4.1 ERMUSR 04-14-2020UTILITIES COMMISSION MEETING
TO:FROM:
ERMU Commission Melissa Karpinski – Finance Manager
MEETING DATE: AGENDA ITEM NUMBER:
April 14, 2020 4.1
SUBJECT:
2019 Financial Audit
ACTION REQUESTED:
Receive and file the 2019 Annual Financial Report
BACKGROUND:
Audit fieldwork was completed February 27 and 28 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 and Mr. Justin Nilson of AEM will be at our meeting to present the 2019 audit
and answer any questions you may have. There were two audit adjustments resulting from
General Accounting Standards Board (GASB) reporting requirements related to Pensions and
Postemployment Benefits Other Than Pensions. These two adjustments are provided annually
by AEM. These items are discussed in Note 3 and 6 of the financials.
FINANCIAL IMPACT:
None
ATTACHMENTS:
AEM Audit Presentation
AEM Management Communication
ERMU Annual Financial Report forthe Year Ended December 31, 2019
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Audit
Utilities
Elk River
Municipal
Statement
2019 Financial
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Electric Fund Results
Audit Opinion and ResponsibilityWater Fund Results
Introduction
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Auditor’s OpinionMinnesota Legal Compliance
Audit Results
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Electric Fund Expenditures by Type
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-
Fund
Electric Cash Flows from Operations and Cash Balances
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Electric Operations
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Water Fund Expenditures by Type
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-
Fund
Water Cash Flows from Operations and Cash Balances
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Water Operations
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Debt Obligations
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During our audit, it was noted that over 80% of cash on hand is in a savings account earning 0.55%. We recommend reviewing monthly liquidity, current investments, and market conditions
in attempt to maximize interest earnings for the Utilities.
Cash and Investments Balance by Fund
Jeff Hines
Andy Berg
Audit Team
Justin Nilson
Caydin Wolter
Tomi McDonald
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Questions?
Management Communication
Elk River Municipal Utilities
Elk River, Minnesota
For the Year Ended
December 31, 2019
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Management and Public UtilitiesCommission
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 yearended December 31, 2019. 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 15,2019.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 Statesof America
As stated in our engagement letter, our responsibility, as described by professional standards, is to express anopinion
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 theUtilities internal control. Accordingly, we do not express an opinion on the effectiveness of the Utilities internal
control.
Adeficiency in internal controlexists 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 weaknessis 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. Asignificant deficiencyis a deficiency, or a combination of deficiencies, in internal control
that is less severe thana 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.
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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 Utilitiesare described in Note 1 to the financial statements. No new accounting policies were adopted
and the application of existing policies were not changed during the year ended December 31, 2019.We noted no
transactions entered into by the Utilitiesduring 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 Utilities. 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 significanceto
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 certainrepresentations frommanagement thatare included in the management
representation letterdated
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Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial accounting,
reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our
audit.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar
to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the
governmental unit’s financial statements or a determination of the type of auditor’s opinion that may be expressed on
those statements, our professional standards require the consulting accountant to check with us to determine that the
consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.
OtherAudit 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 inthe 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 sectionor 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.
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Future Accounting Standard Changes
The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact
(1)
on future Utilitiesfinancial statements:
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, ifapplied 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. 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 incurredbefore 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.
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Future Accounting Standard Changes (Continued)
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. 91 - Conduit Debt Obligations
Summary
The primary objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers
and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated
with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying the
existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability ofthe issuer;
establishing standards for accounting and financial reporting of additional commitments and voluntary commitments
extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures.
All conduit debt obligations involve the issuer making a limited commitment. Some issuers extend additional commitments
or voluntary commitments to support debt service in the event the third party is, or will be, unable to do so.
An issuer should not recognize aconduit debt obligation as a liability. However, an issuer should recognize a liability
associated with an additional commitment or a voluntary commitment to support debt service if certain recognition criteria
are met. As long as a conduit debt obligation is outstanding, an issuer that has made an additional commitment should
evaluate at least annually whether those criteria are met. An issuer that has made only a limited commitment should
evaluate whether those criteria are met when an event occurs that causes the issuer to reevaluate its willingness or ability
to support the obligor’s debt service through a voluntary commitment.
This Statement also addresses arrangements - often characterized as leases - that are associated with conduit debt
obligations. Inthose arrangements, capital assets are constructed or acquired with the proceeds of a conduit debt
obligation and used by third-party obligors in the course of their activities. Payments from third-party obligors are intended
to cover and coincide with debt service payments. During those arrangements, issuers retain the titles to the capital
assets. Those titles may or may not pass to the obligors at the end of the arrangements.
This Statement requires issuers to disclose general information about their conduit debt obligations, organized by type of
commitment, including the aggregate outstanding principal amount of the issuers’ conduit debt obligations and a
description of each type of commitment. Issuers that recognize liabilities related to supporting the debt service of conduit
debt obligations also should disclose information about the amount recognized and how the liabilities changed during the
reporting period.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after December 15, 2020. Earlier
application is encouraged.
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FutureAccounting Standard Changes (Continued)
How the Changes in This Statement Will ImproveAccounting and FinancialReporting
The requirements of this Statement willimprove financial reporting by eliminating the existing option for issuers to report
conduit debtobligations astheirownliabilities, thereby ending significantdiversityin practice. The clarifieddefinitionwill
resolve stakeholders’ uncertaintyas towhetheragiven financing is,in fact, a conduitdebt obligation. Requiring issuers to
recognize liabilities associatedwithadditional commitments extendedbyissuersand to recognizeassets and deferred
inflows of resources related to certain arrangements associatedwith conduit debtobligations alsowill eliminate diversity,
therebyimproving comparability in reporting byissuers. Revised disclosure requirements willprovide financial statement
users withbetter information regarding the commitments issuers extendand the likelihood that theywill fulfillthose
commitments. That informationwillinform users of the potentialimpact of such commitmentson the financialresources of
issuersandhelp users assess issuers’ rolesin conduit debtobligations.
(1)
Note. From GASBPronouncements Summaries. Copyright2019bytheFinancial AccountingFoundation,401 Merritt 7,
Norwalk, CT 06856, USA,andis reproducedwith permission.
* *** *
Restriction on Use
Thiscommunicationis intended solely for theinformationand use ofthePublic Utilities Commission,CityCouncil,
management,and the Minnesota Office of the StateAuditorandis not intended tobe and should not be usedbyanyone
other thanthese specifiedparties.
Thecommentsand recommendationsin this report are purely constructiveinnature, and should be read in this context.
Our auditwould not necessarily discloseallweaknesses in the system because it was based on selected tests of
accounting recordsand related data.
Ifyou have anyquestionsor wish todiscuss any of the items containedin this letter, please feel free to contact us atyour
convenience.We wish to thankyou for theopportunityto be of serviceand for thecourtesy and cooperation extended to
us byyour staff.
ABDO, EICK &MEYERS, LLP
Minneapolis, Minnesota
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Annual Financial Report
Elk River Municipal Utilities
Elk River, Minnesota
For the Year Ended
December 31, 2019
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Elk River Municipal Utilities
Elk River, Minnesota
Table of Contents
For the Year Ended December 31, 2019
Page No.
Introductory Section
Public Utilities Commission and Administration7
Financial Section
Independent Auditor’s Report11
Management’s Discussion and Analysis15
Financial Statements
Statement of Net Position22
Statementof Revenues, Expenses and Changes inNet Position25
Statementof Cash Flows26
Notes to the Financial Statements29
Required Supplementary Information
Schedule of Employer’s Share of Public Employees Retirement Association Net Pension Liability -
General Employees Retirement Fund50
Schedule of Employer’s Public Employees Retirement Association Contributions -
General Employees Retirement Fund50
Notes to the Required Supplementary Information - General Employees Retirement Fund51
Schedule of Changes in the Employer’s OPEB Liability and Related Ratios52
Supplementary Information
Schedule of Operating Revenues and Expenses54
Electric Fund
Summary of Operations and Unaudited Statistics56
Water Fund
Summary of Operations and Unaudited Statistics 58
Other Report
Independent Auditor’s Report
on Minnesota Legal Compliance63
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INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2019
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Elk River Municipal Utilities
Elk River, Minnesota
Public Utilities Commission and Administration
For the Year Ended December 31, 2019
COMMISSION
NameTitle
John DietzChairperson
Allan NadeauVice-Chair
Mary StewartCommissioner
Matt WestgaardCommissioner
Paul BellCommissioner
ADMINISTRATION
NameTitle
Troy AdamsGeneral Manager
Theresa SlominskiAdministrations Director
Melissa KarpinskiFinance Manager
Dave NinowWater Superintendent
Mark FuchsOperations Director
Tom GeiserElectric Superintendent
Mike TietzTechnical Services Superintendent
Tom SagstetterConservation and Key Accounts Manager
Michelle CanterburyExecutive Administrative Manager
Jennie NelsonCustomer Service Manager
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FINANCIAL SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEARENDED
DECEMBER 31, 2019
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INDEPENDENT AUDITOR’S REPORT
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
Report on the Financial Statements
We have audited the accompanying financial statements of the Elk River Municipal Utilities(the Utilities) of the City of Elk
River, Minnesota (the City), as of and for the yearended December31,2019, 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 andfair 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 inthe 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 inorder 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
Utilitiesas of December 31, 2019, and the changes in financial position and cash flowsthereoffor the year then ended in
accordance with accounting principles generally accepted in the United States of America.
