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Elk River <br /> Municipal Utilities UTILITIES COMMISSION MEETING <br /> TO: FROM: <br /> ERMU Commission Troy Adams, P.E.—General Manager <br /> MEETING DATE: AGENDA ITEM NUMBER: <br /> April 11, 2017 4.2 <br /> SUBJECT: <br /> 2016 Year End Reserve Balance <br /> ACTION REQUESTED: <br /> Designate unrestricted reserve balances above target levels for Electric and Water funds. <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 adopted a <br /> financial reserves policy that defined the structure and formula on how financial reserves will be <br /> calculated for the Electric Utility and Water Utility funds. This provides transparency to the <br /> public on the purpose and levels of utility reserves. <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 /> Staff recommends that unrestricted reserve balances above target levels for the Electric Utility <br /> fund be designated for electric service territory transfer costs,the demand credit adjustment, and <br /> capital infrastructure costs; and for the Water Utility fund be designated for future capital <br /> infrastructure costs. <br /> FINANCIAL IMPACT: <br /> None <br /> ATTACHMENTS: <br /> • ERMU Policy A.10—Financial Reserves <br /> • Electric Reserves Policy Calculation <br /> • Water Reserves Policy Calculation <br /> Page 1 of 1 <br /> 144 <br />