Work Session Minutes - Eugene Water & Electric Board

EUGENE WATER & ELECTRIC BOARD
WORK SESSION
EWEB BOARD ROOM
OCTOBER 2, 2012
5:30 P.M.
Commissioners Present: John Simpson, President; John Brown, Vice President; Joann
Ernst, Rich Cunningham, and Dick Helgeson
Others Present: Roger Gray, Debra Smith, Roger Kline, Todd Simmons, Lisa Atkin, Erin
Erben, Dave Churchman, Frank Lawson, Colleen Wedin, Lisa Adkin, Mark Freeman, Mel
Damewood, Jason Heuser, Sheila Crawford, Steve Newcomb, Megan Capper, Lance Robertson,
Sibyl Geiselman, Anne Kah, Cathy Bloom, Kathy Grey, Sue Fahey, Mike Logan, Steve Mangan,
Anna Wade, Sue Palmer-Boyd, and Taryn Johnson of the EWEB staff; Vicki Maxon, recorder.
President Simpson convened the Regular Session of the Eugene Water & Electric Board
(EWEB) at 5:30 p.m.
AGENDA CHECK
President Simpson briefly reviewed the agenda for tonight’s meeting.
REGIONAL POWER AND TRANSMISSION POLICY UPDATE
With the use of overheads, Erin Erben, Power Resources & Strategic Planning Manager,
and Dave Churchman, Power Operations Manager, reviewed regional activities, regional policies
and power markets, and various regional governmental activities that EWEB is involved in.
Vice President Brown asked why EWEB’s audit didn’t expose a recent major metering
error and wondered why the auditors don’t have a checks and balance system that would have
caused them to notice it. Mr. Churchman replied that this happened just a couple of months ago,
and staff had been previously notified of the mistake and had been discussing it with BPA
previous to the audit. General Manager Gray added that this issue was an operational vs.
financial obstacle and that he isn’t sure if an audit would find a metering mistake, but he will
follow up on that with Cathy Bloom, Financial Services Manager, in order to get more
information.
Mr. Churchman noted that the faulty meter reading was caused by a problem with the
meter itself, and that it was indeed registering, but not correctly.
With the aid of overheads, Mr. Churchman then reviewed regional power market activity
and noted the current volatility of market pricing and generation fluctuations.
In response to a question from Commissioner Cunningham, General Manager Gray
briefly explained how wind, biomass, hydroelectric market, and power loads are forecast and
how they can fluctuate.

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October 2, 2012
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Vice President Brown asked if the Board can be confident about these forecasts. General
Manager Gray replied that that is a very important question and that there are some assumptions
that need to be challenged. Ms. Erben added that the Board should continue to ask these difficult
questions so that staff can make the best choices. A brief discussion ensued regarding
hydroelectric load forecasts, the liquidity of the power market, etc.
Jason Heuser, Legislative Representative, gave the Board a governmental affairs update.
With the use of overheads, he reviewed EWEB’s Energy Supplier Assessment (ESA) payments
from 2006-2012.
Vice President Brown asked how long it will take to reverse and reduce these payments
and to fight this issue. Mr. Heuser replied that investor-owned utilities (IOUs), gas distributors
and wind farm personnel have formed a coalition to fight this issue (with a “full court press”),
and that EWEB has allies in several key legislators, i.e., Senator Betsy Johnson of Scappoose,
and Chris Edwards locally. He said the main issue is the necessity for the Oregon Department of
Energy (ODOE) to do full transparency.
With the use of overheads, Mr. Heuser then reviewed BPA’s hydro efficiency renewable
energy credits (RECS) and how EWEB will endeavor to influence the completion of ODOE’s
rulemaking process to address these RECS due to the fact that ODOE is in “analysis paralysis.”
He added that EWEB is basically adopting a “no REC left behind” philosophy.
Commissioner Ernst recalled that last year’s audit addressed the need to show RECS in a
different way on EWEB’s books. She asked if there is a different price range for RECs and if
there are projections on their rise and fall. Ms. Erben replied that in the longer term, prices are
higher, and in-state resources are generally higher (approximately $1/mWhr).
Commissioner Ernst then asked for a brief explanation of the University of Oregon’s
cogeneration system. Mr. Churchman explained that their cogeneration is with natural gas that
they intend to sell to the power market, and that currently EWEB buys energy from them at a
favorable price, approximately $2 below market price. He added that the contract with the
University is riskless for EWEB and is tagged to the hourly index, as it has been fairly
reasonable.
Commissioner Ernst then asked why EWEB is buying that additional power. Mr.
Churchman replied that it is a marketing mechanism for the University until they are able to
arrange a long-term contract, and he added that EWEB is making money on this transaction.
Commissioner Cunningham said he would like staff to send the Board a chart that shows
all the renewable energy options and their prices. President Simpson concurred, and said it
would be helpful to see that chart about three times a year.
Ms. Erben noted that a lot of that information is a part of the Integrated Energy Resource
Plan (IERP), and that staff will be giving the Board an annual update on it in early 2013.

