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03-28-2007 HUCMRegular Meeting March 28, 2007 Members present: President Donald Walser; Vice President David Wetterling; Secretary Dwight Bordson; Commissioner Craig Lenz; Commissioner Robert Hantge; General Manager Michael Kumm Member absent: Attorney Marc Sebora President Walser called the meeting to order at 3:00 pm. Commissioner Lenz made a motion to approve the minutes of the February 28, 2007 Regular Meeting. Secretary Bordson seconded the motion and it passed unanimously. After discussion Vice President Wetterling made a motion to ratify the payment of bills in the amount of $3,617,376.30 (detailed listing in payable book). Secretary Bordson seconded the motion and it passed unanimously. General Manager Kumm presented the financial statements/budget year-to-date reports. Commissioner Lenz made a motion to approve financial statements/budget year to date. Vice President Wetterling seconded the motion and it passed unanimously. Paul Harvego of Conway, Deuth & Schmiesing, PLLP, presented the 2006 audit. Mr. Harvego was very pleased with the result of the audit and commended HUC staff for the increased assets and for the steps that are being taken to correct smaller issues. Vice President Wetterling made a motion to approve the 2006 audit. Commissioner Hantge seconded the motion and it passed unanimously. Anthony Hedlof of Minnesota Municipal Utilities Association presented the MMUA joint action agency to accommodate pre-pay. Mr. Hedlof gave an overview of the plan as well as the advantages with there being little risk, while the rewards being plentiful. He explained the agency structure and the membership structure with Hutchinson being one of seven cities as core members of the plan. And being a charter member, Hutchinson will also be on the board and will have voting rights. Mr. Hedlof also gave an overview of the prepayment plan. He explained how Midwest Consortium of Municipal Utilities (MCMU) will structure the plan and the savings involved. After further discussion, Vice President Wetterling made a motion to authorize staff to take appropriate steps to create Minnesota Municipal Gas Agency. Commissioner Lenz seconded the motion and it passed unanimously. GM Kumm presented an old weather policy. This is a clean-up item and it has been included in the updated employee handbook. Commissioner Lenz made a motion to rescind the old weather policy. Secretary Bordson seconded the motion and it passed unanimously. GM Kumm presented an old hardhats and safety glasses policy. This is also a clean-up item and it is now part of the combined safety and health program. Vice President Wetterling made a motion to rescind the old hardhats and safety glasses policy. Commissioner Lenz seconded the motion and it passed unanimously. GM Kumm presented a revised fixed asset capitalization policy. The depreciation method was not in line with our audit and we do follow the depreciation method in our audit, so this needed to be revised. Commissioner Hantge made a motion to approve the revised fixed asset capitalization policy. Vice President Wetterling seconded the motion and it passed unanimously. GM Kumm presented the professional services agreement with MRES to study MISO transmission ownership. This is a planned study and we need to be a transmission owner before Big Stone II comes on line. Commissioner Lenz made a motion to approve professional services agreement with MRES to study MISO transmission ownership, not to exceed $25,000. Secretary Bordson seconded the motion and it passed unanimously. As we had no report from RW Beck, Commissioner Lenz made a motion to table the report on Biomass Energy. Vice President Wetterling seconded the motion and it passed unanimously. GM presented the McLeod substation cost allocation agreement with Glencoe. After discussion a motion was made by Commissioner Lenz to approve the McLeod substation cost allocation agreement with Glencoe, with the following changes: add language to the section on Municipal Utilities Services and Cost Responsibility giving a time frame of 90 days to pay their share of the expenses; and in the section on Notices, add General in front of the words manager for both Hutchinson Utilities Commission and Glencoe Light and Power Commission. Secretary Bordson seconded the motion and it passed unanimously. Steve Lancaster presented the bid tabulation for directional drilling contractor for 2007 2008. After discussion Secretary Bordson made a motion to approve the bid tabulation to Stiele Construction for directional drilling contractor for 2007-2008. Commissioner Lenz seconded the motion and it passed unanimously. Division reports Electric Steve Lancaster General Electric will be here next week to fix vibration problem on Unit 1 We have been generating for the last two weeks Business Jan Sifferath CIP update: 2/3 of the money has been used for commercial; $31,000 left for residential All interviews for the compensation study have been completed Cross training to learn Bev Popps job and Sue Winters job Jason Sturges and Roberta Yates working together developing new procedures for inventory/purchasing Gas John Webster CAER (Community Awareness Emergency Response) meeting held good attendance Damage Prevention meeting last week good attendance also MNOPS was out to do their inspection was scheduled for three days she was able to do it in one day because of the cooperation of the gas crew as a whole Handed out rate comparison for residential, commercial and industrial Discussion took place regarding contractors hitting our electric lines or natural gas pipelines, and the likelihood of changing our policy to pursue litigation. Management will discuss this and meet with Attorney Sebora. Old Business: Investment Policy Do not have anything on this yet Base Load Contract - After discussion Commissioner Lenz made a motion authorizing General Manager Kumm to negotiate a base load contract on behalf of HUC. Vice President Wetterling seconded the motion and it passed unanimously. Sinking Funds on Balance Sheet this is complete President Walser had questions on the audit regarding the law suit with Jo-Max. It was decided to wait until the final two parcels on the pipeline are settled before we settle with Jo-Max. Discussion was held regarding the benefit study when the compensation study was performed. It would cost an extra $5,000 to do the benefit study through Laumeyer, but for now all we need is the compensation study going into the labor negotiations. We can do