EUGENE WATER & ELECTRIC BOARD
SPECIAL BOARD MEETING
EWEB BOARD ROOM
NOVEMBER 16, 2004
7:30 P.M.
Board Members present: Patrick Lanning, Sandra Bishop, Dorothy Anderson, Mel Menegat, and Ron Farmer.
Others present: Randy Berggren, Jim Wiley, Dick Varner, Jim Origliosso, Marty Douglass, Mel Damewood, Deborah Brewer, Ken Beeson, Matt Northway, John Mitchell, Brad Taylor, Mark Oberle, John Yanov, Mike Logan, and Krista Hince of the EWEB staff; Ruth Atcherson, Minutes Recorder for the City of Eugene; and John Simpson, Commissioner-elect.
President Lanning convened the Special Board Meeting of the Eugene Water & Electric Board (EWEB) at 7:35 p.m.
AGENDA CHECK
Vice President Bishop opined that not enough time had been allotted for the discussion on Agenda Item 7, Potential Sale of the EWEB Headquarters Property to McKenzie Willamette Medical Center.
President Lanning asked General Manager Randy Berggren for recommendations as to which items could be removed from the agenda with ease. General Manager Randy Berggren suggested that Item 8, regarding the 2005 budget and work plan, could be moved to the special meeting scheduled for November 24.
Commissioner Menegat commented that Item 7 had been well-covered in the Special Board meeting held on November 12. He said that basically the Board was determining with its action whether to move on with the principles set forth in the executive summary and this action would not seal the absolute sale of the EWEB property.
Vice President Bishop wanted to delineate the details of the agreement for the public, nonetheless.
President Lanning noted that Items 4 and 5 of the agenda had been completed during the preceding Work Session.
PUBLIC INPUT
Max Grosbeck, EWEB customer, related that a friend had been transported to the Emergency Room at the McKenzie-Willamette Hospital. He felt the medical treatment there had not been adequate. He opposed selling the EWEB property to the hospital. He was particularly opposed to the current price offered by McKenzie-Willamette/Triad hospitals. He opined that EWEB could do better than that.
Bonny Bettman, Eugene City Councilor, conveyed the Eugene City Council's intention to provide subsidies to EWEB to help further the hospital's move to the site. She said the Council unanimously supported moving the hospital to the City center. She commented that, under different circumstances, a different site would have come to the forefront. She believed the challenges the EWEB site presented were surmountable. She felt the transaction could be made to work for EWEB, the hospital, and the community. She opined that the hospital's survival depended upon the move. She underscored the City's objective, which was to provide two viable hospital choices to the community.
David Hinkley, EWEB customer, stated that the EWEB Board's fiduciary responsibility was to the ratepayers and to the voters and its purpose was to provide power and water services. He did not think the utility needed to sell its building so soon. He called the hospital's offer a "fire sale price" for a one-of-a-kind building. He thought it possible to get $30 or $40 million for the site, adding that if it took $38.5 million to move EWEB then that was what the price ought to be.
Gary Papé, Eugene City Councilor, said the City Council was united in its desire to find the best possible site for a hospital in Eugene. He noted that one suggestion had been to place the hospital on the old Eugene Hotel site, but that this site was not available. He conceded that the utility's primary responsibility was to its ratepayers but underscored that the ratepayers were the council's constituents as well. He hoped EWEB would transact with McKenzie-Willamette/Triad LLC and not allow it to move away. He opined that the utility did not need to get the entire price of its move from the sale price of the property.
Kevin Matthews noted that he was president of the Friends of Eugene. He said while the organizations he belonged to shared the goal of siting a hospital in Eugene, they did not feel the EWEB location was appropriate for a large private institution. He felt the citizens of Eugene had made it clear that they wished the area by the EWEB facility to remain a "greenway." Additionally, he said the fundamental responsibility of EWEB was to its ratepayers. He thought the value of the building was underestimated. In closing, he commented that the utility's site by the river was appropriately symbolic for a utility that provided water.
