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5.5 ERMUSR 04-12-2011Elk River ^~-~ Municipal Utilities 13069 Orono Parkway • P.O. Box 430 Elk River, MN 55330-0430 UTILITIES COMMISSION MEETING Phone: 763.441.2020 Pax: 763.441.8099 TO: FROM: Elk River Municipal Utilities Commission Troy Adams, P.E. -Director of Operations John Dietz, Chair Daryl Thompson, Vice Chair Al Nadeau, Trustee MEETING DATE: AGENDA ITEM NUMBER: A ril 12, 2011 5.5 SUBJECT: 2011 Minnesota Munici al Utilities Association Le islative Rall DISCUSSION: The MMUA Legislative Rally was held March 30`h -April 1 a`. The conference covered many timely topics including: Transmission cost allocation, Utility performance indicators, Conservation Improvement Program (CIP) tracking and reporting, Local Government Aid (LGA), and Legislative hot topics relating to municipal utilities. The presenters included William Grant-Deputy Commissioner of the Dept. of Commerce Energy Division, Gary Carlson -Director of Intergovernmental Relations with the League of Minnesota Cities, and Joe Plummer from the Minnesota Office of Energy Security. Overall, the conference portion of the rally provided a forum for much "round table" discussion amongst the utility managers and commissioners in attendance. The most important part of this rally is the unification of municipal utilities presenting positions on key topics to our elected officials at the State Capitol. This year we spoke to our elected leadership about three topics: CIP, evasion of water conservation rates, and coal and nuclear ban repeal. I was asked to be a presenter for the evasion of water conservation rates topic. The tone from the elected officials was that the current priority was the budget. Generally speaking, if it didn't create non-government jobs or lower taxes then it wasn't a top priority. The legislators were supportive of the municipal utilities' position statements because they are typically about providing reliable services and lower costs. Overall, we were well received and it was a productive legislative rally. Attached for your review are the 2011 MMUA State Position Statements. tl~t u+ ACTION REQUESTED: No action required. ~iiv Table of Contents Why Public Power? ........................................ 3 Conservation Improvement ..................4-5 Evasion of Water Rates ................................. 6 Coal and Nuclear Ban Repeat .................... 7 WAPA and RES ................................................ 8 The Cost of Clean Water .............................. 9 Service Territory .....................................10-11 ~'~~~, Why Public Power? One hundred twenty-five Minnesota cities benefit from having a locally owned and locally operated municipal electric utility. Thirty-one cities have a municipal natural gas system. Fifty of our eighty-seven county seats are served by a municipal electric or gas system. A not-for-profit municipal electric or gas utility is a tremendous asset in these uncertain times. Here are some of the reasons why: • We have great service. We're part of the community and our policy makers, managers and workers are part of the community. Our crews are always on hand in the event of emergency. You don't need to call an 800 number to talk to us. • We're not in it for the money. Municipal utilities are not-for-profit and operated in the public interest. Our goal is long-term community benefit, not short-term gain. We work hard to save you money. • We're the yardstick for the industry. For generations, public power systems have set standards for rates and service that other utilities have had to meet. • We'll be there. Many of Minnesota's municipal electric utilities have served their communities for more than a hundred years. In an era when new competitors come and go faster that we can learn their names, you can count on ue. We will be there when you need us. • We're locally regulated. Members of the community who live in the community set rates and service • We're Public Power. practices. If you have a problem, you know who to talk We're here for you! to. • We're owned by our customers. There is no tension between the interests of customers and the interests of stockholders. Our focus is Main Street, not Wall Street. We work for you. 2011 State Position Statements / 3 photo courtesy afthe Ouwtarsrsa Peaplei Prers /~1///1/~.