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ERMUSR MISC. ITEMS 12-09-2003 Elk River Municipal Utilities 322 King Avenue phone: 763.441.2020 Elk River,MN 55330 Fax:763.441.8099 December 2, 2003 To: Elk River Municipal Utilities Commission John Dietz Jerry Talde James Tralle From: Bryan Adams Subject: Miscellaneous Issues Enclosed is the packet for Tuesday, December 9, 2003, commission meeting at 4:00 p.m. This past month, there has been a number of good articles written about issues in our industry. The following articles are worth your time to review. 1.) Star Tribune article, "Water deal with cities may dry up." 2.) Worldwide Independent Power article, "The case for natural-gas-fueled distributed power generation." 3.) Star Tribune article, "Xcel to pay for its failures." 4.) Star Tribune article, "Germany dismantles first of its 19 nuclear power stations." It will be interesting to see what type of generation will replace these nuclear plants. 5.) The Sun article, "Farming Wind In Western Md." 6.) Transmission& Distribution article, "Fade to Blackout." 7.) Pioneer Press article, "Cities considering complex leasing deals." Keep an eye on this issue. Normally this time of year MMUA makes a presentation at our commission meeting concerning utility issues. This year they are holding regional meetings. A regional meeting will be held in Elk River at the LFG Environmental Learning Center on January 22, 2004, from 7:00 p.m. to 8:30 p.m. Our annual wire bid will be presented to this commission at the January meeting for award. You may see the bid advertising in the paper in December. The utility offices will be closed December 24th and 25`h, and January 1, 2004 due to the Holidays. Your staff would like to wish you and your family the best in this Holiday Season and we will keep the lights on. 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WAD J1aW BONJO MOB?Min ale adoH MON pee ABNeA U99105'E1sN0 ! wow say Jaynbe ua1Q40 np aueld a4I %lodeawlw uw17 JeleM JO;Subted uaaq aNA.acp aaud a43 u1 saseal)ut of arc a�nssabe ¢u�dwnd 904 woo; ae j :aalem The case for natural-gas-fueled ''' Po.c Grid • sot distributed power generation . ___.. 3 i>v� i Michael A Devine, gas product/marketing manager, Electrical Power />. . Group, Caterpillar Inc, analyses how the changes in power markets and /^ advances in generating technology have converged to place gas gen-sets on - _ the forefront of an emerging industry End User en years ago, small-scale Tdistributed generation (DG)was government-regulated utilities. Opportunities have opened for private, Ostr6otedGener�6acTryialSchemtuc mainly an idea, at best a niche smaller-scale generators and, in some Figure 1 technology. A few utilities were areas, to market-based pricing beginning to see shortfalls in generating programmes for power users. fluctuations can seriously damage or capacity, but only for short periods, Third, environmental concerns and air- disrupt computer systems and reduce highly seasonal, at the height of the quality regulations have begun to shift the performance and service life of cooling or heating season. the mix of fuels used to produce industrial machinery. Fast-forward to today. DG has moved electricity, in general away from coal This makes DG all the more attractive squarely into the mainstream of energy and fuel oil and toward natural gas and as a contributor to immediate and planning. It is the subject of news renewable sources. long-term power supplies. DG systems articles, white papers and forecasts Fourth, new small-scale generating are typically small, relatively from leading financial and marketing technologies have emerged and existing inexpensive, easy to site and permit, consultants, and reports from national technologies have improved, making DG and quick to install. Placed at strategic government agencies. Private and more cost-competitive. Furthermore, locations on the grid, they can bolster publicly funded research projects aim to because these systems are flexible and capacity while supporting distribution develop cleaner, more efficient, lower- can be permitted and installed quickly, system voltage(see Figure 1). DG also cost generation sources specifically for they are attractive to utilities facing helps utilities defer investments in the distributed power market. short-term capacity needs. central power plants and transmission All this happened because political, Fifth, many utilities are interested in and distribution infrastructure, while economic and market forces coalesced local power sources for security against reducing transmission and distribution to change the dynamics of how electric natural and man-made disasters that losses. power is produced, sold and delivered can target vulnerable power plants and DG can appeal to end users,as well, to end users. Today, DG, defined transmission lines,thus crippling especially where power markets are broadly as the production of electricity infrastructure. opening to competition and to concepts near the point of use, is widely seen as such as time-of-use or real-time pricing. a viable and permanent part of the Constraints on supply In such cases, the ability to produce energy-supply picture. The power industry increasingly power can give a business a valuable The DG market is rapidly evolving, and recognises the potential of distributed hedge against market price volatility, or so are the technologies that produce the power to relieve regional and seasonal enable the profitable sale of energy on power.Today and in the foreseeable power shortages and to meet other power exchanges. Further, as small- future, DG demands clean, reliable significant needs of utilities and power scale power technologies become more power for relatively long annual hours of consumers. Supply shortages efficient and their electric output more operation, in intermittent duty, at the developed in the mid-to late 1990s cost competitive, end users have more lowest cost per kW hour. More than any because market and political forces reasons to consider on-site generation. other technology, natural-gas-fueled prevented capacity additions from keep- Applications can include: gen-sets are positioned to meet those ing pace with growth in demand. requirements. Specifically, utilities facing deregulated • Prime power systems for complete markets became hesitant to invest in control over reliability and power . Evolution in the market capital intensive and financially quality. Since the early 1990s, five forces have challenging central power stations and • Standby power sized to sustain fundamentally changed the electric major transmission lines that are difficult critical production loads (not just power business. First, demand for to permit. bare-minimum emergency needs). power has risen rapidly with economic Power supply and transmission • Peak shaving systems to minimise expansion and growth in computer and constraints cause concerns beyond demand charges or spikes in usage. data systems and household blackouts and price swings. In fact, a • Cogeneration systems to reduce fuel appliances. more common problem is a temporary costs by supplying heat and/or Second. restructuring of power decline or fluctuation in voltage affecting cooling and electricity from one markets has modified the traditional a sector of a utility's distribution grid source. industry model in which electricity during times of high demand. Today's comes from large, centralised power high-value business equipment requires Turning to gas plants owned and operated by consistent power quality. Voltage Growth in these applications has REPRINTED FB0)1 \% ORir”k iD : INDEPENDENT Po • ER • JI '.E 2003 