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2013 CUSTOMER GENERATION RATES
With the use of overheads, Ms. Erben, Mark Freeman, Customer Services & Energy
Management Manager; Sibyl Geiselman, Energy Resource Analyst; and Colleen Wedin, Solar
Programs Lead, reviewed the proposed updates for three customer generation rates - the
renewable net metered rate, the annual renewable generation purchase rate, and the long-term
renewable generation purchase rate - which would go into effect in 2013. Staff sought approval
for these updates with adoption of a Resolution later in tonight’s meeting.
President Simpson asked about the volatility of natural gas prices. Ms. Erben replied that
unless policy changes are made, gas prices could stay low for a long time, even for a decade or
more.
Commissioner Ernst asked how much a carbon tax would level the playing field. Ms.
Erben replied that that would depend on how high the tax is, but she noted that legislative
appetite for carbon has fallen off considerably.
Commissioner Helgeson asked for confirmation of the parameters for long-term
arrangements. Ms. Wedin replied that the size threshold was reduced to 200 KW in April 2012.
Commissioner Helgeson then asked if the proposed 5.93 c/kWh long-term renewable
generation purchase rate would be applied for 20 years. Ms. Erben replied that it would indeed
apply to any customers who signed a contract for that year.
Vice President Brown said he feels like there is a mixed message being sent regarding
natural gas vs. no natural gas. Ms. Erben explained that EWEB is not facilitating the
University’s generation and that it was the University’s decision, and that EWEB provided
customer service to assist them for a short period of time, but they will generate regardless of
whether or not EWEB assists them.
General Manager Gray reminded the Board that EWEB didn’t encourage or discourage
the University’s project, and that it is not an economic transaction.
Commissioner Ernst recalled that when she first came on the Board, she had said that
EWEB should invest in distributed energy. She referenced the 6 th Energy Plan and said that at
that time EWEB offered solar photovoltaic at a good price, and then decided to purchase
additional energy via the Seneca biomass plant. She added that she is discouraged that EWEB
seems to have a negative attitude toward solar, but that she believes that solar does work in the
Northwest, and though it is now referred to as lost revenue, she believes it offsets EWEB’s need
to purchase power, and in a way that is a savings. She noted that other utilities (even the IOUs)
are continuing to invest in photovoltaic.

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Commissioner Ernst said that she believes in EWEB’s Green Power program, but that she
assumed it would be budgeted so that the customers who signed up would have the money to
participate in it, and that now that program has been cut back and turned into sort of a lottery.
She said she believes that if the Board drops the price as staff has recommended, the solar
program will be gutted, and that she believes that the customers who have photovoltaic definitely
need to be paid at least what they’re paying into the system for retail so that they won’t lose
money.
Commissioner Ernst then reiterated a previous question about what EWEB spends for
power in this program. Ms. Wedin replied that annually it is static, about $300,000, and that the
retail offset with the generation credit is about $80,000 per year, with 55% of residential offset at
retail and 45% offset at the generation credit rate. She added that commercial net metering is at
20% and 70%. Ms. Erben added that $.75 million was spent on solar in 2011.
Commissioner Ernst reiterated that she feels strongly that she does not believe this is the
time to pull the rug out from under the photovoltaic program, and she noted that many of those
customers are also in the Green Power program. She confirmed that she will not be supporting
this budget cut.
Ms. Erben noted that the budget assumes no subsidies for solar because the Board had
previously directed that, and that the Green Power program is funded by customer contribution
so it’s outside of the budget.
Ms. Erben then briefly reviewed the history of the program and showed that EWEB is
actually doing more for the participating customers than they used to, and doing more for fewer
customers. She noted that the incentives are the subsidy and the avoided cost is separate.
Commissioner Cunningham commented that some of EWEB’s contracts have gone by
the wayside, and he believes photovoltaic is not cost-effective right now. He reminded the
Board that General Manager Gray inherited a mess, and that he’s not going to be a Monday
morning quarterback, but that even though the Board thought it was the right thing to do at the
time, they were wrong, and he wishes to move forward.
President Simpson recalled that Commissioner Ernst had expressed distaste for the
surplus generation payment being fed back into the system. He asked if he is correct that this is
relatively rare and if he is correct in thinking that, for the most part, each site consumes more
energy in total and then it never flows back.
Ms. Wedin replied that in a study of 100 customers, the average annual generation credit
was $114.
President Simpson asked if it is true that only four out of 240 customers would be
subjected to this rate, with money fed back into the system. Ms. Erben replied that at the end of
the year, there will be four customers who are net generators. Ms. Wedin added that generation

