Board Members present: Patrick Lanning, Ron Farmer, Sandra Bishop, and Dorothy Anderson.

Others Present: Randy Berggren, Jim Wiley, Marty Douglass, Joanne Andersen, Tom Buckhouse, Jennifer Joule, Libby Henry, Cathy Bloom, Roseanna McArthur, and Krista Hince of the EWEB staff; and Ruth Atcherson, City of Eugene Minutes Recorder; and Eric DeFreest, EWEB's General Counsel, Pete Neuwirth, EWEB's Financial Advisor with Clark/Bardes Consulting.

President Lanning called the Special Board Meeting of the Eugene Water & Electric Board (EWEB) to order at 10:27 a.m.

AGENDA CHECK

The Board agreed to add an opportunity for public input to the meeting.

PUBLIC INPUT

Paul Conte stated that he was reading from a document previously e-mailed to Commissioners. He highlighted the following points:

• He encouraged the adoption of a policy that would state that, at a minimum, PERS (Public Employees' Retirement System) reform should not provide less relief than the relief sought in the Lipscomb judgement in the City of Eugene.
• He suggested looking more closely at Pete Neuwirth's (EWEB's Financial Advisor) estimate of the impact of placing an eight percent cap. He thought it difficult to determine how that would impact the rates that utility customers pay.
• He recommended that House Bill 2003 be carefully scrutinized as he felt that some of the numbers were questionable.
• He noted that he had circulated the testimony of William Gary, counselor for the employers' group. He pointed it out as he felt that it was an articulate and powerful discussion of the issue of contract rights, which he thought to be a "red herring."
• He asserted that the PERS Board was not able to create contractual obligations.

Mr. Conte said that inflated pension benefits were a result of illegal actions on the part of the PERS Board. He felt that the ratepayers and taxpayers owe PERS recipients their due, but that the utility should fight to regain its footing in the aftermath of the PERS morass.

PERS LEGISLATIVE UPDATE

Cathy Bloom, Assistant Treasurer, explained that staff was asking the Board to approve an appeal of Judge Lipscomb's decision.

Commissioner Bishop supported filing an appeal at this juncture to keep a presence in the PERS litigation. She advised the EWEB counsel to monitor the situation and to let the Board know should the risk outweigh the benefit. She felt that, at that point, it would be wise to withdraw the appeal.

In response to a question from Vice President Farmer, Eric DeFreest, EWEB's General Counsel, stated that it was uncertain as to when the appeal would be heard as interveners have filed a notice of appeal on the matter. He thought it possible for multiple parties to cross appeal the matter. He stated that there was not a set schedule in the court of appeals to address the matter and that it was at the discretion of the court. He guessed that it would be heard within two years.

In response to Commissioner Anderson, Mr. DeFreest stated that it would not be heard prior to the legislative session acts.

President Lanning disclosed that he was a Tier 1 member in the PERS system.

Mr. DeFreest commented that his membership could represent a potential conflict of interest and not an actual conflict of interest.

Ms. Henry added that there were legislators that were Tier 1 members in the PERS system and that they declared a potential conflict of interest prior to voting.

Vice President Farmer declared a potential conflict of interest as his wife was in the PERS system.

Commissioner Anderson declared a potential conflict of interest as her husband was in the PERS system.

Commissioner Bishop moved to support the staff recommendation to direct the Eugene Water and Electric Board attorneys to file an appeal prior to February 14, 2003. Vice President Farmer provided the second.

Commissioner Anderson shared concerns regarding the cost of an appeal, but felt that the utility should keep its options open.

Vice President Farmer felt that there might not be a "huge value" in an appeal. He said that he supported the motion, but could change his mind.

Mr. DeFreest stated, in response to President Lanning, that the judgment that indicated the dismissal of the petition from EWEB was on the basis that the City's petition was prior in time in conjunction with the court's belief that EWEB was not separate from the City for purposes of these cases. He explained that the judgement only spoke to the relationship that EWEB had with the City for purposes of these cases. He felt that how the court would choose to construe the judgment was unpredictable. He said that an appeal would address the utility's ability to continue and present its own issues and evidence, should the court acknowledge that EWEB was a separate entity and remand the case for trial.