radically changed the perception of Comparing technologies can immediately enhance that distributed power. So has growing Distributed power developers have four technology's competitive position in demand for power and the dwindling basic technology choices other than distributed power. supply of utilities' back-up power,or renewables: gas turbine generators, The US OoE's programme for spinning reserves. A decade ago, microturbines, fuel cells and Advanced Reciprocating Engine distributed power mainly meant reciprocating engine gen-sets. Systems(ARES) aims to develop installing gen-sets to help utilities meet Gas turbine generators are generally cleaner, more efficient gaseous-fueled spikes in demand, with total gen-set run cost-effective only for large-scale engines, largely for the distributed times typically averaging 100-to-200 applications involving long, continuous power market.The DoE acknowledges hours per year. run times at full load, especially where that reciprocating engines are the the typically high quality exhaust heat fastest-selling, lowest-cost DG Worldwide Power Generation can be recovered and used to offset a technology in the world. 150 ---- local thermal load. The DoE and major engine I (New Capacity Additions year) i Microturbines, promise very low manufacturers support the ARES 100 —::* emissions and high efficiency in programme, which over the next several i cogeneration service. However at years will produce a new generation of .... -_.. ----- present their capital costs are far highly advanced gas engines. 50 --F""^ — too high to compete in today's ,. Cast of Electricity Comparison distributed power market, and the 0 — technology is not yet proven Advanced Gas 1989 1994 2000 reliable. I I I I Lean Burn Gas • Combustion Turbines Fuel cells are also I 111I • I a Central Power Plants developmental, and their high DieselSCR • Reciprocating Generator Sets installed costs limited them to Small Turbine • 'Fi g ure 2 applications where power quality or I environmental performance l I Today, utilities need supplemental overrides all other considerations. Fuel Cell r:_r'----:; peaking power on more days and for On the other hand, reciprocating 0 .01 .02 .03 .04 .05 .06 .07 .08 more hours per day As a direct engine gen-sets are well-proven in ] Capital a Non Fuel O&M • Fuel consequence, the DG market is looking a wide range of distributed power toward natural gas. applications. Over the past Figure 3 Worldwide, natural gas is the fastest- decade, they have provided a fast- growing fuel for power production. In growing share of the world's Manufacturer and supplier teams will the next 20 years, global use of natural generating capacity additions(see strive to improve engine performance gas for power generation is projected to Figure 2). They perform well in using advanced materials, new fuel double. According to the US intermittent service and operate handling and processing systems, and Department of Energy(DoE), the natural efficiently with variable, cyclic loads. advanced ignition and combustion gas share of the electricity market in the The technology is simple and well systems.The goal of ARES is to US is expected to increase from 15 per understood. Qualified service produce gas engines with: cent in 1999 to 32 per cent in 2020. technicians and replacement parts are Longer-hour distributed power readily available worldwide. • Installed cost from $400 to$450. applications tend to favour natural gas Installation is fast and simple: mobile, • Thermal efficiency 50 per cent(30 technologies because they deliver packaged gen-sets can be delivered per cent higher than today's extremely low air emissions. Diesel- and installed within hours; permanent engines). fueled systems are still preferred in systems can be online and producing • NOx emissions at or below 0.1 standby and short-run installations with power within a few months from the grams per brake horsepower-hour low-sulphur fuels and lower-emission date ordered, at attractive installed (a 95 per cent reduction from today's control technologies, ensuring that they system costs from US$450 to $600 per engines). have a role in the short-hour distributed kW. Units are relatively straightforward • Significant increases in service power market. to site and permit; multiple units can intervals, resulting in major • As concerns rise about air emissions, meet power requirements of virtually reductions in maintenance costs. local and national governments are any size. Finally, in today's distributed steadily tightening standards that limit Gen-sets powered by ARES engines power applications, typically 500 or will help make DG more economically nitrogen oxide (NOx) and other more annual operating hours, gen-sets attractive. It will be part of the solution emissions from power generation. In deliver the lowest cost of electricity(see the US, California's air-quality regula- Figure 3). to power supply and demand tions virtually exclude fuels other than imbalances, and it will be one of the natural gas outside of critical standby tools power users will have at their Advancing engine technology disposal to hel p develop sound energy applications. In Europe, TA Luft While aggressive research and strategies. Or emission limits rank among the strictest 9 development supports advances in the in the world. newer fuel cell and microturbine CATERPILLAR Given these realities, clean, higher- technologies, gas-fueled gen-sets are • hour distributed power technologies not standing still. Private and For information about Caterpillar products and becomes a choice among natural-gas- government researchers acknowledge services,contact your local Cat'dealer or visit fueled systems. that improvements in gen-set efficiency 'n,vs.cat-electncpD•:Ieccom REPRINTED FRWN VroRLDeIDE INDEPENDENT POWER • JtNE 2003 cwt't..,1 (.OLtzJ November 15, 2003 504 ce �h , \ to pa , ;;T:t-t: . .., 1. .for its , ....rL.,4: • faiIure$,. __ ,.....„:. The utility agreed to a pl. 1 for tighter standards. AT A GLANCE By Susan E.Peterson _2 p54 Star Tribune Staff Writer ; ;, Xcel has agreed ._ .k tothefolowMg: Xcel Energy has agreed to a '_,1 > Customer set of tougher service Stan-,''' credits of$50 dards that would-put mo . ,;- *, for power faiures money in the pockets of i i, 7. of morethan24 tourers with frequent or p hours or more longed electricity failures.Thu than six brief plan could cost the Minneapo-;;:�A1 rtes n ayear. hs utility company as much as $30 million annually if it failed > Lower to meet those standards fora' i average number of years. ,';s duration and The proposal was developed,,h frequency of through negotiations with the,:it power failures. Minnesota Department 'Of; -.° > Quicker Commerce and the state attor telephone ney general's office as part (C:3 response time. the settlement of a yearlong diS i ),- Fewer pute over Xcel's customer ser t . customer `ice quality.The plan;fled wwi�T i': complaints to regulators on Friday, Musthe'';,$ Public Utilities approved by tie-state Publlc` ,( i Commission. Utilities Commission and could "'4+ take effect earlynextyear. .h s'' > Quicker e ``"zi• response time to XcacontinuesonA25: , : emergencynat- —Noncompliancepayments'.. uralgascalls. would be split 50-50 between;+e' > More timely Xcel customers and invest _' meter reading. ments in improvements. :`'.•j' Saturday,November 15.2003 k• XCEL from Al cal and Electronics Enginee " t • an industry trade group, an. 4'. Keyytr ovision calls for$50 , are designed to meet new sere 11v �✓ for vice Hiles for all utilities set to some customers 7 sthe n Public. 