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

Others Present: Randy Berggren, Dick Helgeson, Debra Smith, Jim Origliosso, Jim Wiley, Roseanna McArthur, Cathy Bloom, Terry Bequette, Marty Douglass, Jean Meyers, Dick Varner, and Krista Hince of the EWEB staff; Roger Mills, Michelle Tachouet, PriceWaterhouseCoopers; and Ruth Atcherson, Minutes Recorder for the City of Eugene.

President Lanning called the Regular Board Meeting of the Eugene Water & Electric Board (EWEB) to order at 7:52 p.m.

AGENDA CHECK

There were no changes to the agenda.

PUBLIC INPUT

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

APPROVAL OF CONSENT CALENDAR

MINUTES

• Minutes of the February 3, 2004, Work Session and Regular Board Meeting and the February 17, 2004, Executive Session.

BUSINESS SERVICE AGREEMENTS

• SelecTemp - Temporary Services - Energy Management Services - Power Resources Division - $15,500

3. Best Choice Administrators - Employee Benefits Administration - Human Resources - Corporate Services - $77,180.

MEMORANDUM OF UNDERSTANDING

4. Energy Outlet - Energy Outlet Grant - Energy Management Services - Power Resources Division - $90,000

Commissioner Anderson pulled the minutes from the Work Session and the Regular Board Meeting held on February 3, 2004.

Commissioner Farmer, seconded by Commissioner Menegat, moved approval of the Consent Calendar, with the exception of the minutes from the work session and regular session held on February 3, 2004. The motion passed unanimously, 5:0.

ITEMS FROM BOARD MEMBERS

Commissioner Anderson thanked staff for providing a memo regarding a customer on allegations of trespassing. She noted that she had been asked a question in regard to the alleged trespassing at a neighborhood meeting and now, with current information, would be able to follow up on the issue with the customer in question.

Vice President Bishop commented that the same customers had made this allegation before and were trying to sue EWEB. Mr. Berggren added that it had been determined that there was no validity to the allegation.

Vice President Bishop asked staff to look into the gas-fired power plant proposed to be built in the City of Coburg by a private company. She averred that EWEB should weigh in on the issue as soon as possible. She predicted development of such a plant would be devastating to the air-shed.

General Manager Randy Berggren responded that the Integrated Electric Resource Plan (IERP) meeting had placed the proposed plant in a "parking lot" of issues to be monitored. He suggested that it be added to the list of future agenda items.

Commissioner Farmer recommended that the focus be on what effect it would have on EWEB and its customer-base.

Mr. Berggren suggested that staff provide a backgrounder to the Board containing what was known thus far. The Commissioners were amenable to this.

Vice President Bishop requested an appointment with staff for further discussion of the proposed plant.

CORRESPONDENCE

Mr. Berggren reported the following:

• The Board packet included a backgrounder from Mike Logan on the issue of light pollution from yard lights.
• The packet also included a backgrounder on the aforementioned trespassing issue.
• Electric Division Director Jim Wiley drafted a response regarding the issue raised in the January public input by Ms. Emmons on the prioritization of power restoration for people with high medical needs.
• Commissioner Anderson met with the South University Neighborhood Association. Vice President Bishop met with the Federal Retired Employees group. Commissioner Farmer was scheduled to meet with the Harlow Neighbors on March 17.
• The packet included a backgrounder on post-retirement medical benefits.
• Mr. Berggren, Public Affairs Manager Marty Douglass, and President Patrick Lanning met with the editorial board of The Register-Guard to discuss the upcoming rate actions.

BOARD AGENDAS

Mr. Berggren, noting the concern expressed regarding the proposed power plant to be built in Coburg, said he would provide more information for the Board. The Board could then choose whether to pursue the issue within the context of an agenda item.

Mr. Berggren said the light pollution was the only issue that had been brought up but not placed on an agenda.

President Lanning remarked that he did not need to place it on the agenda in order to attain answers to his questions.

Vice President Bishop opposed adding it to the present agenda.

