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04-29-2015 HUCMMINUTES Regular Meeting — Hutchinson Utilities Commission Wednesday, April 29, 2015 Call to order — 3:00 p.m. President Hanson called the meeting to order. Members present: President Anthony Hanson; Vice President Donna Luhring; Secretary Mark Girard; Commissioner Dwight Bordson; Attorney Marc Sebora; General Manager Jeremy Carter. Members absent: Commissioner Morrow Approve Minutes of: a. March 25, 2015 Regular Meeting b. March 25, 2015 Closed Meeting Proceedings The minutes of the March 25, 2015 regular meeting and the March 25, 2015 closed meeting proceedings were reviewed. A motion was made by Vice President Luhring, seconded by Commissioner Bordson to approve the minutes of the March 25, 2015 regular meeting and the March 25, 2015 closed meeting proceedings. Motion was unanimously carried. 2. Approve Financial Audit 2014 Presentation by Paul Harvego of Conway, Deuth & Schmiesing Paul Harvego of Conway, Deuth & Schmiesing was welcomed to the meeting. Mr. Harvego presented the 2014 financial audit. A motion was made by Secretary Girard, seconded by Vice President Luhring to approve the 2014 financial audit. Motion was unanimously carried. (Audit attached.) 3. Ratify Payment of Bills for March 2015 The March 2015 payables were discussed. Commissioner Bordson abstained due to a conflict of interest as he personally received an energy conservation rebate which was listed on the payables. After discussion, a motion was made by Secretary Girard, seconded by Vice President Luhring to ratify the payment of bills in the amount of $2,686,959.78 (detailed listing in payables book). Motion was unanimously carried. 4. Approve Financial Statements/Budget Year to Date GM Carter presented the March 2015 financial statements/budget year-to-date. After discussion, a motion was made by Commissioner Bordson, seconded by Vice President Luhring to approve the financial statements/budget year-to-date. Motion was unanimously carried. 5. Review Policies GM Carter presented the policies, sections: • Natural Gas Service Requirements and Charges • Temporary Service • Employee Handbooks — Intellectual Property (Exempt Only) No changes were recommended. 6. Approve Changes to Policies GM Carter presented the changes to policies, sections: • Natural Gas Meter Requirements and Placement • Employee Handbooks — Conflict of Interest • Employee Handbooks — Other Employment Changes made to the Natural Gas Meter Requirements and Placement policy were for clarification only. Changes made to the Employee Handbooks, sections Conflict of Interest and Other Employment are proposed to address the following situations/issues: 1. To whom a director should report their possible conflict of interest situation or other employment. 2. To whom an electric division employee should report a conflict of interest or other employment, as the previous position of Electric Division Director is not staffed. 3. The General Manager may not be aware of conflicts or other employment which can affect the HUC operations. After discussion, a motion was made by Commissioner Bordson, seconded by Secretary Girard to approve the recommended changes to policies. Motion was unanimously carried. (Changes attached.) 7. Approve Charge -Offs Jared Martig presented the 2015 accounts receivable charge-offs totaling $12,295.08. Jared mentioned Attorney Sebora will now be helping collect on delinquent accounts through the small claims court process. After discussion, a motion was made by Vice President Luhring, seconded by Commissioner Bordson to approve the 2015 accounts receivable charge-offs. Motion was unanimously carried. (2015 Charge -Offs attached.) 8. Approve Northern Border Interconnect Amendment at Trimont John Webster presented the Northern Border Interconnect Amendment at Trimont. The Natural Gas Division of Hutchinson Utilities had requested of Northern Border Pipeline Company to eliminate the cathodic protection interference on Hutchinson Utilities' pipeline caused by Northern Border Pipeline Company. Hutchison Utilities also requested of Northern Border Pipeline Company a clear definition of the custody transfer point in the Trimont Interconnect Station. The Interconnect Amendment contains the resolution between Northern Border and Hutchinson Utilities Commission. A motion was made by Secretary Girard, seconded by Vice President Luhring to approve the Northern Border Interconnect Amendment at Trimont. Motion was unanimously carried. (Amendment attached.) 2 9. Approve Tolling Agreement GM Carter presented the Tolling Agreement between HUC and TransAlta for 40 MW of electricity starting May 1, 2015 and ending December 31, 2019. After discussion, a motion was made by Vice President Luhring, seconded by Commissioner Bordson to approve the Tolling Agreement. Motion was unanimously carried. (Agreement attached.) 10. Required Action on a One -Time Waiver of Disconnect/Reconnect Fees Initiated by an Agency Offering Financial Assistance (Tabled at the March 25, 2015 Regular Meeting) In the March 25, 2015 regular meeting, GM Carter had recommended the Board consider for approval a one-time waiver program which HUC would monitor and evaluate on an annual basis with agencies providing feedback as part of the evaluation process. The Board had tabled this item. President Hanson explained after further discussing the proposed one-time waiver of disconnect/reconnect fees with GM Carter and the Board, there was not support to approve the waiver from a policy perspective. A motion was made by Commissioner Bordson, seconded by Secretary Girard to decline the proposed one-time waiver of disconnect/reconnect fees initiated by an agency offering financial assistance. Motion was unanimously carried. 11. Discuss Separate Business Unit for Wholesale Business GM Carter handed out a wholesale generation model. GM Carter explained after his review and analysis he is not recommending a separate business unit for wholesale business at this time. GM Carter recommends using the model as a management tracking tool to monitor and consider before HUC renews the capacity contracts in late 2017 or early 2018. 12. Communication from the City Administrator City Administrator Jaunich reported: • Second Avenue reconstruction starts next week. • Election next Tuesday for the vacant council seat. Looking at RFP's for alternative garbage and compost companies. The City has contracted with Waste Management for the last 15 years. Starting the budget process. 13. Division Reports GM Carter • Working on revising the format of the commission meeting agenda, creating a board action form, and executive level summary. This will be sent to the Board as the information is compiled. • The deadline for eligible employees to submit notices for the early retirement incentive package is April 30, 2015. To date, we have received notice from 9 of 12 eligible employees, with one accepting the package. • Gave an update on Legislative items. 3 At this time, Commissioner Bordson left the meeting: 4:24 p.m. Electric — Dan Lang • The meter personnel have been busy with the Cold Weather Rule ending two weeks ago. • Unit 8 transformer job completed. Electric — Randy Blake • Unit 3 turbo charger project was delayed as bearings needed to be ordered, which arrived this afternoon. Natural Gas — John Webster • Working on metering improvements at Plant 1 to receive more accurate natural gas readings. • On June 2 there will be testing of the Coriolis meters. • Natural Gas crews starting on the Shady Ridge Road project. Putting in all new services on homes on the east side of Shady Ridge Road. Upgrading system from steel services to plastic. • Working with Kent Exner with the City of Hutchinson to identify 2016 and 2017 projects. • In Austin tomorrow at Midwest Regional Task Force meeting to make decisions on opposing the 13% additional increase to our rates. • In Kansas City next week for Midwest Energy Association Summit. • The City of Lafayette is interested in receiving natural gas service and is comparing HUC to a private natural gas utility. Finance — Jared Martig Nothing to report. 14. Legal Update Nothing to report. Unfinished Business None New Business • Discuss eDiscovery — Tom Kloss Tom Kloss presented information on records/e-mail retention along with data practice requests. Tom proposed the Board members have a City email account and be assigned an iPad at a cost of $672 per Commissioner as the best option to use for HUC related business. This plan would minimize the impact on the Board's personal and work-related computer equipment in the event of a data practices request. 4 After discussion, a motion was made by Vice President Luhring, seconded by Secretary Girard to approve the procurement of iPads for five Commissioners and assign the Board members city email addresses. Motion was unanimously carried. President Hanson explained as Commissioner Bordson's term expires the end of 2015, he will forward the commissioner matrix form to the Board to assist in identifying skill sets the Commission would be looking for in a new commissioner candidate. After the information is compiled, it will be presented to Mayor Forcier who makes the final decision with the City Council. There being no further business, a motion was made by Vice President Luhring, seconded by Secretary Girard to adjourn the meeting at 4:50 p.m. Motion was unanimously carried. ATTEST Mark Girard, Secretary U �• Adhony Hansorl, President 5 HUTCHINSON UTILITIES COMMISSION AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION DECEMBER 31, 2014 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota This page intentionally left blank HUTCHINSON UTILITIES COMMISSION TABLE OF CONTENTS DECEMBER 31, 2014 PAGE ORGANIZATIONAL DATA 1 INDEPENDENT AUDITOR'S REPORT 2-4 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis 5-9 BASIC FINANCIAL STATEMENTS Statement of Net Position 10 Statement of Revenues, Expenses and Changes in Net Position 11 Statement of Cash Flows 12-13 Notes to the Financial Statements 14-26 SUPPLEMENTARY INFORMATION Combining Statement of Net Position 27 Combining Statement of Revenues and Expenses 28 Statement of Net Position - Electric Division 29 Detailed Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Electric Division 30-33 Statement of Net Position - Natural Gas Division 34 Detailed Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Natural Gas Division 35-37 COMPLIANCE SECTION Independent Auditor's Report on Minnesota Legal Compliance 38 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 39-40 This page intentionally left blank HUTCHINSON UTILITIES COMMISSION ORGANIZATIONAL DATA DECEMBER 31, 2014 A Light and Power Commission was formed under the provisions of an amendment to the Hutchinson City Charter in 1936; the Commission was charged with the operation of the Municipal Electric Plant. Charter amendments approved December 17, 1954, provided for a change in the name to Hutchinson Utilities Commission. Additional duties under that amendment provided for the control and management of a municipal gas distribution system. A revised city charter was adopted at a special election September 17, 1987. Some of the pertinent sections of this new charter are briefly summarized in the following paragraphs. The Commission shall have control and management of the Light Plant, the Light Plant distribution system, the Gas Plant and the Gas Plant distribution system. The Commission shall consist of five persons, qualified voters of the City, who shall be appointed by the Council. A member shall be appointed every year for a term of five years, to fill the place of the member whose term has expired. No member shall be appointed to more than two successive terms. The members of the Commission shall receive compensation for their services as determined annually by the Council. The Commission shall provide for its own organization and rules of procedure and annually shall elect a president and vice president from among its members. It shall also appoint a secretary who may or may not be a member of the Commission. The Commissioners and their official titles were as follows: Anthony Hanson President Monty Morrow Vice President Mark Girard Secretary Donna Luring Commissioner Dwight Bordson Commissioner This page intentionally left blank CDS +C0nway, Dcuth Schmiesing,rur rmiw rIIA C M�mvau k (aronrk�ms Quality i L>edication I Integrity INDEPENDENT AUDITOR'S REPORT Members of the Hutchinson Utilities Commission Hutchinson, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2014, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements as listed in the table of contents Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion K mbw=Amo *= kuWb es of Crrtl(f.d PWft Acmunuvim ftnnawn Sodeq of CwMW Pebk A=ount na Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of December 31, 2014, and the changes in financial position, and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Partial Comparative Information We have previously audited the Commission's 2013 financial statements, and we expressed unmodified audit opinions on those audited financial statements in our report dated March 26, 2014. In our opinion, the partial comparative information presented herein as of and for the year ended December 31, 2013 is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Commission's basic financial statements. The statements and schedules listed in the table of contents as supplementary information and the Organizational Data section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The Organizational Data section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on the information presented. