4.1. ERMUSR 05-11-2010 - Laserfiche WebLink

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Elk River Municipal i/~-~~ Utlilt]eS .Zb FZAI~IL SE vE~ LIC' I. ~ r~rp®~e ~~ 5~~ry In order to maintain stable rates and provide reliable services, Elk River ~/Iunicipal Utilities ~ERIVIU~ requires financial buffers in the form of reserves to mitigate changes in costs or operational performance. For ERMU there are two utility funds, the Electric Utility and the dater Utility. These funds shall have separate reserves. Their reserve balances shall be classified as either restricted for Debt Service or Unrestricted Designated Reserve. The target levels for these reserves shall be determined by the criteria herein. These target levels and target criteria will be reviewed annually, madified by Utilities Commission to support the longterm goals of ERI~IU, and adapted with the annual budget. Unless otherwise specified by bond covenants, these reserve balances shall be invested cansistent with ERiUIU's Investment Policy policy number ~.~Oa}, 2.0 Elec~~°ic Uti~i~r .Reserve C'iass~ Ica'®~s Restricted For Debt Service: This reserve is established to maintain compliance with bond covenants, The target level for this reserve shall be set at the level specified by bond covenants. Unrestricted I~esi ng~ated Reserve: This reserve is established to address the short-term financial variability inherent in operating an Electric Utility. Potential sources of this variability include but are not limited to: risks associated with natural disasters, reduction in overall customer usage, changes in total system load resulting from the actions of large customers, failure to achieve budgeted levels of net income, changes in cost of purchased power, changes in interest income, and general operational exposures. The target level for this reserve shall be set at the sum of b months operating expenditures less depreciation and less purchase power costs plus the sum of next year's total principal and interest payments. The balance above this target level shall be unrestricted.