Welcome to our uh September, is it September 29th study session?

And we've got um two topics on our study session, and we're gonna start with a report on uh our city sales tax projects, and uh Mr.

Neemeyer is gonna start us off and uh hand it over to Ms.

Woodward at some point.

So that's correct.

Okay, and just so our our other topic is RPU and uh Mr.

McCullough just walked in.

So thank you, Council President.

Good afternoon, council, council president and mayor, uh Tyler New Meyer, Public Works Director, Community Development Director Irene Woodward is here as well to give you all an update on local sales tax.

So as a reminder to the public, uh the sales tax approval uh most recently involved uh four projects, uh, three of which we're gonna focus on with this presentation, those being the economic vitality projects, street reconstruction, um, flood control and water quality.

The regional sports complex has been discussed in other presentations and uh won't be included in the comments tonight.

So, as a reminder, the first five years of our local sales tax spending, uh the plan was to front load the economic vitality spending uh to be able to uh forward some of the initiatives within economic vitality uh by front loading that, we think those investments can really uh begin to bear fruit quickly uh by front loading that investment and backing off on investments in the other two areas.

However, that doesn't mean that those two areas aren't seeing spending as well, and we'll we'll walk through that here this afternoon.

And we'll start with street reconstruction.

So the first five years of street reconstruction, uh the plan is to go out and attack some of those streets that have been neglected as the council knows and has been discussed.

Uh 2019 uh report on our streets concluded that we were um facing a 16 to 20 million dollar annual funding shortfall and rehabilitating our city streets.

The goal of our payment management program is to maintain uh payment condition index of 80 over the anticipated 50 year life cycle of payments, and in a lot of areas we're falling pretty well short of that.

However, uh the sales tax approval and the street reconstruction project within that does help close a portion of that gap.

So this slide will probably look familiar as well.

These were the first five projects, the first five years of the street reconstruction project in local sales tax.

Uh at this point, we've completed andor um nearly complete with a second project on this map.

But one thing you'll notice about these corridors that are highlighted here, they are more major thoroughfares, major streets in town because they need to meet that regional significance criteria for uh that streets project and the legislation.

So, what's been done to date within streets?

Our first project completed in 2024 was just over half a million dollars worth of work out on 48th Street Southwest.

This connected with the new roundabout at 48th Street Southwest and Commercial Drive.

Um, that project is complete.

Um, and you can see that out there today.

And uh we'll get to uh how we're gonna label that um a little bit later in the presentation.

Uh this year we're working on 50th Avenue Northwest.

This is phase one of that project.

It's immediately adjacent to the Prairie Ridge uh development over on the west side of town.

Like I said, construction is ongoing.

This is 2.3 million dollars worth of spending, and we anticipate that it'll be complete by the end of October.

And here you'll see a list of the projects that came in the next six-year CIP that was part of the 2026 proposed budget.

I'm not gonna read through each one of these, but you will note uh some of these projects later in the outliers here do look a little bit bigger in nature, um, and that just reflects pivoting some of the funding back into the streets reconstruction uh project after that initial prioritization of economic vitality.

Getting into flood control and water quality, a little bit less to show you here because we haven't really started any of the spending underneath the latest approval of flood control.

As we discussed earlier, the first five years of this collection, we're really going to be spent managing the previous approvals, the remaining money from the previous sales tax approvals and start uh building up funds for uh future uh projects and maintenance of the flood control system.

So in 2025, we added a million dollars to the land acquisition share of the flood control dollars, and we anticipate adding another 17.3 million dollars of funding uh between now and the end of uh the next CIP for future projects and maintenance of the system.

And we will begin or anticipated begin project expenditures with the latest approval of flood control dollars in 2028.

Again, that's just uh as we work to utilize the remaining funds in the previous sales tax approval for flood control.

And Irene's up next.

All right, as a reminder for economic vitality, we're really looking at how do we create housing, how do we preserve housing, and then really looking at workforce development and entrepreneurship.

I think you've seen this slide a few times.

It's kind of that high-level overview.

Um, kind of wanted to dive in a little bit more into what has been done or what's kind of coming.

Um, we're really looking for those first five years, as Tyler mentioned, of kind of front loading, continuing with that homeownership creation program.

Um, and I have another slide on that, really looking at how do we support some other nonprofit organizations to continue some of those housing needs.

Um, and then also really looking at how do we better align for our economic development piece.

Um, so first and foremost, I'll start with homeownership creation program, which the council has seen a little bit so far and um we have about 450 units to date that have been approved as part of this.

As a reminder, this is really looking at the scale.

How do we really increase the scale of housing?

And you saw that through Prairie Ridge and Westbury in terms of the number of units that we're seeing.

In addition, we have an additional 320 housing units that are kind of in application process that at some point will come before uh city council as we're working through those applications and making sure that they align with the program in terms of the percent of units that are supporting um up to 120% AMI and also really looking at that scale.

The other piece to the homeownership creation program is for those smaller units or smaller projects is that fee reimbursement program, which still exists, and that kind of comes after the fact of reimbursing for those fees.

So if they're not quite meeting that scale, there's also an opportunity to also support housing in that way.

Um so generally what we're seeing with this is able to also leverage our funding with other funding from the coalition as well.

So we're trying to leverage as as many funding sources as possible with our homeownership creation program and has seen some really good success there with more to come.

Um, the other two that I wanted to mention are possible contributions.

These have not come before city council yet.

Um, these are kind of one is uh the coalition for Rochester Area Housing.

Um, and as many of you heard, we kind of got the update on the homestead county comprehensive housing study or Maxfield study, and this would be contribution to kind of help support projects that are coming through the coalition and that million dollars.

Um, it would be direct to support projects, and that kind of gets reviewed with that group in terms of projects that are in Rochester that need support to be able to make work, whether it be um homeownership or rentals, but really targeting those key areas that are identified in the Maxfield study and what those priorities are.

Um, in addition, the other contribution that potentially um would be for first homes, and that is looking to support the community land trust, which would allow homes to be permanently kind of retaining those affordable units in that way.

We have supported first homes previously with our community development block grant funding, um, and this would provide a way to do a larger project with first homes, whether they are purchasing homes and putting them in the um rehabbing them and placing them in the loan or the community land trust, or whether they're building new ones.

So there'd be some flexibility there, but be supporting homes that we'd be put into the land trust.

And these would all result in specific units.

Councilmember Miller.

Yeah, thank you.

Just a quick question on that.

Is there a way to estimate a range of housing units uh that could be possible from each of those contributions?

So I think first homes would be about nine units.

Um, and then I would say the coalition might be a little bit harder because it's gonna be kind of there's gonna be multiple funding sources.

So there could be a range, and and generally when funding requests come forward, there's a recommendation of how those funds get broke broken down by each of the partners.

Um, so I would say there's a bit of a range in terms of what that could end up being.

I've got a question on the the contribution to the coalition.

Is that a one time per period contribution?

Do we expect that to be every year, every five years?

What's the what's the kind of cadence of those contributions?

We had previously helped support the coalition.

This was kind of being able to continue that.

We don't specifically have a time frame for a next one, but this is identifying kind of where our support and kind of where that would look like for right now.

And I think as the coalition moves forward, some of that gets evaluated in terms of needs and where funding is.

And some of those funds that the coalition does is through their zero interest loan.

So some of that funding comes back and they're able to continue moving that forward as well.

Do you recall the last time we contributed and how much it was?

I'm going to ask Terren Eadens to answer because I believe it was 2021 and we did about a million as well.

We used ARPA funds for part of that.

Okay.

Thank you.

Oh, Mayor.

Thank you.

And this isn't specific to housing, it's more about just the fund over, you know, the economic development fund overall.

We talked about other needs besides housing.

How are you balancing the other needs in the community outside of just housing?

So that's my next slide is getting into more of the workforce development and economic development piece.

Great.

So thank you for the nice transition.

So I'll go right to um so one of the other pieces that we've identified in terms of kind of I'm kind of referred to as like three buckets under economic vitality in terms of new housing, retaining housing, and then also really looking at kind of the economic development workforce.

One of the things we're really looking at is how do we work with our partners and identify what does that really need to look like as an overall strategy?

Um, so really looking at what is that economic development ecosystem, what's currently available, what are those needs.

I would note, and I've kind of put up like who would all be involved in this.

And we've had some initial meetings of including all of these partners, recognizing there's a lot of good work already happening, but how do we make sure that we are supporting the overall ecosystem?

Um, and what does that really look like in terms of a strategy?

So I think that is some of the work we have started.

Um, and as you can see in this first, is we kind of convened all of the organizations as kind of that first step, kind of really talking through this proposal of like how does this work together and making sure that everyone was kind of on board and everyone was supportive of like how do we do this work better?