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 25, 2015 on our consideration of the Commission's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Hutchinson Utilities Commission's internal control over financial reporting and compliance. �, PLLF CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 25, 2015 4 This page intentionally left blank REQUIRED SUPPLEMENTARY INFORMATION This page intentionally left blank HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2014 Overview of the Financial Statements Hutchinson Utilities Commission is a fund of the City of Hutchinson, Minnesota, and is responsible for the full operation and management of the electric and natural gas systems of the City. The annual report of Hutchinson Utilities Commission includes the financial statements, the independent auditor's report, and notes detailing the financial statements and this management's discussion and analysis report. The report also includes supplementary information for each of Hutchinson Utilities Commission's divisions. Financial Statements Reauired The financial statements report information about Hutchinson Utilities Commission using accounting methods similar to those used by private sector companies. These statements offer short-term and long-term financial information about its activities. The Statement of Net Position includes all of the Commission's assets, liabilities, and net position and provides information regarding the nature and amount of investments in various assets and obligations to the Commission's creditors. They also provide the basis for computing rate of return, evaluating the capital structure, and determining the liquidity and financial flexibility of the Commission. The Statement of Revenues, Expenses and Changes in Net Position accounts for all the current year's revenues and expenses. This statement measures the success of operations over the past year and can be used to determine whether all costs are recovered through user fees and other charges. This statement measures the Commission's profitability and credit worthiness. The Statement of Cash Flows provides information about the Commission's cash receipts and cash payments during the reporting period. This statement reports cash receipts, cash payments, and net changes in cash resulting in cash balances during the reporting period. Financial Statement Analvsis Total gross investment in capital assets increased to $133,282,446 in 2014 from $132,092,486 in 2013. Capital assets increased in 2014 primarily because of the downtown engine upgrade project and the Unit 1 controls upgrade project. All other additions were for typical upgrades and improvements to the generating plant and distribution systems as well as equipment purchases. Operating revenues and expenses increased from 2013 by $2,521,836 and $2,614,794, respectively. Operating income decreased from 2013 by $92,958. The primary increase in operating revenues was due to an increase in gas sales in 2014, which increased by $2,623,161 from 2013 due to volume and pricing. The primary area of the increase in operating expenses was due to an increase in purchased natural gas. Purchases of natural gas increased by $2,552,926 due to increased sales. Depreciation increased in 2014 by $107,523 due to placing into service the new control system. Payment in Lieu of Taxes increased by $325,996 due to current agreement with the City of Hutchinson. HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2014 Significant Transactions In 2014, the Commission transferred $1,729,073 per agreement to the City of Hutchinson. Condensed Financial Statements A summary of the Statement of Net Position is presented in Table 1. Condensed Statement of Net Position Net Capital Assets Restricted Assets Current Assets Other Assets Total Assets nt Liabilities Term Liabilities Total Liabilities Net Position Net Investment in Capital Assets Restricted Unrestricted Total Net Position Total Liabilities and Net Position Increase 2014 2013 Decrease 365,983 191,832 $ 76,363,215 $ 78,802,622 $ (2,439,407) 2,577,815 2,589,273 (11,458) 13,494,096 12,124,753 1,369,343 262,972 788,915 525,943 $ 92,698,098 $ 94,305,563 $ 1,607,465 $ 4,642,465 $ 5,829,446 $ (1,186,981) 20,733,921 22,207,830 1,473,909 25,376,386 28,037,276 (2,660,890) 56,848,215 58,112,622 (1,264,407) 365,983 191,832 174,151 10,107,514 7,963,833 2,143,681 67,321,712 66,268,287 1,053,425 $ 92,698,098 $ 94,305,563 11 1.607 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2014 Condensed Financial Statements (Cont'd) A summary of the Statement of Revenues, Expenses and Changes in Net Position is presented in Table 2. Condensed Statement of Revenues, Expenses and Changes in Net Position Increase 2014 2013 (Decrease) Operating Revenues $ 42,208,053 $ 39,686,217 $ 2,521,836 Operating Expenses Cost of Operations Depreciation Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Change in Net Position Net Position, Beginning of Year, Net Position, End of Year Bud-getary Hiahliahts 36,350,372 33,843,101 2,507,271 3,747,573 3,640,050 107,523 40,097,945 37,483,151 2,614,794 2,110,108 2,203,066 (92,958 (1,056,683) (1,521,524) 1,053,425 681,542 66,268,287 65,586,745 681,542 $ 67,321,712 $ 66,268,287 $ 1,053,425 The Commission adopts an annual Operating Budget and a Capital Improvement Budget. Because of its enterprise nature and in order to comply with Federal Energy Regulatory Commission accounting and reporting requirements, the budgets are not operated as statutory budgets. The Commission and Utilities staff review budget results monthly and the budget is used as a financial management tool. A summary of the 2014 Budget Analysis is presented in Table 3. 7 Budgetary Highlights (Cont'd) HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2014 Condensed Budget Analysis 2014 Budget 2014 Actual Over (Under) Revenues $ 40,693,993 $ 42,208,053 $ 1,514,060 Operating Expenses Cost of Operations 33,882,780 36,350,372 2,467,592 Depreciation Expense 3,756,000 3,747,573 (8,427 Total Operating Expenses 37,638,780 40,097,945 2,459,165 Operating Income (Loss) 3,055,213 2,110,108 (945,105 Nonoperating Revenues (Expenses) (879,349) (1,056,683) (177,334 Change in Net Position 2,175,864 1,053,425 (1,122,439 Position, Beginning of Year 66,268,287 66,268,287 Position, End of Year $ 68,444,151 $ 67,321,712 $ 1,1 Actual operating revenues were $1,514,060 over budgeted revenues while operating income (loss) was under budget by $945,105. This is mainly due to natural gas purchased gas expenses coming in over budget by $2,183,962. The actual operating revenues for the Commission had a positive variance of approximately 3.72% from budgeted operating revenues. This difference was caused entirely by the gas division, while the electric division had a negative variance of $196,684. Operating expenses were $2,459,165 higher than budgeted. This is mainly due to increased purchased natural gas expenses. Electric transmission and distribution expenses were also higher than budgeted amounts in the current year. In 2014, the Commission entered into agreement for a specific Payment in Lieu of Taxes (PILOT). The agreement requires the Commssion to make payments equalling $1,900,000 less $170,927 for specific services provided for a net total of $1,729,073. For calendar year 2007, the Commission reallocated its common expenses between the two divisions. Formulas were developed and used to establish the common expenses between the two utilities, in particular, Customer Service and Collection Accounts and the Administrative and General Accounts. 8 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2014 Capital Assets and Lona -Term Debt Activit The Commission's investment in capital assets increased to $133,282,446 in 2014. This is an increase of $1,189,960 from 2013. Capital additions/expenditures included $1,217,130 for the Unit 1 controls. Refer to Note 4 of the Notes to the Financial Statements for the Commission's 2014 capital asset activity. At year-end, the Commission had $19,515,000 in bonds outstanding. Refer to Note 6 of the Notes to the Financial Statements for a schedule showing the Commission's long-term debt activity. Economic Factors and Next Year's Budget The Commission considered many factors when setting the fiscal year 2015 budget, rates, and fees that will be charged to the users. Of particular significance for 2007 was the City and also the Commission used a formula approach to the General Funds Transfer. In the past, the General Funds Transfer has been accounted for like a transfer. Beginning in 2007, the Commission began accounting for the General Funds Transfer like a Payment in Lieu of Taxes (PILOT). This was done so that the Commission came into compliance with its by-laws. The practical result of this is the PILOT will show as an expense item above the Operating Income. This practice continued in 2014 and will continue into 2015 with the perception that it will no longer be formula based having been set at $1,900,000. In addition, the Commission "bundled" its electric wholesale rate to its retail customers. What this means is the operating income the Commission receives from its wholesale KWHR sales will be applied to the wholesale rate it charges its retail customers to stabilize the rate it charges its retail customers. Contact Information Any questions regarding information contained in this report and requests for additional information should be addressed to the Hutchinson Utilities Commission, 225 Michigan Street SE, Hutchinson, MN 55350 or by phone at (320) 587-4746. N This page intentionally left blank BASIC FINANCIAL STATEMENTS This page intentionally left blank HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2013 ASSETS Current Assets Cash and Investments Accounts Receivable (Net of Allowance for Doubtful Accounts of $60,489 and $82,100, Respectively) Inventory Sales Tax Receivable Prepaid Items Total Current Assets Noncurrent Assets Restricted Assets Cash and Investments Other Assets MRES Agreement Capital Assets Assets Not Being Depreciated Other Capital Assets, Net of Depreciation Net Capital Assets Total Noncurrent Assets Total Assets LIABILITIES AND NET POSITION Current Liabilities Current Portion of Long -Term Debt Accounts Payable Customer Deposits Accrued Expenses Interest Salaries Payable Total Current Liabilities Long -Term Liabilities Noncurrent Portion of Long -Term Debt Total Liabilities Net Position Net Investment in Capital Assets Restricted Unrestricted Total Net Position Total Liabilities and Net Position See Accompanying Notes to the Financial Statements 10 2014 2013 7,786,171 $ 6,189,926 3,915,476 4,170,951 1,531,534 1,463,804 244,783 278,529 16,132 21,543 13,494,096 12,124,753 2,577,815 2,589,273 262,972 788,915 4,590,287 5,538,940 71,772,928 73,263,682 76,363,215 78,802,622 79,204,002 82,180,810 $ 92,698,098 $ 94,305,563 $ 1,428,243 $ 1,381,251 2,593,819 3,628,308 441,195 406,317 71,759 75,666 107,449 337,904 4,642,465 5,829,446 20,733,921 _ 22,207,830 25,376,386 28,037,276 56,848,215 58,112,622 365,983 191,832 10,107,514 7,963,833 67,321,712 66,268,287 $ 92,698,098 $ 94,305,563 HUTCHINSON UTILITIES COMMISSION STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 OPERATING REVENUES Electric Energy Sales Natural Gas Sales Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Production Operations Maintenance Purchased Power/Gas Other Power Supply Transmission Operations Maintenance Distribution Operations Maintenance Customer Accounts Expense Sales Expense Administrative and General Depreciation Contribution to City of Hutchinson Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Bond Service Fees Bond Premium Amortization of Development Study Interest Expense - Customer Deposits Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position NET POSITION, BEGINNING OF YEAR NET POSITION, END OF YEAR See Accompanying Notes to the Financial Statements 11 2014 2013 $ 25,769,201 $ 25,489,457 14,626,182 12,003,021 1,812,670 2,193,739 42,208,053 39,686,217 2,565,551 3,445,140 499,872 499,301 23,836,686 20,776,489 337,733 426,864 1,763,161 1,533,994 51,896 77,736 1,044,642 966,803 432,999 506,058 346,614 348,556 459,529 263,654 3,282,616 3,452,763 3,747,573 3,640,050 1,729,073 1,545,743 40,097,945 37,483,151 2,110,108 2,203,066 29,721 75,940 72,993 35,926 40,643 59,039 45,259 10,000 (450) (2,400) 185,608 185,608 (525,943) (525,953) (434) (2,346) (904,080) (1,357,338) (1,056,683) (1,521,524) 1,053,425 681,542 66,268,287 65,586,745 $ 67,321,712 $ 66,268,287 HUTCHINSON UTILITIES COMMISSION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers Payments Received from Other Sources Payments to Suppliers Payments to Employees Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Other Noncapital Income Development Study Income Other Noncapital Expenses Net Cash Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Additions to Utility Plant Principal Payments on Long -Term Debt Bond Service Fees Proceeds from Sale of Assets Interest Paid on Long -Term Debt Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest Income Net Increase (Decrease) in Cash and Cash Equivalents CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets - Cash and Investments Restricted Assets - Cash and Investments Total Cash and Cash Equivalents See Accompanying Notes to the Financial Statements 12 2014 2013 $ 40,685,736 $ 36,943,873 1,846,416 2,120,727 (32,952,743) (28,356,401) (4,791,201) (4,279,820) 4,788,208 6,428,379 113,636 94,965 236,567 (434) (2,346) 113,202 329,186 (1,308,164) (3,439,050) (1,175,000) (23,584,115) (450) (2,400) 45,259 10,000 (907,989) (1,434,629) (3,346,344) (28,450,194) 29,720 75,940 1,584,786 (21,616,689) 8,779,199 30,395,888 $ 10,363,985 $ 8,779,199 $ 7,786,171 $ 6,189,926 2,577,815 2,589,273 $ 10,363,986 $ 8,779,199 HUTCHINSON UTILITIES COMMISSION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 RECONCILIATION OF OPERATING INCOME (LOSS) TO CASH FLOWS FROM OPERATING ACTIVITIES Operating Income (Loss) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities Depreciation (Increase) Decrease in Assets Accounts Receivable Inventory Sales Tax Receivable Prepaid Items Increase (Decrease) in Liabilities Accounts Payable Customer Deposits Salaries Payable Compensated Absences Net Cash Provided (Used) by Operating Activities See Accompanying Notes to the Financial Statements 13 2014 2013 $ 2,110,108 $ 2,203,066 3,747,573 255,475 (67,730) 33,746 5,411 3,640,050 (590,010) (46,615) (73,012) 17,043 (1,034,489) 1,132,570 34,878 41,405 (230,455) 49,237 (66,309) 54,645 $ 4,788,208 $ 6,428,379 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, is governed by five members who are appointed by the Council of the City of Hutchinson, Minnesota. The accompanying financial statements present only the Hutchinson Utilities Commission fund and are not intended to present fairly the financial position of the City of Hutchinson, Minnesota. The financial statements present the Commission and its component units. The Commission includes all funds, organizations, institutions, agencies, departments and offices that are not legally separate from such. Component units are legally separate entities for which the Commission is financially accountable, or for which the exclusion of the component unit would render the financial statements of the Commission misleading. The criteria used to determine if the Commission is financially accountable for a component unit includes whether or not 1) the Commission appoints the voting majority of the potential component unit's governing body and is able to impose its will on the potential component unit or is in a relationship of financial benefit or burden with the potential component unit, or 2) the potential component unit is fiscally dependent on and there is a potential for the potential component unit to provide specific financial benefits to, or impose specific financial burdens on, the Commission. As a result of applying the component unit definition criteria above, it has been determined the Commission has no component units. B. FUND ACCOUNTING The operations of the Commission are recorded as a proprietary fund. The proprietary fund is used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION The financial statements include the operations of the City of Hutchinson Municipal Utilities. The Electric and Natural Gas divisions are treated as a single enterprise fund of the City of Hutchinson, Minnesota. The Utilities are governed by the Hutchinson Utilities Commission, which is appointed by the City Council. No other operations are controlled by the Hutchinson Utilities Commission. The accounts of the Commission are organized on the basis of fund accounting. The operation of the fund is accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, net position, revenues, and expenses. Government resources are allocated to and accounted for in the individual fund based upon the purposes for which they are to be spent and the means by which spending activities are Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. 