a question from Vice President Bartel regarding EWEB's eligibility for emergency federal storm damage funds, Mr. Berggren confirmed that President Bush had declared an emergency, and EWEB was awaiting more details about how to seek reimbursement. Vice President Bartel asked if homeowners would be able to take advantage of that funding source. Mr. Berggren said no. It was all directly related to public infrastructure damage.

Commissioner Bishop said the City of Eugene was holding a public hearing that evening regarding the redevelopment of the courthouse area. She said it was imperative that EWEB continued to request to be involved in that effort. There seemed to be a continuing assumption on the part of the City that redevelopment would happen without input from EWEB. She hoped that EWEB could work closely with the City as plans for the courthouse district came together. Commissioner Bishop noted that the Eugene Planning Commission met at EWEB last week and had toured the area. She and President Anderson participated in the tour, and said it was a positive step in bringing the two agencies together.

Commissioner Lanning thanked staff for providing the Board with the customer comments on the rate increases.

Commissioner Lanning thanked Commissioner Smith for the years of service she had given EWEB and the time she had taken to mentor him. They did not always agree, but he appreciated her thoughtfulness, insight, and leadership.

CORRESPONDENCE

General Manager Randy Berggren noted the Board’s receipt of invitations to the State Line dedication.

PUBLIC INPUT

Charles Biggs was not present when called on to speak.

Zach Vishanoff, 1312 Mill Street, urged the board to consider moving EWEB operations and headquarters completely from its current site. He said that would give the community to redevelop the site in a sustainable, renewable way, possibly through recycling existing historic houses by moving them to the area and creating an energy center for University students to use. He said that the more space there was to experiment with a new kind of neighborhood, the more likelihood such an experiment would have success. The Millrace could be opened and its condition improved.

ELECTRIC AND WIND RATE PROPOSALS

Dick Varner, Facilities Services Supervisor, John Yanov, Senior Rate/Financial Analyst, and Jim Maloney, New Energy Resource Project Manager, joined the board for the item. Mr. Varner provided background on the proposed electric rate utility increase, noting it was proposed in part to cover increased costs from 2001 and anticipated increases in 2002. He briefly reviewed the history of recent electric rate increases and noted the board's approval of two rate update mechanisms during that time to address changing conditions. He described recent efforts taken to address the utility's financial shortfalls, which included budget reductions, accelerated cash inflows to assist in repayment, and delayed spending. He reviewed staff's proposal to repay funds that EWEB recently borrowed and to replenish its reserves, which involved a rate surcharge over three years of about 5.6 percent, an increase over the next six months of about 2.9 percent in customer bills.

Mr. Yanov called attention to a document showing the impact of the increase on various customer classes. He noted that the rate increase, if approved, would take effect in May 2002.

Ms. Bishop asked if staff was assuming the cost recovery adjustment from the Bonneville Power Administration (BPA) would drop in the fall. Mr. Varner said that staff made no assumption about what the BPA would do. He said if he had to guess, he would guess there was a likelihood of a small rate increase, which would apply to the block that was one-third of the utility's purchase, for a relatively small impact. Mr. Lanning asked the impact of that increase on the rates. Mr. Maloney estimated one to two percent. If it was that small an increase, he suggested that the board would likely look at whether it was worth increasing local rates, and consider the level of EWEB's reserves to determine whether to pass through the increase.

Commissioner Lanning asked what would happen if EWEB did not pass a rate increase; did it have sufficient reserves to get the utility through October. Mr. Maloney suggested that depended on summer retail prices and hydroelectric generation conditions.

Commissioner Bishop asked what percentage of the utility's power was generated by hydro the previous year. Mr. Maloney said that the percentage was down, to around 50 percent.

Commissioner Lanning asked if the surcharge could be removed sooner than three years if conditions improved. Mr. Varner said that the board would review the surcharge in 12 months to determine whether it should be considered.

Mr. Yanov reviewed the May 2002 wind rate proposal, calling the board's attention to the staff recommendation to hold the wind power rate unchanged pending the outcome of the Wind Power Marketing Program evaluation. Mr. Maloney briefly discussed the upcoming evaluation, saying that one outcome could be the cessation of the program. Staff would return in early summer for that discussion.

PUBLIC HEARING ON ELECTRIC AND WIND RATES

President Anderson opened the public hearing.

Maco Stewart, 812 East 12th Avenue, #3, a University student, noted the increased costs in rents and tuition faced by students and said that those costs were difficult for many to meet. He asked the Board to keep students in mind when it was considering the rate hike.

