4.1. SR 07-20-1998._.ity of
River
TO:
FROM:
DATE:
SUBJECT:
Item #4.1.
MEMORANDUM
Mayor & City Council
Pat Klaers, City Administrator
July 20, 1998
Utilities Commission Update
Councilmember John Dietz is our city representative on the Elk River
Municipal Utilities Commission. At this July 20, 1998, City Council meeting,
John is scheduled to provide the Council with an update on June and July
Utilities activities. Attached for your review are the minutes from the June
9, and July 14, 1998, Utilities Commission meetings.
The next regular Commission meeting is scheduled for Tuesday, August 11,
1998, at 4:00 p.m. at the Utilities office.
13065 Orono Parkway * P.O. Box 490 * Elk River, MN 55330 * TDD & Phone: (612) 441-7420 · Fax: (612) 441-7425
ELK RIVER MUNICIPAL UTILITIES
REGULAR MEETING OF THE
ELK RIVER UTILITIES COMMISSION
HELD AT THE ELK RIVER MUNICIPAL UTILITIES OFFICE
JUNE 9, 1998
Members Present: President, George Zabee; Vice Chair, James Tralle; Trustee, John
Dietz
Staff Present: Bryan Adams, General Manager; Glenn Sundeen, Line Superintendent;
Robert McCartney, Water Superintendent; Patricia Hemza, Office Manager
Others Present: Wade Lovelette, Line Foreman; Mark Fuchs, Lead Lineman; Lloyd
Lorenzen, Lead Lineman
1. Call meeting to order at 3:00 P,M., June 9. 1998
2. Consider Utilities Agenda
James Tralle moved to approve the Utilities Agenda as presented. John Dietz
seconded the motion. Motion carried 3-0.
3. Consider Consent Agenda
James Tralle moved to approve the Consent Agenda as follows:
5-19-98 Minutes
5-26-98 Special Meeting Minutes
May Check Register
Financials
5.1 Review and consider 1998/1999 Employee Wage & Benefit Request
Discussion of the proposed annual employee compensation request was discussed,
with responses from Staff. George Zabee indicated that in June, 1999, he would like
to consider mode and median, as well as the mean of the surveyed groups.
James Tralle moved to increase salaries 3.21% for 1998-1999, for linemen, and
to buy five more shirts for the linemen as of June 1, 1998, and replace as needed.
George Zabee seconded the motion. Motion carried 2-1. John Dietz voting nae,
John Dietz indicated that he voted nae because he voted to give the City employees
3%, and he needs to be consistent.
Discussion continued regarding other employees. Staff presented three options
for consideration.
Page 2
Regular meeting of the Elk River Municipal Utilities Commission
June 9, 1998
James Tralle moved to increase salaries per Staff's Alternate #3 recommendation.
The difference between the percentage raises will satisfy current Comparable Worth
requirements for the Utilities. George Zabee seconded the motion. Motion carried
2-1. John Dietz voted nae for the reason that he thought all three male Supervisors
should be treated the same.
A certain employee was discussed with regard to performance, pay equity and salary.
James Tralle moved to freeze the salary of the discussed employee, with Staff
directed to return to the Commission in six months with a report on the progress of
the employee. John Dietz seconded the motion. Motion carried 3-0.
The meter reading done by a Contract Meter Reader was discussed and the request
by McBrady Meter Reading for an increase in his contract amount considered.
George Zabee moved to pay McBrady Meter Reading $.48 per Electric Meter,
$.31 per Water Meter, $5.75 per Reconnect/Disconnect, plus $. 15 per demand meter,
for the year 5-1-98 to 5-1-99. On 5-1-99 the compensation will be $.50 per Electric
Meter, $.33 per Water Meter, Reconnect/Disconnects and demand meter extras
will remain the same.
5.1 Review Street Light Committee Recommendation
The Street Light Committee received a request from residents on the 13000 block
of Riverview Drive, to have the City of Elk River and Elk River Municipal Utilities
change the lighting on the street from Security Lights to Street Lights. To comply
with the Utilities Street Light policies, we would have to move one light to the
intersection of Joplin Street and Riverview Drive, and remove one light, leaving
only three lights. The residents are aware of this and the majority are in favor of
the changeover. The Street Light Committee recommends approval of this request.
