MARSHALL MUNICIPAL UTILITIES AUDIT REPORT FOR THE …adopted new accounting guidance by implementing the provisions of Governmental Accounting Standards Board (GASB) Statement No

MARSHALL MUNICIPAL UTILITIES

AUDIT REPORT

FOR THE YEARS ENDED

DECEMBER 31, 2016 AND 2015

C O N T E N T S

PAGE

INTRODUCTORY SECTION

Organizational Data

INDEPENDENT AUDITOR'S REPORT

REQUIRED SUPPLEMENTAL INFORMATION

Management Discussion and Analysis 1 1

FINANCIAL STATEMENTS Statements of Net Position 7

Statements of Revenues, Expenses and Changes in Net Position 9

Statements of Cash Flows 12

Notes to Financial Statements 14

REQUIRED SUPPLEMENTARY INFORMATION

Schedules of MMU’s Share of Net Pension Liability and MMU’s Contributions for

Defined Benefit Pension Plans 34

Schedules of Funding Progress and Employer Contributions for Postemployment

Benefit Plans 35

Notes to the Required Supplementary Information 36

SUPPLEMENTARY FINANCIAL INFORMATION Combining Schedule of Net Position 37

Combining Schedule of Revenues, Expenses and Changes in Net Position 41

Combining Schedule of Cash Flows 47

Schedules of Net Position - Electric Department 51

Schedules of Revenues, Expenses and Changes in Net Position - Electric Department 53

Schedules of Cash Flows – Electric Department 56

Schedule of Revenues, Expenses and Changes in Net Position - Electric Department

Actual to Budget Comparison 58

Schedules of Net Position - Water Department 61

Schedules of Revenues, Expenses and Changes in Net Position - Water Department 63

Schedules of Cash Flows – Water Department 65

Schedule of Revenues, Expenses and Changes in Net Position - Water Department

Actual to Budget Comparison 67 OTHER SUPPLEMENTARY FINANCIAL INFORMATION Operating Statistics - Electric Department 69

Operating Statistics - Water Department 71

Schedule of Investments 72

Schedules of Material and Supply Inventories 73

Schedule of Insurance Coverage 74

Schedule of Investment in Utility Plant 75

Schedule of Property, Plant and Equipment 76

Schedule of Fire Protection Costs 77

Comparative Statistics 78

Electric Department Financial Ratios Compared to 2015 APPA Data 80 REPORTS

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 81

Independent Auditor's Report on Minnesota Legal Compliance 83

INTRODUCTORY SECTION


ORGANIZATIONAL DATA

DECEMBER 31, 2016

ORGANIZATION

Marshall Municipal Utilities has been serving the electric and water needs of the Community of Marshall since

1894. The Marshall Municipal Utilities Commission of the City of Marshall, Minnesota was established in 1934.

The members of the Commission are appointed by the Mayor and such appointment confirmed by the City Council.

Each Commissioner may serve up to two consecutive five-year terms. The Commission manages and controls the

electric and water departments of Marshall Municipal Utilities.

COMMISSION

Term Expires

May 31 st

Chairperson Cindy Verschaetse 2017

Vice Chairperson Scott Saugstad 2018

Commission Member Bill Reilly 2019

Commission Member Bill Ziegenhagen 2020

Commission Member Sonya Kayser 2021

ADMINISTRATION

General Manager Brad Roos

Electric Operations Manager Steve Johnson

Water Operations Manager Jeff Larson

Customer Service Manager Leslie Hisken

Finance Manager Kevin Lee

903 East College Drive P.O. Box 548

Marshall, MN 56258 www.hoffmanbrobst.com

507 532 5735 Fax 537 0696

INDEPENDENT AUDITOR'S REPORT

Members of the Marshall Municipal Utilities Commission

City of Marshall, Minnesota

Report on the Financial Statements

We have audited the accompanying financial statements of Marshall Municipal Utilities, an autonomous enterprise

fund of the City of Marshall, Minnesota, as of and for the years ended December 31, 2016 and 2015, and the related

notes to the 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 opinions 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

opinions.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of

Marshall Municipal Utilities, an autonomous enterprise fund of the City of Marshall, Minnesota, as of December 31,

2016 and 2015, and the respective changes in financial position and cash flows thereof for the years then ended in

accordance with accounting principles generally accepted in the United States of America.

http://www.hoffmanbrobst.com/

Change in Accounting Principle

As described in Note 3 to the financial statements, for the year ended December 31, 2016, Marshall Municipal Utilities

adopted new accounting guidance by implementing the provisions of Governmental Accounting Standards Board

(GASB) Statement No. 72, Fair Value Measurement and Application, which represents a change in accounting

principle. Our opinion is not modified with respect to this matter.

Emphasis of Matter

As discussed in Note 1, the financial statements present only the Marshall Municipal Utilities enterprise fund and do

not purport to, and do not present fairly the financial position of the City of Marshall, Minnesota, as of December 31,

2016 and 2015, and the changes in its financial position, or, where applicable, its cash flows for the years then ended, in

accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified

with respect to this matter.

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 Required Supplementary Information 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.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise

Marshall Municipal Utilities’ basic financial statements. The introductory section, supplementary financial information,

and other supplementary financial information listed in the table of contents are presented for purposes of additional

analysis and are not a required part of the basic financial statements.

The supplementary financial information and other supplementary financial information are the responsibility of

management and were derived from and relate directly to the underlying accounting and other records used to prepare

the basic financial statements. The supplementary financial information (excluding the Schedule of Revenues,

Expenses and Changes in Net Position – Electric Department Actual to Budget Comparison and the Schedule of

Revenues, Expenses and Changes in Net Position – Water Department Actual to Budget Comparison), and the

Schedule of Investments, Schedules of Material and Supply Inventories, Schedule of Investment in Utility Plant, and

Schedule of Property, Plant and Equipment, included in other supplementary financial 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 information

is fairly stated in all material respects, in relation to the basic financial statements as a whole.

The introductory section, Schedule of Revenues, Expenses and Changes in Net Position – Electric Department Actual

to Budget Comparison, Schedule of Revenues, Expenses and Changes in Net Position – Water Department Actual to

Budget Comparison, and all other schedules included with the other supplementary financial information have 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 them.

Report on Summarized Comparative Information

We have previously audited Marshall Municipal Utilities’ December 31, 2015 financial statements, and our report,

dated April 6, 2016, expressed unmodified opinions on the financial statements. In our opinion, the summarized

comparative information presented herein as of and for the year ended December 31, 2015, is consistent, in all material

respects, with the audited financial statements from which it has been derived.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated April 5, 2017, on our

consideration of Marshall Municipal Utilities’ internal control over financial reporting and on our tests of its

compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose

of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the

results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance.

That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering

Marshall Municipal Utilities’ internal control over financial reporting and compliance.

Hoffman & Brobst, PLLP

Certified Public Accountants

Marshall, Minnesota

April 5, 2017

REQUIRED SUPPLEMENTAL INFORMATION


MANAGEMENT DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2016

1

This section of Marshall Municipal Utilities’ (MMU) annual financial report presents management’s discussion and analysis of

MMU’s financial performance during the year that ended December 31, 2016. Please read it in conjunction with MMU’s financial

statements, which immediately follow this section.

HIGHLIGHTS

On July 1, 2016, MMU’s contract to purchase the bulk of MMU’s power supply through Heartland Consumers Power District ended

and was replaced with purchases from Missouri River Energy Services (MRES). With this change, purchase power costs decreased,

due to the seasonal MRES demand rates and a lower energy rate from MRES.

MMU engaged W. Keith Wilkins to conduct Electric and Water Cost of Service and Rate Design Studies. These studies recommend

the electric rates have a composite decrease of almost 11% and the water rates have a composite increase of 6.0%. On November

16, 2016, the Commission approved the rate changes, to be effective on January 1, 2017.

Standard and Poor’s (S&P) confirmed MMU’s “A” rating with a stable outlook in early 2016. Thereafter, MMU sold $7.310 million

in Utility Refunded Revenue bonds, which refunded bond series 2006A, 2007A, and 2007B and lowered the overall interest expense

of these bonds. On December 9, 2016, Moody’s upgraded their rating on the utility from a A3 to an A2 rating, citing the utility’s

stable financial position, satisfactory debt service coverage and healthy liquidity, among other factors.

GASB 68 requires MMU to recognize a net pension liability for the Public Employees Retirement Association (PERA) defined

benefit plan to which MMU contributes on behalf of MMU employees. As of December 31, 2016, MMU recorded a deferred

outflow of resources, net pension liability, and deferred inflow of resources of $1,594,841, $3,832,406, and $450,781, respectively.

The continued implementation of GASB 68 accounts for a non-cash allocation of the proportionate share of the PERA unfunded

liability. This PERA unfunded liability will have no impact to the electric and water rates. See Note 8 in the Notes to the Financial

Statements for more information.

OVERVIEW OF FINANCIAL STATEMENTS

MMU is a component unit of the City of Marshall, Minnesota and is responsible for the full operation and management of the

electric and water systems of the City. MMU follows the Uniform System of Accounts prescribed by the Federal Energy Regulatory

Commission (FERC). The financial statements are prepared on the accrual basis of accounting in accordance with accounting

principles generally accepted in the United States of America.

The financial statements present functions of MMU that are principally supported by sales of electricity and water and are intended

to recover all or a significant portion of their costs through user fees and charges. The financial statements include the Independent

Auditor’s Report, Management’s Discussion and Analysis and financial statements with accompanying notes. The notes provide

additional information that is essential to a full understanding of the data provided in the financial statements. The notes to the

financial statements can be found beginning on page 14 of this report.

REQUIRED FINANCIAL STATEMENTS

The financial statements of MMU report information about MMU using accounting methods similar to those used by private sector

companies. These statements offer short-term and long-term financial information about its activities.

Statements of Net Position Presents information on all MMU’s assets and liabilities, with the difference between the two reported as net position for the years

ended December 31, 2016 and 2015. They also provide information about the nature and amounts of investments in resources

(assets), deferred outflows of resources, the obligations to MMU’s creditors (liabilities), deferred inflows of resources, the basis for

computing rates of return, and the information to assess the liquidity and financial flexibility of MMU.

Statements of Revenues, Expenses and Changes in Net Position Presents information, showing changes in MMU’s net position for the years ended December 31, 2016 and 2015. All changes in

net position are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows.

This statement reflects the results of MMU’s operations over the 2016 and 2015 years and can be used to determine MMU’s credit

worthiness and its ability to successfully recover all its costs through service fees and other charges.




2

REQUIRED FINANCIAL STATEMENTS (Cont’d)

Statements of Cash Flows Presents information about MMU’s cash receipts and cash payments during the years ended December 31, 2016 and 2015. This

statement reports cash receipts, cash payments and net changes in cash resulting from operations, investing, and financing activities;

and provides answers to questions of where cash came from, what cash was used for and what the changes in cash were for the

reporting periods covered.

FINANCIAL ANALYSIS

Net position may serve over time as a useful indicator of a government’s financial position. In the case of MMU, assets and deferred

outflows of resources exceeded liabilities and deferred inflows of resources by $62,974,584.

MARSHALL MUNICIPAL UTILITIES NET POSITION

2016 2015

Current and Other Assets $ 39,120,252 $ 37,709,610

Capital Assets 68,289,191 70,658,411

Total Assets 107,409,443 108,368,021

Deferred Outflows of Resources 1,594,841 349,752

Current Liabilities 8,693,107 9,049,350

Long Term Liabilities 36,885,812 39,297,086

Total Liabilities 45,578,919 48,346,436

Deferred Inflows of Resources 450,781 297,528

Net Investment in Capital Assets 32,859,191 30,868,411

Net Restricted For Debt Service and Construction 6,591,213 7,361,430

Unrestricted 23,524,180 21,843,968

Total Net Position $ 62,974,584 $ 60,073,809

Net position captioned as Net Investment in Capital Assets reflects MMU’s investment in capital assets, less any related debt

which is still outstanding. MMU uses these assets to provide services to citizens and consequently, these assets are not available for

future spending. This category represents 52 percent of MMU’s net position. The outstanding debt of MMU must be repaid from

sources other than capital assets, since the assets themselves cannot be used to liquidate these liabilities.

A portion of MMU’s net position (10 percent) represents resources that are subject to external restrictions on how they may be used. A portion of MMU’s net position (38 percent) reflects unrestricted net position. This balance is available for future debt service

payments, capital asset purchases, or payment of operational expenses. The MMU Commission has designated the entirety of the

2016 unrestricted net position for future capital projects and operating reserves. The details of these designations are reflected in

Note 6 in the Notes to the Financial Statements.

Additionally, MMU implemented GASB Statement No. 68 in 2015. With the reporting change, MMU has allocated its proportionate

share of the Public Employees Retirement Association (PERA) net pension liability, deferred outflows of resources, deferred inflows

of resources, and pension expense. The allocation is based on an actuarial valuation commissioned by the administrators of the

pension plan, not by MMU management. The details of this change are reflected in Note 8 in the Notes to the Financial Statements.

0

20,000,000

40,000,000

60,000,000

80,000,000

Marshall Municipal Utilities Net Position

2016 2015




3

MARSHALL MUNICIPAL UTILITIES’ ACTIVITIES The change in net position occurs as a result of MMU’s revenues being greater than expenses for the year ended December 31,

2016. A summary of MMU’s revenues and expenses is as follows:

MARSHALL MUNICIPAL UTILITIES CHANGES IN NET POSITION

2016 2015 Revenues:

Operating Revenues

Sales of Electricity $ 49,803,828 $ 51,401,242

Sales of Water 6,210,316 5,936,660

Net Revenue from Leased Electric Plant 333,448 320,993

General Revenues

Investment Income (Loss) 232,183 314,315

Build America Bonds Federal Credit 66,267 70,008

Lease Income 32,442 32,442

Penalties 78,796 80,501

Nonoperating Pension Grant Revenue 14,919 -

Other Various Revenues 513,335 560,444

Total Revenues 57,285,534 58,716,605

Expenses:

Cost of Purchased Power Used 33,695,042 36,374,069

Cost of Purchased Water Used 279,707 350,377

Production Costs 1,385,877 1,297,453

Distribution Costs 2,154,611 2,411,053

Transmission Costs 6,848,885 5,714,819

Customer Service and Information Costs 848,631 853,121

Administrative and General 1,370,954 1,273,943

Depreciation and Amortization (Excluding Leased Plant) 4,805,553 5,113,042

Interest Expense 1,281,804 1,471,580

Demand Side Management Costs 531,180 377,265

Uncollectible Accounts 39,523 54,026

Nonoperating Pension Expense 278,246 48,229

Total Expenses 53,520,013 55,338,977

Increase in Net Position

Before Transfers 3,765,521 3,377,628

Capital Contributions Received (Disbursed) - 158,005

Transfers to the City of Marshall (864,746) (835,930)

Change in Net Position 2,900,775 2,699,703

Net Position, Beginning of Year,

As Originally Stated 60,073,809 59,750,897

Prior Period Adjustment (GASB 68) - (2,376,791)

Net Position, Beginning of Year,

As Restated 60,073,809 57,374,106

Net Position, Ending $ 62,974,584 $ 60,073,809




4

Marshall Municipal Utilities Revenues

Sales of Electricity Electric Transmission Credit Sales of Water Investment Income Other Various Revenues

Marshall Municipal Utilities Expenses

Purchased Power Production Costs Depreciation and Amoritization Non-Operating Pension Expense

Purchased Water Distribution Costs Customer Service and Information Other Expenses

Interest Expense Transmission Costs Administration and General Transfers to the City of Marshall

Sales of Electricity

84%

Electric Transmission

Credit 4%

Sales of Water 11%

Investment Income 0%

Other Various Revenues 1%

Revenues 2016

Sales of Electricity 85%

Electric Transmission

Credit 3%

Sales of Water10%

Investment Income 1%

Other Various Revenues 1%

Revenues 2015

Purchased Power62%

Purchased Water1%Production

Costs 2%

Distribution Costs4%

Transmission13%

Customer Service & Information

2%

Administration & General

2%

Depreciation and Amortization

9%

Interest Expense2%

Other Expenses1%

Transfers to the City of Marshall

2%

Non-Operating Pension Expense

0%

Expenses 2016

Purchased Power65%Purchased Water

1%Production Costs

2%

Distribution Costs4%

Transmission10%

Customer Service and Information

2%

Administration and General

2%

Depreciation and Amortization

9%

Interest Expense3%

Other Expenses1% Transfers to the

City of Marshall1%

Non-Operating Pension Expense

0%

Expenses 2015




5

FINANCIAL ANALYSIS OF MARSHALL MUNICIPAL UTILITIES As of the end of 2016, the total net investment in capital assets of MMU is $32.9 million, which is an increase of $1,990,780, or

a 6.4 percent increase. MMU’s unrestricted net position increased $1,680,212, or 7.7 percent, due to an operational increase of

$1,943,539 offset by a decrease of $263,327 related to the continued implementation of GASB 68.

During the 2016 year, MMU’s total revenue decreased $1.43 million to $57.29 million. The electric consumption for 2016

decreased, while the water consumption increased, which accounts for a portion of the lower revenue, but much of the decrease

in revenue is due to the correlation of the electric wholesale power supply expense to the electric revenue. MMU’s contract with

Heartland Consumers Power District (HCPD) concluded on June 30, 2016 and much of power supply is now being supplied by

Missouri River Energy Services (MRES), which has lower demand and energy rates. With these lower rates for the last six

months of 2016, the monthly Power Supply Cost Adjustment (PSCA) had more impact on fluctuations in revenue this year.

Effective January 2005, electric rates include a Power Supply Cost Adjustment (PSCA) which is applied each month to the

customer’s bill, either as an additional charge or a credit. The purpose of the Power Supply Cost Adjustment is to recover

monthly the actual power supply and transmission costs incurred by MMU to serve its firm electric service customers. The PSCA

calculations reflected the lower demand and energy rates for half of 2016.

During the 2016 year, MMU’s total expenses, including transfers, decreased $1.79 million to $54.38 million. Total expense

decreases were primarily due to decrease of $2.68 million in power supply, an increase of approximately $1.1 million in

transmission costs, a decrease in the depreciation costs, and a decrease in the interest expense on outstanding debt.

CAPITAL ASSET AND DEBT ADMINISTRATION

CAPITAL ASSETS MMU’s investment in capital assets for the year ended December 31, 2016 amounts to $68,289,191 (net of accumulated

depreciation). The decrease in MMU’s investment in capital assets for the current year is 3.35 percent, which is mainly

attributable to the combination of investment costs and depreciated value of MMU’s infrastructure in both electric and water.

More detailed information about MMU’s capital assets is presented in Note 2 in the Notes to the Financial Statements.

MARSHALL MUNICIPAL UTILITIES CAPITAL ASSETS

(Net of Accumulated Depreciation)

2016 2015 Electric Production Plant $ 288,773 $ 338,170

Electric Transmission System 7,435,239 7,956,904

Electric Distribution System 31,997,461 32,339,424

Water Utility 25,391,491 26,424,998

Transportation and General 2,050,625 2,246,886

Construction in Progress 1,125,602 1,352,029

Total $ 68,289,191 $ 70,658,411

2016 Capital Improvement Activities

The Electric and Water Departments have numerous projects which are reflected in the Construction in Progress category. The

projects completed in 2016 are as follows:

Electric Department

The Electric Department completed the following projects in 2016: Power Factor Improvements Project, West Industrial Park

and Wastewater Treatment Feeder Conversion of overhead to underground, Fiber Additions, numerous street light projects

throughout the Marshall community, and numerous installations of new construction, or replacements of underground, cable

throughout the City of Marshall.

Water Department

The Water Department completed the following projects in 2016: water main replacement at South Bruce Street, Kossuth, and

SCADA hardware and software upgrades.




