City leaders will be filling yet another vacant Princeton Public Utilities Commission position.
A new appointment is required because of a surprise announcement made by Councilor Jenny Gerold, who was slated to replace former PUC Chair and Commissioner Mindi Sirekcs effective April 1.
During last week’s PPU monthly meeting, which was conducted by Zoom teleconference, current Commission Chair Greg Hanson opened with a “welcome aboard” and a thank you comment to Gerold in advance of her taking the oath of office.
Hanson asked PPU General Manager Keith Butcher for an electronic copy of the oath he was scheduled to administer as an early meeting agenda item.
However, before Gerold could be sworn, she read from a prepared statement which ended with her declining an interim position as commissioner.
“I decided to be on the PPU Board because I believed that I could make a difference,” she began. “I knew that I had some great ideas and that I could be a formidable asset in helping with the struggling relationship between our PPU and the city of Princeton.”
Details of Statement
Gerold stated contrary to what some have said or believe to be true, many cities have council members and even mayors serving on their utility boards. She listed Grand Rapids, North Branch, Rochester, Wells, Delano and Elk River as examples.
She then continued with the following: “Despite the threats, bullying, false accusations and misinformation from members of this PUC and its commission, fellow council members and a few community members, I still believed that it was going to be in the best interest of both parties [along with the taxpayers and ratepayers] for me to be a productive and positive member of this commission.”
In her statement, Gerold also mentioned a March 25 decision by Butcher, Siercks, Commissioner Dan Erickson, and Hanson to adopt a resolution to discontinue city financial support through an established payment in lieu of taxes mechanism.
“It appears to me that this general manager with this commission board’s support, has no desire to have a cohesive relationship with the city that you do business in,” Gerold stated, referring to Butcher and three commissioners.
She added: “Should there be any future agenda topics that arise that could be deemed a ‘conflict of interest’ where it would be necessary for me to abstain from voting for both city council and the PPU Commission, my vote will be much better served on the city council.”
Will Remain Liaison
Gerold stated she had decided to remain the council’s liaison to the PPU Commission but would not be taking a Princeton Public Utilities Board seat.
“My No. 1 priority is to stay focused on my city council seat and the residents of the city of Princeton,” she concluded, adding she would bring news of her decision to the council, which would determine how to fill the open seat.
After Gerold read her statement, Hanson welcomed her as Princeton City Council liaison to the PPU commission. “We are still glad to have you here,” Hanson said.
Gerold thanked Hanson for his comments, pointing out that the city council still needed to appoint another PPU commissioner at their convenience.
City Administrator Robert Barbian said during the April 22 meeting that he would mention the open seat during the council’s meeting the following night.
At that time, the council could decide or discuss what process it would use to fill or recruit applicants to fill the open seat, Barbian said.
“Given the fact that there are now only two members on the commission and an open seat, I’ll put this on the agenda for the council to determine what they wish to do at this time,” Barbian said.
Critical Issue Emerges
In a follow-up email, Barbian explained the city previously received a payment “in lieu of” tax from the Princeton Public Utilities to offset the taxes that a private electric company such as Xcel Energy would pay if it provided electric to the city.
A private company like Xcel Energy, Center Point Energy and cooperatives like Connexus, East Central Energy and Great River Energy pay taxes based upon the value of the electric infrastructure necessary to operate their businesses.
In 1997, Princeton Utilities agreed to pay the city $4,375 a month or $52,500 annually. Commissioners unanimously voted March 25 to discontinue payment in lieu of taxes (PILOT) after a lengthy and sometimes tense discussion that included mention of the city’s franchise fee and the PUC’s cash reserve policy.
Barbian stated in an email the city’s franchise fee is a completely separate fee, not paid by the Princeton Utilities or connected to a tax associated with the value of equipment owned and operated by the Princeton utility.
“It is not a tax to the ratepayers, as stated, and is not really different than the multiple ‘fees’ that PPU charges its customers,” Barbian stated, specifically mentioning customer charge, electric service line repair and street light fees.
The franchise fee is a small fee set in place by the city for park and trail improvements, Barbian explained, adding the Great Northern Trail is one of the projects that is funded by the city franchise fee.
Other park projects in the works are improvements at Riverside Park, Civic Center and Riebe Park, Barbian said.
These projects are funded by the franchise fee and do not substitute Princeton Utility payment for the value of the equipment Princeton Utilities would pay if they were a privately owned company, Barbian concluded in his email.
Shortfall Is Created
The resolution approved by PPU commissioners last month to exit PILOT stated the city’s franchise fee was a mechanism to collect funds as deemed necessary.
Furthermore, the resolution stated that PPU wanted to discontinue its PILOT contribution immediately in order to avoid duplication of city funding resources.
Before the March 25 meeting concluded, Mayor Brad Schumacher stated he was “extremely disappointed” that the commission discontinued their PILOT payment.
The following week, at the council’s April 2 meeting, Councilor Jules Zimmer brought up the discontinued PILOT fees during a 2020 budget discussion.
