5.3. ERMUSR 04-12-2016 Elk River
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:
April 12, 2016 5.3
SUBJECT:
2015 Financial Audit
BACKGROUND:
Audit fieldwork was completed February 25th and 26th by our auditors, Abdo, Eick&Meyers
(AEM). Again this year, AEM completed and compiled the enclosed audit report this year, and
issued an opinion letter. Elk River Municipal Utilities staff has reviewed for approval.
DISCUSSION:
Mr. Andrew Berg of AEM will be at our meeting to present the 2015 audit and answer questions
you may have. This year the implementation of GASB 68,Accounting and Financial Reporting
for Pensions, resulted in recognition of a liability of$2,477,244, recognition of Deferred
Outflows and Inflows of Resources, for an ultimate restatement of prior year's net position of
$2,701,156 (a reduction). These items are discussed in Note 3 and Note 6 of the financials.
Fortunately for us, we had reserve balances and income that helped offset the GASB 68
adjustments.
ACTION REQUESTED:
Accept 2015 Annual Financial Report
ATTACHMENTS:
• ERMU Annual Financial Report For the Year Ended December 31, 2015.
• AEM Management Letter
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YEAR S
Annual Financial Report
Elk River Utilities
Elk River, Minnesota
For the Year Ended
December 31, 2015
ABDO
EICK &
MEYERS
Certified Public:4ccountants&Consultants
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 2015
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
TABLE OF CONTENTS
FOR THE YEAR ENDED DECEMBER 31,2015
Page No.
INTRODUCTORY SECTION
Public Utilities Commission and Administration 5
FINANCIAL SECTION
Independent Auditor's Report 9
Management's Discussion and Analysis 13
Financial Statements
Statement of Net Position 20
Statement of Revenues,Expenses and Changes in Net Position 23
Statement of Cash Flows 24
Notes to the Financial Statements 27
Required Supplementary Information
Schedule of Funding Progress for the Retiree Health Plan 48
Schedule of Employer's Share of Public Employees Retirement Association Net Pension Liability-
General Employees Retirement Fund 48
Schedule of Employer's Public Employees Retirement Association Contributions-
General Employees Retirement Fund 48
Supplementary Information
Schedule of Operating Revenues and Expenses 50
Electric Fund
Summary of Operations and Unaudited Statistics 52
Water Fund
Summary of Operations and Unaudited Statistics 54
OTHER REPORT
Independent Auditor's Report on Minnesota Legal Compliance 59
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INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2015
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
PUBLIC UTILITIES COMMISSION AND ADMINISTRATION
DECEMBER 31,2015
Name Title
John Dietz Chairperson
Allan Nadeau Vice-Chairperson
Daryl Thompson Trustee
ADMINISTRATION
Name Title
Troy Adams General Manager
Theresa Slominski Finance and Office Manager
Eric Volk Water Superintendent
Mark Fuchs Line Superintendent
Mike O'Neill Technical Services Superintendent
Tom Sagstetter Conservation and Key Accounts Manager
Michelle Canterbury Executive Administrative Assistant
Jennie Nelson Customer Service Manager
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FINANCIAL SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2015
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ABDO
EICK &
MEYERS El W LLP
Certtfred Public Accountants&Consultants
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 Elk River Municipal Utilities(the Utilities)of the City of Elk River,
Minnesota(the City),as of and for the year ended December 31,2015,and the related notes to the 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 audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform
the audit 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 presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion,the financial statements referred to above present fairly,in all material respects,the financial position of the Utilities of
the City as of December 31,2015,and the changes in financial position and cash flows thereof for the year then ended in accordance
with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1B,the financial statements present only the Electric and Water enterprise funds and do not purport to,and do
not present fairly the financial position of the City as of December 31,2015,the changes in its financial position,or,where applicable,
its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Our opinion is not modified with respect to this matter.
5201 Eden Avenue,Suite 250
Edina,MN 55436
952.835.9090 I Fax 952.835.3261
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Other Matters
Change in Accounting Standards
As described in Note 6 to the financial statements,the Utilities adopted the provisions of Governmental Accounting Standard
Board(GASB)Statement No. 68,Accounting and Financial Reporting for Pensions-an Amendment of GASB Statement No. 27 and
Statement No.71,Pension Transition for Contributions Made Subsequent to the Measurement Date-an Amendment of GASB
Statement No. 68, for the year ended December 31,2015.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
Page 13 and the Schedule of Employer's Shares of the Net Pension Liability,the Schedule of Employer's Contributions and the
Schedule of Funding Progress for Other Post-Employment Benefit Plan starting on page 48 be presented to supplement the basic
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.
Other Information
Our audit was 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 and the supplemental information marked"unaudited"have 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.
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March 31,2016
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Management's Discussion and Analysis
This section of the Elk River Municipal Utilities(the Utilities)of the City of Elk River,Minnesota annual financial report presents our
analysis of the Utilities'financial performance during the fiscal year that ended December 31,2015. Please read it in conjunction with
the financial statements,which follow this section.
Financial Highlights
• The assets and deferred outflows of resources of the Utilities exceeded its liabilities and deferred inflows of resources at the
close of the most recent fiscal year by$55,885,878(net position). Net Position increased by$2,531,445 or 4.5 percent.
• The Utilities'cash balance at the close of the current fiscal year was$17,542,791.
• Electric usage overall was up an average of 3 percent. Residential usage increased 1.9 percent,Commercial usage increased
2.9 percent,and Industrial usage increase 3.2 percent.
• Water usage overall was up an average of less than 1 percent,at 0.61 percent from the prior year.Residential usage decreased
6 percent,and Commercial usage increased 7 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.
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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.
Net position. To begin our analysis,a summary of the Utilities' Statements of Net Position is presented in Table A-l. As can be seen
from the Table,net assets and deferred inflows increased$2,531,445 to$55,885,878 in fiscal 2015 up from$53,354,433 in fiscal
2014.
•
TABLE A-1
Condensed Statement of Net Position
* Increase
2015 2014 (Decrease)
Assets
Current and other $ 21,848,337 $ 20,288,649 $ 1,559,688
Capital 48,151,150 48,254,028 (102,878)
Total assets 69,999,487 68,542,677 1,456,810
Total deferred outflows 360,603 67,284 293,319
Liabilities
Current 5,408,917 5,269,454 139,463
Non-current 8,557,562 7,284,918 1,272,644
Total liabilities 13,966,479 12,554,372 1,412,107
Total deferred inflows 507,733 - 507,733
Net position
Net investment in capital assets 41,216,712 40,218,203 998,509
Restricted for debt service 490,500 490,500 -
Unrestricted 14,178,666 15,346,886 (1,168,220)
Total net position $ 55,885,878 $ 56,055,589 $ (169,711)
*GASB Statement No. 68 was implemented for the year ended December 31,2015 and required a$2,701,156 restatement of
beginning net position.Prior year amounts were not restated causing a variance in ending net position at December 31,2014 and
beginning net position on January 1,2015. See financial statement Note 6.
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Water and electric rates. Electric-The latest increase in the Utilities'electric rates was effective January 2015. There was no
electric rate increase in 2016. The monthly base charges are based upon the type of service. The monthly charges are$12.00 for
residential,$20.00 for commercial,and$60.00 for industrial customers. In addition to the base charges the residential rate is
$.1360/KWh for May-September usage,and$.1205/KWh for October-April usage;the commercial rate is$.1304/KWh for May-
September usage,and$.1087/KWh for October-April usage;the industrial rate is$.0649/KWh energy charge year round with a
demand charge of$16.94/KW May-September,and$11.99/KW for October-April.
Water-The Utilities' latest increase in residential and commercial'rates was effective January 2016.The monthly base charge for
residential customers is$8.64 per month. In addition to the base charge,the Utilities currently charges its residential customers$1.72
per 1,000 gallons up to 9,000 gallons,$3.50 per 1,000 gallons between 9,000 gallons and 15,000 gallons,and$4.00 per 1,000 gallons
for usage above 15,000 gallons. Commercial customer's base charges are based upon meter size,and range from$10.37 to$109.53.
An irrigation meter is$46.11 for every month the meter is utilized. There is also a charge per thousand gallons,the same tiers as the
residential rates of$1.72,$3.50,and$4.00,except the graduation from the lower tier to the higher tier(s)is calculated based on
previous consumption.
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 customers that have their water shut-off will be charged
a fee of$100.00 to have their water turned 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 4:30pm 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. If the customer chooses
not to provide a social security number,the deposit is automatically required.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.Generally,a deposit of 2 times the estimated highest monthly bill will be required,with a
minimum deposit of$250 for non-demand customers,and$1,000 for demand customers.The deposit shall be in the form of a cash
deposit,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.
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Statements of revenues,expenses and changes in net position. While the Statements of Net Position shows the change in financial
assets/deferred outflows and liabilities/deferred inflows,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,revenues in excess of expenses was the main
source of the increase in net position of$2,531,445 in fiscal 2015. 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
2015 2014 (Decrease)
Revenues
Operating $ 34,754,259 $ 33,515,012 $ 1,239,247
Nonoperating 576,984 494,455 82,529
Total revenues 35,331,243 34,009,467 1,321,776
Expenses
Operating 32,310,449 31,742,912 567,537
Nonoperating 172,912 284,129 (111,217)
Total expenses 32,483,361 32,027,041 456,320
Income before contributions and operating transfers 2,847,882 1,982,426 865,456
Capital contributions-developer infrastructure and connection fees 253,934 375,329 (121,395)
Capital contributions of asset from City 189,669 175,091 14,578
Transfers from other City funds 94,703 329,490 (234,787)
Transfers to other City funds (854,743) (822,835) (31,908)
Change in net position 2,531,445 2,039,501 491,944
Net position,January 1 53,354,433 54,016,088 (661,655)
Net position,December 31 $ 55,885,878 $ 56,055,589 $ (169,711)
*GASB Statement No.68 was implemented for the year ended December 31,2015 and required a$2,701,156 restatement of
beginning net position.Prior year amounts were not restated causing a variance in ending net position at December 31,2014 and
beginning net position on January 1,2015. See financial statement Note 6.
Revenues. Table A-2 shows that operating revenue increased by 3.7 percent in 2015 for the Electric and Water Departments
combined. The Electric Department operating revenue was impacted by the territory acquisition in September and October adding
approximately 800 residential customers and 130 commercial customers. The additional revenue resulting from these new customers
was$314,754.
Nonoperating revenue is comprised of transmission rebate revenue in the Electric Department,and water tower lease revenue in the
Water Department,as well as connection fees in both departments. Regarding transmission rebates,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 2015,rebates received from our 2013 filings were approximately$5,500 per month. 2014 had a
sizable catch up distribution for the Brookings transmission line,which was not repeated in 2015.The Water Department is receiving
lease revenue from Sprint and Verizon for antennas on the water towers. In 2015 this amount was approximately$158,000,and will
continue for the duration of the multi-year contracts.
Water Connection Fees decreased approximately$100,000,and Electric Connection Fees increased approximately$13,000. 2014
Connection Fees were higher with the resurgence in new construction as the economy had begun rebounding.
