5.1. ERMUSR 05-08-2012 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 201 I AND 2010 Note 4: OTHER INFORMATION A. Territorial acquisition agreement In 1991, the Utilities entered into a 20 year agreement [o transfer ownership of electric plant and electric service to customers in certain areas receiving electric service from Anoka Electric Cooperative, Inc. (AEC). The agreed cost of property purchased from AEC is net book value. The Utilities also pays AEC for loss of revenue for each area acquired based on a formula outlined in [he agreement. In addition, the Utilities will compensate AEC for the loss of revenue from the future sale of electricity to electric customers in the areas acquired from AEC for a period of [en years from the date of sale of each individual area. During 2010, the Utilities paid $102,555 for the final purchase under this agreement. The Utilities also paid $8, 114 and $8,107 in 201 I and 2010, respectively, for loss of revenues. All amounts paid are included in property and equipment. B. Risk management The Utilities is exposed to various risks of loss related to torts; [heft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the Utilities carries commercial insurance. The Utilities obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT), which is a risk sharing pool with approximately 800 other governmental units. The Utilities pays an annual premium to LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self-sustaining through member premiums and will reinsure for claims above a prescribed dollar amount fur each insurance event. Settled claims have not exceeded the Utilities' coverage in any of the past three fiscal years. Liabilities are reported when it is probable [hat a loss has occurred and [he amount of [he loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The Utilities' management is not aware of any incurred but no[ reported claims. C. Commitments • The Utilities has received notice from their power supplier regarding [he existing all requirements power contract exercising their right to give ten years notice to cancel the contract. The cancellation date would be effective September 3Q, 2018. The process has begun to renegotiate the existing contract, or contract with another power supplier. The Utilities entered into an agreement in 2007 with Central Minnesota Municipal Power Agency (CMMPA) to acquire an interest in the CAPX Initiative Brookings Project, a power transmission line in Minnesota. The project is a 250 mile, 345 kV AC transmission line with a rating of 2,300 M W, between Brookings, South Dakota, and the Southeast Twin Cities. In 201 I there was increased opportunity for investment, and subsequent agreements provide [he Utilities with an ownership share of $5.6 million or 18.89%. The return on this investment through CMMPA is designed to provide approximately $124,000 annually over the 40 year project life. The interim financing of the CapX-Brookings project was closed February 2012 and [he principal amount of this note will be paid off with [he permanent financing, currently scheduled for late April/early May 2012. 49