8.1. SR 08-06-2012REQUEST FOR ACTION
TO
ITEM NUMBER
Mayor and City Council
8.1
AGENDA SECTION
MEETING DATE
PREPARED BY
General Business
August 6, 2012
Troy Adams, P.E. — ERMU General
Manager
ITEM DESCRIPTION
REVIEWED By
Resolution Supporting Elk River Municipal Utilities' Electric
Cal Portner, City Administrator
REVIEWED BY
Service Territory Acquisition
ACTION REQUESTED
Adopt resolution supporting electric service territory acquisition.
BACKGROUND
Elk River Municipal Utilities (ERMU), and more specifically the Utilities Commission, are celebrating
their 651h anniversary of being a municipal electric and water utility. Officially, the Elk Diver Public Utilities
was first created on July 11, 1947, when the Village of Elk River adopted a resolution creating a Water,
Light, Power and Building Commission and appointed its first three members: V.B. Skellinger, Otis
Nickerson, and C.F. Meyers. Electric power was supplied to the community for some 30 years prior by a
private company, the Elk River Power and Light Company, established in 1915. In 1942, the Anoka
County Cooperative, now known as Connexus Energy, made an offer to purchase the Elk River Power
and Light Company. The Village of Elk River initiated a lawsuit to block the sale. Through a special
referendum to authorize the issuance of bonds, the Village of Elk River acquired the electric utilities in
1945. Because of the vision of the Village of Elk River, ERMU exists today, as our company mission
states "To provide our customers safe, reliable, cost effective and quality long term electric and water
utility services."
In 1974, Minnesota passed legislation 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. 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.
DISCUSSION
There are many reasons why a municipality benefits from ownership of utilities and from their right for
their utilities to grow. The ability to grow with your city allows for increased economies of scale as city
services expand. The increased economies of scale positively impact the value of labor and materials
costs. Growing with the city also creates an increase in the system load. The larger system load increases
POWERED By
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the utility's ability to negotiate lower wholesale power costs and could result in lower rates for the
customers.
Many times 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
resulting in a larger PILOT transfer to the city. The additional amount of PILOT helps to offset
expenses that would otherwise be funded through taxes.
Also, the ability for a city to borrow from their municipal utility in an emergency 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 openness and transparency of the municipal public power business model allows the customers to
be informed on the utilities' operations and planning. The open meeting law allows for the public to
witness the municipal utilities governance firsthand. The customers, community leaders, and elected
officials have the ability to provide feedback and direction for utilities that they own. The local control
and local accountability that come with municipal public power are critical pieces for providing long term
value for the customers and community.
One of the greatest advantages of municipal public power is the ability for collaboration, cooperation,
and partnership when working towards common goals. The City of Elk River and ERMU have
experienced this time and time again. The two data centers located in Elk River are great examples of
this type of partnership. A city and their municipal utility share a symbiotic relationship where both can
be mutually successful through growth.
These reasons have contributed to the ERMU Commission's decision to move forward with developing
an offer for the electric service territory within the city limits of Elk River. Over the past three years,
Utilities staff has had informal and preliminary discussions with Connexus executives regarding service
territory. Connexus Energy is the only other electric utility that services areas within the City of Elk
River. On the three attached area maps, the properties shaded in blue provide a general indication of the
properties within the City of Elk River that currently receive electric service from Connexus Energy. The
purple line represents the City of Elk River's Urban Services District boundaries through these specific
areas. Also attached is an Elk River Land Use Map with the Urban Service District boundary indicated
with a purple line. Within the corporate boundaries of the City of Elk River, there are still approximately
1,800 properties not within ERMU's electric service territory. This involves 7,723 acres, or
approximately 12 square miles. 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.
Within these identified areas the city is moving forward as the developer for the Nature's Edge Business
Center, a business park located near US HWY 10 and 171" Ave. The city will expand the urban services
for this area including an expansion of ERMU's water distribution system. Without the city making the
investment and taking the risk for this development, this area would not likely be developed. This
growth will happen because of the city and the taxpayers. There is good justification that ERMU should
then service the electric to these customers. This would increase the PILOT and help mitigate the risk
the city takes. The Nature's Edge Business Center is not contiguous to ERMU's electric service territory
but is contiguous to existing water service territory.
In June, the ERMU Commission unanimously approved a motion in support of developing an offer to
Connexus Energy for the orderly acquisition of the electric service territory within the corporate limits of
Elk River not served by ERMU. In July, the ERMU Commission adopted a resolution requesting
support from the City Council. Elk River Municipal Utilities has already retained consultants for the
development of an offer to Connexus Energy for the acquisition of this electric service territory.
Although ERMU does not need authorization from the Council to proceed, the ERMU Commission
recognizes the value of the relationship between the City of Elk River and ERMU and believes electric
service territory acquisition to be mutually beneficial. The ERMU Commission requests the full support
of the City Council.
FINANCIAL IMPACT
The expansion of ERMU's electric service territory would be at no cost to the city or the city's taxpayers.
