4.1 ERMUSR 04-11-2017 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
ERMU Commission Theresa Slominski—Finance and Office Manager
MEETING DATE: AGENDA ITEM NUMBER:
April 11, 2017 4.1
SUBJECT:
2016 Financial Audit
ACTION REQUESTED:
Receive and file the 2016 Annual Financial Report
BACKGROUND:
Audit fieldwork was completed March 2nd and 3rd 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 2016 audit and answer questions
you may have. There was an audit adjustment again this year for GASB 68,Accounting and
Financial Reporting for Pensions,that resulted in recognition of an additional liability of
$1,647,464, recognition of offsetting Deferred Outflows and Inflows of Resources, and expense
of$264,604 (between both funds). These items are discussed in Note 3 of the financials.
FINANCIAL IMPACT:
None
ATTACHMENTS:
• AEM Management Letter
• ERMU Annual Financial Report For the Year Ended December 31, 2016
Page 1 of 1
65
Management Letter
Elk River Utilities
Elk River, Minnesota
For the Year Ended
December 31, 2016
ABDO
EICK C People
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66
ABDO
FII &
MEYERS ERS LLP
Certified Public Accountants&Consultants March 30,2017
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 31,2016.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 9,2016.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 _1_
952.835.9090 I Fax 952 835.3261
67
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.The Utilities changed accounting policies during 2016 related to fair
market value and application(GASB 72),accounting and financial reporting for pension and related assets not within the scope of
GASB 68,including amendments to certain provisions GASB Statement No.67 and No.68(GASB 73),and certain external
investment pools and pool participants(GASB 79).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 30,2017.
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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 Other Postemployment Benefit Plan,the Schedule of Employer's Share of the Net Pension
Liability and the Schedule 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 them.
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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
$40,000,000
$35,000,000
$25,000,000 ,.
$25,000,000 11111.1.111111111
f z '
�'.
$20,000,000
I 111111
$15,000,000
$10,000,000
I 1111111111
$5,000,000
$ ,,;_ :x. ...
2013 Receipts 2013 2014 Receipts 2014 2015 Receipts 2015 2016 Receipts 2016
Disbursements Disbursements Disbursements Disbursements
■Operating costs ■Debt payments •Operating receipts
Electric Fund Cash Balances
$16,000,000 $14,680,691
$13,175,626
$14,000,000
$12,057,293 $12,097,110
$12,000,000
$10,000,000 - --
11111
$8,000,000
1111111 .11111
$6,000,000
MIN EMI
$4,000,000
1111111 111111
$2,000,000
$-
2013 2014 2015 2016
Unrestricted mil Restricted for debt service(bond covenents) f 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
2016.The Utilities issued debt to fund a down payment to MMPA.We recommend that the Utilities continue to
closely monitor future cash flow with the use of projections and the capital improvement plan.
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The results of the Electric fund are as follows:
Electric Operations Summary
2014 2015 2016
Total Percent Total Percent Total Percent
Operating revenues $ 31,366,685 100 % $ 32,551,722 100 % $ 34,464,396 100 %
Operating expenses 29,392,123 94 29,896,154 92 31,826,599 92
Operating income 1,974,562 6 2,655,568 8 2,637,797 8
Nonoperating revenues
(expenses) 152,375 - 267,243 1 8,991 -
Income before transfers 2,126,937 6 2,922,811 9 2,646,788 8
Special item - - - - 330,923 1
Transfers to City (797,835) (3) (824,743) (3) (1,089,287) (3)
Change in net position $ 1,329,102 3 % $ 2,098,068 6 % $ 1,888,424 6 %
Cash and
temporary investments $ 11,606,610 $ 12,685,126 $ 13,683,031
Restricted cash $ 490,500 $ 490,500 $ 997,660
Bonds and notes payable,
net of premium $ 6,005,432 $ 5,124,743 $ 14,300,294
$40,000,000 1
$35,000,000
$30,000,000
$25,000,000
$20,000,000
} Min IIIIIIIII
$15,000,000
$10,000,000 1 II= WM
$5,000,000
I
$-
2014 2015 2016
1 ■Operating revenues ■Operating expenses e Cash •Bonds
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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 Flows
$3,000,000
$2,500,000
$2,000,000MEI
$1,500,000
$1,000,000 I 11111
111111 1
$500,000 -
za�
$-
2013 Receipts 2013 2014 Receipts 2014 2015 Receipts 2015 2016 Receipts 2016
Disbursements Disbursements Disbursements Disbursements
Operating costs ■Debt payments ■Operating receipts
Water Fund Cash Balances
$4,800,000
$4 367 165 $4,255,964
$4,200,000
$3,681,481
$3,600,000 '1 '
$3,000,000
.11111
$2,400,000
$1,800,000
Mill
11111111
$1,200,000
0111111
$600,000
$-
2013 2014 2015 2016
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 provided by operating activities has remained strong and was sufficient to cover the amount of capital and debt needs in
2016.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
2014 2015 2016
Total Percent Total Percent Total Percent
Operating revenues $ 2,148,327 100 % $ 2,202,537 100 % $ 2,173,521 100 %
Operating expenses 2,350,789 109 2,414,295 110 2,474,141 114
Operating income(loss) (202,462) (9) (211,758) (10) (300,620) (14)
Nonoperating revenues
(expenses) 57,951 3 136,829 6 164,681 8
Income(loss)before
contributions and transfers (144,511) (6) (74,929) (4) (135,939) (6)
Capital contributions-developer
infrastructure and connection fees 375,329 17 253,934 12 358,684 17
Capital contributions from City 175,091 7 189,669 8 73,002 3
Transfers from City 329,490 15 94,703 4 300,000 14
Transfers to City (25,000) (1) (30,000) (1) - -
Change in net position $ 710,399 32 % $ 433,377 19 % $ 595,747 28 %
Cash and
temporary investments $ 3,681,481 $ 4,367,165 $ 4,255,964
Bonds payable,net of premium $ 2,097,677 $ 1,868,859 $ 1,635,113
$5,000,000
$4,500,000
$4,000,000 11111111111111111111
� III I�� fff���
$3,500,000 IIII I IIIIIII II I II�IIIIIIIIL �I III IIIIIIIIIIIIIIIIIIII U I U.IIIIIIIIIIIIIIIIIIII 11111.
$3,000,000
$2,500,000 `_
$2,000,000 iii
$1,500,000
Mill Milli III
$1,000,000
11111111 III
$500,000
IIIIII III
2014 2015 2016
•Operating revenues •Operating expenses •Cash •Bonds I
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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:(1)
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.80- Blending Requirements for Certain Component Units-an Amendment of GASB Statement No. 14
Summary
The objective of the Statement is to improve financial reporting by clarifying the financial statement presentation requirements for
certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14,
The Financial Reporting Entity, as amended.
This Statement amends the blending requirements for the financial statement presentation of component units of all state and local
governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which
the primary government is the sole corporate member. The additional criterion does not apply to component units included in the
financial reporting entity pursuant to the provisions of Statement No.39,Determining Whether Certain Organizations Are
Component Units.
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Future Accounting Standard Changes-Continued
Effective Date
The requirements of this Statement are effective for reporting periods beginning after June 15,2016. Earlier application is
encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement enhance the comparability of financial statements among governments. Greater comparability
improves the decision-usefulness of information reported in financial statements and enhances its value for assessing government
accountability.
GASB Statement No.81-Irrevocable Split-Interest Agreements
Summary
The objective of this Statement is to improve accounting and financial reporting for irrevocable split-interest agreements by
providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement.
Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries,
including governments. Split-interest agreements can be created through trusts-or other legally enforceable agreements with
characteristics that are equivalent to split-interest agreements-in which a donor transfers resources to an intermediary to hold and
administer for the benefit of a government and at least one other beneficiary.Examples of these types of agreements include
charitable lead trusts,charitable remainder trusts,and life-interests in real estate.
