Board Members Present: Patrick Lanning, Ron Farmer, Sandra Bishop, and Dorothy Anderson.

Others Present: Randy Berggren, Dick Varner, Dick Helgeson, Debra Smith, Jim Origliosso, Marty Douglass, Lance Robertson, and Krista Hince of the EWEB staff.

President Lanning called the Special Board Meeting of the Eugene Water & Electric Board (EWEB) order at 7:50 p.m.

AGENDA CHECK

There were no agenda changes.

APPROVAL OF CONSENT CALENDAR

Minutes

• Minutes of the May 29, 2003 Board Governance Meeting

Business Service Agreements

• Umpqua Roofing Co., Inc. - Operations Building Reroofing - Facilities Services - $37,714
• Advanced Security - Headquarters Area Security - Facilities Services - $37,500
• Northwest Youth Corps - Revegetation of Rodman/Kaldor Islands - Environmental Management - Corporate Services - $30,000
• Heritage Research Inc. - Leaburg-Walterville Relicensing - Electric Division - $23,500
• Dean Nordstrom - Union Campaign - Human Resources - Corporate Services - $100,000
• Clark Consulting - Actuarial Services - Financial Services - $45,000
• Feeney Wireless - Wireless computing consulting, equipment, maintenance and repair: - Electric and Water Divisions - Information Services - Corporate Services - $130,000 over five years
• Environmental Solutions - Leaburg/Walterville Relicensing - Environmental Management - Corporate Services - $30,000

CONTRACT AWARDS

• American AVK Company - Resilient Wedge Gate Valves - Water Division - $277,120 over the five-year period
• Oregon Envelope - Billing Envelopes - Office Supplies - Corporate Services - possible total amount of $130,000 over the five-year period
• 3 Phase Energy Services - Electric Division -The proposed transaction consists of the sale of 50,000 Mwh's worth of Tags at a proposed price of $4.00 per Tag for each of the three years 2004, 2005, and 2006. Anticipated revenue would be $200,000 in each year
• Mountain Power Construction Company - Smith Falls Transmission Line Relocation - Electric Division - estimate for the work at $214,000

RATE INCREASE FOR BULK WATER SUPPLY STATION

14. Water User Fee - Bulk Water Dispensing Station - Water Division - increased to $4.00 per thousand gallons, effective July 16, 2003

ADMINISTRATIVE OVERHEAD FEES

15. Administrative Overhead - Fiscal Services - Financing Division - adjusting the current administrative overhead amount to 13 percent, effective January 1, 2004

President Lanning noted that item 12 of the Consent Calendar, 3 Phase Energy Services, incorrectly referred to 40,000 Mwh rather than 50 Mwh.

Commissioner Bishop asked that Item 4, Advanced Security, be withdrawn for separate action. President Lanning asked why. Commissioner Bishop said she would like to declare a potential conflict of interest. She knew she had no actual conflict of interest, but in the spirit of full disclosure wished to state that she worked as a consultant in public contracting for a professional organization that Advanced Security belonged to. President Lanning pulled Item 3 for separate action.

Commissioner Bishop, seconded by Vice President Farmer, moved to approve the Consent Calendar with the exception of Item 4. The motion passed unanimously.

Commissioner Anderson, seconded by Vice President Farmer, moved to approve Item 4 of the Consent Calendar. The motion passed, 3:0:1, Commissioner Bishop abstained from the vote.

ITEMS FROM BOARD MEMBERS

Commissioner Anderson reported that Jim Thrailkill, coordinator of the McKenzie Watershed Council, was resigning in mid-September to take advantage of other opportunities.

Commissioner Anderson reported that the meeting of the Leaburg Lake Dwellers scheduled for July 10 had been canceled and was tentatively scheduled to occur at the Watershed Council's regular September meeting, which President Lanning would attend in her absence. President Lanning indicated that the meeting date was still tentative.

Commissioner Bishop reported on the July 10 meeting of the McKenzie community residents, which she characterized as a relatively calm meeting during which there was much give and take. The agenda included small work group reports and an explanation of EWEB's failure to meet the June 30 deadline to clean slash piles. She commended staff for its presentations. Commissioner Bishop said that there was little discussion of the lake.

Commissioner Bishop provided information on the Umatilla project to the Board and staff.

President Lanning alerted the Board that EWEB was receiving considerable feedback from customers using the customers' feedback form included with billings to complain about EWEB's switch to an out-of-area billing firm. Responding to a question from Commissioner Anderson, General Manager Randy Berggren said he had not anticipated that the issue would come back to the Board. President Lanning believed that the reasons for the switch were justified, but he felt it was important for the Board to manage the community perception of the change. He also wanted the public to know that the Board listened to its feedback and responded.

