A REGULAR MEETING OF THE PUBLIC UTILITIES COMMISSION OF THE CITY OF VIRGINIA, MINNESOTA, WAS HELD AT THE OFFICE OF THE DEPARTMENT OF PUBLIC UTILITIES ON MONDAY, JANUARY 11, 1999, AT 5:00 P

A REGULAR MEETING OF THE PUBLIC UTILITIES COMMISSION OF THE CITY OF VIRGINIA, MINNESOTA, WAS HELD AT THE OFFICE OF THE DEPARTMENT OF PUBLIC UTILITIES ON MONDAY, JANUARY 26, 2004, AT 4:30 P.M.

Commissioner Sipola called the meeting to order at 4:30 p.m.

Present: Commissioners Raukar, Marks, Bloomquist, Park, and Sipola.

Absent: None.

Also Present: Terry Leoni, General Manager; Lynn Rosebush, Director-Finance; Jeff Marwick, Director-Power Plant; Doug Ganoe, Director-Operations; Sue Lalli, Supervisor-Public Relations; David VanDeventer, Manager-Electric Distribution; Lorraine Ilminen, Supervisor-Administration; City Councilor Rob Raplinger; City Attorney Tom Butorac, and City Finance Director Ron Lackner.

The following reports were presented to the Commission for their information:

FINANCIAL OPERATING STATEMENTS

The Administrative Appeal Committee recommendations for six deposit appeals were presented and reviewed. Moved by Park and supported by Bloomquist to accept the Administrative Appeal Committee recommendations as presented for the customer deposit appeals on accounts 508.5190.1, 302.1355.7, 406.3880.6, 406.3875.0, 409.6550.3, and 203.2295.3. Motion carried.

Mr. Leoni expressed appreciation to Lynn Rosebush and Bill Hennis for all their work on getting the grant payment requests for the City of Virginia and the Virginia Public Utilities through the Minnesota Department of Employment and Economic Development. Without their extra effort, we would have lost the grant. It was the consensus of the Commission that letters of appreciation (to be signed by the Commission President) be sent to both Lynn Rosebush and Bill Hennis with copies put into their personnel files.

Mr. Leoni presented and reviewed a letter received from Midwest Energy Resources (the Virginia Public Utilities coal supplier) indicating they received their 25.5 million ton per year Air Permit from the State of Wisconsin’s Department of Natural Resources and that terminal trucking operations will continue in relation to customer needs. Prior to obtaining the permit, Midwest Energy Resources was shipping coal by vessel to the Duluth docks at no additional cost to the Hibbing and Virginia Utilities.

Mr. Butorac updated the Commission on the Heyde Hospitality bankruptcy filing. At this time, the Virginia Public Utilities is not listed as a creditor on that bankruptcy filing. Mr. Butorac reviewed various options on the collection progress for the delinquent utility account and mentioned in accordance with the City Ordinances, a special assessment can be placed on the property.

Moved by Bloomquist and supported by Marks to adopt financial Resolution #5018 authorizing the first half of January 2004 payroll in the amount of $180,090.70, checks #42592 through #42666 and direct deposits, and bills dated January 25, 2004 in the amount of $934,035.22, checks #68558 through #68629 and the second half of January 2004 wire and electronic transfers; and the minutes of the regular January 12, 2004, Commission meeting is approved as presented. Motion carried.

Mr. Leoni and Commissioner Sipola reported on the biomass meeting held at the Xcel Energy’s office in Denver, Colorado on January 20, 2004. NGP is willing to relocate all or a portion of 35 megawatts from the Waseca site to Hibbing and Virginia. It is now a favorable option and negotiations have begun. Environmental regulations are going to have a huge impact on this power plant (requiring scrubbers, new controls, etc.). Three issues of concern will be transmission, the economics, and debt financing. Management presented a summary of budget changes for the biomass project indicating a net projection for 2008 of about 1.2 million dollars.

Management presented and reviewed Ashland Chemical Company’s request for a contract price increase. The contract allows for a maximum price increase of 5% over the term of the four-year contract. This is the third year of the contract and Ashland Chemical is requesting a price increase of 2.5% in each of the last two years

Carried forward

Public Utilities Commission

Meeting Minutes

January 26, 2004

Page 2

Brought forward

of the contract. The contract services for boiler water quality, training, and inspection has been very good. The requested contract price increase is in the 2004 budget. Moved by Marks and supported by Raukar to allow the Ashland Chemical Company’s contract increase of 2.5% for 2004, retroactive to January 01, 2004, and 2.5% contract increase for 2005. Motion carried.

KLM Engineering’s warranty inspection report on the 500,000 gallon Midway elevated water tower was presented and reviewed. LeadCon, Inc. painted the reservoir in 2001. The tank requires complete coating replacement below the high water line under the terms of warranty (LeadCon and Sherwin-Williams need to determine the exact reasons for the blistering and failure). There are a few topcoat delaminations on the exterior roof coating, which require repair under the terms of the warranty (remainder of the exterior coating is in excellent condition and requires no repairs). Repairs made will be at no additional cost to the Utility, except to allow access into the reservoir and the draining or lowering of the water level to allow examination, testing, and repairs. The tank and coating should be inspected again in three to five years. The new interior and exterior coatings, if repaired and maintained properly, should last 15-20 years. The Utility would like to negotiate with the paint supplier the costs associated for KLM Engineering’s services, the draining of the treated water, and for manpower hours. LeadCon Inc. will be in Virginia to make warranty repairs the spring of 2004. The Utility will have a constant flow of water supplied by pumps to the Midway but we will not be filling the Midway water tower during warranty inspections and repairs.

Mr. Leoni reported the Progress Park project maybe moving ahead and by the end of summer, the Utility could have a backup redundancy for water.

Commissioner Sipola mentioned it would be beneficial to hold a joint Commission and City Council meeting to review the final financial reports, the biomass project, and the unresolved issue of strategic planning.

The January 15, 2004, Duluth News Tribune article on the Governor’s bonding proposal was presented and reviewed. The Governor’s recommendation does not include Virginia’s $5 million steam heating district renovations. Mr. Leoni expressed appreciation to Susan Lalli for her assistance on this annual bonding application process.

Management updated the Commission on the Phase II steam conversion project. Thirty customers are remaining to complete their conversions (nineteen of those thirty customers are showing no action to convert and the remaining eleven customers are in the process of conversion).

At 5:15 p.m. President Sipola called the meeting closed to discuss staffing. Remaining in attendance were Commissioners Raukar, Marks, Bloomquist, Park, and Sipola. Terry Leoni, General Manager; David VanDeventer, Manager-Electric Distribution; Doug Ganoe, Director-Operations; Lorraine Ilminen, Supervisor-Administration; City Councilor Rob Raplinger; City Attorney Tom Butorac, and City Finance Director Ron Lackner. Brief discussion was held on response time requirements for emergency call outs.

At 5:26 p.m. President Sipola called the closed meeting to discuss staffing open. Moved by Park and supported by Raukar to authorize Management to post internally and solicit externally applications for the Supervisor-Electric Distribution position. Motion carried.

There being no further business to come before this meeting, it was moved by Park and supported by Bloomquist that this meeting adjourned. Motion carried.

Adjournment at 5:27 p.m.

ATTEST: APPROVED:

___________________________ ______________________________

Jerry Marks, Secretary Dr. Don Sipola, President