6

CAPITAL ASSET AND DEBT ADMINISTRATION (Cont’d)

CAPITAL ASSETS (Cont’d)

Future Capital Improvement Projects

MMU anticipates the following capital improvement projects in 2017:

Electric Department

Several new electric underground distribution projects are anticipated along with several cable replacement projects.

MMU workforce will be used instead of outside contractors.

Water Department

The East Redwood to North A Street and the South 2nd Street water main replacement projects will be finalized in

2017. As of December 31, 2016, total CIP on these two projects amounted to $346,000 and $450,000, respectively.

The Highway 59/North 7th Street and Sherman Road water main replacement projects will begin in 2017. Additionally,

the new water main in the Commerce Park development with the City of Marshall is slated to begin in 2017.

OUTSTANDING DEBT At the end of 2016, MMU had total bonded debt outstanding of $35,430,000.

MARSHALL MUNICIPAL UTILITIES OUTSTANDING DEBT

2016 2015

Revenue Bonds $35,430,000 $39,790,000

Additional information on MMU’s long-term debt can be found in Note 4 in the Notes to the Financial Statements.

REQUESTS FOR INFORMATION

This financial report is designed to provide a general overview of MMU’s finances for all those interested. Questions concerning

any of the information provided in this report or requests for additional information should be addressed to Marshall Municipal

Utilities, 113 South Fourth Street, Marshall, MN 56258.

FINANCIAL STATEMENTS


STATEMENTS OF NET POSITION


2016 2015

ASSETS

CAPITAL ASSETS

Electric Production Plant $ 2,823,673 $ 2,820,515



Water Utility 53,938,253 53,381,173


Construction in Progress 1,125,602 1,352,029

137,327,256 135,152,033

Less: Accumulated Depreciation (69,038,065) (64,493,622)

NET CAPITAL ASSETS 68,289,191 70,658,411

CURRENT ASSETS

Cash and Cash Equivalents 668,884 565,582

Investments 25,579,440 23,332,358

Accrued Interest Receivable 153,228 133,540

Accounts Receivable 5,043,944 5,112,838

Due From City of Marshall 133,712 136,098

Energy Efficiency Loans Receivable 24,568 34,380

Material and Supply Inventories 693,836 664,607

Prepaid Expenses 133,724 147,542

TOTAL CURRENT ASSETS 32,431,336 30,126,945

NONCURRENT ASSETS

RESTRICTED ASSETS

Debt Service Reserve 4,182,070 4,841,700

Bond Sinking Fund 2,409,143 2,519,730

TOTAL RESTRICTED ASSETS 6,591,213 7,361,430

OTHER NONCURRENT ASSETS

Bond Discount 299,484 456,694

Less: Accumulated Amortization (201,781) (235,459)

TOTAL OTHER NONCURRENT ASSETS 97,703 221,235

NET DEFERRED CHARGES AND OTHER ASSETSTOTAL NONCURRENT ASSETS 6,688,916 7,582,665

TOTAL ASSETS 107,409,443 108,368,021

DEFERRED OUTFLOWS OF RESOURCES

Related to Pensions 1,594,841 349,752

The accompanying notes are an integral part of these statements.

7


STATEMENTS OF NET POSITION


2016 2015

LIABILITIES

LONG TERM DEBT

Series 2016A Revenue Bonds $ 7,310,000 $ -

Series 2014A Revenue Bonds 3,595,000 3,825,000

Series 2013B Revenue Bonds 5,200,000 5,560,000

Series 2012C Revenue Bonds 1,055,000 1,385,000






Series 2007A Revenue Bonds - 2,435,000

Series 2007B Revenue Bonds - 3,520,000


TOTAL BONDS OUTSTANDING 35,430,000 39,790,000

LESS CURRENT PORTION (3,660,000) (3,645,000)

LESS UNAMORTIZED REFUNDED BOND DISCOUNTS (52,583) (54,516)

TOTAL LONG-TERM DEBT 31,717,417 36,090,484

CURRENT LIABILITIES

Current Portion of Long-Term Debt 3,660,000 3,645,000

Accounts Payable 3,317,974 3,692,199

Due To City of Marshall 858,786 732,630

Accrued Interest Payable 586,292 693,827

Accrued Salaries Payable 185,964 185,242

Customer and Lease Deposits 84,091 100,452

TOTAL CURRENT LIABILITIES 8,693,107 9,049,350

OTHER NONCURRENT LIABILITIES

Accrued Transmission Reserve 580,753 28,291

Accrued Sick Leave 641,420 599,540

Post Employment Benefit Obligation 113,816 101,527

Net Pension Liability 3,832,406 2,477,244

TOTAL OTHER NONCURRENT LIABILITIES 5,168,395 3,206,602

TOTAL LIABILITIES 45,578,919 48,346,436

DEFERRED INFLOWS OF RESOURCES

Related to Pensions 450,781 297,528

NET POSITION


Net Restricted for Debt Service and Construction 6,591,213 7,361,430

Unrestricted 23,524,180 21,843,968

TOTAL NET POSITION $ 62,974,584 $ 60,073,809


8


STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

2016 2015

OPERATING REVENUES

Electric Department $ 49,803,828 $ 51,401,242

Water Department 6,210,316 5,936,660

TOTAL 56,014,144 57,337,902

LEASED PLANT REVENUES

Revenues from Electric Plant Leased to Others 411,202 398,358

Expenses of Electric Plant Leased to Others (77,754) (77,365)

NET LEASED PLANT REVENUES 333,448 320,993

TOTAL OPERATING REVENUES 56,347,592 57,658,895

OPERATING EXPENSE

PRODUCTION COST

Operating Supervision 57,546 58,061

Station Labor 177,917 174,784

Water Treatment 255,316 239,796

Operating Supplies 16,823 9,328

Maintenance 289,222 227,397

Lime Sludge Disposal 84,242 73,189

Power for Pumping 289,262 270,212

Conservation Rebates 14,765 15,959

Outside Services 25,133 49,513

Insurance 10,628 15,346

Employees' Welfare 122,295 120,568

Other General Expense 42,728 43,300

TOTAL PRODUCTION COST 1,385,877 1,297,453

PURCHASED POWER 33,695,042 36,374,069

PURCHASED WATER 279,707 350,377

TRANSMISSION COST

Operations Supervision 10,530 11,539

Maintenance Supervision 17,132 17,475

Transmission by Others 6,443,652 5,319,893

Load Dispatching 19,846 19,969

Operating Supervision 127,208 124,105

Maintenance of Lines 46,349 42,313

Station Expense 68,523 56,390

Equipment Maintenance 12,552 11,835


Travel 1,982 1,235

Insurance 13,452 22,452


Other General Expense 2,806 125

TOTAL TRANSMISSION COST 6,848,885 5,714,819


9


STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN POSITION


2016 2015

OPERATING EXPENSE (Cont'd)

DISTRIBUTION COST

Operating Supervision $ 73,501 $ 58,821

Maintenance Supervision 105,347 106,753

Load Dispatching 59,689 64,038

Maintenance of Lines and Mains 1,122,023 1,239,072

Station Expense 113,137 117,365

Equipment Maintenance 153,903 199,660


Travel 14,382 17,546

Insurance 73,850 121,087



TOTAL DISTRIBUTION COST 2,154,611 2,411,053

DEMAND SIDE MANAGEMENT

Customer Installation Expense 4,123 2,657

Energy Efficiency Rebates 482,007 335,735

Advertising 9,783 13,337


Travel 4,530 501

Insurance 74 291



TOTAL DEMAND SIDE MANAGEMENT 531,180 377,265

CUSTOMER SERVICE AND

INFORMATION

Customer Records and Collection Salaries 277,791 283,520

Meter Reading Salaries 69,866 58,436

Customer Installation Expense Salaries 86,037 82,615

General Office Expense 209,423 223,310



TOTAL CUSTOMER SERVICE AND INFORMATION 848,631 853,121

ADMINISTRATIVE AND GENERAL

Salaries of Executives 379,801 359,571

General Office Salaries 208,977 204,855

General Office Expense 78,239 63,736

Insurance 15,975 20,358



Travel 30,924 19,195


TOTAL ADMINISTRATIVE AND GENERAL 1,370,954 1,273,943

DEPRECIATION 4,787,427 5,075,015

TOTAL OPERATING EXPENSE 51,902,314 53,727,115

OPERATING INCOME 4,445,278 3,931,780


10


STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION


2016 2015

NONOPERATING REVENUES

Allowance for Funds Used During Construction $ 34,716 $ 208,055

Investment Income 530,598 572,396


Change in Fair Market Value of Investments (298,415) (258,081)

Penalties Collected 78,796 80,501

Lease and Rental Income 32,442 32,442

Connection Fees 2,265 2,725

Miscellaneous Income 476,354 349,664

Nonoperating Pension Grant Revenue 14,919 -

TOTAL NONOPERATING REVENUES 937,942 1,057,710

NONOPERATING EXPENSE

Interest Expense 1,281,804 1,471,580

Amortization of Deferred Charges 18,126 38,027

Uncollectible Accounts 39,523 54,026

Nonoperating Pension Expense 278,246 48,229

TOTAL NONOPERATING EXPENSE 1,617,699 1,611,862

INCOME BEFORE CONTRIBUTIONS AND TRANSFERS 3,765,521 3,377,628


Transfers to the General Fund, City of Marshall (864,746) (835,930)

CHANGE IN NET POSITION 2,900,775 2,699,703

NET POSITION, BEGINNING OF YEAR,

AS ORIGINALLY STATED 60,073,809 59,750,897

PRIOR PERIOD ADJUSTMENT (GASB 68)

- (2,376,791)


AS RESTATED 60,073,809 57,374,106

NET POSITION, ENDING $ 62,974,584 $ 60,073,809


11


STATEMENTS OF CASH FLOWS


2016 2015

CASH FLOWS FROM OPERATING ACTIVITIES

Cash Received from Customers $ 54,484,360 $ 55,722,347

Cash Received from Leased Plant and Property 443,644 430,800

Cash Paid to Suppliers (41,715,213) (44,010,199)

Cash Paid to Employees for Operating Activities (2,975,272) (3,035,646)

NET CASH PROVIDED BY OPERATING ACTIVITIES 10,237,519 9,107,302

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES


NET CASH PROVIDED BY (USED IN) NONCAPITAL

FINANCING ACTIVITIES (864,746) (835,930)

CASH FLOWS FROM CAPITAL AND RELATED

FINANCING ACTIVITIES

Payments for Property and Equipment (1,978,882) (2,469,851)

Payments to Employees Capitalized (450,485) (459,736)

Principal Payments on Long-Term Debt (11,670,000) (4,605,000)

Proceeds from the Issuance of Long-Term Debt 7,310,000 -


Bond Premiums (Discounts) 94,688 -

Interest Paid (1,376,689) (1,556,644)

NET CASH PROVIDED BY (USED IN) CAPITAL AND RELATED

FINANCING ACTIVITIES (8,005,101) (9,021,223)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of Investments (25,253,556) (21,989,236)

Proceeds From Sale of Investments 22,766,703 21,650,747

Net Decrease (Increase) in Restricted Cash 711,573 509,091


NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,264,370) 766,442

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 103,302 16,591

CASH AND CASH EQUIVALENTS, BEGINNING 565,582 548,991

CASH AND CASH EQUIVALENTS, ENDING $ 668,884 $ 565,582


12


STATEMENTS OF CASH FLOWS


2016 2015

RECONCILIATION OF OPERATING INCOME TO NET CASH

PROVIDED BY OPERATING ACTIVITIES

Operating Income $ 4,445,278 $ 3,931,780

Adjustments to Reconcile Operating Income to

Net Cash Provided by Operating Activities:

Depreciation 4,834,072 5,121,660

Capital Asset Activity Included in Payables and Accruals (769) 76,906

(Increase) Decrease in Accounts Receivable 68,894 (44,997)

(Increase) Decrease in Due From City of Marshall 2,386 88,913

(Increase) Decrease in Energy Efficiency Loans Receivable 9,812 9,427

(Increase) Decrease in Inventories (29,229) 129,388

(Increase) Decrease in Prepaid Expenses 13,818 15,085

Increase (Decrease) in Accounts Payable (374,225) (271,760)

Increase (Decrease) in Due To City of Marshall 126,156 (305,674)

Increase (Decrease) in Accrued Salaries Payable 722 (94,113)

Increase (Decrease) in Customer and Lease Deposits (16,361) (1,500)

Increase (Decrease) in Accrued Sick Leave 41,880 1,858

Increase (Decrease) in Post Retirement Benefit Obligation 12,289 10,732

Increase (Decrease) in Accrued Transmission Reserve 552,462 28,291

Other Nonoperating Revenue (Expense) 550,334 411,306

NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,237,519 $ 9,107,302

SCHEDULE OF NONCASH ACTIVITIES

FINANCING

Developers Contributions of Water Mains $ - $ 158,005

Bond Issue Costs Deducted from Bond Proceeds $ 43,420 $ -


13


NOTES TO FINANCIAL STATEMENTS


14

FINANCIAL REPORTING ENTITY The Marshall Municipal Utilities (MMU) is an autonomous proprietary fund of the City of Marshall, Minnesota.

MMU is self-governed by a board of commissioners appointed by the City Council. MMU is supported by service

revenue and investment income produced by its financial reserves. These financial statements present the financial

position and results of operations of MMU only and not the City of Marshall as a whole.

1. SUMMARY OF ACCOUNTING POLICIES

BASIS OF PRESENTATION

The financial statements of MMU have been prepared in conformity with accounting principles generally accepted

in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting

Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and

financial reporting principles. The GASB pronouncements are recognized as U.S. generally accepted accounting

principles for state and local governments.

The financial activities of MMU are accounted for and reported as an Enterprise Fund of the City. The

measurement focus is upon determination of net income, financial position and changes in cash flows.

Enterprise Funds are 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.

Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are

followed in the financial statements to the extent that those standards do not conflict with or contradict guidance of

Governmental Accounting Standards Board (GASB).

Operating income includes revenues and expenses related to the primary, continuing operations of MMU.

Principal operating revenues are charges to customers for sales or services. Principal operating expenses are the

costs of providing goods or services and include administrative expenses and depreciation of capital assets. Other

revenues and expenses are classified as nonoperating in the financial statements.

BASIS OF ACCOUNTING

MMU uses the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when

earned and expenses are recorded when incurred.

SYSTEM OF ACCOUNTS The accounting records of MMU are maintained in accordance with the uniform system of accounts prescribed by

the Federal Energy Regulatory Commission.

CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash, deposit accounts, and certificates of deposit with original maturities of

three months or less that are not specifically reserved.

INVESTMENTS The investments of MMU are carried at fair value based on quoted market prices. Investments include balances

from both funds that are invested to the extent available in various securities as authorized by state law. State

statutes authorize MMU to invest in obligations of the U.S. Treasury, commercial paper, corporate bonds,

repurchase agreements and the State Treasurer’s Investment Pool.




15

1. SUMMARY OF ACCOUNTING POLICIES (Cont'd)

ACCOUNTS RECEIVABLE In the course of its operations, MMU grants credit to its customers, which is mainly unsecured. A portion of

customer receivables is secured by deposits based on prior payment history of individual accounts. Receivables

that are more than 30 days old are considered late and are subject to MMU’s shutoff and collection procedures.

Amounts greater than 30 days old are $149,317 and $130,525 at December 31, 2016 and 2015, respectively.

ALLOWANCE FOR DOUBTFUL ACCOUNTS No allowance for doubtful accounts has been recorded as management deems all receivables to be collectible.

MATERIAL AND SUPPLY INVENTORIES Inventories are stated at average cost which approximates actual cost.

RESTRICTED ASSETS MMU’s bond issues require the maintenance of a sinking fund and debt service reserve, along with a construction

fund for any unexpended bond proceeds. These funds are classified as restricted assets since their use is limited by

the bond agreements.

Generally, when both restricted and unrestricted resources are available for use, it is the policy of MMU to use

restricted resources first, and then unrestricted resources, as they are needed.

UTILITY PLANT Utility plant is stated at original cost if purchased or constructed, or at estimated fair market value if received as a

donation. The cost of additions to utility plant includes contracted work, direct labor and materials, allocable

overheads and allowance for funds used during construction. The rates for allowance for funds used during

construction in 2016 and 2015 were 1.51 and 3.04 percent, respectively. Construction period interest capitalized

during the years ended December 31, 2016 and 2015 was $34,716 and $208,055, respectively. Major renewals and

improvements are charged to the property accounts. Maintenance, repair costs, replacement, and renewals of items

determined to be less than units of property are charged to operations.

The cost (actual or estimated) of units of property retired, sold, or otherwise disposed of are relieved from the fixed

assets and related accumulated depreciation accounts. Property units retained for future use are charged to

materials inventories and gain or loss from other dispositions is credited or charged to operations.

DEPRECIATION Provision for depreciation is made using the straight-line composite group method based on estimated useful lives

ranging from 5 to 55 years. The annual provision for depreciation expense is 3.56 and 3.69 percent of the average

balance of depreciable property in service as of December 31, 2016 and 2015, respectively.

BOND DISCOUNT The bond discount and bond issue costs are being amortized using the interest method of amortization over the life

of the associated revenue bond issues.

SERVICE AREA ACQUISITION MMU and neighboring electric utility, Lyon Lincoln Electric Cooperative of Tyler, MN, entered into a Service

Territory Agreement February 1, 2010 which provides for the orderly expansion of the MMU electric service area

following annexations. The agreement is of a continuing nature and provides for payments by MMU at a

prescribed mill rate indexed to the change in the annual GDP. Payments are based upon electrical energy sold in

the annexed area for varying lengths of time. The individual annexed area payment terms expire at differing

lengths of time, but in no event would the annual payment exceed ten years.

UNAMORTIZED REFUNDED BOND DISCOUNTS

The difference between the original bond discount and amortized portion is shown as a reduction to long-term debt

and amortized to interest expense over the lives of the 2016A and 2012C refunding bond issues.




16

1. SUMMARY OF ACCOUNTING POLICIES (Cont'd)

DEFINED BENEFIT PENSION PLAN

Public Employees Retirement Association

For purposes of measuring the net pension liability, deferred outflows/inflows of resources, 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 except that PERA’s fiscal year end is June 30. 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.

ACCRUED VACATION All full time employees accrue vacation time between 10 and 25 days per year based on years of service to 25

years. Employees may accumulate up to 20 days (160 hours) by December 31st of each year to be used in the

following year. Up to 10 days of accrued vacation pay in excess of the 20-day maximum accrual will be deposited

in the Health Care Savings Plan on an annual basis. Upon termination 100% of accrued vacation pay will be

deposited into the Health Care Savings Plan.

ACCRUED SICK LEAVE Under the employee sick leave plan each employee is allowed to accumulate sick leave up to a maximum of 140

days. Thereafter, when the maximum hours have been reached, any unused sick leave will be deposited into the

employee’s Health Care Savings Plan on an annual basis. The accumulated leave is placed in the Health Care

Savings Plan at the Commission’s discretion upon retirement or death at a rate of 50% after 5 years of service,

75% after 10 years and 100% after 15 years or more of service.

Sick leave benefits are recorded as a liability in the period earned by the employees.


In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows

of resources. This separate financial statement element, deferred outflows of resources, represents a consumption

of net position that applies to future period(s) and so will not be recognized as an outflow of resources

(expense/expenditure) until then.


In addition to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows

of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of

net position that applies to future period(s) and so will not be recognized as an inflow of resources (revenue) until

that time.

REVENUES Customers' meters are read and bills rendered on a cycle basis. Revenues are recorded for the accounting period

during which the meters are read.

PAYMENT IN LIEU OF TAXES

MMU remits an annually negotiated payment to the City of Marshall General Fund in lieu of taxes. This fee is

calculated on a formula based on preceding years KWH sales increased by an amount in support of industrial land

development ($30,839 and $12,318 in the years ended December 31, 2016 and 2015, respectively). Payments

under this agreement are $864,746 and $835,950 for the years ended December 31, 2016 and 2015, respectively.

