4.1 ERMUSR 04-10-2018 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
ERMU Commission Theresa Slominski—Finance and Office Manager
MEETING DATE: AGENDA ITEM NUMBER:
April 10, 2018 4.1
SUBJECT:
2017 Financial Audit
ACTION REQUESTED:
Receive and file the 2017 Annual Financial Report
BACKGROUND:
Audit fieldwork was completed March 1st and 2nd by our auditors, Abdo, Eick& Meyers (AEM).
Again this year, AEM completed and compiled the enclosed audit report, 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 2017 audit and answer questions
you may have. There was one audit adjustment for GASB 68,Accounting and Financial
Reporting for Pensions, that resulted in recognition of a reduction in liability of$677,834,
recognition of offsetting Deferred Outflows and Inflows of Resources, and expense of$225,683
(between both funds). These items are discussed in Note 3 of the financials.
I'd like to recognize the accounting staff for their hard work throughout the year to have a
successful audit completion, and thank them for a job well done. Ultimately a successful audit is
the result of everyone in the organization doing their part to ensure proper record keeping and
tracking of resources, and the collective effort of everyone is greatly appreciated.
FINANCIAL IMPACT:
None
ATTACHMENTS:
• AEM Management Letter
• ERMU Annual Financial Report For the Year Ended December 31, 2017
Page 1 of 1
50
Management Letter
Elk River Municipal Utilities
Elk River, Minnesota
For the Year Ended
December 31, 2017
ABDo
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Numbers
51
ABDO
EICK
MEYERS LLP
Certified Public Accountants&Consultants March 28, 2018
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, 2017. Professional standards require that we provide you
with information about our responsibilities under generally accepted auditing standards as well as certain information
related to the planned scope and timing of our audit. We have communicated such information in our letter dated
November 7, 2017. 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 2
952.835.9090 I Fax 952.835 3261
59
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. No new accounting policies were adopted
and the application of existing policies were not changed during the year ended December 31, 2017. 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 28, 2018. People
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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 PIIIIIIIIMII
$30,000,000
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$15,000,000 ;;
$10,000,000 '- all t 't 're?5'.:
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$5,000,000 a [Z- '
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■Operating costs I Debt payments ■Operating receipts
Electric Fund Cash Balances
$16,000,000 _
$14,680,691
$14,000,000 —$13,175,626
$13,803,692
$13,175,626
$12,000,000 $12,097,110
$10,000,000 IIIII
$8,000,000
$6,000,000
$4,000,000
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$2,000,000 —
$- , , I I
2014 2015 2016 2017
iii Unrestrictedr--------
mom for debt service (bond covenents)
Unrestricted designated reserve*
i
* 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 2017. We recommend that the Utilities continue to closely monitor future cash
flow with the use of projections and the capital improvement plan. 111()I.11
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The results of the Electric fund are as follows:
Electric Operations Summary
2015 2016 2017
Total Percent Total Percent Total Percent
Operating Revenues $ 32,551,722 100 % $ 34,464,396 100 % $ 36,120,824 100 %
Operating Expenses 29,896,154 92 31,826,599 92 33,394,471 92
Operating Income 2,655,568 8 2,637,797 8 2,726,353 8
Nonoperating Revenues
(Expenses) 267,243 1 8,991 - 145,034 -
Income before Transfers 2,922,811 9 2,646,788 8 2,871,387 8
Special Item - - 330,923 1 - -
Grants - - - - 40,000
-
Capital Contribution from Customers - - - - 169,051 -
Transfers to City (824,743) (3) (1,089,287) (3) (1,113,264) (3)
Change in Net Position $ 2,098,068 6 % $ 1,888,424 6 % $ 1,967,174 5 %
Cash and
Temporary Investments $ 12,685,126 $ 13,683,031 $ 12,806,032
Restricted Cash $ 490,500 $ 997,660 $ 997,660
Bonds and Notes Payable,
Net of Premium $ 5,124,743 $ 14,300,294 $ 13,348,282
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000 -1,� .`sem
:4:vv.-, Pv4t'V 1E3t
$5,000,000
2015 2016 2017
•Operating revenues w Operating expenses •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
$2,000,000
ill l.
$1,500,000 I
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$1,000,000 ,,,,-..91.54,--.!
rs
$500,000A,filgrir
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'Operating costs ==Debt payments •Operating receipts 1
Water Fund Cash Balances
$6,000,000 '
$5,400,000
$5,335,070
$4,800,000 $4,367,165
$4,200,000 $4 255 964
$3,681,481
$3,600,000
$3,000,000 Milli
$2,400,000
$1,800,000
$1,200,000
$600,000
$- I I ,
2014 2015 2016 2017
Emu Unrestricted —A-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 1't'(1)1(
capital and debt needs in 2017. 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. +I)rOress.
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The results of the Water fund are as follows:
Water Operations Summary
2015 2016 2017
Total Percent Total Percent Total Percent
Operating Revenues $ 2,202,537 100 % $ 2,173,521 100 % $ 2,326,245 100
Operating Expenses 2,414,295 110 2,474,141 114 2,805,989 121
Operating Income(Loss) (211,758) (10) (300,620) (14) (479,744) (21)
Nonoperating Revenues
(Expenses) 136,829 6 164,681 8 210,714 9
Income (Loss) before
Contributions and Transfers (74,929) (4) (135,939) (6) (269,030) (12)
Capital Contributions-Developer
Infrastructure and Connection Fees 253,934 12 358,684 17 799,223 34
Capital Contributions From City 189,669 8 73,002 3 - -
Transfers From City 94,703 4 300,000 14 - -
Transfers to City (30,000) (1) - - - -
Change in Net Position $ 433,377 19 % $ 595,747 28 % $ 530,193 22 %
Cash and
Temporary Investments $ 4,367,165 $ 4,255,964 $ 5,335,070
Bonds Payable, Net of Premium $ 1,868,859 $ 1,635,113 $ 1,390,284
$6,000,000
$5,000,000 —
$4,000,000
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$3,000,000
$2,000,000milli nil
$1,000,000
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2015 2016 2017
■Operating Revenues ■Operating Expenses ■Cash ■Bonds
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Future Accounting Standard Changes
The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact
on future the Utilities financial statements: (1)
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.
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. People
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• 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. 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.
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This Statement requires the current value of a governments 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.
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.
GASB Statement No. 84-Fiduciary Activities
Summary
The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and
financial reporting purposes and how those activities should be reported.
This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the
criteria generally is on (1)whether a government is controlling the assets of the fiduciary activity and (2)the beneficiaries
with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and
postemployment benefit arrangements that are fiduciary activities.
An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements. Governments with
activities meeting the criteria should present a statement of fiduciary net position and a statement of changes in fiduciary
net position. An exception to that requirement is provided for a business-type activity that normally
expects to hold custodial assets for three months or less. People
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Future Accounting Standard Changes (Continued)
This Statement describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee
benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds
generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria.
