My name is Mike Burns.

I lead the operation for Evergreen Energy, and I have, in case you have some difficult questions tonight, I've got a group with me here.

Andrew Cassidy, the CFO from Evergreen, Steve Ramback, who leads our customer service area and customer building interface, and Chris Johansson, who leads the Duluth Energy Operation here in Duluth.

So Andrew and Steve are from St.

Paul with me.

We're going to talk to you about the operation in Duluth, our plan for the budget in twenty twenty six and some of the things that we plan to accomplish, the accomplishments from twenty twenty five as well as what we're planning to do in twenty twenty-six.

A little over a year.

Our rates for the Duluth Energy System are consist of a consumption charge, which is the fuel consumed and some of the other consumables that are based on a per unit of energy used and a capacity charge that covers the more fixed cost as opposed to the variable cost.

That's the labor, that's maintenance activities, that's debt service.

And so you can see a lot of stability year over year between the 2025 budget and 2026 budget on the revenue side.

So one thing that's noteworthy there is you'll see chilled water charges.

We are no longer in the uh chilled water business.

That was a an enterprise that was set up about 20 years ago.

Um it was uh served some of the buildings in this area, and uh that con those contracts had run their course, and the system would have required a significant investment to continue it, and so that means long-term contracts with customers, and because we just weren't able to put that all together and make that investment feasible, we've decided to sunset that cooling operation.

Relatively minor part of the operation, but that's no longer in the budget, so that's a little bit of the uh the difference year over year that you'll see there.

But um overall we're expecting uh total revenues being about $300,000 less than 2025 budget, and right now we're trending quite a bit below budget on revenues, mostly because on the consumption charge side, we only charge what it costs us to fuel and to buy the consumables, and the fuel costs this year have been lower than what we had budgeted last year, and so the revenues that we've collected from customers are lower.

So you see that in that uh next to the last column.

Um there are some other minor revenues.

You'll see that pass-through grant.

That is actually a real benefit.

There's a grant that is being uh it was provided to Duluth Energy to do some enhanced metering of our customer um meters so that we're able to see in real time customer utilization.

It helps us considerably in troubleshooting, and so that's what that uh that pass-through grant reflects.

And then on the expenses side, we're planning to spend those revenues.

You can see the uh the first block to the first gray bar is the uh are the operating expenses related to energy and consumables.

And so uh you can see we're planning for a slightly lower expected fuel cost year over year compared to budget, 2025 budget, and a little bit above what this year is trending.

Again, we try to be conservative when we're budgeting fuel costs, and so you'll see that uh forecast in 2025 is coming in quite a bit lower than budget, um, and we're actually budgeting for 2026 in between, so slightly above the forecast for 2025, but below budget for 2025.

Um then the non-operating expenses, that's again the cap what feeds into the capacity charge, uh very close year over year, 24,000 higher year over year in budget.

Some of that is uh we're gonna spend a little bit more on maintenance, but a little bit less on people, because as I showed in that first slide, we're we're going to have a couple of less uh from a head full-time equivalent head count year over year.

Um, and then we've got the the debt service that interest and and uh actually we show that uh in the next slide, but uh you can see um uh overall very similar budget year uh year over year budget.

And then uh the appropriation, the amount that we're planning to spend overall over the course of the year, it has those uh energy charges, the non-energy operating expenses, but that this is where you see that principle and interest for the debt service, the things that we've invested in over the years uh that uh we are um gradually paying off the mortgage on those things, and so that that debt service is reflected there.

So our total appropriation is just a shade below 15 million dollars over the for uh 2026, um a bit about a million dollars less than we had anticipated spending in 2025, a little bit above what we're actually trending on, the trend line that we're on right now for 2025, and again, that's primarily uh driven by lower energy expenses in uh 2025 compared to what we budgeted and planned for last time uh last year at this time.

So, what does that lead to from a customer uh uh uh rate impact standpoint?

Well, it's actually happy to report that it's an overall 1.1% rate uh impact rate increase, so well below the rate of inflation, uh driven by that reduction in expected cost of fuel and consumables with a small uptick in the uh amount of uh non-fuel cost operating costs that we anticipate.

We do have two separate systems.

So this is the steam and the hot water system that is connected to the downtown.

We do have a hot water system that's been operation for over 20 years in Canal Park.

It's several of the hospitals along the eastern side of Canal Park.

That was set up at that time with a much different rate structure.

And so we've been playing catch-up with the rates.

Those rates have been historically lower than the steam rates.

And so you'll see in this next slide, we are anticipating for a 5.3% rate increase for that group.

They'll still be enjoying a slight discount.

It will probably take us a couple more years to align the hot water rates in Canal Park with the hot water rates that for the service that's provided in downtown that are really tied more to the steam rates.

So but that we're working towards that.

We've been doing that, it's been a multi-year thing.

We didn't want to make that big uh change in one fell swoop.

So we're getting close to kind of finishing that up and getting those uh those rates aligned.

Uh before I move on, any questions related to the budget, or shall I just continue and questions afterwards.

I'll just continue on.

So uh let's talk about 2025 accomplishments.

Uh first off, uh, one thing that we pay very close attention to is uh the the safety of our workforce and the performance of our uh operation from an environmental standpoint.

We uh we uh operate large boilers, we have uh water uh quality and processes that we uh that we implement, and so uh we make sure that we are being rigorous about having no environmental incidents.

The team is very close to three years without a lost time injury, which is very wattable given the fact that uh it's a very labor-intensive industry.

Um part of the environmental stewardship, in addition to not having any violations is continuing to drive performance in a positive direction.

You can see that uh a couple of graphs here.

First off, related to coal usage, that bottom graph, we've driven coal usage to almost nothing.

So it had been a completely coal-fired utility.

We worked towards moving uh away from coal to the point now that we only utilize it if there was a significant uh uh significant event that made gas unavailable or for periodic testing because we're obliged to test if we're gonna maintain coal in our fuel mix, we're obliged to test it once a year.

So it's the only operation that we use coal for is uh we repressed it very low in our uh dispatch order.

Um that's allowed us to reduce carbon emissions dramatically by 40 percent since 2012.