Marcy Cauthorn, Eugene resident, said she wanted the utility not to "undersell" its building. She stated that ratepayers did not want to get stuck paying for a move and a new building.
Paul Cauthorn, also a Eugene resident, echoed Ms. Cauthorn's comments. He questioned a move to the outer edge of the City of Eugene. He opined that the property EWEB had made an offer on, zoned Industrial, would not appreciate at the same rate as the property by the river would.
APPROVAL OF CONSENT CALENDAR
Minutes
1. October 5, 2004, Work Session
Business Service Agreements
2. The Ulum Group - Communication Consulting - $210,000
4. Balzhiser & Hubbard Engineers - Due Diligence, New EWEB Headquarters Facilities - $74,890
Trojan Budget
Commissioner Menegat pulled Item 4 from the Consent Calendar.
Commissioner Anderson, moved approval of the Consent Calendar with the exception of Item 4.
Vice President Bishop provided the second. The motion passed unanimously, 5:0.
ITEMS FROM BOARD MEMBERS
This item was addressed in the preceding Work Session.
CORRESPONDENCE
This item was addressed in the preceding Work Session.
BOARD AGENDAS
Mr. Berggren reviewed the Eugene Water & Electric Board: Board Agenda Report.
POTENTIAL SALE OF THE EWEB HEADQUARTERS PROPERTY TO MCKENZIE WILLAMETTE MEDICAL CENTER
Mr. Berggren noted that the Board had previously discussed this issue at several meetings. He outlined the proposed agreement before the Board at this time to continue negotiations. He stressed that the approach taken was to reach agreement on a timeline, conduct feasibility analysis and due diligence, and that both organizations would retain the unilateral right to withdraw. He underscored that McKenzie-Willamette/Triad (MWMC/TRIAD) had raised its offer to the higher of the two amounts resulting from the appraisal of the site. He called out the specific emphasis on not allowing any of the financial responsibility for the land transaction and the move to fall on the shoulders of the ratepayers. He conveyed staff's recommendation to accept the proposal to continue negotiations over the potential sale and provide the General Manager the authority to enact the agreement before the Board.
Commissioner Anderson asked if EWEB could take the entire 240 days written into the proposal to conduct its due diligence should MWMC/TRIAD reach its decision prior to the time limit. Mr. Berggren affirmed that either side could use the entire 240 days regardless of the actions of the other side.
Vice President Bishop alleged that the contract did not say this and only allowed the seller the 240 days and provided an open-ended amount of time for the purchaser. Mr. Berggren reiterated that the contract did delineate the time limit for both.
Vice President Bishop averred that EWEB was being asked to take the property off the market and as such should receive some payment for an option. She asked what would happen if the process was extended. She asked what the certificate of need process was and exactly how long it would take.
Commissioner Farmer did not disagree with the idea of having a payment for an option on the property. He felt the utility faced a dilemma in not knowing how much it would cost to move and was merely including an "off ramp" in the contract to meet its needs.
Vice President Bishop asked Commissioner Farmer if he would agree that the 240 days on the part of the seller should be extended indefinitely to match the indefinite period allowed the purchaser. Commissioner Farmer responded that he did not want to leave it open-ended for the purchaser. Vice President Bishop asserted that agreement to the proposal in concept was an agreement to an open-ended time line.
Mr. Berggren stated that the utility understood that the certificate of need process would take no longer than 10 to 12 months. He thought the time could be extended, if necessary, up to 320 to 340 days.
Vice President Bishop noted that the Master Plan process initiated in 2002 had not been completed. She opined that it should be the context for the decision. She thought significant factors had changed since 2002, but staff was using the assumptions from 2002 to make its recommendation in 2004. She felt the Board had not adequately discussed the "efficacy of whether or not to split the operations from the headquarters." She wished to open a Board discussion on this "basic premise." She opined that the staff recommendation was the only one they could make and should not be considered as an endorsement or direction to the Board as to how to proceed.
