2.3. ERMUSR 12-17-2013 - Laserfiche WebLink

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Elk River Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: Elk River Municipal Utilities Commission Troy Adams, P.E. —General Manager John Dietz—Chair Al Nadeau—Vice Chair Daryl Thompson—Trustee MEETING DATE: AGENDA ITEM NUMBER: December 17, 2013 2.4 SUBJECT: CAPX Brookings Project Allocation Increase BACKGROUND: In May 2006, the Utilities Commission authorized ERMU joining Midwest Municipal Transmission Group (MMTG) to explore the potential to obtain ownership in the regional transmission system. This action represented ERMU's decision to investigate a change in direction towards ownership instead of renting. Ownership in the transmission system essentially works as a hedge to mitigate volatility in transmission costs. This is a unique type of investment opportunity for a municipal utility. Because of a municipal's ability to finance with tax exempt bonds, our cost of money is less than investor owned and cooperative utilities. With the Federal Energy Regulatory Commission (FERC) approval of a hypothetical capital structure and a guaranteed rate of return on investment, transmission ownership becomes an incredible advantage for municipal utilities to position themselves with very competitive rates compared to the investor owned and cooperative utilities. At the time of initial research into transmission ownership back in 2007, ERMU could invest in approximately $21,000,000 of transmission, be completely hedged against volatility in transmission costs, and still fall under the levels where the bonds would be tax exempt. This amount changes with ERMU's demand and energy usage. In February 2007, ERMU entered into an agreement to participate through Central Minnesota Municipal Power Agency(CMMPA) in the CAPX2020 Brookings-Twin Cities Transmission Project. Initially the municipals were looking into independently funding their share of the project. Because of the number of utilities involved, CMMPA chose to act as the bonding agent for all the municipal utilities investing in this project through them. Even though CMMPA was the bonding agent, their bond counsel requested resolutions and certifications from all commissions and councils. And in March 201 1, the Commission and Council both approved resolutions authorizing the Utilities' participation in the project for an amount not to exceed $7,140,953. ate; IPOUteto STI Page 1 of 3 NATURE Power olbl�bdler POWERED T o SERVE 40