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{{#Wiki_filter:10 CFR 50.71 (b)10 CFR 72.80(b)L AW A subsidiary of Pinnacle West Capital Corporation Thomas N. Weber Mail Station 7636 Palo Verde Nuclear Department Leader Tel. 623-393-5764 PO Box 52034 Generating Station Regulatory Affairs Fax 623-393-5442 Phoenix, Arizona 85072-2034 102-06417-TNW/RKR September 30, 2011 ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 | |||
==Dear Sirs:== | |||
==Subject:== | |||
Palo Verde Nuclear Generating Station (PVNGS)Units 1, 2, and 3 Docket Nos. STN 50-528/529/530 Submittal of Annual Financial Reports Pursuant to 10 CFR 50.71(b) and 10 CFR 72.80(b), in Enclosure 1 please find copies of the 2010 Annual Financial Reports for the Participants who jointly own PVNGS and do not file a Form 10-Q with the Securities and Exchange Commission or a Form 1 with the Federal Energy Regulatory Commission. | |||
These Participants are Salt River Project, Southern California Public Power Authority and Los Angeles Department of Water and Power. In addition, the 2009 Annual Financial Reports for these participants were not submitted in 2010 and are included in Enclosure | |||
: 2. This was entered in the PVNGS corrective action program and appropriate corrective actions have been identified. | |||
The remaining Participants who jointly own PVNGS file a Form 10-Q with the Securities and Exchange Commission or a Form 1 with the Federal Energy Regulatory Commission and are thereby exempt from filing an Annual Financial Report. These Participants are El Paso Electric Company, Arizona Public Service Company, Southern California Edison Company and Public Service Company of New Mexico.No commitments are being made to the NRC by this letter.A member of the STARS (Strategic Teaming end Resource Sharing) Alliance *WlCre Callaway -Comanche Peak -Diablo Canyon | |||
* Palo Verde | |||
* San Onofre | |||
* South Texas -Wolf Creek ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Annual Financial Reports Page 2 Should you need further information regarding this submittal, please contact Russell A.Stroud, Licensing Section Leader, at (623) 393-5111.Sincerely, tbJ6o.TNW/RAS/RKR/gat Enclosures | |||
: 1. PALO VERDE NUCLEAR GENERATING STATION 2010 ANNUAL FINANCIAL REPORTS, Salt River Project, Southern California Public Power Authority, Los Angeles Department of Water and Power 2. PALO VERDE NUCLEAR GENERATING STATION 2009 ANNUAL FINANCIAL REPORTS, Salt River Project, Southern California Public Power Authority, Los Angeles Department of Water and Power cc: E. E. Collins Jr.L. K. Gibson J. R. Hall M. A. Brown NRC Region IV Regional Administrator NRC NRR Project Manager for PVNGS NRC NRR Senior Project Manager NRC Senior Resident Inspector for PVNGS ENCLOSURE 1 PALO VERDE NUCLEAR GENERATING STATION 2010 ANNUAL FINANCIAL REPORTS Salt River Project Southern California Public Power Authority Los Angeles Department of Water and Power SALT RIVER PROJECT COMBINED FINANCIAL STATEMENTS AS OF APRIL 30,2011 AND 2010 TOGETHER WITH REPORT OF INDEPENDENT AUDITORS SALT RIVER PROJECT COMBINED BALANCE SHEETS APRIL 30, 2011 AND 2010 (Thousands) | |||
ASSETS Utility Plant Plant in Service -Electric Irrigation Common Total plant in service Less -Accumulated depreciation on plant in service Plant held for future use Construction work in progress Nuclear fuel, net Other Property and Investments Non-utility property and other investments Segregated funds, net of current portion Current Assets Cash and cash equivalents Temporary investments Current portion of segregated funds Receivables, net of allowance for doubtful accounts Fuel stocks Materials and supplies Current commodity derivative assets Other current assets Deferred Charges and Other Assets Regulatory assets Non-current commodity derivative assets Other deferred charges and other assets 2011$ 10,790,019 337,748 540,021 11,667,788 (5,538,097) 6,129,691 30,434 799,055 133,441 7,092,621 255,085 1,080,542 1,335,627 443,002 214,066 317,535 231,499 58,339 137,329 8,713 15,554 1,426,037 768,419 11,087 62,996 842,502$ 10,696,787 2010$ 10,653,944 312,388 520,139 11,486,471 (5,305,370) 6,181,101 5,960 790,256 123,310 7,100,627 183,354 799,760 983,114 235,029 290,307 241,609 202,225 43,486 131,192 26,873 19,110 1,189,831 789,268 13,026 76,988 879,282$ 10,152,854 The accompanying notes are an integral part of these combined financial statements. | |||
1 SALT RIVER PROJECT COMBINED BALANCE SHEETS APRIL 30, 2011 AND 2010 (Thousands) | |||
CAPITALIZATION AND LIABILITIES 2011$ 4,419,099 2010$ 4,051,931 Long-term Debt Accumulated Net Revenues 4,267,341 3,962,788 Total Capitalization 8,686,440 8,014,719 Current Liabilities Current portion of long-term debt Accounts payable Accrued taxes and tax equivalents Accrued interest Customers' deposits Current commodity derivative liabilities Other current liabilities 139,635 221,895 77,142 73,170 86,461 19,551 340,828 958,682 147,180 200,672 72,339 67,407 81,446 64,441 290,822 924,307 Deferred Credits and Other Non-current Liabilities Accrued postretirement liability Asset retirement obligations Non-current commodity derivative liabilities Other deferred credits and other non-current liabilities 673,453 100,212 36,092 241,908 1,051,665 754,650 199,348 32,025 227,805 1,213,828 Commitments and Contingencies (Notes 7, 9, 10, 12, and 13)$ 10,696,787 | |||
$ 10,152,854 The accompanying notes are an integral part of these combined financial statements. | |||
2 SALT RIVER PROJECT COMBINED STATEMENTS OF NET REVENUES FOR THE YEARS ENDED APRIL 30, 2011 AND 2010 (Thousands) | |||
Operating Revenues Retail electric Other electric Wholesale Water Total operating revenues Operating Expenses Power purchased Fuel used in electric generation Other operating expenses Maintenance Depreciation and amortization Taxes and tax equivalents Total operating expenses Net operating revenues Other Income Investment income, net Other income (deductions), net Total other income, net Net revenues before financing costs 2011$ 2,463,007 69,355 216,000 14,169 2,762,531 365,500 570,134 599,174 282,972 436,750 105,054 2,359,584 402,947 82,446 (21,441)61,005 463,952 193,507 (32,540)(12,293)10,725 159,399$ 304,553 2010$ 2,361,274 64,646 261,320 14,373 2,701,613 403,093 554,113 565,259 287,541 408,525 102,092 2,320,623 380,990 140,787 (12,412)128,375 509,365 186,429 (52,938)(8,995)13,894 138,390 370,975 Financing Costs Interest on bonds, net Capitalized interest Amortization of bond discount/premium and issuance expenses Interest on other obligations Net financing costs Net Revenues The accompanying notes are an integral part of these combined financial statements. | |||
3 SALT RIVER PROJECT COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30, 2011 AND 2010 (Thousands) | |||
Cash Flows from Operating Activities Net Revenues Adjustments to reconcile net revenues to net cash provided by operating activities: | |||
Depreciation and amortization Amortization of nuclear fuel Amortization of bond discount/premium and issuance expenses Change in fair value of derivative instruments Change in fair value of investment securities Other Decrease (increase) in: Fuel stocks and materials and supplies Receivables, net of allowance for doubtful accounts Other current assets Deferred charges and other assets Increase (decrease) in: Accounts payable Accrued taxes and tax equivalents Accrued interest Current liabilities Deferred credits and other non-current liabilities Net cash provided by operating activities 2011 2010$ 304,553 $ 370,975 436,750 35,826 (12,293)(20,724)(18,197)28,424 (20,990)(29,274)3,556 27,195 2,752 4,803 8,925 31,649 (56,561)726,394 408,525 24,800 (8,995)(79,076)(112,483)6,819 3,812 (18,545)53 24,508 (70,799)9,653 3,628 (8,662)(95,764)458,449 (710,754)4,483 (952,492)991,248 225,094 (442,421)296,000 (325,000)(131,481)(160,481)Cash Flows from Investing Activities Additions to utility plant, net Proceeds from disposition of assets Purchases of investments Sales and maturities of investments Net change in short-term investments related to segregated funds Net cash used for investing activities Cash Flows from Financing Activities Proceeds from issuance of revenue bonds Retirement of commercial paper Repayment of long-term debt, including refundings Net cash provided by (used for) financing activities Net Increase (Decrease) in Cash and Cash Equivalents Balance at Beginning of Year in Cash and Cash Equivalents (563,617)1,953 (2,009,615) 1,925,142 (221,938)(868,075)496,834 (147,180)349,654 207,973 (144,453)235,029 379,482 Balance at End of Year in Cash and Cash Equivalents | |||
$ 443,002$ 235,029 Supplemental Information Cash paid for interest$ 165,929 $ 143,757 The accompanying notes are an integral part of these combined financial statements. | |||
4 SALT RIVER PROJECT NOTES TO COMBINED FINANCIAL STATEMENTS APRIL 30, 2011 AND 2010 (1) BASIS OF PRESENTATION: | |||
The Company The Salt River Project Agricultural Improvement and Power District (the District) is an agricultural improvement district organized in 1937 under the laws of the State of Arizona. It operates the Salt River Project (the Project), a federal reclamation project, under contracts with the Salt River Valley Water Users' Association (the Association), by which it has assumed the obligations and assets of the Association, including its obligations to the United States of America for the care, operation and maintenance of the Project. The District owns and operates an electric system that generates, purchases, transmits and distributes electric power and energy, and provides electric service to residential, commercial, industrial and agricultural power users in a 2,900 square mile service territory in parts of Maricopa, Gila and Pinal Counties, plus mine loads in an adjacent 2,400 square mile area in Gila and Pinal Counties. | |||
The Association, incorporated under the laws of the Territory of Arizona in 1903, operates an irrigation system as the agent of the District. | |||
The District and the Association are together referred to as SRP.Principles of Combination The accompanying combined financial statements reflect the combined accounts of the Association and the District. | |||
The District's financial statements are consolidated with its wholly-owned taxable subsidiaries: | |||
SRP Captive Risk Solutions, Limited (CRS), Papago Park Center, Inc. (PPC) and New West Energy Corporation (New West Energy). CRS is a domestic captive insurer incorporated primarily to access property/boiler and machinery insurance coverage under the Federal Terrorism Risk Insurance Act of 2002 for certified acts of terrorism. | |||
PPC is a real estate management company. New West Energy was used to market, at retail, energy available to the District that was surplus to the needs of its retail customers, and energy that might have been rendered surplus in Arizona by retail competition in the supply of generation, but is now largely inactive. | |||
All material inter-company transactions and balances have been eliminated. | |||
Possession and Use of Utility Plant The United States of America retains a paramount right or claim in the Project that arises from the original construction and operation of certain of the Project's electric and water facilities as a federal reclamation project. Rights to the possession and use of, and to all revenues produced by, these facilities are evidenced by contractual arrangements with the United States of America.Basis of Accounting The accompanying combined financial statements are presented in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of financial statements in compliance with U:S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingencies. | |||
Actual results could differ from the estimates. | |||
5 By virtue of SRP operating a federal reclamation project under contract, with the federal government's pre-emptive rights, asset ownership and certain approval rights, SRP is subject to accounting standards as set forth by the Federal Accounting Standards Advisory Board (FASAB). Entities reporting in accordance with the standards issued by the Financial Accounting Standards Board (FASB) prior to October 19, 1999 (the date the American Institute of Certified Public Accountants (AICPA) designated the FASAB as the accounting standard setting body for entities under the federal government) are permitted to continue to report in accordance with those standards. | |||
As permitted, SRP has elected to report its financial statements in accordance with FASB standards. | |||
(2) SIGNIFICANT ACCOUNTING POLICIES: Utility Plant Utility plant is stated at the historical cost of construction. | |||
Capitalized construction costs include labor, materials, services purchased under contract, and allocations of indirect charges for engineering, supervision, transportation and administrative expenses and an allowance for funds used during construction (AFUDC). The cost of property that is replaced, removed or abandoned, together with removal costs, less salvage, is charged to accumulated depreciation. | |||
The District is the recipient of various federal grants under the American Recovery and Reinvestment Act of 2009 (ARRA) and accounts for the majority of these funds as a reduction to the related assets included in utility property in the accompany Combined Balance Sheets and as an investing activity in the Statements of Cash Flows. The remaining funds are recorded as a reduction to other operating expenses in the Combined Statements of Net Revenues and as operating activities in the Statements of Cash Flows. During the years ended April 30, 2011 and 2010 the amounts recorded related to federal grants were $17.1 and $7.6 million, respectively. | |||
Depreciation expense is computed on a straight-line basis over recovery periods of the various classes of plant assets. The recovery periods are established to recover costs through the District's price plans and may differ from the assets' estimated useful lives. The following table reflects the District's average depreciation rates on the average cost of depreciable assets, for the fiscal years ended April 30: 2011 2010 Average electric depreciation rate 3.59% 3.60%Average irrigation depreciation rate 1.93% 2.02%Average common depreciation rate 5.51% 6.14%In April 2011, the Nuclear Regulatory Commission (NRC) approved a 20-year license extension of the Palo Verde Nuclear Generating Station (PVNGS). In response to the license extension, effective May 1, 2011, the District's Board of Directors (Board) approved the extension of the recovery period for PVNGS resulting in an average depreciation rate change from 2.74% to 0.50%. The Board also approved an average depreciation rate change for the Coronado Generating Station (CGS) from 3.07%to 1.14%, for the Navajo Generating Station (NGS) from 4.62% to 0.15% and the Hayden Generating Station (Hayden) from 5.13% to 0.09% to enable the recovery of expected future costs associated with these plants.For the years ended April 30, 2011 and 2010, there was $18.5 million and $23.0 million of non-cash investing activities related to property, plant and equipment purchases within accounts payable.6 Allowance for Funds Used During Construction AFUDC is the estimated cost of funds used to finance plant additions and is recovered in prices through depreciation expense over the useful life of the related asset. AFUDC is capitalized during certain plant construction and included in Capitalized interest in the accompanying Combined Statements of Net Revenue. Composite rates of 4.86% and 5.02% were applied in fiscal years 2011 and 2010 to calculate interest on funds used to finance construction work in progress, resulting in $32.5 million and $52.9 million of interest capitalized, respectively. | |||
Nuclear Fuel The District amortizes the cost of nuclear fuel using the units-of-production method. The units-of-production method is an amortization method based on actual physical usage. The nuclear fuel amortization and accrued expenses for both the interim and permanent disposal of spent nuclear fuel are components of fuel expense. Nuclear fuel amortization was $35.8 million and $24.8 million in fiscal years 2011 and 2010, respectively. | |||
Accumulated amortization of nuclear fuel at April 30, 2011 and 2010 was $507.6 million and $471.8 million, respectively. (See Note (13) CONTINGENCIES, Spent Nuclear Fuel for additional information). | |||
Asset Retirement Obligations SRP accounts for its asset retirement obligations in accordance with authoritative guidance which requires the recognition and measurement of liabilities for legal obligations associated with the retirement of tangible long-lived assets. Liabilities for asset retirement obligations are recognized at fair value as incurred and capitalized as part of the cost of the related tangible long-lived assets.Accretion of the liabilities, due to the passage of time, is an operating expense and the capitalized cost is depreciated over the useful life of the long-lived asset. Retirement obligations associated with long-lived assets are those for which a legal obligation exists under enacted laws, statutes, and contracts, including obligations arising under the doctrine of promissory estoppel.The District has identified retirement obligations for the PVNGS, NGS, Four Corners Generating Station (Four Corners) and certain other assets. Amounts recorded for asset retirement obligations are subject to various assumptions and determinations, such as determining whether an obligation exists to remove assets, estimating the fair value of the costs of removal, estimating when final removal will occur, and determining the credit-adjusted, risk-free interest rates to be utilized on discounting future liabilities. | |||
Subsequent to the initial recognition, the liability is adjusted for any revisions to the estimated future cash flows associated with the asset retirement obligation (with corresponding adjustments to property, plant and equipment), which can occur due to a number of factors including, but not limited to, cost escalation, changes in technology applicable to the assets to be retired, changes in federal, state and local regulations and changes to the estimated decommissioning date of the assets, as well as for accretion of the liability due to the passage of time until the obligation is settled.During fiscal year 2011, a new decommissioning study with updated cash flow estimates was completed for PVNGS. This study reflects the twenty-year license extension approved by the NRC on April 21, 2011, which extends the commencement of decommissioning to 2045. The new study resulted in a $111.4 million decrease to the liability for asset retirements, primarily due to the change in timing of the cash flows.7 A summary of the asset retirement obligation activity of the District at April 30 is included below (in thousands): | |||
2011 2010 Beginning balance, May 1 $ 199,348 $ 187,801 Revisions in estimated cash flows (111,405)Accretion expense 12,269 11,547 Ending balance, April 30 $ 100,212 $ 199,348 Investments in Debt and Equity Securities SRP invests in various debt and equity securities. | |||
Debt securities that SRP has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in Investment income, net. SRP has adopted the fair value option for all debt and equity securities other than those classified as held-to-maturity securities. | |||
All such securities are reported at fair value, with unrealized gains and losses included in Investment income, net. SRP does not classify any securities as available-for-sale. (See Note (4) FAIR VALUE OF FINANCIAL INSTRUMENTS.) | |||
Segregated Funds The District sets aside funds that are segregated due to management intent and to support various purposes. | |||
The District also has certain segregated funds that are legally restricted. | |||
The following amounts are included in segregated funds in the accompanying Combined Balance Sheets at April 30 (in thousands): | |||
2011 2010 Segregated funds -legally restricted Nuclear Decommissioning Trust $ 252,092 $ 211,374 Collateral investment pool 161,981 136,710 Debt Reserve Fund (see "Revenue Bonds" in Note 7) 80,598 80,598 Construction Fund 182,966 1 Other 23,387 20,271 Total segregated funds -legally restricted 701,024 448,954 Segregated funds -other Benefits funds 538,821 483,428 Debt Service Fund (see "Revenue Bonds" in Note 7) 109,854 104,899 Rate Stabilization Fund 45,700 Other 2,678 4,088 Total segregated funds- other 697,053 592,415 Total segregated funds, including current portion $ 1,398,077 | |||
$ 1,041,369 Nuclear Decommissioning In accordance with regulations of the NRC, the District maintains a trust for the decommissioning of PVNGS. The Nuclear Decommissioning Trust (NDT) funds are invested in debt and equity securities. | |||
The District has elected the fair value option for all NDT securities and such securities are reported as trading securities. | |||
Changes in fair value related to the NDT securities are included in the nuclear decommissioning regulatory asset or liability with no impact to net income. (See Note (3) REGULATORY MATTERS for additional information about the nuclear decommissioning regulatory asset or liability.) | |||
8 The NDT funds, stated at fair value, as of April 30, 2011 and 2010, were $252.1 million and $211.4 million, respectively. | |||
The NDT funds are classified as segregated funds in the accompanying Combined Balance Sheets and are exempt from federal and state income taxes. (See Note (4) FAIR VALUE OF FINANCIAL INSTRUMENTS for additional information about the NDT.)Securities Lending The District's pension plan, NDT and other postretirement benefits plans participate in a securities lending program with the trustee of the investments. | |||
The program authorizes the trustee of the particular investments to lend securities, which are assets of the plans, to approved borrowers. | |||
The trustee requires borrowers, pursuant to a security lending agreement, to deliver collateral to secure each loan. The loaned securities are required to be collateralized. | |||
Under the program, the borrowers deliver collateral having a market value not less than 102% of the market value of the loaned securities. | |||
The cash collateral received is invested in a collateral pool made up of fixed income securities. | |||
The District's pension plan, NDT and other postretirement benefits plans bear the risk of loss with respect to unfavorable changes in fair value of the invested collateral. | |||
For loaned securities related to the NDT and the other postretirement benefits plans, the District records an obligation for the collateral received as other current liabilities and records the collateral investment pool, at fair value, in current portion of segregated funds, both in the accompanying Combined Balance Sheets. The securities lending program is a non-cash activity for the District on the Combined Statements of Cash Flows. The pension plan's participation in the securities lending program is contained within the pension plan. (See Note (6) FAIR VALUE MEASUREMENTS and Note (9)EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS, Fair Value of Plan Assets for more information related to collateral pool investments.) | |||
Cash Equivalents Cash equivalents include money market funds and highly liquid short-term investments with original maturities of three months or less, excluding those short-term investments included as part of the segregated funds and investments included in non-utility property and other investments in the accompanying Combined Balance Sheets. (For further discussion of financial instruments see Note (6)FAIR VALUE MEASUREMENTS.) | |||
Allowance for Doubtful Accounts Allowance for doubtful accounts is provided for electric customer accounts and other non-energy receivables balances based upon a historical experience rate of write-offs of accounts receivable as compared to accounts receivable balances. | |||
The allowance account is adjusted monthly for this experience rate and is maintained until either receipt of payment or the likelihood of collection is considered remote, at which time the allowance account and corresponding receivable balance are written off. The District has provided for an allowance for doubtful accounts of $3.0 million and $10.1 million as of April 30, 2011 and 2010, respectively. | |||
Fuel Stocks and Materials and Supplies Fuel stocks and Materials and supplies are stated at lower of weighted average cost or market.9 Other Current Liabilities The accompanying Combined Balance Sheets include the following other current liabilities as of April 30: 2011 2010 Securities lending $ 162,609 $ 139,237 Sick, vacation and holiday (SVHL) accrual 60,901 59,993 Managed payment plan 51,689 35,467 Other 65,629 56,125 Total other current liabilities | |||
$ 340,828 $ 290,822 Other Income (Deductions), Net Other income (deductions), net includes non-operating income and expense items. In fiscal year 2011 and 2010, this line includes a loss on the retirement of mechanical meters of $14.7 million and $7.2 million, respectively. | |||
The mechanical meters were retired early due to the accelerated installation of smart meters funded by the Smart Grid Investment Grant Program established pursuant to the ARRA.Financing Costs Bond discount, premium and issuance expenses are deferred and amortized using the effective interest method over the terms of the related bond issues.Voluntary Contributions in Lieu of Taxes In accordance with Arizona law, the District makes voluntary contributions each year to the State of Arizona, school districts, cities, counties, towns and other political subdivisions of the State of Arizona, for which property taxes are levied and within whose boundaries the District has property included in its electric system. As a political subdivision of the State of Arizona, the District is exempt from property taxation. | |||
The amount paid is computed on the same basis as ad valorem taxes paid by a private utility corporation with allowance for certain water-related deductions. | |||
Contributions based on the costs of construction work in progress are capitalized, and those based on plant-in-service are expensed.Revenue Recognition The District recognizes revenue when billed and accrues estimated revenue for electricity delivered to customers that has not yet been billed. The estimated revenue for electricity delivered but not yet billed is included in retail electric revenue and was $69.6 million and $63.7 million at April 30, 2011 and 2010, respectively. | |||
Other operating revenue consists primarily of revenue from marketing and trading electricity. | |||
The electric industry engages in an activity called "book-out" under which some energy purchases are netted against sales and power does not actually flow in settlement of the contract. | |||
The District presents the impacts of these financially settled contracts on a net basis, which resulted in a net reduction to revenue and purchase power expense of $34.6 million and $27.8 million for fiscal years 2011 and 2010, respectively, but which did not impact net revenues or cash flows.10 Sales and Use Taxes The District is required by various government authorities, including states and municipalities, to collect and remit taxes on certain retail sales. Such taxes are presented on a net basis and excluded from revenues and expenses in the accompanying combined financial statements. | |||
Income Taxes The District is exempt from federal and Arizona state income taxes. The Association is not exempt from federal and Arizona state income taxes. However, the Association is not liable for income taxes on operations relating to its acting as an agent for the District on the basis of a settlement with the Commissioner of Internal Revenue in 1949 which was approved by the Secretary of the Treasury. | |||
The Association is liable for income taxes on activities where it is not acting as an agent of the District. | |||
The tax effect of the District's wholly-owned taxable subsidiaries' operations is immaterial to the accompanying combined financial statements. | |||
Concentrations of Credit Risk Financial instruments that potentially subject SRP to credit risk consist of cash and cash equivalents, temporary and other investments, and segregated funds. Certain balances exceed Federal Deposit Insurance Corporation (FDIC) insured limits or are invested in money market accounts with investment banks that are not FDIC insured. SRP's cash and cash equivalents, temporary and other investments, and segregated funds are placed in credit-worthy financial institutions and certain money market accounts invest in U.S. Treasury Securities or other obligations issued or guaranteed by the U.S.Government, its agencies or instrumentalities. | |||
The use of contractual arrangements to manage the risks associated with changes in energy commodity prices creates credit risks resulting from the possibility of nonperformance by counterparties pursuant to the terms of their contractual obligations. | |||
In addition, volatile energy prices can create significant credit exposure from energy market receivables and mark-to-market valuations. | |||
The District has a credit policy for wholesale counterparties, continuously monitors credit exposures, and routinely assesses the financial strength of its counterparties. | |||
The District minimizes credit risk by dealing primarily with creditworthy counterparties, entering into standardized agreements which allow netting of exposures to and from a single counterparty, and requiring letters of credit, parent guarantees or other collateral when it does not consider the financial strength of a counterparty sufficient. | |||
Accumulated Net Revenues As of April 30, 2011 and 2010, the balance of accumulated net revenues was $4.267 billion and $3.963 billion, respectively. | |||
Prior Year Revisions During fiscal year 2011, SRP determined that the classification of amortization of fuel expense and loss on impairment of fixed assets had been improperly reported in the fiscal year 2010 Combined Statements of Cash Flows. SRP revised the previously issued financial statement to properly report amortization of fuel expense and loss on impairment of fixed assets resulting in a $31.9 million increase in net cash provided by operating activities, with a corresponding increase in net cash used by investing activities in the accompanying Combined Statements of Cash Flows.11 Recently Issued Accounting Standards Consolidation of Variable Interest Entities In December 2009, the FASB issued ASU No. 2009-17, "Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities," that changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. | |||
Under the new guidance, the determination of whether a company is required to consolidate an entity is based on, among other things, an ability to direct the activities of the entity that most significantly impact the entity's economic performance and whether the entity has an obligation to absorb losses. This guidance requires a company to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. | |||
SRP adopted this guidance effective May 1, 2010. The guidance had no effect on the accompanying combined financial statements, but did result in additional disclosures. | |||
See Note (11), VARIABLE INTEREST ENTITIES.Subsequent Events In February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure requirements," that requires an entity such as SRP to evaluate subsequent events through the date that the financial statements are either issued or available to be issued. The amendment also requires an entity to disclose the date through which the subsequent events have been evaluated and whether that date represents the date the financial statements were issued or the date they were available to be issued. SRP adopted the subsequent event guidance effective May 1, 2010. Subsequent events for SRP have been evaluated through July 21, 2011, which is the date that the financial statements were issued.(3) REGULATORY MATTERS: The Electric Utility Industry The District operates in a highly regulated environment in which it has an obligation to deliver electric service to customers within its service area. In 1998, Arizona enacted the Arizona Electric Power Competition Act (the Act), which authorized competition in the retail sales of electric generation, recovery of stranded costs, and competition in billing, metering and meter reading. While retail competition was available to all customers by 2001, only a few customers chose an alternative energy provider and those customers have since returned to their incumbent utilities. | |||
At this time, there is no active retail competition within the District's service territory or, to the knowledge of the District, within the State of Arizona, and the District's Direct Access Program is suspended. | |||
However, since 2006, two retail energy service providers, one meter reading service provider, and one meter service provider have applied to the Arizona Corporation Commission (ACC) for authorization to sell energy in Arizona, but the ACC has not ruled on any of the applications. | |||
In addition, large industrial customers and merchant power plant owners have been urging State leaders to reinstate some form of retail competition and one major utility in Arizona has proposed a buy-through pilot program whereby a limited number of large industrial customers would be allowed to purchase generation from other retail providers. | |||
12 The ACC Staff issued a report in August 2010 indicating that while some form of retail electric competition may be in the public interest, further analysis and discussion of the issue was warranted. | |||
