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ERMUSR MISC. ITEMS 02-10-2004 Elk River --z_-_- Municipal Utilities 322 King Avenue phone: 763.441.2020 Elk River,MN 55330 Fax:763.411.8099 February 6, 2004 To: Elk River Municipal Utilities Commission John Dietz Jerry Takle James Tralle From: Bryan Adams Subject: Miscellaneous Issues Enclosed is the packet for Tuesday, February 10, 2004 commission meeting at 4:00 p.m. The APPA legislative rally in Washington D.C. was a success. We visited with all of the congressional delegation or their staffs. This year they appeared to be much more knowledgeable about our issues than in past years. These rallies are effective in communicating our perspective to our representatives. The first four attached sheets reflects the items we discussed. (The Energy Policy Act of 2003, Federal Incentives for Renewables, Protecting the Interest of WAPA Customers and MTBE Contamination.) The last two attached sheets were given to them as background information. (Why Public Power and Electric Utility Service Territories - A State Issue.) The MMUA Minnesota rally is February 25th thru February 27, 2004 in St. Paul in conjunction with the MMUA Winter/Legislative Conference. I would recommend the commission involvement at this conference. I will be attending as usual. Both Glen Sundeen and myself attended some informational meetings in Otsego concerning the proposed Co. Rd. 42 and 39 interchange with Hwy 101. Both county road interchange projects will effect our distribution system. The extent will be known when the final option is chosen in April 2004. We have had a good response to our AC Tree Program. We used this brochure as a bill stuffer with the January utility bill. Our customers are obviously reading the bill stuffers. The last week of January 2004 we experienced extremely cold weather. Our electric and water system performed very well with little difficulty. On January 22, 2004, the MMUA Regional Meeting was held at the environmental learning center at our LFG facility. The attached information was reviewed. If you have the time, it may be worth your while to review. Jerry Talde was in attendance at this event along with Glenn Sundeen and myself. As a final note, MMUA is in the process of forming a bond pool. This is an effort to reduce the issuance costs as well as interest rates. This bond pool will be available to Electric, Water, Wastewater and possibly Storm Water facilities. As you may recall, the 2004 electric budget requires a bond in the area of$750,000. I will have at this meeting, information about this bond pool concept for your review. SWIM' I.NNESOT4 MVNICIPPI V i.L,"'��'.SCCW I(i^: 12805 .crway 55 • Suite 212 • Plymouth, MN 55441-3859 • 763.55''. :230 • 800 422 0119[MN) • Fax 763.551.0459 H.R. 6, The Energy Policy Act of 2003 The House of Representatives passed its version of H.R. 6 in April 2003. In July, the Senate passed its own comprehensive energy bill. The conference committee, formed to reconcile the two bills, approved a new version of H.R. 6 in November. A few days later, the new H.R. 6 passed the House on a 246-180 vote. However, the bill met strong opposition in the Senate and is still pending. Public power is generally supportive of the following provisions in the Electricity Title (Title XII): • Section 1236—Native Load Obligation. Contains service obligation language that equally protects the existing firm transmission rights of transmission owners and transmission dependent utilities. The protections provided by this provision do not apply to load-serving entities located in the PJM, New York and New England ISOs. • Section 1231 — Open Nondiscriminatory Access. Contains open access/FERC-lite language that requires an "unregulated transmitting utility" (public power systems, rural electric cooperatives, the Tennessee Valley Authority and the Power Marketing Administrations) to provide open access to their transmission facilities at rates comparable to what they charge themselves and under terms and conditions comparable to those they apply to themselves. The provision clarifies that nothing in this section authorizes FERC to order an unregulated transmitting utility to join an RTO. • Section 1235—Standard Market Design. Prohibits the implementation of final rules, or any rule or order within the scope of the proposed Standard Market Design (SMD) rulemaking, prior to December 31, 2006. • Section 1221 —Siting of Interstate Electric Transmission Facilities. Grants FERC "backstop"transmission-siting authority(the use of eminent domain) in areas identified by DOE as critical transmission congestion pathways in cases where a state lacks authority to issue a permit or has delayed or denied a permit. Authorizes interstate siting"compacts"to help identify regional siting priorities. • Section 1211 —Electric Reliability Standards. Creates mandatory reliability standards promulgated by an electric reliability organization with