Preliminary Bond Offering Document - Eugene Water & Electric Board

DRAFT 8.24.12-3EUGENE WATER & ELECTRIC BOARD500 East Fourth AvenueEugene, OR 97401BOARD OF COMMISSIONERSJohn SimpsonJohn BrownJoann ErnstRich CunninghamRobert CassidyPresidentVice PresidentCommissionerCommissionerCommissionerADMINISTRATIVE STAFFRoger J. GrayDebra J. SmithCatherine D. BloomSusan J. EicherGeneral Manager and SecretaryAssistant General Manager and Assistant SecretaryFinance Manager and TreasurerAccounting and Treasury Supervisor and Assistant TreasurerGENERAL COUNSELLuvaas Cobb LawEugene, OregonSPECIAL COUNSELCable Huston Benedict Haagensen & Lloyd LLPPortland, OregonBOND COUNSELMersereau Shannon LLPPortland, OregonFINANCIAL ADVISORDelta Utility Associates, LLCEugene, OregonPRICING ADVISORSeattle-Northwest Securities CorporationSeattle, WashingtonTRUSTEEWells Fargo Bank, National AssociationPortland, OregonNo dealer, broker, salesperson or other person has been authorized by the City of Eugene or the Eugene Water & Electric Boardor the Underwriter to give any information or to make any representations in connection with the offering and sale of the Series2012 Bonds other than as contained in this Official Statement, and if given or made, such other information or representationsmust not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer tosell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2012 Bonds by any person in any jurisdiction inwhich it is unlawful for such person to make such offer, solicitation or sale.The information set forth herein has been furnished by the Eugene Water & Electric Board and the City of Eugene and includesinformation obtained from sources which the Eugene Water & Electric Board and the City of Eugene believe to be reliable. Theinformation and expressions of opinion contained herein are subject to change without notice, and neither the delivery of thisOfficial Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been nochange in the affairs of the Eugene Water & Electric Board or the City of Eugene.

DRAFT 8.24.12-3The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed theinformation set forth in this Official Statement in accordance with, and as part of, their respective responsibilities to investors underthe federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee theaccuracy or completeness of such information.In connection with the offering of the Series 2012 Bonds, the Underwriter may over-allot or effect transactions that stabilize ormaintain the market price of the Series 2012 Bonds at a level above that which might otherwise prevail in the open market. Suchstabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2012 Bonds to certaindealers (including dealers depositing Series 2012 Bonds into investment trusts) and others at prices lower than the initial offeringprices (or prices corresponding to the yields) set forth on the cover, and such initial offering prices may be changed, from time totime, by the Underwriter.In connection with its report on the audited financial statements of EWEB (see Appendix B), Moss Adams LLP has provided thefollowing language for inclusion in this Official Statement: “Moss Adams LLP, our independent auditor, has not been engaged toperform and has not performed, since the date of its report included herein, any procedures on the financial statements addressedin that report. Moss Adams LLP also has not performed any procedures relating to this Official Statement.”CAUTIONARY STATEMENT REGARDING FORWARD-LOOKINGSTATEMENTS IN THIS OFFICIAL STATEMENTCertain statements included or incorporated by reference in this Official Statement constitute projections or estimates offuture events, generally known as forward-looking statements. These statements are generally identifiable by theterminology used such as “plan,” “expect,” “estimate,” “budget” “forecast” “projected” or other similar words. Theseforward-looking statements include, but are not limited to, the information under the captions “SECURITY FOR THESERIES 2012 BONDS,” “THE ELECTRIC SYSTEM,” “EWEB’S POWER SUPPLY,” “OTHER EWEB PROJECTS,” and“ECONOMIC AND DEMOGRAPHIC INFORMATION” herein.The achievement of certain results or other expectations contained in such forward-looking statements involves known andunknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to bematerially different from any future results, performance or achievements expressed or implied by these forward-lookingstatements. EWEB does not plan to issue any updates or revisions to those forward-looking statements if or when changesin its expectations, or events, conditions or circumstances on which such statements are based occur.The prospective financial information included in this Official Statement has been prepared by, and is the responsibility of,EWEB’s management. This prospective financial information was not prepared with a view toward compliance with theguidelines established by the American Institute of Certified Public Accountants for preparation of and presentation ofprospective financial information. Moss Adams LLP has neither examined nor compiled the accompanying prospectivefinancial information and, accordingly, Moss Adams LLP does not express an opinion or any other form of assurance withrespect thereto. The Moss Adams LLP report included in Appendix B to this Official Statement relates to EWEB’shistorical financial information. It does not extend to the prospective financial information and should not be read to do so.

DRAFT 8.24.12-3PRELIMINARY OFFICIAL STATEMENT$68,765,000*CITY OF EUGENE, OREGONELECTRIC UTILITY SYSTEMREVENUE AND REFUNDING BONDSSERIES 2012INTRODUCTIONThe Eugene Water & Electric Board (the “Board” or “EWEB”), an agency of the City of Eugene, Oregon (the “City” or“Eugene”), furnishes this Official Statement in connection with the offering of $68,765,000* original principal amount of Cityof Eugene, Oregon Electric Utility System Revenue and Refunding Bonds, Series 2012 (the “Series 2012 Bonds”).This Official Statement, which includes the cover page, inside cover and appendices hereto, sets forth information concerning theSeries 2012 Bonds, the City, EWEB and the Electric System, as defined herein.The Series 2012 Bonds are issued pursuant to the laws of the State of Oregon, the Charter of the City, a Resolution adopted by EWEBon June 16, 1986 (the “Master Resolution”), a resolution of the City Council adopted on June 25, 2001, Resolution No. 1209adopted by EWEB on May 1, 2012, Resolution No. 5061 adopted by the City Council on May 29, 2012, and SupplementalResolution No. 1212 adopted by EWEB on August 7, 2012. The Master Resolution and EWEB Supplemental Resolution No.1212 are referred to herein as the “Resolution.” The Series 2012 Bonds are being issued under the authority of OregonRevised Statutes Section (“ORS”) 287A.150 et seq. and 287A.360. See Appendix C – “SUMMARY OF CERTAINPROVISIONS OF THE MASTER RESOLUTION.”The Series 2012 Bonds are being issued (i) to finance the design, construction, installation and equipping of certain capitalimprovements related to the relicensing of the Carmen-Smith Hydroelectric Project, (ii) to refund certain outstandingelectric utility system revenue bonds, (iii) to fund the Reserve Account Requirement, and (iv) to pay certain costs of issuingthe Series 2012 Bonds. See “THE PROJECTS.”As of August 1, 2012, EWEB has $231,277,556 (1) in aggregate principal amount outstanding of its Electric Utility SystemRevenue Bonds, which are outstanding in eight separate series: Series 2001A, Series 2002C, Series 2003, Series 2005,Series 2006, Series 2008, Series 2011A and Series 2011B (collectively, the “Outstanding Bonds”). A portion of theproceeds of the Series 2012 Bonds will be used to currently refund the Series 2002C Bonds and advance refund the Series2003 Bonds. The Series 2012 Bonds will be issued under the Master Resolution and are payable on parity from the NetRevenues of the Electric System with the Outstanding Bonds and any Additional Bonds issued under the Master Resolution.Subsequent to the issuance of the Series 2012 Bonds, there will be $264,122,556* (1) in aggregate principal amount of paritybonds outstanding. The Outstanding Bonds, the Series 2012 Bonds and any Additional Bonds issued hereafter are referredto in this Official Statement as “Electric Utility System Revenue Bonds.” All Electric Utility System Revenue Bonds shall beequally and ratably payable and secured without priority.Additionally, EWEB has a taxable junior lien credit facility with Bank of America which matures May 2015 and isoutstanding in the amount of $31,755,160, to finance EWEB’s net costs in the Harvest Wind Project. See “SECURITYFOR THE SERIES 2012 BONDS – Anticipated Future Financings.”Certain capitalized words and phrases used in this Official Statement have the meanings as defined in the Resolution, unlessthe context shall clearly indicate that another meaning is intended. See Appendix C – “SUMMARY OF CERTAINPROVISIONS OF THE MASTER RESOLUTION.”___________________________* Preliminary, subject to change.(1) Does not include the accreted value of the Series 2001A deferred interest Bonds.1

DRAFT 8.24.12-3DESCRIPTION OF THE SERIES 2012 BONDSGeneralThe Series 2012 Bonds will be issued in the principal amount shown on the inside cover of this Official Statement and will bedated the Date of Delivery. The Series 2012 Bonds will bear interest commencing the Date of Delivery and will be payable onFebruary 1, 2013, and on each August 1 and February 1 thereafter at the rates per annum specified on the inside cover of thisOfficial Statement. Interest on the Series 2012 Bonds shall be computed on the basis of a 360-day year of twelve 30-daymonths. The Series 2012 Bonds will mature in the amounts and the years set forth on the inside cover of this OfficialStatement. Wells Fargo Bank, National Association, Portland, Oregon (the “Trustee”) will act as Trustee, Paying Agent andRegistrar for the Series 2012 Bonds.Optional RedemptionThe Series 2012 Bonds maturing on and before __________, will not be subject to optional redemption prior to theirrespective maturities. The Series 2012 Bonds maturing on or after __________, are subject to redemption on or after_____________, at the option of EWEB, in whole or in part at any time, at a price of one hundred percent (100%) of theprincipal amount thereof, plus accrued interest to the date of redemption.Mandatory Sinking Fund RedemptionIf not previously redeemed as described above, the Term Bond maturing on ___________, is subject to mandatory sinkingfund redemption, in part and by lot within a maturity as determined by DTC or the Trustee, beginning on ___________, andon each August 1 thereafter until maturity in the years and amounts as follows, at a price of one hundred percent (100%) ofthe principal amount thereof, plus accrued interest to the date of redemption:*Stated maturity.Sinking FundPayment Date (August 1)Principal AmountSelection of Series 2012 Bonds for RedemptionWhenever provision is made for redemption of less than all of the Series 2012 Bonds, EWEB shall select the particularSeries 2012 Bonds to be redeemed from among those Series 2012 Bonds which are then subject to redemption and toselection by lot for such redemption.Notice of RedemptionNotice of redemption of any Bond shall be mailed to the registered owner thereof not less than 25 days prior to theredemption date.If notice of the redemption thereof has been duly given and if moneys for the payment of a Bond (or the applicable principalamount thereof to be redeemed) at the then applicable redemption price, together with accrued interest thereon, are held forthe purpose of paying of such Bond, then such Bond (or the principal amount thereof to be redeemed) so called forredemption shall, on the redemption date designated in the redemption notice, become due and payable and interest thereon(or the principal amount thereof to be redeemed) shall cease to accrue.Debt Repayment RecordEWEB has promptly met all principal and interest payments on its outstanding bonds. EWEB has not defaulted on a paymentof principal of or interest on any of its bonds.Book Entry SystemThe Depository Trust Company, New York, New York (“DTC”), will act as Securities Depository for the Series 2012Bonds. The Series 2012 Bonds will be issued as fully registered bonds registered in the name of Cede & Co. Uponissuance of the Series 2012 Bonds, a single bond, registered in the name of Cede & Co., as the nominee of DTC, will beissued for each bond maturity. See Appendix E — “THE DEPOSITORY TRUST COMPANY” for information regardingDTC and its book-entry system.2

DRAFT 8.24.12-3SECURITY FOR THE SERIES 2012 BONDSThe following summarizes the security for the Series 2012 Bonds. See Appendix C – “SUMMARY OF CERTAINPROVISIONS OF THE MASTER RESOLUTION” for further information.Electric System RevenuesThe Series 2012 Bonds are payable solely from and secured by a pledge of the Net Revenues of the Electric System, on aparity with the Outstanding Bonds. The Master Resolution defines Net Revenues for any period as the Revenues duringsuch period less the Operating Expenses during such period. The Revenues of the Electric System include, with certainexceptions, all income, fees, charges, receipts, profits, and other moneys derived by EWEB from the ownership andoperation of the Electric System, exclusive of any electric utility properties hereafter constructed or acquired by EWEB as aseparate utility system. See “OTHER EWEB PROJECTS” and Appendix C – “SUMMARY OF CERTAIN PROVISIONSOF THE MASTER RESOLUTION.”Pledge Effected by the ResolutionPursuant to the Resolution, the Series 2012 Bonds are payable on a parity with the Outstanding Bonds and any Additional Bondshereafter issued and are secured by a pledge of the Revenues of the Electric System subject to the prior charge on suchRevenues for the payment of Operating Expenses of the Electric System. All Electric Utility System Revenue Bonds shall beequally and ratably payable and secured without priority.The Electric System includes the electric utility properties and assets of EWEB, as well as additions and improvementsthereto. Operating Expenses of the Electric System include the costs and expenses of operating and maintaining the ElectricSystem. See Appendix C – “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER RESOLUTION” for furtherinformation. Pursuant to ORS 287A.310, the pledge of the Net Revenues made by EWEB is valid and binding from the time ofthe adoption of the Master Resolution. The Net Revenues so pledged and hereafter received by EWEB are immediately subjectto the lien of such pledge without any physical delivery or further act, and the lien of the pledge shall be superior to all otherclaims and liens whatsoever to the fullest extent permitted by ORS 287A.310.The Master Resolution allows for the creation of a Renewal and Replacement Fund to be funded in an amount equal to theRenewal and Replacement Fund Requirement established for each series of Electric Utility System Revenue Bonds. EWEBhas not established a Renewal and Replacement Fund Requirement for any series of Electric Utility System Revenue Bonds,and no money is credited to the Renewal and Replacement Fund.The Series 2012 Bonds do not constitute general obligations of the State of Oregon or any political subdivision thereof, includingthe City, for the payment of which ad valorem taxes are required to be levied and are not to be considered as indebtedness withinany constitutional, statutory or Charter limitation on the amount of indebtedness which the City may incur. Neither the fullfaith and credit nor the taxing power of the City is pledged to the payment of the Series 2012 Bonds.Rate CovenantEWEB has covenanted in the Master Resolution for the benefit of the Owners of the Series 2012 Bonds that it will fix,establish and collect rates and charges for electric power and energy and other services or facilities sold, furnished orsupplied through the facilities of the Electric System, which will be:(i) sufficient in each Fiscal Year to produce Net Revenues of the Distribution Division in such Fiscal Yearwhich, together with other moneys which lawfully may be applied to the purpose, will be at least equal to the Debt Serviceon all outstanding Electric Utility System Revenue Bonds for such Fiscal Year, and(ii) sufficient in each Fiscal Year to produce Net Revenues of the Distribution Division in such Fiscal Yearwhich, together with other moneys which lawfully may be applied to the purpose, will be equal to at least the sum of (A)Debt Service for such Fiscal Year on all Electric Utility System Revenue Bonds, (B) the amounts, if any, required to betransferred from the Revenue Fund and deposited in the Renewal and Replacement Fund in such Fiscal Year, and (C) theadditional amounts, if any, required to pay all other charges or liens whatsoever payable from the Net Revenues of theDistribution Division in such Fiscal Year.3

DRAFT 8.24.12-3The "Distribution Division" is the electric utility properties, assets and rights, real and personal, tangible and intangible,now owned by EWEB, and all properties and assets constructed or acquired as renewals, replacements, additions,improvements and betterments to and extensions of such properties and assets, including facilities for the generation,transmission and distribution of electric power and energy and the production, transmission and distribution of steam, butdoes not include (i) the City's ownership share of the Trojan Project, (ii) any Additional Generating Facilities, and (iii) anyelectric utility properties, assets and rights, real and personal, tangible and intangible, hereafter constructed or acquired byEWEB as a separate utility system, the revenues of which may be pledged to the payment of bonds issued to purchase,construct or otherwise acquire any such separate utility system. See APPENDIX C – “SUMMARY OF CERTAINPROVISIONS OF THE MASTER RESOLUTION.”Debt Service Reserve AccountThe Master Resolution established a Reserve Account that secures the payment of all Electric System Utility RevenueBonds. The Reserve Account generally is required to be funded in an amount equal to the Reserve Account Requirement,which is to be calculated upon the issuance of any series of Additional Bonds and which may be calculated at any othertime. Reserve Account Requirement means, as of the date of calculation, an amount equal to the average of the annualinstallments of Debt Service with respect to all Electric Utility Revenue System Bonds outstanding for the then current andall future Fiscal Years. Pursuant to the Master Resolution, an insurance policy, surety bond or letter of credit may be depositedinto the Reserve Account in lieu of cash. Upon issuance of the Series 2012 Bonds, the Reserve Account Requirement will be$14,294,293 (1) and will be satisfied as follows:Reserve Account upon Issuance of the Series 2012 Bonds (1)AmountCoverageSurety policies (see detail below) $7,381,003 (1) Parity / SeriesCash and investments 7,325,033 (2) ParityDeposit from Series 2012 Bond proceeds 2,000,000 (1) ParityTotal $16,706,036 (1)(1) Preliminary, subject to change.(2) Market value as of July 20, 2012.Surety Policies on Deposit with Trustee upon Issuance of the Series 2012 Bonds (1)SeriesStated PolicyAmount ProviderPolicyNumber Expiration Coverage1994 $1,837,500 MBIA (National) 15216 8/1/2022 Parity1994C 1,200,000 MBIA (National) 15527 8/1/2022 Parity2001A 2,170,402 FSA (Assured) 28097-R 8/1/2027 (2) Series2005 673,101 FSA (Assured) 204787-R 8/1/2025 (2) Series2006 1,500,000 FSA (Assured) 207217-R 8/1/2026 (2) SeriesTotal $7,381,003(1) Preliminary, subject to change.(2) Expiration of the surety policy is the earlier of (i) the Expiration date listed or (ii) the date the related series of ElectricUtility System Revenue Bonds are no longer outstanding.If the rating of an insurer providing a surety bond shall cease to have a rating in the highest rating category by both Standardand Poor’s Corporation (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”), the Master Resolution provides thatEWEB shall use reasonable efforts to replace such surety bond but EWEB shall not be required to deposit Revenues in theReserve Account in lieu of replacing such surety bond.On Nov. 30, 2011, Standard & Poor's Ratings Services affirmed its financial strength rating on National Public FinanceGuarantee Corp. (National) at 'BBB' and lowered its stand-alone credit profile (SACP) to ‘A’ from 'A+'. The outlookremains developing. On December 19, 2011, Moody's Investors Service downgraded to ‘Baa2,’ from ‘Baa1,’ the insurancefinancial strength rating of National and changed its outlook from developing to negative. On Nov. 30, 2011, Standard &Poor's Ratings Services lowered its counterparty credit and financial strength ratings on Assured Guaranty Municipal Corp.to 'AA-' from 'AA+'; the outlook is stable. On December 18, 2009, Moody's Investors Service affirmed the ‘Aa3’ insurance4