Um, the next step was we've really asked all of them to provide kind of like a self-assessment document that we put together to make sure that we're understanding who they're serving, how they're serving it, what are those needs, but also gathering important information in terms of like what goals do they see coming out of this work?

Um, and so right now we got all of that back, and we're kind of starting to build out that ecosystem mapping of what does it look like, what are those shared goals, what are those needs, what is being identified in that process.

And then we're gonna reconvene that group in early November to make sure that we heard them correctly and we can continue to get their feedback is we're kind of putting together this overall approach and then being able to kind of go from there in terms of what are those needs and goals going forward and then be able to align that with some of the funding.

Oh uh, I'm sorry.

Oh, just follow up on that.

So one of the and that I asked this because I wasn't seeing cradle to career on here.

And and we really need to dig into this child care issue because we have lost thousands of child care providers over the last years in the state of Minnesota, and that is part of the economic ecosystem.

So I just didn't see them here.

So I'll go back to this was our first uh round of partners.

We also have identified a number of education institutions, and actually um, I am on the board of Cradle of Career and kind of did a presentation of some of this work and how not only this work, but that the grant for the economic mobility that um council kind of approved will be part of that next phase of how do we really look at some of those other aspects as it ties into this work.

So we identified these as that first round of partners, recognizing there's probably additional partners and as well as education institutions.

Thank you.

I really hope to see them more involved.

Council member Miller.

Oh, I'm sorry to jump on you.

I was just so proud of myself to recognize someone.

Thank you.

Uh a quick question on the timeline.

I guess my question is when might we expect to hear another update in this process.

I would say our goal is to have something kind of into 2026, early 2026 to have something kind of finalized and a draft that would probably come back before city council after we've kind of worked with our partners and identified that first round.

Okay, great.

Other questions.

Okay.

Moving on, fund management.

Fund management.

This is really kind of we have shown this before and recognizing that just because we're front loading economic vitality does not mean that the others are gonna collect a different amount.

Everyone will collect that total amount, but we are working across these three in terms of shifting those resources to really front load economic vitality, also recognizing that it kind of uh aligns well with capacity in terms of other projects being done and what are those priorities right now.

So we kind of also added in the actual and projected collections, but really just wanted to kind of continue this funding model that we established about last year.

Um and we're kind of still working under that for these next five, the first five years.

So I have a question, kind of doing quick math.

So I'm looking at the figure for economic vitality in uh 2025, 7.2 million, and you just gave us an 8 million, 1 million and another 1 million for priority.

So that's 10.

Those are things that we will have to also balance as we're providing recommendations.

And so some of these in terms of timing for some of the homeownership creation program, some of it's timed over like when they are going to need disbursements through the life of their project.

So while that number might look high and doesn't align, we're also going to be looking at when do we think those are realistic in terms of it might only be so much in 2025 and some of it might be in 26 and maybe some into 2027.

So as we're looking at applications coming through, we're aligning those with available funding as well.

Um so the next thing that we also kind of wanted to chat about, and this is kind of come up of kind of how are we kind of communicating these things and tracking things.

Um first and foremost, if you are probably gonna start to see some of these signs.

I think there is one out at Prairie Ridge right now, um, but also really recognizing what streets are so that they're clearly shown as that they're being supported through sales tax.

Um so you're gonna start to see more of these probably as other projects kind of go forward.

We worked with our communications team on identifying and making sure people were aware that what projects were being supported by through sales tax.

And in addition, if you go to um, this is from the city website in terms of city projects.

There is a local sales tax project um update where we're trying to make sure we're keeping everything up to date and where you see dashboard coming soon.

Um, we are working with our GIS team to build out a dashboard of projects as they come on board in terms of spending, where they're located within our GIS to be able to better accura um show where some of that information is and being able to click on it and show what the estimated budget, where it's spent, where the located.

And so you'll see this continually built out.

We've started building it out now.

It should be updated on the website pretty quick pretty soon.

We're just finalizing it, making sure we have all the accurate information.

Um, and generally this will probably be updated quarterly as we're verifying all of the expenditures that are coming in, but it will align with um all of the projects that we have identified.

Council member Keene.

Uh thanks.

I I I guess I'll hold my questions so you're through your charts.

Uh I was on to my last one.

And my last one is just a reminder that any of these things that we're talking about would come before city council for approval, whether they're in the capital improvement program or if they're separate actions, all of them will be coming for through city council.

Go ahead, council member.

My my first question is for uh Mr.

Naymar for public works.

Um, I want to make sure I am here in flood control, but I also know we have stormwater funds.

Are we merging those into one fund at some point or are they being managed separately and never the tween shall meet?

Uh they continue to be managed separately.

So flood control specifically focused on conveyance of stormwater or river water through the community, uh, whereas the stormwater dollars can go towards uh, you know, ponds and our stormwater system or collection system that takes it to the river.

So they're handled separately.

I I just want to make sure I'm good with that because when you talked about moving some of the million dollars into the flood control for land purchases, I thought some of that was for what I would have referred to as stormwater.

So, yes, okay.

So some of our land purchases um may have benefits to both, right?

So they can have benefit to water quality, and that's more of a stormwater consideration, but they can also benefit like flood retention, right?

So capacity to hold back water.

So in some cases, when we go and acquire a piece of property, they benefit both.

And there might be utilization of, you know, okay, different pots of money to make it just feedback for public works.

It's hard for me to see the difference now as we as I go forward when I picture, and especially with the development we're doing in Northwest and what is flood control versus it, it seemed to be merge.

And I don't know if we're just creating ourselves in a uh an accounting situation where we take them out of one or the other, but to me, they seem to be merging.

We work with finance and keep it very straight.

Very good.

Okay.

Uh question on home ownership.

Now, this was more for uh this woodwork.

Just I again, we specifically do homeownership here.

We're not talking about we're differentiating from affordable housing, we're differentiating from just economic growth and having enough housing for our community.

At the same time, we seem to be getting so many of our single family houses put into the rental pool.

Is that something we should be concerned about?

Well, I think one of the items when we look at the homeownership creation program, we do require that they remain owner occupied for a period of time and we recognize those.

I would also say as part of that homeownership creation, there is some more affordable type of units with it, up to 115% of AMI required, depending on the number of units that they're building.

So I think those are ways that we're also kind of reinforcing those and being able to kind of make sure that they're offered for homeownership.

I think overall there's kind of a mix of what is happening in the market, but these are ways that we can kind of make sure that we're maintaining them as homeownership.

Yeah, and I appreciate that.

I I think we do that, but at the same time, our city also has the rental licensing.

And I've seen too many situations where that idea of the, you know, we're building newer homes and trying to make them affordable.

But the true affordable housings are the ones that are, you know, in the older neighborhoods, and they're all being bought up for not for homeownership.

So I I have a concern and I'm hoping we could some find some ways to deal with that.

I I don't know what my peers share that, but I just wanted to get it out there when we're talking about home ownership.

And I would just note, I think that's also the reason of kind of partnering with first homes and putting some of homes in the community land trust.

It's also why um we kind of continue to invest in our housing rehabilitation program so that owner occupied can stay owner occupied if they need some of that work done.

And generally that is for lower income individuals to be able to support some of those needs so they can stay in their homes and maintain that.

So I think there's some other things that we're looking at in terms of like naturally occurring affordable housing and what does that look like as well.

Very good.

I I mean I do appreciate the programs we have.

I've seen, you know, doing this.

We've done other things through your neighborhood group.

So I I'm happy with that.

But I'm also seeing the number of what I would consider first-time homeowners non-supported through government, lose out on the bidding to uh investment grade things.

And and I don't know what our options are there, but I guess I'm want to get it into our discussion.

Um as far as the uh go ahead.

As far as the treasury the uh discussion here, I mean it seems very clear we're not gonna borrow based on something.

We're not we are preloading some of the economic vitality, but we're doing that by stepping back in some of this stuff.

Um but of course we're not talking about the sports uh this uh complex and that spending that would have treasury impacts.

And I don't know if we want to talk about that that well, I I guess my take is we can borrow against the sales tax like we did with the sport with uh park um when we have the park land.

And I I expect we're going to be in that discussion at some point in the next couple of years, because I I thought this would lead towards we might need to borrow to for front-end loading, but it apparently we're actually um storing up funds for for other purchases.

I I think right now with these three, and I'm only gonna speak to kind of these three that we're kind of looking at being able to front load this is kind of making that work in terms of priority and really front loading some of that economic vitality.

Um, we continue to have these conversations as we're looking at each year of like what needs are and being able to balance those.

And and right now, we believe kind of this this process is working really well.

Good, good.

I I appreciate it too that um that where we're at that.