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figures are trued up monthly and that the annual average offset in 2011 was the $114 in
generation credit, and that at 2.9%, that average credit would drop to about $86.
FINANCIAL STRATEGIES
General Manager Gray reminded the Board that staff is looking for feedback on whether
or not to proceed with certain financial strategies.
Ms. Bloom gave a brief review of the July 17, 2012 Board presentation and then, with the
use of overheads, she reviewed the following electric financial strategies:
2013 Financial Challenges
Reduced projected rate increase from over 20% to 8% through management actions
taken in 2012
Low debt service coverage ratio
Financial Ratings Impacted
Fitch and Moody’s
2014 Financial Strategies to Retain AA Rating
Ms. Bloom reviewed graphs depicting the long-term electric financial plan rate
assumptions, the long-term financial plan projected reserves and cash balances, the long-term
electric financial plan, electric reserves and targets, and historic and projected debt service
coverage.
Ms. Bloom then reviewed the next steps in this process:
Close funding gap in 2014 to retain AA rating
- Debt service coverage/funding gap 15-20% rate increase or $17-22 million
Financial analysis model to capture initiatives to reduce gap
Return to the Board in first quarter 2013 with recommendations
Examples of some initiatives are:
- Generation resources
- Sharing EWEB headquarters
- Sale of undeveloped property
- Sale of longer-term power
- Designated funds to advance refund debt
Ms. Bloom answered several clarifying questions from the Board.

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General Manager Gray noted that every one of these transactions would require Board
approval in the future. He then asked the Board if any of the above should be taken off the table,
or if anything new needs to be put on.
Vice President Brown voiced his support for everything on the list, but he wondered what
would be wrong with having a conversation with the City of Eugene about EWEB’s contribution
in lieu of taxes (CILT).
General Manager Gray replied that staff is pursuing several activities with the City that
are independent of this list, and that Master Plan negotiation can also be added to the list for
consideration. He added that staff is looking into a couple of calculations independently and that
Ms. Bloom has been discussing this with her counterpart at the City of Eugene.
President Simpson called for a poll of the Board, and asked each Board member to take
approximately two minutes each to identify any items that they wish to remove from the list.
Commissioner Helgeson commented that he doesn’t wish to pull anything off the table in
terms of closing the funding gap to retain EWEB’s AA bond rating. Regarding generation
resources, he commented that there is a tradeoff between minimizing short-term losses and
balancing those with retaining potential long-term benefits and returns, and that he is worried
that losses may be locked in. He added that this too shall pass at some point, but maybe not in a
relevant time frame for contracts, and that if current inventory is entirely liquidated in order to
lock in a better price, then EWEB is left with having to replace resources at some point in time.
Commissioner Ernst commented that even though she believed her earlier comments
were negative regarding staff’s photovoltaic decision, she applauds General Manager Gray in
this instance. She noted that he has brought all groups within EWEB together to make these
types of decisions, and that he has guided the Board and EWEB in a much better way on down
the line.
Commissioner Ernst voiced agreement with Commissioner Helgeson regarding
generation resources. She noted that EWEB has prided itself on being a green utility except for
biomass plants and wind energy, and she believes that those were good decisions. She added
that for the ward she represents, she would like to see the dirty power go away (biomass, etc.)
and keep the green power.
She then voiced support for all the items on the list, with the addition of addressing
EWEB’s CILT. She thanked staff for their hard work.
President Simpson commented that he wants to guard against locking out too many
generation resources, and that while he supports generation resources, staff needs to do this with
a wide eye toward obtaining the appropriate renewables and not putting them on the chopping
block because of EWEB’s present financial situation.