DRAFT 8.24.12-3financial strength rating (negative outlook) of Assured Guaranty Municipal Corp. (formerly, Financial Security AssuranceInc.)EWEB has used reasonable efforts to replace those surety bonds that have been downgraded below the highest ratingcategory by S&P or Moody’s. Because of the downgrades of a number of the monoline insurance companies, EWEB hasdetermined that no available market exists for surety bonds with ratings in the highest rating categories and is unable toreplace such surety bonds. See Appendix C – “SUMMARY OF CERTAIN PROVISIONS OF THE MASTERRESOLUTION” for further discussion of the Reserve Fund.Additional BondsEWEB may issue additional series of Electric Utility System Revenue Bonds on a parity with the Series 2012 Bonds and theOutstanding Bonds, provided that:(1) an Authorized Officer certifies that the average of the Net Revenues of the Distribution Division for anyconsecutive 24-month period out of the 36 months immediately preceding the issuance of the Additional Bonds shall equalnot less than one hundred twenty percent (120%) of the average of the annual Debt Service on the Electric Utility SystemRevenue Bonds then outstanding, including the Additional Bonds then proposed to be issued; or(2) there is filed with EWEB and the Trustee a certificate of a Consulting Engineer certifying that the estimatedNet Revenues of the Distribution Division, together with other moneys lawfully available, during each of the five FiscalYears commencing with:(i) for a Project, the first Fiscal Year following the Date of Commercial Operation of the Project, or(ii) for other than a Project, the Fiscal Year in which the Additional Bonds being issued are delivered,shall equal not less than one hundred thirty-five percent (135%) of Debt Service for each Fiscal Year on all Electric UtilitySystem Revenue Bonds then outstanding, including the Additional Bonds then proposed to be issued, and any ElectricUtility System Revenue Bonds not yet issued but, in the opinion of the Consulting Engineer, will be required to be issued tocomplete the construction of a project for which Electric Utility System Revenue Bonds have been issued or are then beingissued. In estimating Net Revenues, the Consulting Engineer may make certain adjustments as set forth in the MasterResolution.Paragraphs 1 and 2 set forth above do not apply to any series of Additional Bonds issued to pay (1) a portion of the Cost ofAcquisition and Construction of a Project with respect to which the certificates referred to in such paragraphs 1 and 2 werefiled in connection with the issuance of the initial series of Electric Utility System Revenue Bonds issued to pay the Cost ofAcquisition and Construction of such Project; or (2) the costs of preliminary and development work, including engineering,legal and financial studies, in connection with the planning, development and determination of the feasibility of electricgeneration or transmission facilities if immediately after the issuance of such series of Additional Bonds the aggregateprincipal amount of Electric Utility System Revenue Bonds outstanding which have been issued to pay such costs shall notexceed $4,000,000; or (3) the Cost of Acquisition and Construction of any renewals, replacements, repairs, modifications,additions, betterments, improvements and extensions of a Project or any decommissioning or termination of a Project which(a) in the opinion of the Consulting Engineer (as evidenced by a certificate filed with EWEB and the Trustee) is necessaryto achieve design capability or required by any governmental agency or authority, or (b) in the opinion of the ConsultingEngineer (as evidenced by a certificate filed with EWEB and the Trustee) is necessary or desirable to improve operatingreliability or to reduce unit power costs or to prevent a loss of Revenues; or (4) the cost of preventing or correcting anyunusual loss or damage (including major repairs) to any Project or any part hereof in excess of insurance proceeds availabletherefor or for which moneys are not available in the Renewal and Replacement Fund or the Distribution System GeneralFund, or (5) extraordinary costs of Fuel for which moneys are not available in the Operating Fund, the Renewal andReplacement Fund or the Distribution System General Fund. See Appendix C – “SUMMARY OF CERTAINPROVISIONS OF THE MASTER RESOLUTION.”In addition, EWEB may issue Additional Bonds for the purpose of refunding (including by purchase) at any time all or anyportion of Electric Utility System Revenue Bonds, including amounts to pay principal, redemption premium and interest tothe date of maturity or redemption or purchase and to pay the expense of issuing the refunding bonds and of effecting suchrefunding without satisfying the conditions set forth in Paragraphs 1 and 2 above. See Appendix C – “SUMMARY OFCERTAIN PROVISIONS OF THE MASTER RESOLUTION.”5

DRAFT 8.24.12-3Outstanding DebtAs of August 1, 2012, EWEB has $231,277,556 (1) in aggregate principal amount outstanding of its Electric Utility SystemRevenue Bonds, which are outstanding in eight separate series: Series 2001A, Series 2002C, Series 2003, Series 2005,Series 2006, Series 2008, Series 2011A and Series 2011B (collectively, the “Outstanding Bonds”). A portion of theproceeds of the Series 2012 Bonds will be used to currently refund the Series 2002C Bonds and advance refund the Series2003 Bonds. The Series 2012 Bonds will be issued under the Master Resolution and are payable on parity from the NetRevenues of the Electric System with the Outstanding Bonds and any Additional Bonds issued under the Master Resolution.Subsequent to the issuance of the Series 2012 Bonds, there will be $264,122,556* (1) in aggregate principal amount of paritybonds outstanding.EWEB currently has a junior lien taxable credit facility with Bank of America maturing May 2015, and outstanding in theamount of $31,755,160, financing its net costs in the Harvest Wind Project (the “Credit Facility”).Anticipated Future FinancingsEWEB anticipates that the Federal Energy Regulatory Commission will relicense the Carmen-Smith Hydroelectric Projectin early 2013. It is expected that certain capital improvement projects will be required as part of the relicensing approval.The total remaining capital cost of the project is anticipated to be approximately $174 million, of which EWEB plans tofinance $40 million with Series 2012 Bond proceeds and issue a total of approximately $95 million in Additional Bonds in2014 and 2016. See also “EWEB’S POWER SUPPLY – EWEB-Owned Resources.”EWEB anticipates issuing approximately $85 million of Additional Bonds to pay down its Public Employees’ RetirementSystem (PERS) unfunded actuarial liability in 2013.EWEB anticipates issuing $17 million of Additional Bonds in 2015 for its automated meter project.EWEB anticipates refinancing the Credit Facility with Bank of America at maturity with the proceeds of long termAdditional Bonds of approximately $29 million in 2015.DISPOSITION OF BOND PROCEEDSThe proceeds of the Series 2012 Bonds are to be applied as follows:SOURCE OF FUNDSPar Amount* $68,765,000.00Net Original Issue Premium_________________Total$____________USE OF FUNDSDeposit to Project FundDeposit to Escrow AccountDeposit to Reserve AccountIssuance Costs**Deposit to Bond FundTotal$____________________________________________________________$____________* Preliminary, subject to change.** Including underwriter’s discount and other costs of issuance.______________________* Preliminary, subject to change.(1) Does not include the accreted value of the Series 2001A deferred interest Bonds.6

DRAFT 8.24.12-3THE PROJECTSThe Series 2012 Bonds are being issued (i) to finance the design, construction, installation and equipping of certain capitalimprovements related to the relicensing of the Carmen-Smith Hydroelectric Project, (ii) to refund certain outstandingelectric utility system revenue bonds, (iii) to fund the Reserve Account Requirement; and (iv) to pay certain costs of issuingthe Series 2012 Bonds.New Money ProjectThe Series 2012 Bonds in part will finance the design, construction, installation and equipping of certain capitalimprovements related to the relicensing of the Carmen-Smith Hydroelectric Project. See “EWEB’S POWER SUPPLY –EWEB-Owned Resources.”Refunding ProjectSeries 2002C Refunded Bonds. A portion of the proceeds of the Series 2012 Bonds[, together with other monies,] will beused to provide funds to establish an irrevocable trust escrow pursuant to an escrow deposit agreement (the “EscrowAgreement”) between EWEB and Wells Fargo Bank, National Association, as escrow agent thereunder (the “EscrowAgent”), to currently refund all or a portion of the City of Eugene, Oregon Electric System Revenue and Refunding Bonds,Series 2002C (the “2002C Refunded Bonds,”) as shown in the following table:2002C Refunded BondsSeriesTotal AmountOutstandingRefundedMaturitiesAmountRefunded*CallDateCallPrice2002C $7,690,000 2013-2022 $7,690,000 October 8, 2012 100%RefundedMaturitiesAmountRefundedCUSIP298191RefundedMaturitiesAmountRefundedCUSIP2981912013 $620,000 VW4 2018 $775,000 WB92014 650,000 VX2 2019 815,000 WC72015 680,000 VY0 2020 855,000 WD52016 710,000 VZ7 2021 900,000 WE32017 740,000 WA1 2022 945,000 WF0Certain proceeds of the Series 2012 Bonds will be deposited in the custody of the Escrow Agent either directly as cash or ascertain direct United States Treasury Obligations (referred to herein as “Government Obligations”) purchased with proceedsof the Series 2012 Bonds. The cash deposit and/or maturing principal of Government Obligations and interest a thereonwill provide for payment of interest accrued and provide funds sufficient to redeem on October 8, 2012, all of theoutstanding principal shown in the preceding table.The cash deposit and/or Government Obligations and interest earned thereon will be irrevocably pledged to and held in trustfor the benefit of the owners of the 2002C Refunded Bonds by the Escrow Agent, pursuant to the Escrow Agreement. Therefunding of the 2002C Refunded Bonds is subject to market conditions.The proceeds of the 2002C Refunded Bonds were used to enhance and modify capital improvements in generation,transmission and distribution, substations and general plant, and to defease certain principal and interest payments onEWEB’s Series 1994, Series 1996 and series 1997 Bonds.______________________* Preliminary, subject to change.7

DRAFT 8.24.12-3Series 2003 Refunded Bonds. A portion of the proceeds of the Series 2012 Bonds[, together with other monies,] will beused to provide funds to establish an irrevocable trust escrow pursuant to the Escrow Agreement between EWEB and theEscrow Agent to advance refund all or a portion of the City of Eugene, Oregon Electric Utility System Revenue andRefunding Bonds, Series 2003 (the “2003 Refunded Bonds,”) as shown in the following table:2003 Refunded BondsSeriesTotal AmountOutstandingRefundedMaturitiesAmountRefunded*CallDateCallPrice2003 $28,230,000 2013-2023 $28,230,000 August 1, 2013 100%RefundedMaturitiesAmountRefundedCUSIP298191RefundedMaturitiesAmountRefundedCUSIP2981912013 $2,125,000 XA0 2018 $2,695,000 XF92014 2,200,000 XB8 2019 2,835,000 XG72015 2,315,000 XC6 2020 2,985,000 XH52016 2,435,000 XD4 2021 3,140,000 XJ12017 2,565,000 XE2 2022 3,300,000 XK82023 1,635,000 XL6Certain proceeds of the Series 2012 Bonds will be deposited in the custody of the Escrow Agent either directly as cash or asGovernment Obligations purchased with proceeds of the Series 2012 Bonds. The cash deposit and/or maturing principal ofGovernment Obligations and interest earned thereon will provide for payment of interest accrued and provide fundssufficient to redeem on August 1, 2013, the first optional call date, a portion of the outstanding principal shown in thepreceding table.The cash deposit and/or Government Obligations and interest earned thereon will be irrevocably pledged to and held in trustfor the benefit of the owners of the 2003 Refunded Bonds by the Escrow Agent, pursuant to the Escrow Agreement. Therefunding of the 2003 Refunded Bonds is subject to market conditions.The proceeds of the 2003 Refunded Bonds were used to currently refund EWEB’s Series 1994 Bonds and Series 1998ABonds.Verification of Mathematical Computations. The Arbitrage Group (the “Verification Agent”), will deliver to EWEB, on orbefore the Date of Delivery, its verification report indicating that it has verified the mathematical accuracy of the calculationof the adequacy of cash and the maturing principal of and interest on the Government Obligations, to pay, when due, thematuring principal of, interest on and related call premium requirements of the Refunded Bonds. The verification will besolely based upon data, information and documents provided to the Verification Agent by EWEB and its representatives.The Verification Agent has not evaluated or examined the assumptions or information used in the computations.______________________* Preliminary, subject to change.[The remainder of this page intentionally left blank.]8

DRAFT 8.24.12-3ANNUAL DEBT SERVICE REQUIREMENTS*The following table shows debt service on the Outstanding Bonds and the Series 2012 Bonds.*Period Existing Debt Electric Utility System Revenue Bonds Series 2012 Aggregate DebtEnding Service (1) Principal Interest Debt Service Service (2)08/01/2013 16,200,20608/01/2014 17,305,10608/01/2015 17,477,28908/01/2016 17,778,79008/01/2017 18,110,35608/01/2018 18,452,54308/01/2019 18,825,04908/01/2020 19,233,72808/01/2021 18,665,38808/01/2022 19,081,80108/01/2023 15,228,16108/01/2024 14,390,51908/01/2025 14,496,69408/01/2026 14,146,45608/01/2027 13,279,24408/01/2028 8,709,84408/01/2029 8,606,50608/01/2030 8,606,25608/01/2031 8,600,00608/01/2032 7,956,75008/01/2033 5,919,75008/01/2034 2,223,50008/01/2035 2,224,50008/01/2036 2,226,50008/01/2037 2,224,25008/01/2038 2,222,75008/01/2039 2,221,75008/01/2040 2,226,00008/01/2041 -08/01/2042 -Total (2) 316,639,689(1)Does not include the 2002C Bonds and the 2003 Bonds to be refunded with the Bond proceeds, or the subordinatelien line of credit with Bank of America.(2)Totals may not add due to rounding.* Preliminary, subject to change.[The remainder of this page intentionally left blank.]9

DRAFT 8.24.12-3The following table shows debt service on the taxable junior lien credit facility payable to Bank of America:PaymentDateInterestPortionPrincipalPortionPaymentAmount (1)EndingBalance (1)11/01/2010 $ 719,223 $ 604,597 $ 1,323,820 $ 33,395,40305/01/2011 789,801 534,018 1,323,820 32,861.38511/01/2011 777,172 546,648 1,323,820 32,314,73705/01/2012 764,244 559,576 1,323,820 31,755,16011/01/2012 751,010 572,810 1,323,820 31,182,35005/01/2013 737,463 586,357 1,323,820 30,595,99311/01/2013 723,595 600,225 1,323,820 29,995,76805/01/2014 709,400 614,420 1,323,820 29,381,34911/01/2014 694,869 628,951 1,323,820 28,752,39805/01/2015 679,994 28,752,398 29,432,392 (2) 0Total (1) $7,346,770 $34,000,000 $41,346,770(1)(2)May not add due to rounding.EWEB expects to finance the 05/01/2015 payment with the proceeds of Additional Bonds in 2015.THE EUGENE WATER & ELECTRIC BOARDThe City of Eugene, Oregon is a charter city operating under a charter most recently revised in 2002. Oregon law and thecharter authorize the City to provide electric and water systems for serving the public within and without the City.The City commenced utility operations in 1908 with the purchase of a privately owned water system. In 1911, uponcompletion of the City’s first municipal hydroelectric power plant, the City organized the Eugene Water Board to operatethe City’s electric and water utilities. The name of the Eugene Water Board was changed to the Eugene Water & ElectricBoard in 1949.The Electric System served an average of 87,699 customers in 2011, and the Water System served an average of 51,788customers in 2011. The Electric System and the Water System are operated and accounted for as separate andindependent entities. Under the direction of the General Manager and executive staff, EWEB employs approximately 539personnel for the operation of the Electric System and Water System in 2012.EWEB is an administrative unit of the City and is responsible for operating the City’s electric and water utilities. Theresponsibilities delegated to EWEB pursuant to the city charter are conducted under the direction of an elected board offive commissioners, one of which is elected at large and the remaining four are elected from districts. The commissionersare elected for four year terms. The Commissioners and the expiration dates of their respective terms of office are asfollows:Member Office Expiration DateJohn Simpson President December 31, 2014John Brown Vice President December 31, 2014Joann Ernst Commissioner December 31, 2012Rich Cunningham Commissioner December 31, 2012Robert Cassidy Commissioner December 31, 2012Three new board members have been or will be seated within the next year, as follows:1. Dick Helgeson, is an EWEB retiree (former power resource director and former water director). Mr. Helgeson’sterm begins September 2012 and he is replacing Robert Cassidy who is leaving office before the expiration of histerm.2. James Manning is a court mediator and member of a non-profit board; his term begins January 2013.3. Steve Mital, is the University of Oregon Sustainability Coordinator; his term begins January 2013.10