Mr. Berggren noted an adjustment he had made to the planned agenda for March 16. He explained that, post a discussion with President Lanning, the discussion on Trojan refinancing would likely be postponed, due to the addition of an Executive Session on Union negotiations. He thought it likely Executive Sessions on labor/management negotiations would continue until the contract could be ratified. He suggested that the Board take it month to month and allow for some flexibility in the agenda.

Mr. Berggren spoke on the Trojan refinancing. President Lanning felt the Board should weigh in on the issue at a future meeting.

GENERAL MANAGER'S 2003 EVALUATION

President Lanning stated that the Board had met in an Executive Session to discuss Mr. Berggren's evaluation with him. He said the Board had given him an aggregate score of 3.94, which meant that Mr. Berggren had exceeded expectations in his job performance.

Commissioner Anderson lauded Mr. Berggren's good work under difficult financial conditions.

President Lanning explained that the Board's evaluation of the General Manager considered the performance of management and of the organization as a whole. He noted the particular challenges presented in the last year, especially those presented by the work done in the McKenzie River area to meet Federal Energy Regulatory Commission (FERC) requirements and the ire it had caused among residents.

President Lanning recommended the Board discuss a salary increase. He noted that a subcommittee consisting of Commissioner Farmer and himself had established a matrix to refer to.

President Lanning asked Human Resources Manager Jean Meyers to speak to the salary evaluation process. Ms. Meyers explained that the Board usually asked staff to gather salary information from comparable utilities for comparison purposes. She noted that Mr. Berggren's salary and compensation package comes to $177,746 annually. She said staff looked at three comparable utilities, in Modesto, CA; Tacoma, WA; and Seattle, WA. The average salary and compensation package for a general manager was $190,000.

Commissioner Farmer reiterated that, within the context of the performance description, Mr. Berggren's aggregate score had exceeded expectations.

Commissioner Farmer moved to increase the base salary for the General Manager by 5.8 percent. Commissioner Anderson provided the second.

Commissioner Anderson averred that the General Manager's salary had not been adequately increased for quite a while.

Ms. Meyers affirmed that Mr. Berggren last received an increase in salary of $2,000 in December, 2002, applied retroactively to July, 2002.

In response to a question from President Lanning, Ms. Meyers stated that the salary increase would take effect immediately.

President Lanning called for the question. The motion passed, 4:1; with Vice President Bishop voting in opposition.

2003 AUDIT MANAGEMENT LETTER

Assistant Treasurer Cathy Bloom introduced Roger Mills and Michelle Tachouet of PriceWaterhouseCoopers, members of the LLP Engagement Team.

Mr. Mills stated that the audit was complete. He said the outcome was a clean bill of health on both reports. He added that this was an unqualified opinion.

Ms. Tachouet provided the audit overview, as outlined on page 2 of the Report to the Board of Commissioners; Results of the Audit; December 31, 2003.

Ms. Tachouet discussed a discrepancy in depreciation. She related that accountants had determined that some assets had been over-depreciated. She said staff had taken the worst-case scenario, that is, the most possible discrepancy this could have created within the constructs of the utility, and asked what impact it could have had on 2003. She stated that accounting staff had determined that the rate structure was based on cash flow and that it was not possible for this discrepancy to have caused any over-earning or over-collecting from customers.

Ms. Tachouet reported that staff had considered whether this would affect any debt covenants and had determined that, should the utility correct it, it would increase borrowing by approximately $5 million.

Mr. Mills commented that much time had been spent on this item. He attributed the discrepancy to having the assets that were over-depreciated embedded in the books. He felt it would not make sense to reverse it in one year. He stressed that the rate model for EWEB customers was "built on the mortgage and not on the house." In other words, how the assets were treated for auditing purposes had no effect on energy rates.

Ms. Tachouet stated that there was a lot of capitalized interest. She found that to be normal. She noted that there were larger projects in place, adding that the audit had resulted in a $600,000 adjustment confined to the electric and water utilities. She related that auditing staff agreed with the adjustment.

