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5.2. ERMUSR 10-08-2019 Elk River Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: ERMU Commission Theresa Slominski—Administrations Director MEETING DATE: AGENDA ITEM NUMBER: October 8, 2019 5.2 SUBJECT: 2020 Annual Business Plan: Water and Electric Expenses ACTION REQUESTED: None. DISCUSSION: In preparation for submittal in November, staff continues to work through the 2020 budget process.The first draft of the expense portion of the 2020 budget has been completed for commission review. Items are subject to change as the complete 2020 budget is assembled and the finalized wholesale power costs and revenues are reflected. Revenues and rates, and wholesale power costs for 2020 will be presented in November. Attached is the following information for your review. Additional budget detail is available upon request. Please contact staff for additional information. 1. Electric Department Expense Budget—The 2020 forecast for electric expenses are a 7.85% increase over the current year budget. Wholesale power costs make up between 70-75% of the operating budget and will be provided in next month's budget with the revenue projections. Most notable increases are for contracted tree trimming, and administrative expense increases for the website redesign, IT projects, and staff related expenses due to the reorganization.These preliminary expense numbers are conservatively high and will likely be adjusted downward during the next phase of budgeting when the 2020 rates are designed. The 2019 budgeted purchased power cost amount was$25,724,105.The projected wholesale power cost increase is 1%, but may vary slightly when the rate formula is applied to ERMU's load profile and anticipated growth. Preliminarily applying the 1% projected wholesale power cost increase resulted in a preliminary amount of $25,681,347. When factoring the preliminary wholesale power cost forecast and the preliminary electric department expense budget, the overall preliminary electric department expense budget increase is 3.2%. The 2019 overall electric department expense budget increase was 2.67%. And in 2019, ERMU was able to lower electric rates by 5% because of growth, the switch to a new wholesale power provider, and efficiencies gained through implementation of multi-billing cycles. So, the preliminary expense increase does not necessarily directly correlate to rate increase. Page 1 of 2 250 The budgeted Payment in Lieu of Taxes (PILOT) amount for 2020 is$1.5 million, based upon the recalculation to include recently acquired territory customers.The PILOT is comprised of$1.36 million with the 4%of Elk River City's sales calculation, and $218,000 in donated utilities and labor. This increase is reflected in the preliminary budget; however,this change in policy has not been approved at the time of publication of these materials. With consideration of all of the preliminary expense numbers, the proposed increase of$169,000 has a 0.45% impact to the preliminary overall electric department expense budget increase when including preliminary purchase power cost projections. 2. Water Department Expense Budget—The 2019 forecast for water expenses are a 5% increase over the current year budget. Most notable increases are on the administrative side for the website redesign, IT projects, and staff related expenses due to the reorganization, as noted above for electric. ATTACHMENTS: • Preliminary 2020 Electric Expense Budget • Preliminary 2020 Water Expense Budget Page 2 of 2 251 ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA BUDGET FOR PERIOD ENDING DECEMBER 2020 2020 2019 2018 ANNUAL ANNUAL ANNUAL BUDGET BUDGET ACTUAL Electric Expenses Operatine&Mtce Expense OPERATING SUPERVISION 109,513 109,310 97,581 DIESEL OIL FUEL 17,000 16,000 12,390 NATURAL GAS 27,000 26,000 24,212 STATION PWR&WTR CONSP/PLAN 33,000 33,000 32,508 OTHER EXP/PLANT SUPPLIES-ETC 7,000 3,600 4,928 MISC OTHER PWR GENERATION EX 7,000 5,200 8,919 MAINTENANCE OF STRUCTURE/PL 19,000 30,000 23,123 cleaning contract reallocated MTCE OF ENGINES/GENERATORS-P 32,000 37,500 7,985 MTCE OF PLANT/LAND IMPROVEM 25,000 20,000 20,788 Total For Operating&Mtce Expense: 276,513 280,610 232,434 Landfill Gas LFG PURCHASED GAS 175,570 172,565 163,424 LANDFILL GAS O&M 565,000 550,000 560,859 LFG ADMIN 39,000 38,800 27,821 LFG INSURANCE 20,500 20,375 16,308 LFG MTCE 6,000 6,000 1,210 Total For Landfill Gas: 806,070 787,740 769,622 Transmission Expense TRANSMISSION MTCE AND EXPENS 39,000 38,199 19,669 Total For Transmission Expense: 39,000 38,199 19,669 Distribution Expense REMOVE EXISTING SERV&METER 1,600 2,500 1,468 SCADA EXPENSES 30,000 31,000 26,747 TRANSFORMER EX/OVERHD&UND 25,000 25,000 18,535 MTCE