5.1. ERMUSR 05-08-2012Elk River
Municipal Utilities
13069 Orono Parkway
Elk River MN 55330
(763) 441-2020
UTILITIES COMNIISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Theresa Slominski -Finance Director
John Dietz, Chair
Daryl Thompson, Vice Chair
Allan Nadeau, Trustee
MEETING DATE: AGENDA ITEM NUMBER:
Ma 8, 2012 5.1
SUBJECT:
Review and Receive 2011 Audit
BACKGROUND:
Audit fieldwork was completed March ls` and 2nd by our auditors, Abdo, Eick & Meyers (AEM).
ERMU staff compiled the enclosed audit report this year, and AEM staff reviewed for approval
and issuance of opinion letter.
DISCUSSION:
Mr. Andrew Berg of Abdo, Eick & Meyers will be at our meeting to present the 2011 audit and
answer questions you may have. A copy is enclosed for your review prior to the commission
meeting.
ACTION REQUESTED:
Accept 2011 Audit.
,~ ~ P O ~ E R E O
~. ^ ~iA~`URE
Reliable Public p o w e n v o r o S E a v e
Power Provider
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
ANNUAL FINANCIAL REPORT
YEARS ENDED
DECEMBER 31, 201 I AND 2010
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INTENTIONALLY
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
TABLE OF CONTENTS
DECEMBER 31, 2011
Paee No.
I. INTRODUCTORY SECTION
Public Utilities Commission and Administration 5
II. FINANCIAL SECTION
Independent Auditor's Report 9
Management's Discussion and Analysis 13
Financial Statements
Statements of Net Assets 20
Statements of Revenues, Expenses and Changes in Net Assets 24
Statements of Cash Flows 26
Notes to Financial Statements 31
III. REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Funding Progress for the Retiree Health Plan 55
IV. SUPPLEMEN'T'AL INFORMATION
Schedules of Operating Revenues and Expenses 58
Electric Fund
Summary of Operations and Unaudited Statistics 62
Water Fund
Summary of Operations and Unaudited Statistics 64
V. OTHER REPORT
Report on Minnesota Legal Compliance 69
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INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
EL,K RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2011
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INTENTIONALLY
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
PUBLIC UTILITIES COMMISSION AND ADMINISTRATION
DECEMBER 31, 2011
PUBLIC UTILITIES COMMISSION
Name Title
John Dietz Chairperson
Daryl Thompson Vice-Chairperson
AI Nadeau Trustee
ADMINISTRATION
Name Title
Troy Adams Director of Operations
Theresa Slominski Finance and Office Manager
David Berg Water Superintendent
Mark Fuchs Line Superintendent
Wade Lovelette Technical Services Superintendent
Tom Sagsterier Conservation and Key Accounts Manager
Judy McSpadden Recording Clerk
5
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INTENTIONALLY
FINANCIAL SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEARS ENDED
DECEMBER 31, 201 I AND 2010
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INTENTIONALLY
~' ~ABDO
w~t;EICK&
®I ~ _ ~ l l~l LJ LLP
Cert~erl N)6lic Accountnnev R Consulfan6.~
5201 F.den Acemm
Suite 250
F,dinn, MN 55416
INDEPENDENT AUDITOR'S REPORT
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited the accompanying statements of net assets of the Elk River Municipal Utilities (the Utilities) of the City of Elk River,
Minnesota (the City), as of December 31, 201 I and 2010 and the related statements of revenues, expenses and changes in net assets
and cash flows for the years [hen ended. These financial statements are [he responsibility of the Utilities' management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards
require [hat we plan and perform [he audits to obtain reasonable assurance about whether [he financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in [he financial
statements. An audit also includes assessing [he accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 B, the financial statements present only the Electric and Water enterprise funds and are not intended [o present
fairly [he financial position of the City and [he results of its operations and cash Flows of its proprietary fund types in conformity with
accounting principles generally accepted in the United States of America.
In our opinion, [he financial statements referred to above present fairly, in all material respects, the financial position of [he Electric
and Water enterprise funds of [he City as of December 31, 201 I and 2010 and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in the United States of America.
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and
Schedule of Funding Progress, be presented [o supplement [he financial statements. Such information, although not a part of [he
financial statements, is required by the Government Accounting Standards Board, who considers it to be an essential part of financial
reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain
limited procedures to [he required supplementary information in accordance with auditing standards generally accepted in the United
States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the
information for consistency with managemenPs responses to our inquiries, the basic financial statements, and other knowledge we
obtained during our audit of [he basic financial statements. We do not express an opinion or provide any assurance on the information
because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
esz.ass.vm~o • t~xeszssss2v)
M N \Y.LPIIIf'flll~. ('111Y1
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INTENTIONALLY
to
Our audits were conducted for the purpose of forming opinions on the financial statements that collectively comprise the Utilities'
financial statements as a whole. The introductory section and supplemental information listed in the table of contents are presented for
the purpose of additional analysis and are no[ a required part of the financial statements of [he Utilities. The supplemental information,
except for [he portion marked "unaudited" on which we express no opinion, has been subjected to the auditing procedures applied in
[he audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation [o the financial statements
taken as a whole. The introductory section has not been subjected to the auditing procedures applied in the audit of [he financial
statements and, accordingly, we do not express an opinion or provide any assurance on them.
April 24, 2012
Minneapolis, Minnesota
VV"'""I L'G~ ~ I'Iv~,N~"~~ ~.l.P
ABDQ EICK & MEYERS, LLP
('er[ified Puhlic Accountants
752.835.9090 Fax 952.8353361
w„w.urmrpas.eom
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t2
Management's Discussion and Analysis
This section of the Elk River Municipal Utilities (the Utilities) annual financial report presents our analysis of the Utilities'
financial performance during [he fiscal year that ended December 31, 201 I. Please read it in conjunction with the financial
statements, which follow this section.
FINANCIAL HICHLIGHTS
• The assets of the Utilities exceeded its liabilities at the close of the most recent fiscal year by $49,213,893 (net assets).
Net Assets increased by $1,630,809 or 3 percent.
• The Utilities' cash balance at the close of the current fiscal year was $ 11,724,470.
• Electric usage was up an average of 5 percent. Residential usage remained constant, while Commercial usage and
Industrial usage were up 7 percent.
• Water usage, however was down an average of 5 percent. Residential usage was down 5 percent, and Commercial usage
was down A percent.
OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report consists of three parts; Management's Discussion and Analysis, Financial Statements, and Supplementary
Information. The Financial Statements also include notes that explain in more detail some of the information in the financial
statements.
REQUIRED FINANCIAL STATEMENTS
The financial statements of the Utilities report information about [he Utilities using accounting methods similar to those used by
private sector companies. These statements offer short-term and long-term financial information about its activities. The
Statements of Ne[ Assets includes all of the Utilities' assets and liabilities and provides information about the nature and amounts
of investments in resources (assets) and the obligations [o Utilities' creditors (liabilities). It also provides the basis for computing
rate of return, evaluating [he capital structure of the Utilities and assessing the liquidity and financial flexibility of the Utilities.
All of the current year's revenues and expenses are accounted for in the Statements of Revenues, Expenses and Changes in Net
Assets. This statement measures the success of the Utilities' operations over the past year and can be used to determine whether
the Utilities' has successfully recovered all its costs through its user fees and other charges, profitability, and credit worthiness.
The final required financial statement is the Statements of Cash Flows. The primary purpose of this statement is to provide
information about the Utilities' cash receipts and cash payments during the reporting period. The statement reports cash receipts,
cash payments and net changes in cash resulting from operations, investing and financing activities and provides answers to such
questions as where did cash come from, what was cash used for and what was the change in the cash balance during the reporting
period.
FINANCIAL ANALYSIS OF THE UTILITIES
Our analysis of the Utilities begins on page 20 in [he Financial Section. One of [he most important questions asked about the
Utilities' finances is `9s the Utilities as a whole better off or worse off as a result of this year's activities?" The Statements of Net
Asset, and the Statements of Revenues, Expenses and Changes in Net Assets report information about the Utilities' activities in a
way that will help answer this question. These two statements report the net assets of the Utilities and changes in these net assets.
You can think of the Utilities' net assets (the difference between assets and liabilities) as one way to measure financial health or
financial position. Over time, increases or decreases in the Utilities' net assets are one indicator of whether its financial health is
improving or deteriorating. However, you will need [o consider other non-financial factors such as changes in economic
conditions, population growth, zoning, and new or changed government legislation.
13
Management's Discussion and Analysis -Continued
NET ASSETS
To begin our analysis, a summary of the Utilities' Statements of Net Assets is presented in Table A-I . As can be seen from [he
Table, net assets increased $1,630,809 to $49,213,893 in fiscal 2011 up from $47,583,084 in fiscal 2010.
TABLE A-1
Condensed Statement of Net Assets
Assets
Current and other
Capital
Increase
2011 2010 (Decrease)
$ 15,907,251 $ 14,245,948 $ 1,661,303
49,251,237 50,095,964 (844,727)
Total assets
Liabilities
Curren[
Non-current
Total liabilities
Net assets
Invested in capital assets, net of related deb[
Restricted for deb[ service
Unrestricted
Total net assets
65,158,488 64,341,912 8!6,576
4,714,003 4,331,274 382,729
1],230,592 12,427,554 (1,196,962)
15,944,595 16,758,828 (814,233)
36,984,703 36,626,150 358,553
724,500 724,500 -
11,504,690 10,232,434 1,272,256
$ 49.213,893 $ 47,583.084 $ 1,630.809
Looking a[ Table A-I, you can see that most of the change in net assets was realized in the current assets, which increased
$1,661,303 in fiscal 2011. The increase is in the cash accounts which can be attributed to two factors: capital projects and reserve
balances. There were fewer capital projects completed in 2011, with many projects delayed until 2012. It should be noted this is
not a permanent cash increase and that as these projects are completed in 2012, the cash balances will decrease again. The other
factor is [he reserves goal [ha[ the Utility modified in 201 I [o include a component to cover purchased power costs (an amount
equal to one month's average of the budgeted purchased power cost.) This increase in our reserves is a permanent cash increase
and better positions the Utility for long term financial health.
Water and Electric Rates
Electric -The latest increase in the Utilities' electric rates was effective January 2012. The monthly base charges are based upon
the type of service. The monthly charges are $9.50 for residential, $16.00 for commercial, and $50.00 for industrial customers.
In addition [o [he base charges [he residential rate is $.1249MWh for May-September usage, and $.l 116/KWh for October-April
usage; the commercial rate is $.I 199/KWh for May-September usage, and $.0995/KWh for October-April usage; [he industrial
rate is $.0598/KWh energy charge year round with a demand charge of $15.89/KW May-September, and $11.27/KW for October-
April.
14
Management's Discussion and Analysis -Continued
Water and Electric Rates -Continued
Water -The Utilities' latest increase in residential and commercial rates was effective January 2009. The rates did not change ft~r
2010, 201 I, or 2012, per a rate study review. The monthly base charge for residential customers is $7.50 per month. In addition
[o [he base charge, the Utilities curtently charges its residential customers $1.50 per 1,000 gallons up to 9,000 gallons, $3.50 per
1,000 gallons between 9,000 gallons and 15,000 gallons, and $4.00 per 1,000 gallons for usage above 15,000 gallons.
Commercial customers base charges are based upon meter size, from $9.00 to $95.00. An ircigation meter is $40.00 for every
month the meter is utilized. There is also a charge per thousand gallons, the same tiers as the residential rates of $1.50, $3.50, and
$4.00, except [he graduation from the lower tier to [he higher tier(s) is calculated based on previous consumption.
Certain other rates may be offered for conservation incentive purposes. The Utilities' offer a Senior Citizen rate as well.
The Utilities requires payment of all utility bills to be paid by the due date stated on the monthly bill. A [en percent penalty is
assessed for payments no[ received by the due date. The Utility may discontinue service of a customer not complying with [he
disconnect policy of [he Utility after receiving a written disconnect notice. Residential and Commercial/Industrial single phase
Customers that have their service discontinued will be charged a minimum of $50.00 to have their service reconnected.