~i Conservation Improvement Background Minnesota's municipal utilities support energy conservation. The wise use of energy is in keeping with the main goal of our electric and gas services - to provide good service at a reasonable price. Helping customers improve their efficiency helps the environment, helps the utility defer the need to invest in generating facilities and helps consumers manage their energy bills. Toward that end, Minnesota e municipal utilities currently spend about $12 million per year on conservation improvement programs (CIP). Municipal utilities were early leaders in developing programs to manage and control customers' peak. Many municipal utilities have been operating energy efficiency programs for 20 years or more. Many others have become increasingly engaged in developing and implementing conservation programs. Municipal utilities' support for energy conservation has been demonstrated by their continuing efforts to meet state energy conservation mandates, which have been evolving over the course of the last 20 years The legal state mandate for CIP began in 1993, when Minnesota law required municipal electric utilities to spend 1% of their gross revenues on CIP programs. In 2001 the Minnesota State Legislature expanded municipal involvement in these programs by increasing CIP spending on electric operations to 1.5% of gross revenues, while gradually reducing the amount of spending on load management that could be used to meet municipal CIP spending requirements. In 2007, the Minnesota legislature changed the statewide CIP goal from a spending requirement to a 1.5% annual energy savings goal. The new requirement is very difficult to meet and may be virtually impossible to meet for some small systems with little load growth. In order to meet or even approach the goal, a utility must spend substantially more than the 1.5°~ of revenue required prior to 2007. Some utilities have picked all the low-hanging fruit and are finding it incmasingly w~ ~r Position Statement difficult to maintain cost-effective conservation programs. Legislative Action Proposals are being discussed in both houses of the Minnesota legislature that could alter the current State- mandated CIP program. MMUA Position Minnesota's municipal utilities are serious about conservation, but we are also serious about spending our ratepayers' dollars wisely and about not raising rates to pay for CIP efforts that are not tailored to the needs of many of our utilities. We have detailed a number of concerns. Not Sustainable -The Conservation Improvement Program in its current form ie not sustainable over the long term. The legislative intent was to compel cost-effective measures, but the coat-effectiveness of measures going into the future will decline quickly. The legislature should consider ways to clarify the coat- effectiveneas provisions of the statute. Legitimate Saviags -The current program does not recognize much of the legitimate energy savings that do or could occur from utility efforts. Energy savings from adopting certain technologies will 4 / 2011 State Position Statements Position Statement accrue over the period of time that the measure is in use. But the CIP law recognizes the energy savings of a given measure only in the year in which it is installed or adopted. For measures with useful lives of more than one year, the energy savings accruing during those years should be recognized rather than ignored. Current law provides a greater incentive for utilities to create energy savings from measures affecting the amount of energy consumed by the customer than from measures that could be taken to prevent energy waste from generation, transmission and distribution to the customer's location. Savings such as these should be valued and recognized right along with other types of energy savings. Energy audits identify potential energy savings. The value of this step in the efficiency and conservation process should not be underestimated and should continue to be recognized under the savings program. The use of shade trees to reduce the amount of air conditioning used at a residential, commercial or industrial electric customer can produce quantifiable energy savings and should be recognized in the program. Educational efforts -Much of the potential energy savings from utility efforts could come from the changing behaviors of customers. Utilities cannot make those changes happen without communicating the benefits of making energy-conscious decisions to customers. These educational efforts are some of the moat effective means of creating energy savings, but they are the hardest to quantify in terms of how much energy savings ultimately result from them. If the CIP program could better recognize these savings on paper, the state would better realize the improvement in energy consumption the program is actually creating and promote more of the same. Work Group - It may be possible to address some of the CIP program's problems by tweaking certain aspects of it. However, some of the deeper problems that prevent the CIP program from realizing its true potential and future suetainability require more comprehensive reforms. Solutions may require regulatory or legislative changes. With a clear focus on fixing those limitations outlined above, a working group of people from the utility industry could determine what those solutions might be. kWh 2011 State Position Statements / 5 Position Statement Evasion of Water Conservation Rates Background In 2008 the Minnesota Legislature passed a bill requiring water utilities serving more than 1,000 people to implement conservation rates. The "conservation rate structure" is defined ae "a rate structure that encourages conservation and may include increasing block rates, seasonal rates, time of use rates, individualized