Reference no: EM131703531

Question: The Municipal Electric Utility (MEU) was created as a separate legal entity in accordance with state law to own, manage, and operate an electric utilities system in the city. The MEU's governing body consists of five members. It is a self-perpetuating board composed of four citizens (customers) with the mayor of the city serving ex officio. The four citizen board members provide representation from each of the MEU's main service areas. When a board vacancy occurs, the remaining board members must nominate the successor. The MEU board chooses the nominee from a list of candidates proposed by an independent citizens' committee. The MEU's board may reject these candidates for any reason and request additional candidates. The MEU's nominee is then subject to confirmation by the city council. The council's confirmation procedure is essentially a formality.

After confirmation, the council cannot remove a member for any reason. The MEU uses various services provided by departments of the city, including insurance, legal, motor pool, and computer services. The MEU is billed for these services on a proportionate cost basis with other user departments and agencies. The MEU provides customer service and related functions to the city's water department. The cost of providing these services is paid by the water department. The MEU also provides electric service to the city and its agencies and bills the city for those services, using established rate schedules. The MEU selects and employs its executives, controls the hiring of its employees, and is responsible for rate setting and its overall fiscal management. The city is not legally or morally obligated by the MEU's debt. The MEU receives no appropriations from the city. In compliance with its charter, the MEU is required to make a payment in lieu of taxes annually to the General Fund, calculated according to a formula based on kilowatt-hour sales for the preceding 12-month period. Is the MEU a component unit of the city? If so, how should the city report the financial activities of the MEU? (GASB Statement 14, par. 141)