5.1. ERMUSR 05-14-2013 Elk River y.
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Theresa Slominski—Finance and Office
John Dietz, Chair Manager
Al Nadeau, Vice Chair
Daryl Thompson, Trustee
MEETING DATE: AGENDA ITEM NUMBER:
May 14, 2013 5.1
SUBJECT:
2012 Financial Audit
BACKGROUND:
Audit fieldwork was completed February 28th and March 1s`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 2012 audit and
answer questions you may have. A copy is enclosed for your review prior to the commission
meeting.
ACTION REQUESTED:
Accept 2012 Audit.
BRIPORIREI er
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Reliable Public
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
MANAGEMENT LETTER
FOR THE YEAR ENDED
DECEMBER 31, 2012
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i ABDO
EICK '&
4 5 _VIII 1 L' 1 W LLP
4 Certified Public Accountants & Consultants
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
MANAGEMENT LETTER
FOR THE YEAR ENDED
DECEMBER 31, 2012
•ABDO
IVY t; EICK &
®, oil. MEYERS LLP
Certified Public Accountants&Consultants May 6,2013
5201 Eden Avenue
Suite 250
Edina,MN 55436
Management and Public Utilities Commission
Elk River Municipal Utilities
Elk River,Minnesota
We have audited the financial statements of the business-type activities of the Elk River Municipal Utilities(the Utilities)of the City
of Elk River, Minnesota,(the City)for years ended December 31,2012 and 2011. Professional standards require that we provide you
with information about our responsibilities under generally accepted auditing standards as well as certain information related to the
planned scope and timing of our audit. We have communicated such information in our letter dated November 12,2012. Professional
standards require that we provide you with the following information related to our audit.
Our Responsibility Under Auditing Standards Generally Accepted in the United States
As stated in our engagement letter,our responsibility,as described by professional standards,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 not absolute, assurance that the financial statements are
free of material misstatement. As part of our audit,we considered the internal control over financial reporting of the Utilities. Such
considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such
internal control.We are responsible for communicating significant matters related to the audit that are, in our professional judgment,
relevant to your responsibilities in overseeing the financial reporting process. However,we are not required to design procedures
specifically to identify such matters.
Significant Audit Findings
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 have been identified.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the
normal course of performing their assigned functions,to prevent, or detect and correct misstatements on a timely basis. A material
weakness is a deficiency,or combination of deficiencies, in internal 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. We did not identify
any deficiencies in internal control over financial reporting that we consider to be material weaknesses,as defined above.
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 not an objective of our audit. The results of our tests disclosed no instances of noncompliance or other matters that are
required to be reported under statutes set forth by the State of Minnesota.
Planned Scope and Timing of the Audit
We performed the audit according to the planned scope and timing.
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Elk River Municipal Utilities
May 6,2013
Page 2
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 Note Ito the financial statements.The requirements of GASB statements No.63 and 65 were adopted for
the year ended December 31,2012.The application of existing policies was not changed during the year. We noted no transactions
entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. All significant
transactions have been recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the 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 their significance to the financial statements and because of the possibility that future events affecting
them may differ significantly from those expected. The most sensitive estimates affecting the 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 to 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 those that
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 the aggregate,to each opinion unit's financial statements taken as a whole.
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 not 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
May 6,2013.
Management Consultations with Other Independent Accountants
In some cases,management may decide to 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 may be expressed on those statements,our professional
standards require the consulting accountant to check with us to determine that 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 occurred in the normal course of our professional
relationship and our responses were not a condition to our retention.
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Elk River Municipal Utilities
May 6,2013
Page 3
ke
Electric Fund
The results of the Electric fund are as follows:
Electric Operations Summary
2010 2011 2012
Total Percent Total Percent Total Percent
Operating revenues $ 26,792,562 100 % $ 28,583,986 100 % $ 30,258,690 100 %
Operating expenses 25,162,191 94 26,433,050 92 27,350,312 90
Operating income 1,630,371 6 2,150,936 8 2,908,378 10
Nonoperating revenues
(expenses) (143,097) (1) (105,604) - 28,531 -
Income before transfers 1,487,274 5 2,045,332 8 2,936,909 10
Transfers from City 53,741 - - -
Transfers to City (657,086) (2) (711,415) (2) (816,864) (3)
Change in net position $ 883,929 3 % $ 1,333,917 6 % $ 2,120,045 7 %
Cash and
temporary investments $ 6,587,017 $ 8,380,396 $ 10,646,164
Restricted cash $ 724,500 $ 724,500 $ 724,500
Bonds and notes payable,
net of premium $ 9,376,915 $ 8,723,407 $ 7,974,066
$35,000,000 -
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
2010 2011 2012
•Operating revenues •Operating expenses « Cash •Bonds
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Page 4
11041P
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
2012 $ 9,104,896 $ 5,375,725 $ (732,737) $ (2,490,436) S 113,216 $ 11,370,664
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 6,091,320
2008 3,539,677 _ 4,394,357 (513,536) (2,933,272) 145,826 4,633,052
Cash Now Summary 2008 -2012
$6,000,000 -
$5,000,000
$4,000,000
$3,000,000
$2,000,000 •
$1,000,000
5- 1
$(1,000,000)
$(2,000,000) •
$(3,000,000)
$(4,000,000) -
2008 2009 2010 2011 2012
Operating Activities —M—Non-capital Financing Activities
—rte—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
2012.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.
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May 6,2013
Page 5
Water Fund
The results of the Water fund are as follows:
Water Operations Summary
2010 2011 2012
Total Percent Total Percent Total Percent
Operating revenues $ 1,913,661 100 % $ 1,832,817 100 % $ 2,265,142 100 %
Operating expenses 1,945,059 102 1,988,759 109 2,159,558 95
Operating income(loss) (31,398) (2) (155,942) (9) 105,584 5
Nonoperating revenues
(expenses) (62,705) (3) (6,622) - 3,353 -
Income(loss)before
contributions and transfers (94,103) (5) (162,564) (9) 108,937 5
Capital contributions-developer
infrastructure and connection fees 460,534 24 195,853 II 174,607 8
Capital contributions from other funds - - - - 218,845 10
Transfers from City 17,914 I 312,823 17 1,372 -
Transfers to City (25,000) (1) (25,000) (I) (40,828) (2)
Change in net position $ 359,345 18 % $ 321,112 I % $ 462,933 I I %
Cash and
temporary investments $ 2,793,142 $ 2,619,574 $ 3,254,530
Bonds payable,net of premium $ 4,112,950 $ 3,635,131 $ 3.143,313
$4,500,000 -
$4,000,000
$3,500,000
$3,000,000
$2,500,000
Illn52,000,000
51,500,000
$1,000,000
S500,000
•
S-
• .
2010 2011 2012
•Operating revenues •Operating expenses s Cash •Bonds
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Elk River Municipal Utilities
May 6,2013
Page 6
TAI L.
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
2012 $ 2,619,574 $ 1,131,011 $ 15,804 S (541,594) $ 29,735 $ 3,254,530
2011 2,793,142 967,916 260,852 (1,429,979) 27,643 2,619,574
2010 2,500,960 989,614 (8,546) (761,990) 73,104 2,793,142
2009 1,935,458 1,389,746 (23,168) (918,227) 117,151 2,500,960
2008 2,394,387 1,086,937 (17,068) (1,609,835) 81,037 1,935,458
Cash Flow Summary 2008 -2012
$2,000,000 -
$1,500,000
$1,000,000
$500,000
$- - I
$(500,000)
$(1,500,000)
$(1,500,000)
$(2,000,000) -
2008 2009 2010 2011 2012
—II—Operating Activities —S—Non-capital Financing Activities
—h—Capital Financing Activities '4 Investing Activities
The cash balance increased due to an increase of cash provided by operations and decreased capital activity. As mentioned in the
analysis of the Electric fund it is important to continue to monitor future cash need with the use of a projection and capital
improvement plan.
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��Jt•
Future Accounting Standard Changes
The following Governmental Accounting Standards Board(GASB) Statements have been issued and may have an impact on future
City financial statements.
GASB Statement No.61 -The Financial Reporting Entity: Omnibus an Amendment of GASH Statements No. 14 and No. 34
Summary
The objective of this Statement is to improve financial reporting for a governmental financial reporting entity. The requirements
of Statement No. 14 and the related financial reporting requirements of Statement No. 34,were amended to better meet user needs
and to address reporting entity issues that have arisen since the issuance of those Statements.
This Statement modifies certain requirements for inclusion of component units in the financial reporting entity. This Statement
also amends the criteria for reporting component units as if they were part of the primary government(that is,blending)in certain
circumstances.
This Statement clarifies the reporting of equity interests in legally separate organizations as well. It requires a primary
government to report its equity interest in a component unit as an asset.
The provisions of this Statement are effective for financial statements for periods beginning after June 15,2012. Earlier
application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement result in financial reporting entity financial statements being more relevant by improving
guidance for including,presenting,and disclosing information about component units and equity interest transactions of a
financial reporting entity.
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•
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May 6,2013
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Future Accounting Standard Changes-Continued
GASB Statement No.67- The Financial Reporting for Pension Plans-an Amendment to GASB Statement No. 25
Summary
The objective of this Statement is to improve financial reporting by state and local governmental pension plans. This Statement
results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions
with regard to providing decision-useful information,supporting assessments of accountability and interperiod equity,and
creating additional transparency.
This Statement replaces the requirements of Statements No. 25,Financial Reporting for Defined Benefit Pension Plans and Note
Disclosures for Defined Contribution Plans,and No. 50,Pension Disclosures,as they relate to pension plans that are
administered through trusts or equivalent arrangements(hereafter jointly referred to as trusts)that meet certain criteria.
The requirements of Statements No. 25 and No. 50 remain applicable to pension plans that are not administered through trusts
covered by the scope of this Statement and to defined contribution plans that provide postemployment benefits other than
pensions.