14 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION (Cont'd) The proprietary fund is accounted for using the accrual basis of accounting and economic resources measurement focus. Revenues are recognized when earned, and expenses are recognized when incurred. Revenue from electricity and gas sales is reflected in the accounts only at the time such revenue is actually billed to customers. Accordingly, no recognition is given in the accounts for revenue from sales between established cycle billing dates. The proprietary fund distinguishes 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 enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. It is generally the Commission's policy to use restricted resources first, then unrestricted resources as they are needed when an expense is incurred for purposes for which both restricted and unrestricted net position is available. D. DEPOSITS AND INVESTMENTS The Commission's cash and cash equivalents are considered to be cash on hand, deposits and highly liquid debt instruments purchased with original maturities of three months or less from the date of acquisition. The Commission may invest in the following types of investments as authorized by Minn. Stat. §§118A.04 and 118A.05: (1) securities which are direct obligations or are guaranteed or insured issues of the United States, its agencies, its instrumentalities, or organizations created by an act of Congress, except mortgage- backed securities defined as "high risk" by Minn. Stat. §118A.04, subd. 6; (2) mutual funds through shares of registered investment companies provided the mutual fund receives certain ratings depending on its investments; (3) general obligations of the State of Minnesota and its municipalities, and in certain state agency and local obligations of Minnesota and other states provided such obligations have certain specified bond ratings by a national bond rating service; (4) time deposits that are fully insured by the Federal Deposit Insurance Corporation or bankers acceptances of United States bank; (5) commercial paper issued by United States corporations or their Canadian subsidiaries that is rated in the highest quality category by at least two nationally recognized rating agencies and matures in 270 days or less; and 15 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) D. DEPOSITS AND INVESTMENTS (Cont'd) (6) with certain restrictions, in repurchase agreements, securities lending agreements, joint powers investment trusts, and guaranteed investment contracts. Cash and investments were comprised of a deposit account and a money market account. The Commission does not have an investment policy that further limits its investment choices. Custodial Credit Risk - Deposits: For deposits, this is the risk that in the event of bank failure, the Commission's deposits may not be returned to it. Minnesota Statutes requires that all Commission deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110 percent. Interest Rate Risk: This is the risk that market values of securities in a portfolio would decrease due to changes in market interest rates. Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits investments in commercial paper and corporate bonds to the top two ratings issued by nationally recognized statistical rating organizations. Concentration of Credit Risk: This is the risk of loss attributed to the magnitude of an investment in a single issuer. Investments should be diversified to avoid incurring unreasonable risk inherent in over investing in specific instruments, individual financial institutions or maturities. The Commission places no limit on the amount the Commission may invest in any one issuer. Custodial Credit Risk - Investments: For an investment, this is the risk that in the event of the failure of the counterparty, the Commission will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. E. RECEIVABLES AND OPERATING REVENUES AND EXPENSES An allowance for doubtful accounts is recorded based on historical electric and natural gas revenues, historical loss levels, and an analysis of the collectability of individual accounts. Meters are read throughout the month and revenues are recognized when utility services are billed to customers. Hutchinson Utilities Commission did not accrue revenues for services provided but not billed at the end of the year. Monthly billings from the wholesale power and natural gas suppliers, which are for power and natural gas costs to the last day of the month, are reflected in the accounts. F. INVENTORY Inventories of materials and supplies are recorded at average cost, which does not exceed market 16 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) G. PREPAID ITEMS Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. H. CAPITAL ASSETS Capital assets, both tangible and intangible, are recorded at cost. The cost of additions to capital assets includes contracted work, direct labor, and materials. Repairs, replacement, and the renewal of items determined to be less than units of property are charged to maintenance. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. During the current period, the Commission did not have any capitalized interest. Depreciation of capital assets is computed using the straight-line method over the estimated service lives of the various assets as follows: Buildings 35-60 years Transmission plant (electric) 20-35 years Distribution plant (electric) 20-35 years Building improvement 15-30 years Transmission plant (gas) 10-45 years Distribution plant (gas) 10-45 years Generation plant 10-30 years General plant 5-10 years Vehicles 5-10 years Office equipment 3-5 years Computer equipment 3-5 years I. COMPENSATED ABSENCES The liability for compensated absences reported in the financial statements consists of unpaid, accumulated vacation and sick leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. Compensated absences are accrued when incurred in the financial statements. The Statement of Net Position reports both current and noncurrent portions of compensated absences using full accrual accounting. The current portion consists of an amount based on a trend analysis of current usage of vacation and vested sick leave. The noncurrent portion consists of the remaining amount of vacation and total vested sick leave. Both union and nonunion employees can accrue a maximum of 200 hours per year of vacation pay, with a maximum carryover of 200 hours. Vacation pay is 100% payable at severance of employment. A maximum of 720 hours can be accrued for sick leave. After accumulation of 720 hours, a payback of one- third of the amount over 720 hours will be made annually. Upon retirement or death before retirement, a payback of one-third of the amount over 240 hours will be made. 17 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) J. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Employees of the Commission pay premiums based on a negotiated schedule. Since the insurance rate is not based on age, the Commission has an implicit rate subsidy factor in postemployment health care expenses. Additionally, Minnesota Statutes require the Commission to allow retired employees to stay on the health care plan with the retiree responsible to pay the entire premium for continuation coverage. The Commission's bargaining agreement and personnel policy do not provide for any contributions upon employee retirement. Any liability for other postemployment benefits is considered immaterial and not recognized in the financial statements. K. LONG-TERM OBLIGATIONS Long-term debt and other long-term obligations are reported as liabilities in the financial statements. Bond discounts, and bond premiums are amortized over the terms of the related bond issues. L. BUDGETS AND BUDGETARY ACCOUNTING The General Manager is responsible for preparing and submitting an annual budget. Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. M. NET POSITION Net position represents the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources in the financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. Net position is reported as restricted in financial statements when there are limitations on its use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Unrestricted net position consists of all other net position that does not meet the definition of restricted or net investment in capital assets. N. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. O. PRIOR YEAR INFORMATION The basic financial statements include certain prior -year partial comparative information in total but not at the level of detail required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the government's financial statements for the year ended December 31, 2013, from which the partial information was derived. 18 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 2. DEPOSITS AND INVESTMENTS A. DEPOSITS In accordance with applicable Minnesota Statutes, Hutchinson Utilities Commission maintains deposits at depository banks authorized by the Commission. Custodial Credit Risk - Deposits: The Commission's bank balances were not exposed to custodial credit risk because they were fully insured through the Federal Deposit Insurance Corporation as well as collateralized with securities held by the pledging financial institution's trust department or agent and in the Commission's name. Deposits in Bank Petty Cash Total Deposits $ 10,363,136 850 $ 10.363.986 Deposits and investments are presented in the basic financial statements as follows: Current Assets Cash and Investments $ 7,786,171 Noncurrent Assets Restricted Assets Cash and Investments 2,577,815 Total Deposits and Investments $ 10.363.986 19 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 3. DEPOSITS AND INVESTMENTS - RESTRICTED Restricted cash and investments are designated by bond covenants for specific purposes. Restricted cash consisted of the following: Public Utility Revenue Bond Sinking Fund - 2003 Funds designated under bond resolution which require monthly deposits of amounts necessary to meet annual principal and interest payments with an escrow agent. Reserve Accounts 2014 2013 $ 389,121 $ 400,579 Funds required to be held in amount equal to the maximum amount of principal and interest to become due on the bonds during the year. 2,188,694 2,188,694 Total Cash and Investments - Restricted $ 2,577,815 $ 2,589,273 The following items have been designated by the Commission for the following purposes: 2014 2013 Rate Stabilization - Electric Rate Stabilization - Gas Payment in Lieu of Taxes Catastrophic $ 779,388 $ 628,110 426,706 566,431 939,000 1,900,000 500,000 500,000 Expansion and Development Reserve Account Funds designated for the expansion and development of the utility 1,105,000 1,597,050 $ 3.750,094 5.191,591 The above Commission designated amounts are included in the Current Assets -Cash and Investments total. 20 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 4. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2014, was as follows: Beginning Balance Increase _ Capital Assets, Not Being Depreciated Land Construction in Progress Easements Total Capital Assets, Not Being Depreciated $ 559,527 948,653 4,030,760 5,538,940 Capital Assets, Being Depreciated Structures and Improvements 110,775,274 Equipment 15,229,037 Software 549,235 Total Capital Assets, Being Depreciated 126,553,546 Less Accumulated Depreciation for Structures and Improvements Equipment Software Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Net Capital Assets NOTE 5. INVENTORY Inventory consists of the following: Electric Division Fuel Oil and Lubricants Plant Systems Material Engine Parts Distribution Materials Transformers Total Electric Division Natural Gas Division Fittings Transmission Line Gas Total Natural Gas Division Total Inventory R 1,315,995 940,823 Decrease (948,653) Ending Balance $ 559,527 4,030,760 (948,653) 4,590,287 (118,205) 2,256,818 (118,205) 112,091,269 16,051,655 549,235 128,692,159 44,255,538 3,267,612 47,523,150 8,563,239 477,868 (118,205) 8,922,902 471,087 2,092 473,179 53,289,864 3,747,572 (118,205) 56,919,231 73,263,682 (1,490,754) 0 71,772,928 $ 78,802,622 $ (1,490,754) $ (948,653) $ 76,363,215 21 2014 2013 $ 106,881 $ 119,341 8,584 10,089 419,810 348,186 416,362 444,813 154,181 117,874 1,105,818 1,040,303 122,146 119,931 303,570 303,570 425,716 423,501 $ 1.531.534 3 1.463.804 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 6. LONG-TERM DEBT A. COMPONENTS OF LONG-TERM DEBT Public Utility Revenue Bonds, Series 2003B Public Utility Revenue Refunding Bonds, Series 2012A Bond Premium Compensated Absences Total Long -Term Debt Interest Rates Final Balance Outstanding Maturity 2014 2013 3.750-4.625% 12/01/2021 $ 840,000 $ 965,000 4.00-5.00% 12/01/2026 18,675,000 19,725,000 2,211,832 2,397,441 435,332 501,640 $ 22.162.164 $ 23.589.081 On March 31, 2003, the Hutchinson Utilities Commission issued Public Utility Revenue Bonds, Series 2003B for $31,725,000. $3,340,000 of the issue was used for the refunding of the Temporary Public Utility Revenue Bonds of 2001, and $28,385,000 was used for the natural gas pipeline project. On July 19, 2012, Hutchinson Utilities Commission issued Public Utility Revenue Refunding Bonds, Series 2012A for $20,720,000, with an interest rate of 4.00% to 5.00%. The Commission issued the bonds to advance refund a portion of the 2013 through 2025 maturities of the Public Utility Revenue Bonds, Series 20038. The Commission completed the refunding to reduce its