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

Others present: Randy Berggren, Jim Wiley, Dick Varner, Debra Smith, Marty Douglass, Tom Buckhouse, Roseanna McArthur, John Yanov, Steve Newcomb, Dick Helgeson, Gale Banry, Lance Robertson, Jim Maloney, and Krista Hince of the EWEB staff; Ruth Atcherson, City of Eugene Minutes Recorder; Jim Kincaid, Special Counsel; and John Simpson, Commissioner-elect.

President Lanning convened the Work Session of the Eugene Water & Electric Board (EWEB).

ARMY CORPS OF ENGINEERS COMPLIANCE ISSUES UPDATE

Electric Division Director Jim Wiley introduced the item and provided a brief summary of the history of EWEB's interactions with the United States Army Corps of Engineers (ACOE) regarding compliance issues, as outlined in the memorandum dated September 29, 2004, and entitled U.S. Department of the Army, Corps of Engineers Notice of Noncompliance and Cease and Desist Orders Work Session/Consent Calendar Item.

Jim Kincaid, EWEB's Special Counsel, stated that the ACOE Portland District Office had stepped up its enforcement over the past few years significantly. He said he researched recent enforcement actions taken by other district offices and found that the other ACOE offices had taken very little enforcement as compared to the Portland District Office. He added that the research showed that penalties ranged from $2,000 to $25,000 for single violations to over $100,000 for multiple violations that recently was assessed against one local government. He related that one of the ACOE managers that EWEB is dealing with on Walterville issues describe at a recent seminar the ACOE Portland District Office's new approach, stating that the Portland District Office had undertaken as a "sea of change" with regard to enforcement. The consequence, he explained, was a greater emphasis on inspections and, once violations were revealed, the Portland District Office had developed a strong process for either referring the compliance matter to the Department of Justice to pursue civil penalties or to administratively resolve the compliance matter and assess administrative penalties. He said EWEB was at the point at which it was trying to resolve the compliance matter at the administrative level.

Mr. Kincaid explained that the leverage that the ACOE has under the Clean Water Act is significant. He said the Clean Water Act provided for the assessment of civil penalties that could be as high as $25,000 per day per violation. For major violators, this potential liability is significant. Mr. Kincaid added that EWEB is not "dealing with that type of situation." Mr. Kincaid stated that EWEB, in response to the violations alleged by the ACOE, provided good, detailed responses. EWEB's responses provided comprehensive facts regarding EWEB's need to take the actions at issue in the ACOE Notices of Noncompliance in light of the requirements under the Federal Energy Regulatory Commission (FERC) project license and the emergency circumstances presented by the river conditions at the project. Based on EWEB's responses, the ACOE's withdrew two of the alleged violations and ultimately concluded that most of the remaining alleged violations were of minor significance.

Mr. Kincaid discussed the ACOE enforcement action status and the proposed administrative penalties. He provided an overview of the individual violations, showing that in large part most of the alleged violations were actions taken in response to high flow conditions within the river.

In response to a question from Vice President Bishop concerning the alleged violation for placing material at the fish return bypass channel inlet, Mr. Kincaid explained EWEB had applied for a permit to place material at the canal inlet. He also explained that Laurie Power, EWEB's former Environmental Manger, had contacted the ACOE and attempted to get the ACOE to issue the permit and to recognize the need for immediate action to protect the channel and downstream fish passage facilities in response to high flow conditions even though EWEB's prior permit had expired. He noted that the National Oceanic and Atmospheric Agency (NOAA) Fisheries supported EWEB's action.

Commissioner Farmer asked why the permit had been allowed to expire. Mr. Wiley responded that, in hindsight, EWEB probably should not have let it expire. He explained that EWEB had not experienced river conditions for some time that would have required the placement of material at the canal inlet, and EWEB had been undertaking a number of other projects required under the new FERC license. Commissioner Farmer did not want to blame the ACOE entirely as EWEB had let the permit expire.

