Commissioners present: Dorothy Anderson, Susie, and Patrick Lanning. President Sandra Bishop and Commissioner Peter Bartel were excused.
Others present: Randy Berggren, Dick Helgeson, Dick Varner, Tom Buckhouse, JoAnn Andersen, Roseanna McArthur, Mat Northway, Jim Origliosso, Terry Bequette, Jim Wiley, and Krista Hince of the EWEB staff; and Kirsten Andenberg, City of Eugene Minutes Recorder.
Vice President Anderson opened Work Session of the Eugene Water & Electric Board.
2001 BUDGET AND WORK PLAN
General Manager Randy Berggren summarized the agenda. He said strategic priorities were necessary regarding the budget resources. He said there were good ballpark numbers but there needed to be a budget that could be approved proposed. Commissioner Lanning asked if the current budget needs were similar to the past. Mr. Berggren said there were totally new issues and that it would take a few years to get it all fine tuned. He said he thinks it is all working out, as there were increased shared contexts, more controls and less individual decision-making regarding the budget.
Vice President Anderson said that this has been done differently every year, and that now we seem to have a budget process and format that works for the Board.
Dick Varner, Fiscal Services Supervisor, handed out the "Major Planning Assumptions for 2001." He said these were "key things needed to make it work." He said regarding the power side of the budget and prices, that it cannot be balanced. He said the 2001 rate action could be tried out for a year and then systems could go back to the previous way or to a subscription. He said there was surplus power after October of 2001. But the issue now was how to balance the short term prices for 2001. He said there were two options available and one of them was to sell 25 megawatts in 2002 at a discount and to take that money and put it into the power operating reserve and to use the piece for shortfall in the 2001 budget.
Commissioner Smith asked if the power sale idea had taken into account the ESA implications that may affect the abilities on the river to do this. Mr. Varner said that this would have to be dramatic. He said that there was still room to maneuver and that backs were not to the wall. He said another possibility was a megawatt swap, where no money changed hands. He said that another company would give EWEB power for 2001 and then EWEB would give them a power swap in 2002. He said there was a shortfall the first nine months in 2001.
Vice President Anderson asked about the possibility of prices changing the wrong way so that we would lose by having to buy power in an expensive market. Mr. Varner said that there was a risk and there could be a loss either way. He said with the swap, it was not financial but it was less flexible because cash is easier than watts to deal in. He said that both prices could be fixed at one time though. Mr. Berggren said that the cash option also diminished the SLICE obligation risks. Mr. Varner said with the megawatt swap, the average yearly production of $8-10 million surplus in 2001 could add power and an operational reserve in 2002. Ms. Smith asked which option was easiest administratively. Mr. Varner said that it was the same either way. He said there were timing issues. He said this needed to be done in the fall and he wanted to see the Bonneville contract first. He said he needed to see what Bonneville was offering and when the subscriptions were closing and that there was a talk about this on October 3, and that he would bring more information to the next Board meeting.
Commissioner Lanning asked if there was any experience or success rate information available about these two different options. Mr. Varner said that they have never done a megawatt swap, and that previously power was always bought or sold. Mr. Berggren asked if there was a discount value in swapping instead. Commissioner Lanning asked if swapping was a standard practice. Mr. Varner said that the megawatt swap was pretty regular. Commissioner Smith said that EWEB had done block sales with Modesto for three years. She was not sure what the risks were. Mr. Berggren said that the market could fall and then options were lessened. He said there was as much value in the swap as could be had in a forward sale. Mr. Varner said the risks were that one party would not have the surplus to give back or that prices would drop or soar.
Mr. Varner said that there would be four respondents and that EWEB would take the best deal. He felt this would solve the power problems. He said the downside was the use of $1.5 million in non-power operations that would produce a surplus in 2001.
