Laserfiche WebLink
Elk River =-- <br /> Municipal Utilities <br /> 8.20b FINANCIAL RESERVES POLICY <br /> 1.0 Purpose and Summary <br /> In order to maintain stable rates and provide reliable services,Elk River Municipal Utilities <br /> (ERMU)requires financial buffers in the form of reserves to mitigate changes in costs or <br /> operational performance. For ERMU there are two utility funds,the Electric Utility and the <br /> Water Utility. These funds shall have separate reserves. Their reserve balances shall be <br /> classified as either Restricted for Debt Service or Unrestricted Designated Reserve. <br /> The target levels for these reserves shall be determined by the criteria herein. These target levels <br /> and target criteria will be reviewed annually, modified by Utilities Commission to support the <br /> long-term goals of ERMU, and adopted with the annual budget. Unless otherwise specified by <br /> bond covenants, these reserve balances shall be invested consistent with ERMU's Investment <br /> Policy(policy number 8.20a). _ <br /> 2.0 Electric 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 an Electric Utility. Potential sources of this variability include <br /> but are not limited to: risks associated with natural disasters,reduction in overall customer usage, <br /> changes in total system load resulting from the actions of large customers, failure to achieve <br /> budgeted levels of net income, changes in cost of purchased power, changes in interest income, <br /> 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 and less purchase power costs,plus the sum of next year's total principal and <br /> interest payments,plus one month budgeted average purchase power cost. The balance above <br /> this target level shall be unrestricted. <br /> 1 <br /> 122 <br />