4.1. ERMUSR 04-09-2019 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
ERMU Commission Theresa Slominski—Finance and Office Manager
MEETING DATE: AGENDA ITEM NUMBER:
April 9, 2019 4.1
SUBJECT:
2018 Financial Audit
ACTION REQUESTED:
Receive and file the 2018 Annual Financial Report
BACKGROUND:
Audit fieldwork was completed February 28 and March 1 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 2018 audit and answer questions
you may have. There were two audit adjustments resulting from General Accounting Standards
Board (GASB) reporting requirements. The first audit adjustment related to pensions which
resulted in recognition of a reduction in liability of$562,577, recognition of offsetting Deferred
Outflows and Inflows of Resources, and reduction in expense of$78,130(between both funds).
The second audit adjustment related to Postemployment Benefits other than Pensions which
resulted in recognition of an increase in liability of$19,085 and recognition of an equal increase
in expense (between both funds).These items are discussed in Note 3 and Note 5 of the
financials.
I'd like to recognize the accounting staff for their hard work throughout the year to have a
successful audit completion, and thank them for a job well done. Ultimately a successful audit
is the result of everyone in the organization doing their part to ensure proper record keeping
and tracking of resources, and the collective effort of everyone is greatly appreciated.
FINANCIAL IMPACT:
None
ATTACHMENTS:
• AEM Audit Presentation
• AEM Management Communication
• ERMU Annual Financial Report For the Year Ended December 31, 2018
Page 1 of 1
65
ABDO
EICK
MEYERS .",
Certified Public Accountants & Consultants
Elk River Municipal Utilities
2018 Financial Statement Audit Presentation
66
Elk River Municipal Utilities
2018 Financial Statement Audit
Audit Team
Andy Berg
Justin Nilson
Miranda Wynkoop
Jeff Hines
Caydin Wolter
ABDO Tomi McDonald
EICCK &AiE s
Ily
(imjinl ii h/i Aa.uu qnt k GH:++'ratan,,.
2
67
Introduction Audit Opinion and
Responsibility
Electric Fund Results
ABDO
EICK & Water Fund Resu
1 S LLY -
Grtijed I§d17 ,4,1„„lniil.+$G�nsallunc. -
3
68
Audit Results
Auditor's Opinion
SW
Minnesota Legal
ABDO Compliance •
EICK&mEyERs
UP
6rlif•d I.i/i< Clevtdraw,
4
69
Electric Fund
$30,000,000 ,
Expenditures
$25,000,000
by Type
$20,000,000
$15,000,000 -
$10,000,000 -
$5,000,000
ABDO ■■■ --- 7epillireciatio!-111111LIGeneral
Purchased power Production and Customer accounts and
FICK & distribution administrative
RC ■2016 ■2017 02018
Alii W LLP
(i•riyud I'4J6r rl(r 60,0lRana
5
70
$45,000,000 --_...._...._.....__._._______._____.........__._.___..._.__.______..___._.._..___...__..__......................._....._._._._......_............__.___._._.._.___�___�_
$40,000,000 I
$35,000,000
$30,000,000
Electric Fund $25,000,000
$20,000,000
III
$15,000,000
$10,000,000
$5,000,000
,
2015 2015 2016 2016 2017 2017 2018 2018
...._................._......,,,,,..,,,,,,,,_is Operating disbursements ,... ■Debt payments .._•Operating receipts
...._...,.._,..____......._._
$18,000,000 1
$16,000,000 - $14 680 691 $15,279,447
$14,000,000 $13,175,626
- $13,803,692
$1EE
2, 0,0
ABDO $6,000,000 ,
TICKI
& $4,000,000
�
W�` $2,000,000
1 LIP $-
,..,/,,,i f':rb(ic;ta;naarard<d'(.rrariranu 2015 2016 2017 2018
Unrestricted cash mum Restricted for debt service—*—Unrestrided designated cash reserve*
6
71
Electric $45,000,000
Operations $40°° °°°
$35,000,000
$30,000,000
$25,000,000 -+
$20,000,000 -{
$15,000,000 -
$10,000,000 -il
$5,000,000 -
$- ,
1 R10 2016 2017 2018
EICK & ■Operating revenues is Operating expenses ■Cash ■Bonds
ME 1.E' 1 s LIT
Qrr j'!PNVi, iazaudnrta&{< wiltantc
7
72
Water Fund
$1,400,000 —
Expenditures
$1,200,000
by Type
$1,000,000 i....
$800,000
$6 00,00 0
$4 00,00 0
$200,0$ .I I
I�D0 Production Distribution Depreciation Customer accounts General and
EICp administrative
\ IIII'II(1�RT� ■2016 ■2017 m2018
YJl:�1 Ll W LIP
G-r,i[ied NMi!1a0tuur rd,&(,o s u/Unt.
8
73
$3,000,000 ,_....._.............___._.._._..__.._....._..._.__.__.,..._______._______._......_........................_...__,._,,,_„ .,,,....,.._..._......._...._.. ...._.._..,_,...._._.,_
$2,500,000
$2,000,000
Water Fund $1,500,000
$1,000,000
$500,000
2015 2015 2016 2016 2017 2017 2018 2018
■Operating disbursements ■Debt payments ■Operating receipts I
$7,500,000
$6,900,000 $6,718,151
$6,300,000 -
$5,700,000 - - $5 335 070
$5,100,000 -
$4,500,000 -- $4,367,165 $4,255,964
AB DO
e�-{DO $3,300,000
111J $2,700,000 -_
TICK& $2,100,000
$1,500,000
i 1 LJ
D� ii
i LLP $900,000
(i r8%7rri P41),,kcomi,ani &GNcuiltana $300,000
$(300,000) _.._ 2015 -201b 201/ 2018
sow Unrestricted cash balance —1—Unrestricted designated reserve*
9
74
Water
Operations $8,0 00,000
$7,000,000
$6,000,000 -
$5,000,000 -
$4,000,000
$3,000,000
JIM
$2,000,000
$1,000,000 -
$-
2016 2017 2018
Al3I)O ■Operating Revenues ■Operating Expenses ■Cash ■Bonds
E/IICKK&
_1'JL1E WLLP
0r10,1 l9Jiih iaaunlnul.s t(i+7.eultant+
10
75
Authorized Bonds Year of
Description and Issued Outstanding Maturity
Electric Revenue Refunding Bonds, Series 2016B $1,370,000 $ 930,000 2022
Debt G.O.Water Revenue Refunding Bonds of 2008 3,085,000 1,020,000 2022
Landfill-Generator Note 3,521,000 820,608 2022
G.O. Capital Improvement Plan Bonds of 2010A 1,265,000 555,000 2023
Obligations Electric Revenue Bonds, Series 2016A 9,755,000 9,755,000 2036
Electric Revenue Bonds, Series 2018A 10,000,000 10,000,000 2048
$23,080,608
$2,500,000
$2,000,000
$1,500,000
R $1,000,000
A
"ADO $500,000 -
EIC< & 1
Mill ,
l � $_
t�1 L LLl 2019 2020 2020 2021 2022 2023 2024 2025 2026 2027
,,flyUrri Hrilir 1aoruuante S.Gorrsa(raet;
■Prindpal la Interest
11
76
Cash and $25,000,000
Investments
Balance by Fund $20,000,000
$15,000,000 -,
$10,000,000
$5,000,000
2016 2017 2018
EICK&DC . Electric ■ Water
ME 1 ERS LLY
!?ri%ied 11rb(ic iarxtU(lId. S(A$iIrmt.
12
77
Questions ?
ABDO
EIC�K�&
VIE 1.E' RS LLY
(in ird 13Jr(!t 4,,,ta m s l Cm uihmt..
13
78
Management Communication
Elk River Municipal Utilities
Elk River, Minnesota
For the Year Ended
December 31 , 2018
ABDO
EICK & People
Process.
MEYERS
Certified Public Accountants&Consultants Beyo dthe
Numbers
79
ABDO
EICK &
MEYERSLLP
Certified Public Accountants&Consultants April 2, 2019
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, 2018. 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
October 8, 2018. 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
80
Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we
performed tests of compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with
which could have a direct and material effect on the determination of financial statement amounts. However, providing an
opinion on compliance with those provisions was not an objective of our audit. The results of our tests disclosed no
instances of noncompliance or other matters that are required to be reported under statutes set forth by the State of
Minnesota.
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting
policies used by the Utilities are described in Note 1 to the financial statements. The Utilities changed accounting policies
during 2018 related to accounting and financial reporting for other postemployment benefits (GASB 75). 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 April 2, 2019. People
+Process.
Going
13evond t ht.