Mr. Varner also addressed the tree trimming issue. He said that $1 million would be borrowed from the capital improvements reserve for 2001 and would be repaid in 2002. He said the price that EWEB was paying for power was higher than the retail value and this has never happened before. He was recommending a phasing out of programs that helped the community and independent sectors. He recommended a phasing out of assistance to residential developers by mid-year. He said some developments are in development and are already in the system, so those could be finished and then the process would be voided. And regarding the commercial side, he said that could be phased out quicker as those projects were not done one-two years in advance. Mr. Varner said $900,000 could be saved if those were phased out in 2001.
Vice President Anderson asked how much the subsidies actually cost EWEB. Mr. Varner said that $250-$300 per house was currently being subsidized by EWEB. He said the bigger issue was really the commercial side of things. He said that $100,000 was spent to help commercial facilities and that this was a big part of the challenge to balance the 2001 budget. Commissioner Lanning asked regarding the phase out, if that service, since it was used to attract customers, could be addressed in the future. Mr. Varner said phasing these subsidies out was a trend at many utility companies. Commissioner Smith said that in the past, they did phase out a portion because they felt they could not subsidize growth. Vice President Anderson said that deregulation did not really matter as new utility companies were not moving in.
Mr. Varner said that Bonneville was implementing the CRAC in April 2002, so it was assumed the maximum CRAC would be used in 2002 to tide them through the rate period. He said there were 8% price increases over the quoted prices. He said PERS may get lucky and settle out of court or may get help through next year's legislature but that he would hate to count on that. He said that the 2001 budget was adjusted now for a five- year baseline. He said there was an issue regarding supplementation and subsidies. He said that a loss via interest earnings on the capital reserves was an issue and that an increase in rates could be implemented. He discussed the "Major Planning Assumptions for 2001" handout. Regarding the FTE changes, he commented that:
Regarding joint use coordination, a manager for a pole plan was needed and perhaps the pole attachment fee needed to be increased as some companies make a profit through this service. Mr. Varner said in the past only US WEST and EWEB used the poles, but now with cable TV, etc., more are coming in and poles need to be managed regarding attachments and policing of the poles on the streets for compliance to rules is also needed. The tree trimming coordinator is not in the budget but there is money budgeted for this. This was going to be contracted out, but now it is thought that an EWEB employee is most appropriate for the job.
Vice President Anderson asked about the five-year tree trimming budget. Mr. Varner said there was $1.6 million a year budgeted, with yearly inflation measures. Regarding the utility budget, Mr. Varner said a little more work needed to be done on the operational budget but that those numbers were looking good. As far as the electric capital budget, he said that still needed work also. He said there was a projection of $9.3 million left but $8 million is with PERS and that leaves $1.3 million which is not good. He said $1.5 million needed to be added there. Mr. Berggren asked if the five-year budget could balance that. Mr. Varner said they had the Santa Clara substation rebuild rolled over two years. He said that more vehicle replacements were needed than projected though. He said he wanted $2 million after the PERS payment and that whatever is borrowed needs to be repaid in 2002. He said there was also an issue regarding relicensing so that recapture can build capital improvement resources up to $4 million. Mr. Berggren said that there would be revenue from Glenwood soon. Mr. Varner said he wanted $4 million minimum in capital improvement funds so that if a substantial generator blew up it could be rebuilt, etc.
Regarding the steam budget, Mr. Varner said a lot was based on assumed fuel increases as gas prices are going up and up. He said on the non-fuel side, the strategy for the steam utility is to shut the plant down in the summer and to then take steam from the U of O. He said the misplaced steam crews would be on landscape crews in the interim.
Vice President Anderson asked whether we were in danger of losing customers by passing the increased costs on to them. Mr. Varner said not in the short term because the gas company was increasing their prices too, but the Sacred Heart contract ended next year and that contract needed to be kept. He said he hoped that this fall the steam situation would get better.
Mr. Varner said that $5 million came out of the construction fund for the water utilities budget so that one-half of the water capital project is funded now that way and that there were no issues about water.
