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

Others Present: Randy Berggren, Jim Origliosso, Tom Buckhouse, Jim Wiley, Debra Smith, Dick Helgeson, Dean Ahlsten, Mark Freeman, Lance Robertson, and Krista Hince of the EWEB staff; Christine Pihl, Seattle-Northwest Securities Corporation; John Simpson, Commissioner-elect; Steve Weiss, Senior Policy Associate for Northwest Energy Coalition; and Ruth Atcherson, City of Eugene Minutes Recorder.

President Lanning called the Regular Board Meeting of the Eugene Water & Electric Board (EWEB) to order at 7:50 p.m.

AGENDA CHECK

There were no changes to the agenda.

PUBLIC INPUT

Ed Pliml, 1012 West 4^th Avenue, Apartment #2, said he had been trying desperately to pay his bill. He commented that he did not feel good about not being able to pay. He asserted that it was not easy to speak with customer representatives at EWEB. He stated that he would defer payment owed to other bills in order to pay EWEB and not be shut off. He noted that he could not work due to a disability, but was trying to develop an interactive Web site for education. He asked for leniency on his bill.

APPROVAL OF CONSENT CALENDAR

Minutes

• Minutes of the May 17 and 18, 2004, Board Planning Session, the May 21, 2004, Executive Session and Special Board Meeting, the June 1, 2004, Executive Session, Work Session, and Regular Board Meeting, and the June 15, 2004, Executive Session

Board Governance

• New Commissioner Orientation Process - Revised Draft - 6/25/04
• Board/Staff Working Relationship - Revised Draft - 6/25/04

Business Service Agreements

4. Ecos Consulting - Energy Star Fixture Program - Energy Management Services - Power Resources

5. United Pipe and Supply - Stores Item - Water Division.

6. Pacific Northwest International Trucks, LLC - Corporate Services.

• Montgomery Watson Harza (MWH) - Engineering and Construction Management - Leaburg/Walterville Improvement Project (Relicensing)

8. G. Cole, Inc. - Construction Department - Water Division

Commissioner Farmer moved approval of the Consent Calendar. Commissioner Menegat provided the second. The motion failed unanimously, 5:0.

Vice President Bishop pulled Item (7), Montgomery Watson Harza. (MWH)

Commissioner Anderson pulled the minutes from the Special Board Meeting held on May 21, the Executive Session and Regular Board Meeting held on June 1.

Commissioner Farmer, seconded by Commissioner Menegat, moved to approve the Consent Calendar absent the aforementioned items. The motion passed unanimously, 5:0.

ITEMS FROM BOARD MEMBERS

Commissioner Menegat attended a meeting on the Leaburg Lake raise and reported that a resident remarked that the reason attendance was not better was that staff had not provided them information in a consistent and competent manner. He said that a gentleman had pictures of a sunken boats. He felt this had been addressed by the provision of refrigerator magnets with the emergency numbers to call should the lake level change dramatically in a short amount of time.

Commissioner Farmer reported that he attended the Cal Young Neighborhood Association meeting. He stated that he had spoken before the group, as had Eugene Police Chief Bob Lehner, Mayor-elect Kitty Piercy, as well as Ward 5 City Councilor Gary Papé and Ward 6 City Councilor Jennifer Solomon. He said it had been a good meeting, well-attended, and the audience had asked pointed questions.

Commissioner Farmer discussed his recent attendance at the American Public Power Association National Convention in Seattle, Washington. He related that he had not yet reduced his notes, but that he would do so and send them out to Commissioners by e-mail. He noted that EWEB Treasurer Jim Origliosso made a presentation at the convention. He commented that many utilities in the Midwest wished for more hydroelectric facilities while EWEB sought to reduce its dependence on hydroelectric generation.

President Lanning reiterated that the staff and citizen members of the Integrated Energy Resource Portfolio (IERP) Work Group, subject of the preceding Work Session, had been exceptional and would greatly help to inform the planning process. He commended, in particular, the work of Brenda Sirois, Scott Spettel, and Jim Maloney.

President Lanning shared a request he had received from the University of Oregon Sustainability Academy for sponsorship of a program that would include seminars in both Eugene and the University of Oregon branch in downtown Portland. He felt this was an opportunity for the utility.

