Board members present: Patrick Lanning, Ron Farmer, Sandra Bishop, Dorothy Anderson, and Henry Masterson.

Others present: Randy Berggren, Cathy Bloom, Mark Freeman, Dawne Howard, Terry Bequette, Dick Helgeson, Steve Hill, Dick Varner, Tom Buckhouse, Roseanna McArthur, Lance Robertson, Ken Beeson, Jim Origliosso, Jim Wiley, Leslie Monks, and Krista Hince of the EWEB staff; Kimberly Young, City of Eugene Minutes Recorder, and members of the public.

President Lanning called the Regular Board Meeting of the Eugene Water & Electric Board (EWEB) to order at 7:10 p.m., noting he was convening the meeting early at the suggestion of other Commissioners to accommodate comment from McKenzie Valley residents in attendance at the earlier Work Session.

AGENDA CHECK

President Lanning adjusted the agenda by moving Public Comment up to become Agenda Item 2.

PUBLIC INPUT

President Lanning called for public comment from McKenzie Valley residents present.

Judith Olson commended Marty Douglass and Jim Wiley for their work with McKenzie River valley residents. She said that the Board's earlier discussion was a step in the right direction. Speaking of communication, she spoke of the former McKenzie Network and said that it was a short-lived situation and communication had ended there. Publicizing meetings in the paper was not always useful because the nature of the meeting was not always clear. Ms. Olson believed the interests of property owners living on the river were still not getting across to EWEB. She did not think enough had been done. Ms. Olson determined that the Commissioners had visited the projects in the valley and said it was important the Board understood the impacts of the projects on the community. She was glad FERC had visited and informed the Board that the residents would keep FERC notified and involved.

Ms. Olson said that five houses would be flooded by the lake raise. She said that people were losing land as a result of the lake raise, and waterfront property was purchased at a premium. She called for those residents to be reimbursed.

Commissioner Anderson suggested the possibility the lake was drained rather than raised as had been done in another situation. Ms. Olson commended the situation in question as benefitting from good communication from the onset and noted that the involved residents had been flown back and forth from Washington State to Washington, DC. When the lake was drained, there were no issues such as residents were seeing now.

Continuing, Ms. Olson complained that EWEB's the mission statement did not mention meeting the needs of valley residents, only Eugene residents. She averred that EWEB was "creating mass destruction of the environment" in the valley, which was different from the situation in River Road. Ms. Olson maintained that "we are the source of the power that feeds the people in town."

Ms. Olson maintained that "up river people and down river people pull together" and work as a single community. She said that residents could maintain their focus in one area. She wanted residents to have representation on the EWEB Board. In terms of the lake raise, she was hoping to avoid litigation with EWEB, and suggested EWEB could avoid that by giving residents representation on the Board.

Lucy Joffee stated she lived on Leaburg Lake. She urged the Board to consider improving relations with valley residents. She thought that could be done by including a representative of the valley on the Board, particularly a resident of Leaburg Lake. There were 50-60 households on the lake. She said that the members of the former McKenzie Network were selected by EWEB and none of the households on Leaburg Lake were included. EWEB's newsletter also had a short life. Ms. Joffee complained about the length of the lake raise project. She said that residents were indifferent to the relicensing process, which staff kept providing updates on. They were concerned about the level of the water and its impact on their properties. She called attention to a photograph she had provided showing the height of the river after a recent spring rain. Residents tried to talk to EWEB staff about their concerns, but EWEB staff wanted to talk about the relicensing. Residents got no feedback about the lake raise, and any information was in general terms and was minimized. She said that representation, as well as improved communications, would foster better relations. Educational presentations and articles in mainstream newspapers would have prevented the clearcuts from being a surprise to residents.