The ACC has not yet considered or acted upon the report and no timetable has been established. | |||
If the ACC were to decide to reinstitute retail competition, the existing rules would require significant revision.Regulation and Pricing Policies Under Arizona law, the District's publicly elected Board of Directors has the authority to establish electric prices. The District is required to follow certain public notice and special Board meeting procedures before implementing any changes in the standard electric price plans. The financial statements reflect the pricing policies of the District's Board.The District's price plans include a base price component, a Fuel & Purchased Power Adjustment Mechanism (FPPAM) and an Environmental Programs Cost Adjustment Factor (EPCAF). Base prices recover costs for generation, transmission, distribution, customer services, metering, meter reading, billing and collections and system benefits charges that are not otherwise recovered through the FPPAM or the EPCAF. The FPPAM was implemented in May 2002 to adjust for increases and decreases in fuel costs. The EPCAF was implemented in November 2009 to cover costs incurred by the District to comply with renewable-energy, energy efficiency and climate-change related requirements imposed by mandate. Through a System Benefits surcharge to the District's transmission and distribution customers, the District recovers the costs of programs benefiting the general public, such as discounted rates for low income customers and nuclear decommissioning, including the cost of spent fuel storage.On March 11, 2010, the District Board approved an overall 4.9 percent system average increase effective with the May 2010 billing cycle. This overall increase was comprised of a 10.3 percent base increase and a 1.1 percent EPCAF increase that were partially offset by a 6.4 percent decrease in the FPPAM.Rate Stabilization Fund In accordance with Board action taken on March 11, 2010, SRP transferred | |||
$45.7 million into the Rate Stabilization Fund (RSF) in July 2010. The funds may be used to stabilize future prices or for any other corporate purpose approved by the Board.Regulatory Accounting The District accounts for the financial effects of the regulated portion of its operations in accordance with the provisions of authoritative guidance for regulated enterprises, which requires cost-based, rate-regulated utilities to reflect the impacts of regulatory decisions in their financial statements. | |||
The District records regulatory assets, which represent probable future recovery of certain costs from customers through the pricing process, and regulatory liabilities, which represent probable future credits to customers through the ratemaking process. Based on actions of the Board, the District believes the future collection of costs deferred through regulatory assets is probable. | |||
If events were to occur making full recovery of these regulatory assets no longer probable, the District would be required to write off the remaining balance of such assets as a one-time charge to net revenues. | |||
None of the regulatory assets earn a rate of return.13 The accompanying Combined Balance Sheets include the following regulatory assets and liabilities as of April 30: Assets 2011 2010 Pension and other postretirement benefits (Note 9) $ 646,348 $ 658,895 Bond defeasance 85,668 74,101 Mohave Generating Station 36,403 44,203 Nuclear decommissioning | |||
-12,069 Total regulatory assets $ 768,419 $ 789,268 Liabilities 2011 2010 Nuclear decommissioning | |||
$ 28,991 $ -Total regulatory liabilities | |||
$ 28,991 $The pension and other postretirement benefits regulatory asset is adjusted as changes in actuarial gains and losses, prior service costs and transition assets or obligations are recognized as components of net periodic pension costs each year and is recovered through prices charged to customers. | |||
Bond defeasance regulatory assets are recovered over the remaining original amortization period of the reacquired debt ending in fiscal year 2031.The Mohave Generating Station regulatory asset is being recovered on a straight-line basis over a ten-year period ending in fiscal year 2016.The nuclear decommissioning regulatory asset or liability is being deferred over the life of PVNGS and is being recovered through a component of the system benefits charge. Any difference between current year costs, revenues associated with nuclear decommissioning and earnings (losses) on the NDT are deferred in accordance with authoritative guidance for regulated enterprises and has no impact to the District's earnings.(4) FAIR VALUE OF FINANCIAL INSTRUMENTS: | |||
SRP invests in U.S. government obligations, certificates of deposit and other marketable investments. | |||
Such investments are classified as cash and cash equivalents, temporary investments, other investments, and segregated funds in the accompanying Combined Balance Sheets depending on the purpose and duration of the investment. | |||
Fair Value Option SRP adopted authoritative guidance which permits an entity to choose to measure many financial instruments and certain other items at fair value. SRP has elected the fair value option for all investment securities other than those classified as held-to-maturity. | |||
Election of the fair value option requires the security to be reported as a trading security.The fair value option was elected because management believes that fair value best represents the nature of the investments. | |||
While the investment securities held in these funds are reported as trading securities, the investments continue to be managed with a long-term focus. Accordingly, all purchases and sales within these funds are presented separately in the accompanying Statement of Cash Flows as investing cash flows, consistent with the nature and purpose for which the securities are acquired.14 The following table summarizes line items included in the accompanying Combined Balance Sheets at April 30 that include amounts recorded at fair value pursuant to the fair value option: Measurement (in thousands) | |||
Attribute* | |||
2011 2010 Cash and cash equivalents Cash N/A $ 13,686 $ 14,672 Money market funds Fair value 429,316 220,357 Total cash and cash equivalents 443,002 235,029 Non-utility property and other investments Money market funds Fair value 3,802 3,825 Trading investments Fair value 32,166 29,158 Held-to-maturity investments Amortized cost 136,119 70,080 Non-utility property N/A 82,998 80,291 Total non-utility property and other investments 255,085 183,354 Segregated funds, net of current portion Cash N/A 2,679 4,088 Money market funds Fair value 180,774 33,176 Trading investments Fair value 766,360 691,872 Held-to-maturity investments Amortized cost 130,729 70,624 Total segregated funds, net of current portion 1,080,542 799,760 Temporary investments Held-to-maturity investments Amortized cost 214,066 290,307 Total temporary investments 214,066 290,307 Current portion of segregated funds Money market funds Fair value 95,734 49,427 Trading investments Fair value 161,981 136,710 Held-to-maturity investments Amortized cost 59,820 55,472 Total current portion of segregated funds 317,535 241,609*N/A- Asset category not eligible for fair value option.SRP's investments in debt securities are measured and reported at amortized cost when there is positive intent and ability to hold the security to maturity. | |||
SRP's amortized cost and fair value of held-to-Maturity securities were $540.7 million and $545.2 million, respectively, at April 30, 2011 and $486.5 million and $489.7 million, respectively, at April 30, 2010. At April 30, 2011, SRP's investments in debt securities have maturity dates ranging from May 09, 2011, to December 11, 2015.SRP evaluates the held-to-maturity securities for other-than-temporary impairment on a quarterly basis considering numerous factors. At April 30, 2011 and 2010, SRP did not hold any impaired securities. | |||
SRP's trading investments are measured at fair value with unrealized trading gains and losses included in Investment income, net. The following table summarizes unrealized gains from fair value changes related to investments still held at April 30 (in thousands): | |||
2011 2010 Segregated funds, net of current portion $ 15,757 $ 101,287 Current portion of segregated funds 963 5,233 Non-utility property and other investments 2,441 5,963 Investment income, net $ 19,161 $ 112,483 15 (5) DERIVATIVE INSTRUMENTS: | |||
Energy Risk Management Activities The District has an energy risk management program to limit exposure to risks inherent in normal energy business operations. | |||
The goal of the energy risk management program is to measure and manage exposure to market risks, credit risks and operational risks. Specific goals of the energy risk management program include reducing the impact of market fluctuations on energy commodity prices associated with customer energy requirements, excess generation and fuel expenses, in addition to meeting customer pricing needs, and maximizing the value of physical generating assets. The District employs established policies and procedures to meet the goals of the energy risk management program using various physical and financial instruments, including forward contracts, futures, swaps and options.Certain of these transactions are accounted for as commodity derivatives and are recorded in the accompanying Combined Balance Sheets as either an asset or liability measured at their fair value.Changes in the fair value of commodity derivatives are recognized each period in current earnings and included in the accompanying Combined Statements of Net Revenues and classified as part of operating cash flows in the accompanying Combined Statements of Cash Flows. Some of the District's contractual agreements qualify and are designated for the normal purchases and normal sales exception and are not recorded at market value. This exception applies to physical sales and purchases of power or fuel where it is probable that physical delivery will occur; the pricing provisions are clearly and closely related to the contracted prices; and the documentation requirements are met. If a contract qualifies for the normal purchases and normal sales scope exception, the District accounts for the contract using settlement accounting (costs and revenues are recorded when physical delivery occurs).Segregated Funds Investments During fiscal year 2011, the District restructured the investments within certain of the Segregated funds. As part of the restructuring, the District entered into non-commodity derivative transactions either as a way to gain exposure to certain sectors and countries without having to physically buy securities in that sector or country or as a hedge against downside risk. When the District seeks to gain exposure to certain financial market sectors, it may enter into exchange traded futures or forward contracts that provide the desired exposure. | |||
The contracts may be long or short term, and serve as a risk management tool for the portfolio. | |||
Similarly, the District may enter into option contracts on certain securities or sectors to minimize downside risk in the portfolio. | |||
The District enters into a variety of non-commodity derivative instruments including futures, forwards, swaps and options primarily for trading purposes, with each instrument's primary risk exposure being interest rate, credit, and foreign exchange. | |||
The fair value of these non-commodity derivative instruments is included within the Segregated funds, net of current portion in the accompanying Combined Balance Sheets with changes in fair value reflected as Investment income, net within the Combined Statements of Net Revenues and are classified as part of investing cash flows in the accompanying Combined Statements of Cash Flows.16 Derivative Volumes The District has the following gross derivative volumes, by type, at April 30, 2011: Unit of Sale Commodity Measure Volunr S nes Natural gas options, swaps and forward arrangements Electricity options, swaps and forward arrangements Liquefied fuel swaps MMBTU MWH Gallon 2,517,500 3,393,269 Purchases Volumes 131,770,000 5,137,200 3,618,643 Non-commodity Unit of Measure Shares Shares Sales Volumes 21,700,000 61,080,413 Purchases Volumes 28,400,000 390,333,983 Fixed income contracts Foreign exchange contracts The District has the following gross derivative volumes, by commodity type, at April 30, 2010: Unit of Sales Pu Commodity Measure Volumes Vi Natural gas options, swaps and forward arrangements Electricity options, swaps and forward arrangements Liquefied fuel swaps MMBTU MWH Gallon 6,617,500 4,057,565 10;5, 2, rchases olumes 7,437,50 632,000 ,824,734 Presentation of Derivative Instruments in the Financial Statements The following tables provide information about the gross fair values, netting, and collateral and margin deposits for derivatives not designated as hedging instruments in the accompanying Combined Balance Sheets (in thousands): | |||
April 30, 2011 Segregated Current Non-current Current Non-current Funds, net Commodity Commodity Commodity Commodity of Current Derivative Derivative Derivative Derivative Total Assets Portion Assets Assets Liabilities Liabilities (Liabilities) | |||
Commodities | |||
$ -$ 17,079 $ 14,498 $ (28,549) $ (39,503) $ (36,475)Fixed income contracts (73) --(73)Foreign exchange contracts 7,696 --7,696 Netting -(8,998) (3,411) 8,998 3,411 -Collateral and margin deposits -632 ---632 Total $ 7,623 $ 8,713 $ 11,087 $ (19,551) $ (36,092) $ (28,220)April 30, 2010 Current Non-current Current Non-current Commodity Commodity Commodity Commodity Derivative Derivative Derivative Derivative Total Assets Assets Assets Liabilities Liabilities (Liabilities) | |||
Commodities | |||
$ 26,313 $ 16,757 $ (73,722) $(35,756) | |||
$ (66,408)Netting (11,786) (3,731) 11,786 3,731 -Collateral and margin deposits 12,346 -(2,505) -9,841 Total $ 26,873 $ 13,026 $ (64,441) $ (32,025) $ (56,567)17 The following tables summarize the District's unrealized gains (losses) associated with derivatives not designated as hedging instruments in the accompanying Combined Statements of Net Revenues (in thousands): | |||
April 30, 2011 Fuel Used in Net Operating Power Electric Investment Unrealized Revenues Purchased Generation Income, net Gain (Loss)Commodities | |||
$ (12,136) $ 13,875 $ 27,765 $ -$ 29,504 Fixed income contracts | |||
--(73) (73)Foreign exchange contracts | |||
--7,696 7,696 Total $ (12,136) $ 13,875 $ 27,765 $ 7,623 $ 37,127 April 30, 2010 Fuel Used in Net Operating Power Electric Unrealized Revenues Purchased Generation Gain (Loss)Commodities | |||
$ (6,650) $ 32,848 $ 61,559 $ 87,757 Credit Related Contingent Features Certain of the District's derivative instruments contain provisions that require the District's debt to maintain an investment grade credit rating from each of the major credit rating agencies. | |||
If the District's debt were to fall below investment grade, it would violate these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. | |||
The aggregate fair value of all derivative liabilities with credit-risk-related contingent features as of April 30, 2011, was $53.6 million for which the District has not posted collateral in the normal course of business. | |||
If the credit-risk-related contingent features underlying these agreements were triggered on April 30, 2011, the District could be required to post an additional | |||
$53.6 million of collateral to its counterparties. | |||
(6) FAIR VALUE MEASUREMENTS: | |||
SRP accounts for fair value in accordance with authoritative guidance which defines fair value, establishes methods for measuring fair value by applying one of three observable market techniques (market approach, income approach or cost approach) and expands required disclosures about fair value measurements. | |||
This standard defines fair value as the price that would be received for an asset, or paid to transfer a liability, in the most advantageous market for the asset or liability in an arms-length transaction between willing market participants at the measurement date.SRP has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. | |||
The fair value hierarchy gives the highest priority to 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 are as follows: Level 1 -Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.18 Level 2 -Financial assets and liabilities whose values are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets, pricing models whose inputs are observable for substantially. | |||
the full term of the asset or liabilities and pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means.Level 3 -Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. | |||
These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability. | |||
The following table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2011 (in thousands): | |||
Level 1 Level 2 Level 3 Netting and Toa Collateral oa Assets Cash and cash equivalents: | |||
Money market funds $ -$ 429,316 $ -$ -$ 429,316 Total cash and cash equivalents | |||
-429,316 -- 429,316 Non-utility property and other investments: | |||
Money market funds -3,802 -- 3,802 Mutual funds 32,166 --- 32,166 Total non-utility property and other investments 32,166 3,802 -- 35,968 Segregated funds, net of current portion: Money market funds -180,774 -- 180,774 Mutual funds 98,649 --98,649 Commingled funds -221,697 4,043 -225,740 Common stocks 273,176 3,353 --276,529 Preferred stocks 168 ---168 Corporate bonds -62,986 -- 62,986 U.S. government securities | |||
-94,665 -- 94,665 Fixed income derivative assets 116 1 --117 Fixed income derivative liabilities (190) --- (190)Foreign exchange derivative assets 7,696 45 -7,741 Foreign exchange derivative liabilities (2) (43) --(45)Total segregated funds, net of current portion 379,613 563,478 4,043 -947,134 Current portion of segregated funds: Money market fund -95,734 -95,734 Collateral pool investments | |||
-- 161,981 -161,981 Total current portion of segregated funds -95,734 161,981 -257,715 Derivative instruments: | |||
Commodities 7,926 10,248 13,403 (11,777) 19,800 Total $ 419,705 $ 1,102,578 | |||
$ 179,427 $ (11,777) $ 1,689,933 Liabilities Derivative instruments: | |||
Commodities | |||
$ (3,761) $ (45,558) $ (18,733) $ 12,409 $ (55,643)Total $ (3,761) $ (45,558) $ (18,733) $ 12,409 $ (55,643)19 The following table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2010 (in thousands): | |||
Level 1 Level 2 Level 3 Netting and Total Collateral Assets Cash and cash equivalents: | |||
Money market funds $ $ 220,357 $ $ $ 220,357 Total cash and cash equivalents 220,357 220,357 Non-utility property and other investments: | |||
Money market funds 3,825 3,825 Mutual funds 29,158 -29,158 Total non-utility property and other investments 29,158 3,825 32,983 Segregated funds, net of current portion: Money market funds -33,176 33,176 Mutual funds 234,485 -234,485 Commingled funds -226,449 4,118 230,567 Common stocks 223,568 3,252 -226,820 Total segregated funds, net of current portion 458,053 262,877 4,118 725,048 Current portion of segregated funds: Money market fund -49,427 -49,427 Collateral pool investments | |||
-136,710 136,710 Total current portion of segregated funds -49,427 136,710 186,137 Derivative instruments: | |||
Commodities 15,554 7,527 19,989 (3,171) 39,899 Total $ 502,765 $ 544,013 $ 160,817 $ (3,171) $1,204,424 Liabilities Derivative instruments: | |||
Commodities | |||
$ (23,971) $ (71,120) $ (14,387) $ 13,012 $ (96,466)Total $ (23,971) $ (71,120) $ (14,387) $ 13,012 $ (96,466)Valuation Methodologies Securities Money market funds -Investments with maturities of three months or less when purchased, including certain short-term fixed-income securities, are considered cash equivalents. | |||
The fair value of shares in money market funds are priced based on inputs obtained from Bloomberg, a pricing service, whose prices are obtained from direct feeds from exchanges, that are either directly or indirectly observable. | |||
Mutualfunds | |||
-The fair values of shares in mutual funds are based on inputs that are quoted prices in active markets for identical assets and, therefore, have been categorized in Level 1 in the fair value hierarchy. | |||
Equities are priced using active market exchanges. | |||
20 Corporate stocks -The fair values of shares in preferred and common corporate stocks are based on inputs that are quoted prices in active markets for identical assets and, therefore, have been categorized in Level 1 in the fair value hierarchy. | |||
Equities are priced using active market exchanges. | |||
Preferred and common corporate stocks are valued based on quoted prices in active markets and are categorized in Level 1. Equity securities held individually are primarily traded on exchanges which contain only actively traded securities due to the volume trading requirements imposed by these exchanges. | |||
Common stocks that are valued based on quoted prices from less active markets, such as over the counter stocks, are categorized as Level 2 in the fair value hierarchy. | |||
U.S. Government securities | |||
-The fair value of U.S. government securities is derived from quoted prices on similar assets in active or non-active markets, pricing models whose inputs are observable for the substantially full term of the asset, or from pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means; therefore, these securities have been categorized as Level 2 in the fair value hierarchy. | |||
Commingled funds -Commingled funds are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives, which are consistent with SRP's overall investment strategy. | |||
For equity and fixed-income commingled funds, the fund administrator values the fund using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities. | |||
Where adjustments to the NAV are required with respect to interests in funds subject to restrictions on redemption (such as lock-up periods or withdrawal limitations) and/or observable activity for the fund investment is limited, investments are classified within level 2 or 3 of the valuation hierarchy. | |||
If the ability to redeem the investment is unknown or the investment cannot be redeemed in the near term at NAV, the fair value measurement of the investment will be categorized as a Level 3 in the valuation hierarchy. | |||
Collateral pool investments | |||
-These commingled funds are maintained and invested by the administrator of SRP's securities' lending program. The pools are primarily invested in short-term fixed income securities, but may also be invested in assets with maturities that match the duration of the loan of the related securities. | |||
These commingled funds are valued daily by the administrator and the underlying fixed income securities are priced using a primary price source that is identified based on asset type, class or issue for each security. | |||
SRP has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. The fair values of fixed income securities are based on evaluated prices that reflect observable market information. | |||
However, these funds are categorized as level 3 because the value that SRP would be able to exit at is not the unit value derived from the underlying prices.Corporate bonds -For fixed income securities, multiple prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider validations in addition to checks for unusual daily movements. | |||
A primary price source is identified based on asset type, class or issue for each security. | |||
SRP has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, SRP selectively corroborates the fair values of securities by comparison to other market-based price sources. The fair values of fixed income securities are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized as Level 2.21 Non-Commodity Derivatives | |||
-Non-commodity derivatives include fixed income and foreign exchange contracts that are exchange traded derivatives or over-the-counter (OTC) derivatives. | |||
Exchange traded derivatives are priced based on inputs using quoted prices in the active markets using observable inputs. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Therefore, these investments have been categorized as Level 1. OTC derivatives are priced based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Therefore, these investments have been categorized as Level 2.Commodity Derivative Instruments The fair values of gas swaps and power swaps that are priced based on inputs using quoted prices of similar exchange traded items have been categorized in Level 1 in the fair value hierarchy. | |||
These include gas swaps traded on the New York Mercantile Exchange (NYMEX) and power swaps traded on the Intercontinental Exchange.The fair values of gas swaps, power swaps, gas options, power options and power deals that are priced based on inputs obtained through pricing agencies and developed pricing models, using similar observable items in active and inactive markets, are classified as Level 2 in the valuation hierarchy. | |||
The fair values of derivatives assets and liabilities which are valued using pricing models with significant unobservable market data traded in less active or underdeveloped markets are classified as Level 3 in the valuation hierarchy. | |||
Level 3 items include gas swaps, power swaps, gas options, power options and power deals. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include long-dated or complex derivatives). | |||
All of the assumptions above include adjustments for counterparty credit risk, using credit default swap data, bond yields, when available, or external credit ratings.Investments Calculated at Net Asset Value As of April 30, 2011, the fair value measurement of investments calculated at net asset value per share (or its equivalent), as well as the nature and risks of those instruments, are as follows: Fair Value Unfunded Redemption Redemption (in thousands) | |||
Commitments Frequency Notice Period Mutual funds $ 130,815 None Daily N/A Commingled funds: Fixed income funds 97,427 None Daily N/A International equity funds 124,270 None Monthly 2 days Domestic long-short equity fund of funds 4,043 None Annual 100 days Mutual Funds -These are funds invested in either equity or fixed income securities. | |||
They are actively managed funds that seek to outperform their respective benchmarks. | |||
The equity funds may invest in large and/or small capitalization stocks and/or growth or value styles, as dictated by their prospectuses. | |||
The fixed income funds will invest in a broad array of securities including treasuries, agencies, corporate debt, mortgage-backed securities, and some non-U.S. debt.22 Fixed Income Commingled Funds -The fund is an actively managed fund of funds that primarily invests in managers that invest in domestic and some non-U.S. equities. | |||
As a long-short fund, the fund's goal is to neutralize market risk by balancing between managers that buy (go long) securities and managers who sell (go short) securities. | |||
The fund seeks to outperform a broad equity index over long periods, with less risk.International Equity Funds -The fund is an actively managed fund that invests in primarily non-U.S.securities. | |||
The funds may invest in small and/or large capitalization stocks, as well as developing country securities. | |||
The fund seeks to outperform their respective benchmarks. | |||
Domestic Long-Short Equity Fund of Funds -The fund is an actively managed fund of funds that primarily invests in managers that invest in domestic and some non-U.S. equities. | |||
As a long-short fund, the fund's goal is to neutralize market risk by balancing between managers that buy (go long) securities and managers who sell (go short) securities. | |||
The fund seeks to outperform a broad equity index over long periods, with less risk.Collateral and Margin Deposits Margin and collateral deposits include cash deposited with counterparties and brokers as credit support under energy contracts. | |||
The amount of margin and collateral deposits generally varies based on changes in the fair value of the positions. | |||
The District presents a portion of its margin and cash collateral deposits net with its derivative position on the accompanying Combined Balance Sheets.Amounts recognized as margin and collateral provided to others are included in derivative assets in the accompanying Combined Balance Sheets and totaled $0.6 million at April 30, 2011.Changes in Level 3 Fair Value Measurements The tables below include the reconciliation of changes to the balance sheet amounts (in thousands) for the years ended April 30 for financial instruments classified within Level 3 of the valuation hierarchy; this determination is based upon unobservable inputs to the overall fair value measurement: | |||
Segregated Commodity Funds, net of Current Portion of Fiscal Year 2011 Derivatives Current Portion Segregated Funds Total Beginning balance at May 1 $ 5,602 $ 4,118 $ 136,710 $ 146,430 Transfers out of Level 3 1,552 --1,552 Net realized and unrealized gain/(loss) included in earnings (8,285) (75) 963 (7,397)Net realized and unrealized gain recorded as regulatory assets or liabilities | |||
--936 936 Purchases 2,602 830,789 833,391 Settlements (6,801) -(807,417) | |||
(814,218)Balance at April 30 $ (5,330) $ 4,043 $ 161,981 $ 160,694 23 Segregated Commodity Funds, net of Current Portion of Fiscal Year 2010 Derivatives Current Portion Segregated Funds Total Beginning balance at May 1 $ 27,000 $ 156,044 $ 112,498 $ 295,542 Transfers out of Level 3 7,631 (226,449) | |||
-(218,818)Net realized and unrealized gain/(loss) included in earnings (6,094) 36,100 5,234 35,240 Net realized and unrealized gain recorded as regulatory assets -15,252 4,055 19,307 Purchases 8,793 23,986 737,315 770,094 Settlements (31,728) (815) (722,392) | |||
(754,935)Balance at April 30 $ 5,602 $ 4,118 $ 136,710 $ 146,430 Fair Value Disclosures U.S GAAP requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Many but not all of the financial instruments are recorded at fair value on the accompanying Combined Balance Sheets.Financial instruments held by SRP are discussed below.Financial Instruments for Which Fair Value Approximates Carrying Value -Certain financial instruments that are not carried at fair value on the accompanying Combined Balance Sheets are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk. The instruments include receivables, accounts payable, customers' deposits, other current liabilities and commercial paper.Financial Instruments for Which Fair Value Does Not Approximate Carrying Value -The District presents long-term debt at carrying value on the accompanying Combined Balance Sheets. The collective fair value of the District's revenue bonds and the Desert Basin Lease-Purchase Agreement, including the current portion, was estimated by using pricing scales from independent sources. The carrying amount of commercial paper approximates fair value because of its short term maturity and pricing validated confirmed through independent sources. As of April 30, 2011 and 2010, the carrying amounts, including current portion and accrued interest, were $4.632 billion and $4.266 billion, respectively, and the estimated fair values were $4.634 billion and $4.412 billion, respectively. (See Note (7) LONG-TERM DEBT for further discussion of these items.)24 (7) LONG-TERM DEBT: Long-term debt consists of the following at April 30 (in thousands): | |||
Interest Rate 2011 2010 Revenue bonds 1993 Series C (matured 1/1/2011)1997 Series A (matured 1/1/2011)2001 Series A (matured 1/1/2011)2002 Series A (mature 2012 -2031)2002 Series B (mature 2016 -2032)2002 Series C (mature 2012 -2015)2004 Series A (mature 2012 -2024)2005 Series A (mature 2027 -2035)2006 Series A (mature 2033 -2037)2008 Series A (mature 2016 -2038)2009 Series A (mature 2012 -2039)2009 Series B (mature 2013 -2020)2010 Series A (mature 2041)2010 Series B (mature 2014 -2027)Total revenue bonds Unamortized bond discount/premium Total revenue bonds outstanding Finance lease Commercial paper Total long-term debt Less: Current portion of long-term 5.05%5.00 -5.125%5.00%4.75- 5.25%4.00- 5.00%5.00%4.00- 5.00%4.75- 5.00%5.00%5.00%2.75- 5.00%3.00- 4.50%4.839%2.00- 5.00%309,280 468,400 140,800 104,450 327,090 296,000 816,650 725,430 296,375 500,000 216,785 4,201,260 111,629 4,312,889 195,845 50,000 4,558,734 (139,635)$ 4,419,099$ 15,800 38,990 11,420 431,110 570,000 184,635 114,410 327,090 296,000 816,650 744,180 296,375 3.375 -5.25%3,846,660 86,656 3,933,316 215,795 50,000 4,199,111 (147,180)$ 4,051,931 Total long-term debt, net of current The annual maturities of long-term debt (excluding unamortized bond discount/premium) as of April 30, 2011, due in fiscal years ending April 30, are as follows (in thousands): | |||
Revenue Bonds Finance Lease 2012 $ 122,180 $ 17,455 2013 120,955 22,995 2014 113,740 17,500 2015 114,730 27,715 2016 108,155 16,075 Thereafter 3,621,500 94,105 Total $ 4,201,260 | |||
$ 195,845 Revenue Bonds Revenue bonds are secured by a pledge of, and a lien on, the revenues of the electric system, after deducting operating expenses, as defined in the amended and restated bond resolution, effective in January 2003, as amended (Bond Resolution). | |||
The Bond Resolution requires the District to charge and collect revenues sufficient to fund the debt reserve account and pay operating expenses, debt service, and all other charges and liens payable out of revenues and income. Under the terms of the Bond Resolution, the District makes debt service deposits to a non-trusteed segregated fund. Included in segregated funds in the accompanying Combined Balance Sheets are $190.5 million and $185.5 million of debt service related funds as of April 30, 2011 and 2010, respectively. | |||
