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5.3 ERMUSR 5-12-2020UTILITIES COMMISSION MEETING TO:FROM: ERMU Commission Tom Sagstetter – Conservation & Key Accounts Manager MEETING DATE: AGENDA ITEM NUMBER: May 12, 2020 5.3 SUBJECT: Electric and Water Cost of Service and Rate Design Study ACTION REQUESTED: Review the Electric and Water Cost of Service and RateDesign Study Draft Reports BACKGROUND: ERMU staff has been working with Dave Berg Consulting, LLC on electric and water cost-of- service and rate design studies. The work was done to evaluate possible changes to electric and water retail rates, and applicable fees for each utility. Staff evaluated changes in operating conditions, including but not limited to monthly fixed costs, additional service fees, bonding for the new field services building, and retail energy and water rates. DISCUSSION: Mr. Berg will discuss the preliminary findings prior to the preparation of the final reports. ATTACHMENT: Electric Cost of Service and Rate Design Study – Draft Report Water Cost of Service and Rate Design Study – Draft Report ______________________________________________________________________________ Page 1 of 1 141 ELECTRIC COST OF SERVICE AND RATE DESIGN STUDY DraftReport May12,2020 142 REPORTOUTLINE CoverLetter Section 1 -Introduction Section 2 Projected Operating Results Existing Rates Section 3 Cost of Service Section 4 Proposed Rates 143 May 12, 2020 Elk River Municipal Utilities Commission 13069 Orono Parkway PO Box 430 Elk River, MN 55330 Subject: Electric Rate Study Commission Members: Dave Berg Consulting, LLC has undertaken a study of the retail rates Elk River Municipal Utilities (ERMU) charges its customers for electric service. This report summarizes the analyses undertaken and the resulting recommendations for changes to the existing rates. This preliminary report contains financials assuming a 1.5% rate increase each year from 2021-2024. Final rate recommendations will be developed following discussion of these results with the Commission. Thank you for the opportunity to be of service to ERMU through the conduct of this study. I wish to express my appreciation for the valuable assistance I received from ERMU staff relative to the execution of this study. Sincerely, Dave Berg Consulting, LLC David A. Berg, PE Principal 5ĻķźĭğƷĻķ Ʒƚ ƦƩƚǝźķźƓŭ ƦĻƩƭƚƓğƌ ƭĻƩǝźĭĻ Ʒƚ ĭƚƓƭǒƒĻƩΏƚǞƓĻķ ǒƷźƌźƷźĻƭ Dave Berg Consulting, LLC | 15213 Danbury Ave W, Rosemount, MN 55068 | 612-850-2305 www.davebergconsulting.com 144 Section 1 Introduction The City of Elk River, MNownsa municipal utility providing service to approximately 12,100retail electric customers.The electric utility isoperated by Elk River Municipal Utilities(ERMU) and isunder the direction of the Elk River Municipal Utilities Commission. This report has been prepared by Dave Berg Consulting, LLC to examine the rates and charges for electricservice in Elk River. The study includes an examination of the allocated cost ofservice based on actual 2019utility operations(Test Year).It also includes projected operating resultsfor 2020-2024(Study Period). As a result of the analyses undertaken and reported on herein, electric raterecommendationshave been developedfor consideration by ERMU. -1- 145 Section 2 Projected Operating Results Existing Rates The rates charged for electric service by ERMU, combined with other operating and non- retail customers. This is necessary in order to ensure the long-term financial health of ERMU. The cost of providing electric service consists of normal operating expenses such as production and purchased power, transmission and distribution functions, customer and administrative functions, system depreciation expenses, capital improvements, payments on outstanding debt and contributions to the City of Elk River and other non- operating expenses. An analysis of the operating results for ERMU during the 2020-2024 Study Period has been performed assuming the current retail rates and charges remain in effect for the electric utility through the Study Period. This analysis has been done to determine the overall need, if any, for additional revenue through rates to meet projected revenue requirements. The analyses and assumptions utilizedin these projections are explained below. Estimated Revenues Existing Rates ERMU sells retail power and energy to residential, commercial and industrial customers. ERMU has recently been experiencing growth in total retail sales to its electric customers, primarily associated with the acquisition of additional electric service territory. During the Study Period, ERMU does not anticipate acquiring any additional new service territory areas. Based on a conservative assumption regarding sales growth, no increase in sales during the Study Period beyond the 2019 actual sales has been included in this analysis. 146 Projected Operating Results Existing Rates Exhibit 2- results at existing rates. The existing ERMU retail rates went into effect Jan. 1, 2019 and represented a rate reduction of5% at that time. The historical and projected revenues from retail sales of power and energy to different groups of customers are included as Charges for Services at the beginning of the exhibit under Operating Revenues. ERMU also receives revenue from other normal operating procedures. These revenues are shown in Exhibit 2-A below the charges for services. These include landfill gas generation sales,connection charges and customer penalties. Utility Revenues Revenue Requirements ERMU currently meets its wholesale power requirements through purchases from the Minnesota Municipal Power Agency (MMPA). Projections of wholesale power expenses are based on anticipated MMPA rate increases during the Study Period. e 2019 Test Year are shown in Table 2-1. -3- 147 Section 2 Item 2019 Metered Retail Sales325,232,320 kWh Distribution Losses3.4 % Wholesale Energy336,570,637 kWh Wholesale Peak72,798 kW ERMU incurs other operating expenses associated with local electric system operations. Transmission and distribution operating and maintenance expenses are related to the substations, overhead and underground lines and customer facilities located in ERMU. Operating expenses also include production related expenses for the landfill gas generation project and the local peaking power plant. ERMU also has customer account expenses related to serving retail electric customers. Administrative and general expenses are required for utility management, employee benefits, training and other administrative costs. Non-wholesale power related expenses are based on 2019 values, the 2020 budget and are generally estimated to increase by 3%per year after 2020. -4- 148 Projected Operating Results Existing Rates ERMU has annual depreciation costs based on its system investments. Depreciation during the Study Period is based on budgeted ERMU amounts and future capital improvements. Depreciation is a funded non-cash expense that generates monies available for annual capital improvements and reserves. -operating revenue is primarily associated with investment income and miscellaneous revenues. Non-operating expenses are related to interest expense for existing debt and the planned 2021bonding. assumed to be 4% of electric retail sales revenuefor sales in Elk River. ERMU makes annual normal capital investments in its electric system. Annual electric capital improvements for the Study Period, as budgeted by ERMU, are shown in Table 2- 2 below. Capital Item20202021202220232024 Electric Capital $4,540,700 $15,105,500 $3,406,750 $2,854,000 $3,332,200 -5- 149 Section 2 ERMU currently has outstanding electric debt pursuant to a 2010 bond issue related to the Elk River City Hall expansion, a 2016 electric bond issue and a 2018 electric bond issue. It is assumed the electric utility will participate with the water utility in a new $13.59 millionbond issue in 2021related to expansion of the ERMU field service facilities. The debt payments for$12,231,000 ofthat issue have been allocated to the electric utility. Projected Operating Results Existing Rates Based on the assumptions outlined above, the resulting projected operating results assuming continued application of the existing retail rates are summarizedin Table 2-3 for the electric utility. A summary presentation of the operating results is shown in Exhibit 2-A. The results below are provided as an indication of revenue needs in the future. Year 20202021202220232024 Operating Revenues $37,990,288 $37,990,288 $37,990,288 $37,990,288 $37,990,288 Less Operating (35,480,019) (36,070,782) (37,020,347) (37,586,795) (38,141,864) Expenses Plus Non -Operating (79,079) (92,791) (679,534) (489,326) (456,653) Revenues (Expenses) Less City Transfers (1,365,000) (1,365,000) (1,365,000) (1,365,000) $(1,365,000) Change in Net Position $1,066,189 $461,714 $(1,074,594) $(1,450,833) $(1,973,230) Net Position as 2.8% 1.2% -2.8% -3.8% -5.2% Percent of Revenues -6- 150 Projected Operating Results Existing Rates Cash Reserves unrestricted cash reserves for the Study Period is shown at the end of Exhibit 2-A and in Table 2-4 below. As shown below, under existing retail rates and estimated revenue requirements over the Study Period, the unrestricted cash reserves for the electric utility are projected to decrease from approximately $14.9million at the end of 2019 to approximately $2.6 million by the end of 2024. Also shown in Table 2-4 is the reserve balance goal based on ERMU policy. The end of year reserve balance is projected to decrease from 173% of reserve goal to 31% of reserve goal. Year 20202021202220232024 Beginning Balance $14,881,922 $12,714,089 $10,749,338 $8,067,046 $5,729,322 Plus Change in Net Position 1,066,189 461,714 (1,074,594) (1,450,833) (1,973,230) Plus Depreciation 3,030,678 3,182,035 3,685,551 3,799,110 3,894,243 Plus Bond Proceeds - 11,250,000 - - - Less Capital Improvements (4,540,700) (15,105,500) (3,406,750) (2,854,000) (3,332,200) Less Loss of Revenue Pmts (800,000) (800,000) (800,000) (800,000) (800,000) Less Debt Principal (924,000) (953,000) (1,086,500) (1,032,000) (966,000) Ending Balance $12,714,089 $10,749,338 $8,067,046 $5,729,322 $2,552,136 Reserve Goal $7,362,998 $8,212,108 $8,099,589 $8,136,525 $8,275,657 Reserves as % of Goal 173% 131% 100% 70% 31% -7- 151 ----- 31% 2024 -5.2% 4,800 page 1 of 1 43,895 150,000210,000513,191100,000438,080 (151,577)(994,733)(456,653)(608,230)(800,000)(966,000) Exhibit 2-A 1,166,7421,162,4141,916,2163,894,2434,670,5785,729,3223,894,2432,552,1368,275,657 (1,365,000) (1,973,230) (1,973,230)(3,332,200) 36,458,74637,990,28825,941,32738,141,864 $ $ $ $ $ $ $ $ $ $ $ $ ----- 70% 2023 -3.8% 4,800 42,616 (85,833) 150,000210,000498,244403,493100,000438,080 (489,326)(800,000) 1,166,7421,128,5581,860,4043,799,1104,534,5428,067,0463,799,1105,729,3228,136,525 (1,027,406)(1,365,000) (1,450,833) (1,450,833)(2,854,000)(1,032,000) 36,458,74637,990,288 25,723,322 37,586,795 $ $ $ $ $ $ $ $ $ $ $ $ ----- 2022 100% -2.8% 4,800 41,375 150,000210,000483,732969,941 100,000438,080290,406 (679,534)(800,000) 1,166,7421,095,6871,806,2173,685,5514,402,4683,685,5518,067,0468,099,589 (1,217,614)(1,365,000) (1,074,594) (1,074,594)(3,406,750)(1,086,500) 36,458,74637,990,28825,505,31737,020,34710,749,338 Projected $ $ $ $ $ $ $ $ $ $ $ $ ---- 1.2% 2021 131% 4,800 40,170 (92,791) 150,000210,000469,643100,000438,080461,714461,714 (630,871)(800,000)(953,000) 1,166,7421,063,7741,753,6093,182,0354,274,2401,919,5061,826,7143,182,0358,212,108 (1,365,000) 36,458,74637,990,288 25,287,312 36,070,782 12,714,089 11,250,00010,749,338 (15,105,500) $ $ $ $ $ $ $ $ $ $ $ $ ---- 2.8% 2020 173% 