Um I I did have just a comment just on the marketing and the branding.

I think that's good.

I assume that's during construction, and we're not gonna try to maintain it into the into operations.

Uh for the economic vitality, it's through construction to being able to demonstrate so people know that those are attached to it.

I would lean to you for the signs.

Um the the streets project, we do intend to leave those signs there for certain period of time.

We haven't determined how long yet, um, but those are going to be a more permanent sign on either end of the projects as we complete them, just to remind the public of what their sales tax dollars are going to.

So very good.

They'll be in place for a little while.

Yeah.

And again, just we I know you're talking about the three projects today.

We really have four projects overall, but I would group two of them, like the economic vitality and uh the works going on for the sports things.

If but for the sales tax, we wouldn't be doing those.

The project's public works talks about, we would be doing this work whether the sales tax passed or not.

So I mean, I give credit to the fact that we have that money, that we're doing it through sales tax, because I think we'd be having levy discussions if we didn't have it.

Yeah, and I think it is important to note though that they wouldn't be happening on the same timeline, I don't think right.

So maybe that's what you're getting at.

Yes, I'm getting it.

We're able to maintain our AD rating and we're able to do some of the storm.

I I was worried we were going to be like raising our fees for stormwater as I looked out into the next couple of years.

And now with this passage of the sales tax, we don't have to do that.

And I I think that's important to the rate the ratepayers and the and the levy payers of the city of Rochester.

Yeah, we uh I will note though that we still have that street funding shortfall of you know, something something's gonna have to be done at some point, but this does help.

Yeah.

Thank you.

Count Councilmember Wall.

I have an observation and then a question.

Uh two days ago, I uh toured the parade of homes of those in Northwest Rochester.

And while not coming from this pot of money, uh ran into two homes where uh the realtors were uh telling that uh there was reimbursement of fees, which made uh the homes more affordable for the uh uh prospective homeowners.

So I was really happy to hear that.

Happy to hear that the realtors were actually speaking on our behalf and the things that we are trying to do to uh make homes more affordable.

Um I'm probably less impressed with the signage than maybe Mr.

Keene.

Uh uh I I suspect that all of this uh comes from sales tax money as opposed to developer, for instance, Prairie Ridge.

In terms of the signage.

Yeah, that we will pay for the signs.

The signage came from, yeah, the city resources.

And do we do we have any way to quantify uh expense versus uh the value that we get from that?

I think one of the items that we really wanted to do was highlight the program and recognize the the contribution of the homeownership creation program and recognizing that this is kind of still new.

We wanted to make sure that that was out there and highlighted for the community to see and equate that to kind of that sales tax funding.

So I think we value it, it's pretty important to be able to kind of show that and be able for people to understand that that is where the funding is coming from.

Okay.

And so I I would just caution that uh we we try to do uh this as frugally as possible.

Um it it comes from personal experience, uh, doing about a seven and a half million dollar project some years ago, and we were trying to find ways to uh meet our budget.

And there was this $10,000 item in there that says sign.

And what is this sign going to say?

And it actually was a sign for the developer.

And we said, oh, well, we're not paying for that sign.

And so that sign never was put up on our property.

Um, not believing that that was going to make much difference to us.

This is different.

I know that the public is uh helping to participate, but um, I I would just love to be frugal.

We we certainly also want to make sure that we're they do not extend their probably much less than that um in terms of what it costs.

And it's also based on the size too of the signs.

So that's part of the reason the city is doing it to figure out we have certain signs we want to use for economic vitality and then the certain street signs as well.

So understand.

Yeah, I was just gonna note the same thing that the the cost of especially the street signs are nowhere near the scale of what you're talking about.

So relatively small investment to help communicate to the public, we think.

Councilmember Miller.

Thank you.

I'd like to go back to the point that Mr.

Keene raised about our um sort of housing access, because I've heard many times over the course of our discussion of economic vitality and before I was on council, this theory that maybe the housing that's created through the sales tax and some of the supports is not that first access to housing, but allowing people to step up into new housing and free up inventory in that starter home most accessible.

But I I very much share Mr.

Keene's concern that if that inventory is taken off of the market as naturally occurring owner occupancy affordable housing, that we are losing um a key piece of that equation.

And so I I went back to our action plan and I see a consideration of short-term rental policy.

And it's I believe that's true that we're losing some of it to short-term rentals.

I worry that we're also losing quite a bit of it to longer-term rentals, uh, understanding that the same people who might access that as owners are now forced to access that as long-term renters who would like to otherwise buy what are outbid um by cash offers, by private equity, by other sources of corporate ownership.

And I I have really major concerns about our theory of the case.

Um, if we're only supporting that sort of next step and not ensuring as much of making sure our policies stabilize neighborhoods.

Yeah, and I would just note that I think partly what we're looking at is we need a number of housing units in terms of supply overall, so that we have a continuum of options.

And so we are have identified different areas and different partners of where that looks like and being able to make sure we have all those different options so that in theory, our goal is to get somebody that might be able to move up into another house and be able to capture that as well.

And so those are the discussions we're also having with the coalition in terms of where do our other partners kind of align in some of those.

So, how do we do that as an overall approach?

And I guess my my comment would just be that within our action plan, I would love to see us understand the impact of that.

I know there's been some statewide legislation proposed of even just disclosing like a rental registry, and it's my understanding that we could do that.

And it's my understanding that we could do that.

Um what like we have the majority of the data elements.

We just don't make that publicly facing.

And I would love to see, and I'll open it up and would share the invitation that Mr.

Keene has offered of hearing from my colleagues about an appetite to how we better understand the issue and also report the issue regularly.

And I'm very curious about a rental registry, just to make it clear.

Um, how many properties are are you know exist by neighborhood or by area in the uh single family long-term rental space and who the owners are.

Yeah, and I think that is one of the action plan items in terms of short-term rentals and what does that look like?

And that is something we're building out in terms of steps, and I will be providing updates to council as we kind of move forward with that.

Thank you.

I just reiterate that I'm curious about long-term rentals too, not just the short term.

Mayor Norton.

I think the point that I was gonna make is covered thoroughly by the these two.

Um, I have concerns about it as well.

And I do hope we can do both short and long term, because they are being purchased by people who don't live in our community and we're losing the benefit of having people move into properties that uh we say we're freeing up other property, but if that property is being purchased by a corporation and the prices raise, we've lost homeownership opportunities as well as uh cost savings for folks thinking they could get something affordable.

I I wanted to get back to something that council member uh council member keen uh brought up, which is kind of bar borrowing against each fund.

And uh at some point, I think we should have a more of the discussion on that uh because I mean I like how we have them in in their distinct uh categories.

And I guess my concern would be well, I've got two concerns.

One is it's it gets us front-loading funds and not looking at the long term, which gets to my second point, which is how do we uh make sure that in 2026 economic vitality, we've got four point three million.

It looks like we're already looking at potentially committing two million of that for very worthwhile um endeavors.

How do we make sure that we're leveraging the funds that we do have to get the maximum rich return for it?

Uh and and in particular with the economic vitality fund, but uh the same with flood control and street street construction, you know.

I mean, we have a 20-year glide path to kind of bring this these funds in and use them.

And I don't really want to see us kind of using using them all up early on.

And I think what we're looking at for economic vitality, and it's probably the reason we're kind of doing these updates is like here's kind of what we're proposing.

Here's what we're seeing.

So that if there is some change that we need to make with any of those, that we have that ability to do so.

Um, but right now I think what we're seeing was that need for the homeownership creation and some of those moving forward.

A lot of what we also do with all those applications is really look at each one in terms of what those needs are.

Are there other sources of funding?

Are there other partners?

How does it really work together?

And that's part of that analysis that we're doing with each of those applications before they come before the council for any type of approval is really looking at what what does it what makes sense and how does this align with the priorities that we're seeing?

And so I think we will continue to do that analysis.

And I think if we need to make a shift in something, we would make that recommendation.

And I'll just add from an accounting standpoint that we're being uh very intentional about tracking what's actually been collected as well as how much has been spent against um how much was supposed to be dedicated to each individual pot, right?

So going forward with streets and flood control, even though we're prioritizing economic vitality right now, there is intent to pivot uh some of that emphasis back to those and spend more on those in future years, then we start spending towards the collection that was set aside for those pots as well.

Got it.

Thank you.

Uh any more on this topic.

Thank you both.

Yes.

We're gonna move on to uh our almost weekly now RPU uh uh presentation.

They're gonna take all the time until you get out of this community room.

Mr.

McCullough, go ahead evening, council president, mayor, council members.

You stole my line.

I was going to note that I've did miss one meeting.

We weren't here on September 3rd after Labor Day, but otherwise, this has been a constant topic here at council.