Additionally, the Bond 25 Resolution requires the District to maintain a debt service coverage ratio of 1.1 or greater on outstanding revenue bonds. To be eligible to issue additional revenue bonds, the District must anticipate sufficient revenues to maintain that ratio post-issuance. | |||
For the years ended April 30, 2011 and 2010, the debt service coverage ratio was 2.78 and 2.48, respectively. | |||
In October 2010, the District issued $500 million 2010 Series A Electric System Revenue Bonds as federally taxable, direct payment "Build America Bonds." Subject to the District's compliance with certain provisions of the ARRA, the District expects to receive cash subsidy payments from the United States Treasury equal to 35% of the interest payable on the 2010 Series A Bonds over the term of the 2010 Series A Bonds. The District accrued $4.8 million for cash subsidy payments earned from the United States Treasury for the year ending April 30, 2011. The accrued cash subsidy payments are included in the Combined Statements of Net Revenues as a reduction to Interest on bonds, net.Interest, Build America Bonds subsidy payments, and the amortization of the bond discount, premium and issue expense on the various issues result in an effective rate of 4.52% over the remaining term of the bonds.In October 2010, the District also issued $216.8 million 2010 Series B Electric System Revenue Bonds, the proceeds of which were used with $0.8 million of available funds to fund an externally trusteed irrevocable escrow to defease $235.0 million of outstanding Revenue Bonds (the Refunding Bonds).The funds in the escrow will be applied to interest payments occurring after the sale and the redemption price of the Refunded Bonds upon their respective call dates of November 1, 2010, January 1, 2012 and January 1, 2013. The bond defeasance is a non-cash activity on the Combined Statements of Cash Flows and the Refunded Bonds have been removed from the District's balance sheet.The District has authorization to issue additional Electric System Revenue Bonds totaling $1.168 billion principal amount and Electric System Refunding Revenue Bonds totaling $5.684 billion principal amount.Finance Lease In December 2003, the District entered into a lease-purchase agreement (Desert Basin Lease-Purchase Agreement) with Desert Basin Independent Trust (DBIT) to finance the acquisition of the Desert Basin Generating Station (Desert Basin) located in central Arizona. In a concurrent transaction, $282.7 million in fixed-rate Certificates of Participation (COPs) were issued pursuant to a Trust Indenture, between Wilmington Trust Company, as trustee, and DBIT, to fund the acquisition of Desert Basin and other electric system assets ofthe District. | |||
Investors in the COPs obtained an interest in the lease payments made by the District to DBIT under the Desert Basin Lease-Purchase Agreement. | |||
Due to the nature of the Desert Basin Lease-Purchase Agreement, the District has recorded a lease-finance liability to DBIT with the same terms as the COPs.(8) COMMERCIAL PAPER AND CREDIT AGREEMENTS The District is authorized by the Board to issue up to $475.0 million in commercial paper. The District had $50.0 million Series C Commercial Paper outstanding at April 30, 2011. The District retired $275.0 million of Series B and $50.0 million of Series C Commercial Paper during fiscal year 2010. At April 30, 2011, the Series C issue had an average weighted interest rate to the District of 0.30%. The commercial paper matures not more than 270 days from the date of issuance and is an unsecured obligation of the District.26 The District has a $50.0 million revolving line-of-credit agreement supporting the $50.0 million of outstanding commercial paper. The revolving credit agreement expires September 16, 2012. The District has classified the commercial paper program as long-term debt in the accompanying Combined Balances Sheets at April 30, 2011 and 2010.The $50.0 million revolving credit agreement contains various conditions precedent to borrowings that include, but are not limited to, compliance with the covenants set forth in the agreement, the continued accuracy of representations and warranties, no existence of default and maintenance of certain investment grade ratings on the District's revenue bonds. The agreement has various covenants, with which management believes the District was in compliance at April 30, 2011. The District has never borrowed under the agreement. | |||
Alternative sources of funds to support the commercial paper program include existing funds on hand or the issuance of alternative debt, such as revenue bonds.(9) EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS: Defined Benefit Pension Plan and Other Postretirement Benefits SRP's Employees' Retirement Plan (the Plan) covers substantially all employees. | |||
The Plan is funded entirely from SRP contributions and the income earned on invested Plan assets. The District made a contribution of $132.0 million in fiscal year 2011 and $144.0 million in fiscal year 2010.SRP provides a non-contributory defined benefit medical plan for retired employees and their eligible dependents (contributory for employees hired January 1, 2000 or later) and a non-contributory defined benefit life insurance plan for retired employees. | |||
Employees are eligible for coverage if they retire at age 65 or older with at least five years of vested service under the Plan (ten years for those hired January 1, 2000 or later), or any time after attainment of age 55 with a minimum of ten years of vested service under the Plan (20 years for those hired January 1, 2000 or later). The funding policy is discretionary and is based on actuarial determinations. | |||
U.S. GAAP requires employers to recognize the overfunded or underfunded positions of defined benefit pension and other postretirement plans in their balance sheets. Any actuarial gains and losses, prior service costs and transition assets or obligations must be recorded on the balance sheet with an offset to accumulated other comprehensive income until the amounts are amortized as a component of net periodic benefit costs.The Board has authorized the District to collect future amounts associated with the pension and other postretirement plan liabilities as part of the pricing process. The District established a regulatory asset for the amounts otherwise chargeable to accumulated other comprehensive income that are expected to be recovered through prices in future periods. The changes in actuarial gains and losses, prior service costs and transition assets or obligations pertaining to the regulatory asset are recognized as an adjustment to the regulatory asset or liability accounts as these amounts are recognized as components of net periodic pension costs each year. The District's estimated amortization amounts for fiscal year 2011 are $2.1 million for prior service cost and $26.2 million for net actuarial loss.27 The following tables outline changes in benefit obligations, plan assets, the funded status of the plans and amounts included in the accompanying combined financial statements (in thousands): | |||
Pension Benefits Postretirement Benefits 2011 2010 2011 2010 Change in benefit obligation Benefit obligation at beginning of year $ 1,365,606 | |||
$ 1,157,672 | |||
$ 513,378 $ 450,279 Service cost 38,307 32,129 10,287 8,597 Interest cost 80,243 79,254 30,236 30,859 Actuarial gain 56,031 145,809 26,895 39,801 Benefits paid (53,879) (49,258) (19,349) (16,158)Benefit obligation at end of year $ 1,486,308 | |||
$ 1,365,606 | |||
$ 561,447 $ 513,378 Change in plan assets Fair value of plan assets at beginning of year $ 1,105,452 | |||
$ 796,741 $ -$Actual return on plan assets 169,356 213,969 --Employer contributions 132,000 144,000 19,350 16,158 Benefits paid (53,879) (49,258) (19,350) (16,158)Fair value of plan assets at end of year 1,352,929 1,105,452 Funded status at end of year $ (133,379) | |||
$ (260,154) | |||
$ (561,447) | |||
$ (513,378)Amounts recognized in Combined Balance Sheets: Other current liabilities | |||
$ $ -$ (21,104) $ (18,882)Accrued post-retirement liability (133,379) | |||
(260,154) | |||
(540,343) | |||
(494,496)Net asset (liability) recognized | |||
$ (133,379) | |||
$ (260,154) | |||
$ (561,447) | |||
$ (513,378)Amounts recognized as a regulatory asset: Transition obligation (asset) -$ -$ (3) $ (4)Prior service cost (credit) 6,424 8,739 (6,990) (7,193)Net actuarial loss 502,109 533,863 144,808 123,490 Net regulatory asset $ 508,533 $ 542,602 $ 137,815 $ 116,293 The following table represents the amortization amounts expected to be recognized or paid during the fiscal year ending April 30, 2012 (in thousands): | |||
Pension Benefits Net transition obligation/(asset) | |||
Prior service cost/(credit) | |||
Net actuarial$$ 2,315$ 24,708 Postretirement Benefits$ (1)$ (203)$ 6,349 The following table outlines the projected benefit obligation and accumulated benefit obligation in excess of Plan assets (in thousands): | |||
2011 Projected benefit obligation Accumulated benefit obligation Fair value of Plan assets$ 1,486,308$ 1,297,244$ 1,352,929 2010$ 1,365,606$ 1,201,915$ 1,105,452 SRP internally funds its other postretirement benefits obligation. | |||
At April 30, 2011 and 2010, $533.7 million and $466.8 million of segregated funds, respectively, were designated for this purpose.28 The weighted average assumptions used to calculate actuarial present values of benefit obligations at April 30 were as follows: Pension Benefits Postretirement Benefits 2011 2010 2011 2010 Discount rate 5.69% 6.00% 5.69% 6.00%Rate of compensation increase 4.00% 4.00% N/A N/A Weighted average assumptions used to calculate net periodic benefit costs were as follows: Pension Benefits Postretirement Benefits 2011 2010 2011 2010 Discount rate 6.00% 7.00% 6.00% 7.00%Expected return on Plan assets Rate of compensation increase 8.25%4.00%8.25%4.00%N/A N/A N/A N/A For employees who retire at age 65 or younger, for measurement purposes, a 7.5% annual increase before attainment of age 65 and a 7.5% annual increase on and after attainment of age 65 in per capita costs of health care benefits were assumed during 2011; these rates were assumed to decrease uniformly until equaling 5% in all future years.The components of net periodic benefit costs for the years ended April 30, are as follows (in thousands): | |||
Pension Benefits Postretirement Benefits 2011 2010 2011 2010 Service cost $ 38,307 $ 32,129 $ 10,287 $ 8,597 Interest cost 80,243 79,254 30,236 30,859 Expected return on Plan assets (102,168) | |||
(91,982) --Amortization of transition obligation | |||
--(1) 3,117 Amortization of net actuarial loss 20,597 6,360 5,576 1,556 Amortization of prior service cost 2,315 2,315 (203) 769 Net periodic benefit cost $ 39,294 $ 28,076 $ 45,895 $ 44,898 Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effect (in thousands): | |||
One Percentage Point Increase$ 6,143$ 99,316 One Percentage Point Decrease$ (5,492)$ (66,961)Effect on total service cost and interest cost components Effect on postretirement benefit obligation Plan Assets The Board has established an investment policy for Plan assets and has delegated oversight of such assets to a compensation committee (the Committee). | |||
The investment policy sets forth the objective of providing for future pension benefits by targeting returns consistent with a stated tolerance of risk.The investment policy is based on analysis of the characteristics of the Plan sponsors, actuarial factors, 29 current Plan condition, liquidity needs, and legal requirements. | |||
The primary investment strategies are diversification of assets, stated asset allocation targets and ranges, and external management of Plan assets. The Committee determines the overall target asset allocation ratio for the Plan and defines the target asset allocation ratio deemed most appropriate for the needs of the Plan and the risk tolerance of the District.The market value of investments (reflecting returns, contributions, and benefit payments) within the plan trust appreciated 15.4% during fiscal year 2011, compared to an increase of 26.6% during fiscal year 2010. Changes in the plan's funded status affect the assets and liabilities recorded on the balance sheet in accordance with FASB authoritative guidance. | |||
Due to the District's regulatory treatment, the recognition of funded status is offset by regulatory assets or liabilities and is recovered through prices.The Pension Protection Act of 2006 establishes new minimum funding standards and restricts plans underfunded by more than 20% from adopting amendments that increase plan liabilities unless they are funded immediately. | |||
In December 2008, the Worker, Retiree, and Employer Recovery Act (WRERA)was enacted. Among other provisions, the WRERA provides temporary funding relief to defined benefit plans during the current economic down-turn. | |||
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PACMBPRA) was signed into law during fiscal year 2011.WRERA and PACMBPRA will favorably impact the level of minimum required contributions. | |||
The Plan's weighted-average asset allocations are as follows: Target Allocations 2011 2010 Equity securities 65.0% 65.1% 64.7%Debt securities 25.0% 27.7% 28.3%Real estate 10.0% 7.2% 7.0%Total 100.0% 100.0% 100.0%The investment policy, as authorized by the Board, allows management to reallocate Plan assets at any time within a tolerance range up to plus or minus 5% from the target asset allocation which allows for flexibility in managing the assets based on prevailing market conditions and does not require automatic rebalancing if the actual allocation strays from the target allocation. | |||
Fair Value of Plan Assets The following table sets forth the fair value of SRP's Plan assets, by asset category, at April 30, 2011 (dollars in thousands): | |||
Level 1 Level 2 Level 3 Total Money market funds $ 654 $ 54,520 $ $ 55,174 Mutual funds 127,227 -127,227 U.S. government securities | |||
-46,031 46,031 Corporate bonds -215,161 215,161 Corporate stocks 500,853 2,751 503,604 Commingled funds -239,719 65,549 305,268 Real estate -97,485 97,485 Exchange traded derivatives 845,159 --845,159 OTC derivatives | |||
-31,442 31,442 Exchange traded derivative liabilities (842,177) | |||
-(842,177)OTC derivative liabilities | |||
-(31,445) (31,445)Total assets $ 631,716 $ 558,179 $ 163,034 $ 1,352,929 30 The fair value of the Plan assets, excludes $307.2 million payable for collateral on loaned securities in connection with the participation of the Plan in securities lending programs.The following table sets forth the fair value of SRP's Plan assets, by asset category, at April 30, 2010 (dollars in thousands): | |||
Level 1 Level 2 Level 3 Total Money market funds $ $ 42,370 $ $ 42,370 U.S. government securities 31,703 31,703 Corporate bonds 215,033 215,033 Corporate stocks 535,429 -535,429 Commingled funds -147,710 56,416 204,126 Real Estate -76,791 76,791 Total assets $ 535,429 $ 436,816 $ 133,207 $ 1,105,452 The fair value of the Plan assets, excludes $337.6 million payable for collateral on loaned securities in connection with the participation of the Plan in securities lending programs.For a description of the fair value hierarchy, refer to Note (6) FAIR VALUE MEASUREMENTS. | |||
Valuation Methodologies Real Estate -Real estate commingled funds are funds with a direct investment in a pool of real estate properties. | |||
These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications. | |||
Since these valuation inputs are not highly observable, real estate investments have been categorized as Level 3 investments. | |||
Exchange traded derivatives | |||
-The fair values of exchange traded options and futures are priced based on inputs using quoted prices ih active markets using observable inputs. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Therefore, these investments have been categorized as Level 1.OTC derivatives | |||
-The fair values of OTC options, forwards, swaptions, and swaps are priced based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Therefore, these investments have been categorized in Level 2 in the fair value hierarchy. | |||
For an explanation of the valuation methodologies used to determine fair value of the assets of the Plan that are not listed above, refer to Note (6) FAIR VALUE MEASUREMENTS. | |||
31 Changes in Level 3 Fair Value Measurements The table below includes the reconciliation of changes to the balance sheet amounts for the years ended April 30 for financial instruments classified within Level 3 of the valuation hierarchy; this determination is based upon unobservable inputs to the overall fair value measurement: | |||
Plan Assets (in thousands) 2011 2010 Beginning balance at May 1 $ 133,207 $ 95,965 Actual return on plan assets relating to assets still held at end of period 19,087 (14,775)Purchases 10,740 54,000 Net transfers in/out of Level 3 -(1,983)Balance at April 30 $ 163,034 $ 133,207 Long-Term Rate of Return The expected return on Plan assets is based on a review of the Plan asset allocations and consultations with a third-party investment consultant and the Plan actuary, considering market and economic indicators, historical market returns, correlations and volatility, and recent professional or academic research.Employer Contributions The District expects to contribute | |||
$132.0 million to the Plan over the next valuation period.Benefits Payments SRP expects to pay benefits in the amounts as follows (in thousands): | |||
Pension Benefits Postretirement Benefits Before Subsidy* Net 2012 $ 59,406 $ 21,104 $ 20,442 2013 64,098 22,895 22,142 2014 69,359 24,966 24,123 2015 74,607 26,928 26,006 2016 80,478 28,866 27,853 2017 through 2021 $ 496,204 $ 168,140 $ 161,704*Estimated future benefit payments, including prescription drug benefits, prior to federal drug subsidy receipts expected as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.Defined Contribution Plan SRP's Employees' 401(k) Plan (the 401(k) Plan) covers substantially all employees. | |||
The 401(k) Plan receives employee pre-tax and post-tax contributions and partial employer matching contributions. | |||
Employees who have one year of service in which they have worked at least 1,000 hours and who are also contributing to the 401(k) Plan are eligible to receive partial employer matching contributions of$0.85 on every dollar contributed up to the first six-percent of their base pay that they contribute to the 401(k) Plan. Employer matching contributions to the 401(k) Plan were $14.0 million during each of fiscal years 2011 and 2010.32 Employee Performance Incentive Compensation Program During fiscal year 2011, a new Emplo(yee Performance Incentive Compensation program (EPIC) was approved by the Board. EPIC covers substantially all regular employees and the incentive compensation is based on the achievement of pre-established targets for fiscal years 2011 and 2012 combined. | |||
The Board did not approve an incentive compensation program for fiscal year 2010.(10) INTERESTS IN JOINTLY-OWNED ELECTRIC UTILITY PLANTS: The District has entered into various agreements with other electric utilities for the joint ownership of electric generating and transmission facilities. | |||
Each participating owner in these facilities must provide for the cost of its ownership share. The District's share of expenses of the jointly-owned plants is included in operating expenses in the accompanying Combined Statements of Net Revenues.The following table reflects the District's ownership interests in jointly-owned electric utility plants as of April 30, 2011 (in thousands): | |||
Construction Ownership Plant in Accumulated Work Generating Station Share Service Depreciation In Progress Four Corners (NM) (Units 4 & 5) 10.00% $ 118,226 $ (99,913) $ 3,238 Navajo (AZ) (Units 1, 2 & 3) 21.70% 390,381 (349,309) 24,890 Hayden (CO) (Unit 2) 50.00% 120,539 (115,696) 15,135 Craig (CO) (Units 1 & 2) 29.00% 274,682 (221,839) 11,045 PVNGS (AZ) (Units 1, 2 & 3) 17.49% 1,320,262 (1,044,411) 46,277$ 2,224,090 | |||
$ (1,831,168) | |||
$ 100,585 As of April 30, 2011, the District's ownership interests in transmission facilities include $310.0 million in plant in service, $26.8 million in accumulated depreciation and $88.8 million in construction work in progress.(11) VARIABLE INTEREST ENTITIES: On May 1, 2010, the District adopted ASU No. 2009-17, "Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities." The newly adopted FASB authoritative guidance defines a variable interest entity (VIE) as a legal entity whose equity owners do not have sufficient equity at risk or lack certain characteristics of a controlling financial interest in the entity.This guidance identifies the primary beneficiary as the variable interest holder that has the power to direct the activities that most significantly impact the VIE's economic performance (power criterion) and has the obligation to absorb losses or right to receive benefits from the VIE (losses/benefits criterion). | |||
The primary beneficiary is required to consolidate the VIE unless specific exceptions or exclusions are met. The District considers both qualitative and quantitative factors to form a conclusion whether it, or another interest holder, meets the power criterion and the losses/benefits criterion. | |||
The District performs ongoing reassessments of its VIEs to determine if the primary beneficiary changes each reporting period.Unconsolidated VIEs While the District is not required to consolidate any VIE as of April 30, 2011 or 2010, it held variable interests in certain VIEs as described below: In May 2008, the District entered into a 20-year purchase power agreement to purchase energy from a 575 MW simple cycle natural gas peaking facility. | |||
The commercial operation date of the facility was May 1, 33 2011. Under the agreement, the District will pay a capacity charge, operation and maintenance costs and property taxes. The District is also obligated to provide the natural gas needed to operate the facility. | |||
The capacity charge is paid monthly and will total approximately | |||
$57.5 million yearly, which is included in the Purchased Power and Fuel Supply table in Note (12) COMMITMENTS. | |||
The District has concluded that it is not the primary beneficiary of this VIE since it does not control operations and maintenance, which it believes are the primary activities that most significantly impact the economic activities of the entity. The District has concluded that this purchase power agreement is a capital lease. Accordingly, a capital lease asset and corresponding liability were recorded on May 1, 2011.The District has entered into various long-term purchase power agreements with developing renewable energy generation facilities that extend for periods of 20 to 30 years. Two of the facilities, with capacities of approximately 64 MW and 63 MW, began commercial operation in fiscal years 2011 and 2010, respectively. | |||
The District is receiving the power and renewable energy credits from both facilities and the amounts that the District paid to these projects were $17.5 million and $6.4 million for the fiscal years 2011 and 2010, respectively. | |||
The remaining facilities are expected to begin commercial operation between fiscal year 2012 and fiscal year 2013. The expected capacity of all the facilities combined, once in operation, is approximately 311 MW. The District is only obligated to pay for actual energy delivered and will have no obligation with respect to any facilities that do not start commercial operations. | |||
There are no minimum payment obligations under these agreements. | |||
The District has concluded that it is not the primary beneficiary of these VIEs since it does not control operations and maintenance, which it believes are the primary activities that most significantly impact the economic activities of the entity.The District formed a partnership during fiscal year 2010 to market long-term water storage credits.The District made capital contributions to the partnership in fiscal years 2011 and 2010 totaling $1.0 million and $0.4 million, respectively. | |||
The District has a future maximum exposure up to a $25 million contribution limit. The District has concluded that it is not the primary beneficiary of this VIE since it does not have power to direct the activities related to the marketing of the long-term water storage credits, which represent the most significant economic activities of the VIE.(12) COMMITMENTS: | |||
Purchased Power and Coal Fuel Supply The District had various firm non-cancelable purchase commitments at April 30, 2011, which are not recognized in the accompanying Combined Balance Sheets. The following table presents information pertaining to firm purchase commitments with remaining terms greater than one year (in millions): | |||
Total Payments Purchase Commitments 2011 2010 2012 2013 2014 2015 2016 Thereafter Purchase power contracts* | |||
$200.8 $ 220.8 $ 109.5 $ 119.2 $, 120.6 $ 122.1 $ 123.5 $ 2,276.1 Fuel supply contracts 369.6 293.7 327.2 306.6 253.9 253.9 228.2 818.2 Total $ 570.4 $ 514.5 $ 436.7 $ 425.8 $ 374.5 $ 376.0 $ 351.7 $ 3,094.3* Included in the purchase commitments is $10.5 million in fiscal year 2012 that is unconditionally payable regardless of the availability of power.In conjunction with an impairment analysis performed on generation-related operations, in August 1998, the District recorded provisions of $163.7 million for losses on certain contracts included in the table above. The provisions were being amortized over the life of the contracts, commencing January 1, 1999, 34 and are fully amortized as of May 2011. Amortization of $13.3 million has been reflected as a reduction in purchased power expense in fiscal years 2011 and 2010.Gas Purchase Agreement In October 2007, the District entered into a 30-year gas purchase agreement with Salt Verde Financial Corporation (SVFC), an Arizona nonprofit corporation formed for the primary purpose of supplying natural gas to the District. | |||
Under the agreement, the District is committed to purchase 9,820,000 MMBtus (million of British thermal units) of natural gas in fiscal year 2012, 10,120,000 MMBtus in fiscal year 2013, 10,425,000 MMBtus in fiscal year 2014, 10,425,000 MMBtus in fiscal year 2015, 10,270,000 MMBtus in fiscal year 2016 and 229,240,000 MMBtus over the balance of the term. These purchases are expected to supply approximately 20% of its projected natural gas requirements needed to serve retail customers over the remainder of the 30-year period. The District receives a discount off market prices and is obligated to pay only for gas delivered. | |||
Payments to SVFC under the agreement were$14.6 million and $10.1 million in fiscal year 2011 and fiscal year 2010, respectively. | |||
Operating Leases The District entered into various operating leases to facilitate the operations of Springerville Unit 4. Total payments under the agreements were $13.0 million and $8.1 million in fiscal year 2011 and 2010, respectively. | |||
Minimum payments under these agreements are estimated to be $13.2 million in fiscal year 2012 through fiscal year 2014, $12.9 million in fiscal year 2015, $9.4 million in fiscal year 2016 and $232.0 million thereafter. | |||
(13) CONTINGENCIES: | |||
Nuclear Insurance Under existing law, public liability claims arising from a single nuclear incident are limited to $12.595 billion. PVNGS Participants insure for this potential liability through commercial insurance carriers to the maximum amount available | |||
($375.0 million) with the balance covered by an industry-wide retrospective assessment program as required by the Price-Anderson Act. If losses at any nuclear power plant exceed available commercial insurance, the District could be assessed retrospective premium adjustments. | |||
The maximum assessment per reactor per nuclear incident under the retrospective program is $117.5 million including a 5% surcharge; applicable in certain circumstances, but not more than $17.5 million per reactor may be charged in any one year for each incident. | |||
Based on the District's ownership share of PVNGS, the maximum potential assessment would be $61.7 million, including the 5% surcharge, but would be limited to $9.2 million per incident in any one year.PVNGS Participants also maintain "all risk" (including nuclear hazards) insurance for property damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.750 billion, a substantial portion of which must first be applied to stabilization and decontamination. | |||
The District has also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen accidental outage of any of the three units. The coverage for property damage, decontamination, and replacement power is provided by Nuclear Electric Insurance Limited (NEIL). The District is subject to retrospective assessments under all NEIL policies if NEIL's losses in any policy year exceed accumulated funds. The maximum amount of retrospective assessments the District could incur under the NEIL policies totals approximately | |||
$10.6 million. The insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions and exclusions. | |||
35 Spent Nuclear Fuel Under the Nuclear Waste Policy Act of 1982, the District pays $0.001 per kWh on its share of net energy generation at PVNGS to the U.S. Department of Energy (DOE). However, to date, for various reasons, the DOE has not constructed a site for the storage of spent nuclear fuel. Accordingly, APS has constructed an on-site dry cask storage facility to receive and store PVNGS spent fuel. PVNGS has sufficient capacity at its on-site spent fuel storage installation to be able to store all of the nuclear fuel that will be spent during the first operating license period which ends in December 2027. In addition, PVNGS has sufficient capacity to store a portion of the fuel that will be spent during the period of extended operation, which will end in December 2047. Potentially, and depending on how the NRC rules on the future unloading of spent fuel pools, PVNGS could use high capacity storage casks to store the balance of any fuel spent during the extended license period.The District's share of on-site interim storage at PVNGS is estimated to be $79.3 million for costs to store spent nuclear fuel from inception of the plant through fiscal year-end 2011, and $0.8 million per year going forward. These costs have been included in the District's price plans for transmission and distribution. | |||
At April 30, 2011 and 2010, the District's accrued spent fuel storage cost was $25.3 million and $25.6 million, respectively, and included in deferred credits and other non-current liabilities on the accompanying Combined Balance Sheets.Coal Supply Litigation Navajo Nation v. Peabody (U.S. District Court, D.C. District -RICO Case) -In 1999, the Navajo Nation filed a lawsuit in the United States District Court in Washington D.C. (U.S. District Court) in which the Hopi Tribe later joined as a plaintiff. | |||
The lawsuit arises out of negotiations culminating in 1987 with amendments to the coal leases and related agreements. | |||
The Navajo Nation and the Hopi Tribe allege that Peabody Western Coal Company (Peabody) (the coal supplier for NGS and Mohave), Southern California Edison Company (operating agent for Mohave), the District (operating agent for NGS) and certain individual defendants, in violation of the federal racketeering statutes, had improperly induced the Department of the Interior (DOI) to not approve the coal royalty rate proposed by the Navajo Nation. They further alleged that the DOI's failure to approve the rate caused the tribes to negotiate and settle upon a substantially lower royalty rate. The suit alleges $600.0 million in damages. The plaintiffs also seek treble damages against the defendants, measured by amounts awarded under the racketeering statutes. | |||
In addition, the plaintiffs claim punitive damages of not less than $1.000 billion. In 2001, the claims of both the Navajo Nation and the Hopi Tribe were dismissed in their entirety with respect to the District.On April 12, 2010, the Navajo Nation filed an amended complaint that did not include any RICO claims or claims against the District or any individual defendants. | |||
The amended complaint continues to allege$600.0 million in damages and punitive damages in the amount of $1.000 billion and seeks to reform the coal leases to provide for a reasonable royalty rate, to dispossess the defendants of all interests in property on the Reservation and to permanently exclude the defendants from the Reservation. | |||
While the District is not named as a defendant in the amended complaint, the earlier dismissal of the District could possibly be appealed at the conclusion of the case.On October 15, 2010, Peabody, the NGS Owners and the Mohave Owners agreed to settle the case with respect to the Hopi Tribe. This ends the matter in regard to the claims of the Hopi Tribe.Settlement negotiations with the Navajo Nation continued and a tentative settlement has been reached.36 The District believes it has recorded adequate reserves related to future coal mine reclamation and settlements related to mine related issues to cover any liability it may incur, including any liability if the settlement with the Navajo Nation is ultimately approved. | |||
At April 30, 2011 and 2010, the District has recorded approximately | |||
