6.1. ERMUSR 05-11-2004 ilk River
Municipal Utilities
13069 Orono Parkway phone: 763.441.2020
Elk River, MN 55330 Fax:763 441.8099
April 23, 2004
To: Elk River Municipal Utilities Commission
Jerry Takle
Jim Tralle
John Dietz
From: Bryan Adams
Subject: 2003 Audit
Attached for your review is the Elk River Municipal Utilities 2003 draft audit. Steve
McDonald of ABDO ABDO & Eick will be at our meeting to make a presentation and
answer any questions you may have.
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
ANNUAL FINANCIAL REPORT
YEARS ENDED
DECEMBER 31, 2003 AND 2002
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
TABLE OF CONTENTS
DECEMBER 31, 2003
Page No.
I. INTRODUCTORY SECTION
Public Utilities Commission and Administration 1
II. FINANCIAL SECTION
Independent Auditor's Report 2
Management's Discussion and Analysis I-V
Combining Financial Statements
Statement of Net Assets 3-6
Statements of Revenue, Expenses and Changes in Net Assets 7- 8
Statements of Cash Flows 9 - 12
Notes to Financial Statements 13 -22
III. SUPPLEMENTAL INFORMATION
Schedule of Operating Revenue and Expenses 23 -26
Schedule of Capital Assets 27-30
Electric Fund
Summary of Operations and Unaudited Statistics 31 -32
Water Fund
Summary of Operations and Unaudited Statistics 33 -34
IV. OTHER REPORT
Report on Minnesota Legal Compliance 35
Schedule of Findings 36
INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2003
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
PUBLIC UTILITIES COMMISSION AND ADMINISTRATION
DECEMBER 31,2003
PUBLIC UTILITIES COMMISSION
James Tralle Chairperson
John Dietz Vice-Chairperson
Jerry Tackle Commissioner
ADMINISTRATION
Bryan Adams General Manager
Patricia Hemza Office Manager
David Berg Water Superintendent
Glenn Sundeen Line Superintendent
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FINANCIAL SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2003 AND 2002
• •ABDO
L• EICK &
MEYERS LLP
Certified Public Accountants& Consultants
Grandview Square
5201 Eden Avenue
Suite 370
Edina,MN 55436
INDEPENDENT AUDITOR'S REPORT
To the Chairperson and Members of the Commission
Elk River Municipal Utilities
Elk River,Minnesota
We have audited the accompanying combining statements of net assets of the Elk River Municipal Utilities(the Utilities) of the
City of Elk River,Minnesota,as of December 31,2003 and 2002 and the related combining statements of revenue, expenses and
changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Utilities'
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management,as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note IA,the financial statements present only the Electric and Water enterprise funds and are not intended to
present fairly the financial position of the City of Elk River,Minnesota 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.
As described in Note 6, the Utilities has implemented a new financial reporting model,as required by the provisions of GASB
Statement No. 34,Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments,
as of December 31,2003.
The Management's Discussion and Analysis on pages I through IV, is not a required part of the combining financial statements but
is supplementary information required by accounting principles generally accepted in the United States of America. We have
applied certain limited procedures,which consisted principally of inquiries of management regarding the methods of measurement
and presentation of the supplementary information. However,we did not audit the information and express no opinion on it.
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 of Elk River,Minnesota as of December 31,2003 and 2002 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.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental
information listed in the table of contents is presented for the purpose of additional analysis and is not a required part of the
financial statements of the Utilities. Such information,except for that 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.
March 19, 2004 ABDO, EICK&MEYERS,LLP
Minneapolis,Minnesota Certified Public Accountants
952.835.9090 • Fax 952.835.3261
www.aemcpas.com
Management's Discussion and Analysis
This section of the Utilities' annual financial report presents our analysis of the Utilities' financial performance during the fiscal
year that ended December 31, 2003. 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$35,055,298 (net assets).
Net Assets increased by$1,669,805 or 5 percent before prior period adjustments.
• The Utilities'cash balance at the close of the current fiscal year was$4,954,286.
OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report consists of three pans;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-and long-term financial information about its activities. The Statement of
Net Assets includes all of the Utilities' assets and liabilities and provides information about the nature and amounts of
investments in resources(assets)and the obligations 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 Statement of Revenues, Expenses,and Changes in Net
Assets. This statement measures the success of the Utilities' operations over the past year and can be used to determine whether
the Utilities has successfully recovered all its costs through its user fees and other charges,profitability,and credit worthiness.
The final required financial statement is the Statement 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 cash balance during the reporting
period.
FINANCIAL ANALYSIS OF THE UTILITIES
Our analysis of the Utilities begins on pages 3-4 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 years activities?" The Statement of Net
Assets, and the Statements of Revenues,Expenses and Changes in Net Assets report information about the Utilities' activities in a
way that will help answer this question. These two statements report the net assets of the Utilities and changes in these net assets.
You can think of the Utilities'net assets,(the difference between assets and liabilities),as one way to measure financial health or
financial position. Over time, increases or decreases in the Utilities' net assets are one indicator of whether its financial health is
improving or deteriorating. However,you will need to consider other non-financial factors such as changes in economic
conditions,population growth,zoning and new or changed government legislation.
-I-
Management's Discussion and Analysis-Continued
March 19,2004
NET ASSETS
To begin our analysis,a summary of the Utilities' Statement of Net Assets is presented in Table A-1. As can be seen from the
Table,net assets increased$373 thousand to 3.7 million in fiscal 2003 up from 3.3 million in fiscal 2002.
TABLE A-7
Condensed Statement of Net Assets
(In thousands of dollars)
Fiscal Fiscal Total
Year Year Dollar Percent
2002 2003 Change Change
Current and other assets $ 6,121 $ 7,307 $ 1,186 19.4%
Capital assets 28,074 41,878 13,804 49.2
Total assets 34,195 49,185 14,990 43.8
Long-term debt outstanding 8,749 10,793 2,044 23.4
Other liabilities 1,942 3,337 1,395 71.8
Total liabilities 10,691 14,130 3,439 32.2
Invested in capital assets,net of related debt 21,824 29,442 7,618 34.9
Unrestricted 1,680 5,613 3,933 234.1
Total net assets �_�3, � 35 OSS $ 11.551 49 1%
Looking at Table A-I, you can see that most of the change in net assets was realized in the capital assets,which increased
$13,804 thousand in fiscal 2003. This increase reflects the addition of infrastructure added from prior years.
Water and Electric Rates
Water-The Utilities' latest increase in residential and commercial rates were effective the first billing of 2003. The monthly base
charge for residential is$5.00 per month. In addition to the base charge,the Utilities currently charges its residential customers
$1.20 per 1,000 gallons and$1,50 over 8,000 gallons of usage. Commercial base charges are based upon meter size, from$7.00
to$85.00 with cost per thousand gallons the same as the residential rate.
Electric-The latest increase in the Utilities' electric rates was effective January 2003. The monthly base charges are based upon
the type of service. The monthly charges are$7.00 for residential,$15.00 for commercial and$35.00 for industrial. In addition
to the base charges, the residential rate is$.0825/KWh for May-September usage,$.0653/KWh for October-April, non-demand
rate is$.0795/KWh for May-September usage,$.556/KWh for October-April usage,demand rate$.038/KWh energy charge,
demand charge$11.26 KW May-September and$8.50/KW for October-April.
