6.1.A. ERMUSR 09-10-2013 Elk River
I
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Troy Adams, P.E.—General Manager
John Dietz—Chair
Al Nadeau—Vice Chair
Daryl Thompson— Trustee
MEETING DATE: AGENDA ITEM NUMBER:
September 10, 2013 6.1a
SUBJECT:
Staff Updates—General Manager
DISCUSSION:
• After over a year of legal and engineering work, it appears we have come to agreeable
terms for Sprint's upgrades to equipment at our Johnson Street and Gary Street water
towers. The amendments to the two agreements should be ready for execution at the
October Commission meeting.
• Vcrizon continues to work through their analysis of our Johnson Street and Gary Street
water tower sites as potential locations for their 4G system upgrades. Template non-
exclusive tower attachment agreements have been provided to Verizon for review.
• I've been working with Minnesota Municipal Utilities Association (MMUA) and the
other Minnesota municipal utilities that submitted 3 year notice for Mid-Continent Area
Power Pool (MAPP) membership withdrawal last month. We are working on terms for
an early buy out without having to continue membership for 3 more years.
• The Lineworker position opening that had been advertised closed on August 30.
Management is currently reviewing the applicants and will be setting up interview for the
week of September 16-20. Management is also working to fill a vacant Meter Technician
position. This position was posted internally. This will create a need to backfill another
position as a result of filling the Meter Technician position. The interviews for the Meter
Technician position will be conducted the week of September 9-10 and the vacated
position will be advertised externally and fill as soon as possible.
• Over the past year I've been working to schedule a strategic planning session for the
Utilities that would include the Commission and Management. The strategic planning
was intended to develop some general long term goals to help make better informed short
term policy decisions. Topics were to include but not limited to: identifying threats;
financial positioning; long term power and transmission goals; the right to grow with our
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city; policy direction; governance; future personnel needs; future facility needs; customer
service and local accountability expectations; partnership with the city to promote
economic development; safety; and reliability.
At a minimum, we'd need to have 8 hours which could be split over multiple days. We
had also planned on having MMUA facilitate the strategic planning session(s).
Scheduling this time has proven problematic. After discussion with our legal counsel, the
strategic planning session(s)would be subject to the open meeting laws; therefore it
would not be an issue to conduct any or all of the strategic planning during the regular
commission meetings. So to be respectful of the Commission's time, I'd like to bring
strategic planning topics to the regular Commission meetings and work through them one
by one. If the Commission has no objection to this method, I'll plan to put this on the
October Commission agenda to establish expectations, refine the list of topics, and create
a tentative long range schedule to start working through these strategic issues.
ATTACHMENTS:
• American Public Power Association - Public Power Weekly article "Boulder City
Council authorizes purchase of local distribution system from Xcel Energy."—August
26, 2013
• American Public Power Association - Public Power Weekly article "Proposal to cap or
end municipal bond tax exemption would harm the economy and issuers, S&P warns."—
August 26,2013
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Boulder City Council authorizes purchase of local distribution system from Xcel Energy Page 1 of 2
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Boulder City Council authorizes purchase of local distribution
system from Xcel Energy
The Boulder City Council on Aug. 20 took another step toward the possible creation of a city-owned
electric utility, voting to move forward with efforts to buy the local distribution system from Xcel
Energy. Members of the City Council also decided to give voters an opportunity to set an upper limit
of$214 million on key costs, in addition to the limits previously set forth by the City Charter. Both
measures passed on a vote of 6-3.
The vote will allow city staff to conduct a formal appraisal of the parts of Xcel's system that serve
Boulder and enter into negotiations with the investor-owned utility "in hopes of reaching an
agreement about the value of the system," the city said.
The vote also gives attorneys for the city authority to file a condemnation lawsuit in Boulder District
Court, if the negotiations are unsuccessful. Such a condemnation action would not occur, however,
before January 2014, the city said.
In July, an independent evaluator said Boulder is likely to be able to offer rate parity with Xcel at the
outset and also over a 20-year period. (See Public Power Weekly,July 29.)
The effort to create a municipal utility in Boulder is driven in large part by a desire for cleaner, more
renewable sources of energy. Residents of the Colorado community approved two ballot measures in
November 2011 that authorized the city to continue to explore the possibility of purchasing Xcel
Energy's distribution system and forming a city-owned utility. (See the Nov. 3, 2011 Public Power
Daily.)
"We appreciate City Council providing the opportunity to take the next steps in evaluating how we
can achieve our community goal of accessing clean, reliable and local energy in a cost-effective way,"
said Heather Bailey, the city's executive director of energy strategy and electric utility development.
"The information we gather over the next several months will be critical to helping us understand all
that is possible."
Attorneys have indicated that a court case, if necessary, is likely to take 12 to 18 months from the
time legal action is filed.
A video featuring statements from council members about their positions prior to voting on whether
to move forward with potential acquisition is available at http://vimeo.com/72287823.
Council also approved the language of a November 2013 ballot item related to the issuance of debt.
The ballot item will give Boulder voters an option of setting a $214 million limit on the amount the
city can take on in debt in order to buy Xcel's assets, and for stranded costs.
