5.5. ERMUSR 10-08-2013 t Elk Riv
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Theresa Slominski — Finance and Office
John Dietz—Chair Manager
Daryl Thompson— Vice Chair
Al Nadeau—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
October 8, 2013 5.5
SUBJECT:
2013 Water and Electric Expense Budgets
BACKGROUND:
In preparation for submittal in November, staff continues to work through the 2014 budget
process. The first cut of the expense portion of the 2014 budget has been completed for
commission review. The expense budget will change as the complete 2014 budget is assembled
and the finalized wholesale power costs are reflected. Revenues and rate increases for 2014 will
be presented in November.
DISCUSSION:
Attached is the following information for your review. Additional budget detail is available upon
request. Please contact staff for additional information.
1. Water Department Expense Budget—The 2014 forecast for water expenses are a 1.894%
increase over the current year budget. As budgeted without any water rate increase, the
water department would see a loss of$195,905 or -8.62% margin. A 3% increase in
revenue (through rates or usage) brings this number down to a loss of$127,748 or
-5.46% margin. If we would cover this amount plus a small margin, the rates would need
to increase 9%resulting in a profit of$8,566 or .35% margin. Again, as numbers are
finalized, this will be brought back in November.
2. Electric Department Expense Budget—The 2014 forecast for electric expenses are a
1.191% increase over the current year budget. Wholesale power costs make up between
70-75% of the operating budget. Ultimately, the wholesale rates set by Great River
Energy (GRE) have an enormous impact on ERMU's rates. Therefore, ERMU's most
effective way to lessen the electric rate increases to our customers would be through
reducing our wholesale power costs. Cutting services, maintenance, labor, or capital
purchases do contribute to lowering electric rates; however these actions also have an
impact to operations and must be considered with good business practices. GRE has not
finalized their 2014 wholesale power rates, however they have verbally committed to a
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0% increase. Typically, there is some adjustment of the rate structure and that may
impact us more than 0%. The final GRE board approval of wholesale power rates usually
comes by early December. For preliminary budgeting, the attached expense budget
reflects a 1% increase in wholesale power costs. This increase includes growth and
wholesale power cost increases. This may need to be adjusted prior to final budget
approval.
Similar to the water expense budget, this draft does not reflect any increase in ERMU
electric rates. Without any electric rate increase, the electric department would see a
$24,209 or .08% margin. In the recent past we have designed for a 1.5%margin. The
rate design will be completed for the November meeting.
The following are recommended discussion points for the Commission.
1. Wages—The water and electric budgets reflect a 3% wage increase as typically done for
preliminary budgeting. Market indicates a COLA 2.5% is more in line for the industry.
The .05% difference in COLA would only have a 0.04% impact on the final budget. The
Wage and Benefit Committee will be bringing back a COLA recommendation at the
November commission meeting.
2. Rates and Margins— Does the Commission have any comments on direction or have any
concerns prior to the development of the 2014 rates? Because the financial reserve
targets have been met, what is the Commission's comfort level with margins?
3. Staff Additions— In August staff proposed the consideration of the addition of 2 staff
positions: an additional Meter Technician and Customer Service Representative and these
have been included in the expenses, with the intention of hiring at the beginning of 2014.
Also included is a part-time IT position that we hope to share with the City, with the
intention of hiring at the beginning of 2014 as well.
4. Software Conversion—The NISC software conversion will most likely happen in the
fourth quarter of 2014, given their schedule is almost full already for next year.
Therefore, budgeted expenses for software support are included for one quarter only.
Once we have our scheduled conversion date confirmed, we can adjust as necessary.
There are some additional expenses included for staff training time related to the
conversion.
ATTACHMENTS:
• Proposed 2014 Electric Expense Budget
• Proposed 2014 Water Expense Budget
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2014
ESTIMATED BUDGET
ACTUAL
WITH HISTORY
ACCOUNT# _ DESCRIPTION 2012 $ BUDGET 9�1 2014
)11 10,332,335.00 II BUDGET 4
'TOTAL RESIDENTIAL
ELECTRIC TOTAL NON-DEMAND _ 2974,49800 309$30000
TOTAL DEMAND 15.37802000 15,880,911 00
- TOTAL SECURITYLTS 49.1.5600, 50,57000
TOTAL PUBLIC ST/HWYLIGHTING 274203 268,038 -
_ - 'TOTAL SALES - - 29,008218 29,984928
r
PROJECTED SALES WITH ERMU RATE INCREASE 0 - T.
'TOTALSALESWITHRATEINCREASE - _ 29,008,218 - 29,984,928 -
TOTAL OTHER - - -
1524,4151 741,816
TOTAL REVENUE -§ 30,572,893.00 $ 30,776,744.00 $
ACCOUNT# DESCRIPTION 2012 _ _ 2013 2014
ACTUAL BUDGET BUDGET
OPERATING/MTCE
PURCHASED POWER 8 20099,77300 5 _ 21,658,688 8 21.917.000
TOTAL - 21,385769 22591,771 . 22858,500
DISTRIBUTION
I((
TOTAL 184,181 203.925 208,000
MAINTENANCE
TOTAL 620.687 134,050 751,000
OTHER EXPENSE _ _
TOTAL 3862212 3,904,695 4041,797
CUSTOMER ACCOUNTS EXP
TOTAL 225,632 283,000 212,000
ADMINISTRATIVE/GENERAL EXPENSE - - - - -T
TOTAL
2133,561 - 2,612027 2,681,238
_ -
TOTAL EXPENSE ' $ 28,412,848.00 $ 30,328,467.52 $ 30 752,534.67 '
2012 2013 2014
ACTUAL BUDGET BUDGET --
TOTAL REVENUES 30 532,693 30,778,744
TOTAL EXPENSES _ 28,412,848 30,390,548 _ 30,752,535 1.191%
PROFIT(LOSS) _ 1 386,196 (30,752,535)
/ _
BUDGET COMPARISON
513
2014
ESTIMATED BUDGET
WITH HISTORY
ACCOUNT#I DESCRIPTION _�__ 2012 _1 2013 2014
ACTUAL I BUDGET �_....BUDGET II
WATER ,
TOTAL REVENUES -- 1 _ --
S 2,789,575.00 $ 2.271,900.00 § -
TRANSFERS
(99 BOND) 15,000 25,000 25.000'--
I
MAINTENANCE - - - - - - -
TOTAL 63,279. 47,910 56,000
PUMPING _ -
- TOTAL - _ - - -- 446,306 402.100 440./00 _ - --
DISTRIBUTION - -- _ --_
TOTAL - _ - 162260 188,300 172700.
OTHER EXPENSE
TOTAL - - - - 1.134849 1204.36/ 1.206,397
CUSTOMER ACCTS EXP - - - - -- --TOTAL - 48,385 62500 59,300
ADMIN/GEN EXPENSE -- - -
- TOTAL _ - i - 461,044 501.477 530,708
TOTAL EXPENSE § Z306,642 § 2,421,924 $ Z467,805
805
TOTAL REVENUES - _ - - -2,769,575 2,271,900 -- _-
TOTALEXPENSES - _--
2,402,933 2(151,024 _ 2,467,805 1_.894%
PROFIT(LOSS) - - _ (150,026
( 1 -- -� 482,933 ) (2,467,805)
BUDGET COMPARISON