This Statement is effective for financial statements for fiscal years beginning after June 15,2013.Earlier application is
encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement will improve financial reporting primarily through enhanced note disclosures and schedules of
required supplementary information that will be presented by the pension plans that are within its scope. The new information
will enhance the decision-usefulness of the financial reports of these pension plans,their value for assessing accountability,and
their transparency by providing information about measures of net pension liabilities and explanations of how and why those
liabilities changed from year to year.The net pension liability information, including ratios,will offer an up-to-date indication of
the extent to which the total pension liability is covered by the fiduciary net position of the pension plan.The comparability of the
reported information for similar types of pension plans will be improved by the changes related to the attribution method used to
determine the total pension liability.The contribution schedule will provide measures to evaluate decisions related to the
assessment of contribution rates in comparison to actuarially determined rates,when such rates are determined. In that
circumstance,it also will provide information about whether employers and nonemployer contributing entities, if applicable, are
keeping pace with actuarially determined contribution measures. In addition,new information about rates of return on pension
plan investments will inform financial report users about the effects of market conditions on the pension plan's assets over time
and provide information for users to assess the relative success of the pension plan's investment strategy and the relative
contribution that investment earnings provide to the pension plan's ability to pay benefits to plan members when they come due.
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Future Accounting Standard Changes -Continued
GASB Statement No.68 - The Accounting and Financial Reporting of Pensions-an Amendment of GASB Statement No. 27
The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for
pensions. It also improves information provided by state and local governmental employers about financial support for pensions
that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of
accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of
accountability and interperiod equity,and creating additional transparency.
This Statement replaces the requirements of Statement No.27, Accounting for Pensions by State and Local Governmental
Employers,as well as the requirements of Statement No. 50,Pension Disclosures,as they relate to pensions that are provided
through pension plans administered as trusts or equivalent arrangements(hereafter jointly referred to as trusts)that meet certain
criteria.The requirements of Statements 27 and 50 remain applicable for pensions that are not covered by the scope of this
Statement.
This Statement is effective for fiscal years beginning after June 15,2014. Earlier application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement will improve the decision-usefulness of information in employer and governmental
nonemployer contributing entity financial reports and will enhance its value for assessing accountability and interperiod equity by
requiring recognition of the entire net pension liability and a more comprehensive measure of pension expense. Decision-
usefulness and accountability also will be enhanced through new note disclosures and required supplementary information.
* * * * *
This communication is intended solely for the information and use of the Public Utilities Commission, City Council, management,and
the Minnesota Office of the State Auditor and is not intended to be and should not be used by anyone other than these specified
parties.
The comments and recommendations in this report are purely constructive in nature, and should be read in this context. Our audit
would not necessarily disclose all weaknesses in the system because it was based on selected tests of accounting records and related
data.
If you have any questions or wish to discuss any of the items contained in this letter,please feel free to contact us at your convenience.
We wish to thank you for the opportunity to be of service and for the courtesy and cooperation extended to us by your staff
0146 fitk
May 6,2013 ABDO,EICK&MEYERS, LLP
Minneapolis,Minnesota Certified Public Accountants
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 6: CHANGE IN ACCOUNTING PRINCIPLE
During fiscal year 2012,the Utility implemented several new accounting pronouncements issued by the Government
Accounting Standards Board(GASB), including Statement No. 63, "Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources, and Net Position" and Statement No. 65,"Items Previously Reported as
Assets and Liabilities". These standards required a retroactive implementation which resulted in the restatement of
beginning balances in the December 31, 2012 financial statements. Changes related to these standards are reflected in
the financial statements and schedules and related disclosures are included in Note I.
As a result of the restatement of beginning balances,the following schedule reconciles the previously reported December
31,2010 balances to the December 31,2012 financial statements:
Net Position
December 31,2010 Net Position
as Previously January 1,2011
Fund Reported (1)Restatement as Restated
Enterprise
Electric $ 26,394,097 $ (114,775) $ 26,279,322
Water 21,188,987 (99,958) 21,089,029
Total $ 47,583,084 $ (214,733) $ 47,368,351
(I)Write-off of unamortized bond issuance cost balances at December 31,2010.
As a result of the restatement of beginning balances, the following schedule reconciles the previously reported December
31,2011 balances to the December 31, 2012 financial statements:
Net Position
December 31,2011 Net Position
as Previously January 1,2012
Fund Reported (2)Restatement as Restated
Enterprise
Electric $ 27,716,105 $ (102,866) $ 27,613,239
Water 21,497,789 (87,648) 21,410,141
Total $ 49,213,894 $ (190,514) $ 49,023,380
(2)Write-off of unamortized bond issuance cost balances at December 31,2011.
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REQUIRED SUPPLEMENTARY
INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2012
55
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
REQUIRED SUPPLEMENTARY INFORMATION
DECEMBER 31,2012 AND 2011
Schedule of Funding Progress for the 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
12/31/2011 $ - $ 42,681 $ 42,681 - % $ 2,286,547 1.87 %
12/31/2008 - 56,892 56,892 - 2,300,000 2.47
57
SUPPLEMENTAL INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2012
59
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULES OF OPERATING REVENUES AND EXPENSES
YEARS ENDED DECEMBER 31,2012 AND 2011
Electric
Restated
2012 2011
OPERATING REVENUES
Charges for services
Elk River $ 26,215,619 $ 24,264,576
Otsego 2,294,146 2,110,083
Big Lake 271,531 290,588
Dayton 234,942 220,693
Security systems 295,600 256,432
LFG Project 1,053,807 1,008,401
Generation credit (501,473) 140,609
Connection Maintenance 156,204 35,564
Customer penalties 238,314 257,040
TOTAL OPERATING REVENUES 30,258,690 28,583,986
OPERATING EXPENSES
Purchased power 20,499,773 19,604,951
Production
Supervision and labor 68,207 70,181
Natural gas 27,265 34,084
Supplies and power for pumping 62,884 59,674
Landfill gas expense 683,246 675,504
Maintenance of structures 19,550 20,467
Maintenance of equipment 14,067 15,421
Maintenance of plant 10,777 10,249
Total 885,996 885,580
Transmission and distribution
Supervision and labor 30,732 32,272
Maintenance of overhead lines 222,298 224,978
Maintenance of underground lines 173,775 151,344
Maintenance of station equipment 53,223 60,874
Transportation 95,273 158,763
Maintenance of customer service 6,459 7,605
Maintenance of customer meters 68,710 85,829
Miscellaneous 373,379 353,497
Total 1,023,849 1,075,162
Services to City 481,907 474,934
Depreciation 2,099,594 2,041,717
Customer accounts expense
Meter reading 15,971 19,208
Billing and collection 167,266 118,165
Bad debts 42,395 30,312
Total 225,632 167,685
60
Water Total
Restated Restated
2012 2011 2012 2011
$ 2,219,145 $ 1,796,086 S 28,434,764 $ 26,060,662
- - 2,294,146 2,110,083
- - 271,531 290,588
- - 234,942 220,693
- - 295,600 256,432
- - 1,053,807 1,008,401
- - (501,473) 140,609
25,387 17,886 181,591 53,450
20,610 18,845 258,924 275,885
2,265,142 1,832,817 32,523,832 30,416,803
- - 20,499,773 19,604,951
9,870 9,014 78,077 79,195
- - 27,265 34,084
292,104 266,654 354,988 326,328
- - 683,246 675,504
22,430 9,422 41,980 29,889
134,332 84,989 148,399 100,410
- - 10,777 10,249
458,736 370,079 1,344,732 1,255,659
15,908 9,988 46,640 42,260
- - 222,298 224,978
- - 173,775 151,344
- - 53,223 60,874
11,199 9,333 106,472 168,096
67,273 68,277 73,732 75,882
