4.2. ERMUSR 09-10-2019 - Laserfiche WebLink

Home Browse Search

an amount to the city government consistent with industry standards. Historically, ERMU has used data from the American Public Power Association (APPA) to benchmark industry standards for these types of transfers. The reasons for using the APPA report are: consistency of data, size of data pool, availability of report, break out data by revenue class, and both national data and regional data comparisons. Although the practice of transferring funds from a municipal utility electric fund to their city is typical, the methodology to calculate the amount is not at all similar and in fact varies greatly. Even locally, the methodology of other Minnesota municipal utilities is all over the board.The methodology really falls back to local situations which often reflect the political environment, financial strength of the utility, financial strength of the city, and the general state of development and growth rate of the city. So looking at a larger pool of regional data and revenue class data in a report calculated by a third party creates greater stability and reliability in the numbers. And most importantly, this method then avoids the risk of skewing data through comparable pool selection to achieve desired results. This methodology is therefore easier to defend to the public and is a sound business practice. The most recent APPA report on PILOT and donations notes that 5.6% of electric operating revenue is contributed back into the communities they serve. Public power utilities vary drastically in size from large municipal utilities like in Los Angeles, CA, down to small municipal utilities like in Winthrop, MN. Because the size of municipal utilities varies so drastically, this blended national number of 5.6% is not very applicable at a local level. It does, however, give scale to how important public power is to the communities where they serve.The report then has a breakdown of the data to compare apples to apples for revenue class. The median transfer percentage for ERMU's revenue class is 4.5%. Additionally, the report has a breakdown for our geographic region where the median transfer is slightly higher at 4.7%.This report is attached for your reference. The total donations from ERMU to the city for 2018 were 4.7%, consistent with data from our geographic region with a data pool sizable enough to eliminate potential gerrymandering of the data pool to achieve desired results.Year to date, ERMU's transfer to the city is at 4.8%which does not yet include $200,000 plus in donations to upgrade the downtown street lighting. If that donation is added, the 2019 YTD donation to the city would be approximately 6.2%which is well above the benchmarking data including the nationally blended amount. And,this does not reflect donated labor to facilitate the projects funded by the local area sales tax like the multipurpose building or ballpark lighting. These projects are underway in 2019 and will continue in 2020. And of note, avoided cost for these donations to the city often exceed actual cost to the utilities, producing greater value to the community.The 2018 and 2019 YTD electric fund transfer information is indicated in the attached Table 1. Contrary to what was published in the Star News, the current policy, practice, and results are sound. This issue is complex.The greater need of the community might require more from ERMU. The local issue is that, in the short term, the city has a budget shortfall.Their preliminarily budgeted Page 2 of 3 153