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

Others Present: Jim Wiley, JoAnn Andersen, Tom Buckhouse, Dick Helgeson, Ken Beeson, Terry Bequette, Debra Smith, Charles Dalton, Jim Origliosso, Marty Douglass, Marc Andersen, John Yanov, Jennifer Joule, Scott Spettel, Mat Northway, Roseanna McArthur, Tom Buckhouse, Jim Maloney, Lance Robertson, Dick Varner, Bob Lorenzen, Bill Fletcher, John Yanov, and Krista Hince of the EWEB staff; Ruth Atcherson, City of Eugene Minutes Recorder.

President Lanning called the Regular Board meeting of the Eugene Water & Electric Board (EWEB) order at 7:20 p.m.

AGENDA CHECK

As the meeting was convened early, it was decided to situate Correspondence so that it occurred first on the agenda in order to allow members of the public who had not yet arrived to provide input.

Commissioner Bishop requested that Agenda Item (7) Wanapa Development be addressed after Agenda Item (8) 2003 Budget Status Tool Kit. The Board agreed to do so.

CORRESPONDENCE

Mr. Wiley, Electric Division Director, was standing in for Mr. Berggren, who reported the following:

• Interviews for the board position would be held at 5:45 and 20 minutes would be allowed for each interview, with a 10 minute break in between. Commissioners were requested to arrive at 5:30 p.m.
• The "decision point" was scheduled for March 13 at noon.
• Mr. Helgeson would be sitting in for Mr. Berggren at the interviews.
• Ms. Bloom and Ms. Henry had provided a backgrounder regarding two bills in the legislature that would affect the PERS system.

Mr. Wiley stated that Ms. Henry wanted the general consensus of the Board on where she should stage her lobbying efforts for the best outcomes.

Continuing, Mr. Wiley noted the following:

• The Board had received copies of the bill stuffer from the Citizens' Utility Board (CUB) that would be included in the next billing mail-out.
• Mr. Northway had provided a backgrounder to the Board on the photovoltaic project.
• David Parker (EWEB customer) had sent the Board an e-mail regarding the reduction in funds for solar energy. Staff noted that the utility would continue to support the projects that had already been initiated.
• The Board had been invited to a McKenzie neighborhood meeting to discuss the vegetation removal along the canal. Mr. Wiley felt that this could be an opportunity to discuss other EWEB projects for the McKenzie River area.
• The Board packet included back grounders on the financial tool kit.
• EWEB was scheduled to have a booth at the Home Show on the coming weekend at the Lane County Fairgrounds. Mr. Wiley said that the utility would have its water booth and would promote electrical conservation.
• The agenda for the Board meeting scheduled for March 18 would include a discussion of electrical capital funding.

President Lanning called for a five minute break as there had not been one after the Work Session.

APPROVAL OF THE CONSENT CALENDAR

Minutes

• Re-submitted minutes of the October 22, 2002, Special Board meeting, and the February 4, 2003, Work Session.

Business Service Agreements

• Sun Microsystems - Unix Systems Administration - Information Services - Corporate Services Division - $36,198
• Group 1 - Bill Print and Mail Operations - Maintenance Agreement - Information Services - Corporate Services Division - $34,100
• Pacific Northwest Generating Cooperative (PNGC) - BPA Slice Audit - Electric Division - $31,000
• School District 4J Fiber IRU - Telecom Contract - General Manager's Division - $17,400 for the next three years

Bid Award

• Wildish Paving Co. dba Wildish Building Co. - Leaburg Fish Screen Modifications - Electric Division - $2,391,000
• Advanced American Diving Services, Inc. - Leaburg-Walterville - Rollgate Improvements - Electric Division $3,060,000

Grant Request

• Water System Development Charge Grant Request - Walnut Orchard Phase 3 (NEDCO) - Interagency Housing Policy Board - Water Division $7,440

Commissioner Bishop pulled Item (5) from the Consent Calendar which was the approval of the Telecom Contract with the School District 4J.

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

ITEMS FROM BOARD MEMBERS

Vice President Farmer asked for clarification on the discussion on the modifications to the deposit policy. JoAnn Andersen, Customer Services Director, explained that staff was bringing back the questions and proposed changes that the public had expressed. Vice President Farmer stated that he would miss that meeting and requested that the issue be moved to a different day. Mr. Wiley responded that it could be moved.

Commissioner Bishop said that she had questions regarding the discontinuation of Distributed Generation. She also wanted to know when the next Board Governance meeting would be held. Krista Hince, Assistant Secretary, responded that the Governance meeting would be held on April 22.

