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ERMUSR MISC ISSUES 03-09-2004 i 'Elk River ^- Municipal Utilities 322 King Avenue phone: 763.441.2020 Elk River,MN 55330 Fax:763.4412099 March 3, 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, March 9, 2004 commission meeting at 4:00 p.m. Every year, one of the Elk River Municipal Utilities commissioners term expires and the City Council appoints or reappoints an individual. This year John Dietz's term has expired and John was reappointed to the Elk River Municipal Utilities Commission. Congratulations John! The Chamber of Commerce 2004 business expo will be held at the Elk River High School on Sunday March 28, 2004. We will again have a booth at the expo and will be giving away 100 watt compact fluorescent bulbs. This was a great success last year. MMUA held its winter meeting and legislative rally in St. Paul in late February. Attached is the following MMUA's position papers that were given to our legislators. a) Municipal Telecommunications b) Conservation Improvement Programs c) Renewable Energy d) Deregulation and the Electric Utility Industry e) Joint Ventures f) Why Public Power g) Right of Municipals Electric Utilities to Grow With Their Cities //I/V�1 MINNESOTA 1.1uNICIPAL UnUrIES-S SCC'A IION 12805 HISnvay 55 • Suite 212 • Plymouth, MN 55441-3880 • 763 551 1230 • 800 422 0119(MN) • Fax 763.551.0459 Municipal Telecommunications A modem, affordable telecommunications infrastructure is key to economic growth in the 21st century. Unfortunately, many areas of our state are without this infrastructure. Others suffer with unreliable, slow, or expensive service. Municipal utilities are at the cutting edge of broadband technology service provision in Minnesota. Municipal utilities offer a variety of wireless, DSL and fiber optic broadband services. The first test of broadband power line technology—which makes surfing the Intemet as easy as plugging in your computer—will be conducted by Rochester Public Utilities this spring. The state's municipal electric utilities and small, rural telecom providers share much the same perspective on broadband deployment in Minnesota, a fact that emerged during testimony before the House Regulated Industries Committee on Jan. 29, 2003. One member of the Minnesota Association of Rural Telecos testified that his company began offering DSL three years ago because a local Polaris dealer needed it to remain in business. The company didn't develop a business plan. It made the investment because broadband access was vital for the community. Another small telephone company manager told the Regulated Industries Committee in an Oct. 30, 2001 hearing that broadband deployment in Greater Minnesota was cost prohibitive without subsidization. Minnesota's dominant local exchange carrier—Qwest--continues to lose money, reporting a fourth-quarter loss of$307 million Feb. 19, after losing billions in previous years. The company testified before the Minnesota Public Utilities Commission Feb. 4, 2003 that it did not view DSL deployment in Greater Minnesota as a good business decision. Cities without affordable broadband access should not be sentenced to the economic backwaters. Municipal utilities are often well-positioned to provide broadband service to their cities. The Legislature can allow cities to better control their economic destiny by: • Giving municipals express authority to enter into joint telecommunications ventures with other entities. • Removing barriers to entry to municipal telecommunications efforts. • Giving cities an opportunity to bid on local exchanges, if they are to be sold. Joint ventures make sense. Municipal utilities have authority to enter into joint ventures with other entities for the provision of electric service. It is a logical extension to include telecommunications under the municipal joint venture authority. Municipal utilities are perfect partners for local telephone companies in the provision of broadband access in 11%%%11/1 MINNESOTA MUNICIPAL U LILT LIES ASSOCIATION 12805 Highway 55 • Suite 212 • Plymouth MN 55441-3859 • 763 551 1230 • 300.422.0119 iMN) • Fax 763 551 Conservation Improvement Programs Beginning in 1993, Minnesota law required municipal electric utilities to spend 1%of their gross revenues on conservation initiatives known as conservation improvement programs (CIP). In 2001 the Minnesota State Legislature expanded municipal involvement in these programs by increasing CIP spending on electric operations to 1.5% of gross revenues, gradually reducing the amount of spending on load management that could be used to meet municipal CIP spending requirements. The new law also imposed new CIP reporting requirements on both electric and gas municipal operations. These changes resulted in doubling the annual amount municipal electric utilities must spend on conservation improvement. Through MMUA, municipal electric utilities launched a major effort to ensure that public power systems had the tools and information necessary to comply with the new mandates. This included the creation of an education program to help municipal utilities meet the requirements of the law, and the development of nine residential and commercial programs to be used by municipal utilities to meet the new CIP mandate. It will be several years before the law is fully effective and its impact can be evaluated. It would be inadvisable to make new CIP changes in the law until we know how well it is working. MMUA will resist efforts to impose