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4.1 ERMUSR 05-14-2024Elk River Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: ERMU Commission Melissa Karpinski — Finance Manager MEETING DATE: AGENDA ITEM NUMBER: May 14, 2024 4.1 SUBJECT: 2023 Financial Audit ACTION REQUESTED: Receive and file the 2023 Annual Financial Report BACKGROUND: Audit fieldwork was completed February 22 and 23 by our auditor, Abdo. Again, this year Abdo completed and compiled the enclosed audit report and issued an opinion letter. Elk River Municipal Utilities staff has reviewed for approval. DISCUSSION: Mr. Justin Nilson of Abdo will be at the commission meeting to present the 2023 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 Leases. These adjustments are provided by Abdo. These items are discussed in Note 2 and 3 of the financials. FINANCIAL IMPACT: None ATTACHMENTS: • 2023 Audit Presentation • 2023 Executive Governance Summary • 2023 Annual Financial Report for the Year Ended December 31, 2023 Page 1 of 1 lo%,o4c) Lighting the path forward Elk River Municipal Utilities 2023 Financial Statement Audit Introduction Audit Results Electric Fund Results - Water Fund Results AFL*,&%#M0 50 Audit Results Auditor's Opinion Unmodified/Clean Opinion Minnesota Legal Compliance No Compliance Findings Reported AFL*,&%#M0 51 Electric Fund Expenditures by Type $35,000,000 $30,000,000 $25,000,000 $ 20,0 00,0 00 $15,0 00,0 00 $10,0 00,0 00 $5,000,000 Purchased Power Production and Customer Accounts Depreciation Distribution 2021 2022 ■ 2023 General and Administrative AFL*,&%# V! V 4 52 $ 50,0 00,0 00 $ 45,0 00,0 00 $ 40,0 00,0 00 $35,000,000 $ 30,0 00,0 00 $ 25,0 00,0 00 $ 20,0 00,0 00 $15,0 00,0 00 $10,0 00,0 00 $5,000,000 2020 2020 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 2021 2021 ■ Operating Disbursements 2022 ■ Debt Payments 2022 2023 2023 Operating Receipts 2020 2021 2022 2023 RUnrestricted Cash Restricted for Debt Service (Unrestricted Designated Cash Reserve Electric Fund Cash Flows from Operations and Cash Balances AFL*,&%#d 0 5 53 Electric Operations $ 50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,0 00,0 00 $10,0 00,0 00 $5,000,000 2021 Operating Revenues 2022 Operating Expenses ■ Cash and Investments 2023 Bonds Payable AFL*,&%# V! V 6 54 Water Fund Expenditures by Type $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- Production Distribution 2021 Depreciation 2022 M Customer accounts ■ 20 231 General and administrative AFL*,&%#V!0 � 55 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 2020 2020 2021 2021 2022 2022 2023 2023 Operating Disbursements ■ Debt Payments ■ Operating Receipts $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 2020 2021 2022 2023 � Unrestricted Cash Balance —&—Unrestricted Designated Reserve Water ,Fund Cash Flows from Operations and Cash Balances AFL*,&%# V! V 8 56 0 Water Operations $12,0 00,0 00 $10,000,000 $6,000,000 $4,000,000 $2,000,000 2021 Operating Revenues 2022 Operating Expenses 2023 ■ Cash Bonds Payable AFL*,&%#%#0440 57 Description Electric Revenue Bonds, Series 2016A G.O. Water Revenue Bonds, Series 2021 C Electric Revenue Bonds, Series 2018A Electric Revenue Bonds, Series 2021 B $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 M AFL*,&%# V! V Totals Authorized and Issued $ 9,755,000 1,615,000 10,000,000 11,810,000 Total Remaining Interest Payments Bonds Year of Outstanding Maturity $ 7,515,000 2036 1,505,000 2041 9,025,000 2048 11,420,000 2051 $ 29,465,000 $ 11,067,094 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 ■ Principal ■ Interest Dp-bt bligati F-1 - q L-jjR 10 Cash and Investments Balance $40,000,000 $35,000,000 1 $34,266,867 $30,000,000 $26,742,447 $25,000,000 $20,000,000 $15,000,000 $10,0 00,0 00 $5,000,000 2021 2022 Electric Water $27, 554,752 2023 During our audit, it was noted that over 80% of cash on hand is in a savings account earning 0.30%. We recommend reviewing monthly liquidity, current investments, and market conditions in attempt to maximize interest earnings for the Utilities. AFL*,&%#od0 11 59 Your Abdo Team Andy Berg, CPA Partner andrew.berg@abdosolutions.com Justin Nilson, CPA Partner justin.nilson@abdosolutions.com Jill Knutson, CPA Senior Associate jill.knutson@abdosolutions.com dp Mathato Makhaye Senior Associate mathato.makhaye@abdosolutions.com Jason Fagan Associate jason.fagan@abdosolutions.com AFL*,&%#M0 12 60 LI ■ t Executive Governance Summary Elk River Municipal Utilities Elk River, Minnesota For the year ended December 31, 2023 A.Plo Lighting the page forward Edina Office 5201 Eden Avenue, Ste 250 Edina, MN 55436 P 952.835.9090 Mankato Office 100 Warren Street, Ste 600 Mankato, MN 56001 P 507.625.2727 Scottsdale Office 14500 N Northsight Blvd, Ste 233 Scottsdale, AZ 85260 P 480.864.5579 61 ALowof%*64AoAbdoSolutions.com April 9, 2024 Management and Public Utilities Commission Elk River Municipal Utilities Elk River, Minnesota We have audited the financial statements of the Elk River Municipal Utilities (the Utilities) of the City of Elk River, Minnesota, (the City) as of and for year ended December 31, 2023. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter dated December 7, 2023. Professional standards require that we provide you with the following information related to our audit. Significant Audit Findings In planning and performing our audit of the financial statements, we considered the Utilities internal control over financial reporting (internal control) as a basis for designing the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Utilities internal control. Accordingly, we do not express an opinion on the effectiveness of the Utilities internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 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 financial statements. 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. Lighting the path forward 2 62 Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Utilities are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies were not changed during the year ended December 31, 2023. We noted no transactions entered into by the Utilities during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were as follows: • 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 Commission 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 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. • Management's estimates of its lease receivable are based on several factors including, but not limited to, a discount rate based on the estimated incremental borrowing rate. We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it is reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in aggregate, to each opinion unit's financial statements taken as a whole. Management Representations We have requested certain representations from management that are included in the management representation letter dated April 9, 2024. 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. AbdoSolutions.com 3 63 Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Utilities' auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to the required supplementary information (RSI) (Management's Discussion and Analysis, the Schedules of Employer's Share of the Net Pension Liability, the Schedules of Employer's Contributions, and the Schedule of Changes in Net Pension Liability (Asset) and Related Ratios), which is information that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the supplementary information (Schedule of Operating Revenues and Expense), which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory section or statistical sections, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information, and we do not express an opinion or provide any assurance on them. Future Accounting Standard Changes The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact on future Utilities financial statements: GASB Statement No. 100 - Accounting Changes and Error Corrections GASB Statement No. 101 - Compensated Absences GASB Statement No. 102 — Certain Risk Disclosures Further information on upcoming GASB pronouncements. AbdoSolutionsxom 4 64 Effective: 1213112024 Effective: 1213112024 Effective: 1213112025 Restriction on Use This communication is intended solely for the information and use of the Public Utilities Commission, City Council, management, and the Minnesota Office of the State Auditor and is not intended to be and should not be used by anyone other than these specified parties. The comments and recommendations in this report are purely constructive in nature, and should be read in this context. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of accounting records and related data. If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your convenience. We wish to thank you for the opportunity to be of service and for the courtesy and cooperation extended to us by your staff. 1- Abdo Minneapolis, Minnesota April 9, 2024 AbdoSolutlonsxom 5 65 Annual Financial Report Elk River Municipal Utilities Elk River, Minnesota For the year ended December 31, 2023 Edina Office Mankato Office ALO%o4:1 5201 Eden Avenue, Ste 250 100 Warren Street, Ste 600 011111111111111F I . 0 Edina, MN 55436 Mankato, MN 56001 Lighting the path forward P 952.835.9090 P 507.625.2727 Scottsdale Office 14500 N Northsight Blvd, Ste 233 Scottsdale, AZ 85260 P 480.864.5579 THIS PAGE IS LEFT BLANK INTENTIONALLY 67 Elk River Municipal Utilities Elk River, Minnesota Table of Contents For the Year Ended December 31, 2023 Page No. Introductory Section Public Utilities Commission and Administration 7 Financial Section Independent Auditor's Report 11 Management's Discussion and Analysis 15 Financial Statements Statement of Net Position 22 Statement of Revenues, Expenses and Changes in Net Position 25 Statement of Cash Flows 26 Notes to the Financial Statements 29 Required Supplementary Information Schedule of Employer's Share of Public Employees Retirement Association Net Pension Liability - General Employees Fund 50 Schedule of Employer's Public Employees Retirement Association Contributions - General Employees Fund 50 Notes to the Required Supplementary Information - General Employees Fund 51 Supplementary Information Schedule of Operating Revenues and Expenses 54 Electric Fund Summary of Operations and Unaudited Statistics 56 Water Fund Summary of Operations and Unaudited Statistics 58 Other Report Independent Auditor's Report on Minnesota Legal Compliance 63 THIS PAGE IS LEFT BLANK INTENTIONALLY .• INTRODUCTORY SECTION ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2023 70 THIS PAGE IS LEFT BLANK INTENTIONALLY 71 Name John Dietz Mary Stewart Matt Westgaard Paul Bell Nick Zerwas Name Mark Hanson Melissa Karpinski Tom Geiser Chris Sumstad Dave Ninow Mike Tietz Chris Kerzman Sara Youngs Tony Mauren Elk River Municipal Utilities Elk River, Minnesota Public Utilities Commission and Administration For the Year Ended December 31, 2023 COMMISSION ADMINISTRATION Title Chairperson Vice -Chair Commissioner Commissioner Commissioner Title General Manager Finance Manager Operations Director Electric Superintendent Water Superintendent Technical Services Superintendent Engineering Manager Administrations Director Governance & Communications Manager 7 72 THIS PAGE IS LEFT BLANK INTENTIONALLY 73 FINANCIAL SECTION ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2023 74 THIS PAGE IS LEFT BLANK INTENTIONALLY 10 75 A IkAo MM INDEPENDENT AUDITOR'S REPORT Public Utilities Commission Elk River Municipal Utilities Elk River, Minnesota Report on the Financial Statements Opinion AbdoSolutionsxom We have audited the accompanying financial statements of the Elk River Municipal Utilities (the Utilities) of the City of Elk River, Minnesota (the City), as of and for the year ended December 31, 2023, and the related notes to the financial statements, as listed in the table of contents. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Utilities as of December 31, 2023, and the changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Utilities and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Utilities ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. Lighting the path forward 11 76 In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Utilities internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Utilities ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control -related matters that we identified during the audit. Emphasis of Matter As discussed in Note 1 B, the financial statements present only the Electric and Water enterprise funds and do not purport to, and do not present fairly the financial position of the Utilities as of December 31, 2023, the changes in its financial position, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis Page 15 and the Schedule of Employer's Share of the Net Pension Liability, the Schedule of Employer's Contributions to be presented to supplement the basic financial statements. Such information, although not a part of the financial statements, is required by the Government Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Utilities' basic financial statements. The schedule of operating revenues and expenses is presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of operating revenues and expenses are fairly stated, in all material respects, in relation to the basic financial statements as a whole. — AbdoSolutions.com to 12 77 Other Information Management is responsible for the other information included in the annual report. The other information comprises the introductory section, summary of operations and unaudited statistics but does not include the basic financial statements and our auditor's report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. J1W Abdo Minneapolis, Minnesota April 9, 2024 AbdoSolutions.com 13 78 u THIS PAGE IS LEFT BLANK INTENTIONALLY 14 79 Management's Discussion and Analysis This section of the Elk River Municipal Utilities (the Utilities) of the City of Elk River, Minnesota annual financial report presents our analysis of the Utilities' financial performance during the fiscal year that ended December 31, 2023. Please read it in conjunction with the financial statements which follow this section. Financial Highlights • The assets and deferred outflows of resources of the Utilities exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $81,701,248 (net position). Net Position increased by $3,829,883 or 4.9 percent. The increase is mainly due to revenues in excess of expenses during the year. • The Utilities' cash balance at the close of the current fiscal year was $27,554,752. • Electric usage overall was down an average of 1.2 percent from the prior year. Residential usage increased 1.6 percent, Commercial usage increased 6.8 percent, and Industrial usage decreased 3.8 percent. • Water usage overall was up an average of 18.4 percent from the prior year. Residential usage increased 15.0 percent, and Commercial usage increased 22.3 percent. Overview of the Financial Statements This annual report consists of three parts: Management's Discussion and Analysis, Financial Statements, and Supplementary Information. The Financial Statements also include notes that explain in more detail some of the information in the financial statements. Required Financial Statements The financial statements of the Utilities report information about the Utilities using accounting methods similar to those used by the private sector. These statements offer short-term and long-term financial information about its activities. The Statement of Net Position includes all of the Utilities' assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to Utilities' creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the Utilities and assessing the liquidity and financial flexibility of the Utilities. All of the current year's revenues and expenses are accounted for in the Statements of Revenues, Expenses and Changes in Net Position. This statement measures the success of the Utilities' operations over the past year and can be used to determine whether the Utilities has successfully recovered all its costs through its user fees and other charges, profitability, and credit worthiness. The final required financial statement is the Statements of Cash Flows. The primary purpose of this statement is to provide information about the Utilities' cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments and net changes in cash resulting from operations, investing and financing activities and provides answers to such questions as where cash came from, what was cash used for and what was the change in the cash balance during the reporting period. 15 80 Financial Analysis of the Utilities Our analysis of the Utilities begins on page 22 in the Financial Section. One of the most important questions asked about the Utilities' finances is "Is the Utilities as a whole better off or worse off as a result of this year's activities?" The Statement of Net Position, and the Statement of Revenues, Expenses and Changes in Net Position report information about the Utilities' activities in a way that will help answer this question. These two statements report the net position of the Utilities and changes in the net position. You can think of the Utilities' net position (the difference between assets and liabilities) as one way to measure financial health or financial position. Over time, increases or decreases in the Utilities' net position is one indicator of whether its financial health is improving or deteriorating. However, you will need to consider other non -financial factors such as changes in economic conditions, population growth, zoning, and new or changed government legislation. Net Position. To begin our analysis, a summary of the Utilities' Statements of Net Position is presented in Table A-1. As can be seen from the Table, net position increased in fiscal 2023 from fiscal 2022. Table A-1 Condensed Statement of Net Position Increase 2023 2022 (Decrease) Assets Current and other $ 31,866,563 $ 32,660,889 $ (794,326) Capital and other non -current 96,673,875 94,194,163 2,479,712 Total Assets 128,540,438 126,855,052 1,685,386 Total Deferred Outflows of Resources 816,369 1,414,144 (597,775) Liabilities Current 8,837,628 9,803,732 (966,104) Non -current 33,043,134 35,418,139 (2,375,005) Total Liabilities 41,880,762 45,221,871 (3,341,109) Total Deferred Inflows of Resources 5,774,797 5,175,960 598,837 Net Position Net investment in capital assets 61,103,248 58,323,263 2,779,985 Restricted for debt service 1,779,016 1,779,016 - Unrestricted 18,818,984 17,769,086 1,049,898 Total Net Position $ 81,701,248 $ 77,871,365 $ 3,829,883 Net Position as a Percent of Total Net investment in capital assets 74.8 % 74.9 % Restricted 2.2 2.3 Unrestricted 23.0 22.8 100.0 % 100.0 % Electric and Water Rates. Electric - The Utilities' electric rates had a zero -rate increase effective January 2024. The monthly base charges are based upon the type of service. The monthly charges are $15.00 for residential, $32.00 for non - demand, $77.00 for demand and $115.00 for large industrial demand customers. In addition to the base charges the residential rate is $.1373/kWh for June -October usage, and $.1255/kWh for November -May usage; the non -demand rate is $.1330/kWh for June -October, and $.1114/kWh for November -May; the demand rate is $.0704/kWh energy charge year round with a demand charge of $16.75/kW June -October, and $11.75/kW for November -May; the large industrial demand rate is $.0696/kWh energy charge year round with a demand charge of $16.25/kW June -October, and $11.25/kW November -May. 16 81 Water - The latest increase in the Utilities' water rates was effective January 2024. The monthly base charge for residential customers is $10.03 per month. In addition to the base charge, the Utilities currently charges its residential customers $2.02 per 1,000 gallons up to 9,000 gallons, $3.57 per 1,000 gallons between 9,000 gallons and 15,000 gallons, and $4.08 per 1,000 gallons for usage above 15,000 gallons. Commercial customer base charges are based upon meter size and range from $12.03 to $127.06. An irrigation meter is $21.40 per month. There is also a charge per 1,000 gallons, the same tiers as the residential rates of $2.02, $3.57, and $4.08, except the graduation from the lower tier to the higher tier(s) is calculated based on previous consumption. The Utilities requires payment of all utility bills to be paid by the due date stated on the monthly bill. A ten percent penalty is assessed for payments not received by the due date. The Utilities may discontinue service of a customer not complying with the disconnect policy of the Utilities after receiving a written disconnect notice. Residential and Commercial/Industrial single phase electric customers that have their service discontinued will be charged a minimum of $50.00 to have their service reconnected. Commercial/Industrial three phase electric customers that have their service discontinued will be charged a minimum of $150.00 to have their service reconnected. Residential and Commercial/Industrial water customers that have their water shut-off will be charged a fee of $100.00 to have their water turned on/reconnected. There are no reconnections after 3:30 pm and payments for reconnection/turn on are not accepted at the property site; payments must be made prior to dispatching reconnection. Customers can come into the office between the hours of 8:00 am and 4:30 pm to make 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 Utilities collects social security numbers from new accounts and utilizes a credit risk assessment tool called "Online Utility Exchange" to determine if a deposit is necessary as a proactive measure to try and reduce uncollectible accounts. The amount of the deposit required will depend on the risk identified with the customer. For residential customers, if there is above 90 percent 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 90 percent probability of non -default, a deposit appropriate to the services supplied will be required before utility service will be extended. If the customer chooses not to provide a social security number, the deposit is automatically required. Residential deposit amounts are $100 for apartments, $100 for homes with water and sewer, $150 for homes with electric only services, and $250 for homes with all services (electric, water, and sewer). For commercial and industrial customers, a service agreement would need to be signed. Generally, a deposit of 2 times the estimated highest monthly bill will be required, with a minimum deposit of $250 for non -demand customers, and minimum deposit of $1,000 for demand customers. The deposit shall be in the form of a cash deposit, or an irrevocable letter of credit. The irrevocable letter of credit will be renewed as required and failure to do so will result in a charge equal to the amount of the letter of credit applied to the monthly utility bill and held by the Utilities as a cash deposit. Deposits will be retained until the account is closed. The deposit will be returned to the customer within 45 days of termination of service, provided that the customer has paid in full all amounts due on the account. The appropriate interest will be applied to the account per state statutes. 