EUGENE WATER & ELECTRIC BOARD
BOARD PLANNING SESSION
EWEB TRAINING ROOM
MARCH 5, 2005
8:30 A.M.
Board Members Present: Ron Farmer, Sandra Bishop, Mel Menegat, and John Simpson. Commissioner Patrick Lanning was excused.
Others Present: Randy Berggren, Dick Helgeson, Jim Origliosso, Dick Varner, Debra Smith, Tom Buckhouse, Jim Wiley, and Krista Hince of the EWEB staff; Joe Sams, City of Eugene Minutes Recorder.
OPENING REMARKS
President Farmer convened the meeting at 8:30 a.m.
General Manager Randy Berggren welcomed those present. He said the Planning Session was for 2006 goals. He stressed the importance of consistency in issues that were being carried forward. He said the majority of the day would be dedicated to governance and related work.
President Farmer suggested dedicating a few minutes to review and evaluate what had been heard from the public forums and employee information sessions regarding sale of the EWEB site. He said the Board needed to consider whether it had communicated effectively enough.
OVERVIEW OF 2006 STRATEGIC PLANNING PROCESS
Assistant to the General Manager Debra Smith provided an overview of the 2006 Strategic Planning Process. She said EWEB’s performance management model went from organization fitness to strategic thinking and strategic planning. She noted that strategic thinking had been constrained by the financial situation and stressed the idea of long range thinking beyond the short term. She said strategic planning lead to operational plans and implementation. She noted that, since the planning process had been created in 1998, implementation had been stronger than strategic planning. She added that improvement was also needed in results management. She said measurements of success of planning efforts were always needed.
Ms. Smith said a new piece of input for the model was to gather specific information about customer expectations. She said this information would be used with strategic plans to form operational policy. She stressed that the process of forming strategic plans into operational plans was also a learning process that provided valuable information.
Showing EWEB’s fitness model, Ms. Smith stressed the importance of not being too ingrained in policy and being able to adapt to the current business climate.
Mr. Berggren said when the performance management model was developed the first conclusion that was drawn was that there was a lot of role confusion between the Board and the Executive Management Team (EMT). He said it took nearly three years before there was a sense of priority from the Board regarding governance work. He said there was no standard way of accomplishing this and said that each year it had been done differently. He said the process was maturing and appropriate roles for Board and staff were beginning to be defined.
In response to a question from Vice President Bishop regarding whether the group needed to meet on a regular basis, Mr. Berggren said it was better to have a specific goal in mind before meeting. He said regular meetings tended to become stale and lose purpose. He said participation in the group was not too demanding but when a specific plan or goal was being reviewed the time was substantive.
President Farmer said there needed to be thinking for both short and long term based on the goals that were set by the Board.
Mr. Berggren said there had been a number of years where all of the best strategic thinking had been put aside by realities such as droughts.
Ms. Smith said the Board had developed goals and the strategic planning group had developed initiatives from those goals and brought them back to the Board for review. She said it was good to review mission statements periodically and develop new goals. She said staff had assumed that goals would be the same going into 2006 and said any new developments would be addressed within the framework of those goals. She said if that could not happen then a new goal needed to be developed.
In response to a question from Commissioner Simpson regarding when goals were developed, Ms. Smith said goals were crafted after an assessment of the financial situation of the utility. She said new goals would be developed in 2006. She noted that new issues might be identified and the goals would be modified to address those issues in June or July.
The strategic goals were identified as
Mr. Berggren said reality checks were needed on a periodic basis to keep goals within the possibility of accomplishment.
President Farmer said the Board needed to be thinking in the longer term and how that fit into the context of the goals. He noted some of the rate increases were in the opposite direction of the stated goal of keeping rates stable.
Mr. Berggren said rate action had been needed to stabilize rates over a five year period to establish management and control of rate actions. He said stability was the ability to predict when rate changes were needed.
Commissioner Simpson commented that customers perceived rate stability as keeping the rate amounts the same.
Mr. Origliosso said the business model dictated that there would be rate changes. He said the utility spent a lot of money to promote energy efficiency and commented that revenues would remain flat and would decrease if conservation efforts were successful. He said, in that kind of environment, any inflation in the cost of operation had to be passed through in rates. He stressed that rates needed to be sufficient to cover costs.
Vice President Bishop noted that rates had not been raised through most of the 1990’s and that was what had driven the steep rate increases since 2000. She commented that the message of ‘rates sufficient to cover costs’ would give customers more predictability.
Ms. Smith said staff had policies that drove its actions that the Board was unaware of.
Commissioner stressed the value of consistency for the organization regarding policy. He said the organization had to operate under those policies until the Board took action to change policy.
Vice President Bishop said, in the past, Board orientation had been effective in showing new members parameters within which to work.
