HomeMy WebLinkAboutLBWL Board of Water and Light Financial Statement June 30 2016 S 1 �G
Chris Swope
Lansing City Clerk
rcHIG
October 7, 2016
City Council President and Lansing City Councilmembers
10th Floor City Hall
Lansing, MI 48933
Dear President and Councilmembers:
Pursuant to Article 5, Chapter 2, Section 5-203.6 of the Lansing City Charter, on
September 28, 2015 my office received and placed on file:
Annual Audit of Financial Statements for Fiscal Year Ending June 30, 2016 and 2015
Communication to those Charged with Governance and Management as of and for the
Year Ended June 30, 2016
This document is available for review at the office of the City Clerk and on the City Clerk's
website (www.lansingmi.gov/clerk).
Sincerely,
L
Chris Swope, CIVIC
Lansing City Clerk
Lansing City Clerk's Office
Ninth Floor, City Hall, 124 W. Michigan Ave., Lansing, MI 48933-1695
517-483-4131 • TDD 517-483-4479. 517-377-0068 FAX
www.lansingmi.gov/clerk • clerk@lansingmi.gov
r
Hometown People. Hometown Power.
Board of Water and Light - City of
Lansing, Michigan
Financial Report
with Additional Information
As of and for the Years Ended June 30, 2016
and 2015
Board of Water and Light - City of Lansing, Michigan
Contents
Independent Auditor's Report 1 -2
Required Supplemental Information
Management's Discussion and Analysis 3-5
Basic Financial Statements
Statements of Net Position 6-7
Statements of Revenues, Expenses, and Changes in Net Position 8
Statements of Cash Flows 9-10
Pension Trust Funds - Statements of Net Position 1 1
Pension Trust Funds - Statements of Changes in Net Position 12
Notes to Financial Statements 1 3-61
Required Supplemental Information 62
Defined Benefit Plan Schedule 63-64
Retiree Benefit Plan and Trust Schedule 65
Additional Information 66
Income Available for Revenue Bond Debt Retirement 67
Detail of Statements of Revenues and Expenses 68-69
Detail of Statements of Changes in Net Position 70
Pension Trust Funds - Detail of Statements of Net Position 71
Pension Trust Funds - Detail of Statement of Changes in Net
Position 72-73
BAKER T I L LY
Baker Tilly Virchow Krause,LLP
Ten Terrace Ct,PO Box 7398
Madison,WI 53707-7398
tel 608 249 6622
fax 608 249 8532
bakertilly.com
INDEPENDENT AUDITORS' REPORT
To the Honorable Mayor, Members of
the City Council, and Commissioners
Lansing Board of Water and Light
City of Lansing, Michigan
Report on the Financial Statements
We have audited the accompanying financial statements of the Lansing Board of Water and Light and its
fiduciary funds, as of and for the year ended June 30, 2016, and the related notes to the financial statements,
which collectively comprise the Lansing Board of Water and Light's basic financial statements as listed in the
table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors'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. 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 auditors'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 Lansing Board of Water and Light'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
Lansing Board of Water and Light'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.
B� dadr mme o�
AKER TILLY Page 1
INTERNATIONAL
To the Honorable Mayor, Members of the City Council, and Commissioners
Lansing Board of Water and Light
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Lansing Board of Water and Light and its fiduciary funds as of June 30, 2016, and the respective
changes in financial position and cash flows thereof for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
Prior Period Financial Statements
The financial statements of the Lansing Board of Water and Light and its fiduciary funds, as of and for the year
ended June 30, 2015, were audited by other auditors whose report dated August 31, 2015, expressed an
unmodified opinion on those statements.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that 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 and other auditors 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.
Additional Information
Our audit was conducted for the purpose of forming opinions on the financial statements as a whole. The
additional information as listed in the table of contents are presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information is the responsibility of management and
was derived from and relates directly to the underlying accounting and other records used to prepare the basic
financial statements. The fiscal 2016 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 additional information
as of and for the year ended June 30, 2016, is fairly stated in all material respects in relation to the basic financial
statements as a whole. The fiscal 2015 information was subjected to the auditing procedures applied in the audit
of those basic financial statements by other auditors, whose report on such information stated that it was fairly
stated in all material respects in relation to the 2015 basic financial statements as a whole.
?� %VJW �
Madison, Wisconsin
September 6, 2016
Page 2
Board of Water and Light - City of Lansing, Michigan
Management's Discussion and Analysis
This section explains the general financial condition and results of operations for the Lansing
Board of Water and Light (the "BWL"). The BWL includes the consolidated operations of the
electric, water, steam, and chilled water utilities. The notes to financial statements following
this section are essential reading for a complete understanding of the financial and operational
results for the years ended June 30, 2016 and 2015.
Overview of Business
The BWL owns and operates an electric system which generates, purchases, and distributes
electric power and energy and provides electric service to over 96,000 residential, commercial,
and industrial customers in the greater Lansing area. The BWL generated 65 percent of its retail
and wholesale sales from existing generation assets and purchased additional electric
generation through its participation in the MISO markets, membership in the Michigan Public
Power Agency, which includes the BWL's partial ownership of Detroit Edison's Belle River Plant,
and through its landfill gas renewable energy purchase agreement with Granger Electric of
Lansing.
The BWL owns and operates water wells, a raw water transmission system, water conditioning
facilities, and an extensive water distribution system serving potable water to over 56,000
residential, commercial, and industrial customers in the greater Lansing area.
The BWL owns and operates steam generation boilers, a steam transmission and distribution
system serving over 165 customers, and a chilled water facility and distribution piping system
serving 19 customers in the City of Lansing.
Capital Expenditures
Capital expenditures are driven by the need to replace, expand, or maintain the generation,
transmission, and distribution systems of the BWL to meet customer utility needs and to
maintain a satisfactory level of service reliability. The BWL invests essentially all revenues not
paid out for operations and maintenance expense, nonoperating expenses, or debt service back
into capital improvements for the water, electric, steam, and chilled water systems. Gross
capital expenditures were $51 .3 and $65.9 million in fiscal years 2016 and 2015, respectively.
The BWL generally pays the major portion of the cost of its capital improvements from internally
generated funds and a lesser portion from the proceeds of revenue bonds that are issued from
time to time.
Detailed financial information for the separate utilities of water, electric, steam, and chilled
water can be found in the Additional Information section of this financial report.
3
Board of Water and Light - City of Lansing, Michigan
Management's Discussion and Analysis (Continued)
Condensed Financial Information (dollars in millions)
As of June 30 % Change
2016 2015 2014 2015 to 2016
Assets
Utility plant $ 690.7 $ 715.0 $ 699.3 (3.4)
Other assets 342.1 345.1 365.1 (0.9)
Total assets 1,032.8 1,060.1 1,064.4 (2.6)
Deferred Outflows of Resources 3.8 1.0 1.2 280.0
Liabilities
Long-term liabilities 357.4 368.6 383.2 (3.0)
Other liabilities 57.1 65.2 69.5 (12.4)
Total liabilities 414.5 433.8 452.7 (4.4)
Deferred Inflows of Resources 26.0 32.1 30.4 (19.0)
Net Position
Net investment in capital assets 367.1 380.7 345.4 (3.6)
Restricted for debt service 38.3 43.5 65.0 (12.0)
Unrestricted 190.7 171.0 172.2 11.5
Net position $ 596.1 $ 595.2 $ 582.6 0.2
In 2016 the Board approved the closure of the Eckert Power Station by 2020 due to increasing
operational costs, pending environmental regulations, and an uncertain future for coal-fired
plants. As a result, the BWL recorded an impairment of $1 5.8 million.
Depreciation and impairment exceeded the amount of capital expenditures in fiscal year 2016,
thereby decreasing utility plant by $24.3 million.
See Notes to Financial Statements. 4
Board of Water and Light - City of Lansing, Michigan
Management's Discussion and Analysis (Continued)
Condensed Financial Information (dollars in millions) (Continued)
For the Year Ended June 30 % Change
2016 2015 2014 2015 to 2016
Results of Operations
Operating revenues $ 360.9 $ 353.5 $ 348.0 2.1
Operating expenses 306.1 309.0 310.9 (0.9)
Nonoperating expense - Net (53.9) (31.9) (38.4) (69.0)
Changes in Net Position $ 0.9 $ 12.6 $ (1.3) (92.9)
Operating revenues for 2016 increased by $7.4 million primarily as a result of the November
2014 rate increase.
Nonoperating expense (net) increased by $22 million from fiscal year 2015. This was due
primarily to the Eckert Power Station impairment and the write-off of the Customer Care
Initiative (CARE) project.
Budget - The BWL commissioners approved a $294.6 million operating expense budget
(excluding depreciation and impairment) for fiscal year 2016. Actual expenses (excluding
depreciation and impairment) were $264.6 million or 10.2 percent less than budget. The net
capital improvement budget was $65.1 million for fiscal year 2016 and actual net capital
expenditures were approximately $48.7 million.
Financing Activities - For the years ended June 30, 2016 and 2015, there were no significant
financing activities.
See Notes to Financial Statements. 5
Board of Water and Light - City of Lansing, Michigan
Statements of Net Position
As of June 30
2016 2015
Assets
Current Assets
Restricted cash and cash equivalents (Notes 2 and 3) $ 46,586,326 $ 52,752,941
Cash and cash equivalents (Notes 1 and 2) 53,637,717 55,925,376
Investments (Notes 1 and 2) 107,921,202 91,585,641
Accounts receivable- Net(Note 1) 23,168,659 22,014,605
Estimated unbilled accounts receivable (Note 1) 19,526,475 18,280,777
Inventories (Note 1) 25,067,737 25,860,743
Other 3,997,490 3,344,122
Total current assets 279,905,606 269,764,205
Other Assets
Recoverable energy asset(Note 6) 2,302,845 4,652,068
Recoverable environmental remediation (Note 6) 11,483,569 18,616,005
Special deposit(Note 1) 8,535,000 11,380,000
Net pension asset(Note 8) 4,263,990 8,284,230
Other(Note 1) 10,265,098 8,123,949
Total other assets 36,850,502 51,056,252
Noncurrent Restricted Assets (Investments) (Notes 2 and 3) 25,319,385 24,263,950
Utility Plant (Notes 1 and 4)
Water 302,165,777 296,802,952
Electric 774,429,214 804,947,799
Steam 68,557,331 67,510,134
Chilled water 33,998,140 33,622,140
Common facilities 88,752,432 87,132,519
Central Utilities Complex 76,079,000 76,079,000
Total 1,343,981,894 1,366,094,544
Less accumulated depreciation 668,868,675 665,849,130
Net 675,113,219 700,245,414
Construction in progress (Note 9) 15,583,201 14,781,967
Total utility plant 690,696,420 715,027,381
Total assets 1,032,771,913 1,060,111,788
Deferred Outflows of Resources-
Bond refunding loss being amortized 835,838 1,032,273
Net pension deferred outflows (Note 8) 2,930,218 -
Total deferred outflows of resources 3,766,056 1,032,273
See Notes to Financial Statements. 6
Board of Water and Light - City of Lansing, Michigan
Statements of Net Position (Continued)
As of June 30
2016 2015
Liabilities and Net Position
Current Liabilities
Accounts payable $ 28,679,951 $ 32,695,192
Current portion of long-term debt(Note 5) 11,642,389 13,299,345
Accrued payroll and related taxes 1,873,549 2,756,033
Customer deposits 2,304,426 2,678,145
Unearned revenue - 1,127,500
Accrued compensated absences (Note 1) 4,310,921 4,092,441
Accrued interest(payable from restricted assets) 8,284,626 8,547,591
Total current liabilities 57,095,862 65,196,247
Compensated Absences - Less current portion (Note 1) 7,112,200 6,916,286
Other Long-term Liabilities
Workers' compensation 2,200,000 2,200,000
Environmental remediation liability(Note 9) 7,853,780 10,172,203
Other 2,116,412 2,314,711
Total other long-term liabilities 12,170,192 14,686,914
Long-term Debt- Less current portion (Note 5) 338,105,373 347,044,294
Total liabilities 414,483,627 433,843,741
Deferred Inflows of Resources
Recoverable revenue of Central Utilities
Complex (Note 6) 5,071,934 7,241,153
Revenue intended to cover future costs (Note 6) 20,891,938 22,667,354
Net pension deferred inflows (Note 8) - 2,201,407
Total deferred inflows of resources 25,963,872 32,109,914
Net Position
Net investment in capital assets 367,103,881 380,667,622
Restricted for debt service (Note 3) 38,301,700 43,517,692
Unrestricted 190,684,889 171,005,092
Total net position $ 596,090,470 $ 595,190,406
See Notes to Financial Statements. 7
Board of Water and Light - City of Lansing, Michigan
Statements of Revenues, Expenses, and Changes in Net Position
For the Year Ended June 30
2016 2015
Operating Revenues (Note 1)
Water $ 38,730,602 $ 37,910,106
Electric 303,245,766 295,047,904
Steam 12,683,463 14,959,212
Chilled water 6,275,583 5,568,287
Total operating revenues 360,935,414 353,485,509
Operating Expenses
Production:
Fuel, purchased power, and other operating expenses 159,118,150 163,336,653
Maintenance 19,839,991 24,415,690
Transmission and distribution:
Operating expenses 7,404,258 7,006,002
Maintenance 14,189,340 13,864,024
Administrative and general 64,007,040 61,297,460
Depreciation (Note 1) 41,541,561 39,104,343
Total operating expenses 306,100,340 309,024,172
Operating Income 54,835,074 44,461,337
Nonoperating Income (Expenses)
Investment income 1,913,873 1,351,006
Other(expense) income (4,588,160) 1,534,922
Impairment on Eckert Power Station (Note 4) (15,763,520) -
System capacity fee 3,351,392 9,223,075
Bonded debt interest expense (14,861,300) (14,995,574)
Amortization - Central Utilities Complex (2,902,715) (8,057,715)
Return on equity (Note 7) (21,033,531) (20,840,065)
Other interest expense (51,049) (49,691)
Total nonoperating expenses - Net (53,935,010) (31,834,042)
Net Income (Changes in Net Position) 900,064 12,627,295
Net Position - Beginning of year 595,190,406 582,563,111
Net Position - End of year $ 596,090,470 $ 595,190,406
See Notes to Financial Statements. 8
Board of Water and Light - City of Lansing, Michigan
Statements of Cash Flows
For the Year Ended June 30
2016 2015
Cash Flows from Operating Activities
Cash from customers:
Water $ 38,465,045 $ 38,932,520
Electric 302,838,331 293,138,111
Steam 12,824,305 15,711,107
Chilled water 6,757,204 5,425,898
Total cash from customers 360,884,885 353,207,636
Cash paid to suppliers:
Suppliers of coal,freight, and purchased power (131,855,507) (140,537,274)
Other suppliers (75,423,113) (69,814,422)
Total cash paid to suppliers (207,278,620) (210,351,696)
Cash paid to employees (57,655,263) (63,947,564)
Return on equity(Note 7) (21,033,531) (20,840,065)
Cash from customer deposits (373,719) 3,287
Interest on customer deposits (51,049) (49,691)
Net cash provided by operating activities 74,492,703 58,021,907
Cash Flows from Capital and Related Financing Activities
Proceeds from new borrowings 3,789,161 -
Planned, bonded, and annual construction (44,161,432) (59,916,047)
Principal payments on debt (13,418,460) (18,594,394)
System capacity fees 3,351,392 9,223,075
Interest on debt (16,979,468) (15,709,200)
Net cash used in capital and
related financing activities (67,418,807) (84,996,566)
Cash Flows from Noncapital Financing Activities
Proceeds from the sale of emissions allowances - 36
Proceeds from the Belle River Project and other - 8,972,944
Net cash provided by noncapital financing activities - 8,972,980
Cash Flows from Investing Activities
Proceeds from the sale and maturity of investments 76,742,427 160,938,876
Interest received 1,862,826 2,003,345
Purchase of investments (94,133,423) (139,581,937)
Net cash provided by investing activities (15,528,170) 23,360,284
Net Increase in Cash and Cash Equivalents (8,454,274) 5,358,605
Cash and Cash Equivalents- Beginning of year 108,678,317 103,319,712
Cash and Cash Equivalents-End of year $ 100,224,043 $ 108,678,317
See Notes to Financial Statements. 9
Board of Water and Light - City of Lansing, Michigan
Statements of Cash Flows (Continued)
For the Year Ended June 30
2016 2015
Balance Sheet Classifications
Restricted cash and cash equivalents $ 46,586,326 $ 52,752,941
Cash and cash equivalents 53,637,717 55,925,376
Cash and Cash Equivalents- End of year $ 100,224,043 $ 108,678,317
Reconciliation of Operating Income to Net Cash For the Year Ended June 30
from Operating Activities 2016 2015
Operating income $ 54,835,074 $ 44,461,337
Adjustments to reconcile operating income to net cash from
operating activities:
Other reimbursements 1,535,783 -
Return on equity(Note 7) (21,033,531) (20,840,065)
Depreciation 41,541,561 39,104,343
Sewerage collection fees 929,243 1,088,442
Interest on customer deposits (51,049) (49,691)
Decrease(increase)in assets:
Accounts receivable(Note 1) (1,154,054) 1,611,029
Unbilled accounts receivable(Note 1) (1,245,698) (1,122,971)
Inventories 793,007 (2,386,479)
Customer deposits (373,719) 3,287
Special deposit 2,845,000 2,845,000
Net pension asset 4,020,240 2,904,472
Other 6,687,142 (5,484,222)
(Decrease)increase in liabilities and deferred inflows of resources:
Accounts payable and other accrued expenses (5,927,797) (218,674)
Net pension asset deferrals (5,131,625) (4,941,799)
Other (3,776,874) 1,047,898
Total adjustments 19,657,629 13,560,570
Net cash provided by operating activities $ 74,492,703 $ 58,021,907
Non-cash capital and financing activities
Decrease in environmental liability and related regulatory asset $ 2,078,264 $ -
Impairment on Eckert Power Station 15,763,520 -
Write off of discontinued project 5,773,139 -
See Notes to Financial Statements. 10
Board of Water and Light - City of Lansing, Michigan
Pension Trust Funds - Statements of Net Position
As of June 30
2016 2015
Assets
Receivable- Investment interest receivable $ 530,155 $ 305,573
Investments at fair value:
Cash and money market trust fund 14,244,958 8,564,513
U.S. government obligations 29,023,448 22,121,544
Fixed income securities 39,216,076 32,582,122
Mutual funds 154,854,298 138,830,601
Stable value 34,193,741 31,844,948
Partnership 1,101,086 1,098,790
Common stock 114,508,909 162,370,016
Self-directed brokerage account 1,551,450 1,376,730
Participant notes receivable 3,749,371 3,888,351
Total investments 392,443,337 402,677,615
Net Position - Held in trust for pension
and other employee benefits $ 392,973,492 $ 402,983,188
See Notes to Financial Statements. 1 1
Board of Water and Light - City of Lansing, Michigan
Pension Trust Funds - Statements of Changes in Net Position
For the Year Ended June 30
2016 2015
Increases
Investment income (loss):
Net appreciation (depreciation)
in fair value of investments $ (11,813,954) $ 886,489
Interest and dividend income 11,303,751 11,816,649
Net investment income (loss) (510,203) 12,703,138
Employer contributions 15,084,965 15,219,154
Participant rollover contributions 2,026,588 1,345,481
Interest from participant notes receivable 150,624 155,010
Other - 152,128
Total increases 16,751,974 29,574,911
Decreases
Retiree benefits paid 25,264,964 28,168,455
Loan defaults 186,801 125,254
Participants' note and administrative fees 1,309,905 1,829,184
Total decreases 26,761,670 30,122,893
Change in Net Position Held in Trust (10,009,696) (547,982)
Net Position Held in Trust for Pension
and Other Employee Benefits
Beginning of year 402,983,188 403,531,170
End of year $ 392,973,492 $ 402,983,188
See Notes to Financial Statements. 12
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 - Significant Accounting Policies
The following is a summary of the significant accounting policies used by the Board of
Water and Light (the "BWL"):
Reporting Entity - The BWL, a related organization of the City of Lansing, Michigan (the
"City"), is an administrative board established by the City Charter. The City Charter
grants the BWL full and exclusive management of the electric, water, steam, and chilled
water services of the City. The commissioners of the governing board are appointed by
the mayor with approval of the City Council. The BWL provides water, steam, chilled
water, and electric services to the City and surrounding townships. The governing
board (Board of Commissioners) has the exclusive authority to set rates for the services
provided. The financial statements include the financial activities of the electric, water,
steam, and chilled water operations of the BWL. The financial statements also include
the financial activities of the BWL Pension Trust Funds. The BWL is exempt from taxes
on income because it is a municipal entity.
