6.5. ERMUSR 08-22-2006Elk River
Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
August 11, 2006
To: Elk River Municipal Utilities commission
Jerry Takle
Jim Tralle
John Dietz
From: Theresa Slominski
Subject: Investment Committee Meeting proposals
phone: 763.441.2020
Fax: 763.441.8099
The Investment Committee (Bryan Adams, John Dietz, and myself) met on Monday, July
24t" at 4:00 pm and discussed a number of items that I would like to bring to the full
commission for approval.
First, the reserves that we have been accumulating are classified as Restricted Assets with
a further subdivision of Emergency Reserves and Construction Reserves as shown below
for the electric fund (using May balances for presentation.)
Restricted Assets
Emergency Reserves $445,900.00
Construction Reserves $1,432,919.27
Total Restricted Assets $1,878,819.27
I propose that we change the subdivisions to Bond Reserves (the 10% bond covenant
amounts), Emergency Reserves of $1,000,000, and an Unrestricted Reserves of the
balance as shown below for the electric fund (using May balances for presentation.)
Restricted Assets
Bond Reserves $445,900.00
Emergency Reserves $1,000,000.00
Unrestricted Reserves $432,919.27
Total Restricted Assets $1,878,819.27
The reserves being listed as restricted assets impose limitations that those amounts cannot
be accessed except by specific commission approval. By classing some dollars as
unrestricted, it provides some flexibility for cash flow purposes in times of need (such as
during the summer months when our power costs are so high and lagging the bill printing
and collection cycle by 45 days, or high construction periods.)
Second, the desired balance of reserves is proposed at $3,100,000 plus bond covenants
for the electric fund and $1,500,000 plus bond covenants for the water fund. These
amounts were arrived at by allowing $1,100,000 and $1,000,000 dollars for the
construction/emergency type needs of the electric and water departments, respectively,
plus 3 months worth of operating expenses (not including the purchased power cost
expenses for electric.)
Third, the monthly contribution to reserves has been $20,000 per month; $10,000 to the
electric fund and $10,000 to the water fund. I propose that we change this contribution
distribution to $15,000 for the electric fund and $5,000 for the water fund. The water
reserves are at our goal level but the electric fund is over $1,500,000 short of the goal.
Also, for clarification, further contributions would be to increase the Emergency
Reserves balances.
Fourth, a Line of Credit option was discussed and an amount of $500,000 decided upon
as additional funds to have available in an emergency situation for the short term (until
bonds could be issued or funds reimbursed to us.) This Line of Credit would be available
to be accessed if our own reserves were insufficient for whatever the need was. I propose
that we explore this option further with the First National Bank of Elk River.