Total expenses. In reviewing total expenses in Table A-2 you will notice that there was an increase of 1.4 percent overall,with both
electric and water departments having marginal increases.Purchased Power is the biggest electric department expense and it was up
just under 1 percent.
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Capital Assets and Debt Administration
Capital assets. The Utilities' investment in capital assets for its business-type activities as of December 31,2015 amounts to
$48,151,150(net of accumulated depreciation). This investment in capital assets includes land,buildings,improvements and
equipment. A table summarizing the balances by fund follows:
Increase
2015 2014 (Decrease)
Land $ 361,351 $ 361,303 $ 48
Land improvements 8,000 8,936 (936)
Buildings 2,015,126 2,096,195 (81,069)
Machinery and equipment 1,626,892 1,582,080 44,812
Infrastructure 43,949,775 43,389,804 559,971
Construction in progress 190,006 815,710 (625,704)
Total $ 48,151,150 $ 48,254,028 $ (102,878)
The total decrease in the Utilities' investment in capital assets for the current fiscal year was 0.2 percent.
Major capital asset events during the current fiscal year included the following:
• The Electric Department acquired additional territory that included approximately 1,000 customers,increasing Infrastructure.
• Construction in progress decreased as projects started in the prior year were completed and there were not as many carryover
projects for 2015.
Additional information on the Utilities'capital assets can be found in Note 2B starting on page 34 of this report.
Long-term debt. At year end,the Utilities had$7,369,182 in long-term debt down from$8,460,327 in fiscal 2014. More detailed
information about the Utilities' long-term liabilities can be found in Note 2C starting on page 35 and below:
Increase
2015 2014 (Decrease)
G.O.revenue bonds $ 2,535,000 $ 2,835,000 $ (300,000)
Revenue bonds 2,985,000 3,585,000 (600,000)
Unamortized premium on bonds 65,234 83,233 (17,999)
Promissory note 1,408,368 1,599,876 (191,508)
Compensated absences payable 312,539 302,286 10,253
OPEB liability 63,041 54,932 8,109
Total $ 7,369,182 $ 8,460,327 $ (1,091,145)
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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. We have
met that mission in our customer service delivery and our successful financial results,and will continue to strive to meet that mission
in the future.
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.
117
FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2015
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF NET POSITION
DECEMBER 31,2015
Electric Water Total
ASSETS
CURRENT ASSETS
Cash and temporary investments $ 12,685,126 $ 4,367,165 $ 17,052,291
Receivables
Accrued interest 2,445 611 3,056
Accounts,net of allowance 2,593,000 116,719 2,709,719
Special assessments 6,522 72,876 79,398
Other receivables 63,820 2,159 65,979
Due from other City funds 10,020 223,992 234,012
Inventories 991,563 14,015 1,005,578
Prepaid expenses 178,779 29,025 207,804
TOTAL CURRENT ASSETS 16,531,275 4,826,562 21,357,837
CAPITAL ASSETS
Land 265,071 96,280 361,351
Land improvements 23,389 - 23,389
Buildings 2,883,212 821,203 3,704,415
Equipment and machinery 3,043,801 374,326 3,418,127
Infrastructure 42,756,591 33,709,666 76,466,257
Construction in progress 125,997 64,009 190,006
CAPITAL ASSETS,COST 49,098,061 35,065,484 84,163,545
LESS ACCUMULATED DEPRECIATION (21,846,450) (14,165,945) (36,012,395)
TOTAL CAPITAL ASSETS,NET 27,251,611 20,899,539 48,151,150
OTHER ASSETS
Restricted cash 490,500 - 490,500
TOTAL ASSETS 44,273,386 25,726,101 69,999,487
DEFERRED OUTFLOWS OF RESOURCES
Deferred charges on refunding 47,355 11,809 59,164
Deferred pension resources 272,949 28,490 301,439
TOTAL DEFERRED OUTFLOWS OF RESOURCES 320,304 40,299 360,603
The notes to the financial statements are an integral part of this statement.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF NET POSITION-CONTINUED
DECEMBER 31,2015
Electric Water Total
CURRENT LIABILITIES
Accounts payable $ 2,366,994 $ 94,124 $ 2,461,118
Salaries and benefits payable 78,030 14,173 92,203
Accrued interest payable 49,892 26,563 76,455
Due to other City funds 659,433 23,034 682,467
Due to other governments 140,014 2,976 142,990
Customer deposits payable 489,476 89,053 578,529
Unearned revenue - 86,291 86,291
Compensated absences-current portion 153,002 16,555 169,557
Notes payable-current portion 194,307 - 194,307
Bonds payable-current portion 692,000 233,000 925,000
TOTAL CURRENT LIABILITIES 4,823,148 585,769 5,408,917
NON-CURRENT LIABILITIES
Net other postemployment benefits liability 63,041 - 63,041
Compensated absences-less current portion 130,528 12,454 142,982
Notes payable-less current portion 1,214,061 - 1,214,061
Bonds payable,net-less current portion 3,024,375 1,635,859 4,660,234
Net pension liability 2,243,115 234,129 2,477,244
TOTAL NON-CURRENT LIABILITIES 6,675,120 1,882,442 8,557,562
TOTAL LIABILITIES 11,498,268 2,468,211 13,966,479
DEFERRED INFLOWS OF RESOURCES
Deferred pension resources 459,746 47,987 507,733
NET POSITION
Net investment in capital assets 22,174,223 19,042,489 41,216,712
Restricted for debt service 490,500 - 490,500
Unrestricted 9,970,953 4,207,713 14,178,666
TOTAL NET POSITION $ 32,635,676 $ 23,250,202 $ 55,885,878
The notes to the financial statements are an integral part of this statement.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF REVENUES,EXPENSES AND CHANGES IN NET POSITION
FOR THE YEAR ENDED DECEMBER 31,2015
Electric Water Total
OPERATING REVENUES
Charges for services $ 31,629,131 $ 2,141,096 $ 33,770,227
Security systems 251,488 - 251,488
LFG project 1,075,148 - 1,075,148
Generation credit (805,579) - (805,579)
Connection maintenance 163,195 42,543 205,738
Customer penalties 238,339 18,898 257,237
TOTAL OPERATING REVENUES 32,551,722 2,202,537 34,754,259
OPERATING EXPENSES
Purchased power 22,034,307 - 22,034,307
Production 928,923 465,181 1,394,104
Distribution 1,402,046 168,132 1,570,178
Depreciation 1,922,359 1,131,110 3,053,469
Customer accounts 856,076 67,487 923,563
General and administrative 2,752,443 582,385 3,334,828
TOTAL OPERATING EXPENSES 29,896,154 2,414,295 32,310,449
OPERATING INCOME(LOSS) 2,655,568 (211,758) 2,443,810
NONOPERATING REVENUES(EXPENSES)
Interest income 95,533 24,666 120,199
Miscellaneous revenue 279,487 177,298 456,785
Interest expense and other (116,676) (65,135) (181,811)
Gain(loss)on sale of capital assets 8,899 - 8,899
TOTAL NONOPERATING REVENUES(EXPENSES) 267,243 136,829 404,072
INCOME(LOSS)BEFORE CONTRIBUTIONS AND TRANSFERS 2,922,811 (74,929) 2,847,882
CAPITAL CONTRIBUTIONS-
DEVELOPER INFRASTRUCTURE AND CONNECTION FEES - 253,934 253,934
CONTRIBUTION OF ASSETS FROM CITY - 189,669 189,669
TRANSFERS FROM OTHER CITY FUNDS - 94,703 94,703
TRANSFERS TO OTHER CITY FUNDS (824,743) (30,000) (854,743)
CHANGE IN NET POSITION 2,098,068 433,377 2,531,445
NET POSITION,JANUARY 1 AS RESTATED(NOTE 6) 30,537,608 22,816,825 53,354,433
NET POSITION,DECEMBER 31 $ 32,635,676 $ 23,250,202 $ 55,885,878
The notes to the financial statements are an integral part of this statement.
122
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,2015
Electric Water Total
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users $ 32,460,951 $ 2,218,848 $ 34,679,799
Other operating cash receipts 326,880 252,022 578,902
Payments to suppliers (25,682,803) (777,734) (26,460,537)
Payments to employees (2,003,949) (530,331) (2,534,280)
NET CASH PROVIDED
BY OPERATING ACTIVITIES 5,101,079 1,162,805 6,263,884
CASH FLOWS FROM
NONCAPITAL FINANCING ACTIVITIES
Transfers from City - 94,703 94,703
Transfers to City (824,743) (30,000) (854,743)
(Increase)decrease in due from other City funds (1,730) 234,787 233,057
Increase(decrease)in due to other City funds 47,353 5,083 52,436
NET CASH PROVIDED(USED)BY NONCAPITAL
FINANCING ACTIVITIES (779,120) 304,573 (474,547)
CASH FLOWS FROM CAPITAL
AND RELATED FINANCING ACTIVITIES
Acquisition of capital assets (2,345,925) (764,695) (3,110,620)
Proceeds from sale of capital assets 8,899 - 8,899
Proceeds from connection fees - 253,934 253,934
Principal payments on revenue bonds (672,000) (228,000) (900,000)
Interest paid on revenue bonds (136,360) (67,079) (203,439)
Principal payments on promissory note (191,508) - (191,508)
NET CASH USED BY CAPITAL
AND RELATED FINANCING ACTIVITIES (3,336,894) (805,840) (4,142,734)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 93,451 24,146 117,597
NET INCREASE
IN CASH AND CASH EQUIVALENTS 1,078,516 685,684 1,764,200
CASH AND CASH EQUIVALENTS,JANUARY 1 12,097,110 3,681,481 15,778,591
CASH AND CASH EQUIVALENTS,DECEMBER 31 $ 13,175,626 $ 4,367,165 $ 17,542,791
RECONCILIATION OF CASH AND CASH
EQUIVALENTS TO THE STATEMENT OF NET POSITION
Cash and temporary investments $ 12,685,126 $ 4,367,165 $ 17,052,291
Restricted cash 490,500 - 490,500
TOTAL CASH AND CASH EQUIVALENTS $ 13,175,626 $ 4,367,165 $ 17,542,791
The notes to the financial statements are an integral part of this statement.