Mr. Berggren said that he would look into what could be done to address President Lanning's concern.

CORRESPONDENCE

Mr. Berggren reported that EWEB would hold its annual picnic on August 23 at Alton Baker Park. He invited the Commissioner to attend.

Mr. Berggren reviewed the Board schedule for July and August.

PUBLIC INPUT

President Lanning called for public input.

William McMullin, 780 West 6^th Alley, Apartment 8, shared an experience he had when he responded to a Notice to Disconnect service that he had received from EWEB. He had been treated very rudely by EWEB personnel and directed to return to Energy Share to straighten out his billing. When he spoke to Energy Share, St. Vincent de Paul staff had suggested he come before the Board and share his situation. EWEB had spent money it did not need to spend attempting to disconnect him. He believed the situation came down to the inefficiency of one EWEB employee. If EWEB was concerned about saving people money in their utilities, it needed to address the cost of such inefficiencies.

Mr. Berggren indicated he would look further into Mr. McMullin's situation.

John Simpson, 975 Polk Street, said he was an applicant for the vacant Board position. He said he had recently discovered his application form was missing his occupation and tenure of residency, and he distributed that information to the Board.

FINANCIAL POLICY PROPOSAL

Jim Origliosso, Treasurer, referred the Board to the background materials provided to it prior to the meeting and reminded Commissioners of the previous discussions it had on the topic.

Speaking to the issue of policy guidance, which had come up at the earlier Work Session, Mr. Origliosso assured the Board that its policies guided staff in the development of its proposals. Periodically, the Board revisited its policies, but, in general, they were intended to be long-lived. Because they were not legal contractual obligations, the Board always had the right to make an exception to its policies. Staff would continue to bring the Board recommendations that were based on existing policy, and the Board could then examine the relevancy of the policy at that time.

Mr. Origliosso reviewed the pension liabilities funding policy. He reiterated that the Board could take an exception to the policy in the future as it wished.

Mr. Origliosso reviewed the Competitive Price Position Policy.

Mr. Origliosso requested Board approval of the proposed policies.

President Lanning asked if the Competitive Price Position Policy was in conflict with the Board policy related to having pay levels at the 55th percentile. Mr. Origliosso said not intentionally, but acknowledged that staff was to bring the Board a budget that put the percentage above 50 percent. The pay levels would be one of many different places that the Board might look to for relief. At that time, the Board might decide to impose a one-year exception to maintaining the 50^th percentile figure to meet its rate objectives. President Lanning suggested that the policy might be in conflict with the Board's goal of having a strong capital replacement program. He thought the Board and staff should keep the issue in mind. Mr. Origliosso did not perceive there was anything in the policies that would compromise any other Board policies.

In clarifying the source of the figures before the Board, Vice President Farmer determined from Mr. Origliosso that staff measured the cost of the system associated with achieving reliability. Mr. Origliosso added that in a budget, the number would be found in the capital improvement area, and in an income statement, the number would be found in the operations and maintenance costs for transmission and distribution. The question was, what amount of investment was EWEB making or not making in the system that resulted in a certain level of service, as measured by reliability?

Mr. Origliosso said that if, for example, a budget proposal put a measure over the median, staff would offer a proposal to the Board to bring it back to the median, and that could involve several approaches, including reductions and delivering services in a different way. He indicated, in response to a question from Vice President Farmer, that staff could do gross comparisons between peer utilities to determine if EWEB was over the median. A more difficult task, which might be more costly than productive, would be to do benchmarking studies in a particular function.

Mr. Berggren noted that all utilities have a published tariff that differed in details to some degree, but could be analyzed for a total overall annualized average cost for residential customers.

Vice President Farmer asked how EWEB could have a competitive price policy if it had a price cap but no floor. Mr. Origliosso said that he had not considered the Board might want to establish a minimum. He said that a floor relative to the peer group could be established. Mr. Berggren said that EWEB was not trying to price-fix. Vice President Farmer disagreed, saying that was the effect of the policy because of the use of the phrase "will be no greater." Mr. Berggren said that staff was attempting to make benchmark comparisons to give the Board a policy point for its budget actions. EWEB would try to constrain itself from a revenue requirement to the average of the comparable peer group.

Vice President Farmer referred to staff's intention to buy down EWEB's unfunded PERS liability and suggested that should happen if there was a rational and consistent plan approved by the Board. Mr. Origliosso said that if the Court challenge to the PERS-related legislation failed, the amount would be reduced and EWEB's contribution rate to PERS would reflect that. He said that theoretically, the PERS rate-making process should take care of the situation, and EWEB would not need a plan. Until the system was operating properly, the unfunded liability could be calculated to be $30 million one year and $60 million the following year because there was no governor on the benefit levels. He anticipated that if the court challenge failed, staff would recommend that EWEB pay down its unfunded liability, which would be accompanied by a reduction in the contribution rate. Mr. Origliosso said that until the PERS situation was stabilized, nothing would happen.

