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Elk River <br /> Municipal Utilities UTILITIES COMMISSION MEETING <br /> TO: FROM: <br /> ERMU Commission Troy Adams, P.E.—General Manager <br /> MEETING DATE: AGENDA ITEM NUMBER: <br /> November 14, 2017 5.2 <br /> SUBJECT: <br /> 2018 Business Plan/Budget: Rates and Review <br /> ACTION REQUESTED: <br /> No action required at this time. <br /> BACKGROUND: <br /> In preparation for budget approval in December, staff continues to work through the 2018 budget <br /> process. Based on the wholesale rate increase and projected expense increases and capital <br /> expenditures, a preliminary balanced budget and rates have been drafted. <br /> DISCUSSION: <br /> Electric Department Budget <br /> Wholesale power costs makes up a considerable portion of the required operating revenue, <br /> approximately 74%for 2017. This is within an expected range, typically 70%- 75%. For <br /> ERMU,wholesale power falls on the high side likely because two factors: ERMU is <br /> conservatively staffed for our size and GRE's rates are higher than other wholesale power <br /> options within our region. <br /> The wholesale rates set by Great River Energy (GRE)typically have an enormous impact on <br /> ERMU's rates and the increase in wholesale power costs are passed through in ERMU's retail <br /> rates.Normally ERMU is not notified of GRE's new rates until December; however,we <br /> already have received the GRE board approved all-requirements wholesale rates for 2018. It is <br /> our understanding that GRE set their rates to generate an overall 1% increase in their electric <br /> sales revenue. Because of a shift in their rate recovery methodology,the impact to ERMU is <br /> much more favorable that the projected GRE revenue increase. This usually would be the <br /> opposite where ERMU would be impacted more than the aggregated whole. The results of the <br /> updated GRE rate recovery methodology results in a wholesale power expense impact to <br /> ERMU of nearly a 0% increase. This does not take into consideration potential power cost <br /> adjustments (PCAs). We have also received the preliminary 2018 MMPA wholesale rates and <br /> structure but have not analyzed the true rate impact with ERMU usage for October through <br /> December of 2018. This will be completed before the ERMU budget is finalized for approval <br /> in December. <br /> Page 1 of 2 <br /> 63 <br />