CC Minutes - 02/25/02 Work Session

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Mr. Berggren further confirmed, in response to a follow-up question from Mr. Pap6, that many northwest utilities were similarly affected, particularly those larger utilities with hydroelectric generation capabilities. He noted that EWEB has five hydroelectric projects. Mr. Pap6 asked how other local utilities fared. Mr. Berggren said that some had full requirements contracts with the BPA, leaving BPA with the financial obligation, which added to its rate increase. Others may have had other supply contracts of a firm cost nature that bridged the time period in question. Mr. Pap6 asked about the impact of conservation on the utility's load demand. Mr. Berggren said that EWEB thought it would get a good look at the impact of price elasticity when it implemented the tiered rate system, but the recession had somewhat clouded the issue. Loads dropped after the adjustment an additional ten percent; but on average, the entire west coast lost ten percent of its load over the last six months, which he attributed both to the recession and to some elastic response to higher prices. However, he noted the specific impacts of these two factors were difficult to distinguish. Mr. Pap6 observed that in the past, the Springfield Utility Board (SUB) had higher rates than EWEB. Ms. Taylor asked if the rate increase imposed in October 2001 would be decreased in the future. Mr. Berggren said it was possible, although the increase was a result of higher wholesale prices. Projections indicated that BPA's rates would probably be flat over the next few years following a small decrease in power costs in April and a possible rate increase in October 2002, which was attributable to a drop in the agency's financial reserves. Mr. Berggren said that there were many factors, including the potential of a new El Nifio, affecting the answer to Ms. Taylor's question. Ms. Taylor hoped that rates could be reduced, saying that people are going without heat and are cold. Mr. Farr reiterated Mr. Kelly's comments about EWEB's response to the windstorm. He asked about the impact of that response on EWEB's budget. Mr. Berggren estimated about $1.5 million in additional costs; staff was in the process of working out the actual costs. He added that EWEB was working with the City to secure relief dollars from the Federal Emergency Management Agency, which could mean recovery of about 75 percent of those costs, reducing EWEB's net out- of-pocket costs in responding to the storm to less than $500,000. Ms. Bishop added that the situation emphasized the importance of building EWEB's reserves. Mr. Meisner asked Mr. Berggren to speculate as to what FERC might do, and what effect a FERC action to order a cap on deliveries taken after the original order date would have on rates, and in what period of time. Mr. Berggren said that EWEB's legal counsel believed that there was about a ten percent probability of FERC ruling in the utilities' favor. He added that would be based less on the merits of the utilities' arguments and more on FERC's ability to figure out all the complications of the deals underlying them. If EWEB prevailed on the arguments, the value of the contracts involved in terms of prices paid above the cap would be about $40 million. However, even if EWEB was sustained by FERC, that reward would be in the form of refunds, which would require the establishment of a costly and complicated tracking system. In addition, some of the parties to the contracts may not be in business anymore. Mayor Torrey asked what expectations EWEB had of the load and revenue from local firms HMT and Hynix. Mr. Berggren said that he did not have that information at hand, noting that HMT was MINUTES--Eugene City Council February 25, 2002 Page 4 Work Session