Commercial/Industrial three phase customers that have their service discontinued will be charged a minimum of $150.00 to have
[heir service reconnected. There are no reconnections after 3:30pm and payments for reconnection are not accepted at [he
property site; payments must be made prior to dispatching reconnection Customers can come in ro the office between [he hours
of 8:OOam and 3:OOpm to make the payment by cash, money order or credit card; or pay online or by phone with a credit card.
The Utilities abides by the Cold Weather Rules.
Deposit Policy
Per our Deposit Policy, the Utility collects social security numbers from new accounts and utilizes a credit risk assessment tool
called "Online Utility Exchange" to determine if a deposit is necessary as a proactive measure [o try and reduce uncollectible
accounts. The amount of the deposit required will depend on the risk identified with the customer. For residential customers, if
there is a 68 percent or higher probability of non default and no negative history (no disconnection for non-payment or late
payments two or more times within 12 months) there is no deposit required. If there is a lower than 68 percent probability of non
default, a deposit appropriate to the services supplied will be required before utility service will be extended. Residential deposit
amounts are $100 for apartments, $100 for homes with water and sewer, $150 for homes with electric only services, and $250 for
homes with all services (electric, water, and sewer).
For commercial and industrial customers, a service agreement would need to be signed [hat identifies the guarantor of their
business and the guarantor's social security number. A deposit of 2 times the estimated highest monthly bill will be required, with
a minimum deposit of $250. The deposit shall be in the form of a cash deposit, personal payment guarantee, or an irtevocable
letter of credit. The irrevocable letter of credit will be renewed as required and failure to do so will result in a charge equal to the
amount of the letter of credit applied to the monthly utility bill.
Deposits will be retained until the account is closed. The deposit will be returned to the customer within 45 days oftermination of
service, provided that [he customer has paid in full all amounts due on the account. The appropriate interest will be applied to the
account per state statutes.
IS
Management's Discussion and Analysis -Continued
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
While [he Statements of Ne[ Assets shows the change in financial position of net assets, the Statements of Revenues, Expenses
and Changes in Ne[ Assets, provides answers as to the nature and source of these changes. As can be seen in Table A-2, the
increase in "Operating Revenues" was the main source of [he increase in net assets of 1,630,809 in fiscal 2011. A closer
examination of the individual categories affecting the source of changes in net assets is discussed below:
TABLE A-2
Condensed Statements of Revenues,
Expenses and Changes in Net Assets
Increase
2011 2010 (Decrease)
Revenues
Operating $ 30,416,803 $ 28,706,223 $ 1,710,580
Nonoperating 300,813 2]8,266 82,547
Total revenues 30,717,616 28,924,489 1,793,127
Expenses
Operating 28,421,809 27,107,250 1,314,559
Nonoperating 437,259 448,818 (11,559)
Total expenses 28,859,068 27,556,068 1,303,000
Income before contributions and operating transfers 1,858,548 1,368,421 490,127
Capital Contributions -Developer Infrastructure and Connection Fees 195,853 460,534 (264,681)
Transfers from other City funds 312,823 71,655 241,168
Transfers to other City funds (736,415) (682,086) (54,329)
Change in net assets 1,630,809 1,218,524 412,285
Net assets, January 1 47,583,084 46,364,560 1,218,524
Net assets, December 31
Revenues
$ 49,213,893 $ 47,583,084 $ 1,630,809
Table A-2 shows that operating revenue increased by 6 percent in 201 I for the Water and Electric Departments combined. This
increase was a result of increased usage in the commercial sector. The increase in electric revenues offsets the water revenues
being down approximately 5 percent from decreased lawn watering, due to the wet spring and mild summer.
Nonoperating revenue increased 20 percent as a result of transmission rebate revenue in the Electric Department, and water tower
lease revenue in the Water Department. In 2007 the Electric Utility partnered with Midwest Municipal Transmission Group
(MMTG) in order to have our transmission assets recognized in the Midwest Independent System Operator (MISO) transmission
market. In doing so, our transmission assets generate a revenue rebate, which in [urn helps keep our rates down. In 2011, rebates
received from our 2009 Flings were approximately $5,000 per month. The Water Department is receiving lease revenue from
Sprint for antennas on [he water towers. In 201 I this amount was approximately $84,000, and will continue for the duration of
the multi-year contract.
Between the two departments, Connection Fees increased approximately $10,000; Electric decreased approximately $30,000 and
Water increased approximately $40,000.
16
Management's Discussion and Analysis -Continued
Total Expenses
In reviewing total expenses in Table A-2 you will notice that there was an increase of 4.7 percent overall. Purchased Power (the
amount the Utilities pays for the power distributed) increased 6.7 percent, however, Customer Expenses were decreased due to
lower write-offs and the complete transfer of meter reading responsibilities internally that were previously contracted.
CAPITAL ASSETS
The Utilities' investment in capital assets for its business-type activities as of December 31, 201 I amounts to $49,251,237 (net of
accumulated depreciation). This investment in capital assets includes land, buildings and improvements and equipment. A table
summarizing [he balances by fund follows:
Increase
2011 2010 (Decrease)
Land $ 281,775 $ 281,775 $ -
Landimprovements 18,898 21,424 (2,526)
Buildings 2,177,370 2,289,154 (111,784)
Equipment and machinery 1,198,402 1,027,943 170,459
Infrastructure 45,369,066 46,056,683 (687,617)
Construction in progress 205,726 418,985 (213,259)
Total
$ 49,251,237 $ 50,095,964 $ (844,7271
The total decrease in the Utilities' investment in capital assets for the current fiscal year was 1.7 percent.
Major capital asset events during the current fiscal year included [he following:
• Again this year, the depreciation increase offset the smaller increase in assets, resulting in an actual decrease in capital
assets.
• The decrease in capital projects completed resulted in fewer assets being added, only $2.3 million.
• Accumulated depreciation for the year increased $3 million from prior year's asset additions.
Additional information on the Utilities' capital assets can be found in Note 2B starting on page 39 of this report.
LONG-TERM DEBT
At year end, the Utilities had $12,598,842 in long-term debt down from $13,795,640 in fiscal 2010. More detailed information
about the Utilities' long-term liabilities is presented in the Notes to the Financial Statements on pages 41 - 44 and below:
G.O. revenue bonds
Revenue bonds
Unamortized premium on bonds
Promissory note
Compensated absences payable
OPEB liability
Total
Increase
2011 2010 (Decrease)
$ 4,477,996 $ 5,014,746 $ (536,750)
5,580,000 6,060,000 (480,000)
45,656 49,750 (4,094)
2,162,882 2,345,318 (182,436)
296,549 295,730 819
35,759 30,096 5,663
$ 12,598,842 $ 13.795,640 $ (1,196,798)
l7
Management's Discussion and Analysis -Continued
ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES
The increased emphasis toward renewable energy and away from coal-based energy, the challenge to reduce energy and water
consumption while still maintaining the existing infrastructure, and the smart grid developments are all factors that point [o
potential increased cost in the coming years. We don't want to have to rely on increasing rates to meet those increases and
continue to look for ways to increase efficiencies and reduce costs, while providing excellent customer service. Our mission is to
provide safe, cost-effective, reliable, quality utilities in an environmentally and financially responsible manner. That will be a
challenge in [he coming years but it is a challenge we are ready to embrace.
CONTACTING THE UTILITIES FINANCIAL MANAGER
This financial report is designed to provide our citizens, customers, investors and creditors with a general overview of the
Utilities' finances and to demonstrate [he Utilities' accountability for the money i[ receives. Questions concerning any of the
information provided in this report or requests for additional financial information should be addressed to Theresa Slominski, Elk
River Municipal Utilities, PO Box 430, Elk River, Minnesota 55330-0430 or stop by at 13069 Orono Parkway in Elk River, MN.
18
FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEARS ENDED
DECEMBER 31, 201 I AND 2010
19
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF NET ASSETS
DECEMBER 31, 201 I AND 2010
ASSETS
CURRENT ASSETS
Cash and temporary investments
Receivables
Accrued interest
Accounts, net of allowance
Special assessments
Other receivables
Due from other City fund
Due from other govemmen[s
Inventories
Prepaid expenses
TOTAL CURRENT ASSETS
CAPITAL ASSETS
Land
Land improvements
Buildings
Equipment and machinery
Infrastructure
Construction in progress
CAPITAL ASSETS, COST
LESS ACCUMULATED DEPRECIATION
TOTAL CAPITAL ASSETS, NET
OTHER ASSETS
Restricted cash
Deferred charges
TOTAL OTHER ASSETS
TOTAL ASSETS
The notes to the financial statements are an integral part of this statement.
Electric
2011 2010
$ 8,380,396 $ 6,587,017
4,749
2,498,647
I, 116
2,403,096
4,962
27,55 I
1,627
997,125
122,066
52,635
9,881
1,627
1,018,092
140,116
12,037,123 10,213,580
200,236
63,147
2,735,797
4,102,753
45,482,434
200,838
200,236
63,147
2,735,797
3,759,663
44,492,422
407,475
52,785,205
(25,885,141)
51,658,740
(23,869,917)
26,900,064 27,788,823
724,500 724,500
102,866 114,775
827,366
39,764,553
839,275
38,841,678
20
Water Total
2011 2010 2011 2010
$ 2,619,574 $ 2,793,142 $ 10,999,970 $ 9,380,159
1,187 279 5,936 1,395
97,689 97,248 2,596,336 2,500,344
18,821 13,001 18,821 13,001
10,591 3,444 15,553 56,079
162,658 128,850 190,209 138,731
- - 1,627 1,627
25,909 38,748 1,023,034 1,056,840
18,685 18,422 140,751 158,538
2,955,114 3,093,134 14,992,237 13,306,714
81,539 81,539 281,775 281,775
- - 63,147 63,147
770,828 770,828 3,506,625 3,506,625
356,173 321,225 4,458,926 4,080,888
32,087,127 31,091,224 77,569,561 75,583,646
4,888 11,510 205,726 418,985
33,300,555 32,276,326 86,085,760 83,935,066
(10,949,382) (9,969,185) (36,834,523) (33,839,102)
22,351,173 22,307,141 49,251,237 50,095,964
- - 724,500 724,500
87,648 99,959 190,514 214,734
87,648 99,959 915,014 939,234
25,393,935 25,500,234 65,158,488 64,341,912
21
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF NET ASSETS -CONTINUED
DECEMBER 31, 2011 AND 2010
Electric
2011 2010
CURRENT LIABILITIES
Accounts payable $ 2,042,190 $ 1,864,669
Salaries and benefits payable 74,499 71,655
Accrued interest payable 103,131 111,260
Due to other City funds 400,105 382,538
Due to other governments 193,408 122,278
Customer deposits payable 334,508 273,537
Unearned revenue _ _
Compensated absences -current portion 92,925 1 13,845
Notes payable -current portion 183,444 182,436
Bonds payable -current portion 559,000 548,000
TOTAL CURRENT LIABILITIES 3,983,210 3,670,218
NON-CURRENT LIABILITIES
Net other postemployment benefits liability 35,759 30,096
Compensated absences -less current portion 122,1 19 100,788
Notes payable -less current portion 1,979,438 2,162,882
Bonds payable, net -less current portion 5,927,922 6,483,597
TOTAL NON-CURRENT LIABILITIES 8,065,238 8,777,363
TOTAL LIABILITIES 12,048,448 12,447,581
NET ASSETS
Invested in capital assets, net of related debt 18,250,260 18,411,908
Restricted for debt service 724,500 724,500
Unrestricted 8,741,345 7,257,689
TOTAL NET ASSETS _$ 27,716,105 $ 26,394,097
The notes to the financial statements are an integral part of this statement.