Mr. Mills said, regarding Asset Retirement Obligations, EWEB had "ended up where its peer group would end up."

Vice President Bishop asked if this was the first year this had been part of an audit. Mr. Mills explained that the genesis of this standard came from the Regional Council. He said the Federal Accounting Standards Bureau (FASB) had been working on this for ten years and had just finished the standard, adding that FASB had decided that Asset Retirement should apply to more than nuclear power generation facilities.

Ms. Tachouet stated, regarding accounting and disclosure for potential contingencies, that staff had held an expanded discussion on disclosure with FERC and considered the disclosure to be adequate.

Ms. Tachouet conveyed her appreciation for the work of Leslie Monks and Ms. Bloom.

Mr. Mills called attention to the Public Instrumentality Governance Matrix Survey. He indicated it was non-statistical bench-marking.

In response to a question from Commissioner Anderson, Mr. Mills explained that the SarBox was introduced in the aftermath of the Enron debacle and was intended to put "teeth" into the oversight of auditing and management. He noted that most municipalities were looking at this model.

Vice President Bishop asked the auditors to discuss power-trading. Mr. Mills said they would walk the Commissioners through a high-level recommendation. He added that, had the audit uncovered any reportable conditions, the auditors would have been obligated to report it. He did not believe that there were any such conditions.

Ms. Tachouet provided an overview of the Eugene Water & Electric Board Report to the Board of Commissioners; Management Recommendations. Regarding Authorization and Review of Terminated Conservation Loans, she explained that there was not currently a formal process to review such terminations.

Commissioner Farmer asked staff to define termination. Ms. Tachouet clarified that a change to a loan resulted in termination of the loan and a re-entry of a different loan. Ms. Bloom added that it was due to a cumbersome document process that was not facile to work with. She stressed that the bank balance was correct, it was only the reporting process that was not "clean."

Ms. Tachouet stated, in regard to the Fixed Asset System recommendation as stated in item 4, that this would remedy the depreciation problem.

Mr. Mills discussed the issues brought forth in Power Trading Segregation of Duties. Fiscal Services Supervisor Dick Varner stated that management was aware of the issues and would do what it could, given staffing constraints, to address this. He said the cost benefit trade-offs were being considered and also staff was looking at what others were doing in similar circumstances. He stressed that it would not be possible to add staff for the purpose of creating further segregation of duties at this time.

Mr. Mills explained that Forward Curve Development Methodology had been included due to a concern that there were individuals in EWEB's power trading that had a "lot of knowledge in their heads." He asked staff to consider whether they could continue if they lost one of those individuals "tomorrow."

Regarding Power Trading Limit Structure and Monitoring, Mr. Mills felt the current limit structure and monitoring could be construed as a measure of how robust the organization was. He noted, regarding items 10, 11, and 12, that the implementation of the ETRM would resolve the issues.

Vice President Bishop opined that the auditors' recommendations were an overreaction to what was happening in the government. She supported an increase in documentation, however.

In response to further concerns expressed by Vice President Bishop, Ms. Bloom stated that there were staffing problems. She said they all assess the risks and they would continue to be brought before the Board.

Commissioner Farmer said he was much more concerned with having procedures in process as it would encourage the maintenance of a higher standard. He opined that it did not seem serious until something bad happened. Mr. Berggren concurred.

Commissioner Farmer asked how accounting handled depreciation. Ms. Bloom responded that staff used a ledger to accumulate costs and then depreciated them. She clarified that the assets in question were large assets such as transformers and hydroelectric facilities, noting that EWEB staff could neither agree nor dispute that the utility had not depreciated them.

In response to another question from Commissioner Farmer, Ms. Bloom stated that she had been communicating with the Informational Technology (IT) manager. She related that the IT department had a process that would improve the monitoring of depreciation. She added that it used "lots of IT materials" and would have to go before a committee.

Mr. Berggren stated that a fixed asset accounting system had been on the priority list, but kept getting cut. Commissioner Farmer stressed the importance of making it a priority, in order to correct the forward depreciation.

