EUGENE WATER & ELECTRIC BOARD
BOARD PLANNING SESSION
EUGENE HILTON HOTEL
MAY 17 & 18, 2004
12:00 NOON
Board Members Present: Patrick Lanning, Sandra Bishop, Dorothy Anderson, Mel Menegat, and Ron Farmer.
Others Present: Randy Berggren, Debra Smith, Tom Buckhouse, Jim Wiley, Dick Varner, Roseanna McArthur, Jim Origliosso, Jean Meyers, Brenda Sirois, Scott Spettel, Kevin Biersdorff, Mark Freeman, Lance Robertson, Terry Bequette, Mike Logan, Ken Beeson, Dave Koski, Mel Damewood, Dan Bedbury, and Krista Hince of the EWEB staff, and Ruth Atcherson, City of Eugene Minutes Recorder.
LUNCH AND INTRODUCTIONS
Debra Smith, Assistant to the General Manager, welcomed the Commissioners, the Strategic Thinking Group (STG), and the Executive Management Team (EMT). She asked them to have their lunch next to someone in the group they did not know well and ask them to complete the following four sentences:
Group members then reported on what they had learned about one another when lunch was completed.
Ms. Smith noted that Dick Helgeson, Power Resources Director, was unable to attend as his son was graduating from college.
WHAT'S DIFFERENT?
Ms. Smith demonstrated with the aid of a graph the involvement of the three groups in the different areas of the planning process. She circulated copies of the Organizational Fitness model. She noted the retreats had begun with fitness themes, with the exception of the big environmental issue, which had arisen since the February retreat. She explained that the Bonneville Power Administration (BPA) was contending with drought conditions projected to cost $150 million, some of which would be passed along to the Eugene Water & Electric Board (EWEB).
General Manager Randy Berggren stated that the BPA was experiencing the four worst years on record for water levels. He went over the State of the Utility, called the "White Paper." He noted that more areas of the utility were beginning to experience stress due to not being adequately staffed. This could create safety and flexibility issues and also could violate regulatory standards. He remarked that all of the measures the utility had taken had been thought of as interim measures, but in the last few weeks that model for debt relief had been "turned on its head." He said the prospect of being ahead by $10 million was gone and the utility was now faced with the prospect of having to do some short-term borrowing.
Additionally, Mr. Berggren noted there were a litany of other things weighing on the health of the utility. Employee morale was down, contract talks had not reached resolution, and there were relation problems with the McKenzie River Valley residents and EWEB, although it had somewhat improved.
Mr. Berggren expressed hope that the discussion to be held would provide an idea of what a sustainable direction could be. He underscored that, in the present, it looked like the utility could be in the red by the end of the year.
Mr. Berggren listed the objectives of the meeting, as follows:
Ms. Smith envisioned holding three general discussions, beginning with a discussion on hydroelectric risk.
Treasurer Jim Origliosso called it a revenue problem versus a spending problem, as the rates had not kept up with expenses. He noted that one response would be to reduce core services and do less for people.
Electric Division Director Jim Wiley said, regarding organizational fitness, that it was subject to change. He noted there were investments to be made in information technology and other expenditures and underscored that the utility was already "cut to the bone." He stated that it was at a point where it could not balance reserve resources with the revenues coming in.
Ms. Smith called it a "pretty basic hydro issue."
Power Management and Planning Manager Scott Spettel commented that, going into this discussion, it was important to understand the distinction between firm or critical hydro and secondary hydro. He said hydro depended on the weather and firm hydro was what was available and secondary hydro was purchased power. He also underscored that the BPA had traditionally been the low-cost provider and had always dealt with the hydro risk. He noted that retail loads were down substantially.
In response to a question from Commissioner Farmer, Mr. Spettel explained that firm power and secondary power helped the costs, but the utility could meet its load without the secondary power.