Zimmer asked how the city was going to absorb the loss. Barbian noted it was the PUC’s choice to stop paying the fee, even though it had been in place many years.
Barbian and later Schumacher suggested that city department heads should review their 2020 budgets to find cuts to make up for the sudden shortfall.
Finance Director Steve Jackson clarified that the PILOT had been $52,500 annually for more than 20 years. The city had already collected three months’ worth of PILOT money before PPU commissioners took action on March 25, Jackson said, leaving a shortfall of about $40,000 for the remainder of the 2020 budget year.
Schumacher suggested that the PILOT shortfall be added to the city council’s May 7 work session for review and action.
Previous Plan for PPU
Gerold pointed during the council’s April 2 work session Schumacher had provided his ideas in a previously introduced plan.
That plan had been introduced and offered to the council, and accepted by city leaders as a discussion platform.
Schumacher’s 2020 Princeton Public Utilities “In Lieu of Property Taxes Payment Plan” suggested PPU pay 4% of gross revenue on power sales to the city retroactive to Jan. 1, 2020.
Proposed payments under that structure would have continued for five years, then increased to 5% for another four years.
The mayor’s platform also included PPU paying 5% of its gross revenue on water sales retroactive to Jan. 1, 2020.
Both of the payment structures suggested by Schumacher were designed to be collected in lieu of getting property taxes from the PUC to pay for police and Princeton Fire District protection as well as public works roads and maintenance.
The platform also included a directive that would have required commissioners to direct Butcher, the PUC general manager, to attend the city’s weekly manager meeting and a monthly city council workshop the first Thursday of each month.
Butcher has previously stated he’s willing to attend meetings if there’s an item involving the PUC, but if a meeting does not, Butcher said it wasn’t fair for PUC ratepayers to cover the cost of him attending meetings that the PUC is not directly involved in because the PUC operates as a separate entity from the city.
During last week’s Princeton council meeting, Gerold re-read her previous statement regarding her status with the PPU commission before city leaders completed a discussion of the timeline they would use to fill her now open seat.
The Union-Times asked Gerold to clarify allegations she had made in her April 23 statement, specifically comments about Butcher, commissioners, and community members.
Gerold replied via email with the following answer: “Thank you for your inquiry. I have no further comments regarding this. My statement is the truth and people can choose to believe it or not based on my reputation.”
She then challenged the Union-Times to explain the annual $52,500 loss of general fund revenue that came with no warning, no conversation, and no agreement on March 25 after the PUC approved a surprise resolution to discontinue its PILOT.
PPU Provides Analysis
The Union-Times asked Butcher to provide an analysis of Schumacher’s proposed “Payment in Lieu of Taxes” (PILOT) platform that was presented earlier this year.
Butcher said his analysis used total operating revenues as defined in PPU audits from 2016-2018) as a basis for the “gross revenue” metric suggested by the mayor.
“The mayor’s platform was also very specific in that it would be enacted retroactively to Jan 1, 2020,” Butcher stated in an email to the Union-Times.
According to Butcher, the platform suggested by Schumacher and accepted for review and discussion by the council and city staff would have increased the financial transfer from PPU to the city by either $361,026 (4%) or $451,283 (5%).
That could have represented a net increase of either $308,526 (4%) or $398,783 (5%) without any corresponding decrease in services provided by PPU such as fire protection and street light maintenance, Butcher stated.
At the end of 2019, PPU commissioners spent considerable time discussing and working on several policies to guide the utility in the future, Butcher stated.
One of those policies was to revisit the utility’s cash reserve policy.
According to Butcher, the commission determined that its Electric Fund was underfunded, directing him to take efforts to improve that financial situation.
In addition, the Electric Fund is looking at two very large projects over the next five years, including a new transformer, switchgear, and relays at the North Substation and a new transformer at the Power Plant Substation.
Butcher said those projects could cost on the order of $2.5 to $3 million.
In addition, PPU is in the middle of an automated meter reading conversion covering the entire city.
“We are trying our best to be able to cover these expenditures while minimizing any cost impacts on our ratepayers,” he said.
In PPU’s water fund, the common metric of “Days of Cash on Hand” looks very healthy, but Butcher said there, several large capital expenditures are planned over the next five years, including the re-painting of the North Water Tower and a water main replacement on Seventh Avenue North which could cost $1 million.
Capital projects for improving water infrastructure can be just as expensive as electric infrastructure projects, Butcher said, even though the revenues are much less. That consideration means it takes much longer to build up necessary funds.
“A large and immediate increase in a financial transfer from PPU to the city would have an immediate impact on this organization’s finances,” Butcher concluded, adding that it was the PUC commission’s opinion most (if not all) of any change would have to be borne by ratepayers through a corresponding rate increase.
City leaders set a May 28 deadline to accept applications to fill the vacant PUC commissioner position.
The council will review applications and talk with applicants at a June 4 study session. Appointments may be made at the study session, or may be made at the next regular council meeting set for June 11.
Those who are interested in serving on the PUC commission can find an application on the city’s website at www.princetonmn.org or request a copy from City Clerk Shawna Jenkins via email at email@example.com.