debt service payment over the next 14 years by $1,638,277. This results in an economic gain (difference between the present values of the debt service payments on the old and new debt) of $1,245,620. B. MINIMUM DEBT PAYMENTS Annual debt service requirements to maturity for bonded debt is as follows: Year Ending December 31 Revenue Bonds, Series 2003B Refunding Bonds, Series 2012A Principal Interest Principal Interest 2015 $ 125,000 $ 35,612 $ 1,100,000 $ 825,500 2016 125,000 30,612 1,160,000 781,500 2017 125,000 25,488 1,220,000 735,100 2018 125,000 20,238 1,295,000 674,100 2019 125,000 14,925 1,370,000 609,350 2020-2024 215,000 13,600 8,470,000 2,055,900 2025-2026 4,060,000 307,000 $ 840.000 $ 140.475 $ 18.675.000 $ 5.988.450 22 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 6. LONG-TERM DEBT (Cont'd) C. CHANGES IN LONG-TERM LIABILITIES Revenue Bonds Revenue Refunding Bonds Bond Premium Compensated Absences 501,640 326,242 (392,550) 435,332 17,635 Beginning Balance Additions Reductions Ending Due Within Balance One Year 965,000 $ $ (125,000) $ 840,000 $ 125,000 19,725,000 (1,050,000) 18,675,000 1,100,000 2,397,440 (185,608) 2,211,832 185,608 $ 23,589,080 $ 326,242 $ (1,753,158) $ 22,162,164 $ 1,428,243 D. PLEDGED REVENUES Future revenue pledged for the payment of long-term debt is as follows: Bond Issue/ Percent Remaining Principal Pledged Use of Proceeds/ of Total Term of Principal and Interest Revenue Type Debt Service Pledge and Interest Paid Received Revenue Bonds, Series 2003B Electric Utility Charges 100% 2003-2021 $ 980,475 $ Revenue Bonds, Series 2012A Natural Gas Utility Charges 100% 2012-2026 24,663,450 NOTE 7. RISK MANAGEMENT 165,488 $ 25,769,201 1,917,500 14,626,182 The Commission purchases commercial insurance coverage through the League of Minnesota Cities Insurance Trust (LMCIT), which is a public entity risk pool currently operating as a common risk management and insurance program, with cities in the state. The Commission pays an annual premium to the LMCIT for its insurance coverage. The LMCIT is self-sustaining through commercial companies for excess claims. The Commission is covered through the pool for any claims incurred but unreported, but retains risk for the deductible portion of its insurance policies. The amount of these deductibles is considered immaterial to the financial statements. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any of the past three fiscal years. The Commission's workers' compensation insurance policy is retrospectively rated. With this type of policy, final premiums are determined after loss experience is known. The amount of premium adjustment for 2014 is estimated to be immaterial based on workers' compensation rates and salaries for the year. 23 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 7. RISK MANAGEMENT (Cont'd) There are no other claims liabilities reported in the funds based on the requirements of accounting standards, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. NOTE 8. DEFINED BENEFIT PENSION PLANS - STATEWIDE A. PLAN DESCRIPTION All full-time and certain part-time employees of the Commission are covered by defined benefit plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the General Employees Retirement Fund (GERF), which is a cost-sharing, multiple -employer retirement plan. This plan is established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. GERF 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 state statute, and vest after five years of credited service. The defined retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of a step -rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For GERF members hired prior to July 1, 1989 whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equal 90. Normal retirement age is 65 for Basic and Coordinated members hired prior to July 1, 1989. Normal retirement age is the age for unreduced Social Security benefits capped at 66 for Coordinated members hired on or after July 1, 1989. A reduced retirement annuity is also available to eligible members seeking early retirement. There are different types of annuities available to members upon retirement. A single -life annuity is a lifetime annuity that ceases upon the death of the retiree -no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will be payable over joint lives. Members may also leave their contributions in the fund upon termination of public service in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. 24 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 8. DEFINED BENEFIT PENSION PLANS - STATEWIDE (Cont'd) A. PLAN DESCRIPTION (Cont'd) The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active plan participants. PERA issues a publicly available financial report that includes financial statements and required supplementary information for GERF. That report may be obtained on the Internet at www.mnpera.org, by writing to PERA at 60 Empire Drive #200, St. Paul, Minnesota, 55103-2088 or by calling (651) 296-7460 or 1-800-652-9026. B. FUNDING POLICY Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the state legislature. The Commission makes annual contributions to the pension plans equal to the amount required by state statutes. GERF Basic Plan members and Coordinated Plan members were required to contribute 9.10% and 6.25%, respectively, of their annual covered salary in 2014. In 2014, the Commission was required to contribute the following percentages of annual covered payroll: 11.78% for Basic Plan members and 7.25% for Coordinated Plan members. The Commission's contributions to the Public Employees Retirement Fund for the years ending December 31, 2014, 2013, and 2012 were $315,452, $310,293, and $293,317, respectively. The Commission's contributions were equal to the contractually required contributions for each year as set by state statute. Contribution rates will increase on January 1, 2015 in the Coordinated Plan (6.5% for members and 7.5% for employers). NOTE 9. DEFERRED COMPENSATION PLAN The Commission offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all Commission employees, permits them to defer a portion of their salary into future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. Investments are managed by the plan's trustee under one of four investment options, or a combination thereof. The choice of the investment option(s) is made by the participants. NOTE 10. COMMITMENTS The Commission is committed to purchase 25 MW of its power requirements from Missouri River Energy Services pursuant to the Power Sale Agreement dated April 28, 2010. This contract is effective through January 1, 2046. 25 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2014 NOTE 11. MAJOR CUSTOMERS For the years ended December 31, 2014 and 2013, the Electric Division derived approximately 50% and 47% respectively, of utility revenue from the top five major customers. For the years ended December 31, 2014 and 2013, the Natural Gas Division derived approximately 46% and 33% respectively, of its utility revenue from the top five major customers. NOTE 12. NET POSITION Net Investment in Capital Assets Net Capital Assets Revenue Bonds Payable 2014 2013 $ 76,363,215 $ 78,802,622 (19,515,000) (20,690,000) 56.848.215 $ 58.112.622 Restricted Cash and Investments Designated by Bond Covenants for Specific Purposes $ 2,577,815 $ 2,589,273 Bond Premium (Unamortized) (2,211,832) (2,397,441) $ 365.983 $ 191.832 26 This page intentionally left blank SUPPLEMENTARY INFORMATION This page intentionally left blank HUTCHINSON UTILITIES COMMISSION COMBINING STATEMENT OF NET POSITION DECEMBER 31, 2014 ASSETS Current Assets Cash and Investments Accounts Receivable (Net of Allowance for Doubtful Accounts of $39,318 and $21,171, Respectively) Inventory Sales Tax Receivable Prepaid Items Total Current Assets Noncurrent Assets Restricted Assets Cash and Investments Other Assets MIRES Agreement Capital Assets Assets Not Being Depreciated Other Capital Assets, Net of Depreciation Net Capital Assets Total Noncurrent Assets Total Assets LIABILITIES AND NET POSITION Current Liabilities Current Portion of Long -Term Debt Bonds Payable Bond Premium Accrued Vacation Accounts Payable Customer Deposits Accrued Expenses Interest Salaries Payable Total Current Liabilities Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable Bond Premium Accrued Vacation Accrued Severance Total Long -Term Liabilities Total Liabilities Net Position Net Investment in Capital Assets Restricted Unrestricted Total Net Position Total Liabilities and Net Position 27 Natural Electric Gas Division Division Total 3,576,533 $ 4,209,638 $ 7,786,171 2,012,193 1,903,283 3,915,476 1,105,818 425,716 1,531,534 244,783 4,303 244,783 1,500,081 16,132 16,132 6,939,327 6,554,769 13,494,096 22,288 2,555,527 2,577,815 262,972 262,972 690,368 3,899,919 4,590,287 43,660,856 28,112,072 71,772,928 44,351,224 32,011,991 76,363,215 44,636,484 34,567,518 79,204,002 $ 51,575,811 $ 41,122,287 $ 92,698,098 $ 125,000 $ 1,100,000 $ 1,225,000 22,288 185,608 185,608 13,332 4,303 17,635 1,500,081 1,093,738 2,593,819 286,777 154,418 441,195 2,967 68,792 71,759 85,152 22,297 107,449 2,013,309 2,629,156 4,642,465 715,000 17, 575,000 18,290, 000 2,026,225 2,026,225 253,313 81,749 335,062 58,489 24,145 82,634 1,026,802 19,707,119 20,733,921 3,040,111 22,336,275 25,376,386 43,511,224 13,336,991 56,848,215 22,288 343,695 365,983 5,002,188 5,105,326 10,107,514 48,535,700 18,786,012 67,321,712 $ 51,575,811 $ 41,122,287 $ 92,698,098 HUTCHINSON UTILITIES COMMISSION COMBINING STATEMENT OF REVENUES AND EXPENSES YEAR ENDED DECEMBER 31, 2014 OPERATING REVENUES Electric Energy Sales Natural Gas Sales Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Production Operations Maintenance Purchased Power/Gas Other Power Supply Transmission Operations Maintenance Distribution Operations Maintenance Customer Accounts Expense Sales Expense Administrative and General Depreciation Contribution to City of Hutchinson Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Bond Service Fees Bond Premium Amortization of Development Study Interest Expense - Customer Deposits Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position 28 2014 Electric Natural Gas Division Division Total $ 25,769,201 $ $ 25,769,201 14,626,182 14,626,182 304,095 1,508,575 1,812,670 26,073,296 16,134,757 42,208,053 2,565,551 2,565,551 499,872 499,872 13,850,238 9,986,448 23,836,686 337,733 337,733 1,656,177 106,984 1,763,161 28,361 23,535 51,896 606,543 438,099 1,044,642 256,554 176,445 432,999 190,638 155,976 346,614 344,646 114,883 459,529 2,364,768 917,848 3,282,616 2,744,769 1,002,804 3,747,573 1,123,897 605,176 1,729,073 26,569,747 13,528,198 40,097,945 (496,451) 2,606,559 2,110,108 14,861 14,860 29,721 41,724 31,269 72,993 35,408 5,235 40,643 23,159 22,100 45,259 (450) (450) 185,608 185,608 (525,943) (525,943) (434) (434) (40,081) (863,999) (904,080) (451,322) (605,361) (1,056,683) $ (947,773) $ 2,001,198 $ 1,053,425 HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION ELECTRIC DIVISION DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2013 2014 2013 ASSETS Current Assets Cash and Investments $ 3,576,533 $ 3,596,392 Accounts Receivable (Net of Allowance for Doubtful Accounts of $39,318 and $53,365, Respectively) 2,012,193 1,852,892 Inventory 1,105,818 1,040,303 Sales Tax Receivable 244,783 278,529 Prepaid Items 16,157 Total Current Assets 6,939,327 6,784,273 Noncurrent Assets Restricted Assets Cash and Investments 22,288 23,912 Other Assets MRES Agreement 262,972 788,915 Capital Assets Assets Not Being Depreciated 690,368 1,639,021 Other Capital Assets, Net of Depreciation 43,660,856 44,545,586 Net Capital Assets 44,351,224 46,184,607 Total Noncurrent Assets 44,636,484 46,997,434 Total Assets $ 51,575,811 $ 53,781,707 LIABILITIES AND NET POSITION Current Liabilities Current Portion of Long -Term Debt Bonds Payable $ 125,000 $ 125,000 Accrued Vacation 13,332 16,205 Accounts Payable 1,500,081 2,409,980 Customer Deposits 286,777 264,106 Accrued Expenses Interest 2,967 3,374 Salaries Payable 85,152 264,078 Total Current Liabilities 2,013,309 3,082,743 Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable 715,000 840,000 Accrued Vacation 253,313 307,891 Accrued Severance 58,489 67,600 Total Long -Term Liabilities 1,026,802 1,215,491 Total Liabilities 3,040,111 4,298,234 Net Position Net Investment in Capital Assets 43,511,224 45,219,607 Restricted 22,288 23,912 Unrestricted 5,002,188 4,239,954 Total Net Position 48,535,700 49,483,473 Total Liabilities and Net Position $ 51,575,811 $ 53,781,707 29 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 OPERATING REVENUES Utility Revenues Residential General Service Industrial Street Lighting Resale Total Utility Revenues Other Operating Revenues Penalties/Fees Security Lights Pole Rental Total Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Production Operations Supervision and Engineering Other Employee Benefits Fuels Station Gas for Generation Transportation Waste Disposal Total Operations Maintenance Structures Generating Units Other Equipment Total Maintenance Total Production Power Costs Purchased Power 2014 2013 Over (Under) Budget Actual Budget Actual $ 4,950,000 $ 5,162,073 $ 212,073 $ 5,176,489 9,050,000 8,787,907 (262,093) 8,903,085 10,842,773 11,001,396 158,623 10,375,605 139,307 139,532 225 143,002 1,057,400 678,293 (379,107) 891,276 26,039,480 25,769,201 (270,279) 25,489,457 220,000 292,778 72,778 297,525 10,000 11,301 1,301 11,033 500 16 (484) 32 230,500 304,095 73,595 308,590 26,269,980 26,073,296 (196,684) 25,798,047 1,000,535 935,505 (65,030) 1,028,344 71,630 102,390 30,760 97,738 30,050 33,828 3,778 40,927 96,100 117,305 21,205 131,451 1,450,000 647,327 (802,673) 1,015,351 700,000 700,000 1,100,000 15,000 29,196 14,196 31,329 3,363,315 2,565,551 (797,764) 3,445,140 100 6,165 6,065 448 236,200 375,626 139,426 318,352 101,500 118,081 16,581 180,501 337,800 499,872 162,072 499,301 3,701,115 3,065,423 (635,692) 3,944,441 13,445,430 13,850,238 404,808 13,342,967 ce HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 OPERATING EXPENSES (Cont'd) Other Power Supply Supervision and General Salaries Training Professional Services Total Other Power Supply Transmission Operations Transmission Station Total Operations Maintenance Plant and Equipment Total Transmission Distribution Operations Supervision and Engineering Line Meter Territory Service Agreement Other Total Operations Maintenance Station Equipment Underground Lines Lines Transformers Street Lighting Other Equipment Total Maintenance Total Distribution Customer Accounts Expense Meter Reading Collection Other Employee Benefits Uncollectible Accounts Customer Services Meetings and Training Total Customer Accounts Expense 2014 