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03-30-2016 HUCMMINUTES Regular Meeting — Hutchinson Utilities Commission Wednesday, March 30, 2016 Call to order — 3:00 p.m. President Luhring called the meeting to order. Members present: President Donna Luhring; Vice President Monty Morrow; Secretary Mark Girard; Commissioner Anthony Hanson; Commissioner Robert Wendorff; Attorney Marc Sebora; General Manager Jeremy Carter. 1. Conflict of Interest Secretary Girard declared a conflict of interest in voting on the agenda item 2b, Ratify Payment of Bills, as he is listed in the Payment of Bills. Both Secretary Girard and Commissioner Hanson declared a conflict of interest in voting on agenda item 9d, Designate Depositories for Utility Funds, as Girard is a director and Hanson is an employee of Citizens Bank and Trust. 2. Approve Consent Agenda a. Approve Minutes b. Ratify Payment of Bills A motion was made by Vice President Morrow, seconded by Commissioner Hanson to approve the Consent Agenda. Motion was unanimously carried. 3. Approve 2015 Financial Audit — Presentation by Paul Harvego Paul Harvego of Conway, Deuth & Schmiesing was welcomed to the meeting. Mr. Harvego presented the 2015 financial audit. A motion was made by Commissioner Hanson, seconded by Secretary Girard to approve the 2015 financial audit. Motion was unanimously carried. (Audit attached.) 4. Approve Financial Statements GM Carter presented the financial statements. Carter noted starting this month, an HUC investment report will be included in the financial statements. After discussion, a motion was made by Secretary Girard, seconded by Commissioner Wendorff to approve the financial statements. Motion was unanimously carried. 5. Open Forum 6. Communication a. City Administrator — Matthew Jaunich L Preparing for a busy development season. b. Divisions i. Randy Blake — 1. Shermco Industry will be performing tests for Plant 1 to comply with the boiler machinery insurance requirements. 2. Emissions performance testing on four units will be scheduled to be performed by Interpol Laboratories next Tuesday. 3. Had a surprise visit from a MPCA representative. Reported no violations. ii. Dave Hunstad — 1. Nothing to report. iii. Dan Lang — 1. Nothing to report. iv. Jared Martig - 1. Update on the consideration of implementing BS&A software at HUC - IT is still seeking a credit card processing company which has the customer calling feature for disconnect notices. The preliminary estimates are still showing less than a 3 -year payback if HUC switches to BS&A. v. John Webster - 1 . The, Public Utilities Commission is requesting United Farmers Coop (UFC) become a regulated utility. Therefore, United Farmers Coop and Greater Minnesota Transmission is putting the project of building an interconnect station in Lafayette on hold until about July as UFC is filing to remain a non-regulated utility. 2. Distributed to the Board a utility rate comparison document which Owatonna performs twice per year. vi. Brenda Ewing — 1. Continuing to work toward completion of the HUC job evaluation' study. c. Legal — Attorney Sebora i. Nothing to report. d. General Manager — Jeremy Carter i. Special meeting tomorrow at 7:30 a.m. at HUC to discuss wholesale generation. ii. Continuing to be part of the technical stakeholder meetings. iii. Planning on presenting fleet infrastructure information at April commission meeting. iv. Contacting MRES next week regarding HUC's base load contract. 7. Policies a. Review Policies i. Right -of -Way Clearing ii. Tree Removal or Trimming No changes were recommended at this time. b. Approve Changes i. Life Insurance The changes recommended were for clarification. 2 ii. Health/Dental Insurance The changes recommended were for clarification. iii. Disability Insurance The changes recommended were for clarification. iv. Meter Testing - Electric A grammatical addition was made to provide clarification. After discussion, a motion was made by Commissioner Hanson, seconded by Secretary Girard to approve the changes to Life Insurance, Health/Dental Insurance, Disability Insurance, and Meter Testing - Electric. Motion was unanimously carried. (Changes attached.) 8. Unfinished Business a. Update on Pack Gas Discussions New Ulm is reviewing the response from HUC. They plan on contacting HUC after their review. 9. New Business a. HUC Receives Recognition for Exceptional System Reliability for 2015 The Board congratulated HUC on receiving national recognition for Exceptional System Reliability for 2015. The recognition comes from American Public Power Association (APPA). (Recognition letter attached.) b. Approve 3M Rebate Jared Martig presented the rebate of $39,828.01 to be paid to 3M for their 2015 CIP projects. A motion was made by Commissioner Hanson, seconded by Secretary Girard to approve the 3M rebate of $39,828.01. Motion was unanimously carried. c. Approve a Sub -Committee for Union Negotiations The Board elected Commissioner Morrow and President Luhring to be on the sub -committee for Union negotiations. A motion was made by Secretary Girard, seconded by Commissioner Hanson to approve Commissioner Morrow and President Luhring as sub -committee members for Union negotiations. Motion was unanimously carried. d. Designate Depositories for Utility Funds i. Citizens Bank & Trust ii. Wells Fargo Bank iii. Home State Bank Due to two commissioners having a conflict of interest on this agenda item at the January's regular commission meeting, the agenda item was tabled until March's meeting to allow for a quorum to approve designation of depositories. 3 A motion was made by Commissioner Wendorff, seconded by Vice President Morrow, to designate Citizens Bank & Trust, Wells Fargo Bank, and Home State Bank as depositories for utility funds. Motion was unanimously carried. 10. Adjourn There being no further business, a motion was made by Vice President Morrow, seconded by Secretary Girard to adjourn the meeting at 3:50 p.m. Motion was unanimously carried. ATTEST: 46z Al/k Donna Luhring, President 4 Mark Girard, Secretary Audit Report December 31, 2015 www.cdscpa.com Independent Auditor's Report Pages 2-4: Financial statements are the responsibility of the Commission's management Our responsibility is to express an opinion on these financial statements based on our audit Conducted audit in accordance with Generally Accepted Auditing Standards and Government Auditing Standards Obtain reasonable assurance financials are free from material misstatement Financial statements of the Commission are presented fairly in our opinion CDS Independent Auditor's Report (Cont'd) Pages 2-4: MD&A (pages 5-9) and the Schedules of Proportionate Share of the Net Pension Liability and Employer Contributions (page 30) are required supplementary information and unaudited Supplementary information is fairly stated in relation to financial statements taken as a whole Internal control letter on pages 43-44 2 Statement of Net Position 2015 ,.: . 2014 I ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current $ 17,407,829 $ 13,494,096 Noncurrent Resin ted 2,567,940 2,577,815 Other 262,972 Net Capital Assets Total Assets Deferred OLHA of Resources Total Assets and Deferred Do— of Resources LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Uabilities Current Liabilities Noncurrent Liabilities Total Liabilities Deferred Inflows of Resources Net Position Net Investment in Capital Assets Restncted Unrestricted Total Net Position Total Liabilities, Deferred Infl— of Resources and Net Position 73,356,625 76.363,215 93,332,394 92,698,098 517,600 $ 93.849, 994 $ 92, 698, 098 $6896'623 $ 5.969941 22,974,956 20,733.921 29,871,579 26.703.862 528,302 55,066,625 56,848.215 541,716365,983 7,841,772 8,780,038 63,450,113 65.994.236 S 93.849,994 S 92,698.098 CDS 3 Cash and Investment Balances $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 ■ Operating 6 Restricted at Designated Statement of Revenues, Expenses an Changes in Net Position OPERATING REVENUES OPERATING EXPENSES Production Purchased Power/Gas Other Operating Expense Administrative and General Depreciation Contribution to City of Hutchinson Total Operating Expenses Operating Income (Loss) NET NONOPERATING REVENUES (E)PENSES) Change in Net Position NET POSITION, BEGINNING OF YEAR, AS ORIGINALLY STATED PRIOR PERIOD ADJUSTMENT NET POSITION, BEGINNING OF YEAR, AS RESTATED NET POSITION, END OF YEAR 2015 2014 $ 38,143,563 $ 42,208,053 3,066,764 3,065.423 20,695,451 24,847,602 4,679,259 4,436,574 3,299,819 31282,616 3,824,434 3,747,573 738,110 1,729,073 36,303,837 41,108,861 1,839,726 1,099,192 (737,486) (1,056,683) 1,102,240 42,509 65,994,236 66,268,287 (3,646,363) (316,560) 62,347,873 65,951,727 $ 63,450,113 $ 65,994,236 Ms S Electric Division $30,000,000 $2......121 $25,000,000 $20,000,000 $15,000,000 $10,000.000 $5,000,000 $0 -$5,000,000 $27.309.636 --------- $16,802,066 21 2011 2012 Total Operating Revenues Net Nonoperating Revenues (Expenses) 2013 2014 2015 Total Operating Expenses CDS 6 Electric Division $1,500,000 $1,199,428 $1,000,000 $500,000 $0 -$500,000 -$1,000,000 -$1,500,000 -$2,000,000 2011 $444,629 $(568,722) $(1,610,831) $(1,484,869) 2012 2013 2014 2015 Change in Net Position CDS 7 1 Revenue per KWH ( Natural Gas Division Year Ended December 31. 201 .5 ...,._._ ... _...,, ,...,,,_r.::,,,,_..� ::.:...,:..._ ._.... ..::........ ............. .. .......�:.,,.,+r•.+��,,�, $18,000,000 ,�..._ ._.m;......�. �.o :;c.,..,, .,. :, ,. ,,; ,:_..z;. a:::..�aw��� Revenue Per f16,134.757 CLASSAmount KWH sold KWH $16,000,000 Residential $ 4,844,525 49,467,886 $ 0.0979 $14,221,916$14,002.018 513,888.170 All Bectric 236,439 2,453,150 0.0964 $14,000,000 _;__— Srnell General Service 1,621,751 16,955,897 0.0956 $12,000,000 -1— 51),530359 $11,341,497 Large General Service 7,141,340 78,054,119 x0915 510,920,196 Industrial 11,399,155 142,752,000 0.0799 $10,000,000 _— $9,727,396 __ 59,134,516 Sale for Resale 1,114,918 13,928,000 0.0800 k$12,123,271 $8,000,000 Sheet Lighting 146,931 103.976 14131 $6,000,000 $ 26,505,059 303,715,030 0.0873 $4,000,000 Year Ended December 31, 2014 Revenue Per $2,000,000 CLASS Amount KWH Sold KVJH Residential $ 4,905,668 50,550,607 $ 0.0970 $0 All Electric 256,404 2,694.481 0.0952 42,000,000 $(929.711) $(989.1641 5(992.1611 $(605,361) $(s36,019) Snell General Service 1,612,428 16,964,230 0.0950 20 2012 2013 2014 20 S Large General Service 7,175,480 79,087,541 0.0907 Industrial 11,001,396 134,419,000 0.0818 Sale for Resale 678,293 11,790,000 0.0575 Street Lighting 139,532 104,710 1.3326 ■ Total Operating Revenues ■ Total Operating Expenses ■ Net Nonoperating Revenues (Expenses) _L_25.76 9,201 295,610,569 0.0872 CD^ V` � CDS 8 9 Natural Gas Division $2,500,000 $2,000,000 $1,500,000 9 $1,000,000 $500,000 $0 $1,975,813 2011 2012 2013 2014 2015 ■ Change in Net Position ^T„ 10 Revenue per MCF Year Ended December 31, 2015 Revenue Per Thousand Amount CF Sold MCF CLASS Residential $ 3,731,066 387,205,342 $ 9.6359 Commercial 2,748,161 295,185,902 9.3099 Large industrial 3,444,273 796,959,420 4.3218 $ 9,923,500 1,479,350,664 $ 6.7080 Year Ended December 31, 2014 Revenue Per Thousand Amount CF Sold MCF CLASS Residential $ 4,706,389 475,386,739 $ 9.9001 Commercial 3,853,504 401,727,130 9.5923 Large industrial 6,066,290 833,083,000 7.2817 $ 14,626,183 1,710,196,869 $ 8.5523 CDS 11 Questions or Comments? Contact information: Paul Harvego, CPA gharvego@)cdscpa.com 320-693-7975 CDS � 14 Communications Accounting Practices Difficulties Encountered Corrected and Uncorrected Misstatements Disagreements with Management Management Representations Management Consultations with Other Accountants Other Audit Findings or Issues u General Recommendations • Cross -training • Capital Asset Accounting • Discussion of Fraud and Fraud Risks with Employees • Withholding Affidavits HUTCHINSON UTILITIES COMMISSION HUTCHINSON, MINNESOTA MANAGEMENT LETTER DECEMBER 31, 2015 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota HUTCHINSON UTILITIES COMMISSION TABLE OF CONTENTS DECEMBER 31, 2015 PAGE Required Communications 1-3 Comparative Financial Data 4 Graphical Information 5-12 Schedule of Findings on Accounting Issues and Internal Controls 13-14 1 This page intentionally left blank Ci)S CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS REQUIRED COMMUNICATIONS March 30, 2016 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, 2015. 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 December 30, 2015. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findinos 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. As described in Note 8, the Commission implemented Governmental Accounting Standards Board Statement No. 68 and 71. Adoption of the provisions of this statement results in significant changes to the reporting of the net pension liability, variables impacting the calculation of the liability and its related disclosures. 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 collectibility 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. Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants Willmar Office Benson Office Morris Office Litchfield Office St. Cloud-Sartell Office 331 Third St SW, Ste 2 1209 Pacific Ave, Ste 3 401 Atlantic Ave 820 Sibley Ave N Ste 110 PO Box 570 Benson, MN 56215 Morris, MN 56267 Litchfield, MN 55355 2351 Connecticut Ave Willmar, MN 56201 P (320) 843-2302 P (320) 589-2602 P (320) 693-7975 Sartell, MN 56377 P (320) 235-3311 P (320) 252-7565 T (888) 388-1040 www.cdscpa.com T (800) 862-1337 Management's estimate of pension and other post -employment benefit liabilities is based on actuarial valuations performed by consultants specializing in those areas. We evaluated the key factors and assumptions used to develop those estimates in determining that it is reasonable in relation to the financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated March 30, 2016. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Commission's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Commission's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to Management's Discussion and Analysis and the Schedules of Proportionate Share of the Net Pension Liability and Employer Contributions which is required supplementary information that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the required supplementary information and do not express an opinion or provide any assurances on the required supplementary information. We were engaged to report on the statements and schedules listed in the table of contents as supplementary information, which accompany the financial statements but are not required supplementary information. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the Organizational Data, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it. Restriction on Use This information is intended solely for the use of the Commission and management of Hutchinson Utilities Commission and is not intended to be and should not be used by anyone other than these specified parties. CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 30, 2016 3 ELECTRIC DIVISION Residential General Service Industrial Street Lighting Resale Total Electric Sales Other Operating Revenues Total Operating Revenues Purchased Power - Electric Other Operating Expenses Total Operating Expenses Net Nonoperating Revenues (Expenses) Change in Net Position GAS DIVISION Residential Commercial Industrial Total Gas Revenues Gas Transportation Total Operating Revenues Purchased Power - Gas Other Operating Expenses Total Operating Expenses Net Nonoperating Revenues (Expenses) Change in Net Position HUTCHINSON UTILITIES COMMISSION COMPARATIVE FINANCIAL DATA 2009 2010 2011 2012 2013 2014 2015 $ 4,871,894 $ 5,107,357 $ 5,255,333 $ 5,202,559 $ 5,176,489 $ 5,162,073 $ 5,080,964 8,660,281 8,990,929 9,075,811 9,264,941 8,903,085 8,787,907 8,763,091 10, 650, 886 11,471, 748 11,692, 880 10, 763, 758 10, 375, 605 11, 001, 396 11, 399,155 144,249 147,248 143,378 148,968 143,002 139,532 146,931 935,577 986,386 1,234,285 1,618,582 891,276 678,293 1,114,918 25,262,887 26,703,668 27,401,687 26,998,808 25,489,457 25,769,201 26,505,059 294,418 301,653 306,435 310,828 308,590 304,095 297,007 25,557,305 27,005,321 27,708,122 27,309,636 25,798,047 26,073,296 26,802,066 15,929,085 15,225,550 15,990,893 15,521,329 14,607,779 15,034,661 15,429,451 9,201,402 9,837,680 9,790,120 11,014,195 12,271,736 12,072,182 11,739,870 25,130,487 25,063,230 25,781,013 26,535,524 26,879,515 27,106,843 27,169,321 780,678 (1,082,723) (727,681) (329,483) (529,363) (451,322) (201,467) $ 1,207,496 $ 859,368 $ 1,199,428 $ 444,629 $ (1,610,831) $ (1,484,869) $ (568,722) $ 4,426,071 $ 3,979,581 $ 4,327,788 $ 3,697,538 $ 4,626,722 $ 4,706,388 $ 3,731,066 4,020,619 3,638,751 3,823,161 3,150,925 3,729,790 3,853,504 2,748,161 4,380,874 4,890,551 4,246,780 2,826,424 3,646,509 6,066,290 3,444,273 12,827,564 12,508,883 12,397,729 9,674,887 12,003,021 14,626,182 9,923,500 1,819,272 1,821,218 1,824,187 1,855,472 1,885,149 1,508,575 1,417,997 14, 646, 836 14, 330,101 14, 221, 916 11, 530, 359 13, 888,170 16,134, 757 11, 341, 497 10,057,683 9,806,771 9,028,704 6,400,838 7,500,621 10,460,268 5,988,821 3,253,649 3,158,859 3,094,567 3,326,558 3,419,575 3,541,750 3,145,695 13,311,332 12,965,630 12,123,271 9,727,396 10,920,196 14,002,018 9,134,516 (1,007,145) (930,880) (929,711) (989,164) (992,161) (605,361) (536,019) $ 328,359 $ 433,591 $ 1,168,934 $ 813,799 $ 1,975,813 $ 1,527,378 $ 1,670,962 4 HUTCHINSON UTILITIES COMMISSION ELECTRIC DIVISION Operating Revenues & Expenses and Net Nonoperating Revenues (Expenses) $30,000,000 $27 706122 $25,557,305 $27,005,321 $27,309,636 $26,802,066 $25,798,047 $26,073,2 $25,000,000 $25,063,230 $25,781,013 $26,535,524 $26,879,515 $27,106,843 $27,169,321 $25,130,487 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $780,678 $0 , 11 $(1,082,723) $(727,681) $(329,483) $(529,363) $(451,322) $(201,467) -$5,000,000 2009 2010 2011 2012 2013 2014 2015 •Total Operating Revenues ■Total Operating Expenses ■Net Nonoperating Revenues (Expenses) $1,500,000 $1,207,496 $1,000,000 $500,000 $0 -$500,000 -$1,000,000 -$1,500,000 -$2,000,000 2009 Change in Net Position $1,199,428 $859,368 $444,629 $(568,722) $(1,610,831) $(1,484,869) 2010 2011 2012 2013 2014 2015 ■Change in Net Position 5 $13,000,000 $12,000,000 $11,000,000 $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 2009 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 4-- 2009 HUTCHINSON UTILITIES COMMISSION ELECTRIC DIVISION Major Revenue by Source 2010 2011 ■Residential I� I _ I` 2012 2013 2014 2015 ■General Service 01ndustrial Purchased Power & Fuel Costs Compared to Total Sales 2010 2011 2012 ■Purchased Power- Electric 6 2013 ■Total Electric Sales 2014 2015 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS ELECTRIC DIVISION YEARS ENDED DECEMBER 31, 2015 AND 2014 The Statement of Revenues and Expenses set forth the results of the operations in detail for the years ended December 31, 2015 and 2014. Operating revenues, kilowatt hours (KWH) sold, and average revenue per kilowatt hour sold by class of service are as follows: 7 Year Ended December 31, 2015 Revenue Per Amount KWH Sold KWH CLASS Residential $ 4,844,525 49,467,888 $ 0.0979 All Electric 236,439 2,453,150 0.0964 Small General Service 1,621,751 16,955,897 0.0956 Large General Service 7,141,340 78,054,119 0.0915 Industrial 11, 399,155 142, 752, 000 0.0799 Sale for Resale 1,114,918 13,928,000 0.0800 Street Lighting 146,931 103,976 1.4131 $ 26,505,059 303,715,030 0.0873 7 Year Ended December 31, 2014 Revenue Per Amount KWH Sold KWH CLASS Residential $ 4,905,668 50,550,607 $ 0.0970 All Electric 256,404 2,694,481 0.0952 Small General Service 1,612,428 16,964,230 0.0950 Large General Service 7,175,480 79,087,541 0.0907 Industrial 11, 001, 396 134,419, 000 0.0818 Sale for Resale 678,293 11,790,000 0.0575 Street Lighting 139,532 104,710 1.3326 $ 25,769,201 295,610,569 0.0872 7 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS ELECTRIC DIVISION YEARS ENDED DECEMBER 31, 2015 AND 2014 KWH Sold 13, 928, 000 Sale for Resale1"11,790,000 Industrial Large General Service 16, 955, 897 Small General Servicet2,453,150 16,964,230 All Electric4,481 49,467,888 Residential 50,550,607 i 50, 000, 000 100, 000, 000 150, 000, 000 02015 KWH Sold 02014 KWH Sold Average $/KWH Industrial " $0.0818 $0.0915 Large General Service $0.0907 $0.0956 Small General Service F$0.0950 $0.0964 All Electric $0.0952 $0.0979 Residential - $0.0970 $0.08 $0.09 $0.10 ■2015 Revenue Per KWH 02014 Revenue Per KWH 0 200,000,000 $0.11 HUTCHINSON UTILITIES COMMISSION NATURAL GAS DIVISION Operating Revenues & Expenses and Net Nonoperating Revenues (Expenses) $18,000,000 $16,000,000 $14,646,636 $13,311,332 $14,330,101 $14,221,916 $14,000,000 $12,965,630 $12,123,271 $11,530,359 $12,000,000 $10,000,000 $9,727,396 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 _$2'000,000 $(1,007,145) $(930,880) $(929,711) $(989,164) 2009 2010 2011 2012 ■Total Operating Revenues ■Total Operating Expenses $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $433,591 $328,359 $0 , 2009 2010 Change in Net Position $1,168,934 $813,799 2011 2012 ■Change in Net Position 9 $16,134,757 $13,888,170 1 $14,002,018 $11,341,497 $10,920,196 $9,134,516 $(536,019) $(992,161) $(605,361) 2013 2014 2015 ®Net Nonoperating Revenues (Expenses) $1,975,813 $1,670,962 $1,527,378 2013 2014 2015 HUTCHINSON UTILITIES COMMISSION NATURAL GAS DIVISION Major Revenue by Source $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 2009 2010 2011 2012 2013 ■ Residential •Commercial $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 2009 2010 Purchased Gas Compared to Total Sales 2011 2012 ■ Purchased Power - Gas 2014 T Olndustrial 2013 2014 ■Total Gas Revenues 2015 2015 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS NATURAL GAS DIVISION YEARS ENDED DECEMBER 31, 2015 AND 2014 The Statement of Revenues and Expenses set forth the results of the operations in detail for the years ended December 31, 2015 and 2014. 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, 2015 2014 Revenue Per Revenue Per Thousand Thousand Amount CF Sold MCF CLASS CLASS Residential $ 3,731,066 387,205,342 $ 9.6359 Commercial 2,748,161 295,185,902 9.3099 Large industrial 3,444,273 796,959,420 4.3218 7.2817 $ 9,923,500 1,479,350,664 $ 6.7080 11 Year (Ended December 31, 2014 Revenue Per Thousand Amount CF Sold MCF CLASS Residential $ 4,706,388 475,386,739 $ 9.9001 Commercial 3,853,504 401,727,130 9.5923 Large industrial 6,066,290 833,083,000 7.2817 $ 14,626,182 1,710,196,869 $ 8.5523 11 Large industrial Commercial HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS NATURAL GAS DIVISION YEARS ENDED DECEMBER 31, 2015 AND 2014 CF Sold 295,185,902 401,727,130 387,205,342 796,959,420 33,083,000 Residential 1475,386,739 I I 200 000 000 300 000 000 q00 000 000 500 000 000 600 000 000 'f 00 000 000 900 000 000 900 000 000 02015 CF Sold 02014 CF Sold Large industrial Commercial Residential Average $/MCF $5.00 $6.00 $7.00 $8.00 02015 Revenue per 1000 MCF 12 $9.00 $10.00 02014 Revenue Per 1000 MCF $9.5923 $9.6359 $9.9001 $11.00 HUTCHINSON UTILITIES COMMISSION SCHEDULE OF FINDINGS ON ACCOUNTING ISSUES AND INTERNAL CONTROLS DECEMBER 31, 2015 We noted certain matters involving the internal control structure and its operation that we consider being deficiencies in internal control under standards established by the American Institute of Certified Public Accountants. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. INTERNAL CONTROL The objective of internal accounting control is to provide reasonable, but not absolute, assurance as to the safeguarding of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a system of internal accounting control should not exceed the benefits derived and also recognizes that the valuation of these factors necessarily requires estimates and judgments by management. It should be recognized that within the Commission, an inherent risk is present with certain positions. It is very common for entities such as Hutchinson Utilities Commission, to assign many major responsibilities to a few key individuals in an attempt to operate within limited budgets. The inherent risk is again addressed only to maintain the awareness of the internal control structure and to encourage the Commission's continual review of financial information at monthly meetings. GENERAL RECOMMENDATIONS Throughout the course of the audit, we spoke with management regarding certain items that we see as an opportunity to improve. None of these were considered significant within the scope of the audit. The items discussed requiring action have been resolved or are in the process of resolution. We would like to acknowledge the assistance and courtesies extended to us by the personnel of the Hutchinson Utilities Commission. CROSS -TRAINING In small public entities, it is common for one person to be primarily responsible for handling all financial matters (payroll, disbursements, receiving, recording transactions, etc). This concentration of duties in one person is not desirable for a sound control environment and contingency planning. One measure to help counter this weakness involves training a second person in specific duties related to the entities finances. Cross -training has numerous benefits. It allows a second person to perform the duties when the employee primarily responsible is unavailable. Having someone else perform the job duties also provides a method of detecting errors and/or irregularities created by the person primarily responsible for those duties. Finally, cross -training provides continuity during periods of employee transitions. Cross -training offers advantages from both an accounting and a managerial point of view. As the Commission has undergone employee transitions in fiscal year 2015, we find this an opportune time to review the various responsibilities and cross -train other staff to perform non -routine duties on a timely basis in the absence of the individual typically responsible for such duties. Other remedies would be to have an outside source familiar in these specific areas be contracted when deemed necessary to keep the Commission current in the financial area. CAPITAL ASSET ACCOUNTING The Commission maintains its capital asset activity and balances using spreadsheet software (Microsoft Excel). While Excel is an automated software program, it is not the most effective and efficient program for capital asset accounting. A relational database program would operate more effectively and efficiently to manage and account for capital asset inventory. Because the Commission segregates capital assets by activity and function, the complexity of the spreadsheets increases annually and is very susceptible to human error. 