ERMUSR Misc. Issues 01-11-2005/~
Elk River -~--
Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
January 5, 2005
To: Elk River Municipal Utilities Commission
Jerry Takle
James Tralle
John Dietz
From: Bryan Adams
Subject: Miscellaneous Issues
phone: 763.441.2020
Fax: 763.441.8099
Enclosed is the packet for Tuesday, January 11, 2005 commission meeting at 4:00 p.m.,
the first meeting of another year full of opportunities.
Attached are three articles worth your time reviewing. They are as follows.
1) December 10, 2004 Kiplinger Letter addressing energy.
2) AWWA recently published a book titled, "Avoiding Rate Shock. Making
the Case for Water Rates". Attached is the executive summary.
3) "New Rules for Great Lakes Water Use", from Januar}~-February 2005
Public Power. Due to water shortages in the southern United States, plans
were initiated many years ago to drain water from the Great Lakes through
the Chicago and Illinois Rivers to the Mississippi River. This article
reflects the Council of Great Lakes Governors' response to such
initiatives.
Uopher State One Call has changed their rate structure as to getting locate notices by fax
or e-mail. Previously we received locate notices by fax. Due to the new rate structure, it
is substantially more economical to receive and send locate notices by e-mail, therefore
we will be purchasing another computer for Gopher State One Call notices.
The Xcel's Sherco 2000 MW power plant is the largest coal fired power plant in the
upper Midwest and is just up the road in Becker, MN. Many of our employees have
expressed an interest in a tour of this facility. I am trying to arrange a tour on February 2,
2005, one in the morning and one in the afternoon for our employees. Our cost will be
approximately $600 to bus the employees to and from. I will proceed with this tour
unless this commission desires otherwise. Knowledgeable employees are our industries
biggest advocates.
/~//~~y~
The low U.S. savings rate threatens long-term economic health,
since it limits the funds available for businesses to expand
and boost productivity. Without enough savings from individuals
and/or the government, companies must rely on foreign investment
in U.S. financial assets. That's likely to slow in coming years,
and interest rates will rise, curbing investment and consumption.
But short term, a jump in savings would be a mixed blessing.
Modest job and wage gains provide little impetus for the economy,
so it's spending by consumers and businesses that's fueling the growth
that we have. Thus, a sharp shift. in Americans' spendthrift habits,
which also have pushed consumer debt to a near record, would hurt.
• Fortunately, the slender 0.2% U.S. savings rate is understated
because it doesn't account for home equity or appreciation in assets.
And over time, the rate will climb a bit. Rising interest rates
and baby boomers' growing awareness of the approach of retirement age
will coax a few more dollars into savings. Partial privatization
of Social Security would also encourage consumers to sock more away.
Meanwhile, though, the dilemma is making investors uneasy.
® The government wants to prime the Pump for nuclear energy Plants.
Also by 2010, enough wind-powered electricity for a million homes
is likely. A federal tax credit specifically for wind-generated power
plus $300 million a year in state grants for all renewable energy sources
are sparking rapid growth. That, plus new breakthroughs in turbine blades,
conversion technology, software controls and more, will increase output
to nearly 13,000 megawatts, 4% of anticipated U.S. energy needs in 2010.
Chances are that federal energy legislation will speed progress.
So it'll pay half the tab for studies required to get approval
for facilities planned for sites near existing plants in Va. and I11.
Regulators also plan to streamline approvals, halving the time needed.
Recent Energy Dept. moves are meant to end a financing logjam
that's blocking construction of new plants, including the two planned
for the Va. and I11. sites. Lenders have balked at the 10-year lead time
and the $50 million to $100 million needed to meet requirements imposed
by DOE, EPA and a variety of other federal, state and local agencies.
By 2010, the two plants will come on line, launching a 50% hike
in nuclear energy output expected by 2020 as even more plants are built.
DOE doesn't plan to continue picking up study costs for other facilities.
It figures once streamlined regs are in place, financing will be easier.
It will offer millions in grants for research on renewable energy sources
of all sorts...solar, biomass, fuel cells, etc., as well as wind power.
•~ ~ Is it possible to profit by reducing carbon dioxide emissions?