4,800 39,00048,152 (79,079) 150,000210,000455,964100,000438,080 (665,311)(800,000)(924,000) 1,166,7421,032,7901,702,5333,030,6784,149,7482,510,268 2,431,189 1,066,189 1,066,1893,030,6787,362,998 (1,365,000)(4,540,700) 36,458,74637,990,28825,069,30635,480,01914,881,92212,714,089 $ $ $ $ $ $ $ $ $ $ $ $ $ ------ 6.8% 2019 4,800 (2,050) 82,44010,000 194,295254,553528,743159,014568,635125,764 (643,159) 1,102,8351,020,8071,525,8272,856,2583,772,1503,539,5473,621,9872,600,306 (1,157,445) 36,538,15038,094,633 24,851,301 34,555,086 14,881,922 $ $ $ $ $ $ $ $ $ $ $ ----- -- 7.6% 2018 (4,963) 152 269,787199,753442,701330,110 372,253218,586 352,104 (729,208)(478,814) 1,128,7931,002,0641,658,1672,297,3493,090,6113,578,4993,797,0852,960,525 (1,188,664) 37,910,78038,779,90526,710,51435,201,406 $ $ $ $ $ $ $ $ $ $ Elk River Municipal Utilities ------ 5.4% 2017 79,54315,15240,000 234,365242,739873,651469,412344,558145,034169,051 (814,341)(294,219) 1,084,5891,511,6122,046,9353,090,2852,726,3532,871,3871,967,174 (1,113,264) 35,373,47236,120,824 25,402,576 33,394,471 Electric Operating Results at Existing Rates Historical $ $ $ $ $ $ $ $ $ $ --- -- 5.5% 2016 8,991 90,804 (85,195)(80,126) 177,572269,197253,137753,870534,273281,702330,923 (804,608)(198,194) 1,087,7491,287,9402,005,0933,254,3542,637,7972,646,7881,888,424 (1,089,287) 33,481,34934,464,39623,991,06931,826,599 $ $ $ $ $ $ $ $ $ $ ---- --- 6.4% 2015 8,899 95,533 251,488163,195238,339928,923856,076279,487267,243 (805,579)(116,676)(824,743) 1,075,1481,402,0461,922,3592,752,4432,655,5682,922,8112,098,068 31,629,13132,551,722 22,034,307 29,896,154 $ $ $ $ $ $ $ $ $ $ Charges for servicesSecurity systemsLFG projectGeneration creditConnection maintenanceCustomer penaltiesPurchased PowerProductionTransmissionDistributionDepreciationCustomer accountsGeneral and administrativeInterest incomeMiscellaneous revenueInterest expense and otherBond issuance costsSale of Security SystemGain (Loss) on sale of capital assetsAs Percent of Revenues Total Operating RevenuesTotal Operating ExpensesTotal Non-Operating Revenues (Expenses)Beginning of YearPlus Change in Net PositionPlus DepreciationPlus New DebtLess Capital ImprovementsLess Loss of Revenue PaymentsLess Debt PrincipalEnd of YearReserve goalPercent of goal OPERATING REVENUESOPERATING EXPENSESOPERATING INCOMENON-OPERATING REVENUE (EXPENSE)Income before Contributions and TransfersGrantsContribution of Assets from CityContributions from CustomersTransfers to Other City FundsSpecial ItemCHANGE IN NET POSITIONUNRESTRICTED CASH RESERVES Section 3 Cost-of-Service A cost-of-service analysis was performed to determine the allocated cost to serve exist, in part, because the cost to serve various kinds of customers varies. The cost-of-servic 2019 financials, operations and sales. The results of the cost-of-service study give an indication of the degree of revenue recovery warranted for each class of customers. A comparison of the allocated cost to serve a group of customers and the actual revenues received from those customers is taken into consideration during rate design. Functionalization of Costs ERMUelectric revenue requirements have been divided into four functional categories. These categories are described below. Power Supplythe power supply function is related to the cost of ERMU purchases of wholesale power through MMPA and costs related to local generating units. Distribution the distribution expenses are related to the ERMU system for delivering power and energy to ERMU customers. They include substation and distribution system costs. It also includes the fixed costs associated with the service facilities utilized to deliver electric power and energy directly to customers. Customer these include items such as meter reading, billing, collections and dealing with customers by customer service representatives. Revenue revenue related costs include certain non-operating revenues and utility margin. 153 Cost-of-Service Table 3-1 below summarizes the functional electric costs for the 2019 Test Year. The detailed cost functions are shown in Exhibit 3-A. Revenue ComponentRequirement Power Supply$27,600,423 Distribution5,155,797 Customer1,068,193 Revenue2,406,282 Total$36,230,694 Classification of Costs Within each function, the revenue requirements have been divided into distinct cost classifications.These cost classifications are described below. Demand Relateddemand related costs are fixed costs that do not vary with hourly consumption. Demand related costs are required to meet the overall demand of the system as expressed in kW. Energy Related energy related costs vary based on hourly consumption in kWh. Customer Related costs related to serving, metering and billing of individual customers. Revenue Related revenue related costs vary by the amount of revenue received by the utility. Exhibits 3-B through 3-D show the detailed classification of revenue requirements within the power supply, distribution and customer functions. -9- 154 Section 3 Allocation of Costs Based on an analysis of customer class service characteristics, the classified costs summarized above were allocated to the major ERMU customer classes. Allocation of costs was performed on a fully-distributed, embedded cost allocation basis. Specific allocation factors were utilized in each of the cost classification categories as described below. Exhibit 3-E contains a summary of the development of the various allocation factors. Customer class demands on a system can be reflected in various ways. Two primary demand allocation types were utilized in this analysis. Coincident peaks employed for allocating the power supply demand portion of the wholesale purchased power and production expenses. Non-coincident peaks reflect a class maximum demand regardless of when it occurs. The non-coincident peak is an indication of the amount of fixed local system required to serve individual groups of customers. A 1 NCP me demand on the system, was utilized for allocating local system demand related costs. costs. The predominant energy related costs are the energy portions of the purchased power and local generation expenses. -10 - 155 Cost-of-Service Two separate customer allocators were utilized. The customer facilities allocator was used to allocate costs associated with the physicalfacilities required to serve individual customers such as service transformers, service drops and meters. The customer service allocator is for allocation of costs associated with customer service meter reading, billing, collections and customer inquiries. For both the customer facilities and customer service allocators, a weighted customer allocation factor is developed. Weighting factors are developed to represent the difference in service configurations between customer classifications. For instance, a larger customer facility is required for a single large power customer than for a single residential customer, or a single large power customer requires more customer service than a single residential customer. Revenue energy, customer facility, customer service and direct costs. Cost of Service Results Based on the classifications and allocations described above, the estimated cost to serve each major class of customers for the 2019 Test Year was determined. Exhibit 3-F presents this analysis in detail. Table 3-2 below summarizes the total allocated electric costs for each class compared to the total electric revenues received from the class during 2019. -11 - 156 Section 3 Comparison of Cost and Revenues Customer Allocated Revenues ClassificationCost to Serve Residential $12,517,067 $13,112,952 Commercial Non-demand 3,271,967 3,445,080 Demand 12,977,419 12,647,421 Industrial 7,464,242 7,025,242 Total $36,230,694 $36,230,694 The revenue requirements and revenues as allocated to each class and summarized above are shown on a total dollars basis. Table 3-3 below makes the comparison based on percentages of total cost to serve and total revenues. The charts following Table 3-3show a graphical comparison between allocated cost to serve and revenues as a percentage of the totals. The percentage -3 is the adjustment necessary to produce revenues from each class in accordance with the allocated cost to serve. The percentage adjustments do not represent the recommended -of-service results are one item for consideration in rate design. It is important to note also that the adjustments shown in the table below would not change the total revenue received by the utility and are not indicative of overall revenue needs of the utility going forward. Recommendations regarding rate design are included in Section 4 of this report. -12 - 157 Cost-of-Service Comparison of % Cost and Revenues Increase/ Customer Allocated Revenues ClassificationCost to Serve (Decrease) Residential 34.5% 36.2% -4.5% Commercial Non-demand 9.0% 9.5% -5.0% Demand 35.8% 34.9% 2.6% Industrial 20.6% 19.4% 6.2% Total 100.0% 100.0% 0.0% -13 - 158 Section 3 allocated cost to serve each class. Cost based rates are one of several goals in establishing rates. The relationship between allocated costs and revenues for each class should be considered, in addition to other rate related goals, in developing recommended rates. -14 - 159 Exhibit 3-A Elk River Municipal Utilities Functionalization of 2019 Test Year Revenue Requirements 2019Power REVENUE REQUIREMENTTest YearSupplyDistributionCustomerRevenueClassification Basis OPERATING EXPENSES Purchased Power$ 24,851,301 $ 24,851,301 $ - $ - $ -100% power supply Production OPERATING SUPERVISION 103,807 103,807 - - - 100% power supply DIESEL OIL FUEL 14,455 14,455 - - - 100% power supply NATURAL GAS 24,994 24,994 - - - 100% power supply ELECTRIC & WATER CONSUMPTION 31,289 31,289 - - - 100% power supply OTHER EXP/PLANT SUPPLIES-ETC 8,368 8,368 - - - 100% power supply MISC OTHER PWR GENERATION EXP 5,841 5,841 - - - 100% power supply MAINTENANCE OF STRUCTURE/PLANT 30,631 30,631 - - - 100% power supply MTCE OF ENGINES/GENERATORS-PL 19,825 19,825 - - - 100% power supply MTCE OF PLANT/LAND IMPROVEMENT 44,209 44,209 - - - 100% power supply LFG PURCHASED GAS 172,286 172,286 - - - 100% power supply LANDFILL GAS O&M 543,448 543,448 - - - 100% power supply LFG ADMIN 2,450 2,450 - - - 100% power supply LFG INSURANCE 17,160 17,160 - - - 100% power supply LFG MTCE 1,172 1,172 - - - 100% power supply Total Production$ 1,019,935$ 1,019,935$ - $ - $ - Transmission$ 39,331$ 39,331 $ - $ - $ -100% power supply Distribution REMOVE EXISTING SERV & METERS 2,080 - 2,080 - - 100% distribution SCADA EXPENSES 39,704 - 39,704 - - 100% distribution TRANSFORMER EX/OVERHD & UNDERG 10,794 - 10,794 - - 100% distribution MTCE OF SIGNAL SYSTEMS 310 - 310 - - 100% distribution METER EXP - REMOVE & RESET 6,388 - 6,388 - - 100% distribution TEMP SERVICE-INSTALL & REMOVE 894 - 894 - - 100% distribution MISC DISTRIBUTION EXPENSE 241,739 - 241,739 - - 100% distribution INTERCONNECTION CARRYING CHARGE 4,832 - 4,832 - - 100% distribution MTCE OF STRUCTURES 5,036 - 5,036 - - 100% distribution MTCE OF SUBSTATIONS 25,431 - 25,431 - - 100% distribution MTCE OF SUBSTATION EQUIPMENT 26,181 - 26,181 - - 100% distribution MTCE OF OVERHD LINES/TREE TRIM 106,712 - 106,712 - - 100% distribution MTCE OF OVERHD LINES/STANDBY 29,072 - 29,072 - - 100% distribution MTCE OF OVERHEAD 125,153 - 125,153 - - 100% distribution MTCE OF UNDERGROUND/DISTRIB 132,921 - 132,921 - - 100% distribution LOCATE ELECTRIC LINES 90,191 - 90,191 - - 100% distribution LOCATE FIBER LINES 373 - 373 - - 100% distribution MTCE OF LINE TRANSFORMERS 42,184 - 42,184 - - 100% distribution MTCE OF STREET LIGHTING 41,748 - 41,748 - - 