In response to a question from Mr. Wiley, Fiscal Services Supervisor Dick Varner clarified that it was better for EWEB's bottom line to sell to the retail market than to the wholesale market. He noted there was more wholesale revenue than there had been the year before, but that retail sales were still forecasted to be greater than wholesale. He explained that there were 484,000 Megawatt Hours (MWH) in lost power from the "Slice." This had been backfilled with power from Longview but at a loss. He stressed that with hydro energy generation the costs were fixed and the utility had to look to other sources. He said selling power that had been purchased form Weyerhauser/Longview at a $2 per MWH profit was very different from selling power generated by EWEB facilities.
Mr. Berggren said the utility used the critical hydro year as a measure but could no longer do so. Mr. Varner explained that they look at the water year 1945, when combined flows were at an all time low.
Commissioner Menegat saw the problem to be simultaneously simple and complex. He averred that rates must be raised in order to be fiscally responsible. He underscored the importance of not losing sight of the expense to be incurred by the relicensing process. He noted the budget process would begin anew in July and it would be difficult to approach ratepayers with another increase. He felt it needed to be substantiated with a solid Integrated Energy Resource Plan (IERP). He added that it would be nice if this was the last bad hydro year.
Mr. Varner circulated graphs delineating the following:
Vice President Bishop thought the hydro forecast pointed to the climate changing in "drastic ways."
Dan Bedbury, Trading Floor Manager, asked why the split between the "Slice" product and the "Block" product had been 2/3 to 1/3. He opined that had the utility done the opposite it might have made out better. Mr. Varner said it had been projected that the "Slice" power would provide roughly the same amount over time.
Mr. Origliosso said when the BPA was having a problem, EWEB was having a problem and it tended to be amplified. Mr. Berggren emphasized that, given that the BPA was "down" $150 million, it would be felt by EWEB.
Ms. Smith stressed that it was easier to raise rates when the finger could be clearly pointed at the BPA. Commissioner Farmer disagreed, stating that customers open a bill and see raised rates and just get angry. Mark Freeman, Customer Services Supervisor/Field Services & Cash Collections, added that, from the customer's point of view, EWEB was perceived as just passing the buck.
Mr. Spettel reported that a letter had been received from Sierra Pine indicating that the company preferred to purchase its power from EWEB rather than the Springfield Utility Board (SUB). He related that he felt moved by the reasons they listed for their preference.
Commissioner Farmer said, regarding generation assumptions, he focused too much on money and not enough on the organization when he worked on budgeting. He advocated for managing the "down-side," the point at which things quit working. He recommended figuring out what the assumptions should be and then building on them.
Mr. Wiley commented that taking a more conservative analysis would increase rates. Commissioner Farmer acknowledged that he was aware of this.
Mr. Varner related that Mr. Helgeson had informal conversations with people at other utilities in the Northwest and had reached the conclusion that EWEB was the only utility that budgeted on average hydro. He said the 17 to 20 year average had hydro levels at circa 90 percent. He commented that he had come to think this was much too optimistic.
Mr. Origliosso asked what sort of assumption taking the surcharge and incorporating it into rates would create. Mr. Varner responded that it would be a 90 to a 92 percent assumption.
Commissioner Farmer reiterated that the utility should, when planning for the current year, plan for the down-side of hydro flows.
Mr. Berggren noted that he was serving on the Governor's Advisory Committee on Global Warming. He related that the committee had taken on two primary issues, transportation and energy, and was looking at strong renewable portfolio standards. He shared that there was an emphasis on reduction of carbon dioxide.
Vice President Bishop asked if it was being suggested that the goals and strategies should change or whether the concern lay in that they were not being met. Mr. Berggren responded that regardless of the terminology, the spirit of the session was that the Board and staff had to look at the things the utility did and test them for priority. He commented that there was a growing list of issues that lay "somewhere between disturbing and chronic."
Ms. Smith said the group would look at repopulating goals and whether the utility had the right strategies. She called the Carmen Smith facility relicensing a "100 pound elephant in the room." She commented that short-term choices had been made based on what had been perceived as an anomaly and now more long-term choices needed to be made based on the knowledge that the situation faced by the utility was not at all merely an anomaly.
Ms. Smith called for a brief break, after which the focus would shift to organizational capability.