This Statement requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize
assets,liabilities,and deferred inflows of resources at the inception of the agreement.Furthermore,this Statement requires that a
government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a
third party,if the government controls the present service capacity of the beneficial interests.This Statement requires that a
government recognize revenue when the resources become applicable to the reporting period.
Effective Date
The requirements of this Statement are effective for financial statements for periods beginning after December 15,2016,and
should be applied retroactively.Earlier application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
This Statement enhances the comparability of financial statements by providing accounting and financial reporting guidance for
irrevocable split-interest agreements in which a government is a beneficiary.This Statement also enhances the decision-
usefulness of general purpose external financial reports,and their value for assessing accountability,by more clearly identifying
the resources that are available for the government to carry out its mission.
GASB Statement No.82- Pension Issues an Amendment of GASB Statements No. 67,No. 68, and No. 73
Summary
The objective of this Statement is to address certain issues that have been raised with respect to Statements No.67,Financial
Reporting for Pension Plans,No.68,Accounting and Financial Reporting for Pensions,and No.73,Accounting and Financial
Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68,and Amendments to Certain
Provisions of GASB Statements 67 and 68.Specifically,this Statement addresses issues regarding(1)the presentation of payroll-
related measures in required supplementary information,(2)the selection of assumptions and the treatment of deviations from the
guidance in an Actuarial Standard of Practice for financial reporting purposes,and(3)the classification of payments made by
employers to satisfy employee(plan member)contribution requirements.
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Future Accounting Standard Changes-Continued
Presentation of Payroll-Related Measures in Required Supplementary Information
Prior to the issuance of this Statement,Statements 67 and 68 required presentation of covered-employee payroll,which is the
payroll of employees that are provided with pensions through the pension plan,and ratios that use that measure,in schedules of
required supplementary information.This Statement amends Statements 67 and 68 to instead require the presentation of covered
payroll,defined as the payroll on which contributions to a pension plan are based,and ratios that use that measure.
Selection of Assumptions
This Statement clarifies that a deviation,as the term is used in Actuarial Standards of Practice issued by the Actuarial Standards
Board,from the guidance in an Actuarial Standard of Practice is not considered to be in conformity with the requirements of
Statement 67,Statement 68,or Statement 73 for the selection of assumptions used in determining the total pension liability and
related measures.
Classification of Employer-Paid Member Contributions
This Statement clarifies that payments that are made by an employer to satisfy contribution requirements that are identified by the
pension plan terms as plan member contribution requirements should be classified as plan member contributions for purposes of
Statement 67 and as employee contributions for purposes of Statement 68.It also requires that an employer's expense and
expenditures for those amounts be recognized in the period for which the contribution is assessed and classified in the same
manner as the employer classifies similar compensation other than pensions(for example,as salaries and wages or as fringe
benefits).
Effective Date
The requirements of this Statement are effective for reporting periods beginning after June 15,2016,except for the requirements
of this Statement for the selection of assumptions in a circumstance in which an employer's pension liability is measured as of a
date other than the employer's most recent fiscal year-end.In that circumstance,the requirements for the selection of assumptions
are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or 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 financial reporting by enhancing consistency in the application of financial
reporting requirements to certain pension issues.
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Future Accounting Standard Changes-Continued
GASB Statement No.83-Certain Asset Retirement Obligations
Summary
This Statement addresses accounting and financial reporting for certain asset retirement obligations(AROs).An ARO is a legally
enforceable liability associated with the retirement of a tangible capital asset.A government that has legal obligations to perform
future asset retirement activities related to its tangible capital assets should recognize a liability based on the guidance in this
Statement.
This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding
deferred outflow of resources for AROs.This Statement requires that recognition occur when the liability is both incurred and
reasonably estimable.The determination of when the liability is incurred should be based on the occurrence of external laws,
regulations,contracts,or court judgments,together with the occurrence of an internal event that obligates a government to
perform asset retirement activities.Laws and regulations may require governments to take specific actions to retire certain
tangible capital assets at the end of the useful lives of those capital assets,such as decommissioning nuclear reactors and
dismantling and removing sewage treatment plants.Other obligations to retire tangible capital assets may arise from contracts or
court judgments.Internal obligating events include the occurrence of contamination,placing into operation a tangible capital asset
that is required to be retired,abandoning a tangible capital asset before it is placed into operation,or acquiring a tangible capital
asset that has an existing ARO.
This Statement requires the measurement of an ARO to be based on the best estimate of the current value of outlays expected to
be incurred.The best estimate should include probability weighting of all potential outcomes,when such information is available
or can be obtained at reasonable cost.If probability weighting is not feasible at reasonable cost,the most likely amount should be
used. This Statement requires that a deferred outflow of resources associated with an ARO be measured at the amount of the
corresponding liability upon initial measurement.
This Statement requires the current value of a government's AROs to be adjusted for the effects of general inflation or deflation at
least annually.In addition,it requires a government to evaluate all relevant factors at least annually to determine whether the
effects of one or more of the factors are expected to significantly change the estimated asset retirement outlays.A government
should remeasure an ARO only when the result of the evaluation indicates there is a significant change in the estimated outlays.
The deferred outflows of resources should be reduced and recognized as outflows of resources(for example,as an expense)in a
systematic and rational manner over the estimated useful life of the tangible capital asset.
A government may have a minority share(less than 50 percent)of ownership interest in a jointly owned tangible capital asset in
which a nongovernmental entity is the majority owner and reports its ARO in accordance with the guidance of another recognized
accounting standards setter.Additionally,a government may have a minority share of ownership interest in a jointly owned
tangible capital asset in which no joint owner has a majority ownership,and a nongovernmental joint owner that has operational
responsibility for the jointly owned tangible capital asset reports the associated ARO in accordance with the guidance of another
recognized accounting standards setter.In both situations,the government's minority share of an ARO should be reported using
the measurement produced by the nongovernmental majority owner or the nongovernmental minority owner that has operational
responsibility,without adjustment to conform to the liability measurement and recognition requirements of this Statement.
In some cases,governments are legally required to provide funding or other financial assurance for their performance of asset
retirement activities.This Statement requires disclosure of how those funding and assurance requirements are being met by a
government,as well as the amount of any assets restricted for payment of the government's AROs,if not separately displayed in
the financial statements.
This Statement also requires disclosure of information about the nature of a government's AROs,the methods and assumptions
used for the estimates of the liabilities,and the estimated remaining useful life of the associated tangible capital assets.If an ARO
(or portions thereof)has been incurred by a government but is not yet recognized because it is not reasonably estimable,the
government is required to disclose that fact and the reasons therefor.This Statement requires similar disclosures for a
government's minority shares of AROs.
Effective Date
The requirements of this Statement are effective for reporting periods beginning after June 15,2018.Earlier
application is encouraged. People
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Future Accounting Standard Changes-Continued
How the Changes in This Statement Will Improve Financial Reporting
This Statement will enhance comparability of financial statements among governments by establishing uniform criteria for
governments to recognize and measure certain AROs,including obligations that may not have been previously reported.This
Statement also will enhance the decision-usefulness of the information provided to financial statement users by requiring
disclosures related to those AROs.
(1)Note.From GASB Pronouncements Summaries.Copyright 2016 by the Financial Accounting Foundation,401 Merritt 7,Norwalk,
CT 06856,USA,and is reproduced with permission.
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.
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Minneapolis,Minnesota
March 30,2017
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Annual Financial Report
Elk River Utilities
Elk River,Minnesota
For the Year Ended
December 31, 2016
ABD
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 2016
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
TABLE OF CONTENTS
FOR THE YEAR ENDED DECEMBER 31,2016
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 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
Schedule of Funding Progress for the Other Postemployment Benefit Plan 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, 2016
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
PUBLIC UTILITIES COMMISSION AND ADMINISTRATION
FOR THE YEAR ENDED DECEMBER 31,2016
COMMISSION
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 ONeill 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, 2016
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ABDO
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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 31,2016,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 as
of December 31,2016,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 31,2016,the changes in its financial position,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 -9-
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Other Matters
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 Share 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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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 31,2016.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$58,194,958(net position).Net Position increased by$2,309,080 or 4.1 percent.