DRAFT 8.24.12-3EWEB’s General Manager/Secretary reports to the Board and has direct reports, which include the corporate andexecutive staff listed below:Years ofUtility ExperienceRoger J. Gray General Manager/Secretary 29Debra J. Smith Assistant General Manager/Assistant Secretary 16Catherine D. Bloom Finance Manager and Treasurer 23Susan J. Eicher Accounting and Treasury Supervisor and Assistant Treasurer 9Roger J.Gray, General Manager, joined EWEB in April 2010. Before being hired to lead EWEB, Mr. Gray worked at thePacific Gas & Electric Co. for 19 years, most recently as vice president, chief information officer and member of PG&E’smanagement committee. His other management positions with PG&E included vice president of general services, directorof power market planning and energy trading, director of electric operations, director of electric resource planning, andmanager of power contracts. After retiring from PG&E in 2004, he worked as a contract executive and consultant in thetechnology, telecommunications and utility industries. Earlier in his career he worked for Los Angeles Department of Waterand Power, Southern California Edison Co. and Bechtel. Mr. Gray holds degrees in electric engineering and computerscience from the University of California, Berkeley.Debra J. Smith, Assistant General Manager and Assistant Secretary, joined EWEB in 1996, and has held various positionsincluding Staff Accountant, Risk Manager and Telecommunications Development Manager. Ms. Smith has a Bachelor ofScience Degree in Business from Arizona State University. Prior to coming to EWEB, she worked in private industry andbanking as a financial analyst, controller, and chief financial officer. Ms. Smith was appointed a Director in 2004 and wasappointed Assistant General Manager in 2012.Catherine D. Bloom was appointed Treasurer in 2011, and previously served as Assistant Treasurer from 1995 through2010. Ms. Bloom received a Bachelor of Science Degree in Accounting from the University of Oregon and has beenassociated with EWEB since 1989. After serving as Senior Auditor and Accounting Analyst, Ms. Bloom was appointed tothe position of General Accounting Supervisor in 1995 and Finance Manager in 2011. Prior to joining EWEB, Ms. Bloomwas employed as an auditor for Coopers & Lybrand. She is a Certified Public Accountant.Susan J. Eicher was appointed Assistant Treasurer in 2011. Ms. Eicher received a Bachelor of Science Degree inAccounting from the University of Oregon and has been associated with EWEB since 2003. After serving as SeniorAccountant and Senior Financial Analyst, Ms. Eicher was appointed to the position of General Accounting and TreasurySupervisor in 2011. Prior to joining EWEB, Ms. Eicher was employed as an audit manager for Moss Adams LLP. She is aCertified Public Accountant.EWEB'S UTILITY SERVICES11EWEB is the primary supplier of water and electricpower services to the City and certain neighboringcommunities. Its stated mission is "to be theoutstanding provider of energy and water productsthat meet customers' needs and benefit the citizens ofEugene." While the Water System and ElectricSystem are operated and accounted for separately,EWEB and its management approach the delivery ofservices in a unified fashion. EWEB recognizes thatthe decisions and actions affecting one system canhave important effects on the other. Thus, whereverpossible, decisions and actions for one system areimplemented in a manner that seeks to minimizerisks and optimize benefits to the other system. Itsfive-member Board of Commissioners is elected bythe citizens of the City of Eugene and retains fullcontrol of policies and rate-setting activity for theWater and Electric Systems, as well as the steamsystem (the “Steam System”), which operated in

DRAFT 8.24.12-3conjunction with the Water System, was organized and accounted for as part of the Electric System and was shut down inJune 2012.Water SystemEWEB delivered water to approximately 51,800 retail customers in 2011 and sold water wholesale to two water districts.Water is supplied from the McKenzie River and is treated at the Hayden Bridge Filtration Plant, one of the largest treatmentplants in Oregon. The Water System generated $23.7 million in revenue in 2011, about 11.8 percent of EWEB's total retailsales revenue.Electric SystemEWEB is the largest publicly owned electric utility in Oregon and in 2012 serves approximately 88,000 retail electriccustomers. In 2011 retail customers used over 2.4 billion kilowatt-hours at an average rate of 7.15 cents per kilowatt-hour.Electric service is furnished within the city limits of Eugene and to specified areas outside the city limits. EWEB's servicearea in and around the City adjoins the City of Springfield's system on the east, the Emerald People's Utility District's systemand the Blachly-Lane County Electric Cooperative's system, both on the west, and Lane Electric Cooperative's system onthe south. EWEB also provides service to International Paper’s operation within the Springfield city boundary. The totalservice area covers 234 square miles. EWEB supplies power to its customers through its nine generating facilities, pluspurchases from the Bonneville Power Administration (“Bonneville”) and other power providers. Electric System operatingrevenues were approximately $263.1 million in 2011. See “THE ELECTRIC SYSTEM.”Steam ServicesThe Steam System, which operated in conjunction with the Electric System, consists of a production plant located on theWillamette River just upstream from EWEB's headquarters building and a district heating system which provided service inthe downtown area of Eugene. The Steam System’s 2011 revenues of approximately $3.3 million are included in theElectric System’s 2011 revenues. In 2008, EWEB adopted a resolution instructing staff to implement a Transition Plan.The Transition Plan was developed to assist EWEB’s steam customers’ transition off the district heating system to othersources of heating energy, and to shut down the Steam System. The Transition Plan was completed and the Steam Systemfacilities were shut down in June 2012.AdministrationTHE ELECTRIC SYSTEMThe Electric System is operated as an independent system of EWEB. The generation, transmission and distributionfacilities are managed by the Assistant General Manager, who reports to the General Manager. The Electric System hasbeen in operation for over 100 years and currently has plant in service valued at over $671 million.Service AreaEWEB provides electricity to a 234-square mile area, including the City, adjacent suburban areas, and areas near theWalterville and Leaburg hydroelectric plants. The Electric System service area in and around the City adjoins the City ofSpringfield’s system on the east, the Emerald People’s Utility District’s system and the Blachly-Lane Electric Cooperative’ssystem, both on the west, and Lane Electric Cooperative’s system on the south. EWEB also provides electric service toInternational Paper Company’s operation within the Springfield city boundary. The Electric System includes the electricutility properties, assets and rights now owned by EWEB, and all properties and assets constructed or acquired as renewals,replacements, additions, improvements and betterments to and extensions of such properties and assets, including facilitiesfor the generation, transmission and distribution of electric power and energy, excluding: (i) the City’s ownership share ofthe Trojan Project; and (ii) any electric utility properties, assets and rights hereafter constructed or acquired by EWEB as aseparate utility system, the revenues of which may be pledged to the payment of bonds issued to purchase, construct orotherwise acquire any such separate utility system. No such separate utility system described in (ii) currently exists.12

DRAFT 8.24.12-3Transmission and DistributionEWEB's 115 and 69 kV electric transmission system includes eleven points of interconnection with neighboring Bonnevilleand PacifiCorp transmission grids. EWEB's 35 electric distribution substations, serving customers in and around the City ofEugene, are interconnected through 130 circuit miles of transmission line.EWEB's hydroelectric and cogeneration projects also interconnect with this transmission network. Outside of the Eugenearea, EWEB owns 37 circuit miles of 115 kV transmission lines that interconnect its Smith Falls and Stone Creekhydroelectric projects to the northwest grid.EWEB's 12.47 kV distribution system serves approximately 88,000 customers via 1,099 circuit miles of overhead andunderground lines. Eugene's downtown business district is served by a low voltage secondary network system.In 2001, EWEB signed the Network Integration Transmission Service (“NT”) contract with Bonneville PowerAdministration (“BPA” or “Bonneville”) to provide transmission for EWEB’s generation projects and Bonneville powercontracts. The NT contract has been renewed twice, and in 2008 was extended through September 20, 2028, to comportwith the new power purchase contract.EWEB arranges for point-to-point transmission on an as needed basis to support sales of surplus power to variouscounterparties.RatesEWEB has, by City Charter and Oregon law, exclusive jurisdiction to fix rates for electric service within its service area.Information regarding covenants of EWEB with respect to electric rates is set forth in Appendix C - “SUMMARY OFCERTAIN PROVISIONS OF THE MASTER RESOLUTION.” As part of its annual planning and budgeting process,EWEB examines the cost of providing electric service to determine if rates are sufficient to fund all operating costs andexpenses, repairs, replacements, debt service and capital additions to the Electric System. If there appears to be a need toadjust rates, a formal cost of service study is performed. The primary cornerstone of the cost of service study is to establishrates that, to the maximum extent feasible, do not include cross-subsidies among rate classes. At the end of the study, staffdevelops a rate proposal. EWEB then holds two public hearings to gather public comment on the rate proposal. Once thepublic comments have been considered, EWEB may modify or adopt the new rates. The last formal cost of service studywas performed in February 2012 which supported the 5.5% rate increase effective May 2012.Rate Adjustment Mechanisms. In addition to the base rate adjustments, EWEB implemented two additional rate adjustmentmechanisms in 2001 to allow interim rate changes with reduced process requirements. The first is a Power Cost RecoveryAdjustment (“PCRA”). This is a retrospective comparison of planned and actual net power costs for the prior year. If thereis a significant variation in net power costs, EWEB may surcharge or credit future bills to recover the difference. Thesecond rate adjustment mechanism is a Bonneville Cost Recovery Adjustment (“BPA CRA”). This is a prospective view ofthe BPA costs for the upcoming 6-month period in comparison to the BPA costs included in current rates (BPA has theability to adjust its rates to EWEB every 6 months). If there is a significant difference in budgeted rates as compared toactual rates, EWEB may adjust rates to reflect expected BPA costs for the upcoming 6-month period. See the chart belowfor a history of rate adjustments.Rate HistoryThe following is a summary of the net rate changes over the last 5 years, which include base rate adjustments and rateadjustment mechanisms:Effective DatePercentageMay 2008 (1.8)November 2009 5.0May 2010 1.9May 2011 3.1November 2011 5.0May 2012 5.513

DRAFT 8.24.12-3The average annual usage for the Electric System’s residential customers in 2011 was 12,654 kWh. The 2011 average rateper kWh for residential service was 8.9 cents. The 2011 average rate for commercial and industrial service was 5.9 centsper kWh.The tables below illustrate how certain of EWEB’s electric rates compare to other regional electric suppliers as of February2012. EWEB estimates reflect the 5.5% rate increase effective May 2012. Other utility estimates are from a February 2012rate survey performed by EWEB staff. The Annual Retail Bill Comparison below is based on specific schedules for eachSupplier listed. The use of other schedules applicable to particular customers will yield different results.Annual Retail Bill Comparison as of February 201214Medium General(216 kW,158,428 kWh)Large General(1,425 kW,529,221 kWh)ResidentialSupplier(1,050 kWh)Portland General Electric $1,366 $137,032 $412,188Pacific Power & Light $1,315 $125,634 $427,366Puget Sound Energy $1,224 $149,491 $522,678EWEB (1) $1,197 $116,227 $386,382Clark Public Utilities $1,172 $107,391 $401,767Snohomish PUD $1,082 $124,701 $423,810Seattle City Light $1,047 $115,316 $378,554Salem Electric $1,025 $109,083 $416,856Tacoma Power $903 $81,549 $318,462Springfield Utility Board $715 $80,928 $324,934(1) Includes May 2012 rate increase of 5.5%.Source: EWEB staff rate surveys.DelinquenciesEWEB makes every reasonable and cost-effective attempt to secure payment of all accounts receivable. In accordance withbond covenants, products and services are not provided free of charge. Bills are issued based upon actual use of productsand services, except that billings are estimated when EWEB service meters are inaccessible, or other considerationsnecessitate issuing estimated billings. EWEB’s five year average write off rate as a percent of revenue for 2011 was 0.13 %.Largest Retail CustomersEWEB’s five largest retail customers accounted for 25.0% of sales (kWh) and 14.3% of retail revenues of the ElectricSystem in 2011. EWEB has modeled the hypothetical loss of loads from its largest customers; the impact of the loss of anyone of its large customers would be an average retail rate increase of less than 2 percent.The following table shows the respective loads and revenues for the five largest retail customers of EWEB during 2011:Wholesale Power SalesCustomerRevenues% of TotalRevenues kWh% of TotalkWhInternational Paper $16,244,501 9.4% 420,954,800 17.4%University of Oregon 3,908,935 2.3% 73,706,668 3.1%Flakeboard America Ltd 2,807,370 1.6% 56,297,208 2.3%City of Eugene 1,422,359 0.8% 28,217,918 1.2%PeaceHealth 1,160,238 0.7% 24,567,288 1.0%All Other Retail 147,067,949 85.2% 1,810,732,118 75.0%Total $172,611,352 100.0% 2,414,476,000 100.0%The majority of EWEB’s power supply comes from hydroelectric generation; financial performance of the Electric Systemis largely influenced by the availability of water for generation and the prices obtainable for excess generation in thewholesale markets. EWEB sets budgets and power supply forecasts based on the historical average water available for

DRAFT 8.24.12-3generation. Budgets assume that available water for generation will be 90% of the historical average. Water available forgeneration in 2011 was 106% of the historical average (83% and 87% in 2010 and 2009, respectively). When the amount ofwater for generation is greater than 90% and prices are sufficient, additional funds are added to reserves from wholesalesales to offset potential deficits in future years.Retail rates are lower when generation volume and prices are higher. Wholesale price levels are supported by sales of outputinto forward markets and by financial instruments that have the effect of setting minimum prices for sales of secondarypower.The majority of power purchased from Bonneville is provided under “Slice of System” and “Block” contracts. See“EWEB’S POWER SUPPLY – System Purchases.”Market Purchases and Power Risk ManagementEWEB’s combination of generation and long term power supply contracts are generally sufficient to meet the ElectricSystem’s load requirements on an annual basis. EWEB purchases and sells electricity on a daily, weekly, monthly, andseasonal basis to balance resources and load. In addition, EWEB purchases financial derivatives to hedge its risk aroundwholesale price movements.EWEB’s Power Risk Management Guidelines set forth policies, limits and control systems governing power and fuelpurchase and sales activities for the Electric System. The objectives of such policies are to maximize benefits to thecustomers from wholesale activities while minimizing the risk that wholesale activities will adversely affect retail prices.During periods when resources are in excess of retail load, EWEB may sell excess capacity into the wholesale markets andis exposed to commodity price risk. EWEB enters into forward contracts intended to manage the price risk associated withpower sales in the wholesale market.EWEB utilizes derivative instruments to minimize its exposure to commodity price risk. EWEB has implementedgovernmental accounting standards for hedging derivatives that call for deferring mark to market calculations until time ofsettlement. Thus, as of December 31, 2011, there were $3 million in derivatives not yet settled and with positive mark tomarket, accounted for as other assets and deferred inflows; and there were $5 million in derivatives not yet settled withnegative mark to market accounted for as other liabilities and deferred outflows, leaving a net liability of $2 million forhedging derivatives.A hedging derivative can be found to be ineffective if, before settlement, either the customer load forecast increases orforecast resources decreases. When either event happens, hedges can be in excess of the resources needing to be hedged andare then classified as investment hedges. At that time, the fair value, including any fair value changes that had previouslybeen deferred on the balance sheet, are recorded as investment revenue and a deferred inflow or outflow. When theunderlying trades settle, the settled amounts are recorded as investment revenue, net of deferred inflows and outflows. Forthe year ended December 31, 2011, $160,000 had been recognized as investment revenue from derivatives ($224,200 in2010).EWEB enters into forward purchase and sale contracts for electricity and natural gas with utilities and marketers. EWEB isexposed to credit risk related to the possibility of non-performance by its counterparties. To limit the risk of counterpartydefault or non-performance, EWEB uses an evaluation process that assigns an internal measure of credit worthiness toEWEB’s counterparties and sets limits to the dollar value of business that can be transacted with counterparties. EWEB’scounterparties are concentrated in the wholesale energy marketing and trading sector and the banking sector, whichcomprise 70% and 30%, respectively of derivative instruments. Hedging derivative contracts may be terminated by mutualagreement of EWEB and the counterparty, or upon the occurrence of a termination event. Termination events include thenon-payment, non-delivery, deterioration of creditworthiness, or other material adverse changes, among other events,Governing documents for forward contracts are established by the International Swaps and Derivative Association (ISDA)and/or Western Systems Power Pool (WSPP), as applicable. During the years 2010, 2011 and YTD 2012 there were noterminations.SectorMaximum possible loss*Wholesale energy marketing and trading $2,229,755Banking $55,308Counterparty credit ratings (S&P) AAA through BBB+* As of June 30, 2012.15

DRAFT 8.24.12-3Historical Electric System Operating ResultsThe following table summarizes the operations of the Electric System during the period 2007 through 2011:2007 2008 2009 2010 2011Average number of customers 86,531 86,720 86,829 87,234 87,699Average annual consumption perresidential customer (kWh) 13,236 13,278 13,055 12,271 12,654MWh sales (000) (1) 2,729 2,626 2,407 2,400 2,414Peak Load 550,000 566,000 481,000 458,000 492,000Average residential revenue (centsper kWh) 7.8 8.1 8.01 8.5 8.9Average annual residential revenueper customer $1,031 $1,076 $1,042 $1,043 $1,129Retail rate increases None -1.8% 5.0% 1.9% 8.1 %Operating ratio (2) 75.9 72.8 76.4 77.9 77.9Retail revenues (3) $173,906,540 $170,067,767 $159,675,898 $166,847,502 $172,611,352Wholesale revenues (3) $78,933,015 $96,565,063 $65,306,525 $61,962,306 $65,526,661Other revenues (4) $15,508,752 $21,433,569 $13,597,779 $21,961,781 $33,018,130Revenues (3) (4) $268,348,307 $288,066,399 $238,580,202 $250,771,589 $271,156,143Expenses (5) ($212,399,801) ($216,475,978) ($193,249,260) ($205,012,392) ($219,852,074)Net Revenues available for DebtService $55,948,506 $71,590,421 $45,330,942 $45,759,197 $51,304,069Debt Service $18,658,706 $18,819,792 $22,845,141 $23,034,508 $23,243,120Debt Service Coverage 3.0x 3.8x 2.0x 2.0x 2.2xUnrestricted cash & investments (6) $78,122,592 $97,721,431 $103,171,024 $81,239,888 $86,015,719(1)(2)(3)(4)(5)(6)Represents retail sales only.Operating ratio is calculated by dividing operating expenses, less depreciation, by operating revenue.Annual variations in Revenues are largely attributable to availability of water for generation, differences in wholesalesales volume and prices at which EWEB sells surplus energy, and the rates charged by EWEB.Other revenues include regulatory credits, interest income and miscellaneous revenue.Operating expenses and other reductions, including surplus revenue payments, but excluding depreciation andamortization of conservation assets.Includes Cash and Cash Equivalents, Capital Improvement Reserve, Operating Reserve, and Pension and MedicalReserve.The audited financial statements of EWEB for 2011 and 2010 are contained in Appendix B.Intergovernmental PaymentsORS 225.270 provides that when declared surplus earnings exist for any city owned electric utility, at least 3% of grossoperating revenues shall be paid to the City. The Eugene City Charter provides for an Electric System surplus earningspayment in an amount agreed to by EWEB and the City. The agreed upon amount predates the passage of the now existingCity Charter and is 6% of Electric System gross operating revenues of retail sales and 17% of the net margin on certainElectric System wholesale sales, calculated on a monthly basis. Due to the surplus nature of earnings which are aprecondition to the payments, the payments under ORS 225.270 are not included in Operating Expenses. Payments to theCity of Electric System surplus earnings were $12,808,684 in 2010 and $13,001,690 in 2011.The Electric System also makes surplus revenue payments to the City of Springfield at the rate of 3% of certain revenues.The payments to the City of Springfield were $576,692 in 2010 and $487,335 in 2011 and were based on the revenue fromInternational Paper (formerly Weyerhaeuser), which is served by EWEB but lies within the City of Springfield. Thepayments to the City of Springfield are not included in Operating Expenses.EWEB also maintains a program of voluntary grants to schools to fund programs that further education in fields related toenergy and water. The grants are for a three-year period and are included as Operating Expenses. Grant paymentsattributable to the Electric System were approximately $606,862 in 2010 and $611,592 in 2011.16