Bill Sellers, 6071 Mondovi Lane, said deregulation did not appear to work. He said that if re-regulation would decrease prices, he favored that so that people could afford electricity. He said that the price increases that had occurred were ridiculous. He said that someone must take the lead and say “enough is enough.”

Jim Seaberry, 3294 Stark Street, thanked Commissioner Smith for her service. He wanted to know if the Board had contacted the City about reducing the Contribution in-Lieu-of-Taxes (CILT) it paid the City, noting it was above the percentage minimum established by the State. He asked if EWEB had considered returning the percentage collected for the use of credit cards back to the customer as a discount. Mr. Seaberry said that EWEB was subsidizing the affluent with energy-saving programs the poor cannot take advantage of. He asked EWEB to postpone the rate increase.

Kurt Thelan, 1190 Taney Street, asked the Board to reduce other costs to avoid rate increases. He attributed EWEB’s financial shortfall to mismanagement. He said that he reviewed the budget and it was his belief that $5,359,000 could be cut. He called for ten percent pay cuts for management and 2.5 percent pay cuts for employees; a cessation of all wage and pay incentives; elimination of paid insurance for employee families; limited vacations; and a reduced PERS contribution. He called for reduction of MetroNet staff, the facilities graphics staff, and the landscaping staff.

Sherri Garretson, 40950 McKenzie Highway, did not understand the large rate increases in light of the small increases other utilities experienced. She said that she lived in an uninsulated trailer and her bill was $300 monthly. She needed to keep her child warm. She said that it was already difficult to make ends meet and the increase was too much.

Charles Dallas, 4789 Fox Hollow Road, acknowledged the difficult decisions before the Board. He told the Board he had confidence in it and in staff. He said the Board did a magnificent job, and said that EWEB was the best municipal utility in the country. He expressed gratitude toward the Board, particularly Commissioner Smith, saying she would be hard to replace. He commended EWEB staff for doing a good job in a difficult situation. Mr. Dallas said no one could have predicted what happened in the recent energy market.

Howard Bonnett, 1835 East 28th Avenue, submitted written comments. He hoped the Board was setting standards for future energy contracts. He also hoped the Board would address what he termed the conservation conundrum, wherein “the less power we use, the more we pay.” He said that he would need more information to determine whether a rate increase or an internal budget cutting should occur to make up the revenue shortfall.

President Anderson clarified that EWEB had not speculated in the forward contracts it entered into; it was against the law to speculate. FERC had continually refused to cap practices until EWEB had entered into the forward contracts.

Bob Cassidy, 1401 East 27th Avenue, thanked the Board for the tiered rates. He questioned how much conservation occurred because of the tiered rates. He acknowledged the need to rebuild the reserves. He thought the reserves were down because EWEB contracted for too much electricity from the BPA. He said that merit increases and pay increases should be cut completely. He acknowledged that would not change the rates “at all” but the perception it would have in the community. Mr. Cassidy said that it might be an incentive for staff to find additional resources

Mark Hudson, 1285 Crenshaw Road, opposed the rate increases because EWEB decided that all the power contracts should expire at the same time. It was his understanding that most utilities staggered or lateraled such contracts. He maintained that EWEB was raising the costs of wind power, but those costs had not increased. He said that when the market was in panic, one did not lock in contracts. Mr. Hudson pointed out that the Springfield Utility Board (SUB) purchased more power from the BPA than EWEB did, but SUB was not seeking a rate increase. He recommended a temporary rollback of upper management salaries to show accountability for decisions made and for the customers; a wage freeze and significant layoffs; abandonment of the MetroNet program; and for EWEB to seek injunction relief through the courts to abrogate the power contracts.

Richard Kauffman, 2525 Hawkins Lane, indicated his points had been made by previous speakers.

Commissioner Bishop indicated it was her belief that some of the points that had been made were not factual, and she thought they should be investigated.

Jeff Osanka, 1742 Skyline Boulevard, said ratepayers were mad about the previous rate increase, mad about the proposed increase, and believed they were powerless to stop it. He maintained that “people” find EWEB financially unaccountable. He opposed the proposed rate increase and said that cuts should be made elsewhere. He recommended that the Board postpone action, consider the testimony offered, and make a decision later.

Susana Rich, 344 Ventura Avenue, said she was a small business owner and was outraged at the increases in electric costs her tenants were required to pay. Her tenants were working people or students and could not afford the increases. She asked the Board to keep in mind that the county was going through a bad recession and many people were unemployed.

