Board Members present: Patrick Lanning, Sandra Bishop, Ron Farmer, and Paul Conte. President Dorothy Anderson was excused.

Others present: Randy Berggren, Dick Varner, Marty Douglass, Tom Buckhouse, Dick Helgeson, Debra Smith, Jim Wiley, Jean Meyers, Cathy Bloom, JoAnn Anderson, Roseanna McArthur, Lance Robertson, and Krista Hince of the EWEB staff; and Kimberly Young, City of Eugene Minutes Recorder.

In the absence of President Dorothy Anderson, Vice President Patrick Lanning called the Board Work Session to order. He noted that President Anderson would not be present at the meeting.

INTRODUCTION/AGENDA REVIEW

General Manager Randy Berggren reviewed the agenda. He indicated that staff would be reviewing and comparing the 2002 budget and 2003 draft budget and identifying major cost drivers. Staff hoped to put the proposed budget in context in terms of the surcharge strategy put in place by the Board the previous year and the five-year pro forma established by the board.

Mr. Berggren reminded the Board that it previously reviewed the capital plans for the water and electric utilities as well as the status of its goals and strategies work, so the presentation would not touch on those issues to any great degree. He recollected that the strategies were essentially to “stay the course” and acquire as much surplus cash as possible to direct toward the repayment strategies.

Commissioner Sandra Bishop arrived at the meeting.

Mr. Berggren indicated that staff would capture issues raised by the Board throughout the discussion. He anticipated discussion of those issues as time permitted and promised that follow-up would occur if the discussion was not completed.

2003 Electric Budget Overview

Fiscal Services Supervisor Dick Varner provided a PowerPoint Presentation on the electric utility budget overview, copies of which were provided to Board members and the audience. He briefly noted the impact of the surcharge on the 2002 budget and emphasized that the budget was consistent with the pro forma expectations developed and approved by the Board. He called Board attention to the 02-04 financial targets and indicated a $19.5 million surplus was anticipated rather than a $12 million surplus. He suggested the size of the surplus might make it possible for the Board to eliminate the surcharge earlier than anticipated.

Mr. Varner recalled the tools in the Financial Tool Kit for the benefit of Board members.

Mr. Varner noted budget reductions made in 2002 of approximately $1.2 million and indicated that approximately $150,000 of those reductions were proposed to be restored in 2003. The ten FTE reductions made in 2002 were proposed to be partially restored by five FTE, and staff had a strategy for that restoration. However, there were other FTE pressures that staff would highlight later in the presentation.

Mr. Varner anticipated the surcharge would continue through 2003, and staff would return in February 2003 after the audit with a proposal regarding the future of the surcharge.

Mr. Varner overviewed a document entitled Electric Distribution Operating Budget Comparison, a comparison of the 2002 and 2003 budgets. Board members asked questions clarifying the figures presented. Commissioner Farmer indicated it would be helpful if, in the future, the line item labeled “Less Rates for Capital and Debt” were separated to indicate the difference between existing debt service (including interest) and new capital expenditures.

Mr. Varner discussed major budget uncertainties for 2003, which included the status of hydro generation, Bonneville Power Administration rates, retail loads, and wholesale prices.

Commissioner Farmer asked what drove staff’s concerns regarding hedging: a bad experience? Mr. Varner attributed it to general concerns about the economy, and said that weekly, some utility had its bonds downgraded to junk. Commissioner Farmer asked what caused those utilities’ bonds to be downgraded. Mr. Varner responded that generally, those utilities were heavily into the trading markets and had signed contracts when they believed there was revenue to be realized; now that the market had fallen, those utilities had to restate their financial positions and take write-offs. Responding to a follow-up question from Commissioner Farmer, Mr. Varner did not think that a contract failure would put the utility into a catastrophic position; rather, the utility would have to rehedge its position and walk away from the $150 million premium it paid.