123
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA 1
STATEMENT OF CASH FLOWS-CONTINUED 1
FOR THE YEAR ENDED DECEMBER 31,2015
Electric Water Total
RECONCILIATION OF OPERATING INCOME(LOSS)TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income(loss) $ 2,655,568 $ (211,758) $ 2,443,810
Adjustments to reconcile operating income(loss)
to net cash provided by operating activities
Other revenue related to operations 279,487 177,298 456,785
Bad debt expense 42,846 - 42,846
Depreciation 1,922,359 1,131,110 3,053,469
(Increase)decrease in assets/deferred outflows:
Accounts receivable (127,006) (10,734) (137,740)
Other receivables 21,561 62,064 83,625
Special assessments receivable (1,079) (25,697) (26,776)
Due from other governments 25,832 - 25,832
Inventories (12,434) 2,466 (9,968)
Prepaid expenses (3,092) (670) (3,762)
Deferred pension resources (272,949) (28,490) (301,439)
Increase(decrease)in liabilities/deferred inflows:
Accounts payable 244,041 58,761 302,802
Salaries and benefits payable (72,884) (8,607) (81,491)
Net other postemployment benefits liability 8,109 - 8,109
Unearned revenue - 12,660 12,660
Compensated absences payable 71,274 (61,021) 10,253
Due to other governments 10,716 276 10,992
Customer deposits payable 37,314 52,742 90,056
Net pension liability (188,330) (35,582) (223,912)
Deferred pension resources 459,746 47,987 507,733
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,101,079 $ 1,162,805 $ 6,263,884
NONCASH CAPITAL AND
RELATED FINANCING ACTIVITIES
Amortization of bond premium $ 17,181 $ 818 $ 17,999
Amortization of deferred charges on refunding $ 6,472 $ 1,648 $ 8,120
Contribution of capital assets $ - $ 189,669 $ 189,669
The notes to the financial statements are an integral part of this statement.
124
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INTENTIONALLY
125
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
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 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(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 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.
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.
126
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
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.
C. Assets,liabilities,deferred outflows of resources,deferred inflows of resources 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 funds are pooled and invested,to the extent available,in certificates of deposit and other
authorized investments.Earnings from such investments are allocated on the basis of applicable participation by each of
the funds.
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. Obligation of a school district with an original maturity not exceeding 13 months and(i)rated in the highest
category by a national bond rating service or(ii)enrolled in the credit enhancement program pursuant to statute
section 126C.55.
6. Bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System.
7. 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.
8. 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.
9. 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.
127
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
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 31,2015 is as
follows:
2015
Electric $ 109,845
Water 26,250
Total $ 136,095
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.
Capital assets
Capital assets are stated at cost.Capital assets are defined by the Utilities as assets with an initial individual cost of more
than$5,000 and an estimated useful life in excess of two years. Expenditures for maintenance and repairs are charged to
operations and expenditures that extend the useful life of the asset are capitalized and depreciated.When assets are
retired or sold,the related cost and accumulated depreciation are removed from the accounts and any gain or loss on
disposition is included in operations.
Major expenditures for improvements or capital asset projects are capitalized as projects are constructed.
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
Machinery,Tools,and Equipment 5- 10 5 - 10
Automobiles 3 -8 3 -8
128
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
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 has two items,a deferred charge on refunding and deferred pension resources,which qualify for
reporting in this category. 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. Deferred pension resources result from actuarial calculation and current year pension contributions
subsequent to the measurement date.
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.
Compensated absences
Vacation:All vacation benefits can be carried over from year to year and will be payable upon termination.Unused
vacation carryover is limited to the number of hours accrued during the previous year.
Sick Leave: 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 1,2014.
Pensions
For purposes of measuring the net pension liability,deferred outflows/inflows of resources,and pension expense,
information about the fiduciary net position of the Public Employees Retirement Association(PERA)and additions
to/deductions from PERA's fiduciary net position have been determined on the same basis as they are reported by PERA
except that PERA's fiscal year end is June 30. For this purpose,plan contributions are recognized as of employer payroll
paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms.
Investments are reported at fair value.
129
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
Performance Metrics and Incentive Compensation
Through Utilities Performance Metric-based Incentive Compensation system(UPMIC)the Utilities employees will have
an opportunity,as a group,to each earn a maximum of 2 percent of their total gross wage paid during the Measurement
Period.The percentage of UMPIC is calculated using a Score Card.The Score Card has three categories: Safety,
Reliability and Quality of Utility Services which are divided into various weighted factors. This incentive was created to
help the Utilities to become more efficient and successful in meeting strategic goals and mission and deliver improved
value to the Utilities customers.The liability at year end is recorded as part of accrued wages.
Deferred inflows of resources
In addition to liabilities,the statement of financial position and fund financial statements will sometimes report a
separate section for deferred inflows of resources.This separate financial statement element,deferred inflows of
resources,represents an acquisition of net position that applies to a future period(s)and so will not be recognized as an
inflow of resources(revenue)until that time. The Utility has only one type of item which qualifies for reporting in this
category. The item,deferred pension resources,is reported only in the statements of net position and results from
actuarial calculations.
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".
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.
130
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
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,bonds,or irrevocable standby
letter of credit from Federal Home Loan Banks.
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 31,2015,the Utilities' carrying amount of deposits was$14,012,796 and the bank balance was
$14,035,614.Of the bank balance$500,000 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.
131
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Investments
The Utilities' investment balances were as follows for December 31,2015:
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 $ 32,695
Non-pooled investments
Brokered CD's N/A less than 6 months 707,701
Brokered CD's N/A 6 months to 1 year 1,097,667
Brokered CD's N/A 1 to 5 years 1,691,132
Total non-pooled investments 3,496,500
Total investments $ 3,529,195
(1) Ratings were provided by various credit rating agencies where applicable to indicate associated credit risk.
(2) Interest rate risk is disclosed using the segmented time distribution method.
N/A Indicates not applicable or available.
A reconciliation of cash and temporary investments as shown in the financial statements for the Utilities follows:
2015
Deposits $ 14,012,796
Investments 3,529,195
Cash on hand 800
Total $ 17,542,791
Cash and temporary investments
Unrestricted $ 17,052,291
Restricted 490,500
Total $ 17,542,791
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 28 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.
132
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
• 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.
B. Capital assets
Capital asset activity for the year ended December 31,2015 was as follows:
Beginning Ending
Balance Increases Decreases Balance
Capital assets not
being depreciated
Land $ 361,303 $ 48 $ - $ 361,351
Construction in progress 815,710 1,650,484 (2,276,188) 190,006
Total capital assets
not being depreciated 1,177,013 1,650,532 (2,276,188) 551,357
Capital assets being depreciated
Land improvements 23,389 - - 23,389
Buildings 3,674,600 29,815 - 3,704,415
Machinery and equipment 3,218,436 419,949 (220,258) 3,418,127
Infrastructure 73,233,475 3,232,782 - 76,466,257
Total capital assets
being depreciated 80,149,900 3,682,546 (220,258) 83,612,188
Less accumulated
depreciation for
Land improvements (14,453) (936) - (15,389)
Buildings (1,578,405) (110,884) - (1,689,289)
Machinery and equipment (1,636,356) (154,879) - (1,791,235)
Infrastructure (29,843,671) (2,786,770) 113,959 (32,516,482)
Total accumulated
depreciation (33,072,885) (3,053,469) 113,959 (36,012,395)
Total capital assets
being depreciated,net 47,077,015 629,077 (106,299) 47,599,793
Business-type activities
capital assets,net $ 48,254,028 $ 2,279,609 $ (2,382,487) $ 48,151,150
133
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Depreciation expense was charged to functions/programs of the Utilities as follows:
2015
Business-type Activities
Water $ 1,131,110
Electric 1,922,359
Total depreciation expense-business-type activities $ 3,053,469
C. Long-term debt
General obligation revenue 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 Balance at
Description and Issued Rate Date Date Year End
G.O. Water Revenue
Refunding Bonds of 2008 $ 3,085,000 2.75-3.65 % 02/20/08 02/01/22 $ 1,695,000
G.O.Capital Improvement
Plan Bonds of 2010A 1,265,000 2.00-4.00 04/21/10 08/01/23 840,000
Total G.O.Revenue Bonds $ 2,535,000
The annual debt service requirements to maturity for the general obligation revenue bonds are as follows:
Year Ending
December 31, Principal Interest Total
2016 $ 305,000 $ 84,333 $ 389,333
2017 320,000 74,850 394,850
2018 335,000 63,948 398,948
2019 340,000 51,990 391,990
2020 355,000 39,497 394,497
2021-2023 880,000 40,997 920,997
Total $ 2,535,000 $ 355,615 $ 2,890,615
The G.O.revenue bonds were issued to finance capital improvements and are to be repaid from future revenues pledged
from the Water and Electric funds and are backed by the full faith and credit of the Utilities.
In 2015,annual principal and interest payment on the bonds required about 13 percent of revenues from the Water fund.
The principal and interest paid and total customer revenues for the Water fund were$295,079 and$2,202,537,
respectively.
In 2015,annual principal and interest payment on the bonds required about 0.3 percent of revenues from the Electric
fund. The principal and interest paid and total customer revenues for the Electric fund were$97,760 and$32,551,722,
respectively.
134
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
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.
Balance
Authorized Interest Issue Maturity at
Description and Issued Rate Date Date Year End
Electric Revenue
Bonds,Series 2007A 2,875,000 4.00 03/28/07 02/01/22 $ 1,750,000
Electric Revenue Refunding
Bonds,Series 2014A 2,030,000 2.00-4.00 03/13/14 08/01/18 1,235,000
Total Revenue Bonds $ 2,985,000
The annual debt service requirements to maturity for the revenue bonds are as follows:
Year Ending
December 31, Principal Interest Total
2016 $ 620,000 $ 90,400 $ 710,400
2017 635,000 73,500 708,500
2018 660,000 56,000 716,000
2019 250,000 37,800 287,800
2020 260,000 27,600 287,600
2021-2022 560,000 22,600 582,600
Total $ 2,985,000 $ 307,900 $ 3,292,900
The revenue bonds were issued to finance the acquisition and construction of major capital facilities and are to be repaid
from future revenues pledged from the Electric fund. In 2015,annual principal and interest payment on the bonds
required about 2.2 percent of revenues from the Electric fund. Principal and interest paid and total customer revenues for
the Electric fund were$710,600 and$32,551,722,respectively.
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 Balance at
Description and Issued Rate Date Date Year End
Landfill
Generator Note $ 3,521,000 - % 03/19/02 02/19/22 $ 1,408,368
135
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
The annual debt service requirements to maturity for the generator note are as follows:
Year Ending
December 31, Principal Interest Total
2016 $ 194,307 $ - $ 194,307
2017 195,216 - 195,216
2018 198,252 - 198,252
2019 200,916 - 200,916
2020 203,952 - 203,952
2021-2022 415,725 - 415,725
Total $ 1,408,368 $ - $ 1,408,368
Changes in long-term liabilities
Long-term liability activity for the year ended December 31,2015 was as follows:
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
Business-type activities
Bonds payable
General obligation
revenue bonds $ 2,835,000 $ - $ (300,000) $ 2,535,000 $ 305,000
Revenue bonds 3,585,000 - (600,000) 2,985,000 620,000
Unamortized premium
on bonds 83,233 - (17,999) 65,234
Total bonds payable,net 6,503,233 - (917,999) 5,585,234 925,000
Notes payable 1,599,876 - (191,508) 1,408,368 194,307
Compensated
absences payable 302,286 173,269 (163,016) 312,539 169,557
Net pension liability
GERF - 2,913,612 * (436,368) 2,477,244
OPEB liability 54,932 10,260 (2,151) 63,041
Business-type activity
long-term
liabilities $ 8,460,327 $ 3,097,141 $(1,711,042) $ 9,846,426 $ 1,288,864
* Includes 1/1/2015 pension liability balance related to GASB Statement No. 68 implementation. See Note 6
for further deatil.
