6.2. ERMUSR 01-09-2018 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
ERMU Commission Troy Adams, P.E.—General Manager
MEETING DATE: AGENDA ITEM NUMBER:
January 9, 2018 6.2
SUBJECT:
2018 Bonding Discussion
ACTION REQUESTED:
None
BACKGROUND:
On September 8, 2008, Connexus Energy provided 10 year notice to terminate the 1990 All
Requirements Contract between ERMU and Connexus Energy. After an extensive evaluation of
wholesale power options, ERMU became the 12th member of the Minnesota Municipal Power
Agency(MMPA) on June 5, 2013. As an agency member ERMU received representation on the
MMPA board of directors immediately and will start receiving All Requirements wholesale
power and transmission services in October 2018.
The MMPA membership agreement includes the terms of the buy-in, which is due prior to
October 2018. In 2016, ERMU made an advance payment towards the buy-in of approximately
$10 million. A true-up for the balance of the buy-in will be due prior to October 2018.
DISCUSSION:
In preparation for the true-up payment to MMPA staff is reviewing bonding options with our
bonding consultants at Springsted. The terms for the buy-in amount are calculated from many
factors at the time ERMU begins receiving wholesale power from MMPA. These factors include
ERMU's size, MMPA's size, and MMPA's equity and rate-related accruals. Basically, ERMU's
MMPA buy-in is based on their load ratio share of MMPA's assets. All of these factors have
grown since 2013 which has resulted in an increased projected buy-in amount. And although the
projected buy-in amount has increased, so has the projected savings over the life of the contact.
The bottom line: under current conditions ERMU's decision to join MMPA will not adversely
affect rates in the short term and are projected to provide significate long term value. And
because of the significance of this investment, a governance discussion regarding the buy-in
would be beneficial. There are a number of key performance indicators relevant to this
investment which warrants discussion. First, return on investment and long term strategic
analysis of the decision to join MMPA. Second, annual cash flow and short term financial and
strategic analysis of the buy-in. Third, other value add related to the membership. And lastly,
factors which could affect the ROI and short term cash flow and the sensitivity of those factors.
Staff will facilitate a discussion with the Commission and provide an overview on these four
topics during the Commission meeting.
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