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ERMUSR MISC ISSUES 11-09-2004 S, Elk River Municipal Utilities 13069 Orono Parkway phone: 763.441.2020 Elk River, MN 55330 Fax 763.441.8099 November 2, 2004 To: Elk River Municipal Utilities Commission Jerry Takle James Tralle John Dietz From: Bryan Adams Subject: Miscellaneous Issues Generally at the November Elk River Municipal Utilities Commission meeting, the budget is adopted. This year Great River Energy will not be adopting our wholesale electric rate until November 9th or 10`h. Because this has such a large impact on the electric budget, it is best to wait until Great River Energy's whole rate is finalized and adopt the budget at the December meeting. We do not anticipate much change from what was presented to this commission earlier. At our December meeting, we will also adjust the electric and water retail rates to satisfy our budget requirements. MMUA and APPA have established the 2005 winter legislative rallies. The APPA Washington DC rally is scheduled for February 8-11, 2005. MMUA's St. Paul, MN winter meeting and legislative rally is March 9-11, 2005. I will be attending these rallies unless the commission desires otherwise. I would also encourage members of this commission to attend as well. Attached are the following articles for your reading enjoyment. a) "Plans for Huge Wind Turbines Jolt Kansans", from the Wall Street Journal. b) `Britain Finds Energy Traders Cutting Corners", from the October 13, 2004 Wall Street Journal. c) "Not Just Tilting Anymore", from the Wall Street Journal. At the January 13, 2004 commission meeting, authorization was given to proceed with purchasing and installing a SCADA system for the water department up to $200,000. The SCADA system is up and running, except for the master computer monitoring and control in Dave Berg's office. We can currently monitor the water system from any of the water facilities. The SCADA system, as installed to date, is enough under budget to allow us to purchase the remaining monitoring computer, software, and communication necessary to complete the system. Plans for Huge Wind Turbines Jolt Kansans By JIM CARLTON North America.Situated between Kansas City and ergy developers. Over the past three years, Wichita, the Flint Hills are a weekend sanctuary developers have floated about two dozen wind- Cottonwood Falls, Kan. for many city folks,an oasis of untilled land in the farm projects, each potentially containing as HEN AN energy company ap- Midwestern Wheat Belt. many as 100 wind turbines. proached Jane Koger about putting But that proximity to populated areas and the The issue has split the environmental some wind turbines on her ranch, fact the Flint Hills is an extraordinarily gusty movement: Local chapters of the Audubon So- she was elated.The fourth-generation Kansan place have made the region a target for wind-en- ciety and Nature Conservancy say the tur- was familiar with wind energy: Some years bines would befoul the landscape and harm before, she had erected an 84-foot-high wind- , 4,4'' wildlife,while Kansas Sierra Club leaders ar- mill on her property near here to provide all of " gue that exploiting wind power here will help her electricity needs. , , reduce America's reliance on fossil fuels. But when she later discovered the com- ip The view that there should be none is elitist," pany planned to build dozens of turbines more " says Charles Benjamin, a lobbyist for the Si- than 300 feet high for miles around, she was erra Club in Kansas. Counters Ron Klataske, appalled—so much so, she says, that she re ", executive director of the Audubon of Kansas: turned her $500 retainer check. She stood to "It's sad that the Sierra Club would mislead make about $2,000 annually from the com- their membership that this is green energy, pany,FPL Energy, for each turbine placed on n when it causes destruction." Wind farms have drawn similar contro her property. "It million wouldn't dollars,if if the tur p bines made me a million dollars,if the thing I ° '; versy around the world. But this battle stands loved was destroyed in the process," Ms. x; out because it's taking place in a state gener Roger says. t ally not thought of for its scenery, and one Across the Kansas Flint Hills,farmers and a where many residents are staunch supporters anchers are up in arms over plans by wind t i € of President Bush and his policies of coming developers to erect hundreds of spinning tur- up with more energy sources. bines astride hills and ridges that encompass Flint Hills rancher Rose Bacon (above)fears Proponents of wind energy extol its cleanli- the largest expanse of tallgrass prairie left in wind turbines will harm the local environment. Please Turn to Page 82, Column 6 • chickens their tamily has hunted fort e past half century. W ,] ) "I agree this is a prime choice for a ind-Turbine Plans • wind farm," says the 51-year-old Mrs. Sundgren. "But they can build them Jolt Kansas Ranchers, someplace else." Zilkha withdrew its proposal after the 1i S • 81 Yu�/'+ , county delayed its review of the project plit preen Groups in