I am here to talk about our power supply resource plan tonight.

I bring, I think both good news and hoping to frame the remaining challenges ahead.

I have 48 short slides for you.

So this should be a very quick conversation.

I hope that's a joke too.

It is a joke.

Okay, thank you.

Let's start with the bottom line up front.

So to summarize, really the discussions that happen has happened over the last month.

We have a budget that needs passed.

That's material to the decisions ahead, even tomorrow night at the RPU board.

We are in the midst of authorizing renewable energy power purchase agreements, one of which you saw before you last week that we're starting to move forward on, and two more that I hope you will see next week to finalize this package of renewable energy investments.

So we still are on track for that.

We're tying up the final details there to be able to move forward in a timely manner.

And new news, I think, since we published the packet is we have the results of the community survey in.

We've done quite a bit of engagement over the last month, two months on having a discussion about the renewable energy goals in light of the challenges that are ahead in the energy sector.

And it is my recommendation, also in discussion with the RPU board chair and vice chair.

We formed a recommendation that'll go in front of the RPU board tomorrow night to consider a resolution to reaffirm the 2030 100% net renewable goal, which is the goal as it is today.

And so it's it's continuing on with our current progress, but also putting some language in place with the resolution that names the challenges ahead as well.

So that is uh kind of the bottom line up front.

Um to frame this in context of RPU, RPU has been around for over 130 years as a publicly owned municipal electric utility.

And we're in a very uh, we're talking about a narrow narrow focus of years in light of 130 years of history.

There have been some significant transitions that have occurred in past history, both entering into our current contract with the Southern Minnesota Municipal Power Agency, the decision to build Silver Lake plant in the mid-1900s, the decision to retire Silver Lake plant in the mid-2015s.

We've been through significant phases and shifts before as a utility.

This is nothing new.

Um, and there's probably periods of history that we can point back to and put the right people in the room of decisions that were probably of higher significance than we're talking about today.

So just to frame that in light of the history of RPU.

Um, this is the business that we do.

We plan to be a utility for the long term for the residents, uh, the customers of Rochester.

And I think there's a high value for us.

I do have a specific self-interest in that as well, but I do think the public power model, the model of uh being able to deliver this at no-profit motive and directly serve our customers here in the community is uh a strong value that we should retain over the long term.

So we're talking about our future, the next 20, 25 years and beyond here tonight.

So also bottom line up front.

Um I've been communicating our plan really in two distinct areas, the reliable capacity needs and the renewable energy needs.

And we have a 2030 deadline on both of these endeavors here.

Um the bars at the bottom are intended to show you progress towards securing our 2030 goal.

On the renewal reliable capacity side, I didn't plan this, but um the decisions that we have already made on moving forward with Mount Simon Station, which is our intended next generator here in Rochester, as well as the both capacity and renewable energy value of the wind contracts have placed us in a position where we have secured two-thirds of our capacity needs going into 2030, and we've secured two-thirds of our renewable energy needs going into 2030.

Those decisions are already behind us.

We are making good progress towards that goal.

So we have some remaining decisions to be made.

The blue hashed marks there, that's the remaining capacity that we need to secure.

Um, we need to find sources of capacity really for the summer um months is the driving capacity season for us.

That's when our peak loads are.

And unfortunately, renewables do not meet much for capacity needs for those summer months.

So we have to look for other forms.

Um we're looking for battery storage and or natural gas firming generation, like plants that we already have today as the two options.

That decision needs to come over the next four and a half years.

We're actively seeking those projects right now.

I'll get into those in a little bit of detail later.

The wind contracts that were before you last week and coming next week in aggregate will put us in a position to meet about 70% of our annual renewable electricity needs annually as soon as those projects come online.

The soonest that we believe they'll all be online is about 2028.

If project schedules hold and we can successfully get these across the finish line, that's earlier than we had intended, and it puts us in a position to meet our renewable electricity goals in 2030 and beyond.

And I'll cover that just a minute as well.

So we are making great progress towards the power supply resource plan.

Council member, oh, you're gonna you're gonna wait till he's done.

I guess I'll ask the question then if you already plan to address it.

That's great.

I I'm curious about demand response and what role you see the utility playing, what role you see residential and commercial customers playing in that and where we are today on possible strategies.

Because I assume that capacity, when we talk about it, it's not an all-day capacity increase.

It's a it's a higher peak in certain seasons.

And I'm curious about how the consideration of shifting that demand to a just the peak fits into the strategy.

Great question.

Um, and it's really not displayed directly here because it's assumed in this.

The top line there, the summer bar has a capacity need of about 290 megawatts.

That's about our summer load.

Without our current demand response, that would be about eight to 10 megawatts higher.

We already utilize demand response in the form of some interruptible contracts with some large industrial customers, our thermostat program.

We have some behind-the-meter generation that we can use to shape load.

So it already exists there, it's just not front and center.

Into the future, demand response plays a critical role for us in managing increasing peak growth, specifically electric vehicles, uh, something like a time of use rate structure that we have in place that customers can take advantage of is a great solution to save both money and reduce demand, where electric vehicle driver owners can charge off peak, not any at any additional demand in the afternoon.

Depending on the rates of electric vehicle growth, that becomes an important piece of this future.

It's not displayed front and center here, but it's a key part of our strategy.

And as capacity costs go up, the value of demand response goes up.

And so it's something that we're continuing to assess into the future.

And I guess a follow-up on that, we've we've talked a little bit about other community programs, and I wonder about the other aspects of just um either the building energy use and reducing that demand.

How might other programs or complementary programs of the city impact that demand need or the capacity peak?

Yes.

So the the bar at the bottom, continued uh conservation is a critical part of our strategy as well.

I didn't include the slide tonight.

It was one of the choices to fall on the cutting room floor.

But our conservation program over the last 15 years has reduced our demand to the degree that we have not had to build two small power plants here in Rochester.

It's a critical part of our future strategy to uh make the highest and best use of the infrastructure that we have, mitigate the peak demand growth.

Um, and so it's it's a it's a key part of that as well.

It's just not front and center here as a part of that.

And I guess I'm curious because I assume you're talking about LED bulb conversion as a part of that conservation.

And those costs have come way down, but some of the other projects that would reduce demand are much more expensive.

And you and I have had separate conversations about um financing programs, and I was even curious about other municipal utilities, and you talked about Fort Collins.

They have a city program to finance home weatherization, renewable energy projects, et cetera.

Are there opportunities either within the utility or with other programs to think about the financing needs for customers who might otherwise make a choice that doesn't reduce their energy use, whether in a residential or commercial setting, and should we be thinking about that holistically as a strategy to help mitigate that peak?

Sure.

Um, I could probably spend another hour here tonight going through the programs that we do have that exist today.

And I do believe we have a version of on-bill financing that applies to certain customer segments today.

I think on the commercial side, but generally, if something consumes or uses energy, we have a program for that.

Um there's an app for that.

It's kind of the same moniker there.

So if if I may, um, maybe we could come back another time and touch more detail on some of our consumer programs and for the sake of time, move forward today, tonight.

Um we've had some significant challenges over the last year.

Um, we like to call them the four horsemen of the resource plan um tariffs have been a significant impact, both direct tariffs that have reshaped some of our decisions, and some that are now showing up in our supply chains that are indirectly applied from goods that go into the goods that we buy.

So, this is one of the reasons that our costs are projected to go up over the next five years is the impact of tariffs.

That's very much a short-term acute issue right now.

We do believe that, or I think there's a good chance that those may relieve in the future.

And so that's one of the short-term cost pressures that may go away in the future.

Inflationary pressures, the cost of construction, the cost of labor, the cost of materials have just gone up.

We've seen that across many of the citywide projects.

We've seen that particularly in the energy sector.

Um, copper, aluminum transformers, we're a heavy commodity-based uh business, and we've seen quite a bit of pressure there as well.

That's the reason that the future looks more expensive than the past as well.

We've seen shifting regulations, interpretation of tax code, and really the largely vacating the inflation reduction act benefits towards renewable energy by 2027 has caused us over the last year to have to uh reassess all of the major assumptions in our 20 year financial forecast.

You might have uh looked in detail at this slide or self-studied on these, but this slide is really intended to talk about the major players in the inflation reduction act.

Solar tax credits at the utility scale phasing out by the end of 27, or you have to start construction by next July 4th.

Same for wind.

New rules on battery um foreign entity of concern rules that we really don't know how they're going to be interpreted fully yet, makes us um question some of the costs of future battery storage, as well as some new guidance on what it means to start construction and a newer tariff announcement that for wind, particularly imported goods that go into wind turbines could be facing up to 50% import tariffs.