• The Utilities' cash balance at the close of the current fiscal year was$18,936,655.
• Electric usage overall was up an average of 7.5 percent.Residential usage increased 10.1 percent,Commercial usage
decreased 1.9 percent,and Industrial usage increased 8.9 percent.
• Water usage overall was down slightly at 1.5 percent from the prior year.Residential usage increased 2.2 percent,and
Commercial usage decreased 4.5 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 the
private sector.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 Statement of Net Position,and
the Statement 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-1.As can be seen
from the Table,net position increased$2,309,080 to$58,194,958 in fiscal 2016 up from$55,885,878 in fiscal 2015.
TABLE A-1
Condensed Statement of Net Position
Increase
2016 2015 (Decrease)
Assets
Current and other $ 23,328,553 $ 21,848,337 $ 1,480,216
Capital 59,150,780 48,151,150 10,999,630
Total assets 82,479,333 69,999,487 12,479,846
Total deferred outflows 1,685,181 360,603 1,324,578
Liabilities
Current 6,355,909 5,408,917 946,992
Non-current 19,156,552 8,557,562 10,598,990
Total liabilities 25,512,461 13,966,479 11,545,982
Total deferred inflows 457,095 507,733 (50,638)
Net position
Net investment in capital assets 43,266,893 41,216,712 2,050,181
Restricted for debt service 997,660 490,500 507,160
Unrestricted 13,930,405 14,178,666 (248,261)
Total net position $ 58,194,958 $ 55,885,878 $ 2,309,080
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Water and electric rates.Electric-The latest increase in the Utilities' electric rates was effective January 2017.The monthly base
charges are based upon the type of service. The monthly charges are$13.00 for residential,$25.00 for commercial,and$70.00 for
industrial customers.In addition to the base charges the residential rate is$.1363/KWh for May-September usage,and$.1209/KWh
for October-April usage;the commercial rate is$.1306/KWh for May-September usage,and$.1089/KWh for October-April usage;
the industrial rate is$.0658/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 2017.The monthly base charge for
residential customers is$8.68 per month.In addition to the base charge,the Utilities currently charges its residential customers$1.77
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$10.63 to$112.27.
An irrigation meter is$18.91 per month.There is also a charge per thousand gallons,the same tiers as the residential rates of$1.77,
$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 3:30 pm 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 8:00 am and 4:30 pm 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.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.
If a personal guarantee is signed,a social security number is provided,and potentially could decrease the deposit to 1 month's
estimated highest bill.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$2,309,080 in fiscal 2016.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
2016 2015 (Decrease)
Revenues
Operating $ 36,637,917 $ 34,754,259 $ 1,883,658
Nonoperating 594,123 576,984 17,139
Total revenues 37,232,040 35,331,243 1,900,797
Expenses
Operating 34,300,740 32,310,449 1,990,291
Nonoperating 420,451 172,912 247,539
Total expenses 34,721,191 32,483,361 2,237,830
Income before contributions and operating transfers 2,510,849 2,847,882 (337,033)
Capital contributions-developer infrastructure and connection fees 358,684 253,934 104,750
Capital contributions of asset from City 73,002 189,669 (116,667)
Transfers from other City funds 300,000 94,703 205,297
Transfers to other City funds (1,089,287) (854,743) (234,544)
Change in net position before special item 2,153,248 2,531,445 (378,197)
Special item 330,923 - 330,923
Change in net position 2,484,171 2,531,445 (47,274)
Net position,January 1 55,885,878 53,354,433 2,531,445
Prior period adjustment(note 7) (175,091) - (175,091)
Net position,December 31 $ 58,194,958 $ 55,885,878 $ 2,309,080
Revenues.Table A-2 shows that operating revenue increased by 5.4 percent in 2016 for the Electric and Water Departments
combined.The Electric Department operating revenue was impacted by the territory acquisition in September and October 2015
adding approximately 800 residential customers and 130 commercial customers,and the territory acquisition in September 2016
adding approximately 200 customers,mostly commercial.
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 2016,rebates received from our 2014 filings were approximately$7,000 per month.The Water
Department is receiving lease revenue from Sprint and Verizon for antennas on the water towers.In 2016 this amount was
approximately$173,000,and will continue for the duration of the multi-year contracts.
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Both Electric and Water Connection Fees each increased approximately$100,000 over the prior year as new construction picked up.
Additionally,the security business line was sold in 2016 for a net amount of approximately$331,000.
Total expenses.In reviewing total expenses in Table A-2 you will notice that there was an increase of 6.9 percent overall,with the
electric department increasing 7.2 percent,and the water department increasing 2.1 percent.Purchased Power is the biggest electric
department expense and it was up 8.9 percent.
Capital Assets and Debt Administration
Capital assets.The Utilities' investment in capital assets for its business-type activities as of December 31,2016 amounts to
$59,150,780(net of accumulated depreciation).This investment in capital assets includes land,buildings,improvements and
equipment.A table summarizing the balances by fund follows:
Increase
2016 2015 (Decrease)
Land $ 444,435 $ 361,351 $ 83,084
Intangible 9,804,951 - 9,804,951
Land improvements 7,065 8,000 (935)
Buildings 2,129,112 2,015,126 113,986
Machinery and equipment 1,671,535 1,626,892 44,643
Infrastructure 43,875,332 43,949,775 (74,443)
Construction in progress 1,218,350 190,006 1,028,344
Total $ 59,150,780 $ 48,151,150 $ 10,999,630
The total increase in the Utilities' investment in capital assets for the current fiscal year was 22.8 percent.
Major capital asset events during the current fiscal year included the following:
• The Electric Department acquired additional territory that included approximately 200 customers,increasing Infrastructure.
• The Electric Department made a down payment on their buy-in to the power contract with MMPA,resulting in the addition
of an intangible asset of$9,373,794.
• Construction in progress increased as projects started in the current year were not completed and resulted in carryover
projects for 2017.
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$20,481,859 in long-term debt up from$9,846,426 in fiscal 2015.The increase is
largely from a new bond issue of$9,755,000 to cover the down payment to MMPA mentioned above.More detailed information
about the Utilities' long-term liabilities can be found in Note 2C starting on page 35 and below:
Increase
2016 2015 (Decrease)
G.O.revenue bonds $ 2,230,000 $ 2,535,000 $ (305,000)
Revenue bonds 11,955,000 2,985,000 8,970,000
Unamortized premium on bonds 536,331 65,234 471,097
Promissory note 1,214,076 1,408,368 (194,292)
Compensated absences payable 351,199 312,539 38,660
Net pension liability 4,124,708 2,477,244 1,647,464
OPEB liability 70,545 63,041 7,504
Total $ 20,481,859 $ 9,846,426 $ 10,635,433
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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.
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FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2016
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF NET POSITION
DECEMBER 31,2016
Electric Water Total
ASSETS
CURRENT ASSETS
Cash and temporary investments $ 13,683,031 $ 4,255,964 $ 17,938,995
Receivables
Accrued interest 4,550 1,138 5,688
Accounts,net of allowance 2,674,555 93,289 2,767,844
Special assessments 1,624 80,499 82,123
Other receivables 57,025 7,709 64,734
Due from other City funds 10,416 429,289 439,705
Inventories 793,380 13,004 806,384
Prepaid expenses 197,439 27,981 225,420
TOTAL CURRENT ASSETS 17,422,020 4,908,873 22,330,893
CAPITAL ASSETS
Land 331,538 112,897 444,435
Intangible 9,804,951 - 9,804,951
Land improvements 23,389 - 23,389
Buildings 3,065,866 866,867 3,932,733
Equipment and machinery 3,177,803 403,292 3,581,095
Infrastructure 45,155,721 33,901,914 79,057,635
Construction in progress 36,785 1,181,565 1,218,350
CAPITAL ASSETS,COST 61,596,053 36,466,535 98,062,588
LESS ACCUMULATED DEPRECIATION (23,639,805) (15,272,003) (38,911,808)
TOTAL CAPITAL ASSETS,NET 37,956,248 21,194,532 59,150,780
OTHER ASSETS
Restricted cash 997,660 - 997,660
TOTAL ASSETS 56,375,928 26,103,405 82,479,333
DEFERRED OUTFLOWS OF RESOURCES
Deferred charges on refunding 41,216 10,304 51,520
Deferred pension resources 1,485,023 148,638 1,633,661
TOTAL DEFERRED OUTFLOWS OF RESOURCES 1,526,239 158,942 1,685,181
The notes to the financial statements are an integral part of this statement.
