12-09-2025 ERMU MIN - Laserfiche WebLink

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5.0 BUSINESS ACTION 5.1 Electric and Water Cost of Service and Rate Desi n Stud Dave Berg, ERMU's rate consultant, presented the findings of the Cost of Service and Rate Design Study for both electric and water utilities, incorporating feedback from the November meeting. He explained there had been updated numbers in capital improvements provided by staff since that meeting. Electric Rates Key Points: • Financial Projections: With existing rates, the utility's net position and cash reserves are projected to decline, largely due to $8 million in planned capital improvements. Rate Recommendation: A 2% revenue increase is recommended for 2026-2029. • Power Cost Adjustment (PCA) Change: A new formula was proposed for calculating the PCA, factoring the total wholesale power cost per retail kilowatt-hour sold. This change is designed to better protect the utility from all fluctuations in wholesale power costs, not just fluctuations in the power supplier's energy adjustment clause. • Solar Grid Access Charge: The charge for customers with distributed energy projects has been recalculated and is expected to decrease based on evolving industry practices. • Reserve Funds: The proposed 2% revenue increase is projected to gradually increase the electric utility's reserve fund balance from approximately 75% to 80% of its target over the next few years. Water Rates Key Points: Rate Increase: A 4% increase in water rates was recommended. • Rate Structure: The consultant recommended reviewing the tiered rate structure for lowering the consumption thresholds to better promote conservation. Commissioner Stewart directed Mr. Berg's attention to page 4 of his presentation packet where the definition of other operating expenses discussed landfill gas generation. Mr. Berg stated that sentence should be removed as it no longer applies to ERMU, having ceased its landfill gas generation operation since the last study. Mr. Hanson invited the Commission to provide its perspective on the potential rate increases and the timeline for meeting reserve goals, explaining that the Commission has the authority to differ from the studies' proposals should it want to achieve its desired reserve fund balances more quickly. Commissioner Zerwas stated he was comfortable meeting the reserve goals over 4-5 years, and that he would favor larger increases for Tier 3 water usage as those are the larger users. Mr. Berg explained that not as much water is sold at that level and that a more effective approach would be to reduce ERMU's fairly high tier thresholds. Elk River Municipal Utilities Commission Meeting Minutes December 9, 2025 Page 3