3 \u tubers
81
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, the Schedules of Employer's Share of the Net Pension Liability, the Schedules of Employer's Contributions, and
the Schedule of Changes in Net Pension Liability(Asset) and Related Ratios), Schedule of changes in the Utilities OPEB
Liability and related ratios,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 or statistical sections, 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.
People
+Process
Going
levoll(l th,.
4 \Utithe s
82
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. 83- Certain Asset Retirement Obligations
Summary
This Statement addresses accounting and financial reporting for certain asset retirement obligations(AROs).An ARO is a
legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal
obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability
based on the guidance in this Statement.
This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding
deferred outflow of resources for AROs. This Statement requires that recognition occur when the liability is both incurred
and reasonably estimable. The determination of when the liability is incurred should be based on the occurrence of
external laws, regulations, contracts, or court judgments, together with the occurrence of an internal event that obligates a
government to perform asset retirement activities. Laws and regulations may require governments to take specific actions
to retire certain tangible capital assets at the end of the useful lives of those capital assets, such as decommissioning
nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets
may arise from contracts or court judgments. Internal obligating events include the occurrence of contamination, placing
into operation a tangible capital asset that is required to be retired, abandoning a tangible capital asset before it is placed
into operation, or acquiring a tangible capital asset that has an existing ARO.
This Statement requires the measurement of an ARO to be based on the best estimate of the current value of outlays
expected to be incurred. The best estimate should include probability weighting of all potential outcomes, when such
information is available or can be obtained at reasonable cost. If probability weighting is not feasible at reasonable cost,
the most likely amount should be used. This Statement requires that a deferred outflow of resources associated with an
ARO be measured at the amount of the corresponding liability upon initial measurement.
This Statement requires the current value of a government's AROs to be adjusted for the effects of general inflation or
deflation at least annually. In addition, it requires a government to evaluate all relevant factors at least annually to
determine whether the effects of one or more of the factors are expected to significantly change the estimated asset
retirement outlays.A government should remeasure an ARO only when the result of the evaluation indicates there is a
significant change in the estimated outlays. The deferred outflows of resources should be reduced and recognized as
outflows of resources (for example, as an expense) in a systematic and rational manner over the estimated useful life of
the tangible capital asset.
A government may have a minority share (less than 50 percent) of ownership interest in a jointly owned tangible capital
asset in which a nongovernmental entity is the majority owner and reports its ARO in accordance with the guidance of
another recognized accounting standards setter. Additionally, a government may have a minority share of ownership
interest in a jointly owned tangible capital asset in which no joint owner has a majority ownership, and a nongovernmental
joint owner that has operational responsibility for the jointly owned tangible capital asset reports the associated ARO in
accordance with the guidance of another recognized accounting standards setter. In both situations, the government's
minority share of an ARO should be reported using the measurement produced by the nongovernmental majority owner or
the nongovernmental minority owner that has operational responsibility, without adjustment to conform to the liability
measurement and recognition requirements of this Statement.
In some cases, governments are legally required to provide funding or other financial assurance for their performance of
asset retirement activities. This Statement requires disclosure of how those funding and assurance requirements are
being met by a government, as well as the amount of any assets restricted for payment of the government's AROs, if not
separately displayed in the financial statements.
This Statement also requires disclosure of information about the nature of a government's AROs, the methods and
assumptions used for the estimates of the liabilities, and the estimated remaining useful life of the associated tangible
capital assets. If an ARO (or portions thereof) has been incurred by a government but is not yet
recognized because it is not reasonably estimable, the government is required to disclose that fact and
the reasons therefor. This Statement requires similar disclosures for a government's minority shares of People
AROs. Process
(;oink
Beyond
5 \Ll tlibel's
83
Future Accounting Standard Changes (Continued)
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.
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.
People
+Process.
Going
I3ev and the
6 Nutithe s
84
Future Accounting Standard Changes(Continued)
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.
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.
GASB Statement No. 88- Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements
Summary
The primary objective of this Statement is to improve the information that is disclosed in notes to government financial
statements related to debt, including direct borrowings and direct placements. It also clarifies which liabilities governments
should include when disclosing information related to debt.
This Statement defines debt for purposes of disclosure in notes to financial statements as a liability that arises from a
contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an
amount that is fixed at the date the contractual obligation is established.
This Statement requires that additional essential information related to debt be disclosed in notes to financial statements,
including unused lines of credit; assets pledged as collateral for the debt; and terms specified in debt agreements related
to significant events of default with finance-related consequences, significant termination events with finance-related
consequences, and significant subjective acceleration clauses.
For notes to financial statements related to debt, this Statement also requires that existing and additional information be
provided for direct borrowings and direct placements of debt separately from other debt.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after June 15, 2018. Earlier application is
encouraged.
People
+Proces.
Going,
l"3evonnd the
7 \uriil)ets
85
Future Accounting Standard Changes(Continued)
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by providing users of financial statements with
essential information that currently is not consistently provided. In addition, information about resources to liquidate debt
and the risks associated with changes in terms associated with debt will be disclosed.As a result, users will have better
information to understand the effects of debt on a government's future resource flows.
GASB Statement No. 89-Accounting for Interest Cost Incurred before the End of a Construction Period
Summary
The objectives of this Statement are (1)to enhance the relevance and comparability of information about capital assets
and the cost of borrowing for a reporting period and (2)to simplify accounting for interest cost incurred before the end of a
construction period.
This Statement establishes accounting requirements for interest cost incurred before the end of a construction period.
Such interest cost includes all interest that previously was accounted for in accordance with the requirements of
paragraphs 5-22 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-
November 30, 1989 FASB and AICPA Pronouncements, which are superseded by this Statement. This Statement
requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in
which the cost is incurred for financial statements prepared using the economic resources measurement focus.As a
result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital
asset reported in a business-type activity or enterprise fund.
This Statement also reiterates that in financial statements prepared using the current financial resources measurement
focus, interest cost incurred before the end of a construction period should be recognized as an expenditure on a basis
consistent with governmental fund accounting principles.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Earlier
application is encouraged. The requirements of this Statement should be applied prospectively.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by providing users of financial statements with more
relevant information about capital assets and the cost of borrowing for a reporting period. The resulting information also
will enhance the comparability of information about capital assets and the cost of borrowing for a reporting period for both
governmental activities and business-type activities.
GASB Statement No. 90-Majority Equity Interests
Summary
The primary objectives of this Statement are to improve the consistency and comparability of reporting a government's
majority equity interest in a legally separate organization and to improve the relevance of financial statement information
for certain component units. It defines a majority equity interest and specifies that a majority equity interest in a legally
separate organization should be reported as an investment if a government's holding of the equity interest meets the
definition of an investment.A majority equity interest that meets the definition of an investment should be measured using
the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund,
or an endowment(including permanent and term endowments) or permanent fund. Those governments and funds should
measure the majority equity interest at fair value.
For all other holdings of a majority equity interest in a legally separate organization, a government should report the
legally separate organization as a component unit, and the government or fund that holds the equity
interest should report an asset related to the majority equity interest using the equity method. This
Statement establishes that ownership of a majority equity interest in a legally separate organization People
results in the government being financially accountable for the legally separate organization and, .+.Process,
therefore, the government should report that organization as a component unit.
Going
13evond ib•
8 \w ibers
86
Future Accounting Standard Changes (Continued)
This Statement also requires that a component unit in which a government has a 100 percent equity interest account for
its assets, deferred outflows of resources, liabilities, and deferred inflows of resources at acquisition value at the date the
government acquired a 100 percent equity interest in the component unit. Transactions presented in flows statements of
the component unit in that circumstance should include only transactions that occurred subsequent to the acquisition.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. Earlier
application is encouraged. The requirements should be applied retroactively, except for the provisions related to(1)
reporting a majority equity interest in a component unit and (2) reporting a component unit if the government acquires a
100 percent equity interest. Those provisions should be applied on a prospective basis.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by providing users of financial statements with
essential information related to presentation of majority equity interests in legally separate organizations that previously
was reported inconsistently. In addition, requiring reporting of information about component units if the government
acquires a 100 percent equity interest provides information about the cost of services to be provided by the component
unit in relation to the consideration provided to acquire the component unit.
(1) Note. From GASB Pronouncements Summaries. Copyright 2018 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.
0a41) f
�irthei
ABDO, EICK&MEYERS, LLP
Minneapolis, Minnesota
April 2, 2019
People
+Process.