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Strongly support shared headquarters concept. Not looking for a sweet deal for the City
but don’t want to be unyielding in negotiations either.
Be careful to be mindful of the upcoming adjustment to the urban growth boundary
(UGB), i.e., the Clear Lake property that was tagged for a new substation (for example,
maybe sell half the property)
Support examining a reduction in CILT
In general, take nothing off the list
Vice President Brown:
In favor of generation resources
Real estate - hundreds of thousands of acres of forest land up the McKenzie that are
worth a lot of money – a substantial resource
Prioritize properties if they’re not developed with green re: UGB, neighborhood groups,
etc.
Commissioner Cunningham voiced support for those items listed in addition to
addressing the CILT.
General Manager Gray summarized that there will be no fire sale on generation resources
and that this subject will be discussed again in very fine detail within his management group.
He reminded the Board that they can’t discuss potential bid prices in public, but that
some resources have already been analyzed, and some are good candidates and some are not. He
noted that the newer acquisitions are the more expensive, and thus those may be the better
candidates for possible sale.
EWEB has the option to sell assets in a different fashion, and to sell power as a
contract as part of the portfolio
Staff will consider neighborhood groups and the UGB, and how EWEB will
expand as a utility (i.e., service territory)
Sharing EWEB headquarters is financially very attractive
CILT adjustment may be very small. There will be continuing discussion with the
City, and the Board should also discuss this with City Councilors
Regarding the sharing of EWEB headquarters, Commissioner Ernst asked for
clarification that the City would own part of the building, and not rent it. General Manager Gray
said that is true.
General Manager Gray noted that the timeline for the above-listed items is as they come
up as a priority. He noted that with a combination of potential candidates will be bid with Board
approval, and there is a possibility that an executive session will be required if the Board wants
to discuss this in advance.

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He also noted that property transactions will be approved by the Board but that staff may
come to them for analysis ahead of time, when targeting specific transactions.
rating.
Vice President Brown asked what the down side would be if EWEB loses their AA
General Manager Gray replied that EWEB is required to meet bond covenants regarding
borrowing, and that staff can’t implement EWEB’s current business strategy with the current
financial picture, so either rates will need to be raised or some of the activities on the above list
will have to be carried out. He added that there is a possibility that staff would go to the Federal
Energy Regulatory Commission (FERC) and renegotiate to delay the relicensing of Carmen-
Smith.
President Simpson asked if inertia would be created if EWEB dipped down to a single A
rating and then came back out of it. Ms. Bloom said that it would. She added that an additional
item might be an assessment of the current electric service territory to be sure it is optimal, and
to be sure that EWEB is serving the correct customers under statute.
Commissioner Helgeson asked how much improvement in the wholesale market staff
would have to see before EWEB could address the $20 million issue. General Manager Gray
replied that there would need to be a substantially higher increase in the curve. Mr. Helgeson
asked Mr. Churchman to follow up with him regarding that question.
General Manager Gray said that it would probably be in the range of $15-20/MW higher
than the current market price, but that this item will be brought back to the Board at a later time.
Commissioner Cunningham asked how EWEB’s bond rating affects the interest rate
EWEB receives. Ms. Bloom replied that EWEB was able to get the lowest interest rate ever
(3.07%) because staff went to market at the right time. She explained that the buyers weren’t
concerned, but the bankers were clear that EWEB can’t return to the market next year without
fixing the problem, and that if EWEB’s rating is single A, that might not get the deal done, as the
bond market has changed dramatically. She closed by saying that EWEB can spend the money
to go to market, but they may not get the money, and that this would affect the trading floor and
insurance.
President Simpson adjourned the Work Session at 7:20 p.m.
__________________________________ ___________________________________
Assistant Secretary President