100% distribution MTCE OF SECURITY LIGHTING 8,431 - 8,431 - - 100% distribution MTCE OF METERS 76,866 - 76,866 - - 100% distribution VOLTAGE COMPLAINTS 9,087 - 9,087 - - 100% distribution SALARIES/TRANS & DISTRIBUTION 39,247 - 39,247 - - 100% distribution ELECTRIC MAPPING 91,744 - 91,744 - - 100% distribution MTCE OF OVERHEAD SERVICE/2NDRY 16,540 - 16,540 - - 100% distribution MTCE OF UNDERGROUND ELEC SERV 33,347 - 33,347 - - 100% distribution LOCATE UNDERGROUND SECONDARY - - - - - 100% distribution TRANSPORTATION EXPENSE 219,760 - 219,760 - - 100% distribution Total Distribution$ 1,426,765$ -$ 1,426,765 $ - $ - Depreciation & Amortization DEPRECIATION 2,184,824 1,010,512 1,174,312 - - plant in service AMORTIZATION 668,135 309,022 359,113 - - plant in service Total Depreciation & Amortization$ 2,852,959$ 1,319,534$ 1,533,425 $ - $ - Other Operating Expenses EV CHARGING EXPENSE 4,528 - - 4,528 - 100% customer LOSS ON DISPOSITION OF PROPERTY 17,049 - 17,049 - - 100% distribution OTHER DONATIONS 2,856 - 2,856 - - 100% distribution MUTUAL AID 29,577 - 29,577 - - 100% distribution INTEREST PD ON METER DEPOSIT 22,754 - - 22,754 - 100% customer RENTAL PROPERTY EXPENSE 10,179 4,708 5,471 - - plant in service UTILITIES AND LABOR DONATED 210,790 - 210,790 - - 100% distribution Total Other Operating Expenses$ 297,733$ 4,708 $ 265,743$ 27,282$ - Customer Accounts METER READING EXPENSE 27,298 - - 27,298 - 100% customer COLLECTING EXP DISC/RECONNECT 14,521 - - 14,521 - 100% customer Page 1 of 2 160 Exhibit 3-A Elk River Municipal Utilities Functionalization of 2019 Test Year Revenue Requirements 2019Power REVENUE REQUIREMENTTest YearSupplyDistributionCustomerRevenueClassification Basis MISC CUSTOMER ACCTS EXP-COMP 264,242 - - 264,242 - 100% customer CUST BLGS NOT PD/SENT FOR COLL 11,873 - - 11,873 - 100% customer Total Customer Accounts$ 317,934$ -$ - $ 317,934$ - General & Administrative SALARIES/OFFICE & COMMISSION 683,037 257,405 348,382 77,251 - non PP operating expenses TEMPORARY STAFFING - - - - - NA OFFICE SUPPLIES & EXPENSE 79,344 29,901 40,469 8,974 - non PP operating expenses LT & WATER CONSUMPTION/OFFICE 29,408 11,082 14,999 3,326 - non PP operating expenses BANK CHARGES 2,251 848 1,148 255 - non PP operating expenses LEGAL FEES 26,786 10,094 13,662 3,029 - non PP operating expenses AUDITING FEES 16,720 6,301 8,528 1,891 - non PP operating expenses INSURANCE 162,843 61,368 83,058 18,417 - non PP operating expenses UTILITY SHARE DEF COMP 89,001 33,540 45,395 10,066 - non PP operating expenses UTIL SH OF MEDICAL/DENTAL 714,622 269,308 364,491 80,823 - non PP operating expenses UTILITY SHARE OF PERA 241,529 91,021 123,191 27,317 - non PP operating expenses UTILITY SHARE OF FICA 227,281 85,652 115,924 25,705 - non PP operating expenses EMPLOYEES SICK PAY 131,695 49,630 67,171 14,895 - non PP operating expenses EMP HOLIDAY PAY 131,797 49,668 67,223 14,906 - non PP operating expenses EMPLOYEE VACATION & PTO 222,218 83,744 113,342 25,133 - non PP operating expenses UPMIC DISTRIBUTION 45,325 17,081 23,118 5,126 - non PP operating expenses CONSULTING FEES 19,655 7,407 10,025 2,223 - non PP operating expenses TELEPHONE 22,669 8,543 11,562 2,564 - non PP operating expenses ADVERTISING 16,686 6,288 8,511 1,887 - non PP operating expenses DUES & SUBSCRIPTIONS - FEES 97,465 36,730 49,712 11,023 - non PP operating expenses TRAVEL EXPENSE - - - - - NA SCHOOLS & MEETINGS 154,224 58,120 78,662 17,443 - non PP operating expenses MTCE OF GENERAL PLANT & OFFICE 5,436 2,049 2,773 615 - non PP operating expenses Total General & Administrative$ 3,119,992$ 1,175,779$ 1,591,345 $ 352,868$ - General Expense CIP REBATES - RESIDENTIAL 35,640 - - 35,640 - 100% customer CIP REBATES - COMMERCIAL 112,422 - - 112,422 - 100% customer CIP - ADMINISTRATION 6,606 - - 6,606 - 100% customer CIP - MARKETING 17,229 - - 17,229 - 100% customer CIP - LABOR 150,344 - - 150,344 - 100% customer CIP REBATES - LOW INCOME 8,405 - - 8,405 - 100% customer CIP - LOW INCOME LABOR 9,661 - - 9,661 - 100% customer ENVIRONMENTAL COMPLIANCE 29,188 - - 29,188 - 100% customer MISC GENERAL EXPENSE 614 - - 614 - 100% customer Total General Expense$ 370,109$ -$ - $ 370,109$ - TOTAL OPERATING EXPENSES$ 34,296,059 $ 28,410,588 $ 4,817,278 $ 1,068,193 $ - OTHER OPERATING REVENUES LFG PROJECT 1,102,835 1,102,835 - - - 100% power supply DISPERSED GENERATION CREDIT 4,800 4,800 - - - 100% power supply CONNECTION MAINTENANCE 194,295 - - - 194,295100% revenue CUSTOMER PENALTIES 254,553 - - - 254,553100% revenue SECURITY LIGHTS 220,881 - - - 220,881100% revenue WIND DELIVERY 7,170 - 7,170 - - 100% distribution TOTAL OTHER OPERATING REVENUES$ 1,784,534$ 1,107,635$ 7,170 $ - $ 669,729 NON-OPERATING INCOME (EXPENSES) Interest income 159,014 - - - 159,014100% revenue Miscellaneous revenue 568,635 - - - 568,635100% revenue Interest expense and other (643,159) (297,470) (345,689) - - plant in service Gain (Loss) on sale of capital assets (2,050) - - - (2,050)100% revenue TOTAL NON-OPERATING INCOME (EXPENSES)$ 82,440$ (297,470)$ (345,689) $ - $ 725,599 TRANSFER TO CITY$ 1,157,445$ -$ - $ - $ 1,157,445 100% revenue MARGIN$ 2,644,165$ -$ - $ - $ 2,644,165 100% revenue TOTAL REVENUE REQUIREMENT$ 36,230,694 $ 27,600,423 $ 5,155,797 $ 1,068,193 $ 2,406,282 100%76%14%3%7% Page 2 of 2 161 Exhibit 3-B Elk River Municipal Utilities 2019 Test Year Power Supply Classification 2019 REVENUE REQUIREMENTTest YearDemandEnergyClassification Basis OPERATING EXPENSES Purchased Power$ 24,851,301 $ 7,029,514$ 17,821,787 per power supply Production OPERATING SUPERVISION 103,807 29,363 74,444 per power supply DIESEL OIL FUEL 14,455 4,089 10,366 per power supply NATURAL GAS 24,994 7,070 17,924 per power supply ELECTRIC & WATER CONSUMPTION 31,289 8,851 22,438 per power supply OTHER EXP/PLANT SUPPLIES-ETC 8,368 2,367 6,001per power supply MISC OTHER PWR GENERATION EXP 5,841 1,652 4,189per power supply MAINTENANCE OF STRUCTURE/PLANT 30,631 8,664 21,967 per power supply MTCE OF ENGINES/GENERATORS-PL 19,825 5,608 14,217 per power supply MTCE OF PLANT/LAND IMPROVEMENT 44,209 12,505 31,704 per power supply LFG PURCHASED GAS 172,286 - 172,286100% energy LANDFILL GAS O&M 543,448 543,448 -100% demand LFG ADMIN 2,450 2,450 -100% demand LFG INSURANCE 17,160 17,160 -100% demand LFG MTCE 1,172 1,172 -100% demand Total Production$ 1,019,935$ 644,399$ 375,536 Transmission$ 39,331$ 39,331 $ - 100% demand Distribution REMOVE EXISTING SERV & METERS - - -NA SCADA EXPENSES - - -NA TRANSFORMER EX/OVERHD & UNDERG - - -NA MTCE OF SIGNAL SYSTEMS - - -NA METER EXP - REMOVE & RESET - - -NA TEMP SERVICE-INSTALL & REMOVE - - -NA MISC DISTRIBUTION EXPENSE - - -NA INTERCONNECTION CARRYING CHARGE - - -NA MTCE OF STRUCTURES - - -NA MTCE OF SUBSTATIONS - - -NA MTCE OF SUBSTATION EQUIPMENT - - -NA MTCE OF OVERHD LINES/TREE TRIM - - -NA MTCE OF OVERHD LINES/STANDBY - - -NA MTCE OF OVERHEAD - - -NA MTCE OF UNDERGROUND/DISTRIB - - -NA LOCATE ELECTRIC LINES - - -NA LOCATE FIBER LINES - - -NA MTCE OF LINE TRANSFORMERS - - -NA MTCE OF STREET LIGHTING - - -NA MTCE OF SECURITY LIGHTING - - -NA MTCE OF METERS - - -NA VOLTAGE COMPLAINTS - - -NA SALARIES/TRANS & DISTRIBUTION - - -NA ELECTRIC MAPPING - - -NA MTCE OF OVERHEAD SERVICE/2NDRY - - -NA MTCE OF UNDERGROUND ELEC SERV - - -NA LOCATE UNDERGROUND SECONDARY - - -NA TRANSPORTATION EXPENSE - - -NA Total Distribution$ - $ -$ - Depreciation & Amortization DEPRECIATION 1,010,512 1,010,512 -100% demand AMORTIZATION 309,022 309,022 -100% demand Total Depreciation & Amortization$ 1,319,534$ 1,319,534$ - page 1 of 3 162 Exhibit 3-B Elk River Municipal Utilities 2019 Test Year Power Supply Classification 2019 REVENUE REQUIREMENTTest YearDemandEnergyClassification Basis Other Operating Expenses EV CHARGING EXPENSE - - -NA LOSS ON DISPOSITION OF PROPERTY - - -NA OTHER DONATIONS - - -NA MUTUAL AID - - -NA INTEREST PD ON METER DEPOSIT - - -NA RENTAL PROPERTY EXPENSE 4,708 4,708 -100% demand UTILITIES AND LABOR DONATED - - -NA Total Other Operating Expenses$ 4,708 $ 4,708$ - Customer Accounts METER READING EXPENSE - - -NA COLLECTING EXP DISC/RECONNECT - - -NA MISC CUSTOMER ACCTS EXP-COMP - - -NA CUST BLGS NOT PD/SENT FOR COLL - - -NA Total Customer Accounts$ - $ -$ - General & Administrative SALARIES/OFFICE & COMMISSION 257,405 80,666 176,738total revenue requirement TEMPORARY STAFFING - - -NA OFFICE SUPPLIES & EXPENSE 29,901 9,370 20,531 total revenue requirement LT & WATER CONSUMPTION/OFFICE 11,082 3,473 7,609total revenue requirement BANK CHARGES 848 266 582total revenue requirement LEGAL FEES 10,094 3,163 6,931total revenue requirement AUDITING FEES 6,301 1,975 4,326total revenue requirement INSURANCE 61,368 19,232 42,136 total revenue requirement UTILITY SHARE DEF COMP 33,540 10,511 23,029 total revenue requirement UTIL SH OF MEDICAL/DENTAL 269,308 84,397 184,911total revenue requirement UTILITY SHARE OF PERA 91,021 28,524 62,496 total revenue requirement UTILITY SHARE OF FICA 85,652 26,842 58,810 total revenue requirement EMPLOYEES SICK PAY 49,630 15,553 34,077 total revenue requirement EMP HOLIDAY PAY 49,668 15,565 34,103 total revenue requirement EMPLOYEE VACATION & PTO 83,744 26,244 57,500 total revenue requirement UPMIC DISTRIBUTION 17,081 5,353 11,728 total revenue requirement CONSULTING FEES 7,407 2,321 5,086total revenue requirement TELEPHONE 8,543 2,677 5,866total revenue requirement ADVERTISING 6,288 1,971 4,318total revenue requirement DUES & SUBSCRIPTIONS - FEES 36,730 11,511 25,219 total revenue requirement TRAVEL EXPENSE - - -NA SCHOOLS & MEETINGS 58,120 18,214 39,906 total revenue requirement MTCE OF GENERAL PLANT & OFFICE 2,049 642 1,407total revenue requirement Total General & Administrative$ 1,175,779$ 368,470$ 807,309 General Expense CIP REBATES - RESIDENTIAL - - -NA CIP REBATES - COMMERCIAL - - -NA CIP - ADMINISTRATION - - -NA CIP - MARKETING - - -NA CIP - LABOR - - -NA CIP REBATES - LOW INCOME - - -NA CIP - LOW INCOME LABOR - - -NA ENVIRONMENTAL COMPLIANCE - - -NA MISC GENERAL EXPENSE - - -NA Total General Expense$ - $ -$ - TOTAL OPERATING EXPENSES$ 28,410,588 $ 9,405,955$ 19,004,633 page 2 of 3 163 Exhibit 3-B Elk River Municipal Utilities 2019 Test Year Power Supply Classification 2019 REVENUE REQUIREMENTTest YearDemandEnergyClassification Basis OTHER OPERATING REVENUES LFG PROJECT 1,102,835 844,860 257,975per LFG DISPERSED GENERATION CREDIT 4,800 4,800 -100% demand CONNECTION MAINTENANCE - - -NA CUSTOMER PENALTIES - - -NA SECURITY LIGHTS - - -NA WIND DELIVERY - - -NA TOTAL OTHER OPERATING REVENUES$ 1,107,635$ 849,660$ 257,975 NON-OPERATING INCOME (EXPENSES) Interest income - - -NA Miscellaneous revenue - - -NA Interest expense and other (297,470) (93,222) (204,248)total revenue requirement Gain (Loss) on sale of capital assets - - -NA TOTAL NON-OPERATING INCOME (EXPENSES)$ (297,470)$ (93,222)$ (204,248) TRANSFER TO CITY$ - $ -$ - NA MARGIN$ - $ -$ - NA TOTAL REVENUE REQUIREMENT$ 27,600,423 $ 8,649,518$ 18,950,905 page 3 of 3 164 Exhibit 3-C Elk River Municipal Utilities 2019 Test Year Distribution Classification 2019Customer REVENUE REQUIREMENTTest YearDemandFacilitiesClassification Basis OPERATING EXPENSES Purchased Power$ - $ -$ - NA Production OPERATING SUPERVISION - - -NA DIESEL OIL FUEL - - -NA NATURAL GAS - - -NA ELECTRIC & WATER CONSUMPTION - - -NA OTHER EXP/PLANT SUPPLIES-ETC - - -NA MISC OTHER PWR GENERATION EXP - - -NA MAINTENANCE OF STRUCTURE/PLANT - - -NA MTCE OF ENGINES/GENERATORS-PL - - -NA MTCE OF PLANT/LAND IMPROVEMENT - - -NA LFG PURCHASED GAS - - -NA LANDFILL GAS O&M - - -NA LFG ADMIN - - -NA LFG INSURANCE - - -NA LFG MTCE - - -NA Total Production$ - $ -$ - Transmission$ - $ -$ - NA Distribution REMOVE