DRAFT 8.24.12-3Employee RelationsAs of September 1, 2012, EWEB’s Electric and Water Systems combined maintained a staff of 539 employees. Of theseemployees, approximately 160 are represented by the International Brotherhood of Electric Workers (“IBEW”) Local 659.The collective bargaining agreement with IBEW expires March 31, 2014. EWEB and IBEW have established a LaborManagement Committee that meets monthly to prevent and handle problems.Financial PoliciesBeginning in 1990, EWEB adopted a series of comprehensive financial policies which provide direction for the financialmanagement of the enterprise. These policies set standards for rate sufficiency, rate stability, reserve funds, capital investment,and debt management that guide the development of budgets, rates, and debt issues. Taken as a whole, the financial policiesare intended and designed to provide financial performance indicators, including debt service coverage and reserves above theaverage of other similar municipal electric and water systems. EWEB updated its financial policies in July 2012 and revises its 5-year forecast of revenues, expenses and liabilities on a quarterly basis. EWEB continues to monitor and update financialpolicies, as needed.EWEB’s financial policies include, among others, rate sufficiency and rate stability policies. The rate sufficiency policyprovides that rates and charges will be adequate to provide revenues sufficient to maintain a high degree of financialsoundness over and above requirements for compliance with existing bond covenants. EWEB’s long term target for debtservice coverage ratio for both electric system and water utility system is 2.45 times debt service. The rate stability policyprovides that certain funds will be held in reserve for the purpose of mitigating the customer rate impact of unanticipatedevents. A Purchased Power Reserve account has been created to smooth the effects of power availability and prices.Accounting PoliciesEWEB's accounting policies conform to generally accepted accounting principles for public utilities and governmentalunits. EWEB applies all applicable Governmental Accounting Standards Board (GASB) pronouncements, along with theStatements of Financial Accounting Standards Board (FASB), Accounting Principles Board Opinions, and AccountingResearch Bulletins of the Committee on Accounting Procedures, unless those pronouncements conflict with or contradictGASB pronouncements.Independent AccountantsEWEB obtains an audit and examination of its accounts and financial status at least once each year pursuant to the OregonMunicipal Audit Law, ORS 297.405 to 297.555. The financial statements for the periods ending December 31, 2011 and2010, included in this Official Statement, have been audited by Moss Adams LLP, independent accountants as stated intheir report appearing herein as Appendix B.In connection with the presentation of its report on the audited financial statements of EWEB, Moss Adams LLP hasprovided the following language for inclusion in this Official Statement: “Moss Adams LLP, our independent auditor, hasnot been engaged to perform and has not performed, since the date of its report included herein, any procedures on thefinancial statements addressed in that report. Moss Adams LLP also has not performed any procedures relating to thisOfficial Statement.”Investment PolicyEWEB's investment policy calls for the investment of excess funds in a manner which will preserve capital and providesufficient liquidity to meet cash flow demands while conforming with all State statutes governing investment of publicfunds. The policy includes provisions with respect to diversification and the credit quality of securities purchased. EWEB'sprimary objectives are, in order of priority: safety of principal, liquidity and achieving a rate of return at least equal to thereturn on a comparably maturing U.S. Treasury bill. EWEB attempts to match its investments to anticipated cash flowrequirements. Securities are intended to be held to maturity, unless the quality, yield or maturity characteristics of theportfolio can be improved by replacing one security with another. Unless approved by EWEB, holdings are restricted tosecurities maturing within three years. The Assistant Treasurer is responsible for the investment program, includingprocedures and controls.17

DRAFT 8.24.12-3Self-InsuranceEWEB is exposed to various risks of loss relating to general liability and workers' compensation claims. EWEB self-insuresfor motor vehicle risk and general liabilities of less than $2 million. EWEB maintains a combined self-insurance fund forthe Electric System and Water System with a balance of $2,021,061 as of December 31, 2011. Amounts recorded in thegeneral purpose financial statements, which are estimated to be payable, are based on the estimated ultimate loss andreserves for claims incurred as of the balance sheet date, adjusted from current trends through a case-by-case review of allclaims, as well as incurred but not reported claims. Prior and current-year claims are fully reserved and are not discounted.Excess liability coverage protects EWEB after the self-insured limit is exhausted. However, public entities are alsoprotected under State of Oregon tort limits ORS 30.260 – 30.300, which reduce the liability to any single claimant to$500,000. The limit on liability increased during successive years by $33,300 and $33,400 for causes of action arisingduring years ended June 30, 2011 and June 30, 2012, respectively. The limit is subject to change by State of Oregonlegislation.Claims and Other Legal ProceedingsEWEB is involved in various litigation. In the opinion of management, the ultimate outcome of these claims will not have amaterial effect on EWEB's financial position beyond amounts already accrued as of December 31, 2011.Environmental MattersEWEB is engaged in environmental investigation and remediation efforts in its ordinary course of business. In the opinionof management, the ultimate outcome of these matters will not have a material effect on EWEB's financial position beyondamounts already accrued as of December 31, 2011.Oregon Public Employees Retirement SystemBoth the State of Oregon Public Employees Retirement System (“PERS”) and the Oregon Public Service Retirement Plan(“OPSRP”) cover EWEB employees. PERS was created in 1946 to enable public employers in Oregon to provideretirement benefits to employees as part of their compensation package. OPSRP was created in 2003 to provide a newpension plan as part of the legislative reform of the PERS system. As of August 29, 2003 the PERS system was closed toany new members. The OPSRP plan replaced PERS and is offered for new employees and existing employees. Over 850public employers participate in these plans, including all state agencies and public school districts in Oregon. The majorityof cities, counties, and other political subdivisions also participate. These State of Oregon pension plans provide aretirement program for about 95 percent of state and local government employees in Oregon.Substantially all newly hired EWEB employees become participants in OPSRP after six months of employment. As ofDecember 31, 2010, the plans’ most recent estimated actuarial valuation date, there were 530 active members currentlyemployed by EWEB that contributed to PERS. There are four methods to calculate retirement benefits under the state plans.PERS uses three methods to calculate retirement benefits: Full Formula, Money Match and Formula Plus Annuity. Themethod for which an employee is eligible and which produces the highest amount is used to determine his or her monthlyretirement benefit. One method, the Full Formula method, is a defined benefit pension plan. A second method is a form ofdefined contribution plan known as Money Match (described below). The third method, the Formula Plus Annuity method,uses a hybrid defined benefit plan and defined contribution plan, and is only available for employees making contributionsprior to August 21, 1981. Beginning in January 1, 2004, these three methods of retirement benefits also have a definedcontribution component (Individual Account Program).The fourth retirement benefit is OPSRP. OPSRP is a hybrid retirement plan with two components: the Pension Program(defined benefit) and the Individual Account Program or IAP (defined contribution). All employees contribute to an IAPaccount with OPSRP and employers contribute to PERS and OPSRP. The rate of employee contribution to the IAPaccount, which is established by law, is a minimum of six percent of covered compensation. EWEB funds the requiredemployee contribution for all employees. The rate of the employer contribution is set periodically based on actuarialvaluations and as adopted by the Public Employees Retirement Board. EWEB’s current employer rate as a percentage ofemployee salary is approximately 29% of payroll, depending on the various plans, and is expected to rise another 5% in July2013.In May 2001, EWEB issued its Electric Utility System Current Interest Revenue Bonds, Series 2001A (Federally Taxable)in an original principal amount of $25,930,000 and its Electric Utility System Capital Appreciation Revenue Bonds, Series2001A (Federally Taxable) in an original principal amount of $4,067,555.95 to finance a portion of the then estimated18

DRAFT 8.24.12-3PERS Unfunded Actuarial Accrued Liability (“UAAL.”) In December 2001, the Board elected to make a lump-sumpayment of approximately $29.6 million, which had the effect of lowering the employer contribution rate. The lump-sumpayment is recorded as an Other Asset and is being amortized over the funding period of 26 years. The amortization was$1.2 million for both 2010 and 2011.In November 2006, EWEB elected to make a lump-sum payment to PERS of $7.2 million which lowered the employercontribution rate and PERS allocated to a “side account” which is tracked separately for rate purposes. On July 1, 2011,EWEB’s employer contribution rates increased from 21.85% to 29.38% and from 23.76% to 28.96% for PERS and OPSRP,respectively.EWEB's total contribution (employer and employee) for its Electric and Water Systems in 2011was $11.0 million for PERS.The required contribution was determined as part of the December 31, 2009, actuarial valuation using the projected unitcredit method. The actuarial assumptions as of the valuation December 31, 2009 included (a) 8% investment rate of return(b) projected salary increases of 3.75% per year, and (c) 2% per year for cost-of-living adjustments. Both (a) and (b)include an inflation component of 2.75%. The actuarial value of the assets was determined by the market value of assets.The unfunded accrued liability is being amortized as a level percentage of combined valuation payroll over a closed period.For the PERS UAL, this period is 20 years; for retiree healthcare, it is 10 years. The following table presents three-yeartrend information for EWEB’s employee pension plan:Fiscal YearEndingAnnual PensionCost (APC)Percentage of APCContributedNet PensionObligation12/31/09 $9,337,000 100% $012/31/10 $8,703,000 100% $012/31/11 $10,985,000 100% $0EWEB’s current unfunded actuarial accrued liability (UAAL) from the latest actuarial valuation is $81.3 million. Thefollowing table presents a schedule of the funding progress for EWEB’s pension plan:ActuarialValuationDateActuarialValue ofAssetsActuarialAccruedLiability(AAL)19UAAL as aPercentage ofCoveredPayrollUnfundedAAL (UAAL) Funded RatioCoveredPayroll12/31/08 $188,893,782 $281,553,582 $92,659,800 67% $35,686,738 260%12/31/09 $208,718,948 $290,442,448 $81,723,500 72% $37,857,319 216%12/31/10 $219,929,139 $301,199,6128 $81,270,473 73% $40,283,981 202%During this current economic climate, employers in Oregon are finding pension costs have increased based on the economicdownturn in 2008 which reduced interest earnings in the PERS funds and resulted in higher employer contributions.EWEB is planning to issue $85 million of Additional Bonds in 2013 to pay down its PERS unfunded actuarial liability. See“SECURITY FOR THE SERIES 2012 BONDS - Anticipated Future Financings.”The December 31, 2010 PERS valuation is advisory only; the December 31, 2009 PERS valuation presented employercontribution rates in effect from July 1, 2011 through June 30, 2013.Supplemental Retirement PlanThe Supplemental Retirement Plan (“SRP”) is a single-employer plan providing retirement, death and disability benefits toparticipants and their beneficiaries. As of January 1, 2010, the most recent actuarial valuation date, the SRP was 3%funded, actuarial accrued liability for benefits was $2,181,000, and the actuarial value of assets was $65,000, resulting inunfunded actuarial accrued liability (UAAL) of $2,116,000. See “APPENDIX B – Financial Statements for the YearsEnded December 31, 2011 and December 31, 2010” herein.Post Employment Benefits Other Than PensionsIn addition to pension benefits, EWEB provides post-employment health care and life insurance benefits to all employeeswho retire with pension benefits under PERS or OPSRP with at least 11 years of service. It is a single-employer definedbenefit plan. Currently, 437 retirees or surviving spouses of retired employees and 539 active employees are covered under

DRAFT 8.24.12-3the plan. The life insurance benefit is a fixed amount of $5,000 per retiree. Health care coverage reimburses 80% of theamount of validated claims for certain medical, dental, vision and hospitalization costs.In 2007, through a new single-purpose trust, EWEB made arrangements to fund the accruing costs of these postemploymentbenefits other than pensions (OPEB). In December of 2007, EWEB transferred $8.2 million into the OPEBtrust to begin prefunding the benefits. The OPEB trust issues a publicly available set of audited financial statements. It isEWEB’s intent to make annual transfers to the trust in amounts corresponding to actuarially determined unfunded OPEBcosts, with the intent of fully funding the cost over a twenty year period. In 2010, EWEB contributed $2.9 million into theplan. Nevertheless, the rising cost of health care benefits, together with actuarial and other changes in costs or benefits, willrequire periodic actuarial determinations that may indicate a need for changes in the funding plan, possibly including anextension of cost amortization or other funding changes.EWEB’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for2010 and the preceding years were as follows:Fiscal YearEndingAnnualPension Cost (APC)Percentage of APCContributedNet PensionObligation12/31/09 $2,935,311 100% $012/31/10 $2,942,862 100% $012/31/11 $2,414,202 122% ($535,798) (asset)As of January 1, 2011, the actuarial accrued liability for OPEB costs was determined by Kenney Consulting, LLC to be$35.0 million, based on facts and assumptions provided to the actuary by EWEB and other available sources. The actuarialvalue of assets was $11.2 million, resulting in an unfunded actuarial accrued liability (UAAL) of $23.8 million. Anymaterial changes in the facts and assumptions used in future actuarial determinations may result in material changes in theUAAL; however, EWEB does not currently anticipate that such changes will be material to its operations considered inwhole.The following table presents a schedule of funding progress for EWEB’s OPEB Plan:ActuarialValuationDateActuarialValue ofAssetsActuarialAccruedLiability(AAL)UAAL as aPercentage ofCoveredPayrollUnfundedAAL (UAAL) Funded RatioCoveredPayroll10/01/09 $7,727,719 $35,224,929 $27,497,210 22% $35,686,738 77%01/01/10 $9,767,736 $38,459,621 $28,691,885 25% $37,857,319 76%01/01/11 $11,181,159 $34,979,118 $23,797,959 32% $40,283,981 59%[The remainder of this page intentionally left blank.]20

DRAFT 8.24.12-3EWEB’S POWER SUPPLYThe following table contains a summary of the electric generating resources that are either owned or under long-termcontract to EWEB. The generation volumes are based on actual generation in 2011. A discussion of each of the resourcesfollows.EWEB Owned and Contracted Resources for Calendar Year 20112011GenerationEWEB Owned Resources: (MWh) % of Total*Carmen-Smith and Trailbridge Hydroelectric Plants 278,538 7.0%Leaburg Hydroelectric Plant 104,773 2.6%International Paper Cogeneration Project (a ) 53,569 1.3%Smith Creek Hydro Project 61,477 1.5%Stone Creek Hydroelectric 75,638 1.9%Walterville Hydroelectric Plant 53,854 1.4%Foote Creek I (WY) Wind Project 28,033 0.7%Subtotal 655,882 16.4%Contract Resources:Grant County PUD/Priest Rapids Development 13,881 0.4%Stateline Wind Project 59,101 1.5%Klondike Phase-III Wind Project 66,455 1.7%Harvest Wind Project 53,030 1.3%Seneca BiomassMetropolitan Wastewater Mgmt. Comm.Solar PV (approximate)80,8355,3352,1992.0%0.1%0.1%Subtotal 280,836 7.1%System Purchases:Bonneville Block Product 1,015,707 25.5%Bonneville Base Slice Product 2,032,483 51.0%Subtotal 3,048,190 76.5%TOTAL 3,984,908 100.0%*Totals may not add due to rounding.(a)This is EWEB’s half-share of the project output. The other half is used by International Paper. See additionaldiscussion below.EWEB-Owned ResourcesCarmen-Smith Hydroelectric Project. EWEB owns and operates the Carmen-Smith Hydroelectric Project (“Carmen-SmithProject”) near the head waters of the McKenzie River. The Carmen-Smith Project is EWEB’s largest utility-ownedgeneration source and is a hydro peaking facility made up of three dams and two powerhouses. The Carmen-Smith Projectincludes two generating units with an optimum capacity of 42MW each and a 10MVA re-regulating facility (Trail Bridge).The operating license for the Carmen-Smith Project expired on November 30, 2008. A license application was submitted tothe Federal Energy Regulatory Commission (“FERC”) in 2006 and a comprehensive settlement agreement withstakeholders was signed in October 2008 and submitted to FERC in support of the license application. EWEB expects thenew fifty-year FERC operating license to be issued in early 2013. As part of the new license, EWEB expects to make capitalimprovements to the Carmen Smith Project and to related facilities. The relicensing project financing plan is expected toinclude a $20 million equity reserve and generation losses during construction are expected to reduce surplus sales. Thetotal cost of the relicensing project is anticipated to be approximately $213 million of which approximately $174 million isthe anticipated remaining capital cost of the relicensing project. The proceeds of the Series 2012 Bonds are expected tofinance approximately $40 million of the capital costs of the relicensing project. EWEB expects construction of the projectto start in 2014 and conclude in 2022. See also “SECURITY FOR THE SERIES 2012 BONDS - Anticipated FutureFinancings.”21

