Board Members Present: Patrick Lanning, Ron Farmer, Sandra Bishop, Dorothy Anderson, and Mel Menegat.

Others Present: Randy Berggren, Cathy Bloom, Jim Origliosso, Marty Douglass, Jim Wiley, Roseanna McArthur, Debra Smith, and Krista Hince of the EWEB staff; Roger Mills, Michelle Tachouet, Partner and representative of PriceWaterhouseCoopers, respectively; and Lynn Taylor, City of Eugene Minutes Recorder.

President Lanning called the Special Board Meeting of the Eugene Water & Electric Board (EWEB) to order at 7:30 p.m.

AGENDA CHECK

There were no changes to the agenda.

APPROVAL OF CONSENT CALENDAR

Minutes

1. Executive Session minutes of October 8, October 21, November 3, November 18, and December 2, 2003; Special Board Meeting minutes of October 21, 2003; Work Session minutes of November 3, 2003; and Regular Board Meeting minutes of November 3, 2003.

Budget Amendment

2. Budget Amendment No. 19 - Substation Additions (14009), Residential Additions (14510), Commercial Additions (14511), and Distribution Transformer Replacements (17050) Amendment for: Electric Capital Projects - $1,238,868

Business Service Agreements

3. Bank of America - Commercial Banking Services - Finance Division - $286,500 over a potential of five years

4. PriceWaterhouseCoopers - Electric & Water Utility and Trojan Project Annual Audits - Finance Division- $195,000 and $14,500, respectively

5. AON Consulting - Compensation and Benefits Administration - Human Resources - Corporate Services - $15,000

6. Harrang Long Gary Rudnick P.C. - Legal Services - Human Services - Corporate Services - $150,000

7. Second Growth - Leaburg Power Canal Revegetation - Environmental Services - Corporate Services - $112,654

Intergovernmental Agreement

8. Department of Environmental Quality (DEQ) - Manufactured Gas Plant Site Investigation - Environmental Management - Corporate Services Division - $12,000

Systems Development Charge Grant Proposal

9. Water System Development Charge Grant Request - Santa Clara Plaza Projects (SVDP) - Interagency Housing Policy Board - Water Division - $48,853

Commissioner Bishop requested that items 2, 3, 4, 6, and 7 be removed from the Consent Calendar and considered separately.

Commissioner Menegat moved to approve the remaining items on the Consent Calendar. Commissioner Anderson provided the second. The motion passed unanimously.

ITEMS FROM BOARD MEMBERS

Commissioner Anderson reported that the McKenzie Watershed Council (MWC), at its meeting the previous week, approved a recommendation to work with EWEB on several Leaburg Lake issues, including relocation of the boat landing and mitigation for the lake raise if it occurred. She said MWC also included finding alternative measures to improve septic tanks in mitigation efforts. She said representation outside of the City was still an outstanding issue.

Referring to comments at the October 21, 2003, meeting from Moshe Immerman, Commissioner Anderson asked if there had been consideration of the suggestion to allow the public an opportunity to provide input on the Consent Calender. Mr. Berggren replied it would be a Board policy decision whether to provide an opportunity for public comment prior to approval of the Consent Calendar.

Vice President Farmer commented that public input was not permitted on other agenda items and he did not see any difference between those items and Consent Calendar items.

Commissioner Bishop suggested that public input could proceed the Consent Calendar on the Board's agenda. She noted that the agenda, including the Consent Calendar, was on EWEB's website.

Commissioners discussed the order of the Agenda and President Lanning agreed to consult with the General Manager about possibly changing the order of agenda items.

Vice President Farmer remarked that the holiday party was a success.

Commissioner Bishop noted that a letter from the Eugene City Manager's office had addressed Board members as "Directors" rather than "Commissioners." She also asked that staff inform Commissioners about staff who retired and returned to work for EWEB as contract employees. Mr. Berggren asked for clarification on the type of information Commissioner Bishop was requesting.