EXISTING SERV & METERS 2,080 - 2,080100% Cust facilities SCADA EXPENSES 39,704 30,784 8,920Dist/Cust split TRANSFORMER EX/OVERHD & UNDERG 10,794 - 10,794 100% Cust facilities MTCE OF SIGNAL SYSTEMS 310 - 310100% Cust facilities METER EXP - REMOVE & RESET 6,388 - 6,388100% Cust facilities TEMP SERVICE-INSTALL & REMOVE 894 - 894100% Cust facilities MISC DISTRIBUTION EXPENSE 241,739 187,429 54,310 Dist/Cust split INTERCONNECTION CARRYING CHARGE 4,832 4,832 -100% Dist demand MTCE OF STRUCTURES 5,036 5,036 -100% Dist demand MTCE OF SUBSTATIONS 25,431 25,431 -100% Dist demand MTCE OF SUBSTATION EQUIPMENT 26,181 26,181 -100% Dist demand MTCE OF OVERHD LINES/TREE TRIM 106,712 82,738 23,974 Dist/Cust split MTCE OF OVERHD LINES/STANDBY 29,072 22,541 6,531Dist/Cust split MTCE OF OVERHEAD 125,153 97,036 28,117 Dist/Cust split MTCE OF UNDERGROUND/DISTRIB 132,921 103,059 29,862 Dist/Cust split LOCATE ELECTRIC LINES 90,191 - 90,191 100% Cust facilities LOCATE FIBER LINES 373 - 373100% Cust facilities MTCE OF LINE TRANSFORMERS 42,184 - 42,184 100% Cust facilities MTCE OF STREET LIGHTING 41,748 - 41,748 100% Cust facilities MTCE OF SECURITY LIGHTING 8,431 - 8,431100% Cust facilities MTCE OF METERS 76,866 - 76,866 100% Cust facilities VOLTAGE COMPLAINTS 9,087 - 9,087100% Cust facilities SALARIES/TRANS & DISTRIBUTION 39,247 30,430 8,817Dist/Cust split ELECTRIC MAPPING 91,744 71,133 20,611 Dist/Cust split MTCE OF OVERHEAD SERVICE/2NDRY 16,540 - 16,540 100% Cust facilities MTCE OF UNDERGROUND ELEC SERV 33,347 - 33,347 100% Cust facilities LOCATE UNDERGROUND SECONDARY - - -NA TRANSPORTATION EXPENSE 219,760 219,760 -100% Dist demand Total Distribution$ 1,426,765$ 906,389$ 520,376 Depreciation & Amortization DEPRECIATION 1,174,312 910,489 263,823Dist/Cust split AMORTIZATION 359,113 278,434 80,679 Dist/Cust split Total Depreciation & Amortization$ 1,533,425$ 1,188,923$ 344,502 page 1 of 3 165 Exhibit 3-C Elk River Municipal Utilities 2019 Test Year Distribution Classification 2019Customer REVENUE REQUIREMENTTest YearDemandFacilitiesClassification Basis Other Operating Expenses EV CHARGING EXPENSE - - -NA LOSS ON DISPOSITION OF PROPERTY 17,049 13,219 3,830Dist/Cust split OTHER DONATIONS 2,856 2,214 642Dist/Cust split MUTUAL AID 29,577 29,577 -100% Dist demand INTEREST PD ON METER DEPOSIT - - -NA RENTAL PROPERTY EXPENSE 5,471 5,471 -100% Dist demand UTILITIES AND LABOR DONATED 210,790 - 210,790100% Cust facilities Total Other Operating Expenses$ 265,743$ 50,481 $ 215,262 Customer Accounts METER READING EXPENSE - - -NA COLLECTING EXP DISC/RECONNECT - - -NA MISC CUSTOMER ACCTS EXP-COMP - - -NA CUST BLGS NOT PD/SENT FOR COLL - - -NA Total Customer Accounts$ - $ -$ - General & Administrative SALARIES/OFFICE & COMMISSION 348,382 235,220 113,161total revenue requirement TEMPORARY STAFFING - - -NA OFFICE SUPPLIES & EXPENSE 40,469 27,324 13,145 total revenue requirement LT & WATER CONSUMPTION/OFFICE 14,999 10,127 4,872total revenue requirement BANK CHARGES 1,148 775 373total revenue requirement LEGAL FEES 13,662 9,224 4,438total revenue requirement AUDITING FEES 8,528 5,758 2,770total revenue requirement INSURANCE 83,058 56,079 26,979 total revenue requirement UTILITY SHARE DEF COMP 45,395 30,650 14,745 total revenue requirement UTIL SH OF MEDICAL/DENTAL 364,491 246,098 118,394total revenue requirement UTILITY SHARE OF PERA 123,191 83,176 40,015 total revenue requirement UTILITY SHARE OF FICA 115,924 78,270 37,654 total revenue requirement EMPLOYEES SICK PAY 67,171 45,352 21,818 total revenue requirement EMP HOLIDAY PAY 67,223 45,388 21,835 total revenue requirement EMPLOYEE VACATION & PTO 113,342 76,526 36,816 total revenue requirement UPMIC DISTRIBUTION 23,118 15,609 7,509total revenue requirement CONSULTING FEES 10,025 6,769 3,256total revenue requirement TELEPHONE 11,562 7,807 3,756total revenue requirement ADVERTISING 8,511 5,746 2,764total revenue requirement DUES & SUBSCRIPTIONS - FEES 49,712 33,564 16,147 total revenue requirement TRAVEL EXPENSE - - -NA SCHOOLS & MEETINGS 78,662 53,111 25,551 total revenue requirement MTCE OF GENERAL PLANT & OFFICE 2,773 1,872 901total revenue requirement Total General & Administrative$ 1,591,345$ 1,074,445$ 516,900 General Expense CIP REBATES - RESIDENTIAL - - -NA CIP REBATES - COMMERCIAL - - -NA CIP - ADMINISTRATION - - -NA CIP - MARKETING - - -NA CIP - LABOR - - -NA CIP REBATES - LOW INCOME - - -NA CIP - LOW INCOME LABOR - - -NA ENVIRONMENTAL COMPLIANCE - - -NA MISC GENERAL EXPENSE - - -NA Total General Expense$ - $ -$ - TOTAL OPERATING EXPENSES$ 4,817,278$ 3,220,238$ 1,597,040 page 2 of 3 166 Exhibit 3-C Elk River Municipal Utilities 2019 Test Year Distribution Classification 2019Customer REVENUE REQUIREMENTTest YearDemandFacilitiesClassification Basis OTHER OPERATING REVENUES LFG PROJECT - - -NA DISPERSED GENERATION CREDIT - - -NA CONNECTION MAINTENANCE - - -100% Cust facilities CUSTOMER PENALTIES - - -NA SECURITY LIGHTS - - -NA WIND DELIVERY 7,170 7,170 -100% Dist demand TOTAL OTHER OPERATING REVENUES$ 7,170 $ 7,170$ - NON-OPERATING INCOME (EXPENSES) Interest income - - -NA Miscellaneous revenue - - -NA Interest expense and other (345,689) (268,026) (77,663)Dist/Cust split Gain (Loss) on sale of capital assets - - -NA TOTAL NON-OPERATING INCOME (EXPENSES)$ (345,689)$ (268,026)$ (77,663) TRANSFER TO CITY$ - $ -$ - NA MARGIN$ - $ -$ - NA TOTAL REVENUE REQUIREMENT$ 5,155,797$ 3,481,094$ 1,674,703 page 3 of 3 167 Exhibit 3-D Elk River Municipal Utilities 2019 Test Year Customer Classification 2019 REVENUE REQUIREMENTTest YearCustomerClassification Basis OPERATING EXPENSES Purchased Power$ -$ -NA Production OPERATING SUPERVISION - -NA DIESEL OIL FUEL - -NA NATURAL GAS - -NA ELECTRIC & WATER CONSUMPTION - -NA OTHER EXP/PLANT SUPPLIES-ETC - -NA MISC OTHER PWR GENERATION EXP - -NA MAINTENANCE OF STRUCTURE/PLANT - -NA MTCE OF ENGINES/GENERATORS-PL - -NA MTCE OF PLANT/LAND IMPROVEMENT - -NA LFG PURCHASED GAS - -NA LANDFILL GAS O&M - -NA LFG ADMIN - -NA LFG INSURANCE - -NA LFG MTCE - -NA Total Production$ -$ - Transmission$ -$ -NA Distribution REMOVE EXISTING SERV & METERS - -NA SCADA EXPENSES - -NA TRANSFORMER EX/OVERHD & UNDERG - -NA MTCE OF SIGNAL SYSTEMS - -NA METER EXP - REMOVE & RESET - -NA TEMP SERVICE-INSTALL & REMOVE - -NA MISC DISTRIBUTION EXPENSE - -NA INTERCONNECTION CARRYING CHARGE - -NA MTCE OF STRUCTURES - -NA MTCE OF SUBSTATIONS - -NA MTCE OF SUBSTATION EQUIPMENT - -NA MTCE OF OVERHD LINES/TREE TRIM - -NA MTCE OF OVERHD LINES/STANDBY - -NA MTCE OF OVERHEAD - -NA MTCE OF UNDERGROUND/DISTRIB - -NA LOCATE ELECTRIC LINES - -NA LOCATE FIBER LINES - -NA MTCE OF LINE TRANSFORMERS - -NA MTCE OF STREET LIGHTING - -NA MTCE OF SECURITY LIGHTING - -NA MTCE OF METERS - -NA VOLTAGE COMPLAINTS - -NA SALARIES/TRANS & DISTRIBUTION - -NA ELECTRIC MAPPING - -NA MTCE OF OVERHEAD SERVICE/2NDRY - -NA MTCE OF UNDERGROUND ELEC SERV - -NA LOCATE UNDERGROUND SECONDARY - -NA TRANSPORTATION EXPENSE - -NA Total Distribution$ -$ - page 1 of 3 168 Exhibit 3-D Elk River Municipal Utilities 2019 Test Year Customer Classification 2019 REVENUE REQUIREMENTTest YearCustomerClassification Basis Depreciation & Amortization DEPRECIATION - -NA AMORTIZATION - -NA Total Depreciation & Amortization$ -$ - Other Operating Expenses EV CHARGING EXPENSE 4,528 4,528100% Customer LOSS ON DISPOSITION OF PROPERTY - -NA OTHER DONATIONS - -NA MUTUAL AID - -NA INTEREST PD ON METER DEPOSIT 22,754 22,754100% Customer RENTAL PROPERTY EXPENSE - -NA UTILITIES AND LABOR DONATED - -NA Total Other Operating Expenses$ 27,282$ 27,282 Customer Accounts - METER READING EXPENSE 27,298 27,298100% Customer COLLECTING EXP DISC/RECONNECT 14,521 14,521100% Customer MISC CUSTOMER ACCTS EXP-COMP 264,242 264,242 100% Customer CUST BLGS NOT PD/SENT FOR COLL 11,873 11,873100% Customer Total Customer Accounts$ 317,934$ 317,934 General & Administrative SALARIES/OFFICE & COMMISSION 77,251 77,251100% Customer TEMPORARY STAFFING - -NA OFFICE SUPPLIES & EXPENSE 8,974 8,974100% Customer LT & WATER CONSUMPTION/OFFICE 3,326 3,326100% Customer BANK CHARGES 255 255100% Customer LEGAL FEES 3,029 3,029100% Customer AUDITING FEES 1,891 1,891100% Customer INSURANCE 18,417 18,417100% Customer UTILITY SHARE DEF COMP 10,066 10,066100% Customer UTIL SH OF MEDICAL/DENTAL 80,823 80,823100% Customer UTILITY SHARE OF PERA 27,317 27,317100% Customer UTILITY SHARE OF FICA 25,705 25,705100% Customer EMPLOYEES SICK PAY 14,895 14,895100% Customer EMP HOLIDAY PAY 14,906 14,906100% Customer EMPLOYEE VACATION & PTO 25,133 25,133100% Customer UPMIC DISTRIBUTION 5,126 5,126100% Customer CONSULTING FEES 2,223 2,223100% Customer TELEPHONE 2,564 2,564100% Customer ADVERTISING 1,887 1,887100% Customer DUES & SUBSCRIPTIONS - FEES 11,023 11,023100% Customer TRAVEL EXPENSE - -NA SCHOOLS & MEETINGS 17,443 17,443100% Customer MTCE OF GENERAL PLANT & OFFICE 615 615100% Customer Total General & Administrative$ 352,868$ 352,868 General Expense CIP REBATES - RESIDENTIAL 35,640 35,640100% Customer CIP REBATES - COMMERCIAL 112,422 112,422 100% Customer CIP - ADMINISTRATION 6,606 6,606100% Customer page 2 of 3 169 Exhibit 3-D Elk River Municipal Utilities 2019 Test Year Customer Classification 2019 REVENUE REQUIREMENTTest YearCustomerClassification Basis CIP - MARKETING 17,229 17,229100% Customer CIP - LABOR 150,344 150,344 100% Customer CIP REBATES - LOW INCOME 8,405 8,405100% Customer CIP - LOW INCOME LABOR 9,661 9,661100% Customer ENVIRONMENTAL COMPLIANCE 29,188 29,188100% Customer MISC GENERAL EXPENSE 614 614100% Customer Total General Expense$ 370,109$ 370,109 TOTAL OPERATING EXPENSES$ 1,068,193$ 1,068,193 OTHER OPERATING REVENUES LFG PROJECT - -NA DISPERSED GENERATION CREDIT - -NA CONNECTION MAINTENANCE - -NA CUSTOMER PENALTIES - -100% Customer SECURITY LIGHTS - -NA WIND DELIVERY - -NA TOTAL OTHER OPERATING REVENUES$ -$ - NON-OPERATING INCOME (EXPENSES) Interest income - -NA Miscellaneous revenue - -NA Interest expense and other - -NA Gain (Loss) on sale of capital assets - -NA TOTAL NON-OPERATING INCOME (EXPENSES)$ -$ - TRANSFER TO CITY$ -$ -NA MARGIN$ -$ -NA TOTAL REVENUE REQUIREMENT$ 1,068,193$ 1,068,193 page 3 of 3 170 Exhibit 3-E Elk River Municipal Utilities 2019 Test Year Allocation Factors CommercialCommercial TotalResidentialNon-demandDemandIndustrial Demand Allocation Factors 12 Coincident Peak (kW) 631,217 216,353 60,320 246,455 108,089 12 CP100.0%34.3%9.6%39.0%17.1% 1 Coincident Peak (kW) 63,289 23,518 5,926 24,387 9,459 1 CP100.0%37.2%9.4%38.5%14.9% 1 Non-coincident Peak (kW) 82,060 34,616 8,346 28,690 10,408 1 NCP100.0%42.2%10.2%35.0%12.7% Energy Allocation Factors Retail Energy Req. (kWh) 325,232,320 96,153,850 26,797,714 118,410,356 83,870,400 RE100.0%29.6%8.2%36.4%25.8% Customers Number of Customers 12,080 10,523 1,329 226 2 C100.0%87.1%11.0%1.9%0.0% Customer Facilities Allocation Factor Weighted Number of Cust 21,299 10,523 1,994 6,782 2,000 CF100.0%49.4%9.4%31.8%9.4% Customer Service Allocation Factor Weighted Number of Cust 13,667 10,523 1,994 1,130 20 CS100.0%77.0%14.6%8.3%0.1% Revenue Allocator Sum Other Rev Reqs$ 33,824,413$ 11,685,739 $ 3,054,657$ 12,115,517$ 6,968,500 R100.0%34.5%9.0%35.8%20.6% page 1 of 1 171 Exhibit 3-F Elk River Municipal Utilities 2019 Test Year Allocation of Revenue Requirements CommercialCommercialAllocation TotalResidentialNon-demandDemandIndustrialFactor Power Supply Demand 8,649,518 2,964,667 826,559 3,377,160 1,481,131 12 CP Energy 18,950,905 5,602,772 1,561,471 6,899,632 4,887,030 RE Total Power Supply$ 27,600,423$ 8,567,439 $ 2,388,030 $ 10,276,793$ 6,368,161 Distribution Demand 3,481,094 1,468,449 354,051 1,217,074 441,5191 NCP Customer Facilities 1,674,703 827,394 156,756 533,297 157,257CF