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<br /> <br />Simon. Tim <br /> <br />From: <br />Sent: <br />To: <br />Subject: <br /> <br />GID - Moody's Investors Service [epi@moodys.com] <br />Thursday, March 01, 20074:11 PM <br />mark@ehlers-inc.com <br />Elk River Utilities, MN <br /> <br />MOODY'S ASSIGNS A2 RATING TO THE CITY OF ELK RIVER'S (MN) $2.9 MILLION ELECTRIC REVENUE <br />BONDS, SERIES 2007A <br /> <br />A2 AFFIRMATION AFFECTS $3.6 MILLION OF OUTSTANDING DEBT <br /> <br />Elk River utilities, MN <br />Electric Utilities <br />Minnesota <br /> <br />Moody's Rating <br /> <br />Issue <br /> <br />Rating <br /> <br />Electric Revenue Bonds, <br />Sale Amount <br />Expected Sale Date <br />Rating Description <br /> <br />Series 2Q07A <br />$2,875,000 <br />03/05/07 <br />Electric Revenue Bonds <br /> <br />A2 <br /> <br />NEW YORK, March 1, 2007 -- Moody's Investors Service has assigned an A2 rating to the City <br />of Elk River's (MN) $2.9 million Electric Revenue Bonds, Series 2007A. Concurrently, <br />Moody's has affirmed the A2 rating on the city's outstanding revenue bonds, affecting $3.6 <br />million. ProceedS of the 2007A bonds will be used to fund improvements and extensions on <br />the city's electric utility. The bonds are secured by a first lien on the system's net <br />revenues and are on parity with the system's Series 2004 and Series 2006A bonds. The A2 <br />rating reflects the system's modest yet quickly growing customer base, ample coverage of <br />historical and projected debt service with satisfactory legal provisions, and recently <br />increased debt ratio that is expected moderate going forward given the lack of additional <br />borrowing plans. <br /> <br />MODEST, YET QUICKLY GROWING, CUSTOMER BASE IN NORTHERN SUBURB OF TWIN CITIES; SLIGHT <br />CONCENTRATION RISK ASSOCIATED WITH LARGEST CUSTOMERS <br /> <br />Moody's believes the system will continue to experience strong growth in both the number <br />of customers and the total demand for energy over the next several years, due largely to <br />continuing expansion of the region's residential and commercial sectors. The system is <br />located 35 miles northwest of Minneapolis (general obligation rated Aal) and provides <br />service to the City of Elk River (rated AI) as well as neighboring Otsego, Dayton, and Big <br />Lake (each rated A2) as well as surrounding rural areas. <br /> <br />The utility serves more than 8,500 customers, of which are 89% are residential, 9% are <br />commercial and 2% are industrial. The number of customers and the demand for electricity <br />has seen strong growth over the last five years, annually averaging 6.2% and 7.5%, <br />respectively. There is slight concentration risk as the system's ten largest customers <br />comprised 18.3% of the systems 2006 total billings and consumed 21.9% of the power sold. <br />System officials report that the current largest customers' demand trends have been stable <br />and are expected to remain so in the foreseeable future. In addition, management reports <br />that Target Corporation (senior unsecured All the United Health Group will be opening data <br />processing facilities within the system's boundaries. Both facilities will be significant <br />users; Target's estimated annual usage is lOMW and United Health Carers is 20 MW. In <br />comparison, in 2006 the system's ten largest users drew approximately 43MW. The <br />concentration risk posed by such large users is heavily mitigated by the utility's role as <br />a distribution system and its take-and-pay contract. <br /> <br />POWER PURCHASE CONTRACT INSULATES FROM SHORT-TERM CHANGES IN POWER SUPPLY COSTS <br /> <br />1 <br />