Board Members Present: Sandra Bishop, Dorothy Anderson, Mel Menegat, and Ron Farmer. President Lanning arrived at 7:07 p.m.

Others Present: Randy Berggren, Jim Origliosso, Dick Varner, Tom Buckhouse, Terry Bequette, Jim Wiley, Debra Smith, Dick Helgeson, Roseanna McArthur, Jean Meyers, Judy Chase, and Krista Hince of the EWEB staff; Ruth Atcherson, City of Eugene Minutes Recorder, and members of the public; Christine Pihl, Seattle-Northwest Securities Corporation; and John Simpson.

Vice President Bishop called the Regular Board Meeting of the Eugene Water & Electric Board (EWEB) to order at 6:30 p.m.

AGENDA CHECK

There were no changes to the agenda.

PUBLIC INPUT

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

APPROVAL OF CONSENT CALENDAR

Minutes

1. Minutes of the April 20, 2004, Special Board Meeting and the May 4, 2004, Work Session and Regular Session.

Real Property Purchase

2. Fidelity National Title of Oregon - East King Road - McKenzie Bridge - $159,900

External Communications Policy

3. Board Governance - External Communications Policy

Commissioner Anderson pulled the minutes from the meeting held on April 20, 2004.

Vice President Bishop pulled the minutes from the Regular Board Meeting held on May 4, 2004.

Commissioner Menegat moved approval of the Consent Calendar, with the exception of the minutes from April 20 and the Regular Board Meeting of May 4. Commissioner Farmer provided the second. The motion passed unanimously, 4:0.

ITEMS FROM BOARD MEMBERS

There were no items from Commissioners.

CORRESPONDENCE

General Manager Randy Berggren had no correspondence to share.

BOARD AGENDAS

Mr. Berggren reported that he had spoken with Emerald Public Utility District (EPUD) staff and they had mutually decided it would be simpler to hold separate meetings on the Energy Matters Resolution. He noted it was a "pretty standard Power Point show." He did not feel it to be particularly urgent. He related that the Northwest Energy Coalition was trying to get people to adopt a resolution in order to use it as a lobbying reference in regard to renewable energy resources. He offered to arrange a meeting within the next four to six weeks to allow them to make their presentation.

Commissioner Anderson thought it would be a good idea. She reported that Vice President Bishop, Commissioner-elect John Simpson, and herself had attended the meetings and opined it would be beneficial to the rest of the Board to be aware of the lobbying effort.

Vice President Bishop suggested that it be in the context of a public presentation. Commissioner Anderson wondered if there could be both a public presentation and a chance for the Board to speak with the Alliance privately.

Vice President Bishop expressed concern that the cost of sponsoring an event would fall solely on the shoulders of EWEB. She felt the presentation should be provided in a meeting as the meetings were public.

Commissioner Menegat moved to empower the General Manager to go forward with placing the Energy Matters power point presentation as part of a meeting and making it open to the public. Commissioner Farmer seconded the motion. The motion passed unanimously, 4:0.

Mr. Berggren stated that the meeting scheduled for June 15 would begin with a Work Session on Board governance and then would include action on the Variable Rate Swap Policy and the litigation notification policy. He added that it may be necessary to hold another Executive Session on labor negotiations.

MISCELLANEOUS CHARGES REVIEW

Fiscal Services Supervisor Dick Varner explained that the biennial review of the miscellaneous charges had been completed and staff had four recommendations, four revisions and one proposal for a new charge. He referred to the memorandum entitled Miscellaneous Fees and Charges and provided an overview of the proposed changes.

In response to a question from Commissioner Farmer, Electric Division Director Jim Wiley said the cost for installation of a radio read meter included travel time and installation, was approximately $50 for one-half hour.

Mr. Berggren explained, in response to a comment from Commissioner Farmer, that EWEB attempted to work through lack of access issues with customers in partnership. Mr. Varner noted that the same cost would be assessed to someone who opted for a radio read meter.

Vice President Bishop remarked that the policies were revisited every other year and the Board would have opportunity to assess the effectiveness of the changes.

In response to a question from Vice President Bishop, Treasurer Jim Origliosso estimated that there were now between 5,000 to 8,000 radio read meters installed.

Commissioner Farmer, seconded by Commissioner Menegat, moved to approve the changes in miscellaneous charges as recommended by staff. The motion passed unanimously, 4:0.

