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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. The balance <br /> above this target level shall be unrestricted. <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, these balances shall be unrestricted with a defaulting designation as working capital. The <br /> Utilities Commission shall then consider optimal uses of these unrestricted reserves through any <br /> of the following but not limited to: working capital, designated for power costs (electric fund <br /> only), debt reduction, retention for reserve fund growth for future needs, or use for rate <br /> 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 /> Revised May 10, 2011 <br /> 2 <br />