4.2 ERMUSR 04-10-2018 - Laserfiche WebLink

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Elk River -�-� Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: ERMU Commission Theresa Slominski—Finance and Office Manager MEETING DATE: AGENDA ITEM NUMBER: April 10, 2018 4.2 SUBJECT: 2017 Year End Reserve Balances ACTION REQUESTED: Designate unrestricted reserve balances above target levels for Electric and Water funds. BACKGROUND: The purpose for reserves to a public utility is to meet bond covenants and provide a financial buffer to mitigate unforeseen or volatile operational costs. In 2010, the commission adopted a financial reserves policy that defined the structure and formula on how financial reserves will be calculated for the Electric Utility and Water Utility funds. This provides transparency to the public on the purpose and levels of utility reserves. Additionally, this policy is consistent with Governance Policy G.4i2 Financial Reserves which was adopted by the commission in 2017. DISCUSSION: As defined by policy, the year-end reserve balances are to be reviewed after the completion of the audit. These balances, if above their target levels, shall be unrestricted with a defaulting designation as working capital. The commission shall then consider optimal use of these unrestricted reserves. Staff recommends that unrestricted reserve balances above target levels for the Electric Utility fund be designated for electric service territory transfer costs, capital infrastructure costs, and power cost adjustments (PCAs) to be capped at $500,000; and for the Water Utility fund be designated for future capital infrastructure costs. FINANCIAL IMPACT: None ATTACHMENTS: • ERMU Policy—A.10—Financial Reserves Policy • ERMU Policy—G.4i2—Financial Reserves • Electric Reserves Policy Calculation • Water Reserves Policy Calculation Page 1 of 1 128