17 82 Statements of Revenues, Expenses and Changes in Net Position. While the Statements of Net Position show the change in financial assets/deferred outflows and liabilities/deferred inflows, the Statements of Revenues, Expenses and Changes in Net Position, provide answers as to the nature and source of these changes. As can be seen in Table A-2, revenues in excess of expenses were the main source of the increase in net position in fiscal 2023. A closer examination of the individual categories affecting the source of changes in net position is discussed below: Revenues Operating Nonoperating Total Revenues Expenses Operating Nonoperating Total Expenses Table A-2 Condensed Statements of Revenues, Expenses and Changes in Net Position 2023 2022 $ 47,834,738 1,625,170 49,459,908 45,253,729 847,654 46,101,383 $ 46,811,891 1,174,011 47,985,902 45,579,586 892,147 46,471,733 Increase (Decrease) $ 1,022,847 451,159 1,474,006 (325,857) (44,493) (370,350) Income Before Contributions and Operating Transfers 3,358,525 1,514,169 1,844,356 Capital Contributions - Developer Infrastructure and Connection Fees 253,341 2,488,236 (2,234,895) Contribution from Customers 489,452 298,935 190,517 Transfers from Other City Funds 1,348,943 - 1,348,943 Transfers to Other City Funds (1,620,378) (1,531,633) (88,745) Change in Net Position 3,829,883 2,769,707 1,060,176 Net Position, January 1 77,871,365 75,101,658 2,769,707 Net Position, December 31 $ 81,701,248 $ 77,871,365 $ 3,829,883 Revenues. Table A-2 shows that operating revenue increased by 2.2 percent in 2023 for the Electric and Water Departments combined. 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 Department partnered with Midwest Municipal Transmission Group (MMTG) in order to have our transmission assets recognized in the Midwest Independent Transmission System Operator (MISO) market. In doing so, our transmission assets generate a revenue rebate, which in turn helps keep our rates down. In 2023, rebates received from our 2021 filings averaged approximately $57,600 per month. The Water Department is receiving lease revenue from Sprint and Verizon for antennas on the water towers. In 2023 this amount was approximately $402,423 and will continue for the duration of the multi -year contracts. 11 Total Expenses. In reviewing total expenses in Table A-2 you will notice that there was a decrease overall, with both the electric and water departments decreasing from the prior year. Purchased Power is the biggest electric department expense, and it decreased 1.0 percent. Capital Assets and Debt Administration Capital Assets. The Utilities' investment in capital assets for its business -type activities as of December 31, 2023 is shown below (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, and equipment. A table summarizing the balances by fund follows: Land Intangible Land Improvements Buildings Machinery and Equipment Infrastructure Construction in Progress Total Percent increase (decrease) 1►11PIe3 $ 898,584 24,262,932 9,307 14,957,145 2,609,644 46,892,112 2,310,731 011YOP $ 898,584 23,997,909 10,955 14,372,796 2,172,446 45,421,431 2,351,587 $ 91,940,455 $ 89,225,708 The Utilities' investment in capital assets for the current fiscal year increased in total. Major capital asset events during the current fiscal year included the following: Increase (Decrease) 265,023 (1,648) 584,349 437,198 1,470,681 (40,856) $ 2,714,747 3.0% • The Electric Department makes a loss of revenue payment as part of the cost of the territory acquisition increasing Intangibles. • A new field services facility was built for both the Electric and Water Department which makes up the majority of the increase in Buildings. • The Electric and Water Department purchased new transportation equipment, increasing Machinery and Equipment, with the main increase due to the purchase of a new Freightliner Bucket Truck for the Electric Department. • The Electric and Water Department completed some large road projects that contributed to the increase in Infrastructure. Additional information on the Utilities' capital assets can be found in Note 2C starting on page 38 of this report. Long-term Debt. At year end, the Utilities had $30,837,207 in long-term debt which decreased from fiscal 2022. More detailed information about the Utilities' long-term liabilities can be found in Note 2D starting on page 39 and below: G.O. Revenue Bonds Revenue Bonds Unamortized Premium on Bonds Total Percent increase (decrease) 2023 2022 Increase (Decrease) $ 1,505,000 $ 1,565,000 $ (60,000) 27,960,000 28,875,000 (915,000) 1,372,207 1,438,720 (66,513) $ 30,837,207 $ 31,878,720 $ (1,041,513) (3.3%) 1.0 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 Finance Manager This financial report is designed to provide our citizens, customers, investors, and creditors with a general overview of the Utilities' finances and to demonstrate the Utilities' accountability for the money it receives. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Melissa Karpinski, Elk River Municipal Utilities, PO Box 430, Elk River, Minnesota 55330-0430 or at 13069 Orono Parkway in Elk River, MN. 20 85 FINANCIAL STATEMENTS ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2023 21 86 Elk River Municipal Utilities Elk River, Minnesota Statement of Net Position (Continued on the Following Page) December 31, 2023 Assets Current Assets Cash and temporary investments Receivables Accrued interest Accounts, net of allowance Special assessments Leases Other Due from other City funds Inventories Prepaid expenses Total Current Assets Non -current Assets Lease receivable Capital Assets Land Intangible Land improvements Buildings Machinery and equipment Infrastructure Construction in progress Capital Assets, Cost Less Accumulated Depreciation Total Capital Assets, Net Total Non -current Assets Other Assets Restricted cash Total Assets Deferred Outflows of Resources Deferred pension resources Electric Water Total $ 14,896,235 $ 10,879,501 $ 25,775,736 1,955 41,879 43,834 2,067,501 116,744 2,184,245 4,529 37,168 41,697 - 235,035 235,035 296,075 3,839 299,914 3,441 217,223 220,664 1,048,510 17,102 1,065,612 185,599 35,211 220,810 18,503,845 11,583,702 30,087,547 - 4,733,420 4,733,420 697,870 200,714 898,584 27,769,490 - 27,769,490 34,081 - 34,081 15,119,753 2,922,269 18,042,022 5,141,084 658,295 5,799,379 55,723,788 42,377,297 98,101,085 834,236 1,476,495 2,310,731 105,320,302 47,635,070 152,955,372 (37,746,565) (23,268,352) (61,014,917) 67,573,737 24,366,718 91,940,455 67,573,737 29,100,138 96,673,875 1,779,016 1,779,016 87,856,598 40,683,840 128,540,438 690,058 126,311 816,369 The notes to the financial statements are an integral part of this statement. 22 87 Elk River Municipal Utilities Elk River, Minnesota Statement of Net Position (Continued) December 31, 2023 Current Liabilities Accounts payable Salaries and benefits payable Accrued interest payable Due to other City funds Due to other governments Customer deposits payable Unearned revenue Compensated absences Bonds payable - current portion Total Current Liabilities Non -current Liabilities Bonds payable, net - less current portion Net pension liability Total Non -current Liabilities Total Liabilities Deferred Inflows of Resources Deferred pension resources Deferred lease resources Total Deferred Inflows of Resources Net Position Net investment in capital assets Restricted for debt service Unrestricted Total Net Position Electric Water Total $ 3,822,240 $ 209,062 $ 4,031,302 243,235 44,420 287,655 357,003 17,333 374,336 928,921 33,460 962,381 160,414 2,772 163,186 1,067,795 128,896 1,196,691 142,988 141,977 284,965 470,277 51,835 522,112 955,000 60,000 1,015,000 8,147,873 689,755 8,837,628 28,260,262 1,561,945 29,822,207 2,720,477 500,450 3,220,927 30,980,739 2,062,395 33,043,134 39,128,612 2,752,150 41,880,762 836,813 153,307 990,120 - 4,784,677 4,784,677 836,813 4,937,984 5,774,797 38,358,475 22,744,773 61,103,248 1,779,016 - 1,779,016 8,443,740 10,375,244 18,818,9 84 $ 48,581,231 $ 33,120,017 $ 81,701,248 The notes to the financial statements are an integral part of this statement. 23 88 THIS PAGE IS LEFT BLANK INTENTIONALLY 24 89 Elk River Municipal Utilities Elk River, Minnesota Statement of Revenues, Expenses and Changes in Net Position For the Year Ended December 31, 2023 Operating Revenues Charges for services Substation credit Connection maintenance Customer penalties Total Operating Revenues Operating Expenses Purchased power Production Distribution Depreciation Customer accounts General and administrative Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Interest income (loss) Miscellaneous revenue Interest expense and other Gain/(Loss) on sale of capital assets Total Nonoperating Revenues (Expenses) Income (Loss) before Contributions and Transfers Capital Contributions - Connection Fees Contribution from Customers Transfers from Other City Funds Transfers to Other City Funds Total Contributions and Transfers Change in Net Position Net Position, January 1 Net Position, December 31 Electric Water Total $ 43,986,269 $ 3,305,148 $ 47,291,417 4,800 - 4,800 151,296 55,733 207,029 308,374 23,118 331,492 44,450,739 3,383,999 47,834,738 31,232,788 - 31,232,788 315,057 667,881 982,938 2,224,113 321,566 2,545,679 31177,120 1,174,752 4,351,872 687,117 88,640 775,757 4,421,557 943,138 5,364,695 42,057,752 3,195,977 45,253,729 2,392,987 188,022 2,581,009 158,310 57,360 215,670 928,553 418,451 1,347,004 (811,210) (36,444) (847,654) 59,556 2,940 62,496 335,209 442,307 777,516 2,728,196 630,329 3,358,525 - 253,341 253,341 489,452 - 489,452 - 1,348,943 1,348,943 (1,620,378) - (1,620,378) (1,130,926) 1,602,284 471,358 1,597,270 2,232,613 3,829,883 46,983,961 30,887,404 77,871,365 $ 48,581,231 $ 33,120,017 $ 81,701,248 The notes to the financial statements are an integral part of this statement. 