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5.2 ERMUSR 11-14-2017 Elk River Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: ERMU Commission Troy Adams, P.E.—General Manager MEETING DATE: AGENDA ITEM NUMBER: November 14, 2017 5.2 SUBJECT: 2018 Business Plan/Budget: Rates and Review ACTION REQUESTED: No action required at this time. BACKGROUND: In preparation for budget approval in December, staff continues to work through the 2018 budget process. Based on the wholesale rate increase and projected expense increases and capital expenditures, a preliminary balanced budget and rates have been drafted. DISCUSSION: Electric Department Budget Wholesale power costs makes up a considerable portion of the required operating revenue, approximately 74%for 2017. This is within an expected range, typically 70%- 75%. For ERMU,wholesale power falls on the high side likely because two factors: ERMU is conservatively staffed for our size and GRE's rates are higher than other wholesale power options within our region. The wholesale rates set by Great River Energy (GRE)typically have an enormous impact on ERMU's rates and the increase in wholesale power costs are passed through in ERMU's retail rates.Normally ERMU is not notified of GRE's new rates until December; however,we already have received the GRE board approved all-requirements wholesale rates for 2018. It is our understanding that GRE set their rates to generate an overall 1% increase in their electric sales revenue. Because of a shift in their rate recovery methodology,the impact to ERMU is much more favorable that the projected GRE revenue increase. This usually would be the opposite where ERMU would be impacted more than the aggregated whole. The results of the updated GRE rate recovery methodology results in a wholesale power expense impact to ERMU of nearly a 0% increase. This does not take into consideration potential power cost adjustments (PCAs). We have also received the preliminary 2018 MMPA wholesale rates and structure but have not analyzed the true rate impact with ERMU usage for October through December of 2018. This will be completed before the ERMU budget is finalized for approval in December. Page 1 of 2 63 Separate from the wholesale power expense,the electric department expenses increased by approximately 3%. But with growth and the lower than expected wholesale power cost component, the preliminary revenue increase projection need for ERMU electric results in a revenue increase under 1%. We have further considerations to be finalized in December with the MMPA analysis, and COLA decisions. Also, the ERMU rate classes will be included with the budget in December for Commission adoption. The initial ERMU 2018 retail electric rates outlook is very favorable for our customers. Attached is a worksheet illustrating a proposed rate impact study for ERMU's different retail rate classes with hypothetical customers' usage. All examples indicate an impact of approximately 1%or less.A typical residential customer would only see an approximate increase of$14 annual for 2018 compared to 2017. The 2018 retail rates will be proposed for approval with the 2018 budget in December. Water Department Budget The water department expense increases at approximately 4% are slightly higher than the electric department. In order to maintain the financial health and to plan for the short and long term water capital project projections the 2018 water budget reflects an overall 1.3% increase in revenue through water sales. The allocation of the increase will be collected