There's still some of these that may show up that we don't have currently priced in as well.

Might have wondered what this slide is all about.

But if I reflect over the last year of all the different things that have happened and put them on a bingo card, this is kind of the landscape of risk that we've seen over the last year.

And I don't I don't care for bingo myself, but if you play the game and you play trying to get all the squares, it's called blackout.

So this is a bit of a pun.

We're trying to avoid that blackout.

Um, but just to give you uh a high level view of the things that have happened that have caused costs to go up or schedules to change, that's the environment that we're in right now.

The majority of these things have happened already, and this is what has driven some of the cost assumption changes.

There's still a few points of good news here that have not landed in the way that we expected or thought them to.

And so it's not a full um blackout game here, um, but just meant to frame kind of the broader challenges that we're having.

Let's dive into renewable energy.

I believe Councilmember Miller.

Go ahead.

I'm sorry, just a quick question as we think about long-term planning.

Could you talk a little bit more about increasing demand and natural gas sector?

Is that a short-term, long-term?

How might we understand that?

Sure.

Um the firms that we use to help um do some of our forward gas marketing and forward um bidding are showing increasing demands of natural gas into the future and a higher or mid-cost environment for natural gas over the short term as well.

Um, so we do think that's an area where costs are going up.

Uh, the cost of natural gas that we buy is causing that generation price to go up a little bit.

And the scarcity of natural gas in future environments is also a risk as well for us that we're managing.

And I guess just a question as we talk about renewables and purchasing at a fixed price for the long term.

We do we have any hedge on gas prices?

Well, renewables are a good hedge on gas prices.

But on our cost, are we buying it at roughly a the market goes up, goes down, we're we're subject to the cost that's out there, or do we have some sort of predictability or stability in our gas?

Uh so there's two factors of this.

There's the gas that we buy, and that's the gas that we currently buy on the spot market.

We don't lock into any long-term hedges on gas.

That's really a factor of how our natural gas peaking units run.

They get bid into the market based off of the cost of gas tomorrow.

So it's not critically important for us to have firm gas.

And firm gas contracts often come with an obligation to buy that we don't want.

So putting our own gas consumption aside, uh, a separate issue is there's a tight coupling between the cost of natural gas in the region and the cost of electricity in the region.

And that's where we spend a lot of time trying to predict what the forward energy market costs are going to be and what gas is going to do over the next years is a critical input to that.

We are modeling a middle tier gas environment with a sensitivity both higher and lower.

So all of these models are valid to some degree, but they're also wrong to some degree as well.

Um, maybe more generally, it is a best position for us to be to have a broad diversity of resources, not only all gas, not only all wind, not only all solar.

So our best position is to spread our risk over all forms of generation.

And that's really our resource plan in a nutshell, trying to diversify our portfolio, emphasize the renewable energy components of that as a part of our resource planning goals, and um try and eliminate future risks where gas could have high cost um impacts.

Okay, this is a new addition.

This is the background behind what I said earlier that we're 66% done.

So if you take between now and 2040 and say, how much renewable energy do we need by the end of 2040?

We have made a decision today already with these renewable contracts to secure right around two-thirds of that.

Um, so we still have more work to do on renewables to achieve and sustain a hundred percent goal over the long term.

But we're at the lower right-hand corner, that's 66%.

That's how the numbers fall out in our projections over this period.

We're about two-thirds done with renewable energy.

More work to come there.

Um, so we've adjusted our plan.

What we're doing now, we we were previously projecting to add renewables in 28, 29, very close to 2030, but because of the tax policy changes, we're accelerating that, trying to take advantage of the tax credits while they're still available to us, which means we're hoping to bring wind online as soon as this year, with it really stepping up in 20 late 27 and early 28.

That puts us in a position to build a bank of renewable energy credits.

And I'll show you a later chart here that that's a key part of buying us some time to make some future decisions as well.

Um, we have ruled out solar, at least at the large scale from our portfolio in the short term.

Solar in particular has had some strong cost escalations that has just taken it out of the realm of what we believe is prudent at this point.

We'll come back to solar.

We're continuing to assess local distributed solar, uh, local ground mount solar as some options, but the costs are still high for those as well.

So we are working actively to add solar into our portfolio.

It's just not at the recommendation at the moment.

Over the next years, you're going to see a lot of these type of balance diagrams.

I want to emphasize that in all of these scenarios, we're making significant progress in reducing future greenhouse gas emissions.

And we also have to comply.

And so this is more of a compliance to say, yes, we hit our goal or no, we didn't hit our goal.

As long as the line that says rec balance is going up or it's above zero, we are meeting our goal.

This is an example of a theoretical portfolio that we would have showed you a year ago.

Renewables that go above our 100% goal over the long term.

Since we've only added about two-thirds of what we need, this forward look is a little bit different right now.

So this is the ideal case.

Um, that was our resource plan a year ago.

Um, this slide uh just uh council member Miller.

Sorry, just a quick question.

Is that renewable energy bank just major projects or are customer-owned projects, solar panels on houses?

Just is there any impact of that there?

If if I could park that question, I'll point those out on a later slide.

Um I'm gonna just walk through very briefly and we'll get to that slide maybe in four slides here.

So um regarding our new additions of renewables, you've heard about Adams Wind.

You uh you all approved us to move forward with that one last week.

Um, and so the next two are Dodge Center and North Hills.

They'll be coming back October 6th for the finalized agreement.

We're very close to uh dotting I's and crossing T's on the form of agreement ready for your approval on those.

And uh those two wind one and wind two projects, that's atoms and uh Dodge there, and then wind three is a North Hills project.

Um, the first two wind projects are existing turbines that are hope hopefully going to be repowered and have life extensions on them, but we get to take the offtake off of those as they're producing now.

So it gets us some early renewables and more of a sure thing.

The North Hills still has a lot of development to happen.

They're ready to start construction, but they still have to get them built and get them connected.

But they're in a position to do that.

So here's where I can point out some of those things.

There's a small slice right around 2027 at 40% that says DER.

And this slide on the screen is different than was in your packet.

I apologize.

I've made some amendments to it here.

DER are distributed resources.

They make up a small but mighty, I would say, portion of our portfolio.

They are an important piece of it.

We partner with customers through net metering arrangements, but they're relatively small in the scale of the overall renewable energy volume that we have.

And if you put rooftop solar on every business or every house, it would still not even be close to being adequate for the overall energy needs.

So they are here.

They're just in such a small fraction that they don't make any material change to it.

And this is kind of a business as usual case as well, just slow and steady growth in which we see.

So an earlier version that I gave you of this chart represented, didn't represent the renewables that we get from Simpa today.

We're at 25% renewables today.

That's aligned with the state statute renewable energy standard.

All of the Simpa members, including Rochester, get that 25%.

So what we've been showing you is what we get above that right now.

And it's our intention to bank that early renewable and use it in 2030.

So we'll be making about 70% of our needed renewables each year.

And then we can draw from this bank for the remaining 30% to hit our 100% goal.

But you can only do that for so long before your bank runs dry.

So we're in a position right now that we can meet our goal and sustain it for about 10 years.

Um give us some time to further develop the other parts of our portfolio to add that last third.

So those banked recs are really that piece of how we can hit our goal and sustain it in 2030.

In 2034, that's about the time frame that what we currently have in our portfolio.

The bank runs dry and we need to add more.

We would be looking for another wind project of about a hundred megawatt scale or a solar project of about 200 megawatt scale or some combination of those two.

Or if we have any option for other sources of non-carbon energy, like nuclear, that could fit in a future portfolio as well.

So it gives us some option to fill in the rest of that portfolio in that 2030 to 2034 time frame.

I have a question on kind of long term.

You you mentioned a few times the battery uh piece.

Is projections in the industry that that may be an option 10, 15 years from now?

Uh batteries are an option probably sooner than that.

And that's over in the capacity side of this conversation.

Batteries inherently are not a source of generation.

They're not inherently carbon or renewable.

They just store energy and move it later.

And so they don't show up here, but they show up later in the capacity option.

And I'll get to that kind of what we're exploring on the battery side of things in a few minutes.

If you'll give me just a few minutes to get to that question.

I do want to highlight here in the lower right green area.

Um, I think we've been transparent and tried to share that bringing on renewables early puts us in a position of kind of a high higher risk scenario 28-29, where we have some duplication of costs.

And so that risk scales somewhere in the two to 30 million dollar per year range, depending on what the cost of gas and what the cost of the market is in that time.

I'm not going to bore you with the nuance of the details, but we I want you to park that uh idea that we have a higher cost environment coming in the 28-29 timeframe, because it's important for a later part of this recommendation as well.

Um greenhouse gas emissions are one of the key outcomes that we're trying to reduce or bring down with this portfolio.

