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

Others Present: Randy Berggren, Jim Wiley, Debra Smith, Jim Origliosso, Roseanna McArthur, Marty Douglass, Tom Buckhouse, Dick Helgeson, Terry Bequette, and Judy Chase of the EWEB staff; Ruth Atcherson, Minutes Recorder for the City of Eugene; and a member of the public.

President Lanning called the Special Board Meeting of the Eugene Water & Electric Board (EWEB) to order at 6:40 p.m.

AGENDA CHECK

There were no changes to the agenda.

PUBLIC INPUT

John Simpson, 975 Polk Street, expressed his support for the dual level option of the Litigation Reporting Policy as described on the second page of EWEB's General Counsel Win Calkins' memorandum dated April 8, 2004.

APPROVAL OF CONSENT CALENDAR

Minutes

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

Business Service Agreements

2. USDA Forest Service - Pacific Northwest Research Station - Collaborative Research of Hydrologic System of the McKenzie River - Environmental Services Department - $65,000

3. Jaco Analytical Laboratory - Annual System Oil Testing Services - Electric Division - $19,600

4. Environmental Solutions - Permitting, wetlands Mitigation and Field Support for the Leaburg/Walterville Relicensing - Environmental Services Department - $50,000

Vice President Bishop, seconded by Commissioner Menegat, moved approval of the Consent Calendar. The motion passed unanimously, 4:0.

ITEMS FROM BOARD MEMBERS

Commissioner Anderson reported that the McKenzie Watershed Council (MWC) met the previous Thursday. She noted that Mr. Simpson had attended. She said a heated debate had occurred between Gary Markus and Tom Linniger regarding the proposed power plant near Coburg.

Commissioner Anderson shared that Jeff Ziller had approached her after the meeting regarding the Walterville fish barrier. Apparently it was not protecting the fish adequately. She had also heard a similar concern from a man from the Gosler farms in the Thurston area who talked about tree work done around the transmission lines across the farm property. She related that he had expressed concern that fish are getting over the Walterville Tailrace Barrier and being trapped upstream of the barrier.

Commissioner Anderson also spoke with George Greer, who was involved with the McKenzie River Trust (MRT) and he suggested that once "Laurie's replacement" was on Board it may be a good time to make a presentation on accounting to the EWEB Board.

Commissioner Anderson added that she had toured MWC restoration sites on Cedar Creek and the McKenzie River. The hiking had been vigorous and the tour very informative.

Vice President Bishop reported that she had received calls from citizens telling her that the developer of the Coburg power plant had asked EWEB to sign contracts for power. She asked staff to keep the Board informed of any developments, due to the high profile nature of the proposed plant. Mr. Helgeson responded that any conversations that had occurred between the developer and EWEB staff had been general in nature. He said that EWEB had not received, nor had it requested, a proposal from the developer. He stated that the utility could not take a stand on an offer it had not received. He averred such an offer would be considered and addressed when offered, but the utility had not anticipated that such an offer would be tendered in the near-term. He commented that such an offer would "draw EWEB into the fray in a way that might work against them."

Mr. Berggren added that staff could not respond should such an offer be made until the Integrated Energy Resource Portfolio (IERP) work had been completed.

Vice President Bishop asked if, within existing policies, EWEB would consider purchasing power from such a plant. Mr. Berggren replied that everything would come before the Board. Mr. Helgeson added that should such a proposal be made to the utility, staff would assess the pros and cons, present it to the Board, and the Board would discuss it.

Vice President Bishop brought a memorandum regarding a possible process to talk about at some point in the future for Board governance. She said it related to something that happened earlier in the year wherein she had felt maligned by statements made by Commissioner Anderson on the radio. She alleged that such comments violated rules for Board conduct. She wished for a discussion and the development of a policy. She noted that the mediation that resulted from the incident had cost EWEB approximately $600.

Commissioner Anderson opposed placing this on an agenda. She felt too much time had been spent on governance. She called the incident "exceptional" and felt it had been settled. She said in all her decades of board and commission experience she had never had to address such a thing. She asserted that the utility world was falling apart and the Board had spent "all this time on governance."

Mr. Berggren suggested this be placed on future Board agenda items to allow the Board to consider whether it wanted to have more discussion on it.

President Lanning reported that he and Vice President Bishop were serving on the IERP Work Group. He said the final meeting was going to happen in the next week and a report would be prepared for the Board.

President Lanning noted he had spent an hour with Commissioner-elect John Simpson. He shared his excitement about having Mr. Simpson on the Board, stating that he would bring good energy to the work.

