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

Others present: Randy Berggren, Debra Smith, Jean Meyers, Tom Buckhouse, Dick Helgeson, Jim Origliosso, Roseanna McArthur, Jim Wiley, John Yanov, Scott Spettel, Dick Varner, and Krista Hince of the EWEB staff.

President Lanning opened the Eugene Water & Electric Board Work Session to order at 6:30 p.m.

BONNEVILLE POWER ADMINISTRATION'S (BPA) SETTLEMENT AND SLICE STIPULATION AGREEMENTS

Electric Division Director Jim Wiley, John Yanov, Senior Rate/Financial Analyst, and Scott Spettel, Power Management and Planning Manger, provided a presentation updating the Board on its agreements with BPA. Mr. Wiley distributed a handout showing settlement results. He said there were numerous lawsuits against BPA, most of which were dealing with exchange benefits. He outlined the listed settlement results and how they pertained to the utility. He said staff would ask for a final decision on January 20, 2004.

A. Reduce SN CRAC to Zero of Fiscal Year 2004

• BPA finds $100 million in cost savings or revenue enhancements in FY 2005 and 2006.
• PacifiCorp and Puget Sound Energy Forego $200 million of Apoison pill@ reimbursement.
• IOU's defer $269 million (plus interest) in Fiscal Year 2004-2006 or Residential Exchange Program Benefits into FY 2007- 2011
• IOU's receive only monetary benefits in fiscal year 2007-2011 with limits between $100 million and $300 million.
• Public litigants waive any right to challenge the amount of IOU benefits until 2011, specifically BPA's failure to apply 7(b)(2) rate test.

Mr. Wiley said there was no financial recourse if the administrator failed to find $100 million in cost savings. He said the objective was to find the money through cost reductions or through revenue enhancements.

General Manager Randy Berggren said the commitment was to find a total of $100 million in cost savings. He said the administrator was loath to commit himself legally to that but had established the customer collaborative meeting to give customers some visible governance leverage. He said he had been asked to be a part of that group the previous November and remarked that Bonneville was working hard to find $100 million through cost reductions or revenue enhancements.

In response to a question from Commissioner Farmer regarding what would happen if the settlement were not accepted by EWEB, Mr. Berggren said there were unanswered questions about what BPA would do if the settlement were not accepted. He said the litigation would stay in place and proceed forward, but noted that BPA was interested in getting a super majority of public customers to approve the settlement. He noted that there was an assumption that some utilities were holding out for a new settlement to improve their own eventual settlements.

Mr. Wiley said the staff concerns over the super majority were that staff did not necessarily agree with the violations of the Northwest Regional ACT, but were making a business decision. He stressed the importance of making that clear to BPA.

Commissioner Farmer expressed his discomfort over the accuracy over the projected settlement numbers.

Mr. Berggren said another key aspect was heavily linked to the possibility of prevailing in litigation. He said staff was not optimistic about prevailing in the 9^th Circuit Court when it came to a Bonneville decision. He said it already looked like the court was leaning toward Bonneville's favor. He said the utility's case was a good one but noted that experience showed that the 9^th Circuit Court generally supported BPA regardless of other interpretations of the letter of the law.

Vice President Bishop commented that no court would intervene in existing contracts or invalidate them.

Mr. Berggren said that did not fit with his experience and said he remained skeptical of success in litigation. He said the settlement agreement required 100 percent participation from the utilities. He said no one would accept the agreement unless everyone signed the same agreement. He said the Oregon PUC was not in favor of the settlement because it removed benefit from the rate payers it was chartered to protect. He stressed the importance of understanding how those politics were playing out.

In response to a question from Commissioner Anderson regarding the desired Board decision and how anything could be made certain, Mr. Berggren said, at a minimum, it would be in writing. He said he was unwilling to agree to the settlement if there were any question about waiving rights under slice litigation. Mr. Wiley added that the utility had received a proposed letter of additional waiver from BPA along with PNGC and Seattle City Light. He said the attorneys wanted stronger language which was still being worked on.

Mr. Berggren said it was interesting to him that BPA was getting as many public utilities as possible to sign the settlement agreement. He said BPA had make quick and immediate responses to concerns about the overlap of waiver language into slice issues but had not supplied written waivers until it was clear that the settlement would not move forward unless the language were clarified.

Commissioner Anderson said one important benefit was the $300 million cap.

Commissioner Farmer commented that BPA's expenses were going up fast and added that the reason for the problem in the first place was that there was no cap. He said the cap was the biggest value in the whole settlement.

Mr. Berggren said the cap was a significant benefit.

Mr. Yanov commented that with no settlement it would be much more difficult to discuss post 2006 roles for BPA. He said it would be a more productive discussion if there was a settlement.

In response to a question from Commissioner Farmer regarding how much power Bonneville would have if they sold their IOUs, Mr. Wiley said Bonneville was selling 1,000 megawatts of power to PacificCorp and Puget Sound and added that BPA had oversubscribed for market power in 2001.

Mr. Berggren said his opinion was that there was more certainty in the settlement. He said the prospect of rate relief had some value for him even if it seemed short-sighted. He noted that post 2006 was still a long way off. He said, given assurance that it would not affect EWEB slice agreements, he would be recommending approval of the settlement. He said he could put an item on the consent calendar or place it as an agenda item at a regular meeting.

There was general consensus to place the item on a regular agenda rather than as a consent calendar item.

Vice President Bishop said she had always supported signing the settlement.

The Work Session adjourned at 7:20 p.m.

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Assistant Secretary President