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, AUGUST 28, 2006 AT 4:30 P.M.

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

Present: Commissioners Bloomquist, Muskovitz, Raukar, and Sipola.

Absent: Commissioner Park.

Also Present: Terry Leoni, General Manager; Bill Hafdahl, Director-Finance & Administration; Doug Ganoe – Director, Operations Production; Sue Lalli, Supervisor-Public Relations / Customer Service; George Erickson, Bob Prittinen, Casey Mauston, Jennica Tomassoni, Katie Marcella – Quad City Tennis For All; Dennis Lindberg, City Councilor; June Merkel and Joyce Rude, Customers.

George Erickson addressed the Commission pertaining to the Quad City Tennis For All request for assistance from the Virginia Utilities on the construction of a new tennis facility to be located in Virginia. After discussion it was moved by Bloomquist and supported by Raukar that the Virginia Utilities expend $14,500 in CIP funds towards the installation of energy efficient lighting for the new tennis facility and to perform in-kind services for the facility by extending the electrical and natural gas services at an estimated cost of $18,500 for a total commitment of $33,000. Motion carried. Quad City Tennis For All will invoice the Utility for the $14,500 once the energy efficient lighting has been installed and the service installations will be handled during the construction of the facility.

Moved by Raukar and supported by Bloomquist that financial Resolution No. 5085 authorizing the payroll dated August 17, 2006 in the amount of $100,726.42, checks #44378 through #44405, and direct deposits #9595 through #9648; and bills dated August 15, 2006 through August 28, 2006 in the amount of $593,902.80, checks # 74345 through #74428, and wire and electronic transfers in the amount of $2,225,495.51 and the minutes of the regular Commission Meeting held on August 9, 2006 be approved as presented. Motion carried.

General Manager Leoni noted the electronic transfer - part of Resolution No. 5085 - in the amount of $2,000,000 for LEA pertains to the loan fund transfer for LEA.

Doug Ganoe noted that the Biomass construction underway could be viewed by the Commissioners at this time as the second 50-foot section of the boiler stack was being put into place. A five-minute break was taken from the meeting to view the placement of the stack at approximately 5 p.m.

The meeting resumed at approximately 5:05 p.m.

The July 2006 Monthly Injury Summary Report was presented and reviewed.

Doug Ganoe, Director Operations Production, reviewed the Biomass construction to date. The wood storage building to the west of the vehicle garage has a good part of the outside framework completed. It is anticipated that by September 11, 2006 installation of the equipment at the wood unloading area would begin. Work at the Plant on the feed-water system is about 60% complete and the Plant tie ins are finished. Electrical work on the first five levels of the new portion of the Plant is just about complete. The second 50-foot section of the boiler stack went into place as noted earlier during this meeting. Hydro of the new boiler is expected the week of October 16, 2006, and the first firing of the new boiler is expected to take place the week of November 20, 2006 with a steam blow shortly thereafter. Full operation of the new boiler is currently scheduled for the second week of December 2006. The project continues to be on budget.

General Manager Leoni reported the Biomass wood yard located in Mt. Iron just underwent the second in-fill of tailings and slabs for both buildings located at the site have been poured. Equipment is scheduled to arrive in mid-September 2006 with complete installation the first of October 2006. Plans include ten to twelve tons of wood fuel to be stored at the wood yard location for the first fire of the new boiler. It was noted that the Hibbing Biomass project is two weeks ahead of the Virginia facility as scheduled.

Carried forward

City of Virginia

Public Utilities Commission

Meeting Minutes

August 29, 2006

Page 2

Brought forward

Moved by Bloomquist and supported by Muskovitz that the Director - Human Resources / Safety be authorized to attend the Annual Human Resources Conference sponsored by the Minnesota Society of Human Resources Management on October 15-17, 2006 in St. Cloud, Minnesota at a total estimated cost of $412.52. Motion carried.

Moved by Bloomquist and supported by Raukar to adopt the wording revisions to the personnel policies for non-represented employees as presented with the intent of mirroring the medical and dental benefit levels negotiated in the AFSCME contract. Motion carried.

Moved by Raukar and supported by Muskovitz to approve the change to the Labor and Equipment Rates as presented to reflect rates that are consistent with the City of Virginia and reflect additional labor costs resulting from negotiated wage increases. Motion carried.

Moved by Bloomquist and supported by Muskovitz the an Engineering Technician be authorized to attend a two-day CAD-Tech Seminar on September 11-12, 2006 in Minneapolis, Minnesota at a total of $598 for seminar registration only. Motion carried.

The reports presented reviewing the MMUA Summer Meeting were discussed. Mr. Leoni noted a tape of the presentation made on Retail Rates has been requested. He would like to arrange a joint meeting of the Utility Commission and the City Council to view the presentation as it covers issues that should be taken into consideration when setting utility rates in the future. Mr. Leoni, Mr. Bloomquist, and Dr. Sipola noted that the sessions held at the MMUA Summer Meeting covered topics of particular interest to our Utility and contained useful information and tools to assist in making educated and worthwhile decisions.

Mr. Leoni noted a letter to the Owatonna Public Utilities contained in the meeting packet. The letter covered the 2006-2007 release of the Utilities’ Northern Natural Gas (Northern) transportation capacity to the Owatonna Public Utilities.

Mr. Leoni covered the Utilities’ current status on the purchase of natural gas and the expected cost level for the next three to five years. Customers June Merkel and Joyce Rude requested information on whether it would be beneficial cost wise for Virginia customers to purchase gas directly from a natural gas supplier and not from the Virginia Utilities. Mr. Leoni covered the cost of natural gas to customers in the Eveleth, Gilbert and Hibbing communities and the rate differences indicated the customers in the City of Virginia were able to purchase natural gas from the Virginia Utilities at a much lower rate than they would if they resided in Eveleth, Gilbert or Hibbing.

Mr. Leoni gave an update on the repairs underway in the Power Plant as a result of the fire on July 29, 2006. The wiring was more damaged than anticipated. Repairs are expected to have the Plant up and running close to normal by September 18, 2006. The insurance company is working with the Utilities and will be on site again on September 6, 2006 for an update. The Minnesota Power temporary substation is in place with a generator providing power for the operation of the pit pumps. The community has been very supportive and understands the need for the upcoming repairs. A thank you to the community and the employees was published in the Mesabi Daily News on August 26, 2006. The Virginia Regional Medical Center and Staver’s Foundry have been very helpful in their conservation of power - Staver’s has been handling pouring at the foundry during the night shift only.

General Manager Leoni noted the Production Report contained in the financial portion of the meeting packet reflected the effect of the current cost of coal on production.

There being no further business to come before the Commission, Commission President Sipola declared the meeting adjourned at 5:35 p.m.

ATTEST: APPROVED:

_______________________ ___________________________

Matt Raukar, Secretary Dr. Don Sipola, President