Commissioner Conte asked if the court decision regarding PERS would have an impact on the budget this year. Mr. Varner indicated that the answer depended on how the PERS Board and employee groups proceed. If there was no appeal to the court decision, it was possible that the anticipated increases could be lower.

Mr. Varner reviewed major nondiscretionary and discretionary expenses in the 2003 nonpower budget.

Responding to a question from Commissioner Bishop, Mr. Varner indicated that EWEB would spend about $5,500,000 more in Conservation in 2003 than in 2002. Advertising, general administration, and record keeping costs were reflected in the operating expenses line item; that line item went down, while the line item for capital expenditures went up.

Commissioner Bishop asked that the issue of funding for the capital plan post 2003 be added to the issues list. Mr. Berggren noted that the issue was a specific project already included in the 2003 budget for further work.

Commissioner Bishop requested more details on the expenditures included in Miscellaneous Services. The question was added to the issues list.

Commissioner Conte indicated interest in having more information about the $300,000 budgeted for memberships. The question was added to the issues list.

Responding to a question from Commissioner Lanning, Mr. Varner explained that the projected increase of four percent in labor costs was based on national figures from the American Compensation Association. He anticipated that EWEB would conduct a full market-cycle review and staff would have a better idea of actual costs toward spring 2003. Responding to a follow-up question from Commissioner Farmer, Mr. Varner recalled that the 2002 increase was approximately 3.8 percent for non-TLC employees, and 3.5 for TLC employees. Mr. Berggren clarified that it equaled the percentage increase in the Consumer Price Index. Vice President Lanning asked about the total overall salary increase from 2002. Mr. Varner indicated he would follow-up

The board took a brief meeting break.

Mr. Varner provided information about the contribution margin, or what Mr. Berggren termed the “virtual utility.” He reviewed the retail and wholesale sales against variable costs to illustrate the contribution margin.

Commissioner Farmer found the information presented by Mr. Varner to be helpful and suggested that in the future, similar to other commodities, the information be translated into measurable units rather than dollars to give the Board a better picture of what was occurring.

Electric Division Director Jim Wiley presented the Electric Division work plan. He identified the percentage of the budget attributable to capital programs (60 percent) and operations and maintenance programs (40 percent). He briefly reviewed the elements of both program budgets. He also identified major cost drivers in 2003, including increased regulatory fees, the FERC dam safety inspection at Carmen Smith, PUC joint use corrective work and tree trimming, and incentive payments.

Mr. Wiley shared an organizational chart of the division with the Board and noted the additional 6.2 FTE being proposed for additional line technicians, for work force planning purposes, and for a licensing coordinator for Carmen Smith.

Commissioner Farmer indicated his concern was less about the number of FTEs than about the utility’s increases in expenses. He said that it was Mr. Berggren’s job to manage the FTE number.

Mr. Berggren reviewed the remaining work plans. He called the Board’s attention to the revised information provided for in the General Manager’s Division.

Regarding Corporate Services, Mr. Berrgren specifically highlighted the lost call issue and the staff recommendation for additional FTE to address the issue. Mr. Berggren indicated, in response to a question from Vice President Lanning, that the Board’s operating performance metric regarding customer service drove the staff recommendation. He said that the issue was a major customer relations issue. Vice President Lanning agreed there was a major problem; he called it a hidden cost of implementing tiered rates. He believed that the Board needed to have a dialogue about that issue. Mr. Berggren said that he was not assuming the solution to the problem, but he could assure the Board that staff had done what it could with efficiencies to make more call representatives available to customers. He noted that the customer service/lost call rate was the first item staff included on the issues list.

Vice President Lanning requested additional information about the implications of the changes that EWEB made in managing its worker’s compensation costs. Mr. Varner briefly explained that EWEB’s experience in managing its insurance costs had not been good, and at the same time insurance costs were increasing in general. EWEB choose to go to a claims made approach, so it was responsible for the claims costs and paid a carrier to handle administration. He said that the approach was basically a self-insured one. Vice President Lanning asked the reason for the increases in worker’s compensation costs. Mr. Berggren said that a small number of claims drove the increase. He indicated staff could provide more background, and the item was added to the issues list.