Vice President Bishop asked staff to provide information to the Board on how much the headquarters building cost, how it was funded, and how many years it took to plan it in order to get the community to buy into building a new headquarters. Mr. Berggren replied that he could provide some information. He pointed out that staff had asked the Board at the previous meeting if there were questions that needed to be answered. Had these questions been asked, he could have done the research and had the information for her at the present meeting.
Vice President Bishop referred to Board discussion from 1984 and 1985 on the Master Plan that resulted in a public bond in 1991. She averred that the process to purchase the property on Roosevelt Boulevard and the process to sell the current property had not transpired with adequate time for public input.
President Lanning asked the Board if other members felt they had adequate opportunities for staff to respond to their questions. Commissioners Anderson, Farmer, and Menegat indicated they felt there had been adequate time and their questions had been answered.
Vice President Bishop alleged that the current building had experienced various cost overruns during construction. She called it a "scandal for at least a couple of years in Eugene." She asked staff to provide the original cost estimates and the amount they were exceeded by. Mr. Berggren replied that without knowing in advance that this information was wanted it was not possible to produce it. He shared his impression that there had not been a huge cost overrun. Vice President Bishop asserted she had not seen a construction project that did not go over estimated costs.
Commissioner Menegat stated that the Board had been talking about this issue for a great number of months and had spent thousands of dollars and hundreds of hours of staff time and commissioner time on it. He pointed out that the question of whether to separate the operations and administrative arms of EWEB or to collocate them had been raised and discussed by the Board. He said the situation presented to the utility was that there was an offer for the entire site. His understanding of how this had transpired was that the Board looked at sites to house both arms of the utility and had proceeded to direct staff to pursue that option. He underscored that the Board had considered and rejected the earlier offer made by MWMC/TRIAD and subsequently had negotiated further with the hospital and the City. He recalled that, at that point, there did not appear to be any major stumbling blocks.
Commissioner Menegat was pleased that EWEB was moving forward in this process because it did not limit the utility to the exact amounts of money involved. He said it moved EWEB to the point where it began its due diligence to determine whether the new site was viable and then would move to allocate the 30 percent of construction cost. At that point, he stated that the utility would know within 5 or 10 percent what the total cost of moving to another location would be and the utility could opt to pull out of the agreement. He did not feel the need to delay the next step in the process, nor did he think the Master Plan needed to be reopened. He averred that the utility was at a point where it could decide to sell the property if the price and "everything else" was right or not. He indicated he was prepared to move to approve the recommendation.
Commissioner Anderson opposed the motion. She said if she were convinced that a hospital was the right use of the property and the timing was right for EWEB, she might feel differently given that the Federal Building had changed the situation by making operations more difficult. However, given the timing, she agreed with testimony that called it a "fire sale."
Commissioner Anderson averred the City was ignoring the results of its own citizen outreach efforts. She related that she and former Commissioner Susie Smith had participated in the process and the results indicated preferences for opportunity areas, green areas, and downtown opportunities, none of which supported placement of a hospital at the site. She said citizens largely preferred mixed use development for the site. She called the site potentially valuable. She felt that the sale should be motivated by the right economy and the right driving force. She opined that the hospital was the wrong use at the wrong time at the wrong price. She believed EWEB would be doing the hospital a favor by declining the offer now and motivating them to settle on another site soon.
Commissioner Farmer expressed concern that the Board was making "emotional decisions." He underscored that the utility had intended, at the minimum, to move the operations arm to another location given logistical difficulties the current location presented, regardless of whether or not the hospital moved to the EWEB site. He reiterated that the Board had authorized staff to enter into sales negotiations with MWMC/Triad. He did not believe that any Commissioner made this authorization "in anything but good faith." He advocated for continuing the utility's good faith position.
Commissioner Farmer called it a dilemma that the Board did not know what it would cost to relocate. He said both parties had devised a solution that would allow them to move forward with a potential sale while the amount of money needed was determined. He stated that the sale would not move forward if the numbers "did not work." He strongly supported the value of qualifying that cost, whether EWEB sold to MWMC/Triad or not.
