5.1. ERMUSR 05-14-2013 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 Note 4: OTHER INFORMATION A. Territorial acquisition agreement In 1991,the Utilities entered into a 20 year agreement to transfer ownership of electric plant and electric service to customers in certain areas receiving electric service from Anoka Electric Cooperative,Inc.(AEC). In 2010 the Utility completed the final purchase under this agreement. 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 the 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 ten years from the date of sale of each individual area. The Utilities paid$3,948 and$8,114 in 2012 and 2011,respectively,for loss of revenues under this agreement. All amounts paid are included in property and equipment. B. Risk management The Utilities is exposed to various risks of loss related to torts;theft 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 for 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 that a loss has occurred and the amount of the 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 not reported claims. C. Commitments • The Utilities has received notice from their power supplier regarding the existing all requirements power contract exercising their right to give ten years notice to cancel the contract.The cancellation date would be effective September 30,2018. 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 MW,between Brookings,South Dakota,and the Southeast Twin Cities. In 2011 there was increased opportunity for investment,and subsequent agreements provide the Utilities with an ownership share of$5.6 million or 18.89%. The retum 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 the principal amount of this note was paid off with the permanent financing. 49