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05-12-2020 ERMU MINELK RIVER MUNICIPAL UTILITIES REGULAR MEETING OF THE UTILITIES COMMISSION HELD VIRTUALLY DUE TO COVID-19 PANDEMIC May 12, 2020 Members Present: Chair John Dietz, Vice Chair Al Nadeau, Commissioners Paul Bell, Mary Stewart, and Matt Westgaard ERMU Staff Present: Troy Adams, General Manager Theresa Slominski, Administrations Director Mark Fuchs, Operations Director Mike Tietz, Technical Services Superintendent Dave Ninow, Water Superintendent Tom Sagstetter, Conservation & Key Accounts Manager Michelle Canterbury, Executive Administrative Manager Jennie Nelson, Customer Service Manager Tom Geiser, Electric Superintendent Melissa Karpinski, Finance Manager Chris Kerzman, Engineering Manager Tony Mauren, Communications & Administrative Coordinator Others Present: Peter Beck, Attorney; Cal Portner, City Administrator; Debra Englund, HRExpertiseBP; and David Berg, Dave Berg Consulting, LLC. 1.0 GOVERNANCE 1.1 Call Meeting to Order The regular meeting of the Utilities Commission was called to order at 3:30 p.m. by Chair Dietz. 1.2 Roll Call Chair Dietz conducted a roll call for the commission members. 1.3 Consider the Agenda Chair Dietz stated that he had an item to add'to Other Business. Moved by Commissioner Westgaard and seconded by Commissioner Bell to approve the May 12, 2020, agenda. Motion carried 5-0. Elk River Municipal Utilities Commission Meeting Minutes May 12, 2020 Page 1 c ' 2.0 CONSENT AGENDA(Approved By One Motion) Commissioner Stewart requested a correction to the April 14 Regular Commission Meeting Minutes. In the first paragraph on page four, she requested that the "unedited portion of the audit" be changed to "unaudited statistics portion of the annual financial report." Moved by Commissioner Bell and seconded by Commissioner Nadeau to approve the Consent Agenda, with the requested correction to the April 14, 2020 Regular Meeting Minutes, as follows: 2.1 April 2020 Check Register 2.2 April 14, 2020 Regular Meeting Minutes 2.3 April 28, 2020 Special Meeting Minutes 2.4 2020 First Quarter Performance Metrics Scorecard Statistics 2.5 2019 Consumer Confidence Report 2.6 Elk River Municipal Utilities / Connexus Energy —Joint Request for Minnesota Public Utilities Commission Modification of Parties' Electric Service Territory Boundary Motion carried 5-0. 3.0 OPEN FORUM No one appeared for open forum. 4.0 POLICY & COMPLIANCE 4.1 Policy Manual Initiative Mr. Adams shared that, per the initiative schedule, there are three remaining policies in this initiative for the commission to address: A.1 Service Policies, E.1 Electric Department Rules, and WA Water Department Rules. Mr. Adams noted that due to these policies containing a large amount of procedure, staff worked with legal counsel to develop three new commission policies that will supersede the old policies. Mr. Adams presented the three new proposed governance policies G.4e1 Customer Accounts, G.4e2 Electric Services, and G.4e3 Water Services. With the addition of the three new commission polices outlined above, the three old policies are proposed to be moved to the Management Policy Manual. This action would delegate the authority over these policies to management. Elk River Municipal Utilities Commission Meeting Minutes May 12, 2020 Page 2 Mr. Adams recognized Ms. Canterbury for all the hard work she put in to complete this four- year project. Moved by Commissioner Nadeau and seconded by Commissioner Westgaard to approve the following: • Adopt new governance policies: G.4e1, G.4e2, and G.4e3. • Delegate authority to management and move the following policies to the Management Policy Manual: A.1, E.1, and W.1. Motion carried 5-0. 4.2 Deposit Policy At the April 14, 2020 commission meeting, the commission discussed the current Customer Deposit Policy and directed staff to research other utilities polices and bring that information back to the May meeting. Ms. Nelson provided an update and explained that staff is still in the process of gathering data from Minnesota Municipal Utilities Association, American Public Power Association, and other neighboring utilities. She noted that this will be brought back to the commission at a later date once all the information has been compiled. 5.0 BUSINESS ACTION 5.1 Financial Report— March 2020 Ms. Karpinski presented the March 2020 financial report as outlined in her memo. Ms. Karpinksi noted that usage and revenue were down for March but so were expenses, ultimately leading to a favorable financial month. Ms. Karpinksi stated that year-to-date financials compared to 2019 and budgeted totals were also favorable. Commissioner Stewart had a question about the relationship between the April purchased power and the April usage on the sales and usage graphs presented. Staff responded. Chair Dietz had a question about the increase in water connection fees compared to the previous year. Staff confirmed that this was due to the City's new multipurpose facility. Moved by Commissioner Stewart and seconded by Commissioner Bell to receive the March 2020 Financial Report. Motion carried 5-0. Elk River Municipal Utilities Commission Meeting Minutes May 12, 2020 Page 3 5.2 2020 First Quarter Delinquent Items Ms. Karpinski presented the delinquent items for the first quarter, including a delinquent amounts report totaling $2,707.86 for all services. She also presented the delinquent items comparisons for 2017 — 2020. Ms. Karpinski noted that our percentage of uncollectible accounts, at .029% per revenue dollar, is well below the national average which is between .17% and .40%. Chair Dietz asked if there was an increase in the number of customers delinquencies due to COVID-19. Ms. Nelson responded that payment arrangement calls have decreased significantly. She added that the Credit & Collections Specialist has stayed in contact with customers to ensure they understand the changes to energy assistance guidelines. Moved by Commissioner Nadeau and seconded by Commissioner Bell to approve the 2020 First Quarter Delinquent Items. Motion carried 5-0. 