VARIABLE RATE/SWAP POLICY

Mr. Origliosso introduced Financial Advisor, Christine Pihl. He stated that interest rate swaps had been used in the financial community, but had not been used in the State of Oregon by public sector agencies. As of the last legislature, public agencies were now allowed to utilize interest rate swaps. He highlighted how such swaps worked and why they would be of benefit to the utility, as outlined in the memorandum entitled Swap Policies and Resolution.

Ms. Pihl provided a more detailed overview of a "flipchart" handout entitled Eugene Water & Electric Board Swaps Overview and Policy Discussion. Since such swaps had been legalized, the utility was now able to make agreements with a third party to swap annual percentage rates with another entity. She explained that swapping converted the interest load from fixed to variable and no principle changed hands. She assured the Board that rating agencies approved of having 15 to 30 percent of debt at a variable rate, so such a move would not negatively impact the debt rating.

President Lanning arrived at 7:07 p.m.

Ms. Pihl explained that the purpose for the proposed swap, the 1998A Bonds, was to access the variable rate market, which would create an immediate reduction in interest expense. She stressed that the outcome was uncertain, as the London Interbank Offering Rate (LIBOR) would continue to increase, but as long as LIBOR was below 3.92 percent, EWEB would benefit from the swap.

Commissioner Farmer asked how accounting would work for the swap and if it would show up as revenue. Mr. Origliosso responded that there were two ways of accounting: hedge accounting, the more sophisticated form in which the difference was split in the paperwork and was kept on the balance sheet; or gap accounting, in which it would be placed on the income statement.

Commissioner Farmer cautioned against letting the money fall into the income statement as it could be considered in the budget process. Mr. Origliosso reassured him that a fair amount of the money would be placed in a reserve to protect against the later years of the loan in which there could be increases in the LIBOR rate.

Commissioner Farmer asked staff to provide a projection chart for LIBOR. Ms. Pihl commented that such a chart would be as accurate as a projection chart for increasing power costs.

Mr. Origliosso stated that, for a price, the utility could purchase a "stop loss" and make the rate swap risk-free.

Vice President Bishop asked, regarding the Debt Portfolio Summary on page 6 of the flip chart, if staff thought other bond issues should be diversified in the future. Ms. Pihl replied that it was possible to increase the variable rate exposure, but it was important, when looking at the bond issues, to keep in mind when the call dates for the bonds were.

In response to another question from Vice President Bishop, Mr. Origliosso affirmed that staff wanted to make rate swapping a long-term financial strategy. He added that staff hoped to initiate the process soon.

Commissioner Farmer commented that he considered this to be more of a reverse swap. He felt a risk was being taken on, within the business model, that it may not work. He said he would be more comfortable taking this risk in the short-term than taking it in the long-term.

President Lanning asked if there was any financial risk in waiting to take action until June 15. Ms. Pihl responded that the market had moved in the utility's favor.

Commissioner Farmer recommended that the Board examine the forward LIBOR graph. Mr. Origliosso said he would provide copies for the Commissioners.

ITEMS REMOVED FROM THE CONSENT CALENDAR

Commissioner Anderson offered the following correction to the minutes of April 20:

• Page 2, first paragraph: "She explained Ms. Power was leaving had done much to help the council."

Vice President Bishop offered the following corrections to the minutes of April 20:

• Page 3, second bullet point under Mr. Wiley's report: "...meetings would be scheduled for the third Tuesday Thursday of the month through October."
• Page 3, fifth bullet point under Mr. Wiley's report: "...there were notes from the visitations Commissioners who had attended neighborhood groups included in the Board packet."
• Vice President Bishop noted that the last sentence of the minutes had inadvertently been left from a previous set used as a template and should be deleted.

Vice President Bishop also asked staff to clarify what was intended on page 4 by the "Housing Stabilization Providers of Lane County."

Vice President Bishop offered the following correction to the minutes of the Regular Board Meeting held on May 4, 2004:

• Page 8, paragraph 5: "Vice President Bishop asked was what percentage of employees triggered the full deductible in previous years..."

Commissioner Menegat, seconded by Commissioner Anderson, moved to approve the minutes of the Special Board Meeting of April 20, 2004, and the minutes of the Regular Board Meeting of May 4, 2004, as amended. The motion passed unanimously, 4:0.

Vice President Bishop adjourned the meeting at 7:46 p.m.

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Assistant Secretary President