Ms. Bishop said the approval of strategic plans and general manager’s goals provided parameters for staff to work with. She stressed that there should be no ambiguity in the wording of the goals.
President Farmer commented that each of the Board members might have had a different idea of rate stability.
Mr. Origliosso noted that there was a Board approved policy that defined rate stability
President Farmer said the Board should be reviewing policy as part of its governance process so awareness of policy was more extensive.
Commissioner Simpson said staff should have an educational process review for Board members on a periodic basis.
Commissioner Simpson stressed the importance of customers understanding the concept of operating under the idea of rates covering the costs of operation. He said it would be helpful if customers were more aware of that fact.
Commissioner Simpson suggested creating a model that would allow EWEB to compete with itself when creating policy.
Mr. Berggren noted that this strategy had been tried in the past and noted that it had caused trouble with the then current Board and created issues around promoting conservation. He said there might be merit in trying it again but was not enthusiastic about the idea.
Mr. Helgeson said a competitive model would require more of a definition of the utility’s business model. He reiterated that EWEB was a cost driven organization that did not work to increase volume but did seek to add value for a slightly higher rate.
Commissioner Simpson said the utility should always be asking itself how it could win the customer.
OVERVIEW OF POLICY & REFERENCE BINDERS
Ms. Smith said the reference binder was replacing the Commissioner Reference Manual. She said the material in the reference binder was based on the Carver model and contained living documents that guided staff, staff policies that applied to the Board or impacted their relationship with constituents, and information on organizational structure. She said the material would be replaced periodically.
President Farmer said there should be an electronic version of the binder so staff could access it and new material could be sent electronically to Board members.
Assistant Secretary Krista Hince noted that there was a copy of the document in the utility’s library.
Ms. Smith said the Board policy binder contained:
1. Charter
2. Bylaws
3. Policy Manual
4. Minutes
Ms. Smith said there were four types of policies:
Ms. Smith noted that the policies had not been approved in their current form. She noted that the policies that had been approved by previous Boards were highlightedGovernance Process Policies
Board-Staff Linkage Policies
Strategic Direction Policies
Executive Limitations Policies
Ms. Smith noted that Commissioner Lanning, in prior conversations, had suggested that the Board operate strictly under Robert’s Rules of Order. She said this was not necessarily according to the existing Bylaws. She noted that previous Boards had approved EWEB’s Rules of Order.
Vice President Bishop suggested getting rid of EWEB Rules of Order. She said she had never reviewed them and questioned whether they were in actual use.The Commissioners reviewed the policies as presented to the Board in the policy manual. Commissioners provided input on wording and structure.
Commissioner Simpson reiterated his desire to see a web-based version of the policy document. He stressed that the information would be easier to access and update in that format.Commissioner Simpson asked whether it would be appropriate to put staff support for the Board into policy.
Mr. Berggren noted that was an ongoing issue with specific Commissioners. He said every Commissioner was an individual and had unique views of the relationship with staff. He said he was usually the one making decisions about the level of staff support.
President Farmer noted that there was very specific language in the Charter and Bylaws about staff policy. He said the spirit of staff/Commissioner relations was outlined on page 29 of the policy document. He raised concern about putting operational matters into policy.
Commissioner Simpson said there should be language about meeting locations, food provided, furnishing of laptop computers, payment of internet provision, etc.
Commissioner Menegat said the Board needed to concentrate on running the utility and should not get involved with operational matters.
President Farmer expressed his preference to leave matters to the General Manager’s discretion unless a serious issue arose that needed to be specifically addressed
Vice President Bishop said there needed to be a document, not necessarily policy, that outlined the expectations of the Board regarding what kind administrative support was available
Commissioner Simpson commented that it was a vague process for Commissioners to learn what level of administrative support was available. He suggested a more standardized process for new Commissioners.
FINANCIAL POLICIES OVERVIEW
Treasurer Jim Origliosso provided a power point presentation on financial policy. The presentation included:
Current Financial Issues
Mr. Origliosso said there were some large issues looming on the horizon. He said the financial policies would be used as a framework for solving those issues. He said he would bring the policies to a regular Board Meeting for approval.
Mr. Origliosso said EWEB was the 30th largest of the public power utilities in the Country. He said the utility was an awkward size for some of the things that it needed. He said EWEB needed the financial systems and controls that some of the larger utilities required even though it was a smaller utility. He said a decision needed to be made whether EWEB was big enough for power trading. He noted that EWEB was working with risks it had not faced previously. He said operating as a separate administrative entity from the City was a unique situation. He said the utility had placed voluntary restraints on itself when asking for bonds.
Showing a graph rendition of financial issues from 2001, Mr. Origliosso outlined financial issues faced since the power crisis of that year. He said the utility was coming out of a stage of equilibrium and moving into a period of building reserves. He noted that budget assumptions were now much more conservative then they had been in the past. As examples of future financial issues he cited the Carmen Smith relicensing project, PERS funding, and post retirement medical coverage.