Some firms are counting on it. Among them: Temple-Inland,
a Texas wood products manufacturer, Interface Inc., a Ga. carpet maker,
as well as such big names as DuPont, Bayer and International Paper Co.
Odds are they're right. By the end of the decade, Uncle Sam
is likely to follow the lead of states that are limiting COz emissions.
A futures market for pollution credits will facilitate tradine.
Futures contracts on credits for sulfur dioxide, which has been regulated
for two decades, debuted today. COZ contracts will follow in a year or so.
~ For instant online access and searchable archives, go to KiplingerForecasts.com/start ~ '`~
AV IDI~ RATS - ~.~:~ ._,_._ ~ _,
MAKING THE CASE FOR WATER RATES
EXECUTIVE SUMMARY
There is a growing recognition in the United
States and elsewhere that the condition of
our vital water infrastructure needs serious
attention in many places. The pipes, pumps,
and treatment facilities that are critical to
delivering a clean, adequate supply of pota-
ble water to our communities are central to
our quality of life, the protection of public
health and safety, and a thriving economy.
The burden of paying for construction, oper-
ation and maintenance of these facilities
falls mainly on customers of the systems,
and those costs are rising-dramatically in
some areas.
The Water Utility Council (WUC) of the American
Water Works Association (AWWA)1 sponsored
this study to provide a better understanding of
how water utilities might make a good case to
their decision-making bodies, customers, and
other stakeholders about the need for sustain-
able local financing of water infrastructure im-
provements, operations, and maintenance.
The study drew upon background research,
case studies, and in-depth interviews with
stakeholders, along with lessons learned from
the project team's experience working on rate
cases and strategic communications campaigns.
The team was aided in this effort by a knowl-
edgeable and experienced Workgroup of utility
staff from nine geographically and demographi-
cally diverse organizations.
"Utility. credit. analysis has.: moved beyond a
point-in-time analysis of current.. debt service
coverage and rates compared to ratepayers' in- .
come levels and rates. in neighboring communi-
ties Because a variety of factors may affect
financing options at the local level, the extent of
a utility's. ability to implement .strategies and
policies that address its unique characteristics
and allow it to finance needed projects becomes
a differentiating factor."
--James Wiemken,
Director, Standard & Poors Credit
Market Services
1. AWWA is an international nonprofit scientific and educational society dedicated to the improvement of drinking water quality
and supply. Its more than 57,000 members represent the full spectrum of the drinking water community: treatment plant op-
erators and managers, scientists, environmentalists, manufacturers, academicians, regulators, and others who hold genuine in-
terest in water supply and public health. Membership includes more than 4,700 utilities that supply water to roughly 180 million
people in North America. The AWWA Water U[ility Council (WUC) provides strategic direction and guidance for the legisla-
tive and regulatory affairs agenda of the Association.
3.-
Q 11'1 f.~kE°f~;.; f~a 9~~ F~}ErC!~i~~e F~j~tiFRi.~[~~.1.~+~K Cc'?
The key findings of this research will not be
news to utilities who have routinely and consis-
tently "done the right thing" by communicating
with their stakeholders and keeping up with
local funding needs. The findings and recom-
mendations are summarized as follows:
Finding #1. People unrlervaiue Water, Wltict~ cor!;toun~l:
ti7e +,?faiEeri,:fe of geti:insl rate i!fcreases acce~~tFd,
Recommendations:
^ Know your customers-understand their
attitudes and values through internal and
external surveys and other research.
® Clearly explain the benefits of water ser-
vice and increased spending on infrastruc-
ture through simple, graphics-focused
presentations, personalized to the neighbor-
hood level.
^ Localize messages in alignment with com-
munity priorities.
^ Participate in local and regional water pol-
icy development.
Finding #2. r~ ci~nsisteni, structu!~~d ccrr.n~unicatiorss
outreach program builds rile rrs3dibi4ity necessary to
support tine ci;stor;zz,r-utiiity re!ati0nsbip ancl, ti~~retore,
rate ir,crQases.
Recommendations:
^ Formulate consistent messages, based on
an understanding of customer perceptions,
and repeat them often.
^ Develop and implement an ongoing strate-
gic communications plan.
^ Involve employees and decision-makers as
"ambassadors."
^ Don't make comparisons between water
rates and "discretionary" spending (e.g.,
cable television).