A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should
combine its information with its component units that are fiduciary component units and aggregate that combined
information with the primary government's fiduciary funds.
This Statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has
occurred that compels the government to disburse fiduciary resources. Events that compel a government to disburse
fiduciary resources occur when a demand for the resources has been made or when no further action, approval, or
condition is required to be taken or met by the beneficiary to release the assets.
Effective Date
The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. Earlier
application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement will enhance consistency and comparability by (1) establishing specific criteria for
identifying activities that should be reported as fiduciary activities and (2) clarifying whether and how business-type
activities should report their fiduciary activities. Greater consistency and comparability enhances the value provided by the
information reported in financial statements for assessing government accountability and stewardship.
GASB Statement No. 85- Omnibus 2017
Summary
The objective of this Statement is to address practice issues that have been identified during implementation and
application of certain GASB Statements. This Statement addresses a variety of topics including issues related to blending
component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and other
postemployment benefits [OPEB]). Specifically, this Statement addresses the following topics:
• Blending a component unit in circumstances in which the primary government is a business-type activity that
reports in a single column for financial statement presentation
• Reporting amounts previously reported as goodwill and "negative" goodwill
• Classifying real estate held by insurance entities
• Measuring certain money market investments and participating interest-earning investment contracts at amortized
cost
• Timing of the measurement of pension or OPEB liabilities and expenditures recognized in financial statements
prepared using the current financial resources measurement focus
• Recognizing on-behalf payments for pensions or OPEB in employer financial statements
• Presenting payroll-related measures in required supplementary information for purposes of reporting by OPEB
plans and employers that provide OPEB
• Classifying employer-paid member contributions for OPEB
• Simplifying certain aspects of the alternative measurement method for OPEB
• Accounting and financial reporting for OPEB provided through certain multiple-employer defined PeOlAC
benefit OPEB plans. --Process,,
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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, 2017. Earlier application is
encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement will enhance consistency in the application of accounting and financial reporting
requirements. Consistent reporting will improve the usefulness of information for users of state and local government
financial statements.
GASB Statement No. 86 - Certain Debt Extinguishment Issues
Summary
The primary objective of this Statement is to improve consistency in accounting and financial reporting for in-substance
defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only
existing resources- resources other than the proceeds of refunding debt-are placed in an irrevocable trust for the sole
purpose of extinguishing debt. This Statement also improves accounting and financial reporting for prepaid insurance on
debt that is extinguished and notes to financial statements for debt that is defeased in substance.
Effective Date
The requirements of this Statement are effective for reporting periods beginning after June 15, 2017. Earlier application is
encouraged.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will increase consistency in accounting and financial reporting for debt
extinguishments by establishing uniform guidance for derecognizing debt that is defeased in substance, regardless of how
cash and other monetary assets placed in an irrevocable trust for the purpose of extinguishing that debt were acquired.
The requirements of this Statement also will enhance consistency in financial reporting of prepaid insurance related to
debt that has been extinguished. In addition, this Statement will enhance the decision-usefulness of information in notes
to financial statements regarding debt that has been defeased in substance.
GASB Statement No. 87 -Leases
Summary
The objective of this Statement is to better meet the information needs of financial statement users by improving
accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments'
financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified
as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of
the contract. It establishes a single model for lease accounting based on the foundational principle that leases are
financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability
and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow
of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Earlier
application is encouraged.
Leases should be recognized and measured using the facts and circumstances that exist at the beginning of the period of
implementation (or, if applied to earlier periods, the beginning of the earliest period restated). However,
lessors should not restate the assets underlying their existing sales-type or direct financing leases. Any
residual assets for those leases become the carrying values of the underlying assets. People
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Future Accounting Standard Changes (Continued)
How the Changes in This Statement Will Improve Accounting and Financial Reporting
This Statement will increase the usefulness of governments' financial statements by requiring reporting of certain lease
liabilities that currently are not reported. It will enhance comparability of financial statements among governments by
requiring lessees and lessors to report leases under a single model. This Statement also will enhance the decision-
usefulness of the information provided to financial statement users by requiring notes to financial statements related to the
timing, significance, and purpose of a government's leasing arrangements.
(1)Note. From GASB Pronouncements Summaries. Copyright 2017 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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ABDO, EICK& MEYERS, LLP
Minneapolis, Minnesota
March 28, 2018
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Annual Financial Report
Elk River Municipal Utilities
Elk River, Minnesota
For the Year Ended
December 31, 2017
ABDO
EICK &
MEYERS1,13
Caned Public Accountants&Consultants
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Elk River Municipal Utilities
Elk River, Minnesota
Table of Contents
For the Year Ended December 31, 2017
Page No.
Introductory Section
Public Utilities Commission and Administration 7
Financial Section
Independent Auditor's Report 11
Management's Discussion and Analysis 15
Financial Statements
Statement of Net Position 22
Statement of Revenues, Expenses and Changes in Net Position 25
Statement of Cash Flows 26
Notes to the Financial Statements 29
Required Supplementary Information
Schedule of Employer's Share of Public Employees Retirement Association Net Pension Liability-
General Employees Retirement Fund 50
Schedule of Employer's Public Employees Retirement Association Contributions-
General Employees Retirement Fund 50
Schedule of Funding Progress for the Other Postemployment Benefit Plan 51
Supplementary Information
Schedule of Operating Revenues and Expenses 54
Electric Fund
Summary of Operations and Unaudited Statistics 56
Water Fund
Summary of Operations and Unaudited Statistics 58
Other Report
Independent Auditor's Report
on Minnesota Legal Compliance 63
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INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2017
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71)
Elk River Municipal Utilities
Elk River, Minnesota
Public Utilities Commission and Administration
For the Year Ended December 31, 2017
COMMISSION
Name Title
John Dietz Chairperson
Allan Nadeau Commissioner
Daryl Thompson Vice-Chairperson
Mary Stewart Commissioner
Matt Westgaard Commissioner
ADMINISTRATION
Name Title
Troy Adams General Manager
Theresa Slominski Finance and Office Manager
Eric Volk Water Superintendent
Mark Fuchs Line Superintendent
Mike Tietz 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, 2017
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ABDO
EICK &
MEYERS LLP
Certified Public Accountants& Consultants
INDEPENDENT AUDITOR'S REPORT
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
Report on the Financial Statements
We have audited the accompanying financial statements of the Elk River Municipal Utilities (the Utilities) of the City of Elk
River, Minnesota (the City), as of and for the year ended December 31, 2017, 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, 2017, 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.
5201 Eden Avenue,Suite 250
Edina,MN 55436 11
952.835.9090 I Fax 952.835.3261
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Emphasis of Matter
As discussed in Note 1 B, 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, 2017, 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.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management's Discussion and
Analysis Page 15 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 50 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.
11) H &tit.,4
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Minneapolis, Minnesota
March 28, 2018
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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, 2017. 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 $60,692,325 (net position). Net Position increased by
$2,497,367 or 4.3 percent. The increase is mainly due to revenues in excess of expenses during the year.