Going
Beyond t her
9 tfibers
87
Annual Financial Report
Elk River Municipal Utilities
Elk River, Minnesota
For the Year Ended
December 31, 2018
ABLV
EICK &
MEYE W LLP
(;crafted Public Accountants&Consultants
88
THIS PAGE IS LEFT
BLANK INTENTIONALLY
89
Elk River Municipal Utilities
Elk River, Minnesota
Table of Contents
For the Year Ended December 31, 2018
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
Notes to the Required Supplementary Information-General Employees Retirement Fund 51
Schedule of Changes in the Employer's OPEB Liability and Related Ratios 52
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
3
90
INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2018
5
92
THIS PAGE IS LEFT
BLANK INTENTIONALLY
6
93
Elk River Municipal Utilities
Elk River, Minnesota
Public Utilities Commission and Administration
For the Year Ended December 31, 2018
COMMISSION
Name Title
John Dietz Chairperson
Allan Nadeau Vice-Chair
Mary Stewart Commissioner
Matt Westgaard Commissioner
Paul Bell 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 Manager
Jennie Nelson Customer Service Manager
7
94
THIS PAGE IS LEFT
BLANK INTENTIONALLY
8
95
FINANCIAL SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2018
9
96
ABDO
EICK &
MEYERS ERS 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, 2018, 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, 2018, 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 1 1
952.835.9090 I Fax 952.835.3261
98
THIS PAGE IS LEFT
BLANK INTENTIONALLY
12
99
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, 2018, 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 Changes in the Employer's OPEB Liability and Related Ratios 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.
ivivitto I Lif
ABDO, EICK& MEYERS, LLP
Minneapolis, Minnesota
April 2, 2019
People
+Process.
Going.
13evnnt l uhr.
13 NutilbensT
100
THIS PAGE IS LEFT
BLANK INTENTIONALLY
14
101
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, 2018. 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$64,493,507(net position). Net Position increased by
$3,801,182 or 6.3 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$21,997,598.
• Electric usage overall was up an average of 5.5 percent. Residential usage increased 9.1 percent, Commercial
usage decreased by.6 percent, and Industrial usage increased 4.8 percent.
• Water usage overall was up an average of 5.3 percent from the prior year. Residential usage increased 7.3
percent, and Commercial usage increased 3.4 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.
15
102
Financial Analysis of the Utilities
Our analysis of the Utilities begins on page 22 in the Financial Section. One of the most important questions asked about
the Utilities'finances is "Is the Utilities as a whole better off or worse off as a result of this year's activities?"The
Statement of Net Position, and the Statement of Revenues, Expenses and Changes in Net Position report information
about the Utilities'activities in a way that will help answer this question. These two statements report the net position of
the Utilities and changes in this net position. You can think of the Utilities' net position (the difference between assets and
liabilities)as one way to measure financial health or financial position. Over time, increases or decreases in the Utilities'
net position is one indicator of whether its financial health is improving or deteriorating. However, you will need to consider
other non-financial factors such as changes in economic conditions, population growth, zoning, and new or changed
government legislation.
Net Position.To begin our analysis, a summary of the Utilities' Statements of Net Position is presented in Table A-1.As
can be seen from the Table, net position increased $3,801,182 to$64,493,507 in fiscal 2018 up from $60,692,325 in fiscal
2017.
TABLE A-1
Condensed Statement of Net Position
Increase
2018 2017 (Decrease)
Assets
Current and other $ 25,143,528 $ 24,002,032 $ 1,141,496
Capital 72,584,672 60,450,880 12,133,792
Total Assets 97,728,200 84,452,912 13,275,288
Total Deferred Outflows of Resources 656,321 1,094,877 (438,556)
Liabilities
Current 7,349,702 6,823,820 525,882
Non-current 25,732,166 17,254,683 8,477,483
Total Liabilities 33,081,868 24,078,503 9,003,365
Total Deferred Inflows of Resources 809,146 776,961 32,185
Net Position
Net investment in capital assets 48,668,538 45,755,479 2,913,059
Restricted for debt service 1,261,359 997,660 263,699
Unrestricted 14,563,610 13,939,186 624,424
Total Net Position $ 64,493,507 $ 60,692,325 $ 3,801,182
16
103
Water and Electric Rates. Electric-The Utilities' electric rates had a decrease, effective January 2019. The monthly
base charges are based upon the type of service. The monthly charges are$13.50 for residential, $30.00 for non-
demand, and$75.00 for demand customers. In addition to the base charges the residential rate is$.1270/kWh for June-
October usage, and $.1160/kWh for November-May usage; the non-demand rate is$.1230/kWh for June-October, and
$.1030/kWh for November-May; the demand rate is $.06510/kWh energy charge year round with a demand charge of
$15.50/kW June-October, and$11.50/kW for November-May. We have a new large industrial demand rate, effective
January 2019 with a monthly charge of$100.00, $.0644/kWh energy charge year round, demand charge of$15.00/kW
June-October, and $11.00/kW November-May.
Water-The Utilities' latest increase in residential and commercial rates was effective January 2019. The monthly base
charge for residential customers is$9.22 per month. In addition to the base charge, the Utilities currently charges its
residential customers$1.85 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 $11.06 to$116.81. An irrigation meter is $19.68 per month. There is also a
charge per 1,000 gallons, the same tiers as the residential rates of$1.85, $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.
17
104
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$3,801,182 in fiscal 2018. 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
2018 2017 (Decrease)
Revenues
Operating $ 41,295,726 $ 38,447,069 $ 2,848,657
Nonoperating 971,575 700,321 271,254
Total Revenues 42,267,301 39,147,390 3,119,911
Expenses
Operating 37,825,690 36,200,460 1,625,230
Nonoperating 520,679 344,573 176,106
Total Expenses 38,346,369 36,545,033 1,801,336
Income Before Contributions and Operating Transfers 3,920,932 2,602,357 1,318,575
Capital Contributions- Developer Infrastructure and Connection Fees 716,810 799,223 (82,413)
Grants - 40,000 (40,000)
Contribution from Customers 352,104 169,051 183,053
Transfers to Other City Funds (1,188,664) (1,113,264) (75,400)
Change in Net Position 3,801,182 2,497,367 1,303,815
Net Position, January 1 60,692,325 58,194,958 2,497,367
Net Position, December 31 $ 64,493,507 $ 60,692,325 $ 3,801,182
Revenues.Table A-2 shows that operating revenue increased by 7.4 percent in 2018 for the Electric and Water
Departments combined. The Electric Department operating revenue was impacted partly by the territory acquisition in
September 2018 adding approximately 330 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 2018, rebates received from our 2016 filings averaged approximately$22,000 per
month. The Water Department is receiving lease revenue from Sprint and Verizon for antennas on the water towers. In
2018 this amount was approximately$218,000, and will continue for the duration of the multi-year contracts.
18
105
Total Expenses. In reviewing total expenses in Table A-2 you will notice that there was an increase of 4.9 percent
overall, with the electric department increasing 5.9 percent, and the water department decreasing 6.7 percent. Purchased
Power is the biggest electric department expense and it was up 5.1 percent.
Capital Assets and Debt Administration
Capital Assets.The Utilities' investment in capital assets for its business-type activities as of December 31, 2018
amounts to$72,584,672 (net of accumulated depreciation). This investment in capital assets includes land, buildings,
improvements and equipment. A table summarizing the balances by fund follows:
Increase
2018 2017 (Decrease)
Land $ 678,921 $ 678,921 $ -
Intangible 23,114,072 10,375,677 12,738,395
Land Improvements 5,194 6,129 (935)
Buildings 1,875,488 1,931,083 (55,595)
Machinery and Equipment 1,573,941 1,598,194 (24,253)
Infrastructure 44,869,586 45,124,004 (254,418)
Construction in Progress 467,470 736,872 (269,402)
Total $ 72,584,672 $ 60,450,880 $ 12,133,792
The total increase in the Utilities' investment in capital assets for the current fiscal year was 20.1 percent.
Major capital asset events during the current fiscal year included the following:
• The Electric Department completed the MMPA membership buy-in increasing Intangibles.
• The Electric Department makes a loss of revenue payment as part of the cost of the territory acquisition, also
increasing Intangibles.
• The Electric and Water Department purchased new transportation equipment increasing Machinery and
Equipment, however the depreciation of prior assets was greater than the purchases, resulting in an overall
decrease.
• The Water Department had depreciation of prior year assets greater than assets purchased for Building and
Infrastructure, resulting in an overall decrease.
• Construction in progress decreased as projects started in the previous year were completed in 2018.
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 $23,950,944 in long-term debt which increased from $14,738,566 in fiscal
2017. The increase is due to the additional bonding issued in 2018 for the MMPA membership buy-in (referenced above
in Intangible Assets). More detailed information about the Utilities' long-term liabilities can be found in Note 2C starting on
page 37 and below:
Increase
2018 2017 (Decrease)
G.O. Revenue Bonds $ 1,575,000 $ 1,910,000 $ (335,000)
Revenue Bonds 20,685,000 11,325,000 9,360,000
Unamortized Premium on Bonds 870,336 484,706 385,630
Promissory Note 820,608 1,018,860 (198,252)
Total $ 23,950,944 $ 14,738,566 $ 9,212,378
19
106
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.