13 HUTCHINSON UTILITIES COMMISSION SCHEDULE OF FINDINGS ON ACCOUNTING ISSUES AND INTERNAL CONTROLS DECEMBER 31, 2015 CAPITAL ASSET ACCOUNTING (Contd) We recommend the City use relational database software to maintain and account for its capital asset inventory. Implementation of this type of software will strengthen internal controls over capital asset accounting and provide efficiencies in the perpetual maintenance of capital assets. DISCUSSION OF FRAUD AND FRAUD RISKS WITH EMPLOYEES The Commission does not currently discuss fraud and fraud risks with their employees on an annual basis. It is important to communicate this to employees to make them aware that fraud could occur. This would also ensure they understand the process if they come across or have suspicions of fraud. WITHHOLDING AFFIDAVITS The Commission did not obtain a Withholding Affidavit confirmation by the Commissioner of Revenue before making final settlement with any contractor under a contract requiring the employment of employees for wages by said contractor and by subcontractors. We recommend the Commission have procedures in place to ensure a Withholding Affidavit confirmation is being obtained prior to final settlement. L 14 HUTCHINSON UTILITIES COMMISSION AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION DECEMBER 31, 2015 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota it HUTCHINSON UTILITIES COMMISSION TABLE OF CONTENTS DECEMBER 31, 2015 ORGANIZATIONAL DATA INDEPENDENT AUDITOR'S REPORT REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis BASIC FINANCIAL STATEMENTS Statement of Net Position Schedule of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Notes to the Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedules of Proportionate Share of Net Pension Liability and Employer Contributions SUPPLEMENTARY INFORMATION Combining Statement of Net Position Combining Schedule of Revenues and Expenses Statement of Net Position - Electric Division Detailed Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Electric Division Statement of Net Position - Natural Gas Division Detailed Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Natural Gas Division COMPLIANCE SECTION Independent Auditor's Report on Minnesota Legal Compliance 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 PAGE 1 2-4 5-9 10 11 12-13 14-29 0( 31 32 33 34-37 38 39-41 42 43-44 HUTCHINSON UTILITIES COMMISSION ORGANIZATIONAL DATA DECEMBER 31, 2015 A Light and Power Commission was formed under the provisions of an amendment to the Hutchinson City Charter in 1935; the Commission was charged with the operation of the Municipal Electric Plant. Charter amendments approved December 17, 1954, provided for a change in the name to Hutchinson Utilities Commission. Additional duties under that amendment provided for the control and management of a municipal gas distribution system. A revised city charter was adopted at a special election September 17, 1987. Some of the pertinent sections of this new charter are briefly summarized in the following paragraphs. The Commission shall have control and management of the Light Plant, the Light Plant distribution system, the Gas Plant and the Gas Plant distribution system. The Commission shall consist of five persons, qualified voters of the City, who shall be appointed by the Council. A member shall be appointed every year for a term of five years, to fill the place of the member whose term has expired. No member shall be appointed to more than two successive terms. The members of the Commission shall receive compensation for their services as determined annually by the Council. The Commission shall provide for its own organization and rules of procedure and annually shall elect a president and vice president from among its members. It shall also appoint a secretary who may or may not be a member of the Commission. The Commissioners and their official titles were as follows: Anthony Hanson Donna Luhring Mark Girard Dwight Bordson Monty Morrow President Vice President Secretary Commissioner Commissioner CIL)s CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS INDEPENDENT AUDITOR'S REPORT Members of the Hutchinson Utilities Commission Hutchinson, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 2 Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants Willmar Office Benson Office Morris Office Litchfield Office St. Cloud-Sartell Office 331 Third St SW, Ste 2 1209 Pacific Ave, Ste 3 401 Atlantic Ave 820 Sibley Ave N Ste 110 PO Box 570 Benson, MN 56215 Morris, MN 56267 Litchfield, MN 55355 2351 Connecticut Ave Willmar, MN 56201 P (320) 843-2302 P (320) 589-2602 P (320) 693-7975 Sartetl, MN 56377 P (320) 235-3311 P (320) 252-7565 T (888) 388-1040 www.cdscpa.corn T (800) 862-1337 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of December 31, 2015, and the changes in financial position, and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As described in Note 8 to the financial statements, for the year ended December 31, 2015, the Commission adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pension Plans - an Amendment of GASB Statement No. 27 and Governmental Accounting Standards Board Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - an Amendment of GASB Statement No. 68. Our opinion is not modified with respect to this matter. Report on Partial Comparative Information We have previously audited the Commission's 2014 financial statements, and we expressed unmodified audit opinions on those audited financial statements in our report dated March 25, 2015. In our opinion, the partial comparative information presented herein as of and for the year ended December 31, 2014 is consistent, in all material respects, with the audited financial statements from which it has been derived. Refer to Note 13 of the Notes to the Financial Statements for additional information regarding the prior year partial comparative information. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and the Schedules of Proportionate Share of Net Pension Liability and Employer Contributions as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Commission's basic financial statements. The statements and schedules listed in the table of contents as supplementary information and the Organizational Data section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The Organizational Data section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on the information presented. 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 30, 2016 on our consideration of the Commission's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Hutchinson Utilities Commission's internal control over financial reporting and compliance. Cone I &W& g , PLO CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 30, 2016 4 REQUIRED SUPPLEMENTARY INFORMATION HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2015 Overview of the Financial Statements Hutchinson Utilities Commission is a fund of the City of Hutchinson, Minnesota, and is responsible for the full operation and management of the electric and natural gas systems of the City. The annual report of Hutchinson Utilities Commission includes the financial statements, the independent auditor's report, and notes detailing the financial statements and this management's discussion and analysis report. The report also includes supplementary information for each of Hutchinson Utilities Commission's divisions. Financial Statements 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 Statement of Net Position includes all of the Commission's assets, liabilities, and net position and provides information regarding the nature and amount of investments in various assets and obligations to the Commission's creditors. They also provide the basis for computing rate of return, evaluating the capital structure, and determining the liquidity and financial flexibility of the Commission. The Statement of Revenues, Expenses and Changes in Net Position accounts for all the current year's revenues and expenses. This statement measures the success of operations over the past year and can be used to determine whether all costs are recovered through user fees and other charges. This statement measures the Commission's profitability and credit worthiness. The Statement of Cash Flows provides information about the Commission's cash receipts and cash payments during the reporting period. This statement reports cash receipts, cash payments, and net changes in cash resulting in cash balances during the reporting period. Financial Statement Analvsis Total gross investment in capital assets increased to $134,100,290 in 2015 from $133,282,446 in 2014. Capital assets increased in 2015 primarily because of typical upgrades and improvements to the generating plant and distribution systems as well as equipment purchases. Operating revenues and expenses decreased from 2014 by $4,064,490 and $4,805,024, respectively. Operating income increased from 2014 by $740,534. The primary decrease in operating revenues was due to a decrease in gas sales in 2015, which decreased by $4,702,682 from 2014 due to volume and pricing. The primary area of the decrease in operating expenses was due to a decrease in purchased natural gas. Purchases of natural gas decreased by $4,471,447 due to decreased sales. Payment in Lieu of Taxes decreased by $990,963 due to current agreement with the City of Hutchinson. 5 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2015 Sianificant Transactions In 2015, the Commission transferred $738,110 per agreement to the City of Hutchinson. Condensed Financial Statements A summary of the Statement of Net Position is presented in Table 1. Table 1 Condensed Statement of Net Position Increase 2015 2014 (Decrease) Net Capital Assets Restricted Assets Current Assets Other Assets Total Assets Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources Current Liabilities Long -Term Liabilities Total Liabilities Deferred Inflows of Resources Net Position Net Investment in Capital Assets Restricted Unrestricted Total Net Position $ 73,356,625 $ 76,363,215 $ (3,006,590) 2,567,940 2,577,815 (9,875) 17,407,829 13,494,096 3,913,733 22,974,956 262,972 (262,972) 93,332,394 92,698,098 634,296 517,600 517,600 $ 93,849,994 $ 92,698,098 $ 1,151,896 $ 6,896,623 $ 5,969,941 $ 926,682 22,974,956 20,733,921 2,241,035 29,871,579 26,703,862 3,167,717 528,302 55,066,625 541,716 7,841,772 63,450,113 56,848,215 365,983 8,780,038 65,994,236 528,302 (1,781,590) 175,733 (938,266) (2,544,123) Total Liabilities, Deferred Inflows of Resources and Net Position $ 93,849,994 $ 92,698,098 $ 1,151,896 2 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2015 Condensed Financial Statements (Cont'd) A summary of the Statement of Revenues, Expenses and Changes in Net Position is presented in Table 2. Table 2 Condensed Statement of Revenues, Expenses and Changes in Net Position Increase 2015 2014 (Decrease) Operating Revenues $ 38,143,563 $ 42,208,053 $ (4,064,490) Operating Expenses Cost of Operations Depreciation Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Change in Net Position Net Position, Beginning of Year, As Originally stated Prior Period Adjustment Net Position, Beginning of Year, As Restated Net Position, End of Year Budoetary Hiahiiahts 32,479,403 37,361,288 (4,881,885) 3,824,434 3,747,573 76,861 36,303,837 41,108,861 (4,805,024)1 1,839,726 1,099,192 740,534 (737,486) (1,056,683) 319,197 1,102,240 42,509 1,059,731 65,994,236 66,268,287 (274,051) (3,646,363) (316,560) (3,329,803) 62,347,873 65,951,727 (3,603,854)1 $ 63,450,113 $ 65,994,236 $ (2,544,123) The Commission adopts an annual Operating Budget and a Capital Improvement Budget. Because of its enterprise nature and in order to comply with Federal Energy Regulatory Commission accounting and reporting requirements, the budgets are not operated as statutory budgets. The Commission and Utilities staff review budget results monthly and the budget is used as a financial management tool. A summary of the 2015 Budget Analysis is presented in Table 3. 7 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2015 Budaetary Hi hlg j hts (Cont'd) Operating Revenues Operating Expenses Cost of Operations Depreciation Expense Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Change in Net Position Net Position, Beginning of Year, As Originally stated Prior Period Adjustment Net Position, Beginning of Year, As Restated Net Position, End of Year Table 3 Condensed Budget Analysis 2015 Budget 2015 Actual Over (Under) $ 39,226,644 $ 38,143,563 $ (1,083,081) 34,928,112 32,479,403 (2,448,709) 3,756,000 3,824,434 68,434 38,684,112 36,303,837 (2,380,275) 542,532 1,839,726 1,297,194 (850,876) (737,486) 113,390 (308,344) 1,102,240 1,410,584 65,994,236 65,994,236 (3,646,363) (3,646,363)i 65,994,236 62,347,873 (3,646,363) $ 65,685,892 $ 63,450,113 $ (2,235,779), Actual operating revenues were $1,083,081 under budgeted revenues while operating income (loss) was over budget by $1,297,194. This is mainly due to natural gas purchased gas expenses coming in under budget by $1,591,603. The actual operating revenues for the Commission had a negative variance of approximately 2.76% from budgeted operating revenues. This difference was caused entirely by the gas division, while the electric division had a positive variance of $957,262. Operating expenses were $2,380,275 lower than budgeted. This is mainly due to a decrease of purchased natural gas expenses. Electric production expenses were also lower than budgeted amounts in the current year. In 2015, the Commission entered into agreement for a specific Payment in Lieu of Taxes (PILOT). The agreement requires the Commission to make payments equaling $939,000 less $200,890 for specific services provided for a net total of $738,110. For calendar year 2007, the Commission reallocated its common expenses between the two divisions. Formulas were developed and used to establish the common expenses between the two utilities, in particular, Customer Service and Collection Accounts and the Administrative and General Accounts. 