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Elk River <br /> Municipal Utilities UTILITIES COMMISSION MEETING <br /> TO: FROM: <br /> ERMU Commission Troy Adams, P.E.—General Manager <br /> MEETING DATE: AGENDA ITEM NUMBER: <br /> January 9, 2018 6.2 <br /> SUBJECT: <br /> 2018 Bonding Discussion <br /> ACTION REQUESTED: <br /> None <br /> BACKGROUND: <br /> On September 8, 2008, Connexus Energy provided 10 year notice to terminate the 1990 All <br /> Requirements Contract between ERMU and Connexus Energy. After an extensive evaluation of <br /> wholesale power options, ERMU became the 12th member of the Minnesota Municipal Power <br /> Agency(MMPA) on June 5, 2013. As an agency member ERMU received representation on the <br /> MMPA board of directors immediately and will start receiving All Requirements wholesale <br /> power and transmission services in October 2018. <br /> The MMPA membership agreement includes the terms of the buy-in, which is due prior to <br /> October 2018. In 2016, ERMU made an advance payment towards the buy-in of approximately <br /> $10 million. A true-up for the balance of the buy-in will be due prior to October 2018. <br /> DISCUSSION: <br /> In preparation for the true-up payment to MMPA staff is reviewing bonding options with our <br /> bonding consultants at Springsted. The terms for the buy-in amount are calculated from many <br /> factors at the time ERMU begins receiving wholesale power from MMPA. These factors include <br /> ERMU's size, MMPA's size, and MMPA's equity and rate-related accruals. Basically, ERMU's <br /> MMPA buy-in is based on their load ratio share of MMPA's assets. All of these factors have <br /> grown since 2013 which has resulted in an increased projected buy-in amount. And although the <br /> projected buy-in amount has increased, so has the projected savings over the life of the contact. <br /> The bottom line: under current conditions ERMU's decision to join MMPA will not adversely <br /> affect rates in the short term and are projected to provide significate long term value. And <br /> because of the significance of this investment, a governance discussion regarding the buy-in <br /> would be beneficial. There are a number of key performance indicators relevant to this <br /> investment which warrants discussion. First, return on investment and long term strategic <br /> analysis of the decision to join MMPA. Second, annual cash flow and short term financial and <br /> strategic analysis of the buy-in. Third, other value add related to the membership. And lastly, <br /> factors which could affect the ROI and short term cash flow and the sensitivity of those factors. <br /> Staff will facilitate a discussion with the Commission and provide an overview on these four <br /> topics during the Commission meeting. <br /> Page 1 of 1 <br /> 88 <br />