1.5. ERMUSR 10-08-2019 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
ERMU Commission Troy Adams, P.E. —General Manager
MEETING DATE: AGENDA ITEM NUMBER:
October 8, 2019 1.5
SUBJECT:
Recognition of Electric Service Territory Transfer Completion
ACTION REQUESTED:
None
BACKGROUND:
Per Minnesota Statues §§ 216B.44 and 2166.47, Minnesota municipal utilities have the
statutory right to acquire electric service territory within their corporate boundaries via
proceedings before the Minnesota Public Utilities Commission or by commencing an eminent
domain proceeding in District Court.
With both processes, the statute directs that in making the determination of compensation, the
following four factors shall be considered: the original cost of the property less depreciation
(net book value of plant), loss of revenue to the utility formerly serving the area (LOR),
expenses resulting from integration of facilities (reintegration), and other appropriate factors
(other).The municipal utility also has the right to negotiate the terms for an electric service
territory transfer directly.
In 1991, ERMU and Anoka Electric Cooperative (AEC, now Connexus Energy) executed a 20-year
orderly electric service territory transfer agreement. This agreement was negotiated directly
while considering the four factors identified in statue. The total footprint of this agreement is
indicated on the attached map 2015 ERMU Electric Service Territory. This agreement was
negotiated and implemented on good terms with AEC and was completed on schedule in 2011.
On March 20, 2015, ERMU and Connexus Energy executed an electric service territory
agreement which established terms for an orderly transfer of approximately 2,000 Connexus
members and 12 square miles of electric service territory within the city corporate limits to
ERMU.The orderly transfers were structured to be completed within five years of the date of
the first transfer in September 2015. The negotiations took three years and were, again,
conducted directly while considering the four factors identified in statue. The total footprint of
this agreement is also indicated on the attached map 2015 ERMU Electric Service Territory, and
the subdivision of the total footprint is indicated on the attached map 2015 Elk River Municipal
Utilities& Connexus Energy Electric Service Territory Transfer Agreement Overview.
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DISCUSSION:
The final transfer of customers under this agreement occurred on September 17, 2019, one
year ahead of schedule. And although the initiative is not complete, a major milestone has been
reached; all of the citizens within the affected areas are now ERMU electric customers.
This electric service territory transfer initiative is made of multiple phases and involved nearly
every employee as well as many stakeholders outside of ERMU. The support, dedication, and
hard work of all those involved contributed to this initiative's success.
The first phase involved the alignment in goals of the commission and the city council. In 2012
both the commission and the council unanimously passed resolutions supporting the initiative
to serve all customers within the corporate boundaries of Elk River.
The second phase involved establishing terms for the transfer with Connexus Energy. Shortly
after the completion of the 1991 electric service territory transfer agreement initiative,
executive level discussion began between ERMU and Connexus Energy regarding the transfer of
the remaining electric service territory within the City of Elk River. Early in those discussions
both parties agreed to conduct value based negotiations, looking to achieve an agreeable
solution that provided the best value to the members/customers. These efforts for value based
negotiations were openly criticized by members of the Minnesota municipal and cooperative
families. Throughout the initiative both parties remained true to that commitment.The
negotiation of terms was conducted to meet both parties' goals while avoiding the costs of
litigation ultimately improving the value delivered to the members/customers. A high priority
was placed on preserving the relationship between the two parties, one of the inherent
advantages of value based negotiations.
The negotiations were successful and resulted in providing added value for both parties.
Notable value additions were the development of emergency tie points between the two
parties.These tie points allow both utilities to use the other's infrastructure for backup while
doing planned maintenance or emergency repairs. This allows both parties to reduce loading
and design criteria for disaster preparedness and planning. This value addition has already been
used many times by Connexus Energy since 2015. And ERMU was able to receive favorable loss
of revenue payment terms for municipally owned and municipally developed properties.
The third phase involved planning. Connexus Energy and ERMU employees worked together to
identify subdivision "areas" within the total footprint which would reduce reintegration costs to
the community. It can't be highlighted enough that the significantly above and beyond effort by
Connexus employees in this planning process helped reduce the end costs to the community.
Additionally, this collaborative planning effort reduced risk and shorted transfer outage times.
The fourth phase was to implement the orderly plan for the transfers. Throughout this
multiyear initiative, collaboration between the departments was critical. This initiative involved
nearly every employee in the company at one point or another. And those not directly involved
contributed by supporting this initiative as a company priority. Multiple departments worked
together to address processes for: meter change outs; migration from Connexus Energy rates
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and programs to ERMU rates and programs; development of a demand credit program during
the transition, booking of the transferred plant/assets; recognition of costs associated with the
four factors in the financials including working with the auditors; rebuilding portions of the
electric distribution system to meet ERMU standards and improve reliability; development and
implementation of a communication and customer engagement plan; working with our
accounting and billing software company to address data and rate issues; as well as many more
tasks. These opportunities for collaboration and problem solving became stretch opportunities
for staff. Many employees grew professionally through this initiative.
Directly related to the implementation of this initiative, field staff did the planning for, procured
materials for, installed, and then terminated equipment over 22 miles of electric cable. Of that,
over seven miles of 3-phase feeders were installed. There were over 2,250 meters installed and
nearly 2,000 accounts set up in the billing system. And, there were thousands of customer
engagements and communications that occurred. All of this while maintaining operations and
administration for existing customers and organic growth during the recession recovery, one of
the busiest development times ERMU has experience since 2006.
Within the transferred areas, there has been customer growth greater than the system
average. The transferred areas have seen 4.5%growth since the transfer dates as indicated in
the attached Table 1 —2015 Electric Service Territory Transfer Agreement—Customer Statistics.
These areas are expected to continue to grow at a rate greater than the system average for
years to come.
In the end,the employees took on a significant initiative directed by the commission and
supported unanimously by the council. The employees delivered the desired results in a safe,
reliable, and cost effective manner. And, the employees delivered these results one year, 20%,
ahead of schedule. All of this was achieved while maintaining the positive working relationship
with Connexus Energy. And all of this was achieved while implementing other initiatives which
allowed ERMU to lower electric rates by 5%. Not only is the completion of the transfer of this
service territory and transfer of these customers a significant milestone, delivering this level of
results in this manner, in this amount of time, while achieving goals to lower rates truly
demonstrates the quality and dedication of our ERMU employees.
ATTACHMENT:
• 2015 Elk River Municipal Utilities Electric Service Territory— History
• 2015 Elk River Municipal Utilities & Connexus Energy Electric Service Territory Transfer
Agreement—Overview
• Table 1- 2015 Electric Service Territory Transfer Agreement—Customer Statistics
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2015 Electric Service Territory Transfer Agreement - Customer Statistics
Time of Transfer October 2019
Load Customer
Transfer Year Area(s) Customer Customer Account
Meters Management
Accounts Accounts Growth Since
Customers
Transfer Date
2015 1A& 1B 860 1,012 152 937 8.95%
2016 2 198 223 26 204 3.03%
2017 3 &4 481 529 130 479 -0.42%
2018 5 &6 334 383 100 341 2.10%
2019 7&8 78 105 31 78 0.00%
Total 1,951 2,252 439 2,039 4.51%
Table 1
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