EUGENE WATER & ELECTRIC BOARD
SPECIAL BOARD MEETING
(WORK SESSION)
EWEB BOARD ROOM
DECEMBER 7, 2004
5:30 P.M.

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

Others present: Randy Berggren, Dick Varner, Debra Smith, Tom Buckhouse, Jim Origliosso, Marty Douglass, Jim Wiley, Roseanna McArthur, Jean Meyers, Terry Bequette, Ed Case, Cathy Bloom, and Krista Hince of the EWEB staff; Win Calkins, legal counsel to EWEB; John Simpson, Commissioner-elect; Amber Anandi, Michelle Tachouet, Roger Mills, PriceWaterhouseCoopers; Ruth Atcherson, City of Eugene minutes recorder.

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

BOARD GOVERNANCE

•  Purchasing Policy Review

Purchasing Manager Ed Case provided an overview of The New and Improved EWEB Public Contracting Rules with the aid of a power point presentation. He also provided a background memorandum entitled Rewrite of EWEB Procurement Rules dated November 30, 2004 . He explained that EWEB's current procurement rules had to be rewritten to comply with changes in the Oregon Public Contracting Law (ORS279). He said staff needed to know if the Board was agreeable to moving forward with the proposed rules and the proposed exemptions and exclusions. He asked the Board what thresholds for review and approval of contracts the Commissioners would want to set. He stated that, once this information was known, staff would revise the rules if needed and would prepare a legal notice and set up a public hearing and potential action on January 4, 2005. The rules, if adopted, were slated to take effect on March 1, 2005.

Vice President Bishop noted that Oregon Revised Statute (ORS) 2798.125 set forth a criterion of preference for Oregon goods and services. She asked if EWEB's rules would reflect this. Mr. Case replied that they would, adding that ‘local' was a weight in determining which contract the utility would opt for. He said, given the choice between equal bids for a job from two Oregon companies, lots would be drawn to determine which company would be awarded the contract. He clarified that EWEB was not required to hire a local entity, however, should a superior offer from an out-of-state company be presented.

In response to a question from Vice President Bishop, EWEB legal counsel Win Calkins replied that it was addressed in ORS 2.0180 (2).

Vice President Bishop asked if EWEB was able to strengthen the preference for using recyclable materials expressed in the State statute. Mr. Case responded that it probably could not be strengthened as it would be financially infeasible.

In response to a question from Commissioner Farmer, Mr. Case stated that all contracts and exceptions to the contracts would be subject to Board approval. Commissioner Farmer was concerned that there would not necessarily have to be a type of bid process on any dollar amount outside of the State of Oregon. He thought, in regard to the Board's fiduciary responsibility, it could be possible to get into a situation in which an unlimited amount was delegated to projects outside of the State of Oregon. He suggested the policy include some financial limit in such cases. Mr. Calkins replied that the Board could set a threshold and tighten up consideration of bidding at some level. Commissioner Farmer asked staff for input as to what that number amount should be.

Commissioner Farmer commented, regarding personal services listed under Due Diligence , that it appeared that EWEB was exempting those services that would already be exempt. Mr. Case clarified that such contracts were exempt up to a threshold of $150,000 and then after that there was a solicitation processes that had to be followed. He said EWEB kept a list of architectural and engineering consulting services which they selected consultants from and this was why such services were considered exempt.

In response to a question from Commissioner Farmer, Mr. Buckhouse stated that the water filtration materials cost approximately $200,000 per year.

Commissioner Farmer related that he had struggled to have a sense of the scope of exemptions as he did not have a clear idea of the amounts of money that were being considered.

In response to a question from Commissioner Menegat, Mr. Case explained that the Board passed an exemption for the natural gas providers. He said there were two natural gas providers and staff would approach both for information. Mr. Calkins added that the exemption required the utility to get competitive quotes whenever possible.

In response to a question from Vice President Bishop, Mr. Case said EWEB did use permissive language in contracts that allowed other public entities to use the results of the utility's solicitation. He stated that the utility also had language that basically said that any contract entered into by another public entity that used EWEB's contract and contractor was separate from EWEB and only used EWEB's solicitation process. Vice President Bishop asked if EWEB used other utility's contracts. Mr. Case replied that EWEB used the City of Eugene's contracts and the State of Oregon's contracts.