regional stakeholder input. While generally supportive of the energy bill,public power has concerns about the following elements of the bill: • Repeals the Public Utility Holding Company Act of 1935 (PUHCA). PUHCA has protected generations of Americans from the concentration of utility ownership by huge utility conglomerates. PUHCA should be retained unless sufficient alternate consumer protection provisions are provided. In our view the consumer protection provisions in H.R. 6 are not a sufficient alternative to PUHCA. • Does not provide sufficient consumer protections. While the bill includes a ban on round-trip trades and the filing of false information, and instructs FERC to establish market transparency rules, these changes are minimized by a savings clause that prevents FERC from regulating other providers of information. New merger review provisions do not provide for review of convergence mergers. Further, the total time for FERC review of a merger is limited to 365 days, and the threshold of asset dispositions triggering FERC review is raised to $10 million. • Voluntary Transmission Pricing Plans (Participant Funding). Enables transmission owners, RTOs and ISOs to propose transmission-financing plans for transmission upgrades that FERC must approve and that could impose "participant funding" in every case. • Section 1241 —Transmission Infrastructure Investment. Requires a FERC rulemaking on transmission rate incentives, with some incentives applicable to all investor-owned transmission owners (TOs), and significant incentives applicable to TOs that participate in RTOs or ISOs (including accelerated depreciation of new transmission over 15 years). This provision could lead to significantly higher transmission rates that will be borne by consumers. • Does not include tradable tax credits. The bill includes production tax credits for generation from renewable energy, and a new tax credit for production from "advanced nuclear power facilities." But it does not include tradable tax credits for public power systems that develop renewable energy production facilities. Minnesota Municipal Utilities Association February 2004 L 1 �sNs,tq Mm.SES= - ^nUV4I 5!ILI F•-aiSOCl4IlOh 12805 Highway 55 • Suite 212 • F7lymouth. MN 55441-3859 • 763 551 1230 • 800422.0119(MN • Fax 763.551.0459 Federal Incentives for Renewables Two federal issues important to Minnesota municipal utilities should be addressed in any energy legislation passed by Congress: Tradable Tax Credit. Private developers receive a federal tax credit for electricity generated from certain renewable energy projects. The Renewable Energy Production Incentive (REPI) program is intended to provide a renewable incentive for public power systems, but it has been severely under-funded and ineffective. Legislation providing community-owned utilities a"tradable tax credit" for electricity produced by renewable sources would give them the ability to sell their tax credit (at less than face value) to private entities seeking a lower tax burden, and then use the proceeds to buy down the cost of the project. The tradable tax credit concept is an effective way to help diversify the nation's fuel reserves by promoting the increased production of efficient and clean energy resources. In addition, Minnesota law requires that municipal power agencies, G&T cooperatives and IOUs to make a "good faith effort" to generate or procure 1% of the electricity needs of the retail customers in their systems from "renewable" resources by 2005, and increase the amount by 1% each year, to 10%by 2015. An added biomass mandate is included, requiring 1/2% of electric sales to come from biomass sources by 2010, and 1%by 2015. Power from renewable resources and advanced technologies is usually more expensive than power from traditional generation sources. Federal investment incentives are needed to encourage the construction of these facilities. Private developers receive a federal tax credit for electricity generated from certain renewable energy projects. However, investment tax credits made available to privately-owned utilities and energy production companies do not create incentives for publicly-owned or rural electric cooperative utilities, which serve 25% of the nation's electricity load. Legislation providing a community-owned utility a"tradable tax credit" for electricity produced by renewable sources would give a consumer-owned electric utility the ability to receive a federal tax credit that would be comparable in amount to that made available to its private counterpart. The utility would be permitted to sell, transfer, assign or otherwise dispose of the credit to any taxpayer, including its customers. A consumer- owned utility could then offer the credits at a discount to encourage their purchase. A project receiving renewable energy production incentive (REPI) program funds or other federal grants would not be eligible for tradable tax credits. The