CORRESPONDENCE

General Manager Randy Berggren reported the following:

• The Board had been provided with copies of the Energy Management Certification Program that would be conducted locally in collaboration with the Oregon Department of Energy and Northwest Energy Education Institute.
• An updated annual calendar that plotted out the next six months of meetings had been provided to the Board.
• Fiscal Services Supervisor Dick Varner sent a memorandum on the Bonneville Power Administration (BPA) agreements with the independently owned utilities (IOUs).
• Corporate Services Director Roseanna McArthur provided a memorandum on the workers compensation update. There were significant shifts in the loss categories that would translate into savings.
• Environmental Management's Staff Ecologist Tim Downey provided an informational memorandum on the Walterville Canal Tailrace situation.
• A memorandum had been received from the McKenzie Fire and Rescue Department. The utility was continuing to try and work with them, but a solution had not been found at this point.
• An e-mail had been sent out by the American Rivers and Hydro-Power Reform Coalition regarding a public workshop on the McKenzie River hydro-power relicensing process, to be held in the University of Oregon Law Library. It would focus on the Carmen Smith relicensing process. Staff did not view the workshop as a positive development.

Vice President Bishop asked when resolution would occur in the McKenzie Fire and Rescue Department conflict. Mr. Berggren responded that he did not yet know. He reported that the department sought in-kind services or offsets against the cost of their electricity.

BOARD AGENDAS

Mr. Berggren said there had been no substantial changes. He stated that the pending issues were a conversation on the proposed privately-owner power plant in Coburg requested by the Save Our Valley representatives and a discussion on light pollution. He highlighted the schedules and agendas for the next several meetings. He added that a Special Board Meeting may need to be scheduled once the appraisals for the property were completed.

ENERGY MATTERS RESOLUTION

Mr. Berggren introduced Steve Weiss, Senior Policy Associate for the Northwest Energy Coalition (NEC).

Mr. Weiss explained that the NEC was one of the oldest most diverse coalitions in the country. He listed some of the groups that were members, including environmental groups, both public and private utilities, low-income groups, and consumer groups, among others. He said he specialized in regional issues, had been involved in the passage of Senate Bill 29 and, for the last two years, he had participated in a discussion on "Grid West," a regional transmission organization.

Mr. Weiss commended EWEB for what it had done for the low income customer. He shared that low income advocates across the State admired the program and Chuck Dalton, who administered them.

Mr. Weiss provided a presentation, accompanied by a packet entitled Energy Matters. He discussed co-generation and combined heat and power, both considered clean and more efficient ways of generating energy. He stated that much of renewable energy was wind-generated or produced by biomass fuels. Regarding the former, he noted that Umatilla County received half of its property taxes from the wind power-generators. He shared the NEC belief that the region could provide for all of its future energy by conservation and cogeneration.

Mr. Weiss directed the Board's attention to the attachment entitled Oregon's Resource Mix. He noted that the BPA power resources were almost all renewable, i.e. hydroelectric.

Continuing, Mr. Weiss provided a brief overview of the summary of a report entitled A Clean and Affordable Energy Future: a new study by the Tellus Institute. He related that the report looked into how much the projected load growth need was, approximately 5,000 to 6,000 average Megawatt Hours (aMW), as compared to what was available. He said the NEC agreed with the projections in the report. He asserted there was ample potential for meeting the goal of no new fossil fuels used in power generation.

Mr. Weiss discussed the seven Suggested EWEB Action Items. He encouraged EWEB, in particular, to submit its comments to the BPA regarding its "Future Role" draft policy. He commented, regarding the second item, that the BPA had the chance to consider betting on prices remaining high and rainfall increasing, which would allow rates to be lowered in 2005. Should this not pan out to be true, the BPA would then have to counter its price reduction with a price increase in 2006. He related that the NEC would maintain that there was not enough in the BPA's conservation budget, as this was the "cheapest resource." He advocated for taking the stance that the BPA conservation budget should not be artificially constrained. He also recommended advertising to customers the dates of the BPA public meetings to discuss its future, scheduled for this summer, so they could provide input.

Vice President Bishop recommended that the resolution be brought back before the Board for further consideration.

Commissioner Anderson recognized it was a time sensitive issue, but wished for more staff input on the action items.

President Lanning asked if the majority of the Board wished to have the item on a future Board agenda. Board members indicated they did. President Lanning said there would be a staff backgrounder and the item would be placed on an upcoming agenda.

CAPITAL PROJECT BUDGET AMENDMENT

Treasurer Jim Origliosso explained that the dynamics the utility was working with had changed the timing of the costs. He said, post a mid-year review of the capital budget, it had been necessary to bring a budget amendment before the Board. He stated that relicensing work budgeted for in the previous year had not been billed until the present year. Because the money had not been spent it was still available, but it necessitated a budget amendment.

Mr. Origliosso said a similar thing occurred at the Carmen Smith facility. Efficiencies had been realized by conducting studies in the present year, though the money was slated to be spent in 2005. He added that this was provided for in the bond postings available to the utility.

Mr. Origliosso stated that the final bond-funded project was a communication and control additions. He explained it was for fiber optic work upriver and was being paid for out of bond proceeds. The totals of the variances were outlined in the memorandum dated June 29, 2004, and entitled 2004 Electric Capital Project Variances.