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104
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF NET POSITION-CONTINUED
DECEMBER 31,2016
Electric Water Total
CURRENT LIABILITIES
Accounts payable $ 2,682,415 $ 233,076 $ 2,915,491
Salaries and benefits payable 100,644 15,483 116,127
Accrued interest payable 155,971 23,598 179,569
Due to other City funds 755,539 23,596 779,135
Due to other governments 113,078 2,125 115,203
Customer deposits payable 724,770 109,686 834,456
Unearned revenue 875 89,746 90,621
Compensated absences-current portion 156,874 23,217 180,091
Notes payable-current portion 195,216 - 195,216
Bonds payable-current portion 706,000 244,000 950,000
TOTAL CURRENT LIABILITIES 5,591,382 764,527 6,355,909
NON-CURRENT LIABILITIES
Net other postemployment benefits liability 70,545 - 70,545
Compensated absences-less current portion 152,133 18,975 171,108
Notes payable-less current portion 1,018,860 - 1,018,860
Bonds payable,net-less current portion 12,380,218 1,391,113 13,771,331
Net pension liability 3,749,423 375,285 4,124,708
TOTAL NON-CURRENT LIABILITIES 17,371,179 1,785,373 19,156,552
TOTAL LIABILITIES 22,962,561 2,549,900 25,512,461
DEFERRED INFLOWS OF RESOURCES
Deferred pension resources 415,506 41,589 457,095
NET POSITION
Net investment in capital assets 23,697,170 19,569,723 43,266,893
Restricted for debt service 997,660 - 997,660
Unrestricted 9,829,270 4,101,135 13,930,405
TOTAL NET POSITION $ 34,524,100 $ 23,670,858 $ 58,194,958
The notes to the financial statements are an integral part of this statement.
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105
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF REVENUES,EXPENSES AND CHANGES IN NET POSITION
FOR THE YEAR ENDED DECEMBER 31,2016
Electric Water Total
OPERATING REVENUES
Charges for services $ 33,481,349 $ 2,121,380 $ 35,602,729
Security systems 177,572 - 177,572
LFG project 1,087,749 - 1,087,749
Generation credit (804,608) - (804,608)
Connection maintenance 269,197 34,999 304,196
Customer penalties 253,137 17,142 270,279
TOTAL OPERATING REVENUES 34,464,396 2,173,521 36,637,917
OPERATING EXPENSES
Purchased power 23,991,069 - 23,991,069
Production 753,870 493,385 1,247,255
Distribution 1,287,940 149,744 1,437,684
Depreciation 2,005,093 1,148,310 3,153,403
Customer accounts 534,273 75,565 609,838
General and administrative 3,254,354 607,137 3,861,491
TOTAL OPERATING EXPENSES 31,826,599 2,474,141 34,300,740
OPERATING INCOME(LOSS) 2,637,797 (300,620) 2,337,177
NONOPERATING REVENUES(EXPENSES)
Interest income 90,804 24,917 115,721
Miscellaneous revenue 281,702 196,700 478,402
Interest expense and other (198,194) (57,986) (256,180)
Gain(loss)on sale of capital assets (80,126) 1,050 (79,076)
Bond issuance costs (85,195) - (85,195)
TOTAL NONOPERATING REVENUES(EXPENSES) 8,991 164,681 173,672
INCOME(LOSS)BEFORE CONTRIBUTIONS AND TRANSFERS 2,646,788 (135,939) 2,510,849
CAPITAL CONTRIBUTIONS-
DEVELOPER INFRASTRUCTURE AND CONNECTION FEES - 358,684 358,684
CONTRIBUTION OF ASSETS FROM CITY - 73,002 73,002
TRANSFERS FROM OTHER CITY FUNDS - 300,000 300,000
TRANSFERS TO OTHER CITY FUNDS (1,089,287) - (1,089,287)
TOTAL CONTRIBUTIONS AND TRANSFERS (1,089,287) 731,686 (357,601)
CHANGE IN NET POSITION BEFORE SPECIAL ITEM 1,557,501 595,747 2,153,248
SPECIAL ITEM 330,923 - 330,923
CHANGE IN NET POSITION 1,888,424 595,747 2,484,171
NET POSITION,JANUARY 1 32,635,676 23,250,202 55,885,878
PRIOR PERIOD ADJUSTMENT(NOTE 7) - (175,091) (175,091)
NET POSITION,DECEMBER 31 $ 34,524,100 $ 23,670,858 $ 58,194,958
The notes to the financial statements are an integral part of this statement.
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107
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,2016
Electric Water Total
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users $ 34,621,945 $ 2,213,416 $ 36,835,361
Other operating cash receipts 288,497 191,150 479,647
Payments to suppliers (27,213,605) (798,435) (28,012,040)
Payments to employees (2,243,498) (487,884) (2,731,382)
NET CASH PROVIDED
BY OPERATING ACTIVITIES 5,453,339 1,118,247 6,571,586
CASH FLOWS FROM
NONCAPITAL FINANCING ACTIVITIES
Transfers from City - 300,000 300,000
Transfers to City (1,089,287) - (1,089,287)
(Increase)decrease in due from other City funds (396) (205,297) (205,693)
Increase(decrease)in due to other City funds 96,106 562 96,668
Sale of business line 330,923 - 330,923
NET CASH PROVIDED(USED)BY NONCAPITAL
FINANCING ACTIVITIES (662,654) 95,265 (567,389)
CASH FLOWS FROM CAPITAL
AND RELATED FINANCING ACTIVITIES
Acquisition of capital assets (12,422,917) (1,415,644) (13,838,561)
Proceeds from sale of capital assets 44,218 1,050 45,268
Proceeds from connection fees - 358,684 358,684
Principal payments on revenue bonds (2,227,000) (233,000) (2,460,000)
Proceeds of bonds issued,net of issuance
costs and premium on bonds 11,545,329 - 11,545,329
Interest paid on revenue bonds (119,657) (60,193) (179,850)
Principal payments on promissory note (194,292) - (194,292)
NET CASH USED BY CAPITAL
AND RELATED FINANCING ACTIVITIES (3,374,319) (1,349,103) (4,723,422)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 88,699 24,390 113,089
NET INCREASE(DECREASE)
IN CASH AND CASH EQUIVALENTS 1,505,065 (111,201) 1,393,864
CASH AND CASH EQUIVALENTS,JANUARY 1 13,175,626 4,367,165 17,542,791
CASH AND CASH EQUIVALENTS,DECEMBER 31 $ 14,680,691 $ 4,255,964 $ 18,936,655
RECONCILIATION OF CASH AND CASH
EQUIVALENTS TO THE STATEMENT OF NET POSITION
Cash and temporary investments $ 13,683,031 $ 4,255,964 $ 17,938,995
Restricted cash 997,660 - 997,660
TOTAL CASH AND CASH EQUIVALENTS $ 14,680,691 $ 4,255,964 $ 18,936,655
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 CASH FLOWS-CONTINUED
FOR THE YEAR ENDED DECEMBER 31,2016
Electric Water Total
RECONCILIATION OF OPERATING INCOME(LOSS)TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income(loss) $ 2,637,797 $ (300,620) $ 2,337,177
Adjustments to reconcile operating income(loss)
to net cash provided by operating activities
Other revenue related to operations 281,702 196,700 478,402
Bad debt expense 1,963 - 1,963
Depreciation 2,005,093 1,148,310 3,153,403
(Increase)decrease in assets/deferred outflows:
Accounts receivable (83,518) 23,430 (60,088)
Other receivables 6,795 (5,550) 1,245
Special assessments receivable 4,898 (7,623) (2,725)
Inventories 198,183 1,011 199,194
Prepaid expenses (18,660) 1,044 (17,616)
Deferred pension resources (1,212,074) (120,148) (1,332,222)
Increase(decrease)in liabilities/deferred inflows:
Accounts payable (95,736) 9,205 (86,531)
Salaries and benefits payable 22,614 1,310 23,924
Net other postemployment benefits liability 7,504 - 7,504
Unearned revenue 875 3,455 4,330
Compensated absences payable 25,477 13,183 38,660
Due to other governments (26,936) (851) (27,787)
Customer deposits payable 235,294 20,633 255,927
Net pension liability 1,506,308 141,156 1,647,464
Deferred pension resources (44,240) (6,398) (50,638)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,453,339 $ 1,118,247 $ 6,571,586
NONCASH CAPITAL AND
RELATED FINANCING ACTIVITIES
Amortization of bond premium $ 33,681 $ 747 $ 34,428
Amortization of deferred charges on refunding $ 6,139 $ 1,505 $ 7,644
Capital assets purchased on account $ 411,157 $ 129,747 $ 540,904
Contribution of capital assets $ - $ 73,002 $ 73,002
The notes to the financial statements are an integral part of this statement.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
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 Electric and Water 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.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NO[ES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
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,deferred outflows of resources,liabilities,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.
