EUGENE WATER & ELECTRIC BOARD
SPECIAL BOARD MEETING
(WORK SESSION)
EWEB BOARD ROOM
MARCH 4, 2003
5:30 P.M..
Board Members present: Patrick Lanning, Ron Farmer, and Sandra Bishop. Commissioner Dorothy Anderson was excused.
Others Present: Jim Wiley, Marty Douglass, Brenda Sirois, Terry Bequette, Jim Origliosso, JoAnn Andersen, Dick Varner, Mike Logan, Debra Smith, Lance Robertson, Roseanna McArthur, Ken Beeson, Mat Northway, Jim Maloney, Scott Spettel, Tom Buckhouse, and Krista Hince of the EWEB staff; Ruth Atcherson, City of Eugene Minutes Recorder.
President Lanning called the Work Session of the Eugene Water & Electric Board (EWEB) order at 5:35 p.m.
INTEGRATED ELECTRIC RESOURCE PLAN (IERP)
Electric Division Director Jim Wiley, filling in for General Manager Randy Berggren while on vacation, explained that the intention of the Work Session was to get a sense of additional issues or concerns that the Board might have regarding the Integrated Electric Resource Plan (IERP). He pointed out that Brenda Sirois, Resource Planning Analyst, had provided a back grounder to the Board regarding Senior Management's Assessment of IERP. He likened the current environment that the energy industry was functioning in a sea of change. He commented that there were many unknowns, among them price run-ups and changing weather conditions.
Ms. Sirois kicked off the Work Session using a power point presentation that outlined senior management's assessment of the 2000 Energy Resource Strategy. She re-iterated that the primary purpose of the Work Session was to collect Commissioners' opinion on what was and was not working for them in regards to the current IERP. Once she received feedback from Commissioners and senior management she would synthesize them into a project plan for update of the IERP.
Ms. Sirois's slide presentation identified the overarching IERP issues to kick-off the discussion.
Slide #1: Agenda
Slide #2: IERP Policy Review
Slide #3: IERP Policy Review
In response to a question from President Lanning, Ms. Sirois reiterated that this Work Session was primarily to help organize the approach to the IERP at the Board level.
Vice President Farmer remarked that financial capacity, while covered well in the back grounder, should be at the forefront of the present discussion.
Power Management and Planning Manager Scott Spettel felt that the reliance on hydro-electric energy in EWEB's power portfolio should be another area of primary focus.
In response to a question from President Lanning, Mr. Spettel explained that if there was more reliance on gas power in the portfolio, the utility may need to lock some of the gas in at a future price which would provide the ability to hedge the prices. He related that, even with the volatility of gas prices on the market with a different mix of gas in the portfolio there would be a different financial profile.
Mr. Wiley noted that we are now seeing a more balanced seasonal load with an increasing summer peak load which may have some impact on EWEB's preferred portfolio.
Vice President Farmer commented that he would prefer to mitigate the affects of risks taken on by the Bonneville Power Administration.
There was some discussion of tax issues. Mr. Wiley stated that a carbon tax could present financial impacts if a thermal portfolio is pursued. Mr. Spettel added that it seemed that the legislature often sought to find ways to tax transmission lines.
Vice President Farmer stated that it was difficult to formulate a plan when the future was so unclear. Ms. Sirois concurred, adding that it was hard to put a measure on what the future was going to hold in an atmosphere of many paradigm shifts. She added that this would be discussed further during the Board's Strategic Planning Session in May.
Vice President Farmer stressed the importance of financial growth in order to provide employees with appropriate compensation.
Mr. Wiley also reiterated that it was important to identify the impact of delivering less kilowatt hours (KWH) over the fixed costs of a transmission and distribution system in a demand-side and distributed generation portfolio.
Mr. Spettel commented that there seemed to be cycles of "boom and bust" in resource development. He added that some of the flexibility of the hydro system had been reduced given the restrictions that have been placed upon the rivers.
Vice President Farmer felt that the BPA wanted to push its long-term resource adequacy off onto the utilities and eliminate that risk to themselves. He found very little value to the utilities in signing a 20-year contract with the BPA, though formulating a long-term contract was very advantageous to the BPA.
Ms. Sirois noted that there was risk in gas-fired generation, too. She felt that it was important to focus on how the utility may or may not want to use gas in the power generation portfolio.
Regarding transmission constraints, Ms. Sirois stated that this needed to be considered in the update of the IERP .