Fund Accounting - The BWL accounts for its activities in two different fund types. In
order to demonstrate accountability for how it has spent certain resources, separate
funds allow the BWL to show the particular expenditures that specific revenues were
used for. The funds are aggregated into two fund types:
Proprietary fund includes the enterprise fund (which provides goods or services to
users in exchange for charges or fees).
Fiduciary funds
1 . The Defined Contribution Plan and Defined Benefit Plan, which accumulate
resources for benefit payments to retirees
2. The VEBA, which accumulates resources for future retiree health care payments to
retirees
Basis of Accounting - Proprietary funds and fiduciary funds use the economic resources
measurement focus and the full accrual basis of accounting. Revenue is recorded when
earned and expenses are recorded when a liability is incurred, regardless of the timing
of related cash flows. In addition, the utilities meet the criteria and, accordingly, on July
1 , 2012, the BWL adopted the accounting and reporting requirements of GASB 62,
paragraphs 476-500.
13
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 - Significant Accounting Policies (Continued)
The BWL follows the accounting and reporting requirements of GASB 62, paragraphs
476-500, which require that the effects of the ratemaking process be recorded in the
financial statements. Such effects primarily concern the time at which various items
enter into the determination of net income in order to follow the principle of matching
costs and revenues. Accordingly, the BWL records various regulatory assets and
liabilities to reflect the regulator's actions (see Note 6). Management believes that the
BWL meets the criteria for continued application of GASB 62 paragraphs 476-500, but
will continue to evaluate its applicability based on changes in the regulatory and
competitive environment.
In February 2015, the GASB issued statement No. 72 - Fair Value Measurement and
Application. The objective of this statement is to provide guidance for determining a
fair value measurement for financial reporting purposes as well as to provide guidance
for applying fair value to certain investments and disclosures related to all fair value
measurements. This standard was implemented effective July 1 , 2015.
System of Accounts - The BWL's accounts are maintained substantially in accordance
with the Uniform Systems of Accounts of the Federal Energy Regulatory Commission for
its electric and steam systems and in accordance with the Uniform Systems of Accounts
of the National Association of Regulatory Utility Commissioners for the water and
chilled water systems. The chart of accounts dictates how the BWL classifies revenue
and expense items in the statement of revenues, expenses, and changes in net position
as operating and nonoperating.
Rate Matters - Rates charged to customers are established solely by the governing
board. The BWL has agreed to set rates sufficient to meet certain requirements of the
bond resolutions for the outstanding revenue bonds.
Operating Classification - Operating revenues and expenses generally result from
providing services and producing and delivering goods in connection with the principal
ongoing operations. The principal operating revenues are charges to customers for
sales and services. Operating expenses include the cost of sales and services,
administrative expenses, and depreciation on capital assets. All revenues and expenses
not meeting this definition are reported as nonoperating revenues and expenses.
Report Presentation - This report includes the fund-based statements of the BWL. In
accordance with government accounting principles, a government-wide presentation
with program and general revenues is not applicable to special purpose governments
engaged only in business-type activities.
14
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 - Significant Accounting Policies (Continued)
Specific Balances and Transactions
Cash and Cash Equivalents - The BWL considers demand deposits and current restricted
funds, which consist of cash and highly liquid investments with an original maturity of
90 days or less, as cash and cash equivalents for financial statement purposes.
Investments are stated at fair value, which is the amount at which an investment could
be exchanged in a current transaction between two willing parties. Fair values are
based on quoted market prices. No investments are reported at amortized cost.
Adjustments necessary to record investments at fair value are recorded in the operating
statement as increases or decreases in investment income. Market values may have
changed significantly after year end.
Investments - The BWL has established special purpose funds designated to meet
anticipated operating requirements. In addition, BWL management has established a
future construction fund designated to meet future construction requirements. These
funds consist principally of commercial paper and United States government securities
and are segregated as follows:
Carrying Value
2016 2015
Designated purpose:
Coal inventory fluctuation $ 4,702,092 $ 4,598,714
Litigation, environmental, and uninsured losses 19,009,147 18,589,552
Future water facilities 3,831,125 3,745,990
Subtotal 27,542,364 26,934,256
Special purpose - Future construction 80,378,838 64,651,385
Total $ 107,921,202 $ 91,585,641
15
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 - Significant Accounting Policies (Continued)
Accounts Receivable - Accounts receivable are stated at net invoice amounts. A general
valuation allowance is established based on an analysis of the aged receivables and
historical loss experience. All amounts deemed to be uncollectible are charged to
expense in the period that determination is made. Accounts receivable are not deemed
uncollectible until they are approximately 270 days past due and have remained
completely unpaid throughout the BWL's collection policy. The components of accounts
receivable for 2016 and 2015 are as follows:
2016 2015
Customer receivables $ 19,209,535 $ 18,491,745
Sewerage collections 2,295,881 2,159,867
Miscellaneous 3,163,243 3,362,993
Less allowance for doubtful accounts (1,500,000) (2,000,000)
Net $ 23,168,659 $ 22,014,605
Special Deposit - The BWL contracted with Consumer's Energy to install a new gas
pipeline in 2011 and at that time funded construction of this pipeline and incurred
$1 5,900,000. The BWL will subsequently be reimbursed for all but $1 ,675,000 of those
costs provided minimum consumption requirements are met over the subsequent five-
year period beginning in 2015. Based on current projections, the actual consumption is
expected to exceed the minimum requirements. The long-term other asset recorded
was $8,535,000 and $11 ,380,000 in 2016 and 2015, respectively.
16
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 - Significant Accounting Policies (Continued)
Inventories - Inventories are stated at weighted average cost and consist of the
following at June 30:
2016 2015
Coal $ 10,979,780 $ 11,275,408
Gas 706,758 936,671
Materials and supplies 13,381,199 13,648,664
Total $ 25,067,737 $ 25,860,743
Utility Plant - The utility plant is stated on the basis of cost, which includes
expenditures for new facilities and those which extend the useful lives of existing
facilities and equipment. Expenditures for normal repairs and maintenance are charged
to maintenance expense as incurred. Interest incurred during the construction phase is
reflected in the capitalized value of the capital assets constructed. Capital assets are
generally defined as assets with an initial, individual cost of more than $2,000 and an
estimated life in excess of one year.
Depreciation - Depreciation of the utility plant is computed using the straight-line
method based on estimated useful lives, except for depreciation related to the Central
Utilities Complex, which is computed in accordance with GASB 62 paragraphs 476-500.
The resulting provisions for depreciation in 2016 and 2015, expressed as a percentage
of the average depreciable cost of the related assets, are as follows:
Average Rate (Percent)
Life
(Years) 2016 2015
Classification of utility plant:
Water 4-100 1.8 1.8
Electric 4-50 3.6 3.4
Steam 5-50 3.5 3.5
Chilled water 5-50 3.6 3.4
Common facilities 4-50 4.8 4.1
Central Utilities Complex 15 3.8 6.7
When units of property are retired, their costs are removed from the utility plant and
charged to accumulated depreciation.
17
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 - Significant Accounting Policies (Continued)
Accrued Compensated Absences - The BWL records a liability for estimated
compensated absences that are attributable to services already rendered and that are
not contingent on a specific event that is outside the control of the BWL and its
employees. This liability is accrued as employees earn the rights to such benefits. The
BWL estimates the total current and noncurrent portions of the liability to be
$11 ,423,121 and $11 ,008,727 as of June 30, 2016 and 2015, respectively.
Capital Contributions - Capital contributions represent nonrefundable amounts
received for the purpose of construction for the utility plant. These contributions are
from third parties, including amounts from customers, grant programs, and insurance
proceeds from damage. Electric, water, and steam contributions are credited against
the related assets or recorded as a separate regulatory liability and will offset the
depreciation of the related assets over the estimated useful lives. This treatment is
consistent with the BWL's ratemaking policy and is thus permitted under GASB 62
paragraphs 476-500.
Deferred Outflows/Inflows of Resources - 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 a future period and so will not be
recognized as an outflow of resources (expense/expenditure) until then. The BWL has
two items that qualify for reporting in this category. The deferred outflows of resources
relate to deferred losses on refunding and pension relation deferrals under GASB 68.
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 a
future period and so will not be recognized as an inflow of resources (revenue) until that
time. The BWL has the following items that qualify for reporting in this category: the
deferred inflows of resources related to costs that have been incurred and will be billed
to customers in the future related to the renewable energy plan and energy
optimization, chiller plant, and Wise Road items described in Note 6, and pension
related deferrals under GASB 68.
18
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 - Significant Accounting Policies (Continued)
Net Position - Equity is classified as net position and displayed in three components:
• Net Investment in Capital Assets - Consists of capital assets, net of accumulated
depreciation, and reduced by the outstanding balances of any bonds that are
attributable to the acquisition, construction, or improvement of those assets.
• Restricted for Debt Service - Consists of net position with constraints placed on
their use by revenue bond resolution.
• Unrestricted - All other net position that does not meet the definition of "restricted"
or "net investment in capital assets."
Net Position Flow Assumption - Sometimes the BWL will fund outlays for a particular
purpose from both restricted (e.g., restricted bond) and unrestricted resources. In order
to calculate the amounts to report as restricted net position and unrestricted net
position in the proprietary fund financial statements, a flow assumption must be made
about the order in which the resources are considered to be applied. It is the BWL's
policy to consider restricted net position to have been depleted before unrestricted net
position is applied.
Net Pension Asset - A net pension asset is recorded in accordance with GASB Statement
No. 68. The asset is the difference between the actuarial total pension asset and the
Plan's fiduciary net position as of the measurement date. See Note 8 for additional
information.
Other Assets - Other assets consists of the net OPEB asset described in Note 8 and a
deposit held with the Michigan Public Power Agency (MPPA) related to the Belle River
project.
Long-Term Obligations - Long-term debt and other obligations are reported as
liabilities. Bond premiums and discounts are amortized over the life of the bonds using
the straight-line method. Gains or losses on prior refundings are amortized over the
remaining life of the old debt or the life of the new debt, whichever is shorter. The
balance at year end for premiums and discounts is shown as an increase or decrease in
the liability section of the statement of net position. The balance at year end for the
loss on refunding is shown as a deferred outflow in the balance sheet.
19
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 - Significant Accounting Policies (Continued)
Unbilled Accounts Receivable and Revenue - Unbilled accounts receivable at June 30,
2016 and 2015 represents the estimated amount of accounts receivable for services
that have not been billed as of the balance sheet date. The amounts are a result of a
timing difference between the end of the financial statement cycle (month end) and the
billing cycle (various dates within the month for each billing period). Accordingly, the
current year revenue from customers whose billing period ends after June 30 for
services rendered prior to June 30 will be recognized in the current period.
Interutility Transactions - The water, electric, steam, and chilled water operations of the
BWL bill each other for services provided and these services are reported as revenue to
the generating operation and expense to the consuming operation. Such internal
billings aggregated $8,496,848 and $7,956,814 in 2016 and 2015, respectively, and
are not eliminated in the statement of revenues, expenses, and changes in net assets.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain amounts presented in the prior year data may have been
reclassified in order to be consistent with the current year's presentation.
Note 2 - Cash, Investments, and Fair Value Disclosure
Michigan Compiled Laws Section 129.91 (Public Act 20 of 1943, as amended)
authorizes local governmental units to make deposits and invest in the accounts of
federally insured banks, credit unions, and savings and loan associations that have
offices in Michigan. A local unit is allowed to invest in bonds, securities, and other
direct obligations of the United States or any agency or instrumentality of the United
States; certificates of deposit, savings accounts, deposit accounts, or depository
receipts of an eligible financial institution; repurchase agreements; bankers'
acceptances of United States banks; commercial paper rated within the two highest
classifications, which matures not more than 270 days after the date of purchase;
obligations of the State of Michigan or its political subdivisions, which are rated as
investment grade; and mutual funds composed of investment vehicles that are legal for
direct investment by local units of government in Michigan.