David Hinkley, 1350 Lawrence Street, acknowledged the need for the surcharge and the need to maintain the reserves. However, he was not happy with two rate increases in quick succession, particularly given the size of the CILT paid to the City of Eugene by EWEB. He proposed that EWEB reduce its CILT by 1.5 percent to reduce the rate increase needed and to ensure that the City continued to receive the revenues it expected prior to November 2001.

Susan Swanson, 1285 Crenshaw Road, also encouraged that the rate increase be tabled.

Ed Kemp, Cedar Flat, recommended that the Board return to the purpose of the utility and stop being a public charity and stop underwriting field-driven environmental projects. He said that EWEB should bring its efforts up the McKenzie River down to earth; he thought those efforts, intended to benefit fish, would adversely affect many people.

President Anderson closed the public hearing.

Speaking to the contention that EWEB was subsidizing the affluent with conservation programs the poor could not take advantage of, Commissioner Smith said that were conservation programs are good business for EWEB. They helped save the overall customer rate base millions of dollars because it was cheaper to save energy than to buy it. The programs EWEB offered were available to all ratepayers and many were targeted toward low-income residents.

Commissioner Lanning addressed the topic of the CILT, saying that the Board would have a discussion with its general counsel about the legal basis for the current CILT. The utility’s agreement with the City called for a payment of six percent.

Responding to a question from President Anderson, Mr. Berggren said that EWEB accepted credit cards as an additional payment option. He said that the process was automated now; about 5,000 customers elected to pay their bill with a credit card. Mr. Bartel said that the use of credit cards was one desired by customers, and as that use grew, the discount rate was reduced. He thought it important EWEB provide as many payment options as possible and that could be managed. Commissioner Bishop asked if it cost EWEB more to accept payment through a credit card. Staff indicated that the discount rate was about 1.8 percent, which one could say was added to the cost. However, it gave the customer without the ability to produce cash an opportunity to pay the bill in installments and helped EWEB to manage its bad debt; if it could get the money now, it did not have to pursue the customer with additional collection efforts, which saved over the long-term.

Mr. Seaberry maintained that EWEB’s practice of accepting credit card payments did not hurt customers such as himself, but hurt those who could not afford to pay their bills.

Commissioner Bishop addressed contentions about the comparative size of EWEB’s rate increase, saying that EWEB was not operated on the basis of cost alone, unlike SUB. EWEB had, over the years, invested in renewables and conservation, which added to its operating costs. EWEB’s rate increase was lower than that of other municipal utilities in the northwest.

Commissioner Smith pointed out that EWEB’s own hydro projects, which typically provided some of the cheapest power in the region, had not been able to operate, forcing EWEB to the power market. That had not been acknowledged in testimony. She recognized the perceptions that existed and encouraged those in attendance to read the factual information available the increase. She cited the fall 2001 BPA rate increase of 63 percent as a major factor in recent increases.

Speaking at the request of Commissioner Bishop, Mr. Varner clarified that wind power costs had not increased in the last three years; for those who purchased wind power, delivery costs had been increased, and for partial wind customers, the element of the bill that was not wind power had increased. In terms of power purchase contracts, he said there were a number of contracts that ended between July and October 2000; EWEB began filling those contracts in May, and ended up in December with enough power to cover the basic needs of those contracts. What EWEB ended up purchasing at a higher cost in February-April 2001 was the replacement for the hyrdo power it expected to get. The last expensive contract EWEB purchased was in late April 2001, and the FERC price caps were imposed in June 2001.

Responding to a question from Vice President Bartel, Mr. Varner said that EWEB filed a request to FERC for reformation of the contracts post-implementation of the FERC order. That case had not been decided yet. FERC had recently requested more information from EWEB regarding contracts for an investigation it was doing regarding potential price-fixing. He believed that if FERC found evidence of collusion, there may be some remedies available; however, he pointed out that the Enron, the company alleged to have the largest role in the collusion, had declared bankruptcy and had no assets. In the best of worlds, EWEB would be able to wipe out the borrowing and restore the reserves.

Responding to a question from Commissioner Lanning, Mr. Berggren said that the issue of what controlling document related to the CILT had legal precedence needed to be sorted out; that would take some time.

Responding to a question from Commissioner Bishop, Mr. Varner said that as of the end of March 2002, EWEB had no contracts that were significantly above market.

Commissioner Lanning asked Mr. Varner if EWEB purchased too much power. Mr. Varner said that EWEB’s purchases were based on load forecasts that assumed growth of 1-_ to 2 percent yearly. The actual load was close to the forecast until the economic downturn. At that time, two major customers shut down production lines and there was a drop-off in retail customer use. Most of that occurred before the rate increases occurred. At this time, EWEB was running 10 to 15 percent below load forecasts.

