Board Members present: Patrick Lanning, Dorothy Anderson, Mel Menegat, and Ron Farmer. Vice President Sandra Bishop was excused.

Others present: Randy Berggren, Dick Helgeson, Debra Smith, Terry Bequette, Ken Beeson, Dick Varner, Jim Wiley, John Yanov, Scott Spettel, Brenda Sirois, Jim Maloney, Matt Northway, Mel Damewood, Eric Hansen, Brad Taylor, Krista Hince of the EWEB staff; Ruth Atcherson, City of Eugene Minutes Recorder; and John Simpson, Commissioner-elect; Paul Berg, CH2M Hill;.

President Lanning called the Work Session of the Eugene Water & Electric Board (EWEB) to order.

DRAFT INTEGRATED ELECTRIC RESOURCE PLAN STRATEGY AND ACTION PLAN

Power Management and Planning Manager Scott Spettel recapped the Integrated Electric Resource Plan (IERP) process conducted in 1992, 1996, and 2000. He said the plan in 1992 introduced financing through $150 million in bond authorization, specified megawatt hour (MWH) targets, specified no more than two percent impact on rates, and a power partnership program in which sales of some excess power would be sold to help mitigate the cost of newly acquired resources. He related that the 1996 process had institutionalized the one percent system load target for new renewable acquisitions, financed by putting the $500,000 above market contingency fund in the budget. He noted that fund was no longer in the budget and said staff was looking for direction out of this IERP on continued financial planning. He said the five percent rate funding for demand side management (DSM) programs had come from the IERP process. He stated that all of this was financed by having money set aside in the financial projections that would enable such endeavors without impacting retail rates.

Mr. Spettel pointed out that the current IERP process found itself in a new financial context with a slightly different load resource balance. He said the questions to think about for the current IERP were whether the resources in the proposal reflected the working group recommendations and, if so, how fast they should be implemented. He asked the Board to consider the Wanapa project, development of a central gas-fired plant, and where it fit into the long-range plans. He noted that the utility had an agreement which dictated that if the project was developed within five years the utility would be allowed to withdraw and be reimbursed for its investment.

Mr. Spettel said two strategies would be presented to the Board and it was hoped to gain some sense from the Board on which course to take. He reiterated that there were many uncertainties in the future of the power supply in the BPA, but added that there will be another IERP process prior to 2009. He encouraged the Board to think, however, with the 2011 BPA contract in mind.

Brenda Sirois, Resource Planning Analyst, explained that she would speak in greater detail about the two suggested strategies, the "go-long" and the "balance" strategies, accompanied by a power point presentation. Hard copies were provided to all in attendance.

In response to a question from Commissioner Anderson, Energy Resource Project Manager Jim Maloney responded that 'fuel substitution' as referred to in the "balance 75" strategy indicated natural gas. Commissioner Anderson asked if 2008 would be too soon to get into a source for alternative generation other than fuel substitution. Mr. Maloney responded that the thrust behind the "balance" strategies was to do as little fuel substitution as possible until the utility was in a healthier financial situation. He said in the "balance 25" strategy the only thing added was conservation, but the "balance 75" anticipated that the BPA allocation would be significantly impacted. He related that the working group had advised that, should EWEB utilize natural gas, it should use it in the highest and most efficient way, which was co-generation and direct applications in use rather than burning it in a combined cycle or combustion turbine. He noted that it could be added incrementally.

Mr. Spettel pointed out that the Board could indicate a preference for wind or other sources of power. Ms. Sirois underscored that the portfolios being presented were representative.

Commissioner Farmer asked if the portfolios made a judgement on availability or cost effectiveness. Mr. Spettel replied that in general the resources were available. He cited, as an example, that EWEB had specific proposals before it for new wind facility acquisition and a new hydroelectric acquisition and was working on a co-generation project with the University of Oregon. He advised the Board that should it prefer a "stay balanced" position, staff would not present those proposals, but should the Board indicate it was open to such proposals, staff would conduct more due diligence and bring them before the Board.

Commissioner Farmer questioned whether the opportunity for co-generation was really available in the magnitude that the plan suggested. Mr. Spettel responded that it was a proxy for what staff thought would be feasible.

Mr. Maloney noted that the graph on page five of the power point indicated the strategies seemed very similar. He said a bar chart would look different as every time a different resource was incorporated, one risk was traded for another. He explained that, for the analysis before the Board, staff had narrowed the uncertainties being looked at, excluding carbon taxes, significant differences in the long-term output from the BPA, price shocks in the electric spot market, etc. He felt, to some extent, this had reduced the uncertainty, but there was much work to do to flesh it out in its entirety.

Mr. Maloney explained that near-term risk exposure was driven by uncertainties in the hydroelectric market. He noted that the annual average risk exposure did not vary radically from one portfolio to another.

Regarding co-generation, Mr. Maloney predicted it would play a larger role and noted that Alan Meyer, of Weyerhaeuser Corporation, was a proponent for bio-mass fuel co-generation. He shared that the utility had recently received an offer for reasonable geo-thermally generated power, of which the working group had not been aware of.

In response to a question from Commissioner Anderson, Mr. Maloney surmised that the working group in general had a tendency to want to rely more on locally generated power. He felt this was due to a sense that the regional system seemed more constrained than before.

Commissioner Anderson asked for information regarding the progress of the Wanapa Project. Mr. Spettel answered that there was a placeholder for the project, but at this point it only fit in with the scenario in which the utility would lose 75 MWH in power from the BPA. Commissioner Anderson said the only reason she voted for it was that it included an option for wind power. She felt strongly that the utility needed to keep working away from the need for natural gas and other non-renewable resources.