ORGANIZATIONAL CAPABILITIES
Brenda Sirois, Resource Planning Analyst, reported that the Northwest Power Conservation Council was doing similar strategic planning to the IERP process that EWEB had embarked on. She related that they were grappling with cost metrics and risk metrics and had made a presentation on decision making under uncertainty. She said it was tempting to jump to conclusions when talking about risk, but it was important to compare alternatives when resolving issues. She shared that in the IERP process the work group members were looking at all of the different resource types from Distributed Generation (DG) to coal generation. She stated that the group had met four times and she invited all those present to attend the next meeting. She noted the group had weighed in heavily on the side of renewables.
President Lanning commented that, since he had been on the Board, there had been a number of times wherein the organization had looked internally to solve external problems. He realized there had to be an assumption on the hydro year, but it would not be possible to keep coming back and making cuts to the organization. He recognized that the Board had gambled on the good chance that there would be a better hydro year.
Vice President Bishop remarked, regarding core services, that the utility could not do things not directly related to the delivery of services that did not have a measurable value.
Mr. Berggren related, regarding external events that affect EWEB, that regulatory compliance weighed heavy on the utility. He said it was complicated further in that both the Federal Energy Regulation Commission (FERC) and the Army Corps of Engineers (ACOE) had taken critical reports from the federal level and were now acutely sensitive. He stated that the FERC and ACOE were now seemingly in a competition to raise the bar for the utility. He averred it was good that the Board had approved a rate increase for capital improvements as there was a real risk that the utility could be fined in addition to the existing profound expense for relicensing.
Mr. Wiley echoed Mr. Berggren's concern, adding that the risk was building that the Carmen Smith and Walterville facilities might not be relicensed.
Vice President Bishop asked what the utility would do if it was decided that it was too expensive to relicense. Mr. Berggren responded that the power facilities would be sold and someone else would "buy compliance."
Mr. Varner stated that the Carmen Smith facility cost $10 per MWH. He said putting $100 million into the facility would raise that cost to $30 per MWH. As purchasing power elsewhere would cost approximately $40 per MWH, it was still cost effective in the long term. He stressed that it was water flow that was needed to make a facility successful.
Mr. Wiley commented that another organizational capability issue, as noted in Goal 4, was how better to use staff. He averred there were a lot of issues that could help the organization be more efficient, among them that the utility had been maintaining old equipment instead of purchasing new.
Terry Bequette, Information Services Manager, said staff was trying to better manage work orders and a new phone system had been installed.
Vice President Bishop asked if there was capacity in place in the computer and phone systems to provide some of the things that customers ask for. Mr. Bequette affirmed there was, adding that some services would be installed by the end of the year.
Mr. Wiley stated that the meter plant was old and slow. Dave Koski, Electric Operations Manager, added that over 30 percent of the electric meters were more than 30 years old, which was essentially the lifetime of the equipment according to the manufacturer. He related that replacing 1,500 meters per year would be close to breaking even in recovered electric costs by the end of the first year and within six years would be more than paying for the cost of meter replacement.
Mr. Berggren asked how much it would cost to replace them. Mr. Koski replied that it would cost $200,000 to install that many meters. Commissioner Farmer wondered why this was not on the top of the list of priorities.
Mr. Wiley stated that the focus for capital improvements had been the Coburg Station. He related that there was a lot of population growth in that area and it was absolutely necessary to bolster the power infrastructure.
Roseanna McArthur, Corporate Services Director, remarked that staff could come up with a list of projects that would pay for themselves in the long run. She noted that, when looking at information technologies, it was apparent upgrading was needed and, additionally, EWEB's fleet of vehicles was aging and cost much to maintain.
Ms. Smith concurred, adding that EWEB was organizationally constrained.
Mr. Freeman commented that staff could speculate all day about where the costs could be contained and revenues increased, but until the bottom line was known, it would be difficult to formulate a real plan.
Mr. Berggren said there was a Board policy that there should be no lay-offs. He averred there were other policies that were not consistent with the current context.