^ Celebrate and publicize successful projects,
including-and perhaps particularly-
underground infrastructure projects.
Finding #3. !t'.. r:s-;~°~~; ~,:o ~<:,i~..:::*~,~i r-?;irlt,j ;ii rir(fi
1'~,r.~ (i`sfr[~i 1i;!liJ EF;tI?l; i!(,~. i:6,. t`i1rC it`s l= fl~','lli,
^f"iSif:.
Recommendations:
e Check and re-check your budget and rate
calculations.
o Take timing of other events (e.g., elections,
increases in other rates or taxes) into con-
sideration and navigate around them.
~ Adequately fund and staff communication
efforts; assign responsibility and establish
accountability.
a Avoid "rate management by crisis" by
thinking long-term and starting today.
a Adopt a comprehensive process for plan-
ning and implementing a rate increase.
Finding #4. !3i`ling practices and rate stri!cture options
can of#ect customer reactions and acceptance of rate
increases.
Recommendations:
~ Distinguish water charges clearly from
other portions of the bill.
^ Communicate and coordinate with any
other utilities for which you provide billing,
both to (1) control cumulative increases on
ratepayers and (2) coordinate communica-
tions campaigns.
^ Build outreach requirements into combined
billing agreements.
^ Include enough detail for the average rate-
payer to determine how the bill was computed.
^ Consider more frequent billing intervals to
smooth out impacts on ratepayers and
make budgeting easier.
^ Consider special rate structures and fee
options.
^ Use multiple tools and approaches to make
sure rates are equitable, defensible, and
affordable.
2 AVOIDING RATE SHOCK: MAKING THE CASE FOR WATER RATES
Many AWWA member utilities already are im-
plementing some or all of these recommenda-
tions. Many, we know, are not. It is the hope of
the WUC and the research team that the find-
ings and recommendations herein will provide
useful support and guidance for utilities that
have found it difficult to successfully build sup-
port for necessary rate increases.
Figure ES-1 is a recommended sequence for
planning and implementing a rate increase pro-
gram, based on a synthesis of best practices and
lessons learned from utilities that contributed
to this study.
Finally, this report includes examples of tools
used by utilities for the successful implementa-
tion of rate increases in their communities. The
"Avoiding Rate Shock" Toolkit in Appendix B in-
cludes examples of brochures, fact sheets, news-
letters, presentations, and other materials that
utilities can customize to their own local circum-
stances. For just as "all politics is local," so are all
rate increase programs. Paying attention to local
circumstances and thinking through the develop-
ment and delivery of appropriate messages is a
theme that echoes throughout the report.
Information Revenue ccept-Yes Rate
p requirements, rate ~ increase
in uts options & impacts able . campaign
No
1 2 3 4 5to8
Typical Timeline (months)
Rate Communication
adoption to customers
9 to 11
Figure ES-1 Recommended typical rate increase sequence (summary)
A detailed version of this graphic is provided under Finding #3 (page 23) in the body of this report.
AMERICAN WATER WORKS ASSOCIATION 3
New Rules For Great Lakes Water Use
~ue to concerns about potential large diversions of water out of the Great Lakes basin,
in July 2004 tl~ie Council of Great Lakes Governors proposed adecision-making standard
for ~~~ithdrav~.~ing water from the Great Lakes watershed. Any ne~~ or increased request for
water over one million gallons a day would require review and approval of a new regional
council and require t?7e applicant to implement a natural resource improvement project.
The basin,: which includes the Great Lakes and their tributai-~~ surface and ground water,
contains approximately 20 percent of available fresh water on Earth.
The proposed standard could affect facilities or communities in or near the Great Lakes basin
that plan to ex~~and or locate in the basin in a few years. Pro~~isions of the proposed standard are
consistent with existing power plant regulations and the recently promulgated 316(b) rule, which
largely bans new power plants fi-orrl using once-through cooling water, said John Osinski, executive
director of regulatory affairs for the iV'ew York Power Authorit}~. Consequently, the proposed stan-
dard would impose few new requirements on power plant water use. For new plants with recycled
water, evaporative losses may trigger the threshold for regional review, but they ~~~ill have best
available control technology (BACT).
iB JANUARY-FEBRUARY ZOOS PUBLIC POWER
6y Ann McCabe
"1'he governors' proposal implements the
Great Lakes Charter Annex, also known as
"Charter Annex" or "Annex 2001," signed by
the eight Great Lakes governors and die
premiers of Ontario and Quebec on June 18,
2001. The A,lnex was developed to ensure
the Creat Lakes are protected, consen-ed,
restored and improved [or Future genera-
tions. At a meeting in Chicago last July,
\\-isconsin Governor )im Doyle said the
agreements, once implemented, "will ensure
that when other regions look toward the
Great bakes to solve their problerr,s, we ~~ill
have the legal authority to protect ourseh-es."
