5.4. ERMUSR 10-21-2014Elk River
Municipal Utilities
UTILITIES COMMISSION MEETING
TO:
FROM:
Elk River Municipal Utilities Commission
Theresa Slominski — Finance and Office
John Dietz — Chair
Manager
Al Nadeau — Vice Chair
Daryl Thompson — Trustee
MEETING DATE:
AGENDA ITEM NUMBER:
October 21, 2014
5.4
SUBJECT:
2015 Water and Electric Expense Budgets
BACKGROUND:
In preparation for submittal in November, staff continues to work through the 2015 budget
process. The first cut of the expense portion of the 2015 budget has been completed for
commission review. The expense budget will change as the complete 2015 budget is assembled
and the finalized wholesale power costs are reflected. Revenues and rate increases for 2015 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 2015 forecast for water expenses are a 2.1 %
increase over the current year budget. As budgeted without any water rate increase, the
water department would see a loss of ($165,597) or -6.97% margin. A 3% increase in
revenue (through rates or usage) brings this number down to a loss of ($94,334) or
-3.86% margin. If we would cover this amount plus a small margin, the rates and/or
usage would need to increase 7% resulting in a profit of $684 or .03% margin. Typically
this budget runs at a loss due to depreciation. Again, as numbers are finalized, this will
be brought back in November.
2. Electric Department Expense Budget — The 2015 forecast for electric expenses are a
1.3% 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
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their 2015 wholesale power rates, however early indications are that GRE will have an
increase just over 3 %. Typically, there is some adjustment of the rate structure and that
may impact us more than that. The final GRE board approval of wholesale power rates
usually comes by early December. For preliminary budgeting, the attached expense
budget reflects a 4% 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
$320,808 or 1% 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.
WWa es — The water and electric budgets currently reflect a 3% wage increase as typically
done for preliminary budgeting. Early indications are that cost of living adjustments will
likely be below 3 %; however, these evaluations have not been completed by the Wage
and Benefits Committee yet. The Committee will be bringing back a COLA
recommendation as well as any market adjustment recommendations for positions or pay
groups for Commission consideration at the November Commission meeting.
2. Staff Additions — Staff proposed the consideration of the addition of 2 staff positions: an
entry level Field Engineer and a Key Accounts Specialist and these have been included in
the expenses, with the intention of hiring the Engineer mid -year and the Specialist at the
beginning of 2015. The mid -year addition of an entry level Field Engineer would be
offset by the elimination of $30,000 in directly related engineering consulting expense
that has been in the budget in previous years. This is another case of offsetting the
expense related to outsourced work and bring the work in- house. Also included is a part-
time cleaning position or contracted cleaning employee which would be starting at the
beginning of 2015. With the retirement of the current Technical Services Superintendent
we would hire the replacement early in 2015 to allow for an overlap in training.
3. Software Conversion — The NISC software conversion will happen in the first quarter of
2015, and we have budgeted expenses for software support for the entire year. As with
the ABS conversion estimates, there are some additional expenses included for staff
training time related to the conversion.
ATTACHMENTS:
• Proposed 2015 Electric Expense Budget
• Proposed 2015 Water Expense Budget
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67
N"" W E R E D 0 Y
ATURg
P O W E R E D To S E R V E
2015
ESTIMATED BUDGET
WITU uwemoV
ACCOUNT #
DESCRIPTION
2012
2013
2014
2015
ACTUAL
BUDGET
BUDGET
BUDGET
TOTAL R
10,332,335
15.6,53,1 69
6
-
ELECTRIC
TOTAL NON- DEMAND
$ 2,974,498
3,092,300
3,173,274
I U IAL DEMAND
15, 378, 020
15,880, 921
-
TOTAL SECURITY LTS
49,156
50,500.00
50,904.00
-
TOTAL PUBLIC ST/HWYLIGHTING
274,209
268,038
289,284
TOTAL SALES
29,008,218
29,984,928
31,096687
PROJECTED SALES WITH ERMU RATE INCREASE 0
-
-
-
TOTAL SALES WITH RATE INCREASE
29,008,218
29,984,928
31,096,687
$
TOTAL OTHER
1,524,475
791,816
1,125, 512
-
TOTAL REVENUE
$ 30,532,693
$ 30,776,744
1 32,222,199
$
ACCOUNT #
DESCRIPTION
2012 2013
2014
2015
ACTUAL BUDGET
BUDGET
BUDGET
OPERATING /MTCE
PURCHASED POWER
$ 20,499,773 $ 21, 658, 688
$ 22,552, 994
$ 22,392, 262
TOTAL
21,385,769:' 22,591,771
23,494,494
23,437,184
DISTRIBUTION
TOTAL
184,787 203,925
208,000
226,515
MAINTENANCE
TOTAL
620,687
734,050
751,000
947,770
OTHER EXPENSE
TOTAL
3,86Z 212
3,904,695
4,041,797
4,028, 983
CUSTOMER ACCOUNTS EXP
225,632
TOTAL
283,000
237,000
255,720
ADMINISTRATIVE /GENERAL EXPENSE
TOTAL
2,133,561
2,612,027
2, 745,038
3,005,219
TOTAL EXPENSE
$ 28,412,648
$ 30,329,468
$ 31,477,329
$ 31,901,391
2012
2013
2014
2015
ACTUAL
BUDGET
BUDGET
BUDGET
TOTAL REVENUES
30,532,693
30,776,744
32,222,199
TOTAL EXPENSES
28,412,648
30,390,548
31,477,329
31,901,391
PROFIT (LOSS)
2,120,045
386,196
744,870
(31,901,391
2015 BUDGET COMPARISON (.,`1Q
2015
ESTIMATED BUDGET
WITH HICTnl2V
ACCOUNT #
DESCRIPTION
2012 i 2013
2014
2015
ACTUAL BUDGET
BUDGET
BUDGET
WATER
TOTAL REVENUES
$ 2,769,575 $ 2,271,900
$ 2,375,434
$
TRANSFERS
(99 BOND)
25,000
25,000
25,000
$ 30,000
Rental Property Expense
2,500
MAINTENANCE
TOTAL
63,2791
47,910
56,000
20,000
PUMPING
TOTAL
436,306
402,10
440,700
449,600
DISTRIBUTION
TOTAL -
162, 780
188,300
172,700
192,500
OTHER EXPENSE
TOTAL
1,134, 849 1,204,367
1,2 7
1,193, 990
CUSTOMER ACCTS EXP
TOTAL
48,385
62,507
59,300
59,500
NONOPERATING REV &EXP
TOTAL
500
ADMIN /GEN EXPENSE
TOTAL
461,043.
501,477
,708
592,440
TOTAL EXPENSE
$ 2,306,642
2,421,924
$ 2,487,805
$ 2,541,030
TOTAL REVENUES
2,769,575
2,271,900
2,375,434
TOTAL EXPENSES
2,306,642
2,421,924
2,487,805
2,541,030
PROFIT LOSS
462,933
(150,024)
112,371
2,541,030
2015 BUDGET COMPARISON 69