DRAFT 8.24.12-3Leaburg-Walterville Hydroelectric Project. EWEB also owns and operates the Leaburg-Walterville Hydroelectric Project(“LW Project”) on the McKenzie River in Lane County, Oregon. The LW Project is comprised of two power plants locatedat different points on the McKenzie River. The Leaburg facility includes a diversion dam on the McKenzie River, a canaland two generating units with a combined nameplate capacity of 16MW. The Walterville facility includes a canal thatdiverts water from the McKenzie River and one generating unit with a nameplate capacity of 8 MW. In April 2000, FERCgranted EWEB a new 40-year hydroelectric license for the LW Project.Threatened Species Issues for the Carmen-Smith and Leaburg-Walterville Hydroelectric Projects. Columbia River basinbull trout, listed in 1998 as threatened by the United States Fish and Wildlife Service (“USFWS”), inhabit the upper reachesof the McKenzie River near the Carmen-Smith Project, but travel as far down river as the LW Project. In 1999, theNational Marine Fisheries Service (“NMFS”) listed the Willamette spring Chinook salmon as a threatened species. Theseanadromous species spawn in the McKenzie River. EWEB was designated as FERC’s non-federal representative fordevelopment of the Biological Assessment (“BA”) as a part of the consultation on both the bull trout and spring Chinooksalmon for EWEB’s hydroelectric projects on the McKenzie River. The BA was completed in 2000. The formalconsultation under Section 7 of the Endangered Species Act for the LW Project was completed in 2003. Projectimprovements were built at Leaburg-Walterville as conditions of a FERC license for the project that was issued in April2000. License conditions included screens to keep migratory listed fish out of the power canals and turbines, upstreampassage improvements, minimum instream flow requirements and habitat enhancement projects that are ongoing. Incooperation with state and federal fisheries agencies, testing and improvements to fish passage facilities are ongoing.The Carmen-Smith Project is near the upper range of bull trout and spring Chinook salmon habitat and is an importantspawning and rearing habitat for both species. EWEB has implemented the conservation measures from the 2003Biological Opinion, which included habitat enhancement projects and studies. The new license will contain numerousenhancements for bull trout and spring Chinook salmon. Proposed project improvements in the settlement agreementinclude a fish ladder at Trail Bridge Reservoir, a full exclusion screen and bypass on the Trail Bridge powerhouse intake,and increased instream flows in project bypass reaches to improve habitat for listed species. Construction of Carmen-Smithproject improvements is scheduled to begin in 2013. EWEB will continue to cooperate with and support federal and stateresource agencies as they implement recovery related strategies for spring Chinook salmon and bull trout.Stone Creek Hydroelectric Project. The Stone Creek project has one turbine with a peak capability of 12 MW. The facilitiesare on the Clackamas River approximately 45 miles southeast of Portland. The project is a run-of-river developmentlocated between two hydroelectric facilities that are owned and operated by Portland General Electric (PGE). The plant wascommissioned in 1993 by an independent power producer, and EWEB purchased the project in 1994. The facility isoperated and maintained under contract with PGE, and is licensed through 2038.International Paper (I.P.) Industrial Energy Center Cogeneration Project. EWEB and I.P. (formerly WeyerhaeuserCompany) cooperatively developed the cogeneration facility at the Springfield plant in 1976. The unit, which has a turbinelimited capacity of 25.4 MW (average output is approximately 20 aMW), is owned by EWEB, with I.P. providing fuel and24x7 operational support. Under terms of the current agreement (which expires in September 2019), the project costs andoutput for this unit are shared equally by the parties. In addition to this unit, there is one non-economic I.P. turbine with atotal capacity of 12.5 MW which is not normally used. Any output and operating costs for this unit is equally shared.Foote Creek I Wind Project. EWEB partnered with PacifiCorp to develop the Foote Creek I Wind Project, making EWEBone of the first Oregon utilities to invest in wind power. The project began commercial operation April 1999, and wasconstructed along the Foote Creek Rim in Carbon County, Wyoming, which is considered to be one of the premier windenergy development sites in the United States, with an average annual wind speed of approximately 24 miles per hour. The41.4 MW project includes 69 0.6 MW turbine-wind machines, a substation and over 28 miles of transmission lines toconnect to the existing transmission system in the area. EWEB and PacifiCorp are the joint owners of the project, withEWEB having a 21.21% percent ownership, which translates to 8.8 MW of the project capacity. EWEB has sold 26% or2.3 MW of its share to Bonneville under the terms of a 25-year power purchase agreement, pursuant to which Bonnevillehas committed to purchase 15.3 MW of the project’s total capacity. Net of sales to Bonneville, EWEB receivesapproximately 2.5 aMW per year from the Foote Creek I Project. The extended warranty which has paid for these ongoingrepairs to date will expire in April 2014. EWEB is working with PacifiCorp to develop a strategy for managing the facilityonce the warranty expires.Smith Creek Hydro Project. The Smith Creek project is a run-of-the-river hydroelectric project on Smith Creek, a tributaryof the Kootenai River in Northern Idaho. It is comprised of three units with a combined nameplate capacity of 38 MW andannual generation in the range of 68,000 MWh or 7.8 aMW per year. In April 2001, EWEB took ownership of the project,which is licensed through 2037.22

DRAFT 8.24.12-3Contract ResourcesGrant County PUD. EWEB purchases power from the Priest Rapids Project composed of the Priest Rapids Dam and theWanapum Dam, two large hydroelectric developments on the Columbia River in Washington owned by Public UtilityDistrict No. 2 of Grant County, Washington (Grant County PUD). The most recent power purchase contract with GrantCounty PUD continues through October 31, 2059. Under this renewed contract, EWEB’s share of purchased physical powerfrom Grant County PUD will be 0.14% of the Project output or about 1.4 aMW per year. In addition to physical power,EWEB has another .92% of project output that is sold into an annual auction of Grant County PUD power that brings ingross revenues of $1 million to $2 million per year. However, those revenue benefits are expected to decline over time asGrant County PUD’s loads grow.Stateline Wind Project. In 2002, EWEB agreed to purchase 25 MW from the Stateline Wind Project located on VansycleRidge in the Columbia Gorge on the border between Oregon and Washington, in Walla Walla County, Washington andUmatilla County, Oregon. The total installed capacity of Stateline is approximately 300 MW. EWEB’s share of the projectresides in PacifiCorp’s Control Area.The project was developed by FPL Energy, which retains ownership and sells alloutput directly to JP Morgan. From 2002 until 12/31/2011 EWEB purchased storage and shaping agreement services fromPPM, then Iberdrola, and then JP Morgan as the PPA was novated. EWEB extended the previous storage and shapingagreement with JP Morgan through 12/31/2014. PacifiCorp anticipates constructing a new transmission line between thewind farm and McNary Substation to be energized by October of 2013 that can provide EWEB with firm transmission fromthe project. The Power Purchase Agreement for Stateline expires on December 31, 2026.Klondike III Wind Project. EWEB agreed to purchase 25 MW (11.18%) from Phase 3 of the Klondike Wind Project locatednear the town of Wasco in Sherman County, Oregon. The total generating capacity of Phase 3 is 223.6 MW. Klondike IIIWind Project is located in BPA’s Control Area and is delivered to EWEB’s load each hour on EWEB NetworkTransmission Service provided by BPA. The contract for this power expires on October 31, 2027.Seneca Sustainable Energy. On February 25, 2010 EWEB entered into a power purchase agreement with SenecaSustainable Energy LLC (SSE) to purchase the output of a biomass fueled electric cogeneration facility located in Eugene,Oregon. The project connects directly with EWEB’s distribution system and commenced commercial operation on April 5,2011. The contract term is for 15 years commencing on the commercial date. The nameplate capacity of the project is19.778 MW and expected average output is approximately 13 aMW.Harvest Wind Project, EWEB, Cowlitz Public Utility District, Lakeview Light and Power, and Peninsula Light Companyare the joint owners of the Harvest Wind Project, with EWEB having a 20% ownership share. The project begancommercial operations in December 2009 and has 43 2.3 MW turbines with a total nameplate capacity of 98.9 MW. Theproject is located along the Columbia Valley Gorge on 9,500 acres of ranch land in Klickitat County, Washington. Annualproject generation is approximately 268,860 MWh or about 31 aMW per year, yielding a capacity factor of roughly 31%.EWEB and the other owners have committed to purchase power from the corporation in proportion to their ownershipshares through December 2029.Solar PV Purchases. EWEB has a program to support the development of Solar PV generation in Eugene through theprovision of net metering rates to those customers with small systems that wish to self-generate power and standard offersfor 10 year power purchases at fixed rates for customers with larger systems. Program participation is limited to systems of0.2 MW. As of the close of 2011, EWEB has acquired power purchase agreements with total capacity slightly over 2 MWand 0.24 aMW of energy.System PurchasesBonneville Purchase Contract. Pursuant to the Pacific Northwest Electric Power Planning and Conservation Act (the“Regional Power Act”), EWEB executed a power sales and purchase contract with Bonneville for the purchase of powerequal to EWEB’s full federal entitlement effective October 1, 2011 through September 30, 2028.Under the contract, EWEB is purchasing a combination of “Block” and “Slice of System” power products offered byBonneville. The “Block” product provides a fixed quantity of power to EWEB that varies according to a monthly annualschedule. Under the current contract, Block deliveries will be about 116 aMW annually.The “Slice” product provides customers with a fixed percentage share of Bonneville’s Federal System generation at rates setto recover the same percentage of Bonneville’s costs. The Slice product provides operational flexibility to help EWEBmanage its total resource portfolio. The percentage share EWEB is entitled to is fixed for the term of the contract. Under23

DRAFT 8.24.12-3the current contract EWEB’s Slice percentage is 1.81% of the Federal System, which is approximately 52% of the powertaken under the contract. The amount of actual power received under the Slice product will vary with seasonal water yearconditions, the performance of the Columbia Gorge Station nuclear power plant operated by Energy Northwest as well asthe performance and availability of the Federal Base System which is the resources BPA uses to serve the firm energy loadsof its customers, consisting of the Federal Columbia River Power System hydroelectric projects and resources acquired byBPA under long-term contracts. In years of heavy water flow, Slice customers have rights to power in excess of theirneeds, and in poor water years Slice customers would need to augment their share of Slice output with their own generationor market purchases. The annual amount of power EWEB is entitled to under these contracts is approximately 250 aMW.Bonneville NT Transmission Contract. In 2001, EWEB signed the Network Integration Transmission Service (“NT”)contract with Bonneville to provide firm transmission delivery for EWEB’s generation projects and Bonneville powercontracts to reliably serve EWEB’s retail load. The NT contract has been renewed twice, and in 2008 was extended throughSeptember 20, 2028, to comport with the new power purchase contract.Bonneville Power Administration. Bonneville was established by the Bonneville Project Act of 1937 as a federal powermarketing agency to market power from the Bonneville dam on the Columbia River. Under federal law, Bonnevilleacquires the conservation and generating resources needed to serve its contract obligations; markets at wholesale the electricenergy from federal hydroelectric projects in the Pacific Northwest, from certain nuclear projects and such additionalresources as it may acquire; constructs, operates, and maintains transmission lines and substations that interconnect thefederal hydroelectric projects and nonfederally owned power systems and projects; and is required by statute to establishrates to recover its costs.Bonneville markets power from 31 federal hydroelectric projects, one non-federal nuclear plant and several non-federalpower plants. The sustained 1-hour peak capacity of BPA resources is 18,357 MW and the firm energy capability isapproximately 8,479 aMW. The dams built and operated by the United States Bureau of Reclamation and the United StatesArmy Corps of Engineers, are located in the Columbia River basin. Hydroelectric projects of the Federal System currentlyrepresent approximately 80% of the firm energy resources available to Bonneville.Bonneville sells electric power at wholesale rates to utilities, industrial and governmental customers in the PacificNorthwest, a service area of over 300,000 square miles with a population of about 12,500,000. Bonneville markets themajority of its power to over 140 utilities in the region for resale and also sells power directly to industrial customers in theregion. The Federal System currently produces approximately 30% of the region's energy requirements. Bonneville'stransmission system includes approximately 15,000 circuit miles of transmission lines, provides about 75% of the PacificNorthwest's high-voltage bulk transmission capacity, and serves as the main power grid for the Pacific Northwest. Inaddition to federal power, power produced from non-federal projects is transmitted over Bonneville's transmission facilitiesto various investor-owned and municipally-owned utilities in the Pacific Northwest. Bonneville's transmission facilitiesinterconnect with utilities in the Canadian province of British Columbia and with utilities in the Pacific Southwest.The Pacific Northwest Electric Power Planning and Conservation Act, aka Northwest Power Act authorizes or requiresBonneville (1) to offer to sell power to each requesting Pacific Northwest utility, including EWEB, to meet its firm powerloads in the region in excess of each utility's own resources; (2) to offer to exchange power with the Pacific Northwestutilities for residential and farming uses and to establish rates for such power that are the same as the rates paid by publicbodies, cooperatives and federal agencies (preference customers), and requires exchanging utilities to pass the cost benefitsthrough to these customers; (3) to meet its obligations to provide power through conservation to the extent that conservationis cost effective; and (4) to meet such obligations to the extent that conservation measures are insufficient, by acquisition ofcost effective electric power first from renewable resources. Pursuant to the Northwest Power Act, in 2008 Bonnevilleoffered 20-year firm power sales contracts to regional utilities effective October 1, 2011.Bonneville's rates are established in accordance with several statutory directives. Ratemaking begins with Bonnevilleproposing rates. Rates proposed by Bonneville are subjected to a formal public review process, after which they areestablished by Bonneville and reviewed by FERC. FERC's review is limited to three standards set out in the RegionalPower Act. FERC reviews Bonneville's rates for all firm power, for nonfirm energy sold within the Pacific Northwest, andfor transmission services under such statutory standards. After FERC review and approval of BPA rates, they would go intoeffect, and any further recourse would have to be by appeal to the US 9th Circuit Court.Other EWEB ProjectsWestern Generation Agency. The Western Generation Agency (WGA) is a special purpose entity established by EWEB andClatskanie People’s Utility District (CPUD) under ORS 190. The WGA owns a 26 MW cogeneration project at the Georgia24

DRAFT 8.24.12-3Pacific mill in Wauna, Oregon, although the unit typically generates about 20 aMW now due to reduced steam needs at themill. The project includes a steam turbine and a fluidized bed boiler costing approximately $68 million. EWEB supplied$15 million in equity contribution and the WGA issued $70 million in project revenue bonds. BPA is purchasing the outputof the project under a 20 year contract. After paying operations and maintenance expenses, debt service, preferred equityreturn to EWEB and other expenses, any net revenues are shared equally between EWEB and CPUD. Proforma WGAfinancial statements indicate that EWEB can expect about $2 million per year in preferred equity return and net revenues.Energy Northwest (EN)Net Billing Agreement. EWEB, Energy Northwest and Bonneville entered into a net billingagreement with respect to Energy Northwest’s Project No. 1, under which EWEB purchased from Energy Northwest, and inturn assigned to Bonneville, 0.061 percent of the capability of Energy Northwest’s Project No. 1. EWEB is not a participantin any other Energy Northwest projects. Construction of Project No. 1 was terminated in 1994. Under the net billingagreement, Bonneville is responsible for EWEB’s percentage share of the total annual cost of Project No. 1, including debtservice on revenue bonds issued to finance the cost of construction of Project No. 1. Energy Northwest currently has ProjectNo. 1 bonds outstanding in the aggregate principal amount of approximately $1.8 billion. In 2011 EN restructured their debtbeyond the current date of 2017 to match the life of the current plant license, 2024. This action provided approximately $1billion in BPA rate relief. Notwithstanding the assignment of EWEB’s share of the capability of Project No. 1 toBonneville, EWEB remains unconditionally obligated to pay to Energy Northwest its share of the total annual cost ofProject No. 1 to the extent payments or credits relating to such annual cost is not received from Bonneville. Under the netbilling agreement, payment by Bonneville of EWEB’s percentage share of the total annual cost of Project No. 1 is made bya crediting arrangement whereby Bonneville credits against amounts which EWEB owes Bonneville for the purchase ofwholesale power, EWEB’s share of the total annual cost of Project No. 1. To the extent EWEB’s share of such annual costexceeds amounts owed by EWEB to Bonneville, Bonneville is obligated, after certain assignment procedures, to pay theamount of such excess directly to EWEB or to Energy Northwest from funds legally available therefore.Planned Resource Acquisitions. EWEB adopted its most recent Integrated Energy Resource Plan (IERP) in January 2012. Itestablished goals and objectives related to the acquisition of generation and energy conservation resources over the nexttwenty years. It also established a framework to allow EWEB to adaptively respond to changing energy markets anddevelopment environments. The strategy reaffirms EWEB's long-standing commitment to demand-side resources byadopting a strategy to meet future growth in customer loads with conservation and demand response programs. In the eventthat customer load growth exceeds cost-effective conservation then EWEB would rely on purchases from the wholesalepower market for the next five years and avoid any additional long-term resource commitments.Conservation. EWEB is acquiring demand-side energy resources through efficiency improvements in customers' end useapplications and the installation of decentralized renewable energy devices such as domestic solar water heaters. Amongthe programs currently being offered are: increased home insulation, high-efficiency home appliances and water heaters,efficiency improvements in home heating systems, energy efficient new home construction, high-efficiency residential andcommercial lighting, efficiency improvements in commercial and institutional buildings and efficiency improvements toindustrial processes.Raft River Geothermal Project. EWEB entered into a purchase contract in 2008 for Raft River Geothermal Project, Unit 2,a proposed 14 MW binary geothermal turbine generator to be installed by an independent developer near Raft River, Idaho.EWEB would purchase power and renewable energy credits for 25 years. The project has been put on hold by thedeveloper, and EWEB does not anticipate this project will be developed.Oregon Renewable Energy ActIn 2007 the State of Oregon passed the Oregon Renewable Energy Act (the “Act”) requiring electric utilities to comply witha Renewable Portfolio Standard starting in 2011 whereby a percentage of annual sales to customers must come fromqualifying renewable resources. For a utility the size of EWEB, the Act requires that at least 5% of the electricity sold mustbe from qualified renewable resources by 2011, 15% by 2015, 20% by 2020, and 25% by 2025. There are exemptions inthe Act that allow EWEB to reduce the annual compliance target if your customers are served by non-fossil resources,which are considered exempt because they generate no carbon emissions. Because EWEB’s power portfolio isoverwhelmingly made up of legacy hydro, EWEB does not forecast any need to acquire additional qualifying renewableresources to meet the RPS standard over the next 20 years.25

