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______________________________________________________________________________ <br /> <br />Page 1 of 1 <br /> <br /> <br /> UTILITIES COMMISSION MEETING <br /> <br />TO: <br />ERMU Commission <br />FROM: <br />Mark Hanson - General Manager <br />MEETING DATE: <br />November 12, 2025 <br />AGENDA ITEM NUMBER: <br />5.06 <br />SUBJECT: <br />Commission Policy – 5.A - Margins <br />ACTION REQUESTED: <br />Approve Revisions to Commission Policy G.5a – Margins <br /> <br />BACKGROUND: <br />At the October 27, 2025, meeting of the Financial Reserves & Investments Committee (FR&IC), <br />the Committee reviewed Management Policy A.10 – Financial Reserves. After comparing <br />ERMU’s financial reserve policy with those of several similar municipal utilities, the Committee <br />recommended several updates to ERMU’s policy. Staff will present these recommended <br />updates to the Commission at the November 2025 commission meeting. Since the proposed <br />changes to the Financial Reserve policy may impact ERMU’s margins policy, staff also <br />recommend that Commission Policy – G.5a – Margins be reviewed and updated accordingly. <br /> <br />DISCUSSION: <br />The policy updates recommended by the FR&IC would increase the financial reserve targets. <br />Achieving these higher reserve targets will likely require higher margins. Depending on which <br />financial reserve policy updates are adopted by the Commission, anticipated reserve balance <br />shortfalls range from $1,300,000 to $7,000,000 for electric and $800,000 to $1,300,000 for <br />water. Addressing these shortfalls in a timely manner will require higher margins. Accordingly, <br />staff recommend the use of a cap, or maximum margin, rather than a range. These maximums <br />should be used for reference only as capital contributions can significantly affect margins. <br /> <br />1. Electric –The budget shall be developed with a maximum margins of 10% of total <br />revenue. <br /> <br />2. Water –The budget shall be developed with a maximum margins of 15% of total <br />revenue. <br /> <br />The attached redlined Margins policy reflects these changes. A clean policy is also attached. <br /> <br />ATTACHMENTS: <br />• G.5a – Margins (redlined copy) <br />• G.5b – Margins (clean copy) <br />95