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03-28-2012 HUCMMINUTES Regular Meeting — Hutchinson Utilities Commission Wednesday, March 28, 2012 Call to order — 3:00 p.m. President Bordson called the meeting to order. Members present: President Dwight Bordson, Vice President Craig Lenz; Secretary Leon Johnson; Commissioner Monty Morrow; Commissioner Anthony Hanson; Attorney Marc Sebora; General Manager Michael Kumm. 1. Approve Minutes of February 29, 2012 Regular Meeting The minutes of the February 29, 2012 regular meeting were reviewed. The Board proposed to change the verbiage in agenda item 8 from `in a coalition' to `MMUA's efforts'. After discussion, a motion was made by Secretary Johnson, seconded by Commissioner Hanson to approve the minutes with proposed changes to agenda item 8. Motion was unanimously carried. 2. Guest — Paul Harvego of Conway, Deuth & Schmiessing — Approve Financial Audit for 2011 Paul Harvego of Conway, Deuth & Schmiessing was welcomed to the meeting. Mr. Harvego presented the 2011 financial audit. HUC is improving cash position while keeping rates stable. Mr. Harvego commended the staff and GM Kumm for a great job in 2011. A motion was made by Vice President Lenz, seconded by Commissioner Morrow to approve the 2011 financial audit. Motion was unanimously carried. (Audit attached.) 3. Ratify Payment of Bills for February 2012 The February 2012 payables were discussed. A motion was made by Vice President Lenz, seconded by Commissioner Hanson to ratify the payment of bills in the amount of $3,859,492.05 (detailed listing in payables book). Motion was unanimously carried. 4. Approve Financial Statements /Budget Year to Date GM Kumm presented the February 2012 financial statements /budget year -to -date. After discussion, a motion was made by Secretary Johnson, seconded by Vice President Lenz to approve the financial statements /budget year -to -date. Motion was unanimously carried. 5. Approve Strategic Plan — Mission, Values and Vision Statements: Two — Leadership and Governance; and Three — Financial Stability GM Kumm presented Vision Statement Two — Leadership and Governance; and Three — Financial Stability, of the HUC Strategic Plan Mission, Values and Statements. After feedback from the Board at a previous commission meeting, GM Kumm added verbiage to Vision Statement Three — Financial Stability to read "Hutchinson Utilities Commission will attain financial stability, while at the same time pursue courses of action to ensure rate stability. Both financial and rate stability will be accomplished by investing in income producing opportunities. After discussion, a motion was made by Commissioner Hanson, seconded by Secretary 1 Johnson to approve Vision Statement Two — Leadership and Governance; and Three — Financial Stability, of the HUC Strategic Plan Mission, Values and Statements with the added verbiage to Vision Statement Three — Financial Stability. Motion was unanimously carried. (Vision Statements attached.) 6. Discuss Electric Large General Service — Minimum Monthly Charge GM Kumm discussed the HUC electric large general service — minimum monthly charge policy as it relates to a letter received by Marshall Concrete Products requesting HUC to change this policy. GM Kumm explained there are five to six customers who are affected by this policy and he recommends keeping the existing policy and rates. He further explained it is not unusual for utility companies to have a minimum charge. GM Kumm sent a letter of response to Marshall Concrete Products. A motion was made by Secretary Johnson, seconded by Vice President Lenz to deny Marshall Concrete's request and reaffirm the present electric large general service - minimum monthly charge policy. Motion was unanimously carried. (Marshall Letter and Letter of Response attached.) 7. Approve United Farmers Cooperative's Natural Gas Firm Transportation Capacity Agreement and Interconnect Agreement John Webster presented the United Farmer's Cooperative's Natural Gas Firm Transportation Capacity Agreement and Interconnect Agreement allowing HUC to transport natural gas off HUC's pipeline to fuel their new plant in Brownton. The Board commended John on well written agreements. After discussion, a motion was made by Commissioner Morrow, seconded by Commissioner Hanson to approve both the United Farmers Cooperative's Natural Gas Firm Transportation Capacity Agreement and Interconnect Agreement. Motion was unanimously carried. (Agreements attached.) 8. Review Policies and Requirements Booklet GM Kumm presented policies and requirements booklet, sections: meter testing — electric; right -of -way clearing — electric; tree removal or trimming — electric; locating customer's underground utilities - electric. This is part of HUC's policy review and no changes are requested at this time. 9. Review Exempt and Non - Exempt Handbooks GM Kumm presented exempt and non - exempt handbooks, sections: introduction; purpose of this handbook; and definitions. This is also a part of HUC's policy review and no changes are requested at this time. 10. Declare April 11, 2012 Breakfast Meeting at 7:00 a.m. as an Open Meeting A motion was made by Vice President Lenz, seconded by Commissioner Hanson to declare the HUC Open House scheduled for April 11, 2012, at 7:00 a.m. as an open meeting. Motion was unanimously carried. 11. Approve Requisition #4833 for Plant 1 Station Power Conductor Dave Hunstad presented Requisition #4833 for Plant 1 Station Power Conductor. After discussion, a motion was made by Commissioner Hanson, seconded by Commissioner Morrow to approve requisition #4833 for Plant 1 Station Power Conductor. Motion was unanimously carried. (Requisition attached.) 2 12. Division Reports Finance — Jared Martig • Update on the bond refinancing. Gas — John Webster • Sent specifications and drawings to contractors to bid on replacing the last three casings in town. Business — Jan Sifferath • Working on devising a deceased customer policy. Electric — Dave Hunstad • Steve Lancaster in Finland for new engine factory acceptance testing. • Concrete work being completed at plant 1. 13. Legal Update Attorney Sebora gave an update on his contacting legislation regarding assessing unpaid gas and electric bills to the property. Unfinished Business None New Business • Discuss Modified Timing Model for Natural Gas Purchase GM Kumm handed out a timing model explaining both six and nine year gas purchases were reviewed and the nine year model was chosen. GM Kumm stated three year purchases will resume after the nine year purchases are complete. • Discuss Natural Gas Purchases for Electric Generation GM Kumm explained HUC purchased a 2 year strip for months January 2013 and January 2014; and a 3 month strip for Summer 2013 and Summer 2014. • Discuss Potential Capacity Sale GM Kumm explained a potential energy sale ended up turning into a potential capacity sale. GM Kumm will continue working on this deal. • Discuss Rate Study, Timing of it, and Purpose GM Kumm explained that SAIC is completing the rate study and will present it in April. HUC has a rate study done approximately every five years and views it as a management study. HUC's purpose of conducting a rate study is to get an independent opinion and use it as a planning tool to take a proactive approach towards management of Hutchinson Utilities Commission. 3 • Discuss Joint Meeting with City President Bordson will be meeting with Mayor Steve Cook regarding discussion items for this meeting. There being no further business, a motion was made by Vice President Lenz, seconded by Secretary Johnson to adjourn the meeting at 5:07 p.m. Motion was unanimously carried. ATTEST: Dwight Bordson, President 12 Leon Johnson, Secretary MINUTES Regular Meeting — Hutchinson Utilities Commission Wednesday, March 28, 2012 Call to order — 3:00 p.m. President Bordson called the meeting to order. Members present: President Dwight Bordson, Vice President Craig Lenz; Secretary Leon Johnson; Commissioner Monty Morrow; Commissioner Anthony Hanson; Attorney Marc Sebora; General Manager Michael Kumm. 1. Approve Minutes of February 29, 2012 Regular Meeting The minutes of the February 29, 2012 regular meeting were reviewed. The Board proposed to change the verbiage in agenda item 8 from 'in a coalition' to 'MMUA's efforts'. After discussion, a motion was made by Secretary Johnson, seconded by Commissioner Hanson to approve the minutes with proposed changes to agenda item 8. Motion was unanimously carried. 2. Guest — Paul Harvego of Conway, Deuth & Schmiessing — Approve Financial Audit for 2011 Paul Harvego of Conway, Deuth & Schmiessing was welcomed to the meeting. Mr. Harvego presented the 2011 financial audit. HUC is improving cash position while keeping rates stable. Mr. Harvego commended the staff and GM Kumm for a great job in 2011. A motion was made by Vice President Lenz, seconded by Commissioner Morrow to approve the 2011 financial audit. Motion was unanimously carried. (Audit attached.) 3. Ratify Payment of Bills for February 2012 The February 2012 payables were discussed. A motion was made by Vice President Lenz, seconded by Commissioner Hanson to ratify the payment of bills in the amount of $3,859,492.05 (detailed listing in payables book). Motion was unanimously carried. 4. Approve Financial Statements /Budget Year to Date GM Kumm presented the February 2012 financial statements /budget year -to -date. After discussion, a motion was made by Secretary Johnson, seconded by Vice President Lenz to approve the financial statements /budget year -to -date. Motion was unanimously carried. 5. Approve Strategic Plan — Mission, Values and Vision Statements: Two — Leadership and Governance; and Three — Financial Stability GM Kumm presented Vision Statement Two — Leadership and Governance; and Three — Financial Stability, of the HUC Strategic Plan Mission, Values and Statements. After feedback from the Board at a previous commission meeting, GM Kumm added verbiage to Vision Statement Three — Financial Stability to read "Hutchinson Utilities Commission will attain financial stability, while at the same time pursue courses of action to ensure rate stability. Both financial and rate stability will be accomplished by investing in income producing opportunities. After discussion, a motion was made by Commissioner Hanson, seconded by Secretary 1 Johnson to approve Vision Statement Two — Leadership and Governance; and Three — Financial Stability, of the HUC Strategic Plan Mission, Values and Statements with the added verbiage to Vision Statement Three — Financial Stability. Motion was unanimously carried. (Vision Statements attached.) 6. Discuss Electric Large General Service — Minimum Monthly Charge GM Kumm discussed the HUC electric large general service — minimum monthly charge policy as it relates to a letter received by Marshall Concrete Products requesting HUC to change this policy. GM Kumm explained there are five to six customers who are affected by this policy and he recommends keeping the existing policy and rates. He further explained it is not unusual for utility companies to have a minimum charge. GM Kumm sent a letter of response to Marshall Concrete Products. A motion was made by Secretary Johnson, seconded by Vice President Lenz to deny Marshall Concrete's request and reaffirm the present electric large general service - minimum monthly charge policy. Motion was unanimously carried. (Marshall Letter and Letter of Response attached.) 7. Approve United Farmers Cooperative's Natural Gas Firm Transportation Capacity Agreement and Interconnect Agreement John Webster presented the United Farmer's Cooperative's Natural Gas Firm Transportation Capacity Agreement and Interconnect Agreement allowing HUC to transport natural gas off HUC's pipeline to fuel their new plant in Brownton. The Board commended John on well written agreements. After discussion, a motion was made by Commissioner Morrow, seconded by Commissioner Hanson to approve both the United Farmers Cooperative's Natural Gas Firm Transportation Capacity Agreement and Interconnect Agreement. Motion was unanimously carried. (Agreements attached.) 8. Review Policies and Requirements Booklet GM Kumm presented policies and requirements booklet, sections: meter testing — electric; right -of -way clearing — electric; tree removal or trimming — electric; locating customer's underground utilities - electric. This is part of HUC's policy review and no changes are requested at this time. 9. Review Exempt and Non - Exempt Handbooks GM Kumm presented exempt and non - exempt handbooks, sections: introduction; purpose of this handbook; and definitions. This is also a part of HUC's policy review and no changes are requested at this time. 10. Declare April 11, 2012 Breakfast Meeting at 7:00 a.m. as an Open Meeting A motion was made by Vice President Lenz, seconded by Commissioner Hanson to declare the HUC Open House scheduled for April 11, 2012, at 7:00 a.m. as an open meeting. Motion was unanimously carried. 11. Approve Requisition #4833 for Plant 1 Station Power Conductor Dave Hunstad presented Requisition #4833 for Plant 1 Station Power Conductor. After discussion, a motion was made by Commissioner Hanson, seconded by Commissioner Morrow to approve requisition #4833 for Plant 1 Station Power Conductor. Motion was unanimously carried. (Requisition attached.) E 12. Division Reports Finance — Jared Martig • Update on the bond refinancing. Gas — John Webster • Sent specifications and drawings to contractors to bid on replacing the last three casings in town. Business — Jan Sifferath • Working on devising a deceased customer policy. Electric — Dave Hunstad • Steve Lancaster in Finland for new engine factory acceptance testing. • Concrete work being completed at plant 1. 13. Legal Update Attorney Sebora gave an update on his contacting legislation regarding assessing unpaid gas and electric bills to the property. Unfinished Business None New Business Discuss Modified Timing Model for Natural Gas Purchase GM Kumm handed out a timing model explaining both six and nine year gas purchases were reviewed and the nine year model was chosen. GM Kumm stated three year purchases will resume after the nine year purchases are complete. • Discuss Natural Gas Purchases for Electric Generation GM Kumm explained HUC purchased a 2 year strip for months January 2013 and January 2014; and a 3 month strip for Summer 2013 and Summer 2014. • Discuss Potential Capacity Sale GM Kumm explained a potential energy sale ended up turning into a potential capacity sale. GM Kumm will continue working on this deal. • Discuss Rate Study, Timing of it, and Purpose GM Kumm explained that SAIC is completing the rate study and will present it in April. HUC has a rate study done approximately every five years and views it as a management study. HUC's purpose of conducting a rate study is to get an independent opinion and use it as a planning tool to take a proactive approach towards management of Hutchinson Utilities Commission. 3 • Discuss Joint Meeting with City President Bordson will be meeting with Mayor Steve Cook regarding discussion items for this meeting. There being no further business, a motion was made by Vice President Lenz, seconded by Secretary Johnson to adjourn the meeting at 5:07 p.m. Motion was unanimously carried. Leon Johnson, Secretary ATTEST: Dwight lffordson, President 0 HUTCHINSON UTILITIES COMMISSION AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2011 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota HUTCHINSON UTILITIES COMMISSION TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2011 ORGANIZATIONAL DATA 1 INDEPENDENT AUDITOR'S REPORT 2 -3 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis 4 -8 BASIC FINANCIAL STATEMENTS Balance Sheet 9 Statement of Revenues, Expenses and Changes in Net Assets 10 Statement of Cash Flows 11 -12 Notes to the Financial Statements 13 -22 SUPPLEMENTARY INFORMATION Combining Balance Sheet 23 Combining Statement of Revenues and Expenses 24 Balance Sheet - Electric Division 25 Detailed Statement of Revenues and Expenses - Budget and Actual - Electric Division 26 -28 Balance Sheet - Natural Gas Division 29 Detailed Statement of Revenues and Expenses - Budget and Actual - Natural Gas Division 30 -32 COMPLIANCE SECTION Independent Auditor's Report on Minnesota Legal Compliance 33 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 34 -35 HUTCHINSON UTILITIES COMMISSION ORGANIZATIONAL DATA YEAR ENDED DECEMBER 31, 2011 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 at December 31, 2011, and their official titles were as follows: Robert Hantge President Paul Nordin Vice President Dwight Bordson Secretary Donald Walser Commissioner Craig Lenz Commissioner CDS C;c>nway, Dcuch '" Schmi sing,eu.r, INDEPENDENT AUDITOR'S REPORT Members of the Hutchinson Utilities Commission Hutchinson, Minnesota 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, 2011, which collectively comprise the Commission's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Hutchinson Utilities Commission's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year partial comparative information has been derived from the Commission's 2010 financial statements and, in our report dated March 30, 2011, we expressed an unqualified opinion on the respective financial statements. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the 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, and the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of December 31, 2011, and the respective changes in financial position, and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated March 28, 2012, on our consideration of Hutchinson Utilities 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 2 Members.American institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants Hutchinson Utilities Commission Hutchinson, Minnesota Page 2 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. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise Hutchinson Utilities Commission's financial statements as a whole. The supplementary information identified in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The Organizational Data page 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. ", &A& i &Am,ieaint, PLLP CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 28, 2012 REQUIRED SUPPLEMENTARY INFORMATION HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Overview of the Financial Statements The Hutchinson Utilities Commission (HUC) 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 basic 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. Basic Financial Statements Required 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 Balance Sheet includes all of Hutchinson Utilities Commission's assets, liabilities and net assets and provides information regarding the nature and amount of investments in various assets and obligations to HUC's creditors. They also provide the basis for computing rate of return, evaluating the capital structure, and determining the liquidity and financial flexibility of Hutchinson Utilities Commission. The Statement of Revenues, Expenses and Changes in Net Assets, 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 Hutchinson Utilities Commission's profitability and credit worthiness. The Statement of Cash Flows provide information about Hutchinson Utilities 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 utility plant increased to $119,974,190 in 2011 from $117,393,346 in 2010. The plant investment increase in 2011 consisted primarily of ordinary additions to generating plant, distribution systems, and other equipment purchases. Also, in 2010, HUC had $793,825 construction in progress for the downtown plant transformer, $3,044 construction in progress for natural gas mains to the nursing home, and $37,855 construction in progress for a new truck that were all completed in 2011. In 2011, HUC had $2,293,541 construction in progress for the downtown plant engine project and $18,600 construction in progress for other miscellaneous items. Operating revenues increased by $594,616 while operating expenses decreased by $124,576 from 2010. Operating income increased $719,192 from 2010. The primary increase in revenue was due to increased electrical sales of $698,019 which offset the decrease in natural gas sales of $111,154. The primary area of the decrease in expenses was due to a decrease of $234,675 for contributions to the City of Hutchinson, $158,505 being from the electric division and $76,170 from the natural gas division. Additionally, there was a decrease of $96,231 in sales expenses. Smaller items which incurred additional expenses can be attributed to salary/benefit increases and outside services employed. 4 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Significant Transactions In 2011, HUC transferred $1,248,613 to the City of Hutchinson. This transfer represents 2.75% of HUC audited operating revenue for 2009, and it also includes $143,000 to pay the City of Hutchinson's roadway lighting. Condensed Financial Statements A summary of the Balance Sheet is presented in Table 1. Net Utility Plant Restricted Assets Current Assets Other Assets Total Assets Current Liabilities Long -Term Liabilities Total Liabilities Net Assets Table 1 Condensed Balance Sheet Invested in Utility Plant, Net of Related Debt 51,084,880 Increase 2011 2010 (Decrease) $ 73,185,826 $ 72,526,736 $ 659,090 380,755 349,212 31,543 18,115,822 18,018,997 96,825 2,491,276 3,268,530 777,254 94,173,679 94,163,475 10,204 $ 5,264,348 $ 5,516,836 $ (252,488) 23,969,776 26,075,446 (2,105,670) 29,234,124 31,592,282 (2,358,158) Invested in Utility Plant, Net of Related Debt 51,084,880 49,326,857 1,758,023 Restricted 380,755 349,212 31,543 Unrestricted 13,473,920 12,895,124 578,796 Total Net Assets 64,939,555 62,571,193 2,368,362 Total Liabilities and Net Assets $ 94,173,679 $ 94,163,475 $ 10 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Condensed Financial Statements (Cont'd) A summary of the Statement of Revenues, Expenses and Changes in Net Assets is presented in Table 2. Table 2 Condensed Statement of Revenues, Expenses and Changes in Net Assets Increase 2011 2010 (Decrease) Operating Revenues $ 41,930,038 $ 41,335,422 $ 594,61 Operating Expenses Cost of Operations Depreciation Expense Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Change in Net Assets Net Assets, Beginning of Year Net Assets, End of Year Budgetary Highlights 34,577,443 34,734,137 (156,694) 3,326,841 3,294,723 32,118 37,904,284 38,028,860 (124,576 4,025,754 3,306,562 719,192 (1,657,392) (2,013,603) 356,211 2,368,362 1,292,959 1,075,403 62,571,193 61,278,234 1,292,959 $ 64,939,555 $ 62,571,193 $ 2 The Hutchinson Utilities 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 2011 Budget Analysis is presented in Table 3. 1: HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Budgetary Highlights (Cont'd) Operating Revenues Operating Expenses Cost of Operations Depreciation Expense Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Change in Net Assets Net Assets, Beginning of Year Net Assets, End of Year Table 3 Condensed Budget Analysis 2011 Budget $ 43,316,629 2011 Actual 41,930,038 36,072,229 34,577,443 3,366,000 3,326,841 39,438,229 37,904,284 Over (Under $ (1,386,591) (1,494,786) 39,159) (1,533,945)1 3,878,400 4,025,754 147,354 (1,903,437) (1,657,392) 246,045 1,974,963 2,368,362 393,399 62,571,193 62,571,193 $ 64,546,156 $ 64,939,555 $ 393,399 Actual operating revenues were $1,386,591 under budgeted revenues. This is mainly due to a decrease of $1,348,220 in the residential, commercial, and industrial retail natural gas sales and an increase in gas transportation contract of $24,187. The electric division also experienced a negative variance of $62,558. Overall the actual operating revenues had a negative variance of approximately 3.3 %. This was mostly caused by a depressed economy. Operating expenses were $1,533,945 lower than budgeted expense. This is mainly due to lower natural gas expenses associated with the lower retail natural gas sales and also lower purchased power expense. In 2007, HUC established a formula approach to the Payment in Lieu of Taxes (PILOT). The formula is 2.75% of the audited operating revenue from the previous year. In addition, we are also counting monies paid to the City for the Roadway Lighting as a PILOT. For calendar year 2007, HUC 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. Finally, HUC "bundled" its wholesale electric rates beginning in July 2007. This was done in a fashion whereby the operating income generated from the sales for resale was applied to the wholesale electric rates charged to its retail customers. rl HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2011 Capital Assets and Lona -Term Debt Activit Hutchinson Utilities Commission investment in utility plant increased to $119,974,190 in 2011 from $117,393,346 in 2010. Plant additions /expenditures included approximately $1,700,000 Electric Distribution Plant, $500,000 Natural Gas Distribution Plant and $200,000 toward a combination of land assessments, power generated equipment, heavy machinery, transportation vehicles, and communication equipment. At year -end, the Commission had $22,510,000 in bonds outstanding. Refer to Note 7 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 2012 budget, rates, and fees that will be charged to the users. Of particular significance for 2007 was the City and also HUC 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, HUC began accounting for the General Funds Transfer like a Payment in Lieu of Taxes (PILOT). This was done so that HUC 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 2011 and will continue into 2012. In addition, HUC "bundled" its electric wholesale rate to its retail customers. What this means is the operating income HUC 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. Finally, in 2012, the HUC electric division will realize $600,000 for a capacity contract sale to the Southern Minnesota Municipal Power Agency. 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. H. BASIC FINANCIAL STATEMENTS HUTCHINSON UTILITIES COMMISSION BALANCE SHEET DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2010 ASSETS Current Assets Cash and Investments Accounts Receivable (Net of Allowance for Doubtful Accounts of $75,985 and $79,928, Respectively) Inventory Sales Tax Receivable Prepaid Expenses Total Current Assets Noncurrent Assets Restricted Assets Cash and Investments Other Assets Bond Discount MIRES Agreement Total Other Assets Utility Plant Assets, Not Being Depreciated Assets, Net of Depreciation Net Utility Plant Total Noncurrent Assets Total Assets LIABILITIES AND NET ASSETS 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 Assets Invested in Utility Plant, Net of Related Debt Restricted Unrestricted Total Net Assets Total Liabilities and Net Assets See Accompanying Notes to the Financial Statements 9 2011 2010 $ 13,122,915 $ 12,457,600 3,331,171 3,933, 787 1,513,490 1,527,860 118,708 69,857 29,538 29,893 18,115,822 18,018,997 380,755 349,212 409,054 440,121 2,082,222 2,828,409 2,491,276 3,268,530 6,902,428 5,340,865 66,283,398 67,185,871 73,185,826 72,526,736 64,939,555 62,571,193 76,057,857 76,144,478 $ 94,173,679 $ 94,163,475 $ 2,124,228 $ 2,037,831 2,493,152 2,958,270 303,342 254,470 81,036 84,567 262,590 181,698 5,264,348 5,516,836 23,969,776 26,075,446 29,234,124 31,592,282 51,084,880 49,326,857 380,755 349,212 13,473,920 12,895,124 64,939,555 62,571,193 $ 94,173,679 $ 94,163,475 HUTCHINSON UTILITIES COMMISSION STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 NONOPERATING REVENUES (EXPENSES) Interest Income 2011 2010 OPERATING REVENUES 14,422 26,757 Electric Energy Sales $ 27,401,687 $ 26,703,668 Natural Gas Sales 12,397,729 12,508,883 Other Operating Revenues 2,130,622 2,122,871 Total Operating Revenues 41,930,038 41,335,422 OPERATING EXPENSES (31,067) (31,067) Production (847) (794) Operations 2,757,855 2,769,670 Maintenance 325,634 357,214 Purchased Power /Gas 24,469,627 24,446,875 Other Power Supply 334,033 348,154 Transmission $ 64,939,555 $ 62,571,193 Operations 225,326 230,210 Maintenance 15,460 27,362 Distribution Operations 924,972 853,951 Maintenance 418,607 387,582 Customer Accounts Expense 421,996 448,672 Sales Expense 227,685 323,916 Administrative and General 3,207,636 3,057,243 Depreciation 3,326,841 3,294,723 Contribution to City of Hutchinson 1,248,613 1,483,288 Total Operating Expenses 37,904,284 38,028,860 Operating Income (Loss) 4,025,754 3,306,562 NONOPERATING REVENUES (EXPENSES) Interest Income 55,734 61,320 Merchandise and Contract Work, Net 14,422 26,757 Miscellaneous Income 29,988 598,745 Gain (Loss) on Disposal of Assets 157,997 (188,259) Bond Service Fees (1,850) (1,850) Amortization of Development Study (725,078) (1,299,176) Amortization of Bond Discount and Issuance Costs (31,067) (31,067) Interest Expense - Customer Deposits (847) (794) Interest Expense - Bonds (1,156,691) (1,179,279) Total Nonoperating Revenues (Expenses) (1,657,392) (2,013,603) Change in Net Assets 2,368,362 1,292,959 NET ASSETS, BEGINNING OF YEAR 62,571,193 61,278,234 NET ASSETS, END OF YEAR $ 64,939,555 $ 62,571,193 See Accompanying Notes to the Financial Statements 10 HUTCHINSON UTILITIES COMMISSION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers $ 40,402,032 $ 39,252,257 Payments Received from Other Sources 2,081,771 2,193,969 Payments to Suppliers (30,964,937) (31,639,886) Payments to Employees (3,932,526) (3,810,911) Net Cash Provided (Used) by Operating Activities 7,586,340 5,995,429 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Other Noncapital Income 44,410 625,502 Development Study Income 21,109 328,606 Other Noncapital Expenses (847) (794) Net Cash Provided (Used) by Noncapital Financing Activities 64,672 953,314 CASH FLOWS FROM CAPITAL AND CAPITAL - RELATED FINANCING ACTIVITIES Additions to Utility Plant (3,827,934) (2,390,554) Principal Payments on Long -Term Debt (2,019,882) (1,734,475) Bond Service Fees (1,850) (1,850) Proceeds from Sale of Assets 23,642 Proceeds from Debt Issuance 228,420 Interest Paid on Long -Term Debt (1,160,222) (1,182,231) Net Cash Provided (Used) by Capital and Capital - Related Financing Activities (7,009,888) (5,057,048) CASH FLOWS FROM INVESTING ACTIVITIES Interest Income 55,734 61,320 Net Increase (Decrease) in Cash and Cash Equivalents 696,858 1,953,015 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,806,812 10,853,797 CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,503,670 $ 12,806,812 RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets - Cash and Investments $ 13,122,915 $ 12,457,600 Restricted Assets - Cash and Investments 380,755 349,212 Total Cash and Cash Equivalents $ 13,503,670 $ 12,806,812 See Accompanying Notes to the Financial Statements 11 HUTCHINSON UTILITIES COMMISSION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 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 Accounts Receivable Inventory Sales Tax Receivable Deferred Costs Prepaid Expenses Increase (Decrease) in Accounts Payable Customer Deposits Accrued Expenses Compensated Absences Net Cash Provided (Used) by Operating Activities See Accompanying Notes to the Financial Statements 12 2011 2010 $ 4,025,754 $ 3,306,562 3,326,841 3,294,723 602,616 39,706 14,370 (106,003) (48,851) 71,098 55,396 355 13,476 (465,118) (806,108) 48,872 49,400 80,892 47,235 609 29,944 $ 7,586,340 $ 5,995,429 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Hutchinson Utilities Commission (Commission), a fund of the City of Hutchinson, Minnesota, have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard - setting body for establishing governmental accounting and financial reporting principles. Proprietary funds and similar component units apply Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board (APB) opinions issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. The more significant of the government's accounting policies are described below. A. BASIS OF PRESENTATION - FUND ACCOUNTING 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 assets, 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 controlled. The operations of the Commission are recorded in the following fund type: Proprietary Fund Type: Enterprise Fund - The Enterprise 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. B. BASIS OF ACCOUNTING 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. 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. C. 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 generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Commission's financial statements for the year ended December 31, 2010, from which the partial information was derived. 13 NOTE 1 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) D. UTILITY PLANT AND DEPRECIATION Utility plant assets, both tangible and intangible, are recorded at cost. The cost of additions to utility plant includes contracted work, direct labor, materials and construction period interest on long -term debt. Repairs, replacement, and the renewal of items determined to be less than units of property are charged to maintenance. Depreciation of utility plant 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 E. CASH AND CASH EQUIVALENTS Cash balances of the Commission are invested, to the extent available, in allowable cash management accounts and with an escrow agent. For purposes of the Statement of Cash Flows, the Commission considers cash and cash equivalents to include amounts in demand deposits as well as short-term investments with a maturity date within three months. F. ACCOUNTS RECEIVABLE 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. G. INVENTORY Inventories of materials and supplies are recorded at average cost, which does not exceed market. H. BOND DISCOUNTS Unamortized bond discounts are being expensed over the life of the related bond. Amortization of bond discount was $31,067 for 2011 and $31,067 for 2010. I. COMPENSATED ABSENCES A liability for compensated absences is accrued and recorded as compensation in the period earned. 14 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) J. NET ASSETS Net assets represent the difference between assets and liabilities. Net assets invested in utility plant, net of related debt corresponds to net utility plant less outstanding debt for plant assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the Commission or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The remainder of net assets is considered to be unrestricted. When both restricted and unrestricted resources are available for use, it is the Commission's policy to use restricted resources first, then unrestricted resources as they are needed. K. OPERATING REVENUES AND EXPENSES Operating revenues and expenses result from providing utility services, which is the principal ongoing operation of the Commission. The principal operating revenues are charges to customers for sales. Operating expenses include the cost of sales, administrative and general expenses, and depreciation. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. L. REVENUE RECOGNITION Meters are read throughout the month and revenues are recognized when utility services are billed to customers. The Hutchinson Utilities Commission did not accrue revenues for services provided but not billed at the end of the year. M. ELECTRIC POWER AND NATURAL GAS 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. N. INTEREST CAPITALIZATION Interest costs, unless immaterial in amount, are capitalized when incurred by proprietary funds on debt where proceeds were used to finance the construction of assets. Interest earned on proceeds of tax - exempt borrowing arrangements restricted to the acquisition of qualifying assets is offset against interest costs in determining the amount to be capitalized. O. BUDGETS AND BUDGETARY ACCOUNTING The General Manager is responsible for preparing and submitting an annual budget. Budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). P. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 15 NOTE 2. HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 CASH AND INVESTMENTS Cash and investments as of December 31, 2011, were as follows: Book Balance Deposits in Bank $ 13,122,065 Petty Cash 850 Amounts with Escrow Agent 380,755 Total Cash and Investments $ 13,503,670 Current Assets Cash and Investments $ 13,122,915 Noncurrent Assets Restricted Cash and Investments 380,755 Total Cash and Investments $ 13.503,670 A. DEPOSITS Custodial Credit Risk. Custodial credit risk is the risk that in the event of bank failure, the Commission's deposits may not be returned to it. Minnesota Statutes require all Commission deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds. Authorized collateral includes the legal investments described below, as well as certain first mortgage notes, and certain other state or local government obligations. Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the Commission or in a financial institution other than that furnishing the collateral. As of December 31, 2011, Hutchinson Utilities Commission's deposits were fully covered by insurance and collateral. The Commission does not have a policy that would further limit the aforementioned collateral choices. B. INVESTMENTS Minnesota Statutes authorize the Commission to invest in obligations of the U.S. Treasury, agencies, and instrumentalities, shares of investment companies whose only investments are in the aforementioned securities, obligations of the State of Minnesota or its municipalities, bankers' acceptances, futures contracts, repurchase and reverse repurchase agreements, and commercial paper of the highest quality with a maturity of no longer than 270 days. The Commission has no investment policy that would further limit its investment choices. The escrow agent has invested the cash on hand in allowable investments as described above. The Commission has no other investments. 16 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 3. CASH AND INVESTMENTS - RESTRICTED Restricted cash is designated by bond covenants for specific purposes. At December 31, 2011 and 2010, restricted cash consisted of the following: 2011 2010 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 $ 380,755 $ 349,212 The following items have been designated by the Commission for the following purposes: 2011 2010 Rate Stabilization - Electric $ 374,464 $ 353,183 Rate Stabilization - Gas 601,867 545,489 Payment in Lieu of Taxes 1,136,724 1,105,614 Catastrophic 500,000 500,000 Development Study 790,629 1,079,732 Expansion and Development Reserve Account Funds designated for the expansion and development of the utility 2,659,700 2,448,100 $ 6,063,384 $ 6,032,118 The above Commission designated amounts are included in the Current Assets -Cash and Investments total. 17 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 4. UTILITY PLANT A summary of the utility plant activity for the year ended December 31, 2011, is as follows: Beginning Ending Balance Increase Decrease Balance Capital Assets, Not Being Depreciated Land Construction in Progress Easements Total Capital Assets, Not Being Depreciated Capital Assets, Being Depreciated Structures and Improvements Equipment Software Total Capital Assets, Being Depreciated Less Accumulated Depreciation for Structures and Improvements Equipment Software Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Net Capital Assets $ 559,910 $ 834,724 2,345,392 3,946,231 84,146 5,340,865 2,429,538 97,649,405 13,924,724 478,352 112,052,481 2,228,419 237,891 2,466,310 $ 559,910 (867,975) 2,312,141 4,030,377 (867,975) 6,902,428 (1,421,821) 98,456,003 (25,208) 14,137,407 478,352 (1,447,029) 113,071,762 38,063,946 2,664,011 (1,379,878) 39,348,079 6,572,828 589,031 (25,209) 7,136,650 229,836 73,799 303,635 44,866,610 3,326,841 (1,405,087) 46,788,364 67,185,871 (860,531) (41,942) 66,283,398 $ 72,526,736 $ 1,569,007 $ (909,917) $ 73,185,826 18 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 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 NOTE 6. LONG -TERM DEBT Debt Interest Rate Maturity 2011 2010 $ 125,043 $ 100,156 13,100 13,100 369,068 370,102 425,146 437,050 142,813 174,980 1,075,170 1,095,388 134,750 128,902 303,570 303,570 438,320 432,472 $ 1,513,490 $ 1,527,860 Balance Outstanding 2011 2010 Public Utility Revenue Bonds 3.750 - 4.625% 12/1/2025 $ 22,510,000 $ 23,640,000 MRES Agreement 4.00% 3/1/2015 3,150,253 4,040,135 On March 31, 2003, the Hutchinson Utilities Commission issued Public Utility Revenue Bonds of 2003 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 March 31, 2010, Hutchinson Utilities Commission signed a repayment agreement with Missouri River Energy Services (MRES) for the Big Stone II Plant. The Commission will pay equal monthly installments beginning April 1, 2010 and ending March 1, 2015. NOTE 7. CHANGES IN LONG -TERM LIABILITIES Beginning Ending Due Within Balance Additions Reductions Balance One Year Revenue Bond $ 23,640,000 $ $ (1,130,000) $ 22,510,000 $ 1,180,000 MRES Agreement 4,040,135 (889,882) 3,150,253 926,137 Compensated Absences 433,142 307,085 (306,476) 433,751 18,091 $ 28,113,277 $ 307,085 $ (2,326,358) $ 26,094,004 $ 2,124,228 19 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 8. DEBT SERVICE REQUIREMENTS Debt service requirements at December 31, 2011, were as follows: Year Ending December 31 Revenue Bonds of 2003 Principal Interest 2012 $ 1,180,000 $ 972,439 2013 1,230,000 928,189 2014 1,280,000 881,449 2015 1,335,000 831,529 2016 1,400,000 778,129 2017 -2021 8,060,000 2,949,641 2022 -2025 8,025,000 951,130 $ 22,510,000 $ 8,292,506 NOTE 9. MAJOR CUSTOMERS MRES Agreement Principal 926,137 963,869 1,003,139 257,107 Interest $ 109,153 71,421 32,152 1,716 $ 3,150,252 $ 214,442 For the years ended December 31, 2011 and 2010, the Electric Division derived approximately 50% and 51 % respectively, of utility revenue from the top five major industrial customers. For the years ended December 31, 2011 and 2010, the Natural Gas Division derived approximately 38% and 41 % respectively, of its utility revenue from the top five major industrial customers. NOTE 10. 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 three years of credited service. The defined retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. KIN HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 10. DEFINED BENEFIT PENSION PLANS -STATEWIDE (Cont'd) A. PLAN DESCRIPTION (Cont'd) 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 all 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. The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. PERA issues a publicly available financial report that includes financial statements and required supplementary information for 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 2011. In 2011, 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, 2011, 2010, and 2009, were $288,923, $270,265, and $241,712, respectively. The Commission's contributions were equal to the contractually required contributions for each year as set by state statute. 21 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2011 NOTE 11. 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 12. COMMITMENTS AND CONTINGENCIES The Commission is not party to any legal proceedings as of year -end. The Commission is committed to purchase 15 MW of its power requirements from Northern States Power Company pursuant to the Confirmation Agreement dated July 10, 2009. This contract is effective through December 31, 2012. NOTE 13. RISK MANAGEMENT The Commission is exposed to various risks of loss from torts; theft of, damage to, and destruction of assets; business interruption; errors and omissions; employee injuries and illnesses; natural disasters; and employee health, dental, and accident benefits. 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 other 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 City is covered through the pool for any claims incurred but unreported, but retains the 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 2011 is estimated to be immaterial based on workers' compensation rates and salaries for the year. NOTE 14. NET ASSETS Invested in Utility Plant, Net of Related Debt Net Utility Plant Bond Discount (Unamortized) Revenue Bonds Payable Restricted Cash - Restricted for Public Utility Revenue Bond Sinking Fund 22 2011 2010 $ 73,185,826 $ 72,526,736 409,054 440,121 (22,510,000) (23,640,000) $ 51,084,880 $ 49,326,857 $ 380,755 $ 349,212 SUPPLEMENTARY INFORMATION HUTCHINSON UTILITIES COMMISSION COMBINING BALANCE SHEET DECEMBER 31, 2011 ASSETS Current Assets Cash and Investments Accounts Receivable (Net of Allowance for Doubtful Accounts of $75,985 and $79,928, Respectively) Inventory Sales Tax Receivable Prepaid Expenses Total Current Assets Noncurrent Assets Restricted Assets Cash and Investments Other Assets Bond Discount MIRES Agreement Total Other Assets Utility Plant Assets, Not Being Depreciated Assets, Net of Depreciation Net Utility Plant Total Noncurrent Assets Total Assets LIABILITIES AND NET ASSETS Current Liabilities Current Portion of Long -Term Debt Bonds Payable MRES Agreement 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 MRES Agreement Accrued Vacation Accrued Severance Total Long -Term Liabilities Total Liabilities Net Assets Invested in Utility Plant, Net of Related Debt Restricted Unrestricted Total Net Assets Total Liabilities and Net Assets Supplementary Information - See Auditor's Report 23 Electric Gas Total $ 12,317,656 $ 805,259 $ 13,122,915 1,822,125 1,509,046 3,331,171 1,075,170 438,320 1,513,490 118,708 37,128,724 $ 118,708 14,118 15,420 29,538 15,347,777 2,768,045 18,115,822 22,845 357,910 380,755 24,543 384,511 409,054 2,082,222 20,235,000 2,082,222 2,106,765 384,511 2,491,276 3,002,460 36,565,108 3,899,968 29,718,290 6,902,428 66,283,398 39,567,568 33,618,258 73,185,826 41,697,178 34,360,679 76,057,857 $ 57,044,955 $ 37,128,724 $ 94,173,679 $ 135,000 $ 1,045,000 $ 1,180,000 926,137 357,910 926,137 13,923 4,168 18,091 1,516,615 976,537 2,493,152 182,005 121,337 303,342 4,207 76,829 81,036 206,345 56,245 262,590 2,984,232 2,280,116 5,264,348 1,095,000 20,235,000 21,330,000 2,224,116 2,224,116 264,544 79,182 343,726 54,170 17,764 71,934 3,637,830 20,331,946 23,969,776 6,622,062 22,612,062 29,234,124 38,362,111 12,722,769 51,084,880 22,845 357,910 380,755 12,037,937 1,435,983 13,473,920 50,422,893 14,516,662 64,939,555 $ 57,044,955 $ 37,128,724 $ 94,173,679 HUTCHINSON UTILITIES COMMISSION COMBINING STATEMENT OF REVENUES AND EXPENSES YEAR ENDED DECEMBER 31, 2011 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 Amortization of Development Study Amortization of Bond Discount and Issuance Costs Interest Expense - Customer Deposits Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Assets Supplementary Information - See Auditor's Report 24 2011 Electric Natural Gas Division Division Total $ 27,401,687 $ $ 27,401,687 12,397,729 12,397,729 306,435 1,824,187 2,130,622 27,708,122 14,221,916 41,930,038 2,757,855 2,757,855 325,634 325,634 15,440,923 9,028,704 24,469,627 334,033 334,033 129,826 95,500 225,326 12,498 2,962 15,460 523,088 401,884 924,972 229,774 188,833 418,607 253,198 168,798 421,996 170,764 56,921 227,685 2,434,890 772,746 3,207,636 2,284,770 1,042,071 3,326,841 883,761 364,852 1,248,613 25, 781,013 12,123,271 37,904,284 1,927,109 2,098,645 4,025,754 27,867 27,867 55,734 (12,841) 27,263 14,422 28,627 1,361 29,988 157,997 157,997 (1,850) (1,850) (725,078) (725,078) (1,864) (29,203) (31,067) (847) (847) (200,539) (956,152) (1,156,691) (727,681) (929,711) (1,657,392) $ 1,199,428 $ 1,168,934 $ 2,368,362 HUTCHINSON UTILITIES COMMISSION BALANCE SHEET ELECTRIC DIVISION DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2010 Supplementary Information - See Auditor's Report 25 2011 2010 ASSETS Current Assets Cash and Investments $ 12,317,656 $ 12,083,406 Accounts Receivable (Net of Allowance for Doubtful Accounts of $41,494 and $42,282, Respectively) 1,822,125 2,086,844 Inventory 1,075,170 1,095,231 Sales Tax Receivable 118,708 69,857 Prepaid Expenses 14,118 15,249 Total Current Assets 15,347,777 15,350,587 Noncurrent Assets Restricted Assets Cash and Investments 22,845 20,953 Other Assets Bond Discount 24,543 26,407 MRES Agreement 2,082,222 2,828,409 Total Other Assets 2,106,765 2,854,816 Utility Plant Assets, Not Being Depreciated 3,002,460 1,442,121 Assets, Net of Depreciation 36,565,108 37,072,640 Net Utility Plant 39,567,568 38,514,761 Total Noncurrent Assets 41,697,178 41,390,530 Total Assets $ 57,044,955 $ 56,741,117 LIABILITIES AND NET ASSETS Current Liabilities Current Portion of Long -Term Debt Bonds Payable $ 135,000 $ 135,000 MRES Agreement 926,137 889,882 Accrued Vacation 13,923 13,736 Accounts Payable 1,516,615 1,482,440 Customer Deposits 182,005 152,682 Accrued Expenses Interest 4,207 4,629 Salaries Payable 206,345 141,443 Total Current Liabilities 2,984,232 2,819,812 Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable 1,095,000 1,230,000 MRES Agreement 2,224,116 3,150,253 Accrued Vacation 264,544 260,992 Accrued Severance 54,170 56,595 Total Long -Term Liabilities 3,637,830 4,697,840 Total Liabilities 6,622,062 7,517,652 Net Assets Invested in Utility Plant, Net of Related Debt 38,362,111 37,176,168 Restricted 22,845 20,953 Unrestricted 12,037,937 12,026,344 Total Net Assets 50,422,893 49,223,465 Total Liabilities and Net Assets $ 57,044,955 $ 56,741,117 Supplementary Information - See Auditor's Report 25 HUTCHINSON UTILITIES COMMISSION DETAILED STATEMENT OF REVENUES AND EXPENSES BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 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 Other Total Operations Maintenance Structures Generating Units Other Equipment Total Maintenance Total Production Power Costs Purchased Power Supplementary Information - See Auditor's Report 2011 Over (Under) 2010 Budget Actual Budget Actual $ 5,300,000 $ 5,255,333 $ (44,667) $ 5,107,357 9,800,000 9,075,811 (724,189) 8,990,929 11,522,679 11,692,880 170,201 11,471,748 110,001 143,378 33,377 147,248 800,000 1,234,285 434,285 986,386 27,532,680 27,401,687 (130,993) 26,703,668 220,000 295,586 75,586 290,572 15,000 10,585 (4,415) 10,727 3,000 264 (2,736) 354 238,000 306,435 68,435 301,653 27,770,680 27,708,122 (62,558) 27,005,321 833,600 893,740 60,140 876,954 63,500 85,732 22,232 93,214 30,500 42,857 12,357 32,707 87,000 71,478 (15,522) 70,573 743,100 549,970 (193,130) 585,446 1,100,000 1,100,000 1,100,000 12,000 14,077 2,077 10,776 2,869,700 2,757,855 (111,845) 2,769,670 3,000 526 (2,474) 3,117 248,500 212,140 (36,360) 265,348 92,500 112,968 20,468 88,749 344,000 325,634 (18,366) 357,214 3,213,700 3,083,488 (130,212) 3,126,884 15,976,850 15,440,923 (535,927) 14,640,104 26 HUTCHINSON UTILITIES COMMISSION DETAILED STATEMENT OF REVENUES AND EXPENSES BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 OPERATING EXPENSES (Cont'd) Other Power Supply Supervision and General Salaries Training Professional Services Total Other Power Supply Transmission Operations Station 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 Other Total Customer Accounts Expense Supplementary Information - See Auditor's Report 27 2011 Over (Under) 2010 Budget Actual Budget Actual $ 254,000 $ 272,056 $ 18,056 $ 260,223 6,000 12 (5,988) 2,486 83,000 61,965 (21,035) 85,445 343,000 334,033 (8,967) 348,154 131,000 129,826 (1,174) 132,051 12,000 12,498 498 25,153 143,000 142,324 (676) 157,204 256,100 314,012 57,912 292,652 37,000 61,163 24,163 30,717 22,000 12,947 (9,053) 16,325 23,513 23,513 105,500 111,453 5,953 98,953 420,600 523,088 102,488 438,647 10,500 14,596 4,096 8,135 115,000 95,883 (19,117) 96,023 30,000 6,633 (23,367) 21,854 85,000 68,667 (16,333) 73,026 33,500 43,995 10,495 35,678 274,000 229,774 (44,226) 234,716 694,600 752,862 58,262 673,363 75,000 83,901 8,901 100,816 80,400 115,041 34,641 99,709 4,500 4,729 229 7,260 18,000 3,734 (14,266) 13,881 46,800 44,086 (2,714) 45,557 2,880 1,707 (1,173) 1,979 