68,400 46,337 137,110 132,166
- 278 373,379 353,775
162,780 134,213 1,186,629 1,209,375
- - 481,907 474,934
1,028,593 980,197 3,128,187 3,021,914
6,225 7,088 22,196 26,296
41,974 32,478 209,240 150,643
186 301 42,581 30,613
48,385 39,867 274,017 207,552
61
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULES OF OPERATING REVENUE AND EXPENSES-CONTINUED
YEARS ENDED DECEMBER 31,2012 AND 2011
Electric
Restated
2012 2011
OPERATING EXPENSES-CONTINUED
General and administrative
Salaries $ 428,201 $ 425,788
Employee pensions and benefits 947,018 996,116
Dues 96,776 206,735
Office supplies and billing expense 72,277 72,475
Office utilities and maintenance 17,934 18,779
Consulting fees 5,771 3,200
Legal and audit 59,940 57,591
Environmental compliance 25,383 25,205
Conservation improvement project 143,111 97,070
Insurance 139,018 142,017
Telephone 18,767 18,275
Advertising 4,109 1,982
Education and meetings 145,613 101,266
Miscellaneous 29,643 16,522
Total 2,133,561 2,183,021
TOTAL OPERATING EXPENSES 27,350,312 26,433,050
OPERATING INCOME(LOSS) 2,908,378 2,150,936
NONOPERATING REVENUES(EXPENSES)
Interest income 117,753 113,983
Miscellaneous revenue 144,779 73,712
Interest expense (236,261) (256,141)
Gain(Loss)on sale of capital assets 2,260 (37,158)
TOTAL NONOPERATING
REVENUES(EXPENSES) 28,531 (105,604)
INCOME BEFORE CONTRIBUTIONS AND TRANSFERS 2,936,909 2,045,332
CONTRIBUTIONS FROM DEVELOPERS-INFRASTUCTURE CONNECTION FEES - -
CONTRIBUTIONS OF ASSET FROM CITY - -
TRANSFERS FROM OTHER CITY FUNDS - -
TRANSFERS TO OTHER CITY FUNDS (816,864) (711,415)
CHANGE IN NET POSITION 2,120,045 1,333,917
NET POSITION AS RESTATED,JANUARY 1 27,613,239 26,279,322
NET POSITION, DECEMBER 31 $ 29,733,284 $ 27,613,239
62
Water Total
Restated Restated
2012 2011 2012 2011
S 110,250 $ 104,959 $ 538,451 5 530,747
217,435 213,617 1,164,453 1,209,733
29,093 30,662 125,869 237,397
28,263 23,164 100,540 95,639
5,127 5,875 23,061 24,654
3,442 10,278 9,213 13,478
6,288 10,515 66,228 68,106
- - 25,383 25,205
4,645 5,221 147,756 102,291
18,343 19,874 157,361 161,891
4,703 4,569 23,470 22,844
3,230 991 7,339 2,973
16,883 19,705 162,496 120,971
13,362 14,973 43,005 31,495
461,064 464,403 2,594,625 2,647,424
2,159,558 1,988,759 29,509,870 28,421,809
105,584 (155,942) 3,013,962 1,994,994
30,870 28,551 148,623 142,534
78,739 84,567 223,518 158,279
(105,256) (119,740) (341,517) (375,881)
(1,000) - 1,260 (37,158)
3,353 (6,622) 31,884 (112,226)
108,937 (162,564) 3,045,846 1,882,768
174,607 195,853 174,607 195,853
218,845 - 218,845
1,372 312,823 1,372 312,823
(40,828) (25,000) (857,692) (736,415)
462,933 321,112 2,582,978 1,655,029
21,410,141 21,089,029 49,023,380 47,368,351
$ 21,873,074 $ 21,410,141 $ 51,606,358 $ 49,023,380
63
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
ELECTRIC FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31,2004 THROUGH DECEMBER 31,2012
SUMMARY OF OPERATIONS
2004 2005 2006
OPERATING REVENUES
Sales of electricity $ 13,775,332 $ 15,276,987 $ 16,495,049
Other operating revenues 268,140 444,579 482,668
TOTAL OPERATING REVENUES 14,043,472 15,721,566 16,977,717
OPERATING EXPENSES
Purchased power 8,563,298 9,625,519 10,101,458
Distribution 1,390,414 1,528,057 1,942,577
Services to the City 294,698 331,644 328,148
Depreciation 1,427,091 1,553,663 1,561,096
Other operating expenses 1,567,309 1,731,317 1,936,275
TOTAL OPERATING EXPENSES 13,242,810 14,770,200 15,869,554
OPERATING INCOME 800,662 951,366 1,108,163
TRANSFERS FROM OTHER CITY FUNDS - - -
TRANSFERS TO OTHER CITY FUNDS (340,564) (388,927) (420,000)
NONOPERATING REVENUES 651,934 700,592 887,803
NET INCOME $ 1,112,032 $ 1,263,031 $ 1,575,966
PERCENT OF CHANGE
Sales of electricity 8.491% 10.901% 7.973%
Purchased power 9.970% 12.404% 4.945%
PERCENT OF REVENUES
Purchased power 60.977% 61.225% 59.498%
UNAUDITED STATISTICS
MISCELLANEOUS
2004 2005 2006
KWh's purchased 176,730,416 193,700,298 205,645,631
KWh's sold 165,595,414 182,515,644 194,975,530
Line loss 11,135,002 11,184,654 10,670,101
Percent of line loss 6.301% 5.774% 5.189%
REVENUES PER KWh SOLD $ 0.0832 $ 0.0837 $ 0.0846
COST PER KWh PURCHASED $ 0.0485 $ 0.0497 $ 0.0491
NUMBER OF CUSTOMERS 7,907 8,306 8,562
TOTAL CONTRIBUTION/TRANSFERS TO CITY $ 340,564 $ 388,927 $ 420,000
64
2007 2008 2009 2010 2011 2012
$ 19,164,797 $ 22,303,994 $ 23,591,485 $ 26,060,301 S 27,894,341 $ 30,070,045
501,746 637,909 636,258 732,261 689,645 188,645
19,666,543 22,941,903 24,227,743 26,792,562 28,583,986 30,258,690
12,176,034 14,778,270 16,161,444 18,373,386 19,604,951 20,499,773
1,829,971 2,162,797 1,937,096 1,892,212 1,960,742 1,909,845
358,029 409,222 428,508 434,415 474,934 481,907
1,920,798 2,057,851 2,126,794 2,062,942 2,041,717 2,099,594
1,977,973 2,196,770 2,272,917 2,399,236 2,350,706 2,359,193
18,262,805 21,604,910 22,926,759 25,162,191 26,433,050 27,350,312
1,403,738 1,336,993 1,300,984 1,630,371 2,150,936 2,908,378
- - - 53,741 - -
(483,000) (540,636) (585,141) (657,086) (711,415) (816,864)
710,858 249,022 (146,352) (154,956) (105,604) 28,531
$ 1,631,596 $ 1,045,379 $ 569,491 $ 872,070 $ 1,333,917 $ 2,120,045
16.185% 16.380% 5.772% 10.465% 7.038% 7.800%
20.537% 21.372% 9.360% 13.687% 6.703% 4.564%
61.912% 64.416% 66.706% 68.576% 68.587% 67.748%
2007 2008 2009 2010 2011 2012
225,973,086 241,837,173 247,595,137 264,642,834 276,026,892 287,553,108
211,298,886 224,226,048 232,772,722 250,711,834 261,235,297 273,455,846
14,674,200 17,611,125 14,822,415 13,931,000 14,791,595 14,097,262
6.494% 7.282% 5.987% 5.264% 5.359% 4.902%
$ 0.0907 $ 0.0995 S 0.1013 $ 0.1039 $ 0.1068 $ 0.1100
$ 0.0539 $ 0.0611 $ 0.0653 $ 0.0694 $ 0.0710 $ 0.0713
8,945 9,203 9,170 9,207 9,227 9,285
$ 483,000 $ 540,636 $ 585,141 $ 657,086 $ 711,415 $ 816,864
65
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
WATER FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31,2004 THROUGH DECEMBER 31,2012
SUMMARY OF OPERATIONS
2004 2005
OPERATING REVENUES
Sales of water $ 1,167,955 $ 1,347,542
OPERATING EXPENSES
Operating expenses less depreciation 806,831 1,038,035
Depreciation 720,044 790,454
TOTAL OPERATING EXPENSES 1,526,875 1,828,489
TOTAL OPERATING INCOME(LOSS) S (358,920) $ (480,947)
PERCENT OF CHANGE
Sales of water 11.49% 15.38%
UNAUDITED STATISTICS
MISCELLANEOUS
2004 2005
WATER PUMPED(gallons) 651,000,000 705,746,000
WATER SOLD(gallons) 642,019,000 632,256,000
Percent of line loss 1.38% 10.41%
Revenues per 1,000 gallons pumped $ 1.78 $ 1.90
Revenues per 1,000 gallons sold $ 1.82 $ 2.13
Number of customers 3,824 4,074
UNUSUAL LINE LOSS
Gallons
2004 2005
Flushing hydrants 11,500,000 25,000,000
Back washing 8,900,000 8,400,000
Fire department use 4,000,000 1,000,000
New water main disinfectant and flushing 4,000,000 5,000,000
Flushing seasonal well - -
Meter - 3,100,000
Eastern end maintenance - -
Water tower paint and clean - -
Water line and Irrigation leaks - -
Frozen pipes bursting in abandoned homes - -
Unusual line loss 28.400,000 42,500,000
66
2006 2007 2008 2009 2010 2011 2012
$ 1,749,932 $ 2,113,166 $ 2,130,124 $ 2,206,429 $ 1,913,661 5 1,832,817 $ 2,265,142
1,069,988 1,191,346 1,185,413 1,102,437 989,736 1,008,562 1,130,965
790,451 921,450 974,848 956,993 955,323 980,197 1,028,593
1,860,439 2,112,796 2,160,261 2,059,430 1,945,059 1,988,759 2,159,558
$ (110,507) $ 370 $ (30,137) $ 146,999 $ (31,398) $ (155,942) $ 105,584
29.86% 20.76% 0.80% 3.58% (13.27%) (4.22%) 23.59%
2006 2007 2008 2009 2010 2011 2012
812,560,000 873,742,000 854,133,000 782,951,000 686,289,000 651,907,000 847,283,200
726,169,000 783,948,000 727,029,000 708,286,000 627,209,000 599,701,000 727,912,000
10.63% 10.28% 14.88% 9.54% 8.61% 8.01% 14.09%
$ 2.14 $ 2.41 $ 2.48 $ 2.81 $ 2.79 $ 2.81 $ 2.67
$ 2.41 $ 2.70 $ 2.93 $ 3.12 $ 3.05 S 3.06 $ 3.11
4,317 4,413 4,508 4,467 4,511 4,515 4,542
Gallons
2006 2007 2008 2009 2010 2011 2012
25,000,000 27,000,000 30,000,000 33,000,000 35,000,000 34,000,000 46,400,000
9,000,000 8,400,000 8,400,000 8,400,000 9,000,000 8,000,000 30,000,000
1,000,000 1,000,000 5,000,000 1,000,000 3,000,000 4,000,000 16,500,000
6,500,000 1,000,000 2,000,000 2,000,000 3,000,000 4,000,000 9,000,000
- - - 4,000,000 - 3,600,000
3,000,000 - - 1,300,000 - - 6,500,000
- - - - - 2,000,000 -
- - - - - - 7,000,000
- - 25,000,000 27,000,000 5,000,000 - -
44,500,000 37,400,000 70,400,000 72,700,000 59,000,000 52,000,000 119,000,000
67
OTHER REQUIRED REPORTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2012
69
• ' AABDO
,.i5EICCKK &DC
®I •, _ ME 1 ERS LLP
Certified Public Accountants &Consultants
5201 Eden Avenue
Suite'250
Edina,MN 55436
AUDITOR'S REPORT ON LEGAL COMPLIANCE
Public Utilities Commission
Elk River Municipal Utilities
Elk River,Minnesota
We have audited the accompanying financial statements of the business-type activities of Elk River Municipal Utilities(the Utilities)
of the City of Elk River,Minnesota(the City)which collectively comprise the Utilities basis financial statements as of and for the
years ended December 31,2012 and 2011,and have issued our report thereon dated May 6,2013.