Commissioner Anderson asked if there had been no money for the communication control additions in the previous year. Mr. Origliosso replied that both projects had been budgeted for in 2003, but they had been deferred because the designs were late, the construction season ended before the work could be conducted, and there was a labor shortage.

Commissioner Farmer recognized that the budgeting process needed some fluidity due to shifts in project timing, but asked if the work on the projects would cost more than expected and whether this was part of the shortfall. Mr. Origliosso responded that it was not due to the increase in costs as much as it was due to expansion of the projects. He said there were scoping issues attributed to having to do more work because, for instance, generators were in worse shape than they initially were thought to be.

Dean Ahlsten, Electric Engineering Manager, commented that the overall estimate for the Carmen Smith facility was about the same and costs were on track. They were just being pulled into the current year. He asserted that the Walterville costs were on track, though some ancillary costs had unexpectedly come into play.

Commissioner Farmer expressed concern that the costs would not come out of another department. Mr. Origliosso responded that the bond-funded projects had been held harmless. He predicted that in the next year's budget there would be more costs incurred that were not as predictable due to the relicensing project. He thought it was possible that a bond issue may need to be put together to aid in compiling the application for relicensure.

Mr. Ahlsten highlighted the other projects that had costs carried over or were due to the failure of the power station at Coburg.

Commissioner Menegat moved adoption of Budget Amendment #3. Commissioner Farmer provided the second. The motion passed unanimously, 5:0.

VARIABLE RATE/SWAP POLICY

Mr. Origliosso recapped the discussion on the topic from the previous meeting. He noted that the policy had not specifically stated that Board action was required in order to initiate a swap and this had been changed to clearly indicate such approval was required.

Christine Pihl, Financial Advisor from Seattle-Northwest Securities Corporation, provided an overview of the attachment entitled Eugene Water and Electric Board; Use of Variable Debt. She called out pages 2, 3, 5, 7, and 13. She stated that the risk could be somewhat mitigated by looking in terms of asset liability matching, such as making a $10 million swap while keeping $10 million in reserve invested short. She said the other thing to consider was that, over time, variable rates do average less then fixed rates.

Mr. Origliosso stressed that this was a pilot project and the money made from it would initially be kept in reserve.

Commissioner Menegat asked what the Bloomberg projections currently were. Mr. Origliosso replied that it was at 1.5 percent. Commissioner Menegat noted that it had been 1.1 percent a month ago.

Commissioner Menegat supported the resolution as policy, but was not in support an actual swap from the risk standpoint. He explained he was looking at rate increases and generation assumptions and at this point he was unwilling to take on more risk.

Commissioner Farmer recommended that the Board first determine whether or not it wanted, as policy, to consider variable rate swaps in its portfolio. He felt it irresponsible to automatically pay higher rates on debts than was necessary. He cited one debt in the portfolio and asserted that a swap for a variable rate would save three percent in interest for the first year. He thought savings accrued could be eaten up by rate increases, but if the Board determined it did not want to participate in a swap it was essentially agreeing to "pay too much" for its existing debt. He recommended having a portfolio that was balanced between a fixed interest rate and a variable interest rate. He suggested the Board pursue it as a pilot project, set aside the savings, and see how it worked over a four-year period.

Vice President Bishop said it was clear from the staff presentation that there should be some debt in the portfolio with a variable interest rate. She felt it made sense to support the policy.

Mr. Berggren remarked that the risk seemed reasonable in relation to the potential benefit.

President Lanning opined that it made economic sense to have a variable rate swap policy. He did not feel absolutely confident that this was the time to jump in but the risk seemed, to him, minimal. He advocated for moving forward on the policy. He said he would appreciate more clarity prior to conducting a swap.

Mr. Origliosso said he would bring information to the Board to indicate what a 20 percent variable rate would look like and what risks were. President Lanning felt concerned regarding the increasing interest rates.

Commissioner Farmer, seconded by Vice President Bishop, moved to accept the variable rate swap policy as submitted, with minor amendments. The motion passed unanimously, 5:0.

Commissioner Farmer, seconded by Vice President Bishop, moved to instruct the Treasurer to conduct a swap, to undergo a bidding process, with the wording of the motion amended to include setting up a fund to retain savings accomplished through the swap to be used to offset any additional risk that could be incurred for the life of the swap contract.

In response to a question from Vice President Bishop, Mr. Origliosso affirmed that the resolution had undergone legislative review.

The motion passed, 4:1; Commissioner Menegat voting in opposition.

AUTHORITY FOR GENERAL MANAGER TO APPROVE CONTINGENCY CONTRACTS

Mr. Berggren explained that this item was placed on the agenda in anticipation of the potential work stoppage associated with bargaining with the Union. He said it would give him the authority to hire interim replacement workers in the event of a strike, adding that the Board would be notified. He hoped this would be unnecessary.