The Utilities has,however,approved an electric rate increase to be effective January 1,2004. The base charge remains the same
as 2003. The residential rate will be$.0865/KWh May-September and$0.717/KWh October-April,commercial rate
$.0835/KWh May-September and$.0616/KWh October-April,demand rate$.0408/KWh energy charge and the KW charge to
stay the same as 2003.
The Utility has also approved a water rate increase to be effective January 1,2004. The residential base charge will be$5.50 in
addition to$1.25 per 1,000 gallons to 8,000 gallons and$2.00 over 8,000 gallons of usage. Commercial customers'base charges
will be from$8.00 to$90.00 based on meter size with usage rates the same as residential.
Certain other rates may be offered for conservation incentive purposes.
The Utilities requires payment of all utility bills to be paid by the due date stated on the monthly bill. A 10 percent penalty is
assessed for payments not received by the due date. The Utilities may discontinue service of a customer not complying with the
disconnect policy of the utility after receiving a written disconnect notice. Customers that have their service discontinued will be
charged a minimum of$20.00 to have their service reconnected. The Utilities abides by the Cold Weather Rules.
-Il-
Management's Discussion and Analysis-Continued
March 19,2004
STATEMENT OF REVENUES,EXPENSES,AND CHANGES IN NET ASSETS
While the Statement of Net Assets shows the change in financial position of net assets,the Statements of Revenues,Expenses,
and Changes in Net Assets,provides answers as to the nature and source of these changes. As can be seen in Table A-2,the
"Increase in Operating Expense" was the main source of the decrease in net assets of$216 thousand in fiscal 2003. A closer
examination of the individual categories affecting the source of changes in net assets is discussed below:
TABLE A-2
Condensed Statement of Revenue,
Expenses,and Changes in Net Assets
(In thousands of dollars)
Fiscal Fiscal Total
Year Year Dollar Percent
2002 2003 Change Change
Revenue
Operating revenue $ 12,006 $ 14,044 $ 2,038 17.0%
Non-operating revenue 1,199 1,270 71 5.9
Total revenue 13,205 15314 2,109 16.0
Expenses
Operating expense
Depreciation expense 1,262 1,652 390 30.9
Other operating expense 9,794 11,646 1,852 18.9
Total expense 11,056 13,298 2,242 20.3
Income before transfer to City 2,149 2,016 (133) (61.9)
Transfer to City (263) (346) (83) 31.6
Change in net assets 1,886 1,670 (216) (11.5)
Net assets,January 1 (2002 and 2003 restated) 19,265 23,504 4,239 22.0
Prior period adjustment 2,353 9,881 7,528 319.9
Net assets,December 31 23,59±1 $_______15„055 $___ 11.551 49.1%
Revenues
Table A-2 shows that operating revenue increased by 17 percent in 2003 for the Water and Electric Departments combined. This
increase was due mainly to customer growth and rate increases.
Total Expenses
In reviewing total expenses in Table A-2 you will notice that there was an increase of 20.3 percent overall. The Electric
Department experienced an increase of 16 percent in operating expenses,while the Water Department's operating expenses
increased by 68 percent. The increase in operating expenses for the Electric Department mainly resulted from the combination of
purchased power and power production increasing by$937,292 over 2002 or 13 percent. The increase in operating expenses for
the Water Department resulted mainly from depreciation.This increase came mainly from the assets added from prior years.
-III-
Management's Discussion and Analysis-Continued
March 19,2004
CAPITAL ASSETS
Capital Assets. The Utilities' investment in capital assets for its business type activities as of December 31,2003,amounts to
$41,877,916(net of accumulated depreciation). This investment in capital assets includes land,buildings,improvements and
equipment. The total increase in the Utilities' investment in capital assets for the current fiscal year was 49 percent. The large
increase was mainly due to assets added from prior years.
Additional information on the Utilities' capital assets can be found in Note 2D on page 19 of this report.
LONG-TERM DEBT
At year end,the Utilities had $10,792,940 in long-term debt up from$8,749,368 in fiscal 2002. The increase resulted from the
issuance of the G.O.Water Revenue Bonds of 2003B. More detailed information about the Utilities' long-term liabilities is
presented in the Notes to the Financial Statements on pages 15-16.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES
The Utilities' Commission,management and staff considered many factors when setting the 2004 budget,rates and fees. An
electric rate study projected growth at approximately 7 percent in 2003,7 percent in 2004 and between 5 and 7 percent in years
thereafter. Purchased power and power production costs that make up for approximately 53 percent of total electric operating
expense were predicted to increase. An electric rate increase was included in the revenue budget for 2004.
Future projects or capital expenditures for the Electric Department include an ongoing infrastructure expansion, feeder ties,
reconductoring and substation expansion. Also taken into consideration were a new digger derrick/bucket truck and fork truck for
unloading delivery trucks.
In the Water Department,a SCADA system is scheduled to be installed as well as improvements made to towers and wells.
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 Patricia Hemza,Elk
River Municipal Utilities, 13069 Orono Parkway,Elk River, Minnesota 55330.
Sincerely,
Patricia Hemza
Office Manager
-IV-
COMBINING FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2003 AND 2002
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF NET ASSETS
DECEMBER 31, 2003 AND 2002
2003
Electric Water Total
ASSETS
CURRENT ASSETS
Cash and temporary investments $ 1,720,812 $ 3,233,474 $ 4,954,286
Receivables
Accrued interest 24,758 24,758 49,516
Accounts 1,065,683 65,057 1,130,740
Other receivables 103,057 44,049 147,106
Due from other city fund - - -
Due from other governments 137,313 - 137,313
Inventories 706,324 34,486 740,810
Prepaid expenses 14,110 4,703 18,813
TOTAL CURRENT ASSETS 3,772,057 3,406,527 7,178,584
CAPITAL ASSETS
Production 5,537,170 8,554,828 14,091,998
Transmission 453,005 - 453,005
Distribution 20,747,671 15,533,926 36,281,597
General 5,208,228 663,965 5,872,193
Construction in progress 6,399 9,673 16,072
CAPITAL ASSETS,COST 31,952,473 24,762,392 56,714,865
LESS ACCUMULATED DEPRECIATION (11,033,606) (3,803,343) (14,836,949)
TOTAL FIXED ASSETS,NET 20,918,867 20,959,049 41,877,916
OTHER ASSETS
Special assessments receivable - - -
Unamortized bond discount - 128,818 128,818
TOTAL OTHER ASSETS - 128,818 128,818
TOTAL ASSETS $ 24,690,924 $ 24,494,394 $ 49,185,318
See Notes To Financial Statements.
