Board Members present: Patrick Lanning, Ron Farmer, Sandra Bishop, and Mel Menegat Commissioner Dorothy Anderson was excused.

Others Present: Randy Berggren, Dick Varner, Dick Helgeson, Debra Smith, Jim Wiley, Terry Bequette, Tom Buckhouse, Lance Robertson, Charles Dalton, Marty Douglass, JoAnn Andersen, Scott Spettel, and Krista Hince of the EWEB staff; Sami Khawaja, Quantec; and Ruth Atcherson, City of Eugene Minutes Recorder.

President Lanning called the Special Board Meeting of the Eugene Water & Electric Board (EWEB) order at 7:32 p.m.

AGENDA CHECK

There were no changes to the agenda.

General Manager Randy Berggren noted that Agenda Item 7 had been listed as an action item in error.

APPROVAL OF CONSENT CALENDAR

Minutes

• Minutes of the July 15, 2003, Executive Session, the July 28 and 29, 2003, Board Governance Meetings, the August 5, 2003, Executive Session, Regular Board Meeting, and Special Board Meeting, and the August 19, 2003, Executive Session.

Rules of Conduct For Eugene Water & Electric Board of Commissioners

• At the August 19, 2003, Special Board Meeting, the EWEB Commissioners, in attendance, reviewed the Rules of Conduct created at the Board Governance Meeting July 28 and 29, 2003. Citing no changes, the Rules of Conduct are being brought forward for adoption.

Budget Amendments

• Budget Amendment No. 18 - Water Treatment Additions - Hayden Bridge Expansion - Water Division.

Business Service Agreements

• ABB Energy Interactive, Inc. - Strategic Metering Project - Energy Services Management - Customer Services Division - $16,500
• Breakwater Security Associates - Security Assessment - Information Services - Corporate Services Division - $70,000
• Montgomery Watson Harza (MWH) - Leaburg-Walterville Hydroelectric Project - Electric Division - $1,483,150

Commissioner Bishop pulled the minutes from the governance meetings held on July 28 and 29, 2003. Krista Hince, Assistant Secretary, offered to check the minutes from July 29 to determine if the minutes were not submitted in their entirety.

Commissioner Bishop, with a second from Vice President Farmer, moved to approve the Consent Calendar with the exception of the meeting minutes from the Board Governance meetings held on July 28 and 29, 2003. The motion passed unanimously.

ITEMS FROM BOARD MEMBERS

Commissioner Menegat reported that he was meeting with River Road community organizations. He said that they were introductory meetings, but that he had talked briefly with residents on the Integrated Energy Resource Plan (IERP) and rates. He noted that he was working with Lance Robertson, EWEB's External Coordinator, to put together a package that would provide him with guidance for speaking with the public on such occasions.

Commissioner Menegat stated that he would be out of state from October 1 to October 15, but that he would meet with staff to ensure that he was briefed on any presentations provided to Commissioners in his absence.

Vice President Farmer asked the Board to consider subscribing to Carver's newsletter on Board Governance for the coming year, as the Board was working through its Governance issues. He explained that it was $170 for six issues. He circulated copies of the newsletter for the Board and the General Manager's (GM) perusal.

Commissioner Bishop commended the Water Department for coming in under budget and on time in the water filtration expansion project.

Commissioner Bishop called the union vote the beginning of a new era. She commented that it was "a little scary" for the Board. She welcomed the union and affirmed the Board's willingness to move forward in cooperation with the union.

CORRESPONDENCE

General Manager Randy Berggren reported the following:

• The Board packet included a background from Brenda Sirois on the community outreach program for the IERP and some information on the Web site in support of that.
  • An update on bill remittance processing had been included in Board packets.
  • Another meeting with McKenzie Valley community residents was scheduled for Thursday, September 4, at the community center.

In response to a question from Vice President Farmer, Mr. Berggren explained that the update on bill remittance processing had been provided to Board members so that Commissioners could consider whether they wanted to hold a Board discussion on the topic as a part of a meeting agenda.