Vice President Bishop disagreed that it was necessary. She opposed provision of such authority.

Commissioner Farmer remarked that timing was an issue. He felt, on the one hand, the necessity of it was questionable, but that it was important to be prepared in the event of a strike. He wondered how long it would take to negotiate contracts with replacement workers. Mr. Berggren responded that the preliminary work had been done.

Commissioner Farmer ascertained that the utility would have ten days notice and asked if it was possible to negotiate contingency contracts in that time. Water & Steam Divisions Director Tom Buckhouse replied that the concern was with timing and that getting replacement contracts and getting the replacement workers to Eugene could take more than ten days.

Electric Division Director Jim Wiley said staff was working with such contractors. He explained that notice had to be given as soon as it was known if and when the strike would occur.

Vice President Bishop anticipated that this could be a necessary action but felt it was not yet time. Mr. Berggren replied that the Board, then, needed to make themselves available on immediate notice in order to ensure continuity of service.

Commissioner Menegat supported the delegation of authority. He did not perceive this as sending a message that the Board had not already sent as firm parameters with the bargaining team.

Commissioner Anderson commented that Mr. Berggren was likely to consult the Board members anyway. She did not see a problem with the authorization.

President Lanning shared Vice President Bishop's concerns regarding the political and symbolic nature of this action. He also felt the Board was charged with making sure the customers' needs were met. He said it was clear that the Board and management had worked for a fair and equitable contract.

Commissioner Menegat moved to delegate the authority to the General Manager to enter into work continuation contracts as set forth in the memorandum dated June 20, 2004. Commissioner Anderson provided the second.

President Lanning asked for clarification in the motion on the notification of the Board.

Commissioner Menegat amended his motion to indicate that the Board should receive notification from the General Manager within 24 hours in the event that work contingency contracts were necessary for continuity of service. Commissioner Anderson accepted the amendment.

Commissioner Farmer commented that he did not want to discount concerns that this could impact negotiations. He encouraged management to carefully think about how this would be communicated to employees. He recommended that care be taken to emphasize that the impetus behind the motion was that the Board was doing what it could to insure the "lights were staying on."

Mr. Berggren stated that he had met individually with all of the members of the bargaining unit.

The motion passed, 4:1; Vice President Bishop voting in opposition.

ITEMS REMOVED FROM THE CONSENT CALENDAR

Commissioner Anderson provided the following correction to the minutes from the Special Board Meeting held on May 21:

• Page 1, paragraph 4: "Commissioner Anderson reported on the most recent NWEC Board meeting, saying nothing controversial had come up..."

Commissioner Anderson indicated that she had been incorrectly listed as absent in the minutes from the Executive Session and the Regular Board Meeting held on June 1. She offered the following correction to the latter set of minutes:

• Page 2, paragraph 3: "He related that the Northwest Energy Alliance Coalition was trying to get people to adopt a resolution..."

Commissioner Menegat, seconded by Commissioner Farmer, moved approval of the minutes of the Special Board Meeting held on May 21, the minutes of the Executive Session and the Regular Board Meeting held on June 1 as amended. The motion passed unanimously, 5:0.

Regarding Consent Calendar Item 7 - Montgomery Watson Harza - 1,010,179, Vice President Bishop reiterated her opposition to the placement of an item that cost more than $1 million on the Consent Calendar. She opined that it was late in the process for this cost to come in and asked if more such amendments were to be expected.

Mr. Wiley stated that he would not anticipate more but nonetheless he could not say with surety that there would not be more changes. He stressed that the process the utility was undergoing involved regulatory agencies and the scope of the work had increased as previously unidentified work projects had come to light. He said there had not been enough staff to conduct all of the startup activities. He added that, as of July 8, power would be coming into the grid from Leaburg 2.

Mr. Origliosso emphasized that continuing issues and items, such as the Walterville Bypass study and design which cost $122,000, came up in tandem with the utility's ongoing commitment to correct the problems.

Mr. Wiley underscored that the river was moving away from the channel and the Army Corps of Engineers (ACOE) would not allow the utility to re-plot the bypass channel unless a permanent solution had been proposed. He said there would be construction management associated with this.

In response to a question from Vice President Bishop, Mr. Origliosso stated that the money was coming from a bond issue.

Commissioner Menegat moved approval of Consent Calendar No. 7, the contract with Montgomery Watson Harza for engineering and construction management at the Leaburg/Walterville Improvement Project. Commissioner Farmer provided the second. The motion passed unanimously, 5:0.

President Lanning adjourned the meeting at 9:52 p.m.

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Assistant Secretary President