20
107
FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2018
21
108
Elk River Municipal Utilities
Elk River, Minnesota
Statement of Net Position
December 31, 2018
Electric Water Total
Assets
Current Assets
Cash and temporary investments $ 14,018,088 $ 6,718,151 $ 20,736,239
Receivables
Accrued interest 1,017 254 1,271
Accounts, net of allowance 1,748,148 126,729 1,874,877
Special assessments 4,832 46,847 51,679
Other receivables 52,065 4,390 56,455
Due from other City funds 13,392 129,289 142,681
Inventories 804,935 15,115 820,050
Prepaid expenses 174,285 24,632 198,917
Total Current Assets 16,816,762 7,065,407 23,882,169
Capital Assets
Land 519,090 159,831 678,921
Intangible 23,279,955 - 23,279,955
Land improvements 23,389 - 23,389
Buildings 3,031,235 886,093 3,917,328
Equipment and machinery 3,498,085 471,860 3,969,945
Infrastructure 49,984,973 35,802,571 85,787,544
Construction in progress 168,375 299,095 467,470
Capital Assets, Cost 80,505,102 37,619,450 118,124,552
Less Accumulated Depreciation (27,925,917) (17,613,963) (45,539,880)
Total Capital Assets, Net 52,579,185 20,005,487 72,584,672
Other Assets
Restricted cash 1,261,359 - 1,261,359
Total Assets 70,657,306 27,070,894 97,728,200
Deferred Outflows of Resources
Deferred charges on refunding 27,848 6,962 34,810
Deferred pension resources 523,614 97,897 621,511
Total Deferred Outflows of Resources 551,462 104,859 656,321
The notes to the financial statements are an integral part of this statement.
22
109
Elk River Municipal Utilities
Elk River, Minnesota
Statement of Net Position (Continued)
December 31, 2018
Electric Water Total
Current Liabilities
Accounts payable $ 3,161,658 $ 75,962 $ 3,237,620
Salaries and benefits payable 116,750 21,283 138,033
Accrued interest payable 234,920 16,796 251,716
Due to other City funds 794,213 23,598 817,811
Due to other governments 149,807 2,863 152,670
Customer deposits payable 946,460 110,275 1,056,735
Unearned revenue - 97,069 97,069
Compensated absences-current portion 169,375 27,757 197,132
Notes payable-current portion 200,916 - 200,916
Bonds payable-current portion 940,000 260,000 1,200,000
Total Current Liabilities 6,714,099 635,603 7,349,702
Non-current Liabilities
Other postemployment benefits 82,413 18,159 100,572
Compensated absences-less current portion 172,831 23,988 196,819
Notes payable-less current portion 619,692 - 619,692
Bonds payable, net-less current portion 21,055,881 874,455 21,930,336
Pension liability 2,430,359 454,388 2,884,747
Total Non-current Liabilities 24,361,176 1,370,990 25,732,166
Total Liabilities 31,075,275 2,006,593 33,081,868
Deferred Inflows of Resources
Deferred pension resources 681,694 127,452 809,146
Net Position
Net investment in capital assets 29,790,544 18,877,994 48,668,538
Restricted for debt service 1,261,359 - 1,261,359
Unrestricted 8,399,896 6,163,714 14,563,610
Total Net Position $ 39,451,799 $ 25,041,708 $ 64,493,507
The notes to the financial statements are an integral part of this statement.
23
110
THIS PAGE IS LEFT
BLANK INTENTIONALLY
24
111
Elk River Municipal Utilities
Elk River, Minnesota
Statement of Revenues, Expenses and Changes in Net Position
For the Year Ended December 31, 2018
Electric Water Total
Operating Revenues
Charges for services $ 37,910,780 $ 2,445,688 $ 40,356,468
LFG project 1,128,793 - 1,128,793
Generation credit (729,208) - (729,208)
Connection maintenance 269,787 52,052 321,839
Customer penalties 199,753 18,081 217,834
Total Operating Revenues 38,779,905 2,515,821 41,295,726
Operating Expenses
Purchased power 26,710,514 - 26,710,514
Production 1,002,064 537,719 1,539,783
Distribution 1,658,167 232,576 1,890,743
Depreciation 2,297,349 1,193,745 3,491,094
Customer accounts 442,701 37,969 480,670
General and administrative 3,090,611 622,275 3,712,886
Total Operating Expenses 35,201,406 2,624,284 37,825,690
Operating Income(Loss) 3,578,499 (108,463) 3,470,036
Nonoperating Revenues (Expenses)
Interest income 330,110 25,334 355,444
Miscellaneous revenue 372,253 241,416 613,669
Interest expense and other (478,814) (41,865) (520,679)
Gain (loss)on sale of capital assets (4,963) 7,425 2,462
Total Nonoperating Revenues 218,586 232,310 450,896
Income before Contributions and Transfers 3,797,085 123,847 3,920,932
Capital Contributions -
Connection Fees - 716,810 716,810
Contribution from Customers 352,104 - 352,104
Transfers to Other City Funds (1,188,664) - (1,188,664)
Total Contributions and Transfers (836,560) 716,810 (119,750)
Change in Net Position 2,960,525 840,657 3,801,182
Net Position, January 1 36,491,274 24,201,051 60,692,325
Net Position, December 31 $ 39,451,799 $ 25,041,708 $ 64,493,507
The notes to the financial statements are an integral part of this statement.
25
112
Elk River Municipal Utilities
Elk River, Minnesota
Statement of Cash Flows
For the Year Ended December 31, 2018
Electric Water Total
Cash Flows from Operating Activities
Receipts from customers and users $ 40,429,994 $ 2,550,717 $ 42,980,711
Other operating cash receipts 388,920 252,622 641,542
Payments to suppliers (30,616,974) (886,313) (31,503,287)
Payments to employees (2,326,410) (539,466) (2,865,876)
Net Cash Provided
by Operating Activities 7,875,530 1,377,560 9,253,090
Cash Flows from
Noncapital Financing Activities
Transfers to City (1,188,664) - (1,188,664)
(Increase)decrease in due from other City funds (2,517) 60 (2,457)
Increase in due to other City funds 3,755 (3,566) 189
Net Cash Provided (Used) by Noncapital
Financing Activities (1,187,426) (3,506) (1,190,932)
Cash Flows from Capital
and Related Financing Activities
Acquisition of capital assets (14,657,362) (442,368) (15,099,730)
Proceeds from sale of capital assets 16,000 7,425 23,425
Proceeds from connection fees - 716,810 716,810
Principal payments on revenue bonds (720,000) (255,000) (975,000)
Proceeds of bonds issued, net of issuance
costs and premium on bonds 10,338,289 - 10,338,289
Interest paid on revenue bonds (326,785) (44,587) (371,372)
Principal payments on promissory note (198,252) - (198,252)
Net Cash Used by Capital
and Related Financing Activities (5,548,110) (17,720) (5,565,830)
Cash Flows from Investing Activities
Interest on investments 335,761 26,747 362,508
Net Increase
in Cash and Cash Equivalents 1,475,755 1,383,081 2,858,836
Cash and Cash Equivalents, January 1 13,803,692 5,335,070 19,138,762
Cash and Cash Equivalents, December 31 $ 15,279,447 $ 6,718,151 $ 21,997,598
Reconciliation of Cash and Cash
Equivalents to the Statement of Net Position
Cash and temporary investments $ 14,018,088 $ 6,718,151 $ 20,736,239
Restricted cash 1,261,359 - 1,261,359
Total Cash and Cash Equivalents $ 15,279,447 $ 6,718,151 $ 21,997,598
The notes to the financial statements are an integral part of this statement.
