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

Others Present: Randy Berggren, Dick Varner, Dick Helgeson, Will Bondioli, Debra Smith, Tom Buckhouse, Marty Douglass, JoAnn Andersen, Jim Origliosso, Ken Beeson, and Krista Hince of the EWEB staff; and Ruth Atcherson, City of Eugene Minutes Recorder.

Vice President Farmer called the Special Board Meeting of the Eugene Water & Electric Board (EWEB) order at 7:30 p.m.

AGENDA CHECK

There were no changes to the agenda.

APPROVAL OF CONSENT CALENDAR

Minutes

1. Re-submitted Minutes of the March 13, 2003, Special Board Meeting, and the September 16, 2003, Special Board Meeting.

BUSINESS SERVICE AGREEMENTS

2. Sani-Pac Corporation - Facilities Services Division - $17,000 per year, or $85,000 for five years

3. Financial Consulting Solutions Group - Fiscal Services - Financial Services Division- $50,000 for a five-year period

4. Totten/Meza Construction, Inc. - Trail Bridge Emergency Spillway, Leaburg Power Canal Maintenance, Trail Bridge Access Road Repair - Electric Division - $180,917

Commissioner Menegat moved approval of the Consent Calendar. Commissioner Anderson provided the second.

Commissioner Bishop objected. She wished to divide the motion and consider the minutes from the Special Board Meeting held on March 13, 2003, separately.

Vice President Farmer asked the Board to vote on the minutes from the Special Board Meeting held on March 13, 2003.

The motion passed, 3:1; Commissioner Bishop abstained.

Vice President Farmer called for the vote on the main motion.

The motion to approve the Consent Calendar passed unanimously, 4:0.

ITEMS FROM BOARD MEMBERS

Vice President Farmer noted his recent visit to Washington, D.C., which had followed the recent hurricane. He said the power had been restored in an efficient manner, but that there had been difficulty in communicating with utility customers.

Commissioner Bishop complimented staff for the work on the major customer luncheon. She commended Vice President Farmer for the short speech he gave. She noted customers had been impressed to have four out of five Commissioners in attendance.

Commissioner Bishop averred the back grounder from Deborah Brewer was misleading. She felt the Board had voted to accept an economic analysis done by a consultant, but she did not think the Board had agreed on any action. She advocated for the completion of the master plan prior to making decisions.

Commissioner Anderson reported that the McKenzie Watershed Council had become a 501 (c)(3) non-profit agency to allow tax-exempted donations to the organization. She said the charter had been revised, mostly for housekeeping purposes.

Commissioner Anderson stated that Marty Douglass, EWEB's Public Affairs Manager, had just received a formal letter of response from the "Leaburg Lake people." She commented that a discussion at the Board level would be in order on this issue.

Continuing, Commissioner Anderson related that Commissioner Bishop would be attending the Northwest Energy Coalition meeting as EWEB is a member of the coalition. She said she had attended the Oregon caucus in Salem during the previous week. She explained the caucuses were established to allow states to discuss their own power issues. She stated that the caucus had mostly discussed power issues at the legislative level. She reported there was a big push to embark on an energy campaign. She suspected they would ask members to assist with scheduling meetings. She noted that the campaign mostly looked to how to make the power customers more aware of energy issues. A committee was to look at the future of the Bonneville Power Administration (BPA) and would make its recommendation in April, 2004. She added that the Northwest Power Planning Council would be coming out with its new power plan, mostly completed, but would wait to finish the draft and put it out for review until after the BPA recommendation was made.

Vice President Farmer announced that the Chamber of Commerce Political Action Committee was holding a function for elected officials on October 28. He stated that all of the state legislature, County Commissioners, and others would be there and that he had requested that one of the EWEB Commissioners be in attendance as well.

CORRESPONDENCE

General Manager Randy Berggren reported the following:

• He thanked Commissioners for the calendar updates they submitted.
• Commissioner Bishop and Vice President Farmer would be absent for the meeting scheduled for December 2, at which the budget was scheduled to be approved. He asked Commissioners to consider whether it should be rescheduled.