25 90 Elk River Municipal Utilities Elk River, Minnesota Statement of Cash Flows (Continued on the Following Page) For the Year Ended December 31, 2023 Cash Flows from Operating Activities Receipts from customers and users Other operating cash receipts Payments to suppliers Payments to employees Net Cash Provided by Operating Activities Cash Flows from Noncapital Financing Activities Transfers to City (Increase) decrease in due from other City funds (Decrease) increase in due to other City funds Net Cash Provided (Used) by Noncapital Financing Activities Cash Flows from Capital and Related Financing Activities Acquisition of capital assets Proceeds from connection fees Proceeds on sale of capital assets Principal payments on bonds Interest paid on bonds Net Cash Provided (Used) by Capital and Related Financing Activities Cash Flows from Investing Activities Interest on investments Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, January 1 Cash and Cash Equivalents, December 31 Reconciliation of Cash and Cash Equivalents to the Statement of Net Position Cash and temporary investments Restricted cash Total Cash and Cash Equivalents Electric Water Total $ 45,858,458 $ 3,365,455 $ 49,223,913 980,012 549,528 1,529,540 (35,929,492) (1,397,690) (37,327,182) (3,108,487) (750,613) (3,859,100) 7,800,491 1,766,680 9,567,171 (1,620,378) - (1,620,378) 2,089 (88,373) (86,284) (92,461) (20,075) (112,536) (1,710,750) (108,448) (1,819,198) (4,517,495) (1,057,219) (5,574,714) - 253,341 253,341 72,630 2,940 75,570 (915,000) (60,000) (975,000) (886,134) (44,095) (930,229) (6,245,999) (905,033) (7,151,032) 156,646 58,718 215,364 388 811,917 812,305 16,674,863 10,067,584 26,742,447 $ 16,675,251 $ 10,879,501 $ 27,554,752 $ 14,896,235 $ 10,879,501 $ 25,775,736 1,779,016 - 1,779,016 $ 16,675,251 $ 10,879,501 $ 27,554,752 The notes to the financial statements are an integral part of this statement. 26 91 Elk River Municipal Utilities Elk River, Minnesota Statement of Cash Flows (Continued) For the Year Ended December 31, 2023 Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities Operating income Adjustments to reconcile operating income (loss) to net cash provided by operating activities Other revenue related to operations Bad debt expense Depreciation (Increase) decrease in assets/deferred outflows: Accounts receivable Other receivables Special assessments receivable Lease receivable Due from other governments Inventories Prepaid expenses Deferred pension resources Increase (decrease) in liabilities/deferred inflows: Accounts payable Salaries and benefits payable Unearned revenue Compensated absences payable Due to other governments Customer deposits payable Net pension liability Deferred pension resources Deferred lease resources Net Cash Provided by Operating Activities Noncash Capital and Related Financing Activities Amortization of Bond Premium Gain (Loss) on Disposal of Capital Assets Book Value of Disposed Capital Assets Capital Assets Purchased on Account Contribution of Capital Assets Electric $ 2,392,987 928,553 29,142 3,177,120 1,408,119 (90,917) (400) 8,263 63,325 70,788 497,499 (631,281) 24,430 142,988 43,282 (40,288) 63,101 (1,068,904) 782,684 Water 188,022 418,451 (28) 1,174,752 1,512 208,467 (20,056) 220,218 11,286 18,537 100,276 (92,117) 2,202 793 2,030 (101) (59,129) (224,588) 143,584 (327,431) $ 7,800,491 $ 1,766,680 $ 59,862 (13,074) 44,574 947,461 489,452 $ 6,651 6,111 1,348,943 Total 2,581,009 1,347,004 29,114 4,351,872 1,409,631 117,550 (20,456) 220,218 8,263 74,611 89,325 597,775 (723,398) 26,632 143,781 45,312 (40,389) 3,972 (1,293,492) 926,268 (327,431) $ 9,567,171 $ 66,513 (13,074) 44,574 953,572 1,838,395 The notes to the financial statements are an integral part of this statement. 27 92 THIS PAGE IS LEFT BLANK INTENTIONALLY 28 93 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 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 distribute electricity to the residents and businesses of Elk River and parts of Dayton, Big Lake Township and Otsego, Minnesota. The Utilities distributes water to the residents and businesses of Elk River, Minnesota. The Utilities has considered all potential units for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the Utilities are such that exclusion would cause the Utilities' financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits to or impose specific financial burdens on the primary government. There are no component units. B. Measurement Focus, Basis of Accounting and Basis of Presentation The accounts of the Utilities are organized and operated on the basis of funds. A fund is an independent fiscal and accounting entity with a self -balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance -related legal and contractual provisions. The minimum number of funds is maintained consistently with legal and managerial requirements. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on an accrual basis when the exchange takes place. Non -exchange transactions, in which the Utilities receives value without directly giving equal value in return, include grants, entitlements and donations. Revenue from grants, entitlements and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the Utilities must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the Utilities on a reimbursement basis. Grants and entitlements received before eligibility requirements are met are also recorded as unearned revenue. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Proprietary funds include the following fund type: Enterprise funds account for those operations that are financed and operated in a manner similar to private business or where the Utilities has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. 29 94 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 1: Summary of Significant Accounting Policies (Continued) The Utilities reports the following major proprietary funds: The Electric fund accounts for the electric distribution operations. The Water fund accounts for the water distribution operations. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Electric and Water enterprise funds are charges to customers for sales and service. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. C. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position Cash and Cash Equivalents The Utilities' cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. The proprietary funds' portion in the government -wide cash and temporary investments pool is considered to be cash and cash equivalents for purposes of the statements of cash flows. Cash balances from all funds are pooled and invested, to the extent available, in certificates of deposit and other authorized investments. Earnings from such investments are allocated on the basis of applicable participation by each of the funds. The Utilities may also invest idle funds as authorized by Minnesota statutes, as follows: 1. Direct obligations or obligations guaranteed by the United States or its agencies. 2. Shares of investment companies registered under the Federal Investment Company Act of 1940 and received the highest credit rating, rated in one of the two highest rating categories by a statistical rating agency, and have a final maturity of thirteen months or less. 3. General obligations of a state or local government with taxing powers rated "A" or better; revenue obligations rated "AA" or better. 4. General obligations of the Minnesota Housing Finance Agency rated "A" or better. 5. Obligation of a school district with an original maturity not exceeding 13 months and (i) rated in the highest category by a national bond rating service or (ii) enrolled in the credit enhancement program pursuant to statute section 126C.55. 6. Bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System. 7. Commercial paper issued by United States banks corporations or their Canadian subsidiaries of highest quality category by at least two nationally recognized rating agencies and maturing in 270 days or less. 8. Repurchase or reverse repurchase agreements and securities lending agreements with financial institutions qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker -dealers. 30 95 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 1: Summary of Significant Accounting Policies (Continued) 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. The Utilities categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The Utilities' recurring fair value measurements are listed in detail on page 35 and are valued using a matrix pricing model (Level 2 inputs). The Utilities has the following recurring fair value measurements as of December 31, 2023: • Negotiable certificates of deposit of $3,472,959 are valued using a matrix pricing model (Level 2 inputs). • Asset backed securities of $300,096 are valued using a matrix pricing model (Level 2 inputs). Restricted Assets The amounts in the restricted cash account are set aside in accordance with the issuing resolution for specific bond issues. They will be used for future debt service. Accounts Receivable Accounts receivable include amounts billed for services provided before year end. The Utilities has established a reserve for uncollectible accounts which is adjusted annually based on the receivable activity. No substantial losses from present receivable balances are anticipated. A summary of the uncollectible account balances at December 31, 2023 is as follows: Electric Water Total Interfund Receivables and Payables 2023 25,355 ?5n $ 25,605 Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non -current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds". Inventories and Prepaid items Inventories of materials and supplies are recorded at average cost, using the first -in, first out (FIFO) method. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. 31 96 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 1: Summary of Significant Accounting Policies (Continued) Lease Receivable The Utilities' lease receivable is measured at the present value of lease payments expected to be received during the lease term. Under the lease agreement, the Utilities may receive variable lease payments that are dependent upon the lessee's revenue. The variable payments are recorded as an inflow of resources in the period the payment is received. A deferred inflow of resources is recorded for the lease. The deferred inflow of resources is recorded at the initiation of the lease in an amount equal to the initial recording of the lease receivable. The deferred inflow of resources is amortized on a straight-line basis over the term of the lease. 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. The Utilities follow the policy of providing depreciation on the straight-line method over the estimated useful lives of the assets, which are as follows: Description Production Transmission Distribution General Machinery, Tools and Equipment Automobiles Deferred Outflows of Resources Lives in Years Electric Water 4-20 25-50 30 0 10-33 25-50 10-50 10-50 5-10 5-10 3-8 3-8 In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Utilities has one item, deferred pension resources, which qualifies for reporting in this category. Deferred pension resources result from actuarial calculation and current year pension contributions subsequent to the measurement date. Compensated Absences Vacation: All vacation benefits can carry over from year to year and will be payable upon termination or retirement. Upon retirement, vacation can also be converted to cash and deposited into their Post Employment Health Care Savings Plan account. Unused vacation carryover is limited to the number of hours accrued during the previous year. 32 97 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 1: Summary of Significant Accounting Policies (Continued) Sick Leave: Sick leave can accumulate to a maximum of 960 hours from year to year. Upon termination employees will have 50 percent of unused sick leave, up to a maximum of 960 hours, converted to cash and deposited into their Post Employment Health Care Savings Plan account. Upon retirement employees will have 50-100 percent of unused sick leave, up to a maximum of 960 hours, converted to cash and deposited into their Post Employment Health Care Savings Plan 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. Elk River Utilities has switched to age -based medical premiums and no longer has an Other Post -Employment Benefits liability. Since medical premiums are age -based, the premiums are equal to the expected true cost of retiree coverage. As a result, there is no implicit subsidy for these benefits. There is also no explicit subsidy, since retirees must pay the full premium to remain covered during retirement. 