6.1a ERMUSR 03-14-2023
UTILITIES COMMISSION MEETING
TO:
ERMU Commission
FROM:
Mark Hanson – General Manager
MEETING DATE:
March 14, 2023
AGENDA ITEM NUMBER:
6.1a
SUBJECT:
Staff Update
ACTION REQUESTED:
None
DISCUSSION:
• As stated in my mid-month update, Tom Sagstetter, Commissioner Mary Stewart, and I
spent the week of February 27 in Washington, D.C., attending the American Public Power
Association (APPA) Legislative Rally. It was a good conference with sessions on the energy
tax provisions of the Inflation Reduction Act (IRA), APPA’s legislative and resolutions
committee, and an all-day series of meetings with various Minnesota representatives and
senators. The following concerns/asks were presented to the legislators (the full “leave
behind” pamphlet is attached):
o Simplifying the rules and regulations for Investing in Infrastructure and Jobs Act (IIJA)
and IRA grant implementation.
o Benefits offered under the IIJA and IRA should be tax exempt.
o Oppose attempts to repeal/rescind the new programs or impose sequestration.
o Encourage the use of the Defense Production Act to resolve the supply chain crisis.
o Streamline federal permitting process for utility projects (currently the process takes
5-7 years).
o Cyber/physical security assistance in the form of guidance, best practices, and
funding.
o Restore the ability to use tax-exempt advance refunding of bonds.
o Increase bond value local “small provider” banks may issue from $10M to $30M.
o End the sequestration of public bonds (5.7% delta between taxed and taxed free
bonds was supposed to be refunded by federal government but sequestration
ended it).
• The public summary of the February 2023 Minnesota Municipal Power Agency (MMPA)
Board of Directors meeting is below.
o The Board of Directors of the MMPA met on Feb 21, 2023, at Chaska City Hall in
Chaska, Minnesota and via videoconference.
o Management presented a 2022 performance summary. The presentation is
attached.
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o The Board reviewed the Agency’s financial and operating performance for January
2023.
o Customer penetration for the residential Clean Energy Choice program increased to
4.4%. There was an increase of 69 customers participating in the residential Clean
Energy Choice program from December to January.
o The Board discussed the current business environment.
o The Board discussed the new Minnesota carbon free standard.
o The Board discussed the status of renewable projects the Agency is pursuing.
• I’ve been asked by City Administrator Cal Portner to be on the March 10 second-round
interview panel for his Assistant City Administrator/Business Services Director. The position
was formed after a reorganization when Lori Ziemer retired as Finance Director.
ATTACHMENTS:
• MMUA Legislative Rally Pamphlet
• MMPA 2022 Year in Review
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THE POWER OF
HOMETOWN UTILITIES
Hometown services. Hometown strengths. Hometown solutions.
Federal Issues
2023 APPA
Legislative Rally
225
How much do you know about Minnesota’s municipal utilities? Here are some facts.
• Open, accessible governance by its citizen owners is one reason municipals are also known as
"hometown" or "public power" utilities.
• Oversight occurs largely through the local utilities commission or city council.
• Municipal electric utilities serve more than 391,000 customers in 124 Minnesota communities.
• Over 70 percent of Minnesota's municipal electric utilities have operated for 100 years or more.
• Duluth is the largest of Minnesota’s 33 municipal natural gas systems, with an
estimated 30,000 customers.
• Of the 87 county seat cities in Minnesota, 50 operate municipal electric and/or
natural gas utilities.
• Most of the municipal electric power comes from power agencies, which are controlled by groups
of municipal utilities themselves.
• There are approximately 50 municipal power plants in Minnesota. They are generally used in
emergency situations.
The Minnesota Municipal Utilities Association (MMUA) is a nonprofit organization representing the
interests of the state’s hometown utilities. There are 124 municipal electric and 33 municipal gas utilities
in Minnesota. MMUA also has a number of Minnesota municipal water utilities as members, and several
North and South Dakota municipal electric utilities are associate members. MMUA was formed in 1931
and provides a wide variety of services to the utilities in the region.
Representing locally-owned
and operated organizations,
hometown utility policymakers
and staff not only have a career
interest in their community’s
success, they have a personal
stake in the city in which they
have chosen to raise their families
and build lifelong relationships.
