4.2. SR 09-12-2011REQUEST FOR ACTION
TO ITEM NUMBER
Ci Council 4.2.
AGENDA SECTION MEETING DATE PREPARED BY
Consent Se tember 12, 2011 Tro Adams, P.E. - Utilities Director
ITEM DESCRIPTION REVIEWED By
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Request for Execution of Confirmation of Adjustments to ty
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Robert Thistle, Interim Ci
Election Shares Under the CAPS Brookings -Twin Cities Administrator
Development Project Agreements REVIEWED BY
ACTION REQUESTED
Elk River Municipal Utilities requests City Council approval and execution of the Confirmation of
Adjustments to Election Shares Under the CAPZ Brookings -Twin Cities Development Project
Agreement Attachment A.
BACKGROUND/DISCUSSION
In May 2006, the Utilities Commission authorized joining Midwest Municipal Transmission Group
(MMTG) to explore the potential to obtain ownership in the transmission system. In February 2007,
ERMU entered into an agreement to participate through CMMPA in the CAP~2020 Brookings-Twin
Cities Transmission Project. In March 2011, the Commission and Council both approved Resolutions
authorizing the Utilities' participating in the Brookings Project through CMMPA for an amount not to
exceed $7,140,953 without further action.
Delano Municipal Utilities (Delano), a participant in the CAP12020 Brookings project through CMMPA,
has recently requested to be released from the project contract. Six of the participants investing in this
project through CMMPA, including ERMU, have expressed interest in acquiring Delano's share. A
Transfer Agreement for Delano's share was approved by City Council on July 11, 2011. The Transfer
Agreement was approved by the Utilities Commission on June 14, 2011 and a resolution of the Utilities
Commission authorizing the Transfer Agreement was approved by the Utilities Commission on July 12,
2011. On August 1, the City Council adopted a resolution approving the Transfer Agreement.
With the increase in CMMPA's level of participation in the Brookings Project increasing from 2.2% to
3.6% and subsequent authorization by Elk River to approve increasing their election shares with
CMMPA's increase, and Elk River's addition in participation level through the transfer of election share
from Delano, the Development Project Agreement Attachment A needs to be adjusted to reflect these
changes.
FINANCIAL IMPACT
There is no additional financial impact beyond what had been approved in March 2011 when the
Commission and Council both adopted resolutions authorizing the Utilities participating in the Brookings
Project through CMMPA for an amount not to exceed $7,140,953 without further action.
ATTACHMENTS
^ CMMPA Notice and Confirmation of Adjustments to Election Shares Under Brookings -
Twin Cities Development Project Agreements letter dated August 5, 2011.
^ Adjusted CAPS Brooking -Twin Cities Development Project Attachment A dated August 5,
2011.
Action Motion by Second by Vote
Follow Up
~P14
August 5, 2011
To Each of the "Participants"
Under the Brookings -Twin Cities
Development Project Agreements:
12E: Notice and Confirmation of Adjustments to Election Shares Under Brookings -
Twin Cities Development Project Agreements
This letter is to explain and confirm adjustments to the "Election Shares" that the various
"Participants" under the CMMPA's Brookings -Twin Cities Development Project Agreements
("Development Agreements") have agreed to make, effective as of the start of construction of the
Brookings Project. The results of these adjustments are shown in Attachment A to this letter
(which is enclosed in duplicate form). We request that you promptly review and confirm the
information in Attachment A by signing, dating, and returning, no later than September 15, 2011,
three copies of Attachment A to formally acknowledge that Attachment A accurately reflects the
Election Share adjustments to which all of the Participants have agreed.
By way of explanation, we note that there are two factors that simultaneously affect the
Participants' Election Shares. Not all Participants are affected proportionally -that is, some
Participants are more affected than others.
The first factor is CMMPA's election to increase its level of participation in the Brookings
Project from 2.2% to 3.6%. The other Brookings Owners have agreed to permit CMMPA to
increase its participation level, but, as soon as "upstream" agreements are executed, CMMPA
must "true up" its contributions to Brookings development costs so that CMMPA's total
contribution to development costs will be as if CMMPA had been participating at 3.6% from the
outset of the development process.
The second factor is the City of Delano's withdrawal from the Participant group. Fortunately, six
of the other Participants have been able to enter into an agreement with Delano to collectively
acquire Delano's Election Share. This will result in an increase to each of these "acquiring
cities"' Election Shares, as compared to their previous allocations. Their collective increases
offset the decrease to Delano's Election Share (to zero). Therefore Delano's withdrawal affects
the Election Shares of only those six Participants that are voluntarily taking on portions of
Delano's Election Share.
r ~ ,i { (A! i'S
As you may recall from our discussions and the electronic vote taken in June 2011, CMMPA and
the Participants took a flexible approach to adjusting the Participants' Election Shares to reflect
the increase in CMMPA's level of participation in the Brookings Project from 2.2% to 3.6%.
August 5, 2011
Page 2 of 3
Each Participant indicated its preference as to how much of the increased participation
commitment it wished take on. Some Participants were willing to take on more than apro-rata
increase in their participation levels, while others preferred to take on less. In aggregate, there
was more than enough interest among Participants to cover 100% of the increase in CIVIMPA's
share of the Brookings Project. In fact, we worked out a methodology to allocate portions of the
available increase among those Participants whose collective interests exceeded the additional
investment available for allocation.
