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

Others present: Randy Berggren, Marc Anderson, Deborrah Brewer, JoAnn Andersen, Tom Buckhouse, Marty Douglass, Bill Fletcher, Roseanna McArthur, Lance Robertson, Debra Smith, Jim Origliosso, Dick Varner, and Krista Hince of the EWEB staff; Win Calkins, General Council; members of the public, and Ruth Atcherson, City of Eugene Minutes Recorder.

President Anderson called the Work Session to order at 5:30 pm.

PAN UPDATE

Debra Smith, Telecommunications Project Manager, introduced the Public Agency Network (PAN) presentation, stating that it was appropriate to come before the Board and provide information as the fiscal year for the PAN was nearly up and it was time to think about the year to come. She predicted that the budget for the PAN in the coming year would be presented for approval after a couple more months. She said that the PAN agreement was executed in June of 2001 and at that time it was a conceptual idea. Now it has been realized to a certain extent. She felt it was beneficial for the Board to be grounded in what is unfolding in the PAN.

Bill Fletcher, Telecommunications Analyst, provided a brief system overview with the aid of overhead projections.

Vice President Bartel asked if each of the participating agencies had purchased their own equipment and owned a part of the system. Mr. Fletcher responded that they had. He added that the cities and agencies had public purpose fiber that they had contributed in addition to the equipment. He noted that the agencies had agreed to purchase the same technology so as to be compatible with one another. He introduced Dan Mulholland.

Mr. Mulholland introduced Kent June (City of Eugene) and Byron Vanderpool (RIS.) Mr. Vanderpool lauded the work that the agencies have done together. He said he had never seen so many different agencies signing and executing such an agreement before. He felt that without the hard work and talents of all the agencies that participated and the leadership role that EWEB has taken, the PAN would never have worked.

Mr. June added that it had been a year since the agreement had been signed. He said that this signing was the culmination of a vision that they had begun ten years ago. He commended the effort that the EWEB staff had put into realizing the PAN. He thanked the EWEB Board and staff on behalf of the City for what they have been able to accomplish by bringing these groups together and providing a high speed network unprecedented in this area.

Mr. Mulholland introduced Mike Scolla of the 4J school district and Shawn Zweibohmer
of the City of Springfield. Mr. Scolla stated that the school district is using the PAN network to connect with the University of Oregon. He noted that Sheldon High School and the City Fire Station located there are connecting to the network and this will provide an added benefit of bringing the network to an elementary school in the neighborhood (Meadowlark/Buena Vista Spanish Immersion School.)

Mr. Zweibohmer echoed the appreciation of the preceding people. He thanked the Board of EWEB for including Springfield. He noted that most of the phone traffic is being carried over the network and this has benefitted the Springfield Library and Department of Public Safety.

Mr. Mulholland related that Tony Black had sent a letter regarding how the network was being used by Lane County. He said that the county has found that people have been very supportive and that the response time for the county computers has been reduced from an average of 22 seconds to an average of 3 seconds. He noted that Mr. Black intends to discuss the PAN at the county budget committee meeting that was occurring concurrently with the EWEB meeting.

Vice President Bartel asked how much of the network was underground. Mr. Mulholland guessed that the facilities were above ground and underground currently. He said that whenever a street is "dug up" the utility tries to underground the services.

President Anderson asked if the PAN was going to use Noanet. Mr. Mulholland responded that the network would to use Noanet as long as the University of Oregon was using it. Mr. June added that the Noanet connection would soon provide connectivity for the school system to other school districts and ESDs.

CONTRIBUTIONS IN LIEU OF TAXES (CILT)

Jim Origliosso, Treasurer, reviewed some of the work that has been done to recoup financial stability. He said that in the process of developing the "tool kit" one suggestion of a point of financial savings would be to explore the possibility of changing the CILT.

Mr. Calkins discussed the information provided in the memorandum entitled Contributions In-Lieu of Taxes regarding the historical underpinnings of this arrangement.

Vice President Bartel asked why EWEB originally signed the agreement. Mr. Origliosso explained that the City was not actually party to the creation of CILT and that EWEB had negotiated a payment on behalf of the City of Eugene as part of the city's lending its name to the transaction. He noted that, for many years, the city would get three percent of EWEB's portion of what it billed to the BPA. The arrangement had allowed some benefits to flow to the citizens of Eugene, but this ceased to be the case in the early 1990s.

Mr. Calkins continued his presentation on the origin of CILT.

Vice President Bartel asked how schools became disadvantaged by the CILT payments following the passage of Ballot Measure 5 and why it came to be interpreted that way. Mr. Origliosso stated that the way that the school funding formula worked, these kinds of payments were deducted from the state monies that were allocated to the schools. He said that EWEB countered this by taking the contributions to the schools and calling them grants.

In response to a question from Vice President Bartel, Mr. Calkins stated that there was no official interpretation to the change in the charter that occurred in 1976. He noted that at that time there had been a six percent rate and a three percent rate. Vice President Bartel felt that this was a pivotal point, that it could be interpreted so that the citizens of the City of Eugene could vote out the CILT agreement. Mr. Origliosso clarified that any party could request to sit down and alter the agreement. As an example, he cited the BPA's change in the agreement so that it was no longer required to pay the CILT on the Trojan Nuclear Power Plant.

Vice President Bartel asked who, in the case of a financial bind, would initiate the discussion and how it would work. Mr. Berggren noted that EWEB had initiated a discussion in 1996.

President Anderson expressed concern about the wording of the statute. She reiterated that EWEB has not accumulated an adequate replacement reserve. Mr. Calkins noted that, as general manager, Mr. Berggren would be the person responsible for initiating this sort of discussion.

