4.7. SR 12-16-2013 City of
Elk=' Request for Action
River
To Item Number
Mayor and City Council 4.7
Agenda Section Meeting Date Prepared by
Consent December 16, 2013 Troy Adams, P.E., ERMU General Manager
Item Description Reviewed by
CAPX Brookings Project Allocation Increase Cal Portner, City Administrator
Reviewed by
Action Requested
Adopt by motion a resolution to appoint Troy Adams, P.E.,ERMU General Manager, as the Transmission
Project Coordinating Committee representative and authorize the appointed representative to vote in
favor of the increase in project ownership.
Background/Discussion
In May 2006, the Utilities Commission authorized ERMU joining Midwest Municipal Transmission
Group (MMTG) to explore the potential to obtain ownership in the regional transmission system. This
nonpartisan/not-for-profit organization was created to provide service and assistance to the membership
for matters relating to the planning, construction, ownership/investment, operation and maintenance,
and administration and management of electric transmission and/or power generation facilities. The
action to join MMTG represented ERMU's decision to investigate a change in direction towards
ownership instead of renting. Ownership in the transmission system essentially works as a hedge to
mitigate volatility in transmission costs. ERMU is still a member of MMTG and through proactive
participation,represents their investment and their customers. Troy Adams, P.E., ERMU General
Manager,is currently the President of the MMTG Board of Directors.
This is a unique type of investment opportunity for a municipal utility. Because of a municipal's ability to
finance with tax exempt bonds, our cost of money is less than investor-owned and cooperative utilities.
With the Federal Energy Regulatory Commission (FERC) approval of a hypothetical capital structure and
a guaranteed rate of return on investment, transmission ownership becomes an incredible advantage for
municipal utilities to position themselves with very competitive rates compared to the investor-owned
and cooperative utilities. At the time of initial research into transmission ownership in 2007, ERMU
could invest in approximately$21,000,000 of transmission, be completely hedged against volatility in
transmission costs, and still fall under the levels where the bonds would be tax exempt. This amount
changes with ERMU's demand and energy usage.
In February 2007, ERMU entered into an agreement to participate through Central Minnesota Municipal
Power Agency (CMMPA) in the CAPX2020 Brookings-Twin Cities Transmission Project. Initially the
municipals were looking to independently fund their share of the project. Because of the number of
utilities involved, CMMPA chose to act as the bonding agent for all the municipal utilities investing in
this project. Even though CMMPA was the bonding agent,their bond counsel requested resolutions and
certifications from all Commissions and Councils. And in March 2011, the Commission and Council
P a w E R E U 6 Y
NaA f RE]
both approved resolutions authorizing the Utilities'participation in the project for an amount not to
exceed $7,140,953.
The bonding related to this project does not impact the city's bond rating or ability to issue municipal
general obligation bonds. Also,the bonding associated with this project does not require the utilities,
through bond covenants,to have dedicated reserves. The utilities' obligation for repayment on this
bonding appears as an expense line item. And by design, the revenue that ERMU will receive will exceed
the expense of the bond repayment creating a positive cash flow for the life of the asset. The amount of
this cash flow will not be finalized until the value of the asset is determined at the time it is put into
service. This will likely be in 2015.
Shortly thereafter,Delano Municipal Utilities (Delano), another participant in this project through
CMMPA, elected to transfer their allocation of this project to ERMU and five other municipal utilities.
Because of savings in the overall project,this increase to ERMU's percent of ownership in the project did
not cause the investment amount to exceed the previously approved investment amount. This allocation
change was also approved in 2011 by the Commission and Council through resolutions.
The next phase of the CAPX2020 Brookings/Twin Cities Project was an extension from Brookings to
Big Stone. This is a significantly smaller project yet required all the same amount of legal work associated
with the Federal Energy Regulatory Commission (FERC) filings. Because of the size of the project,the
CMMPA Board of Directors elected to not extend an invitation to a nonmember like ERMU to invest in
their $2.5M eligible share of this project. Because of the amount of work for such a small investment,
CMMPA and the other upstream investors have agreed to swap the investment rights for the Big Stone
transmission project for an increase in the Brookings project. The decision to swap creates a requirement
for CMMPA to offer ERMU, and other nonmembers participating in the Brookings project through
CMMPA,the opportunity to increase their Brooking project allocations based on their current
entitlement share.
