April 11, 2017

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ELK RIVER MUNICIPAL UTILITIES REGULAR MEETING OF THE UTILITIES COMMISSION HELD AT UTILITIES CONFERENCE ROOM April 11, 2017 Members Present:

Chair John Dietz; Vice Chair Daryl Thompson; Commissioners Al Nadeau and Mary Stewart Members Absent: Commissioner Matt Westgaard ERMU Staff Present: Troy Adams, General Manager; Theresa Slominski, Finance and Office Manager; Mark Fuchs, Electric Superintendent; Eric Volk, Water Superintendent; Tom Sagstetter, Conservation & Key Accounts Manager; Michelle Canterbury, Executive Administrative Assistant; Melissa Karpinski, Accountant; Jenny Biorn, Accountant Others Present: Cal Portner, City Administrator; Peter Beck, Attorney; Andrew Berg, CPA with Abdo, Eick & Meyers; Kaylee Benson; and Lora Benson

1.0

GOVERNANCE

1.1

Call Meeting to Order The regular meeting of the Utilities Commission was called to order at 3:30 p.m. by Chair Dietz.

1.2

Pledge of Allegiance The Pledge of Allegiance was recited.

1.3

Commissioner Oath of Office Michelle Canterbury administered the oath of office for Utilities Commissioner Al Nadeau.

1.4

Consider the Agenda There were no additions or corrections to the agenda. Moved by Commissioner Thompson and seconded by Commissioner Nadeau to approve the April 11, 2017, agenda. Motion carried 4-0.

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Regular Meeting of the Elk River Municipal Utilities Commission April 11, 2017

1.5

Recognition of ERMU’s Tom Bovitz Memorial Scholarship Award Winner Mr. Sagstetter provided some background on the scholarship program and introduced High School Senior Kaylee Benson who had been chosen as the recipient of ERMU “Tom Bovitz Memorial Scholarship.” Ms. Benson shared what her future plans for college were. The Commission congratulated her on the essay she wrote.

1.6

Resolution Recognizing 2017 Lineworkers Day Chair Dietz read the resolution. Chair Dietz offered to write a letter on behalf of the Commission to thank the ERMU lineworkers for all they do. The Commission was in support of the idea. Moved by Commissioner Nadeau and seconded by Commissioner Stewart to adopt Resolution No. 17-3 recognizing lineworkers and designating April 18, 2017 as Lineworker Appreciation Day. Motion carried 4-0.

1.7

Resolution Recognizing 2017 Drinking Water Week Chair Dietz read the resolution. Moved by Commissioner Stewart and seconded by Commissioner Nadeau to adopt Resolution No. 17-4 recognizing Drinking Water Week, May 7-13, 2017. Motion carried 4-0.

2.0

CONSENT AGENDA (Approved By One Motion) Commissioner Stewart identified a correction that needed to be made on page 2 of the March 13, 2017 special meeting minutes. For agenda item 1.4, 2017 Committee Appointments, the second motion should state that Commissioner Thompson and Westgaard were appointed to the Financial Reserves and Investment Committee and not Chair Dietz. Staff will amend the minutes to reflect the correct appointment. Moved by Commissioner Thompson and seconded by Commissioner Nadau to approve the Consent Agenda as amended: 2.1 2.2 2.3 2.4

March Check Register March 13, 2017 Special Meeting Minutes Resolution No. 17-2 Authorizing ERMU to Enter Into an Agency Agreement with the State of Minnesota Resolution No. 17-5 Allowing for Customer Contributions of Account Credits to Community Aid of Elk River

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Regular Meeting of the Elk River Municipal Utilities Commission April 11, 2017

Motion carried 4-0. 3.0

OPEN FORUM No one appeared for open forum.

