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07-08-2009 ERMU MINELK RIVER MUNICIPAL UTILTfIES SPECIAL MEETING OF THE UTILITIES COMMISSION HELD AT UTILITIES CONFERENCE ROOM July 8, 2009 Members Present: John Dietz, President; Jerry Gumphrey, Vice Chair; Daryl Thompson, Trustee Staff Present: Troy Adams, Director of Operations; Theresa Slominski, Finance Director/Office Manager; Mark Fuchs, Line Superintendent; Wade Lovelette, Technical Services Superintendent; Judy McSpadden, Recording Clerk Others present: Vance Zehringer, Zehringer Consulting; Lori Johnson, City Administrator; Peter K. Beck, City Attorney from Gray, Plant, Mooty, Mooty & Bennett Bruce Gomm, General Manager of Willmar Municipal Utilities; Bob Schulte, CEO of CMMPA 1. Call meeting to order July 8, 2009 John Dietz called the July 8, 2009 meeting to order at 4:00 p.m. 3.1 Review and Consider Big Stone II Participation and Wholesale Power Suppiy Options Troy Adams stated the purpose of this meeting was to follow-up on some of the outstanding questions. and for the Commission to decide if they were going to recommend supporting the Big Stone II project to the Elk River City Council. Troy reviewed the projected funding needed for the Big Stone II and they are $100 million for construction costs plus $23 million interest during construction for a total of $123 million. At this time Troy Adams introduced Bruce Gomm, General Manager of Willmar Municipal Utilities (WMU) as they are similar in size to Elk River Municipal Utilities (ERMU), and are onboard with the Big Stone II project. Bruce Gomm the General Manager of WMU for the past two years said the unanimous decision to go with the Big Stone II project was already decided prior to his arrival. He went onto say he was skeptical of this project and looked into it further. WMU's power contract with GRE expires in 2015. The WMU Commission felt there was nothing out there right now with future costs continuing to rise. Bruce Gomm added that the WMU Commission felt so strongly about the Big Stone II project they recommended buying 30 megawatts instead of the 20 megawatts they were initially going for and the Willmar City Council also unanimously chose to sign on. Vance Zehringer inquired what the status would be if a large entity pulled out of the project. Bruce Gomm stated others would step up. Bob Schulte said others have stepped out of the project but others have increased their requirement as was the case for WMU. Bob Schulte said this is a ten year project and wanted to address concerns about there not being a shovel in the ground to date but it takes five years for the pernutting and planning process and another five years for the construction. Page 2 Special Meeting of the Elk River Municipal Utilities Commission July 8, 2009 Bruce Gomm spoke of the carbon tax that might be applied in the future. You will still be assessed this no matter where you purchase power. However, the new plant is designed to omit less carbon and existing plants will have to be retrofitted. Jerry Gumphrey asked if the Commissioners ever considered selling WMU. Bruce Gomm answered long ago but not recently. Peter Beck asked if there was anything in the contract that would prevent the City of Elk River form selling ERMU. Bob Shulte replied that as long as the owner or proprietor continues to make the payments there shouldn't be a problem but will look into it for further clarification. John Dietz read a statement regarding the possibility of having to pay up to an additional 35% if a party left the power sales agreement. Bob Schulte responded that was correct but that is there mainly for the bonding requirements to ensure the project stays on track. Other participants would then be invited in. Lori Johnson is checking into the bonding issues. There are concerns regarding the City of Elk River's future bond rating and how that would affect future bonds needed for other projects. Jerry Gumphrey questioned who would be responsible to pay the construction overruns. Bob Schulte responded the contractors would sign contracts to ensure there would be no overruns. Troy Adams reviewed the cost projections, the true-up time flame, the possibility of this failing, and the ramificafions to the utilities and its customers. Daryl Thompson voiced his opinion of the Big Stone II project saying the future will hold more difficulties in purchasing power and there could be more rolling blackouts. He feels this is a great opportunity for ERMU to keep competitive rates and if nothing is done the rates will go up. The value of ERMU will increase. By turning our backs on this would not be good for ERMU and it would put them at the mercy of others. Daryl Thompson stated he is in favor of this project. He also added that if ERMU could not remain competitive he'd support selling the utilities. Jerry Gumphrey said he felt he should support this project because of all the job opportunities it will provide but he is still skeptical. There are still concerns and issues with permits. Jerry went onto say that when the ERMU was established as a small municipal they were to buy from whoever had the cheapest rate and not be a power supplier. As for the funding needed for this project, all the projected costs keep rising. Also, if this project did fail it would greatly affect the City of Elk River's bonding rate.. Jerry also noted he would support selling the utilities if they could not remain competitive. John Dietz commented that he has nothing against coal plants, this would be an efficient coal plant, and the power we are currently buying is produced from coal. There are several uncertainties in this project, nothing is guaranteed. A lot of things can happen in nine years. Connexus and now SMMPA are interested in supplying ERMU future power. Big Stone II is a big risk and does not feel right taking this risk at the customer's expense. John concurred with Page 3 Special Meeting of the Elk River Municipal Utilities Commission July 8, 2009 Daryl and Jerry's comment about the possibility of selling the utilities if they could not remain competitive. Jerry Gumphrey moved to keep looking at options for future power suppliers and not join in the Big Stone II project. John Dietz seconded the motion. Motion carried 3-0. President John Dietz adjourned the special meeting of the Elk River Municipal Utilities Commission at 5:30 p.m. Minutes prepared by Judy McSpadden. J Dietz President, ERMU Commission e + C..,'".f Tina Allard City Clerk