Mr. Kincaid concluded his report on the ACOE compliance issues. He said EWEB had three options, as follows:

• EWEB could choose to accept the penalty and the ACOE could agree to the penalty after the public comment period;
• EWEB could decide not to accept the $19,000 penalty and the ACOE could choose to withdraw its proposal, at which time the ACOE may propose a penalty up to $27,500 or refer the matter to the Justice Department to seek penalties in excess of $27,500 (in which case EWEB would be in a litigation situation); or
• EWEB could decide not to accept the penalty, the ACOE would issue the order to pay the $19,000 anyway, and EWEB could appeal it to, first, an administrative hearings officer and, depending on whether EWEB could abide by the result, then appeal the hearing officer's decision.

Mr. Kincaid recommended that EWEB accept the penalty. He explained that EWEB does have defenses to the alleged violations, for example that EWEB performed the work in response to emergency circumstances, but stated that the defenses were not certain and there was little case law relating to circumstances similar to EWEB's. He felt, from an economic and risk perspective, that acceptance of the penalty was the most prudent course of action to take.

Commissioner Menegat agreed with him. He thought EWEB staff had acted in good faith and that nothing would be gained by filing objections. He supported paying the penalty and moving on.

Commissioner Anderson concurred. She thought it to be a good settlement.

Vice President Bishop asked if it the ACOE enforcement action related to complaints regarding the tailrace. Hydroelectric Project Manager Gale Banry said that complaints had been part of the initial discussion, but EWEB had demonstrated that the tailrace had been constructed exactly as the ACOE wanted it to be.

Commissioner Farmer remarked that there was still work to do with the Leaburg-Walterville project and asked if there were lessons to be learned. Mr. Wiley responded that staff would make a greater effort to pay attention to the details. He did inform the Board that there was a new position of Compliance Manager that would track the licensing/permit requirements to insure that these type of issues did not occur and are addressed in a timely manner. .

Mr. Banry commented that the timeframe for working on the river was based on fishery needs as set by the Oregon Department of Fish and Wildlife (ODFW). He related that EWEB had set the timeframe by obtaining an exception to the standard in-water work period, but missed the window because of river conditions and actually conducted the work closer to the standard in-water work period. Even though EWEB had accomplished the work closer to the standard in-water work period and did so without causing environmental harm, he said the ACOE nevertheless found EWEB in violation because of the time parameters.

Commissioner Farmer asked how much had been spent on the issue. Mr. Wiley replied that it was more than $19,000.

In response to a question from Vice President Bishop, Mr. Kincaid explained that there was still time for public comment on the ACOE proposed order and that based on that public comment the ACOE may "change its mind" regarding the proposed penalty. He said the same answer applied to the supplemental environmental project. EWEB had yet to make a formal proposal to do a project and he could not predict whether the ACOE would accept such a project, though past behavior indicated that the ACOE liked those types of projects.

Steve Newcomb, EWEB's Environmental Manger, observed that EWEB was an organization that tried hard to maintain a high environmental ethic. He felt the utility had fallen into a "Catch 22" situation whereby it was faced with allowing damage to project facilities designed to protect fish or doing something. He stated that now to resolve the ACOE compliance matter EWEB has the choice to pay the penalty or to embark on Supplemental Environmental Projects (SEPs) that would be credited against a final penalty. The SEPs would still require some payment out. He outlined five possible SEPs, as submitted to the Board in the memorandum dated September 29, 2004, entitled Supplemental Environmental Projects to Mitigate ACOE Administrative Penalty.

Vice President Bishop registered her objection to the penalty. She opined that anything EWEB could do to "get out of it" would be the best course of action.

Mr. Kincaid affirmed, in response to Commissioner Farmer, that the record would still show that EWEB was penalized even if it implements a SEP.

Commissioner Farmer commented that, while he was in favor of doing a project, he was unwilling to spend $10,000 in staff and attorney time to determine which project to pursue.

In response to a question from Commissioner Menegat, Mr. Kincaid said potential SEPs would be set up in advance before the money would be spent. Mr. Banry added that any other costs that could come up would be would be reasonable and within normal ranges of expenditures.