Members discussed changing the schedule. Vice President Farmer felt the budget would be adequately discussed prior to the vote on December 2. Mr. Berggren continued:

• He had sent a memorandum on the utility's outage preparation and a needed update for the utility's ability to notify customers.
• There was a memorandum in Board packets from Deborah Brewer regarding the Master Plan. He recognized Commissioner Bishop's concerns and concurred with them.
• A memorandum from Mat Northway, Energy Management Services Manager, on the signing of the agreement on the Bonneville Conservation Augmentation Program Phase II was included in the agenda packets.
• The packets also included a memorandum from Gale Banry on hydro relicensing.
• A memorandum from Dick Varner, Fiscal Services Supervisor, was included regarding the funding of the Carmen Smith relicensing project.

Vice President Farmer requested a chance for Commissioners to sit with staff and ask questions in regard to the relicensing project.

BOARD AGENDAS

Mr. Berggren highlighted the scheduled agendas for the Board. He suggested the letter from the Leaburg Lake area residents be a subject of discussion at a future Board meeting. He noted that the formulation of a policy on bill stuffers would be scheduled for February 17, 2004. He said the Bill Remittance Processing would be included in the agenda of November 3, 2003. He asked the Board for input on whether it wanted to officially address the concerns raised by Commissioner Bishop regarding notification of pending litigation and also regarding certain communications.

Commissioner Bishop moved to put a discussion on notification of litigations and a discussion on communication with customers on a future agenda. Commissioner Menegat provided the second. The motion carried unanimously, 4:0.

Mr. Berggren noted that an Executive Session was scheduled for November 3 on the union negotiation position. He thought the regular meeting would include a continuation of the 2004 budget, a brief overview of the third quarter financials, the bill remittance processing, and, perhaps, revisioning of the Bylaws.

PUBLIC INPUT

Moshe Immerman, 3455 Onyx Street, requested that the Board consider holding the public input portion of the meeting prior to the vote on the Consent Calendar, in order to allow the public an opportunity to provide input on these items. He felt it prevented democracy to conduct the agenda in this order.

Mr. Immerman asserted that the contract with Sani-Pac that had been voted upon in the Consent Calendar represented a conflict of interest as City Councilor Papé was affiliated with the company and was a part of the City government as was EWEB. He felt the contract should be reviewed to determine if it violated the Eugene franchise regulations.

Mr. Immerman recommended that EWEB have legal counsel present for all meetings.

BOARD GOVERNANCE - BYLAWS

Mr. Berggren, harkening back to Agenda Item 4, announced there would be another meeting with McKenzie Valley residents on October 23. He affirmed the utility's ongoing commitment to maintain the lines of communication between residents and the utility.

Mr. Berggren explained that the Bylaws were required to be subject to review within 90 days of swearing in a new Commissioner.

Commissioner Bishop averred it was good to review the Bylaws. She said she would not recommend changing any of the intent of the Bylaws, but did however think that the word 'special' should be struck from the meetings. She stated that she had been on the Board for seven years and there had not been a month without two meetings. As such, she asserted there was "nothing special" about the second meeting.

Commissioner Bishop recommended that Article IX, Section 1 be elaborated upon so that the phrase "qualified elector" was defined. In response to a question from Mr. Berggren, she said this was not an urgent issue and could wait until later Board Governance discussions.

2004 BUDGET

Mr. Varner provided a power point presentation entitled 2004 Water and Steam Budgets.

Mr. Varner stated that budget targets had been based upon what had transpired at the discussion on the budget back in July. He noted that the steam utility had experienced a dramatic increase in fuel costs and these costs did not appear to be mitigating.

Regarding the key assumptions for water, Mr. Varner defined normal weather as having average precipitation and average temperatures. He said the difference between a cool wet summer and a warm dry summer was approximately $1 million, with the average fluctuations from year to year hovering around the $400,000 mark. This did not impact the utility tremendously.

Mr. Varner noted, regarding the addition of staff as a water rate driver, a couple of new positions had been added since the last rate action to keep up with customer growth and expansion of the Hayden Bridge Filtration Plant.

Another rate driver cited by Mr. Varner was the new requirement from the government that the water utility communicate to the public on safe drinking water.

Mr. Varner said the City had decided not to ask EWEB to maintain fire hydrants and this represented a loss of revenue.