ATTACHMENTS
• West, Northeast, and Southeast City of Elk River Area maps
• The City of Elk River Land Use Map
• Elk River Municipal Utilities Board of Commissioners Resolution —A Resolution Requesting
Suppoa from the City Council of the City of Elk Diver for Extending the Elk Diver Municipal Utilities
Electric Service Tenitorg P)ithin the City of Elk Diver
• Proposed City Council of the City of Elk River Resolution — A Resolution of the City Council of
the City of Elk Diver Supporting the Extension of the Elk Diver Municipal Utilities Electric Service
Tenitorg P)ithin the City of Elk Diver
Action Motion by Second by Vote
Follow Up
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RESOLUTION No. 12-
BOARD OF COMMISSIONERS
ELK RIVER MUNICIPAL UTILITIES
A Resolution Requesting Support from the City Council of the City of Elk River for
Extending the Elk River Municipal Utilities Electric Service Territory within the
City of Elk River
WHEREAS, the Village Council of the Village of Elk River, by resolution adopted on
July 11, 1947, created a Water, Light, Power and Building Commission in and for the
Village of Elk River; and
WHEREAS, the Water, Light, Power and Building Commission in and for the Village of
Elk River became, in 1949, by operation of Minnesota Statutes §§ 412.331-412.391, a
municipal utility now known as Elk River Municipal Utilities (ERMU); and
WHEREAS, ERMU's original electric service territory included the Village of Elk River
and portions of immediately adjacent communities; and
WI IEREAS, ERMU has been authorized since 1974 to provide electric service to all
areas within the city limits of the City of Elk River; and
WHEREAS, in 1977 the town of Elk River and the old city of Elk River consolidated to
form the new city of Elk River; and
WHEREAS, in 1991 ERMU entered into a 20-year orderly electric service territory
acquisition plan with Connexus Energy to acquire, over a period of 20 years, electric
service territories that were previously within the town of Elk River; and
WHEREAS, the 1991 agreement with Connexus Energy has now expired and there
remain approximately 7,723 acres (1,774 existing properties) of area within the city limits
of the City of Elk River which are not currently provided electric service by ERMU; and
WHEREAS, approximately 1,807 acres (914 existing properties) of this area are
currently within the City of Elk River's urban service district and have, or are planned to
have, City water service which is provided by ERMU; and
WHEREAS, the Board of Commissioners (Board) of ERMU has determined that it is in
the best interests of the existing customers of ERMU, and believes it is in the best
interests of all the citizens of the City of Elk River, for ERMU to provide electric service
within the corporate boundaries of the City of Elk River, including in particular those
areas within the City of Elk River's designated urban service area, for the following
reasons:
As ERMU's electric service territory has grown since 1991 ERMU has realized
increased economies of scale which has helped reduce unit costs and improve the
value of electric services provided to customers. Continued expansion will
further improve these economies of scale and reduce electric costs for all citizens
of the City in the future.
2. The increased customer base and load which ERMU has realized since 1991, and
which would continue to build if ERMU's electric service territory continues to
expand, has improved the City and ERMU's ability to market Elk River as a
desirable location for large power users, such as data centers.
3. Having a uniform service territory for all municipal services will improve
planning by the City and ERMU for future development, facilities and
maintenance for water, wastewater, storm sewer and electric service throughout
the City of Elk River.
4. Having ERMU provide electric service to areas within the City which the City is
promoting for economic development, particularly areas within the City currently
designated for urban services, will create additional opportunities for cooperation
and collaboration between the City and ERMU to promote economic
development.
5. Having uniform municipal services throughout the city limits enhances the ability
of the City and ERMU to provide services with local control and local
accountability and will cause less confusion for electric customers.
G. ERMU, being locally based and serving the bulk of the City of Elk River already,
would be able to provide the expansion areas with reduced dispatch distances and
reductions in response time when electric utility personnel respond to outages,
fires and traffic accidents involving energized electrical utility equipment.
7. As ERMU enters the market over the next six years for a wholesale power
supplier, the increased customer base and load which an expansion of ERMU's
electric service territory within the City would provide would improve ERMU's
marketability to a wholesale power supplier or power agency, therefore
potentially reducing electric costs for citizens within the city limits of the City of
Elk River.
8. Increasing ERMU's customer base and revenues would increase the annual
revenue transfer which ERMU contributes to the City.
9. Expansion of ERMU's electric service territory would be at no cost to the City or
the City's taxpayers.
WHEREAS, in light of these benefits the Board, on June 12, 2012, began the process of
developing an offer or offers to acquire all or portions of the electric service territory
within the corporate limits of the City of Elk River which it does not currently serve; and
WHEREAS, the Board believes it would be beneficial, as the process of developing and
presenting an offer or offers to Connexus Energy proceeds, to have the support of the Elk
River City Council for expansion of ERMU's service territory.
NOW, HEREFORE, the Board of Commissioners of Elk River Municipal Utilities
requests that the City Council of the City of Elk River adopt a resolution, generally in the
form attached as Exhibit A to this resolution, supporting the extension of ERMU's
service teff itory within the City of Elk River.
