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Preston extends until 2050 with SMMPA

Fri, Oct 16th, 2009
Posted in Government

The Preston Public Utility Commission and the Preston City Council met jointly early on October 13, to hear City Attorney Dwight Luhmann's opinion on his review of the current contract offered by the Southern Minnesota Municipal Power Agency (SMMPA). City Administrator Joe Hoffman noted the city and utility have been discussing the pros and cons of an extension over the last six months. SMMPA is a nonprofit, tax exempt organization and is financially stable.

In August, the SMMPA staff answered questions and detailed their expectations for the future. SMMPA staff members want the extensions to improve their ability to plan and forecast how much energy may be needed in the out years and find ways to service that need. The city staff has checked into other options. Luhmann said he reviewed the current contract that was signed in April 1981. He called it straight forward, not one sided. Luhmann stressed the contract has worked for the past twenty-eight years. The extension will tie the city to SMMPA for another forty years, twenty years past the current contract.

Hoffman asked about any language in the contract that addresses the ability to terminate the agreement. Luhmann answered that either side can terminate after 2030 with a one year notice. SMMPA has the right to terminate for nonpayment from Preston or any other participating municipality for power received. The only other way out would be the result of a natural or other disaster making it impossible for either party to perform.

Hoffman made it clear that if they vote to extend, SMMPA can't terminate before 2050 and the city can't terminate before 2050. Mayor Kurt Reicks asked what would be the city's options if SMMPA raised their prices well over the prevailing market and it was not economically feasible to continue. Hoffman assured him that was not likely to happen as SMMPA's board is made up of seven individual staff members from member municipalities and they set the rates. He noted they have in the past been slightly higher with their rates, but have also been lower as they are currently.

Hoffman stated about five or six municipalities out of sixteen have extended so far including Owatonna. Rochester and Austin opted not to extend a while ago.

Councilman David Collett remarked if something is working good, don't fix it. Commissioner Heath Mensink said the city plant has the option in an emergency of operating and providing power to the city with diesel generators, an ability most cities don't have. However, it would be a costly way to produce power.

Both the utility commission and the city council each voted unanimously on separate motions to extend the contract with SMMPA to 2050.

Hoffman said at the utility meeting after the joint meeting that SMMPA is raising their rates by four percent for 2010, however he was not recommending a rate increase for electricity consumers in Preston. He said they should be able to cover the increase for the year, but would expect they may need to increase rates for residents three percent to five percent in 2011.

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