20
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
The operating cash investment policy adopted by the BWL in accordance with Public Act
20, as amended, and the Lansing City Charter has authorized investment in bonds and
securities of the United States government, certificates of deposit, time deposits, and
bankers' acceptances of qualified financial institutions, commercial paper rated Al by
Standard & Poor's and P1 by Moody's, repurchase agreements using bonds, securities,
and other obligations of the United States or an agency or instrumentality of the United
States, and liquid asset accounts managed by a qualified financial institution using any
of these securities. The BWL's deposits and investment policies are in accordance with
statutory authority.
The BWL's cash and investments are subject to several types of risk, which are
examined in more detail below:
BWL's Cash and Investments (exclusive of fiduciary funds)
Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk that in the
event of a bank failure, the BWL's deposits may not be returned to it. The BWL requires
that financial institutions must meet minimum criteria to offer adequate safety to the
BWL. At June 30, 2016 and 2015, the BWL had $1 ,605,366 and $1 ,666,654,
respectively, of bank deposits that were uninsured and uncol lateral ized. The BWL
evaluates each financial institution with which it deposits funds and only those
institutions meeting minimum established criteria are used as depositories.
Custodial Credit Risk of Investments - Custodial credit risk is the risk that, in the event
of the failure of the counterparty, the BWL will not be able to recover the value of its
investments or collateral securities that are in the possession of an outside party. The
BWL does not have a policy for custodial credit risk.
At June 30, 2016, the following investment securities were uninsured and unregistered,
with securities held by the counterparty or by its trust department or agent, but not in
the BWL's name:
Type of Investment Cost Basis How Held
U.S. government or agency bond or notes $ 92,921,202 Counterparty
21
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
At June 30, 2015, the following investment securities were uninsured and unregistered,
with securities held by the counterparty or by its trust department or agent, but not in
the BWL's name:
Type of Investment Cost Basis How Held
U.S. government or agency bond or notes $ 91,596,540 Counterparty
Interest Rate Risk - Interest rate risk is the risk that the value of investments will
decrease as a result of a rise in interest rates. The BWL's investment policy restricts
investments to a maximum weighted average life of five years unless matched to a
specific cash flow.
At June 30, 2016, the average maturities of investments are as follows:
Less than
Investment Fair Value 1 year 1-5 years 6-10 years
Pooled investment funds $ 47,145,988 $ 47,145,988 $ - $ -
U.S. treasury bonds 38,056,849 1,743,554 36,313,295 -
U.S. agency bonds/notes 45,283,538 7,822,012 36,381,417 1,080,109
Commercial paper 7,447,318 7,447,318 - -
Supra national agency bonds 2,008,658 501,352 1,507,306 -
Mutual funds 124,840 124,840 - -
Totals $ 140,067,191 $ 64,785,064 $ 74,202,018 $ 1,080,109
At June 30, 2015, the average maturities of investments are as follows:
Less than
Investment Fair Value 1 year 1-5 years 6-10 years
Pooled investment funds $ 71,700,404 $ 71,700,404 $ - $ -
Mutual funds 150,565 150,565 - -
U.S. government or agency
bond or note 91,435,063 29,617,760 61,817,303 -
Totals $ 163,286,032 $ 101,468,729 $ 61,817,303 $ -
22
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
Credit Risk - State law limits investments in commercial paper to the top two ratings
issued by nationally recognized statistical rating organizations.
As of June 30, 2016, the credit quality ratings of debt securities (other than the U.S.
government) are as follows:
Rating
Investment Fair Value Rating Organization
Pooled investment funds $ 47,145,988 AAA S&P
U.S. treasury bonds 38,056,849 AA+ S&P
U.S. agency bonds/notes 45,283,538 AA+ S&P
Commercial paper 7,447,318 Al/Al+ S&P
Supra national agency bonds 2,008,658 AAA S&P
Mutual funds 124,840 AAAM S&P
As of June 30, 2015, the credit quality ratings of debt securities (other than the U.S.
government) are as follows:
Rating
Investment Fair Value Rating Organization
Pooled investment funds $ 71,850,969 AAA S&P
Mutual funds 150,565 AAAM S&P
U.S government or agency bonds/notes 91,435,063 AA+ S&P
Concentration of Credit Risk - As of June 30, 2016 and 2015 no more than 5 percent of
the BWL's investments are invested in any one issuer or commercial paper or
bonds/notes not guaranteed by the U.S. government.
Fair Value
The BWL categorizes its fair value measurements within the fair value hierarchy
established by generally accepted accounting principles. The hierarchy is based on the
valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted
prices in active markets for identical assets; Level 2 inputs are significant other
observable inputs; Level 3 inputs are significant unobservable inputs.
23
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
The following investments are recorded at fair value using the Matrix Pricing Technique.
Enterprise funds
June 30,2016
Investment Level Level Level Total
U.S. Treasury Bonds $ - $ 38,056,849 $ - $ 38,056,849
Supra national agency bonds - 2,008,659 - 2,008,659
Federal Agency Mortgage-Backed Security - 1,080,107 - 1,080,107
Federal Agency Collateralized Mortgage Obligation - 1,542,108 - 1,542,108
Federal Agency Bond/Note - 42,661,321 - 42,661,321
Commercial Paper - 7,447,318 - 7,447,318
Mutual funds - 124,840 - 124,840
Total investments by fair value level $ - $ 92,921,202 $ - $ 92,921,202
June 30,2015
Investment Level Level Level Total
U.S. Treasury Bonds $ - $ 49,791,535 $ - $ 49,791,535
Supra national agency bonds - 503,519 - 503,519
Federal Agency Collateralized Mortgage Obligation - 351,881 - 351,881
Federal Agency Bond/Note - 40,788,128 - 40,788,128
Mutual funds - 150,565 - 150,565
Total investments by fair value level $ - $ 91,585,628 $ - $ 91,585,628
24
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
Fiduciary Fund Investments
Interest Rate Risk - Pension Trust Funds
At June 30, 2016, the average maturities of investments are as follows:
Weighted Average
Investment Fair Value Maturity(in years)
U.S. government or agency bond $ 29,023,448 13.38
Money market trust funds 13,442,797 Less than 1 year
Corporate bonds 39,216,076 13.46
At June 30, 2015, the average maturities of investments are as follows:
Weighted Average
Investment Fair Value Maturity(in years)
U.S. government or agency bond $ 22,121,544 11.91
Money market trust funds 7,958,648 Less than 1 year
Corporate bonds 32,582,122 14.13
25
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
Credit Risk - Pension Trust Funds
As of June 30, 2016, the credit quality ratings of debt securities (other than the U.S.
government) are as follows:
Rating
Investment Fair Value Rating Organization
Mutual funds $ 124,001,268 Not Rated Not Rated
Government or agency bond 7,565,160 Not Rated Not Rated
Stable value 34,193,741 AA S&P
Corporate bonds 1,885,055 AAA S&P
Corporate bonds 14,401,372 AA+ S&P
Corporate bonds 710,620 AA S&P
Corporate bonds 523,627 AA- S&P
Corporate bonds 1,313,047 A+ S&P
Corporate bonds 4,246,010 A S&P
Corporate bonds 3,606,010 A- S&P
Corporate bonds 7,510,323 BBB+ S&P
Corporate bonds 3,368,004 BBB S&P
Corporate bonds 1,426,684 BBB- S&P
Corporate bonds 8,185 BB+ S&P
Corporate bonds 56,350 BB S&P
Corporate bonds 54,445 BB- S&P
Corporate bonds 106,344 CCC S&P
Money market trust funds 13,442,797 Not Rated Not Rated
26
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
As of June 30, 2015, the credit quality ratings of debt securities (other than the U.S.
government) are as follows:
Rating
Investment Fair Value Rating Organization
Mutual funds $ 138,830,601 Not Rated Not Rated
Government or agency bond 22,121,544 Not Rated Not Rated
Stable value 31,844,948 AA S&P
Corporate bonds 3,509,599 AAA S&P
Corporate bonds 12,528,632 AA+ S&P
Corporate bonds 709,117 AA S&P
Corporate bonds 441,815 AA- S&P
Corporate bonds 1,424,862 A+ S&P
Corporate bonds 2,614,518 A S&P
Corporate bonds 3,513,111 A- S&P
Corporate bonds 2,559,638 BBB+ S&P
Corporate bonds 1,982,318 BBB S&P
Corporate bonds 1,195,013 BBB- S&P
Corporate bonds 262,236 BB+ S&P
Corporate bonds 109,150 BB S&P
Corporate bonds 279,092 BB- S&P
Corporate bonds 102,069 B+ S&P
Corporate bonds 141,348 B S&P
Corporate bonds 574,676 B- S&P
Corporate bonds 508,305 CCC S&P
Corporate bonds 126,625 CC S&P
Fair Value - Pension Trust Funds
The framework for measuring fair value provides a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three
levels of the fair value hierarchy under authoritative guidance are described as follows:
Level 1 - Inputs to the valuation methodology are unadjusted quoted market prices
for identical assets in active markets that the Plan has the ability to
access.
27
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
Level 2 - Inputs to the valuation methodology include:
> 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.
> 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 value measurement.
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 maximize the use of relevant observables and minimize the use
of unobservable inputs.
The following is a description of the valuation methodologies used for assets measured
at fair value. There have been no changes in the methodologies used at June 30, 2016
and 201 5:
Money market fund, growth funds, and international funds: Valued at the quoted net
asset value ("NAV") of shares held by the Plan at year end.
Partnership: Valued using either NAV, valuations provided by management reflecting
the partnership's share of capital account balance, or the income and market approach.
Common stock, corporate bonds and notes, U.S. government obligations, and fixed
income securities: Valued at the most recent closing price reported on the market on
which individual securities are traded.
Mutual funds: Valued at the daily closing price as reported by the fund. Mutual funds
held by the Plan are open-end mutual funds that are registered with the Securities and
Exchange Commission. These funds are required to publish their daily NAV and to
transact at that price. The mutual funds held by the Plan are deemed to be actively
traded.
28
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
Stable value fund.-The Plus Fund is a collective fund that seeks to maintain a stable net
asset value. It invests primarily in a diversified portfolio of stable-value investments,
including traditional guaranteed investment contracts (traditional GICs), separate
account GICs, synthetic GICs backed by fixed income securities or investments, and
short-term investment funds, including money market mutual funds.
Guaranteed Lifetime Income fund:The Retirement Income Advantage Fund seeks both
moderate capital growth and current income. It invests in a separate account under a
group variable annuity. The separate account, in turn, invests in a mix of registered
funds and a collective trust fund with an allocation of approximately 60% domestic and
foreign equities and 40% fixed income.
Self-directed brokerage account: The self-directed brokerage account allows
participants of the Plan the option of selecting a more personalized and broad range of
investment choices. The investments within the account consist of corporate stocks,
which are valued at the most recent closing price reported on the market on which
individual securities are traded.
The preceding methods may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. Furthermore, while the Plan
believes its valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair
value of certain financial instruments could result in a different fair value measurement
at the reporting date.
29
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 2 - Cash, Investments, and Fair Value Disclosure (Continued)
The following table sets forth by level, within the fair value hierarchy, the Plan's assets
at fair value as of June 30, 2016 and 2015:
June 30,2016
Investment Type Level 1 Level 2 Level 3 Total
Cash and money market trust fund $ 798,902 $ 13,446,056 $ $ 14,244,958
U.S.government obligations - 29,023,448 29,023,448
Fixed income securities - 39,216,076 39,216,076
Mutual funds 124,001,268 23,117,545 147,118,813
Partnership - - 1,101,086 1,101,086
Common Stocks 114,508,909 - - 114,508,909
Self-directed brokerage account 1,551,450 - - 1,551,450
Total investments by fair value level 240,860,529 104,803,125 1,101,086 346,764,740
Investments measured at the net asset value(NAV)
Stable value 34,193,741
Guaranteed Lifetime Income 7,735,485
Total investments measured at fair value $ 388,693,966
June 30,2015
Investment Type Level 1 Level 2 Level 3 Total
Cash and money market trust fund $ 193,939 $ 8,370,574 $ $ 8,564,513
U.S.government obligations - 22,121,544 22,121,544
Fixed income securities - 32,582,122 32,582,122
Mutual funds 130,790,091 2,819,994 133,610,085
Partnership - - 1,098,790 1,098,790
Common Stocks 162,370,016 - - 162,370,016
Self-directed brokerage account 1,376,730 - - 1,376,730
Total investments by fair value level 294,730,776 65,894,234 1,098,790 361,723,800
Investments measured at the net asset value(NAV)
Stable value 31,844,948
Guaranteed Lifetime Income 5,220,516
Total investments measured at fair value $ 398,789,264
30
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 3 - Restricted Assets
Restricted assets are required under the 2008A, 2011 A, 2012A, and 2013A Revenue
Bond resolutions and the related Nonarbitrage and Tax Compliance Certificates. These
assets, which consist of cash, commercial paper, and United States government
securities, are segregated into the following funds:
Carrying Value
Required at
June 30, 2016 2016 2015
Current:
Operations and Maintenance Fund $ 27,416,700 $ 80,922,920 $ 88,301,618
Bond and Interest Redemption Fund 19,169,626 19,301,123 19,689,041
Total current 46,586,326 100,224,043 107,990,659
Noncurrent:
Bond Reserve Fund 24,263,950 25,319,385 24,951,608
Total noncurrent 24,263,950 25,319,385 24,951,608
Total $ 70,850,276 $ 125,543,428 $ 132,942,267
The carrying value in excess of the required value for the current portion is reported as
cash and cash equivalents or investments for the year ended June 30, 2016 and 2015.
The restrictions of the various funds are as follows:
• Operations and Maintenance Fund - By the end of each month, this fund shall
include sufficient funds to provide for payment of the succeeding month's
expenses.
31
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 3 - Restricted Assets (Continued)
Bond and Interest Redemption Fund - Restricted for payment of the current portion
of bond principal and interest on the 2008A, 2009A, 2011 A, 2012A, and 201 3A
Revenue Bonds.
• Bond Reserve Fund - Shall include sufficient funds to cover the maximum annual
principal and interest requirements of the 2008A, 2011 A, 2012A, and 201 3A
Revenue Bonds. The Nonarbitrage and Tax Compliance Certification stipulates that
the amount in the fund shall be valued at amortized cost to meet this requirement.
As of June 30, 2016, the cost basis in the fund was $24,936,608.
Note 4 - Utility Plant
The tables below reflect the capital asset activity of the utility plant categories for the
years ended June 30, 2016 and 201 5:
Capital Asset Activity for Year Ended June 30,2016
Capital Assets Capital Assets
FY Start Transfers Acquisition Retirement FY End
Water $ 296,802,952 $ (17,925) $ 7,034,735 $ (1,653,985) $ 302,165,777
Electric 804,947,799 270,959 31,723,805 (62,513,349) 774,429,214
Steam 67,510,134 - 1,962,134 (914,937) 68,557,331
Chilled 33,622,140 - 376,000 - 33,998,140
Common 87,132,519 (253,034) 2,320,478 (447,531) 88,752,432
CUC 76,079,000 - - - 76,079,000
Total $ 1,366,094,544 $ - $ 43,417,152 $ (65,529,802) $ 1,343,981,894
32
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 4 - Utility Plant (Continued)
Accumulated Depreciation for Year Ended June 30,2016
Depr./Amort.
Accum. Depr. Depreciation and Impairment Depreciation Accum. Depr.
FY Start Transfer for Year Retirement FY End
Water $ (89,634,586) $ 22,137 $ (7,266,780) $ 1,375,121 $ (95,504,108)
Electric (445,376,095) (143,371) (28,379,813) 43,306,278 (430,593,001)
Steam (14,777,519) - (2,377,839) 542,937 (16,612,421)
Chilled (9,027,683) - (1,203,561) - (10,231,244)
Common (41,098,115) 121,234 (4,255,352) 311,397 (44,920,836)
CUC (65,935,132) - (5,071,933) - (71,007,065)
Total $ (665,849,130) $ - $ (48,555,278) $ 45,535,733 $ (668,868,675)
Non-depreciable assets - Included in the table above are non-depreciable assets of $1 ,196,847
for water, $1 1 ,1 71 ,356 for electric, $124,224 for steam and $412,339 for common facilities.
