5.2. ERMUSR 01-13-2009 - Laserfiche WebLink

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About a year ago, at just about the time our transaction was ready to go, the subprime mortgage meltdown seriously disrupted the tax exempt bond market, and that market has not yet recovered sufficiently to proceed with a prepay transaction. Conditions were improving last summer to the point that we anticipated closing on the prepay after Labor Day. Unfortunately, markets quickly went the other way in September, slipping into the most serious fmancial crisis our country has seen since the Great Depression. It's anyone's guess how long it will take for the financial markets to recover, but I think it's safe to assume that we will likely not be closing on a prepay deal during the current MMUA fiscal year, which ends September 30, 2009. Budget Revisions. Since the MMUA staff provides support for MCMU and MMGA, we had included some revenue and expenses from the prepay in the current MMUA budget. We have been working on reconfiguring the budget to exclude prepay revenue and expenses. We have also been working on developing some additional revenue to cover any potential shortfall. I anticipate that we will have a package of budget revisions to show you at the Winter Meeting. Nashwauk Steel Plant. An Indian company known as Essar is working to develop a new direct reduction steel plant on the edge of Nashwauk. This would be the first plant in the history of the Iron Range to produce finished steel in addition to mining and pelletizing taconite. The $1.7 billion project will be a tremendous boon for the area, but it is putting a significant strain on the resources of a small town with a population of 944 and an electric utility with 523 customers. Essar Steel Minnesota is expected to have an electric load in excess of 300 MW, which could make Nashwauk the largest municipal electric utility in Minnesota and surrounding states. MMUA is working closely with city and utility personnel to help them accomplish the many tasks that will be necessary to see the project through to completion. Bryan Adams, formerly General Manager of Elk River Municipal Utilities, is now serving as Nashwauk's director of utilities on a contract basis. Excelsior Energy. A local independent power producer known as Excelsior Energy has been working for some years to develop The Mesaba Project, an integrated gasification combined cycle (IGCC) 600 MW power plant on the Iron Range between Nashwauk and Grand Rapids. Excelsior has made a lot of progress on the legislative and regulatory front. The plant is exempt from Minnesota's certificate of need process as well as the moratorium on new coal plants. The project has attracted significant grant money to fund preliminary development, and is eligible for a federal loan guarantee that is expected to fund approximately 72% of project costs. Excelsior is looking for potential takers of the output of the project and there is some level of interest among various members of the municipal utility industry in Minnesota. The Minnesota Power wholesale customers in Northeast Minnesota have expressed an interest in considering Excelsior. They recently settled an MP wholesale rate case in which they were successful in lining up all their contract end dates so that they can consider joint participation in a generation project as an alternative to remaining as full requirements customers of MP. If the entire MP group including Nashwauk decided to 2