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July 3, 2022

5/20/2022 1:29:00 PM
Electric assets sale terms approved, ECE okay is next

In a special meeting last week with three of five North Branch city council members and all Water & Light Utility Commission members attending— officials voted in support of continued negotiations on a purchase agreement with East Central Electric (ECE) cooperative, for disposition of North Branch’s electric distribution system assets.  

The water division of the independent municipal utility has already been shifted into the city public works department.  North Branch public works already provided wastewater (sewer) processes.

This potential sale of electric distribution equipment and structures, to ECE, is guided by a report by Power System Engineering, a consultant, hired by the utility commission and by ECE in September 2021 to arrive at a price.  ECE cooperative service territory basically encircles what now comprises Water & Light’s customer area.

North Branch City Administrator Renae Fry cautioned the council and commissioners that lengthy talks are still needed to finalize details.  “We just got the asset terms (written document) this afternoon,” she said.  

PSE report presenter Rich Macke added that in approving terms; action that night could be looked at as a letter of intent with months of work ahead yet.   The goal is to have a purchase agreement ready to close on by year end, he added.

Upon the sale for $5,318,943,  the proceeds will be deposited with a trustee and utility debt payments and outstanding bills will continue to be covered. When borrowed sums and interest on existing bonds can be paid in full contractually —the utility will review this.  The utility has around $4 million left for early pay-off of two electric bonds.  The potential for refundings arrive in November 2023 and Nov. 2024.
Macke described the complex factors involved in the PSE valuation process and stressed that there are still unknowns.  

The report looked at the size of customer base being added to the cooperative’s territory (only about three percent)  the forecast for cash flow, earnings before interest, and more.  A benefit to ECE is adding the dense service area of urban North Branch to the  cooperative’s large tract territory, has the net result of generating more revenue per mile of line.  

The relationship with the electricity generation agency, Southern MN Municipal Power Association,  SM MPA, is also in need of revision.  
A long term “quick start” contract is in effect. North Branch Water & Light is promising to provide a certain level of power when demand calls for it, using its fuel powered generators.  There was no buyer located for these generators.  

North Branch is paid in excess of $300,000 a year under this contract.  The expectation is that SMMPA will transfer its contract to Great River Energy— which is ECE’s power supplier.  

This is still being worked on and is one of the unknown financial impacts.

ECE also has a fixed basic monthly charge for electric customers twice what North Branch Water & Light collects. This could be balanced out applying potentially lower rates for each account’s consumption, but this is unknown, Macke added.  

Other future pricing considerations within the report, which Macke explained, includes the fact ECE will pay approximately $100,000 in property tax each of 10 coming years. Water & Light had a reciprocity type of agreement with the city where it did not charge the city for certain services, and in return the utility did not pay property taxes.  This and the city’s franchise fee collected within the billing developed by the utility and remitted to city hall, will still be looked at by ECE for how best to recover these expenses.

Fry advised that the sale agreement is also contingent on the MN Public Utilities Commission signing-off on the proposed revised electric service territory. As Minnesota power providers alter boundaries of their service areas it gets reviewed.  This could take six months or so, she advised.

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