• The Utilities' cash balance at the close of the current fiscal year was$19,138,762.
• Electric usage overall was up an average of 4.0 percent. Residential usage increased 2.4 percent, Commercial
usage increased 11.2 percent, and Industrial usage increased 3.7 percent.
• Water usage overall was up an average of 4.4 percent from the prior year. Residential usage increased 8.0
percent, and Commercial usage increased 1.3 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 onpage 22 in the Financial Section. One of the most importantquestions 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, populationgrowth, zoning, and new or changed
government legislation.
Net Position. To begin our analysis, a summary of the Utilities' Statements of Net Position ispresented in Table A-1. As
can be seen from the Table, net position increased $2,497,367 to$60,692,325 in fiscal 2017 up from $58,194,958 in fiscal
2016.
TABLE A-1
Condensed Statement of Net Position
Increase
2017 2016 (Decrease)
Assets
Current and other $ 24,002,032 $ 23,328,553 $ 673,479
Capital60,450,880 59,150,780 1,300,100
Total Assets 84,452,912 82,479,333 1,973,579
Total Deferred Outflows of Resources 1,094,877 1,685,181 (590,304)
Liabilities
Current 6,823,820 6,355,909 467,911
Non-current 17,254,683 19,156,552 (1,901,869)
Total liabilities 24,078,503 25,512,461 (1,433,958)
Total Deferred Inflows of Resources 776,961 457,095 319,866
Net Position
Net investment in capital assets 45,755,479 43,266,893 2,488,586
Restricted for debt service 997,660 997,660 -
Unrestricted 13,939,186 13,930,405 8,781
Total Net Position $ 60,692,325 $ 58,194,958 $ 2,497,367
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Water and Electric Rates. Electric-The latest increase in the Utilities' electric rates was effective January 2018. The
monthly base charges are based upon the type of service. The monthly charges are$13.50 for residential, $26.00 for
commercial, and $75.00 for industrial customers. In addition to the base charges the residential rate is$.1370/kWh for
May-September usage, and $.1215/kWh for October-April usage; the commercial rate is $.1314/kWh for May-September,
and $.1095/kWh for October-April; the industrial rate is $.0667/kWh energy charge year round with a demand charge of
$17.00/KW May-September, and $12.00/KW for October-April.
Water-The Utilities' latest increase in residential and commercial rates was effective January 2018. The monthly base
charge for residential customers is$9.04 per month. In addition to the base charge, the Utilities currently charges its
residential customers $1.81 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 $10.84 to$114.52. An irrigation meter is $19.29 per month. There is also a
charge per 1,000 gallons, the same tiers as the residential rates of$1.81, $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
minimum deposit of$1,000 for demand customers. The deposit shall be in the form of a cash deposit, or an irrevocable
letter of credit. The irrevocable letter of credit will be renewed as required and failure to do so will result in a charge equal
to the amount of the letter of credit applied to the monthly utility bill and held by ERMU as a cash deposit.
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$2,497,367 in fiscal 2017. 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
2017 2016 (Decrease)
Revenues
Operating $ 38,447,069 $ 36,637,917 $ 1,809,152
Nonoperating 700,321 594,123 106,198
Total Revenues 39,147,390 37,232,040 1,915,350
Expenses
Operating 36,200,460 34,300,740 1,899,720
Nonoperating 344,573 420,451 (75,878)
Total Expenses 36,545,033 34,721,191 1,823,842
Income Before Contributions and Operating Transfers 2,602,357 2,510,849 91,508
Capital Contributions- Developer Infrastructure and Connection Fees 799,223 358,684 440,539
Capital Contributions of Asset From City - 73,002 (73,002)
Grants 40,000 - 40,000
Contribution from Customers 169,051 - 169,051
Transfers From Other City Funds - 300,000 (300,000)
Transfers to Other City Funds (1,113,264) (1,089,287) (23,977)
Change in Net Position Before Special Item 2,497,367 2,153,248 344,119
Special Item - 330,923 (330,923)
Change in Net Position 2,497,367 2,484,171 13,196
Net Position, January 1 58,194,958 55,885,878 2,309,080
Prior Period Adjustment - (175,091) 175,091
Net Position, December 31 $ 60,692,325 $ 58,194,958 $ 2,497,367
Revenues. Table A-2 shows that operating revenue increased by 4.9 percent in 2017 for the Electric and Water
Departments combined. The Electric Department operating revenue was impacted partly by the territory acquisition in
September 2017 adding approximately 480 customers, and also impacted by increased construction activity resulting in
new customers.
Nonoperating revenue is comprised of transmission rebate revenue in the Electric Department, and water tower lease
revenue in the Water Department. 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 2017, rebates received from our 2015 filings were approximately$11,000 per month.
The Water Department is receiving lease revenue from Sprint and Verizon for antennas on the water towers. In 2017 this
amount was approximately$209,000, and will continue for the duration of the multi-year contracts.
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Both Electric and Water Department other revenues were greatly impacted with an increase in new construction activity.
Water Connection Fees increased approximately$400,000 over the prior year as a result. Non-recurring items in 2016
were the sale of the security business line for a net amount of approximately$331,000 and a transfer from the City for
water main construction of$300,000.
Total Expenses. In reviewing total expenses in Table A-2 you will notice that there was an increase of 5.5 percent
overall, with the electric department increasing 4.4 percent, and the water department increasing 0.9 percent. Purchased
Power is the biggest electric department expense and it was up 5.8 percent.
Capital Assets and Debt Administration
Capital Assets. The Utilities' investment in capital assets for its business-type activities as of December 31, 2017
amounts to $60,450,880 (net of accumulated depreciation). This investment in capital assets includes land, buildings,
improvements and equipment. A table summarizing the balances by fund follows:
Increase
2017 2016 (Decrease)
Land $ 678,921 $ 444,435 $ 234,486
Intangible 10,375,677 9,804,951 570,726
Land Improvements 6,129 7,065 (936)
Buildings 1,931,083 2,129,112 (198,029)
Machinery and Equipment 1,598,194 1,671,535 (73,341)
Infrastructure 45,124,004 43,875,332 1,248,672
Construction in Progress 736,872 1,218,350 (481,478)
Total $ 60,450,880 $ 59,150,780 $ 1,300,100
The total increase in the Utilities' investment in capital assets for the current fiscal year was 2.2 percent.
Major capital asset events during the current fiscal year included the following:
• The Electric Department acquired additional territory that included approximately 480 customers, increasing
Infrastructure.
• The Electric Department makes a loss of revenue payment as part of the cost of the territory acquisition,
increasing Intangibles.
• Construction in progress decreased as projects started in the previous year were completed in 2017.
Additional information on the Utilities' capital assets can be found in Note 2B starting on page 36 of this report.