2013 Over (Under) Budget Actual Budget Actual $ 265,400 $ 291,971 $ 26,571 $ 288,772 2,500 (2,500) 5,560 61,600 45,762 (15,838) 132,532 329,500 337,733 8,233 426,864 1,150,000 1,512,071 362,071 1,289,968 136,000 144,106 8,106 129,649 1,286,000 1,656,177 370,177 1,419,617 24,000 28,361 4,361 73,734 1,310,000 1,684,538 374,538 1,493,351 283,850 335,085 51,235 304,683 35,000 64,471 29,471 58,258 21,000 71,393 50,393 67,369 25,928 25,928 26,965 80,500 109,666 29,166 103,649 420,350 606,543 186,193 560,924 9,000 16,327 7,327 18,151 100,000 123,852 23,852 163,965 11,000 12,207 1,207 22,859 70,000 53,582 (16,418) 65,695 33,500 50,586 17,086 51,151 223,500 256,554 33,054 321,821 643,850 863,097 219,247 882,745 17,050 17,153 103 18,794 94,875 107,302 12,427 114,554 5,500 7,574 2,074 10,242 3,300 10,875 7,575 5,070 41,250 47,286 6,036 40,260 5,170 448 (4,722) 2,793 167,145 190,638 23,493 191,713 31 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 32 2014 2013 Over (Under) Budget Actual Budget Actual OPERATING EXPENSES (Confd) Sales Expense Salaries $ 58,500 $ 51,733 $ (6,767) $ 51,965 Conservation 249,000 292,913 43,913 145,775 Total Sales Expense 307,500 344,646 37,146 197,740 Administrative and General Supervision and General Salaries 500,250 467,125 (33,125) 520,388 Office Supplies 184,125 254,183 70,058 281,574 Outside Services Employed 56,475 109,766 53,291 147,846 Property Insurance 105,050 91,736 (13,314) 102,512 Medical Insurance 731,250 677,763 (53,487) 648,400 Other Employee Benefits 593,625 588,648 (4,977) 592,387 Regulatory 31,900 24,305 (7,595) 23,980 Commissioners Salaries 14,300 14,517 217 14,127 Travel 12,100 8,054 (4,046) 9,378 Miscellaneous 77,000 64,920 (12,080) 71,484 Maintenance of General Plant 37,455 63,751 26,296 71,103 Total Administrative and General 2,343,530 2,364,768 21,238 2,483,179 Depreciation 2,700,000 2,744,769 44,769 2,612,388 Contribution to City of Hutchinson Payment in Lieu of Taxes 1,235,000 1,123,897 (111,103) 912,000 Roadway Lighting 142,666 Total Contribution to City of Hutchinson 1,235,000 1,123,897 (111,103) 1,054,666 Total Operating Expenses 26,183,069 26,569,747 386,678 26,630,054 Operating Income (Loss) 86,911 (496,451) (583,362) (832,007) 32 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Bond Service Fees Amortization of Development Study Amortization of Bond Discount and Issuance Costs Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position NET POSITION, BEGINNING OF YEAR NET POSITION, END OF YEAR 2014 2013 Over (Under) Budget Actual Budget Actual $ 30,000 $ 14,861 $ (15,139) $ 37,970 5,519 41,724 36,205 (21,474) 15,000 35,408 20,408 58,031 10,000 23,159 13,159 10,000 (3,000) (450) 2,550 (2,400) (525,943) (525,943) (525,953) (21,000) 21,000 (112,849) (40,081) 72,768 (85,537) (76,330) (451,322) (374,992) (529,363) $ 10,581 33 (947,773) $ (958,354) (1,361,370) 49,483,473 50,844,843 $ 48,535,700 $ 49,483,473 HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION NATURAL GAS DIVISION DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2013 Net Position Net Investment in Capital Assets 13,336,991 12,893,015 Restricted 343,695 167,920 Unrestricted 5,105,326 3,723,879 Total Net Position 18,786,012 16,784,814 Total Liabilities and Net Position $ 41,122,287 $ 40,523,856 34 2014 2013 ASSETS Current Assets Cash and Investments $ 4,209,638 $ 2,593,534 Accounts Receivable (Net of Allowance for Doubtful Accounts of $21,171 and $28,735, Respectively) 1,903,283 2,318,059 Inventory 425,716 423,501 Prepaid Items 16,132 5,386 Total Current Assets 6,554,769 5,340,480 Noncurrent Assets Restricted Assets Cash and Investments 2,555,527 2,565,361 Capital Assets Assets Not Being Depreciated 3,899,919 3,899,919 Other Capital Assets, Net of Depreciation 28,112,072 28,718,096 Net Capital Assets 32,011,991 32,618,015 Total Noncurrent Assets 34,567,518 35,183,376 Total Assets $ 41,122,287 $ 40,523,856 LIABILITIES AND NET POSITION Current Liabilities Current Portion of Long -Term Debt Bonds Payable $ 1,100,000 $ 1,050,000 Bond Premium 185,608 185,608 Accrued Vacation 4,303 4,438 Accounts Payable 1,093,738 1,218,328 Customer Deposits 154,418 142,211 Accrued Expenses Interest 68,792 72,292 Salaries Payable 22,297 73,826 Total Current Liabilities 2,629,156 2,746,703 Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable 17,575,000 18,675,000 Bond Premium 2,026,225 2,211,832 Accrued Vacation 81,749 84,326 Accrued Severance 24,145 21,181 Total Long -Term Liabilities 19,707,119 20,992,339 Total Liabilities 22,336,275 23,739,042 Net Position Net Investment in Capital Assets 13,336,991 12,893,015 Restricted 343,695 167,920 Unrestricted 5,105,326 3,723,879 Total Net Position 18,786,012 16,784,814 Total Liabilities and Net Position $ 41,122,287 $ 40,523,856 34 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 OPERATING REVENUES Utility Revenues Residential Commercial Industrial Total Utility Revenues Other Operating Revenues Gas Transportation Contract - New Ulm Transportation - Electric Division Total Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Purchased Natural Gas Transmission Operations Supervision and Engineering Other Total Operations Maintenance Supervision and Engineering Other Total Maintenance Total Transmission Distribution Operations Supervision and Engineering Other Employee Benefits Mains and Services Meters Other Total Operations Maintenance Mains and Services Meters Other Equipment Total Maintenance Total Distribution 2014 Over (Under) Budget Actual Budget 2013 Actual $ 4,300,000 $ 4,706,388 $ 406,388 $ 4,626,722 4,190,262 3,853,504 (336,758) 3,729,790 4,533,751 6,066,290 1,532,539 3,646,509 13,024,013 14,626,182 1,602,169 12,003,021 700,000 808,575 108,575 785,149 700,000 700,000 12,035 1,100,000 1,400,000 1,508,575 108,575 1,885,149 14,424,013 16,134,757 1,710,744 13,888,170 7,802,486 9,986,448 2,183,962 7,433,522 48,000 54,723 6,723 58,067 61,500 52,261 (9,239) 56,310 109,500 106,984 (2,516) 114,377 1,500 2,492 992 407 10,000 21,043 11,043 3,595 11,500 23,535 12,035 4,002 121,000 130,519 9,519 118,379 170,600 174,481 3,881 175,572 115,000 120,998 5,998 114,057 119,500 92,313 (27,187) 67,595 3,500 2,921 (579) 240 38,500 47,386 8,886 48,415 447,100 438,099 (9,001) 405,879 133,000 99,918 (33,082) 126,902 20,000 22,554 2,554 9,932 56,000 53,973 (2,027) 47,403 209,000 176,445 (32,555) 184,237 656,100 614,544 (41,556) 590,116 35 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 OPERATING EXPENSES (Cont'd) Customer Accounts Expense Meter Reading Collection Other Employee Benefits Uncollectible Accounts Customer Services Meetings and Training Total Customer Accounts Expense Sales Expense Salaries Conservation Total Sales Expense Administrative and General Supervision and General Salaries Office Supplies Outside Services Employed Property Insurance Medical Insurance Other Employee Benefits Regulatory Commissioners Salaries Travel Miscellaneous Maintenance of General Plant Total Administrative and General Depreciation Contribution to City of Hutchinson Payment in Lieu of Taxes Total Operating Expenses Operating Income (Loss) 2014 2013 Over (Under) Budget Actual Budget Actual $ 13,950 $ 14,034 $ 84 $ 15,365 77,625 87,792 10,167 93,726 4,500 6,197 1,697 8,379 2,700 8,898 6,198 4,148 33,750 38,689 4,939 32,940 4,230 366 (3,864) 2,285 136,755 155,976 19,221 156,843 19,500 17,245 (2,255) 17,322 83,000 97,638 14,638 48,592 102,500 114,883 12,383 65,914 166,750 155,708 (11,042) 173,463 61,375 84,728 23,353 93,858 18,825 36,589 17,764 49,282 85,950 75,057 (10,893) 83,872 243,750 225,921 (17,829) 216,133 197,875 196,216 (1,659) 197,462 26,100 19,886 (6,214) 19,620 11,700 11,877 177 11,559 9,900 6,590 (3,310) 7,673 63,000 53,116 (9,884) 58,487 30,645 52,160 21,515 58,175 915,870 917,848 1,978 969,584 1,056,000 1,002,804 (53,196) 1,027,662 665,000 605,176 (59,824) 491,077 11,455,711 13,528,198 2,072,487 10,853,097 2,968,302 2,606,559 (361,743) 3,035,073 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2014 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2013 NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Bond Premium Interest Expense - Customer Deposits Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position NET POSITION, BEGINNING OF YEAR NET POSITION, END OF YEAR 2014 2013 Over (Under) Budget Actual Budget Actual $ 30,000 $ 14,860 $ (15,140) $ 37,970 34,481 31,269 (3,212) 57,400 1,000 5,235 4,235 1,008 22,100 22,100 185,608 185,608 185,608 (1,000) (434) 566 (2,346) (867,500) (863,999) 3,501 (1,271,801) (803,019) (605,361) 197,658 (992,161) $ 2,165,283 37 2,001,198 $ (164,085) 2,042,912 16,784,814 14,741,902 $ 18,786,012 $ 16,784,814 This page intentionally left blank COMPLIANCE SECTION This page intentionally left blank CDS C,qriway, Deuth Schmiesing, C."irka ihlbk i6WMY%StYs �' coowk m. INDEPENDENT AUDITOR'S REPORT ON MINNESOTA LEGAL COMPLIANCE Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2014, and the related notes to the financial statements, and have issued our report thereon dated March 25, 2015. The Minnesota Legal Compliance Audit Guide for Political Subdivisions, promulgated by the State Auditor pursuant to Minn. Stat. § 6.65, contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories, except that we did not test for compliance in tax increment financing because Hutchinson Utilities Commission does not have any tax increment financing. In connection with our audit, nothing came to our attention that caused us to believe that the Commission failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the Commission's noncompliance with the above referenced provisions. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. ", UU& i J,114�IPLL? CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 25, 2015 38 M wnbemAnw **n Mwduft of CwOW K"c Acwurarwcs, ham of C.,MW P4k AC .wftAb This page intentionally left blank CDS Conway, Death Srhmiesing,rLx e Quality i Dedication j Integrity INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2014, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements, and have issued our report thereon dated March 25, 2015. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Commission's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances 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 Commission's internal control. Accordingly, we do not express an opinion on the effectiveness of the Commission's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 39 Mrnbw=Amerkan kadam of Cm-dRW Publk Accounarm, Mnnewa Sodegr of CwdW Pubk Accounts Compliance and Other Matters As part of obtaining reasonable assurance about whether Hutchinson Utilities Commission's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the Commission's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Commission's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 25, 2015 40 HUTCHINSON UTILITIES COMMISSION HUTCHINSON, MINNESOTA MANAGEMENT LETTER DECEMBER 31, 2014 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota This page intentionally left blank HUTCHINSON UTILITIES COMMISSION TABLE OF CONTENTS DECEMBER 31, 2014 PAGE Required Communications 1-3 Comparative Financial Data 4 Graphical Information 5-12 Schedule of Findings on Accounting Issues and Internal Controls 13-14 This page intentionally left blank CDS Canvey, Deuth &Schmiesing,r (krtifW Publk: Acwmm�ea ticmP Quality 6 )edication I Integrity REQUIRED COMMUNICATIONS March 25, 2015 Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2014. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated January 6, 2015. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by Hutchinson Utilities Commission, are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2014. We noted no transactions entered into by Hutchinson Utilities Commission during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: Management's estimate of the allowance for doubtful accounts is based on historical electric and natural gas revenues, historical loss levels, and an analysis of the collectability of individual accounts. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. Management's estimate of depreciation is based on the number of years an asset is in service. We evaluated the key factors and assumptions used to develop the depreciation estimate in determining that it is reasonable in relation to the financial statements taken as a whole. MwbemAnwte kan Intl me of Cw0t1W Pubk AccwjnwK b Kms Soci ter of CwdaW PAA Acca The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. Disagreements with Management For purposes of this letter, a disagreement with management is 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 March 25, 2015. 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 Commission'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 Commission's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to Management's Discussion and Analysis, which is required supplementary information that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the required supplementary information and do not express an opinion or provide any assurances on the required supplementary information. We were engaged to report on the statements and schedules listed in the table of contents as supplementary information, which accompany the financial statements but are not required supplementary information. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the Organizational Data, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it. Restriction on Use This information is intended solely for the use of the Commission and management of Hutchinson Utilities Commission and is not intended to be and should not be used by anyone other than these specified parties. &AW. 4 , PLL? CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 25, 2015 3 This page intentionally left blank ELECTRIC DIVISION Residential General Service Industrial Street Lighting Resale Total Electric Sales Other Operating Revenues Total Operating Revenues Purchased Power - Electric Other Operating Expenses Total Operating Expenses HUTCHINSON UTILITIES COMMISSION COMPARATIVE FINANCIAL DATA 2008 2009 2010 2011 2012 2013 2014 $ 5,234,100 $ 4,871,894 $ 5,107,357 $ 5,255,333 $ 5,202,559 $ 5,176,489 $ 5,162,073 9,453,026 8,660,281 8,990,929 9,075,811 9,264,941 8,903,085 8,787,907 13,286,228 10,650,886 11,471,748 11,692,880 10,763,758 10,375,605 11,001,396 141,584 144,249 147,248 143,378 148,968 143,002 139,532 2,293,769 935,577 986,386 1,234,285 1,618,582 891,276 678,293 30,408,707 25,262,887 26,703,668 27,401,687 26,998,808 25,489,457 25,769,201 270,443 294,418 301,653 306,435 310,828 308,590 304,095 30,679,150 25,557,305 27,005,321 27,708,122 27,309,636 25,798,047 26,073,296 20,171,013 15,929,085 15,225,550 15,990,893 15,521,329 14,358,318 14,497,565 9,022,974 9,201,402 9,837,680 9,790,120 11,014,195 12,271,736 12,072,182 29,193,987 25,130,487 25,063,230 25,781,013 26,535,524 26,630,054 26,569,747 Net Nonoperating Revenues (Expenses) 775,934 780,678 (1,082,723) (727,681) (329,483) (529,363) (451,322) Change in Net Position GAS DIVISION Residential Commercial Industrial Total Gas Revenues Gas Transportation Total Operating Revenues Purchased Power - Gas Other Operating Expenses Total Operating Expenses Net Nonoperating Revenues (Expenses) Change in Net Position $ 2,261,097 $ 1,207,496 $ 859,368 $ 1,199,428 $ 444,629 $ (1,361,370) $ (947,773) $ 4,769,216 $ 4,426,071 $ 3,979,581 $ 4,327,788 $ 3,697,538 $ 4,626,722 $ 4,706,388 4,242,479 4,020,619 3,638,751 3,823,161 3,150,925 3,729,790 3,853,504 7,085,906 4,380,874 4,890,551 4,246,780 2,826,424 3,646,509 6,066,290 16,097,601 12,827,564 12,508,883 12,397,729 9,674,887 12,003,021 14,626,182 1,820,662 1,819,272 1,821,218 1,824,187 1,855,472 1,885,149 1,508,575 17,918,263 14,646,836 14,330,101 14,221,916 11,530,359 13,888,170 16,134,757 13,750,609 10,057,683 9,806,771 9,028,704 6,400,838 7,433,522 9,986,448 3,126,633 3,253,649 3,158,859 3,094,567 3,326,558 3,419,575 3,541,750 16,877,242 13,311,332 12,965,630 12,123,271 9,727,396 10,853,097 13,528,198 (966,136) (1,007,145) (930,880) (929,711) (989,164) (992,161) (605,361) $ 74,885 $ 328,359 $ 433,591 $ 1,168,934 $ 813,799 $ 2,042,912 $ 2,001,198 4 HUTCHINSON UTILITIES COMMISSION ELECTRIC DIVISION Operating Revenues & Expenses and Net Nonoperating Revenues (Expenses) $35,000,000 $30,679,150 $30,000,000 $25 ,305 $25,798 $27,005,321 $27,708,122 $27,309,636 $26,073,296 ,557,047 $25,000,000 $29,193,987 $25,130,487 $25,063,230 $25,781,013 $26,535,524 $26,630,054 $26,569,747 $20,000,000 $15,000,000 - $10,000,000 $5,000,000 $0 $775,934 $780,678 $(1,082,723) $(727,681) $(329,483) $(529,363) $(451.322) -$5,000,000 2008 2009 2010 2011 2012 2013 2014 ■Total Operating Revenues Wotal Operating Expenses ■Net Nonoperating Revenues (Expenses) $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 -$500,000 -$1,000,000 -$1,500,000 -$2,000,000 2008 Change in Net Position 2009 2010 2011 2012 2013 2014 ■Change in Net Position 5 $14,000,000 $13,000,000 $12,000,000 $11,000,000 $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 2008 2009 2010 2011 2012 2013 ■Residential ■General Service Olndustrial HUTCHINSON UTILITIES COMMISSION ELECTRIC DIVISION Major Revenue by Source $35,000,000 - $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 2008 Purchased Power & Fuel Costs Compared to Total Sales 2009 2010 2011 2012 2013 •Purchased Power - Electric @Total Electric Sales i u 2014 2014 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS ELECTRIC DIVISION YEARS ENDED DECEMBER 31, 2014 AND 2013 The Statement of Revenues and Expenses set forth the results of the operations in detail for the years ended December 31, 2014 and 2013. Operating revenues, kilowatt hours (KWH) sold, and average revenue per kilowatt hour sold by class of service are as follows: CLASS Residential All Electric Small General Service Large General Service Industrial Sale for Resale Street Lighting Year Ended December 31, 2013 Revenue Per Amount KWH Sold KWH $ 4,922,373 Year Ended December 31, 2014 0.0962 254,116 2,679,334 Revenue Per 1,646,365 Amount KWH Sold KWH CLASS 0.0902 10,375,605 127,066,000 Residential $ 4,905,668 50,550,607 $ 0.0970 All Electric 256,404 2,694,481 0.0952 Small General Service 1,612,428 16,964,230 0.0950 Large General Service 7,175,480 79,087,541 0.0907 Industrial 11,001,396 134,419,000 0.0818 Sale for Resale 678,293 11,790,000 0.0575 Street Lighting 139,532 104,710 1.3326 $ 25,769,201 295,610,569 0.0872 CLASS Residential All Electric Small General Service Large General Service Industrial Sale for Resale Street Lighting Year Ended December 31, 2013 Revenue Per Amount KWH Sold KWH $ 4,922,373 51,175,792 $ 0.0962 254,116 2,679,334 0.0948 1,646,365 17,474,937 0.0942 7,256,720 80,487,539 0.0902 10,375,605 127,066,000 0.0817 891,276 15,466,000 0.0576 143,002 103,772 1.3780 $ 25,489,457 294,453,374 0.0866 HUTCH|NSONUTILITIES COMMISSION ANALYSIS OFOPERATIONS ELECTRIC DIVISION YEARS ENDED DECEMBER 31.2O14AND 2O13 KVVHGo|d Industrial Large General Service Small General Service All Electric Resiuormo| /4xerage$/KWH s0.09 mzm $0.11 R] 11,790,000 Sale for Resale t 15,466,000 134,419,000 Industrial 11177,:777,- 777 777 127,066,000 79,087,541 Large General Service 80,487,539 16,964,230 Small General Service 17,474,937 2,694.481 All Electric 21679,334 50,550,607 Residential 51,175,792 50,000,000 100,000,000 150,000,000 200,000,000 E2014 KWH Sold 02013 KWH Sold Industrial Large General Service Small General Service All Electric Resiuormo| /4xerage$/KWH s0.09 mzm $0.11 R] $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 $5,000,000 2008 2009 2010 2011 2012 2013 2014 Notal Operating Revenues Notal Operating Expenses ■Net Nonoperating Revenues (Expenses) HUTCHINSON UTILITIES COMMISSION NATURAL GAS DIVISION Operating Revenues & Expenses and Net Nonoperating Revenues (Expenses) 57 28,198 15,361) 9 Change in Net Position $2,500,000 $2,042,912 $2,001,198 $2,000,000 $1,500,000 $1,168,934 $1,000,000 $813,799 $433,591 $500,000 $328,359 $74,885 $0 2008 2009 2010 2011 2012 2013 2014 •Change in Net Position 9 HUTCHINSON UTILITIES COMMISSION NATURAL GAS DIVISION Major Revenue by Source $8,000,000 - - - - - - $7,000,000 $6,000,000 $5,000,000 $4,000,000 - --- — - - $3,000,000 -- $2,000,000 $1,000,000 $0 2008 2009 2010 2011 2012 2013 2014 ■Residential ■Commercial oindustrial Purchased Gas Compared to Total Sales $18,000,000 $16,000,000 $14,000,000 - — -- $12,000,000 $10,000,000 $8,000,000 - - - $6,000,000 $4,000,000 $2,000,000 $0 2008 2009 2010 2011 2012 2013 2014 ■Purchased Power- Gas ■Total Gas Revenues 10 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS NATURAL GAS DIVISION YEARS ENDED DECEMBER 31, 2014 AND 2013 The Statement of Revenues and Expenses set forth the results of the operations in detail for the years ended December 31, 2014 and 2013. Operating revenues, cubic feet sold, and average revenue per thousand cubic feet sold by class of service are as follows: Year Ended December 31, 2014 Revenue Per Thousand Amount CF Sold MCF CLASS Residential $ 4,706,388 475,386,739 $ 9.9001 Commercial 3,853,504 401,727,130 9.5923 Large industrial 6,066,290 833,083,000 7.2817 CLASS Residential Commercial Large industrial $ 14.626.182 1.710.196.869 $ 8.5523 Year Ended December 31, 2013 Revenue Per Thousand Amount CF Sold MCF $ 4,626,722 3,729,790 3,646,509 470,677,695 $ 9.8299 392,469,297 9.5034 774,035,000 4.7110 $ 12,003,021 1,637,181,992 $ 7.3315 11 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS NATURAL GAS DIVISION YEARS ENDED DECEMBER 31, 2014 AND 2013 CF Sold fiiiiiiiiiij 833, 083, 000 Large industrial 774, 035, 000 401, 727,130 Commercial, a+ 392,469,297 s 475,386,739 Residential afr „ '. N t, p f�d e , 470,677,695 app 1313013130 gp13 ppp 13130 5pp ppp Opo Epp ppp 13130 1013ppp 13130 app ppp Opo 913131313013130 ■2014 CF Sold ■2013 CF Sold Average $/MCF 12 This page intentionally left blank HUTCHINSON UTILITIES COMMISSION SCHEDULE OF FINDINGS ON ACCOUNTING ISSUES AND INTERNAL CONTROLS DECEMBER 31, 2014 We noted certain matters involving the internal control structure and its operation that we consider being deficiencies in internal control under standards established by the American Institute of Certified Public Accountants. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. INTERNAL CONTROL The objective of internal accounting control is to provide reasonable, but not absolute, assurance as to the safeguarding of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a system of internal accounting control should not exceed the benefits derived and also recognizes that the valuation of these factors necessarily requires estimates and judgments by management. It should be recognized that within the Commission, an inherent risk is present with certain positions. It is very common for entities such as Hutchinson Utilities Commission, to assign many major responsibilities to a few key individuals in an attempt to operate within limited budgets. The inherent risk is again addressed only to maintain the awareness of the internal control structure and to encourage the Commission's continual review of financial information at monthly meetings. GENERAL RECOMMENDATIONS Throughout the course of the audit, we spoke with management regarding certain items that we see as an opportunity to improve. None of these were considered significant within the scope of the audit. The items discussed requiring action have been resolved or are in the process of resolution. We would like to acknowledge the assistance and courtesies extended to us by the personnel of the Hutchinson Utilities Commission. APPROVAL OF JOURNAL ENTRIES AND REIMBURSEMENTS During our audit over journal entries and travel expenses on credit cards, we noted that not all of the journal entries and expenses reviewed had an indication of validation with an approving authority's signature. We recommend the Commission follow their policy on purchasing as it relates to proper authorization and approval of credit card expenses. We also recommend the Commission institute a formal policy for approval of journal entries by delegating an individual within management with the appropriate skills, knowledge and experience to ensure journal entries are accurate and proper. CROSS -TRAINING In small public entities, it is common for one person to be primarily responsible for handling all financial matters (payroll, disbursements, receiving, recording transactions, etc). This concentration of duties in one person is not desirable for a sound control environment and contingency planning. One measure to help counter this weakness involves training a second person in specific duties related to the entities finances. Cross -training has numerous benefits. It allows a second person to perform the duties when the employee primarily responsible is unavailable. Having someone else perform the job duties also provides a method of detecting errors and/or irregularities created by the person primarily responsible for those duties. Finally, cross -training provides continuity during periods of employee transitions. Cross -training offers advantages from both an accounting and a managerial point of view. As the Commission has undergone employee transitions in fiscal year 2014, we find this an opportune time to review the various responsibilities and cross -train other staff to perform non -routine duties on a timely basis in the absence of the individual typically responsible for such duties. Other remedies would be to have an outside source familiar in these specific areas be contracted when deemed necessary to keep the Commission current in the financial area. 13 HUTCHINSON UTILITIES COMMISSION SCHEDULE OF FINDINGS ON ACCOUNTING ISSUES AND INTERNAL CONTROLS DECEMBER 31, 2014 CAPITAL ASSET ACCOUNTING The Commission maintains its capital asset activity and balances using spreadsheet software (Microsoft Excel). While Excel is an automated software program, it is not the most effective and efficient program for capital asset accounting. A relational database program would operate more effectively and efficiently to manage and account for capital asset inventory. Because the Commission segregates capital assets by activity and function, the complexity of the spreadsheets increases annually and is very susceptible to human error. We recommend the City use relational database software to maintain and account for its capital asset inventory. Implementation of this type of software will strengthen internal controls over capital asset accounting and provide efficiencies in the perpetual maintenance of capital assets. UNAUTHORIZED SIGNATORY ON BANK ACCOUNT During our audit, we identified one bank account where the previous General Manager is an authorized signer. This is a weakness in internal control. We have provided the name of the bank and account number where the previous General Manager is still an authorized signer to the current General Manager. We recommend the Commission remove the former General Manager as an authorized signer on the identified bank account. We also recommend the Commission approve the General Manager to become an authorized signer on the identified bank account. UPCOMING GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO. 68 The Governmental Accounting Standards Board (GASB) issued Statement No. 68, Financial Reporting for Pension Plans - an Amendment of GASB Statement No. 27, which revises and establishes new financial reporting requirements for governments that provide pension benefits to its employees and retirees. The implementation of this Statement will lead to significant financial accounting and reporting changes for the Commission's pension expense and related liability. The Statement will require the Commission to recognize, as a liability on its proprietary fund financial statements, its long-term obligation for pension benefits including those from the Public Employees Retirement Association of Minnesota defined benefit pension plans. The Statement is effective for fiscal years beginning after June 15, 2014. We recommend that management of the Commission begin the process of evaluating the impact of implementation of this standard. Changes will be necessary to your financial records; it will benefit the Commission to begin this process now. If requested, Conway, Deuth and Schmiesing, PLLP will assist in the implementation. These services will be billed separate from, and in addition to, your annual audit engagement fees. Please contact us with any questions. 