How Can We Determine How Much Money to Set Aside for Financial Reserves?

Abstract

This month's question asks how to determine the amount of money needed to fund financial reserves for operations, to help pay for anticipated projects, or to pay for emergency repairs. The article states that most systems have established rates that cover the full cost of water service with enough left over to fund reserves. However, if a utility's current rate structure doesn't allow for adequately funding these reserves, a rate study that addresses these areas is recommended. The article also discusses funding‐level guidelines of several key reserves, including working capital reserve (WCR), repair and replacement (R&R) reserve, emergency reserves, and tax‐free interest reserve accounts.