4.1. ERMUSR 04-09-2019 - Laserfiche WebLink

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Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2018 Note 4: Other Information (Continued) The Utilities acquired designated service area 1 in 2015 for$877,807 and service area 2 in 2016 for$663,586. Service areas 3 and 4 were acquired in 2017, for$276,776, and service areas 5 and 6 were acquired in 2018 for$298,736. The loss of revenue payments made were$411,157 in 2017, $570,725 in 2018, and $751,860 in 2019. All amounts paid are included in property and equipment, and loss of revenue payments are included in intangible assets. 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 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 was effective September 30, 2018. On May 14, 2013 the Utilities signed a new agreement with Minnesota Municipal Power Agency(MMPA), and started taking power on October 1, 2018. 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 percent. The return on this investment through CMMPA is designed to provide approximately$124,000 annually over the 40 year project life. To ensure bond payment obligations, cash distributions for 2018 were curtailed. In 2018, the principal bond payment increased approximately by$700K. This increase remains in effect through 2020. In 2021, the bond payment drops nearly$1 M. A contributing factor in participant cash distributions in 2018 is under recovery. The projected under recovery in 2018 is estimated to be between $250K-$300K. The bond obligations are satisfied first, distribution to participants is directly affected by under recovery. The under recovery is rolled forward under the true up. However, the under recovery in 2018 (approximately$250K-$300K)would be included in the recovery requirements in 2020.The transmission payments for 2018 were$13,766 of which$3,306 was receivable at December 31, 2018. 45 132