0 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2015 Capital Assets and Lona -Term Debt Activitv The Commission's investment in capital assets increased to $134,100,290 in 2015. This is an increase of $817,844 from 2014. Refer to Note 4 of the Notes to the Financial Statements for the Commission's 2015 capital asset activity. At year-end, the Commission had $18,290,000 in bonds outstanding. Refer to Note 6 of the Notes to the Financial Statements for a schedule showing the Commission's long-term debt activity. Economic Factors and Next Year's Budget The Commission considered many factors when setting the fiscal year 2016 budget, rates, and fees that will be charged to the users. Of particular significance for 2007 was the City and also the Commission used a formula approach to the General Funds Transfer. In the past, the General Funds Transfer has been accounted for like a transfer. Beginning in 2007, the Commission began accounting for the General Funds Transfer like a Payment in Lieu of Taxes (PILOT). This was done so that the Commission came into compliance with its by-laws. The practical result of this is the PILOT will show as an expense item above the Operating Income. This practice continued in 2015 and will continue into 2016 with the perception that it will no longer be formula based having been set at $1,900,000. In addition, the Commission "bundled" its electric wholesale rate to its retail customers. What this means is the operating income the Commission receives from its wholesale KWHR sales will be applied to the wholesale rate it charges its retail customers to stabilize the rate it charges its retail customers. Contact Information Any questions regarding information contained in this report and requests for additional information should be addressed to the Hutchinson Utilities Commission, 225 Michigan Street SE, Hutchinson, MN 55350 or by phone at (320) 587-4746. BASIC FINANCIAL STATEMENTS HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2014 2015 2014 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Assets Current Assets Cash and Investments $ 12,640,223 $ 7,786,171 Accounts Receivable (Net of Allowance for Doubtful Accounts of $49,206 and $60,489, Respectively) 3,123,543 3,915,476 Inventory 1,514,693 1,531,534 Sales Tax Receivable 128,359 244,783 Prepaid Items 1,011 16,132 Total Current Assets I 17,407,829 13,494,096 Noncurrent Assets Restricted Assets Cash and Investments 2,567,940 2,577,815 Other Assets MIRES Agreement 262,972 Capital Assets Assets Not Being Depreciated 4,590,287 4,590,287 Other Capital Assets, Net of Depreciation 68,766,338 71,772,928 Net Capital Assets 73,356,625 76,363,215 Total Noncurrent Assets 75,924,565 79,204,002 Total Assets 93,332,394 92,698,098 Deferred Outflows of Resources Related to Pensions 517,600 Total Assets and Deferred Outflows of Resources $ 93,849,994 $ 92,698,098 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Liabilities Current Liabilities Current Portion of Long -Term Debt $ 1,488,409 $ 1,428,243 Accounts Payable 2,993,675 2,593,819 Due To Other Governments 1,757,601 1,327,476 Customer Deposits 478,305 441,195 Accrued Expenses Interest 67,676 71,759 Salaries Payable 110,957 107,449 Total Current Liabilities 6,896,623 5,969,941 Long -Term Liabilities Noncurrent Portion of Long -Tenn Debt 22,974,956 20,733,921 Total Liabilities 29,871,579 26,703,862 Deferred Inflows of Resources Related to Pensions 528,302 Net Position Net Investment in Capital Assets 55,066,625 56,848,215 Restricted 541,716 365,983 Unrestricted 7,841,772 8,780,038 Total Net Position 63,450,113 65,994,236 Total Liabilities, Deferred Inflows of Resources and Net Position $ 93,849,994 $ 92,698,098 See Accompanying Notes to the Financial Statements 10 HUTCHINSON UTILITIES COMMISSION SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 2015 2014 OPERATING REVENUES Electric Energy Sales $ 26,505,059 $ 25,769,201 Natural Gas Sales 9,923,500 14,626,182 Other Operating Revenues 1,715,004 1,812,670 Total Operating Revenues 38,143,563 42,208,053 OPERATING EXPENSES 31,956 29,721 Production 6,765 72,993 Operations 2,602,581 2,565,551 Maintenance 464,183 499,872 Purchased Power/Gas 20,695,451 24,847,602 Other Power Supply 361,553 337,733 Transmission (262,972) (525,943) Operations 2,045,208 1,763,161 Maintenance 27,568 51,896 Distribution (737,486) (1,056,683) Operations 1,054,088 1,044,642 Maintenance 478,999 432,999 Customer Accounts Expense 417,218 346,614 Sales Expense 294,625 459,529 Administrative and General 3,299,819 3,282,616 Depreciation 3,824,434 3,747,573 Contribution to City of Hutchinson 738,110 1,729,073 Total Operating Expenses 36,303,837 41,108,861 Operating Income (Loss) 1,839,726 1,099,192 NONOPERATING REVENUES (EXPENSES) Interest Income 31,956 29,721 Merchandise and Contract Work, Net 6,765 72,993 Miscellaneous Income 158,282 40,643 Gain (Loss) on Disposal of Assets 45,259 Bond Service Fees (450) Bond Premium 185,608 185,608 Amortization of Development Study (262,972) (525,943) Interest Expense - Customer Deposits (96) (434) Interest Expense - Bonds (857,029) (904,080) Total Nonoperating Revenues (Expenses) (737,486) (1,056,683) Change in Net Position 1,102,240 42,509 NET POSITION, BEGINNING OF YEAR, AS ORIGINALLY STATED 65,994,236 66,268,287 PRIOR PERIOD ADJUSTMENT (3,646,363) (316,560) NET POSITION, BEGINNING OF YEAR, AS RESTATED 62,347,873 65,951,727 NET POSITION, END OF YEAR $ 63,450,113 $ 65,994,236 See Accompanying Notes to the Financial Statements 11 11 HUTCHINSON UTILITIES COMMISSION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers $ 37,257,602 $ 40,685,736 Payments Received from Other Sources 1,831,428 1,846,416 Payments to Suppliers (27,252,393) (32,952,743) Payments to Employees (4,285,411) (4,791,200) Net Cash Provided (Used) by Operating Activities 7,551,226 4,788,209 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Other Noncapital Income 165,047 113,636 Other Noncapital Expenses (96) (434) Net Cash Provided (Used) by Noncapital Financing Activities 164,951 113,202 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Additions to Utility Plant (817,844) (1,308,164) Principal Payments on Long -Term Debt (1,225,000) (1,175,000) Bond Service Fees (450) Proceeds from Sale of Assets 45,259 Interest Paid on Long -Term Debt (861,112) (907,989) Net Cash Provided (Used) by Capital and Related Financing Activities (2,903,956) (3,346,344) CASH FLOWS FROM INVESTING ACTIVITIES Interest Income 31,956 29,720 Net Increase (Decrease) in Cash and Cash Equivalents 4,844,177 1,584,787 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,363,986 8,779,199 CASH AND CASH EQUIVALENTS, END OF YEAR RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets - Cash and Investments Restricted Assets - Cash and Investments Total Cash and Cash Equivalents See Accompanying Notes to the Financial Statements 12 $ 15,208,163 $ 10,363,986 $ 12,640,223 $ 7,786,171 2,567,940 2,577,815 $ 15,208,163 $ 10,363,986 HUTCHINSON UTILITIES COMMISSION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 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 Pension Related Adjustments (Increase) Decrease in Assets Accounts Receivable Inventory Sales Tax Receivable Prepaid Items Increase (Decrease) in Liabilities Accounts Payable Due to Other Governments Customer Deposits Salaries Payable Compensated Absences Net Cash Provided (Used) by Operating Activities See Accompanying Notes to the Financial Statements 13 2015 2014 $ 1,839,725 $ 1,099,192 3,824,434 3,747,573 64,658 791,933 255,475 16,841 (67,730) 116,424 33,746 15,121 5,411 399,856 (1,034,489) 430,125 1,010,916 37,110 34,878 3,508 (230,455) 11,491 (66,309) $ 7,551,226 $ 4,788,208 J HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, is governed by five members who are appointed by the Council of the City of Hutchinson, Minnesota. The accompanying financial statements present only the Hutchinson Utilities Commission fund and are not intended to present fairly the financial position of the City of Hutchinson, Minnesota. The financial statements present the Commission and its component units. The Commission includes all funds, organizations, institutions, agencies, departments and offices that are not legally separate from such. Component units are legally separate entities for which the Commission is financially accountable, or for which the exclusion of the component unit would render the financial statements of the Commission misleading. The criteria used to determine if the Commission is financially accountable for a component unit includes whether or not 1) the Commission appoints the voting majority of the potential component unit's governing body and is able to impose its will on the potential component unit or is in a relationship of financial benefit or burden with the potential component unit, or 2) the potential component unit is fiscally dependent on and there is a potential for the potential component unit to provide specific financial benefits to, or impose specific financial burdens on, the Commission. As a result of applying the component unit definition criteria above, the Commission does not have any component units. B. FUND ACCOUNTING The operations of the Commission are recorded as a proprietary fund. The proprietary fund is used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION The financial statements include the operations of the City of Hutchinson Municipal Utilities. The Electric and Natural Gas divisions are treated as a single enterprise fund of the City of Hutchinson, Minnesota. The Utilities are governed by the Hutchinson Utilities Commission, which is appointed by the City Council. No other operations are controlled by the Hutchinson Utilities Commission. The accounts of the Commission are organized on the basis of fund accounting. The operation of the fund is accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, net position, revenues, and expenses. Government resources are allocated to and accounted for in the individual fund based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. 14 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) C. MEASUREMENT FOCUS. BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION (Cont'd) The proprietary fund is accounted for using the accrual basis of accounting and economic resources measurement focus. Revenues are recognized when earned, and expenses are recognized when incurred. Revenue from electricity and gas sales is reflected in the accounts only at the time such revenue is actually billed to customers. Accordingly, no recognition is given in the accounts for revenue from sales between established cycle billing dates. The proprietary fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. It is generally the Commission's policy to use restricted resources first, then unrestricted resources as they are needed when an expense is incurred for purposes for which both restricted and unrestricted net position is available. D. DEPOSITS AND INVESTMENTS The Commission's cash and cash equivalents are considered to be cash on hand, deposits and highly liquid debt instruments purchased with original maturities of three months or less from the date of , acquisition. The Commission may invest in the following types of investments as authorized by Minn. Stat. §§118A.04 and 118A.05: (1) securities which are direct obligations or are guaranteed or insured issues of the United States, its agencies, its instrumentalities, or organizations created by an act of Congress, except mortgage- backed securities defined as "high risk" by Minn. Stat. §118A.04, subd. 6; (2) mutual funds through shares of registered investment companies provided the mutual fund receives certain ratings depending on its investments; (3) general obligations of the State of Minnesota and its municipalities, and in certain state agency and local obligations of Minnesota and other states provided such obligations have certain specified bond ratings by a national bond rating service; (4) time deposits that are fully insured by the Federal Deposit Insurance Corporation or bankers ' acceptances of United States bank; (5) commercial paper issued by United States corporations or their Canadian subsidiaries that is rated in the highest quality category by at least two nationally recognized rating agencies and matures in 270 days or less; and 15 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) D. DEPOSITS AND INVESTMENTS (Cont'd) (6) with certain restrictions, in repurchase agreements, securities lending agreements, joint powers investment trusts, and guaranteed investment contracts. Cash and investments were comprised of a deposit account and a money market account. The Commission has an investment policy in place that addresses interest rate risk, credit risk, concentration of credit risk and custodial risk as follows: Custodial Credit Risk - Deposits: For deposits, this is the risk that in the event of bank failure, the Commission's deposits may not be returned to it. Minnesota Statutes requires that all Commission deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110 percent. The Commission's investment policy states the collateralization level will be 110% of the market value of principal and accrued interest. When the pledged collateral consists of notes secured by first mortgages, the collateral level will be 140% of the market value of principal and accrued interest. Interest Rate Risk: This is the risk that market values of securities in a portfolio would decrease due to changes in market interest rates. The Commission's investment policy states the Commission should manage their interest rates based on safety, liquidity and the overall rate of return on the investment. The portfolio should contain both short-term and long-term investments to meet anticipated cash flow requirements. Extended maturities may be utilized to take advantage of higher yields; however, no investment shall be made with a term of more than ten years. Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits investments in commercial paper and corporate bonds to the top two ratings issued by nationally recognized statistical rating organizations. The Commission's investment policy states it will comply with Minnesota Statutes Chapter 118A. Concentration of Credit Risk: This is the risk of loss attributed to the magnitude of an investment in a single issuer. Investments should be diversified to avoid incurring unreasonable risk inherent in over investing in specific instruments, individual financial institutions or maturities. The Commission's investment policy states the Commission will attempt to diversify its investments according to type and maturity. Custodial Credit Risk - Investments: For an investment, this is the risk that in the event of the failure of the counterparty, the Commission will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Commission's investment policy states when investments purchased by the Commission are held in safekeeping by a broker/dealer, they must provide asset protection of $500,000 through the Securities Investor Protection Corporations (SIPC) and at least another $2,000,000 Supplemental Insurance Protection, provided by the broker dealer. E. RECEIVABLES AND OPERATING REVENUES AND EXPENSES An allowance for doubtful accounts is recorded based on historical electric and natural gas revenues, historical loss levels, and an analysis of the collectability of individual accounts. 16 NOTE 1 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) E. RECEIVABLES AND OPERATING REVENUES AND EXPENSES (Cont'd) Meters are read throughout the month and revenues are recognized when utility services are billed to customers. Hutchinson Utilities Commission did not accrue revenues for services provided but not billed at the end of the year. Monthly billings from the wholesale power and natural gas suppliers, which are for power and natural gas costs to the last day of the month, are reflected in the accounts. F. INVENTORY Inventories of materials and supplies are recorded at average cost, which does not exceed market. G. PREPAID ITEMS Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. H. CAPITAL ASSETS Capital assets, both tangible and intangible, are recorded at cost. The cost of additions to capital assets includes contracted work, direct labor, and materials. Repairs, replacement, and the renewal of items determined to be less than units of property are charged to maintenance. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. During the current period, the Commission did not have any capitalized interest. Depreciation of capital assets is computed using the straight-line method over the estimated service lives of the various assets as follows: Buildings 35-60 years Transmission plant (electric) 20-35 years Distribution plant (electric) 20-35 years Building improvement 15-30 years Transmission plant (gas) 10-45 years Distribution plant (gas) 10-45 years Generation plant 10-30 years General plant 5-10 years Vehicles 5-10 years Office equipment 3-5 years Computer equipment 3-5 years The Commission does not possess any material amounts of intangible assets. 17 t HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) I. DEFERRED OUTFLOWS OF RESOURCES In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. Deferred outflows of resources represents a consumption of net position that applies to a future reporting period. During that future period, it will be recognized as an outflow of resources (expense). The Commission has one item that qualifies for reporting in this category on the financial statements which is related to pensions. J. COMPENSATED ABSENCES The liability for compensated absences reported in the financial statements consists of unpaid, accumulated vacation and sick leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. Compensated absences are accrued when incurred in the financial statements. The Statement of Net Position reports both current and noncurrent portions of compensated absences using full accrual accounting. The current portion consists of an amount based on a trend analysis of current usage of vacation and vested sick leave. The noncurrent portion consists of the remaining amount of vacation and total vested sick leave. Both union and nonunion employees can accrue a maximum of 200 hours per year of vacation pay, with a maximum carryover of 200 hours. Vacation pay is 100% payable at severance of employment. A maximum of 720 hours can be accrued for sick leave. After accumulation of 720 hours, a payback of one- third of the amount over 720 hours will be made annually. Upon retirement or death before retirement, a payback of one-third of the amount over 240 hours will be made. K. PENSIONS For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA's fiduciary net position have been determined on the same basis as they are reported by PERA. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. L. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Employees of the Commission pay premiums based on a negotiated schedule. Since the insurance rate is not based on age, the Commission has an implicit rate subsidy factor in postemployment health care expenses. Additionally, Minnesota Statutes require the Commission to allow retired employees to stay on the health care plan with the retiree responsible to pay the entire premium for continuation coverage. The Commission's bargaining agreement and personnel policy do not provide for any contributions upon employee retirement. Any liability for other postemployment benefits is considered immaterial and not recognized in the financial statements. 18 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) M. LONG-TERM OBLIGATIONS Long-term debt and other long-term obligations are reported as liabilities in the financial statements. Bond discounts, and bond premiums are amortized over the terms of the related bond issues. N. DEFERRED INFLOWS OF RESOURCES In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. Deferred inflows of resources represents an acquisition of net position that applies to a future reporting period. During that future period, it will be recognized as an inflow of resources (revenue). The Commission has one item that qualify for reporting in this category on the financial statements which is related to pensions. O. NET POSITION Net position represents the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources in the financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. Net position is reported as restricted in financial statements when there are limitations on its use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Unrestricted net position consists of all other net position that does not meet the definition of restricted or net investment in capital assets. P. BUDGETS AND BUDGETARY ACCOUNTING The General Manager is responsible for preparing and submitting an annual budget. Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Q. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. R. PRIOR YEAR INFORMATION The basic financial statements include certain prior -year partial comparative information in total but not at the level of detail required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the government's financial statements for the year ended December 31, 2014, from which the partial information was derived. 19 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 2. DEPOSITS AND INVESTMENTS A. DEPOSITS In accordance with applicable Minnesota Statutes, Hutchinson Utilities Commission maintains deposits at depository banks authorized by the Commission. Custodial Credit Risk - Deposits: The Commission's bank balances were not exposed to custodial credit risk because they were fully insured through the Federal Deposit Insurance Corporation as well as collateralized with securities held by the pledging financial institution's trust department or agent and in the Commission's name. Deposits in Bank $ 15,207,313 Petty Cash 850 Total Deposits $ 15.208,163 Deposits and investments are presented in the basic financial statements as follows: Current Assets Cash and Investments $ 12,640,223 Noncurrent Assets Restricted Assets Cash and Investments 2,567,940 Total Deposits and Investments $ 15.208.163 NOTE 3. DEPOSITS AND INVESTMENTS - RESTRICTED a Restricted cash and investments are designated by bond covenants for specific purposes. Restricted cash consisted of the following: 2015 2014 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. $ 379,246 $ 389,121 i Reserve Accounts Funds required to be held in amount equal to the maximum amount of principal and interest to become due on the bonds during the year. 2,188,694 2,188,694 Total Cash and Investments - Restricted $ 2,567.940 $ 2,577,815 20 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 3. DEPOSITS AND INVESTMENTS - RESTRICTED (Cont'd) The following items have been designated by the Commission for the following purposes: 2015 2014 Rate Stabilization - Electric $ 284,529 $ 779,388 Rate Stabilization - Gas 569,004 426,706 Payment in Lieu of Taxes 1,305,256 939,000 Catastrophic 500,000 500,000 Expansion and Development Reserve Account Funds designated for the expansion and development of the utility 1,376,000 1,105,000 $ 4.034.789 $ 3.750.094 The above Commission designated amounts are included in the Current Assets -Cash and Investments total. NOTE 4. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2015, was as follows: Beginning Ending Balance Increase Decrease Balance Capital Assets, Not Being Depreciated Land $ 559,527 $ $ $ 559,527 Easements 4,030,760 4,030,760 Total Capital Assets, Not Being Depreciated 4,590,287 0 0 4,590,287 Capital Assets, Being Depreciated Structures and Improvements 112,091,269 668,663 112,759,932 Equipment 16,051,655 149,181 16,200,836 Software 549,235 549,235 Total Capital Assets, Being Depreciated 128,692,159 817,844 0 129,510,003 Less Accumulated Depreciation for Structures and Improvements 47,523,150 3,338,021 50,861,171 Equipment 8,922,902 484,321 9,407,223 Software 473,179 2,092 475,271 Total Accumulated Depreciation 56,919,231 3,824,434 0 60,743,665 Total Capital Assets, Being Depreciated, Net 71,772,928 (3,006,590) 0 68,766,338 Net Capital Assets $ 76,363,215 $ (3,006,590) $ 0 $ 73,356,625 21 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 5. INVENTORY Inventory consists of the following: 2015 2014 Electric Division Fuel Oil and Lubricants $ 98,533 $ 106,881 Plant Systems Material 2,456 8,584 Engine Parts 442,461 419,810 Distribution Materials 424,970 416,362 Transformers 136,784 154,181 Total Electric Division 1,105,204 1,105,818 Natural Gas Division Fittings 105,919 122,146 Transmission Line Gas 303,570 303,570 Total Natural Gas Division 409,489 425,716 Total Inventory NOTE 6. LONG-TERM DEBT A. COMPONENTS OF LONG-TERM DEBT Interest Rates Public Utility Revenue Bonds, Series 2003B Public Utility Revenue Refunding Bonds, Series 2012A Bond Premium Compensated Absences Net Pension Liability 3.90-4.50% Final Maturity 12/01/2021 4.00-5.00% 12/01/2026 $ 1.514.693 $ 1.531.534 Balance Outstanding 2015 2014 $ 715,000 $ 840,000 17, 575, 000 18, 675, 000 2,026,224 2,211,833 446,823 435,332 3,700,319 Total Long -Term Debt $ 24.463.366 $ 22.162.165 On March 31, 2003, the Hutchinson Utilities Commission issued Public Utility Revenue Bonds, Series 2003B for $31,725,000. $3,340,000 of the issue was used for the refunding of the Temporary Public Utility Revenue Bonds of 2001, and $28,385,000 was used for the natural gas pipeline project. On July 19, 2012, Hutchinson Utilities Commission issued Public Utility Revenue Refunding Bonds, Series 2012A for $20,720,000, with an interest rate of 4.00% to 5.00%. The Commission issued the bonds to advance refund a portion of the 2013 through 2025 maturities of the Public Utility Revenue Bonds, Series 2003B. The Commission completed the refunding to reduce its debt service payment over the next 14 years by $1,638,277. This results in an economic gain (difference between the present values of the debt service payments on the old and new debt) of $1,245,620. 