USE OF ESTIMATES

Management uses estimates and assumptions in preparing financial statements in accordance with accounting

principles generally accepted in the United States of America. Those estimates and assumptions affect the

reported amounts of assets and liabilities, and the reported revenues and expenses. Actual results could vary from

the estimates that were assumed in preparing the financial statements.




17

2. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2016 is as follows:

Beginning Ending

Balance Additions Retirements Balance

Cost:

Electric Production Plant $ 2,820,515 $ 3,158 $ 2,823,673

Electric Transmission System 16,404,370 - 16,404,370

Electric Distribution System 52,756,664 1,811,302 $ 150,084 54,417,882

Transportation and General 8,437,282 251,897 71,703 8,617,476

Water Utility 53,381,173 624,922 67,842 53,938,253

Construction in Progress 1,352,029 2,034,880 2,261,307 1,125,602

Total Cost 135,152,033 4,726,159 2,550,936 137,327,256

Accumulated Depreciation:

Electric Production Plant 2,482,345 52,555 - 2,534,900

Electric Transmission System 8,447,466 521,665 - 8,969,131

Electric Distribution System 20,417,240 2,153,265 150,084 22,420,421

Transportation and General 6,190,396 448,158 71,703 6,566,851

Water Utility 26,956,175 1,658,429 67,842 28,546,762

Total Accumulated Depreciation 64,493,622 4,834,072 289,629 69,038,065

Capital Assets, Net $ 70,658,411 $ 68,289,191

Depreciation expense charged to operations was $4,834,072 and $5,121,660 for the years ended December 31,

2016 and 2015, respectively.

3. CASH AND INVESTMENTS

A. Cash

Minnesota Statutes require that all deposits be secured by a bank guaranty bond or 110% of collateral valued

at market or par, whichever is lower, less the amount covered by the Federal Deposit Insurance Corporation

(FDIC).

Authorized collateral includes certain U.S. government securities, state or local government obligations,

and other securities authorized by Minn. Stat. 118A.03. Minnesota Statutes require that securities pledged

as collateral be held in safe keeping by MMU’s treasurer, or in a financial institution other than that

furnishing the collateral.

Custodial Credit Risk This is the risk that, in the event of failure of a depository financial institution, MMU will not be able to

recover deposits or will not be able to recover collateral securities that are in the possession of an outside

party. MMU has an investment policy, which follows the Minnesota Statutes for deposits. As of December

31, 2016, MMU’s bank balance was not exposed to custodial credit risk because it was insured and properly

collateralized with securities held by the pledging financial institution’s trust department or agent and in

MMU’s name.

B. Investments

Interest Rate Risk

MMU has adopted a formal investment policy that addresses permissible investments, portfolio diversification

and instrument maturities. Investment maturities and durations are required to coincide with the Barclays

Capital Intermediate Government Bond Index plus or minus 20%.




18

3. CASH AND INVESTMENTS (Cont’d)

B. Investments (Cont’d)

Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations.

MMU’s investment policy states they may invest its available funds in those instruments specified in

Minnesota Statutes. MMU’s investments were not exposed to credit risk at December 31, 2016 or 2015.

Concentration of Credit Risk

While not a limitation of MMU’s investment policy, the following is a list of investments, which individually

comprise more than 5 percent of MMU’s total investments:

2016 2015

US Treasury Notes $ 9,954,108 $ 11,172,092

Federal Agency Bonds and Notes $ 8,265,560 $ 6,036,687

Federal Agency Mortgage Pools ** $ 1,606,570

Municipal Bonds $ 8,565,720 $ 7,016,288

Money Market Accounts $ 4,013,213 $ 4,691,411

** Not a concentration in the year presented

MMU places a 25% maximum investment limit on US Agency mortgage backed securities as well as a 25%

total investment limitation on Commercial Paper investments with a 5% individual company limitation.

Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, MMU

will not be able to recover the value of its investments or collateral securities that are in the possession of an

outside party. MMU does not have a formal policy regarding the holding of securities by counterparties;

however as of December 31, 2016 and 2015, MMU did not have any such arrangements.

MMU had the following investments at December 31, 2016:

Investment Maturities in Years

Fair Value Less Than 1 1-5 Years 6-10 Years Over 10 Years

US Treasury Notes $ 9,954,108 $ 734,758 $ 7,302,087 $ 1,518,199 $ 399,064

Federal Agency Bonds and Notes 8,265,560 200,294 6,040,322 2,024,944 -

Federal Agency Mortgage Pools 1,246,048 - 24,468 282,200 939,380 Mortgage Backed Securities 126,004 - - 126,004 -

Municipal Bonds 8,565,720 1,222,174 6,659,646 683,900 -

Money Market Accounts 4,013,213 4,013,213 - - -

Total $ 32,170,653 $ 6,170,439 $ 20,026,523 $ 4,635,247 $ 1,338,444

MMU had the following investments at December 31, 2015:

Investment Maturities in Years

Fair Value Less Than 1 1-5 Years 6-10 Years Over 10 Years

US Treasury Notes $ 11,172,092 $ 2,463,388 $ 7,305,789 $ 1,006,323 $ 396,592 Federal Agency Bonds and Notes 6,036,687 301,548 4,769,987 965,152 -

Federal Agency Mortgage Pools 1,606,570 - 40,324 330,867 1,235,379

Mortgage Backed Securities 170,740 - - 170,740 - Municipal Bonds 7,016,288 651,526 5,484,557 880,205 -

Money Market Accounts 4,691,411 4,691,411 - - -

Total $ 30,693,788 $ 8,107,873 $ 17,600,657 $ 3,353,287 $ 1,631,971




19


B. Investments (Cont’d) The following table presents the MMU’s cash and investment balances at December 31, 2016:

Credit Percentage 2016

Cash/Investment Type Rating of Total Fair Value

Cash and Cash Equivalents:

Checking Account N/A 2.0 $ 667,784

Working Funds N/A 0.0 1,100

668,884

Investments:

US Treasury Notes * 25.6 8,412,446

Federal Agency Bonds and Notes * 21.6 7,072,595

Federal Agency Mortgage Pools * 3.3 1,078,792

Mortgage Backed Securities * 0.4 126,004

Municipal Bonds A to AAA 22.4 7,347,523

Money Market Accounts N/A 4.7 1,542,080

25,579,440

Restricted Assets:

Debt Service Reserve:



Federal Agency Mortgage Pools * 0.5 167,256

Municipal Bonds AA- to AAA 3.7 1,218,197

Money Market Accounts N/A 0.2 61,990

4,182,070

Bond Sinking Fund:


Total Cash and Investments 100.0% $ 32,839,537

* - Credit quality ratings are not required for obligations of or guaranteed by the U.S. government

The following table presents the MMU’s cash and investment balances at December 31, 2015:



Cash and Cash Equivalents:

Checking Account N/A 1.8 $ 564,482

Working Funds N/A 0.0 1,100

565,582

Investments:



Federal Agency Mortgage Pools * 4.5 1,396,343

Mortgage Backed Securities * 0.5 170,740



23,332,358




20


B. Investments (Cont’d)



Restricted Assets:

Debt Service Reserve:

US Treasury Notes * 9.1 $ 2,853,802

Federal Agency Bonds and Notes * 1.2 379,583

Federal Agency Mortgage Pools * 0.7 210,227


Money Market Accounts N/A 0.2 41,655

4,841,700

Bond Sinking Fund:


Total Cash and Investments 100.0% $ 31,259,370

* - Credit quality ratings are not required for obligations of or guaranteed by the U.S. government

Statement of Net Position Presentation

The cash and investments are presented in the financial statements as follows:

2016 2015

Cash and Cash Equivalents $ 668,884 $ 565,582

Investments 25,579,440 23,332,358

Restricted Assets 6,591,213 7,361,430

Total $ 32,839,537 $ 31,259,370

C. Fair Value Measurements

In the current year, MMU implemented GASB Statement No. 72, Fair Value Measurement and

Application. This Statement provides guidance for determining a fair value measurement for financial

reporting purposes. This Statement also provides guidance for applying fair value to certain investments

and disclosures related to all fair value measurements. No restatement of the December 31, 2015, net

position occurred as a result of adopting GASB Statement No. 72.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit

price) in an orderly transaction between market participants at the measurement date. The Governmental

Accounting Standards Board (GASB) establishes a hierarchy for grouping assets and liabilities, based on the

significance of inputs used to measure fair value. The asset’s or liability’s fair value measurement level within

the fair value hierarchy is based on the lowest level of any input that is significant to the fair value

measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use

of unobservable inputs. There are three levels of inputs that may be used to measure fair value:

Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities

in active markets that MMU has the ability to access.

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly or indirectly, such as:

quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in inactive markets;

inputs other than quoted prices that are observable for the asset or liability;

inputs that are derived principally from or corroborated by observable market data by

correlation or other means.




21


C. Fair Value Measurements (Cont’d)

Level 2 (Cont’d)

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for

substantially the full term of the asset or liability.

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair market value

measurement.

MMU has the following recurring fair value measurements as of December 31, 2016 and 2015:

Fixed income securities - Fixed income securities other than bond mutual funds are valued using

market corroborated inputs. Bond mutual funds are valued at market prices for identical assets in

active markets.

There were no Level 3 inputs as of December 31, 2016 and 2015.

The following table sets forth by level, within the fair value hierarchy, MMU’s investments at fair value as

of December 31, 2016.

2016

Quoted Prices in

Active Markets Significant

For Identical Observable

Assets Inputs

Fair Value Level 1 Level 2

Investments by Fair Value Level

Fixed income securities

US Treasury Notes $ 9,954,108 $ - $ 9,954,108

Federal Agency Bonds and Notes 8,265,560 - 8,265,560

Federal Agency Mortgage Pools 1,246,048 - 1,246,048

Mortgage Backed Securities 126,004 - 126,004

Municipal Bonds 8,565,720 - 8,565,720

Total investments by fair value level $ 28,157,440 $ - $28,157,440

The following table sets forth by level, within the fair value hierarchy, MMU’s investments at fair value as

of December 31, 2015.

2015

Quoted Prices in

Active Markets Significant

For Identical Observable

Assets Inputs

Fair Value Level 1 Level 2

Investments by Fair Value Level

Fixed income securities

US Treasury Notes $ 11,172,092 $ - $11,172,092

Federal Agency Bonds and Notes 6,036,687 - 6,036,687

Federal Agency Mortgage Pools 1,606,570 - 1,606,570

Mortgage Backed Securities 170,740 - 170,740

Municipal Bonds 7,016,288 - 7,016,288

Total investments by fair value level $ 26,002,377 $ - $26,002,377

Money Market Accounts, Checking Accounts, and Working Funds are not subject to the fair value

hierarchy disclosures.




22

4. LONG-TERM LIABILITIES The bonded indebtedness of MMU consists of the following revenue bonds:

2016 2015 On April 21, 2016 MMU sold revenue refunding bonds in the

aggregate principal amount of $7,310,000 for the price of $7,506,788

with a true interest cost of 1.509% per annum. Principal payments are

due on July 1 each year beginning July 1, 2017. Interest is due semi-

annually on January 1 and July 1, through July 1, 2023. These bonds

are secured by the net revenues of MMU. $ 7,310,000 $ -

On April 24, 2014 MMU sold Public Utility Revenue Bonds in the


with a true interest cost of 3.044% per annum. All proceeds are to be

spent on capital expenditures. Principal payments are due on July 1

each year beginning July 1, 2015. Interest is due semi-annually on

January 1 and July 1, through July 1, 2029. These bonds are secured

by the net revenues of MMU. Bonds maturing after July 1, 2023 shall

be subject to redemption and prepayment at the option of the City or

the Commission. 3,595,000 3,825,000

On December 18, 2013 MMU sold Public Utility Revenue Bonds in

the aggregate principal amount of $6,355,000 for the price of

$6,468,256 with a true interest cost of 3.135% per annum. All

proceeds are to be spent on capital expenditures. Principal payments

are due on July 1 each year beginning July 1, 2014. Interest is due

semi-annually on January 1 and July 1, through July 1, 2028. These

bonds are secured by the net revenues of MMU. Bonds maturing after

July 1, 2023 shall be subject to redemption and prepayment at the

option of the City or the Commission. 5,200,000 5,560,000

On June 1, 2012 MMU sold Public Utility Revenue Bonds in the


with a true interest cost of 2.469% per annum. All proceeds are to be

spent on capital expenditures. Principal payments are due on July 1

each year beginning July 1, 2013. Interest is due semi-annually on


by the net revenues of MMU. Bonds maturing after July 1, 2023 shall

be subject to redemption and prepayment at the option of the City or

the Commission. 4,180,000 4,515,000

On June 1, 2012 MMU sold revenue refunding bonds in the aggregate

principal amount of $2,320,000 for the price of $2,387,393 with a true

interest cost of 1.536% per annum. Principal payments are due on July

1 each year beginning July 1, 2013. Interest is due semi-annually on


by the net revenues of MMU. 1,055,000 1,385,000




23

4. LONG-TERM LIABILITIES (Cont’d) 2016 2015 On November 10, 2011 MMU sold Public Utility Revenue Bonds in

the aggregate principal amount of $4,290,000 for the price of

$4,313,512 with a true interest cost of 2.962% per annum. All

proceeds are to be spent on capital expenditures. Principal payments

are due on July 1 each year beginning July 1, 2012. Interest is due

semi-annually on January 1 and July 1, through July 1, 2026. These

bonds are secured by the net revenues of MMU. Bonds maturing after

July 1, 2022 shall be subject to redemption and prepayment at the

option of the City or the Commission. $ 3,030,000 $ 3,280,000

On November 18, 2010 MMU sold Taxable Public Utility Revenue

Bonds (Build America Bonds-Direct Pay) in the aggregate principal

amount of $6,635,000 for the price of $6,667,290 with a true interest

cost of 2.953% per annum. All proceeds are to be spent on capital

expenditures. A direct payment credit from the United States

Department of Treasury is allowed in the amount equal to 35% of the

interest payable on each interest payment date. Principal payments are

due on July 1 each year beginning July 1, 2011. Interest is due semi-

annually on January 1 and July 1, through July 1, 2025. These bonds

are secured by the net revenues of MMU. Bonds maturing after July 1,

2022 shall be subject to redemption and prepayment at the option of

the City or the Commission. 4,290,000 4,690,000

On April 28, 2009 MMU sold revenue bonds in the aggregate principal


cost of 3.894% per annum. Principal payments are due on July 1 each

year beginning July 1, 2010. Interest is due semi-annually on January

1 and July 1, through July 1, 2024. These bonds are secured by the net

revenues of MMU. Bonds maturing after July 1, 2018 are callable on

or after July 1, 2019. 2,995,000 3,310,000

On April 17, 2008 MMU sold revenue bonds in the aggregate principal





revenues of MMU. Bonds maturing after July 1, 2017 are callable on

or after July 1, 2017. 3,775,000 4,240,000

On May 16, 2007 MMU sold revenue bonds in the aggregate principal





revenues of MMU. Bonds maturing after July 1, 2017 were called on

July 1, 2016. - 2,435,000

On May 16, 2007 MMU sold revenue refunding bonds in the aggregate





by the net revenues of MMU. Bonds maturing after July 1, 2017 were

called on July 1, 2016. - 3,520,000




24

4. LONG-TERM LIABILITIES (Cont’d) 2016 2015 On March 16, 2006 MMU sold revenue bonds in the aggregate





by the net revenues of MMU. Bonds maturing after July 1, 2017 were

called on July 1, 2016. $ - $ 3,030,000


LESS: CURRENT INSTALLMENTS (3,660,000) (3,645,000)

LESS: UNAMORTIZED REFUNDED BOND DISCOUNTS (52,583) (54,516)

TOTAL LONG-TERM INSTALLMENTS $ 31,717,417 $ 36,090,484

The proceeds of the 2016A Series Revenue Refunding Bonds were used by MMU to call the remaining portion of

the 2006A, 2007A, and 2007B Series Revenue Refunding Bonds resulting in a net present value interest savings of

approximately $682,068.

The proceeds of the 2012C Series Revenue Refunding Bonds were used by MMU to call the remaining portion of

the 2004A Series Revenue Refunding Bonds resulting in a net present value interest savings of approximately

$195,981.

The proceeds of the 2009A Series Revenue Refunding Bonds were used by MMU to call the remaining portion of

the 1999 Series Revenue Refunding Bonds resulting in a net present value interest savings of approximately

$57,213.

The proceeds of the 2007B Series Revenue Refunding Bonds were used by MMU to call the remaining portion of

the 1998 Series Revenue Bonds resulting in a net present value interest savings of approximately $325,845.

The scheduled aggregate principal payments of long-term bonded debt are summarized as follows:

Principal Interest Projected Federal Credit

2017 $ 3,660,000 $ 1,142,433 $ 68,932

2018 3,795,000 1,008,257 63,484

2019 3,890,000 904,894 57,534

2020 4,070,000 796,962 50,990

2021 4,205,000 676,497 43,824

2022-2026 13,390,000 1,627,795 93,444

2027-2030 2,420,000 137,304 -

TOTAL $ 35,430,000 $ 6,294,142 $ 378,208

The following is a summary of the changes in Long-Term Liabilities:

Beginning Net Ending Due Within

Balance Additions Retirements Balance One Year

Revenue Bonds $ 39,790,000 $ 7,310,000 $ 11,670,000 $ 35,430,000 $ 3,660,000

Accrued Transmission Reserve 28,291 552,462 - 580,753 -

Accrued Sick Leave 599,540 41,880 - 641,420 -

Post Employment Benefit Obligation 101,527 12,289 - 113,816 -

Net Pension Liability 2,477,244 1,915,144 559,982 3,832,406 -

Total Long-Term Liabilities $ 42,996,602 $ 9,831,775 $ 12,229,982 $ 40,598,395 $ 3,660,000




25

5. OTHER POST EMPLOYMENT BENEFITS MMU follows Governmental Accounting Standards Board (GASB) Statement No. 45, Accounting and Financial

Reporting by Employers for Post Employment Benefits Other Than Pensions.

A. Plan Description

MMU provides health insurance benefits for certain retired employees under a single-employer insurance

plan. MMU provides benefits for retirees as required by State Statute to active employees when eligible to

receive a retirement benefit from the Public Employees Retirement Association (PERA) of Minnesota and if

they do not participate in any other health benefits program providing similar coverage. These retirees will be

eligible to continue coverage with respect to both themselves and their eligible dependent(s) under MMU’s

health benefits program. Retirees are required to pay 100% of the total premium cost. Since the premium is a

blended rate determined on the entire active and retiree population, the retirees are receiving an implicit rate

subsidy. As of January 1, 2014 there were 39 active participants and 10 retired participants. Benefit and

eligibility provisions are established through individual contracts. MMU’s OPEB plan issues a stand-alone

financial report that may be obtained by writing or calling MMU.

B. Annual OPEB Cost and Net OPEB Obligation

MMU’s annual other post employment benefit (OPEB) cost is calculated based on the annual required

contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of

GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is

projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to

exceed 30 years. The following table shows the components of MMU’s annual OPEB cost for 2016 and

2015, the amount actually contributed to the plan, and changes in MMU’s net OPEB obligation:

2016 2015 Annual Required Contribution (ARC) $ 35,613 $ 35,328

Interest on net OPEB Obligations 4,061 3,632

Adjustment to ARC (5,871) (5,251)

Annual OPEB Cost 33,803 33,709

Contributions made (including implicit subsidy) (21,514) (22,977)

Increase in OPEB Obligation 12,289 10,732

Net OPEB Liability, beginning of year 101,527 90,795

Net OPEB Liability, end of year $ 113,816 $ 101,527

MMU’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB

obligation for 2016 and 2015 were as follows:

Fiscal Year Annual Percentage Net OPEB

Ended OPEB Cost Contributed Obligation

December 31, 2016 $33,803 63.64% $113,816

December 31, 2015 $33,709 68.16% $101,527

C. Funding Status and Funding Progress

MMU has not funded the post employment liability and therefore the actuarial value of assets is zero.