Commissioner Bishop wondered if it would be possible to partner with the City, given the legal perception of the two entities. Mr. DeFreest responded that he was unable to say that it was impossible to have such an agreement. He added that the City petitioners were represented by a private legal partnership and that there was no agreement at this time to form a joint decision making process.

In response to a question from Commissioner Bishop, Mr. DeFreest said that the City had one employee rate for the PERS contribution.

Commissioner Bishop felt that filing the appeal was the most prudent move. She added that the appeal was the "right thing to do." She said that the appeal would let legislators know that EWEB was not going to give up. She asked for an estimate of cost for the appeal.

Ms. Bloom responded that, including the filing fee, the cost of an appeal was thought to be approximately $80,000. Mr. DeFreest commented that once a legal process had been initiated it was a dynamic process due to the variables, such as how many entities would file cross appeals and how many legal motions would be made.

President Lanning directed staff to bring back quarterly reports on the appeal.

Vice President Farmer indicated his preference to vote on the issue. The motion carried, 3:0, with one abstention (President Lanning).

Ms. Bloom noted that there was an error in the memorandum regarding PERS Legislation and Litigation on page 2 just prior to the second section. She made the following correction:

• "....our new employer rate could possibly stay at 22.39 % or be as low as 10.19%  14.19%."

Ms. Bloom related that the director of the PERS Board had stated in the January meeting that over a quarter of the applications received for people to retire have occurred in the first portion of the year. She said that, as a result, the actuary had changed the estimate of people who were leaving. She reported that the number of people who were leaving was shrinking and the early numbers were higher.

In response to a question from Vice President Farmer, Mr. Neuwirth said that the Unfunded Actuarial Liability (UAL) would not be eliminated. He said that the valuation showed the UAL at approximately $5 billion to $6 billion, but on an unsmooth basis this number was more like $15 billion. He felt that a healthy percentage of this number would be eliminated. He noted that this also depended upon what the assumed rate on the Tier 1 regular accounts would be changed to. He noted that more than half of the eligible-to-retire people had left within the last three months.

Continuing, Mr. Neuwirth likened the process of the actuarial simulation to "1000 rolls of the dice" as to what might happen over 50 years. He said that the way contribution rates were determined was that the actuary evaluated with a single set of assumptions. He explained that, in the current year, the actuary projected the account balances forward for all of the retirement participants and discounted them back and that this was the present value of the benefits, and on that basis the contribution rate was calculated. Because of excess earning, the actuary used an 8&Mac189; percent assumption on what would be credited to Tier 1 regular accounts. He related that the actuary would likely be compelled to reduce the assumption to 8 percent.

Libby Henry, EWEB's Legislative Lobbyist, stated that the House Bill 2005, also known as the 8 percent bill, was out of committee. She said that the mortality table bill would be heard later on February 6. She expected amendments to be offered relative to the prospective date that the legislation would take effect. She related that there would be legislation introduced that would call for a court case, in the likely event that another court case would follow, to proceed to the Supreme Court for expedited review. She noted that the general view of the legislators was that this issues was likely to return to court.

Mr. Neuwirth said, in response to Commissioner Bishop's request for a synopsis of the issues, that there were three categories of changes, listed as follows:

• Changes that would directly and explicitly affect the current participants in the system.
• Changes that affect new participants in the system.
• Non-quantifiable changes, which would not affect benefits but were "well worth pushing," such as the 'opt out' option and changing the make up of the PERS board.

Vice President Farmer asked Ms. Henry if the legislature had expressed any inclination to involve the retirees in the reform. Ms. Henry responded that she was unsure whether the legislature had "an appetite" for that. She noted that the Governor had contradicted himself, as he had said that there would be no impact on retirees and then implemented the changed mortality tables in January of 2003.

Vice President Farmer commented that the new hires did not create the PERS problem. He took issue with the notion that the solution should be balanced on the backs of the newly hired employees.

Continuing, Vice President Farmer noted that the Governor's standards were advocating for a defined benefit plan. Noting that the process to calculate the PERS employee contribution was convoluted, he asked if the legislature or the employee group was advocating for a defined contribution plan. Ms. Bloom replied that a couple of bills had been drafted that spoke to parts of the judges' or legislative group recommendations on defined contributions.