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Emphasis of Matter
As discussedin Note1B, the financial statements present only theElectric andWater enterprise funds and do not purport
to, and do not present fairly the financial positionof the City as of December 31,2019, thechanges in its financial
position, its cash flows for theyear thenendedinaccordancewithaccounting principlesgenerallyaccepted in the United
States of America.Our opinion is not modifiedwith respect to this matter.
Other Matters
Required Supplementary Information
Accountingprinciples generally acceptedintheUnited States of America require that the Management’s Discussion and
Analysis Page15and theSchedule of Employer’s Share of the NetPensionLiability, the Scheduleof Employer’s
Contributionsand theSchedule of Changesin theEmployer's OPEBLiabilityand Related Ratiosstarting on page50be
presented to supplement the basic financial statements. Suchinformation, although notapart of the financial statements,
is required by theGovernment AccountingStandardsBoard,who considers ittobe an essential part of financial reporting
for placing the financial statements in anappropriate operational,economic, or historical context.We have applied certain
limited procedures to the required supplementaryinformationin accordance with auditingstandards generally accepted in
the UnitedStates of America,which consisted of inquiries ofmanagement about the methods of preparing theinformation
andcomparing the informationfor consistencywith management’s responses toour inquiries, the basic financial
statements, and other knowledgewe obtained duringour auditof the basic financial statements.We do notexpress an
opinion orprovide anyassurance ontheinformation because the limited proceduresdo not provide uswith sufficient
evidence toexpressanopinion or provideany assurance.
Other Information
Our auditwasconducted for the purposeof forming opinionson the financial statements that collectively comprise the
Utilities’ financial statements as awhole. The introductory section and supplementalinformation listedin the table of
contentsare presented for the purposeof additional analysis and arenota required partof the financial statements of the
Utilities. The supplemental information, except for theportion marked “unaudited”onwhichwe express no opinion,has
been subjectedto the auditing procedures applied in the audits of the financial statements and, in our opinion, is fairly
stated in allmaterialrespects in relationto the financial statements taken asawhole. The introductory sectionand the
supplemental informationmarked “unaudited”havenot been subjected to the auditingprocedures appliedin theaudit of
the financial statements and, accordingly,wedo not expressan opinionor provide any assurance on them.
ABDO, EICK &MEYERS, LLP
Minneapolis, Minnesota
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Management’s Discussion and Analysis
This section of the Elk River Municipal Utilities(the Utilities)of the City of Elk River, Minnesotaannual financial report
presents our analysis of the Utilities’ financial performance during the fiscal year that ended December 31, 2019.Please
read it in conjunction with the financial statements, which follow this section.
Financial Highlights
The assetsand deferred outflowsof resourcesof the Utilities exceeded its liabilities and deferred inflowsof
resourcesat the close of the most recent fiscal year by$67,409,812(net position). Net Positionincreased by
$2,916,305or 4.5percent. 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$23,835,666.
Electric usage overall was down an average of 1.6 percent. Residential usage increased .3 percent, Commercial
usage decreased 5.9 percent, and Industrial usage decreased 1.8 percent.
Water usage overall was down an average of 10.1 percent from the prior year. Residential usage decreased 11.6
percent, and Commercial usage decreased 8.6 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-termand long-termfinancial information about its activities.The
Statements of Net Positionincludes 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 isthe Statements of
Cash Flows. The primary purpose of this statement is to provide information about the Utilities’ cash receipts and cash
payments during the reporting period. The statement reports cash receipts, cash payments and net changes in cash
resulting from operations, investing and financing activities and provides answers to such questions as where did cash
come from, what was cash used for and what was the change in the cash balance during the reporting period.
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Financial Analysis of the Utilities
Our analysis of the Utilities begins on page22in 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
Statementof Net Position, and the Statementof Revenues, Expenses and Changes in Net Positionreport 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 the net position. You can think of the Utilities’ net position(the difference between assets and
liabilities) as one way to measure financialhealth or financial position. Over time, increases or decreases in the Utilities’
net positionisone 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 Positionis presented in Table A-1. As
can be seen from the Table, net positionincreased $2,916,305to $67,409,812in fiscal 2019up from $64,493,507in fiscal
2018.
TABLE A-1
Condensed Statement of Net Position
Increase
20192018(Decrease)
Assets
Current and other$27,684,972$25,143,528$2,541,444
Capital71,997,59072,584,672(587,082)
Total Assets99,682,56297,728,2001,954,362
Total Deferred Outflows of Resources311,650656,321(344,671)
Liabilities
Current7,783,9127,546,521237,391
Non-current24,191,51225,535,347(1,343,835)
Total Liabilities31,975,42433,081,868(1,106,444)
Total Deferred Inflows of Resources608,976809,146(200,170)
Net Position
Net investment in capital assets49,526,31748,668,538857,779
Restricted for debt service1,261,3591,261,359-
Unrestricted16,622,13614,563,6102,058,526
Total Net Position$67,409,812$64,493,507$2,916,305
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Water and Electric Rates. Electric - The Utilities’ electric rates had a zero-rate increase, effective January 2020. The
monthly base charges are based upon the type of service. The monthly charges are $13.50 for residential, $30.00 for
non-demand, $75.00for demand and $100.00 for large industrial 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; the large industrial
demand rate is $.0644/kWh energy charge year round with a 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 2020. The monthly base
charge for residential customers is $9.40 per month. In addition to the base charge, the Utilities currently charges its
residential customers $1.89 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 $11.28 to $119.15. An irrigation meter is $20.07 per month. There is also a charge
per 1,000 gallons, the same tiers as the residential rates of $1.89, $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 utilitybills 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 Utilitiesmay discontinue service of a customer not complying
with the disconnect policy of the Utilitiesafter 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 andCommercial/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 into 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 Utilitiescollects social security numbers from new accounts and utilizes a
credit risk assessment tool called “Online UtilityExchange” to determine if a deposit is necessaryas 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 utilityservice 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 withelectric 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 asrequired and failure to do so will result in a charge equal
to the amount of the letter of credit applied to the monthly utilitybill and held by the Utilitiesas a cash deposit.
Deposits will be retained until the account is closed. The deposit will be returned to the customer within 45 days of
termination of service, provided that the customer has paid in full all amounts due on the account. The appropriate interest
will be applied to the account per state statutes.
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Statements of Revenues,Expenses and Changes inNet Position.While the Statements of Net Positionshows the
change in financial assets/deferred outflowsand liabilities/deferred inflows, the Statements of Revenues, Expenses and
Changes in Net Position, provides answers as to the nature and source of these changes. As can be seen in Table A-2,
revenues in excess of expenses was the main source of the increase in net position of$2,916,305in fiscal 2019.A closer
examination of the individual categories affecting the source of changes in net positionis discussed below:
TABLE A-2
Condensed Statements of Revenues,
Expensesand Changes in Net Position
Increase
20192018(Decrease)
Revenues
Operating$40,398,303$41,295,726$(897,423)
Nonoperating1,012,656971,57541,081
Total Revenues41,410,95942,267,301(856,342)
Expenses
Operating37,225,53737,825,690(600,153)
Nonoperating676,098520,679155,419
Total Expenses37,901,63538,346,369(444,734)
Income Before Contributions and Operating Transfers3,509,3243,920,932(411,608)
Capital Contributions - Developer Infrastructure and Connection Fees428,662716,810(288,148)
Grants10,000-10,000
Contribution from Customers125,764352,104(226,340)
Transfers to Other City Funds(1,157,445)(1,188,664)31,219
Change in Net Position2,916,3053,801,182(884,877)
Net Position, January 164,493,50760,692,3253,801,182
Net Position, December 31$67,409,812$64,493,507$2,916,305
Revenues. Table A-2 shows thatoperating revenue decreased by 2.2percent in 2019for the Electric and Water
Departments combined. The Electric Department operating revenue was impacted partly by the decrease in rates. Both
the Electric Department and the Water Department were impacted by the cooler summer weather in 2019.
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 Departmentpartnered 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 2019, rebates received from our 2017 filings averaged approximately
$31,000 per month. The Water Department is receiving lease revenue from Sprint and Verizon for antennas on the water
towers. In 2019 this amount was approximately $227,000 and will continue for the duration of the multi-year contracts.
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Total Expenses. In reviewing total expenses in Table A-2 you will notice that there was decrease of 1.2 percent overall,
with the electric department decreasing 1.4 percent, and the water department increasing 1.4 percent. Purchased Power
is the biggest electric department expense and it was down 7.0 percent.