Based upon the January 1, 2014, most recent actuarial valuation date, MMU’s unfunded actuarial and accrued

liability (UAAL) was $393,546. The annual payroll for active employees covered by the plan in the actuarial

valuation was $2,651,177 for a ratio of UAAL to covered payroll of 14.8%.




26

5. OTHER POST EMPLOYMENT BENEFITS (Cont’d)

C. Funding Status and Funding Progress (Cont’d)

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions

about the probability of occurrence of events far into the future. Examples include assumptions about future

employment, mortality, and healthcare cost trends. Amounts determined regarding the funded status of the

plan and the annual required contributions of the employer are subject to continual revision as actual results

are compared with past expectations and new estimates are made about the future. The schedule of funding

progress immediately following the notes to the financial statements presents required supplementary

information about whether the actuarial value of plan assets is increasing or decreasing over time relative to

the actuarial accrued liabilities for benefits.

D. Actuarial Methods and Assumptions

Projections of benefits for financial reporting purposes are based on the substantive plan (as understood by the

employer and the plan members) and include the types of benefits provided at the time of each valuation. The

actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-

term volatility in actuarial accrued liabilities, consistent with the long-term perspective of the calculations.

In the January 1, 2014 actuarial valuation, the projected unit credit actuarial cost method was used. The

actuarial assumptions included a 4% discount rate and a 3% inflation rate. The annual healthcare cost for

medical trend rate is 7.5% initially, reduced incrementally to an ultimate rate of 5% after eight years. The

unfunded actuarial accrued liability will be amortized as a level dollar amount over an open 30-year period

beginning in 2014.

MMU is not required to have another actuarial valuation until January 1, 2017.

6. DESIGNATED NET POSITION The MMU Commission has designated a portion of unrestricted net position for operating reserves and

anticipation of future capital improvement projects. These designations are internally imposed and can be

amended or removed by future action of the Commission. As of December 31, 2016 and 2015, the following

amounts have been designated:

2016 2015

ELECTRIC DEPARTMENT

Four Month Operating Reserve $ 16,355,200 $ 17,097,779

Future Capital Improvement Projects 3,076,063 401,981

TOTAL ELECTRIC DEPARTMENT 19,431,263 17,499,760

WATER DEPARTMENT

Four Month Operating Reserve 2,427,623 2,462,069

Future Capital Improvement Projects 1,665,294 1,882,139

TOTAL WATER DEPARTMENT 4,092,917 4,344,208

TOTAL ALL DEPARMENTS $ 23,524,180 $ 21,843,968

ELECTRIC DEPARTMENT Four Month Operating Reserve: Industry experts suggest that MMU maintain a reserve to cover operational risks

such as natural disasters, market price risks of any type, and loss of sales or ability to generate sales.

Future Capital Improvement Projects: Amount available to fund future capital projects.




27

6. DESIGNATED NET POSITION (Cont’d)

WATER DEPARTMENT

Four Month Operating Reserve: Industry experts suggest that MMU maintain a reserve to cover operational risks

such as natural disasters, market price risks of any type, and loss of sales or ability to generate sales.

Future Capital Improvement Projects: Amount available to fund future capital projects.

7. RELATED PARTY ACTIVITIES MMU provides the City of Marshall with street lighting, fire protection and utility services. A summary of

charges for these services is as follows:

2016 2015 Street Lighting $ 281,172 $ 281,172

Fire Protection 145,956 145,760

Utility Services 686,770 608,159

Billing Services 117,146 113,858

TOTALS $ 1,231,044 $ 1,148,949

Accounts receivable at December 31, 2016 and 2015 from the City of Marshall for December utility services and

other miscellaneous items is $133,712 and $136,098, respectively.

MMU bills monthly wastewater and surface water management fees charges for the City of Marshall in the

customer billings and makes transfers to the City of Marshall General Fund, as they are collected. Accounts

payable at December 31, 2016 and 2015 to the City of Marshall for these collections are as follows:

2016 2015 Wastewater Charges $ 576,007 $ 545,832

Surface Water Management Fees 183,933 167,948

TOTALS $ 759,940 $ 713,780

MMU conducts joint construction projects including industrial land development with the City of Marshall. In

addition to the above wastewater and surface water amounts, accounts payable of $98,846 and $18,850 at

December 31, 2016 and 2015, respectively, relating to water main replacement and improvement projects,

payment in lieu of taxes, and other miscellaneous items is due to the City of Marshall.

8. BENEFIT PLAN

Defined Benefit Pension Plan - Statewide

A. Plan Description

MMU 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.

General Employees Retirement Plan (GERF)

All full-time and certain part-time employees of MMU are covered by the General Employees Plan.

General Employees Plan 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.




28

8. BENEFIT PLAN (Cont’d)

B. Benefits Provided (Cont’d) 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 of this section are current provisions and apply

to active plan participants. Vested, terminated employees who are entitled to benefits but are not

receiving them yet are bound by the provisions in effect at the time they last terminated their public

service.

GERF Benefits

General Employees Plan 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.

C. Contributions Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution

rates can only be modified by the state legislature.

GERF Contributions

Basic Plan members and Coordinated Plan members were required to contribute 9.1% and 6.50%,

respectively, of their annual covered salary in calendar years 2016 and 2015. MMU was required to

contribute 11.78% of pay for Basic Plan members and 7.50% for Coordinated Plan members in calendar

years 2016 and 2015. MMU’s contributions to the General Employees Fund for the years ended

December 31, 2016 and 2015 were $223,004 and $223,792, respectively. MMU’s contributions were

equal to the required contributions as set by State Statute.

D. Pension Costs

GERF Pension Costs

At December 31, 2016 and 2015, MMU reported a liability of $3,832,406 and $2,477,244, respectively,

for its proportionate share of the General Employees Fund’s net pension liability. MMU’s net pension

liability reflected a reduction due to the State of Minnesota’s contribution of $6 million to the fund in

2016. There was no State of Minnesota contribution in 2015. The State of Minnesota is considered a

non-employer contributing entity and the state’s contribution meets the definition of a special funding

situation. The State of Minnesota’s proportionate share of the net pension liability associated with MMU

totaled $14,919 and $-0- for 2016 and 2015, respectively. The December 31, 2016 net pension liability

was measured as of June 30, 2016 and the total pension liability used to calculate the net pension liability

was determined by an actuarial valuation as of that date. The December 31, 2015 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. MMU’s proportion of the net pension liability

was based on MMU’s contribution received by PERA during the measurement period for employer

payroll paid dates from July 1, 2015 through June 30, 2016, and July 1, 2014 through June 30, 2015,

relative to the total employer contributions received from all of PERA’s participating employers. At

June 30, 2016 MMU proportion share was 0.0472% which was a decrease of 1.3% from its proportion

measured as of June 30, 2015.




29


D. Pension Costs (Cont’d)

For the years ended December 31, 2016 and 2015, MMU recognized pension expense of $263,327 and

$272,667, respectively, for its proportionate share of General Employees Plan’s pension expense. In

addition, MMU recognized an additional $14,919 as pension expense (and grant revenue) for its

proportionate share of the State of Minnesota’s contribution of $6 million to the General Employees

Fund in 2016. There was no special funding situation in 2015.

At December 31, 2016, MMU reported its proportionate share of the General Employees Plan’s deferred

outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflows

of Resources of Resources

Differences between expected and

actual experience $ - $ 312,371 Changes in actuarial assumptions 750,389 -

Difference between projected and

actual investment earnings 729,615 - Change in proportion - 138,410 Contributions paid to PERA subsequent to the

measurement date 114,837 -

Total $ 1,594,841 $ 450,781

$114,837 reported as deferred outflows of resources related to pensions resulting from MMU’s

contributions subsequent to the measurement date will be recognized as a reduction of the net pension

liability in the year ended December 31, 2017. Other amounts reported as deferred outflows and inflows

of resources related to pensions will be recognized in pension expense as follows:

Year ended December 31 Pension Expense Amount

2017 $ 263,870

2018 $ 263,870

2019 $ 363,050

2020 $ 138,433

2021 $ -

Thereafter $ -

At December 31, 2015, MMU reported its proportionate share of the General Employees Plan’s deferred

outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflows

of Resources of Resources

Differences between expected and

actual experience $ - $ 124,895 Difference between projected and

actual investment earnings 234,509 - Change in proportion - 172,633 Contributions paid to PERA subsequent to the

measurement date 115,243 -

Total $ 349,752 $ 297,528




30


E. Actuarial Assumptions

The total pension liability in the June 30, 2016 and 2015, actuarial valuations was determined using the

following actuarial assumptions:

2016 2015

Inflation 2.50% per year 2.75% per year

Active Member Payroll Growth 3.25% per year 3.50% per year

Investment Rate of Return 7.50% 7.90%

Salary increases were based on a service-related table. Mortality rates for active members, retirees,

survivors and disabilitants were based on RP-2014 tables (2016) and RP-2000 tables (2015) for the

General Employees Plan for males or females, as appropriate, with slight adjustments. Cost of living

benefit increases for retirees are assumed to be: 1% per year for all future years for the General

Employees Plan.

Actuarial assumptions used in the June 30, 2016, valuation were based on the results of actuarial

experience studies. The most recent four-year experience study in the General Employees Plan was

completed in 2015.

The following changes in actuarial assumptions occurred in 2016:

General Employees Fund

The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2035

and 2.5% per year thereafter to 1.0% per year for all future years.

The assumed investment return was changed from 7.9% to 7.5%. The single discount rate was

changed from 7.9% to 7.5%

Other assumptions were changed pursuant to the experience study dated June 30, 2015. The

assumed future salary increases, payroll growth, and inflation were decreased by 0.25% to 3.25%

for payroll growth and 2.50% for inflation.

There were no changes in actuarial assumptions in 2015.

The State Board of Investment, which manages the investments of PERA, prepares an analysis of the

reasonableness on a regular basis of the long-term expected rate of return 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 geometric real rates of return for each major asset class are summarized in the following table:

Long-Term Expected

Asset Class Target Allocation Real Rate of Return

Domestic Stocks 45% 5.50%

International Stocks 15% 6.00%

Bonds 18% 1.45%

Alternative Assets 20% 6.40%

Cash 2% 0.50%

Total 100%




31


F. Discount Rate

The discount rate used to measure the total pension liability in 2016 was 7.50%, a reduction from 7.9%

used in 2015. The projection of cash flows used to determine the discount rate assumed that

contributions from plan members and employees will be made at rates set in Minnesota Statutes. Based

on these assumption, the fiduciary net position of the General Employees Fund was projected to be

available to make all projected future benefit payments of current plan members. 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 MMU’s proportionate share of the net pension liability for General Employees

Fund, calculated using the discount rate disclosed in the preceding paragraph, as well as what MMU’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 percent decrease Current 1 percent increase

(6.5%) (7.5%) (8.5%)

$5,443,152 $3,832,406 $2,505,589

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.

9. DEFERRED COMPENSATION PLAN Employees of MMU may participate in a deferred compensation plan adopted under the provisions of Internal

Revenue Code Section 457 (Deferred Compensation Plans with respect to Service for State and Local

Governments).

The deferred compensation plan is available to all employees of MMU. Under the plan, employees may elect to

defer a portion of their salaries and avoid paying taxes on the deferred portion until the withdrawal date. The

deferred compensation amount is not available for withdrawal by employees until termination, retirement, death,

or unforeseeable emergency.

MMU matches employee contributions to the deferred compensation plan to the lesser of employee deferred

compensation or $1,500.

As part of its fiduciary role, MMU has selected a third party administrator of public employee deferred

compensation plans in a prudent manner and is not liable for losses that may arise from the administration of the

plan.

10. HEALTH CARE SAVINGS PLAN

MMU maintains a health care savings plan administered by a third party on behalf of individual employees, which

allows employees to pay health care costs after retirement with tax-free dollars. Contributions to the plan become

the property of each individual employee and are invested in a manner selected by the employee and can only be

accessed after employment with MMU ceases. Employees contribute to this plan through a salary reduction

agreement. Contributions are also made according to provisions of the accrued vacation and sick leave policies.

These amounts are deposited into the plan on an annual basis by MMU. Employee salary reduction contributions

are deposited in the fund, which may pay medical expenses in addition to health insurance premiums.

Contributions to this trust cannot revert back to MMU.




32

11. RISK MANAGEMENT MMU purchases commercial insurance to cover losses in the areas of employee health, workers' compensation,

property and liability. There have been no significant reductions in insurance coverage during the year ended

December 31, 2016. Settlements have not exceeded coverage for the current year or the three prior years.

12. CONSERVATION INCENTIVE PROGRAMS Pursuant to MN Statute 216B.241, MMU has implemented energy conservation programs to assist its customers

through energy efficiency rebates and to assist in funding energy conservation measures of entities whose budgets

are supported by the general public. Expenses under these programs are $531,180 and $377,265 for the years

ended December 31, 2016 and 2015, respectively.

13. MAJOR CUSTOMERS MMU has two major customers who individually account for more than 10% of revenue in 2016 and 2015.

Revenue generated from these customers was $31,484,026 and $33,020,978 for 2016 and 2015 respectively.

These amounts represent 59% and 61% of total revenue for 2016 and 2015, respectively.

14. JOINT VENTURE

PrairieNet WAN provides for the sharing of costs, infrastructure and expertise in the field of technology and

telecommunications for MMU, the City of Marshall, Lyon County, and Marshall Public Schools. MMU acts as

a fiscal agent for this organization whose activities are centered on information technology network equipment

and its joint uses. These joint costs have been passed on to the respective members and are included in the

member’s financial statements. MMU’s ongoing financial responsibility for this joint venture organization is

limited to those activities in which it chooses to participate. Since PrairieNet WAN owns no resources and has

no equity the participants to the PrairieNet WAN have no equity interest in the joint venture.

15. DARK FIBER UTILIZATION

Members of PrairieNet WAN are able to use dark fiber owned by MMU through negotiation of dark fiber

agreements or through a month to month dark fiber fee as established by the MMU Commission. Dark Fiber

made available to participating PrairieNet WAN members shall be “lit up” by the member so acquiring the use

of the dark fiber, at their cost. With prior approval of MMU, a member using dark fiber may work with another

public body through which the member does joint work. Example of this would include Southwest Minnesota

State University working through Marshall Public Schools (MPS) fiber capacity or the State of Minnesota

working through the City of Marshall or the Lyon County fiber capacity. MMU has one dark fiber agreement

with MPS that runs through June 1, 2024 in which MPS pays MMU $1,500 per month.

16. MAJOR COMMITMENTS

Power Supply:

MMU has contracted for the delivery of a fixed amount of power with the Western Area Power Administration

(WAPA), which is a part of the US Department of Energy, through December 31, 2050. MMU has entered into an S-1 Agreement with Missouri River Energy Services (MRES) for the purchase of any

power and transmission service greater than our fixed WAPA allocation of power supply, required by MMU

through January 1, 2057. MMU has contracted to sell the capacity of its generation plant to MRES through May 31, 2029.




33

16. MAJOR COMMITMENTS (Cont’d)

Transmission Service:

MMU contracted with Missouri Basin Municipal Power Agency dba Missouri River Energy Services (MRES) for

Transmission Service (the TSA). The TSA agreement, dated February 1, 2011 was terminated by the adoption of

Amendment 1 to the TSA. Among other things, MRES pays Northern States Power Company dba Xcel Energy

(NSP) monthly for MMU’s transmission costs and then MRES bill’s MMU for the cost of the transmission

through the MRES monthly power invoice. The amended S-1 agreement contains all the provisions previously

included in the TSA, but on January 2, 2017 are contained within the S-1 agreement between MRES and the City

of Marshall. MMU purchases through MRES its transmission services as Network Integrated Transmission

Services (NITS) from the NSP load zone within the MISO footprint. The NITS service has a credit applied which

is referred to as the Annual Transmission Revenue Requirement (ATRR) for the MMU transmission that is part of

the NSP load zone within MISO. MMU will be invoiced for said transmission service from MRES pursuant to the

MRES S-1 Agreement.

MMU entered into a Transmission Interconnection Agreement with NSP and the Midcontinent Independent

System Operator (MISO) for the interconnection of MMU’s transmission system into the NSP Transmission

System. The interconnection agreement is in effect for an initial ten-year period ending January 1, 2025.

Other Commitments:

MMU has entered an agreement with the City of Marshall in support of industrial land development. This

agreement calls for MMU to pay one half of the acquisition and development costs of approved projects through a

payment in lieu of taxes capped at $500,000 per year. Proceeds from subsequent sales of development projects

will be divided equally between MMU and the City of Marshall with MMU’s portion deducted from the payment

in lieu of taxes.

17. PENDING LITIGATION During 2013, MMU acquired 1.84 acres of land by eminent domain related to four water well sites for buffer

strip required by the Minnesota Department of Health regulations. The buyer and seller did not come to terms

on the price of the land. MMU, as required by state law, made an escrow deposit with the District Court for this

land. The land title has transferred to MMU. In 2014, there was a land condemnation hearing in Lyon County,

Minnesota. The hearing did not resolve the matter. The Court ordered mediation was unsuccessful. Thereafter,

a trial took place over two days in early 2016 and a District Court verdict was handed down. While the position

of MMU prevailed in District Court, the land owner has entered an appeal to the Minnesota Appellate Court. A

fourth quarter 2017 resolution is anticipated.

18. GASB STANDARD ISSUED BUT NOT YET IMPLEMENTED

GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions,

replaces the requirements of Statement No. 45, Accounting and Financial Reporting by Employers for

Postemployment Benefits Other Than Pensions, as they relate to governments that provide other postemployment

benefits (OPEB) to their employees. Statement No. 75 requires governments providing other postemployment

benefits to recognize their long-term obligation for OPEB as a liability for the first time, and to more

comprehensively and comparably measure the annual cost of OPEB benefits. Statement No. 75 is effective for

implementation for the year ended December 31, 2018.




SCHEDULES OF MMU’S SHARE OF NET PENSION LIABILITY AND

MMU’S CONTRIBUTIONS

FOR DEFINED BENEFIT PENSION PLANS

DECEMBER 31, 2016

34

PUBLIC EMPLOYEES RETIREMENT ASSOCIATION

SCHEDULE OF MMU’S PROPORTIONATE

SHARE OF NET PENSION LIABILITY (*)

PUBLIC EMPLOYEES GENERAL EMPLOYEES RETIREMENT FUND

REQUIRED SUPPLEMENTARY INFORMATION (LAST TEN YEARS**) MMU’s

Proportionate Share of the

State’s Net Pension MMU’s

MMU’s Proportionate Liability and Proportionate

Proportionate Share (Amount) the State’s Share of the

MMU’s Share of the Net Proportionate Net Pension Plan Fiduciary

Proportion (Amount) Pension Share of the Liability (Asset) Net Position (Percentage) of the Liability Net Pension MMU’s as a Percentage as a Percentage

of the Net Pension Associated Liability Covered- of its of the

Fiscal Year Net Pension Liability with Associated Employee Covered-Employee Total Pension Ending Liability (Asset) (Asset) MMU with MMU Payroll** Payroll Liability

(a) (b) (a+b) (c) (a+b/c)

6/30/2016 0.0472% $ 3,832,406 $ 14,919 $ 3,847,325 $ 2,973,391 129.4% 68.9% 6/30/2015 0.0478 2,477,244 - 2,477,244 2,809,961 88.2 78.2

* This schedule is for former MERF Division Employers to present their proportionate share of the State of Minnesota’s contributions to the General Employees Fund on their behalf.

