ERMUSR FINIANCIALS 04-17-2008FINANCIAL INDEX
FINANCIALS Feb-08 PAGE
COMBINED BALANCE SHEET .............. 1
ELECTRIC INCOME STATEMENT .............. 2
WATER INCOME STATEMENT .............. 3
CASH FLOW BY MONTH .............. 4
ELECTRIC CASH FLOW DETAIL .............. 5
WATER CASH FLOW DETAIL .............. 6
GRAPH #1 ELECTRICAL PURCHASES .............. 7
GRAPH #2 ELECTRIC SALES .............. 8
GRAPH #3 ELECTRIC SALES/CUSTOMER CLASS .............. 9
GRAPH #4 WATER PRODUCTION .............. 10
GRAPH #5 WATER SALES .............. 11
DETAILED ELECTRIC P & L WITH BUDGET INFORMATION....... 12
.............. 13
.............. 14
.............. 15
DETAILED WATER P & L WITH BUDGET INFORMATION.......... 16
.............. 17
.............. 18
PROFIT AND LOSS NARRATIVE .............. 19
.............. 20
COMBINED BALANCE SHEETS
February 2008
ASSETS
CURRENT ASSETS
CASH & TEMPORARY INVESTMENTS
ACCOUNTS RECEIVABLE
INVENTORIES
PREPAID ITEMS
CONSTRUCTION IN PROGRESS
TOTAL CURRENT ASSETS
ELECTRIC
773,354.50
1,893,625.22
1,373,888.98
113,712.48
1,649,396.84
5,803,978.02
WATER
1,037,200.46
368,476.69
50,331.18
7, 781.78
301,439.50
1,765,229.61
RESTRICTED ASSETS
BOND RESERVE FUND
EMERGENCY RESERVE FUND
UNRESTRICTED RESERVE FUND
TOTAL RESTRICTED ASSETS
1,334,862.15
1,214,131.21
116,658.47
2,665,651.83
2,630,035.70
1,006,673.98
135,493.00
3,772,202.68
FIXED ASSETS
PRODUCTION
LFG PROJECT
TRANSMISSION
DISTRIBUTION
GENERAL
FIXED ASSETS (COST)
LESS ACCUMULATED DEPRECIATION
TOTAL FIXED ASSETS, NET
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND FUND EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE
SALARIES AND BENEFITS PAYABLE
DUE TO CITY
DUE TO OTHER FUNDS
BONDS PAYABLE-CURRENT PORTION
TOTAL CURRENT LIABILITIES
LONG TERM LIABILITIES
LFG PROJECT
DUE TO COUNTY
BONDS PAYABLE, LESS CURRENT PORTION
TOTAL LONG TERM LIABILITIES
TOTAL LIABILITIES
FUND EQUITY
CAPITAL ACCOUNT CONST COST
CONTRIBUTED CAPITAL
RETAINED EARNINGS
TOTAL FUND EQUITY
2,342,563.74
3,696,648.93
453,005.00
29,818,015.69
10,024,580.84
46,334,814.20
(18,113,185.26)
28,221,628.94
138,201.83
9,497,241.34
20,052,560.93
877,876.32
30,427,678.59
(7,243,271.63)
23,184,406.96
136,873.81
36,829,460.62 28,858,713.06
1,275, 793.58
217,592.46
81,160.95
222,768.41
190,000.00
1,987,315.40
2,701,994.04
0.08
7,986,545.34
10,688,539.46
71, 767.91
71,179.03
13,014.21
395,000.00
550,961.15
7,606,250.00
7,606,250.00
12,675,854.86
8,157,211.15
733,400.00
23,420,205.76
24,153,605.76
20,701,501.91
20,701,501.91
TOTAL LIABILITIES & FUND EQUITY 36,829,460.62 28,858,713.06
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ELk Rlver Municipal Utilities Monthly Electrical Demand
50
45 .........~-~,.~
i
~ ~
~ 40 i '-
~ ~
.~ 35 ~ ~ •... .-..-
~ 30 ~~~ i -
~ 25 ~
20
15
F ~~Q ~o O~
Months
Elk River Municipal Utilities Monthly Energy
Purchases
24,000
3 22,000
y 20,000
r 18,000
L
a 16,000
rn
= 14,000
W
12,000
i~~~
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2U07
,~~~ac1 ~~`~ac1 ~~~~'~ PQ~\ ~a~ ,J~~ ~J~~ J~Jy~ ~~,o~~ oG~oo~~ ,~~~~~ o~~~~`
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Month
Elk River Municipal Utilities Monthly Total Electric Load
24, 000
22,000
3 20,000
18,000
16,000
14,000
as
w 12,000
10, 000
8,000
~~
Elk River Municipal Utilities Monthly Electric Sales
$2,500,000
$2,000,000
~a
c $1,500,000
c
p!
$1,000,000
~~~ ,JCS ,J~~ J~Jy~ Q~~~•• ~o~~c ~~~c ~~~~
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2007
$500,000
~~a~ ~J~c1 a~°r PQ`\ ~a~ ~J~~ ~~\~ ~°'Jy'` Q'`~cc•• ~°~~c F~~` ~~~i
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Month ~ O
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ELk River Municipal Utilities Monthly Residential, Commerical &
Industrial Loads
12,000
10,000
3 8,000
s,ooo
N
a
R
~ 4,000
2,000
0
A
c
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,a~Jac1 ~~`J~c1 ~~~Gr PQ~\ ~a~ ,~.~~ ~~~~ P~~~y~ ~~~,~~~ a'~o~~c e~~~c ~~~~~
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Month
Elk Rlver Municipal Utilities Monthly Residential, Commerical &
Industrial Sales
$1,000,000
$900, 000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
.. ` ,1
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2007
CQmmerctal ,
Jai Jai a~°r PQ~\ ~a~ J~~ ~J~~ Jy~ ~~c ~~c ~~~ ~~~
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Elk Rlver Municipal Utilities Monthly Water Pumpage
160
140
~a
~ 120
0
100
80
d
a 60
~ 40
a
20
0
.•'~.
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Month
Elk River Municipal Utilities Peak Day Pumpage
8
l
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~
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~
5
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Elk River Municipal Utilities Monthly Water Sales
160
140
120
R
c 100
0
80
c
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d
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20
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Elk River Municipal Utilities Monthly Water Sales
$450, 000
$400,000
$350,000
~ $300,000
o $250,000
•y $200,000
N $150,000
$100,000
$50,000
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PROFIT AND LOSS NARRATIVE
Electric P&L
The Operating Revenue is up 17.5% over the prior year, due in part to the usage (usage is
up 9.5%) and rate increases. The groups showing the largest increases from last year are
residential customers and demand customers.
Interest Income is up as we are carrying higher balances in reserves (as intended.) The
credits that you see posted in customer penalties are for prior months' penalties that were
removed for various reasons, at the discretion of the Assistant Office Manager and the
Collections Clerk.
Expenses are up 22% over the prior year. Purchased power is up 25% year to date and
some of that is related to the increased usage. A larger cost component of this was
discussed at the last meeting and will be higher for the next several months as Connexus
passes along their power cost adjustments (PCA.) We are, in turn, passing some of this
along to our customers, but not all of it. Typically, we have refunded PCA to customers
in the summer months when the bills are higher. This year, that "refund" is coming in the
form of the reduced PCA now. We will continue to monitor this.
Operating and Maintenance expenses that are also up are Natural Gas (which actually has
two months' payments reflected instead of one because the bill was paid earlier than
normal this month) and Maintenance of Engines as the Worthington engine at the plant
had some special cleaning done for $6,800.
Distribution Expense is increased due to the purchase of some safety items (road signs
and cones to meet safety requirements $6,500 and "do not operate" tags for equipment
$2,000.) General Maintenance expenses are up due to more general preventative
maintenance that we are doing. This is an area that we will most likely see grow in the
future years as the building of new infrastructure slows down and we focus on
maintaining what we have already built.
Administrative Expenses are up in the following categories. Office Supplies for the
purchase of seven printers for the office and three new computers $4,620. These were
budgeted items for replacement and aren't able to be capitalized because they do not meet
the $5,000 individual minimum capitalization requirement. Insurance is up from last year
and is a timing issue more than an actual cost issue. The insurance term is from April to
April and the prior year's term (2006) was allocated through December, not into the next
year -however, we should have comparable numbers at the end of the year. Schools and
Meetings expense is high this month due to training that staff have taken advantage of
this time of year when things are typically slower.
(q
Water P&L
Water Sales are pretty consistent from prior years. The increase in interest expense is the
same explanation as the electric, increased reserves balances to draw the interest from.
The Connection Fees are up, and as has been mentioned before, this is not a category that
is consistent at all from month to month or year to year.
Water Production expense is up over last year and Water Distribution expense is down
from last year. It is a difference in focus area this year for the labor components.
Pumping expense has an increase that is related to the natural gas bills being paid early
and so there is two months of expense appearing the total. (Also, an explanation on the
detail printouts for the maintenance of wells (account 62-710-7220) having $21, 551 in
the current amounts and only $18,737 in the year to date amounts is as follows. There
was an audit accrual of $12,314 for work performed in December and paid in February.
The accrual was reversed in January so there is no net effect to the financials for this
year, but both January and February are skewed in the presentation because of it.)
Administration expense has the same insurance expense timing issue that was mentioned
above in the electric explanation. The Dues and Subscriptions expense is another timing
issue. We pay quarterly to the Minnesota Department of Health $6,307and it was paid
early this year, in February, as opposed to March.
7 (`~
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
MANAGEMENT LETTER
YEAR ENDED
DECEMBER 31, 2007
~' 'ABDO
w, • EICK &
J C•
•,-
~ 1 W LLP
Cert~d Public Accountants & Consultants
ABDO
EICK &
11 ~, ~ ~Y.IJ~ .L .L~1 l-J LLP
Certified Public Accountants & Consultaatits
April 7, 2008
Grandview Squaze
5201 Eden Avenue
Suite 370
Edina, MN 55436
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited the fmancial statements of the Elk River Municipal Utilities (the Utilities) for year ended December 31, 2007 and
have issued our report thereon April 7, 2008. Professional standards require that we provide you with the following information
related to our audit.
Our Responsibility Under Auditing Standards Generally Accepted in the United States
As stated in our engagement letter, our responsibility, as described by professional standards, is to express opinions about whether
the fmancial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity
with accounting principles generally accepted in the United States. Our audit of the fmancial statements does not relieve you or
management of your responsibilities.
Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements
are free of material misstatement. As part of our audit, we considered the internal control of the Utilities. Such considerations
were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to
your responsibilities in overseeing the fmancial reporting process. However, we are not required to design procedures specifically
to identify such matters.
Significant Audit Findings
In planning and performing our audit, we considered the Utilities' internal control over fmancial reporting as a basis for designing
our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of
expressing an opinion on the effectiveness of the Utilities' internal control over fmancial reporting. Accordingly, we do not
express an opinion on the effectiveness of the Utilities' internal control over fmancial reporting.
Our consideration of internal control over fmancial reporting was for the limited purpose described in the preceding paragraph and
would not necessarily identify all deficiencies in internal control over fmancial reporting that might be significant deficiencies or
material weaknesses. However, as discussed below, we identified certain deficiencies in internal control that we consider to be
significant deficiencies and other significant deficiencies in internal control over fmancial reporting that we consider to be material
weaknesses.
A control deficiency 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 misstatements on a timely basis. A significant deficiency is a
control deficiency, or a combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record,
process, or report fmancial data reliably in accordance with generally accepted accounting principles such that there is more than a
remote likelihood that a misstatement of the entity's fmancial statements that is more than inconsequential will not be prevented or
detected by the entity's internal control. We consider the deficiencies listed on the following pages to be significant deficiencies in
internal control over fmancial reporting.
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Elk River Municipal Utilities
Apri17, 2008
Page 2
2007-1 Segregation of Duties
Condition: During our audit we reviewed procedures over cash disbursements, payroll and
investments and found areas of internal control that can be improved.
Criteria: There are four general categories of duties: authorization, custody, record keeping
and reconciliation. In an ideal system, different employees perform each of these
four major functions. In other words, no one person has control of two or more of
these responsibilities.
