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lElk River. <br />Municipal Utilities <br />UTILITIES COMMISSION MEETING <br />TO: <br />FROM: <br />Elk River Municipal Utilities Commission <br />Troy Adams, P.E. — General Manager <br />John Dietz — Chair <br />Al Nadeau — Vice Chair <br />Daryl Thompson — Trustee <br />MEETING DATE: <br />AGENDA ITEM NUMBER: <br />December 17, 2013 <br />2.4 <br />SUBJECT: <br />CAPX Brookings Project Allocation Increase <br />BACKGROUND: <br />In May 2006, the Utilities Commission authorized ERMU joining Midwest Municipal <br />Transmission Group (MMTG) to explore the potential to obtain ownership in the regional <br />transmission system. This action represented ERMU's decision to investigate a change in <br />direction towards ownership instead of renting. Ownership in the transmission system <br />essentially works as a hedge to mitigate volatility in transmission costs. <br />This is a unique type of investment opportunity for a municipal utility. Because of a municipal's <br />ability to finance with tax exempt bonds, our cost of money is less than investor owned and <br />cooperative utilities. With the Federal Energy Regulatory Commission (FERC) approval of a <br />hypothetical capital structure and a guaranteed rate of return on investment, transmission <br />ownership becomes an incredible advantage for municipal utilities to position themselves with <br />very competitive rates compared to the investor owned and cooperative utilities. At the time of <br />initial research into transmission ownership back in 2007, ERMU could invest in approximately <br />$21,000,000 of transmission, be completely hedged against volatility in transmission costs, and <br />still fall under the levels where the bonds would be tax exempt. This amount changes with <br />ERMU's demand and energy usage. <br />In February 2007, ERMU entered into an agreement to participate through Central Minnesota <br />Municipal Power Agency (CMMPA) in the CAPX2020 Brookings -Twin Cities Transmission <br />Project. Initially the municipals were looking into independently funding their share of the <br />project. Because of the number of utilities involved, CMMPA chose to act as the bonding agent <br />for all the municipal utilities investing in this project through them. Even though CMMPA was <br />the bonding agent, their bond counsel requested resolutions and certifications from all <br />commissions and councils. And in March 2011, the Commission and Council both approved <br />resolutions authorizing the Utilities' participation in the project for an amount not to exceed <br />$7,140,953. <br />Sill, <br />Reliable Public <br />POWerP der <br />Page 1 of 3 <br />no] <br />ro1EeE0 1t <br />NATUR� <br />POWERED TO SERVE <br />