227,580 253,198 25,618 269,202 27 HUTCHINSON UTILITIES COMMISSION DETAILED STATEMENT OF REVENUES AND EXPENSES BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 OPERATING EXPENSES (Cont'd) 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 Expense Maintenance of General Plant Total Administrative and General Depreciation Contribution to City of Hutchinson Payment in Lieu of Taxes Roadway Lighting Total 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 Amortization of Development Study Amortization of Bond Discount and Issuance Costs Interest Expense Total Nonoperating Revenues (Expenses) 2011 Over(Under) 2010 Budget Actual Budget Actual $ 51,000 $ 50,632 $ (368) $ 46,645 144,000 120,132 (23,868) 196,292 195,000 170,764 (24,236) 242,937 480,000 501,609 21,609 490,338 279,200 238,663 (40,537) 232,385 100,800 157,132 56,332 105,226 115,500 112,988 (2,512) 111,208 624,000 670,987 46,987 612,188 570,400 577,817 7,417 558,635 24,750 28,750 4,000 21,801 14,300 14,197 (103) 15,075 24,750 12,692 (12,058) 9,385 99,000 74,147 (24,853) 92,894 40,755 45,908 5,153 56,965 2,373,455 2,434,890 61,435 2,306,100 2,328,000 2,284,770 (43,230) 2,257,016 740,761 740,761 143,000 143,000 895,407 146,859 883,761 883,761 0 1,042,266 26,378,946 25,781,013 (597,933) 25,063,230 1,391,734 1,927,109 13,500 27,867 (9,081) (12,841) 50,000 28,627 200 157,997 (24,500) (1,850) (825,414) (725,078) (3,000) (1,864) (142,000) (200,539) (940,295) (727,681) 535,375 1,942,091 14,367 30,660 (3,760) (16,394) (21,373) 588,081 157,797 (190,613) 22,650 (1,850) 100,336 (1,299,176) 1,136 (1,864) (58,539) (191,567) 212,614 (1,082,723) Change in Net Assets $ 451,439 $ 1,199,428 $ 747,989 $ 859,368 Supplementary Information - See Auditor's Report 28 HUTCHINSON UTILITIES COMMISSION BALANCE SHEET NATURAL GAS DIVISION DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2010 ASSETS Current Assets Cash and Investments Accounts Receivable (Net of Allowance for Doubtful Accounts of $34,491 and $37,646, Respectively) Inventory Prepaid Expenses Total Current Assets Noncurrent Assets Restricted Assets Cash and Investments Other Assets Bond Discount Utility Plant Assets, Not Being Depreciated Assets, Net of Depreciation Net Utility Plant Total Noncurrent Assets Total Assets LIABILITIES AND NET ASSETS Current Liabilities Current Portion of Long -Term Debt Bonds Payable 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 Accrued Vacation Accrued Severance Total Long -Term Liabilities Total Liabilities Net Assets Invested in Utility Plant, Net of Related Debt Restricted Unrestricted Total Net Assets Total Liabilities and Net Assets Supplementary Information - See Auditor's Report 29 2011 2010 $ 805,259 $ 374,194 1,509,046 1,846,943 438,320 432,629 15,420 14,644 2,768,045 2,668,410 357,910 328,259 384,511 413,714 3,899,968 29,718,290 3,898,744 30,113,231 33,618,258 34,011,975 34,360,679 34,753,948 $ 37,128,724 $ 37,422,358 $ 1,045,000 $ 995,000 4,168 4,213 976,537 1,475,830 121,337 101,788 76,829 79,938 56,245 40,255 2,280,116 2,697,024 20,235,000 21,280,000 79,182 80,044 17,764 17,562 20,331,946 21,377,606 22,612,062 24,074,630 12,722, 769 12,150,689 357,910 328,259 1,435,983 868,780 14, 516, 662 13, 347, 728 $ 37,128,724 $ 37,422,358 HUTCHINSON UTILITIES COMMISSION DETAILED STATEMENT OF REVENUES AND EXPENSES BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 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 Supplementary Information - See Auditor's Report 49,000 2011 (1,420) 46,462 55,000 47,920 Over (Under) 2010 Budget Actual Budget Actual 4,000 1,476 (2,524) 332 $ 4,500,000 $ 4,327,788 $ (172,212) $ 3,979,581 4,524,503 3,823,161 (701,342) 3,638,751 4,721,446 4,246,780 (474,666) 4,890,551 13,745,949 12,397,729 (1,348,220) 12,508,883 700,000 724,187 24,187 721,218 1,100,000 1,100,000 1,333 1,100,000 1,800,000 1,824,187 24,187 1,821,218 15,545,949 14,221,916 (1,324,033) 14,330,101 9,926,316 9,028,704 (897,612) 9,806,771 49,000 47,580 (1,420) 46,462 55,000 47,920 (7,080) 51,697 104,000 95,500 (8,500) 98,159 4,000 1,476 (2,524) 332 2,000 1,486 (514) 1,877 6,000 2,962 (3,038) 2,209 110,000 98,462 (11,538) 100,368 208,600 162,935 (45,665) 178,613 103,500 108,446 4,946 101,023 82,500 79,809 (2,691) 101,272 6,000 984 (5,016) 4,448 40,650 49,710 9,060 29,948 441,250 401,884 (39,366) 415,304 124,000 108,664 (15,336) 98,986 16,000 13,015 (2,985) 9,650 47,500 67,154 19,654 44,230 187,500 188,833 1,333 152,866 628,750 590,717 (38,033) 568,170 30 HUTCHINSON UTILITIES COMMISSION DETAILED STATEMENT OF REVENUES AND EXPENSES BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 OPERATING EXPENSES (Cont'd) Customer Accounts Expense Meter Reading Collection Other Employee Benefits Uncollectible Accounts Customer Services Other 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) Supplementary Information - See Auditor's Report 13,059,283 12,123,271 (936,012) 12,965,630 2,486,666 2,098,645 (388,021) 1,364,471 31 2011 Over (Under) 2010 Budget Actual Budget Actual $ 50,000 $ 55,934 $ 5,934 $ 67,211 53,600 76,694 23,094 66,473 3,000 3,153 153 4,840 12,000 2,489 (9,511) 9,254 31,200 29,390 (1,810) 30,372 1,920 1,138 (782) 1,320 151,720 168,798 17,078 179,470 17,000 16,877 (123) 15,548 48,000 40,044 (7,956) 65,431 65,000 56,921 (8,079) 80,979 120,000 125,402 5,402 122,585 69,800 59,666 (10,134) 58,096 25,200 39,283 14,083 26,306 94,500 92,445 (2,055) 90,988 156,000 167,747 11,747 153,047 142,600 144,454 1,854 139,659 20,250 23,523 3,273 17,837 11,700 11,616 (84) 12,334 20,250 10,384 (9,866) 7,679 81,000 60,665 (20,335) 76,004 33,345 37,561 4,216 46,608 774,645 772,746 (1,899) 751,143 1,038,000 1,042,071 4,071 1,037,707 364,852 364,852 441,022 13,059,283 12,123,271 (936,012) 12,965,630 2,486,666 2,098,645 (388,021) 1,364,471 31 HUTCHINSON UTILITIES COMMISSION DETAILED STATEMENT OF REVENUES AND EXPENSES BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2011 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010 NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Amortization of Bond Discount and Issuance Costs Interest Expense - Customer Deposits Interest Expense 2011 Over (Under) 2010 Budget Actual Budget Actual $ 13,500 $ 27,867 $ 14,367 $ 30,660 37,581 27,263 (10,318) 43,151 1,000 1,361 361 10,664 2,354 (29,203) (29,203) (29,203) (409) (847) (438) (794) (1,014,814) (956,152) 58,662 (987,712) Total Nonoperating Revenues (Expenses) (963,142) (929,711) 33,431 (930,880) Change in Net Assets $ 1,523,524 $ 1,168,934 $ (354,590) $ 433,591 Supplementary Information - See Auditor's Report 32 COMPLIANCE SECTION Conway No euth �-" Schmiesing.ri.i_p INDEPENDENT AUDITOR'S REPORT ON MINNESOTA LEGAL COMPLIANCE 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, 2011, and have issued our report thereon dated March 28, 2012. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions, promulgated by the State Auditor pursuant to Minn. Stat. § 6.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Political Subdivisions covers 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 study included 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. The results of our tests indicate that for the items tested, Hutchinson Utilities Commission complied with the material terms and conditions of applicable legal provisions. This report is intended solely for the information and use of the Commission, management, and the State Auditor's Office and is not intended to be and should not be used by anyone other than those specified parties. kV4, fit. � &Amjea., t, 41-f CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 28, 2012 33 Members: American Institute of Certified Public Accountants, Minnesota Society of Certified public Accountants XW (,_;,,Conway Deuth '— ' Schn- iesing,mij, —:,'d NN, , ...,,u,: 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 the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2011, and have issued our report thereon dated March 28, 2012. 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. Internal Control Over Financial Reportin In planning and performing our audit, we considered Hutchinson Utilities Commission's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Hutchinson Utilities Commission's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of Hutchinson Utilities Commission's internal control over financial reporting. 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 34 Members, American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants Hutchinson Utilities Commission Hutchinson, Minnesota Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether Hutchinson Utilities Commission's financial statements are free of 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. We noted certain matters that we reported to management of Hutchinson Utilities Commission in a separate letter dated March 28, 2012. This report is intended solely for the information and use of the Commission and management and is not intended to be and should not be used by anyone other than these specified parties. ", &a& i &Amiaint, PLL? CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 28, 2012 35 HUTCHINSON UTILITIES COMMISSION HUTCHINSON, MINNESOTA MANAGEMENT LETTER DECEMBER 31, 2011 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota HUTCHINSON UTILITIES COMMISSION TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2011 Independent Auditor's Memorandum Required Communications Comparative Financial Data Graphical Information Schedule of Findings on Accounting Issues and Internal Controls PAGE 1 2 -3 4 5 -12 13 � V_ 1:0� R (-,4 Caraway Dcuth ,,- Schmiesing,ru. C,«Wkd PuN,, n..<R —m,x 0.x.Ic ., INDEPENDENT AUDITOR'S MEMORANDUM Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have completed an audit of the financial statements of Hutchinson Utilities Commission, Hutchinson, Minnesota, as of and for the year ended December 31, 2011. As a result of this audit, we have issued the following reports: Required Communications, Graphical Information, and Schedule of Findings on Accounting Issues and Internal Controls. Our comments and recommendations related to observations made during our visit are communicated in the following pages for the administration's consideration. Although these comments are not based on an in -depth study of a particular subject area or potential problem, the administration is often able to utilize this information in future decisions or actions. We would like to acknowledge the assistance and courtesies extended to us by the personnel of the Hutchinson Utilities Commission during our audit. We look forward to discussing with you matters presented herein. The information presented on the following pages is intended for the information of the Commission and management. However, this report is matter of public record and its distribution is not limited. ", UAL& ; , PLLP CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 28, 2012 1 Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants CDS Conway Deuth " Scohm, ing,rux c czSAitt{ PnMi. Mttxmean�� & i't»nnlccni. March 28, 2012 Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited the financial statements of Hutchinson Utilities Commission (Commission) for the year ended December 31, 2011. 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 27, 2012. 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 the 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 2011. We noted no transactions entered into by the 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. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants Hutchinson Utilities Commission Hutchinson, Minnesota Page 2 Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated March 28, 2012. 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 Information in Documents Containing Audited Financial Statements With respect to the supplementary information accompanying the financial statements, 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. 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. Very truly yours, �, beu fit. ' , PLOP CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota Z O U O U U W_ H J_ H D Z O U Z_ U D Q H Q O J Q U Z Q Z_ LL_ W H Q Q W O U M O M U) 1` O N Cl) O Cl) � 00 00 - O d) r-- (O -t Il- .- � It M. 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LO CO U) (O M N = CO LO - (O ll) U) CO 00 (O O CO 00 LO - (0 00 N m It M M (O O co It I- N r- (O (O CO N M LO d) d) M d) N LC) (D - N CO .- LO LO = (D O (O M O U) = 00 O I` r- O 00 M . Cl) U) = M N C6 N M N Ln Lf) - d7 - 00 00 P- d) ti I` N O 00 N P- O N I` O O 00 O co It It CO d 00 (fl .- M I- N U) CO O I` t- d) d) O I` It r r= N M ti LO N L() CO 00 N U) M= (0 1,- O LO LO M N (O N 4 CO - (fl CO P- O I;i v ' N LC) N N O �- N N N �- E!3 fA E!3 ER U � O (D U � C C O N L1 (2 X X W W to U) N U N O N O N N O O O N N 7 (U U 7 O U 7 C N U U C C O U C N U U C C (V N U Z U> N W O. Q > (V U) U O a) Cc C� C2 x > O +) N O O O W W U @ O) L W O O) O Q C O (U ._ o) W O (7) O Q > v v �• y Z Z 30 �•@ Z Co 0 6 d U c O O a U U m L N� Q -0 � Q a 0 m .0 m U) Q -0 N a Q O .0 C f6 W 0-0 N a O C L- >_ = L ((f (D c O Ln a O c� rn Z@ (n Z « I W C N tin O r O L O U �n E m 0 U O U L p L W 65 of O a. 0 z F- 0 w U s (D a 0 z F HUTCHINSON UTILITIES COMMISSION ELECTRIC DIVISION Operating Revenues & Expenses and Net Nonoperating Revenues (Expenses) $35,000,000 -- $4,000,000 $28,258,949 $30,197,371 $30,679,150 $29,193,987 $30,000,000 $26,382,593 $26,808,732 $27,679,311 $27,005,321 $27,708,122 $25,557,305 $24,285,676 $ $25,130,487 25,063,230 $25,781,013 $25,000,000 $2,287,343 $2,261,097 $20,000,000 $2,000,000 $15,000,000 $1,500,000 $1,207,496 $1,199,428 $10,000,000 $859,368 $1,000,000 $5,000,000 $500,000 $0 $(545,917) $837,126 $852,948 $775,934 $780,678 $(1,082,723) $(727,681) $0 - $5,000,000 2005 2006 2007 2008 2009 2010 2011 ■Total Operating Revenues ®Total Operating Expenses ONet Nonoperating Revenues (Expenses) Change in Net Assets $4,000,000 $3,371,008 $3,500,000 $3,000,000 $2,500,000 $2,287,343 $2,261,097 $2,000,000 $1,500,000 $1,207,496 $1,199,428 $869,375 $859,368 $1,000,000 $500,000 $0 2005 2006 2007 2008 2009 2010 2011 sChange in Net Assets 5 HUTCHINSON UTILITIES COMMISSION ELECTRIC DIVISION Cy HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS ELECTRIC DIVISION YEARS ENDED DECEMBER 31, 2011 AND 2010 The Statement of Revenues and Expenses set forth the results of the operations in detail for the years ended December 31, 2011 and 2010. Operating revenues, kilowatt hours (KWH) sold, and average revenue per kilowatt hour sold by class of service are as follows: Year Ended December 31, 2011 Revenue Per Amount KWH Sold KWH CLASS Residential $ 5,000,154 50,985,858 $ 0.0981 All Electric 255,178 2,630,355 0.0970 Small General Service 1,706,668 17,816,222 0.0958 Large General Service 7,369,142 80,125,637 0.0920 Industrial 11,692,881 140,065,000 0.0835 Sale for Resale 1,234,286 17,820,000 0.0693 Street Lighting 143,378 107,445 1.3344 $ 27,401,687 309,550,517 0.0885 Year Ended December 31, 2010 Revenue Per Amount KWH Sold KWH CLASS Residential $ 4,853,202 50,422,541 $ 0.0963 All Electric 254,155 2,667,220 0.0953 Small General Service 1,637,967 17,382,754 0.0942 Large General Service 7,352,962 81,514,597 0.0902 Industrial 11,471, 748 141, 509, 000 0.0811 Sale for Resale 986,386 10,742,000 0.0918 Street Lighting 147,248 98,575 1.4938 $ 26,703,668 304,336,687 0.0877 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS ELECTRIC DIVISION YEARS ENDED DECEMBER 31, 2011 AND 2010 KWH Sold Industrial Large General Service Small General Service All Electric Residential = $0.0835 $0.0811 Average $ /KWH ® $0.0920 $0.0902 ■ $0.0958 $0.0942 $0.0970 $0.0953 ® $0.0 $0.08 $0.09 $0.10 $0.11 ■2011 Revenue Per KWH M2010 Revenue Per KWH 91 HUTCHINSON UTILITIES COMMISSION NATURAL GAS DIVISION Change in Net Assets Operating Revenues & Expenses and Net Nonoperating Revenues (Expenses) $1,400,000 $20,000,000 $1,146,848 $1,168,934 $1,200,000 $17,918,263 $1,000,000 $16,877,242 $800,000 $15,652,921 $15,000,000 $14,448,613 $14,646,836 $14,330,101 $14,221,916 $517,357 $13,893,343 $12,787,758 $13,311,332 $12,965,630 $433,591 $11,579,886 $11,752,823 $10,000,000 $274,083 $328,359 $5,000,000 $74,885 1$1291,23,271 $(398,390) $(993,672) $(930,225) $(966,136) $(1,007,145) $(930,8809,711) $0 2005 2006 2007 2008 2009 2010 2011 ■Change in Net Assets - $5,000,000 2005 2006 2007 2008 2009 2010 2011 ■Total Operating Revenues ®Total Operating Expenses ONet Nonoperating Revenues (Expenses) Change in Net Assets $1,400,000 $1,146,848 $1,168,934 $1,200,000 $1,000,000 $800,000 $600,000 $517,357 $433,591 $400,000 $274,083 $328,359 $200,000 $74,885 $0 2005 2006 2007 2008 2009 2010 2011 ■Change in Net Assets 0 HUTCHINSON UTILITIES COMMISSION NATURAL GAS DIVISION 10 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS NATURAL GAS DIVISION YEARS ENDED DECEMBER 31, 2011 AND 2010 The Statement of Revenues and Expenses set forth the results of the operations in detail for the years ended December 31, 2011 and 2010. Operating revenues, cubic feet sold, and average revenue per thousand cubic feet sold by class of service are as follows: 11 Year Ended December 31, 2011 Revenue Per Thousand Amount CF Sold MCF CLASS Residential $ 4,327,788 434,536,606 $ 9.9595 Commercial 3,823,162 399,760,773 9.5636 Large industrial 4,246,780 821,329,000 5.1706 $ 12,397,730 1,655,626,379 $ 7.4882 11 Year Ended December 31, 2010 Revenue Per Thousand Amount CF Sold MCF CLASS Residential $ 3,979,581 417,391,306 $ 9.5344 Commercial 3,638,751 400,221,821 9.0918 Large industrial 4,890,551 844,439,000 5.7714 $ 12,508,883 1,662,052,127 $ 7.5160 11 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS NATURAL GAS DIVISION YEARS ENDED DECEMBER 31, 2011 AND 2010 CF Sold Average $ /MCF 12 HUTCHINSON UTILITIES COMMISSION SCHEDULE OF FINDINGS ON ACCOUNTING ISSUES AND INTERNAL CONTROLS 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 BANK RECONCILIATIONS The Commission does not have anyone approving bank reconciliations other than the person who prepares them. We recommend a suitable employee be appointed and trained to accurately review the bank reconciliations. JOURNAL ENTRIES A normal accounting process includes posting journal entries to record transactions to the accounting system. A proper control of these entries is to have independent approval of the entries before they are posted. Currently, the Financial Manager initiates and posts journal entries without review by another employee or manager. We recommend a suitable employee be appointed and trained to approve journal entries. 