So this is the carbon-free standard greenhouse gas reduction.

So this represents the 60%, 90%, 100% case of the Minnesota carbon free standard.

I put this one in or kept this one in because this closely approximates the volume of the renewable energy that we have secured or is included in these first three wind projects.

So if we do nothing else, which I'm not saying we will do nothing else, this is the greenhouse gases reductions that we will see with the decisions already made.

These could be further reduced in the 100% by 2030 case by carving out more of the greenhouse gas emissions in the 2030 through 2040 time frame.

So this is a, I think a good news story to tell.

We'll have coal going out of our portfolio by 2030 when we exit SIMP.

We'll be bringing online a significant package of renewables.

We will be adding some peaking generation, but it comes at much lower carbon intensities than coal, and it runs at much lower capacity factors than big units as well.

So we are poised to make some significant reductions, up to 90% reductions by the 2030 time frame with decisions that we have already made.

Council Member Miller.

Just a question on that slide and what we might expect going forward, because I notice effective GHG emissions is the title there.

What might we expect is possible for actual monthly emissions and like where what the carbon intensity is, what the sources are?

Is that possible with the data that we have available?

Umly partly so to I think to get to what you might be asking for.

There are other utilities out in the world, Excel Energy here is one example that publish hourly carbon intensities.

Um you can see it on their website.

Um as an energy market actually has a dashboard that we could see that today.

We buy all of our energy from MISO.

And so there's a good approximation that we can point to already today of what the market carbon intensity is.

Regarding our own portfolio, that's a little bit harder of a story because it requires us to have some data streams that we don't currently have built today.

We we have all of our own generation.

Yes, it comes into our computer systems, that would be easy.

But what we don't have is the hourly streams of data coming in from all of the Simpa generation and largely connected to the energy market.

So to do that on our actual very local portfolio is quite a bit of uh more back end work.

We're not currently resourced for that.

Um, it's something we can consider down the road, but it would take uh quite a bit of effort to put this in place.

Is it more possible once the SIMPA contract is no longer part of our portfolio?

Yeah, it's yeah, by 2030, when all of our own generation is there, it's almost trivial at that point.

It's something we can put on a long-term roadmap.

It would be more difficult to do today in today's environment.

Okay.

Yep.

Okay, capacity considerations.

This on the left is how much capacity.

This is the how much of the renewable projects can meet the capacity obligations we have in the market.

And we were expecting to get about 70 megawatts of winter capacity out of that ideal portfolio a year ago.

Since that time, we've reduced the portfolio size from about 350 to 245.

So there's just less wind in the portfolio than projected, um, at least in this first iteration.

And the market has said renewables is worth our worth less for capacity in the future.

So we are planning to get about 50 megawatts of winter capacity out of this renewable portfolio and roughly about 25 megawatts of summer capacity on a total portfolio of 245.

It's about 10% of that.

That sounds great, but then when you look at the line of what we need for capacity, there's a big gap there between what renewables can provide versus what we need.

The question there obviously is how are we going to meet that gap?

Our existing portfolio of peaking generation here in Rochester is a key part of that.

Um, it gives us both local resiliency and uh some cost control.

And it also meets our capacity obligation needs.

So the existing portfolio plus the Mount Simon station, up to 50 megawatt unit, plus the renewables puts us in a position where we still need, I would say on average, about 100 megawatts of capacity.

This is where we're considering batteries as one of the capacity options or other capacity products.

We do need to secure this in the next four and a half years or an active conversations.

We we did put out a request for information last December with our renewables for capacity as well.

So we do know that there's indicative pricing on batteries that might make sense for us to use batteries in the short term for that.

And we do uh expect to need another longer term or medium-term capacity contract beyond what we can build here locally.

So we're part we're pursuing a capacity contract with another utility, potentially a joint build of a physical facility outside the outside of Rochester, partnered with another utility.

It could come back in the form of a partial requirements type contract with another wholesale provider down the road as well.

Any one of those options could help us meet that reliable capacity need.

Um we'll probably by this time next year, we'll have more clarity of what that actually looks like for this remaining hundred megawatts.

Um, this is the same analysis that shows how much capacity we need each season in 2030 versus what we've already decided to build or secure.

We're at about two-thirds, 67% of securing that.

So here's that remaining third that we still have a decision to make.

This is at least the numbers behind that statement that I made earlier.

Um, what have we done so far?

We've taken several steps on building Mount Simon Station.

We've ordered the engine packages.

We've initiated an application for interconnection with the energy market.

We're in the early phases of air permitting and site permitting activities and doing the final facility design.

The commercial operation date target for that facility is spring of 2029.

We're targeting to have it online before our exit from SIMPA.

We would like a year of operation under our belt before we get to the end of the SIMPA contract term.

You've also we've talked about GT1, our gas turbine that experienced a fire.

It's a valuable part of our portfolio.

We are pursuing right now a rebuild or restoration project on that.

And the remaining capacity is coming, like I said just a minute ago, capacity or supply contracts.

This is how we measure capacity.

It's a similar colorful chart that shows you what you need each year.

As long as the bars are above the line, you're meeting your capacity needs.

That blue section in the upper right is really the current challenge that we're trying to solve for.

And you can see how much of our current capacity needs is met through SIMPA.

That big tall purple bar all the way up to 29 and 30 is what we get from SIMPA for capacity.

And to be fully transparent, that's the most challenging part of our resource planning work right now is the capacity side.

The renewables are actually a little bit easier and have been easier for us to secure.

So this is where we spend the majority of our time right now, is trying to secure the remaining capacity.

Just to outline what we have today, Mount Simon Station is the project in development.

You're actually seeing a picture there of West Side Energy Station.

We are intending to interconnect that facility at the same substation.

So on that site is where we're planning to place the additional engine packages.

It's a four-year start to finish project.

Because of those timelines, we had to make decisions starting last year, which we have done.

And we have started the teardown and assessment of GT1.

If we can bring that back by next year, which is our goal, that would reduce our bonding needs in 2027 by about 60 million dollars.

And so that's a that's an important factor of our future costs as well.

If we can bring our borrowing costs down in the short term, we can shave about $5 million of debt service out of our budget each year in the next few years.

So we are working hard to make that a viable option.

These are more theoretical at this point.

These are the two forms of capacity.

Battery storage would look like that picture on the lower left, uh, shipping container size installations.

They need about a hundred foot setbacks from other structures.

So we're looking for where those can be sited, where they could be placed, where they could be interconnected.

Um, there are some very favorable pricing on battery storage projects, especially compared to some of the natural gas peaking generation options.

Um, but the challenges there are are you going to get the tax credits for them or not?

So we're planning around maybe not getting the tax credits because that seems to be the tax policy environment that we're in currently.

And also it's important what the market says those are worth for capacity.

Right now, a four-hour battery meets your obligation.

We believe by 2030, it's probably more like a six or an eight-hour battery, which adds 50 to 100% cost to the installations today.

So the cost of batteries can have some wild swings until we start seeing more clarity on tax policy and accreditation.

They also are quicker to build.

We can get those up and going in a two to three year time frame.

So we have a bit more time before we need to get them in the queue.

Another firm dispatchable existing or new build unit of a gas turbine facility is probably a likely type of project that might be also needed as well.

So this all costs money.

And so it's important to understand how this will impact rates.

We start with a 20-year financial forecast.

To boil this down, we worked on a series of four scenarios, and each one of those scenarios was the same portfolio.

It was just do we build it ourselves and borrow up front, or do we contract with somebody and pay them over a 20 plus year period?

And so shifting those in or out of buy versus build is really what the difference between scenarios one, two, three, and four were.

Scenario five was an alternate case that followed the Minnesota Carbon Free Standard, and it achieved about 75% renewable volume from the period of 2030 to 2040.

And so it just had a little bit less renewables and it was a lower cost pathway there.

The major differences being the yellow highlighted there.

Also, notice I've been saying words like 245 megawatts of wind and no solar.

This scenario was built on 200 megawatts of wind and 100 megawatts of solar.

So even our 20-year forecast was built on a theoretical, and we've made some decisions that have shifted it from there.

All of these are our financial targets in which we build a forecast.

They're very conservative from a they're fiscally conservative on uh cost of debt at 6% and maintaining good strategic financial plan targets to maintain our bond rating.

So not many of these assumptions have changed, but this is all the inputs if you have particular questions about those.

Um, and and we build this on the conservative side of the uh fiscal view as well.

All of these lines represent the the revenue requirement of all of those decisions.

You can see there's one light blue line that kind of has a lower trajectory.

That was the Minnesota Carbon Free Standard.

We're not necessarily following that line right now because we've already secured a little bit more than that with renewable.

