Board Members Present: Patrick Lanning, Ron Farmer, Sandra Bishop, Dorothy Anderson, Commissioners.

Others Present: Randy Berggren, Jim Wiley, Dick Helgeson, Joanne Andersen, Terry Bequette, Debra Smith, Charles Dalton, Leslie Monks, Jim Origliosso, Marty Douglass, Marc Anderson, Richard Callison, Cathy Bloom, Lance Robertson, Dick Varner, Bob Lorenzen, and Krista Hince of the EWEB staff; Ruth Atcherson, City of Eugene Minutes Recorder; Rick Lindholm, Lindholm Research, LLC; Don Irving, Matt Whipple, Pricewaterhouse Coopers LLP, Independent Auditors.

President Lanning called the Regular Board Meeting of the Eugene Water & Electric Board (EWEB) order at 7:55 p.m.

AGENDA CHECK

There were no changes or additions to the agenda.

APPROVAL OF THE CONSENT CALENDAR

Minutes

• Minutes of the June 17, 2002, Board meeting, the June 18 Executive Session, the July 10, 2002, Board Planning Session, the October 22, 2002, Special Board Meeting, the November 5, 2002, Work Session and Regular Board Meeting, the January 7, 2003, Special Board Meeting, Executive Session, Work Session and Regular Board Meeting, and the January 21, 2003, Work Session.

Business Service Agreements

• Bonneville Power Administration - Demand Side Management and Retail Services - Energy Management Services - Customer Services.
• Portland General Electric Company - Super Good Cents Program - Energy Management Service - Customer Services Division.
• GEAC Enterprise Solutions - GEAC Software Maintenance - Information Services - Corporate Services.
• Iris Communications - Web Site - Public Affairs - Corporate Services Division.

President Lanning pulled the Minutes from the Planning Session held on July 10, 2002.

Commissioner Bishop pulled the Minutes from the Planning Session held on July 9, 2002, the Special Board Meeting held on October 22, 2002, and the Executive Session and the Regular Board Meeting held on January 7, 2003.

Commissioner Anderson pulled the Minutes from the Regular Board Meeting held on January 7, 2003, and the Work Session held on January 21, 2003.

Commissioner Bishop moved, with a second from Vice President Farmer, to approve the Consent Calendar with the aforementioned exceptions. The motion carried unanimously.

ITEMS FROM BOARD MEMBERS

Vice President Farmer asked for clarification on the schedule for the interviews of potential appointees to the Board of Commissioners. The Commissioners and General Manager Randy Berggren discussed options and determined that the interviews would be held on March 11, 2003, at 5:30 p.m. and the deliberation would be scheduled for March 13 at noon.

Public Affairs Manager Marty Douglass stated that he would provide the Commissioners with a draft of the interview questions at the meeting to be held on March 4.

Commissioner Anderson noted that she would miss the March 4 meeting due to a scheduled ear surgery.

Commissioner Bishop wished Commissioner Anderson a speedy recovery on behalf of herself and the board.

Commissioner Bishop noted that a letter had been sent to the McKenzie Reflections in regard to the clearing of timber and brush along the river banks. She felt that the letter should have been signed by the President of the Board.

Commissioner Bishop requested that a message box for Commissioners be installed in the headquarters so that information could be passed on to Commissioners in another vehicle aside from the Board packets.

Commissioner Bishop expressed concern that the Bus Rapid Transit (BRT) request that the utilities be undergrounded at the time of construction was not a project that EWEB could afford. She stressed the importance of communicating this to the BRT planners.

CORRESPONDENCE

Mr. Berggren reported the following:

He would not be attending the March 4 meeting as he would be on vacation. He noted that Electric Division Director Jim Wiley would sit in for him.

A memorandum regarding the continuing reaction to the canal vegetation removal at the Leaburg-Walterville canals was included in the Board packets. He noted that a letter to the editor of the local paper had been sent and that it had been signed by Jay L'Estrange. He suggested that the Board discuss whether such a letter should be signed by Board members at the next Board Governance session.

A memorandum from Mr. Helgeson had been included in member packets regarding the Hayden Bridge Reservoir pump station upgrade. A significant outage was slated to occur on the following day, February 19, so that several large transmission lines could be cut over.

In response to Commissioner Bishop, an informational memorandum regarding the FERC permit at Fall Creek had been included in member packets.

The Board agenda for the March 4 meeting was comprised of a discussion on the IERP development objectives and resource criteria, an update on the Wanapa project, and a discussion on the status of the 2003 budget and the potential rate issue.

PUBLIC INPUT

There were no members of the public who wished to speak at this time.

