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Eugene Water & Electric Board

Ron Farmer delivers state of the utility message

Note: The following speech was delivered by Eugene Water & Electric Board President Ron Farmer at the board's Feb. 1, 2005, meeting.

The Eugene Water & Electric Board has faced a number of tough challenges over the past few years. Most of these were the result of the 2001 energy crisis and five consecutive years of below-normal precipitation that forced EWEB to raise rates and cut budgets.

Currently, the issue of whether EWEB should or should not sell most of its 27-acre headquarters site, and to whom, is receiving almost as much local publicity as those energy crisis rate increases of 2001.

The issue is both perplexing and complex. At its crux, however, the issue is not whether we should sell to Triad, nor is it whether our headquarters office building is a wonderful building in a great location. The issue is: How does EWEB fund the necessary building improvements needed for its ongoing operations?

Driving across the Ferry Street Bridge, you see a relatively new EWEB headquarters building. What you do not readily see is that three-quarters of EWEB's 27 acres are devoted to non-headquarters functions, such as water and electric materials storage yards, a steam plant, a substation that serves downtown, a 53-year-old operations center, vehicle and equipment maintenance and repair shops, and other assorted out-buildings.

If everyone worked in the headquarters building, there would be no need for EWEB to move. But they don't. In fact, nearly half of the utility's employees work outside the administration building.

Most of these facilities are run down and in need of replacement. The operations center and warehouse, built more than 50 years ago, is falling apart and is too small. Major maintenance has been delayed for years, pending a decision on whether EWEB will relocate.

We no longer can provide highly reliable and high-quality electric and water services out of World War II-era Quonset huts. The crews that do the hard, physical labor at EWEB – from getting your power back on after a big storm to laying water pipes – must have the facilities they need to do their jobs right and safely.

So regardless of whether EWEB moves or stays, some of our facilities will need to be replaced. Building a new operations center and warehouse at the current site is estimated at more than $10 million alone.

EWEB has no money to pay for these improvements. Potential funding sources are rate increases or proceeds from the sale of property. So the fundamental choice at hand is: Do we want to raise rates in excess of $10 million dollars to fund upgrades at our current location, or do we want to sell our existing location to fund a move to new facilities?

The question we are most often asked is “Why does EWEB want to move”? Actually, we don't really want to move, but after six rate increases in five years, using proceeds from the sale of property to make much-needed improvements is an appealing alternative to raising electric and water rates to pay for them.

Prior EWEB boards were well aware of the need to deal with deteriorating facilities. Our long-range site planning began in the 1990s, well before the current “hospital wars” erupted in Eugene-Springfield. A 2002 report identified a number of operational problems on the non-headquarters part of the current site. These have only continued to worsen as time has passed and our community has grown.

The utility has been searching for land to use as a potential new site for several years. The utility entered into an earnest money agreement to purchase a site on Seneca Street in 2002, but that option fell through when soil test proved unworkable. EWEB has negotiated for the purchase of other sites since then. Late last year, we entered into a preliminary option to purchase a site in northwest Eugene for use as a future location, either for our operations yard or headquarters, or both.

This year, this board is likely to make some important property decisions that will have a big impact on EWEB for decades to come.

But let's make this clear: This is a decision for EWEB and its citizen-customers. We are not being forced to move. Nor are we willing to sell the property at the expense of our customers. We will relocate, only if it is in the best interest of the utility.

Let's also make this clear: We have not sold the property. A lot of work still needs to be done before EWEB is in a position of knowing its true relocation costs. That information will drive our final decision.

Our property issue, while time consuming, certainly isn't the only major issue the utility dealt with in 2004 nor is it the only major one we will deal with in 2005.

Highlighting some of our action items in 2004:

• We stepped up our commitment to safeguard the excellent water of the McKenzie River. Water so good, in fact, that a national magazine last year picked EWEB's drinking water as the best in the nation.

• We took a rate action to make the utility more financially stable. We changed our budget assumptions, basing our projected revenues on only having 85 percent of normal water to generate power. This should bring more stability to rates affected by the fluctuations of weather.

• We focused on physically improving EWEB's electric system to increase reliability.

• We updated our Integrated Electric Resource Plan, which provides a road map for where EWEB will get its future energy.

• We bargained a first-ever labor contract between EWEB and the International Brotherhood of Electrical Workers.

• We nearly completed work associated with the relicensing of our Leaburg and Walterville hydroelectric facilities.

We see a number of challenges in 2005 and beyond that may affect customers' energy costs.

• With nearly 80 percent of our electricity coming from the Bonneville Power Administration, we may face another rate increase if the BPA raises its wholesale power costs this spring.

• Relicensing of our Carmen-Smith Hydroelectric Project will provide a number of financial, environmental and communications challenges.

Carmen is our lowest-cost source of electricity, and has provided customers with steady, reliable power for more than 40 years. EWEB may have to spend $10 million or more, just to do the necessary work in 2005 and 2006 to apply for a new license. We do not know the ultimate cost of relicensing, but it surely will run in the tens of millions of dollars.

• We are moving forward with an ambitious capital-improvement program, funded primarily through the 5.7 percent rate increase enacted by the Board last year. We are replacing old poles and wires, building new substations and improving old ones, and upgrading other equipment – all with the goal of making our customers' electricity more reliable.

My goal as Board President is to successfully utilize and facilitate the tremendous skill, knowledge and insight this board processes. I believe the strength of a layman citizen board lies in its diverse backgrounds. If we commit to finding common ground for the ultimate benefit of the utility, we can meet any and all of our challenges.

I, and the rest of the Board, will listen to and lean heavily on the help of EWEB's skilled staff and the valued input of our 83,000 customer-owners to meet those challenges.

Thank you.