22
Water Total
2011 2010 2011 2010
$ 85,062 $ 39,361 $ 2,127,252 $ 1,904,030
6,463 4,295 80,962 75,950
49,071 54,765 152,202 166,025
20,187 13,350 420,292 395,888
918 2 194,326 122,280
6,311 6,311 340,819 279,848
29,900 19,167 29,900 19,167
41,881 46,805 134,806 160,650
- - 183,444 182,436
491,000 477,000 1,050,000 1,025,000
730,793 661,056 4,714,003 4,331,274
- - 35,759 30,096
39,624 34,292 161,743 135,080
- - 1,979,438 2,162,882
3,125,730 3,615,899 9,053,652 10,099,496
3,165,354 3,650,191 11,230,592 12,427,554
3,896,147 4,311,247 15,944,595 16,758,828
18,734,443 18,214,242 36,984,703 36,626,150
- - 724,500 724,500
2,763,345 2,974,745 11,504,690 10,232,434
$ 21,497,788 $ 2 L188,987 $ 49.213.893 $ 47,583,084
23
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
YEARS ENDED DECEMBER 31, 201 I AND 2010
OPERATING REVENUES
Charges for services
Security systems
LFG project
Generation credit
Connection maintenance
Customer penalties
TOTAL OPERATING REVENUES
OPERATING EXPENSES
Purchased power
Production
Distribution
Depreciation
Customer accounts
General and administrative
TOTAL OPERATING EXPENSES
OPERATINO INCOME (LOSS)
NONOPERATING REVENUES (EXPENSES)
Interest income
Miscellaneous revenue
Interest expense
Amortization of deferred charges
Loss on sale of capital assets
TOTAL NONOPERATING REVENUES (EXPENSES)
INCOME BEFORE CONTRIBUTIONS AND TRANSFERS
CAPITAL CONTRIBUTIONS -
DEVELOPERINFRASTUCTUREandCONNECTION FEES
TRANSFERS FROM OTHER CITY FUNDS
TRANSFERS TO OTHER CITY FUNDS
CHANGE IN NET ASSETS
NET ASSETS, JANUARY 1
NET ASSETS, DECEMBER 31
The notes to the financial statements are an integral part of this statement.
Electric
2011 2010
$ 26,885,940 $ 25,056,960
256,432 256,647
1,008,401 1,003,341
140,609 173,534
35,564 64,761
257,040 237,319
28,583,986 26,792,562
19,604,951 18,373,386
885,580 919,638
1,075,162 972,574
2,041,717 2,062,942
642,619 692,703
2,183,021 2,140,948
26,433,050
2,150,936
113,983
73,712
(259,416)
(8,634)
(37,158)
25,162,191
1,630,371
89,948
48,421
(272,897)
(8,879)
(I 1,609)
(117,513) (154,956)
2,033,423 1,475,415
- 53,741
(711,415) (657,086)
1,322,008 872,070
26,394,097 25,522,027
$ 27.7]6.105 $ 26.394,097
24
Water Total
2011 2010 2011 2010
$ 1,796,086 $ 1,876,363 $ 28,682,026 $ 26,933,323
- - 256,432 256,647
- - 1,008,401 1,003,341
- - 140,609 173,534
17,886 17,575 53,450 82,336
18,845 19,723 275,885 257,042
1,832,817 1,913,661 30,416,803 28,706,223
- - 19,604,951 18,373,386
370,079 346,960 1,255,659 1,266,598
134,213 181,495 1,209,375 1,124,069
980,197 955,323 3,021,914 3,018,265
39,867 46,684 682,486 739,387
464,403 444,597 2,647,424 2,585,545
1,988,759 1,945,059 28,421,809 27,107,250
(155,942) (31,398) 1,994,994 1,598,973
28,551 31,798 142,534 121,746
84,567 48,099 158,279 96,520
(120,559) (143,361) (379,975) (4I 6,258)
(11,492) (12,132) (20,126) (20,951)
- (37,158) (11,609)
(18,933) (75,596) (136,446) (230,552)
(174,875) (106,994) 1,858,548 1,368,421
195,853 460,534 195,853 460,534
312,823 17,914 312,823 71,655
(25,000) (25,000) (736,415) (682,086)
308,801 346,454 1,630,809 1,218,524
21,188,987 20,842,533 47,583,084 46,364,560
$ 21.497,788 $ 21,188,987 $ 49.213.893 $ 47,583,084
25
F,LK RIVF,R MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS
YEARS ENDEU UECF,MRER 31, 2011 AND 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users
Other operating cash receipts
Payments to suppliers
Payments to employees
NET CASH PROVIDED (USEll)
BY OPERATING AC'I'I V I'I'I ES
CASH FLOWS FROM
NONCAPITAL FINANCING ACTIVITIES
Transfers from City
Transfers to City
Increase (decrease) in due to other City funds
NET CASH PROVIDED (USED) BY NONCAPITAL
FINANCING ACTIVITIES
CASH FLOWS FROM CAPITAL
AND RELATED FINANCING ACTIVITIF;S
Acquisition of capital assets
Proceeds from sale of capital assets
Proceeds from connection fees
Principal payments on revenue bonds
Proceeds of refunding bonds issued, net of issuance
costs and premium on bonds
Withdrawal from escrow fund
Payment [o refunded bond escrow agent
Interest paid on revenue bonds
Principal payments on promissory note
NET CASH PROVIDED (USED) BY CAPITAI,
AND RELATED FINANCING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS
CASH AND CASH F.QUIVALF.NTS, JANUARY 1
CASH AND CASH EQUIVALENTS, DECt;MBER 31
RECONCILIATION OF CASH AND CASH
EQUIVALENTS TO THE STATEMENT OP NET ASSETS
Cash and temporary investments
Restricted cash
TOTAL CASH AND CASH EQl11VALENTS
The notes to the financial statements are an integral part of this statement.
Electric
2011 2010
$ 28,519,094 $ 26,414,254
121,385 55,110
(22,728,996) (21,426,298)
(1,515,439) (1,446,237)
4,396,044 3,596,829
- 53,741
(711,415) (657,086)
(103) 69,006
(711,518) (534,339)
(1,010,116) (998,645)
- 5,952
(548,000) (512,500)
- 1,105,905
- (1,099,671)
(260,945) (275,928)
(182,4361 (179,328)
(2,001,497) (1,957,215)
1 10,350 114,922
I ,793,379 I ,220,197
7,311,517 6,091,320
9,104,896 7,311,517
8,380,396 6,587,017
724,500 724,500
$ 9.104,896 $ 7,311.517
26
Water Total
2011 2010 2011 2010
$ 1,826,255 $ 1897,904 $ 30345,349 $ 28,312,158
SR,153 68A00 209,538 123,110
(611,490) (650,962) (23,340,486) (22,077,260)
(335,002) (325,328) (1,850,441) (1,771,565)
969,916 989,614 5.363,960 4.586,443
312,823 17-914 312.823 71,655
(25,000) (25,000) (736,415) (682,086)
(26,971) (1,460) (27,074) 67,546
260,852 (8,546) (450,666) (542,885)
(1.024,229) (201,447) (2,034,345) (1.200,092)
_ - 5,952
195,853 155,759 195,853 ISSJ59
(477,000) (3,012,500) (1,025,000) (3,525,000)
- 201,506 - 1.307,411
- 2,575,000 - 2,575.000
- (279-396) - (1,379,067)
(124,603) (200,912) (385,548) (479,840)
(182,436) (179,328)
(1,429,979) (761,990) (3,431,476) (2,719,205)
27,643 73.104 137,993 188,026
Q 73,568) 292,182 1,619.811 1,512,379
2,793.142 2,500,960 10,104,659 8.592,280
2,619,574 2.793.142 11,724,470 10,104,659
2,619,574 2,793.142 10,999,970 9,380,159
724,500 924,500
$ 2,619,574 $ 2,793,142 $ 11,724,470 $ 10,104.659
27
ELK RIVER MIJNICIPAh U"fILIT1ES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS -CONTINUED
YEARS ENDED DECEMBER 31, 2011 AND 2010
RECONCILIATION OF OPERATING INCOME (LOSS) TO
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Operating income (loss)
Adjustments to reconcile operating income (loss)
to net cash provided by operating activities:
Other revenue related to operations
Bad debt expense
Depreciation
(Increase) decrease in assets:
Accounts receivable
Other receivables
Special assessments
Due from other governments
Inventories
Prepaid expenses
Increase (decrease) in liabilities:
Accounts payable
Salaries and benefits payable
Ne[ other postemployment benefits liability
Unearned revenue
Compensated absences
Due to other governments
Customer deposits payable
NF.T CASH PROVIDED (USED)
BY OPERATING ACTT V ITIF,S
NONCASH CAPITAL AND
RELATED FPVANCEVG ACTIVITIES
Amortization of deferred charges and bond premium
Amortization of deferred charges on refunding
Loss on disposal of capital assets
Capital assets purchased on account
Contribmion of capital assets
The notes to the financial statements are an integral pan of this statement.
Electric
2011 2010
$ 2,150,936 $ 1,630,371
73,712 48,421
30,312 100,945
2,041,717 2,062,942
(125,863) (466,245)
47,673 (28,808)
- 35,497
20,967 16,737
18,050 (64,828)
(2,479) 91,281
2.844 10,846
5,663 9,853
411 47,599
71,130 14,281
60,971 87,937
$ 4,396,044 $ 3.596,829
$ 5.634 $ 8.819
$ 6.600 $ 6.993
$ 37,158 $ 11.609
180,000
$ - $
78
Water
2011 2010
iota(
2011 2010
$ (155,942) $ (31,398) $ 1.994,994 $ 1,598,973
84,567 48,099 158,279 96.520
301 1,679 30,613 102,624
980,197 955.323 3.021,914 3,018,265
(742) (11,802) (126.605) (478,047)
(7,147) 734 40,526 (28,074)
(5.820) (2,766) (5,820) (2.766)
- - - 35,497
12,839 (10,026) 33,806 6.711
(263) (6,238) 17,787 (71,066)
45,701 17A43 43,222 108,324
2,168 (1,220) 5,012 9,626
- - 5,663 9,853
10,733 19,167 10,733 19,167
40R 12,206 R19 59,805
916 2 72,046 14,283
(1,189) 6Q,971 86,748
$ 967,916 $ 989,614 $ 5,363,960 $ 4.586.443
$ 11.492 $ 12.132 $ 20,126 $ 20,951
$ 1,650 $ 1,820 $ 8.250 $ 8,813
$ $ $ 37,158 $ 11,609
$ $ $ 180,000 $
$ $ 304,775 $ $ 304,775
29
TH[S PAGE IS LEFT BLANK
INTENT[ONALLY
30
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of the business
The Elk River Municipal Utilities (the Utilities) is a municipal utility established by action of the City of Elk River
(the City) pursuant [o Minnesota statute 412.321 and consequently it's Electric and Water funds are enterprise funds
of the City. The Public Utilities Commission ([he Commission) members are appointed by the City Council. The
Commission determines all matters of policy. The Commission appoints personnel responsible for the proper
administration of all affairs relating [o the Utilities. The Utilities distributes electricity and water to the residents of
Elk River, Dayton, Big Lake and Otsego, Minnesota.
The Utilities has considered all potential units for which it is financially accountable, and other organizations for
which the nature and significance of their relationship with the Utilities are such that exclusion would cause the
Utilities' financial statements to be misleading or incomplete. The Governmental Accounting Standards Board
(GASB) has se[ forth criteria [o be considered in determining financial accountability. These criteria include
appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to
impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose
specific financial burdens on [he primary government. There are no component units.
B. Measurement focus, basis of accounting and basis of presentation
The accounts of [he Utilities are organized and operated on the basis of funds. A fund is an independent fiscal and
accounting entity with aself-balancing set of accounts. Fund accounting segregates funds according to [heir
intended purpose and is used [o aid management in demonstrating compliance with finance-related legal and
contractual provisions. The minimum number of funds is maintained consistently with legal and managerial
requirements.
Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is
recorded on [he accrual basis when the exchange takes place.
Non-exchange transactions, in which the Utilities receives value without directly giving equal value in return,
include property taxes, grants, entitlements and donations. Revenue from property [axes is recognized in the year for
which [he [ax is levied. Revenue from grants, entitlements and donations is recognized in [he year in which all
eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the
year when [he resources are required [o be used or [he year when use is first permitted, matching requirements, in
which [he Utilities must provide local resources to be used for a specified purpose, and expenditure requirements, in
which the resources are provided to [he Utilities on a reimbursement basis.