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 Political Subdivisions,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 the circumstances.
The Minnesota Legal Compliance Audit Guide for Political Subdivisions covers seven 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 except that we did not test for compliance in
tax increment financing because the Utilities has not established a tax increment financing district.
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.
May 6,2013 ABDO, EICK&MEYERS, LLP
Minneapolis, Minnesota Certified Public Accountants
952.835.9090 • Fax 952.835.3261
www.aemcpas.com
71
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
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 the Federal Investment Company Act 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 at 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
securities 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 States commercial bank, a
domestic branch of a foreign bank, a United States insurance company,or its Canadian subsidiary, whose
similar debt obligations were rated in one of the 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, 2012 and December 31,2011 is as follows:
Increase
2012 2011 (Decrease)
Electric $ 109,845 $ 78,750 $ 31,095
Water 26,250 26,250 -
Total $ 136,095 $ 105,000 $ 31,095
33
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
Interfund receivables and payables
Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the
fiscal year are referred to as either"interfund receivables/payables"(i.e.,the 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 first-in, first-out(FIFO)method.
Prepaid items
Certain payments to 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.
Capita!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 the assets constructed.
The Utilities follow the policy of providing depreciation on the straight-line method over the estimated useful lives
of the assets, which are as follows:
Lives in Years
Description Electric Water
Production 4-20 25-50
Transmission 30 -
Distribution 10-33 25-50
General 10-50 10-50
Long-term obligations
Long-term debt is reflected as a liability in the fund issuing the obligation. Bond premiums and discounts are
amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as an expense
in the period incurred.
34
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
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 960 hours, converted to cash and deposited into their Post Health
Care Savings account. The liability for vacation and sick pay is reported as a liability in the respective funds at year
end.
Postemployment Benefits Other Than Pensions
Under Minnesota statute 471.61,subdivision 2b.,public employers must allow retirees and their dependents to
continue coverage indefinitely in an employer-sponsored health care plan,under the following conditions: 1)
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 a pay-as-you-go basis.
The liability was actuarially determined,in accordance with GASB Statement 45,at January 1,2011.
Net position
Net position represents the difference between assets and liabilities and deferred inflows. Net position is displayed in
three components:
a. Net investment in capital assets-Consists of capital assets,net of accumulated depreciation reduced by any
outstanding debt attributable to acquire capital assets.
b. Restricted net position-Consists of net position restricted when there are limitations imposed on their use
through external restrictions imposed by creditors,grantors, laws or regulations of other governments.
c. Unrestricted net position- All other net position that do not meet the definition of"restricted"or"net
investment in capital assets".
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.
Deferred outflows of resources
In addition to assets,the statement of financial position will sometimes report a separate section for deferred
outflows of resources. This separate financial statement element,deferred outflows of resources,represents a
consumption of net position that applies to a future period(s)and so will not be recognized as an outflow of
resources(expense/expenditure)until then.The Utility only has one item that qualifies for reporting in this
category. It is the deferred charge on refunding reported in the government-wide statement of net position. A
deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition
price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt.
35
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
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,the 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 the Commission,the Utility
maintains deposits at those depository banks,all of which are members of the Federal Reserve System.
Minnesota statutes require that all Utility deposits be protected by insurance,surety bond or collateral.The market
value of collateral pledged must equal 110 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 that all collateral shall be placed in safekeeping in a restricted account at 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 31,2012,the Utilities' carrying amount of deposits was$1 1,508,557 and the bank balance was
$12,484,544.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.
At December 31,2011,the Utilities' carrying amount of deposits was$8,669,521 and the bank balance was
$10,032,467.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 31,2012 AND 2011
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Investments
The Utilities' investment balances were as follows for December 31, 2012:
Fair 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 $ 21,812
Non-pooled investments
U.S. Government Agency Securities Aaa more than 3 years 489,773
Brokered CD's N/A less than 6 months 431,303
Brokered CD's N/A 6 months to 1 year 488,909
Brokered CD's N/A 1 to 3 years 1,481,477
Brokered CD's N/A more than 3 years 202,963
Total non-pooled investments 3,094,425
Total investments $ 3,116,237
1. Ratings were provided by Moody's
2. Interest rate risk is disclosed using the segmented time distribution method.
N/A Indicates not applicable or available.
The Utilities' investment balances were as follows for December 31, 2011:
Fair 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 1 to 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 1 year 491,684
Brokered CD's N/A 1 to 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 distribution method.
N/A Indicates not applicable or available. 37
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
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:
2012 2011
Deposits $ 11,508,557 $ 8,669,521
Investments 3,116,237 3,054,549
Cash on hand 400 400
Total $ 14,625,194 $ 11,724,470
Cash and investments
Unrestricted $ 13,900,694 $ 10,999,970
Restricted 724,500 724,500
Total $ 14,625,194 $ 11,724,470
The investments of the Utility are subject to the following risks:
• Credit Risk.Is the risk that an issuer or other counterparty 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 that,in the event of the failure of
the counterparty to a transaction, a government will not be able to recover the value of investment or
collateral securities that are in the possession of an outside party. According to 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. According to their 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, 2012 AND 2011
Note 2: DETAILED NOTES ON ALL FUNDS - CONTINUED
B. Capital assets
Electric and Water fund capital asset activity for the year ended December 31, 2012 was as follows:
Beginning Ending
Balance Increases Decreases Balance
Capital assets not
being depreciated
Land $ 281,775 $ 39,862 $ - $ 321,637
Construction in progress 205,726 1,399,943 (1,320,668) 285,001
Total capital assets
not being depreciated 487,501 1,439,805 (1,320,668) 606,638
Capital assets being depreciated
Land improvements 63,147 - - 63,147
Buildings 3,506,625 142,856 (10,456) 3,639,025
Machinery and equipment 4,458,926 203,391 (105,633) 4,556,684
Infrastructure 77,569,561 1,205,719 - 78,775,280
Total capital assets
being depreciated 85,598,259 1,551,966 (116,089) 87,034,136
Less accumulated
depreciation for
Land improvements (44,249) (2,526) - (46,775)
Buildings (1,329,255) (102,467) - (1,431,722)
Machinery and equipment (3,260,524) (250,459) 102,891 (3,408,092)
Infrastructure (32,200,495) (2,772,735) - (34,973,230)
Total accumulated
depreciation (36,834,523) (3,128,187) 102,891 (39,859,819)
Total capital assets
being depreciated,net 48,763,736 (1,576,221) (13,198) 47,174,317
Business-type activities
capital assets,net $ 49,251,237 $ (136,416Z $ (1,333,866) $ 47,780,955
39
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 2: DETAILED NOTES ON ALL FUNDS- CONTINUED
Electric and Water fund capital asset activity for the year ended December 31, 2011 was as follows:
Beginning Ending
Balance Increases 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)
Total 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 $ (1,236,876) $ 49,251,237
Depreciation expense was charged to functions/programs of the Utilities as follows:
2012 2011
Business-type Activities
Water $ 1,028,593 $ 980,197
Electric 2,099,594 2,041,717
Total depreciation expense-business-type activities $ 3,128,187 $ 3,021,914
40
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
C. Long-term debt
G.O. revenue and refunding bonds
The City of Elk River issues general obligation bonds to 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 Interest Issue Maturity December31,
Description and Issued Rate Date Date 2012 2011
G.O.Water Revenue
Refunding Bonds of 2008 $ 3,085,000 2.75-3.65 % 02/20/08 02/01/22 $ 2,450,000 $ 2,705,000
G.0 Water Revenue
Bonds of2003B 1,995,000 3.55-3.70 12/09/03 02/01/14 465,000 685,000
G.O.Capital Improvement
Plan Bonds of2010A 1,265,000 2.00-4.00 04/21/10 08/01/23 1,100,000 1,180,000
Total G.O.Revenue and Refunding Bonds $ 4,015,000 $ 4,570,000
The annual requirements to amortize the general obligation revenue and refunding bonds as of December 31, 2012
are as follows:
Year Ending
December 31, Principal Interest Total
2013 $ 585,000 $ 123,768 $ 708,768
2014 595,000 106,006 701,006
2015 300,000 92,840 392,840
2016 305,000 84,333 389,333
2017 320,000 74,850 394,850
2018-2022 1,785,000 193,933 1,978,933
2023 125,000 2,500 127,500
Total $ 4,015,000 $ 678,229 $ 4,693,229
41
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
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 December31,
Description and Issued Rate Date Date 2012 2011
Electric Revenue
Bonds,Series 2004A $ 940,000 4.104.25 % 08/01/04 02/01/15 $ 330,000 $ 430,000
Electric Revenue
Bonds,Series 2006A 3,595,000 3.50-4.00 03/02/06 08/01/21 2,405,000 2,620,000
Electric Revenue
Bonds,Series 2007A 2,875,000 4.00 03/28/07 02/01/22 2,350,000 2,530,000
Total Revenue Bonds $ 5,085,000 $ 5,580,000
The annual requirements to amortize the revenue bonds as of December 31, 2012 are as follows:
Year Ending
December31, Principal Interest Total
2013 $ 520,000 $ 192,358 $ 712,358
2014 545,000 172,220 717,220
2015 570,000 150,924 720,924
2016 470,000 131,160 601,160
2017 490,000 113,053 603,053
2018-2022 2,490,000 254,780 2,744,780
Total m$ 5,085,000 $ 1,014,494 $ 61099494
42
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
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 to be
paid from revenue of the system and is secured by the facility.