OF SIGNAL SYSTEMS 2,600 2,600 2,566 METER EXP-REMOVE&RESET 1,200 2,500 479 TEMP SERVICE-INSTALL&REMOV 1,200 2,500 1,385 MISC DISTRIBUTION EXPENSE 330,000 325,000 240,663 INTERCONNECTION CARRYING CH 15,588 2,416 0 Total For Distribution Expense: 407,188 393,516 291,846 Maintenance Expense MTCE OF STRUCTURES 21,500 7,500 4,005 cleaning contract reallocated MTCE OF SUBSTATIONS 28,000 25,500 22,454 MTCE OF SUBSTATION EQUIPMENT 35,000 35,000 11,170 MTCE OF OVERHD LINES/TREE TRI 200,000 125,000 184,783 utilizing contracted tree trimming services 2020 MTCE OF OVERHD LINES/STANDBY 31,000 31,000 28,921 MTCE OF OVERHEAD 155,000 155,000 143,499 MTCE OF UNDERGROUND/DISTRIB 135,000 118,000 131,004 LOCATE ELECTRIC LINES 95,000 100,000 46,143 LOCATE FIBER LINES 1,000 0 0 MTCE OF LINE TRANSFORMERS 51,000 51,000 75,299 MTCE OF STREET LIGHTING 45,000 41,000 49,972 MTCE OF SECURITY LIGHTING 13,000 13,000 9,092 MTCE OF METERS 110,000 150,000 129,496 load management installation not included here VOLTAGE COMPLAINTS 10,000 8,300 5,632 SALARIES/TRANS&DISTRIBUTION 45,617 53,792 36,759 ELECTRIC MAPPING 115,000 125,000 115,818 MTCE OF OVERHEAD SERVICE/2ND 20,000 18,000 15,826 MTCE OF UNDERGROUND ELEC SE 41,000 41,000 45,257 LOCATE UNDERGROUND SECOND 31,262 TRANSPORTATION EXPENSE 225,000 210,000 223,505 Total For Maintenance Expense: 1,377,117 1,308,092 1,309,897 252 ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA BUDGET FOR PERIOD ENDING DECEMBER 2020 2020 2019 2018 ANNUAL ANNUAL ANNUAL BUDGET BUDGET ACTUAL Depreciation&Amortization DEPRECIATION 2,566,370 2,895,535 2,131,465 AMORTIZATION 688,179 0 165,882 Total For Depreciation&Amortization: 3,254,549 2,895,535 2,297,347 Interest Expense INTEREST ON BONDS/LONG TERM 704,125 687,947 430,644 INTEREST ON DEFEASED BONDS (570) (3,316) (3,316) AMORTIZATION OF DEBT DISCOUN (49,596) (48,152) (45,327) Total For Interest Expense: 653,959 636,479 382,000 Other Operatine Expense EV CHARGING EXPENSE 4,877 4,848 3,686 LOSS ON DISPOSITION OF PROP(CA 12,630 0 20,962 OTHER DONATIONS 4,104 5,000 2,238 MUTUAL AID 17,599 0 1,281 PENSION EXPENSE 103,000 100,000 (53,193) OPEB EXPENSE 2,910 INTEREST PD ON METER DEPOSITS 23,828 15,000 20,816 RENTAL PROPERTY EXPENSE 9,655 6,000 8,720 Total For Other Operating Expense: 175,693 130,848 7,420 Customer Accounts Expense METER READING EXPENSE 29,299 30,000 21,271 COLLECTING EXP DISC/RECONNEC 15,226 15,000 13,694 MISC CUSTOMER ACCTS EXP-COM 279,000 259,000 255,891 bill redesign,CRC increase CUST BLGS NOT PD/SENT FOR COL 22,381 45,000 (63,451) Total For Customer Accounts Expense: 345,906 349,000 227,405 Administrative Expense SALARIES/OFFICE&COMMISSION 840,000 776,132 600,865 additional staff,reorg TEMPORARY STAFFING 4,000 4,000 13,596 OFFICE SUPPLIES&EXPENSE 191,441 119,000 78,473 website 50k,IT projects 67.5k LT&WATER CONSUMPTION/OFFIC 30,587 35,000 28,398 BANK CHARGES 2,639 3,000 2,684 LEGAL FEES 26,428 30,000 35,893 AUDITING FEES 16,562 16,080 16,400 INSURANCE 165,000 158,900 152,623 UTILITY SHARE DEF COMP 103,000 120,000 73,558 additional staff,reorg UTIL SH OF MEDICAL/DENTAL/DIS 772,100 735,000 634,702 additional staff,reorg UTILITY SHARE OF PERA 259,529 245,000 221,038 additional staff,reorg UTILITY SHARE OF FICA 246,849 235,000 209,454 additional staff,reorg EMPLOYEE SICK PAY 133,983 115,000 110,089 additional staff,reorg EMPLOYEE HOLIDAY PAY 135,643 128,000 123,508 additional staff,reorg EMPLOYEE VACATION&PTO PAY 227,957 205,000 205,312 additional staff,reorg UPMIC DISTRIBUTION 68,224 59,000 48,416 additional staff,reorg CONSULTING FEES 34,000 30,000 52,986 TELEPHONE 22,098 21,168 22,134 ADVERTISING 11,097 18,000 28,238 DUES&SUBSCRIPTIONS-FEES 164,800 160,000 218,371 SCHOOLS&MEETINGS 271,396 225,126 149,251 MTCE OF GEN PLANT/OFF HEATIN 5,841 6,000 5,439 Total For Administrative Expense: 3,733,174 3,444,406 3,031,428 253 ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA BUDGET FOR PERIOD ENDING DECEMBER 2020 2020 2019 2018 ANNUAL ANNUAL ANNUAL BUDGET BUDGET ACTUAL General Expense CIP REBATES-RESIDENTIAL 75,625 66,550 8,125 CIP REBATES-COMMERCIAL 210,200 176,200 245 CIP-ADMINISTRATION 720 126,265 695 CIP-MARKETING 43,400 33,600 7,507 CIP-LABOR 135,338 107,034 137,261 CIP REBATES-LOW INCOME 5,000 1,500 0 CIP-LOW INCOME LABOR 4,500 0 13,604 ENVIRONMENTAL COMPLIANCE 30,564 27,000 27,895 MISC GENERAL EXPENSE 4,800 5,000 10,940 Total For General Expense: 510,147 543,149 206,275 Total Exnenses(before Oneratine Transfers) 11,579,316 10,807,574 8,775,343 Operating Transfer Operatine Transfer/Other Funds TRANSFER TO CITY 4%ER REVENU 1,364,021 1,182,034 1,188,663 Total For Operating Transfer/Other Funds: 1,364,021 1,182,034 1,188,663 Utilities&Labor Donated 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