through an increase in customer charge and 1St tier water use rates. Attached is a worksheet illustrating a proposed rate impact study for ERMU's residential water rate. The result for the proposed rate increase for a typical residential water customer would be 1.85%. This would result in an approximate increase of $5 annual for 2018 compared to 2017. The 2018 retail rates will be proposed for approval with the 2018 budget in December. ATTACHMENTS: • Proposed Summary of 2018 Budgets • Proposed 2018 Electric and Water Revenue and Expense Budget • Proposed 2018 Electric Capital Budget • Proposed 2018 Water Capital Budget • Proposed 2018 Administration and Technical Services Capital Budgets • Proposed 2018 Training and Travel Budget • Proposed 2018 Conservation Improvement Program Budget • Proposed 2018 Retail Rate Customer Impact Study Page 2 of 2 64 ELK RIVER MUNICIPAL UTILITIES SUMMARY OF YEAR 2018 BUDGETS ELECTRIC BUDGET SUMMARY 2018 ELECTRIC REVENUE $ 37,814,031 ELECTRIC EXPENDITURES (36,742,358) 3% ^2017 ELECTRIC NET FOR CAPITAL 1,071,673 2.83% DEBT RETIREMENT (720,000) PROMISSORY NOTE TO COUNTY (198,252) LESS DEBT PRINCIPAL PMTS 153,421 CAPITAL EQUIPMENT/CONSTRUCTION (3,088,617) FUND FROM RESERVES 350,000 * Territory Acquisition Areas 5&6 Plant and Reintegration 511,117 * Territory Acquisition Areas 1&2 Loss of Revenue NET (2,074,079) DEPRECIATION 2,110,000 NET TO RESERVES 35,921 * Note that this is separate from funding of territory draw on r WATER BUDGET SUMMARY 2018 WATER REVENUE $ 2,572,615 WATER EXPENDITURES (2,962,653) 4% ^2017 WATER NET FOR CAPITAL (390,038) -15.16% DEBT RETIREMENT (255,000) GROSS (645,038) CAPITAL PROJECTS (533,500) FUND FROM RESERVES FUND FROM WATER TRUNK FUND BONDING - NET (1,178,538) DEPRECIATION 1,189,000 NET TO RESERVES 10,462 * *Currently,target reserves are met. 2018 BUDGET SUMMARYx1s2018 65 ) { $ ti ( } \ \ \\ \\ 88 888 \ \ ,8888888888 \\ \ \ \ \\\ \\\\ \\ \ �/\ v 8 \} \ �\ \ /\\ - 88888888L;8, \ \\ \ \ } �( {} ) \"r 888888 88 8888888 \:ig4 g ' \ g"'° \\\ \} \\ } g \\\ 8888888 8 \\� g-\g \\\ \\\\,6\}\\\ \\ \\\j\}888888 \\ \\\\}\\ \ 0 \ 0, }�@2 !) ® - Pe ; : 2!± ( / E �$k 86 jt\ » § / §\ § 8C5o !§:!�© _ ° &: 2@S L,0_ z , L., / 4(422Li' i0 D1 0 53 (\ §�!! � : ) \\ ( ° czOLT, § o - \ z - � r ® ` »\ /§ 2( ((§k(§` > of,o-L/ !) ; e \ ( § ( 5 /5§ }) /§ $ (§2 § \4: ;! §§ !! &4!;( ! :# 1=,, 6= : }; !)§ 2 ; § - § ! ) :§ 2urt;,! ) §m !r![) )§ } \ _ : 2lj , § § \\ \}( \) \ ! !$§}\) /§ r§7G§ !y §§f!! a \§§\!2; §§ ; ) § « ; «2« ; ! « » a/ §l� ,2 � An' »„@�_ ;:- ;; aE = §\\ \\\ \\ \\ \\\ \\\\ \ \\ \\ \\ \\\ \ \\\ \\ } \\\\\\ \\ ) \ (0 j } } 8888888888888888888 '6!,1 , „ 38$ q333 ,c; ' 88888888888888888388 88 88888883883 ,5 a@aaaa § § (\\ \ / }}}}}\})}JJR7§(R¢:r \ \\ 9q H\! 4 !! \ > ''1,2 - ! 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\(�\�\8,q\ } � �� - \ 15, �� 2 11 0til AE2 «YA \( )\®: >\\ \� \! \ _ 11 22 - `- :: l: ° 2 2I> § upo / E) 5 LL,1m )2,92,' ( �7: = ;Q( §\, } }� - ] \;-,,t, ! 0'EL csm g I E Rt : } ((\( L21,5§(§}`i 6,c }k6LL1 M,q( ) (- ) §§§/ a , : e, ,, :s::: ! l;e �� �� , lBM2ar ) ,> a ;J ) \§ \\ `0,110 000 00 000 00000 000000000000 , @@G.1 @GGG (s,if. @@@G@@2@2c.— .