Capital Assets and Debt Administration
Capital Assets. The Utilities’ investment in capital assets for its business-type activities as of December 31, 2019
amounts to $71,997,590(netof accumulated depreciation). This investment in capital assets includes land, buildings,
improvements and equipment. A table summarizing the balances by fund follows:
Increase
20192018(Decrease)
Land$678,921$678,921$-
Intangible23,280,12223,114,072166,050
Land Improvements4,2585,194(936)
Buildings1,791,9051,875,488(83,583)
Machinery and Equipment1,596,8041,573,94122,863
Infrastructure43,633,87244,869,586(1,235,714)
Construction in Progress1,011,708467,470544,238
Total$71,997,590$72,584,672$(587,082)
The total decreasein the Utilities’ investment in capital assets for the current fiscal year was 0.8percent.
Major capital asset events during the current fiscal year included the following:
The Electric Department makes a loss of revenue payment as part of the cost of the territory acquisition
increasing Intangibles.
The Electric and Water Department purchased new transportation equipment increasing Machinery and
Equipment, with the main increase due to the purchase of a new Bucket Truck for the Electric Department.
Construction in progress increased as projects started in the current year were not completed in 2019.
Additional information on the Utilities’ capital assets can be found in Note 2B startingon page 36 of this report.
Long-term Debt. At year end, the Utilities had $22,497,728in long-term debt which decreasedfrom$23,950,944in fiscal
2018. The decrease is mainly due toregularly scheduled principal payments.More detailed information about the Utilities’
long-term liabilities can be found in Note 2C startingon page 37 and below:
Increase
20192018(Decrease)
G.O. Revenue Bonds$1,235,000$1,575,000$(340,000)
Revenue Bonds19,825,00020,685,000(860,000)
Unamortized Premium on Bonds818,036870,336(52,300)
Promissory Note619,692820,608(200,916)
Total$22,497,728$23,950,944$(1,453,216)
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Economic Factors and Next Year’s Budgets and Rates
The increased emphasis toward renewable energy and away from coal-based energy, the challenge to reduce energy and
water consumption while still maintaining the existing infrastructure and the smart grid developments are all factors that
point to potential increased cost in the coming years. It is the Utilities’ goal to not have to rely on increasing rates to meet
those increases but continue to look for ways to increase efficiencies and reduce costs, while providing excellent
customer service. Elk River Municipal Utilities’ mission is to provide safe, cost-effective, reliable, quality utilities in an
environmentally and financially responsible manner. We have met that mission in our customer service delivery and our
successful financial results and will continue to strive to meet that mission in the future.
Contacting the Utilities FinanceManager
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 Melissa
Karpinski, Elk River Municipal Utilities, PO Box 430, Elk River, Minnesota 55330-0430 or at 13069 Orono Parkway in Elk
River, MN.
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FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2019
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Net Position
December 31, 2019
ElectricWaterTotal
Assets
Current Assets
Cash and temporary investments$14,881,922$7,692,385$22,574,307
Receivables
Accrued interest6,8911,7238,614
Accounts, net of allowance2,277,497114,0842,391,581
Special assessments3,62928,46932,098
Other receivables105,4636,449111,912
Due from other City funds7,402128,850136,252
Inventories981,9629,644991,606
Prepaid expenses154,83222,411177,243
Total Current Assets18,419,5988,004,01526,423,613
Capital Assets
Land519,090159,831678,921
Intangible24,114,139-24,114,139
Land improvements23,389-23,389
Buildings3,054,428889,9663,944,394
Equipment and machinery3,675,895482,8204,158,715
Infrastructure51,156,64436,115,32287,271,966
Construction in progress677,530334,1781,011,708
Capital Assets, Cost83,221,11537,982,117 121,203,232
Less Accumulated Depreciation(30,444,533)(18,761,109)(49,205,642)
Total Capital Assets, Net52,776,58219,221,00871,997,590
Other Assets
Restricted cash1,261,359-1,261,359
Total Assets72,457,53927,225,02399,682,562
Deferred Outflows of Resources
Deferred charges on refunding21,1645,29126,455
Deferred pension resources244,24640,949285,195
Total Deferred Outflows of Resources265,41046,240311,650
The notes to the financial statements are an integral part of this statement.
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Net Position (Continued)
December 31, 2019
ElectricWaterTotal
Current Liabilities
Accounts payable$3,205,772$129,059$3,334,831
Salaries and benefits payable138,64821,733160,381
Accrued interest payable282,49613,063295,559
Due to other City funds862,38635,955898,341
Due to other governments159,2862,358161,644
Customer deposits payable884,299151,2251,035,524
Unearned revenue3,000100,952103,952
Compensated absences 358,16136,567394,728
Notes payable - current portion203,952-203,952
Bonds payable - current portion924,000271,0001,195,000
Total Current Liabilities7,022,000761,9127,783,912
Non-current Liabilities
Other postemployment benefits liability174,95042,822217,772
Notes payable - less current portion415,740-415,740
Bonds payable, net - less current portion20,080,411602,62520,683,036
Net pension liability2,456,809418,1552,874,964
Total Non-current Liabilities23,127,9101,063,60224,191,512
Total Liabilities30,149,9101,825,51431,975,424
Deferred Inflows of Resources
Deferred pension resources520,93488,042608,976
Net Position
Net investment in capital assets31,173,64318,352,67449,526,317
Restricted for debt service1,261,359-1,261,359
Unrestricted9,617,1037,005,03316,622,136
Total Net Position$42,052,105$25,357,707$67,409,812
The notes to the financial statements are an integral part of this statement.
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Revenues, Expenses and Changes in Net Position
For the Year Ended December 31, 2019
ElectricWaterTotal
Operating Revenues
Charges for services$36,538,150$2,235,222$38,773,372
LFG project1,102,835 -1,102,835
Substation credit4,800 -4,800
Connection maintenance 194,29550,583244,878
Customer penalties254,55317,865272,418
Total Operating Revenues38,094,6332,303,67040,398,303
Operating Expenses
Purchased power24,851,301 -24,851,301
Production1,020,807516,4441,537,251
Distribution1,525,827223,5471,749,374
Depreciation2,856,2581,147,1494,003,407
Customer accounts528,74363,382592,125
General and administrative3,772,150719,9294,492,079
Total Operating Expenses34,555,0862,670,45137,225,537
Operating Income (Loss)3,539,547(366,781)3,172,766
Nonoperating Revenues (Expenses)
Interest income159,01438,097197,111
Miscellaneous revenue568,635248,960817,595
Interest expense and other(643,159)(32,939)(676,098)
Gain/(Loss) on sale of capital assets(2,050) -(2,050)
Total Nonoperating Revenues 82,440254,118336,558
Income (loss) before Contributions and Transfers3,621,987(112,663)3,509,324
Capital Contributions -
Connection Fees -428,662428,662
Grants10,000 -10,000
Contribution from Customers125,764 -125,764
Transfers to Other City Funds(1,157,445) -(1,157,445)
Total Contributions and Transfers(1,021,681)428,662(593,019)
Change in Net Position2,600,306315,9992,916,305
Net Position, January 139,451,79925,041,70864,493,507
Net Position, December 31$42,052,105$25,357,707$67,409,812
The notes to the financial statements are an integral part of this statement.
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Cash Flows
For the Year Ended December 31, 2019
ElectricWaterTotal
Cash Flows from Operating Activities
Receipts from customers and users$37,495,498$2,379,526$39,875,024
Other operating cash receipts515,237246,901762,138
Payments to suppliers(29,007,568)(853,238)(29,860,806)
Payments to employees(2,618,202)(629,176)(3,247,378)
Net Cash Provided
by Operating Activities6,384,9651,144,0137,528,978
Cash Flows from
Noncapital Financing Activities
Transfers to City(1,157,445)-(1,157,445)
Decrease in due from other City funds5,9904396,429
Increase in due to other City funds68,17312,35780,530
Net Cash Provided (Used) by Noncapital
Financing Activities(1,083,282)12,796(1,070,486)
Cash Flows from Capital
and Related Financing Activities
Acquisition of capital assets(2,824,703)(352,031)(3,176,734)
Proceeds from sale of capital assets15,000-15,000
Proceeds from connection fees-428,662428,662
Principal payments on bonds(940,000)(260,000)(1,200,000)
Interest paid on bonds(640,370)(35,830)(676,200)
Principal payments on promissory note(200,916)-(200,916)
Net Cash Used by Capital
and Related Financing Activities(4,590,989)(219,199)(4,810,188)
Cash Flows from Investing Activities
Interest on investments153,14036,624189,764
Net Increase
in Cash and Cash Equivalents863,834974,2341,838,068
Cash and Cash Equivalents, January 115,279,4476,718,15121,997,598
Cash and Cash Equivalents, December 31$16,143,281$7,692,385$23,835,666
Reconciliation of Cash and Cash
Equivalents to the Statement of Net Position
Cash and temporary investments$14,881,922$7,692,385$22,574,307
Restricted cash1,261,359-1,261,359
Total Cash and Cash Equivalents$16,143,281$7,692,385$23,835,666
The notes to the financial statements are an integral part of this statement.