Grants and entitlements received before eligibility requirements are met are also recorded as unearned revenue.
The preparation of the financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those estimates.
31
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note l: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis
of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time
liabilities are incurred. In accordance with the provisions of the GASB Statement No. 20, Accounting and Financial
Reporting for Proprietary Funds and other Governmental Entities that use Proprietary Fund Account, the Utilities
applies all applicable GASB pronouncements plus all Financial Accounting Standards Board (FASB) Statements
and Interpretations, Accounting Principles Board opinions, and Accounting Research Bulletins issued on or before
November 30, 1989, except for those that conflict with or contradict GASB pronouncements. The Utilities has
elected no[ to apply FASB Statements and In[erpretationsisued after November 30, 1989. Proprietary funds include
the following fund type:
Enterprise funds account for those operations that are financed and operated in a manner similar [o private business
or where the Utilities has decided that the determination of revenues earned, costs incurred and/or net income is
necessary for management accountability.
Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and
expenses generally result from providing services and producing and delivering goods in connection with a
proprietary fund's principal ongoing operations. The principal operating revenues of [he Water and Electric
enterprise funds are charges to customers for sales and service. Operating expenses for enterprise funds include the
cos[ of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not
meeting this definition are reported as nonoperating revenues and expenses.
The Utilities reports the following major proprietary funds:
The Electric fend accounts for [he electric distribution operations.
The Water fund accounts for the water distribution system.
When both restricted and unrestricted resources are available for use, it is the Utilities' policy to use restricted
resources first, then unrestricted resources as they are needed.
C. Assets, liabilities and net assets
Cash and cash equivalents
The Utilities' cash and cash equivalents are considered to be cash on hand, demand deposits and short-term
investments with original maturities of three months or less from the date of acquisition.
Cash balances from all funds are pooled and invested, to [he extent available, in certificates of deposit and other
authorized investments. Earnings from such investments are allocated on the basis of applicable participation by
each of the funds.
32
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
The Utilities may also invest idle funds as authorized by Minnesota statutes, as follows:
1. Direct obligations or obligations guaranteed by the United States or its agencies.
2. Shares of investment companies registered under [he Federal Investment Company Ac[ of 1940 and
received the highest credit rating, rated in one of the two highest rating categories by a statistical rating
agency, and have a final maturity of thirteen months or less.
3. General obligations of a state or local government with taxing powers rated "A" or better; revenue
obligations rated "AA" or better.
4. General obligations of the Minnesota Housing Finance Agency rated "A" or better.
5. Bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System.
6. Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest
quality category by a[ least two nationally recognized rating agencies, and maturing in 270 days or less.
7. Repurchase or reverse repurchase agreements and securities lending agreements with financial institutions
qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve
System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. government
sewri[ies to the Federal Reserve Bank of New York, or certain Minnesota securities broker-dealers.
8. Guaranteed investment contracts (GIC's) issued or guaranteed by a United Slates commercial bank, a
domestic branch of a foreign bank, a United Stales insurance company, or its Canadian subsidiary, whose
similar debt obligations were rated in one of [he top two rating categories by a nationally recognized rating
agency.
Investments for the Utilities are reported at fair value.
Accounts receivable
Accounts receivable include amounts billed for services provided before year end. The Utilities has established a
reserve for uncollectible accounts which is adjusted annually based on the receivable activity. No substantial losses
from present receivable balances are anticipated. A summary of the uncollectible account balances at
December 31, 2011 and December 31, 2010 is as follows:
Increase
2011 2010 (Decrease)
Electric $ 78,750 $ 78,750 $ -
Water 26,250 26,250 -
Total $ 105,000 $ 105,000 $
33
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
/nterjund receivables and payables
Transactions between funds that are representative oflending/borrowing arrangements outstanding at the end of the
fiscal year are referred to as either "interfund receivables/payables" (i.e., [he current portion of interfund loans) or
"advances to/from other funds" (i.e., the non-current portion of interfund loans). All other outstanding balances
between funds are reported as "due to/from other funds".
Inventories
Inventories are stated at lower of average cost or market on the 5rs[-in, first-out (FIFO) method.
Prepaid items
Certain payments [o vendors reflect costs applicable to future accounting periods and are recorded as prepaid items.
Restricted assets
The amounts in the restricted cash account are set aside in accordance with the issuing resolution for specific bond
issues. They will be used for future debt service.
Capital assets
Capital assets are stated at cost. Capital assets are defined by the Utilities as assets with an initial individual cost of
more than $5,000 and an estimated useful life in excess of two years. Expenditures for maintenance and repairs are
charged to operations and expenditures that extend the useful life of the asset are capitalized and depreciated. When
assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any gain
or loss on disposition is included in operations.
Major expenditures for improvements or capital asset projects are capitalized as projects are constructed. Interest
incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest
earned on the invested proceeds over the same period. Interest incurred during the construction phase of capital
assets of business-type activities is included as part of the capitalized value of [he assets wnstructed.
The Utilities follow the policy of providing depreciation on [he straight-line method over the estimated useful lives
of the assets, which are as follows:
Description
Lives in Years
Electric Water
Production
Transmission
Distribution
General
Long-term obligations
4-20 25-50
30 -
10-33 25-50
10-50 10-50
Long-term debt is reflected as a liability in the fund issuing [he obligation. Bond premiums and discounts, as well as
issuance costs, are deferred and amortized over [he life of the bonds using the straight-line method. Bond issuance
costs are reported as deferred charges and amortized over [he term of [he related debt.
34
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note I: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
Compensated absences
All vacation benefits can be carried over from year to year and will be payable upon termination. Sick leave can be
accumulated to a maximum of 960 hours from year to year. Upon termination or retirement, employees will have 50
percent of unused sick leave, up to a maximum of 800 hours, converted to cash and deposited into [heir Pos[ Health
Care Savings account. The liability for vacation and sick pay is reported as a liability in [he respective funds at year
end.
Postemployment Beneftts Other Than Pensions
Under Minnesota statute 471.61, subdivision 26., public employers must allow retirees and their dependents to
continue coverage indefinitely in an employer-sponsored health care plan, under the following conditions: I)
Retirees must be receiving (or eligible to receive) an annuity from a Minnesota public pension plan, 2) Coverage
must continue in group plan until age 65, and retirees must pay no more than the group premium, and 3) Retirees
may obtain dependent coverage immediately before retirement. All premiums are funded on apay-as-you-go basis
The liability was actuarially determined, in accordance with GASB Statement 45, at January 1, 201 I.
Net assets
Net assets represent the difference between assets and liabilities. Net assets are displayed in three components:
a. Invested in capital assets, net of related debt -Consists of capital assets, net of accumulated depreciation
reduced by any outstanding debt attributable to acquire capital assets.
b. Restricted net assets - Consist of net assets restricted when [here are limitations imposed on their use
through external restrictions imposed by creditors, grantors, laws or regulations of other governments.
c. Unrestricted net assets -All other net assets that do not meet the definition of "restricted" or "invested in
capital assets, net of related deb[".
Comparative data and reclassifications
Comparative total data for the prior year have been presented in the selected sections of the accompanying
financial statements in order to provide an understanding of changes in the Utilities' financial position and
operations. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent
with the current year's presentation.
35
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS
A. Deposits and investments
Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, [he Utilities' deposits
and investments may not be returned or the Utility will not be able to recover collateral securities in the possession
of an outside party. In accordance with Minnesota statutes and as authorized by [he Commission, the Utility
maintains deposits at those depository banks, all of which are members of the Federal Reserve System.
Minnesota statutes require [hat all Utility deposits be protected by insurance, surety bond or collateral. The market
value of collateral pledged must equal 1 10 percent of the deposits not covered by insurance or bonds.
Authorized collateral in lieu of a corporate surety bond includes:
• United States government Treasury bills, Treasury notes, Treasury bonds;
• Issues of United States government agencies and instrumentalities as quoted by a recognized industry
quotation service available to the government entity;
• General obligation securities of any state or local government with taxing powers which is rated "A" or
better by a national bond rating service, or revenue obligation securities of any state or local government
with taxing powers which is rated "AA" or better by a national bond rating service;
• General obligation securities of a local government with taxing powers may be pledged as collateral against
funds deposited by that same local government entity;
• Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality accompanied by
written evidence that the bank's public debt is rated "AA" or better by Moody's Investors Service, Inc., or
Standard & Poor's Corporation; and
• Time deposits that are fully insured by any federal agency.
Minnesota statutes require [hat all collateral shall be placed in safekeeping in a restricted account a[ a Federal
Reserve Bank, or in an account at a trust department of a commercial bank or other financial institution that is not
owned or controlled by the financial institution furnishing the collateral. The selection should be approved by the
government entity.
At December 31, 2011, [he Utilities' carrying amount of deposits was $8,669,521 and the bank balance was
$10,032,467. Ofthe bank balance $250,000 was covered by federal depository insurance, and the remaining balance
was covered by collateral held by the pledging financial institution's agent in the Utilities' name.
At December 31, 2010, the Utilities' carrying amount of deposits was $7,109,382 and the bank balance was
$8,422,731. Of the bank balance $250,000 was covered by federal depository insurance, and the remaining balance
was covered by collateral held by the pledging financial institution's agent in the Utilities' name.
36
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
/nvestments
The Utilities' investment balances were as follows for December 31, 201 I
Pair Value
Credit Segmented and
Quality/ Time Carrying
Types of Investments Ratings (1) Distribution (2) Amount
Pooled investments
Broker Money Markets N/A less than 6 months $ 26,465
Non-pooled investments
U.S. Government Agency Securities Aaa less than 6 months 99,849
U.S. Government Agency Securities Aaa Ito 3 years 80,523
U.S. Government Agency Securities Aaa more than 3 years 603,856
Brokered CD's N/A less than 6 months 832,190
Brokered CD's N/A 6 months to I year 491,684
Brokered CD's N/A I [0 3 years 819,404
Brokered CD's N/A more than 3 years 100,578
Total non-pooled investments 3,028,084
Total investments $ 3,054,549
1. Ratings were provided by Moody's
2. Interest rate risk is disclosed using the segmented time distribu tion method.
N/A Indicates not applicable or available.
The Utilities' investment balances were as fol lows for December 31, 2010:
Fair Value
Credit Segmented and
Quality/ Time Carrying
Types of Investments Ratings (I) Distribution (2) Amount
Pooled investments
Broker Money Markets N/A less than 6 months $ 20,193
Non-pooled investments
U.S. Government Agency Securities AAA Ito 3 years 401,513
AAA more than 3 years 479,759
Brokered CD's N/A less than 6 months 55,000
Brokered CD's N/A 6 months to I year 786,456
Brokered CD's N/A 1 to 3 years 1,251,956
Total non-pooled investments 2,974,684
Total investments $ 2,994,877
I. Ratings were provided by Moody's
2. Interest rate risk is disclosed using the segmented time distribu tion method.
N/A Indicates not applicable or available.
37
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
A reconciliation of cash and temporary investments as shown in the financial statements for the Utilities follows:
Deposits
Investments
Cash on hand
Total
Cash and investments
Unrestricted
Restricted
Total
The investments of the Utility are subject to the following risks:
2011 2010
$ 8,669,521 $ 7,109,382
3,054,549 2,994,877
400 400
$ 11,724,470 $ 10,104,659
$ 10,999,970 $ 9,380,159
724,500 724,500
$ 11,724,470 $ 10,104,659
• Credit Risk. Is the risk that an issuer or other coun[erparty to an investment will not fulfill its obligations.
Ratings are provided by various credit rating agencies and where applicable, indicate associated credit risk.
Minnesota Statutes and the Utilities' investment policy limit the Utilities' investments to the list on page 31
of the notes.