— 22@2 1 Elk River Municipal Utilities Business Plan/Budget 2018 Electric Department Capital Budget Capital Construction Projects-Non-Recurring Normal Distribution,Feeders,and Substations Labor Priority Cost Description 4 $ 75,000 OH and URD 197th to GRE Transmission 5 $ 35,000 Otsego Street Lights 2 $ 50,000 Area 3&4 rebuild 1 $ 600,000 Area 5&6 prep 3 $ 50,000 Highway 10 Bridge Subtotal $ 810,000 Capital Construction Projects-Recurring Cost Description $ 200,000 Transformers and Meters $ 350,000 New Development Distribution Installation $ 50,000 Ongoing OH Equip Replacement(Poles,Switches,Cut-Outs) $ 100,000 Ongoing URD Equip Replacement(Switches,J-Boxes,Fuse Pads) $ 20,000 Street Lighting Replacement $ 500 Territory Acquisition-Loss of Revenue payment(1991 contract) $ 511,117 Territory Acquisition-Loss of Revenue payment(2015 contract-Area 1 &2) Reserves $ 350,000 Future Territory Acquisition(Area 5&6 Plant) Reserves $ - Additional Feeders Subtotal $ 1,581,617 Administration Noteworthy Non-Recurring Expenses Cost Description Subtotal $ - Capital Equipment Needs Cost Description $ 7,500 Laptop Computers,Software,Accessories $ 2,000 SCADA equipment Replace Digger Truck#10 with new 2020 $250,000 $ 250,000 Replace Bucket Truck#21 with new Replace Bucket Truck#8 with new 2019 $250,000 $ 36,000 Replace Bobcat/skidloader 80/20% $ 70,000 550 Truck $ 8,500 Replace tracks on bore rig $ 35,000 Triple-bunk self loading trailer $ 270,000 Field Services Building addition ?years 80/20% Bond$5,000,000 $ 18,000 80%share of Administration and Technical Services Subtotal $ 697,000 Total $ 3,088,617 71 Elk River Municipal Utilities Business Plan/Budget 2018 Water Department Capital Budget Water Capital Construction Needs Cost Description $ 240,000 Water Main Construction MNDot Project $ 70,000 Well 5 Fitter Sandblast/Paint $ 40,000 Well 9 Rehabilitation $ 100,000 Facility Repair $ 15,000 Auburn Tower Engineering Documents prep for 2019 Subtotal $ 465,000 ' Water Noteworthy Non-Recurring Expenses Cost Description Repairs&Maintenance (moved to expense budget) $ - Computers $ 10,000 Meters/ERT $ 15,000 Miscellaneous Tower Repairs/Maintenance $ - Jackson Water Tower $90,000 Reserves Subtotal $ 25,000 Capital Equipment Needs Cost Description $ - Trucks $ 9,000 Replace Bobcat/skidloader 80/20% $ 4,500 20%share of Administration and Technical Services $ 30,000 Field Services Facility site work Subtotal $ 43,500 Total $ 533,500 72 Elk River Municipal Utilities Business Plan/Budget 2018 Administration and Technical Services Departments Capital Budgets Administration Capital Equipment Needs Cost Description $ 7,000 Computer, Software,Accessories-Upgrades Subtotal $ 7,000 Administration Noteworthy Non-Recurring Expenses Cost Description $ 15,000 Office Furniture carried forward 2017 $ 500 printers/scanners Subtotal $ 15,500 Total $ 22,500 Technical Services Capital Equipment Needs Cost Description $ 7,500 Computers,Software,Accessories-Upgrades Diesel Engines Emission Retrofit $ 350,000 Currently designated as emergency standby, Diesel Plant to run on Natural gas. $ 20,000 Deferred until MMPA transition $ 45,000 Electric vehicle? #33 Meter Reading $ 45,000 Pickup trucks #14 Locating Subtotal $ 97,500 Technical Services Noteworthy Non-Recurring Expenses Cost Description $ 10,000 ?Mobile Access Software $ 1,000 Operating Software for server blade $ 18,000 ARC GIS Enterprise $ 5,000 ESRI user licenses online account Subtotal $ 34,000 Total $ 131,500 73 ELK RIVER MUNCIPAL UTIUTIES BUSINESS PLAN/BUDGET TRAINING AND TRAVEL BUDGET FOR 2018 Budget Budget Budget Budget ELECTRIC 2015 2016 2017 2018 MMUA Overhead Hot Line School 3 people 3,111.00 3,165.00 3,16500 3,165.00 MMUA Underground School 3 people 3,111.00 3,165.00 3,165.00 3,165.00 MMUA Transformer School 3 people 3,111.00 3,165.00 3,165.00 3,510.00 MMUA Substation Workshop 2 people 2074.00 2110.00 2,110.00 2,110.00 1st Line Supervision 1 person 300.00 1,47000 1,470.00 1,700.00 Apprenticeship 4 people 