Vice President Farmer remarked, regarding gas power, that diversifying the portfolio was only as good as the ability to manage it. He said that there was a base level of water coming off the mountains and, while the flow may not be at the level that the utility wanted it to be, it would continue. He commented that gas prices could continue to rise dramatically and that he could support well-managed diversification over diversity "for the sake of being diverse."
Ms. Sirois pointed out that global warming, the long-term impacts of which were unknown, was also a variable that could affect stream flows.
Regarding DG, President Lanning stressed the importance of positioning the utility as the plan for the future was being formulated.
Ms. Sirois asked Mr. Wiley to speak to energy conservation. He affirmed that money spent on conservation was "money well spent." Debra Smith, Telecommunications Manager, added that the memorandum in the packet from Mat Northway, Conservation Manager, regarding Demand-Side Management (DSM) addressed the related underlying issues.
President Lanning asked how selling green credits impacted the region. Mr. Wiley responded that it was important to look at what the resources were and how they relate to the renewable development.
Vice President Farmer asserted that the key to conservation was flexibility, that in times of financial crisis it was important to have a base that the utility was willing to operate at.
Commissioner Bishop stressed the importance of considering who benefits from conservation measures, whether the benefits were applied across the board or only at certain levels of power usage.
Ms. Sirois highlighted the policies from the IERP of 2000 that were in need of re-visiting based on senior management's assessment of the 2000 IERP, as follows:
She explained that "affordable" needed a better definition, as identified by senior management. The policy was too vague and did not clearly explain whether it meant affordable within the context of the market or affordable to the customers of the utility.
Mr. Spettel discussed the issue of renewable resources. He related one question that management was trying to address was what percentage of renewable resources should be in the power portfolio as a whole and what percentage should be allocated directly to the customers that wanted to purchase them. He wondered if there was room in a renewable product to do more than this.
Vice President Farmer stated that affordability meant operating within the parameters of what the utility and its customers could pay. He stressed the importance of considering the balance sheet position prior to undertaking conservation or building projects.
Mr. Spettel remarked that the Board was in a different set of financial circumstances than it was previously, when the Board was more able to pay for the renewable resources. President Lanning spoke to this, stating that a big issue to consider was how the utility was aligning itself for the future. He stressed that, in the long-term, the development of a portfolio that included investments in renewable energy sources was a prudent move.
Vice President Farmer agreed with President Lanning, but underscored the importance of conducting a study that demonstrated that an investment would provide returns to the utility.
Mr. Wiley stated, in response to a question from Commissioner Bishop, that there were two components of the rate structure, that of power and distribution. He elaborated, saying that as less energy is delivered through the distribution system, there are less billable units to allocate the fixed capital and maintenance costs. He said that this affects the distribution rate. He related that, should there be a future of DG, in which individual customers had micro-turbines or fuel cells in their homes, these individual power generation sources had to be integrated, the utilities would still be relied upon to provide back-up electricity in the event of a break-down.
Vice President Farmer asked for clarification in how sustainable was being defined. Commissioner Bishop replied that the sustainability standard had been developed in the previous IERP as purely a goal having to do with assuring that the utility maintained the mitigation of environmental damages in its generation and transmission portfolio.
Vice President Farmer commented that he would define sustainability differently, as he believed that the utility was already 90 percent sustainable because of the roles that sun, wind, and water play in power generation.
After finishing a discussion on the policies supporting the IERP, Ms. Sirois then went through senior management's assessment of the five resource strategies that comprise the current IERP
Slide #4: IERP Strategy Review
Slide #5: Demand-Side Management (DSM)
Slide #6: Renewables
Slide #7: Distributed Generation (DG)
Vice President Farmer supported updating the funding shortage. He asserted that representing financial targets with money amounts rather than percentages would make more sense.
President Lanning stated that, strategically, research and development should be focused on Demand-Side Management, Distributed Generation, and renewables.
Regarding the centralized generation strategy, Ms. Sirois stated that there was an implicit assumption that this referred to gas-fired generation. She went on to say that it could also include wind and solar power, as well gas-fired generation.
Commissioner Bishop said that one way to look at fossil fuel was to consider it a "bridging strategy" to get the utility to the next phase of power of generation. Vice President Farmer agreed, adding that the difficulty was determining what the utility would be bridging to. He noted that, in banking, a loan to bridge to an unknown end was likened to a "pier loan."
Ms. Sirois stated, regarding DG, that it was important not to miss the opportunity that advancing technology presented to portfolio diversity. Nonetheless, she noted that it presented issues in safety and integration that needed to be identified and discussed.