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, 2023 was $570,600. 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 are amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as an expense in the period incurred. Performance Metrics and Incentive Compensation Through the Utilities Performance Metric -based Incentive Compensation system (UPMIC) the Utilities employees will have an opportunity, as a group, to each earn a maximum of 2.5 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. 33 98 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 1: Summary of Significant Accounting Policies (Continued) Deferred Inflows of Resources In addition to liabilities, the statement of net position and fund financial statements will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Utilities has two types of items which qualify for reporting in this category. The items, deferred pension resources and deferred lease resources, are reported only in the statement of net position and results from actuarial calculations and future lease receipts. Net Position Net position represents the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources. Net position is displayed in three components: a. Net investment in capital assets - Consists of capital assets, net of accumulated depreciation reduced by any outstanding debt attributable to acquired capital assets. b. Restricted net position - Consists of net position restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, laws or regulations of other governments. c. Unrestricted net position -All other net positions 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. 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 Utilities will not be able to recover collateral securities in the possession of an outside party. In accordance with Minnesota statutes and as authorized by the Commission, the Utilities maintains deposits at those depository banks, all of which are members of the Federal Reserve System. Minnesota statutes require that all Utilities deposits be protected by insurance, surety bond or collateral. The fair value of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds, with the exception of irrevocable standby letters of credit issued by Federal Home Loan Banks as this type of collateral only requires collateral pledged equal to 100 percent of the deposits not covered by insurance or bonds. 34 99 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) 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, 2023, the Utilities' carrying amount of deposits, bank balance, FDIC coverage and pledged collateral are shown in the chart below. Carrying amount of deposits $ 23,774,954 Bank Balance $ 23,547,222 Covered by FDIC (381,349) Collateralized with securities pledged in the Utilities' name $ 23,165,873 35 100 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) Investments The Utilities' investment balances were as follows for December 31, 2023 Credit Segmented Quality/ Time Fair Value Measurement Using Types of Investments Ratings (1) Distribution (2) Amount Level 1 Level 2 Level 3 Pooled Investments Broker Money Markets N/A less than 1 year $ 5,943 $ $ $ Non -pooled Investments Negotiable certificates of deposits N/A less than 1 year 472,340 472,340 Negotiable certificates of deposits N/A 1 - 5 years 3,000,619 3,000,619 Asset backed securities N/A 300,096 300,096 Total Non -pooled Investments 3,773,055 3,773,055 Total Investments $ 3,778,998 $ $ 3,773,055 $ (1) Ratings were provided by various credit rating agencies where applicable to indicate associated credit risk. (2) Interest rate risk is disclosed using the segmented time distribution method. N/A Indicates not applicable. A reconciliation of cash and temporary investments as shown in the financial statements for the Utilities follows: 2023 Deposits $ 23,774,954 Investments 3,778,998 Cash on Hand 800 Total $ 27,554,752 Cash and Temporary Investments Unrestricted $ 25,775,736 Restricted 1,779,016 Total $ 27,554,752 36 101 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) The investments of the Utilities are subject to the following risks: • Credit Risk. Is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Ratings are provided by various credit rating agencies and where applicable, indicate associated credit risk. Minnesota statutes and the Utilities' investment policy limit the Utilities' investments to the list on page 30 of the notes. Custodial Credit Risk. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. According to their investment policy the Utilities' portfolio maturities shall be staggered to avoid undue concentration of assets with one broker -dealer or financial institution. 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. As of December 31, 2023 the Utilities has invested 5.0 percent or more of its total investment portfolio in the following issuers: FHLMC (7.9%), State Bank of Indi NY (6.6%), Customers Bank PA (6.6%), Morgan Stanley PRI NY (6.5%), New York Community Bank NY (6.3%), Popular Bank NY (6.2%), Texas Exchange Bank TX (6.2%), Goldman Sachs Bank UT (6.1 %), Institution for SV MA (6.1 %), Sallie Mae Bank UT (6.0%), Beal Bank — Plano TX (6.0%), BMO Harris Bank NA IL (5.9%), JPMorgan Chase Bank OH (5.8%), Celtic Bank UT (5.6%), and Ally Bank UT (5.2%). • Interest Rate Risk. Is the risk that changes in interest rates will adversely affect the fair value of an investment. According to their investment policy the Utilities' will stagger maturities to avoid undue concentration of assets at a specific maturity sector. B. Lease Receivable The Utilities has multiple leases with Sprint and Verizon that allows them to place antennas on water towers. The lease payments increase yearly. As of December 31, 2023, the Utilities' lease receivable balance was $5,009,845. This is partially offset with deferred inflow of lease resources. Lease Receivable Interest Authorized Interest Issue Maturity Balance at Receivable at Balance at Description and Issued Rate Date Date Year End Year End Year End Sprint Lease on Johnson St. $ 741,068 1.41 i 06/01 /10 05/31 /35 $ 655,154 $ 5,408 $ 660,562 Sprint Lease on Gary St. 694,752 1.41 06/01 /10 05/31 /35 614,207 5,070 619,277 Sprint Lease on Auburn St. 694,752 1.41 06/01 /10 05/31 /35 614,207 5,070 619,277 Verizon Lease on Johnson St. 837,781 1.60 09/01 /14 08/31 /39 775,850 4,120 779,970 Verizon Lease on Gary St. 837,781 1.59 09/01 /14 08/31 /39 775,850 4,120 779,970 Verizon Lease on Auburn St. 909,094 1.70 01/01/17 12/31/42 849,585 14,555 864,140 Verizon Lease on Freeport St. 724,310 1.78 10/01 /20 09/30/45 683,602 3,047 686,649 Total Lease Receivable $ 5, 009,845 37 102 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) Future lease receivable payments are as follows: Year Ending December 31, Principal Interest Total 2024 $ 235,035 $ 78,407 $ 313,442 2025 250,524 74,806 325,330 2026 266,714 70,966 337,680 2027 283,634 66,879 350,513 2028 301,313 62,531 363,844 2029 - 2033 1,800,598 237,505 2,038,103 2034 - 2038 1,357,282 103,298 1,460,580 2039 - 2043 425,953 23,424 449,377 2044 - 2045 47,402 851 48,253 Total $ 4,968,455 $ 718,667 $ 5,687,122 C. Capital Assets Capital asset activity for the year ended December 31, 2023 was as follows: Beginning Ending Balance Increases Decreases Balance Capital Assets not being Depreciated Land $ 898,584 $ - $ $ 898,584 Intangible 5,290,120 933,158 6,223,278 Construction in progress 2,351,587 3,237,777 (3,278,633) 2,310,731 Total Capital Assets not being Depreciated 8,540,291 4,170,935 (3,278,633) 9,432,593 Capital Assets being Depreciated Intangible 21,546,212 - 21,546,212 Land improvements 34,081 - 34,081 Buildings 16,918,649 1,123,373 18,042,022 Machinery and equipment 5,340,608 924,982 (466,211) 5,799,379 Infrastructure 93,930,549 4,170,536 - 98,101,085 Total Capital Assets being Depreciated 137,770,099 6,218,891 (466,211) 143,522,779 Less Accumulated Depreciation for Intangible (2,838,423) (668,135) (3,506,558) Land improvements (23,126) (1,648) (24,774) Buildings (2,545,853) (539,024) - (3,084,877) Machinery and equipment (3,168,162) (443,210) 421,637 (3,189,735) Infrastructure (48,509,118) (2,699,855) - (51,208,973) Total Accumulated Depreciation (57,084,682) (4,351,872) 421,637 (61,014,917) Total Capital Assets being Depreciated, Net 80,685,417 1,867,019 (44,574) 82,507,862 Business -type Activities Capital Assets, Net $ 89,225,708 $ 6,037,954 $ (3,323,207) $ 91,940,455 38 103 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) Depreciation expense was charged to functions/programs of the Utilities as follows: 2023 Business -type Activities Electric $ 3,177,120 Water 1,174,752 Total Depreciation Expense - Business -type Activities $ 4,351,872 Construction Commitment The Utilities had the following outstanding construction commitment as of December 31, 2023: Project Field Service Project - RJM Construction D. Long-term Debt General Obligation Revenue Bonds Spent Remaining to Date Commitment $ 12,315,837 $ 7,934 The City of Elk River issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. The following bonds are to be paid out of Utilities' revenues and are backed by the full faith and credit of the City. Description G.O. Water Revenue Bonds, Series 2021 C Authorized Interest Issue Maturity Balance at and Issued Rate Date Date Year End 1,615,000 2.00 - 4.00 % 06/10/21 08/01/41 $ 1,505,000 The annual debt service requirements to maturity for the general obligation revenue bonds are as follows: Year Ending December 31, Principal Interest Total 2024 $ 60,000 $ 41,600 $ 101,600 2025 65,000 39,200 104,200 2026 70,000 36,600 106,600 2027 70,000 33,800 103,800 2028 75,000 31,000 106,000 2029 - 2033 405,000 110,300 515,300 2034 - 2038 460,000 57,900 517,900 2039 - 2041 300,000 12,000 312,000 Total $ 1,505,000 $ 362,400 $ 1,867,400 In 2023, annual principal and interest payment on the bonds required about 3.1 percent of revenues from the Water fund The principal and interest paid and total customer revenues for the Water fund were $104,000 and $3,383,999, respectively. 