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2.2 ERMUSR 11-8-2022ELK RIVER MUNICIPAL UTILITIES REGULAR MEETING OF THE UTILITIES COMMISSION HELD AT THE UPPERTOWN CONFERENCE ROOM October 11, 2022 Members Present: Chair John Dietz, Vice Chair Al Nadeau, Paul Bell, Mary Stewart, and Matt Westgaard ERMU Staff Present: Theresa Slominski, General Manager Mark Hanson, Deputy General Manager Melissa Karpinski, Finance Manager Tom Sagstetter, Conservation & Key Accounts Manager Tom Geiser, Operations Director Chris Sumstad, Electric Superintendent Mike Tietz, Technical Services Superintendent Dave Ninow, Water Superintendent Chris Kerzman, Engineering Manager Tony Mauren, Executive Administrative Manager Jenny Foss, Communications & Administrative Coordinator Megan Zachman, HR Generalist Others Present: Jared Shepherd, Attorney 1.0 GOVERNANCE 1.1 Call Meeting to Order The regular meeting of the Utilities Commission was called to order at 3:32 p.m. by Chair Dietz. 1.2 Pledge of Allegiance The Pledge of Allegiance was recited. 1.3 Consider the Agenda Ms. Slominski requested that item 5.4 Landfill Amendment be struck from the agenda with the new item 5.8 Landfill Agreement to take its place. Moved by Commissioner Nadeau and seconded by Commissioner Westgaard to approve the amended October 11, 2022, agenda. Motion carried 5-0. Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 1 33 2.0 CONSENT AGENDA (Approved By One Motion) Moved by Commissioner Bell and seconded by Commissioner Westgaard to approve the Consent Agenda as follows: 2.1 Check Register— September 2022 2.2 Regular Meeting Minutes —September 13, 2022 Motion carried 5-0. 3.0 OPEN FORUM No one appeared for open forum. 4.0 POLICY & COMPLIANCE 4.1 Margin Policy Ms. Slominski presented her memo on the Margin Policy providing a history of the policy manual reconfiguration project which began in 2017 with a goal of appropriately appointing policies to the Commission and management, respectively. Ms. Slominski continued there were a few policies that still needed to be added to the Commission's manual including this Margin Policy. Ms. Slominski explained that the purpose of the policy is to put parameters around budget decisions, remove the guess work, as well as make these decisions easier to explain to the community. Ms. Slominski continued, the proposed policy states that the electric margin would be determined by the bond convenance. There is currently a range for margins to be within 110% and 125% of bond convenance and that staff recommends going with the more conservative option of 125%. Ms. Slominski then explained that staff recommends a 105% bond convenance for the water margin. Ms. Slominski added in cases where bond convenances do not establish a margin, staff recommends utilizing a range of 1.5-2.5% of revenue. Ms. Slominski noted there were a few typos in the Margin Policy which will be corrected before being added to the policy manual. Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 2 34 Chair Dietz had a clarifying question on the percentage recommended by staff. Ms. Slominski offered context that the electric bond convenance at 110% is $2 million with water at 105% being $107,000. Chair Dietz asked what would happen if ERMU does not reach the margin as it appeared to him that ERMU may not reach a $2 million margin in 2022. Ms. Karpinski explained that the calculation does not include depreciation and interest expenses so ERMU should reach the margin. Chair Dietz had a question about the timeline for ERMU's bonds. Staff responded anc explained that for future bonds finance agencies will be looking for 125% margins for electric bonds and 105% for water bonds. Moved by Commissioner Stewart and seconded by Commissioner Nadeau to approve proposed ERMU Commission Policy G.5a Margins. Motion carried 5-0. 5.0 BUSINESS ACTION 5.1 Financial Report —August 2022 Ms. Karpinski presented her memo on the August 2022 financials also noting the handouts she had provided to the Commission. Ms. Karpinski explained the staff is doing a good job keeping expenses in check. She then highlighted the Energy Adjustment Clause (EAC) from the power provider which currently shows a $2.97 million variance. This variance must be passed on to customers in the form of a Power Cost Adjustment (PCA) less the $500,000 that ERMU absorbs for rate stabilization. Referencing her handout on Electric Sales for August 2022, Ms. Karpinski explained though sales look good the high EAC makes the PCA necessary. Ms. Karpinski presented her second handout with projections for the rest of 2022, which show a $1.1 million positive position for the year. Ms. Karpinski added that to minimize costs ERMU is waiting to hire an administrations director until 2023 instead of 2022 and contracting one month of tree trimming so projects can still move forward, but not the two months that were planned. Ms. Karpinski shared that YTD usage for August is 3% less than prior year and while water is doing great overall due to connection fees, usage is 12% less. Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 3 35 Chair Dietz had a clarifying question on the projections. Staff responded. Chair Dietz had a clarifying question on the revenue budget. Staff responded. Ms. Karpinski explained that next year she plans to create a general ledger account that shows the EAC expense. Chair Dietz joked that the water department is carrying the company. Chair Dietz asked why Maintenance Expense and Other Operating Expenses were higher than last year. Staff said they would review the data and provide that information later in the meeting. Moved by Commissioner Nadeau and seconded by Commissioner Bell to receive the August 2022 Financial Report. Motion carried 5-0. 5.2 2023 Annual Business Plan: Water and Electric Expenses; and Conservation Improvement Program Ms. Karpinski presented her memo on the Annual Business Plan. She highlighted the fact that electric expenses are down 0.5% from 2022 and water up 4.4%. She added that the increase in depreciation was due to the new field services building. Ms. Karpinski shared that expenses were reduced by retiring the landfill gas -to -energy plant and that medical insurance only has a 1.5% increase. Chair Dietz sought to confirm that $140,000 was budgeted for tree trimming. Staff confirmed that it was. Chair Dietz asked if ERMU staff still performs some portion of the tree trimming. Mr. Geiser confirmed that they do. Chair Dietz asked staff for clarification on the Conservation Improvement Program (CIP) budgeting. Mr. Sagstetter responded that about $580,000 is budgeted for CIP which is 1.5% of gross operating revenue, as required by state statute. 5.3 2023 Utilities Fee Schedule Ms. Slominski presented the 2023 Utilities Fee Schedule, noting increases for new residential electric connections which have not been adjusted since 2014 and do not reflect current expenses, in particular the growing costs of transformers. Ms. Slominski also explained that Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 4 36 water fees for abandoned water service had not been changed since 2007 and costs have increased significantly. Chair Dietz questioned why there was such a long gap between increases, suggesting the fees should be reviewed every year. Ms. Slominski responded that it was a good suggestion, and though staff reviews the fee schedule every year not always at the depth of analysis that brought these proposed increases. Ms. Slominski recommended a cycle of review be established. Chair Dietz stated his belief that some of the proposed increases are too large for a single year and that they should be done in steps. Chair Dietz asked for clarification on what the Abandoned Water Service fee covered. Ms. Slominski explained that is the upfront fee ERMU collects when it receives a request to abandon a service at the water main. In cases where there has been a recent street paving crews are not permitted to cut into the streets and must delay work until the next street project. There was discussion. Commissioner Westgaard recommended implementing half the developer increase in 2023 and half in 2024. There was discussion about the appropriate increase based on whether the lot had water service. The Commission agreed on an increase to $975 for New Residential Electric Connection — Developer - Lots with water service and $1075 for New Residential Electric Connection — Developer - Lots without water service. Mr. Hanson also recommended that the language in the lines differentiate based on the presence of any municipal water service not necessarily ERMU water service. The Commission agreed. Moved by Commissioner Nadeau and seconded by Commissioner Stewart to approve the amended 2023 Utilities Fee Schedule for Adoption into Ordinance by the City Council. Motion carried 5-0. Struck from the agenda and replaced with 5.8 Landfill Agreement. Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 5 37 5.5 Wage & Benefits Committee Update Ms. Slominski presented the staff requests and the subsequent proposals from the Wage & Benefit Committee based on those requests. She then invited the Commission to discuss those proposals for approval of action items to be effective January 1, 2023. The first request from staff was for a 5% wage increase for all employees while the proposal from the Committee was for a wage increase of 3.14% for all employees, which aligns with the metro average for the lineworker group. The second request was to have 100% of remaining sick time at retirement paid out to staff's Health Care Savings Plan (HCSP). The Committee proposed a tiered structure based on years of service, specifically: • 0-7 years 50% • 8-11 years 55% • 12-15 years 60% • 16-19 years 65% • 20-23 years 70% • 24-27 years 80% • 28-31 years 90% • 32+ years 100% The proposal caps this distribution at 960 hours. Ms. Slominski explained the third request was for the Committee to consider providing three additional sick days for non -remote staff. The Committee does not propose meeting that request. Ms. Slominski shared that the final request was for an increase to the Utilities Performance Metric Incentive Compensation (UPMIC) from 2% to 4%. She shared that the Committee felt that a 0.5% increase for each of the next two years was appropriate. Commissioner Westgaard shared it was his understanding that the goal had been to match the wage adjustment for non-lineworker utilities staff with city staff who had received a 4% adjustment for non -union employees. Chair Dietz stated that has not been the goal with this being the first time in his 26 years on the Commission where city employees are receiving a larger increase than utilities employees. Chair Dietz went on to explain that the utilities wage adjustments should align with metro average, which could be higher next year. Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 6 IN Ms. Slominski explained that the original request from staff was for a 5% adjustment for all staff, the intention not being to move away from the metro average but to offset rising inflation. Chair Dietz stated that if metro average comes in at 5% next year the Commission should go with the metro average and give staff the 5% adjustment. Commissioner Stewart shared that when the Committee met to review the staff proposals the City's wage adjustment amount was not known. Chair Dietz asked if the goal is to match adjustments between the entities why has the utilities staff had a larger increase than city staff over the last 25 years. Ms. Karpinski shared that in at least the last four years the non-lineworker pay groups for the utilities have matched the city's adjustment. There was discussion. Moved by Commissioner Bell and seconded by Chair Dietz to approve all action items as outlined below to be effective January 1, 2023. • A wage increase of 3.14% for all staff • The discussed tiered sick time payout to HCSP upon retirement • A 0.5% increase to the UPMIC for each of the next two years Motion carried 5-0. 5.6 Strategic Plan & Dashboard Update Ms. Slominski presented background on the strategic plan development process and asked if there were any questions. Commissioner Stewart asked if the strategic plan was a living document. Ms. Slominski responded that it was. The Commission reached consensus to approve the high level strategic themes and annual business plan budgeting/rates direction. 5.7 Field Services Facility Expansion Project Update Mr. Kerzman addressed the Commission, sharing that he is still waiting on a reliable report for the scan of the concrete floor in the garage to assess concrete thickness and rebar depth. Mr. Kerzman also shared his opinion that it is unlikely that crews will complete final asphalt paving this year due to cooling temperatures. Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 7 39 Mr. Kerzman added that ERMU staff is holding on moving equipment into the new building until it is clear what floor work may need to be redone. Mr. Kerzman reported that the office is progressing well, but with long lead times for railings. He added there was a punch list walkthrough scheduled that week with corrections to be made before staff moves into the office. Mr. Kerzman informed the Commission that the kickoff for the HVAC training and commissioning had occurred earlier that day. Commissioner Westgaard sought clarification on staff's concerns with the rebar in the concrete floor of the garage. Commissioner Bell provided background from a recent project progress meeting, reiterating that the issue is verifying that the