5.3. ERMUSR 12-15-2009 - Laserfiche WebLink

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suppliers. Our ownership in generation at the Elk River Landfill provides 3.2 MW and 26M kWh of renewable energy from four engines. Elk River Municipal Utilities sells this production to GRE and is contracted to do so through 2022. After that the contract could be renewed or this renewable resource could be part of ERMU's portfolio. The Landfill is currently flaring off enough gas to support an additional 3 engines. If similar funding could be secured to expand the Landfill Generation Plant as was used to build the original plant, it may be a good investment for ERMU to make. This would put us in a better position when negotiating a future power contract. Carbon tax legislation is looming. Connexus Energy, Wright Hennepin, and ERMU are served by the same GRE generation portfolio. Some of the other local utilities have different generation portfolios through different power agencies and therefore may be affected by carbon legislation differently. In one form or another, utilities will see the costs associated with energy tax passed on through our wholesale power costs. This increase in power costs impact our operating expenses. An increase in expenses directly affects the rates. This will be a challenge for all utilities. Keeping the customers informed will be very important. Elk River Municipal Utilities needs to utilize the communication resources it has to proactively educate it's customers on these changes. This could be done through our website, or our bills, or through new social communication media. 4. Lame Customer/Local Employer Incentives Although they can promote locate economic development, large customer and local employer incentives can also be a slippery slope that could create an environment where the cost of service is not fair or equitable for all customers. By creating an incentive too great, the cost associated with that incentive is unfairly subsidized by the other customers. Yet there is reason to promote and encourage large customers and local employers. This needs to be done with balance and fairness in an equitable manner. A solution may be to provide a new customer an economic development tariff that a new large customer or new local employer would qualify for the first few months of service. This would help to promote new development and new jobs, but not burden the rate payers for years to come. 5. Municipal Government Cash Requirements Elk River Municipal Utilities exists because of the City. And although ERMU operates under separate governance, it is owned by the City. With this comes a level of inherent liability and accountability. There is also an opportunity cost in lost taxes with a municipal utility. It is fair to the tax payers that the City realizes a return on investment. This is typically done through a payment in lieu of taxes (PILOT) but is also often supplemented by donated utilities and labor. For a statutory city that has established a utility governed by a separate utility commission, the state statutes require a separation of funds. This separation gives an added level of accountability and helps to ensure a fee doesn't become a tax. There is a need for accountability and balance. Elk River Municipal Utilities needs to provide a return on investment to the tax payers while providing fair and equitable cost of service to the rate payers. There are a number of methods for a municipal utility to calculate the PILOT including, but not limited to: percent of gross electric operating revenue, flat amount paid annually, property tax equivalent, assessment of electric utility and city budgets, charge per kWh sold, percent of net utility plant in service, and percent of income. According to a recent APPA study on PILOTS, percent of gross electric operating revenue is the most commonly used method for this calculation. The study is attached for reference. This method can create a positive relationship between a city and utility because when the city helps the utility to prosper, the city also prospers.