a benefit study later. Discussion was held regarding the Commissioners attending outside meetings and being reimbursed for expenses. Some meetings are coming theyd like to attend and they will be reimbursed for their expenses. New Business: Vice President Wetterling was contacted by a contractor who complemented Dave Hunstad, Manager-Electric Division, for his cooperation and the good job hes doing in the electric division, compared to what it once was. GM Kumm talked about transportation on the pipeline. After discussion, Commissioner Hangte made a motion authorizing management to negotiate and provide quotes for transportation on the pipeline, subject to Commission approval. Commissioner Lenz seconded the motion and it passed unanimously. There being no further business, Vice President Wetterling made a motion to adjourn the meeting at 5:37 p.m. Commissioner Lenz seconded the motion and it passed unanimously. _________________________________ Dwight Bordson, Secretary ATTEST________________________________ Donald Walser, President /7 Regular Meeting March 28, 2007 Members present: President Donald Walser; Vice President David Wetterling; Secretary Dwight Bordson; Commissioner Craig Lenz; Commissioner Robert Hantge; General Manager Michael Kumm Member absent: Attorney Marc Sebora President Walser called the meeting to order at 3:00 pm. Commissioner Lenz made a motion to approve the minutes of the February 28, 2007 Regular Meeting. Secretary Bordson seconded the motion and it passed unanimously. After discussion Vice President Wetterling made a motion to ratify the payment of bills in the amount of $3,617,376.30 (detailed listing in payable book). Secretary Bordson seconded the motion and it passed unanimously. General Manager Kumm presented the financial statements /budget year -to -date reports. Commissioner Lenz made a motion to approve financial statements /budget year to date. Vice President Wetterling seconded the motion and it passed unanimously. Paul Harvego of Conway, Deuth & Schmiesing, PLLP, presented the 2006 audit. Mr. Harvego was very pleased with the result of the audit and commended HUC staff for the increased assets and for the steps that are being taken to correct smaller issues. Vice President Wetterling made a motion to approve the 2006 audit. Commissioner Hantge seconded the motion and it passed unanimously. Anthony Hedlof of Minnesota Municipal Utilities Association presented the MMUA joint action agency to accommodate pre -pay. Mr. Hedlof gave an overview of the plan as well as the advantages with there being little risk, while the rewards being plentiful. He explained the agency structure and the membership structure with Hutchinson being one of seven cities as core members of the plan. And being a charter member, Hutchinson will also be on the board and will have voting rights. Mr. Hedlof also gave an overview of the prepayment plan. He explained how Midwest Consortium of Municipal Utilities (MCMU) will structure the plan and the savings involved. After further discussion, Vice President Wetterling made a motion to authorize staff to take appropriate steps to create Minnesota Municipal Gas Agency. Commissioner Lenz seconded the motion and it passed unanimously. GM Kumm presented an old weather policy. This is a clean -up item and it has been included in the updated employee handbook. Commissioner Lenz made a motion to rescind the old weather policy. Secretary Bordson seconded the motion and it passed unanimously. GM Kumm presented an old hardhats and safety glasses policy. This is also a clean -up item and it is now part of the combined safety and health program. Vice President Wetterling made a motion to rescind the old hardhats and safety glasses policy. Commissioner Lenz seconded the motion and it passed unanimously. GM Kumm presented a revised fixed asset capitalization policy. The depreciation method was not in line with our audit and we do follow the depreciation method in our audit, so this needed to be revised. Commissioner Hantge made a motion to approve the revised fixed asset capitalization policy. Vice President Wetterling seconded the motion and it passed unanimously. GM Kumm presented the professional services agreement with MIRES to study MISO transmission ownership. This is a planned study and we need to be a transmission owner before Big Stone II comes on line. Commissioner Lenz made a motion to approve professional services agreement with MIRES to study MISO transmission ownership, not to exceed $25,000. Secretary Bordson seconded the motion and it passed unanimously. As we had no report from RW Beck, Commissioner Lenz made a motion to table the report on Biomass Energy. Vice President Wetterling seconded the motion and it passed unanimously. GM presented the McLeod substation cost allocation agreement with Glencoe. After discussion a motion was made by Commissioner Lenz to approve the McLeod substation cost allocation agreement with Glencoe, with the following changes: add language to the section on Municipal Utilities Services and Cost Responsibility giving a time frame of 90 days to pay their share of the expenses; and in the section on Notices, add `General' in front of the words manager for both Hutchinson Utilities Commission and Glencoe Light and Power Commission. Secretary Bordson seconded the motion and it passed unanimously. Steve Lancaster presented the bid tabulation for directional drilling contractor for 2007 — 2008. After discussion Secretary Bordson made a motion to approve the bid tabulation to Stiele Construction for directional drilling contractor for 2007 -2008. Commissioner Lenz seconded the motion and it passed unanimously. Division reports Electric — Steve Lancaster • General Electric will be here next week to fix vibration problem on Unit 1 • We have been generating for the last two weeks 0", Business — Jan Sifferath • CIP update: 2/3 of the money has been used for commercial; $31,000 left for residential • All interviews for the compensation study have been completed • Cross training to learn Bev Popp's job and Sue Winter's job — Jason Sturges and Roberta Yates working together developing new procedures for inventory/purchasing Gas — John Webster • CAER (Community Awareness Emergency Response) meeting held — good attendance • Damage Prevention meeting last week — good attendance also • MNOPS was out to do their inspection — was scheduled for three days — she was able to do it in one day because of the cooperation of the gas crew as a whole • Handed out rate comparison for