Commissioner Lanning asked about the impact of a two-week delay. Mr. Varner believed the delay could be accommodated.

Vice President Bartel noted his opposition to the proposed rate increase for reasons previously stated. He spoke to the unanticipated increase in revenues the City would received in CILT payments because of the November 2001 rate increase and EWEB’s discussion with the City about directing a portion of those revenues toward underwriting the costs of electricity for 16,000 low-income residents identified by EWEB as needing assistance. He emphasized the importance of that program, and said he wanted to know what could be done at a reasonable cost for a long-term commitment to the program that helped EWEB minimize the rate impact and provide a reasonable amount of support to low-income customers. He believed the appropriate cost was less than $2.5 million. However, Vice President Bartel questioned how the utility could assist such a larger number of low-income residents without some measurement of outcomes. He wanted to do the right thing in a fiscally responsible way.

President Anderson believed that the energy assistance program needed to be assessed after EWEB had more experience with it. She agreed that such an assessment should be done.

President Anderson questioned whether the Board should postpone its decision given Ms. Smith’s announcement. She said that the decision was not easy either way. The Board had been cutting the budget continually for some time, and further reductions would have a major impact on the utility. She said that the community was going to have to accept some hard truths. EWEB could not help what the BPA did last fall. EWEB could not raise rates in fall 2002; she was opposed to rates increasing. Any BPA increases then should be absorbed with any available money that could be found at that time.

Commissioner Bishop asked staff to calculate the impact of a one-year salary freeze. Mr. Varner said that such an action would realize about $500,000 for the remainder of the fiscal year, and about $350,000 to $400,000 for the first half of fiscal year 2003. President Anderson pointed out the time the Board spent on the compensation plan, which was based on the market. The Board did not want to get out of sync with the market, because it would cost more in the future to catch up. She pointed out that employees did not enjoy automatic annual pay increases.

Commissioner Lanning asked that the Board to close the discussion and commence with its discussion of the CILT before returning to the subject of the rate increase. He said that discussion would help answer some questions he had.

Commissioner Bishop did not think that the Board’s discussion with the City would yield any movement in the CILT in a manner that allowed it to impact the budget this year. She thought the discussion that would occur was a long-range one.

President Anderson suggested that Commissioner Lanning ask his questions at this time.

Commissioner Lanning asked if EWEB was legally bound to the six-percent CILT it paid Eugene. Legal Counsel Win Calkins referred the board to Oregon Revised Statute 225.270, passed in 1943, establishing an CILT of not less than three percent. In 1955, the City Council, through Resolution 426, requested an increase from three to six percent for a two-year period, which was later extended by subsequent council Resolution 510. In 1957, EWEB passed a resolution agreeing to the six-percent rate; since 1958, the board had passed annual budgets including that percentage. The 1976 City Charter called for continuation of the six-percent rate until changed by the agreement of the board and City Council. Mr. Calkins said that since then, the City and EWEB executed a memorandum of understanding (MOU) in 1996 changing the rate from 6 percent of gross electric revenues on sales of electricity intended for resale to 17 percent of the net rate.

Vice President Bartel asked if it was possible to reduce the percentage paid on steam through a MOU. Mr. Calkins said yes. Mr. Lanning asked about the possible time frame for such an MOU. Mr. Calkins said it would be a matter of coming the two bodies together.

President Anderson thought Commissioner Lanning’s suggestion a great idea but questioned what leverage EWEB had to get the City to accept the reduction. She had not come away from the Board’s joint meeting with the council encouraged by its reception of the idea. Commissioner Lanning agreed, but thought the ratepayers would have the power to change the councilors’ minds. EWEB could make the proposal, and had the data showing the “windfall” the City would receive as a result of the November 2001 increase; the council could ignore the Board, but it could not ignore the community. He thought the approach a viable option. President Anderson concurred, saying it was worth trying, but was unsure it should have an effect on what the Board was considering now. She asked when EWEB could lower rates if the two bodies worked something out. Mr. Varner said theoretically, October or November 2002.

Vice President Bartel suggested it was a situation of the citizens “paying us or paying them”; if EWEB did not give the City the money it counted on in the form of the CILT, it would go directly to the taxpayers. He said that the City had a business to run too, and there was a delicate balance between what EWEB could ask for and a level that would keep the City reasonably whole. He thought the proposal worthy of discussion, but questioned the timing.