BOARD AGENDAS

Mr. Berggren highlighted the scheduled agendas for the Board, as listed on the attachment entitled Eugene Water & Electric Board; Board Agenda Report, September 2, 2003. He noted that a discussion on the bill remittance processing had been scheduled for September 16. He explained that there were two outstanding items for future Board discussion: the development of a policy on bill stuffers and reports on the quarterly financials. Regarding the former, he stressed that a bill stuffer policy was not a critical issue, but that Marty Douglass had determined that there was no clear policy on the books.

In response to a question from Commissioner Bishop, Vice President Farmer stated that the Commissioners had a fiduciary responsibility to know the financial standing of the utility and the presentation of quarterly financial reports before the Board would fulfill this responsibility.

Commissioner Bishop moved to include quarterly financial reports as a regular discussion item on the Board agenda as they were released. Vice President Farmer provided the second. The motion passed unanimously.

There was general consensus among the Board of Commissioners to schedule the creation of a policy on bill stuffers when there was time.

Commissioner Menegat moved to place development of a bill stuffer policy on the agenda at a time to be determined at a later point by the General Manager and the President of the Board. Vice President Farmer provided the second. The motion carried unanimously.

Commissioner Bishop suggested that there be a third category on the agenda report to encompass items that had already been addressed in order to provide a visual record for Commissioners. There was general agreement to do so.

Commissioner Bishop moved to place the bill remittance process issue on the agenda for discussion. Vice President Farmer provided the second. The motion carried unanimously.

Vice President Farmer asked staff to clarify when Board Governance would next be discussed. Mr. Berggren responded that he was trying to work it into the schedule as often as possible and the next Governance meeting had been tentatively scheduled for November 4.

Debra Smith, Telecommunications Project Manager, stated that she and Roseanna McArthur, Corporate Services Division Director, were working on putting the remainder of the Board's discussion from the last governance meeting into writing and that the Board would have the work on the "Legacy" portion of the discussion in its next Board packet.

PUBLIC INPUT

Donna Riddle said that she had been an EWEB customer for 33 years. She explained that she had worked with the Energy Assistance Program (EAP) for some years, this last year in the capacity of an intake person. She applauded the program as it helped many people who were struggling to pay bills. She noted that the program had changed in the spring so that people were not required to receive a shut-off notice prior to applying for assistance. She felt this change to be of great benefit to elderly people who would prioritize there financial obligations and forego food and medicine in order to pay the electric bill.

Ms. Riddle explained that she had worked for Catholic Community Services. She said that EWEB had changed the requirements so that all people who applied for assistance were required to have a social security number and that this had impacted some Hispanic people in need of help. She further noted that the Springfield Utility Board (SUB) credited customer accounts when assistance was received. She stated that EWEB did not do this, that customers continued to receive late notices and cut-off notices, which tended to be upsetting while costing EWEB unnecessarily due to postage, etc.

Ms. Riddle stressed the difficulties experienced by low-income people when attempting to come up with large cash deposits to reconnect to their electrical service. She said that someone who could not come up with a $200 utility bill most certainly could not come up with a $400 deposit. She called it an impossible situation.

Richard Wagner explained that he and his wife and two small children were living on welfare. He felt that EWEB singled out low-income people and slapped them with an exorbitant deposit. He related that he and his wife had been required to pay an $800 deposit and had barely been able to, with the assistance of the church his wife worked for. However, the deposit had left he and his family without the resources to pay the electric bill and the power had been shut off. Due to the power shut off, he was faced with eviction. He alleged that the deposit was being taken from him. He felt that this action was punitive to poor people.

Mr. Berggren stated that the deposit policy was based on the amount of bills and offered to provide the Commissioners with further information on this issue.

