4.1 ERMUSR 04-14-2020 - Laserfiche WebLink

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Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2019 Note 4:Other Information (Continued) 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’ managementis not aware of any incurred but not reported claims. C.Commitments 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 transmissionline 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 2019 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 $1M. A contributing factor in participant cash distributions in 2019 is under recovery. The projected under recovery in 2019 is estimated to be$203K. 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 2019 (approximately $203K) would be included in the revenue requirements in 2021.The transmission payments for 2019were $46,021 all of which was a receivable at December 31, 2019. Note 5:Subsequent Event In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around its impact on the U.S. and international economies and, as such, there have been significant losses in the stock market in first quarter 2020. Plan assets may have seen unrealized market losses as ofMarch 31, 2020. However, Utilitiesis unable to determine the long term material impact to its asset values. 46 136