additional CIP spending requirements or mandate additional CIP responsibilities on municipal electric utilities,particularly before municipals have had the opportunity to evaluate the impact of the current CIP program. MMUA will resist any effort to transfer control of municipal CIP programs away from local communities. In addition, consideration should be given to using CIP monies to meet certain energy emergencies. For example, several years ago the Commissioner of Commerce gave permission for municipal gas utilities to use CIP funds to help low income consumers pay their unusually high natural gas bills for the coldest month of the heating season after the utility was hit with a price spike for natural gas at the wholesale level. It seems reasonable that Minnesota law should be changed to clearly authorize the Commissioner to grant permission for the use of CIP funds to meet a similar community energy emergency. Minnesota Municipal Utilities Association February 2004 : WITIVi 4'NNESOTA MUNICIPAL UnUrES ASSOC IA n0N 12805 Hignvay 55 • Suite 212 • Plymouth. MN 55441-3859 • 763.55.'230 • 800 422 0119 MN • Fax 763.551.0459 Renewable Energy Minnesota's public policy encourages the inclusion of renewable resources in the generation mix. The 2001 omnibus energy bill expanded on that policy by calling upon power suppliers to make a "good faith effort" to secure 10% of their total electric sales from renewable sources by the year 2015, and by requiring utilities to provide customers with power from renewable sources when requested. We believe that Minnesota's renewable energy policy should recognize the following principles: • State policy should recognize that all existing domestic hydroelectricity is a renewable form of energy. • Minnesota should adopt state policy that creates uniformity in defining renewable energy sources that encompass renewable initiatives at the federal level. Specifically, the definition of renewable resources should be expanded to include landfill gas. • Minnesota should avoid policies that would require utilities to provide a fixed percentage of all the electricity they generate or a fixed percentage of their generating capacity from renewable sources. Instead, utilities should be allowed to offer customers "green pricing" options. • Any change in Minnesota law concerning renewable energy should continue to recognize the need for communities to be able to maintain local control over decisions regarding the selection of renewable energy sources that best fit their local situation. • Minnesota should continue to support renewable energy development with the Minnesota Renewable Energy Production Incentive (REPI) program. However, because this program is reaching the limit of its funding, the state should adopt a tradable tax credit for electricity produced by renewable sources. This proposal would give community-owned utilities 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. • Minnesota should not embark upon an experiment in retail competition under the guise of encouraging development of renewables. Electricity generated from renewable sources should be subject to the same retail market rules as electricity generated from all other sources. Minnesota Municipal Utilities Association February 2004 hhhhIA 1171/1.1511 4IINNESO T4 MUNICIPAL UTILITIES A$SOCIA TION 12805 Hich.vay 55 • Suite 212 • Plymouth, MN 55441-3859 • 763 551 1230 • 800.422.0119 IMN • Fax 763 551 Deregulation and the Electric Utility Industry The federal Energy Policy Act of 1992 was intended to foster the development of a competitive wholesale market. In the wake of its passage, however, a number of interest groups, particularly those representing very large electric users, called for deregulating the industry at the retail level. Deregulation was seen as a gateway to lower rates in high cost states, particularly on the East and West coasts. In the latter part of the 1990s a number of states began implementing deregulation initiatives. Public power systems in Minnesota and throughout the United States urged policy makers to exercise caution and move very carefully in considering the potential transition to deregulation at the retail level. We noted that there are a number of factors that make the electric utility system unique,and the transition to a market-based retail system extremely complex. Electricity is a real-time product,with no viable means of storage. The exact amount being consumed in an instant must be produced in that instant. Failure to maintain this delicate balance can lead to blackouts and brownouts. Because there is no substitute for electricity, prices in times of shortage quickly skyrocket to ten, 25, or even 100 times the normal level. Capacity constraints and flow problems often prevent the movement of electric energy from areas where it is plentiful to areas where it is needed. The extreme complexity of the system provides ample opportunity for market manipulation, price gouging, and fraud. Fortunately,Minnesota has acted prudently and taken a cautious approach toward deregulation. Experience has shown this to be a wise course. Recent events have demonstrated that the drawbacks of retail deregulation can far outweigh the benefits. California's ill-fated experiment with deregulation cost consumers and businesses billions of dollars and led to blackouts and brownouts. Enron and other power marketers manipulated markets to deceive regulators,drive up prices,and extract huge profits. The massive power failure that occurred