Authorized Interest Issue Maturity December31,
Description and Issued Rate Date Date 2012 2011
Landfill
Generator Note $ 3,521,000 - % 03/19/02 02/19/22 $ 1,975,812 $ 2,162,882
The annual requirements to amortize the generator note as of December 31, 2012 are as follows:
Year Ending
December 31, Principal Interest Total
•
2013 $ 186,581 $ - $ 186,581
2014 189,353 - 189,353
2015 191,511 - 191,511
2016 194,297 - 194,297
2017 195212 - 195,212
2018-2022 1,018,858 - 1,018,858
Total $ 1,975,812 $ $ 1,975,812
Changes in Long-term Liabilities
Long-term liability activity for the year ended December 3 I, 2012 was as follows:
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
Business-type activities
Bonds payable
General obligation
revenue bonds $ 4,570,000 $ - $ (555,000) $ 4,015,000 $ 585,000
Revenue bonds 5,580,000 - (495,000) 5,085,000 520,000
Unamortized premium
on bonds 45,656 - (4,089) 41,567 -
Total bonds payable,net 10,195,656 - (1,054,089) 9,141,567 1,105,000
Notes payable 2,162,882 - (187,070) 1,975,812 186,588
Compensated
absences payable 296,549 209,548 (206,713) 299,384 145,323
OPEB liability 35,759 4,601 - 40,360 -
Business-type activity
long-term
liabilities $ 12,690,846 $ 214,149 $ (1,447,872) $ 11,457,123 $ 1,436,911
43
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Advance Refunding
On April 21,2010 the 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 the advance refunding of$1,270,000 of the
outstanding principal of the City Hall Expansion Revenue Bonds,2002B on February 1,2013. 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 2002B bonds due April 21,2010
through February 1,2013 and pay the$1,125,000 called Revenue Bonds of 2002B on February 1,2013. As a result
of the refunding issue,the 2002B 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 the new debt service)of
$90,824.
44
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
D. Interfund receivables,payables and transfer
The composition of interfund balances at December 31, 2012 is as follows:
Receivable Fund Payable Fund Amount Purpose
Electric City-General fund $ 1,115 Electric sales tax paid by City
Electric City-Nonmajor 65 Electric sales taxpaid by City
Electric City-Sewer 361 City share of project costs
Electric City-Garbage 3,541 City share of project costs
Electric City-General fund 1,756 Electric share of insurance dividends
Total Electric fund receivable from City 6,839
Water City-General fund 439 Electric share of insurance dividends
Water City-Capital projects fund 128,850 TIF 22 Water Access Charge
Total Water fund receivable from City 129,289
Total receivable from City $ 136,128
City-General fund Electric $ 46,804 Shared building maint.costs
City-multiple funds Electric 57,938 December transfer of 3%of revenue
City-General fund Electric 48,422 Electric share of insurance
City-General fund Electric 1,836 Electric share of vehicle maint.
City-General fund Electric 6,982 Electric share of fuel
City-General fund Electric 64,244 Electric share of project costs
City-Sewer Electric 128,803 Billed sewer on behalf of City
City-Garbage Electric 108,492 Billed garbage on behalf of City
Total Electric fund payable to City 463,520
City-General fund Water 11,701 Shared building maint.costs
City-General fund Water 1,787 Water share of fuel
City-General fund Water 1,424 Water share of vehicle maint.
City-General fund Water 19,438 Water share of project costs
City-General fund Water 7,728 Water share of insurance
Total Water fund payable to City 42,078
Total payable to City $ 505,598
45
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
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 Electric 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 maint.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 maint.
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 maint.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 maint.
Total Water fund payable to City 20,187
Total payable to City $ 420,292
46
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 2: DETAILED NOTES ON ALL FUNDS—CONTINUED
Interfund transfers completed in 2012 are detailed as follows:
Transfer from Transfer to
Other Other
Transfers: City Funds City Funds
Electric $ - $ 816,864
Water 1,372 40,828
Total transfers out $ 1,372 $ 857,692
The transfer out of the Electric fund was the annual transfer of 3 percent of 2012 revenues to City funds, $753,553,
and contributions to a fiber project,$63,311.The transfer out of the Water fund was for its share of bonding,
$25,000, and contributions to a fiber project, $15,828.The transfer in to the Water fund was for water main
reimbursement from City Trunk Fees.
Interfund transfers completed in 2011 are detailed as follows:
Transfer from Transfer to
Other Other
Transfers: City Funds City Funds
Electric $ - $ 711,415
Water 312,823 25,000
Total transfers $ 312,823 $ 736,415
The transfer out of the Electric fund was the annual transfer of 3 percent of 2011 revenues to 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.
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 a cost-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 the 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 31,2012 AND 201 I
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED
Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members.The retiring member
receives the higher of step-rate benefit accrual formula(Method 1)or a level accrual formula(Method 2).Under
Method 1,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 the first 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 I, 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 the age for
unreduced Social Security benefits capped at 66 for Coordinated members hired on or after July 1, 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. A single-life annuity is a lifetime
annuity that ceases upon death of the retiree--no survivor annuity is payable.There are also various types of joint
and survivor annuity options available which will be payable over joint lives. Members may also leave their
contributions in the 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 not receiving them yet,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 Internet at www.mnpera.org,by writing to PERA,60
Empire Drive#200, St. Paul,Minnesota,55103-2088 or by calling(651)296-7460 or 1-800-652-9026.
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 6.25 percent,respectively,of their annual covered salary in 2011. In 2012,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 the
General Employees Retirement Fund for the years ending December 31,2012,2011 and 2010 were$170,944,
$160,459,and$153,634,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 31,2012 AND 2011
Note 4: OTHER INFORMATION
A. Territorial acquisition agreement
In 1991,the Utilities entered into a 20 year agreement to transfer ownership of electric plant and electric service to
customers in certain areas receiving electric service from Anoka Electric Cooperative,Inc.(AEC). In 2010 the
Utility completed the final purchase under this agreement.
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 the agreement.
In addition,the Utilities will compensate AEC for the loss of revenue from the future sale of electricity to electric
customers in the areas acquired from AEC for a period of ten years from the date of sale of each individual area.
The Utilities paid$3,948 and$8,114 in 2012 and 2011,respectively,for loss of revenues under this agreement. All
amounts paid are included in property and equipment.
B. Risk management
The Utilities is exposed to various risks of loss related to torts;theft of,damage to and destruction of assets;errors
and omissions; injuries to employees;and natural disasters for which the Utilities carries commercial insurance.The
Utilities obtains insurance through participation in the League of Minnesota Cities Insurance Trust(LMCIT),which
is a risk sharing pool with approximately 800 other governmental units. The Utilities pays an annual premium to
LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self-sustaining through
member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled
claims have not exceeded the Utilities' coverage in any of the past three fiscal years.
Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably
estimated. Liabilities,if any, include an amount for claims that have been incurred but not reported(IBNRs). The
Utilities' management is not aware of any incurred but not reported claims.
C. Commitments
• The Utilities has received notice from their power supplier regarding the existing all requirements power
contract exercising their right to give ten years notice to cancel the contract.The cancellation date would be
effective September 30,2018. 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 MW,between
Brookings,South Dakota,and the Southeast Twin Cities. In 2011 there was increased opportunity for
investment,and subsequent agreements provide the Utilities with an ownership share of$5.6 million or
18.89%. The retum 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 the principal amount of this note was paid off with the permanent financing.
49
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION
Plan Description. Elk River Municipal Utilities(the Utilities)administers a multi-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
2012,the Utility contributed$0 to the plan.Plan members receiving benefits contribute 100 percent of their premium
costs. In fiscal year 2012,total member contributions were$0.
Annual OPEB Cost and Net OPEB Obligation. The Utilities' annual other postemployment 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 finding 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 the plan, and changes in the Utilities' net OPEB
obligation to the Retiree Health Plan:
Annual required contribution $ 6,527
Interest on net OPEB obligation 1,430
Adjustment to annual required contribution (2,068)
Annual OPEB Cost(expense) 5,889
Contributions made
Direct(explicit)subsidy -
Implicit subsidy (1,288)
Increase in net OPEB obligation 4,601
Net OPEB obligation-beginning of year 35,759
Net OPEB obligation-end of year $ 40,360
50
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION -CONTINUED
The Utilities' annual OPEB cost,the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation for December 31, 2012 and the preceding three fiscal years was as follows:
Three Year Trend Information
Percentage
Year Annual Annual OPEB Net OPEB
Ending OPEB Cost Contributed Obligation
12/31/2012 $ 4,601 - % $ 40,360
12/31/2011 5,663 - % 35,759
12/31/2010 9,853 - % 30,096
Funded Status and Funding Progress. 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 the future. Examples include assumptions about future
employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and
the annual required contributions of the 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 the notes to the financial statements, presents multi-year trend information about
whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities
for benefits.
Methods 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 the types of benefits provided at the time of each
valuation and the 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 for active employees- Based on the historical average retirement age for the covered group, active plan
members were assumed to retire at age 62,or at the first subsequent year in which the member would qualify for
benefits.
Participation Rate-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 their current coverage until age 65.
Life Expectancy- 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.
Turnover-Non-group-specific age-based turnover data from GASB Statement 45 were used as the basis for assigning
active members a probability of remaining employed until the assumed retirement age and for developing an expected
future working lifetime assumption for purposes of allocating to periods the 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.
51
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION-CONTINUED
Health insurance premiums-2011 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 1,2011
Based on the 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 31,2012 was thirty years.
52
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 the fiscal year that ended December 31,2012. Please read it in conjunction with the financial
statements,which follow this section.
FINANCIAL HIGHLIGHTS
• The assets of the Utilities exceeded its liabilities at the close of the most recent fiscal year by$51,606,358 (net position).