Because of this, municipal
utility leaders focus only on the
well-being of the community.
It's true the utility has to
maintain solvency, but there is
no profit motive. In hometown
utility communities, focus on
maintaining a high quality of life
isn't a corporate slogan; it's a
promise to friends and neighbors.
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Municipal utilities in Minnesota are dedicated to providing reliable, affordable, and sustainable
services to their customers. Recent carbon-free mandates and renewable standards placed on
all Minnesota electric utilities by the State legislature heighten the importance of maintaining
and strengthening any and all assistance available at the federal level. Policy priorities at the
federal level include limiting additional mandates, sustaining funding for infrastructure updates
and the energy transition, and streamlining administrative procedures.
In addition, new rules and regulations that help implement key federal legislation, including the
Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA), need to be
simple, clear, and flexible, allowing all Minnesota communities—especially smaller towns—to
benefit. Most importantly, federal guidance should never hinder a municipal utility’s ability to
provide reliable and affordable electric service to our member communities.
FEDERAL SUPPORT FOR CLEAN ENERGY TRANSITION
2023 Federal Legislative Priorities
In 2021, the Hutchinson Utilities Commission (HUC) dedicated its second solar energy plant within
the last seven years. This plant combines with the previous solar plant, opened in 2015, to supply
over 1,100 kilowatts of electricity to the city.
HUC is now able to supply customers with 100% renewable energy. Hutchinson can still use local
generators in addition to these solar plants to ensure electric reliability during outage times. HUC's
legacy generation cability enables the utility to hedge against high market prices and maintain
power for the citizens of Hutchinson when required.
COMBINING OLD WITH NEW FOR CLEAN, RELIABLE ENERGY
227
2023 Federal Legislative Priorities
MMUA and its members support the Investing in Infrastructure and Jobs Act (IIJA) and the Inflation
Reduction Act (IRA). These two pieces of federal legislation will benefit grid resiliency and reliability, clean
energy technologies, and electric vehicle infrastructure. When it passed the IIJA, Congress took critical
steps when it authorized various new federal infrastructure programs. Under the IRA, Congress extended
long-standing energy tax credits and created new direct payment credits for municipal electric utilities,
rural co-ops, and other not-for-profit entities. The IRA authorizes these tax credits as refundable and
transferable, a first for public power systems. However, it only protected public bonds from sequestration
for two years and it failed to reauthorize the advanced refunding of bonds.
The grants authorized in the IRA and the IIJA will be extremely beneficial towards projects that seek to
increase grid reliability and resiliency, upgrade technology for cleaner and more efficient operations, and
expand infrastructure investments for electric vehicle (EV) charging stations and other facilities. However,
the advantages offered by the IIJA and IRA are lessened if treated as taxable, or if funding is not secure
due to Congressional threats of recission or sequestration.
MMUA asks Congress to consider:
• New federal rules and regulations for both the IIJA and IRA
implementation should be simple, clear, and flexible.
• Benefits offered under the IIJA and IRA should be tax exempt.
• Congress should oppose attempts to repeal or rescind these new
federal programs and resist attempts to impose sequestration
provisions.
• The supply chain crisis hinders investment and economic
development; Congress needs to help solve the shortage of
distribution transformers and other critical industry materials.
Further actions under the Defense Production Act aimed clearly at
the increased production of transformers should be encouraged.
• MMUA and its members support reasonable permitting reform
legislation, including streamlining the federal permitting process for
all types of utilities: generation, transmission, and pipeline facilities.
• Workforce recruitment and retention assistance and incentives
would be welcomed.
• Cybersecurity assistance in the form of guidance, best practices,
and funding would be helpful, but excessive reporting requirements
and other mandates would hinder municipal utilities’ operations.
• Similar assistance regarding the physical security of utility
infrastructure would also be helpful.
• We support a pricing mechanism that would protect utilities and
their customers against sudden spikes in natural gas prices such
as were seen during the 2021 polar vortex in Minnesota and
throughout the Midwest.
PRESERVE AND PROTECT ENERGY INFRASTRUCTURE AND INVESTMENTS
228
Municipal bonds continue to be the
most effective financial tool for public
power communities and local entities
everywhere—bonds build three-
quarters of all public infrastructure in
the country.