Eckert Power Station Impairment - In 2016, the Board approved to close the Eckert Power
Station by 2020 due to increasing operating costs, pending environmental regulations, and an
uncertain future for coal-fired plants. As a result, BWL recorded an impairment of $1 5,763,520
in 2016 using the service units approach to measure the impairment.
33
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 4 - Utility Plant (Continued)
Capital Asset Activity for Year Ended June 30,2015
Capital Assets Capital Assets
FY Start Transfers Acquisition Retirement FY End
Water $ 288,627,287 $ 25,014 $ 9,096,693 $ (946,042) $ 296,802,952
Electric 773,262,520 51,658 34,925,022 (3,291,401) 804,947,799
Steam 64,685,056 - 3,136,196 (311,118) 67,510,134
Chilled 32,917,461 704,679 - 33,622,140
Common 75,026,577 (76,672) 12,628,678 (446,064) 87,132,519
CUC 76,079,000 - - - 76,079,000
Total $ 1,310,597,901 $ - $ 60,491,268 $ (4,994,625) $ 1,366,094,544
Accumulated Depreciation for Year Ended June 30,2015
Accum. Depr. Depreciation Depr./Amort.for Depreciation Accum. Depr.
FY Start Transfer Year Retirement FY End
Water $ (84,984,612) $ (25,014) $ (5,147,689) $ 522,729 $ (89,634,586)
Electric (420,474,747) 3,099 (27,158,634) 2,254,187 (445,376,095)
Steam (12,551,842) - (2,313,839) 88,162 (14,777,519)
Chilled (7,887,640) - (1,140,043) - (9,027,683)
Common (37,987,471) 21,915 (3,344,139) 211,580 (41,098,115)
CUC (60,863,199) - (5,071,933) - (65,935,132)
Total $ (624,749,511) $ - $ (44,176,277) $ 3,076,658 $ (665,849,130)
Non-depreciable assets - Included in the table above are non-depreciable assets of $1 ,193,788
for water, $6,793,620 for electric, $124,224 for steam and $412,339 for common facilities.
34
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 5 - Long-term Debt
Long-term debt as of June 30 consists of the following:
2016 2015
Water Supply, Steam, Chilled Water, and Electric Utility
System Revenue Refunding Bonds, Series 2013A, due in
annual principal installments beginning July 1, 2013 through
July 1, 2026, plus interest at rates ranging from 2.00% to
5.00%. Original amount of issue $21,085,000. $ 19,450,000 $ 20,830,000
Water Supply, Steam, Chilled Water, and Electric Utility
System Revenue Refunding Bonds, Series 2012A, due in
annual principal installments beginning July 1, 2013 through
July 1, 2018, plus interest at rates ranging from 2.00% to
5.00%. Original amount of issue $17,370,000. 15,735,000 16,355,000
Water Supply, Steam, Chilled Water, and Electric Utility
System Revenue Bonds, Series 2011A, due in annual
principal installments beginning July 1, 2015 through July 1,
2041, plus interest at rates ranging from 3.00% to 5.50%.
Original amount of issue $250,000,000. 249,995,000 250,000,000
Water Supply, Steam, Chilled Water, and Electric Utility
System Revenue Refunding Bonds, Series 2009A, due in
annual principal installments due serially through July 1, 2016,
plus interest at a rate of 5.34%. Original amount of issue
$46,255,000. 3,030,000 11,215,000
Water Supply Utility System Revenue Bonds, Series 2008A,
due serially beginning July 1, 2012 and continuing through
July 1, 2032, plus interest at rates ranging from 3.00% to
5.00%. Original amount of issue $40,000,000. 39,165,000 39,985,000
35
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 5 - Long-term Debt (Continued)
2016 2015
Promissory note, due to the City of Lansing in semi-annual
installments through October 1, 2024, plus interest at a rate of
2.50%. Orignial amount of issue $13,225,385. $ 8,932,605 $ 9,554,048
Granger III Corporation for ash hauling services due in
monthly installments ranging from $150,000 to $250,000 - 1,650,712
City of Lansing Agreement for the Enhancement of the Flood
warning system $10,000 annually with final payment in 2016. - 10,000
Charter Township of Lansing Special Assessment pertaining
to the Groesbeck II Park Drain. Due in annual installments
ranging from $132,000 to $291,000 with final payment in
2044. 3,662,856 -
Total 339,970,461 349,599,760
Less current portion (11,642,389) (13,299,345)
Plus unamortized premium 9,777,301 10,743,879
Total long-term portion $ 338,105,373 $ 347,044,294
The unamortized premium and deferral on refunded bonds is being amortized over the
life of the bonds, using the straight-line method.
36
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 5 - Long-term Debt (Continued)
Aggregate principal and interest payments applicable to long-term debt are as follows:
Principal Interest Total
2017 $ 11,642,389 $ 16,650,196 $ 28,292,585
2018 8,986,310 16,184,020 25,170,330
2019 9,371,241 15,777,019 25,148,260
2020 7,839,147 15,391,183 23,230,330
2021 8,183,523 15,047,557 23,231,080
2022-2026 46,499,053 69,094,488 115,593,541
2027-2031 58,932,557 56,516,580 115,449,137
2032-2036 73,110,103 40,293,976 113,404,079
2037-2041 93,251,527 19,231,686 112,483,213
2042-2044 22,154,611 5,951,755 28,106,366
Total $ 339,970,461 $ 270,138,460 $ 610,108,921
The 2008A, 201 ]A, 2012A, and 201 3A bonds require the BWL to establish a reserve
account equal to the highest annual principal and interest requirements of such issues.
As of June 30, 2016, the balance of this reserve account was $25,319,385 (see Note 3).
The 2009A bonds were a private placement issue and have no reserve requirement.
All Water Supply and Electric Utility System Revenue Bonds were issued by authority of
the BWL. Except for the Series 2009A Subordinate Lien Revenue Refunding Bond, all
bonds were issued on a parity basis and are payable solely from the net revenue of the
combined water, electric, chilled water, and steam operations of the BWL.
37
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 5 - Long-term Debt (Continued)
The 2012A Bond is payable in annual installments in the years 2013 to 2018, inclusive,
and shall not be subject to optional redemption prior to maturity.
The Series 2011 A Bond is payable in annual installments in the years 2015 to 2022,
inclusive, and shall not be subject to optional redemption prior to maturity. The Bonds
maturing on or after July 1 , 2022 shall be subject to redemption at the option of the
BWL on or after July 1 , 2021 as a whole or in part at any time and by lot within a
maturity at par plus interest accrued to the redemption date.
The Series 2009A Bond is payable in annual installments in the years 2010 to 2016,
inclusive, and shall not be subject to optional redemption prior to maturity.
The Series 2008A Bonds maturing in the years 2012 to 2028, inclusive, shall not be
subject to optional redemption prior to maturity. The bonds, or portions of bonds in
multiples of $5,000 maturing in the years 2019 to 2032, inclusive, shall be subject to
redemption at the option of the BWL in such order of maturity as the BWL shall
determine and within a single maturity by lot on any date on or after July 1 , 2018, at
par plus accrued interest to the date fixed for redemption.
The long-term debt activity for the year ended June 30, 2016 is as follows:
Revenue Other
Bonds Notes Total
Beginning balance $ 349,128,869 $ 11,214,770 $ 360,343,639
Additions - 3,789,161 3,789,161
Reductions (11,976,578) (2,408,460) (14,385,038)
Ending balance $ 337,152,291 $ 12,595,471 $ 349,747,762
Due within one year $ 10,885,000 $ 757,389 $ 11,642,389
38
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 5 - Long-term Debt (Continued)
The BWL has pledged substantially all revenue, net of operating expenses, to repay the
revenue bonds. Proceeds from the bonds provided financing for the construction of the
utility plant. The bonds are payable solely from the net revenues of the BWL. The
remaining principal and interest to be paid on the bonds total $593,866,251 . During
the current year, net revenues of the BWL were $57,353,974 compared to the annual
debt requirements of $25,871 ,300.
The long-term debt activity for the year ended June 30, 2015 is as follows:
Revenue Other
Bonds Notes Total
Beginning balance $ 364,250,463 $ 14,884,003 $ 379,134,466
Additions - - -
Reductions (15,121,594) (3,669,233) (18,790,827)
Ending balance $ 349,128,869 $ 11,214,770 $ 360,343,639
Due within one year $ 11,010,000 $ 2,289,345 $ 13,299,345
Note 6 - Costs/Credits Recoverable in Future Years
Central Utilities Complex
The BWL accounts for amortization of its Central Utilities Complex (CUC), which is a
separate operating unit of the BWL, under the regulatory basis of accounting as per
GASB 62. The BWL has recorded recoverable (revenue) amortization of $(5,071 ,934) and
$(7,241 ,1 53) at June 30, 2016 and 2015, respectively. Under an agreement with a BWL
customer, the bonded debt related to the construction of the CUC will be reimbursed
through payments to be received from this customer through 2017. The recoverable
(revenue) amortization balance represents the difference between calculated straight-
line amortization expense and the reimbursement payments received from the
customer at year end.
39
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 6 - Costs/Credits Recoverable in Future Years (Continued)
Environmental Remediation
The GASB 49 environmental remediation liability related to a landfill site operated by
the BWL was approved for regulated entity accounting under GASB 62 during the year
ended June 30, 2004. As of June 30, 2016 and 2015, $20,848,000 in total costs has
been recoverable as a regulatory asset.
As of June 30, 2016 and 2015, the amounts remaining to be recovered in rates were $0
and $37,756, respectively. The BWL reviews the adequacy of its rates to recover its cost
of service on an annual basis.
During the year ended June 30, 2006, the GASB 49 environmental remediation liability
related to a second landfill was approved for regulated entity accounting under GASB
62. The balance of the regulatory asset at June 30, 2016 and 2015 was $7,076,982
and $14,1 76,684 respectively. The BWL reviews the adequacy of its rates to recover its
cost of service on an annual basis. During the year ended June 30, 2009, regulatory
accounting as per GASB 62 was authorized by the Board of Commissioners to collect
rates for all environmental remediation sites. The balance as of June 30, 2016 and 2015
for additional sites was $4,406,587 and $4,401 ,565, respectively.
Recoverable Cost Adjustments
During the year ended June 30, 2005, the Board of Commissioners approved the use of
regulatory accounting as per GASB 62 in accounting for the BWL's energy cost
adjustment (ECA), power chemical adjustment (PCA), and fuel cost adjustment (FCA).
These affect the amount to be billed to retail electricity, water, and steam customers to
reflect the difference between the BWL's actual material costs and the amounts
incorporated into rates. This resulted in recoverable assets of $2,302,845 and
$4,652,068 at June 30, 2016 and 2015, respectively. This amount represents costs to
be billed to customers in future years because actual costs of providing utilities were
higher than the costs incorporated into the BWL's rates.
40
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 6 - Costs/Credits Recoverable in Future Years (Continued)
Renewable Energy Plan (REP) and Energy Optimization (EO)
During the year ended June 30, 2010, the Board of Commissioners approved the
implementation of regulatory accounting as per GASB 62 to account for Public Act 295
of 2008 (PA. 295). PA. 295 set forth requirements for all Michigan utilities to meet the
new renewable energy standards and undertake energy optimization programs. As a
municipally owned electric utility, the BWL was required to file a proposed energy plan
with the Michigan Public Service Commission (MPSC) and this plan was approved on July
1 , 2009. These changes will affect the amount to be billed to electric customers. This
resulted in deferred inflow of resources of $6,21 7,249 and $6,953,049 as of June 30,
2016 and 2015, respectively.
Chiller Plant
During the year ended June 30, 2010, the BWL chose to use regulatory accounting as
per GASB 62 to recognize the contribution in aid of construction (CIAC) for the
development of a new chilled water plant. This resulted in recoverable inflow of
resources of $1 ,982,444 and $2,202,716 as of June 30, 2016 and 2015, respectively.
The BWL will recognize this as revenue monthly over the life of the new chilled water
plant to offset depreciation expense.
Wise Road
During the year ended June 30, 2012, the BWL chose to use regulatory accounting as per
GASB 62 to recognize the insurance proceeds for the damaged equipment at the Wise
Road Water Conditioning Plant (see Note 13). The remaining recoverable inflow of
resources as of June 30, 2016 and 2015 was $12,692,245 and $13,511 ,589
respectively.
41
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 7 - Transactions with the City of Lansing, Michigan
Operations - The BWL recognized revenue of $8,445,860 and $9,834,276 in 2016 and
2015, respectively, for water, electric, and steam services provided to the City. The BWL
incurred expenses for sewerage services purchased from the City of $849,884 and
$964,302 in 2016 and 2015, respectively.
Additionally, the BWL bills and collects sewerage fees for the City. In connection with
these services, the BWL received sewerage collection fees of $929,243 and $1 ,087,668
in 2016 and 2015, respectively, included in other income.
Return on Equity - Effective July 1 , 1992, the BWL entered into an agreement with the
City to provide an annual payment of a return on equity in accordance with a formula
based on net billed retail sales from its water, steam heat, and electric utilities for the
preceding 12-month period ending May 31 of each year. Effective March 1 , 2002, the
formula to calculate the amount owed to the City for return on equity will also include
wholesale revenue generated from the BWL's electric, water, steam, and chilled water
utilities for the preceding 12-month period ending May 31 of each year. Subject to the
provisions of Act 94 Public Acts of 1933, as amended, and the BWL's various bond
covenants, this amount is payable to the City no later than June 30 of each year. Under
terms of this agreement, the BWL paid to the City $21 ,033,531 in 2016 and
$20,840,065 in 2015 of operational cash flow in excess of debt service requirements.
Note 8 - Retirement Plans
The BWL has three retirement plans. The BWL administers a tax-qualified, single-
employer, noncontributory, defined benefit public employee retirement pension plan
(the "Defined Benefit Plan"), and the BWL has a tax-qualified, single-employer,
noncontributory, defined contribution public employee retirement pension plan (the
"Defined Contribution Plan"). The BWL also has a tax-qualified, single-employer,
defined benefit plan to administer and fund retiree healthcare benefits (the "Retiree
Benefit Plan and Trust").
42
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Defined Benefit Plan
Plan Description - The BWL Board administers the Defined Benefit Plan - a
noncontributory single-employer defined benefit pension plan for employees of the
BWL. The benefit terms were established by the BWL and may be amended by future
BWL actions.
The Plan for Employees' Pensions of the Board of Water and Light - City of Lansing,
Michigan - Defined Benefit Plan issues a publicly available financial report that includes
financial statements and required supplementary information. That report may be
obtained by writing to the Board of Water and Light, Chief Financial Officer, P.O. Box
13007, Lansing, Michigan 48901-3007.
Management of the Plan is vested in the BWL, which consists of eight members
appointed by the mayor of the City of Lansing, Michigan.
Effective July 1 , 1999, the Defined Benefit Plan was amended to include a medical
benefit component, in addition to the normal retirement benefits, to fund a portion of
the postretirement obligations for certain retirees and their beneficiaries. The funding
of the medical benefit component is limited to the amount of excess pension plan
assets available for transfer, as determined by the actuary. No medical benefits were
paid by the Defined Benefit Plan during the years ended June 30, 2016 and 2015.
Employees Covered by Benefit Terms - At February 28, 2016 and 2015 (the most recent
actuarial valuation for funding purposes), Defined Benefit Plan membership consisted of
the following:
2016 2015
Inactive plan members or beneficiaries
currently receiving benefits 382 398
Inactive plan members entitled to but not
yet receiving benefits 7 8
Active plan members 11 14
Total 400 420
43
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
The Defined Benefit Plan, by resolution of the board of commissioners, was closed to
employees hired subsequent to December 31 , 1996, and a defined contribution plan
was established for employees hired after December 31 , 1996. Effective December 1 ,
1997, all active participants in this plan were required to make an irrevocable choice to
either remain in this plan (defined benefit) or move to the newly established defined
contribution plan. Those participants who elected to move to the defined contribution
plan received lump-sum distributions from this plan that were rolled into their
accounts in the newly established defined contribution plan. Of the 760 employees who
were required to make this election, 602 elected to convert their retirement benefits to
the newly established defined contribution plan. As a result of this action, effective
December 1 , 1997, the board of commissioners transferred $75,1 16,470 to the newly
established defined contribution plan, reflecting the plan participants' accumulated
benefits as of said date.
