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UTILITIES COMMISSION MEETING <br />TO:FROM: <br />ERMU Commission Melissa Karpinski –Finance Manager <br />MEETING DATE: AGENDA ITEM NUMBER: <br />April 13, 2021 4.2 <br />SUBJECT: <br />2020 Year-End Reserve Balances <br />ACTION REQUESTED: <br /> Approvethe unrestricted reserve balance above the target level for the Electric Utility <br />fund be designated for electric service territory transfercosts, capital infrastructure <br />costs, and the Energy Adjustment Clauseto be capped at $500,000. <br /> Approvethe unrestricted reserve balance above the target level for the Water Utility <br />fund be designatedfor future capital infrastructure costs. <br />BACKGROUND: <br />The purpose for reserves to a public utility is to meet bond covenants and provide a financial <br />buffer to mitigate unforeseen or volatile operational costs. In 2010, the commission adopteda <br />financial reserves policy that defined the structure and formula on how financial reserves will <br />be calculated for the Electric Utility and Water Utility funds. This provides transparency to the <br />public on the purpose and levels of utility reserves. Additionally, this policy is consistent with <br />Governance Policy G.4i2 Financial Reserves which was adopted by the commission in 2017. <br /> <br />DISCUSSION: <br />As defined by policy, the year-end reserve balances are to be reviewed after the completion of <br />the audit. These balances, if above their target levels, shall be unrestricted with a defaulting <br />designation as working capital. The commission shall then consider optimal use of these <br />unrestricted reserves. <br /> <br />Staff recommends that unrestricted reserve balances above target levels for the Electric Utility <br />fund be designated for electric service territory transfer costs, capital infrastructure costs, and <br />the Energy Adjustment Clause (EAC) to be capped at $500,000; and for the Water Utility fund to <br />be designated for future capital infrastructure costs. <br /> <br />FINANCIAL IMPACT: <br />None <br />ATTACHMENTS: <br /> ERMU Policy – A.10 – Financial Reserves Policy <br /> ERMU Policy – G.4i2 – Financial Reserves <br /> Electric Reserves Policy Calculation <br /> Water Reserves Policy Calculation <br />______________________________________________________________________________ <br />Page 1 of 1 <br />225 <br />