Marshall Municipal Utilities

ANNUAL REPORT
2007/2008

This annual report summarizes some of the many accomplishments and improvements to Marshall's publicly owned utility systems during the fiscal year ending September 30, 2008.

The top story is the changes being made at the Water Treatment Plant. In June of 2008, we signed a contract with SMI-CO Construction Company for $1,218,318. This project was designed by Shafer, Kline & Warren Engineering and consists of the construction of a disinfection building, installation of an on-site sodium hypochlorite disinfection system, installation of a security system, and new windows in the existing treatment plant building. The sodium hypochlorite will replace the current chlorine gas for disinfection. The work also includes electrical wiring and controls, site work and construction of a roadway that connects the south and center entrance to the facility. Completion of this project is scheduled for the spring of 2009. Our current plant uses chlorine gas for disinfecting the raw water. Federal regulations require a Risk Management Plan for the chlorine along with additional monitoring and safety equipment. Once the sodium hypochlorite system is operational and the chlorine gas removed, the Risk Management Plan can be eliminated.

Our second top story is the increase in wholesale electric costs and our membership in the Missouri Public Energy Pool #1 (MoPEP). As a member of MoPEP, we experienced wholesale electric costs that averaged nearly $70/MWh. The electric rates we charge our customers have not increased sufficiently to cover the high wholesale cost of power. The Electric Department reserves were reduced approximately $1,000,000 paying for wholesale energy not covered by the existing rate structure. Significant rate increases have been approved to reduce this deficit spending in further years. If there is any good news regarding wholesale rates, it's that the 2008 year should be a peak. Forecasts for next year are in the $67/MWh range. The MoPEP Pool has invested in several new power plants. The total assets of these new plants will require the Pool to finance approximately $500,000,000 over their life. Marshall's share of this obligation is approximately $40,000,000. Ownership of these projects will eliminate much of the Pool's need to purchase market based power which has been increasing sharply over the last few years. Marshall's electric rates are forecasted to be very stable over the next 5 – 10 years.

The third top story was the beginning of a multi-year plan to bury electric power liens underground. This year our Electric Distribution Department purchased a new horizontal directional boring machine. We replaced approximately 4,400 feet of direct buried (no conduit) primary wire on South lake Drive by first installing a conduit and then installing new cable. The existing wire was over 40 years old and had failed several times in the last few years. Replacing additional direct buried wires is planned for next year and we then plan to move into areas with overhead power lines that are hard to access. The boring machine causes minimal impact to the homeowners compared to open cutting or using bucket trucks to replace power lines.

Our fourth top story was the change in suppliers of our coal. In October 2007, we reached an agreement with Knight Hawk Coal Company to provide our coal supply for the next three years starting in January 2008. The coal is supplied from the Prairie Eagle Mine in Southern Illinois. In our agreement, knight Hawk is providing our coal at a fixed price with adjustments made for the transportation fuel only. Based on using 50,000 tons each year, there was a substantial cost savings by changing to the Knight Hawk coal. One major cost advantage we noticed with using the new coal is the ability to burn the 2X0 coal in Unit #5 in the winter months instead of the more expensive stoker coal. We could not do this with our former coal provider because of the composition of their coal. Another advantage has been the fact that we can extend our time that we need to clean slag from the boiler. This saves on natural gas usage and maintenance on our burner refractory. According to Knight Hawk Coal, market prices for coal in early 2008 increased dramatically. They attributed it to increased demand of export overseas and coal mines closing in their area.

These top stories remind us that change is inevitable and that progress, while optional, is very necessary. It is our responsibility to provide for the current needs and to plan for the future needs of Marshall's citizens. We must never forget that Marshall's citizens are the owners of MMU. The citizens of Marshall can be assured that the employees of MMU are committed to continuing the efforts necessary to fulfill our mission, which is to:

Provide reliable utility service for our owners at the lowest reasonable cost; maintain and operate facilities that will assure safe, dependable electricity, potable water and wastewater treatment, giving due consideration to conservation and environmental impacts; plan for the future to assure adequate resources with progressive but sound economic reasoning.

The following bulleted points provide a glimpse of some of the accomplishments and operations during this past year.

• Approximately 56,577 feet of sewer mains were cleaned, 27,109 feet were videotaped, and 32 repairs were made to existing lines. We added 1,412 feet of new or replaced sewer main and built six new manholes.

• Approximately 1,844 feet of new water main was built to provide water to our new Civic Center, Saline County health Department, and ConAgra.

• The Water Treatment Plant produced 990,140,000 gallons of water, down approximately 5% from the 1,046,394,000 gallons produced in FY07.

• The city of Waverly is now buying their water from MMU.

• The Wastewater Treatment Plant treated 1,069,000,000 gallons of wastewater, a 24% increase from 861,000,000 gallons for FY07. We pumped approximately 12,100,000 gallons of effluent to the golf course. We applied roughly 691 tons of sludge to local farmland.

• The major maintenance project for the year at the Wastewater Treatment Plant was the start on replacing the west and south fence. We completed the grit chamber repairs started in FY06.

• As part of the ongoing voltage conversion project to convert all electric distribution to 13.2 kV, we replaced all of the remaining 4.16 kV pad mount transformers (7) with dual voltage units along with the underground primary wire feeding them. There are fewer than 50 pole mount transformers left to replace before we start converting the feeders to 13.2 kV.

• An Arc Hazard Analysis was completed by our consulting engineer, Lutz, Daily and Brain, to meet upcoming safety regulations. Having this information will allow us to develop a Flame Retardant Clothing Policy to protect our employees while working on energized equipment.

• Electrical outages were down slightly from last year; there were 74 during 2006/07 and 70 this year. A continued effort to install animal guards on equipment and increased tree trimming has helped keep outages below the 5-year average of 96. Weather (33%), animals (27%), and overhead equipment failure (22%) continue to be the leading causes.

• This year we purchased a new wheel loader for the Power Plant coal loading operation.

• We purchased a new forklift for our recycling operation using a grant from Region F Solid Waste District. The grant will pay $25,000 and MMU will be responsible for up to an additional $6,500. We overhauled the bailer and densifier in the recycling center which allows us to resell or pelletize the city's waste paper and cardboard. This year we started recycling electronic waste at the recycling facility.

• The Power Plant rebuilt one boiler feed pump for Unit #5 which had not been upgraded for approximately 20 years, at a cost of $40,000.

• All of the bags in our baghouses were replaced this past year.

In fiscal year 2008, we hired six people to fill vacancies created by departing personnel. During the year, three people were hired for Underground Facilities (two General Maintenance/Meter Readers and one to a Maintenance position), two people were hired for Environmental Services (one Water Treatment Plant Operator and one Wastewater Treatment Plant Operator/Maintenance position were filled), and one person was hired for Electric Distribution (an Electrician). We hired one additional person to fill a newly created position (Safety & Training Officer).

At year's end, we have eleven vacancies created by personnel who have departed or retired. Three of these vacancies will soon be filled. The rest will remain unfilled indefinitely.

The information and statistics above are intended to give you a feel for what was accomplished this last year, but these statistics do not begin to convey the importance of the utility services provided to the citizens of Marshall by the citizens of Marshall. This local ownership yields many hometown advantages, not the least of which is having the Business Office right here in town and having decisions made by citizen owners.

Kyle D. Gibbs

General Manager

KDG/dw