By RoNEW ULM - After several years of $40 million-plus budgets, New Ulm Public Utilities Commissioners now are considering a trimmer 2010 budget which weighs in at about $39.5 million.

Faced with stagnating energy sales, the utility had no choice but to attack the expense side, Director Gary Gleisner told the commission. Still, operating expense exceeds the total operating revenue by $92,650.

However, the utility's predicted non-operating revenue is expected to total $1,187,611 which when coupled with $500,000 worth of fund transfers provides a projected net income totaling $1,594,961.

While "the 2010 budget anticipates positive cash flow in all operating divisions except the Electric Division. The 2010 budget includes ... rate increases of 5 percent in the Water and Wastewater Treatment Divisions respectively," Gleisner noted.

On the flip side, however, "the budget includes an increase in labor rates of approximately 2.5 percent," he reported.

Other projected expense-side hits include health insurance premiums being projected to increase about $47,700 or 6.3 percent for the budget year, and anticipated investment revenue is expected to total $364,165, compared to $566,100 for Budget 2009, a 35.7 percent drop, Gleisner said. (An interest rate of 2 percent was used to budget 2010 investment revenue.)

Other significant items impacting cash reserves in the 2010 budget include an estimated $3.498 million in depreciation for the year; principal payments on debt totaling $2,258,700; capital outlays of $1,975,500 and $400,000 in transfers from the Water and Wastewater Divisions to the city for infrastructure improvements, Gleisner noted.

In addition, capital outlays are included in the Electric, Gas and Water Divisions to continue the installation of the Automatic Meter Reading (AMR) system, Gleisner added.

"To maintain the 'A1' bond credit rating, financial advisors have recommended the utility maintain target reserves of unrestricted cash from 25 percent to 35 percent of total operating expenses less depreciation," he said.

"The budgeted reserve ratio of 40 percent falls within the recommended target reserves. However, the overall projected cash reserves are at 135 percent."

However, he noted that "the volatility of wholesale energy costs continues to challenge the utility in the ability to maintain this goal. The unrestricted cash in the Wastewater Treatment Fund is projected at 448 percent of target reserves."

The Wastewater Fund "has a history of providing the required cash reserves for the utility. It is important for the other divisions to build-up/maintain their respective reserves to comply with financial standards," Gleisner continued.

"The trending of the debt service ratio is also important. The debt service coverage for the 2010 Budget is 1.86 times. This compares to 2.09 times for Budget 2009 and 2.01 for 2008 actual. Financial analysts recommend a debt service ratio from 1.50 to 2.0 times."

Ron Larsen can be reached at

rlarsen@nujournal.com