the face of the protest. In neighboring Page Chase County, Ms. Koger says she was Continued From H among eight other landowners rejecting ness. One large turbine can produce a FPL's proposal to put up a wind farm on megawatt or more of electricity, enough their properties. . • to power 300 to 400 homes,with almost no Farther north, in Wabaunsee County, pollution,industry executives say.And in another group of about nine landowners the Flint Hills, an area about 200 miles turned down a proposal for a wind farm 1 long and 40 miles wide, developers say by JW Prairie Windpower, a subsidiary their wind farms would occupy only tiny of Jowl, an international renewable-en- . I parts of the rolling prairie, not dominate ergy company in Germany. As many as 1 the landscape as many critics suggest. 100 local residents crammed into monthly "We're not talking thousands of wind tur- meetings of the Wabaunsee County plan- bines, or even a thousand," says Bob ning commission for 18 months to protest Bergstrom,executive director of wind de- wind-farm plans there, prompting the • velopment for FPL Energy, a subsidiary county to institute a local ban on giant of FPL Group Inc., Juno Beach, Fla. wind turbines this past summer. The developers began flocking to Kan- JW Prairie officials say they were Bur- sas four years ago, after research was prised at the opposition, having secured shown at a Kansas State University con- commitments for wind-turbine ease- • ference that the Sunflower State ranked ments from some two dozen landowners near the top in the country for wind-en- in the county. They also say the part of ergy potential. FPL rushed to far-western the Flint Hills they selected had been Kansas to put up the state's first large- plowed over in the past and so wasn't as scale wind farm. Dwarfed by the expanse important as more pristine areas. "In '.. of the Great Plains, the wind turbines picking our site,we tried to pick the least ' drew little controversy; in fact,many res- controversial," says Jennifer States, managing director of JW Prairie, • Lawrence, Kan. A big turbine produces After the Wabaunsee ban, Ms. States says JW has shifted its focus to neighbor- enoug'h electricity to ing Morris County, while FPL has se- cured commitments from other landown- poWer 300 to 400 ers in Chase County. ,. • The wind-turbine controversy has • • homes, proponents say. turned neighbor against neighbor. Some landowners who have agreed to wind deals say that their property ;' rights are being trampled by their idents clamored for more. According to neighbors and that the threat of the • • Tom Sloan,a Kansas state representative turbines is grossly exaggerated. "I see who advocates wind energy, almost half ' the beauty of technology meeting the the state's 105 counties lost population beauty of nature," says 53-year-old • during the 1990s.amid shaky farming Rick Griffin, a local rancher and real- economies, and so could benefit from the estate agent who committed to letting new revenue. In addition to paying land- FPL put turbines on his ranch. owners for using their property,the devel- Kansas Gov. Kathleen Sebelius, a opers typically also give money to local Democrat, last December asked the wind government and schools. developers to use "restraint" as she as- But seeing that western Kansas was sembled a task force to assess the situa- located far from major population centers tion. That put a halt to most projects. • and lacked adequate electricity-transmis- The task force has recommended keep- sion capacity to support many more wind ing all large wind turbines out of the farms, FPL and other developers looked Flint Hills, while allowing them in areas to another windy area—the Flint Hills in not considered sensitive, says Lee Alli- eastern Kansas—for more expansion. son, chairman of the governor's energy • That the public reception in the east council. The governor is expected to wasn't as warm was in large part because make a decision on which option to push many of the turbines would be visible for by the end of the year. miles around atop the hills.The hills have Wind developers, meanwhile, have remained mostly unfilled because the soil been given fresh impetus to act. Con- lies over rough limestone and flint. When gress last month authorized renewal of a Houston-based Zilkha Renewable Energy production tax credit that the industry in 2001 proposed putting up a wind farm relies on to make wind farms economi- within view of their ranch, for instance, cal. With President Bush's signature last Jacque and Steve Sundgren organized week, the companies are preparing to • two dozen neighbors to file petitions with start building as many wind farms as local Butler County officials to block the they can before the credit expires again project. The Sundgrens say they also at the end of next year.For FPL,that has were concerned that the surrounding meant abandoning the Flint Hills, at prairie would be carved up by roads and least temporarily, to pursue less contro- transmission lines and that habitat versial locales. . would be reduced for the native prairie