James Tralle moved to approve the change from Security Lights to Street Lights on
the 13000 block of Riverview Drive, as presented by the Street Light Committee.
George Zabee seconded the motion. The motion passed 2-0. John Dietz abstained
because of a personal interest in the decision.
With no other business to discuss, James Tralle moved to adjourn the June 9, 1998
meeting of the Elk River Utilities Commission. John Dietz seconded the motion.
Motion carried 3-0.
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Page 3
Regular meeting of the Elk River Municipal Utilities Commission
June 9, 1998
The next regular scheduled meeting of the Elk River Utilities Commission will be on
July 14, 1998 at 4:00 P.M.
Respectfully submitted,
Patricia Hernza
Office Manager
1-612-441-2020 ELK RIUER UTILITIES 582 P02 JUL 17 '98 08:58
ELK RIVER MUNICIPAL UTILITIES
REGULAR MEETING OF THE
ELK RIVER UTILITIES COMMISSION
HELD AT THE ELK RIVER MUNICIPAL UTILITIES OFFICE
July 14, 1998
Members Present: President, George Zabee; Vice Chair, James Tralle; Trustee, John
Dietz
Staff Present: Bryan Adams, General Manager; Glenn Sundeen, Line Superintendent;
Robert McCattney, Water Superintendent; Patricia Hemza, Office Manager
1. Call meeting to order at 4:00 P.M.. July 14, 199~
2. Consider Utilities Agenda
Bryan Adams offered two additions to the 7-14-98 Agenda, to be discussed under
other business.
.tames Tralle moved to approve the Utilities Agenda, with the two additions under
Other Business. John Dietz seconded the motion. Motion carried 3-0.
3. Consider Consent Agenda
The Financials were discussed, with emphasis on the Purchased Power costs.
]'ohn Dietz moved to approve the Consent Agenda as follows:
6-9-98 Minutes
June Check Register
Financials
5.1 Un-date Electric Deregulation Is$1~e~
Bryan Adams presented his perception of the electric industry, particularly Elk
River's role in the changing industry, the MMUA draft on retail competition, and
an update on the League of Minnesota Cities Electric Deregulation Task Force.
Questions by the Commission were responded to by Staff and discussion
continued. George Zabee had specific comments about restructuring, and the
problem of whether or not the Utilities will become a wire service only, or if
commodities and meter reading will continue. Power generation as an option
was offered. The fact that building and maintaining lines by the Utility is a strong
point was noted, and marketing is secondary..lames Tralle questioned whether
the ERMU needs to be at the fore-front, or if we can observe what others are
doing, before making decisions. Stressed was the strong point of our local profile
and responsiveness to customers.
George Zabee suggested that one topic or option concerning de-regUlation per
future meeting bc discussed. The other Commissioners agreed and Staff was
directed to implement the suggestion.
1-612-441-2020 ELK RIVER UTILITIES 582 P03 JUL 17 '98 08:50
Page 2
Regular meeting of the Elk River Municipal Utilities Commission
July 14, 1998
5.2 Review and award contract for Specifications and Inspections Services for
Freeport Water Tower Painting Project
Proposals were presented for structural repairs, blasting and painting the Freeport
Water tower, with evaluations.
James Tralle moved to accept the bid from KLM Engineering, Inc. along with the
option for a two year Inspection Warranty. John Dietz seconded the motion.
Motion carried 3-0.
5.3 Up-date Power Oualitv Program
Three brochures that will be utilized to market our surge protection program
were presented, and the program discussed. Commission was advised that the
Minnesota Board of Electricity has given permission for the Utilities to install
the devices.
5.4 Up-date Landfill Generation Project
Comments by AEC were addressed and responded to regarding the proposed
contract for the Landfill Generation Project. The contract has been approved by
AEC's Board of Directors, and AEC is presently amending our power purchase
contract at Ft~RC to allow commencement of the project.