President Lanning stated that he and General Manager Randy Berggren, Treasurer Jim Origliosso, and Jim Wiley had met with the Lane Transit District (LTD) people who were working on the Bus Rapid Transit (BRT) with regard to the proposed undergrounding project. Vice President Farmer commented that the Board members had made it clear that the project was not financially possible at this time and had discussed the possibility of partnering to attain funding.

PUBLIC INPUT

David Parker stated that, thanks to the program started by EWEB, his company had been able to install the largest photovoltaic facility in the state of Oregon. He praised EWEB for its progressive distributed generation and photovoltaic plans. He lauded the "leadership role" that the utility had taken. He felt the Bonneville Power Administration had followed that lead and had created programs that reward northwest utilities with wholesale discounts if they promote conservation and renewables. He noted that the Bonneville Environmental Foundation had established a "green tag" value for photovoltaic energy, paying ten cents per kilowatt hour (KWH) over the wholesale price. He asked if, with all of this in the works, did it make sense for the utility to suspend the program as it had done two weeks previously? He stressed that EWEB customers like the fact that the utility offers a variety of different conservation programs. He asked the utility to "keep the vision alive" by reactivating the program.

Tom Bowerman introduced himself as a commercial customer of the utility. He explained that he had just completed the largest photovoltaic facility in the state of Oregon through the incentive plan and with $156,000 in capital. He agreed with Mr. Parker, stating that studies have shown that customers were willing to pay more for conservation. He supported re-instituting the program. He said that utility customers that are faced with more expensive energy tend to make more intelligent energy-saving purchases and may save money in the long run. In closing, he commended the staff of EWEB for the help they had provided to him while working on his project.

FINALIZATION OF QUESTIONS FOR CANDIDATE INTERVIEWS FOR WARDS 6 AND 7 BOARD VACANCY

Public Information Manager Marty Douglass said that the questions were largely the same as the questions that the Board had utilized the previous summer. He gave a brief overview of the questionnaire.

Mr. Douglass stated, in response to Vice President Farmer, that whether or not there were follow-up questions was up to the Commissioners.

President Lanning clarified, for Commissioner Bishop, that references would not be checked until after the interviews had been held.

Members of the Board discussed whether to send the questions to applicants prior to the interview. Commissioner Bishop and Vice President Farmer felt that it would be better to have applicants "think on their feet" and not to send questions out in advance.

Vice President Farmer stressed the importance of asking questions regarding the budget. He suggested that it be worded, as follows:

• How would you address the challenge that the current budget issues present to the Board?

Commissioner Bishop moved, with a second from Vice President Farmer, to interview all four applicants. The motion passed unanimously.

Mr. Douglass related that Commissioner Anderson had indicated via e-mail that she supported interviewing all four candidates.

2003 BUDGET STATUS TOOL KIT

Jim Origliosso, Treasurer, introduced the Overview of Budget/Toolkit Discussion. He explained that it had been thought that the utility could wait until November of this year to discuss a rate increase and the possible revision of the tiered rate policy. Given the recent changes in the fiscal climate, he related that staff thought that it would not be possible to defer the discussion.

Fiscal Services Supervisor Dick Varner discussed the back grounder that the Board had been provided with entitled Rate Options. He stated that from October of 2001 to October 2002 the utility had taken on an increase from the BPA without raising rates. He reported that the BPA was going to increase rates again and that the BPA was projected to be increasing its rates by 5.5 percent per year.

In response to a question from President Lanning, Mr. Varner said that the assumptions in the financial projections were that the snow and rainfall would be average. He outlined the three rate options that staff had provided for the Board.

Mr. Origliosso said that the basic philosophy of the first option was to pass through the rate increases.

Mr. Varner explained that the second option attempted to balance cost reductions in the organization with a rate increase that, going forward, was anticipated to counteract the cost increases from the BPA.

Vice President Farmer asked for a definition of "one-time money." Mr. Varner replied that the Con-Aug payment, the Clear Lake substation site capital improvements, low income assistance that was being carried forward, the sale of surplus property, and the Foote Creek reimbursement were all one-time monies.

Commissioner Bishop stressed the importance of only carrying the low income assistance funding forward once.

Mr. Varner stated that the third option, that of not raising rates until November, would create some significant policy issues, including the formulation and passage of resolutions and budget amendments, and some overt sharing of risk. He added that, regardless of what the Board chooses to do at this time, a rate action would be needed in the fall.