• Custodial Credit Risk. The custodial credit risk for investments is the risk [ha[, in [he event of the failure of
[he counterparty to a transaction, a government will not be able to recover [he value of investment or
collateral securities that are in the possession of an outside party. According [o their investment policy the
Utilities' portfolio maturities shall be staggered to avoid undue concentration of assets with one broker-
dealer or financial institution.
• Concentration of Credit Risk Is the risk of loss attributed to the magnitude of a government's investment in
a single issuer. According to their investment policy the Utilities' portfolio maturities shall be staggered to
avoid undue concentration of assets in any one type of instrument.
• Interest rate risk. Is the risk that changes in interest rates will adversely affect the fair value of an
investment. Acwrding to [heir investment policy the Utilities' will stagger maturities to avoid undue
concentration of assets at a specific maturity sector.
38
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
B. Capital assets
Electric and Water fund capital asset activity forthe year ended December 31, 201 I was as follows:
Beginning
Balance Increases
Ending
Decreases Balance
Capital assets not
being depreciated
Land $ 281,775 $ - $ - $ 281,775
Construction in progress 418,985 965,332 (1,178,591) 205,726
Total capital assets
not being depreciated 700,760 965,332 (1,178,591) 487,501
Capital assets being depreciated
Land improvements 63,147 - - 63,147
Buildings 3,506,625 - - 3,506,625
Machinery and equipment 4,080,888 462,816 (84,778) 4,458,926
Infrastructure 75,583,646 1,985,915 - 77,569,561
Total capital assets
being depreciated 83,234,306 2,448,731 (84,778) 85,598,259
Less accumulated
depreciation for
Land improvements (41,723) (2,526) - (44,249)
Buildings (1,217,471) (111,784) - (1,329,255)
Machinery and equipment (3,052,945) (234,072) 26,493 (3,260,524)
Infrastructure (29,526,963) (2,673,532) - (32,200,495)
Tolal accumulated
depreciation (33,839,102) (3,021,914) 26,493 (36,834,523)
Total capital assets
being depreciated, net 49,395,204 (573,183) (58,285) 48,763,736
Business-type activities
capital assets, net $ 50,095,964 $ 392,149 $ (1,236.8761 $ 49.251,237
39
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
Electric and Water fund capital asset activity for the year ended December 31, 2010 was as follows
Beginning Ending
Balance Increases Decreases Balance
Capital assets not
being depreciated
Land $ 281,775 $ - $ - $ 281,775
Construction in progress 84,648 985,062 (650,725) 418,985
Total capital assets
not being depreciated 366,423 985,062 (650,725) 700,760
Capital assets being depreciated
Land improvements 63,147 - - 63,147
Buildings 3,506,625 - - 3,506,625
Machinery and equipment 4,043,978 1 11,857 (74,947) 4,080,888
Infrastructure 74,524,973 1,058,673 75,583,646
Total capital assets
being depreciated 82,138,723 1,170,530 (74,947) 83,234,306
Less accumulated
depreciation for
Land improvements (39,198) (2,525) - (41,723)
Buildings (1,104,961) (112,510) - (1,217,471)
Machinery and equipment (2,884,419) (225,912) 57,386 (3,052,945)
Infrastructure (26,849,645) (2,677,318) - (29,526,963)
Total accumulated
depreciation
(30,878,223) (3,018,265) 57,386 (33,839,102)
Total capital assets
being depreciated, net 51,260,500 (1,847,735) (17,561) 49,395,204
Business-type activities
capital assets, net $ 51,626.923 $ (862,673) $ (668.286) $ 50,095.964
Depreciation expense was charged to functions/programs of the Utilities as follows:
Business-type Activities
Water
Electric
Total depreciation expense -business-type activities
2011 2010
$ 980,197 $ 955,323
2,041,717 2,062,942
$ 3.021,914 $ 3.018.265
40
ELK RIVER MUNICIPAL UTILITIES
ELK RIVF,R, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
C. Long-term debt
G.O. revenue and refunding bands
The City of Elk River issues general obligation bonds [o provide funds for the acquisition and construction of major
capital facilities. The following bonds are to be paid out of Utilities' revenues and are backed by the full faith and
credit of the City.
Authorized
Description and Issued
G.O. Water Revenue
Refunding Bonds of 2008 $ 3,085,000
G.0 Water Revenue
Bondsof2003B 1,995,000
G.O. Capital Improvement
Plan Bonds of 201 OA 1,265,000
Total G.O. Revenue and Refunding Bonds
Interest Issue Maturity
Rate Date Date
December 31,
2011 2010
2.65-3.65 % 02/20/08 02/01/22 $ 2,705,000 $ 2,955,000
3.40-3.70 12/09/03 02/01/14 685,000 895,000
2.00-4.00 04/21/10 08/01/23 1,180,000 1,265,000
The annual requirements to amortize the general obligation revenue and refunding bonds as of December 31, 2011
are as follows:
Year Ending
December 31,
2012
2013
2014
2015
2016
2017-2021
2022-2023
Principal
$ 4,570.000 $ 5,115.000
Interest Total
$ 555,000 140,331 $ 695,331
585,000 123,768 708,768
595,000 106,006 701,006
300,000 92,840 392,840
305,000 84,333 389,333
1,720,000 256,555 1,976,555
510,000 14,728 524,728
Total $ 4,570,000 $ 818,561 $ 5,388.561
41
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
Revenue bonds
The following bonds were issued to finance capital improvements in the Electric fund. They will be retired from net
revenues of the fund.
Authorized Interest Issue Maturity December 31,
Description and Issued Rate Date Date 2011 2010
Electric Revenue
Bonds, Series2004A $ 940,000 4.00-4.25% 08/01/04 OZ/01/IS $ 430,000 $ 525,000
Elecnic Revenue
Bonds, Series 2006A 3,595,000 3.50-4.00 03/02106 08/01/21 2,620,000 2,830,000
Electric Revenue
Bonds, Series 2007A 2,875,000 4,00 03/28/07 02/01/22 2,530,000 2,705,000
Total Revenue Bonds $ 5,580.000 $ 6.060.000
The annual requiremen ts to amortize th e revenue bonds as of December 31, 201 I are as follows:
Year Ending
December 3l, Principal Interest Total
2012 495,000 211,435 $ 706,435
2013 520,000 192,358 712,358
2014 545,000 172,221 717,221
2015 570,000 150,924 720,924
2016 470,000 131,160 601,160
2017-2021 2,695,000 362,133 3,057,133
2022 285,000 5,700 290,700
Total $ 5.580.000 $ 1,225,931 $ 6,805,931
42
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
Promissory note
The Utilities has issued a promissory note to provide for construction of a landfill gas generator. The note is [o be
paid from revenue of the system and is secured by the facility.
Authorized Interest Issue Maturity December 31,
Description and Issued Rate Date Date 2011 2010
Landfill
Generator Kote $ 3521.000 - % 03/19/02 02/19/22 $ 2,162,882 $ 2.345.318
The annual requirements [o amortize the generator note as of December 31, 2011 are as follows:
Year Ending
December 31. principal Interest "Ibtal
2012 183,444 $ - $ 183,444
2013 186,581 - 186,581
2014 189,353 - 189,353
2015 191,511 - 191,511
2016 194,297 - 194.297
2017-2021 1,004,950 - 1,004,950
2022 212,746 212,746
Total $ 2,162,882 $ $ 2,162,882
Changes in Long-term Liahi[ities
Long-term liability activity for the year ended December 31, 201 I was as follows
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
Business-type activities
Bonds payable
General obligation
revenue bonds $ 5,115,000 $ - $ (536,750) $ 4,570,000 $ 559,000
Revenue bonds 6,060,000 - (480,000) 5,580,000 491,000
Unamortized premium
on bonds 49,750 - (4,094) 45,656 -
Deferred loss on refunding (100,254) 8,250 (92.004)
Total Minds payable, net 11,124,496 - (1,014,244) 10,103,652 I,OSOAOU
Notes payable 2,345,318 - (182,436) 2,162,882 183,444
Compensated
absences payable 295,730 20Q,839 (200,020) 296,549 134,806
OPEB liability 30,096 5,663 - 35,759
Business-type activity
long-term
liabilities $ 13,795,640 $ 206.502 $ (1,396,7001 $ 12.598.842 $ 1.368,250
43
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Advance Refunding
On April 21, 2010 [he Utilities issued $1,265,000 of G.O. Capital Improvement Plan Bonds, Series 2010A, bearing
an average coupon rate of 3.58 percent, to provide resources for [he advance refunding of $1,270,000 of the
outstanding principal of the City Hall Expansion Revenue Bonds, 20026 on February I, 2013. The proceeds of the
Series 2010A Bonds were deposited into an Escrow Account which shall pay issuance costs and purchase securities
bearing interest to provide sufficient funds to pay the principal and interest on the 20026 bonds due April 21, 2010
through February I, 2013 and pay the $1,125,000 called Revenue Bonds of 20026 on February I, 2013. As a result
of the refunding issue, [he 20026 bonds were defeased and the Utilities will save $97,000 in debt service payments
and achieve an economic gain (the present value of the difference between the old and [he new debt service) of
$90,824.
44
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
D. Interfund receivables, payables and transfer
The composition of Interfund balances at December 31, 2011 is as follows:
Receivable Fund Payable Fund Amount Purpose
Electric City -General fund $ 1,998 City share of project costs
Electric City - Nonmajor 977 Electric sales tax paid by City
Electric City -Sewer 359 City share of project costs
Electric City -Garbage 2,005 City share of project costs
Electric City -General fund 22,212 Electric share of insurance dividends
Total Electric fund receivable from City 27,551
Water City -Trunk Fee fund 28,255 Trunk fee transfer
Water City -General fund 5,553 Water share of insurance dividends
Water City -Capital projects fund 128,850 TIF 22 Water Access Charge
Total Water fund receivable from City 162,658
Total receivable from City $ 190,209
City -General fund Electric $ 46,000 Shared building maim. costs
City -multiple funds Electric 53,810 December transfer of 3%of revenue
City -General fund Electric 58,321 Electric share of insurance
City -General fund Electric 1,622 Electric share of vehicle maim.
City -Sewer Electric 125,365 Billed sewer on behalf of City
City -Garbage Electric 109,728 Billed garbage on behalf of City
City -General fund Electric 5,259 Electric share of fuel
Total Electric fund payable to City 400,105
City -General fund Water 11,474 Shared building maim. costs
City -General fund Water 7,402 Water share of insurance
City-General fund Water 1,254 Water share of fuel
City -General fund Water 57 Water share of vehicle maim.
Total Water fund payable to City 20,187
Total payable [o City $ 420,292
45
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
The composition of in[erfund balances at December 31, 2010 is as follows
Receivable Fund Payable Fund Amount Purpose
Electric City -General fund $ 7,163 Electric sales [ax paid by City
Electric City - Nonmajor 101 Electric sales tax paid by City
Electric City -Sewer 357 City share of project costs
Electric City -Garbage 2,260 City share of project costs
Total Electric fun d receivable from City 9,881
Water City -Capital projects fund 128,850 TIF 22 Water Access Charge
Total receivable from City $ 138.731
City -General fund Electric $ 49,417 Shared building maint. costs
City -multiple funds Electric 50,820 December transfer of 3%of revenue
City -General fund Electric 46,410 Electric share of insurance
City -General fund Electric 9,060 Electric share of vehicle main[.
City -Sewer Electric 118,231 Billed sewer on behalf of City
City -Garbage Electric 108,600 Billed garbage on behalf of City
Total Electric fund payable to City 382,538
City -General fund Water 12,354 Shared building main[. costs
City -General fund Water 996 Water share of insurance
Total Water fund payable to City 13,350
Total payable [o City $ 395.888
46
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Interfund transfers completed in 201 I are detailed as follows:
Transfers:
Electric
Water
Transfer from Transfer to
Other Other
City Funds City Funds
$ - $ 711,415
312,823 25,000
Total transfers out
$ 312,823 $ 736.415
The transfer out of the Electric fund was the annual transfer of 3 percent of 2011 revenues [o City funds. The
transfer out of the Water fund was for its share of bonding. The transfer in to the Water fund was for water main
reimbursement from City Trunk Fees.
