ERMUSR 11-12-2025 - Laserfiche WebLink

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______________________________________________________________________________ Page 2 of 2 After comparing ERMU’s financial reserve balances with those of similar municipal utilities, the Committee determined our current reserve balance for electric, while meeting the current targets, is considerably lower than the average of the other utilities reviewed. Similarly, the current reserve balance for water, while substantially higher than its target levels, is still lower than the average of the other utilities reviewed. The Committee explored several options for revising both the identified reserve layers within the policy and the associated target levels. The Committee recommends adding multiple reserve layers to the current policy. As before, reserve balances will be classified as either Restricted or Unrestricted Designated. The recommended layers, and their associated target levels, are outlined below: Restricted Layers: Target Level: Debt Service Specified by bond covenants Trunk/Capacity (Water Only) Water Access Charges and Trunk Funds received will be restricted to Trunk/Capacity capital projects Unrestricted Designated Layers: Target Level: Annual Debt Service Reserve Current year's principal and interest payment due on outstanding debt Operating Reserve _____ months* budgeted operating expenses, including purchased power for electric Capital Reserve Average of the next five (5) year capital plan in annual budget Catastrophic Reserve Estimated replacement cost of a substation (electric reserves) or water treatment plant (water reserves) * See attached implementation scenarios Example implementation scenarios, using the layers/targets shown above, are presented in the attached table. The FR&IC’s recommendations would increase our financial reserve target levels. Anticipated reserve shortfalls range from $1,300,000 to $7,000,000 for electric and $800,000 to $1,300,000 for water, depending on which policy updates are adopted by the Commission. Addressing these shortfalls in a timely manner may impact rates and margins. ERMU’s cost of service study consultant, Dave Berg, will be available for questions during the discussion. Staff request feedback on desired policy changes. Commission action is not required as A.10 - Financial Reserves is a management policy. Due to its impact on rate setting, however, staff will provide the Commission with a revised policy at the December meeting based on the feedback received at the November meeting. ATTACHMENTS: • ERMU Policy - A.10 - Financial Reserves • Raw Data and Example Implementation Scenarios 90