Cause: In the area of cash disbursements, the Finance Officer and one account have control
over the entire process from authorization to reconciliation. In the payroll area, the
accountant has responsibility in all steps of the process. And for Investment
activities, the Finance Officer is solely responsible for the whole process. Another
concern is the safeguarding of the stamp used for checking signing. Currently a spare
key is kept in an unlocked vault making it available to anyone -essentially giving any
employee the ability to authorize a check.
Effect: The existence of this limited segregation of duties increases the risk of fraud.
Recommendation: The most effective controls lie in striving to obtain as much segregation of duties as
possible so that no one person has complete control of any type of financial
transaction. Regarding the specific situations listed above, we would offer the
following specific recommendations: 1) That neither the Finance officer nor the
accountant have control of the check signing process or wire transfer approval
process. 2) That a person separate from the recording and authorizing be given
responsibility for the reconciliation of cash and investments. 3) Stronger safeguards
of the signature stamps and consideration of requiring at least one actual signature.
Management response.• Some items have already been implemented to improve internal control and
segregation of duties starting in March 2008. 1) We have hired an assistant
accountant that does the bank reconciliation. The Finance Director will review these
now instead of actually performing them. 2) The key that was in the vault is now in
the possession of the Finance Director at all times. 3) Each check required two
signatures. We now have two signature stamps with an individual signature on each
stamp. One is kept locked in the possession of the accounts payable/payroll clerk
and one is kept locked in possession of the Finance Director. We are looking at
having a third one created that would be kept locked in possession of the General
Manager.
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Elk River Municipal Utilities
April 7, 2008
Page 3
A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote
likelihood that a material misstatement of the fmancial statements will not be prevented or detected by the entity's internal control
We believe the following deficiency constitutes a material weakness.
2007-2 Material Audit Adjustments
Condition: During our audit, adjustments were needed to correct recording of accounts payable,
accumulated depreciation, depreciation expense, and restricted cash.
Criteria: The fmancial statements are the responsibility of the Utilities' management.
Cause.• The Utilities has, in the past, relied on the audit for specific adjustments.
Effect: This indicates that it would be likely that a misstatement may occur and not be
detected by the Utilities' System of internal control. The audit firm can not serve as a
compensating control over this deficiency.
Recommendation: We recommend that management review each journal entry, obtain an understanding
of why the entry was necessary and modify current procedures to ensure that future
corrections are not needed.
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. However, the objective of our tests was not
to provide an opinion on compliance with such provisions. We noted no instances ofnon-compliance during our audit.
Planned Scope and Timing of the Audit
We performed the audit according to the planned scope and timing.
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our
engagement letter, we will advise management about the appropriateness of accounting policies and their application. 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 was not changed during the year ended December 31, 2007. We noted no
transactions entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus.
There are no significant transactions that have been recognized in the financial statements in a different period than when the
transaction occurred.
Accounting estimates are an integral part of the fmancial 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 fmancial statements and because of the possibility that future events
affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was
capital asset basis and depreciation.
Management's estimate of these accounting estimates is based on estimated or actual historical cost and the estimated useful lives
of capital assets. We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it
is reasonable in relation to the fmancial statements taken as a whole.
The disclosures in the fmancial statements are neutral, consistent, and clear. Certain fmancial statement disclosures are particularly
sensitive because of their significance to fmancial statement users.
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Elk River Municipal Utilities
Apri17, 2008
Page 4
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 total we prepared 16 journal entries. The entries that we would consider audit adjustments are listed below. Internal preparation
of all journal entries enhances the quality of internal information.
Adjusting Journal Entries JE # 3
To reverse a Due to County liability from 2004
61-0001-3212 DUE TO COUNTY
61-0920-9269 CONSERVATION IMP PROGRAM
Total
Debit
$ 20,551.00
$ 20,551.00
$ 20,551.00 $ 20,551.00
Credit
Adjusting Journal Entries JE # 10
To adj restricted cash for 2007 bond resesrve
61-0001-1282 BOND RESERVES
61-0001-1275 UNRESTRICTED RESERVES
Total
Adjusting Journal Entries JE # 12
To reverse ar incorrectly set up
61-0440-4551 GENERATION CREDIT
61-0001-1431 MISCELLANEOUS SALES/INVOICES
Total
Adjusting Journal Entries JE # 13
To adjust accrued vacation sick
61-0920-9264 EMPLOYEES SICK PAY
61-0920-9266 EMP VACATION/HOLIDAY PAY
62-0920-9264 EMPLOYEES SICK PAY
62-0920-9267 EMP VACATION/HOLIDAY PAY
61-0001-3323 ACCRUED VACATION/SICK PAY
62-0001-3323 ACCRUED VACATION/SICK PAY
Total
$ 287,500.00
$ 287,500.00
$ 287,500.00
$ 287,500.00
$ 28,842.00
$ 28,842.00
$ 28,842.00 $ 28,842.00
$ 4,388.00
1,377.00
1,463.00
459.00
$ 5,765.00
1,922.00
$ 7,687.00 $ 7,687.00
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Elk River Municipal Utilities
Apri17, 2008
Page 5
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 fmancial statements or the auditor's
report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated
Apri17, 2008.
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 fmancial statements or a determination of the type of auditor's opinion that maybe 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 governmental unit's auditors. However, these discussions occurred in the normal
course of our professional relationship and our responses were not a condition to our retention.
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Elk River Municipal Utilities
April 7, 2008
Page 6
Other Matters
The following summarizes the Utilities' operations and provides analysis:
Electric Fund
The results of the Electric fund are as follows:
Electric Operations Summary
2005 2006
Amount Percent Amount Percent Amount Percent
Operating revenues $ 15,721,566 100 % $ 16,977,717 100 % $ 19,666,543 100
Operating expenses 14,770,200 94 15,869,554 93 18,262,805 93
Operating income 951,366 6 1,108,163 7 1,403,738 7
Nonoperating revenues 704,484 4 885,695 5 713,673 4
Income before transfers 1,655,850 10 1,993,858 12 2,117,411 I 1
Transfers to City and other (392,819) (2) (417,892) (2) (485,815) (2)
Change in net assets $ 1,263,031 8 % $ 1,575,966 10 % $ 1,631,596 9
Cash and
temporary investments $ ],921,433 $ 1,595,406 $ 2,806,277
Restricted cash $ 95,000 $ 445,900 $ 733,400
Bonds and Notes Payable $ 4,916,976 $ 8,795,570 $ 11,052,804
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$-
2005 2006 2007
^ Operating revenues ^ Operating expenses ^ Cash ^ Bonds ^ Change in net assets
2007
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Elk River Municipal Utilities
April 7, 2008
Page 7
The following table gives an indication of the sources and uses of cash for the past five years:
Cash Provided (Usedl B
Year
2007
2006
2005
2004
2003
Non-capital Capital
Beginning Operating Financing Financing Investing Ending Cash
Cash Balance Activities Activities Activities Activities Balance
$ 2,041,306 $ 4,083,884 $ (485,851) $ (2,238,249) $ 138,587 $ 3,539,677
2,016,433 3,046,671 (378,560) (2,804,163) 160,925 2,041,306
2,361,856 3,059,049 (375,627) (3,063,265) 34,420 2,016,433
1,720,813 2,917,129 (221,761) (2,076,518) 22,194 2,361,856
2,250,971 2,486,997 (277,407) (2,777,275) 37,527 1,720,813
Cash Flow Summary 2003 - 2007
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$-
$(1,000,000)
$(2,000,000)
$(3,000,000)
$(4,000,000)
2007
Operating Activities fNon-capital Financing Activities
Capital Financing Activities ~~Investing Activities
The cash provided by operating activities has remained relatively strong and this was enough to keep up with the amount of capital
and debt needs in 2007. The summary above highlights the significant amount of cash needed each year for the capital activities of
the Utilities. The operations have been able to finance the capital activities for most of the last five years. We recommend that the
Utilities continue to closely monitor future cash flow with the use of projections. This will ensure that any permanent decline in
cash flow is addressed quickly.
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Elk River Municipal Utilities
April 7, 2008
Page 8
Water Fund
The results of the Water fund are as follows:
Water Operations Summary
2005 2006 2007
Amount Percent Amount Percent Amount Percent
Operating revenues $ 1,347,542 100 % $ 1,749,932 100 % $ 2,113,166 100
Operating expenses 1,828,489 136 1,860,439 106 2,112,796 100
Operating loss (480,947) (36) (110,507) (6) 370 -
Nonoperatingrevenues 674,858 50 894,835 51 472,208 22
Income before transfers 193,911 14 784,328 45 472,578 22
Contributions from
developers 533,038 40 838,674 48 292,965 14
Transfer to City (25,739) (2) (31,018) (2) (20,000) (1)
Change in net assets $ 752,688 52 % $ 1,654,020 91 % $ 785,543 35
Cash and investments $ 1,754,023 $ 2,519,224 $ 2,394,387
Bonds payable $ 6,146,250 $ 5,736,250 $ 5,311,250
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$-
2005 2006 2007
^ Operating revenues ^ Operating expenses ^ Cash ^ Bonds ^ Change in net assets
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Elk River Municipal Utilities
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Page 9
The following table gives an indication of the sources and uses of cash for the past five years
Cash Provided (Used) By
Non-capital Capital
Beginning Operating Financing Financing Investing Ending Cash
Year Cash Balance Activities Activities Activities Activities Balance
2007 $ 2,519,224 $ 1,487,526 $ (259,864) $ (1,392,434) $ 39,935 $ 2,394,387
2006 1,754,023 1,861,466 80,102 (1,238,717) 62,350 2,519,224
2005 1,739,439 1,083,049 (16,917) (1,128,375) 76,827 1,754,023
2004 3,233,474 1,157,097 (177,864) (2,494,931) 21,663 1,739,439
2003 1,918,160 1,128,351 (28,866) 2]0,930 4,899 3,233,474
Cash Flow Summary 2003 - 2007
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$-
$(500,000)
$(1,000,000)
$(1, 500,000)
$(2,000,000)
$(2,500,000)
$(3,000,000)
~~Operating Activities fNon-capital Financing Activities
~~Capital Financing Activities ~~'Investing Activities
2007
It should be noted the fund has had an operating loss for the last two years but this is a result of increased depreciation from
contributed assets. The overall cash balance has increased for the last two years. As mentioned in the analysis of the Electric fund
it is important to continue to monitor future cash need with the use of a projection.
2003 2004 2005 2006
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--
Elk River Municipal Utilities
Apri17, 2008
Page 10
Future Accounting Standard Changes
The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact on
future Utilities fmancial statements:
GASB Statement No. 43 -Financial Reporting for Postemployment Benefit Plans Other than Pension Plans
This statement is effective one year prior to the effective date of Statement No. 45 for the employer or largest participating
employer in the benefit plan for multiple-employer plans. According to Statement No. 43, "The objective of this Statement is
to establish uniform standards of fmancial reporting by State and local governmental entities for other postemployment
benefit plans (OPEB plans). The term other postemployment benefits (OPEB) refers to postemployment benefits other than
pension benefits and includes (a) postemployment healthcare benefits and (b) other types of postemployment benefits (for
example, life insurance) if provided separately from a pension plan. The term plans, in this context, refers to trust or other
funds through which assets are accumulated to fmance OPEB, and benefits are paid as they come due. This Statement
provides standards for measurement, recognition, and display of the assets, liabilities, and, where applicable, net assets and
changes in net assets of such funds and for related disclosures. The requirements of this Statement apply whether an OPEB
plan is reported as a trust or agency fund or a fiduciary component unit of a participating employer or plan sponsor, or the
plan is separately reported by a public employee retirement system (PERS) or other entity that administers the plan."
GASB Statement No. 45 -Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than
Pensions
This statement is effective in three phases based on a government's total annual revenues in the first fiscal year ending after
June 15, 1999:
• Governments that were phase 1 governments for the purpose of implementation of Statement No. 34 -those with
annual revenues of $100 million or more -are required to implement this Statement in financial statements for
periods beginning after December 15, 2006.
• Governments that were phase 2 governments for the purpose of implementation of Statement No. 34 -those with
total annual revenues of $10 million or more but less than $100 million -are required to implement this Statement in
fmancial statements for periods beginning after December 15, 2007.
Governments that were phase 3 governments for the purpose of implementation of Statement No. 34 -those with
total annual revenues of less than $10 million -are required to implement this Statement in fmancial statements for
periods beginning after December 15, 2008.