Mr. Spettel discussed the power purchase portfolio. He related that the portfolio may be up for renegotiation in 2006.
Slide #8: Power Purchase Portfolio
Vice President Farmer requested a summary of information to better the Board's understanding of planning for the power purchase portfolio.
President Lanning advocated for an increase in ownership of the energy generation resources. Mr. Spettel commented that this would be touched on later in the regular meeting during the discussion on the Wanapa project.
Mr. Wiley stressed the importance of considering the hydrogen futures. President Lanning added that wave generation was another potential energy resource of the future.
Ms. Sirois summarized the discussion, and stated that based on comments from senior management and the Board, the 2000 IERP needed updating.
Slide #9: Summary
Slide #10: Next Steps
The Commissioners' brain storming comments (as captured by a facilitator) regarding what works and what does not for them in the current IERP are listed below:
Overarching Issues
Financial Capacity (RF)
RE: Portfolio Risk--How to measure/manage inter-relationships, i.e., (increasing?) gas prices with (decreasing) water (PL)
BPA risk--The ways their actions and commitments impact us (RF)
Carbon Tax (SB)
National Energy Policy unclear
Broader strategies will work better in uncertain environment (RF)
States' need for revenue could add costs (JP)
Direct application of gas should be explored--lack of profit motive opens opportunity (SB)
But without growth in Revenue, cannot cover rising costs--salaries, etc. (RF)
Overarching Issues (continued)
Worries about BPA pushing long-term resource adequacy/Risk on to customers (RF)
How to manage diversity--Key to finding value in diversification--(gas prices example) (RF)
We need to position ourselves relative to DG-five-year reviews may not capture changes. Now is time to position ourselves (PL)
What impact of selling green credits on the region? Need clarity! (PL)
Conservation cheaper in Long Run, more expensive in Short Term. Flexibility during times of cash constraints (RF)
Diversity in Portfolio--Away from Hydro and fossil fuels (SB)
Opportunity Cost Associated with conservation (PL)
From Financial and Budget Perspective--No Sacred Cows, but O.C. (PL)
Who actually benefits from Conservation? What does "Conservation" mean? Across classes--(SB)
Rate impact of various resource strategies will help with understanding (Brenda)
Policy Issues
Affordability = ability to pay--Utility-wide. Is cash flow there? What does balance sheet look like?
Does Policy 1 refer to Utility affordability or customer affordability--unclear (SB)
Rate increases (capital project exclusion) that do not exceed rate of inflation--Affordability per (RF)
Strategic Alliance with the future is key, and not always "affordable" in the future (PL)
Uncertainty about future would really make evaluation of projects driven by future prices tough (PL)
(Question) about impacts of Policy 1 on distribution system (SB)
Policy 2--we have a target but no good way to measure. And at what cost? (SB)
How to apply % target (annual, cumulative, etc.) Good discussion to have (SB)
Does sustainability deal with renewable resources or financial sustainability (RF)
Original policy was around environmental sustainability (SB)
Definitional look-back--what did we mean when it was adopted?
Policy 7--is much more clearly stated re: resource acquisition
Ron's definition of sustainable may differ from Board--Hydro as sustainable (RF)
Demand-Side Management
Funding strategy update is good. More comfortable with $$ amount over % (RF)
Make sure expanded definition of DSM makes sense. Clarity (RF)
DSM is an area where we need to focus R & D (Patrick includes D.G. in this area) (PL)
Renewables
When do you measure? (SB)
Renewable goal should be measured over longer time, i.e., Don't fund renewables at expense of employees or when rate (increases) needed to fund (RF)
Central Generation
Compatibility of any fossil fuel with sustainability--Bridging Strategy?
What are you bridging to? Pier Story (RF)
Distributed Generation
When do we ramp it up? (PL)
Power Purchase Portfolio--
Staff input on Issues raised by Scott (1-pager) (RF)
IERP process could push on "maybes" that we haven't explored before (PL)
Increasing ownership resources thereby reducing reliance on BPA (PL)
Investigate partnerships with other utilities (PL)
Hydrogen Future (JP)
Wave generation (PL)
Board stuff generated tonight is brainstorm of issues, Not consensus on Policy needs/changes (SB)
Include description of context and definitions from past IERP processes (SB)
President Lanning requested detailed back grounders, to aid in the education necessary to the planning process.
The meeting was adjourned at 7:19 p.m.
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Assistant Secretary President