Section 2 of Attachment 3 to each Participant's Development Agreement provides that each
Participant's Election Share "shall be subject to adjustment if CMMPA's Brookings Share is
adjusted pursuant to the CapX 2020 Development Agreement." This passage lays out atwo-step
process by which the increase in CMMPA's Brookings Share is to be allocated.l The first step is
voluntary upward and downward adjustments to the various Participants' Election Shares. The
second step is a fallback procedure whereby any unsubscribed portion of the increase is allocated
among all Participants pro rata. Because the voluntary adjustments were more than sufficient to
cover the increase in CMMPA's Brookings Share, we didn't need to apply the second step in the
process.
As indicated in the opening paragraph of this letter, the enclosed Attachment A reflects the
cumulative effects on the Participants' Election Shares of the negotiated adjustments due to the
increase in CMMPA's Brookings Share, Delauo's withdrawal as a Participant, and the
redistribution of Delano's Election Share among the six Participants that agreed to acquire
Delano's Election Share (provided the planned construction of the Brookings Project goes
forward).
To be clear, until the Brookings Project transitions from development to construction, we will
continue to operate under the terms (and Election Shares) of the Development Agreements as
they now exist. The adjustments to the Participants' Election Shares, as reflected in
Attachment A, will take effect when CMMPA enters into "upstream" agreements with the other
Brookings Owners. At that time, CMMPA's Brookings participation share (referred to in the
upstream agreements as its "Percentage Interest") will increase to 3.6°Io. The Election Shares as
shown in Attachment A to this letter would then also be reflected in the exhibits and attachments
to the Participants' Brookings -Twin Cities Transmission Project Agreements (which take effect
concurrently with CMMPA's execution of the upstream agreements) and the associated
Transmission Owner Services and Asset Assignment Agreements.
t The entire text of Section 2 of Attachment 3 to the Development Agreements reads as follows:
"ln addition, the Participant Election Share shall be subject to adjustment if CMMPA's Brookings Share
is adjusted pursuant to the CapX 2020 Development Agreement. For each occurrence of such an event,
each Participant shall have the hrst right to voluntarily accept an increase or decrease pro rata based on
its Participant Election Share among those exercising such right before an automatic increase or
decrease is made to all Participants pro rata. The Participant Election Share, as adjusted by the preceding
sentence, shall then be further adjusted until the sum of all Participant Election Shares is equal to 100%
of the adjusted CMMPA's Brookings Share under the CapX 2020 Development Agreement."
August 5, 2011
Page 3 of 3
We ask that by September 15, 2011, your organization sign, date, and return to CMMPA, in the
enclosed self-addressed, stamped envelope, three of the four copies of Attachment A as formal
acknowledgement of your organization's agreement with the information set forth in
Attachment A and keep the fourth copy for your records. As always, you are welcome to contact
me or my staff if you have any questions.
Sincerely,
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Steve Thompson
CEO
Central Minnesota Municipal Power Agency
Enclosure: Attachment A: CapX Brookings -Twin Cities Development Project Participant's
Election Shares (4 Copies)
Notice and Confirmation of Adjustments Letter Dated August 5, 2011
ATTACHMENT A
CapX Brookings -Twin Cities Development Project
Participant's Election Shares
Develo ment Project Partici ants Election Share (%)
1. Blue Earth, City of -Blue Earth Light & Water 13.04%
2. Elk River, City of -Elk River Municipal Utilities 18.89%
3. Fairfax, City of 1.49%
4. Granite Falls, City of 3.99%
5. Independence, Iowa, City of -Independence Light & Power 2.43%
6. Indianola, Iowa, City of -Indianola Municipal Utilities 3.34%
7. Janesville, City of -Janesville Municipal Utilities 0.62%
8. Kenyon, City of -Kenyon Municipal Utility 3.34%
9. Montezuma, Iowa, City of -Montezuma Municipal Light & Power 0.88%
10. Mountain Lake, City of -Mountain Lake Municipal Utilities 2.74%
11. Sleepy Eye, City of -Sleepy Eye Public Utilities 9.89%
12. Springfield, City of -Springfield Public Utilities Commission 3.53%
13. Waverly, Iowa, City of -Waverly Light & Power 0.88%
14. Willmar, City of -Willmar Municipal Utilities 27.57%
1 S. Windom, City of -Windom Municipal Utility 7.37%
16. Delano, City of -Delano Water, Light & Power Commission 0.0%
Total 100.0%
The undersigned hereby confirms having reviewed the information in the table as set forth above
in this Attachment A and acknowledges and agrees that the information pertaining to the
undersigned, as set forth in the table above, is an accurate statement of the undersigned's
Election Share that will become effective as of the date on which CMMPA executes agreements
for participation in the Brookings Project establishing CMMPA's share of the Brookings Project
at 3.6%.
CITY OF ELK RIVER, MINNESOTA
By
Date
Name: John J. Dietz
Title: Mayor
By
Name: Tina Allard
Title: City Clerk
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Notice and Confirmation of Adjustments Letter Dated August 5, 2011
ELK RIVER MUNICIPAL UTILITIES COMMISSION
By
Date
Name: John J. Dietz
Title: Chair
By
Name: Troy Adams
Title: Secretary /Director of Operations
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