Under the \~'ater Resources Develop-
ment Act, any single Great Lakes state can
veto a large water diversion request. 'Michi-
gan vetoed a request for water from L,oweil,
Ind. The governors' efforts to advance the
Charter Annex are intended to create a new
governance standard and procedure to man-
age the basin as an ecosystem.
"At no tune, at no place in the world
have we had an undertaking of t},is magni-
tude lll terlns of W'atP.r lnanagel7lent," said
Sam Speck, head of the Ohio Department
of ;;\atural Resources. Speck chairs the
state and prowincia] \~'ater 'y'Ianagement
\~'orking Gror.rp, which spent three years
developing the proposed standard and dis-
cussing issues with an advisory group of
stakeholders. The \\%orking Group had one
technical and one governor's or premier's
representative from each jurisdiction.
Stakeholders represented environmental,
agriculture, municipal, shipping and indus-
trial concerns.
The comment period ended Oct. 19.
The \~Vorking Group is reviewing the com-
ments and will revise the proposal and
submit it to the governors and premiers for
final approval.
under the proposal, the eight states
would form a compact. The regional com-
pact will require legislative approval in
each state, the riao pro~~nces and the li.S.
Congress. Phis process likely will take sev-
eral years. Accompanying the proposed
compact is a Great Lakes Basin Sustainable
\~'ater Resources Agreement between the
states and prop-inces, which further elabo-
rates how decisions will be made and
water-use data collected.
A number of municipalities just outside
of the Great Lakes basin are experiencing
water shortages, including ilkron, Uhio;
Rural Lorain Gounri_•, Ohio, Lowell, Ind..
and \\'aukesha, \\-is. In what many view as
a test case, \\%aukesha seeks access to Lake
Michigan water due to radium-contami-
nated ground ~+•ater. To obtain lake water
from the city oI Milwaukee, there Will be
issues concenring return Ilow to the Great
Lakes basin.
The following withdrawals would be
subject to regional review b~• die Regional
Council of 10 jurisdictions (:S states and 2
provinces):
• new or increased diversions of one mi}-
lion gallons per day or greater over any
1.20-day period, ~rluc•h would reduire unani-
mous approval of the regional council, and
• new or increased consumptive use of
five rrrillion gallons per day or greater over
any LO-day period, which would require a
6-2 majority of the regional council.
Other, smaller proposed diversirn~s wwould
be reviewed by the relevant state or
province.
A diversion means a transfer of water
from the basin into another watershed or
from one of dle Great Lakes into anodrer. A
consumptive use is water Withdrawar fi-om
the basin that is lost or othertiaise not re-
turned to tl-re Great Lakes basin due to
evaporation, incorporation into products or
other processes.
In addition, new or increased diver-
sions over one million gallons per day and
consumptive uses over five million gal-
lons per day must meet a number of
criteria, including:
• Demonstration that d~ere is no reason-
able water supply alternative; including d1e
efficient use and conser`-anon of e,asting Wa-
tersupplies;
• x111 water ~~nthdrawn from the. basin
shall be returned to the basin less an al-
lowance for consumptive use. \Vater
withdraw~~ directly from a Great Lake or
from the St. Lawrence River shall be re-
turned to the Watershed of those
respective waters;
• The wid~drawal ~.~ill be implemented to
ensure drat it ~2ll result in no significant in-
di~idual or cumulative adverse impacts to
the quantity or quality of the waters and wa-
ter-dependent natural resources of the basin;
• The withdrawal shall incorporate a con-
servation plan;
• The withdrawal proposal will he in
compliance: with all state and {•ederal lati•s
and regional and international agree-
ments; and
• The withdrawal shall incorporate a pro-
posal for an improvement to the Waters and
water-dependent natural resources of tyre
b<uin, demonstrating how measures will be
implemented to improve the physical, chem-
ical or biological integrih~ of the waters of tyre
G,-eat Lakes bztsin.