tradable tax credit concept was dropped from the conference committee language for the 2003 energy bill at the last minute. This concept should be included in any legislation concerning renewable energy production or taxation at the earliest opportunity. Renewable Energy Production Incentive (REPI). The REPI program was created by the Energy Policy Act of 1992 to authorize DOE to make direct payments to publicly- and cooperatively-owned electric utilities at the rate of 1.5 cent/kWh (indexed for inflation) for electricity generated from solar, wind, and certain geothermal and biomass electric projects. Congress implemented the program with two goals in mind: 1) to assist public power utilities in overcoming economic barriers to greater renewable energy use; and 2) to ensure equity between investor-owned utilities that receive energy tax credits and not-for- profit utilities that are unable to do so. If reformed and fully funded, the program would be closer to realizing its full potential. In recent years, funds have not kept pace with energy growth and this has resulted in many projects receiving only partial payments for energy produced. Reauthorization of REPI will promote the development of new renewable energy facilities by publicly- owned electric utilities. Representatives Bono (R-CA) and Markey(D-MA), and Senators Cantwell (D-WA) and Smith(R-OR) have introduced identical proposals (H.R. 671 and S. 421) to reauthorize and reform the Renewable Energy Production Incentive (REPI)program. This language was included in its entirety in the pending energy bill conference report. H.R. 671 and S. 421 would reauthorize and reform the REPI program for another 10 years and would direct the U.S. Department of Energy(DOE) to allocate 60 percent of appropriated funds to Tier 1 projects (wind, solar, geothermal and closed-loop biomass) and the remaining 40 percent to Tier 2 projects (landfill-gas-to-energy projects), during funding shortfall years. Since 1995, Tier 2 projects have received insufficient payments, while Tier I projects have received full payments. If REPI is not reauthorized through the passage of H.R. 6, Congress should pass a stand- alone REPI reauthorization bill. Minnesota Municipal Utilities Association February 2004 C 3� nswniIlia 12805-_-way 55 • State 212 • Plymouth MN 55441-3359 • 763.551.I 23 • 300.422.01 19(MN) • Fax 763.551.0459 Protecting the Interests of WAPA Customers The Western Area Power Administration (WAPA) is one of four federal power marketing administrations (PMAs). WAPA markets and delivers reliable, cost-based hydroelectric power within a 15 state region of the central and western United States. WAPA's 17,000-mile transmission system carries electricity from 55 hydropower plants operated by the Bureau of Reclamation, the U.S. Army Corps of Engineers and the International Boundary and Water Commission. In marketing electricity, WAPA must follow many laws, regulations and policies, some of which are unique to that agency. Included in these laws is the Reclamation Project Act of 1939,which requires WAPA to give preference in selling federal power to certain types of non-profit organizations including cities, rural electric cooperatives, state and federal agencies, irrigation districts,public utility districts and Native American tribes. WAPA customers in Minnesota are served by the Upper Great Lakes Region office located in Billings, Montana, which, in turn, provides electric service from the seven dams of the Pick Sloan Missouri River Program, developed as a result of Congressional authorization in 1944. The conference report to the comprehensive energy bill (H.R. 6) includes several provisions impacting PMAs. We support these provisions: • Authorization for WAPA and SWPA to engage in certain new financing and operation arrangements for existing and new transmission. • A requirement that transmission-owning PMAs provide open access to their transmission lines to other market participants at rates comparable to what they charge themselves and under terms and conditions comparable to those they apply to themselves. • Authorization for the PMAs to join regional transmission organizations. The energy bill also includes a provision that allows for the use of PMA receipts to fund power- related operation and maintenance costs at Corps of Engineers-operated hydro facilities. This language was amended in the final conference committee report to limit this action to FY 2004 only. However, the establishment of this limit was based on a Congressional Budget Office analysis that attached an unreasonably high cost to the use of PMA customer receipts. When this issue is revisited in 2004, Congress should authorize the Corps to use PMA customer receipts to fund Corps projects on an indefinite basis. Additionally, the issue of whether or not the PMAs should be required to pay for all or a portion of federally mandated security measures at dams run by the Bureau