06-29-2009 CCM SP JTSPECIAL MEETING ~~ THE E~~ RIVER CITY C~UNI~
AND ELF RIVER MUNICIPAL UTILITIES
HELD AT ELF RIVER CITY HALL
C N DAY, J U N E 29, 2449
Members Present; Mayor l~linzing, Councilmembers Zerwas, Matin, westgaard, and
Gumphrey, ERMU Commissioners Thompson and Dietz
Members Absent: None
Staff Present; City Administrator Lori Johnson and City Clerk Tina Allard
ERMU Staff; Director of Qperations Troy Adams, office Manager/Finance Director
Theresa Slominsld., and Special Projects Consultant Vance Zehringer
1. Call Meeting To order
Pursuant to due call anal notice thereof, the joint meeting was called to order at 5;32 p.m. by
the Council and by Elk River Municipal Utilities ~ERMU}.
2. Electric Utili Long-Range Planning
Mr. Adams presented his staff report which outlined various power supply options for the
city to consider along with the pros and cons of each option. He further discussed the
benefits of a municipally owned utility.
Tlae following general discussion took place;
Sc~enaria #2 (participation in Bid Stone ,~.~ ~vith a~vnerfhip in other pea~in~ plane
Item # 7.
Mr. Adams stated approximately 2.7¢ of the rate to customers, beginning in 2015, would be
fixed i.n order to pay down the bond debt over a 30 year period. Ike stated the other 50°/v of
the rate would cover fuel, operation and maintenance, and transmission costs which would
fluctuate depending on market conditions.
Mr. Zehringer stated the city is currently paying over G¢ a kilowatt hour on a wholesale basis
and Big Stone II is projecting a 5.3¢ ldlowatt hour in 201$, He stated half the rate would be
fixed.
Mayor I~linzing questioned what the ~2.G million is to be used for and who would by paying
this amount at the financial close.
Mr. Adams stated the 2.G million would be the city's share of the cost for all the studies and
permitting that must be completed for the Big Stone II project. He stated Elk River
Municipal Utilities would be making payments of about X51,000 per month and then would
have the option to roll tlae loan into construction bonding. He stated amore research would
be needed to determine the best option for obtaining funding for this loan.
Ms. Johnson stated X51,000 per month would need to be paid for 10 months until tlae
financial close. She stated there would be X8,000 in accumulated interest on the ~2.G million
loan and $41,000 that the city will not get back because it would be for ongoing legal and
development expenses. She stated Elk River Municipal Utilities staff was considering
Special City Council and ERMU Commission
~une 29, 200
Page 2
financing the $2.~ million internally and would have tl~e opportunity to roll the loan. into the
~9f} friillion loan when the plant opened. The $2.6 million loan with interest would be about
X3.2 million,
Councilmember Westgaard stated there is floe risk of owing $3.2 million if the financial close
does not happen and floe city would be in a worse position because it would still need to Find
a power supplier and owe back the X3.2 million.
Councilmember Zerwas stated another risk with Scenario #2 is that Elk River Municipal
Utilities would fold because he doesn't see how they could pay back the X3.2 million loss.
Utilities staff disagreed. Mr, Zerhinger stated an additional penny per ldlowatt hour could be
charged to customers.
Mr. Adams stated they recently bonded a $3 million loan without any issues.
Councilmember Zetwas questioned what the collateral would be for this loan.
Ms. Johnson stated the city would need legal authority to issue the bonds. She stated t11is is
not a typical capital project for bonding purposes; possibly a short operating debt could be
obtained but more research would need to be completed to determine if such debt was
allowed through special electric bonding authority bar statute.
Mayor I~li.nzing stated all floe scenarios addressed potential changes and that Scenario #2
didn't address potential changes. She stated it should be noted that there will be changes that
should be added to the risk list.
Mr. Zehringer stated if the Big Stone Il project didn't move forward, and the loan had to be
paid off; the Utilities would still be competiti~re in the market with its rates.
Mayon I~linzing noted that with Scenario #4 the city would have options for negotiating
rates.
Councilmember Gumphrey questioned if the X1.8 million bond on the city hall building
noted in the handout} is calculated from today's rate or from 201.8.
Mr. Adams stated it is the portion that is awed currently.
Ms, Slominsl~i stated it would be paid off in 2022.
Ms. Johnson noted there is no bond on the City Fall building; only on the Utilities building.
Mayor I~linzing asked if the Utilities Commission lead a recommendation for Council.
Commissioner Dietz stated he has mixed feelings on whether to join floe Big Stone II
project. He stated it sounds like a good deal but noted there are many unknowns. Ike stated
the rate Big Stone I~ would charge in 10 years would be less than what the city is paying
now..~~e stated he is encouraged that Connexus nay be more willing to negotiate with the
Utilities. He stated he sees advantages to both sides.
Councilmember Gumphrey stated he liked floe idea of negotiating with Connexus. He stated
he load concerns with Qttertail bacl~ing out of the Big Stone II project.
Special City Council and ERMU Commission
June 29, 2009
Page 3
Commissioner Thompson stated concerns with Connexus truly wanting to negotiate with
the city if the Big Stone II project is off the table after Jul~r 15. He stated the city leas this
opportunity to participate in the Big Stone II project and should really take the time to
consider it.
Mr. Zehringer stated there are many unknowns in staying with Great River Energy. He
stated they will be raising rates 25% over tlae next two years and have had Power Cost
Adjustments every month over the last year with tlae exception of one. He noted the Big
Stone I~ plant will burn coal much more efficiently than any existing coal plants and the city
will need to get some of its power from coal, He stated the city needs to seriously consider
the Big Stone zr option. Mr. Zehringer stated there is a position bar the power 5upplier5 that
they don't want to sell to municipally owned utilities because supplies are getting tighter, He
discussed options with other energy companies.