1.Utilities ` payment A key provision calls for$50 for the Commerce Depart- Anatomy of dispute °'.' • payments to customers whose ment."We've made things a lot The dispute over Xcel's ser- ' power is 3ff for more than 24 tighter a lot more comprehen- vice quality and the accuracy of ] hours, except during extreme sive . . . with a lot more strin- its reports to the state erupted emergencies,and to those who gent underperformance pay- last fall following charges by have more than six power fail- ments than before." some Xcel employees that the , ures of at least five minutes in a utility had falsified repair rec-. -} 12-month period. Any non- Xcel optimistic ords to understate power fad R j compliance payments, which Xcel is confident it carrjneet ore times: State regulato r 1 could million total $10 mlion for the the new measurements,such` hired Fraudwise Inc of Fargo a=? firmf year,would be'split 50-50 include quitker phone se vice N D to investigate the allea between Xcel customers and lower average power'fadure dons. s' ' - investments in utility improve- times and frequencies, and The Fraudwise report, is ' ments to fix the problems, prompt response to calls about sued in August,said that Xcel? rather than going to the state, natural gas leaks. .,. , . Th- customer service records were Xcel said. The Public Utilities "We plan to exceed all f the incomplete and unreliable and Commission would decide standards," said Dave SparJ y, that some records apparently,, how rebates would be.allocat- Xcel's vice president for gov' had been manipulated m give ed tp customers ernmen(and regulatory r the appearance of better ' a i 1 "Many-ottliese standards 'itt fprmahce.. - .) "' penalties • ' much higher than the cotmter„a Th'h Xcel proposal addr If Xcel misses the standards parts -for utilities;in etc ntariy of Fraudwrses recnralt for telephone response time, states." .e".¢ mend4tiotls including turd �,t pro$tpt'meter reading; emer Nevertheless,he Said:- -`takinka'tlibrdugh feview``of1W gency natural gas response was a very productive out- power-failure documentation times and fewer customer come. Part of this proposal is process,beefing up its internal complaints to the Public Utili- that the same parties will meet controls and changing its com= ties Commission, the plan as- annually to talk about how[the pensation system to make sure signs first-year payments of standards] can be improved, that employees who verify $1.25 million for each bench- based on our history of apply- power failure data don't have ' mark ing them." incentives to make the records It also specifies payments of Leslie'Sandberg, spokes- look better than they are. _. $2 million each for missing woman for Minnesota Attorney . As part of a settlement with; , standards for average duration General Mike Hatch, said she regulators announced in Sep- and average frequency of pow- couldn't comment on the pro- tember,Xcel also has agreed to. er failures. If problems contin- posal because the people in spend an additional $15 mil- ue,Xcel's total payments could Hatch's office who worked on lion to$20 million on tree trim- 1 rise by $2 million a year, to a the agreementweren't available. ming, electric cable replace maximum of$30 million. White said Xcel and regula- ment and other maintenance Those penalties would be tors looked at new standards costs to reduce failures. It will considerably stiffer than the being developed around the make $1 million in one-time sanctions Xcel previously was country,particularly in Califor- refunds to customers whose subject to.Under a 1999 agree- nia and other West Coast power failed for at least 204, ment as part of the commis- states,which have been focus- hours from Jan. 1, 2002,,' sion's approval of the merger of ing hard on electric utilities af- through Sept.30,2003. . s i Northern States Power Co. of ter California's disastrous ex- Those payments, ranging Minneapolis and New Century perience with soaring prices from$37 for failures of 20 to 29 Energies of Denver into Xcel, and rolling blackouts following hours to$250 for failures of 150 the utility's maximum penalty the state's utility deregulation. hours or more during those 21 for meeting looser standards "There's a lot more atten- months, will be refunded auto-.; was$400,000 a year. lion to service quality around matically after Public Utility. "We saw the opportunity to the country,"she said.The new Commission approval,Xcel said l update Xcel's service quality standards are based in part on - standards," said Marya White, a draft of quality standards is- Susan Peterson hat manager of energy planning sued by the Institute of Electri- sepeterson@startribunnam. • �us•starrr,�, _ utie ,% w0IQ i lwll 4. 48 jq 4 +' Saturday, Germany � > �`� k� 3;� Y.Novemberl5•� �,, s►rt 19 aritles first nuclear poker t °f r BYStephent; stations r,� to , Assocrutedir plant Stade nuclear power SlA:)E. ,_-.1 y .i,e lant s roamers mist d est�ry. s t s a , ,`government, : many disconnected the rge . vi that e its 19 nude fist of pub said Vin;l3er� spur utilities to : r ' ` Friday, beginning. new, dented ucl r p w cons In,erm ' has na °a sands aneY , „ scores '., '' differences that under- of thevA Governments on both�d� . mesandsolazPanels. , '`� some European es between with how to are grappling a d Europe,s CO hasing out ` ', the a Eur States on gy sources and their air have also t5 Au tna moth- � and er tee United Star g reliance on and reduce their ed reactor PPlies.securing crude oil from the their plants. Austria a out A the re-yeazloja spear ed off Middle East But while Presi- balled opened 1�edrey an4fl YY dent Bush it t eG32-outside-year plant mote nudear to pro- °�' oil reserves 'power mark also have a°d'be°'` industrialized Stale, is the in Alaska,and against nuEuro come, on! nation to re- European nations are looking Not Power pounce the technology.. gas �" �� �� sny nuclear �` All to and renewable sources havr r the ,foam to unc b az neactor.are has and solar . France relies y nucl Power. e1oy_its on nuclear � to close tamon Poses a liana f3phase-out year n the provide 58 nuclear reactor* closing sparked average Years on the P more than 1O71The pint Greens,the clear$e operational life o f nu- Firs of the plans to electricity. 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That is the consensus view of c ,�• _ ►��� o ? several dozen leading industry ��� It experts, regulators and corpo- '1 rate executives interviewed in C AI' silo± _ recent weeks by Transmission G' $34 II `- - ' ,t'` ' Distribution World. This is a j7�/ a �e ri.1,' , report of their views of the legacy • l'?' � of the August outage. -_; Capital Investment Capital investment in the power II grid has languished for years. Clark Gellings, vice president at Rep. Steve Latourette, R-Ohio, right, tours a FirstEnergy Power Plant in the Electric Power Research Eastlake, Ohio, Monday, August 18, 2003. The plant was the first of several sites Institute, in Palo Alto, Calif, told where transmission failures occurred in the Cleveland area before the blackout. the Wall Street Journal, "today AP Photo/Jamie-Andrea Yanak) J we're making the lowest yearly technologies it will spawn — may outage was unfolding grid opera- investment in transmission since very well rival the Apollo moon tors' computers were crashing. the Great Depression. Electricity li program in its spinoff benefits to Technicians overseeing neighbor- demand has grown 35 percent in a our nation's economy. Nor only ing grids a couple hundred miles decade but transmission capacity will it end the persistent low grade away had no clue as to what was has increased just 18 percent." recession that has mired our econ- transpiring. A federal study says that actual omy for several years, but it may Such