4.4 ERMUSR 12-13-2022��i
Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO:
FROM:
ERMU Commission
Theresa Slominski - General Manager
MEETING DATE:
AGENDA ITEM NUMBER:
December 13, 2022
4.4
SUBJECT:
Margins Policy
ACTION REQUESTED:
Approve revised ERMU Commission Policy G.5a Margins.
BACKGROUND:
As presented in October, Section 5 of the Commission Policies is Goals and Results, G.5, and has
two intended policies, G.5a Margins and G.5b Competitive Rates. The purpose of these two
policies is to provide Commission and staff parameters for determining appropriate margins
and rates that are reasonable and justifiable to our customers, while taking the emotion out of
decision making and provide consistency year to year. The first of these policies, G.5a Margins,
was presented and approved in October. In preparation of 2023's budget, and the application
of the policy, there is a revision proposed.
DISCUSSION:
Staff had proposed that the policy exclude depreciation for the calculation of the margins,
however, staff feels that the long-term needs for reserves would not be met under that
calculation. Including depreciation results in higher reserves contributions year over year and
better positions ERMU for success. It is also proposed to change the margin percent range to be
1.5%-3.5%.
The full policy with revisions in red is attached for reference.
ATTACHMENTS:
• Proposed ERMU Policy -G.5a Margins revision
Page 1 of 1
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Elk River
Municipal Utilities
COMMISSION POLICY
Section:
Governance
Category:
Results Policies
Policy Reference:
Policy Title:
G.5a
Margins
PURPOSE:
Consistent with all Results Policies, the Commission shall establish clear expectations for
producing the right results for the right people in the right way. With this policy the Commission
affirms their commitment to the Organization Fundamentals Policies prioritizing financial and
organization health by setting an annual goal for operational margins.
The annual strategic and business planning, consistent with the Financial Planning and
Budgeting Policy, shall be conducted such that the organization has appropriate operating
margins. By establishing clear expectations for operating margins through policy, the Commission
creates clear and consistent direction for the General Manager.
This clear direction provides stability in organizational vision allowing the General Manager,
while developing the annual budget and business plan, to more effectively utilize long range tools,
such as multiple year capital improvement plans, to produce both short term and long term
financial and organizational health. Additionally, this practice helps to avoid inconsistent
direction to the General Manager from year to year such as tight margins one year due to rate
competitiveness concerns and concerns another year about revenues and desiring higher margins.
POLICY:
To promote financial health and organization stability, the General Manager shall develop the
annual business plan and budgets for the following services as follows:
1. Electric — �' e budget shall e developed wit�uumargms
that are at ll e asl: 2 1ya,:.➢ c l....coffVe.lIftf Imo& .�.:.egfta i A bt 1....001wel fW'e. f1i'Wg-il1-"C-41a.l..I.
lei 1.5% of total revenue bul:�1. ..1..:be1e:.�11no greater than :.5% of total
revenue.
2. Water — -x� � .Me budget shall be developed with muii-in tum margins
that are at � 4 r; b l.....c e+� n....11" ren ui } 1.: ..:b l..... en..-'44....:be....
1.5 /o of total revenue 1. u1.: vK-1 11 be de-vel-e : d no greater than . 72.5% of total
Pagel of 2
55
ERMU Commission Policy — G.5a Margins
revenue.
Mar.gjj i s w i aj s o ie Is s t 1) P g�p. ggagce,
......... . .. . ..... .. ... ..... �i ....... ...... e ..... ........ y 1.�
................................... ......................................... ... ........ .... a y j2 . . . . . . 1.1d ..... ...........................................
POLICY HISTORY:
Proposed and adopted October 11, 2022
Proposed revision December 13, 2022
Page 2 of 2
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