POWER PORTFOLIO - RISK ASSESSMENT

Fiscal Services Supervisor Dick Varner presented an overview of the memorandum provided to Board members entitled Power Risk Management. He related that the auditors had recommended the utility look over its power risk management policies and practices. He said that staff had decided to look at the new guidelines for the electric trading industry, put out by an organization called the Committee of Chief Risk Officers. He noted that the committee had been formed after the energy trading disasters that had transpired in the years 2000 and 2001. He stated that the focus for the current presentation was the items in the guidelines that deal with the Board's relationship with risk management. He explained that the Board should understand what the power risk issues were and what management activities were being engaged in to control the risk and the Board should assure that the risk management activities were aligned with the policies of the Board. He indicated that the purpose for the presentation was to ensure that the Commissioners were knowledgeable about what risks the utility had, how they were managed, and to ensure alignment between Board and staff. He asked the Board to provide feedback at the culmination of this session on whether staff was acting consistently with the Board's tolerance for risk and then, should there be areas that the Board took issue with, staff would come back in a month with ways of addressing the changes.

Mr. Varner used a power point presentation, copies of which were circulated to the Board and staff, as an outline for the issue. He stated that it was a policy for the utility to maintain a balance between its power supply and the load needed. He explained that, at present, the firm supply exceeded the load by 50 average megawatts. He said that, from an operational standpoint, EWEB always tried to keep within plus or minus 25 average megawatts, and so this put the utility in the position of selling firm power forward to keep a tight balance between supply and load. In addition, the utility has about 80 aMW of secondary power in its portfolio in a median year.

In response to a question from Commissioner Bishop, Mr. Varner said that the average load for the utility was approximately 310 average megawatts and the supply tended to be approximately 360 average megawatts.

Mr. Varner commented that it appeared that there were three options for the Board, as follows:

• To accept that the Board wants to be "50 megawatts long" on a consistent basis.
  • To take the issue up in the IERP context as the long-term balance between power supply and load-to-be was being considered.
  • To "sell" surplus power on a long-term basis.

He explained that he had put the word 'sell' in quotes because there were other options available to the Board, such as returning power to the Bonneville Power Administration (BPA).

Mr. Varner reiterated that the risk was that while the utility was long on supply, it was counting on revenues from the firm surplus sales and that should the utility not sell forward, it was at the risk of losing the revenue altogether.

Vice President Farmer asked the dollar value of 50 average megawatts. Mr. Varner replied that 50 average megawatts was approximately 450,000 megawatt hours and, as such, every dollar change in price was $500,000 in a year. In other words, should the marketplace stay at $40 for the next five years, the utility stood to gain $20 million per year on the firm surplus, but should it revert to the levels of the late 1990s, the utility could be $10 million short from the levels specified in the current financial plan.

Commissioner Bishop wondered if there was risk in returning power to the BPA. Mr. Varner responded that the circumstances had to be "right," in that the BPA had to be short on power and EWEB had to have a surplus. Scott Spettel, Power Management & Planning Manager, noted that there was one other way, that the utility could declare its renewable resources and then return some of the BPA power. He added that the BPA had asserted that it had the right to purchase the surplus back at the "Slice" rate. He said that it had not worked for the BPA to do so this year as EWEB had its own resources and did not have an overwhelming need for the power from the BPA as some utilities did. A utility without its own power resources would have been impacted by a sudden action.

Mr. Varner spoke on the volume risk. He discussed the difficulties in hedging, noting that it was hard to hedge directly, but that precipitation and storm flow hedges begin to arrive at the problem.

Mr. Varner clarified, at Vice President Farmer's request, that the utility was spending $4 million per year hedging the next year's power surplus, approximately $20 million. He added that the $4 million had already been spent in 2003 to hedge the power in 2004.