5.5 Up-date progress of Well #6 Fa¢ll|W
The progress of Well #6 was reviewed, along with the information that perhaps
the filtering will be moved from #5 to #6. An evaluation from Howard Green Co.
regarding the disinfection system was presented, with their recommendation that
the Utilities should start utilizing disinfection, using gaseous chlorine. An active
discussion of the issue followed. Bryan Adams was directed to retum to the
Commission with the number of cities in Minnesota who are not using the
disinfection program, and how many boiling bans are in progress. Staffand
the Commission appear to agree that when water service to the Eastern area
occurs, disinfection at that time will be imperative.
6.1 Review Proposal for Plant Transformer Up-grade
Staff reviewed the capacity of the engines/generators at our Power Plant, as well
as the contract with UPA for generation. It was stressed that we must fulfill our
obligation to UPA and our customers to provide back-up generation as agreed.
The Generating/plans substation capabilities must be up-graded to foIlow up. It
was originally scheduled for 1999, but it would be advantageous to begin in 1998.
1-612-441-2020 ELK RIVER UTILITIES 582 P04 JUL 17 '98 08:50
Regular meeting of the Elk River Municipal Utilities Commission
July 14, 1998
Bryan Adams was directed by the Commission to begin looking for equipment
costs and options immediately, and to return to the Commission with the results.
6.2 Review and award contract for Electric Line Truck
The bid tabulation for the Electric Line Truck, with trade-in options was
presented to the Commission, and discussed.
James Tralle moved to accept the bid of Altec, with the trade in. John Dietz
seconded the motion. Motion carried 3-0.
6.3 Review Water Access Charge for Hotel/Motel facilitie~
SAC/WAC calculations were discussed in regard to hotels/motels. The City
Ordinance currently calculates that one SAC and one WAC is to be paid per
unit. Changing the calculation would deviate from the Met Council guideline.
James Tralle moved to agree with the City's Ordinance revision in units charged
to hotel/motels. John Dietz seconded the motion.
Discussion continued regarding the issue of units, with comments and questions
by Oeorge Zabee.
Motion carried 3-0.
6.4 Review Proposed 1999 Territory Acquisition
Bryan Adams reiterated the territory acquisition plan we have with Anolm
Electric Cooperative. Recommendation of the acquisition of Area 9 is
recommended, in order to clean up the hanging areas and simplify the
territory boundaries in the areas of Ridgewood and Proctor, along with AME
Ready Mix on Hwy 169 and County Road 33.
James Tralle moved to acquire Area 9 in 1999. John Dietz seconded the motion.
Motion carried 3-0
6.5 Review issues for UPA/AEC Power Supply Contr~agg
The ERMU Power Purchase Contract was re-negotiated in the fall of 1996, and
gives us the right to re-negotiate every two years. The issues involved in the
re-negotiation were discussed. Bryan Adams was directed by the Commission to
return to the Commission with options and costs of the related issue of adding
generation to our system.
1-612-441-2020 ELK RIVER UTILITIES 582 P05 JUL 17 '98 08:51
Page 4
Regular meeting of the £1k River Municipal Utilities Commission
July 14, 1998
6.6 Uo-date King and Main Develooment
Bryan Adams reported that Midwest Construction is considering building an
office building on the comer of King and Main. Midwest Construction and the
City of Elk River has approached the Utilities with the possibility of leasing
office space in the proposed building at approximately $9.50 per sq. ft. It is the
concensus of the Utilities Commission that the proposal is not of interest at this
time.
Bryan Adams advised the Commission that he has met with Jerry Hicks of Elk River
Bituminous regarding his electrical usage cost. Mr. Hick's concern is the high demand
cost and poor load factor, resulting in a high unit cost of power. No action necessary.
Bryan Adams presented a request from Joseph Pallansch, our Contracting Engineer, for
an increase in the dollar amount he receives per hour, and his reasons for asking.
Discussion followed.
James Tralle moved to increase the amount paid per hour to Joseph Pallansch, as
a contractor to $18.65 per hour. John Dietz seconded the motion. Motion passed
2-1. George Zabee expressed his decision for voting nae was because he thought
the increase was not enough.
With no other business to discuss, James Tralle moved to adjourn the July 14, 1998
meeting of the Elk River Utilities Commission. George Zabee seconded the motion.
