3.0 ERMUSR 06-06-2006 - Laserfiche WebLink

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Page 3 Regular meeting of the Elk River Municipal Utilities Commission May 16, 2006 E. Wages Staff is proposing a 3.57% wage increase across the board. This is considered a metro average based on the previous wage stuvey taken from neighboring utilities and cooperatives. Motion by James Tralle to approve the 3.57% wage increase for all employees. John Dietz seconded the motion. Motion carried 3-0. 5.3 Review Co Rd 40 Rebuild Proiect At the March 2006 Elk River Municipal Utilities meeting, we were apprised of the upcoming County Road 40 road project. Sherburne County received federal funds to rebuild County Road 40 and it appears this project will start late this year and be completed in 2007. This road project will require us to relocate and upgrade the overhead electric line. To avoid tearing up this new road in a year or two, a trunk water line should also be installed with this road project. The question now is who is going to fund this project. This discussion was tabled until Lori Johnson, City Administrator could be present. 6.1 Review MMTG Opportunity As a municipal electric utility, our goal is to keep our electric rates as competitive as possible. One of the outfalls of electric industry restructuring is the segregation of distribution, transmission and generation portions of our industry. Transmission costs are a concern. With the formation of transmission as profit centers for generation and transmission companies along with MISO operating the transmission and generation infrastructure, and the pending $3 billion of transmission construction due to CAPX 2020, transmission costs are going to rise. How can Elk River protect itself from these rising transmission costs? FERC has established an approximate 12.4% return on equity for companies owning transmissions as a way to encourage ownership investment. ERMU's transmission tariff to GRE will include this 12.4%. Because ERMU is not an equity member of GRE, we are in danger of not receiving benefit of paying higher transmission rates to cover the 12.4% return. If GRE returns the 12.4% to its members in the form of equity payments as has been done in the past, ERMU will not receive benefit from paying higher transmission rates to cover the return. If GRE uses the 12.4% return to reduce rates, ERMU will then receive the benefit of the higher rate. FERC guidelines require the return on equity must be used to reduce rates however, GRE is not under FERC jurisdiction. Presently there are many unknowns about transmission and how it will affect ERMU. ERMU's current annual transmission costs are approximately $1,600,000. Staff recommends joining Midwest Municipal Transmission Group (MMTG) as a way to keep our options open until we know more. This group would invest in transmissions and receive a 12.4% return. The dues would be approximately $12,500 for the year. Motion by James Tralle to apply for membership with MMTG. Jerry Takle seconded the motion. John Dietz voted nae. Motion carried 2-1.