Statement No. 45 gives the following summary, "In addition to pensions, many state and local governmental employers
provide other postemployment benefits (OPEB) as part of the total compensation offered to attract and retain the services of
qualified employees. OPEB includes postemployment healthcare, as well as other forms of postemployment benefits (for
example, life insurance) when provided separately from a pension plan. This Statement establishes standards for the
measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and, if
applicable, required supplementary information (RSI) in the financial reports of state and local governmental employers."
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Ells River Municipal Utilities
Apri17, 2008
Page 11
GASB Statement No. 47 -Accounting for Termination Benefits
In general, Statement No. 47 is effective for fmancial statements for periods beginning after June 15, 2005. However, for
termination benefits that affect defined benefit postemployment benefits other than pensions, governments should implement
Statement 47 simultaneously with Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment
Benefits Other Than Pensions. The Statement provides accounting and reporting guidance for state and local governments
that offer benefits such as early retirement incentives or severance to employees that are involuntarily terminated. The
Statement requires that similar forms of termination benefits be accounted for in the same manner and is intended to enhance
both the consistency of reporting for termination benefits and the comparability of financial statements.
GASB Statement No. 48 -Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and
Future Revenues
This statement was issued September 2006 and is effective for periods beginning after December 15, 2006. Therefore, this
statement has been implemented for the current fmancial statements.
This standard provides accounting guidance for when certain transactions-such as the sale of delinquent taxes, certain
mortgages, student loans, or future revenues such as those arising from tobacco settlement agreements-should be regarded as a
sale or a collateralized borrowing. The fmancial reporting question addressed in Statement No. 48 is whether such
transactions should be reported as a sale or collateralized borrowing.
In addition to clarifying guidance on accounting for sales and pledges of receivables and future revenues, Statement No. 48
(1) requires enhanced disclosures pertaining to future revenues that have been pledged or sold; (2) provides guidance on the
sales of receivables and future revenues within the same fmancial reporting entity; and (3) provides guidance on recognizing
other assets and liabilities arising from the sale of specific receivables or future revenues.
GASB Statement No. 49 -Accounting and Financial Reporting for Pollution Remediation Obligations
This statement was issued November 2007 and is effective for periods beginning after December 15, 2007, but liabilities
should be measured at the beginning of that period so that beginning net assets can be restated.
This standard is intended to ensure that certain cost and long-term obligations related to pollution clean up not specifically
addressed by current governmental accounting standards will be included in fmancial reports. The standards set forth the key
circumstances under which a government would be required to report a liability related to pollution remediation. A
government would have to determine whether one or more components of a pollution remediation liability are recognizable if
any of the following five obligating events or triggers occurs:
• A government is compelled to take remediation action because pollution creates an imminent endangerment to the
public health or welfare or environment, leaving it little or no discretion to avoid remediation action.
• A government is in violation of a pollution prevention-related permit or license.
• The government is named, or evidence indicates it will be named, by a regulator that has identified the government
as a responsible parry or potentially responsible party for remediation, or as a government responsible for sharing
costs.
• A government is named, or evidence indicates that it will be named, in a lawsuit to compel the government to
participate in remediation.
• A government commences or legally obligates itself to commence clean up activities or monitoring or operation and
maintenance of the remediation effort.
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• ~ ~ Ells River Municipal Utilities
April 7, 2008
w~ t. Page 12
I ~,_
If any of the above bullets are met, the pollution remediation liabilities should be measured at their current value using the
expected cash flow technique, which measures the liability as a sum ofprobability-weighted amounts in a range of possible
estimated amounts. Expected recoveries from other responsible parties and from insurers reduce the amount of remediation
expense. Statement No. 49 also specifies criteria for capitalization of some pollution remediation outlays.
GASB Statement No. 50 -Pension Disclosures
This statement was issued May 2007 and is effective for periods beginning after June 15, 2007, except for requirements
related to the use of the entry age actuarial cost method for the purpose of reporting a surrogate funded status and funding
progress of plans that use the aggregate actuarial cost method, which are effective for periods for which the financial
statements and RSI contain information resulting from actuarial valuations as of June 15, 2007 or later.
This statement more closely aligns the fmancial reporting requirements for pensions with those for OPEB and, in doing so,
enhances information disclosed in notes to fmancial statements or presented as required supplementary information (RSI) by
pension plans and by employers that provide pension benefits. The reporting changes required by this statement amend
applicable note disclosure and RSI requirements of Statement No. 25 ,Financial Reporting for Defined Benefit Pension Plans
and Note Disclosures for Defined Contribution Plans, and No. 27 ,Accounting for Pensions by State and Local Governmental
Employers, to conform with requirements of Statement No. 43 ,Financial Reporting for Postemployment Benefit Plans Other
Than Pension Plans, and 45 ,Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than
Pensions. This statement requires defined benefit pension plans and sole and agent employers present the following
information related to note disclosures:
• Notes to fmancial statements should disclose the funded status of the plan as of the most recent actuarial valuation
date. Defined benefit pension plans also should disclose actuarial methods and significant assumptions used in the
most recent actuarial valuation in notes to financial statements instead of in notes to RSI.
• If the aggregate actuarial cost method is used to determine the annual required contribution of the employer (ARC),
notes to fmancial statements should disclose the funded status of the plan, and a schedule of funding progress should
be presented as RSI, using the entry age actuarial cost method. Plans and employers also should disclose that the
purpose of doing so is to provide information that serves as a surrogate for the funded status and funding progress of
the plan.
• Notes to financial statements should include a reference linking the funded status disclosure in the notes to financial
statements to the required schedule of funding progress in RSI.
• If applicable, notes to fmancial statements should disclose legal or contractual maximum contribution rates. In
addition, if relevant, they should disclose that the maximum contribution rates have not been explicitly taken into
consideration in the projection of pension benefits for fmancial accounting measurement purposes.
• If an actuarial assumption is different for successive years, notes to fmancial statements should disclose the initial
and ultimate rates.
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~ ~ ~ Elk River Municipal Utilities
Apri17, 2008
w~ C~ Page 13
I ~~_
GASB Statement No. 51 -Accounting and Financial Reporting for Intangible Assets
This statement was issued in June 2007 and is effective for periods beginning after June 15, 2009.
The new standard characterizes an intangible asset as an asset that lacks physical substance, is nonfinancial in nature, and has
an initial useful life extending beyond a single reporting period. Examples of intangible assets include easements, computer
software, water rights, timber rights, patents, and trademarks.
This statement requires that intangible assets be classified as capital assets (except for those explicitly excluded from the
scope of the new standard, such as capital leases). Relevant authoritative guidance for capital assets should be applied to these
intangible assets. The statement provides additional guidance that specifically addresses the unique nature of intangible assets,
including:
• Requiring that an intangible asset be recognized in the statement of net assets only if it is considered identifiable
• Establishing aspecified-conditions approach to recognizing intangible assets that are internally generated (for
example, patents and copyrights)
• Providing guidance on recognizing internally generated computer software
• Establishing specific guidance for the amortization of intangible assets.
*****
This report 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.
Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting
records and related data. The comments and recommendations in the report are purely constructive in nature, and should be read
in this context.
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.
Apri17, 2008
Minneapolis, Minnesota
ABDO, EICK & MEYERS, LLP
Certified Public Accountants
952.835.9090 Fax 952.835.3261
www.aemcpas.com
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
ANNUAL FINANCIAL REPORT
YEARS ENDED
DECEMBER 31, 2007 AND 2006
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
TABLE OF CONTENTS
DECEMBER 31, 2007
Pale No.
I. INTRODUCTORY SECTION
Public Utilities Commission and Administration
IL FINANCIAL SECTION
Independent Auditor's Report L
Management's Discussion and Analysis I - V
Financial Statements
Statements of Net Assets 3 - 6
Statements of Revenues, Expenses and Changes in Net Assets 7 - 8
Statements of Cash Flows 9 - 12
Notes to Financial Statements 13 - 25
III. SUPPLEMENTAL INFORMATION
Schedules of Operating Revenues and Expenses 26 - 29
Electric Fund
Summary of Operations and Unaudited Statistics 30 - 31
Water Fund
Summary of Operations and Unaudited Statistics 32 - 33
IV. OTHER REPORT
Report on Minnesota Legal Compliance 34
Report on Internal Control Over Financial Reporting
Based on an Audit of Financial Statements 35
Schedule of Finding and Responses 36 - 37
INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2007
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
PUBLIC UTILITIES COMMISSION AND ADMINISTRATION
DECEMBER 31, 2007
PUBLIC UTILITIES COMMISSION
Name
Jerry Takle
Jerry Gumphrey
John Dietz
Title
Chairperson
Vice-Chairperson
Commissioner
ADMINISTRATION
Bryan Adams
Theresa Slominski
David Berg
Glenn Sundeen
Troy Adams
General Manager
Office Manager
Water Superintendent
Line Superintendent
Engineer Manager
-1-
FINANCIAL SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEARS ENDED
DECEMBER 31, 2007 AND 2006
ABDO
EICK &
/I ~~ ~ ~Y.LL~ 1 L~1 l,J LLP
Certified Public Accountants & Corrsultaxcts
Grandview Square
5201 Eden Avenue
Suite 370
Edina, MN 55436
INDEPENDENT AUDITOR' S REPORT
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited the accompanying statements of net assets of the Elk River Municipal Utilities (the Utilities) of the City of Elk
River, Minnesota (the City), as of December 31, 2007 and 2006 and the related statements of revenues, expenses and changes in
net assets and cash flows for the years then ended. These financial statements are the responsibility of the Utilities' management.
Our responsibility is to express an opinion on these fmancia] statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 1B, the financial statements present only the Electric and Water enterprise funds and are not intended to
present fairly the financial position of the City and the results of its operations and cash flows of its proprietary fund types in
conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Electric and Water enterprise funds of the City as of December 3 1, 2007 and 2006 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The Management's Discussion and Analysis on pages I through V, is not a required part of the financial statements but is
supplementary information required by accounting principles generally accepted in the United States of America. We have
applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement
and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.
Our audits were conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental
information listed in the table of contents is presented for the purpose of additional analysis and is not a required part of the
financial statements of the Utilities. Such information, except for that portion marked "unaudited" on which we express no
opinion, has been subjected to the auditing procedures applied in the audits of the financial statements and, in our opinion, is fairly
stated in all material respects in relation to the financial statements taken as a whole.
(~l,~y huh, ~Yd1a-~tro,1l,P
Apri17, 2008
Minneapolis, Minnesota
ABDO, EICK & MEYERS, LLP
Certified Public Accountants
952.835.9090 Fax 952.835.3261
www.aemcpas.com
Management's Discussion and Analysis
This section of the Elk River Municipal Utilities (the Utilities) annual financial report presents our analysis of the Utilities'
financial performance during the fiscal year that ended December 31, 2007. Please read it in conjunction with the financial
statements, which follow this section.
FINANCIAL HIGHLIGHTS
• The assets of the Utilities exceeded its liabilities at the close of the most recent fiscal year by $44,845,990 (net assets).
Net Assets increased by $2,190,748 or 4.88 percent.
• The Utilities' cash balance at the close of the current fiscal year was $5,934,064.
• Construction slowed down considerably from the prior year. A second major new data facility began construction that
required two new feeders for infrastructure additions and a new substation.
• Bonds were issued in the amount of $2.8 million for construction projects.
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
private sector companies. These statements offer short- and long-term financial information about its activities. The Statements
of Net Assets 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
Assets. This statement measures the success of the Utilities' operations over the past year and can be used to determine whether
the Utilities has successfully recovered all its costs through its user fees and other charges, profitability, and credit worthiness.
The final required financial statement is the Statements of Cash Flows. The primary purpose of this statement is to provide
information about the Utilities' cash receipts and cash payments during the reporting period. The statement reports cash receipts,
cash payments and net changes in cash resulting from operations, investing and financing activities and provides answers to such
questions as where did cash come from, what was cash used for and what was the change in cash balance during the reporting
period.
FINANCIAL ANALYSIS OF THE UTILITIES
Our analysis of the Utilities begins on pages 3 - 4 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 Statements of Net
Asset, and the Statements of Revenues, Expenses and Changes in Net Assets report information about the Utilities' activities in a
way that will help answer this question. These two statements report the net assets of the Utilities and changes in these net assets.