residential, commercial and industrial Discussion took place regarding contractors hitting our electric lines or natural gas pipelines, and the likelihood of changing our policy to pursue litigation. Management will discuss this and meet with Attorney Sebora. Old Business: Investment Policy — Do not have anything on this yet Base Load Contract - After discussion Commissioner Lenz made a motion authorizing General Manager Kumm to negotiate a base load contract on behalf of HUC. Vice President Wetterling seconded the motion and it passed unanimously. Sinking Funds on Balance Sheet — this is complete President Walser had questions on the audit regarding the law suit with Jo -Max. It was decided to wait until the final two parcels on the pipeline are settled before we settle with Jo -Max. Discussion was held regarding the benefit study when the compensation study was performed. It would cost an extra $5,000 to do the benefit study through Laumeyer, but for now all we need is the compensation study going into the labor negotiations. We can do a benefit study later. Discussion was held regarding the Commissioners attending outside meetings and being reimbursed for expenses. Some meetings are coming they'd like to attend and they will be reimbursed for their expenses. 0� New Business: Vice President Wetterling was contacted by a contractor who complemented Dave Hunstad, Manager- Electric Division, for his cooperation and the good job he's doing in the electric division, compared to what it once was. GM Kumm talked about transportation on the pipeline. After discussion, Commissioner Hangte made a motion authorizing management to negotiate and provide quotes for transportation on the pipeline, subject to Commission approval. Commissioner Lenz seconded the motion and it passed unanimously. There being no further business, Vice President Wetterling made a motion to adjourn the meeting at 5:37 p.m. Commissioner Lenz seconded the motion and it passed unanimously. ATTEST )A�/�--. D Walser, P sident Dwight Bordson, Secretary 1 [1 Minnesota Municipal Gas Agency J Overview • 31 municipal gas utilities in Minnesota. • New opportunities such as tax - exempt purchase can only be pursued on a group basis. • New Mandates are easier to deal with on a group basis (00, Public Awareness, Distribution Integrity Management). • Smaller systems need more help. • Municipal gas agencies have shown their value in other areas of the country. r l Gas Agency Structure • Non - Profit Joint Action Agency • Multi- Faceted Agency • Cafeteria Plan Model • Leverage Local Expertise • Open Membership Multi- Faceted Agency • Vehicle for tax - exempt advanced purchase (prepay). 0 Distribution services. — Particularly for smaller participants. • Potential joint purchasing of gas. • Aggregating pipeline capacity. • Joint memberships & contracting for services. centennial uutilities Cafeteria Plan Model • Cafeteria Plan model instead of All Requirements model. - Cafeteria plan structure provides optimal flexibility to members. - Members choose the services and programs they want to participate in. - Utilities only responsible for paying for the services used. - Membership does not obligate participation in any program. - Members do not have to give up control over gas purchase or local operation. 3 Membership Structure • Members: - Minnesota Law states that only MN cities who engage in local distribution and the sale of gas can join a Minnesota Gas Agency as a voting member. • Participants: - Out -of -state municipal utilities and other entities can be participants. • Benefits - Only Members can serve on the board and vote at membership meetings. Both Members and Participants can use programs and services. • New members & participants can join over time. Potential Services • Gas Supply; - Natural Gas Prepayment - Joint Purchasing - Building & Buying Transportation • Member Support; - Operations Services - Contract Management - Rate Design Assistance - Budget Assistance - Project Financing - Risk Management - Industrial Customer Assistance 4 L 1 Natural Gas Prepayment • A supply deal with financial benefits. • Tax - exempt bonds used to provide lump - sum payment to supplier. - Bonds have no recourse to utilities. • Supplier provides long -term forward supply contract. • Utilities receive gas on a take & pay basis at a discounted price from index. • Natural gas delivered over contract term. i Natural Gas Prepayment • MCMU acts as conduit issuer. - Issues tax - exempt bonds. - Proceeds paid to Gas Supplier. 40 • Gas Supplier provides gas molecules to MCMU. • MCMU provides gas molecules to Agency. • Agency provides gas molecules at a discounted price to utilities. • Municipal gas utilities only enter into a contract for gas delivery, and are not responsible for repayment of bonds. �I 5 Natural Gas Prepayment Gas MOWWes • Index Rice fixed I I Rxed Gas I Payment Index Price I ias mot ecules Mo1xWe PV of Gas index Rice 1 Pay' � I $ Discount s Diwwnt I i - J Midwest rode% R;tt Consortium ake &Pay Cii° Mdavlev I of Municipal $ icaunt 1 Municipal Utilities Imemn — Tax Exempt Bontlss principal — TE Bond Pnxx 6 Inux.Gat 14m: pal �c�s ie11NIOff Prepayment Advantages • Secure long -term natural gas supply. - 10 to 20 years. - Use prepay as part of a diversified gas load. • Substantial savings. - Long -term supply with discounted price from index. - Discount could be 40 - 60 cents from index. • Mitigate price and supply volatility. • Take & pay, non - recourse contracts. • Tax - exempt financing with no recourse to utility. D 1 J Core Group • Austin *Circle Pines • Hibbing • Hutchinson • New Ulm • Owatonna • Virginia Process for Joining Agency • Written notice to all gas customers 20 days prior to resolution consideration. • Publish notice one week prior to resolution consideration. • Adoption of resolutions authorizing execution of Agency Agreement. - Appointment of representatives of cities. •Publish executed resolution in paper. • File executed Agency Agreement and resolutions with secretary of state. 