President Lanning asked staff what they anticipated bringing before the Board in October. Mr. Spettel responded that staff hoped to bring a resource strategy that fit the Board's desires.

President Lanning commented that it was made clear to the working group that they served in an advisory capacity to the Board and the Board could make changes. However, he recommended the Board had to be able to justify any changes it made to the group's work, as the group needed to feel they were truly contributing to the process.

In response to a question from President Lanning, Mr. Spettel said his personal recommendation for a portfolio was the "go-long" strategy with diversification of the portfolio along the lines of the working group. He felt an equally valid interpretation would be that, should the utility need to acquire resources to meet load, it should be ensured that it would be compatible with the recommendations of the working group.

Mr. Maloney remarked that the largest issue was to add resources to the scenarios to meet the firm loads. He did not feel there was a lot of guidance on that particular strategy from the working group.

Ms. Sirois called for Board comments.

Commissioner Farmer expressed concern that the utility might be moving "too fast." He felt the possibility existed that the utility could potentially end up with cheaper power from the BPA, though he could not argue that this would happen. He said, without knowing what would happen, he would pick proceeding at a slower pace rather than a faster one. He supported trying to create cost-effective diversity. He related that, when attending the Public Power Convention in Nashville, Tennessee, he had participated in a workshop on balancing power portfolios and some attendees indicated surprise that he would attend given that power in the northwest came almost entirely from renewable resources. He felt that, to a degree, they were right. Because of this, he was less concerned about trying to gain more renewable resources as he was concerned about diversification. He called the BPA the "1,000 pound gorilla" that was dictating cost to the utility.

Commissioner Menegat agreed with Commissioner Farmer regarding diversification. He commented that the cost liability of wind power caused him concern. He supported planning out to 2023 rather than 2012.

Commissioner Farmer clarified, in response to Commissioner Anderson, that he meant diversifying so that the utility did not have so many "eggs in Bonneville's basket" and also so that it could have more sources to turn to.

Commissioner Menegat recommended considering all of the options to be proposed. He also was not a "big fan" of natural gas, but felt that the Wanapa Project was ready to go on line and meet needs.

Commissioner Farmer advocated for long-term careful planning.

President Lanning concurred.

Mr. Spettel extrapolated from the discussion that there was potential for a strategy between the "balanced" and the "go long." He said in order for the utility to work from the supply side, it needed to have a resource that met certain criteria. Mr. Maloney added that the working group would provide more feedback.

WATER MASTER PLAN

Water Engineering Manager Mel Damewood presented Water Master Planning with power points. He introduced EWEB's Water Resource and System Planner Brad Taylor, and Paul Berg, a professional engineer with CH2M Hill. He noted he would be returning in two weeks to speak about the five-year capital plan which would address the financials which the Master Plan had brought into the capital planning process.

Mr. Berg explained that the Master Plan provided the basis for the capital improvement plan (CIP). He underscored that EWEB was serving a growing population. Additionally, he pointed out that it was a State requirement for the Safe Drinking Water Program to have such a plan. Mr. Damewood noted that the last plan was done in 1991 and much had changed since then. He cited the development of the Hynix plant in particular as it had an impact that had not been planned for.

Mr. Taylor discussed the intake system. In response to a question from Commissioner Anderson, he said approximately 10 percent of the pipe system still contained asbestos.

In discussing existing water service areas, Mr. Taylor noted that Eugene was the largest area that relied on a single water source. He reported that the ground water project was ongoing, but there were water right issues that needed to be resolved.

Regarding the modification of the existing intake, Mr. Damewood explained to Commissioner Anderson that it could be modified to enlarge the intake, but it was subject to how long the project would take. The time to work in the river was restricted by the seasons.

Mr. Damewood reported that pipes were being replaced at a rate of two miles per year. He said, at that rate, it would take 400 years to replace all of the pipes in the delivery system, though the pipes only had a lifetime of approximately 100 years.

Mr. Damewood said he would return in October for guidance in what the Board needed to approve in the Master Plan and what information it needed to make that decision.

Commissioner Farmer asked if the utility would be able to continue operating while the work on the fish screens was being done. Mr. Damewood did not foresee the fish agencies limiting intake. He thought as long as the utility remained pro-active there would not be a limitation. Mr. Taylor underscored that it was mandated by law that the water supply remain uninterrupted.

Mr. Berg said it was uncertain as to whether the work could be completed on the intake line while it was operating. He related that one solution was to build a new intake altogether and then, upon completion, take the old one off line.

In response to a question from Commissioner Farmer, Mr. Damewood said if an area was located within the Eugene urban growth boundary (UGB) EWEB was the slated provider. He noted that there were several areas in which EWEB supplied water but not electricity.

In response to a question from President Lanning, Mr. Damewood said when the 1991 plan had been formed, the utility did not have the staff to execute it. He asserted that the new plan would be different as Mr. Taylor was on board to help maintain it.

President Lanning asked for information on regional water consumption. He felt uncertain of what benchmark to use in relation to the average residential usage of 110 gallons per day. Mr. Taylor offered to provide specific numbers. He remarked that Eugene's residential water usage was comparable or less than that of other municipalities.

President Lanning stated that the plan did not address system loss. He recommended that staff and the Board be mindful of it. Mr. Damewood responded that the utility was doing pretty well in relation to industry standards. He added that the utility had money for leak detection equipment, which would help correct system loss.

President Lanning closed the work session at 7:34 p.m.

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Assistant Secretary President