Counciltnember Gu~nphrey noted Elk River Municipal Utilities rates maybe the same as
Connexus next year,
Councilmember westgaard questioned if the Council would rather be owners than renters in
the future when there could be shortages in power supply. He felt there would be more
options with owning rather than renting. He stated there wouldn't be much bargaining
power with Connexus. He agreed with Commissioner Dietz that the Big Stone ~~ project
seems like a good deal but he has concerns with the risks.
Mr. Adams addressed inconsistencies in a handout that was sent out over an ~ntexnet biog.
He stated Big Stone ~Z will be a new plant t11at will burn coal more efficiently than existing
coal plants. He further noted that they a:r.•e also pursuing green alternatives such as wind
power. He stated coal is an important base load and noted that GRE is Sa% coal. Mr.
Adams stated alternative sources of power are available but can be expensive. He stated only
0.26% of city residents are volunteering to pay more for wind power versus the cheaper
alternative of coal.
Mayor I~linzing stated the city laas been very proactive at worl~ing on alternative energy
options and listed some of the projects they have worked on as Energy City, Slae stated she
is concerned about the use of coal as a power source and had concerns with pending
legislation. She stated she also has concerns with alternative power sources such as nuclear
and wind turbines. She stated tl~e Big Stone II project is risl~y due to all the issues remaining.
She stated she isn't outright advocating that the Elk River Municipal Utilities be sold off but
felt that all alternatives must be considered,
Councilmember Moon questioned whether Connexus would truly be open to any
negotiation once the July 15 letter of intent date has passed. He stated the city needs to be
careful of its coal usage due to the Energy City designation. He stated he didn't believe the
Big Stone II project was geared up to be flexible with alternative energy resources. He noted
if Elk River Municipal Utilities were to remain in business, he would want them to continue
to acquire additional territory,
Councilmember Zer-was stated it's hard for him to support a I00 million project with the
risks involved. He stated he is also concerned with Connexus willingness to negotiate with
the city.
Councilmember Gumphrey noted tl~e city has nine years to figure out other alternatives.
Special City Council and ER1~IU Commission
June 2~, 2009
Page 4
Mr. Adams stated the city should get more informatton from GRE and Connexus prior to
mal~ing a decision on the Big Stone II project.
Commissioner Dietz stated he would like any information provided by GRE and Connexus
to be run by the city attorney.
Council asked for the following information to be addressed at a follow~up meeting.
Flow chart showing where and when funding would need to be committed.
~~ow much interest the utility would have paid in the 1Q years before the Big Stone
Project is ready to move forward.
Tracking o£ upfront costs.
Ma~ror Klinzing asked anyone in the audience if they had any comments.
A.~na Pinola, Elk River Resident --Stated she would like to learn more about Energy City.
She noted it was hard to ask people to pay for wind power due to its cost. She asked the
Council to not close the doo~.• on other alternatives.
Wade Lovelette, L,RMU employee --Stated the Big Stone II plant would burn cleaner and
more efficiently.
A citizen stated the city should consider wind power.
Mr. Zehringer stated Elk River can only produce about ~7% wind power from the turbines
in this area, whereas the wind farms in southwest Minnesota produce about 35-4D% power.
He stated another problem with wind power is in transmitting it. He further noted that Big
Stone ~I is also looking into harvesting wind power at their plant due to their location.
Rob, a citizen stated someone has to tape the lead on alternative, greener power sources and
asked why not Elk River.
Bob Schulte, CEO of CMMPA -~ Stated his company is available to help the municipal
utilities. He stated they are big into renewables but that coal is still a needed source. He
stated they are assuming they will meet the state's 1,~% energy savings goal in their planning.
Councilmember Zerwas questioned if tlae city would be out the $~.G million if the project
was a no-go vote in September X009.
Mr. Schulte stated no. ~~e stated the ~2.G million wouldn't be committed by the city until the
financial close was completed in fall ~Ol~.
A citizen stated the MN Public Utilities passed a mandate on cost caps fo~• construction and
permitting costs for transmission lines in Minnesota and she asked if the cost caps would
apply to the city and affect its rates,
Mr. Schulte stated this condition only applies to 1.2% of the Big Stone ~f project and only
affects attertail's customers.
I~DVED BY CDMI~CISSI~NER TH~MPSQN AND SECONDED BY
CDNIlVIISSIDNER ~UNIPHREY TQ CALL A SPECI.A.L JQINT I~IEETING ~F
THE ELI RIVER MUNICIPAL UTILITIES CDI~IVIISSIC~N WITH THE CITY
C~]UNCIL C]N MONDAY, JUNE ~~, 20U9, AT G:OO P.~J[., ®R II~I~EDIATEL'Y
Special Cit~~ Council and ERMU Commission
June 29, 2009
Page 5
FOLLOWING THE EDA MEETING (WHICHEVER IS LATER) AT CITY
HALL TO CONTINUE DISCUSSION ON LONG RANGE ELECTRIC UTILITY
PLAIi~I~I~I~G. MOTION CARRIED 3-0,
3. Ad~ouxn~nent
.~_
There being no Further business, Mayor ~~linzing adjourned the meeting at 7:30 p,m,
_..
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~,.~..
Tina Allard, City Clerk
..,
Steph nie I~linzir~g, Mayox