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Elk River Municipal Utilities
Elk River, Minnesota
Statement of Cash Flows (Continued)
For the Year Ended December 31, 2019
ElectricWaterTotal
Reconciliation of Operating Income (Loss) to
Net Cash Provided by Operating Activities
Operating income (loss)$3,539,547$(366,781)$3,172,766
Adjustments to reconcile operating income (loss)
to net cash provided by operating activities
Other revenue related to operations568,635248,960817,595
Bad debt expense11,828-11,828
Depreciation2,856,2581,147,1494,003,407
(Increase) decrease in assets/deferred outflows:
Accounts receivable(541,177)12,645(528,532)
Other receivables(53,398)(2,059)(55,457)
Special assessments receivable1,20318,37819,581
Inventories(177,027)5,471(171,556)
Prepaid expenses19,4532,22121,674
Deferred pension resources279,36856,948336,316
Increase (decrease) in liabilities/deferred inflows:
Accounts payable(66,123)42,461(23,662)
Salaries and benefits payable21,89845022,348
Net other postemployment benefits liability92,53724,663117,200
Unearned revenue3,0003,8836,883
Compensated absences payable15,955(15,178)777
Due to other governments9,479(505)8,974
Customer deposits payable(62,161)40,950(21,211)
Pension liability26,450(36,233)(9,783)
Deferred pension resources(160,760)(39,410)(200,170)
Net Cash Provided by Operating Activities$6,384,965$1,144,013$7,528,978
Noncash Capital and
Related Financing Activities
Amortization of Bond Premium$51,471$829$52,300
Amortization of Deferred Charges on Refunding$6,684$1,671$8,355
Loss on Disposal of Capital Assets$(17,050)$-$(17,050)
Book Value of Disposed Capital Assets$337,641$-$337,641
Capital Assets Purchased on Account$867,324$18,288$885,612
Contribution of Capital Assets$125,764$-$125,764
Contribution of Grants$10,000$-$10,000
The notes to the financial statements are an integral part of this statement.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
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.MeasurementFocus, Basis of Accountingand 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 unearnedrevenue.
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 fundsare 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 fundsaccount 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 isnecessary
for management accountability.
The Utilities reports the following major proprietary funds:
The Electric fundaccounts for the electric distribution operations.
The Water fundaccounts for the water distribution operations.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 1:Summary of Significant Accounting Policies (Continued)
Proprietary funds distinguish operatingrevenues and expenses from nonoperatingitems. 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 Resourcesand 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 byUnited States banks corporations or their Canadian subsidiaries, of highest quality
category by at least two nationally recognized rating agencies, and maturing in 270 days or less.
8.Repurchase or reverse repurchase agreements and securities lending agreements with financial institutions
qualified as a “depository” by the government entity, with banks that are members of the Federal Reserve System
with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. government securities to the Federal
Reserve Bank of New York, or certain Minnesota securities broker-dealers.
9.Guaranteed Investment Contracts (GIC's) issued or guaranteed by a United States commercial bank, a domestic
branch of a foreign bank, a United States insurance company, or its Canadian subsidiary, whose similar debt
obligations were rated in one of the top two rating categories by a nationally recognized rating agency.
Broker money market funds operate in accordance with appropriate state laws and regulations. The reported value of the
pool is the same as the fair value of the shares.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 1:Summary of Significant Accounting Policies (Continued)
The Utilitiescategorizes 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 Utilitiesrecurring fair value measurements are listed in detail on page 35
and are valued using a matrixpricing model (Level 2 inputs).
The Utilitieshas the following recurring fair value measurements as of December 31, 2019:
Negotiable certificates of depositof $3,759,927are 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 accountswhich 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, 2019is as
follows:
2019
Electric$25,355
Water250
Total$25,605
Interfund Receivablesand 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”.
Inventoriesand 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.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31,2019
Note 1:Summary of Significant Accounting Policies (Continued)
The Utilities follow the policy of providingdepreciation on the straight-line method over the estimated useful lives of the
assets, which are as follows:
Lives in Years
DescriptionElectricWater
Production4 - 2025 - 50
Transmission300
Distribution10 - 3325 - 50
General10 - 5010 - 50
Machinery, Tools, and Equipment5 - 105 - 10
Automobiles3 - 83 - 8
Deferred Outflows of Resources
In addition to assets, the statement of netposition will sometimes report a separate section for deferred outflows of
resources. Thisseparate 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 Utilitieshas twoitems, a deferred charge on refunding and deferred pension resources, whichqualifyfor
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 ofthe 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 of960 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 December 31, 2018.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 1:Summary of Significant Accounting Policies(Continued)
Pensions
For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense,
information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions
to/deductions from PERA’s fiduciary net position have been determined on the same basis as they are reported by PERA
except that PERA’s fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll
paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms.
Investments are reported at fair value.
The total pension expense for all plans recognized by the Utilities for the year ended December 31, 2019was $422,390.
The components of pension expense are noted in the plan summaries in Note 3.
Long-term Obligations
Long-term debt is reflected as a liability in the fund issuing the obligation. Bond premiums and discounts areamortized
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 netposition 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 Utilitieshas 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 assetsand deferred outflows of resourcesand liabilities and deferred
inflowsof 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 netposition - All other net position that do not meet the definition of “restricted” or “net investment in
capital assets”.
When both restricted and unrestricted resources are available for use, it is the Utilities’ policy to use restricted resources
first,then unrestricted resources as they are needed.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
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 Utilitieswill 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 Utilitiesmaintains
deposits at those depository banks, all of which are members of theFederal Reserve System.
Minnesota statutes require that all Utilities deposits be protected by insurance, surety bond or collateral. The market value
of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds, withtheexception 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, 2019, the Utilities’ carrying amount of deposits was $20,042,093and the bank balance was
$20,029,187. Of the bank balance $350,111was covered by federal depository insurance, and the remaining balance was
covered by collateral held by the pledging financial institution’s agent in the Utilities’ name.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 2:Detailed Notes on All Funds (continued)
Investments
The Utilities’ investment balances were as followsfor December 31, 2019:
CreditSegmented
Fair Value Measurement Using
Quality/Time
Types of Investments
Ratings (1)Distribution (2)AmountLevel 1Level 2Level 3
Pooled Investments
Broker Money MarketsN/Aless than 1 year$32,846$-$-$-
Non-pooled Investments
Negotiable certificates of depositsN/Aless than 1 year2,225,375-2,225,375-
Negotiable certificates of depositsN/A1 - 5 years1,534,552-1,534,552-
Total Non-pooled Investments3,759,927-3,759,927-
Total Investments$3,792,773$-$3,759,927$-
(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/AIndicates not applicable.
A reconciliation of cash and temporary investments as shown in the financial statements for the Utilities follows:
2019
Deposits$20,042,093
Investments3,792,773
Cash on Hand800
Total$23,835,666
Cash and Temporary Investments
Unrestricted$22,574,307
Restricted1,261,359
Total$23,835,666
The investments of the Utilitiesare 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 30of the notes.
Custodial Credit Risk. The custodial credit risk for investments is the risk that, in the event of the failure of the
counterparty to a transaction, a government will not be able to recover the value of investment or collateral
securities that are in the possession of an outside party. According to their investment policy the Utilities’ portfolio
maturities shall be staggered to avoid undue concentration of assets with one broker-dealer or financial institution.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
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 fairvalue 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, 2019was as follows:
BeginningEnding
BalanceIncreasesDecreasesBalance
Capital Assets not
being Depreciated
Land$678,921$-$-$678,921
Intangible23,279,955834,184-24,114,139
Construction in progress467,4702,058,365(1,514,127)1,011,708
Total Capital Assets
not being Depreciated24,426,3462,892,549(1,514,127)25,804,768
Capital Assets being Depreciated
Land improvements23,389--23,389
Buildings3,917,32827,066-3,944,394
Machinery and equipment3,969,945375,809(187,039)4,158,715
Infrastructure85,787,5441,686,064(201,642)87,271,966
Total Capital Assets
being Depreciated93,698,2062,088,939(388,681)95,398,464
Less Accumulated
Depreciation for
Intangible(165,883)(668,134)-(834,017)
Land improvements(18,195)(936)-(19,131)
Buildings(2,041,840)(110,649)-(2,152,489)
Machinery and equipment(2,396,004)(316,374)150,467(2,561,911)
Infrastructure(40,917,958)(2,907,314)187,178(43,638,094)
Total Accumulated
Depreciation(45,539,880)(4,003,407)337,645(49,205,642)
Total Capital Assets
being Depreciated, Net48,158,326(1,914,468)(51,036)46,192,822
Business-type Activities
Capital Assets, Net$72,584,672$978,081$(1,565,163)$71,997,590
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 2:Detailed Notes on All Funds (Continued)
Depreciation expense was charged to functions/programs of the Utilities as follows:
2019
Business-type Activities
Electric$2,856,258
Water1,147,149
Total Depreciation Expense - Business-type Activities$4,003,407
C.Long-term Debt
GeneralObligation Revenue Bonds
The Cityof Elk Riverissues general obligation bonds to provide funds for the acquisition and constructionof 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.