The Board took a brief meeting break.

Strategies Work

Mr. Berggren referred the Board to a document entitled Eugene Water & Electric Board Chargeable Jobs Linked to Organizational Goals and Strategies, and reported that staff was proposing to add nothing new, and he recommended going forward with the existing strategies using current resources. There was no objection. Debra Smith, Telecommunications Project Manager, indicated that the document contained some small errors and it would be revised and reissued. Mr. Berggren noted that 7-8 percent of the total budget was committed to the Board’s strategic initiatives. That was down from 9-10 percent in past budgets. Vice President Lanning requested an update on progress on the strategies. Ms. Smith indicated that she would provide the Board with a list of the goals and strategies that were moving forward into 2003. The request was added to the issues list.

Budget Issues Review

The Board discussed two budget issues highlighted by Mr. Berggren, that of the lost call issue and that of a low-income rate. Mr. Berggren called the Board’s attention to a graph illustrating the lost call rate from January 2000 to July 2002.

Commissioner Farmer determined from JoAnn Andersen, Customer Services Director, that staff was able to track the lost call rate using an automated call distribution system, and that the level appeared to depend on the time of day and time of month. Mondays and Fridays were the busiest days. Commissioner Farmer asked how much calls had increased. Ms. Andersen estimated that they were up from approximately 60 per day to more than 100 per day for each employee. That was a significant work load increase. Mr. Berggren also noted the increase in walk-in customers, which had about doubled. Commissioner Farmer asked about the training employees received. Ms. Anderson estimated that employees received six weeks to two months of training by in-house staff. Responding to a follow-up question from Commissioner Farmer, Ms. Andersen indicated the longest time people would usually stay on the telephone was about 1-_ minutes; and then they hung up. She believed that EWEB’s wait times were longer and indicated she would provide that information.

Commissioner Conte requested more data quantifying the problem that existed. He wanted more information about overtime and industry benchmarks such as lost calls, wait times, and drop off times. He wanted that information quantified in terms of average and range over meaningful periods, such as a month or quarter. He was also interested in knowing how staffing was allocated within the division in terms of customer service responsibilities. Ms. Andersen said that she could provide that information.

Commissioner Conte determined from Ms. Andersen that the call increase was driven primarily by residential customers. He asked if staff had spoken about the topic to a consultant and suggested that it investigate what large call centers do to manage their call load. Ms. Andersen said that staff had not worked with a consultant but had tried to outsource the work load using automation. However, the rate increase had created a large volume of calls that continued to come in.

Commissioner Bishop thought the problem before the Board clear-cut and did not think the Board needed more information. She did not want to rely on a call center model because they generally supported a corporate structure that EWEB did not have. She expressed concern about the impact of the lost call issue on customers and employees alike. She was concerned that employees would become increasingly stressed, and said that EWEB needed fresh, responsive customer service representatives. She perceived the issue to be a lack of needed staff.

Mr. Berggren noted that EWEB had hired five limited duration employees to help manage the work load.

Commissioner Lanning believed that the move to tiered rates had created the work load increase and asked what the cost was of maintaining such a system, and if its benefits outweighed its disadvantages.

Board members thanked Ms. Andersen for the background memorandum on the topic.

Mr. Berggren called the Board’s attention to an e-mail message sent by Ms. Andersen and her comments about the potential of a low-income rate. Board members agreed to table discussion of the item at this time, but Commissioners Bishop, Farmer, Conte indicated they were generally not supportive of such an approach. Vice President Lanning said he had no position on the issue at this time and would like more information. Mr. Berggren indicated that staff would return with additional information about the topic. Vice President Lanning suggested that the Board look at the issue after the heating season.

Wrap-up and Next Steps

Mr. Berggren noted the items identified for follow-up.

The meeting adjourned at 4:58 p.m.

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Assistant Secretary President