ERMUSR FINIANCIALS 04-17-2008 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007 AND 2006 Note 4: OTHER INFORMATION A. Territorial Acquisition Agreement The Utilities has entered into an agreement to transfer ownership of electric plant and electric service to customers in certain areas currently receiving electric service from Anoka Electric Cooperative, Inc. (AEC). The cost of property purchased from AEC will be net book value. The Utilities will also pay AEC for loss of revenue for each area acquired based on a formula outlined in the agreement. In addition, the Utilities will compensate AEC for the loss of revenue from the future sale of electricity to electric customers in the areas acquired from AEC for a period often years from the date of sale of each individual area. During 2007 and 2006, the Utilities paid $546,086 and $31,510, respectively, under this agreement, including $36,747 and $31,510 in 2007 and 2006, respectively, for loss of revenues. All amounts paid are included in property and equipment. 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. Subsequent Events On February 20, 2008, the Utility issued $3,085,000 of General Obligation Water Revenue Crossover Refunding Bonds, Series 2008A. The callable portion of the $3,590,000 GO Water Revenue Bonds, Series 2001A (bonds maturing in years 2011 and 2022) will be redeemed on February 1, 2010. The Utility will continue to pay, as due, principal and interest at the rates and amounts specified to the call date. The refunded bonds will be called and paid by the Escrow Account. On March 1, 2008, the Utility will use a portion of the net proceeds to redeem the 2009 through 2014 maturities of the $820,000 GO Water Revenue Bonds, Series 1998B. The new refunding bond will mature on February 1, 2022. The issue bears an average coupon rate of 3.264 percent. The net cash flow savings is calculated at $177,178. D. Prior period adjustments During the year ended December 31, 2007, the Utilities recorded prior period adjustments in the Electric and Water funds for $108,899 and $77,492, respectively. During the year ended December 31, 2006 the Utilities recorded a prior period adjustment in the Electric fund for $423,256. All of these adjustments related to correcting accumulated depreciation. -25-