7 1 I 1-1 Final Natural Gas Prepayment Regulations ■ August 2003, the Treasury Department released final arbitrage and private activity regulations. ■ The exceptions provided under 1.141 permit certain prepayments to be made with tax - exempt bond proceeds without violating the private loan prohibition and the investment -type property arbitrage restriction. ■ Broadly speaking, prepayments are tax exempt if the following conditions are satisfied: ❑ The prepayment must be made by or for one or more utilities that are owned by a governmental person (municipal utilities). ❑ At least 90% of the natural gas purchased with the prepayment must be used for a qualifying use. Qualifying uses include the following: ■ Used by retail customers in a qualifying municipal utility service area. . Used by a municipal utility to produce electricity that will be provided to retail customers in its service area. 1 What is a Natural Gas Prepayment? • A long- term/supply deal with financial benefits. • One -time, lump -sum payment to supplier. o Payment made by MCMU using tax exempt bonds. n Bonds have no recourse to participating utilities. • Supplier provides long -term forward supply contract. • Utilities purchase gas on a take & pay basis at a discounted price from index. • Natural gas delivered over contract term. Discount from Index Prepayment Structure ■ MCMU is used for the sole purpose of issuing bonds to prepay long -term natural gas contracts on behalf of the Gas Agency /Municipal Utilities. ■ Gas Agency /Municipal Utilities are not responsible for repayment of the bonds from the prepayment. 2 1 Discount from Index Prepayment Structure Morgan Stanley (Pass Through Gas Supplier) Supplier (corp guarantee) Tax Exempt Bonds TE Bond Procec Proceeds Investors 1 Discount from Index Prepayment Structure Morgan Stanley PV ofG. (Pass Through Gas Supplier) Midwest Consortium of Municipal Supplier Utilities (corp guarantee) (MCMU) iateresr Tait Exempt Bonds_. Principal TE Bond Pra Interest Principw Proceeds Investors J Discount from Index Prepayment Structure Fized Gas Fixed Gaz ------------ I I by Gas I � Molecule I I I I I Gas Supplier i I I I ias Molecul PV ofGai S Discoun' Investment Relum Prepay Amowt P &I Supplier (corp guarantee) �— Interest Tax Exempt Bonds Principal TE Bond Pre Interest Principal ♦ ♦ Proceeds Investors q gn^ 1 1 3 Vr, hk g 1 Dismwli�' 1 Gas 1 I Molecules 1 $ D smunl 1 1 1 1 Municipal 1 Utilities 1 I • 4 Discount from Index Prepayment Structure Fized Gas I I Fixed Gas Payment I t Paym ®t I Index Price Index Pace i Utilities I 1 by Gas as Mol¢ul Molecules PV ofGaz Inda, i { Index Price I x Gas Supplier $ Dtscoont $ Di.—t Gas Supplier) Index 1'riee Inwinaim t Rohn Prepay Arnomf Consortium a "fako &Pay Gss P &I I Molxulea $ Dismuul Supplier Municipal Municipal (corp guarantee) (MCMU) Utilities Interest Tax Exempt Bonds Rincipal TE Bond Iroceeds Interest Principal ♦ ♦ Proceeds Investors 2 II i Is Now a Good Time to Do a Prepayment? ■ Absolute interest rate levels have increased, which has led to an increase in the taxable / tax - exempt arbitrage spread. ■ Long -term natural gas prices have risen, increasing the relative size of the prepayment and the absolute dollar savings. 1 175 10VLIBOR -0 MMD Spread f �m je j— 1 �1e r• 10Y LIBOR -10V MMD Spread NYME%F -4 Na 4 Gap prices Jnu y2007 :s $7 NYMEX Far d Natural Gee $3 1YSaie 2Yeare 3Yeera 4Yn SYp 6YwM R1 Fwd — F--i Curve Jan 2007 — Foal Curve Jan 2003 (1) NYM p'rr ere Nestl on deJMryettla Xeruy XUp YLOUYYiu. TMNYM neYN pee Muroe ppntracY en aldeb uvetl ae tlro nedanN Eerehmerk piipee 4 Ingredients for Generating Prepay Savings • Spread between Gas Supplier taxable funding costs and tax - exempt borrowing costs • Credit rating • Commodity swap • Forward gas curve • Delivery location • Development cost • Supply quantity and shape • Duration of supply I 5 Savings Example Savings Summary (a) Term 10 Year 15 Year 20 Year Average Life 6.3 Years 9.4 Years 12.6 Years Cost of Gas ($ /MMBtu) Investment Rate Tax - Exempt Rate (TIC) $7.22 5.15% 4.07% $6.87 5.39% 4.18% $6.77 5.50% 4.26% Annual Percentage Carry 1.08% 1.21% 1.24% SaviflgS /MMBtu $0.24 /MMBtu $0.42 /MMBtu $0.556 /MMBtu (a) Assumes gas delivery of 20,000 MMBtu /day. • If Utility is unable to take delivery of gas, the Supplier will remarket the gas to other qualified buyers. t Gas Mok<ules GasMoleal Gw MOleculn Supplier And f aMa W MMGA ` Municipal Remarketer �• K aP.y Utilities ✓ 90% of gas must be used for a qualifying use; ✓ Retail customers. ✓ Used by utility to produce electricity sold to retail customers. (: Primary Causes For an Early Termination 1. Supplier Default Gas Supplier unable to deliver physical gas to MCMU nor able to make financial reparation for replacement gas, or falls below certain ratings thresholds. 2. Remarketing /Muni Gas Agency /Municipal Utilities are unable to Default take delivery and /or pay for index gas delivered. Supplier unable to sell the Gas Agency /Municipal Utilities' entitlement to qualified purchasers (within safe harbor limits). 3. Other Default Limited to legal or structural issues with the prepayment. 1 What Happens in an Early Termination? 1. Both commodity swaps tear up at zero cost. 2. Supplier is obligated to pay MCMU the unamortized prepayment proceeds. 3. MCMU calls the tax - exempt bonds with the proceeds it receives from the Supplier. 4. Supplier is not obligated to make payments or deliver gas after early termination date. s. Gas Agency is not required to purchase gas from the MCMU after early termination. VA ----- - -- -------- I I I 1 t *Tear Up Swap• 1 1 *Tear Up Swap* I Fixed Gas 1 Fined Gas Payment I Payment Index Price Index Price I i by Gas _ Molecules In&c Price Gas Supplier • Gas Molecules —� — PV of Gas — S Discount —I *Return I Unamonized I I Prepayment I Proceeds* I �— In[erest Tax Exempt Bonds Principal TE Bond P a Interest Principal Prate *Bond Hold Pnnctpal Retm Inventors — — — I *Gas Agency I Stops Taking and Paying for Gas* Recent Prepayment Deals � *Utilities Stop � I Taking and 1 ` Paying for Gas• I Utility Par Amount Term Gas Supplier Date Florida Gas Utility $694,175,000 20 UBS September'06 Louisiana Municipal Gas Authority $223,705,000 10 JP Morgan August'06 Tennessee Energy Acquisition Corp $1,994,475,000 20 Goldman Sachs July'06 Tennessee Energy Acquisition Corp $132,545,000 20 Goldman Sachs July'06 Clarksville Natural Gas Acquisition Corp $240,530,000 15 Merrill Lynch June '06 Public Energy Authority of Kentucky $1,030,769,000 10 BP Energy June'06 The Tennergy Corp $746,230,000 10 JP Morgan February'06 City of Fayetteville $142,140,000 3 November'05 American Public Energy Agency $349,783,000 10 BP Energy August'05 Municipal Gas Authority of Mississippi $424,988,000 10 BP Energy May '05 American Public Energy Agency $305,960,000 10 BP Energy December'03 IQ LJ I Morgan Stanley Prepayment Deals Issue $700,000,000 $305,960,000 $336,165,000 $263,705,000 SMUD Gas APEA Gas Supply APEA Gas Supply APEA Gas Supply Supply Revenue Variable Rate Revenue Bonds Revenue Bonds Bonds Revenue Bonds 2000 