Benefits Provided - The Defined Benefit Plan provides retirement, early retirement,
disability, termination, and death benefits. The Plan provides for an annual benefit
upon normal retirement age equal to the product of the total number of years of
credited service multiplied by a percentage equal to 1 .80 percent of the highest annual
pay during the last 10 years of service, paid in equal monthly installments.
Payments will either be non-increasing or increase only as follows: (a) By an annual
percentage increase that does not exceed the annual percentage increase in a cost-of-
living index that is based on prices of all items and issued by the Bureau of Labor
Statistics; (b) To the extent of the reduction in the amount of the employee's payments
to provide for a survivor benefit upon death, but only if the beneficiary whose life was
being used to determine the distribution period described in subsection 8 dies or is no
longer the employee's beneficiary pursuant to a qualified domestic relations order
within the meaning of Internal Revenue Code Section 414(p); (c) To provide cash
refunds of employee contributions upon the employee's death; or (d) To pay increased
benefits that result from a plan amendment.
Contributions - Article 9, Section 24 of the State of Michigan constitution requires that
financial benefits arising on account of employee service rendered in each year be
funded during that year. Accordingly, the BWL Pension Board retains an independent
actuary to determine the annual contribution. The actuarially determined rate is the
estimated amount necessary to finance the costs of benefits earned by plan members
during the year, with an additional amount to finance any unfunded accrued liability.
There was no contribution required for the years ended June 30, 2015 and 2016. Plan
documents do not require participant contributions.
44
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Net Pension Asset - The components of the net pension asset of the BWL at June 30,
2016 and June 30, 2015 were as follows (in thousands):
2016 2015
Total pension liability $ 61,178 $ 65,395
Plan fiduciary net position 65,442 73,679
Plan's net pension asset $ (4,264) $ (8,284)
Plan fiduciary net position, as a percentage of
the total pension liability 106.97% 112.67%
The BWL has chosen to use June 30, 2016 as its measurement date for fiscal year 2016.
The June 30, 2016 reported net pension asset was determined using a measure of the
total pension liability and the pension net position as of June 30, 2016. The June 30,
2016 total pension liability was determined by an actuarial valuation as of February 29,
2016, which used update procedures to roll forward the estimated liability to June 30,
2016.
The BWL has chosen to use June 30, 2015 as its measurement date for fiscal year 201 S.
The June 30, 2015 reported net pension asset was determined using a measure of the
total pension liability and the pension net position as of June 30, 201 S. The June 30,
2015 total pension liability was determined by an actuarial valuation as of February 28,
2015, which used update procedures to roll forward the estimated liability to June 30,
2015.
45
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Changes in the net pension asset during the measurement years were as follows:
Increase (Decrease)
Total Pension Plan Net Net Pension
Changes in Net Pension Asset Liability Position Asset
Balance at June 30, 2014 $ 69,341 $ 80,530 $ (11,189)
Changes for the year:
Service cost 274 - 274
Interest 4,919 4,919
Differences between expected - - -
and actual experience (1,093) - (1,093)
Net investment income - 1,771 (1,771)
Benefit payments, including
refunds (8,046) (8,046) -
Administrative expenses - (576) 576
Miscellaneous other changes - - -
Net changes (3,946) (6,851) 2,905
Balance at June 30, 2015 $ 65,395 $ 73,679 $ (8,284)
Changes for the year:
Service cost 223 - 223
Interest 4,625 4,625
Differences between expected - - -
and actual experience 299 299
Changes in assumptions (1,468) - (1,468)
Net investment income - 47 (47)
Benefit payments, including
refunds (7,896) (7,896) -
Administrative expenses - (388) 388
Miscellaneous other changes - - -
Net changes (4,217) (8,237) 4,020
Balance at June 30, 2016 $ 61,178 $ 65,442 $ (4,264)
46
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Pension Expense and Deferred Outflows of Resources and Deferred Inflows of
Resources Related to Pensions - For the year ended June 30, 2016, the BWL recognized
pension expense of $(1 ,1 1 1 ,385). At June 30, 2016, the BWL reported deferred
outflows of resources and deferred inflows of resources related to pensions from the
following sources:
Deferred Outflows Deferred Inflows
of Resources of Resources
Net difference between projected and actual earnings $ 2,930,218 $on pension plan investments
For the year ended June 30, 2015, the BWL recognized pension expense of
$(2,037,327). At June 30, 2015, the BWL reported deferred outflows of resources and
deferred inflows of resources related to pensions from the following sources:
Deferred Outflows Deferred Inflows
of Resources of Resources
Net difference between projected and actual earnings $ - $ (2,201,407)
on pension plan investments
47
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Amounts reported as deferred outflows of resources and deferred inflows of resources
related to pensions will be recognized in pension expense as follows:
Years Ending
June 30
2017 $ 586,044
2018 586,044
2019 586,044
2020 586,044
2021 586,042
Thereafter $ _
Actuarial Assumptions - The total pension liability in the June 30, 2016 and June 30,
2015 actuarial valuation was determined using the following actuarial assumptions,
applied to all periods included in the measurement:
Inflation 3.00%
Salary increases 2016 - 3.5%; 2015- 6.44 - 10.26%
Investment rate of return 7.50%
Mortality rates were based on the Healthy and Disabled, RP-2014 Mortality Table with
MP-2015 Improvement Scale.
The most recent experience review was completed in 2014. Since the Defined Benefit
Plan covered 1 1 active participants in fiscal year 2016 and 14 active participants in fiscal
year 2015, assumptions like termination, retirement, and disability have an immaterial
impact on the results and have not been changed.
48
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Discount Rate - The discount rate used to measure the total pension liability was 7.5
percent. The projection of cash flows used to determine the discount rate assumed
that BWL contributions will be made at rates equal to the actuarially determined
contribution rates.
Projected Cash Flows
Based on those assumptions, the Defined Benefit Plan's fiduciary net position was
projected to be available to make all projected future benefit payments of current active
and inactive employees. Therefore, the long-term expected rate of return on the
Defined Benefit Plan investments was applied to all periods of projected benefit
payments to determine the total pension asset.
The long-term expected rate of return on Defined Benefit Plan investments was
determined using a building-block method in which best-estimate ranges of expected
future real rates of return (expected returns, net of pension plan investment expense
and inflation) are developed for each major asset class. These ranges are combined to
produce the long-term expected rate of return by weighting the expected future real
rates of return by the target asset allocation percentage and by adding expected
inflation. Best estimates of arithmetic real rates of return as of June 30, 2016 and 2015
for each major asset class included in the Defined Benefit Plan's target asset allocation,
as disclosed in the Defined Benefit Plan's financial statements, are summarized in the
following table:
Long-term Expected
Asset Class Real Rate of Return
Fixed Income 2.00%
Domestic equity 6.40%
International equity 6.80%
49
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Sensitivity of the Net Pension Asset to Changes in the Discount Rate - The following
presents the net pension asset of the BWL at June 30, 2016, calculated using the
discount rate of 7.5 percent, as well as what the BWL's net pension asset would be if it
were calculated using a discount rate that is 1 percentage-point lower (6.5 percent) or
1 percentage-point higher (8.5 percent) than the current rate:
Current
1% Decrease Discount Rate 1% Increase
(6.50 %) (7.50 %) (8.50%)
Net pension asset of the BWL
(in thousands) $ 334 $ (4,264) $ (8,541)
The following presents the net pension asset of the BWL at June 30, 2015, calculated
using the discount rate of 7.5 percent, as well as what the BWL's net pension asset
would be if it were calculated using a discount rate that is 1 percentage-point lower
(6.5 percent) or 1 percentage-point higher (8.5 percent) than the current rate:
Current
1% Decrease Discount Rate 1% Increase
(6.50 %) (7.50 %) (8.50%)
Net pension asset of the BWL
(in thousands) $ (3,053) $ (8,284) $ (13,128)
Defined Benefit Plan Fiduciary Net Position - Detailed information about the Defined
Benefit Plan's fiduciary net position is available in the separately issued financial report.
For the purpose of measuring the net pension asset, deferred outflows of resources,
and deferred inflows or resources related to pension and pension expense, information
about the Defined Benefit Plan's fiduciary net position and addition to/deduction from
fiduciary net position have been determined on the same basis as they are reported by
the Defined Benefit Plan. The Defined Benefit Plan uses the economic resources
measurement focus and the full accrual basis of accounting. Investments are stated at
fair value. Contribution revenue is recorded as contributions are due, pursuant to legal
requirements. Benefit payments and refunds of employee contributions are recognized
as expense when due and payable in accordance with the benefit terms.
50
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Defined Contribution Plan
The Defined Contribution Plan was established by the BWL in 1997 under Section 5-203
of the City Charter. The Defined Contribution Plan covers substantially all full-time
employees hired after December 31 , 1996. In addition, 602 employees hired before
January 1 , 1997 elected to convert their retirement benefits from the Defined Benefit
Plan effective December 1 , 1997.
The Plan for Employees' Pensions of the Board of Water and Light - City of Lansing,
Michigan - Defined Contribution Plan issues a publicly available financial report. That
report may be obtained by writing to the Board of Water and Light, Chief Financial
Officer, P.O. Box 13007, Lansing, Michigan 48901 -3007.
The Defined Contribution Plan operates as a money purchase pension plan and meets
the requirements of Sections 401(a) and 501(a) of the IRC of 1986, as amended from
time to time.
For employees hired before January 1 , 1997, the BWL is required to contribute 15.0
percent of the employees' compensation. For employees hired after January 1 , 1997,
the BWL is required to contribute 8.1 percent of the employees' compensation. In
addition, the BWL is required to contribute 3.0 percent of the employees' compensation
for all employees who are not eligible to receive overtime pay and 0.5 percent of the
employees' compensation for all nonbargaining employees. No participant
contributions are required.
During the years ended June 30, 2016 and 2015, the BWL contributed $5,661 ,884 and
$5,548,360, respectively. The BWL's contributions are recognized in the period that the
contributions are due.
Basis of Accounting - The Defined Contribution Plan's financial statements are
prepared using the accrual method of accounting in accordance with Governmental
Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension
Plans.
51
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Valuation of Investments and Income Recognition - The Defined Contribution Plan
investments are stated at market value based on closing sales prices reported on
recognized securities exchanges on the last business day of the year, or, for listed
securities having no sales reported and for unlisted securities, upon the last reported
bid prices on that date. The mutual funds are valued at quoted market prices, which
represent the net asset values of shares held by the Defined Contribution Plan at year
end.
Purchases and sales of investments are recorded on a trade-date basis. Interest income
is accrued when earned. Dividend income is recorded on the ex-dividend date.
Regulatory Status - The Defined Contribution Plan is not subject to the reporting
requirements of the Employee Retirement Income Security Act of 1974 (ERISA) as it has
been established for the benefit of a governmental unit.
Retiree Benefit Plan and Trust
The Retiree Benefit Plan and Trust (the "Plan") is a single-employer defined benefit
healthcare plan. The Plan provides medical, dental, and life insurance benefits in
accordance with Section 5-203 of the City Charter. Substantially all of the BWL's
employees may become eligible for healthcare benefits and life insurance benefits if
they reach normal retirement age while working for the BWL. There were 715
participants eligible to receive benefits at June 30, 2016 and 725 participants eligible at
June 30, 2015.
In October 1999, the BWL formed a Voluntary Employee Benefit Administration (VEBA)
trust for the purpose of accumulating assets sufficient to fund retiree healthcare
insurance costs in future years. During the years ended June 30, 2016 and 2015, the
cost to BWL of maintaining the Retiree Benefit Plan was $9,423,081 and $9,670,794, of
which respectively, was incurred as direct costs of benefits.
The Retiree Benefit Plan and Trust of the Board of Water and Light - City of Lansing,
Michigan issues a publicly available financial report. That report may be obtained by
writing to the Board of Water and Light, Chief Financial Officer, P.O. Box 13007,
Lansing, Michigan 48901 -3007.
Basis of Accounting - The plan statements are prepared using the accrual basis of
accounting.
52
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Investment Valuation and Income Recognition - Plan investments are reported at fair
value. Securities traded on a national or international exchange are valued at the last
reported sales price. Purchases and sales of investments are recorded on a trade-date
basis. Appreciation or depreciation of investments is calculated based on the beginning
of the period's fair value of investments.
Funding Policy - The BWL adopted a process for funding the retiree benefits using both
a VEBA trust and, to the extent permitted by law, excess pension assets in the Defined
Benefit Pension Plan. Additional contributions to the VEBA trust from BWL operating
funds to supplement Section 420 transfers will not exceed the recommended annual
contribution amount required to cover current service of active participants and
amortize the unfunded accrued liability over 30 years. The required contribution is
based on a projected pay-as-you-go financing requirement with an additional amount
to prefund benefits. The pay-as-you-go retire benefits paid was more than the annual
required contribution (ARC) and therefore, expensed on the statement of changes in
trust net position.
The Plan's annual other postemployement benefit (OPEB) cost is calculated based on the
ARC, an amount actuarially determined in accordance with the parameters of GASB
Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis,
is projected to cover normal costs each year and amortize any unfunded actuarial
liabilities over a period of 30 years. The annual OPEB contributions are on a pay-as-
you-go accounting method because the Plan is overfunded.
Actuarial Assumptions - Actuarial valuations of an ongoing plan involve estimates of
the value of reported amounts and assumptions about the probability of the occurrence
of events far into the future. Examples include assumptions about future employment,
mortality, and the healthcare cost trend. Amounts determined regarding the funded
status of the plan and the annual required contributions of the employer 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, presented as
required supplementary information following the notes to the financial statements,
presents multiyear trend information about whether the actuarial value of plan assets is
increasing or decreasing over time relative to the actuarial accrued liabilities for
benefits.
53
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Projections of benefits for financial reporting purposes are based on the substantive
plan (the plan as understood by the employer and the plan members) and include the
types of benefits provided at the time of each valuation and the historical pattern of
sharing of benefit costs between the employer and plan members to that point. The
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.
The Plan has calculated the accrued actuarial liability and required contribution using
certain methods and assumptions. Benefit payments have been computed using the
individual entry age normal method. The assets have been valued in the actuary report
using the fair market value. The healthcare cost trend rates used range from 2.5 to 9.0
percent for the year ended June 30, 2016 and 5.0 to 9.0 percent for the year ended
June 30, 2015.
Contribution trend information is as follows (in thousands):
Percentage of
Annual OPEB Annual OPEB Annual OPEB Net OPEB
Fiscal Year Ended Cost Contributed Cost Contributed Obligation (Asset)
6/30/14 $ 9,202 $ 9,268 101% $ (267)
6/30/15 5,765 9,671 168% (4,186)
6/30/16 5,828 9,423 162% (7,781)
The net OPEB asset is included in other assets on the statement of net position.
Funded Status and Funding Progress - Actuarial valuations of an ongoing plan involve
estimates of the value of reported amounts and assumptions about the probability of
the occurrence of events far into the future. Significant actuarial assumptions used in
determining the annual OPEB cost include (a) rate of return on the investments of
present and future assets of 7.5 percent, compounded annually, (b) projected
healthcare trend rates ranging from 5.0 percent to 9.0 percent, (c) amortization method
level dollar over a 30-year period, and (d) RP - 2014 mortality table fully generational
using scale MP - 2015 and RP - 2014 Mortality Table fully generational using scale MP-
2014, respectively.
54
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 8 - Retirement Plans (Continued)
Funding status and funding progress trend information is as follows (in thousands):
Unfunded
Actuarial Actuarial UAAL as%of
Actuarial Accrued Accrued Funded Covered Covered
Valuation Date Asset Value Liability Liability Ratio Payroll Payroll
2/28/14 $ 148,307 $ 194,365 $ 46,058 76.30% $ 47,012 98.0%
2/28/15 157,565 200,196 42,631 78.71% 50,613 84.2%
2/29/16 145,274 205,215 59,941 70.79% 53,540 112.0%
Other Postretirement Benefits
The BWL offers its employees a deferred compensation plan, created in accordance with
IRC 457, which is administered by a trustee, the ICMA Retirement Corporation. The BWL
makes contributions of $1 ,000 annually for the employees as of January 1 of each year,
during the month of January. The BWL also will match employee contributions at one
dollar for every one dollar up to $1 ,250 in a calendar year.