Interfund transfers completed in 2010 are detailed as follows
Transfer from Transfer to
Other Other
Transfers: City Funds City Funds
Electric $ 53,741 $ 585,141
Water 17,914 20,000
Total transfers out $ 71,655 $ 605,141
The transfer out of the Electric fund was the annual transfer of 3 percent of 2010 revenues to City funds. The
transfer out of the Water fund was for its share of bonding. The transfers into the Electric and Water funds were for
bond payments related to the refunding of the 20026 bonds.
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE
A. Plan description
All full-time and certain part-time employees of the Utilities are covered by defined benefit plans administered by
the Public Employees Retirement Association of Minnesota (PERA). PERA administers the General Employees
Retirement Fund (GERF), which is acost-sharing, multiple-employer retirement plan. This plan is established and
administered in accordance with Minnesota statutes, chapters 353 and 356.
GERF members belong to either the Coordinated Plan or [he Basic Plan. Coordinated Plan members are covered by
Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan.
PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of
eligible members. Benefits are established by Minnesota statute, and vest after three years of credited service. The
defined retirement benefits are based on a member's highest average salary for any five successive years of
allowable service, age and years of credit at termination of service.
47
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED
Two methods are used [o compute benefits for PERA's Coordinated and Basic Plan members. The retiring member
receives the higher of step-rate benefit accrual formula (Method I) or a level accrual formula (Method 2). Under
Method I, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10
years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is
1.2 percent of average salary for each of [he firs[ 10 years and 1.7 percent for each remaining year. Under Method 2,
the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated
Plan members for each year of service. For all GERF members hired prior to July 1, 1989 whose annuity is
calculated using Method 1, a full annuity is available when age plus years of service equal 90. Normal retirement
age is 65 for Basic and Coordinated members hired prior to July 1, 1989. Normal retirement age is [he age for
unreduced Social Security benefits capped a[ 66 for Coordinated members hired on or after July I, 1989. A reduced
retirement annuity is also available to eligible members seeking early retirement.
There are different types of annuities available to members upon retirement. Asingle-life annuity is a lifetime
annuity that ceases upon death of the retiree--no survivor annuity is payable. There are also various types ofjoint
and survivor annuity options available which will be payable overjoint lives. Members may also leave their
contributions in [he fund upon termination of public service, in order to qualify for a deferred annuity at retirement
age. Refunds of contributions are available at any time to members who leave public service, but before retirement
benefits begin.
The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active
plan participants. Vested, terminated employees who are entitled to benefits but are no[ receiving them ye[, are
bound by the provisions in effect at the time they last terminated their public service.
PERA issues a publicly available financial report that includes financial statements and required supplementary
information for GERF. That report may be obtained on the Interne[ a[ www.mnpera.org, by writing to PERA, 60
Empire Drive #200, St. Paul, Minnesota, 55103-2088 or by calling (651) 296-7460 or I-800-652-9026.
B. Funding policy
Minnesota statutes, chapter 353 sets the rates for employer and employee contributions. These statutes are
established and amended by the State legislature. The Utilities makes annual contributions to the pension plans equal
to the amount required by Minnesota statutes. GERF Basic Plan members and Coordinated Plan members were
required to contribute 9.1 percent and 6.2 percent, respectively, of [heir annual covered salary in 2011. In 201 I, the
Utilities was required to contribute the following percentages of annual covered payroll: 11.78 percent for Basic
Plan GERF members and 7.25 percent for Coordinated Plan GERF members. The Utilities' contributions to [he
General Employees Retirement Fund for the years ending December 31, 2011, 2010 and 2009 were $160,459,
$153,634, and $144,641, respectively. The Utilities' contributions were equal to the contractually required
contributions for each year as set by Minnesota statute.
48
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 I AND 2010
Note 4: OTHER INFORMATION
A. Territorial acquisition agreement
In 1991, the Utilities entered into a 20 year agreement [o transfer ownership of electric plant and electric service to
customers in certain areas receiving electric service from Anoka Electric Cooperative, Inc. (AEC).
The agreed cost of property purchased from AEC is net book value. The Utilities also pays AEC for loss of revenue
for each area acquired based on a formula outlined in [he 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 of [en years from the date of sale of each individual area.
During 2010, the Utilities paid $102,555 for the final purchase under this agreement. The Utilities also paid $8, 114
and $8,107 in 201 I and 2010, 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; [heft 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 fur 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 [hat a loss has occurred and [he amount of [he 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 no[ reported claims.
C. Commitments
• The Utilities has received notice from their power supplier regarding [he existing all requirements power
contract exercising their right to give ten years notice to cancel the contract. The cancellation date would be
effective September 3Q, 2018. The process has begun to renegotiate the existing contract, or contract with
another power supplier.
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 M W, between
Brookings, South Dakota, and the Southeast Twin Cities. In 201 I there was increased opportunity for
investment, and subsequent agreements provide [he Utilities with an ownership share of $5.6 million or
18.89%. The return on this investment through CMMPA is designed to provide approximately $124,000
annually over the 40 year project life. The interim financing of the CapX-Brookings project was closed
February 2012 and [he principal amount of this note will be paid off with [he permanent financing,
currently scheduled for late April/early May 2012.
49
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION
Plan Description. Elk River Municipal Utilities (the Utilities) administers amulti-employer defined benefit healthcare
plan ("the Retiree Health Plan"). The plan provides lifetime healthcare insurance for eligible retirees and their spouses
through the Utilities group health insurance plan, which covers both active and retired members. Benefit provisions are
reviewed intermittently through the relationship with the Utilities' insurance broker. The Retiree Health Plan does not
issue a publicly available financial report.
Funding Policy. Contribution requirements also are reviewed at the time changes are made to the plan. The Utility
contributes none of the cost of current-year premiums for eligible retired plan members and their spouses. For fiscal year
2011, [he Utility contributed $0 to the plan. Plan members receiving benefits contribute 100 percent of their premium
costs. In fiscal year 2011, total member contributions were $0.
Annua[ OPEB Cost and Net OPEB Obligation. The Utilities' annual other pos[employment benefit (OPEB) cost
(expense) is calculated based on the annual required contribution of the employer (ARC). The Utility has elected to
calculate the ARC and related information using the alternative measurement method permitted by GASB Statement 45
for employers in plans with fewer than one hundred total plan members. The ARC represents a level of funding that, if
paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities
(or funding excess) over a period not to exceed thirty years. The following table shows the components of the Utilities
annual OPEB cost for the year, the amount actually contributed to [he plan, and changes in the Utilities' net OPEB
obligation to the Retiree Health Plan:
Annual required contribution $ 6,199
Interest on net OPEB obligation 1,204
Adjustment to annual required contribution (1,740)
Annual OPEB Cost (expense) 5,663
Contributions made
Increase in net OPEB obligation 5,663
Net OPEB obligation- beginning of year 30,096
Net OPEB obligation- end of year $ 35,759
50
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 37, 201 I ANU 2010
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION -CONTINUED
The Utilities' annual OPEB cost, the percentage of annual OPEB cost contributed [o the plan, and the net OPEB
obligation for December 31, 201 I and the preceding two fiscal years was as follows:
Three Year Trend Information
Percentage
Year Annual Annual OPEB Net OPEB
Ending OPEB Cost Contributed Obligation
12/31/2011
12/31/2010
12/31/2009
5,663 - % $ 35,759
9,853 - % 30,096
IQ030 - % 20,243
h'unded Status and P~unding Pragress. As of December 31, 2011, the actuarial accrued liability for benefits was $42,681,
all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was
$2,286,547 and the ratio of the unfunded actuarial accrued liability to the covered payroll was 1.87 percent.
The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and
assumptions about the probability of occurrence of events far into [he future. Examples include assumptions about future
employment, mortality, and [he healthcare cost trend. Amounts determined regarding the funded status of [he plan and
the annual required contributions of [he employer are subject to continual revision as actual results are compared with
past expectations and new estimates are made about the future. The schedule of funding progress, presented as required
supplementary information following [he notes to the financial statements, presents multi-year trend infonna[ion about
whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities
for benefits.
Methads and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the
plan as understood by the employer and plan members) and include [he types of benefits provided at the time of each
valuation and [he historical pattern of sharing of benefit costs between the employer and plan members to that point. The
methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in
actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
The following simplifying assumptions were made
Retirement age jor active emp/oyees -Based on the historical average retirement age for the covered group, active plan
members were assumed [o retire at age 62, or at the first subsequent year in which the member would qualify for
benefits.
Participation Ra[e - It is assumed that 10 percent of active participants continue coverage until age 65. Participants are
assumed to continue in their current coverage type (single or family). It is assumed that 100 percent of retirees will
continue [heir current coverage until age 65.
Life L:xpectancy -Life expectancies were based on mortality tables from the National Center for Health Statistics. The
2000 United States Life Tables for Males and for Females were used.
Tw~nover -Non-group-specific age-based turnover data from GASB Statement 45 were used as [he basis for assigning
active members a probability ofremaining employed until the assumed retirement age and for developing an expected
future working lifetime assumption for purposes of allocating to periods [he present value of total benefits to be paid.
Healthcare cost trend rate -The expected rate of increase in healthcare insurance premiums was based on projections of
the Office of the Actuary at the Centers for Medicare & Medicaid Services. A rate of 8.5 percent initially, reduced to an
ultimate rate of 5.0 percent after seven years, was used.
Sl
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION -CONTINUED
i/ealth insurance premiums - 201 I health insurance premiums for retirees were used per the valuation report
Withdrawal -The probability that an employee will remain employed until the assumed retirement age was determined
using non-group specific age-based turnover data provided in Table 1 in Paragraph 35b of GASB 45.
Disability -None
Actuarial Method -Projected Unit Credit with 30-year amortization of the unfunded liability.
Valuation date -January 1, 201 I
Based on [he historical and expected returns of the Utilities' short-term investment portfolio, a discount rate of 4.0
percent was used. In addition, a simplified version of the entry age actuarial cost method was used. The unfunded
actuarial accrued liability is being amortized as a level dollar amount over an open basis. The remaining amortization
period at December 31, 201 I was thirty years.