in the eastern United States and Canada on August 14,2003 dramatically demonstrated that the reliability of the wholesale power system is already threatened and needs significant improvement before the nation moves too far into retail competition. It is abundantly clear that electric deregulation is an idea whose time has not yet come. Minnesota has wisely recognized the need to develop a robust transmission system and a healthy and fully functional wholesale electricity market before considering the leap to retail deregulation. Implementing deregulation in a period of shortage would likely cause prices to go up rather than down. For the foreseeable future Minnesota should continue to concentrate on strengthening the wholesale power market. Any attempts to implement deregulation on a piecemeal basis, such as pilot programs, initiatives limited to large customers, or proposals that would introduce deregulation in the guise of advancing renewables, should be recognized for what they are— attempts to start Minnesota down a slippery slope that can lead to shortages, price hikes and reliability problems that our consumers and businesses can ill afford. Minnesota Municipal Utilities Association February 2004 i%%%V%1 12805 Highway 55 • Suite 212 • Plymouth, MN 55441-3859 • 763 551 1230 • 800 422 0119(MN) • Fax 763.551.0459 Joint Ventures A significant number of Minnesota cities have operated retail natural gas utilities for many years. In recent years, a number of cities have installed new natural gas systems in their communities and have begun to provide this vital energy to their customers. It appears that there may be opportunities for joint ventures between cities and other public and private entities in the distribution of natural gas. There is also a pressing need for cities to become more active in providing telecommunications services. The 2001 omnibus energy bill contains language that allows cities to participate in joint ventures for providing electric service. Late in the legislative process natural gas and telecommunications were deleted from the legislation. Allowing municipal utilities to participate in joint ventures for providing gas and telecommunications services will likely result in greater economies of scale and enhanced service to customers. Therefore, we support legislation that would expand eligible joint ventures for municipal utilities to include natural gas and telecommunications. Minnesota Municipal Utilities Association February 2004 /1M!IAA hbNNE50ra MUNICIPAL u nu roes ASSOCIATION 12805 Highway 55 • Suite 212 • Plymouth, MN 55441-3859 • 763 551 1230 • 800.422.0119(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 than 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 ATARI/11A MINNESOTA MUNICIPAL UTILITIES ASSOCIATION 12805 Highway 55 • Suite 212 • Plyrouth. MN 55441-3880 • 763 551 1230 • 800 422 0119/MN) • Fax 763.551.0459 The Right of Municipal Electric Utilities to Grow With Their Cities Since the inception of the electric utility industry, Minnesota's municipal electric utilities have had the right to serve all customers within the borders of their cities. This right includes the ability of municipals to extend electric service to customers in annexed areas. Municipal utilities' right to grow with their cities: • Strengthens a city enterprise providing an essential service to all city residents. • Provides a municipal utility's only real source of growth. • Ensures that city residents will be served by a utility they already own. • Ensures consistent,uniform service and price throughout the city. This policy allows customers the maximum control of their utility and usually results in enhanced service to the customer. Finally, Minnesota Law recognizes the fundamental truth that cities grow because families and businesses want city services and other benefits of being located within the city. Cities are the engines of economic growth, and they work hard to attract development. It is only fair that cities should provide services in annexed areas as growth occurs. Municipal utilities' long-standing right to grow with their cities was affirmed in the 1974 Minnesota law establishing service territories for all the state's electric utilities. The 1974 law was the result of a landmark compromise between investor owned (IOU's), cooperative, and municipal utilities. The law gave co-ops a market guarantee for their planned $1 billion Coal Creek project and it preserved the right of municipal utilities to grow with their cities. The cooperatives enthusiastically supported the passage of this legislation. Since its passage, however, they have worked to secure ever larger compensation awards in cases brought before the Minnesota Public Utilities Commission (MPUC) and the courts. The 1974 law has worked very well for the electric cooperatives. It preserved the co-ops' customer base in the 1980's when they were troubled with rising costs and high rates. MPUC decisions concerning compensation paid for service territory purchased by a municipal utility have resulted in increasing awards to co-ops. Today, cooperatives not only receive full reimbursement for facilities, payment for any reintegration costs, and payment for lost revenue from existing customers; they are even provided compensation for future customers not in existence at the time that the municipal utility begins serving the area. Compensation paid to cooperatives now amounts to more than$16 million. S S Y'Y v1" Y Mh v.R M) i. 0 A4 3 ( W 1. E.a. 