insanity is about to end. transmission construction has well set the foundation for jobs Thought leaders in the power declined 30 percent since 1990. and wealth formation for coming industry envision the creation of a Wall Street concurs that not generations of Americans. highly sophisticated grid that will enough capital has gone into the Near unanimity is emerging on provide power companies and their grid. I the need to fix the grid. The system is in very serious Murray Weidenbaum, a promi- need of modernization and more Capital investment in the nent economist at Washington efficient operations," said Leonard I University and chairman of Pres- power grlG hdS S.Hyman,a senior associate of R.J. dent Reagan's council of econom- jdnguisned for years. Rudden Associates Inc., in New is advisors, said, "Transmission York. Hyman, who headed Merrill has been badly underfinanced. customers with real-time informa- Lynch's utility research group for Every study since the August 14 tion about power demand and 16 years, said that the industry fiasco has come up with that con- costs. For the companies responsi- now spends $3.5 billion to $4 elusion. It has fallen between the ble for transmitting power, such billion a year on transmission cracks and no one was paying information will enable them to construction and improvements attention." seamlessly coordinate the use of well short of the $5.5 billion that "The system was highly their resources and make cascading is needed. stressed," said Calpine Corp.'s outages like August's obsolete. Sounds like a lot, but not when executive vice president, Jim New methods of generating measured against the colossal Macias. "Fragmented planning has power — such as fuel cells sitting industry. The assets of investor- led to a hodgepodge of connec- atop office buildings and in subdi- owned utilities top $1 trillion,their tions." visions — will proliferate, joining a market capitalization is $300 bil- How bad is it? Power lines built growing fleet of wind and solar lion and their annual revenues are in the 1960s to shoulder loads installations. about $240 billion. flowing in one direction 40 years While the industry may have By the time needed upgrades in later are carrying power in the been slowly, erratically evolving in the transmission grid are made, opposite direction. Early efforts to that direction,--many now believe typical consumers may wind up document the August outage left the mid-August outage will hasten spending no more than an addi- investigators incredulous that data capital investment, research into tional $50 over five years for their lacked an essential time stamp, new technologies, new thinking power bills, Hyman said. making it a nightmare to unravel among state and federal regulators Regrettably, a variety of factors the sequence of events. \X'hile the and changes in federal utility laws have held up needed investments in 10 1 4th Quarter 2003 the grid. For one thing, many utili- independent transmission system That is a function of how the ties in the 1990s agreed to freeze operator, covers much of the power grid has developed.The first their rates for several years in Midwest. transmission lines in the nation return for restructuring their busi- Looking to his own region, were built a century ago to corm-- ness. "They can't get power plants with custom; real recovery for Many such small islands gradually new investment, so "ATC plans tO invest $2.8 billion on were connected by transmission they stopped mak- system upgrades in the next I 0 years.' lines. Power plants were built fur- ing those invest- -Jose Delgado,President.American Transmission Co. cher from cities, and grids had to ments," Hyman said. carry their load to marker. While executives Meanwhile, the Federal govern- dedicated the smallest sums possi- Torgerson said that the Midwest ment has taken a series of actions ble to the transmission grid, they ISO has identified $1.3 billion of designed to create a wholesale iichased glamorous utility deals from capital In-escmencs that need to be energy marketplace. Grids :_.ac Brazil to Australia. For years utility made - with $500 million projected were built and controlled by single executives have known that regula- just for enhanced grid reliability. entities, to carry company-generat- 1 tors offered them dismal returns on The Midwest ISO is comprised of ed power over company-owned money sunk into transmission. 12,000 miles of transmission in 15 power lines to company customers Instead,they were attracted to rich- states and the Canadian province now had a new mission-a mission er profits available in building new of Manitoba. for which they were not designed. generation and through acquisi- Communications also must be That mission was to carry other tions and diversification. upgraded so that transmission grid generators' power on behalf of yet Executives in the field closest to operators are in touch in close to other company's customers. the transmission business under- real time, he said. Delgado of American stand the grid's current appetite for Dean Oskvig, president of the Transmission said, "the biggest huge investment. Consider the case power delivery division of Black & problem with the transmission grid • of the American Transmission Co., Veatch, a leading power engineer- is that it was designed for integrat- which is responsible for 8,900 miles ing firm, based in Overland Park, ed utilities with limited trading. of transmission lines.Jose Delgado, Kan., observed, "We in the indus- There are significant gaps in the company's colorful, quotable try know the investment in the grid network that impedes operation I president, points out that his com- has not kept pace with the increase the system." pany plans to invest$2.8 billion on in load demands." Steven Strogatz, a professor of • system upgrades in the next 10 Black & Veatch recently did a applied math at Cornell University, years. detailed study that analyzed the recently outlined the gaps that Projecting his knowledge of power grid's shortcomings in mov- must be bridged in an op-ed piece transmission needs in the upper ing vast quantities of power east or in the New York Times. Midwest nationally,Delgado agrees west across vast distances. "... Thousands of power plants with forecasts that the ultimate price tag could approach $100 bil- , •lion. But that sum must be put in *t': w I,• . context. It is a fraction of the tril- I - lions of dollars spent each year to I r ! ' -- fuel power plants around the nation �- producing 900,000 megawatts of j . _ — 4, h. power, Delgado said. I -r,- A — Some observers cautioned that it R _, Ni . , is too early to say it will cost $100 - it. „ rL_ . • • ee„t billion to pay for transmission grid JP-` • - improvements. . 4 James P. Torgerson, president - f•• -..; I 'n' I - de - and chief executive of the Midwest 'r "' '. . - i ISO, said, "I don't know that we're 1 :tr r: ++' that far along in the analysis to con- . - ., , r ' - l h •t ^ 1• elude that.We want to see what the it 'Yi - e , O ", bi-national investigation comes up I �'�� ' with," he said, referring to the joint lit a RP# a' American and Canadian probe into Pedestrians leaving Manhattan flood New York's 59th St. Bridge to Queens, the outage. The Midwest ISO, an Thursday, August 14, 2003, in New York. (AP Photo/Tina Fineberg) 12 I 4th Quarter 2003 and substations in the grid need to be able to communicate with one / another when any part of the sys- It i" •m is breached, so they can collec- s.,r. .vely decide which circuit breakers - should be tripped and which can ' - _ ..' 'k, •�•$ r,. safely remain intact," Strogatz , « '-',3,;;L.'