26
113
Elk River Municipal Utilities
Elk River, Minnesota
Statement of Cash Flows (Continued)
For the Year Ended December 31, 2018
Electric Water Total
Reconciliation of Operating Income(Loss)to
Net Cash Provided by Operating Activities
Operating income(loss) $ 3,578,499 $ (108,463) $ 3,470,036
Adjustments to reconcile operating income(loss)
to net cash provided by operating activities
Other revenue related to operations 372,253 241,416 613,669
Bad debt expense (63,452) (25,942) (89,394)
Depreciation 2,297,349 1,193,745 3,491,094
(Increase)decrease in assets/deferred outflows:
Accounts receivable 1,574,880 8,792 1,583,672
Other receivables 16,667 11,206 27,873
Special assessments receivable (1,850) 20,771 18,921
Inventories 144,759 1,161 145,920
Prepaid expenses 17,798 7,943 25,741
Deferred pension resources 358,253 71,948 430,201
Increase(decrease) in liabilities/deferred inflows:
Accounts payable (123,403) 21,283 (102,120)
Salaries and benefits payable 15,179 6,720 21,899
Net other postemployment benefits liability 5,270 16,765 22,035
Unearned revenue - 3,733 3,733
Compensated absences payable 49,525 4,379 53,904
Due to other governments (13,222) 861 (12,361)
Customer deposits payable 77,059 1,600 78,659
Pension liability (460,242) (102,335) (562,577)
Deferred pension resources 30,208 1,977 32,185
Net Cash Provided by Operating Activities $ 7,875,530 $ 1,377,560 $ 9,253,090
Noncash Capital and
Related Financing Activities
Amortization of Bond Premium $ 48,645 $ 829 $ 49,474
Amortization of Deferred Charges on Refunding $ 6,684 $ 1,671 $ 8,355
Loss on Disposal of Capital Assets $ (20,961) $ - $ (20,961)
Capital Assets Purchased on Account $ 757,087 $ 7,652 $ 764,739
Contribution of Capital Assets $ 352,104 $ - $ 352,104
The notes to the financial statements are an integral part of this statement.
27
114
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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 to the residents of Elk River and parts of Dayton, Big Lake
and Otsego, Minnesota. The Utilities distributes water to the residents of Elk River.
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 operations.
29
116
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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. The proprietary funds' portion in the
government-wide cash and temporary investments pool is considered to be cash and cash equivalents for purposes of the
statements of cash flows.
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.
30
117
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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, 2018:
• Negotiable certificates of deposit of$3,651,234 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, 2018 is as
follows:
2018
Electric $ 25,355
Water 250
Total $ 25,605
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
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 as non-operating revenues or expenses. 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.
31
118
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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 75, 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
119
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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.
33
120
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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, 2018, the Utilities' carrying amount of deposits was $18,329,134 and the bank balance was
$17,958,850. Of the bank balance$310,549 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
121
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
Note 2: Detailed Notes on All Funds (continued)
Investments
The Utilities' investment balances were as follows for December 31, 2018:
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 $ 16,430
Non-pooled Investments
Negotiable certificates of deposits N/A less than 6 months 498,267 $ - $ 498,267 $ -
Negotiable certificates of deposits N/A 6 months to 1 year 968,312 - 968,312 -
Negotiable certificates of deposits N/A 1 to 3 years 2,184,655 - 2,184,655 -
Total Non-pooled Investments 3,651,234 - 3,651,234 -
Total Investments $ 3,667,664 $ - $ 3,651,234 $ -
(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:
2018
Deposits $ 18,329,134
Investments 3,667,664
Cash on Hand 800
Total $ 21,997,598
Cash and Temporary Investments
Unrestricted $ 20,736,239
Restricted 1,261,359
Total $ 21,997,598
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
122
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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, 2018 was as follows:
Beginning Ending
Balance Increases Decreases Balance
Capital Assets not
being Depreciated
Land $ 678,921 $ - $ - $ 678,921
Intangible 10,375,677 12,904,278 - 23,279,955
Construction in progress 736,872 3,118,367 (3,387,769) 467,470
Total Capital Assets
not being Depreciated 11,791,470 16,022,645 (3,387,769) 24,426,346
Capital Assets being Depreciated
Land improvements 23,389 - - 23,389
Buildings 3,849,603 67,725 - 3,917,328
Machinery and equipment 3,722,909 265,364 (18,328) 3,969,945
Infrastructure 83,142,914 2,677,882 (33,252) 85,787,544
Total Capital Assets
being Depreciated 90,738,815 3,010,971 (51,580) 93,698,206
Less Accumulated
Depreciation for
Intangible - (165,883) - (165,883)
Land improvements (17,260) (935) - (18,195)
Buildings (1,918,520) (123,320) - (2,041,840)
Machinery and equipment (2,124,715) (289,617) 18,328 (2,396,004)
Infrastructure (38,018,910) (2,911,339) 12,291 (40,917,958)
Total Accumulated
Depreciation (42,079,405) (3,491,094) 30,619 (45,539,880)
Total Capital Assets
being Depreciated, Net 48,659,410 (480,123) (20,961) 48,158,326
Business-type Activities
Capital Assets, Net $ 60,450,880 $ 15,542,522 $ (3,408,730) $ 72,584,672
36
123
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
Note 2: Detailed Notes on All Funds (Continued)
Depreciation expense was charged to functions/programs of the Utilities as follows:
2018
Business-type Activities
Electric $ 2,297,349
Water 1,193,745
Total Depreciation Expense- Business-type Activities $ 3,491,094
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 $ 1,020,000
G.O. Capital Improvement
Plan Bonds of 2010A 1,265,000 2.00-4.00 04/21/10 02/01/23 555,000
Total G.O. Revenue Bonds $ 1,575,000
The annual debt service requirements to maturity for the general obligation revenue bonds are as follows:
Year Ending
December 31, Principal Interest Total
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 2,499 127,499
Total $ 1,575,000 $ 132,485 $ 1,707,485
In 2018, 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$99,360 and $38,779,905,
respectively.
In 2018, annual principal and interest payment on the bonds required about 11.9% percent of revenues from the Water
fund. The principal and interest paid and total customer revenues for the Water fund were$299,587 and $2,515,821,
respectively.
37
124
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
Note 2: Detailed Notes on All Funds (Continued)
Revenue Bonds
The revenue bonds were issued to facilitate the membership buy-in with MMPA, the new power provider, and are to be
repaid from future revenue pledged from 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 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 02/01/22 930,000
Electric Revenue Bonds, Series 2018A 10,000,000 3.50-5.00 09/26/18 08/01/48 10,000,000
Total Revenue Bonds $ 20,685,000
The annual debt service requirements to maturity for the revenue bonds are as follows:
Year Ending
December 31, Principal Interest Total
2019 $ 860,000 $ 624,210 $ 1,484,210
2020 840,000 652,431 1,492,431
2021 865,000 621,431 1,486,431
2022 900,000 589,081 1,489,081
2023 680,000 560,531 1,240,531
2024-2028 3,785,000 2,437,581 6,222,581
2029-2033 4,385,000 1,845,206 6,230,206
2034-2038 3,720,000 1,135,831 4,855,831
2039-2043 2,125,000 686,033 2,811,033
2044-2048 2,525,000 281,119 2,806,119
Total $ 20,685,000 $ 9,433,454 $ 30,118,454
In 2018, annual principal and interest payment on the bonds required about 2.4% percent of revenues from the Electric
fund. Principal and interest paid and total customer revenues for the Electric fund were$947,425 and $38,779,905,
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 12/01/22 $ 820,608
38
125
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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
2019 $ 200,916 $ - $ 200,916
2020 203,952 - 203,952
2021 206,616 - 206,616
2022 209,124 - 209,124
Total $ 820,608 $ - $ 820,608
Changes in Long-term Liabilities
Long-term liability activity for the year ended December 31, 2018 was as follows:
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
Business-type Activities •
Bonds Payable
General obligation
revenue bonds $ 1,910,000 $ - $ (335,000) $ 1,575,000 $ 860,000
Revenue bonds 11,325,000 10,000,000 (640,000) 20,685,000 340,000
Unamortized premium
on bonds 484,706 435,104 (49,474) 870,336 -
Total Bonds Payable, Net 13,719,706 10,435,104 (1,024,474) 23,130,336 1,200,000
Notes Payable 1,018,860 (198,252) 820,608 200,916
Compensated
Absences Payable 340,047 285,528 (231,624) 393,951 197,132
Net Pension Liability
GERF 3,447,324 11,483 (574,060) 2,884,747 -
OPEB Liability 78,537 22,035 - 100,572 -
Business-type Activity
Long-term
Liabilities $ 18,604,474 $ 10,754,150 $ (2,028,410) $ 27,330,214 $ 1,598,048
39
126
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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 $ 319 Move siren pole/instal pipe at Rivers Edge Park
Electric City 8,382 Shared costs
Electric City 2,935 December billings
Electric City 1,756 PERA aid
Total Electric Fund Receivable From City 13,392
Water City 439 PERA aid
Water City 128,850 TIF 22 Water Access Charge
Total Water Fund Receivable From City 129,289
Total Receivable From City $ 142,681
City Electric $ 88,614 Shared costs
City Electric 6,568 Supplies
City Electric 81,251 December transfer of 4%of revenue
City Electric 273,336 4th quarter franchise fees
City Electric 173,543 Billed sewer on behalf of City
City Electric 130,039 Billed garbage on behalf of City
City Electric 40,862 Billed stormwater on behalf of City
Total Electric Fund Payable to City 794,213
City Water 22,154 Shared costs
City Water 1,444 Supplies
Total Water Fund Payable to City 23,598
Total Payable to City $ 817,811
The transfer out of the Electric fund was the annual transfer of 4 percent of 2018 Elk River revenues to City funds. The
Electric fund transferred$1,188,664 in 2018.