4.0

POLICY & COMPLIANCE

4.1

2016 Financial Audit Mr. Berg was present from the auditing company, Abdo, Eick & Meyers, to present the 2016 financial audit and management letter. He stated that the auditors issued a clean opinion on the financials and that there were no findings to report. Mr. Berg walked through the management letter. Chair Dietz had a few questions for Mr. Berg and staff. Both responded. Mr. Berg reached out to the Commission to see if they had any additional questions on the management letter or the annual financial report. Commissioner Stewart inquired as to whether the auditors look at the PCA that flows through. Typically the PCA credits/debits are a treated as a pass through, but in 2016 there was a $500,000 PCA credit that was held onto until 2017, at which time half of it was credited back to the customers. Commissioner Stewart had pointed out that the $500,000 was left on the 2016 income statement and not moved to the balance sheet. With it staying on the income statement last year it reduced the purchase power cost and increased the net margin; by waiting to give it back in 2017 we are decreasing margin. Ms. Slominski stated that typically it is given back in the same year. There was discussion on how this should be booked in the future. The Commission suggested that Mr. Berg and Ms. Slominski take a further look at how this should be recorded. There was discussion. Chair Dietz requested that hard copies of the audit and management letter be given in advance of the meeting next year to allow for the markup of notes and comments. Moved by Commissioner Thompson and seconded by Commissioner Stewart to receive and file the Financial Audit for the year ending December 31, 2016. Motion carried 4-0.

4.2

2016 Year End Reserve Balance Mr. Adams provided some background on the financial reserves policy and the purpose behind it. Ms. Slominski presented the year-end electric reserve balance and calculations. Staff recommended that the unrestricted balance above the target level for the Electric Utility

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Regular Meeting of the Elk River Municipal Utilities Commission April 11, 2017

fund be designated toward the $500,000 buffer for PCAs, electric service territory transfer costs, and future capital projects. The Commission had a few questions. Staff responded. Moved by Commissioner Thompson and seconded by Commissioner Nadeau that $500,000 of the unrestricted reserve balance of $6,564,901 for the Electric Utility fund be designated for the PCA buffer, and the remaining amount be designated towards future capital projects and electric service territory transfer costs. Motion carried 4-0. Ms. Slominski presented the year-end water reserve balance and calculations. Staff recommended that the unrestricted balance above the target level for the Water Utility fund be designated for future capital projects. Moved by Commissioner Nadeau and seconded by Commissioner Stewart that the unrestricted reserve balance of $3,155,381 for the Water Utility fund be designated for future capital projects. Motion carried 4-0. 4.3

2016 Utilities Performance Incentive Compensation Distribution Mr. Adams presented the 2016 performance metrics and incentive compensation score card on which the employees had successfully achieved all of the company performance metrics targets, except for one (the CAIDI metric). Per the policy, qualifying employees would be eligible for a 1.90% distribution. Staff reminded the Commission that in the fall of last year, the Commission had re-evaluated the scorecard criteria used for measurement, and had approved a revised performance metrics incentive compensation scorecard that would go into effect for the 2017 measurement period. Ms. Slominski indicated that staff would be presenting the new scorecard along with the first quarter results at the next Commission meeting. Moved by Commissioner Stewart and seconded by Commissioner Nadeau to award the Performance Metrics Incentive Compensation distribution of 1.90% to qualifying employees per the terms of the policy. Motion carried 4-0.

5.0

BUSINESS ACTION

5.1

Financial Report – February 2017 Ms. Slominski presented the February 2017 financial report. Chair Dietz asked if a majority of the increase in administrative expenses was due to insurance. Ms. Slominski responded that it was. She explained that the increase in medical was largely driven by the increased participation in the HSA plan, which increased the employer HSA contribution that was recognized in January.

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Regular Meeting of the Elk River Municipal Utilities Commission April 11, 2017

Moved by Commissioner Thompson and seconded by Commissioner Stewart to receive the February 2017 Financial Report. Motion carried 4-0. 5.2

Waco #2 Electric Substation Materials Bid Award Mr. Adams presented the bid tabulation and noted that we received two bids of which only one was complete. There was also a third bid that was received late, so it was returned to the bidder. When comparing the two bids, the one that was complete was consistent with early budgetary estimates. Staff recommended awarding the bid for the Waco #2 electric substation materials to Border States Electric for the amount $151,283.65. As there was only one responsible bid, there was discussion on the option of rejecting the bids and going through the formal bid process again. After discussion Commission consensus was to award the bid to the lowest responsible bidder. Moved by Commissioner Nadeau and seconded by Commissioner Stewart to award the bid for the Waco #2 electric substation materials to Border States Electric for the amount of $151,283.65. Motion carried 4-0.