goal rates, or excess use rates." Minn. Stat. §103G.291 Subd. 4(a). In many cases, cities will use a tiered water rate structure that makes water use increasingly expensive ae customers use more of it. The intent of this legislation was to cause the biggest users to curtail their use of water. As a result of the effort by cities to implement this mandate, water costa for large users have been driven higher by the state-mandated water conservation rates. Private well-drillers, which have increasingly been seeking business within city limits as development of housing outside of city service areas has dwindled over recent years, are using the implementation of conservation rates to convince large water uaera to get free water by sinking their own wells. M M ,~;yy ~ neN, we TKO, ,'Y:.: or restrict the operation of private wells within the urban service area. The two state agencies that regulate wells-the departments of Health and Natural Resources-have indicated that they do not have adequate authority under existing statutes (Chapters 103G, 103H and 103I) to fully consider the impacts associated with a new well on the public water system. Allowing large uaera to circumvent the conservation rate by drilling their own wells defeats the purpose of the law. And those uaera that are large enough to consider drilling their own wells are precisely the users that the law was intended to impact. With price signals removed, the well owner has no incentive to use water wisely. Not only is this practice contrary to the intent of the law, it has led to a serious strain on the financial viability of some public water systems. If one or more large water uaera suddenly atop paying, the capital debt and system operations and maintenance expenses must be paid by the remaining customers. In moat communities the loss of a major water user would have a very serious impact on the finances of the municipal water utility, potentially requiring rate increases. Private wells can also pose risks to drinking water quality, and cause localized over-drafting of aquifers and capture-zone interference, especially during drought periods when high capacity irrigation wells would be operated extensively. Public water systems need to be able to protect the resources they draw upon to provide water to their communities. Cities have responded to these challenges by asserting their authority under existing state law to prevent Legislative Action Legislation has been introduced that would exacerbate this problem by rescinding the authority of city councils to regulate private wells within city limits. HF 135, (Rep. Tom Hackbarth, R-Cedar) along with its Senate companion, SF 64, (Sen. Mike Jungbauer, R- Eaet Bethel), limits city authority to only public wells, which would allow property owners to construct and operate their own wells to circumvent paying for public water. The bill has had several hearings in the House. MMUA Position MMUA opposes HF135/SF64. If passed into law, this legislation could lead to a serious strain on the financial viability of public water systems and could also result in large increases in essentially unregulated water use through new private wells, affecting water sustainability, wellhead protection, efficient operation and security of the public water supply. Municipal utilities have invested millions of dollars in sewer and water extensions, and cost-sharing the sealing of private wells to protect ground-water resources. MMUA strongly opposes any legislation that compromises those efforts and investments. 6 / 2011 State Position Statements Position Statement Coal and Nuclear Ban Repeal Background Electric utilities will need a full range of energy supply options if they are to affordably and reliably meet the needs of Minnesota's economy as it recovers from the recent recession. Each electric generation technology has advantages and disadvantages. The best approach will be a balanced portfolio that avoids over-reliance on a few resource options. Clean coal and nuclear power may prove to be an important part of the resource mix that will power Minnesota's economy into the next generation. One of the provisions of "The Next Generation Energy Act," passed by the Minnesota Legislature in 2007, effectively prevents Minnesota electric utilities from constructing new coal-fired plants or importing electricity from such plants in other states unless they either reduce emissions of carbon dioxide (COZ) at a different plant, or find some other way to compensate for the increased COa emissions. The current language for emissions and offsets severely limits the options available to utility planners in meeting Minnesota's future energy needs. As new technologies emerge, we need to be able to consider all available options, including clean coal technology. Minnesota also has had a ban on new nuclear power plants since 1994, when a moratorium on new nuclear power plants was included in the legislative package that provided authority for storing nuclear waste above ground at the Prairie Island plant. Despite the severe problems that