6.1. ERMUSR 05-16-2006~j
Elk River ---~
Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
May 9, 2006
To: Elk River Municipal Utilities Commission
Jerry Takle
Jim Tralle
John Dietz
From: Bryan Adams
Subject: Midwest Municipal Transmission Group
phone: 763.441.2020
Fax 763.441.8099
As a municipal electric utility, our goal is to keep our electric rates as competitive as
possible. One of the outfalls of electric industry restructuring is the segregation of
distribution, transmission and generation portions of our industry. Transmission costs are
the concern of this memo. With the formation of transmission as profit centers for
generation and transmission companies along with MISO operating the transmission and
generation infrastructure, and the pending $3 billion of transmission construction due to
CAPX 2020, transmission costs are going to rise. How can Elk River protect itself from
these rising transmission costs?
FERC has established an approximate 12.4% return on equity for companies owning
transmissions as a way to encourage ownership and investment. Our transmission tariff
to GRE will include this 12.4%. Because ERMU is not an equity member of GRE, we
are in danger of not receiving benefit of paying higher transmission rates to cover the
12.4% return. If GRE returns the 12.4% to its members in the form of equity payment as
has been done in the past, ERMU will not receive benefit from paying higher
transmission rates to cover the return. If GRE uses the 12.4% return to reduce rates,
ERMU will then receive the benefit of the higher rate.
In telephone conversations on May 8, 2006 with John Gasal of Connexus and Terry
Grove of GRE, they assured me that under FERC guidelines, the return on equity must be
used to reduce rates, therefore, Elk River will benefit If this is not the case, Elk River
should be investing in the transmission system. Unfortunately GRE is not under FERC
jurisdiction. Currently GRE is highly leveraged. If we can borrow money at 5% and get
a 12.4% return, it makes good sense.
Attached is a letter from Midwest Municipal Transmission Group (MMTG) seeking our
membership. This group would invest in transmissions and receive a 12.4% return. A
lot of work by MMTG needs to happen before MMTG can succeed. If ERMU were to
join MMTG, our dues would be in the $12,500 range and we must join now due to the
limited time frame.
GRE is not the same company as it was in the past, and I do not know of its future or
direction. I view MMTG as an insurance policy to minimize our transmissions costs and
buy us more time to see how the electric restructuring plays itself out along with changes
in GRE. Our current transmission cost is $4.08/kw/month or approximately
$1,600,000/year. Joining MMTG will buy us options for the future. The real cost will be
incurred if and when we actually build transmission infrastructure.
west
~i~,~icipal
~,
~~nsmission
roup
March 27, 2006
To: MMTG members
From: Anne Kimber, Chair
Re: Membership and Dues letter for 2006-2007
I am writing to you to tell you about MMTG's past and present, and to ask you to
participate in its future.
MMTG began because a group of about 124 municipal utilities, about 1,300 MW of load
in three states. We demanded participation and investment rights in a new company,
TRANSLink, which would have constructed new transmission in our region. The group
believed that joint action leading to ownership of transmission was the right path to: 1)
solve transmission problems that limited our access to power supply; 2) provide us with
transmission revenues as a way of lowering our utilities' costs; and 3) to ensure we had a
strong voice to tell regulators of the problems we face with access to power supply and
transmission. TRANSLink failed, but most of the MMTG members did not give up -you
continued to support transmission ownership efforts through your dues and participation
in the organization.
Through your continued support, MMTG achieved in 2005 two essential victories rooted
in the TRANSLink effort: 1) we signed an agreement with MidAmerican for new
transmission investments; and 2) we became core participants in CAPX 2020 in
Minnesota. Through projects with these two entities we will have transmission ownership
and participation in planning. In addition, MMTG has become a credible voice for
municipal utilities with state and federal regulators, either alone, or with other
transmission-dependent utilities in the region.
It hasn't been easy or cheap to break new ground as we have. For example, a new joint
financing agency (the Iowa Public Power Agency) will make its first investments as a
result of our work. Will Kaul of Great River Energy described CAPX as a "faith-based
organization" and it's an appropriate term for MMTG as well -it's been faith and
volunteer dedication that has provided a "laying on of hands" to keep the effort going. I
am proud to work on this effort, and I am committed to making the next year of MMTG's
existence as productive as in 2005.
In 2006 MMTG was organized into anon-profit corporation. In March it filed for tax-
exempt status as a 501 C(6) association - a similar legal structure to IAMU and MMUA.
