Work Session Minutes - Eugene Water & Electric Board

EUGENE WATER & ELECTRIC BOARDWORK SESSIONEWEB BOARD ROOMMAY 1, 20125:30 P.M.Commissioners Present: John Simpson, President; John Brown, Vice President; BobCassidy, Rich Cunningham and Joann ErnstOthers Present: Roger Gray, Debra Smith, Tom Buckhouse, Clay Norris, Laura Ohman,Mike McCann, Patty Boyle, Mark Oberle, Eric Hiaasen, Susan Eicher, Cathy Bloom, JasonHeuser, Sue Fahey, Jeannine Parisi, Sheila Crawford, Wendi Schultz-Kerns, Dawne Howard,Lena Kostopulos, Sibyl Geiselman, Steve Mangan, Mariya Nikiforova, Gene Austin, Ron Dyer,Harvey Hall, and Taryn Johnson of the EWEB staff; Vicki Maxon, recorder.President Simpson convened the Work Session at 5:30 p.m.CARMEN-SMITH LICENSE IMPLEMENTATION PROJECT UPDATEClay Norris, Power Resources Division Director, summarized the agenda for tonight’spresentation, which will include a licensing update, a project update, a review of the economicevaluation that has been done, and review of a bond authorization for project financing. Herecalled that the Board received an economic analysis last fall that met with several questions, sothe economic analysis was re-done using the model from the Electric Resource Plan along withmethodology and assumptions that EWEB’s accounting and finance department has endorsed.He added that the relicensing team has also done some value engineering, which they believe hasshaved $10-15 million off of the project cost so far.Mr. Norris explained that staff is re-thinking the scope and timing of each piece of theproject and that in July, when staff returns to the Board with updates to the capital plan, theBoard may see some changes in the project analysis, with both updated economics and possibly apause in major construction in order to spread out costs that are driven not only by rates, buteconomics as well. He stated that the project is going well in general, and that staff is asking forauthorization tonight to go forward with a modest level of bonding as they continue to crunchnumbers and finish design work in 2012, with subsequent City Council approval and plan design.Commissioner Ernst commented that in the backgrounder the Board received,decommissioning Carmen-Smith and replacing it with gas turbines at the end of the 20-yearperiod was mentioned as a possibility. She wondered if that was considered only as part ofmodeling or if that is an actual possibility. Mr. Norris replied that staff took a serious look atwhat could be done if EWEB didn’t go forward with relicensing--would the plant be sold ordecommissioned, what would replace the capacity, etc. It was decided that the cheapestalternative would be to replace it with combustion turbines and market power purchases.

Work SessionMay 1, 2012Page 2 of 5Vice President Brown said he would like to see, in actual dollars and not just apercentage, how this project will affect rates and for how long. General Manager Gray repliedthat he thinks of that in two contexts—one, a $4-5 million stand-alone cost and two, what is theoverall rate impact of the alternatives. He added that the Board will hear later in tonight’spresentation that the rate impact for the alternatives is worse.Commissioner Cunningham commented that the federal government’s delay in issuingthe final permits for the project is inexcusable, and that this project has been on the ―frontburner‖ since he came into office some four years ago. He stated that he believes the federalgovernment needs to be held accountable for the delay, and that he thinks EWEB should contactCongressman DeFazio and Oregon’s senators and say that ―enough is enough.‖ He added that hefeels guilty about asking customers for a rate increase next May when this project has beendeliberately delayed by the federal government.President Simpson asked if there is a down side to continuing with annual relicensing andif EWEB could just continue annual renewal. Mr. Norris replied that staff doesn’t think annualrenewal is likely because it is possible that the Federal Energy Regulatory Commission (FERC)and other agencies could hold it up for various reasons.With the use of overheads and maps of the project and its boundaries, Mike McCann,Hydro License Implementation Project Manager, explained how FERC discovered that theForest Service’s Wild & Scenic River Study boundaries are overlapping the Carmen-Smithproject boundaries. Mr. McCann then explained the process involved in correcting the error sothe boundaries don’t overlap, and he added that Oregon’s Congressional delegation has beennotified of the error.Messrs. Norris and McCann then answered questions from the Board. CommissionerCunningham reiterated that EWEB should approach its Congressmen and Senators about thefederal government causing a project delay. Mr. Norris replied that September, after the 90-daycomment period has passed, would be the time to ask for help if there is still a question aboutwho has control. He noted that when FERC held their hearing, cooperation between all thegovernmental agencies involved was very good.Mr. McCann then reviewed design work and showed a mock-up of the fish ladder andspillway structure.Vice President Brown voiced concern about the economics of spending $40 million for anew fish screen for bull trout instead of just completely eliminating it. Mr. McCann furtherexplained the ladder structure and the orientation of fish toward the spillway.Vice President Brown wondered whether staff and the engineers know that all of this willwork after spending millions of ratepayer dollars on Walterville this year, as well as possibly onCarmen-Smith. Further discussion ensued. Mr. McCann reiterated that it’s all according tofederal law, and that the Department of Fish & Wildlife could require EWEB to build it whether