You can think of the Utilities' net assets (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 assets are 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.
-I-
Management's Discussion and Analysis -Continued
April 7, 2008
NET ASSETS
To begin our analysis, a summary of the Utilities' Statements of Net Assets is presented in Table A-1. As can be seen from the
Table, net assets increased $2,190,748 to $44,845,990 in fiscal 2007 up from $42,655,242 in fiscal 2006.
TABLE A-1
Condensed Statement of Net Assets
Increase
2007 2006 (Decrease)
Assets
Current and other
Capital
Total assets
Liabilities
Current
Non-current
Total liabilities
Net assets
Invested in capital assets, net of related debt
Restricted for debt service
Unrestricted
Total net assets
$ 10,028,942 $ 8,042,300 $ 1,986,642
53,490,290 51,160,635 2,329,655
63,519,232 59,202,935 4,316,297
3,596,248 3,044,741 551,507
15,076,994 13,502,952 1,574,042
18,673,242 16,547,693 2,125,549
37,126,236 36,628,815 497,421
733,400 445,900 287,500
6,986,354 5,580,527 1,405,827
$ 44,845,990 $ 42,655,242 $ 2,190,748
Looking at Table A-1, you can see that most of the change in net assets was realized in the capital assets, which increased
$2,190,748 in fiscal 2007. The biggest capital asset additions were the completion of the feeders in Otsego and feeders from the
new Waco substation (still under construction) to the new data centers.
Water and Electric Rates
Electric -The latest increase in the Utilities' electric rates was effective January 2008. The monthly base charges are based upon
the type of service. The monthly charges are $7.50 for residential, $16.00 for commercial, and $50.00 for industrial. In addition
to the base charges the residential rate is $.1000/KWh for May-September usage, and $.08480/KWh for October-April usage; the
commercial rate is $.09732/KWh for May-September usage, and $0.07542/KWh for October-April usage; the industrial rate is
$.04542/KWh energy charge year round with a demand charge of $14.98 KW May-September, and $10.60/KW for October-
April.
-II-
Management's Discussion and Analysis -Continued
April 7, 2008
Water and Electric Rates -Continued
Water -The Utilities' latest increase in residential and commercial rates was effective January 2008. This year a third tier was
added to the rate structure. The monthly base charge for residential is $6.50 per month. In addition to the base charge, the
Utilities currently charges its residential customers $1.40 per 1,000 gallons up to 9,000 gallons, $3.50 between 9,000 gallons and
15,000 gallons, and $4.00 for usage above 15,000 gallons. Commercial customer's base charges are based upon meter size, from
$9.00 to $95.00 and an irrigation meter is $17.00. There is also a charge per thousand gallons, the same as the residential rate,
except the change from the lower rate to the higher rate is calculated based on previous consumption.
Certain other rates may be offered for conservation incentive purposes. The Utilities' offer a Senior Citizen rate as well.
The Utilities requires payment of all utility bills to be paid by the due date stated on the monthly bill. A ten percent penalty is
assessed for payments not received by the due date. The Utility may discontinue service of a customer not complying with the
disconnect policy of the Utility after receiving a written disconnect notice. Customers that have their service discontinued will be
charged a minimum of $50.00 to have their service reconnected. Commercial customers that have their service discontinued will
be charged a minimum of $100.00 to have their service reconnected. The Utilities abides by the Cold Weather Rules.
Deposit Policy
In 2007 the Utilities started collecting social security numbers from new accounts and also implemented a new deposit policy as a
proactive measure to try and reduce uncollectable accounts. A number of years ago deposits were collected from all new
accounts but it became very difficult to manage and so was discontinued. In implementing the new policy it was decided to
collect deposits from new accounts that did not supply a social security number or were identified as a credit risk. To determine
potential credit risk an assessment tool called "Online Utility Exchange" was implemented. This tool was recommended by the
APPA (American Public Power Association.) The amount of the deposit required will depend on the risk identified with the
customer. For residential customers, if there is a 68 percent or higher probability of non default and no negative history (no
disconnection for non-payment or late payments two or more times within 12 months) there is no deposit required. If there is a
lower than 68 percent probability of non default, a deposit of 2 times the estimated average monthly bill will be required before
utility service will be extended.
For commercial and industrial customers, a service agreement would need to be signed that identifies the guarantor of their
business and the guarantor's social security number. A deposit of 2 times the estimated monthly bill will be required. The deposit
shall be in the form of a cash deposit, personal. payment guarantee, 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.
With good credit history for a period of three years, the deposit will be credited to the customer's utility account or the personal
guarantee/letter of credit returned to the customer. The appropriate interest will be applied to the account per state statutes.
-III-
Management's Discussion and Analysis -Continued
April 7, 2008
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
While the Statements of Net Assets shows the change in financial position of net assets, the Statements of Revenues, Expenses
and Changes in Net Assets, provides answers as to the nature and source of these changes. As can be seen in Table A-2, the
"Operating Revenues" was the main source of the increase in net assets of $1,985,306 fisca12007. A closer examination of the
individual categories affecting the source of changes in net assets is discussed below:
TABLE A-2
Condensed Statements of Revenues,
Expenses and Changes in Net Assets
Increase
2007 2006 (Decrease)
Revenues
Operating $ 21,779,709 $ 18,727,649 $ 3,052,060
Nonoperating 2,018,854 3,085,608 (1,066,754)
Total revenues 23,798,563 21,813,257 1,985,306
Expenses
Operating 20,375,601 17,729,993 2,645,608
Nonoperating 542,823 464,296 78,527
Total expenses 20,918,424 18,194,289 2,724,135
Income before operating transfers 2,880,139 3,618,968 (738,829)
Transfers to other City funds (503,000) (451,018) (51,982)
Change in net assets 2,377,139 3,167,950 (790,811)
Net assets, January 1 42,655,242 39,910,548 2,744,694
Prior period adjustments (186,391) (423,256) 236,865
Net assets, December 31 $ 44,845,990 $ 42,655,242 $ 2,190,748
Revenues
Table A-2 shows that operating revenue increased by 16 percent in 2007 for the Water and Electric Departments combined. This
increase was due mainly to customer growth and rate increases. Non operating revenue decreased 35 percent as a result of the
decrease in construction this year. Specifically, on the water side, the contributed infrastructure was down by $545,709. Between
the two departments, Connection Fees were down $350,061.
Total Expenses
In reviewing total expenses in Table A-2 you will notice that there was an increase of 14 percent overall. The Electric
Department experienced an increase of 14 percent in operating expenses, while the Water Department's operating expenses
increased by 10 percent. The increase in operating expenses for the Electric Department mainly resulted from the purchased
power increasing by $2,074,576 over 2006 or 21 percent. The increase in operating expenses for the Water Department resulted
mainly from production expenses which increased by 40 percent due to increased preventative maintenance on the wells, and
cathodic protection that was applied to the Hillside water tower.
-IV-
Management's Discussion and Analysis -Continued
Apri17, 2008
CAPITAL ASSETS
The Utilities' investment in capital assets for its business-type activities as of December 31, 2007, amounts to $53,490,290 (net of
accumulated depreciation). This investment in capital assets includes land, buildings and improvements and equipment. A table
summarizing the balances by fund follows:
2007
2006
Increase
(Decrease)
Land $ 211,236 $ 211,236 $ -
Landimprovements 29,001 3],527 (2,526)
Buildings 2,574,423 2,663,539 (89,116)
Construction in progress 1,834,485 1,584,495 249,990
Machinery and equipment 1,332,337 1,482,851 (150,514)
Infrastructure 47,508,808 45,186,988 2,321,820
Total $ 53,490,290 $ 51,160,636 $ 2,329,654
The total increase in the Utilities' investment in capital assets for the current fiscal year was 4.5 percent. The increase was mainly
due to capital projects.
Additional information on the Utilities' capital assets can be found in Note 2B on page 19 - 20 of this report.
LONG-TERM DEBT
At year end, the Utilities had $16,364,054 in long-term debt up from $14,531,820 in fisca12006. More detailed information about
the Utilities' long-term liabilities is presented in the Notes to the Financial Statements on pages 20 - 22 and below:
Increase
2007 2006 (Decrease)
G.O. revenue bonds $ 6,410,000 $ 6,880,000 $ (470,000)
Revenue bonds 7,075,000 4,460,000 2,615,000
G.O. equipment certificates - 125,000 (125,000)
Promissory note 2,879,054 3,066.820 (187,766)
Total
$ 16,364,054 $ 14,531,820 $ 1,832,234
CONTACTING THE UTILITIES FINANCIAL MANAGER
This financial report is designed to provide our citizens, customers, investors and creditors with a general overview of the
Utilities' finances and to demonstrate the Utilities' accountability for the money it receives. Questions concerning any of the
information provided in this report or requests for additional financial information should be addressed to Theresa Slominski, Elk
River Municipal Utilities, 13069 Orono Parkway, Elk River, Minnesota 55330.
-V-
FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK. RIVER, MINNESOTA
YEARS ENDED
DECEMBER 31, 2007 AND 2006
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF NET ASSETS
DECEMBER 31, 2007 AND 2006
ASSETS
CURRENT ASSETS
Cash and temporary investments
Receivables
Accrued interest
Accounts
Other receivables
Due from other city fund
Due from other governments
Inventories
Prepaid expenses
TOTAL CURRENT ASSETS
CAPITAL ASSETS
Land
Land improvements
Buildings
Equipment and machinery
Infrastructure
Construction in progress
CAPITAL ASSETS, COST
LESS ACCUMULATED DEPRECIATION
TOTAL CAPITAL ASSETS, NET
OTHER ASSETS
Restricted cash
Unamortized bond discount
TOTAL OTHER ASSETS
TOTAL ASSETS
2007
Electric
Water
$ 2,806,277 $ 2,394,387 $ 5,200,664
17,786 38,352 56,138
1,825,392 187,603 2,012,995
80,131 44,728 124,859
- 113,804 113,804
38,435 - 38,435
1,383,771 26,887 1,410,658
113,481 4,737 118,218
6,265,273 2,810,498 9,075,771
200,236 11,000 211,236
63,147 - 63,147
2,716,260 738,145 3,454,405
3,580,644 320,825 3,901,469
39,621,130 29,315,875 68,937,005
1,586,925 247,560 1,834,485
47,768,342 30,633,405 78,401,747
(17,809,185) (7,102,272) (24,911,457)
29,959,157 23,531,133 53,490,290
733,400 - 733,400
140,063 79,708 219,771
873,463 79,708 953,171
37,097,893 26,421,339 63,5 ] 9,232
Total
The notes to the fmancial statements are an integral part of this statement.
-3-
2006
Electric Water
Total
$ 1,595,406 $ 2,519,224 $ 4,114,630
18,887 33,947 52,834
1,555,508 88,886 1,644,394
114,001 9,143 123,144
23,523 - 23,523
1,347,419 42,995 1,390,414
52,518 2,935 55,453
4,707,262 2,697,130 7,404,392
200,236 11,000 211,236
63,147 - 63,147
2,694,260 738,145 3,432,405
3,531,360 234,303 3,765,663
35,414,506 28,572,002 63,986,508
1,584,495 - 1,584,495
43,488,004 29,555,450 73,043,454
(15,779,489) (6,103,330) (21,882,819)
27,708,515 23,452,120 51,160,635
445,900 - 445,900
104,592 87,416 192,008
550,492 87,416 637,908
32,966,269 26,236,666 59,202,935
-4-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF NET ASSETS -CONTINUED
DECEMBER 31, 2007 AND 2006
CURRENT LIABILITIES
Accounts payable
Salaries and benefits payable
Accrued interest payable
Due to other city funds
Due to other governments
Customer deposits payable
Notes payable -current portion
Bonds payable -current portion
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Notes payable, less current portion
Bonds payable, less current portion
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
Invested in capital assets net of related debt
Restricted for debt service
Unrestricted
TOTAL NET ASSETS
2007
Electric Water Total
$ 1,231,777 $ 107,853 $ 1,339,630
239,372 75,412 314,784
133,249 91,408 224,657
296,315 - 296,315
75,795 - 75,795
53,007 5,000 58,007
177,060 - 177,060
320,000 790,000 1,110,000
2,526,575 1,069,673 3,596,248
2,701,994 - 2,701,994
7,853,750 4,521,250 12,375,000
10,555,744 4,521,250 15,076,994
13,082,319 5,590,923 18,673,242
18,906,353 18,219,883 37,126,236
733,400 - 733,400
4,375,821 2,610,533 6,986,354
$ 24,015,574 $ 20,830,416 $ 44,845,990
The notes to the fmancial statements are an integral part of this statement.