Long-term Debt.At year end, the Utilities had $14,738,566 in long-term debt which decreased from $15,935,407 in fiscal
2016. The decrease is mainly due to regularly scheduled principal payments. More detailed information about the Utilities'
long-term liabilities can be found in Note 2C starting on page 37 and below:
Increase
2017 2016 (Decrease)
G.O. Revenue Bonds $ 1,910,000 $ 2,230,000 $ (320,000)
Revenue Bonds 11,325,000 11,955,000 (630,000)
Unamortized Premium on Bonds 484,706 536,331 (51,625)
Promissory Note 1,018,860 1,214,076 (195,216)
Total $ 14,738,566 $ 15,935,407 $ (1,196,841)
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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, 2017
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Net Position
December 31, 2017
Electric Water Total
Assets
Current Assets
Cash and temporary investments $ 12,806,032 $ 5,335,070 $ 18,141,102
Receivables
Accrued interest 6,668 1,667 8,335
Accounts, net of allowance 3,259,576 109,579 3,369,155
Special assessments 2,982 67,618 70,600
Other receivables 68,732 15,596 84,328
Due from other City funds 10,875 129,349 140,224
Inventories 949,694 16,276 965,970
Prepaid expenses 192,083 32,575 224,658
Total Current Assets 17,296,642 5,707,730 23,004,372
Capital Assets
Land 519,090 159,831 678,921
Intangible 10,375,677 - 10,375,677
Land improvements 23,389 - 23,389
Buildings 2,999,362 850,241 3,849,603
Equipment and machinery 3,265,761 457,148 3,722,909
Infrastructure 47,487,089 35,655,825 83,142,914
Construction in progress 672,161 64,711 736,872
Capital Assets, Cost 65,342,529 37,187,756 102,530,285
Less Accumulated Depreciation (25,640,860) (16,438,545) (42,079,405)
Total Capital Assets, Net 39,701,669 20,749,211 60,450,880
Other Assets
Restricted cash 997,660 - 997,660
Total Assets 57,995,971 26,456,941 84,452,912
Deferred Outflows of Resources
Deferred charges on refunding 34,532 8,633 43,165
Deferred pension resources 881,867 169,845 1,051,712
Total Deferred Outflows of Resources 916,399 178,478 1,094,877
The notes to the financial statements are an integral part of this statement.
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Net Position (Continued)
December 31, 2017
Electric Water Total
Current Liabilities
Accounts payable $ 3,098,700 $ 47,026 $ 3,145,726
Salaries and benefits payable 101,571 14,563 116,134
Accrued interest payable 137,744 20,360 158,104
Due to other City funds 790,458 27,164 817,622
Due to other governments 163,029 2,002 165,031
Customer deposits payable 869,401 108,675 978,076
Unearned revenue - 93,336 93,336
Compensated absences -current portion 150,335 26,204 176,539
Notes payable-current portion 198,252 - 198,252
Bonds payable-current portion 720,000 255,000 975,000
Total Current Liabilities 6,229,490 594,330 6,823,820
Non-current Liabilities
Net other postemployment benefits liability 77,143 1,394 78,537
Compensated absences- less current portion 142,346 21,162 163,508
Notes payable- less current portion 820,608 - 820,608
Bonds payable, net- less current portion 11,609,422 1,135,284 12,744,706
Pension liability 2,890,601 556,723 3,447,324
Total Non-current Liabilities 15,540,120 1,714,563 17,254,683
Total Liabilities 21,769,610 2,308,893 24,078,503
Deferred Inflows of Resources
Deferred pension resources 651,486 125,475 776,961
Net Position
Net investment in capital assets 26,387,919 19,367,560 45,755,479
Restricted for debt service 997,660 - 997,660
Unrestricted 9,105,695 4,833,491 13,939,186
Total Net Position $ 36,491,274 $ 24,201,051 $ 60,692,325
The notes to the financial statements are an integral part of this statement.
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Revenues, Expenses and Changes in Net Position
For the Year Ended December 31, 2017
Electric Water Total
Operating Revenues
Charges for services $ 35,373,472 $ 2,252,751 $ 37,626,223
LFG project 1,084,589 - 1,084,589
Generation credit (814,341) - (814,341)
Connection maintenance 234,365 54,231 288,596
Customer penalties 242,739 19,263 262,002
Total Operating Revenues 36,120,824 2,326,245 38,447,069
Operating Expenses
Purchased power 25,402,576 - 25,402,576
Production 873,651 500,390 1,374,041
Distribution 1,511,612 154,675 1,666,287
Depreciation 2,046,935 1,191,894 3,238,829
Customer accounts 469,412 62,690 532,102
General and administrative 3,090,285 896,340 3,986,625
Total Operating Expenses 33,394,471 2,805,989 36,200,460
Operating Income (Loss) 2,726,353 (479,744) 2,246,609
Nonoperating Revenues (Expenses)
Interest income 79,543 31,314 110,857
Miscellaneous revenue 344,558 227,406 571,964
Interest expense and other (294,219) (50,354) (344,573)
Gain on sale of capital assets 15,152 2,348 17,500
Total Nonoperating Revenues (Expenses) 145,034 210,714 355,748
Income (Loss) before Contributions and Transfers 2,871,387 (269,030) 2,602,357
Capital Contributions-
Connection Fees - 799,223 799,223
Grants 40,000 - 40,000
Contribution of Assets from City 169,051 - 169,051
Transfers to Other City Funds (1,113,264) - (1,113,264)
Total Contributions and Transfers (904,213) 799,223 (104,990)
Change in Net Position 1,967,174 530,193 2,497,367
Net Position, January 1 34,524,100 23,670,858 58,194,958
Net Position, December 31 $ 36,491,274 $ 24,201,051 $ 60,692,325
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
For the Year Ended December 31, 2017
Electric Water Total
Cash Flows from Operating Activities
Receipts from customers and users $ 35,680,481 $ 2,325,049 $ 38,005,530
Other operating cash receipts 332,851 219,519 552,370
Payments to suppliers (28,749,027) (884,758) (29,633,785)
Payments to employees (2,473,566) (547,498) (3,021,064)
Net Cash Provided
by Operating Activities 4,790,739 1,112,312 5,903,051
Cash Flows from
Noncapital Financing Activities
Transfers to City (1,113,264) - (1,113,264)
(Increase) decrease in due from other City funds (459) 299,940 299,481
Increase in due to other City funds 34,919 3,568 38,487
Net Cash Provided (Used) by Noncapital
Financing Activities (1,078,804) 303,508 (775,296)
Cash Flows from Capital
and Related Financing Activities
Acquisition of capital assets (3,423,737) (877,420) (4,301,157)
Proceeds from sale of capital assets 15,152 7,448 22,600
Proceeds from connection fees - 799,223 799,223
Principal payments on revenue bonds (706,000) (244,000) (950,000)
Interest paid on revenue bonds (356,558) (52,750) (409,308)
Principal payments on promissory note (195,216) - (195,216)
Net Cash Used by Capital
and Related Financing Activities (4,666,359) (367,499) (5,033,858)
Cash Flows from Investing Activities
Interest on investments 77,425 30,785 108,210
Net Increase (Decrease)
in Cash and Cash Equivalents (876,999) 1,079,106 202,107
Cash and Cash Equivalents, January 1 14,680,691 4,255,964 18,936,655
Cash and Cash Equivalents, December31 $ 13,803,692 $ 5,335,070 $ 19,138,762
Reconciliation of Cash and Cash
Equivalents to the Statement of Net Position
Cash and temporary investments $ 12,806,032 $ 5,335,070 $ 18,141,102
Restricted cash 997,660 - 997,660
Total Cash and Cash Equivalents $ 13,803,692 $ 5,335,070 $ 19,138,762
The notes to the financial statements are an integral part of this statement.