President Smith said that EWEB already had a hint of the council’s response when commissioners approached the council for some of the “windfall” money to fund low-income energy programs. She said the council was going to support anything, it would have supported that request because of its long history of supporting low-income programs. Instead, the Board “struck out.” She did not think that a request from the Board for the same money for operations or the replacement of reserves would receive council support. Commissioner Smith acknowledged the General Fund shortfalls facing the City, and suggested that if the Board were in the place of the council its reaction would be similar. President Anderson agreed. However, she said that should not preclude the Board from working on the issue.

Vice President Bartel acknowledged discomfort with the proposed rate increase. He also acknowledged that the increase had been pared down from where the Board began, but he believed there were other reductions that were not too draconian that would help the Board get at least to October 2002 and perhaps beyond. He had spent considerable time reviewing the budget and wanted to ensure there was a balance between the utility’s viability and the community’s viability. He could not support the rate increase.

President Anderson did not want to increase rates in October, and preferred to do so now when usage was falling.

Commissioner Lanning, seconded by Vice President Bartel, moved to delay the vote to increase rates until October 2002.

President Anderson reiterated her disinterest in raising customers’ rates just before the winter months, and suggested there was nothing the Board would be able to do to avoid an increase at that time if no action was taken now, given that it was known the BPA would increase its rates at that time.

Commissioner Bishop did not want to increase rates, but she accepted the advice of the professionals who were recommending the Board address the financial crisis now. She believed that to postpone action was to threaten the financial viability of EWEB. She said she would like to make people happy, but it was the responsibility of the Board to make tough decisions. Commissioner Bishop pointed out that EWEB had no reserves and an emergency could be a major problem for EWEB to address.

Commissioner Smith agreed with the remarks of President Anderson and Commissioner Bishop. She agreed in particular with President Anderson’s remarks that failure to address the situation could compound the problem in the future. She admonished staff to take all steps necessary to avoid a rate increase in October 2002 regardless of what the BPA did, and to continue to refine the budget toolkit. She believed there were other options the Board did not have the time to refine and implement at this time.

Commissioner Lanning asked what risk existed if EWEB waited to increase rates until October. Mr. Varner said that he was concerned about the marketability of the $20 million to $30 million in bonds that EWEB would issue in the next 60 to 90 days. All of EWEB’s financial strategies hinge on issuance of those bonds. He believed that from a cash-flow perspective, EWEB could “sneak through.” He was more concerned about a reduction in EWEB’s bond rating, which might take years to recover from, and which impacts EWEB’s ability to sell bonds now and in the future.

The motion failed, 3:2; Vice President Bartel and Commissioner Lanning voting yes.

Commissioner Smith, seconded by Commissioner Bishop, moved to approve the rate increase as proposed by staff.

Commissioner Bishop termed the rate increase the only appropriate thing EWEB could do at this point, and said she did not like it personally. She was not willing to look at reductions in low-income energy assistance programs as an alternative. Commissioner Bishop stressed that what was being proposed was a temporary surcharge, not a permanent rate increase.

Commissioner Lanning believed that EWEB should continue to work on reducing the CILT and on other ways to reduce the budget with the goal of reducing rates in October. He looked forward to an above-average hydro year.

The motion passed, 3:2; Mr. Bartel and Mr. Lanning voting no.

ELECTRIC AND WIND RATE PROPOSALS

Vice President Bartel, seconded by Mr. Lanning, moved to table the item. The motion passed unanimously.

CONTRIBUTIONS IN LIEU-OF-TAXES

Board members agreed to postpone the item to a future agenda.

Items Removed from the Consent Calendar

Referring to the minutes of February 28, 2001, Commissioner Bishop clarified that the motion reflected on page 4 directing the General Manager to sign the joint development agreement was actually a motion to amend the joint development agreement bringing the Port in as a partner.

Commissioner Smith, seconded by Commissioner Bishop, moved to approve the minutes of February 28, 2001. The motion passed, 4:1:0; Commissioner Lanning abstaining because he was not in attendance at the meeting.

Mr. Berggren presented Commissioner Smith with a plaque from EWEB recognizing her service to the citizens of Eugene; a plaque from the Northwest Energy Coalition saluting her service on the occasion of her retirement from the board; a resolution from the National Resource s Defense Council recognizing Commissioner Smith’s leadership; and a certificate from the Renewables Northwest Project in appreciation of Commissioner Smith’s leadership in the field of renewable energies.

Mr. Berggren presented Commissioner Smith with a picture of a windmill from the Wyoming Wind Energy Project, taken at the dedication ceremony on July 16, 1999. He presented Ms. Smith with another picture taken by Mr. Maloney at the event of those present at the event, signed by the staff.

Those present applauded Commissioner Smith for her long-time service to EWEB.

The meeting adjourned at 9:53 p.m.

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Assistant Secretary President