-5-
2006
Electric Water Total
$ 996,149 $ 47,207 $ 1,043,356
202,248 65,299 267,547
91,810 99,485 191,295
299,166 126,060 425,226
88,449 - 88,449
173,868 - 173,868
430,000 425,000 855,000
2,281,690 763,051 3,044,741
2,892,952 - 2,892,952
5,298,750 5,311,250 10,610,000
8,191,702 5,311,250 13,502,952
10,473,392 6,074,301 16,547,693
18,912,945 17,715,870 36,628,815
445,900 - 445,900
3,134,032 2,446,495 5,580,527
$ 22,492,877 $ 20,162,365 $ 42,655,242
-6-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
YEARS ENDED DECEMBER 31, 2007 AND 2006
OPERATING REVENUES
Charges for services
Security systems
LFG project
Generation credit
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
Connection charges
Customer penalties
Miscellaneous revenue
Interest expense
Amortization of bond discount
Miscellaneous expense
TOTAL NONOPERATING REVENUES (EXPENSES)
INCOME BEFORE CONTRIBUTIONS AND TRANSFERS
2007
Electric Water Total
$ 18,190,757 $ 2,113,166 $ 20,303,923
195,723 - 195,723
974,040 - 974,040
306,023 - 306,023
19,666,543 2,113,166 21,779,709
12,176,034 - 12,176,034
750,669 447,133 1,197,802
1,079,302 221,214 1,300,516
1,920,798 921,450 2,842,248
583,063 65,622 648,685
1,752,939 457,377 2,210,316
18,262,805 2,112,796 20,375,601
1,403,738 370 1,404,108
137,486 44,340 181,826
368,182 627,774 995,956
228,780 29,194 257,974
287,871 2,262 290,133
(296,136) (223,654) (519,790)
(11,180) (7,708) (18,888)
(1,330) - (1,330)
713,673 472,208 1,185,881
2,117,411 472,578 2,589,989
CONTRIBUTIONS FROM DEVELOPERS
GAIN (LOSS) ON SALE OF CAPITAL ASSETS
TRANSFERS TO OTHER CITY FUNDS
CHANGE IN NET ASSETS
NET ASSETS, JANUARY 1
PRIOR PERIOD ADJUSTMENTS
NET ASSETS, RESTATED, JANUARY 1
NET ASSETS, DECEMBER 31
- 292,965 292,965
(2,815) - (2,815)
(483,000) (20,000) (503,000)
1,631,596 745,543 2,377,139
22,492,877 20,162,365 42,655,242
(108,899) (77,492) (186,391)
22,383,978 20,084,873 42,468,851
$ 24,015,574 $ 20,830,416 $ 44,845,990
The notes to the financial statements are an integral part of this statement.
-7-
2006
Electric Water Total
$ 15,677,399 $ 1,749,932 $ 17,427,331
168,540 - 168,540
817,650 - 817,650
314,128 - 314,128
16, 977, 717 1, 749, 93 2 18, 727, 649
10,101,458 - 10,101,458
786,969 318,241 1,105,210
1,155,608 189,844 1,345,452
1,561,096 790,451 2,351,547
489,731 52,845 542,576
1,774,692 509,058 2,283,750
15 , 8 69, 5 54 1, 8 60,43 9 17, 729, 993
1,108,163 (110,507) 997,656
154,461 63,320 217,781
475,857 870,160 1,346,017
165,768 20,887 186,655
301,867 192,506 494,373
(200,309) (244,388) (444,697)
(2,353) (7,650) (10,003)
(9,596) - (9,596)
885,695 894,835 1,780,530
1,993,858 784,328 2,778,186
- 838,674 838,674
2,108 - 2,108
(420,000) (31,018) (451,018)
1,575,966 1,591,984 3,167,950
21,340,167 18,570,381 39,910,548
(423,256) - (423,256)
20,916,911 18,570,381 39,487,292
$ 22,492,877 $ 20,162,365 $ 42,655,242
-8-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007 AND 2006
2007
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users
Other operating cash receipts
Payments to suppliers
Payments to employees
L'1,.,.a..:,. ~57..~.... T,.~..1
$ 20,046,628 $ 2,676,417 $ 22,723,045
306,829 (33,323) 273,506
(15,096,042) (816,799) (15,912,841)
(1,173,531) (338,769) (1,512,300)
NET CASH PROVIDED
BY OPERATING ACTIVITIES
CASH FLOWS FROM
NONCAPITAL FINANCING ACTIVITIES
Transfer to city
Increase (decrease) 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
Principal payments on revenue bonds
Proceeds of revenue bonds
Interest paid on revenue bonds
Principal payments on promissory note
Proceeds of promissory note
NET CASH 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
4,083,884 1,487,526 5,571,410
(483,000) (20,000) (503,000)
(2,851) (239,864) (242,715)
(485,851) (259,864) (745,715)
(4,194,135) (735,703) (4,929,838)
(430,000) (425,000) (855,000)
2,828,349 - 2,828,349
(254,697) (231,731) (486,428)
(187,766) - (187,766)
(2,238,249) (1,392,434) (3,630,683)
138,587 39,935 178,522
1,498,371 (124,837) 1,373,534
2,041,306 2,519,224 4,560,530
$ 3,539,677 $ 2,394,387 $ 5,934,064
The notes to the fmancial statements are an integral part of this statement.
-9-
2006
Electric Water Total
$ 17,513,774 $ 2,648,357 $ 20,162,131
223,721 310,798 534,519
(13,573,272) (759,941) (14,333,213)
(1,111,061) (337,748) (1,448,809)
3,053,162 1,861,466 4,914,628
(420,000) (31,018) (451,018)
34,949 111,120 146,069
(385,051) 80,102 (304,949)
(6,446,859)
(245,000)
3,509,206
(150,104)
(132,406)
661,000
(579,209) (7,026,068)
(410,000) (655,000)
- 3,509,206
(249,508) (399,612)
- (132,406)
- 661,000
(2,804,163) (1,238,717) (4,042,880)
160,925 62,350 223,275
24,873 765,201 790,074
2,016,433 1,754,023 3,770,456
$ 2,041,306 $ 2,519,224 $ 4,560,530
-10-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS -CONTINUED
YEARS ENDED DECEMBER 31, 2007 AND 2006
RECONCILIATION OF OPERATING INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income (loss)
Adjustments to reconcile operating income (loss)
to net cash provided by operating activities:
Other revenue related to operations
Depreciation
(Increase) decrease in assets:
Accounts receivable
Other receivables
Due from other governments
Inventories
Prepaid expenses
Increase (decrease) in liabilities:
Accounts payable
Salaries and benefits payable
Due to other governments
Customer deposits payable
NET CASH PROVIDED
BY OPERATING ACTIVITIES
NONCASH CAPITAL AND
RELATED FINANCING ACTIVITIES
Amortization of bond discount
Discount on bonds issued
Prior period adjustment to accumulated depreciation
Gain (loss) on disposal of capital assets
Capital assets purchased on account
Contribution of capital assets from developers
2007
Electric Water Total
$ 1,403,738 $ 370 $ 1,404,108
883,503 659,230 1,542,733
1,920,798 921,450 2,842,248
(269,884) (98,717) (368,601)
33,870 (35,585) (1,715)
(14,912) - (14,912)
(36,352) 16,108 (20,244)
(60,963) (1,802) (62,765)
146,609 11,359 157,968
37,124 10,113 47,237
(12,654) - (12,654)
53,007 5,000 58,007
$ 4,083,884 $ 1,487,526 $ 5,571,410
$ 11,180 $ 7,708 $ 18,888
$ 46,651 $ - $ 46,651
$ 108,899 $ 77,492 $ 186,391
$ (2,815) $ - $ (2,815)
$ 89,019 $ 49,287 $ 138,306
$ - $ 292,965 $ 292,965
The notes to the fmancial statements are an integral part of this statement.
-11-
2006
Electric Water Total
$ 1,108,163 $ (110,507) $ 997,656
933,896 1,083,553 2,017,449
1,561,096 790,451 2,351,547
(105,568) 7,378 (98,190)
(54,623) 118,292 63,669
(23,523) - (23,523)
(408,507) (14,451) (422,958)
3,337 4,732 8,069
21,061 (21,120) (59)
11,339 3,138 14,477
6,491 - 6,491
$ 3,053,162 $ 1,861,466 $ 4,914,628
$ 2,353 $ 7,650 $ 10,003
$ 85,794 $ - $ 85,794
$ 423,256 $ - $ 423,256
$ 2,108 $ - $ 2,108
$ - $ - $ -
$ - $ 838,674 $ 838,674
-12-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of the Business
The Elk River Municipal Utilities (the Utilities) is a municipal utility established by action of the City of Elk River
(the City) pursuant to Minnesota statute 412.321 and consequently it's Electric and Water funds are enterprise funds
of the City. The Public Utilities Commission (the Commission) members are appointed by the City Council. The
Commission determines all matters of policy. The Commission appoints personnel responsible for the proper
administration of all affairs relating to the Utilities. The Utilities distributes electricity and water to the residents of
Elk River, Dayton, Big Lake and Otsego, Minnesota.
The Utilities has considered all potential units for which it is fmancially accountable, and other organizations for
which the nature and significance of their relationship with the Utilities are such that exclusion would cause the
Utilities' fmancial statements to be misleading or incomplete. The Governmental Accounting Standards Board
(GASB) has set forth criteria to be considered in determining fmancial 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 fmancial 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 aself-balancing set of accounts. Fund accounting segregates funds according to their intended
purpose and is used to aid management in demonstrating compliance with fmance-related legal and contractual
provisions. The minimum number of funds is maintained consistently with legal and managerial requirements.
Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is
recorded on the accrual basis when the exchange takes place.
Non-exchange transactions, in which the Utilities receives value without directly giving equal value in return, include
property taxes, grants, entitlements and donations. Revenue from property taxes is recognized in the year for which
the tax is levied. Revenue from grants, entitlements and donations is recognized in the year in which all eligibility
requirements have been satisfied. Eligibility requirements include timing requirements, which specify the yeaz 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.
Deferred revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Grants
and entitlements received before eligibility requirements are met are also recorded as deferred revenue.
The prepazation of the fmancial 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.
-13-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note is SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
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. In accordance with the provisions of the GASB Statement No. 20, Accounting and Financial
Reporting for Proprietary Funds and other Governmental Entities that use Proprietary Fund Account, the Utilities
applies all applicable GASB pronouncements plus all Financial Accounting Standards Board (FASB) Statements and
Interpretations, Accounting Principles Board opinions, and Accounting Research Bulletins issued on or before
November 30, 1989, except for those that conflict with or contradict GASB pronouncements. The Utilities has
elected not to apply FASB Statements and Interpretations issued after November 30, 1989. Proprietary funds
include the following fund type:
Enterprise funds account for those operations that are fmanced and operated in a manner similar to private business
or where the Utilities has decided that the determination of revenues earned, costs incurred and/or net income is
necessary for management accountability.
Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and
expenses generally result from providing services and producing and delivering goods in connection with a
proprietary fund's principal ongoing operations. The principal operating revenues of the Water and Electric
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 defmition are reported as nonoperating revenues and expenses.
The Utilities reports the following major proprietary funds:
The Water fund accounts for the water distribution system.
The Electric fund accounts for the electric distribution operations.
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.
C. Assets, Liabilities and Net Assets
Cash and Cash Equivalents
The Utilities' cash and cash equivalents are considered to be cash on hand, demand deposits and short-term
investments with original maturities of three months or less from the date of acquisition.
Cash balances from all funds are pooled and invested, to the extent available, in certificates of deposit and other
authorized investments. Earnings from such investments are allocated on the basis of applicable participation by
each of the funds.
-14-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
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 whose
only investments are in securities in (1) above.
