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Elk River <br />Municipal Utilities <br />UTILITIES COMMISSION MEETING <br />TO: <br />FROM: <br />Elk River Municipal Utilities Commission <br />Theresa Slominski — Finance and Office <br />John Dietz — Chair <br />Manager <br />Al Nadeau — Vice Chair <br />Daryl Thompson — Trustee <br />MEETING DATE: <br />AGENDA ITEM NUMBER: <br />October 21, 2014 <br />5.4 <br />SUBJECT: <br />2015 Water and Electric Expense Budgets <br />BACKGROUND: <br />In preparation for submittal in November, staff continues to work through the 2015 budget <br />process. The first cut of the expense portion of the 2015 budget has been completed for <br />commission review. The expense budget will change as the complete 2015 budget is assembled <br />and the finalized wholesale power costs are reflected. Revenues and rate increases for 2015 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 2015 forecast for water expenses are a 2.1 % <br />increase over the current year budget. As budgeted without any water rate increase, the <br />water department would see a loss of ($165,597) or -6.97% margin. A 3% increase in <br />revenue (through rates or usage) brings this number down to a loss of ($94,334) or <br />-3.86% margin. If we would cover this amount plus a small margin, the rates and/or <br />usage would need to increase 7% resulting in a profit of $684 or .03% margin. Typically <br />this budget runs at a loss due to depreciation. Again, as numbers are finalized, this will <br />be brought back in November. <br />2. Electric Department Expense Budget — The 2015 forecast for electric expenses are a <br />1.3% increase over the current year budget. Wholesale power costs make up between 70 <br />75% of the operating budget. Ultimately, the wholesale rates set by Great River Energy <br />(GRE) have an enormous impact on ERMU's rates. Therefore, ERMU's most effective <br />way to lessen the electric rate increases to our customers would be through reducing our <br />wholesale power costs. Cutting services, maintenance, labor, or capital purchases do <br />contribute to lowering electric rates; however these actions also have an impact to <br />operations and must be considered with good business practices. GRE has not finalized <br />• • <br />1 o w E n E o ® r <br />Page 1 of 2 NATURE <br />Reliable PublicE <br />Power Provider <br />POWERED T O S E R V E <br />• • <br />