5.1. ERMUSR 04-14-2009
Elk River -~'
Municipal Utilities
13069 Orono Parkway • P.O. Box 430
Elk River, MN 55330-0430
Apri12, 2009
To: Elk River Municipal Utilities Commission
John Dietz
Jerry Gumphrey
Daryl Thompson
From: Theresa Slominski
Subject: 2008 Audit Presentation
5.1
Phone: 763.441.2020
Fax: 763.441.8099
Mr. Steve McDonald of Abdo, Eick & Meyers will be at our meeting to present our 2008 audit
and answer any questions you may have. A preliminary copy is enclosed for your review.
Bound copies will be distributed at the meeting.
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
ANNUAL FINANCIAL REPORT
YEARS ENDED
DECEMBER 31, 2008 AND 2007
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ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
TABLE OF CONTENTS
DECEMBER 31, 2008
Page No.
I. INTRODUCTORY SECTION
Public Utilities Commission and Administration
IL FINANCIAL SECTION
Independent Auditor's Report 2
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 - 30
III. SUPPLEMENTAL INFORMATION
Schedules of Operating Revenues and Expenses 31 - 34
Electric Fund
Summary of Operations and Unaudited Statistics 35 - 36
Water Fund
Summary of Operations and Unaudited Statistics 37 - 38
IV. OTHER REPORT
Report on Minnesota Legal Compliance 39
Report on Internal Control Over Financial Reporting
Based on an Audit of Financial Statements 40
Schedule of Finding and Responses 41 - 42
INTRODUCTORY SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2008
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
PUBLIC UTILITIES COMMISSION AND ADMINISTRATION
DECEMBER 31, 2008
PUBLIC UTILITIES COMMISSION
Name
Jerry Takle
John Dietz
Jerry Gumphrey
ADMINISTRATION
Vance Zehringer
Theresa Slominski
David Berg
Mark Fuchs
Troy Adams
Judy McSpadden
Title
Chairperson
Vice-Chairperson
Trustee
Interim General Manager
Office Manager
Water Superintendent
Line Superintendent
Engineer Manager
Recording Clerk
-1-
FINANCIAL SECTION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEARS ENDED
DECEMBER 31, 2008 AND 2007
ABDO
SICK &
-I ~~ ~ ~Y.11~ 1 l~l l,J LLP
Certtf'ied Public Aoeouruanzs & Consultants
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, 2008 and 2007 and the related statements of revenues, expenses and changes in
net assets and cash flows for the yeazs then ended. These fmancial statements aze the responsibility of the Utilities' management.
Our responsibility is to express an opinion on these financial 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 fmancial statements aze
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 fmancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 1B, the fmancial statements present only the Electric and Water enterprise funds and are not intended to
present fairly the fmancial 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 fmancial position of the
Electric and Water enterprise funds of the City as of December 31, 2008 and 2007 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 fmancial 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.
Apri19, 2009
Minneapolis, Minnesota
ABDO, SICK & 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, 2008. Please read it in conjunction with the fmancial
statements, which follow this section.
FINANCIAL HIGHLIGHTS
• The assets of the Utilities exceeded its liabilities at the close of the most recent fiscal yeaz by $45,729,130 (net assets).
Net Assets increased by $883,140 or 2 percent.
• The Utilities' cash balance at the close of the current fiscal year was $6,568,510.
• Construction slowed down considerably for the second year in a row, allowing for more focus on pro-active maintenance
to existing infrastructure.
• Usage was down an average of 3 percent, except for the lazge industrial customers which increased over 300 percent due
to the two new data centers beginning. operations.
• A crossover refunding of two water bonds occurred totaling $3,085,000. The interest rate was reduced to 3.35 percent
which will result in savings of approximately $120,000 over the remaining term.
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.
REQUIItED FINANCIAL STATEMENTS
The fmancial 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 9, 2009
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 $883,140 to $45,729,130 in fisca12008 up from $44,845,990 in fisca12007.
TABLE A-1
Condensed Statement of Net Assets
Assets
Current and other
Capital
Increase
2008 2007 (Decrease)
$ 13,326,578 $ 10,028,942 $ 3,297,636
53,336,064 53,490,290 (154,226)
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
66,662,642 63,519,232 3,143,410
3,559,346 3,490,943 68,403
17,374,166 15,182,299 2,191,867
20,933,512 18,673,242 2,260,270
35,174,070 37,126,236 (1,952,166)
724,500 733,400 (8,900)
9,830,560 6,986,354 2,844,206
$ 45,729,130 $ 44,845,990 $ 883,140
Looking at Table A-1, you can see that most of the change in net assets was realized in the current assets, which increased
$3,297,636 in fisca12008. The increase in current assets was due to the cash held by the escrow agent related to the refunding
bonds that were issued in 2008.
Water and Electric Rates
Electric -The latest increase in the Utilities' electric rates was effective January 2009. The monthly base chazges are based upon
the type of service. The monthly charges are $8.50 for residential, $16.00 for commercial, and $50.00 for industrial. In addition
to the base chazges the residential rate is $.1090/KWh for May-September usage, and $.0950/KWh for October-April usage; the
commercial rate is $.1050/KWh for May-September usage, and $0.0850/KWh for October-April usage; the industrial rate is
$.0515lKWh energy charge year round with a demand change of $15.50/KW May-September, and $10.75/KW for October-April.
-II-
Management's Discussion and Analysis -Continued
Apri19, 2009
Water and Electric Rates -Continued
Water -The Utilities' latest increase in residential and commercial rates was effective January 2009. The only rate change was an
increase of $1.00 to the base charge. The monthly base charge for residential is $7.50 per month. In addition to the base chazge,
the Utilities currently charges its residential customers $1.50 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. An irrigation meter is $40.00 for every month the meter is utilized. 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
chazged 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 guazantor of their
business and the guazantor'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 chazge 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
Apri19, 2009
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 $883,140 in fisca12008. 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
2008 2007 (Decrease)
Revenues
Operating $ 24,863,364 $ 21,779,709 $ 3,083,655
Nonoperating 1,089,329 2,018,854 (929,525)
Total revenues 25,952,693 23,798,563 2,154,130
Expenses
Operating 23,762,013 20,375,601 3,386,412
Nonoperating 629,927 542,823 87,104
Total expenses 24,391,940 20,918,424 3,473,516
Income before operating transfers 1,560,753 2,880,139 (1,319,386)
Transfers to other City funds (560,636) (503,000) (57,636)
Change in net assets 1,000,117 2,377,139 (1,377,022)
Net assets, January 1 44,845,990 42,655,242 2,190,748
Prior period adjustments (116,977) (186,391) 69,414
Net assets, December 31 $ 45,729,130 $ 44,845,990 $ 883,140
Revenues
Table A-2 shows that operating revenue increased by 14 percent in 2008 for the Water and Electric Departments combined. This
increase was due mainly to the new data centers in town. Non operating revenue decreased 46 percent as a result of the decrease
in construction this year, and was expected. Specifically, on the water side, there were no contributions of infrastructure from
developers in 2008, down from $293,000 in 2007. Between the two departments, Connectior. Fees were down $460,000.
Total Expenses
In reviewing total expenses in Table A-2 you will notice that there was an increase of 16.4 percent overall. The Electric
Department experienced an increase of 18 percent in operating expenses, while the Water Department's operating expenses
remained pretty consistent. The increase in operating expenses for the Electric Department mainly resulted from the purchased
power increasing by $2,602,236 over 2007 or 21 percent. This increase was lazgely impacted by the total of $766,000 in Power
Cost Adjustments (PCA) billed to us from our power supplier. (Prior to 2008, the lazgest accumulated PCA in a year was
approximately $200,000.) Typically 100 percent of these PCAs aze passed on to the customers, but the Utilities only passed along
75 percent or $580,000.
