Board Members present: Patrick Lanning, Sandra Bishop, John Simpson, Mel Menegat, and Ron Farmer.

Others present: Randy Berggren, Dick Varner, Debra Smith, Tom Buckhouse, Marty Douglass, Jim Wiley, Terry Bequette, Mark Freeman, Mel Damewood, Ken Beeson, and Krista Hince of the EWEB staff; Ruth Atcherson, City of Eugene minutes recorder, and members of the public.

President Lanning convened the Work Session of the Eugene Water & Electric Board (EWEB) at 5:46 p.m.

BOARD GOVERNANCE

General Manager Randy Berggren explained that the session before the Board was a result from its brainstorming at a Work Session in December. He said it was hoped that the Board could narrow the scope of the goals submitted thus far.

Assistant to the General Manager Debra Smith circulated copies of Commissioner Farmer’s suggestions, submitted by email with not enough time for inclusion in the Board packet. She noted that Commissioner Farmer would act as facilitator in this process.

Commissioner Farmer asked Commissioner Menegat to declare his top priority issues.

Commissioner Menegat said his first priority was to establish long-term strategies to foster financial stability. He stated that his second priority was to reinstill public and employee confidence in the utility. He felt there were a lot of concerns about what was happening with the utility that predated the recent developments with McKenzie-Willamette/Triad (MW/T), including recent rate actions and bargaining. For his third priority, he wished to position the utility to move forward with the Integrated Energy Resource Plan (IERP) and acquire resources in order to facilitate a move away from hydroelectric power. He chose not to address the MW/T contract because he felt it was “driving itself” and so much of it was at the Board level and not the management level.

President Lanning also gave top priority to development of a financial strategy. His second priority was the long-term energy resource plan and tied to that was conservation. He said his third priority was EWEB’s public image and the need to restore public confidence in the utility.

Commissioner Farmer suggested that Ms. Smith list the following areas on a large sheet of paper in order for the Board to place values on them and narrow them down:

• Financial stability;
• McKenzie-Willamette/Triad Medical Center;
• Communication (includes public image and public confidence);
• Carmen-Smith relicensing;
• IERP;
• Employees;
• Core utility business;

Commissioner Farmer reminded the Board that this process aimed to formulate three or four primary goals for the General Manager, excluding the day-to-day business issues that he had to address. He said Mr. Berggren had an Executive Management Team to help him deal with the daily “business as usual.”

Commissioner Farmer listed Commissioner Simpson’s top three priorities, communications, McKenzie-Willamette/Triad, and financial stability. He then listed his own top three priorities, McKenzie-Willamette/Triad, the financial reserves, and the Carmen-Smith relicensing. Using the different Commissioners’ lists of priorities, the issues were scored to determine emphasis.

Vice President Bishop prioritized financial stability above the others and then, secondarily, the employees. Her third priority was customer communication.

Ms. Smith scored the priorities. The top three were, as follows:

• Financial stability;
• McKenzie-Willamette/Triad Medical Center;
• Communications.

Commissioner Farmer said the real question, after prioritization, was how these issues should be dealt with. He asked what the Board wanted to have happen in the coming year that would take steps toward more financial stability and how Mr. Berggren could achieve that. He also asked how the Board thought this should be measured.

Commissioner Menegat hoped the utility would have met projected levels for the reserve funds. He added that he also hoped that nothing would “throw the utility for a loop.”

In response to a question from Commissioner Farmer, Mr. Varner said the target for the operating reserve was $10 million.

Commissioner Farmer asked Commissioner Menegat what he meant by unexpected crises. Commissioner Menegat replied that he meant that the utility should not be caught unprepared in the face of a financial crisis, that it should have a plan in anticipation of such a crisis.

Mr. Berggren asked for clarification. He posed a hypothetical situation in which the year ended with rainfall at 75 percent and wondered if he was being asked to have a proactive budget plan that considered all variables. Commissioner Menegat responded that management would have to make decisions on how such a situation would be attacked and how it would be brought before the Board. Mr. Berggren commented that this sounded like a tool kit. Commissioner Menegat said he sought to have a plan and not a tool kit.