Showing a chart of EWEB’s annual residential rates as compared with other utilities, Mr. Origliosso noted that the utility was 4th highest of 14 similar utilities.
Related Financial Policies
Mr. Origliosso outlined the related financial policies as accounting policies, financial planning/control policies, and reserve policies. He noted that the reserve policy contained policies on rate sufficiency, (rates covering operating costs), rate stability, capital investments and pension liabilities. He said self-governing financial management was used in this category to essentially block having conditions imposed by bond agencies.
In response to a question from Vice President Bishop, Mr. Origliosso said the self-governing was necessary to show shared understanding of how funds were managed.
In response to a question from Vice President Bishop regarding whether there were any areas in which the utility was weaker because of the lack of outside controls being imposed, President Farmer said both sides could be argued but opined that EWEB was slightly more vulnerable. He said this was why he had advocated for measurements to show a comparable amount of controls.
In response to a question from Commissioner Simpson regarding a balanced budget and whether cost controls were sought as well as additional revenue, Mr. Origliosso said budget proposals would be brought to the Board for approval and an opportunity would be allowed for the Board to provide input on whether cost controls or additional revenue was necessary. He stressed that the process would be a dialog with the Board.
Financial Performance Indicators
Showing a graph of year-end cash balances for both water and electric utilities, Mr. Origliosso outlined projected figures for 2006.
In response to a question from President Farmer regarding the state of the water utility, Mr. Origliosso said the current year was a bad water year and projected that reserve funds would be needed for the water utility.
Showing a graph of electric reserves for 2004-06, Mr. Origliosso outlined figures for operating reserves, self-insurance, medical reserves, pension reserves, capital reserves, power reserves, and available funds. He projected that 2006 would have a fully funded power reserve
Moving on to water reserves, Mr. Origliosso said the reserve for conservation loans was being eliminated since it was not supported by any of the financial policies.
In response to a question from President Farmer regarding the nature of that reserve, Mr. Origliosso said it was a reserve for making large conservation loans to customers. He noted that no loans had been made.
Resulting Financial Strategies
Mr. Origliosso showed a spreadsheet of figures showing minimum needs, and target figures for 2005-06.
In response to a question from Vice President Bishop regarding capital funds and where funds would come from in an emergency situation, Mr. Origliosso said property insurance would be the first source and cited FEMA as another example of where funds would come from. He said the capital reserve would cover expenses not covered by insurance.
In response to a question from Vice President Bishop regarding whether there was a distinction in policy between emergency capital needs and everyday capital needs, Mr. Origliosso said no distinction was made in policy language.
President Farmer expressed his preference to see policy language that showed desired reserve levels but allowed discretion to go below those levels given the presence of a established plan.
Impact on Financial Performance
Showing figures of PERS costs, Mr. Origliosso showed the budgeted amount as opposed to the recently announced rates. He noted that there would be a variance of - $850,000.
In response to a question from Commissioner Simpson regarding whether costs of litigation were included in the projected numbers, Mr. Origliosso said there was no anticipated PERS litigation expense in the 2005 budget. He said if that situation changed then more money could be put into the PERS reserve account
Mr. Origliosso offered some suggested revisions to ratemaking and power/risk management policies.
Commissioner Menegat said a general policy could be formed around what the utility felt was an appropriate power operating reserve.
Mr. Origliosso said he would have a meeting with bond rating agencies in the next couple of weeks and would report back to the Board.
GOVERNANCE SCHEDULE FOR 2005
No Discussion
BYLAWS REVIEW
President Farmer suggested a review of the Bylaws by article.
Under Article II, Vice President Bishop questioned whether telecommunications should be added.
Mr. Berggren recommended reflecting telecommunications services in the Charter. He noted that the utility had the authority to provide telecom.
President Farmer questioned whether telecom was the utility’s principal purpose.
Mr. Berggren said it was not necessarily a principle purpose so much as what the utility was legally chartered to provide.
President Farmer said the term ‘principal purpose’ should be reviewed to see if that wording was needed in the document.
Commissioner Menegat said ‘principal purpose’ did not limit the addition of more purposes.
There was a general discussion of the distinction between benefit to the citizens of Eugene and benefit to customers.
President Farmer raised concern with the goal of maintaining the lowest possible rates when the standard policy was to collect rates to cover the costs of the organization. He acknowledged that there were mitigating factors but reiterated his concern the current policy did not comply with the Bylaws. He said the lowest possible rate precluded anything beyond bare minimum service.
Vice President Bishop said prudent business practices combined with long range planning and environmental concerns were all factors that needed to be considered in rates.
Regarding Article Five, President Farmer questioned which consultants required Board approval.
