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12-08-2015 ERMU MIN ELK RIVER MUNICIPAL UTILITIES REGULAR MEETING OF THE UTILITIES COMMISSION HELD AT UTILITIES CONFERENCE ROOM December 8,2015 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 1.0 CALL MEETING TO ORDER John Dietz called the December 8,2015 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 December 8,2015 Utilities agenda.Al Nadeau seconded the motion.Motion carried 3-0. 1.3 Recognition of Employee Achievement Mark Fuchs introduced Mitch Girtz and announced that he just achieved his journeyman status. The Commission congratulated Mitch on his achievement. 2.0 CONSENT AGENDA(Approved By One Motion) For agenda item 2.7,2016 Chemical Bids,the Commission inquired as to why staff was recommending the purchase of chemicals from Hawkins,Inc.when they were not the lowest Page 1 Regular meeting of the Elk River Municipal Utilities Commission December 8,2015 bidder. Eric Volk explained that going with Hawkins would be exercising the best value for our money.He shared some of the benefits of working with them including the quality of the product and the service they provide. Peter Beck has reviewed this recommendation to make sure it's in compliance with the bid process. Al Nadeau moved to approve the Consent Agenda as follows: 2.1 November Check Register 2.2 November 17,2015 Previous Meeting Minutes 2.3 Financial Statements 2.4 2016 Official Depository Designation 2.5 2016 Official Newspaper Designation 2.6 2016 Regular Utilities Commission Meeting Schedule 2.7 2016 Chemical Bids 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 Environmental Protection Agency Rules affecting ERMU's Diesel Generation Facility Mike O'Neill shard that in review of new Environmental Protection Agency(EPA)rules relating to reciprocating internal combustion engines(RICE),staff has determined that it is in the best interest of Elk River Municipal Utilities(ERMU)and its customers to terminate the ERMU-GRE Capacity Agreement with Great River Energy(GRE). Termination notice given by December 31,2015 will allow ERMU to avoid significant and costly emission upgrades for our generation facility. These upgrades are projected to cost between$300,000 and$400,000. Giving termination notice means that GRE will remove the generation on May 31,2016 from their Midcontinent Independent System Operator(MISO)market portfolio and ERMU will no longer receive compensation for this capacity. Mike explained that in future should it be in the best interest of ERMU and its customers to place the generation back into the MISO market, ERMU staff could then pursue a new contract with GRE or other power provider and bring that back to the Commission for consideration. There was further discussion. Daryl Thompson made a motion to approve termination notice of the ERMU-GRE Capacity Agreement effective December 31,2015. Al Nadeau seconded the motion. Motion carried 3-0. Page 2 Regular meeting of the Elk River Municipal Utilities Commission December 8,2015 4.2 Security Deposit Policy Based on recent commercial customer experiences and direction from the Utility Commission, staff has been reviewing the Security Deposit Policy. At this time,the focus of the policy review is for the commercial customer class only because of the magnitude of risk with the largest customers.Tom Sagstetter shared that the goal of the policy revision is to minimize the risk to all ratepayers,yet still provide an environment that encourages businesses to locate within the ERMU service territory.The policy also has to be executable and administratively manageable for staff. Staff surveyed several other utilities in the area and found that our current policy is very similar to others,and based on the information gathered came up with a potential new procedure for commercial account move-ins.The new procedure covers:account application,calculating the security deposit,and a process for determining the credit risk for commercial customers.Tom Sagstetter presented and went over details on the following points: Account Application—The new commercial account application would require that a local customer authorized representative come in to the office in person to sign off on the application. The application would also require current property owner or property management contact information to assist with potential disconnects.There was further discussion on being able to access and disconnect multi-tenant buildings. Calculating the Security Deposits—The new process would include running a commercial credit check on the applicant,looking at the past 12 months of utility bills from their electric provider, and requiring the customer to come into the office to sign the service agreement and pay for the security deposit as well as the application fee prior to establishing the account in the business' name. Staff is also looking at a way to re-evaluate the security deposit once we have a history