-3-
2002
Electric Water Total
$ 2,250,971 $ 1,918,160 $ 4,169,131
7,578 7,578 15,156
967,693 51,246 1,018,939
144,679 56,086 200,765
4,084 - 4,084
82,668 - 82,668
464,116 32,285 496,401
20,604 8,761 29,365
3,942,393 2,074,116 6,016,509
5,475,522 8,644,505 14,120,027
453,431 - 453,431
18,603,468 2,630,252 21,233,720
4,152,728 250,000 4,402,728
25,578 8,526 34,104
28,710,727 11,533,283 40,244,010
(10,172,850) (1,997,241) (12,170,091)
18,537,877 9,536,042 28,073,919
1,283 - 1,283
103,501 103,501
1,283 103,501 104,784
$ 22,481,553 $ 11,713,659 $ 34,195,212
-4-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF NET ASSETS-CONTINUED
DECEMBER 31,2003 AND 2002
2003
Electric Water Total
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Accounts payable $ 710,553 $ 188,011 $ 898,564
Salaries and benefits payable 213,510 58,520 272,030
Accrued interest 32,850 118,827 151,677
Due to other city fund 215,976 150,085 366,061
Due to other governments 6,264 - 6,264
Notes payable-current portion 122,484 - 122,484
Bonds payable- current portion 166,250 1,353,750 1,520,000
TOTAL CURRENT LIABILITIES 1,467,887 1,869,193 3,337,080
LONG-TERM LIABILITIES
Notes payable,less current portion 2,652,940 - 2,652,940
Bonds payable, less current portion 1,605,000 6,535,000 8,140,000
TOTAL LONG TERM LIABILITIES 4,257,940 6,535,000 10,792,940
TOTAL LIABILITIES 5,725,827 8,404,193 14,130,020
NET ASSETS
Invested in capital assets net of related debt 16,372,193 13,070,299 29,442,492
Unrestricted 2,592,904 3,019,902 5,612,806
TOTAL NET ASSETS 18,965,097 16,090,201 35,055,298
TOTAL LIABILITIES AND NET ASSETS $ 24,690,924 $ 24,494,394 $ 49,185,318
See Notes To Financial Statements.
-5-
2002
Electric Water Total
$ 859,394 $ 20,399 $ 879,793
190,842 55,521 246,363
12,760 111,427 124,187
179,549 150,590 330,139
6,264 - 6,264
75,168 - 75,168
280,000 280,000
1,323,977 617,937 1,941,914
2,779,368 - 2,779,368
500,000 5,470,000 5,970,000
3,279,368 5,470,000 8,749,368
4,603,345 6,087,937 10,691,282
18,037,877 3,786,042 21,823,919
(159,669) 1,839,680 1,680,011
17,878,208 5,625,722 23,503,930
$ 22,481,553 $ 11,713,659 $ 34,195,212
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENTS OF REVENUE,EXPENSES AND CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,2003 AND 2002
2003
Electric Water Total
OPERATING REVENUE
Charges for services $ 12,697,258 $ 1,047,561 $ 13,744,819
Security systems 7,528 - 7,528
Generation credit 292,167 - 292,167
TOTAL OPERATING REVENUE 12,996,953 1,047,561 14,044,514
OPERATING EXPENSES
Purchased power 7,786,921 - 7,786,921
Production 434,336 430,772 865,108
Distribution 829,051 123,250 952,301
Depreciation 1,067,063 585,354 1,652,417
Customer accounts 384,491 33,019 417,510
General and administrative 1,361,488 262,636 1,624,124
TOTAL OPERATING EXPENSES 11,863,350 1,435,031 13,298,381
OPERATING INCOME(LOSS) 1,133,603 (387,470) 746,133
NONOPERATING REVENUE(EXPENSES)
Interest income 54,707 22,079 76,786
Connection charges 581,105 750,434 1,331,539
Customer penalties 131,953 6,339 138,292
Miscellaneous revenue 64,766 3,000 67,766
Interest expense (47,653) (268,835) (316,488)
Amortization of bond discount - (9,351) (9,351)
Miscellaneous expense (18,593) - (18,593)
TOTAL NONOPERATING REVENUE(EXPENSES) 766,285 503,666 1,269,951
INCOME BEFORE OPERATING TRANSFERS 1,899,888 116,196 2,016,084
TRANSFERS FROM OTHER CITY FUNDS - - -
TRANSFERS TO OTHER CITY FUNDS (317,918) (28,361) (346,279)
CHANGES IN NET ASSETS 1,581,970 87,835 1,669,805
NET ASSETS,JANUARY 1 17,878,208 5,625,722 23,503,930
PRIOR PERIOD ADJUSTMENTS (495,081) 10,376,644 9,881,563
NET ASSETS,RESTATED,JANUARY 1 17,383,127 16,002,366 33,385,493
NET ASSETS,DECEMBER 31 $ 18,965,097 $ 16,090,201 $ 35,055,298
See Notes to Financial Statements.
-7-
2002
Electric Water Total
$ 10,828,199 $ 834,562 $ 11,662,761
36,609 - 36,609
306,478 - 306,478
11,171,286 834,562 12,005,848
6,849,629 - 6,849,629
184,411 259,780 444,191
667,038 98,317 765,355
969,913 292,559 1,262,472
331,951 23,583 355,534
1,199,584 179,359 1,378,943
10,202,526 853,598 11,056,124
968,760 (19,036) 949,724
76,634 114,961 191,595
642,769 439,295 1,082,064
100,684 8,303 108,987
90,224 36,815 127,039
(13,040) (263,391) (276,431)
(113) (9,351) (9,464)
(24,707) - (24,707)
872,451 326,632 1,199,083
1,841,211 307,596 2,148,807
50,000 - 50,000
(289,264) (23,893) (313,157)
1,601,947 283,703 1,885,650
14,985,502 4,280,094 19,265,596
1,290,759 1,061,925 2,352,684
16,276,261 5,342,019 21,618,280
$ 17,878,208 $ 5,625,722 $ 23,503,930
-8-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,2003 AND 2002
2003
Electric Water Total
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users $ 13,612,021 $ 1,790,523 $ 15,402,544
Other operating cash receipts 864,499 602,248 1,466,747
Payments to suppliers (11,132,501) (1,112,746) (12,245,247)
Payments to employees (857,022) (151,674) (1,008,696)
NET CASH PROVIDED
BY OPERATING ACTIVITIES 2,486,997 1,128,351 3,615,348
CASH FLOWS FROM
NONCAPITAL FINANCING ACTIVITIES
Operating transfer to city (317,918) (28,361) (346,279)
Due from other city funds 4,084 - 4,084
Due to other city funds 36,427 (505) 35,922
Transfers from restricted funds - - -
NET CASH PROVIDED(USED)
BY NONCAPITAL FINANCING ACTIVITIES (277,407) (28,866) (306,273)
CASH FLOWS FROM CAPITAL
AND RELATED FINANCING ACTIVITIES
Acquisition of fixed assets (3,943,134) (1,631,718) (5,574,852)
Principal payments on revenue bonds - (280,000) (280,000)
Proceeds of revenue bonds 1,271,250 2,384,082 3,655,332
Interest paid on revenue bonds (27,563) (261,434) (288,997)
Principal payments on promissory note (79,112) - (79,112)
Proceeds of promissory note - - -
Special assessments collections 1,283 - 1,283
NET CASH PROVIDED(USED)
BY CAPITAL
AND RELATED FINANCING ACTIVITIES (2,777,276) 210,930 (2,566,346)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 37,527 4,899 42,426
INCREASE(DECREASE)
IN CASH AND CASH EQUIVALENTS (530,159) 1,315,314 785,155
CASH AND CASH EQUIVALENTS,JANUARY 1 2,250,971 1,918,160 4,169,131
CASH AND CASH EQUIVALENTS,DECEMBER 31 $ 1,720,812 $ 3,233,474 $ 4,954,286
See Notes To Financial Statements.