have occurred at nuclear power plants in Japan following the recent earthquake and tsunami, the next generation of nuclear technology will be required to be safe, reliable, and areasonably-priced source of power. As new technologies emerge, we believe that it is unwise to artificially circumscribe the range of options available to utility planners. Each technology should be allowed to compete for a place in our energy future. The best will earn their place in our portfolio. Legislative Action HF 72 (Rep. Mike Beard, R-Shakopee) and SF 86 (Sen. Julie Rosen, RrFairmont), which would eliminate the moratorium on new coal construction, has been introduced and passed by committees in both houses. Specifically, the bill would remove the coal prohibition from the 2007 Next Generation Energy Act and allow the importation of newer, cleaner and more efficient coal- generated electric power and the replacement of older, leas efficient electric generation facilities. HF 9 (Rep. Joyce Peppin, R-Red Wing) and SF 4 (Sen. Amy Koch, R-Buffalo), which would eliminate the moratorium on the construction of new nucleaz power plants, has been passed by committees in both houses and is currently in conference committee. The Governor has stated that he will not support the legislation unless it contains provisions that protect future ratepayers against up-front coats and later cost overruns, provide a cleaz plan for radioactive waste storage, and prevent the production of weapons grade plutonium. We should also point out that removing the ban on new coal or nuclear plants will not mean that the regulatory skids will be greased for new projects using these fuel sources. All of the existing regulatory mechanisms that govern the development of new electric generation resources will remain in effect. Power suppliers will still have to develop integrated resource plans, and those plane will have to demonstrate that any proposed project is the leasbcost option. Proponents of a project will still have to obtain a site permit and certificate of need. MMUA Position MMUA supports the passage of HF 72/SF 86, repealing the ban on new coal-fired generation, and HF9 /SF4, repealing the ban on new nuclear generation. Support for this legislation should not be interpreted as a retreat from our commitment to renewable energy and conservation. Municipal utilities will need the ability to use all energy options to protect Minnesota's economy and quality of life. 2071 State Position Statements / 7 Eliminating the ban will not put new coal or nuclear projects at an advantage over other technologies; it will merely put them on an equal regulatory footing with other technologies. ~riv~~ WAPA and the RES Background The 2007 `Next Generation Act" established a renewable energy standard (RES) that requires investor-owned utilities, generation & transmission (G&T) cooperatives and municipal power agencies to produce electricity from renewable resources in the following percentages: 7 percent by 2010, 12 percent by 2012, 17 percent by 2016, 20 percent by 2020, and 25 percent by 2025. The Minnesota Office of Energy Security (OES) has allowed the reduction of total retail sales used to calculate the RES requirement for wholesale systems by the amount of power sold directly to distribution municipal utilities by the Western Area Power Administration (WAPA). This reduction is based on the concept that hydropower provided by WAPA already met the renewable requirement and the power is sold separately, before the agency provides supplemental power. The Northern Municipal Power Agency (NMPA) is comprised of ten Minnesota municipal utilities and two North Dakota municipal utilitiee. Some years ago NMPA entered into an agreement to pool resources for rate making purposes with Minnkota Power Cooperative, a G&T cooperative serving rural electric cooperatives in both Minnesota and North Dakota. This "Joint System" agreement provides that the municipal utility members of NMPA and the cooperative members of Minnkota also contribute their WAPA allocations to the combined system pool of resources. Staff of the OES has taken the position that the renewable energy requirement of the joint system could not be reduced by the amount of the WAPA allocation to its members because the allocation was pooled. This interpretation, which disallows the WAPA allocation reduction because it was pooled, unfairly penalizes one group of WAPA customers. Aggregated WAPA allocations should carry the same weight in Position Statement establishing RES retail sales levels for a municipal power agency or a G&T cooperative as allocations given to individual distribution utility members. Legislative Action Bills have been introduced in both houses of the Minnesota Legislature that clarify the RES law. HF 220 (Rep. David Hancock, R-Bemidji) and SF 113 (Sen. John Carlson, R•Bemidji) allow wholesale power euppliers to use aggregated WAPA allocations for the purpose of establishing total retail sales under the RES mandate. MMUA Position MMUA supports the passage of HF 220/SF113. The electricity allocation from WAPA, however it is ultimately distributed, is still a renewable resource originally allocated to municipal members of NMPA and cooperative members of Minnkota, and should be included in the process of establishing the retail sales level for RES compliance. 