Motion carried 3-0. The July 14, 1998 regular meeting of the Elk River Utilities
Commission adjourned at 5:35 P.M.
The next scheduled meeting of the Elk River Municipal Utilities Commission will be
August 11, 1998 at 4:00 P.M. in the Utilities Office.
_Respectfully s, ubmitted,
Patricia Hemza
Office Manager
FERC asked to take emergency action
Wild Midwest prices spur calls for a price cap
Wild price spikes in the Midwest
June 24-26 have brought calls for the
Federal Energy Regulatory Commis-
sion to take emergency action, which
could include setting price caps, sus-
pending all grants of authority to sell
at market-based rates and investigat-
ing whether refunds should be or-
dered. Peak prices on the order of
$2,000-$3,000/MWh were not uncom-
mon, and there were unconfirmed
rumors of one deal at $10,000/MWh.
Tn a June 29 filing, Steel Dynamics
($DI) said the Midwest is in a
state of crisis that constitutes an emer-
gency and urged FERC to "use any
and all applicable legal authority to
address the crisis in the Midwest."
The steel company specifically peti-
tioned FERC to:
! institute an emergency price ceil-
ing at $100/MWh (which SDI said is
the highest price ever approved by
the commission);
! suspend all grants of authority to
sell electric energy and capacity at
market-based rates;
! ensure that severe penalties are
imposed for noncompliance;
! initiate an investigation into the
P~bit~d~ver
??ufl~ilOUe f°r,' '
".';.~ 'aCc'e~i'order. '
'~ FERc saYS DUke can,t ~
, rates' to recoup the preml~l~
· Paid for,three Callfom, !~'''
~ 9~Las,'Cru(~ed rejoices at FERC
.~%';~ rec~mm~fldatlon on
electric energy and capac-
ity supply situation in the
Midwest;
II initiate an investigation
to determine the reasons
for the extraordinarily
high prices; and
I investigate whether re-
funds should be ordered.
Illinois Power Co. said
June 29 it would file a simi-
lar petition for a price cap
during emergencies.
"We're asking FERC to use
its regulatory authority to
curb market power abuses
in the electric supply mar-
ketplace,'' said IP Vice
President Rich Eimer.
Cinergy, Western Re-
sources, NP Energy and
Dynergyjointly petitioned
FERC to act quickly to con-
vene a forum "to gather
the facts surrounding the
market performance dur-
ing this period to deter-
mine whether any action
from the commission is re-
quired for the remainder
of the summer to ensure
Hour Price Temp
Endin~ MWH (°F)
100 500 75
200 100 74
300 100 73
400 100 73
500 100 72
600 100 70
700 100 69
800 100 72
900 75 81
1000 52 86
1100 75 91
1200 100 93
1300 500 94
1400 1000 95
1500 1500 96
1600 2000 96
1700 2000 96
1800 2000 94
1900 1500 93
2000 1000 90
2100 700 86
2200 400 84
2300 200 81
2400 80 80
As the mercury rose on June 25, so did the price of power on the
Ohio spot market. The chart shows the market price of hourly power,
as understood by AMP-Ohio. It reached a high of $2,000 a
megawatt-hour, chun co.nesr of AMP-Ohio
the continued availability of electric-
ity supply in the market at just and
reasonable prices."
SDI said the situation constitutes
an emergency because, among other
things, market prices "are 100 times
the reasonable cost of production,"
"market manipulation and other mar-
ket failures are occurring" and "price
gouging is occurring." The market
failure is most likely due to a number
of factors, SDI said, including unusual
weather; manipulation and gaming
of a market that "is in its infancy and
has a limited number of participants";
hoarding of electricity by companies
with no obligation to serve; marketers
unable to meet their obligations, with
the regulatory arena failing to imple-
ment proper oversight of market par-
ticipants; and price gouging.
The price spikes also prompted calls
for rapid nationwide deregulation and
retail competition from power mar-
keters and others promoting fast
(continued on page I0)
?rice frenzy marked by price gouging, market failures
(continued from page I) patcher. "It's whatever the marketwill in unbelievably high prices, he said.
action on restructuring. "What we
don't need is rapid deregulation, but
regulatory constraints to protect con-
sumers until we ge~t a market that
functions properly, said APPA Ex-
ecutive Director Alan Richardson.