Vice President Bishop asked if the rating agencies would take the disparity in depreciation into account. Ms. Bloom responded that the rating agencies looked at the data as presented in the "financials."

BOARD GOVERNANCE

• Bill Stuffer Policy

Public Affairs Manager Marty Douglass explained that there had been an increase in requests for bill stuffers. He cited several examples, such as the City's wish to insert an educational flyer to help encourage citizens to apply for earned income credit. He said the past practice had been to deny everyone's requests, unless it related directly or indirectly to EWEB business. The exception to this rule was the City which, by Charter, was allowed to include one bill stuffer per year. He suggested the Board craft a policy governing what may or may not be included in a utility bill.

Commissioner Anderson said it seemed the criteria was a policy and was working well. She noted that the bill stuffer from the Citizens Utility Board (CUB), approved by the board in 2002, had met the second criterion as it was indirectly related to EWEB business.

Vice President Bishop moved to adopt policy language that stated that bill stuffers should be limited to notices related directly or indirectly to EWEB business. Commissioner Anderson provided the second.

Commissioner Farmer conveyed his preference for only having materials directly related to EWEB business, with the exception of the one circular mandated by City Charter. He thought that the word 'indirect' was too nebulous. He thought it was clear that Mr. Berggren and/or Mr. Douglass would have to request an exception from the Board, should any question arise.

Commissioner Menegat suggested that the words 'directly or indirectly' be removed from the policy.

Vice President Bishop called the question. The motion failed, 4:1; with Commissioner Anderson voting in favor.

Commissioner Farmer felt that any bill stuffer in a utility bill would be construed as having come from EWEB and was supported and paid for by EWEB.

Commissioner Farmer moved to establish a policy related to bill stuffers that states only material related to EWEB business and to those powers granted to the City of Eugene in the City Charter would be allowed to be included in utility bills. Commissioner Menegat provided the second.

Vice President Bishop asserted that the City bill stuffer did not necessarily need to be included in the motion, as it was dictated by the Charter.

Mr. Douglass clarified, at Commissioner Menegat's request, that the City was required to report once a year on the charges that appear on the EWEB bill.

Vice President Bishop called bill stuffers the main line of communication EWEB had to customers and advocated for leaving the bills "unpolluted" by other issues.

At President Lanning's request, Mr. Berggren assured the Board that items having to do with the utility but not directly related to them would continue to be brought before the Board for consideration.

President Lanning called the question. The motion passed unanimously, 5:0.

ITEMS REMOVED FROM THE CONSENT CALENDAR

Commissioner Anderson made the following corrections to the minutes from the Work Session held on February 3, 2004:

• Page 1, paragraph 5: "She stated that these Bylaws had changed drastically how EWEB had been run, making it more of which had been a hierarchical arrangement."
• Page 1, paragraph 6: "Commissioner Anderson recommended holding a discussion on re-instituting the rotation of Board officers be held as it had been according to a past Bylaw, that had merit in her opinion changed at the request of Commissioner Bishop. In her opinion, the rotation provision had merit.
• Page 3, paragraph 1: "She averred that staff should never be ordered by the a Board member to do something against its technical judgement.

Commissioner Anderson made the following correction to the minutes from the Regular Board meeting held on February 3, 2004:

• Page 2, paragraph 2: "...she had reported to the council on the conversations regarding an advisory committee and the institution of an ombudsman position..."

President Lanning provided the following correction to the minutes from the Regular Board meeting held on February 3, 2004:

• Page 8, paragraph 4: "President Lanning remarked that it was sometimes difficult to fully read the packets and contact staff prior to a meeting due to his heavy schedule."

Commissioner Anderson, seconded by Commissioner Farmer, moved to approve the minutes from the Work Session and Regular Board meeting held on February 3, 2004, as amended. The motion passed unanimously, 5:0.

President Lanning adjourned the meeting at 9:32 p.m.

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Assistant Secretary President