14 Natural Gas Meter Requirements and Placement HUC shall furnish and install the natural gas meter at no charge to the customer. HUC reserves the right to specify the natural gas meter location on all installations All meters must be located on an external wall of the building, at a horizontal distance of no less than 3 feet from fresh air intakes, windows or door openings. New construction natural gas meters must be located within 10 feet of the electric meter +f -in the event HUC is providing both services. Access to all natural gas meters shall not be obstructed. Natural gas meters shall be located in ventilated spaces readily accessible for examination, reading, replacement or necessary maintenance. Decks, porches, etc. shall not be constructed over a natural gas meter. Natural gas meters shall not be wed -located where they will be subject to damage, such as adjacent to a driveway or other locations subject to vehicular traffic, in public passages, where they will be subject to excessive corrosion or vibration or in areas subject to ice and snow damage. Natural gas meters shall not be installed directly beneath external stairways Natural gas meters shall not be located where they will be subjected to extreme temperatures or sudden extreme temperature changes (e.g., air ducts, dryer vents). Minimum diStaRGer, betweGR natural gas meters te furnaGe intakes shall be followed per the mare �fant� �ror nonifiGatinno ..... �crrrrsrcrararcs�ccrrtv�arrvrrr. Manufacturer's installation specifications shall be adhered to when installing fresh air intake and exhaust terminations near natural gas metering facilities Natural gas regulators shall be located at4ea-st- no less than 3 feet from any source of ignition or any source of heat that may damage the facilities. HUC requires a minimum of a 3 -foot clear zone in front of the natural gas meter. Reasonable care must be taken to protect all metering facilities when remodeling, roofing, painting, etc. In the event of damage to the natural gas facilities, the customer shall be responsible for the cost of repairing or replacing the natural gas facilities. Conditions may exist which may require other additional restrictions or distances (e.g. multiple meters, etc.). Please contact HUC if you should have any questions regarding your natural gas metering facilities. Modifications made to the customer's metering facilities, necessitated by customer changes, shall be performed by HUC, at the customer's expense. All natural gas service lines retired due to building demolition, overbuilding, etc. shall be retired at the customer's expense. Quotes to be provided when requested by customer. All exceptions require the approval of HUC prior to the start of construction. If violations or deviations are determined, the customer shall be responsible for the cost of the correction. Single Family Dwellings HUC shall provide natural gas to residential customers at the standard delivery pressure of 7 inches of water column, measured at the inlet to the natural gas meter. All residential natural gas metering facilities shall be located on the side of the home within 6 feet of the front building wall. Front building wall is defined as the wall nearest the street of the resident's living space. Multi -Family Dwellings/Multiple Business Establishments Delivery pressures greater than 7 inches of water column, for multi -family and multiple business establishments, shall only be allowed by the prior approval of HUC. The customer must provide adequate over -pressure protection for all fuel lines subject to increased delivery pressure. The single metering of multiple -family dwellings, apartment buildings or multiple business establishments within a single building is permitted to the extent that each building is centrally heated. Individual metering is required for all individually heated, single-family private residences and each separately heated, owned and/or operated business. Please contact HUC for specifications regarding meter facilities. Commercial/Industrial Facilities Delivery pressures greater than 7 inches of water column, for commercial and industrial applications, shall only be allowed by the prior approval of HUC. The customer must provide adequate over -pressure protection for all fuel lines subject to increased delivery pressure. Please contact HUC for specifications regarding meter facilities. Memorandum TO: Hutchinson Utilities Commission FROM: Jeremy Carter, General Manager RE: Proposed Amendments to the Conflict of Interest and Other Employment Sections of the HUC Exempt and Non -Exempt Employee Handbooks DATE: April 20, 2015 The current Conflict of Interest and Other Employment policy language found in both the Hutchinson Utilities Commission (HUC) Exempt and Non -Exempt Employee Handbooks is as follows: CONFLICT OF INTEREST Employees must notify their Director of any direct or indirect financial interest they have in any contract with HUC or any interest they have in a contractor supplying HUC. Any employee with such a financial interest may not work on any HUC project or make any decision concerning an HUC project involving the employee's outside financial interest, unless the interest has been disclosed, and deemed acceptable by HUC management. OTHER EMPLOYMENT An employee's position at HUC must take precedence over any other job an employee holds. Employees must inform their Director, Manager or Supervisor of any work they perform for profit outside of HUC's position to ensure there is no conflict of interest between the HUC job and the outside employment. Also, employees are expected to be mentally alert and physically able to perform their Utility jobs. Employees may not work on their outside employment while on duty with HUC nor may any HUC property or equipment be used to conduct such business at any time. The current language does not address the following situations/issues: 1. To whom a director should report their possible conflict of interest situation or other employment 2. To whom an electric division employee should report a conflict of interest or other employment, as the previous position of Electric Division Director is not staffed 3. The General Manager may not be aware of conflicts or other employment which can affect the HUC operations The following policy amendments are proposed to effectively address these situations/issues: NON-EXEMPT CONFLICT OF INTEREST Employees must notify their Director or Manager of any direct or indirect financial interest they have in any contract with HUC, eF any interest they have in a contractor supplying HUC, or any such interest they may have with any entity competing with HUC, and all such notifications shall be forwarded to the General Manager. Any employee with such a financial interest may not work on any HUC project or make any decision concerning an HUC project involving the employee's outside financial interest, unless the interest has been disclosed, and deemed acceptable by HUC management. EXEMPT CONFLICT OF INTEREST Employees must notify their Director or Manager of any direct or indirect financial interest they have in any contract with HUC, eF any interest they have in a contractor supplying HUC, or any such interest they may have with any entity competing with HUC, and all such notifications shall be forwarded to the General Manager. Employees who do not report to a Director or Manager shall directly notify the General Manager. Any employee with such a financial interest may not work on any HUC project or make any decision concerning an HUC project involving the employee's outside financial interest, unless the interest has been disclosed, and deemed acceptable by HUC management. NON-EXEMPT OTHER EMPLOYMENT An employee's position at HUC must take precedence over any other job an employee holds. Employees must inform their Director, or Manager eF S peity°ser_ of any work they perform for profit outside of HUC's position to ensure there is no conflict of interest between the HUC job and the outside employment. All such notifications shall be forwarded to the General Manager. Also, employees are expected to be mentally alert and physically able to perform their Utility jobs. Employees may not work on their outside employment while on duty with HUC nor may any HUC property or equipment be used to conduct such business at any time. EXEMPT OTHER EMPLOYMENT An employee's position at HUC must take precedence over any other job an employee holds. Employees must inform their Director; or Manager of any work they perform for profit outside of HUC's position to ensure there is no conflict of interest between the HUC job and the outside employment, and all such notifications shall be forwarded to the General Manager. Employees who do not report to a Director or Manager shall directly inform the General Manager. Also, employees are expected to be mentally alert and physically able to perform their Utility jobs. Employees may not work on their outside employment while on duty with HUC nor may any HUC property or equipment be used to conduct such business at any time. It is requested that the Commission consider these proposed amendments to the Exempt and Non -Exempt Handbooks at the April 29, 2015, Hutchinson Utilities Commission. MEMORANDUM TO: HUTCHINSON UTILTIES COMMISSION FROM: JARED MARTIG SUBJECT: APPROVE CHARGE-OFFS DATE: APRIL 29, 2015 We are requesting that you approve the charge-offs in the amount of $12,295.08 as shown on the attached spreadsheet. The $2,817.76 deemed uncollectible from 2011 is due to not having a social security number to use for Revenue Recapture. Amounts are considered uncollectible after three years at the collection agency. The remaining amount of $7,037.02 deemed uncollectible is from 2008 after the six year statute of ]imitations has expired. Past history of charge-offs are listed below. The amount in 2014 was high due to writing off multiple years after finding out that the statute of limitations was six years. 2014: $41,279.16 2013: $4,316.12 2012: $4,067.15 2011: $9,792.12 The other attachment lists the balances at the end of the last three quarters in accounts that have been terminated. Customers are given 20 business days from the final bill date before a first notice is sent and 10 calendar days before a second notice is sent. Any uncollected accounts are then sent to either Revenue Recapture if we have a social security number or to the collection agency if we do not. This is done within 30 days of the second notice unless a customer is working with customer service on making payments. The terminated service row includes amounts that have not been turned over to either a collection agency or Revenue Recapture yet. Over half of that amount is from accounts terminated within the last 60 days. The other two rows are for amounts currently at Revenue Recapture or at a collection agency. The amounts being considered for charge-off are included in the 3/31/15 totals. The total amount collected from Revenue Recapture as of 4/20/2015 is $9,487.20. zulo unar a urns COST. # I ACCOUNT # AMT. OWING ELECTRIC NAT. GAS KEASUN FUK LA, I 11/19/2014 16009 101125 $763.00 CHARGE OFF ACTIVITY DATE 5180 300040 33.37 260050 33.37 Bankrupt $176.22 1/17/2015 5180 300040 34.57 90250 34.57 Bankrupt $40.57 1/17/2015 66563 120040 75.80 75.80 Bankrupt 300445 6/15/2010 66562 410308 420.03 42679 420.03 Bankrupt $496.05 3/13/2012 28322 435154 367.11 367.11 Bankrupt $696.431 9/14/2012 51485 436445 315.56 315.56 Bankrupt Uncollectible 1/30/2015 67705 30745 $15.81 $15.81 Uncollectible 8/12/2011 50568 60605 $28.76 $ 1.246.441$ 758.47 1 $ 487.97 35847 60580 34314 121255 67.85 54.85 13.00 Deceased 11/19/2014 16009 101125 $763.00 $424.79 338.21 Deceased 10/21/2014 19565 260050 $149.27 $176.22 37.52 Deceased 7/15/2014 24066 90250 $213.74 $40.57 108.70 Deceased 5/15/2014 725.64 Uncollectible 4/25/2011 28511 300445 $146.93 $42.37 104.56 Uncollectible 1/12/2011 42679 320265 $496.05 496.05 Uncollectible 4/13/2011 68041 30700 $1,193.861 $696.431 $497.431 2/7/2011 1 67828 300270 142.56 142.56 Uncollectible 1/27/2011 68053 70851 $296.42 296.42 Uncollectible 4/25/2011 67991 30680 $168.96 $168.96 Uncollectible 12/1/2010 68465 420617 $21.15 $21.15 Uncollectible 8/10/2011 9373 70380 $1,309.90 $584.26 725.64 Uncollectible 4/25/2011 28511 300445 $146.93 $42.37 104.56 Uncollectible 1/12/2011 42679 320265 $496.05 496.05 Uncollectible 4/13/2011 68041 30700 $119.72 $119.72 Uncollectible 2/7/2011 67362 370822 $100.26 $100.26 Uncollectible 8/1/2011 67705 30745 $15.81 $15.81 Uncollectible 8/12/2011 50568 60605 $28.76 $28.76 Uncollectible 6/4/2008 35847 60580 $1,123.38 $1,123.38 Uncollectible 3/19/2008 63665 420327 $273.75 $273.75 Uncollectible 12/30/2008 28749 420386 $176.33 $176.33 Uncollectible 5/19/2008 24045 190330 $170.03 $170.03 Uncollectible 8/18/2008 7049 470105 $216.38 $216.38 Uncollectible 6/20/2008 16835 451015 $25.50 $7.94 17.56 Uncollectible 9/30/2008 58527 420430 $114.49 $114.49 Uncollectible 11/12/2008 39298 420332 $217.21 $217.21 Uncollectible 9/16/2008 66725 350471 $52.91 52.91 Uncollectible 11/21/2008 27538 40095 $35.29 $21.59 13.70 Uncollectible 7/14/2008 51961 30685 $104.07 $104.07 Uncollectible 1/11/2008 15575 80435 $176.77 $176.77 Uncollectible 5/12/2008 22764 120075 $545.51 $538.59 6.92 Uncollectible 8/4/2008 15813 60651 $39.57 $39.57 Uncollectible 11/25/2008 40159 300410 $1,681.20 $1,601.29 79.91 Uncollectible 10/10/2008 57407 420551 $102.11 $102.11 Uncollectible 6/24/2008 15547 130502 $36.04 $36.04 Uncollectible 10/31/2008 42140 370611 $233.69 $188.75 44.94 Uncollectible 9/25/2008 54425 910901 $58.171 $58.171 Uncollectible 1 8/8/2008 51521 1304881 $61.551 $61.551 Uncollectible 1 7/29/2008 38689 60240 $715.07 $687.39 27.68 Uncollectible 10/10/2008 31290 470026 $319.11 $319.11 Uncollectible 3/10/2008 59339 210720 $47.19 $47.19 Uncollectible 9/24/2008 17297 260242 $158.05 $158.05 Uncollectible 9/30/2008 32781 80430 $119.12 $89.66 29.46 Uncollectible 9/17/2008 32781 80435 $205.77 $166.78 38.99 Uncollectible 8/29/2008 $9,854.78 $7,777.48 2077.30 $12,295.08 $9,232.38 $3,062.70 Balances from Noncurrent Customers 3/31/2015 12/31/2014 9/30/2014 Terminated Service 8,245.90 7,924.93 4,763.26 Revenue Recapture 82,168.06 86,938.42 87,672.70 Collection Agency 8,481.78 8,286.15 8,364.93 Total 98,895.74 103,149.50 100,800.89 FIRST AMENDMENT to INTERCONNECT AGREEMENT between NORTHERN BORDER PIPELINE COMPANY and HUTCHINSON UTIITIES COMMISSION This First Amendment (the "Amendment") is made and entered into as of day of April, 2015 between Northern Border Pipeline Company ("Northern Border") and Hutchinson Utilities Commission ("Hutchinson"). Northern Border and Hutchinson shall hereinafter sometimes be referred to individually as a "Party" and collectively as the "Parties." WHEREAS, Hutchinson and Northern Border have an interconnection between Hutchinson's natural gas facilities and the natural gas pipeline facilities of Northern Border including a meter station known as the Trimont Meter Station (the "Meter Station") located on a portion of Northern Border's Compressor Station 13 ("C.S. #13") in Martin County, Minnesota which is governed by an Interconnect Agreement executed on June 30, 2003 (the "Agreement"); and WHEREAS, Hutchinson has requested that Northern Border relocate the insulating gasket referenced in the Agreement resulting in a change of location of the customer valve and the custody transfer point as described in Agreement; and WHEREAS, Northern Border agrees to perform such relocation. NOW THEREFORE, in consideration of the promises and mutual covenants and agreements herein set forth, the Parties agree as follows: Northern Border Work. 1.1 On the terms and subject to the conditions set forth in this Amendment, Northern Border will conduct, or cause to be conducted, the work on or relating to Northern Border's facilities at the Meter Station that Northern Border presently anticipates to be as generally described on Exhibit "A" attached hereto, as such work is more definitively established by Northern Border (such work being hereinafter collectively referred to as the "Northern Border Work"). In conducting the Northern Border Work, Northern Border shall perform, or cause to be performed, all work in accordance with (i) the specifications and standards that are adopted and prescribed from time to time by Northern Border and that are presently referred by Northern Border as the TransCanada Operating Procedures and TransCanada's Engineering Specifications (collectively, the "Standards"), (ii) prudent, sound, and generally accepted pipeline 5365 — Northern Border — Hutchinson First Amendment at Trimont Page 1 of 4 practices ("Industry Practices"), and (iii) all applicable laws, rules, regulations, orders, permits, and authorizations of governmental authorities having jurisdiction ("Applicable Law"). 