22 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 6. LONG-TERM DEBT (Cont'd) B. MINIMUM DEBT PAYMENTS Annual debt service requirements to maturity for bonded debt is as follows: C. CHANGES IN LONG-TERM LIABILITIES Beginning Revenue Refunding Year Ending Revenue Bonds, Series 2003B Bonds, Series 2012A December 31 Principal Interest Principal Interest 2016 $ 125,000 $ 30,612 $ 1,160, 000 $ 781,500 2017 125,000 25,488 1,220,000 735,100 2018 125,000 20,238 1,295,000 674,100 2019 125,000 14,925 1,370,000 609,350 2020 125,000 9,550 1,455,000 540,850 , 2021-2025 90,000 4,050 8,995,000 1,718,050 2026 Compensated 2,080,000 104,000 $ 715.000 $ 104.863 $ 17.575.000 $ 5.162.950 C. CHANGES IN LONG-TERM LIABILITIES 23 Beginning Ending Due Within Balance Additions Reductions Balance One Year Revenue Bonds $ 840,000 $ $ (125,000) $ 715,000 $ 125,000 Revenue Refunding Bonds 18,675,000 (1,100,000) 17,575,000 1,160,000 Bond Premium 2,211,832 (185,608) 2,026,224 185,608 Compensated Absences 435,332 322,064 (310,573) 446,823 17,802 Net Pension Liability * 6,142,154 (2,441,835) 3,700,319 $ 22,162,164 $ 6.464.218 $ (4,163.016) $ 24,463.366 $ 1,488,410 * - Additions include change in accounting principal of $3,809,672. See Note 13 for additional information. 23 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 6. LONG-TERM DEBT (Cont'd) D. PLEDGED REVENUES Future revenue pledged for the payment of long-term debt is as follows: Bond Issue/ Percent Use of Proceeds/ of Total Term of Type Debt Service Pledge Revenue Bonds, Series 2003B Electric Utility Charges 100% 2003-2021 Revenue Refunding Bonds, Series 2012A Natural Gas Utility Charges 100% 2012-2026 NOTE 7. RISK MANAGEMENT Remaining Principal and Interest $ 819,863 $ 22,737,950 Principal Pledged and Interest Revenue Paid Received 160,612 $ 26,505,059 1,925,500 9,923,500 The Commission purchases commercial insurance coverage through the League of Minnesota Cities Insurance Trust (LMCIT), which is a public entity risk pool currently operating as a common risk management and insurance program, with cities in the state. The Commission pays an annual premium to the LMCIT for its insurance coverage. The LMCIT is self-sustaining through commercial companies for excess claims. The Commission is covered through the pool for any claims incurred but unreported, but retains risk for the deductible portion of its insurance policies. The amount of these deductibles is considered immaterial to the financial statements. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any of the past three fiscal years. The Commission's workers' compensation insurance policy is retrospectively rated. With this type of policy, final premiums are determined after loss experience is known. The amount of premium adjustment for 2015 is estimated to be immaterial based on workers' compensation rates and salaries for the year. There are no other claims liabilities reported in the funds based on the requirements of accounting standards, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. 24 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 8. DEFINED BENEFIT PENSION PLANS - STATEWIDE At December 31, 2015, the Commission adopted Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. This implementation allows the Commission to report its proportionate share of collective net pension liability, deferred inflows of resources and deferred outflows of resources, and pension expense and to reflect an actuarially determined liability for the present value of projected future benefits for retired and active employees less the pension plan's fiduciary net position on the financial statements. A. PLAN DESCRIPTION The Commission participates in the following cost-sharing multiple -employer defined benefit pension plan administered by the Public Employees Retirement Association (PERA). PERA's defined benefit pension plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. PERA's defined benefit pension plans are tax qualified plans under Section 401(a) of the Internal Revenue Code. All full-time and certain part-time employees of the Commission are covered by the General Employees Retirement Fund (GERF). 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. The Basic Plan was closed to new members in 1967. All new members must participate in the Coordinated Plan. B. BENEFITS PROVIDED PERA provides retirement, disability and death benefits. Benefit provisions are established by state statute and can only be modified by the state legislature. Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. Members in plans that are at least 90% funded for two consecutive years are given 2.5% increases. Members in plans that have not exceeded 90% funded, or have fallen below 80%, are given 1 % increases. The benefit provisions stated in the following paragraphs 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. Benefits are based on a member's highest average salary for any five successive years of allowable service, age and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of a step -rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2% of average salary for each of the first ten years of service and 2.7% for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2% of average salary for each of the first ten years and 1.7% for each remaining year. Under Method 2, the annuity accrual rate is 2.7% of average salary for Basic Plan members and 1.7% for Coordinated Plan members for each year of service. For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security benefits capped at 66. Disability benefits are available for vested members, and are based upon years of service and average high -five salary. 25 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 8. DEFINED BENEFIT PENSION PLANS - STATEWIDE (Cont'd) C. CONTRIBUTIONS Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state legislature. Basic Plan members and Coordinated Plan members were required to contribute 9.10% and 6.50%, respectively, of their annual covered salary in calendar year 2015. The Commission was required to contribute 11.78% of pay for Basic Plan members and 7.50% for Coordinated Plan members in calendar year 2015. The Commission's contributions to the GERF for the year ended December 31, 2015, were $327,065. The Commission's contributions were equal to the required contributions for each year as set by state statute. D. PENSION COSTS At December 31, 2015, the Commission reported a liability of $3,700,319 for its proportionate share of the GERF's net pension liability. The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The Commission's proportion of the net pension liability was based on the Commission's contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2014 through June 30, 2015, relative to the total employer contributions received from all of PERA's participating employers. At June 30, 2015, the Commission's proportion was .0714%. For the year ended December 31, 2015, the Commission recognized pension expense of $379,329 for its proportionate share of GERF's pension expense. At December 31, 2015, the Commission reported its proportionate share of GERF's deferred outflows of resources and deferred inflows of resources from the following sources: 26 Deferred Outflows of Deferred Inflows Resources of Resources Differences between expected and actual economic experience $ $ 186,559 Differences between projected and actual investment earnings 350,292 Changes in proportion and differences between contributions made and Commission's proportionate share of contributions 341,743 Contributions paid to PERA subsequent to measurement date 167,308 Totals $ 517,600 $ 528,302 26 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 8. DEFINED BENEFIT PENSION PLANS - STATEWIDE (Cont'd) D. PENSION COSTS (Cont'd) $167,308 reported as deferred outflows of resources related to pensions resulting from Commission contributions to GERF subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2016. Other amounts reported as deferred outflows and inflows of resources related to GERF pensions will be recognized in pension expense as follows: Year ended June 30, 2016 2017 2018 2019 2020 Thereafter E. ACTUARIAL ASSUMPTIONS Pension Expense Amount $ (88,528) (88,528) (88,527) 87,573 The total pension liability in the June 30, 2015 actuarial valuation was determined using the entry age normal actuarial cost method and the following actuarial assumptions: Inflation 2.75% per year Active Member Payroll Growth 3.50% per year Investment Rate of Return 7.90% Salary increases were based on a service -related table. Mortality rates for active members, retirees, survivors and disabilitants were based on RP -2000 tables for males or females, as appropriate, with slight adjustments. Benefit increases for retirees are assumed to be 1 % effective every January 1 through 2026 and 2.5% thereafter. Actuarial assumptions used in the June 30, 2015, valuations were based on the results of actuarial experience studies. The experience study in the GERF was for the period July 1, 2004, through June 30, 2008, with an update of economic assumptions in 2014. Experience studies have not been prepared for I PERA's other plans, but assumptions are reviewed annually. The following changes in actuarial assumptions occurred in 2015: The long-term expected rate of return on pension plan investments is 7.9%. The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness of the long-term expected rates of return on a regular basis using a building-block method in which best -estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: 27 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 8. DEFINED BENEFIT PENSION PLANS - STATEWIDE (Cont'd) E. ACTUARIAL ASSUMPTIONS (Cont'd) Asset Class Domestic Stocks International Stocks Bonds Alternative Assets Cash F. DISCOUNT RATE Target Allocation 45% 15% 18% 20% 2% Long -Term Expected Real Rate of Return 5.50% 6.00% 1.45% 6.40% 0.50% The discount rate used to measure the total pension liability was 7.9%. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at a rate specified in statute. Based on that assumption, each of the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. PENSION LIABILITY SENSITIVITY The following presents the Commission's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the Commission's proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: 1 % Decrease 1 % Increase in Discount Discount in Discount Rate (6.9%) Rate (7.9%) Rate (8.9%) Commission's proportionate share of the GERF net pension liability $ 5,818,216 $ 3,700,319 $ 1,951,261 H. PENSION PLAN FIDUCIARY NET POSITION Detailed information about each pension plan's fiduciary net position is available in a separately -issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.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. NOTE 9. DEFERRED COMPENSATION PLAN The Commission offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all Commission employees, permits them to defer a portion of their salary into future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. Investments are managed by the plan's trustee under one of four investment options, or a combination thereof. The choice of the investment option(s) is made by the participants. 28 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 NOTE 10. COMMITMENTS The Commission is committed to purchase 25 MW of its power requirements from Missouri River Energy Services pursuant to the Power Sale Agreement dated April 28, 2010. This contract is effective through January 1, 2046. NOTE 11. MAJOR CUSTOMERS For the years ended December 31, 2015 and 2014, the Electric Division derived approximately 51 % and 50% respectively, of utility revenue from the top five major customers. For the years ended December 31, 2015 and 2014, the Natural Gas Division derived approximately 37% and 46% respectively, of its utility revenue from the top five major customers. NOTE 12. NET POSITION Net Investment in Capital Assets Net Capital Assets Revenue Bonds Payable Restricted Cash and Investments Designated by Bond Covenants for Specific Purposes Bond Premium (Unamortized) NOTE 13. PRIOR PERIOD ADJUSTMENT 2015 $ 73,356,625 (18,290,000) 2014 $ 76,363,215 (19,515,000) $ 55.066.625 $ 56.848.215 $ 2,567,940 $ 2,577,815 (2,026,224) (2,211,832) $ 541.716 $ 365.983 The beginning net position has been decreased to reflect a change in accounting principle. As mentioned in Note 8, the Commission implemented GASB 68 and GASB 71 which records the Commission's proportionate share of collective net pension liability, deferred inflows of resources and deferred outflows of resources, and pension expense on the Commission's government -wide financial statements. Beginning business -type activities net position has been restated from $65,994,236 to $62,347,873 (a decrease of $3,646,363). Prior year partial comparative information does not reflect this change in accounting principle because the cost- sharing multiple -employer defined benefit pension plans in which the Commission participates have not made this information available. The beginning net position has been adjusted to reflect a correction of error for unrecorded amounts due to other governments. Beginning net position for business -type activities for the year ended 2014 has been restated from $66,268,287 to $65,951,727 (a decrease of $316,560). 