5.2 ERMUSR AGENDA 07-02-2013
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UTILITIES COMMISSION MEETING
TO:
Elk River Municipal Utilities Commission
John Dietz – Chair
Al Nadeau – Vice Chair
Daryl Thompson – Trustee
FROM:
Troy Adams, P.E. – General Manager
MEETING DATE:
July 2, 2013
AGENDA ITEM NUMBER:
5.2
SUBJECT:
Payment in Lieu of Taxes (PILOT) and Other Donations to the City of Elk River
BACKGROUND:
Early in 2013 the Utilities Commission directed staff to bring back information on ERMU’s
PILOT and other donations to the City of Elk River. The ERMU policy outlining these
contributions to the City was last revised in June 2008 and had a requirement to be reviewed in 5
years.
DISCUSSION:
Information on these types of contributions is compiled annual by the American Public Power
Association (APPA) and locally by Minnesota Municipal Utilities Association (MMUA).
American Public Power Association (APPA) and MMUA have both use data collected by the
U.S. Energy Information Administration (EIA). Because of this, the data used in the current
reports is somewhat dated, but gives a place to start a discussion.
In 2010, the national median for total contributions by a municipal utility to their city is 5.2%.
Our region, the West North Central (WNC), includes: Iowa, Kansas, Minnesota, Missouri,
Nebraska, North Dakota, and South Dakota. The 2010 WNC median for total contributions by a
municipal utility to their city is 4.6%. And as calculated by MMUA, the 2010 Minnesota median
for total contributions by a municipal utility to their city is 3.9%.
In 2010, ERMU had a total contribution of $1,091,502, which was 4.07% of our operating
revenue. This is above the MN median. One factor that affects this percentage for ERMU in
comparison to other MN municipal utilities is our wholesale power costs. ERMU’s wholesale
power costs are greater than our peer municipal utilities. This causes our contribution percentage
to appear smaller than if it were to be compared based on number of customers.
Because of ERMU’s continued growth, the total contributions to the City of Elk River have
grown as well. As you can see from Table 1 – ERMU Contributions to the City of Elk River, as
ERMU grows so does the contribution to the City. Even through the overall percent to operating
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revenue has not changed significantly over the past three years, the contribution has grown. This
is a direct relationship and supports the philosophy that there is a symbiotic relationship between
ERMU and the City. Our success is linked.
As required by policy, a review of ERMU’s contributions to the City of Elk River is scheduled
for 2013. The policy as revised in 2008 does not accurately reflect the donations currently made
to the city. Attached is the policy with revisions noted in red reflecting current contributions.
Staff recommends continuing with the status quo and updating our policy to reflect the current
practice.
Related to our contributions to the City of Elk River, ERMU is working with Connexus Energy
on an electric service territory acquisition which could include approximately 2000 customers
within 12 square miles in the corporate boundaries of Elk River. It is proposed for discussion
that the PILOT associated with these potential future ERMU customers be handled differently to
allow ERMU to be able to pay for the acquisition costs faster. In lieu of paying the 3% PILOT,
ERMU could keep the City of Elk River whole by paying a reduced PILOT for these customers
that would be equivalent to what would have been paid by Connexus in city taxes. This would
allow ERMU to pay for the acquisition faster. After the proposed service territory acquisition is
paid in full to Connexus, ERMU could then start paying the full PILOT per our policy. For the
City this would not cause a reduction in revenues; it would be a short term delay in additional
contributions, and a long term gain. When it is all complete, the City will receive substantially
more from ERMU’s PILOT than taxes from Connexus, so it is in the best interest of the City of
Elk River to help ERMU with the potential electric service territory acquisition.
ACTION REQUESTED:
Staff recommends the Commission adopt policy revisions to “ERMU Policy 8.13 – Payment in
Lieu of Taxes (PILOT) and Other Donations to the City of Elk River.”
ATTACHMENTS:
Proposed revision to ERMU Policy 8.13 – Payment in Lieu of Taxes (PILOT) and Other
Donations to the City of Elk River
APPA article - Payments and Contributions by Public Power Distribution Systems To
State and Local Governments, 2010 Data – February 2012
ERMU Contributions to the City of Elk River
2012 2011 2010
Electric Operating Revenues $ 30,258,690 $ 28,583,986 $ 26,792,562
Payment in Lieu of Taxes (PILOT) $ 753,553 $ 711,415 $ 657,086
Donated Electricity and Labor $ 481,907 $ 474,934 $ 434,415
Total Contribution ($) $ 1,235,460 $ 1,186,349 $ 1,091,502
Total Contribution (%) 4.08% 4.15% 4.07%
Table 1
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8.13 Payment in Lieu of Taxes
(PILOT) and other Donations to the
City of Elk River
Page 1 of 2 Adopted December 6, 1994
Revised June 6, 2008
Proposed Rev July 2, 2013
8.13 PAYMENT IN LIEU OF TAXES (PILOT) AND OTHER
DONATIONS/CONTRIBUTIONS TO THE CITY OF ELK RIVER
1.0 Purpose and Summary Contribution Policy to the City of Elk River
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.
2.0 Payment in Lieu of Taxes (PILOT)
The Cash PILOT transfer from Elk River Municipal Utilities to the City of Elk River shall be
three percent (3%) of the revenues generated by Elk River ERMU’s electric customers within the
corporate boundaries of the City of Elk River. This contribution level shall be reviewed every
five years.
3.0 Donated Electricity
The Elk River Municipal Utilities shall donate all electricity to the City of Elk River for all of
their facilities not associated with enterprise funds of the City of Elk River. As an example, this
will include buildings such as City Hall, Police and Fire Departments, Library, Park, Street
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8.13 Payment in Lieu of Taxes
(PILOT) and other Donations to the
City of Elk River
Page 2 of 2 Adopted December 6, 1994
Revised June 6, 2008
Proposed Rev July 2, 2013
Department Buildings, street lights, and signal lights, ; this shall not include such buildings as
Liquor Stores, Wastewater Treatment Plant, Ice Arena, or lift stations.
4.0 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.
5.0 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…
The ERMU’s and City of Elk River shares expenses for the Minnesota Municipal Utilities
Association safety compliance programs as follows:
A. ERMU shall pay the entire fixed cost charge from MMUA.
B. ERMU and the City of Elk River shall each pay the per employee unit charge each
contribute to the program.
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