Congress took a critical step towards
modernizing public financing when it
authorized various new energy-related
tax credits for municipal electric
utilities in the IRA, but more action
is needed, including reinstating the
ability to issue advance refunding
bonds and expanding the power of
small local banks to issue bonds in
excess of $10 million while retaining
small issuer status. In addition,
sequestration continues to restrict full
use of our public bonds—Congress
needs to repeal such provisions.
MMUA asks Congress to consider:
• Complete the modernization of public finance tools by restoring the ability to
use tax-exempt advanced refunding bonds. This is a critical financial tool for
all state and local entities, including municipal utilities. Advance refunding can
only occur once a year, and only when market conditions allow, but it can save
communities millions of dollars. Support bipartisan legislation.
• The small issuer exception is outdated. Congress should increase the value of
bonds a bank may issue and remain a small provider from $10 million to $30
million.
• Sequestration needs to end. Public power communities continue to be burdened
by sequestration of public bonds.
2023 Federal Legislative Priorities
PUBLIC FINANCE
229
2023 Federal Legislative Priorities
MMUA asks Congress
to consider:
• Restore local control,
including what permit
fees may be charged
by a local unit of
government for use
of their rights-of-way
and infrastructure by
telecommunication
companies.
• Public power utilities
and rural electric
cooperatives are
not obstacles or
barriers to entry
to 5G or other
telecommunications
development.
Treatment of pole
attachment fees
and services has
been successfully
negotiated between
utilities and the
telecom industry for
decades.
In 2018, the FCC issued final comments and orders that took effect in January 2019, which
reversed the long-held interpretation of the Federal Communications Act that municipal
utilities were exempt from FCC oversight. This new rule was upheld by the Ninth Circuit
Court of Appeals. As a result, local control over the use of rights-of-way and infrastructure
became subject to challenge by telecommunication companies who view local regulations
as a barrier to full implementation of 5G technology.
Utility poles are not designed to accommodate additional structures such as small-cell
antennae. Their co-location on utility poles can impose safety risks to line workers, and
the extra weight may void warranties. Local utilities are then responsible and liable for
equipment that is not even theirs.
POLE ATTACHMENTS
230
2023 State Legislative Priorities
The Minnesota Municipal Utilities Association (MMUA) Board of Directors, representing
the interests of all it members, has identified a list of priorities for the 2023 Minnesota
Legislative Session. Following is a summary of those priorities.
Issue Summary
Nuclear moratorium MMUA supports exploring all sources for producing clean and renewable
energy. In order to allow for meaningful dialogue on expanding carbon-
free resources, MMUA believes that the 1994 legislative moratorium on
the siting of new nuclear reactors should be repealed.
Electric vehicle (EV) charging A popular means of providing EV charging stations is for a third party to
contract with a commercial entity to offer customers a place to charge
their EV while doing business. MMUA supports legislation clarifying that
power supplied to such stations must come from the permitted utility and
not through a third party.
Pay equity exemptions Minnesota’s pay equity law has made it difficult for some utilities
to recruit and retain line workers, and it has suppressed salaries in
some communities. MMUA supports exempting certain positions,
such as line workers, from the pay equity review process or reviewing
unique requirements of such positions and increasing the point value
accordingly.
Critical Infrastructure Protection
(CIP) rules for data centers
Several municipal utilities in Minnesota are home to large data centers
featuring computers and cooling systems that need to run constantly,
which dramatically increasing the utility’s electrical load. These centers
are usually designed to be highly as efficient as possible, making
it difficult to find the increased savings offset required by current
CIP standards. MMUA supports exempting these uses from CIP
requirements by modifying Minnesota Statutes Section 216B.2403.
Repeal local government salary cap Minnesota caps the total compensation of local government employees.
This cap has made it difficult for some utilities to retain experienced
employees, who often leave for more lucrative posts in the private sector.
MMUA supports repealing the local government salary cap.
Excess generation compensation An increasing number of Minnesotans are using distributed energy
resources (DER) like rooftop solar panels to generate a portion of
their electrical load. Current law gives customers the right to request
payment for excess generation by check, which can be very costly to
the utility. MMUA supports allowing utilities to grant DER customers
excess generation refunds using the most cost-effective means available
including bill credits and vouchers.