The current ERMU entitlement share of the 3.6% CMMPA share of the Brookings project is 18.890%.
This current project forecast is for ERMU's share to have a $4,649,874 value,well below the approved
not-to-exceed amount. The ERMU-eligible allocation increase to the Brookings project due to the Big
Stone project swap would be $472,250. If approved to accept the swap and increase our Brookings
allocation, this would increase our current forecasted Brookings transmission investment to $5,122,124.
This is still well below the approved not-to-exceed amount.
To approve the swap and allocation increase, ERMU and the City of Elk River will need to adopt
resolutions appointing a representative on the Transmission Project Coordinating Committee and
authorize that representative to vote in favor of the change in allocation. This action request will be
made to the Utilities Commission on December 17,2013.
Financial Impact
There is no additional financial impact beyond what had been previously approved through Utilities
Commission and City Council resolutions. The approval to increase ownership allocation in the
Brookings Project will not increase the ownership value to be higher than the previously approved
$7,140,953 not to exceed amount. The approval to increase ownership will have an increase in the return
on investment for the Utilities.
Attachments
• CMNIPA's spreadsheet: Increase in CAPX Brooking Entitlements Due to Big Stone Swap
• Proposed resolution for the CAPX2020 Brookings Project Agreement with CMMPA
• Proposed certificate for the resolution
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City of
Elk
River
Resolution 13-
A Resolution of the City of Elk River Appointing a Representative on the
Transmission Project Coordinating Committee and Authorizing an
Allocation Change
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Elk
River, (hereinafter referred to as "City"), as follows:
Section 1. In accordance with Section 404 of the Brookings-Twin Cities Transmission
Project Agreement (the `Brookings Project Agreement") between the City and Central
Minnesota Municipal Power Agency ("CMMPA"),the City hereby appoints Troy Adams,
P.E. as its representative on the Transmission Project Coordinating Committee for the
Transmission Project (as the foregoing terms are defined in the Brookings Project
Agreement),with the power and authority to take action on behalf of the City within the
scope of the powers granted to the Transmission Project Coordinating Committee by
Section 404 of the Brookings Project Agreement.
Section 2: The appointment of the City's Transmission Project Coordinating Committee
representative and the power and authority conferred on the City's representative by Section
1 of this resolution specifically includes the power to vote on behalf of the City with respect
to a pending proposal whereby CMMPA may be authorized,by vote of the Transmission
Project Coordinating Committee,to proceed with an Elective Increase to CMMPA
Percentage Interest (as that term is defined in the Brookings Project Agreement) that would
increase CMMPA's Percentage Interest in the Transmission Project from [3.6%] to [3.9%]
(the "Proposed Increase").
Section 3: The City acknowledges and agrees that if the Transmission Project Coordinating
Committee votes,in accordance with the requirements of Section 404(d) of the Brookings
Project Agreement,to authorize the Proposed Increase, (a) this will authorize, but not
obligate, CMMPA to undertake the actions necessary to contractually commit itself to the
Proposed Increase, and (b) if CMMPA does contractually commit itself to the Proposed
Increase,the City (without any further authorizing action by the City) will be obligated in
accordance with the terms of the Brookings Project Agreement to pay its Participant Share
of additional Monthly Transmission Project Costs (as the foregoing terms are defined in the
Brookings Project Agreement) resulting from the Proposed Increase, even if the City's
representative appointed in Section 1 of this resolution has voted against the Proposed
Increase.
Section 4: The appointment of the City's Transmission Project Coordinating Committee
representative and the power and authority conferred on the City's representative by Section
P 0 W I R I D 9 Y
1`4M UREJ
1 of this resolution will remain in effect until the City delivers written notice to CMMPA that
such appointment has been terminated or superseded.
Passed and adopted this 16"'day of December 2013.
John J. Dietz,Mayor
ATTEST:
Tina Allard, City Clerk
POWERED 0Y
1`4 U
CERTIFICATE
I, Tina Allard, the City Clerk of the City of Elk River, do hereby certify that attached
hereto is a true and correct copy of a resolution duly adopted and representative duly appointed
by the City Council at a meeting duly held on the 16th day of December, 2013, notice of such
meeting having been given in accordance with law and at which meeting a quorum was present
and acting throughout.
I also do hereby certify that such resolution and appointment has not been rescinded or
amended in any way from the date of such adoption and appointment to the date hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 16th day of December,
2013.
Tina Allard, City Clerk