DRAFT 8.24.12-3Capital PlanEWEB is in the process of updating its long term financial plan. As part of this plan, capital expenditures with expectedresources are presented below for the 5-year period from 2013 through 2017. The current expectation is that EWEB will bemaking renewals, replacements and capital additions amounting to $264.6 million over the 5-year period, includingcompletion of Carmen project costs once the new FERC operating license is obtained.ELECTRIC CAPITAL PLAN2013-2017($000)Program Budgets 2013 2014 2015 2016 2017 TotalRelicensing $7,685 $21,048 $42,439 $26,980 $24,172 $122,324Generation 1,040 1,335 1,758 2,282 3,997 10,412Substations 3,878 4,266 3,934 2,316 3,511 17,905Transmission & Distribution 18,808 15,154 9,599 10,379 11,875 65,815General Plant 8,628 4,664 4,526 8,988 3,053 29,859Advanced Metering Infrastructure 0 3,494 11,056 3,700 0 18,250Total Expenditures $40,039 $49,961 $73,312 $54,645 $46,608 $264,565Capital Funding SourcesElectric Rates $ 16,055 $18,640 $20,392 $19,968 $20,667 $95,722Customer Contributions 1,293 1,324 1,339 1,382 1,433 6,771Additional Bond funds anticipated 13,140 8,271 8,400 4,480 2,000 36,291Carmen Smith Bond funds (Series 2012 Bondsand Additional Bond funds anticipated) 7,685 21,048 42,439 26,980 24,172 122,324Total Funding 38,173 49,283 72,570 52,810 48,272 261,108Funds less Expenditures ($1,866) ($678) ($742) ($1,835) $1,664 ($3,457)Transfer (to) from Reserves $1,866 $678 $742 $1,835 ($1,664) $3,457Balance of Funds $0 $0 $0 $0 $0 $0OTHER EWEB PROJECTSEWEB is involved in three other projects which affect the Electric System. The Western Generation Agency is a separateentity with shared ownership and governance by EWEB and Clatskanie People's Utility District. EWEB continues to be anowner of record of the Trojan Project. In addition, EWEB is involved in a telecommunication project. Each of theseprojects is discussed in more detail below.Western Generation AgencyThe Western Generation Agency (“WGA”) is a special purpose entity established by EWEB and Clatskanie People's UtilityDistrict, Oregon (“CPUD”). The WGA owns a 32 MW cogeneration project at the Georgia Pacific mill in Wauna, Oregon.The project includes a steam turbine and a fluidized bed boiler. Bonneville is purchasing the output of the project under a20-year contract that expires in 2016.After paying operations and maintenance expenses, debt service, and other expenses, any excess cash is shared equallybetween EWEB and CPUD. As of December 31, 2010, WGA had approximately $39 million of project bonds outstandingwhich mature in 2016. WGA bond documents limit annual distributions to EWEB to $400,000. During 2011, distributionsof $274,000 were received.26

DRAFT 8.24.12-3Trojan ProjectEWEB has a 30 percent ownership share of the 1130 MW Trojan Nuclear Power Plant (the “Trojan Project”). In 1993,Portland General Electric, which owns 67.5 percent of the Trojan Project and has primary operating responsibility under theterms of the Trojan Project Operating Agreement, presented EWEB, PacifiCorp (which owns 2.5 percent of the TrojanProject) and Bonneville with a proposal to terminate operation of the Trojan Project. That proposal was approved by theTrojan Project co-owners and Bonneville and operation was terminated in 1993. The final plan for decommissioning of theTrojan Project was approved by the Nuclear Regulatory Commission in early 1996. EWEB's ownership share of the TrojanProject is assigned to Bonneville. Under the terms of that assignment agreement, EWEB receives payments and credits (netbillings) equal to its share of all Trojan Project costs, including decommissioning, spent fuel storage and debt service,whether or not the Trojan Project is operable or operating, and notwithstanding the suspension, interruption, interference,reduction, or curtailment of the Trojan Project output.Because Bonneville is obligated to pay EWEB's share of all Trojan Project costs and has provided EWEB with writtenassurances of its commitment to that obligation, EWEB does not expect the closure and decommissioning of the TrojanProject to have any adverse effect on the Electric System. However, the closure and decommissioning of the Trojan Projectcould result in higher costs to Bonneville which in turn could increase EWEB's costs of purchased power from Bonneville.The original Trojan Project bonds were defeased in their entirety in April 2005 and no other Trojan Project bonds issued byEWEB remain outstanding.Telecommunication ProjectIn 1999, EWEB constructed a 70-mile network of fiber-optic lines to serve substations, headquarters and other EWEBfacilities. Over the course of time, the network has been expanded to approximately 140 miles. The Electric System usesthe network for all aspects of its communications between electric substations, local generation sites, and EWEB's dispatchcenter.In 2000, Eugene voters approved changes to the City Charter giving EWEB broad authority to offer commercialtelecommunications services to customers. EWEB currently offers such services on a very limited basis only.EWEB continues to leverage past investment in infrastructure by connecting schools and other public agencies, primarilyunder the auspices of the Public Area Network Agreement (PAN), which provides for joint development and operation of afiber-based communications network in Eugene and Springfield. The fiber network also provides connectivity for medicalproviders and third-party telecommunications carriers. EWEB jointly developed and jointly owns a microwave radionetwork and a land mobile network (LMR) with the Cities of Eugene and Springfield and Lane County. In 2011 EWEBcompleted construction of two microwave/LMR communication sites in the McKenzie River Valley for communicationswith its Carmen Smith Project. These integrated radio and fiber optic networks provide high quality voice, data, and controlsystem communications for the operation of the Electric System. In 2012/13, EWEB is commissioning a citywide Ethernetnetwork, over fiber optic cable, for multiple uses including Electric System and Water System supervisory control & dataacquisition (SCADA), advanced metering infrastructure (AMI), mobile workforce management, PAN and public/privatecommunication services.[The remainder of this page intentionally left blank.]27

DRAFT 8.24.12-3VARIOUS FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRYThe electric utility industry in general has been, or in the future may be, affected by a number of factors which couldimpact the financial condition and competitiveness of many electric utilities and the level of utilization of generating andtransmission facilities. Such factors include, among others, (1) effects of compliance with rapidly changing environmental,safety, licensing, regulatory and legislative requirements, (2) changes resulting from conservation and demand-sidemanagement programs on the timing and use of electric energy, (3) changes resulting from a national energy policy,(4) effects of competition from other electric utilities (including increased competition resulting from mergers, acquisitions,and “strategic alliances” of competing electric and natural gas utilities and from competitors transmitting less expensiveelectricity from much greater distances over an interconnected system) and new methods of, and new facilities for,producing low-cost electricity, (5) the repeal of certain federal statutes that would have the effect of increasing thecompetitiveness of many investor owned utilities, (6) increased competition from independent power producers andmarketers, brokers and federal power marketing agencies, (7) “self-generation” or “distributed generation” (such asmicroturbines and fuel cells) by industrial and commercial customers and others, (8) issues relating to the ability to issuetax-exempt obligations, including severe restrictions on the ability to sell to nongovernmental entities electricity fromgeneration projects and transmission service from transmission line projects financed with outstanding tax-exemptobligations, (9) effects of inflation on the operating and maintenance costs of an electric utility and its facilities,(10) changes from projected future load requirements, (11) increases in costs and uncertain availability of capital, (12) shiftsin the availability and relative costs of different fuels (including the cost of natural gas), (13) sudden and dramatic increasesin the price of energy purchased on the open market that may occur in times of high peak demand in an area of the countryexperiencing such high peak demand, (14) inadequate risk management procedures and practices with respect to, amongother things, the purchase and sale of energy and transmission capacity, (15) other legislative changes, voter initiatives,referenda and statewide propositions, (16) effects of the changes in the economy, (17) effects of possible manipulation ofthe electric markets, (18) natural disasters or other physical calamities, including, but not limited to, earthquakes and floodsand (19) changes to the climate and changes in hydrological conditions. Any of these factors (as well as other factors) couldhave an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities indifferent ways.EWEB is unable to predict what impact such factors will have on its business operations and financial condition. ThisOfficial Statement includes a brief discussion of certain of these factors. This discussion does not purport to becomprehensive or definitive, and these matters are subject to change subsequent to the date hereof. Extensive informationon the electric utility industry is available from the legislative and regulatory bodies and other sources in the public domain,and potential purchasers of the Series 2012 Bonds should obtain and review such information.[The remainder of this page intentionally left blank.]28

DRAFT 8.24.12-3ECONOMIC AND DEMOGRAPHIC INFORMATIONThe City of Eugene, incorporated in 1862, covers 43.9 square miles in LaneCounty (the “County”), at the southern end of the Willamette Valley. Eugene isthe economic center of the southern Willamette Valley. Eugene has about80,500 employees, accounting for 60% of all covered employment in theCounty in 2010. Eugene is the home of the University of Oregon, the largestuniversity in Oregon’s University System, with about 24,500 undergraduate andgraduate students during the 2011 to 2012 school year. Other public institutionslocated in Eugene include the Lane County Courthouse and County offices,State government offices, Federal Courthouse and federal government offices,and Lane Community College.This section provides an overview of economic and demographic informationfor Eugene, comparing Eugene to Lane County or the State of Oregon where indicated. Some information may be presentedfor the Eugene-Springfield Metropolitan Statistical Area, which consists of Lane County in its entirety.PopulationEugene is the second largest city in Oregon, with a population of 157,000 or about 45% of the County's population of353,155. Since 2000, Eugene's population increased at an average annual rate of approximately 1.2%, faster than that ofLane County or the State of Oregon. Eugene and the neighboring city of Springfield are contiguous, sharing Interstate 5 as aboundary and forming a metropolitan area that dominates the economy of the County. Springfield is the ninth largest city inthe state, with a population of 59,695.PopulationPopulation EstimatesCity ofEugene Lane CountyState ofOregon2000 137,893 322,977 3,421,4322001 140,550 325,900 3,471,7002002 142,380 328,150 3,504,7002003 143,910 329,400 3,541,5002004 144,640 333,350 3,582,6002005 146,160 336,085 3,631,4402006 148,595 339,740 3,690,5052007 153,690 343,140 3,745,4552008 154,620 345,880 3,791,0752009 157,100 347,690 3,823,4652010 156,185 351,715 3,831,0742011 157,010 353,155 3,857,625Change 2000 to 2011Number 19,117 30,178 436,193Percent Change 14% 9% 13%Average AnnualGrowth Rate 1.2% 0.8% 1.1%Source: 2000 Federal Census figures, 2001-2011 estimates by the Population Research Center atPortland State University, ECONorthwest.29

DRAFT 8.24.12-3EmploymentEmployment and unemployment data are presented for the Eugene-Springfield Metropolitan Statistical Area (“MSA”),which consists of all of Lane County and for Eugene (where data is available). In 2008, Eugene-Springfield MSA hadabout 147,764 covered 1 employees, with employment decreasing by about 12,200 jobs to 135,600 employees in 2011.Employment increased between 2010 and 2011, adding about 1,000 employees. The industries that lost the mostemployment during the 2008 to 2011 period were: manufacturing, trade and transportation, and professional services.Losses in manufacturing were led by decreases in transportation equipment manufacturing, primarily of RecreationalVehicles, in Coburg and Junction City. The industries that added employment during that period were Health Care and StateGovernment.Eugene-Springfield MSA, 2008 to 2011Covered Employment by Sector and Industry2008 2009 2010 2011Change 2008to 2011Total nonfarm employment 147,764 135,720 134,572 135,564 -12,200Natural resources and mining 1,984 1,786 1,762 1,898 -86Construction 7,262 5,558 5,180 5,058 -2,204Manufacturing 17,666 12,539 12,137 12,267 -5,399Wood product manufacturing 4,142 3,324 3,393 3,401 -741Transportation equipment manufacturing 3,005 772 805 826 -2,179Trade, transportation, and utilities 28,310 26,150 25,777 26,159 -2,151Wholesale Trade 6,121 5,538 5,411 5,278 -843Retail trade 19,260 17,989 17,877 18,246 -1,014Transportation, warehousing, and utilities 2,929 2,622 2,488 2,635 -294Information 3,832 3,489 3,271 3,260 -572Financial activities 6,648 6,307 6,093 5,915 -733Professional and business services 15,638 13,932 14,256 14,571 -1,067Educational and health services 21,120 21,606 21,622 22,012 892Health care and social assistance 19,596 20,070 20,133 20,517 921Leisure and hospitality 15,011 14,036 13,761 14,250 -761Accommodation and food services 12,909 12,104 11,954 12,488 -421Food services and drinking places 11,357 10,675 10,554 11,013 -344Other services 5,448 5,352 5,332 5,411 -37Government 24,824 24,953 25,351 24,733 -91Federal government 1,732 1,738 1,912 1,697 -35State government 7,060 7,338 7,513 7,717 657State education 6,007 6,286 6,469 6,718 711Local government 16,032 15,877 15,927 15,320 -712Local education 8,778 8,795 8,768 8,405 -373Source: Oregon Employment Department, ECONorthwest.Note: Grey shading indicates sectors that account for at least 10% of employment in the Eugene-Springfield MSA.Numbers may not add due to rounding.1 This report presents data for covered employment, which includes employment covered by unemployment insurance butdoes not include all employment, most notably excluding sole proprietors and farm employment. Covered employment datais available at the county-level from the Oregon Employment Department (“OED”). Covered employment data isconfidential data and can be obtained at the city-level under special circumstances from OED.30

DRAFT 8.24.12-3In 2010, Eugene had 80,438 employees within the urban growth boundary, about 60% of the employment in theEugene-Springfield MSA. Half of Eugene’s employment was in non-retail commercial businesses, with 13% ofemployment in Health Care and Social Assistance. Over one-third of Eugene’s employment was in Government andIndustrial sectors.Covered employment, 2010Eugene Urban Growth BoundarySector 2010Percent ofTotalIndustrial 14,221 18%Agriculture, Forestry, Fishing & Hunting 197 0%Construction 2,191 3%Manufacturing 7,338 9%Wholesale Trade 3,499 4%Transportation & Warehousing & Utilities 996 1%Retail Trade 11,445 14%Commercial (non-retail) 40,107 50%Information 1,633 2%Finance & Insurance 2,610 3%Real Estate & Rental & Leasing 1,341 2%Professional, Scientific, and Technical Services 4,419 5%Management of Companies and Enterprises 1,630 2%Admin. & Support & Waste Mgt. & Remediation Srv. 4,361 5%Private Educational Services 1,191 1%Health Care & Social Assistance 10,826 13%Arts, Entertainment, & Recreation 1,094 1%Accommodation & Food Services 7,362 9%Other Services (except Public Administration) 3,640 5%Government 14,665 18%Total 80,438 100%Source: Quarterly Census of Employment and Workforce, Oregon Employment Department, ECONorthwest[The remainder of this page intentionally left blank.]31

DRAFT 8.24.12-3In 2010, the covered employment data shows that Eugene has about 6,670 businesses and government agencies withcovered employees, 97% of which are private employers. The average size of employer in Eugene is 12 employees. About87% of workers in Eugene are employed at businesses with fewer than 300 employees. According to data from the EugeneChamber of Commerce, Eugene has 16 employers with 300 or more employees. The largest employers are public agencies,which accounts for eight of the ten largest employers.Eugene’s Ten Largest Employers, 2011Employer Industry Number ofEmployeesUniversity of Oregon Education 4,038Eugene School District 4J Education 2,794Lane County Government 2,000City of Eugene Government 1,310Lane Community College Education 1,118Wal-Mart Retail 1,050State of Oregon Government 918US Government Government 690Eugene Water and Electric Board Utility 562*Data logic Scanning Technology 500Source:Eugene Chamber of Commerce report “Major Employers: Eugene/Springfield Lane County Area”*As of 2011. As of the date hereof the number of employees is 539. The number of employees for EWEB isbased on information directly from EWEB.[The remainder of this page intentionally left blank.]32

DRAFT 8.24.12-3UnemploymentSince 2006, Oregon’s unemployment rate is typically higher than the national average and Lane County’s unemploymentrate is higher than the state average. Eugene’s unemployment rate is generally lower than the State’s unemployment rate.Unemployment in Eugene was below 6% in 2008, with a spike increasing unemployment to more than 10% in 2009. In2012, unemployment decreased to about 8% in Eugene and the nation, with Lane County and Oregon’s unemployment rateat about 9%.14%Unemployment Rate, 2006 to 2012U.S., Oregon, Lane County, and Eugene12%Unemployment Rate10%8%6%4%2%2006 2007 2008 2009 2010 2011 2012U.S.Lane CountySource: Bureau of Labor Statistics, ECONorthwestNote: These are not seasonally adjusted numbersOregonEugene[The remainder of this page intentionally left blank.]33