52
REQUIRED SUPPLEMENTARY
INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 201 I
53
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INTENTIONALLY
54
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
REQUIRED SUPPLEMENTARY INFORMATION
DECEMBER 31, 2011 AND 2010
Schedule of Funding Progress for th e Retiree Health Plan
Unfunded
Actuarial UAAL as a
Actuarial Actuarial Actuarial Accrued Percentage
Valuation Value of Accrued Liability Funded Covered of Covered
Date Assets Liability (UAAL) Ratio Payroll Payroll
12/31/2008 $ - $ 56,892 $ 56,892 - % $ 2,300,000 2.47
12/31/2011 $ - $ 42,681 $ 42,681 - % $ 2,286,547 1.87
55
THIS PAGE IS LEFT BLANK
INTENTIONALLY
56
SUPPLEMENTAL INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 201 I
57
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULES OF OPERATING REVENUES AND EXPENSES
YEARS ENDED DECEMBER 31, 201 I AND 2010
OPERATING REVENUES
Charges for services
Elk River
Otsego
Big Lake
Dayton
Security systems
LFG Project
Generation credit
Connection Maintenance
Customer penalties
Electric
2011 2010
$ 24,264,576
2, 110,083
290,588
220,693
256,432
1,008,401
140,609
35,564
257,040
TOTAL OPERATING REVENUES
OPERATING EXPENSES
Purchased power
Production
Supervision and labor
Natural gas
Supplies and power for pumping
Landfill gas expense
Maintenance of structures
Maintenance of equipment
Maintenance of plain
Total
Transmission and distribution
Supervision and labor
Maintenance of overhead lines
Maintenance of underground lines
Maintenance of station equipment
Transportation
Maintenance of customer service
Maintenance of customer meters
Miscellaneous
Total
Services to City
Depreciation
Customer accounts expense
Meter reading
Billing and collection
Bad debts
Total
$ 22,388,262
2,152,770
286,163
229,765
256,647
1,003,341
173,534
64,761
237,319
28,583,986 26,792,562
19,604,951 18,373,386
70,181 66,386
34,084 27,573
59,674 58,459
675,504 718,966
20,467 17,125
15,421 12,931
10,249 18,198
885,580 919,638
32,272 29,667
224,978 228,839
151,344 126,806
60,874 34,488
158,763 121,467
7,605 7,515
85,829 78,255
353,497 345,537
1,075,162 972,574
474,934 434,415
2,041,717 2,062,942
19,208
118,165
30,312
59,289
98,054
100,945
167,685
258,288
58
W ater Total
2011 2010 2011 2010
$ 1,796,086 $ 1,876,363 $ 26,060,662 $ 24,264,625
- - 2, 110,083 2, 152,770
- - 290,588 286,163
- - 220,693 229,765
- - 256,432 256,647
- - 1,008,401 1,003,341
- - 140,609 173,534
$ 17,886 17,575 53,450 82,336
18,845 19,723 275,885 257,042
1,832,817 1,913,661 30,416,803 28,706,223
19,604,951 18,373,386
9,014 8,368 79,195 74,754
- - 34,084 27,573
266,654 270,279 326,328 328,738
- - 675,504 718,966
9,422 7,975 29,889 25,100
84,989 60,338 100,410 73,269
- - 10,249 18,198
370,079 346,960 1,255,659 1,266,598
9,988 14,979 42,260 44,646
- - 224,978 228,839
- - 151,344 126,806
- - 60,874 34,488
9,333 11,064 168,096 132,531
68,277 65,573 75,882 73,088
46,337 59,879 132,166 138,134
278 - 353,775 345,537
134,213 151,495 1,209,375 1,124,069
- - 474,934 434,415
980,197 955,323 3,021,914 3,018,265
7,088 17,597 26,296 76,886
32,478 27,408 150,643 125,462
301 1,679 30,613 102,624
39,867 46,684 207,552 304,972
59
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULES OF OPERATING REVENUE AND EXPENSES -CONTINUED
YEARS ENDED DECEMBER 31, 201 I AND 2010
2011
OPERATING EXPENSES-CONTINUED
General and administrative
Salaries
Employee pensions and benefits
Dues
Office supplies and billing expense
Office utilities and maintenance
Consulting fees
Legal and audit
Environmental compliance
Conservation improvement project
Insurance
Telephone
Advertising
Education and meetings
Miscellaneous
To[aI
TOTAL OPERATING EXPENSES
OPERATING INCOME (LOSS)
NONOPERATING REVENUES (EXPENSES)
Interest income
Miscellaneous revenue
Interest expense
Amortization of deferred charges
Loss on sale of capital assets
TOTAL NONOPERATING
REVENUES (EXPENSES)
INCOME BEFORE CONTRIBUTIONS AND TRANSFERS
CONTRIBUTIONS FROM DEVELOPERS-INFRASTUCTURE CONNECTION FEES
TRANSFERS FROM OTHER CITY FUNDS
TRANSFERS TO OTHER CITY FUNDS
CHANGE IN NET ASSETS
NET ASSETS, JANUARY I
NET ASSETS, DECEMBER 31
Electric
$ 425,788 $ 423,735
996,116 994,747
206,735 108,900
72,475 57,840
18,779 17,982
3,200 1,345
57,591 61,947
25,205 24,130
97,070 167,583
142,017 137,683
18,275 17,230
1,982 4,800
101,266 116,706
- _ 16,522 6,320
2,183,021 2,140,948
26,433,050 25,162,191
2, 150,936 I ,630,371
113,983 89,948
73,712 48,421
(259,416) (272,897)
(8,634) (8,819)
(37,158) (11,609)
(117,513) (154,956)
2,033,423 1,475,415
- 53,741
(711,415) (657,086)
1,322,008 872,070
26,394,097 25,522,027
$ 27.716,105 $ 26,394,097
60
Wa[er
2011 2010
'Total
2011 2010
$ 104,959 $ 106,261 $ 530,747 $ 529,996
213,617 206,706 1,209,733 1,201,453
30,662 30,869 237,397 139,769
23,164 25,574 95,639 83,414
5,875 5,954 24,654 23,936
10,278 967 13,478 2,312
10,515 13,569 68,106 75,516
- - 25,205 24,130
5,221 3,611 102,291 171,194
19,874 23,673 161,891 161,356
4,569 4,299 22,844 21,529
991 415 2,973 5,215
19,705 13,948 120,971 130,654
14,973 8,751 31,495 15,071
464,403 444,597 2,647,424 2,585,545
1,988,759 1,945,059 28,421,809 27,107,250
(155,942) (31,398) 1,994,994 1,595,973
28,551 31,798 142,534 121,746
84,567 48,099 158,279 96,520
(120,559) (143,361) (379,975) (416,255)
(11,492) (12,132) (20,126) (20,951)
- - (37,158) (11,609)
(18,933) (75,596) (136,446) (230,552)
(174,875) (106,994) 1,858,548 1,368,421
195,853 460,534 195,853 460,534
312,823 17,914 312,823 71,655
(25,000) (25,000) (736,A15) (682,086)
308,801 346,454 1,630,809 1,218,524
21,188,987 20,842,533 47,583,084 46,364,560
$ 21,497,788 $ 21,188.987 $ 49213,893 $ 47,583,084
61
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTALINFORMA'FION
ELECTRIC FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31, 2003 "fHROIJGH DECEMBER 31, 2011
SUMMARY OF OPERATIONS
2003 2004
OPERATING REVENUES
Sales ot'electricity $ 12,697,258 $ 13,775,332
Other operating revenues 299,695 268,140
TOTAL OPERATING REVENUES 12,996,953 14,043,472
OPERATING EXPENSES
Purchased power 7,786,921 8,563,298
Distribution 829,051 1,390,414
Services to the City 265,234 294,698
Depreciation 1,067,063 1,427,091
Other operating expenses 1,915,081 1,567,309
TOTAL OPERATING EXPENSES 11,863,350 13,242,810
OPERATING INCOME 1,133,603 800,662
TRANSFERS FROM OTHER CITY FUNDS _
TRANSFERS "FO OTHER CITY FUNDS (317,918) (340,564)
NONOPERATING REVENUES 766,285 651,934
NET INCOME _ $ 1581970 $ LI !2,032
PERCENT OF CHANGE
Sales of electricity 17.750% 8.491%
Purchased power 13.684% 9.970%
PERCENT OF REVENUES
Purchased power 59.913% 60.977%
UNAUDITED STATISTICS
MISCELLANEOUS
2003 2004
K Wh's purchased 170,092,937 176,730,416
KWh's sold 161,852,054 165,595,414
Line loss 8,240,883 11,135,002
Percent of line loss 4.845% 6.301%
REVENUESPF,RKWhSOLD $ 0.0784 $ 0.0832
COST PER KWh PURCHASED $ 0.0458 $ 0.0485
NUMBER OP CUSTOMERS 7,376 7,907
TOTAL. CONTRIBU"PION/TRANSFERS "FO CITY $ 583,152 $ 340,564
62
2005 2006 2007 2008 2009 2010 2011
$ 15276,987 $ 16,495,049 $ 19,164,797 $ 22303,994 $ 23,591,485 $ 26,060.301 $ 27,894,341
444,579 482,668 501,746 637,909 636258 732261 689,645
15,721,566 16.977,717 19,666.543 22941,903 24227,743 26,792,562 28,583.986
9.625,5 19 10, 101,458 12,176,034 14,778270 16,161,444 18373,386 19,604,951
1.528,057 1,942.577 1,829,971 2,162.797 1,937,096 1,892,212 1,960,742
331.644 328,148 358,029 409,222 428,508 434,415 474,934
1,553,663 1,561,096 1,920,798 2,057,851 2,126J94 2A62,942 2,041,717
1,731317 1,936,275 1,977,973 2,196,770 2,272,917 2,399,236 2350,706
14.770200 15,869,554 18,262,805 21,604,910 22,926.759 25,162,191 26,433,050
951366 I , 108,163 1,403,738 1336.993 1300,984 1,630,371 2,150,936
_ _ _ _ 53.741 -
(388,927) (420.000) (483,000) (540,636) (585,141) (657,086) (711,415)
700,592 887,803 710.858 249,022 (146,352) (154,956) (117,513)
031
$ 1263 $ 1
575
966 $ L631,596 $ 1,045379 $ 569.491 $ 872,070 $ 1322,008
. .
,
10.901°/n 7.973% 16J 85°/n 16380% 5.772% 10.465% 7.038%
12A04% 4.945% 20.537% 21372% 9360°/n 13.687% 6.703%
61225% 59.498% 61.912% 64.416% 66.706% 68.576% 68.587%
2005 2006 2007 2008 2009 2010 2011
193.700,298 205,645,631 225,973.086 241,837.173 247,595,137 264,642,834 276,026,892
182,515.644 194,975,530 211.298,886 224226.048 232.772,722 250,711,834 261235,297
I I, 184,654 10,670,101 14,674,200 17,61 1,125 14.822,415 13,931,000 14,791,595
5.774% 5.189"/0 6.494% 7282°/u 5.987% 5.264% 5359%
$ 0.0837 $ 0.0846 $ 0.0907 $ 0.0995 $ 0.1013 $ 0.1039 $ 0.1068
$ 0.0497 $ 0.0491 $ 0.0539 $ 0.0611 $ OA653 $ 0.0694 $ 0.0710
8306 8,562 8,945 9,203 9,170 9,207 9,227
$ 388.927 $ 420,000 $ 483,000 $ 540,636 $ 585.141 $ 657,086 $ 711,415
63
ELK RIVER MUNICIPAL U"I7LITIRS
ELK RIVER, MINNESOTA
SUPPLEMF,NTAL INFORMATION
WATER FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR TH F, YEARS ENDED DECEMBER 31, 2003 THROUGH DF.CEMBF.R 31, 2011
SUMMARY OF OPERATIONS
2003 2004
OPERATING REVENUES
Sales of water $ 1,047,561 $ 1.167,955
OPERATING EXPENSES
Operating expenses less depreciation
Depreciation
TOTAL OPERATING EXPENSES
TOTAL OPERATING MCOME Q.OSS)
PERCENT OF CHANGE
Sales of water
849,677 806,831
585,354 720,044
1,435,03 I 1,526,875
(387,470) $ (358,9201
25.52% 11.49%
UNAUDITED STATISTICS
MISCELLANEOUS
WATER PUMPED (gallons)
WATER SOLD (gallons)
Percent of line loss
Revenues per 1,000 gallons pumped
Revenues per 1,000 gallons sold
Number of customers
2003 2004
706,804,000 651,000,000
634,994,000 642,019,000
10.76% 1.38%
$ 1.47 $ 1.78
$ 1.65 $ 1.82
3,513 3,824
UNUSUAL LINE LOSS
Gallons
Flushing hydrants
Back washing
Fire department use
New water main disinfectant and flushing
Flushing seasonal well
Meter inaccuracy
Eastern end maintenance
Water tower paint and clean
Frozen pipes bursting in abandoned homes
2003 2004
11,500, 000 I I ,500,000
8,880,000 8,900,000
5,000,000 4,000,000
5,000,000 4,000,000
4,000,000
15,000,000
Unusual line loss
49 380,000 28,400.000
64
2005 2006 2007 2008 2009 2010 2011
$ 1,347,542 $ 1,749.932 $ 2J 13.166 $ 2,130.124 $ 2,206.429 $ 1,913,661 $ 1,832,817
1,038.035 1,069,988 1,191,346 1,185,413 1,102,437 989,736 1,008.562
790.454 790.451 921.450 974.848 956,993 955,323 980.197
1,828,489 1.860,439 2,112,796 2.160,261 2,059430 1,945,059 1,988,759
~ 1480.9471 ~ (110,5071 $ 370 $ (30.1371 ~ 146.999 $ (31.398) $ (155.942)
15.38% 29.86% 20.76% 0.80% 3.58% (1327%) (422%)
2005 2006 2007 2008 2009 2010 2011
705.746,000 812,560,000 873,742,000 854,133.000 782,951,000 686,289,000 651.907,000
632256,000 726J 69,000 783,948.000 727A29,000 708286,000 627,209,000 599,701,000
10.41% 10.63% 10.28% 14.88% 9.54% 8.61% 8.01%
$ 1.90 $ 2.14 $ 2.41 $ 2.48 $ 2.81 $ 2.79 $ 2.81
$ 2.13 $ 2.41 $ 2.70 $ 2.93 $ 3.12 $ 3.05 $ 3.06
4.074 4,317 4,413 4,508 4,467 4,511 4,515
Gal Ions'
2005 2006 2007 2008 2009 2010 2011
25,000,000 25,000,000 27,000.000 30,000.000 33,000,000 35,000A00 34.000.000
8,400,000 9,000.000 8,400,000 8,400,000 8.400.000 9,000,000 8,000,000
1,000,000 1,000,000 1,000.000 5.000,000 1,000,000 3.000,000 4,000,000
5,000,000 6,500,000 1,000.000 2,000,000 2,000,000 3.000,000 4,000,000
_ _ _ _ _ 4.000.000 -
3,100.000 3.000.000 - - 1,300,000 - -
_ _ _ _ _ - 2.000.000
25,000,000 27,000,000 x,000,000 -
42,500.000 44.500.000 37.400.000 70,400.000 72,700,000 59.000.000 52,000,000
65
TH[S PAGE IS LEFT BLANK
INTENTIONALLY
66
OTHER REQUIRED REPORTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2011
67
THIS PAGE IS LEFT BLANK
INTENTIONALLY
6a
~' ~ABDO
w,t;EICK&
®I ~, _ lY1L 1 1~1 W LLP
G!rtifisd RrhLic Accnuntanty ti Cmuultnntc
5201 h:dcn Accnuc
Suite 250
Gdinn, MN 5513(+
REPORT ON MINNESOTA LEGAL COMPLIANCE
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited the financial statements of the Elk River Municipal Utilities (the Utilities) as of and for the years ended
December 31, 201 I and 2010, and have issued our report [hereon dated April 24, 2012.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the provisions
of the Minnesota Legal Compliance Audit Guide for Loca/Government, promulgated by the Minnesota Office of the State Auditor
pursuant to Minnesota statute, section 6.65. Accordingly, the audit included such tests of the accounting records and such other
auditing procedures, as we considered necessary in [he circumstances.