Vice President Farmer asked if the $4 million could be a smaller amount. Mr. Varner responded that it would not likely be less unless the utility was hedging less volume or not as far into the future. He explained that EWEB was basically buying options and that it was the time until the expiration of the option in combination with the volatility of the market price that determined the cost. He said there was a long time until the option could be exercised and the volatility was high. This resulted in expensive premiums. He noted that the utility had looked into purchasing an annual hedge, which would be a one-time exercise and could cost $3 million, but would require the monthly purchasing of hedges. He said that the utility had also looked into purchasing hedges on related commodities, such as natural gas, which have a high correlation to electricity prices.

Vice President Farmer asked if the $4 million amount had been consistent. Mr. Varner replied that the current strategy had only been initiated one year ago, but that the experience had been that it had been somewhat consistent. Mr. Berggren added that the reason for this was that the utility had been a "Slice" customer.

Vice President Farmer asked for Mr. Varner to comment on the financial standing of the utility, had it not engaged in hedging. Mr. Varner replied that it would have been very detrimental to the utility. Mr. Spettel commented that it was difficult to state empirically, as the utility had made money. He added that, not only had the utility made money on its portfolio, but the hedges had made money as well.

As an example, Mr. Varner related that even though the utility had the power to meet its needs, it had struck on a call option and sold the power on the market. He reiterated that the experience thus far had been that the options had "more than paid for themselves."

Regarding counterparty risk, Mr. Varner said that creditworthiness was a substantial issue. He stressed that the utility would not trade with non-investment grade parties. He explained that a BBB- entity with a negative outlook would be downgraded to a BB+ and considered a non-investment grade party. He related that the utility looked at high market prices and low market prices and looked at what would happen to the utility should prices sharply escalate or crash and the counterparty failed to determine the utility's credit exposure. He commented that many parties look at the difference between what they bought or sold power for and what it would today's market was. He indicated that staff did not believe that to be sufficiently conservative.

In response to a question from Commissioner Bishop, Mr. Varner explained that a clearinghouse was a financial entity that EWEB would contract with for the handling of the money flow. He said that the bank would guarantee that the utility would get paid. Commissioner Bishop registered her displeasure at this form of doing business.

Vice President Farmer asked what the total trading volume had been. Mr. Varner replied that the total volume had been 500,000 megawatt hours to more than 2 million megawatt hours. He noted that EWEB had written off $150,000 from the Enron bankruptcy from 2001 and had $400,000 tied up in the California ISO proceeding. He reported that the utility had sold $40 million in 2000, $227 million in 2001, $50 million in 2002, and would sell approximately $60 million in 2003. He said that, at this point, the utility would not do more than $10 million in business with any one utility. Mr. Berggren speculated that it could be ultra-conservative, but given the fiscal environment in the power industry, it had seemed prudent to proceed with this level of caution. Mr. Varner clarified that an entity with a rating of double A plus could get a unsecured credit limit of $10 million, but that the utility would only get an unsecured credit limit of $500,000 to an entity rated triple B minus.

Commissioner Bishop expressed discomfort at the interplay with the BPA, but did not think that there needed to be a change in the process at this time. She complimented staff for doing a great job, but wondered whether the utility should look at building up more reserves and hedging less.

Mr. Spettel added, for the record, that the BPA policy around section 9 (c) of the regional act was difficult to interpret. He said that staff did its best to ensure that the utility stayed within the bounds of the policy.

Vice President Farmer asked if it was possible to take a more reasonable risk and save money. Mr. Varner replied that the utility could price hedge less of the portfolio and look at taking 25 megawatts of the "firmest non-firm" power that it had and not try to hedge it. He said that, if the utility was in better financial condition and was not counting as much on the wholesale revenues, he would be more inclined to buy fewer hedges and to lean more on the cash position to cover the utility. He rephrased it, stating that instead of hedging all of the secondary, only the 60 to 75 percent that was least firm would be hedged.

President Lanning asked for some clarification of the strategic risk policy. Mr. Varner replied that there were five policies which he listed

1) A risk system would be set up with a risk management committee that would approve guidelines.