Note 9 - Commitments and Contingencies
At June 30, 2016 and 2015, the BWL has two letters of credit in the amounts of
$1 ,000,000 and $817,220 issued to the Michigan Department of Natural Resources.
The letters of credit were issued to satisfy requirements of the Michigan Department of
Natural Resources to provide financial assurance to the State of Michigan for the cost of
closure and postclosure monitoring and maintenance of a landfill site operated by the
BWL.
55
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 9 - Commitments and Contingencies (Continued)
Through monitoring tests performed on the landfill sites operated by the BWL, it has
been discovered that the sites are contaminating the groundwater. The contamination
does not pose a significant health risk, but does lower the quality of the groundwater.
The BWL is currently in the process of applying for approval from the State of Michigan
to remediate the sites. The BWL has estimated the total cost for remediation, including
closure and postclosure cost of the landfills, and has recorded a liability of $7,853,780
and $10,172,203 for the years ended June 30, 2016 and 2015, respectively. Certain
remediation activities have commenced and are in progress. The landfill sites are no
longer receiving waste products. Landfill closure and postclosure requirements are
associated with the Michigan Department of Environmental Quality. Annual postclosure
costs of these landfill sites are not expected to exceed $380,000 annually and are
included in the liability above. Estimates will be revised as approvals are received from
the State. In accordance with the regulatory basis of accounting as per GASB 62 (see
Note 1), the BWL recorded a corresponding regulatory asset (see Note 6).
The BWL is subject to various laws and regulations with respect to environmental
matters such as air and water quality, soil contamination, solid waste disposal, handling
of hazardous materials, and other similar matters. Compliance with these various laws
and regulations could result in substantial expenditures. The BWL has established a
Designated Purpose Fund (see Note 1), of which one of the purposes of the fund is to
meet extraordinary expenditures resulting from responsibilities under environmental
laws and regulations. Management believes that all known or expected responsibilities
to these various laws and regulations by the BWL will be sufficiently covered by the
Designated Purpose Fund and the environmental remediation liability.
The BWL is involved in various other legal actions which have arisen in the normal
course of business. Such actions are usually brought for claims in excess of possible
settlement or awards, if any, that may result. After taking into consideration legal
counsel's evaluation of pending actions, management has recorded an adequate
reserve as of June 30, 2016 and 2015 in regard to specific pending legal cases.
The BWL has entered into contracts to purchase coal totaling $11 ,858,000 through
December 31 , 2018. In addition, the BWL has entered into contracts for the rail services
related to shipping the coal. Commitments for future rail services to be purchased are
approximately $5,380,000 through December 2016.
56
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 9 - Commitments and Contingencies (Continued)
Construction in progress consists of projects for expansion or additions to the utility
plant. The estimated additional cost to complete various projects is approximately
$131 ,593,000 and $75,074,000 at June 30, 2016 and 2015, respectively, including
commitments on existing construction contracts approximating $5,449,000 and
$9,173,000 at June 30, 2016 and 2015, respectively. These projects will be funded
through operational cash flow, including the project funds reported as other assets.
There are additional commitments on projects in the process of being constructed that
are not included above.
Sierra Club v BWL & Environmental Protection Agency (EPA) Notice of Violation
In June of 2014, the Sierra Club, an environmental special interest group, provided
written notice to the BWL of their intent to file a complaint against the BWL asserting
violation of the Clean Air Act (Act). Similar to the Sierra Club's allegations, the EPA
served the BWL with a Notice of Violation.
As of the date of the financial statements, the claims alleged have no specific dollar
figure claimed, nor has the resolution of the same been finalized. The amount of an
anticipated loss, if any, cannot be reasonably estimated.
Note 10 - Power Supply Purchase
In 1983, the BWL entered into 35-year power supply and project support contracts with
MPPA, of which the BWL is a member. Under the agreement, the BWL has the ability to
purchase power from MPPA, will sell power to MPPA at an agreed-upon rate, and will
purchase 64.29 percent of the energy generated by MPPA's 37.22 percent ownership in
Detroit Edison's Belle River Plant (Belle River), which became operational in August
1984.
57
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 10 - Power Supply Purchase (Continued)
Under the terms of its contract, the BWL must make minimum annual payments equal
to its share of debt service and its share of the fixed operating costs of Belle River. The
estimated required payments presented below assume no early calls or refinancing of
existing revenue bonds and a 3.0 percent annual inflation of fixed operating costs,
which include expected major maintenance projects.
Estimated
Debt Service Fixed Total
Year and Capital Operating Costs Required
2017 $ 24,957,228 $ 15,005,514 $ 39,962,742
2018 16,603,644 15,466,998 32,070,642
Total $ 41,560,872 $ 30,472,512 $ 72,033,384
In addition to the above required payments, the BWL must pay for fuel, other operating
costs, and transmission costs related to any kilowatt hours (KWHs) purchased under
these contracts.
The BWL recognized expenses for 2016 and 2015 of $50,425,873 and $53,051 ,047,
respectively, to purchase power under the terms of this contract. The price of this
power was calculated on a basis, as specified in the contracts, to enable MPPA to
recover its production, transmission, and debt service costs.
In connection with the Belle River purchase, in December 2002, MPPA issued
$280,180,000, principal amount, of its Belle River Project Refunding Revenue Bonds,
2002 Series A, with rates ranging from 2.125 percent to 5.25 percent to advance
refund $330,850,000 of outstanding 1993A and B bonds.
The BWL has entered into agreements with Granger Electric Company to purchase
power generated from landfill gases. The agreements will expire as of June 30, 2028
and September 30, 2028. The minimum power to be purchased in the contract is 3.2
megawatts, with the option to purchase up to 12 megawatts depending on capacity.
The price of the electricity is based on the BWL's cost of electricity generation. The total
amount of electricity expected to be purchased for the remainder of these contracts is
estimated at $94,000,000.
58
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 1 1 - Estimated Liability for Excess Earnings on Water Supply and Electric Utility
System Revenue Bonds
In accordance with Section 148(f)(2) of the IRC of 1986, as amended, the BWL is
required on each anniversary date Ouly 1) of the Water Supply, Electric Utility, and
Steam Utility System Revenue Bonds, Series 2008A, 2011A, 2012A, and 201 3A to
compute amounts representing the cumulative excess earnings on such bonds. That
amount essentially represents a defined portion of any excess of interest earned on
funds borrowed over the interest cost of the tax-exempt borrowings. Expense is
charged (credited) annually in an amount equal to the estimated increase (decrease) in
the cumulative excess earnings for the year. On every fifth anniversary date and upon
final maturity of the bonds, the BWL is required to remit to the Internal Revenue Service
the amount of any cumulative excess earnings computed on the date of such maturity
plus an amount equal to estimated interest earned on previous years' segregated funds.
The estimated liability for excess earnings was $0 at June 30, 2016 and 201 S. In
accordance with the requirements of the bond indenture, the BWL is required to set
aside any current year additions to this estimated liability in a rebate fund within 60
days of the anniversary date of the bonds.
Note 12 - Risk Management and Insurance
The BWL is exposed to various risks of loss related to property loss, torts, errors and
omissions, and employee injuries (workers' compensation), as well as medical benefits
provided to employees. The BWL has purchased commercial insurance for certain
general liability, business auto, excess liability, property and boiler and machinery,
public officials and employee liability claims, specific excess health insurance claims,
and specific excess workers' compensation claims, subject to policy terms, limits,
limitations, and deductibles. The BWL is self-insured for most workers' compensation
and health insurance claims. Settled claims relating to the commercial insurance have
not exceeded the amount of insurance coverage in any of the past three fiscal years.
59
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 12 - Risk Management and Insurance (Continued)
The BWL estimates the liability for self-insured workers' compensation and health
insurance claims that have been incurred through the end of the fiscal year, including
claims that have been reported as well as those that have not yet been reported.
Changes in the estimated liability for the past two fiscal years were as follows:
Workers'Compensation Health Insurance
2016 2015 2014 2016 2015 2014
Unpaid claims-
Beginning of year $ 2,200,000 $ 2,000,000 $ 2,000,000 $ 1,188,172 $ 1,637,276 $ 1,590,814
Incurred claims,
including claims incurred
but not reported 348,038 554,773 864,854 13,797,887 20,853,299 18,340,955
Claim payments (348,038) (354,773) (864,854) (13,818,593) (21,302,403) (18,294,493)
Unpaid claims-
Endofyear $ 2,200,000 $ 2,200,000 $ 2,000,000 $ 1,167,466 $ 1,188,172 $ 1,637,276
The liability for health insurance is included with accounts payable on the statement of
net position.
Note 13 - Wise Road Reconstruction Project
In July 2011 , the Wise Road water treatment plant was damaged by a chemical spill. The
piping and electrical systems were damaged and are being replaced or repaired. The
reconstruction costs were $19,492,299, of which $18,151 ,549 was recouped from the
insurance carrier.
60
Board of Water and Light - City of Lansing, Michigan
Notes to Financial Statements
As of and for the Years Ended June 30, 2016 and 2015
Note 14 - Upcoming Pronouncements
In June 2015, the GASB issue two new standards addressing accounting and financial
reporting by state and local governments for postemployment benefits other than
pensions (OPEB). GASB Statement No. 74 Financial Reporting for Postemployment
Benefit Plans other than Pension Plans, addresses reporting by OPEB plans whereas
GASB Statement No. 75, Accounting and Financial Reporting for Postemployment
Benefits Other Than Pensions, addresses accounting and reporting by employer
governments that provide OPEB benefits to their employees. Along with the currently
requirement statement of fiduciary net position and statement of changes in fiduciary
net position, OPEB plans will now be require to include in the financial statement more
extensive footnote disclosures and requirement supplementary information related to
the measurement of the OPEB liabilities for which assets have been accumulated. In
addition, the BWL will, after adoption of GASB 75, recognize on the face of the financial
statements its net OPEB liability. The BWL is currently evaluating the impact these
standards will have on the financial statements when adopted. GASB 74 is effective for
fiscal years beginning after June 15, 2016 whereas GASB 75 is effective one year later.
61
Required Supplemental Information
62
Board of Water and Light - City of Lansing, Michigan
Required Supplemental Information (unaudited)
Defined Benefit Plan - Schedule of Changes in the
BWL Net Pension Asset and Related Ratios
Last Ten Fiscal Years
(in thousands)
2016 2015 2014 2013 2012` 2011` 2010* 2009' 2008` 2007`
Total Pension Liability
Service cost $ 224 $ 274 $ 349 $ 407 $ $ $ $ $ $
Interest 4,625 4,919 4,751 5,085
Changes in benefit terms - - - -
Differences between expected and actual experience 299 (1,093) 964 (1,716)
Changes in assumptions"" (1,468) - 4,538 -
Benefit payments, including refunds (7,896) (8,046) (8,541) 7,777
Net Change in Total Pension Liability (4,217) (3,946) 2,061 (4,001)
Total Pension Liability-Beginning of year 65,395 69,341 67,280 71,281
Total Pension Liability-End of year 61,178 65,395 69,341 67,280
Plan Fiduciary Net Position
Contributions-Employer - - - -
Contributions-Member - - - -
Net investment income 47 1,771 14,243 10,170
Administrative expenses (388) (576) (596) (536)
Benefit payments, including refunds (7,896) (8,046) (8,541) (7,777)
Other
Net change in Plan Fiduciary Net Position (8,237) (6,850) 5,106 1,857
Plan Fiduciary Net Position-Beginning of year 73,679 80,529 75,424 73,567
Plan Fiduciary Net Position-End of year 65,442 73,679 80,530 75,424
BWL Net Pension Asset-Ending $ (4,264) $ (8,284) $ (11,189) $ (8,144) $
Plan Fiduciary Net Position as a%of Total Pension Liability 106.97% 112.67% 116.14% 112.10% % % % % % %
Covered Employee Payroll 772 1,018 1,225 1,684
BWL's Net Pension Asset as a%of Covered Employee Payroll (552%) (814%) (913%) (484%) % % % % % %
*GASB Statement No.68 was implemented as of June 30,2015. Information from 2006-2012 is not available and this schedule will be presented on a prospective basis.