Commissioner Farmer suggested the General Manager come up with three major financial risks and to be able to tell the Board what he would do should those situations arise. Commissioner Menegat affirmed that was his intent. Mr. Berggren extrapolated from this that the intention was to define and develop action strategies and a plan for what situations would require the utility to deploy the action strategies.

Commissioner Farmer asked Commissioner Simpson how he would measure financial stability. Commissioner Simpson replied that he would do so by protecting the bond rating, keeping the rates in check, and by pursuing appropriate litigation to remedy the fallout from the energy crisis. He added that he would also want to monitor the growth of reserve funds and ensure it was on track. In response to a question from Commissioner Farmer, Commissioner Simpson expressed his comfort with the reserve target.

In response to a question about bond ratings from Commissioner Farmer, Commissioner Simpson said he did not want to jeopardize the utility’s bond ratings in the open market and, should it appear that the ratings could drop steps should be taken to counteract the drop immediately.

Commissioner Simpson elaborated on what he meant by keeping rates in check. While he recognized the need to pass through Bonneville Power Administration (BPA) rate actions, he averred that the utility should take control of what it could.

Commissioner Farmer asked how Commissioner Simpson would qualify his statements regarding the litigation. Commissioner Simpson said the utility should maintain its pressure in order to get the revenue lost in the energy crisis back.

Vice President Bishop remarked that she thought the utility already was involved in such litigations. Mr. Berggren responded that many of the litigations were now resulting in settlements. He thought there could be a more generic way for Commissioner Simpson to state that the utility should be proactive regarding lost revenue due to the energy crisis.

Commissioner Farmer said he would like to formulate a series of benchmark financial goals to measure in a more mechanical way. He added that he also wanted a defined financial plan that was measurable for the Carmen Smith project.

In response to Commissioner Farmer, Vice President Bishop related that she would measure financial stability by the resources that EWEB owned. She wished to see the long-term costs of resource acquisition measured and weighted with regard to long-term benefits.

President Lanning said his top priority for the utility was to plan for long-term financial stability, including the Carmen Smith facility and generation. He suggested that a plan should be established in 2005 that addressed the IERP and the funding factors for Carmen Smith. He felt this would set the utility up for long-term stability.

Mr. Berggren stated that there were reserve targets into 2007 and 2009. He thought there was a plan in the financial pro forma with five-year views that met those needs and asked what President Lanning was asking him to do differently. President Lanning remarked that it seemed the General Manager felt the current financial pro forma embraced the IERP. Mr. Berggren responded that he believed the five-year pro forma had a limited ability to move the IERP and was focusing primarily on stability.

Commissioner Farmer commented that planning should involve saving. He would like the utility to not throw itself further in debt. He wanted to plan so that there would be no need to borrow to meet the requirements of the Carmen Smith relicensing project. Mr. Berggren was concerned that this would preclude the existing five-year pro forma. He said it could not be advanced without rate actions while saving money for the Carmen Smith facility and comprised a different strategy altogether from the one that had been developed.

President Lanning commented that the use of the five-year pro forma should be an evolutionary process. He averred that the way the Board had been engaged in the process, with Mr. Varner pushing for one percent, made him question this one percent figure. He wondered why this figure had been selected. He thought the chance of it being around a one percent number was astronomical. He wanted to go “deeper than we’ve gone before” in a five-year plan. Mr. Berggren said it seemed what was wanted was a set of revised five-year strategies.

Vice President Bishop suggested the Board review the existing pro forma and delve into the history of the different elements of the plan and what they were.

Commissioner Farmer remarked that in the time he had been on the Board, though a great deal of staff-work had gone into financial plans, he had not heard a larger debate on how the IERP would fit into it, or how Carmen Smith would be planned for at the Board level.

Ms. Smith asked how the Board intended to wrap it up. She noted that it was hoped that the General Manager goals for 2005 would be ready to approve at the meeting on February 1.

Commissioner Farmer recommended completing this process in another Work Session.

The Board decided to meet on Thursday, January 6 at 6:30 p.m. to finish the goal setting process.

President Lanning adjourned the meeting at 6:40 p.m.

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Assistant Secretary President