-IV-
Management's Discussion and Analysis -Continued
Apri19, 2009
CAPITAL ASSETS
The Utilities' investment in capital assets for its business-type activities as of December 31, 2008, amounts to $63,336,064 (net of
accumulated depreciation). This investment in capital assets includes land, buildings and improvements and equipment. A table
summarizing the balances by fund follows:
Increase
2008 2007 (Decrease)
Land $ 281,776 $ 211,236 $ 70,639
Land improvements 26,476 29,001 (2,526)
Buildings 2,468,930 2,674,423 (lOS,493)
Construction in progress 196,606 1,834,486 (1,638,880)
Machinery and equipment 1,238,820 1,332,337 (93,6 17)
Infrastructure 49,124,468 47,508,808 1,616,650
Total $ 63,336,064 $ 63,490,290 $ (164,226)
The total decrease in the Utilities' investment in capital assets for the current fiscal year was 0.3 percent.
Additional information on the Utilities' capital assets can be found in Note 2B on page 20 - 22 of this report.
LONG-TERM DEBT
At year end, the Utilities had $18,439,132 in long-term debt up from $16,652,842 in fiscal 2007. More detailed information about
the Utilities' long-teen liabilities is presented in the Notes to the Financial Statements on pages 22 - 24 and below:
Increase
2008 2007 (Decrease)
G.O. revenue bonds
Revenue bonds
Promissory note
Compensated absences payable
OPEB liability
Total
$ 8,660,000 $ 6,410,000 $ 2,260,000
6,goo,oo0 7,o7s,ooo (27s,ooo)
2,701,994 2,879,OS4 (177,060)
266,926 288,788 (21,863)
10,213 - 10,213
$ 18,439,132 $ 16,662,842 $ 1,786,290
CONTACTING THE UTILITIES FINANCIAL MANAGER
This financial report is designed to provide our citizens, customers, investors and creditors with a general overview of the
Utilities' finances and to demonstrate the Utilities' accountability for the money it receives. Questions concerning any of the
information provided in this report or requests for additional financial information should be addressed to Theresa Slominski, Elk
River Municipal Utilities, PO Box 430, Elk River, Minnesota 66330-0430 or stop by at 13069 Orono Parkway in Elk River, MN.
-V-
FINANCIAL STATEMENTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEARS ENDED
DECEMBER 31, 2008 AND 2007
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF NET ASSETS
DECEMBER 31, 2008 AND 2007
2008
ASSETS
CURRENT ASSETS
Cash and temporary investments
Cash with escrow agent
Receivables
Accrued interest
Accounts, net of allowance
Special assessments
Other receivables
Due from other City fund
Due from other governments
Inventories
Prepaid expenses
TOTAL CURRENT ASSETS
Electric Water Total
$ 3,908,552 $ 1,935,458 $ 5,844,010
- 2,592,096 2,592,096
27,557 9,188 36,745
1,983,269 230,436 2,213,705
- 1,018 1,018
39,919 57,354 97,273
- 128,850 128,850
3,161 - 3,161
1,329,459 31,611 1,361,070
61,628 8,687 70,315
7,353,545 4,994,698 12,348,243
CAPITAL ASSETS
Land 200,236 81,539 281,775
Land improvements 63,147 - 63,147
Buildings 2,725,341 738,145 3,463,486
Equipment and machinery 3,783,851 334,493 4,118,344
Infrastructure 42,873,557 30,401,283 73,274,840
Construction in progress 144,499 51,106 195,605
CAPITAL ASSETS, COST
LESS ACCUMULATED DEPRECIATION
49,790,631 31,606,566 81,397,197
(19,975,453) (8,085,680) (28,061,133)
TOTAL CAPITAL ASSETS, NET
OTHER ASSETS
Restricted cash
Unamortized bond discount
TOTAL OTHER ASSETS
TOTAL ASSETS
29,815,178 23,520,886 53,336,064
724,500 - 724,500
128, 894 124,941 253, 83 5
853,394 124,941 978,335
38,022,117 28,640,525 66,662,642
The notes to the financial statements are an integral part of this statement.
-3-
2007
Electric Water Total
$ 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 63,519,232
-4-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF NET ASSETS -CONTINUED
DECEMBER 31, 2008 AND 2007
CURRENT LIABILITIES
Accounts payable
Salaries and benefits payable
Accrued interest payable
Due to other City funds
Due to other governments
Customer deposits payable
Compensated absences -current portion
Notes payable -current portion
Bonds payable -current portion
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Net other postemployment benefits liability
Compensated absences, less current portion
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
2008
Electric
Water
Total
$ 1,572,455 $ 39,387 $ 1,611,842
39,723 4,758 44,481
131,489 119,956 251,445
323,415 17,978 341,393
97,749 - 97,749
139,970 7,500 147,470
99,464 33,154 132,618
177,348 - 177,348
328,750. 426,250 755,000
2,910,363 648,983 3,559,346
10,213 - 10,213
99,359 34,948 134,307
2,524,646 - 2,524,646
7,525,000 7,180,000 14,705,000
10,159,218 7,214,948 17,374,166
13,069,581 7,863,931 20,933,512
19,388,328 16,039,577 35,427,905
724,500 - 724,500
4,839,708 4,737,017 9,576,725
TOTAL NET ASSETS
$ 24,952,536 $ 20,776,594 $ 45,729,130
The notes to the financial statements are an integral part of this statement.
-5-
2007
Electric Water Total
$ 1,231,777 $ 107,853 S 1,339,630
22,781 3,215 25,996
133,249 91,408 224,657
296,315 - 296,315
75,795 - 75,795
53,007 5,000 58,007
137,612 45,871 183,483
177,060 - 177,060
320,000 790,000 1,110,000
2,447,596 1,043,347 3,490,943
78,979 26,326 105,305
2,701,994 - 2,701,994
7,853,750 4,521,250 12,375,000
10,634,723 4,547,576 15,182,299
13,082,319 5,590,923 18,673,242
19,046,416 18,299,591 37,346,007
733,400 - 733,400
4,235,758 2,530,825 6,766,583
$ 24,015,574 $ 20,830,416 $ 44,845,990
-6-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
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 adminis~ative
TOTAL OPERATING EXPENSES
Electric water - Total
$ 21,310,737 $ 2,109,014 $ 23,419,751
227,772 - 227,772
993,257 - 993,257
222,584 - 222,584
22,754,350 2,109,014 24,863,364
14,778,270 - 14,778,270
886,515 394,599 1,281,114
1,273,124 182,711 1,455,835
2,057,851 974,848 3,032,699
651,585 72,811 724,396
1,954,407 535,292 2,489,699
21,601,752 2,160,261 23,762,013
OPERATING INCOME (LOSS)
NONOPERATING REVENUES (EXPENSES)
Interest income
Connection charges
Customer penalties
Miscellaneous revenue
Interest expense
Amortization of bond discount
Gain (loss) on sale of capital assets
Miscellaneous expense
TOTAL NONOPERATING REVENUES (EXPENSES)
INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS
CONTRIBUTIONS FROM DEVELOPERS
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
1,152,598 (51,247) 1,101,351
.155,597 51,873 207,470
300,769 236,536 537,305
187,553 21,110 208,663
126,969 8,922 135,891
(314,775) (279,292) (594,067)
(11,169) (13,164) (24,333)
(8,369) - (8,369)
(3,158) - (3,158)
433,417 25,985 459,402
1,586,015 (25,262) 1,560,753
(540,636) (20,000) (560,636)
1,045,379 (45,262) 1,000,117
24,015,574 20,830,416 44,845,990
(108,417) (8,560) (116,977)
23,907,157 20,821,856 44,729,013
$ 24,952,536 $ 20,776,594 $ 45.729,130
The notes to the financial statements are an integral part of this statement.