Net Position increased by$2,582,978 or 5 percent. Hot and dry weather conditions resulted in higher sales of electricity
and water, far surpassing conservative budget goals.
• The Utilities'cash balance at the close of the current fiscal year was$14,625,194.
• Electric usage was up an average of 4 percent. Residential usage increased less than I percent, while Commercial usage
increased 4 percent and Industrial usage increased 8 percent.
• Water usage,however,was up an average of 20 percent. Residential usage increased 19 percent,and Commercial usage
increased 16 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 the 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 Net Position includes all of the Utilities' assets and liabilities and provides information about the nature and
amounts of investments in resources(assets)and the obligations to Utilities' creditors(liabilities). It also provides the basis for
computing rate of return,evaluating the 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 Position. 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 the Financial Section. One of the most important questions asked about the
Utilities' finances is"Is the Utilities as a whole better off or worse off as a result of this year's activities?" The Statements of Net
Position, and the Statements of Revenues, Expenses and Changes in Net Position report information about the Utilities' activities
in a way that will help answer this question. These two statements report the net position of the Utilities and changes in this net
position. You can think of the Utilities' net position(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 position is one indicator of whether its
financial health is improving or deteriorating. However,you will need to consider other non-financial factors such as changes in
economic conditions,population growth,zoning,and new or changed government legislation.
13
NET POSITION
To begin our analysis,a summary of the Utilities' Statements of Net Position is presented in Table A-1. As can be seen from the
Table,net assets increased$2,582,978 to$51,606,358 in fiscal 2012 up from$49,023,380 in fiscal 2011.
TABLE A-1
Condensed Statement of Net Assets
Increase
2012 2011 (Decrease)
Assets
Current and other $ 18,412,934 $ 15,716,737 $ 2,696,197
Capital 47,780,955 49,251,237 (1,470,282)
Total as sets 66,193,889 64,967,974 1,225,915
Total Deferred Outflows 83,765 92,005 (8,240)
Liabilities
Current 4,651,084 4,714,003 (62,919)
Non-current 10,020,212 11,322,596 (1,302,384)
Total liabilities 14,671,2% 16,036,599 (1,365,303)
Net position
Net investment in capital assets 36,747,341 36,984,704 (237,363)
Restricted for debt service 724,500 724,500 -
Unrestricted 14,134,517 11,314,176 2,820,341
Total net position $ 51,606,358 $ 49,023,380 $ 2,582,978
Looking at Table A-1,you can see that most of the change in net position was realized in the current assets,which increased
$2,696,197 in fiscal 2012. The increase is in the cash accounts and due largely to increased sales, which can be attributed to the
weather. The previous two years had modest sales increases but the hot summer and cold winter of 2012 presented a different
result. Capital projects also contributed to the increase in unrestricted net assets indirectly-with only a few capital projects the
resources weren't expended. It should be noted the change from capital projects is not a permanent increase,and that as these
projects are completed in future years the balances will decrease.
Water and Electric Rates
Electric-The latest increase in the Utilities' electric rates was effective January 2013. The monthly base charges are based upon
the type of service. The monthly charges are$10.00 for residential,$17.00 for commercial, and$55.00 for industrial customers.
In addition to the base charges the residential rate is S.1299/KWh for May-September usage,and$.1161/KWh for October-April
usage;the commercial rate is $.1247/KWh for May-September usage,and Si 035/KWh for October-April usage;the industrial
rate is$.0616/KWh energy charge year round with a demand charge of$16.21/KW May-September,and$11.50/KW for October-
April.
14
Water and Electric Rates-Continued
Water-The Utilities' latest increase in residential and commercial rates was effective January 2013,after a three year rate freeze.
The monthly base charge for residential customers is$7.80 per month. In addition to the base charge,the Utilities currently
charges its residential customers$1.56 per 1,000 gallons up to 9,000 gallons,$3.50 per 1,000 gallons between 9,000 gallons and
15,000 gallons,and S4.00 per 1,000 gallons for usage above 15,000 gallons. Commercial customer's base charges are based
upon meter size,from$9.36 to$98.80.An irrigation meter is$41.60 for every month the meter is utilized. There is also a charge
per thousand gallons,the same tiers as the residential rates of$1.56,$3.50,and$4.00,except the graduation from the lower tier to
the 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 ten percent penalty is
assessed for payments not received by the due date. The Utility may discontinue service of a customer not complying with the
disconnect policy of the Utility after receiving a written disconnect notice. Residential and Commercial/Industrial single phase
electric customers that have their service discontinued will be charged a minimum of$50.00 to have their service reconnected.
Commercial/Industrial three phase electric customers that have their service discontinued will be charged a minimum of$150.00
to have their service reconnected. Residential and Commercial/Industrial water customer that have their water shut-off will be
charged a fee of$100.00 to have their water tumed on/reconnected. There are no reconnections after 3:30pm and payments for
reconnection/turn on are not accepted at the property site;payments must be made prior to dispatching reconnection. Customers
can come in to the office between the hours of 8:00am and 3:00pm 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 to 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 that 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 irrevocable
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 of termination of
service,provided that the customer has paid in full all amounts due on the account. The appropriate interest will be applied to the
account per state statutes.
15
STATEMENTS OF REVENUES,EXPENSES AND CHANGES IN NET POSITION
While the Statements of Net Position shows the change in financial assets and liabilities,the Statements of Revenues,Expenses
and Changes in Net Position,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 the increase in net position of$2,582,978 in fiscal 2012. A closer
examination of the individual categories affecting the source of changes in net position is discussed below:
TABLE A-2
Condensed Statements of Revenues,
Expenses and Changes in Net Position
Increase
2012 2011 (Decrease)
Revenues
Operating $ 32,523,832 $ 30,416,803 $ 2,107,029
Nonoperating 373,401 300,813 72,588
Total revenues 32,897,233 30,717,616 2,179,617
Expenses
Operating 29,509,870 28,421,809 1,088,061
Nonoperating 341,517 413,039 (71,522)
Total expenses 29,851,387 28,834,848 1,016,539
Income before contributions and operating transfers 3,045,846 1,882,768 1,163,078
Capital Contributions -Developer Infrastructure and Connection Fees 174,607 195,853 (21,246)
Capital Contributions of Asset from City 218,845 - 218,845
Transfers from other City funds 1,372 312,823 (311,451)
Transfers to other City funds (857,692) (736,415) (121,277)
Change in net position 2,582,978 1,655,029 927,949
Net position as restated,January 1 49,023,380 47,368,351 1,655,029
Net position,December 31 $ 51,606,358 $ 49,023,380 $ 2,582,978
Revenues
Table A-2 shows that operating revenue increased by 7 percent in 2012 for the Electric and Water Departments combined. This
increase was a result of increased electric usage in the commercial/industrial sector,up 4%, and increased water usage in all
sectors,up 20%. The increases are largely a result of the weather due to the hot dry summer.
Nonoperating revenue is comprised 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 Transmission System Operator(MISO)market. In doing so,
our transmission assets generate a revenue rebate,which in turn helps keep our rates down. In 2012,rebates received from our
2010 filings were approximately$5,000 per month. The Water Department is receiving lease revenue from Sprint for antennas on
the water towers. In 2012 this amount was approximately$73,000, and will continue for the duration of the multi-year contract.
Capital Contributions from developers increased this year for a water main project of approximately$218,000 and water
Connection Fees decreased approximately$20,000.
16
•
Total Expenses
In reviewing total expenses in Table A-2 you will notice that there was an increase of 3.5 percent overall. Purchased Power(the
amount the Utilities pays for the power distributed) increased 4.5 percent and Customer Accounts Expense increased 35 percent,
however, other expense categories were down marginally to offset this increase. The Customer Accounts Expense increased due
to the customer service focus and implementing improvements such as online billing and a phone messaging application.
CAPITAL ASSETS
The Utilities' investment in capital assets for its business-type activities as of December 31, 2012 amounts to $47,780,955 (net of
accumulated depreciation). This investment in capital assets includes land, buildings and improvements and equipment. A table
summarizing the balances by fund follows:
Increase
2012 2011 (Decrease)
Land $ 321,637 $ 281,775 $ 39,862
Land improvements 16,372 18,898 (2,526)
Buildings 2,207,303 2,177,370 29,933
Equipment and machinery 1,148,591 1,198,402 (49,811)
Infrastructure 43,802,051 45,369,066 (1,567,015)
Construction in progress 285,001 205,726 79,275
Total $ 47,780,955 $ 49,251,237 $ (1,470,282)
The total decrease in the Utilities' investment in capital assets for the current fiscal year was 3 percent.
Major capital asset events during the current fiscal year included the 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$1.5 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 $11,457,123 in long-term debt down from$12,690,846 in fiscal 2011. More detailed information
about the Utilities' long-term liabilities is presented in the Notes to the Financial Statements on pages 41 -44 and below:
Increase
2012 2011 (Decrease)
G.O.revenue bonds $ 4,015,000 $ 4,570,000 $ (555,000)
Revenue bonds 5,085,000 5,580,000 (495,000)
Unamortized premium on bonds 41,567 45,656 (4,089)
Promissory note 1,975,812 2,162,882 (187,070)
Compensated absences payable 299,384 296,549 2,835
OPEB liability 40,360 35,759 4,601
Total $ 11,457,123 $ 12 690,846 $ (1,233,723)
17
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 to
potential increased cost in the coming years. It is the Utilities' goal to not have to rely on increasing rates to meet those increases
but continue to look for ways to increase efficiencies and reduce costs,while providing excellent customer service. Elk River
Municipal Utilities' mission is to provide safe,cost-effective,reliable,quality utilities in an environmentally and financially
responsible manner. That will be a challenge in the coming years but it is a welcome challenge.
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 the Utilities' accountability for the money it 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 at 13069 Orono Parkway in Elk River,MN.