3. General obligations of the State of Minnesota or any of its municipalities.
4. Banker's acceptances of United States banks eligible for purchase by the Federal Reserve System.
5. Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest
quality, and maturing in 270 days or less
6. Repurchase or reverse repurchase agreements 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.
7. Guaranteed investment contracts (GIC's) issued or guaranteed by United States commercial banks or
domestic branches of foreign banks or United States insurance companies if similar debt obligations of the
issuer or the collateral pledged by the issuer is in the top two rating categories, or in the top three rating
categories for long-term GIC's issued by Minnesota banks.
Investments for the Utilities are reported at fair value.
According to its investment policy, the Utilities will diversify its investments by security type and institution. In
establishing specific diversification strategies, the following general policies and constraints shall apply:
Portfolio maturities shall be staggered to avoid undue concentration of assets at a specific maturity sector, with one
broker-dealer or financial institution, or any one type of instrument. The maturities selected shall provide for
stability of income and reasonable liquidity.
Accounts Receivable
Accounts receivable include amounts billed for services provided before year end. The Utilities has established a
reserve for uncollectible accounts at $52,500 and $17,500 for the Electric and Water fund, respectively. No
substantial losses from present receivable balances are anticipated.
Interfund Receivables and Payables
Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the
fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or
"advances to/from other funds" (i.e., the non-current portion of interfund loans). All other outstanding balances
between funds are reported as "due to/from other funds".
Inventories
Inventories are stated at lower of average cost or market on the first-in, first-out (FIFO) method.
-15-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
Prepaid Items
Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items.
Restricted Assets
The amounts in the restricted cash account are set aside in accordance with the issuing resolution for specific bond
issues. They will be used for future debt service.
Capital Assets
Capital assets are stated at cost. Capital assets are defined by the Utilities as assets with an initial individual cost of
more than $5,000 and an estimated useful life in excess of two years. Expenditures for maintenance and repairs are
charged to operations and expenditures that extend the useful life of the asset are capitalized and depreciated. When
assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any gain
or loss on disposition is included in operations.
Major expenditures for improvements or capital asset projects are capitalized as projects are constructed. Interest
incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest
earned on the invested proceeds over the same period. Interest incurred during the construction phase of capital
assets of business-type activities is included as part of the capitalized value of the assets 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
Lives in Years
Electric Water
Production
Transmission
Distribution
General
Long-term Obligations
4 - 20 25 - 50
35 -
10-33 25 -50
10-50 10-50
Long-term debt is reflected as a liability in the fund issuing the obligation. Bond discounts and issuance costs are
deferred and amortized over the life of the bonds using the straight-line method.
Compensated Absences
All vacation benefits can be carried over from year to year and will be payable upon termination. Sick leave can be
accumulated to a maximum of 960 hours from year to year. Upon termination or retirement, employees will have
50% of unused sick leave, up to a maximum of 800 hours, converted to cash and deposited into their Post Health
Care Savings account. The liability for vacation and sick pay is reported as a liability in the respective funds at year
end.
-16-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
Net Assets
Net assets represent the difference between assets and liabilities. Net assets are displayed in three components:
a. Invested in capital assets, net of related debt -Consists of capital assets, net of accumulated depreciation
reduced by any outstanding debt attributable to acquire capital assets.
b. Restricted net assets -Consist of net assets 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 assets -All other net assets that do not meet the defmition of "restricted" or "invested in
capital assets, net of related debt".
Comparative Data and Reclassifications
Comparative total data for the prior year have been presented in the selected sections of the accompanying fmancial
statements in order to provide an understanding of changes in the Utilities' fmancial position and operations. Also,
certain amounts presented in the prior year data have been reclassified in order to be consistent with the current
year's presentation.
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
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 which are members of the Federal Reserve System.
Minnesota statutes require that all Utilities' deposits be protected by insurance, surety bond, or collateral. The
market value of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds (140
percent in the case of mortgage notes pledged).
Authorized collateral includes the legal investments as prescribed by Minnesota statutes, as well as certain first
mortgage notes, and certain other state or local government obligations. Minnesota statutes require that securities
pledged as collateral be held in safekeeping by the Utilities' Treasurer or in a fmancial institution other than that
furnishing the collateral.
At December 31, 2007, the Utilities carrying amount of deposits was $4,662,052 and the bank balance was
$4,828,304. Of the bank balance $1,191,000 was covered by federal depository insurance, and the remaining
balance was covered by collateral held by the pledging fmancial institution's agent in the Utilities' name.
At December 31, 2006, the Utilities carrying amount of deposits was $2,819,856 and the bank balance was
$3,937,829. Of the bank balance $466,107 was covered by federal depository insurance, and the remaining balance
was covered by collateral held by the pledging fmancial institution's agent in the Utilities' name.
-17-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note Z: DETAILED NOTES ON ALL FUNDS -CONTINUED
Investments
The Utilities' investment balances were as follows for December 31, 2007:
Credit Segmented
Quality/ Time
Types of Investments Ratings (1) Distribution (2)
Non-pooled investments
U. S. Government Securities AAA 1 year
Commercial paper
Brokered CD's
A1, P1 less than 9 months
N/A less than 1 year
Money market funds
Piper Jaffray
RBC Dain Rauscher
Citigroup-Smith Barney
Total money market funds
Total investments
N/A less than 6 months
N/A less than 6 months
N/A less than 6 months
The Utilities' investment balances were as follows for December 31, 2006:
Fair Value
and
Carrying
Amount
$ 349,342
788,673
117,088
14,848
573
1,088
16,509
$ 1,271,612
Fair Value
Credit Segmented and
Quality/ Time Carrying
Types of Investments Ratings (1) Distribution (2) Amount
Non-pooled investments
U. S. Government Securities AAA 1 year $ 266,575
U. S. Government Securities AAA 1-5 years 698,668
Commercial paper A1, P1 6 months 759,846
Money market funds
Piper Jaf&ay N/A less than 6 months 10,204
RBC Dain Rauscher N/A less than 6 months 4,105
Citigroup-Smith Barney N/A less than 6 months 876
Total money market funds 15,185
Total investments $ 1,740,274
1. Ratings are 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 Indicated not applicable or unavailable.
-18-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
A reconciliation of cash and temporary investments as shown in the fmancial statements for the Utilities follows:
2007 2006
Deposits $ 4,662,052 $ 2,819,856
Investments 1,271,612 1,740,274
Cash on hand 400 400
Total $ 5,934,064 $ 4,560,530
Cash and investments
Unrestricted $ 5,200,664 $ 4,114,630
Restricted 733,400 445,900
Total $ 5,934,064 $ 4,560,530
B. Capital Assets
Capital asset activity for the year ended December 31, 2007 was as follows:
Beginning Ending
Balance Reclassifications Increases Balance
Capital assets not being depreciated
Land $ 211,236 $ - $ - $ 211,236'
Construction in progress 1,584,495 - 249,990 1,834,485
Total capital assets
not being depreciated 1,795,731 - 249,990 2,045,721
Capital assets being depreciated
Land improvements 63 ,147 - - 63,147
Buildings 3,432,405 - 22,000 3,454,405 ~
Machinery and equipment 3,765,663 - 135,806 3,901,469
Infrastructure 63,986,508 - 4,950,497 68,937,005
Total capital assets
being depreciated 71,247,723 - 5,108,303 76,356,026
Less accumulated depreciation for
Land improvements (31,620) - (2,526) (34,146)
Buildings (768,866) - (111,116) (879,982)
Machinery and equipment (2,282,812) (33,278) (253,042) (2,569,132)
Infrastructure (18,799,521) (153,112) (2,475,564) (21,428,197)
Total accumulated depreciation (21,882,819) (186,390) (2,842,248) (24,911,457)
Total capital assets
being depreciated, net 49,364,904 (186,390) 2,266,055 51,444,569
Business-type activities
capital assets, net $ 51,160,635 $ (186,390) $ 2,516,045 $ 53,490,290
-19-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
Depreciation expense was charged to functions/programs of the Utilities as follows:
Business-type Activities
Water
Electric
$ 921,450 $ 790,451
1,920,798 1,561,096
Total depreciation expense -business-type activities $ 2,842,248 $ 2,351,547
C. Long-term Debt
G.O. Revenue Bonds
The City of Elk River issues general obligation bonds to provide funds for the acquisition and construction of major
capital facilities. The following bonds are to be paid out of Utilities' revenues and are backed by the full faith and
credit of the City.
Authorized Interest Issue Maturity December 31, December 31,
Description and Issued Rate Date Date 2007 2006
G.O. Water Revenue
Bonds of 1997B $ 335,000 4.90-5.05 % 07/28/97 02/01/07 $ - $ 40,000
G.O. Water Revenue
Bonds of 1998B 820,000 4.40-5.00 12/01/98 02/01/14 450,000 505,000
G.0 Water Revenue
Bonds of 2001A 3,590,000 4.30-5.40 10/O1/O1 02/01/22 3,020,000 3,155,000
G.O. City Hall Expansion
Bonds of 2002B 1,695,000 3.25-5.00 09/01/02 02/01/23 1,465,000 1,525,000
G.O. Water Revenue
Bonds of 2003B 1,995,000 2.50-3.70 12/09/03 02/01/14 1,475,000 1,655,000
Total G.O. Revenue B onds $ 6,410,000 $ 6,880,000
The annual requirements to amortize the general obligation revenue bonds as of December 31, 2007 are as follows:
Year Ending
December 31, Principal Interest Total
2008 $ 835,000 $ 266,360 $ 1,101,360
2009 410,000 233,015 643,015
2010 425,000 218,328 643,328
2011 440,000 202,573 642,573
2012 465,000 185,627 650,627
2013-2017 1,875,000 665,808 2,540,808
2018-2022 1,825,000 267,663 2,092,663
2023 135,000 3,375 138,375
Total $ 6,410,000 $ 2,042,749 $ 8,452,749
-20-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
Revenue Bonds
The following bonds were issued to fmance capital improvements in the electric fund. They will be retired from net
revenues of the fund.
Authorized Interest Issue Maturity December 3l, December 3l,
Description and Issued Rate Date Date 2007 2006
Electric Revenue
Bonds, Series 2004A $ 940,000 3.25-4.25 % 08/01/04 02/01/15 $ 785,000 $ 865,000
Electric Revenue
Bonds, Series 2006A 3,595,000 3.25-4.00 03/02/06 08/01/21 3,415,000 3,595,000
Electric Revenue
Bonds, Series 2007A 2,875,000 4.00 03/28/07 02/01/22 2,875,000 -
Total Revenue Bonds $ 7,075,000 $ 4,460,000
The annual requirements to amortize the revenue bonds as of December 31, 2007 are as follows:
Year Ending
December 31, Principal Interest Total
2008 $ 275,000 $ 269,252 $ 544,252
2009 280,000 260,208 540,208
2010 460,000 247,085 707,085
2011 480,000 229,784 709,784
2012 495,000 211,434 706,434
2013-2017 2,595,000 759,714 3,354,714
2018-2021 2,490,000 254,780 2,744,780
Total $ 7,075,000 $ 2,232,257 $ 9,307,257
G.O. Equipment Certificates
The Utilities has issued equipment certificates to provide for acquisition of vehicles and equipment. The following
issue is to be paid out of Utilities' revenue.
Description
G.O. Equipment
Certificates
Authorized Interest
and Issued Rate
$ 500,000 4.90
Issue Maturity December 31, December 31,
Date Date 2007 2006
06/17/02 02/01/07 $ $ 125.000
-21-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
Promissory Note
The Utilities has issued a promissory note to provide for construction of a landfill gas generator. The note is to be
paid from revenue of the system and is secured by the facility.