136
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
D. Interfund receivables,payables and transfers
The composition of interfund balances at year end is as follows:
Receivable Fund Payable Fund Amount Purpose
Electric City-General fund $ 1,710 Sales tax/franchise fees
Electric City-Nonmajor 70 Sales tax/franchise fees
Electric City-Nonmajor 1,910 Supplies
Electric City-Sewer 1,003 4th quarter billings
Electric City-Garbage 1,809 4th quarter billings
Electric City-Storm Water 1,762 4th quarter billings
Electric City-General fund 1,756 PERA aid
Total Electric fund receivable from City 10,020
Water City-Nonmajor 94,703 Watermain project
Water City-General fund 439 PERA aid
Water City-Capital projects fund 128,850 TIF 22 Water Access Charge
Total Water fund receivable from City 223,992
Total receivable from City $ 234,012
City-General fund Electric $ 81,070 Shared costs
City-Nonmajor Electric 12,541 Shared costs
City-Nonmajor Electric 61,437 December transfer of 3%of revenue
City-Nonmajor Electric 207,294 4th quarter franchise fees
City-Sewer Electric 149,888 Billed sewer on behalf of City
City-Garbage Electric 110,332 Billed garbage on behalf of City
City-Stormwater Electric 36,871 Billed stormwater on behalf of City
Total Electric fund payable to City 659,433
City-General fund Water 23,034 Shared costs
Total payable to City $ 682,467
Interfund transfers completed in 2015 are detailed as follows:
Transfer from Transfer to
Other Other
Transfer out City Funds City Funds
Electric $ - $ 824,743
Water 94,703 30,000
Total transfers out $ 94,703 $ 854,743
The transfer out of the Electric fund was the annual transfer of 3 percent of 2015 revenues to City funds.The transfer out
of the Water fund was for its share of bonding.The transfer into the Water fund was for reimbursement related to the
watermain project.
137
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE
A. Plan description
The Utilities participates in the following cost-sharing multiple-employer defined benefit pension plans administered by
the Public Employees Retirement Association of Minnesota(PERA). PERA's defined benefit pension plans are
established and administered in accordance with Minnesota statutes,chapters 353 and 356. PERA's defined benefit
pension plans are tax qualified plans under Section 401 (a)of the Internal Revenue Code.
General Employees Retirement Fund(GERF)
All full-time and certain part-time employees of the Utilities are covered by the General Employees Retirement Fund
(GERF). 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. The Basic Plan was closed to new members in 1967. All
new members must participate in the Coordinated Plan.
B. Benefits provided
PERA provides retirement,disability and death benefits. Benefit provisions are established by Minnesota statute and can
only be modified by the state legislature.
Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan.
Members in plans that are at least 90 percent funded for two consecutive years are given 2.5 percent increases. Members
in plans that have not exceeded 90 percent funded,or have fallen below 80 percent,are given 1 percent increases.
The benefit provisions stated in the following 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.
GERF benefits
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 PERA'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 1,the annuity accrual rate for a Basic Plan member is 2.2 percent of average
salary for each of the first ten 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 ten 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 members hired prior to July 1, 1989,a full
annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or
after July 1, 1989,normal retirement age is the age for unreduced Social Security benefits capped at 66.
C. Contributions
Minnesota statutes,chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be
modified by the state legislature.
GERF contributions
Basic Plan members and Coordinated Plan members were required to contribute 9.10 percent and 6.50 percent,
respectively,of their annual covered salary in calendar year 2015. The Utilities was required to contribute 11.78 percent
of pay for Basic Plan members and 7.50 percent for Coordinated Plan members in calendar year 2015. The Utilities
contributions to the GERF for the years ending December 31,2015,2014 and 2013 were$230,074,$203,953 and
$185,983,respectively. The Utilities contributions were equal to the contractually required contributions for each year
as set by Minnesota statute.
138
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED
D. Pension costs
GERF pension costs
At December 31,2015,the Utilities reported a liability of$2,477,244 for its proportionate share of the GERF's net
pension liability. The net pension liability was measured as of June 30,2015,and the total pension liability used to
calculate the net pension liability was determined by an actuarial valuation as of that date. The Utilities proportion of the
net pension liability was based on the Utilities contributions received by PERA during the measurement period for
employer payroll paid dates from July 1,2014 through June 30,2015 relative to the total employer contributions
received from all of PERA's participating employers. At June 30,2015,the Utilities proportionate share was 0.0478
percent which was a decrease of 0.0040 percent from its proportion measured as of June 30,2014.
For the year ended December 31,2015,the Utilities recognized pension expense of$212,456 for its proportionate share
of GERF's pension expense.
At December 31,2015,the Utilities reported its proportionate share of GERF's deferred outflows of resources and
deferred inflows of resources,and its contributions subsequent to the measurement date,from the following sources:
Deferred Deferred
Outflows Inflows
of Resources of Resources
Differences between expected and
actual experience $ 24,896 $ 124,895
Changes in actuarial assumptions 152,351
Net difference between projected and
actual earnings on plan investments - 220,522
Changes in proportion - 162,316
Contributions to GERF subsequent
to the measurement date 124,192 -
Total $ 301,439 $ 507,733
Deferred outflows of resources totaling$124,192 related to pensions resulting from the Utility's contributions to GERF
subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended
December 31,2016. Other amounts reported as deferred outflows and inflows of resources related to GERF pensions
will be recognized in pension expense as follows:
2016 $ (100,162)
2017 (100,162)
2018 (188,786)
2019 58,624
139
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED
E. Actuarial assumptions
The total pension liability in the June 30,2015 actuarial valuation was determined using the following actuarial
assumptions:
Inflation 2.75%per year
Active member payroll growth 3.50%per year
Investment rate of return 7.90%
Salary increases were based on a service-related table. Mortality rates for active members,retirees,survivors and
disabilitants were based on RP-2000 tables for males or females,as appropriate,with slight adjustments. Cost of living
benefit increases for retirees are assumed to be: 1 percent effective every January I'until 2034,then 2.5 percent for
GERF.
Actuarial assumptions used in the June 30,2015 valuation were based on the results of actuarial experience studies.The
experience study in the GERF was for the period July 1,2004 through June 30,2008,with an update of economic
assumptions in 2014. Experience studies have not been prepared for PERA's other plans,but assumptions are reviewed
annually.
There were no changes in actuarial assumptions in 2015.
The long-term expected rate of return on pension plan investments is 7.9 percent. The State Board of Investment,which
manages the investments of PERA,prepares an analysis of the reasonableness of the long-term expected rate of return on
a regular basis using a building-block method in which best-estimate ranges of expected future rates of return are
developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by
weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best
estimates of arithmetic real rates of return for each major asset class are summarized in the following table:
Long-term
Target Expected Real
Asset Class Allocation Rate of Return
Domestic stocks 45.00 % 5.50 %
International stocks 15.00 6.00
Bonds 18.00 1.45
Alternative assets 20.00 6.40
Cash 2.00 0.50
Total 100.00 %
F. Discount rate
The discount rate used to measure the total pension liability was 7.9 percent. The projection of cash flows used to
determine the discount rate assumed that employee and employer contributions will be made at the rate specified in
statute. Based on that assumption,each of the pension plan's fiduciary net position was projected to be available to
make all projected future benefit payments of current active and inactive employees. Therefore,the long-term expected
rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total
pension liability.
140
1
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 3: DEFINED BENEFIT PENSION PLANS—STATEWIDE—CONTINUED
G. Pension liability sensitivity
The following presents the Utilities proportionate share of the net pension liability for all plans it participates in,
calculated using the discount rate disclosed in the preceding paragraph,as well as what the Utilities proportionate share
of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage
point higher than the current discount rate:
Utilities Proportionate Share of NPL
1 Percent 1 Percent
Decrease(6.90%) Current(7.90%) Increase(8.90%)
GERF $ 3,895,108 $ 2,477,244 $ 1,306,306
H. Pension plan fiduciary net position
Detailed information about each defined benefit pension plan's fiduciary net position is available in a separately-issued
PERA financial report that includes financial statements and required supplementary information.That report may be
obtained on the Internet at www.mnpera.org;by writing to PERA at 60 Empire Drive#200,St. Paul,Minnesota,55103-
2088;or by calling(651)296-7460 or(800)652-9026.
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$211 in 2015,respectively,for loss of revenues under this agreement.All amounts paid are included in
property and equipment.
In 2015,the Utilities entered into a 10 year agreement to transfer ownership of electric plant and electric service to
customers in eight designated areas receiving service from Connexus Energy. Specific payment terms have been
negotiated for 5 years,and if any of the eight areas are not acquired within this timeframe,the payment terms may be
renegotiated.
The agreed cost of property purchased from Connexus Energy is net book value, integration expenses,and a loss of
revenue payment. The loss of revenue payment for each area acquired is based on a formula outlined in the agreement,
payable for the subsequent ten years after initial purchase.
The Utilities acquired the first of the designated service areas in 2015 for$877,807. The first loss of revenue payment
will be made in 2017. All amounts paid are included in property and equipment.
141
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 4: OTHER INFORMATION-CONTINUED
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.On May 14,2013 the Utilities signed a new agreement with Minnesota Municipal Power Agency
(MMPA).
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 percent. The return on this investment through CMMPA is designed to provide
approximately$124,000 annually over the 40 year project life.The transmission payments for 2015 were$42,532 of
which$24,353 was receivable at December 31,2015.
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
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
2015,the Utility contributed$0 to the plan.Plan members receiving benefits contribute 100 percent of their premium costs.
In fiscal year 2015,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 funding excess)over a period
not to exceed thirty years.The following table shows the components of the Utilities annual OPEB cost for the year,the
amount actually contributed to the plan,and changes in the Utilities'net OPEB obligation to the Retiree Health Plan:
142
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS-CONTINUED
Annual required contribution $ 11,240
Interest on net OPEB obligation 2,197
Adjustment to annual required contribution (3,177)
Annual OPEB Cost(expense) 10,260
Contributions made
Direct(explicit)subsidy -
Implicit subsidy (2,151)
Increase in net OPEB obligation 8,109
Net OPEB obligation-beginning of year 54,932
Net OPEB obligation-end of year $ 63,041
The Utilities' annual OPEB cost,the amount and percentage of annual OPEB cost contributed to the plan,and the net OPEB
obligation for December 31,2015 and the preceding two fiscal years was as follows:
Three Year Trend Information
Percentage
Year Annual Employer Annual OPEB Net OPEB
Ending OPEB Cost Contribution Contributed Obligation
12/31/2015 $ 10,260 $ 2,151 21 % 63,041
12/31/2014 9,890 - - 54,932
12/31/2013 6,073 1,391 23 45,042
Funded Status and Funding Progress. As of December 31,2014,the actuarial accrued liability for benefits was$68,948,all
of which was unfunded. The covered payroll(annual payroll of active employees covered by the plan)was$2,810,413 and
the ratio of the unfunded actuarial accrued liability to the covered payroll was 2.50 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.
143
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS-CONTINUED
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 60,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 7.5 percent initially,reduced to an ultimate
rate of 5.0 percent after eight years,was used.