Interest
AuthorizedIssueMaturityBalance at
DescriptionRate
and IssuedDateDateYear End
G.O. Water Revenue
Refunding Bonds of 2008$3,085,0002.75 - 3.65%02/20/0802/01/22$780,000
G.O. Capital Improvement
Plan Bonds of 2010A1,265,0002.00 - 4.0004/21/1002/01/23455,000
Total G.O. Revenue Bonds$1,235,000
The annual debt service requirementsto maturity for the general obligation revenuebonds are as follows:
Year Ending
December 31,PrincipalInterest Total
2020$355,000$39,498$394,498
2021370,00026,270396,270
2022385,00012,228397,228
2023125,0002,499127,499
Total$1,235,000$80,495$1,315,495
In 2019, annual principal and interest payment on the bonds required about 0.3%percent of revenues from the Electric
fund. The principal and interest paid and total customer revenues for the Electric fund were$96,160 and $38,094,633,
respectively.
In 2019, annual principal and interest payment on the bonds required about 12.8%percent of revenues from the Water
fund.The principal and interest paid and total customer revenues for the Water fund were$295,830and$2,303,670,
respectively.
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127
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
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.
Interest
AuthorizedIssueMaturityBalance at
DescriptionRate
and IssuedDateDateYear End
Electric Revenue Bonds, Series 2016A$9,755,0002.00 - 4.00%07/14/1602/01/369,345,000$
Electric Revenue Refunding
Bonds, Series 2016B1,370,0002.00 - 4.0007/14/1602/01/22705,000
Electric Revenue Bonds, Series 2018A10,000,0003.50 - 5.0009/26/1808/01/489,775,000
Total Revenue Bonds$19,825,000
The annual debt service requirements tomaturity for the revenue bondsare as follows:
Year Ending
December 31,PrincipalInterestTotal
2020$840,000$652,431$1,492,431
2021865,000621,4311,486,431
2022900,000589,0811,489,081
2023680,000560,5311,240,531
2024705,000535,9061,240,906
2025 - 20293,905,0002,320,5566,225,556
2030 - 20344,515,0001,711,9816,226,981
2035 - 20393,160,0001,016,0814,176,081
2040 - 20442,200,000611,6562,811,656
2045 - 20482,055,000189,5892,244,589
Total$19,825,000$8,809,243$28,634,243
In 2019, annual principal and interest payment on the bonds required about 3.9%percent of revenues from the Electric
fund. Principal and interest paid and total customer revenues for the Electric fund were $1,484,210and $38,094,633,
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.
Interest
AuthorizedIssueMaturityBalance at
DescriptionRate
and IssuedDateDateYear End
Landfill
Generator Note$3,521,000-%03/19/0212/01/22$619,692
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128
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
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,PrincipalInterestTotal
2020$203,952$-$203,952
2021206,616-206,616
2022209,124-209,124
Total$619,692$-$619,692
Changes inLong-termLiabilities
Long-term liability activity for the year ended December 31, 2019was as follows:
BeginningEndingDue Within
BalanceIncreasesDecreasesBalanceOne Year
Business-type Activities
Bonds Payable
General obligation
revenue bonds$1,575,000$-$(340,000)$1,235,000$355,000
Revenue bonds 20,685,000-(860,000)19,825,000840,000
Unamortized premium
on bonds870,336-(52,300)818,036-
Total Bonds Payable, Net23,130,336-(1,252,300)21,878,0361,195,000
Notes Payable820,608-(200,916)619,692203,952
Compensated
Absences Payable393,951292,251(291,474)394,728394,728
Business-type Activity
Long-term
Liabilities$24,344,895$292,251$(1,744,690)$22,892,456$1,793,680
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129
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 2:Detailed Notes on All Funds (Continued)
D.InterfundReceivables, PayablesandTransfers
Interfunds
The composition of interfund balances at year endis as follows:
Receivable FundPayable Fund
AmountPurpose
ElectricCity$3,008December billings
ElectricCity4,394Plant hangers for downtown street lights
Total Electric Fund Receivable From City7,402
WaterCity128,850TIF 22 Water Access Charge
Total Receivable From City$136,252
CityElectric$132,579Shared costs
CityElectric10,668Supplies
ric82,413December transfer of 4% of revenue
CityElect
CityElectric274,7774th quarter franchise fees
CityElectric180,405Billed sewer on behalf of City
CityElectric138,531Billed garbage on behalf of City
CityElectric43,013Billed stormwater on behalf of City
Total Electric Fund Payable to City862,386
CityWater 33,144Shared costs
CityWater 2,811Supplies
Total Water Fund Payable to City35,955
Total Payable to City$898,341
Transfers
The transfer out of the Electric fund was the annual transfer of 4 percent of 2019Elk River revenues to City funds. The
Electric fund transferred $1,157,445in 2019.
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note3:Defined Benefit Pension Plans - Statewide
A.Plan Description
The Utilitiesparticipates 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 accordancewith 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 EmployeesRetirement Plan(GERP)
All full-time and certain part-time employees of the Utilitiesare covered by the General Employees Retirement Plan
(GERP). GERP 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 statestatute 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.
GERP Benefits
GERP benefits are based on a member’s highest average salary for any five successive years of allowable service, age,
andyears of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated Plan
members. Members hired priorto 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 whenage plus years of service equal 90 and normal
retirement age is 65. For members hired on or after July 1, 1989 normal retirementage is the age for unreduced Social
Security benefits capped at 66.
Annuities, disability benefits and survivor benefits are increased effective every January 1. Beginning January 1, 2019, the
postretirement increase will be equal to 50 percent of the cost-of-living adjustment (COLA) announced by the SSA, with a
minimum increase of at least 1 percent and a maximum of 1.5 percent. Recipients that have been receiving the annuity or
benefit for at least a full year as of the June 30 before the effective date of the increase will receive the full increase. For
recipients receiving the annuity or benefit for at least one month but less than a full year as of the June 30 before the
effective date of the increase will receive a reduced prorated increase. For members retiring on January 1, 2024, or later,
the increase will be delayed until normal retirement age (age 65 if hired prior toJuly 1, 1989, or age 66 for individuals
hired on or after July 1, 1989). Members retiring under Rule of 90 are exempt from the delay to normal retirement.
C.Contributions
Minnesota statuteschapter 353 sets the rates for employer and employee contributions.Contribution rates can only be
modified by the state Legislature.
General Employees Fund Contributions
Coordinated Planmembers were required to contribute 6.50 percent of their annual covered salary in fiscal year 2019and
the Utilities was required to contribute 7.50 percent for Coordinated Plan members. The Utilitiescontributions to the
General Employees Fundfor the years ending December 31, 2019,2018and 2017were$285,668,$265,424, and
$257,780, respectively.The Utilitiescontributions were equal to therequired contributions for each year as set by state
statute.
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131
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 3:Defined Benefit Pension Plans - Statewide (Continued)
D.Pension Costs
General Employees FundPension Costs
At December 31, 2019, the Utilitiesreported a liability of $2,874,964for its proportionate share of the General Employees
Fund’s net pension liability. TheUtilitiesnet pension liability reflected a reduction due to the State of Minnesota’s
contribution of $16 million to the fund in 2019.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 Utilitiestotaled$89,329.The net pension liability was measured as of
June 30, 2019, and the total pension liability used to calculate the net pension liability was determined by an actuarial
valuation as of that date. The Utilitiesproportionate 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, 2018through
June 30, 2019relative to the total employer contributions received from all of PERA’s participating employers. At
June 30, 2019, the Utilitiesproportionateshare was 0.0520 percent which wasthe same percent as its proportion
measured as of June 30, 2018.
Utilities' Proportionate Share of the Net Pension Liability$2,874,964
State of Minnesota's Proportionate Share of the Net Pension
Liability Associated with the Utilities89,329
Total
$2,964,293
For the year ended December 31, 2019, the Utilitiesrecognized pension expense of $415,700for its proportionate share
of the General Employees Plan’spension expense.In addition, the Utilitiesrecognized an additional $6,690as pension
expense (and grant revenue) for its proportionate share of the State of Minnesota’s contribution of $16 million to the
General Employees Fund.