The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of compliance to be tested:
contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous
provisions, and tax increment financing. Our study included all of the listed categories.
The results of our tests indicate that for the items tested, the Utilities complied with the material terms and conditions of applicable
legal provisions.
This report is intended solely for the information and use of the Public Utilities Commission, City Council, management and the
Office of the State Auditor and is not intended to be and should not be used by anyone other than these specified parties.
April 24, 2012
Minneapolis, Minnesota
912.633.9090 Fnx 932. a:4.5.:SYGI
www.armrpes.rum
G9
~, L.GIC ~ MGM, LAP
ABDQ, EICK & MEYERS, LLP
Certified Public Accoumm~rs
ELK RNER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
MANAGEMENT LETTER
FOR THE YEAR ENDED
DECEMBER 31, 2011
~Do
SICK &
llil,7Ld,i~
(.'vrli/ire) Pu~dir~ I~'rouir(n~i6a & l,bn.~~dlnn~.a
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
MANAGEMENT LETTER
FOR THE YEAR ENDED
DECEMBER 31, 201 ]
r •~ y ~~RS LLP
Certtfied PuGlic Accountmits & Consultaits
Apri124, 2012
5201 F.den Avenue
Spite 250
8dina, MN 55436
Management and Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited the statements of net assets of the Elk River Municipal Utilities (the Utilities) of the City of Elk River, Minnesota,
(the City) for years ended December 31, 2011 and 2010, and the related statements of revenues, expenses and changes in net assets and
cash flows for the years [hen ended and have issued our report thereon April 24, 2012. Professional standards require that we provide
you with [he following information related to our audits.
Our Responsibility Under Auditing Standards Generally Accepted in the United States
As stated in our engagement letter, our responsibility, as described by professional standazds, is to express an opinion about whether
the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with
accounting principles generally accepted in the United States. Our audit of the financial statements does not relieve you or
management of your responsibilities.
Our responsibility is to plan and perform the audit to obtain reasonable, but no[ absolute, assurance that the financial statements are
free of material misstatement. As part of our audit, we considered [he intemal control over financial reporting of the Utilities. Such
considerations were solely for the purpose of determining our audit procedures and no[ to provide any assurance concerning such
internal control. We are responsible for communicating significant matters related to the audit [hat are, in our professional judgment,
relevant [o your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures
specifically [o identify such matters.
Significant Audi[ Findings
A deficiency in intemal control exists when the design or operation of a control does not allow management or employees, in [he
normal course of performing their assigned functions, [o prevent, or detect and correct misstatements on a timely basis. A material
weakness is a deficiency, or combination of deficiencies, in intemal control such that there is a reasonable possibility that a material
misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was
not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material
weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been
identified. We did not identify any deficiencies in intemal control over financial reporting that we consider to be material weaknesses,
as defined above.
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Elk River Municipal Utilities
Apri124, 2012
Page 2
Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests
of compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was no[ an objective of our audit. The results of our tests disclosed no instances of noncompliance or other matters [hat are
required to be reported under statutes set forth by the State of Minnesota.
Planned Scope and Timing of the Audit
We performed [he audit according [o the planned scope and timing.
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by
the Utilities are described in No[e 1 to the financial statements. No new accounting policies were adopted and the application of
existing policies was not changed during [he year. We noted no transactions entered into by the governmental unit during [he year for
which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial
statements in [he proper period.
Accounting estimates are an integral part of [he financial statements prepared by management and are based on management's
knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are
particularly sensitive because of [heir significance to the financial statements and because of the possibility [hat future events affecting
them may differ significantly from those expected. The most sensitive estimates affecting [he financial statements were capital asset
basis, depreciation, compensated absences and other postemployment benefits.
We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it is reasonable in
relation to the financial statements taken as a whole.
The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly
sensitive because of their significance [o financial statement users.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than [hose [hat are
trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition,
none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in
[he aggregate, to each opinion unit's financial statements taken as a whole.
952.835.9090 Faz 952.835 3261
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Elk River Municipal Utilities
April 24, 2012
Page 3
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or
auditing matter, whether or no[ resolved to our satisfaction, that could be significant to the financial statements or the auditor's report.
We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated
April 24, 2012.
Management Consultations with Other Independent Accountants
In some cases, management may decide [o consult with other accountants about auditing and accounting matters, similar to obtaining a
"second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's
financial statements or a determination of the Type of auditor's opinion that maybe expressed on those statements, our professional
standards require the consulting accountant to check with us to determine [hat the consultant has all the relevant facts. To our
knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management
each year prior to retention as the Utilities' auditors. However, these discussions occurced in the normal course of our professional
relationship and our responses were not a condition to our retention.
952.835.9090 Fax 952.835.3261
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Elk River Municipal Utilities
April 24, 2012
Page 4
Electric Fund
The results of the Electric fiend are as follows:
Electric Operati®ns Summary
2009 2010 2011
Total Percent Total Percent Total Percent
Operating revenues $ 24,227,743 100 % $ 26,792,562 100 % $ 28,583,986 100
Operating expenses 22,926,759 95 25,162,191 94 26,433,050 92
Operating income 1,300,984 5 1,630,371 6 2,150,936 8
Nonoperatingexpenses (146,352) (1) (154,956) (1) (117,513) -
Income before
contributions and transfers 1,154,632 4 1,475,415 5 2,033,423 8
Transfers from City - - 53,741 - - -
Transfers to City (585,141) (2) (657,086) (2) (711,415) (2)
Change in net assets $ 569,491 2 % $ 872,070 3 % $ 1,322,008 6
Cash and
temporary investments $ 5,366,820 $ 6,587,017 $ 8,380,396
Restricted cash $ 724,500 $ 724,500 $ 724,500
952.835.9090 Fax 952.835.3261
www.aemcpas.cmn
Elk River Municipal Utilities
April 24, 2012
Page 5
The following table gives an indication of the sources and uses of cash for the past five years:
Cash Provided (Used) By
Year Beginning Operating Non-capital Capital Investing Ending Cash
2011 $ 7,311,517 $ 4,396,044 $ (711,518) $ (2,001,497) $ 110,350 $ 9,104,896
2010 6,091,320 3,596,829 (534,339) (1,957,215) 114,922 7,311,517
2009 4,633,052 4,001,073 (604,905) (2,027,224) 89,324 6,09],320
2008 3,539,677 4,394,357 (513,536) (2,933,272) 145,826 4,633,052
2007 2,041,306 4,083,884 (485,851) (2,238,249) 138,587 3,539,677
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$-
$(1,000,000)
$(2,000,000)
$(3,000,000)
$(4,000,000)
Cash Flow Summary 2007 - 2011
-------
2007 2008 2009 2010 2011
= Operating activities Non-capital financing activities
Capital financing activities •°-°Investing activities
The cash provided by operating activities has remained strong and was sufficient to cover the amount of capital and debt needs in
2011. The summary above highlights the significant amount of cash needed each year for the capital activities of the Utilities. The
operations have been able to finance the capital activities for the last five years. We recommend that the Utilities continue to closely
monitor future cash flow with the use of projections and the capital improvement plan. This will ensure that any permanent decline in
cash flow is addressed quickly.
952.835.9090 Fax 952,835.3261
www.aemepas.com
Elk River Municipal Utilities
April 24, 2012
Page 6
Water Fund
The results of the Water fund are as follows:
Water Operations Summary
2009 2010 2011
Total Percent Total Percent Total Percent
Operating revenues $ 2,206,429 100 % $ 1,913,661 100 % $ 1,832,817 100
Operating expenses 2,059,430 93 1,945,059 102 1,988,759 109
Operating income (loss) 146,999 7 (31,398) (2) (155,942) (9)
Nonoperating expenses (61,060) (3) (75,596) (4) (18,933) (1)
Income (loss) before
contributions and transfers 85,939 4 (106,994) (6) (174,875) (10)
Capital contributions -developer
infrastructure and connection fees - - 460,534 24 195,853 11
Transfers from City - - 17,914 1 312,823 17
Transfers to City (20,000) (1) (25,000) (1) (25,000) (1)
Change in net assets $ 65,939 3 % $ 346,454 18 % $ 308,801 17
Cash and investments $ 2,500,960 $ 2,793,142 $ 2,619,574
952.835.9090 Fax 952.835.3261
www.aemepas.com
Elk River Municipal Utilities
April 24, 2012
Page 6
Water Fund
The results of the Water fund are as follows:
Operating revenues
Operating expenses
Operating income (loss)
Nonoperating expenses
Income (loss) before
contributions and transfers
Capital contributions -developer
infrastructure and connection fees
Transfers from City
Transfers to City
Change in net assets
Cash and investments
Water Operations Summary
2009 2010 2011
Total Percent Total Percent Total Percent
$ 2,206,429 100 % $ 1,913,661 100 % $ 1,832,817 100
2,059,430 93 1,945,059 102 1,988,759 109
146,999 7 (31,398) (2) (155,942) (9)
(61,060) (3) (75,596) (4) (18,933) (1)
85,939 4 (106,994) (6) (174,875) (10)
- - 460,534 24 195,853 11
- - 17,914 1 312,823 17
(20,000) (1) (25,000) (1) (25,000) (1)
$ 65,939 3 % $ 346,454 18 % $ 308,801 17
$ 2,500,960 $ 2,793,142 $ 2,619,574
Bonds payable, net of premium
and deferred interest $ 4,605,000 *
* Net of $2,575,000 advance refunding of 2001A bonds.
$5,000,000
$4,500,000 -~------ - -- ------
$4,000,000 ~ -----_.-_..----- -. _----- ---
e
$ 4,092,899 $ 3,616,730
952.835.9090 Fax 952.835.3261
www.aemcpas.com