18
FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEARS ENDED
DECEMBER 31, 2012 AND 2011
19
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENTS OF NET POSITION
DECEMBER 31,2012 AND 2011
Electric
Restated
2012 2011
ASSETS
CURRENT ASSETS
Cash and temporary investments $ 10,646,164 $ 8,380,396
Receivables
Accrued interest 9,286 4,749
Accounts,net of allowance 2,293,525 2,498,647
Special assessments - -
Other receivables 25,403 4,962
Due from other City fund 6,839 27,551
Due from other governments - 1,627
Inventories 928,800 997,125
Prepaid expenses 187,839 122,066
TOTAL CURRENT ASSETS 14,097,856 12,037,123
CAPITAL ASSETS
Land 233,220 200,236
Land improvements 63,147 63,147
Buildings 2,847,699 2,735,797
Equipment and machinery 4,180,967 4,102,753
Infrastructure 46,403,093 45,482,434
Construction in progress 281,176 200,838
CAPITAL ASSETS,COST 54,009,302 52,785,205
LESS ACCUMULATED DEPRECIATION (27,883,481) (25,885,141)
TOTAL CAPITAL ASSETS,NET 26,125,821 26,900,064
OTHER ASSETS
Restricted cash 724,500 724,500
TOTAL ASSETS 40,948,177 39,661,687
DEFERRED OUTFLOWS
Deferred charge on refunding 67,01 1 73,603
TOTAL ASSETS AND DEFERRED OUTFLOW OF RESOURCES 41,015,188 39,735,290
The notes to the financial statements are an integral part of this statement.
20
Water Total
Restated Restated
2012 2011 2012 2011
$ 3,254,530 $ 2,619,574 $ 13,900,694 $ 10,999,970
2,322 1,187 11,608 5,936
124,307 97,689 2,417,832 2,596,336
25,935 18,821 25,935 18,821
2,703 10,591 28,106 15,553
129,289 162,658 136,128 190,209
- - - 1,627
16,920 25,909 945,720 1,023,034
34,572 18,685 222,411 140,751
3,590,578 2,955,114 17,688,434 14,992,237
88,417 81,539 321,637 281,775
- - 63,147 63,147
791,326 770,828 3,639,025 3,506,625
375,717 356,173 4,556,684 4,458,926
32,372,187 32,087,127 78,775,280 77,569,561
3,825 4,888 285,001 205,726
33,631,472 33,300,555 87,640,774 86,085,760
(11,976,338) (10,949,382) (39,859,819) (36,834,523)
21,655,134 22,351,173 47,780,955 49,251,237
- - 724,500 724,500
25,245,712 25,306,287 66,193,889 64,967,974
16,754 18,402 83,765 92,005
25,262,466 25,324,689 66,277,654 65,059,979
21
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF NET POSITION-CONTINUED
DECEMBER 31,2012 AND 2011
Electric
Restated
2012 2011
CURRENT LIABILITIES
Accounts payable $ 1,860,460 $ 2,042,190
Salaries and benefits payable 81,732 74,499
Accrued interest payable 94,796 103,131
Due to other City funds 463,520 400,105
Due to other governments 155,225 193,408
Customer deposits payable 386,416 334,508
Unearned revenue 8,262 -
Compensated absences-current portion 101,094 92,925
Notes payable-current portion 186,588 183,444
Bonds payable-current portion 588,000 559,000
TOTAL CURRENT LIABILITIES 3,926,093 3,983,210
NON-CURRENT LIABILITIES
Net other postemployment benefits liability 40,360 35,759
Compensated absences-less current portion 115,973 122,119
Notes payable-less current portion 1,789,224 1,979,438
Bonds payable,net-less current portion 5,410,254 6,001,525
TOTAL NON-CURRENT LIABILITIES 7,355,811 8,138,841
TOTAL LIABILITIES 11,281,904 12,122,051
NET POSITION
Net investment in capital assets 18,218,766 18,250,260
Restricted for debt service 724,500 724,500
Unrestricted 10,790,018 8,638,479
TOTAL NET POSITION $ 29,733,284 $ 27,613,239
The notes to the financial statements are an integral part of this statement.
22
Water Total
Restated Restated
2012 2011 2012 2011
S 33,208 S 85,062 $ 1,893,668 $ 2,127,252
8,065 6,463 89,797 80,962
43,005 49,071 137,801 152,202
42,078 20,187 505,598 420,292
- 918 155,225 194,326
6,311 6,311 392,727 340,819
31,095 29,900 39,357 29,900
44,229 41,881 145,323 134,806
- - 186,588 183,444
517,000 491,000 1,105,000 1,050,000
724,991 730,793 4,651,084 4,714,003
- - 40,360 35,759
38,088 39,624 154,061 161,743
- - 1,789,224 1,979,438
2,626,313 3,144,131 8,036,567 9,145,656
2,664,401 3,183,755 10,020,212 11,322,596
3,389,392 3,914,548 14,671,296 16,036,599
18,528,575 18,734,444 36,747,341 36,984,704
- - 724,500 724,500
3,344,499 2,675,697 14,134,517 11,314,176
$ 21,873,074 $ 21,410,141 $ 51,606,358 $ 49,023,380
23
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION
YEARS ENDED DECEMBER 31,2012 AND 2011
Electric
Restated
2012 2011
OPERATING REVENUES
Charges for services $ 29,016,238 $ 26,885,940
Security systems 295,600 256,432
LFG project 1,053,807 1,008,401
Generation credit (501,473) 140,609
Connection maintenance 156,204 35,564
Customer penalties 238,314 257,040
TOTAL OPERATING REVENUES 30,258,690 28,583,986
OPERATING EXPENSES
Purchased power 20,499,773 19,604,951
Production 885,996 885,580
Distribution 1,023,849 1,075,162
Depreciation 2,099,594 2,041,717
Customer accounts 707,539 642,619
General and administrative 2,133,561 2,183,021
TOTAL OPERATING EXPENSES 27,350,312 26,433,050
OPERATING INCOME(LOSS) 2,908,378 2,150,936
NONOPERATING REVENUES(EXPENSES)
Interest income 117,753 113,983
Miscellaneous revenue 144,779 73,712
Interest expense (236,261) (256,141)
Gain(Loss)on sale of capital assets 2,260 (37,158)
TOTAL NONOPERATING REVENUES(EXPENSES) 28,531 (105,604)
INCOME BEFORE CONTRIBUTIONS AND TRANSFERS 2,936,909 2,045,332
CAPITAL CONTRIBUTIONS-
DEVELOPER INFRASTUCTURE and CONNECTION FEES - -
CONTRIBUTION OF ASSET FROM CITY - -
TRANSFERS FROM OTHER CITY FUNDS - -
TRANSFERS TO OTHER CITY FUNDS (816,864) (71 1,415)
CHANGE IN NET POSITION 2,120,045 1,333,917
NET POSITION AS RESTATED,JANUARY 1 27,613,239 26,279,322
NET POSITION,DECEMBER 31 $ 29,733,284 $ 27,613,239
The notes to the financial statements are an integral part of this statement.
24
Water Total
Restated Restated
2012 2011 2012 2011
$ 2,219,145 $ 1,796,086 S 31,235,383 $ 28,682,026
295,600 256,432
1,053,807 1,008,401
-
- - (501,473) 140,609
25,387 17,886 181,591 53,450
20,610 18,845 258,924 275,885
2,265,142 1,832,817 32,523,832 30,416,803
- - 20,499,773 19,604,951
458,736 370,079 1,344,732 1,255,659
162,780 134,213 1,186,629 1,209,375
1,028,593 980,197 3,128,187 3,021,914
48,385 39,867 755,924 682,486
461,064 464,403 2,594,625 2,647,424
2,159,558 1,988,759 29,509,870 28,421,809
105,584 (155,942) 3,013,962 1,994,994
30,870 28,551 148,623 142,534
78,739 84,567 223,518 158,279
(105,256) (119,740) (341,517) (375,881)
(1,000) - 1,260 (37,158)
3,353 (6,622) 31,884 (112,226)
108,937 (162,564) 3,045,846 1,882,768
174,607 195,853 174,607 195,853
218,845 - 218,845 -
1,372 312,823 1,372 312,823
(40,828) (25,000) (857,692) (736,415)
462,933 321,112 2,582,978 1,655,029
21,410,141 21,089,029 49,023,380 47,368,351
$ 21,873,074 $ 21,410,141 S 51,606,358 S 49,023,380
25
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,2012 AND 2011
Electric
2012 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users $ 30,481,587 S 28,519,094
Other operating cash receipts 125,965 121,385
Payments to suppliers (23,771,526) (22,728,996)
Payments to employees (1,460,301) (1,515,439)
NET CASH PROVIDED(USED)
BY OPERATING ACTIVITIES 5,375,725 4,396,044
CASH FLOWS FROM
NONCAPITAL FINANCING ACTIVITIES
Transfers from City - -
Transfers to City (816,864) (711,415)
Increase(decrease)in due to other City funds 84,127 (103)
NET CASH PROVIDED(USED)BY NONCAPITAL
FINANCING ACTIVITIES (732,737) (711,518)
CASH FLOWS FROM CAPITAL
AND RELATED FINANCING ACTIVITIES
Acquisition of capital assets (1,334,562) (1,010,116)
Proceeds from sale of capital assets 11,471 -
Proceeds from connection fees - -
Principal payments on revenue bonds (559,000) (548,000)
Payments on short term account to acquire capital assets (180,000) -
Interest paid on revenue bonds (241,275) (257,670)
Principal payments on promissory note (187,070) (182,436)
NET CASH PROVIDED(USED)BY CAPITAL
AND RELATED FINANCING ACTIVITIES (2,490,436) (1,998,222)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 113,216 110,350
NET INCREASE(DECREASE)
IN CASH AND CASH EQUIVALENTS 2,265,768 1,796,654
CASH AND CASH EQUIVALENTS,JANUARY I 9,108,171 7,311,517
CASH AND CASH EQUIVALENTS,DECEMBER 31 11,373,939 9,108,171
RECONCILIATION OF CASH AND CASH
EQUIVALENTS TO THE STATEMENT OF NET POSITION
Cash and temporary investments 10,646,164 8,380,396
Restricted cash 724,500 724,500
TOTAL CASH AND CASH EQUIVALENTS $ 11,370,664 $ 9,104,896
The notes to the financial statements are an integral part of this statement.