•wrote. Lr = -._- "The technology necessary to er.: achieve this has existed for about a ®,� +may decade. It relies on computers, sen- sors and protective devices tied �' . •.r together by optical fiber so that all s i ' parts of the grid would be able to , ! talk to one another at the speed of «t light -fast enough to get ahead of an onrushing blackout and contain ilk, it," he wrote. The technology exists. The costs of an upgrade - spread over Ohio Gov., Bob Taft, left, holds up a map of the U.S. as Michigan Gov.Jennifer our economy and its enormous Granholm, center, and Detroit Mayor Kwame Kilpatrick, right, look on as they power system - are manageable. So testified on Capitol Hill Wednesday, Sept. 3, 2003 before the House Energy Committee hearing. (AP Photo/Pablo Martinez Monsivais) what obstacles must be overcome for needed system improvement? leaders interviewed for this article. ization of consumer protection The answer lies in Washington. Legislations should eliminate laws. the negative tax impact of divest- "We want responsible investors . New Laws,New ment of transmission assets on util- in the field," Raba said. "We want t. .Regulatory Outlook ities, Delgado said. strong consumer protection laws. There is nothing like a multi- Consensus also has emerged We support expansion that pro- . . tiay power outage affecting SO mil- around the position that the Public vides access to books and records. • lion people to get the attention of Utility Holding Company Act `Open up your business, guys.— politicians. In coming days, politi- should be repealed. Holding act The Edison Electric Institute, cal careers will be made and restrictions hinder evolution of which represents investor-owned unmade as lawmakers attempt to multi-state transmission compa- utilities, wants regulators, policy- deal with a white hot issue that is nies, Delgado said. makers and Congress to take prat- the focus of widespread public John Weisgall, MidAmerican tical steps that would spur trans- attention. Energy Holdings Co. vice presi- mission investment. However, it is not entirely clear dent, legislative and regulatory The FERC needs to review the where Congress is headed with affairs, in Washington, agreed that 10-12 percent transmission rates to energy legislation. Republicans are PUHCA must be repealed to spur make them "competitive with other holding out for a sweeping energy needed investment in transmission. segments of business," said Bill bill that would include allowing MidAmerican's financial backer Brier, EEI vice president of policy 1 for oil exploration in Alaska and Warren Buffett stands ready to and public affairs. other initiatives that would spur invest S10 billion to S15 billion in "In addition, legislation should creation of a new "hydrogen econ- the energy arena once PUHCA is allow transmission assets to be omy" and lessen American depen- repealed, he said. depreciated in 15 years instead of dente on foreign oil. Democrats in Todd Raba, MidAmerican 20," he said. the remaining months of the year Energy Co. senior vice president, In event that a needed line can- do not want to squander time delivery services, said, "You'll see not win state approval, Brier said, k debating huge environmental the Microsofts,Shells,Bechtels and "The federal government should , issues. Instead, they want to work others looking at buying a utility. have backstop siting authority on the passage of an energy bill About 2,500 utilities in the United Out in the states, too many util- Fncused closely on fixing transmis- States sell electricity. There is room iry regulators are paralyzed with a system failings. for consolidation." fear. "One reason is that profound, . What provision must be includ- While the outdated federal complex changes that have taken ed in any energy legislation? holding act should be repealed, place in the industry. One Midwest Reliability rules must be obliga- certain protections must remain. utility board member observed, tory, agreed virtually all industry Specifically, there must be modern- "We're in the middles of a transi- 4th Quarter 2003 I I3 II non from a regulated state to an Mike Tyndall, Southern Utilities in the Midwest - close unregulated state." spokesman, said, "Low cost and to the disastrous outage of Aug. 14 high reliability. That's something — say that immediate steps must be Deregulation Failure we have in the southeast and do not taken to streamline contra Many state regulators, however, want to jeopardize." Southern transmission as well as to upgrade have largely resisted change. "The owns more than 26,000 miles of its performance. consensus is that deregulation was transmission. Bottom line, he said, Gary Neale, the chairman of a failure," said Hyman of R.J. "regional grids with adequate gen- NiSource, said "We have to clarify Rudden. "Regulators won't take eradon located close to the load is what we are doing with these trans- the initiative. They need to step up more reliable and secure. That's mission grids. We're trying tc to the plate and I don't think they just the way physics works. do something it wasn't designed are going to." to do." For any number of reasons, 1 "We need to see generation in state regulators - particularly in ' You'll see the Microsotts, load centers, and not such a heavy �i regions of the country where elec- Si ells, Bechteis and others reliance on the grid. Physics says tric power is relatively inexpensive looking at buying a utility you cannot get 100 percent reliabil- - have grown increasingly at odds ity by building up the grid." About 2,500 utilities in with federal regulators intent on the U.S. buy electricity MidAmerican Energy Holdings upgrading the national transmis- Co., the Des Moines, Iowa energy sion grid while nourishing a robust There is room for company that has been snapping tic wholesale energy market. consolidation. - with the backing of billionaire In 1992, a federal law first —Todd Raba,Sr.Vice President Warren Buffett— energy assets in a through open wholesale electricity MidAmericen Energy Co. down market, supports formation markets to competition. Four of transmission organizations. It is years later, the Federal Energy planning to join TRANSLink ISO Regulatory Commission (FERC) "Electricity is inherently local," in the Midwest. opened the transmission grid to Tyndall said. "States should regu- To expect the grid to support competing power generators. In late all aspects of local rates. The open wholesale markets it mu ,e 1999, the FERC started pushing outage hasn't changed our views." upgraded, said MidAmerican utilities to band together in region- Duke has similar views. utive Todd Raba. "You need tc al transmission organizations to Scott Henry, Duke Power's invest to be able to accomplish coordinate their transmission lines. director of regulatory policy, said, that." Largely as a result of state level "Duke believes vertical integration Public power entities, however opposition,formation of RTOs has can co-exist with wholesale mar- caution that care must be taken in been slow to evolve. kets." overhauling the transmission grid. Now FERC wants to make for- Duke supports voluntary RTOs Glenn English, chief executive mation of the RTOs a requirement. — as a compromise position, Henry officer of the National Rural However, it is not clear how many said. As a vertically integrated util- Electric Cooperative Association,it' RTOs will evolve. FERC initially ity in several states, Duke must Washington, D.C., said that he ha; wanted five. Now, the agency work well with state and federal heard estimates that it may take seems content to push for 10. regulators. "If state and federal poi- $100 billion to fix the grid - but he