Work SessionMay 1, 2012Page 3 of 5it has economic value or not. Commissioner Cunningham echoed Vice President Brown’sconcern about the amount of ratepayer dollars that will be spent.Commissioner Ernst commented that even with possible decommissioning and removalof the dam, this plan still sounds like the best value of any that have been considered. Mr.McCann confirmed. Commissioner Ernst added that she would like a Board update on the workthat has been done at Walterville so far.General Manager Gray stated that this is the eighth relicensing project he has beeninvolved in in his career, and that it is one of the fastest-moving. He added that in his opinion,EWEB hasn’t been pushed that hard, and that even though the interruptions and delays arefrustrating, they are not atypical, as the average relicensing time is in the mid teen years.With the use of overheads, Mr. McCann then reviewed the planned powerhouserehabilitation, the results of value engineering, the economic evaluation, a comparison of theexpenses of relicensing vs. decommission and replacement, options for project financing, andnext steps.Vice President Brown voiced concern about spending the money now only to have thetechnology change in 14 years after EWEB gets the license, and then it will all be for naught.Mr. McCann replied with the following points:FERC says the only issue delaying the license is the Wild & Scenic River boundarycorrection, so the license should come soonMost of the design is not high-tech so won’t change significantly – with concrete andrebar, the fish screens and ladders haven’t changed that muchThe economy keeps the design team intact and moving forward – it will cost more later ifthe project is stopped and then restarted again – would rather do design now, put it on theshelf, and then move forward later – but there is some riskWith the use of overheads, Patty Boyle, Principle Project Manager, reviewed furtheradditional economic evaluation figures and discounted future costs.In response to a question from Vice President Brown, Debra Smith, Customer & SharedServices Division Director, explained the funding reserve for Carmen-Smith. Further discussionensued regarding the timing of funding and how staff is running out of things it is able to dowithout the license, in order to be ready to start implementation as soon as the license is issued.Commissioner Cassidy commented that the plan makes good sense, as the bond interestrate hasn’t been this low for 60 years.Commissioner Cunningham asked if EWEB will be hiring an owner’s representative.Mr. McCann replied that the owner’s representative hiring process has begun, and is on holdpending issuance of the license.

Work SessionMay 1, 2012Page 4 of 5FIRST QUARTER FINANCIAL REPORTMs. Smith recalled that the Board had previously asked staff to make changes in thepresentation style and that staff has included those changes in tonight’s report.With the use of overheads, Ms. Smith and Susan Eicher, General Accounting andTreasury Supervisor, reviewed the first quarter financial report and answered questions from theBoard. It was noted that the March snowstorm and resultant outages and the April substationfailure were major influences on the first quarter financials.Ms. Smith welcomed Board feedback on the new presentation style so that any desiredchanges can be made before the second quarter financial report is presented.2012 GENERAL MANAGER GOALS FIRST QUARTER REPORT-OUTGeneral Manager Gray reviewed the list of General Manager Goals the Board hadreceived preceding tonight’s meeting. Most goals are on target or have exceeded target. Henoted that because of the Water Utility financial situation which has been discussed at greatlength in previous Board meetings, the financial ratio goals will not be met, but he would like tokeep them in place, recognizing that they are long-term goals. He also noted that the Institute ofElectrical and Electronics Engineers (IEEE) reliability goals will not be met due to the Marchsnowstorm and the April substation failure. He added that the substation failure occurredbecause of circuit failure, though it had passed all previous inspections.Because of the serious Water Utility financial situation and the current water rateredesign study (in which the consultant will most likely recommend rate redesign), GeneralManager Gray proposed adding Goal 7.11, which addresses the need to explore the water ratedesign changes and to contain costs in the Water Utility, as both of these activities are necessaryto being moving toward long-term goals.Vice President Brown asked if the seven steam customers who have not yet converted areon target to do so. General Manager Gray replied that all seven are planning on being off thesteam system before deadline.Tom Buckhouse, Electric, Water and Steam Division Director, noted that the steam planthas five employees who will retire or be re-assigned, and that a layoff of those employees wouldbe the worst case scenario.Commissioner Ernst asked if the Board could get an update on the loans that wereprovided for the steam conversion customers. Steve Mangan, Key Accounts Manager, repliedthat a summary report will be provided to the Board in June.General Manager Gray added that the heating, ventilating and air conditioning (HVAC)update for the headquarters building is currently in process.

Work SessionMay 1, 2012Page 5 of 5President Simpson asked if Goals 5.1 and 5.2, OSHA-recordable incidents and number ofwork days lost to accidents, have either remained at the same level or are improving. GeneralManager Gray explained that this goal is based on the severity of an accident. He added thatinsurance rates are on a downward trend overall and that EWEB remains Safety and HealthAchievement Recommendation Program (SHARP)-eligible.President Simpson adjourned the Work Session at 7:25 p.m. with a 10-minute recessbefore the start of the Regular Session.__________________________________Assistant Secretary___________________________________President