13 Leadership and Governance 2. As a publicly owned enterprise in a competitive environment, the Utilities is a role model for the public sector with its streamlined form of governance. While the city maintains ultimate control, the utilities and its board have autonomy for the critical operation and policy decisions that are necessary for competitive success. Hutchinson Utilities Commission has earned this freedom to pursue courses of action as required within broad policy guidelines. Financial Stability 3. Hutchinson Utilities Commission recognizes that it is a municipally owned business enterprise, as such it will continue to look for opportunities to grow as a business. As an enterprise fund of the City of Hutchinson, the Hutchinson Utilities Commission provides direct and indirect benefits to the city and its residents. We contribute a fair return on investment to the city, which in turn help to reduce taxes in the community. Our governmental and street lighting services are models for local governments across the northern tier of the country. We work closely with city Staff to facilitate planned growth in the community and partner with the city wherever possible to share services, thus reducing costs and increasing efficiency for both entities and our customers. Hutchinson Utilities Commission will attain financial stability while at the same time pursue courses of action to ensure rate stability. Both financial and rate stability will be accomplished by investing in income producing opportunities. J i1xvil Quality Products And Service For Lasting Value 2610 Marshall St. N.E Minneapolis, MN 55418 (612) 789 -4303 Fax: (612) 789 -5387 March 1, 2012 kQR ~ 2 212 Hutchinson Utilities Commission 225 Michigan Street S.E. Hutchinson, MN 55350 -1905 To the Members of the Commission; We were shocked to see our January electrical bill for our block production facility in Hutchinson. Our plant did not run at all during January, but we did run several small electric heaters to prevent some pipes from freezing. When our operations manager, Deane Nelson, called to see why the bill was so high, he was told that there is a Large General Service Minimum charge of $427.50 per month. Most years, we produce little or nothing in December, January and February. That is three months, where the cost of doing nothing is over $1200 because of this minimum charge. Dean was told that the only way to avoid this expense is to have the meter removed during the winter months. This would oe very inconvenient, as we do use electricity for security lighting and some small space heaters. We are very dissatisfied nth this charge and would like to have it removed from our bills, or at a minimum, allowed as a credit against future actual electrical usage. He was told this is not possible. The only choices we were given were to either disconnect the meter in the future, or send a letter to the commission expressing our frustration. We are frustrated by this policy of the Utilities Commission. We have operated for 75 years in other communities in Minnesota, and have never had a usage minimum of this size applied to our electrical bills. We respectfully request the commission to change the policy and issue us credits for these unnecessary and unfair charges. We further request a written justification for these charges and an explanation on what can be done about theirs now and in the future. J M. Fischer eral Manager Plant Locations Minneapolis Hutchinson St. Paul Ramsey HUTCHINSVN U I Iu I 3 a , 225 MICHIGAN ST. SE, HUTCHINSON MN 55350 -1905 NT NU " BER _ PHONE NO. 320-587-4746 00130267 - 043666 DUE DATE PAYMENT DUE INDICATE PAYMENT ENCLOSED 02/2112012 $520.09 MARSHALL CONCRETE PRODUCTS INC 2610 MARSHALL ST NE MINNEAPOLIS MN 55418 -2616 111111111111111Ill111' 111111' 1 1 1�'rrtrl�'1 {� {Irl,��rnr,r�� Remit To: HUTCHINSON UTILITIES COMMISSION 225 MICHIGAN ST. SE HUTCHINSON MN 55350 -1905 1111 111 1 1111 1 111 i, 1,11,,,,,, 1 1 l,l, r i I,,,, 11, 11 „) I II I II IIII I I II II I I I II I I I III I IIIII illll�n�a BILL DATE 02/071201 00130267043666000052009 TO ENSURE PROPER CREDIT, PLEASE RETURN TOP PORTION WITH YOUR PAYMENT. SERVICE INFORMATION - RETAIN FOR YOUR RECORDS ACCOUNT NUMBER DATE DUE ELECTRIC POWER COST ADJUSTMENT 00130267 - 043666 02/21/2012 PER KWH: 0.0018500 AMOUNT: 0.74 SERVICE ADDRESS GAS FUEL ADJUSTMENT 311 HIGHWAY 7 E PER CF: 0.0000000 AMOUNT: 0.00 READING DATES DAYS READINGS FROM TO USED PREVIOUS CURRENT I I USAGE DESCRIPTION ( AMOUNT Previous Balance 754.37 Payment 01/23 754.371 12/28/11 1/26/12 29 49045 49231 186 Electric Small General Service Electric - Meter Charge 10.00 186 KH @ $0.09110 16.94 185 - -- ---- 0.34 12/28111 1/26/12 29 /Electric Large General Service Minimum _ 71 KW @ $6.00000 427.50 12/28/11 1/26/12 29 83542 83757 215 Electric Small General Service Electric - Meter Charge 10.00 215 KH @ $0.09110 19.59 215 KH @ $0.00185 ` " "" 0.40 1/24112 1/26/12 2 9 9 0 Gas - Commercial Gas - Meter Charge 31.50 Electric - Local Tax 0.24 Electric - Sales Tax 3.34 Gas - Local T 0.0le Gas - ax 0.2'9 1 Current Bill 520.0`• Account Balance 520.01 2.75% or $14.20 of your payment is transferred to the City of Hutchinson for use in its General Fund. In winter lower your thermostat by 10 degrees, you may reduce your heating bill by 10 -20 percent PAYMENT DUE $520.1 CUSTOMERS RESPONSIBLE FOR ALL TERMS AND CONDITIONS OF THE HUTCHINSON UTILITIES SERVICE POLICIES SET FORTH ON THE REVERSE SIDE. HUTCHINSON UTILITIES COMMISSION 225 MICHIGAN ST. SE HUTCHINSON, MN 55350-1905 PHONE NO. 320-587-4 { Hutchinson Utilities Commission 225 Michigan Street SE Hutchinson, Minnesota 55350 -1905 Dwight Bordson President Craig Lenz Vice President Leon Johnson Secretary March 6, 2012 Marshall Concrete Products, Inc. 2610 Marshall St. Minneapolis, MN 55418 Attn: Mr. John M. Fischer Dear Mr. Fischer: Thank you for your letter dated March 1, 2012. This letter is intended to address some of your concerns, as well as clarify the intent of the minimum monthly charge. The minimum monthly charge is defined as: 75% of the maximum demand charge —the maximum demand is .the customer's peak usage over the previous twelve months. For your use, I have included HUC's rate schedules (Attachment 1). Your plant in Hutchinson is on the Electric Large General Service Code 40 & 41 found on the first page of the rate schedule. Even though you were billed the minimum monthly charge, the meters are still read, then calculated based on those units. If the unit bill calculation for that particular month is greater than the minimum, then you will be billed based on the units you used for that month. If the calculation reflects the minimum is greater then you will be billed the minimum monthly bill. I have included an attachment that reflects your plants usage for the months of December, January and also February (Attachment 2). Our records show that for the month that you are questioning your plant used 3160 KWHR's, had an electric demand of 22 KW, and a power factor of .96. By way of example calculations, please find attachment 3. The calculations shown in this attachment are for January, February and also March bills. Using the actual billing units, the bill would have been $375, and the minimum monthly bill was $427. This is a difference of $51 for that month. I performed the calculations, not our billing department so there might be a small difference, however, the calculations should be within a couple of dollars. As the calculations show, the difference in January is $51, February is $226 and for March is $75. The total for all three months is roughly $353, not the $1,200 in your letter. For your use, I am also including a history of your previous demand readings (Attachment 4). At the top is 2012, followed by 2011, and finally 2010. The calculation for the 75% of the maximum measured demand does not change much. Additionally, a column that contains the monthly minimum bill, along with the calculated bill is included. This was done to give you an idea of when your plant will be charged the minimum bill. This goes back one year. Monty Morrow Your letterhead reflects that you have plants in Minneapolis, St. Paul, and Ramsey. This Commissioner means that for all three plants you would likely be served from Xcel Energy. I visited the Anthony Hanson Xcel Energy web -site to see if they have minimum monthly bills, and if so, identify how Commissioner they are calculated. Michael Kumm General Manager Tel 320 - 587 -4746 Fax 320 - 587 -4721 Xcel does have a minimum charge. To assist you, I printed off what I found on their web - site and circled the areas that would apply to your plant (Attachment 5). Specifically the definition of the minimum charge, their general service prices, the basic service charge and finally the demand charge. The minimum bill calculations were performed using Xcel Energy methodology, and as it turns out their minimum bill would be higher than that of HUC. The minimum bill would be $476 per month, or for all three months it would be $1,430 as compared to HUC for three months of $1,282. These calculations along with associated comments have been included (Attachment 6). The justification for the minimum bill is facilities were constructed, and maintained, so when our customers want to use electrical energy, the electrical infrastructure is in place and ready to serve them. Some of these facilities are specific to the Marshall Concrete Products plant. Examples of facilities specific to Marshall Concrete Products plant are the transformers, conductor, meters, meter boxes, switchgear, etc. Other fixed cost items need to be paid for as well, some of which include the electrical distribution system and electrical transmission systems necessary to get the electricity to your plant site. As mentioned these facilities need to be maintained, so when you decide to start operating your plant, all of the facilities are there and ready to serve you. While we appreciate your request to have the policy changed, our recommendation to the Commissioners is to leave the minimum monthly bill as -is. Minimum monthly bills are very common among electric utilities. Hopefully, we have demonstrated that they are used at your other plants as well. Policy changes can only occur at scheduled commission meetings. The next scheduled commission meeting is for March 28`x` at 3:00 PM. These are public meetings, so you are free to attend. I will ensure a copy of your letter and its attachment is included with the commission packet along with my written response and its associated attachments. Sincerely, HUTCHINSON UTILITIES COMMISSION Mike Kumm General Manager $ s o ww CD N o 0 0 3 c c m N O (�'Yp 0 n 0-0 -0 0< N= CD (C/),<= * -0 v N= ° << oo< 3�v mmc''c�v. 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ONINV*, dT /IITIES Hutchinson Utilities INTERCONNECT AGREEMENT Commission 225 Michigan Street SE THIS INTERCONNECT AGREEMENT ( "AGREEMENT ") IS Hutchinson, Minnesota MADE AND ENTERED INTO ON THIS DAY OF MARCH, 2012, 55350 -1905 TO BE EFFECTIVE AS OF THE 1 ST DAY OF SEPTEMBER, 2012, BY AND BETWEEN UNITED FARMERS COOPERATIVE ("UFC ") WITH OFFICES LOCATED AT 705 E. 4TH STREET, PO Box 461, WINTHROP, MINNESOTA, 55396 AND HUTCHINSON UTILITIES COMMISSION ( "HUTCHINSON ") A MINNESOTA MUNICIPAL UTILITY LOCATED AT 225 MICHIGAN ST. SE, HUTCHINSON, MINNESOTA, 55350. UFC AND HUTCHINSON SHALL HEREINAFTER SOMETIMES BE REFERRED TO SEPARATELY AS "PARTY" OR JOINTLY AS "PARTIES." WITNESSETH: WHEREAS, UFC WILL OWN CERTAIN PIPELINE FACILITIES Tel 320 - 587 -4746 Fax 320 - 587 -4721 PAGE 1 1 WHICH ARE LOCATED WITHIN THE STATE OF MINNESOTA; WHEREAS, HUTCHINSON OWNS AND OPERATES AN EXISTING NATURAL GAS PIPELINE SYSTEM WHICH COMMENCES Dwight Bordson FROM A POINT ON THE NORTHERN BORDER PIPELINE NEAR President Craig Lenz TRIMONT, MINNESOTA TO A POINT OF TERMINUS NEAR Vice President HUTCHINSON, MINNESOTA; AND Leon Johnson Secretary WHEREAS, UFC DESIRES TO ESTABLISH AN Monty Morrow INTERCONNECTION BETWEEN ITS PIPELINE FACILITIES AND THE Commissioner Anthony Hanson NATURAL GAS PIPELINE FACILITIES OF HUTCHINSON AND Commissioner HUTCHINSON IS WILLING TO ESTABLISH SUCH INTERCONNECTION Michael Kumm General Manager Tel 320 - 587 -4746 Fax 320 - 587 -4721 PAGE 1 1 UNDER THE TERMS AND CONDITIONS SET FORTH HEREIN; AND WHEREAS, UFC AND HUTCHINSON DESIRE TO HAVE THE INTERCONNECTION BETWEEN THEIR RESPECTIVE FACILITIES IN SERVICE ON OR BEFORE SEPTEMBER 1, 2012; NOW, THEREFORE, IN CONSIDERATION OF THE PROMISES AND OF THE MUTUAL COVENANTS AND AGREEMENTS HEREINAFTER SET FORTH, THE PARTIES, EACH FOR ITSELF AND FOR ITS SUCCESSORS AND PERMITTED ASSIGNS, HEREBY AGREE AS FOLLOWS: 1. THE POINT OF INTERCONNECTION BETWEEN HUTCHINSON'S NATURAL GAS PIPELINE FACILITIES AND UFC'S NATURAL GAS PIPELINE FACILITIES SHALL BE LOCATED ON PROPERTY IN MCLEOD COUNTY, MINNESOTA LEGAL(Y DES RIBED AS FOLLOWS: A PIECE OF LAND TGQ FT. 13Y 1 OCTET. LYING SOUTH OF STATE HIGHWAY 212 IN S' /2NW' /4 AND N' /2SW' /4 OF SECTION 34-115N-30W. (HEREINAFTER REFERRED TO AS THE "BROWNTON INTERCONNECT STATION "). 2. HUTCHINSON WILL OWN, DESIGN, PURCHASE, OPERATE, MAINTAIN AND CONSTRUCT THE FACILITIES LISTED IN SECTIONS 2.1 THROUGH 2.7 (HEREIN REFERRED TO AS THE " HUTCHINSON INTERCONNECT FACILITIES ") CAPABLE OF DELIVERING TO UFC 2 MMSCF /D AT HUTCHINSON'S LINE PRESSURE. HUTCHINSON LINE PRESSURE AT THE CUSTODY TRANSFER POINT MAY FROM TIME TO TIME BE REDUCED BELOW HUTCHINSON'S MAINLINE PRESSURE BECAUSE OF FRICTIONAL LOSSES CAUSED BY THE HUTCHINSON DELIVERY FACILITIES. 2.1 METER RUN. A SINGLE CORIOLIS METER AND ASSOCIATED METER RUN PIPING WILL BE DESIGNED AND INSTALLED IN ACCORDANCE WITH HUTCHINSON ENGINEERING STANDARDS. THE METER RUN WILL BE USED FOR CUSTODY TRANSFER GAS VOLUME MEASUREMENT. PAGE 1 2 2.2 PIPING. PIPING WILL BE INSTALLED FROM THE HUTCHINSON SIDE VALVE TO THE PIPING ON THE METER AND THEN TO THE DOWNSTREAM FLANGE AT THE CUSTODY TRANSFER POINT. AN INSULATING GASKET KIT WILL BE INSTALLED IN THE UPSTREAM FLANGE OF THE CUSTOMER VALVE FOR ELECTRICAL ISOLATION BETWEEN THE HUTCHINSON AND UFC PIPING SYSTEMS. ALL BURIED PIPING INSTALLED IN THIS AREA SHALL BE INSTALLED AT A MINIMUM DEPTH OF 3 FEET. THE ABOVE GRADE PIPING WILL BE DESIGNED PER HUTCHINSON ENGINEERING STANDARDS. HUTCHINSON PIPING AT THE HUTCHINSON INTERCONNECT FACILITIES WILL BE DESIGNED FOR A MINIMUM DESIGN PRESSURE OF 1,449 PSIG WITH A 0.5 DESIGN FACTOR PER U.S. DEPARTMENT OF TRANSPORTATION (DOT) PIPELINE SAFETY REGULATIONS, PART 192 FOR NATURAL GAS. THE UFC INTERCONNECT PIPING SHALL BE DESIGNED FOR 1,449 PSIG. IF A LOWER DESIGN PRESSURE IS USED FOR DESIGN OF THE INTERCONNECT PIPING, UFC SHALL INSTALL CODE APPROVED SAFETY VALVES TO PROTECT THEIR SYSTEM FROM ACCIDENTAL OVERPRESSURE BY THE HUTCHISON GAS SUPPLY. 2.3 FILTER /METER SKID. THE METER ASSEMBLY WILL CONTAIN THE METER, AND A BYPASS LINE AROUND THE METER FOR METER MAINTENANCE. THE FILTER ASSEMBLY WILL CONTAIN THE FILTER, AND A BYPASS LINE AROUND THE FILTER FOR FILTER MAINTENANCE. THE STATION DESIGN WILL, NOT INCLUDE AUTOMATIC: STATION BLOW DOWN EQUIPMENT. 2.4 VALVES. THE SIDE VALVE WILL BE MANUALLY OPERATED. 2.5 PRESSURE AND TEMPERATURE TRANSMITTERS. ALL TRANSMITTERS SHALL ADHERE TO HUTCHINSON ENGINEERING STANDARDS. 2.6 CABLE AND CONDUIT. ALL NECESSARY CONDUIT AND CABLE FROM THE MEASUREMENT FACILITIES TO THE RTU. CONDUIT SHALL BE GALVANIZED AND RIGID ABOVE GRADE AND PVC COATED RIGID BELOW GROUND. PAGE 1 3 2.7 REMOTE TERMINAL UNIT (RTU). HUTCHINSON WILL INSTALL A RTU AND A FLOW COMPUTER WITH ELECTRONIC FLOW MEASUREMENT (EFM) CAPABILITIES. 3. HUTCHINSON SHALL CONTROL ALL VOLUMES DELIVERED TO THE BROWNTON INTERCONNECT STATION. 4. UFC WILL DESIGN, PURCHASE, CONSTRUCT, INSTALL, OWN, MAINTAIN AND OPERATE THE FOLLOWING FACILITIES (HEREIN REFERRED TO AS THE "UFC INTERCONNECT FACILITIES ") DOWNSTREAM OF THE CUSTODY TRANSFER POINT: 4.1 PIPING AND RELATED EQUIPMENT. A CONNECTING LINE WITH OVERPRESSURE PROTECTION AS REQUIRED. 