-7-
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)
(2,815) - (2,815)
(1,330) - (1,330)
710,858 472,208 1,183,066
2,114,596 472,578 2,587,174
- 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
-8-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users
Other operating cash receipts
Payments to suppliers
Payments to employees
Electric Water Total
$ 23,171,758 $ 2,325,309 $ 25,497,067
202,455 (3,704) 198,751
(17,617,200) (840,686) (18,457,886)
(1,362,656) (393,982) (1,756,638)
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 USED BY NONCAPITAL
FINANCING ACTIVITIES
CASH FLOWS FROM CAPITAL
AND RELATED FINANCING ACTIVITIES
Acquisition of capital assets
Principal payments on revenue bonds
Payments on short term account to acquire capital assets
Proceeds of revenue bonds
Withdrawal from escrow fund
Payment to escrow agent for refunded bond
Interest paid on revenue bonds
Principal payments on 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
4,394,357 1,086,937 5,481,294
(540,636) (20,000) (560,636)
27,100 2,932 30,032
(513,536) (17,068) (530,604)
(2,030,658) (954,311) (2,984,969)
(320,000) (790,000) (1,110,000)
(89,019) (49,287) (138,306)
- 3,026,604 3,026,604
- 37,939 37,939
- (2,630,036) (2,630,036)
(316,535) (250,744) (567,279)
(177,060) - (177,060)
(2,933,272) (1,609,835) (4,543,107)
145,826 81,037 226,863
1,093,375 (458,929) 634,446
3,539,677 2,394,387 5,934,064
$ 4,633,052 $ 1,935,458 $ 6,568,510
The notes to the financial statements are an integral part of this statement.
-9-
2007
Electric Water Total
$ 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)
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
-10-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
STATEMENTS OF CASH FLOWS -CONTINUED
YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
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
Other expenses related to operations
Depreciation
(Increase) decrease in assets:
Accounts receivable
Other receivables
Special assessments
Due from other governments
Inventories
Prepaid expenses
Increase (decrease) in liabilities:
Accounts payable
Salaries and benefits payable
OPEB liability
Compensated absences
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
loss on disposal of capital assets
Capital assets purchased on account
Contribution of capital assets from developers
Interest payment on revenue bonds from escrow cash
Electric Water Total
$ 1,152,598 $ (51,247) $ 1,101,351
615,291 266,568 881,859
(3,158) - (3,158)
2,057,851 974,848 3,032,699
(157,877) (42,833) (200,710)
40,212 (12,626) 27,586
- (1,018) (1,018)
35,274 - 35,274
54,312 (4,724) 49,588
51,853 (3,950) 47,903
429,697 (38,029) 391,668
16,942 1,543 18,485
10,213 - 10,213
(17,768) (4,095) (21,863)
21,954 - 21,954
86,963 2,500 89,463
$ 4,394,357 $ 1,086,937 $ 5,481,294
$ 11,169 $ 13,164 $ 24,333
$ - $ 58,396 $ 58,396
$ 108,417 $ 8,560 $ 116,977
$ (8,369) $ - $ (8,369)
$ - $ 18,850 $ 18,850
$ - $ - $ -
$ $ 37,939 $ 37,939
The notes to the financial statements are an integral part of this statement.
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
$ - $ - $ -
-12-
THIS PAGE IS LEFT BLANK
INTENTIONALLY
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
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 aze 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 aze such that exclusion would cause the
Utilities' fmancial statements to be misleading or incomplete. The Governmental Accounting Standards Boazd
(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 aze 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 year when
the resources aze 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 aze 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 aze 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, 2008 AND 2007
Note 1: 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 definition 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, 2008 AND 2007
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 guazanteed 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 aze 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 guazanteed 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 aze 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 which is adjusted annually based on the receivable activity. No substantial losses
from present receivable balances are anticipated. A summary of the uncollectible account balances at
December 31, 2008 and December 31, 2007 is as follows:
2008 2007
Electric
Water
Total
mcrease
(decrease)
$ 78,750 $ 52,500 $ 26,250
26,250 17,500 8,750
$ 105,000 $ 70,000 $ 35,000
-15-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
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 fast-in, first-out (FIFO) method.
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.
-16-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED
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.
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.
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, 2008, the Utilities carrying amount of deposits was $4,229,599 and the bank balance was
$5,531,879. Of the bank balance $467,335 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, 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 financial institution's agent in the Utilities' name.
-17-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
Investments
The Utilities' investment balances were as follows for December 31, 2008:
Fair Value
Credit Segmented and
Quality/ Time Carrying
Types of Investments Ratings (1) Distribution (2) Amount
Pooled investments
Broker Money Markets N/A less than 6 months $ 220,428
Non-pooled investments
U.S. Government Agency Securities AAA 6 months to 1 year 303,843
AAA 1 to 3 years 508,280
812,123
Brokered CD's N/A less than 6 months 207,000
N/A 6 months to 1 year 595,000
N/A 1 to 3 years 338,000
N/A more than 3 years 96,000
1,236,000
Total non-pooled investments
Total investments
1. Rating were provided by Moody's
2. Interest rate risk is disclosed using the segmented time distribution method.
N/A Indicates not applicable or available
2,048,123
$ 2,268,551
-18-
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
The Utilities' investment balances were as follows for December 31, 2007:
Fair Value
Credit Segmented and
Quality/ Time Carrying
Types of Investments Ratings (1) Distribution (2) Amount
Pooled investments
Broker Money Markets N/A less than 6 months $ 16,509
Non-pooled investments
U.S. Government Securities AAA 6 months to 1 year 349,342
Commercial paper Al, P1 6 months to 1 year 788,673
Brokered CD's N/A 6 months to 1 year 117,088
Total non-pooled investments 1,255,103
Total investments $ 1,271,612
1. Ratings were provided by Moody's
2. Interest rate risk is disclosed using the segmented time distribution method.
N/A Indicates not applicable or available.