3,750.00 1,602.00 1,602.00 2,200.00 MMUA Meter School 2 people 1,940.00 1,940.00 1,940.00 1,940.00 MMUA Locator Workshop 2 people 650.00 720.00 72000 72000 Regional Workshop 10 people 450.00 650.00 650.00 650.00 Infrared Camera training 1 person 529.00 750.00 GPS 1 person 1,500.00 750.00 750.00 750.00 APPA Linemen Rodeo team 3 people 5,500,00 4,340.00 4,284.00 4,284.00 Cross Training School/Diesel Workshop 2 people 955.00 1,910.00 PCB Training 1 person 1,42000 1,42200 Member Information Conf(NISC) 1 person 1,800.00 1,800.00 Additional Training 1,000.00 1,000.00 2,000.00 2,000.00 27,026.00 25,032.00 28,249.00 32,082.00 WATER Water Certification Continuing Education 3 people 4,000.00 2,000.00 2,000.00 2,00000 Wastewater Certification Continuing Education 3 people 1,000.00 1,500.00 1,500.00 1,500.00 1st Line Supervision 1,200.00 1,47000 Meter School/Training 1 person - Cross Training School 1 person Apprenticeship 1 person Chamber Leadership Program 1 person Addtional Training 50000 1,000.00 2,500.00 2,500.00 6,700.00 5,970.00 6,000.00 6,000.00 TECHNICAL SERVICES MMUA Locator Workshop 1 person 1,366.00 695.00 750.00 MMUA Staking Workshop 1 person - 750.00 750.00 MMUA Diesel Workshop 1 person 750.00 755.00 75000 75000 Engineering seminar 1 person 2000.00 UMMA Meter Workshop 1 person 1,660.00 842.50 1,806.00 903.00 CAD Workshops/GPS - 750.00 750.00 ESRI User Conference 1 person 2,845.00 Substation School 1 person 890.00 Power Quality training 400.00 750.00 Infrared Camera training - 535.00 70000 UMMA winter mtg 2 people 850.00 653.00 800.00 UMMA summer mtg 1 person 653.00 400.00 lst Line Supervision 250.00 Electrical Licensing 1 person 360.00 360.00 360.00 Cross Training School 1 person 810.00 890.00 Apprentice Meter Program(2) 2,400.00 2,450.00 4,800.00 Additional Training 1,000.00 1,000.00 1,000.00 1,000.00 7,826.00 9,797.50 11 472.00 13,088.00 ADMINISTRATION AWWA Water Certification Continuing Education 1,57250 1,600.00 1,700.00 MRWA Water Certification Continuing Education 500.00 500.00 Wastewater Certification Continuing Education 500.00 500.00 100.00 MV-RS Meter/Software training 1 staff - 650.00 - AWWANational Conference 3,000.00 2100.00 Financial Publishing and Design Software trng 1 staff 1,000.00 1,000.00 Engineering MMUA Annual Summer Meeting 3 staff/5 comm 3,750.00 4,525.00 4,525.00 7,090.00 MMUA Legislative Round-up 2 staff/0 comm 3,200.00 2,650.00 1,370.00 870.00 APPA Legislative Round-up 1 staff/1 comm 2,793.88 4,650.00 4,650.00 2950.00 or Engineering/Operator Workshop MMUA T&O Conference 4 staff 1,800.00 2,40000 2,400.00 2,400.00 MMUA Legal Seminar 250.00 Clerk's Conference 519.00 60000 950.00 950.00 MMUA Leadership Academy 2 staff 1,470.00 3,000.00 6,220.00 APPA E&O Conference 2 staff 6,020.00 4,140.00 4,140.00 APPA National Conference 1 staff/0 comm 4,940.00 1,800.00 1st Line Supervision 2 staff 3,400.00 Member Information Conf(NISC) 2 staff 3,600.00 APPA Training(Mgmt,CS,Fin,Eng,CA,etc) 7,900.00 5,670.00 2,140.00 2,500.00 Management Training 2,250.00 2,500.00 3,000.00 5,000.00 Additional Training 1,000.00 1,000.00 1,000.00 1,000.00 31,656.88 35,707.50 38,715.00 45,820.00 OFFICE Member Information Conf(NISC) 3 staff 6,200.00 7,800.00 9,000.00 5,400.00 Customer Service 3,50000 3,500.00 3,500.00 Chamber Leadership Program 1 person 350.00 350.00 350.00 40000 Financial/Accounting(APA,CPA,SHRM&General) 2,925.00 Additional Training 1,000.00 1,000.00 6,550.00 11,650.00 13,850.00 13,225.00 SAFETY TRAINING Safe Driver Training 2100.00 2100.00 2100.00 2,100.00 Hearing Test 500.00 500.00 700.00 700.00 MMUA Monthly