5. HUTCHINSON WILL PROVIDE UFC WITH THE FOLLOWING: THE FREQUENCY FROM THE OUTPUT OF THE CORIOLIS METER. UFC WILL PROVIDE ITS OWN POWER, DATA COMMUNICATION EQUIPMENT AND TELEPHONE SERVICE. GROUNDING SHALL BE CONNECTED TO THE HUTCHINSON'S GROUNDING GRID. 6. THE DATA INFORMATION COLLECTED BY THE RTU WILL BE ACCESSED BY HUTCHINSON'S TELECOMMUNICATION FACILITIES ON A CONTINUOUS BASIS. HUTCHINSON SHALL ALLOW UFC TO ACCESS VOLUMES, TEMPERATURE AND PRESSURE AT THE INTERCONNECT. HUTCHINSON WILL DEDICATE A COMMUNICATION PORT ON HUTCHINSON'S FLOW COMPUTER FOR READ ONLY USE BY UFC. UFC AGREES THAT SUCH INTERCONNECTION WILL NOT CAUSE INTERFERENCE TO HUTCHINSON'S EQUIPMENT. HUTCHINSON MAKES NO WARRANTIES AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA PROVIDED TO UFC PURSUANT TO THIS AGREEMENT. UFC HEREBY ASSUMES FULL RESPONSIBILITY FOR AND RISKS OF BODILY INJURY, DEATH OR PROPERTY DAMAGE ARISING OUT OF UFC'S USE OF DATA PROVIDED BY HUTCHINSON. UFC HEREBY RELEASES, DISCHARGES AND AGREES TO INDEMNIFY, DEFEND AND HOLD HUTCHINSON HARMLESS FROM AND AGAINST ANY AND ALL ACTIONS, CLAIMS, LIABILITIES OR DAMAGES ARISING OUT OF THE USE OF SUCH DATA. PAGE 1 4 7. THE CUSTODY TRANSFER POINT WILL BE LOCATED AT THE OUTLET FLANGE OF THE METER ASSEMBLY. UFC SHALL INSTALL A BLOCK VALVE AT THE OUTLET OF THE CUSTODY TRANSFER POINT. 8. UFC SHALL BE RESPONSIBLE FOR THE CONSTRUCTION OF THE UFC INTERCONNECT FACILITIES, PROVIDED THAT HUTCHINSON SHALL HAVE THE RIGHT TO APPROVE THE DESIGN OF ALL UFC INTERCONNECT FACILITIES AT THE BROWNTON INTERCONNECT STATION. HUTCHINSON SHALL HAVE THE RIGHT TO REVIEW ALL CONSTRUCTION PROCEDURES AND TO INSPECT ALL CONSTRUCTION WORK IN PROGRESS FOR THE UFC INTERCONNECT FACILITIES LOCATED AT THE BROWNTON INTERCONNECT STATION. IF IT SHOULD APPEAR THAT ANY OF THE CONSTRUCTION WORK ON THE UFC INTERCONNECT FACILITIES 1S ENDANGERING THE FACILITIES OF HUTCHINSON, THEN HUTCHINSON SHALL HAVE THE RIGHT TO STOP WORK UNTIL NECESSARY CORRECTIONS ARE MADE AND APPROVED BY HUTCHINSON. HUTCHINSON SHALL HAVE THE RIGHT TO HAVE AT LEAST ONE REPRESENTATIVE PRESENT WHEN ANY WORK IS REQUIRED AT THE BROWNTON INTERCONNECT STATION. UFC SHALL NOTIFY HUTCHINSON AS TO THE SCHEDULE AND THE NATURE OF ANY WORK TO BE PERFORMED NO LESS THAN ONE (1) WEEK IN ADVANCE OF THE WORK. 9. IF ADDITIONAL PROPERTY ADJACENT TO THE BROWNTON INTERCONNECT STATION IS NECESSARY TO CONSTRUCT, OPERATE AND TO OBTAIN ACCESS TO THE HUTCHINSON INTERCONNECT FACILITIES, SUCH ADDITIONAL PROPERTY AND RIGHT- OF-WAY SHALL BE ACQUIRED BY UFC. 10. UFC SHALL OBTAIN ALL OF THE PROPERTY OR RIGHT -OF -WAY NECESSARY FOR THE CONSTRUCTION, OPERATION AND ACCESS TO THE UFC INTERCONNECT FACILITIES AND UFC'S RELATED FACILITIES. UFC SHALL OBTAIN AND COMPLY WITH ALL APPLICABLE REGULATORY AND /OR ENVIRONMENTAL PERMITS AND CLEARANCES NECESSARY FOR THE CONSTRUCTION AND OPERATION OF UFC'S FACILITIES. UFC SHALL BE IN COMPLIANCE WITH ALL FEDERAL, STATE, AND LOCAL LAWS AND REGULATIONS THAT GOVERN THE OPERATION OF THE UFC INTERCONNECT FACILITIES. UFC SHALL BE RESPONSIBLE FOR THE GENERAL MAINTENANCE AND SITE UP -KEEP (INCLUDING PAINTING, WEED CONTROL, AND GENERAL BUILDING AND GROUND MAINTENANCE) OF THE UFC AND HUTCHINSON PAGE 1 5 INTERCONNECT SITE, ALTHOUGH UFC SHALL OPERATE AND MAINTAIN THE UFC INTERCONNECT FACILITIES. 11. UFC SHALL OBTAIN ALL OF THE PROPERTY OR 'RIGHT -OF -WAY NECESSARY FOR THE CONSTRUCTION, OPERATION AND ACCESS TO THE HUTCHINSON INTERCONNECT FACILITIES. HUTCHINSON SHALL OBTAIN AND BE IN COMPLIANCE WITH ALL APPLICABLE REGULATORY AND /OR ENVIRONMENTAL PERMITS AND CLEARANCES NECESSARY FOR THE CONSTRUCTION AND OPERATION OF ITS FACILITIES. HUTCHINSON SHALL BE IN COMPLIANCE WITH ALL FEDERAL, STATE, AND LOCAL LAWS AND REGULATIONS THAT GOVERN THE OPERATION OF THE HUTCHINSON INTERCONNECT FACILITIES. 12. HUTCHINSON WILL OPERATE AND MAINTAIN THE HUTCHINSON INTERCONNECT FACILITIES. UFC SHALL PAY TO HUTCHINSON A MONTHLY OPERATION AND MAINTENANCE FEE FOR ROUTINE SERVICES OF $660 PER MONTH EFFECTIVE WITH THE IN- SERVICE DATE OF THE HUTCHINSON INTERCONNECT FACILITIES. THIS CHARGE WILL BE ADJUSTED, STARTING EFFECTIVE WITH THE IN- SERVICE DATE OF THE FACILITIES AND ON EACH ANNIVERSARY DATE THEREAFTER, ACCORDING TO ANY CHANGE IN THE CPI -U FROM THE PREVIOUS YEAR; PROVIDED, HOWEVER, THAT SUCH CHARGE SHALL NEVER BE LESS THAN $660.00. CPI -U SHALL MEAN THE ANNUAL AVERAGE CONSUMER PRICE INDEX -- ALL URBAN CONSUMERS AS PUBLISHED BY THE UNITED STATES DEPARTMENT OF LABOR, BUREAU OF STATISTICS, WASHINGTON, D.C. FOR PURPOSES OF THIS AGREEMENT, ROUTINE SERVICES SHALL INCLUDE THE FOLLOWING: GENERAL MAINTENANCE AND MONTHLY TESTING OF THE HUTCHINSON INTERCONNECT FACILITIES (INCLUDING MONTHLY CALIBRATION OF PRESSURE AND TEMPERATURE TRANSMITTERS, REMOTE TERMINAL UNIT MAINTENANCE, AND ANNUAL INSPECTION AND PROVING OF METERS); NOT INCLUDING RESTORATION OF DAMAGE TO RIGHT -OF -WAY, SITES, BUILDINGS, THE HUTCHINSON INTERCONNECT FACILITIES, OR PIPING CAUSED BY FLOODING, FIRE OR FROST HEAVING. 12.1 UFC SHALL ALSO REIMBURSE HUTCHINSON FOR ANY MATERIALS AND SUPPLIES PURCHASED AND CONTRACTED SERVICES (AT THE RATES AS PROVIDED IN SECTIONS 16.2 AND 16.3) IN CONNECTION WITH THE PROVISION OF ROUTINE SERVICES. PAGE 1 6 1 3. IN ADDITION TO THE ROUTINE SERVICES SET FORTH ABOVE, HUTCHINSON SHALL PERFORM SPECIAL SERVICES FROM TIME TO TIME AS HUTCHINSON DETERMINES, IN ITS SOLE DISCRETION, ARE NECESSARY TO MAINTAIN THE HUTCHINSON INTERCONNECT FACILITIES UPON THE PRIOR WRITTEN APPROVAL OF UFC. "SPECIAL SERVICES" MAY INCLUDE, WITHOUT LIMITATION, THE FOLLOWING: (1) MAINTENANCE OF ROADS, (11) SPECIAL CONSTRUCTION; (111) OPERATION OR MAINTENANCE SERVICES; (IV) RECONSTRUCTION AND RECONDITIONING OF EQUIPMENT; AND (V) OVERHAUL, AND /OR REPLACEMENT OF THE HUTCHINSON INTERCONNECT FACILITIES. HUTCHINSON WILL PROCURE AND FURNISH ALL MATERIALS, EQUIPMENT, SUPPLIES, SERVICES, AND LABOR NECESSARY FOR SUCH SPECIAL SERVICES. IF UFC APPROVES SUCH SPECIAL SERVICES, EXPENSES WILL BE PAID IN ACCORDANCE WITH SECTION 16 BELOW, AND HUTCHINSON SHALL INVOICE UFC FOR ALL SUCH EXPENSES SO INCURRED AND UFC SHALL PAY THE INVOICED AMOUNTS. 14. IN CASE OF AN EXPLOSION, FIRE, STORM, OR OTHER EMERGENCY THAT MAY THREATEN LIFE OR PROPERTY OR RENDER THE HUTCHINSON INTERCONNECT FACILITIES OR ANY PART THEREOF INCAPABLE OF CONTINUED OPERATION, HUTCHINSON MAY, AT ITS SOLE DISCRETION, PROVIDE SUCH SERVICES (HEREIN CALLED "EMERGENCY SERVICES ") AND INCUR SUCH EXPENSES AS IN ITS SOLE OPINION ARE REQUIRED AND CAN BE PROVIDED BY HUTCHINSON TO DEAL WITH SUCH EMERGENCY, AND SHALL IMMEDIATELY REPORT SUCH EMERGENCY TO UFC. AS SOON AS PRACTICAL AFTER SUCH EXPENSES HAVE BEEN INCURRED, HUTCHINSON SHALL NOTIFY UFC THAT SUCH EXPENSES HAVE BEEN INCURRED, AND IN ACCORDANCE WITH SECTION 16 BELOW, SHALL INVOICE UFC FOR ALL SUCH EXPENSES SO INCURRED AND UFC SHALL PAY THE INVOICED AMOUNTS. 15. HUTCHINSON SHALL INVOICE UFC ON OR BEFORE THE-LAST DAY OF EACH MONTH FOR THE FOLLOWING AMOUNTS: (1) THE FOLLOWING MONTHS` OPERATION AND MAINTENANCE FEE; (1I) THE PREVIOUS MONTH'S MATERIALS AND SUPPLIES PURCHASED; ([[t) THE PREVIOUS MONTH'S CONTRACTED SERVICES; AND (IV) ANY AMOUNT DUE UNDER SECTIONS 13 AND 14. THE FIRST INVOICE SHALL INCLUDE A PRO- RATION FOR THE MONTH THAT THE HUTCHINSON INTERCONNECT FACILITIES ARE PLACED IN SERVICE. INCREASES IN EQUIPMENT AND PAGE 1 7 PERSONNEL RATES SHALL BE BASED ON HUTCHINSON'S ACTUAL INCREASE IN SUCH COSTS FROM ITS 201 1 COSTS, AND SHALL NOT EXCEED THE RATES CHARGED TO ANY OTHER ENTITY FOR USE OF HUTCHINSON'S PERSONNEL AND EQUIPMENT. HUTCHINSON WILL NOTIFY UFC OF ANY SUCH INCREASE AT LEAST 60 DAYS PRIOR TO THE ANNIVERSARY DATE OF THE IN- SERVICE DATE OF THE HUTCHINSON INTERCONNECT FACILITIES. IN THE EVENT PAYMENT OF ANY INVOICE AMOUNT IS NOT MADE WITHIN 10 DAYS OF RECEIPT OF THE INVOICE, INTEREST SHALL ACCRUE ON ALL UNPAID AMOUNTS AT THE RATE OF 10% PER ANNUM. 16. THE CHARGES FOR SPECIAL SERVICES SHALL BE COMPUTED IN ACCORDANCE WITH THE RATES PROVIDED IN EXHIBIT A, ATTACHED HERETO AND INCORPORATED BY THIS REFERENCE. THE CHARGES FOR ANY STANDBY EQUIPMENT, MATERIALS AND SUPPLIES, CONTRACTED SERVICES, RENTALS AND REIMBURSABLE EXPENSES OF EMPLOYEES INCURRED IN CONJUNCTION WITH THE PERFORMANCE OF THE SPECIAL SERVICES SHALL BE IN ADDITION TO THE CHARGES COMPUTED IN ACCORDANCE WITH THE RATES PROVIDED IN EXHIBIT A AND SHALL BE CALCULATED IN ACCORDANCE WITH SECTIONS 16.1 THROUGH 16.6 BELOW. THE CHARGES FOR EMERGENCY SERVICES SHALL BE COMPUTED IN ACCORDANCE WITH THE RATES PROVIDED IN EXHIBIT A. THE CHARGES FOR ANY STANDBY EQUIPMENT, MATERIALS AND SUPPLIES, CONTRACTED SERVICES, RENTALS AND REIMBURSABLE EXPENSES OF EMPLOYEES INCURRED IN CONJUNCTION WITH THE PERFORMANCE OF THE EMERGENCY SERVICES SHALL BE IN ADDITION TO THE CHARGES COMPUTED IN ACCORDANCE WITH THE RATES PROVIDED IN EXHIBIT A AND SHALL BE CALCULATED IN ACCORDANCE WITH SECTIONS 16.1 THROUGH 16.6 BELOW. 16.1 STANDBY EQUIPMENT. THE CHARGES FOR EQUIPMENT MOBILIZED AND STANDING BY FOR THE PROVISIONS OF SPECIAL SERVICES OR EMERGENCY SERVICES SHALL BE COMPUTED USING ONE-HALF (1 /2) THE RATES PROVIDED IN EXHIBIT A. 16.2 MATERIALS AND SUPPLIES. THE CHARGES FOR MATERIALS AND SUPPLIES PURCHASED IN CONJUNCTION WITH THE PROVISION PAGE 1 8 OF ROUTINE SERVICES, SPECIAL SERVICES OR EMERGENCY SERVICES SHALL BE THE ACTUAL COST OF SUCH MATERIALS AND SUPPLIES PLUS 15% (FIFTEEN PERCENT) OF THE COST FOR BILLING AND HANDLING. 16.3 CONTRACTED SERVICES. THE CHARGES FOR ANY PORTION OF THE ROUTINE SERVICES, SPECIAL SERVICES, OR EMERGENCY SERVICES THAT HUTCHINSON CONTRACTS FOR WITH OTHERS SHALL BE THE ACTUAL COST OF SUCH SERVICES PLUS 15% (FIFTEEN PERCENT) OF THE COST FOR BILLING AND HANDLING. 16.4 RENTALS. THE CHARGES FOR ANY RENTALS USED IN CONJUNCTION WITH THE PROVISION OF SPECIAL SERVICES OR EMERGENCY SERVICES SHALL BE THE ACTUAL COST OF SUCH RENTAL PLUS 15% (FIFTEEN PERCENT) OF THE COST FOR BILLING AND HANDLING. 16.5 REIMBURSABLE EXPENSES OF EMPLOYEES. REASONABLE PERSONAL AND TRAVEL EXPENSES OF EMPLOYEES IN THE PERFORMANCE OF SPECIAL OR EMERGENCY SERVICES WHICH INCLUDE MEALS, LODGING AND THE NECESSARY OUT -OF- POCKET REIMBURSABLE EXPENDITURES INCURRED BY EMPLOYEES IN THE PERFORMANCE OF THEIR DUTIES. 16.6 CALCULATION OF CHARGES USING THE RATES SET FORTH IN EXHIBIT A. ALL RATES SET FORTH IN EXHIBIT A INCLUDE FUEL, LABOR BURDENS AND OVERHEADS. THE NUMBER OF HOURS /MILES USED IN CALCULATING THE CHARGES FOR SPECIAL SERVICES, EMERGENCY SERVICES, AND STANDBY EQUIPMENT WILL BEGIN WHEN EQUIPMENT AND PERSONNEL LEAVE THEIR HOME BASE LOCATION AND CONTINUE UNTIL THEIR RETURN TO THEIR HOME BASE. 17. UFC SHALL REIMBURSE HUTCHINSON FOR ALL OF THE COSTS FOR THE DESIGN, PURCHASE, CONSTRUCTION AND INSTALLATION OF THE HUTCHINSON INTERCONNECT FACILITIES. UFC SHALL ALSO REIMBURSE HUTCHINSON FOR ALL TAXES INCURRED BY HUTCHINSON IN CONNECTION WITH THE CONSTRUCTION, OPERATION AND MAINTENANCE OF THE HUTCHINSON INTERCONNECT FACILITIES. SUBJECT TO 17.3, UFC SHALL REIMBURSE HUTCHINSON FOR: (1) THE COSTS AND TAXES AS PROVIDED IN THIS SECTION; (II) THE OPERATION PAGE 1 9 AND MAINTENANCE FEE AND OTHER CHARGES AS PROVIDED IN SECTIONS 12 AND 16; AND (III) THE FEES AND EXPENSES FOR SPECIAL SERVICES AND EMERGENCY SERVICES AS PROVIDED IN SECTIONS 13, 14 AND 16, WITHIN 10 DAYS OF THE DATE OF AN INVOICE(S) REFLECTING THE AMOUNTS TO BE REIMBURSED. 1 7. 1 IF PAYMENT FOR ANY OF THE INVOICED AMOUNTS AS PROVIDED IN THE PARAGRAPH ABOVE IS NOT MADE BY UFC WITHIN 10 DAYS OF THE DATE OF SUCH INVOICE(S), THE UNPAID BALANCE SHALL BEAR INTEREST FROM THE 1 OTH DAY AFTER THE BILLING DATE UNTIL PAID AT THE RATE OF 10% PER ANNUM. ALL COMPUTATIONS OF INTEREST SHALL BE MADE ON THE BASIS OF A YEAR OF 360 DAYS FOR THE ACTUAL NUMBER OF DAYS. 17.2 UFC MAY, WITHIN ONE CALENDAR YEAR FROM THE DATE OF ANY INVOICE, TAKE WRITTEN EXCEPTION TO ANY INVOICE, BILLING OR STATEMENT RENDERED BY HUTCHINSON FOR ANY AMOUNT CHARGED. UFC SHALL NEVERTHELESS PAY IN FULL WHEN DUE ALL INVOICES, BILLINGS OR STATEMENTS SUBMITTED BY HUTCHINSON FOR ALL COSTS INCURRED BY HUTCHINSON FOR WHICH UFC IS REQUIRED TO REIMBURSE HUTCHINSON AS PROVIDED IN THIS AGREEMENT. IF, HOWEVER, THE AMOUNT AS TO WHICH SUCH WRITTEN EXCEPTION IS TAKEN OR ANY PART THEREOF IS ULTIMATELY DETERMINED BY THE PARTIES NOT TO HAVE BEEN INCURRED IN ACCORDANCE WITH THIS AGREEMENT OR NOT TO HAVE BEEN A PROPER EXPENSE OR EXPENDITURE INCURRED IN GOOD FAITH WHEN MADE, SUCH AMOUNT OR PORTION THEREOF (AS THE CASE MAY BE) SHALL BE REFUNDED BY HUTCHINSON TO UFC TOGETHER WITH INTEREST THEREON AT THE RATE OF INTEREST PER ANNUM AS DEFINED IN THE PRECEDING PARAGRAPH ABOVE FOR THE PERIOD FROM THE DATE OF PAYMENT BY UFC TO THE DATE OF REFUND BY HUTCHINSON. 17.3 UFC, AFTER 15 DAYS NOTICE IN WRITING TO HUTCHINSON, SHALL HAVE THE RIGHT DURING NORMAL BUSINESS HOURS TO AUDIT, AT ITS OWN EXPENSE, FOR A PERIOD OF ONE YEAR AFTER THE END OF THE YEAR IN WHICH THE HUTCHINSON INTERCONNECT FACILITIES ARE COMPLETED AND DETERMINED READY FOR SERVICE, AND DURING THE TERM OF THIS AGREEMENT, HUTCHINSON'S BOOKS AND RECORDS RELATING PAGE I 10 TO THE HUTCHINSON INTERCONNECT FACILITIES. SUCH AUDITS SHALL NOT BE COMMENCED MORE OFTEN THAN ONCE EACH CALENDAR YEAR. HUTCHINSON SHALL RETAIN ALL ACCOUNTS AND RECORDS RELATING TO THE CONSTRUCTION OF THE HUTCHINSON INTERCONNECT FACILITIES FOR SAID ONE-YEAR PERIOD. IN THE EVENT ANY ERRORS ARE DETECTED BY SUCH AUDIT, PAYMENT WILL BE MADE WITHIN TEN (1 O) BUSINESS DAYS BY THE PARTY WHOSE PAYMENT OR OVER COLLECTION HAS BEEN IN ERROR. 18. HUTCHINSON WILL INSPECT AND TEST THE METERING INSTRUMENTATION IN ACCORDANCE WITH HUTCHINSON'S OPERATING PROCEDURES, WHILE UFC WILL HAVE THE RIGHT TO WITNESS SUCH INSPECTION AND TESTING. THE METER WILL UNDERGO A FLOW CALIBRATION PRIOR TO DELIVERY. A METER CALIBRATION REPORT CAN BE PROVIDED TO UFC. HUTCHINSON SHALL GIVE UFC PRIOR NOTICE OF ALL SCHEDULED INSTRUMENTATION INSPECTIONS AND TESTING. UFC WILL ALSO HAVE THE RIGHT TO AUDIT THE RECORDS OF THE MEASUREMENT EQUIPMENT AT THE METERING FACILITIES. 19. ALL METERING OF GAS QUANTITIES DELIVERED AND SUBSEQUENT BILLING SHALL BE DONE BY HUTCHINSON USING EFM. FLOWING VOLUMES WILL BE CALCULATED IN ACCORDANCE WITH INDUSTRY STANDARDS AND ADJUSTED FOR TEMPERATURE AND PRESSURE (AT A PRESSURE BASE OF 14.73 PSIG AND A TEMPERATURE BASE OF 60° F). GAS QUALITY VALUES WILL BE PROVIDED AS DETERMINED BY HUTCHINSON AND WILL BE UTILIZED FOR PURPOSES OF CALCULATING FLOW PARAMETERS. 20. UFC SHALL BE RESPONSIBLE FOR ANY GAS LOST DUE TO THE UFC INTERCONNECT FACILITIES. UFC WILL BE RESPONSIBLE FOR ALL LOSS AND DAMAGE TO HUTCHINSON'S PROPERTY WHICH RESULTS FROM THE NEGLIGENT ACTS OR OMISSIONS OF UFC OR ITS AGENTS, EMPLOYEES, REPRESENTATIVE OR CONTRACTORS IN THE DESIGN, CONSTRUCTION, OPERATION OR MAINTENANCE OF UFC INTERCONNECT FACILITIES. 21 . HUTCHINSON SHALL BE RESPONSIBLE FOR ANY GAS LOST DUE TO THE FACILITIES IT OWNS. HUTCHINSON WILL BE RESPONSIBLE FOR ALL LOSS AND DAMAGE TO UFC'S PROPERTY WHICH RESULTS FROM THE NEGLIGENT ACTS OR OMISSIONS OF HUTCHINSON OR ITS PAGE 1 1 1 AGENTS, EMPLOYEES, REPRESENTATIVES OR CONTRACTORS IN THE DESIGN, CONSTRUCTION, OPERATION OR MAINTENANCE OF HUTCHINSON'S FACILITIES. 22. IN THE EVENT OF HUTCHINSON OR UFC BEING RENDERED UNABLE, WHOLLY OR IN PART, BY FORCE MAJEURE TO CARRY OUT ITS OBLIGATIONS UNDER THIS AGREEMENT, EXCEPT PAYMENT OF MONEY, IT IS AGREED UPON BY SUCH PARTY GIVING NOTICE AND REASONABLY FULL PARTICULARS OF SUCH FORCE MAJEURE IN WRITING OR BY FACSIMILE OR TELEPHONE FOLLOWED BY WRITTEN CONFIRMATION TO THE OTHER PARTY WITHIN A REASONABLE TIME AFTER THE OCCURRENCE OF THE CAUSE RELIED ON, THEN THE OBLIGATIONS OF THE PARTY GIVING SUCH NOTICE, SO FAR AS IT IS AFFECTED BY SUCH FORCE MAJEURE, SHALL BE SUSPENDED DURING THE CONTINUANCE OF ANY LIABILITY SO CAUSED, BUT FOR NO LONGER PERIOD, AND SUCH CAUSE SHALL SO FAR AS POSSIBLE BE REMEDIED WITH ALL REASONABLE DISPATCH. THE TERM "FORCE MAJEURE" AS USED HEREIN, SHALL MEAN ANY ACTS OF GOD, STRIKES, LOCKOUTS OR OTHER LABOR DISPUTES OR INDUSTRIAL DISTURBANCES, ACTS OF THE PUBLIC ENEMY, WARS, TERRORISM, BLOCKADES, INSURRECTIONS, RIOTS, EPIDEMICS, LANDSLIDES, LIGHTNING, EARTHQUAKES, FIRES, HURRICANES, TORNADOES, OTHER STORMS, FLOODS, WASHOUTS OR OTHER ACT OF NATURE, CIVIL DISTURBANCES, EXPLOSIONS, BREAKAGE, ACCIDENT OR REPAIRS TO MACHINERY OR LINES OF PIPE, TEMPORARY OR PERMANENT FAILURE OF GAS SUPPLY, INABILITY TO OBTAIN OR UNAVOIDABLE DELAY IN OBTAINING PIPE, MATERIALS OR OTHER EQUIPMENT, ACTS OR BINDING ORDERS OF ANY COURT OR OTHER GOVERNMENTAL AUTHORITY WHETHER OR NOT HAVING JURISDICTION, AND ANY OTHER CAUSE, WHETHER SIMILAR OR DISSIMILAR TO ANY ABOVE ENUMERATED, NOT REASONABLY WITHIN THE CONTROL OF THE PARTY CLAIMING RELIEF FROM LIABILITY AND WHICH SUCH PARTY WAS OR WOULD HAVE BEEN UNABLE TO PREVENT BY THE EXERCISE OF DUE DILIGENCE. FAILURE TO PREVENT OR SETTLE ANY STRIKE OR STRIKES OR ANY DISPUTE LEADING TO A LOCKOUT SHALL NOT BE CONSIDERED TO BE MATTER WITHIN THE CONTROL OF THE PARTY CLAIMING RELIEF. 23. UFC SHALL DEFEND, PROTECT, INDEMNIFY, AND HOLD HARMLESS HUTCHINSON, ITS MEMBERS, DIRECTORS, OFFICERS, EMPLOYEES AND PAGE 1 12 AGENTS FROM AND AGAINST ALL LIABILITY, CLAIMS, LIENS, COSTS, EXPENSES, DEMANDS, SUITS AND CAUSES OF ACTION OF EVERY KIND AND CHARACTER ARISING IN FAVOR OF ANY PERSON OR PARTY, INCLUDING THE PARTIES HERETO, AND THEIR EMPLOYEES AND REPRESENTATIVES, ON ACCOUNT OF PERSONAL INJURIES OR DEATH, OR DAMAGES TO PROPERTY (INCLUDING WITHOUT LIMITATION, CLAIMS FOR POLLUTION AND ENVIRONMENTAL DAMAGE) IN ANY WAY DIRECTLY RESULTING FROM THE NEGLIGENT ACTS OR OMISSIONS OF UFC, ITS AGENTS, EMPLOYEES, REPRESENTATIVES OR CONTRACTORS. THIS INDEMNITY INCLUDES UFC'S AGREEMENT TO PAY ALL COSTS OF DEFENSE, INCLUDING WITHOUT LIMITATION ATTORNEYS' FEES, INCURRED BY ANY PERSON OR PARTY INDEMNIFIED HEREIN. 