"Some marketers will argue that the
high prices are appropriate because
consumers need to be exposed to price
signals so that the demand side, as
well as the supply side, becomes part
of the marketplace," SDI said. "Soph-
istry. A price of $3,5007 MWh is equiva-
lent to natural gas at $350/MCF and
No. 6 fuel oil at $2,205 per barrel.
What a price signal!"
"Comments like, 'I would be sur-
prised if there were actually any legiti-
mate market power abuses,' after wit-
nessing sellers asking for $10,000 per
MWh and getting between $4,000 and
~5,000, when the previous emergency
~ergy cap of $100 per MWh was al-
ready five to 10 times the running cost
of production, are totally irrespon-
sible,'' said APPA~ Deputy Executive
Director Dave Penn. "What more
proof do reasonable people need that
consumers will get pummeled if the
deregulation cart is put before the
competition restructuring horse?"
The market chaos Was spurred by a
combination of factors, including a
heat wave that stretched from the
Midwest to Canada to Florida; thun-
derstorms that downed transmission
lines; the loss of many big power plants
in the Midwest due to. planned and
unplanned outages; and the reported
default of a power marketer. The un-
usual conditions affected power trans-
mission in 16 states and two Canadian
provinces. The Mid-America Intercon-
bear. It'sjust insane." "We were quoted an estimated price
The heat wavemcombined with a of $5,000 a MWh from our supplier
tornado that knocked FirstEnergy's [Commonwealth Edison]" on June 26,
Davis-Bessenuclearplantoutofcom- he said, though CornEd advised
mission and outages at several Ameri- Schwartz on June 30 that the actual
can Electric Power generating cost would be lower than that. Roch-
plants--forced American Municipal elle could have purchased cheaper
Power-Ohio to buy some very expen- power, but there "were no transmis-
siveelectricity. Thejointactionagency sion lines to send it to us," Schwartz
had to purchase power from Public said. "We were captive." In a meeting
Service Electric & Gas in NewJersey~ on June 29, "our supplier didn't give
for as much as $3,200 per MWh. The) us any reason to believe that [this type
usual price at this time of year would/ of market volatility] wouldn't happen
be about $60 a MWh. t again this summer," he added.
PSE&G faxed the agency an invoice "I'm not sure of the numbers, but I
on June 25 demanding payment of know we got hung with some" high
roughly $780,000 by June 27. prices, said Marvin Carraway, general
Asking $3,200 a MWh "borders on manager of Clarksdale, Miss., Public
consumer rape," said Carroll Scheer, Utilities. Clarksdale purchased surplus
vice president for generation and power from Entergy Corp. "There were
transmission-dependentutilityservice some [utilities] paying $1,200 a MWh
of AMP-Ohio. "I have serious prob- and turning around and selling it for
lems with" a power market that com- $1,500," he said.
mands those kinds of prices, he said. The city of Tallahassee, Fla.'s elec-
At one point, a marketer called offer- tric utility .on June 26 netted nearly
ing electricity to AMP-Ohio at $6,000 $400,000 on one deal, when it received
a MWh. When he got no takers at that $850/MWh. The municipal system
price, the marketer called back to netted roughly $1 million over the six-
offer a new price: $3,800. Nothing day period ending June 26, said Roger
had changed in the minutes between McDonald, Tallahassee's manager of
those two phone calls to justify such a energy trading. Ifelectricitywere fetch-
huge price difference, said the AMP- ing prices in the $70 to $80 range, "we
Ohio dispatcher who took the call. probablywould have been a little more
"Wesawonthebrokerscreenshourly cautious," he said. But when prices
prices as high a $10,000," said Carl soar to the $200 to $300 range "every-
Kohlrus, electric planning supervisor body starts scratching together sur-
for Springfield, Ill., Utilities. Spring- plus generation" to sell on the open
field fulfilled its system requirements market, said McDonald.