Series A 1999 Series B Series 2007A &B Series 2003A &B Taxable Taxable Status In Progress Complete Complete Complete Morgan Stanley Sole Underwriter Bond Underwriter Bond Underwriter Bond Underwriter Role & Remarketing & Remarketing Agent Agent Term 20 Years 10 Years 12 Years 12 Years Total Gas 146,100,000 83,246,000 154 Billion Cubic 141 Billion Cubic Requirement MMBtu MMBtu Feet Feet Type of Prepayment Index Minus Index Minus Fixed Price Index Minus Gas Supplier Morgan Stanley BP Canada Aquila Energy Aquila Energy Capital Group, Energy Marketing Marketing Corp. & Marketing Corp. & Inc. Corp. UtiliCorp United Inc. UtiliCorp United Inc. Commodity Swap RBC Dain Societe Generale Canadian Imperial N/A Provider Rauscher Bank of Commerce Resulting Gas Price Approx Index- Index- N/A N/A $0.60 per $0.05 /MMBtu MMBtu n Why Do the Deal? • Substantial savings. ❑ Discount could be 40 - 60 cents from index. • Secure long -term, natural gas supply. s 11 10 to 20 years. ❑ Use prepay as part of a diversified gas load. • Mitigate price and supply volatility. • Include prepaid gas in hedging program. • Take & pay, non - recourse contracts. • Tax - exempt financing with no recourse to utility. �7 Questions /Comments Jerry McCarthy General Manager Austin Utilities (507) 433 -1289 jerrym(a),austinutilities.com Jack Kegel Executive Director MMUA (763) 746 -0701 �kegel[@mmua.org Anthony Hedlof MMUA Finance Program Coordinator (763) 746 -0715 ahedlof @mmua.org 10 C 1 Adopted December 31, 1986 WEATHER POLICY Whenever employees of the Hutchinson Utilities Commission are unable to report to their assigned work place due to weather conditions, (such as, but not limited to: snow, flooding, ice), such employees will not be compensated for the assigned work time not worked. Employees may use accumulated vacation time for such non -work time. Those employees that do not have accumulated vacation time will be granted an excused absence without pay. Only deviation from above will be at the discretion of the general manager. Adopted May 21, 1987 Safety Policy Hardhats and Safety Glasses Production Personnel Hardhats and safety glasses are required on all normal and routine jobs. Work performed inside of engines may, at times, not require hardhats due to cramped conditions. Persons welding shall not be required to wear hardhats; but, as soon as they are finished and welding hats removed, normal hardhats shall be worn. Hardhats are not required in dispatch or lunchroom areas unless specific work projects are being performed in those areas. Gas Personnel Hardhats and safety glasses are required at all outside jobsites. Safety glasses shall be worn in back shop at Utility Center. Hardhats are not required in back shop unless some type of lifting equip- ment is being used overhead. Welding masks shall meet safety requirements during actual welding time. Normal hardhats shall be worn at all other times. Electrical Personnel Hardhats and safety glasses are required at all outside jobsites. Safety glasses shall be worn in back shop at Utility Center. Hardhats are not required in back shop unless some type of lifting equipment is being used overhead. Meter Readers Hardhats and safety glasses are required when reading meters. Purchasing, Engineering and Office Personnel, when visiting power plant or outside jobsites, shall wear hardhats and safety glasses. Progressive discipline shall be enforced for those individuals who choose not to follow all accepted normal safety practices as outlined in the Hutchinson Utility Safety Manual. The following actions shall be taken: First Offense: Verbal warning with a written report filed at Utility Office. Second Offense: Verbal warning with a written report filed at Utility Office. Individual to appear before Safety Council for disciplinary action. Third Offense Verbal warning with a written report filed at Utility Office. Individual to appear before Safety Council and Management for possible dismissal. Additional Safety Policy Requirements Contractors All contractors hired by Hutchinson Utilities Commission, shall abide by all safety rules. Joint Trench Projects Personnel from the Hutchinson Telephone Company or North American Cable Systems who work with Hutchinson Utilities Commission personnel on joint trench projects, are required to wear hardhats and safety glasses. Seat Belts State law applies. Uniforms Work crews shall wear 100% cotton uniforms provided. For "hot" work, both gas and electric employees shall wear long sleeved shirts. Meetings Safety meetings will be held once a month. Hutchinson Utilities Commission Safety Council 1 Revised March 28, 2007 HUTCHINSON UTILITIES COMMISSION FIXED ASSET CAPITALIZATION POLICY The Hutchinson Utilities Commission (HUC) will regard fixed assets as capitalized when all of the following criteria are met: (1) Assets purchased, built or leased have useful lives of one year or more. (2) The cost of the asset (including installation) is $5,000 or more. Multiple assets whose cost is less than $5,000 but the aggregate requestor total is $5,000 or more are capitalized. (3) The cost of repairing or renovating the asset is $5,000 or more and prolongs the life of the asset. HUC will regard the purchase of software programs as fixed assets subject to the above capitalization policy, and will amortize over an estimated useful life of 3 years. Costs associated with software maintenance and customer support are considered expenditures and will not be capitalized. Other Considerations: (1) REPAIR is an expenditure that keeps the property in ordinary efficient operating condition. The cost of the repair does not add to the value or prolong the life of the asset. All repair expenditures are charged to the appropriate department and fund. (2) IMPROVEMENTS are expenditures for additions, alterations and renovations that appreciably prolong the life of the asset, materially increase its value or adapt it to a different use. Improvements of the nature are capitalized. Examples of Repairs vs. Improvements Repairs = Expenditures All items -life less than one year All items under $5,000 Property maintenance, wall repair Replacement of machine parts to keep machine in normal operating condition Property restoration (rebuilding) for normal operations Existing building repairs Replacement of small sections of wiring, pipes or light fixtures Patching walls, minor repair of floors, painting, etc. Patching driveways Cleaning drapery, carpet, furniture Improvements = Capitalized Assets Life of more than one year All items $5,000 or more