4.1 ERMUSR 05-11-2021______________________________________________________________________________
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UTILITIES COMMISSION MEETING
TO:
ERMU Commission
FROM:
Theresa Slominski – General Manager
MEETING DATE:
May 11, 2021
AGENDA ITEM NUMBER:
4.1
SUBJECT:
Payment in Lieu of Taxes and Other Donations to the City of Elk River
ACTION REQUESTED:
Adopt Revised Commission Policy G.2a1 Payment in Lieu of Taxes and Other Donations to the
City of Elk River.
BACKGROUND:
At the April 13 Commission meeting the Transmission Transformed Service Rate (TTSR) was
adopted. In reviewing the Payment in Lieu of Taxes (PILOT) and Other Donations to the City of
Elk River Policy there was a great deal of discussion on a fair transfer amount related to the
TTSR. There were also discussions of how to handle the additional fees (franchise and
stormwater) that ERMU collects on behalf of the City.
DISCUSSION:
The TTSR is for customers that are comfortable with the risks and responsibilities associated
with market-based rates in the Midwest Independent System Operator (MISO). The customer
will be responsible for managing all the MISO requirements along with the costs associated
with transmission, capacity, and energy by working directly with Minnesota Municipal Power
Agency (MMPA). Customers on the TTSR will essentially have the real-time MISO pricing passed
through to them with a charge added to those real-time MISO prices for MMPA and ERMU to
split evenly. The “charge” is to cover the dispatch, billing, and administrative costs incurred by
MMPA and ERMU. Given the charge is so small, and split between MMPA and ERMU, it is not
feasible to pay 4% of total revenue when the wholesale power costs are pass through costs to
the customer, not revenue to ERMU or MMPA.
This proposed policy modification would simply add a second methodology to the PILOT
calculation for the customers on the TTSR. The existing policy states that ERMU shall pay 4% of
revenues for electric customers within the corporate boundaries of the City of Elk River. The
proposed change to the policy provides an additional PILOT calculation for the TTSR customers
that states ERMU shall pay 4% of the margin. This change is needed to ensure that ERMU
receives enough margin to cover administrative and regulatory costs.
ATTACHMENTS:
• Revised – Commission Policy – G2a1 - Payment in Lieu of Taxes (PILOT) and Other
Donations to the City of Elk River
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COMMISSION POLICY
Section: Category:
Governance Governance Policies
Policy Reference: Policy Title:
G.2a1 Payment in Lieu of Taxes and Other
Donations to the City of Elk River
PURPOSE:
The success of ERMU is linked with the success of our community. And the success of our
community is linked with the operation of our city government and ERMU. ERMU was
purchased by the City of Elk River in 1945 and separate governance was created per State
Statute in 1947. Although governed separately, ERMU is still an important component of our
local government and our city services.
It is typical for a municipal utility to provide a Payment in Lieu of Taxes (PILOT) and other
donations to their city, regardless of a separation of governance. Although typical, this
contribution should never inhibit ERMU’s ability to make repayment on debt, cause ERMU to
become non-competitive, or inhibit needed investment in personnel or infrastructure which may
hurt ERMU’s ability to meet the needs of their customers. For these reasons the PILOT and other
donations should be reviewed at least once every five (5) years by the ERMU Commission.
POLICY:
The PILOT and other donations to the City of Elk River shall be as follows:
1. Payment in Lieu of Taxes (PILOT) – The PILOT transfer from Elk River Municipal Utilities
to the City of Elk River shall be four percent (4%) of the revenues generated by ERMU’s
electric customers, except customers qualifying for the Transmission Transformed Service
rate, within the corporate boundaries of the City of Elk River.
For the customers that qualify for the Transmission Transformed Service rate, the PILOT
transfer from ERMU to the City of Elk River shall be four percent (4%) of the margin
remaining from the evenly split charge per kWh to cover dispatching, billing, and
administrative costs incurred by the wholesale power provider and ERMU.
2. Donated Electricity – Elk River Municipal Utilities shall donate all electricity to the City of
Elk River for street lights and signal lights.
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ERMU Commission Policy – G.2a1 Payment in Lieu of Taxes and Other Donations to the City
of Elk River
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3. Donated Water – Elk River Municipal Utilities shall donate water for use by the Elk River
Fire Department (ERFD) for the purpose of extinguishing fires within the City of Elk River
and other cities under contract with the ERFD.
For the purpose of creating ice rinks for public/ non-enterprise use, ERMU shall donate water
for use by the Elk River Parks Department.
Elk River Municipal Utilities shall donate water for the use by the Elk River Streets
Department for the use of street sweeping.
4. Donated Labor – Because of specialized skills and equipment, ERMU may be able to provide
a better value to our community by donating labor to the City of Elk River. For example,
ERMU has trained employees and the equipment to hang banners where the City does not.
In this example, ERMU is able to provide this donated service to the City for less cost than a
third party, creating greater value to our community. For such situations, ERMU shall donate
labor to the City of Elk River, as appropriate, where a greater value is created for our
community and where ERMU is not subjected to undue burden.
In addition to hanging banners, other examples include: maintenance of street lighting,
relamping signal lights, locating underground fiber optics and/or other facilities,
administration costs associated with the billing of city franchise fees, installation of
temporary lighting, relamping of city ball field lighting, installation and/or maintenance of
city warning sirens, meter reading for wastewater, assistance with tree trimming, etc…
POLICY HISTORY:
Adopted December 6, 1994
Revised June 6, 2008
Revised July 2, 2013
Revised October 13, 2015
Revised January 1, 2016
Revised October 8, 2019
Revised May 11, 2021
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