Board Members present: Patrick Lanning, Sandra Bishop, Paul Conte, and Ron Farmer. 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, Jennifer Joule, Roseanna McArthur, Lance Robertson, and Krista Hince of the EWEB staff.

In the absence of President Dorothy Anderson, Vice President Patrick Lanning called the Special Board Meeting to order.

INTRODUCTION/AGENDA REVIEW

Vice President Lanning determined there were no changes to the agenda.

ITEMS FROM BOARD MEMBERS

There were no items from Commissioners.

PUBLIC INPUT

Vice President Lanning opened the floor to public input.

Ethylene Brown, EWEB Retiree, acknowledged the work on the benefits issue done by the Board and staff. She reviewed the history of the benefits issue and reminded the Board of the retirees' desire to remain on the EWEB insurance policy and their interest in a fixed premium for older employees and Tier II employees. Ms. Brown said the most recent increase included a trend and a cap, which would increase premiums annually and many retirees could not afford that. She asked the Board to consider the fact that the retirees had left the EWEB program.

George Mason, EWEB Retiree, acknowledged the financial issues facing EWEB and said the retirees attempted to work with EWEB to make benefits more affordable. However, every time the retirees gave ground on one issue, they lost more ground on another issue. The caps and the trends on Tiers I and II made retirees feel pushed into a corner, and could force them to seek legal resolution.

Vice President Lanning noted that the retirees' proposal for Tier I was included in the proposal before the Board, and there was no trending in the Tier I proposal. Mr. Mason believed that the inclusion of the caps was a form of trending. Vice President Lanning defined a cap as a limit on what EWEB would be contributing.

RETIREE MEDICAL BENEFITS PLAN

General Manager Randy Berggren indicated that, based on the Board's discussion of October 17, staff developed a benefits plan proposal for the Board's consideration. A draft motion had been prepared for the Board's consideration. He invited questions from the Board. Jean Meyers, Human Resources Manager, was also present to answer questions.

Commissioner Conte moved, seconded by Commissioner Farmer, moved to adopt the proposal as presented.

At the request of Commissioner Conte, Ms. Meyers contrasted the proposal the Board received on October 17 to the proposal the Board had before it, which she characterized as a revision of a revision. Commissioner Conte agreed there were no substantial changes from the initial proposal. He re-summarized Ms. Meyers' comments.

Ms. Meyers called to the Board's attention to Section 3.5.3, referring to Tier 4 benefits post-65 of the Board packet, and clarified there was no subsidy from EWEB for any post-65 benefits for Tier 4.

Commissioner Bishop, seconded by Commissioner Farmer, moved to amend Section 3.5.3 to include in parenthesis the phrase "no EWEB subsidy or supplement" to make the point clear.

Commissioner Conte cautioned the Board against attempting to clutter the document with more text, which could create confusion. Commissioner Bishop said that she was attempting to make the document more clear. Mr. Berggren believed Commissioner Bishop's concern was addressed by the text in Section 4.3.4.2.

Commissioner Farmer withdrew his second. Commissioner Bishop withdrew her motion.

Referring to page 4 of the document, Ms. Meyers said that it referred to the retiree and spouse; she suggested that, in particular for Tier II, it should be "retiree and dependents" because there were dependents other than the spouse. Staff confirmed, in response to a question from Commissioner Conte, that the costs to EWEB were higher if dependents were included. Ms. Meyers was unaware of any such cases in the Tier I retiree groups. She estimated the number of dependents in Tier II was about five. Commissioner Conte asked that the Board return to the topic. Commissioner Bishop believed it was not an issue, merely a point of clarification. Commissioner Farmer believed it was an issue because of future liabilities. The Board deferred the issue for later discussion.

Commissioner Conte determined from Ms. Meyers that the costs associated with the Tier II dependents were factored into the model.

Responding to a question from Vice President Lanning as to what she was proposing, Ms. Meyers said she would recommend replacing the word "spouse" with "dependents."

Mr. Berggren noted that by law, such dependents must have access to the plan. The issue was one of the EWEB subsidy.

Commissioner Farmer referred to the years of service table on page 3, and asked if the document was clear that someone might have 21 years of service, but because of the trends and the caps would not be getting a 75 percent subsidy. Cathy Bloom, Assistant Treasurer, explained the formula was used by the actuarial and said that it could be done in many ways, depending on how one set up the cap. Commissioner Conte confirmed from staff that as soon as the actual rates for 2003 were known, staff could build the cap tables out indefinitely, and the caps always dominate. Ms. Bloom agreed, adding that the issue was when one plugged into the cap table.

Commissioner Farmer referred to the funding plan on page 6, and asked what would happen to the proposal before the Board if there was no consensus among Board members. Commissioner Conte suggested that a default funding plan could be developed. He said that he would not support the proposal without a funding plan, and asked if the Board could use "bank the savings" as a default funding plan. He suggested further discussion of a default funding plan.

The Commissioner briefly discussed options for the funding plan.