Adopted this 17"' day of July, 2012.
John J. Dietz, Chair
Board of Commissioners
Elk River Municipal Utilities
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Exhibit A
RESOLUTION No. 12-
A RESOLUTION FOR THE CITY OF ELK RIVER
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ELK RIVER
SUPPORTING THE EXTENSION OF THE ELK RIVER MUNICIPAL
UTILITIES ELECTRIC SERVICE TERRITORY WITHIN THE CITY OF
ELK RIVER
WHEREAS, the Village Council of the Village of Elk River, by resolution adopted on July
11, 1947, created a Water, Light, Power and Building Commission in and for
the Village of Elk River; and
WHEREAS, the Water, Light, Power and Building Commission in and for the Village of
Elk River became, in 1949, by operation of Minnesota Statutes §§ 412.331-
412.391, a municipal utility now known as Elk River Municipal Utilities
(ERMU); and
WHEREAS, ERMU's original electric service territory included the Village of Elk River
and portions of immediately adjacent communities; and
WHEREAS, ERMU has been authorized since 1974 to provide electric service to all areas
within the city limits of the City of Elk River; and
WHEREAS, in 1977 the town of Elk River and the old city of Elk River consolidated to
form the new city of Elk River; and
WHEREAS, in 1991 ERMU entered into a 20 -year orderly electric service territory
acquisition plan with Connexus Energy to acquire, over a period of 20 years,
electric service territories that were previously within the town of Elk River;
and
WHEREAS, the 1991 agreement with Connexus Energy has now expired and there
remain approximately 7,723 acres (1,774 existing properties) of area within
the city limits of the City of Elk River which are not currently provided
electric service by ERMU; and
WHEREAS, approximately 1,807 acres (914 existing properties) of this area are currently
within the City of Elk River's urban service district and have, or are planned
to have, City water service which is provided by ERMU; and
WHEREAS, the Board of Commissioners (Board) of ERMU has determined that it is in
the best interests of the existing customers of ERMU, and believes it is in the
best interests of all the citizens of the City of Elk River, for ERMU to
provide electric service within the corporate boundaries of the City of Elk
River, including in particular those areas within the City of Elk River's
designated urban service area, for the following reasons:
As ERMU's electric service territory has grown since 1991 ERMU has
realized increased economies of scale which has helped reduce unit costs
and improve the value of electric services provided to customers.
Continued expansion will further improve these economies of scale and
reduce electric costs for all citizens of the City in the future.
2. The increased customer base and load which ERMU has realized since
1991, and which would continue to build if ERMU's electric service
territory continues to expand, has improved the City and ERMU's ability
to market Elk River as a desirable location for large power users, such as
data centers.
Having a uniform service territory for all municipal services will improve
planning by the City and ERMU for future development, facilities and
maintenance for water, wastewater, storm sewer and electric service
throughout the City of Elk River.
4. Having ERMU provide electric service to areas within the City which the
City is promoting for economic development, particularly areas within
the City currently designated for urban services, will create additional
opportunities for cooperation and collaboration between the City and
ERMU to promote economic development.
5. Having uniform municipal services throughout the city limits enhances
the ability of the City and ERMU to provide services with local control
and local accountability and will cause less confusion for electric
customers.
ERMU, being locally based and serving the bulk of the City of Elk River
already, would be able to provide the expansion areas with reduced
dispatch distances and reductions in response time when electric utility
personnel respond to outages, fires and traffic accidents involving
energized electrical utility equipment.
As ERMU enters the market over the next six years for a wholesale
power supplier, the increased customer base and load which an
expansion of ERMU's electric service territory within the City would
provide would improve ERMU's marketability to a wholesale power
supplier or power agency, therefore potentially reducing electric costs for
citizens within the city limits of the City of Elk River.
Increasing ERMU's customer base and revenues would increase the
annual revenue transfer which ERMU contributes to the City.
Expansion of ERMU's electric service territory would be at no cost to
the City or the City's taxpayers.
WHEREAS, in light of these benefits the Board, on June 12, 2012, began the process of
developing an offer or offers to acquire all or portions of the electric service
territory within the corporate limits of the City of Elk River which it does not
currently serve; and
WHEREAS, the Board believes it would be beneficial, as the process of developing and
presenting an offer or offers to Connexus Energy proceeds, to have the
support of the Elk River City Council for expansion of ERMU's service
territory; and
WHEREAS, the City Council has considered the Board's request and the benefits the
Board identifies for extending ERMU's service territory within the City so
that residents of the City can have uniform municipal services; and
WHEREAS, the City Council agrees with the Board that extending ERMU's service
territory would have substantial benefits to the citizens and taxpayers of the
City, including the benefits which the Board has identified.
NOW, THEREFORE, BE IT RESOLVED the City Council of the City of Elk River
adopts this resolution supporting the extension of ERMU's service territory
within the City of Elk River.
Passed and Adopted this 61h day of August, 2012.
John J. Dietz, Mayor
ATTEST:
Tina Allard, City Clerk
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