Property rebuilding Replacement of machine parts that prolong the useful life Property restoration for something different or better. Building regulation conformity Major replacement of wiring, lighting, pipes or sewer Installation of floor, wall, roof, wall - covering, etc New driveway or major repair New drapery, carpets, furniture Depreciation Method — Straight Line over the following useful lives: Buildings 4035 -60 years Transmission Plant (Electric) 20 -35 years Distribution Plant (Electric) 20 -35 years Building Improvement 15 -30 years Transmission Plant (Gas) 10 -45 years Distribution Plant (Gas) 10 -45 years Generation Plant 10 -30 years General Plant 5 -10 years Vehicles 3-5 -10 years Office Equipment 3 -5 years Computer Equipment 3 -5 years r� Professional Services Agreement This PROFESSIONAL SERVICES AGREEMENT ( "Agreement ") is made as of March 15, 2007, by and between Missouri Basin Municipal Power Agency d/b /a Missouri River Energy Services ( "MRES "), 3724 West Avera Drive, PO Box 88920, Sioux Falls, South Dakota, 57109 -8920, a body politic and corporate and a public agency organized under the laws of the State of Iowa and existing under the intergovernmental cooperation statutes of the States of Iowa, Minnesota, North Dakota and South Dakota, and Hutchinson Utilities Commission, 225 Michigan St SE, Hutchinson, MN 55350 -1905 ( "HUTCHINSON "). In consideration of the promises herein and for other good and valuable consideration, the parties agree as follows: 1. Services: MRES agrees to perform the professional services as more particularly defined and set forth in the attached Exhibit A, "Scope of Services." Services not expressly set forth in Exhibit A are excluded. 2. Independent Contractor: MRES is an independent contractor and is not an employee of HUTCHINSON. Services performed by MRES under this Agreement are solely for the benefit of HUTCHINSON unless specified otherwise. Nothing contained in this Agreement creates any duties on the part of MRES toward any person not a party to this Agreement. 3. Standard of Care: MRES will perform services under this Agreement with the degree of skill and diligence normally practiced by professionals within their respective fields of expertise performing the same or similar services. No other warranty or guarantee, expressed or implied, is made with respect to the services furnished under this Agreement and all implied warranties are disclaimed. 4. Changes /Amendments: This Agreement and Exhibit A may not be changed except by written amendment signed by both parties. In the event of mutually agreed upon changes /amendments, MRES shall promptly notify HUTCHINSON if those changes to the Scope of Services affect the schedule, level of effort or fee due to MRES. In such event, the schedule and/or fee shall be adjusted to reflect such changes. If MRES is delayed in performing its services due to an event beyond its control, including but not limited to fire, flood, earthquake, explosion, strike, transportation or equipment delays, act of war, or act of God, then the schedule or payment under the Agreement shall be adjusted, if necessary, to compensate MRES for any additional costs incurred due to the delay. 5. Fee for Services: MRES shall submit a monthly invoice to HUTCHINSON, setting forth the amount due for services. Monthly invoices will be based on percent complete for the project progress based on the amount completed during that period. The fee for services provided pursuant to this Agreement will be based on the actual hours of services furnished multiplied by hourly rate in effect for MRES Member Billing Rates as of the date of its monthly invoice, plus all reasonable expenses directly related to the services furnished under this Agreement. All fees and expenses will be identified on the monthly invoice. MRES Member Billing Rates in effect at the date of this Agreement are set forth in the attached Exhibit B. Page I of 5 Professional Services Agreement 6. Payment: HUTCHINSON shall pay the full amount of each monthly invoice within 30 days of receipt. Any amounts billed, not disputed as provided below, and unpaid after 30 days from the date of receipt, shall be subject to additional charges for interest at a rate of 1 -1/2 percent per month (or the maximum percentage allowed by law, whichever is lower) on the unpaid amounts. Any interest charges due from HUTCHINSON on past due invoices are outside any maximum billing amounts established for this Agreement and shall not be included in calculating the maximum. In the event that HUTCHINSON, in good faith, disputes any portion of the invoice, HUTCHINSON may withhold payment of the disputed amount, and will notify MRES in writing within 10 days of the receipt of the invoice, explaining the disputed amount, describing the factual and legal basis of the dispute, and providing written documentation. HUTCHINSON must pay all charges that are not in dispute, in accordance with the terms of this paragraph. If HUTCHINSON fails to pay invoiced amounts within 60 days after delivery of invoice, MRES, at its sole discretion, may suspend services hereunder or may initiate collections proceedings without incurring any liability or waiving any right established hereunder or by law. 7. Insurance: MRES shall maintain insurance with the following required coverage and minimum limits and, upon request, will provide insurance certificates to HUTCHINSON reflecting the following minimum coverage: Workers' Compensation Statutory Employer's Liability $1,000,000 Commercial General Liability $1,000,000 per occurrence $1,000,000 aggregate Comprehensive General Automobile $1,000,000 combined single limit Professional Liability $1,000,000 per claim and in the aggregate Indemnity: Following operation of applicable rights of contribution and to the extent permitted by law, MRES agrees to indemnify, defend and hold harmless HUTCHINSON and its directors, officers and employees from and against any and all loss, damage, claim or liability (including without limitation, reasonable attorneys' fees) incurred by HUTCHINSON to the extent arising out of negligent acts, errors or omissions of MRES, including claims by any third party or claims made by employees of MRES. Following operation of applicable rights of contribution and to the extent permitted by law, HUTCHINSON agrees to indemnify, defend and hold harmless MRES and its directors, officers, employees and consultants from and against any and all loss, damage, claim or liability (including, without limitation, reasonable attorney's fees) incurred by MRES to the extent arising out of negligent acts, errors or omissions of HUTCHINSON, including claims by any third party or claims made by employees of HUTCHINSON. 