Health insurance premiums-2014 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 1,2014
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,
2014 was thirty years.
144
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2015
Note 6: CHANGE IN ACCOUNTING STANDARDS
During 2015,the Utilities implemented several new accounting pronouncements issued by the Governmental Accounting
Standards Board(GASB),including Statement No.68,Accounting and Financial Reporting for Pensions-an Amendment of
GASB Statement No. 27 and Statement No. 71,Pension Transition for Contributions Made Subsequent to the Measurement
Date-an Amendment of GASB Statement No. 68, for the year ended December 31,2015. These standards required a
retroactive implementation which resulted in the restatement of beginning balances in the December 31,2014 financial
statements.Changes related to these standards are reflected in the financial statements and schedules and related disclosures
are included in Note 3.
As a result of the restatement of beginning balances,the following schedule reconciles the previously reported
December 31,2014 balances to the December 31,2015 financial statements:
December 31,2015
Net Position
January 1,2015 Net Position
as Previously Prior Period January 1,2015
Fund Reported Restatement(1) as Restated
Business-type activities
Electric $ 32,969,053 $ (2,431,445) $ 30,537,608
Water 23,086,536 (269,711) 22,816,825
Total business-type activities $ 56,055,589 $ (2,701,156) $ 53,354,433
(1) To record beginning net pension liability and deferred outflow of resources at December 31,2014.
145
REQUIRED SUPPLEMENTARY INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2015
146
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
REQUIRED SUPPLEMENTARY INFORMATION
FOR THE YEAR ENDED DECEMBER 31,2015
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
12/31/2014 $ - $ 68,948 $ 68,948 - % $ 2,810,413 2.50 %
12/31/2011 - 42,681 42,681 - 2,286,547 1.87
12/31/2008 - 56,892 56,892 - 2,300,000 2.47
Schedule of employer's share of PERA net pension liability-General Employees Retirement Fund
Required Supplementary Information
Utilities
Utilities Proportionate
Proportionate Share of the
Utilities Share of Net Pension
Proportionate the Net Pension Liability as a Plan Fiduciary
Utilities Share of Liability Utilities Percentage of Net Position
Fiscal Proportion of the Net Pension Associated with Covered Covered as a Percentage
Year the Net Pension Liability the City Total Payroll Payroll of the Total
Ending Liability (a) (b) (a+b) (c) ((a+b)/c) Pension Liability
06/30/15 0.0478 % $ 2,477,244 $ - $ 2,477,244 $ 3,067,653 80.8 % 78.7 %
Schedule of employer's PERA contributions-General Employees Retirement Fund
Required Supplementary Information
Contributions in
Relation to the
Statutorily Statutorily Contribution Utilities Contributions as
Required Required Deficiency Covered a Percentage of
Year Contribution Contribution (Excess) Payroll Covered Payroll
Ending (a) (b) (a-b) (c) (b/c)
12/31/15 $ 230,074 $ 230,074 $ - $ 3,067,653 7.5 %
147
SUPPLEMENTARY INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2015
it
148
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTARY INFORMATION
SCHEDULE OF OPERATING REVENUES AND EXPENSES
FOR THE YEAR ENDED DECEMBER 31,2015
Electric Water Total
OPERATING REVENUES
Charges for services
Elk River $ 28,833,769 $ 2,141,096 $ 30,974,865
Otsego 2,377,276 - 2,377,276
Big Lake 190,727 - 190,727
Dayton 227,359 - 227,359
Security systems 251,488 - 251,488
LFG Project 1,075,148 - 1,075,148
Generation credit (805,579) - (805,579)
Connection maintenance 163,195 42,543 205,738
Customer penalties 238,339 18,898 257,237
TOTAL OPERATING REVENUES 32,551,722 2,202,537 34,754,259
OPERATING EXPENSES
Purchased power 22,034,307 - 22,034,307
Production
Supervision and labor 57,646 20,944 78,590
Natural gas 47,185 - 47,185
Supplies and power for pumping 52,780 266,474 319,254
Landfill gas expense 704,577 - 704,577
Maintenance of structures 37,945 35,767 73,712
Maintenance of equipment 11,902 141,996 153,898
Maintenance of plant 16,888 - 16,888
Total 928,923 465,181 1,394,104
Transmission and distribution
Supervision and labor 24,772 10,143 34,915
Maintenance of overhead lines 397,124 - 397,124
Maintenance of underground lines 167,637 - 167,637
Maintenance of station equipment 62,536 - 62,536
Transportation 135,339 16,676 152,015
Maintenance of customer service 7,169 73,061 80,230
Maintenance of customer meters 83,765 68,230 151,995
Miscellaneous 523,704 22 523,726
Total 1,402,046 168,132 1,570,178
Services to City 520,727 5,719 526,446
Depreciation 1,922,359 1,131,110 3,053,469
Customer accounts expense
Meter reading 36,808 1,650 38,458
Billing and collection 255,695 60,118 315,813
Bad debts 42,846 - 42,846
Total 335,349 61,768 397,117
149
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTARY INFORMATION
SCHEDULE OF OPERATING REVENUES AND EXPENSES-CONTINUED
FOR THE YEAR ENDED DECEMBER 31,2015
Electric Water Total
OPERATING EXPENSES-CONTINUED
General and administrative
Salaries $ 659,318 $ 147,926 $ 807,244
Employee pensions and benefits 1,267,179 265,605 1,532,784
Dues 91,613 42,984 134,597
Office supplies and billing expense 144,234 32,270 176,504
Office utilities and maintenance 21,102 8,948 30,050
Consulting fees 36,842 - 36,842
Legal and audit 43,446 8,292 51,738
Environmental compliance 24,208 - 24,208
Conservation improvement project 67,697 8,763 76,460
Insurance 174,161 28,116 202,277
Telephone 26,997 6,797 33,794
Advertising 7,155 3,406 10,561
Education and meetings 127,400 20,612 148,012
Miscellaneous 61,091 8,666 69,757
Total 2,752,443 582,385 3,334,828
TOTAL OPERATING EXPENSES 29,896,154 2,414,295 32,310,449
OPERATING INCOME(LOSS) 2,655,568 (211,758) 2,443,810
NONOPERATING REVENUES(EXPENSES)
Interest income 95,533 24,666 120,199
Miscellaneous revenue 279,487 177,298 456,785
Interest expense and other (116,676) (65,135) (181,811)
Gain(loss)on sale of capital assets 8,899 - 8,899
TOTAL NONOPERATING
REVENUES(EXPENSES) 267,243 136,829 404,072
INCOME(LOSS)BEFORE CONTRIBUTIONS AND TRANSFERS 2,922,811 (74,929) 2,847,882
CAPITAL CONTRIBUTIONS-
DEVELOPER INFRASTRUCTURE AND CONNECTION FEES - 253,934 253,934
CONTRIBUTION OF ASSETS FROM CITY - 189,669 189,669
TRANSFERS FROM OTHER CITY FUNDS - 94,703 94,703
TRANSFERS TO OTHER CITY FUNDS (824,743) (30,000) (854,743)
CHANGE IN NET POSITION 2,098,068 433,377 2,531,445
NET POSITION,JANUARY 1 AS RESTATED(NOTE 6) 30,537,608 22,816,825 53,354,433
NET POSITION,DECEMBER 31 $ 32,635,676 $ 23,250,202 $ 55,885,878
150
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
ELECTRIC FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31,2007 THROUGH DECEMBER 31,2015
SUMMARY OF OPERATIONS
2007 2008 2009
OPERATING REVENUES
Sales of electricity $ 19,164,797 $ 22,303,994 $ 23,591,485
Other operating revenues(expenses) 501,746 637,909 636,258
TOTAL OPERATING REVENUES 19,666,543 22,941,903 24,227,743
OPERATING EXPENSES
Purchased power 12,176,034 14,778,270 16,161,444
Distribution 1,829,971 2,162,797 1,937,096
Services to the City 358,029 409,222 428,508
Depreciation 1,920,798 2,057,851 2,126,794
Other operating expenses 1,977,973 2,196,770 2,272,917
TOTAL OPERATING EXPENSES 18,262,805 21,604,910 22,926,759
OPERATING INCOME 1,403,738 1,336,993 1,300,984
TRANSFERS FROM OTHER CITY FUNDS - - -
TRANSFERS TO OTHER CITY FUNDS (483,000) (540,636) (585,141)
NONOPERATING REVENUES 710,858 249,022 (146,352)
NET INCOME $ 1,631,596 $ 1,045,379 $ 569,491
PERCENT OF CHANGE
Sales of electricity 16.185% 16.380% 5.772%
Purchased power 20.530% 21.372% 9.360%
PERCENT OF REVENUES
Purchased power 61.912% 64.416% 66.706%
UNAUDITED STATISTICS
MISCELLANEOUS
2007 2008 2009
KWh's purchased $ 225,973,086 $ 241,837,173 $ 247,595,137
KWh's sold 211,298,886 224,226,048 232,772,722
Line loss 14,674,200 17,611,125 14,822,415
Percent of line loss 6.494% 7.282% 5.987%
REVENUES PER KWh SOLD $ 0.0907 $ 0.0995 $ 0.1013
COST PER KWh PURCHASED $ 0.0539 $ 0.0611 $ 0.0653
NUMBER OF CUSTOMERS 8,945 9,203 9,170
TOTAL CONTRIBUTION/TRANSFERS TO CITY $ 483,000 $ 540,636 $ 585,141
151
2010 2011 2012 2013 2014 2015
$ 26,060,301 $ 27,894,341 $ 30,070,045 $ 30,978,790 $ 31,514,246 $ 32,704,279
732,261 689,645 188,645 (132,411) (147,561) (152,557)
26,792,562 28,583,986 30,258,690 30,846,379 31,366,685 32,551,722
18,373,386 19,604,951 20,499,773 21,254,950 21,994,652 22,034,307
1,892,212 1,960,742 1,909,845 1,970,341 2,161,352 2,330,969
434,415 474,934 481,907 498,146 530,340 520,727
2,062,942 2,041,717 2,099,594 2,029,496 1,914,062 1,922,359
2,399,236 2,350,706 2,359,193 2,374,959 2,791,717 3,087,792
25,162,191 26,433,050 27,350,312 28,127,892 29,392,123 29,896,154
1,630,371 2,150,936 2,908,378 2,718,487 1,974,562 2,655,568
53,741 - - - - -
(657,086) (711,415) (816,864) (781,162) (797,835) (824,743)
(154,956) (105,604) 28,531 (30,658) 152,375 267,243
$ 872,070 $ 1,333,917 $ 2,120,045 $ 1,906,667 $ 1,329,102 $ 2,098,068
10.465% 7.038% 7.800% 3.022% 1.728% 3.776%
13.687% 6.703% 4.564% 3.684% 3.480% 0.180%
68.576% 68.587% 67.748% 68.906% 70.121% 67.690%
2010 2011 2012 2013 2014 2015
$ 264,642,834 $ 276,026,892 $ 287,553,108 $ 290,025,919 $ 288,320,724 $ 294,441,957
250,711,834 261,235,297 273,455,846 273,945,354 274,546,059 282,265,268
13,931,000 14,791,595 14,097,262 16,080,565 13,774,665 12,176,689
5.264% 5.359% 4.902% 5.545% 4.778% 4.136%
$ 0.1039 $ 0.1068 $ 0.1100 $ 0.1131 $ 0.1148 $ 0.1159
$ 0.0694 $ 0.0710 $ 0.0713 $ 0.0733 $ 0.0763 $ 0.0748
9,207 9,227 9,285 9,358 9,449 10,499
$ 657,086 $ 711,415 $ 816,864 $ 781,162 $ 797,835 $ 824,743
152
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
WATER FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31,2007 THROUGH DECEMBER 31,2015
SUMMARY OF OPERATIONS
2007 2008 2009
OPERATING REVENUES
Sales of water $ 2,113,166 $ 2,130,124 $ 2,206,429
OPERATING EXPENSES
Operating expenses less depreciation 1,191,346 1,185,413 1,102,437
Services to City - - -
Depreciation 921,450 974,848 956,993
TOTAL OPERATING EXPENSES 2,112,796 2,160,261 2,059,430
TOTAL OPERATING INCOME(LOSS) $ 370 $ (30,137) $ 146,999
PERCENT OF CHANGE
Sales of water 20.76% 0.80% 3.58%
UNAUDITED STATISTICS
MISCELLANEOUS
2007 2008 2009