Broker money market funds operate in accordance with appropriate state laws and regulations.The reported value of
the pool is the same as the fair value of the shares.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
The Utilities categorizes its fair value measurements within the fair value hierarchy established by generally accepted
accounting principles.The hierarchy is based on the valuation inputs used to measure the fair value of the asset.Level 1
inputs are quoted prices in active markets for identical assets;Level 2 inputs are significant other observable inputs;
Level 3 inputs are significant unobservable inputs.The Utilities recurring fair value measurements are listed in detail on
page 33 and are valued using a matrix pricing model(Level 2 inputs).
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 31,2016 is as
follows:
2016
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.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NO IES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
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
Deferred outflows of resources
In addition to assets,the statement of net 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.
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114
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
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.
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 net 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 statement of net position and results from actuarial
calculations.
Net position
Net position represents the difference between assets and deferred outflows of resources and liabilities and deferred
inflows of resources.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.
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115
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
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 31,2016,the Utilities' carrying amount of deposits was$15,362,053 and the bank balance was
$15,400,336.Of the bank balance$354,495 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.
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116
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Investments
The Utilities' investment balances were as follows for December 31,2016:
Credit Segmented
Quality/ Time Fair Value Measurement Using
Types of Investments Ratings(1) Distribution(2) Amount Level l Level 2 Level 3
Pooled investments
Broker Money Markets N/A less than 6 months $ 33,324
Non-pooled investments
Negotiable certificates of deposits N/A less than 6 months 401,566 $ - $ 401,566 $
Negotiable certificates of deposits N/A 6 months to 1 year 813,501 - 813,501
Negotiable certificates of deposits N/A 1 to 3 years 2,325,411 - 2,325,411
Total non-pooled investments 3,540,478 - 3,540,478
Total investments $ 3,573,802 $ - $ 3,540,478 $
(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.
A reconciliation of cash and temporary investments as shown in the financial statements for the Utilities follows:
2016
Deposits $ 15,362,053
Investments 3,573,802
Cash on hand 800
Total $ 18,936,655
Cash and temporary investments
Unrestricted $ 17,938,995
Restricted 997,660
Total $ 18,936,655
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.
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ELK RIVER MUNICIPAL UTILITIES
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NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
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 31,2016 was as follows:
Beginning Ending
Balance Increases Decreases Balance
Capital assets not
being depreciated
Land $ 361,351 $ 83,084 $ - $• 444,435
Intangible - 9,804,951 - 9,804,951
Construction in progress 190,006 3,468,509 (2,440,165) 1,218,350
Total capital assets
not being depreciated 551,357 13,356,544 (2,440,165) 11,467,736
Capital assets being depreciated
Land improvements 23,389 - - 23,389
Buildings 3,704,415 228,318 - 3,932,733
Machinery and equipment 3,418,127 340,101 (177,133) 3,581,095
Infrastructure 76,466,257 2,967,590 (376,212) 79,057,635
Total capital assets
being depreciated 83,612,188 3,536,009 (553,345) 86,594,852
Less accumulated
depreciation for
Land improvements (15,389) (935) - (16,324)
Buildings (1,689,289) (114,332) - (1,803,621)
Machinery and equipment (1,791,235) (273,634) 155,309 (1,909,560)
Infrastructure (32,516,482) (2,764,502) 98,681 (35,182,303)
Total accumulated
depreciation (36,012,395) (3,153,403) 253,990 (38,911,808)
Total capital assets
being depreciated,net 47,599,793 382,606 (299,355) 47,683,044
Business-type activities
capital assets,net $ 48,151,150 $ 13,739,150 $ (2,739,520) $ 59,150,780
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ELK RIVER MUNICIPAL UTILITIES
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NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Depreciation expense was charged to functions/programs of the Utilities as follows:
2016
Business-type Activities
Electric $ 2,005,093
Water 1,148,310
Total depreciation expense-business-type activities $ 3,153,403
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 $ 1,480,000
G.O.Capital Improvement
Plan Bonds of 2010A 1,265,000 2.00-4.00 04/21/10 08/01/23 750,000
Total G.O.Revenue Bonds $ 2,230,000
The annual debt service requirements to maturity for the general obligation revenue bonds are as follows:
Year Ending
December 31, Principal Interest Total
2017 $ 320,000 $ 74,850 $ 394,850
2018 335,000 63,948 398,948
2019 340,000 51,990 391,990
2020 355,000 39,498 394,498
2021 370,000 26,270 396,270
2022-2023 510,000 14,728 524,728
Total $ 2,230,000 $ 271,284 $ 2,501,284
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 2016,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$96,140 and$34,464,396,
respectively.
In 2016,annual principal and interest payment on the bonds required about 13.5 percent of revenues from the Water
fund.The principal and interest paid and total customer revenues for the Water fund were$293,193 and$2,173,521,
respectively.
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ELK RIVER MUNICIPAL UTILITIES
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NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 2: DETAILED NOTES ON ALL FUNDS-CONTINUED
Revenue bonds
The following bonds were issued to finance capital improvements in the Electric fund.They will be retired from net
revenues of the fund.