At December 31, 2019, the Utilitiesreported its proportionate share ofthe General Employees Plan’sdeferred outflows of
resources and deferred inflows of resources, and its contributions subsequent to the measurement date, from the
following sources:
DeferredDeferred
OutflowsInflows
of Resourcesof Resources
Differences between Expected and
Actual Economic Experience$90,420$1,403
Changes in Actuarial Assumptions4,266237,305
Net Difference between Projected and
Actual Earnings on Plan Investments-305,863
Changes in Proportion48,77964,405
Contributions paid to PERA subsequent
to the Measurement Date141,730-
Total$285,195$608,976
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Elk River MunicipalUtilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note3:Defined Benefit Pension Plans - Statewide (Continued)
The $141,730reported as deferred outflows of resources related to pensions resulting from the Utilities’contributions
subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended
December 31, 2020.Other amounts reported as deferred outflows and inflows of resources related to pensions will be
recognized in pension expense as follows:
2020$(139,977)
2021(272,612)
2022(57,555)
20234,633
E.Actuarial Assumptions
The total pension liability in the June 30, 2019actuarial valuation was determined usingan individual entry-age normal
actuarial cost method andthe following actuarial assumptions:
Inflation2.50% per year
Active Member Payroll Growth3.25% per year
Investment Rate of Return7.50%
Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors and
disabilitants were based on RP-2014tablesfor 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 yearfor
General Employees Plan.
Actuarial assumptions usedin the June 30, 2019valuation were based on the results of actuarial experience studies. The
most recent four-year experience study in theGeneral Employees Plan was completed in 2019. Economic assumptions
were updated in 2018 based on a review of inflation and investment return assumptions.
The following changes in actuarial assumptions and plan provisions occurred in 2019:
General Employees Fund
Changes in Actuarial Assumptions
The mortality projection scale was changed from MP-2017 to MP-2018.
Changes in Plan Provisions
The employer supplemental contribution was changed prospectively, decreasing from $31.0 million to $21.0
million per year. The State’s special funding contribution was changed prospectively, requiring $16.0 million
due per year through 2031.
43
133
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 3:Defined Benefit Pension Plans - Statewide (Continued)
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
TargetExpected Real
AllocationRate of Return
Asset Class
Domestic Equity35.5 %5.10 %
Private Markets25.05.90
Fixed Income20.00.75
International Equity17.55.90
Cash Equivalents2.0-
Total100.0 %
F.Discount Rate
The discount rate used to measure the total pension liability in 2019was 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 General Employees Fundwere
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.Changes in Pension Liability
During the year ended December 31, 2019the following pension changes occurred in non-current liabilities reported on
the financial statements.
Employer
Contributions/
BeginningPensionNet AnnualEnding
BalanceExpenseAmortizationsBalance
Business-type Activities
GERP$2,884,747$422,390$(432,173)$2,874,964
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Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 3:Defined Benefit Pension Plans - Statewide (Continued)
H. Pension Liability Sensitivity
The following presents the Utilitiesproportionate 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 Utilitiesproportionate 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:
1 Percent1 Percent
Decrease (6.50%)Current (7.50%)Increase (8.50%)
General Employees Fund$4,726,285$2,874,964$1,346,329
I. PensionPlan 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 Utilities
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 2019 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 designatedareas 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. In
2019, the Utilities acquired the final service areas.
The agreed cost of property purchased from Connexus Energy is net book value, integration expenses, and a loss of
revenue payment. The loss of revenue payment for each area acquired is based on a formula outlined in the agreement,
payable for the subsequent ten years after initial purchase.
The Utilities acquired designated service area 1 in 2015 for $877,807, service area 2 in 2016 for $663,586, service areas
3 and 4 in 2017 for $276,776, service areas 5 and 6 in 2018 for $298,736 and service areas 7 and 8 in 2019 for $78,457.
The loss of revenue paymentsmade were $411,157 in 2017, $570,725 in 2018, $751,860 in 2019, and $834,185 in 2020.
All amounts paid are included in property and equipment, and loss of revenue payments are included in intangible assets.
45
135
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note 4:Other Information (Continued)
B.Risk Management
The Utilities is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and
omissions; injuries to employees; and natural disasters for which the Utilities carries commercial insurance. The Utilities
obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT), which is a risk sharing
pool with approximately 800 other governmental units. The Utilities pays an annual premium to LMCIT for its workers
compensation and property and casualty insurance. The LMCIT is self-sustaining through member premiums and will
reinsure for claims above a prescribed dollar amount for each insurance event. Settled claims have not exceeded the
Utilities’ coverage in any of the past three fiscal years.
Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably
estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The Utilities’
managementis not aware of any incurred but not reported claims.
C.Commitments
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 transmissionline 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
2019 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 $1M. A contributing factor in participant cash distributions in
2019 is under recovery. The projected under recovery in 2019 is estimated to be$203K. 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 2019 (approximately $203K) would be included in the revenue requirements
in 2021.The transmission payments for 2019were $46,021 all of which was a receivable at December 31, 2019.
Note 5:Subsequent Event
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in the
first quarter of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty
around its impact on the U.S. and international economies and, as such, there have been significant losses in the stock
market in first quarter 2020. Plan assets may have seen unrealized market losses as ofMarch 31, 2020. However,
Utilitiesis unable to determine the long term material impact to its asset values.
46
136
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the FinancialStatements
December 31, 2019
Note:Postemployment BenefitsOtherThan Pensions
A.Plan Description
Elk River Municipal Utilities (the Utilities) administersamulti-employer definedbenefit healthcare plan (“the Retiree Health
Plan”). The plan provideslifetime healthcareinsurance for eligible retireesandtheir spouses through the Utilities group
healthinsurance plan,which covers bothactiveand retired members. Benefit provisions are reviewedintermittently
through the relationshipwith the Utilities’ insurancebroker.The Retiree HealthPlan does not issuea publiclyavailable
financial report.
At December 31,2019, thefollowingemployeewere covered by thebenefit terms.
Active Plan Members39
Active Waiving Coverage 9
Total Plan Members48
B.Funding Policy
Contribution requirements are also reviewed at the time changes are made to the plan. The Utilitiescontributes none of
the cost of current-year premiumsfor eligible retired plan members and their spouses. Plan members receiving benefits
contribute 100 percent of their premium costs. In fiscal year 2019, total member contributions were $0.
C.Actuarial Methods and Assumptions
The Utilitiestotal OPEB liability of $217,772was measured as of December 31, 2019, and the total OPEB liability used to
calculate the total OPEB liabilitywas determined by an actuarial valuation as of December 31, 2019.
The total OPEB liability in the January 1, 2019actuarial valuation was determined using the following actuarial
assumptions, applied to all periodsincluded in the measurement, unless otherwise specified:
Discount Rate3.71%
Expected Long-Term Investment ReturnN/A
20-Year Municipal Bond Yield3.71%
Inflation Rate2.50%
Salary IncreasesMortality, withdrawal and salary scale updated to the
rates used in the July 1, 2018 PERA of Minnesota
Retirement Plan actuarial valuation to reflect recently-
published tables.
Medical Trend Rate6.40% for 2019, gradually decreasing over several
decades to an ultimate rate of 4.00% in 2076 and later
years.
Mortality rates were based on the RP-2014mortality tables with projected mortality improvements based on scale MP-
2017, and other adjustments.The actuarial assumptions used in the December 31, 2019 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.
47
137
Elk River Municipal Utilities
Elk River, Minnesota
Notes to the Financial Statements
December 31, 2019
Note:Postemployment Benefits Otherhan Pensions
D.Changes in the Total OPEB Liability
Total OPEB
Liability
(a)
Balances at December 31, 2018$100,572
Changes for the Year:
Service cost12,750
Interest3,751
Differences between expected and actual experience(3,832)
Changes in assumptions or other inputs104,531
Net Changes117,200
Balances at December 31, 2019$217,772
Since the prior measurement date, the following assumptions changed:
The discount rate was changed from 3.31% to 3.71%.
Mortality, withdrawal and salary scale updated to the rates used in the July 1, 2018 PERA of Minnesota Retirement
Plan actuarial valuation to reflect recently-published tables.
Medical per capita claims costs were updated to reflect recent experience.
The assumed retirement age was updated from 60 to 57 to reflect recent experience.
The inflation assumption was changed from 2.75% to 2.50% based on an updated historical analysis of inflation
rates and forward-looking market expectations.
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 (2.71percent) or 1-percentage-point higher (4.71
percent) than the current discount rate:
1 Percent1 Percent
Decrease (2.71%)Current (3.71%)Increase (4.71%)
$237,862$217,772$199,558
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 (5.40percent decreasing to 3.00
percent) or 1-percentage-point higher (7.40percent increasing to 5.00percent) than the current discount rate:
Healthcare Cost
1 Percent DecreaseTrend Rates1 Percent Increase
(5.4% Decreasing(6.4% Decreasing(7.4% Decreasing
to 3%)to 4%)to 5%)
$194,867$217,772$244,554
48
138
REQUIRED SUPPLEMENTARYINFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEARENDED
DECEMBER 31, 2019
49
139
Elk River Municipal Utilities
Elk River, Minnesota
Required Supplementary Information
For the Year Ended December 31, 2019
Schedule of Employer’s Share of PERA Net Pension Liability - General Employees Fund
Utilities
Proportionate
State's
Share of the
Proportionate
Net Pension
UtilitiesShare of
Liability as aPlan Fiduciary
Proportionatethe Net Pension
UtilitiesPercentage ofNet Position
Share ofLiabilityUtilities
Proportion ofCoveredas a Percentage
Fiscalthe Net PensionAssociated withCovered
the Net PensionPayrollof the Total
YearLiabilitythe UtilitiesTotalPayroll
Liability(a/c)Pension Liability
Ending(a)(b)(a+b)(c)
06/30/190.0520 %$2,874,964$89,329$2,964,293$3,680,23378.1 % %80.2
06/30/180.05202,884,74794,6152,979,3623,494,64182.579.5
06/30/170.05403,447,32443,3373,490,6613,478,02299.175.9
06/30/160.05084,124,70853,9084,178,6163,151,720130.968.9
06/30/150.04782,477,244-2,477,2442,811,83488.178.2
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 Fund
Contributions in
Relation to the
Contributions as
StatutorilyStatutorilyContributionUtilities
a Percentage of
RequiredRequiredDeficiencyCovered
Covered Payroll
YearContributionContribution(Excess)Payroll
(b/c)
Ending(a)(b)(a-b)(c)
12/31/19$285,668$285,668$-$3,808,909 %7.5
12/31/18265,424265,424-3,538,9887.5
12/31/17257,780257,780-3,437,0727.5
12/31/16244,012244,012-3,253,4937.5
12/31/15230,074230,074-3,067,6597.5
Note: Schedule is intended to show 10-year trend. Additional years will be reported as they become available.