A reconciliation of cash and temporary investments as shown in the financial statements for the Utilities follows:
2008 2007
Deposits $ 4,299,559 $ 4,662,052
Investments 2,268,551 1,271,612
Cash on hand 400 400
Total $ 6,568,510 $ 5,934,064
Cash and investments
Unrestricted $ 5,844,010 $ 5,200,664
Restricted 724,500 733,400
Total $ 6,568,510 $ 5,934,064
-19-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
B. Capital Assets
Electric fund capital asset activity for the year ended December 31, 2008 was as follows:
Beginning Prior Period Ending
Balance Adjustments Increases Decreases Balance
Capital assets not
being depreciated
Land $ 200,236 $ - $ - $ 200,236
Construction in progress 1,586,925 - - (1,442,426) 144,499
Total capital assets
not being depreciated 1,787,161 - - (1,442,426) 344,735
Capital assets being depreciated
Land improvements 63,147 - - - 63,147
Buildings 2,716,260 - 9,081 - 2,725,341
Machinery and equipment 3,580,644 - 203,207 - 3,783,851
Infrastructure 39,621,130 - 3,252,427 42,873,557
Total capital assets
being depreciated 45,981,181 3,464,715 49,445,896
Less accumulated
depreciation for
Land improvements (34,146) - (2,526) - (36,672)
Buildings (685,034) - (93,718) - (778,752)
Machinery and equipment (2,436,610) - (277,045) - (2,713,655)
Infrastructure (14,653,395) (108,417) (1,684,562) - (16,446,374)
Total accumulated
depreciation (17,809,185) (108,417) (2,057,851) - (19,975,453)
Total capital assets
being depreciated, net 28,171,996 (108,417) 1,406,864 - 29,470,443
Business-type activities
capital assets, net $ 29,959,157 $ (108,417) $ 1,406,864 $ (1,442,426) $ 29,815,178
-20-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
Water fiznd capital asset activity for the year ended December 31, 2008 was as follows:
Reclassifications
and
Beginning Prior Period Ending
Balance Adjustments Increases Decreases Balance
Capital assets not
being depreciated
Land $ 11,000 $ 70,539 $ - $ - $ 81,539
Construction in progress 247,560 - - (196,454) 51,106
Total capital assets
not being depreciated 258,560 70,539 - (196,454) 132,645
Capital assets being depreciated
Buildings 738,145 - - - 738,145
Machinery and equipment 320,825 - 13,668 - 334,493
Infrastructure 29,315,875 (70,539) 1,155,947 30,401,283
Total capital assets
being depreciated 30,374,845 (70,539) 1,169,615 - 31,473,921
Less accumulated
depreciation for
Buildings (194,949) - (20,855) - (215,804)
Machinery and equipment (132,522) - (33,346) - (165,868)
Infrastructure (6,774,801) (8,560) (920,647) (7,704,008)
Total accumulated
depreciation (7,102,272) (8,560) (974,848) - (8,085,680)
Total capital assets
being depreciated, net 23,272,573 (79,099) 194,767 - 23,388,241
Business-type activities
capital assets, net $ 23.531.133 $ (8.560) $ 194.767 $ (196.4541 $ 23.520.886
-21-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
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
2008 2007
$ 974,848 $ 921,450
2,057,851 1,920,798
Total depreciation expense -business-type activities $ 3,032,699 $ 2,842,248
C. Long-term Debt
G.O. Revenue and Refunding 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 2008 2007
G.O. Water Revenue
Refunding Bonds of 2008 $ 3,085,000 2.50-3.65 % 02/20/08 02/01/22 $ 3,085,000 $ -
G.O. Water Revenue
Bonds of 1998B 820,000 4.50-5.00 12/01/98 02/01/14 - 450,000
G.O Water Revenue
Bonds of2001A 3,590,000 4.40-5.40 10/O1/Ol 02/01/22 2,880,000 3,020,000
G.O. City Hall Expansion
Bonds of 2002B 1,695,000 3.50-5.00 09/01/02 02/01/23 1,405,000 1,465,000
G.O. Water Revenue
Bonds of 2003B 1,995,000 3.00-3.70 12/09/03 02/01/14 1,290,000 1,475,000
Total G.O. Revenue Bonds $ 8.660.000 $ 6.410,000
The annual requirements to amortize the general obligation revenue bonds as of December 31, 2008 are as follows:
Year Ending
December 31, Principal Interest Total
2009 $ 475,000 $ 327,763 $ 802,763
2010 490,000 311,451 801,451
2011 690,000 291,633 981,633
2012 720,000 268,058 988,058
2013 760,000 242,478 1,002,478
2014-2018 2,875,000 856,384 3,731,384
2019-2023 2,650,000 257,388 2,907,388
Total $ 8,660,000 $ 2,555,155 $ 11,215,155
-22-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 2: DETAILED NOTES O.N ALL FUNDS -CONTINUED
The Utilities issued $3,085,000 of G.O. Water Revenue Refunding Bonds to provide resources for the current
refunding on May 1, 2008 of $395,000 of the G.O. Water Revenue Bonds, Series 1998B and the advance refunding
of $2,575,000 of the G.O. Water Revenue Bonds, Series 2001A, which will be redeemed on February 1, 2010. The
City will continue to pay, as due, principal and interest on the Series 2001A Bonds at the rates and amounts specified
to the call date (February 1, 2010). The refunded bonds will be called and paid by the Escrow Account. The
transaction resulted in a reduction of $120,378 of future debt service payments, which is a present value savings of
$82,990.
Revenue Bonds
The following bonds were issued to finance capital improvements in the Electric fund. They will be retired from net
revenues of the fund.
Authorized
Description and Issued
Electric Revenue
Bonds, Series 2004A $ 940,000
Electric Revenue
Bonds, Series 2006A 3,595,000
Electric Revenue
Bonds, Series 2007A 2,875,000
Total Revenue Bonds
Interest Issue Maturity December 31, December 31,
Rate Date Date 2008 2007
3.50-4.25 % 08/01/04 02/01/15 $ 700,000 $ 785,000
3.30-4.00 03/02/06 08/01/21 3,225,000 3,415,000
4.00 03/28/07 02/01/22 2,875,000 2,875,000
$ 6,800,000 $ 7,075,000
The annual requirements to amortize the revenue bonds as of December 31, 2008 are as follows:
Year Ending
December 31, Principal Interest Total
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 520,000 192,358 712,358
2014-2018 2,590,000 661,172 3,251,172
2019-2022 1,975,000 160,965 2,135,965
Total $ 6,800,000 $ 1,963,006 $ 8,763,006
-23-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
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 2008 2007
Landfill
Generator Note $ 3,521,000 - % 03/19/02 02/19/22 $ 2,701,994 $ 2,879,054
The annual requirements to amortize the generator note as of December 31, 2008 are as follows:
Year Ending
December 31, Principal Interest Total
2009 $ 177,348 $ - $ 177,348
2010 179,328 - 179,328
2011 182,436 - 182,436
2012 183,444 - 183,444
2013 186,588 186,588
2014-2018 968,616 - 968,616
2019-2022 824,234 - 824,234
Total $ 2,701,994 $ - $ 2,701,994
Changes in Long-term Liabilities
Long-term liability activity for the year ended December 31, 2008 was as follows:
Business-type activities
Bonds payable
General obligation
revenue bonds
Revenue bonds
Total bonds
payable
Notes payable
Compensated
absences payable
OPEB liability
Business-type activity
long-term
liabilities
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
$ 6,410,000 $ 3,085,000 $ (835,000) $ 8,660,000 $ 475,000
7,075,000 - (275,000) 6,800,000 280,000
13,485,000 3,085,000 (1,110,000) 15,460,000 755,000
2,879,054 - (177,060) 2,701,994 177,348
288,788 161,620 (183,483) 266,925 132,618
- 10,213 - 10,213 -
$ 16,652,842 $ 3,256,833 $ (1,470,543) $ 18,439,132 $ 1,064,966
-24-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 2: DETAILED NOTES ON ALL FUNDS -CONTINUED
D. Interfund Receivables, Payables and Transfers
The composition of Interfund balances at December 31, 2008 is as follows:
Receivable Fund Payable Fund Amount Purpose
Electric City -General fund $ 856 Electric sales tax paid by City
Electric City -General fund 2,346 City share of project costs
City -General fund Electric (42,378) Shared building maint. costs
City -multiple funds Electric (45,636) December transfer of 3% of revenue
City -General fund Electric (9,521) Electric share of insurance
City -General fund Electric (11,152) Electric share of legal fees
City -General fund Electric (502) Gravel for leveling drives
City -General fund Electric (1,702) Electric share of vehicle maint.
City -Sewer Electric (124,332) Billed sewer on behalf of City
City - Gazbage Electric (91,394) Billed garbage on behalf of City
Total Electric fun d payable to City (323,415)
Water City -Capital projects fund 128,850 TIF 22 Water Access Charge
City -General fund Water (3,718) Water share of legal fees
City -General fund Water (14,126) Shazed building maint. costs
City -General fund Water (134) Water share of vehicle maint.
Total Water fund receivable from City
Total payable to City
110,872
$ (212,543)
Interfund transfers:
Transfer out:
Transfer to
Other City Funds Purpose
Electric
Water
Total transfers out
$ 540,636 Transfer 3% of revenue
20,000 Water share of bonding
$ 560,636
-25-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 3: DEFINED BENEFIT PENSION PLANS -STATEWIDE
A. Plan Description
All full-time and certain part-time employees of the Utilities are covered by defimed benefit plans administered by
the Public Employees Retirement Association of Minnesota (PERA). PERA administers the Public Employees
Retirement Fund (PEKE), which is a cost-shazing, 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 yeazs of allowable
service, age and years of credit at termination of service.
Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member
receives the higher of 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 yeaz 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 eazly retirement.
There aze 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 vazious 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 aze current provisions and apply to active
plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet, aze
bound by the provisions in effect at the time they last terminated their public service.
PERA issues a publicly available fmancial report that includes fmancial statements and required supplementary
information for PERF. That report may be obtained on the Internet at www.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.