Authorized Interest Issue Maturity December 31, December 31,
Description and Issued Rate Date Date 2007 2006
Iandfil l
Generator Note $ 3,521,000 - % 03/19/02 12/31/22 $ 2,879,054 $ 3,066,821
Year Ending
December 31, Principal Interest Total
2008 $ 177,060 $ - $ 177,060
2009 177,348 - 177,348
2010 179,328 - 179,328
2011 182,436 - 182,436
2012 183,444 - 183,444
2013-2017 956,952 - 956,952
2018-2022 1,022,486 - 1,022,486
Total $ 2,879,054 $ - $ 2,879,054
Changes in Long-term Liabilities
Long-term liability activity for the year ended December 31, 2007 was as follows:
Business-type activities
Bonds payable
General obligation
revenue bonds
Equipment
certificate
Revenue bonds
Total bonds
payable
Notes payable
Compensate d
absences payable
Business-type activity
long-term
liabilities
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
$ 6,880,000 $ - $ (470,000) $ 6,410,000 $ 835,000
125,000 - (125,000) - -
4,460,000 2,875,000 (260,000) 7,075,000 275,000
11,465,000 2,875,000 (855,000) 13,485,000 1,110,000
3,066,820 - (187,766) 2,879,054 177,060
8
256,635 215,634 (183,482) 288,78 -
$ 14,788,455 $ 3,090,634 $ (1,226,248) $ 16,652,841 $ 1,287,060
-22-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
D. Interfund Receivables, Payables and Transfers
The composition of Interfund balances at December 31, 2007 is as follows:
Receivable Fund
Payable Fund
Amount Purpose
City -General fund
City -multiple funds
City -General fund
City -Sewer
City -Garbage
Electric
Electric
Electric
Electric
Electric
Total Electric fund payable to City
Water City -Capital projects fund
City -General fund Water
City -General fund Water
Total Water fund receivable from City
Total payable to City
Interfund transfers:
Transfer out:
Electric
Water
Total transfers out
Note 3: DEFINED BENEFIT PENSION PLANS -STATEWIDE
A. Plan Description
$ (39,043) Shared building costs
(42,000) December transfer of 3% of revenue
(6,094) Electric share of insurance
(122,511) Billed sewer on behalf of City
(86,667) Billed garbage on behalf of City
(296,315)
128,850 TIF 22 Water Access Charge
(13,014) Shared building costs
(2,032) Water share of insurance
113,804
$ (182,511)
Transfer to
Other City Funds Purpose
$ 483,000 Transfer 3% of revenue
20,000 Water share of bonding
$ 503,000
All full-time and certain part-time employees of the Utilities are covered by defined benefit plans administered by
the Public Employees Retirement Association of Minnesota (PERA). PERA administers the Public Employees
Retirement Fund (PEKE), which is acost-sharing, multiple-employer retirement plan. This plan is established and
administered in accordance with Minnesota statutes, chapters 353 and 356.
PERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by
Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan.
PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of
eligible members. Benefits are established by Minnesota statute, and vest after three years of credited service. The
defined retirement 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.
-23-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 3: DEFINED BENEFIT PENSION PLANS -STATEWIDE -CONTINUED
Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member
receives the higher of step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under
Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10
years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is
1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2,
the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan
members for each year of service. For all PERF members hired prior to July 1, 1989 whose annuity is calculated
using Method 1, a full annuity is available when age plus years of service equal 90. Normal retirement age is 65 for
Basic and Coordinated members hired prior to July 1, 1989. Normal retirement age is the age for unreduced Social
Security benefits capped at 66 for Coordinated members hired on or after July 1, 1989. A reduced retirement
annuity is also available to eligible members seeking early retirement.
There are different types of annuities available to members upon retirement. A single-life annuity is a lifetime
annuity that ceases upon death of the retiree--no survivor annuity is payable. There are also various types of joint
and survivor annuity options available which will be payable over joint lives. Members may also leave their
contributions in the fund upon termination of public service, in order to qualify for a deferred annuity at retirement
age. Refunds of contributions are available at any time to members who leave public service, but before retirement
benefits begin.
The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active
plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet, are
bound by the provisions in effect at the time they last terminated their public service.
PERA issues a publicly available financial report that includes financial statements and required supplementary
information for PERF and PEPFF. That report may be obtained on the Internet at mnpera.org, by writing to PERA,
60 Empire Drive #200, St. Paul, Minnesota, 55103-2088 or by calling (651) 296-7460 or 1-800-652-9026.
B. Funding Policy
Minnesota statutes, chapter 353 sets the rates for employer and employee contributions. These statutes are
established and amended by the State legislature. The Utilities makes annual contributions to the pension plans
equal to the amount required by Minnesota statutes. PERF Basic Plan members and Coordinated Plan members
were required to contribute 9.10 percent and 5.75 percent, respectively, of their annual covered salary in 2007.
Contribution rates in the Coordinated Plan will increase in 2008 to 6.00 percent. The Utilities is required to
contribute the following percentages of annual covered payroll: 11.78 percent for Basic Plan PERF members and
6.25 percent of Coordinated Plan PERF. Employer contribution rates for the Coordinated Plan will increase to 6.50
percent, effective January 1, 2008. The Utilities' contributions to the PERF for the years ending
December 31, 2007, 2006 and 2005 were $136,713, $128,223, and $116,347, respectively. The Utilities'
contributions were equal to the contractually required contributions for each year as set by Minnesota statute.
-24-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
Note 4: OTHER INFORMATION
A. Territorial Acquisition Agreement
The Utilities has entered into an agreement to transfer ownership of electric plant and electric service to customers in
certain areas currently receiving electric service from Anoka Electric Cooperative, Inc. (AEC).
The cost of property purchased from AEC will be net book value. The Utilities will also pay AEC for loss of
revenue for each area acquired based on a formula outlined in the agreement.
In addition, the Utilities will compensate AEC for the loss of revenue from the future sale of electricity to electric
customers in the areas acquired from AEC for a period often years from the date of sale of each individual area.
During 2007 and 2006, the Utilities paid $546,086 and $31,510, respectively, under this agreement, including
$36,747 and $31,510 in 2007 and 2006, respectively, for loss of revenues. All amounts paid are included in property
and equipment.
B. Risk Management
The Utilities is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors
and omissions; injuries to employees; and natural disasters for which the Utilities carries commercial insurance. The
Utilities obtains insurance through participation in the League of Minnesota Cities Insurance Trust (LMCIT), which
is a risk sharing pool with approximately 800 other governmental units. The Utilities pays an annual premium to
LMCIT for its workers compensation and property and casualty insurance. The LMCIT is self-sustaining through
member premiums and will reinsure for claims above a prescribed dollar amount for each insurance event. Settled
claims have not exceeded the Utilities' coverage in any of the past three fiscal years.
Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably
estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The
Utilities' management is not aware of any incurred but not reported claims.
C. Subsequent Events
On February 20, 2008, the Utility issued $3,085,000 of General Obligation Water Revenue Crossover Refunding
Bonds, Series 2008A. The callable portion of the $3,590,000 GO Water Revenue Bonds, Series 2001A (bonds
maturing in years 2011 and 2022) will be redeemed on February 1, 2010. The Utility will continue to pay, as due,
principal and interest at the rates and amounts specified to the call date. The refunded bonds will be called and paid
by the Escrow Account. On March 1, 2008, the Utility will use a portion of the net proceeds to redeem the 2009
through 2014 maturities of the $820,000 GO Water Revenue Bonds, Series 1998B. The new refunding bond will
mature on February 1, 2022. The issue bears an average coupon rate of 3.264 percent. The net cash flow savings is
calculated at $177,178.
D. Prior period adjustments
During the year ended December 31, 2007, the Utilities recorded prior period adjustments in the Electric and Water
funds for $108,899 and $77,492, respectively. During the year ended December 31, 2006 the Utilities recorded a
prior period adjustment in the Electric fund for $423,256. All of these adjustments related to correcting accumulated
depreciation.
-25-
SUPPLEMENTAL INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 3I, 2007
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULES OF OPERATING REVENUES AND EXPENSES
YEARS ENDED DECEMBER 31, 2007 AND 2006
OPERATING REVENUES
Charges for services
Elk River
Otsego
Big Lake
Dayton
Security systems
LFG Project
Generation credit
TOTAL OPERATING REVENUES
OPERATING EXPENSES
Purchased power
Electric Water Total
$ 16,372,504 $ 2,113,166 $ 18,485,670
1,410,125 - 1,410,125
232,269 - 232,269
175,859 - 175,859
195,723 - 195,723
974,040 - 974,040
306,023 - 306,023
19,666,543 2,113,166 21,779,709
12,176,034
12,176,034
Production
Supervision and labor 56,260 26,165 82,425
Natural gas 34,477 - 34,477
Supplies and power for pumping 60,303 247,060 307,363
Landfill gas expense 550,062 - 550,062
Maintenance of structures 22,757 30,991 53,748
Maintenance of equipment 20,039 142,917 162,956
Maintenance of plant 6,771 - 6,771
Total 750,669 447,133 1,197,802
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
Services to city
Depreciation
Customer accounts expense
Meter reading
Billing and collection
Bad debts
Total
2007
33,110 15,218 48,328
228,104 - 228,104
252,751 - 252,751
36,675 - 36,675
122,227 29,447 151,674
14,426 104,23 8 118, 664
60,434 72,311 132,745
331,575 - 331,575
1,079,302 221,214 1,300,516
358,029 - 358,029
1,920,798 921,450 2,842,248
76,636 28,487 105,123
108,812 33,414 142,226
39,586 3,721 43,307
225,034 65,622 290,656
-26-
2006
Electric Water Total
$ 14,002,207 $ 1,749,932 $ 15,752,139
1,259,329 - 1,259,329
256,169 - 256,169
159,694 - 159,694
168,540 - 168,540
817,650 - 817,650
314,128 - 314,128
16,977,717 1,749,932 18,727,649
10,101,458 - 10,101,458
50,313 24,391 74,704
51,234 - 51,234
86,988 191,516 278,504
559,203 - 559,203
18,841 18,075 36,916
12,275 84,259 96,534
8,115 - 8,115
786,969 318,241 1,105,210
29,041 14,143 43,184
369,518 - 369,518
247,431 - 247,431
32,773 - 32,773
84,222 37,299 121,521
11,862 84,191 96,053
70,431 54,211 124,642
310,330 - 310,330
1,155,608 189,844 1,345,452
328,148 - 328,148
1,561,096 790,451 2,351,547
69,211 21,670 90,881
95,329 29,610 124,939
(2,957) 1,565 (1,392)
161,583 52,845 214,428
-27-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULES OF OPERATING REVENUE AND EXPENSES -CONTINUED
YEARS ENDED DECEMBER 31, 2007 AND 2006
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
TOTAL OPERATING EXPENSES
OPERATING INCOME (LOSS)
NONOPERATING REVENUES (EXPENSES)
Interest income
Connection charges
Customer penalties
Miscellaneous revenue
Interest expense
Amortization of bond discount
Miscellaneous expense
TOTAL NONOPERATING
REVENUES (EXPENSES)
INCOME BEFORE CONTRIBUTIONS AND TRANSFERS
2007
Electric Water Total
$ 332,001 $ 98,680 $ 430,681
789,284 208,819 998,103
47,005 33,990 80,995
65,690 13,373 79,063
116,960 6,685 123,645
69,479 6,000 75,479
27,053 6,683 33,736
14,384 - 14,384
- 6,182 6,182
147,925 43,803 191,728
19,148 6,400 25,548
16,296 4,362 20,658
83,689 19,989 103,678
24,025 2,411 26,436
1,752,939 457,377 2,210,316
18,262,805 2,112,796 20,375,601
1,403,738 370 1,404,108
137,486 44,340 181,826
368,182 627,774 995,956
228,780 29,194 257,974
287,871 2,262 290,133
(296,136) (223,654) (519,790)
(11,180) (7,708) (18,888)
(1,330) - (1,330)
713,673 472,208 1,185,881
2,117,411 472,578 2,589,989
GAIN (LOSS) ON SALE OF CAPITAL ASSETS
CONTRIBUTIONS FROM DEVELOPERS
TRANSFERS TO OTHER CITY FUNDS
NET INCOME
NET ASSETS, JANUARY 1
