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Section 2 <br /> Projected Operating Results <br /> Existing Rates <br /> The rates charged for electric service by ERMU, combined with other operating and non- <br /> operating revenues, must be sufficient to meet the cost of providing services to ERMU's <br /> retail customers. This is necessary in order to ensure the long-term financial health of <br /> ERMU. The cost of providing electric service consists of normal operating expenses such <br /> as production and purchased power, transmission and distribution functions, customer <br /> and administrative functions, system depreciation expenses, capital improvements, <br /> payments on outstanding debt and contributions to the City of Elk River and other non- <br /> operating expenses. <br /> An analysis of the operating results for ERMU during the 2016-2020 Study Period has <br /> been performed assuming the current retail rates and charges remain in effect for the <br /> electric utility through the Study Period. This analysis has been done to determine the <br /> overall need, if any, for additional revenue through rates to meet projected revenue <br /> requirements. The analyses and assumptions utilized in these projections are explained <br /> below. <br /> Estimated Revenues — Existing Rates <br /> Retail Sales <br /> ERMU sells retail power and energy to residential, commercial and industrial customers. <br /> ERMU has recently been experiencing steady growth in total retail sales to its electric <br /> customers; since 2007 annual growth in sales has averaged 3.7% per year. ERMU is <br /> expecting an increase in sales growth for the Study Period, primarily associated with the <br /> acquisition of additional electric service territory. During the Study Period, ERMU <br /> anticipates acquiring 8 new service territory areas. The Study Period sales analysis <br /> EI <br /> DflUC UHC ConSULTIflG.LLC <br /> 58 <br />