6.3. ERMUSR 04-11-2006 - Laserfiche WebLink

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!~ J, Elk River Municip al Utilitie s 13069 Orono Parkway Elk River, MN 55330 April 5, 2006 To: Elk River Municipal Utilities Commission Jerry Takle Jim Tralle John Dietz From: Bryan Adams Subject: Cash Flow Projections phone: 763.441.2020 Fax: 763.441.8099 After the results of our audit are received, staff again looks at our cash flow projections or Springstad Studies. This study looks at our cash projections to ensure our water and electric rates are set appropriately to cover our anticipated costs. Attached are copies of these studies project out to 2015. Please keep in mind the first couple of years are fairly accurate assuming no "surprise" projects while the later years are much less accurate. The trend in cash flow is more important than the actual numbers. The water study is consistent with past studies except the total cash balance is much steadier and does not increase as much in the later years. In year 2012 we are paying cash for a well & treatment plant. Ideally, staff desires to see a minimum of $2,000,000 cash reserves due to the large debt load. The electric study reflects the cash balance remaining flat at approximately $2,500,000 unti12010. In 2010 the revenues increase enough to overcome the $3,500,000 bond we just purchased. Previous studies indicated the cash balance increased sooner. Ideal cash reserves for the electric department are in the 3 to 4 million dollar range. In conclusion, the cash flow trends for both electric and water are good but the desired level of cash reserves are not achieved until the later years. Because of the debt in the water department and mounting debt and increased capital projects in the electric department, we need to keep a close eye on our cash balance. The 2006 electric budget contains a $40,000 item for an electric rate study. Due to the change in the wholesale electric rate to two tiers, and the increase number of demand customers with 1 particular large, staff recommends authorization be given to initiate an electric rate study with R.W Beck.