Responding to a concern expressed by Commissioner Farmer, Ms. Meyers said that the actuarial studies were done assuming that trends were included in the plan design, capped to the UAL assumption, and as a person retired, they would be starting with the years of service table, jumping into a plan that had been going forward with trend increases being passed on to those retirees, and also the cost of the plan. Commissioner Farmer did not think the text was clear as to that fact.

Speaking to the issue of the caps and trends, Commissioner Conte believed it did not make sense to have caps unless they started now and were fixed going forward. Commissioner Farmer concurred.

Ms. Meyers explained that whatever the total premium was at the time of retirement, the years of service table would apply to that premium. When models were being presented for cumulative caps, staff realized that a cap allowed for different alternatives; staff could establish a cap using the current analysis, or determine now what the maximum dollar contributions would be and apply them to everyone, no matter when they retired. Staff subsequently recognized that, depending on the cap, one might not achieve the percentage on the years of service table because the cap would kick and prevent EWEB from paying more than 75 percent of the premium.

Commissioner Conte believed one of the tests for plan implementation would be that a person who retired in 2000 with 20 years of service should pay the same amount in 2010 as the person who retired in 2010 with 20 years of service; in other words, they were both 20-year employees and should pay the same amount. Essentially, both retirees would receive the same value in terms of the subsidy they received from EWEB. He reiterated that caps were meaningless unless set from the beginning, and there was no reason someone should escape the trends because of the timing of the retirement.

Commissioner Farmer said that unless the current Board started the caps from the beginning, it was a guarantee that future Boards would be dealing with the issue again. Commissioner Conte concurred. Continuing, he suggested that EWEB had come at the problem from the wrong direction. It should have approached it in terms of EWEB's contributions, not from retirees' contributions. That would have allowed EWEB to develop a schedule starting in 2003-04. That was where EWEB wanted to be, and that was where he anticipated it would end up. It would allow EWEB to determine what its future contributions would be. Mr. Conte wanted the Board to preclude the possibility that EWEB's contributions would go beyond what it could afford.

Jim Wiley, Director of Electric Division, determined that Commissioner Conte was suggesting EWEB's contributions be capped. He said that staff would need to develop that schedule. Mr. Conte agreed. However, he believed that the schedule itself would be straightforward, and it simplified some of the questions regarding transitions, such as what happened with the loss of a spouse, a marriage, and changing between plans.

Responding to a question from Commissioner Farmer regarding his thoughts, Vice President Lanning said he was unsure how he could not agree with Commissioner Conte, based on the philosophy the Board had taken toward reducing the UAL.

Responding to a question from Commissioner Bishop regarding the distinction between "caps" and "trends," Commissioner Conte explained that the Board had been using "trends" as a shorthand term for adjusting the retirees' contributions to the premium each year based on the increase or decrease in the actual cost of the premium; that could go up or down. First, each year EWEB would calculate what premium costs had increased by, examine the previous trend figure, and then calculate the next year's trend figure. Then EWEB would determine the difference between that and the actual premium, and if the difference was less than the cap for that particular premium in that year, the retiree pays the trended premium. If the difference was greater than the cap, the retiree paid the difference between the actual premium cost and the cap figure for that year. The year following, the cap moved up depending on the schedule, and the trend could be down, level, or up, and once again EWEB would calculate the trended figure and perform the same comparison. The result would be two tables. The first was the table of caps and it would be set from the beginning. The second table was built at the beginning of each year when EWEB knew the rate change.

Commissioner Farmer, seconded by Commissioner Conte, moved to amend the motion to add clarifying language that the cap goes into the years of service section so that it was clear that from day one, caps apply, and do not start at the time of retirement.

In response to a comment from Commissioner Bishop that she had other related issues she would like to discuss, Commissioner Conte suggested that rather than adopt the amendment to the motion, the Board dispose of it quickly by voting against it and develop a more thorough motion that reflected the sense of the Board.

The amendment to the motion failed unanimously, 4:0.

Commissioner Conte asked if the Board was in agreement it wanted the caps and trends to start in 2003-2004. Vice President Lanning determined the Board was in general agreement.

Commissioner Bishop wanted the Board to have common term definitions not included in the proposal. She thought it was unreasonable not to have definitions for terms such as "employer" and "retiree." She asked if, for example, a "current employee" was the same as an "active employee." She said that if staff was not going to use dictionary definitions, it should define the ones that were used. Commissioner Bishop assumed that some retirees had domestic partners that were covered by the retirement plan. She asked that staff account for that in its definitions.

Jennifer Joule, Communications Coordinator, raised the issue of Tier III retirees and how a cap would be applied to them. Their premium levels depended on when they retired, and how many years of service they had when they retired. They all had different premiums right now. There were different options for addressing that. The caps for those individuals could be based on their current premiums, which were developed when they retired, or recalculating those premiums using 2003 rates and the years of service table. Commissioner Conte determined from staff that those retirees' rates were flat.

