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Elk River <br />Municipal Utilities UTILITIES COMMISSION MEETING <br />TO: <br />FROM: <br />ERMU Commission <br />Melissa Karpinski — Finance Manager <br />MEETING DATE: <br />AGENDA ITEM NUMBER: <br />May 14, 2024 <br />4.2 <br />SUBJECT: <br />2023 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 <br />be calculated for the Electric Utility and Water Utility funds. This provides transparency to the <br />public on the purpose and levels of utility reserves. Additionally, this policy is consistent with <br />Governance Policy G.4i2 Financial Reserves which was adopted by the Commission in 2017. <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, capital infrastructure costs; and <br />for the Water Utility fund to be designated for capital infrastructure costs. <br />FINANCIAL IMPACT: <br />None <br />• ERMU Policy —A.10—Financial Reserves Policy <br />• ERMU Policy — G.4i2 — Financial Reserves <br />• Electric Reserves Policy Calculation <br />• Water Reserves Policy Calculation <br />Page 1 of 1 <br />129 <br />