2) The utility would have a power supply portfolio that was reasonably related to the power needs so as not to run afoul of the anti-speculation statute.

3) That the utility would have sufficient reserves and bottling capability to cover the financial risk in its portfolio.

4) The utility would have detailed written control procedures with adequate segregation of duties.

5) The utility would bring any product more than a year in length before the Board for approval.

Vice President Farmer recounted his experience, at the APPA conference, of taking a multiple choice test administered primarily to Commissioners and Chief Executive Officers on power trading. He said that most failed the test. He suggested to his fellow Commissioners that the Board take the test. The commissioners were amenable to the idea.

Mr. Varner observed that there did not seem to be any strong concerns with the risk assessment in the power portfolio among members of the Board.

LOW INCOME PROGRAM EVALUATION

Customer Relations Manager Chuck Dalton introduced the 2002 Low-Income Assistance Programs Evaluation, as prepared by Quantec, LLC and Sami Khawaja, Ph.D. who had helped to prepare the report and resulting recommendations. He explained that his intention was to generate a discussion among Board members about the low income energy assistance programs. He said that the main question to consider was whether to keep the program as it was presently being operated or restructure it. He stated that the current focus of assistance funding was on the Energy Share program, originally designed to be a crisis intervention program, and asked if this should be changed to more of a preventative approach.

Mr. Dalton highlighted the report, stating that Quantec recommended that funding levels remain essentially the same. He related that it had been determined that nearly 30 percent of the utility's residential customers qualified as low-income. He commented that whatever the utility did to serve this population would take funding resources. He stated that, currently, approximately 20 to 25 percent of this population was being served while, on average, most utilities only reached 5 to 10 percent of their low-income customers. He noted that EWEB did not advertise its programs.

Mr. Dalton remarked that the call for vouchers had increased. He said that more customers returned to dip into the amount allocated them, limited to $300. He stressed that the economy had bifurcated, that the top 20 percent of the economy had done very well in the last decade, the 60 percent in the middle had "held their own," and the bottom 20 percent had "fallen through the floor" and become somewhat of a permanent underclass.

Continuing, Mr. Dalton discussed the Energy Share program, to which most of the funding was applied. He said it saved the utility the most money. He noted that the Residential Energy Assistance Challenge (REACH) and Universal Service Plan (USP) cost the utility more, but addressed those customers who were most in need. He explained that the latter spent more money to try to stabilize households and help them out of a crisis mode.

Mr. Dalton highlighted the long-term improvement opportunities listed in the memorandum he had provided the board entitled Low-Income Assistance Programs.

President Lanning agreed that the utility was overly reactive and not pro-active enough. He felt there should be more prevention or education programs. He recognized that the demand and the need for the programs had been well-demonstrated in the community.

Commissioner Bishop expressed shock that 20 to 30 percent of the residential customers were earning less than the state's median income. She commented that it was a larger problem than she had originally perceived it to be. She agreed that there should be ways to educate customers in order to avert the crises that force them to seek emergency relief.

Mr. Dalton related that one recommendation was to increase the amount of education in all of the programs and to do outreach to determine who could be in crisis.

Mr. Khawaja stated that consumer education was not "just moving upstream," but was also extremely cost effective. He said it increased energy savings for customers which resulted in savings in operational costs for the utility. He called it a "good buy."

In response to a question from Commissioner Bishop, Mr. Dalton explained that the specification by some programs that the applicant for aid be the owner of the residence was no longer a barrier.

Mr. Khawaja affirmed that weatherization was very popular for low-income people, but such programs only reached 3 to 5 percent of potential applicants. He stated that the "lion's share" of low-income funding was applied to short-term assistance. He asserted that energy education could reach renters as well as home-owners. He recounted his experience in Indiana, wherein it was now required that all people applying for energy assistance attend an energy education class.