Commissioner Farmer felt this all sounded like "excuses." He said the Board should figure out how to make it work and the staff should figure out how it works. He opined that a no lay-off policy was "ridiculous."
Ms. McArthur responded that staff saw Boards come and go. She said staff could not figure out what the work was until it knew what the Board wanted to do.
Vice President Bishop did not think that any basic policies would be changed. She averred the real problem was that the utility did not have adequate staff or adequate revenue. She felt the utility was already as stream-lined as it could be. She said the reality was that the utility was not charging enough for its services.
Commissioner Menegat felt it sounded like the Board was hindering staff's ability to work. He said the utility was faced with a major problem because of the lack of staff and revenue. He hoped that staff would bring a recommendation to the Board based on what was known about a particular issue or budget item. He shared his assumption that staff had already determined where the efficiencies in function lay with a particular item brought before the Board.
Commissioner Anderson recalled that the 'no lay-off' policy had grown from a Board that hoped to focus on retraining rather than lay-offs.
Mr. Koski commented that moving to a new facility would be a boost to his department as it was currently housed in three different buildings. He stated that efficiencies would be found through consolidation.
Vice President Bishop underscored that the utility was understaffed. She shared that other utilities generally had more staff doing the same work. She did not feel any more people could be laid off without impacting the function of the organization.
Human Resource Manager Jean Meyers agreed the utility may be understaffed in certain areas in the short-term. She felt, nonetheless that the no lay-off policy should be eliminated. However, she recommended spending money on staff in the short-term to gain a long-term benefit. She thought the work the group was doing was on the right track.
Facilities Graphics Supervisor Kevin Biersdorff thought the discussion on whether the utility was overstaffed or understaffed was premature. He felt the better question lay in how the resources were being applied, for instance, investing $4.5 million in meters over six years for a guaranteed gain. He suggested that less meters could be replaced, should the utility want to spend less money on this capital.
Mr. Origliosso reiterated that the utility kept assuming normal hydro conditions. He asserted that changing that would be "powerful."
Mr. Freeman said if there were no other cost savings to be found, the utility had to determine its costs and then determine the revenue needed to cover them. Mr. Wiley responded that management staff was working on this and knew it needed to understand where staff was needed and how much.
External Communications Coordinator Lance Robertson asserted that there was a limit as to how much the utility could go to its customers. He felt this limit had been reached. He opined the utility was on the edge of a rate increase without any show of faith.
Commissioner Farmer reiterated that the Board should be in charge of policy and not management. He opined that the Board should vote to approve a budget and then staff should run the utility on that budget.
Mr. Varner said raising rates was easy, but it was important to consider whether the increase would be the "straw that breaks the camel's back" for the larger customers.
Vice President Bishop repeated her concerns regarding the contributions in lieu of tax (CILT) paid by EWEB to the City. She felt the incoming councilors and Mayor offered a new opportunity to approach the council regarding a change in this policy.
Mr. Spettel noted that the "flavor" of the discussion clearly lay with making the revenues and expenses balance. Regarding hydro risk, he stated that the risk was set up based on flexibility and the ability to pay.
Key Accounts Manager Mike Logan cited the letter received from Sierra Pine as and example of the excellence of the service provided by EWEB. He commented that if EWEB was a state it would be the 16th nationally, as the value included in the prices was favorable. He said EWEB was third for the cost for units of usage and 27th for third tier rates. He noted that it was clear in the Northwest that hydro ruled the rates.
Mr. Berggren stated that the utility was in a cost-constrained environment. He commented that it sounded easy to replace meters, but it would require a shift of resources from somewhere. He said power risk overwhelmed the budget at this time. There was no flexibility. He opined it was not good to know every dollar was used and there was not capacity for the next event.
Commissioner Farmer remarked that EWEB was not the only entity with no flexibility given the current fiscal situation.
Commissioner Anderson recommended impressing the public with the idea that they had to do their part.
Ms. Smith said it was not an either/situation. She stated that cuts could be identified, but revenues would still need to increase because the utility was still budgeting in an unhealthy way.