Authorized Interest Issue Maturity Balance at
Description and Issued Rate Date Date Year End
Electric Revenue Refunding
Bonds,Series 2014A $ 2,030,000 2.00-4.00 % 03/13/14 08/01/18 $ 830,000
Electric Revenue Bonds,Series 2016A 9,755,000 2.00-4.00 07/14/16 02/01/36 9,755,000
Electric Revenue Refunding
Bonds,Series 2016B 1,370,000 2.00-4.00 07/14/16 02/01/22 1,370,000
Total Revenue Bonds $ 11,955,000
The annual debt service requirements to maturity for the revenue bonds are as follows:
Year Ending
December 31, Principal Interest Total
2017 $ 630,000 $ 334,457 $ 964,457
2018 640,000 307,425 947,425
2019 635,000 286,375 921,375
2020 665,000 264,925 929,925
2021 680,000 242,675 922,675
2022-2026 2,720,000 934,750 3,654,750
2027-2031 2,810,000 618,056 3,428,056
2032-2036 3,175,000 240,169 3,415,169
Total $ 11,955,000 $ 3,228,832 $ 15,183,832
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 2016,annual principal and interest payment on the bonds required about 6.5 percent of revenues from the Electric
fund.Principal and interest paid and total customer revenues for the Electric fund were$2,250,517 and$34,464,396,
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 $ 1,214,076
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ELK RIVER MUNICIPAL UTILITIES
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NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
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
2017 $ 195,216 $ - $ 195,216
2018 198,252 - 198,252
2019 200,916 - 200,916
2020 203,952 - 203,952
2021 206,616 - 206,616
2022 209,124 - 209,124
Total $ 1,214,076 $ - $ 1,214,076
Changes in long-term liabilities
Long-term liability activity for the year ended December 31,2016 was as follows:
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
Business-type activities
Bonds payable
General obligation
revenue bonds $ 2,535,000 $ - $ (305,000) $ 2,230,000 $ 320,000
Revenue bonds 2,985,000 11,125,000 (2,155,000) 11,955,000 630,000
Unamortized premium
on bonds 65,234 505,525 (34,428) 536,331 -
Total bonds payable,net 5,585,234 11,630,525 (2,494,428) 14,721,331 950,000
Notes payable 1,408,368 - (194,292) 1,214,076 195,216
Compensated
absences payable 312,539 182,294 (143,634) 351,199 180,091
Net pension liability
GERF 2,477,244 1,884,181 (236,717) 4,124,708 -
OPEB liability 63,041 10,559 (3,055) 70,545 -
Business-type activity
long-term
liabilities $ 9,846,426 $ 13,707,559 $ (3,072,126) $ 20,481,859 $ 1,325,307
Current refunding
On July 14,2016 the Utilities issued$1,370,000 of 2016B Electric Revenue Refunding Bonds.The bonds bear an
average coupon rate of 2.63 percent and were used to call$1,750,000 of the outstanding principal of the 2007A Electric
Revenue Bonds.As a result of the refunding issue,the Utilities will save$121,254 in debt service payments and achieve
an economic gain(the present value of the difference between the old and the new debt service)of$94,737.
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ELK RIVER MUNICIPAL UTILITIES
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NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
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 $ 2,172 Sales tax/franchise fees
Electric City 4,025 Supplies
Electric City 2,464 4th quarter billings
Electric City 1,755 PERA aid
Total Electric fund receivable from City 10,416
Water City 300,000 Watermain project
Water City 439 PERA aid
Water City 128,850 TIF 22 Water Access Charge
Total Water fund receivable from City 429,289
Total receivable from City $ 439,705
City Electric $ 89,032 Shared costs
City Electric 5,916 Supplies
City Electric 81,292 December transfer of 4%of revenue
City Electric 264,788 4th quarter franchise fees
City Electric 165,493 Billed sewer on behalf of City
City Electric 111,086 Billed garbage on behalf of City
City Electric 37,932 Billed stormwater on behalf of City
Total Electric fund payable to City 755,539
City Water 22,258 Shared costs
City Water 1,338 Supplies
Total Water fund payable to City 23,596
Total payable to City $ 779,135
Interfund transfers completed in 2016 are detailed as follows:
Transfer from Transfer to
Other Other
Transfer out City Funds City Funds
Electric $ - $ 1,089,287
Water 300,000
Total transfers out $ 300,000 $ 1,089,287
The transfer out of the Electric fund was the annual transfer of 4 percent of 2016 revenues to City funds.The transfer
into the Water fund was for reimbursement related to the watermain project.
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ELK RIVER MUNICIPAL UTILITIES
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NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
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 2016.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 2016.The Utilities
contributions to the GERF for the years ending December 31,2016,2015 and 2014 were$244,012,$230,074 and
$203,953,respectively.The Utilities contributions were equal to the contractually required contributions for each year as
set by Minnesota statute.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED
D. Pension costs
GERF pension costs
At December 31,2016,the Utilities reported a liability of$4,124,708 for its proportionate share of the GERF's net
pension liability.The Utilities net pension liability reflected a reduction due to the State of Minnesota's contribution of
$6 million to the fund in 2016.The State of Minnesota is considered a non-employer contributing entity and the State's
contribution meets the definition of a special funding situation.The State of Minnesota's proportionate share of the net
pension liability associated with the Utilities totaled$53,908.The net pension liability was measured as of June 30,
2016,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 1,2015 through June 30,2016 relative
to the total employer contributions received from all of PERA's participating employers.At June 30,2016,the Utilities
proportionate share was 0.0508 percent which was an increase of 0.003 percent from its proportion measured as of
June 30,2015.
For the year ended December 31,2016,the Utilities recognized pension expense of$507,909 for its proportionate share
of GERF's pension expense.In addition,the Utilites recognized an additional$16,074 as pension expense(and grant
revenue)for its proportionate share of the State of Minnesota's contribution of$6 million to the GERF.
At December 31,2016,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 $ 13,409 $ 348,884
Changes in actuarial assumptions 890,251
Net difference between projected and
actual earnings on plan investments 473,653 -
Changes in proportion 124,523 108,211
Contributions to GERF subsequent
to the measurement date 131,825 -
Total $ 1,633,661 $ 457,095
Deferred outflows of resources totaling$131,825 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 31,2017.Other amounts reported as deferred outflows and inflows of resources related to GERF pensions
will be recognized in pension expense as follows:
2017 $ 273,260
2018 184,636
2019 437,860
2020 148,985
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED
E. Actuarial assumptions
The total pension liability in the June 30,2016 actuarial valuation was determined using the following actuarial
assumptions:
Inflation 2.50%per year
Active member payroll growth 3.25%per year
Investment rate of return 7.50%
Salary increases were based on a service-related table.Mortality rates for active members,retirees,survivors and
disabilitants were based on RP-2014 tables for the GERF and RP-2000 tables for the PEPFF for males or females,as
appropriate,with slight adjustments.Cost of living benefit increases for retirees are assumed to be: 1 percent per year for
all future years for the GERF.
Actuarial assumptions used in the June 30,2016 valuation were based on the results of actuarial experience studies.The
most recent four-year experience study in the GERF was completed in 2015.The experience study for PEPFF was for
the period July 1,2004,through June 30,2009.
The following changes in actuarial assumptions occurred in 2016:
GERF
• The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2035 and 2.5
percent per year thereafter to 1.0 percent per year for all future years.
• The assumed investment return was changed from 7.9 percent to 7.5 percent.The single discount rate was
changed from 7.9 percent to 7.5 percent.
• Other assumptions were changed pursuant to the experience study dated June 30,2015.The assumed future
salary increases,payroll growth and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth
and 2.50 percent for inflation.
The State Board of Investment,which manages the investments of PERA,prepares an analysis of the reasonableness on
a regular basis of the long-term expected rate of return 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 geometric 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 %
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED
F. Discount rate
The discount rate used to measure the total pension liability was 7.5 percent,a reduction from the 7.90 percent used in
2015.The projection of cash flows used to determine the discount rate assumed that contributions from plan members
and employers will be made at rates set in Minnesota statutes.Based on these assumptions,the fiduciary net position of
the GERF was projected to be available to make all projected future benefit payments of current plan members.
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.
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(6.50%) Current(7.50%) Increase(8.50%)
GERF $ 5,858,308 $ 4,124,708 $ 2,696,694
H. Pension plan fiduciary net position
Detailed information about each 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.
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$214 in 2016 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.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 4: OTHER INFORMATION-CONTINUED
The Utilities acquired designated service areas 1 and 2 in 2015 and 2016,respectively,for$877,807 and$663,583,
respectively.The first loss of revenue payment was made in 2017 for$411,157 in accordance with the agreement.All
amounts paid are included in property and equipment,and loss of revenue payments are included in intangible assets.
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 2016 were$51,478 of
which$7,141 was receivable at December 31,2016.
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 are also 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
2016,the Utility contributed$0 to the plan.Plan members receiving benefits contribute 100 percent of their premium costs.