But the other four, you can see all have different rate requirements in the next five-year period.

How much we borrow and how early we bring on projects between now and 2030 sets this rate trajectory we need to be on.

Um so really to bring this down to another level.

Um, there's still some risks that can show up there.

These each of these charts are a risk case, a sensitivity analysis.

And the four bars that are pretty closely together, they're they're all kind of the same, but you can see the blue bar on the higher risk scenarios is the low cost.

That's scenario four.

That's a little less battery.

It's probably waiting more on the natural gas capacity side, because if you lose tax credits and the battery accreditation goes the wrong direction, that becomes a higher cost scenario.

Here's where the rubber meets the road here.

Um, the survey that we developed was based off of the difference of scenario four and scenario five.

We've asked the question of our customers 4% a year or 6% a year.

The 4% a year was intended as this lower cost pathway, kind of slower pathway of adding renewables.

And that is the trajectory we're on right now.

We can bank rec, we can make some later decisions.

And so most people would assume if you're going to go the slower route, if that's what the survey said, then maybe you should pick the 4% rate scenario.

But what we've seen in the last month or so is tariff impacts show up and some market risks show up.

So we're projecting that in 2028 and 2029, um, the costs are going to be what they are.

And we can set base rates at a certain level, but we also have to collect through a power cost adjustment some of those market risks.

And so one goal that we try and maintain is our power cost adjustment that is a flow through on the retail bill.

This this is a charge that shows up based off of the market cost of energy.

We're projecting scenarios where that could in the 4% rate trajectory that could get into the upwards of two to three cents per kilowatt hour.

So we would have an effective rate of about in that case, probably 17 or 18 cents per kilowatt hour.

So what we collect through the base rates can help mitigate the power cost adjustment.

So it's my recommendation that I put before the board is for the board to consider adopting the 6% rate scenario in 26 and 27 to help mitigate some of that power cost adjustment risk that we expect to be there in the midterm in the 28 and 29.

Because we've already made these decisions and uh we're already on this track.

Uh it really the decision is how much do you collect through base rates and how much flows through the power cost adjustment.

We think it's a more transparent pathway to collect it through base rates, knowing the costs are there.

It still leaves a little bit of risk that can be managed through the power cost adjustment, but that's why you see the 6% recommendation that's in front of the board tomorrow night as well.

So, in summary, the recommendation that the RPU board will be considering tomorrow night is a resolution which many of you may have read already, it was included in the packet that published last Wednesday, along with this packet to reaffirm the 100% net renewable by 2030 resource plan target.

Also to affirm the approach that we're moving forward with of banking some recs and meeting our compliance needs in 2030 with a banking rec strategy.

Um also provide uh direction to staff in that resolution to continue advancing the renewable plan while balancing reliability rates and responsibility.

And we do need to make a decision the board does on noticing customers of what the rate changes would be in 26 and 27.

And so that's a decision for tomorrow night as well.

I will save the future rest of the slides for if there's any questions.

And with that, I would love to pause and see if I have left anything unaddressed.

Uh council member Doran.

Can you just talk about the sample size of the survey, community response survey results, things like that?

We had great response for the survey.

We sent out, I think over 47,000 emails.

Um, and we received 1,900 and change uh responses, which is a much higher response rate than we get from the majority of our quarterly surveys.

We have some very um passionate customers in this space, um, but it is also relative to our whole customer group, it's a relatively small size.

So it's it's uh we believe it's statistically significant, and we have demographic slices in that so we can normalize it to the community demographics, including uh income level and uh age grouping.

And so the slides will be presented to the board.

But in summary, um, about 70% of our customers believe 100% renewable electricity goal by 2030 is an important goal.

When it comes down to the question of pacing and cost, there's a slight preference, about 60% that said go a little bit slower, try and mitigate some of the cost impacts there.

And so that's the general direction that we had.

Um so that that's the survey boiled down to a nutshell there.

So I believe the recommendation follows that we're trying to uh affirm the 100% goal, which we believe most customers would want, and trying to go a slow, slower measured pace and not try and secure all renewables before 2030 when we have a little bit of time to make some decisions.

Other questions?

Council uh council member Wall.

Thank thank you, Mr.

Dorian, for asking about the survey.

I would like to see the data as well.

Uh statistically relevant.

Um, I saw an email from an interest group in town which encouraged its adherents to uh respond to the survey.

That would seem to me to uh uh cause some questions about what may be relevant or not if one sector of the populace was uh over overrepresented.

Would you comment on that?

Or maybe you've seen the same email that I saw.

Um, I had a lot of stakeholder conversations over the last uh six to eight weeks.

I know there are community groups here that are passionate in many areas of this.

Um, I wouldn't always agree with the framing of the question that was really before in the survey question.

I don't think it was always a fair assessment of what was being asked.

People are entitled to their opinion, and and that's how a democracy works in the end.

But I do have trust in our results because we got statistically valid results.

And if you take the the the end conclusion is 60% wanted a slow more measured pathway, I would think that would probably come from the opposite side of maybe the group that you described there as well.

So I do think we had uh a representative voice from the community there.

Can you speak just to the survey?

The survey went out one per customer.

Yep.

You had some uh security measures in there where uh folks could not send in multiple surveys, correct?

It was uh individualized links and on a very limited basis.

If somebody didn't get a link, we sent out a few, but those were controlled.

We do believe it was only answered by our customers, those who responded to it.

So I think we had good process controls there.

I will say out loud, it was unfortunate that many of the surveys landed in junk boxes.

We had to do some additional pushes and marketing around.

Go look for your go look for your survey link.

Um we've we've had those discussions with our vendor as well.

Sending out a large survey like this in a short time frame has a natural consequence there of ending up in junk mail, even with a sophisticated survey company as well.

Thank you.

Councilmember Keene.

Uh thank you.

I'm gonna just higher level before we get into much detail.

You mentioned earlier, like it's good that we have a public utility here, but it's interesting too that this is one of the areas where the public does of work very similar to what uh uh investor-owned utility does.

And I wanted to see if you can just kind of like how how do we compare?

Should we end up do the citizens of Rochester that do it through their city government get better rates, better reliability, better, better like control, or is it something that they pay extra for, or how would you portray it?

Better rates, yes.

So when we do our annual rate survey and comparison, we have on the residential scale, we're leading uh Excel energy there compared to the investor-owned utility, just slightly less uh less cost than Excel energy.

Um we don't have a profit motive, so we don't have any shareholders to answer to.

So I believe in our sector, the power public power sector believes we can do it cheaper than investor-owned utility that is taking private capital from investors and using that to generate a rate of return that doesn't go back to the customers as well.

Regarding reliability, I know we can um provide the best in class service there.

We consistently hit the top quartile of reliability results in our region, in our state and almost in the nation.

Um, that's because we live here in the community.

We can be on site within 20 minutes to restore power.

And that's just what you get with the publicly owned utility when you're not trying to cover a multi-state area as well or a multi-county area.

From a service perspective, we pride ourselves on the service that we can provide just outside this door.

We have humans answer the phone.

We work directly with our customers in a way that a larger utility can't compete with.

Um, and it's hard to make a comparison between us and like an electric cooperative because we're just different nature of utilities.

We have close to 70 customers per mile.

A rural electric co-op might have one to two to seven customers per mile.

They just have to cover larger areas.

And so you can't really compare apples to apples on reliability there or cost for that matter.

So we don't really consider them, we don't consider we're in competition with them.

It's just a different nature of what we get here.

Yeah, and just my comment on the on the investor owned comparison is I I see real value in the serviceability and the reliability and the responsiveness when something does go wrong.

I did not know how we came out on rates, so it's good to hear that we're a little better there.

That sort of leads me to a similar sort of question, just on um how best what what are these sort of like key performance indicators?

And and not just, you know, there's the you know the rates and things like that, but as an example, can you like help me understand it's 2032 and we look back to say in 2019 we decided to leave Simpa?

Do we have something we can look at to say this is what tells us that we made a mistake or that we did the right thing?

Um, yeah, history will tell the wisdom of those decisions for sure.

I think our um rates in that time frame are sustaining our reliability will be two of the key measures in that time frame.

Our ability for independent decisions where we don't share those decisions with a larger group of cities also will put us on a different trajectory where we can be very happy about those decisions.

Pointing to some of those, like the renewable energy decisions that we're making right now will lock us into long-term low-cost energy over a 20 to 25 year period.

So on the tail end of those contracts, and even once we cross 2030 and we no longer have an obligation to buy energy from Simpa, we'll be able to get full value immediately out of those renewable energy contracts.

Yeah, those are some higher level things.

I I struggle too with this, like we have this goal of getting to 100% renewable.

