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Section 3 <br /> Classification of Costs <br /> ERMU's Test Year electric revenue requirements have been divided into six <br /> distinct cost classifications. These cost classifications are described below. <br /> Demand Related — demand related costs are fixed costs that do not vary with <br /> hourly consumption. Demand related costs are required to meet the overall <br /> demand of the system as expressed in kW. For ERMU, demand related costs <br /> include the demand portion of wholesale power and production expenses, certain <br /> transmission and distribution system expenses and a portion of administrative and <br /> general expenses. <br /> Energy Related —energy related costs vary based on hourly consumption in kWh. <br /> ERMU's primary energy related costs are the energy portion of wholesale power <br /> and production expenses, and a share of administrative and general expenses. <br /> Customer Facilities — these costs are fixed costs associated with the service <br /> facilities utilized to deliver electric power and energy directly to customers. <br /> Customer Service — these costs vary by the number and type of customers and <br /> include items such as meter reading, billing, collections and dealing with customers <br /> by customer service representatives. <br /> Direct — these costs are certain system related costs directly attributable to <br /> ERMU's street light services provided to the City of Elk River. <br /> Revenue Related — revenue related costs vary by the amount of revenue received <br /> by the utility or are associated with other and non-operating revenues. For ERMU, <br /> this includes transfers to the City and other operating and non-operating income. <br /> - 2 - <br /> FF <br />