Continuing, Mr. Varner provided a comparison of rate increases using both the flat and tiered rate structure.

In response to a question from Vice President Farmer, Mr. Origliosso said that the utility would not automatically begin the next year with a $2.7 million deficit without the one-time money changes. He explained that the utility was suffering from a price issue and a volume issue. He felt that without a bad weather year, there would be revenue in the coming year that was not available at this time.

President Lanning felt that the issue regarding the surcharge indicated that it would be in effect for at least six more months.

Mr. Varner reported, at President Lanning's request, that the flow on the Columbia River had been marginally higher from January to July, and that it had been lower on the McKenzie river.

Mr. Varner stated that the BPA customers were trying to craft a proposal to avoid a Safety Net CRAC.

Senior Rates/Financial Analyst John Yanov noted that the BPA had $180 million in reserves in 2002 and that this represented a d raw down of approximately $720 million.

Mr. Varner said, in response to President Lanning, that, should the utility raise the rates by 5.5 percent at the present time, staff would not likely return in the fall and ask for another rate increase. He stressed that there was no guarantee that any rate action was the right rate action for the next six months.

Mr. Origliosso suggested that, because the statements coming out of Portland were unreliable, the Board could choose to make rate changes retroactively.

Commissioner Bishop expressed discomfort with the elements of the rate action. She stated her opposition to the third option.

Mr. Origliosso stressed that staff was seeking to find some Board agreement for the purposes of guidance in formulating the best option.

Vice President Farmer felt that fundamentally the Board should decide whether the rates should be raised by 5.5 percent, 9.5 percent, or whether they should not be raised at all. He added that, philosophically, the discussion of changing the rate structure from tiered rates to flat rates did not belong in the current conversation as it was a separate issue.

Mr. Varner affirmed that, from a staff perspective, the two actions did not need to happen together.

Commissioner Bishop proposed that the issue of flat versus tiered rates be put on the next agenda and dealt with separately.

President Lanning commented that he felt that the issues of a rate action and the rate structures were tied. He stressed the importance of making the utility a sustainable business and that the rate action would have to occur, but that in-house reductions should be instituted as well.

Vice President Farmer concurred. He remarked that a business could not be successful if it kept paying more for the raw materials and not passing this cost along.

Commissioner Bishop opposed the first option, that of instituting a 9.5 percent rate increase, effective June 1, 2003. She reiterated that there was no question that the rates needed to be increased. She stressed the importance of assuring that the function of the utility was not impaired by the in-house one-time moneys taken out of the budget.

Mr. Wiley related that Commissioner Anderson had sent an e-mail supporting the second option, that of instituting a 5.5 percent rate increase, also effective on June 1, 2003.

In response to President Lanning, Mr. Varner predicted that there would be no further rate increase in the fall should the Board choose the second option.

Regarding the Contribution In Lieu of Tax (CILT) to the City of Springfield, Vice President Farmer asked if removing it would affect the co-generation agreement with Weyerhauser. Fiscal Services Supervisor Dick. Varner responded that the co-generation contract runs for ten more years.

Commissioner Bishop asked that the Eugene CILT be added to the list of possible reductions as the utility was not as able to contribute as it had been in the past.

Commissioner Bishop commented that the program for photovoltaic generation merited continued support.

WANAPA DEVELOPMENT

Resource Project Manager Ken Beeson outlined the recent developments in the Wanapa Project. He noted that staff would be returning on April 1 to further discuss the Wanapa Project. He reported that development work, since Diamond Company had become a partner, was proceeding "apace." He stated that they were meetings several times a month on transmission issues, on the project itself, and on power marketing. He noted that it was currently projected to take more time than originally thought to find out about the prescription possibilities. He said that the focus of the work continued to be securing transmission access by networking with the BPA and on the subscription of the project output.

Mr. Beeson related that the process to determine whether the partners involved would create a proposal that was acceptable to take forward to all of the utilities that were represented would take two to three months. He said that, at this time, the proposal was for the Wanapa group to form a 190 structure and issue debt, which would be turned over to the BPA. The BPA would operate the transmission lines and cover the debt service through transmission credits. He remarked that there were still a number of issues to be settled, including how the credits would work. He emphasized that the BPA would have to offer security for the debt service, that the debt be non-recourse back to the agencies, and that there be some margin that flowed back to the individual agencies to make it worth their while. He felt that more details would be known by April 1.