9. Limitation of Liability: To the extent permitted by law, the total liability of MRES to HUTCHINSON for any and all claims arising out of this Agreement, whether caused by Page 2 of 5 Professional Services Agreement negligence, errors, omissions, strict liability, breach of contract or contribution, or indemnity claims based on third party claims, shall not exceed one million dollars ($1,000,000) or the amount of compensation received under this Agreement whichever is less. No employee of MRES shall be individually liable to HUTCHINSON in connection with this Agreement. 10. Consequential Damages: In no event and under no circumstances shall MRES be liable to HUTCHINSON for any interest, loss of anticipated revenues, earnings, profits, increased expense of operations, loss by reason of shutdown or non - operation due to late completion, or for any consequential, indirect or special damages. 11. Termination: Either party may terminate this Agreement upon thirty (30) days written notice to the other party. HUTCHINSON shall pay MRES for all services rendered through the date of termination plus reasonable expenses for winding down the services. If either party defaults in its obligations under this Agreement (including HUTCHINSON's obligation to make payments hereunder), the non - defaulting party may suspend performance under this Agreement, after giving seven (7) days written notice of its intention to suspend performance under this Agreement and if cure of the default is not commenced and diligently continued. 12. Reuse of Work Products: All documents, analyses and other data prepared by MRES under this Agreement ( "Work Products ") are instruments of service paid for by HUTCHINSON and shall become the property of HUTCHINSON. HUTCHINSON shall have the right to make and retain copies and use all Work Products; provided, however, the use shall be limited to the intended use for which the services and Work Products are provided under this Agreement. The Work Products shall not be changed or used for purposes other than those set forth in this Agreement without the prior written approval of MRES. If HUTCHINSON releases the Work Products to a third party without the prior written consent of MRES, or changes or uses the Work Products other than as intended hereunder, HUTCHINSON does so at its sole risk and discretion and MRES shall not be liable for any claims or damages resulting from or connected with the release or any third party's use of the Work Products. 13. Information: HUTCHINSON shall provide information pertinent to the project and necessary to perform the services hereunder. Such information shall be provided upon request of MRES, and delivered in a timely manner. MRES may rely on the accuracy of information provided by HUTCHINSON and its representatives. 14. Opinions of Cost: MRES does not control the cost of labor, materials, equipment or services furnished by others, nor does it control pricing factors used by others to accommodate inflation, competitive bidding or market conditions. MRES estimates of operation expenses or construction costs represent its best judgment as an experienced and qualified professional and are not a guarantee of cost. 15. Dispute Resolution: MRES and HUTCHINSON shall attempt to resolve conflicts or disputes under this Agreement in a fair and reasonable manner and agree that if a dispute Page 3 of 5 Professional Services Agreement cannot be resolved within a reasonable time, the parties will submit the dispute to a professional mediator 16. Miscellaneous: (a) This Agreement is binding upon and will inure to the benefit of HUTCHINSON and MRES and their respective successors and assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party. (b) HUTCHINSON expressly agrees that all provisions of the Agreement, including the clause limiting the liability of MRES, were mutually negotiated and that but for the inclusion of the limitation of liability clause in the Agreement, MRES' compensation for services would otherwise be greater and/or MRES would not have entered into the Agreement. (c) If any provision of this Agreement is invalid or unenforceable, the remainder of this Agreement shall continue in full force and effect and the provision declared invalid or unenforceable shall continue as to other circumstances. (d) This Agreement shall be governed by, and construed in accordance with, the laws of the State of South Dakota. (e) In any action to enforce or interpret this Agreement, the prevailing party shall be entitled to recover, as part of its judgment, reasonable attorneys' fees and costs from the other Ply IN WITNESS WHEREOF, the parties have signed this Agreement the date first written above. Hutchinson Utilities Commission r Mike Kumm, General Manager Missouri River Energy Services Raymond J. Wahle, Director, Power Supply and Operations Page 4 of 5 1 Page 5 of 5 Professional Services Agreement EXHIBIT A SCOPE OF SERVICES PROFESSIONAL SERVICES AGREEMENT A. Project Description Hutchinson Utilities Commission (Hutchinson) is exploring alternatives for cost recovery of its existing transmission facilities, and seeks a third party to perform services related to exploring alternative cost recovery methods. B. Scope of Services MRES proposes to perform Hutchinson transmission cost recovery analysis. This includes, but is not limited to: 1) Review previous analysis of cost recovery for MISO Attachment O. 2) Conduct new analysis of comprehensive cost recovery and MISO Attachment O, including completed Attachment O template and supporting worksheets. Approximate cost for first two steps - $20,000 3) Conduct analysis of a business case to assess whether to join MISO as a Transmission Owner directly or through another organization. This analysis does not include any detailed analysis associated with interaction of Hutchinson and the MISO Market. Approximate cost for this step - $5,000 C. Schedule MRES will provide the services detailed in Section B "Scope of Services" to Hutchinson upon execution of the Professional Services Agreement and ending on or before January 1, 2008. D. Compensation MRES will provide the services on a time and material basis not to exceed ($25,000) without prior approval of Hutchinson. MRES may engage outside consultants to assist in the analysis described above. If consultants are engaged to perform services, the cost of such services will be included in the stated compensation amount, and will not be separately billed as an additional expense. J EXHIBIT B FEE FOR SERVICES PROFESSIONAL SERVICES AGREEMENT Missouri River Energy Services Member Billing Rates Billing Class Hourly Rate* (US$) Typical Project Roles 1 50.00 Clerical, Administration, and Technicians 2 90.00 Staff Engineers and Energy/Rate Specialists 3 105.00 Senior Engineers. Sunervisers Senior *Hourly rates effective through December 31, 2007. 