26
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Cash Flows (Continued)
For the Year Ended December 31, 2017
Electric Water Total
Reconciliation of Operating Income (Loss) to
Net Cash Provided by Operating Activities
Operating income (loss) $ 2,726,353 $ (479,744) $ 2,246,609
Adjustments to reconcile operating income (loss)
to net cash provided by operating activities
Other revenue related to operations 344,558 227,406 571,964
Bad debt expense (2,280) 366 (1,914)
Depreciation 2,046,935 1,191,894 3,238,829
(Increase) decrease in assets/deferred outflows:
Accounts receivable (582,741) (16,656) (599,397)
Other receivables (11,707) (7,887) (19,594)
Special assessments receivable (1,358) 12,881 11,523
Inventories (156,314) (3,272) (159,586)
Prepaid expenses 5,356 (4,594) 762
Deferred pension resources 603,156 (21,207) 581,949
Increase (decrease) in liabilities/deferred inflows:
Accounts payable 256,717 (60,303) 196,414
Salaries and benefits payable 927 (920) 7
Net other postemployment benefits liability 6,598 1,394 7,992
Unearned revenue (875) 3,590 2,715
Compensated absences payable (16,326) 5,174 (11,152)
Due to other governments 49,951 (123) 49,828
Customer deposits payable 144,631 (1,011) 143,620
Net pension liability (858,822) 181,438 (677,384)
Deferred pension resources 235,980 83,886 319,866
Net Cash Provided by Operating Activities $ 4,790,739 $ 1,112,312 $ 5,903,051
Noncash Capital and
Related Financing Activities
Amortization of Bond Premium $ 50,796 $ 829 $ 51,625
Amortization of Deferred Charges on Refunding $ 6,684 $ 1,671 $ 8,355
Disposal of Capital Assets $ 45,880 $ 30,452 $ 76,332
Capital Assets Purchased on Account $ 570,725 $ - $ 570,725
Contribution of Capital Assets $ 209,051 $ - $ 209,051
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, 2017
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.
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.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 1: Summary of Significant Accounting Policies (Continued)
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.
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, 2017
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 35
and are valued using a matrix pricing model (Level 2 inputs).
The Utility has the following recurring fair value measurements as of December 31, 2017:
• Negotiable certificates of deposit of$3,579,824 are valued using a matrix pricing model (Level 2 inputs)
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.
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, 2017 is as
follows:
2017
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 and Prepaid items y
Inventories of materials and supplies are recorded at average cost, using the first-in, first out(FIFO) method.
Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items.
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. Donated capital assets are recorded at acquisition value at the date of donation.
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
Notes to the Financial Statements
December 31, 2017
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 0
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.
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, 2017.
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.
32
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 1: Summary of Significant Accounting Policies (Continued)
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.
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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A7
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 2: Detailed Notes on All Funds
A. Deposits and Investments
Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the Utilities' deposits and
investments may not be returned or the Utility will not be able to recover collateral securities in the possession of an
outside party. In accordance with Minnesota statutes and as authorized by the Commission, the Utility maintains deposits
at those depository banks, all of which are members of the Federal Reserve System.
Minnesota statutes require that all Utility deposits be protected by insurance, surety bond or collateral. The market value
of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds, with the exception of
irrevocable standby letters of credit issued by Federal Home Loan Banks as this type of collateral only requires collateral
pledged equal to 100 percent of the deposits not covered by insurance or bonds.
Authorized collateral in lieu of a corporate surety bond includes:
• United States government Treasury bills, Treasury notes, Treasury bonds;
• Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation
service available to the government entity;
• General obligation securities of any state or local government with taxing powers which is rated "A" or better by a
national bond rating service, or revenue obligation securities of any state or local government with taxing powers
which is rated "AA" or better by a national bond rating service;
• General obligation securities of a local government with taxing powers may be pledged as collateral against funds
deposited by that same local government entity;
• Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality accompanied by
written evidence that the bank's public debt is rated "AA" or better by Moody's Investors Service, Inc., or Standard
& Poor's Corporation; and
• Time deposits that are fully insured by any federal agency.
Minnesota statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal Reserve
Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or
controlled by the financial institution furnishing the collateral. The selection should be approved by the government entity.
At December 31, 2017, the Utilities' carrying amount of deposits was$15,528,074 and the bank balance was
$15,509,476. Of the bank balance$342,946 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.
34
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 2: Detailed Notes on All Funds (continued)
Investments
The Utilities' investment balances were as follows for December 31, 2017:
Credit Segmented
Quality/ Time Fair Value Measurement Using
Types of Investments Ratings(1) Distribution(2) Amount Level 1 Level 2 Level 3
Pooled Investments
Broker Money Markets N/A less than 6 months $ 30,064
Non-pooled Investments
Negotiable certificates of deposits N/A less than 6 months 1,464,627 $ - $ 1,464,627 $
Negotiable certificates of deposits N/A 6 months to 1 year 726,425 - 726,425
Negotiable certificates of deposits N/A 1 to 3 years 1,388,772 - 1,388,772
Total Non-pooled Investments 3,579,824 - 3,579,824
Total Investments $ 3,609,888 $ - $ 3,579,824 $
(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:
2017
Deposits $ 15,528,074
Investments 3,609,888
Cash on Hand 800
Total $ 19,138,762
Cash and Temporary Investments
Unrestricted $ 18,141,102
Restricted 997,660
Total $ 19,138,762
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 30 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.