8 / 2071 State Position Statements /~j ~A~//I:~~ /I//I/V%1 Position Statement The Cost of Clean Water Background Despite the tremendous investment by local government, the U.S. Environmental Protection Agency estimates that there still is a $500 billion "needs gap" to meet water and wastewater infrastructure needs and to comply with current environmental mandates. This is borne out by a recent report by the U.S. Conference of Mayors, which states that cities are spending more dollars on water and wastewater each year, but the need for investment for sewer and water facilities far outweigh local government's ability to keep up with an aging infrastructure. MMUA members, who have made very heavy investments in sewer and water facilities over the years, are experiencing first-hand the need for much greater investment, particularly regarding the construction, operation and maintenance of water and wastewater treatment facilities. One of the greatest sources of these coat increases comes from the expanding number of regulations and the growing list of contaminants that must be dealt with under state and federal law. There is an economic component to the discussion of this issue ae well. Expanded investment in water and wastewater facilities is not only important for public health, but has become an essential ingredient for economic development. The heavy cost increases for water and wastewater facility investment, if not addressed, are sure to adversely impact the economic viability of our Minnesota cities as well. At present, there seems to be a lack of appreciation by both state and federal legislators of the tremendous burden that this situation has imposed on local communities, which must bear moat of the burden from the increased costa of new water and wastewater treatment facilities. We believe that public policy makers on all levels should be in a position to review and understand the increase costs brought about by this increased regulation. Legislative Activity HF 182 (1Zep. Mike Beard, R-Shakopee) and SF 196 (Sen. John Pederson, R-St. Cloud), would place atwo- year moratorium on new water testing rules from the Minnesota Pollution Control Agency and would require several state agencies to conduct studies identifying and analyzing the coat impact of rnlemaking related to various types of water use. The bill also would require agencies to report the results of these studies to the environment committee of both houses by January 15, 2012. MMUA Position MMUA strongly favors a study, such as that called for in HF 1S2/SF 196, which would chart historic costs of conatruction,operation and maintenance for water and wastewater treatment facilities. We envision a study that would also establish a standard for comparing costa based on plant output. MMUA also supports a requirement that a specific agency in state government be charged with keeping track of these coats on a go forward basis and reporting the results of these studies at the beginning of each biennial session. It is not the intent of MMUA or its members to argue for or against the inclusion of particular substances in the list of contaminants established by State or Federal authorities that must be removed from drinking water or from wastewater. It is, rather, our intent that elected and appointed policy makers be provided information that will help focus attention on the dramatically increasing costa of clean water, which will, hopefully produce policy decisions that will address what has become a quiet crisis in local government services. 2017 State Position Statements / 9 Position Statement Service Territory Background Minnesota municipal electric utilities have had the right to nerve their entire communities since they were formed, many more than 100 years ago. Municipal utilities grow with their cities for a number of reasons, including: • To treat all electric ratepayers and taxpayers in the city equally. • To preserve the financial stability and fiscal integrity of the city's overall financial structure and credit ratings. • To provide for greater efficiency of the city and municipal utility through economies of scale. • To facilitate intermediate and long range planning for electric generation, transmission, and distribution facilities-for the municipal utility and neighboring utilities. • To provide electric service to residents and users in the city at terms and conditions subject to the control and regulation of the city. Cities grow because families and businesses want city services. City services drive development. It is proper that cities provide these services (including electric service) throughout the city, including new areas ae growth occurs. Prior to 1974, there was no state regulation of utilities in Minnesota. The regulation that did exist was through the granting or