Commissioner Bishop noted that the head of the Electric Division had retired and was then employed on contract and recently there had been a change in the lobbyist position. She said those were highly paid positions and she thought it was important for the Board to know when a key employee's status changed. She said if no other Commissioners were concerned or interested, she would individually pursue obtaining the information.

Vice President Farmer said he did not have a position on the matter but was willing to support a discussion of it at a future Board meeting.

Commissioner Menegat said he did not have a position on the matter.

Commissioner Bishop said she had received an email from a customer up the river complaining about light pollution from neighboring property on which EWEB had installed lights. She expressed her intent to bring forward at a subsequent meeting the issue of whether EWEB should adopt a policy or position regarding light pollution.

Mr. Berggren said that EWEB could provide screens for yard lights if there was an issue or complaint, but ultimately the matter was between property owners to resolve disputes.

President Lanning reported that the Lane Council of Governments (LCOG) meeting the previous week had included an in-depth discussion of the cost to human services and education due to current budget constraints. He asked that the materials be placed in board packets. He thanked Marty Douglass and Jim Wiley for accompanying recently appointed Lane County Commissioner Don Hampton on a tour and providing technical and historical information. He remarked that he had discussed the issue of representation on the EWEB Board from outside the City with Mr. Hampton.

CORRESPONDENCE

General Manager Randy Berggren reported the following:

• EWEB distributed a candy bar instead of EWEB's traditional Christmas card. He said it had proved very popular with employees.
• He thanked Vice President Farmer for attending the employee's Christmas party and said that staff had appreciated his participation.
• He congratulated EWEB's Energy Management Services Manager Mat Northway for his recent election as chair of the Northwest Energy Efficiency Alliance Board of Directors.
• He invited Commissioners to attend EWEB's annual "goody day" on December 24, 2003
• He noted that a packet of information had been provided to Commissioners regarding the Bonneville Power Administration (BPA) settlement agreement on pending litigation and said it was scheduled to be discussed at both of the January 2004, meetings. He suggested that the agreement be noticed for action on January 6, 2004 in order to coordinate with other local utilities in a media campaign about supporting the settlement, if the Board approved the agreement.
• He noted that Commissioners had been given a letter from the Arlingtons, who were still unhappy with the resolution of the easement trespass issue. He said that EWEB felt it had no further role in the dispute.
• He referred to a recent article in The Register-Guard that discussed EWEB's plan for broadband and felt the headline misrepresented EWEB's intention. He presented a proposed letter to the editor from President Lanning that would clarify EWEB's position.

Commissioner Anderson observed that the first article was clear, but the second was misleading.

Vice President Farmer said he was not certain that a response was necessary.

Marty Douglass commented that a letter to the editor always presented the risk of fueling an issue, but if the headline was inappropriate, a brief letter would be acceptable.

Commissioner Bishop said she thought a letter should be sent as there was too much misinformation in the article.

Commissioner Menegat said he also supported sending a letter.

Mr. Berggren said he would prepare a letter for submission.

BOARD AGENDAS

Mr. Berggren said he did not have any discussion for the meeting; however, he would have at subsequent meetings in January 2004.

PUBLIC INPUT

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

2003 AUDIT PLANNING

Cathy Bloom, Assistant Treasurer, introduced Roger Mills and Michelle Tachouet of PriceWaterhouseCoopers to provide an overview of the 2003 audit plan.

Mr. Mills and Ms. Tachouet reviewed the information contained in the Report to the Board of Commissioners of Eugene Water & Electric Board: 2003 Strategic Audit Plan.

Mr. Mills highlighted the principles and practices upon which the audit approach was based and said that procedures were expanded beyond the core finance functions to add more rigorous sampling and level of detail testing, as well as new requirements regarding fraud.