Mr. Freeman related that he had interviewed people and these days people seeking employment were looking more for stability than for pay.
Mr. Biersdorff remarked that when staff worked on the tool box and took it back to the organization it became more and more of a struggle. He opined that they needed to stop leaving the business looking the way it is. He recommended revisiting the scope of the utility.
Water Engineering Manager Mel Damewood shared that he looked at areas for improvement. He noted that the water branch of the utility had always had only a certain amount to spend and had always lived within the constraints of its budget. He felt there were efficiencies to be gained and that times of crises could be times of opportunity.
Water & Steam Director Tom Buckhouse commented that his biggest insight was that it was "nice to be in water." He said staying in a perpetual position of looking at volume risk with hydro made four years seem like forever. He noted that many ideas had been brought forth that had to do with things on both sides. He felt the cultural issues being faced were larger than had been imagined. He added that Union negotiations were happening, which would mean that the utility would have to negotiate again in the future.
Ms. Smith briefed the group on the discussion planned for the next day.
The meeting adjourned at 4:40 p.m.
Tuesday, May 18, 2004 - 12:00 noon
Board Members Present: Patrick Lanning, Sandra Bishop, Dorothy Anderson, Mel Menegat, and Ron Farmer.
Others Present: Randy Berggren, Jim Wiley, Debra Smith, Jim Origliosso, Dick Varner, Roseanna McArthur, Dick Helgeson, Scott Spettel, Tom Buckhouse, Terry Bequette, Mel Damewood, Dave Koski, Ken Beeson, Mike Logan, Lance Robertson, Mike Freeman, Jean Meyers, Dan Bedbury, Kevin Biersdorff, and Krista Hince of the EWEB staff; and Kimberly Young, City of Eugene Minutes Recorder..
President Lanning called the Board Planning Session of the Eugene Water & Electric Board (EWEB) to order at noon.
LUNCH AND REVIEW FROM PREVIOUS DAY
Debra Smith, Assistant to the General Manager, solicited one-word impressions regarding the previous day's session from Commissioners and staff.
Develop Fitness Themes
Ms. Smith distributed copies of a two-sided document that included a statement of legacy and a mission statement. She reviewed the mission statement, which was to be an outstanding provider of energy and water products that meet customers' needs and benefit the citizens of Eugene." She noted the debate that occurred the previous year about the word "citizens."
Ms. Smith discussed the elements of fitness, suggesting that the mission must align with what was possible in the market, and a second was the ability to concurrently demonstrate and balance innovation and instrumentality.
Ms. Smith suggested that as the group developed fitness themes, it consider the purpose of the organization, whether EWEB was preparing itself for the long-term or the short-term, key factors related to the fitness of the organization, threats to the organization's fitness, and what complex adaptive systems the organization was part of.
Ms. Smith recalled the Commissioners' February retreat and the fitness themes discussed at that time. She distributed copies of the previous year's fitness themes.
Ms. Smith said the goal for the meeting was for participants to develop fitness themes, ratify the objectives, and develop goals.
Commissioners and staff broke into four groups to develop fitness themes. Following the small group exercise, the groups reported on their results, as follows:
Group 1 (Randy Berggren, Sandra Bishop, Mark Freeman, and Jean Meyers)
1) Meaning of relationship seen "change" to "perceived"
Ethical words needed to help measure....
Respect, credibility - leader in industry
2) Relevant now! Move last phrase up to #1 or tie w/board
A challenge . . .which is consistent with the
Built-in conundrum community's expectations. . ."
Connection to community? Add at beginning "EWEB has"
Culture within - is that the fitness measure or goal? (talented. . .), end sentence after "employees"
Skill, talent - multiple cultures within organization
Some negativity
Employees - feeling trapped by PERS changes
Change
Uncertainty
Attractive and retain great employees with benefits and pay
3) Leaves no room for flexibility - narrows option for services
Value and Choice - (words for private company)
60 or 4-5 acquisition services questions?
Every choice or enough choices to enough
all customers customers?
Residential vs. commercial
What we'll be fit enough?
"NEEDS" - define?