CORRESPONDENCE

Mr. Berggren reported the following:

• The next Board retreat was scheduled for July 14 on the top floor of the Hilton Hotel. The focus would be on finances.
• Ms. Hince wished to remind Board members to fill in the calendars provided to them in order to ascertain when Commissioners were available to meet.
• Mr. Douglass submitted a proposed agenda for the meeting scheduled to occur up the McKenzie River. He said comments were welcome.
• A memorandum was included in Board agenda packets on the comments submitted on the backs of the utility bills. He noted that the issue had been that customer information was included in the comments because both sides of the bill were included and this violated customer confidentiality.

Commissioner Anderson said the information on the front of the bill was helpful because it indicated the cost of the bill but the name was unimportant.

Vice President Bishop suggested that packets for the Board include the entire bills and the packets for everyone else only include the comments portion of the bills.

Mr. Berggren said the concern was that the press would approach customers.

Continuing, Mr. Berggren shared the following:

• A backgrounder was included on Sierra Pine to keep the Board abreast of the potential issue with the Springfield Utility Board (SUB).
• The next McKenzie Community meeting was scheduled for June 24 at 7 p.m. in the Vida Community Center.

BOARD AGENDAS

Mr. Berggren noted two items had been added, Vice President Bishop's proposal and the MRT and an update on the use of EWEB funding for the trust. He said he asked Steve Weiss to provide the presentation on the Energy Matters Resolution.

BOARD GOVERNANCE

• Litigation Notification Policy

Ms. Smith stated that the policy proposed by legal counsel Win Calkins had been submitted in the memorandum called Litigation Reporting Policy.

Commissioner Menegat said the public had access to track what was happening. He did not see the purpose of adding any public notice to the process. He felt this was solely to inform the Board.

Commissioner Anderson asked if the dual level of reporting would cost much more. Mr. Berggren replied that Mr. Calkins would provide the same level of information and staff would extrapolate the important parts to incorporate into a report to the Board.

Vice President Bishop thought the policy to be "fine." She thought dual reporting would not be necessary. She suggested that Mr. Calkins' report would be adequate, unless there was a request from the public for information.

President Lanning concurred. He supported keeping the information at the Board level.

Vice President Bishop moved to adopt the Litigation Reporting Policy as written. Commissioner Menegat provided the second. The motion passed unanimously, 4:0.

• Board/Staff Working Relationship

Commissioner Menegat wished to add "and support" to the end of the second bullet point.

Commissioner Menegat commented that he hoped, as per the fourth bullet point, that should staff feel he was placing too much of a burden on their time, staff would feel comfortable in saying so.

Regarding the sixth bullet point, Commissioner Menegat noted that the wording needed to be reworked. He hoped that the Board would be able to communicate more effectively with staff members.

Commissioner Anderson recommended connecting the third, fourth, and fifth bullet points. She remembered an earlier member of the Board who used a great deal of staff time. She thought the third and fourth bullet point, in particular, could be placed together with subheadings.

Vice President Bishop suggested the Board wait to approve the draft until Commissioner Farmer had the opportunity to weigh in on it.

Ms. Smith offered to make revisions and send it out electronically. She suggested that it be placed on the Consent Calendar, as there were no substantive changes.

Vice President Bishop reiterated her objection to the placement of governance items on the Consent Calendar. She recommended that it be placed on the Board agenda so that anyone could reference it at a future point. Mr. Berggren noted that it would be included in the minutes regardless of where it fell in the agenda.

• New Commissioner Orientation

Commissioner Menegat said Board comments had been integrated into the draft well. He recommended that the word 'local' be stricken from the next to the last sentence in the first paragraph. He thought that 'one or more of the following' could be stricken from the third bold-faced heading after Phase 2. He suggested that the fourth bullet point under the heading be separated from that section.

Commissioner Menegat offered the following rewording to Phase 3:

"Design a series of orientation sessions for the new commissioners to cover the following topics to include:

• Schedule Information and discussion sessions..."

Commissioner Menegat suggested the wording under 'Maintain ongoing communication links' be revised to read, as follows:

"The Board Chair or General Manager should initiate frequent contact and encourage new commissioners to ask questions and seek information..."

Vice President Bishop questioned the use of the term "elected candidate." Mr. Simpson noted that he was legally a nominee and would not be a Commissioner-elect until November of 2004. Ms. Smith suggested calling it 'commissioner-elect, nominee, or appointee' in the document.

Commissioner Anderson offered the following correction to the fourth bullet point at the top of page 2:

Inform newly elected Board Commissioners about upcoming association...