Utilities and state regulatory icy conflict, we get caught in the is hopeful the job can get down fa commissioners in regions with rela- middle," Henry said. half that sum. tively low-cost power may resist That is very much the concern The NRECA has more than 900 efforts to loosen utility control of Stan Wise, the new president of members in 47 states serving 3E over transmission assets. the National Association of million customers. Macias of Calpine said it is Regulatory Utility Commissioners If transmission rates must be understandable that huge vertically and a state regulator in Georgia. raised to spur investment, he said integrated utilities like Southern Speaking as a Southern regula- regulators should take care that thi Co. are "opposed to having any- tor, Wise said utilities in his region new rates only apply to newly built body playing in their sandbox." fear that in the rush to fix the crier- transmission "and make sure that However, "you cannot have gy system there may be a "push the money doesn't go overseas or tt some parties decide which power toward breakup of vertically inte- CEO bonuses." - plants get built and also who has grated companies." access to grids," he said. "The "The individual states will ask Bottlenecks solution is to separate transmission the question of their utilities, 'what "Many people are going to Ir from generation." protections do we have?'" Wise trying to make a lot of money in the Southern is not so sure. said. name of upgrading transmission," 14 I 4th Quarter 2003 What Causes Power Outages Auto accidents • How can hot weather affect power systems.? Human error Utility maintenance 1% (prea ranged) •What causes momentary interruptions? Momentary interruptions,while annoying,are 1 unavoidable.When a tree limb falls on a wire,sensing Unknown i equipment will break the circuit for a split second. This break prevents the system from major damage and actually helps prevents outages. Animals - , contacting wires Weather •What causes rolling blackouts? 12% reLated On occasion,demand exceeds the amount of elec- •7% tricicy that can be produced or delivered.To prevent II `" --- " """. ' the whole system from being damaged,electric com panies will shut down one substation at a time,usu- ally for a short duration,until demand subsides. Source:Edison Electric Institute 1999 Reliability Report(Survey of 62 shareholder-owned utilities) English said. to become increasingly unreliable, elegantly and intelligently plan for Transmission system abuses Macias said. Upgrading generation construction of new power genera- would not be new. "The industry — the business Calpine is about — tion. Consumers will have incentives knows where the bottlenecks are," produces real, hard benefits. to invest in solar power or fuel cell said Patrick Lavigne, NRECA "We're 90 percent cleaner than technology to lower their energy spokesman. "The problem is that old plants and 40 percent more costs when system-wide energy where the bottlenecks exist there efficient," Macias said. prices soar. I are opportunities to make money." "The business of electricity move� Turning transmission assets Conclusion moves away from the bulk com- over to transmission-only compa- Kurt Yeager, the president of modity business," he said. nies will guarantee that the cost of EPRI, the Edison Power Research Clark Gellings, EPRI vice presi- upgrading the grid is properly allo- Institute, in Palo Alto, Calif., has a dent of power delivery and mar- cated, experts said. Why? vision of a digital power grid. His kets, said today we are saddled with When vertically integrated utili- organization is behind the back-of- "1950s technology that, with some ties faced the cost of investing sig- the-envelope estimate that it would exceptions, hasn't seen modern- nificant sums in transmission, they cost $100 billion to upgrade the ization." balked. They did not want to grid, with under half of it dedicated For instance,now it takes 50 sec- impose those costs on their cus- to transmission and the balance onds to assess the system.It should tomer base, when the benefits of earmarked for the distribution net- take less than 1 second,he said. "We improved transmission would flow work, which is closest to end-users. need time-stamped, real-time data." to other companies and their cus- "While the number sounds like Gellings said that it will take four tomers, said Delgado of American a big number, it is really an invest- years of all out research and devel- Transmission. ment in the economy," he said. opment to develop the technology Some utilities as well as gen- Over roughly a decade, the needed to modernize the grid. crating companies applaud the mechanical power delivery system Currently, 65 utilities contributed renewed push for RTOs. must be digitized to carry "smart about $90 million a year for R&D "Stronger regional planning and electrons" bristling with informa- for power delivery technologies. control is the answer," said tion instead of the "dumb elec- That must be ramped up to $250 Calpine's Macias. tricity" used today to power the million, he said. However, while much of the country. "We are four to five years away attention now is fixed on upgrad- In a digitized power delivery sys- from having all the technology we ing transmission, it would be a mis- tem, today's metering technology need to be put in place," Gellings take to fail to ensure that there are would be replaced by a "two-way said. "Putting it out would take 10 adequate generating resources, portal." Both the power users and years. It will be a massive effort." Macias said. As many as 25 to 30 the suppliers would be capable of While the cost would approach percent of the generating units communicating in real time, Yeager $100 billion, the savings and bene- operating today were built prior to said. Once suppliers fully under- fits could dwarf that sum. the Vietnam War and they promise stand power demand,they can more "We're losing $119 billion a year 16 1 4th Quarter 2003 in poor productivity, poor reliabili- across bridges, of inner city resi- of the Power Outage of 2003. ty and poor power quality," dents huddled on darkened streets, The power industry will never Gellings said. of dozens of idled auto assembly be the same. Our national economy That problem will get fixed, plants will not soon fade from the is up to the task. It too will many executives around the power public retina. be brought into the 21st century industry today believe. New energy policies, new ener- in the process of guaranteeing The image of tens of thousands gy businesses and new ways of that the lights—and our computers of New Yorkers streaming on foot doing business all will be the legacy —stay on. t J Where Were You the Day the Lights Went Out? From South Carolina's Home Page as Reported by The Associated Press Newark,NJ —At First,It was 9/I I All Over Again I rf ''� Margie Leonard of Newark was trying to get home, but found her car strand- ed on the third level of a parking lift at the Robert Treat Hotel.With power out, t there was no way to lower her car-to the ground,and she stood fuming in the i 41 90-degree heat. "I am (ticked) off, I'm hot and I'm menopausal." She said her i first thought when the lights went off was that the region had suffered a ter- • '' rorist attack. That also was on the mind of Linda Perkins, who walked down several iI ifix flights of stairs from her office in the PSEG building. "There was panic because we thought that it was 9/11 all over again, "she said. Willie Pugh, left, of Monticello, Craig DeFiore's car also was struck on an elevated lift. The Scotch Plains res- N.Y., sits against a cement hard- j ident said he had no