5.2. ERMUSR 12-13-2011 - Laserfiche WebLink

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Elk River .".., Municipal Utilities 13069 Orono Parkway • P.O. Box 430 Elk River, MN 5 5 3 30-0430 UTILITIES COMMISSION MEETING P9'~pE~EO 89 ~~~U~~ p p W E R E 0 T O S'^' Phone: 763.441.2020 Fax: 763.441.8099 TO: FROM: Elk River Municipal Utilities Commission Troy Adams, P.E. -Utilities Director John Dietz -Chair Daryl Thompson -Vice Chair Al Nadeau -Trustee MEETING DATE: AGENDA ITEM NUMBER: December 13, 2011 5.2 SUBJECT: Review and Consider the 2012 Bud et and Rates DISCUSSION: Electric Department The overall approach for this year's budget remains the same - to control costs and pass on the wholesale power cost rate increases. Wholesale power costs make up approximately 74% of our operating costs. Ultimately the wholesale power rates, set by Great River Energy (GRE), have an enormous impact on ERMU's rates. The GRE budget has been approved and their wholesale rate increase results in a power cost increase to ERMU of approximately 8.33%. In 2011 there was some shifting in GRE's rate design to recover less revenue from demand and more from energy and transmission. In 2012, GRE again shifted their rate design with a 14.6% increase in demand. The single most significant item contributing to GRE's 2012 rate increase is the cost associated with the new $437 million Spiritwood Station coal power plant that will not be put into use until 2013 or later. At one time, the costs to shut down the new power plant were estimated at $24 million. It should also be noted that GRE went to considerable lengths to reduce their rate increase by delaying scheduled plant maintenance for other power plants. This may result in steep rate increases in the future. Over the past months, the Commission has reviewed sections of the 2012 budget. The proposed '2012 budget reflects the direction and comments from the review process. The proposed ERMU 2012 rate increases are being held as low as possible by passing along the power cost increase (which makes up a forecasted $20.7 million of our operating costs) and minimal expense and capital cost increases. The direction for the Commission .vas to maintain reasonably narrow mazgins. The proposed 2012 budget and rates results in a budgeted margin of 1.86% and $2,453 net to reserves.