40
127
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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 the Coordinated Plan. Coordinated Plan members are covered by Social Security.
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.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 Plan
members. Members hired prior to July 1, 1989 receive the higher of Method 1 or Method 2 formulas. Only Method 2 is
used for members hired after June 30, 1989. Under Method 1, the accrual rate for Coordinated members is 1.2 percent of
average salary for each of the first 10 years of service and 1.7 percent of average salary for each additional year. Under
Method 2, the accrual rate for Coordinated members is 1.7 percent for average salary for all years 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.
Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. If
the General Employees Plan is at least 90 percent funded for two consecutive years, benefit recipients are given a 2.5
percent increase. If the plan has not exceeded 90 percent funded, or have fallen below 80 percent, benefit recipients are
given a one percent increase. A benefit recipient who has been receiving a benefit for at least 12 full months as of
June 30 will receive a full increase. Members receiving benefits for at least one month but less than 12 full months as of
June 30 will receive a pro rata increase.
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
Plan members were required to contribute 6.50 percent of their annual covered salary and the Utilities was required to
contribute 7.50 percent of pay for Coordinated Plan members in fiscal year 2018. The Utilities contributions to the GERF
for the years ending December 31, 2018, 2017 and 2016 were$265,424, $257,780, and $244,012, respectively. The
Utilities contributions were equal to the required contributions for each year as set by Minnesota statute.
41
128
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
Note 3: Defined Benefit Pension Plans -Statewide (Continued)
D. Pension Costs
GERF Pension Costs
At December 31, 2018, the Utilities reported a liability of$2,884,747 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$16 million to
the fund in 2018. 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 $94,615. The net pension liability was measured as of June 30, 2018, and the total
pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The
Utilities proportionate share 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, 2017 through June 30, 2018 relative to the total
employer contributions received from all of PERA's participating employers.At June 30, 2018, the Utilities proportionate
share was 0.0520 percent which was a decrease of 0.0020 percent from its proportion measured as of June 30, 2017.
For the year ended December 31, 2018, the Utilities recognized pension expense of$162,174 for its proportionate share
of GERF's pension expense. In addition, the Utilities recognized an additional$22,064 as pension expense(and grant
revenue)for its proportionate share of the State of Minnesota's contribution of$16 million to the GERF.
At December 31, 2018, 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 Economic Experience $ 76,610 $ 70,281
Changes in Actuarial Assumptions 273,756 324,133
Net Difference between Projected and
Actual Earnings on Plan Investments - 318,122
Changes in Proportion 139,065 96,610
Contributions to GERF Subsequent
to the Measurement Date 132,080 -
Total $ 621,511 $ 809,146
Deferred outflows of resources totaling$132,080 related to pensions resulting from the Utilities' 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, 2019. Other amounts reported as deferred outflows and inflows of resources related to GERF pensions will
be recognized in pension expense as follows:
2019 $ 158,403
2020 (142,631)
2021 (275,267)
2022 (60,220)
Total Pension Expense
The total pension expense for all plans recognized by the Utilities for the year ended December 31, 2018, was$184,238.
42
129
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
Note 3: Defined Benefit Pension Plans -Statewide (Continued)
E. Actuarial Assumptions
The total pension liability in the June 30, 2018 actuarial valuation was determined using the following actuarial
assumptions:
GERF
Inflation 2.50% per year
Active Member Payroll Growth 3.25% after 26 years of service
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 after retirement for retirees are assumed to be 1.25 percent per year.
Actuarial assumptions used in the June 30, 2018 valuation were based on the results of actuarial experience studies. The
most recent six-year experience study in the plan was completed in 2015. Economic assumptions were updated in 2017
based on a review of inflation and investment return assumptions.
The following changes in actuarial assumptions occurred in 2018:
GERF
• The mortality projection scale was changed from MP-2015 to MP-2017.
• The assumed benefit increase was changed from 1.0 percent per year through 2044 and 2.50 percent per year
thereafter to 1.25 percent per year.
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 36.0 % 5.10 %
International Stocks 17.0 5.30
Bonds (Fixed Income) 20.0 0.75
Alternative Assets(Private Markets) 25.0 5.90
Cash 2.0 -
Total 100.0 %
43
130
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
Note 3: Defined Benefit Pension Plans -Statewide (Continued)
F. Discount Rate
The discount rate used to measure the total pension liability in 2018 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 plan were 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 $ 4,688,083 $ 2,884,747 $ 1,396,144
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 $0 in 2018 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
131
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
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, and service areas 5 and 6 were acquired in 2018 for$298,736. The
loss of revenue payments made were$411,157 in 2017, $570,725 in 2018, and $751,860 in 2019. 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 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 was effective September 30, 2018. On
May 14, 2013 the Utilities signed a new agreement with Minnesota Municipal Power Agency(MMPA), and started taking
power on October 1, 2018.
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. To ensure bond payment obligations, cash distributions for
2018 were curtailed. In 2018, the principal bond payment increased approximately by$700K. This increase remains in
effect through 2020. In 2021, the bond payment drops nearly$1 M. A contributing factor in participant cash distributions in
2018 is under recovery. The projected under recovery in 2018 is estimated to be between $250K-$300K. The bond
obligations are satisfied first, distribution to participants is directly affected by under recovery. The under recovery is rolled
forward under the true up. However, the under recovery in 2018 (approximately$250K-$300K)would be included in the
recovery requirements in 2020.The transmission payments for 2018 were$13,766 of which$3,306 was receivable at
December 31, 2018.
45
132
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
Note 5: Postemployment Benefits Other Than Pensions
A. 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.
At December 31, 2018, the following employee were covered by the benefit terms.
Active Plan Members 38
Active Waiving Coverage 5
Total Plan Members 43
B. 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 2018, the Utility
contributed $0 to the plan. Plan members receiving benefits contribute 100 percent of their premium costs. In fiscal year
2018, total member contributions were$0.
C. Actuarial Methods and Assumptions
The Utilities total OPEB liability of$100,572 was measured as of December 31, 2018, and the total OPEB liability used to
calculate the total OPEB liability was determined by an actuarial valuation as of January 1, 2017.
The total OPEB liability in the January 1, 2018 actuarial valuation was determined using the following actuarial
assumptions, applied to all periods included in the measurement, unless otherwise specified:
Discount Rate 3.31%
Expected Long-Term Investment Return N/A
20-Year Municpal Bond Yield 3.31%
Inflation Rate 2.75%
Salary Increases 3.25%
Medical Trend Rate 6.9% in 2018 grading to 5.2%over 3 years until 2055
grading down to 4.4% ultimate rate in 2074
The discount rate used to measure the total OPEB liability was 3.31 percent.
Mortality rates were based on the RP-2014 mortality tables with projected mortality improvements based on scale MP-
2016, and other adjustments.
The actuarial assumptions used in the December 31, 2018 valuation were based on input from a variety of published
sources of historical and projected future financial data. Each assumption was reviewed for reasonableness with the
source information as well as for consistency with the other economic assumptions.
46
133
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2018
Note 5: Postemployment Benefits Other than Pensions
Changes in the Total OPEB Liability
Total OPEB
Liability
(a)
Balances at December 31, 2017 $ 81,453
Changes for the Year:
Service cost 11,084
Interest 3,526
Changes in assumptions or other inputs 4,509
Net Changes 19,119
Balances at December 31, 2018 $ 100,572
Since the prior measurement date, the following assumptions changed:
• The discount rate was changed from 3.81%to 3.31%.
• Withdrawal rates were updated from the Small Plan age-based table in the 2003 SOA Turnover, adjusted by 50%
to the rate used in the 7/1/2017 PERA General Employees Retirement Plan valuation.
• The salary scale assumption was changed from a flat rate of 3.25%to the rates used in the 7/1/2017 PERA General
Employees Retirement Plan valuation.
• Medical per capita claims costs were updated to reflect recent experience.
• Health care trend rates were reset to reflect updated cost increase expectations, including an adjustment to reflect
the impact of the Affordable Care Act's Excise Tax on high-cost health insurance plans.