26
Water Total
2012 2011 2012 2011
$ 2,231,224 $ 1,826,255 $ 32,712,811 $ 30,345,349
87,822 88,153 213,787 209,538
(836,986) (611,490) (24,608,512) (23,340,486)
(351,049) (335,002) (1,811,350) (1,850,441)
1,131,011 967,916 6,506,736 5,363,960
1,372 312,823 1,372 312,823
(40,828) (25,000) (857,692) (736,415)
55,260 (26,971) 139,387 (27,074)
15,804 260,852 (716,933) (450,666)
(114,709) (1,024,229) (1,449,271) (2,034,345)
- - 11,471 -
174,607 195,853 174,607 195,853
(491,000) (477,000) (1,050,000) (1,025,000)
- - (180,000) -
(110,492) (124,603) (351,767) (382,273)
- - (187,070) (182,436)
(541,594) (1,429,979) (3,032,030) (3,428,201)
29,735 27,643 142,951 137,993
634,956 (173,568) 2,900,724 1,623,086
2,619,574 2,793,142 11,727,745 10,104,659
3,254,530 2,619,574 14,628,469 11,727,745
3,254,530 2,619,574 13,900,694 10,999,970
724,500 724,500
$ 3,254,530 $ 2,619,574 $ 14,625,194 $ 11,724,470
27
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENTS OF CASH FLOWS-CONTINUED
YEARS ENDED DECEMBER 31,2012 AND 2011
Electric
2012 2011
RECONCILIATION OF OPERATING INCOME(LOSS)TO
NET CASH PROVIDED(USED)BY OPERATING ACTIVITIES
Operating income(loss) $ 2,908,378 $ 2,150,936
Adjustments to reconcile operating income(loss)
to net cash provided(used)by operating activities:
Other revenue related to operations 144,779 73,712
Bad debt expense 42,395 30,312
Depreciation 2,099,594 2,041,717
(Increase)decrease in assets:
Accounts receivable 162,727 (125,863)
Other receivables (20,441) 47,673
Special assessments - -
Due from other governments 1,627 -
Inventories 68,325 20,967
Prepaid expenses (65,773) 18,050
Increase(decrease)in liabilities:
Accounts payable (1,730) (2,479)
Salaries and benefits payable 7,233 2,844
Net other postemployment benefits liability 4,601 5,663
Unearned revenue 8,262 -
Compensated absences 2,023 411
Due to other governments (38,183) 71,130
Customer deposits payable 51,908 60,971
NET CASH PROVIDED(USED)
BY OPERATING ACTIVITIES $ 5,375,725 $ 4,396,044
NONCASH CAPITAL AND
RELATED FINANCING ACTIVITIES
Amortization of bond premium $ 3,271 $ 3,275
Amortization of deferred charges on refunding $ 6,592 $ 6,600
Loss on disposal of capital assets $ 9,211 $ 37,158
Capital assets purchased on account $ - $ 180,000
Contribution of capital assets $ - $ -
The notes to the financial statements are an integral part of this statement.
28
Water Total
2012 2011 2012 2011
$ 105,584 $ (155,942) S 3,013,962 $ 1,994,994
78,739 84,567 223,518 158,279
186 301 42,581 30,613
1,028,593 980,197 3,128,187 3,021,914
(26,804) (742) 135,923 (126,605)
7,888 (7,147) (12,553) 40,526
(7,114) (5,820) (7,114) (5,820)
- - 1,627 -
8,989 12,839 77,314 33,806
(15,887) (263) (81,660) 17,787
(51,854) 45,701 (53,584) 43,222
1,602 2,168 8,835 5,012
- - 4,601 5,663
1,195 10,733 9,457 10,733
812 408 2,835 819
(918) 916 (39,101) 72,046
- - 51,908 60,971
$ 1,131,011 $ 967,916 $ 6,506,736 $ 5,363,960
$ 818 $ 819 $ 4,089 $ 4,094
$ 1,648 $ 1,650 $ 8,240 $ 8,250
$ 1,000 $ - $ 10,211 $ 37,158
$ - $ - $ - $ 180,000
S 218,845 $ - S 218,845 S -
29
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2012 AND 2011
Note I: 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 to Minnesota statute 412.321 and consequently it's Electric and Water funds are enterprise funds
of the City.The Public Utilities Commission(the 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 to 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 set forth criteria to be considered in determining financial accountability. These criteria include
appointing a voting majority of an organization's governing body,and(I)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 the primary government. There are no component units.
B. Measurement focus,basis of accounting and basis of presentation
The accounts of the Utilities are organized and operated on the basis of funds. A fund is an independent fiscal and
accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their
intended purpose and is used to 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 the 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 taxes is recognized in the year for
which the tax is levied. Revenue from grants,entitlements and donations is recognized in the year in which all
eligibility requirements have been satisfied. Eligibility requirements include timing requirements,which specify the
year when the resources are required to be used or the year when use is first permitted,matching requirements,in
which the Utilities must provide local resources to be used for a specified purpose,and expenditure requirements, in
which the resources are provided to the 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 31,2012 AND 2011
Note 1: 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.Proprietary funds include the following fund type:
Enterprise funds account for those operations that are financed and operated in a manner similar to 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 the Water and Electric
enterprise funds are charges to customers for sales and service. Operating expenses for enterprise funds include the
cost 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 fund accounts for the 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,deferred inflows,and net position
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 finds are pooled and invested,to the extent available,in certificates of deposit and other
authorized investments. Eamings from such investments are allocated on the basis of applicable participation by
each of the funds.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
TABLE OF CONTENTS
DECEMBER31,2012
Page 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 Position 20
Statements of Revenues,Expenses and Changes in Net Position 24
Statements of Cash Flows 26
Notes to Financial Statements 31
III. REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Funding Progress for the Retiree Health Plan 57
IV. SUPPLEMENTAL INFORMATION
Schedules of Operating Revenues and Expenses 60
Electric Fund
Summary of Operations and Unaudited Statistics 64
Water Fund
Summary of Operations and Unaudited Statistics 66
V. OTHER REPORT
Auditor's Report on Legal Compliance 71
1
INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2012
3
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
ANNUAL FINANCIAL REPORT
YEARS ENDED
DECEMBER 31, 2012 AND 2011
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
PUBLIC UTILITIES COMMISSION AND ADMINISTRATION
DECEMBER 31, 2012
PUBLIC UTILITIES COMMISSION
Name Title
John Dietz Chairperson
Daryl Thompson Vice-Chairperson
A I Nadeau Trustee
ADMINISTRATION
Name Title
Troy Adams General Manager
Theresa Slominski Finance and Office Manager
David Berg Water Superintendent
Mark Fuchs Line Superintendent
Wade Lovelette Technical Services Superintendent
Tom Sagstetter Conservation and Key Accounts Manager
Judy McSpadden Recording Clerk
5
FINANCIAL SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEARS ENDED
DECEMBER 31, 2012 AND 2011
7
• ' AABDO
W4EIcK &
I 0410 MEYERS ERS LLP
Certified Public Accountants & Consultants
5201 Eden Avenue
Suite 2511
Edina,MN 55436
INDEPENDENT AUDITOR'S REPORT
Public Utilities Commission
Elk River Municipal Utilities
Elk River,Minnesota
Report on the Financial Statements
We have audited the accompanying financial statements of the business-type activities of the Elk River Municipal Utilities(the
Utilities)of the City of Elk River, Minnesota(the City),as of and for the years ended December 31,2012 and 2011,and the related
notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting
principles generally accepted in the United States of America; this includes the design,implementation,and maintenance of
internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express opinions 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 that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the financial
statements,whether due to fraud or error. In making those risk assessments,the auditor considers internal control relevant to the
Utilities preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Utilities internal control. Accordingly,we
express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management,as well as evaluating the overall financial statement presentation.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
952.835.9090 • Fax 952.835.3261
www.aemepas.con]
9
,�
Opinions
As discussed in Note 1B,the financial statements present only the Electric and Water enterprise funds and are not intended to present
fairly the financial position of the City and the 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, the financial statements referred to above present fairly, in all material respects, the financial position of the Electric
and Water enterprise funds of the City as of December 31, 2012 and 2011 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.
Other Matters
Change in Accounting Standards
As described in the Note 6 to the basic financial statements,the Utilities adopted the provisions of Governmental Accounting
Standards Board(GASB)Statement No. 63,Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources,
and Net Position and Statement No. 65, Items Previously Reported as Assets and Liabilities, for the year ended December 31,2012.
Adoption of the provisions of these statements results in significant change to the classifications of the components of the financial
statements.
Required Supplementary Information
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 to supplement the financial statements. Such information,although not a part of the
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 the 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 management's responses to our inquiries,the basic financial statements,and other knowledge we
obtained during our audit of the 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.
Supplementary Information in Relation to the Financial Statements as a Whole
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 not a required part of the financial statements of the Utilities. The supplemental information,
except for the portion marked"unaudited"on which we express no opinion, has been subjected to the auditing procedures applied in
the audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements
taken as a whole.The introductory section has not been subjected to the auditing procedures applied in the audit of the financial
statements and,accordingly, we do not express an opinion or provide any assurance on them.
fitk,
May 6,2013 ABDO, EICK&MEYERS, LLP
Minneapolis,Minnesota Certified Public Accountants
952.835.9090 • Fax 952.835.3261
www.aemcpas.co`n
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