06-15-2009 ERMU MIN SPECIAL SPECIAL MEETING OF THE ELK RIVER CITY COUNCIL
AND ELK RIVER MUNICIPAL UTILITIES
HELD AT ELK RIVER CITY HALL
MONDAY,JUNE 15, 2009
Members Present Mayor Klinzing,Councilmembers Zerwas,Motin,Westgaard, and
Gumphrey(5:45 p.m.),ERMU Commissioners Daryl Thompson and John
Dietz
Members Absent: None
Staff Present: City Administrator Lori Johnson,City Attorney Peter Beck,Finance
Director Tim Simon,and City Clerk Tina Allard
ERMU Staff: Director of Operations Troy Adams,Office Manager/Finance Director
Theresa Slominski,and Special Projects Consultant Vance Zehringer
Also Present: Central Minnesota Municipal Power Agency(CMMPA)representatives
induding:CEO Bob Schulte,Director of Operations Steve Thompson,
General Counsel Mike Gavin,and R.W.Beck representatives Bob Davis
and Paul Arsuaga
1. Call Meeting To Order
Pursuant to due call and notice thereof, the joint meeting was called to order at 5:30 p.m. by
the Council and by Elk River Municipal Utilities (ERMU).
2. Electric Utility Long-Range Planning
Mr.Adams presented his staff report.He stated that ERMU has begun reviewing options
for power suppliers and that one opportunity came to the forefront that needed to be
addressed by Council due to a deadline for a letter of intent that must be signed by July 15,
2009,if the city had any interest in becoming a co-owner in the Big Stone II power plant
project.He introduced Bob Schulte who would be providing the Council details on
CMMPA and the Big Stone II project.
Mr.Schulte discussed the following as outlined in his PowerPoint presentation:
• What CMMPA is about
• Membership
• History
• Agency functions
• Goals
• Availability of coal and natural gas
• Big Stone II project
o Megawatts
o Transmission lines
o Co-owners and ownership shares
o Permitting process
o 2007 MN Next Generation Energy Act
o Agreements
o Timelines
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June 15,2009
o Costs&Financing
Mr.Davis,with R.W.Beck,provided an evaluation of projected power supply costs for
various power supply alternatives under multiple market condition scenarios. He reviewed
current power supply arrangements and resources.Four power supply alternatives were
discussed.
Mr.Davis was asked to outline some of the risks for the city to become a co-owner.
Those risks included:
■ Possible Co2 charge
• Loss of Load
• Modelings (scenarios)were very conservative
• Project becomes a"no-go"vote on September 11 by current co-owners
• Possible$3 million loss if there is no closing
■ Interest rates and capital cost runs.
• Fuel costs
• Performance at the plant
• Project incompletion or delay
• Financing
Ms.Johnson asked for an explanation of the financing for this project.
Mr. Schulte outlined the following costs to the city for the Big Stone II project with 30
megawatt(MW) of a 500 MW plant and a 2015 in-service date.
• Total capital cost: $96 million
• Estimated one-time catch-up payment:$2.6 million
• Estimated ongoing monthly payments: $51,000
Mr.Schulte stated by fall 2010 all co-owners must have their financing for the project in
place at the financial close.Elk River would need to finance$90-110 million if they want 30
megawatts.
Two options were outlined:
• Elk River could bring its own money to the table by marketing its own bonds.
• CMMPA could raise the money for the city for its share based on a contract the city
would need to sign as collateral. CMMPA sells bonds in the marketplace to raise the
money.
Mr.Beck noted the city would most likely have to use CMMPA and the bonds would be
revenue bonds.The interest rate would only be valid until 2010 then ERMU would be
responsible for the$90-110 million debt.
Mr.Zerhinger stated this would equate to 2.7 cents per kilowatt hours.
It was noted that there would be no payments between the financial close date and the in-
service date. Users of the facility would end up paying the interest and costs.The benefit
goes to the user who is paying for it.
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June 15,2009
Mayor Klinzing stated rates and the availability of electricity is the most important
consideration for residents. She stated the Council has not had an opportunity to look at all
options for ERMU power and should analyze all options further.
The meeting was recessed at 6:50 p.m.
The joint meeting reconvened at 8:25 p.m.
Ms.Johnson asked for the issues Council would like staff to address.
Councilmember Gumphrey questioned the timeframe the debt would be spread over and
asked what would happen if ERMU needed additional megawatts in the future.