withholding of city franchises. Investor- owned utilities wanted state regulation so they could deal with one state entity rather than each individual city. The cooperatives wanted service territories to prove to their banker-the federal Rural Electrification Administration-that they would have customers to pay for new power plants and transmission lines. Municipal utilities wanted only to preserve their existing right to grow with the cities they serve. The cooperatives testified in support of preserving thin well-established right and practice. The landmark service territory law of 1974 has allowed Minnesota's electric cooperatives to protect their power plant investments, to greatly expand their business, and to secure generous compensation from municipal acquisitions. The co-ops have attempted to use disputes to derail the intent of the territory law by obstructing the municipal electric utilities right to grow with their cities. The 19741aw has worked very well for the electric cooperatives. Co-opa are growing faster than other utilities. In fact, the co-opa' customer base has virtually doubled since the enactment of the service territory law in 1974. Minnesota Public Utilities Commission decisions concerning compensation for service territory acquired by a municipal utility have increasingly resulted in financial windfalls to co-ops. Cooperatives receive reimbursement for facilities, payment for any reintegration coats, and payment for lost revenue from existing customers, along with compensation for future customers not in existence at the time that the municipal utility begins serving the area. Compensation paid to cooperatives now amounts to more than $16 million. A number of co-opa have pursued increasingly extreme positions in negotiations, demanding ever higher levels of compensation. Several cooperatives have forced 70 / 2011 State Position Statements /I//I%V~ Position Statement municipals to `freeze' service territories, or resort to lengthy, expensive action before the Minnesota Public Utflitiea Commission or before the district courts. There is growing evidence that this is a coordinated attempt not only to obstruct municipal growth, but to enable cooperative acquisition of municipal utilities. We estimate that, over the peat few years, Minnesota cooperatives received at least $2 million from the "service territory integrity fund" of the National Rural Cooperative Finance Corporation (CFC), a national fund expressly created to prevent municipal utilities from growing with their cities. Efforts to Negotiate Municipal electric utilities have made three recent efforts to find a compromise with electric cooperatives on the service territory issue-as part of discussions concerning industry restructuring in 1998, an effort at mediation in 2001 and a joint task force that met in the Spring and Summer of 2008. The moat recent attempt nearly bore fruit. The two aides reached agreement on 18 of 20 issues identified by MMUA, with only two minor issues remaining. Unfortunately, the cooperatives suspended the negotiations before complete agreement was reached. Since the negotiations concluded, a number of municipals and co-ope have entered into service territory agreements that follow the "template" that was developed through the negotiation process. MMUA Position Municipal utilities cannot forego the essential right to grow with our cities, which has been recognized since the inception of the industry more than one hundred years ago. We remain willing to work with others to make the law easier to administer for all parties, by adding a formula, based on the 2008 negotiations, to state law Aa custodians of our citizens' rights, cities and municipal utilities insist that the right to grow with our cities be affirmed. If necessary, this affirmation should be established by legislative action. 2011 State Position Statements / 11 }talkxdc Roseau Stephen grgyN Newfolden m ThiM River Falls Forks E~ Cleerbrook Mountain Iron 3e Fosston Bagley Hibbin Buhl• •,Virginia •&wabdc Keewatin , . 9 ' •Gdbed Ada Cohasset Nashwauk Grand Rapids Hawley Lake Park i •Detrod takes Bamesvilks Perham ,New York Mihs •Aitlrin •Wadena Maose Lake Staples •Brakiek edrenddge Eagle Berk •Clenssa ,RaMall Elbow Lake pie¢ A~sandria• Mors• Sauk Centre .Melrose Princeton North Branch ,Drlonvdk! Benson EIK River Two Harbors •Grand Marais ProCOr• pulutl~ ~' Kandiyohi Grove City Brdfab Anoka Circle-Pines Madison Wihmar Ldchfiekl Delano North St. Paul Hutchlgson GrankeFalls Glencoe ' Chaska ,Shakopee • Olivia n ~I~o \ Redwood FaWS ~°~~ Marshall k Le Sueur•New Prague jCKy , ax Mo an• Fz r9 New Ulm Goodhue - , Saint Peter Tyler 'SIeeDY Eye •Kasofa .Kenyon Westbrook Spdngfiek Lake Crystal Jeriesvale pwatonna Mountain Lake •Madeka 'Saint James ~~ Kasaon Jtocheste; Durkee •Windom Jmman •Bkwming Prairie peter SIN Brewster. Lakegeld m ' Spd Valley ~ s e Adrian Worthington • .Alpha {aimwM e •Blue EaM 'Austin preston Rushmor Jackson ._Cavhn .. _. ___ _... unmvinJ Municipal Electric and Natural Gas Utilities of Minnesota Minnesota Municipal Utilities Association