50
140
ElkRiver Municipal Utilities
Elk River, Minnesota
Required Supplementary Information (Continued)
For the Year Ended December 31, 2019
Notes to the Required Supplementary Information - General Employee Retirement Fund
Changes in Actuarial Assumptions
2019 - The mortality projection scale was changed from MP-2017 to MP-2018.
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 through2044
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 investmentreturn 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 inPlan Provisions
2019 - The employer supplemental contribution was changed prospectively, decreasing from $31.0 million to $21.0 million
per year. The state’s special funding contribution was changed prospectively, requiring $16.0 million due per year through
2031.
2018 - The augmentation adjustment in early retirement factors is eliminated over a five-year period starting July 1, 2019,
resulting in actuarial equivalence after June 30, 2024. Interest credited on member contributions decreased from 4.00
percent to 3.00 percent, beginning July 1, 2018. Deferred augmentation was changed to 0.00 percent, effective
January 1, 2019. Augmentation that has already accruedfor deferred members will still apply. Contribution stabilizer
provisions were repealed. Postretirement benefit increases were changed from 1.00 percent per year with a provision to
increase to 2.50 percent upon attainmentof 90.00 percent funding ratio to 50.00 percent of the Social Security Cost of
Living Adjustment, not less than 1.00 percent and not more than 1.50 percent, beginning January 1, 2019. For retirements
on or after January 1, 2024, the first benefit increaseis delayed until the retiree reaches normal retirement age; does not
apply to Rule of 90 retirees, disability benefit recipients, or survivors. Actuarial equivalent factors were updated to reflect
revised mortality and interest assumptions.
2017 - The State’s contribution for the Minneapolis Employees Retirement Fund equals $16,000,000 in 2017 and 2018,
and $6,000,000 thereafter. The Employer Supplemental Contribution for the Minneapolis Employees Retirement Fund
changed from $21,000,000 to $31,000,000 incalendar years 2019 to 2031. The state’s contribution changed from
$16,000,000 to $6,000,000 in calendar years 2019 to 2031.
2015 - On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Fund,
which increasedthe 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
141
Elk River Municipal Utilities
Elk River, Minnesota
Required Supplementary Information (Continued)
For the Year Ended December 31, 2019
Schedule of Changes in the Employer's OPEB Liability and Related Ratios
20192018
Total OPEB Liability
Service cost$12,750$11,084
Interest3,7513,526
Differences between expected and actual experience(3,832)-
Changes in assumptions104,5314,509
Net Change in Total OPEB Liability117,20019,119
Total OPEB Liability - Beginning100,57281,453
Total OPEB Liability - Ending$217,772$100,572
Covered - employee payroll$3,547,495$3,584,096
Utilities' total OPEB liability as a percentage of
covered employee payroll %6.14 %2.81
Note: Schedule is intended to show 10-year trend. Additional years will be reported as they become available.
Changes in Plan Provisions
2019 - No changes identified
2018 - No changes identified
Changes in Actuarial Assumptions
2019 - The discount rate was changed from 3.31% to 3.71%. Mortality, withdrawal and salary scale updated to the rates
used in the July 1, 2018 PERA of Minnesota Retirement Plan actuarial valuation to reflect recently-published tables.
Medical per capita claims costs were updated to reflect recent experience. The assumed retirement age was updated
from 60 to 57 to reflect recent experience. The inflation assumption was changed from 2.75% to 2.50% based on an
updated historical analysis of inflation rates and forward-looking market expectations. 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.
2018 - 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 the7/1/2017 PERA General Employees Retirement Plan valuation.
52
142
SUPPLEMENTARYINFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEARENDED
DECEMBER 31, 2019
53
143
Elk River Municipal Utilities
Elk River, Minnesota
Supplementary Information
Schedule of Operating Revenues and Expenses
For the Year Ended December 31, 2019
ElectricWaterTotal
Operating Revenues
Charges for services
Elk River$33,505,570$ 2,235,222$35,740,792
Otsego 2,636,692 - 2,636,692
Big Lake 180,194 - 180,194
Dayton 215,694 - 215,694
LFG Project 1,102,835 - 1,102,835
Substation credit 4,800 - 4,800
Connection maintenance 194,295 50,583 244,878
Customer penalties 254,553 17,865 272,418
Total Operating Revenues 38,094,633 2,303,670 40,398,303
Operating Expenses
Purchased power 24,851,301 - 24,851,301
Production
Supervision and labor 103,808 49,456 153,264
Natural gas 39,449 - 39,449
Supplies and power for pumping 45,500 261,217 306,717
Landfill gas expense 737,382 - 737,382
Maintenance of structures 30,632 57,354 87,986
Maintenance of equipment 19,826 148,417 168,243
Maintenance of plant 44,210 - 44,210
Total production 1,020,807 516,444 1,537,251
Transmission and distribution
Supervision and labor 39,248 6,121 45,369
Maintenance of overhead lines 419,969 - 419,969
Maintenance of underground lines 256,833 - 256,833
Maintenance of station equipment 56,961 - 56,961
Transportation 219,760 11,074 230,834
Maintenance of customer service 9,983 51,581 61,564
Maintenance of customer meters 129,872 144,774 274,646
Miscellaneous 393,201 9,997 403,198
Total transmission and distribution 1,525,827 223,547 1,749,374
Services to City 210,791 1,583 212,374
Depreciation and amortization2,856,258 1,147,149 4,003,407
Customer accounts expense
Meter reading 27,298 1,334 28,632
Billing and collection 278,826 60,465 339,291
Bad debts 11,828 - 11,828
Total customer accounts expense 317,952 61,799 379,751
54
144
Elk River Municipal Utilities
Elk River, Minnesota
Supplementary Information
Schedule of Operating Revenues and Expenses (Continued)
For the Year Ended December 31, 2019
ElectricWaterTotal
Operating Expenses (Continued)
General and administrative
Salaries$ 697,449$ 197,084$ 894,533
Employee pensions and benefits 2,053,145 367,755 2,420,900
Dues 97,466 43,976 141,442
Office supplies and billing expense 86,046 18,534 104,580
Office utilities and maintenance 35,955 8,989 44,944
Consulting fees 19,656 4,662 24,318
Legal and audit 43,507 10,445 53,952
Environmental compliance 29,189 935 30,124
Conservation improvement project 340,310 8,443 348,753
Insurance 162,844 23,391 186,235
Telephone 22,519 5,488 28,007
Advertising 16,687 6,576 23,263
Education and meetings 154,239 19,352 173,591
Miscellaneous 13,138 4,299 17,437
Total general and administrative 3,772,150 719,929 4,492,079
Total Operating Expenses 34,555,086 2,670,451 37,225,537
Operating Income (Loss) 3,539,547 (366,781) 3,172,766
Nonoperating Revenues (Expenses)
Interest income 159,014 38,097 197,111
Miscellaneous revenue 568,635 248,960 817,595
Interest expense and other (643,159) (32,939) (676,098)
Gain/(loss) on sale of capital assets (2,050) - (2,050)
Total Nonoperating
Revenues 82,440 254,118 336,558
Income before Contributions and Transfers 3,621,987 (112,663) 3,509,324
Capital Contributions -
Connection Fees - 428,662 428,662
Grants 10,000 - 10,000
Contributions from Customers 125,764 - 125,764
Transfers to Other City Funds (1,157,445) - (1,157,445)
Total Contributions and Transfers (1,021,681) 428,662 (593,019)
Change in Net Position 2,600,306 315,999 2,916,305
Net Position, January 1 39,451,799 25,041,708 64,493,507
Net Position, December 31$42,052,105$25,357,707$67,409,812
55
145
Elk River Municipal Utilities
Elk River, Minnesota
Electric Fund