"Related to change in the mortality assumption from the RP2000CH table projected to 2018 with Scale AA to the RP-2014 table projected generationally with Scale MP-2015
63
Board of Water and Light - City of Lansing, Michigan
Required Supplemental Information (unaudited)
Defined Benefit Plan — Schedule of Employer Contributions
Last Ten Fiscal Years
(in thousands)
2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Actuarially determined contribution $ $ $ $ $ $ 86 $ 2,109 $ $ $ -
Contributions in relation to the actuarially determined contribution 86 2,109 -
Contribution Deficiency(Excess) $ - $ - $ - $ - $ - $ - $ - $ - $ - $
Covered Employee Payroll 772 1,018 1,225 1,684 2,101 2,398 2,660 3,089 3,162 3,391
Contributions as a Percentage of Covered Employee Payroll - % - % - % - % - % 3.59% 79.29% - % - % - %
64
Board of Water and Light - City of Lansing, Michigan
Required Supplemental Information (unaudited)
Retiree Benefit Plan and Trust Schedule
For the Years Ended June 30, 2016 and 2015
The schedule of funding progress is as follows:
Unfunded
Actuarial Actuarial UAAL as % of
Actuarial Accrued Accrued Funded Covered Covered
Valuation Date Asset Value Liability Liability Ratio Payroll Payroll
2/28/14 $ 148,307 $ 194,365 $ 46,058 76.30% $ 47,012 98.0%
2/28/15 157,565 200,196 42,631 78.71% 50,613 84.2%
2/29/16 145,274 205,215 59,941 70.79% 53,540 112.0%
65
Additional Information
66
Board of Water and Light - City of Lansing, Michigan
Income Available for Revenue Bond Debt Retirement
For the Year Ended June 30
2016 2015
Income - Before capital contributions per statement
of revenues, expenses, and changes in net position $ 900,064 $ 12,627,295
Adjustments to Income
Depreciation and impairment 57,305,081 39,104,343
Interest on long-term debt:
Notes 51,049 49,691
Revenue bonds 14,861,300 14,995,574
Total additional income 72,217,430 54,149,608
Income Available for Revenue Bonds and Interest
Redemption $ 73,117,494 $ 66,776,903
Debt Retirement Pertaining to Revenue Bonds
Principal $ 10,885,000 $ 11,010,000
Interest 16,569,252 17,095,181
Total $ 27,454,252 $ 28,105,181
Percent Coverage of Revenue Bonds and Interest
Requirements 266 238
67
Board of Water and Light - City of Lansing, Michigan
Combined Water
2016 2015 2016 2015
Operating Revenues
Water $ 38,730,602 $ 37,910,106 $ 38,730,602 $ 37,910,106
Electric:
Retail 278,489,705 266,878,053 - -
Sales for resale 24,756,061 28,169,851
Steam 12,683,463 14,959,212
Chilled water 6,275,583 5,568,287 - -
Total operating revenues 360,935,414 353,485,509 38,730,602 37,910,106
Operating Expenses
Production:
Fuel, purchased power,and
other operating expenses 159,118,150 163,336,653 8,026,915 8,104,909
Maintenance 19,839,991 24,415,690 3,239,156 3,134,979
Transmission and distribution:
Operating expenses 7,404,258 7,006,002 1,535,532 1,419,800
Maintenance 14,189,340 13,864,024 2,651,954 3,582,512
Administrative and general 64,007,040 61,297,460 10,271,709 10,875,024
Depreciation 41,541,561 39,104,343 6,607,984 6,155,947
Total operating expenses 306,100,340 309,024,172 32,333,250 33,273,171
Operating Income 54,835,074 44,461,337 6,397,352 4,636,935
Nonoperating Income(Expenses)
Investment income 1,913,873 1,351,006 291,934 219,281
Other(expense)income (4,588,160) 1,534,922 (831,206) 921,168
Impairment on Eckert Plant (15,763,520) - - -
System capacity fee 3,351,392 9,223,075 293,582 807,942
Bonded debt interest expense (14,861,300) (14,995,574) (1,973,434) (1,858,926)
Amortization-Central Utilities Complex (2,902,715) (8,057,715) (254,278) (705,856)
Payment in lieu of taxes (21,033,531) (20,840,065) (2,298,643) (2,248,922)
Other interest expense (51,049) (49,691) (2,838) (4,366)
Total nonoperating expense (53,935,010) (31,834,042) (4,774,883) (2,869,679)
Net Income(Loss) $ 900,064 $ 12,627,295 $ 1,622,469 $ 1,767,256
68
Detail of Statements of Revenues and Expenses
For the Years Ended June 30, 2016 and 2015
Electric Steam Chilled Water
2016 2015 2016 2015 2016 2015
278,489,705 266,878,053 - - - -
24,756,061 28,169,851 - - - -
- - 12,683,463 14,959,212 - -
- - - - 6,275,583 5,568,287
303,245,766 295,047,904 12,683,463 14,959,212 6,275,583 5,568,287
144,516,334 147,658,997 4,862,084 6,103,489 1,712,817 1,469,258
15,599,674 20,499,896 767,751 544,181 233,410 236,634
5,515,861 5,235,380 352,865 350,822 - -
11,136,141 9,979,670 401,245 301,536 - 306
52,476,238 49,245,600 1,011,070 984,240 248,023 192,596
30,949,620 29,178,160 2,553,160 2,451,617 1,430,797 1,318,619
260,193,868 261,797,703 9,948,175 10,735,885 3,625,047 3,217,413
43,051,898 33,250,201 2,735,288 4,223,327 2,650,536 2,350,874
1,484,122 1,023,221 79,313 58,070 58,504 50,434
(5,909,578) 586,071 1,928,331 (186,030) 224,293 213,713
(15,763,520) - - - - -
2,802,434 7,712,335 255,376 702,798 - -
(10,242,601) (10,744,870) (1,984,250) (2,044,620) (661,015) (347,158)
(2,427,250) (6,737,861) (221,187) (613,998) - -
(17,667,200) (17,386,779) (687,791) (871,399) (379,897) (332,965)
(48,174) (45,153) (37) (172) - -
(47,771,767) (25,593,036) (630,245) (2,955,351) (758,115) (415,976)
$ (4,719,869) $ 7,657,165 $ 2,105,043 $ 1,267,976 $ 1,892,421 $ 1,934,898
69
Board of Water and Light - City of Lansing, Michigan
Detail of Statements of Changes in Net Position
Combined Water Electric Steam Chilled Water
Net Position -June 30, 2014 $ 582,563,111 $ 93,647,830 $ 493,911,634 $ (4,853,301) $ (143,052)
Income(loss)before contributions 12,627,295 1,767,256 7,657,165 1,267,976 1,934,898
Net Position -June 30, 2015 595,190,406 95,415,086 501,568,799 (3,585,325) 1,791,846
Income (loss)before contributions 900,064 1,622,469 (4,719,869) 2,105,043 1,892,421
Net Position -June 30, 2015 $ 596,090,470 $ 97,037,555 $ 496,848,930 $ (1,480,282) $ 3,684,267
70
Board of Water and Light - City of Lansing, Michigan
Pension Trust Funds - Detail of Statements of Net Position
As of June 30,2016
Defined Contribution Defined Benefit
Plan Plan VEBA Total
Assets
Receivable- Investment interest receivable $ - $ 143,225 $ 386,930 $ 530,155
Investments at fair value:
Cash and money market trust fund - 746,554 13,498,404 14,244,958
U.S.government obligations - 7,565,160 21,458,288 29,023,448
Fixed income securities - 10,491,022 28,725,054 39,216,076
Mutual funds 131,736,753 7,908,757 15,208,788 154,854,298
Stable value 34,193,741 - - 34,193,741
Partnership - 1,101,086 - 1,101,086
Common stock - 37,486,031 77,022,878 114,508,909
Self-directed brokerage account 1,551,450 - - 1,551,450
Participant notes receivable 3,749,371 - - 3,749,371
Total investments 171,231,315 65,298,610 155,913,412 392,443,337
Net Position-Held in trust for pension
and other employee benefits $ 171,231,315 $ 65,441,835 $ 156,300,342 $ 392,973,492
As of June 30,2015
Defined Contribution Defined Benefit
Plan Plan VEBA Total
Assets
Receivable-Investment interest receivable $ - $ 104,768 $ 200,805 $ 305,573
Investments at fair value:
Cash and money market trust fund - 2,321,310 6,243,203 8,564,513
U.S.government obligations - 6,659,203 15,462,341 22,121,544
Fixed income securities - 11,312,551 21,269,571 32,582,122
Mutual funds 136,010,607 925,065 1,894,929 138,830,601
Stable value 31,844,948 - - 31,844,948
Partnership - 1,098,790 - 1,098,790
Common stock - 51,257,647 111,112,369 162,370,016
Self-directed brokerage account 1,376,730 - - 1,376,730
Participant notes receivable 3,888,351 - - 3,888,351
Total investments 173,120,636 73,574,566 155,982,413 402,677,615
Net Position-Held in trust for pension
and other employee benefits $ 173,120,636 $ 73,679,334 $ 156,183,218 $ 402,983,188
71
Board of Water and Light - City of Lansing, Michigan
Pension Trust Funds - Detail of Statement of
Changes in Net Position
For the Year Ended June 30, 2016
Defined Defined
Contribution Plan Benefit Plan VEBA Total
Increases
Investment income(loss):
Net appreciation (depreciation)
in fair value of investments $ (8,061,276) $ (1,459,436) $ (2,293,242) $ (11,813,954)
Interest and dividend income 6,555,315 1,506,198 3,242,238 11,303,751
Net investment income(loss) (1,505,961) 46,762 948,996 (510,203)
Employer contributions 5,661,884 - 9,423,081 15,084,965
Participant rollover contributions 2,026,588 - - 2,026,588
Interest from participant notes receivable 150,624 - - 150,624
Total increases 6,333,135 46,762 10,372,077 16,751,974
Decreases
Retiree benefits paid 7,946,117 7,895,766 9,423,081 25,264,964
Loan defaults 186,801 - - 186,801
Participants'note and administrative fees 89,538 388,495 831,872 1,309,905
Total decreases 8,222,456 8,284,261 10,254,953 26,761,670
Change in Net Position Held in Trust (1,889,321) (8,237,499) 117,124 (10,009,696)
Net Position Held in Trust for Pension
and Other Employee Benefits
Beginning of year 173,120,636 73,679,334 156,183,218 402,983,188
End of year $ 171,231,315 $ 65,441,835 $ 156,300,342 $ 392,973,492
72
Board of Water and Light - City of Lansing, Michigan
Pension Trust Funds - Detail of Statement of
Changes in Net Position
For the Year Ended June 30, 2015
Defined Defined
Contribution Plan Benefit Plan VEBA Total
Increases
Investment income(loss):
Net appreciation (depreciation)
in fair value of investments $ 21,201 $ 215,209 $ 650,079 $ 886,489
Interest and dividend income 7,295,819 1,556,214 2,964,616 11,816,649
Net investment income(loss) 7,317,020 1,771,423 3,614,695 12,703,138
Employer contributions 5,548,360 - 9,670,794 15,219,154
Participant rollover contributions 1,345,481 - - 1,345,481
Interest from participant notes receivable 155,010 - - 155,010
Other 152,128 - - 152,128
Total increases 14,517,999 1,771,423 13,285,489 29,574,911
Decreases
Retiree benefits paid 10,451,713 8,045,948 9,670,794 28,168,455
Loan defaults 125,254 - - 125,254
Participants'note and administrative fees 100,135 576,122 1,152,927 1,829,184
Total decreases 10,677,102 8,622,070 10,823,721 30,122,893
Change in Net Position Held in Trust 3,840,897 (6,850,647) 2,461,768 (547,982)
Net Position Held in Trust for Pension
and Other Employee Benefits
Beginning of year 169,279,739 80,529,981 153,721,450 403,531,170
End of year $ 173,120,636 $ 73,679,334 $ 156,183,218 $ 402,983,188
73
BOARD OF WATER AND LIGHT -
CITY OF LANSING, MICHIGAN
Lansing, Michigan
COMMUNICATION TO THOSE CHARGED WITH
GOVERNANCE AND MANAGEMENT
As of and for the Year Ended June 30, 2016
BOARD OF WATER AND LIGHT - CITY OF LANSING, MICHIGAN
TABLE OF CONTENTS
Page No.
Required Communication of Internal Control Related Matters Identified in the
Audit to Those Charged with Governance 1
Internal Control Over Information Technology Systems and Procedures 2
Other Communications with Those Charged with Governance
Two Way Communication Regarding Your Audit 3-4
Required Communications by the Auditor with Those Charged with Governance 5-8
Management Representations
REQUIRED COMMUNICATION OF INTERNAL CONTROL RELATED MATTERS
IDENTIFIED IN THE AUDIT TO THOSE CHARGED WITH GOVERNANCE
BAKER T I L LY
Baker Tilly Virchow Krause,LLP
Ten Terrace Ct,PO Box 7398
Madison,WI 53707-7398
tel 608 249 6622
fax 608 249 8532
bakertilly.com
To the Honorable Mayor, Members of
the City Council, and Commissioners
of the Board of Water and Light
City of Lansing, Michigan
In planning and performing our audit of the financial statements of the Board of Water and Light—City of
Lansing, Michigan and Pension Trust funds (collectively referred to as the BWL) as of and for the year ended
June 30, 2016, in accordance with auditing standards generally accepted in the United States of America, we
considered its internal control over financial reporting (internal control) as a basis for designing our auditing
procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial
statements, but not for the purpose of expressing an opinions on the effectiveness of its internal control.
Accordingly, we do not express an opinion on the effectiveness of its internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was
not designed to identify all deficiencies in internal control that might be material weaknesses or significant
deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified.
However, as discussed below, we identified certain deficiencies in internal control that we consider to be control
deficiencies.
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 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. We did not identify any
deficiencies in internal control that we consider to be material weaknesses.
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. We
consider the following deficiencies in the BWL's internal control to be significant deficiencies:
> Controls Over Information Technology Systems and Procedures
This communication is intended solely for the information and use of management, those charged with
governance, and others within the organization and is not intended to be, and should not be, used by anyone
other than these specified parties.
2�* --I 1� k �
Madison, Wisconsin
September 6, 2016
an independent member 0
BAKER TILLY Page 1
INTERNATIONAL
INTERNAL CONTROL OVER INFORMATION TECHNOLOGY SYSTEMS AND PROCEDURES
During our review of BWL's control environment, certain items came to our attention that, in combination,
rose to the level of a significant deficiency.
The following are our observations and recommendations:
> Unique User Authentication: Generic non-system accounts exist in several systems which are not
tied to any specific user. Some of these accounts are privileged accounts or temporary accounts
no longer in use. All financial applications should have a login and password which is unique for
every user and the user name should not be shared by anyone. Each user should not have more
than one username. Generic, shared, temporary, and system accounts should be removed. If a
system account cannot be removed, it should be disabled.
> User Account Access Review: There is no review of network users against a list of active
employees nor is an application user account access review systematically reviewed. User
accounts and access should be reviewed once a year by management to ensure that only active
employees have user accounts and users don't have access beyond their job responsibilities
following the least privilege principle. Documentation of these reviews should be retained.
> System Security: BWL suffered a ransomware attack as the result of a successful phishing
attack. Baker Tilly recommends that the company research and establish a long term user
cyberattack awareness program with periodic surprise penetration testing to heighten user
awareness.
Individually, these items would not have risen to the level of significant deficiency, however, in
combination, we felt they were important enough to merit the attention of those charged with governance.
We noted during final fieldwork that management had already started adding controls and procedures to
remediate the control deficiencies discussed above.
Page 2
OTHER COMMUNICATIONS WITH THOSE CHARGED WITH GOVERNANCE
TWO WAY COMMUNICATION REGARDING YOUR AUDIT
As part of our audit of your financial statements, we are providing communications to you throughout the
audit process. Auditing requirements provide for two-way communication and are important in assisting
the auditor and you with more information relevant to the audit.
As this past audit is concluded, we use what we have learned to begin the planning process for next
year's audit. It is important that you understand the following points about the scope and timing of our
next audit:
a. We address the significant risks of material misstatement, whether due to fraud or error, through
our detailed audit procedures.
b. We will obtain an understanding of the five components of internal control sufficient to assess the
risk of material misstatement of the financial statements whether due to error or fraud, and to
design the nature, timing, and extent of further audit procedures. We will obtain a sufficient
understanding by performing risk assessment procedures to evaluate the design of controls
relevant to an audit of financial statements and to determine whether they have been
implemented. We will use such knowledge to:
> Identify types of potential misstatements.
> Consider factors that affect the risks of material misstatement.
> Design tests of controls, when applicable, and substantive procedures.
We will not express an opinion on the effectiveness of internal control over financial reporting or
compliance with laws, regulations, and provisions of contracts or grant programs.
c. The concept of materiality recognizes that some matters, either individually or in the aggregate,
are important for fair presentation of financial statements in conformity with generally accepted
accounting principles while other matters are not important. In performing the audit, we are
concerned with matters that, either individually or in the aggregate, could be material to the
financial statements. Our responsibility is to plan and perform the audit to obtain reasonable
assurance that material misstatements, whether caused by errors or fraud, are detected.
d. Your financial statements contain components, as defined by auditing standards generally
accepted in the United States of America, which we also audit.
Page 3
TWO WAY COMMUNICATION REGARDING YOUR AUDIT (cont.)
We are very interested in your views regarding certain matters. Those matters are listed here:
a. We typically will communicate with your top level of management unless you tell us otherwise.
b. We understand that the Board of Commissioners has the responsibility to oversee the strategic
direction of your organization, as well as the overall accountability of the entity. Management has
the responsibility for achieving the objectives of the entity.
c. We need to know your views about your organization's objectives and strategies, and the related
business risks that may result in material misstatements.
d. Which matters do you consider warrant particular attention during the audit, and are there any
areas where you request additional procedures to be undertaken?
e. Have you had any significant communications with regulators or grantor agencies?
f. Are there other matters that you believe are relevant to the audit of the financial statements?
Also, is there anything that we need to know about the attitudes, awareness, and actions of the BWL
concerning:
a. The BWL's internal control and its importance in the entity, including how those charged with
governance oversee the effectiveness of internal control?
b. The detection or the possibility of fraud?
We also need to know if you have taken actions in response to developments in financial reporting, laws,
accounting standards, governance practices, or other related matters, or in response to previous
communications with us.
With regard to the timing of our audit, here is some general information. If necessary, we may do
preliminary financial audit work during the months of May or June. Our final financial fieldwork is
scheduled during the summer to best coincide with your readiness and report deadlines. After fieldwork,
we wrap up our financial audit procedures at our office and may issue drafts of our report for your review.
Final copies of our report and other communications are issued after approval by your staff. This is
typically 3-4 weeks after final fieldwork, but may vary depending on a number of factors.
Keep in mind that while this communication may assist us with planning the scope and timing of the audit,
it does not change the auditor's sole responsibility to determine the overall audit strategy and the audit
plan, including the nature, timing, and extent of procedures necessary to obtain sufficient appropriate
audit evidence.
We realize that you may have questions on what this all means, or wish to provide other feedback. We
welcome the opportunity to hear from you.
Page 4
REQUIRED COMMUNICATIONS BY THE AUDITOR TO THOSE CHARGED WITH GOVERNANCE
BAKER T I L LY
Baker Tilly Virchow Krause,LLP
Ten Terrace Ct,PO Box 7398
Madison,WI 53707-7398
tel 608 249 6622
fax 608 249 8532
bakertilly.com
To the Honorable Mayor, Members of
the City Council, and Commissioners
of the Board of Water and Light
City of Lansing, Michigan
Thank you for using Baker Tilly Virchow Krause, LLP as your auditor.
We have completed our audit of the financial statements of the Board of Water and Light—City of Lansing,
Michigan and Pension Trust Funds (collectively referred to as the BWL)for the year ended June 30, 2016, and
have issued our report thereon dated September 6, 2016. This letter presents communications required by our
professional standards.
OUR RESPONSIBILITY UNDER AUDITING STANDARDS
GENERALLY ACCEPTED IN THE UNITED STATES OFAMERICA
The objective of a financial statement audit is the expression of an opinion on the financial statements. We
conducted the audit in accordance with auditing standards generally accepted in the United States of America.
These standards require that we plan and perform our audit to obtain reasonable, rather than absolute,
assurance about whether the financial statements prepared by management with your oversight are free of
material misstatement, whether caused by error or fraud. Our audit included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing accounting principles
used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit does not relieve management or the board of their responsibilities.
