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3.0 Water Utility Reserve Classifications <br />Restricted For Debt Service: This reserve is established to maintain compliance with bond <br />covenants. <br />The target level for this reserve shall be set at the level specified by bond covenants <br />Unrestricted Designated Reserve: This reserve is established to address the short-term financial <br />variability inherent in operating a Water Utility. Potential sources of this variability include but <br />are not limited to: risks associated with natural disasters, reduction in overall customer usage, <br />changes in total system usage resulting from the actions of large customers, failure to achieve <br />budgeted levels of net income, changes in interest income, and general operational exposures. <br />The target level for this reserve shall be set at the sum of 6 months operating expenditures less <br />depreciation plus the sum of next year's total principal and interest payments. <br />4.0 Year-end Reserve Balances <br />If the year-end reserve balances are above their target levels after the completion of the year-end <br />audit, the Utilities Commission shall consider optimal uses of the excess reserves through any of <br />the following but not limited to: debt reduction, retention for reserve fund growth for future <br />needs, or use for rate stabilization or reduction. <br />If the year-end reserve balances are below their target levels after the completion of the year-end <br />audit, the Utilities Commission shall consider the balances and plan for their replenishment to <br />target levels in a timely manner. <br />Adopted May 11, 2010 <br />