-26-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 3: DEFINED BENEFIT PENSION PLANS -STATEWIDE -CONTINUED
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 6.0 percent, respectively, of their annual covered salazy in 2008. The
Utilities is required to contribute the following percentages of annual covered payroll: 11.78 percent for Basic Plan
PERF members and 6.5 percent of Coordinated Plan PERF members. Employer contribution rates for the
Coordinated Plan will increase to 6.75 percent, effective January 1, 2009. The Utilities' contributions to the PERF
for the years ending December 31, 2008, 2007 and 2006 were $151,416, $136,713 and $128,223, respectively. The
Utilities' contributions were equal to the contractually required contributions for each yeaz as set by Minnesota
statute.
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 azeas 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 azea 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 2008 and 2007, the Utilities paid $248,976 and $546,086, respectively, under this agreement, including
$32,838 and $36,747 in 2008 and 2007, respectively, for loss of revenues. All amounts paid aze 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 shazing 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 awaze of any incurred but not reported claims.
C. Prior Period Adjustments
During the yeaz ended December 31, 2008, the Utilities recorded prior period adjustments in the Electric and Water
funds for $108,417 and $8,560, respectively. During the year ended December 31, 2007 the Utilities recorded a prior
period adjustment in the Electric and Water fund for $108,899 and $77,492, respectively. All of these adjustments
related to correcting accumulated depreciation.
-27-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 4: OTHER INFORMATION -CONTINUED
D. Commitments
The Utilities has received notice from their power supplier regarding the existing all requirements power contract
exercising their right to give ten years notice to cancel the contract. The cancellation date would be effective
September 30, 2018. The process has begun to renegotiate the existing contract, or contract with another power
supplier.
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION
In 2008, the Utility Prospectively implemented the requirements of a new accounting pronouncement, GASB Statement
No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions.
Plan Description. Elk River Municipal Utilities (the Utilities) administers amulti-employer defined benefit healthcaze
plan ("the Retiree Health Plan"). The plan provides lifetime healthcare insurance for eligible retirees and their spouses
through the Utilities group health insurance plan, which covers both active and retired members. Benefit provisions are
reviewed intermittently through the relationship with the Utilities' insurance broker. The Retiree Health Plan does not
issue a publicly available financial report.
Funding Policy. Contribution requirements also are reviewed at the time changes are made to the plan. The Utility
contributes none of the cost of current-year premiums for eligible retired plan members and their spouses. For fiscal year
2008, the Utility contributed $0 to the plan. Plan members receiving benefits contribute 100 percent of their premium
costs. In fiscal year 2008, total member contributions were $0.
Annual OPEB Cost and Net OPEB Obligation. The Utilities' annual other postemployment benefit (OPEB) cost
(expense) is calculated based on the annual required contribution of the employer (ARC). The Utility has elected to
calculate the ARC and related information using the alternative measurement method permitted by GASB Statement 45
for employers in plans with fewer than one hundred total plan members. The ARC represents a level of funding that, if
paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities
(or funding excess) over a period not to exceed thirty yeazs. The following table shows the components of the Utilities
annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the Utilities' net OPEB
obligation to the Retiree Health Plan:
Annual required contribution $ 10,213
Interest on net OPEB obligation -
Adjustment to annual required contribution -
Annual OPEB Cost (expense) 10,213
Contributions Made -
Increase in net OPEB obligation 10,213
Net OPEB obligation- beginning of yeaz
Net OPEB obligation- end of year $ 10,213
-28-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION -CONTINUED
The Utilities' annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation for fiscal year 2008 were as follows:
Fiscal Year Ended
Percentage of
Annual Annual OPEB Net OPEB
OPEB Cost Cost Contributed Obligation
December 31,2008 $ 10,213 - % $ 10,213
Funded Status and Funding Progress. As of December 31, 2008, the actuarial accrued liability for benefits was $56,892,
all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was
$2,300,000, and the ratio of the unfunded actuarial accrued liability to the covered payroll was 2.47 percent.
The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and
assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future
employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the
annual required contributions of the employer aze subject to continual revision as actual results are compared with past
expectations and new estimates aze made about the future. The schedule of funding progress, presented as required
supplementary information following the notes to the fmancial statements, presents multi-year trend information about
whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuazial accrued liabilities
for benefits.
Methods and Assumptions. Projections of benefits for fmancial reporting purposes are based on the substantive plan (the
plan as understood by the employer and plan members) and include the types of benefits provided at the time of each
valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The
methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in
actuarial accrued liabilities and the actuazial value of assets, consistent with the long-term perspective of the calculations.
The following simplifying assumptions were made:
Retirement age for active employees -Based on the historical average retirement age for the covered group, active plan
members were assumed to retire at age 62, or at the first subsequent year in which the member would qualify for benefits.
Participation Rate - It is assumed that 10 percent of active participants continue coverage until age 65. Participants are
assumed to continue in their current coverage type (single or family). It is assumed that 100 percent of retirees will
continue their current coverage until age 65.
Life Expectancy -Life expectancies were based on mortality tables from the National Center for Health Statistics. The
2000 United States Life Tables for Males and for Females were used.
Turnover -Non-group-specific age-based turnover data from GASB Statement 45 were used as the basis for assigning
active members a probability of remaining employed until the assumed retirement age and for developing an expected
future working lifetime assumption for purposes of allocating to periods the present value of total benefits to be paid.
Healthcare cost trend rate -The expected rate of increase in healthcaze insurance premiums was based on projections of
the Office of the Actuary at the Centers for Medicaze & Medicaid Services. A rate of 10.0 percent initially, reduced to an
ultimate rate of 5.0 percent after ten years, was used.
-29-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
Note 5: POSTEMPLOYMENT BENEFITS OTHER THAN PENSION -CONTINUED
Health insurance premiums - 2008 health insurance premiums for retirees were used as the basis for calculation of the
present value of total benefits to be paid.
Withdrawal -The probability that an employee will remain employed until the assumed retirement age was determined
using non-group specific age-based turnover data provided in Table 1 in Paragraph 35b of GASB 45.
Disability -None
Actuarial Method -Projected Unit Credit with 30-year amortization of the unfunded liability.
Valuation date -January 1, 2008
Based on the historical and expected returns of the Utilities' short-term investment portfolio, a discount rate of 4.0
percent was used. In addition, a simplified version of the entry age actuarial cost method was used. The unfunded
actuarial accrued liability is being amortized as a level dollar amount. The remaining amortization period at
December 31, 2008, was thirty years.