Total Distribution$ 5,155,797$ 2,295,843 $ 510,807$ 1,750,371$ 598,776 Customer Customer Service 1,068,193 822,457 155,820 88,353 1,563CS Total Customer Service$ 1,068,193$ 822,457$ 155,820$ 88,353$ 1,563 Revenue Component Other Operating Income (669,729) (231,380) (60,483) (239,889) (137,977) R Non-Operating Income (725,599) (250,682) (65,528) (259,901) (149,488) R Transfer to City 1,157,445 399,877 104,528 414,584 238,457R Margin 2,644,165 913,512 238,793 947,109 544,750R Total Revenue$ 2,406,282$ 831,328$ 217,309$ 861,902 $ 495,742 Total Revenue Requirements$ 36,230,694$ 12,517,067$ 3,271,967 $ 12,977,419$ 7,464,242 Total Revenues$ 36,230,694$ 13,112,952$ 3,445,080 $ 12,647,421$ 7,025,242 Percent Revenue Requirements100.0%34.5%9.0%35.8%20.6% Percent Revenues100.0%36.2%9.5%34.9%19.4% Percent Change0.0%-4.5%-5.0%2.6%6.2% Revenue Req/kWh0.1110.1300.1220.1100.089 Revenue/kWh0.1110.1360.1290.1070.084 page 1 of 1 172 Section 4 Proposed Rates Changes to rates are generally based on the overall need for revenues and results of the cost-of-service analyses. The projected operating results at existing rates as presented in Section 2 of this report outlinesthe overall revenue needs of the electric utility. Section 3 summarizes the cost-of-service results. These factors have been considered in developing the proposed rates summarized in this section of the report. Proposed Rates In Section 2, it shows that ERMU from 2.8% of revenues in 2020to negative5.2% of revenues in 2024assuming existing rates are maintained through the Study Period(during 2015-2019this averaged 6.4%). It also shows that ERMUprojected unrestricted cash reserves at current rates decline from $14.9million to $2.6million over the Study Period. The reserve levels dropping below the current policy defined level by the end of 2023. As a preliminary indication of a potential rate increase approach,this draftreport shows the impact on the electric financial results with 1.5% overallrateincreases in each of the years from 2021-2024while still assuming no increase in overall sales. Specific rate recommendations by class have not been developedyet. Exhibit 4-A shows the existing rates with current blanks for proposed rates. 173 Section 4 Based on the assumptions outlined above, the resulting projected operating results with the proposed rates are summarized in Table 4-1. Exhibit 4-B contains a more detailed presentation of these results. - Year20202021202220232024 Operating Revenues $37,990,288 $38,537,169 $39,092,253 $39,655,664 $40,227,526 Less Operating (35,480,019) (36,070,782) (37,020,347) (37,586,795) (38,141,864) Expenses Plus Non -Operating (79,079) (92,791) (679,534) (489,326) (456,653) Revenues (Expenses) Less City Transfers (1,365,000) (1,384,650) (1,404,594) (1,424,837) (1,445,384) Change in Net Position $1,066,189 $988,946 $(12,222) $154,706 $183,624 Net Position as 2.8% 2.6% 0.0% 0.4% 0.5% Percent of Revenues (1)1.5% rate increase each year from 2021-2024. Cash Reserves Proposed Rates A summary of the impact of the projected operating results on ERMUunrestricted cash reserves assuming the proposed rate adjustments is shown at the end of Exhibit 4-B and in Table 4-2below. Assuming the recommended rate adjustments going forward, the projected unrestricted cash balance at the end of the Study Period increasesby approximately $5.4millionas compared to the projections at existing rates -16- 174 ProposedRates as contained in Section 2 of this report.However, the reserves still fall slightly below the policy goal by the end of2024. - Year 20202021202220232024 Beginning Balance $14,881,922 $12,714,089 $11,276,570 $9,656,649 $8,924,464 Plus Change in Net Position 1,066,189 988,946 (12,222) 154,706 183,624 Plus Depreciation 3,030,678 3,182,035 3,685,551 3,799,110 3,894,243 Plus Bond Proceeds - 11,250,000 - - - Less Capital Improvements (4,540,700) (15,105,500) (3,406,750) (2,854,000) (3,332,200) Less Loss of Revenue Pmts (800,000) (800,000) (800,000) (800,000) (800,000) Less Debt Principal (924,000) (953,000) (1,086,500) (1,032,000) (966,000) Ending Balance $12,714,089 $11,276,570 $9,656,649 $8,924,464 $7,904,131 Reserve Goal $7,362,998 $8,212,108 $8,099,589 $8,136,525 $8,275,657 Reserves as % of Goal 173% 137% 119% 110% 96% (1)1.5% rate increase each year from 2021-2024. -17- 175 Exhibit 4-A Elk River Municipal Utilities Existing and Proposed Rates Current ProposedProposedProposedProposed ClassRateRate 1Rate 2Rate 3Rate 4 Residential Customer (per month)$ 13.50 Summer Energy (per kWh)$ 0.1270 Non-summer Energy (per kWh)$ 0.1160 Off Peak Storage Energy (per kWH)$ 0.0463 Off Peak Dual Fuel Energy (per kWh)$ 0.0602 Ground Heat Pump Energy (per kWh)$ 0.0909 Electric Vehicle Charging Summer On -Peak (per kWh)$ 0.1270 Non-summer On-Peak (per kWh)$ 0.1160 Off -Peak (per kWh)$ 0.0602 Commercial Non-Demand Customer (per month)$ 30.00 Summer Energy (per kWh)$ 0.1230 Non-summer Energy (per kWh)$ 0.1030 Commercial Demand Customer (per month)$ 75.00 Energy (per kWh)$ 0.0651 Summer Demand (per kW)$ 15.50 Non-summer Demand (per kW)$ 11.50 Off-peak Demand (per kW)$ 6.25 Industrial Customer (per month)$ 100.00 Energy (per kWh)$ 0.0644 Summer Demand (per kW)$ 15.00 Non-summer Demand (per kW)$ 11.00 Security Lights (per month) Standard Low Output$ 10.00 Standard Medium Output$ 16.00 Standard High Output$ 21.00 Standard Low Ouput w/ Decorative Pole$ 18.00 Decorative Med Ouput w/ Decorative Pole$ 24.00 page 1 of 1 176 ----- 96% 0.5% 2024 4,800 page 1 of 1 43,895 150,000210,000513,191100,000438,080183,624 183,624 Exhibit 4-B (994,733)(456,653)(800,000)(966,000) 1,166,7421,162,4141,916,2163,894,2434,670,5782,085,6611,629,0088,924,4643,894,2437,904,1318,275,657 (1,445,384) (3,332,200) 38,695,98440,227,52625,941,32738,141,864 $ $ $ $ $ $ $ $ $ $ $ $ ----- 0.4% 2023 110% 4,800 42,616 150,000210,000498,244100,000438,080154,706154,706 (489,326)(800,000) 1,166,7421,128,5581,860,4043,799,1104,534,5422,068,8691,579,5439,656,6493,799,1108,924,4648,136,525 (1,027,406)(1,424,837) (2,854,000)(1,032,000) 38,124,12239,655,664 25,723,322 37,586,795 $ $ $ $ $ $ $ $ $ $ $ $ ----- 0.0% 2022 119% 4,800 41,375 (12,222)(12,222) 150,000210,000483,732100,000438,080 (679,534)(800,000) 1,166,7421,095,6871,806,2173,685,5514,402,4682,071,9061,392,3723,685,5519,656,6498,099,589 (1,217,614)(1,404,594) (3,406,750)(1,086,500) 37,560,71139,092,25325,505,31737,020,34711,276,570 Projected $ $ $ $ $ $ $ $ $ $ $ $ ---- 2.6% 2021 137% 4,800 40,170 (92,791) 150,000210,000469,643100,000438,080988,946988,946 (630,871)(800,000)(953,000) 1,166,7421,063,7741,753,6093,182,0354,274,2402,466,3872,373,5953,182,0358,212,108 (1,384,650) 37,005,62738,537,169 25,287,312 36,070,782 12,714,089 11,250,00011,276,570 (15,105,500) $ $ $ $ $ $ $ $ $ $ $ $ ---- 2.8% 2020 173% 4,800 39,00048,152 (79,079) 150,000210,000455,964100,000438,080 (665,311)(800,000)(924,000) 1,166,7421,032,7901,702,5333,030,6784,149,7482,510,268 2,431,189 1,066,189 1,066,1893,030,6787,362,998 (1,365,000)(4,540,700) 36,458,74637,990,28825,069,30635,480,01914,881,92212,714,089 $ $ $ $ $ $ $ $ $ $ $ $ $ ------ 6.8% 2019 4,800 (2,050) 82,44010,000 194,295254,553528,743159,014568,635125,764 (643,159) 1,102,8351,020,8071,525,8272,856,2583,772,1503,539,5473,621,9872,600,306 (1,157,445) 36,538,15038,094,633 24,851,301 34,555,086 14,881,922 $ $ $ $ $ $ $ $ $ $ $ ----- -- 7.6% 2018 (4,963) 177 269,787199,753442,701330,110 372,253218,586 352,104 (729,208)(478,814) 1,128,7931,002,0641,658,1672,297,3493,090,6113,578,4993,797,0852,960,525 (1,188,664) 37,910,78038,779,90526,710,51435,201,406 $ $ $ $ $ $ $ $ $ $ Elk River Municipal Utilities ------ 5.4% 2017 79,54315,15240,000 234,365242,739873,651469,412344,558145,034169,051 (814,341)(294,219) 1,084,5891,511,6122,046,9353,090,2852,726,3532,871,3871,967,174 (1,113,264) 35,373,47236,120,824 25,402,576 33,394,471 Historical Electric Operating Results at Proposed Rates $ $ $ $ $ $ $ $ $ $ --- -- 5.5% 2016 8,991 90,804 (85,195)(80,126) 177,572269,197253,137753,870534,273281,702330,923 (804,608)(198,194) 1,087,7491,287,9402,005,0933,254,3542,637,7972,646,7881,888,424 (1,089,287) 33,481,34934,464,39623,991,06931,826,599 $ $ $ $ $ $ $ $ $ $ ---- --- 6.4% 2015 8,899 95,533 251,488163,195238,339928,923856,076279,487267,243 (805,579)(116,676)(824,743) 1,075,1481,402,0461,922,3592,752,4432,655,5682,922,8112,098,068 31,629,13132,551,722 22,034,307 29,896,154 $ $ $ $ $ $ $ $ $ $ Charges for servicesSecurity systemsLFG projectGeneration creditConnection maintenanceCustomer penaltiesPurchased PowerProductionTransmissionDistributionDepreciationCustomer accountsGeneral and administrativeInterest incomeMiscellaneous revenueInterest expense and otherBond issuance costsSale of Security SystemGain (Loss) on sale of capital assetsAs Percent of Revenues Total Operating RevenuesTotal Operating ExpensesTotal Non-Operating Revenues (Expenses)Beginning of YearPlus Change in Net PositionPlus DepreciationPlus New DebtLess Capital ImprovementsLess Loss of Revenue PaymentsLess Debt PrincipalEnd of YearReserve goalPercent of goal OPERATING REVENUESOPERATING EXPENSESOPERATING INCOMENON-OPERATING REVENUE (EXPENSE)Income before Contributions and TransfersGrantsContribution of Assets from CityContributions from CustomersTransfers to Other City FundsSpecial ItemCHANGE IN NET POSITIONUNRESTRICTED CASH RESERVES WATER COST OF SERVICE AND RATE DESIGN STUDY DraftReport May12,2020 178 REPORTOUTLINE Cover Letter Section 1 -Introduction Section 2 Projected Operating Results Existing Rates Section 3 Cost of Service Section 4 Proposed Rates 179 May 12, 2020 Elk River Municipal Utilities Commission 13069 Orono Parkway PO Box 430 Elk River, MN 55330 Subject: Water Rate Study Commission Members: Dave Berg Consulting, LLC has undertaken a study of the retail rates Elk River Municipal Utilities (ERMU) charges its customers for water service. This report summarizes the analyses undertaken and the resulting recommendations for changes to the existing rates. At this time, I am not recommending any changes in the current retail water rates which have been in place since the beginning of this year. Thank you for the opportunity to be of service to ERMU through the conduct of this study. I wish to express my appreciation for the valuable assistance I received from ERMU staff relative to the execution of this study. Sincerely, Dave Berg Consulting, LLC David A. Berg, PE Principal 5ĻķźĭğƷĻķ Ʒƚ ƦƩƚǝźķźƓŭ ƦĻƩƭƚƓğƌ ƭĻƩǝźĭĻ Ʒƚ ĭƚƓƭǒƒĻƩΏƚǞƓĻķ ǒƷźƌźƷźĻƭ Dave Berg Consulting, LLC | 15213 Danbury Ave W, Rosemount, MN 55068 | 612-850-2305 www.davebergconsulting.com 180 Section 1 Introduction The City of Elk River, MNownsa municipal utility providing service to approximately 5,300retail watercustomers.The waterutility isoperated by Elk River Municipal Utilities(ERMU) and isunder the directionof theElk River Municipal Utilities Commission. This report has been prepared by Dave Berg Consulting, LLC to examine the rates and charges for waterservice in Elk River. The study includes an examination of the allocated cost ofservice based on actual 2019utility operations (Test Year).It also includes projected operating resultsfor 2020-2024(Study Period). As a result of the analyses undertaken and reported on herein, waterraterecommendationshave been developedfor implementation by ERMU. -1- 181 Section 2 Projected Operating Results Existing Rates The rates charged for waterservice by ERMU, combined with other operating and non- operating revenues, must be sufficient to meet the cost ofproviding services to ERMU retail water customers. This is necessary to ensure the long-term financial health of the ERMUwater utility. The cost of