'MkM1 4 i. e yi CS ■Vpitilid 24 se c p 3 8s. e Ce O p use O - 6 - ecilt Pe;;Ped:1 .,.t.": / ., O r .; CD Y Sim 11■1 s Q. N Gp :. N Cn 9g�` rt I •`X I j lg@; C —. ■ - CO ti a 3 •v �, .,: ; wee egai pD ar G ...( l6s4:' , . pt .,53 " p Q s VI- j : . I -` .1 - !r e = O X Y 3 O > • d. k, - r of ., psi'. t �S g . a LL g3 '8 ?" � "V.;ri' ' d a l i-P T'. 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L V a°w iF'x iwpE p 4'p y'Y'K 4 ai AS +#� h HI -�} �pp yam'at�. ,3#, o fr v ‘d as r 9 N . - u y 9 d 4E $s'2 4 1 L aY' *21-1,-...4 j. -44 c' ' Y .$ s):; - h � 3 o9i t i i*l 4, '1"r �s a ..r A'ixm a4jF 4 ., a -rt c-4,1412 41 w f .i p a� m i 4 y Vi-it .u.%,f� �a,�r i i y s Y 4 mC c sm w i". ti.;� ti . �Y t .4-� w S F s�� y� 3 .� w 9-&:"Y� 6� i'^ff.�i. °`�M bs . , �4 4" 1, '.�,'aS4aS -Pai II] i D A S I S E E I T The Sounds of Silence By Jim Miller iizing a city official in today's such as for a rezoning, consumed I the goal is to inform the entire conmiu- complex, often contradictory j important and relevant information nits. A story about a proposed ball field world is irrefutably not an easy from the city. I choose the word i expansion on the front page of the city's task and it is getting harder. Those "consume" deliberately; most often the newsletter might elicit some response with the perspective of many years I failure to successfully communicate was (likely negative), but is it really repre- or decades of service will quickly not in the delivery of the information sentative of the community's feelings? confirm that meeting their own but that it simply wasn't noticed, or at And how should the mayor and council expectations as well as those of least not in time. interpret silence? Most have learned the the people they serve is indeed much I sat through many public hearings hard way that silence may not mean more difficult than in previous years. when one or more residents announced concurrence. When talking to city officials, I most to the council that they were unaware While these situations might result often am provided with vivid anecdotes of the subject proposal until being from inadequate communications about a particular public hearing, inter- informed by a concerned neighbor. The vehicles or the lax attention of city action with a developer or neighborhood city, of course, meticulously followed officials, they are perhaps more often group, or media interview as supporting its very comprehensive policies, which an outcome of the complex times in evidence. Even those not direcdy far exceeded legal requirements, in which citizens live and the competing involved in government on a day-to-day order to inform citizens. Mailed notices priorities for their time they inevitably basis are probably left with much the to expanded areas, neighborhood face. More and more, it seems that most same conclusion as a result of media meetings, and articles in the local citizens interact with their governments reports that often focus on the more newspaper and in the city newsletter in only two instances: when they need contentious occurrences at city hall. were all commonly employed. Yet, something the city provides, or when If the job of local government official almost predictably, up would pop at they are opposed to something the city is today more difficult, it also is more least one person wondering why the or someone else has done or is consid- visible (which, in its own way, may j city was trying to pull a fast one. ering. During all other times, most be partly the cause of this increased I know from my discussions with remain passive and silent about city difficulty). The open meeting law, for other city officials that my experience activities despite the city's communica- example, has certainly provided the was not unique; all cities face this dons efforts. public and media with more access to dilemma, at least occasionally. Of course, Governing is about judgment. Sound important decisions and perhaps the impacts of such occurrences are judgment seldom comes from the improved accountability as a result. immediately disruptive. Mayors and application of a formula. It involves Likewise, the Data Practices Act has councilmembers, perhaps already faced sorting out conflicting or incomplete both afforded protection for truly private with a difficult political decision, now information, separating fact from information while ensuring public access must weigh both the veracity and values, and balancing long-term with to much of the information behind consequence of such statements. Did immediate priorities. An equally impor- government's formal decisions. Yet, everybody who needed to know really tant component, however, is interpret- some argue that these laws also impede know? To be safe, should the hearing ing and then weighing the meaning decision-making--as when very sensitive continue? and value of what is not known or said. issues must be publicly discussed or Moreover, such situations can further This is most certainly not easy and the guarded, rather than giving complete, call into question the integrity of the potential for misinterpretation may be employment references, for example. government. While I believe that most great. But the integrity of our represen- While much of the emphasis on citizens trust their governmental institu- tative government depends on public government's complexity is attributable dons, especially at the local level, that officials' recognition and acceptance of to its public nature, it is often what isn't