Required Supplementary Information
Schedule of Funding Progress for the Retiree Health Plan
Actuarial
Accrued
Liability
Actuarial (AAL) --
Actuarial Value of Simplified
Valuation Assets Entry Age
Date (a) (b)
1/1/2008 $ - $ 56,892
Unfunded AAL
(UAAL)
(b-a)
56,892
Funded Covered
Ratio Payroll
(~) (c)
- % $ 2,300,000
UAAL as a
Percentage
of Covered
Payroll
((b-a) / c)
0.02
-30-
SUPPLEMENTAL INFORMATION
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2008
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULES OF OPERATING REVENUES AND EXPENSES
YEARS ENDED DECEMBER 31, 2008 AND 2007
OPERATING REVENUES
Charges for services
Elk River
Otsego
Big Lake
Dayton
Security systems
LFG Project
Generation credit
Electric
2008
TOTAL OPERATING REVENUES
OPERATING EXPENSES
Purchased power
Water Total
$ 19,114,765 $ 2,109,014 $ 21,223,779
1,762,460 - 1,762,460
245,179 - 245,179
188,333 - 188,333
227,772 - 227,772
993,257 - 993,257
222,584 - 222,584
22,754,350 2,109,014 24,863,364
14,778,270 - 14,778,270
Production
Supervision and labor 60,373 28,189 88,562
Natural gas 38,859 - 38,859
Supplies and power for pumping 58,430 256,672 315,102
Landfill gas expense 638,556 - 638,556
Maintenance of structures 24,360 14,236 38,596
Maintenance of equipment 19,428 95,502 114,930
Maintenance of plant 46,509 - 46,509
Total 886,515 394,599 1,281,114
Transmission and distribution
Supervision and labor 35,891 20,025 55,916
Maintenance of overhead lines 338,028 - 338,028
Maintenance of underground lines 242,980 - 242,980
Maintenance of station equipment 68,975 - 68,975
Transportation 147,329 18,584 165,913
Maintenance of customer service 42,278 79,490 121,768
Maintenance of customer meters 67,459 64,612 132,071
Miscellaneous 330,184 - 330,184
Total 1,273,124 182,711 1,455,835
Services to city 409,222 - 409,222
Depreciation 2,057,851 974,848 3,032,699
Customer accounts expense
Meter reading 62,372 27,364 89,736
Billing and collection 92,013 32,068 124,081
Bad debts 87,978 13,379 101,357
Total 242,363 72,811 315,174
-31-
2007
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
56,260 26,165 82,425
34,477 - 34,477
60,303 247,060 307,363
550,062 - 550,062
22,757 30,991 53,748
20,039 142,917 162,956
6,771 - 6,771
750,669 447,133 1,197,802
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
-32-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SUPPLEMENTAL INFORMATION
SCHEDULES OF OPERATING REVENUE AND EXPENSES -CONTINUED
YEARS ENDED DECEMBER 31, 2008 AND 2007
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
2008
Electric
Water
Total
$ 372,002 $ 120,086 $ 492,088
903,777 223,130 1,126,907
142,957 34,907 177,864
59,007 22,940 81,947
148,353 7,737 156,090
7,709 6,377 14,086
66,478 22,015 88,493
23,595 - 23,595
- 10,107 10,107
119,747 36,220 155,967
15,176 5,036 20,212
12,798 1,662 14,460
79,158 42,101 121,259
3,650 2,974 6,624
1,954,407 535,292 2,489,699
21,601,752 2,160,261 23,762,013
OPERATING INCOME (LOSS)
NONOPERATING REVENUES (EXPENSES)
Interest income
Connection charges
Customer penalties
Miscellaneous revenue
Interest expense
Amortization of bond discount
Gain (loss) on sale of capital assets
Miscellaneous expense
TOTAL NONOPERATING
REVENUES (EXPENSES)
INCOME (LOSS) BEFORE
CONTRIBUTIONS AND TRANSFERS
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
1,152,598 (51,247) 1,101,351
155,597 51,873 207,470
300,769 236,536 537,305
187,553 21,110 208,663
126,969 8,922 135,891
(314,775) (279,292) (594,067)
(11,169) (13,164) (24,333)
(8,369) - (8,369)
(3,158) - (3,158)
433,417 25,985 459,402
1,586,015 (25,262) 1,560,753
(540,636) (20,000) (560,636)
1,045,379 (45,262) 1,000,117
24,015,574 20,830,416 44,845,990
(108,417) (8,560) (116,977)
23,907,157 20,821,856 44,729,013
$ 24,952,536 $ 20,776,594 $ 45,729,130
-33-
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)
(2,815) - (2,815)
(1,330) - (1,330)
710,858 472,208 1,183,066
2,114,596 472,578 2,587,174
- 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
-34-
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, 2008
SUMMARY OF OPERATIONS
OPERATING REVENUES
Sales of electricity
Other operating revenues
TOTAL OPERATING REVENUES
OPERATING EXPENSES
Purchased power
Distribution
Services to the City
Depreciation
Other operating expenses
TOTAL OPERATING EXPENSES
OPERATING INCOME
TRANSFERS FROM OTHER FUNDS
TRANSFERS TO OTHER FUNDS
NONOPERATING REVENUES
NET INCOME
PERCENT OF CHANGE
Sales of electricity
Purchased power
PERCENT OF REVENUES
Purchased power
2002 2003 2004
$ 10,783,277 $ 12,697,258 $ 13,775,332
343,087 299,695 268,140
11,126,364 12,996,953 14,043,472
6,849,629 7,786,921 8,563,298
667,038 829,051 1,390,414
238,372 265,234 294,698
969,913 1,067,063 1,427,091
1,477,574 1,915,081 1,567,309
10,202,526 11,863,350 13,242,810
923,838 1,133,603 800,662
50,000 - -
(289,264) (317,918) (340,564)
917,373 766,285 651,934
$ 1,601,947 $ 1,581,970 $ 1,112,032
12.294% 17.750% 8.491
13.481% 13.684% 9.970%
61.562% 59.913% 60.977%
UNAUDITED STATISTICS
MISCELLANEOUS
KWh's purchased
KWh's sold
Line loss
Percent of line loss
REVENUES PER KWh SOLD
COST PER KWh PURCHASED
NUMBER OF CUSTOMERS
TOTAL CONTRIBUTION/TRANSFERS TO CITY
2002 2003 2004
$ 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
-35-
2005 2006 2007 2008
$ 15,276,987 $ 16,495,049 $ 19,164,797 $ 22,303,994
444,579 482,668 501,746 450,356
15,721,566 16,977,717 19,666,543 22,754,350
9,625,519 10,101,458 12,176,034 14,778,270
1,528,057 1,942,577 1,829,971 2,159,639
331,644 328,148 358,029 409,222
1,553,663 1,561,096 1,920,798 2,057,851
1,731,317 1,936,275 1,977,973 2,196,770
14,770,200 15,869,554 18,262,805 21,601,752
951,366 1,108,163 1,403,738 1,152,598
(388,927) (420,000) (483,000) (540,636)
700,592 887,803 708,043 425,048
$ 1,263,031 $ 1,575,966 $ 1,628,781 $ 1,037,010
10.901% 7.973% 25.449% 16.380%
12.404% 4.945% 26.497% 21.372%
61.225% 59.498% 61.912% 64.947%
2005 2006 2007 2008
$ 193,700,298 $ 205,645,631 $ 225,973,086 $ 241,837,173
182,515,644 194,975,530 211,298,886 224,226,048
11,184,654 10,670,101 14,674,200 17, 611,125
5.774% 5.189% 6.494% 7.282%
$ 0.0837 $ 0.0983 $ 0.0907 $ 0.0995
$ 0.0497 $ 0.0592 $ 0.0539 $ 0.0611
8,306 8,562 8,945 9,203
$ 388,927 $ 420,000 $ 483,000 $ 540,636
-36-
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, 2008
SUMMARY OF OPERATIONS
2002 2003 2004
OPERATING REVENUES
Sales of water $ 834,562 $ 1,047,561 $ 1,167,955
OPERATING EXPENSES
Operating expenses less depreciation 561,039 849,677 806,831
Depreciation 292,559 585,354 720,044
TOTAL OPERATING EXPENSES 853,598 1,435,031 1,526,875
TOTAL OPERATING INCOME (LOSS) $ (19,036) $ (387,470) $ (358,920)
PERCENT OF CHANGE
Sales of water (1.23%) 25.52% 11.49%
UNAUDITED STATISTICS
MISCELLANEOUS
2002 2003 2004
WATER PUMPED (gallons) 641,675,000 706,804,000 651,000,000
WATER SOLD (gallons) 527,780,000 634,994,000 642,019,000
Percent of line loss 17.75% 10.16% 1.38%
Revenues per 1,000 gallons pumped $ 1.29 $ 1.47 $ 1.78
Revenues per 1,000 gallons sold $ 1.58 $ 1.65 $ 1.82
Number of customers 3,207 3,513 3,824
UNUSUAL LINE LOSS
2002 2003 2004
Flushing hydrants 11,500,000 11,500,000 11,500,000
Back washing 8,880,000 8,880,000 8,900,000
Fire department use 5,000,000 5,000,000 4,000,000
New water main disinfectant and flushing 5,000,000 5,000,000 4,000,000
Meter inaccuracy 4,000,000 4,000,000 -
Eastern end maintenance 15,000,000 15,000,000 -
Frozen pipes bursting in abandoned homes - - -
Unusual line loss 49,380 000 49,380,000 28,400,000
-37-
2005 2006 2007 2008
$ 1,347,542 $ 1,749,932 $ 2,113,166 $ 2,109,014
1,038,03 1,069,988 1,191,346 1,185,413
790,454 790,451 921,450 974,848
1,828,489 1,860,439 2,112,796 2,160,261
$ (480,947) $ (110,507) $ 370 $ (51,247)
15.38% 29.86% 56.82% (0.20%)
2005 2006 2007 2008
705,746,000 812,560,000 873,742,000 854,133,000
632,256,000 726,169,000 783,948,000 727,029,000
10.41% 10.63% 10.28% 14.88%
$ 1.90 $ 2.14 $ 2.41 $ 2.46
$ 2.13 $ 2.41 $ 2.70 $ 2,90
4,074 4,317 4,413 4,508
Gallons
2005 2006 2007 2008
25,000,000 25,000,000 27,000,000 30,000,000
8,400,000 9,000,000 8,400,000 8,400,000
1,000,000 1,000,000 1,000,000 5,000,000
5,000,000 6,500,000 1,000,000 2,000,000
3,100,000 3,000,000 - -
- - - 25,000,000
42,500,000 44,500,000 37,400,000 70,400,000
-38-
THIS PAGE IS LEFT BLANK
INTENTIONALLY
OTHER REPORTS
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
YEAR ENDED
DECEMBER 31, 2008
ABDO
EICK &
®.r •~ ~ ~~i1,7 LLP
Certified Public Accountants & Consultants
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 fmancial statements of the Elk River Municipal Utilities (the Utilities) as of and for the years ended
December 31, 2008 and 2007, and have issued our report thereon dated Apri19, 2009.
