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t Elk Riv <br /> Municipal Utilities UTILITIES COMMISSION MEETING <br /> TO: FROM: <br /> Elk River Municipal Utilities Commission Theresa Slominski — Finance and Office <br /> John Dietz—Chair Manager <br /> Daryl Thompson— Vice Chair <br /> Al Nadeau—Trustee <br /> MEETING DATE: AGENDA ITEM NUMBER: <br /> October 8, 2013 5.5 <br /> SUBJECT: <br /> 2013 Water and Electric Expense Budgets <br /> BACKGROUND: <br /> In preparation for submittal in November, staff continues to work through the 2014 budget <br /> process. The first cut of the expense portion of the 2014 budget has been completed for <br /> commission review. The expense budget will change as the complete 2014 budget is assembled <br /> and the finalized wholesale power costs are reflected. Revenues and rate increases for 2014 will <br /> be presented in November. <br /> DISCUSSION: <br /> Attached is the following information for your review. Additional budget detail is available upon <br /> request. Please contact staff for additional information. <br /> 1. Water Department Expense Budget—The 2014 forecast for water expenses are a 1.894% <br /> increase over the current year budget. As budgeted without any water rate increase, the <br /> water department would see a loss of$195,905 or -8.62% margin. A 3% increase in <br /> revenue (through rates or usage) brings this number down to a loss of$127,748 or <br /> -5.46% margin. If we would cover this amount plus a small margin, the rates would need <br /> to increase 9%resulting in a profit of$8,566 or .35% margin. Again, as numbers are <br /> finalized, this will be brought back in November. <br /> 2. Electric Department Expense Budget—The 2014 forecast for electric expenses are a <br /> 1.191% increase over the current year budget. Wholesale power costs make up between <br /> 70-75% of the operating budget. Ultimately, the wholesale rates set by Great River <br /> Energy (GRE) have an enormous impact on ERMU's rates. Therefore, ERMU's most <br /> effective way to lessen the electric rate increases to our customers would be through <br /> reducing our wholesale power costs. Cutting services, maintenance, labor, or capital <br /> purchases do contribute to lowering electric rates; however these actions also have an <br /> impact to operations and must be considered with good business practices. GRE has not <br /> finalized their 2014 wholesale power rates, however they have verbally committed to a <br /> R : POWERED er <br /> r3, Page 1 of 2 'NATURE <br /> Power Provide` PowERED To SERVE <br /> 51 <br />