-9-
2002
Electric Water Total
$ 11,859,512 $ 1,287,202 $ 13,146,714
835,109 349,861 1,184,970
(9,114,205) (928,628) (10,042,833)
(818,837) (120,938) (939,775)
2,761,579 587,497 3,349,076
(239,264) (23,893) (263,157)
(4,084) - (4,084)
36,419 150,590 187,009
910,908 556,158 1,467,066
703,979 682,855 1,386,834
(6,322,363) (3,413,397) (9,735,760)
(60,000) (210,000) (270,000)
500,000 - 500,000
(1,450) (246,325) (247,775)
(6,264) - (6,264)
2,860,800 - 2,860,800
(3,029,277) (3,869,722) (6,898,999)
106,243 107,376 213,619
542,524 (2,491,994) (1,949,470)
1,708,447 4,410,154 6,118,601
$ 2,250,971 $ 1,918,160 $ 4,169,131
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS-CONTINUED
YEARS ENDED DECEMBER 31,2003 AND 2002
2003
Electric Water Total
CASH FLOWS FROM OPERATING ACTIVITIES
Operating income(loss) $ 1,133,603 $ (387,470) $ 746,133
Adjustments to reconcile operating income (loss)
to net cash provided by operating activities:
Other revenue related to operations 759,231 759,773 1,519,004
Depreciation 1,067,063 585,354 1,652,417
(Increase)decrease in assets:
Accounts receivable (97,990) (13,811) (111,801)
Other receivables 41,622 12,037 53,659
Due from other governments (54,645) - (54,645)
Inventories (242,208) (2,201) (244,409)
Prepaid expenses 6,494 4,058 10,552
Increase(decrease)in liabilities:
Accounts payable (148,841) 167,612 18,771
Salaries and benefits payable 22,668 2,999 25,667
Due to other governments - - -
Customer deposits - - -
NET CASH PROVIDED
BY OPERATING ACTIVITIES 2,486,997 1,128,351 3,615,348
NONCASH CAPITAL
AND RELATED FINANCING ACTIVITIES
Amortization of bond discount $ - $ 9,351 $ 9,351
Discount on bonds issued $ - $ 34,668 $ 34,668
Disposal of fully depreciated fixed assets $ 206,307 $ 1,220,756 $ 1,427,063
Disposal of assets under capitalization threshold $ 626,977 $ 615,699 $ 1,242,676
Assets from prior years added to list 131,896 10,992,343 $ 11,124,239
See Notes To Financial Statements.
-11-
2002
Electric Water Total
$ 923,838 $ (19,036) $ 904,802
853,892 484,413 1,338,305
969,913 292,559 1,262,472
(55,227) 5,042 (50,185)
(52,377) 28,340 (24,037)
(82,668) - (82,668)
70,301 (3,249) 67,052
(20,604) (4,604) (25,208)
246,447 (203,638) 42,809
23,037 7,679 30,716
(13,198) - (13,198)
(101,775) - (101,775)
2,761,579 587,506 3,349,085
$ 113 $ 9,351 $ 9,464
$ - $ - $ -
$ 81,930 $ 970 $ 82,900
$ - $ - $ -
$ - $ - $ -
-12-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of the Business
The Elk River Municipal Utilities(the Utilities)is a municipal utility established by action of the City of Elk
River(the City)pursuant 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 the City.
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(1)the ability of the primary
government to impose its will on that organization or(2)the potential for the organization to provide specific
benefits to,or impose specific financial burdens on 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 are maintained consistent 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 City receives value without directly giving equal value in return,
include property taxes, grants, entitlement 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 City must provide local resources to be used for a specified purpose,and
expenditure requirements,in which the resources are provided to the City on a reimbursement basis.
The preparation of the combining 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.
-13-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
The Utilities has the following fund type:
Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual
basis of accounting. Under this method,revenues are recorded when earned and expenses are recorded at the
time liabilities are incurred. In accordance with the provisions of the Governmental Accounting Standards
Board(GASB)Statement No.20,Accounting and Financial Reporting for Proprietary Funds and other
Governmental Entities that use Proprietary Fund Accounting,the Utilities applies all applicable GASB
pronouncements plus all Financial Accounting Standards Board(FASB)Statements and Interpretations,
Accounting Principles Board opinions,and Accounting Research Bulletins issued on or before November 30,
1989,except for those that conflict with or contradict GASB pronouncements. The Utilities has elected not to
apply FASB Statements and Interpretations issued after November 30, 1989. Proprietary funds include the
following fund type:
Enterprise funds account for those operations that are financed and operated in a manner similar to private
business or where the Commission has decided that the determination of revenues earned,costs incurred and/or
net income is necessary for management accountability.
C. Assets,Liabilities and Equity
Cash and Cash Equivalents
For purposes of reporting cash flows,the Utilities consider all demand, savings and certificates of deposit due
within three months or less to be cash and cash equivalents.
Accounts Receivable
Accounts receivable include amounts billed for services provided before year end. It is the Utilities'policy to
charge uncollectibles directly to operations as accounts become worthless. No substantial losses from present
receivable balances are anticipated.
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 lust-in, first-out(FIFO)method.
Prepaid Items
Payments made to vendors for service that will benefit periods beyond December 31,2003 and 2002 are
recorded as prepaid expenses.
-14-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
Fixed Assets
Fixed assets are stated at cost. Expenditures for maintenance and repairs are charged to operations and
expenditures, which 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 in the invested proceeds over the same period.
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 35 -
Distribution 10-33 25 -50
General 10-50 10-50
Depreciation expense in 2003 and 2002 totaled$1,652,417 and$1,262,472,respectively,of which$1,067,063
and$969,913 were for the Electric fund and$585,354 and$292,559 were for the Water fund,respectively.
Long-term Obligations
Long-term debt is reflected as a liability in the fund issuing the obligation. Bond discounts and issuance costs
are deferred and amortized over the life of the bonds using the straight-line method.
Unpaid Vacation and Sick Leave
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 100 days from year to year and a reduction percentage of 40 percent will
be applied to arrive at sick leave paid upon termination. The liability for vacation and sick pay is reported as a
liability in the respective funds at year end. The liability in the Electric and Water funds was$159,276 and
$148,336 and$53,092 and$49,445 at December 31, 2003 and 2002,respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenditures during the reporting period. Actual results
could differ from those estimates.
-15-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
Note 2: DETAILED NOTES ON ALL FUNDS
A. Deposits and Investments
Cash balances of the Utilities' funds are combined(pooled)and invested to the extent available in various
investments authorized by Minnesota statutes. Each fund's portion of this pool(or pools)is displayed on the
financial statements as"cash and temporary investments." For purposes of identifying the risk of investing
public funds,the balances are categorized as follows:
Deposits
In accordance with Minnesota statutes and as authorized by the Commission,the Utilities maintains deposits at
those depository banks,all of which are members of the Federal Reserve System.
Minnesota statutes require that all Utilities 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
(140 percent in the case of mortgage notes pledged).
Authorized collateral includes the legal investments as prescribed by Minnesota statutes, as well as certain first
mortgage notes,and certain other state or local government obligations. Minnesota statutes require that
securities pledged as collateral be held in safekeeping by the Utilities Treasurer or in a financial institution
other than that furnishing the collateral.
At December 31,2003,the Utilities carrying amount of deposits was$4,954,286 and the bank balance was
$5,749,355. Of the bank balance $200,000 was covered by federal depository insurance,$5,349,355 was
covered by collateral held by the pledging financial institution's agent in the Utilities' name and$200,000 was
uncollateralized.
At December 31,2002,the Utilities carrying amount of deposits was$4,169,131 and the bank balance was
$4,500,541. Of the bank balance $200,000 was covered by federal depository insurance and$4,300,541 was
covered by collateral held by the Utilities'agent in the Utilities'name.