Safety Meetings 25,250.00 26,600.00 26,600.00 28,85000 27850.00 29,200.00 29,400.00 31,650.00 EDUCATION 3,000.00 3,000.00 3,000.00 3,000.00 110,608.88 120,357.00 130,686.00 144,865.00 Increase 7.7% 8.8% 8.6% 10.8% Page 1 74 2018 CIP Operating Budget Required Spending and Savings Goals Total Spending Requirement 1.5% of GOR $ 502,220.24 Low Income .2%of Residential GOR $ 22,711.64 Minimum Conservation Spending Requirement $ 251,110.12 Maximum Load Management Spending Requirement $ 251,110.12 Customer Side of the Meter Savings Goal (kWh) 2,547,256 Distribution Savings Goal (kWh) 1,273,628 Total CIP Budget 2018 Direct Labor $ 105,069 General &Administration $ 50,445 Advertising $ 32,600 Equipment $ 2,500 Contract(Includes$139,500 LM Transition) $ 177,500 Total $ 368,114 ERMU Rebates $ 121,250 Great River Energy Rebates (Estimated) $ 164,887 Total all Expenses and Rebates $ 654,251 Total Estimated kWh Savings 2,623,672 Total Operating CIP Budget No Rebates Only Direct Costs Direct Labor $ 105,069 Advertising $ 32,600 Equipment $ 2,500 Contract(Includes$139,500 LM Transition) $ 177,500 Total ERMU Operating Expenses $ 317,669 Total Rebate Budget ERMU Self Funded $ 121,250 Great River Energy $ 164,887 $ 286,137 Total Requested Budget Direct Labor $ 105,069 Advertising $ 32,600 Equipment $ 2,500 Contract(Includes$139,500 LM Transition) $ 177,500 ERMU Self Funded Rebates $ 121,250 Total Requested 2017 Budget* $ 438,919 *No General and Administrative Included N:\Office\CIP and Key Accounts\GRE Rebates\2018 Budget\2018 Budget\2018 Rebate and Operating Budget.xls2018 Rebate and Operating Budget.xls2018 CIP Summary 75 Elk River Municipal Utilities Proposed 2018 Retail Rate Customer Impact Study Monthly Electric Usage 2017 Proposed 2018 Demand(kW) Energy(kWh) Rate($) Rate($) Increase Residential Electric Meter Charge $ 13.00 $ 13.50 3.85% Summer Energy Charge $ 0.1363 $ 0.1370 0.51% Winter Energy Charge $ 0.1209 $ 0.1215 0.50% Typical Customer#1 1000 $ 1,684 $ 1,698 1 0.81% $ 14 Commercial Non-Demand Electric Meter Charge $ 25.00 $ 26.00 4.00% Summer Energy Charge $ 0.1306 $ 0.1314 0.61% Winter Energy Charge $ 0.1089 $ 0.1095 0.55% Typical Customer#1 5,000 $ 7,377 $ 7,430 1 0.72% $ 53 Typical Customer#2 10,000 $ 14,453 $ 14,547 1 0.65% $ 94 Commercial Demand Electric Meter Charge $ 70.00 $ 75.00 7.14% Energy Charge $ 0.0658 $ 0.0667 1.37% Summer Demand Charge $ 16.94 $ 17.00 0.35% Writer Demand Charge $ 11.99 $ 12.00 0.08% Typical Customer#1 200 60,000 $ 81,942 $ 82,724 1 0.95% $ 782 Typical Customer#2 300 90,000 $ 122,493 $ 123,636 1 0.93% $ 1,143 Typical Customer#3 5,000 35,040,000 $ 3,149,622 $ 3,183,068 1 1.06% $ 33,446 Load LF Customer 80 5,000 $ 16,030 $ 16,169 1 0.87% $ 139 Monthly Water Usage(1000 gals) 2017 Proposed 2018 Month Total 1st Tier 2nd Tier 3rd Tier Rate($) Rate($) %Increase Residential Water Meter Charge $ 8.86 $ 9.04 2.03% 1st Tier $ 1.77 $ 1.81 2.26% 2nd Tier $ 3.50 $ 3.50 0.00% 3rd Tier $ 4.00 $ 4.00 0.00% Typical Customer#1 Jan 4.65 4.65 0:00 0.00 $ 17.09 $ 17.46 2.14% Feb 4.38 4.38 0.00 0.00 $ 16.61 $ 16.97 2.14% Mar 3.95 3.95 0.00 0.00 $ 15.85 $ 16.19 2.13% Apr 4.43 4.43 0.00 0.00 $ 16.70 $ 17.06 2.14% May 4.63 4.63 0.00 0.00 $ 17.06 $ 17.42 2.14% Jun 6.93 6.93 0.00 0.00 $ 21.13 $ 21.58 2.16% Jul 10.34 9.00 1.34 0.00 $ 29.48 $ 30.02 1.83% Aug 12.52 9.00 3,52 0.00 $ 37.11 $ 37.65 1.46%' Sep 14.08 9.00 5.08 0.00 $ 42.57 $ 43.11 1.27% Oct 10.40 9.00 1.40 0.00 $ S 29.69 $ 30.23 1.82% Nov 5.89 5.89 0.00 0.00 $ 19.29 $ 19.70 2.16% Dec 4.50 4.50 0.00 0.00 $ 16.83 $ 17.19 2.14% Annual $ 279.40 $ 284.57 1.85% $ 5 76