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For ERMU, the PILOT is set by policy at 3% of revenues generated by Elk River electric <br />customers. The policy was last revised in June 2008 and specifies that this contribution level be <br />revisited in 5 years. The contributions to the city policy also specify that ERMU donate all <br />electricity to the City for all facilities not associated with enterprise funds of the City. Although <br />not specified by policy, there is also donated labor for such services as tree trimming and banner <br />hanging. This policy is attached for reference. For 2009 the projected 3% of revenue from Elk <br />River customers is $587,000. The 2009 donated electricity and labor are projected to be <br />approximately $420,000. The 2009 ERMU PILOT is projected to be approximately 4.2% of <br />operating revenue. According to aforementioned APPA study, the median contribution for a <br />utility with revenues between $20M - $SOM is 4.5%. <br />In difficult economic times where state aid to local government is being cut, tax payers would <br />benefit from an increased transfer from the utilities to the city. The result would be an added <br />cost to the utilities during the same difficult economic times when consumption and revenue may <br />be down. To provide relief for one group at the expense of another is solving one problem and <br />creating another. There needs to be balance and logic that can be justified to both the tax payers <br />and rate payers. In the article, the solution is well stated that the "...goals related to PILOT are <br />fairness, predictability and transparency." Communication is essential, not only between a utility <br />and city, but with the tax payers and rate payers as well. This can foster a symbiotic relationship <br />between ERMU and City that will be mutually beneficial to the tax payers and rate payers. <br />6 Infrastructure Needs• Debt vs Cash Flow Funding <br />Elk River Municipal Utilities does on going capital projects projection and system assessment. <br />Everything added to the system has a finite life associated with it and therefore planning needs to <br />be done for its inevitable replacement. Typically ERMU will budget for the capital depreciation <br />to offset the capital projects. However in recent past, ERMU has experienced rapid growth. <br />With this growth came rapid infrastructure expansion including a number of new substations and <br />feeders. The cost associated with this rapid growth was partially funded through bonds. One <br />reason to bond for big infrastructure improvements is so the customers who benefit from these <br />system improvements are also the customers paying for them. Also to be considered is ERMU's <br />debt and its impact to the City's financial rating. <br />The Utilities Commission had adopted a cash reserves goal of $3.SM for the electric utilities. At <br />this time ERMU is at approximately 43% of its reserves goal for the electric utilities. As ERMU <br />get closer to reaching the reserves goal, the target amount may need to be reevaluated. <br />7. Overall rate strate~y <br />In the article, the solution to the issue of overall rate strategy outlines a list of core rate-related <br />principles. These include: <br />^ Five-year financial plan <br />^ Setting financial ratios <br />^ Anticipating rate needs and developing rate change transitions <br />^ Developing a public relations program <br />^ Addressing fee structure <br />^ Stating policy regarding competitive pricing <br />^ Defining methodology related to reliance on cost-based pricing <br />^ Setting reserve fund policies <br />^ Establishing rate rider guidelines <br />^ Adopting a written strategy <br />