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2.2. ERMUSR 11-17-2015 (22 , ELK RIVER MUNICIPAL UTILITIES REGULAR MEETING OF THE UTILITIES COMMISSION HELD AT UTILITIES CONFERENCE ROOM October 13,2015 Members Present: John Dietz,Chair;Al Nadeau,Vice Chair;and Daryl Thompson,Trustee ERMU Staff Present: Troy Adams,General Manager; Theresa Slominski,Finance and Office Manager; Mark Fuchs,Electric Superintendent; Eric Volk,Water Superintendent; Mike O'Neill,Technical Services Superintendent; Tom Sagstetter,Conservation&Key Accounts Manager; Michelle Canterbury,Executive Administrative Assistant; Tom Geiser,Assistant Electric Superintendent; Jennie Nelson,Customer Service Manager Others Present: Cal Portner,City Administrator;Peter Beck,Attorney 1.0 CALL MEETING TO ORDER John Dietz called the October 13,2015 meeting to order at 3:30 p.m. 1.1 Pledge of Allegiance The Pledge of Allegiance was recited. 1.2 Consider Utilities Agenda There were no additions or corrections to the agenda. Daryl Thompson moved to approve the October 13,2015 Utilities agenda. Al Nadeau seconded the motion.Motion carried 3-0. 1.3 Recognition of Company Achievement Theresa Slominski presented the Well Workplace Award Elk River Municipal Utilities received from Resource Training&Solutions.Efforts of Michelle Martindale and Angela Hauge,who serve as our representatives on the committee,were recognized at the awards banquet held on October 7th. Theresa shared that one of factors that goes into evaluating the recipients of the award is management support of the program,and that's a direct reflection on the commission for allowing us to participate. Angela Hauge was present and gave an overview of the program and our partnership with the city. The commission congratulated the company and staff on their Page 1 Regular meeting of the Elk River Municipal Utilities Commission October 13,2015 25 achievement. 2.0 CONSENT AGENDA(Approved By One Motion) John Dietz had a few questions on the financials, staff responded. Al Nadeau moved to approve the Consent Agenda as follows: 2.1 September Check Register 2.2 September 8,2015 Previous Meeting Minutes 2.3 Financial Statements Daryl Thompson seconded the motion. Motion carried 3-0. 3.0 OPEN FORUM No one appeared for open forum. 4.0 OLD BUSINESS 4.1 Electric Service Territory Update Tom Sagstetter sharedthat on September 22,2015 approximately 300 customers were transferred from the Connexus 1A area to Elk River Municipal Utilities(ERMU).The outage was minimal and went extremely well.Meters were changed out within the week.Jennie Nelson informed the Commission that the data migration and meter reading went very smooth and the data collected and entered appears to be very accurate. Dave Berg of Dave Berg Consulting,LLC worked with staff to analyze ERMU's options to address differences from Connexus Energy in the demand tariff philosophies. ER.MU's rate is more demand focused and Connexus' rate is more energy focused. Dave Berg and staff developed a short term solution and a long term plan. Staff is proposing a$2.00 temporary demand rate reduction for the demand billed customer class for the remainder of 2015 and all of 2016.The rate adjustment would apply to both newly acquired and existing ERMU customers in the demand electric service customer class. The nature of the adjustment and the impact on bills would be communicated to customers with a letter included with their next bill. We would also stress to customers that the 2016 demand adjustment will be temporary and part of the transition in the acquisition of service territory and the change to a new wholesale power supplier in 2018. ERMU would like to bring back Dave Berg to conduct a rate design study for 2017 to help determine how the cost for ERMU customers will change with the transition of wholesale power providers in 2018. The rate study will also provide useful information relative to continued adjustments to the retail demand rates.Troy Adams went over the cost to fund the reduction and explained where the money would come from to cover it. There was further Page 2 Regular meeting of the Elk River Municipal Utilities Commission October 13,2015 26 discussion. Troy Adams distributed and went over a map with the different areas and the timeframes we'll be acquiring them from Connexus.There was further discussion. Mike O'Neill shared that at 9:00 a.m.this morning,600 customers were transferred over from the Connexus 1B area and that it went outstanding. The outage lasted just three minutes and the meter technicians were able to install over 200 meters. All of the employees,across the board, gave it their all and worked together to help ensure everything went as smooth as possible. There was further discussion. Daryl Thompson made a motion to approve a$2.00 temporary demand rate reduction to begin with the November 2015 billing and continue through the 2016. calendar year,to be re-evaluated at that time. Al Nadeau seconded the motion. Motion carried 3-0. 