**Schedule is to be provided prospectively beginning with the employer’s fiscal year ended June 30, 2015, or after.

PUBLIC EMPLOYEES RETIREMENT ASSOCIATION

SCHEDULE OF EMPLOYER’S CONTRIBUTIONS

PUBLIC EMPLOYEES GENERAL EMPLOYEES RETIREMENT PLAN

REQUIRED SUPPLEMENTARY INFORMATION (LAST TEN YEARS*) Contributions Contributions in Relation as a

to the Percentage of

Statutorily Statutorily Contribution Covered- Covered- Fiscal Year Required Required Deficiency Employee Employee

Ending Contribution Contribution (Excess) Payroll Payroll

(a) (b) (a-b) (d) (b/d) 12/31/2016 $ 223,004 $ 223,004 $ - $ 2,973,391 7.5%

12/31/2015 207,341 207,341 - $ 2,809,961 7.4

* Option to provide RSI for ten years at transition or to provide RSI prospectively.



SCHEDULES OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS

FOR POSTEMPLOYMENT BENEFIT PLANS

DECEMBER 31, 2016

35

SCHEDULE OF FUNDING PROGRESS FOR POSTEMPLOYMENT BENEFIT PLANS

Other Postemployment Benefits Actuarial Actuarial Unfunded UAAL as a

Actuarial Value of Accrued Actuarial Accrued Funded Covered Percentage of

Valuation Assets Liability Liability Ratio Payroll Covered Payroll Date (a) (b) (b - a) (a / b) (c) ((b – a) / c)

1/01/2014 $ - $ 393,546 $ 393,546 0.00 $2,651,177 14.8

1/01/2011 - 349,191 349,191 0.00 2,407,762 14.5 1/01/2008 - 156,507 156,507 0.00 2,399,285 6.52

SCHEDULE OF EMPLOYER CONTRIBUTIONS FOR POSTEMPLOYMENT BENEFIT PLANS

Other Postemployment Benefits

Fiscal Year Annual Employer Percentage Net OPEB

Ended OPEB Cost Contribution Contributed Obligation

December 31, 2016 $33,803 $21,514 63.64% $113,816

December 31, 2015 33,709 22,977 68.16 101,527

December 31, 2014 33,948 31,179 91.84 90,795

December 31, 2013 32,748 16,532 50.48 88,026

December 31, 2012 32,453 16,691 51.43 71,810

December 31, 2011 32,031 13,079 40.83 56,048

December 31, 2010 17,212 6,936 40.30 37,096

December 31, 2009 17,690 4,897 27.68 26,820

Note: Schedule is intended to show 10-year trend. Additional years will be reported as they become available.


NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION

DECEMBER 31, 2016

36

1. DEFINED BENEFIT PENSION PLAN

Public Employees Retirement Association

Changes in Actuarial Assumptions:

The assumed post-retirement benefit increase rate was changed from 1.0% per year through 2035 and

2.5% per year thereafter to 1.0% per year for all future years.

The assumed investment return was changed from 7.9% to 7.5%. The single discount rate was changed

from 7.9% to 7.5%

Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed

future salary increases, payroll growth, and inflation were decrease by 0.25% to 3.25% for payroll growth

and 2.50% for inflation.

SUPPLEMENTARY FINANCIAL INFORMATION


COMBINING SCHEDULE OF NET POSITION

DECEMBER 31, 2016

ELECTRIC WATER MMU

DEPARTMENT DEPARTMENT ELIMINATIONS TOTAL

ASSETS

CAPITAL ASSETS

Electric Production Plant $ 2,823,673 $ - $ - $ 2,823,673

Electric Transmission System 16,404,370 - - 16,404,370

Electric Distribution System 54,417,882 - - 54,417,882

Water Utility - 53,938,253 - 53,938,253

Transportation and General 7,328,556 1,288,920 - 8,617,476

Construction in Progress 155,260 970,342 - 1,125,602

81,129,741 56,197,515 - 137,327,256

Less: Accumulated Depreciation (39,485,538) (29,552,527) - (69,038,065)

NET CAPITAL ASSETS 41,644,203 26,644,988 - 68,289,191

CURRENT ASSETS

Cash and Cash Equivalents 415,571 253,313 - 668,884

Investments 20,723,978 4,855,462 - 25,579,440

Accrued Interest Receivable 110,237 42,991 - 153,228

Accounts Receivable 4,165,985 877,959 - 5,043,944

Due From City of Marshall 112,187 21,525 - 133,712

Energy Efficiency Loans Receivable 24,568 - - 24,568

Material and Supply Inventories 526,790 167,046 - 693,836

Prepaid Expenses 77,174 56,550 - 133,724

TOTAL CURRENT ASSETS 26,156,490 6,274,846 - 32,431,336

NONCURRENT ASSETS

RESTRICTED ASSETS

Debt Service Reserve 2,655,106 1,526,964 - 4,182,070

Bond Sinking Fund 1,262,012 1,147,131 - 2,409,143

TOTAL RESTRICTED ASSETS 3,917,118 2,674,095 - 6,591,213


Bond Discount 206,291 93,193 - 299,484

Less: Accumulated Amortization (152,696) (49,085) - (201,781)

TOTAL OTHER NONCURRENT

ASSETS 53,595 44,108 - 97,703

NET DEFERRED CHARGES AND OTHER ASSETSTOTAL NONCURRENT ASSETS 3,970,713 2,718,203 - 6,688,916

TOTAL ASSETS 71,771,406 35,638,037 - 107,409,443


Related to Pensions 1,116,389 478,452 - 1,594,841

2016

37



DECEMBER 31, 2016

ELECTRIC WATER MMU


LIABILITIES

LONG TERM DEBT

Series 2016A Revenue Bonds $ 4,285,000 $ 3,025,000 $ - $ 7,310,000

Series 2014A Revenue Bonds - 3,595,000 - 3,595,000

Series 2013B Revenue Bonds - 5,200,000 - 5,200,000

Series 2012C Revenue Bonds - 1,055,000 - 1,055,000

Series 2012B Revenue Bonds 2,131,800 2,048,200 - 4,180,000

Series 2011C Revenue Bonds 3,030,000 - - 3,030,000

Series 2010C Revenue Bonds 2,745,600 1,544,400 - 4,290,000

Series 2009A Revenue Bonds 1,797,000 1,198,000 - 2,995,000

Series 2008A Revenue Bonds 3,775,000 - - 3,775,000

TOTAL BONDS OUTSTANDING 17,764,400 17,665,600 - 35,430,000

LESS CURRENT PORTION (1,904,496) (1,755,504) - (3,660,000)

LESS UNAMORTIZED REFUNDED

BOND DISCOUNTS (3,742) (48,841) - (52,583)

TOTAL LONG-TERM DEBT 15,856,162 15,861,255 - 31,717,417

CURRENT LIABILITIES

Current Portion of Long-Term Debt 1,904,496 1,755,504 - 3,660,000

Checks Issued in Excess of Bank Balance - - - -

Accounts Payable 3,230,955 87,019 - 3,317,974

Due To City of Marshall 73,230 785,556 - 858,786

Accrued Interest Payable 311,695 274,597 - 586,292

Accrued Salaries Payable 133,251 52,713 - 185,964

Customer and Lease Deposits 60,674 23,417 - 84,091

TOTAL CURRENT LIABILITIES 5,714,301 2,978,806 - 8,693,107


Accrued Transmission Reserve 580,753 - - 580,753

Accrued Sick Leave 430,490 210,930 - 641,420

Post Employment Benefit Obligation 79,671 34,145 - 113,816

Net Pension Liability 2,682,684 1,149,722 - 3,832,406


TOTAL OTHER NONCURRENT LIABILITIES LIABILITIES 3,773,598 1,394,797 - 5,168,395

TOTAL LIABILITIES 25,344,061 20,234,858 - 45,578,919


Related to Pensions 315,547 135,234 - 450,781

NET POSITION

Net Investment in Capital Assets 23,879,803 8,979,388 - 32,859,191

Net Restricted for Debt Service and Construction 3,917,118 2,674,095 - 6,591,213

Unrestricted 19,431,263 4,092,917 - 23,524,180

TOTAL NET POSITION $ 47,228,184 $ 15,746,400 $ - $ 62,974,584

2016

38



DECEMBER 31, 2015

ELECTRIC WATER MMU


ASSETS

CAPITAL ASSETS

Electric Production Plant $ 2,820,515 $ - $ - $ 2,820,515

Electric Transmission System 16,404,370 - - 16,404,370

Electric Distribution System 52,756,664 - - 52,756,664

Water Utility - 53,381,173 - 53,381,173

Transportation and General 7,211,834 1,225,448 - 8,437,282

Construction in Progress 962,175 389,854 - 1,352,029

80,155,558 54,996,475 - 135,152,033

Less: Accumulated Depreciation (36,601,207) (27,892,415) - (64,493,622)

NET CAPITAL ASSETS 43,554,351 27,104,060 - 70,658,411

CURRENT ASSETS

Cash and Cash Equivalents 576,797 - (11,215) 565,582

Investments 18,058,592 5,273,766 - 23,332,358

Accrued Interest Receivable 94,946 38,594 - 133,540

Accounts Receivable 4,293,282 819,556 - 5,112,838

Due From City of Marshall 102,909 33,189 - 136,098

Energy Efficiency Loans Receivable 34,380 - - 34,380

Material and Supply Inventories 502,670 161,937 - 664,607

Prepaid Expenses 86,596 60,946 - 147,542

TOTAL CURRENT ASSETS 23,750,172 6,387,988 (11,215) 30,126,945

NONCURRENT ASSETS

RESTRICTED ASSETS

Debt Service Reserve 3,039,034 1,802,666 - 4,841,700

Bond Sinking Fund 1,421,757 1,097,973 - 2,519,730

TOTAL RESTRICTED ASSETS 4,460,791 2,900,639 - 7,361,430


Bond Discount 303,380 153,314 - 456,694

Less: Accumulated Amortization (176,872) (58,587) - (235,459)


ASSETS 126,508 94,727 - 221,235

NET DEFERRED CHARGES AND OTHER ASSETSTOTAL NONCURRENT ASSETS 4,587,299 2,995,366 - 7,582,665

TOTAL ASSETS 71,891,822 36,487,414 (11,215) 108,368,021



2015

39



DECEMBER 31, 2015

ELECTRIC WATER MMU


LIABILITIES

LONG TERM DEBT

Series 2014A Revenue Bonds $ - $ 3,825,000 $ - $ 3,825,000


Series 2012C Revenue Bonds - 1,385,000 - 1,385,000

Series 2012B Revenue Bonds 2,302,650 2,212,350 - 4,515,000

Series 2011C Revenue Bonds 3,280,000 - - 3,280,000

Series 2010C Revenue Bonds 3,001,600 1,688,400 - 4,690,000

Series 2009A Revenue Bonds 1,986,000 1,324,000 - 3,310,000





TOTAL BONDS OUTSTANDING 20,275,250 19,514,750 - 39,790,000

LESS CURRENT PORTION (2,095,850) (1,549,150) - (3,645,000)

LESS UNAMORTIZED REFUNDED

BOND DISCOUNTS - (54,516) - (54,516)

TOTAL LONG-TERM DEBT 18,179,400 17,911,084 - 36,090,484

CURRENT LIABILITIES

Current Portion of Long-Term Debt 2,095,850 1,549,150 - 3,645,000

Checks Issued in Excess of Bank Balance - 11,215 (11,215) -

Accounts Payable 3,594,214 97,985 - 3,692,199

Due To City of Marshall 12,318 720,312 - 732,630

Accrued Interest Payable 377,101 316,726 - 693,827

Accrued Salaries Payable 126,467 58,775 - 185,242

Customer and Lease Deposits 61,574 38,878 - 100,452

TOTAL CURRENT LIABILITIES 6,267,524 2,793,041 (11,215) 9,049,350


Accrued Sick Leave 408,371 191,169 - 599,540

Post Employment Benefit Obligation 71,069 30,458 - 101,527

Net Pension Liability 1,734,071 743,173 - 2,477,244


TOTAL OTHER NONCURRENT LIABILITIES LIABILITIES 2,241,802 964,800 - 3,206,602

TOTAL LIABILITIES 26,688,726 21,668,925 (11,215) 48,346,436



NET POSITION

Net Investment in Capital Assets 23,279,101 7,589,310 - 30,868,411

Net Restricted for Debt Service and Construction 4,460,791 2,900,639 - 7,361,430

Unrestricted 17,499,760 4,344,208 - 21,843,968

TOTAL NET POSITION $ 45,239,652 $ 14,834,157 $ - $ 60,073,809

2015

40


COMBINING SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION


ELECTRIC WATER MMU


OPERATING REVENUES

Electric Department $ 49,803,828 $ - $ - $ 49,803,828

Water Department - 6,210,316 - 6,210,316

TOTAL 49,803,828 6,210,316 - 56,014,144


Revenues from Electric Plant

Leased to Others 411,202 - - 411,202

Expenses of Electric Plant

Leased to Others (77,754) - - (77,754)

NET LEASED PLANT REVENUES 333,448 - - 333,448

TOTAL OPERATING REVENUES 50,137,276 6,210,316 - 56,347,592

OPERATING EXPENSE

PRODUCTION COST

Operating Supervision 4,964 52,582 - 57,546

Station Labor - 177,917 - 177,917

Water Treatment - 255,316 - 255,316

Operating Supplies - 16,823 - 16,823

Maintenance 21,842 267,380 - 289,222

Lime Sludge Disposal - 84,242 - 84,242

Power for Pumping - 289,262 - 289,262

Conservation Rebates - 14,765 - 14,765

Outside Services - 25,133 - 25,133

Insurance 2,110 8,518 - 10,628

Employees' Welfare 3,883 118,412 - 122,295

Other General Expense - 42,728 - 42,728

TOTAL PRODUCTION COST 32,799 1,353,078 - 1,385,877

PURCHASED POWER 33,695,042 - - 33,695,042

PURCHASED WATER - 279,707 - 279,707

TRANSMISSION COST

Operations Supervision 10,530 - - 10,530

Maintenance SupervisionMaintenance Supervision 17,132 - - 17,132

Transmission by Others 6,443,652 - - 6,443,652

Load Dispatching 19,846 - - 19,846

Operating Supervision 127,208 - - 127,208

Maintenance of Lines 46,349 - - 46,349

Station Expense 68,523 - - 68,523

Equipment Maintenance 12,552 - - 12,552

Outside Services 23,900 - - 23,900

Travel 1,982 - - 1,982

Insurance 13,452 - - 13,452

Employees' Welfare 60,953 - - 60,953

Other General Expense 2,806 - - 2,806

TOTAL TRANSMISSION COST 6,848,885 - - 6,848,885

2016

41




ELECTRIC WATER MMU



DISTRIBUTION COST

Operating Supervision $ 29,719 $ 43,782 $ - $ 73,501

Maintenance Supervision 52,073 53,274 - 105,347


Maintenance of Lines and Mains 585,777 536,246 - 1,122,023


Equipment Maintenance 111,978 41,925 - 153,903

Outside Services 15,846 2,320 - 18,166

Travel 12,013 2,369 - 14,382

Insurance 50,752 23,098 - 73,850


Other General Expense 31,713 6,362 - 38,075

TOTAL DISTRIBUTION COST 1,349,919 804,692 - 2,154,611


Customer Installation Expense 4,123 - - 4,123

Energy Efficiency Rebates 482,007 - - 482,007

Advertising 9,783 - - 9,783


Travel 4,530 - - 4,530

Insurance 74 - - 74



TOTAL DEMAND SIDE

MANAGEMENT 531,180 - - 531,180


INFORMATION

Customer Records and Collection Salaries 194,460 83,331 - 277,791

Meter Reading Salaries 40,201 29,665 - 69,866

Customer Installation Expense Salaries 86,037 - - 86,037

General Office Expense 143,500 65,923 - 209,423



TOTAL CUSTOMER SERVICE

AND INFORMATION 609,763 238,868 - 848,631


Salaries of Executives 267,494 112,307 - 379,801

General Office Salaries 146,291 62,686 - 208,977


Insurance 12,073 3,902 - 15,975



Travel 22,161 8,763 - 30,924


TOTAL ADMINISTRATIVE

AND GENERAL 974,932 396,022 - 1,370,954

DEPRECIATION 3,037,058 1,750,369 - 4,787,427

TOTAL OPERATING EXPENSE 47,079,578 4,822,736 - 51,902,314

OPERATING INCOME 3,057,698 1,387,580 - 4,445,278

2016

42




ELECTRIC WATER MMU



Allowance for Funds Used During

Construction $ 20,389 $ 14,327 $ - $ 34,716

Investment Income 404,880 125,718 - 530,598

Build America Bonds Federal Credit 42,400 23,867 - 66,267

Change in Fair Market Value of Investments (241,093) (57,322) - (298,415)

Penalties Collected 56,997 21,799 - 78,796

Lease and Rental Income 114 32,328 - 32,442

Connection Fees - 2,265 - 2,265

Miscellaneous Income 423,967 52,387 - 476,354

Nonoperating Pension Grant Revenue 10,443 4,476 - 14,919

TOTAL NONOPERATING

REVENUES 718,097 219,845 - 937,942


Interest Expense 678,596 603,208 - 1,281,804

Amortization of Deferred Charges 12,900 5,226 - 18,126

Uncollectible Accounts 36,249 3,274 - 39,523

Nonoperating Pension Expense 194,772 83,474 - 278,246

TOTAL NONOPERATING

EXPENSE 922,517 695,182 - 1,617,699

INCOME BEFORE CONTRIBUTIONS

AND TRANSFERS 2,853,278 912,243 - 3,765,521

Capital Contributions Received (Disbursed) - - - -

Transfers to the General Fund,

City of Marshall (864,746) - - (864,746)

CHANGE IN NET POSITION 1,988,532 912,243 - 2,900,775


AS ORIGINALLY STATED 45,239,652 14,834,157 - 60,073,809

PRIOR PERIOD ADJUSTMENT (GASB 68) - - - -


AS RESTATED 45,239,652 14,834,157 - 60,073,809

NET POSITION, ENDING $ 47,228,184 $ 15,746,400 $ - $ 62,974,584

2016

43




ELECTRIC WATER MMU


OPERATING REVENUES

Electric Department $ 51,401,242 $ - $ - $ 51,401,242

Water Department - 5,936,660 - 5,936,660

TOTAL 51,401,242 5,936,660 - 57,337,902



Leased to Others 398,358 - - 398,358


Leased to Others (77,365) - - (77,365)

NET LEASED PLANT REVENUES 320,993 - - 320,993

TOTAL OPERATING REVENUES 51,722,235 5,936,660 - 57,658,895

OPERATING EXPENSE

PRODUCTION COST

Operating Supervision 4,714 53,347 - 58,061

Station Labor - 174,784 - 174,784

Water Treatment - 239,796 - 239,796

Operating Supplies - 9,328 - 9,328

Maintenance 15,244 212,153 - 227,397

Lime Sludge Disposal - 73,189 - 73,189

Power for Pumping - 270,212 - 270,212

Conservation Rebates - 15,959 - 15,959

Outside Services - 49,513 - 49,513

Insurance 3,748 11,598 - 15,346


Other General Expense - 43,300 - 43,300

TOTAL PRODUCTION COST 26,925 1,270,528 - 1,297,453

PURCHASED POWER 36,374,069 - - 36,374,069

PURCHASED WATER - 350,377 - 350,377

TRANSMISSION COST

Maintenance Supervision 11,539 - - 11,539

Maintenance Supervision 17,475 - - 17,475

Transmission by Others 5,319,893 - - 5,319,893


Operating Supervision 124,105 - - 124,105

Maintenance of Lines 42,313 - - 42,313


Equipment Maintenance 11,835 - - 11,835


Travel 1,235 - - 1,235

Insurance 22,452 - - 22,452


Other General Expense 125 - - 125

TOTAL TRANSMISSION COST 5,714,819 - - 5,714,819

2015

44




ELECTRIC WATER MMU



DISTRIBUTION COST

Operating Supervision $ 18,736 $ 40,085 $ - $ 58,821

Maintenance Supervision 52,426 54,327 - 106,753


Maintenance of Lines and Mains 667,135 571,937 - 1,239,072


Equipment Maintenance 163,482 36,178 - 199,660

Outside Services 43,796 113 - 43,909

Travel 15,836 1,710 - 17,546

Insurance 81,244 39,843 - 121,087



TOTAL DISTRIBUTION COST 1,570,392 840,661 - 2,411,053


Customer Installation Expense 2,657 - - 2,657

Energy Efficiency Rebates 335,735 - - 335,735

Advertising 13,337 - - 13,337


Travel 501 - - 501

Insurance 291 - - 291



TOTAL DEMAND SIDE

MANAGEMENT 377,265 - - 377,265


INFORMATION

Customer Records and Collection Salaries 198,554 84,966 - 283,520

Meter Reading Salaries 32,167 26,269 - 58,436

Customer Installation Expense Salaries 82,615 - - 82,615





AND INFORMATION 612,794 240,327 - 853,121


Salaries of Executives 252,332 107,239 - 359,571

General Office Salaries 143,444 61,411 - 204,855


Insurance 16,439 3,919 - 20,358



Travel 14,333 4,862 - 19,195



AND GENERAL 927,348 346,595 - 1,273,943

DEPRECIATION 3,001,366 2,073,649 - 5,075,015

TOTAL OPERATING EXPENSE 48,604,978 5,122,137 - 53,727,115

OPERATING INCOME 3,117,257 814,523 - 3,931,780

2015

45




ELECTRIC WATER MMU



Allowance for Funds Used During

Construction $ 50,059 $ 157,996 $ - $ 208,055



Change in Fair Market Value of Investments (182,358) (75,723) - (258,081)