Summary of Operations and Unaudited Statistics
For the Years Ended December 31, 2010 through December 31, 2019
Summary of Operations
2010201120122013
Operating Revenues
Sales of electricity$26,060,301$27,894,341$30,070,045$30,978,790
Other operating revenues (expenses)732,261689,645188,645(132,411)
Total Operating Revenues26,792,56228,583,98630,258,69030,846,379
Operating Expenses
Purchased power18,373,38619,604,95120,499,77321,254,950
Distribution1,892,2121,960,7421,909,8451,970,341
Services to the City434,415474,934481,907498,146
Depreciation2,062,9422,041,7172,099,5942,029,496
Other operating expenses2,399,2362,350,7062,359,1932,374,959
Total Operating Expenses25,162,19126,433,05027,350,31228,127,892
Operating Income1,630,3712,150,9362,908,3782,718,487
Capital Contributions----
Transfers from Other City Funds53,741---
Transfers to Other City Funds(657,086)(711,415)(816,864)(781,162)
Special Item----
Nonoperating Revenues(154,956)(105,604)28,531(30,658)
Net Income$872,070$1,333,917$2,120,045$1,906,667
Percent of Change
Sales of electricity10.465%7.038%7.800%3.022%
Purchased power13.687%6.703%4.564%3.684%
Percent of Revenues
Purchased power68.576%68.587%67.748%68.906%
Unaudited Statistics
Miscellaneous
2010201120122013
kWh's purchased 264,642,834 276,026,892 287,553,108 290,025,919
kWh's sold 250,711,834 261,235,297 273,455,846 273,945,354
Line loss13,931,00014,791,59514,097,26216,080,565
Percent of line loss5.264%5.359%4.902%5.545%
Revenues Per kWh Sold$0.1039$0.1068$0.1100$0.1131
Cost Per kWh Purchased$0.0694$0.0710$0.0713$0.0733
Number of Customers9,2079,2279,2859,358
Total Contribution/Transfers to City$657,086$711,415$816,864$781,162
56
146
201420152016201720182019
$31,514,246$32,704,279$34,569,098$36,458,061$39,039,573$37,640,985
(147,561)(152,557)(104,702)(337,237)(259,668)453,648
31,366,68532,551,72234,464,39636,120,82438,779,90538,094,633
21,994,65222,034,30723,991,06925,402,57626,710,51424,851,301
2,161,3522,330,9692,041,8102,385,2632,660,2312,546,634
530,340520,727230,312202,421215,296210,791
1,914,0621,922,3592,005,0932,046,9352,297,3492,856,258
2,791,7173,087,7923,558,3153,357,2763,318,0164,090,102
29,392,12329,896,15431,826,59933,394,47135,201,40634,555,086
1,974,5622,655,5682,637,7972,726,3533,578,4993,539,547
--209,051352,104125,764
-
------
(797,835)(824,743)(1,089,287)(1,113,264)(1,188,664)(1,157,445)
--330,923---
152,375267,2438,991145,034218,58682,440
$1,329,102$2,098,068$1,888,424$1,967,174$2,960,525$2,590,306
1.728%3.776%5.702%5.464%7.081%-3.582%
3.480%0.180%8.881%5.883%5.149%-6.961%
70.121%67.690%69.611%70.327%68.877%65.236%
201420152016201720182019
288,320,724 294,441,957 311,990,595 320,349,631 339,917,944 336,570,637
274,546,059 282,265,268 301,838,731 313,952,561 331,124,011 325,981,176
13,774,66512,176,68910,151,8646,397,0708,793,93310,589,461
4.778%4.136%3.254%1.997%2.587%3.146%
$0.1148$0.1159$0.1145$0.1161$0.1179$0.1155
$0.0763$0.0748$0.0769$0.0793$0.0786$0.0738
9,44910,49910,81611,44811,98312,244
$797,835$824,743$1,089,287$1,113,264$1,188,664$1,157,445
57
147
Elk River Municipal Utilities
Elk River, Minnesota
Water Fund
Summary of Operations and Unaudited Statistics
For the Years Ended December 31, 2010 through December 31, 2019
Summary of Operations
2010201120122013
Operating Revenues
Sales of water$1,913,661$1,832,817$2,265,142$2,278,124
Operating Expenses
Operating expenses less depreciation 989,7361,008,5621,130,9651,210,797
Services to City----
Depreciation955,323980,1971,028,5931,032,442
Total Operating Expenses1,945,0591,988,7592,159,5582,243,239
Total Operating Income (Loss)$(31,398)$(155,942)$105,584$34,885
Percent of Change
Sales of water(13.27%)(4.22%)23.59%0.57%
Unaudited Statistics
Miscellaneous
2010201120122013
Water Pumped (Gallons) 686,289,000 651,907,000 847,283,200 785,377,000
Water Sold (Gallons) 627,209,000 599,701,000 727,912,000 709,760,000
Percent of Line Loss8.61%8.01%14.09%9.63%
Revenues Per 1,000 Gallons Pumped$2.78$2.80$2.67$2.90
Revenues Per 1,000 Gallons Sold$3.05$3.06$3.11$3.21
Number of Customers4,5114,5154,5424,613
Water Supplier Services
2010201120122013
Flushing Hydrants35,000,00034,000,00046,400,00045,000,000
Back Washing9,000,0008,000,00030,000,0008,000,000
Fire Department Use3,000,0004,000,00016,500,0005,000,000
New Water Main Disinfectant and Flushing3,000,0004,000,0009,000,0005,000,000
Flushing Seasonal Well4,000,000-3,600,000-
Meter Inaccuracy--6,500,0003,000,000
Street and Sewer Maintenance---617,000
Water Tower Paint and Clean/Maintenance-2,000,000-2,000,000
Well Maintenance----
Water Line and Irrigation Leaks--7,000,0007,000,000
Frozen Pipes Bursting in Abandoned Homes5,000,000---
Water Supplier Services59,000,00052,000,000119,000,00075,617,000
58
148
201420152016201720182019
$2,148,327$2,202,537$2,173,521$2,326,245$2,515,821$2,303,670
1,267,0191,277,4661,325,8311,614,0951,430,5391,521,719
-5,719---1,583
1,083,7701,131,1101,148,3101,191,8941,193,7451,147,149
2,350,7892,414,2952,474,1412,805,9892,624,2842,670,451
$(202,462)$(211,758)$(300,620)$(479,744)$(108,463)$(366,781)
(5.70%)2.52%(1.32%)7.03%8.15%(8.43%)
201420152016201720182019
782,110,000 799,974,000 801,603,000 788,182,000 822,546,000 778,595,000
672,760,000 676,842,000 666,656,000 686,032,000 737,689,000 664,924,000
13.98%15.39%16.83%12.96%10.32%14.60%
$2.75$2.75$2.71$2.95$3.06$2.96
$3.19$3.25$3.26$3.39$3.41$3.46
4,6764,6724,9035,0115,1405,256
Gallons
201420152016201720182019
47,000,00045,000,00046,816,00047,470,50047,894,00048,240,500
3,922,0004,000,0004,430,0004,125,5423,823,9033,850,801
5,000,0005,000,0005,000,0005,000,0005,000,0005,000,000
5,000,0005,000,0005,000,0005,000,0005,000,0005,000,000
------
3,000,000-----
1,000,000473,4001,800,0001,550,0001,550,0001,550,000
1,000,0003,700,0004,000,0004,000,0004,000,0004,000,000
-700,0007,358,0007,000,0007,000,0007,000,000
7,000,000-----
------
72,922,00063,873,40074,404,00074,146,04274,267,90374,641,301
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OTHER REPORT
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
FOR THE YEAR ENDED
DECEMBER 31, 2019
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INDEPENDENT AUDITOR’S REPORT
ON MINNESOTA LEGAL COMPLIANCE
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited, in accordancewithauditing standards generallyaccepted in theUnitedStates of America, the financial
statements oftheElk RiverMunicipal Utilities(the Utilities) of the Cityof Elk River,Minnesota (theCity) as of and for the
yearended December 31,2019, and the related notes to the financial statementswhich collectively comprises the Utilities
basic financial statements,and have issuedourreport thereondated
In connectionwithour audit, nothing came to our attentionthat causedus tobelieve that the Utilitiesfailed to complywith
the provisions of thecontracting and bidding, depositsand investments,conflictsofinterest, public indebtedness, claims
anddisbursements, and miscellaneousprovisions sections of theMinnesotaLegal ComplianceAudit Guide for Cities,
promulgatedbythe StateAuditor pursuant to Minn. Stat. §6.65, insofar as they relate to accounting matters.However,
our auditwasnot directedprimarily towardobtaining knowledge of such noncompliance.Accordingly,hadwe performed
additional procedures,othermattersmay have come to our attention regarding the Utilities’noncompliance with the above
referenced provisions,insofar as they relate toaccounting matters.
This report is intended solely for theinformation and use of those chargedwith governanceand management ofthe
Public Utilities Commission,andtheStateAuditorand is not intended tobe, and should not be,used by anyone other
than thesespecified parties.
ABDO, EICK &MEYERS, LLP
Minneapolis, Minnesota
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