5.1. ERMUSR 11-17-2009 - Laserfiche WebLink

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Elk River Municipal Utilities Summary of Proposed 2010 Electric Rate Increase With the proposed 2010 Great River Energy (GRE) wholesale rates still pending board approval, the affective impact to ERMU is a 3.87% increase in wholesale power cost. This is down from the double digits originally projected for this year and down from the 13.2% affective impact implemented last year. Worth noting is GRE's 4.2% increase in their summer demand rate and an 18.3% reduction in critical-peak energy rate. Another change that GRE has implemented is changing ancillary service charges from demand based only to demand and energy based. With the current state of the economy, the assumption was made that ERMU sales will continue on the trend of declining sales in 2010. The residential customer power sales are projected at the trend of a 1% decrease, the commercial non-demand customers at a 4% decrease, and the commercial demand customers (excluding data centers) at a 4% decrease. The data center demand customers trend at a 15% growth. There are a few options for rates. Based on these projections, the result of ERMU implementing a 0% rate increase this year would be an approximate reduction of $670,000 from reserves, or half of the current reserves. This is really not an option. An increase in rates would be needed to overcome the increase in wholesale power costs as well as to overcome the reduction in revenue resulting from the projected decrease in sales. To reach a breakeven 0% profit, a uniform ERMU rate increase of approximately 3.25% would be needed. To reach 3% profit, a uniform ERMU rate increase of approximately 7% would be needed. In the current state of the economy a 7% rate increase to achieve a 3% profit maybe excessive by public perception. Although operating with a 3% profit maybe good business, it might be better to temper that until the economy begins to bottom out and recover. There are other rate constraints to be considered as well. Connexus Energy and Anoka have both indicated they have been give instructions not to raise rates. Although their intentions may not come to fruition, it is noted that they are concerned about passing rate increases on to their customers. We need to be aware of this. In general, our rates need to be competitive. By taking into consideration the local utilities' rates as well as profitability, the solution falls in between the 3.25% and 7%. Proposed is a rate design to provide a 1.5% profit through an ERMU blended rate increase of 3.76%. In this case, a uniform rate increase doesn't provide the required revenue while remaining within the local constraints. The required rate increase is better implemented with different allocations for different items. Specifically, there is a need to be conservative in rate increases for the commercial demand customer demand charge. Also, there is a need to be conservative in rate increases for the residential and commercial non-demand customer summer energy charges. If sales have already bottomed out and remain consistent with 2009 sales (excluding data centers), this rate design would have an approximate 2% increase in profit.