As part of the audit we obtained an understanding of the entity and its environment, including internal control,
sufficient to assess the risks of material misstatement of the financial statements and to design the nature,
timing and extent of further audit procedures. The audit was not designed to provide assurance on internal
control or to identify deficiencies in internal control.
OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS
Our responsibility does not extend beyond the audited financial statements identified in this report. We do
not have any obligation to and have not performed any procedures to corroborate other information
contained in client prepared documents, such as official statements related to debt issues.
PLANNED SCOPE AND TIMING OF THE AUDIT
We performed the audit according to the planned scope and timing previously communicated to you in our letter
about planning matters dated June 30, 2016.
=� dadr mme o�
BAKER TILLY Page 5
INTERNATIONAL
To the Honorable Mayor, Members of
the City Council, and Commissioners
of the Board of Water and Light
City of Lansing, Michigan
QUALITATIVE ASPECTS OF THE ENTITY'S SIGNIFICANT ACCOUNTING PRACTICES
Accounting Policies
Management is responsible for the selection and use of appropriate accounting policies. In accordance with the
terms of our engagement letter, we will advise management about the appropriateness of accounting policies
and their application. The significant accounting policies used by the BWL are described in Note 1 to the
financial statements. No new accounting policies were adopted and the application of existing policies was not
changed during fiscal year 2016. We noted no transactions entered into by the BWL during the year that were
both significant and unusual, and of which, under professional standards, we are required to inform you, or
transactions for which there is a lack of authoritative guidance or consensus.
Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based
on management's knowledge and experience about past and current events and assumptions about future
events. Certain accounting estimates are particularly sensitive because of their significance to the financial
statements and because of the possibility that future events affecting them may differ significantly from those
expected. The most sensitive estimates affecting the financial statements were:
> Management's estimates of the other post-employment benefit(OPEB) cost and employee pension
benefits are based on actuarial reports completed by Nyhart Actuary& Employee Benefits. We
evaluated the key factors and assumptions used by the actuaries in determining that they are
reasonable in relation to the financial statements taken as a whole.
> Management's estimate of the allowance for doubtful accounts is based on historical sales, historical
loss levels, and an analysis for the collectivity of individual accounts. We evaluated the key factors and
assumptions used to develop the allowance in determining that it is reasonable in relation to the
financial statements taken as a whole.
> Management's estimate of unbilled revenues is based on units of consumption used by customers
but not yet billed through the normal billing process. We evaluated the key factors and assumptions
used to develop this estimate in determining that it is reasonable in relation to the financial
statements taken as a whole.
> Management's estimate of self-insurance claims incurred but not reported (IBNR) is based on
historical claims and an estimated lag provided by third-party specialists. We evaluated the key
factors and assumptions used to develop this estimate in determining it is reasonable in relation to
the financial statements taken as a whole.
> Management's estimate of the environmental liabilities is based on cash flow projections of
estimated costs to remediate the sites. We evaluated the key factors and assumptions used to
develop the liability in determining it is reasonable in relation to the financial statements taken as a
whole.
> Management's estimate of the net pension asset and related deferrals are based on actuarial
reports completed by Nyhart Actuary& Employee Benefits. We evaluated the key factors and
assumptions used by the actuaries in determining that they are reasonable in relation to the
financial statements taken as a whole.
> Management's estimate of the volume of coal in inventory is based on a volumetric survey
performed by Mikon Corporation. We evaluated the key factors and assumptions used by Mikon in
determining that they are reasonable in relation to the financial statements taken as a whole.
Page 6
To the Honorable Mayor, Members of
the City Council, and Commissioners
of the Board of Water and Light
City of Lansing, Michigan
QUALITATIVE ASPECTS OF THE ENTITY'S SIGNIFICANT ACCOUNTING PRACTICES(cont.
Financial Statement Disclosures
The disclosures in the notes to the financial statements are neutral, consistent, and clear.
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
We encountered no significant difficulties in dealing with management in performing our audit.
CORRECTED AND UNCORRECTED MISSTATEMENTS
Professional standards require us to accumulate all known and likely misstatements identified during the audit,
other than those that are trivial, and communicate them to the appropriate level of management. There were no
such misstatements identified.
DISAGREEMENTS WITH MANAGEMENT
For purposes of this letter, professional standards define a disagreement with management as a matter,
whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that
could be significant to the financial statements or the auditors' report. We are pleased to report that no such
disagreements arose during the course of our audit.
CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and accounting
matters. If a consultation involves application of an accounting principle to the governmental unit's financial
statements or a determination of the type of auditors' opinion that may be expressed on those statements, our
professional standards require the consulting accountant to check with us to determine that the consultant has
all the relevant facts. To our knowledge, there were no such consultations with other accountants.
MANAGEMENT REPRESENTATIONS
We have requested certain representations from management that are included in the management
representation letter. This letter follows this required communication.
INDEPENDENCE
We are not aware of any relationships between Baker Tilly Virchow Krause, LLP and the BWL that, in our
professional judgment, may reasonably be thought to bear on our independence.
Relating to our audit of the financial statements of the BWL for the year ended June 30, 2016, Baker Tilly
Virchow Krause, LLP hereby confirms that we are, in our professional judgment, independent with respect to
the BWL in accordance with the Code of Professional Conduct issued by the American Institute of Certified
Public Accountants. We provided no services to the BWL other than audit services provided in connection with
the audit of the current year's financial statements and nonaudit services which in our judgment do not impair
our independence.
> Financial statement preparation assistance
None of these nonaudit services constitute an audit under generally accepted auditing standards, including
Government Auditing Standards.
Page 7
To the Honorable Mayor, Members of
the City Council, and Commissioners
of the Board of Water and Light
City of Lansing, Michigan
OTHER AUDIT FINDINGS OR ISSUES
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the BWL's auditors. However, these discussions
occurred in the normal course of our professional relationship and our responses were not a condition to our
retention.
OTHER MATTERS
We applied certain limited procedures to the required supplementary information (RSI)that supplements the
basic financial statements. Our procedures consisted of inquiries of management regarding the methods of
preparing the information and comparing the information for consistency with management's responses to our
inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic
financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the
RSI.
With respect to the additional information accompanying the financial statements, we made certain inquiries of
management and evaluated the form, content, and methods of preparing the information to determine that the
information complies with accounting principles generally accepted in the United States of America, the method
of preparing it has not changed from the prior period, and the information is appropriate and complete in relation
to our audit of the financial statements. We compared and reconciled the additional information to the
underlying accounting records used to prepare the financial statements or to the financial statements
themselves.
RESTRICTION ON USE
This information is intended solely for the use of the Board and management and is not intended to be, and
should not be, used by anyone other than these specified parties.
We welcome the opportunity to discuss the information included in this letter and any other matters. Thank you
for allowing us to serve you.
�(aj,6
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Madison, Wisconsin
September 6, 2016
Page 8
MANAGEMENT REPRESENTATIONS
-"— Flow
Hometown People. Hometown Power'
September 6, 2016
Baker Tilly Virchow Krause, LLP
Ten Terrace Court
Madison, WI 53718
We are providing this letter in connection with your audit of the financial statements of the Lansing Board of Water and
Light as of,tune 30, 2016 and for the year then ended for the purpose of expressing an opinion as to whether the
financial statements present fairly, in all material respects, the respective financial position of the business-type
activities, and the fiduciary funds of the Lansing Board of Water and Light and the respective changes in financial
position and cash flows, where applicable, in conformity with accounting principles generally accepted in the United
States of America. We confirm that we are responsible for the fair presentation of the previously mentioned financial
statements in conformity with accounting principles generally accepted in the United States of America. We are also
responsible for adopting sound accounting policies, establishing and maintaining internal control over financial
reporting, and preventing and detecting fraud.
Certain representations in this letter are described as being limited to matters that are material. Items are considered
material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of
surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information
would be changed or influenced by the omission or misstatement. An omission or misstatement that is monetarily
small in amount could be considered material as a result of qualitative factors.
We confirm, to the best of our knowledge and belief, the following representations made to you during your audit.
Financial Statements
1. We have fulfilled our responsibilities, as set out in the terms of the audit engagement letter.
2. The financial statements referred to above are fairly presented in conformity with accounting principles generally
accepted in the United States of America. We have engaged you to advise us in fulfilling that responsibility. The
financial statements include all properly classified funds of the primary government required by accounting
principles generally accepted in the United States of America to be included in the financial reporting entity.
3. We acknowledge our responsibility for 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.
4. We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent
and detect fraud.
5. Significant assumptions we used in making accounting estimates, if any, are reasonable.
1201 S.Washington Avenue � PO Box 13007 1 Lansing,M1 1 48901-3007 1517-702-6006 1 www,lbwi.com
6. Related party relationships and transactions, including revenues, expend itureslexpenses, loans, transfers, leasing
arrangements, and guarantees,and amounts receivable from or payable to related parties have been appropriately
accounted for and disclosed in accordance with the requirements of accounting principles generally accepted in
the United States of America.
7. All events subsequent to the date of the financial statements and for which accounting principles generally
accepted in the United States of America require adjustment or disclosure have been adjusted or disclosed. No
other events, including instances of noncompliance, have occurred subsequent to the balance sheet date and
through the date of this letter that would require adjustment to or disclosure in the aforementioned financial
statements.
8. All material transactions have been recorded in the accounting records and are reflected in the financial
statements.
9. The effects of all known actual or possible litigation, claims, and assessments have been accounted for and
disclosed in accordance with accounting principles generally accepted in the United States of America.
10. Guarantees, whether written or oral, under which the entity is contingently liable, if any, have been properly
recorded or disclosed.
Information Provided
11. We have provided you with:
a. Access to all information, of which we are aware, that is relevant to the preparation and fair presentation of the
financial statements, such as financial records and related data, documentation, and other matters.
b. Additional information that you have requested from us for the purpose of the audit.
c. Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit
evidence.
d. Minutes of the meetings of the Board of Commissioners or summaries of actions of recent meetings for which
minutes have not yet been prepared.
12. We have disclosed to you results of our assessment of the risk that the financial statements may be materially
misstated as a result of fraud.
13. We have no knowledge of any fraud or suspected fraud that affects the entity and involves:
a. Management,
b. Employees who have significant roles in internal control, or
c. Others where the fraud could have a material effect on the financial statements.
14. We have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in
communications from employees, former employees, regulators, or others.
15. We have no knowledge of known instances of noncompliance or suspected noncompliance with provisions of
laws, regulations, contracts, or grant agreements, or abuse, whose effects should be considered when preparing
financial statements.
16. We have disclosed to you all known related parties and all the related party relationships and transactions of
which we are aware.
Other
17. There have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in,
financial reporting practices.
18. We have a process to track the status of audit findings and recommendations.
19. We have provided our views on reported findings, conclusions, and recommendations, as well as our planned
corrective actions, for our report.
20. The entity has no plans or intentions that may materially affect the carrying value or classification of assets,
liabilities, or equity.
21.We are responsible for compliance with federal, state, and local laws, regulations, and provisions of contracts and
grant agreements applicable to us, including tax or debt limits, debt contracts, and IRS arbitrage regulations; and
we have identified and disclosed to you all federal, state, and local laws, regulations and provisions of contracts
and grant agreements that we believe have a direct and material effect on the determination of financial statement
amounts or other financial data significant to the audit objectives, including legal and contractual provisions for
reporting specific activities in separate funds.
22. There are no:
a. Violations or possible violations of budget ordinances, federal, state, and local laws or regulations(including
those pertaining to adopting, approving and amending budgets), provisions of contracts and grant agreements,
tax or debt limits, and any related debt covenants whose effects should be considered for disclosure in the
financial statements or as a basis for recording a loss contingency, or for reporting on noncompliance, except
those already disclosed in the financial statement, if any.
b. Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by accounting
principles generally accepted in the United States of America.
c. Nonspendable, restricted, committed, or assigned fund balances that were not properly authorized and
approved.
d. Rates being charged to customers other than the rates as authorized by the applicable authoritative body.
e. Violations of restrictions placed on revenues as a result of bond resolution covenants such as revenue
distribution or debt service funding.
23. In regards to the nonattest services performed by you listed below, we have 1) accepted all management
responsibility; 2) designated an individual with suitable skill, knowledge, or experience to oversee the services; 3)
evaluated the adequacy and results of the services performed, and 4) accepted responsibility for the results of the
services.
a. Financial statement preparation
None of these nonattest services constitute an audit under generally accepted auditing standards, including
Government Auditing Standards.
24. The Lansing Board of Water and Light has satisfactory title to all owned assets, and there are no liens or
encumbrances on such assets nor has any asset been pledged as collateral.
25. The Lansing Board of Water and Light has complied with all aspects of contractual agreements that would have a
material effect on the financial statement in the event of noncompliance. Arrangements with financial institutions
involving compensating balances or other arrangements involving restrictions on cash balances, line of credit, or
similar arrangements have been properly disclosed.
26. The financial statements properly classify all funds and activities. All cash and bank accounts and all other
properties and assets of the entity of which we are aware are included in the financial statements. All borrowings
and financial obligations of the entity of which we are aware are included in the financial statements as
appropriate. We have fully disclosed to you all borrowing arrangements of which we are aware.
27. Components of net position (net investment in capital assets; restricted; and unrestricted) are properly classified
and, if applicable, approved.
28. The Lansing Board of Water and Light has no derivative financial instruments such as contracts that could be
assigned to someone else or net settled, interest rate swaps, collars or caps.
29. Provisions for uncollectible receivables, if any, have been properly identified and recorded. Receivables recorded
in the financial statements represent bona fide claims against debtors for sales or other charges arising on or
before the balance sheet date and are not subject to discount except for normal cash discounts. Receivables
classified as current do not include any material amounts which are collectible after one year.All receivables have
been appropriately reduced to their estimated net realizable value.
30. Deposits and investment securities are properly classified as to risk, and investments are properly valued.
Collateral ization agreements with financial institutions, if any, have been properly disclosed.
31. Provision, when material, has been made to reduce excess or obsolete inventories to their estimated net
realizable value.
32. Capital assets, including infrastructure and intangible assets, are properly capitalized, reported, and, if applicable,
depreciated/amortized. Any known impairments have been recorded and disclosed.
33. We believe that the estimate made for the pollution remediation liability is in accordance with GAS 49 and
reflects all known available facts at the time it was recorded.
34. Tax-exempt bonds issued have retained their tax-exempt status.
35. The operations and rate setting process meet the condition for application of accounting for regulated operations
as outlined in GASB No. 62. All regulatory items included in the financial statements have been approved and are
being accounted for in accordance with specific action taken by the regulatory body and as such the expectation of
future recovery or refund is reasonable.
36. We have appropriately disclosed the Lansing Board of Water and Light's policy regarding whether to first apply
restricted or unrestricted resources when an expense is incurred for purposes for which both restricted and
unrestricted net position are available and have determined that net position were properly recognized under the
policy.
37. We acknowledge our responsibility for the required supplementary information (RSI). The RSI is measured and
presented within prescribed guidelines and the methods of measurement and presentation have not changed from
those used in the prior period. We have disclosed to you any significant assumptions and interpretations
underlying the measurement and presentation of the RSI.
38. With respect to the supplementary information, (SI):
a. We acknowledge our responsibility for presenting the SI in accordance with accounting principles generally
accepted in the United States of America, and we believe the SI, including its form and content, is fairly
presented in accordance with accounting principles generally accepted in the United States of America. The
methods of measurement and presentation of the SI have not changed from those used in the prior period, and
we have disclosed to you any significant assumptions or interpretations underlying the measurement and
presentation of the supplementary information.
b. If the SI is not presented with the audited financial statements, we will make the audited financial statements
readily available to the intended users of the supplementary information no later than the date we issue the
supplementary information and the auditor's report thereon.
39. We assume responsibility for, and agree with, the findings of specialists in evaluating the self insurance reserves,
OPFB liability and net pension assets and related deferrals and have adequately considered the qualifications of
the specialists in determining the amounts and disclosures used in the financial statements and underlying
accounting records. We did not give or cause any instructions to be given to specialists with respect to the values
or amounts derived in an attempt to bias their work, and we are not otherwise aware of any matters that have had
impact on the independence or objectivity of the specialists.
Lansing Board of Water and Light
Heather Shawa-DeCook
Chief Financial Officer
Scott Ta for
Finance Manager