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3.0Water 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 The balance <br />above this target level shall be unrestricted. <br />4.0Year-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 theirreplenishment to <br />target levels in a timely manner. <br />Adopted May 11, 2010 <br />Revised May 10, 2011 <br />2 <br />156 <br />