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<br /> <br />Section 4 <br />Proposed Rates <br /> <br />Changes to rates are generally based on the overall need for revenues and results of <br />the cost-of-service analyses. The projected operating results at existing rates as <br />presented in Section 2 of this report outlines the overall revenue needs of the electric <br />utility. Section 3 summarizes the cost-of-service results. These factors have been <br />considered in developing the proposed rates summarized in this section of the report. <br />Proposed Rates <br />Revenue Needs <br />In Section 2, it shows that ERMU’s projected cash reserves at current rates decline from <br />$13.8 million to $10.5 million over the Study Period. The analysis shows ERMU’s <br />reserve levels staying below the new reserve policy level through the Study Period. In <br />order to strengthen ERMU’s financial position, it is recommended that a series of rate <br />increases be implemented in the years 2026-2029. The combination of the rate levels <br />recommended combined with the new PCA approach described below result in average <br />overall increases of 2% per year. <br />Rate Design Adjustments <br />Specific rate recommendations for each class to become effective each year from 2026- <br />2029 are shown in Exhibit 4-A. Also shown on Exhibit 4-A are the rates currently in <br />effect for 2025. <br />Power Cost Adjustment (PCA) Formula <br />ERMU utilizes its Power Cost Adjustment (PCA) to adjust retail power bills to reflect <br />certain aspects of the wholesale power costs from MMPA. Historically, the PCA has <br />81