Mr. Origliosso cited independent engineers and financial consultants as examples.
Assistant Secretary Krista Hince said that, previously, the Board approved the list of consultants for a particular year. She said that, since that time, the Board had granted Mr. Berggren authority to hire consultants.
Mr. Berggren said there was no constraint about hiring consultants. He said the Bylaws simply stated that the Board may require approval of consultants.
Ms. Smith suggested that a Board governance policy could be formed to outline which consultants would require Board approval.
Commissioner Menegat said the wording of the Bylaws should be as loose as possible to provide guidance and not mandate specifics.
President Farmer questioned the reason why the Bylaws were needed at all.
Vice President Bishop said the Bylaws were there as a safeguard and to provide clarity for the organization.
President Farmer asked for some language that would show what kinds of consultants the Board would approve.
In response to a question from Commissioner Simpson regarding the difference between “Special” Board meetings and “Regular” Board meetings, Ms. Hince said the Charter required a monthly meeting that was the “Regular” meeting. She said all other meetings were “Special” meetings because they were held at the discretion of the Board.
Vice President Bishop said the distinction seemed arbitrary and suggested referring to meetings as simply Board meetings rather than using “regular” and “special.”
Vice President Bishop suggested wording in the Bylaws that stated a minimum of at least one Regular Board meeting happened each month. She said then additional meetings could be called regular as well.
There was general consensus to get a legal opinion and amend the Bylaws if the Board desired.
In Article VI, Ms. Smith said she had already committed to finding out the distinction between EWEB Rules of Order and Robert’s Rules of Order.
Commissioner Simpson said the wording regarding quorums reflected the letter of State Law.
Regarding employment opportunities for members of the Board, Mr. Berggren raised concern over conflict of interest issues if a Board member were employed at the utility.
Vice President Bishop suggested establishing an interval of time before a Board member could become employed.
President Farmer suggested having Mr. Berggren come back with a recommendation. There was general consensus to do that by the Commissioners.
There was general consensus to also explore the legal definition of quorum and how the Board would function if there were a lack of a quorum.
In Article X, Section 2, Commissioner Simpson suggested wording about notification of tardiness as well as absence.
President Farmer said he would rather see that in the Code of Conduct for Commissioners. He said the point was well taken and remarked that it was common courtesy to notify someone if a Commissioner was going to be late for a meeting. Regarding meeting start times, President Farmer questioned whether start times needed to be established in the Bylaws. He raised concern with being too specific.
Vice President Bishop commented that the public needed consistent information on meeting dates and start times.
Mr. Berggren said that required public notice for meetings would address that need.
President Farmer suggested that the review of Bylaws should happen on a regular basis in the first quarter of every year.
There was general discussion of when to review the Bylaws. Commissioner Simpson suggested reviewing Bylaws within three months of the swearing in of elected Commissioners.
GOVERNANCE TOPICS
Regarding the use of the term “Governance,” Vice President Bishop raised concern that topics were being represented as governance work when they were actually general policy.
Commissioner Simpson agreed and said he would like to see more structure around what was labeled as governance.
President Farmer commented that governance work was process and not taking action on policy.
Vice President Bishop asked for a Board discussion on whether an EWEB Commissioner could serve on other Boards or commissions.
Vice President Bishop said she would like to have a discussion of possible compensation for EWEB Commissioners.
President Farmer noted that compensation would require a City Charter change.
Vice President Bishop asked for a review of Board conduct rules. She said there had been past instances of Board members making public comments in a negative fashion about other Board members. She said Commissioners needed to be held accountable for violating the code of conduct or the code of conduct should be removed. She said a process/procedure should be formed if the situation happened again.
Commissioner Simpson said that situation could happen to any Board member and said he supported Vice President Bishop’s proposal. He said it would be a good idea to have a procedure in place and said he did not wish to scrap the code of conduct for Board members.
Mr. Berggren said it was the right thing to do to have rules of conduct and agreements for communication but remarked that there was no way to censure controversy.
Vice President Bishop said she wished for Board member accountability. She raised concern that ill feelings between Commissioners weakened the Board. She said she wanted to discuss what that accountability would mean.
Commissioner Menegat said an agreement where Commissioners honored each other’s opinions so that there would be no public arguments was needed. He raised concern with the Board taking sides or acting as a sanctioning body to punish another Board member.
President Farmer said there was no way to force a Code of Conduct. He said, ultimately, it came down to persuasion.
Vice President Bishop said the Board needed to start thinking about the PGE sale and what would happen if it were denied and a public entity were formed. She said EWEB needed to take a public position on the issue regarding preference for public power.
Vice President Bishop said the Board needed to have a discussion of the Governor’s policies around fish protection and the associated costs.
WRAP-UP AND ADJOURN
The meeting adjourned at 5 p.m.
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Assistant Secretary President