Board Members present: Patrick Lanning, Ron Farmer, Sandra Bishop, Dorothy Anderson, members.

Others Present: Randy Berggren, Dick Helgeson, Jim Wiley, Cathy Bloom, Libby Henry, Debra Smith, Jim Origliosso, Marty Douglass, John Yanov, Roseanna McArthur, Tom Buckhouse, Jim Maloney, Lance Roberts, Dick Varner, and Krista Hince of the EWEB staff.

President Lanning called the Work Session of the Eugene Water & Electric Board (EWEB) order at 5:30 p.m.

2004 BUDGET TARGETS AND PROJECTIONS

Dick Varner, Financial Services Supervisor, reviewed materials provided to the Board regarding the 2004 Budget Targets and Projections, around which the fiscal year (FY) 2004 Budget would be built. He invited questions and asked if the Board had any changes it wished to make to the materials.

Responding to a question from Vice President Farmer regarding the insurance increase, staff indicated that the Board would receive a background paper outlining the drivers behind the increase and EWEB's plans to address it. President Lanning asked if the paper addressed the issue of a mid-year change of carriers. Roseanna McArthur, Corporate Services Director, said yes, adding that it would not be possible as contracts were generally done for one year and carriers were generally not open to a shorter contract term. EWEB would go out for a Request for Proposals (RFP) for the 2005 contract, but there was not much hope EWEB would be able to negotiate a much lower rate given its past experience and plan utilization.

Responding to a follow-up question from Vice President Farmer, Ms. McArthur said she believed that EWEB's experience was fairly standard in the medical insurance industry. She said that EWEB would issue an RFP again, and while she expected to get a response from the current carrier, Regence/Blue Cross, she was unsure that other companies would respond given EWEB's plan utilization. She confirmed, in response to a statement from Mr. Varner, that it was very difficult to secure price guarantees in the current market. She said that another factor to consider was that Regence/Blue Cross had eliminated its health maintenance organization (HMO) in Lane County, which had included built-in caps for preferred providers, for example. With that option gone, and with fewer preferred providers, costs were escalating. Vice President Farmer asked when EWEB should begin negotiations with another company if it decided not to renew with Regence/Blue Cross. Ms. McArthur said immediately. The RFP would have had to have been issued already if that was the approach taken. Vice President Farmer said that, based on the huge impact the cost of insurance was having on the budget, he thought it would have been prudent to do an RFP on an ongoing basis, given that EWEB ran the same yearly risk. Ms. McArthur agreed, but reiterated that because of EWEB's plan utilization, its hope for securing a lower premium in the current market was not that good.

Vice President Farmer asked what would happen if the legislation related to PERS withstood a court challenge. Mr. Varner responded that EWEB would buy down its unfunded liability. Vice President Farmer asked who would make that decision. Mr. Varner said that staff had assumed money was being put aside to address the huge, unfunded liability. Vice President Farmer said that he wanted it understood by staff that the decision was a Board decision.

Vice President Farmer said he continued to be concerned that revenues over the five-year projection period were flat while expenditures rose. Mr. Varner suggested that the Board discuss potential approaches to the issue in August when it discussed its five-year goals and strategies. Vice President Farmer said that he felt the same way about the current budget, not just the five-year projection period. EWEB could not spend more than it made. Mr. Berggren pointed out the relationship of the issue to the Board's ability to increase revenues and cut costs. If there was no rate increase, the Board would have to make cost reductions. Vice President Farmer acknowledged Mr. Berggren's statements and said that one or the other or both must occur.

Commissioner Bishop referred to the sewer billing fee and asked for more information about why the cost went down as she thought it was to be based on the actual cost of delivering the service. Mr. Varner responded that the sewer billing fee was a negotiated formula. The allocations in the formula were not based on a strict cost of service basis, but rather were agreed-upon allocations of what appeared to be the fair share of costs. Mr. Varner said that the fee went down because the City's portion of the amortization of the computer billing system were paid and because the costs of maintaining the system had gone down. He said that EWEB had received approximately $750,000 annually to this point, and would lose about $170,000 of that next year. If the City decided to pull its sewer billing from EWEB, that would result in an annual loss of about $580,000 annually. EWEB's incremental costs were a small proportion of that, and there would not be an appreciable decrease in EWEB's costs. Commissioner Bishop asked when the City would make its decision. Mr. Varner said the City was studying the issue and he would not have an answer to the question for a few months.

Commissioner Bishop referred to the potential of a pass through BPA rate change, and said the Board should tell staff what percentage rate triggered would the Board be willing to pass through to the customers. She thought it erroneous for staff to assume that a BPA rate would be passed through. Mr. Berggren said that the Board had a policy discussion on the issue and it had agreed that it reserved the right to determine the percentage at the time of the increase. Commissioner Bishop asked if the Board could agree on a percentage number. Commissioner Anderson indicated she was not prepared to pick a percentage at this point.

Commissioner Bishop stated that she did not think the Board had a policy of passing through BPA rate changes. If staff had to seek Board direction each time, that was not a policy. Mr. Varner said that the tariff stated that the Board may pass through BPA increases without going through a full cost-of-service study. Each six months staff would bring revenue and expenditure projections to the Board and the Board would make the decision. Commissioner Bishop wanted the Board to be more specific but acknowledged that there did not appear to be unanimity about the topic among Board members. She said that if a rate increase was two percent or less, she would be likely to want to find a way to avoid passing it on.

Commissioner Bishop expressed appreciation for the PERS set aside given that there was no way of predicting the outcome of the legal challenge to the PERS-related legislation.

Responding to a question from Vice President Farmer regarding the timing of the Board's input into the draft strategies, Mr. Berggren said that discussion was scheduled for August 19. Mr. Varner indicated that timing would provide sufficient time for staff to change the budget in response to Board strategies.

Vice President Farmer suggested that the staff give some thought to how the process was structured, as he preferred that the Board provide staff with direction before it prepared the budget. He said that much of the time staff does a lot of work on issues that it brought back to the Board before the Board had an opportunity for input. He thought that it would cut the amount of time and work needed. Mr. Berggren indicated that staff was prepared to do what the Board preferred.

Commissioner Anderson recommended that for FY2004, staff be allowed to go forward as proposed. She said that the Board had considerable work on its goals and strategies to guide staff in budget development. If that did not work for Vice President Farmer, the process could be changed for the next fiscal year. Vice President Farmer believed that the Board should be determining how conservative the approach it took to the budget prior to staff developing the budget figures. Mr. Varner recommended that such a discussion occur soon so that he could provide some feedback to the Board on the potential rate impact.

Responding to a question from Commissioner Bishop, Mr. Varner said that when he mentioned generation, he was discussing EWEB's portfolio, which included BPA's generation as well.

President Lanning asked the rest of the Board if it supported Vice President Farmer's suggestion. There was general support.

President Lanning said he considered the data before the Board, particularly that related to employee payroll and benefits, as a placeholder that the Board would have more information about before it worked on the budget. Mr. Varner indicated he did not anticipate that the figures before the Board would change significantly in the near-term.

The meeting adjourned at 7:45 p.m.

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Assistant Secretary President