5.3 Electric and Water Cost of Service and Rate Design Study ERMU staff has been working with Dave Berg Consulting, LLC on an electric and water cost of service and rate design study. The work was done to evaluate possible changes to the electric and water retail rates and applicable fees. Staff evaluated changes in operating conditions, including but not limited to: monthly fixed costs, additional service fees, bonding for the new field services building, and retail energy and water rates. Mr. Berg was at the meeting to present the draft reports and answer any questions the commission may have. Mr. Berg walked the commission through the high points of the Water Cost of Service and Rate Design Study draft report which included: Projected Operating Results with Existing Rates, Cost of Service, and Proposed Rates. For the Projected Operating Results with Existing Rates Section in the water report Chair Dietz asked why the study utilized flat operating revenue for the utilities from 2020 to 2024. Mr. Berg explained that by using flat water and electric sales for the study period it helps creates a conservative baseline for staff to work with. Commissioner Stewart inquired if the capital improvement data had been updated based on any new information on the Highway 169 Redefine project. Mr. Adams responded that ERMU has not received final plans for the project. Ms. Slominski added that these are the best estimates based on the information available at this time. For the Cost of Service Section in the water report Mr. Berg noted that when comparing residential water customers to commercial/industrial water customers, the respective costs of service closely matched the percentage of revenue. Based on the overall revenue and cash reserve needs of the water department, and the results of the cost of service analysis, Mr. Berg did not recommend a change in water rates, however he did Elk River Municipal Utilities Commission Meeting Minutes May 12, 2020 Page 4 recommend an ongoing monitoring of the water department's cash reserves to ensure they continue to meet commission policy. Mr. Adams advised that the water department has large capital projects scheduled outside of the rate study timeframe that should also be taken into consideration when looking at the numbers. There was discussion on the philosophy of doing steady rate increases over the next five years versus doing one large one at the end of the five-year study period. Mr. Berg also touched on the cost of service analysis for ERMU's water access charge (WAC) and stated that based on the results he recommended no increase. There was discussion on ERMU's WAC and the city's Sewer Access Charge (SAC) fee. For the Electric Cost of Service and Rate Design Study draft Mr. Berg noted that the preliminary report presented contains financials assuming a 1.5% rate increase each year from 2021-2024. He stated that the final rate recommendations by class will be developed following discussion of these results with the commission. Next, Mr. Berg walked the commission through the high points of the report which included: Projected Operating Results with Existing Rates, Cost of Service, and Proposed Rates. For the Projected Operating Results with Existing Rates in the electric report, Mr. Berg explained that the study showed a need for additional revenue over the five-year study period, noting that with current rates ERMU could expect a nearly $2,000,000 deficit by 2024, ending up with just 30% of its electric reserves goal. For the Cost of Service Section in the electric report Mr. Berg stated that based on the preliminary study results, he recommended a 1.5% electric rate increase each year from 2021 to 2024. Chair Dietz asked how ERMU's commercial demand and industrial electric rates compared to competitors. Mr. Sagstetter responded that ERMU is within 3% of competitor rates. After the discussion, the commission instructed Mr. Berg to come back with projections based on a 1.5% increase. Mr. Adams reiterated this is a conservative estimate that uses flat electric and water revenues across five years, adding it is possible that ERMU could be in a better position should revenues increase. Commissioner Stewart had a few questions on the study's supporting documents. For the electric study exhibit 2-A she questioned why the bond issuance costs is shown as a negative number in 2016, and then a positive number in 2020. Ms. Slominski said she would look into the reason for this. Commissioner Stewart also inquired about the specifics of the amortization numbers shown on exhibit 3-A of the electric study. Staff stated they could make breakdown more specific in the final report. The commission requested that Mr. Berg attend the June commission meeting to present the final reports. Elk River Municipal Utilities Commission Meeting Minutes May 12, 2020 Page 5 5.4 leadership Transition —Search Committee Update With the recent resignation of the General Manager, the commission acted on several leadership transition action items during a special meeting on April 28. The commission agreed on terms to hire Debra Englund, CEO HRExpertiseBP, as a search consultant. The agreement has since been reviewed by counsel and has been executed by Ms. Englund and Chair Dietz as authorized by the commission. The commission also established a Search Committee, comprised of Chair Dietz and Commissioner Stewart, that is authorized to work with the consultant to make certain candidate screening decisions and prepare a refined list of candidates for the board. The commission gave the search committee direction to develop the following deliverables for the May regular commission meeting: a tentative schedule for the general manager search and selection process for commission review, and a proposed general manager job description for commission