Regarding the appraisals, Commissioner Farmer related that EWEB had spent taxpayer revenue to hire the top appraisal firm in Eugene and "arguably" the top appraisal firm in Portland. He felt that discounting their professional opinions and only listening to one's "gut opinions" would make ratepayers question why money was spent on the appraisal firms in the first place.
Commissioner Farmer understood the concern expressed about the cost to ratepayers, but wished to point out that, according to information staff provided, the utility faced a $9 or $10 million shortfall whether it stayed at the location or if the operations part of the utility was moved. He said potentially moving may qualify that cost to make it reasonable, but not moving from the site precluded any cost recovery for the land purchase, development, and move. He recommended the utility be honest about the cost of necessary improvements to the Quonset huts that housed operations, which would fall directly on the shoulders of the ratepayers.
Continuing, Commissioner Farmer averred that an assumption that some kind of windfall would cover that cost was unrealistic, especially given that EWEB was in the process of relicensing the Carmen Smith facility at a cost of $100 to $150 million. He felt a notion that EWEB would be able to come up with money to spend on the needed improvements to the operations at the present site was unrealistic.
Commissioner Farmer said, while he understood Commissioners Anderson and Bishop's passion for whether the EWEB site was the appropriate site for a hospital, the Board had a fiduciary responsibility to the ratepayers to provide the best site for its facilities. He noted that the Planning Commission had recommended the EWEB site for a hospital. He supported approval of the staff recommendation to proceed.
Vice President Bishop underscored that the purchase of the 'Brand S' property and the sale of the present EWEB site were separate actions. She stated that EWEB had been looking for land for three to four years. She thought this was a sensible pace. She acknowledged there was little risk in purchasing land as it would appreciate and EWEB would not lose any value.
Vice President Bishop asserted that the utility had received the offer from a limited liability corporation (LLC) and not MWMC/Triad. She suggested that it was risky to enter into a transaction with a newly formed LLC. She thought it would be better to sell to a locally owned business. She believed that EWEB needed to set up an LLC to protect the ratepayers. She opined that the risk to ratepayers was great. She asked that the legal counsel inform the Board as to which State the LLC was formed in, because every state had different governing laws about such organizations.
Vice President Bishop believed that moving forward with the proposal would be no longer acting in good faith.
Continuing, Vice President Bishop opined that the site was intensely encumbered. She did not see how these encumbrances could be resolved. She alleged there was a toxic site on the property and asked what would be done with it, as an example.
Vice President Bishop questioned the lack of public hearings and how much money had been spent on advertising to let people know of the details of the potential sale of the property.
Commissioner Farmer stated that an LLC was a common business entity. He pointed out that 70 percent of the business loans he handled were made to LLCs.
Vice President Bishop reiterated that public money was being spent. She asked what the ratepayers would be told about it. Mr. Berggren repeated that approximately $75,000 would be spent on consulting costs for technical studies and environmental assessments at the new property and once that work was completed, EWEB would propose a 30 percent design estimate.
In response to a question from Vice President Bishop, Mr. Berggren stated that as per Board direction a combined facility would have to be built. He said the design fee would amount to approximately $800,000 and the purchase price of the 'Brand S' site would be $1.6 million. Vice President Bishop asked how soon EWEB would have to build on the new property. Mr. Berggren replied that he hoped the utility would build within two years. He stressed that EWEB was facing between $9 and $17 million in upgrades to current facilities or it could spend the same money on a new facility.
President Lanning stated his opposition to making the ratepayers pay for the relocation. He believed there was a gap between the offer and what it was actually worth. He perceived there to be agreement that the location of EWEB was not the best use of the site. To him, it made sense to make an offer on the 'Brand S' property. He reiterated that there were access issues at the present site that could not be mitigated and that it would take circa $10 million to refurbish the operations facilities. He stressed that the availability of other locations for EWEB lessened by the year and made it more critical that EWEB proceed with its land purchase. He felt that the utility would eventually arrive at a point wherein it was forced to sell the current property and this could potentially thrust the utility into a so-called "fire sale" situation. He opined that it made sense to move forward and look at the feasibility of selling the property now.