39 104 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) Revenue Bonds The revenue bonds were issued to facilitate the membership buy -in with MMPA and construction of major capital facilities and are to be repaid from future revenue pledged from the Electric fund. They will be retired from net revenues of the fund. Description Electric Revenue Bonds, Series 2016A Electric Revenue Bonds, Series 2018A Electric Revenue Bonds, Series 2021 B Total Revenue Bonds Authorized Interest Issue Maturity Balance at and Issued Rate Date Date Year End $ 9,755,000 2.00 - 4.00 % 07/14/16 10,000,000 3.50 - 5.00 09/26/18 11,810,000 2.00 - 5.00 05/13/21 The annual debt service requirements to maturity for the revenue bonds are as follows: Year Ending December 31, 2024 2025 2026 2027 2028 2029 - 2033 2034 - 2038 2039 - 2043 2044 - 2048 2049 - 2051 Total 02/01/36 08/01/48 08/01/51 Principal Interest $ 7,515,000 9,025,000 11,420,000 $ 27,960,000 Total $ 955,000 $ 849,381 $ 1,804,381 990,000 811,306 1,801,306 1,035,000 774,406 1,809,406 1,075,000 738,256 1,813,256 1,105,000 700,606 1,805,606 6,130,000 2,909,631 9,039,631 5,730,000 1,938,006 7,668,006 4,340,000 1,279,006 5,619,006 4,985,000 630,856 5,615,856 1,615,000 73,240 1,688,240 $ 27,960,000 $ 10,704,694 $ 38,664,694 In 2023, annual principal and interest payment on the bonds required about 4.1 percent of revenues from the Electric fund. The principal and interest paid and total customer revenues for the Electric fund were $1,800,756 and $44,450,739, respectively. 40 105 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) Changes in Long-term Liabilities Long-term liability activity for the year ended December 31, 2023 was as follows: Beginning Ending Due Within Balance Increases Decreases Balance One Year Business -type Activities Bonds Payable General obligation revenue bonds $ 1,565,000 $ - $ (60,000) $ 1,505,000 $ 60,000 Revenue bonds 28,875,000 - (915,000) 27,960,000 955,000 Unamortized premium on bonds 1,438,720 - (66,513) 1,372,207 - Total Bonds Payable, Net 31,878,720 - (1,041,513) 30,837,207 1,015,000 Compensated Absences Payable 476,800 489,097 (443,785) 522,112 522,112 Business -type Activity Long-term Liabilities $ 32,355,520 $ 489,097 $ (1,485,298) $ 31,359,319 $ 1,537,112 41 106 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) E. Interfund Receivables, Payables and Transfers Interfunds The composition of interfund balances at year end is as follows: Receivable Fund Payable Fund Amount Purpose Electric City $ 3,441 December billings Total Electric Fund Receivable From City 3,441 Water City 88,373 Trunk funds - Villas at Fillmore Water City 128,850 TIF 22 Water Access Charge Total Water Fund Receivable From City 217,223 Total Receivable From City $ 220,664 City Electric $ 121,462 Shared costs City Electric 5,576 Supplies and fuel City Electric 98,038 December transfer of revenue City Electric 260,907 4th quarter franchise fees City Electric 220,767 Billed sewer on behalf of City City Electric 160,360 Billed garbage on behalf of City City Electric 53,291 Billed stormwater on behalf of City City Electric 1,900 Continuing disclosures City Electric 4,838 4th quarter safety program City Electric 1,782 Parts and labor Total Electric Fund Payable to City 928,921 City Water 30,365 Shared costs City Water 1,331 Supplies and fuel City Water 381 Continuing disclosures City Water 1,210 4th quarter safety program City Water 173 Parts and labor Total Water Fund Payable to City 33,460 Total Payable to City $ 962,381 42 107 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 2: Detailed Notes on All Funds (Continued) Transfers During the year ended December 31, 2023, the Utilities made the following transfers: Electric Water Total Transfers Transfer from Transferto Other Other City Funds City Funds $ - $ 1,620,378 1,348,943 - $ 1,348,943 $ 1,620,378 • The transfer out of the Electric fund was the annual transfer of 4 percent of 2023 Elk River revenues to City funds. • The City transferred $817,519 to the Water fund as contributed capital for water main as part of city street improvements. • The City transferred $443,051 to the Water fund as contributed capital for water main as part of Natures Edge Business Center 3rd Addition. • The City transferred $88,373 to the Water fund from trunk funds for trunk water main for Villas at Fillmore project. 43 108 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 3: Defined Benefit Pension Plans -Statewide A. Plan Description The Utilities participates in the following cost -sharing multiple -employer defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA's defined benefit pension plans are established and administered in accordance with Minnesota statutes, chapters 353 and 356. PERA's defined benefit pension plans are tax qualified plans under Section 401(a) of the Internal Revenue Code. General EmDlovees Retirement Plan All full-time and certain part-time employees of the Utilities are covered by the General Employees Plan. General Employees Plan 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 state statute and can only be modified by the state Legislature. Vested, terminated employees who are entitled to benefits, but are not receiving them yet, are bound by the provisions in effect at the time they last terminated their public service. General EmDlovees Plan Benefits General Employees Plan benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated Plan members. Members hired prior to July 1, 1989, receive the higher of Method 1 or Method 2 formulas. Only Method 2 is used for members hired after June 30, 1989. Under Method 1, the accrual rate for Coordinated members is 1.2 percent of average salary for each of the first 10 years of service and 1.7 percent of average salary for each additional year. Under Method 2, the accrual rate for Coordinated members is 1.7 percent for average salary for all years of service. For members hired prior to July 1, 1989 a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989 normal retirement age is the age for unreduced Social Security benefits capped at 66. Benefit increases are provided to benefit recipients each January. The postretirement increase is 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. 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. In 2023, legislation repealed the statute delaying increases for members retiring before full retirement age. C. Contributions Minnesota statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state Legislature. General EmDlovees Fund Contributions Coordinated Plan members were required to contribute 6.50 percent of their annual covered salary in fiscal year 2023 and the Utilities was required to contribute 7.50 percent for Coordinated Plan members. The Utilities' contributions to the General Employees Fund for the years ending December 31, 2023, 2022 and 2021 were $339,650, $333,178 and $312,376, respectively. The Utilities' contributions were equal to the required contributions for each year as set by state statute. 44 109 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 3: Defined Benefit Pension Plans -Statewide (Continued) D. Pension Costs General Employees Fund Pension Costs At December 31, 2023, the Utilities reported a liability of $3,220,927 for its proportionate share of the General Employees Fund's net pension liability. The Utilities' net pension liability reflected a reduction due to the State of Minnesota's contribution of $16 million. The State of Minnesota is considered a non -employer contributing entity and the state's contribution meets the definition of a special funding situation. The State of Minnesota's proportionate share of the net pension liability associated with the Utilities totaled $88,808. The net pension liability was measured as of June 30, 2023, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The Utilities' proportionate share of the net pension liability was based on the Utilities' contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2022 through June 30, 2023 relative to the total employer contributions received from all of PERA's participating employers. The Utilities' proportionate share was 0.0576 percent at the end of the measurement period and 0.057 percent for the beginning of the period. Utilities' Proportionate Share of the Net Pension Liability $ 3,220,927 State of Minnesota's Proportionate Share of the Net Pension Liability Associated with the Utilities 88,808 Total $ 3,309,735 For the year ended December 31, 2023, the Utilities recognized pension expense of $570,201 for its proportionate share of the General Employees Plan's pension expense. In addition, the Utilities recognized $399 as 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, 2023, the Utilities reported its proportionate share of the General Employees Plan's deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual economic experience $ 105,512 $ 21,187 Changes in actuarial assumptions 498,609 882,829 Net difference between projected and actual investment earnings - 86,104 Changes in proportion 45,112 - Contributions paid to PERA subsequent to the measurement date 167,136 - Total $ 816,369 $ 990,120 The $167,136 reported 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, 2024. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: 2024 $ 107,250 2025 (449,168) 2026 70,904 2027 (69,873) 45 110 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 3: Defined Benefit Pension Plans -Statewide (Continued) E. Long-term Expected Return on Investment The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return using a building-block method in which best -estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Long-term Target Expected Real Asset Class Allocation Rate of Return Domestic Equity 33.5 % 5.10 % International Equity 16.5 5.30 Fixed Income 25.0 0.75 Private Markets 25.0 5.90 Total 100.0 % F. Actuarial Assumptions The total pension liability in the June 30, 2023, actuarial valuation was determined using an individual entry -age normal actuarial cost method. The long-term rate of return on pension plan investments used in the determination of the total liability is 7.0 percent. This assumption is based on a review of inflation and investments return assumptions from a number of national investment consulting firms. The review provided a range of return investment return rates deemed to be reasonable by the actuary. An investment return of 7.0 percent was deemed to be within that range of reasonableness for financial reporting purposes. Inflation is assumed to be 2.25 percent for the General Employees Plan. Benefit increases after retirement are assumed to be 1.25 percent for the General Employees Plan. Salary growth assumptions in the General Employees Plan range in annual increments from 10.25 percent after one year of service to 3.0 percent after 27 years of service. Mortality rates for the General Employees Plan are based on the Pub-2010 General Employee Mortality Table. The tables are adjusted slightly to fit PERA's experience. Actuarial assumptions for the General Employees Plan are reviewed every four years. The most recent four-year experience study for the General Employees Plan was completed in 2022. The assumption changes were adopted by the Board and became effective with the July 1, 2023 actuarial valuation. The following changes in actuarial assumptions and plan provisions occurred in 2023: General Employees Fund Changes in Actuarial Assumptions - The investment return assumption and single discount rate were changed from 6.5 percent to 7.0 percent. 