way to get home. "I was fixing my computer,and I thought er with his nephews, stranded in I screwed something up." front of the Port Authority bus terminal in New York, Friday, i Connecticut,Massachusetts—Stuck On A Roller Coaster Aug. 15,2003 following the I Kim Hicks got stuck on a roller coaster at the Six Flags over New England Linton) r. (AP Photo/Malcom is amusement park in Agawam, MA. "We were on the Cyclone roller coaster when the power went out,"she said. Luckily it was where it was flat,thank God,not up on top.We sat there about 20 minutes, and they finally came to walk us off." The park regained power a short time later. Fire and ambulance sirens could be heard in downtown Stamford. Other patrons also stayed at the pub, which had no power Thursday afternoon, with the lights off and the doors open. Ed Martin of Northumberland,out on the bar's deck,had been a student of SUNY Albany during a blackout in the 1960's. Martin said he got stuck in an elevator about an hour in one of the dormitory towers in that one. "They final- ly managed to somehow get us out of there." is Toronto— Going Nowhere Fast Streetcars preparing to transport workers in the evening rush hour were grounded, sending riders into the street to hail taxicabs. "The streetcar can't go anywhere. You just have to wait," said Mike Collins, a street- car driver. I Blackouts were reported in Ottawa in the province's eastern region, Windsor in the west and North Bay in the northern part of Ontario. The blackout had not spread as far as Thunder Bay in northwestern Ontario, suggesting power in the north was sporadic. NewYork City-The City That Never Sleeps Goes Dark y iAt the United Nations, public information officer Lamiae Aidi said a cocktail was in order. "I'm going for a i! drink.There is no other choice. What am I going to do, go home and light candles?" A U.N. communications worker,Aaron David, said he was just trying to keep calm. "I was here for 9/11. a This doesn't happen every day. Once I find out what's going on, I'll know whether to panic." f In Times Square, Gabriela Mira waited in line four-deep to use a corner pay phone, rocking her 6-month t old daughter in a stroller. "I had to get out of the house,"Mira said. "It was so dark, and everything was off, and I was scared. No air conditioner, the phones—they need electricity.And it's so, so hot." ,, New Yorkers escaped silenced subways. Nuclear power plants in four states shut down. "We all are t- wondering what caused this," New York Gov. George Pataki said. i 4th Quarter 2003 I 17 I August 14, 2003 Wasn't the First Time Major Bulk Electric System Power Outages DATE.':"'`' STATESIPROVINCESAFFECTED COST_ O r & DESCRIPTION -i EC E�'•F.' r . November 9, 1965 Virtually all of New York, Connecticut, Massachusetts, 30,000,000,ores iqw Up to 13 - `h 5 Rhode Island, and small segments of northern PA and 20,000MWof t:! hours',�;f`'f`'U .a northeastern NJ;substantial areas of Ontario, Canada demand t�e r S' • •A backup protective relay ?artkg ife z ackup pro lay operated to open one of fit% e _rt`> c i 230-kV lines taking power north from the-Beck plant-in_ < ,r : --44-- Ontario to the Toronto area.When the flows redistributed ,=a-9 ;. ;. instantaneously to the remaining four lines,they tripped,- _7- - s^ out successively in a total of 21/2 seconds. The resultant - - _ - - power swings resulted in a cascading outage that blacked - - i out much of the northeast. 4 i July 13,1977 New York City -9,000,000 people; - Up to 26 • =z •A series of events triggering the separation and total col-- +6,000 MW of 1 '' boars, - lapse of the Con Ed system began when two 345 kV liner demand "-'!- y, F, c' -onsa,iommon tower lme in Northern Westchester were?f rfS^ " rrl snuckiiy lightening and tr`ip`ped out Over`the next hota,; _ the Cori Ed dispatcher tried to save his system, but in the" y '' ifP end the system 4 : sy electrically separated from surrounding t s _ " �j r . l ittr-,:et systems and collapsed. Generation inside New York City 4... s, it-4-73 •r: tut -. was not adequate, by itself to serve the load inside the - ' city. R+t � July 2,1996 Arizona, California, Colorado, Idaho, Montana, 2,000,000(10 70.,! From a few. •:,- Nebraska,Nevada,New Mexico,Oregon,South Dakota, "of the customers in"- • minutes to f`ek;- Texas, Utah, Washington and Wyoming in the UnitedA atheWestetotti5 s� `sevenf States;Alberta and British Columbia in Canada;and Baja •:Interconnection);;‘, Iowa;'> '°`.Pt„ a.> California Norte in Mexico. ' '. 41,850 MW of -wirm psi •The outage began when a flashover occurred between a demand z ifs s 7-44€t. I! 345,000-volt transmission line and a tree that had grown - -. .,.i I too close to the line in Idaho. Protective devices detected - the short and de-energized the line.A protective relay on a parallel transmission line also detected the fault and erro-neously opened the second line. Disconnecting these two lines nearly simultaneously greatly reduced the ability of _ the system to carry power away from a near-by generating - .. 717k plant, causing other protective devices to shut down two t =` - '- 3=. of the four generating units at that plant. With the loss of 2- 't:' i these two units, frequency in the entire Western - - _. Interconnection began to decline. For 20 seconds the sys- tem struggled to remain in balance, but the system was becoming unstable. At this point, automatic protection systems were initiated to allow the system to bend, but not break. Scattered customer outages occurred to help the system regain balance. The interconnected system separat- _ --i ed into five pre-engineered islands designed to minimize ' .-- customer outages and restoration times. .r.;. •- August 10, 1996 Arizona, California, Colorado, Idaho, Montana, 7,500,000 cus- - Up to 9 Nebraska, Nevada, New Mexico, Oregon,South Dakota, tomers;28,000 hours Texas,Utah MW of demand •Triggered by a combination of random transmission line shed by underfre- outages and resulting system oscillations, the Western quency load-shed- I Interconnection separated into four electrical islands, with ding relays '``- significant loss of load and generation. 18 � 4th Quarter 2003 Page 1 of 4 Bryan Adams From: "Joseph Steffel" <Joseph.Steffel @ci.buffalo.mn.us> To: "Sue Guenther" <sueg @mmua.org>; <mnitchals @wmu.willmar.mn.us>; <acrowser @rea- alp.com>; <dvoss@ci.anoka.mn.us>; <JerryM @austinutilities.com>; <theoldsalt29 @msn.com>; <donk@utplus.com>; <cpunt @lakesnet.net>; <dboyce@ci.east-grand-forks.mn.us>; <bryada @nsatel.net>; <rarndt @cityofluverne.org>; <stevej @marshallmn.com>; <ajs @mcgrannshea.com>; <bschwandt @mpsutility.com>; <billr @mrenergy.com>; <mrgsimon @mrenergy.com>; <tomh @mrenergy.com>; <nashwauk @uslink.net>; <fnagle @prestommn.org>; <Ikoshire @rpu.org>; <Iw.johnston @smmpa.org>; <ra.hayward @smmpa.org>; <arude @citytrf.net>; "Worthington-Don Habicht" <dhabicht @worthingtonpublicutilities.com>; "Andy Brewer" <abrewer @mmua.org>; "CMMPA Lori Frisk-Thompson (E-mail)"<lorift@utplus.com>; "Greg Oxley"<gtoxley @mmua.org>; "Jack Kegel" <jkegel @mmua.org>; "Marshall-Brad Roos" <bradr @marshallmn.com>; "NMPA-Darryl Tveitbakk" <nmpadt @mncable.net>; "Shakopee-LouVanHout(E-mail)"<Ivanhout@shakopeeutilities.com>; "Steve Downer"<sdowner @mmua.org>; 'Truman-Bob Grefe (E-mail" <trumanpu @myclearwave.net> Sent: Wednesday, November 26, 2003 11:24 AM Subject: RE: CONFERENCE CALL TOMORROW-Rochester comments Larry K Posted on Tue, Nov. 25, 2003 PIONEER PRES Cities considering complex lease deals BY PATRICK SWEENEY Pioneer Press Since early summer, about a dozen Minnesota cities, including St. Paul, have been considering a New York investment firm's pitch: Lease public sewer systems