As such it will be an advocacy group that will negotiate on your behalf.
MMTG c/o IAMU 1735 NE 70th Avenue, Ankeny Iowa 50021 Phone: 515/289-1999;
FAX 515/289-2499; Anne Kimber email: akimber@iamu.org
What are MMTG's goals for the coming year?
^ First, we must complete the work on the final details of the MidAmerican
investments. We have asked for letters of intent to be signed by you by April 30 so
that we can proceed with these investments.
^ Second, we must continue to negotiate with Xcel to reach agreement with them on the
details of investment recovery for the very significant transmission projects we expect
in Minnesota.
^ Third, we must continue our participation in the CAPX 2020 process and
investments.
^ Fourth, we must make sure we represent as many municipal utilities as we can in the
region and we must know of your issues, so that we can educate the FERC, the IUB,
the MN PUC, the Illinois Commerce Commission, and our congressional delegations,
about the impacts of their policies on our customers.
^ Fifth, we must strengthen our representation at MAPP, to ensure that changes in
MAPP and the MRO take into account our perspective.
MMTG costs: At the MMTG organizing meeting on March 8, the MMTG Board of
Directors approved a budget of $322,300, one third of which will go for legal
representation, another third will go for CAPX participation, and the remaining third will
be used for IAMU and MMUA staff time, meeting expenses, and accounting support.
MMTG dues: The Board recommended a dues allocation method as follows:
1. Dues for utilities that are voting members of MMTG are recommended as $1,000
per utility plus $335.70 per MW (based on 2002 peak). Voting members are
entitled to investment rights in transmission.
2. Dues for state associations that are voting members are recommended as $500.
3. Dues for non-voting, associate member power supply agencies are recommended
as $2,500.
These dues are a small fraction of the annual transmission costs you pay. For example,
MMTG has 14 members that are network service customers of MidAmerican. I estimated
that these members paid approximately $1,210,000 in network transmission costs in
2004. The MMTG dues for these utilities are about $51,000. MMTG's joint action efforts
enables you fight battles jointly that you couldn't afford to undertake on your own.
Approving the dues: As members of MMTG you must approve the dues allocation
methods. I am including a ballot for you to complete and return by Apri128, 2006.
Membership form: I am including a membership form for your utility to complete. If
you apply for voting membership, you obtain investment rights through MMTG. You
also obligate your utility to pay MMTG dues for the 2006-2007 fiscal year. I am asking
you to act on membership by Apri128, 2006.
Please contact me with any questions or concerns. I look forward to working with you
and for you this year.
2
west
icipal
nsmission
roup
MMTG ballot on Dues Allocation
MMTG members,
At the organizing meeting held in Waverly March 8 and 9, the Board of Directors
approved an MMTG budget for March 1, 2006 -February 28, 2007 of $322,300.
They propose a dues structure as follows:
1. For voting and investing utility members of MMTG:
$1,000 per utility
plus $335.79 per MW, based on 2002 peak data.
2. For non-voting joint action agencies, the dues are proposed as $2,500.
3. For state associations, the dues are proposed as $500.
The dues allocations must be voted on and approved by the MMTG membership.
Please vote on the dues using the ballot below:
Name of Utility
Check one:
Votes "Aye" in favor of the dues allocations
Votes "No" opposing the dues allocations
Please return your ballot no later than April 28.
MMTG c/o IAMU 1735 NE 70th Avenue, Ankeny Iowa 50021 Phone: 515/289-1999;
FAX 515/289-2499; Anne Kimber email: akimber@iamu.org
west
icipal
nsmission
roup
APPLICATION FOR MEMBERSHIP IN MMTG:
Application Date:
Name of Entity:
Address:
Contact person:
Phone number:
Fax number: _
Email:
applies to become a member of the Midwest Municipal Utilities Association (doing
business as the Midwest Municipal Transmission Group (MMTG)). The applicant agrees
to pay all dues, fees and assessments assessed by the Association to the applicant's
corresponding membership class. Applicant acknowledges and understands that MMTG
has the sole right to determine the specific category of membership, and applicable rights,
of each applicant.
Approved by the Board of Directors of the Association
By
Date of Approval:
PLEASE RETURN BY APRIL 28, 2006.
(for the Association)
MMTG c/o IAMU 1735 NE 70th Avenue, Ankeny Iowa 50021 Phone: 515/289-1999;
FAX 515/289-2499; Anne Kimber email: akimber@iamu.org