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Section 3 <br /> Cost-of-Service <br /> A cost-of-service analysis was performed to determine the allocated cost to serve <br /> each of ERMU's customer classes within the electric utility. Customer classes <br /> exist, in part, because the cost to serve various kinds of customers varies. The <br /> cost-of-service analysis has been performed on a 2015 'Test Year' based on actual <br /> 2015 financials (with certain adjustments), operations and sales. The results of <br /> the cost-of-service study give an indication of the degree of revenue recovery <br /> warranted for each class of customers. A comparison of the allocated cost to serve <br /> a class of customers and the actual revenues received from that class is taken into <br /> consideration during rate design. <br /> Test Year Adjustments <br /> The following adjustments were made to the 2015 Test Year financials to modify <br /> the test year and make the Test Year more indicative of ERMU's future operating <br /> profile. These adjustments are shown in Exhibit 3-A. <br /> • Power supply expenses have been adjusted to represent the transition from <br /> Connexus/GRE wholesale power to MMPA. <br /> • Revenues and expenses associated with the security business have been <br /> eliminated to reflect the sale of that entity by ERM U. <br /> • Utilities and labor donated have been reduced to reflect the full retail sale <br /> of electricity to City accounts. <br /> • The dispersed generation credit program tied to GRE has been eliminated. <br /> • The transfer to the City has been increased to reflect the revised policy. <br /> • The margin has been adjusted to reflect the combined adjustments listed <br /> above. <br /> 13 110 <br /> OflUE BERG COt15ULTU1C.LLC <br /> 65 <br />