CIP rules for gas utilities An oversight in drafting the Energy Conservation and Optimization (ECO)
Act of 2021 resulted in municipal gas utilities having a higher CIP goal
(1.5 percent) than investor-owned utilities (1.0 percent). MMUA supports
lowering the CIP goal for municipal gas utilities to 1.0 percent.
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Connect with the MMUA
Government Relations Team
At a glance
33
391,000
183
50
57
customers is the
median amount for a
MN municipal utility.
municipal gas utilities
are MMUA members.
customers served
by municipal electric
utilities.
customers served by
the smallest municipal
utility, Whalan.
municipal water utilities
are MMUA members.
of the 87 county seats
in Minnesota operate
an electric or gas utility.
57,000
124
customers served by
the largest municipal
utility, Rochester.
municipal electric
utilities serve
Minnesotans.
1,264
mmua.org 3131 Fernbrook Lane N, Suite 200
Plymouth, MN 55447-5337
763.551.1230
Kent Sulem
Director of Government
Relations and Senior Counsel
email: ksulem@mmua.org
office: 763.746.0703
cell: 612.263.0440
Mike Siebenaler
Government Relations Liaison
email: msiebenaler@mmua.org
office: 763.746.0715
cell: 612.979.5219
email: bblack@mmua.org
office: 763.746.0708
cell: 651.398.2098
Bill Black
Government Relations Attorney
Karleen Kos
Chief Executive Officer
email: kkos@mmua.org
office: 763.746.0701
cell: 813.675.7589
232
12022 Year in ReviewFebruary 21, 2023233
2Outline• Accomplishments in 2022• Financial Review of 2022• Operations Review of 2022• Business Environment in 2023• Looking Ahead to 2023234
32022 Accomplishments• Rates 10% Below Xcel• Members Extended Contracts to 2060• Fitch Upgraded MMPA from A+ to AA-• Walleye Wind Farm Placed Into Service235
4Rates 10% Below Xcel• MMPA Average Rate: $ 91.80• Xcel Average Rate: $101.57• MMPA’s Rate Was 10% Below During a Period of:– Higher Inflation– Higher Interest Rates– Volatile Natural Gas and Electric Prices– COVID-19 Effects (Labor Markets, Supply Chain)236
5Member Contracts Extended to 2060• 10 of 12 Members Have Extended MMPA Contracts Through 2060– 95% of Agency Load• Objective: To Allow MMPA to Issue 30-Year Debt through 2030– Reduces Costs and Rates• Two Members Still Considering Contract Extension– Agency Offer Open through March 31, 2023237
6Fitch Bond Rating Upgrade• Fitch Upgraded MMPA’s Bond Rating from A+ to AA-• Fitch Commented on MMPA’s– Competitive Rates– Strong Financial Performance– Strong Member Credit Quality• Reduces Cost of New DebtAAAAA+AAMMPA ‐>AA-A+ANSP MN ‐>A-BBB+BBBBBB-238
7Walleye Wind Farm in Service• Walleye Wind Now in Service• Annual Energy: ~438,000 MWh– 23% of Projected MMPA Load• Reduces Fossil Fuel Price Risk239
82022 Financial Review• Net Income of $7 Million• Unrestricted Cash Increased by $17 Million240
92022 Operations Review• Generation Portfolio Produced 1.2 Million MWhMWhFaribault650,619 Shakopee33,038 MRS733 Black Oak 333,065 Oak Glen112,675 Walleye29,497 HTBE23,332 Buffalo Solar 11,094 Total1,194,053 241
102022 Operations Review• Generation Portfolio Produced $14.1 Million of Margins• Plant Margins Reduce Costs to MembersMargin ($000)Faribault8,830 Shakopee504 MRS(60) Oak Glen3,794 HTBE1,026 Total14,094 242
112023 Business Environment• Gas & Electric Prices Have Decreased Substantially• Yield Curve Remains Inverted• Inflation Still High But Decreasing• DFL In Full Control of Minnesota Government• Inflation Reduction Act Provides Direct Pay for ITC– Reduces Cost of Renewable Investment243
12Looking Ahead to 2023• Budgeted Rates 2.1% Lower than 2022• January & February Rates Lower than Budget• 43% Renewable• HTBE RNG to Come Online244
245