PRESIDENT LANNING'S ANNUAL MESSAGE

President Lanning read the president's annual message for 2003:

"For the second time in three years, the Eugene Water & Electric Board faces some tough financial challenges. The external factors of another Bonneville Power Administration rate increase and a severe lack of snowfall in the mountains this winter will continue to place financial issues at the forefront of our work.

"Unfortunately, this year looks to be shaping up much like 2001, only without the skyrocketing wholesale prices brought on by the California energy crisis. But as we learned in our Work Session earlier this evening, the financial picture does not look good, and the Board will have to face the challenge of raising electric rates, again.

"Fortunately, we (FERC, Bonneville, and EWEB) have all learned from the experience of the 2001 energy crises, and thus, customers throughout the Pacific Northwest will not need to experience a repeat of the large increases that occurred in 2001. The ability to avoid large rate increases is essential, given that the economy is still sputtering, too many people are out of work, and local schools and governments continue to face their own financial crises. Our customers need EWEB to keep electricity costs down as much as possible.

"It is too bad we are facing continued external challenges, because EWEB's Board and staff have worked hard over the past year to deal with the financial difficulties brought on by the 2001 energy crisis. A year ago, we developed a "tool kit" to pay off $30 million in borrowing and replenish EWEB's cash reserves. We cut the utility's operating budget, let a number of positions go unfilled, reduced planned pay raises and took other actions to revise our 2002 budget and restore the utility to good financial health.

"And it was working. As late as November, we were on track to end the temporary electric rate surcharge earlier than originally projected. That optimism now has faded with Bonneville raising wholesale rates by another 15 percent and a dismal snow pack that will reduce our own ability to generate power.

"Based on our successes dealing with financial adversity over the past 18 months, I am confident that EWEB will meet these new challenges. It will require some hard decisions by the Board, and this will test each Commissioner's ability to make effective and efficient policy decisions.

"Our current challenges remind me of a quote that I read, as a new Board member, from Norman F. Stone's (1986) book: Bountiful McKenzie: The Story of Eugene Water & Electric Board. The quote reads:

["Over many years EWEB has tended to function in a light-cavalry mode. It has avoided the pitfall of becoming a sluggish bureaucracy. It has moved quickly and decisively when required to do so in the interests of its customers. And it seems to have understood the dynamics of change."]

"We will make the hard choices, then move on, because the needs of the community and the utility don't grind to a halt whenever there's a financial crisis. As we look forward to the next year, we must use our employees' vast skills, expertise, and dedication to continue with many current initiatives and face the broader task of running a utility in an ever-changing and volatile industry.

"The challenges are many:

• The Board has made a commitment to improve customer service with the hiring of five new customer service representatives to reduce the number of lost calls and deal with an increasing number of phone calls due to customer growth, the effects of the poor economy and our billing structure.
• 2002 was a banner year for our conservation efforts. EWEB set an all-time record of more than 21 million kilowatt-hours of installed energy savings in our commercial program alone. We must continue our sustainable business practices with a strong commitment to energy conservation.
• Energy markets will continue to be volatile and unpredictable. We must keep the pressure on BPA to cut its costs as a way of avoiding more rate increases. We also must work with our allies to preserve the Bonneville system for the benefit of the Northwest's public power consumers.
• We must continue to deal with our own internal costs, specifically health care and PERS.
• We will continue with the upgrades to our McKenzie River hydroelectric facilities. While expensive, customers, as well as the health of the river and its fish, will benefit from this work.
• We took a big step in 2002 with development of the first drinking water wells in north Eugene. The wellfield project will provide customers with a backup source of clean water in the event of an emergency.
• EWEB also is upgrading its Hayden Bridge Filtration Plant to meet future growth needs. A new, 15-million-gallon storage reservoir was constructed in 2002, helping to ensure an adequate supply of water for years to come.
• We must deal with an aging electric distribution infrastructure to maintain a high level of service reliability. This will take some creative thinking on the part of EWEB, given our current financial picture.
• We must work to improve our relationship with the city of Eugene at a time when there are many ongoing and contentious issues, such as CILT negotiations, the siting of new reservoirs and development of the riverfront.
• We must continue to focus on improving our operational performance throughout the utility. We have established "operational performance measures" for many of the things we do on a daily basis to help us keep track of how well we are doing, and then to improve in areas where we need help.
• We must keep searching for new energy resources that are affordable and environmentally acceptable. If anyone had doubts about the need to diversify our generation 'portfolio,' two droughts in three years should be a wake up call to the community about the vulnerability of relying too much on hydroelectric power.