B. Due From Other Governments
The Utilities was awarded$137,313 from the State of Minnesota for a sales tax refund. Of this total,$54,645
is receivable for 2003 and$82,668 remains receivable from 2002 due to state holdback of funds.
-16-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
C. Long-term Debt
G.O.Revenue Bonds
The City 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 Balance Balance
and Interest Issue Maturity at at
Issued Rate Date Date 12/31/03 12/31/02
G.O. Water Revenue
Bonds of 1993B $ 1,125,000 4.15-5.20% 1993 02-01-09 $ 555,000 $ 630,000
G.O.Water Revenue
Bonds of 1994D 1,010,000 5.85-6.50 1994 02-01-10 580,000 645,000
G.O. Water Revenue
Bonds of 1997B 335,000 4.85-5.05 07-28-97 02-01-07 150,000 185,000
G.O.Water Revenue
Bonds of 1998B 820,000 4.10-5.00 12-01-98 02-01-14 655,000 700,000
G.O.Water Revenue
Bonds of2001A 3,590,000 3.75-5.40 10-01-01 02-01-22 3,530,000 3,530,000
G.O. City Hall Expansion
Revenue Bonds of 20028 1,695,000 3.00-5.00 09-01-02 02-01-23 1,695,000 -
G.O. Water Revenue
Bonds of 200313 1,995,000 2.00-3.70 12-09-03 02-01-14 1,995,000 -
Total G.O.Revenue Bonds 9,160,000 5,750,000
G.O.Equipment Certificates
The Utilities has issued equipment certificates to provide for acquisition of vehicles and equipment. The
following issue is to be paid out of Utilities' revenue.
G.O. Electric Equipment
Certificate of 2002 500,000 4.90 06-17-02 02-01-07 500,000 500,000
Total Bonds $ 9 660 000 $ 6 250,Q00
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.
Promissory Note $ 2,860,000 -% 03-19-02 12-31-22 $ 2.775.424 2
-17-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Changes in Long-term Liabilities
Long-term liability activity for the year ended December 31, 2003, was as follows:
Beginning Ending Due Within
Balance Additions Reductions Balance One Year
G.O.Revenue Bonds
G.O.Water Revenue
Bonds of 1993B $ 630,000 $ - $ 75,000 $ 555,000 $ 555,000
G.O. Water Revenue
Bonds of 1994D 645,000 - 65,000 580,000 580,000
G.O. Water Revenue
Bonds of 1997B 185,000 - 35,000 150,000 35,000
G.O. Water Revenue
Bonds of 1998B 700,000 - 45,000 655,000 50,000
G.O.Water Revenue
Bonds of 2001A 3,590,000 - 60,000 3,530,000 120,000
G.O. City Hall
Expansion Revenue
Bonds of2002B 1,695,000 - - 1,695,000 55,000
G.O.Water Revenue
Bonds of 2003B - 1,995,000 - 1,995,000 -
G.O.Equipment Certificate
G.O.Electric Equipment
Certificate of 2002 500,000 - - 500,000 125,000
Promissory Note
Promissory Note 2,854,536 - 79,112 2,775,424 122,484
Total $ 9 104,536 5 1.995 000 359.112 $ 12 435,424 $ 1542_4E4
The annual requirements to amortize all debt outstanding as of December 31,2003 are as follows:
Year Ending
December 31, Bonds Notes Total
2004 $ 1,900,652 $ 122,484 $ 2,023,136
2005 880,307 124,919 1,005,226
2006 886,187 127,274 1,013,461
2007 883,598 129,554 1,013,152
2008 707,335 131,945 839,280
2009-2013 3,621,903 694,061 4,315,964
2014-2018 2,388,718 749,928 3,138,646
2019-2023 1,827,678 695,259 2,522,937
Total principal and interest 13,096,377 2,775,424 15,871,801
Less interest (3,436,377) - (3,436,377)
Total principal X9.660.000 L_22775,424 12.4 35424
-18-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
D. Capital Assets
Capital asset activity for the year ended December 31,2003 was as follows:
Beginning Ending
Balance Increases Decreases Balance
Capital assets:
Electric
Production $ 5,475,522 $ 128,589 $ (66,941) $ 5,537,170
Transmission 453,431 15,495 (15,921) 453,005
Distribution 18,603,468 14,810,317 (12,666,114) 20,747,671
General 4,152,728 1,567,833 (512,333) 5,208,228
Work in process 25,578 - (19,179) 6,399
Total capital assets 28,710,727 16,522,234 (13,280,488) 31,952,473
Less accumulated depreciation for:
Production $ (2,181,133) $ (169,398) $ 16,911 $ (2,333,620)
Transmission (411,547) (25,007) 14,557 (421,997)
Distribution (5,701,023) (4,815,591) 4,095,337 (6,421,277)
General (1,879,147) (196,113) 218,548 (1,856,712)
Total accumulated depreciation (10,172,850) (5,206,109) 4,345,353 (11,033,606)
Total electric capital assets,net 18,537,877 11,316,125 (8,935,135) 20,918,867
Water
Production 8,644,505 340,787 (430,464) 8,554,828
Distribution 2,630,252 13,379,161 (475,487) 15,533,926
General 250,000 443,793 (29,828) 663,965
Work in process 8,526 1,147 - 9,673
Total capital assets 11,533,283 14,164,888 (935,779) 24,762,392
Less accumulated depreciation for:
Production $ (1,444,070) $ (264,884) $ 32,390 $ (1,676,564)
Distribution (507,501) (1,653,984) 87,562 (2,073,923)
General (45,670) (14,595) 7,409 (52,856)
Total accumulated depreciation (1,997,241) (1,933,463) 127,361 (3,803,343)
Total water capital assets, net 9,536,042 12,231,425 (808,418) 20,959,049
Total capital assets, net $2 073 919 $ 23.547.551 $_19,/‘13,551) S 1 877
Depreciation expense was charged to functions/programs of the Utilities as follows:
Electric $ 1,067,063
Water 585,354
Total depreciation expense 1.652417
-19-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
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 Public
Employees Retirement Fund(PERF),which is a cost-sharing,multiple-employer retirement plan. This plan is
established and administered in accordance with Minnesota Statutes,Chapters 353 and 356.
PERF 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 State 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.
Two methods are used to compute benefits for PERF's Coordinated and Basic Plan members. The retiring
member receives the higher of a step-rate benefit accrual formula(Method 1)or a level accrual formula
(Method 2). Under Method I,the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary
for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a
Coordinated Plan member is 1.2 percent of average salary for each of 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 PERF members whose annuity is calculated using Method 1,a full annuity is available when age plus
years of service equal 90. 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 normal annuity is a lifetime
annuity that ceases upon the death of the retiree and no survivor annuity is payable. There are also various
types ofjoint and survivor annuity options available which will reduce the monthly normal annuity amount,
because the annuity is 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 PERE. That report may be obtained on the web at www.mnpera.com,by writing to PERA, 60
Empire Drive,Suite 200, St. Paul,Minnesota 55103-1855 or by calling 651-296-7460 or 1-800-652-9026.
-20-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED
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. PERF Basis Plan members and Coordinated Plan
members are required to contribute 9.10 percent and 5.10 percent,respectively,of their annual covered salary.