4.2 Payment in Lieu of Taxes(PILOT)and Other Donations to the City of Elk River On September 8,2015,the commission reviewed proposed changes to the PILOT Policy that would delay PILOT for the areas acquired from the recent Connexus electric service territory transfer agreement. Based on commission direction,staff has strengthened the language to be specific to the March 20,2015,electric service territory transfer agreement. Staff recommended the commission adopt effective immediately the proposed October 13,2015,revision to ERMU Policy 8.13. Troy Adams pointed out that currently the PILOT Policy outlines in section 3.0,Donated Electricity,that ERMU shall donate all electricity to the City of Elk River for all of their facilities not associated with enterprise funds of the City of Elk River. Since the September meeting,staff have had discussions with the City about an option to maintain the level of donation to the city and reduce the extremely burdensome administration process involved to do so. Jennie Nelson and Theresa Slominski went over the process involved with recording and posting the donations through the billing system and general ledger. The process requires significant staff time and due to its manual nature is also subject to human and keying errors. Troy Adams explained that ERMU and city staff have been evaluating increasing the PILOT percentage contribution from 3%to 4%,and eliminating the donated electricity not associated with street lights and signal lights. An increase in the PILOT of 1%with an offsetting reduction for the elimination of donated electricity(with the exception of street and signal lights)would be nearly a cash neutral policy change.Due to the 2016 budget approval process,utilities and city staff agree that a January 1,2016,implementation would be best. However,to allow city staff to incorporate the proposed change into their budget,staff is recommending the commission adopt the second proposed policy language change to be effective January 1,2016. There was further discussion. Al Nadeau made a motion to adopt effective immediately the proposed October 13,2015, policy revisions to the"ERMU Policy 8.13-Payment in Lieu of Taxes(PILOT)and Other Page 3 Regular meeting of the Elk River Municipal Utilities Commission October 13,2015 27 Donations to the City of Elk River"which reflects a delay of PILOT related to the March 20,2015 electric service territory transfer agreement. Daryl Thompson seconded the motion. Motion carried 3-0. Daryl Thompson made a motion to adopt the second proposed policy language change to be effective January 1,2016,which will result in a shift in policy mechanics increasing the policy PILOT from 3% to 4% and eliminating the donation of electricity with the exception of street and signal lights. Al Nadeau seconded the motion. Motion carried 3-0. 4.3 Expansion of the Elk River Municipal Utilities Board of Commissioners At the September 8,2015 utilities commission meeting, staff was directed to present a proposed expansion of the commission membership to the city council. A presentation was made at the October 5,2015 city council meeting. Council supported the proposal for expansion and discussed the number of council membership allowable on the commission. The council approved action for legislation to expand the utilities commission up to five members;and upon expansion to five members,no more than two commissioners could come from council membership. Troy Adams presented the proposed language for an expansion of the utilities commission and went over next steps in the expansion process. There was further discussion. Al Nadeau made a motion to approve the proposed language for an expansion of the utilities commission. Daryl Thompson seconded the motion. Motion carried 3-0. 4.4 Environmental Protection Agency Rules Affecting ERMU's Diesel Generation Facility In preparation for the 2016 power contact with Great River Energy(GRE)in regards to the Diesel Engine Power Plant,Mike O'Neill has been working with vendors to assess the need and cost of retrofitting and upgrading the exhaust systems for our two engines to bring them into compliance with the new Environmental Protection Agency(EPA)regulations. Mike shared that we're still in the process of receiving quotes for the project,and that he and Troy Adams will be meeting with GRE and Minnesota Municipal Power Agency(MMPA)to help determine their interest in having them on the Midcontinent Independent System Operator(MISO)market. Staff anticipates having a recommendation for the commission by the end of the year. 5.0 NEW BUSINESS 5.1 2016 Budget: Water and Electric Expenses Theresa Slominski presented the water and electric expense budgets. The 2016 forecast for water expenses reflected a 2.37%increase over the current year budget and the electric expenses a 2.78%increase.For electric,the wholesale power costs make up between 70-75%of the operating budget,and including the power costs,the increase is 2.94%.The expense budget will Page 4 Regular meeting of the Elk River Municipal Utilities Commission October 13,2015 