46 111 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 3: Defined Benefit Pension Plans -Statewide (Continued) Changes in Plan Provisions - An additional one-time direct state aid contribution of $170.1 million will be contributed to the Plan on October 1, 2023. - The vesting period of those hired after June 30, 2010, was changed from five years of allowable service to three years of allowable service. - The benefit increase delay for early retirements on or after January 1, 2024, was eliminated. - A one-time, non -compounding benefit increase of 2.5 percent minus the actual 2024 adjustment will be payable in a lump sum for calendar year 2024 by March 31, 2024. G. Discount Rate The discount rate used to measure the total pension liability in 2023 was 7.0 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, Police and Fire Funds and Correctional Plans were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. H. Pension Liability Sensitivity The following presents the Utilities' proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the Utilities' proportionate share of the net pension liability would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate: 1 Percent 1 Percent Decrease (6.0%) Current (7.0%) Increase (8.0%) General Employees Fund $ 5,698,079 $ 3,220,927 $ 1,183,376 I. Pension Plan Fiduciary Net Position Detailed information about each pension plan's fiduciary net position is available in a separately -issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.ora. 47 112 Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 4: Other Information A. Territorial Acquisition Agreement In 2015, the Utilities entered into an agreement to transfer ownership of electric plants and electric service to customers in eight designated areas receiving service from Connexus Energy. Specific payment terms have been negotiated for 5 years, and if any of the eight areas are not acquired within this timeframe, the payment terms may be renegotiated. 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 payments made were $411,157 in 2017, $570,725 in 2018, $751,860 in 2019, $834,185 in 2020, $857,538 in 2021, $924,187 in 2022, $940,467 in 2023, and $933,159 in 2024. All amounts paid are included in property and equipment, and loss of revenue payments are included in intangible assets. B. Risk Management The Utilities are 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 obtain insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT), which is a risk sharing pool with approximately 800 other governmental units. The Utilities pays an annual premium to LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self-sustaining through member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled claims have not exceeded the Utilities' coverage in any of the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred, and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The Utilities' management is not aware of any incurred but not reported claims. C. Commitments The Utilities entered into an agreement in 2007 with Central Minnesota Municipal Power Agency (CMMPA) to acquire an interest in the CAPX Initiative Brookings Project, a power transmission line in Minnesota. The project is a 250-mile, 345 kV AC transmission line with a rating of 2,300 MW, between Brookings, South Dakota, and the Southeast Twin Cities. In 2011 there was increased opportunity for investment, and subsequent agreements provide the Utilities with an ownership share of $5.6 million or 18.89 percent. Revenues have been less than originally projected due to the decrease in Rate of Return (ROE) issued by FERC. The original ROE 12.38% has been reduced to 10.52%. The current return of 10.52% on this investment through CMMPA is designed to provide approximately $80K annually over the 40-year project life. With majority of the distribution once the bonds are paid off. The projected under recovery in 2023 is estimated to be $104K. 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 2023 (approximately $104K) would be included in the revenue requirements in 2025. The transmission payments for 2023 were $48,540, all of which was a receivable at December 31, 2023. 48 113 REQUIRED SUPPLEMENTARY INFORMATION ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2023 49 114 Elk River Municipal Utilities Elk River, Minnesota Required Supplementary Information For the Year Ended December 31, 2023 Schedule of Employer's Share of Public Employees Retirement Association Net Pension Liability - General Employees Fund Utilities State's Proportionate Proportionate Share of the Utilities Share of Net Pension Proportionate the Net Pension Liability as a Plan Fiduciary Utilities Share of Liability Utilities Percentage of Net Position Fiscal Proportion of the Net Pension Associated with Covered Covered as a Percentage Year the Net Pension Liability the Utilities Total Payroll Payroll of the Total Ending Liability (a) (b) (a+b) (c) (a/c) Pension Liability 06/30/23 0.0576 % $ 3,220,927 $ 88,808 3,309,735 $ 4,581,529 70.3 % 83.1 % 06/30/22 0.0570 4,514,419 132,415 4,646,834 4,272,380 105.7 76.7 06/30/21 0.0550 2,348,746 71,625 2,420,371 3,957,147 59.4 87.0 06/30/20 0.0540 3,237,547 99,718 3,337,265 3,848,179 84.1 79.0 06/30/19 0.0520 2,874,964 89,329 2,964,293 3,680,233 78.1 80.2 06/30/18 0.0520 2,884,747 94,615 2,979,362 3,494,641 82.5 79.5 06/30/17 0.0540 3,447,324 43,337 3,490,661 3,478,022 99.1 75.9 06/30/16 0.0508 4,124,708 53,908 4,178,616 3,151,720 130.9 68.9 06/30/15 0.0478 2,477,244 - 2,477,244 2,811,834 88.1 78.2 Note: Schedule is intended to show 10-year trend. Additional years will be reported as they become available. Schedule of Employer's Public Employees Retirement Association Contributions - General Employees Fund Year Ending Statutorily Required Contribution (a) Contributions in Relation to the Statutorily Required Contribution (b) Contribution Deficiency (Excess) (a-b) Utilities Covered Payroll (c) Contributions as a Percentage of Covered Payroll (b/c) 12/31 /23 $ 339,650 $ 339,650 - $ 4,528,667 7.5 % 12/31/22 333,178 333,178 - 4,442,376 7.5 12/31 /21 312,376 312,376 - 4,165,013 7.5 12/31 /20 289,644 289,644 - 3,861,920 7.5 12/31 /19 285,668 285,668 - 3,808,909 7.5 12/31 /18 265,424 265,424 - 3,538,988 7.5 12/31 /17 257,780 257,780 - 3,437,072 7.5 12/31 /16 244,012 244,012 - 3,253,493 7.5 12/31 /15 230,074 230,074 - 3,067,659 7.5 Note: Schedule is intended to show 10-year trend. Additional years will be reported as they become available. 50 115 Elk River Municipal Utilities Elk River, Minnesota Required Supplementary Information (Continued) For the Year Ended December 31, 2023 Notes to the Required Supplementary Information - General Employees Fund Changes in Actuarial Assumptions 2023 - The investment return assumption and single discount rate were changed from 6.5 percent to 7.00 percent 2022 - The mortality improvement scale was changed from Scale MP-2020 to Scale MP-2021. 2021 - The investment return and single discount rates were changed from 7.50 percent to 6.50 percent, for financial reporting purposes. The mortality improvement scale was changed from Scale MP-2019 to Scale MP-2020. 2020 - The price inflation assumption was decreased from 2.50% to 2.25%. The payroll growth assumption was decreased from 3.25% to 3.00%. Assumed salary increase rates were changed as recommended in the June 30, 2019 experience study. The net effect is assumed rates that average 0.25% less than previous rates. Assumed rates of retirement were changed as recommended in the June 30, 2019 experience study. The changes result in more unreduced (normal) retirements and slightly fewer Rule of 90 and early retirements. Assumed rates of termination were changed as recommended in the June 30, 2019 experience study. The new rates are based on service and are generally lower than the previous rates for years 2-5 and slightly higher thereafter. Assumed rates of disability were changed as recommended in the June 30, 2019 experience study. The change results in fewer predicted disability retirements for males and females. The base mortality table for healthy annuitants and employees was changed from the RP-2014 table to the Pub-2010 General Mortality table, with adjustments. The base mortality table for disabled annuitants was changed from the RP- 2014 disabled annuitant mortality table to the PUB-2010 General/Teacher disabled annuitant mortality table, with adjustments. The mortality improvement scale was changed from Scale MP-2018 to Scale MP-2019. The assumed spouse age difference was changed from two years older for females to one year older. The assumed number of married male new retirees electing the 100% Joint & Survivor option changed from 35% to 45%. The assumed number of married female new retirees electing the 100% Joint & Survivor option changed from 15% to 30%. The corresponding number of married new retirees electing the Life annuity option was adjusted accordingly. 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 through 2044 and 2.5 percent per year thereafter. 2016 - The assumed post -retirement benefit increase rate was changed from 1.0 percent per year through 2035 and 2.5 percent per year thereafter to 1.0 percent per year for all future years. The assumed investment return was changed from 7.9 percent to 7.5 percent. The single discount rate was changed from 7.9 percent to 7.5 percent. Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation. 2015 - The assumed post -retirement benefit increase rate was changed from 1.0 percent per year through 2030 and 2.5 percent per year thereafter to 1.0 percent per year through 2035 and 2.5 percent per year thereafter. 51 116 Elk River Municipal Utilities Elk River, Minnesota Required Supplementary Information (Continued) For the Year Ended December 31, 2023 Notes to the Required Supplementary Information - General Employees Fund — (Continued) Chanaes in Plan Provisions 2023 - An additional one-time direct state aid contribution of $170.1 million will be contributed to the Plan on October 1, 2023. The vesting period of those hired after June 30, 2010, was changed from five years of allowable service to three years of allowable service. The benefit increase delay for early retirements on or after January 1, 2024, was eliminated. A one-time, non -compounding benefit increase of 2.5 percent minus the actual 2024 adjustment will be payable in a lump sum for calendar year 2024 by March 31, 2024. 2022 — There were no changes in plan provisions since the previous valuation. 2021 - There were no changes in plan provisions since the previous valuation 2020 - Augmentation for current privatized members was reduced to 2.0% for the period July 1, 2020 through December 31, 2023 and 0.0% after. Augmentation was eliminated for privatizations occurring after June 30, 2020. 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 accrued for 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 attainment of 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 increase is 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 in calendar years 2019 to 2031. The state's contribution changed from $16,000,000 to $6,000,000 in calendar years 2019 to 2031. 2016 - There were no changes in plan provisions since the previous valuation. 2015 - On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Fund, which increased the total pension liability by $1.1 billion and increased the fiduciary plan net position by $892 million. Upon consolidation, state and employer contributions were revised. 