5.3. ERMUSR 06-12-2012 Elk River —
M
II
unicipal Utilities
13069 Orono Parkway
P.O. Box 430
Elk River,MN 55330
(763) 441-2020
UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Troy Adams, P.E. —General Manager
John Dietz—Chair
Daryl Thompson— Vice Chair
Al Nadeau—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
June 12, 2012 5.3
SUBJECT:
Electric Service Territory
BACKGROUND:
In 1974 Minnesota saw legislation pass that established a municipal utility's right to grow with
their city by acquiring electrical service territory as their city annexed additional area. This
historic legislation was supported by both the municipal utilities as well as the cooperative
electric utilities.
This right for a municipal utility to grow with its city allows for increase economies of scale as
the city services expand. These economies of scale impact labor and materials, but also increase
the system load making the utility more attractive when looking for a power supplier. Many
times the cities are dependent upon revenue transfers or payments in lieu of taxes (PILOT) from
their municipal utilities. These PILOTs are often a percentage of applicable sales and would
increase as the municipal utility grows, as is the case in Elk River. So as the city grows, the
municipal utility grows. As the municipal utility grows, the municipal utilities receive additional
revenue from sales. As the municipal utilities' sales grow, the transfer to the city grows. The
additional amount of transfer to the city helps to offset expenses that would otherwise be funded
through taxes. Also, the ability for a city to borrow from their municipal utility can't be
overlooked and larger economies of scale strengthen a utilities' ability to assist. There is history
of ERMU helping the City of Elk River through smaller forms of assistance. For example, in the
mid-1990s, ERMU made a number of donations to the City when they were building their Ice
Arena. The utility and city share a symbiotic relationship where both can be mutually successful
through growth. This is one of many advantages of municipal public power.
RrpA
r- [POWERED B 1
$ NATURE
Reliable Public
Power Provider o T ■ S ; It
In 1977, the City and Township of Elk River consolidated to form what we now know as the
City of Elk River. At that time, ERMU did not grow with the new city. In 1991, ERMU entered
into a 20 year orderly electric service territory acquisition plan with Connexus Energy for a
portion of what was previously the Township of Elk River. The vision of past ERMU
governance and staff to invest in territory acquisition helped to build the foundation for a reliably
robust and fiscally sound utility. It is hard to imagine ERMU today if that investment had never
been made.
DISCUSSION:
Within the corporate boundaries of the City of Elk River, there are still approximately 1800
properties not within ERMU's electric service territory. Of these properties, over half of them
are within the City's Urban Services District where ERMU provides water utilities and the City
of Elk River provides sewer utilities.
In 2011, the City of Elk River formalized plans for future development with their 1715t Avenue
Focused Area STudy (FAST). This area is within the City's corporate boundaries, but outside
ERMU's service territory. Within this FAST area the City is moving forward as the developer
for the "Nature's Edge Business Center." The City will be expanding the urban services for this
area and ERMU will have water service for these lots. Because the City is making the
investment and taking the risk of this development, ERMU should service the electric customers.
This would increase the PILOT and help mitigate the risk the City takes. This area is not
contiguous to ERMU's electric service territory but is contiguous to existing water service
territory. This territory has electric service from Connexus Energy.
Staff has had informal preliminary discussions with Connexus executives regarding this service
territory. With the progress on the City's Nature's Edge Business Center, it is now time to
determine whether or not to formally pursue an orderly acquisition of the remaining electric
service territory not serviced by ERMU that is within the corporate limits of the City of Elk
River.
ACTION REQUESTED:
Staff recommends the Utilities Commission make a motion in support of developing an offer to
acquire remaining electric service territory not serviced by ERMU that is within the corporate
limits of the City of Elk River. Staff suggests the Utilities Commission enter into closed session
pursuant to Minnesota Statute 13D.05, Sudb. 3(c)(3) "to develop or consider offers or
counteroffers for the purchase or sale of real or personal property."
ATTACHMENTS:
• Minnesota Municipal Utilities Association Position Statement"Municipal Utilities' Right
to Grow with their Cities—A State Issue"
• Municipal and Co-op Size Comparisons /Growth 1974—2010
• The City and Township of Elk River consolidation map.
• Connexus Energy—ERMU Demarcation Line Map—Areas and Year of Service
Territory Acquisitions
• ERMU Electric and Water Distribution Territory Maps
I N P A P O W E R E D B Y
•3 INArUPE
Reliable Public P r s
Power Provider