Ms. Tachouet listed several areas that would be the focus of audit work:

• Derivative accounting
• Calculation of group depreciation
• Revenue recognition - Unbilled Revenues
• Application of GASB 34 on Financial Reporting for the Western Generation Agency and Trojan
• Accounting and disclosure for potential contingencies
• Any significant non-recurring transactions
• Application of new accounting rules

Ms. Tachouet said that the audit profession had determined, in the post-Enron era, that it was necessary to identify and define the external auditor's responsibility with respect to fraud procedures. She reviewed the areas that would be covered during the assessment of fraud, fraud risk factors, knowledge of fraud and controls.

Mr. Mills observed that the audit was not forensic, but merely addressed the need for explicit procedures that demonstrated thought in the audit planning process and inquiries of management that went beyond simply asking "yes" or "no" questions regarding fraud.

Ms. Tachouet briefly reviewed the procedures to ensure independence, proposed fee schedule, timeline, and organization of the audit team.

Mr. Mills concluded with highlights of changes to the governance roles and responsibilities of management, auditors, and audit committees and invited questions from commissioners.

Commissioner Bishop remarked that she did not like use of the term "shareholder" in the document and as EWEB was a public utility she would prefer "bond holder" or "customer-owner." Mr. Mills responded that her point was well taken and the term "shareholder" might describe those investors in EWEB's public debt as a part of the entire constituent group.

Commissioner Bishop noted the reference on page 6 to evaluating the business rationale for significant unusual transactions and asked if past experience with EWEB had identified any such transactions. Mr. Mills said he was unaware of any prior concerns and gave front office transactions in EWEB's trading environment as an example that would be subject to that type of evaluation.

Commissioner Bishop stated that she was pleased with the audit timeline.

Vice President Farmer asked when the bond holders required EWEB to have financial reporting completed. Mr. Origliosso replied that EWEB was required by statute to have the financial report completed within 180 days after the end of the fiscal year. He said the new timeline, which anticipated a report in March 2004, was better from the standpoint of the different business parties with which EWEB now dealt.

Vice President Farmer asked if the audit would assess the financial ability of EWEB's partners to perform. Mr. Mills replied that the issue could come into play with respect to purchase contracts and sales, changes to fair value accounting rules that for certain contracts would look to the county party for a fair valuation of the contract's worth, and the control environment and management's monitoring of credit exposure.

Vice President Farmer said it appeared the audit would make a judgment based more on EWEB's internal credit controls than on the credit quality of third parties. He expressed an interest in an audit of the Board's performance and internal governance. Mr. Mills said one of the new rules required an evaluation of the Audit Committee and he would take the comment to heart.

Vice President Farmer asked how Sarbanes rules would apply to the EWEB Board. Mr. Mills said that auditors would determine which requirements should appropriately be applied based on the extent to which the Board served in a fiduciary role with oversight of financials and management.

Vice President Farmer asked if the audit assessed the level of capital expenditures and determined the appropriateness. Mr. Mills replied that capital expenditures would not be assessed beyond the business rational for expenditures and their consistency with the business plan. Mr. Origliosso added that capital expenditures were subject to external requirements through bond covenants for an independent engineer's report.

Vice President Farmer asked if the audit would consider projects. Mr. Mills said that there was a move toward the concept of fair value accounting and projections were audited to the extent that realization of assets, valuation of derivatives, and realization of deliverables were premised on management making some judgment of future events.

Continuing, Vice President Farmer said he was interested in whether the audit would make judgments regarding EWEB's weather assumptions since it relied on primarily on water from snow melt to generate electricity. Mr. Mills said the subject was raised frequently in discussions of transparency and the auditors would not opine outside of financials, but that comments might be made with respect to the underlying assumptions of public offering documents and whether they were based on a critical water year or the last 40-year median.

Mr. Origliosso said the issue was raised last year and regulating agencies and users of the official statement had requested more information in the document. He said that a best practices group made recommendations regarding disclosures and bond offerings and EWEB had incorporated a five-year projection and footnotes in its last statements.

ITEMS REMOVED FROM CONSENT CALENDAR

Commissioner Bishop said she was confused about item 7, the contract with Second Growth. She asked if it was the first or second year of the contract. Mr. Wiley replied that the contract was already in place for the purpose of re-vegetating the Leaburg Power Canal. He said the company had bid on an additional scope of work to plant daffodils and that was being added to the contract.