providing utilityservice consists of normal operating expensessuch as production, pumping, distribution, customer and A&G functions, system depreciation expenses, capital improvementsand other non-operating expenses. An analysis of the operating results for the ERMUwaterutilityduring the 2020-2024Study Period has been performed assuming the current retail rates and charges remain in effect through the Study Period. This analysis has been done to determine the overall need, if any, for additional revenue through rates to meet projected revenue requirements. The analyses and assumptions utilized in these projectionsare explained below. Estimated Revenues Existing Rates ERMUsells water to residential,commercialand industrialcustomers.Total sales to ERMUretail customers for the Study Period are based onERMUactual 2019 water sales and discussionswith ERMU staff. For this analysis, sales areestimated to remain flat duringthe Study Period. Exhibit 2-A is a summarized listing of ERMU results at existing rates. The historical and projected revenues from retail sales of water are included as Charges for Servicesunder Operating Revenues.The existing rates -2- 182 Projected Operating Results Existing Rates utilized in this analysis will beimplemented by ERMUeffectivefor 2020.The 2020 rate adjustment represented an overall 1.7% increase in retail water rates. ERMUalso receives other miscellaneous operating revenue from other normal operating procedures. These other operating revenues include net revenues from connection maintenance andpenalties.Charges for servicescombined with other operating revenues results in ERMU Revenue Requirements Operating expenses for the water utility are shown in Exhibit 2-A.A more detailed listing of operating expenses is included in Exhibit 3-A following section 3 of this report.The operating expenses are associated with production, pumping,distribution,customer- related,administrativeand generalexpenses.Projectedoperating expenseshave been based on ERMUprojections and are assumed to increase an average of 3% per year. ERMUhas annual depreciation costs associated with water system investments. Depreciation during the Study Period is based on budgeted ERMUamounts and future capital improvements.Depreciation is a funded non-cash expense that generates monies available for annual capital improvements, debt principal paymentsand reserves. ERMU-operating income and expenses are primarily associated with investment income,interest payments on outstanding debtand miscellaneous revenue.ERMU also has income from developer and connection fees. -3- 183 Section 2 ERMUmakes annual normal capital investments in its water system. Annual water capital improvements for the Study Period, as budgeted by ERMU, are shown in Table 2- 1below. Fiscal Year20202021202220232024 Water capital $1,526,800 $1,985,000 $1,228,000 $1,307,000 $1,662,000 ERMUcurrently has outstanding water debt pursuant to a 2008 general obligation bond issue and a 2010 bond issue related to the Elk River City Hall expansion. The 2008 issue is scheduled to be paid in full in 2022 and the 2010 issue will be paid in 2023. It is assumed the water utilities will participate with the electric utility in a new $13.59 million bond issue in 2021related to expansion of the ERMU field service facilities. The debt paymentsassociated with $1,359,000 ofthat issue have been allocated to the water utility. Projected Operating Results Existing Rates Based on the assumptions outlined above, the resulting projected operating results assuming continued application of the existing retail rates are summarized below in Table 2-2. A summarypresentation of the historical and projected operating results is also shown in Exhibit 2-A. -4- 184 Projected Operating Results Existing Rates Fiscal Year20202021202220232024 Operating Revenues $2,313,881 $2,313,881 $2,313,881 $2,313,881 $2,313,881 Less Operating (3,075,390) (3,182,069) (3,305,696) (3,405,814) (3,510,340) Expenses Plus Non -Operating 269,356 179,293 121,150 145,188 146,987 Revenue Plus Fees and 223,370 198,370 198,370 198,370 198,370 Transfers Change in Net Position $(268,783) $(490,525) $(672,295) $(748,374) $(851,101) Net Position as -11.6% -21.2% -29.1% -32.3% -36.8% Percent of Revenues Cash Reserves A summary of the impact of the projected operating results on ERMUunrestricted cash reserves for the Study Period is shown at the end of Exhibit 2-Aand in Table 2-3below. As shown below, under existing retail rates and estimated revenue requirements over the Study Period, the unrestricted cash reserves for the waterutility are projected to decrease from $7.7millionto$3.9millionby the end of the Study Period. ERMU has a reserve policy that sets a minimum target for reserves equal to 6 months operating expenses less though the overall reserves decrease during the Study Period, they are consistently above 340% of the ERMU minimum goal. -5- 185 Section 2 Fiscal Year20202021202220232024 Beginning Balance $7,692,385 $6,841,641 $6,600,848 $5,729,952 $4,995,410 Plus Change in Net (268,783) (490,525) (672,295) (748,374) (851,101) Position Plus Depreciation 1,215,839 1,266,732 1,332,899 1,373,832 1,417,399 Plus New Debt - 1,250,000 - - - Proceeds Less Capital (1,526,800) (1,985,000) (1,228,000) (1,307,000) (1,662,000) Improvements Less Debt Principal (271,000) (282,000) (303,500) (53,000) (29,000) Ending Balance $6,841,641 $6,600,848 $5,729,952 $4,995,410 $3,870,708 Reserve Goal $1,228,605 $1,336,744 $1,091,551 $1,095,971 $1,126,451 Reserves as % of 557% 494% 525% 456% 344% ERMU Goal -6- 186 ---- 2024 344% -36.8% page 1 of 1 (1,630) 25,00015,00076,37839,000 (50,981)(29,000) 660,814 332,844158,968146,987 200,000 (851,101)(851,101) Exhibit 2-A 2,273,8812,313,8811,417,3991,022,9053,510,3404,995,4101,417,3993,870,7081,126,451 (1,196,459) (1,049,471) (1,662,000) $ $ $ $ $ $ $ $ $ $ $ $ $ ---- 2023 456% -32.3% (1,630) 25,00015,00074,15439,000 (52,153)(53,000) 641,567323,149993,112158,341145,188200,000 (946,744)(748,374)(748,374) 2,273,8812,313,8811,373,8323,405,8145,729,9521,373,8324,995,4101,095,971 (1,091,933) (1,307,000) $ $ $ $ $ $ $ $ $ $ $ $ $ ---- 2022 525% -29.1% (1,630) 25,00015,00071,99439,000 (75,576) 622,880 313,737964,186157,726121,150 200,000 (991,815)(870,665)(672,295)(672,295)(303,500) 2,273,8812,313,8811,332,8993,305,6966,600,8481,332,8995,729,9521,091,551 (1,228,000) Projected $ $ $ $ $ $ $ $ $ $ $ $ $ --- 2021 494% -21.2% (1,630) 25,00015,00069,89739,000 (16,830) 604,738304,599936,103157,123179,293200,000 (868,188)(688,895)(490,525)(490,525)(282,000) 2,273,8812,313,8811,266,7323,182,0696,841,6411,266,7321,250,0006,600,8481,336,744 (1,985,000) $ $ $ $ $ $ $ $ $ $ $ $ $ --- 2020 557% -11.6% (1,630) 25,00015,00067,86139,00025,000 (26,618) 587,124295,727908,838256,973269,356200,000 (761,509) (492,153) (268,783) (268,783)(271,000) 2,273,8812,313,881 1,215,8393,075,390 7,692,385 1,215,8396,841,641 1,228,605 (1,526,800) $ $ $ $ $ $ $ $ $ $ $ $ $ ---- 2019 13.7% 50,58317,86563,38238,097 (32,939) 516,444223,547719,929248,960254,118428,662315,999 (366,781)(112,663) 2,235,2222,303,6701,147,1492,670,4517,692,385 $ $ $ $ $ $ $ $ $ $ $ --- 2018 33.4% 7,425 187 52,05218,08137,96925,334 (41,865) 537,719 232,576622,275241,416232,310 123,847 716,810 840,657 (108,463) 2,445,6882,515,8211,193,7452,624,284 $ $ $ $ $ $ $ $ $ $ Elk River Municipal Utilities --- 2017 22.8% 2,348 54,23119,26362,69031,314 (50,354) 500,390154,675896,340227,406210,714799,223530,193 (479,744)(269,030) 2,252,7512,326,2451,191,8942,805,989 Water Operating Results at Existing Rates Historical $ $ $ $ $ $ $ $ $ $ - 2016 27.4% 1,050 34,99917,14275,56524,91773,002 (57,986) 493,385 149,744607,137196,700164,681 358,684 300,000595,747 (300,620)(135,939) 2,121,3802,173,5211,148,3102,474,141 $ $ $ $ $ $ $ $ $ $ - 2015 19.7% 42,54318,89867,48724,66694,703 (65,135)(74,929)(30,000) 465,181168,132582,385177,298136,829253,934189,669433,377 (211,758) 2,141,0962,202,5371,131,1102,414,295 $ $ $ $ $ $ $ $ $ $ Charges for servicesConnection maintenanceCustomer penaltiesProductionDistributionDepreciationCustomer accountsGeneral and administrativeInterest incomeMiscellaneous revenueInterest expense and otherGain (Loss) on sale of capital assetsAs Percent of Revenues Total Operating RevenuesTotal Operating ExpensesTotal Non-Operating Revenues (Expenses)Beginning of YearPlus Change in Net PositionPlus DepreciationPlus New DebtLess Capital ImprovementsLess Debt PrincipalEnd of YearReserve goalPercent of goal OPERATING REVENUESOPERATING EXPENSESOPERATING INCOMENON-OPERATING REVENUE (EXPENSE)Income before Contributions and TransfersDeveloper and Connection FeesContribution of Assets from CityTransfers from Other City FundsTransfers to Other City FundsCHANGE IN NET POSITIONUNRESTRICTED CASH RESERVES Section 3 Cost-of-Service A cost-of-service analysis was performed to determine the allocated cost to serve ERMUwithin the waterutility. Customer classes exist, in part, because the cost to serve differentkinds of customers varies. The cost-of-service analysis has been performed on a2019actual2019 financials, operations and sales. The results of the cost-of-service study give an indication of the degree of revenue recovery warranted for each class of customers. A comparison of the allocated cost to serve a class of customers and the actual revenues received from that class is taken into consideration during rate design. Functionalization of Costs ERMUwater revenue requirements have been divided into four functional categories. These categories are described below. Plantcosts associated with ERMUsource of supplyandpumping. Distribution distribution expenses are related to the ERMUsystem for delivering water to ERMUcustomers over the local pipeline system. Customer these costs are fixed costs associated with the service facilities utilized to deliver water directly to customers. They also include items such as meter reading, billing, collections and dealing with customers by customer service representatives. Revenue revenue related costs include certain non-operating revenues and utility margin. -7- 188 Section 3 Table 3-1below summarizes the functional watercosts for the 2019Test Year. The detailed cost functions are shown in Exhibit 3-A. Revenue ComponentRequirement Plant$1,122,360 Distribution1,029,888 Customer96,429 Revenue(11,508) Total$2,237,169 Classification of Costs ERMU classifications.The watercost classifications are described below. Demand Related demand related costs are costs required to meet the overall maximum demand on the system. Demand related costs are predominately associated with facility fixed costs. CommodityRelatedcommodity costs tend to vary with the annual quantity of water produced. Customer Related costs related to serving, metering and billing of individual customers. Revenue Related revenue related costs vary by the amount of revenue received by the utility or are associated with other operating and non-operating revenues. Exhibits 3-B through 3-Dshow the detailed classification of revenue requirements within the plant, distribution and customer functions. -8- 189 Cost-of-Service Allocation of Costs Based on an analysis of customer class service characteristics, the classified costs summarized above were allocated to the major ERMUcustomer classes. Allocation of costs was performed on a fully-distributed, embedded cost allocation basis. Specific allocation factors were utilized in each of the cost classification categories as described below. Exhibit 3-Econtains a summary of the development of the various allocation factors. uti test year commodityrequirements was used to allocate