Penalties Collected 57,438 23,063 - 80,501

Lease and Rental Income 114 32,328 - 32,442

Connection Fees - 2,725 - 2,725

Miscellaneous Income 287,004 62,660 - 349,664

TOTAL NONOPERATING

REVENUES 670,158 387,552 - 1,057,710


Interest Expense 806,312 665,268 - 1,471,580

Amortization of Deferred Charges 24,849 13,178 - 38,027

Uncollectible Accounts 46,012 8,014 - 54,026

Nonoperating Pension Expense 33,760 14,469 - 48,229

TOTAL NONOPERATING

EXPENSE 910,933 700,929 - 1,611,862


AND TRANSFERS 2,876,482 501,146 - 3,377,628

Capital Contributions Received (Disbursed) - 158,005 - 158,005

Transfers to the General Fund,

City of Marshall (835,930) - - (835,930)

CHANGE IN NET POSITION 2,040,552 659,151 - 2,699,703


AS ORIGINALLY STATED 44,862,854 14,888,043 - 59,750,897

PRIOR PERIOD ADJUSTMENT (GASB 68) (1,663,754) (713,037) - (2,376,791)


AS RESTATED 43,199,100 14,175,006 - 57,374,106

NET POSITION, ENDING $ 45,239,652 $ 14,834,157 $ - $ 60,073,809

2015

46


COMBINING SCHEDULE OF CASH FLOWS


ELECTRIC WATER MMU


CASH FLOWS FROM OPERATING

ACTIVITIES

Cash Received from Customers $ 48,263,067 $ 6,221,293 $ - $ 54,484,360

Cash Received from Leased Plant and Property 411,316 32,328 - 443,644

Cash Paid to Suppliers (39,599,649) (2,126,779) 11,215 (41,715,213)

Cash Paid to Employees for Operating

Activities (2,089,420) (885,852) - (2,975,272)

NET CASH PROVIDED BY

OPERATING ACTIVITIES 6,985,314 3,240,990 11,215 10,237,519

CASH FLOWS FROM NONCAPITAL


Transfers to the City of Marshall (864,746) - - (864,746)

NET CASH PROVIDED BY (USED IN)

NONCAPITAL FINANCING

ACTIVITIES (864,746) - - (864,746)

CASH FLOWS FROM CAPITAL AND

RELATED FINANCING ACTIVITIES

Payments for Property and Equipment (718,758) (1,260,124) - (1,978,882)

Payments to Employees Capitalized (433,638) (16,847) - (450,485)

Principal Payments on Long-Term Debt (6,795,850) (4,874,150) - (11,670,000)

Proceeds from the Issuance of Long-Term Debt 4,285,000 3,025,000 - 7,310,000


Bond Premiums (Discounts) 55,504 39,184 - 94,688

Interest Paid (743,235) (633,454) - (1,376,689)


CAPITAL AND RELATED

FINANCING ACTIVITIES (4,308,577) (3,696,524) - (8,005,101)

CASH FLOWS FROM INVESTING

ACTIVITIES

Purchase of Investments (20,367,387) (4,886,169) - (25,253,556)

Proceeds From Sale of Investments 17,489,984 5,276,719 - 22,766,703

Net Decrease (Increase) in Restricted Cash 514,597 196,976 - 711,573



INVESTING ACTIVITIES (1,973,217) 708,847 - (1,264,370)

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS (161,226) 253,313 11,215 103,302

CASH AND CASH EQUIVALENTS,

BEGINNING 576,797 - (11,215) 565,582


ENDING $ 415,571 $ 253,313 $ - $ 668,884

2016

47




ELECTRIC WATER MMU


RECONCILIATION OF OPERATING

INCOME TO NET CASH


Operating Income $ 3,057,698 $ 1,387,580 $ - $ 4,445,278

Adjustments to Reconcile Operating Income

to Net Cash Provided by Operating

Activities:

Depreciation 3,083,703 1,750,369 - 4,834,072

Capital Asset Activity Included in

Payables and Accruals (769) - - (769)

(Increase) Decrease in Accounts Receivable 127,297 (58,403) - 68,894

(Increase) Decrease in Due From

City of Marshall (9,278) 11,664 - 2,386

(Increase) Decrease in Energy Efficiency

Loans Receivable 9,812 - - 9,812

(Increase) Decrease in Inventories (24,120) (5,109) - (29,229)

(Increase) Decrease in Prepaid Expenses 9,422 4,396 - 13,818

Increase (Decrease) in Accounts Payable (363,259) (22,181) 11,215 (374,225)

Increase (Decrease) in Due To

City of Marshall 60,912 65,244 - 126,156

Increase (Decrease) in Accrued Salaries

Payable 6,784 (6,062) - 722

Increase (Decrease) in Customer and

Lease Deposits (900) (15,461) - (16,361)

Increase (Decrease) in Accrued Sick Leave 22,119 19,761 - 41,880

Increase (Decrease) in Post Employment

Benefit Obligation 8,602 3,687 - 12,289

Increase (Decrease) in Accrued

Transmission Reserve 552,462 - - 552,462

Other Nonoperating Revenue (Expense) 444,829 105,505 - 550,334


OPERATING ACTIVITIES $ 6,985,314 $ 3,240,990 $ 11,215 $ 10,237,519


FINANCING

Developers Contributions of Water Mains $ - $ - $ - $ -

Bond Issue Costs Deducted from

Bond Proceeds $ 25,452 $ 17,968 $ - $ 43,420

2016

48




ELECTRIC WATER MMU


CASH FLOWS FROM OPERATING

ACTIVITIES

Cash Received from Customers $ 49,757,445 $ 5,964,902 $ - $ 55,722,347

Cash Received from Leased Plant and Property 398,472 32,328 - 430,800

Cash Paid to Suppliers (41,561,267) (2,437,717) (11,215) (44,010,199)

Cash Paid to Employees for Operating

Activities (2,142,933) (892,713) - (3,035,646)


OPERATING ACTIVITIES 6,451,717 2,666,800 (11,215) 9,107,302

CASH FLOWS FROM NONCAPITAL


Transfers to the City of Marshall (835,930) - - (835,930)


NONCAPITAL FINANCING

ACTIVITIES (835,930) - - (835,930)

CASH FLOWS FROM CAPITAL AND

RELATED FINANCING ACTIVITIES

Payments for Property and Equipment (750,407) (1,719,444) - (2,469,851)

Payments to Employees Capitalized (442,889) (16,847) - (459,736)

Principal Payments on Long-Term Debt (3,026,650) (1,578,350) - (4,605,000)


Interest Paid (857,337) (699,307) - (1,556,644)


CAPITAL AND RELATED

FINANCING ACTIVITIES (5,032,478) (3,988,745) - (9,021,223)

CASH FLOWS FROM INVESTING

ACTIVITIES

Purchase of Investments (15,134,296) (6,854,940) - (21,989,236)

Proceeds From Sale of Investments 13,892,467 7,758,280 - 21,650,747

Net Decrease (Increase) in Restricted Cash 486,973 22,118 - 509,091



INVESTING ACTIVITIES (327,692) 1,094,134 - 766,442

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 255,617 (227,811) (11,215) 16,591


BEGINNING 321,180 227,811 - 548,991


ENDING $ 576,797 $ - $ (11,215) $ 565,582

2015

49




ELECTRIC WATER MMU


RECONCILIATION OF OPERATING

INCOME TO NET CASH


Operating Income $ 3,117,257 $ 814,523 $ - $ 3,931,780

Adjustments to Reconcile Operating Income

to Net Cash Provided by Operating

Activities:

Depreciation 3,048,011 2,073,649 - 5,121,660

Capital Asset Activity Included in

Payables and Accruals 9,560 67,346 - 76,906

(Increase) Decrease in Accounts Receivable (14,624) (30,373) - (44,997)

(Increase) Decrease in Due From

City of Marshall 110,432 (21,519) - 88,913

(Increase) Decrease in Energy Efficiency

Loans Receivable 9,427 - - 9,427

(Increase) Decrease in Inventories 105,659 23,729 - 129,388

(Increase) Decrease in Prepaid Expenses 8,935 6,150 - 15,085

Increase (Decrease) in Accounts Payable (59,353) (201,192) (11,215) (271,760)

Increase (Decrease) in Due To

City of Marshall (137,706) (167,968) - (305,674)

Increase (Decrease) in Accrued Salaries

Payable (66,409) (27,704) - (94,113)

Increase (Decrease) in Customer and

Lease Deposits (1,200) (300) - (1,500)

Increase (Decrease) in Accrued Sick Leave (12,619) 14,477 - 1,858

Increase (Decrease) in Post Employment

Benefit Obligation 7,512 3,220 - 10,732

Increase (Decrease) in Accrued

Transmission Reserve 28,291 - 28,291

Other Nonoperating Revenue (Expense) 298,544 112,762 - 411,306


OPERATING ACTIVITIES $ 6,451,717 $ 2,666,800 $ (11,215) $ 9,107,302


FINANCING

Developers Contributions of Water Mains $ - $ 158,005 $ - $ 158,005

Bond Issue Costs Deducted from

Bond Proceeds $ - $ - $ - $ -

2015

50


SCHEDULES OF NET POSITION - ELECTRIC DEPARTMENT


2016 2015

ASSETS

CAPITAL ASSETS

Electric Production Plant $ 2,823,673 $ 2,820,515




Construction in Progress 155,260 962,175

81,129,741 80,155,558



CURRENT ASSETS

Cash and Cash Equivalents 415,571 576,797

Investments 20,723,978 18,058,592


Accounts Receivable 4,165,985 4,293,282


Energy Efficiency Loans Receivable 24,568 34,380




NONCURRENT ASSETS

RESTRICTED ASSETS








TOTAL NONCURRENT ASSETS 3,970,713 4,587,299

TOTAL ASSETS 71,771,406 71,891,822


Related to Pensions 1,116,389 244,826

51


SCHEDULES OF NET POSITION - ELECTRIC DEPARTMENT


2016 2015

LIABILITIES

LONG TERM DEBT











LESS UNAMORTIZED REFUNDED BOND DISCOUNTS (3,742) -


CURRENT LIABILITIES


Accounts Payable 3,230,955 3,594,214

Due to City of Marshall 73,230 12,318






Accrued Transmission Reserve 580,753 28,291



Net Pension Liability 2,682,684 1,734,071

TOTAL OTHER NONCURRENT LIABILITIES 3,773,598 2,241,802




NET POSITION



Unrestricted 19,431,263 17,499,760


52


SCHEDULES OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - ELECTRIC DEPARTMENT


2016 2015

K.W.H. Generated

By Gas Turbine 97,000 0.02 % 85,000 0.01 %

K.W.H. Purchased 580,323,408 99.98 595,089,333 99.99

Total K.W.H. Produced & Purchased 580,420,408 100.00 595,174,333 100.00

K.W.H. Used For Station Power 117,720 0.02 116,600 0.02

Net K.W.H. Produced and Purchased 580,302,688 99.98 595,057,733 99.98

K.W.H. Sold On Line 572,499,415 98.64 587,485,240 98.71

K.W.H. Loss 7,803,273 1.34 % 7,572,493 1.27 %

% OF PER 1,000

OPERATING K.W.H.

2016 2015 REVENUE SOLD

OPERATING REVENUES

Marshall $ 47,691,421 $ 49,354,980 95.76 % $ 83.30

Transmission Credits 2,112,407 2,046,262 4.24 3.69

TOTAL 49,803,828 51,401,242 100.00 86.99



Leased to Others 411,202 398,358 0.83 0.72


Leased to Others (77,754) (77,365) (0.16) (0.14)

NET LEASED PLANT REVENUES 333,448 320,993 0.67 0.58

TOTAL OPERATING REVENUES 50,137,276 51,722,235 100.67 87.58

OPERATING EXPENSE

PRODUCTION COST

Operating Supervision 4,964 4,714 0.01 0.01

Maintenance 21,842 15,244 0.04 0.04

Insurance 2,110 3,748 0.00 0.00

Employees' Welfare 3,883 3,219 0.01 0.01

TOTAL PRODUCTION COST 32,799 26,925 0.06 0.06

PURCHASED POWER 33,695,042 36,374,069 67.66 58.86

TRANSMISSION COST

Operations Supervision 10,530 11,539 0.02 0.02

Maintenance Supervision 17,132 17,475 0.03 0.03

Transmission by Others 6,443,652 5,319,893 12.94 11.26

Load Dispatching 19,846 19,969 0.04 0.04


Maintenance of Lines 46,349 42,313 0.09 0.08

Station Expense 68,523 56,390 0.14 0.12

Equipment Maintenance 12,552 11,835 0.03 0.02

Outside Services 23,900 31,095 0.05 0.04

Travel 1,982 1,235 0.00 0.00

Insurance 13,452 22,452 0.03 0.02


Other General Expense 2,806 125 0.01 0.01

TOTAL TRANSMISSION COST 6,848,885 5,714,819 13.76 11.96

53




% OF PER 1,000

OPERATING K.W.H.



DISTRIBUTION COST

Operation Supervision $ 29,719 $ 18,736 0.06 % $ 0.05


Load Dispatching 59,689 64,038 0.12 0.10

Maintenance of Lines 585,777 667,135 1.18 1.02

Station Expense 113,137 117,365 0.23 0.20



Travel 12,013 15,836 0.02 0.02

Insurance 50,752 81,244 0.10 0.09


Other General Expense 31,713 29,470 0.06 0.06

TOTAL DISTRIBUTION COST 1,349,919 1,570,392 2.70 2.36


Customer Installation Expense 4,123 2,657 0.01 0.01

Energy Efficiency Rebates 482,007 335,735 0.97 0.84

Advertising 9,783 13,337 0.02 0.02


Travel 4,530 501 0.01 0.01

Insurance 74 291 0.00 0.00



TOTAL DEMAND SIDE

MANAGEMENT 531,180 377,265 1.07 0.93

CUSTOMER SERVICE AND INFORMATION

Customer Records and Collection Salaries 194,460 198,554 0.39 0.34

Meter Reading Salaries 40,201 32,167 0.08 0.07

Customer Installation Expense Salaries 86,037 82,615 0.17 0.15

General Office Expense 143,500 153,285 0.30 0.25




AND INFORMATION 609,763 612,794 1.25 1.07


Salaries of Executives 267,494 252,332 0.54 0.47

General Office Salaries 146,291 143,444 0.29 0.26


Insurance 12,073 16,439 0.02 0.02



Travel 22,161 14,333 0.04 0.04



AND GENERAL 974,932 927,348 1.96 1.70

DEPRECIATION 3,037,058 3,001,366 6.09 5.31

TOTAL OPERATING EXPENSE 47,079,578 48,604,978 94.55 82.24

OPERATING INCOME 3,057,698 3,117,257 6.12 5.34

54




% OF PER 1,000

OPERATING K.W.H.



Allowance For Funds Used During

Construction $ 20,389 $ 50,059 0.04 % $ 0.04

Investment Income 404,880 413,096 0.81 0.71

Build America Bonds Federal Credit 42,400 44,805 0.09 0.07

Change in Fair Market Value of Investments (241,093) (182,358) (0.48) (0.42)

Penalties Collected 56,997 57,438 0.11 0.10

Lease and Rental Income 114 114 0.00 0.00

Miscellaneous Income 423,967 287,004 0.85 0.74

Nonoperating Pension Grant Revenue 10,443 - 0.02 0.02

TOTAL NONOPERATING REVENUES 718,097 670,158 1.44 1.26


Interest Expense 678,596 806,312 1.36 1.19

Amortization of Deferred Charges 12,900 24,849 0.03 0.02

Uncollectible Accounts 36,249 46,012 0.07 0.06

Nonoperating Pension Expense 194,772 33,760 0.39 0.34

TOTAL NONOPERATING EXPENSE 922,517 910,933 1.85 1.61


AND TRANSFERS 2,853,278 2,876,482 5.71 % $ 4.98

Transfers to the General Fund, City of Marshall (864,746) (835,930)

CHANGE IN NET POSTION 1,988,532 2,040,552



PRIOR PERIOD ADJUSTMENT (GASB 68) - (1,663,754)


AS RESTATED 45,239,652 43,199,100


55


SCHEDULES OF CASH FLOWS - ELECTRIC DEPARTMENT


2016 2015





Cash Paid to Employees for Operating Activities (2,089,420) (2,142,933)


CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES


NET CASH PROVIDED BY (USED IN) NONCAPITAL

FINANCING ACTIVITIES (864,746) (835,930)



Payments for Property and Equipment (718,758) (750,407)






Interest Paid (743,235) (857,337)

NET CASH PROVIDED BY ( USED IN) CAPITAL AND RELATED







NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,973,217) (327,692)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (161,226) 255,617

CASH AND CASH EQUIVALENTS, BEGINNING 576,797 321,180

CASH AND CASH EQUIVALENTS, ENDING $ 415,571 $ 576,797

56


SCHEDULES OF CASH FLOWS - ELECTRIC DEPARTMENT


2016 2015



Operating Income $ 3,057,698 $ 3,117,257



Depreciation 3,083,703 3,048,011

Capital Asset Activity Included in Payables and Accruals (769) 9,560

(Increase) Decrease in Accounts Receivable 127,297 (14,624)

(Increase) Decrease in Due From City of Marshall (9,278) 110,432

(Increase) Decrease in Energy Efficiency Loans Receivable 9,812 9,427





Increase (Decrease) in Accrued Salaries Payable 6,784 (66,409)

Increase (Decrease) in Customer Deposits (900) (1,200)

Increase (Decrease) in Accrued Sick Leave 22,119 (12,619)

Increase (Decrease) in Post Retirement Benefit Obligation 8,602 7,512

Increase (Decrease) in Accrued Transmission Reserve 552,462 28,291




FINANCING


57


SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - ELECTRIC DEPARTMENT


Actual Budget Variance % Variance

OPERATING REVENUES

Marshall $ 47,691,421 $ 49,222,700 $ (1,531,279) (3.11) %

Transmission Credits 2,112,407 - 2,112,407 -

TOTAL 49,803,828 49,222,700 581,128 1.18



Leased to Others 411,202 400,200 11,002 2.75


Leased to Others (77,754) (84,145) 6,391 (7.60)