Mr. Varner reported that regarding the labor budget, there was a $3 million increase due to:
Vice President Anderson asked why there was a decrease in workman's compensation. Mr. Varner said that last year, they bought out two old years and that this year they are only buying out one year. Commissioner Lanning asked if there was a decrease in sick leave. Mr. Varner said no, but that this year's budget was amended because there was not enough available for sick leave. He said in the last few years sick leave has increased for unknown reasons. He said there was also an increase in vacation pay as the staff got older and received more vacation time.
Commissioner Smith asked if Libby could help regarding the Public Utility Commissioner (PUC) regarding the tree trimming issues and the three-foot clearance between the trees and power lines. He said there would be fines if not complied with. Mr. Berggren said he was not sure how the public process was going in the other states. He said that there were six crews now and that ten were needed so that new crews were currently being added and that this was within the budget. He said that more crews on the street meant less severe conditions later. He said he would like to get as many crews out in the fall as possible to be in compliance with the PUC and it is also good for reduced liability. Commissioner Lanning said that maybe this could reduce emergencies and reduce costs in the long run. Commissioner Smith said that the Park district, the cities and the counties all have tree crew operations. She said that maybe a cooperative tree management program for the urban areas could be implemented. Mr. Berggren said that power line trimmers had safety issues that others did not. Commissioner Smith suggested that perhaps some of this could justify undergrounding. Mr. Buckhouse said it was getting harder to go underground due to new City ordinances.
Mr. Varner asked if there were any more budget questions. He said he needed a head nod over four major things necessary to balance the budget:
The Board thought these were good ideas.
A ten minute break was taken.
Mr. Berggren said that the budget in the Interoffice Memo from Dick Varner, dated September 18, 2000 needed some cleaning up and so he handed out "Operating Initiatives:(Called Goal 7 on the resource Commitment Summary)," and a priorities/resources list. He said that 37 strategies needed to be prioritized. He said there were 10% of the resources available to make new strategic changes for the better, and that 90% was going to day-to-day operations. He said the top five priorities from the Board were budgeted. He asked for questions and comments.
Mr. Berggren said there were formatting consistency problems. He said he would send a cleaned up document out shortly. Mr. Varner said he might collapse the individual Board Member votes for projects, i.e. how many voted for what, into one to two columns versus six. Mr. Berggren said there was unanimous direction from the Board on the top five priorities. The middle priorities are more spread out. Mr. Buckhouse addressed sustainability. Mr. Berggren said that once the language about the goal strategies was cleared, resourcing would be easier. Commissioner Smith wondered if a wall chart should be made with all of the goals on it and then it could be looked at each time on the wall. Mr. Berggren asked if everything was moving in the proper direction. Commissioner Smith and Vice President Anderson said everything looked fine.
Vice President Anderson said it would be helpful to have a meeting with the full Board in attendance as she wanted to know about problems before they arose. Commissioner Smith said that she wanted the Water Conservation Policy done. Dick Helgeson, Director of Water and Steam Utilities, said that he would like to have a game plan and would like to meet to make sure the expectations are being met. Mr. Berggren said the next step was to meet with Commissioner Bartel and President Bishop and to identify the conflicts, integrate the priorities and to have a new discussion to get a collective view. He said he would extend the spreadsheets, and add the FTE's and would continue working on strategic initiatives. He wanted a good working 2001 budget within the next few weeks. He said there was a meeting on October 3 to discuss some of the disagreements. Vice President Anderson said President Bishop would be back on Oct 2.
Mr. Berggren said he would like to take on the codification of the budget regarding how it is spread. He hoped that by the end of October, the budget would be wrapped up. He said this budget had been in the works for one and a half years. Commissioner Smith congratulated him on the good work. Mr. Berggren asked for the Board to feel free to send him questions and concerns.
The meeting adjourned at 7:30 p.m.
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Assistant Secretary President