KAYSVILLE -- The city council wants to keep a closer eye on the finances of Kaysville City Power.
At a recent city council meeting, a resolution was passed requiring the city finance manager to report on the financial well-being of the power company on an annual basis.
The resolution also sets target levels for the company's cash reserve fund.
Within the next two years, the company has been asked to reach a cash reserve composed of three parts: an operating reserve, a capital reserve, and a rate stabilization reserve.
The operating reserve includes 90 days of budgeted operating costs.
The capital reserve provides funds to replace the largest item in the electric department. Currently this is a substation transformer, which costs about $500,000.
The rate stabilization reserve is 10 percent of the annual operating costs. This ensures the city can qualify to purchase electricity at the best rate possible because of a sufficient reserve fund.
These amounts will be reviewed and adjusted annually.
"This has been our approach, but has been mostly done on the staff level," said John Thacker, city manager. "This will elevate it more quickly to the council level, so that discretion can be used in budgeting and setting the policy."
At the end of each year's budget period, after the city audit, the finance manager will present the city council with the status of the reserve fund, indicating whether it is within, over or under set limits.
The finance manager will then recommend actions based on the numbers.
Also taken into consideration will be the fact that some power company assets, such as land, could be liquidated at some point and potentially used as part of the cash reserve.
"The purpose of this is to create more of a mathematical calculation instead of a political calculation every time we go to raise rates," said Councilman Gil Miller.
This resolution gives the council the knowledge and ability to react more quickly when power rates go up, instead of subsidizing the increased costs for several years before raising customer's rates.
Thacker said, "We believe this resolution establishes a good policy, and would be very good to have in place and guide (the council) as we consider the budget each year and any rate adjustments that might be needed."