E. Sensitivity of the Total OPEB Liability
The following presents the total OPEB liability of the Utilities, as well as what the Utilities'total OPEB liability would be if it
were calculated using a discount rate that is 1-percentage point lower(2.31 percent) or 1-percentage-point higher(4.31
percent)than the current discount rate:
1 Percent 1 Percent
Decrease(2.31%) Current(3.31%) Increase(4.31%)
$ 110,190 $ 100,572 $ 91,750
The following presents the total OPEB liability of the Utilities, as well as what the Utilities'total OPEB liability would be if it
were calculated using a Healthcare Cost Trent Rates that is 1-percentage point lower(5.90 percent decreasing to 3.40
percent)or 1-percentage-point higher(7.90 percent increasing to 5.40 percent)than the current discount rate:
Healthcare Cost
1 Percent Decrease Trend Rates 1 Percent Increase
(5.9% Decreasing (6.9% Decreasing (7.9% Decreasing
to 3.4%) to 4.4%) to 5.4%)
$ 87,443 $ 100,572 $ 116,283
47
134
THIS PAGE IS LEFT
BLANK INTENTIONALLY
48
135
REQUIRED SUPPLEMENTARY INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2018
49
136
Elk River Municipal Utilities
Elk River, Minnesota
Required Supplementary Information
For the Year Ended December 31, 2018
Schedule of Employer's Share of PERA Net Pension Liability-General Employees Retirement Fund
Utilities
State's Proportionate
Proportionate Share of the
Utilities Share of Net Pension
Proportionate the Net Pension Liability as a Plan Fiduciary
Utilities Share of Liability Utilities Percentage of Net Position
Fiscal Proportion of the Net Pension Associated with Covered Covered as a Percentage
Year the Net Pension Liability the Utilities Total Payroll Payroll of the Total
Ending Liability (a) (b) (a+b) (c) (a/c) Pension Liability
06/30/18 0.0520 % $ 2,884,747 $ 94,615 $ 2,979,362 $ 3,494,641 82.5 % 79.5 %
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
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)
12/31/18 $ 265,424 $ 265,424 $ - $ 3,538,988 7.5
ok
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
137
Elk River Municipal Utilities
Elk River, Minnesota
Required Supplementary Information (Continued)
For the Year Ended December 31, 2018
Notes to the Required Supplementary Information -General Employee Retirement Fund
Changes in Actuarial Assumptions
2018-The morality projection scale was changed from MP-2015 to MP-2017. The assumed benefit increase was
changed from 1.00 percent per year through 2044 and 2.50 percent per year thereafter to 1.25 percent per year.
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.
51
138
Elk River Municipal Utilities
Elk River, Minnesota
Required Supplementary Information (Continued)
For the Year Ended December 31, 2018
Schedule of Changes in the Employer's OPEB Liability and Related Ratios
2018
Total OPEB Liability
Service cost $ 11,084
Interest 3,526
Changes in assumptions 4,509
Net Change in Total OPEB Liability 19,119
Total OPEB Liability- Beginning 81,453
Total OPEB Liability- Ending $ 100,572
Covered -employee payroll $ 3,584,096
Utilities'total OPEB liability as a percentage of
covered employee payroll 2.80 %
Changes in Assumptions:
In 2018, the following assumptions changes:
The discount rate was changed from 3.81%to 3.31%.
Health care trend rates were reset to reflect updated cost increase expectations,
including an adjustment to reflect the impact of the Affordable Care Act's Excise Tax on
high-cost health insurance plans.
Medical per capita claims costs were updated to reflect recent experience.
Withdrawal rates were updated from the Small Plan age-based table in the 2003 SOA Turnover,
adjusted by 50%to the rate used in the 7/1/2017 PERA General Employees Retirement
Plan valuation.
The salary scale assumption was changed from a flat rate of 3.25%to the rates used in the
7/1/2017 PERA General Employees Retirement Plan valuation.
Note: Schedule is intended to show 10-year trend.Additional years will be reported as they become available.
52
139
SUPPLEMENTARY INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2018
53
140
Elk River Municipal Utilities
Elk River, Minnesota
Supplementary Information
Schedule of Operating Revenues and Expenses
For the Year Ended December 31, 2018
Electric Water Total
Operating Revenues
Charges for services
Elk River $ 34,754,471 $ 2,445,688 $ 37,200,159
Otsego 2,743,053 - 2,743,053
Big Lake 189,292 - 189,292
Dayton 223,964 - 223,964
LFG Project 1,128,793 - 1,128,793
Generation credit (729,208) - (729,208)
Connection maintenance 269,787 52,052 321,839
Customer penalties 199,753 18,081 217,834
Total Operating Revenues 38,779,905 2,515,821 41,295,726
Operating Expenses
Purchased power 26,710,514 - 26,710,514
Production
Supervision and labor 97,582 54,767 152,349
Natural gas 36,604 - 36,604
Supplies and power for pumping 46,357 265,757 312,114
Landfill gas expense 769,624 - 769,624
Maintenance of structures 23,123 53,135 76,258
Maintenance of equipment 7,986 164,060 172,046
Maintenance of plant 20,788 - 20,788
Total production 1,002,064 537,719 1,539,783
Transmission and distribution
Supervision and labor 36,760 5,613 42,373
Maintenance of overhead lines 545,601 - 545,601
Maintenance of underground lines 253,668 - 253,668
Maintenance of station equipment 40,197 - 40,197
Transportation 223,506 14,806 238,312
Maintenance of customer service 7,018 47,507 54,525
Maintenance of customer meters 158,191 159,675 317,866
Miscellaneous 393,226 4,975 398,201
Total transmission and distribution 1,658,167 232,576 1,890,743
Services to City 215,296 - 215,296
Depreciation and amortization 2,297,349 1,193,745 3,491,094
Customer accounts expense
Meter reading 21,272 4,535 25,807
Billing and collection 269,585 59,376 328,961
Bad debts (63,452) (25,942) (89,394)
Total customer accounts expense 227,405 37,969 265,374
54
141
Elk River Municipal Utilities
Elk River, Minnesota
Supplementary Information
Schedule of Operating Revenues and Expenses(Continued)
For the Year Ended December 31,2018
Electric Water Total
Operating Expenses (Continued)
General and administrative
Salaries $ 614,463 $ 163,865 $ 778,328
Employee pensions and benefits 1,575,798 314,675 1,890,473
Dues 121,558 42,750 164,308
Office supplies and billing expense 78,473 13,539 92,012
Office utilities and maintenance 33,837 8,459 42,296
Consulting fees 52,987 354 53,341
Legal and audit 52,293 11,697 63,990
Environmental compliance 27,896 543 28,439
Conservation improvement project 167,439 7,968 175,407
Insurance 152,623 23,722 176,345
Telephone 22,134 5,609 27,743
Advertising 28,239 8,269 36,508
Education and meetings 149,252 17,195 166,447
Miscellaneous 13,619 3,630 17,249
Total general and administrative 3,090,611 622,275 3,712,886
Total Operating Expenses 35,201,406 2,624,284 37,825,690
Operating Income (Loss) 3,578,499 (108,463) 3,470,036
Nonoperating Revenues (Expenses)
Interest income 330,110 25,334 355,444
Miscellaneous revenue 372,253 241,416 613,669
Interest expense and other (478,814) (41,865) (520,679)
Gain (loss)on sale of capital assets (4,963) 7,425 2,462
Total Nonoperating
Revenues 218,586 232,310 450,896
Income before Contributions and Transfers 3,797,085 123,847 3,920,932
Capital Contributions-
Connection Fees - 716,810 716,810
Contributions from Customers 352,104 - 352,104
