5.1. ERMUSR 05-10-2011 - Laserfiche WebLink

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ilk River Municipal Utilities 1306) Orono Parkway • P.O. Box 430 Elk River, MN 55330-0430 UTILITIES COMMISSION MEETING Phone: 763.441.2020 Fax: 763.441.8099 TO: FROM: Elk River Municipal Utilities Commission Theresa Slominski -Finance Director John Dietz Daryl Thompson Allan Nadeau MEETING DATE: AGENDA ITEM NUMBER: Ma 1 Q 2011 5.1 Review Reserves Balances and Polic SUBJECT: Annual review of reserves balances BACKGROUND: Per our Reserves Policy, annually after the audit the year-end reserve balances shall be reviewed and the Utilities Commission shall consider any balances above or below target levels. DISCUSSION: At the conclusion of our audit, a review of the cash balances of $7,311,517 and reserves determines that our current reserves balances are at target levels. The three Reserve Classifications and respective calculated amounts for the Electric Department are Unrestricted Designated Reserves, $3,755,770; Reserve Restricted for Debt Service, $724,500; and Unrestricted Reserves, $2,831,247. The Reserve Classifications and respective calculated amounts for the Water Department are Unrestricted Designated Reserves, $1,197,562; Reserve Restricted for Debt Service, $0; and Unrestricted Reserves, $1,595,581.The current reserves policy is attached which defines the various classifications and specifies the target calculations. With the discussion of the Electric Department Reserve Policy last year, it was determined that a purchased power component of the reserves was not to be included -not because of its unimportance, but because it was a significant increase in the target balances and would have left the reserves under target by a significant amount. Instead, the Unrestricted Reserves were default designated as working capital that could be used to meet power cost needs (for the electric department) or rate stabilization, etc. Our current cash balances would allow us to reconsider this important purchased power component, adjust our policy for the target balance accordingly, and meet this target balance. Currently, purchased power is our largest expense for the Electric Department, at approximately 71% of total budgeted expenses. During the high usage summer months, it can be high as 78% of the total expenses. With looming double digit wholesale power rate increases forecasted by Great River Energy, this component of our budget will continue to grow in significance. Since this is such a significant and important expense, I would like to reconsider the Electric target reserve level to include a purchased power component. There are a few different options to