Margaret Haas, 44975 Leaburg Dam Road, distributed information folders to the Commissioners. She said she attended all FERC and EWEB meetings in regard to the recreation plan beginning 15 years ago. She said that input from the public was ignored at the meetings held by EWEB, and ambiguous answers were given to questions. She hoped that would change. Ms. Haas awaited answers to her question of April 3, 2003, in regard to the required permits necessary for the installation of rip rap along the shoreline of Leaburg Lake. She believed that the lake may not be raised at all. EWEB had informed residents that it did not know how high the lake would be raised until testing had been done. She expressed confusion about that, asking if EWEB's engineers knew what they were doing.

Ms. Haas read a copy of a letter from her attorney to EWEB; copies of the letter were included in the folders distributed to Commissioners. The letter indicated she would continue to make her premises available but would not consent to any mitigation until she was aware of EWEB's proposals for her property. The letter went on to suggest that the lake raise constituted a taking of Ms. Haas' property and posed several other questions about the lake raise and the appraisal process to be followed.

Bob Grafton, 91040 Leashore Drive, spoke of his liking for electricity and EWEB. He commended the Board's earlier discussion, calling it a positive first step for residents. He commended Vice President Farmer and Commissioner Bishop for their visits upriver and for paying attention to the remarks of residents. He said that the main issue was one of communication. He thought Mr. Douglass' small group approach was positive and should be continued. Mr. Grafton said that EWEB was the largest presence in the community and every project it embarked on changed the nature of the community. The community represented the resource from whence EWEB drew its power, and so it was different from other areas EWEB served that were outside Eugene. He was concerned about long-term impacts and thought Mr. Berggren's suggestion for a standing advisory committee of residents made sense. He said that EWEB could maintain residents' interests by giving the committee authority to determine how EWEB's money was spent in the community. He said that residents were concerned about the aesthetic impacts of what had been done already, and suggested that the committee could also advise EWEB on proactive ways to mitigate those impacts.

President Lanning called for a brief meeting recess.

APPROVAL OF CONSENT CALENDAR

The Consent Calendar was presented as follows:

Minutes

• March 4, 2003 Work Session and Regular Board Meeting, the March 18, 2003 Work Session and Special Board Meeting, and the April 1, 2003 Work Session and Regular Board Meeting minutes.

Business Service Agreements

• Ground and Water, Inc. - Annual Pot-Holing Services - Water, Electric, and Steam Divisions - $24,000 per year for up to five years
• Pacific Utilities, Inc. - Vehicle Shop - Facilities Services Division - $27,000 reimbursable to the Utility
• Second Growth - Leaburg/Walterville Relicensing: Re-vegetation of Project Construction Sites - Environmental Management - Corporate Services Division - $37,760
• Savin Corporation - Novell Netware and Group Wise Maintenance - EWEB Local Area Network - Information Services - Corporate Services - $26,000
• Northwest Economic Research - BPA Rate Case/Other Regional Issues - Fiscal Services - Finance Division - $42,000 over three years, with $12,000 for 2003
• Pacific States Cast Iron Pipe Company (PSCIPCO) - Water Division - $206,482.90

Budget Amendment

• Budget Amendment No. 17 - Green Tag Credits - Selling Green Credits - Electric Division - $100,000

Vice President Farmer, seconded by Commissioner Bishop, moved to approve the Consent Calendar as presented. The motion passed unanimously.

ITEMS FROM BOARD MEMBERS

President Lanning reported that he and Vice President Farmer continued to work on the General Manager's Compensation Review and Evaluation process. He anticipated that they would meet one more time before returning to the Board with a recommendation.

Vice President Farmer thanked Dick Varner, Fiscal Services Supervisor, and Cathy Bloom, Assistant Treasurer, for getting the ratios in the financial statement. He indicated he had some thoughts about how to enhance that area.

Vice President Farmer commended the materials prepared by Marty Douglass, Public Affairs Manager and Lance Robertson, External Communications Coordinator, on the educational outreach for a potential rate adjustment.

CORRESPONDENCE

General Manager Randy Berggren noted the Board's receipt of an invitation from the Lane Work Force regarding an event the organization was holding on May 14.

Mr. Berggren reminded the Board of the Strategic Planning meetings on May 9-10.