52 117 SUPPLEMENTARY INFORMATION ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2023 53 118 Elk River Municipal Utilities Elk River, Minnesota Supplementary Information Schedule of Operating Revenues and Expenses (Continued on the Following Page) For the Year Ended December 31, 2023 Operating Revenues Charges for services Elk River Otsego Big Lake Dayton Substation credit Connection maintenance Customer penalties Total Operating Revenues Operating Expenses Purchased power Production Supervision and labor Natural gas Supplies and power for pumping Maintenance of structures Maintenance of equipment Maintenance of plant Total production Transmission and distribution Supervision and labor Maintenance of overhead lines Maintenance of underground lines Maintenance of station equipment Transportation Maintenance of customer service Maintenance of customer meters Miscellaneous Total transmission and distribution Services to City Depreciation and amortization Customer accounts expense Meter reading Billing and collection Bad debts Total customer accounts expense Electric Water Total $ 39,750,829 $ 3,305,148 $ 43,055,977 3,752,121 - 3,752,121 216,031 - 216,031 267,288 - 267,288 4,800 - 4,800 151,296 55,733 207,029 308,374 23,118 331,492 44,450,739 3,383,999 47,834,738 31,232,788 31,232,788 120,166 63,018 183,184 32,156 - 32,156 94,421 364,852 459,273 19,305 104,829 124,134 19,572 135,182 154,754 29,437 - 29,437 315,057 667,881 982,938 28,030 7,030 35,060 674,913 - 674,913 388,783 - 388,783 194,122 - 194,122 279,657 15,831 295,488 19,597 55,221 74,818 128,157 229,992 358,149 510,854 13,492 524,346 2,224,113 321,566 2,545,679 253,564 - 253,564 3,177,120 1,174,752 4,351,872 43,805 2,238 46,043 360,606 86,430 447,036 29,142 (28) 29,114 433,553 88,640 522,193 54 119 Elk River Municipal Utilities Elk River, Minnesota Supplementary Information Schedule of Operating Revenues and Expenses (Continued) For the Year Ended December 31, 2023 Operating Expenses (Continued) General and administrative Salaries Employee pensions and benefits Dues Office supplies and billing expense Office utilities and maintenance Consulting fees Legal and audit Environmental compliance Conservation improvement project Insurance Telephone Advertising Education and meetings Miscellaneous Total general and administrative Total Operating Expenses Operating Income Nonoperating Revenues (Expenses) Interest income (loss) Miscellaneous revenue Interest expense and other Gain/(loss) on sale of capital assets Total Nonoperating Revenues Income before Contributions and Transfers Capital Contributions Connection fees Contributions from customers Transfers from Other City Funds Transfers to Other City Funds Total Contributions and Transfers Change in Net Position Net Position, January 1 Net Position, December 31 Electric Water Total $ 792,284 $ 230,046 $ 1,022,330 2,446,998 474,023 2,921,021 124,702 73,690 198,392 113,010 24,422 137,432 36,995 9,249 46,244 2,733 10,266 12,999 40,468 10,032 50,500 23,454 1,364 24,818 359,475 3,442 362,917 201,330 51,107 252,437 36,236 8,249 44,485 13,766 4,117 17,883 223,111 36,454 259,565 6,995 6,677 13,672 4,421,557 943,138 5,364,695 42,057,752 3,195,977 45,253,729 2,392,987 188,022 2,581,009 158,310 57,360 215,670 928,553 418,451 1,347,004 (811,210) (36,444) (847,654) 59,556 2,940 62,496 335,209 442,307 777,516 2,728,196 630,329 3,358,525 - 253,341 253,341 489,452 - 489,452 - 1,348,943 1,348,943 (1,620,378) - (1,620,378) (1,130,926) 1,602,284 471,358 1,597,270 2,232,613 3,829,883 46,983,961 30,887,404 77,871,365 $ 48,581,231 $ 33,120,017 $ 81,701,248 55 120 Elk River Municipal Utilities Elk River, Minnesota Electric Fund Summary of Operations and Unaudited Statistics For the Years Ended December 31, 2014 through December 31, 2023 Summary of Operations Operating Revenues Sales of electricity Other operating revenues (expenses) Total Operating Revenues Operating Expenses Purchased power Distribution Services to the City Depreciation Other operating expenses Total Operating Expenses Operating Income Capital Contributions Transfers to Other City Funds Special Item Nonoperating Revenues Net Income Percent of Change Sales of electricity Purchased power Percent of Revenues Purchased power Unaudited Statistics Miscellaneous kWh's purchased kWh's sold Line loss Percent of line loss Revenues Per kWh Sold Cost Per kWh Purchased Number of Customers Total Contribution/Transfers to City $ 31,514,246 $ 32,704,279 $ 34,569,098 $ 36,458,061 (147,561) (152,557) (104,702) (337,237) 31,366,685 32,551,722 34,464,396 36,120,824 21,994,652 22,034,307 23,991,069 25,402,576 2,161,352 2,330,969 2,041,810 2,385,263 530,340 520,727 230,312 202,421 1,914,062 1,922,359 2,005,093 2,046,935 2,791,717 3,087,792 3,558,315 3,357,276 29,392,123 29,896,154 31,826,599 33,394,471 1,974,562 2,655,568 2,637,797 2,726,353 - - - 209,051 (797,835) (824,743) (1,089,287) (1,113,264) - - 330,923 - 152,375 267,243 8,991 145,034 $ 1,329,102 $ 2,098,068 $ 1,888,424 $ 1,967,174 1.728% 3.776% 5.702% 5.464% 3.480% 0.180% 8.881 % 5.883% 70.121 % 67.690% 69.611 % 70.327% 288,320,724 294,441,957 311,990,595 320,349,631 274,546,059 282,265,268 301,838,731 313,952,561 13,774,665 12,176,689 10,151,864 6,397,070 4.778% 4.136% 3.254% 1.997% $ 0.1148 $ 0.1159 $ 0.1145 $ 0.1161 $ 0.0763 $ 0.0748 $ 0.0769 $ 0.0793 9,449 10,499 10,816 11,448 $ 797,835 $ 824,743 $ 1,089,287 $ 1,113,264 56 121 $ 39,039,573 $ 37,640,985 $ 37,714,965 $ 39,719,268 $ 42,395,048 $ 43,986,269 (259,668) 453,648 207,542 1,041,676 1,428,008 464,470 38,779,905 38,094,633 37,922,507 40,760,944 43,823,056 44,450,739 26,710,514 24,851,301 24,240,440 28,169,146 31,544,604 31,232,788 2,660,231 2,546,634 2,458,699 2,585,796 2,808,964 2,539,170 215,296 210,791 229,086 224,814 231,861 253,564 2,297,349 2,856,258 2,896,839 2,957,685 3,062,751 3,177,120 3,318,016 4,090,102 4,133,940 3,688,401 4,763,425 4,855,110 35,201,406 34,555,086 33,959,004 37,625,842 42,411,605 42,057,752 3,578,499 3,539,547 3,963,503 3,135,102 1,411,451 2,392,987 352,104 125,764 174,557 385,316 298,935 489,452 (1,188,664) (1,157,445) (1,340,218) (1,407,734) (1,531,633) (1,620,378) 218,586 82,440 98,427 (193,410) (62,440) 335,209 $ 2,960,525 $ 2,590,306 $ 2,896,269 $ 1,919,274 $ 116,313 $ 1,597,270 7.081 % -3.582% 0.197% 5.314% 6.737% 3.753% 5.149% -6.961 % -2.458% 16.207% 11.983% -0.988% 68.877% 65.236% 63.921 % 69.108% 71.982% 70.264% 339,917,944 336,570,637 337,016,741 347,974,385 344,137,778 341,681,928 331,124,011 325,981,176 324,469,638 341,047,710 333,644,951 329,773,349 8,793,933 10,589,461 12,547,103 6,926,675 10,492,827 11,908,579 2.587% 3.146% 3.723% 1.991 % 3.049% 3.485% $ 0.1179 $ 0.1155 $ 0.1162 $ 0.1165 $ 0.1271 $ 0.1334 $ 0.0786 $ 0.0738 $ 0.0719 $ 0.0810 $ 0.0917 $ 0.0914 11,983 12,244 12,365 12,789 12,955 13,232 $ 1,188,664 $ 1,157,445 $ 1,340,218 $ 1,407,734 $ 1,531,633 $ 1,620,378 57 122 Elk River Municipal Utilities Elk River, Minnesota Water Fund Summary of Operations and Unaudited Statistics For the Years Ended December 31, 2014 through December 31, 2023 Summary of Operations Operating Revenues Sales of water Operating Expenses Operating expenses less depreciation Services to City Depreciation Total Operating Expenses Total Operating Income (Loss) Percent of Change Sales of water Unaudited Statistics Miscellaneous Water Pumped (Gallons) Water Sold (Gallons) Percent of Line Loss Revenues Per 1,000 Gallons Pumped Revenues Per 1,000 Gallons Sold Number of Customers Water Supplier Services Flushing Hydrants Back Washing Fire Department Use New Water Main Disinfectant and Flushing Meter Inaccuracy Street and Sewer Maintenance Water Tower Paint and Clean/Maintenance Well Maintenance Water Line and Irrigation Leaks Water Supplier Services 2014 2015 2016 2017 $ 2,148,327 $ 2,202,537 $ 2,173,521 $ 2,326,245 1,267,019 1,277,466 1,325,831 1,614,095 - 5,719 - - $ (202,462) $ (211,758) $ (300,620) $ (479,744) (5.70%) 2.52% (1.32%) 7.03% 782,110,000 799,974,000 801,603,000 788,182,000 672,760,000 676,842,000 666,656,000 686,032,000 13.98% 15.39% 16.83% 12.96% $ 2.75 $ 2.75 $ 2.71 $ 2.95 $ 3.19 $ 3.25 $ 3.26 $ 3.39 4,676 4,672 4,903 5,011 2014 2015 2016 2017 47,000,000 45,000,000 46,816,000 47,470,500 3,922,000 4,000,000 4,430,000 4,125,542 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 3,000,000 - - - 1,000,000 473,400 1,800,000 1,550,000 1,000,000 3,700,000 4,000,000 4,000,000 - 700,000 7,358,000 7,000,000 7,000,000 - - - 72,922,000 63,873,400 74,404,000 74,146,042 58 123 2018 2019 2020 2021 2022 2023 $ 2,515,821 $ 2,303,670 $ 2,674,544 $ 3,120,660 $ 2,988,835 $ 3,383,999 1,430,539 1,521,719 1,540,043 2,004,037 2,050,084 2,021,225 - 1,583 463 1,259 540 - 1,193,745 1,147,149 1,133,179 1,139,802 1,117,357 1,174,752 2,624,284 2,670,451 2,673,685 3,145,098 3,167,981 3,195,977 $ (108,463) $ (366,781) $ 859 $ (24,438) $ (179,146) $ 188,022 8.15% (8.43%) 16.10% 16.68% (4.22%) 13.22% 2018 2019 2020 2021 2022 2023 822,546,000 778,595,000 872,733,000 977,238,000 886,422,000 1,004,271,000 737,689,000 664,924,000 756,383,000 863,076,000 805,096,000 952,872,000 10.32% 14.60% 13.33% 11.68% 9.17% 5.12% $ 3.06 $ 2.96 $ 3.06 $ 3.19 $ 3.37 $ 3.37 $ 3.41 $ 3.46 $ 3.54 $ 3.62 $ 3.71 $ 3.55 5,140 5,256 5,320 5,430 5,551 5,611 Gallons 2018 2019 2020 2021 2022 2023 47,894,000 48,240,500 53,779,500 19,850,600 3,823,903 3,850,801 6,441,523 5,967,131 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 1,550,000 1,550,000 1,550,000 1,550,000 4,000,000 4,000,000 5,000,000 4,000,000 7,000,000 7,000,000 7,000,000 7,000,000 23,831,500 5,130,934 5,000,000 2,021,250 1,550,000 4,000,000 7,000,000 25,390,750 5,771,470 5,000,000 3,003,000 1,550,000 3,000,000 7,000,000 74,267,903 74,641,301 83,771,023 48,367,731 48,533,684 50,715,220 59 124 THIS PAGE IS LEFT BLANK INTENTIONALLY 60 125 OTHER REPORT ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2023 61 126 THIS PAGE IS LEFT BLANK INTENTIONALLY 62 127 AlkAo %0*04 INDEPENDENT AUDITOR'S REPORT ON MINNESOTA LEGAL COMPLIANCE Public Utilities Commission Elk River Municipal Utilities Elk River, Minnesota AbdoSolutionsxom We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial statements of the Elk River Municipal Utilities (the Utilities) of the City of Elk River, Minnesota (the City) as of and for the year ended December 31, 2023, and the related notes to the financial statements which collectively comprises the Utilities basic financial statements, and have issued our report thereon dated April 9, 2024 In connection with our audit, nothing came to our attention that caused us to believe that the Utilities failed to comply with the provisions of the contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, and miscellaneous provisions sections of the Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minn. Stat. § 6.65, insofar as they relate to accounting matters. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the Utilities' noncompliance with the above referenced provisions, insofar as they relate to accounting matters. This report is intended solely for the information and use of those charged with governance and management of the Public Utilities Commission, and the State Auditor and is not intended to be, and should not be, used by anyone other than these specified parties. Abdo Minneapolis, Minnesota April 9, 2024 Lighting the path forward 63 128