4.1. ERMUSR 05-10-2016 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Mike O'Neill—Technical Services Superintendent
John Dietz—Chair
Al Nadeau—Vice Chair
Daryl Thompson—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
May 10 2016 4.1
SUBJECT:
Security Department Cost Analysis
BACKGROUND:
The Commission directed staff to bring back three years of historical financial data for total
expense versus total revenue and monitoring expense versus monitoring revenue.
DISCUSSION:
The monitoring for all the security systems is done through a third party. The specific detail of
monitoring revenue versus monitoring expense is actually the comparison of ERMU's revenue
for monitoring fees billed to security customers versus the third party monitoring expense for
those same security accounts. These trends for the past three years plus 2016 projections are
indicated in Table 1 below.
Security System Monitoring Margins
Description
2013 2014 2015 2016
Actual Actual Actual Projected
Revenue $ 226,480 _ $ 226,765 $ 176,827 $ 200,000
Expense $ 62,057 $ 63,727 $ 62,241 $ 64,000
Net $ 164,423 $ 163,038 $ 114,586 $ 136,000
Table 1
Total margins for the security department for the past three years plus 2016 projections are
reflected in Table 2 below. There were two significant adjustments that affect the numbers
presented. First, in 2014 an error was discovered in the billing for the City of Elk River's
wastewater lift station accounts. The result of the error was an over billing for monitoring
services. The error was corrected and an approximate $40,000 credit was made to the
Wastewater Department. This credit resulted in the security department realizing negative net
margins for 2014.
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Second and as previously discussed, the change in billing software in 2015 had great effect on
the security department and how revenue was booked, specifically relating to our annually billed
customers. This change resulted in the recognition of revenue relating to annually billed
customers amortized over the year as opposed to the past method of recognizing that revenue in
the month it was received. This has resulted in a$45,000 swing. This is not a factor going
forward.
Security System Total Margins
Description 2013 2014 2015 2016
Actual Actual Actual Projected
Revenue $ 282,502 $ 241,919 $ 251,488 $ 297,000
Expense $ 274,246 $ 271,495 $280,538 $ 285,000
Net $ 8,256 $ (29,576) $ (29,050) $ 12,000
Table 2
The security department was created out of a need for security services which was fulfilled by
bringing that work internal to the Utilities. The Commission then decided to extend those
services to our customers as a benefit to the community since ERMU was performing that work
for their own security needs. The security department operated with negative net margins for
years and only in 2008 began to realize positive net margins. The business philosophy had been
to provide the service not to generate revenue to subsidize the electric utility,but rather to
support its own operation. As indicated by the projected total net margins for 2013 —2015, the
security department was to realize minimal yet positive margins. Because of the billing error of
2014 and the software change in 2015 these minimal positive margins were not achieved.
Currently and intentionally, 2016 is projected to realize minimal yet positive margins.
P„ONEOEO OY
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