In response to a question from Commissioner Menegat, Mr. Berggren said the sale of the property would retire the current outstanding debt, leaving about $12 million that could be used to complement the property. He explained that it would have to be re-authorized in order to use it, utilizing either the URBA process or placing it on the ballot and ask the community to re-authorize the funding.
Vice President Bishop repeated reasons for opposing the motion to enter into an initial agreement to continue negotiating with MWMC/Triad. She felt, though she appreciated the appraisers, the land was unique and the Federal Courthouse building would increase its value. She opined that the appraisers had used empty office space in the downtown area for comparative purposes.
Commissioner Menegat moved that the Board give the General Manager authority to enter into an agreement that was generally consistent with the terms and conditions set forth in the executive summary of the contract of sale between the Eugene Water & Electric Board and the McKenzie-Willamette/Triad (MWMC/Triad) Hospital LLC. Commissioner Farmer provided the second.
Commissioner Farmer moved to amend the motion to limit McKenzie-Willamette Triad Hospital LLC to 240 days and/or one year to complete the certificate of need process. Commissioner Menegat provided the second.
Vice President Bishop said the headquarters had been built on the Willamette Greenway which had required an exceptions process. She averred that the City had offered to buy the riparian zone for $1.5 million. She did not believe any purchaser of the property had the right to remove the riparian zone from the public domain. As such, she suggested the City should give this money directly to EWEB.
Commissioner Anderson commented that the City was going to purchase the riparian zone so that the City would be in charge of maintaining it.
Commissioner Anderson stated that she had served on the Planning Commission for Eugene as well as on the Board of EWEB. She observed that the City was great at "talking good planning but lousy at implementation."
Vice President Bishop reiterated her opposition.
President Lanning called for the vote on the amendment. It passed unanimously, 5:0.
President Lanning called for the vote on the main motion. The main motion passed, 3:2; Commissioners Anderson and Bishop voting no.
Vice President Bishop rescinded her no vote and changed it to a yes. She said she intended to bring the item back to the table for possible reconsideration at the next meeting, scheduled for December 7, 2004.
The Board discussed amending the agenda as time had become an issue and agreed to defer agenda items 10 and 11 to the Special Board Meeting scheduled for November 24.
President Lanning called for a five minute break at 9:25 p.m.
2005 BUDGET AND WORK PLAN
Fiscal Services Supervisor Dick Varner briefly reviewed the 2005 EWEB Budget with a power point presentation.
In response to a question from Commissioner Farmer, Mr. Varner explained that the decrease in wholesale revenues amounted to approximately $14 million.
Regarding large customers, Mr. Varner clarified at Commissioner Farmer's request, that the large customers included the University of Oregon and Weyerhaeuser's fiber board plant in West Eugene in addition to the main Weyerhaeuser facility and Sierra Pine.
The Board had no other questions.
FIRST PUBLIC HEARING ON THE 2005 BUDGET
President Lanning opened the public hearing.
No representatives of the public were present to speak.
President Lanning closed the public hearing.
ITEMS REMOVED FROM THE CONSENT CALENDAR
Commissioner Menegat explained that he removed Item 4 from the Consent Calendar as he thought it premature to approve something that was predicated on the subsequent vote on the initial contract of sale between EWEB and McKenzie-Willamette/Triad Hospital LLC.
Commissioner Menegat, seconded by Vice President Bishop, moved approval of Consent Calendar Item 4, a contract with Balzhiser & Hubbard Engineers to conduct due diligence work. The motion passed unanimously, 5:0.
Vice President Bishop adjourned the meeting at 9:45 p.m.
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Assistant Secretary President