PRIOR PERIOD ADJUSTMENTS
NET ASSETS, RESTATED, JANUARY 1
NET ASSETS, DECEMBER 31
(2,815) - (2,815)
- 292,965 292,965
(483,000) (20,000) (503,000)
1,631,596 745,543 2,377,139
22,492,877 20,162,365 42,655,242
(108,899) (77,492) (186,391)
22,383,978 20,084,873 42,468,851
$ 24,015,574 $ 20,830,416 $ 44,845,990
-28-
2006
Electric Water Total
$ 279,472 $ 94,355 $ 373,827
763,574 207,997 971,571
36,034 38,626 74,660
56,192 13,589 69,781
168,208 12,977 181,185
53,737 1,650 55,387
24,354 5,595 29,949
10,577 - 10,577
- 16,932 16,932
217,628 49,032 266,660
18,817 6,272 25,089
12,378 3,801 16,179
61,813 14,131 75,944
71,908 44,101 116,009
1,774,692 509,058 2,283,750
15,869,554 1, 860,439 17,729,993
1,108,163 (110,507) 997,656
154,461 63,320 217,781
475,857 870,160 1,346,017
165,768 20,887 186,655
301,867 192,506 494,373
(200,309) (244,388) (444,697)
(2,353) (7,650) (10,003)
(9,596) - (9,596)
885,695 894,835 1,780,530
1,993,858 784,328 2,778,186
2,108 - 2,108
- 838,674 838,674
(420,000) (31,018) (451,018)
1,575,966 1,591,984 3,167,950
21,340,167 18,570,381 39,910,548
(423,256) - (423,256)
20,916,911 18,570,3 81 39,487,292
$ 22,492,877 $ 20,162,365 $ 42,655,242
-29-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
ELECTRIC FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31, 2002 THROUGH DECEMBER 31, 2007
SUMMARY OF OPERATIONS
2002 2003 2004
OPERATING REVENUES
Sales of electricity $ 10,783,277 $ 12,697,258 $ 13,775,332
Other operating revenues 343,087 299,695 268,140
TOTAL OPERATING REVENUES 11,126,364 12,996,953 14,043,472
OPERATING EXPENSES
Purchased power 6,849,629 7,786,921 8,563,298
Distribution 667,038 829,051 1,390,414
Services to the City 238,372 265,234 294,698
Depreciation 969,913 1,067,063 1,427,091
Other operating expenses 1,477,574 1,915,081 1,567,309
TOTAL OPERATING EXPENSES 10,202,526 11,863,350 13,242,810
OPERATING INCOME 923,838 1,133,603 800,662
TRANSFERS FROM OTHER FUNDS 50,000 - -
TRANSFERS TO OTHER FUNDS (289,264) (317,918) (340,564)
NONOPERATING REVENUES 917,373 766,285 651,934
NET INCOME $ 1,601,947 $ 1,581,970 $ 1,112,032
PERCENT OF CHANGE
Sales of electricity 12.294% 17.750% 8.491%
Purchased power 13.481 % 13.684% 9.970%
PERCENT OF REVENUES
Purchased power 61.562% 59.913% 60.977%
UNAUDITED STATISTICS
MISCELLANEOUS
2002 2003 2004
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
$ 157,594,270 $ 170,092,937 $ 176,730,416
149,787,670 161,852,054 165,595,414
7,806,600 8,240,883 11,135,002
4.954% 4.845% 6.301%
$ 0.0720 $ 0.0784 $ 0.0832
$ 0.0435 $ 0.0458 $ 0.0485
7,002 7,376 7,907
$ 527,636 $ 583,152 $ 340,564
-30-
$ 15,276,987 $ 16,495,049 $ 19,164,797
444,579 482,668 501,746
15,721,566 16,977,717 19,666,543
9,625,519 10,101,458 12,176,034
1,528,057 1,942,577 1,829,971
331,644 328,148 358,029
1,553,663 1,561,096 1.,920,798
1,731,317 1,936,275 1,977,973
14,770,200 15, 869,554 18,262,805
951,366 1,108,163 1,403,738
(388,927) (420,000) (483,000)
700,592 887,803 710,858
$ 1,263,031 $ 1,575,966 $ 1,631,596
10.901% 7.973% 16.185%
12.404% 4.945% 20.537%
61.225% 59.498% 61.912%
2005 2006 2007
$ 193,700,298 $ 205,645,631 $ 225,973,086
182,515,644 194,975,530 211,298,886
11,184,654 10,670,101 14,674,200
5.774% 5.189% 6.494%
$ 0.0837 $ 0.0846 $ 0.0907
$ 0.0497 $ 0.0491 $ 0.0539
8,306 8,562 8,945
$ 388,927 $ 420,000 $ 483,000
-31-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
WATER FUND
SUMMARY OF OPERATIONS AND UNAUDITED STATISTICS
FOR THE YEARS ENDED DECEMBER 31, 2002 THROUGH DECEMBER 31, 2007
SUMMARY OF OPERATIONS
2002 2003 2004
OPERATING REVENUES
Sales of water
OPERATING EXPENSES
Operating expenses less depreciation
Depreciation
TOTAL OPERATING EXPENSES
TOTAL OPERATING INCOME (LOSS)
PERCENT OF CHANGE
Sales of water
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
$ 834,562 $ 1,047,561 $ 1,167,955
561,039 849,677 806,831
292,559 585,354 720,044
853,598 1,435,031 1,526,875
$ (19,036) $ (387,470) $ (358,920)
(1.23%) 25.52% 11.49%
UNAUDITED STATISTICS
MISCELLANEOUS
2002 2003 2004
641,675,000 706,804,000 651,000,000
527,780,000 634,994,000 642,019,000
17.75% 10.16% 1.38%
$ 1.29 $ 1.47 $ 1.78
$ 1.58 $ 1.65 $ 1.82
3,207 3,513 3,824
UNUSUAL LINE LOSS
2002 2003 2004
Flushing hydrants
Back washing
Fire department use
New water main disinfectant and flushing
Meter inaccuracy
Eastern end maintenance
Unusual line loss
11, 500, 000 11,500,000 11,500,000
8,880,000 8,880,000 8,900,000
5,000,000 5,000,000 4,000,000
5,000,000 5,000,000 4,000,000
4,000,000 4,000,000 -
15,000,000 15,000,000 -
49,380,000 49,380,000 28,400,000
-32-
2005 2006 2007
$ 1,347,542 $ 1,749,932 $ 2,113,166
1,03 8,03 5 1,069,988 1,191,346
790,454 790,451 921,450
1,828,489 1,860,439 2,112,796
$ (480,947) $ (110,507) $ 370
15.38% 29.86% 20.76%
2005 2006 2007
705,746,000 812,560,000 873,742,000
632,256,000 726,169,000 783,948,000
10.41% 10.63% 10.28%
$ 1.90 $ 2.14 $ 2.41
$ 2.13 $ 2.41 $ 2.70
4,074 4,317 4,413
Gallons
2005 2006 2007
25,000,000 25,000,000 27,000,000
8,400,000 9,000,000 8,400,000
1,000, 000 1,000,000 1,000,000
5,000,000 6,500,000 1,000,000
3,100,000 3,000,000 -
42,500,000 44,500,000 37,400,000
-33-
THIS PAGE IS LEFT BLANK
INTENTIONALLY
OTHER REPORT
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR El~TDED
DECEMBER 31, 2007
ABDO
SICK &
r •~ yNZEYEI~LLP
Certified Public Accountants & Consultants
Grandview Square
5201 Eden Avenue
Suite 370
Edina, MN 55436
REPORT ON MINNESOTA LEGAL COMPLIANCE
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited the financial statements of the Elk River Municipal Utilities (the Utilities) as of and for the year ended
December 31, 2007, and have issued our report thereon dated April 7, 2008.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the
provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the Minnesota Office of the
State Auditor pursuant to Minnesota statute, section 6.65. Accordingly, the audit included such tests of the accounting records anc'
such other auditing procedures, as we considered necessary in the circumstances.
The Minnesota Legal Compliance Audit Guide for Local Government covers six main categories of compliance to be tested:
contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements and
miscellaneous provisions. Our study included all of the listed categories.
The results of our tests indicate that for the items tested, the Utilities complied with the material terms and conditions of applicable
legal provisions in 2007.
This report is intended solely for the information and use of the Public Utilities Commission, City Council, management and the
Office of the State Auditor and is not intended to be and should not be used by anyone other than. these specified parties.
~~.~,~~
April 7, 2008
Minneapolis, Minnesota
ABDO, EICK & MEYERS, LLP
Certified Public Accountants
-34-
952.835.9090 Fax 952.835.3261
www.aemcpas.com
ABDO
EICK
~, ~ ~~1 W LLP
Certified Public Account¢nts & Consultants
Grandview Square
5201 Eden Avenue
Suite 370
Edina, MN 55436
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
BASED ON AN AUDIT OF FINANCIAL STATEMENTS
Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
In planning and performing our audit, we considered Elk River Municipal Utilities (the Utilities) of the City of Elk River,
Minnesota, (the City) internal control over financial reporting (internal control) as a basis of designing our auditing procedures for
the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the Utilities' internal control over financial reporting. Accordingly, we do not express an opinion on the
effectiveness of the Utilities' internal control over financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and
would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or
material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting
that we consider to be significant deficiencies.
A control deficiency 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 misstatements on a timely basis. A significant deficiency is a
control deficiency, or combination of control deficiencies, that adversely affects the Utilities' ability to initiate, authorize, record,
process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a
remote likelihood that a misstatement of the Utilities' financial statements that is more than. inconsequential will not be prevented
or detected by the Utilities' internal control. We consider findings 2007-1 and 2007-2 to be significant deficiencies in internal
control over financial reporting.
A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote
likelihood that a material misstatement of the fmancial statements will not be prevented or detected by the Utilities' internal
control. We do not considered the findings to be material weaknesses.
The Utilities' response to the findings identified in our audit is described in the accompanying Schedule of Findings and
Responses. We did not audit the Utilities' responses and, accordingly, we express no opinion. on them.
This report is intended for solely the information and use of the Commission, management, City Council 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.
O~f~..~m~,~c~
Apri17, 2008
Minneapolis, Minnesota
ABDO, EICK & MEYERS, LLP
Certified Public Accountants
-35-
952.835.9090 Fax 952.835.3261
www.aemcpas.com
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SCHEDULE OF FINDINGS AND RESPONSES
DECEMBER 31, 2007
Findine Description
2007-1 Segregation of Duties
Condition: During our audit we reviewed procedures over cash disbursements, payroll and
investments and found areas of internal control that can be improved.
Criteria: There are four general categories of duties: authorization, custody, record keeping
and reconciliation. In an ideal system, different employees perform each of these
four major functions. In other words, no one person has control of two or more of
these responsibilities.
Cause: In the area of cash disbursements, the Finance Officer and one account have control
over the entire process from authorization to reconciliation. In the payroll area, the
accountant has responsibility in all steps of the process. And for Investment
activities, the Finance Officer is solely responsible for the whole process. Another
concern is the safeguarding of the stamp used for checking signing. Currently a spare
key is kept in an unlocked vault making it available to anyone -essentially giving any
employee the ability to authorize a check.
Effect: The existence of this limited segregation of duties increases the risk of fraud.
Recommendation: The most effective controls lie in striving to obtain as much segregation of duties as
possible so that no one person. has complete control of any type of financial
transaction. Regarding the specific situations listed above, we would offer the
following specific recommendations: 1) That neither the Finance officer nor the
accountant have control of the check signing process or wire transfer approval
process. 2) That a person separate from the recording and authorizing be given
responsibility for the reconciliation of cash and investments. 3) Stronger safeguards
of the signature stamps and consideration of requiring at least one actual signature.
Management response: Some items have already been implemented to improve internal control and
segregation of duties starting in March 2008. I) We have hired an assistant
accountant that does the bank reconciliation. The Finance Director will review these
now instead of actually performing them. 2) The key that was in the vault is now in
the possession of the Finance Director at all times. 3) Each check required two
signatures. We now have two signature stamps with an individual signature on each
stamp. One is kept locked in the possession of the accounts payable/payroll clerk
and one is kept locked in possession of the Finance Director. We are looking at
having a third one created that would be kept locked in possession of the General
Manager.
-36-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SCHEDULE OF FINDINGS AND RESPONSES -CONTINUED
DECEMBER 31, 2007
Findine Description
2007-2 Material Audit Adjustments
Condition: During our audit, adjustments were needed to correct recording of accounts payable,
accumulated depreciation, depreciation expense, and restricted cash.
Criteria: The financial statements are the responsibility of the Utilities' management.
Cause: The Utilities has, in the past, relied on the audit for specific adjustments.
Effect: This indicates that it would be likely that a misstatement may occur and not be
detected by the Utilities' System of internal control. The audit firm can not serve as a
compensating control over this deficiency.
Recommendation: We recommend that management review each journal entry, obtain an understanding
of why the entry was necessary and modify current procedures to ensure that future
corrections are not needed.
-3 7-