DRAFT 8.24.12-3Personal IncomeTotal personal income in Lane County in 2010 was $11.7 billion, an increase of $704 million from 2006. Per capita personalincome in Lane County was $33,277 in 2010, compared to the State average of $36,317 and the national average of$39,937. Per capita income for all three areas peaked in 2008 and declined in 2009. Per capita income increased in all areasbetween 2009 and 2010. The decrease and gradual growth of per capita income can be explained predominantly by the highunemployment in the recent recession.YearTotal Personal IncomeLane County1. ($ in millions)Personal Income, 2006 to 2010Per Capita Personal IncomeLane County State of Oregon United States2006 11,005 32,437 34,656 37,6982007 11,353 32,924 35,737 39,3922008 12,015 34,508 37,407 40,9472009 11,477 32,712 35,467 38,8462010 11,709 33,277 36,317 39,937Change 2006 to 2010Source:Nominal 704 840 1,661 2,239Percent 6% 3% 5% 6%U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Accounts, ECONorthwestHousingThe Regional Multiple Listing Service (RMLS) tracks sales of new and existing housing. RMLS data indicate the mediansales price of existing single family homes in Lane County increased by approximately $100,000 between 2001 and 2011.Median sales price for the County peaked in 2007 at $235,000 and decreased to about $175,000 in 2011, a 26% decrease inmedian sales price for that period of time. The number of home sales in Lane County peaked in 2006 (4,700 homes sold)and remained stable at about 2,900 sales per year since 2008.Source:Median House Sales Price and Number of Sales, Single-family Dwellings,2006 to 2010, Lane County$250,0005,0004,500$200,0004,0003,500$150,0003,0002,500$100,0002,0001,500$50,0001,000500$0-2001 2006 2007 2008 2009 2010 2011Median Sales PriceMedian Sales PriceSalesRegional Multiple Listing Service (RMLS), “Market Action” report, ECONorthwestSales per Year34

DRAFT 8.24.12-3Land Use PlanningState law requires comprehensive land use planning to be accomplished at the city and county levels. To provide commondirection and consistency within each city and county comprehensive plan, the Oregon Legislative Assembly directed theLand Conservation and Development Commission (“LCDC”) to adopt statewide planning goals and guidelines.Comprehensive plans must address 19 statewide goals including: economy, housing, urbanization, transportation, and otherpublic facilities. A city’s comprehensive plan and zoning ordinance must meet the requirements of the statewide goals andbe acknowledged by the LCDC.The cities of Eugene and Springfield worked together with Lane County to create the Eugene-Springfield Metropolitan AreaGeneral Plan (the Metro Plan), which was adopted and approved by LCDC in 1982 and updated in 1987 and again in 2004.The Metro Plan establishes general planning policies and land use allocations that are the basis for other planning effortssuch as area refinement plans, functional plans, and special focused studies. The two cities are developing individual plansbased on city-specific policies and inventories of land supply and demand. The Metro Plan will be retained to addressregional land use planning issues, such as transportation and public facilities and services.Eugene’s process for developing the city-specific policies about land use is called Envision Eugene. The purpose ofEnvision Eugene to is to engage the community in discussions about growth and policies related to growth and to completetechnical analysis about the amount of land needed to accommodate growth in Eugene between 2012 and 2032. EnvisionEugene started in 2010, with a number of community workshops, surveys, and other processes to gather community input.Eugene will continue working on technical analysis and gathering public input for Envision Eugene through 2012. Theproducts of Envision Eugene will include: technical analysis that determines whether Eugene has enough land toaccommodate growth, technical analysis about urban growth boundary expansion areas (if necessary), and new and refinedpolicies to guide growth in Eugene over the next 20 years.Economic DevelopmentThe City continues to develop and implement economic development strategies to maintain and strengthen the economy.Recent efforts have included the following:• Establishment of an Enterprise Zone in West Eugene. A West Eugene Enterprise Zone (“Zone”) covering mostindustrial lands in West Eugene was designated by the State of Oregon, effective on July 1, 2005. The Zone willcontinue through 2015. The program offers a three-year property tax exemption for new buildings, renovation andexpansion of buildings, and equipment investments made by qualified businesses located within a designated area. Theexemption is designed to encourage new investment and job creation via a short-term exemption, with the long termgoal of increasing job stability and tax revenue for taxing districts following the exemption period. Qualifiedinvestments within the Zone of over $85 million are expected to create 150 new jobs.• City participation in development of a regional economic development strategy. The City participated in developmentof a regional economic development strategy, documented in the report “Building Our Next Economy: A RegionalProsperity Summit.” The document was endorsed by the region’s Joint Elected officials, the City Councils of Eugeneand Springfield, and Lane County’s Commissioners. The vision of the strategy is to create 20,000 new jobs in theEugene and Springfield area. The key industries envisioned for growth are: transportation/manufacturing, woodmanufacturing, health care, construction, advanced manufacturing, software, clean tech and renewable energy, andbiomedical.DowntownThe downtown area is primarily a business area, anchored by commerce and government and enhanced by an expandingarts and entertainment district and residential opportunities. Eugene’s Downtown is in a period of revitalization, with majorpublic and private investments being made in Downtown. Major recent development include:• Lane Community College (LCC) is building a new Downtown Campus facility on the one-half block site at 10thAvenue and Charnelton Street, located across from the downtown public library. The new $50 million facility willinclude an education building and student housing complex. This site has long stood empty as the largest cleareddevelopment-ready site in the downtown area. The student-housing component in the project is expected to bringalmost 250 new residents to Eugene’s central core. The new education building will be a model of energy efficiencyand green construction that will house the college’s Energy Management program, continuing education, and jobtraining programs. Construction on the new facility began in March 2011. Construction of the student housing is35

DRAFT 8.24.12-3expected to be completed by Fall 2012 and construction of the education building is expected to be completed byWinter 2013.• Construction was recently completed on the rehabilitation of the Center Court building located at the corner ofWillamette and West Broadway. Rehabilitation of the building cost about $11 million and was completed at the end of2011. The building, renamed the Broadway Commerce Building, has about 50,000 square feet of office space, with10,000 square feet of retail space on the ground floor. The building is partially leased, with the second floor leased (tomultiple small businesses), and the majority of the third floor leased to Pivot Architecture. The building owners are innegotiations to locate three restaurants on the first floor of the building.• Construction was recently completed on the Woolworth’s building located next to the Broadway Commerce Building.Construction of the building cost $11 million. The Woolworth Building offers about 50,000 square feet of space, themajority of which is Class A office space. The building has about 3,000 square feet of retail space on the ground floor.In addition, the building has about 70 underground parking spaces. The City of Eugene has leased two floors for officeuses.• Master Development is rehabilitating a two-story building at the corner of Willamette and West Broadway, called Firston Broadway. The $4 million rehabilitation will convert unused office space into approximately 16 residential rentalunits. The rental units are likely to be a mix of studio apartments and 1- and 2-bedroom apartments. In addition, about9,000 square feet of space for retail will be available on the ground floor.• Master Development is nearing completion on the conversion of an office building on Pearl Street (between 8th andBroadway Streets). The building, called Park Place, will include about 24 residential rental units. The rental units arelikely to be a mix of studio apartments and 1- and 2-bedroom apartments.• Capstone, a national developer of student housing, has proposed to build a $91 million student-housing complex. Thesite, located on Olive Street between 11th and 13th Avenues, formerly housed a PeaceHealth medical clinic. Capstoneproposes to building nearly 400 units which would house 1,200 students. The building will include about 1,000 parkingspaces in a multi-floor parking garage. Capstone plans to build the complex in two phases, with the first phase ready foroccupancy in Fall 2013 and the second in Fall 2014. The City of Eugene granted Capstone an approximately $10million tax waiver, as part of the City’s efforts to encourage development of multifamily housing in downtown.• The Inn at Fifth Street Market, LLC completed construction of a new hotel on the northwest corner of the 5th StreetMarket. Hotel accommodations in the heart of downtown Eugene will help meet the existing demand foraccommodations and increase the community’s ability to hold more and larger events.Commercial/Industrial ProjectsCommercial and industrial activity, including activity in Downtown, is an indicator of increased economic activity andinvestment in the community. Recent and current commercial/industrial projects in Eugene include the following:• The University of Oregon is in the process of construction of several major capital projects:o The Global Scholars Hall will house about 450 students, at about 185,000 square feet. The project costs about $75million and is expected to be completed in time for students to move in for the Fall 2012 term.ooThe Lewis Integrative Science Building is a 107,000 square foot building designed as a high performanceresearch facility, providing new opportunities for interaction and integration across scientific disciplines. Theproject costs about $65 million and is expected to be completed by September 2012.The University is expanding and improving existing buildings. The University is investing $9.1 millionrenovating Huestis Hall, including adding 13,000 square feet and renovating the basement. The University isinvesting about $15 million in an expansion and remodel of Allen Hall including adding more than 20,000 squarefeet of space.• PeaceHealth, parent organization for Sacred Heart Medical Center, has invested about $4.5 million in planning anddesign, as part of upgrades at the University District hospital. Over the next year, PeaceHealth will invest $7.8 millionin upgrading the hospital’s heating system, improvements to the hospital nursing tower, and relocation of existingservices. In 2011, PeaceHealth spent $8.8 million to renovate the PeaceHealth Medical Group-University District clinic36

DRAFT 8.24.12-3building and for other renovations. The University District will continue to provide a range of services: 24/7 emergencydepartment; capacity for 104 inpatient beds for outpatient rehabilitation, general medicine and Acute Care for Elders(ACE) units, and the state's largest private inpatient behavioural health program; the Gamma Knife Center; Center forMedical Education and Research; and other services.• The Oregon Research Institute (ORI) is building a four-story 80,000 square foot headquarters building. The buildingwill provide space for ORI’s 187 employees. The building will also house the Educational Policy Improvement Center.The building will provide space for ORI’s annual conference, as well as additional laboratory space.• Real Property Investors contracted to purchase the vacant Hynix site in West Eugene. They will use the facility as acomputer data center. The company plans to open the data center in November 2012 and may employ several hundredpeople.Construction ActivityBetween FY 2006-2007 and April 2012, the City of Eugene issued 1,133 building permits for construction of newresidential living units, with total valuation of just under $284 million. Residential construction decreased over the past sixyears, reflecting the national decline in the housing markets. The City issued permits for construction of new 343 nonresidentialbuildings with total valuation of $327.6 million between FY 2006-2007 and April 2012.Building Permits and ValuationCity of Eugene(Valuation in $000,000's)New BuildingsAdditions/AlterationsResidential Non-Residential Residential Non-ResidentialNumberofPermitsValue NumberofPermitsValue NumberofPermitsValue NumberofPermitsValueFY06-07 383 93.4 64 18.9 819 17.2 688 67.9FY07-08 232 53.5 82 44.1 774 15.4 760 51.5FY08-09 117 34.5 54 60.4 629 14.0 643 486FY09-10 167 48.9 42 47.4 589 13.6 592 43.8FY10-11 143 32.7 53 31.8 609 12.8 617 53.6July/11 –April/12 91 20.9 48 125.0 442 9.9 511 48.4Source: City of Eugene, Planning and Development Department.http://ceapps.eugeneor.gov/PDDONLINE/BuildingPermits/PermitReportsNote: Excludes mobile homes.Note: For FY2011-12, the value of non-residential permits was unusually high because there was a $67 millionpermit, which is for the University of Oregon football operations building, associated site, parking, and practicefield.The University Of OregonThe University of Oregon, founded in 1876, is located on a 295-acre campus in Eugene. Enrollment at this state liberal artsuniversity is approximately 24,450 students. The University employs approximately 4,500 faculty and staff. The Universityis a major public research institution, whose programs rank consistently in the top 25% of such public institutions, withmany programs ranking in the top 10%. It is composed of a College of Arts and Sciences and six professional schools:Education, Business, Law, Music, Architecture, and Journalism. The University’s libraries include 2.6 million volumes and18,000 periodicals, the second largest collection in the Northwest.37

DRAFT 8.24.12-3The University of Oregon is one of only two universities in the Northwest that are members of the Association of AmericanUniversities (AAU). The AAU is an invitation-only organization made up of 63 of the leading public and private researchinstitutions in the United States and Canada. University of Oregon faculty members were awarded $110.2 million in outsidegrants and contracts in FY 2010-11; 90% of this total came from federal agencies. With an annual payroll totaling $400million, other expenditures totaling $175 million, and generating another $233 million in student spending besides tuitionand fees, the University of Oregon is a major engine within Oregon’s and Eugene’s economies.The University hosted the Olympic Team Trials for Track and Field at its historic Hayward Field in 2008 and 2012. Thisevent is the largest national championship track meet in the world, attracting over 1,000 athletes and more than 350,000spectators.Riverfront Research ParkSince 1988, the Riverfront Research Park has been the site of a cooperative arrangement between the University of Oregonand private developers to create university-related research and development investment opportunities. The 67-acre site isdirectly across the street from the University’s sciences complex. The Research Park currently has 111,000 square feet ofoffice and laboratory space situated within open, natural spaces. Parcels are leased to private parties and buildings areprivately owned, while the University manages the Park and is the focus for technology transfer, providing access to itsfaculty, equipment and facilities.Health CareEugene’s largest medical services provider is PeaceHealth Medical Group. PeaceHealth operates the new RiverBendRegional Medical Center in Springfield’s Gateway area, as well as the Sacred Heart Medical Center – University Districthospital in Eugene. The RiverBend facility is the largest hospital between Portland and San Francisco and the only Level IItrauma center in Lane County. Key services include a 32-bed Neonatal Intensive Care Unit, the Oregon Heart & VascularInstitute and Oregon Rehabilitation Center. PeaceHealth also operates a number of primary care, specialty and urgent careclinics and medical offices throughout the City and central Lane County.The RiverBend Medical Center serves the entire Eugene-Springfield metropolitan area. This facility, which opened in 2008,encompasses approximately 800,000 square feet of space and employs over 2,000 people. The $365 million facility atRiverBend includes inpatient beds, inpatient surgery, Level II trauma care in the emergency room, imaging facilities,laboratory, ancillary services, the Oregon Heart and Vascular Institute, hospital-based physician offices, and offices for hospitalsupport staff and administration. The surrounding campus includes additional components for medical and commercialoffice buildings, walking trails and lots of open space.PeaceHealth will continue renovating the Sacred Heart Medical Center - University District hospital. The plans includerefurbishing existing space and demolishing unused space. At the University District hospital, PeaceHealth providesclinical and administrative services including primary and specialty care administered by PeaceHealth Medical Groupphysicians and other providers. There is a 24-hour, level IV emergency room at the facility. In addition, the UniversityDistrict campus houses a variety of administrative functions for PeaceHealth's regional operations.TransportationHighwaysMajor highways through the City include heavily-traveled U.S. Interstate 5, which bisects the metropolitan area, providingaccess north to Portland, Seattle and Vancouver B.C. and south to Sacramento and Los Angeles. Oregon State Highway 126provides year-round connections west to the Pacific Coast and east, to the Cascade Mountains and the growing communitiesand recreational opportunities of central Oregon. Oregon Highway 58 provides another well-traveled route across theCascade Mountains, connecting Interstate 5 with US Highway 97.RailThe Union Pacific Railroad line extends north-south, providing freight connections to and from national markets and,through connections to major seaports, reaching international markets. Amtrak offers daily service with passenger trainsand buses that connect Eugene to the other cities in the Pacific Northwest High Speed Rail Corridor and south throughCalifornia.38

DRAFT 8.24.12-3The City has completed a full rehabilitation of the historic 1908 Eugene Depot rail station and the circa 1880's bunkhousefor modern rail passenger services as well as site improvements including new paving, plantings and lighting. Amtrakoccupies and provides passenger rail service from the Depot building under a lease agreement with the City in order toprovide passenger rail service for Eugene and connecting locations. Future phases in early planning stages include measuresfor improved vehicular circulation as well as a passenger platform and train staging separate from existing rail lines.TransitComprehensive bus service within Lane County is provided by the Lane Transit District. The District’s innovative EmX busrapid transit had more than 1.4 million passenger boardings in 2007, the first year of operation for EmX, far surpassingprojections for the four-mile “Green Line” segment between Eugene and Springfield downtowns. Ridership on EmX hasincreased by 70% compared with the number of boardings on the bus line that previously served the route. LTD opened thesecond EmX line in January 2011, which runs from downtown Springfield to the Gateway area. Weekday ridership on thetwo EmX lines increased to about 9,500 customer boardings per day in 2011.EmX has been so successful that it was the only U.S. project chosen for a 2008 Sustainable Transport Award from theInstitute for Transportation and Development Policy in New York City. EmX shared honorable mention status with projectsin Guatemala and Colombia, with top awards given to alternative transportation projects in Paris and London.Eugene has made a commitment to encourage denser growth, and with increasing density, the more vital mass transitbecomes. A West Eugene EmX extension is in the final planning stages. Recognizing the traffic congestion in west Eugeneand the opportunities for transit improvements to help make the area more livable, the Eugene City Council selected westEugene as the city’s priority for the next EmX corridor study.Lane Transit recognizes the needs of an aging population that has resulted in a 10% annual rate of growth for RideSource,which uses smaller vehicles to provide curb-to-curb service for elderly and disabled riders.AirThe Eugene Airport is the second largest airport in the state and the fifth largest airport in the Pacific Northwest. Owned andoperated by the City of Eugene, the 2,600 acre airport serves an expansive six-county region with commercial, corporate,general aviation and air cargo services. The airport property is also home to the Lane Aviation Academy.Non-hub, commercial service is provided with non-stop service to Denver, Las Vegas, Los Angeles, Oakland, Phoenix-Mesa, Portland, Salt Lake City, San Francisco and Seattle. Commercial air carriers include Allegiant Air, Delta Connection,Horizon Air, and United Express.Other UtilitiesQwest Communications Company provides telephone service to the area, and Northwest Natural Gas Company providesnatural gas. Comcast provides cable television services to the Eugene-Springfield area. Both Qwest and Comcast alsoprovide high-speed internet services to households and businesses in the area.The Metropolitan Wastewater Management Commission (MWMC) has the authority to plan, design, maintain, and operatesewerage facilities serving the Eugene/Springfield metropolitan area.The MWMC has an intergovernmental agreement with Eugene and Springfield to operate and maintain the treatment plant,completed in 1984, and to manage the related capital improvement program. User rates are adopted by the MWMC forsewage treatment, and the two city councils pass local user rate ordinances for their jurisdictions based on the adoptedregional treatment rates and which incorporate rates to support local sewage collection system operations and maintenance.In 2004, the intergovernmental agreement between Lane County, Springfield and Eugene was modified to give authorityand enabling processes to the Metropolitan Wastewater Management Commission to issue revenue bonds for the support ofthe regional wastewater Capital Improvement Program. In 2007, the MWMC issued $50 million in revenue bonds tosupport an approved 20 year CIP for the upgrade and expansion of the regional wastewater treatment facilities.39