without purchasing surplus power, but "We did well, very well," said Gary
third-party, off-system load was nega- Zimmerman, general manager of the
tively affected by the power shortage, Michigan Public Power Agency. "We
he said. "When wholesale prices are 50 made money." The joint action agency
times or 100 times more than retail, had 50 MW of excess capacity because'
nected Network, one of 10 reliability there's a problem," he added, of a strike that stopped production at
councils, asked utilities to impose eh- "The,deregulation bird has landed'~ General Motors, he said. MPPA sold
ergy conservation measures on their andwe re seeing" what happens when I that energy to American Electric Power
interruptible customers, market participants are more con- / at $1,340 a MWh, he said. AEP needed
Some public power utilities weath- cerned with unloading generation \ power in part because its 2,000-MW
eredthepowershortagewellandeven facilities than with meeting load re- ICook nuclear plant is out of service.
had surplus capacity to sell. Others quirements, said Ray Schwartz, gen- ~ Zimmerman heard of prices in ~
encountered exorbitant electricity eral manager of ~ochelle, Ill., Mu- Iregionreachingnearly$5,000aMWh.
prices that were 50 times or more nicipal Utilities. 'It's a supply and I"Those are amazing prices," he said.
what would be expected, at this time of demand market, but everybody wants IWhereas usually i~oWn~nludeCdOoStnq~ .Ceen_ts
year. "This is madness,' said one dis- to unload generation," which results ( ' p g 12)
Midwest price spikes produce winners and losers
(continued from page I0)
to run a 100-watt light bulb for I0
hours, at $5,000 a MWh it would cost
$5. This kind of free market is wonder-
ful if you're a s, eller, "but if you're a
buyer, it's hell,' he said.
'"-"' "It was an exciting time," said Rich
Friedman, director of operations and
trading at Wisconsin Public Power, Inc.
Wisconsin didn't have the heat wave
that struck other parts of the Midwest,
but the supply side was tight because of
outages at several major' nuclear plants.
W'PPI had enough electricity to cover its
load, though, and also had some sur-
plus power. "We were selling well up
into the triple digits," Friedman said.
"We didn't capture the $5,000 or $10,000
[prices that were being talked about],
but we were doing pretty well."
The buying frenzy hit its peak June
29, when the state found itself with all
transmission cut coming in from the
st, Friedman said. Tornadoes in Iowa
,,ad brought down a critical 345-kV line
that brings power north to Minnesota,
he said. The Nuclear Regulatoi'y Com-
mission ?eported that 9,708 MW, or
nearly half the nuclear capacity in the
upper Midwest, was out of se]wice.
"I would say the entire system was at
very high-risk," said Friedmfin. There
was so little excess power nationwide
that a loss of one or two big generating
units could have caused blackouts, he
said. "In Wisconsin, I think everything
was on line except for one of Wisconsin
Electric Power Co.'s plants," Friedman
said. "But we have CornEd to the south
and Northern States Power to the west."
These utilities "are so big that if they
have problems, they tend to bring us
down too."
Indiana Municipal Power Agency
had to btty very expensive power, but
also sold power at very high rates,
said President Raj Rao. "The net ef-
fect was positive for IMPA," he said.
"We were antici-
pating that kind
of volatility in
the market, so /
we were not sur-
prised,'' he said.
When the
electricity mar-
ket experiences
what it went
through June 24-
26, "you're happy
you've adhered
to the rules and
thatyou didn't lie
about having
phantom capac-
ity,'' said Dave
Christiano, man-
ager of Electric
System Control
for Springfield,
Mo., Utilities. Springfield sold electric-
ity in the $500 to $600 range. Christiano
acknowledged that prices were exces-
sive and "irrational," but when they reach
those levels, Springfield will try to profit
by them too, he said.
Some industry officials believe power
marketers had as much to do'with the
outrageous prices as the weather. "It
sttre seems that [power] marketers do
strange things at the end of the month"
to try to bid up electricity sales for the
following month, said Christiano. I
A double billboard leans precariously in Peoria, II1., after a dune 29 storm
produced 80 mph Ousts. Severe thunderstorms and tornadoes downed a number
of transmission towers in the Midwest late last monthl weakeninD the odd.
Associated Press photo
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