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from existing reserve funds. Any reductions after 2016 would be dependent on overall ERMU financials, <br /> continued discrepancies between ERMU and cooperative rates and ERMU sales growth. <br /> ERMU currently purchases its wholesale power requirements from Great River Energy (GRE). In 2018, <br /> ERMU is transitioning to a new wholesale supplier, the Minnesota Municipal Power Agency (MMPA). <br /> MMPA's wholesale rate structure is different than GRE's relative to overall demand and energy rates. <br /> ERMU is anticipating that overall wholesale costs will be lower and fixed (demand) wholesale costs will <br /> also be lower under MMPA service. <br /> ERMU is also planning to conduct an electric cost-of-service and rate design study in the near future. <br /> The results of a cost-of-service study will help address rate design considerations for all ERMU <br /> customers including the demand billed customers. It is anticipated that a cost-of-service analysis will <br /> consider both the existing GRE wholesale structure and the planned MMPA wholesale structure to <br /> examine how the cost basis for ERMU customers will change with the transition of wholesale providers. <br /> The cost-of-service results will also provide useful information relative to continued adjustments to the <br /> retail demand rates. <br /> Recommendations <br /> Elk River Municipal Utilities (ERMU) is evaluating a demand rate adjustment rate mechanism which will <br /> utilize a monthly demand adjustment (either a credit or charge) for the demand billed customer class. <br /> The demand adjustment mechanism will allow ERMU to make any additional future adjustments that <br /> may be warranted without having to change the Demand Electric Service tariff repeatedly to respond to <br /> changing conditions. The monthly demand adjustment would be very similar to the Power Cost <br /> Adjustment(PCA) mechanism that is currently charged or credited per kWh of energy. <br /> The nature of the adjustments and the impact on bills will need to be communicated to existing and <br /> acquired ERMU customers in the Demand Electric Service customer classes. It will be important that the <br /> customers understand that the demand adjustment will be temporary in nature and part of the <br /> transition in the acquisition of service territory and the change to a new wholesale power supplier in <br /> 2018. Customers will also need to understand that the rates will be further adjusted as necessary in the <br /> future to maintain ERMU's financial standing and reflect ERMU's cost basis. <br /> David A. Berg, PE <br /> Principal <br /> Dave Berg Consulting, LLC <br /> 58 <br />