Mr. Origliosso described the prioritization of financial obligations as part of the bond covenant, that the first priority are the power costs, and then the non-power operations expenses, the reserves and debt service, and then what is available after these obligations have been met can be for any lawful purpose. He said that there are two lawful purposes that qualify, capital improvements and CILT. As such, he explained, there is a flow that has to be met.

Vice President Bartel suggested that the rate increase could be substantially reduced if the money that was being put into CILT was redirected into the utility and the money to meet the necessary level of reserve funds was not borrowed with interest. Mr. Origliosso responded that the legal situation was not clear.

Mr. Calkins said that one of the problems with 44(4) is that it does not cross reference the statute and this creates the issue of whether it is talking about the same formula as delineated in the statute. General Manager Randy Berggren asked if there were normally any "legal rules of thumb" about precedents relative to ORS versus a charter. Mr. Calkins answered that there is not an automatic interpretive rule. He felt that this situation would be dependent upon an analysis and understanding of the legislative history and more background and information on the agreements that were made along the way.

Commissioner Bishop stated that the situation was complicated by it being a home rule charter. She felt that, even though the charter is not specifically cross-referenced, it has to refer back to the statute for basis. She wondered if it were possible that there could be another legal contract agreement somewhere between 1943 and 1976 that would intervene before the charter could be related directly back to the section. Mr. Calkins felt that there was an implicit agreement in the council's original request that EWEB increase to the six percent and EWEB acceding to that. He related that he was unsure whether prior to 1976 there was an actual agreement other than the agreement with the BPA.

In response to a question from Commissioner Bishop, Mr. Calkins stated that should the officer responsible, e.g. Mr. Berggren, determine that principle and interest on all indebtedness incurred and the connection therewith has created an accumulated and adequate depreciation and replacement reserve and it is questionable whether the CILT is surplus or not, the officer can then make a determination regarding the CILT.

Vice President Bartel felt that the end result was not so much a figuring in of the six percent amount as backfilling the reserves after the fact. He felt it was more difficult for the City of Eugene to approach its taxpayers to backfill their reserves and easier to rely on the CILT for some of the loss of tax revenues. He said that this puts the burden on the ratepayers to backfill the city, but that there were not reserves enough to do so.

Commissioner Lanning arrived at 6:40 p.m.

Mr. Origliosso said that the utility settles with the city on a monthly basis. President Anderson suggested that the utility consider negotiating with the city to pay only three percent through most of the year and then make up the difference at the end in order to offset fluctuations in the power market. Mr. Origliosso felt that the City was not as motivated as the utility to negotiate on the CILT.

Mr. Berggren asked if there was continuity in language between the ORS and the agreements regarding the description of the utility's financial obligation in this situation. Mr. Origliosso responded that the charter does not speak to the agreements, nor does it refer specifically to the bond covenants.

Commissioner Bishop opposed pursuing legal action, as the losers would be the customers of the utility. Nonetheless, she said, there are not enough surplus earnings and the utility is in a financial crisis with no reserves. She encouraged the Board to consider the pursuit of negotiations with the City in order to reduce the amount of the CILT in the short-term. She noted that EWEB has a $40 million volatility in every quarter. She stressed that, until the reserves are funded, the utility cannot afford to take six percent "from the top" for CILT to the City.

President Anderson asked if the charter had been reviewed in court. Mr. Calkins said it had not and stressed the unpredictable nature of litigation. He noted that it would be a declaratory judgement that EWEB would pursue. He hesitated to estimate what such a thing could cost.

President Anderson concurred with Commissioner Bishop, that if the financial reserve was there she had no issue with providing the CILT to the City.

Commissioner Lanning recommend that the utility should dialogue with the City. He felt that the City is not looking to get rich and expecting the community to pay for it in the context of a wildly fluctuating market. He commented that the City would likely also have a desire to know what the CILT would be on a more consistent basis to provide more financial stability to the community.

Vice President Bartel opposed pursuing any litigation with the City. He said that the accounting practices of EWEB were what was at issue. He stressed that the work of the Board and staff was primarily to make EWEB a solid financial organization and not just to vote rate increases to the power consumer to meet a financial shortfall. He felt that it would behoove the City to dialogue with the utility. Voters need to make up their minds on what to fund, he added, and should CILT be voted upon it could be likened in the mind of the voters to additional property taxes.

Commissioner Bishop requested staff to come up with some creative or innovative financial strategies about this. She suggested that CILT dollars be averaged on a quarterly basis and be translated into actual dollars. She stressed that if the utility does not have enough money, it should not be paying CILT. She strongly encouraged making a thorough assessment of the statute.

Mr. Berggren summarized the input provided by the Board at the Work Session. He stated that the recommendation was to sit down with the city staff initially and discuss potential options for change and then discuss the possibility of special consideration for cash flow circumstances when determining the amount of the CILT. He noted that the only way the agreement could be altered without tremendous legal expense would be to collaborate with the City.

Vice President Bartel reiterated that the discussion had begun after the initial rate increases. He felt that at a certain point the utility needs to start rolling back the rate increase. He stressed that the objective was not to enter a contentious relationship with the City, but to have a relationship with them and work together to ease the burden of utility rates for the residents of the City.

Mr. Berggren then clarified that Board direction at this point was not that staff should work to create the solution but that staff should work to uncover the process by which a solution could be sought. He said that staff would bring this issue back before the Board for discussion with the engaging issues identified and a full range of options. Mr. Origliosso predicted that staff could bring the next level of discussion of CILT to the board meeting of mid-June.

The meeting adjourned at 7:27 p.m.

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Assistant Secretary President