$57.7 million and $49.7 million, respectively, for these various issues, which amounts are included in deferred credits and current liabilities. | |||
Black Mesa Environmental Impact Statement In 2008, the Office of Surface Mining (OSM) issued an Environmental Impact Statement (EIS) to allow Peabody to include the Black Mesa Mine (which formerly served Mohave) in the permit for the Kayenta Mine (which serves NGS). Among other things, combining the two permits could eventually give Peabody access to shallower, high quality coal for NGS, which could reduce future costs to the NGS Participants and provide an additional source of coal. Under the administrative appeals process, numerous appeals of the permit decision were filed, and a decision was issued that the process OSM had followed to issue the permit was inadequate. | |||
Peabody is working with OSM on a permit revision and the District anticipates that OSM will comply with applicable environmental requirements. | |||
Navajo Mine Permit BHP Billiton Limited (BHP) operates the Navajo Coal Mine, which supplies the Four Corners Generating Station, in which the District owns 10% of Units 4 and 5. Several environmental groups have filed lawsuits challenging the mining permit and expanded operations. | |||
If these lawsuits were successful, they would result not only in increased cost of mining operations, which would be passed to the owners of the generating station, but could result in the suspension or termination of mining activities. | |||
APS, as operating agent of Four Corners, is working with BHP and other defendants to allow the expansion and continuation of the mine. The District cannot predict the outcome of these lawsuits at this time.Environmental SRP is subject to numerous legislative, administrative and regulatory requirements at the federal, state and local levels as well as lawsuits relative to air quality, water quality, hazardous waste disposal and other environmental matters. Such requirements have resulted, and will continue to result, in increased costs associated with the operation of existing properties. | |||
At April 30, 2011, and 2010, the District accrued $38.2 million and $40.5 million, respectively, for environmental issues, on a non-discounted basis, which is included in deferred credits and other non-current liabilities on the accompanying Combined Balance Sheets. The following topics highlight some of the major environmental compliance issues affecting SRP.Water Quality. Due to the nature of its business, from time to time the District is involved in various state and federal superfund matters. In September 2003, the EPA notified the District that it might be liable under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) as an owner and operator of a facility within the Motorola 5 2 nd Street Superfund Site Operable Unit 3. The District completed the remedial investigation at the site but may be liable for past costs incurred and for future work to be conducted within the Superfund Site with regard to groundwater. | |||
At the adjacent West Van Buren Superfund site, a state superfund site, the Roosevelt Irrigation District (RID) has sued the District and numerous other parties claiming that as a result of groundwater contamination, RID has been damaged in excess of $125.0 million. While the District is unable at this time to predict the outcome of these and other superfund matters, it believes it has 37 recorded adequate reserves as part of its environmental reserves to cover known liabilities related to these issues.Air Quality. Efforts to reduce carbon dioxide and other emissions from fossil fuel power plants will substantially increase the cost of, and add to the difficulty of siting, constructing, and operating electric generating units. As a result of legislative and regulatory initiatives, the District is planning emission reductions at its coal-fired power plants. In particular, under the terms of a consent agreement with the EPA, the District agreed in 2008 to install additional pollution control equipment at CGS at a projected cost of approximately | |||
$539.0 million, with work expected to be complete in approximately June 2014.The full significance of air quality standards and emission reduction initiatives to the District in terms of costs and operational problems is difficult to predict, but it appears that costly equipment may have to be added to existing units and that permit fees may increase significantly resulting in potentially material cost to the District as well as reduced generation. | |||
The District is assessing the risk of policy initiatives on its generation assets and is developing contingency plans to comply with future laws and regulations restricting greenhouse gas emissions. | |||
There is no way to predict the impact of such initiatives on the District at this time.The District has negotiated a Consent Order with the Arizona Department of Environmental Quality (ADEQ), pursuant to which the District will delay compliance with the current Arizona limitations on mercury emissions until 2016, and instead will implement a control strategy designed to achieve a 70 percent reduction of emissions at CGS on a facility-wide annual average basis by January 1, 2012. Annual costs of the mercury control system are estimated at $2.4 million.In March 2011, the EPA issued proposed new emissions standards for hazardous air pollutants for existing and new coal- and oil-fired power plants under the Clean Air Act (CAA), including emissions of mercury and particulate matter. Final rules are expected to be issued in November 2011 and additional controls may be required at all coal-fired plants in which the District has an interest. | |||
The District is analyzing the proposed rule and potential effects on future operations at its coal-fired plants and cannot yet estimate the associated costs.Provisions of the EPA's Regional Haze Rule require emissions controls known as Best Available Retrofit Technology (BART) for coal-fired power plants and other industrial facilities that emit air pollutants that reduce visibility in Class I areas such as national parks. The District has financial interests in several coal-fired power plants that are subject to the BART requirements. | |||
The EPA is expected to propose a BART determination for NGS in early 2012, with a final determination expected later. The District believes that BART for NGS requires the installation on all three units of low-NOx burners and separated over-fired air (LNB/SOFA). | |||
The LNB/SOFA equipment has been installed on all three units at a total cost of approximately | |||
$45.0 million, of which the District's share was $9.8 million.Nevertheless, the EPA may also require the installation of post-combustion controls such as selective catalytic reduction (SCR) as well as controls for sulfuric acid mist emissions and fine particulate matter, which would cost about $1.200 billion, of which the District's share would be approximately | |||
$260.0 million.The EPA's proposed BART determination for Four Corners would require the installation of SCRs on all five units, or the closure of Units 1, 2 and 3 and SCRs on Units 4 and 5. The comment period expired on May 2, 2011 and it is not known when a final determination will be issued. SCRs for Units 4 and 5 could cost$530.0 million, of which the District's share would be $53.0 million. Depending on the final determination, the installation date could be as early as 2016.38 The BART determinations for District-owned generating stations in Colorado include recommendations for installation of new emission control equipment on Craig Unit 1, Craig Unit 2 and Hayden Unit 2. Tri-State, the operating agent for Craig, has provided the EPA with an estimate of approximately | |||
$213.1 million to install the emission control equipment at Craig Units 1 and 2, of which the District's share for the two units would be $62.0 million. According to Xcel Energy, the operating agent for Hayden, installation of SCR on Hayden Unit 2 would cost approximately | |||
$72.0 million, of which the District's share would be $36.0 million. The BART determinations are expected to be finalized by September 2012. If required, the new emission control equipment would have a required in-service date of no later than January 1, 2018, and would take five to six years to implement. | |||
In May 2009, the National Parks Conservation Association (NPCA) and other environmental and tribal groups, petitioned the U.S. Department of Interior -National Park Service (DOI) to certify to the EPA that visibility impairment in Grand Canyon National Park was "reasonably attributable" to oxides of nitrogen and particulate matter emissions from NGS (the NGS Petition). | |||
On February 16, 2010, the groups filed a similar petition with both the DOI and the U.S. Department of Agriculture | |||
-U.S. Forest Service (DOA) with respect to Four Corners, asking the DOI and the DOA to certify to the EPA that impairment of visibility in sixteen areas within 300 kilometers of Four Corners, including the Grand Canyon National Park, among others, was reasonably attributable to pollutant emissions from Four Corners. However, the DOI and the DOA deferred action on the petitions pending completion of the BART determinations for the plants.On January 20, 2011, the groups sued both DOI and the DOA, asserting that the agencies failed to act without unreasonable delay. The defendants filed a motion to dismiss the suit and both the District (on behalf of the NGS Owners) and APS (on behalf of Four Corners Owners) successfully intervened in the suit.On June 30, 2011, the U.S. District Court dismissed the suit. The decision could still be appealed or refiled on other grounds. If successful, the suit could force the agencies to issue a "reasonably attributable visibility impairment" finding, which could trigger an alternative process for BART for the two plants. It is too early to predict an outcome of this matter.On May 5, 2010, Earthjustice, on behalf of various environmental groups, wrote to the EPA and the owners of Four Corners Units 4 and 5, in which the District owns a ten percent interest, providing notice of intent to sue the participants for violations of the CAA. The EPA had 60 days to determine whether to file its own action against the plant, but failed to do so. Thus, Earthjustice could file suit at any time. APS has proposed to the EPA that these and other potential liabilities be resolved as part of the BART determination for Four Corners.In December 2009, the EPA found that emissions of greenhouse gases (GHG) endanger public health and welfare. In April 2010, the EPA issued a rule which allowed the EPA to regulate emissions of GHG by stationary sources such as power plants. Thereafter, the EPA issued the "tailoring rule" which specifies thresholds that trigger permitting requirements for sources of GHG emissions. | |||
The rule applied to power plants on January 2, 2011. Several groups have filed lawsuits challenging the EPA's endangerment finding and tailoring rule. The EPA also intends to propose new standards under the CAA for greenhouse gas emissions from power plants and other industrial facilities by September 2011 and to finalize them by May 2012. Altogether, the rules could apply to both gas- and coal-fired electric generating stations and would establish emission guidelines for new, modified, and existing plants. The District cannot predict the impact of these rules on its operations or finances at this time.The California Legislature has enacted GHG Laws that have indirectly affected the District. | |||
As a result of these laws, the Los Angeles Department of Water and Power (LADWP), one of the participants in NGS, and SCE, a participant in Four Corners Units 4 and 5, are or will be selling their interests in those 39 plants. Also, the California Air Resource Board (CARB) is developing a program to reduce California emissions of GHG, including an economy-wide cap-and-trade program for GHG. The CARB regulations could impact the District's ability to sell excess generation into California. | |||
Based on available information, the District cannot estimate or predict the impact of the California laws on it at this time.Hazardous Waste. The EPA has issued a proposed rule seeking comments on regulatory options governing the handling and disposal of coal combustion residuals (CCRs), such as fly ash, bottom ash and flue gas desulfurization sludge (FGD). The District disposes of CCRs in dry landfill storage areas at CGS and NGS, with the exception of wet surface impoundment disposal of FGD sludge at CGS. Both CGS and NGS sell a portion of their fly ash for beneficial reuse as a constituent in concrete production. | |||
The District also owns interests in joint participation plants, such as Four Corners, Craig, Hayden and Springerville, which dispose of CCRs in dry storage areas and in ash ponds. The regulated community, including utilities, strongly opposes regulation of CCRs as hazardous waste and Congress is considering legislation that would prohibit the EPA from regulating CCRs as hazardous waste. The EPA is expected to issue a final rule in late 2012 or in 2013. At this time, it is too early to definitively estimate projected costs, but the costs could be substantial depending on the approach taken in the final rules.Endangered Species. Several species listed as threatened or endangered under of the Endangered Species Act (ESA) have been discovered in and around reservoirs on the Salt and Verde Rivers, as well as C.C. Cragin Reservoir operated by SRP. Potential ESA issues also exist along the Little Colorado River in the vicinity of the Coronado and Springerville Generating Stations. | |||
The District obtained Incidental Take Permits (ITPs) from the United States Fish and Wildlife Service (USFWS), which allow full operation of Roosevelt Dam on the Salt River and Horseshoe and Bartlett Dams on the Verde River. The ITPs, and associated Habitat Conservation Plans (HCPs), identify the obligations, such as mitigation and wildlife monitoring, the District must undertake to comply with the ESA. The District has established trust funds to pay mitigation and monitoring expenses related to the implementation of both the Roosevelt HCP and Horseshoe-Bartlett HCP and believes it has recorded adequate reserves as a part of its environmental reserves to cover its related obligations. | |||
The District continues to assess the potential ESA liabilities along the Little Colorado River and at C.C. Cragin, and is working closely with the USFWS and other state and federal agencies to address potential species concerns as necessary, but cannot predict the ultimate outcome at this time.Indian Matters From time to time, SRP is involved in litigation and disputes with various Indian tribes on issues concerning regulatory jurisdiction, royalty payments, taxes and water rights, among others (see Coal Supply Litigation above and Water Rights below). Resolution of these matters may result in increased operating expenses.Water Rights The District and the Association are parties to a state water rights adjudication proceeding initiated in 1976 which encompasses the entire Gila River System (the Gila River Adjudication). | |||
This proceeding is pending in the Superior Court for the State of Arizona, Maricopa County, and will eventually result in the determination of all conflicting rights to water from the Gila River and its tributaries, including the Salt and Verde Rivers. The District and the Association are unable to predict the ultimate outcome of this proceeding. | |||
In 1978, a water rights adjudication was initiated in the Apache County Superior Court with regard to the Little Colorado River System. The District has filed its claim to water rights in this proceeding, which 40 includes a claim for groundwater being used in the operation of CGS. The District is unable to predict the ultimate outcome of this proceeding, but believes an adequate water supply for CGS will remain available. | |||
Other Litigation In the normal course of business, SRP is exposed to various litigations or is a defendant in various litigation matters. In management's opinion, the ultimate resolution of these matters will not have a material adverse effect on SRP's financial position or results of operations. | |||
Self-Insurance The District maintains various self-insurance retentions for certain casualty and property exposures. | |||
In addition, the District has insurance coverage for amounts in excess of its self-insurance retention levels.The District provides reserves based on management's best estimate of claims, including incurred but not reported claims. In management's opinion, the reserves established for these claims are adequate and any changes will not have a material adverse effect on the District's financial position or results of operations. | |||
The District records the reserves in deferred credits and other non-current liabilities in the accompanying Combined Balance Sheets.41 JL pwc Report of Independent Auditors To the Board of Directors of the Salt River Project Agricultural Improvement and Power District and the Board of Governors of the Salt River Valley Water Users' Association In our opinion, the accompanying combined balance sheets and the related combined statements of net revenues and comprehensive income, and cash flows present fairly, in all material respects, the financial position of the Salt River Project Agricultural Improvement and Power District and its subsidiaries and the Salt River Valley Water Users' Association (collectively, "SRP") at April 30, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of SRP's management. | |||
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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 of material misstatement. | |||
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. | |||
We believe that our audits provide a reasonable basis for our opinion.?vi6tvd§~ | |||
14 ac-DylDý( LAI-July 21, 2011 PricewaterhouseCoopers LLP, 35o South Grand Avenue, Los Angeles CA 90o71 T: (213)356 6000, F: (813) 6374444, www.pwc.com/us S C- TPýAI SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY INDEPENDENT AUDITOR'S REPORT AND COMBINED FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 MOSS-ADAMSLL Certified Pubtic Accountants I Business Consuttants Acumen. Agility. Answers. | |||
TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS 2-7 FINANCIAL STATEMENTS Combined Financial Statements 8 -46 Notes to Combined Financial Statements 47 -92 SUPPLEMENTAL INFORMATION Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenture for the Year Ended June 30, 2010 Palo Verde Project 93 San Juan Project 94 Magnolia Power Project 95 Canyon Power Project 96 Hoover Uprating Project 97 Tieton Hydropower Project 98 Milford 1 Wind Project 99 Linden Wind Energy Project 100 Southern Transmission System Project 101 Mead-Phoenix Project 102 Mead-Adelanto Project 103 Natural Gas Pinedale Project 104 Natural Gas Barnett Project 105 Prepaid Natural Gas Project No. 1 106 Multiple Project Fund 107 | |||
.... ... ... *1,: * :--.WWW.MOS5ADAMS;COM INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Participants of Southern California Public Power Authority We have audited the accompanying combined and individual project's statements of net assets (deficit) of Southern California Public Power Authority (the Authority) as of June 30, 2010 and 2009 and the related combined and individual project's statements of revenues, expenses and changes in net assets (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Authority's management. | |||
Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America.Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. | |||
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. | |||
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. | |||
We believe that our audits provide a reasonable basis for our opinion.In our opinion, the combined and individual project's financial statements referred to above present fairly, in all material respects, the financial position of Southern California Public Power Authority and each of the Authority's projects: | |||
Palo Verde Project, San Juan Project, Magnolia Power Project, Canyon Power Project, Hoover Uprating Project, Tieton Hydropower Project, Milford I Wind Project, Linden Wind Energy Project, Southern Transmission System Project, Mead-Phoenix Project, Mead-Adelanto Project, Natural Gas Pinedale Project, Natural Gas Barnett Project, Prepaid Natural Gas Project No. 1, Ormat Geothermal Energy Project, MWD Small Hydro Project, Pebble Springs Wind Project, Windy Point Project, Multiple Project Fund, Project Development Fund and Projects'Stabilization Fund as of June 30, 2010 and 2009 and the results of the Project's operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.As discussed in Note 2 to the financial statements, the Authority adopted the provisions of Governmental Accounting Standards Board Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, effective July 1, 2009. The financial statements for the year. ended June 30, 2009 were restated to reflect the adoption of Governmental Accounting Standards Board Statement No. 53.The management's discussion and analysis preceding the combined financial statements is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. | |||
However, we did not audit the information and express no opinion on it.The additional supplemental information, as listed in the table of contents, following the combined financial statements and notes to combined financial statements is also not a required part of the basic financial statements but is supplementary information provided for purposes of additional analysis. | |||
We did not audit or perform any other procedures on this information and express no opinion on it.Portland, Oregon November 5, 2010 Praxit :.GLOBA.L ALLIANCr OF INIlEPE11DEN7 FIlMS SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis of the financial performance of Southern California Public Power Authority (the "Authority" or "SCPPA"), provides an overview of the Authority's financial activities for the fiscal years ended June 30, 2010 and 2009. Please read this discussion and analysis in conjunction with the Authority's Combined Financial Statements, which begin on page 9. Description and other details pertaining to the Authority are included in the Notes to Combined Financial Statements. | |||
The Authority is a joint powers authority whose primary purpose has been to provide joint financing and oversight for large joint projects for its member agencies that consist of eleven municipal electric utilities and one irrigation district in California. | |||
On a combined basis, these entities provide electricity to more than 2 million retail electric customers. | |||
A Board of Directors (the "Board") governs the Authority, which consists of one representative from each member agency.USING THIS FINANCIAL REPORT This annual financial report consists of a series of financial statements and reflects the self-supporting activities of the Authority that are funded primarily through the sale of energy, natural gas, and transmission services to member agencies under project specific "take or pay" contracts that require each member agency to pay its proportionate share of operating and maintenance expenses and debt service with respect to such projects. | |||
The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding. | |||
The Authority also established "take and pay" contracts for the participants of the prepaid natural gas project where the payments received from the sale of gas will be sufficient to pay debt service. In addition, the Authority has entered into various power purchase agreements. | |||
These agreements are substantially take-and-pay contracts but there may be other costs not associated with the delivery of energy that the participants may be obligated to pay.2 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Summary of Financial Condition and Changes in Net Assets (Deficit)(In Thousands) | |||
Assets Net utility plant Investments Cash and cash equivalents Prepaid and other Total assets Liabilities Noncurrent liabilities Current liabilities Total liabilities Net Assets (Deficit)Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net deficit Total liabilities and net assets (deficit)Revenues, Expenses and Changes in Net Assets (Deficit) for the year ended June 30 Operating revenues Operating expenses Operating income Investment and other income Derivative gain (loss)Debt expense Change in net assets 2010$ 1,364,717 870,322 245,390 783,001$ 3,263,430$ 3,073,274 322,662 3,395,936 (746,931)606,563 7,862 (132,506)$ 3,263,430$ 516,088 (388,129)127,959 36,212 (8,720)(128,545)26,906 JUNE 30, 2009 As Restated$ 1,070,203 828,151 143,671 732,168$ 2,774,193$ 2,669,451 273,947 2,943,398 (768,276)547,675 51,396 (169,205)$ 2,774,193$ 464,286 (347,709)116,577 27,741 (16,457)(145,965)(18,104)2008 As Restated$ 1,009,331 558,619 230,000 682,405$ 2,480,355$ 2,410,519 220,748 2,631,267 (1,236,053) 996,901 88,240 (150,912)$ 2,480,355$ 476,865 (327,249)149,616 32,956 (10,303)(108,062)64,207 Net Deficit, beginning of year (169,205)(150,912)(217,083)Net Contributions/(Withdrawals) | |||
By Participants 9,793$ (132,506)(189)$ (169,205)1,964$ (150,912)Net Deficit, end of year 3 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued) | |||
Net Deficit -During fiscal year 2010 the Authority's net deficit decreased by $37 million mainly due to the increase in assets of $489 million offset by the increase in liabilities of $452 million.The increase in the Authority's assets is due to the following: | |||
Utility Plant -increased by $295 million.This increase is primarily due to the $145 million payment of acquisition costs for the Linden Wind Energy Project; $79 million ongoing construction costs in the Canyon Power Project (CPP); $48 million payment of acquisition costs for the Tieton Hydropower Project, $53 million ongoing costs for the upgrade of two converter stations in the Southern Transmission System (STS); and $35 million ongoing capital improvements in Palo Verde (PV), San Juan (SJ), and Natural Gas Pinedale and Barnett Projects;offset by $66 million of scheduled depreciation and amortization in all projects." Investments | |||
-increased by $42 million.This increase is largely due to $100 million remaining proceeds from the issuance of the CPP Revenue Bonds, 2010, Series A&B; $20 million remaining proceeds from the issuance of the Milford 1 Wind Revenue Bonds, 2010-1; and $3 million remaining proceeds from the issuance of the Linden Wind Energy Project Revenue Notes 2009, Series A; offset by $33 million transfer of funds from long term investments to cash and cash equivalents in the Palo Verde, STS, Magnolia, Hoover, Mead Adelanto, PSF, Pinedale and Barnett Natural Gas Projects; and $45 million of payments for the ongoing construction for the STS upgrade." Cash and cash equivalents | |||
-increased by $102 million.This increase is mainly due to $42 million remaining bond proceeds from the issuance of CPP Revenue Notes 2010 Series A&B, from Milford 1 Wind Revenue Bonds Series 2010-1, and from Linden Wind Energy Revenue Notes 2009 Series A; $33 million transfer of investments from long term to cash and cash equivalents in the Palo Verde, Hoover, STS, Magnolia, Mead Adelanto, PSF, Pinedale and Barnett Natural Gas Projects; | |||
$22 million accumulated overbillings and advances from San Juan, Magnolia, Barnett, and Pebble Spring Projects; and $5 million in advances from the participants of various projects." Prepaid and Other Assets -increased by $51 million.This increase is primarily due to the $221 million prepayment of a supply of energy for the participants of the Milford 1 Wind Project; $6 million net increase in fair value of the derivative instruments. | |||
The increases were offset by $172 million reduction in the unamortized costs of the prepaid gas due to the restructuring of the agreements relating to the Prepaid Natural Gas Project; and by the amortization of bond issue costs in various projects.4 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued) | |||
The increase in the Authority's liabilities of $452 million is mainly due to the following: | |||
$237 million issuance of the Milford 1 Revenue Bonds, 2010-1; $140 million issuance of the Linden Wind Revenue Notes, 2009 Series A; $48 million Tieton Hydropower, Revenue Notes, 2009 Series A and B; $301 million from the issuance of the CPP Revenue Bonds 2010 Series A and B and $170 million issuance of the CPP Revenue Notes, 2009 Series A. The increases were offset by $165 million of debt reduction resulting from the restructure of the Prepaid Natural Gas Revenue Bonds, 2007 Series B; and the redemption of the $104 million CPP Notes, 2008 Series A and the $170 million CPP Notes, 2009 Series A.During fiscal year 2009, the Canyon Power Project Revenue Notes, Series A, were issued to provide interim financing for a portion of the costs to construct the Canyon Power Project; the STS 2008 Series B Subordinate Bonds were issued to provide financing for the upgrade of two converter stations to increase the capacity of the STS Transmission line; and the Magnolia Power Project A, Refunding Revenue Bonds, Series 2009-1 and 2009-2 were issued to make a payment to the counterparties of the 2007-1 Magnolia Swap Agreements in addition to refunding the Magnolia Power Project A, Refunding Bonds, 2007-1. As a result of these events and other ongoing transactions, such as the scheduled depreciation, and the payment for capital improvements in all projects, in 2009 the Authority's assets increased by $294 million and its liabilities increased by $312 million resulting in an increase to net deficit of $18 million.Operating Income -The net increase in operating income of $11 million is due to $51 million increase in operating revenues offset by$40 million of operating expenses. | |||
The increase in operating revenue and operating expense is largely due to the additional transactions generated from the new projects: | |||
Milford 1, and Windy Points/Flats Project; and an $11 million increase in billings to the participants for the costs related to major maintenance outages in the San Juan Project.During fiscal year 2009, the environmental upgrades in San Juan, and the steam generator replacement program in Palo Verde were completed; the estimated useful life of the San Juan Plan was increased; there was a decrease in realized gain on the suspension of the 2007 Swap which was used to offset the expenditures in the Mead Adelanto Project; and the lower price of gas in the Magnolia, Pinedale and Barnett Natural Gas Reserve Project all resulted in a $13 million decrease in operating revenues. | |||
The decreases were offset by a $20 million increase in operating income related to the commencement of the deliveries of natural gas in the Prepaid Natural Gas Project and the postponement of the expenditures related to the STS upgrades. | |||
The net effect was a $33 million decrease in operating income in 2009.5 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued) | |||
Investment and Other Income -Investment income increased | |||
$8 million largely due to the $11 million realized gain relating to the restructuring of the Prepaid Natural Gas Revenue Bonds 2007 Series B; offset by the $3 million decrease in interest earnings due to callable, high yield investment securities that were called and replaced with lower yielding securities in the Decommissioning Trust Fund, and Palo Verde Project.During fiscal year 2009, there was a $5 million decrease in investment income because of high yield investment securities that were called and replaced by lower yielding securities. | |||
Derivative Gain (Loss) -In June 2008, GASB issued Statement No 53, Accounting and Financial Reporting for Derivative Instruments, effective for financial statements for periods beginning after June 15, 2009. GASB 53 requires that the fair value of derivative instruments be reported in the financial statements as investment income or loss if the derivative fails to effectively hedge the risk of rising or falling cash flows or fair values. SCPPA engaged an independent party to perform the valuation and required tests on the derivatives held by the Authority. | |||
$9 million and $16 million were charged to expense related to the Authority's derivative instruments that were deemed investment instruments as of June 30, 2010 and 2009, respectively. (See Note 2 and Note 5)Debt Expense -Debt expense decreased by $17 million mainly due to $6 million reduction in debt expense because of the restructure of the Gas Project Revenue Bonds, Project No. 1, 2007 Series A, $7 million decrease in the interest payments of the variable rate bonds in the STS, Palo Verde, and Mead Adelanto Projects due to improved performance of these bonds in the variable interest rate market; and $4 million decrease due to the loss in refunding that was fully amortized in the Palo Verde Revenue Bonds, 2008 Series A and in the San Juan Revenue Bonds, 2002 Series A.During fiscal year 2009, debt expense increased | |||
$38 million primarily due to the interest related to the Prepaid Natural Gas Project Revenue Bonds, 2007 A and B that were expensed due to the commencement of natural gas deliveries and increased expenses related to the remarketing of the variable interest rate bonds in the STS and Magnolia Projects.6 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Financial Outlook -The Authority's credit strength is based on a number of factors including: " The collective credit strengths of each project participant" The absence of concentration risk as evidenced by the lack of substantial reliance by one participant on the resources financed* The low cost power the Projects provide the participants and* Strong legal provisions. | |||