WEDNESDAY, OCTOBER 13, 2004 Cl Britain Finds Energy Traders Cutting Corners Top Financial Watchdog Warns About Regulatory Compliance; • A Question of Market Integrity • By CHIP CUMMINS London BRITAIN'S TOP financial watchdog warned that a number of companies aren't comply- ing with regulatory requirements in Lon- don's thriving energy-trading business, raising questions about the integrity of markets as energy prices—particularly for crude oil—have been rising. In a public letter to chief executives at four dozen energy-trading firms,the Financial Services Author- ity yesterday said standards among traders had generally improved in recent years,hut"some mar- ket participants still fall below our requirements and need to improve considerably"The FSA specifi- cally cited shortcomings in the areas of mitigating trading risk and general regulatory compliance, in- cluding regarding money-laundering rules and knowledge among traders of market-conduct codes. Last week, the FSA said it hadn't found any evidence of market abuse in an unrelated probe of unusually high natural-gas prices in Britain in recent months. An FSA spokesman said yesterday that the• latest review wasn't tied to this year's surge in oil prices, and didn't uncover any evidence of rigged trading or other "egregious" breaches of regula- tions.But the spokesman added, "We're quite con- , cerned about finding the failings we did." The agency also said that several firms declined to cooperate with the FSA's review of market prac- tices.It didn't name the companies it deemed out of compliance or uncooperative or say how many firms failed to measure up. The FSA sent the letter to firms it considers active in oil or other energy markets, including natural gas and electricity. They include trading affiliates for most of the ma- jor publicly traded oil companies, utility compa- nies and commodity brokers operating in London. The findings raise fresh concerns about compli- ance standards and behavior at energy-trading firms amid the biggest oil-price rally in two de- cades. Energy-linked financial products such as fu- tures and options are increasingly traded at places like the New York Mercantile Exchange and Lon- 'don's International Petroleum Exchange. Trading on these exchanges is generally monitored closely _ by exchange staff. Last year,Nymex fined BP PLC a record$2.5 million to settle allegations of improper oil-market trading, without divulging details of the alleged infraction. BP agreed to the fine without admitting or denying the accusations, But the bulk of energy trading still occurs in so-called over-the-counter markets, where parties hammer out contracts to buy and sell physical energy or trade a wide variety of energy-based derivatives contracts. Confidence in over-the- • Please Turn to Page C4, Column 5 • Energy Firms Are Put on Notice Continued Prong Page Cl such as extraordinarily high prices or trad- counter natural-gas and electricity mar- ing volume"we would certainly look at the kets in the U.S. has been badly shaken in market with a fine-tooth comb." An IPE recent years by the collapse of Enron spokesman wasn't available to comment. Corp. and subsequent revelations that The FSA said it solicited information traders there and at other energy compa- from companies and visited 15 firms, but - - nies tried to manipulate markets. Ana- it said that not all companies contacted - l lysts generally consider international oil "were willing to respond to our voluntary -- markets much larger and more liquid, information request," according to the and thus harder to manipulate. letter. The spokesman said the agency Heavy investment in commodities by would pursue problems privately with in- hedge funds, pension funds and other fi- dividual companies. nancial players is one factor behind the London has long been home to a thriv- 67%jump in oil prices over the past year, ing, but largely unregulated, over-the- though many analysts put greater empha- counter energy market. In 2001, the FSA sis on fundamental factors such as soar- launched what it describes as a "light ing petroleum demand in China and sup- touch"regulatory regime for oil and energy ply disruptions in key oil regions from traders. The system is similar to that for Iraq to the hurricane-torn Gulf of Mexico. financial markets in London, but with less "Although failures of compliance with oversight and fewer restrictions because regulations have not caused market tur- the agency determined energy markets bulence or loss of market confidence, we were designed for professional traders and consider that there is a potential for this had little direct small-investor participation. to happen," the FSA said in its letter. Prices for U.S. and London bench- A Nymex spokeswoman said that dur- mark crude futures have soared by about ing times of unusual market dynamics, two-thirds in the past year and recently Tuesday.October 12, 2004 hit record highs in nominal terms.Adjust- Commodity Indexes REr YR ing for inflation, oil remains cheaper CLOSE (HG AGO now than it was after the oil shock follow- Dow miles-AIA Futures........... 