29 REQUIRED SUPPLEMENTARY INFORMATION 30 HUTCHINSON UTILITIES COMMISSION SCHEDULES OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY AND EMPLOYER CONTRIBUTIONS DECEMBER 31, 2015 Schedule of Proportionate Share of the Net Pension Liability I Employer's Proportionate Share of the Employer's Net Pension Plan Fiduciary Employer's Proportionate Employer's Liability (Asset) Net Position Proportion Share of the Covered- as a Percentage of as a Percentage Actuarial of the Net Net Pension Employee its Covered- of the Total Valuation Pension Liability (Asset) Payroll Employee Payroll Pension Date Liability (Asset) (a) (b) (a/b) Liability Pensions PERA -GERF 6/30/2015 0.0714% $ 3,700,319 $ 4,241,304 87.2% 78.2% Schedule of Employer Contributions Contributions Contributions in Relation as a Percentage Statutorily to the Statutorily Contribution Covered- of Covered- Required Required Deficiency Employee Employee Year Ended Contribution Contribution (Excess) Payroll Payroll December 31, (a) (b) (a-b) (d) (b/d) Pensions PERA - GERF 2015 $ 327,065 $ 327,065 $ $ 4,360,868 7.50% The City implemented GASB Statement No. 68 for fiscal year ended December 31, 2015. Information for prior years is not available. 30 SUPPLEMENTARY INFORMATION HUTCHINSON UTILITIES COMMISSION COMBINING STATEMENT OF NET POSITION DECEMBER 31, 2015 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Assets Current Assets Cash and Investments Accounts Receivable (Net of Allowance for Doubtful Accounts of $31,984 and $17,222, Respectively) Inventory Sales Tax Receivable Prepaid Items Total Current Assets Noncurrent Assets Restricted Assets Cash and Investments Capital Assets Assets Not Being Depreciated Other Capital Assets, Net of Depreciation Net Capital Assets Total Noncurrent Assets Total Assets Deferred Outflows of Resources Related to Pensions Total Assets and Deferred Outflows of Resources LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Liabilities Current Liabilities Current Portion of Long -Term Debt Bonds Payable Bond Premium Accrued Vacation Accounts Payable Due to Other Governments Customer Deposits Accrued Expenses Interest Salaries Payable Total Current Liabilities Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable Bond Premium Accrued Vacation Accrued Severance Net Pension Liability Total Long -Term Liabilities Total Liabilities Deferred Inflows of Resources Related to Pensions Net Position Net Investment in Capital Assets Restricted Unrestricted Total Net Position Total Liabilities, Deferred Inflows of Resources and Net Position 31 Natural Electric Gas Division Division Total $ 6,148,711 $ 6,491,512 $ 12,640,223 1,766,414 1,357,129 3,123,543 1,105,204 409,489 1,514,693 128,359 1,334,380 128,359 758 253 1,011 9,149,446 8,258,383 17,407,829 22,079 2,545,861 2,567,940 690,368 3,899,919 4,590,287 41,378,082 27,388,256 68,766,338 42,068,450 31,288,175 73,356,625 42,090,529 33,834,036 75,924,565 51,239,975 42,092,419 93,332,394 388,200 129,400 517,600 $ 51,628,175 $ 42,221,819 $ 93,849,994 $ 125,000 $ 1,160,000 $ 1,285,000 185,608 185,608 13,432 4,369 17,801 1,659,295 1,334,380 2,993,675 902,446 855,155 1,757,601 310,898 167,407 478,305 2,551 65,125 67,676 85,355 25,602 110,957 3,098,977 3,797,646 6,896,623 590,000 16,415,000 17,005,000 1,840,616 1,840,616 255,215 83,033 338,248 66,869 23,904 90,773 2,775,239 925,080 3,700,319 3,687,323 19,287,633 22,974,956 6,786,300 23,085,279 29,871,579 396,226 132,076 528,302 41,353,450 13,713,175 55,066,625 22,079 519,637 541,716 3,070,120 4,771,652 7,841,772 44,445,649 19,004,464 63,450,113 $ 51,628,175 $ 42,221,819 $ 93,849,994 HUTCHINSON UTILITIES COMMISSION COMBINING SCHEDULE OF REVENUES AND EXPENSES YEAR ENDED DECEMBER 31, 2015 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 Bond Premium Amortization of Development Study Interest Expense - Customer Deposits Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position 32 2,602,581 2015 2,602,581 Electric Natural Gas 464,183 Division Division Total $ 26,505,059 $ $ 26,505,059 1,930,093 9,923,500 9,923,500 297,007 1,417,997 1,715,004 26,802,066 11,341,497 38,143,563 2,602,581 2,602,581 464,183 464,183 14,706,630 5,988,821 20,695,451 361,553 361,553 1,930,093 115,115 2,045,208 23,231 4,337 27,568 630,698 423,390 1,054,088 263,445 215,554 478,999 229,470 187,748 417,218 220,969 73,656 294,625 2,389,037 910,782 3,299,819 2,816,301 1,008,133 3,824,434 531,130 206,980 738,110 27,169,321 9,134,516 36,303,837 (367,255) 2,206,981 1,839,726 15,978 15,978 31,956 (49,243) 56,008 6,765 129,966 28,316 158,282 185,608 185,608 (262,972) (262,972) (96) (96) (35,196) (821,833) (857,029) (201,467) (536,019) (737,486) $ (568,722) $ 1,670,962 $ 1,102,240 C HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION ELECTRIC DIVISION DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2014 i 2015 2014 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Assets Current Assets Cash and Investments $ 6,148,711 $ 3,576,533 Accounts Receivable (Net of Allowance for Doubtful Accounts of $31,984 and $39,318, Respectively) 1,766,414 2,012,193 Inventory 1,105,204 1,105,818 Sales Tax Receivable 128,359 244,783 Prepaid Items 758 Total Current Assets 9,149,446 6,939,327 Noncurrent Assets Restricted Assets Cash and Investments 22,079 22,288 Other Assets MRES Agreement 262,972 Capital Assets Assets Not Being Depreciated 690,368 690,368 Other Capital Assets, Net of Depreciation 41,378,082 43,660,856 Net Capital Assets 42,068,450 44,351,224 Total Noncurrent Assets 42,090,529 44,636,484 Total Assets 51,239,975 51,575,811 Deferred Outflows of Resources Related to Pensions 388,200 Total Assets and Deferred Outflows of Resources $ 51,628,175 $ 51,575,811 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Liabilities Current Liabilities Current Portion of Long -Term Debt Bonds Payable $ 125,000 $ 125,000 Accrued Vacation 13,432 13,332 Accounts Payable 1,659,295 1,500,081 Due to Other Governments 902,446 786,557 Customer Deposits 310,898 286,777 Accrued Expenses Interest 2,551 2,967 Salaries Payable 85,355 85,152 Total Current Liabilities 3,098,977 2,799,866 Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable 590,000 715,000 Accrued Vacation 255,215 253,313 Accrued Severance 66,869 58,489 Net Pension Liability 2,775,239 Total Long -Term Liabilities 3,687,323 1,026,802 Total Liabilities 6,786,300 3,826,668 Deferred Inflows of Resources Related to Pensions 396,226 Net Position Net Investment in Capital Assets 41,353,450 43,511,224 Restricted 22,079 22,288 Unrestricted 3,070,120 4,215,631 Total Net Position 44,445,649 47,749,143 Total Liabilities, Deferred Inflows of Resources and Net Position $ 51,628,175 $ 51,575,811 33 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 ' 2015 2014 Over (Under) Budget Actual Budget Actual OPERATING REVENUES Utility Revenues Residential $ 5,051,735 $ 5,080,964 $ 29,229 $ 5,162,073 General Service 8,869,482 8,763,091 (106,391) 8,787,907 Industrial 10,502,648 11,399,155 896,507 11,001,396 Street Lighting 146,739 146,931 192 139,532 Resale 994,000 1,114,918 120,918 678,293 Total Utility Revenues 25,564,604 26,505,059 940,455 25,769,201 Other Operating Revenues Penalties/Fees 270,200 285,738 15,538 292,778 Security Lights 10,000 11,269 1,269 11,301 Pole Rental 16 Total Other Operating Revenues 280,200 297,007 16,807 304,095 Total Operating Revenues 25,844,804 26,802,066 957,262 26,073,296 OPERATING EXPENSES Production Operations Supervision and Engineering 985,531 934,560 (50,971) 935,505 Other Employee Benefits 72,000 111,270 39,270 102,390 Fuels 30,100 26,226 (3,874) 33,828 Station 99,600 136,379 36,779 117,305 Gas for Generation 1,123,092 722,821 (400,271) 1,184,423 Transportation 641,833 641,833 700,000 Waste Disposal 18,000 29,492 11,492 29,196 Total Operations 2,970,156 2,602,581 (367,575) 3,102,647 Maintenance Structures 5,000 3,184 (1,816) 6,165 Generating Units 305,538 339,876 34,338 375,626 Other Equipment 148,000 121,123 (26,877) 118,081 Total Maintenance 458,538 464,183 5,645 499,872 Total Production 3,428,694 3,066,764 (361,930) 3,602,519 ' Power Costs Purchased Power 14,862,607 14,706,630 (155,977) 13,850,238 34 35 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 2015 2014 Over (Under) Budget Actual Budget Actual OPERATING EXPENSES (Cont'd) Other Power Supply Supervision and General Salaries $ 447,794 $ 319,855 $ (127,939) $ 291,971 Training 2,500 (2,500) Professional Services 36,600 41,698 5,098 45,762 Total Other Power Supply 486,894 361,553 (125,341) 337,733 Transmission + Operations Transmission 1,535,000 1,785,988 250,988 1,512,071 Station 100 144,105 144,005 144,106 Total Operations 1,535,100 1,930,093 394,993 1,656,177 Maintenance Plant and Equipment 31,019 23,231 (7,788) 28,361 Total Transmission 1,566,119 1,953,324 387,205 1,684,538 Distribution Operations Supervision and Engineering 569,823 339,667 (230,156) 335,085 Line 65,481 61,641 (3,840) 64,471 Meter 25,044 68,177 43,133 71,393 Territory Service Agreement 25,000 29,068 4,068 25,928 Other 60,000 132,145 72,145 109,666 Total Operations 745,348 630,698 (114,650) 606,543 Maintenance Station Equipment 12,253 10,086 (2,167) 16,327 Underground Lines 133,281 100,165 (33,116) 123,852 Lines Transformers 13,197 10,571 (2,626) 12,207 Street Lighting 68,451 90,272 21,821 53,582 Other Equipment 41,756 52,351 10,595 50,586 Total Maintenance 268,938 263,445 (5,493) 256,554 Total Distribution 1,014,286 894,143 (120,143) 863,097 Customer Accounts Expense Meter Reading 21,108 23,258 2,150 17,153 Collection 145,034 141,788 (3,246) 107,302 Other Employee Benefits 6,050 9,818 3,768 7,574 Uncollectible Accounts 8,250 4,658 (3,592) 10,875 Customer Services 45,251 49,517 4,266 47,286 Meetings and Training 3,850 431 (3,419) 448 Total Customer Accounts Expense 229,543 229,470 (73) 190,638 35 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 2015 2014 Over (Under) Budget Actual Budget Actual OPERATING EXPENSES (Cont'd) Sales Expense Salaries $ 57,814 $ 49,768 $ (8,046) $ 51,733 Conservation 394,521 171,201 (223,320) 292,913 Total Sales Expense 452,335 220,969 (231,366) 344,646 Administrative and General Supervision and General Salaries 455,177 455,790 613 467,125 Office Supplies 222,300 248,368 26,068 254,183 Outside Services Employed 112,931 106,060 (6,871) 109,766 Property Insurance 96,250 88,869 (7,381) 91,736 Medical Insurance 717,784 719,849 2,065 677,763 Other Employee Benefits 636,526 635,730 (796) 588,648 Regulatory 27,500 23,322 (4,178) 24,305 Commissioners Salaries 14,517 14,517 14,517 Travel 9,900 3,709 (6,191) 8,054 Miscellaneous 72,875 46,315 (26,560) 64,920 Maintenance of General Plant 43,872 46,508 2,636 63,751 Total Administrative and General 2,409,632 2,389,037 (20,595) 2,364,768 Depreciation 2,700,000 2,816,301 116,301 2,744,769 Contribution to City of Hutchinson Payment in Lieu of Taxes 384,391 384,391 1,123, 897 Roadway Lighting 146,739 146,739 Total Contribution to City of Hutchinson 531,130 531,130 0 1,123,897 Total Operating Expenses 27,681,240 27,169,321 (511,919) 27,106,843 Operating Income (Loss) (1,836,436) (367,255) 1,469,181 (1,033,547) 36 t HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 2015 2014 Over (Under) Budget Actual Budget Actual NONOPERATING REVENUES (EXPENSES) Interest Income $ 32,500 $ 15,978 $ (16,522) $ 14,861 Merchandise and Contract Work, Net (49,243) (49,243) 41,724 Miscellaneous Income 129,966 129,966 35,408 Gain (Loss) on Disposal of Assets 23,159 Bond Service Fees (2,400) 2,400 (450) Amortization of Development Study (262,972) (262,972) (525,943) Interest Expense - Bonds (36,612) (35,196) 1,416 (40,081) Total Nonoperating Revenues (Expenses) (269,484) (201,467) 68,017 (451,322) Change in Net Position $ (2,105,920) (568,722) $ 1,537,198 (1,484,869) NET POSITION, BEGINNING OF YEAR, AS ORIGINALLY STATED 47,749,143 49,483,473 PRIOR PERIOD ADJUSTMENT (2,734,772) (249,461) NET POSITION, BEGINNING OF YEAR, AS RESTATED 45,014,371 49,234,012 NET POSITION, END OF YEAR $ 44,445,649 $ 47,749,143 37 HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION NATURAL GAS DIVISION DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2014 2015 2014 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Assets Current Assets Cash and Investments $ 6,491,512 $ 4,209,638 Accounts Receivable (Net of Allowance for Doubtful Accounts of $17,222 and $21,171, Respectively) 1,357,129 1,903,283 Inventory 409,489 425,716 Prepaid Items 253 16,132 Total Current Assets 8,258,383 6,554,769 Noncurrent Assets Restricted Assets Cash and Investments 2,545,861 2,555,527 Capital Assets Assets Not Being Depreciated 3,899,919 3,899,919 Other Capital Assets, Net of Depreciation 27,388,256 28,112,072 Net Capital Assets 31,288,175 32,011,991 Total Noncurrent Assets 33,834,036 34,567,518 Total Assets 42,092,419 41,122,287 Deferred Outflows of Resources Related to Pensions 129,400 Total Assets and Deferred Outflows of Resources $ 42,221,819 $ 41,122,287 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Liabilities Current Liabilities Current Portion of Long -Term Debt Bonds Payable $ 1,160,000 $ 1,100,000 Bond Premium 185,608 185,608 Accrued Vacation 4,369 4,303 Accounts Payable 1,334,380 1,093,738 Due to Other Governments 855,155 540,919 Customer Deposits 167,407 154,418 Accrued Expenses Interest 65,125 68,792 Salaries Payable 25,602 22,297 Total Current Liabilities 3,797,646 3,170,075 Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable 16,415,000 17,575,000 Bond Premium 1,840,616 2,026,225 Accrued Vacation 83,033 81,749 Accrued Severance 23,904 24,145 Net Pension Liability 925,080 Total Long -Term Liabilities 19,287,633 19,707,119 Total Liabilities 23,085,279 22,877,194 Deferred Inflows of Resources Related to Pensions 132,076 Net Position Net Investment in Capital Assets 13,713,175 13,336,991 Restricted 519,637 343,695 Unrestricted 4,771,652 4,564,407 Total Net Position 19,004,464 18,245,093 Total Liabilities, Deferred Inflows of Resources and Net Position $ 42,221,819 $ 41,122,287 38 t HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 i 2015 2014 Over (Under) Budget Actual Budget Actual 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 $ 4,258,334 $ 3,731,066 $ (527,268) $ 4,706,388 3,722,294 2,748,161 (974,133) 3,853,504 4,034,279 3,444,273 (590,006) 6,066,290 12,014,907 9,923,500 (2,091,407) 14,626,182 725,100 776,164 51,064 808,575 641,833 641,833 119,452 700,000 1,366,933 1,417,997 51,064 1,508,575 13,381,840 11,341,497 (2,040,343) 16,134,757 7,580,424 5,988,821 (1,591,603) 10,460,268 60,710 52,510 (8,200) 54,723 65,000 62,605 (2,395) 52,261 125,710 115,115 (10,595) 106,984 Maintenance 166,270 156,591 (9,679) 99,918 Supervision and Engineering 1,518 3,996 2,478 2,492 Other 16,500 341 (16,159) 21,043 Total Maintenance 18,018 4,337 (13,681) 23,535 Total Transmission 143,728 119,452 (24,276) 130,519 Distribution Operations Supervision and Engineering 154,975 181,772 26,797 174,481 Other Employee Benefits 115,000 125,150 10,150 120,998 Mains and Services 85,799 78,595 (7,204) 92,313 Meters 759 9,497 8,738 2,921 Other 39,650 28,376 (11,274) 47,386 Total Operations 396,183 423,390 27,207 438,099 Maintenance Mains and Services 166,270 156,591 (9,679) 99,918 Meters 13,807 9,322 (4,485) 22,554 Other Equipment 169,240 49,641 (119,599) 53,973 Total Maintenance 349,317 215,554 (133,763) 176,445 Total Distribution 745,500 638,944 (106,556) 614,544 .W HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 OPERATING EXPENSES (Cont'd) Customer Accounts Expense Meter Reading Collection Other Employee Benefits Uncollectible Accounts Customer Services Meetings and Training Total Customer Accounts Expense Sales Expense Salaries Conservation Total Sales Expense Administrative and General Supervision and General Salaries Office Supplies Outside Services Employed Property Insurance Medical Insurance Other Employee Benefits Regulatory Commissioners Salaries Travel Miscellaneous Maintenance of General Plant Total Administrative and General Depreciation Contribution to City of Hutchinson Payment in Lieu of Taxes Total Operating Expenses Operating Income (Loss) K11W 2014 Over (Under) Budget Actual Budget Actual $ 17,270 $ 19,029 $ 1,759 $ 14,034 118,664 116,008 (2,656) 87,792 4,950 8,033 3,083 6,197 6,750 3,811 (2,939) 8,898 37,024 40,514 3,490 38,689 3,150 353 (2,797) 366 187,808 187,748 (60) 155,976 19,271 16,589 (2,682) 17,245 131,507 57,067 (74,440) 97,638 150,778 73,656 (77,122) 114,883 151,726 151,930 204 155,708 74,100 82,789 8,689 84,728 37,644 35,353 (2,291) 36,589 78,750 72,711 (6,039) 75,057 239,262 239,950 688 225,921 212,175 211,910 (265) 196,216 22,500 19,082 (3,418) 19,886 11,877 11,877 11,877 8,100 3,035 (5,065) 6,590 59,625 44,093 (15,532) 53,116 35,895 38,052 2,157 52,160 931,654 910,782 (20,872) 917,848 1,056,000 1,008,133 (47,867) 1,002,804 206,980 206,980 605,176 11,002,872 9,134,516 (1,868,356) 14,002,018 2,378,968 2,206,981 (171,987) 2,132,739 40 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2015 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 2015 2014 Over (Under) Budget Actual Budget Actual NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Bond Premium Interest Expense - Customer Deposits Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position NET POSITION, BEGINNING OF YEAR, AS ORIGINALLY STATED PRIOR PERIOD ADJUSTMENT NET POSITION, BEGINNING OF YEAR, AS RESTATED NET POSITION, END OF YEAR $ 32,500 $ 15,978 $ (16,522) $ 14,860 27,000 56,008 29,008 31,269 28,316 28,316 5,235 22,100 185,608 185,608 185,608 (1,000) (96) 904 (434) (825,500) (821,833) 3,667 (863,999) (581,392) (536,019) 45,373 (605,361) $ 1,797,576 1,670,962 $ (126,614) 1,527,378 41 18,245,093 16,784,814 (911,591) (67,099) 17,333,502 $ 19,004,464 16,717,715 $ 18,245,093 COMPLIANCE SECTION CJL)S CERTIREO PUBLIC ACCOUNTANTS & CONSULTANTS INDEPENDENT AUDITOR'S REPORT ON MINNESOTA LEGAL COMPLIANCE Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2015, and the related notes to the financial statements, and have issued our report thereon dated March 30, 2016. The Minnesota Legal Compliance Audit Guide for Political Subdivisions, promulgated by the State Auditor pursuant to Minn. Stat. § 6.65, contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories, except that we did not test for compliance in tax increment financing because Hutchinson Utilities Commission does not have any tax increment financing. In connection with our audit, nothing came to our attention that caused us to believe that the Commission failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the Commission's noncompliance with the above referenced provisions. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. Conuaa�, . ; , PULP CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 30, 2016 42 Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants Willmar Office 331 Third St SW, Ste 2 PO Box 570 Willmar, MN 56201 P (320) 235-3311 T (888) 388-1040 Benson Office Morris Office 1209 Pacific Ave, Ste 3 401 Atlantic Ave Benson, MN 56215 Morris, MN 56267 P (320) 843-2302 P (320) 589-2602 www.cdscpa.com Litchfield Office 820 Sibley Ave N Litchfield, MN 55355 P (320) 693-7975 St. Cloud-Sartell Office Ste 110 2351 Connecticut Ave Sartell, MN 56377 P (320) 252-7565 T (800) 862-1337 CJL)S CERnRED PUBLIC ACCOUNTANTS & CONSULTANTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements, and have issued our report thereon dated March 30, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Commission's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission's internal control. Accordingly, we do not express an opinion on the effectiveness of the Commission's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 43 Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants Willmar Office Benson Office Morris Office Litchfield Office St. Cloud-Sartett Office 331 Third St SW, Ste 2 1209 Pacific Ave, Ste 3 401 Atlantic Ave 820 Sibley Ave N Ste 110 PO Box 570 Benson, MN 56215 Morris, MN 56267 Litchfield, MN 55355 2351 Connecticut Ave Willmar, MN 56201 P (320) 843-2302 P (320) 589-2602 P (320) 693-7975 Sartell, MN 56377 P (320) 235-3311 P (320) 252-7565 T (888) 388-1040 www.cdscpa.com T (800) 862-1337 Compliance and Other Matters As part of obtaining reasonable assurance about whether Hutchinson Utilities Commission's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the Commission's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Commission's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. ", UU-0L i &11A�tl PW CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 30, 2016 44 11 Exempt HEALTH/DENTAL INSURANCE HUC provides an opportunity for employees to participate in a group health (HSA)/dental insurance program. Employees are eligible for coverage the first of the month following hire date. Contact the Qste.,,er, HR MaRageF human resources / pavroll for information regarding benefits and participation levels. Contact the Custerne- HR ""-,Rager human resources / pavroll for information about continuation of health/dental insurance coverage after leaving. For those employees who participate in the high deductible family plan, HUC will contribute $4,000 annually into the HSA and for those employees participating in the high deductible single plan, HUC will contribute will receive $2,000 annually into the HSA. Contributions are made in bi-weekly installments. Based on Internal Revenue Service rules, an employee must be an eligible individual to qualify for an HSA including generally having no other health coverage that is not a high deductible health plan. Veterans of the United States armed forces who receive medical benefits from the Veterans Administration (VA) or employees who are enrolled in TRICARE, which is health insurance available to active duty and retired service and reserve members and their dependents, are therefore not eligible to qualify for an HSA, but i3 are eligible fe+ to participate in the high deductible health plan. A veteran who receives medical benefits from the Veterans Administration (VA) or employees who are enrolled in TRICARE who participate in the high deductible family plan, but who is are not eligible to qualify for an HSA, shall receive $4,000 annually in two equal installments in lieu of said monies being deposited in an HSA. A veteran who receives medical benefits from the Veterans Administration (VA) or employees who are enrolled in TRICARE who participates in the high deductible single plan, but who is are not eligible to qualify for an HSA, shall receive $2,000 annually in two equal installments in lieu of said monies being deposited in an HSA. Non -Exempt HEALTH/DENTAL INSURANCE HUC provides an opportunity for employees to participate in a group (HSA)/dental insurance program. Employees are eligible for coverage the first of the month following hire date. Contact the GusterneFLHO MaeageF human resources / pavroll for information regarding benefits and participation levels. Contact the Cusrt^meer/uQ MaRag^F human resources / pavroll for information about continuation of health/dental insurance coverage after leaving. See Union Contract. Exempt LIFE INSURANCE HUC provides group term life insurance with accidental death and dismemberment for all full-time employees. HUC also offers voluntary term life insurance for all full-time employees. Information on life insurance is available through the Custeme- HR nn-.,,-geF human resources / pavroll. Non -Exempt LIFE INSURANCE group term life insurance with accidental death and dismemberment for all full-time UC also offers voluntary term life insurance for all full-time employees. Information on life /ailable through the Custe- e.r/HR MaRa,or human resources / pavroll. Exempt DISABILITY INSURANCE HUC pays the entire premium of a long-term disability insurance policy for all employees. Information on disability insurance is available through the Gustemer/HR MaRageF human resources / payroll. Non -Exempt DISABILITY INSURANCE HUC pays the entire premium of a long-term disability insurance policy for all employees. Information on disability insurance is available through the C s*emer HR na-,R-geF human resources / oavroll. Meter Testing HUC will test all meters periodically for accuracy and mechanical condition. All electric meters must be accurate to within 2%, plus or minus, at full and light load. Upon request of the customer, HUC will test the accuracy of an electric meter. If the meter is found to be registering more than 2% fast, there will be no testing charge to the customer. If the meter is found to be accurate within the 2% limit, a $40 trip charge will be billed to the customer. HUC has the right to place special meters on the premises of a customer for the purpose of testing all or part of the customer's load at no expense to the customer. 225 Michigan Street SE �( Hutchinson Hutchinson, MN (-1905 Uli�lUtilities320-587-47461 Fax 320-587-4721 www. hutchinsonutilities. com •htmt Commission Putting All of Our Energy into Serving You For information: Tobias Scllicr, APPA, 202467-2927 Dave Hunstad, Hutchinson Utilities Commission, 320-234-0508 HUTCHINSON UTILITIES COMMISSION RECEIVES RECOGNITION FOR EXCEPTIONAL SYSTEM RELIABILITY IN 2015 WASHINGTON, D.C. — March 3, 2016 — Hutchinson Utilities Commission has received national recognition for achieving exceptional electric reliability in 2015. The recognition comes from the American Public Power Association (APPA) --a trade group in Washington, D.C., that represents more than 2,000 not-for-profit, cornmunityowned electric utilities such as Hutchinson Utilities Commission. "11iis honor recognizes utilities that are statistically thriving when it comes to reliability," said APPA Senior Vice President, Engineering Services Michael Hyland. APPA took Hutchinson Utilities Commission's reliability data compiled through its eReliability Tracker Service and compared it to the top quartile of system outage duration from national reliability data collected by the Energy Information Administration an independent agency that collects, analyzes and disseminates national energy data. "We work hard to keep the lights on day in and day out," said Dave Hunstad, Electric Manager at Hutchinson Utilities Commission. "It's nice to sec that hard work pay off with this kind of recognition" For more information on Hutchinson Utilities Commission and its commitment to reliability, visit www.hutchinsonutilities.com. American - Public Power � Association CERTIFICATE OF EXCELLENCE IN RELIABILITY This is to acknowledge that Hutchinson Utilities Commis- sion March 3, 2016 Date has achieved excellence in reliability by significantly outperforming the electric industry national average as reported by the Energy Information Administration. eReliabilffy ker 0 1j�al 12 Mic ael J. Hyland U Se io Vice President, Engineering Services