Mr.Beck stated the payoff on the bonds would be dependent upon what they are selling for.
Mr.Steve Thompson stated CMMPA would act as an advisor and a resource planner for the
city in regards to additional power needs.He stated CMMPA makes recommendations to
each city and each city votes on whether they want to be in a project.He stated CMMPA is
always reviewing future load growth,needs,and alternative power resources.He noted the
city retains its autonomy.
Councilmember Gumphrey expressed concern with investing the city's money into this
project. He questioned if all co-owner investors were in place at this time.
Mr.Schulte stated no.He noted 5 were in place and there were still two potential co-owners.
He stated all co-owners would be in place before Elk River had to commit.
Mr. Beck stated the city would be committed if it sent the letter of intent and the vote on
September 11 was a"go-vote."Mr.Beck further noted the city wouldn't have to become an
owner but could become a member at a later date. (A member would be more like a renter
buying power from the plant.This would be similar to the city's current agreement with
Connexus.)
Councilmember Motin expressed concerns with having only one option with the Big Stone
II project.He asked what would happen if the plant goes down.He stated there would be
other alternatives for power with Connexus.
A representative noted that power companies do shaft swap agreements whereby they share
energy off each other in order to mitigate these"loss of power"concerns.It was also noted
that insurance could be purchased but this wouldn't assist the city in a major power loss
immediately.
Councilmember Motin questioned if rates would be comparable with Connexus.He
questioned if the city would be better off selling ERMU and still get the same rate current
customers receive.
Mr. Zehringer stated this would be unlikely because the other cooperatives would have to
agree to the sell-off.
Commission Dietz stated costs would go up for Connexus and city residents added to the
system would be paying for the increase at that time;Connexus users currently on the
system would not cover those additional costs.
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June 15,2009
Mr.Schulte stated existing members are not going to be happy with paying for the additional
load of any new members and it costs companies more to take on new members.
Discussion took place on the differences between being a member and a co-owner.
A representative reviewed membership costs in case the city wanted to be a member rather
than a co-owner.He stated it would cost about$2,500 a month for basic planning. CMMPA
would then be obligated to look for the city's future power resource alternatives.Then the
procurement stage would begin where the city would decide on a project and enter into it.
The city would pay costs to CMMPA for managing the project and when "in-service"the
city would begin the scheduling phase. Scheduling fees are about$2.75 a megawatt hour.
Councilmember Zerwas asked why CMMPA is bothering with wanting the City of Elk River
to participate in this project when there are many more much larger players out there.
Mr.Schulte stated CMMPA is in the business of serving cities.He stated Elk River is a big
fish in a small pond compared to many cities.He further stated if CMMPA can spread out
its costs more ways,it benefits CMMPA in that their project share is larger. He stated he
would like the city to join because they would be more of a long-term member than other
larger groups who aren't willing to commit because this wouldn't be their main power
resource.
Mayor Klinzing stated the city needs to look at the whole picture for Elk River's power
needs. She stated the Council has not been able to review all options in order to make an
informed decision. She stated residents need to know what the benefits are to having a
municipal utility and whether they outweigh other solutions.
MOVED BY COUNCILMEMBER MOTIN AND SECONDED BY
COUNCILMEMBER WESTGAARD TO CALL A SPECIAL JOINT MEETING
OF THE CITY COUNCIL WITH THE ELK RIVER MUNICIPAL UTILITIES
COMMISSION ON MONDAY,JUNE 29,2009,AT 5:30 P.M.,AT CITY HALL TO
CONTINUE DISCUSSION ON LONG RANGE ELECTRIC UTILITY
PLANNING. MOTION CARRIED 5-0.
MOVED BY COMMISSIONER THOMPSON AND SECONDED BY
COMMISSIONER GUMPHREY TO CALL A SPECIAL JOINT MEETING OF
THE ELK RIVER MUNICIPAL UTILITIES COMMISSION WITH THE CITY
COUNCIL ON MONDAY,JUNE 29,2009,AT 5:30 P.M.,AT CITY HALL TO
CONTINUE DISCUSSION ON LONG RANGE ELECTRIC UTILITY
PLANNING. MOTION CARRIED 3-0.
3. Adjournment
T ere being no further business,Mayor Klinzing adjourned the meeting at 9:20 p.m.
Tina Allard,City Clerk
Stepha!'e Klinzing,May