MCKENZIE BRIDGE, Oregon (STPNS) -- EUGENE: Last week Eugene Water & Electric Board president John Brown outlined the utility’s major financial issues in his “state of the utility” report. Some belt-tightening decisions included the first lay-offs in EWEB’s 102-year history.

Following the 2000 – 2001 energy crisis, the utility diversified its energy portfolio with substantial investments in renewable power (wind, biomass). Those sources are much more expensive than traditional generation resources such as hydro and even new natural gas generators. “It is important to understand that EWEB did not invest in higher-cost renewable power projects unwisely,” Brown said.

“EWEB made a decision to not be caught short of power again and to move toward more sustainable resources like renewable power,” he noted. “As a result of fracking and other extraction technologies, a glut of natural gas has flooded the market, pushing down wholesale prices at a time when demand for power is about the same as in 1996. Natural gas prices have fallen more than 80 percent since 2008 (-30% in the past 18 months), which has made electricity generated by gas turbines plentiful and cheap. Gas generation is the major driver in the U.S. electricity market.”

The oversupply led to a crash in wholesale power prices - regardless of generation source.

“In addition, the prolonged economic downturn has reduced demand for electricity – along with revenues EWEB has used to run the utility,” Brown says. “Few in our community had the knowledge that their electricity costs had previously been subsidized by the revenues EWEB received from the sale of our surplus power. Now we have even more power than before due to decreased demand, and the prices have fallen drastically.”

Changes at EWEB will have an impact locally. Last year began to look at modifications of the Carmen-Smith relicensing agreement. “We are now working with state and federal regulators to determine if it is possible to trim $45 million from the total cost of licensing the Carmen-Smith project,” according to Brown. “Rather than spend $45 million on a fish screen and tunnel that might not even function properly, EWEB may propose to our partners that the utility not build the expensive screen and tunnel -- and instead simply mothball the Trailbridge Dam turbine.”

He went on to say EWEB still intends to spend plenty of money on protecting fish and the environment, including a multi-million dollar fish ladder.

Cost-cutting plans include the possible sale of some of EWEB’s generating assets. The board of commissioners voted last month to sell the utility’s Smith Creek Hydroelectric project in Northwest Idaho. Bids for Smith Creek are being prepared to go out later this year. “We’ve already had more than a half dozen power companies express an interest.” Brown said. “If we eventually receive some bids that make economic sense for Smith Creek, commissioners will consider selling our interests, but only if it makes sound economic sense.”

Besides supplying power EWEB also provides potable water for the metro area. “Everyone in this room tonight knows that EWEB is the largest city in the Northwest without a second source of drinking water,” he said. “Our sole source right now – the McKenzie River – is the envy of water utilities worldwide. But we are one tanker truck crash, one major earthquake or one other type of disaster away from not having enough water to sustain our community.”

Last February EWEB received a state-approved water right on the Willamette River. One plan under consideration is to someday build a small water treatment plant on there to help provide basic water services in the event a disaster ruins won’t allow drawing water from the McKenzie or from the Hayden Bridge Water Filtration plant.

Besides maintenance of existing facilities, Brown said EWEB will work with neighboring water utilities on mutual aid and support in event of a water emergency. EWEB could also draw upon its north Eugene well fields for a limited resource.

Last year the utility about 50 fewer full-time employees than in 2012. This year’s budget has 20 less employees than the 2013 budget. “Labor costs make up only about 20 percent of EWEB’s budget, so there is no way to cut or lay off our way out of this situation,” Brown noted.

He called EWEB’s employees its most important asset. “We need to be aware of and sensitive to the market forces that will put pressures on our employees to consider other options in the workplace,” he said “The mere fact that approximately 50% of our workforce will turnover in the next 5-6 years will most probably create a shortage of highly talented and highly skilled workers, who will face pressures from competing employment opportunities. We need to maintain a work environment that not only attracts but retains a staff equivalent to the level of professionalism which we currently enjoy.”

In closing, Brown said he was, “Looking forward to working with the Board and staff to make sure that we continue to navigate the EWEB organization through the uncertainties of the economic challenges as well as the infrastructure needs to ensure we continue to be the best Utility in the region, public or private.”