The Authority has take-or-pay power sales, natural gas sales and transmission service contracts that unconditionally require the Participants to pay for the cost of operating and maintaining the Projects, including debt service, whether or not the Projects are operating or operable. | |||
Although the contracts have not been court-tested, a municipal utility's authority to enter into such contracts is rooted in the State's constitutional provisions for municipal electric utilities. | |||
The Participants of the Prepaid Natural Gas Project No. 1, however, are obligated only to purchase and pay for gas delivered by SCPPA at market-based prices in accordance with the prepaid gas sale agreements in take and pay contracts. | |||
The Authority has also entered into various power purchase agreements that are substantially take-and-pay contracts but there may be other costs not associated with the delivery of energy that the participants may be obligated to pay.Through the collaborative efforts of its members, the Authority has developed a comprehensive and dynamic strategic plan that provides a common vision for its members and a platform for joint action. SCPPA continues its involvement in legislative and regulatory affairs at both the state and federal levels to protect represented customers, by assuring resource adequacy, excellent reliability, and environmental stewardship. | |||
Backed by one of the strongest financial ratings in the utility industry, SCPPA maintains its traditional role of providing financing for its members' natural gas, generation, and transmission projects. | |||
In addition to the conventional areas of power, investments are also being made to provide customers with more renewable generation and energy efficiency. | |||
Energy efficiency and demand reduction programs are vital parts of public power's resource strategy and critical to balancing the portfolio's generation and load match. Since 1998, SCPPA members have spent more than $390 million on energy efficiency and demand reduction management programs.In addition to energy efficiency, AB 1890 requires all California electric utilities to commit a portion of their revenue to other Public Benefit Programs, including renewable energy, research, development and demonstration (RD&D), and low-income customer assistance. | |||
SCPPA members have a significant commitment to low-income customer assistance and RD&D public benefit programs. | |||
Since 1998, over one billion has been spent to date to support local communities. | |||
Renewable Projects -SCPPA members are committed to the use of renewable energy resources in the future and are considering several renewable projects including Ameresco Chiquita Energy LLC, Milford Wind Corridor Phase II Project and Miller Ranch Wind Project.Summary The management of the Authority is responsible for preparing the information in this management discussion and analysis, combined financial statements and notes to combined financial statements. | |||
The financial statements were prepared according to accounting principles generally accepted in the United States of America, and they fairly portray the Authority's financial position and operating results. The notes to the financial statements are an integral part of the basic financial statements and provide additional financial information. | |||
7 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF NET ASSETS (DEFICIT)(AMOUNTS IN THOUSANDS) | |||
JUNE 30, ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)2010 1,364,717 810,042 60,280 11,550 9,544 135,436 49,142 507,135 2,947,846 192,773 52,617 6,403 15,167 19,796 28,828 315,584$ 3,263,430$ 2,823,415 170,916 49,702 29,241 3,073,274 110,655 8,556 43,377 39,200 116,123 4,751 322,662 3,395,936 (746,931)606,563 7,862 (132,506)3,263,430 2009 As Restated$ 1,070,203 756,916 71,235 11,550 10,850 129,252 49,651 465,666 2,565,323 114,684 28,987 6,593 19,463 19,744 19,399 208,870 2,774,193 2,434,044 156,012 50,240 29,155 2,669,451 86,805 9,069 47,670 36,291 87,618 6,494 273,947 2,943,398 (768,276)547,675 51,396 (169,205)2,774,193 See accompanying notes.8 See accompanying notes. 8 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)(AMOUNTS IN THOUSANDS) | |||
YEAR ENDED JUNE 30, Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses 2010$ 346,848 113,914 55,326 516,088 2009 As Restated$ 293,817 111,712 58,757 464,286 303,138 262,313 Operating income (loss)68,689 11,006 5,296 388,129 127,959 36,212 (8,720)(128,545)(101,053)67,190 9,634 8,572 347,709 116,577 27,741 (16,457)(145,965)(134,681)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year, as previously reported 26,906 (18,104)(140,609)(169,205)Prior period adjustments Net assets (deficit) | |||
-beginning of year, as restated Net contributions (withdrawls) by participants (169,205)9,793$ (132,506)(10,303)(150,912)(189)$ (169,205)Net assets (deficit) | |||
-end of year 9 See accompanying notes 9 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) | |||
YEAR ENDED JUNE 30, Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 2010 451,526 6,675 (229,721)29,629 258,109 21,392 (592,027)(113,020)933,197 (279,345)(86,805)(6,608)(144,608)20,394 (705,840)652,272 (33,174)101,719 143,671$ 245,390 2009$ 404,398 16,500 (193,392)12,943 240,449 (13,632)(128,429)(121,586)852,809 (587,271)(662)(72,585)(37,285)(95,009)20,948 (487,975)248,890 (218,137)(86,329)230,000$ 143,671$127,959 $68,689 5,296 2,744 11,006 116,577 67,190 8,572 2,736 9,634 3,268 14,622 24,525$ 258,109$ 192,773 52,617$ 245,390 1,170 26,886 7,684$ 240,449$ 114,684 28,987$ 143,671 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted See accompanying notes.10 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
GENERATION Magnolia Palo Verde San Juan Power Canyon Power ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 109,904 185,157 54,287 437$84,107 31,525 5,993$ 259,095 55,229$ 159,339 127,563 2,503-1,673 800 31,546 349,785 122,425 347,543 289,405 18,843 7,080 1,218 2,287 6,991 2,521 23 190 21,500 3,363 272 2,477 7,912 3,913 7,971 234 395 1,621 37,574 14,033 37,204$ 387,359 S 136,458 $ 384,747$ 74,157 $ 127,268 $ 360,291 11,211 35,341 6 35,347$ 324,752$ 312,998 36,871 3,928 111,028 127,268 375,430 312,998 10,030 5,431 19 23,705 1,500 11,715 3,551 8,514 282 9,010 16,763 4,393 4,002 1,035 10,719 40,685 24,062 151,713 151,330 26,153 (54,077)148,222 34,987 61,271 4,218 235,646 (14,872)$ 387,359 $ 136,458 34,168 11,754 409,598 324,752 (69,083) (34,995)46,267 34,995 (2,035) -(24,851) -$ 384,747 $ 324,752 I1I See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
GENERATION Magnolia Palo Verde San Juan Power Canyon Power ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)111,953 198,112 70,036 577$75,345 33,030$ 269,945 57,809 S 80,393 27,003-14,812 980 33,448 179 380,678 109,355 376,014 107,575 9,315 4,101 1,288 1,807 2,457 2,670 45 4,268 14,509 3,280 194 2,346 10,960 176 7,804 3,941 7,999 143 346 1,024 -24,458 13,727 29,352 11,136$ 405,136 $ 123,082 $ 405,366 $ 118,711$ 82,426 $ 139,830 $ 369,235 $ 104,627 41,929 124,355 139,830 14,812 1,273 385,320 104,627 10,360 5,232 23 30,956 1,500 11,115 3,849 3,663 240 8,695 1,341 15,525 4,644 2,061 1,479 12,605 48,071 18,867 172,426 158,697 32,266 14,084 417,586 118,711 19,745 (90,817) (67,816) -141,405 31,681 44,281 -71,560 23,521 11,315 -232,710 (35,615) (12,220) -$ 405,136 $ 123,082 $ 405,366 $ 118,711 See accompanying notes.12 See accompanying notes. 12 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
GREEN POWER Hoover Tieton Linden Wind Uprating Hydropower Milford I Wind Energy ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)S 2,266 9,544$ 46,896 $-$ 145,159 19,965 2,999 108 -2,091-50 209,540 11,918 46,946 231,596 237 148,395 3,575 3 1,971 13 8 106 562 261 110 9,015 4,650 164 1,306 -11,401 -3,404 933 25,230 3,578 15,322 $ 47,879 $ 256,826 $ 151,973 12,752 $ 47,705 $ 253,813 $ 140,211 12,752 47,705 253,813 140,211 1,540 ---177 34 209 627 88 257 4,448 4,393 1,862 9,900 1,751 924 9,098 11,762 14,503 48,629 262,911 151,973-(237) --734 -85 (513) (6,085)819 (750) (6,085) -$ 15,322 $ 47,879 $ 256,826 $ 151,973 13 See accompanying notes.13 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
GREEN POWER Hoover Tieton Uprating Hydropower ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Derivatives and related deferrals Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$2,699 1,199$10,850-139-14,887-308 117 926 1,322 -1,747 926$ 16,634 $ 926$ 13,850 $ -13,850 1,480 192 66 926 1,738 926 15,588 926 1,046 1,046 -$ 16,634 $ 926 See accompanying notes.14 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission System Mead- Phoenix Mead- Adelanto ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 308,795 98,169$37,214 $8,920 108,994 31,265 11,550 69,543 4,724 15,777 5,324 605 1,309 493,381 51,463 157,345 39,420 5,892 181 1,770 4,192 159 227 6,717 12,714 674 865 784 18,472 47,263 11,295 33,509$ 540,644 $ 62,758 $ 190,854$ 793,763 95,840 1,498$51,428 4,724 598$164,275 15,422 6,807 891,101 56,750 186,504 32,990 749 11,309 17,987 4,895 86 1,018 421 63,035 6,420 954,136 63,170 13,490 2,290 3,018 2,128 20,926 207,430 (76,558)59,638 344 (16,576)$ 190,854 (466,815)92,192 (38,869)(413,492)$ 540,644 (19,188)19,012 (236)(412)$ 62,758 15 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission System Mead- Phoenix Mead- Adelanto ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 274,297 $ 38,300 158,425 8,283$11,550 66,821 5,976 113,508 31,534 12,268 1,498 3,676 692 517,069 50,951 158,808 29,062 4,095 410 5,010 38,577$ 555,646$ 816,294 93,189 2,247 3,031 225 241 568 6,247 10,312$ 61,263 12,357 285 832 17,180 30,654$ 189,462$55,660 3,676 684$175,837 12,660 4,107 911,730 60,020 192,604 30,585 749 12,765 16,995 2,870 86 1,020 596 9,480 1,661 3,024 4,483 61,094 4,572 18,648 972,824 64,592 211,252 (476,696) | |||
(20,308) (76,079)96,771 16,773 58,591 (37,253) 206 (4,302)(417,178) | |||
(3,329) (21,790)$ 555,646 $ 61,263 $ 189,462 See accompanying notes.16 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 45,584 29,949$59,630 41,981$18,252--43,719 848 865 2,469--297,326 76,381 102,476 361,766 13,054 4,167 33 1,329 5,625 6,733 94 1,079 2,596 61 1,962 552 -13,319 19,135 13,531 17,938 95,516 $ 116,007 $ 379,704$ 35,153 $ 82,662 $ 331,963--43,719 19,412 9,829 -54,565 92,491 375,682 2,929 20,188 961 7,551 2,969 6,941 1,594 2,263 2,926 5,715 2,825 5,723 34,598 13,724 14,263 89,163 106,215 389,945 (11,581) (40,550) -22,917 45,436 (4,983) 4,906 (10,241)6,353 9,792 (10,241)$ 95,516 $ 116,007 $ 379,704 17 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 44,114 42,992$62,348 46,212$11,901--31,675 1,036 1,058 4,068--465,666 88,142 109,618 513,310 6,475 4,422 249 1,370 5,172 536 95 1,785 2,207 401 50 2,309 16,012 20,979$ 534,289 552 -13,068 7,588 101,210 S 117,206 38,082 S 89,603 $ 503,498--31,675 18,670 10,485 -56,752 100,088 535,173 1,956 30,719 995 2,300 4,754 40,724 97,476 4,639 1,426 2,343 2,066 5,625 4,263 2,971 10,474 12,859 110,562 548,032 (13,558) (42,747)18,501 49,136 (1,209) 255 (13,743)3,734 6,644 (13,743)$ 101,210 $ 117,206 $ 534,289 See accompanying notes.18 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat Geothermal MWD Small Windy Point Energy Hydro Pebble Springs Project ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$$--219--219 511 1,541 6,196 8,856 2 2,057 1,016 1,527 1,541 6,196 10,915 1,527 $ 1,541 $ 6,196 $ 11,134$$$$860 667 500 1,041 6,196 1,006 10,128 1,527 1,541 6,196 11,134 1,527 1,541 6,196 11,134$ 1,527 $ 1,541 $ 6,196 $ 11,134 19 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat Geothermal MWD Small Energy Hydro Pebble Springs ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$$$2,673 1 1,286 3,970 2,674 1,286 3,970$ 2,674 $ 1,286 $ 3,970$$S 2,674 1,286 3,970 2,674 1,286 3,970 2,674 1,286 3,970$ 2,674 $ 1,286 $ 3,970 See accompanying notes.20 See accompanying notes. 20 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
MISCELLANEOUS Project Projects, Multiple Development Stabilization Project Fund Fund Fund Total Eliminations Total Combined ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$70,784-$ 1,364,717 | |||
$86,018 810,042-60,280 11,550 1,364,717 810,042 60,280 11,550 9,544 9,544 135,436 135,436 49,142 49,142---507135 507,135 70=784 86,018 2,947,846 | |||
-947,846-2,000 15,374 192,773 192,773---52,617 52,617 2,601 645 6,403 6,403--15,167 15,167 25,189 (25,189) -19,796 19,796--28,828 28,828 2,601 2,000 16,019 340,773 (25,189) 315,584$ 73,385 $ 2,000 $ 102,037 $ 3,288,619 | |||
$ (25,189) $ 3,263,430$ 34,976 $ -$ $ 2,823,415 | |||
$ $ 2,823,415-170,916 170,916 49,702 49,702 29,241 29,241 34r-976 3,073,274 3,073,274 11,400 110,655 110,655 8,556 8,556-2,000 1,694 -25,189 38,283 2,000 73,259 2,000 43,377 43,377 39,200 39,200 116,123 116,123 4,751 4,751 25,189 (25,189) -347,851 (25,189) 322,662 3,421,125 (25,189) 3,395,936 (746,931) | |||
(746,931)606,563 606,563 7,862 7,862 (132,506) | |||
(132,506)126 102,037 126 102,037$ 73,385 $_ 2,000 $ 102037 $_3328g,619 | |||
$ (25,189) $ 3263430 21 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
MISCELLANEOUS Multiple Projects'Project Stabilization Fund Fund Total Eliminations Total Combined ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$6898 68,986 69,930$ 1,070,203 | |||
$ $ 1,070,203 756,916 756,916 71,235 71,235 11,550 11,550 10,850 10,850 129,252 129,252 49,651 49,651 465,666 465,666 2,565,323 2,565,323 68,986 69,930 119 18,712 114,684--28,987 2,499 513 6,593--19,463 23,427 19,744--19,399 2,618 19,225 232,297$ 71,604 $ 89,155 $ 2,797,620$ 45,102 S -$ 2,434,044--156,012 50,240--29,155 45,102 2,669,451 114,684 28,987 6,593 19,463 (23,427)19,744 19,399 (23,427) 208,870$ (23,427) $ 2,774,193$ -$ 2,434,044 156,012 50,240 29,155 2,669,451 86,805 9,069 47,670 36,291 87,618 6,494 86,805 9,069 47,670 36,291 87,618 6,494 1,694 23,427 23,427 (23,427) -25,121 297,374 (23,427) 273,947 70,223 2,966,825 (23,427) 2,943,398--(768,276) | |||
(768,276)1,381 89,155 547,675 547,675--51,396 51,396 1,381 89,155 (169,205) | |||
-(169,205)$ 71,604 89,155 $ 2,797,620 | |||
$ (23,427) $ 2,774,193 See accompanying notes.22 See accompanying notes. 22 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
GENERATION Magnolia Palo Verde San Juan Power Canyon Power$ 77,847 $ 93,438 $ 95,533 $77,847 93,438 95,533 43,371 60,213 70,421 19,224 5,553 11,454 11,006 --3,753 1,543 -77,354 67,309 81,875 493 26,129 13,658 5,465 1,348 1,949 ---(9,538) -(3,022) (6,734) (18,700) -2,443 (5,386) (26,289) -Change in net assets (deficit)2,936 20,743 (12,631)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year 232,710 (35,615) (12,220)$ 235,646 $ (14,872) $ (24,851) $23 See accompanying notes.23 ee ccopayin noes SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
GENERATION Magnolia Palo Verde San Juan Power Canyon Power Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year, as previously reported Prior period adjustments Net assets (deficit) | |||
-beginning of year, as restated Net assets (deficit) | |||
-end of year$ 78,060 $ 82,568 $ 114,273 S 78,060 82,568 114,273 42,178 60,451 19,083 5,486 9,634 -7,029 1,543 77,924 67,480 136 15,088 87,925 11,438 99,363 14,910 8,141 1,782 1,677 (7,966) (8,186) (19,376)175 (6,404) (17,699)311 8,684 (2,789)232,399 (44,299) (9,431)232,399 (44,299) (9,431)S 232,710 $ (35,615) $ (12,220) $See accompanying notes.24 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
GREEN POWER Hoover Tieton Linden Wind Uprating Hydropower Milford I Wind Energy$ 2,486 S 2,686 $ 9,758 $2,486 2,686 9,758 2,978 2,344 12,387 829 2,978 3,173 12,387 (492) (487) (2,629)40 371 272 225 (634) (3,728) -265 (263) (3,456) -Change in net assets (deficit)(227)(750)(6,085)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year 1,046 -$ 819 $ (750) $ (6,085) $25 See accompanying notes.25 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses GREEN POWER Hoover Tieton Uprating Hydropower | |||
$ 2,353 $ 1,041 2,353 1,041 2,918 1,041 Operating income (loss)2,918 1,041 (565) -80 11-Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)91 (474)Net assets (deficit) | |||
-beginning of year, as previously reported Prior period adjustments 1,520 1,520$ 1,046 $Net assets (deficit) | |||
-beginning of year, as restated Net assets (deficit) | |||
-end of year See accompanying notes.26 Seacmanyngnoes 2 | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission System Mead- Phoenix Mead- Adelanto Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$$$8,480 19,123 86,311 86,311 8,480 19,123 18,064 18,708 1,012 1,406 2,124 4,514 Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) 36,772 2,418 6,638 49,539 6,062 12,485 2,923 495 1,859 71 -747 (48,847) (3,640) (9,877)(45,853) (3,145) (7,271)Change in net assets (deficit)3,686 2,917 5,214 Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year (417,178) | |||
(3,329) (21,790)S (413,492) | |||
$ (412) $ (16,576)27 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission System Mead- Phoenix Mead- Adelanto Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and.amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
$$$86,228 7,709 17,775 86,228 7,709 17,775 15,272 1,026 1,680 18,708 1,406 4,503 33,980 2,432 6,183 52,248 5,277 11,592 3,513 584 1,888 (13,152) -(3,305)(57,007) (3,663) (10,277)(66,646) (3,079)' (11,694)Change in net assets (deficit)(14,398)2,198 (102)Net assets (deficit) | |||
-beginning of year, as previously reported Prior period adjustments (389,564) | |||
(5,527) (24,601)(13,216) -2,913 (402,780) | |||
(5,527) (21,688)$ (417,178) | |||
$ (3,329) $ (21,790)Net assets (deficit) | |||
-beginning of year, as restated Net assets (deficit) | |||
-end of year See accompanying notes.28 See accompanying notes. 28 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$-$-$7,345 22,355 25,626 7,345 22,355 25,626 1,853 1,210 9,854 5,791 13,396 3,063 15,645 13,396 4,282 6,710 12,230 Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) 447 1,157 11,605 (2,110) (4,719) (20,333)(1,663) (3,562) (8,728)Change in net assets (deficit)2,619 3,148 3,502 Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year 3,734 6,644 (13,743)6,353 $ 9,792 $ (10,241)29 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Natural Pinedale Bamett Gas Operating revenues Sales of electric energy $ $ $Sales of transmission services Sales of natural gas 7,363 23,504 27,890 Total operating revenues 7,363 23,504 27,890 Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year, as previously reported Prior period adjustments Net assets (deficit) | |||
-beginning of year, as restated Net assets (deficit) | |||
-end of year 2,892 1,477 15,009 5,089 16,358 4,369 20,098 16,358 2,994 3,406 11,532 514 1,325 758 (2,220) (4,933) (26,033)(1,706) (3,608) (25,275)1,288 (202) (13,743)2,446 6,846 2,446 6,846 -$ 3,734 $ 6,644 S (13,743)See accompanying notes.30 See accompanying notes. 30 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat MWD Small Windy Point Geothermal Hydro Pebble Springs Project Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses S 9,173 $2,998 $ 16,488 $ 36,441 9,173 2,998 16,488 36,441 9,180 2,999 16,489 36,453 9,180 2,999 16,489 36,453 (7) (1) (1) (12)Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year 7 I I 12 7 1 1 12$ -$ -$ -$31 See accompanying notes.31 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat MWD Small Geothermal Hydro Pebble Springs Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$ 6,599 $1,689 $7,234 6,599 1,689 7,234 6,636 1,689 7,238 6,636 1,689 7,238 (37) -(4)Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) 34 4 34 4 Change in net assets (deficit)(3)Net assets (deficit) | |||
-beginning of year, as previously reported Prior period adjustments 3-3-$- $ -$Net assets (deficit) | |||
-beginning of year, as restated Net assets (deficit) | |||
-end of year See accompanying notes.32 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net withdrawals by participants Net assets (deficit) | |||
-end of year MISCELLANEOUS Project Projects'Multiple Project Development Stabilization Fund Fund Fund Total Combined$ $ $ $ 346,848 113,914 55,326 516,088 303,138 68,689 11,006 5,296 388,129 S- 127,959 5,171 3,089 36,212--(8,720)(6,426) -(128,545)(1,255) 3,089 (101,053)(1,255) 3,089 26,906 1,381 -89,155 (169,205)-9,793 9,793$ 126 $ $ 102,037 $ (132,506)33 See accompanying notes.33 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses MISCELLANEOUS Projects'Multiple Project Stabilization Fund Fund Total Combined$ $ 293,817 111,712 58,757 464,286 262,313 Operating income (loss)67,190 9,634 8,572 347,709--116,577 4,967 2,474 27,741--(16,457)(6,315) -(145,965)(1,348) 2,474 (134,681)Non operating revenues (expenses) | |||
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year, as previously reported (1,348)2,729 2,474 86,870 (18,104)(140,609)Prior period adjustments Net assets (deficit) | |||
-beginning of year, as restated--(10,303)2,729 86,870 (150,912)-(189) (189)$ 1,381 $ 89,155 $ (169,205)Net contributions by participants Net assets (deficit) | |||
-end of year See accompanying notes.34 See accompanying notes. 34 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
GENERATION Palo Verde San Juan Magnolia Power Canyon Power Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 66,060 $98,983 $60,909 $(44,975) (57,820) (33,022)7,634 -20 28,719 41,163 27,907 (33,648)(1,179)(10,360)(14,846)(7,699)(11,115)(994)(15,296)(79,217)485,710 (279,345)(8,695)(446) (2,568)(45,187) (33,660) (25,431) 124,580 973 1,445 (44,762) (31,655)72,764 27,092 1,343 489 (52,689) (192,568)55,944 91,880 28,975 (3,118) 4,598 (100,199)12,507 4,385 7,074 24,381 13,416 5,127 17,789 10,960$ 25,923 $ 9,512 $ 24,863 $ 35,341$493 $26,129 $5,553 1,543 13,658 $11,454 19,224 3,753 11,006 -(526) 4,078 (1,183)(5,031) 3,881 2,443 (200) (21) 1,535$ 28,719 $ 41,163 $ 27,907$ 18,843 $ 6,991 $ 21,500 $ 35,341 7,080 2,521 3,363 -$ 25,923 $ 9,512 $ 24,863 $ 35,341 35 See accompanying notes.35 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
GENERATION Palo Verde San Juan Magnolia Power Canyon Power Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net 88,269 $75,981 $64,856 $(43,290) (60,027) (45,761)12,908 --57,887 15,954 19,095 Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year (25,503)(2,548)99,830 (101,820)(742)(5,932)(8,266)(265)(21,690)258,070 (223,933)(67,444)105,505 (10,550) (7,930) -(798) (32,319) (429)(31,581) (24,748) (28,067) 37,632 1,283 (64,403)26,905 1,545 2,257 201 (20,579) (73,060) (38,073)9,078 63,404 11,200 (36,215) (9,956) (7,399) (26,672)(9,909)(18,750)(16,371)10,960 23,325 23,877 34,160 -13,416 $ 5,127 $ 17,789 $ 10,960 Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 136 $19,083 7,029 15,088 $5,486 1,543 14,910 $11,438 9,634 2,035 (3,304)19,743 (2,814)227 (45)2,484 (2,692)(7,045)-$ 57,887 $ 15,954 $ 19,095 $ -$ 9,315 $ 2,457 $ 14,509 $ 10,960 4,101 2,670 3,280 -$ 13,416 $ 5,127 $ 17,789 $ 10,960 See accompanying notes.36 See accompanying notes. 36 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted GREEN POWER Tieton Linden Wind Hoover Uprating Hydropower Milford I Wind Energy$ 2,347 $ 2,591 $ 13,525 (235) (2,945) (4,696)3 2,115 (354) 8,829--250 (738)(47,408)48,174 (231,049)257,686 (134,285)141,627 (1,480) ---(526) (2,201) (867)(2,218) 240 24,436 6,475 26 11 18 81 (5,079) -(19,868) (92,981)6,715 -90,000 1,662 11 (19,850) (2,900)1,559 (103) 13,665 3,575 425 926 --$ 1,984 $ 823 $ 13,665 $ 3,575 (492) $(487) $(2,629) $829 2,744 (106) (110) -(31) (586) 4,392--7,066$ 2,115 $ _3541 $ 8,829 $ -$ 1,971 $ 562 $ 9,015 $ 3,575 13 261 4,650 -$ 1,984 $ 823 $ 13,665 $ 3,575 37 See accompanying notes.37 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
GREEN POWER Tieton Hoover Uprating Hydropower Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net 2,404 $1,308 (228) (382)34 2,210 926 Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted (796)(1,425)(2,221) _____ ___88 (5,603)3,329 _________(2,186) __________ | |||
(2,197)926 2,622 _425 $ 926$ (565) $ -2,736 34 3 926 2$ 2,210 $ 926$ 308 $ -117 926$ 425 $ 926 See accompanying notes.38 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Southern Transmission System$ 84,672 (13,894)Mead- Phoenix Mead- Adelanto$8,334 $19,837 (1,178) (6,353)568 5,060 Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities 70,778 7,724 18,544 (45,381)(47,110)(30,585)(279)(3,352)(2,870)(10,416)(9,480)(123,076) | |||
(6,501) (19,896)Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments 4,249 505 (101,948) | |||
(3,573)162,152 2,940 1,814 (11,726)12,010 Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 64,453 (128) 2,098 12,155 1,095 746 33,157 3,256 12,642$ 45,312 $ 4,351 $ 13,388 49,539 $18,708 6,062 $1,406 12,485 4,514 3,239 568 (784)(732) (312) (2,692)24 -5,021$ 70,778 $ 7,724 $ 18,544$ 39,420 $ 4,192 $ 12,714 5,892 159 674$ 45,312 $ 4,351 $ 13,388 39 See accompanying notes.39 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY Did yoCOMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Souther Transmission System Mead- Phoenix Mead- Adelanto Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities | |||
$ 85,128 $(13,964)7,754 $(1,145)22,581 (1,678)71,164 6,609 20,904 (20,341)(41,113)243,674 (121,065)80 (31,075)(2,540)(3,339)(4,217)33,830 (32,200)(480)(7,859)111,900 (108,253)(3,425) (11,400)(499) (700)27,620 (9,850) (16,792)Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments 3,334 617 (147,730) | |||
(3,504)30,986 2,790 1,892 (20,247)14,120 Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted (113,410) | |||
(97) (4,235)(14,626)(3,338)(123)47,783 6,594 12,765$ 33,157 $ 3,256 $ 12,642 52,248 $18,708 5,277 $1,406 11,592 4,503 509 -685 (361) (89) 4,124 60 15$ 71,164 $ 6,609 $ 20,904$ 29,062 $ 3,031 $ 12,357 4,095 225 285$ 33,157 $ 3,256 $ 12,642 See accompanying notes.40 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 5,522 $982 12,893 $5,693 12,556 (1,765) (5,971) (450)-16,344 4,739. 12,615 28,450 6,684 405 -(2,412)(1,955)(1,956)(2,508)(4,606)(4,639)(17,280)(5,625)(6,323) (11,753) (22,905)397 1,145 791 (393) (1,924) (27,816)1,220 6,162 21,468 1,224 5,383 (5,557)6,324 6,650 (12)10,897 5,708 2,608 17,221 $ 12,358 $ 2,596 4,282 $1,210 112 (336)(529)6,710 $12,230 5,791 706 347 675 2,759 (1,267) 13,114$ 4,739 $ 12,615 $ 28,450$ 13,054 $ 5,625 $ 2,596 4,167 6,733 -17,221 $ 12,358 $ 2,596 41 See accompanying notes.41 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year 3,887 $1,041 (2,227)10,791 $9,706 (11,885)22,756 5,753 (327)2,701 8,612 28,182 (16,189) 2,746 -(337)(1,820)(2,015)(4,788)(4,307)(4,765)(25,581)(4,172) (13,860) (25,581)476 1,320 707 (439) (6,467) (20,662)84 5,281 19,677 121 134 (278)(17,539)(2,368)2,323 28,436 8,076 285 10,897 5,708 $ 2,608 Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 2,994 $1,477 (531)(607)(632)3,406 $11,532 5,089 1,567 (2,309)(540) 2,947 (910) 16,012$ 2,701 $ 8,612 $ 28,182$ 6,475 $ 5,172 $ 2,207 4,422 536 401$ 10,897 $ 5,708 $ 2,608 See accompanying notes.42 See accompanying notes. 42 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted POWER PURCHASE AGREEMENTS Ormat Geothermal Energy MWD Small Hydro Pebble Springs Windy Point Project$ 6,110 $ 2,893 $ 19,084 $ 35,210 (9,140) (3,039) (16,868) (27,370)(3,030) (146) 2,216 7,840 860 400 -1,000 8 10 16 8 1 10 16 (2,162)255 2,226 8,856 2,673 1,286 3,970 -$ 511 $ 1,541 $ 6,196 $ 8,856 (7) $(1) $(1) $(12)(1,016) --(2,057)(2,007) (145) 2,217 10,127 S- -(218)$ (3,030) $ (146) $ 2,216 $ 7,840$ 5 $ 15 $ 6 $511 1,541 6,196 8,856$ 511 $ 1,541 $ 6,196 $ 8,856 43 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat Geothermal Energy MWD Small Hydro Pebble Springs Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted | |||
$ 7,737 $(6,784)1,956 $(670)8,990 (5,024)953 1,286 3,966 36 4 36 4 989 1,286 3,970 1,684 --2,673 $ 1,286 $ 3,970$(37) $-$(4)990 1,286 3,970 953 $ 1,286 $ 3,966$ 12$ 39$2,673 1,286 3,970$ 2,673 $ 1,286 $ 3,970 See accompanying notes.44 See accompanying notes. 44 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted MISCELLANEOUS Project Multiple Project Development Projects'Fund Fund Stabilization Fund Total Combined-$ 451,526 6,675 (229,721)29,629 258,109 2,000 9,793 21,392--(592,027)(3,389) (113,020)933,197 (279,345)(86,805)(6,608)(3,389) -(144,608)5,068 2,004 20,394 (2,798) (116,060) | |||
(705,840)1,000 100,925 652,272 3,270 -(13,131) (33,174)(119) 2,000 (3,338) 101,719 119 -18,712 143,671$ -2,000 15,374 $ 245,390$$$127,959 68,689 5,296 2,744 11,006 3,268 14,622 24,525$ $ -$ -$ 258,109$ $ 2,000 $ 15,374 $ 192,773--52,617$ $ 2,000 $ 15,374 $ 245,390 45 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted MISCELLANEOUS Multiple Project Projects'Fund Stabilization Fund Total Combined$ $ $ 404,398 16,500 (193,392)12,943 240,449 (189) (13,632)-(128,429)(3,389) (121,586)852,809 (587,271)(662)(72,585)(37,285)(3,389) -(95,009)4,769 2,419 20,948 (8,449) (78,759) (487,975)2,740 59,296 248,890 (940) (17,044) (218,137)(4,329)(17,233)(86,329)4,448 35,945 230,000$ 119 $ 18,712 $ 143,671$$-$ 116,577 67,190 8,572 2,736 9,634 1,170 26,886 7,684$ -$ -$ 240,449$ 119 $ 18,712 $ 114,684 S- 28,987$ 119 $ 18,712 $ 143,671 See accompanying notes.46 See accompanying notes. 46 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE The Southern California Public Power Authority (the "Authority" or "SCPPA"), a public entity organized under the laws of the State of California, was formed by a Joint Powers Agreement dated as of November 1, 1980 pursuant to the Joint Exercise of Powers Act of the State of California. | |||
The Authority's participants consist of eleven municipal electric utilities and one irrigation district in the State of California. | |||
The Authority was formed for the purpose of planning, financing, developing, acquiring, constructing, operating and maintaining projects for the generation, transmission, and procurement of electric energy and natural gas for sale to its participants. | |||
The Joint Powers Agreement has a term of fifty years or until all bonds and notes of the Authority and the interest thereon have been paid in full or adequate provision for payments have been made.The Authority has interests in the following projects: Palo Verde Project -On August 14, 1981, the Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating Station (PVNGS), a 3,810 megawatt nuclear-fueled generating station near Phoenix, Arizona, a 5.56%ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard, and a 6.55% share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System (collectively, the "Palo Verde Project"). | |||
Units 1, 2 and 3 of the Palo Verde Project began commercial operations in January 1986, September 1986, and January 1988, respectively. | |||
San Juan Project -Effective July 1, 1993, the Authority purchased a 41.80% interest in Unit 3 and related common facilities of the San Juan Generating Station (SJGS) from Century Power Corporation. | |||
Unit 3, a 497-megawatt unit, is one unit of a four-unit coal-fired power generating station in New Mexico.Magnolia Power Project -The Magnolia Power Project (MAG) consists of a combined cycle natural gas-fired generating plant with a nominally rated net base capacity of 242 megawatts and was built on a site in Burbank, California. | |||
The plant is the first that is wholly owned by the Authority and entitlements to 100% of the capacity and energy of the Project have been sold to six of its members. The City of Burbank, a Project participant, managed its construction and also serves as the operating agent for the Project. Commercial operations began on September 22, 2005.* Gas Supply and Services Agreement: | |||
SCPPA entered into an agreement with Occidental Energy Marketing, Inc. (OEMI) beginning January 2005. This agreement is renewed each year unless notification is given by either party prior to December 31, of each year. OEMI provides 100% of the natural gas plant requirements on a daily basis, and also includes an option for the participants to bring in their own gas supply. In addition, OEMI provides gas balancing services." Natural Gas Transportation: | |||
SCPPA has an agreement with Southern California Gas Company (SoGas) for intrastate transmission services. | |||
The agreement took effect in January 2005 and will expire in January 2011. SoGas provides transportation, storage, and balancing services of natural gas from the Southern California Border to the MAG Plant.47 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued) | |||
Parts and Special Services Agreement: | |||
SCPPA entered into an 18-year agreement with General Electric International (GE) in September 2005. Initially, the agreement covered only the gas turbine, but the agreement was amended in August 2007, to include coverage for the gas generator, the steam turbine, and the steam generator. | |||
GE provides planned and unplanned maintenance, including replacement parts, based on factored fired hours.Canyon Power Project -The Authority approved the construction of a new generating plant that will be located on approximately 10 acres of land within an industrial area of the City of Anaheim, California | |||
("Anaheim"). | |||
The Canyon Power Project ("the Project") | |||
will consist of a simple cycle natural gas-fired power generating plant, comprised of four General Electric LM 6000PC Sprint combustion turbines with a combined nominally rated net base capacity of 200 MW, and auxiliary facilities. | |||
