4.2 ERMUSR 04-14-2020 - Laserfiche WebLink

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UTILITIES COMMISSION MEETING TO:FROM: ERMU Commission Melissa Karpinski –Finance Manager MEETING DATE: AGENDA ITEM NUMBER: April 14, 2020 4.2 SUBJECT: 2019 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, which has since moved over to management 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 capital infrastructure costs and the Energy Adjustment Clause (EAC), to be capped at $500,000;and for the Water Utility fund to 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 1 154