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PUC enters into gas contract with MMGA

NEW ULM — The New Ulm Public Utilities Commission (PUC) authorized agreeing with Minnesota Municipal Gas Agency (MMGA) to supply a daily contract quantity of natural gas.

The New Ulm Public Utilities was offered a natural gas pre-pay opportunity through MMGA. This opportunity involves private investors selling municipal bonds for natural gas to take advantage of the spread between tax-exempt bonding and taxable bonding. The municipal gas utility will share in the savings in the form of a discount on index price.

Utilities Director Kris Manderfeld said other pre-pay contracts have come before the PUC before, but none of them had gone into effect. In 2007, a contract was dropped because the market crashed in 2008. Other times the contract was canceled because NUPU was unable to get a minimum discount.

The contract for this agreement stipulates New Ulm will see a minimum discount of $.27/MCF for the Initial Reset Period.

The contract is for 30 years and will be repriced after 5-7 years. At the repricing point, if the minimum discount of $.23 cannot be achieved, the NUPU can be removed from the contract. NUPU can include current and future hedges in this prepay as an option other than index pricing.

Manderfeld said the only downside of the agreement is if MMGA was unable to deliver the gas. In this case, NUPU would not buy from MMGA and instead purchase it elsewhere. NUPU would need to purchase natural gas elsewhere without the agreement. NUPU would only lose out on a potential natural gas discount. Over the life of the contract, NUPU could save $2.5 million.

Since the contract was for 30 years, there was concern that natural gas usage could change drastically at that time. There was concern some natural gas markets could close due to concerns over climate change.

However, before approving this prepay agreement, the PUC approved an amendment to a 2007 MMGA agreement that would protect NUPU if this happened.

Due to changes in the legislation, this amendment gives the NUPU authority to sell gas obtained in this transaction and purchase electricity needed of the city.

Commissioner Sean Fingland made the motions to approve the agreement, with a second from Commissioner Seth Visser. It was unanimously approved by the commission.

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The PUC commissioners selected a four-year recovery option for the $1.5 million allocated to the 69kV project Feb. 2021 natural gas spike.

In February 2021, there was an extreme nationwide spike in the cost of natural gas that saw prices for the City of New Ulm escalate to $188.32 per ccf at the highest point during mid-February. Most of the increase was passed through to customers on the March 2021 billing through the fuel adjustment for natural gas. However, $1.5 million of the increase in cost was allocated to the Electric Transmission 69kV capital project at that time.

The power plant was generating electricity for the City of New Ulm during the time the 69kV project was being completed. This was due to the 69kV transmission lines being down while the transmission poles were being replaced. For this reason, the power plant was operating and was using natural gas to power the generators that produce electricity. It was estimated that the power plant’s share of the natural gas cost during this time was $1.5 million.

Due to the additional cost allocated to the Electric Department during the gas spike in February, an increase in the Energy Acquisition Adjustment was needed to recoup the cost.

The EAA (Energy Acquisition Adjustment) is an adjustment to the electric rate that is calculated at the beginning of each year to account for the differences between the electric rates and the actual cost of purchasing power.

Six EAA options were given by staff to considered how to recoup the $1.5 million.

The first option was to make no change. NUPU would not recoup any of the $1.5 million allocated to the 69kV project. There would still be an increase in cost to electric customers even without a change.

The second and third options would adjust costs to recoup the $1.5 million over one year or two years.

Options four through six adjusted the electric cost to recoup the $1.5 million over 4 years, 5 years, or six years.

The commissioners rejected the first three options as being too onerous on the utility customers.

The one-year recovery options would see industrial electric billing increase by 11.87% and residential billing increase by 7.46%. The two-year recovery option would result in a 6.94% billing increase for industrial customers and a 4.36% increase for residential customers.

The commissioners chose the 4-year recovery option. In this scenario, industrial customer billing increased by 4.45% and residential customers increased by 2.8%.

Fingland favored the 4-year options. The 5-year option was a lower percentage increase on the monthly bill, but not significantly lower. It was only a half percent change. The four-year option had the benefit of recouping the $1.5 million a year earlier.

Commissioner Shannon Hillesheim agreed the commission should not want the adjustment to last too long.

Visser said even if the commission chose not to recoup the $1.5 million, the customers would still see an increase because the cost of energy was going to increase.

Commissioner Fingland made the motion for the 4-year recoup options to be put into effect as of Feb. 1, 2022, with a second from Visser. The motion passed unanimously.

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The New Energy Billing service rates were approved for 2022. State statute requires municipal utilities to provide a net energy rate to promote renewable energy installations. In New Ulm’s case, this rate compensates customers with solar installed and are connected to the New Ulm Public Utilities distribution system.

This rate is for energy supplied by the utility to a Qualifying Facility (QF). New Ulm has 15 QFs with a total rated capacity of 144.13 kW.

If energy is generated by the QF more than the facility’s needs, the QF is compensated for the energy supplied at the utility’s average retail energy rate, which is the retail rate less fixed costs.

This rate is for generators of less than 40 kilowatts (kW) and is adjusted on an annual basis. The change to the payment per kWh for energy delivered to the New Ulm Public Utilities is as follows:

• Residential rate stays the same at $0.1272 per kWh

• Small Commercial rate changed from $0.1189 per kWh to $0.1188 per kWh

• Large Commercial rate change from $0.0928 per kWh to $0.0927 per kWh

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The commissioners authorized a payment to the Coalition of Greater Minnesota Cities (CGMC) for the environmental action fund. Every year, the city and PUC split the cost to contribute to the action fund. It is used to confront regulatory issues.

The Minnesota Environmental Science and Economic Review Board (MESERB) is funded to help provide data used to address environmental regulations. The CGMC uses the MESERB data to focus on Minnesota Pollution Control Agency (MPCA) and Environmental Protection Agency (EPA) regulations so they are science-based and not arbitrary.

The PUC’s share of the payment is $1,695.50.

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The commissioners approved the local Tom Bovitz Memorial Scholarship for $500. The program was created as a public relations tool to increase awareness of public power.

Minnesota Municipal Utilities Association’s (MMUA) fund is split into four scholarships ranging from $2,000 to $500.

New Ulm Public Utilities (NUPU), helps advertise the program and collect local entries for this scholarship. To help advertise this award program and gain interest from local high school seniors, NUPU awards a local $500 scholarship. The winner of the local $500 scholarship will move onto the MMUA for the opportunity to win additional scholarships.

The deadline to submit essays to NUPU is April 15, 2022, which should interpret one or more aspects of the theme, “Municipal Utilities: Good for All of Us.”

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