The Utilities is required to contribute the following percentages of annual covered payroll: 11.78 percent for
Basic Plan PERF members, 5.53 percent for Coordinated Plan PERF members. The Utilities'contributions to
the PERF for the years ended December 31, 2003, 2002 and 2001 were$88,185,$77,214 and$72,220,
respectively. The Commission's contributions were equal to the contractually required contributions for each
year as set by Minnesota statutes.
Note 4: OTHER INFORMATION
A. Territorial Acquisition Agreement
The Utilities has entered into an agreement to transfer ownership of electric plant and electric service to
customers in certain areas currently receiving electric service from Anoka Electric Cooperative,Inc.(AEC).
The cost of property purchased from AEC will be net book value. The Utilities will also pay AEC for loss of
revenue for each area acquired based on a formula outlined in the agreement.
In addition,the Utilities will compensate AEC for the loss of revenue from the future sale of electricity to electric
customers in the areas acquired from AEC for a period of ten years from the date of sale of each individual area.
During 2003 and 2002,the Utilities paid$94,160 and$285,766,respectively,under this agreement,including
$94,160 and$240,595 in 2003 and 2002,respectively, for loss of revenues. All amounts paid are included in
property and equipment.
B. Risk Management
The Utilities is exposed to various risks of loss related to tons;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.
Note 5: PRIOR PERIOD ADJUSTMENT
The 2003 beginning net assets were adjusted as a result of disposal of fixed assets under capitalization threshold and to
recognize prior infrastructure not recorded in the Water fund.The 2002 beginning net assets were adjusted by
$1,290,759 and$1,061,925 in the Electric and the Water fund,respectively,to restate contributed capital as retained
earnings.
-21-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2003 AND 2002
Note 6: CHANGE IN ACCOUNTING PRINCIPLE
During fiscal year 2003,the Utilities implemented several new accounting pronouncements issued by the Government
Accounting Standards Board(GASB). They are Statement No. 34,"Basic Financial Statements-and Management's
Discussion and Analysis-for State and Local Governments", Statement No. 37, "Basic Financial Statements-and
Management's Discussion and Analysis-for State and Local Governments: Omnibus",and Statement No.38, "Certain
Financial Statement Note Disclosures",paragraphs 6 through 11.
The effect of this change resulted in a prior period adjustment of$1,290,759 and$1,061,925 in the Electric and Water
fund,respectively,to restate contributed capital as retained earnings in the December 31,2002 financial statements.
-22-
•
•
SUPPLEMENTAL INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2003
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULE OF OPERATING REVENUE AND EXPENSES
YEARS ENDED DECEMBER 31,2003 AND 2002
2003
Electric Water Total
OPERATING REVENUE
Charges for services
Elk River $ 11,521,877 $ 1,047,561 $ 12,569,438
Otsego 843,180 - 843,180
Big Lake 193,331 - 193,331
Dayton 138,870 - 138,870
Security systems 7,528 - 7,528
Generation credit 292,167 - 292,167
TOTAL OPERATING REVENUE 12,996,953 1,047,561 14,044,514
OPERATING EXPENSES
Purchased power 7,786,921 - 7,786,921
Production
Supervision and labor 35,618 21,410 57,028
Natural gas 4,495 - 4,495
Supplies and power for pumping 70,360 183,951 254,311
Landfill gas expense 232,919 - 232,919
Maintenance of structures 36,028 19,244 55,272
Maintenance of equipment 33,429 206,167 239,596
Maintenance of plant 21,487 - 21,487
Total 434,336 430,772 865,108
Transmission and distribution
Supervision and labor 19,363 8,564 27,927
Maintenance of overhead lines 234,062 - 234,062
Maintenance of underground lines 105,575 - 105,575
Maintenance of station equipment 130,585 - 130,585
Transportation 130,373 24,791 155,164
Maintenance of customer service 2,968 53,841 56,809
Maintenance of customer meters 70,692 36,054 106,746
Miscellaneous 135,433 - 135,433
Total 829,051 123,250 952,301
Services to city 265,234 - 265,234
Depreciation 1,067,063 585,354 1,652,417
Customer accounts expense
Meter reading 54,053 15,633 69,686
Billing and collection 45,125 17,386 62,511
Bad debts 20,079 - 20,079
Total 119,257 33,019 152,276
-23-
2002
Electric Water Total
$ 9,832,305 $ 834,562 $ 10,666,867
678,110 - 678,110
188,398 - 188,398
129,386 - 129,386
36,609 - 36,609
306,478 - 306,478
11,171,286 834,562 12,005,848
6,849,629 - 6,849,629
34,525 21,581 56,106
2,825 - 2,825
39,466 191,310 230,776
33,844 - 33,844
17,994 907 18,901
54,280 45,982 100,262
1,477 - 1,477
184,411 259,780 444,191
18,703 9,459 28,162
234,260 - 234,260
110,533 - 110,533
18,637 - 18,637
109,676 18,512 128,188
4,645 55,738 60,383
40,336 14,608 54,944
130,248 - 130,248
667,038 98,317 765,355
238,372 - 238,372
969,913 292,559 1,262,472
52,513 13,635 66,148
35,261 9,948 45,209
5,805 - 5,805
93,579 23,583 117,162
-24-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULE OF OPERATING REVENUE AND EXPENSES-CONTINUED
YEARS ENDED DECEMBER 31,2003 AND 2002
2003
Electric Water Total
OPERATING EXPENSES -CONTINUED
General and administrative
Salaries $ 279,063 $ 16,933 $ 295,996
Employee pensions and benefits 545,646 107,766 653,412
Dues 28,199 5,892 34,091
Office supplies and billing expense 49,354 16,315 65,669
Office utilities and maintenance 123,122 17,669 140,791
Consulting fees 33,096 23,324 56,420
Legal and audit 14,907 5,863 20,770
Environmental compliance 31,998 - 31,998
Landfill gas project 17,980 826 18,806
Insurance 114,309 39,330 153,639
Telephone 12,649 4,380 17,029
Advertising 14,282 5,327 19,609
Education and meetings 67,175 9,376 76,551
Miscellaneous 29,708 9,635 39,343
Total 1,361,488 262,636 1,624,124
TOTAL OPERATING EXPENSES 11,863,350 1,435,031 13,298,381
OPERATING INCOME(LOSS) 1,133,603 (387,470) 746,133
NONOPERATING REVENUE(EXPENSE)
Interest income 54,707 22,079 76,786
Connection charges 581,105 750,434 1,331,539
Customer penalties 131,953 6,339 138,292
Miscellaneous revenue 64,766 3,000 67,766
Interest expense (47,653) (268,835) (316,488)
Amortization of bond discount - (9,351) (9,351)
Miscellaneous expense (18,593) - (18,593)
TOTAL NONOPERATING