28 change as the complete 2016 budget is assembled and the finalized wholesale power costs are reflected.Theresa mentioned that the presentation of the budget is a little different from last year;the budget categories are broken down and notes and explanations are presented if deemed worthy. Theresa reached out to the commission to see if they had any questions on the expense portion of the 2016 budget. John Dietz said that many of the line items in the budget noted an increased cost due to the new territory acquisition.John inquired as to what the approximate increase in expenses would be if you took away all the increased costs from the territory acquisition. Theresa Slominski explained that many of the line items with increases were due to reallocation of labor,and while that line item increased another line item was reduced. Troy Adams added that some of the increases are due to cost,such as increased maintenance costs on the equipment and structures we've recently taken over.John Dietz had some additional questions on a few of the line items. Staff responded. John Dietz inquired as to what percentage of increased revenue we would likely experience as a result of the newly acquired customers. Staff will be presenting 2016 revenues in November where they'll be able to better address this question. Troy Adams shared that staff plans to have a separate calculation for the new territory.The thought is to run the existing customers the way we normally do so we're not changing our formula,and developing a separate formula for the new territory for just next year. They'll calculate the revenue and power cost of areas lA and 1B separate from our existing,and then add those amounts back into our expenses and revenue as a separate line item. 5.2 2016 Utilities Fee Schedule Troy Adams presented the 2016 Fee Schedule to the Commission. There were just three adjustments to the schedule from 2015 to 2016. Troy proposed opening up for discussion our philosophy we have on how our fees our developed. Troy reviewed our current philosophy,those who create the cost pay for the cost, and gave examples on how that worked. After further discussion the Commission affirmed that philosophy. Staff recommended the Commission approve the 2016 Utilities Fee Schedule for adoption into ordinance by the City Council. Daryl Thompson made a motion to approve the 2016 Fee Schedule. Al Nadeau seconded the motion. Motion carried 3-0. 5.3 Performance Metrics and 3rd Quarter Update Theresa Slominski presented the Performance Metrics third quarter update. Now that we've received the customer satisfaction survey results, we now have numbers to report in each of the categories. Staff is on target for all metrics except one; the CA1DI reliability metric. CAIDI is the average outage duration, or average restoration time. The goal is 120 minutes Page 5 Regular meeting of the Elk River Municipal Utilities Commission October 13,2015 29 or less and we're currently at 152 minutes for the metric calculation. 6.0 OTHER BUSINESS 6.1 Staff Updates Eric Volk added that the Zylstra Harley Owners Group(HOGS)painted 85 hydrants on September 20th. Eric gave an update on the interior painting project at the Gary Street Water Tower. Eric informed the commission that we would be lowering the Orono lake level on September 9th for our annual Dam inspection. After publishing notice in our Connector newsletter,we received a few calls with questions from lakeshore homeowners. John Dietz had a question on when the promotional flyer for the LED lighting would be going out. Tom Sagstetter responded that it would be going out with the October 22nd billing. 6.2 Set Date for Next Meeting The next regularly scheduled Commission meeting will be cancelled due to a scheduling conflict,and a special meeting will be held on November 17,2015. The Commission recessed the regular meeting at 4:40 p.m. 6.3 Closing of Meeting: "Meeting to be Closed pursuant to MN Statute 13D.05, Subd. 3(c)(3)to develop or consider offers or counteroffers for the purchase or sale of real or personal property." a. Call Closed Session to Order b. Discussion c. Adjourn Closed Session 6.0 OTHER BUSINESS Employee Lunch—Al Nadeau suggested that the utilities cater in lunch for the employees to recognize all the hard work they put in to the electric service territory transfer. Peter Beck suggested making a motion to do so. Al Nadeau made a motion to authorize staff to provide lunch to ERMU employees in recognition of their hard work on the Connexus electric territory transfer. Daryl Thompson seconded the motion. Motion carried 3-0. Page 6 Regular meeting of the Elk River Municipal Utilities Commission October 13,2015 30 6.4 Adjourn Regular Meeting There being no further business,John Dietz adjourned the regular meeting of the Elk River Municipal Utilities Commission at 5:05 p.m. Minutes prepared by Michelle Canterbury. John J.Dietz Chair,ERMU Commission Tina Allard City Clerk Page 7 Regular meeting of the Elk River Municipal Utilities Commission October 13,2015 31