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 and
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 2008 except as noted in the schedule of fmdings and responses as fmding 2008-2.
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.
Apri19, 2009
Minneapolis, Minnesota
C~~~~ ~ ~~ ~ ~~~~ ~ ~-~ ~~
ABDO, EICK & MEYERS, LLP
Certified Public Accountants
-39-
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www.aemcpas.com
ABDO
EICK &
®~'•~'_lMEYER~LLP
Certtfied Public Accountants & Consultants
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 fmancial 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 fmancial reporting that might be significant deficiencies or
material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over fmancial 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 fmancial data reliably in accordance with generally accepted accounting principles such that there is more than a
remote likelihood that a misstatement of the Utilities' fmancial statements that is more than inconsequential will not be prevented
or detected by the Utilities' internal control. We consider fmding 2008-1 to be a significant deficiency in internal control over
fmancial 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 financial statements will not be prevented or detected by the Utilities' internal
control. We consider fording 2008-1 to be a material weakness.
The Utilities' response to the fmdings 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.
Apri19, 2009
Minneapolis, Minnesota
-40-
J
ABDO, EICK & MEYERS, LLP
Certified Public Accountants
952.835.9090 Fax 952.835.3261
www.aemcpas.com
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SCHEDULE OF FINDINGS AND RESPONSES
DECEMBER 31, 2008
F~ Description
2008-1 Control over Year-End Processing
Condition: Atypical expectation for year-processing is that all general ledger accounts are
reconciled and in agreement with supporting schedules. During our audit,
adjustments were needed to correct coding and reclassify amounts in accounts
receivable, accounts payable and debt.
Criteria: The Utilities should have intemal control procedures that ensure all balance sheet
accounts are reconciled and agreed to the general ledger.
Cause.• It appears that detail schedules were prepared but not agreed to the general ledger.
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 cannot serve as a
compensating control over this deficiency.
Recommendation: We recommend that management implement control procedures over the month end
and year end closing process. This requires that all general ledger accounts are
reconciled and agreed to the general ledger.
Management Response: Management agrees with the fmding and believes that adequate corrections were
implemented immediately after notice of the fmding. There will be more frequent
reconciliation of all general ledger amounts and a more complete tie out of all
balance sheet accounts at year end.
-41-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
SCHEDULE OF FINDINGS AND RESPONSES -CONTINUED
DECEMBER 31, 2008
Findine Description
2008-2 Declaration for Payment
Condition: Auditing for legal compliance requires a review of the Utilities deposits and
investments. Our study indicated an instance ofnon-compliance that we believe is
required to be remedied. The Utilities' vendor checks do not carry a required
declaration on the back of the check.
Criteria.• Minnesota statute 471.38 requires that each declaration for payment be signed to the
effect that such account, claim, or demand is just and correct and that no part of it has
been paid. The statute is satisfied if on the back of Utilities checks is a declaration as
defined in Minnesota statute 471.391 reading "I declare under the penalties of law
that this account, claim or demand is just and correct and that no part of it has been
paid."
Cause:
Effect:
Recommendation:
Management Response:
Summary of Prior Year Findings
2007-1 Segregation of duties
2007-2
The Utilities did not have monitoring procedures to consider the statute requirements.
The Utilities was out of compliance with this State statute.
The Utilities has a stamp with the declaration, which we recommend using until new
checks with the pre printed declaration are available.
Management agrees with the finding and will use the stamp until new check stock is
ordered.
This fording has been resolved in 2008. Procedures were implemented by management to improve internal
control procedures related to cash disbursements, payroll, and investments. We commend management on the
improvements. and will continue to monitor these procedures in the future to ensure they are followed properly
and provide adequate internal control.
Material Audit Adjustments
This fording was replaced by fording 2008-1 in the current report. We believe that finding 2008-1 more
appropriately addresses the internal control finding.
-42-
ELK RIVER MUNICIPAL UTILITIES
ELK RIVER, MINNESOTA
MANAGEMENT LETTER
YEAR ENDED
DECEMBER 31, 2008
~~~
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ABI~
SICK &
ti~rli%ierl PrrGlic -cc~crnrntrruts c (:~rrrvult+reri
Apri19, 2009
al(}l E:rleu riverttre~
~uitt• ;;ill
Management and Public Utilities Commission
Elk River Municipal Utilities
Elk River, Minnesota
We have audited the financial statements of the Elk River Municipal Utilities (the Utilities) for years ended December 31, 2008
and 2007 and have issued our report thereon Apri19, 2009. Professional standards require that we provide you with the
following information related to our audits.
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 and opinion about
whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in
conformity with accounting principles generally accepted in the United States. Our audit of the financial statements does not
relieve you or management of your responsibilities.
Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements
are free of material misstatement. As part of our audit, we considered the internal control over financial reporting of the Utilities.
Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning
such internal control. We are responsible for communicating significant matters related to the audit that are, in our professional
judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design
procedures specifically to identify such matters.
Significant Audit Findings
In planning and performing our audit, we considered the Utilities' intemal control over financial 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' intemal 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 that we
consider to be significant deficiencies and other significant deficiencies in intemal control over financial 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 financial 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 financial statements that is more than inconsequential will not be prevented
or detected by the entity's internal control. We consider the deficiency listed on the following page to be a significant deficiency
in internal control over financial reporting.
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Elk River Municipal Utilities
Apri19, 2009
Page 2
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 financial statements will not be prevented or detected by the entity's internal
control. We believe the following deficiency constitutes a material weakness.
2008-1 Control over Year-End Processing
Condition: Atypical e!cpectation for year-processing is that all general ledger accounts are
reconciled and in agreement with supporting schedules. During our audit,
adjustments were needed to correct coding and reclassify amounts in accounts
receivable, accounts payable and debt.
Criteria: The Utilities should have internal control procedures that ensure all balance sheet
accounts are reconciled and agreed to the general ledger.
Cause: It appears that detail schedules were prepared but not agreed to the general ledger.