REVENUE(EXPENSE) 766,285 503,666 1,269,951
INCOME BEFORE OPERATING TRANSFERS 1,899,888 116,196 2,016,084
OPERATING TRANSFERS FROM OTHER FUNDS - - -
OPERATING TRANSFERS TO OTHER FUNDS (317,918) (28,361) (346,279)
NET INCOME 1,581,970 87,835 1,669,805
NET ASSETS,JANUARY 1 17,878,208 5,625,722 23,503,930
PRIOR PERIOD ADJUSTMENTS (495,081) 10,376,644 9,881,563
NET ASSETS,RESTATED,JANUARY 1 17,383,127 16,002,366 33,385,493
NET ASSETS,DECEMBER 31 $ 18,965,097 $ 16,090,201 $ 35,055,298
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2002
Electric Water Total
$ 238,757 $ 14,398 $ 253,155
549,889 83,179 633,068
29,055 10,595 39,650
56,651 14,511 71,162
66,638 1,561 68,199
16,868 9,948 26,816
12,034 4,652 16,686
25,157 - 25,157
6,659 645 7,304
100,203 14,756 114,959
13,585 3,831 17,416
9,614 5,798 15,412
64,115 11,447 75,562
10,359 4,038 14,397
1,199,584 179,359 1,378,943
10,202,526 853,598 11,056,124
968,760 (19,036) 949,724
76,634 114,961 191,595
642,769 439,295 1,082,064
100,684 8,303 108,987
90,224 36,815 127,039
(13,040) (263,391) (276,431)
(113) (9,351) (9,464)
(24,707) - (24,707)
872,451 326,632 1,199,083
1,841,211 307,596 2,148,807
50,000 - 50,000
(289,264) (23,893) (313,157)
1,601,947 283,703 1,885,650
14,985,502 4,280,094 19,265,596
1,290,759 1,061,925 2,352,684
16,276,261 5,342,019 21,618,280
$ 17,878,208 $ 5,625,722 $ 23,503,930
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULE OF CAPITAL ASSETS
YEARS ENDED DECEMBER 31,2003 AND 2002
Captial assets
Balance Balance
12/31/2002 Additions Retirements 12/31/2003
ELECTRIC FUND
Production
Land and land rights $ 113,682 $ 110,538 $ 27,407 $ 196,813
Land improvement 88,194 - 25,047 63,147
Structures 149,431 - - 149,431
Diesel generating equipment 2,017,213 - 13,585 2,003,628
Switchboard and electrical equipment 76,457 - 902 75,555
Landfill gas project 3,030,545 18,051 - 3,048,596
Total 5,475,522 128,589 66,941 5,537,170
Transmission
Poles,towers and fixtures 15,495 - 15,495 -
Overhead conductors and devices 437,936 15,495 426 453,005
Total 453,431 15,495 15,921 453,005
Distribution
Land and land rights 105,733 - 105,733 -
Roads and trails 4,805 - 4,805 -
Plant acquisition adjustment 1,762,155 865,556 65,665 2,562,046
Station equipment 2,440,346 - 129,126 2,311,220
Poles,towers and fixtures 1,099,054 13,396,116 - 14,495,170
Overhead conductors and devices 1,681,887 - 1,681,887 -
Underground conduit 7,059,335 - 7,059,335 -
Line transformers 3,321,324 - 3,321,324 -
Electric service 269,292 - 269,292 -
Customer electric meters 674,644 361,143 19,106 1,016,681
Installations on customer premises 9,841 - 9,841 -
Street lighting and signal systems 175,052 187,502 - 362,554
Total 18,603,468 14,810,317 12,666,114 20,747,671
General
Structures and improvements 684,766 - 62,989 621,777
Shop tools and equipment 378,646 88,707 122,611 344,742
Transportation equipment 1,908,827 153,454 47,100 2,015,181
Offices furniture and equipment 441,066 - 103,016 338,050
Miscellaneous equipment 91,568 5,076 40,552 56,092
General plant improvements 553,728 1,320,596 41,938 1,832,386
Security service 94,127 - 94,127 -
Total 4,152,728 1,567,833 512,333 5,208,228
Construction in progress 25,578 - 19,179 6,399
TOTAL ELECTRIC FUND 28,710,727 16,522,234 13,280,488 31,952,473
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Accumulated Depreciation
Balance Balance
12/31/2002 Additions Retirements 12/31/2003
$ - $ - $ - $ -
29,527 2,526 8,011 24,042
122,511 2,988 - 125,499
1,951,661 13,042 8,536 1,956,167
74,523 - 364 74,159
2,911 150,842 - 153,753
2,181,133 169,398 16,911 2,333,620
14,536 - 14,536 -
397,011 25,007 21 421,997
411,547 25,007 14,557 421,997
1,463 - 1,463 -
586,158 202,209 40,752 747,615
704,077 64,366 47,164 721,279
213,923 4,199,861 - 4,413,784
985,899 985,899 -
1,529,844 - 1,529,844 -
1,173,660 - 1,173,660 -
258,763 - 258,763 -
224,597 268,337 - 492,934
2,681 - 2,681 -
19,958 80,818 55,111 45,665
5,701,023 4,815,591 4,095,337 6,421,277
108,684 12,495 11,803 109,376
198,280 31,951 29,378 200,853
1,084,378 112,863 13,898 1,183,343
296,834 13,204 39,214 270,824
29,638 4,141 20,185 13,594
69,910 21,459 12,647 78,722
91,423 - 91,423 -
1,879,147 196,113 218,548 1,856,712
10,172,850 5,206,109 4,345,353 11,033,606
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULE OF CAPITAL ASSETS-CONTINUED
YEARS ENDED DECEMBER 31,2003 AND 2002
Capital Assets
Balance Balance
12/31/2002 Additions Retirements 12/31/2003
WATER FUND
Production
Water tower $ 3,878,326 $ 166,922 $ 120,163 $ 3,925,085
Structures 223,912 - 37,554 186,358
Iron removal 3,305,001 173,865 60,688 3,418,178
Well 1,237,266 - 212,059 1,025,207
Total 8,644,505 340,787 430,464 8,554,828
Distribution
Water mains 2,309,275 12,971,860 186,495 15,094,640
Customer water service 11,135 407,301 13,724 404,712
Water meters 274,119 - 274,119 -
Water hydrants 35,723 - 1,149 34,574
Total 2,630,252 13,379,161 475,487 15,533,926
General
Transportation equipment 43,024 20,043 4,292 58,775
Offices furniture and equipment 33,653 - 19,381 14,272
Miscellaneous equipment 44,184 - 5,053 39,131
General plant improvements 129,139 423,750 1,102 551,787
Total 250,000 443,793 29,828 663,965
Construction in progress 8,526 1,147 - 9,673
TOTAL WATER FUND 11,533,283 14,164,888 935,779 24,762,392
TOTAL FIXED ASSETS $ 40,244,010 $ 30,687,122 $ 14,216,267 $ 56,714,865
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Accumulated Depreciation
Balance Balance
12/31/2002 Additions Retirements 12/31/2003
$ 585,680 $ 114,601 $ 9,808 $ 690,473
119,387 1,661 2,154 118,894
625,167 125,332 4,454 746,045
113,836 23,290 15,974 121,152
1,444,070 264,884 32,390 1,676,564
401,225 1,558,694 10,778 1,949,141
5,902 94,318 - 100,220
76,654 - 76,654 -
23,720 972 130 24,562
507,501 1,653,984 87,562 2,073,923
30,183 4,041 969 33,255
9,534 1,798 5,510 5,822
4,495 3,595 702 7,388
1,458 5,161 228 6,391
45,670 14,595 7,409 52,856
1,997,241 1,933,463 127,361 3,803,343
$ 12,170,091 $ 7,139,572 $ 4,472,714 $ 14,836,949
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
ELECTRIC FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31, 1998 THROUGH DECEMBER 31,2003
SUMMARY OF OPERATIONS
2003 2002 2001
OPERATING REVENUE
Sales of electricity $ 12,697,258 $ 10,783,277 $ 9,602,678
Other operating revenue 299,695 343,087 369,505