5.3

Legal Counsel Retainer Increase In May 2009 the Utilities Commission approved a legal counsel retainer of $1,000 per month for Attorney Beck with Gray Plant Mooty. ERMU continues to contract legal services with Attorney Beck with a $1,000 per month retainer through Beck Law Office. Mr. Adams shared that the billable hours of legal service ERMU receives from Attorney Beck under this retainer has always been greater than the amount billed. Based on inflation since 2009, and ERMU’s amount of usage, staff recommended increasing the monthly retainer for legal services from $1,000 per month to $1,500 per month. Attorney Beck shared that as part of his billing process, he tracks his actual hours worked and prepares a statement that reflects the value of that time at the $155 per hour municipal rate; this consistently ranges from $3,000 to $5,000 per month for ERMU. Attorney Beck shared what the city’s retainer was and explained that his billable hours with them run approximately two times the monthly retainer rate. Taking all of this into consideration, Attorney Beck felt it was fair to request the increase in retainer, and asked if the Commission would consider making it effective retroactive to the first of the year. Chair Dietz shared some of the benefits of having Attorney Beck on retainer and stated that he felt it was a real advantage to have him present at our Commission meetings to offer his legal opinion. Based on the amount of time we had been utilizing Attorney Beck, and the value he offers to our organization, Chair Dietz expressed he was in favor of the $500 retainer increase and would even consider going higher than that. Attorney Beck pointed out that in addition to his retainer there are sometimes additional legal fees when ERMU utilizes the attorneys at Campbell Knutson or Gray Plant Mooty. After discussion, Commission consensus was to increase the retainer to $1,750 per month effective the first

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Regular Meeting of the Elk River Municipal Utilities Commission April 11, 2017

of the year. Attorney Beck thanked the Commission. Moved by Chair Dietz and seconded by Commissioner Thompson to approve a legal counsel retainer for Beck Law Office of $1,750 per month to be effective January 1, 2017. Motion carried 4-0. 5.4

Wage and Benefits Committee Update The Wage and Benefits Committee (W&BC) met on April 5 to receive an update on the Technical Services Superintendent interviews, to evaluate current staffing level concerns, and to review the pay equity compliance status. Mr. Adams provided an update of the W&BC meeting as noted in his staff report. The W&BC evaluated staffing levels for the electrical and technical services department. After review, consensus of the W&BC was to recommend approval of the following to the Commission: First, the W&BC recommended hiring one additional apprentice lineworker to accommodate the growth in the electric system. Second, the W&BC recommended the hiring of an additional apprentice lineworker as a proactive measure to prepare for anticipated retirements. And third, the W&BC recommended increasing the Meter Reader position from a part time position to a full time position. There was discussion on ERMU’s locating needs and how increasing the Meter Reader position from part time to full time would help free up other labor resources to help out temporarily. There was also discussion on the possibility of performing locating services for the City of Elk River for Wastewater and Storm Water utilities. It was determined that all of these factors may contribute to the timing of hiring a second locator which is anticipated in 2018. This will be further evaluated for future discussion. It was noted that the W&BC also discussed the vacant Key Accounts Specialist position and the delay in hiring for the position. The W&BC plans to bring the Conservation and Key Accounts Manager in to evaluate the position after a plan for the load management programs have been approved by the Commission. Moved by Commissioner Thompson and seconded by Commissioner Nadeau to approve effective immediately the hiring of one apprentice lineworker because of system growth, and a second apprentice lineworker to proactively address an upcoming anticipated retirement, and change the part time Meter Reader to full time status. Motion carried 4-0.

6.0 BUSINESS DISCUSSION 6.1

Staff Updates

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Regular Meeting of the Elk River Municipal Utilities Commission April 11, 2017