4.2. ERMUSR 09-10-2019 - Laserfiche WebLink

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needs exceed the projections for the preliminary tax levy passed.The long term outlook for the city does not indicate any change in their situation. They are not faced with a one-time need. And although ERMU has very significant future financial obligations (including electric service territory loss of revenue payments, substation additions, Highway 169 Redefine electric infrastructure relocation costs, a new field services building, and advanced metering infrastructure project), ERMU is financially strong because of recent growth and long term strategic capital and financial planning.Therefore the idea of ERMU increasing the transfer to the city has surfaced as an option to assist the city. The question of increasing the transfer to the city is not one of financial ability; rather it is a philosophical question of values and doing the right thing for the community.The transfer from ERMU to the city is a pass through embedded within electric rates, which unfortunately is not very transparent to our customers. Ultimately, the same community is paying the costs for the benefits they receive. One concern with the collection of revenue to transfer to the city is that those using the services are not then necessarily those paying for the services. In fact, the use of transfer from ERMU to cover the gap in the preliminary 2020 city budget significantly impacts commercial electric customers. Of the transfer, 13%of ERMU's Elk River customers would be paying 67%of the transfer. And, if you look at just the electric demand, or large commercial customers, there are 2% of the customers paying for 58%of the transfer amount. These statistics are indicated in the attached Table 2 and Table 3. There are many municipal utilities that transfer more than ERMU transfers to the city.Their circumstances may be different than Elk River; or their circumstances may be identical. But because others do, doesn't necessarily make it right. This needs to be a local decision based on local circumstances after a discussion with all of the stakeholders. It may not make sense to help balance the city's budget if it just transfers a financial burden to the utility without adding any value the community. But there are ways to create win-win situations where ERMU and the city provide value to the community that exceed the sum of their parts. With all of this under consideration, there is an option to increase the transfer amount to the city while being consistent with the benchmarking data and maintaining consistency with the ERMU mission/vision/values.The solution is to increase the denominator in the calculation for PILOT; when ERMU sells more electricity, the city receives a greater transfer.The successful operation of the electric utility creates an increase in non-tax revenue for the city.This is of intentional design.This is a win-win. Specifically for the immediate issue of the city's budget gap, there is an option to transfer additional money to the city through releasing PILOT from electric service territory transfer areas eight years sooner than agreed upon.This would generate an estimated $169,000 increase in the annual PILOT transfer to the city. Staff would like to discuss the policy, philosophy, politics, and greater duty to the community. ATTACHMENT: • Payment in Lieu of Taxes (PILOT) and Other Donations to the City of Elk River Policy • American Public Power Association 2016 Report—Public Power Pays Back • ERMU PILOT Tables 1, 2, and 3 Page 3 of 3 154