4.2. ERMUSR 10-8-2019 - Laserfiche WebLink

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DISCUSSION: With consideration to transfer benchmarking data, staff presented to the commission an option that would increase the PILOT transfer to the city by approximately$169,000 annually during the remaining years of the 2015 electric service territory transfer agreement payment schedule. This option would release PILOT from recent electric service territory transfers significantly sooner than agreed upon. The option would result in an estimated $1,500,000 impact on ERMU by diverting revenue intended to pay for electric service territory loss-of-revenue payments to the city's general budget. Although the proposed option for increasing the transfer does shift city general budget costs to electric customers, the electric utility is in a better financial position than five years ago. The transition from Great River Energy (GRE) to Minnesota Municipal Power Agency (MMPA) has resulted in wholesale power savings.The more than $20,000,000 agency buy-in cost was financed with two bonds, a 20-year and a 30-year, in order to structure the debt so those who benefit from the service pay for the service. When compared to the neighboring utilities and with the members of MMPA, ERMU's rates are within an acceptable range. Using 2017 sales data, the most current information from the U.S. Energy Information Administration (EIA), ERMU was below the neighboring competitors. Note that in 2017, ERMU was applying a demand credit for the commercial customers because of rate competitive issues with service territory transferred customers.The demand credit was being funded from reserves and not from rates which skews the EIA data slightly. Compared to the other members of MMPA, ERMU rates are still high. The ERMU electric rate comparison data is attached for review. In 2018 the demand credit initiative expired. Additionally, electric rates increased by approximately 1%. Then the transition to MMPA happened in October 2018. The projections for 2019 power costs with the bond payments were forecasted to be lower than previous wholesale power costs by enough that ERMU lowered electric rates by 5%for 2019.This reduction in rates has put ERMU in a more competitive position.There will be a minimal electric rate increase proposed for 2020. ATTACHMENT: • Payment in Lieu of Taxes and Other Donations to the City of Elk River Policy • ERMU Electric Rate Comparison Page 2 of 2 218