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Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2024 Note 2: Detailed Notes on All Funds (Continued) Transfers During the year ended December 31, 2024, the Utilities made the following transfers: Electric Transferto Other City Funds $ 1,527,629 • The transfer out of the Electric fund was the annual transfer of 4 percent of 2024 Elk River revenues to City funds. Note 3: Other Information A. Territorial Acquisition Agreement In 2015, the Utilities entered into an agreement to transfer ownership of electric plants and electric service to customers in eight designated areas receiving service from Connexus Energy. Specific payment terms have been negotiated for 5 years, and if any of the eight areas are not acquired within this timeframe, the payment terms may be renegotiated. In 2019, the Utilities acquired the final service areas. The agreed cost of property purchased from Connexus Energy is net book value, integration expenses, and a loss of revenue payment. The loss of revenue payment for each area acquired is based on a formula outlined in the agreement, payable for the subsequent ten years after initial purchase. The Utilities acquired designated service area 1 in 2015 for $877,807, service area 2 in 2016 for $663,586, service areas 3 and 4 in 2017 for $276,776, service areas 5 and 6 in 2018 for $298,736, and service areas 7 and 8 in 2019 for $78,457. The loss of revenue payments made were $411,157 in 2017, $570,725 in 2018, $751,860 in 2019, $834,185 in 2020, $857,538 in 2021, $924,187 in 2022, $940,467 in 2023, $933,159 in 2024, and $946,133 in 2025. All amounts paid are included in property and equipment, and loss of revenue payments are included in intangible assets. B. Risk Management The Utilities are 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 obtain 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. 43 106