In fiscal year 2016,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:
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS-CONTINUED
Annual required contribution $ 11,682
Interest on net OPEB obligation 2,522
Adjustment to annual required contribution (3,645)
Annual OPEB Cost(expense) 10,559
Contributions made
Direct(explicit)subsidy -
Implicit subsidy (3,055)
Increase in net OPEB obligation 7,504
Net OPEB obligation-beginning of year 63,041
Net OPEB obligation-end of year $ 70,545
The Utilities'annual OPEB cost,the amount and percentage of annual OPEB cost contributed to the plan,and the net OPEB
obligation for December 31,2016 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
12/31/2016 $ 10,559 $ 3,055 29 % 70,545
12/31/2015 10,260 2,151 21 63,041
12/31/2014 9,890 - - 54,932
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.
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
NO lbS TO THE FINANCIAL STATEMENTS
DECEMBER 31,2016
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.
Note 6: SPECIAL ITEM-DISCONTINUED OPERATION
The Utilities agreed to a sale of its security business on September 30th,2016.As a result of the sale of the security business,
the Utilities has a gain of$330,293 reported as a special item on the financial statements.The gain includes the price of
acquisition less the costs associated with the sale.
Note 7: PRIOR PERIOD ADJUSTMENT-WATER FUND
A prior period adjustment was recorded in the Water fund to reduce capital contribution of assets from the City recognized in
2015.
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REQUIRED SUPPLEMENTARY INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2016
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131
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
REQUIRED SUPPLEMENTARY INFORMATION
FOR THE YEAR ENDED DECEMBER 31,2016
Schedule of Employer's Share of PERA Net Pension Liability-General Employees Retirement Fund
Required Supplementary Information
Utilities
State's 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 Utilities Total Payroll Payroll of the Total
Ending Liability (a) (b) (a+b) (c) ((a+b)/c) Pension Liability
06/30/16 0.0508 % $ 4,124,708 $ 53,908 $ 4,178,616 $ 3,151,720 132.6 % 68.9 %
06/30/15 0.0478 2,477,244 - 2,477,244 2,811,834 88.1 78.2
Note:Schedule is intended to show 10 year trend.Additional years will be reported as they become available.
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)
12/31/16 $ 244,012 $ 244,012 $ - $ 3,253,493 7.5 %
12/31/15 230,074 230,074 - 3,067,653 7.5
Note:Schedule is intended to show 10 year trend Additional years will be reported as they become available.
Schedule of Funding Progress for the Other Postemployment Benefit 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
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132
SUPPLEMENTARY INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2016
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133
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTARY INFORMATION
SCHEDULE OF OPERATING REVENUES AND EXPENSES
FOR THE YEAR ENDED DECEMBER 31,2016
Electric Water Total
OPERATING REVENUES
Charges for services
Elk River $ 30,662,101 $ 2,121,380 $ 32,783,481
Otsego 2,402,850 - 2,402,850
Big Lake 188,074 - 188,074
Dayton 228,324 - 228,324
Security systems 177,572 - 177,572
LFG Project 1,087,749 - 1,087,749
Generation credit (804,608) - (804,608)
Connection maintenance 269,197 34,999 304,196
Customer penalties 253,137 17,142 270,279
TOTAL OPERATING REVENUES 34,464,396 2,173,521 36,637,917
OPERATING EXPENSES
Purchased power 23,991,069 - 23,991,069
Production
Supervision and labor 99,369 53,996 153,365
Natural gas 38,548 - 38,548
Supplies and power for pumping 39,827 244,942 284,769
Landfill gas expense 526,269 - 526,269
Maintenance of structures 23,607 40,369 63,976
Maintenance of equipment 13,925 154,078 168,003
Maintenance of plant 12,325 - 12,325
Total 753,870 493,385 1,247,255
Transmission and distribution
Supervision and labor 37,867 9,401 47,268
Maintenance of overhead lines 329,124 - 329,124
Maintenance of underground lines 182,790 - 182,790
Maintenance of station equipment 48,161 - 48,161
Transportation 155,756 10,475 166,231
Maintenance of customer service 5,322 43,041 48,363
Maintenance of customer meters 113,772 86,803 200,575
Miscellaneous 415,148 24 415,172
Total 1,287,940 149,744 1,437,684
Services to City 230,312 - 230,312
Depreciation 2,005,093 1,148,310 3,153,403
Customer accounts expense
Meter reading 31,923 7,810 39,733
Billing and collection 270,075 67,755 337,830
Bad debts 1,963 - 1,963
Total 303,961 75,565 379,526
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134
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
SUPPLEMENTARY INFORMATION
SCHEDULE OF OPERATING REVENUES AND EXPENSES-CONTINUED
FOR THE YEAR ENDED DECEMBER 31,2016
Electric Water Total
OPERATING EXPENSES-CONTINUED
General and administrative
Salaries $ 717,476 $ 167,573 $ 885,049
Employee pensions and benefits 1,694,375 286,017 1,980,392
Dues 118,544 40,477 159,021
Office supplies and billing expense 70,516 24,162 94,678
Office utilities and maintenance 28,610 9,012 37,622
Consulting fees 115,129 3,451 118,580
Legal and audit 40,757 8,863 49,620
Environmental compliance 21,249 - 21,249
Conservation improvement project 110,839 8,941 119,780
Insurance 154,982 23,358 178,340
Telephone 22,704 5,835 28,539
Advertising 1,776 3,087 4,863
Education and meetings 131,924 19,296 151,220
Miscellaneous 25,473 7,065 32,538
Total 3,254,354 607,137 3,861,491
TOTAL OPERATING EXPENSES 31,826,599 2,474,141 34,300,740
OPERATING INCOME(LOSS) 2,637,797 (300,620) 2,337,177
NONOPERATING REVENUES(EXPENSES)
Interest income 90,804 24,917 115,721
Miscellaneous revenue 281,702 196,700 478,402
Interest expense and other (198,194) (57,986) (256,180)
Gain(loss)on sale of capital assets (80,126) 1,050 (79,076)
Bond issuance costs (85,195) - (85,195)
TOTAL NONOPERATING
REVENUES(EXPENSES) 8,991 164,681 173,672
INCOME(LOSS)BEFORE CONTRIBUTIONS AND TRANSFERS 2,646,788 (135,939) 2,510,849
CAPITAL CONTRIBUTIONS-
DEVELOPER INFRASTRUCTURE AND CONNECTION FEES - 358,684 358,684
CONTRIBUTION OF ASSETS FROM CITY - 73,002 73,002
TRANSFERS FROM OTHER CITY FUNDS - 300,000 300,000
TRANSFERS TO OTHER CITY FUNDS (1,089,287) - (1,089,287)
TOTAL CONTRIBUTIONS AND TRANSFERS (1,089,2871 731,686 (357,601)
CHANGE IN NET POSITION BEFORE SPECIAL ITEM 1,557,501 595,747 2,153,248
SPECIAL ITEM 330,923 - 330,923
CHANGE IN NET POSITION 1,888,424 595,747 2,484,171
NET POSITION,JANUARY 1 32,635,676 23,250,202 55,885,878
PRIOR PERIOD ADJUSTMENT(NOTE 7) - (175,091) (175,091)
NET POSITION,DECEMBER 31 $ 34,524,100 $ 23,670,858 $ 58,194,958