The Project will be owned by the Authority and constructed, operated, and maintained by Anaheim. The cost of the Project is estimated to be $320 million of which $15 million was spent to obtain the necessary emission credits for the Project. The Project is expected to be substantially complete in July 2011.Hoover Uprating Project -As of March 1, 1986, the Authority and six participants entered into an agreement pursuant to which each participant assigned its entitlement to capacity and associated firm energy to the Authority in return for the Authority's agreement to make advance payments to the United States Bureau of Reclamation (USBR) on behalf of such participants. | |||
The Authority has an 18.68% interest in the contingent capacity of the Hoover Uprating Project (HU).Tieton Hydropower Project -On November 30, 2009, the Authority acquired the Tieton Hydropower Plant pursuant to an Asset Purchase Agreement, dated as of October 19, 2009. The Tieton Hydropower Project (the"Project") | |||
consists of a 13.6 MW nameplate capacity "run-of-the reservoir" hydroelectric generation facility, comprised of: a powerhouse located in Yakima County, Washington; a 21 mile 115 kV transmission line; other related assets, property, and contractual rights. Prior to acquisition of the Project, the Authority was entitled to purchase the energy output of the facility for a period of 20 years through a power purchase agreement dated August 21, 2008. (See Note 11)* Contractor Service Agreement: | |||
SCPPA entered into a 2-year agreement on December 1, 2009, with an independent contractor to direct the operations of the Tieton Hydropower facility and to provide certain technical services with respect to the operation and maintenance of the facility.Milford 1 Wind Project -On February 9, 2010, the Authority financed the prepayment of a specified supply of electricity from a wind farm located in Milford Utah (the Facility). | |||
The Facility is a 203.5 megawatt nameplate capacity wind farm comprised of 97 wind turbines located near Milford, Utah, together with a 90-mile transmission line, and other related facilities. | |||
Under the related Power Purchase Agreements by and between SCPPA and Milford Wind Corridor Phase I, LLC (the "Seller"), SCPPA will receive 6.7 million megawatt hours over a 20-year delivery term. SCPPA has also agreed to make monthly payments to the Seller for any energy delivered in each year that exceeds the guaranteed annual quantity of 338,215 Megawatt hours. Commercial operation began on November 16, 2009.48 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued) | |||
Linden Wind Energy Project -On August 1, 2009 the Authority entered into a contract for the sale and purchase of the Linden Wind Energy Project (the "Project"). | |||
The Project is an approximately 50 MW nameplate capacity wind farm comprised of 25 wind turbines and related facilities, located in Klickitat County, Washington, developed and constructed by Northwest Wind Partners, LLC. During the period of construction, the Authority is obligated to make certain installment payments to Northwest Wind towards the purchase price of the Project pursuant to an Asset Purchase Agreement, dated as of June 23, 2009. The Authority has also entered into power sales agreements with LADWP and the City of Glendale to sell 100% of its entitlement to capacity and energy in the Project on a "take-or-pay" basis. Completion of construction and commercial operation occurred at the end of June 2010. The Authority expects to complete its obligations to Northwest Wind in September 2010. (See Note 11)Southern Transmission System Project -On May 1, 1983, the Authority entered into an agreement with the Intermountain Power Agency (IPA), to defray all the costs of acquisition and construction of the Southern Transmission System Project (STS), which provides for the transmission of energy from the Intermountain Generating Station in Utah to Southern California. | |||
STS commenced commercial operations in July 1986.Currently, construction is underway to upgrade two AC/DC converter stations and increase their combined rating from 1,920 MW to 2,400 MW. The Department of Water and Power of the City of Los Angeles (LADWP), a member of the Authority, serves as project manager and operating agent of the Intermountain Power Project (IPP).Mead-Phoenix and Mead-Adelanto Projects -As of August 4, 1992, the Authority entered into an agreement to acquire an interest in the Mead-Phoenix Project (Mead-Phoenix), a transmission line extending between the Westwing substation in Arizona and the Marketplace substation in Nevada. The agreement provides the Authority with an 18.31% interest in the Westwing-Mead project component, a 17.76% interest in the Mead Substation project component and a 22.41% interest in the Mead-Marketplace project component. | |||
As of August 4, 1992, the Authority also entered into an agreement to acquire a 67.92% interest in the Mead-Adelanto Project (Mead-Adelanto), a transmission line extending between the Adelanto substation in Southern California and the Marketplace substation in Nevada. Funding for these projects was provided by a transfer of funds from the Multiple Project Fund and commercial operations commenced in April 1996. LADWP serves as the operations manager of Mead-Adelanto. | |||
Natural Gas Pinedale Project -On July 1, 2005, the Authority, together with LADWP and Turlock Irrigation District (TID), acquired 42.5% of an undivided working interest in three natural gas leases located in the Pinedale Anticline region of the State of Wyoming. The Authority's individual share in these interests equals 14.9%. The purchase includes 38 operating oil and gas wells and associated lateral pipelines, equipment, permits, rights of way, and easements used in production. | |||
The natural gas field production is expected to increase for several more years as additional capital is invested on drilling new wells and then decline over a life expectancy greater than 30 years.Joint Operating Agreement (JOA): In July 2005, SCPPA's purchase of the natural gas reserve interests at Pinedale, Wyoming ("Pinedale") | |||
included an underlying long-term JOA with the operator, Ultra Resources, Inc. SCPPA pays the operator for SCPPA's share of both operating and drilling/capital expenses on a monthly basis.49 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued) | |||
Gathering and Processing Agreements: | |||
SCPPA's purchase of Pinedale included underlying agreements with Jonah Gas Gathering Company, Questar Gas Management Company, and Mountain Gas Resources, Inc. for gathering and processing of the natural gas.Natural Gas Barnett Project -Natural gas resources in the Barnett shale geological formation in Texas were acquired from Collins and Young Holding, L.L.P (C&Y) for a total of $84 million with an effective production date of April 1, 2006. The acquisition settled on October 26, 2006 and was completed on December 7, 2006 when the participants, together with TID, exercised their option to purchase additional resources from C&Y.Joint Operating Agreement (JOA): In October 2006, SCPPA's purchase of the natural gas reserve interests in Barnett, TX ("Barnett") | |||
included an underlying long-term JOA with the operator, Devon Energy Production Company; L.P. SCPPA pays the operator for SCPPA's share of both operating and drilling/capital expenses on a monthly basis.Participant Ownership Interests | |||
-The Authority's participants may elect to participate in the projects. | |||
As of June 30, 2010, the members have the following participation percentages in the Authority's operating projects: GENERATION TRANSMISSION Southern Trans-Magnolia Canyon mission Mead- Mead-Palo Verde San Juan Power Power System Phoenix Adelanto Participants Project Project Project Project Project Project Project City of Los Angeles City of Anaheim City of Riverside Imperial Irrigation District City of Vernon City of Azusa City of Banning City of Colton City of Burbank City of Glendale City of Cerritos City of Pasadena 67.0%5.4%6.5%4.9%1.0%1.0%1.0%4.4%4.4%38.0%-59.5%100% 17.6%-10.2%24.8%24.2%4.0%51.0%14.7%9.8%14.7%9.8%35.7%13.5%13.5%2.2%1.3%2.6%11.5%11.1%4.2%31.0%16.5%1.0%1.0%1.0%4.5% 15.4%2.3% 14.8%4.2% ---4.4% -6.1% -5.9% 13.8% 8.6%100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%50 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued) | |||
GREEN POWER NATURAL GAS Hoover Tieton Linden Uprating Hydro- Milford I Wind Pinedale Barnett Participants Project power Wind Energy Project Project City of Los Angeles -92.5% 90.0% --City of Anaheim 42.6% --35.7% 45.4%City of Riverside 31.9% --Imperial Irrigation District -City of Vernon ----City of Azusa 4.2% ----City of Banning 2.1% -----City of Colton 3.2% ---7.1% 9.1%City of Burbank 16.0% 50.0% 5.0% -14.3% 27.3%City of Glendale -50.0% -10.0% 28.6% -City of Cerritos -----City of Pasadena --2.5% -14.3% 18.2%100.0% 100.0% 100.0% 100.0% 100.0% 100.0%The Authority has entered into power sales, natural gas sales, and transmission service agreements with the above project participants. | |||
Under the terms of the contracts, the participants are entitled to power output, natural gas or transmission service, as applicable. | |||
The participants are obligated to make payments on a "take or pay" basis for their proportionate share of operating and maintenance expenses and debt service. The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding. | |||
The contracts expire as follows: Palo Verde Project 2030 San Juan Project 2030 Magnolia Power Project 2036 Canyon Power Project 2040 Hoover Uprating Project 2018 Tieton Hydropower Project 2040 Milford I Wind Project 2030 Linden Wind Energy Project 2035 Southern Transmission System Project 2027 Mead-Phoenix Project 2030 Mead-Adelanto Project 2030 Natural Gas Pinedale Project 2032 Natural Gas Barnett Project 2032 51 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued) | |||
The Authority's interests or entitlements in natural gas, generation, and transmission projects are jointly owned with other utilities, except for the Magnolia Power Project, Canyon Power Project, Tieton Hydropower Project, and the Linden Wind Energy Project which are wholly owned by the Authority. | |||
Under these arrangements, a participating member has an undivided interest in a utility plant and is responsible for its proportionate share of the costs of construction and operation and is entitled to its proportionate share of the energy, available transmission capacity or natural gas produced. | |||
Each joint plant participant, including the Authority, is responsible for financing its share of construction and operating costs. The financial statements reflect the Authority's interest in each jointly owned project as well as the projects that it owns. Additionally, the Authority's share of expenses for each project is included in the statements of revenues, expenses, and changes in net assets (deficit) as part of operations and maintenance expenses.Prepaid Natural Gas Project No. 1 -On October 11, 2007, the Authority made a one-time prepayment of $481 million to acquire the right to receive approximately 135 billion cubic feet of natural gas from J. Aron &Company (J. Aron) to be delivered over a 30-year term, beginning July 1, 2008. On October 3, 2007, prior to the acquisition of the prepaid gas supply, the Authority entered into five separate Prepaid Natural Gas Sales Agreements (the Gas Sales Agreements) with J. Aron and simultaneously, five Prepaid Natural Gas Supply Agreements (the Gas Supply Contracts) in which the Authority sold its interest in the natural gas, on a "take-and-pay" basis, to the cities of Anaheim, Burbank, Colton, Glendale, and Pasadena (the Project No. 1 Participants). | |||
Through the Gas Supply Contracts, SCPPA has provided for the sale to the Project Participants, on a pay-as-you-go basis, of all of the natural gas to be delivered to SCPPA pursuant to the Gas Sales Agreements. | |||
The Natural Gas contracts expire in 2038.On October 22, 2009, the Prepaid Natural Gas Sales Agreements and certain other agreements were restructured to reduce risk, provide an acceleration of a portion of the long-term savings, reduce the remaining volumes of gas to be delivered from 135 billion to 90 billion cubic feet, and shorten the term of the agreements from 30 years to 27 years. As a result of the restructuring, $165.5 million principal of the 2007 Natural Gas Project Bonds were terminated. (See Note 6)52 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued) | |||
Under the Gas Supply Contracts, the approximate average Daily Quantity of gas to be purchased by each Project Participant is as follows: PROJECT PARTICIPANT City of Anaheim City of Burbank City of Colton City of Glendale City of Pasadena TOTAL AVERAGE DAILY QUANTITY (1)REVISED ORIGINAL PARTICIPANT VOLUMES VOLUMES PERCENTAGE | |||
(%)1,467 2,000 16.5%2,924 4,000 33.0%1,007 1,375 11.0%2,015 2,750 23.0%1,464 2,000 16.5%8,877 12,125 100.0%(1) The average Daily Quantity is in MMBtu and is calculated over the term of the applicable Gas Supply Contracts. | |||
The contracts were restructured and volumes revised in October 2009.Ormat Geothermal Energy Project -The Authority entered into long-term Power Purchase Agreements in December 2005 with divisions of Ormat Technologies, Inc. for up to 20 MW of electric generation. | |||
The Project started delivery of approximately 5 MW in January 2006 from geothermal energy facilities located in Heber, California and the agreements were amended to allow for excess capacity in May 2008. The City of Anaheim acts as the scheduling coordinator on behalf of the project participants. | |||
MWD Small Hydro Project -Consists of a Power Purchase Agreement for the output from four small hydroelectric plants on the MWD system in Southern California, having a total nameplate capacity of 17.04 MW, and a historical output of 40,130 MWH per year. Transmission is accomplished through the California Independent System Operator, with the City of Anaheim acting as scheduler. | |||
The term of the contract is 15 years and 2 months, expiring December 31, 2023. Operations began on November 1, 2008.Pebble Springs Wind Project -In December 2007, the Authority entered into a Power Purchase Agreement for the facility output of a wind project with 98.7 MW, located in Gilliam County, Oregon. SCPPA along with LADWP, Burbank, and Glendale are now scheduling the energy through transmission agreements which bring this renewable energy from the project substation to the project participants. | |||
The term of the Project is 18 years with a right of first offer to potentially purchase the entire project after the 10th contract year. Operations formally began on January 31, 2009.53 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued) | |||
Windy Point/Windy Flats Project -Pursuant to a power purchase agreement, dated June 24, 2009, the Authority has agreed to purchase a supply of energy from the Windy Point/Windy Flats Project (the "Project") | |||
output for an initial delivery term of 20 years. The Authority also entered into power sales agreements with LADWP and the City of Glendale to sell 100% of its entitlement to capacity and energy in the Project on a "take-or-pay" basis. (See Note 11 -Subsequent Events)The Project is a facility with a 262.2 MW nameplate capacity wind farm comprised of 114 wind turbines located in the Columbia Hills area of Klickitat County, Washington near the city of Goldendale. | |||
The Project is owned by Windy Flats Partners, LLC, a limited liability company organized and existing under the laws of the State of Delaware. | |||
The initial delivery term began on the commercial operation date of the first of two phases of the Facility. | |||
The first phase commenced operations on January 25, 2010 and the second phase on March 1, 2010.The Authority has entered into power purchase agreements with project participants as follows. These agreements are substantially take and pay contracts where there may be other obligations not associated with the delivery of energy.Participant Ownership Interests Power Purchase Agreements Ormat Geothermal Energy Participants Project Pebble Springs Wind Project 98.7 MW 69.6%MWD Small Hydro Project Windy Point Project Capacity City of Los Angeles City of Anaheim City of Azusa City of Banning City of Colton City of Burbank City of Glendale City of Pasadena 17MW 60.0%10.0%15.0%15.0%17.04MW 262.2MW-92.4%56.4% -21.8%21.8%-7.6%10.1%20.3%100.0% 100.0% 100.0% 100.0%Contract Expires 2031 2025 2023 2030 Multiple Project Fund -During fiscal year 1990, the Authority issued Multiple Project Revenue Bonds for net proceeds of approximately | |||
$600 million to provide funds to finance costs of construction and acquisition of ownership interests or capacity rights in one or more, then unspecified, projects for the generation or transmission of electric energy. Certain of these funds were used to finance the Authority's interests in Mead-Phoenix and Mead-Adelanto. | |||
54 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued) | |||
Project Development Fund -Holds funds related to projects in the development phase.Projects' Stabilization Fund -In fiscal year 1997, the Authority authorized the creation of a Projects'Stabilization Fund. Deposits may be made into the fund from budget under-runs, after authorization of individual participants, and by direct contributions from the participants. | |||
Participants have discretion over the use of their deposits within SCPPA project purposes. | |||
This fund is not a project-related fund; therefore, it is not governed by any project Indenture of Trust. The members participate in the Projects' Stabilization Fund by making deposits to the fund at their discretion. | |||
NOTE 2 - | |||
==SUMMARY== | |||
OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting and presentation | |||
-The combined and individual financial statements of the Authority are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America issued by the Governmental Accounting Standards Board (GASB) applicable to governmental entities that use proprietary fund accounting and the Financial Accounting Standards Board (FASB)issued prior to November 30, 1989 that do not conflict with rules issued by the GASB. Revenues are recognized when earned and expenses are recognized when incurred. | |||
The format of the Statement of Net Assets (Deficit)follows the inverted approach which is consistent with the Federal Energy Regulatory Commission (FERC)." Invested in capital assets, net of related debt and advances from participants | |||
-This component of net assets consists of (a) capital assets, (b) net of accumulated depreciation, and (c) unamortized debt expenses, reduced by the outstanding balances of any bonds, other borrowings, and advances from participants that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net assets component as the unspent proceeds.* Restricted | |||
-This component consists of net assets on which constraints are placed as to their use. Constraints include those imposed by creditors (such as through debt covenants), contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or through enabling legislation. | |||
* Unrestricted | |||
-This component of net assets consists of net assets that do not meet the definition of"restricted" or "invested in capital assets, net of related debt and advances from participants." 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. | |||
55 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 - | |||
==SUMMARY== | |||
OF SIGNIFICANT ACCOUNTING POLICIES -(continued) | |||
Utility plant.- The Authority's share of construction and betterment costs, natural gas reserves, intangibles, and nuclear fuel associated with PVNGS, STS, Mead-Phoenix, Mead-Adelanto, SJGS, Magnolia Power Project, the Natural Gas Projects, Canyon Power, Tieton Hydropower Project, and Linden Wind Energy Project are included as utility plant and recorded at cost. Costs include labor, materials, capitalized interest costs on funds used in construction, and allocated indirect charges such as engineering, supervision, transportation and construction equipment, retirement plan contributions, health care costs, and certain administrative and general expenses. | |||
The costs of routine maintenance, repairs, and minor replacements incurred to maintain the plant in operating condition are charged to the appropriate operations and maintenance expense accounts in the period incurred. | |||
The original cost of property retired, net of removal and salvage costs, is charged to accumulated depreciation. | |||
Depreciation expense is computed using the straight-line method based on the estimated service lives, principally thirty-five years for PVNGS, STS, Mead-Phoenix and Mead-Adelanto, thirty years for Magnolia, thirty-seven years for SJGS, and fifty years for the Tieton Hydropower Project. There is no depreciation expense for the Canyon Power Project, currently under development, or Linden Wind Energy Project which achieved commercial operation on June 30, 2010. (See Note 11)Natural gas reserve depletion | |||
-Depletion expense for the Natural Gas Projects is computed using the unit of production method based on the future production of the proved developed producing wells, estimated at 42.5 years. The estimate is based on site specific studies prepared by independent consultants as of January 2009. The depletion rate for the Natural Gas Pinedale Project was $1.59/MMbtu and $1.61/MMbtu; and the estimated total net revenue volume was 27,239,718 MMbtu and 27,629,287 MMbtu up to the period ending 2060, for fiscal years 2010 and 2009, respectively. | |||
The depletion rate for the Natural Gas Bamett Project was $4.95/MMbtu and$4.83/MMbtu; and the estimated total net revenue volume was 12,599,884 MMbtu and 13,077,737 MMbtu up to the period ending 2060, for fiscal years ended June 20, 2010 and 2009, respectively. | |||
Nuclear fuel -Nuclear fuel is amortized and charged to expense on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assesses each entity with nuclear operations, including the participants in PVNGS, $1 per megawatt hour of nuclear generation. | |||
The Authority records this charge as a current year expense. See Note 10 for information about spent nuclear fuel disposal.Nuclear decommissioning | |||
-Decommissioning of PVNGS is expected to commence subsequent to the year 2026. The total cost to decommission the Authority's interest in PVNGS is estimated to be $121.3 million in 2008 dollars ($275.6 million in 2022 dollars, assuming a 6% estimated annual inflation rate). This estimate is based on an updated site specific study prepared by an independent consultant in 2007. The Authority is providing for its share of the estimated future decommissioning costs over the remaining life of the nuclear power plant through annual charges to expense, which amounted to $3.8 million and $7.0 million in fiscal years 2010 and 2009. The decommissioning liability is included as a component of accumulated depreciation and was $230.9 million and$227.0 million at June 30, 2010 and 2009, respectively. | |||
The Authority contributes to extemal trusts set up in accordance with the Arizona Nuclear Power Plant participation agreement and Nuclear Regulatory Commission requirements. | |||
As of June 30, 2010, decommissioning funds totaled approximately | |||
$161.9 million, including approximately | |||
$1.0 million of interest receivable. | |||
56 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 - | |||
==SUMMARY== | |||
OF SIGNIFICANT ACCOUNTING POLICIES -(continued) | |||
Asset retirement obligation | |||
-Demolition of SJGS is projected to commence subsequent to the year 2030. Based upon the study performed by an independent engineering firm, the Authority's share of the estimated demolition costs is $47.4 million in 2008 dollars. The Authority is providing for its share of the estimated future demolition costs over the remaining life of the power plant through annual charges to expense of $1.5 million. The demolition liability is included as a component of accumulated depreciation and totaled $49.8 million and $48.2 million at June 30, 2010 and 2009, respectively. | |||
As of June 30, 2010, the Authority has not billed participants for the cost of demolition nor has it established a demolition fund.Investments | |||
-Investments include United States government and governmental agency securities, guaranteed investment contracts, medium term notes and money market accounts. | |||
These investments are reported at fair value and changes in unrealized gains and losses are recorded in the statement of revenues, expenses and changes in net assets (deficit) with the exception of the guaranteed investment contracts which are recorded at amortized cost. Gains and losses realized on the sale of investments are generally determined using the specific identification method.The Bond Indentures for the Projects and the Multiple Project Fund require the use of trust funds to account for the Authority's receipts and disbursements. | |||
Cash and investments held in these funds are restricted to specific purposes as stipulated in the Bond Indentures. | |||
Accounts receivable | |||
-Accounts receivable consists primarily of participant receivables. | |||
As such no allowance is deemed necessary. | |||
Prepaid and other assets -SCPPA entered into a prepaid gas contract with a supplier for a 30-year gas supply at a fixed discount and simultaneously entered into a contract with each of the project participants for the delivery of natural gas. SCPPA has also entered into prepaid contracts for all of the energy generated by the Milford Wind Facility for a 20-year term and from the Windy Point/Windy Flats Facility, with corresponding power sales contracts with each project participant. (See Note 1)Advances for capacity and energy -Advance payments to the United States Bureau of Reclamation for the uprating of the 17 generators at the Hoover Power Plant are included in advances for capacity and energy. These advances are being reduced by the principal portion of the credits on billings to the Authority for energy and capacity. | |||
The current portion of these advances is recorded under Prepaid and Other Assets in the Current Assets Section of the Combined Statements of Net Assets (Deficit). | |||
Advance to IPA -Advance to IPA consists of cash transferred to IPA for reserve, contingency and self insurance funding.Unamortized premiums, discounts, debt expenses and losses on refunding | |||
-Debt premiums, discounts, and debt expenses are deferred and amortized to expense over the lives of the related debt issues. Losses on refunding related to bonds redeemed by refunding bonds are amortized over the shorter of the life of the refunding bonds, or the remaining term of bonds refunded. | |||
Unamortized issue costs are recorded as a non current asset. All other unamortized debt expenses are recorded as an offset or addition to long-term debt.57 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 - | |||
==SUMMARY== | |||
OF SIGNIFICANT ACCOUNTING POLICIES -(continued) | |||
Cash and cash equivalents | |||
-Cash and cash equivalents include cash and investments with original maturities of 90 days or less.Materials and supplies -Materials and supplies consist primarily of items for construction and maintenance of plant assets and are stated at the lower of cost or market.Arbitrage rebate and yield restrictions | |||
-The unused proceeds from the issuance of tax-exempt debt have been invested in taxable financial instruments. | |||
The excess of earnings on investments, if any, over the amount that would have been earned if the investments had a yield equal to the bond yield or yield restricted rate, is payable to the IRS within five years of the date of the bond offering and each consecutive five years thereafter until final maturity of the related bonds.The recorded liability of the Multiple Project Fund of $25.2 million ($6.7 million payable to the Mead-Phoenix Project and $18.5 million payable to the Mead-Adelanto Project) is a result of the cumulative savings from the 1994 refunding of the 1989 Multiple Project Bonds. The partial refunding within five years of the original issuance triggered a recalculation of the arbitrage yield, reducing the Multiple Project Fund's rebate liability. | |||
During the fiscal year ended June 30, 2010, the Authority made rebate payments to the IRS of $0.02 million for the STS bonds, $0.02 million for Palo Verde bonds.Recorded arbitrage rebate and yield restriction liabilities as of June 30, 2010, were $1.4 million for STS, $0.2 million for Mead-Phoenix, and $0.7 million for Mead-Adelanto, and $0.08 million for Magnolia.Revenues -Revenues consist of billings to participants for the sales of electric energy, natural gas and transmission service in accordance with the participation agreements. | |||
Generally revenues are fixed at a level to recover all operating and any debt service costs over the commercial life of the property.In September 1998, the Palo Verde participants approved a resolution authorizing the Authority to bill the participants an additional | |||
$65 million annually through June 30, 2004 to pay for increased debt service costs as a result of a refunding completed in October 1997. In addition, the participants resolved to transfer any over billings, renewal and replacement excess funds or surplus amounts through June 30, 2004 into the Palo Verde reserve account. On November 20, 2003, the Authority adopted a resolution to utilize the amounts on deposit in the reserve accounts to pay a portion of the operating and maintenance expenses of the Palo Verde Project starting July 1, 2004. Funds held in the reserve account as a result of this resolution totaled $45.1 million and $50.3 million as of June 30, 2010 and 2009, respectively. | |||
Transportation Costs -As a result of the sales and purchases agreements for natural gas entered into by SCPPA, the participants receive less volume than processed incurring embedded transportation costs. These costs are recorded as participants' revenue and expense to the Natural Gas Pinedale Project. At June 30, 2010 and 2009, transportation costs were approximately | |||
$133 thousand and $26 thousand, respectively, for the Natural Gas Pinedale Project.58 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 - | |||
==SUMMARY== | |||
OF SIGNIFICANT ACCOUNTING POLICIES -(continued) | |||
In Kind Contribution | |||
-Each participant of the Magnolia Power Plant is responsible for their own share of natural gas. They may elect to bring fuel to the plant or purchase fuel from Occidental Energy Marketing, Inc.(OEMI). OEMI computes the daily imbalances of fuel volume per participant using the daily consumption data that the operating manager provides. | |||
Monthly, actual fuel burnt is reported together with the daily imbalances, participants' in kind contribution, and fuel purchases from OEMI.In kind contributions are valued at fair market value and recorded as participant revenue and fuel expense to the Magnolia Power Project. SCPPA values the participants' fuel contribution using monthly average pricing from the Project's OEMI fuel purchases. | |||
During the fiscal years ended June 30, 2010 and 2009 the participants' contribution in kind was approximately 9.5 million MMbtu and 8.7 million MMbtu and was valued at approximately | |||
$41.1 million and $46.3 million, respectively. | |||
In Kind Payment -The Natural Gas Pinedale Project pays federal royalties to Mineral Management Services (MMS). Beginning November 2007 through October 2010, SCPPA elected to pay its obligation in kind with approximately 0.3 million MMbtu and 0.9 million MMbtu for fiscal years 2010 and 2009, with a monetary value of approximately | |||
$84 thousand and $0.9 million for the fiscal years ended June 30, 2010 and 2009, respectively. | |||
Build America Bonds ("BABs") -Build America Bonds are taxable municipal bonds, that were created under the American Recovery and Reinvestment Act of 2009, and carry special tax credits and federal subsidies for either the bond issuer or the bondholder. | |||
BABs provide for a subsidy payment from the Department of the Treasury to be paid directly to the issuer (Direct Payment) or the bondholder (Tax Credit BABs) in an amount equal to 35% of the bond's interest. | |||
These Bonds must be issued before January 1, 2011. On June 9, 2010, SCPPA issued $191 million of Canyon Power 2010 Series B, Direct Payment BABs. (See Note 6 and Note 11)59 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 - | |||
==SUMMARY== | |||
OF SIGNIFICANT ACCOUNTING POLICIES -(continued) | |||
Recently Issued and Adopted Accounting Principles Derivative Instruments | |||
-Effective July 1, 2009, the Department adopted GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, which requires that changes in fair values of investment derivative instruments be recorded on the income statement and that the fair value of hedging derivative instruments be recorded as deferrals on the balance sheet, except as provided by the normal purchase and normal sales exception to that standard. | |||
The effect of implementing Statement No. 53 was to restate the fiscal year 2009 financial statements. | |||
The effect of this restatement on the 2009 financial statements is as follows (in thousands): | |||
2009 Reclassified in 2010 Report 2009 Reported BALANCE SHEET ASSETS Derivatives and related deferrals | |||
$ 129,252 $LIABILITIES Derivatives and related deferrals 156,012 NET ASSETS Unrestricted net assets (deficit) 51,396 89,533 INCOME STATEMENT NON OPERATING REVENUES (EXPENSES) | |||
Derivative gain(loss) | |||
(16,457)60 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 3 -UTILITY PLANT At June 30, 2010 Utility Plant consisted of the following (amounts in thousands): | |||