Vice President Bishop expressed concern regarding the use of the word ‘permissive' and the word ‘cooperative' in the statute. Mr. Calkins clarified that the statutory difference was that in one the participants were named and in the ‘permissive' purchasing agreement, the participants were not all named. He added that it would have to meet substantially EWEB's already existing solicitation requirements.

Vice President Bishop asked why temporary services were exempted. Mr. Case responded that temporary services utilized a selection by interview process which did not lend itself to a public process. Vice President Bishop felt that temporary employment agencies seemed competitive. She advised staff to open up the process and ensure that the utility was not playing favorites. She requested more background information, the dollar amount, how many temporary services workers EWEB employed, what the dollar volume of such services were.

In response to another question from Vice President Bishop, Mr. Case assured her that there were policies regarding non-profit groups. Mr. Calkins clarified that such policies were addressed in ORS 6.0110, listed under section 2.

Commissioner Farmer asked staff to provide a brief memorandum that outlined the dollar level of the 12 exemptions set forth in the power point prior to the Board's meeting to consider it for adoption.

Mr. Case asked the Board at what dollar level it wanted to review contracts. President Lanning asked how many contracts the Board would be asked to review on an annual basis. Mr. Case replied that the Consent Calendar usually contained three or four. He said the current thresholds were $20,000 for services and $100,000 for goods and construction.

Commissioner Farmer did not feel that current levels were onerous.

President Lanning asked if changing the threshold for contracts to $150,000 would change the number of contracts that came before the Board. Mr. Case replied that the number of contracts for goods and services brought before the Board would likely remain the same, while the number of contracts for services would decrease.

Commissioner Farmer commented that if someone challenged him, as a member of the Contract Review Board, about the total dollar amounts of contracts and what the Board should be reviewing, he would not feel very knowledgeable. Mr. Case stated that the utility currently processed approximately 3,400 purchase orders in a year. He did not feel the utility had a good system to separate the contracts from year to year; the contracts were either active or not. He said currently the utility had 232 active contracts and, in the last year, EWEB spent approximately $3 million on purchases under $5,000, 80 percent of the purchase orders processed. He said the other 20 percent amounted to approximately $82 million. He felt the policy intended to focus more on the high dollar contracts and less on the low dollar/low risk contracts.

In response to Vice President Bishop, Mr. Case responded that financial contracts were contracts with debt services, banks, and actuaries.

President Lanning asked if there would be cost savings in staff time from raising the threshold. Mr. Case responded that expediting the work by going through an informal solicitation process would provide some efficiencies in staff time.

Commissioner Menegat did not object to the limit, but said he would be interested in seeing the level of staff time savings and how many contracts would be affected in a particular year.

Vice President Bishop asked if there was a particular reason to raise the threshold for goods and services from $20,000. Mr. Case responded that it would expedite the work. He expressed his preference for having one threshold for all contracts, rather than a separate one for goods and services.

In response to a question from Mr. Varner, Commissioner Farmer acknowledged that page 7 of the budget document provided a better idea of the sales and purchasing statistics.

Vice President Bishop remarked that she often used the Consent Calendar to educate herself on what contracts were being entered into. For that reason, she was uncertain whether she wished to change the threshold for goods and services.

GENERAL MANAGER'S GOAL DEVELOPMENT FOR 2005

General Manager Randy Berggren asked the subcommittee on goal development to discuss goal priorities.

Commissioner Farmer said the subcommittee had been in discussion and decided to return to the full Board for further input. He related that Human Resource Manager Jean Meyers had been asked to discuss the General Manager's goals with comparable utilities. He stated that she had found that more utilities lacked goals for their General Managers than had them. The utilities in Tacoma, Washington, and the City of Springfield were the only ones that sent copies of General Manager goals. He reported that the Springfield Utility Board (SUB) goals tended to be “business as usual” goals and some seemed to only be couched in terms of “thou shalt not,” as in not bringing harm onto the business, while the Tacoma utility had a great deal of specificity in its goals. He said the subcommittee felt the goals the Board should set should be more strategic in nature and less business as usual. He thought the Board should say to the General Manager with the goals was that the Board wanted him to focus on things that would make it a better utility. He clarified that this did not mean that the General Manager should not do the business as usual type things as well.

