5.2. ERMUSR 07-15-2014 ,//
Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Troy Adams, P.E. —General Manager
John Dietz, Chair Al Nadeau, Vice Chair
Daryl Thompson, Trustee
MEETING DATE: AGENDA ITEM NUMBER:
July 15, 2014 5.2
SUBJECT:
American Public Power Association 2014 National Conference
BACKGROUND:
Based in Washington D.C., American Public Power Association(APPA)was created in 1940 as
a nonprofit/non-partisan organization to promote and support public power policy and interests
for the nation's now more than 2,000 community-owned electric utilities. Elk River Municipal
Utilities recently had representation in attendance at the APPA 2014 National Conference and
the Pre-Conference Seminars. This APPA event is public power's largest annual gathering. "The
APPA National Conference helps utility leaders and policymakers connect with industry leaders,
partners and peers while learning about the complex issues facing public power utilities. The
program features leading political, economic, business and public policy thinkers addressing the
critical issues shaping our industry's future."
DISCUSSION:
As highlighted by our APPA Reliable Public Power Provider(RP3) designation, Elk River
Municipal Utilities provides excellent customer service and safe/reliable utility services. And as
reported by Moody's when ERMU refunded municipal bonds early this year, we are financially
strong and in a great position for future growth. After receiving the cancellation notice on our
current wholesale power contract, ERMU researched options and joined Minnesota Municipal
Power Agency(MMPA)whose wholesale rates are lower than the previous contract with
significantly less carbon tax risk. And as within our statutorily rights, ERMU is working with
our neighboring utility to acquire the remaining electric service territory within the corporate
boundaries of the City of Elk River. We continue to adopt policies and implement practices to
protect our customers and community. It is evident that our public power utility is heading in the
right direction and that we compare very well to the public power community. Our staff,
Commission, City, customers, and community should take great pride in Elk River Municipal
Utilities and what an excellent public utility we have become.
Even with all our accomplishments there are always opportunities for improvement. Our
industry is always undergoing change,but recent times have seen greater change than the past.
And the future of our industry looks to see even greater change. It is important for us, as
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stewards of public power in our community, to be progressive and strategically plan for the
future. When attending industry events, staff is always looking for new ideas that may help
ERMU improve our services. During this event and the pre-conference seminars there were
many opportunities to engage other public power managers and policy makers to discuss issues
facing Elk River Municipal Utilities.
There were a number of reoccurring discussion points and takeaways from those conversations,
the pre-conference seminars, and the conference break-out sessions. As follows in no particular
order are the top topics from the APPA National Conference for ERMU Commission discussion:
Environmental Protection Agency EPA)—Proposed Carbon Dioxide (COQ) Emissions
Guidelines for Existing Fossil Fuel-Fired Power Plants: The guidelines were released days
before this conference leaving little time for APPA to research and prepare presentation material.
Teresa Pugh, APPA's Director of Environmental Services, and Alex Hofmann, APPA's Energy
&Environmental Services Manager, did a great job working through 100's of pages of the rule
to provide a report on their analysis of the proposal. This is a big deal for our industry and for
our national economy. Some of the key points and questions regarding this proposed rule:
• It is widely believed that this EPA proposed rule exceeds the authority given under the
Clean Air Act(CAA). It is questionable whether the EPA through the CAA would be
equipped to enforce the rule. Congress would better represent the citizens, and would be
able to better address any concerns related CO2 reduction, and therefore should be the
ones to develop a plan for CO2 reduction, not the EPA.
• The proposed rule would reduce CO2 emissions by 30%nationwide by 2030.
• Although the 30% goal is nationwide, states would be required to individually develop a
plan from proposed options to meet their own goals. This approach does not take into
account that many generation facilities are not sited in the same state as the end user. If
states are not required to work together, there will likely be subsidization.
• The goals are front loaded creating addition compliance concerns.
• Minnesota's required reduction is among the highest in the nation at 41%. North
Dakota's and Wisconsin's required reductions are 11%, and 34%respectively. This
proposed rule is likely to put Minnesota at an economic disadvantage to our neighboring
states and put the Midwest at an economic disadvantage to the country and the global
economy.
• Unclear whether the emissions reduction baseline is 2005 as originally noted, or is 2012.
If the emissions baseline is 2012, it would mean that renewables installed between 2005
and 2012 would not count towards the reduction goal. This might eliminate the
contribution towards the goal from MMPA's 44MW Oak Glen Wind Farm which entered
commercial operation in October 2011. Essentially, early adopters may be penalized.
• It is unclear which state entity would have ultimate jurisdiction over the rule: Minnesota
Pollution Control Agency, Minnesota Public Utilities Commission, Minnesota
Legislators, etc...
• There will be a comment period before the rule go into effect. It is not too early to
discuss the proposed EPA rule's impact on our community with our state agencies and
elected officials.
