Agenda - 07/10/12 Eugene City Council and EWEB Joint Meeting

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Attachment 3 M E M O R A N D U M EUGENE WATER & ELECTRIC BOARD TO:Mayor Piercy, Eugene City Council and City Manager Jon Ruiz FROM:Roger Gray, General Manager DATE:July 2, 2012 SUBJECT:EWEB Budget Update This memo is intended to brief you on the Eugene Water & Electric Board’s 2013 budgeting process. As you are aware, the 2013 budget is being developed under a very different context than previous budgets. EWEB began service priorities discussions withthe Board and internal cost-cutting/efficiency measures in 2011. As we looked at our most recent financial forecasts, it became evident that EWEB was facing cost increases that, without budget reductions, would result in a 2013 electric rate increase of up to 20 percent, as well as a double-digit water rate increase. This would follow electric rate increases in the previous two years totaling about 14 percent. Immediate action was needed to stabilize costs and lessen the impact of future rate increases. Like other public agencies, the combination of growing personnel costs and less revenue is part of the bleak financial picture. However, for the utility, the primary drivers for cost increases are: A 15 to18 percent increase in wholesale power costs from the Bonneville Power Administration (BPA), where EWEB gets about 60 percent of its electricity. See attachedfor more information from BPA on this increase. Costs associated with relicensing EWEB’s largest hydroelectric facility, Carmen-Smith. Reducedreimbursement funds from BPA for EWEB conservation activities. Pre-recession long-term power costs for renewable energy. Lower revenues generated from the sale of surplus power. Affordability is a long-held core value for EWEB. But with the lingering effects of a poor economy and mounting rate pressure, our customers have begun to question the utility’s commitment to financial stewardship. In response, EWEB is making hard choices to focus resources on essential services that provide highest value to customers. In all, EWEB is reducing its 2012 budget by between $2 -$3 million, and its 2013 budget by approximately $10 million. Because we cannot influence power costs, meeting our budget re-alignment goals required decisions with direct impacts to our employees and community partners. EWEB has offered early departure incentives to employees to reduce the need for layoffs and offer opportunities for impacted staff to move into newly vacant positions. Shrinking the organizational footprint not only means workforce reductions, it implicates a number of programs valued by EWEB and held in high esteem in our community. These hard choices are being approached from a recalibration perspective rather than ‘slash and burn’, but the reality is that there will be ripple effects in the community. Our goal is to look for new ways of delivering key services in a way that captures savings and efficiencies and minimizes the side-effects of our budget stabilization efforts. 1