Power Management and Planning Manager Scott Spettel stressed that power marketing was the critical task item for the project. He stated that the partnership needed to have all, or at least most, of the project subscribed by credit-worthy buyers. He reported that EWEB would not know if this would be successful for six to eight months because the deadlines for requests for proposals would fall at that point.

Mr. Spettel stated that EWEB would have control of the project as the project's managing agent. He said that this would bring approximately $800,000 in to the utility, but that it would also take two to three FTEs to manage it and would cost approximately $500,000.

Mr. Spettel reiterated that the objective of the presentation was to discern the interest of the utility and to decide whether to write a letter of interest that conveyed that, should certain conditions be met, the utility would be interested in between 25 and 50 megawatts.

Continuing, Mr. Spettel underscored that the project made sense given that the utility was interested in increasing gas energy in its power portfolio.

In response to a question from President Lanning, Mr. Spettel stated that the utility was currently getting approximately 270 to 275 average megawatts from the BPA and that this would increase to approximately 300 average megawatts in 2006.

Mr. Spettel gave a brief overview of the Alternative Projects Matrix and compared the different projects. He said that, with the Wanapa project, the utility had the ability to shape some of the costs.

In response to a question from Commissioner Bishop, Mr. Spettel said that the medium forecast for the gas commodity was that it would cost $3.56 in 2006 and that transportation for the gas would range between 20 and 50 cents depending on the pipeline.

Mr. Beeson stated, in regard to the letter of intent, that Diamond Company was scheduling a Board meeting and had requested a letter of intent from EWEB that reiterated the utility's commitment to the project and interest in purchasing the output. He said that this would be a reaffirmation of the intent that the utility had expressed initially.

Mr. Beeson related that the financial closing was projected to occur in late summer of 2004 and that this constituted the only difference from the initial proposed schedule. He said that costs were likely to remain as they had originally been predicted. He stressed that staff was trying to keep costs down, in the context of staying connected with the other participants and the developer, in parallel with the IERP process as it unfolds, and in the context of the budget and the related constraints of EWEB.

Mr. Beeson added that the public would be invited to provide feedback as the project proceeded.

In response to a question from Vice President Farmer, Mr. Beeson stated that prior to Diamond Company's involvement, the financing concept was that the plant was to be a merchant plant and the developer was to be the merchant.

Mr. Beeson said, in response to a second question from Vice President Farmer, that the letter was expressing interest in buying power under specific conditions we want to pursue. He added that the letter was to show Mitsubishi/Tokyo that an informed buyer had looked around and assessed the project and concluded that it had merit. He commented that this was a culturally related style of business communication.

Commissioner Bishop supported sending a Letter of Interest.

In response to a question from Commissioner Bishop, Mr. Spettel recommended refraining from a discussion of wind power in the letter. Commissioner Bishop expressed reservations about de-emphasizing the wind aspect of the project. Mr. Spettel responded that wind would still be a part of the project, but that, given that the process was still in the early stages, it would not be prudent to bring that component into the proposition at this point.

President Lanning asked what the internal costs of the power marketing would be. Mr. Spettel estimated that it would cost $300,000 annually and that it would cover "some incremental personnel" to work on the project.

ITEMS REMOVED FROM THE CONSENT CALENDAR

Regarding Consent Calendar Item (5), which was a revenue and construction contract for EWEB's Telecommunications Group with the School District 4J Fiber IRU, Commissioner Bishop expressed alarm at the cost and wondered how the utility would be able to pay for it over three years. Debra Smith, Telecommunications Project Manager, stated that EWEB would pay for the capital costs initially and then would be reimbursed in the same time frame that it was spent. She reassured Commissioner Bishop that the project would not put EWEB in debt.

Ms. Smith said that EWEB would own additional fiber laterals in all of the places that the school district wanted EWEB to build and the school district would get a 20-year right to use a portion of the fibers. She related that the district would pay EWEB ongoing operation and maintenance costs for them.

Mr. Wiley commented that, should the school district not pay for it, the utility would likely not build anymore laterals.

President Lanning asked if the line crew would be spread too thinly in order to do the work on the laterals. Mr. Wiley replied that three FTEs had been added into the budget in the previous year to accomplish this work.

Vice President Farmer moved to accept Item (5) on the Consent Calendar. Commissioner Bishop provided the second. The motion carried unanimously.

Vice President Farmer supported putting a time limit on future Board meetings.

President Lanning adjourned the meeting at 10:20 p.m.

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Assistant Secretary President