24. EXCEPT AS PROVIDED IN SECTION 6, HUTCHINSON SHALL DEFEND, PROTECT, INDEMNIFY, AND HOLD HARMLESS UFC, ITS MEMBERS, DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS FROM AND AGAINST ALL LIABILITY, CLAIMS, LIENS, COSTS, EXPENSES, DEMANDS, SUITS AND CAUSES OF ACTION OF EVERY KIND AND CHARACTER ARISING IN FAVOR OF ANY PERSON OR PARTY, INCLUDING THE PARTIES HERETO, AND THEIR EMPLOYEES AND REPRESENTATIVES, ON ACCOUNT OF PERSONAL INJURIES OR DEATH, OR DAMAGES TO PROPERTY (INCLUDING WITHOUT LIMITATION, CLAIMS FOR POLLUTION AND ENVIRONMENTAL DAMAGE) IN ANY WAY DIRECTLY RESULTING FROM THE NEGLIGENT ACTS OR OMISSIONS OF HUTCHINSON, ITS AGENTS, EMPLOYEES, REPRESENTATIVES OR CONTRACTORS. THIS INDEMNITY INCLUDES HUTCHINSON'S AGREEMENT TO PAY ALL COSTS OF DEFENSE, INCLUDING WITHOUT LIMITATION ATTORNEYS' FEES, INCURRED BY ANY PERSON OR PARTY INDEMNIFIED HEREIN. 25. UFC AGREES THAT THE OBLIGATIONS OF INDEMNIFICATION HEREUNDER INCLUDE, BUT WITHOUT LIMITATION, LIENS BY THIRD PERSONS AGAINST HUTCHINSON AND ITS PROPERTY BECAUSE OF LABOR, SERVICES, MATERIALS, OR ANY OTHER SUBJECT OF LIEN, FURNISHED TO UFC, ITS ASSIGNEES OR SUBCONTRACTORS, IN CONNECTION WITH THE WORK PERFORMED BY UFC HEREUNDER. 26. HUTCHINSON AGREES THAT THE OBLIGATIONS OF INDEMNIFICATION HEREUNDER INCLUDE, BUT WITHOUT LIMITATION, LIENS BY THIRD PERSONS AGAINST UFC AND ITS PROPERTY BECAUSE OF LABOR, SERVICES, MATERIALS, OR ANY OTHER SUBJECT OF LIEN, FURNISHED PAGE 1 13 TO HUTCHINSON, ITS ASSIGNEES OR SUBCONTRACTORS, IN CONNECTION WITH THE WORK PERFORMED BY HUTCHINSON HEREUNDER. 27. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES OF ANY NATURE WHATSOEVER ARISING OUT OF OR RELATED TO ACTIONS TAKEN OR OMISSIONS OF SUCH PARTY IN CONNECTION WITH THIS AGREEMENT. 28. AT ALL TIMES DURING THIS AGREEMENT, EACH PARTY SHALL OBTAIN AND MAINTAIN THE FOLLOWING INSURANCE: (A) WORKER'S COMPENSATION AND EMPLOYER'S LIABILITY INSURANCE IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE WORK IS PERFORMED WITH LIMITS FOR EMPLOYER'S LIABILITY OF $1,500,000 PER ACCIDENT OR DISEASE, AGGREGATE AS DISEASE. (B) COMMERCIAL GENERAL LIABILITY INSURANCE WITH COMPLETED OPERATIONS COVERAGE FOR CLAIMS ALLEGING BODILY INJURY INCLUDING DEATH, AND DAMAGE TO PROPERTY OF OTHERS, WITH A COMBINED SINGLE LIMIT OF $1,500,000 FOR BODILY INJURY AND PROPERTY DAMAGE PER OCCURRENCE AND $2,000,000 IN THE AGGREGATE. (C) AUTOMOBILE LIABILITY INSURANCE COVERING OWNED, NON - OWNED, AND HIRED VEHICLES WITH MINIMUM COMBINED SINGLE LIMITS FOR BODILY INJURY AND PROPERTY DAMAGE FOR ANY SINGLE LOSS OF $1,500,000. (D) EXCESS LIABILITY INSURANCE FOR CLAIMS ALLEGING BODILY INJURY INCLUDING DEATH AND DAMAGE TO PROPERTY WITH A COMBINED SINGLE LIMIT OF $5,000,000 FOR BODILY INJURY AND PROPERTY DAMAGE PER OCCURRENCE AND IN THE AGGREGATE. PAGE 1 14 HUC'S MAXIMUM LIABILITY IS LIMITED TO A COMBINED SINGLE LIMIT OF $1,500,000 BY MINNESOTA STATUTE. THE INSURANCE REQUIRED IN (B), (C) AND (D) SHALL REFLECT THAT THE OTHER PARTY IS AN ADDITIONAL INSURED. WITHIN THIRTY (30) DAYS OF EFFECTIVE DATE OF THIS AGREEMENT, EACH PARTY SHALL FURNISH TO THE OTHER PARTY CERTIFICATES AS EVIDENCE SHOWING THAT THE INSURANCE POLICIES TO BE CARRIED IN ACCORDANCE WITH THIS PROVISION HAVE BEEN OBTAINED. ALL INSURANCE TO BE CARRIED PURSUANT TO THE ABOVE SHALL BE ENDORSED TO REQUIRE THE INSURER TO FURNISH 30 DAYS' WRITTEN NOTICE PRIOR TO EFFECTIVE DATE OF ANY MODIFICATION OR CANCELLATION OF SUCH INSURANCE TO THE CERTIFICATE HOLDER. 29. DELIVERY OF NATURAL GAS VOLUMES TO THE UFC INTERCONNECT FACILITIES WILL BE MADE PURSUANT TO THE NATURAL GAS FIRM TRANSPORTATION CAPACITY AGREEMENT (THE "TRANSPORTATION AGREEMENT ") EXECUTED BETWEEN HUTCHINSON AND UFC. SHOULD ANY CONFLICT ARISE BETWEEN ANY PROVISION OF THIS INTERCONNECT AGREEMENT AND THAT OF THE TRANSPORTATION AGREEMENT, THE PROVISIONS OF HUTCHINSON'S TRANSPORTATION AGREEMENTS SHALL CONTROL. 30. HUTCHINSON SHALL HAVE THE RIGHT TO INSPECT AND AUDIT ALL BOOKS, RECORDS OR ANY OTHER SUPPORTING EVIDENCE OF UFC THAT HUTCHINSON DEEMS NECESSARY IN ORDER TO DETERMINE UFC'S COMPLIANCE WITH THIS AGREEMENT, HUTCHINSON POLICIES AND PROCEDURES, REGULATORY AUTHORITIES OR OTHER LAWS AND REGULATIONS. HUTCHINSON SHALL HAVE THE RIGHT TO RECEIVE COPIES OF ANY SUCH DOCUMENTATION REQUESTED. HUTCHINSON'S RIGHT TO AUDIT SHALL EXTEND THROUGHOUT THE TERM OF THIS AGREEMENT AND FOR A PERIOD OF THREE YEARS THEREAFTER OR LONGER IF REQUIRED BY LAW. 31. THIS AGREEMENT SHALL NOT BE ASSIGNED OR TRANSFERRED BY EITHER PARTY IN ANY MANNER, BY OPERATION OF LAW OR OTHERWISE, WITHOUT THE WRITTEN CONSENT OF THE OTHER PARTY, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED; PROVIDED HOWEVER, EITHER PARTY MAY WITHOUT THE NEED FOR CONSENT FROM THE OTHER PARTY (AND WITHOUT RELIEVING THE ASSIGNING PARTY FROM LIABILITY HEREUNDER) PAGE 1 15 TRANSFER OR ASSIGN ITS RIGHTS AND OBLIGATIONS HEREUNDER TO ANY PARENT, AFFILIATE OR SUBSIDIARY OF SUCH PARTY, PROVIDED, HOWEVER, THAT IN EACH SUCH CASE ANY SUCH ASSIGNEE SHALL AGREE IN WRITING TO BE BOUND BY THE TERMS AND CONDITIONS HEREOF. SUBJECT THERETO, THIS AGREEMENT SHALL INURE TO THE BENEFIT OF; AND BE BINDING UPON, THE SUCCESSORS, ASSIGNS, AND LEGAL REPRESENTATIVES OF THE RESPECTIVE PARTIES. 32. THIS AGREEMENT SHALL RUN CONCURRENTLY WITH THE NATURAL GAS FIRM TRANSPORTATION CAPACITY AGREEMENT ENTERED INTO BY THE PARTIES ON OR ABOUT THE SAME DATE AS THIS AGREEMENT. IN THE EVENT SAID TRANSPORTATION CAPACITY AGREEMENT IS TERMINATED, THIS AGREEMENT SHALL AUTOMATICALLY BE TERMINATED; IN THE EVENT SAID TRANSPORTATION CAPACITY AGREEMENT IS EXTENDED BEYOND ITS INITIAL TERM, THIS AGREEMENT SHALL BE AUTOMATICALLY EXTENDED FOR AN IDENTICAL EXTENDED TERM. THIS PROVISION SHALL NOT PREVENT THE PARTIES FROM ENTERING INTO A NEW, EXTENDED, OR AMENDED INTERCONNECT AGREEMENT TO REPLACE THIS AGREEMENT, PROVIDED THAT SUCH NEW, EXTENDED, OR AMENDED AGREEMENT IS IN WRITING, SPECIFICALLY PROVIDES THAT IT IS A MODIFICATION OF THIS AGREEMENT, AND IS EXECUTED BY BOTH PARTIES. 33. THIS AGREEMENT SETS FORTH ALL UNDERSTANDINGS BETWEEN THE PARTIES AS OF THE EFFECTIVE DATE HEREIN. ANY PRIOR CONTRACTS, UNDERSTANDINGS AND REPRESENTATIONS, WHETHER ORAL OR WRITTEN, RELATING TO THE MATTERS ADDRESSED IN THIS AGREEMENT ARE MERGED INTO AND SUPERSEDED BY THIS AGREEMENT. THIS AGREEMENT MAY BE AMENDED ONLY BY A WRITING EXECUTED BY BOTH PARTIES. 34. IT IS UNDERSTOOD BY UFC THAT IT IS ECONOMICALLY FEASIBLE TO ENTER INTO THIS AGREEMENT TO PROVIDE A PIPELINE INTERCONNECT TO UFC ONLY DUE TO THE FACT THAT HUTCHINSON IS AN UNREGULATED MUNICIPAL UTILITY. IF AT ANY TIME ANY OF THE ACTIVITIES COVERED UNDER THIS AGREEMENT BECOME SUBJECT TO REGULATION BY THE PUBLIC UTILITIES COMMISSION OF THE STATE OF MINNESOTA OR ANY OTHER STATE OR FEDERAL AGENCY WHICH WOULD NOT CURRENTLY CONTROL THE ACTIVITIES OF HUTCHINSON UNDER THIS AGREEMENT, HUTCHINSON SHALL HAVE THE OPTION, AT ITS SOLE DISCRETION, TO PASS ALL COSTS INCURRED, DUE TO PAGE 1 16 HUTCHINSON'S REGULATION, TO UFC FOR THE LENGTH OF THIS AGREEMENT. 35. THIS AGREEMENT, AS WELL AS THE TRANSPORTATION CAPACITY AGREEMENT AND THE COMMODITY AGREEMENT ENTERED INTO BETWEEN THE PARTIES, SHALL NOT TAKE EFFECT UNTIL HUTCHINSON HAS RECEIVED A SIGNED RESOLUTION BY THE GOVERNING BOARD OF UFC DIRECTING HUTCHINSON TO PROCEED WITH ITS RESPONSIBILITIES UNDER THIS AGREEMENT. PAGE 1 17 IN WITNESS WHEREOF, UFC AND HUTCHINSON HAVE EXECUTED THIS AGREEMENT IN TWO (2) DUPLICATE ORIGINALS, EFFECTIVE AS OF THE DATE FIRST WRITTEN ABOVE. HUTCHINSON UTILITIES COMMISSION BY: NAME: TITLE: COMMISSION PRESIDENT DATE:--/ j _ WITNESS: � DATE: J `'� e j-Z UNITED FARMERS COOPERATIVE BY:' r v'r - NAME: jilt;?-s:vo TITLE: DATE: 44--7- WITNESS: J DATE: 2 �Z_' PAGE 1 18 EXHIBIT A PAGE 1 OF 2 HUTCHINSON UTILITIES COMMISSON 2012 EQUIPMENT RATES EQUIPMENT RATE PER HOUR PICKUP $47.00 BACKHOE $80.00 WELDER $52.00 AIR COMPRESSOR $42.00 VACTRON $70.00 NOTE: ALL EQUIPMENT RENTED OR 3RD PARTY CONTRACTOR HIRED BY HUTCHINSON UTILITIES COMMISSION WILL BE INVOICED AT ACTUAL COST PLUS 15% FOR BILLING AND HANDLING. PAGE 1 19 EXHIBIT A PAGE 2OF2 HUTCHINSON UTILITIES COMMISSON 2012 AVERAGE HOURLY RATES CLASSIFICATION REGULAR OVERTIME OPERATOR $60.00 $90.00 NOTE: ALL AVERAGE HOURLY RATES SHALL BE INCREASED ANNUALLY AS REFLECTED IN HUTCH[NSON'S LABOR AGREEMENT. PAGE 1 20 HUTCHINSON UTILITIES COMMISSION NATURAL GAS FIRM TRANSPORTATION CAPACITY AGREEMENT UNITED FARMERS COOPERATIVE JOHN WEBSTER 2/24/2012 THIS DOCUMENT SETS FORTH THE RATES AND CONDITIONS OF SERVICE FOR FIRM TRANSPORTATION CAPACITY PROVIDED TO UNITED FARMERS COOPERATIVE BY HUTCHINSON UTILITIES COMMISSION. Hutchinson Utilities Commission 225 Michigan Street SE Hutchinson, Minnesota 55350 -1905 Dwight Bordson President Craig Lenz Vice President Leon Johnson Secretary Monty Morrow Commissioner Anthony Hanson Commissioner Michael Kumm General Manager Tel 320 - 587 -4746 Fax 320 - 587 -4721 NATURAL GAS FIRM TRANSPORTATION CAPACITY AGREEMENT THIS NATURAL GAS FIRM TRANSPORTATION CAPACITY AGREEMENT ( "AGREEMENT ") IS MADE AND ENTERED INTO ON THIS DAY OF MARCH, 2012, TO BE EFFECTIVE AS OF THE 1 ST DAY OF SEPTEMBER, 2012, BY AND BETWEEN UNITED FARMERS COOPERATIVE ( "UFC ") WITH OFFICES LOCATED AT 705 E. 4TH STREET, PO BOX 461 , WINTHROP, MINNESOTA, 55396 AND HUTCHINSON UTILITIES COMMISSION ( "HUTCHINSON ") A MINNESOTA MUNICIPAL UTILITY LOCATED AT 225 MICHIGAN ST. SE, HUTCHINSON, MINNESOTA, 55350. UFC AND HUTCHINSON SHALL HEREINAFTER SOMETIMES BE REFERRED TO SEPARATELY AS "PARTY" OR JOINTLY AS "PARTIES." WITNESSETH: WHEREAS, UFC DESIRES TO CONTRACT WITH HUTCHINSON FOR THE PROVISION OF LONG-TERM FIRM TRANSPORTATION CAPACITY BY HUTCHINSON TO UFC; WHEREAS, HUTCHINSON HAS THE CAPABILITY TO PROVIDE UFC WITH LONG TERM FIRM TRANSPORTATION CAPACITY; NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND MUTUAL COVENANTS AND CONDITIONS CONTAINED IN THIS AGREEMENT, HUTCHINSON AND UFC AGREE AS FOLLOWS: PAGE I 1 1 . CHARACTER OF SERVICE. A. 1. OCTOBER THROUGH DECEMBER FIRM NATURAL GAS TRANSPORTATION SERVICE - HUTCHINSON SHALL PROVIDE TO UFC FIRM NATURAL GAS TRANSPORTATION CAPACITY IN THE AMOUNT OF 2,000 DTH PER DAY FOR THE OPERATING MONTHS OF OCTOBER THROUGH DECEMBER, COMMENCING ON THE 1 ST DAY OF OCTOBER, 2012, AND CONTINUING FOR AN INITIAL PERIOD OF 10 YEARS, THROUGH THE LAST DAY OF DECEMBER, 202 1, UNDER THE RATES, TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. THIS SERVICE SHALL ALWAYS BE AVAILABLE TO UFC UNLESS CURTAILED OR INTERRUPTED PURSUANT TO THE TERMS OF THIS AGREEMENT. THIS SERVICE MAY NOT BE CURTAILED OR INTERRUPTED EXCEPT PURSUANT TO THE TERMS OF THIS AGREEMENT. A.I1. JANUARY THROUGH SEPTEMBER FIRM NATURAL GAS TRANSPORTATION SERVICE - HUTCHINSON SHALL PROVIDE TO UFC VOLUMETRIC FIRM NATURAL GAS TRANSPORTATION CAPACITY IN THE AMOUNT OF 2,000 DTH PER DAY FOR THE OPERATING MONTHS OF JANUARY THROUGH SEPTEMBER, COMMENCING ON THE 1 ST DAY OF SEPTEMBER, 2012, AND CONTINUING FOR AN INITIAL PERIOD OF 10 YEARS, THROUGH THE LAST DAY OF AUGUST, 2022, UNDER THE RATES, TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. THIS SERVICE SHALL ALWAYS BE AVAILABLE TO UFC UNLESS CURTAILED OR INTERRUPTED PURSUANT TO THE TERMS OF THIS AGREEMENT. THIS SERVICE MAY NOT BE CURTAILED OR INTERRUPTED EXCEPT PURSUANT TO THE TERMS OF THIS AGREEMENT. B. OBLIGATION TO PROVIDE NATURAL GAS SUPPLY HUTCHINSON SHALL BE OBLIGATED TO PROVIDE, AND UFC SHALL BE OBLIGATED TO PURCHASE, ALL GAS SUPPLIES TO UFC FOR THE LENGTH OF THE COMMODITY AGREEMENT AS FURTHER SPECIFIED IN THE "COMMODITY AGREEMENT ". PAGE 1 2 1 1 C. SOLE OBLIGATION TO PROVIDE FIRM TRANSPORTATION CAPACITY - HUTCHINSON'S SOLE OBLIGATION UNDER THIS AGREEMENT IS TO PROVIDE FIRM CAPACITY TO UFC OVER WHICH UFC MAY TRANSPORT NATURAL GAS SUPPLIES PURCHASED FROM HUTCHINSON OR AN INDEPENDENT 3RD PARTY SUPPLIER. 2. AVAILABILITY AND CONDITIONS. A. GENERALLY - FIRM TRANSPORTATION SERVICE UNDER THIS AGREEMENT SHALL BE AVAILABLE TO UFC UNDER THE TERMS AND CONDITIONS OF THIS AGREEMENT. SUCH CAPACITY, UP TO THE MAXIMUM DAILY QUANTITY OF 2,000 DTH /DAY, SHALL ALWAYS BE AVAILABLE TO UFC UNLESS SUCH CAPACITY IS CURTAILED OR INTERRUPTED PURSUANT TO THE TERMS OF THIS AGREEMENT. THIS SERVICE MAY NOT BE CURTAILED OR INTERRUPTED EXCEPT PURSUANT TO THE TERMS OF THIS AGREEMENT. B. NATURAL GAS STANDARDS - GAS SUPPLIES TRANSPORTED BY UFC UNDER THE TERMS OF THIS AGREEMENT SHALL MEET THE STANDARDS REASONABLY SPECIFIED BY HUTCHINSON FROM TIME TO TIME. THE GAS SUPPLY STANDARDS SHALL BE IDENTICAL TO THE STANDARDS IMPOSED ON HUTCHINSON BY ITS INTERSTATE NATURAL GAS PIPELINE TRANSPORTER, NORTHERN BORDER PIPELINE COMPANY. C. METERING - METERING SHALL BE PROVIDED IN ACCORDANCE WITH THE HUTCHINSON - UFC INTERCONNECT AGREEMENT. D. CONTACT PERSONS UFC SHALL SUPPLY TO HUTCHINSON THE NAME, BUSINESS ADDRESS, A PRIMARY AND SECONDARY CONTACT PERSON, TELEPHONE NUMBERS FOR THE PRIMARY AND SECONDARY CONTACT PERSON, AND A TWENTY -FOUR HOUR EMERGENCY TELEPHONE NUMBER. 2. HUTCHINSON SHALL SUPPLY TO UFC THE NAME, BUSINESS ADDRESS, A PRIMARY AND SECONDARY PAGE 1 3 CONTACT PERSON, TELEPHONE NUMBERS FOR THE PRIMARY AND SECONDARY CONTACT PERSON, AND A TWENTY -FOUR HOUR EMERGENCY TELEPHONE NUMBER. E. COMPLIANCE WITH AGREEMENT - SERVICE UNDER THIS AGREEMENT SHALL NOT COMMENCE UNTIL BOTH PARTIES HAVE FULLY EXECUTED THIS AGREEMENT AND COMPLIED WITH ALL RELEVANT REQUIREMENTS CONTAINED HEREIN. F. DELIVERY POINTS - ATTACHMENT "A" TO THIS AGREEMENT SETS FORTH THE DELIVERY POINT(S) FOR DELIVERY OF NATURAL GAS FROM HUTCHINSON TO UFC. G. CONTRACT CHANGES - HUTCHINSON HAS THE RIGHT TO MODIFY THIS AGREEMENT DUE TO CHANGES IMPOSED BY 3RD PARTY ENTITIES. 3. TERM. THE INITIAL TERM FOR SERVICE UNDER THIS AGREEMENT IS TEN (1 O) YEARS. UFC MUST NOTIFY HUTCHINSON IN WRITING ONE (1) YEAR PRIOR TO THE EXPIRATION OF THE TERM IF UFC DESIRES TO CONTINUE SERVICE UNDER THIS AGREEMENT. IF UFC HAS COMPLIED WITH ALL TERMS OF THIS AGREEMENT, AND HAS NO OUTSTANDING ARREARAGES, UFC MAY, UPON WRITTEN NOTICE PROVIDED TO HUTCHINSON ONE (1) YEAR PRIOR TO THE EXPIRATION OF THE CURRENT TERM, EXTEND THIS AGREEMENT FOR A MUTUALLY AGREED -UPON PERIOD. IF A TERM FOR THE EXTENSION CANNOT BE AGREED UPON BY UFC AND HUTCHINSON, THE PARTIES AGREE TO A MINIMUM TERM OF (2) TWO YEARS. IF SUCH TIMELY NOTICE IS NOT PROVIDED BY UFC, HUTCHINSON IS NOT OBLIGATED TO RENEW SERVICE FOR UFC. REPRESENTATIVES OF HUTCHINSON AND UFC SHALL MEET APPROXIMATELY TWO (2) YEARS PRIOR TO THE EXPIRATION DATE OF THE INITIAL TERM OF THIS AGREEMENT TO DISCUSS FUTURE OPERATIONS. PAGE 1 4 4. RATES. A. RATES FOR SERVICE W THE FOLLOWING CHARGES SHALL APPLY TO THE FIRM TRANSPORTATION CAPACITY TO BE PROVIDED TO UFC BY HUTCHINSON: A.I. OCTOBER THROUGH NOVEMBER RESERVATION CHARGE, $0.20 /DTH OF MDQ /DAY THIS CHARGE WILL BE ADJUSTED, STARTING ON OCTOBER 1, 2013 AND ON EACH OCTOBER 1 THEREAFTER, ACCORDING TO ANY CHANGE IN THE CPI -U FROM THE PREVIOUS YEAR; PROVIDED, HOWEVER, THAT SUCH CHARGE SHALL NEVER BE LESS THAN $0.20. CPI -U SHALL MEAN THE ANNUAL AVERAGE CONSUMER PRICE INDEX -- ALL URBAN CONSUMERS AS PUBLISHED BY THE UNITED STATES DEPARTMENT OF LABOR, BUREAU OF STATISTICS, WASHINGTON, D.C. TRANSPORTATION CHARGE. $0.00 /DTH A.11. DECEMBER RESERVATION CHARGE, $0.30 /DTH OF MDQ /DAY THIS CHARGE WILL BE ADJUSTED, STARTING ON DECEMBER 1, 2013 AND ON EACH DECEMBER 1 THEREAFTER, ACCORDING TO ANY CHANGE IN THE CPI -U FROM THE PREVIOUS YEAR; PROVIDED, HOWEVER, THAT SUCH CHARGE SHALL NEVER BE LESS THAN $0.30. CPI -U SHALL MEAN THE ANNUAL AVERAGE CONSUMER PRICE INDEX - ALL URBAN CONSUMERS AS PUBLISHED BY THE UNITED STATES DEPARTMENT OF LABOR, BUREAU OF STATISTICS, WASHINGTON, D.C. PAGE 1 5 TRANSPORTATION CHARGE. $0.00 /DTH A.M. JANUARY THROUGH SEPTEMBER RESERVATION CHARGE, $0.00 /DTH OF MDQ /DAY TRANSPORTATION CHARGE. $0.54 /DTH, TOTAL CONSUMPTION EACH MONTH THIS CHARGE WILL BE ADJUSTED, STARTING ON JANUARY 1, 2014 AND ON EACH JANUARY 1 THEREAFTER, ACCORDING TO ANY CHANGE IN THE CPI-U FROM THE PREVIOUS YEAR; PROVIDED, HOWEVER, THAT SUCH CHARGE SHALL NEVER BE LESS THAN $0.54. CPI -U SHALL MEAN THE ANNUAL AVERAGE CONSUMER PRICE INDEX -- ALL URBAN CONSUMERS AS PUBLISHED BY THE UNITED STATES DEPARTMENT OF LABOR, BUREAU OF STATISTICS, WASHINGTON, D.C. B. THIRD PARTY CHARGES. UFC IS RESPONSIBLE FOR ALL CHARGES IMPOSED BY A SUPPLIER, BROKER, MARKETER, OR ANY OTHER THIRD PARTY FOR ANY SERVICE THAT IS PROVIDED TO, OR ON BEHALF OF, UFC BY ANY OF THESE ENTITIES. THESE CHARGES INCLUDE, BUT ARE NOT LIMITED TO, COST OF GAS, RESERVATION CHARGES, ADMINISTRATIVE FEES, BILLING FEES, MINIMUM TAKE CHARGES, AND ANY AND ALL OTHER TYPES OF CHARGES FROM ANY SUCH ENTITY. C. PENALTIES. SHOULD UFC, OR ITS DESIGNEE, DESIRE TO NOMINATE, OR FLOWS, VOLUMES FOR TRANSPORTATION IN EXCESS OF ITS TOTAL MDQ CONTRACTED FOR, SUCH EXCESS VOLUMES WILL BE INTERRUPTIBLE VOLUMES FOR NOMINATION AND SCHEDULING PURPOSES AND SHALL PAGE 1 6 BE BILLED AT TWO (2) TIMES THE FIRM TRANSPORTATION RATE IN AFFECT AT THE TIME. UFC SHALL PAY ANY FINES, ADDITIONAL AMOUNTS, OR PENALTIES IMPOSED UNDER THE TERMS OF THIS AGREEMENT. 