Mr. Berggren noted the lack of mention of the budget reductions made by the Board in a recent article in The Register Guard wrote about the Board's decision not to adopt a rate adjustment at this time, and indicated that Mr. Douglass and Mr. Varner had met with the Editorial Board to provide it with a greater understanding of the context in which the rate decision was made.

Mr. Berggren previewed the agendas for May 20.

PUBLIC INPUT

President Lanning called for additional public input.

David Divini introduced himself as a property manager and noted the amount paid over time by his company and companies he managed to EWEB for electricity, water, and sewer charges. His company paid on time. Last month it bought on a new building downtown and tried to transfer the utilities into the company's name, and was informed that it must pay a deposit under EWEB's new deposit policy. He said that the policy did not appear to differentiate between customers in terms of their credit risk. He said that the private sector differentiated between customers on that basis. Mr. Divini said that the policy appeared to be punishing good customers for the behavior of bad customers. He asked the Board to look at a more fair policy that accounted for credit worthiness. He suggested that EWEB establish late fees for customers rather than requiring deposits. He did not want to tie up his company's cash resources through deposits.

Jamie Sterling Cunnard, Sterling Management Group, shared Mr. Diviny's concerns about the General Service Deposit Policy. She said that the criteria used by EWEB was unjust to the majority of its clients. Ms. Cunnard said the criteria should be based on credit history. She agreed with Mr. Diviny about the use of late fees or the potential of a personal deposit guarantee. Ms. Cunnard said that the Deposit Policy also placed clients seeking to change property management companies at a disadvantage. She asked the Board to reconsider the Policy.

Dave Hauser, 1401 Willamette Street, representing the Chamber of Commerce, urged the Board to examine the current General Service Deposit Policy. Requiring a deposit based on twice the highest historic bill for the billing location and holding the policy for five years or until the account was terminated was an easy and cost-effective way for EWEB to handle the issue, but the Chamber had heard from many businesses that the current approach lacked flexibility and did not address the credit risk involved. He thought the same was true for the proposed policy that would be proposed later in the meeting. Mr. Hauser thought there was a solution that reduced the amount of time the deposit was held, applied straightforward, objective criteria that allowed for the use of good judgment in applying the policy, and acknowledged long-standing customers with good credit establishing new services, and allowed for new circumstances not envisioned when the policy was adopted.

Dan Montgomery shared the concerns expressed by others about the General Service Deposit Policy. He reminded the Board that his company had changed to Ms. Cunnard's management company and then had been required to pay a deposit after it had already owned the property for 12 years. He saw no need to make good customers pay a deposit even if they bought a new property. He supported asking new customers with no credit history or poor credit histories a deposit. He supported the suggestion for late fees as reasonable. Mr. Montgomery said that the ownership of the property, the source of the money that paid the bill, should be considered by EWEB. He said that changing the policy would save staff time and aggravation from continued complaints.

President Lanning closed the public input portion of the meeting.

2002 MANAGEMENT LETTER

Jim Origliosso, Treasurer; Cathy Bloom, Assistant Treasurer; and Roger Mills and Don Irving, PriceWaterhouseCoopers, Inc. joined the Board for the item, and provided a PowerPoint presentation on the 2002 Management Letter. The auditors found that overall, the financial management and overall EWEB management had maintained strong internal controls.

Mr. Irving called the Board's attention to the auditors' recommendations, commencing on page 3 of the Management Letter. He reviewed the recommendations. Commissioners asked questions clarifying the recommendations.

Mr. Irving noted that in the future, Mr. Mills would be the engagement partner as he was retiring. President Lanning said the Board had enjoyed working with Mr. Irving.

The Board accepted a suggestion from President Lanning to reverse the order of the next two items.

GENERAL SERVICE DEPOSIT POLICY

Mark Freeman, Connect/Disconnect & Cash Accounting Supervisor, and Dawne Howard, Customer Services Supervisor were present for the item.