DRAFT 8.24.12-3THE INITIATIVE AND REFERENDUM PROCESSThe Oregon Constitution, Article IV, Sec. 1, reserves to the people of the State (1) the initiative power to amend the Stateconstitution or to enact State legislation by placing measures on the statewide general election ballot for consideration byvoters and (2) the referendum power to approve or reject at an election any act passed by the Legislative Assembly that doesnot become effective earlier than 90 days after the end of the legislative session. The Legislative Assembly may also referan act to the voters for approval or rejection.State law permits any person to file a proposed initiative with the Secretary of State’s office without payment of fees orother burdensome requirements. Although a large number of initiative measures are submitted to the Secretary of State’soffice, a much smaller number of petitions contain sufficient signatures to be placed on the ballot.Proposed Initiative Measures that Qualify to be Placed on the BallotTo place a proposed initiative on a general election ballot, the proponents must submit to the Secretary of State initiativepetitions signed by the number of qualified voters equal to a specified percentage of the total number of votes cast for allcandidates for governor at the gubernatorial election at which a governor was elected for a term of four years next precedingthe filing of the petition with the Secretary of State. For the 2012 general election, the requirement is eight percent (116,284signatures) for a constitutional amendment measure and six percent (87,213 signatures) for a statutory initiative. Anyelector may sign an initiative petition for any measure on which the elector is entitled to vote. The filing deadline forplacement on the November 6, 2012 ballot was July 6, 2012. Some measures, if approved by the voters, may have afinancial impact on EWEB. The likelihood of voter approval or the amount of fiscal impact, if any, is currently unknown.The initiative petition must be submitted to the Secretary of State not less than four months prior to the general election atwhich the proposed measure is to be voted upon. As a practical matter, proponents of an initiative have approximately twoyears in which to gather the necessary number of signatures. State law permits persons circulating initiative petitions to paymoney to persons obtaining signatures for the petition. Once an initiative measure has gathered a sufficient number ofsignatures and qualified for placement on the ballot, the State is required to prepare a formal estimate of the measure’sfinancial impact. Typically, this estimate is limited to an evaluation of the direct dollar impact.Historically, a larger number of initiative measures have qualified for the ballot than have been approved by the electors.According to the Elections Division of the Secretary of State, the total number of initiative petitions that qualified for theballot and the numbers that passed in recent general elections are provided in the following table.Initiative Measures – General ElectionsNumber of Number ofYear of Initiatives that Initiatives thatGeneral Election Qualified Passed2002 7 32004 6 22006 10 32008 8 02010 4 22012 7 (1) NA(1) Seven initiative measures have qualified for the November 6, 2012 General Election ballot. Some measures, ifapproved by the voters, may have a financial impact on EWEB. The likelihood of voter approval or the amount of fiscalimpact, if any, is currently unknown.NOTE: The Secretary of State posts a listing of initiatives on its web site: www.sos.state.or.us.Source: Elections Division, Oregon Secretary of State, August 1, 2012.Referendum Petitions and Legislative ReferralsWithin 90 days after the end of a legislative session, any person may file a petition seeking to have any act passed by theLegislative Assembly that does not become effective earlier than 90 days after the end of the legislative session referred tothe voters for their approval or rejection at the next general election, or at a special election provided for by the LegislativeAssembly. To place a proposed referendum on the ballot, the proponents must submit to the Secretary of State within 9040

DRAFT 8.24.12-3days after the end of the legislative session referendum petitions signed by the number of qualified voters equal to fourpercent of the total number of votes cast for all candidates for governor at the gubernatorial election at which a governorwas elected for a term of four years next preceding the filing of the petition with the Secretary of State. For the 2012general election, that requirement is 58,142 signatures. Any elector may sign a referendum petition for any measure onwhich the elector is entitled to vote. An act approved by the voters through the referendum process becomes effective 30days after the date of the election at which it was approved. A referendum on part of an act does not prevent the remainderof the act from becoming effective as provided in the act.Measures that have been passed by the legislative assembly may be referred by the legislative assembly to the electors. InOregon, both houses of the Legislative Assembly must vote to refer a statute or constitutional amendment for a popularvote. Such referrals cannot be vetoed by the Governor. Any change to Oregon Constitution passed by the LegislativeAssembly requires referral to voters. There two legislative referrals on the November 6, 2012 General Election ballot.Some measures, if approved by the voters, may have a financial impact on EWEB. The likelihood of voter approval or theamount of fiscal impact, if any, is currently unknown.City CharterIn addition to statutory and constitutional changes by the Legislative Assembly and the initiative and referendum process,the independent basis of legislative authority has been granted to cities in Oregon by municipal charters. A copy of the CityCharter is available upon request from the City.Protection of Rate CovenantsThe obligation to comply with rate covenants despite subsequently approved conflicting initiative petitions has been tested inthe courts and is also the subject of recent legislation. In AMBAC Indemnity Corporation v. City of Oregon City, Civil No.96-865-JO, the United States District Court in Portland, Oregon considered a case in which Oregon City voters approved aballot measure in 1996 that rolled back electric rates to those that had been in effect in 1994 and prohibited future rateincreases without voter approval. Plaintiffs alleged that the measure violated existing rate covenants with respect tooutstanding electric revenue bonds, and the District Court agreed. The court ruled, with respect to holders of outstandingbonds, that the rollback of rates and prohibition on rate increases substantially impaired the contractual relationship betweenOregon City and its bondholders. The court based its finding on testimony that alternative revenue sources were not sufficient,and that the city would be unable to make debt service payments if it could not raise rates. The measure was therefore asubstantial impairment of an existing contract.In addition to the above ruling, the Oregon Legislative Assembly approved House Bill 2181, a statutory amendment which,among other things, provides additional protection for revenue pledges securing bonds or other obligations. House Bill 2181was signed by the Governor of the State of Oregon on May 25, 1997. In relevant part, House Bill 2181 amended OregonRevised Statutes 288.594 (now ORS 287A.325) and provides that any initiative or referendum measure which changesstatutory or charter provisions affecting rates, fees, tolls, rental or other charges will not be given effect if to do so would impairexisting covenants regarding the imposition, levy or collection of such rates, fees, tolls, rentals or other charges pledged tosecure outstanding bonds or other obligations.CONTINUING DISCLOSURERule 15c2-12 of the United States Securities and Exchange Commission (the “Rule”) requires annual disclosure of currentfinancial information and timely disclosure of certain events with respect to the Series 2012 Bonds. Pursuant to the Rule,EWEB has agreed to provide the Municipal Securities Rulemaking Board audited financial information of EWEB andcertain financial information or operating data. In addition, EWEB has agreed to provide the Municipal SecuritiesRulemaking Board and notice of certain events, pursuant to the requirements of Section (b)(5)(i) of the Rule.A copy of EWEB’s Continuing Disclosure Certificate is attached hereto as Appendix D.In the previous five years, EWEB has not failed to comply, in all material respects, with its previous undertakings under theRule.41

DRAFT 8.24.12-3TAX MATTERSFederal Income TaxesThe Internal Revenue Code of 1986, as amended (the “Code”), imposes certain requirements that must be met subsequent tothe issuance and delivery of the Series 2012 Bonds for interest thereon to be and remain excluded from gross income forFederal income tax purposes. Noncompliance with such requirements could cause the interest on the Series 2012 Bonds tobe included in gross income for Federal income tax purposes retroactive to the date of issue of the Series 2012 Bonds.Pursuant to the Resolution and the Tax Certificate to be executed in connection with the initial issuance and delivery of theSeries 2012 Bonds (the “Tax Certificate”), EWEB has covenanted to comply with the applicable requirements of the Codein order to maintain the exclusion of the interest on the Series 2012 Bonds from gross income for Federal income taxpurposes pursuant to Section 103 of the Code. In addition, EWEB has made certain representations and certifications in theResolution and the Tax Certificate. Bond Counsel will not independently verify the accuracy of those representations andcertifications.In the opinion of Mersereau Shannon LLP, Bond Counsel, under existing law and assuming compliance with theaforementioned covenant, and the accuracy of certain representations and certifications made by EWEB described above,interest on the Series 2012 Bonds is excluded from gross income for Federal income tax purposes under Section 103 of theCode. Bond Counsel is also of the opinion that such interest is not treated as a preference item in calculating the alternativeminimum tax imposed under the Code with respect to individuals and corporations. Interest on the Series 2012 Bonds is,however, included in the adjusted current earnings of certain corporations for purposes of computing the alternativeminimum tax imposed on such corporations.State TaxesBond Counsel is also of the opinion that interest on the Series 2012 Bonds is exempt from personal income taxes of theState of Oregon under existing law. Bond Counsel expresses no opinion as to other State of Oregon or local taxconsequences arising with respect to the Series 2012 Bonds nor as to the taxability of the Series 2012 Bonds or the incometherefrom under the laws of any state other than State of Oregon.PremiumAn amount equal to the excess of the purchase price of a Bond over its stated redemption price at maturity constitutespremium on that Bond. A purchaser of a Bond must amortize any premium over that Bond’s term using constant yieldprincipals, based on the Bond’s yield to maturity. As premium is amortized, the purchaser’s basis in the Bond and theamount of tax-exempt interest received will be reduced by the amount of amortizable premium properly allocable to thepurchaser. This will result in an increase in the gain (or decrease in the loss) to be recognized for federal income taxpurposes on sale or disposition of the Bond prior to its maturity. Even though the purchaser’s basis is reduced, no federalincome tax deduction is allowed. Purchasers of Certificates at a premium, whether at the time of initial issuance orsubsequent thereto, should consult with their tax advisors with respect to the determination and treatment of premium forfederal income tax purposes and the state and local tax consequences of owning such Bond.Original Issue DiscountThe initial public offering price of certain Series 2012 Bonds (the "Original Issue Discount Bonds"), may be less than thestated redemption price at maturity. In such case, the difference between (i) the stated amount payable at the maturity of anOriginal Issue Discount Bond and (ii) the initial public offering price of that Original Issue Discount Bond constitutesoriginal issue discount with respect to that Original Issue Discount Bond in the hands of the owner who purchased thatOriginal Issue Discount Bond at the initial public offering price in the initial public offering of the Bond. The initial owneris entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to anOriginal Issue Discount Bond equal to that portion of the amount of the original issue discount allocable to the period thatsuch Original Issue Discount Bond continues to be owned by the initial owner.In the event of the redemption, sale or other taxable disposition of an Original Issue Discount Bond prior to its statedmaturity, however, the amount realized by the initial owner in excess of the basis of the Original Issue Discount Bond in thehands of its initial owner (adjusted upward by the portion of the original issue discount allocable to the period for whichsuch Bond was held by the initial owner) is includable in gross income. Purchasers of Original Issue Discount Bonds should42

DRAFT 8.24.12-3consult their tax advisors regarding the determination and treatment of original issue discount for federal income taxpurposes and the state and local tax consequences of owning Original Issue Discount Bonds.Ancillary Tax MattersOwnership of the Series 2012 Bonds may result in other federal tax consequences to certain taxpayers, including, withoutlimitation, certain S corporations, foreign corporations with branches in the United States, property and casualty insurancecompanies, individuals receiving Social Security or Railroad Retirement benefits, individuals seeking to claim the earnedincome credit, and taxpayers (including banks, thrift institutions and other financial institutions) who may be deemed tohave incurred or continued indebtedness to purchase or to carry the Series 2012 Bonds.Bond Counsel is not rendering any opinion as to any Federal tax matters other than those described under the caption “TAXMATTERS.” Prospective investors, particularly those who may be subject to special rules described above, are advised toconsult their own tax advisors regarding the federal tax consequences of owning and disposing of the Series 2012 Bonds, aswell as any tax consequences arising under the laws of any state or other taxing jurisdiction.Changes in Law and Post Issuance EventsLegislative or administrative actions and court decisions, at either the federal or state level, could have an adverse impact onthe potential benefits of the exclusion from gross income of the interest on the Series 2012 Bonds for Federal or stateincome tax purposes and thus on the value or marketability of the Series 2012 Bonds. This could result from changes toFederal or state income tax rates, changes in the structure of Federal or state income taxes (including replacement withanother type of tax), repeal of the exclusion of the interest on the Series 2012 Bonds from gross income for Federal or stateincome tax purposes or otherwise. It is not possible to predict whether any legislative or administrative actions or courtdecisions having an adverse impact on the Federal or state income tax treatment of holders of the Series 2012 Bonds mayoccur. Prospective purchasers of the Series 2012 Bonds should consult their own tax advisers regarding such matters.Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance and delivery of theSeries 2012 Bonds may affect the tax status of interest on the Series 2012 Bonds. Bond Counsel expresses no opinion as toany Federal, state or local tax law consequences with respect to the Series 2012 Bonds, or the interest thereon, if any actionis taken with respect to the Series 2012 Bonds or the proceeds thereof upon the advice or approval of other counsel.LITIGATIONThere is no litigation or other proceedings pending, or to the knowledge of EWEB threatened, questioning the existence ofEWEB, or the title of the officers of EWEB to their respective offices, or restraining or enjoining the issuance, sale ordelivery of the Series 2012 Bonds or in any way questioning or affecting the validity of any provision of the Series 2012Bonds, the Resolution, or the power and authority of EWEB to issue the Series 2012 Bonds or to fix rates and collect chargesfor electricity furnished by EWEB.EWEB is involved in various litigation relating to its operations. In the opinion of management, the ultimate outcome ofthese claims will not have a material effect on EWEB's financial position beyond amounts already accrued as of December31, 2011.APPROVAL OF LEGAL PROCEEDINGSMersereau Shannon LLP, Bond Counsel, will render an opinion with respect to the validity of the Series 2012 Bonds. The formof the approving opinion Bond Counsel proposes to render is appended hereto as Appendix A.Certain legal matters will be passed upon for the Underwriter by its counsel, Foster Pepper PLLC. Any opinion of FosterPepper PLLC will be rendered solely to the Underwriter, will be limited in scope and cannot be relied upon by investors.43

DRAFT 8.24.12-3RATINGSMoody's, Standard & Poor's and Fitch have assigned ratings of “___”, “___” and “___”, respectively, to the Series 2012 Bonds.Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings shouldbe obtained from the rating agency furnishing the same, at the following addresses: Moody's Investors Service, Inc., 7 WorldTrade Center, 250 Greenwich Street, New York, New York 10007; Standard & Poor's Ratings Services, 55 Water Street, NewYork, New York 10004, and FitchRatings. One State Street Plaza, New York, New York 10004. Generally, a rating agencybases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. Thereis no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward orwithdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any suchdownward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 2012 Bonds.FINANCIAL AND PRICING ADVISORSJames H. Origliosso, Delta Utility Associates, LLC, has served as financial advisor to EWEB in connection with issuance ofthe Series 2012 Bonds. Mr. Origliosso previously served as Treasurer of EWEB. Seattle-Northwest Securities Corporation hasserved as pricing advisor to EWEB in connection with the issuance of the Series 2012 Bonds. Seattle-Northwest SecuritiesCorporation has previously served as financial advisor and underwriter to EWEB in connection with matters other than theSeries 2012 Bonds. The Underwriter of the Series 2012 Bonds has previously served as financial advisor to EWEB inconnection with matters other than the Series 2012 Bonds.UNDERWRITINGThe Series 2012 Bonds are to be purchased by the Underwriter at a price of $______________ (representing the aggregateprincipal amount of the Series 2012 Bonds, [less an original issue discount/plus a net original issue premium of$____________,] less an underwriter’s discount of $_________). The Bond Purchase Agreement between EWEB and theUnderwriter provides that the Underwriter will purchase all of the Series 2012 Bonds if any are purchased and that thepurchasers of the Series 2012 Bonds are subject to the conditions set forth in that Bond Purchase Agreement.The Underwriter may offer and sell the Series 2012 Bonds to certain dealers or unit investment trusts and money market orother funds and others at lower prices than the initial offering prices (or prices corresponding to the yields) set forth on thecover, and such initial offering prices may be changed from time to time by the Underwriter without notice.J.P. Morgan Securities LLC (“JPMS”), the Underwriter of the Series 2012 Bonds, has entered into negotiated dealeragreements (each, a “Dealer Agreement”) with each of UBS Financial Services Inc. (“UBSFS”) and Charles Schwab & Co.,Inc. (“CS&Co.”) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to each DealerAgreement, if applicable to this transaction, each of UBSFS and CS&Co. will purchase Series 2012 Bonds from JPMS atthe original issue price less a negotiated portion of the selling concession applicable to any Series 2012 Bonds that such firmsells.MISCELLANEOUSThe references, excerpts and summaries contained herein of the documents referred to herein do not purport to be completestatements of the provisions thereof and reference should be made to such documents for a full and complete statement of allmatters relating thereto, and the rights and obligations of the holders thereof. The authorizations, agreements and covenants ofEWEB are set forth in such documents, and neither this Official Statement nor any advertisement of the Series 2012 Bonds isto be construed as a contract with the owners of the Series 2012 Bonds. Any statements made in this Official Statementinvolving matters of opinion or estimates, whether or not expressly so identified, are intended merely as such and notrepresentations of fact.The execution of this Official Statement has been duly authorized by EWEB on behalf of the City of Eugene, Oregon.EUGENE WATER AND ELECTRIC BOARD/s/ Catherine D. BloomBy: Catherine D. BloomTreasurerDated: ___________, 201244

APPENDIX A – FORM OF OPINION OF BOND COUNSELDRAFT 8.24.12-3

APPENDIX B – FINANCIAL STATEMENTS FOR THE YEARS ENDEDDECEMBER 31, 2011 AND DECEMBER 31, 2010DRAFT 8.24.12-3

APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER RESOLUTIONDRAFT 8.24.12-3

APPENDIX D – FORM OF CONTINUING DISCLOSURE CERTIFICATEDRAFT 8.24.12-3

APPENDIX E – THE DEPOSITORY TRUST COMPANYDRAFT 8.24.12-3