June 30,2010 GENERATION GREEN POWER Magnolia Canyon Hoover Linden Palo Verde San Juan Power Power Uprating Tieton Hydro- Wind Project Project Project Project Project power Energy Utility plant Production Transmission General Natural gas reserves Less accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Net utility plant$ 679,322 $ 239,417 $ 281,833 $$$ 47,714 $14,018 2,876-15,237 7,168 15,395 21 11 696,216 246,585 312,465 21 47,725 648,899 171,220 53,811 21 829 47,317 75,365 258,654 -46,896 -18,744 8,742 441 159,339 -145,159 43,843 -----$ 109,904 $ 84,107 $ 259,095 $ 159,339 $ $ 46,896 $ 145,159 TRANSMISSION NATURAL GAS Southern Transmission Mead- Mead-System Phoenix Adelanto Pinedale Barnett Project Project Project Project Project Total Utility plant Production Transmission General Natural gas reserves Less accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Net utility plant$-$ -$ -$$674,606 18,911 54,390 172,798 2,721 473$ 1,248,286 931,049 48,830 1,254---50,831 70,218 121,049 693,517 57,111 173,271 52,085 70,218 2,349,214 465,499 20,454 64,277 9,181 13,661 1,447,852 228,018 36,657 108,994 42,904 56,557 901,362 80,777 557 -2,680 3,073 419,512----43,843$ 308,795 $ 37,214 $ 108,994 $ 45,584 $ 59,630 $ 1,364,717 61 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 3 -UTILITY PLANT -(continued) | |||
At June 30, 2009 Utility Plant consisted of the following (amounts in thousands): | |||
June 30, 2009 GENERATION GREEN, POWER Palo Magnolia Canyon Hoover Verde San Juan Power Power Uprating Project Project Project Project Project Tieton Linden Utility plant Production Transmission General Natural gas reserves Less accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Net utility plant$ 667,180 $ 229,332 $ 281,757 $ $ $14,120 -15,239-$2,908 7,413 15,237 21 684,208 236,745 312,233 21 629,516 168,359 42,357 21 54,692 68,386 269,876 -20,574 6,959 69 80,393 36,687 ---$ 111,953 $ 75,345 $ 269,945 $ 80,393 $ $ $TRANSMISSION NATURAL GAS Southern Transmission Mead-Mead-System Phoenix Adelanto Pinedale Barnett Project Project Project Project Project Total Utility plant Production Transmission General Natural gas reserves Less accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Net utility plant$ -$ -$ -$674,606 50,967 172,798 18,911 2,644 473$$ 1,178,269 927,730 48,824 1,217---50,492 65,889 116,381 693,517 53,611 173,271 51,709 65,889 2,271,204 446,791 19,047 59,763 7,971 7,870 1,381,695 246,726 34,564 113,508 43,738 58,019 889,509 27,571 3,736 -376 4,329 144,007-----36,687$ 274,297 $ 38,300 $ 113,508 $ 44,114 $ 62,348 $ 1,070,203 62 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 3 -UTILITY PLANT -(continued) | |||
A summary of changes in Utility Plant follows (amounts in thousands): | |||
Nondepreciable utility plant Land Construction work in progress Construction work in progress -gas Nuclear fuel*Total nondepreciable utility plant Depreciable utility plant Production Nuclear generation (Palo Verde Project)Coal-fired plant (San Juan Unit 3 Project)Gas-fired plant (Magnolia Power Project)Green power Transmission General Natural gas reserves Total depreciable utility plant Less accumulated depreciation Total utility plant, net Balance Balance July 1, 2009 Additions Disposals Transfers June 30, 2010$ 42,472 $ 186 $ $ $ 42,658 139,302 307,868 (33,413) 413,757 4,705 5,754 (4,704) 5,755 36,687 15,856 (8,700) 43,843 223,166 329,664 (8,700) (38,117) 506,013 666,442 15,466 (3,506) 678,402 229,332 14,053 (3,968) 239,417 281,758 -74 281,832-34,425 --34,425 885,995 16,660 (52) (2) 902,601 48,824 117 (307) 196 48,830 116,381 --4,668 121,049 2,228,732 80,721 (7,833) 4,936 2,306,556 (1,381,695) | |||
(69,472) 7,829 (4,514) (1,447,852) | |||
$ 1,070,203 | |||
$ 340,913 $ (8,704) $ (37,695) $ 1,364,717*Nuclear fuel disposals represent amortization. | |||
NOTE 4 -INVESTMENTS The Authority's investment function operates within a legal framework established by Sections 6509.5 and 53600 et. seq. of the California Government Code, Indentures of Trust, instruments governing financial arrangements entered into by the Authority to finance and operate Projects and the Authority's Investment Policy.Guaranteed investment contracts (GICs) are contracts that guarantee the owner principal repayment and a specified interest rate for a predetermined period of time. GICs are typically issued by insurance companies and marketed to institutions that qualify for favorable tax status under federal laws. These types of securities provide institutions with guaranteed returns. GICs are negotiated on a case-by-case basis.Based on SCPPA's Investment Policy, certain vehicles such as GICs, flexible repurchase agreements or forward debt service agreements, may be entered into only upon approval of the SCPPA Board. In addition, eligible securities and general limitations are derived from each Project's Indenture of Trust, the Government Code and SCPPA's evolving investment practices. | |||
63 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 4 -INVESTMENTS | |||
-(continued) | |||
The operative Indentures of Trust in which securities are authorized for investment purposes relate to the Palo Verde Project Bonds, the Southern Transmission System Project Bonds, the Hoover Uprating Project Bonds, the Mead-Phoenix Project Bonds, the Mead-Adelanto Project Bonds, the Multiple Project Fund Bonds, the San Juan Project Bonds, the Magnolia Power Project Bonds, the Natural Gas Projects Bonds, Prepaid Natural Gas Project No. 1 and the Canyon Power Project Bonds, Milford Wind Phase 1 Project Bonds, Linden Wind Project Notes, and the Tieton Project Bonds. Authorized investments for the Projects' Stabilization Fund are set forth in a resolution approved by the Board in 1996.Eligible securities include:* United States Treasury Securities, which are bonds or other obligations secured by the full faith and credit of the United States of America;* Federal Agency Obligations, which have the full financial backing of the U.S. Government;" Government Sponsored Enterprise Obligations, which are created by acts of Congress to provide liquidity for selected lending programs targeted by Congress;* Repurchase Agreements, which are collateralized loan contracts where the seller includes a written agreement to repurchase the securities at a later date for a specified amount;* Negotiable Certificates of Deposit, which are deposit liabilities issued by a nationally or state-chartered bank, a savings or a federal association or by a state-licensed branch of a foreign bank which has short-term ratings of at least "A-I" by S&P and at least "P-I," by Moody's;* Banker's Acceptances, a short-term draft or bill of exchange guaranteed for payment at face value to the holder of the instrument on its maturity date, which has a short-term rating of at least "A-I" by S&P and at least "P-I" by Moody's;" Commercial Paper, a short-term unsecured promissory note issued by non-financial or financial firms with a rating of at least "A-I" by S&P and at least "P-I" by Moody's;* Medium Term Notes rated "A" or better and only those issued by corporations organized and operating within the United States, or by depository institutions licensed by the United States or any state and operating within the United States;" Equity-Linked Notes, which are categorized as medium-term corporate notes and are subject to the constraints set forth in the Government code and the Authority's Investment Policy.64 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 4 -INVESTMENTS | |||
-(continued) | |||
As of June 30, 2010 the Authority held the following as cash and cash equivalents and investments: | |||
Investment Type U.S. Agency Securities Guaranteed Investment Contracts Money Market Funds Commercial Paper Negotiable CDs U.S. Discount Notes Banker's Acceptance Total Carrying Value Weighted Average (in thousands) | |||
Maturity (Years) Percent of Portfolio$ 383,122 3.24 34.3%278,599 8.97 25.0%227,015 0.08 20.3%119,118 1.30 10.7%52,076 0.18 4.7%46,018 0.16 4.1%9,764 0.17 0.9%$ 1,115,712 3.52 100.0%T he "weighted average maturity in years" calculation assumes that all investments are held until maturity.Investments at June 30, 2010 are as follows (amounts in thousands):ER 1 POWE TRA Southern Magnolia Hoover Tieton Linden Transmission Mead-Palo Verde San Joan Power Canyon Power Uprating Hydro- Milford I Wind System Mead- Phoenix Adelantu Project Project Project Project Project power Wind Energy Project Project Project$ 174,119 $ 4,204 $ 51366 $ 6,102 $ 1,706 $ $ 18,966 $ S 28,995 $ 1,758 $ 5,808 7,994 I,500 -1,330 999 15,498 900 10,800 3,997 9,663 1 -19,638 1,000 2,000 660 -5,198 --U.S. Agencies Agency Discount Notes Negotiable CDs Bankers Acceptance Conmmercial Paper GIC's Money Market Fuods Total Restricted investments Unrestricted investments Cash and cash equivalents Total-111,798 2,999 45,056 21,323 3,863 35,392 9,512 22,703----37,179 6,409 23,457 35,341 1,214 823 13,665 3,575 36,973 4,104 12,488 U.S. Agencies Agency Discount Notes Negotiable CDs Bankers Acceptance Commercial Paper GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total$ 265,367 $ 47,030 $ 80,092 $ 162,904 $ 4,250 $ 823 $ 33,630 $ 6,574 $ 143,481 $ 13,271 $ 44,653$ 185,157 $ 31,525 $ 55,229 S 127,563 $ 2,266 S -$ 19,965 $ 2,999 $ 98,169 $ 8,920 $ 31,265 54,287 5,993 -.----25,923 9,512 24,863 35,341 1,984 823 13,665 3,575 45,312 4,351 13,388$ 265,367 $ 47,030 $ 80,092 $ 162,904 S 4,250 $ 823 S 33,630 $ 6,574 $ 143,481 $ 13,271 $ 44,653 POWER PURCHASE AGREEMENTS NATURAL GAS MISCELLANEOUS Ormat Geo- Project Projects'thermal MWD Small Pebble Windy Point Pinedale Barnet Prepaid Multiple Development Stabilization Project Hydr Springs Project Project Project Natural Gas Project Fund Fund Fund Total$ $ $ $ $ 3,577 $ 503 $ $ $ $ 86,018 $ 383,122 4,000 4,599 5,600 3,598 -46,018-3,499 1,480 -52,077 3,407 500 9,765 4,322 -119,119-14,644 41,478 14,654 70,784 -278,847 511 1,541 2,196 8,856 13,122 4,778 2,596 -2,000 15,374 226,764$ 511 S 1,541 $ 6,196 $ 8,856 $ 47,170 $ 54,339 $ 20,848 $ 70,784 S 2,000 $ 101,392 $ 1,115,712$ $ $ S $ 29,949 $ 41,981 $ 18,252 $ 70,704 $ -$ 86,018 $ 810,042 S ------60,280 511 1,541 6,196 8,856 17,221 12,358 2,596 -2,000 15,374 245,390$ 511 $ 1,541 $ 6,196 $ 8,856 $ 47,170 $ 54,339 $ 20,848 $ 70,784 $ 2,000 $ 101,392 $ 1,115,712 65 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 4 -INVESTMENTS | |||
-(continued) | |||
Investments at June 30, 2009 are as follows (amounts in thousands): | |||
U.S. Agencies Agency Discount Notes GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total U.S. Agencies Agency Discount Notes GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total GENERATION POWER PURCHASE AGREEMENTS Ormat Hoover Magnolia Canyon Geo-Palo Verde Uprating San Juan Power Power thermal MWD Small Project Project Proiect Project Project Project Hydro Pebble Springs Tieton$ 199,105 $ $ 9,497 $ 45,558 $ 27,003 $ $ $ $21,594 3,898 3,049 14,038 50,308 -21,323 3,863 -10,557 425 4,288 12,139 10,960 2,673 1,286 3,970 926$ 281,564 $ 4,323 $ 38,157 $ 75,598 $ 37,963 $ 2,673 $ 1,286 $ 3,970 $ 926$ 198,112 $ 2,699 $ 33,030 $ 57,809 $ 27,003 $ -$ -$ -$ -70,036 1,199 -------13,416 425 5,127 17,789 10,960 2,673 1,286 3,970 926$ 281,564 $ 4,323 $ 38,157 $ 75,598 $ 37,963 $ 2,673 $ 1,286 $ 3,970 S 926 TRANSMISSION NATURAL GAS MISCELLANEOUS Southern Transmission Mead- Mead- Projects'System Phoenix Adelanto Pinedale Barnett Prepaid Multiple Stabilization Project Project Project Project Project Natural Gas Project Fund Fund Total$ 83,400 $ 1,740 $ 5,758 $ 27,520 $ 498 $ $ -$ 69,930 $ 470,009 48,657 1,330 11,150 1,280 5,400 1,000 -111,396 37,179 6,543 22,626 15,472 42,405 11,901 67,986 -279,606 22,346 1,926 4,642 9,617 3,617 2,608 119 18,712 110,811$ 191,582 $ 11,539 $ 44,176 $ 53,889 $ 51,920 $ 14,509 $ 69,105 $ 88,642 $ 971,822$ 158,425 $ 8,283 $ 31,534 $ 42,992 $ 46,212 $ 11,901 $ 68,986 $ 69,930 $ 756,916--------71,235 33, 157 3,256 12,642 10,897 5,708 2,608 119 18,712 143,671$ 191,582 $ 11,539 $ 44,176 $ 53,889 $ 51,920 $ 14,509 $ 69,105 $ 88,642 $ 971,822 Interest rate risk -The Authority's investment policy limits the maturity of its investments to a maximum of 5 years for investments in the United States Treasury, Federal Agency, and Government Sponsored Enterprise securities, excluding: | |||
investments held in Project Debt Service Reserve; long-term commitments or agreements approved by the Authority's Board; 5 years for medium term corporate notes; 270 days for commercial paper; 180 days for banker's acceptances; and one year for negotiable certificates of deposits.Credit risk -Under its investment policy and the State of California Government Code, the Authority is subject to the prudent investor standard of care in managing all aspects of its portfolios. | |||
As an investment standard, each investment shall be made with "judgment and care under circumstances then prevailing, which a person of prudence, discretion and intelligence would exercise in the management of his/her affairs, not in regard for speculation, but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of the capital to be invested." The Authority's investment policy does not preclude active management of the portfolio to address market opportunities. | |||
All transactions shall be undertaken in the best interest of the Authority and its participants. | |||
66 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 4 -INVESTMENTS | |||
-(continued) | |||
The Authority's investment policy specifies that all project funds may be invested in shares of beneficial interest for temporary periods, pending disbursement or reinvestment as allowed under the state of California Government Code ("Code"). | |||
The Code requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations (NRSRO)or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience managing money market mutual funds with assets under management in excess of five hundred million dollars. As of June 30, 2010, money market funds in the portfolios with Bank of New York Mellon have attained the highest possible ratings by three NRSRO's, specifically AAA by Standard and Poor's, Aaa by Moody's Investors Service, and AAA by Fitch Ratings, while money market funds in the portfolios with US Bank have attained the following ratings: AA- by Standard and Poor's, Aal by Moody's Investors Service, and AA by Fitch Ratings.The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government. | |||
As of June 30, 2010 and 2009, the U.S.government agency securities in the portfolio carried the highest possible credit ratings by the NRSRO's that rated them.The Guaranteed Investment Contracts in the portfolio with American International Group (AIG) consist of securities issued by corporations and carry a rating of A- by Standard and Poor's, A3 by Moody's Investors Service and BBB by Fitch Rating. The Guaranteed Investment Contracts in the portfolio with PNC carry a rating of A+ by Standard and Poor's, Al by Moody's Investors Service, and AA- by Fitch Ratings.The Investment Agreement Contract in the portfolio with Financial Security Assurance (FSA) consists of securities issued by corporations and carries a rating of AAA by Standard and Poor's, Aa3 by Moody's Investors Service, and AA+ by Fitch Ratings.Concentration of credit risk -The Authority's investment policy specifies a 50% to 100% limitation on the amount that can be invested in U.S. government agency securities, except in certain issues of other Authority projects, such as the Southern Transmission System 1991 Series and the Mead-Adelanto and Mead-Phoenix projects.Of the Authority's total investments as of June 30, 2010, $142.0 million (13%) was invested in securities issued by the Federal Home Loan Bank; $78.6 million (7%) was invested with Farm Credit Bank; $129.3 million (12%)was invested in GIC's with AIG; $128.5 million (12%) was invested in securities issued by the Federal National Mortgage Association; | |||
$65.1 million (6%) wa's invested with Federal Home Loan Mortgage; | |||
$100.4 million (9%)was invested in GIC's with PNC Financial Securities Group.Of the Authority's total investments as of June 30, 2009, $182.4 million (19%) was invested in securities issued by the Federal Home Loan Bank; $142.2 million (15%) was invested with Farm Credit Bank; $128.3 million (13%) was invested in GIC's with AIG; $121.1 million (12%) was invested in securities" issued by the Federal National Mortgage Association; | |||
$116.8 million (12%) was invested with Federal Home Loan Mortgage; | |||
$97.2 million (10%) was invested in GIC's with PNC Financial Securities Group.67 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS Objective of the swaps -SCPPA uses derivative instruments to hedge its exposure to changing interest rates through the use of interest rate swaps and also to manage its exposure to fluctuating natural gas prices through the use of natural gas hedge contracts. | |||
An interest rate swap is the exchange of payments between SCPPA and a counterparty in order to potentially obtain a lower cost of funding than traditional fixed rate bonds, or to hedge interest rate exposure on SCPPA's assets or liabilities. | |||
The Authority has entered into eight separate pay-fixed, receive-variable interest rate swaps and four basis swaps to produce savings or to result in lower costs over the life of each transaction than what the Authority would have paid using fixed-rate debt. While these instruments carry additional risks, SCPPA's swap policy and favorable negotiations have helped to reduce such risks.Effective July 1, 2009, the Authority adopted Statement No. 53 of the GASB, Accounting and Financial Reporting for Derivative Instruments. | |||
This Statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments. | |||
In accordance with Statement No. 53, SCPPA recognizes the changes in fair values of effective hedging derivative instruments as either assets or liabilities on the Authority's balance sheet and includes changes in the fair value of an investment derivative instrument in eamings.For fiscal year ending June 30, 2009, the balance for the swaps deemed to qualify for hedge accounting under GASB 53 was a net liability of $99.6 million. During fiscal year ending June 30, 2010, the liability increased by$32.3 million for an ending net liability balance of $131.9 million. For the swaps that were deemed investment instruments under GASB 53, the changes were reported in the statement of operations. | |||
The net liability balance for fiscal year ending June 30, 2009 for the investment instruments was $26.8 million, and the liability increased during fiscal year ending June 30, 2010 by $8.7 million for an ending net liability balance of $35.5 million.Terms, fair values, and credit risk -The terms, including the fair values and credit ratings of the counterparties under the outstanding swaps as of June 30, 2010, are included on the following page. In most cases, and with the exclusion of basis swaps, the notional amount of any swap matches the principal amount of the associated debt.Except as discussed under the rollover risk, and when associated with basis swaps, the Authority's swap agreements contain scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the associated "bonds payable" category.68 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS | |||
-(continued) | |||
Notional Amount Effective (in thousands) | |||
Date Fixed Rate Paid$ 100,000 5/11/2010 SIFMA 100,000 5/12/2010 SIFMA Swap Fair Values Termination Counterparty Variable Rate Received (in thousands) | |||
Date Credit Rating*MPP 2010-1 Swap MPP 2010-2 Swap MPP 2009-1 Swap 80.4% of 3-month LIBOR 81% of 3-month LIBOR MPP 2000-2 Swap STS 2006 Amended Swap STS Swaption/Swap STS 2001 Swap STS 1991 Swap MP 2004 Amended Swap MA 2007 Swap MA 2004 Amended Swap Prepaid Natural Gas 2007 Swap 111,419 4/21/2009 3.125%111,290 4/21/2009 3.129%100,000 5/1/2013 SIFMA 125,000 2/6/2001 4.250%79,795 6/7/2001 4.240%234,000 4/17/1991 6.380%28,700 10/2/2008 3.925%SIFMA SIFMA 58.99% of 10-yr LIBOR CMS rate plus .664%60% of LIBOR (4,934) 7/l/2036 AA-/Aa3/AA-(4,604) 7/1/2036 AA-/Aaa/AA 869 7/l/2036 A+/AI/A+804 7/1/2036 AA-/Aal/AA-173 7/1/2023 AA-/Aal/AA-(32,708) 7/l/2022 A/A3/A+(15,715) 7/1/2021 A+/Aa3/A+(55,148) 6/30/2019 A-/A3/NA (4,724) 7/l/2020 A+/Aa3/A+355 9/15/2030 AA-/Aal/AA-(15,777) 7/1/2020 A+/Aa3/A+SIFMA less .40%Bond variable coupon rate 65% of LIBOR 100,000 6/1/2018 I-month LIBOR 100% of 10-yr LIBOR CMS rate lens .414%96,025 10/2/2008 3.921%201,450 10/I 1/2007 5.0475%$ 1,387,679 65% of LIBOR 67% of 3-Month LIBOR plus 1.47%(43,719)$(175,128) 11/1/2038 A/Aa3/A+n S&P/Moody's/Fitch ratings MAG 2010-1 Swap -In May 2010, SCPPA executed $100,000,000 SIFMA/LIBOR floating-to-floating basis swap related to Magnolia Power Project A Refunding Bonds 2009-1. SCPPA pays the 6-month average of the weekly reset SIFMA Municipal Swap Index semi-annually on an Actual/Actual basis in exchange for receiving 80.4% of average 3-Month LIBOR, reset quarterly and paid semi-annually on an Actual/360 day basis. The swap expires on July 1, 2036.MAG 2010-2 Swap -In May 2010, SCPPA executed $100,000,000 SIFMA/LIBOR floating-to-floating basis swap related to Magnolia Power Project A Refunding Bonds 2009-2. SCPPA pays the 6-month average of the weekly reset SIFMA Municipal Swap Index semi-annually on an Actual/Actual basis in exchange for receiving 81.0% of average 3-Month LIBOR, reset quarterly and paid semi-annually on an Actual/360 day basis. The swap expires on July 1, 2036.MAG 2009-1 Swap (Restated) | |||
-This swap transaction amends the MAG 2007-1 Swap, which had an original trade date of April 30, 2007. The transaction was amended and restated as of April 21, 2009. The Authority pays its counterparty a fixed rate of 3.125% in exchange for receiving 100% of the Securities Industry and Financial Markets Association Swap Index (SIFMA) on a notional amount of $111.7 million. In order to provide more favorable terms to the participants, SCPPA made a payment of $15.7 million to the counterparty which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. The amendment allowed the parties to recoupon the swaps, change the collateral posting requirements, and to move to uninsured swaps.69 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS | |||
-(continued) | |||
MAG 2009-2 Swap (Restated) | |||
-This swap transaction amends the MAG 2007-1 Swap. The original transaction was novated from Bear Steams to JP Morgan on November 6, 2008 and was amended and restated on April 21, 2009. The Authority pays its counterparty a fixed rate of 3.129% in exchange for receiving 100%of the SIFMA Index on a notional amount of $111.5 million. In order to provide more favorable terms to the participants, SCPPA made a payment of $15.7 million to the counterparty which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. The amendment allowed the parties to recoupon the swaps, change the collateral posting requirements, and to move to uninsured swaps.* MAG 2007-1 Swap (Terminated) | |||
-In April 2007, the Authority entered into an interest rate swap in connection with the issuance of variable-rate Magnolia Power Project A, Refunding Revenue Bonds, Series 2007-1 ("2007-1 Bonds"). The Swap created synthetic fixed-rate debt which consisted of a $223.2 million 29-year floating-to-fixed interest rate swap allocated equally between two counterparties. | |||
The Authority paid each of the counterparties a fixed rate of 3.912% in exchange for receiving 98.9% of the SIFMA Index minus 6 basis points. The swap which became effective on June 13, 2007 was amended, restated, and novated to the MAG 2009-1 and the MAG 2009-2 Swaps on April 21, 2009. The MAG 2007-1 is no longer in effect." STS 2006 Swap (Amended) | |||
-In July 2006, the Authority executed an amendment to the STS $100 million, floating-to-floating fixed-spread basis swap entered into in November 2004. Under an amendment, which became effective on August 1, 2007, SCPPA continued to pay the swap counterparty the SIFMA index but began to receive 58.99% of the 10-Year LIBOR plus 66.4 basis points, instead of 65% of the 1-month LIBOR plus 66.4 basis points. In addition, the STS 2006 Constant Maturity Swap was suspended for 5 years effective May 7, 2008, for which SCPPA received $3.7 million as compensation for the suspension of the cash flows of the 2006 Basis Swap, which was deferred to be amortized over the suspension term. The notional amount of the Swap Agreement remains at $100 million. The swap expires on July 1, 2023.* STS Swaption/Swap | |||
-In February 2001, the Authority entered into a transaction whereby it sold an option (the "Swaption") | |||
on a floating-to-fixed interest rate swap. The Swaption was exercised on April 1, 2002. The floating rate on the swap paid by the counterparty is 60% of the one-month LIBOR; the annual fixed rate on the swap paid by the Authority is 4.25%. In exchange for the right to exercise the Swaption, the counterparty paid the Authority a one-time up front option premium amount of $7.9 million which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The counterparty has the option to cancel the agreement at the counterparty's discretion. | |||
The swap expires on July 1, 2022.* STS 2001 Swap -In June 2001, the Authority entered into an interest rate swap agreement with a counterparty for the purpose of hedging against interest rate variations arising from the issuance of the 2001 Subordinate Refunding Series A Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. The Swap Agreement provides for the Authority to make payments to the counterparty at a fixed rate of 4.24%, and for the counterparty to make reciprocal payments based on a variable rate. The reset dates of the variable rate occur weekly and the rate for a reset date will be the rate determined by the SIFMA Index minus 40 basis points. The counterparty has the option to cancel the agreement on July 5, 2006 and on every Fixed Rate Payer Payment Date, thereafter, should the SIFMA index average more than 7% over a consecutive 180-day period. The floating rates on the bonds were 0.37% and 0.65% at June 30, 2010 and 2009, respectively. | |||
The swap expires on July 1, 2021.70 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS | |||
-(continued) | |||
STS 1991 Swap -In fiscal year 1991, the Authority entered into an interest rate swap Agreement with a counterparty for the purpose of hedging against interest rate fluctuations arising from the issuance of the 1991 Subordinate Refunding Series Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 6.38%; in exchange, the Authority receives payments mirroring the bond variable coupon rate (0.25% and 1.18% at June 30, 2010 and 2009, respectively). | |||
The swap expires on June 30, 2019.* MP 2004 Swap (Amended) | |||
-The MP 2004 Swap was amended and restated on October 2, 2008 to amend the fixed rate from 3.894% to 3.925% and to remove the insurance provisions and to adjust the collateral posting requirements. | |||
All other terms and provisions of the original agreement prevail. The amended swap was also transferred to the MP 2008 Refunding Bonds.In connection with the issuance of the 2004 Mead-Phoenix Project Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority. | |||
Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.894% and in exchange the Authority receives a floating rate index equal to 65% of the one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately | |||
$1.8 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The floating rate on the related bonds was 0.12% and 0.15% at June 30, 2010 and 2009, respectively. | |||
The MP 2004 bonds were refunded on October 2, 2008 and the related interest rate swap transferred to the MP 2008 Refunding Bonds." MA 2007 Swap (Amended) | |||
-In January 2007, the Authority entered into a Constant Maturity Swap (CMS)in connection with its outstanding Mead-Adelanto Project. The transaction consisted of a $100 million basis swap and does not relate to any single series of the Mead-Adelanto bonds. The amended swap terms became effective on February 1, 2008 and the Authority pays the swap counterparty 100% of the 1-month LIBOR in exchange for receiving 100% of the 10-year LIBOR minus 41.4 basis points. The swap expires on September 15, 2030. On November 5, 2008 the MA 2007 Swap was novated from Bear Steams to JP Morgan. In addition, the swap was suspended until November 1, 2010. As part of the novation, the credit terms of the existing swap agreements will be maintained and SCPPA received $4.1 million from JP Morgan as compensation for the suspension of the cash flows of the MA 2007 CMS. The $4.1 million was deferred to be amortized over the suspension term.In June 2010, the MA 2007 CMS Agreement was amended to extend the suspension period from November 1, 2010 to June 1, 2018. SCPPA received $5 million as compensation for the suspension of the cash flows of the swap, which was deferred and is being amortized over the suspension term. The credit terms of the existing swap agreements remains unchanged. | |||
71 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS | |||
-(continued) | |||
MA 2004 Swap (Amended) | |||
-The MA 2004 Swap was amended and restated on October 2, 2008 to amend the fixed rate from 3.89% to 3.921% and to remove the insurance provisions and to adjust collateral posting requirements. | |||
All other terms and provisions of the original agreement prevail. The amended swap was also transferred to the MA 2008 Refunding Bonds.In connection with the issuance of the 2004 Mead-Adelanto Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority. | |||
Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.89% for the swap and in exchange the Authority receives a floating rate index equal to 65% of the one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately | |||
$5.9 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. Approximately | |||
$45.1 million in Mead-Adelanto 2004 Project Revenue Bonds Series A are not swapped and remain floating-rate bonds. The average floating rate on the related bonds was 0.12% and 0.15% as of June 30, 2010 and 2009 respectively. | |||
The MP 2004 bonds were refunded on October 2, 2008 and the related interest rate swap transferred to the MA 2008 Refunding Bonds." PNG 2007 Swap -In October 2007, SCPPA entered into an interest rate swap agreement in connection with the issuance of the Prepaid Natural Gas Project No. 1 Series 2007B Bonds. The swap hedges the interest-rate risk on the LIBOR Floating-rate bonds, where SCPPA pays a fixed rate of 5.0475% in exchange for receiving 67% of 3-month LIBOR plus 1.47%. The floating index on the swap exactly matches the coupon on the Bonds and therefore provides a hedge with no tax or basis risk. The swap expires on November 1, 2035.* PNG 2007 Commodity Swap -At the same time, SCPPA also entered into five commodity price swap agreements, on behalf of each of the Prepaid Natural Gas Project No. I Participants, in order to hedge against reductions to its gas sale revenues resulting from changes in monthly market index prices. SCPPA pays a floating natural gas price over a thirty-year period and receives specified fixed natural gas prices at an agreed pricing point as determined in the Prepaid Natural Gas No. 1 Agreements. | |||
The swaps became effective on July 1, 2008 and will all expire on September 30, 2035.Fair value -Fair values take into consideration the prevailing interest rate environment, the specific terms and conditions of a given transaction and any upfront payments that were received. | |||
All fair values were estimated using the zero-coupon discounting method. This method calculates the future payments required by the swap, assuming that the current forward rates implied by the yield curve are the market's best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. While some of SCPPA's current mark to market values are negative, this valuation would be realized only if the swaps were terminated at the valuation date and only SCPPA retains the right to optionally terminate most of the transactions. | |||
Interest rate risk -Interest rate risk is the risk that changes in interest rates will adversely affect the fair values of SCPPA's financial instruments or cash flows. SCPPA is exposed to interest rate risk on its pay-fixed, receive variable interest rate swaps. As the LIBOR or the Securities Industry and Financial Markets Association | |||
("SIFMA") | |||
swap index decreases, SCPPA's net payment on swaps increases. | |||
In addition, SCPPA is exposed to interest rate risk if the counterparty to the swap defaults or if the swap is terminated. | |||
72 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS | |||
-(continued) | |||
Market access risk -Market access risk is the risk that SCPPA will not be able to enter credit markets or that credit will become more costly. SCPPA's financial rating is tied to the credit strength of the major participants of the specific project for which each financial instrument is issued. SCPPA is also exposed to market access risks caused by disruptions in the municipal bond market.Credit risk -As of June 30, 2010, the net fair values of the Authority's applicable swaps for which payments were made were negative for each counterparty except for the STS 2006, MA 2007, MAG 2009-1 AND MAG 2009-2 swaps. However, should interest rates change and the fair values of the swaps become positive, the Authority may be exposed to credit risk in the amount of the derivatives' fair value.The swap agreements contain varying collateral agreements with the counterparties. | |||
The swaps require full collateralization of the fair value of the swap should the counterparty's (or if applicable, the guarantors of the counterparty's) credit rating fall below AA- as issued by Standard & Poor's or Aa3 as issued by Moody's Investors Service for the STS 1991 Swap, the Amended 2006, and the MA 2007 Swaps; A+/Al for the STS 2001;A/A2 for the PNG 2007 Commodity Swap; and A-/A3 for the MAG 2010-1, MAG 2010-2, MAG 2009-1, MAG 2009-2 and the STS Swaption/Swap. | |||