Mr. Freeman provided background on the item, reporting that in October 2001 EWEB had revamped its collection policies, including its deposit policies for residential and general service. In October 2002, EWEB revised the general service deposit policy again, reducing the deposit period from "infinity" to five years, and received Board permission to consider credit insurance as an alternative to requesting a cash deposit. Mr. Freeman said that EWEB had been unable to use credit insurance because it was not large enough. At that point, staff pursued other alternatives using a committee of key account managers and customer service employees.

Mr. Freeman said that the committee agreed that EWEB should consider EWEB credit history as opposed to requiring a deposit of all general service customers. If a customer's general credit history was positive, a deposit would not be required. If a deposit was required, EWEB would offer customers the ability to get a surety bond. He acknowledged that was an expense the customer did not get back, but the upside was that EWEB did not hold the money for the life of a customer. Mr. Freeman said that EWEB did not require an external credit history of customers without positive EWEB credit histories but did require a deposit. He said that EWEB would also pursue deposits from customers that had poor payment habits who were not requesting additional services or moving. New customers without EWEB credit histories would be required to pay a deposit and surety bonds were available in that case.

Mr. Freeman acknowledged the concerns of existing EWEB customers with good credit histories. He said that the issue was who was running the business and paying the bill, and if a customer was one that had been a good EWEB customers with good credit, EWEB would take that into account. He said that EWEB would consider both the entity and the risk involved. He said that staff continued to support a deposit period of five years. He invited questions.

Responding to a question from Commissioner Anderson, Mr. Berggren said that staff had not looked at late fees in terms of general service, but it could. Mr. Freeman did not think that late fees alleviated the risk of write-offs to EWEB. He thought them a good incentive to pay on time.

Vice President Farmer said that EWEB's bad debt write-off was essentially nonexistent. It had less than 2/10ths of one percent of bad debt for general service. He concluded that EWEB was not writing off any bad debts. From his perspective, EWEB had no credit policy unless one interpreted a lack of credit as a credit policy. Vice President Farmer thought the Policy somewhat absurd. He said that Bank of America, the largest bank in the country, had a triple A rating and literally billions of dollar on deposits, but the bank wanted to open up a new branch in Eugene it would not be able to get credit from EWEB and would have to put up a five-year deposit. That made no sense. He said there was a need for change. He questioned the need to hold deposits for such a long period of time. Vice President Farmer called for the establishment of real credit standards that determined whether a customer had good credit. He called for the inclusion of credit criteria in the policy to ensure it truly was a policy. He also called for the establishment of an appeal process employing a committee or senior staff member so there was an opportunity for someone else to review the situation.

Mr. Freeman indicated that the new policy, as the Committee was suggesting, would now accommodate the Bank of America.

Commissioner Bishop suggested that if the Bank of Hong Kong came to Eugene, it would have to pay a deposit. She thought there was a lack of common sense demonstrated by the Policy. She proposed an appeal policy outside the Customer Service realm as she did not think staff should have to make judgements about its own decisions.

Vice President Farmer said that payment of EWEB bills was not a good indicator of whether someone qualified for credit. It may be more important to the issue of residential customers. He said that staff was attempting to take a concept that worked for residential services and lay it over businesses. He challenged staff to find a business in the community that had filed bankruptcy and did not have their lights on when they filed. Such companies would stop paying other bills and continue to pay EWEB. Such businesses stopped paying EWEB when they stopped paying the bank.

Ms. Howard concurred with Vice President Farmer. She said that staff had believed that reviewing a businesses' external credit history would help it assess whether a business should pay a deposit.

Vice President Farmer asked what staff meant by the reference to "favorable EWEB credit"; did that mean a credit judgment process or payment of EWEB bills? Mr. Freeman said that it was defined as two or fewer final notices in the previous 12 months. Vice President Farmer said that there was nothing in the policy related to waiving the deposit need on the basis of a businesses' external credit history. Mr. Freeman interpreted the text as doing what Vice President Farmer wished, and indicated the text was reviewed by legal counsel. Vice President Farmer said that the text indicated that EWEB may waive a deposit based on the EWEB credit history rather than general credit history. He said that the text should be reworded. Mr. Freeman said that the intent of the text was to indicate that if one was a good EWEB customer, EWEB would consider further analysis as regard to the deposit, which was an external credit review and an evaluation of the risk of the industry the business was in. Vice President Farmer said that he would be fine with text like that. He did not think a layman reading the text would interpret it as Mr. Freeman had. Mr. Berggren said that staff would review and revise the Policy and have it reviewed by legal counsel.