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
ELECTRIC FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31,2008 THROUGH DECEMBER 31,2016
SUMMARY OF OPERATIONS
2008 2009 2010 2011
OPERATING REVENUES
Sales of electricity $ 22,303,994 $ 23,591,485 $ 26,060,301 $ 27,894,341
Other operating revenues(expenses) 637,909 636,258 732,261 689,645
TOTAL OPERATING REVENUES 22,941,903 24,227,743 26,792,562 28,583,986
OPERATING EXPENSES
Purchased power 14,778,270 16,161,444 18,373,386 19,604,951
Distribution 2,162,797 1,937,096 1,892,212 1,960,742
Services to the City 409,222 428,508 434,415 474,934
Depreciation 2,057,851 2,126,794 2,062,942 2,041,717
Other operating expenses 2,196,770 2,272,917 2,399,236 2,350,706
TOTAL OPERATING EXPENSES 21,604,910 22,926,759 25,162,191 26,433,050
OPERATING INCOME 1,336,993 1,300,984 1,630,371 2,150,936
TRANSFERS FROM OTHER CITY FUNDS - - 53,741 -
TRANSFERS TO OTHER CITY FUNDS (540,636) (585,141) (657,086) (711,415)
SPECIAL ITEM - - - -
NONOPERATING REVENUES 249,022 (146,352) (154,956) (105,604)
1 NET INCOME $ 1,045,379 $ 569,491 $ 872,070 $ 1,333,917
PERCENT OF CHANGE
Sales of electricity 16.380% 5.772% 10.465% 7.038%
Purchased power 21.372% 9.360% 13.687% 6.703%
PERCENT OF REVENUES
Purchased power 64.416% 66.706% 68.576% 68.587%
UNAUDITED STATISTICS
MISCELLANEOUS
2008 2009 2010 2011
KWh's purchased 241,837,173 247,595,137 264,642,834 276,026,892
KWh's sold 224,226,048 232,772,722 250,711,834 261,235,297
Line loss 17,611,125 14,822,415 13,931,000 14,791,595
Percent of line loss 7.282% 5.987% 5.264% 5.359%
REVENUES PER KWh SOLD $ 0.0995 $ 0.1013 $ 0.1039 $ 0.1068
COST PER KWh PURCHASED $ 0.0611 $ 0.0653 $ 0.0694 $ 0.0710
NUMBER OF CUSTOMERS 9,203 9,170 9,207 9,227
TOTAL CONTRIBUTION/TRANSFERS TO CITY $ 540,636 $ 585,141 $ 657,086 $ 711,415
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136
2012 2013 2014 2015 2016
$ 30,070,045 $ 30,978,790 $ 31,514,246 $ 32,704,279 $ 34,569,098
188,645 (132,411) (147,561) (152,557) (104,702)
30,258,690 30,846,379 31,366,685 32,551,722 34,464,396
20,499,773 21,254,950 21,994,652 22,034,307 23,991,069
1,909,845 1,970,341 2,161,352 2,330,969 2,041,810
481,907 498,146 530,340 520,727 230,312
2,099,594 2,029,496 1,914,062 1,922,359 2,005,093
2,359,193 2,374,959 2,791,717 3,087,792 3,558,315
27,350,312 28,127,892 29,392,123 29,896,154 31,826,599
2,908,378 2,718,487 1,974,562 2,655,568 2,637,797
(816,864) (781,162) (797,835) (824,743) (1,089,287)
- - - - 330,923
28,531 (30,658) 152,375 267,243 8,991
$ 2,120,045 $ 1,906,667 $ 1,329,102 $ 2,098,068 $ 1,888,424
7.800% 3.022% 1.728% 3.776% 5.702%
4.564% 3.684% 3.480% 0.180% 8.881%
67.748% 68.906% 70.121% 67.690% 69.611%
2012 2013 2014 2015 2016
287,553,108 290,025,919 288,320,724 294,441,957 311,990,595
273,455,846 273,945,354 274,546,059 282,265,268 305,337,641
14,097,262 16,080,565 13,774,665 12,176,689 6,652,954
4.902% 5.545% 4.778% 4.136% 2.132%
$ 0.1100 $ 0.1131 $ 0.1148 $ 0.1159 $ 0.1132
$ 0.0713 $ 0.0733 $ 0.0763 $ 0.0748 $ 0.0769
9,285 9,358 9,449 10,499 10,816
$ 816,864 $ 781,162 $ 797,835 $ 824,743 $ 1,089,287
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER,MINNESOTA
WATER FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31,2008 THROUGH DECEMBER 31,2016
SUMMARY OF OPERATIONS
2008 2009 2010 2011
OPERATING REVENUES
Sales of water $ 2,130,124 $ 2,206,429 $ 1,913,661 $ 1,832,817
OPERATING EXPENSES
Operating expenses less depreciation 1,185,413 1,102,437 989,736 1,008,562
Services to City - - - -
Depreciation 974,848 956,993 955,323 980,197
TOTAL OPERATING EXPENSES 2,160,261 2,059,430 1,945,059 1,988,759
TOTAL OPERATING INCOME(LOSS) $ (30,137) $ 146,999 $ (31,398) $ (155,942)
PERCENT OF CHANGE
Sales of water 0.80% 3.58% (13.27%) (4.22%)
UNAUDITED STATISTICS
MISCELLANEOUS
2008 2009 2010 2011
WATER PUMPED(gallons) 854,133,000 782,951,000 686,289,000 651,907,000
WATER SOLD(gallons) 727,029,000 708,286,000 627,209,000 599,701,000
Percent of line loss 14.88% 9.54% 8.61% 8.01%
Revenues per 1,000 gallons pumped $ 2.48 $ 2.81 $ 2.79 $ 2.81
Revenues per 1,000 gallons sold $ 2.93 $ 3.12 $ 3.05 $ 3.06
Number of customers 4,508 4,467 4,511 4,515
WATER SUPPLIER SERVICES
2008 2009 2010 2011
Flushing hydrants 30,000,000 33,000,000 35,000,000 34,000,000
Back washing 8,400,000 8,400,000 9,000,000 8,000,000
Fire department use 5,000,000 1,000,000 3,000,000 4,000,000
New water main disinfectant and flushing 2,000,000 2,000,000 3,000,000 4,000,000
Flushing seasonal well - - 4,000,000 -
Meter inaccuracy - 1,300,000 - -
Street and Sewer Maintenance - - - -
Water tower paint and clean/maintenance - - - 2,000,000
Well maintenance - - - -
Water line and irrigation leaks - - - -
Frozen pipes bursting in abandoned homes 25,000,000 27,000,000 5,000,000 -
Water Supplier Services 70,400,000 72,700,000 59,000,000 52,000,000
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138
2012 2013 2014 2015 2016
$ 2,265,142 $ 2,278,124 $ 2,148,327 $ 2,202,537 $ 2,173,521
1,130,965 1,210,797 1,267,019 1,277,466 1,325,831
- - - 5,719 -
1,028,593 1,032,442 1,083,770 1,131,110 1,148,310
2,159,558 2,243,239 2,350,789 2,414,295 2,474,141
$ 105,584 $ 34,885 $ (202,462) $ (211,758) $ (300,620)
23.59% 0.57% (5.70%) 2.52% (1.32%)
2012 2013 2014 2015 2016
847,283,200 785,377,000 782,110,000 799,974,000 801,603,000
727,912,000 709,760,000 672,760,000 676,842,000 666,656,000
14.09% 9.63% 13.98% 15.39% 16.83%
$ 2.67 $ 2.90 $ 2.75 $ 2.75 $ 2.71
$ 3.11 $ 3.21 $ 3.19 $ 3.25 $ 3.26
4,542 4,613 4,676 4,672 4,903
Gallons
2012 2013 2014 2015 2016
46,400,000 45,000,000 47,000,000 45,000,000 46,816,000
30,000,000 8,000,000 3,922,000 4,000,000 4,430,000
16,500,000 5,000,000 5,000,000 5,000,000 5,000,000
9,000,000 5,000,000 5,000,000 5,000,000 5,000,000
3,600,000 - - - -
6,500,000 3,000,000 3,000,000 - -
- 617,000 1,000,000 473,400 1,800,000
- 2,000,000 1,000,000 3,700,000 4,000,000
- - - 700,000 7,358,000
7,000,000 7,000,000 7,000,000 - -
119,000,000 75,617,000 72,922,000 63,873,400 74,404,000
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THIS PAGE IS LEFT BLANK
INTENTIONALLY
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140
OTHER REPORT
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2016
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141
ABDO
RICK &
MEYERS LLP
Certified Albite 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 31,2016,and the related notes to the financial statements,and have issued our report thereon dated March 30,2017.
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.
4'ftittitO
ABDO,EICK&MEYERS,LLP
Minneapolis,Minnesota
March 30,2017
5201 Eden Avenue,Suite 250
Edina,MN 55436 -59-
952.835,9090 I Fax 952.835.3261
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