Transfers to Other City Funds (1,188,664) - (1,188,664)
Total Contributions and Transfers (836,560) 716,810 (119,750)
Change in Net Position 2,960,525 840,657 3,801,182
Net Position, January 1 36,491,274 24,201,051 60,692,325
Net Position, December 31 $ 39,451,799 $ 25,041,708 $ 64,493,507
55
142
Elk River Municipal Utilities
Elk River, Minnesota
Electric Fund
Summary of Operations and Unaudited Statistics
For the Years Ended December 31, 2009 through December 31, 2018
Summary of Operations
2009 2010 2011 2012
Operating Revenues
Sales of electricity $ 23,591,485 $ 26,060,301 $ 27,894,341 $ 30,070,045
Other operating revenues (expenses) 636,258 732,261 689,645 188,645
Total Operating Revenues 24,227,743 26,792,562 28,583,986 30,258,690
Operating Expenses
Purchased power 16,161,444 18,373,386 19,604,951 20,499,773
Distribution 1,937,096 1,892,212 1,960,742 1,909,845
Services to the City 428,508 434,415 474,934 481,907
Depreciation 2,126,794 2,062,942 2,041,717 2,099,594
Other operating expenses 2,272,917 2,399,236 2,350,706 2,359,193
Total Operating Expenses 22,926,759 25,162,191 26,433,050 27,350,312
Operating Income 1,300,984 1,630,371 2,150,936 2,908,378
Capital Contributions - - - -
Transfers from Other City Funds - 53,741 - -
Transfers to Other City Funds (585,141) (657,086) (711,415) (816,864)
Special Item - - - -
Nonoperating Revenues (146,352) (154,956) (105,604) 28,531
Net Income $ 569,491 $ 872,070 $ 1,333,917 $ 2,120,045
Percent of Change
Sales of electricity 5.772% 10.465% 7.038% 7.800%
Purchased power 9.360% 13.687% 6.703% 4.564%
Percent of Revenues
Purchased power 66.706% 68.576% 68.587% 67.748%
Unaudited Statistics
Miscellaneous
2009 2010 2011 2012
kWh's purchased 247,595,137 264,642,834 276,026,892 287,553,108
kWh's sold 232,772,722 250,711,834 261,235,297 273,455,846
Line loss 14,822,415 13,931,000 14,791,595 14,097,262
Percent of line loss 5.987% 5.264% 5.359% 4.902%
Revenues Per kWh Sold $ 0.1013 $ 0.1039 $ 0.1068 $ 0.1100
Cost Per kWh Purchased $ 0.0653 $ 0.0694 $ 0.0710 $ 0.0713
Number of Customers 9,170 9,207 9,227 9,285
Total Contribution/Transfers to City $ 585,141 $ 657,086 $ 711,415 $ 816,864
56
143
2013 2014 2015 2016 2017 2018
$ 30,978,790 $ 31,514,246 $ 32,704,279 $ 34,569,098 $ 36,458,061 $ 39,039,573
(132,411) (147,561) (152,557) (104,702) (337,237) (259,668)
30,846,379 31,366,685 32,551,722 34,464,396 36,120,824 38,779,905
21,254,950 21,994,652 22,034,307 23,991,069 25,402,576 26,710,514
1,970,341 2,161,352 2,330,969 2,041,810 2,385,263 2,660,231
498,146 530,340 520,727 230,312 202,421 215,296
2,029,496 1,914,062 1,922,359 2,005,093 2,046,935 2,297,349
2,374,959 2,791,717 3,087,792 3,558,315 3,357,276 3,318,016
28,127,892 29,392,123 29,896,154 31,826,599 33,394,471 35,201,406
2,718,487 1,974,562 2,655,568 2,637,797 2,726,353 3,578,499
- - - - 209,051 352,104
(781,162) (797,835) (824,743) (1,089,287) (1,113,264) (1,188,664)
- - 330,923 - -
(30,658) 152,375 267,243 8,991 145,034 218,586
$ 1,906,667 $ 1,329,102 $ 2,098,068 $ 1,888,424 $ 1,967,174 $ 2,960,525
3.022% 1.728% 3.776% 5.702% 5.464% 7.081%
3.684% 3.480% 0.180% 8.881% 5.883% 5.149%
68.906% 70.121% 67.690% 69.611% 70.327%o 68.877%
2013 2014 2015 2016 2017 2018
290,025,919 288,320,724 294,441,957 311,990,595 320,349,631 339,917,944
273,945,354 274,546,059 282,265,268 301,838,731 313,952,561 331,124,011
16,080,565 13,774,665 12,176,689 10,151,864 6,397,070 8,793,933
5.545% 4.778% 4.136% 3.254% 1.997% 2.587%
$ 0.1131 $ 0.1148 $ 0.1159 $ 0.1145 $ 0.1161 $ 0.1179
$ 0.0733 $ 0.0763 $ 0.0748 $ 0.0769 $ 0.0793 $ 0.0786
9,358 9,449 10,499 10,816 11,448 11,983
$ 781,162 $ 797,835 $ 824,743 $ 1,089,287 $ 1,113,264 $ 1,188,664
57
144
Elk River Municipal Utilities
Elk River, Minnesota
Water Fund
Summary of Operations and Unaudited Statistics
For the Years Ended December 31, 2009 through December 31, 2018
Summary of Operations
2009 2010 2011 2012
Operating Revenues
Sales of water $ 2,206,429 $ 1,913,661 $ 1,832,817 $ 2,265,142
Operating Expenses
Operating expenses less depreciation 1,102,437 989,736 1,008,562 1,130,965
Services to City - - - -
Depreciation 956,993 955,323 980,197 1,028,593
Total Operating Expenses 2,059,430 1,945,059 1,988,759 2,159,558
Total Operating Income (Loss) $ 146,999 $ (31,398) $ (155,942) $ 105,584
Percent of Change
Sales of water 3.58% (13.27%) (4.22%) 23.59%
Unaudited Statistics
Miscellaneous
2009 2010 2011 2012
Water Pumped (Gallons) 782,951,000 686,289,000 651,907,000 847,283,200
Water Sold (Gallons) 708,286,000 627,209,000 599,701,000 727,912,000
Percent of Line Loss 9.54% 8.61% 8.01% 14.09%
Revenues Per 1,000 Gallons Pumped $ 2.81 $ 2.78 $ 2.81 $ 2.67
Revenues Per 1,000 Gallons Sold $ 3.12 $ 3.05 $ 3.06 $ 3.11
Number of Customers 4,467 4,511 4,515 4,542
Water Supplier Services
2009 2010 2011 2012
Flushing Hydrants 33,000,000 35,000,000 34,000,000 46,400,000
Back Washing 8,400,000 9,000,000 8,000,000 30,000,000
Fire Department Use 1,000,000 3,000,000 4,000,000 16,500,000
New Water Main Disinfectant and Flushing 2,000,000 3,000,000 4,000,000 9,000,000
Flushing Seasonal Well - 4,000,000 - 3,600,000
Meter Inaccuracy 1,300,000 - - 6,500,000
Street and Sewer Maintenance - - - -
Water Tower Paint and Clean/Maintenance - - 2,000,000 -
Well Maintenance - - - -
Water Line and Irrigation Leaks - - - 7,000,000
Frozen Pipes Bursting in Abandoned Homes 27,000,000 5,000,000 - -
Water Supplier Services 72,700,000 59,000,000 52,000,000 119,000,000
58
145
2013 2014 2015 2016 2017 2018
$ 2,278,124 $ 2,148,327 $ 2,202,537 $ 2,173,521 $ 2,326,245 $ 2,515,821
1,210,797 1,267,019 1,277,466 1,325,831 1,614,095 1,430,539
- - 5,719 - -1,032,442 1,083,770 1,131,110 1,148,310 1,191,894 1,193,745
2,243,239 2,350,789 2,414,295 2,474,141 2,805,989 2,624,284
$ 34,885 $ (202,462) $ (211,758) $ (300,620) $ (479,744) $ (108,463)
0.57% (5.70%) 2.52% (1.32%) 7.03% 8.15%
2013 2014 2015 2016 2017 2018
785,377,000 782,110,000 799,974,000 801,603,000 788,182,000 822,546,000
709,760,000 672,760,000 676,842,000 666,656,000 686,032,000 737,689,000
9.63% 13.98% 15.39% 16.83% 12.96% 10.32%
$ 2.90 $ 2.75 $ 2.75 $ 2.71 $ 2.95 $ 3.06
$ 3.21 $ 3.19 $ 3.25 $ 3.26 $ 3.39 $ 3.41
4,613 4,676 4,672 4,903 5,011 5,140
Gallons
2013 2014 2015 2016 2017 2018
45,000,000 47,000,000 45,000,000 46,816,000 47,470,500 47,894,000
8,000,000 3,922,000 4,000,000 4,430,000 4,125,542 3,823,903
5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
3,000,000 3,000,000 - - - -
617,000 1,000,000 473,400 1,800,000 1,550,000 1,550,000
2,000,000 1,000,000 3,700,000 4,000,000 4,000,000 4,000,000
- - 700,000 7,358,000 7,000,000 7,000,000
7,000,000 7,000,000 - - - -
75,617,000 72,922,000 63,873,400 74,404,000 74,146,042 74,267,903
59
146
THIS PAGE IS LEFT
BLANK INTENTIONALLY
60
147
OTHER REPORT
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2018
61
148
THIS PAGE IS LEFT
BLANK INTENTIONALLY
62
149
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, 2018, and the related notes to the financial statements, and have issued our report thereon
dated April 2, 2019.
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.
0146 flaw itAftitvo
ABDO, EICK&MEYERS, LLP
Minneapolis, Minnesota
April 2, 2019
5201 Eden Avenue,Suite 250
Edina,MN 55436 63
952.835.9090 I Fax 952.835.3261
150