commodityrelated costs. The customer facilities allocator was used to allocate costs associated with the physical facilities required to serve individual customers. For the customer facility allocators, a weighted customer allocation factor is developed. Weighting factors are developed to represent the difference in service configurations between customer classifications. For instance, a larger customer facility is required for a single industrial demand customer than for a single residential customer. The customer service allocator is for allocation of costs associated with customer service meter reading, billing, collections and customer inquiries. As with the customer facilities allocators, weighted customer service allocators are developed -9- 190 Section 3 to represent the different levels of customer service required by different size customers. commodity, customer facility and customer service costs. Cost of Service Results Based on the classifications and allocations described above, the estimated cost to serve each major class of customers for the 2019Test Year was determined. Exhibit 3-Fpresents this analysis in detail. Table 3-2below summarizes the total allocated costs for each class compared to the total adjusted revenues received from the class during 2019. Comparison of Cost and Revenues Customer Allocated Revenues ClassificationCost to Serve Residential $1,207,117 $1,232,230 Commercial/Industrial 1,030,052 1,004,939 Total $2,237,169 $2,237,169 The revenue requirements and revenues as allocated to each class and summarized above are shown on a total dollar basis. Table 3-3below makes the comparison based on percentages of total cost to serve and total revenues.The charts following Table 3-3 show a graphical comparison between allocated cost to serve and revenues as a percentage of the totals.The percentage -10 - 191 Cost-of-Service necessary to produce revenues from each class in accordance withthe allocated cost to serve. The percentage adjustments do not represent the recommended -of-service results are one item for consideration in rate design. It is important to note also that the adjustments shown inthe table below would not change the total revenue received by the utility and are not indicative of overall revenue needs of the utility going forward. Recommendations regarding rate design are included in Section 4 of this report. Comparison of % Cost and Revenues Increase/ Customer Allocated Revenues ClassificationCost to Serve (Decrease) Residential 54.0% 55.1% -2.0% Commercial/Industrial 46.0% 44.9% 2.5% Total 100.0% 100.0% 0.0% -11 - 192 Section 3 As indicated above, ERMUexactlymatch the allocated cost to serve each class. Cost based rates are one of several goals in establishing rates. The relationship between allocated costs and revenues for each class should be considered, in addition to other rate related goals, in developing recommended rates. ERMU currently charges a Water Access Charge (WAC) for new customers. The WAC is a combination of the Water Connection Charge and the Water Availability Charge. The current WAC is $3,764 per WAC unit. A single WAC unit is equivalent to a single residential customer. Water systems require significant capital investment, that investment includes excess capacity in anticipation of new customers. The concept of the WAC is for new customers to buy into the existing system. ERMU has 4,647 residential customers and 609 commercial/industrial customers. The average flow per commercial/industrial customer is 8.3 times as much as the average residential customer flow. Utilizing a WAC weighting of 8 for -12 - 193 Cost-of-Service commercial/industrial customers yieldsan equivalent WAC unit count of 4,872 (609 times 8). The total WAC unit count for ERMU is 9,519 (4,647 residential plus 4,872 equivalent commercial/industrial units). As of 12/31/2019 ERMU has a total capital cost investment in the water system of $37,982,117. Dividing the investment by the equivalent units yields $3,990 per unit ($37,982,117 divided by 9,519). This compares to the current WAC fee of $3,764. -13 - 194 Exhibit 3-A Elk River Municipal Utilities Functionalization of 2019 Test Year Water Revenue Requirements 2019 REVENUE REQUIREMENTTEST YEARPlantDistributionCustomerRevenueFunctionalization Basis OPERATING EXPENSES PRODUCTION EXPENSE Maintenance of Structures 57,354 57,354 - - -100% plant TOTAL PRODUCTION EXPENSE 57,354 57,354 - - - PUMPING EXPENSE Supervision 49,455 49,455 - - -100% plant Electric & Gas Utilities 218,681 218,681 - - -100% plant Sampling 13,681 13,681 - - -100% plant Chemical Feed 18,435 18,435 - - -100% plant Maintenance of Electric Pumping - - - - -NA Maintenance of Wells 144,649 144,649 - - -100% plant SCADA - Pumping 3,767 3,767 - - -100% plant TOTAL PUMPING EXPENSE 448,668 448,668 - - - DISTRIBUTION EXPENSE Maintenance of Water Mains 69,733 - 69,733 - -100% distribution Locate Water Lines 15,704 - 15,704 - -100% distribution Locate Water Main - - - - -NA Water Meter Service 41,578 - 41,578 - -100% distribution Maintenance of Customers Service 22,143 - 22,143 - -100% distribution Water Mapping 12,404 - 12,404 - -100% distribution Maintenance of Water Hydrants - PU 18,159 - 18,159 - -100% distribution Maintenance of Water Hydrants - PR 2,897 - 2,897 - -100% distribution Water Clothing/PPE 7,823 - 7,823 - -100% distribution Wages/Water 6,121 - 6,121 - -100% distribution Transportation Expense 11,073 - 11,073 - -100% distribution General Expense/Water Permit 13,733 - 13,733 - -100% distribution TOTAL DISTRIBUTION EXPENSE 221,368 - 221,368 - - DEPRECIATION & AMORTIZATION Depreciation 1,146,324 311,930 834,394 - -fixed assets TOTAL DEPRECIATION 1,146,324 311,930 834,394 - - OTHER OPERATING EXPENSE Dam Maintenance Expense 1,442 1,442 - - -100% plant Pension Expense - - - - -NA OPEB Expense - - - - -NA Interest Paid on Meter Deposit 730 - - 730 -100% customer Rental Property Expense 2,544 1,071 1,380 93 -total operating expenses TOTAL OTHER OPERATING EXPENSE 4,716 2,513 1,380 823 - CONSUMER ACCOUNTS EXPENSE Meter Reading Expense 1,334 - - 1,334 -100% customer Miscellaneous Customer Accounts Expense 60,461 - - 60,461 -100% customer Cust Billings Not Paid - - - - -NA TOTAL CONSUMER ACCOUNTS EXPENSE 61,795 - - 61,795 - ADMINISTRATIVE EXPENSE Salaries Office & Commission 193,488 81,466 104,966 7,056 -total operating expenses Temporary Staffing - - - - -total operating expenses Office Supplies & Expense 16,858 7,098 9,145 615 -total operating expenses LT & Water Consumption 7,355 3,097 3,990 268 -total operating expenses Bank Charges 542 228 294 20 -total operating expenses Legal Fees 6,264 2,637 3,398 228 -total operating expenses Auditing Fees 4,180 1,760 2,268 152 -total operating expenses Insurance 23,391 9,849 12,690 853 -total operating expenses Deferred Comp 14,612 6,152 7,927 533 -total operating expenses Medical/Dental 174,917 73,647 94,892 6,378 -total operating expenses page 1 of 2 195 Exhibit 3-A Elk River Municipal Utilities Functionalization of 2019 Test Year Water Revenue Requirements 2019 REVENUE REQUIREMENTTEST YEARPlantDistributionCustomerRevenueFunctionalization Basis PERA 41,109 17,309 22,301 1,499 -total operating expenses FICA 38,523 16,220 20,899 1,405 -total operating expenses Sick Pay 26,370 11,103 14,306 962 -total operating expenses Holiday Pay 22,245 9,366 12,068 811 -total operating expenses Vacation & PTO 35,614 14,995 19,320 1,299 -total operating expenses UPMIC Distribution 6,648 2,799 3,607 242 -total operating expenses Mescellaneous - Wellhead - - - - -NA Consulting Fees 4,662 1,963 2,529 170 -total operating expenses Telephone 5,528 2,328 2,999 202 -total operating expenses Advertising 6,575 2,768 3,567 240 -total operating expenses Dues & Subscriptions 43,975 18,515 23,856 1,604 -total operating expenses Travel Expense - - - - -NA Schools & Meetings 19,354 8,149 10,499 706 -total operating expenses Maintenance of General Plant & Office 1,356 571 736 49 -total operating expenses TOTAL ADMINISTRATIVE EXPENSE 693,566 292,019 376,256 25,291 - GENERAL EXPENSE CIP Rebates - Residential 4,005 - - 4,005 -100% customer CIP Rebates - Commercial - - - - -NA CIP - Administration - - - - -NA CIP - Marketing 210 - - 210 -100% customer CIP - Labor 4,226 - - 4,226 -100% customer Environmental Compliance 934 393 507 34 -total operating expenses Misc General Expense 1,234 520 669 45 -total operating expenses TOTAL GENERAL EXPENSE 10,609 913 1,176 8,520 - TOTAL OPERATING EXPENSE 2,644,400 - 1,113,397 1,434,575 96,429 - NON-OPERATING REVENUES (EXPENSES) Interest income 38,097 - - - 38,097 100% revenue Miscellaneous revenue 248,960 - - - 248,960100% revenue Interest expense and other (32,939) (8,963) (23,976) - -fixed assets TOTAL NON-OPERATING REV (EXP) 254,118 (8,963) (23,976) - 287,057 OTHER OPERATING REVENUE Connection maintenance 50,583 - - - 50,583 100% revenue Customer penalties 17,865 - - - 17,865 100% revenue 68,448 - - - 68,448 TOTAL OTHER OPERATING REVENUE Developer and Connection Fees 428,662 - 428,662 - -100% distribution MARGIN 343,997 - - - 343,997100% revenue TOTAL REVENUE REQUIREMENT 2,237,169 1,122,360 1,029,888 96,429 (11,508) page 2 of 2 196 Exhibit 3-B Elk River Municipal Utilities 2019 Test Year Water Plant Classification FY 2019 REVENUE REQUIREMENTTEST YEARDemandCommodityClassification Basis OPERATING EXPENSES PRODUCTION EXPENSE Maintenance of Structures 57,354 57,354 -100% demand TOTAL PRODUCTION EXPENSE 57,354 57,354 - PUMPING EXPENSE Supervision 49,455 33,146 16,309operating expenses Electric & Gas Utilities 218,681 - 218,681100% commodity Sampling 13,681 - 13,681100% commodity Chemical Feed 18,435 - 18,435100% commodity Maintenance of Electric Pumping - - -NA Maintenance of Wells 144,649 144,649 -100% demand SCADA - Pumping 3,767 - 3,767 100% commodity TOTAL PUMPING EXPENSE 448,668 177,795 270,873 DISTRIBUTION EXPENSE Maintenance of Water Mains - - -NA Locate Water Lines - - -NA Locate Water Main - - -NA Water Meter Service - - -NA Maintenance of Customers Service - - -NA Water Mapping - - -NA Maintenance of Water Hydrants - PU - - -NA Maintenance of Water Hydrants - PR - - -NA Water Clothing/PPE - - -NA Wages/Water - - -NA Transportation Expense - - -NA General Expense/Water Permit - - -NA TOTAL DISTRIBUTION EXPENSE - - - DEPRECIATION & AMORTIZATION Depreciation 311,930 311,930 -100% demand TOTAL DEPRECIATION 311,930 311,930 - OTHER OPERATING EXPENSE Dam Maintenance Expense 1,442 1,442 -100% demand Pension Expense - - -NA OPEB Expense - - -NA Interest Paid on Meter Deposit - - -NA Rental Property Expense 1,071 1,071 -100% demand TOTAL OTHER OPERATING EXPENSE 2,513 2,513 - CONSUMER ACCOUNTS EXPENSE Meter Reading Expense - - -NA Miscellaneous Customer Accounts Expense - - -NA Cust Billings Not Paid - - -NA TOTAL CONSUMER ACCOUNTS EXPENSE - - - ADMINISTRATIVE EXPENSE Salaries Office & Commission 81,466 54,600 26,866operating expenses Temporary Staffing - - -NA Office Supplies & Expense 7,098 4,757 2,341 operating expenses page 1 of 2 197 Exhibit 3-B Elk River Municipal Utilities 2019 Test Year Water Plant Classification FY 2019 REVENUE REQUIREMENTTEST YEARDemandCommodityClassification Basis LT & Water Consumption 3,097 2,076 1,021 operating expenses Bank Charges 228 153 75operating expenses Legal Fees 2,637 1,768 870operating expenses Auditing Fees 1,760 1,180 580operating expenses Insurance 9,849 6,601 3,248 operating expenses Deferred Comp 6,152 4,123 2,029 operating expenses Medical/Dental 73,647 49,360 24,287operating expenses PERA 17,309 11,601 5,708 operating expenses FICA 16,220 10,871 5,349 operating expenses Sick Pay 11,103 7,441 3,661 operating expenses Holiday