6.1. ERMUSR 05-11-2004 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2003 AND 2002 Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED B. Funding Policy Minnesota statutes,chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the State legislature. The Utilities makes annual contributions to the pension plans equal to the amount required by Minnesota statutes. PERF Basis Plan members and Coordinated Plan members are required to contribute 9.10 percent and 5.10 percent,respectively,of their annual covered salary. The Utilities is required to contribute the following percentages of annual covered payroll: 11.78 percent for Basic Plan PERF members, 5.53 percent for Coordinated Plan PERF members. The Utilities'contributions to the PERF for the years ended December 31, 2003, 2002 and 2001 were$88,185,$77,214 and$72,220, respectively. The Commission's contributions were equal to the contractually required contributions for each year as set by Minnesota statutes. Note 4: OTHER INFORMATION A. Territorial Acquisition Agreement The Utilities has entered into an agreement to transfer ownership of electric plant and electric service to customers in certain areas currently receiving electric service from Anoka Electric Cooperative,Inc.(AEC). The cost of property purchased from AEC will be net book value. The Utilities will also pay 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. During 2003 and 2002,the Utilities paid$94,160 and$285,766,respectively,under this agreement,including $94,160 and$240,595 in 2003 and 2002,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 tons;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. Note 5: PRIOR PERIOD ADJUSTMENT The 2003 beginning net assets were adjusted as a result of disposal of fixed assets under capitalization threshold and to recognize prior infrastructure not recorded in the Water fund.The 2002 beginning net assets were adjusted by $1,290,759 and$1,061,925 in the Electric and the Water fund,respectively,to restate contributed capital as retained earnings. -21-