Commissioner Menegat noted that Mr. Simpson had attended the recent APPA conference. He supported the attendance of nominees to such events, at their own expense. He suggested there be some language that defined a nominee and discussed the primary and election process.

Mr. Simpson requested the following be stricken from the second paragraph on page 1:

Despite any differences, The time and effort involved in providing a substantive overview and discussion of EWEB's operations,... The Board agreed.

President Lanning felt the document had been improved. He thanked Ms. Smith for putting it together. He offered one suggestion for a change on page 3, the first bullet point under the last heading, as follows:

Notify them of all upcoming state and national conferences...

Ms. Smith noted that Commissioner Farmer's changes had been incorporated.

Vice President Bishop suggested she make a motion to adopt the language as amended and place it on the Consent Calendar for a final vote. Ms. Smith pointed out that there did not need to be a vote to place it on the Consent Calendar.

VARIABLE RATE/SWAP POLICY

Treasurer Jim Origliosso provided an overview of the two resolutions that were before the Board, as outlined in the attachment entitled Swap Policies and Resolution. He said, subsequent to a discussion with Commissioner Menegat, he had attained a better understanding of the information needed by the Board. He discussed the comparison of projections of the forward interest rates, noting that staff would be constantly comparing rates with the LIBOR. He explained that both parties entered into such a transaction because they believed they would do better than projected.

Mr. Origliosso discussed the risks. He said there was a portfolio risk, but it was balanced by the transaction. He stressed that the utility would only deal with parties who had an AA rating or better. He stated that there would be no risk of termination as the other party would have to pay a large fee if it did so. Regarding the potential of a legal risk, he underscored that Board action was required and this would leave no question that the transaction was authorized and legal. He noted that the policy to be voted upon clearly directed staff to report to the Board.

Mr. Origliosso highlighted the following changes:

• Page 3: The risk limits were made more specific so that it could not exceed 30 percent of the long-term debt and that it would be limited to the lesser of unrestricted cash balances.
• Page 5: Instead of seeking approval from the rating agencies, the utility would only inform the rating agencies of the transactions and how the utility perceived the swap transaction to fit into its strategies.

Commissioner Menegat asked if the policy would require any future swap transactions to come before the Board for approval. Mr. Origliosso affirmed that it would. He said the swap policy resolution referred to the policy being approved by the Board and that the Board would authorize the swap.

Commissioner Menegat expressed concern that the swap would cost money instead of saving it. He called it "not quite business as usual." He was reluctant at this time to assume any additional risk and could not support this particular swap proposal, though he would support the resolution that would adopt the swap policy.

In response to a question from Vice President Bishop, Mr. Origliosso said such swaps were widely used all over the country, but public entities had been restricted from conducting such swaps in Oregon until legislation authorized them in 2001. He said there had been one swap executed by a public entity in Portland, but this was the only known swap thus far.

In response to a question from Commissioner Anderson, Mr. Origliosso said the assumption was that this would go out as a competitive bid and staff would bring several options back to the Board for consideration.

Commissioner Anderson suggested the following change in the wording of the resolution:

• Page 3, Section 2: "... to EWEB calculated at a fixed interest rate of not less than three percent (3%) per annum. and the The Treasurer of EWEB is hereby authorized and directed to execute each Swap Agreement..."

Mr. Origliosso added that, should the Board authorize another swap, financial consultant Christine Pihl would be asked to create another swap management plan.

Commissioner Anderson shared Commissioner Menegat's concern.

Mr. Origliosso assured the Board that staff was approaching a possible swap transaction cautiously.

President Lanning asked what was driving the utility to do this. Mr. Origliosso explained that, at the highest level, a reduction in the net debt service costs was being sought. He noted that refunding was not traditionally available with non-voluble bonds.

In response to a question from Vice President Bishop, Mr. Origliosso stated that the duration of the agreement was four years. Vice President Bishop asked what would happen if the decision was delayed until July. Mr. Origliosso responded that interest rates could change, but not by a great deal.

Mr. Origliosso reiterated that staff had talked with the consultant and had sought to present a risk-free transaction. He stressed that staff wanted to ensure that the utility would at least break even.

Vice President Bishop suggested delaying action until July so that all five commissioners could discuss the policy and act upon it. The Board agreed to delay the action.

ITEMS REMOVED FROM THE CONSENT CALENDAR

There were no items removed from the Consent Calendar.

President Lanning adjourned the meeting at 8:10 p.m.

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Assistant Secretary President