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Cyber and Physical Security: Another major discussion point was security. Theresa Payton,
Former White House Chief Information Officer to President George W. Bush, gave a
presentation on cyber security. There were multiple breakout sessions regarding cyber security
as well as physical security. This is a very important topic for public power providers and our
customers. These presentations generated much discussion and have given staff ideas to
strategically plan for the ever changing challenges of cyber and physical security. Staff has
discussed these presentations with City IT staff and will look to propose policies and adopt
practices to better protect our customers from cyber and physical attacks.
Strategic Planning: This is the process performed by organization's key stakeholders to develop
defined organizational direction/goals and a roadmap to get there. Typically this is establishing a
path for the future of the organization looking out a decade or so identifying and planning for
Strengths, Weaknesses, Opportunities, and Threats (SWOT). Strategic thinking is very different
from operational thinking, which focuses on successfully running a smooth and efficient
organization over short term. Both strategic thinking and operation thinking are very important
and will play key roles in the long term success of ERMU. Traditionally companies use outside
facilitators for their strategic planning. ERMU has been in a unique transition where the
strategic issues have risen to the front burner and we've been addressing them one by one:
company structure, labor and compensation, wholesale power contract, water and electric
distribution system upgrades,billing and customer service software upgrade, electric service
territory, etc... In the future, after working through some of these major strategic issues, the
Utilities should pull back and perform a more traditional strategic planning session.
Utilities Commission Governance: Just as with any job,understanding the responsibility and
expectations associated with that job is essential to be effective and successful. In particular,the
fiduciary responsibilities of the Commission relating to compliance with legal requirements,
protection of assets, and accurate accounting and reporting of financial transactions and
conditions, are critical responsibilities for the Utilities Commission to understand because these
responsibilities are non-delegable. The Commissioners are personally responsible for these. The
Commission is also indirectly responsible for the performance, accomplishments, and method
those accomplishments are achieved. These responsibilities are typically delegated to the
General Manager. Also important for effective governance are clearly defined guidelines for the
relationship with management, governance evaluations, and industry training.
I am currently serving on the executive board of directors for the Minnesota Municipal Utilities
Association(MMUA). The staff at MMUA has created a Board Member Resource Manual as a
guide for their board members. This manual has proven to be very useful for me in
understanding my role in that organization as well as knowing my legal and ethical
responsibilities to the membership. Based on the MMUA manual, staff is working on developing
an ERMU Commission Handbook for the Commission to consider for adoption. This handbook
should help new and existing Commissioners be informed on their fiduciary responsibilities and
legal requirements for things like conflicts of interest, open meeting law, and data practices.
After this proposed handbook is reviewed by legal counsel, staff will bring it to the Commission.
Contingent upon Commission support, the Commission would be requested to provide feedback
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on the draft to help develop a handbook for consideration by the Commission. Staff looks to
bring the draft of the handbook to the Commission in the future.
Financial Oversight and Budgeting: The complexities to public utilities' finances are increasing
with the changing world we live in. The shift to a global economy,the changes in power
generation and transmission markets, the increase in Federal and State regulations and unfunded
mandates, the responsibilities to our local government, the perception of our community, these
are all important issues for a utility to address to have long term financial strength. Public power
has the added complexity of balancing between operating like a business and being overseen like
government. If any of these components are weighted too heavily, a utility can suffer over the
long term. There is public pressure to minimize rates yet maintain a fiscally healthy utility while
providing safe and reliable utility services. At ERMU we have done a great job setting multiple
key annual financial targets including debt coverage ratio, cash reserves policies, and target
operating income and margins. Much of this is done through the development of the annual
budget and the review of the financial audit. In attending this conference as well as others, it is
apparent that compared to many public power providers ERMU's financial policies and practices
are strategic,progressive, and often already well established. We have set the bar high for
others.
Employee Recruitment, Retention, and Development: Workforce development is one of the four
categories used in the APPA RP3 evaluation. Although ERMU has been recognized nationally
as one of the very few with the RP3 designation, we scored lower in the workforce development
section. In the short term, ERMU is still able to meet the operational goals. But in the long
term, ERMU has been in a compromised position not being able to develop and retain
employees. All positions are important,but the discussions at the conference really focused on
the exposure that public utilities have with losing upper management and critical skill positions.
To help position ERMU to be market competitive, the Commission recently established the
Wage &Benefits Committee as a vehicle for compensation review. The Commission also has
recently adopted a multi-group pay plan to create improved flexibility for the Commission to
follow multiple labor markets. These changes have put ERMU ahead of other public power
providers by providing the Commission the ability to analysis sensitive data and appropriately
adapt to changing markets.
Other key topics discussed were: The path to electric municipalization for Boulder, Colorado;
Small modular nuclear reactor developments; Electric service territory acquisition developments;
Analysis and selection of a wholesale power provider; National Information Systems
Cooperative(NISC); Municipal transmission ownership and regulation; Communicating the
public power message to the customers; The value of the integrated grid and using utility-scale
and distributed energy resources; and legislative and regulatory issues. Overall,this conference
provided a fire-hose of information and was well worth the time for Commission Vice Chair Al
Nadeau and me to attend.
Next year the APPA National Conference will be held June 5th- 10th in Minneapolis,MN.
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