Pay 9,366 6,277 3,089 operating expenses Vacation & PTO 14,995 10,050 4,945 operating expenses UPMIC Distribution 2,799 1,876 923operating expenses Mescellaneous - Wellhead - - -NA Consulting Fees 1,963 1,316 647operating expenses Telephone 2,328 1,560 768operating expenses Advertising 2,768 1,855 913operating expenses Dues & Subscriptions 18,515 12,409 6,106 operating expenses Travel Expense - - -NA Schools & Meetings 8,149 5,461 2,687 operating expenses Maintenance of General Plant & Office 571 383 188operating expenses TOTAL ADMINISTRATIVE EXPENSE 292,019 195,717 96,302 GENERAL EXPENSE CIP Rebates - Residential - - -NA CIP Rebates - Commercial - - -NA CIP - Administration - - -NA CIP - Marketing - - -NA CIP - Labor - - -NA Environmental Compliance 393 393 -100% demand Misc General Expense 520 520 -100% demand TOTAL GENERAL EXPENSE 913 913 - TOTAL OPERATING EXPENSE 1,113,397 746,222 367,175 NON-OPERATING REVENUES (EXPENSES) Interest income - - -NA Miscellaneous revenue - - -NA Interest expense and other (8,963) (8,963) -100% demand TOTAL NON-OPERATING REV (EXP) (8,963) (8,963) - OTHER OPERATING REVENUE Connection maintenance - - -NA Customer penalties - - -NA - - - TOTAL OTHER OPERATING REVENUE Developer and Connection Fees - - -NA MARGIN - - -NA TOTAL REVENUE REQUIREMENT 1,122,360 755,185 367,175 page 2 of 2 198 Exhibit 3-C Elk River Municipal Utilities 2019 Test Year Water Distribution Classification FY 2019DistributionCustomer REVENUE REQUIREMENTTEST YEARDemandFacilitiesClassification Basis OPERATING EXPENSES PRODUCTION EXPENSE Maintenance of Structures - - -NA TOTAL PRODUCTION EXPENSE - - - PUMPING EXPENSE Supervision - - -NA Electric & Gas Utilities - - -NA Sampling - - -NA Chemical Feed - - -NA Maintenance of Electric Pumping - - -NA Maintenance of Wells - - -NA SCADA - Pumping - - -NA TOTAL PUMPING EXPENSE - - - DISTRIBUTION EXPENSE Maintenance of Water Mains 69,733 69,733 -100% Dist demand Locate Water Lines 15,704 15,704 -100% Dist demand Locate Water Main - - -NA Water Meter Service 41,578 - 41,578100% Cust facilities Maintenance of Customers Service 22,143 - 22,143100% Cust facilities Water Mapping 12,404 - 12,404100% Cust facilities Maintenance of Water Hydrants - PU 18,159 - 18,159100% Cust facilities Maintenance of Water Hydrants - PR 2,897 - 2,897 100% Cust facilities Water Clothing/PPE 7,823 4,956 2,867 Operating Expense Wages/Water 6,121 3,877 2,244 Operating Expense Transportation Expense 11,073 7,014 4,059 Operating Expense General Expense/Water Permit 13,733 8,699 5,034 Operating Expense TOTAL DISTRIBUTION EXPENSE 221,368 109,984 111,384 DEPRECIATION & AMORTIZATION Depreciation 834,394 558,799 275,595plant TOTAL DEPRECIATION 834,394 558,799 275,595 OTHER OPERATING EXPENSE Dam Maintenance Expense - - -NA Pension Expense - - -NA OPEB Expense - - -NA Interest Paid on Meter Deposit - - -NA Rental Property Expense 1,380 874 506Operating Expense TOTAL OTHER OPERATING EXPENSE 1,380 874 506 CONSUMER ACCOUNTS EXPENSE Meter Reading Expense - - -NA Miscellaneous Customer Accounts Expense - - -NA Cust Billings Not Paid - - -NA TOTAL CONSUMER ACCOUNTS EXPENSE - - - ADMINISTRATIVE EXPENSE Salaries Office & Commission 104,966 66,492 38,474Operating Expense Temporary Staffing - - -NA Office Supplies & Expense 9,145 5,793 3,352 Operating Expense page 1 of 2 199 Exhibit 3-C Elk River Municipal Utilities 2019 Test Year Water Distribution Classification FY 2019DistributionCustomer REVENUE REQUIREMENTTEST YEARDemandFacilitiesClassification Basis LT & Water Consumption 3,990 2,528 1,463 Operating Expense Bank Charges 294 186 108Operating Expense Legal Fees 3,398 2,153 1,246 Operating Expense Auditing Fees 2,268 1,436 831Operating Expense Insurance 12,690 8,038 4,651 Operating Expense Deferred Comp 7,927 5,021 2,906 Operating Expense Medical/Dental 94,892 60,110 34,782Operating Expense PERA 22,301 14,127 8,174 Operating Expense FICA 20,899 13,238 7,660 Operating Expense Sick Pay 14,306 9,062 5,244 Operating Expense Holiday Pay 12,068 7,644 4,423 Operating Expense Vacation & PTO 19,320 12,239 7,082 Operating Expense UPMIC Distribution 3,607 2,285 1,322 Operating Expense Mescellaneous - Wellhead - - -NA Consulting Fees 2,529 1,602 927Operating Expense Telephone 2,999 1,900 1,099 Operating Expense Advertising 3,567 2,259 1,307 Operating Expense Dues & Subscriptions 23,856 15,112 8,744 Operating Expense Travel Expense - - -NA Schools & Meetings 10,499 6,651 3,848 Operating Expense Maintenance of General Plant & Office 736 466 270Operating Expense TOTAL ADMINISTRATIVE EXPENSE 376,256 238,343 137,913 GENERAL EXPENSE CIP Rebates - Residential - - -NA CIP Rebates - Commercial - - -NA CIP - Administration - - -NA CIP - Marketing - - -NA CIP - Labor - - -NA Environmental Compliance 507 321 186Operating Expense Misc General Expense 669 424 245Operating Expense TOTAL GENERAL EXPENSE 1,176 745 431 TOTAL OPERATING EXPENSE 1,434,575 908,745 525,829 NON-OPERATING REVENUES (EXPENSES) Interest income - - -NA Miscellaneous revenue - - -NA Interest expense and other (23,976) (16,057) (7,919)plant TOTAL NON-OPERATING REV (EXP) (23,976) (16,057) (7,919) OTHER OPERATING REVENUE Connection maintenance - - -NA Customer penalties - - -NA - - - TOTAL OTHER OPERATING REVENUE Developer and Connection Fees 428,662 287,078 141,584plant MARGIN - - -NA TOTAL REVENUE REQUIREMENT 1,029,888 637,724 392,164 page 2 of 2 200 Exhibit 3-D Elk River Municipal Utilities 2019 Test Year Water Customer Classification FY 2019 REVENUE REQUIREMENTTEST YEARCustomerClassification Basis OPERATING EXPENSES PRODUCTION EXPENSE Maintenance of Structures - -NA TOTAL PRODUCTION EXPENSE - PUMPING EXPENSE Supervision - -NA Electric & Gas Utilities - -NA Sampling - -NA Chemical Feed - -NA Maintenance of Electric Pumping - -NA Maintenance of Wells - -NA SCADA - Pumping - -NA TOTAL PUMPING EXPENSE - - DISTRIBUTION EXPENSE Maintenance of Water Mains - -NA Locate Water Lines - -NA Locate Water Main - -NA Water Meter Service - -NA Maintenance of Customers Service - -NA Water Mapping - -NA Maintenance of Water Hydrants - PU - -NA Maintenance of Water Hydrants - PR - -NA Water Clothing/PPE - -NA Wages/Water - -NA Transportation Expense - -NA General Expense/Water Permit - -NA TOTAL DISTRIBUTION EXPENSE - - DEPRECIATION & AMORTIZATION Depreciation - -NA TOTAL DEPRECIATION - - OTHER OPERATING EXPENSE Dam Maintenance Expense - -NA Pension Expense - -NA OPEB Expense - -NA Interest Paid on Meter Deposit 730 730100% Customer Rental Property Expense 93 93100% Customer TOTAL OTHER OPERATING EXPENSE 823 823 CONSUMER ACCOUNTS EXPENSE Meter Reading Expense 1,334 1,334 100% Customer Miscellaneous Customer Accounts Expense 60,461 60,461100% Customer Cust Billings Not Paid - -NA TOTAL CONSUMER ACCOUNTS EXPENSE 61,795 61,795 ADMINISTRATIVE EXPENSE Salaries Office & Commission 7,056 7,056 100% Customer Temporary Staffing - -NA Office Supplies & Expense 615 615100% Customer page 1 of 2 201 Exhibit 3-D Elk River Municipal Utilities 2019 Test Year Water Customer Classification FY 2019 REVENUE REQUIREMENTTEST YEARCustomerClassification Basis LT & Water Consumption 268 268100% Customer Bank Charges 20 20100% Customer Legal Fees 228 228100% Customer Auditing Fees 152 152100% Customer Insurance 853 853100% Customer Deferred Comp 533 533100% Customer Medical/Dental 6,378 6,378 100% Customer PERA 1,499 1,499 100% Customer FICA 1,405 1,405 100% Customer Sick Pay 962 962100% Customer Holiday Pay 811 811100% Customer Vacation & PTO 1,299 1,299 100% Customer UPMIC Distribution 242 242100% Customer Mescellaneous - Wellhead - -NA Consulting Fees 170 170100% Customer Telephone 202 202100% Customer Advertising 240 240100% Customer Dues & Subscriptions 1,604 1,604 100% Customer Travel Expense - -NA Schools & Meetings 706 706100% Customer Maintenance of General Plant & Office 49 49100% Customer TOTAL ADMINISTRATIVE EXPENSE 25,291 25,291 GENERAL EXPENSE CIP Rebates - Residential 4,005 4,005 100% Customer CIP Rebates - Commercial - -NA CIP - Administration - -NA CIP - Marketing 210 210100% Customer CIP - Labor 4,226 4,226 100% Customer Environmental Compliance 34 34100% Customer Misc General Expense 45 45100% Customer TOTAL GENERAL EXPENSE 8,520 8,520 TOTAL OPERATING EXPENSE 96,429 96,429 NON-OPERATING REVENUES (EXPENSES) Interest income - -NA Miscellaneous revenue - -NA Interest expense and other - -NA TOTAL NON-OPERATING REV (EXP) - - OTHER OPERATING REVENUE Connection maintenance - -NA Customer penalties - -NA - - TOTAL OTHER OPERATING REVENUE Developer and Connection Fees - -NA MARGIN - -NA TOTAL REVENUE REQUIREMENT 96,429 96,429 page 2 of 2 202 Exhibit 3-E Elk River Municipal Utilities 2019 Test Year Allocation Factors Commercial/ TotalResidentialIndustrial Demand Allocation Factors Peak Day - 1000 gallons 4,426 2,380 2,046 Peak Day 100.0%53.8%46.2% Commodity Allocation Factors Commodity Sales - 1000 gallons 658,636 314,812 343,824 Commodity100.0%47.8%52.2% Customers Number of Customers 5,256 4,647 609 C100.0%88.4%11.6% Customer Facilities Allocation Factor Customer Facilities Weight16 Weighted Number of Cust 8,301 4,647 3,654 CF100.0%56.0%44.0% Customer Service Allocation Factor Customer Service Weight13 Weighted Number of Cust 6,474 4,647 1,827 CS100.0%71.8%28.2% Revenue Allocator Sum Other Rev Reqs$ 2,248,677 $ 1,213,327$ 1,035,350 R100.0%54.0%46.0% page 1 of 1 203 Exhibit 3-F Elk River Municipal Utilities 2019 Test Year Allocation of Revenue Requirements Commercial/Allocation TotalResidentialIndustrialFactor Plant Demand 755,185 406,119 349,065Peak Day Commodity 367,175 175,501 191,674Commodity Total Plant$ 1,122,360$ 581,620$ 540,740 Distribution Distribution Demand 637,724 342,952 294,772Peak Day Customer Facilities 392,164 219,538 172,626CF Total Distribution$ 1,029,888$ 562,490$ 467,398 Customer Customer Service 96,429 69,216 27,213CS Total Customer Service$ 96,429$ 69,216$ 27,213 Revenue Component Other Revenue (355,505) (191,821) (163,684) R Margin 343,997 185,612 158,385R Total Revenue$ (11,508)$ (6,209)$ (5,298) Total Revenue Requirements$ 2,237,169$ 1,207,117 $ 1,030,052 Total Revenues$ 2,237,169$ 1,232,230 $ 1,004,939 Percent Revenue Requirements100.0%54.0%46.0% Percent Revenues100.0%55.1%44.9% Percent Change0.0%-2.0%2.5% Revenue Req/1000 gallons3.3973.8342.996 Revenue/1000 gallons3.3973.9142.923 page 1 of 1 204 Section 4 Proposed Rates Changes to rates are generally based on the overall need for revenues and results of the cost-of-service analyses. The projected operating results at existing rates as presented in Section 2 of this report outline the overall revenue needs of the water utility. Section 3 summarizes the cost-of-service results. ERMU recently raised retail water rates effective in 2020. In Section 2 of this report, Table 2-2 shows that the annual change in net position for the water utility ranges from minus 11.6% to minus 36.8% of revenues during the Study Period. Despite the annual operating results, Table 2-3 shows that the estimated cash reserves fall from $7.7 million to $3.9million, but the reserve levels remain well above the ERMU goal for minimum reserves. The cost-of-service results summarized in Section 3 of this report do not indicate that any changes to rates are necessary to address class cost issues. The cost-of-service results are within a reasonable range relative to comparison of revenues and allocated costs by class. Ultimately, the level of capital improvements and debt will have an impact on resulting levels of reserves. ERMU should monitor operating results and reserves on an on-going basis to determine when additional water revenues through a general rate increase are warranted. -14- 205