ERMUSR OTHER BUSINESS 03-18-2003

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MASI IA MINNESOTA MUNICIPAL UTILITIES ASSOCIATION 12805 Highway 55 • Suite 212 • Plymouth, MN 55441-3859 • 763.551.1230 • 800.422.01 19(MN) • Fax 763.551.0459 The Right of Municipal Electric Utilities to Grow With Their Cities Since the inception of the electric utility industry, Minnesota's municipal electric utilities have had the right to serve all customers within the borders of their cities. This right includes the ability of municipals to extend electric service to customers in annexed areas. Municipal utilities' right to grow with their cities: • Strengthens a city enterprise providing an essential service to all city residents. • Provides a municipal utility's only real source of growth. • Ensures that city residents will be served by a utility they already own. • Ensures consistent, uniform service and price throughout the city. This policy allows customers the maximum control of their utility and usually results in enhanced service to the customer. Finally, Minnesota Law recognizes the fundamental truth that cities grow because families and businesses want city services and other benefits of being located within the city. Cities are the engines of economic growth, and they work hard to attract development. It is only fair that cities should provide services in annexed areas as growth occurs. Municipal utilities' long-standing right to grow with their cities was affirmed in the 1974 Minnesota law establishing service territories for all the state's electric utilities. The 1974 law was the result of a landmark compromise between investor owned (IOU's), cooperative, and municipal utilities. The law gave co-ops a market guarantee for their planned $1 billion Coal Creek project and it preserved the right of municipal utilities to grow with their cities. The cooperatives enthusiastically supported the passage of this legislation. Since its passage, however, they have worked to secure ever larger compensation awards in cases brought before the Minnesota Public Utilities Commission (MPUC) and the courts. The 1974 law has worked very well for the electric cooperatives. It preserved the co-ops' customer base in the 1980's when they were troubled with rising costs and high rates. MPUC decisions concerning compensation paid for service territory purchased by a municipal utility have resulted in increasing awards to co-ops. Today, cooperatives not only receive full reimbursement for facilities, payment for any reintegration costs, and payment for lost revenue from existing customers; they are even provided compensation for future customers not in existence at the time that the municipal utility begins serving the area. Compensation paid to cooperatives now amounts to more than $16 million.