35
Aq
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
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, 2017 was as follows:
Beginning Ending
Balance Increases Decreases Balance
Capital Assets not
being Depreciated
Land $ 444,435 $ 234,486 $ - $ 678,921
Intangible 9,804,951 570,726 - 10,375,677
Construction in progress 1,218,350 4,196,615 (4,678,093) 736,872
Total Capital Assets
not being Depreciated 11,467,736 5,001,827 (4,678,093) 11,791,470
Capital Assets being Depreciated
Land improvements 23,389 - - 23,389
Buildings 3,932,733 136,764 (219,894) 3,849,603
Machinery and equipment 3,581,095 204,365 (62,551) 3,722,909
Infrastructure 79,057,635 4,094,021 (8,742) 83,142,914
Total Capital Assets
being Depreciated 86,594,852 4,435,150 (291,187) 90,738,815
Less Accumulated
Depreciation for
Land improvements (16,324) (936) - (17,260)
Buildings (1,803,621) (119,938) 5,039 (1,918,520)
Machinery and equipment (1,909,560) (277,706) 62,551 (2,124,715)
Infrastructure (35,182,303) (2,840,249) 3,642 (38,018,910)
Total Accumulated
Depreciation (38,911,808) (3,238,829) 71,232 (42,079,405)
Total Capital Assets
being Depreciated, Net 47,683,044 1,196,321 (219,955) 48,659,410
Business-type Activities
Capital Assets, Net $ 59,150,780 $ 6,198,148 $ (4,898,048) $ 60,450,880
36
1 00
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 2: Detailed Notes on All Funds (Continued)
Depreciation expense was charged to functions/programs of the Utilities as follows:
2017
Business-type Activities
Electric $ 2,046,935
Water 1,191,894
Total Depreciation Expense- Business-type Activities $ 3,238,829
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 $ 1,255,000
G.O. Capital Improvement
Plan Bonds of 2010A 1,265,000 2.00 -4.00 04/21/10 08/01/23 655,000
Total G.O. Revenue Bonds $ 1,910,000
The annual debt service requirements to maturity for the general obligation revenue bonds are as follows:
Year Ending
December 31, Principal Interest Total
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 385,000 12,228 397,228
2023 125,000 2,500 127,500
Total $ 1,910,000 $ 196,434 $ 2,106,434
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 2017, 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$98,100 and $36,120,824,
respectively.
In 2017, annual principal and interest payment on the bonds required about 12.8% percent of revenues from the Water
fund. The principal and interest paid and total customer revenues for the Water fund were $296,750 and $2,326,245,
respectively.
37
1n1
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
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 $ 420,000
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 1,150,000
Total Revenue Bonds $ 11,325,000
The annual debt service requirements to maturity for the revenue bonds are as follows:
Year Ending
December 31, Principal Interest Total
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 710,000 219,575 929,575
2023-2027 2,550,000 862,450 3,412,450
2028-2032 2,870,000 553,994 3,423,994
2033-2036 2,575,000 156,956 2,731,956
Total $ 11,325,000 $ 2,894,375 $ 14,219,375
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 2017, annual principal and interest payment on the bonds required about 2.7% percent of revenues from the Electric
fund. Principal and interest paid and total customer revenues for the Electric fund were $964,458 and $36,120,824,
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 $ 1,018,860
38
102
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
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
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 $ 1,018,860 $ - $ 1,018,860
Changes in Long-term Liabilities
Long-term liability activity for the year ended December 31, 2017 was as follows:
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
Business-type Activities
Bonds Payable
General obligation
revenue bonds $ 2,230,000 $ - $ (320,000) $ 1,910,000 $ 335,000
Revenue bonds 11,955,000 - (630,000) 11,325,000 640,000
Unamortized premium
on bonds 536,331 - (51,625) 484,706 -
Total Bonds Payable, Net 14,721,331 - (1,001,625) 13,719,706 975,000
Notes Payable 1,214,076 - (195,216) 1,018,860 198,252
Compensated
Absences Payable 351,199 271,462 (282,614) 340,047 176,539
Net Pension Liability
GERF 4,124,708 243,070 (920,454) 3,447,324 -
OPEB Liability 70,545 10,411 (2,419) 78,537 -
Business-type Activity
Long-term
Liabilities $ 20,481,859 $ 524,943 $ (2,402,328) $ 18,604,474 $ 1,349,791
39
1n3
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
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 $ 2,904 Franchise fee rebate
Electric City 3,600 Supplies
Electric City 2,615 4th quarter billings
Electric City 1,756 PERA aid
Total Electric Fund Receivable From City 10,875
Water City 60 Franchise fee rebate
Water City 439 PERA aid
Water City 128,850 TIF 22 Water Access Charge
Total Water Fund Receivable From City 129,349
Total Receivable From City $ 140,224
City Electric $ 82,331 Shared costs
City Electric 8,628 Supplies
City Electric 89,668 December transfer of 4% of revenue
City Electric 285,145 4th quarter franchise fees
City Electric 173,336 Billed sewer on behalf of City
City Electric 112,864 Billed garbage on behalf of City
City Electric 38,486 Billed stormwater on behalf of City
Total Electric Fund Payable to City 790,458
City Water 25,583 Shared costs
City Water 1,581 Supplies
Total Water Fund Payable to City 27,164
Total Payable to City $ 817,622
The transfer out of the Electric fund was the annual transfer of 4 percent of 2017 revenues to City funds. The Electric fund
transferred $1,113,264 in 2017.
40
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
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 Utility 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 1.0 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 2017. 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 2017. The Utilities
contributions to the GERF for the years ending December 31, 2017, 2016 and 2015 were$257,780, $244,012 and
$230,074, respectively. The Utilities contributions were equal to the contractually required contributions for each year as
set by Minnesota statute.
41
1n5
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 3: Defined Benefit Pension Plans - Statewide (Continued)
D. Pension Costs
GERF Pension Costs
At December 31, 2017, the Utilities reported a liability of$3,447,324 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 2017. 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 $43,337. The net pension liability was measured as of June 30, 2017, 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, 2016 through June 30, 2017 relative to the total
employer contributions received from all of PERA's participating employers. At June 30, 2017, the Utilities proportionate
share was 0.054 percent which was an increase of 0.0032 percent from its proportion measured as of
June 30, 2016.
For the year ended December 31, 2017, the Utilities recognized pension expense of$222,443 for its proportionate share
of GERF's pension expense. In addition, the Utilities recognized an additional $3,240 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, 2017, 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 $ 114,606 $ 229,078
Changes in Actuarial Assumptions 579,000 345,595
Net Difference between Projected and
Actual Earnings on Plan Investments - 148,182
Changes in Proportion 229,352 54,106
Contributions to GERF Subsequent
to the Measurement Date 128,754 -
Total $ 1,051,712 $ 776,961
Deferred outflows of resources totaling $128,754 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, 2018. Other amounts reported as deferred outflows and inflows of resources related to GERF pensions will
be recognized in pension expense as follows:
2018 $ 28,974
2019 282,198
2020 (18,836)
2021 (146,339)
42
1DA
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 3: Defined Benefit Pension Plans - Statewide (Continued)
E. Actuarial Assumptions
The total pension liability in the June 30, 2017 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 all plans for males or females, as appropriate, with slight adjustments to fit
PERA's experience. Cost of living benefit increases for retirees are assumed to be: 1 percent per year for the GERF
through 2044 and then 2.5 percent thereafter for both plans.
Actuarial assumptions used in the June 30, 2017 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 following changes in actuarial assumptions occurred in 2017:
GERF
• The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60 percent
for vested and non-vested deferred members. The revised CSA loads are now 0.0 percent for active member
liability, 15.0 percent for vested deferred member liability and 3.0 percent for non-vested deferred member
liability.
• The assumed post-retirement benefit increase rate was changed from 1.0 percent per year for all years to 1.0
percent per year through 2044 and 2.5 percent per year thereafter.