Commissioner Bishop addressed items 3, 4, and 6 together. She said there appeared to be a pattern of changing the procedures for extending contracts, which was previously that contracts were awarded for a year with the possibility of extensions up to five years. EWEB Treasurer, Jim Origliosso responded that the procedure for standard business service agreements was a three-year agreement with an option to renew for two additional years. He explained that the five-year contract period for commercial banking services had been completed and the Bank of America award of a three-year contract was based on a new procurement process. He said that three years had been completed on the PriceWaterhouseCoopers contract and the request was for the two option years.

Commissioner Bishop said she did not have problems with the Bank of America and PriceWaterhouseCoopers contracts, but expressed concern about the contract for legal services with Harrang Long Gary Rudnick P.C., which requested approval for a three-year period, unless the contract was brought back to the Board for approval on an annual basis because of potential conflicts of interest. Roseanna McArthur, Corporate Services Director, responded that the contract could be returned to the Board annually, but noted that no problems had been identified in the past. She added that it was difficult to change employment and personnel attorneys because of the need for continuity and understanding of EWEB's policies and procedures.

President Lanning raised a point of order that Commissioner Bishop was expressing her opinion and not representing the position of the entire Board.

Debra Smith, Telecommunications Project Manager, reminded the Board that it received an annual report from Purchasing on contractors' performance and that presented another opportunity to review contract issues.

Vice President Farmer asked if there was a cost savings associated with awarding a three-year contract instead of a one-year contract; for example would a one-year contract for legal services be one-third of the three-year amount. Mr. Origliosso said it would be costly and time-consuming to go through a full procurement process annually and with respect to legal services, the annual amount was dependent on what type of services were required over the course of the year.

Commissioner Bishop recommended that the Board look at contracting policies, citing recent statutory changes that removed restrictions on the number of years for a contract. She said the Board should consider whether a five-year contract period was better. Mr. Berggren said he would add the item to the list of future Board agenda issues.

With respect to Consent Calendar Item No. 2, Budget Amendment No. 19, Commissioner Bishop said she was not comfortable with an item that involved such a large amount of money being on the Consent Calendar. She asked for clarification on the disparity between the original figures and the amendment.

Vice President Farmer asked if there was a limitation on what could be placed on the Consent Calendar. Mr. Berggren responded that there was currently no limitation and he could add the issue to the list for future Board agendas.

Mr. Wiley reviewed the information on Consent Calendar Item No.2 that was contained in the background memo. He said efforts were made to identify other sources that were under budget to offset the project overruns, but policy required that capital projects with annual budgets greater than $200,000 that were expected to exceed budget by either 20 percent or $100,000 required Board approval. He noted that the item was an amendment to the budget and did not request any additional funds.

Commissioner Bishop said she raised the issue because it was a foreshadowing of the future because of an aging infrastructure and it might not always be possible to balance the budget.

Vice President Farmer commented that his reaction was not to the cost overrun, but rather to finding funds elsewhere in the budget to cover it. Mr. Berggren remarked that there was a need to better connect engineers to the financial aspects of a project and that presented tools for opportunity and learning.

Mr. Origliosso said that monthly budget reviews were performed and the overrun issue was identified as early as August 2003 and staff had to address the question of which funds were available to cover the overrun.

Commissioner Bishop moved to approve Consent Calendar Item No. 3. Commissioner Menegat provided the second. The motion passed 4:0; Vice President Farmer abstaining.

Commissioner Menegat moved to approve Consent Calendar Item No. 4. Commissioner Anderson provided the second.

Commissioner Bishop offered a friendly amendment to include Consent Calendar Items No. 2, 6, and 7. Commissioner Menegat accepted the amendment. The motion, as amended, passed unanimously.

The meeting adjourned at 9:05 p.m.

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Assistant Secretary President