5. BILLING AND PAYMENT. A. BILLING - RESERVATION INVOICE WILL BE RENDERED TO UFC OR ITS AGENT BY THE FIFTEENTH DAY OF THE MONTH PRECEDING THE MONTH IN WHICH SERVICE IS RENDERED BY HUTCHINSON. REMAINING BILLS WILL BE RENDERED TO UFC OR ITS AGENT BY THE FIFTEENTH DAY OF THE MONTH FOLLOWING THE MONTH IN WHICH SERVICE IS RENDERED BY HUTCHINSON. B. PAYMENT - PAYMENT IS DUE FROM UFC ON OR BEFORE THE FIFTEENTH DAY FOLLOWING THE DATE THE BILL IS ISSUED BY HUTCHINSON. A LATE PAYMENT CHARGE OF ONE AND ONE-HALF PERCENT PER MONTH, OR THE LEGALLY AUTHORIZED MAXIMUM INTEREST RATE, WHICHEVER IS LOWER, SHALL BE LEVIED ON ANY UNPAID BALANCES. C. PIPELINE, SUPPLIER, AND THIRD PARTY CHARGES - ANY CHARGES WHICH HUTCHINSON REASONABLY INCURS ON BEHALF OF UFC FROM ANY PIPELINE, SUPPLIER, OR OTHER THIRD PARTY, SHALL BE PASSED THROUGH TO, AND PAID IN FULL BY, UFC. HUTCHINSON SHALL PROVIDE TO UFC IN WRITING FULL DETAILS CONCERNING ANY SUCH CHARGES. D. GOOD FAITH DISPUTE - IF UFC, IN GOOD FAITH, DISPUTES THE AMOUNT OF ANY INVOICE RENDERED BY HUTCHINSON, OR ANY PART THEREOF, UFC SHALL PAY THE FULL AMOUNT OF THE INVOICE. HUTCHINSON SHALL PROMPTLY PROVIDE IN WRITING TO UFC SUPPORTING DOCUMENTATION ACCEPTABLE IN INDUSTRY PRACTICE TO SUPPORT THE AMOUNT INVOICED, AND UFC SHALL PROMPTLY PROVIDE TO HUTCHINSON IN WRITING THE BASIS FOR ANY DISPUTE, INCLUDING SUPPORTING DOCUMENTATION ACCEPTABLE IN INDUSTRY PRACTICE. IN THE EVENT THE PARTIES ARE UNABLE TO RESOLVE SUCH DISPUTE, EITHER PARTY MAY PURSUE ANY REMEDY AVAILABLE AT LAW OR PAGE 17 IN EQUITY TO ENFORCE ITS RIGHTS PURSUANT TO THIS PROVISION. E. RIGHT TO INSPECT - A PARTY SHALL HAVE THE RIGHT, AT ITS OWN EXPENSE, UPON REASONABLE NOTICE AND AT REASONABLE TIMES, TO EXAMINE AND AUDIT AND TO OBTAIN COPIES OF THE RELEVANT PORTION OF THE BOOKS, RECORDS, AND TELEPHONE RECORDINGS OF THE OTHER PARTY ONLY TO THE EXTENT REASONABLY NECESSARY TO VERIFY THE ACCURACY OF ANY STATEMENT, CHARGE, PAYMENT, OR COMPUTATION MADE UNDER THIS AGREEMENT. THIS RIGHT TO EXAMINE, AUDIT, AND TO OBTAIN COPIES SHALL NOT BE AVAILABLE WITH RESPECT TO PROPRIETARY INFORMATION NOT DIRECTLY RELEVANT TO TRANSACTIONS UNDER THIS AGREEMENT. F. FINALITY - ALL INVOICES AND BILLINGS SHALL BE CONCLUSIVELY PRESUMED FINAL AND ACCURATE AND ALL ASSOCIATED CLAIMS FOR UNDER- OR OVERPAYMENTS SHALL BE DEEMED WAIVED UNLESS SUCH INVOICES OR BILLINGS ARE OBJECTED TO, IN WRITING, WITH ADEQUATE EXPLANATION AND /OR DOCUMENTATION, WITHIN TWO YEARS AFTER THE INITIAL BILLING DATE FOR THE INVOICE OR BILL IN DISPUTE. 6. CONDITIONS OF SERVICE. FIRM CAPACITY REQUIREMENT - HUTCHINSON HEREBY CERTIFIES THAT IT HAS SUFFICIENT FIRM TRANSPORTATION CAPACITY TO PROVIDE THE AMOUNT OF FIRM TRANSPORTATION SERVICE TO UFC PURSUANT TO THE TERMS OF THIS AGREEMENT FOR THE TERM OF THIS AGREEMENT. 7. OPERATIONAL REQUIREMENTS. A. METERING - UNLESS OTHERWISE AGREED TO IN WRITING BY HUTCHINSON AND UFC, AUTOMATIC TELEMETERING EQUIPMENT IS REQUIRED. UFC SHALL PROVIDE TELEPHONE, COMPUTER, AND OTHER INTERFACES, AS WELL AS ELECTRIC CONNECTIONS TO THE METER, AS AGREED TO BETWEEN HUTCHINSON AND UFC IN THE INTERCONNECT AGREEMENT. PAGE 1 8 B. RESPONSIBILITY FOR TRANSPORTING GAS SUPPLIES - HUTCHINSON SHALL HAVE THE SOLE RESPONSIBILITY FOR TRANSPORTING NATURAL GAS SUPPLIES TO THE DELIVERY POINT(S). UFC SHALL HAVE THE SOLE RESPONSIBILITY FOR TRANSPORTING NATURAL GAS FROM THE DELIVERY POINT(S). 8. NOMINATIONS AND SCHEDULING. A. FIRST OF THE MONTH NOMINATIONS - BY 7:00 A.M. CENTRAL CLOCK TIME ( "C.C.T. "), AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO THE FIRST OF EACH MONTH UFC OR ITS DESIGNATED AGENT SHALL PROVIDE HUTCHINSON A WRITTEN ESTIMATE OF UFC'S DAILY FIRM TRANSPORTATION CAPACITY REQUIREMENTS AND TOTAL MONTHLY REQUIREMENT FOR TRANSPORTATION SERVICE UNDER THIS AGREEMENT. IF UFC HAS MORE THAN ONE METER, SAID NOMINATIONS SHALL BE PROVIDED BY METER. NOMINATIONS SHALL BE LIMITED TO THE METER OR METERS SPECIFIED IN THIS AGREEMENT, AS MODIFIED BY FURTHER AGREEMENT OF THE PARTIES IN WRITING. ABSENT AGREEMENT IN WRITING, NOMINATIONS BY UFC OR ITS DESIGNATED AGENT MAY NOT EXCEED UFC'S ANNUAL MAXIMUM DAILY QUANTITY ( "MDQ "). B. DAILY NOMINATIONS - UFC OR ITS DESIGNATED AGENT SHALL NOTIFY HUTCHINSON OF ANY REQUESTED CHANGE TO ITS NOMINATION, IN WRITING, BY 8:00 A.M. C.C.T AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE DATE OF THE REQUESTED CHANGE. HUTCHINSON SHALL GRANT SUCH REQUESTS IN ITS REASONABLE DISCRETION. ABSENT AGREEMENT IN WRITING, NOMINATIONS BY UFC OR ITS DESIGNATED AGENT MAY NOT EXCEED UFC'S ANNUAL MDQ. C. CHANGES TO NOMINATIONS RESULTING FROM CURTAILMENT OR INTERRUPTION - IF A CURTAILMENT OR INTERRUPTION IS CALLED UNDER THE TERMS AND CONDITIONS OF THIS AGREEMENT, HUTCHINSON SHALL NOTIFY UFC OR ITS DESIGNATED AGENT AS SOON AS REASONABLY POSSIBLE AND AS NECESSARY TO MAINTAIN THE INTEGRITY OF THE SYSTEM, OF THE RECEIPT AND DELIVERY CONDITIONS APPLICABLE TO SERVICE UNDER THIS AGREEMENT. SUCH CONDITIONS SHALL BECOME EFFECTIVE BEGINNING THE NEXT GAS DAY PAGE 1 9 COMMENCING AT 9:00 A.M. C.C.T., OR AT SUCH EARLIER TIME AS IS NECESSARY. UNDER THESE CONDITIONS, HUTCHINSON SHALL HAVE THE RIGHT TO REQUIRE REDUCTIONS IN PREVIOUSLY NOMINATED AMOUNTS UNDER THIS PROVISION, CONSISTENT WITH OTHER PROVISIONS OF THIS AGREEMENT. D. WAIVER - HUTCHINSON MAY, IN ITS SOLE DISCRETION AND ON A NON - DISCRIMINATORY BASIS, WAIVE ANY OF THE NOMINATION REQUIREMENTS SET FORTH IN THIS SECTION IF HUTCHINSON DETERMINES THAT IT CAN ACCOMMODATE SUCH NOMINATIONS. E. LATE NOMINATION - IF HUTCHINSON HAS NOT WAIVED THE NOMINATION REQUIREMENTS, HUTCHINSON MAY STILL, IN ITS SOLE DISCRETION AND ON A NON - DISCRIMINATORY BASIS, CONFIRM A LATE NOMINATION. D. MONTHLY BALANCING LIMITATION - UFC MAY INCUR A CUMULATIVE MONTHLY POSITIVE OR NEGATIVE IMBALANCE OF UP TO AND INCLUDING 20% OF UFC'S MDQ. NO IMBALANCE CHARGES SHALL APPLY TO CUMULATIVE MONTHLY IMBALANCES UP TO AND INCLUDING THIS 20% OF UFC'S MDQ. 9. PENALTY FOR UNAUTHORIZED TAKES DURING CURTAILMENT OR INTERRUPTION. PROVIDED THAT HUTCHINSON HAS COMPLIED WITH THE TERMS OF THIS AGREEMENT WITH RESPECT TO SUCH CURTAILMENT OR INTERRUPTION, IF UFC FAILS TO CURTAIL OR INTERRUPT ITS TAKES WHEN DIRECTED TO DO SO BY HUTCHINSON UFC SHALL BE BILLED FOR ALL VOLUMES TAKEN IN EXCESS OF THE APPLICABLE LIMITATION AT A RATE EQUAL TO THE DAILY CHICAGO INDEX PLUS $10.00 PER DTH. IN ADDITION, HUTCHINSON SHALL HAVE THE RIGHT TO DISCONNECT UFC'S SUPPLY OF GAS IF UFC FAILS TO CURTAIL OR INTERRUPT ITS USE OF GAS WHEN AND AS DIRECTED BY HUTCHINSON. HUTCHINSON MUST RESTORE SUCH SERVICE AS SOON AS PRACTICABLE FOLLOWING ANY SUCH DISCONNECTION. 10. TITLE, LIABILITY, AND INSURANCE. A. TITLE - GAS RECEIVED BY HUTCHINSON ON BEHALF OF UFC FOR DELIVERY TO UFC SHALL REMAIN THE PROPERTY OF UFC. PAGE 1 10 B. LIABILITY - HUTCHINSON SHALL NOT BE LIABLE TO UFC FOR ANY LOSS OF GAS FOR ANY CAUSE OTHER THAN GROSS NEGLIGENCE OR MISCONDUCT BY HUTCHINSON OR ITS EMPLOYEES. UFC'S GAS MAY BE COMMINGLED WITH OTHER GAS SUPPLIES IN HUTCHINSON'S SYSTEM. C. INSURANCE - UFC SHALL BE RESPONSIBLE FOR MAINTAINING SUFFICIENT INSURANCE AS NECESSARY TO PROTECT ITS PROPERTY AND OTHER INTERESTS IN THE GAS PRIOR TO, DURING, AND AFTER ITS RECEIPT BY HUTCHINSON. HUTCHINSON SHALL BE RESPONSIBLE FOR MAINTAINING SUFFICIENT INSURANCE AS NECESSARY TO PROTECT ITS PROPERTY AND OTHER INTERESTS IN PROVIDING TRANSPORTATION SERVICE UNDER THIS AGREEMENT TO UFC. 1 1. CURTAILMENT AND INTERRUPTION. SERVICE UNDER THIS AGREEMENT MAY BE CURTAILED OR INTERRUPTED AS NECESSARY DUE TO PHYSICAL, OPERATIONAL, OR OTHER SIMILAR CONSTRAINTS ON HUTCHINSON'S SYSTEM. IF HUTCHINSON IS REQUIRED TO CURTAIL OR INTERRUPT SERVICE DUE TO CAPACITY CONSTRAINTS, FORCE MAJEURE EVENTS, SYSTEM INTEGRITY, OR OTHER CONDITIONS, ANY INTERRUPTIBLE SERVICES PROVIDED TO OTHER ENTITIES BY HUTCHINSON SHALL BE CURTAILED COMPLETELY BEFORE FIRM SERVICES ARE CURTAILED, AND FIRM TRANSPORTATION SERVICES UNDER THIS AGREEMENT SHALL BE CURTAILED ON A PRO RATA BASIS WITH HUTCHINSON'S OTHER FIRM SALES AND /OR TRANSPORTATION SERVICES. 12. FORCE MAJEURE. A. DEFINITION - EITHER PARTY SHALL BE EXCUSED FROM PERFORMANCE UNDER THIS AGREEMENT BY FORCE MAJEURE ACTS AND EVENTS. "FORCE MAJEURE" SHALL MEAN ACTS AND EVENTS NOT WITHIN THE CONTROL OF THE PARTY CLAIMING FORCE MAJEURE, AND SHALL INCLUDE, BUT NOT BE LIMITED TO, ACTS OF GOD, STRIKES, LOCKOUTS, MATERIAL, EQUIPMENT, OR LABOR SHORTAGES, WARS, RIOTS, INSURRECTIONS, EPIDEMICS, LANDSLIDES, EARTHQUAKES, FLOODS, FIRES, STORMS, GOVERNMENT OR COURT ORDERS, CIVIL DISTURBANCES, EXPLOSIONS, BREAKAGE OR ACCIDENT PAGE 1 1 1 TO MACHINERY OR PIPELINES, FREEZING OF WELLS OR PIPELINES, OR ANY OTHER CAUSE OF WHATEVER KIND, WHETHER SPECIFICALLY ENUMERATED HEREIN OR NOT, THAT IS NOT WITHIN THE CONTROL OF THE PARTY CLAIMING FORCE MAJEURE. B. EFFECT IF HUTCHINSON IS UNABLE TO PROVIDE SERVICE UNDER THIS AGREEMENT DUE TO A FORCE MAJEURE ACT OR EVENT, HUTCHINSON'S OBLIGATION TO PROVIDE SERVICE UNDER THIS AGREEMENT SHALL BE SUSPENDED FOR THE DURATION OF THE ACT OR EVENT. HUTCHINSON SHALL NOTIFY UFC OF THE FORCE MAJEURE EVENT AS SOON AS REASONABLY POSSIBLE BY ANY MEANS PRACTICABLE, INCLUDING, BUT NOT LIMITED TO, TELEPHONE OR FACSIMILE, AND SHALL CONFIRM THE DETAILS OF THE FORCE MAJEURE ACT OR EVENT IN WRITING WITHIN A REASONABLE AMOUNT OF TIME THEREAFTER. HUTCHINSON SHALL WORK TO REMEDY THE FORCE MAJEURE ACT OR EVENT AS SOON AS REASONABLY POSSIBLE AND SHALL KEEP UFC APPRISED OF THE TIME, DATE, AND CIRCUMSTANCES WHEN SERVICE UNDER THIS AGREEMENT SHALL BE RESTORED. UFC IS NOT REQUIRED TO PAY ANY CHARGES UNDER THIS AGREEMENT DURING THE TERM OF THE FORCE MAJEURE ACT OR EVENT. 2. IF UFC IS UNABLE TO TAKE SERVICE UNDER THIS AGREEMENT DUE TO A FORCE MAJEURE ACT OR EVENT, HUTCHINSON'S OBLIGATION TO PROVIDE SERVICE UNDER THIS AGREEMENT SHALL BE SUSPENDED FOR THE DURATION OF THE ACT OR EVENT. UFC SHALL NOTIFY HUTCHINSON OF THE FORCE MAJEURE EVENT AS SOON AS REASONABLY POSSIBLE BY ANY MEANS PRACTICABLE, INCLUDING, BUT NOT LIMITED TO, TELEPHONE OR FACSIMILE, AND SHALL CONFIRM PAGE 1 12 THE DETAILS OF THE FORCE MAJEURE ACT OR EVENT IN WRITING WITHIN A REASONABLE AMOUNT OF TIME THEREAFTER. UFC SHALL WORK TO REMEDY THE FORCE MAJEURE ACT OR EVENT AS SOON AS REASONABLY POSSIBLE AND SHALL KEEP HUTCHINSON APPRISED OF THE TIME, DATE, AND CIRCUMSTANCES WHEN UFC WILL RESUME SERVICE UNDER THIS AGREEMENT. HUTCHINSON IS NOT REQUIRED TO PROVIDE SERVICE UNDER THIS AGREEMENT DURING THE TERM OF THE FORCE MAJEURE ACT OR EVENT. C. LIMITATIONS ON FORCE MAJEURE - NEITHER PARTY SHALL BE ENTITLED TO THE BENEFIT OF THE PROVISIONS OF FORCE MAJEURE TO THE EXTENT PERFORMANCE IS AFFECTED BY ANY OR ALL OF THE FOLLOWING CIRCUMSTANCES: (1) THE CURTAILMENT OF INTERRUPTIBLE OR SECONDARY FIRM TRANSPORTATION UNLESS PRIMARY, IN-PATH, FIRM TRANSPORTATION IS ALSO CURTAILED; (II) THE PARTY CLAIMING EXCUSE FAILED TO REMEDY THE CONDITION AND TO RESUME THE PERFORMANCE OF SUCH COVENANTS OR OBLIGATIONS WITH REASONABLE DISPATCH; OR (111) ECONOMIC HARDSHIP OF EITHER PARTY. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, THE PARTY CLAIMING FORCE MAJEURE SHALL NOT BE EXCUSED FROM ITS RESPONSIBILITY FOR IMBALANCE CHARGES. 13. NOTICES. A. ADDRESSES - ALL INVOICES, PAYMENTS AND OTHER COMMUNICATIONS MADE PURSUANT TO THIS AGREEMENT SHALL BE MADE TO THE ADDRESSES SPECIFIED IN WRITING BY THE RESPECTIVE PARTIES FROM TIME TO TIME. B. ACCEPTABLE FORMS - ALL NOTICES REQUIRED HEREUNDER MAY BE SENT BY FACSIMILE OR MUTUALLY ACCEPTABLE ELECTRONIC MEANS, A NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE, FIRST CLASS MAIL, OR HAND DELIVERED. C. DELIVERY DATE -- IN THE ABSENCE OF PROOF OF THE ACTUAL RECEIPT DATE FOR SUCH NOTICES, THE FOLLOWING PAGE 1 13 PRESUMPTIONS WILL APPLY. NOTICES SENT BY FACSIMILE SHALL BE DEEMED TO HAVE BEEN RECEIVED UPON THE SENDING PARTY'S RECEIPT OF ITS FACSIMILE MACHINE'S CONFIRMATION OF SUCCESSFUL TRANSMISSION. IF THE DAY ON WHICH SUCH FACSIMILE IS RECEIVED IS NOT A BUSINESS DAY OR IS AFTER FIVE P.M. C.C.T., ON A BUSINESS DAY, THEN SUCH FACSIMILE SHALL BE DEEMED TO HAVE BEEN RECEIVED ON THE NEXT FOLLOWING BUSINESS DAY. NOTICE BY OVERNIGHT MAIL OR COURIER SHALL BE DEEMED TO HAVE BEEN RECEIVED ON THE NEXT BUSINESS DAY AFTER IT WAS SENT OR SUCH EARLIER TIME AS IS CONFIRMED BY THE RECEIVING PARTY. NOTICE VIA FIRST CLASS MAIL SHALL BE CONSIDERED DELIVERED FIVE BUSINESS DAYS AFTER MAILING. 14. LAWS, REGULATIONS, AND ORDERS. A. SERVICE UNDER THIS AGREEMENT IS SUBJECT TO ALL PRESENT AND FUTURE VALID LAWS, ORDERS, RULES, REGULATIONS, ETC, ISSUED BY ANY FEDERAL, STATE, OR LOCAL AUTHORITY HAVING JURISDICTION OVER THE MATTERS SET FORTH HEREIN. B. IT IS UNDERSTOOD BY UFC THAT IT IS ECONOMICALLY FEASIBLE TO ENTER INTO THIS AGREEMENT TO PROVIDE A PIPELINE INTERCONNECT TO UFC ONLY DUE TO THE FACT THAT HUTCHINSON IS AN UNREGULATED MUNICIPAL UTILITY. IF AT ANY TIME ANY OF THE ACTIVITIES COVERED UNDER THIS AGREEMENT BECOME SUBJECT TO REGULATION BY THE PUBLIC UTILITIES COMMISSION OF THE STATE OF MINNESOTA OR ANY OTHER STATE OR FEDERAL AGENCY WHICH WOULD NOT CURRENTLY CONTROL THE ACTIVITIES OF HUTCHINSON UNDER THIS AGREEMENT, HUTCHINSON SHALL HAVE THE OPTION, AT ITS SOLE DISCRETION TO PASS ALL COSTS INCURRED, DUE TO HUTCHINSON'S REGULATION, TO UFC FOR THE LENGTH OF THIS AGREEMENT. 15. MISCELLANEOUS PROVISIONS. A. DECLARATION OF INVALIDITY - IF ANY PROVISION OF THIS AGREEMENT IS DETERMINED TO BE INVALID, VOID, OR UNENFORCEABLE BY ANY COURT OR OTHER ENTITY HAVING PAGE 1 14 JURISDICTION, SUCH DETERMINATION SHALL NOT INVALIDATE, VOID, OR MAKE UNENFORCEABLE ANY OTHER PROVISION, AGREEMENT OR COVENANT OF THIS AGREEMENT; AND THE PARTIES AGREE TO NEGOTIATE IN GOOD FAITH A REPLACEMENT TO SUCH INVALID, VOID OR UNENFORCEABLE PROVISION AND /OR ANY OTHER AMENDMENTS AS MAY BE NECESSARY TO ENSURE THAT THE AGREEMENT AS A WHOLE REFLECTS THE ORIGINAL INTENTIONS OF THE PARTIES. B. NO CONTINUING WAIVER - NO WAIVER OF ANY BREACH OF THIS AGREEMENT SHALL BE HELD TO BE A WAIVER OF ANY OTHER OR SUBSEQUENT BREACH. C. LIMITATION ON AGREEMENT - THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT IT IS NEITHER THE PURPOSE OF THIS AGREEMENT NOR THEIR INTENT TO CREATE A PARTNERSHIP, JOINT VENTURE CONTRACT OR COMPANY, ASSOCIATION OR TRUST, FIDUCIARY RELATIONSHIP OR PARTNERSHIP BETWEEN THEM. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY SHALL HAVE ANY AUTHORITY TO ACT FOR OR ASSUME ANY OBLIGATIONS, OR RESPONSIBILITIES ON BEHALF OF, THE OTHER PARTY. D. COMPLETE AGREEMENT - THIS AGREEMENT SETS FORTH ALL UNDERSTANDINGS BETWEEN THE PARTIES AS OF THE EFFECTIVE DATE HEREIN. ANY PRIOR CONTRACTS, UNDERSTANDINGS AND REPRESENTATIONS, WHETHER ORAL OR WRITTEN, RELATING TO THE MATTERS ADDRESSED IN THIS AGREEMENT ARE MERGED INTO AND SUPERSEDED BY THIS AGREEMENT. THIS AGREEMENT MAY BE AMENDED ONLY BY A WRITING EXECUTED BY BOTH PARTIES. E. GOVERNING LAW -THE INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF MINNESOTA, EXCLUDING, HOWEVER, ANY CONFLICT OF LAWS RULE THAT WOULD APPLY THE LAW OF ANOTHER JURISDICTION. F. CONFIDENTIALITY REQUIRED - NEITHER PARTY SHALL DISCLOSE DIRECTLY OR INDIRECTLY WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTY THE TERMS OF THIS AGREEMENT TO A THIRD PARTY EXCEPT (1) IN ORDER TO PAGE 1 15 COMPLY WITH ANY APPLICABLE LAW, LEGAL PROCESS, ORDER, REGULATION, OR EXCHANGE RULE; (11) TO THE EXTENT NECESSARY FOR THE ENFORCEMENT OF THIS AGREEMENT; AND (Ill) TO THE EXTENT NECESSARY TO IMPLEMENT AND PERFORM THIS AGREEMENT. EACH PARTY SHALL NOTIFY THE OTHER PARTY OF ANY DEMAND OR PROCEEDING OF WHICH IT IS AWARE WHICH MAY RESULT IN DISCLOSURE OF THE TERMS OF THIS AGREEMENT (OTHER THAN AS PERMITTED HEREUNDER) AND USE REASONABLE EFFORTS TO PREVENT OR LIMIT THE DISCLOSURE. THE PARTIES SHALL BE ENTITLED TO ALL REMEDIES AVAILABLE AT LAW OR IN EQUITY TO ENFORCE OR SEEK RELIEF IN CONNECTION WITH THIS CONFIDENTIALITY OBLIGATION. THE TERMS OF THIS AGREEMENT SHALL BE KEPT CONFIDENTIAL BY THE PARTIES HERETO FOR TWO YEARS FROM THE EXPIRATION OR TERMINATION OF THIS AGREEMENT. IN THE EVENT THAT DISCLOSURE IS REQUIRED BY A GOVERNMENTAL BODY OR APPLICABLE LAW, THE PARTY SUBJECT TO SUCH REQUIREMENT MAY DISCLOSE THE MATERIAL TERMS OF THIS AGREEMENT TO THE EXTENT SO REQUIRED, BUT SHALL PROMPTLY NOTIFY THE OTHER PARTY, PRIOR TO DISCLOSURE, AND SHALL COOPERATE (CONSISTENT WITH THE DISCLOSING PARTY'S LEGAL OBLIGATIONS) WITH THE OTHER PARTY'S EFFORTS TO OBTAIN PROTECTIVE ORDERS OR SIMILAR RESTRAINTS WITH RESPECT TO SUCH DISCLOSURE AT THE EXPENSE OF THE OTHER PARTY. G. AUTHORITY TO ENTER AGREEMENT - EACH PARTY TO THIS AGREEMENT REPRESENTS AND WARRANTS THAT IT HAS FULL AND COMPLETE AUTHORITY TO ENTER INTO AND PERFORM THIS AGREEMENT. EACH PERSON WHO EXECUTES THIS AGREEMENT ON BEHALF OF EITHER PARTY REPRESENTS AND WARRANTS THAT IT HAS FULL AND COMPLETE AUTHORITY TO DO SO AND THAT SUCH PARTY WILL BE BOUND THEREBY. H. NO THIRD PARTY BENEFICIARY - THERE IS NO THIRD PARTY BENEFICIARY TO THIS AGREEMENT. PAGE 1 16 IN WITNESS WHEREOF, UFC AND HUTCHINSON HAVE EXECUTED THIS AGREEMENT IN TWO (2) DUPLICATE ORIGINALS, EFFECTIVE AS OF THE DATE FIRST WRITTEN ABOVE. HUTCHINSON UTILITIES COMMISSION BY: NAME: TITLE: COMMISSION PRESIDENT DATE: Z� 2"L .�--- WITNESS: DATE: 3 _ aa- /a UNITED FARMERS COOPS TIVE BY: NAME: TITLE ('per t o �454Z //a,, CJ DATE: WITNESS: � DATE: 2-2-q-12_ PAGE 1 17 NATURAL GAS FIRM TRANSPORTATION CAPACITY AGREEMENT HUTCHINSON UTILITIES COMMISSION AND UNITED FARMERS COOPERATIVE ATTACHMENT "A" DELIVERY POINTS UFC MAY RECEIVE GAS FROM HUTCHINSON AT THE FOLLOWING DELIVERY POINTS: STATION NAME COUNTY CITY STATE BROWNTON INTERCONNECT STATION MCL.EOD BROWNTON MINNESOTA PAGE 1 18 O LL _O W Z '0 V/ CG /C V U) `W r O z U M Cl* co O Z c O N N Z 0 C� C 0 V W H N LO J IT 04 Z Z Z qT paper Co U U) ') L9 z 2 z N N M M C r, O X _ r = L1 LL O F Q L O U) Lf) LO LLI H LO CO W) Z Z W tn�a,�o W N 0) Z d ch In �2z ch i W�Y00r 0.. 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