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 39.00 % 5.10 %
International Stocks 19.00 5.30
Bonds 20.00 0.75
Alternative Assets 20.00 5.90
Cash 2.00 -
Total 100.00 %
43
1n7
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 3: Defined Benefit Pension Plans - Statewide (Continued)
F. Discount Rate
The discount rate used to measure the total pension liability in 2017 was 7.50 percent. 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 $ 5,347,056 $ 3,447,324 $ 1,892,049
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 $268 in 2017 for loss of revenues under this agreement. All amounts paid are included in property and
equipment.
In 2015, the Utilities entered into an 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.
44
1ns
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 4: Other Information (Continued)
The Utilities acquired designated service area 1 in 2015 for$877,807 and service area 2 in 2016 for$663,586. Service
areas 3 and 4 were acquired in 2017, for$276,776. The loss of revenue payments made were$411,157 in 2017, and
$570,725 in 2018. 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 2017 were $22,050 of
which $2,067 was receivable at December 31, 2017.
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
2017, the Utility contributed $0 to the plan. Plan members receiving benefits contribute 100 percent of their premium
costs. In fiscal year 2017, total member contributions were$0.
45
Ing
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 5: Postemployment Benefits Other Than Pensions (Continued)
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.
Annual Required Contribution $ 10,411
Interest on Net OPEB Obligation 2,469
Adjustment to Annual Required Contribution (3,836)
Annual OPEB Cost (Expense) 9,044
Contributions Made
Implicit subsidy 1,052
Increase in Net OPEB Obligation 7,992
Net OPEB Obligation - Beginning of Year 70,545
Net OPEB Obligation - End of Year $ 78,537
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, 2017 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
12/31/2017 $ 9,044 $ 1,052 12 % 78,537
12/31/2016 10,559 3,055 29 70,545
12/31/2015 10,260 2,151 21 63,041
Funded Status and Funding Progress. As of January 1, 2017, the actuarial accrued liability for benefits was $48,766, all of
which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was$3,362,758 and
the ratio of the unfunded actuarial accrued liability to the covered payroll was 1.50 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.
46
111)
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 5: Postemployment Benefits Other Than Pensions (Continued)
Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the
plan as understood by the employer and plan members) and include the types of benefits provided at the time of each
valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The
methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in
actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
The following simplifying assumptions were made:
Retirement Age for Active Employees- Based on the historical average retirement age for the covered group, active plan
members were assumed to retire at age 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"Getzen" model published by the Society of Actuaries. A rate of 6.8 percent initially, reduced to an ultimate rate of
5.4 percent, was used.
Health Insurance Premiums-2017 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, 2017
Based on the historical and expected returns of the Utilities' short-term investment portfolio, a discount rate of 3.5 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, 2017 was thirty years.
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112
REQUIRED SUPPLEMENTARY INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2017
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11�
Elk River Municipal Utilities
Elk River, Minnesota
Required Supplementary Information
For the Year Ended December 31, 2017
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-Employee Covered-Employee as a Percentage
Year the Net Pension Liability the Utilities Total Payroll Payroll of the Total
Ending Liability (a) (b) (a+b) (c) (a/c) Pension Liability
06/30/17 0.0540 % $ 3,447,324 $ 43,337 $ 3,490,661 $ 3,478,022 99.1 % 75.9 %
06/30/16 0.0508 4,124,708 53,908 4,178,616 3,151,720 130.9 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)
12/31/17 $ 257,780 $ 257,780 $ - $ 3,437,072 7.5 %
12/31/16 244,012 244,012 - 3,253,493 7.5
12/31/15 230,074 230,074 - 3,067,659 7.5
Note: Schedule is intended to show 10-year trend. Additional years will be reported as they become available.
50
114
Elk River Municipal Utilities
Elk River, Minnesota
Required Supplementary Information (Continued)
For the Year Ended December 31, 2017
Notes to the Required Supplementary Information -General Employee Retirement Fund
Changes in Actuarial Assumptions
2017 -The Combined Service Annuity (CSA) loads were changed from 0.8 percent for active members and 60 percent for
vested and non-vested deferred members. The revised CSA loads are now 0.0 percent for active member liability, 15.0
percent for vested deferred member liability and 3.0 percent for non-vested deferred member liability. The assumed post-
retirement benefit increase rate was changed from 1.0 percent per year for all years to 1.0 percent per year through 2044
and 2.5 percent per year thereafter.
2016 -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.
2015 -The assumed post-retirement benefit increase rate was changed from 1.0 percent per year through 2030 and 2.5
percent per year thereafter to 1.0 percent per year through 2035 and 2.5 percent per year thereafter.
Changes in Plan Provisions
2015 -On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Fund,
which increased the total pension liability by $1.1 billion and increased the fiduciary plan net position by$892 million.
Upon consolidation, state and employer contributions were revised.
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
1/1/2017 $ - $ 48,766 $ 48,766 - % $ 3,362,758 1.50 %
1/1/2014 - 68,948 68,948 - 2,810,413 2.50
1/1/2011 - 42,681 42,681 - 2,286,547 1.87
1/1/2008 - 56,892 56,892 - 2,300,000 2.47
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SUPPLEMENTARY INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2017
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Elk River Municipal Utilities
Elk River, Minnesota
Supplementary Information
Schedule of Operating Revenues and Expenses
For the Year Ended December 31, 2017
Electric Water Total
Operating Revenues
Charges for services
Elk River $ 32,364,747 $ 2,252,751 $ 34,617,498
Otsego 2,598,562 - 2,598,562
Big Lake 189,750 - 189,750
Dayton 220,413 - 220,413
LFG Project 1,084,589 - 1,084,589
Generation credit (814,341) - (814,341)
Connection maintenance 234,365 54,231 288,596
Customer penalties 242,739 19,263 262,002
Total Operating Revenues 36,120,824 2,326,245 38,447,069
Operating Expenses
