5.1. ERMUSR 03-09-2010 - Laserfiche WebLink

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In the process of reviewing this policy and related practices, staff worked with Minnesota Municipal Utilities Association (MMUA) to gather information to use as a local industry reference point on this subject. MMUA conducted a 10 question survey on electric commercial customer deposits. (This survey is attached for reference.) There were 38 Minnesota municipal utilities that participated in this survey, including Elk River Municipal Utilities. The second question of the survey asks the amount of deposit required. The responses range from $0 to 2 '/Z times peak usage. As noted, ERMU's deposit is 2 time the estimated monthly usage. Depending on the customer, this may be a significant amount, possible as much as $400,000. There are a number of utilities that responded with a deposit set at a fixed amount. For ERMU with our diverse commercial/industrial customers, this method doesn't work well. The deposit for a data center should be different than the deposit for an equipment rental place. Most responding utilities required the deposit prior to providing service. ERMU connects service and add the deposit to the bill. Question 6 asks when the deposits are returned. Our policy allows for the deposit to be returned after 3 years of good payment history. This doesn't protect ERMU against losses when a commercial/industrial customer that has had good payment history and already had been returned the deposit falls under difficult economic times and closes their doors. This is a current reality as ERMU has recently seen long time commercial customers go out of business. To better protect ERMU and the rate payers against these risks, the deposit would need to be held until the account is terminated. Of the responding utilities, 22% hold the deposit until the account is terminated. Questions 9 and 10 pertain to receiverships. The survey notes that 8% of the responding utilities require the documentation of the court order prior to establishing service. In ERMU's case, this is done to verify the obligations of the receiver which may include a requirement to pay all prior obligations if deemed necessary for the continued operation of the property. Although 8% is a small percentage, it does represent more that just one utility. There were 8 utilities, including ERMU, that require this documentation. There is also 12% that require the receiver to become the customer of record. This establishes that the receiver is the responsible party for future utility charges. These are signs of the state of the economy and utilities working to lessen the impact to the paying customers by proactively controlling the risks associated with non-payment of commercial/industrial accounts. Based on information collected through MMUA's survey, ERMU's policy is in line with other Minnesota municipal utilities. The legal efforts made by ERMU that extend beyond the policy are also being made by other utilities. Because each situation is often unique, many times these issues are handled case by case with legal counsel. To strengthen the policy and help to define the intentions of the ERMU, an additional language should be added to clearly state that ERMU will make every effort to collect on past due accounts. And as ERMU has seen with recent trends that the current policy timeline for returning deposits doesn't always protect our ratepayers from customers who default on their accounts. Staff recommends holding the deposit until the account is closed in good standing. Also, Staff recommends that the amount of the deposit for commercial and industrial customers have some flexibility. There is a difference in risk between a commercial customer renting space and a commercial customer owning and operating a data center. Staff has worked Gray Plant Mooty to incorporate these proposed revisions. This proposed Customer Deposit Policy is attached for Commission review and consideration.