Ms. Bloom stated, in response to another question from Vice President Farmer, that the employers were not pushing a defined contribution package because they believed that public employees wanted and were attracted to a plan that was clear about the benefit that would be returned. She related that employers felt that they would be better able to attract and retain employees when the employees understand the benefits.

Vice President Farmer advocated for pushing a contribution plan, to make the benefits of public employees more similar to the benefits of people who worked in the private sector.

Commissioner Anderson felt that retirement benefits were an important point to hire and retain good employees. She stressed the importance of maintaining the balancing act between providing a good benefit package and the costs that ratepayers bore.

Ms. Henry discussed the four statements that had been offered by Board members at an earlier meeting, as follows:

• PERS reform should not result in any increased costs to our ratepayers.
• PERS reform should be conducted in a manner which gives our employees adequate opportunity to plan for their retirement.
• The costs of PERS reform should be borne by both employees and retirees.
• PERS reform should include an opt-out provision, but it should only be used as a last resort.

In response to a question from Vice President Farmer, Ms. Bloom stated that the contribution rates were 12 percent prior to the escalation of the PERS rates. She related that it had then dramatically increased to almost 22 percent in 1998. The utility had engaged in a payment plan that ramped the rates up to 22 percent until the issuance of bonds, which had dropped the rate down to 15&Mac189; percent. She said that the current rate was 15.51 percent, but beginning in July of this year it was slated to increase to 22.39 percent. She noted that, on a "smooth" basis, there was about 3.7 percent "in the wings" and that there was also nearly a 6 percent increase that had been assumed for losses accrued in 2002.

Vice President Farmer advocated for a reduction in the percentage rates. He felt that the utility should aim to reduce the rate to its former level.

In response to Ms. Henry, Vice President Farmer said that he was unsure of whether to use a percentage or a dollar amount, but he stressed that the number must be precise when lobbying in Salem. Ms. Bloom responded that it would be possible to come up with a number.

Vice President Farmer suggested that the second statement be eliminated. He felt that it contributed to the escalating costs to the system.

Commissioner Bishop opposed the two versions of the second statement. She felt the first to be vague and she did not agree with the second.

Ms. Henry felt that the second statement had been formulated to help the retirees feel less worry regarding their benefits. Vice President Farmer commented that he thought that the statement had been to support a phasing in of the reforms.

President Lanning agreed with the original intent, in that the PERS program was a benefit that, while needing adjustment, was still an employee benefit. He stressed the importance of recognizing this through the reform process. He felt that employees do need an opportunity to plan for retirement. He did not agree with Vice President Farmer's assertion that the emphasis should be on phasing it in.

Commissioner Anderson expressed concern that the third statement did not fully recognize the value of the employee.

Ms. Henry noted that the statements from the Board did not have to be ready for presentation at this moment, but rather were a work in progress.

Commissioner Bishop felt that this issue would have to be brought back to the Board in a timely fashion. She clarified that the second statement had changed to read that any PERS reform should be expeditiously enacted and that the board could agree on it. She said that the question was how this should be phased in and that, at this point, with incomplete information, it was impossible to determine what a good phase in process should be. She stressed that there was a distinct difference between benefits and wages.

Commissioner Anderson said that she did not necessarily support a phase in, but that she felt it important not to flatten employees with an abrupt change.

Commissioner Bishop reiterated that the PERS debacle resulted from illegal actions on the part of the PERS Board. She felt that some of the money should be recovered from the employee accounts that it had been illegally placed in.

Vice President Farmer noted that he would have to leave for a conference call meeting. He agreed with Commissioner Bishop that gains that had been accrued illegally should be taken away. He provided a list of what he would like incorporated in Ms. Henry's work in Salem.

Vice President Farmer was excused from the meeting.

General Manager Randy Berggren suggested that staff identify the dissonance within the Board statements so that when the proposals were brought back before the Board, they would better achieve the Board's directive.

Commissioner Bishop said, in closing, that she had a strong desire to standardize the agendas and the Board operations. She made the following recommendations:

• That Board meetings start and end on time.
• That staff double check materials in the board packets to make sure that everything is there and not in duplicate.
• That a section of the agenda always be reserved for public input.

President Lanning adjourned the meeting at 11:58 a.m.

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Assistant Secretary President