Purchased power 25,402,576 - 25,402,576
Production
Supervision and labor 98,582 52,845 151,427
Natural gas 34,383 - 34,383
Supplies and power for pumping 33,593 244,944 278,537
Landfill gas expense 658,511 - 658,511
Maintenance of structures 20,750 42,917 63,667
Maintenance of equipment 22,149 159,684 181,833
Maintenance of plant 5,683 - 5,683
Total 873,651 500,390 1,374,041
Transmission and distribution
Supervision and labor 36,360 9,573 45,933
Maintenance of overhead lines 422,580 - 422,580
Maintenance of underground lines 209,421 - 209,421
Maintenance of station equipment 29,089 - 29,089
Transportation 187,500 11,842 199,342
Maintenance of customer service 11,775 45,135 56,910
Maintenance of customer meters 156,880 87,758 244,638
Miscellaneous 458,007 367 458,374
Total 1,511,612 154,675 1,666,287
Services to City 202,421 - 202,421
Depreciation 2,046,935 1,191,894 3,238,829
Customer accounts expense
Meter reading 27,067 9,272 36,339
Billing and collection 242,204 53,052 295,256
Bad debts (2,280) 366 (1,914)
Total 266,991 62,690 329,681
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Elk River Municipal Utilities
Elk River, Minnesota
Supplementary Information
Schedule of Operating Revenues and Expenses (Continued)
For the Year Ended December 31, 2017
Electric Water Total
Operating Expenses (Continued)
General and administrative
Salaries $ 732,850 $ 177,080 $ 909,930
Employee pensions and benefits 1,577,287 557,765 2,135,052
Dues 86,233 39,323 125,556
Office supplies and billing expense 72,907 23,469 96,376
Office utilities and maintenance 37,749 11,158 48,907
Consulting fees 49,512 7,934 57,446
Legal and audit 54,203 11,640 65,843
Environmental compliance 24,334 - 24,334
Conservation improvement project 111,532 9,647 121,179
Insurance 146,856 24,111 170,967
Telephone 19,677 5,200 24,877
Advertising 24,111 4,620 28,731
Education and meetings 117,132 16,254 133,386
Miscellaneous 35,902 8,139 44,041
Total 3,090,285 896,340 3,986,625
Total Operating Expenses 33,394,471 2,805,989 36,200,460
Operating Income(Loss) 2,726,353 (479,744) 2,246,609
Nonoperating Revenues(Expenses)
Interest income 79,543 31,314 110,857
Miscellaneous revenue 344,558 227,406 571,964
Interest expense and other (294,219) (50,354) (344,573)
Gain (loss)on sale of capital assets 15,152 2,348 17,500
Total Nonoperating
Revenues (Expenses) _ 145,034 210,714 355,748
Income (Loss) before Contributions and Transfers 2,871,387 (269,030) 2,602,357
Capital Contributions-
Developer Infrastrucure and Connection Fees - 799,223 799,223
Grants 40,000 - 40,000
Contributions from Customers 169,051 - 169,051
Transfers to Other City Funds (1,113,264) - (1,113,264)
Total Contributions and Transfers (904,213) 799,223 (104,990)
Change in Net Position 1,967,174 530,193 2,497,367
Net Position, January 1 34,524,100 23,670,858 58,194,958
Net Position, December 31 $ 36,491,274 $ 24,201,051 $ 60,692,325
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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, 2017
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
Capital Contributions - - - -
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)
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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2012 2013 2014 2015 2016 2017
$ 30,070,045 $ 30,978,790 $ 31,514,246 $ 32,704,279 $ 34,569,098 $ 36,458,061
188,645 (132,411) (147,561) (152,557) (104,702) (337,237)
30,258,690 30,846,379 31,366,685 32,551,722 34,464,396 36,120,824
20,499,773 21,254,950 21,994,652 22,034,307 23,991,069 25,402,576
1,909,845 1,970,341 2,161,352 2,330,969 2,041,810 2,385,263
481,907 498,146 530,340 520,727 230,312 202,421
2,099,594 2,029,496 1,914,062 1,922,359 2,005,093 2,046,935
2,359,193 2,374,959 2,791,717 3,087,792 3,558,315 3,357,276
27,350,312 28,127,892 29,392,123 29,896,154 31,826,599 33,394,471
2,908,378 2,718,487 1,974,562 2,655,568 2,637,797 2,726,353
- - - - - 209,051
(816,864) (781,162) (797,835) (824,743) (1,089,287) (1,113,264)
- - 330,923 -
28,531 (30,658) 152,375 267,243 8,991 145,034
$ 2,120,045 $ 1,906,667 $ 1,329,102 $ 2,098,068 $ 1,888,424 $ 1,967,174
7.800% 3.022% 1.728% 3.776% 5.702% 5.464%
4.564% 3.684% 3.480% 0.180% 8.881% 5.883%
67.748% 68.906% 70.121% 67.690% 69.611% 70.327%
2012 2013 2014 2015 2016 2017
287,553,108 290,025,919 288,320,724 294,441,957 311,990,595 320,349,631
273,455,846 273,945,354 274,546,059 282,265,268 305,337,641 313,952,561
14,097,262 16,080,565 13,774,665 12,176,689 6,652,954 6,397,070
4.902% 5.545% 4.778% 4.136% 2.132% 1.997%
$ 0.1100 $ 0.1131 $ 0.1148 $ 0.1159 $ 0.1132 $ 0.1161
$ 0.0713 $ 0.0733 $ 0.0763 $ 0.0748 $ 0.0769 $ 0.0793
9,285 9,358 9,449 10,499 10,816 11,448
$ 816,864 $ 781,162 $ 797,835 $ 824,743 $ 1,089,287 $ 1,113,264
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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, 2017
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
Gallons
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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2012 2013 2014 2015 2016 2017
$ 2,265,142 $ 2,278,124 $ 2,148,327 $ 2,202,537 $ 2,173,521 $ 2,326,245
1,130,965 1,210,797 1,267,019 1,277,466 1,325,831 1,614,095
- - - 5,719 - -
1,028,593 1,032,442 1,083,770 1,131,110 1,148,310 1,191,894
2,159,558 2,243,239 2,350,789 2,414,295 2,474,141 2,805,989
$ 105,584 $ 34,885 $ (202,462) $ (211,758) $ (300,620) $ (479,744)
23.59% 0.57% (5.70%) 2.52% (1.32%) 7.03%
2012 2013 2014 2015 2016 2017
847,283,200 785,377,000 782,110,000 799,974,000 801,603,000 788,182,000
727,912,000 709,760,000 672,760,000 676,842,000 666,656,000 686,534,000
14.09% 9.63% 13.98% 15.39% 16.83% 12.90%
$ 2.67 $ 2.90 $ 2.75 $ 2.75 $ 2.71 $ 2.95
$ 3.11 $ 3.21 $ 3.19 $ 3.25 $ 3.26 $ 3.39
4,542 4,613 4,676 4,672 4,903 5,011
2012 2013 2014 2015 2016 2017
46,400,000 45,000,000 47,000,000 45,000,000 46,816,000 47,470,500
30,000,000 8,000,000 3,922,000 4,000,000 4,430,000 4,125,542
16,500,000 5,000,000 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 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 1,550,000
- 2,000,000 1,000,000 3,700,000 4,000,000 4,000,000
700,000 7,358,000 7,000,000
7,000,000 7,000,000 7,000,000 - - -
119,000,000 75,617,000 72,922,000 63,873,400 74,404,000 74,146,042
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OTHER REPORT
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2017
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12A
ABDO
EICK &
MEYERS LLP
Certified Public Accountants&Consultants_
INDEPENDENT AUDITOR'S REPORT
ON MINNESOTA LEGAL COMPLIANCE
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial
statements of 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, 2017, and the related notes to the financial statements, and have issued our report thereon
dated March 28, 2018.
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.
I • a 4iTIAVAO,
ABDO, EICK& MEYERS, LLP
Minneapolis, Minnesota
March 28, 2018
5201 Eden Avenue,Suite 250
Edina,MN 55436 63
952.835.9090 I Fax 952.835.3261
127