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ERMU Management Policy A.10 Financial Reserves Policy <br />______________________________________________________________________________ <br />interest payments, plus one month budgeted average purchase power cost. The balance above <br />this target level shall be unrestricted. <br />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 <br />financial variability inherent in operating a Water Utility. Potential sources of this variability <br />include but are not limited to: risks associated with natural disasters, reduction in overall <br />customer usage, changes in total system usage resulting from the actions of large customers, <br />failure to achieve budgeted levels of net income, changes in interest income, and general <br />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- <br />end audit, these balances shall be unrestricted with a defaulting designation as working capital. <br />The Utilities Commission shall then consider optimal uses of these unrestricted reserves <br />through any of the following but not limited to: working capital, designated for power costs <br />(electric fund only), debt reduction, retention for reserve fund growth for future needs, or use <br />for rate stabilization or reduction. <br />If the year-end reserve balances are below their target levels after the completion of the year- <br />end audit, the Utilities Commission shall consider the balances and plan for their replenishment <br />to target levels in a timely manner. <br /> <br />POLICY HISTORY: <br /> <br />Adopted May 11, 2010 <br />Revised May 10, 2011 <br />*Moved November 12, 2019 <br />Revised July 14, 2020 <br /> <br />*As part of the Policy Manual Initiative, authority of this Financial Reserves Policy was <br />delegated to management on November 12, 2019, and the policy was moved to the <br />Management Policy Manual. <br />______________________________________________________________________________ <br />Page 2 of 2 <br />227 <br />