TOTAL OPERATING REVENUE 12,996,953 11,126,364 9,972,183
OPERATING EXPENSES
Purchased power 7,786,921 6,849,629 6,035,913
Distribution 829,051 667,038 609,098
Services to the City 265,234 238,372 227,266
Depreciation 1,067,063 969,913 902,407
Other operating expenses 1,915,081 1,477,574 1,241,722
TOTAL OPERATING EXPENSES 11,863,350 10,202,526 9,016,406
OPERATING INCOME 1,133,603 923,838 955,777
TRANSFERS FROM OTHER FUNDS - 50,000 -
TRANSFERS TO OTHER FUNDS (317,918) (289,264) (252,497)
NON-OPERATING REVENUE 766,285 917,373 790,147
NET INCOME $ 1,581,970 $ 1,601,947 $ 1,493,427
PERCENT OF CHANGE
Sales of electricity 17.75% 12.29% 6.27%
Purchased power 13.68% 13.48% 9.79%
PERCENT OF REVENUE
Purchased power 59.913% 61.562% 60.527%
UNAUDITED STATISTICS
MISCELLANEOUS
2003 2002 2001
KWH's purchased 170,092,937 157,594,270 145,172,123
KWH's sold 161,852,054 149,787,670 138,473,405
Line loss 8,240,883 7,806,600 6,698,718
Percent of line loss 4.845% 4.954% 4.614%
REVENUE PER KWH SOLD $ 0.0784 $ 0.0720 $ 0.0693
COST PER KWH PURCHASED $ 0.0458 $ 0.0435 $ 0.0416
NUMBER OF CUSTOMERS 7,376 7,002 6,799
TOTAL CONTRIBUTION/TRANSFERS TO CITY $ 387,852 $ 527,636 $ 479,763
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2000 1999 1998
$ 9,036,269 $ 8,566,463 $ 8,026,825
353,577 335,541 241,376
9,389,846 8,902,004 8,268,201
5,497,606 4,863,987 4,675,094
541,286 608,510 602,168
220,950 216,526 224,393
812,124 739,411 661,458
1,207,094 1,052,371 932,294
8,279,060 7,480,805 7,095,407
1,110,786 1,421,199 1,172,794
(230,914) (221,974) (190,261)
606,494 452,621 400,064
$ 1,486,366 $ 1,651,846 $ 1,382,597
5.48% 6.72% 10.85%
13.03% 4.04% 11.98%
58.548% 54.639% 56.543%
2000 1999 1998
133,811,963 125,521,997 119,787,449
126,693,167 119,881,587 114,090,383
7,118,796 5,640,410 5,697,066
5.320% 4.494% 4.756%
$ 0.0713 $ 0.0715 $ 0.0704
$ 0.0411 $ 0.0388 $ 0.0390
6,371 6,018 5,751
$ 451,864 $ 438,500 $ 414,654
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTAL INFORMATION
WATER FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31, 1998 THROUGH DECEMBER 31, 2003
SUMMARY OF OPERATIONS
2003 2002 2001
OPERATING REVENUE
Sales of water $ 1,047,561 $ 834,562 $ 844,982
OPERATING EXPENSES
Operating expenses 849,677 561,039 520,323
Depreciation 585,354 292,559 195,315
TOTAL OPERATING EXPENSES 1,435,031 853,598 715,638
TOTAL OPERATING INCOME(LOSS) $ (387,470) $ (19,036) $ 129,344
PERCENT OF CHANGE
Sales of water 25.52% -1.23% 11.85%
UNAUDITED STATISTICS
MISCELLANEOUS
2003 2002 2001
WATER PUMPED(gallons) 706,804,000 641,675,000 680,490,000
WATER SOLD(gallons) 634,994,000 527,780,000 558,945,000
Percent of line loss 10.16% 17.75% 17.86%
Revenue per 1,000 gallons pumped $ 1.47 $ 1.29 $ 1.23
Revenue per 1,000 gallons sold $ 1.65 $ 1.58 $ 1.51
Number of customers 3,207 3,207 3,009
UNUSUAL LINE LOSS
Gallons
2003 2002 2001
Flushing hydrants 11,500,000 11,500,000 11,500,000
Back washing 8,880,000 8,880,000 8,880,000
Fire department use 5,000,000 5,000,000 5,000,000
New water main disinfectant and flushing 5,000,000 5,000,000 5,000,000
Meter inaccuracy 4,000,000 4,000,000 4,000,000
Eastern end maintenance 15,000,000 15,000,000 15,000,000
Unusual line loss 49,380,000 49,380,000 49,380,000
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2000 1999 1998
$ 755,462 $ 627,449 $ 610,491
429,776 325,849 266,011
185,266 163,423 137,985
615,042 489,272 403,996
$ 140,420 $ 138,177 $ 206,495
20.40% 2.78% 16.14%
2000 1999 1998
577,627,690 495,306,000 487,218,000
521,837,790 423,638,000 423,459,000
9.66% 14.47% 13.09%
$ 1.30 $ 1.26 $ 1.25
$ 1.45 $ 1.48 $ 1.44
2,830 2,641 2,427
Gallons
2000 1999 1998
7,000,000 7,000,000 7,000,000
4,000,000 4,000,000 3,000,000
5,000,000 5,000,000 5,000,000
1,500,000 1,500,000 7,364,000
4,000,000 4,000,000 2,000,000
21,500,000 21,500,000 24,364,000
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OTHER REPORT
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2003
• I •ABDO
rQEIcK &
MEYERS LLP
Certified Public Accountants & Consultants
Grandview Square
5201 Eden Avenue
Suite 370
Edina,MN 55436
REPORT ON MINNESOTA LEGAL COMPLIANCE
To the Chairperson and Members of the Commission
Elk River Municipal Utilities
Elk River,Minnesota
We have audited the financial statements of the Elk River Municipal Utilities(the Utilities)as of and for the year ended
December 31,2003,and have issued our report thereon dated March 19,2004.
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 Local Government,promulgated by the Minnesota Office of the
State Auditor pursuant to Minnesota statute,section 6.65. Accordingly,the audit included such tests of the accounting records and
such other auditing procedures,as we considered necessary in the circumstances.
The Minnesota Legal Compliance Audit Guide for Local Government covers six main categories of compliance to be tested:
contracting and bidding,deposits and investments,conflicts of interest,public indebtedness,claims and disbursements and
miscellaneous provisions. Our study included all of the listed categories.
The results of our tests indicate that for the items tested,the Utilities complied with the material terms and conditions of applicable
legal provisions except as noted on the Schedule of Findings.
This report is intended solely for the information and use of the management, Public Utilities Commission, City Council 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.
March 19, 2004 ABDO,EICK&MEYERS,LLP
Minneapolis,Minnesota Certified Public Accountants
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952.8359090 • Fax 952.835.3261
www.aemcpas.com
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SCHEDULE OF FINDINGS
DECEMBER 31,2003 AND 2002
Finding Description
2003-1 Collateral Coverage
In accordance with Minnesota statute,section 118a.03,the Utilities is required to have pledged collateral equal
to 110 percent of the deposits not covered with insurance. At December 31,2003, the Utilities was$200,000
under collateralized.
Management Response
The Utilities acknowledges the finding. Collateral was pledged on January 2,2004 when the oversight was
discovered. Staff will continue to monitor collateral on a monthly basis to ensure that the condition doesn't
occur again.
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