And I've struggled with it because I you also talk a bit about like the greenhouse gases, and we're down, we're probably looking to be at like 25% of what we were of the greenhouse gases we were generating a short five or six years ago.

Yep.

Um, and I find those to be a better way for me to understand what we're trying to accomplish.

Uh, and yet we don't usually talk in that language.

Yeah, uh a few years ago, we were one of the few that had a renewable energy target now that the Minnesota Carbon Free Standard is in place.

That's a target that nearly well, every utility in Minnesota is now obligated to follow.

So we're gonna look a lot similar to some of our partners over the long haul on clean and renewable energy sources there.

Um, Simpa, for example, is still targeting a 80% renewable portfolio starting in 2030.

They haven't made any decisions about securing those yet.

There's still some decisions that need to happen there.

And Excel Energy is uh subject to policy regulation of both the uh the legislature and the public utilities commission, they're on that pathway as well.

So we're we're going to look similar in the future when it comes to renewable electricity in Minnesota.

Okay.

Uh, and with the same, like when you talk about the rates discussions we've been having and the rate recommendations you're making.

I I wanna I I think you might understand this, but there's some people sitting back and saying that's because you left Simpa, or that's because you want to be 100% renewable.

Is there any way to like tease these things apart and say, just to follow Minnesota state law, this is what our rates would be?

Now, and this is the difference of us trying to be 100%, or just to to leave Simpa, that made our rates do is there any good like compare point there, or is it just opinions?

Probably the latter.

Um, there's probably a more significant issue there that's right in the middle of what you're asking about.

It's really not so much about leaving Simpa.

Um, it's really about Sherco 3, the coal unit going away.

And that is one of the primary drivers.

It just happened to be the alignment of when our wholesale contract ends with Simpa, but that coal unit that has been in existence since the late 1980s.

Um, we stop having to pay a mortgage payment on it next year.

So we're going to start seeing some cost relief there.

And once it's out of our portfolio in 2030, we no longer have the obligations that come with a large coal unit, not only environmental impacts of that, but a large unit like that operating in today's energy market can be a bit of a liability.

And so that's really the fundamental thing that that is changing for us is needing to change our power supply portfolio.

Simpa is in the same boat as us.

They have the same capacity.

We're 40% of SIMPA today, and Cherco Unit 3 is a big part of that portfolio.

They have to replace all that capacity.

And they're building kind of the same stuff that we are right now.

It'd be the same situation if we were still within that agency.

And to my earlier points, we still might need a supply contract with an agency like Simpa.

We may be in future conversations with Simpas and others of the world to partner on that last hundred megawatts of capacity.

What the what the resources has not emerged yet on what that contract will look like and who it's with.

And then again, for staff and also for my peers on council, uh, I'll participate in this discussion tomorrow at the RPU meeting.

Um, I I mean, the resolution in front of us, I I want to support it.

I plan to support it.

But I guess I also want to say that whole rate discussion of 6%.

I understand why it's that high.

Um, I've looked at the numbers and I still would like to hold back the possibility of 4% with the idea of like as we're learning as we're going along.

I I fully understand staff looking, most of the learning we've been doing has pushed us to higher expenses.

And as you say, most of those decisions have been made.

But I still feel like um it would put RPU under some cost duress to try to do this.

But I think we I'm not there yet that it's a six percent.

And even though it's part of the resolution, um, I'll just make my feelings known and we'll see where we go with it.

Councilmember Miller.

Thank you.

I'm not sure what my original question was, but I do have a question about prior discussions that we've had.

And I see our uh our sustainability coordinator in attendance today.

Could you talk about RPU's coordination with our city departments just on the broader goals of sustainability and our adopted resolutions to reduce emissions and particularly focus on electric utility generation, building energy usage and transportation?

And I I guess I'd just clarify the the transportation one because as people shift from other power sources to electric vehicles, perhaps that that can be a reduction in emissions more broadly in the community.

And I'm just curious how you think about that goal as a city and how you work with city departments to uh strategize for that and also report on that.

So I'll touch on the first part of the question first, how we coordinate or strategize with the sustainability group.

Um we're a key part of providing data input for the annual emissions, the greenhouse gas inventory.

Um electricity consumption is a significant source of greenhouse gas emissions.

So we're one of the bigger levers there that can be pulled to adjust that.

So we have historically provided the annual electricity consumption, the emissions factors, the renewable energy certificates, both in the voluntary and the non-voluntary side on the state program.

So it's a key part of the current emissions inventory that we work on.

I think on the future planning, um, we've we've assisted in projecting out what the 2030 plan, the resource plan will have a net impact there.

It will uh hitting the 100% goal, it'll effectively zero out the carbon, the greenhouse gas inventory at the municipal level because it's based on electricity and its factor.

So retiring recs, according to that will show that our uh emissions from electricity consumption at the 100% level zero out.

That's a good news item for all of us.

We still have our own emissions uh from running our own generation, those are on the scope one side of emissions reporting.

We're still responsible for those, and we do our compliance reporting there as well.

Um, regarding how we contribute to I would say electrification and transportation as well.

That's embedded in a lot of our programs that we have as a part of um our Minnesota Eco Act responsibilities and our conservation programs.

Um we spend millions of dollars a year towards those programs.

I think the best evidence of the success of those programs is the average electricity use per customer has been on a downward trajectory every year for the last 10 years.

It's a factor of we use less and we have a growing community.

And so it's a it's a success story there of the impact of those and avoiding the need to build new power generation to meet demands that never showed up in the first place.

Supporting transportation, I think that's more of a support function that we have.

We're the we're the gas station for electric vehicles.

So we're there as a part of the planning for the infrastructure, supporting customers who adopt electric electrified vehicles.

We have a rebate program on electrified bikes now.

That's a part of our conservation program as well.

So I think as we approach this next period, we're the partnership needs to grow even closer together on the reporting and the planning for that.

But I think we're in a good position today in my assessment.

And just one quick final question, hopefully.

So I know we talk about planning for capacity on many year terms.

Uh, but the the current programs are still available for individual customers, residential commercial customers through the end of the year.

Is there any effort to make that clear to customers that if they want to take advantage of renewable energy programs locally, that there's still time?

And I don't know how you think about that as far as I know it's a very small piece of our renewable energy picture, but I'm just curious about time is of the essence for customers who want to lock in their own energy plan and capacity and cost ultimately.

I wish I could quote the numbers, but I believe the rate of solar applications has maybe doubled or tripled since July 4th.

So our customers have had probably more of an impact of wanting to secure those investments.

Um, we've done the best that we can with educating customers and putting out materials through social media and other channels to make them aware of those programs, but there is kind of a sunset coming on those.

Um, so time is of the essence to take advantage of those.

No other questions.

Just want to thank you and commend you and your team for both your diligent uh work on uh surveying customers and your reliance and use of that customer uh data in your decision making and your mind-numbing work on navigating and seeking both reliable sources and uh looking to achieve our sustainability goal.

So uh congratulations.

Good luck tomorrow, council member, and uh we'll hear from you later.

I will take the mind-numbing uh assessment as a compliment, and I thank you for that.

Um Miss Sims, our uh schedule of future study sessions.

Thank you, Council President, City Clerk's office.

Thank you for the assist.

Um, did want to just point out that you don't currently have something listed on October 13th.

We had held some time for some council training, which um did not materialize, but I would ask that you still hold that.

I am reviewing your agenda for October 6th, and as it stands right now, you have seven reports and recommendations.

Some of them are related to each other.

Um, but I think they're manageable.

You have a smaller consent agenda and two public hearings that are fairly straightforward, um, working to see if all seven of those need to be reports and recommendations.

And of course, you always have the pleasure of pulling an item to lengthen your reports and recommendations.

Um, but just in case it becomes a very long meeting.

Again, I don't think the topics necessarily make it a very long meeting, but I'm never much like other forecasts, they're sometimes wrong.

You're not suggesting that we would go from October 6th to the study session on the next Monday in our meeting next week.

I'm not, but I'm just suggesting that hold it on your calendar and we'll we can release it at the end of next Monday.

Sounds good.

Okay.

And then your next study session that you do have um scheduled with something on it is on October 27th.

Um we believe we will still be in this room, although we're doing well with the um adjustments at the council chambers.

Um, so we have our legislative priorities and then the communication engagement um 311 update.

Thank you.

Uh the next item listed on our published agenda is for the city council to adjourn into a closed session pursuant to Minnesota Statute 13D point zero five subdivision 3A for a performance evaluation of city attorney Michael Spindler Craig to be conducted in the RPU boardroom across the hall.

And so I would entertain a motion to adjourn to that.

Well, we don't need to adjourn.

Yeah, we just need to move our chairs correctly.

Correct.