Mr. Varner stated that the water utility was in need of a $700,000 revenue increase which would equal a six percent rate increase. He said this would meet the board target of putting $100,000 toward a low-income housing systems development charges (SDCs).

Continuing, Mr. Varner asserted that, the steam utility was paying natural gas prices equal to the monthly natural index and a hedge was in place with the electric utility to help protect against the risk to the steam utility that the gas prices would go up. He translated this to mean the movement in natural gas prices that would bring more than $100,000 in benefit or would increase cost more than $100,000 were hedged. Therefore, the steam customers would see a benefit if the natural gas prices come down by $100,000 and the electric utility would benefit should it fall below this. Conversely, he said should prices go up, the first $100,000 of increase would be borne by Steam with the residual covered by Electric. If natural gas prices go up, then the value of Electric's surplus power increases and should help cover any payments to Steam

Commissioner Anderson commented that there was no "give" on water. She expressed concern that there would be six percent added on to the electric rates in the coming spring.

Commissioner Bishop asked what portion of the rate increase was attributable to labor and what portion was attributable to the system. Mr. Varner replied that four to five percent was for new staff and pay increases and increases in benefits costs, primarily those associated with PERS and medical insurance.

In response to a question from Commissioner Menegat, Mr. Varner stated that there were about 100 steam customers.

Commissioner Bishop asked how higher fuel costs and the revised fuels charge would impact steam customer billings for the 2003-04 heating season. Mr. Helgeson explained that charges to steam customers were a combination of about half fixed costs or commodity charge and the other half of the charge was the cost of fuel. Under the proposed budget the commodity charge remains unchanged, while the fuels charge increases by 30 percent. Taking both rate components into account, Mr. Helgeson estimated that the net price of steam would therefore be increasing by an average 15 percent.

Vice President Farmer asked how steam prices compare to the cost of heating with gas or electricity, and if the pending increase would affect the market competitiveness of EWEB's steam product. Mr. Helgeson stated that, even with this increase, the fuels charge component of EWEB's steam rate remains comparable to equivalent costs for both natural gas and electricity as competing fuels. He pointed out that retail gas and electricity prices have also increased significantly over the past few years, and that most steam customers have limited conversion options and would face high conversion costs in switching to an alternate heating source. Mr. Helgeson offered his view that, as long as EWEB's commodity charge for production and delivery is lower than the amortized cost of equipment conversion, steam would remain a competitive choice for the majority of the utility's existing customers.

Vice President Farmer noted that water sales are expected to remain fairly flat in 2004, and asked if this is due to EWEB's ongoing efforts to promote water conservation. Mr. Helgeson remarked that EWEB's water conservation campaign has been successful, particularly in reducing summer peak day use, and that this is undoubtedly one of several factors which account for a relatively low growth rate in annual water sales.

Vice President Farmer stressed the importance of maintaining an even balance between the growth of administration and general expenses and the revenue. Mr. Berggren suggested staff look into how much of the increase in the administration and general expenses was driven by Board decisions. Mr. Varner noted that one item that did not readily show was the rent for the headquarters which was included in the administration and general expenses and then credited at a different portion of the budget.

Mr. Varner stated that some general expenses were due to the programs that were part of the utility at the behest of the Board and from insurance expenses.

Commissioner Bishop agreed there was not a lot of leeway in the Water Division. She noted there were a lot of staff reductions and if more staff were being added at this point, it was because more staff was needed. She opposed addressing the increases in costs for the Water Division at a later point.

Commissioner Anderson asked if there was anything that could be done regarding the insurance costs. Mr. Varner responded that the market had become hard due to losses related to storms and investment losses.

Vice President Farmer asked what the utility should propose at a union bargaining meeting to fit within the context of the budget. Mr. Varner replied that the market surveys on the administrative side suggested that the salary schedules be moved forward to 1.5 percent. He stated that there would be a lesser increase in water and steam because a number of employees would still be "red lined" and would not receive an increase.

Vice President Farmer stressed the importance of knowing the budget assumptions prior to union negotiations.

Commissioner Bishop encouraged the Board and staff to look carefully at the policy regarding subsidies to SDCs for low-income housing. Mr. Helgeson commented that the utility had not budgeted a surplus for such services in the past.