"Stranded costs are costs that an existing utility, in this case, Xcel, may be able to recoup from
customers who are leaving its system to cover investments it made in generation facilities, like coal
plants, in order to serve them," the city said in a news release. "There are limitations in Xcel's ability
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Boulder City Council authorizes purchase of local distribution system from Xcel Energy Page 2 of 2
to claim these costs, and the city recently received clarification from the Federal Energy Regulatory
Commission that it is possible to mitigate these types of costs, if they apply at all, by continuing to
buy some power from Xcel for a limited time."
If approved by voters, the $214 million limit would be in addition to existing City Charter provisions
that require the city to meet specific financial, service delivery and environmental requirements before
issuing debt.
The City Council-backed measure is designed to conflict with a citizen-petitioned initiative that is
also related to the municipalization effort, the city said. The petitioned measure "limits the city's
ability to carry out the direction it received from voters in 2011 by requiring additional voter approval
by all utility customers before the issuance of any debt, regardless of whether the charter requirements
can be met," Boulder said.
The petitioned initiative "also seeks to limit these types of elections to every two years and require
that all customers, including those who are not city voters, be included in any city election related to
utility debt," the city said. "The measure does not establish a legal procedure for allowing this type of
an out-of-jurisdiction vote."
More information about the two ballot measures, including a Boulder Channel 8 video of the Aug. 20
City Council meeting, is available at BoulderEnergyFuture.com.
The November ballot measures are in conflict with one another, so the following three outcomes are
possible, the city said:
• One measure passes and the other one fails;
• Both measures pass; or
• Both measures fail.
If the City Council-backed measure has the most votes, the petitioned initiative will not take effect. If
the petitioned initiative has the most votes, both measures will be in effect,but where they conflict,
the measure with the most votes will prevail.
If both measures fail, the City Council would have authority to issue bonds to create a local electric
utility if certain conditions can be met. However, the council "has said it would seek to understand the
intentions of voters and determine how to proceed at that time," the city said.
The election will be Tuesday, Nov. 5. —JEANNINE ANDERSON
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Proposals to cap or end municipal bond tax exemption would harm the economy and issu... Page 1 of 2
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Proposals to cap or end municipal bond tax exemption would
harm the economy and issuers, S&P warns
Proposals to eliminate or reduce three tax programs—the exemption of municipal bond interest, the
deductibility of property taxes, and the mortgage interest deduction "would have broad and mostly
negative consequences on the economy and on the credit quality of state and local governments and
other tax-exempt issuers," Standard & Poor's Ratings Services said in a new report. That "is
especially true of the exemption of municipal bond interest," S&P said in the report, "Cutting Popular
U.S. Tax Programs Could Harm Tax-Exempt Bond Issuers."
Policymakers "should consider the critical role these tax provisions play in the municipal finance
sector, the housing industry, and the overall economy," S&P said. The report said the three tax
provisions help grow the economy, make the tax code fairer, and effectively promote important policy
objectives three key criteria cited by Senate Finance Committee Chairman Max Baucus, D-Mont.,
and Ranking Member Orrin Hatch, R-Utah, in a letter asking their colleagues to help identify tax
expenditures that should be retained.
Proposals to reduce or eliminate these provisions "would cause a significant disruption to the market
and increase the cost of borrowing for municipal entities," said Steven Murphy, senior managing
director and head of U.S. Public Finance at Standard & Poor's. "Investors can be expected to seek to
be compensated for a reduced tax benefit, leading to an increase in the cost of debt issuance. If the
change were retroactive, interest rates on outstanding variable-rate debt would escalate. Refinancings,
which continue to be an important fiscal tool, particularly as municipal entities try to recover,
replenish balances, and invest in infrastructure, would become much less viable, if viable at all," he
added.
Without the tax exemption for municipal bond interest, municipal borrowers "would face higher
interest rates with the inevitable result that many state and local governments would need to impose
higher taxes, do less capital investment, or some combination of both," the report said. Low-income
taxpayers could be hit disproportionately hard, since state and local tax structures tend to be less
progressive than federal taxes. "In our view, such an outcome would be at odds with any suggestion
that the tax exemption should end because it unfairly benefits the wealthy," the report said.
These effects "would come at a time when municipal entities continue to struggle to recover from the
Great Recession; when the real estate market is making a tenuous recovery; and when capital
investment needs are at an all-time high," S&P said. If the proposed changes to tax law were
retroactive, interest rates on outstanding variable-rate debt would escalate, the report said.
"Increased debt service costs would force issuers to make difficult choices between capital
investment, reserve maintenance, taxation and user fee levels, and key services," S&P said. "This,
again, would be at a point where infrastructure needs are significant and growing, as the impact of
projects deferred during the recession are combined with ongoing maintenance, upgrade and growth-
oriented projects." Municipal issuers who fail to maintain and invest sufficiently in new infrastructure
"undermine their economic competitiveness, attractiveness for commercial, residential and nonprofit
investment, and, most importantly, their potential for growth," the report said. The inability to address
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capital needs adequately engenders risks similar to other deferred liabilities, including underfunded
pensions and other post-employment benefits, S&P said. —ROBERT VARELA
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