appropriate concrete thickness and rebar depth had been achieved. Chair Dietz asked what type of warranty the floor came with. Mr. Kerzman explained there is a one year warranty on the floor with a 10-year statute of limitation on construction defect claims. Commissioner Westgaard sought further clarification on issues with the concrete between concrete thickness and rebar placement. Mr. Hanson explained that since an accurate scan of the floor has not been produced staff is currently unsure of the extent. There was discussion. Chair Dietz asked Attorney Shepherd if it would be ok for staff to provide the Commission with the updated floor scan when they receive it. Attorney Shepherd responded that he would collaborate with staff and other legal counsel assisting with the project to decide the best way to get the information to the Commission. 5.8 Landfill Agreement Ms. Slominski presented the landfill agreement to the Commission. She explained that the initial plan to pass an amendment in item 5.4 of the agenda was not the preferred approach by Waste Management, so the amendment was converted to a purchase sale agreement by ERMU's legal counsel. Ms. Slominski explained that staff is still waiting for Waste Management to confirm their legal counsel is ok with the agreement, so she was asking the Commission to approve the Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 8 M purchase sale agreement upon final approval by Waste Management and additional approval by ERMU legal counsel. Chair Dietz sought clarification on the payment amount ERMU would receive through this agreement. Mr. Sagstetter responded ERMU would receive $45,000 for the building and the equipment and a $60,000 reimbursement in the form of a credit for maintenance work done to keep the engines operational so they can be auctioned by Waste Management. Chair Dietz asked how much ERMU owes the County to pay off the loan for the building so that it may be sold. Staff responded $35,080. Chair Dietz thanked Mr. Sagstetter for his years of work on the project. Moved by Commissioner Westgaard and seconded by Commissioner Bell to approve the Purchase Sale Agreement between Elk River Landfill and Elk River Municipal Utilities subject to final review and approval from ERMU's attorneys. Motion carried 5-0. 6.0 BUSINESS DISCUSSION 6.1 Staff Updates Ms. Karpinski informed Commissioners Nadeau and Westgaard, who are member of the Financial Reserves & Investment Committee, there would be a meeting of the Committee before the next commission meeting. Ms. Karpinski provided answers to the questions from the financial report about increases in Maintenance and Other Operating Expenses. The increase in Maintenance Expenses was due to tree trimming and the increase in Other Operating Expenses was the result of changing health insurance coverage from a pool to an age -banded plan. Chair Dietz asked Ms. Youngs about communication on the implementation of a franchise fee for ERMU customers that live in Otsego. There was discussion. Mr. Mauren informed the Commission that the November 8 commission meeting would take place in the Utilities Commission room and would need to conclude prior to 6:00 p.m. due to the election occurring that day. Mr. Geiser provided two corrections to his update noting that the preconstruction meeting for the Pullar Prairie development incorporated County Road 32, not 35. Also, the planned expansion was for the Furniture & Things business on Highway 10 not the Furniture & Things Community Event Center. Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 9 41 Chair Dietz asked what work would be occurring on County Road 44. Mr. Geiser explained crews would be removing some of the overhead line. 6.2 City Council Update Commissioner Westgaard provided a City Council update which included topics such as a multifamily planned unit development, a regional trail designation for Great Northern Trail, the junior hockey team contract, and liquor licensing. 6.3 Future Planning Chair Dietz announced the following: a. Regular Commission Meeting— November 8, 2022 b. 2022 Governance Agenda 6.5 Other Business There was no other business. 7.0 ADJOURN REGULAR MEETING Moved by Commissioner Nadeau and seconded by Commissioner Bell to adjourn the regular meeting of the Elk River Municipal Utilities Commission at 5:01 p.m. Motion carried 5-0. Minutes prepared by Tony Mauren. John J. Dietz, ERMU Commission Chair Tina Allard, City Clerk Elk River Municipal Utilities Commission Meeting Minutes October 11, 2022 Page 10 W