WATER PUMPED(gallons) 873,742,000 854,133,000 782,951,000
WATER SOLD(gallons) 783,948,000 727,029,000 708,286,000
Percent of line loss 10.28% 14.88% 9.54%
Revenues per 1,000 gallons pumped $ 2.41 $ 2.48 $ 2.81
Revenues per 1,000 gallons sold $ 2.70 $ 2.93 $ 3.12
Number of customers 4,413 4,508 4,467
WATER SUPPLIER SERVICES
2007 2008 2009
Flushing hydrants $ 27,000,000 $ 30,000,000 $ 33,000,000
Back washing 8,400,000 8,400,000 8,400,000
Fire department use 1,000,000 5,000,000 1,000,000
New water main disinfectant and flushing 1,000,000 2,000,000 2,000,000
Flushing seasonal well - - -
Meter inaccuracy - - 1,300,000
Street and Sewer Maintenance - - -
Water tower paint and clean/maintenance - - -
Well maintenance - - -
Water line and irrigation leaks - - -
Frozen pipes bursting in abandoned homes - 25,000,000 27,000,000
Water Supplier Services 37,400,000 70,400,000 72,700,000
153
2010 2011 2012 2013 2014 2015
$ 1,913,661 $ 1,832,817 $ 2,265,142 $ 2,278,124 $ 2,148,327 $ 2,202,537
989,736 1,008,562 1,130,965 1,210,797 1,267,019 1,277,466
- - 5,719
955,323 980,197 1,028,593 1,032,442 1,083,770 1,131,110
1,945,059 1,988,759 2,159,558 2,243,239 2,350,789 2,414,295
$ (31,398) $ (155,942) $ 105,584 $ 34,885 $ (202,462) $ (211,758)
(13.27%) (4.22%) 23.59% 0.57% (5.70%) 2.52%
2010 2011 2012 2013 2014 2015
686,289,000 651,907,000 847,283,200 785,377,000 782,110,000 799,974,000
627,209,000 599,701,000 727,912,000 709,760,000 672,760,000 676,842,000
8.61% 8.01% 14.09% 9.63% 13.98% 15.39%
$ 2.79 $ 2.81 $ 2.67 $ 2.90 $ 2.75 $ 2.75
$ 3.05 $ 3.06 $ 3.11 $ 3.21 $ 3.19 $ 3.25
4,511 4,515 4,542 4,613 4,676 4,762
Gallons
2010 2011 2012 2013 2014 2015
$ 35,000,000 $ 34,000,000 $ 46,400,000 $ 45,000,000 $ 47,000,000 $ 45,000,000
9,000,000 8,000,000 30,000,000 8,000,000 3,922,000 4,000,000
3,000,000 4,000,000 16,500,000 5,000,000 5,000,000 5,000,000
3,000,000 4,000,000 9,000,000 5,000,000 5,000,000 5,000,000
4,000,000 - 3,600,000 - - -
-
6,500,000 3,000,000 3,000,000 -
-
617,000 1,000,000 473,400
2,000,000 - 2,000,000 1,000,000 3,700,000
- - - - - 700,000
7,000,000 7,000,000 7,000,000 -
5,000,000 - - - - -
59,000,000 52,000,000 119,000,000 75,617,000 72,922,000 63,873,400
154
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INTENTIONALLY
155
OTHER REPORT
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2015
156
THIS PAGE IS LEFT BLANK
INTENTIONALLY
157
ABDO
EICK &
MEYERS E' 1 S LLP
Certified Public Accountants&Consultants
INDEPENDENT AUDITOR'S REPORT ON MINNESOTA LEGAL COMPLIANCE
Public Utilities Commission
Elk River Municipal Utilities
Elk River,Minnesota
We have audited,in accordance with auditing standards generally accepted in the United States of America,the financial statements of
Elk River Municipal Utilities(the Utilities)of the City of Elk River,Minnesota(the City)as of and for the year ended December 31,
2015,and the related notes to the financial statements,and have issued our report thereon dated March 31,2016.
The Minnesota Legal Compliance Audit Guide for Cities,promulgated by the State Auditor pursuant to Minnesota Statute§6.65,
contains 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 audit considered all of the listed
categories,except that we did not test for compliance with the provisions for tax increment financing because the Utilities has not
established a tax increment financing district.
In connection with our audit,nothing came to our attention that caused us to believe that the Utilities' failed to comply with the
provisions of the Minnesota Legal Compliance Audit Guide for Cities.However,our audit was not directed primarily toward obtaining
knowledge of such noncompliance.Accordingly,had we performed additional procedures,other matters may have come to our
attention regarding the Utilities'noncompliance with the above referenced 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.
aLTQPAOILL
Q°
ABDO,EICK&MEYERS,LLP
Minneapolis,Minnesota
March 31,2016
5201 Eden Avenue,Suite 250
Edina,MN 55436
952.835.9090 I Fax 952.835.3261
158
Management Letter
Elk River Utilities
Elk River, Minnesota
For the Year Ended
December 31, 2015
ABDO
E' ICK & People
+Process.
ME i ER S LLP Going aa
Certified Public Accountants& Consultants Beyond the
Numbers
. _ 159
ABDO
EICK &
MEYERS W LLP
Certified Public Accountants&Consultants
Management and Public Utilities Commission
Elk River Municipal Utilities
Elk River,Minnesota
We have audited the financial statements of the Elk River Municipal Utilities(the Utilities)of the City of Elk River,Minnesota,(the
City)as of and for year ended December 31,2015. 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 December 8,2015. 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 of America
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
In planning and performing our audit of the financial statements,we considered the Utilities internal control over financial reporting
(internal control)to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our
opinions on the financial statements,but not for the purpose of expressing an opinion on the effectiveness of the Utilities internal
control. Accordingly,we do not express an opinion on the effectiveness of the Utilities internal control.
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 a combination of deficiencies,in internal control,such that there is a reasonable possibility that a material
misstatement of the entity's financial statements will not be prevented,or detected and corrected on a timely basis. A significant
deficiency is a deficiency,or a combination of deficiencies,in internal control that is less severe than a material weakness,yet
important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed
to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations,
during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses.However,material
weaknesses may exist that have not been identified.
5201 Eden Avenue,Suite 250
Edina,MN 55436
952-835-9090 I Fax 952 835 3261
160
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.
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 1 to the financial statements.As described in Note 6 to the financial statements,the Utilities
changed accounting policies related to accounting and financial reporting for pensions by adopting Statement of Governmental
Accounting Standards(GASB)Statements No.68 and 71 in 2015.Accordingly,the cumulative effect of the accounting change as of
the beginning of the year is disclosed in Note 6.We noted no transactions entered into by the Utilities'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 depreciation
on capital assets,payroll related expenses,the liability for the Utilities'Other Post-Employment Benefits(OPEB),and the liability for
the Utilities'pensions.
• Management's estimate of depreciation is based on estimated useful lives of the assets.Depreciation is calculated using the
straight-line method.
• Allocations of gross wages and payroll benefits are approved by the Board within the Utilities'budget and are derived from
each employee's estimated time to be spent servicing the respective functions of the Utility.These allocations are also used in
allocating accrued compensated absences payable.
• Management's estimate of its OPEB liability is based on several factors including,but not limited to,anticipated retirement
age for active employees,life expectancy,turnover,and healthcare cost trend rate.
• Management's estimate of its pension liability is based on several factors including,but not limited to,anticipated investment
return rate,retirement age for active employees,life expectancy,salary increases and form of annuity payment upon
retirement.
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.
Management Representations
We have requested certain representations from management that are included in the management representation
letter dated March 31,2016.
People
+Process.
Iif'\O11(1thr
lIIll
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161
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 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.
Other Matters
We applied certain limited procedures to the required supplementary information(RSI)(Management's Discussion and Analysis,
Schedule of Funding Progress for the Retiree Health Plan,the Schedules of Employer's Shares of the Net Pension Liability and the
Schedules of Employer's Contributions),which is information that supplements the basic financial statements.Our procedures
consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the supplementary information(Schedule of Operating Revenues and Expense),which accompany the
financial statements but are not RSI.With respect to this supplementary information,we made certain inquiries of management and
evaluated the form,content,and methods of preparing the information to determine that the information complies with accounting
principles generally accepted in the United States of America,the method of preparing it has not changed from the prior period,and
the information is appropriate and complete in relation to our audit of the financial statements.We compared and reconciled the
supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements
themselves.
We were not engaged to report on the introductory section and supplementary information marked unaudited,which accompany the
financial statements but are not RSI.We did not audit or perform other procedures on this other information and we do not express an
opinion or provide any assurance on it.
People
+Process.
Going
I3eviu1the
\UmI)ers
162
The results of the operations for the Electric Fund in terms of cash flow and the breakdown of the cash balances for the past four years
are as follows:
Electric Fund Cash Flows-Excluding Refunding Bonds
$35,000,000
$30,000,000
1/1/ ,„ ;
$25,000,000
$20,000,000
$15,000,000 ,.
$10,000,000
$5,000,000
2012 2012 Receipts 2013 2013 Receipts 2014 2014 Receipts 2015 2015 Receipts
Disbursements Disbursements Disbursements Disbursements
Operating costs to Debt payments ■Other(capital,interfund,etc.) •Operating receipts ■Other(interest,interfund,etc.)
Excluded from the chart above in 2014 are the net refunding bond proceeds of$2,046,586 and related debt payments.