Ms. Meyers suggested that another option for approaching that issue was to pass on trends in 2004, take whatever retirees were paying, and trend them forward using the cap application on top of that.

Responding to a request for clarification from Commissioner Farmer, Ms. Joule said that the option she previously would be for staff to recalculate all the existing Tier III retirement premiums based on 2003 rates, essentially increasing their premiums to bring them up to date with 2003 rates using their years of service and years of service tables, so that those future maximum dollar amount contributions would apply to all Tier II retirees.

The Board agreed to leave the issue on the table and moved on the the issue of Tier II dependents.

Ms. Meyers apologized for the mis-communication on the issue between staff and the Board.

Commissioner Bishop determined from Ms. Meyers that the numbers the Board had been given included such dependents being covered up to the point the retiree was age 65; after that, the dependents had access to the plan but were not subsidized by EWEB. She asked what was wrong with that. Commissioner Conte said that those costs totaled $1 million of the UAL, it could otherwise buy more prescription coverage for Tiers I and II. He said the Board should discuss whether it wanted to put its resources into such an additional benefit. Commissioner Bishop did not perceive it as a new benefit but rather a continuation of an existing benefit. Commissioner Conte said that the Board was starting from ground zero, and allocating money to various categories; every group was taking a "hit." He continued to have reservations about the unrestricted extension of benefits to spouses regardless of whether they receive benefits from another source. He did not support providing insurance to dependents of Tier III retirees. Commissioner Conte believed it was more important to provide insurance to actual retirees. He added that if the cost involved was inconsequential, he did not care. However, if it was substantial, he would like to use those resources to shore up the prescription coverage for Tiers I and II.

Commissioner Bishop asked if the retirees group had discussed the issue of Tier III spouse and dependent coverage. Mr. Mason said no. He added that he believed that such coverage would be important to retirees with handicapped children, for example.

Commissioner Bishop wanted to change things less rather than more and did not support the tradeoff suggested by Commissioner Conte. She said that she might change her mind if the numbers turned out to be large.

Commissioner Farmer believed that the benefits plan was overly generous and not comparable to what he termed "the real world." He said that almost no retirees of private companies were subsidized beyond retirement. If the Board must make a choice, he thought the Tier III retirees should be "treated like the rest of the world," and the relief given to retirees in Tiers I and II.

Vice President Lanning indicated that he had not made up his mind. He did not feel comfortable making a decision at this point. He said he would like to see further analysis of the numbers involved, and the cost that other retirees would bear to allow such a benefit to continue for Tier III retirees.

Mr. Wiley indicated staff would return with the analysis requested. He asked if the issue was the same with the Tier II dependents. The Board agreed with a suggestion from Commissioner Farmer that the numbers involved were likely to be smaller and the issue left as is.

Vice President Lanning asked for more information on the staff's degree of confidence on the trends and caps, and what it would require in terms of monthly fixed premiums for the retirees to be held harmless from trends and caps.

Commissioner Conte doubted that EWEB would be able to afford to hold the retirees harmless.

Commissioner Farmer expressed concern that language in Section 7.2 on the last page of the document, which stated that the Board desired that any future changes in the plan would only be made to plans affecting future retirees. That could potentially create expectations among the retirees and employees regarding possible future changes that future Boards could not meet.

Commissioner Conte said he understood Commissioner Farmer's concern, but the reason he supported a cap and explicit funding was to ensure EWEB did not come up short in the future. He said the Board should be explicit that it was looking for plan stability and the plan would not be changed unless there was a compelling reason for that change. He acknowledged there might be a time when the plan must be changed, but he said the Board should be clear that the plan was intended to provide stability for the people who were currently covered.

Commissioner Farmer wanted to be clear that any future changes by future Boards were intended to address future employees.

Commissioner Bishop understood Commissioner Farmer's concerns, but believed that the section reflected an honest assessment of what EWEB was attempting to do. She agreed with Commissioner Conte that the Board's intent was long-term sustainability. She said that there might be a way to state that better, and noted that 7.3 represented a needed legal disclaimer.

Vice President Lanning said that though he could not guarantee the future, he thought that the Board had established an intent to meet the expectation outlined in Section 7.2 through the system it had developed. Commissioner Farmer thought that the Board's intent was reflected in Section 7.1.

Vice President Lanning took a straw poll regarding Section 7.2, and Vice President Lanning, Commissioner Conte, and Commissioner Bishop supported its inclusion.

Mr. Berggren indicated that staff would return with more data on the spouse versus dependent issue as it related to Tiers II and III. He said the Board could decide how substantive the issue was at that time and determine whether it would prefer to invest more in Tiers I and II.

Commissioner Conte reiterated Commissioner Farmer's interest in having more information about a default funding plan.

Responding to a question from Vice President Lanning, Mr. Berggren anticipated that the Board would meet again to review the new data provided by staff as soon as possible.

The meeting adjourned at 6:40 p.m.

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Assistant Secretary President