154,139 -1932 121.391 ing the 1979 Iranian revolution. Dow tones-AIG Spot_..._.. 101.194 -]904 16133 - - RemesuR I5336e 156149 Rene„c a Futures 2e4 42 -3.82 247 75 Futures listings appear on 1 e C16. IYIfIILIIJ1i I rI fl jL THE WALL STREET JOURNAL. , { • Not Just Tiltin g Anymore , , Higher Fuel Costs, Tax Credits, Better Technology Whip Up J. Hopes for Wind Power Again Windfall Capacity of installed wind-power "' By REBECCA SMITH 8,000 megawatts ADEN AND MURfEL Bergan , ,' r : r yp d dx x V a r r.r"., t z N� watched intently as workmen in- ? it s � stalled wind turbines on their Iowa ° : , ''' +r ,. ■ farm two years ago, as a whipping ^ " 'i i = e t , � , ' ,t" -5 ;t? �`j4 wind made it difficult to align the `"' t" j? ft 1' 11 87-foot blades with bolt holes at the top of a - l.. 327-foot tower. "It was a regular circus act," +° , , ' a L Mr. Bergan says. 2,000 Getting circumstances as e al y daunting up for over ' wind industry has been equally daunting over the years. With bigger, better turbines that 0 woduce electricity at competitive prices, the l industry should be enjoying an unprecedented - sourest.ftS.Department of Ener windEnergy boom. Yet each time it gains momentum, Program American wmd EnerryAaaoaefon something comes along to thwart progress, with the most recent hiccup being the expira- tion of a federal tax credit at the end of 2003 that stalled$2 billion of projects. A bill re-establishing the tax credit passed both houses of Congress in late September, however, and President Bush signed the mea sure earlier this month, providing a 1.8 cent ," credit for each kilowatt hour of electricity pro duced by qualifying turbines built by the end of 2005 for a 10-year period. Many industry watchers believe the tax credit could stimu- + - , late the growth that's been predicted for ' years, but never fulfilled. + Better technology and government stimu 1 t" lus, along with high prices for competing e' ry r. P g t,"i��r?», + - " 7 ", r.1u, �." " 1$ types of power generation, are driving re ' ,R raj � � = ,� ,+ + newed optimism about wind power. With +i t + ' , r ' ,"'r,y8�H ¢ " 5 +, , power plants fossil near d in record levels, ;ti '� 's` urn, ^"i'i i wy� j Via' a+ ' ' t r ° + 5 f , 't��.7p"',,+°4,eya0. ud', ;g " , t'e� ,$ 1 ?^^a4,p': " ,-,f.',"•,;( : ¢+r mr C Y". wind power is the cheapest source of energy ; „ ,r, ?M y " „ I u. ?,.".",,,;'''i't + , y a ty';-46 t +y that can be built now. Newly built wind farms r .l ,� w' i M a " r ' t ' y '.„ n � + fk r d""„ � ` 'S .may' r + ;'�;'� lh� hn ✓ t 9 n are "beating the socks off of any other new °^+i , f ,; nrr7a ,e fry`t f rv. , , F FF f y'� 5 source of generation," says Ryan Wiser, an , x i + �f A <r ,J b„t ok. , t' �, +o s 'f" energy economist at the Department of Ener- dtw o a fr'a' op ys ' r it,:s , rr et ",* r' , ' ° i . gy's Lawrence Berkeley National Laboratory �,� Boa tt$ t- r nr °e� " ,i s-a t� ' 'k 1"' in California. °a ;rse "r , "+ t '.a re 'i, w > ° cy" , + �j A modern wind turbine can produce elec- i`.., , 7 " + �9 `ricity for about 2.5 cents to four cents a kilo- .i;: i"r 7"`'� �''` �' s wt;v ' "� i N,. raft hour,including government subsidies,so A "j.' ` ' �� " - the biggest turbines compete effectively "' N against modern natural-gas-fired power g plants, though they won't run as many hours i of the day due to the variability of wind. As- Please Turn to Page B2, Column 3 Giant wind turbines are boosting the output from wind farms and driving down wind-energy costs. • THE WALL STREET JOURNAL. Optimism About Wind Power Whips Up Again Continued From Page 81 But in Massachusetts, as in some Kittitas County's biggest taxpayer, con- suming natural gas at$6 per million Brit- other places, resistance to wind turbines tributing more revenue than the next 10 ish thermal units, a kilowatt hour of elec- has surfaced. One reason is that the tur- biggest taxpayers combined. tricity from a newly built gas-fired plant bines have gotten so big—some as tall as Wayne Brunetti, chief executive of - costs at least 5.5 cents a kilowatt hour, 30-story buildings—that they dominate Xcel Energy Inc. in Minneapolis, says including both fuel and capital costs.Nat- the horizon, creating conflict with those the company is a strong believer in wind 02 ,uq ural-gas plants have led the sector in re- who dislike the visual impact. power,with more than 800 megawatts un- = cent years because they can be con- Another potential hitch is that the der contract now and plans to boost that _ structed quickly, are clean burning and best places for turbines are where the amount to 2,500 megawatts within the • operate reliably. sustained winds are greatest, and that is next 10 years. He wants to use wind Costs have come down for wind power often far from cities in sparsely popu- power to take pressure off fossil-fuel while they have been pushed up for gas- lated parts of the Great Plains or in plants,cutting the multistate utility com- fired plants by higher natural-gas prices. coastal areas that frequently are poorly pany's emissions of pollutants. High oil prices have had less effect on the served by high-voltage