* Nothing speaking to rates - need a fitness statement
NEW #3
EWEB strikes a balance between value and choice of services and affordability of rates.
BPA likely to move all utilities' rate base
Might need to add new wording: basic necessary
4) essential services
talking with cost vs. affordability of rates
takes it out of absolute to capability - expectations of board, organization and customers & board
5) Need to add: New wording: include "governance practices" before "management"
How policies are applied?
Need to address application and follow through; policies not used
ADDRESS THIS (follow through)
6) What's missing: (NEW #4)
EWEB uses financially conservative assumptions.
Add ". . .including the ability to build necessary reserve."
7) What's missing:
NEED "reserves needed in portfolio to create stability"
Group 2 (Lance Robertson, Jim Wiley, Mel Menegat, Dave Koski, and Terry Bequette)
(add) EWEB responds quickly to a changing and increasingly complex regulatory environment.
(change) EWEB provides valuable, reliable and high-quality products and services, yielding customer confidence and loyalty.
(change) Combine "diverse power supply" with "Financially strong and stable"
(change) Utilize "strategic partnerships"
(change) EWEB has strong and results-oriented organizational culture
Group 3 (Patrick Lanning, Dorothy Anderson, Tom Buckhouse, Mel Damewood, Dick Varner)
This group discussed each statement, its relevance, change of focus from its initial development, and the interrelationships between statements. The group agreed that all the statements continued to be relevant.
Group 4 (Ron Farmer, Roseanna McArthur, Jim Origliosso, Scott Spettel, Dan Bedbury, Kevin Biersdorff)
This group agreed that, rather than measures of fitness, the fitness statements were goals or end results that required implementation steps and support to achieve. The group agreed that to achieve the goals and objectives, EWEB needed financial strength, reliable cost-effective products to understand its customers needs and values, effective leadership, employees, and management. If fit in all those areas, the statements could be achieved.
Participants briefly discussed the nature of the goals and objectives in terms of what actually constituted a goal. Commissioner Farmer advocated for more specific goals with less ambiguity, which he believed would reduce the number of needed strategies. Responding to a question from Mr. Berggren, Commissioner Farmer indicated he would focus his goals more on EWEB's priority change initiatives. Commissioner Farmer said goals should be to improve the organization rather than continue what was already going on.
Meeting participants discussed a question posed by Ms. Smith regarding whether EWEB needed a customer service goal. Mr. Berggren thought EWEB had a goal regarding customer expectations. He said one fitness theme should be an understanding of what customers expect of EWEB. He thought customer satisfaction could be a measure of leadership effectiveness.
Commissioner Farmer called for measurable goals as he wanted to know how he could determine EWEB was successful in meeting them.
Ms. McArthur advocated for balance among the goals to ensure EWEB did not overlook any aspect of its mission. She thought the lack of resources hampered EWEB's ability to meet several of its goals.
Ms. Meyers thought it important to prioritize EWEB's expenditures in accordance with the strategies to give the organization direction.
President Lanning suggested the goals be arranged in terms of leadership/management. He did not think it possible to quantify success in every instance in the way Commissioner Farmer desired.
Mr. Wiley advocated for an approach that established multiple goals projected over several years. He said the organization needed many goals with dynamic tension. He also advocated for taking a visionary approach to the goals.
Commissioner Anderson wanted to ensure the goals were actual goals and not strategies. She cited Goal 3 as an example of a goal that seemed more like a strategy.
Commissioner Bishop agreed there should be tension among the goals. She thought it was possible to have goals that the organization could not afford to fund now. She said the organization would always be in flux, and the goals need to recognize and accommodate that.
Ms. Smith called for a brief meeting break.
GOAL DISCUSSION
Ms. Smith led the Commissioners and staff in a discussion of goals and in brainstorming potential strategies. She called attention to the four existing goals. Mr. Logan recorded the thoughts, comments, and ideas on flip charts.
1. Less than normal hydro conditions. . .and. . .
The meeting adjourned at 4:35 p.m.
_____________ ______________________________________
Assistant Secretary President