to private companies that will use the systems for tax deductions, and get significant payments up front. The proposal, which could yield about $30 million for St. Paul, is attractive to cash-strapped cities. Burnsville, Rochester, Eagan and Duluth are considering it as well, and other public-private infrastructure deals have surfaced elsewhere in the country. But a U.S. senator from Iowa recently assailed the lease arrangement as "good, old-fashioned tax fraud," and some Minnesota officials are raising questions about it as well. The complicated financing plan calls for cities to lease the systems to private companies, then immediately lease them back and continue operating them as the cities always have. It would not be out-sourcing, selling or privatizing sewer services. Instead, it would be purely a paper transaction constructed to allow tax deductions for depreciation to flow to the businesses leasing the sewers. "We're looking at it," St. Paul Mayor Randy Kelly said of the proposals. "It could be an opportunity for the city." At one point, Kelly and other supporters of building a new Minnesota Twins stadium in St. Paul considered the sewer lease as a possible component of the funding; he now says that is unlikely. Kelly stressed that city administrators have barely begun to investigate a lease of the sewers and that any final deal is far off. "Clearly, I want to look at the risk to the city and the taxpayers," Kelly said. St. Paul has some history, not all of it favorable, with similar arrangements. 11/26/03 Page 2 of 4 In 1983, city officials sold the old St. Paul Civic Center to private investors for $33 million, then leased it back. A decade later, when the Civic Center needed improvements the private owners were unwilling to make, the city borrowed $65 million to buy back the building and pay off a dozen development projects its earlier sale had financed. The deals proposed to St. Paul and the other cities are similar to the Civic Center transaction and other traditional sale and lease-back contracts, except the cities would retain title to their sewers. For federal tax purposes, though, the long-term rental agreements businesses would sign with the cities would allow the businesses to claim depreciation on the public infrastructure. Top administrators of the Metropolitan Council also have been approached recently by several investment companies proposing lease deals for the council's regional sewer lines, sewage treatment plants and the new Minneapolis light-rail line. City councils in eight Minnesota cities, not including St. Paul, have voted to enter into agreements that could lead to leasing their sewers, but none is close to signing a final contract. Now, after harsh criticism of the leases last week by the chairman of the U.S. Senate Finance Committee, some city officials are taking a more skeptical look at the financing schemes. On Tuesday, Sen. Chuck Grassley, an Iowa Republican, called the Infrastructure lease proposals, which are surfacing all over the country, "good, old-fashioned tax fraud." His committee, which estimated lease-based tax shelters would cost the U.S. treasury more than $500 million over 10 years, approved legislation Oct. 1 that would dramatically curtail the tax benefits businesses now can reap through such leases. Despite Grassley's harsh language, cities throughout the United States have approved similar tax shelters involving the leasing of assets of big-city transit systems over the past two decades. And the Federal Transit Administration has approved many, if not all, of those leases. Transit systems that have leased their subways, buses and other property include Boston, New York, Chicago, Miami and Washington, D.C., according to promoters of the Minnesota lease plans. Jim Wavle, a spokesman for Allco Finance Corp., the small New York investment company seeking to broker many of the lease deals in Minnesota, accused Grassley of ignoring that history and engaging in "improper and inflammatory political hype." But the lease proposals also are drawing fire from Minnesota officials. State Finance Commissioner Dan McElroy said last week that he questioned the legitimacy of leases on economic grounds. He called the tax benefits "synthetic depreciation" and said the cost to the federal government in lost taxes would be greater than any benefit the cities would receive. State Auditor Pat Awada, who began investigating the lease arrangements about a month ago, weighed in last week with her own criticism. In a memo to state Sen. David Senjem, R-Rochester, who requested the investigation, and to the chairmen of the House and Senate tax committees,Awada said the leases are allowed under federal law. But, she said, plans for cities to continue operating sewer systems that have been leased and then re- leased would raise numerous questions under state laws. She said the leases could affect the ability of cities to use tax-exempt borrowing to finance maintenance 11/26/03 Page 3 of 4 on their sewers, and she questioned whether the private involvement in sewer systems would strip them of the governmental immunity that limits damages plaintiffs can collect in lawsuits. Awada, a former Eagan City Council member, said she would advise anyone who asked her, including her former Eagan colleagues, to stay away from the leases. "It truly is a tax-evasion scheme that is being proposed by big banks," she said. The infrastructure lease plans were first brought to the Minnesota cities by the League of Minnesota Cities. The league, which lobbies on behalf of cities, contracted h Allco Finance Corp., an offshoot of an Australian company (the name stands for Australian Leveraged Leasing Company), to organize a consortium of smaller cities to pool their infrastructure to form a lease package big enough to attract bids from giant banks and corporations hungry for tax deductions. League officials say they are offering, not promoting, the leases to cities, but the league is scheduled to receive a fee equal to one-half of 1 percent of the value of any infrastructure that participating cities lease. St. Paul and the Metropolitan Council were approached separately by Allco and by other investment companies, and are not part of the league's consortium. Allco has promoted similar sewer system leases to cities throughout the Dakotas. Tom Grundhoefer, general counsel for the League of Minnesota Cities, said city councils in eight cities have signed preliminary contracts granting Allco exclusive rights for two years to try to put together a lease deal involving their sewers. He said the eight are: Austin, Burnsville, Cannon Falls, Little Falls, Long Prairie, Owatonna, Rochester and St. Michael. City officials in Duluth and Eagan are considering similar agreements. Minneapolis City Coordinator John Moir said officials there were not interested in the lease proposals because they feared taking the sewers off the city's balance sheet as an asset would damage Minneapolis' credit rating. The Western Lake Superior Sanitary District, a sewage treatment district that serves Duluth and surrounding communities, also signed a preliminary agreement with Allco. "I would not describe our board as comfortable with the transaction, but they didn't want to lose the opportunity to provide some substantial funds for our users if this was all legal, ethical and acceptable to the federal government," said Kurt Soderberg, the sanitary district's executive director. Patrick Sweeney covers state government and politics. He can be reached at 651-228-5253 or psweeney@pioneeroress.com. 8 email this I print this l license this I reprint this Joseph 0. Steffel Utilities Director 11/26/03