Vice President Farmer remarked that the industry norm for spending on low-income energy assistance was $6 per customer. He asserted that EWEB spent six times that much. He felt that giving a different rate to low-income customers, as per one suggestion in Mr. Dalton's recommendation, would exhibit favoritism. He stressed that the core mission of the utility did not involve solving the low-income problem of the community. He recommended a return to the norm for such spending.

Commissioner Menegat asserted that it was an investment in the long-term improvement of the community. He affirmed that the utility could only address the low-income problem as it pertained to the utility, and not in its entirety but felt it, nonetheless, to be critical. He commented that when he was younger, there were always jobs available to him, but that now a young person does not have an abundance of choices. He stressed the necessity of the community coming together to assist those on the bottom rung. He called education of customers a critical component of the program. He conveyed his support for the programs.

Vice President Farmer reiterated his concerns.

Commissioner Bishop said that she would not characterize the program as throwing money at a problem. She stressed that the board had known what it was doing when it had voted for the assistance programs and now sought to find a balance. She felt that an investment in education was key to the program. She expressed concern for the downward spiral that having power shut-off instigated for some people. She stated that, just as she had no interest in making EWEB mediocre, she also had no interest in making the low-income energy assistance programs mediocre.

Vice President Farmer noted that the administrative costs were, at 66 percent, relatively high. Mr. Dalton responded that this was being addressed and staff was looking into ways to reduce the overhead. Mr. Khawaja commented that the USP and REACH programs were staff intensive, but were considered to be very cost-effective. He stressed that ratepayers were not necessarily subsidizing the program so much as the program was reducing costs by reducing shut off and reconnect costs and the lost revenue from power not used.

President Lanning asked Mr. Dalton if he had been able to extrapolate guidance from what had been said. Mr. Dalton responded that he had hoped to attain a level of commitment to the programs from the board and a sense of whether the board was satisfied with the current process or wanted the process to seek to be more preventive. He noted that the board had expressed support for an increase in education for customers.

Mr. Berggren commented that the majority of the board seemed to be instructing staff to make the program as efficient as possible and that, in order to do that, the programs should be more pro-active.

President Lanning stated that EWEB had stepped forward with leadership to address a problem. He said the utility was dealing with rising energy costs at a time in which there was rising unemployment. He felt it underscored the obvious need for the community to come together. He advocated for continued evaluation of the program, as it was still immersed in a learning curve. He stressed that the data was unknown initially and that, with more information, the utility was now modifying the program. Additionally, he noted that, while at the APPA convention, other members of utilities had approached him about the energy assistance programs and that there was a perception among them that EWEB was very progressive. He reiterated that the focus should continue to be on defining the issues and the problems and then determining the best approach to them. He felt evaluation of the program was of primary importance, and with evaluation would come learning and modification for improvement.

In response to a question from Vice President Farmer, Mr. Dalton explained that 75 percent of the customers accessing the assistance program had not known that the money was coming from EWEB because the vouchers were coming from St. Vincent dePaul and there was no mention of EWEB on them. He said that this would be changed for the coming year and the vouchers would clearly indicate that the funding was from EWEB.

In closing, Mr. Dalton thanked the Board for approving the hiring of Quantec in its Consent Calendar. He conveyed his appreciation for the work that Quantec had done on its report.

ITEMS REMOVED FROM THE CONSENT CALENDAR

Commissioner Bishop offered the following corrections to the minutes:

• July 28, page 2, paragraph 10: "Commissioner Bishop stressed the importance of Board members speaking constructively about the organization, fellow Board members, staff and employees. while in public"
• July 29, page 2, paragraph 5: "Commissioner Bishop expressed concern that serial e-mail communications between Commissioners could be considered to be in violation of meeting laws."

Commissioner Bishop moved to accept the minutes from the Board Governance meetings of July 28 and July 29, 2003, as amended. Vice President Farmer provided the second. The motion carried unanimously.

The meeting adjourned at 9:50 p.m.

_____________ ______________________________________

Assistant Secretary President