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 cannot serve as a
compensating control over this deficiency.
Recommendation: We recommend that management implement control procedures over the month end
and year end closing process. This requires that all general ledger accounts are
reconciled and agreed to the general ledger.
Management Response: Management agrees with the finding and believes that adequate corrections were
implemented immediately a8er notice of the finding. There will be more frequent
reconciliation of all general ledger amounts and a more complete tie out of all
balance sheet accounts at year end.
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Elk River Municipal Utilities
Apri19, 2009
Page 3
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 the following instance ofnon-compliance with Minnesota
Statutes during our audit.
2008-2 Declaration for Payment
Condition: Auditing for legal compliance requires a review of the Utilities deposits and
investments. Our study indicated an instance ofnon-compliance that we believe is
required to be remedied. The Utilities' vendor checks do not carry a required
declaration on the back of the check.
Criteria: Minnesota statute 471.38 requires that each declaration for payment be signed to the
effect that such account, claim, or demand is just and correct and that no part of it
has been paid. The statute is satisfied if on the back of Utilities checks is a
declaration as defined in Minnesota statute 471.391 reading "I declare under the
penalties of law that this account, claim or demand is just and correct and that no
part of it has been paid."
Cause: The Utilities did not have monitoring procedures to consider the statute
requirements.
Effect: The Utilities was out of compliance with this State statute.
Recommendation: The Utilities has a stamp with the declaration, which we recommend using until new
checks with the pre printed declaration are available.
Management Response: Management agrees with the finding and will use the stamp until new check stock is
ordered.
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• ~ ~ Elk River Municipal Utilities
Apri19, 2009
~~ ~. Page 4
I ~,_
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. The significant accounting policies used
by the Utilities are described in Note 1 to the financial statements. The Utilities implemented the requirements of GASB 45
during the year and the application of existing policies was not changed during the year ended December 31, 2008. 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 occur ed.
Accounting estimates are an integral part of the financial statements prepared by management and are based on management's
knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are
particularly sensitive because of their significance to the financial statements and because of the possibility that future events
affecting them may differ significantly from those expected. The most sensitive 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 financial statements taken as a whole.
The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are
particularly sensitive because of their significance to financial statement users.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit
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Page 5
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 15 journal entries. Internal preparation of all journal entries enhances the quality of internal
information. We proposed audit entries for the following situations:
• To adjust accounts receivable and related review to agree with subsidiary ledger information.
• To adjust accounts payable and related expense based on test performed.
• To adjust accrued vacation and related expense to agree with the supporting work paper.
• To adjust restricted cash for bond reservation requirements outlined in the issuing resolution.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's
report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated
Apri19, 2009.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to
obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the
governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on those
statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all
the relevant facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with
management each year prior to retention as the Utilities'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
Apri19, 2009
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
2006 2007 2008
Amount Percent Amount Percent Amount Percent
Operating revenues $ 16,977,717 100 % $ 19,666,543 100 % $ 22,754,350 100
Operating expenses 15,869,554 93 18,262,805 93 21,601,752 95
Operating income 1,108,163 7 1,403,738 7 1,152,598 5
Nonoperating revenues 885,695 5 710,858 4 433,417 2
Income before transfers 1,993,858 12 2,114,596 11 1,586,015 7
Transfers to City and other (417,892) (2) (483,000) (2) (540,636) (2)
Change in net assets $ 1,575,966 10 % $ 1,631,596 9 % $ 1,045,379 5
Cash and
temporary investments $ 1,595,406 _$ 2,806,277 $ 3,908,552
Restricted cash $ 445,900 $ 733,400 $ 724,500
Bonds and Notes payable $ 8,795,570 $ 11,052,804 $ 10,555,744
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$-
2006 2007 2008
^ Operating revenues ^ Operating expenses ^ Cash ^ Bonds ®Change in net assets
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Page 7
The following table gives an indication of the sources and uses of cash for the past five years:
Cash Provided (Used) By
Y Beginning Operating Non-capital Capital Investing Ending Cash
ear
Cash Balance
Activities Financing Financing
Activities
Balance
Activities Activities
2008 $ 3,539,677 $ 4,394,357 $ (513,536) $ (2,933,272) $ 145,826 $ 4,633,052
2007 2,041,306 4,083,884 (485,851) (2,238,249) 138,587 3,539,677
2006 2,016,433 3,046,671 (378,560) (2,804,163) 160,925 2,041,306
2005 2,361,856 3,059,049 (375,627) (3,063,265) 34,420 2,016,433
2004 1,720,813 2,917,129 (221,761) (2,076,518) 22,194 2,361,856
Cash Flow Summary 2004 - 2008
$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)
_ "'
~-_ _ T
-•-~OperatingActivities -t-Non-capital FinancingActivitie
-i-CapitalFinancingActivities Investing Activities
2004 2005 2006 2007
2008
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 2008. 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
Apri19, 2009
Page 8
Water Fund
The results of the Water fund are as follows:
Water Operations Summary
2006 2007 2008
Amount Percent Amount Percent Amount Percent
Operating revenues $ 1,749,932 100 % $ 2,113,166 100 % $ 2,109,014 100
Operating expenses 1,860,439 106 2,112,796 100 2,160,261 102
Operating loss (110,507) (6) 370 - (51,247) (2)
Nonoperating revenues 894,835 51 472,208 22 25,985 1
Income (loss)
before transfers 784,328 45 472,578 22 (25,262) (1)
Contributions from
developers 838,674 48 292,965 14 - -
Transfer to City (31,018) (2) (20,000) (1) (20,000) (1)
Change in net assets $ 1,591,984 91 % $ 745,543 35 % $ (45,262) (2)
Cash and investments $ 2,519,224 $ 2,394,387 $ 1,935,458
Bonds payable $ 5,762,576 $ 5,337,576 $ 5,066,198
* Net of $2,575,000 advance refunding of 2001A bonds. Refer to note 2C of financial statements for additional information
$7,000,000
$6,000,000
$5,000,000 -
$4,000,000
$3,000,000
$2,000,000
$1,000,000 '
:_
$-
$(1,000,000)
2006 2007 2008
^ Operating revenues ^ Operating expenses ^ Cash ^ Bonds ®Change in net assets
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Apri19,2009
Page 9
The following table gives an indication of the sources and uses of cash for the past five years:
Cash Provided (Used) By
Beginning
Operating Non-capital Capital
Investing
Ending Cash
Year
Cash Balance
Activities Financing Financing
Activities
Balance
Activities Activities
2008 $ 2,394,387 $ 1,086,937 $ (17,068) $ (1,609,836) $ 81,037 $ 1,936,468
2007 2,s 19,224 1,487,626 (269,864) (1,392,434) 39,936 2,394,387
2006 1,764,023 1,861,466 80,102 (1,238,717) 62,360 2,s 19,224
2006 1,739,439 1,083,049 (16,917) (1,128,376) 76,827 1,764,023
2004 3,233,474 1,167,097 (177,864) (2,494,931) 21,663 1,739,439
Cash Flow Summary 2004 - 2008
$z,soo,ooo
$2,000,000
$lsoo,ooo
$l,ooo,ooo
$soo,ooo
$-
$(soo,ooo>
$(l,ooo,ooo>
$(1,600,000)
$(2,000,000)
$(2,600,000)
$(3,000,000)
-r--Operating Activities ~-Non-capitalFinancingActivitie
-~--Capital Financing Activities InvestingActivities
2004 2006 2006 2007
2008
It should be noted the overall cash balance has decreased 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.
952.835.9090 Fax 952.835.3261
www.aemcpas.com
Elk River Municipal Utilities
Apri19, 2009
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 financial statements:
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.
Cf~k.~"nw~,t~P
Apri19, 2009
Minneapolis, Minnesota
ABDO, EICK & MEYERS, LLP
Certified Public Accountants
952.835.9090 Fax 952.835.3261
www.aemcpas.com