Commissioner Farmer asked Assistant to the General Manager Debra Smith to capture the Board's thoughts on the board while the Board focused on goals, beginning with a discussion of the largest issues facing the utility.

Commissioner Anderson was disturbed by the constant rate increases and how raising rates affected EWEB's image. She advocated for working harder to help customers better understand the utility and its energy resources.

Commissioner Farmer asked what the Board wanted people to think of when they thought of EWEB.

Commissioner Menegat felt the utility needed to determine a strategic plan for how to move ahead. He was concerned with the Integrated Energy Resource Portfolio (IERP) and how to position the utility to move ahead with the committee's recommendation.

Commissioner Farmer asked Mr. Buckhouse to suggest which issue he thought the General Manager should work on. Mr. Buckhouse responded that one issue that would affect EWEB in the future was water rights. He thought it paramount to preserve all of the water rights the utility had permits for.

In response to a question from Commissioner Anderson, Water & Steam Division Director Tom Buckhouse averred that working water rights into a regional issue could play a role in how the utility preserved its water rights. He felt that, in the present, there was not one clear direction to move in.

Commissioner Farmer asked Mr. Berggren what issue he thought should be of primary concern as a goal. Mr. Berggren responded that the potential sale of the EWEB property and the purchase of an alternate site were his top concerns at present.

President Lanning concurred with Mr. Berggren's assessment. He also recommended that the generation planning up the McKenzie River and the relicensing of the Carmen Smith facility be of primary concern.

Electric Division Director Jim Wiley, in response to Commissioner Farmer, stated that his two chief concerns were the reserve strategy and employee issues, especially given the impacts that the Union contract had caused to the health and retirement benefit costs.

Vice President Bishop's two primary areas of focus were the pursuit of increased financial stability and the pattern of rate increases and the use of renewable energy resources.

Commissioner Farmer asked Commissioner-elect Simpson to weigh in on the General Manager's goals discussion. Mr. Simpson recommended, in regard to rate increases, that the utility emphasize the value of its products. He thought the utility needed to do a better job of explaining why its services cost so much to deliver. Commissioner Farmer noted that this seemed to be part issue and part action step and suggested it be distilled to a goal of communicating better with the public.

Power Resources Director Dick Helgeson, in response to Commissioner Farmer, felt that moving forward in an appropriate way with EWEB's IERP should be a primary goal. He clarified that a whole set of work plan items would need to be engineered in order to further develop the specific items required to execute the IERP.

Commissioner Menegat said what he was looking for was those ideas in strategic planning on how work items such as the IERP could be accomplished within the financial constraints. He felt EWEB was looking for something other than being a good manager, which he felt Randy Berggren already was. He challenged staff and the Board to “think outside the box.”

Commissioner Farmer elaborated on goals, stating that the goals for 2005 could be goals in and of themselves or they could be goals that help to position the utility to achieve future goals. He related that the subcommittee was suggesting that the General Manager set the action steps pursuant to the determination of the issues and setting of subsequent goals by the Board.

Mr. Berggren said this item would return on the January 4 agenda.

2004 AUDIT PROCESS REVIEW

Assistant Treasurer Cathy Bloom introduced the team of consultants from PriceWaterhouseCoopers: Amber Amandi, Michelle Tachouet, and Roger Mills.

Mr. Mills, Ms. Tachouet, and Ms. Amandi presented the Report to the Commissioners of the Eugene Water & Electric Board; 2004 Strategic Audit Plan .

Ms. Tachouet noted that the interest swap, approved earlier in the year by the Board, would fall under the heading of derivative income, as would gas hedges.

Commissioner Farmer wanted the team, upon their return, to inform the Board as to whether they thought the Board was meeting its fiduciary responsibility. He asked for elaboration on the audit's focus on historical perspectives. Mr. Mills responded that when the financial rules became more oriented toward fair market value, such perspectives had come into play. He explained that the audit would look at the fixed assets and ask what the financial plan was and how it would be carried forward. He stressed the importance of the concept of complete transparency in accounting.

President Lanning adjourned the Work Session at 7:25 p.m.