Electric Fund Cash Balances
$14,000,000 $13,175,626
$11,370,664 $12,057,293 $12,097,110
$12,000,000 I
$10,000,000
$8,000,000
$6,000,000 f
$4,000,000
$2,000,000
$-
2012 2013 2014 2015
NNE Unrestricted momi Restricted for debt service (bond covenents) —k—Unrestricted designated reserve*
*Unrestricted designated reserve: established to address the short-term financial variability inherent in operations. Potential sources
of this variability include risks associated with natural disasters,reduction in overall customer usage,changes in total system usage
resulting from the actions of large customers, failure to achieve budgeted levels of net income,changes in interest income,and general
operational exposures.
The target level for this reserve,included as the red line in the chart above,is the sum of six months operating expenditures less
depreciation and less purchase power costs,plus the sum of next year's total principal and interest payments,plus one month budgeted
average purchase power cost.The balance above this target level shall be unrestricted.
The cash provided by operating activities has remained strong and was sufficient to cover the amount of capital and
debt needs in 2015.The summary above highlights the significant amount of cash needed each year for the capital PP,Opl('
activities of the Utilities.The operations have been able to finance the capital activities for the last four years. We +PfOCCSS
recommend that the Utilities continue to closely monitor future cash flow with the use of projections and the capital
improvement plan. I,t)J I lt-;
[3evnidti
\withers
163
The results of the Electric fund are as follows:
Electric Operations Summary
2013 2014 2015
Total Percent Total Percent Total Percent
Operating revenues $ 30,846,379 100 % $ 31,366,685 100 % $ 32,551,722 100 %
Operating expenses 28,127,892 91 29,392,123 94 29,896,154 92
Operating income 2,718,487 9 1,974,562 6 2,655,568 8
Nonoperating revenues
(expenses) (30,658) - 152,375 - 267,243 1
Income before transfers 2,687,829 9 2,126,937 6 2,922,811 9
Transfers to City (781,162) (3) (797,835) (3) (824,743) (3)
Change in net position $ 1,906,667 6 % $ 1,329,102 3 % $ 2,098,068 6 %
Cash and
temporary investments $ 11,410,293 $ 11,606,610 $ 12,685,126
Restricted cash $ 647,000 $ 490,500 $ 490,500
Bonds and notes payable,
net of premium $ 6,971,207 $ 6,005,432 $ 5,124,743
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$-
2013 2014 2015
•Operating revenues ■Operating expenses ■Cash ■Bonds
People
+I'roccss
Going
13eN6ut I ti,,•
\m i l kers
164
The results of the operations for the Water Fund in terms of cash flow and the breakdown of the cash balances for the past four years
are as follows:
Water Fund Cash Flow
$3,500,000
$3,000,000
$2,500,000 + ____
$2,000,000
$1,500,000
$1,000,000
$500,000
$ 111
-
2012 2012 Receipts 2013 2013 Receipts 2014 2014 Receipts 2015 2015 Receipts
Disbursements Disbursements Disbursements Disbursements
Operating costs ■Debt payments ■Other(capital,intcrfund,etc.) •Operating receipts ■Other(interest,connection fees,etc.)
Water Fund Cash Balance
$5,000,000
$4,500,000 ! $4,367,165
$3,681,481
$4,000,000
$3,500,000 j
$3,254,530 $3,390,879
$3,000,000
$2,500,000
$2,000,000 +,
$1,500,000 4
$1,000,000
$500,000
$ T —
2012 2013 2014 2015
imim Unrestricted Unrestricted designated reserve*
*Unrestricted Designated Reserve: This reserve is established to address the short-term financial variability inherent in operating a
Water Utility. Potential sources of this variability include but are not limited to: risks associated with natural disasters,reduction in
overall customer usage,changes in total system usage resulting from the actions of large customers,failure to achieve budgeted levels
of net income,changes in interest income,and general operational exposures.
The target level for this reserve,included as the red line in the chart above,is 6 months operating expenditures less depreciation plus
the sum of next year's total principal and interest payments. The balance above this target level shall be unrestricted.
The cash balance increased due to cash provided by operations exceeding cash used for noncapital and capital activities.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. People
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The results of the Water fund are as follows:
Water Operations Summary
2013 2014 2015
Total Percent Total Percent Total Percent
Operating revenues $ 2,278,124 100 % $ 2,148,327 100 % $ 2,202,537 100 %
Operating expenses 2,243,239 98 2,350,789 109 2,414,295 110
Operating income(loss) 34,885 2 (202,462) (9) (211,758) (10)
Nonoperating revenues
(expenses) 36,457 2 57,951 3 136,829 6
Income(loss)before
contributions and transfers 71,342 4 (144,511) (6) (74,929) (4)
Capital contributions-developer
infrastructure and connection fees 295,549 13 375,329 17 253,934 12
Capital contributions from City 121,172 5 175,091 7 189,669 8
Transfers from City 40,000 2 329,490 15 94,703 4
Transfers to City (25,000) (1) (25,000) (1) (30,000) (1)
Change in net position $ 503,063 23 % $ 710,399 32 % $ 433,377 19 %
Cash and
temporary investments $ 3,390,879 $ 3,681,481 $ 4,367,165
Bonds payable,net of premium $ 2,625,495 $ 2,097,677 $ 1,868,859
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
Ili
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$-
2013 2014 2015
•Operating revenues ■Operating expenses N Cash ■Bonds
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Future Accounting Standard Changes
The following Governmental Accounting Standards Board(GASB)Statements have been issued and may have an impact on future
the Utilities financial statements:(I)
GASB Statement No.72-Fair Value Measurement and Application
Summary
This statement addresses accounting and financial reporting issues related to fair value measurements.The definition of fair value
is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.This Statement provides guidance for determining a fair value measurement for financial
reporting purposes.This Statement also provides guidance for applying fair value to certain investments and disclosures related to
all fair value measurements.
Effective Date and Transition
The requirements of this Statement are effective for financial statements for periods beginning after June 15,2015. Earlier
application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement will enhance comparability of financial statements among governments by requiring
measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and accepted
valuation techniques.This Statement also will enhance fair value application guidance and related disclosures in order to provide
information to financial statement users about the impact of fair value measurements on a government's financial position.
GASB Statement No.73 -Accounting and financial reporting for pension and related assets that are not within the scope of
GASB Statement No. 68, and amendments to certain provisions of GASB Statements No. 67 and No. 68
Summary
The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose
external financial reports of state and local governments for making decisions and assessing accountability.This Statement results
from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all
postemployment benefits with regard to providing decision-useful information,supporting assessments of accountability and
interperiod equity,and creating additional transparency.
This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No.68,
Accounting and Financial Reporting for Pensions,as well as for the assets accumulated for purposes of providing those pensions.
In addition,it establishes requirements for defined contribution pensions that are not within the scope of Statement 68.It also
amends certain provisions of Statement No.67,Financial Reporting for Pension Plans,and Statement 68 for pension plans and
pensions that are within their respective scopes.
The requirements of this Statement extend the approach to accounting and financial reporting established in Statement 68 to all
pensions,with modifications as necessary to reflect that for accounting and financial reporting purposes,any assets accumulated
for pensions that are provided through pension plans that are not administered through trusts that meet the criteria specified in
Statement 68 should not be considered pension plan assets.It also requires that information similar to that required by Statement
68 be included in notes to financial statements and required supplementary information by all similarly situated employers and
nonemployer contributing entities.
This Statement also clarifies the application of certain provisions of Statements 67 and 68 with regard to the following issues:
1. Information that is required to be presented as notes to the 10-year schedules of required supplementary information
about investment-related factors that significantly affect trends in the amounts reported.
2. Accounting and financial reporting for separately financed specific liabilities of individual employers
and nonemployer contributing entities for defined benefit pensions.
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a special funding situation.
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Future Accounting Standard Changes-Continued
Effective Date and Transition
The requirements of this Statement that address accounting and financial reporting by employers and governmental nonemployer
contributing entities for pensions that are not within the scope of Statement 68 are effective for financial statements for fiscal
years beginning after June 15,2016,and the requirements of this Statement that address financial reporting for assets accumulated
for purposes of providing those pensions are effective for fiscal years beginning after June 15,2015.The requirements of this
Statement for pension plans that are within the scope of Statement 67 or for pensions that are within the scope of Statement 68 are
effective for fiscal years beginning after June 15,2015.Earlier application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement will improve financial reporting by establishing a single framework for the presentation of
information about pensions,which will enhance the comparability of pension-related information reported by employers and
nonemployer contributing entities.
GASB Statement No.74 - Financial Reporting for Postemployment Benefit Plans Other than Pension Plans
Summary
The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions
(other postemployment benefits or OPEB)included in the general purpose external financial reports of state and local
governmental OPEB plans for making decisions and assessing accountability.This Statement results from a comprehensive
review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits(pensions
and OPEB)with regard to providing decision-useful information,supporting assessments of accountability and interperiod equity,
and creating additional transparency.
This Statement replaces Statements No.43,Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans,as
amended,and No. 57,OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes
requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No.25,
Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans,as amended,
Statement 43,and Statement No. 50,Pension Disclosures.
Statement No. 75,Accounting and Financial Reporting for Postemployment Benefits Other than Pensions,establishes new
accounting and financial reporting requirements for governments whose employees are provided with OPEB,as well as for
certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees
of other entities.
The scope of this Statement includes OPEB plans-defined benefit and defined contribution-administered through trusts that meet
the following criteria:
• Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those
contributions are irrevocable.
• OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms.
• OPEB plan assets are legally protected from the creditors of employers,nonemployer contributing entities,and the
OPEB plan administrator.If the plan is a defined benefit OPEB plan,plan assets also are legally protected from creditors
of the plan members.
This Statement also includes requirements to address financial reporting for assets accumulated for purposes of providing defined
benefit OPEB through OPEB plans that are not administered through trusts that meet the specified criteria.
Effective Date and Transition
This Statement is effective for financial statements for fiscal years beginning after June 15,2016. Earlier
application is encouraged.
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Future Accounting Standard Changes-Continued
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 OPEB plans that are administered through trusts that meet the
specified criteria.The new information will enhance the decision-usefulness of the financial reports of those OPEB plans,their
value for assessing accountability,and their transparency by providing information about measures of net OPEB liabilities and
explanations of how and why those liabilities changed from year to year.The net OPEB liability information,including ratios,
will offer an up-to-date indication of the extent to which the total OPEB liability is covered by the fiduciary net position of the
OPEB plan.The comparability of the reported information for similar types of OPEB plans will be improved by the changes
related to the attribution method used to determine the total OPEB liability.The contribution schedule will provide measures to
evaluate decisions related to the assessment of contribution rates in comparison with actuarially determined rates,if such rates are
determined.In addition,new information about rates of return on OPEB plan investments will inform financial report users about
the effects of market conditions on the OPEB plan's assets over time and provide information for users to assess the relative
success of the OPEB plan's investment strategy and the relative contribution that investment earnings provide to the OPEB plan's
ability to pay benefits to plan members when they come due.
GASB Statement No.75 -Accounting and Financial Reporting for Postemployment Benefit Plans Other than Pension
Summary
The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for
postemployment benefits other than pensions(other postemployment benefits or OPEB).It also improves information provided
by state and local governmental employers about financial support for OPEB 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 all
postemployment benefits(pensions and OPEB)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.45,Accounting and Financial Reporting by Employers for
Postemployment Benefits Other than Pensions,as amended,and No. 57,OPEB Measurements by Agent Employers and Agent
Multiple-Employer Plans,for OPEB.Statement No. 74,Financial Reporting for Postemployment Benefit Plans Other than
Pension Plans,establishes new accounting and financial reporting requirements for OPEB plans.