1.2 Northern Border shall be responsible for obtaining all necessary consents, authorizations and approvals of governmental authorities as are necessary for the Northern Border Work, and Hutchinson will cooperate in all commercially reasonable respects with Northern Border's efforts to obtain the consents, authorizations and approvals of governmental authorities that are necessary for the Northern Border Work. 1.3 Northern Border shall determine when the Northern Border Work shall commence and shall notify Hutchinson in advance that the facilities associated with the Northern Border Work shall be out of service. 1.4 Northern Border shall determine when the Northern Border Work has been completed and shall notify Hutchinson that the facilities associated with the Northern Border Work are ready for service. Upon completion of the Northern Border Work, Northern Border shall provide to Hutchinson as -built drawings, alignment sheets, test records, and other information pertinent to the completion of the Northern Border Work as Hutchinson may reasonably request. 1.5 Notwithstanding the foregoing, Northern Border's obligations to commence and continue the Northern Border Work is conditioned upon (i) the receipt and continuance, on terms satisfactory to Northern Border, of all necessary authorizations and approvals of governmental authorities having jurisdiction with respect to the Northern Border Work, and (ii) the receipt and continuance, on terms satisfactory to Northern Border, of all easements, rights-of-way, licenses, access rights and other property rights as may be required to accomplish the Northern Border Work and to own, operate, and maintain the facilities of Northern Border that are associated with the Northern Border Work. 1.6 The Parties agree that the Northern Border Work satisfactorily resolves any cathodic protection interference that may exist between the Northern Border Interconnect Facilities and the Hutchinson Interconnect Facilities. Except for the agreement of the Parties to investigate and cooperate with each other in the future regarding the cathodic protection of each Parties Interconnect Facilities, the completion of the Northern Border Work fully and completely satisfies, and Hutchinson hereby releases Northern Border, from any obligation or liability Northern Border may have had related to such cathodic protection interference described in this Section 1.6. 5365 — Northern Border — Hutchinson First Amendment at Trimont Page 2 of 4 2. Ownership of Facilities. Each Party is and shall remain the sole owner of its existing facilities and, in Northern Border's case, all facilities incorporated into or acquired in connection with the Northern Border Work, and nothing in this Amendment is intended to be construed as (i) providing to the other Party or anyone else any interest whatsoever in such facilities or (ii) creating any co - ownership, joint venture, partnership or other relationship as a result of this Amendment. Northern Border's facilities incorporated into or acquired in connection with the Northern Border Work shall be incorporated into the Northern Border Interconnect Facilities governed by the terms of the Agreement, and such facilities shall be owned, operated, repaired, and maintained in accordance with the terms of such Agreement. 3. Piping. The first sentence of Section 2.4 of the Agreement is hereby amended and replaced and superseded with the following: Piping will be installed from the side valve to the piping on the meter/control valve and then to the downstream flange of the custody transfer customer valve located in the southeast corner of C.S. #13. 4. Valves. Section 2.6 of the Agreement is hereby amended and replaced and superseded with the following: 2.6 Valves. The side valve and the customer valve will be equipped with actuators to isolate the station. Northern Border's Gas control will have remote access to activate both valves. 5. Notices. Section 33 of the Agreement is hereby added as the following: 33. Notices. All notices and other communication ("Notices") given or made pursuant to this Agreement will be in writing and sent by facsimile transmission, overnight courier service, personal delivery, mail or electronic mail ("e-mail") to the persons and at the addresses for the Parties noted below, or to such other address(es) or number(s) for a Party as such Party may designate by prior notice given in accordance with this provision to the other Party. Notices will be deemed duly given: (i) when sent by facsimile transmission, provided that the sender has received electronic or voice confirmation of the recipient's receipt of such transmission; (ii) if sent by overnight or international courier service, when receipt by the recipient is confirmed by such service; (iii) if mailed or delivered by personal delivery, when received by the recipient; or (iv) when sent by e-mail, provided that the sender has received electronic or voice confirmation that the recipient has read such transmission (e.g., a "read receipt" or a reply). 5365 — Northern Border — Hutchinson First Amendment at Trimont Page 3 of 4 All Notices to be sent to Northern Border shall be addressed and delivered to: Northern Border Pipeline Company P. O. Box 2446 Houston, TX 77252-2446 Attention: Business Development Facility Contracts Fax Number: (832) 320-5555 Email: Facility_Contracts@transcanada.com All Notices to be sent to Hutchinson shall be addressed and delivered to: Hutchinson Utilities Commission 225 Michigan Street Southeast Hutchinson, Minnesota 55350-1940 Attention: Mr. John Webster Fax Number: (320) 587-4721 Email: JWebster@ci.hutchinson.mn.us IN WITNESS THEREOF, the Parties have caused this Amendment to be executed by their duly authorized representatives effective as of the date first written above. NORTHERN BORDER PIPELINE COMPANY By: TransCanada Northern Border Inc., its Operator By: By: Name: Name: Title: Title: By: Name: Title: HUTCHINSON UTILITIES 5365 —Northern Border— Hutchinson First Amendment at Trimont Page 4 of 4 Exhibit "A" to Northern Border Pipeline Company ("Northern Border") and Hutchinson Utilities Commission ("Hutchinson") First Amendment Scope of Northern Border Work as described in Section 1: Northern Border will remove the existing flange and insulating gasket at the Meter Station outlet and replace the existing flange with a new flange without an insulating gasket. ii. Northern Border will install a new flange and insulating gasket at the customer valve located in the southeast corner of the C. S. #13 yard. 5365 — Northern Border— Hutchinson Amendment at Trimont Exhibit "A" Page 1 HUC — TRANSALTA Confirmation Agreement for Energy This Confirmation Agreement (the "Agreement") for the sale of Energy (as defined below and referenced as the "Transaction") from Hutchinson Utilities Commission ("HUC"), a utility owned by the City of Hutchinson, Minnesota, to TransAlta, is entered into effective as of May 1, 2015. This Agreement outlines the terms agreed upon by both parties (the "Parties"). The Transaction shall be governed by the terms and conditions of the North American Energy Marketers Association ("NAEMA") Capacity and Energy Tariff, effective February 22, 2011 (the "NAEMA Tariff'), as modified and supplemented by this Agreement. Product: MISO 7x24, physical, financial scheduled toll Term: 56 consecutive months beginning at 00:01 on May 1, 2015 and terminating at 23:59 on Dec 31, 2019. Quantity: 40,000 kw Contract Price: The Contract Price will consist of a monthly energy charge in United States dollars per kilowatt -month ("$&W -month") multiplied by the Quantity. May 2015 -December 2017 = $0.86/kw-month January 2018 -December 2018=$0.89/kw-month January 2019 -December 2019=$0.91/kw-month Energy Charge: The Energy Charge will contain two components: an Indexed Energy Component in $/MWh and a Fixed Energy Component in $/MWh. The Indexed Energy Component will be determined by a fuel cost component equal to the cost of natural gas as posted in Platts Gas Daily, Daily Price Survey for the Flow Date for Northern -Ventura in dollars per million British thermal units ("$/MMBTU") daily settled midpoint plus a transportation charge, multiplied by deemed heat rate for the Unit. The energy charge for each MWh will be calculated as follows: Energy Charge = Indexed Energy Component + Fixed Energy Component Where: Indexed Energy Component (40MW) _ (Northern -Ventura Daily Index Price in $/MMBTU + $0.15 / MMBTU) x 11.0 MMBTU/MWh Fixed Energy Component = $7.00 / MWh Page 1 of 4 Delivery Point: The Delivery Point will be the Midcontinent Independent System Operator ("MISO") commercial pricing ("CP") Node designated as "GRE.HUC." Alternate Delivery Point(s) may be used by mutual agreement. Scheduling: Energy may be scheduled at any time with at least a two hour advance notice. TRANSALTA has the right to cancel an existing schedule with at least a two hour notice prior to the beginning of the schedule. Other schedule changes can be made subject to mutual agreement between the parties. HUC will make reasonable efforts to accommodate a shorter advance notice period by TRANSALTA. Delivered amount shall be 40 MW's through the term of the Agreement. • For the delivered amount of 40 MW's the minimum run time required is two hours. Schedules will be in the form of a MISO Financial Bilateral Schedule ("FinSched") which transfers the financial responsibility for energy between the Parties or other similar instrument in the event of changes in the MISO transaction options. FinScheds will be subject to the Real Time Locational Marginal Price ("LMP"). TRANSALTA will be responsible- for paying MISO Settlement charges arising at or after the receipt of energy by TRANSALTA via FinScheds. HUC will be responsible for paying all other MISO and MISO-related charges, including charges related to deviations between actual generation operation and MISO-approved schedules or generation signals. Since the energy payments under this agreement will be in the form of a MISO FinSched between TRANSALTA and HUC, HUC will have the sole responsibility for the physical scheduling of any energy with MISO. If TRANSALTA submits the FinSched in the MISO real- time market, TRANSALTA will be responsible for paying any incremental revenue sufficiency guarantee ("RSG") charges associated with the generation operated on behalf of TRANSALTA by HUC in compliance with the TRANSALTA schedule, but HUC shall remain responsible for any RSG charges resulting from any deviations by HUC from the TRANSALTA schedule. Transmission and MISO Charges: TRANSALTA will be responsible for all delivery and related charges associated with moving the energy from the agreed upon delivery point. HUC will be responsible for all delivery and related charges associated with delivering the energy to the delivery point. Unforeseen Changes: Should unforeseen and material changes in the MISO Tariff or in the laws or regulations applicable to the operation of the Unit or either Party's performance of the Transaction render the performance of this Agreement commercially impracticable for either Party, either Party has the right to negotiate with commercially reasonable efforts to share or transfer all or a portion of responsibility for those costs, including changes in environmental law. If mutual agreement cannot be reached by the Parties within 90 days, either HUC or Page 2 of 4 TRANSALTA shall have the right to terminate this Agreement upon written notice, provided that the notice is given and the termination occurs 60 days or more prior to the filing deadline for the next MISO planning year. The Parties also agree to cooperate to effect changes to this Agreement from time to time that may be reasonably necessary to conform the Transaction to the provisions of the MISO Tariff applicable to the Transaction. Special Conditions: 1. Governing Agreement: The commercial term`ssand Conditions of the NAEMA Tariff shall apply to this Agreement; provided, however that , to et_he rextejit that there is an inconsistency between the terms and conditions of this Agreement and the NAEMA Tariff, the applicable terms and conditions of this Agreement shall govern. Terms used but not defined herein shall have the meanings ascribed to them in the NAEMA Tariff. Capitalized terms used but not defined herein _or .in,�the NAEMA Tariff shall have the meanings ascribed to such terms in the MISO Tariff or Rules. 2. Warranties and Representations HUC warrants and represents that it is a utility owned and operated by a;governmental entity. TRANSALTA warrants and represents that it is a FERC licensed Power`.Marketer and MISO Market Participant. Each Party represents that it is engaging in the Transaction only for purposes of its need to manage supply and/or price risks arising from its existing public service obligations to physically generate, transmit, and/or deliver electric energy service to its respective customers, and that it is duly authorized and legally eligible to participate in the Transaction. The Parties acknowledge their understanding that the Transaction accordingly should be exempt from any reporting obligations under the Dodd -Frank Act regulations of the United .States Commodity Futures Trading Commission ("CFTC"), pursuant to and subject to the exemption Order issued by the Commission on May 28, 2013, and published at 78 Fed. Reg. 19670 (April 2, 2013.) Page 3 of 4 This Agreement is approved by the parties as witnessed by the signatures below. Signatures: RUC CZL- Name: JEREMY CARTER Name: Title: GENERAL MANAGER Title: Vice President Trading and Asset Optimization Date: 5�—,,?e —�r Date: HUC Author' atioi A roval By:")M. Name: Title: i lytMT Date: A `Il• Page 4 of 4