transmission In many rural areas, wind power is 7 power industry than in the past because lines. So getting the electricity to users regarded as an unabashed windfall. The many generators shifted to other fuels as poses a challenge, as well. four turbines on the Bergan farm in a result of the oil shocks of the 1970s. Nevertheless, several utilities are Iowa, for example, produce a total of Demand for wind power also is being pressing ahead. Early wind turbines $9,600 a year in profit for the couple. driven by state laws that require utilities were inefficient and susceptible to break- That's a lot of money in a community to obtain set percentages of their electric- downs. Today's machines have advanced where the median household income in ity from renewable sources by certain fiberglass composite blades that harness 2000 was $35,000 and where the median- target dates. The amounts and deadlines more energy, plus sophisticated com- price home sold for 545,000. vary, but 17 states now have such laws in puter controls that let them operate at Mr. Bergan's neighbor, Eliot Evans, place, with New York being the latest variable speeds,increasing power produc- has five turbines on his farm and says it addition. Some states,like Wisconsin,al- tion. "We've also gotten better at measur- "pencils out a lot better to have turbines ready have met their initial targets and ing the wind and figuring out where to than soybeans or corn," especially with are considering raising the goals. put the turbines,"adds James Johnson,a row-crop prices "pretty low lately."Pass- If the states achieve their targets, as senior engineer at the National Wind ersby sometimes pull off the nearby inter- 'much as 22,000 megawatts of renewable Technology Center in Golden, Colo. state highway and admire the communi- energy could be created in the next de- Another plus: Because the machines ty's cluster of 89 turbines "spinning like cade, doubling today's installed base stand higher off the ground, blades can crazy, minting money for us," he says. from such things as solar,wind,biomass be longer and spin in a bigger arc. That In southeastern Colorado, ranchers • and small hydroelectric projects. Wind- means the tips appear to move more are coming to rely on income from tur- power capacity has tripled since 1998 to slowly and are easier to see, allowing bines to make up for the fact that they • about 6,400 megawatts and the cost of its birds to take evasive action. The problem have been forced to cull their cattle herds electric output has fallen about 90%since of killing birds plagued the industry in Emick family—parents o a Robert anddrought. The he the early 1980s. Lawrence Berkeley's Mr. its early days. Wiser says that if the nation eventually .Utilities are ramping up their wind- and their eight grown children—signed a garners 15% to 20% of its power from power efforts. In Oregon, Scottish deal with Scottish Power's PPM unit renewable sources, up from about 2%to- Power PLC's PacifiCorp utility recently about a year ago and now have 98 tur- day, "it might produce-a 10%reduction in was swamped with bids for 6,000 mega- bines scattered across 12,000 acres of the price of natural gas" as demand for watts of renewable-energy capacity, rangeland near the county seat of Lamar. gas moderates, saving consumers bil- most of it for wind and geothermal Greg Emick, the oldest son, says that lions of dollars a year. projects. PPM Energy, an affiliate of "income from turbines will be as much as The price-hedging potential of renew- PacifiCorp.and the second-biggest wind- from cattle this year."•He says the clan able power is a plus that is cited by pro- power developer in the U.S., now has lost 65 acres to the turbine pads"or about moters of a contentious wind project on contracts with 18 utilities to supply as much land as it takes to support a cow Massachusetts' Nantucket Sound. The them with wind power. and a calf out here," but it expects to Cape Wind Project, the first offshore In Washington, Puget Energy Inc.'s receive royalty payments of $200,000 to U.S.project,would be capable of generat- Puget Sound Energy in September said it $500,000 a year from the turbines. ing more than 400 megawatts of electric- intends to buy the entire output of a new Prowers County Assessor Andy Wyatt ity from 130 turbines, or enough to meet wind farm that Zilkha Renewable En- says wind turbines have boosted prop- most of Cape Cod's electricity needs. It ergy of Houston hopes to build on range- erty-tax receipts by 35%. Adds Cheryl would take pressure off natural-gas us- land near Ellensburg in eastern Washing- Sanchez, president of the Lamar Cham- age, which has become a worry in New ton. The Wild Horse project is expected ber of Commerce, "Ladies out here were England since the region now relies on to include more than 100 turbines produc- always upset because the wind messed the fuel for 40%of its power generation, ing 165 megawatts of power, enough to up their hair,but now we're getting some- up from less than 2% in 1980. power 40,000 homes. If built, it would be thing good from the wind."