"The work ahead cannot be left to just EWEB's employees. As I stated during our vote for Board officers, I am committed and determined to focus on Board Governance work. It is imperative that we fill our vacant Board seat with a competent and capable Commissioner, and move quickly to our Board Governance retreat. Our Governance work is essential for effective decision-making and Board accountability in these challenging times.

"Board Governance work can:

• Clarify the expectations and policies of the Board;
• Provide a sound framework to set executive and organizational performance criteria;
• Ensure timeliness in Board monitoring of operational performance;
• Allow the Board to agree on what is important to monitor; and
• Make sure that the work being done is supported by the Board as a whole.

"Finally, I want to thank the employees of EWEB for their hard work and dedication during some rocky financial times. You rose to the challenge, and succeeded. I have faith that you will continue to make EWEB a world-class utility. One in which our customers will be proud to call their own."

The message was met with applause by those in the audience.

Vice President Farmer asked if it would be possible to submit the message to local media. Mr. Douglass responded that the message was available but the local media had not expressed much of an interest in it. Vice President Farmer suggested that the Annual Message be included with the next bill in order to get the message out to the utility's customers.

ANNUAL BENCHMARK SURVEY OF CUSTOMERS

Lance Robertson External Communications Coordinator, introduced Rick Lindholm, who conducted the benchmark survey of customers. He provided an overview of the EWEB Baseline Survey January 2003, Preliminary Report with the aid of overhead projections. He noted that the results of the survey had been summarized in the memorandum to the Board entitled Benchmark Survey. He added, as background information, that the results from 2001 and 2002 had been included for purposes of comparison.

Mr. Robertson stated that cost containment was the key concern expressed by customers. He noted that the survey had included questions phrased to determine how much people knew about the energy crisis.

Mr. Lindholm provided some background on the questions. He explained that the survey had included six likely causes that people would associate with the cost of energy and that the respondents had been asked to score them. He said that the response "management decisions" had attained the lowest score.

Mr. Robertson pointed out that the number of people who thought that EWEB was working to control costs had gone up since 2001.

Commissioner Anderson asked if it was a fair question to assume that, in the event that the utility must raise rates, the consumer would then automatically assume that the utility was not working diligently enough to avoid the rate issue. Mr. Lindholm said that he did not think that this would occur "automatically," but felt this to be a likely scenario.

Mr. Robertson remarked that the utility had done a good job of communicating with the customers about the measures that were being taken to curtail costs. He related that responsiveness to customers had been rated good to excellent by 68 percent of the respondents, as opposed to 58 percent in the previous year. In addition, a question had been asked about the activities in the community that EWEB participated in and the answers had made it evident that there was a fairly high amount of awareness of them.

In response to a question from President Lanning, Mr. Lindholm stated that questions regarding the tiered rates were statistically insignificant in relation to this survey.

President Lanning opined that the survey would have presented a more accurate picture of customer sentiment had it included questions regarding the tiered rates. He felt that it was misleading to state that there had been no response about this, given that the Board members had received many responses from customers concerned about the rate structure.

In response to a question from Commissioner Bishop, Mr. Lindholm explained that the reason the firm in Utah had been utilized was that this particular firm was very good at analyzing responses to open ended questions. He noted that the firm was the only one in the west that was used in national surveys.

Vice President Farmer commented that the customer responses had indicated a misunderstanding of the true causes of the cost increases. He advocated for educating the customers more about the BPA increases and the snow droughts that the utility has had to contend with.

Mr. Lindholm stated, in response to President Lanning, that he would be happy to discuss survey methodology with Board members.

2002 FINANCIAL AUDIT

Don Irving and Matt Whipple of Pricewaterhouse Coopers presented the Annual Report for the Year Ended December 31, 2002 and the Report to the Board of Commissioners, Results of the 2002 Audit. Mr. Irving commended EWEB, and in particular Cathy Bloom, EWEB's Assistant Treasurer, and Leslie Monks, EWEB's Financial Analyst, for finishing the utility's audit by January 31. He provided an overview of the format of the reports.

Mr. Irving said that the audit had been completed and an "unqualified report" had been issued which stated that the audit had been conducted in accordance with professional standards and that, in the opinion of the auditors, the financial statements had been presented fairly. He noted that the scope of the work did not stray too much from the parameters that had been presented initially.

Mr. Irving reported that the auditors had found high ethical standards at the management level of EWEB.

Commissioner Bishop felt that the report should have included former Commissioner Paul Conte. Mr. Irving explained that Mr. Conte was not sitting on the Board at the time of the report and that the auditors had sought to make the report current on the date of issue. Ms. Bloom offered to make the correction in future reports.