of Reclamation will receive increased attention in the FY 2005 appropriations process. These security costs should be paid for by the BuRec's general budget and not borne by the PMAs and their customers. Congress should support the continued existence and federal ownership of the PMAs, the use of cost- based rates, and increased customer involvement in funding critical operation and maintenance activities. Congress should also strongly oppose any proposed action that would modify the federal power program in ways that could result in substantial electric rate increases for MMUA members, create adverse economic impacts, or reduce competition. In Minnesota, 47 municipal utilities receive an allocation of power from WAPA. These "preference customers" are as follows: 1. Ada 25. Melrose 2. Adrian 26. Moorhead 3. Alexandria 27. Mountain Lake 4. Barnesville 28. Newfolden 5. Benson 29. Nielsville 6. Breckenridge 30. Olivia 7. Detroit Lakes 31. Ortonville 8. East Grand Forks 32. Redwood Falls 9. Elbow Lake 33. St. James 10. Fairmont 34. Sauk Centre 11. Fairfax 35. Shelly 12. Fosston 36. Sleepy Eye 13. Granite Falls 37. Springfield 14. Halstad 38. Staples 15. Hawley 39. Stephen 16. Henning 40. Thief River Falls 17. Jackson 41. Tyler 18. Kandiyohi 42. Wadena 19. Lake Park 43. Warren 20. Lakefield 44. Westbrook 21. Litchfield 45. Willmar 22. Luveme 46. Windom 23. Madison 47. Worthington 24. Marshall Minnesota Municipal Utilities Association February 2004 Mr. Bryan C.Adams Elk River Municipal Utility (763)441-8099 From: AWWA (303)347-0804 01/15/04 03:49PM Legislative Alert (, ,\\® 8888 West Quincy Avenue Denver,CO 80235-3098 American Water Works T(303)794-7711 F(303)795-1989 Association www.awwa.org The Authoritative Resource for Safe Drinking Water sM In 41-2/ LEGISLATIVE ALERT TO: AWWA Leadership All Utilities FROM: Jack W. Hoffbuhr ODA DATE: January 15, 2004 d411 a. Who: AWWA Utility Members • What: Urge Senators to oppose MTBE safe harbor/ L submit Letters to Editor When: As soon as possible Congress reconvenes in Washington Jan. 20, and we expect the U.S. Senate to revisit an Energy Bill that still includes defective product liability immunity for gasoline producers in cases of MTBE contamination in the next few weeks. AWWA again encourages utilities to aggressively oppose this "safe harbor' provision, which would largely exempt the oil industry from accountability in cases of water supplies contaminated by MTBE. AWWA utility members played a pivotal role in blocking enactment of this provision last November. However, lobbyists for the oil industry need only two more votes to break a filibuster and pass the Energy Bill with MTBE safe harbor intact. If they succeed,water utilities and local communities may be saddled with MTBE cleanup costs of more than $29 billion. AWWA advises utilities to take the following action: 1. Fax, e-mail or call your senators to thank them if they opposed the Energy Bill containing MTBE safe harbor, or encourage a change of heart if they supported the Energy Bill. (Attached are two sample letters to senators and a document showing how each senator voted in November.) If you already contacted your senators on this in the fall, it is appropriate to contact them again because Congress is reconvening and because Energy Bill proponents will make another attempt to pass this legislation. 2. Submit"letters to the editor" reminding newspaper readers that MTBE safe harbor is bad policy and urging the senators in your state to oppose the Energy Bill (Attached is a suggested letter for adaptation.) -- MORE -- MTBE Pollutes Energy Bill Page 2 To. Mr.Bryan C. Adams Elk River Municipal Utility (763)441-8099 From. AWWA (303)347.0804 01/15/04 03.49PM %o/,.� �G /7710c SAMPLE LETTER TO SENATORS WHO OPPOSE ENERGY BILL/SUPPORT AWWA POSITION January xx, 2004 Dear Senator: As you return to Washington, I want to thank you for putting the concerns of the American people ahead of the influences of the special interests with your opposition to the current form of the Energy Bill. While the country certainly needs an effective, reasonable energy policy, it is astonishing that backers of the bill still insist on including an egregious provision that protects gasoline manufacturers at the expense of the general public. MTBE defective product liability immunity—so called "safe harbor" - prevents communities from holding gasoline makers accountable for a product that has contaminated hundreds of water supplies in 36 states across the country so far. This provision became the point of contention in the passage of the Energy Bill last year and for good reason. The MTBE problem is both widespread and growing. Today, MTBE contamination clean-up costs have an estimated price tag of more than $29 billion. If the gasoline makers are not held responsible for the problem they created, the cost will be passed on to local water utilities and, consequently, local citizens. Most alarmingly, in addition