NET LEASED PLANT REVENUES 333,448 316,055 17,393 5.50

TOTAL OPERATING REVENUES 50,137,276 49,538,755 598,521 1.21

OPERATING EXPENSE

PRODUCTION COST

Operating Supervision 4,964 5,200 (236) (4.54)

Maintenance 21,842 17,200 4,642 26.99

Insurance 2,110 3,900 (1,790) (45.90)

Employees' Welfare 3,883 2,800 1,083 38.68

TOTAL PRODUCTION COST 32,799 29,100 3,699 12.71

PURCHASED POWER 33,695,042 34,787,300 (1,092,258) (3.14)

TRANSMISSION COST

Operations Supervision 10,530 10,600 (70) (0.66)

Maintenance Supervision 17,132 18,000 (868) (4.82)

Transmission by Others 6,443,652 4,853,200 1,590,452 32.77

Load Dispatching 19,846 20,200 (354) (1.75)

Operating Supervision 127,208 - 127,208 -

Maintenance of Lines 46,349 39,200 7,149 18.24

Station Expense 68,523 60,900 7,623 12.52

Equipment Maintenance 12,552 11,800 752 6.37

Outside Services 23,900 80,000 (56,100) (70.13)

Travel 1,982 4,500 (2,518) (55.96)

Insurance 13,452 24,600 (11,148) (45.32)


Other General Expense 2,806 2,200 606 27.55

TOTAL TRANSMISSION COST 6,848,885 5,182,500 1,666,385 32.15

DISTRIBUTION COST

Operation Supervision 29,719 31,000 (1,281) (4.13)

Maintenance Supervision 52,073 53,900 (1,827) (3.39)

Load Dispatching 59,689 63,500 (3,811) (6.00)

Maintenance of Lines 585,777 662,200 (76,423) (11.54)

Station Expense 113,137 158,400 (45,263) (28.58)

Equipment Maintenance 111,978 140,500 (28,522) (20.30)

Outside Services 15,846 73,500 (57,654) (78.44)

Travel 12,013 27,200 (15,187) (55.83)

Insurance 50,752 91,000 (40,248) (44.23)

Employees' Welfare 287,222 301,600 (14,378) (4.77)

Other General Expense 31,713 32,200 (487) (1.51)

TOTAL DISTRIBUTION COST 1,349,919 1,635,000 (285,081) (17.44)

ACTUAL TO BUDGET COMPARISON

58







Customer Installation Expense $ 4,123 $ 2,100 $ 2,023 96.33 %

Energy Efficiency Rebates 482,007 375,000 107,007 28.54

Advertising 9,783 13,500 (3,717) (27.53)

Outside Services 25,762 22,000 3,762 17.10

Travel 4,530 4,000 530 13.25

Insurance 74 50 24 48.00

Employees' Welfare 1,901 600 1,301 216.83

Other General Expense 3,000 2,000 1,000 50.00

TOTAL DEMAND SIDE

MANAGEMENT 531,180 419,250 111,930 26.70


Customer Records and Collection Salaries 194,460 196,200 (1,740) (0.89)

Meter Reading Salaries 40,201 33,500 6,701 20.00

Customer Installation Expense Salaries 86,037 84,300 1,737 2.06

General Office Expense 143,500 173,500 (30,000) (17.29)


Outside Services 25,682 25,600 82 0.32


AND INFORMATION 609,763 639,000 (29,237) (4.58)


Salaries of Executives 267,494 271,200 (3,706) (1.37)

General Office Salaries 146,291 150,300 (4,009) (2.67)

General Office Expense 74,477 71,500 2,977 4.16

Insurance 12,073 20,300 (8,227) (40.53)



Travel 22,161 20,000 2,161 10.81

Other General Expense 226,926 259,700 (32,774) (12.62)


AND GENERAL 974,932 1,004,700 (29,768) (2.96)

DEPRECIATION 3,037,058 3,067,355 (30,297) (0.99)

TOTAL OPERATING EXPENSE 47,079,578 46,764,205 315,373 0.67

OPERATING INCOME 3,057,698 2,774,550 283,148 10.21


59







Construction $ 20,389 $ 13,000 $ 7,389 56.84 %

Investment Income 404,880 384,200 20,680 5.38

Build America Bonds Federal Credit 42,400 41,900 500 1.19

Change in Fair Market Value of Investments (241,093) - (241,093) -

Penalties Collected 56,997 62,200 (5,203) (8.36)

Lease and Rental Income 114 - 114 -

Miscellaneous Income 423,967 305,500 118,467 38.78

Nonoperating Pension Grant Revenue 10,443 - 10,443 -

TOTAL NONOPERATING REVENUES 718,097 806,800 (88,703) (10.99)


Interest Expense 678,596 717,600 (39,004) (5.44)

Amortization of Deferred Charges 12,900 23,800 (10,900) (45.80)

Uncollectible Accounts 36,249 48,400 (12,151) (25.11)

Nonoperating Pension Expense 194,772 - 194,772 -

TOTAL NONOPERATING EXPENSE 922,517 789,800 132,717 16.80


AND TRANSFERS 2,853,278 2,791,550 61,728 2.21

Transfers to the General Fund, City of Marshall (864,746) (1,346,200) 481,454 (35.76)

CHANGE IN NET POSITION 1,988,532 1,445,350 $ 543,182 37.58 %

NET POSITION, BEGINNING 45,239,652 45,239,652



60


SCHEDULES OF NET POSITION - WATER DEPARTMENT


2016 2015

ASSETS

CAPITAL ASSETS

Water Utility $ 53,938,253 $ 53,381,173


Construction in Progress 970,342 389,854

56,197,515 54,996,475



CURRENT ASSETS

Cash and Cash Equivalents 253,313 -

Investments 4,855,462 5,273,766


Accounts Receivable 877,959 819,556





NONCURRENT ASSETS

RESTRICTED ASSETS








NET DEFERRED CHARGES AND OTHER ASSETSTOTAL NONCURRENT ASSETS 2,718,203 2,995,366

TOTAL ASSETS 35,638,037 36,487,414



61


SCHEDULES OF NET POSITION- WATER DEPARTMENT


2016 2015

LIABILITIES

LONG TERM DEBT








Series 2007B Revenue Bonds - 3,520,000



LESS UNAMORTIZED REFUNDED BOND DISCOUNTS (48,841) (54,516)


CURRENT LIABILITIES


Checks Issued in Excess of Bank Balance - 11,215

Accounts Payable 87,019 97,985

Due To City of Marshall 785,556 720,312








Net Pension Liability 1,149,722 743,173

TOTAL OTHER NONCURRENT LIABILITIES 1,394,797 964,800




NET POSITION



Unrestricted 4,092,917 4,344,208


62


SCHEDULES OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - WATER DEPARTMENT


2016 2015

CUBIC FEET PUMPED 164,775,112 100.00 % 155,885,161 100.00 %

CUBIC FEET SOLD

Residential 35,703,772 35,689,613

Commercial 13,449,490 12,984,810

Industrial I 95,424,600 83,162,800

Industrial II 12,754,545 17,376,872

TOTAL CUBIC FEET SOLD 157,332,407 95.48 % 149,214,095 95.72 %

DISTRIBUTION LOSS 7,442,705 4.52 % 6,671,066 4.28 %

% OF PER 1,000

OPERATING CU. FT


OPERATING REVENUES

Marshall $ 6,210,316 $ 5,936,660 100.00 % $ 39.47

OPERATING EXPENSE

PRODUCTION COST


Station Labor 177,917 174,784 2.86 1.13

Water Treatment 255,316 239,796 4.11 1.62

Operating Supplies 16,823 9,328 0.27 0.11

Maintenance 267,380 212,153 4.31 1.70

Lime Sludge Disposal 84,242 73,189 1.36 0.54

Power For Pumping 289,262 270,212 4.66 1.84

Conservation Rebates 14,765 15,959 0.24 0.09


Insurance 8,518 11,598 0.14 0.05



TOTAL PRODUCTION COST 1,353,078 1,270,528 21.80 8.60

PURCHASED WATER 279,707 350,377 4.50 1.78

DISTRIBUTION COST

Operations Supervision 43,782 40,085 0.70 0.28


Maintenance of Mains 536,246 571,937 8.63 3.41


Outside Services 2,320 113 0.04 0.01

Travel 2,369 1,710 0.04 0.02

Insurance 23,098 39,843 0.37 0.15



TOTAL DISTRIBUTION COST 804,692 840,661 12.95 5.11


Customer Records and Collection Salaries 83,331 84,966 1.34 0.53

Meter Reading Salaries 29,665 26,269 0.48 0.19





AND INFORMATION 238,868 240,327 3.85 1.52

63


SCHEDULES OF REVENUES, EXPENSES AND CHANGES IN NET POSTION - WATER DEPARTMENT


% OF PER 1,000

OPERATING CU. FT




Salaries of Executives $ 112,307 $ 107,239 1.81 % $ 0.71

General Office Salaries 62,686 61,411 1.01 0.40


Insurance 3,902 3,919 0.06 0.02



Travel 8,763 4,862 0.14 0.06



AND GENERAL 396,022 346,595 6.37 2.52

DEPRECIATION 1,750,369 2,073,649 28.18 11.13

TOTAL OPERATING EXPENSE 4,822,736 5,122,137 77.65 30.65

OPERATING INCOME 1,387,580 814,523 22.35 8.82



Construction 14,327 157,996 0.23 0.09

Investment Income 125,718 159,300 2.02 0.80

Build America Bonds Federal Credit 23,867 25,203 0.38 0.15

Change in Fair Market Value of Investments (57,322) (75,723) (0.92) (0.36)

Penalties Collected 21,799 23,063 0.35 0.14

Lease and Rental Income 32,328 32,328 0.52 0.21

Connection Fees 2,265 2,725 0.04 0.01

Miscellaneous Income 52,387 62,660 0.84 0.33

Nonoperating Pension Grant Revenue 4,476 - 0.07 0.03

TOTAL NONOPERATING REVENUES 219,845 387,552 3.53 1.40

NONOPERATING EXPENSES

Interest Expense 603,208 665,268 9.71 3.83

Amortization of Deferred Charges 5,226 13,178 0.08 0.03

Uncollectible Accounts 3,274 8,014 0.05 0.02

Nonoperating Pension Expense 83,474 14,469 1.34 0.53

TOTAL NONOPERATING EXPENSES 695,182 700,929 11.18 4.42


AND TRANSFERS 912,243 501,146 14.70 % $ 5.80


CHANGE IN NET POSTION 912,243 659,151



PRIOR PERIOD ADJUSTMENT (GASB 68) - (713,037)


AS RESTATED 14,834,157 14,175,006

NET POSTION, ENDING $ 15,746,400 $ 14,834,157

64


SCHEDULES OF CASH FLOWS - WATER DEPARTMENT


2016 2015





Cash Paid to Employees for Operating Activities (885,852) (892,713)




Payments for Property and Equipment (1,260,124) (1,719,444)






Interest Paid (633,454) (699,307)

NET CASH PROVIDED BY (USED IN) CAPITAL AND RELATED







NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 708,847 1,094,134

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 253,313 (227,811)

CASH AND CASH EQUIVALENTS, BEGINNING - 227,811

CASH AND CASH EQUIVALENTS, ENDING $ 253,313 $ -

65


SCHEDULES OF CASH FLOWS - WATER DEPARTMENT


2016 2015



Operating Income $ 1,387,580 $ 814,523



Depreciation 1,750,369 2,073,649

Capital Asset Activity Included in Payables and Accruals - 67,346

(Increase) Decrease in Accounts Receivable (58,403) (30,373)

(Increase) Decrease in Due From City of Marshall 11,664 (21,519)





Increase (Decrease) in Accrued Salaries Payable (6,062) (27,704)

Increase (Decrease) in Customer and Lease Deposits (15,461) (300)

Increase (Decrease) in Accrued Sick Leave 19,761 14,477

Increase (Decrease) in Post Employment Benefit Obligation 3,687 3,220




FINANCING

Developers Contributions of Water Mains $ - $ 158,005


66


SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - WATER DEPARTMENT



OPERATING REVENUES

Marshall $ 6,210,316 $ 5,834,100 $ 376,216 6.45 %

OPERATING EXPENSE

PRODUCTION COST

Operating Supervision 52,582 52,900 (318) (0.60)

Station Labor 177,917 179,700 (1,783) (0.99)

Water Treatment 255,316 258,800 (3,484) (1.35)

Operating Supplies 16,823 15,800 1,023 6.47

Maintenance 267,380 260,700 6,680 2.56

Lime Sludge Disposal 84,242 72,000 12,242 17.00

Power For Pumping 289,262 298,500 (9,238) (3.09)

Conservation Rebates 14,765 15,000 (235) (1.57)


Insurance 8,518 14,800 (6,282) (42.45)



TOTAL PRODUCTION COST 1,353,078 1,350,500 2,578 0.19

PURCHASED WATER 279,707 366,000 (86,293) (23.58)

DISTRIBUTION COST

Operating Supervision 43,782 43,500 282 0.65

Maintenance Supervision 53,274 55,500 (2,226) (4.01)

Maintenance of Mains 536,246 570,100 (33,854) (5.94)

Equipment Maintenance 41,925 40,900 1,025 2.51

Outside Services 2,320 - 2,320 -

Travel 2,369 3,400 (1,031) (30.32)

Insurance 23,098 47,700 (24,602) (51.58)


Other General Expense 6,362 5,000 1,362 27.24

TOTAL DISTRIBUTION COST 804,692 859,200 (54,508) (6.34)


Customer Records and Collection Salaries 83,331 84,100 (769) (0.91)

Meter Reading Salaries 29,665 27,400 2,265 8.27

General Office Expense 65,923 76,100 (10,177) (13.37)




AND INFORMATION 238,868 251,200 (12,332) (4.91)


Salaries of Executives 112,307 113,400 (1,093) (0.96)

General Office Salaries 62,686 64,200 (1,514) (2.36)

General Office Expense 3,762 4,500 (738) (16.40)

Insurance 3,902 6,000 (2,098) (34.97)



Travel 8,763 5,200 3,563 68.52



AND GENERAL 396,022 389,650 6,372 1.64

DEPRECIATION 1,750,369 1,816,000 (65,631) (3.61)

TOTAL OPERATING EXPENSE 4,822,736 5,032,550 (209,814) (4.17)

OPERATING INCOME 1,387,580 801,550 586,030 73.11


67


SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - WATER DEPARTMENT





Construction $ 14,327 $ 27,100 $ (12,773) (47.13) %

Investment Income 125,718 138,000 (12,282) (8.90)

Build America Bonds Federal Credit 23,867 23,600 267 1.13

Change in Fair Market Value of Investments (57,322) - (57,322) -

Penalties Collected 21,799 24,300 (2,501) (10.29)

Lease and Rental Income 32,328 32,300 28 0.09

Connection Fees 2,265 3,700 (1,435) (38.78)

Miscellaneous Income 52,387 65,600 (13,213) (20.14)

Nonoperating Pension Grant Revenue 4,476 - 4,476 -

TOTAL NONOPERATING REVENUES 219,845 314,600 (94,755) (30.12)

NONOPERATING EXPENSES

Interest Expense 603,208 624,600 (21,392) (3.42)

Amortization of Deferred Charges 5,226 13,200 (7,974) (60.41)

Uncollectible Accounts 3,274 8,100 (4,826) (59.58)

Nonoperating Pension Expense 83,474 - 83,474 -

TOTAL OTHER EXPENSES 695,182 645,900 49,282 7.63

CHANGE IN NET POSITION 912,243 470,250 $ 441,993 93.99 %

NET POSITION, BEGINNING 14,834,157 14,834,157

NET POSTION, ENDING $ 15,746,400 $ 15,304,407


68

OTHER SUPPLEMENTARY FINANCIAL INFORMATION


OPERATING STATISTICS - ELECTRIC DEPARTMENT


2016 ANALYSIS OF REVENUE PER K.W.H. SOLD

Amount Average % To Total Meters In

K.W.H. Billed Per K.W.H. K.W.H. Amount Service

Residential 35,757,787 $ 3,949,201 $ 0.1104 6.25 % 8.28 % 3,789

Residential All Electric 21,801,290 2,148,366 0.0985 3.81 4.50 1,650

Residential Interruptible 2,186,793 190,688 0.0872 0.38 0.40 119

Commercial Electric 34,099,601 3,726,121 0.1093 5.96 7.81 945

Commercial Interruptible 485,811 32,689 0.0673 0.08 0.07 13

Demand Metered - Small 38,462,824 4,446,081 0.1156 6.72 9.32 68

Demand Interruptible - Small 2,633,720 261,984 0.0995 0.46 0.55 6

Demand Metered - Large 85,483,450 7,371,131 0.0862 14.93 15.46 12

Demand Interruptible - Large 21,279,900 1,271,150 0.0597 3.72 2.67 4

Industrial 329,056,000 24,012,838 0.0730 57.48 50.35 1

TOTAL 571,247,176 47,410,249 0.0830 99.79 99.41 6,607

Street Lights 1,252,239 281,172 0.2245 0.21 0.59

TOTAL SALES 572,499,415 $ 47,691,421 0.0833 100.00 % 100.00 %

2015 ANALYSIS OF REVENUE PER K.W.H. SOLD


K.W.H. Billed Per K.W.H. K.W.H. Amount Service

Residential 35,010,463 $ 3,939,699 $ 0.1125 5.96 % 7.98 % 3,779

Residential All Electric 21,933,505 2,147,953 0.0979 3.73 4.35 1,646

Residential Interruptible 2,173,533 190,765 0.0878 0.37 0.39 120

Commercial Electric 34,746,859 3,817,712 0.1099 5.91 7.74 939

Commercial Interruptible 462,159 30,996 0.0671 0.08 0.06 13

Demand Metered - Small 36,350,479 4,305,723 0.1185 6.19 8.72 65

Demand Interruptible - Small 2,981,890 300,118 0.1006 0.51 0.61 7

Demand Metered - Large 90,436,950 7,960,091 0.0880 15.39 16.13 12

Demand Interruptible - Large 21,564,400 1,293,807 0.0600 3.67 2.62 4

Industrial 340,606,000 25,086,944 0.0737 57.98 50.83 1

TOTAL 586,266,238 49,073,808 0.0837 99.79 99.43 6,586

Street Lights 1,219,002 281,172 0.2307 0.21 0.57

TOTAL SALES 587,485,240 $ 49,354,980 0.0840 100.00 % 100.00 %

69


OPERATING STATISTICS - ELECTRIC DEPARTMENT


Name Plate

Unit Started Unit Size And Type Unit

Number Operation General Electric Gas Turbine Capacity

6 1969 21,176 K.W.

2016

Accredited Running Unit

Unit Unit K.W.H. Hours In Capacity Gallons Of K.W.H.

Number Capacity Generated Operation Factor Fuel Used Per Gallon

6 15,600 97,000 6.13 101.43 % 10,641 9.12

ANNUAL MAXIMUM 30 MINUTE PEAK DEMAND 83,428

ANNUAL SYSTEM LOAD FACTOR 82.53%

2015

Accredited Running Unit

Unit Unit K.W.H. Hours In Capacity Gallons Of K.W.H.