Mr. Helgeson provided a power point presentation on the Water Division Budget for 2004. He noted the budget for 2004 was $160,000 above the budget for the previous year. He said this was two percent higher than the previous year's budget and seven percent higher than the year end projection numbers. He referenced the detailed breakdown of the division's budget which was included with the Board's information packet, and invited questions about any of the specific program areas covered in that material. He stated that the same staff and hours were in the budget for the next year, but the cost would likely increase due to the increasing costs of benefits.

Regarding the steam utility, Mr. Helgeson said the budget for non-fuel operations and management was somewhat lower than the past year, largely due to flat assumptions about labor rate increases because of the market relationship and "redlining" that Mr. Varner had spoken of. He noted there were seven FTE employees that were involved in operating and maintaining the distribution system. He discussed the fuel cost increases, stating that it would necessitate increasing the fuels charge by 30 percent.

Mr. Berggren remarked that this was a continuing discussion on the reserving strategies and related rate implications for 2004, including what to do with the 2001 surcharge strategy. He felt the Board had a relative degree of comfort with the operations and management budget. He noted he had not heard a lot of adjustments on rates.

Mr. Berggren encouraged the Board to express any discomforts they may have had with the capital projects budget. He felt, given the magnitude of the slated increase, it was important to ensure Board agreement. He stressed the need for technological improvements to the system and the need for updates to the aging infrastructure. He added that it was important for the Board to comprehend what portion of the Capital Budget was dedicated to meeting the needs of the load growth. He asked the Board to consider the possibility that it would choose not to take a rate action and to prioritize projects should that scenario come to be.

Mr. Berggren stated that the meeting scheduled for November 3 would be dedicated to a larger discussion of the implication of the Capital Plan on rates in the budget for 2004.

Commissioner Bishop requested that staff provide a list of the areas that could not possibly part with any funding and also of the bonding that would be available in the case of an extreme emergency.

Vice President Farmer averred it was hazardous to approve a budget that had all of the rate implications that were being discussed without a general consensus from the Board that the rate action would occur. He commented that, should the Board not move in the direction of such an increase, the utility would be faced with a "managerial disaster." He advocated for keeping the press aware of all of the discussions.

Mr. Berggren said, regarding the last comment, that staff was putting together informational releases for this reason.

STEAM FUELS CHARGE ADJUSTMENT

Water & Steam Division Director Dick Helgeson explained that staff had provided the Board in June of 2003 with an update on the fuels budget. He said the information in the backgrounder and the recommendation for action on the fuels charge was consistent with the projections that had been made at that time. He added that the reason this was being brought before the Board at this time was that it was almost heating season and it had been customary to review the steam fuels charge at this time. He thought the charge should begin with the December bill.

Mr. Helgeson elaborated on the fuel budget, referenced in his memorandum, stating that the charge adjustment would be applied to the 70 percent general service customers and 30 percent was from PeaceHealth, which preferred to pay month to month.

Mr. Helgeson discussed the graph of Wholesale Gas Prices and the graph of Steam Division Total Gas Cost as Function of Market Price of Gas. He proposed that the rate be changed from $8.15 per 1,000 pounds to $10.50 per 1,000 pounds, noting that if this was approved, EWEB would be communicating with its customers over the next several weeks prior to the increase to teach customers about it.

In response to a question from Vice President Farmer, Mr. Helgeson explained that a fuels charge was attributable to the cost of production and a commodity charge paid for the cost of operation. He explained that a lower rate on the commodity change was given to larger customers in recognition of the economies of scale they had provided.

Vice President Farmer opined that the lower rate given to larger customers represented an opposite action to that of the tiered rates for electricity.

Commissioner Bishop moved to accept the staff recommendation for the steam fuels charge adjustment, effective as of the December, 2003, bill. Commissioner Anderson provided the second.

Commissioner Bishop commented that the utility had a good relationship with the steam customers. She felt they would be amenable to the change. Mr. Helgeson reiterated that Mr. Robertson would be writing an informational letter to be sent out to the steam power customers.

Vice President Farmer asked if EWEB had looked into charging retroactively based on fuel costs. Mr. Helgeson replied that the utility had determined that doing so made the price too volatile. Mr. Bondioli added that the customers had requested that it be handled annually.

The meeting adjourned at 9:28 p.m.

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Assistant Secretary President