Vice President Bishop declared that she would pull the item from the Consent Calendar. She thought it was too large an item to be approved in the Consent Calendar. She also indicated she would make a motion to direct staff to negotiate the settlement, as she did not feel that there was enough level of detail in the direction to staff as it currently stood.

President Lanning called for a five-minute break. The Board reconvened at 6:45 p.m.

BOARD GOVERNANCE - POLICY REVIEW

Debra Smith, Assistant to the General Manager, presented the background on the policy review before them. She discussed the hierarchical structure that governed the utility, comprised of the charter, the bylaws, the minutes, and Board policy. She clarified that there were Board policies and staff policies and underscored that the Board had one employee, the General Manager. She said Human Resource Manager Jean Meyers would present an overview of the Human Resources Policy, adding that the Human Resources Department was governed by the Executive Management Team (EMT).

Ms. Meyers provided an overview of the Human Resource policies. She explained that the policies applied to non-bargaining unit employees, though the contract that had ultimately been ratified by the Union and signed by both parties had used the policies as a framework. She called attention to the memorandum dated September 29, 2004, entitled Human Resource Policy Review and Discussion. She described the three different classes of employment policies, as follows:

• Compliance driven policies: policies that were driven by law and State policies and in which the utility had no say;
• Employment law/risk management policies: derived from employment law and best practices;

3) General policies: policies that were at the discretion of the utility.

She offered to provide copies of individual policies to the Commissioners upon request. She emphasized that the policies were reasonable standard business policies.

Ms. Meyers stated that all policies written for Human Resource purposes were based in risk management. She said policy development depended on the nature of it, who and what were driving it. She explained that a policy that carried a high-risk because it was not developed or known by employees and there was no best practice to derive it from, the department would survey like entities, or contact professional resources such as the Society of Human Resource Management. The department would draft the policy and sometimes would use direct feedback from small focus groups or from the Employee Involvement Group.

Ms. Meyers said lower risk policies were changed with prior knowledge and approval of the EMT and were always communicated first to managers and supervisors. From there, she related that a policy change was conveyed to employees in memorandum form and through direct communication.

Vice President Bishop asked if Commissioners could access Human Resource policies electronically. Corporate Services Director Roseanna McArthur replied that the policies were not accessible from outside the building. Ms. Smith added that policies used to be provided in hard copy form to Commissioners, but were now all electronically recorded.

She said Information Services Manager Terry Bequette could provide policies to the Commissioners in disk form if they wished.

Ms. Meyers reviewed Policy No. 600.5, the General Compensation Policy. She noted that House Bill 2020 had created a new retirement system. She said there were two different plans and the article around the defined contribution or employees at 6 percent of their salary level funded individual account plan. She stated that prior to December 31, 2005, the Board would need to make a decision about EWEB's continuing payment of that 6 percent contribution to employees. Ms. Smith noted that the Board would first discuss this in February of 2005.

Ms. Meyers outlined the new policies currently queued up for EMT review and approval were an ethics policy defined by ORS 240, a moving expense policy, and a violence in the workplace policy. She predicted that within three months these policies would be reviewed, the final draft written based on EMT approval, drafted, and shared with employees.

Commissioner Farmer related his perspective, which was that the Human Resource policy was the General Manager's purview. He did not have a "huge" interest in tinkering with or reviewing policies. He was interested, though, in how often the EMT reviewed such policies and whether there was a schedule. He suggested that policies include, for the Board, the date they were last reviewed, rather than the date they were instituted. He recommended an outside audit of the policies be conducted every five to seven years.

Ms. Meyers thought a regular review was an improvement area for the Human Resource Department. While she was not opposed to an outside audit, she noted that when the financial audit was conducted the outside entity that conducted it also looked over policies.

In response to a question from Vice President Bishop, Ms. Meyers stated that the ethics policy changes were not due to a change in the State law, but rather that staff had determined there was a policy gap and that it needed to be remedied.

President Lanning adjourned the meeting at 7:16 p.m.

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Assistant Secretary President