Vice President Farmer expressed interest in seeing the finished credit matrix when it was complete.

Commissioner Bishop reiterated her interest in an appeal process that took the pressure off the Customer Service staff.

Responding to a question from Commissioner Bishop, Mr. Freeman said that staff was attempting to ensure that the issue raised in testimony by Mr. Diviny would be addressed. Commissioner Bishop asked if staff was suggesting that property owners change their practices to accommodate EWEB. She suggested that some property owners might not want to be identified as the owner of a property. She called for a level of trust.

Vice President Farmer did not want to give people an opportunity to appeal a bad credit report, but he did want people to have the ability to appeal what he termed 'commonsense' issues. Mr. Berggren indicated staff would build an appeal process into the policy.

President Lanning expressed appreciation for the changes that had been made to the policy.

Mr. Berggren indicated staff would return with the revised Policy at a future meeting.

FINANCIAL POLICY REVIEW

Jim Origliosso, Treasurer, recalled the previous presentation to the Board and indicated staff took the input from that meeting to develop a proposal for two new financial policies. He reminded the Board that the financial strategies under Goal 4 were to repay the short-term debt and replenish the reserves, mitigate the risk of the hydro system, control pension costs and funding, and stabilize capital improvement funding at a higher level.

Mr. Oigliosso provided a PowerPoint presentation on the proposed policy on pension funding and the proposed policy on retail rate position.

Vice President Farmer cautioned staff to consider the whole picture, not just bills. Mr. Berggren agreed, and said that the retail rate position policy should be considered in conjunction with the Board's other principles, values, and policies. Mr. Oigliosso said that Vice President Farmer's comments reflected the comments of other Commissioners at the previous Work Session.

Mr. Oigliosso briefly discussed EWEB's current cash reserves approach and noted the role of the surcharge in building those reserves. Vice President Farmer requested staff to inquire of PriceWaterhouseCooper staff its opinion on the subject of cash reserves.

Commissioner Bishop asked if there was anyway to restate the reference to "unrestricted reserves." Mr. Origliosso indicated he would follow-up.

Mr. Origliosso indicated that following the elimination of the surcharge, EWEB would revert to its previous financial policies in effect before the recovery period. He briefly noted those policies.

At the request of Vice President Farmer, Mr. Berggren explained the mechanics of the surcharge. He noted EWEB's revenue requirement for capital, which would require the continuation of the surcharge or some other revenue source. Mr. Origliosso concurred.

Commissioner Bishop said that it was important for the Board to separate the issue of the surcharge now in place with the potential of a separate surcharge for the education of the public. Mr. Origliosso agreed.

Mr. Origliosso indicated that presentations would be made to the rating agencies soon. He said that he would return with the two new policies for final action in July. A complete draft of the Financial Plan would be available in September 2003.

Vice President Farmer asked if EWEB faced the risk that its capital reserves should be much higher than they were. Mr. Origliosso said that would not be a problem in the immediate future. He believed that to some degree, EWEB was overcapitalized in the generation side and undercapitalized in the distribution side, and from a financial standpoint that was a wash. He said that if EWEB could place $12 to $15 million in a capital improvement reserve, that would be a good thing. He said that EWEB needed to be careful not to set its depreciation schedules too long and not assume an asset had economic value it no longer had after a certain period of time.

ITEMS PULLED FROM CONSENT CALENDAR

There were no items pulled from the Consent Calendar.

President Lanning adjourned the meeting at 9:29 p.m.

_____________ ______________________________________

Assistant Secretary President