1 McLeod Transmission Substation Facilities Municipal Cooperation and Cost Allocation Agreement 1. General P ose. The general purpose of this Agreement is to establish the arrangement for ownership and interconnection of municipal transmission equipment in the McLeod 230 /115kV Transmission Substation in McLeod County, Minnesota ( "the McLeod Substation ") between the City of Hutchinson, Minnesota, a Minnesota municipal corporation and its home rule charter authorized Hutchinson Utilities Commission ( "Hutchinson ") and the City of Glencoe, Minnesota, a Minnesota municipal corporation and its home rule charter authorized Light and Power Commission ( "Glencoe "). Hutchinson and Glencoe are sometimes referred to individually as a "Municipality" and collectively as the "Municipalities ". 2. Ownership and Operation of the Facilities. Hutchinson owns the McLeod Substation real estate, 230kV bus, breakers and disconnection devices, power transformer, 115kV bus, breakers, control house, communications equipment and other associated equipment in the McLeod Substation (the "Hutchinson Assets "). Hutchinson has entered into Operation and Maintenance Agreements with Xcel Energy and Great River Energy for operating agent services for such Hutchinson Assets. Glencoe owns the I I5kV deadend insulators, breaker and the 115kV radial distribution line interconnected to the McLeod Substation and the Hutchinson Assets (the "Glencoe Assets "). Glencoe has entered into agreements with Xcel Energy for operating services and with Great River Energy for maintenance services with regard to the Glencoe Assets. Due to the interconnection of the Assets, each Municipality agrees not to make any modifications to its Assets without the written consent of the other Municipality, which consent shall not be unreasonably withheld. 3.Municipal Utilities Services and Cost Responsibility. Hutchinson utilizes the Hutchinson Assets and Glencoe utilizes the Glencoe Assets in the provision of municipal electric utility service for their respective customers, and have financed the costs of such Assets in their respective municipal utility rates. Hutchinson and Glencoe agree to cooperate and use the interconnected Hutchinson Assets and the Glencoe Assets for their mutual benefit and to avoid duplication of facilities to provide such municipal utility service. Hutchinson and Glencoe agree that each municipality will own, maintain, repair and replace their respective Assets, and do not intend to charge each other for use or services provided by the Hutchinson and Glencoe Assets and the Municipalities enter into this Agreement to memorialize their understandings and agreements. In the event one municipality provides services or supplies to the other municipality not contemplated by this agreement, then and in that event, the providing municipality shall invoice the receiving municipality and the receiving municipality shall pay such invoice within 90 days of its receipt. 4. Franchise Rights. By entering into this Agreement, the Municipalities do not provide or grant any franchise, service territory right or extension rights to the other with respect to municipal utility services. Hutchinson and Glencoe each maintain their current rights and obligations to provide such municipal utility services to their customers_ 5. Change in Law or Regulations. In the event that either Municipality is required or determines in its own discretion to provide reciprocal open access transmission service under any tariff or service arrangement, this Agreement shall constitute a grandfathered agreement by the Municipalities, under such tariff, and no additional charges or rates shall be imposed on each other for services hereunder during the term of this Agreement. 6. Term. This Agreement shall become effective on April 1, 2007 and remain in effect for a term of twenty (20) years until April 1, 2027 and shall continue year to year thereafter unless and until terminated by either Municipality. Any Municipality desiring to terminate this Agreement shall provide two (2) years advance written notice to the other of such termination. 7. Notices - Notices under this Agreement shall be provided to the following designated representatives at the addresses indicated below. For Hutchinson: Hutchinson Utilities Commission, Attn: General Manager, 225 Michigan Street SE, Hutchinson, MN 55350 For Glencoe: Glencoe Light and Power Commission Attn: Manager, 305 11th Street East, Glencoe, MN 55336 8. Proposed Modifications. In the event either Municipality wishes to propose modifications to this Agreement, it shall notify the other Municipality and the Municipalities shall schedule a joint meeting of the utility commissions to review and discuss the proposed modifications in good faith. However no modification or amendment to this Agreement shall become effective unless mutually agreed and reduced to writing by the Municipalities. In the event that the Municipalities determine that this mutual cooperation and cost responsibility would be appropriate as a joint power, they shall discuss the best means to implement such a new joint powers agreement to replace this Agreement. - 9. Governing Law. This Agreement shall be construed and interpreted under Minnesota law. 10. Review and Authorizations. Each Municipality has conducted its own due diligence, municipal and legal review and determined that this Agreement is in suitable and in its best interests and the prudent performance of its municipal utility powers and obligations. This Agreement has been duly reviewed, approved, executed and delivered by the necessary local governmental officials. IN WITNESS WHEREOF, the following Municipalities have executed this Agreement. HUTCHINSON UTILITIES COMMISSION BY DONALD WALSER ITS PRESIDENT AND BY � / DWIGH ON ITS SECRETARY GLENCOE LIGHT & POWER COMMISSION BY TOM SCHATZ TTS CHAIRMAN ANI> BY EVERETT BRANDS ITS SECRETARY LJ 1 N d O N O O N � 3 � m C Z C N 3 O O O � N 3010 ry n V O A d � N c E w o 'c — C C N 6 u y 0O f E 2 V {� O "� 7 m E i Q. U u W I