to the financial costs related to MTBE, the U.S. Environmental Protection Agency has classified it as a possible human carcinogen. Gasoline makers are working overtime to confuse the issue by advancing a number of empty arguments that MTBE contamination is not their responsibility. They have not, however, fooled the American public. Court documents demonstrate that the oil companies chose MTBE, in part, because it was more profitable for them. As long as the Energy Bill contains the MTBE"safe harbor" provision, it should be defeated. We are very encouraged by the bipartisan coalition of senators like you who recognize the gravity of this issue and have come together across party lines to defend the American public. We applaud your efforts and strongly encourage you to maintain your steadfast opposition to this provision. Sincerely, To: Mr.Bryan C.Adams Elk River Municipal Utility (763)44:.8094 From: AW WA (303)347.0804 01/15/041 03:40PM The current Energy Bill would grant MTBE product liability for gasoline makers retroactive to Sept. 5, invalidating more than 40 lawsuits filed on behalf of approximately 130 water systems.A recent study by the U.S. Geological Survey found MTBE contamination in 55 percent of the metropolitan water systems that were tested. Even small amounts of MTBE can make drinking water smell and taste like turpentine. To reach your senator, call the U.S. Capitol switchboard at 202-224-3121. For more information on MTBE contamination and A W WA's reasons for opposing MTBE sate harbor, please see the Q&A with AIWA Executive Director Jack Hoffbuhr at wwwawwa.org. ### � 5 ) "MINI "I/VAr M,NNESO VL h,C.P4L UTILITIES ASS A EION 12805 Highway 55 • Suite 212 • Plymouth, MN 55441-3859 • 763 551 1230 • 800.422.01 I9(MN) • Fax 763.551.0459 Why Public Power? 126 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 locally regulated. Members of the community who live in the community set rates and service practices. If you have a problem, you know who to talk 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. • We're not in it for the money. Municipal utilities are not-for-profit and therefore 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 us. We will be there when you need us. • We're Public Power. We're here for you! Minnesota Municipal Utilities Association February 2004 tC;) MIMILft MINNESOTA MUNICIPAL UTILITIES ASSOCIA LION 12805 Highway 55 • Suite 212 • Plymouth, MN 55441-3859 • 763.551.1230 • 800 422 0119(MN) • Fax 763.551.0459 Electric Utility Service Territories — A State Issue In 2002 a group of electric cooperatives attempted to add language to the Farm Bill that would have severely restricted the ability of municipal electric utilities to grow with their cities. They were unsuccessful, but similar attempts to add service territory language to federal legislation may be made in the future. There is simply no need for Congress to become involved in electric utility service territories. Like most issues relating to retail electric distribution service, service territories have long been governed under state law. Minnesota's system for regulating service territories has been in place since 1974. Our law, like that of many states, provides that a municipal electric utility may acquire the right to serve areas annexed by the city. The law also provides that the utility previously serving the annexed area must be provided with fair compensation. Here are some important facts to remember about Minnesota's service territory law: • The co-ops wanted the 1974 service territory law in order to obtain funding to build the Coal Creek plant. They agreed to and supported the municipal annexation provision in the law. • The co-ops have enjoyed tremendous growth in the years since the service territory law was enacted. Their growth has far outstripped that of the municipal utilities. They are the fastest-growing segment of the industry. • The co-ops are poised to capture much of the growth around communities served by investor-owned utilities, as well as those communities served by co- ops. This has been happening for some time in the Twin Cities Metro area, and is beginning to occur in other parts of the state as well. • In addition to enjoying their own rapid growth, the co-ops receive fair compensation under the law for both present and future customers when a city purchases service rights following annexation. • In most cases service territory transfers proceed relatively smoothly. The law on compensation is well understood and most cases settle without litigation. • Minnesota's service territory law is working exactly as it was intended, and there is no reason for Congress to become involved. Electric utility service territories are fundamentally a state issue, fully governed by the laws of Minnesota and other states. There is no justification for Congressional involvement in the service territory issue. Minnesota Municipal Utilities Association February 2004