The improvement standard is precedent-
setting: in exchange Eor approval to ~+-itl,dra~~•
Great Lakes basin wager, the applicant must
implement an improvement project. under
the agreement the improvement project's
scope should be commensw-ate to t}re ~nith-
drawal. Projects could include habitat
restoration, streambanl< stabilization, ground
~~•ater redrar,ge and wetlands creation.
Potential issues include the different
voting approval requirements-unanim-
ity for one million gallons per day and a
super majority for five million gallons
per day wit}rdrawals; the 1'7.0-day averag-
ing period for some uses (W•hich
reportedly assists agricultw•al irrigation
and others); acknowledgement of the
Supreme Court-decreed Chicago alloca-
tion, under which withdrawals will not
be subject to the proposed standard;
more clarity on the appeal process; and
regional review of state and provincial
economic development projects.
wwwAPPAnei.org JANUARV-FEBRUARYZOOS r9
New Rules For Great Lakes Water Use
?Michigan :lttorney General h4ike Cox
questioned the implementing agreements
since they' could ~~~eaken ?s9ichigan's au-
thority to veto requests for withdrawals.
"Today, ?y'lichigan hrs the po~~~er to say
'no' to the diversion uF Great Lakes water.
Phis right to preserve the Great I-,tikes
must be maintained," he said. "Careful
legal study and evaluation is needed to
ensure that it is the best way to achieve
the desired end..,
Ne~~~ Fork Power Autlrorih-'s Osinsld, a
member uF the ad~isorti group, suggested
the states will likel;. address d~re competitive
advantage issue and other concerns during
the public couunent process. Overall, "tire
Great Lakes are tyre rem on's biggest asset -
arrytlung drat improves their effec6~ e utiliza-
tion is a plus," he scud.
Coirrmurritics that need more ~aa-
ter due to population growth or
economic develops-rent will hay-e a
greater chance of regional review if
• ,
,._ ,,!„~rroenm~_
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PO JANUARY-FEBRUARY 2005
they implement or expand on water
and sewer a~nser,-ation measures and
if the return floe- returns to the Croat
Lakes basin. At this tune, it is unclear
hose tyre re~~ew process will work once
finalized or to ~yhat extc;nt states will
use it competitively to affect facilih~ sit-
ing decisions.
The 1985 Great L~rkes Charter called
for the development and m,rintenance of a
database on «-titer use; diversion and crn1-
sumptivt: use, but there was ef-fecti~•ely no
follo~~•-through on the commitment. The
compact would codify the data collection
reduirement. Each entity that ~yithdra~~s
more than 100,000 gallons per day avera~~e
in any 30-day period or diverts ~-eater out of
the basin ~~~•111 need to register by a date set
by the council and report annually. Great
Lake-s states ~~~11 g~+ther information on all
basin ~~~ithdrawals in excess of .100,000 gal-
lons per day and all diversions and annually
report this information to a regional ~a~ater
use database. Currenth~; such information
is not available fix each state.
Each state or pro~nnce unll be responsi-
ble: for notifyv~g the public of all proposal
applications and provide the opportunity
for public comment.
Even five years or each time there is
an incremental loss of 50 million gallons a
day, the compact calls For the states and
prop-inees to assess the cumulative im-
pacts of withdra~~als, diversions and
consumptive uses from the waters of the
Great Lakes basin.
Initially, the surface water di~idc ~.~~11 bc:
used to define the Croat Lakes basin
ground water di~idc, though this may not
reflect where the divide actually exists-
Ovcr time, the definition ~~dl] be updated
as the scientific understanding of ground
water flows improves.
The council may petition a court to
suspend a state's or province's right to
rote if it is in ~~iolation of its duties under
the compact.
Vlore information on the proposed
standard can be found on the Council of
Great Lakes Governors Web site,
~ti„v~cglg.or-g. ^
Ann McCabe is a partner with Policy Solutions
Ltd., an environmental policy consulting firm
based in Chicago.
PuRIIC POWER
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