Vice President Farmer noted that the market to market process had shown a $2 million loss. He asked if this was a "direct hit" or if it had been passed into the deficit. Mr. Irving responded that, in general and in the forward purchases in particular were not market to market. He said that those contracts meet the exclusion and included some optionality in the contract to hedge the risk. He explained that there was a purchase of energy, but that it was also possible to put energy back at a loss position, though it means that the price had actually changed. He stated that those, under the existing pronouncements, were market to market as the optionality taints the contract. As a result, he said that there had been a market to market loss of $1.8 million, but that the rates recoup the costs of energy purchases. He further elaborated, explaining that it was "almost an opportunity cost." He related that, should the utility go back into the market and buy out all of the positions that it had, the utility would have to pay $1.8 million. He said that they were not real losses and would ultimately "disappear."

Vice President Farmer remarked that the foot notes regarding the post-retirement benefits had seemed more germane to the audit of the previous year. Ms. Bloom responded that a new report on the benefits had not been completed at this point, but would be presented soon. She added that it was not required, for the purposes of the current audit, to disclose the benefits.

In response to a question from Vice President Farmer, Mr. Irving stated that Board Governance had been looked into indirectly as the standards of ethical behavior and governance that were brought down to management from the Board were considered throughout the process of the audit.

In response to a question from Commissioner Bishop, Ms. Bloom stated that the current liabilities were listed on page 10 of the report.

2003 GENERAL MANAGER'S GOALS

Mr. Berggren presented his Recommendations for 2003 GM Goals and the GM Goal Evaluation Process Recommendation, February 14, 2003.

Vice President Farmer noted that he had already provided feedback to Mr. Berggren.

Commissioner Anderson commented that the Board had improved the evaluation process, but had also made it more complicated. She expressed concern that the process might be too complicated.

Vice President Farmer suggested that the other Board members consider the goals and the rating system and to offer suggestions for improvement and feedback.

Mr. Berggren stated, in response to comments from President Lanning, that the percentages of his time devoted to various areas of the utility management were somewhat subjective as he was attempting to balance his priorities.

Vice President Farmer noted that he had considered the percentage ratings to be an indication of importance and, as such, he did not expect that something that he rated at 65 percent would actually occupy 65 percent of the General Manager's time.

President Lanning stressed the importance of spending time on Board Governance. He felt that this should be an area of focus.

President Lanning asked for further input or questions from the Board and Mr. Berggren. Vice President Farmer advocated for determining the timeliness of the goal reporting. Mr. Berggren suggested that the conversation on this be pursued in September of this year.

Commissioner Bishop moved to accept the General Manager's Goal Evaluation Process Recommendation dated February 14, 2003, and the General Manager's 2003 Goal Recommendations also dated February 14, 2003. Vice President Farmer provided the second. The motion passed unanimously.

ITEMS REMOVED FROM THE CONSENT CALENDAR

President Lanning offered the following correction to the minutes of July 10, 2002:

• Page 3, paragraph 1: "...respond to the concerns voiced by Commissioners Farmer and Lanning...."

Commissioner Bishop requested that the minutes of October 22, 2002, be pulled in order to provide former Commissioner Paul Conte an opportunity to review them.

Commissioner Bishop offered the following corrections to the minutes of January 7, 2003:

• From the Executive Session: The session was incorrectly listed as starting at 5:35 p.m. The meeting was convened at 5:46 p.m.
• Page 3, paragraph 3, Regular Board Meeting: "Commissioner Bishop commented that she had included a resignation from her former position as she had been elected to the to assume the At Large position."
• Page 6, paragraph 1, same: "Commissioner Bishop stressed that if the actions of the PERS Bboard were deemed illegal and that the ratepayers should not be held accountable for the illegal actions, such as contributing excess earnings to employee accounts, that they had not participated in."

Commissioner Anderson offered the following correction to the minutes of the Regular Board Meeting held on January 7, 2003:

• Page 3, paragraph 1: "She noted that she would miss the next meeting scheduled for February 4 as she would be in Portland...."

Commissioner Anderson offered the following correction to the minutes from the Work Session held on January 21, 2003:

• Page 2, paragraph 7: "...she had not read the Tellas report on renewable sources of energy and she questioned asked whether it would be relevant to the discussion."

Commissioner Bishop moved to accept the minutes that had been pulled from the Consent Calendar as corrected, with the exception of the minutes from the Special Board Meeting held on October 22, 2002. Vice President Farmer provided the second. The motion passed unanimously.

President Lanning adjourned the meeting at 10:07 p.m.

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Assistant Secretary President