Commissioner Bishop suggested that the information related to the discussion include the date the discussion occurred to provide some context. She had no objection to the pension liability funding policy. She believed the Competitive Price Position Policy was unneeded as she believed that EWEB already had policy direction related to reasonable rates. She did not want to adopt the policy.

Commissioner Bishop did not think it possible to compare EWEB to other utilities. EWEB had characteristics other utilities did not share. EWEB did not have a peer group. She believed any comparisons would take considerable staff time and that staff would be required to "stretch the bounds of reality" on how the comparisons were done.

Commissioner Anderson recalled that the origin of the policy was in a Board discussion about how it wanted EWEB to have low rates, but not necessarily the lowest rates. Mr. Origliosso agreed, recalling that the Board had discussed that it would be fine if that was the way it turned out, but EWEB was in place to provide a particular level of service focused on community needs and desires.

Commissioner Bishop reiterated that she thought the policy unneeded. She asked if staff felt the policy was necessary. Mr. Berggren said no. Commissioner Bishop said that it made no sense to compare rates when service levels between utilities differed as they did. Mr. Berggren said that staff did not propose to compare service levels, but rather rates to determine if EWEB's had begun to exceed the median. At that time, the Board could examine EWEB's service levels for the tradeoffs that could be made to achieve lower rates, if that was the approach the Board decided to take.

President Lanning acknowledged Commissioner Bishop's concerns, but said he thought the policy would provide the Board with an ongoing, guiding means of assessing EWEB. He believed the policy allowed the Board to keep in mind where EWEB was on a competitive basis with rates. He said the policy made sense from a long-term point of view. He thought Vice President Farmer's remarks about the need for a floor also made sense.

Commissioner Anderson saw no harm to having the policy as she thought it reflected current practice.

Vice President Farmer, seconded by Commissioner Bishop, moved to approve the Pension Liability Funding Policy. The motion passed unanimously, 4:0.

Commissioner Anderson, seconded by President Lanning, moved to approve the Competitive Price Position Policy. The motion failed on a tie vote of 2:2, Commissioner Anderson and President Lanning voted yes, and Commissioner Bishop and Vice President Farmer voted no.

FINALIST SELECTION FOR APPLICANTS FOR COMMISSIONER FOR WARDS 6 & 7 AND FINALIZING OF QUESTIONS

Marty Douglass, Public Affairs Manager, was present for the item. The Board reviewed the questions proposed by staff to be asked of candidates for the vacant Wards 6 & 7 position. The Commissioners offered suggestions for revisions to the questions. Mr. Douglass recorded the revisions agreed to by Commissioners.

Vice President Farmer, seconded by Commissioner Bishop, moved to interview all qualified applicants.

Commissioner Bishop expressed appreciation for the sentiment behind the motion but said she did not want to interview candidates without experience or knowledge of the utility or roots in the community. She indicated she would vote against the motion for that reason.

The motion failed on a tie vote of 2:2; Commissioners Anderson and Bishop voted in opposition, and Vice President Farmer and President Lanning voted in support.

Commissioner Bishop, seconded by Commissioner Anderson, moved to interview Charles Fee, Melvin Menegat, and John Simpson.

Commissioner Bishop spoke in support of her motion, stressing the importance of stability in a time of continued Board transition. She said that the fourth candidate was a student who did not appear to have knowledge that was transferable to the Board, and who wanted to be on the Board for the training and experience it would bring to him as opposed to what he could bring to the Board.

Commissioner Anderson questioned how much time a person working on a graduate degree would have.

Vice President Farmer said he was willing, for the good of EWEB, to spend an extra few minutes interviewing someone for the position. He thought that is was the best way to find out more about the person involved.

President Lanning agreed with Vice President Farmer. He preferred an inclusive process and was willing to interview anyone who had lived in the community for more than one year.

Vice President Farmer, seconded by President Lanning, moved to interview the four candidates with more than one year's living experience in Eugene (Charles Fee, Melvin Menegat, John Simpson, and Juan Carlos Valle). The motion passed, 3:1; Commissioner Bishop voted no.

The Board tentatively scheduled all the interviews for July 25, if possible.

ITEMS REMOVED FROM CONSENT CALENDAR

There were no items removed from the Consent Calendar.

The meeting adjourned at 9:15 p.m.

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Assistant Secretary President