5.4. ERMUSR 09-08-2015 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Troy Adams, P.E.—General Manager
John Dietz—Chair
Al Nadeau—Vice Chair
Daryl Thompson—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
September 8, 2015 5.4
SUBJECT:
Payment in Lieu of Taxes (PILOT)and Other Donations to the City of Elk River
BACKGROUND:
Minnesota municipal utilities do not pay taxes to their city. It is very typical for the utility to provide a
payment in lieu of taxes(PILOT).ERMU has a policy which outlines the details of the PILOT and other
donations to the City of Elk River. This policy is reviewed at least once every five years;most recently
the policy was review on July 2,2013.
DISCUSSION:
When last reviewed,ERMU was negotiation with Connexus Energy for an electric service territory
acquisition of approximately 2000 customers within 12 square miles in the corporate boundaries of Elk
River. It was discussed that the PILOT associated with these potential future ERMU customers be
delayed until after the loss of revenue(LOR)payments to Connexus were complete.There was consensus
from the board.
On March 20,2015,an electric service territory transfer agreement was executed between ERMU and
Connexus.The first 800 customers are to be transferred in fall of 2015 with additional transfers over the
following five years. The terms of the agreement provide for LOR payments for 10 years,which it
typical.
Now that the negotiations have been completed and the terms finalized,the PILOT provisions should be
revised to reflect an exemption for customers that are subject to LOR payment.As these LOR payments
complete their 10 year term,the revenue associated with these customers would then become subject to a
PILOT per the policy.
ACTION REQUESTED:
Staff recommends the Commission adopt the policy revisions to"ERMU Policy 8.13—Payment in Lieu
of Taxes(PILOT)and Other Donations to the City of Elk River."
ATTACHMENTS:
• Proposed revision to ERMU Policy 8.13—Payment in Lieu of Taxes (PILOT) and Other
Donations to the City of Elk River
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Municipal Utilities
8.13 PAYMENT IN LIEU OF TAXES (PILOT) AND OTHER DONATIONS TO
THE CITY OF ELK RIVER
1.0 Purpose and Summary
The success of ERMU is linked with the success of our community. And the success of our
community is linked with the operation of our city government and ERMU. ERMU was
purchased by the City of Elk River in 1945 and separate governance was created per State
Statute in 1947. Although governed separately, ERMU is still an important component of our
local government and our city services.
It is typical for a municipal utility to provide a Payment in Lieu of Taxes (PILOT) and other
donations to their city, regardless of a separation of governance. Although typical,this
contribution should never inhibit ERMU's ability to make repayment on debt, cause ERMU to
become non-competitive, or inhibit needed investment in personnel or infrastructure which may
hurt ERMU's ability to meet the needs of their customers. For these reasons the PILOT and
other donations should be reviewed at least once every five(5)years by the ERMU Commission.
2.0 Payment in Lieu of Taxes (PILOT)
The PILOT transfer from Elk River Municipal Utilities to the City of Elk River shall be three
percent(3%) of the revenues generated by ERMU's electric customers within the corporate
boundaries of the City of Elk River which are not subject to a loss of revenue payment resulting
from electric service territory acquisition.
3.0 Donated Electricity
Elk River Municipal Utilities shall donate all electricity to the City of Elk River for all of their
facilities not associated with enterprise funds of the City of Elk River. As an example, this will
include buildings such as City Hall,Police and Fire Departments, Library, Park, Street
8.13 Payment in Lieu of Taxes Page 1 of 2 Adopted December 6, 1994
(PILOT)and other Donations to the Revised June 6, 2008
City of Elk River Revised July 2, 2013
Proposed Rev Sep 8, 2015
169
Department Buildings, street lights, and signal lights; this shall not include such buildings as
Liquor Stores, Wastewater Treatment Plant, Ice Arena, or lift stations.
4.0 Donated Water
Elk River Municipal Utilities shall donate water for use by the Elk River Fire Departruent
(ERFD) for the purpose of extinguishing fires within the City of Elk River and other cities under
contract with the ERFD.
For the purpose of creating ice rinks for public/non-enterprise use, ERMU shall donate water for
use by the Elk River Parks Department.
Elk River Municipal Utilities shall donate water for the use by the Elk River Streets Department
for the use of street sweeping.
5.0 Donated Labor
Because of specialized skills and equipment, ERMU may be able to provide a better value to our
community by donating labor to the City of Elk River. For example, ERMU has trained
employees and the equipment to hang banners where the City does not. In this example, ERMU
is able to provide this donated service to the City for less cost than a third party, creating greater
value to our community. For such situations, ERMU shall donate labor to the City of Elk River,
as appropriate,where a greater value is created for our community and where ERMU is not
subjected to undue burden.
In addition to hanging banners, other examples include: maintenance of street lighting, relamping
signal lights, locating underground fiber optics and/or other facilities, administration costs
associated with the billing of city franchise fees, installation of temporary lighting, relamping of
city ball field lighting, installation and/or maintenance of city warning sirens,meter reading for
wastewater, assistance with tree trimming, etc...
8.13 Payment in Lieu of Taxes Page 2 of 2 Adopted December 6, 1994
(PILOT)and other Donations to the Revised June 6, 2008
City of Elk River Revised July 2, 2013
Proposed Rev Sep 8, 2015
170