4.2 ERMUSR 04-11-2023��i
Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO:
FROM:
ERMU Commission
Melissa Karpinski — Finance Manager
MEETING DATE:
AGENDA ITEM NUMBER:
April 11, 2023
4.2
SUBJECT:
2022 Year End Reserve Balance
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
for the Water Utility fund to be designated for future capital infrastructure costs. Please note
that part of the unrestricted reserve balances includes unspent bond proceeds for the new field
services building.
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
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