of their usage to determine if the deposit was set too high or too low. Determining the Credit Risk of Commercial Customers—Based on the credit score and a risk matrix that is being developed,commercial customers will have a security deposit that ranges from one to three times their highest monthly bill in the past 12 months,or the estimated monthly cost determined by ERMU staff. The new policy would also allow commercial customers the option to submit a letter of credit for the security deposit versus paying for it outright. ERMU would also have the option to,in their discretion,waive or reduce the required deposit for commercial or industrial customers based on credit risk.There was further discussion on determining risk and letters of credit. Economic Development Director Amanda Othoudt was present,and shared her concerns about the added burden on new commercial customers of having to pay a large security deposit.In addition to the option of providing a letter of credit from a financial institute,and the option of waving the deposit based on credit worthiness,she suggested accepting a letter of reference from their previous utility provider to assist in determining or waiving a deposit. There was further discussion. As staff continues to work on the changes to the commercial deposit policy Page 3 Regular meeting of the Elk River Municipal Utilities Commission December 8,2015 they will keep the Economic Development Director in the loop. Based on Commission support,staff will continue working in the direction that has been outlined. Staff will also be working to create a new service application form,a revised commercial service agreement,a credit risk matrix,and fmal policy revision language that will be brought back to the Commission for approval at a later date. 4.3 2016 Budiet Troy Adams shared that the preliminary budget we were looking at in November reflected a 1.2%rate increase for electric and a 2%rate increase for water. After sitting down with Consultant David Berg and estimating the revenue and expense impacts we would have from the territory acquisition of Area 1,we found that the margin from the acquisition provides significant additional revenue to help offset the significant capital construction projects necessary to upgrade the acquired infrastructure,and hold down rate increases. Troy presented the proposed 2016 budget. The proposed budget and rates result in electric fund revenue of $36,297,457 which includes a projected 3.42%margin and a projected$255,394 net to reserves with a 0%rate increase for our electric customers. John Dietz commented that the 0%electric rate increase and the$2.00 per kW temporary demand rate reduction should really benefit the demand group and help to make us more competitive. There was further discussion. The proposed 2016 water budget reflects a 5.4%in revenue with a total budget of$2,603,100. The water budget results in a.06%projected margin,and a projected$1,741 net to reserves. Troy shared that now that we've completed the multi-year plan to bring rates and cash flow projections in line with capital improvement projects,we can implement a smaller rate increase to just the 1st tier and meter charge and leave the 2nd and 3'd tiers where they are at. The proposed 2016 residential water rates reflect a 2.5%increase to the 1st tier and the meter charge. These rate changes result in a projected 2%increase for a typical residential customer.This is the equivalent to a$5.53 per year increase. Troy explained that for commercial customers it's more difficult to classify a typical user,but based on the rate structure and the amount of usage will result in projected increases between 2%to 2.5%. Troy Adams gave the Commission a heads up on a request our auditors have made that will affect the presentation of the financial statements.The change has to do with the way we record the purchase of territory as capital and make the payments for the loss of revenue(LOR)each year. Theresa Slominiski shared the changes the auditors have requested which were to estimate the ten year LOR to capitalize the entire asset,and the related liability, in the year of acquisition. This would require a significant effort in estimating these numbers, and would impact subsequent years with the delta from the estimate necessitating either an expense or revenue adjustment. Additionally, depreciation would be increased significantly in year one, rather than gradually increasing when the LOR payments are paid and capitalized. After further discussion, it was determined that we would reach out to our Page 4 Regular meeting of the Elk River Municipal Utilities Commission December 8,2015 consultants at Shenahon and Dave Berg Consulting to assist with the estimates,and a future budget revision for this impact will be brought back to the commission. Daryl Thompson made a motion to approve the 2016 Budget. Al Nadeau seconded the motion. Motion carried 3-0. 