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With the issuance of the Bonds, the Reserve Requirement will be equal to 125%of average
<br /> annual debt service on the Bonds and the Parity Bonds. The current amount on deposit in
<br /> the Reserve Account is $997,660. It is anticipated that the Reserve Requirement will
<br /> increase to approximately $1,273,479 with the issuance of the Bonds. The proceeds of the
<br /> Bonds will fund the difference between the new Reserve Requirement and the current
<br /> balance in the Reserve Fund of$997,660,or approximately$275,819.
<br /> A portion of the current balance in the Reserve Fund was originally funded with proceeds of
<br /> the Series 2014A Bonds, which mature on August 1, 2018. We have confirmed with Utility
<br /> staff that the final payment on the Series 2014A Bonds will be paid from net revenues of the
<br /> City's Electric System, and therefore the current balance in the Reserve Fund will be
<br /> available to fund the increase in the Reserve Requirement resulting from this new financing.
<br /> SECURITY AND The Bonds will not be a general obligation of the City but are special limited obligations
<br /> SOURCE OF payable solely from net revenues of the City's Electric System.
<br /> PAYMENT:
<br /> The Bonds are being issued as Additional Bonds, on parity with the outstanding Parity
<br /> Bonds.
<br /> The table below demonstrates that the issuance of the Bonds satisfies the Additional Bonds
<br /> test described above.
<br /> Elk River Utilities Electric Fund
<br /> Net Revenues Available for Debt Service
<br /> Fiscal Years Ended December 31,2015,2016 and 2017
<br /> December31,2015 December31,2016 December31,2017
<br /> Operating Revenue $ 32,551,722 $ 34,464,396 $ 36,120,824
<br /> Operating Expense (29,896,1541 (31,826,5991 (33,394,471)
<br /> • Net Operating Income(Loss) $ 2,655,568 $ 2,637,797 $ 2,726,353
<br /> Add Back Depreciation 1,922,359 2,005,093 2,046,935
<br /> Add Other Income 375,020 372,506 424,101
<br /> Available for Debt Service $ 4,952,947 $ 5,015,396 $ 5,197,389
<br /> Average Annual Debt Service* $ 1,013,595
<br /> Coverage 5.12x
<br /> *Includes the combined average annual debt service for the Bonds and the Parity Bonds.
<br /> Source: Elk River Municipal Utilities Annual Financial Reports for the Years Ended December 31,2015
<br /> through 2017.
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