The scope of this Statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and
local governmental employers.This Statement establishes standards for recognizing and measuring liabilities,deferred outflows
of resources,deferred inflows of resources,and expense/expenditures.For defined benefit OPEB,this Statement identifies the
methods and assumptions that are required to be used to project benefit payments,discount projected benefit payments to their
actuarial present value,and attribute that present value to periods of employee service.Note disclosure and required
supplementary information requirements about defined benefit OPEB also are addressed.
In addition,this Statement details the recognition and disclosure requirements for employers with payables to defined benefit
OPEB plans that are administered through trusts that meet the specified criteria and for employers whose employees are provided
with defined contribution OPEB.This Statement also addresses certain circumstances in which a nonemployer entity provides
financial support for OPEB of employees of another entity.
In this Statement,distinctions are made regarding the particular requirements depending upon whether the OPEB plans through
which the benefits are provided are administered through trusts that meet the following criteria:
• Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those
contributions are irrevocable.
• OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms.
• OPEB plan assets are legally protected from the creditors of employers,nonemployer contributing entities,the OPEB
plan administrator,and the plan members.
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Future Accounting Standard Changes-Continued
Effective Date
This Statement is effective for fiscal years beginning after June 15,2017.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 OPEB liability and a more comprehensive measure of OPEB expense.Decision-usefulness and
accountability also will be enhanced through new note disclosures and required supplementary information,as follows:
• More robust disclosures of assumptions will allow for better informed assessments of the reasonableness of OPEB
measurements.
• Explanations of how and why the OPEB liability changed from year to year will improve transparency.
• The summary OPEB liability information,including ratios,will offer an indication of the extent to which the total OPEB
liability is covered by resources held by the OPEB plan,if any.
• For employers that provide benefits through OPEB plans that are administered through trusts that meet the specified
criteria,the contribution schedules will provide measures to evaluate decisions related to contributions.
The consistency,comparability,and transparency of the information reported by employers and governmental nonemployer
contributing entities about OPEB transactions will be improved by requiring:
• The use of a discount rate that considers the availability of the OPEB plan's fiduciary net position associated with the
OPEB of current active and inactive employees and the investment horizon of those resources,rather than utilizing only
the long-term expected rate of return regardless of whether the OPEB plan's fiduciary net position is projected to be
sufficient to make projected benefit payments and is expected to be invested using a strategy to achieve that return.
• A single method of attributing the actuarial present value of projected benefit payments to periods of employee service,
rather than allowing a choice among six methods with additional variations.
• Immediate recognition in OPEB expense,rather than a choice of recognition periods,of the effects of changes of benefit
terms.
• Recognition of OPEB expense that incorporates deferred outflows of resources and deferred inflows of resources related
to OPEB over a defined,closed period,rather than a choice between an open or closed period.
GASB Statement No.76 - The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments
Summary
The objective of this Statement is to identify-in the context of the current governmental financial reporting environment-the
hierarchy of generally accepted accounting principles(GAAP).The"GAAP hierarchy"consists of the sources of accounting
principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the
framework for selecting those principles.This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP
and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or
other event is not specified within a source of authoritative GAAP.
This Statement supersedes Statement No. 55,The Hierarchy of Generally Accepted Accounting Principles for State and Local
Governments.
Effective Date
The requirements of this Statement are effective for financial statements for periods beginning after PPO )IP
June 15,2015,and should be applied retroactively.Earlier application is permitted.
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Future Accounting Standard Changes-Continued
How the Changes in This Statement Will Improve Financial Reporting
The requirements in this Statement improve financial reporting by(1)raising the category of GASB Implementation Guides in
the GAAP hierarchy,thus providing the opportunity for broader public input on implementation guidance;(2)emphasizing the
importance of analogies to authoritative literature when the accounting treatment for an event is not specified in authoritative
GAAP;and(3)requiring the consideration of consistency with the GASB Concepts Statements when evaluating accounting
treatments specified in nonauthoritative literature.As a result,governments will apply financial reporting guidance with less
variation,which will improve the usefulness of financial statement information for making decisions and assessing accountability
and enhance the comparability of financial statement information among governments.
GASB Statement No.77 - Tax Abatement Disclosures
Summary
Financial statements prepared by state and local governments in conformity with generally accepted accounting principles provide
citizens and taxpayers,legislative and oversight bodies,municipal bond analysts,and others with information they need to
evaluate the financial health of governments,make decisions,and assess accountability.This information is intended,among
other things,to assist these users of financial statements in assessing(1)whether a government's current-year revenues were
sufficient to pay for current-year services(known as interperiod equity),(2)whether a government complied with finance-related
legal and contractual obligations,(3)where a government's financial resources come from and how it uses them,and(4)a
government's financial position and economic condition and how they have changed over time.
Financial statement users need information about certain limitations on a government's ability to raise resources.This includes
limitations on revenue-raising capacity resulting from government programs that use tax abatements to induce behavior by
individuals and entities that is beneficial to the government or its citizens.Tax abatements are widely used by state and local
governments,particularly to encourage economic development.For financial reporting purposes,this Statement defines a tax
abatement as resulting from an agreement between a government and an individual or entity in which the government promises to
forgo tax revenues and the individual or entity promises to subsequently take a specific action that contributes to economic
development or otherwise benefits the government or its citizens.
Although many governments offer tax abatements and provide information to the public about them,they do not always provide
the information necessary to assess how tax abatements affect their financial position and results of operations,including their
ability to raise resources in the future.This Statement requires disclosure of tax abatement information about(1)a reporting
government's own tax abatement agreements and(2)those that are entered into by other governments and that reduce the
reporting government's tax revenues.
This Statement requires governments that enter into tax abatement agreements to disclose the following information about the
agreements:
• Brief descriptive information,such as the tax being abated,the authority under which tax abatements are provided,
eligibility criteria,the mechanism by which taxes are abated,provisions for recapturing abated taxes,and the types of
commitments made by tax abatement recipients.
• The gross dollar amount of taxes abated during the period.
• Commitments made by a government,other than to abate taxes,as part of a tax abatement agreement.
Governments should organize those disclosures by major tax abatement program and may disclose information for individual tax
abatement agreements within those programs.
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Future Accounting Standard Changes-Continued
Tax abatement agreements of other governments should be organized by the government that entered into the tax abatement
agreement and the specific tax being abated.Governments may disclose information for individual tax abatement agreements of
other governments within the specific tax being abated.For those tax abatement agreements,a reporting government should
disclose:
• The names of the governments that entered into the agreements.
• The specific taxes being abated.
• The gross dollar amount of taxes abated during the period.
Effective Date and Transition
The requirements of this Statement are effective for financial statements for periods beginning after December 15,2015.Earlier
application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement improve financial reporting by giving users of financial statements essential information that
is not consistently or comprehensively reported to the public at present.Disclosure of information about the nature and magnitude
of tax abatements will make these transactions more transparent to financial statement users.As a result,users will be better
equipped to understand(1)how tax abatements affect a government's future ability to raise resources and meet its financial
obligations and(2)the impact those abatements have on a government's financial position and economic condition.
GASB Statement No.78 - Pension Provided Through Certain Multiple-Employer Defined Benefit Pension Plans
Summary
The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68,
Accounting and Financial Reporting for Pensions.This issue is associated with pensions provided through certain multiple-
employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such
pensions.
Prior to the issuance of this Statement,the requirements of Statement 68 applied to the financial statements of all state and local
governmental employers whose employees are provided with pensions through pension plans that are administered through trusts
that meet the criteria in paragraph 4 of that Statement.
This Statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local
governmental employers through a cost-sharing multiple-employer defined benefit pension plan that(1)is not a state or local
governmental pension plan,(2)is used to provide defined benefit pensions both to employees of state or local governmental
employers and to employees of employers that are not state or local governmental employers,and(3)has no predominant state or
local governmental employer(either individually or collectively with other state or local governmental employers that provide
pensions through the pension plan).This Statement establishes requirements for recognition and measurement of pension
expense,expenditures,and liabilities;note disclosures;and required supplementary information for pensions that have the
characteristics described above.
Effective Date
The requirements of this Statement are effective for reporting periods beginning after December 15,2015.Earlier application is
encouraged.
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Future Accounting Standard Changes-Continued
GASB Statement No.79- Certain External Investment Pools and Pool Participants
Summary
This Statement addresses accounting and financial reporting for certain external investment pools and pool participants.
Specifically,it establishes criteria for an external investment pool to qualify for making the election to measure all of its
investments at amortized cost for financial reporting purposes.An external investment pool qualifies for that reporting if it meets
all of the applicable criteria established in this Statement.The specific criteria address(1)how the external investment pool
transacts with participants;(2)requirements for portfolio maturity,quality,diversification,and liquidity;and(3)calculation and
requirements of a shadow price. Significant noncompliance prevents the external investment pool from measuring all of its
investments at amortized cost for financial reporting purposes.Professional judgment is required to determine if instances of
noncompliance with the criteria established by this Statement during the reporting period,individually or in the aggregate,were
significant.
If an external investment pool does not meet the criteria established by this Statement,that pool should apply the provisions in
paragraph 16 of Statement No. 31,Accounting and Financial Reporting for Certain Investments and for External Investment
Pools,as amended.If an external investment pool meets the criteria in this Statement and measures all of its investments at
amortized cost,the pool's participants also should measure their investments in that external investment pool at amortized cost for
financial reporting purposes. If an external investment pool does not meet the criteria in this Statement,the pool's participants
should measure their investments in that pool at fair value,as provided in paragraph 11 of Statement 31,as amended.
This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of
their investments at amortized cost for financial reporting purposes and for governments that participate in those pools.Those
disclosures for both the qualifying external investment pools and their participants include information about any limitations or
restrictions on participant withdrawals.
Effective Date
The requirements of this Statement are effective for reporting periods beginning after June 15,2015,except for the provisions in
paragraphs 18, 19,23-26,and 40,which are effective for reporting periods beginning after December 15,2015.
How the Changes in This Statement Will Improve Financial Reporting
This Statement will enhance comparability of financial statements among governments by establishing specific criteria used to
determine whether a qualifying external investment pool may elect to use an amortized cost exception to fair value measurement.
Those criteria will provide qualifying external investment pools and participants in those pools with consistent application of an
amortized cost-based measurement for financial reporting purposes.That measurement approximates fair value and mirrors the
operations of external investment pools that transact with participants at a stable net asset value per share.
(l)Note.From GASB Pronouncements Summaries.Copyright 2015 by the Financial Accounting Foundation,401 Merritt 7,Norwalk,
CT 06856,USA,and is reproduced with permission.
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Restriction on Use
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.
Ca job fati 44 Lop
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ABDO,EICK&MEYERS,LLP
Minneapolis,Minnesota
March 31,2016
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