5.0 NEW BUSINESS 5.1 Filter Plant for Well#9 Proiect Update ERMU has been working with Short Elliott Hendrickson, Inc. (SEH)to develop some preliminary drawings of the new filter at Water Treatment Plant(WTP)#7. Eric Volk presented the expansion construction drawings and went over the details of the project. The preliminary drawings have been submitted to the planning department. The Commission had a few questions. Staff responded. The project,which will go out for bid mid- December and be due mid-January, is expected to begin in early spring 2016. The Commission inquired as to where the money would come from to fund the project. Troy Adams responded that most of it would come from reserves and the remainder would come from a transfer from the water trunk fund. 6.0 OTHER BUSINESS 6.1 Staff Updates John Dietz commented on the preliminary site visit from the auditors scheduled for next week. Theresa Slominski added that although we won't have all the information together for this new development,we could begin discussions on what would be the best way to proceed forward. Mark Fuchs had nothing additional to add to his staff report. John Dietz had a question on what the lead time would be in getting things up and running for a new data center should one choose the location west of town. Mark Fuchs shared that it would take about a year to build a sub-station, and that in the interim we have enough out there to be able to handle their construction and testing needs. There was further discussion on how a possible expansion of the Government Center would impact that. John Dietz wanted to know if it should be a concern that the security department's revenue margin was down almost 50%from last year. Mike O'Neill shared some of the outside factors that could be contributing to the loss of revenue; including lower break-ins and how that affects our sales. There was further discussion. Theresa Slominski added that one of things that might be playing a factor is the way our new billing software reflects the annual Page 5 Regular meeting of the Elk River Municipal Utilities Commission December 8,2015 billing of security system monitoring. With our previous software,the revenue would be recognized in its entirety the month it was billed, and with our new billing software it's being allocated for the entire year.Next year we should have a better monthly comparison as it will reflect the same type of billing and allocation process. Eric Volk wanted to add how nice it was working with the streets department to repair the leak on the Elk River Chamber of Commerce property. On the third attempt to locate the leak, an abandoned service line was discovered to be the source of the problem. John Dietz commented that it was nice to see the cooperation that resulted in minimum disruption to the public at a very busy intersection. Eric estimated that by working together to solve the problem, it saved the city approximately$10,000 to $15,000. Tom Sagstetter had an update to his staff report. Since submitting his report last week,the lighting contest participants have increased from 16 to 28. The participants were asked to have their displays lit the evenings of December 9— 12 for judging. This year ERMU will be publishing the addresses only via the website,the cities website and the Elk River Star News to encourage the community to view participants and contest winners. In addition, Community Education's HOPE program will be taking a bus tour of the holiday lights and will be submitting the winner of their award to ERMU. Cal Portner had two updates. First, the city received a call from Burlington Northern regarding the quiet zones. The city is putting together plans for their part in the project and it looks like the start time could be as early as May. Second, Cal spoke with an enforcement official from the Minnesota Department of Health(MDH)who informed him that the MDH is currently taking enforcement action against Wapiti Park regarding their septic systems. By state rule,they are required to connect to city water and sewer if those services are available. The MDH wanted to verify if city services were stubbed to the property,which they are. John Dietz wanted to know if we still have a plan in place to allow individuals to assess the costs of hookup to their property taxes. Cal responded that the program sunsets on December 31, 2015. There was further discussion. 6.2 Set Date for Next Meeting The next regularly scheduled Commission meeting will be held on January 12,2016. 6.3 Adjourn Regular Meeting There being no further business,John Dietz closed the regular meeting of the Elk River Municipal Utilities Commission a 4:50 p.m. Minutes prepared by Michelle Canterbury. Page 6 Regular meeting of the Elk River Municipal Utilities Commission December 8,2015 � or Ift Al - A hnJ. •ietz hair,ERMU ♦ '- ssion -772 Tina Allard City Clerk Page 7 Regular meeting of the Elk River Municipal Utilities Commission December 8,2015