Number Capacity Generated Operation Factor Fuel Used Per Gallon

6 15,600 85,000 5.45 99.98 % 8,680 9.79

ANNUAL MAXIMUM 30 MINUTE PEAK DEMAND 83,330

ANNUAL SYSTEM LOAD FACTOR 82.26%

70


OPERATING STATISTICS - WATER DEPARTMENT


2016 ANALYSIS OF REVENUE PER CUBIC FOOT SOLD


Cubic Feet Billed Per Cu. Ft Cu. Ft Amount Service

Residential 35,703,772 $ 2,054,558 $ 0.0575 22.69 % 33.08 % 4,113Commercial 13,449,490 650,048 0.0483 8.55 10.47 511Industrial I 95,424,600 2,937,263 0.0308 60.65 47.30 104Industrial II 12,754,545 387,664 0.0304 8.11 6.24 1 TOTAL 157,332,407 6,029,533 0.0383 100.00 97.09 4,729

Fire Protection Unmeasured 180,783 2.91

TOTAL SALES 157,332,407 $ 6,210,316 0.0395 100.00 % 100.00 %

2015 ANALYSIS OF REVENUE PER CUBIC FOOT SOLD


Cubic Feet Billed Per Cu. Ft Cu. Ft Amount Service

Residential 35,689,613 $ 2,023,250 $ 0.0567 23.92 % 34.08 % 4,097

Commercial 12,984,810 631,612 0.0486 8.70 10.64 499

Industrial I 83,162,800 2,594,364 0.0312 55.73 43.70 104

Industrial II 17,376,872 507,361 0.0292 11.65 8.55 1

TOTAL 149,214,095 5,756,587 0.0386 100.00 96.97 4,701

Fire Protection Unmeasured 180,073 3.03

TOTAL SALES 149,214,095 $ 5,936,660 0.0398 100.00 % 100.00 %

71


SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

Original Unrealized Fair

Cost Gain (Loss) Value

Investments

Wells Capital Management

Electric Unrestricted Designated Investments

US Treasury Notes $ 3,582,259 $ (77,999) $ 3,504,260

Federal Agency Bonds and Notes 838,356 (36,592) 801,764

Federal Agency Mortgage Pools 380,178 (7,575) 372,603

Mortgage Backed Securities 121,205 4,799 126,004

Municipal Bonds 4,723,988 5,935 4,729,923

Money Market Account 177,191 - 177,191

Total Electric Unrestricted Designated Investments 9,823,177 (111,432) 9,711,745

Total Wells Capital Management 9,823,177 (111,432) 9,711,745

Bremer Trust, N.A.

Electric Bond Escrow Money Market Account 1,262,012 - 1,262,012

Water Bond Escrow Money Market Account 1,147,131 - 1,147,131

Total Bond Escrow Accounts 2,409,143 - 2,409,143

Electric Debt Service Fund

US Treasury Notes 1,024,272 (9,781) 1,014,491


Federal Agency Mortgage Pools 128,754 (221) 128,533

Municipal Bonds 605,000 8,288 613,288


Total Electric Debt Service Fund 2,668,630 (13,524) 2,655,106

Water Debt Service Fund

US Treasury Notes 546,221 (19,050) 527,171


Federal Agency Mortgage Pools 40,271 (1,548) 38,723

Municipal Bonds 600,000 4,909 604,909


Total Water Debt Service Fund 1,555,008 (28,044) 1,526,964

Electric Unrestricted Designated Account

US Treasury Notes 3,805,851 (22,712) 3,783,139

Federal Agency Bonds and Notes 4,722,070 (61,087) 4,660,983

Federal Agency Mortgage Pools 302,195 12,962 315,157

Municipal Bonds 1,306,463 9,638 1,316,101


Total Electric Unrestricted Designated Investments 11,073,432 (61,199) 11,012,233

Water Unrestricted Designated Investments

US Treasury Notes 1,102,772 22,275 1,125,047

Federal Agency Bonds and Notes 1,628,649 (18,801) 1,609,848

Federal Agency Mortgage Pools 377,860 13,172 391,032

Municipal Bonds 1,300,383 1,116 1,301,499


Total Water Unrestricted Designated Investments 4,837,700 17,762 4,855,462

Total Bremer Trust, N.A. 22,543,913 (85,005) 22,458,908

Total Investments $ 32,367,090 $ (196,437) $ 32,170,653

Investment Accounts on the Statement of Net Position

Total Restricted Assets $ 6,591,213

Investments 25,579,440

Total $ 32,170,653

72


SCHEDULES OF MATERIAL AND SUPPLY INVENTORIES


2016 2015

Electric Distribution Supplies $ 462,366 $ 419,060

Turbine Fuel 64,424 83,610

Chemical Supplies 22,666 19,537

Water Distribution Supplies 144,380 142,400

TOTAL $ 693,836 $ 664,607

73


SCHEDULE OF INSURANCE COVERAGE

DECEMBER 31, 2016

Policy Number

& Coverage Policy Policy Annual

Amount Date Expires Premium

Hartford Steam Boiler Company FBP-2217424 10-01-16 10-01-17 $ 39,829

Boiler and Machinery $39,772,000

League of MN Cities Insurance Trust CMC 39552 10-01-16 10-01-17 7,411

Bodily Injury - Automobile $2,000,000

Property Damage - Automobile

League of MN Cities Insurance Trust MEL-8994 10-01-16 10-01-17 14,620

Excess Liability $1,000,000

League of MN Cities Insurance Trust CMC 39552 10-01-16 10-01-17 86,323

Property $79,461,825

General Liability

League of MN Cities Insurance Trust 02-000368-31 01-01-16 01-01-17 53,086

Workers Compensation Statutory

Rudnik Surety Inc CPP1902050 03-07-16 03-07-17 792

Employee Dishonesty $325,000/Occurrence

Forgery or Alteration $200,000/Occurrence

Total Insurance Premiums $ 202,061

74


SCHEDULE OF INVESTMENT IN UTILITY PLANT


Additions Retirements Net

Electric Utility

Station Load Management Equipment $ 3,158 $ 3,158

Station Equipment - Distribution 812,175 812,175

Underground Line 658,109 $ 139,238 518,871

Line Transformers 70,403 3,385 67,018

Fiber Optic Lines 106,758 - 106,758

Customers Electric Meters 19,233 6,436 12,797

Street Lighting 136,314 1,025 135,289

Load Management Receivers 8,309 - 8,309

Structure Improvements 32,650 - 32,650

Office Equipment and Furniture 11,162 - 11,162

Transportation Equipment 53,986 41,621 12,365

Tools and Work Equipment 5,199 7,667 (2,468)

Power Operated Equipment 2,221 - 2,221

Communication Equipment - IT 38,139 - 38,139

Misc Equipment 22,652 - 22,652

Total Electric Utility Additions 1,980,468 199,372 1,781,096

Water Utility

Distribution Mains 557,810 67,842 489,968

Water Meters 18,252 - 18,252

Land 48,861 - 48,861

Structures and Improvements 27,068 - 27,068

Office Equipment and Furniture 4,784 - 4,784

Transportation Equipment 30,295 22,415 7,880

Tools and Work Equipment 3,720 - 3,720

Power Operated Equipment 3,604 - 3,604

Communication Equipment - IT 16,417 - 16,417

Total Water Utility Additions 710,811 90,257 620,554

Net Utility Plant Additions 2,401,650

Increase (Decrease) in Construction in Progress (226,427)

Net Additions $ 2,175,223

75


SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

DECEMBER 31, 2016

Original Depreciation Depreciated

Cost Allowance Value

Electric Production Plant

Land $ 36,691 $ 36,691

Engines 2,120,212 $ 1,868,130 252,082

Generators 41,570 41,570 -

Load Management Equipment 625,200 625,200 -

Total Electric Production 2,823,673 2,534,900 288,773

Electric Transmission System

Station Equipment 6,153,964 1,714,954 4,439,010

Poles and Fixtures 10,250,406 7,254,177 2,996,229

Total Transmission System 16,404,370 8,969,131 7,435,239

Electric Distribution System

Substations 10,890,284 4,813,783 6,076,501

Poles, Fixtures and Towers 499,676 62,917 436,759

Underground Line 32,412,045 10,119,689 22,292,356

Line Transformers 4,335,813 3,406,247 929,566

Customer Services 215,399 215,399 -

Fiber Optic Lines 1,289,535 277,638 1,011,897

Customer Electric Meters 962,287 740,324 221,963

Street Lighting 3,300,655 2,272,236 1,028,419

Load Management Receivers 512,188 512,188 -

Total Electric Distribution System 54,417,882 22,420,421 31,997,461

Transportation And General

Land 242,311 - 242,311

Structures and Improvements 4,200,146 3,042,652 1,157,494

Office Furniture and Equipment 949,470 891,074 58,396

Transportation Equipment 1,418,870 1,180,502 238,368

Storage Equipment 62,687 62,687 -

Tools and Work Equipment 712,050 618,658 93,392

Power Operated Equipment 484,844 419,066 65,778

Communication Equipment 255,687 217,905 37,782

Communication Equipment - IT 215,521 89,165 126,356

Miscellaneous Equipment 75,890 45,142 30,748

Total Transportation And General 8,617,476 6,566,851 2,050,625

Water Utility

Land 291,817 - 291,817

Pump Houses 26,860 13,970 12,890

Wells 2,780,855 1,754,524 1,026,331

Pumping Equipment 70,674 70,674 -

Transmission Mains 16,591,099 4,904,778 11,686,321

Water Storage 2,747,050 2,747,050 -

Distribution Mains 17,416,358 5,042,226 12,374,132

Filtration Plant 13,370,137 13,370,137 -

Customer Water Meters 592,572 592,572 -

Water Hydrants 50,831 50,831 -

Total Water Utility 53,938,253 28,546,762 25,391,491

Construction in Progress 1,125,602 - 1,125,602

Total Property, Plant And Equipment $ 137,327,256 $ 69,038,065 $ 68,289,191

76


SCHEDULE OF FIRE PROTECTION COSTS

DECEMBER 31, 2016

ALLOCATION OF ANNUAL EXPENSECHARGEABLE TO FIRE PROTECTION

Annual Expense Fire Protection

Source of Supply Operation

Power for Pumping $ 289,262 2 % $ 5,785

Water Station Labor 177,917 2 3,558

Pumping Maintenance

Water Plant Maintenance 142,145 2 2,843

Transmission And Distribution

(Supervision And Engineering)

Operating Supervision 149,639 10 14,964

Maintenance of Mains 474,720 25 118,680

Water Distribution Maintenance Labor 153,402 25 38,351

Hydrant Maintenance 9,866 100 9,866

Equipment Maintenance 41,926 5 2,096

Station Supplies and Expense 16,823 5 841

Insurance 31,616 25 7,904

Employees' Welfare 213,728 10 21,373

Customer Service And Information

Customer Records and Collection Salaries 83,331 10 8,333

Employees' Welfare 48,942 2 979

Administration And General

Salaries of Executives 112,307 10 11,231

Water Office Salaries 62,686 10 6,269

Insurance 3,902 2 78

Employees' Welfare 69,507 2 1,390

TOTAL ANNUAL EXPENSE $ 2,081,719 $ 254,541

Annual Fire Protection

Capital Cost Capital Cost

Transmission And Distribution

Depreciation on Wells $ 132,091 2 % $ 2,642

Depreciation on Water Tower and Tank - 50 -

Depreciation on Transmission Mains 231,397 10 23,140

Depreciation on Distribution Mains 686,205 10 68,621

Depreciation on Water Hydrants - 100 -

Depreciation on Transportation Equipment 24,312 5 1,216

Depreciation on Tools and Power Equipment 18,891 5 945

TOTAL ANNUAL CAPITAL COST $ 1,092,896 $ 96,564

Total Fire Protection Expense $ 254,541

Total Fire Protection Capital Cost 96,564

$ 351,105

Payments Received For Fire Protection

City of Marshall $ 145,000

Private Parties 35,783

$ 180,783

Net Income (Loss) $ (170,322)

Percentage allocations are taken from the American Water

Works Association's Manual of Water Supply Practices.

ALLOCATION OF ANNUAL CAPITAL COST

CHARGEABLE TO FIRE PROTECTION

77


COMPARATIVE STATISTICS

DECEMBER 31, 2016

Electric Water

Total Department Department

2016 Sales Units 572,499,415 K.W.H. 157,332,407 Cu. Ft.

2015 Sales Units 587,485,240 K.W.H. 149,214,095 Cu. Ft.

Increase (Decrease) (14,985,825) K.W.H. 8,118,312 Cu. Ft.

% Increase (Decrease) (2.55) % 5.44 %

2016 Sales $ 53,901,737 $ 47,691,421 $ 6,210,316

2015 Sales $ 55,291,640 $ 49,354,980 $ 5,936,660

Increase (Decrease) $ (1,389,903) $ (1,663,559) $ 273,656

% Increase (Decrease) (2.51) % (3.37) % 4.61 %

2016 Operating Expense $ 51,902,314 $ 47,079,578 $ 4,822,736

2015 Operating Expense $ 53,727,115 $ 48,604,978 $ 5,122,137

Increase $ (1,824,801) $ (1,525,400) $ (299,401)

% Increase (3.40) % (3.14) % (5.85) %

2016 Net Operating Revenue $ 4,445,278 $ 3,057,698 $ 1,387,580

2015 Net Operating Revenue $ 3,931,780 $ 3,117,257 $ 814,523

Increase (Decrease) $ 513,498 $ (59,559) $ 573,057

% Increase (Decrease) 13.06 % (1.91) % 70.35 %

2016 Residential Sales Units 59,745,870 K.W.H. 35,703,772 Cu. Ft.

2015 Residential Sales Units 59,117,501 K.W.H. 35,689,613 Cu. Ft.

Increase (Decrease) 628,369 K.W.H. 14,159 Cu. Ft.

% Increase (Decrease) 1.06 % 0.04 %

2016 Commercial/Industrial Sales Units 511,501,306 K.W.H. 121,628,635 Cu. Ft.

2015 Commercial/Industrial Sales Units 527,148,737 K.W.H. 113,524,482 Cu. Ft.

Increase (Decrease) (15,647,431) K.W.H. 8,104,153 Cu. Ft.

% Increase (Decrease) (2.97) % 7.14 %

78


COMPARATIVE STATISTICS

DECEMBER 31, 2016

Electric Water

Total Department Department

2016 Salaries $ 3,030,164 $ 2,126,926 $ 903,238

2016 Sales $ 53,901,737 $ 47,691,421 $ 6,210,316

Sales to Labor 5.62 % 4.46 % 14.54 %

2015 Salaries $ 2,954,123 $ 2,071,417 $ 882,706

2015 Sales $ 55,291,640 $ 49,354,980 $ 5,936,660

Sales to Labor 5.34 % 4.20 % 14.87 %

2016 Sales $ 53,901,737 $ 47,691,421 $ 6,210,316

2016 Net Income $ 3,765,521 $ 2,853,278 $ 912,243

% of Return 6.99 % 5.98 % 14.69 %

2015 Sales $ 55,291,640 $ 49,354,980 $ 5,936,660

2015 Net Income $ 3,377,628 $ 2,876,482 $ 501,146

% of Return 6.11 % 5.83 % 8.44 %

2016 Net Utility Plant $ 68,289,191 $ 41,644,203 $ 26,644,988

2016 Net Income $ 3,765,521 $ 2,853,278 $ 912,243

% of Return 5.51 % 6.85 % 3.42 %

2015 Net Utility Plant $ 70,658,411 $ 43,554,351 $ 27,104,060

2015 Net Income $ 3,377,628 $ 2,876,482 $ 501,146

% of Return 4.78 % 6.60 % 1.85 %

2016 Bad Debt Expense $ 39,523 $ 36,249 $ 3,274

2016 Sales $ 53,901,737 $ 47,691,421 $ 6,210,316

Sales to Bad Debts 0.07 % 0.08 % 0.05 %

2015 Bad Debt Expense $ 54,026 $ 46,012 $ 8,014

2015 Sales $ 55,291,640 $ 49,354,980 $ 5,936,660

Sales to Bad Debts 0.10 % 0.09 % 0.13 %

2016 Average Net Assets $ 61,524,197 $ 46,233,918 $ 15,290,279

2016 Net Income $ 3,765,521 $ 2,853,278 $ 912,243

% of Return 6.12 % 6.17 % 5.97 %

2015 Average Net Assets $ 59,912,353 $ 45,051,253 $ 14,861,100

2015 Net Income $ 3,377,628 $ 2,876,482 $ 501,146

% of Return 5.64 % 6.38 % 3.37 %

79


ELECTRIC DEPARTMENT

FINANCIAL RATIOS COMPARED TO 2015 APPA DATA

DECEMBER 31, 2016

APPA

5,000 - 10,000

Customers

2015 Data 2016 2015

Debt to Total Assets - (the lower the ratio the better)

Total Assets $ 71,771,406 $ 71,891,822

Total Liabilities $ 25,344,061 $ 26,688,726

Debt to Assets 0.162 0.353 0.371

Current Ratio - (The higher the ratio the better)

Total Current Assets $ 26,156,490 $ 23,750,172

Total Current Liabilities $ 5,714,301 $ 6,267,524

Current Ratio 2.68 4.58 3.79

Times Interest Earned - (The higher the ratio the better)

Net Income plus Interest on Long-Term Debt $ 2,667,128 $ 2,846,864

Interest Expense $ 678,596 $ 806,312

Times Interest Earned 5.54 3.93 3.53

Debt Service Coverage - (The higher the ratio the better)

Net Revenues available for Debt Service $ 6,937,835 $ 6,822,922

Total Long-Term Debt Paid $ 3,189,446 $ 3,832,962

Debt Service Coverage 4.49 2.18 1.78

The ratio is calculated by dividing total liabilities by total assets. This ratio measures a utility's ability to meet its current and

long-term liabilities based on availability of assets. If the ratio is less than one, most of the assets are financed through equity.

The ratio of total current assets to total current liabilities. This is a measure of the utlity's short-term liquidity. The current

ratio takes a snapshot of the utility's liquidity at a point in time and thus may vary considerably at other times of the year.

The ratio of net electric utility income plus interest paid on long-term debt, to interest on long-term debt. This ratio measures

the ability of a utility to cover interest charges and is indicative of the safety margin to lenders.

This ratio reflects net revenues available for debt service to long-term debt service for the year. This ratio measures the utility's

ability to meet its annual long-term debt obligation. Net revenue available for debt service equal net electric utility income

plus electric utility non-operating income plus depreciation. Debt service includes principal on long-term debt and interest

expense. Bond covenants require a 1.25 minimum coverage. This is an important ratio to bond holders and rating agencies.

80

REPORTS



81 507 532 5735 Fax 537 0696

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



We have audited, in accordance with the auditing standards generally accepted in the United States of America and the

standards applicable to the financial audits contained in Government Auditing Standards issued by the Comptroller

General of the United States, the financial statements of Marshall Municipal Utilities, an autonomous enterprise fund of

the City of Marshall, Minnesota, as of and for the year ended December 31, 2016, and the related notes to the financial

statements, which collectively comprise Marshall Municipal Utilities’ basic financial statements, and have issued our

report thereon dated April 5, 2017.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered Marshall Municipal Utilities’ internal

control over financial reporting (internal control) to determine the audit procedures that are appropriate in the

circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of

expressing an opinion on the effectiveness of Marshall Municipal Utilities’ internal control. Accordingly, we do not

express an opinion on the effectiveness of Marshall Municipal Utilities’ 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 a 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.


82

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Marshall Municipal Utilities' 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

results of that testing, and not to provide an opinion on the effectiveness of the entity’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 entity’s internal control and compliance. Accordingly, this communication is not suitable for any other

purpose.



Marshall, Minnesota

April 5, 2017



83 507 532 5735 Fax 537 0696

INDEPENDENT AUDITOR'S REPORT ON

MINNESOTA LEGAL COMPLIANCE



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 Marshall Municipal Utilities, an autonomous enterprise fund of

the City of Marshall, Minnesota as of and for the year ended December 31, 2016, and the related notes to the financial

statements, which collectively comprise Marshall Municipal Utilities’ basic financial statements, and have issued our

report thereon dated April 5, 2017.

The Minnesota Legal Compliance Audit Guide for Cities, 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 with the provisions for tax

increment financing because this provision does not apply to Marshall Municipal Utilities.

In connection with our audit, nothing came to our attention that caused us to believe that Marshall Municipal Utilities

failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities. 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 Marshall Municipal Utilities’

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.



Marshall, Minnesota

April 5, 2017


Documents

MARSHALL MUNICIPAL UTILITIES AUDIT REPORT FOR THE …adopted new accounting guidance by implementing the provisions of Governmental Accounting Standards Board (GASB) Statement No