trust is also very tenuous. Unfortunately, this dual responsibility. r said or known that is the most prob- it takes very little for stereotypical lematic. As a city manager, one of my images of back room deal-making to greatest frustrations concerned the city's crop into people's heads. all too frequent inability to ensure that As imperfect as efforts are to target Jim Miller is executive director of the those who might be affected by a information to selected individuals, the League of Minnesota Cities. Phone: (651) proposed city action or private request, task becomes even more difficult when 281-1205. E-mail:jmiller @lmnc.org. FEBRUARY 2 00{ MINNESOTA CITIES P l.a Most of this water is consumed for agricultural purposes- i ne agri- cultural sector represents 2 percent to 3 percent of the Israeli gross domestic product but 24 percent to 30 percent of the Palestinian GDP.A critical natural resource that is both scarce and unfairly dis- tributed is a catalyst for conflict.And while the root of the conflict 'here has been over land,water is playing a growing role-The estab- lishment of the Joint Water Committee (JWC) between Palestinian and Israeli technicians under the Oslo Accords seemed a step toward cooperation.But the power fleeted in the JWC's structurecontributed to the ineffectiveness of i–,.., the JWC,and well before the Oslo Accords were dead, unregulated , a:. pumping and crippling destruction of the aquifers were underway- .. -, The "separation barrier"being built inside the West Bank is testa- -..., esta- t- €. ''• meat to just how bad things have become.The wall's effective annez,; ation of the land in this prime water territory has put at least 50 wells' out of service,so that about a third of the water once available to Pal- estinians from the Western A quifer is now in Israeli hands.The result is felt both by the farmers who lose their crops and by all concerned °" ,c i -* about the viability of a future Palestinian state. The illegal settlements,so costly to maintain and scorned by the ...'- ' a5- mainstream Israeli public,make things worse-The construction of :' settlements and the deep wells necessary to sustain them continues. Private(Palestinian)water-tankers lumber up to the settlements ev- ery summer,looking for water to take back to villagers who are inr mobile in their seakdoff villages—and thirsty.At a price between f 7� zr va.•.m u.tun-ASSOCIATED MSS five and 15 times that charged by the Israeli government,there is a1--,` Mark ZCZtoun ways a settler willing to make the deal.The irony of this lucrative,i1 legal business is not lost on the Palestinian farmer-Not only is the wa- ter"stolen"from under his feet,he is then actually forced to buy it '' �`//�• - " back from the "thief-"Many farmers have reverted, in turn,to dig Avoiding a Mideast deast gutg their own unregulated shallow wells.The end result"The agui 11 1. fers are being pierced and overpumped at rates unparalleled Thine T ry. Meanwhile, Palestinian water infrastructure continues to suffer Water at^r Tar targeted destruction in various Israeli military operations. `/,/ e W We the situation is not sustainable,there is a way out Israel's great advantage in political,military and economic power actually of- fers it the opportunity and responsibility to avoid more conflict wa- ter in this tiny, dry land must be managed by all parties concerned JERUSALEM—Last summer was long and hot in the West Bank.It was also very dry. Palestinian summers are dry,and water and can no longer be held hostage to destructive military,political or for crops and drinking has always been scarce.But for Palestinians religious interests. Both sides must have rights to their resources, suffering under a double yoke of drought-level rainfall and the Israeli and a reformed cooperating institution must be established to allow occupation, these years are drier and thirstier than ever. The only for equitable joint water management. The situation could change permanent surface watercourses in the area are the Jordan River and from one of theft and finger-pointing to one of equal use and responsi- the Lake of Tiberias.The waters are allocated,under the terms of a bthty.Unless this happens,a technically resolvable issue will cont n- 1996 agreement,between Jordan and IsraeL The Palestinia living ue toward the sphere of unavoidable conflict- ns along the Jordan River's west bank are entitled to not a drop of it. Apart from springs,the only source of water available to Palestin- Mark Zeitoun is a humanitarian-aid water engineer who has ians is the water in underground reservoirs(aquifers)directly under worked on assignments in Lebanon,Congo-Brazzaville,Iraq their feet.These aquifers also are a prime water source for Israel— and,most recently,the occupied Palestinian territories. providing 40 percent of its groundwater requirements.The ground- water of the Gaza Strip is shallow and easy to pump but increasingly C) contaminated by untreated sewage and seawater.The groundwater / j , lo% (/� in the West Bank is relatively"sweet"(of good quality)but—as it is • �' 6iii777/ often located as deep-as 1,500 feet below the earth's surface—an a, - f t "O enormous amount of energy is required to drill and pump it out.Of the aquifers that lie mainly under Israel,Israel draws 100 percent.Of those that lie mainly under the West Bank,Palestinians draw 20 per- cent, Israel 80 percent. The average Israeli uses roughly 350 cubic meters of water per year—four times the amount used by the average Palestinian.