approval. Ms. Englund provided an update to the commission on the timeline for milestones in the process, including a posting date of May 13, an application deadline of June 30, and start date of no later than October 1. The opening will be posted on the ERMU, Minnesota Municipal Utilities Association, Minnesota Rural Electric Association, and The League of Minnesota Cities websites, and with the Star News. Ms. Englund presented the preferred qualities of a new CEO, which had been prioritized by the Search Committee, the most important quality being an ability to understand the technical and business elements of leading an electric and water utility. Commissioner Nadeau commented that the list looked very thorough. Ms. Englund presented the job posting language for commission review and comments. Commissioner Bell commented that he thought mentioning that the current general manager was leaving in June might cause concern to applicants over the urgency of the posting. Commissioner Stewart commented that she preferred leaving the date in the posting because leaving it out could cause applicants to assume the previous general manager had been terminated and the opening needed to be filled immediately. After discussion, commission consensus was to keep the June leave date in the job posting. Attorney Beck suggested one minor change to the language that clarified that ERMU serves the city of Elk River and parts of Otsego, Dayton, and Big Lake Township. Moved by Commissioner Stewart and seconded by Commissioner Westgaard to approve the job posting for the General Manager position. Motion carried 5-0. Ms. Englund added that she has been working with Mr. Adams and the search committee to update the general manager job description, and noted it was very close to being finalized. Ms. Englund provided guidance to the commission on how to handle applicants contacting them directly about the job opening. She cautioned the commissioners from accepting Elk River Municipal Utilities Commission Meeting Minutes May 12, 2020 Page 6 any application materials, and recommended they direct any interested parties directly to her to ensure that all applications are processed and treated equally. Attorney Beck concurred. As the job posting, along with Ms. Englund's contact information, will be posted on the ERMU website, it was noted this may be the best place to direct someone for more information on how to apply for the position. 6.0 BUSINESS DISCUSSION 6.1 Staff Updates As this was Mr. Adams final commission meeting, he took a moment to thank the commission for supporting him throughout his journey at ERMU. He thanked his outstanding leadership team and stated that he knew they would rise up and do awesome things. And finally, he expressed his thanks to Chair Dietz for giving him a chance all those years ago and promoting him to the General Manager. Mr. Sagstetter provided an update on the Energy Conservation and Optimization (ECO) Act and shared that it had passed on the House level. Ms. Canterbury highlighted from her staff report that Minnesota Municipal Utilities Association (MMUA) will be holding their Annual Summer Conference August 24-26 at Cragun's Resort in Brainerd. As room reservations are highly recommend at this time, she reached out to the commission to gauge who had an interest in attending. She noted that should MMUA need to cancel the event due to COVID-19 restrictions, we would be refunded the room deposits. All commission members expressed an interest in attending the conference and suggested staff move forward with making the reservations. On a personal note, Ms. Canterbury shared that Mr. Mauren, and his wife and son, recently welcomed a baby girl into their family. The commission congratulated Mr. Mauren. Mr. Ninow responded to a question that Commissioner Stewart had on the notice that Sprint had given that they were terminating the tower attachment lease agreements for their equipment located on our water towers; the termination of the lease agreements would result in an approximate $130,000 annual loss. Attorney Beck noted that due to the renewal terms and cancellation notification requirements, Sprint will be held to at least one more year of their contractual obligations. 6.2 Future Planning Chair Dietz announced the following: a. Regular Commission Meeting —June 9, 2020 b. 2020 Governance Agenda Elk River Municipal Utilities Commission Meeting Minutes May 12, 2020 Page 7 6.3 Other Business After announcing the June commission meeting date, Chair Dietz suggested the commission consider going back to conducting their meetings in person. Due to the size of the utilities conference room, and the challenges it may present with social distancing, he recommended that staff look into the option of using the council chambers at City Hall. After consideration, the commission supported going back to in -person commission meetings beginning in June. There was brief discussion on whether there would be any going away festivities for Mr. Adams. Staff indicated that based on the current situation with COVID-19, there is nothing currently planned. It was noted that once restrictions are lifted, a date for a get together with Mr. Adams could be set. Ms. Slominski announced that due to the cancellation of the American Public Power Association (APPA) Summer Conference, they will be conducting a Virtual Summit & Business Meeting June 8-10, 2020. As the new format allows for virtual attendance, Ms. Slominski noted that we will have significant cost savings and will be able to open this training up to any commissioners who are interested in participating. 7.0 ADJOURN REGULAR MEETING Moved by Commissioner Bell and seconded by Commissioner Nadeau to adjourn the regular meeting of the Elk River Municipal Utilities Commission at 5:20 p.m. Motion carried 5-0. Minutes prepared by Michelle Canterbury. Tina Allard, City Clerk Elk River Municipal Utilities Commission Meeting Minutes May 12, 2020 Page 8