The MP 2004 and the MA 2004 Swaps, all require full collateralization if rating fall below A as issued by Fitch, and A2 as issued by Moody's. Collateral on all swaps is to be in the form of U.S. government securities held by a third-party custodian. | |||
The swap agreements provide that when the Authority has more than one derivative transaction with a given counterparty involving the same Authority project (and having the same swap/bond insurer), should one party become insolvent or otherwise default on its obligations, close-out netting provisions permit the non-defaulting party to accelerate and terminate all such related transactions and net the transactions' fair values so that a single sum will be owed by, or owed to, the non-defaulting party.Basis risk -Basis risk is the risk that the interest rate paid by the Authority on underlying variable rate bonds to bondholders exceeds the variable swap rate received from a counterparty, and the risk that both legs of a basis swap are not exactly equal. With the exception of the 1991 Swap and the PNG 2007 Swap, the Authority bears basis risk on each of its swaps. The 1991 Swap and the PNG 2007 Swap are perfectly hedged since the counterparty pays the Authority its actual variable bond rate on the related bonds. All the other swaps have a basis risk since under each of those swaps the Authority received a percentage of LIBOR or a percentage of, or spread to SIFMA to offset the actual variable bond rate or variable swap rate the Authority pays on any related bonds or on any basis swap. The Authority is exposed to basis risk should the floating rate that it receives on a swap be less than the actual variable rate the Authority pays on any related bonds; or in the case of the floating-to-floating fixed-spread basis swap, less than the variable rate paid to the swap counterparty. | |||
Depending on the magnitude and duration of any basis risk shortfall, the expected cost savings from a swap may not be fully realized. | |||
The 2001 swap is based on SIFMA rate minus 40 basis points (bps); similar to the LIBOR-based swaps, SIFMA minus 40 bps may not exactly hedge the underlying variable rate. As of June 30, 2010, the SIFMA rate was 0.295%; the SIFMA rate, minus 40 bps, was -0.113%; 60% of LIBOR was 0.212%; 65% of LIBOR was 0.230%; and 67% of 3-month LIBOR plus 147 bps was 1.701%.73 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS | |||
-(continued) | |||
The following is a summary of interest rates paid to and received from the counterparties as of June 30, 2010: Type of Derivative MAG MAG MAG MAG Swaption/ | |||
2001 MP 2008 MA 2008 2009-1 2009-2 2010-1 2010-2 NGPrepay 1991 Swap Swap Swap Swap Swap Swap Swap Swap Swap 2007 Swap Payments to counterparty 6.380% 4.250% 4.240% 3.925% 3.921% 3.125% 3.129% 0.295% 0.295% 5.048%Less, variable payments from counterparty 0.250% 0.534% -0.113% 0.230% 0.230% 0.295% 0.295% 0.429% 0.432% 1.701%Net interest rate swap payments 6.130% 3.716% 4.353% 3.695% 3.691% 2.830% 2.834% -0.134% -0.137% 3.347%Add, variable-rate bond coupon payments 0.250% N/A 0.370% 0.150% 0.150% 0.200% 0.200% N/A N/A 1.701%Synthetic interest rate on bonds 6.380% 3.716% 4.723% 3.845% 3.841% 3.030% 3.034% -0.134% -0.137% 5.048%Termination risk -The Authority or the counterparty may terminate any of the swaps if the other party fails to perform under the terms of the contract. | |||
In addition, the Swap/Swaption provides the counterparty with an option to cancel the swap agreement if the consecutive 180-day averaged rate of the SIFMA index exceeds 7.0%. The counterparty for the 2001 Swap also has a cancellation option which can be executed by the counterparty at their discretion. | |||
If any of the swaps were terminated, any associated variable rate bonds would no longer be hedged to a fixed rate. If at the time of termination the swap has a negative fair value, the Authority would be liable to the counterparty for a payment equal to the swap's fair value.Rollover risk -Rollover risk is the risk that the swap contract is not co-terminus with the related bonds. The Authority is exposed to rollover risk on the STS Swap/Swaption and the STS 2001 Swap because the counterparty has the option to terminate the agreement prior to the maturity of the associated debt. In the event that this swap terminates, the Authority would be exposed to variable interest rates on the underlying bonds. The STS 2001 Subordinate Refunding Series Bond is exposed to rollover risk. The final maturity date and the swap termination dated for the STS 2001 Bonds is July 1, 2021.74 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS | |||
-(continued) | |||
Swap payments and associated debt -Using rates as of June 30, 2010, debt service requirements of the Authority's outstanding variable rate debt and net swap payments are as follows. As rates vary, variable rate bond interest payments and net swap payments will vary.Variable-Rate Bonds Principal Int (Amounts in thousands) s Interest Rate cerest Swaps, Net Fiscal Year Ending June 30, 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2040$ 18,495 41,120 42,440 74,770 45,495 298,855 74,165 164,495 146,790 149,890$ 1,056,515$ 2,058 1,919 1,775 1,498 1,347 4,582 2,415 1,875 1,452 128$ 19,049$ 32,967 30,998 28,951 25,672 23,447 75,057 32,835 25,532 16,366 1,819$ 293,644 Total$ 35,025 32,917 30,726 27,170 24,794 79,639 35,250 27,407 17,818 1,947$ 312,693 The following table shows the changes in fair value of derivative instruments (amounts in thousands): | |||
Description Assets Magnolia -Derivative instruments STS -Deferred debits STS -Derivative instruments Mead Phoenix -Deferred debits Mead Adelanto -Deferred debits Prepaid Natural Gas -Deferred debits Liabilities Magnolia -Deferred credits Magnolia -Derivative instruments STS -Derivative instruments Mead Phoenix -Derivative instruments Mead Adelanto -Derivative instruments Prepaid Natural Gas -Derivative instruments June 30, 2009 Change in Fair Value$ 14,812 $ (13,139)66,821 2,549 173 3,676 1,048 12,268 3,509 31,675 12,044$ 129,252 $ 6,184$ 14,812 $ (13,139)-9,538 93,189 2,651 3,676 1,048 12,660 2,762 31,675 12,044$ 156,012 $ 14,904 June 30, 2010$ 1,673 69,370 173 4,724 15,777 43,719$ 135,436$ 1,673 9,538 95,840 4,724 15,422 43,719$ 170,916 75 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT Long-term debt outstanding at June 30, 2010 consisted of "new money" bonds, refunding bonds, and subordinate refunding bonds due in varying annual amounts through July 1, 2040. The new money bonds were issued to finance the purchase and construction or acquisition of the Authority's interest in each of the Projects. | |||
The subordinate refunding bonds were issued to refund specified new money bonds.In accordance with the bond indentures, the new money bonds and refunding bonds are special, limited obligations of the Authority. | |||
With the exception of the Magnolia Power Project B, Lease Revenue Bonds (City of Cerritos, California) 2003-1 ("Project B Bonds"), the bonds issued by each project are payable solely from and secured solely by interests in that project as follows: " Proceeds from the sale of bonds;" All revenues, incomes, rents and receipts attributable to that project and interest earned on securities held under the bond indenture or indentures; and* All funds established by the indenture or indentures. | |||
The Authority has agreed to certain covenants with respect to bonded indebtedness, including the requirement to enforce the natural gas, power, and transmission sales agreements with the participants. | |||
At the option of the Authority, all outstanding new money bonds and refunding bonds are subject to redemption prior to maturity, except for the 2006-1 Magnolia Revenue Bonds; the 2009A Linden Wind Energy Revenue Notes; 2009 A&B Tieton Hydropower Revenue Notes; the 2002 Subordinate Refunding Series B Bonds, and portions of the 1988A Refunding Bonds, the 1992, the 2008A and the 2009A Subordinate Refunding Bonds issued for the Southern Transmission System; the 2002A San Juan Revenue Bonds; a total of $125.5 million of the Multiple Project Revenue Bonds; the 2007 A&B Prepaid Natural Gas Project No. 1 Bonds; portions of the 2010 A&B Canyon Power Revenue Bonds; and portions of the 2010-1 Milford 1 Wind Revenue Bonds.Variable rate debt includes debt with rates based on daily, weekly and long term rates as determined by a Remarketing Agent.76 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued) | |||
A summary of changes in long-term debt follows (amounts in thousands): | |||
GENERATION GREEN POWER Total long-teem debt at June 30, 2009 Total debt due within ooe year at June 30, 2009 Total debt at June 30, 2009 Principal payments Revenue bonds issued Bonds refunded/defeased Refunding bonds issued Change in unamortized debt-related costs, net Total debt at June 30, 20 10 Total debt due within one year at June 30, 2010 Total long-teem debt at June 30, 2010 Total long-teem debt at June 30, 2009 Total debt due within one year at June 30, 2009 Total debt at June 30, 2009 Principal payments Revenue bonds issued Bonds refunded/defeased Refunding bonds issued Change in unatnortized debt-related costs, net Total debt at June 30, 2010 Total debt due within one year at June 30, 2010 Total long-term debt at June 30, 2010 Palo Verde Project -Debt maturities during 2017.Hoover Magnolia Power Canyon Power Uprating Tieton Hydro- Milford I Linden Wind Palo Verde Project San Juan Project Project Project Project power Wind Energy S 82,426 $ 139,830 $ 369,235 $ 104,627 $ 13,850 $ $ $10,360 11,115 8,695 -1,480 92,786 150,945 377,930 104,627 15,330 (10,360) (11,115) (8,695) -(1,480)47,655 237,235 139,680 (274,435)---471,905 1,761 (847) 66 10,901 442 50 16,578 531 84,187 138,983 369,301 312,998 14,292 47,705 253,813 140,211 (10,030) (11,715) (9,010) -(1,540) --S 74,157 S 127,268 $ 360,291 S 312,998 S 12,752 $ 47,705 S 253,813 $ 140,211 TRANSMISSION NATURAL GAS MISC.Southern Transmission Mead- Phoenix Mead- Adelanto Pinedale Prepaid Natural Multiple System Project Project Project Barnett Project Project Gas Project Fund Total$ 816,294 S 55,660 $ 175,837 S 89,603 $ 38,082 $ 503,498 $ 45,102 $ 2,434,044 30,585 2,870 9,480 4,639 1,956 5,625 -86,805 046,879 58,530 185,317 94,242 40,038 509,123 45,102 2,520,849 (30,585) (2,870) (9,480) (4,639) (1,956) (5,625) -(86,805)424,570 (165,450) | |||
(439,885)--471,905 10,459 663 1,928 --(370) 1,274 43,436 826,753 56,323 .177,765 89,603 38,082 337,678 46,376 2,934,070 (32,990) (4,895) (13,490) (6,941) (2,929) (5,715) (11,400) (110,655)$ 793,763 $ 51,428 S 164,275 $ 82,662 $ 35,153 S 331,963 $ 34,976 S 2,823,415* | |||
consists of subordinate refunding series bonds with variable interest rates and final The Palo Verde Escrow Restructure | |||
-In April 2009, the Palo Verde 1997B Deposit Installment Escrow was restructured and the proceeds from the sale of certain of its escrow securities were used to tender $94.8 million of the Palo Verde 1997B Refunded Bonds. The tender produced approximately | |||
$4.6 million of cash savings, net of accrued interest and transaction fees, which was distributed to the Palo Verde participants. | |||
The Palo Verde Project Refunding | |||
-In August 2008, the Authority issued the Palo Verde 2008 Subordinate Bonds in the aggregate principal amount of $99.8 million, consisting of $49.9 million principal amount of 2008 Series A Subordinate Refunding Bonds and $49.9 million of 2008 Series B Subordinate Refunding Bonds. The 2008 Subordinate Bonds were issued to provide funds, together with certain other available moneys, to refund all of SCPPA's outstanding 1996 Series B and C Bonds, remove the current bond insurance and replace them with variable rate debt obligations that are supported by a bank issued Letter of Credit. This transaction resulted in a net loss for accounting purposes of $11.6 million.San Juan Project -Debt consists of refunding series bonds with fixed interest rates between 5.0% and 5.5% and final maturities during 2020.77 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued) | |||
Magnolia Power Project -Debt consists of revenue and refunding series bonds with variable and fixed interest rates between 3.0% and 5.25% with final maturities occurring in 2036.Magnolia Power Project Refunding | |||
-In April 2009, SCPPA issued $258.1 million of Magnolia Power Project A, Refunding Revenue Bonds, consisting of $146.5 million principal amount of Series 2009-1 and $111.5 million principal amount of Series 2009-2, together the "2009 Bonds". The 2009 bonds were issued to refund all of SCPPA's outstanding Magnolia Power Project A, Refunding Revenue Bonds, 2007-1; to make a payment to the counterparties of the 2007-1 Swap Agreements; and to pay the related costs of issuance. | |||
This transaction resulted in a net loss for accounting purposes of $14.2 million.Of the outstanding Magnolia Power Project Revenue Bonds, $13.0 million of "Project B Bonds" are secured by lease rental payments to be made by the City of Cerritos (the "City") in connection with the lease of certain facilities and premises owned by the City to the Authority and the leaseback of such facilities and premises to the City. The Base Rental Payments will be equal to the principal and interest on the Project B Bonds. In accordance with the Assignment Agreement between the Authority and the Trustee, the Authority will assign certain of its rights under the Lease, including its right to receive the Base Rental Payments, to the Trustee for the benefit of the owners of the Project B Bonds.The City has covenanted to budget and appropriate sufficient funds to make all payments required to be made under the Lease. The Lease has a term of 55 years.Canyon PowerProject | |||
-As of June 30, 2010, debt consists of revenue bonds with fixed interest rates ranging from 4.0% to 5.943% and final maturity occurring in 2040.Canyon Power Project Revenue Bonds -On June 9, 2010, SCPPA issued $301.5 million of the Canyon Power Project Revenue Bonds consisting of $110.5 million of 2010 Series A Fixed rate Bonds and $191.0 million of the Series B, Taxable Build America Bonds (the "2010 Series B Bonds"), together the 2010 Bonds. The 2010 Bonds were issued to retire the $170.4 million outstanding Canyon Power Project Revenue Notes, 2009 Series A; to provide additional costs of development, construction, and acquisition of the Canyon Power Project (including a portion of the interest accruing on the 2010 Bonds through October 1, 2011; to fund a debt service reserve for each Series of the 2010 Bonds; and to pay costs of issuance related to the 2010 Bonds. The 2010A Bonds due on or before 7/1/2019 are not subject to redemption prior to maturity. | |||
Final maturity will occur in July 2040. The 2010 Bonds were issued at a true interest cost of 3.90%. This transaction resulted in a net refunding loss for accounting purposes of $0.4 million.The 2010 Series B Bonds were issued as Build America Bonds that are "qualified bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest on these bonds will not be excluded from gross income for federal income purposes, but will be exempt from the State of California personal income taxes.As such, the Authority expects to receive a cash subsidy from the United States Treasury equal to 35% of the interest payable on the 2010 Series B Bonds which will be applied to offset the interest costs of the 2010 Series B Bonds.78 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued) | |||
Canyon Power Project Revenue Notes -On November 18, 2009, SCPPA issued $170.4 million of the Canyon Power Project 2009 Series A Revenue Notes, which matured on August 3, 2010. The 2009 Notes were issued to refund all of the $104 million outstanding Canyon Power Project, Revenue Notes, 2008 Series A and to fund the remaining costs of construction. | |||
These notes are not subject to optional or mandatory redemption prior to maturity. | |||
The true interest cost of the Revenue Notes was 0.67%.Canyon Power Project Revenue Notes -On December 11, 2008, SCPPA issued $104 million of the Canyon Power Project 2008 Series A Revenue Notes which matures on December 2, 2009. The 2008 Notes were issued to provide interim financing for the payment of a portion of the costs to develop, construct and acquire a peaking power plant with a generating capability of approximately 200 MW to be located in the City of Anaheim, California. | |||
These notes are not subject to optional or mandatory redemption prior to maturity. | |||
The true interest cost of the Revenue Notes was 1.07%..Hoover Uprating Project -Debt consists of refunding series bonds with fixed interest rates between 4.0% and 5.25% and a final maturity during 2017.Tieton Hydropower Project -As of June 30, 2010, debt consists of revenue notes with fixed interest rate of 2.0% and expected to mature on August 16, 2010.Tieton Hydropower Project Revenue Notes -On November 24, 2009, SCPPA issued $33.4 million and $14.3 million of the Tieton Hydropower Project, Revenue Notes, 2009 Series A and B, respectively, in the aggregate principal amount of $47.7 million. The 2009 Notes were issued to provide interim financing for the costs of acquisition of the Tieton Hydropower Project, a 13.6 MW nameplate capacity hydroelectric plant and an approximately 21-mile, 115 kV transmission line from the plant to the point of interconnection with the electrical grid and related assets, property and contractual rights. The 2009 Notes are also being issued to fund a Reserve and Contingency Fund and costs of issuance relating to the 2009 Notes. These notes are not subject to optional or mandatory redemption prior to maturity. | |||
The true interest cost of the Revenue Notes was 0.76%.Milford 1 Wind Project -As of June 30, 2010, debt consists of revenue bonds with fixed interest rates ranging from 2.0% to 5.0% and final maturity occurring in 2030.Milford Wind Corridor Phase 1 Revenue Bonds -On February 9, 2010, SCPPA issued $237.2 million Milford Wind Corridor Phase 1 Project, Revenue Bonds, 2010-1. These fixed rate bonds were issued for the purpose of financing the prepayment of a specified supply of electricity from a wind farm located in Milford Utah (the"Facility"); | |||
to fund a deposit to the 2010-1 Debt Service Reserve Account; and to pay the related costs of issuance of the 2010-1 Bonds. The 2010-1 Bonds maturing on or before July 1, 2019 are not subject to redemption prior to maturity, while the 2010-1 Bonds maturing on or after July 1, 2020 are subject to optional redemption, without premium, at the option of SCPPA. The 2010 Bonds were issued at a true interest cost of 4.16%.Linden Wind Energy Project -As of June 30, 2010, debt consists of revenue notes with fixed interest rate of 2.0% and expected maturity of October 1, 2010.79 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued) | |||
Linden Wind Energy Project Revenue Notes -On November 10, 2009, SCPPA issued $139.7 million of the Linden Wind Energy Project, Revenue Notes, 2009 Series A. The 2009 notes were issued to provide interim financing for the costs of acquisition of the Linden Wind Energy Project, and to pay related costs of issuance.These notes are not subject to optional or mandatory redemption prior to maturity. | |||
The true interest cost of the Revenue Notes was 0.63%.Southern Transmission System Project -Debt consists of refunding and subordinate refunding series bonds with fixed interest rates ranging from 3.50% to 6.38% and final maturities occurring in 2027.STS Project Refunding | |||
-On February 3, 2009, SCPPA issued $117.3 million of the Southern Transmission System Project Revenue Bonds, 2009 Subordinate Refunding Series A. These fixed rate bonds were issued to provide funds, together with other available funds, to refund the STS 1996 Subordinate Refunding Series B Bonds (the Refunded Bonds) and to pay the related costs of issuance for the 2009 Series A Bonds. This transaction resulted in a net loss for accounting purposes of $21.9 million.On December 18, 2008, SCPPA issued $125.0 million of the Southern Transmission System Project 2008 Series B Subordinate Bonds. The bonds were issued for the purpose of financing the construction of certain improvements to the Intermountain Power Project -STS, specifically the upgrade of its two converter stations to increase the capacity of STS from its present rating of 1,920 MW to a new rating of 2,400 MW.Mead Phoenix/Mead Adelanto Projects -Debt consists of revenue and refunding series bonds with variable interest and fixed interest rates. Fixed interest rates range from 3.921% and 5.15% with final maturities occurring in 2020.MeadPhoenix/MeadAdelanto Project Refunding Bonds -On October 2, 2008, SCPPA issued the Mead-Adelanto | |||
& Mead-Phoenix 2008 Series A & B Revenue Bonds in the aggregate principal amount of $145.7 million, consisting of $104.8 million principal amount of Mead-Adelanto 2008 Series A, $7.1 million principal amount of Mead-Adelanto 2008 Series B, $31.3 million principal amount of Mead-Phoenix 2008 Series A, and $2.5 million principal amount of Mead-Phoenix 2008 Series B ("2008 Series A and B Bonds"). The bonds were issued to provide funds, together with other available funds, to refund the Mead-Adelanto Project Revenue Bonds, 2004 Series A and the Mead-Phoenix Project Revenue Bonds, 2004 Series A ("Refunded Bonds"), which consisted of insured auction rate bonds. This transaction resulted in a net loss for accounting purposes of $17.5 million.Natural Gas Projects -Debt consists of revenue bonds with fixed interest rates ranging from 3.43% to 6.03%and final maturities occurring in 2032.Prepaid Natural Gas Project No. 1 -Debt consists of revenue bonds with variable and fixed interest rates ranging from 5.0% to 5.25% and final maturity occurring in 2035.80 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued) | |||
In October 2009, the Series 2007A Fixed Rate Bonds, the Prepaid Natural Gas Agreements and certain other agreements were restructured to reduce risk, realize savings, provide an acceleration of the long-term savings, reduce the remaining volumes of gas to be delivered from 135 billion to 90 billion cubic feet, and shorten the term of the agreements from 30 to 27 years. As a result of the restructure | |||
$165.5 million principal amount of the bonds were canceled, leaving $333.4 million of total bonds outstanding subsequent to the November 1, 2009 principal maturity.Multiple Project Fund -Debt consists of revenue bonds with fixed interest rate of 6.75% and final maturity during 2013.Debt Related Costs -Unamortized debt-related costs, net are as follows (amounts in thousands): | |||
Unamortized Debt-related Costs, Net Palo Verde Project San Juan Project Magnolia Power Project Canyon Power Project Southern Transmission System Project Mead-Phoenix Project Mead-Adelanto Project Hoover Uprating Project Tieton Hydropower Project Milford I Wind Project Linden Wind Energy Project Prepaid Natural Gas Project No. 1 Multiple Project Fund Loss on Refunding$ 5,283 2,481 13,421 301 65,293 3,695 10,974 339 101,787 Loss on Refunding 7,044 2,851 14,074 73,224 4,297 12,732 809$ 115,031 June 30, 2010 (Premium)Discount (5,264)(2,972)(11,829)8,659 622 1,701 (136)(50)(16,578)(531)(4,308)3,824$ (26,862)Total$ 5,283 (2,783)10,449 (11,528)73,952 4,317 12,675 203 (50)(16,578)(531)(4,308)3,824 S$ 74,925 Unamortized Debt-related Costs, Net Palo Verde Project San Juan Project Magnolia Power Project Canyon Power Project Southern Transmission System Project Mead-Phoenix Project Mead-Adelanto Project Hoover Uprating Project Prepaid Natural Gas Project No. 1 Multiple Project Fund June 30, 2009 (Premium)Discount$(6,481)(3,559)(627)11,187 683 1,871 (164)(4,678)5,098$ 3,330 Total$ 7,044 (3,630)10,515 (627)84,411 4,980 14,603 645 (4,678)5,098$ 118,361 81 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued) | |||
Fair Value -The fair value of the Authority's long-term debt (including the current portion) is approximately | |||
$3.04 billion and $2.51 billion at June 30, 2010 and 2009, respectively. | |||
Management has estimated fair value based on the quoted market prices for the same or similar issues or on the current average rates offered to the Authority for debt of approximately the same remaining maturities, excluding the effect of a related interest rate swap agreement. | |||
Advance Refundings | |||
-The Authority has established irrevocable escrow trusts with the proceeds from issuance of subordinate refunding bonds. These investments will be used to pay specified revenue bonds called at scheduled redemption dates.Defeasance of Debt -The Authority has defeased specified revenue bonds by placing the proceeds from the issuance of subordinate refunding bonds in irrevocable trusts to provide for all future debt service payments on the refunded bonds. The trust investments and related liability for bonds that are considered legally defeased are not included in the Authority's financial statements. | |||
At June 30, 2010 and 2009, $758.1 million and $758.6 million, respectively, of revenue bonds outstanding are considered legally defeased.The refunded bonds constitute a contingent liability of the Authority only to the extent that cash and investments presently in the control of the refunding trustees are not sufficient to meet debt service requirements and are therefore excluded from the combined financial statements because the likelihood of additional funding requirements is considered remote.Debt Service -The scheduled debt service payments for future years ending June 30 are included in the table on the following page. The variable rates used for the PV 2008 Subordinate Refunding Series A and B were 0.21%and 0.25%, respectively. | |||
The variable rates used for the MA and MP 2008 Subordinate Refunding Series A were 0.15%. The variable rates used for the MA and MP 2008 Subordinate Refunding Series B were 0.32%. The variable rates used for the STS 2000 and 2001 Subordinate Refunding Series A were 0.42% and 0.37%, respectively. | |||
The variable rates used for the MAG 2009-1 and MAG 2009-2 were 0.20%. All of the preceding variable rates were the rates at June 30, 2010. The variable rates are set by the bond-remarketing agent on a weekly basis based on economic conditions and bond ratings.82 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued) 2011 Principal 2011 Interest 2012 Principal 2012 Interest 2013 Principal 2013 Interest 2014 Principal 2014 Interest 2015 Principal 2015 Interest 2016 -2020 Principal 2016 -2020 Interest 2021 -2025 Principal 2021 -2025 Interest 2026 -2030 Principal 2026 -2030 Interest 2031 -2035 Principal 2031 -2035 Interest 2036 -2040 Principal 2036 -2040 Interest 2041 Principal 2041 Interest Principal Interest GENERATION GREEN POWER Magnolia Canyon Power Hoover Tieton Hydro- Miltord I Linden Wind Palo Verde San Juan Power Proiect Uprating power Wind Energy$ 10,030 $ 11,715 $ 9,010 $ -$ 1,540 $ 47,655 $ -$ 139,680 2,237 7,102 13,919 9,388 678 694 4,448 2,561 10,340 12,345 9,395 -1,600 -7,595 -1,986 6,472 13,541 16,732 614 11,277 10,660 13,010 9,780 -1,670 7,860 1,728 5,808 13,167 16,732 537 11,014 10,980 27,250 10,220 -1,755 8,135 1,461 5,093 12,713 16,732 455 10,739 11,330 13,200 10,650 -1,835 8,450 1,187 3,594 12,297 16,732 368 10,423 36,130 58,680 46,475 28,740 6,095 48,265 1,824 8,009 54,010 81,226 490 46,091--50,605 44,155 -61,140 43,324 72,056 33,213 66,905 56,440 77,815 33,200 59,228 16,542 81,815 69,440 17,975 21,609 41,138 898 84,895 83,915 -4,833 18,425-- 18,780---558 ----$ 89,470 $ 136,200 $ 379,750 $ 301,470 $ 14,495 $ 47,655 $ 237,235 $ 139,680$ 10,423 $ 36,078 $ 222,613 $ 348,947 $ 3,142 $ 694 $ 144,645 $ 2,561 TRANSMISSION NATURAL GAS MISC.2011 Principal 2011 Interest 2012 Principal 2012 Interest 2013 Principal 2013 Interest 2014 Principal 2014 Interest 2015 Principal 2015 Interest 2016 -2020 Principal 2016 -2020 Interest 2021 -2025 Principal 2021 -2025 Interest 2026 -2030 Principal 2026 -2030 Interest 2031 -2035 Principal 2031 -2035 Interest 2036 -2040 Principal 2036 -2040 Interest 2041 Principal 2041 Interest Principal Interest Southern Trans-mission Mead- Mead- Prepaid Multiple System Phoenix Adelanto Barnet Pinedale Natural Gas Proiect Fund Total$ 32,990 $ 4,895 $ 13,490 $ 6,941 $ 2,929 $ 5,715 $ 11,400 $ 297,990 43,099 3,079 9,473 4,405 1,871 16,806 3,389 123,149 35,650 5,190 14,305 7,972 3,368 5,295 12,100 125,155 41,134 2,756 8,584 4,132 1,756 16,530 2,619 128,133 54,140 5,530 15,230 6,016 2,549 4,805 12,900 144,150 38,722 2,414 7,640 3,857 1,640 16,278 1,802 121,339 47,825 5,905 16,265 5,302 2,253 4,065 13,800 153,755 36,629 2,048 6,635 3,619 1,539 16,056 932 114,651 49,470 5,000 17,135 5,211 2,219 3,875 -128,375 35,181 1,658 5,560 3,384 1,439 15,858 107,681 282,550 27,920 93,240 23,200 9,900 24,785 685,980 141,658 4,626 15,463 13,070 5,560 75,989 448,016 301,685 6,200 20,775 15,894 6,766 50,470 557,690 64,139 243 815 7,802 3,312 66,563 291,467 96,395 --12,474 5,301 89,970 405,300 8,900 3,766 1,594 48,531 171,761 6,593 2,797 126,445 305,065 580 245 20,027 84,497--17,945 186,755 453 23,711 18,780----558 89,603 $ 38,082 $ 333,370 $ 50,200 $ 3,008,995 44,615 $ 18,956 $ 293,091 $ 8,742 $ 1,614,963 83$ 900,705 $ 60,640 $ 190,440 $$ 409,462 $ 16,824 $ 54,170 $83 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 7 -NOTES PAYABLE AND DEFERRED CREDITS Notes payable and deferred credits consist mainly of Palo Verde Participants' overbillings from prior periods; a note secured from GE Capital Public Finance, Inc., to lease purchased spare parts inventory and an allowance for future major maintenance expenses for the Magnolia Power Project; and swap-related transaction fees received in STS, Mead Adelanto, and Mead Phoenix Projects. | |||
The participant's overbillings in the Palo Verde Project are to be paid through June 2017. These notes are unsecured, bear an interest rate of 4.97%, and are due in monthly payments of $0.6 million. On June 30, 2010, the remaining balance is $42.3 million. The note payable in the Magnolia Power Project has a coupon rate of 4.1%, with principal payments due monthly through July 2010. On June 30, 2010, the remaining balance is $3.9 million.The Authority received approximately | |||
$1.8 million and $5.9 million in upfront payments in connection with the execution of the 2004 Mead Phoenix and Mead Adelanto Swaps, respectively, to be deferred through 2020. The deferred balance is $0.7 million and $2.3 million, respectively, as of June 30, 2010. The 5-year suspension of the 2006 STS Constant Maturity Swap (CMS) in May 2008 netted a compensation of $3.7 million. The deferred balance is $2.2 million as of June 30, 2010. The 3-year suspension of the 2007 Mead Adelanto CMS (the CMS Swap) in November 2008 netted a compensation of $4.1 million. In June 2010, the suspension was extended to June 2018 for net compensation of $5.0 million. The total deferred balance of the CMS is $6.8 million as of June 30, 2010. (See Note 5)Notes Payable and Deferred Credits Rollforward (amounts in thousands): | |||
Description PV prior year overbillings MPP GE spare parts & major maintenance STS 2006 Swap suspension Mead Phoenix 2004 Swap upfront fees Mead Adelanto 2004 Swap upfront fees Mead Adelanto 2007 Swap Suspension Amortization Payments/ | |||
of Surplus June 30, 2009 Additions Amortization Fund June 30, 2010$ 47,161 $ $ (5,252) S 393 $ 42,302 2,614 2,655 (1,341) -3,928 2,996 -(749) -2,247 770 (86) -684 2,561 -(287) -2,274 3,207 5,027 (1,411) -6,823$ 59,309 $ 7,682 $ (9,126) $ 393 $ 58,258 84 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 8 -ADVANCES FROM PARTICIPANTS Advances from participants consist mainly of billings to participants related to acquisition, capital drilling, and inventory wherein the matching operating expenses will be recognized at a future date. Also, and specific only to the Natural Gas Pinedale Project, advances held by the project are funds from LADWP and TID, both owners independent of SCPPA, are for their share of operating costs and capital expenditures pursuant to their respective Agency Agreements. | |||
Advances from participants rollforward (amounts in thousands): | |||
Description MAG advances from participants Tieton advances from participants Milford I advances from participants NG Pinedale advances from participants NG Barnett advances from participants Ormat advances from participants MWD advances from participants Windy Point advances from participants PDF advances from participants June 30, 2009$ 15,525 49,389 11,911$ 76,825 Activit,$ 1,238 209 257 (9,789)(488)860 500 1,006 2,000$ (4,207)June 30, 2010$ 16,763 209 257 39,600 11,423 860 500 1,006 2,000$ 72,618 NOTE 9 -NET ASSETS (DEFICIT)The Authority's billing amounts to the participants are determined by its Board of Directors and are subject to review and approval by the participants. | |||
Billings to participants are designed to recover "costs" as defined by the power sales, natural gas sales, and transmission service agreements. | |||
The billings are structured to systematically provide for debt service requirements, operating funds and reserves in accordance with these agreements. | |||
The accumulated difference between billings and the Authority's expenses calculated in accordance with accounting principles generally accepted in the United States of America are presented as net assets (deficit). | |||
It is intended that this difference will be recovered in the future through billings for repayment of principal on the related bonds.85 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 9 -NET ASSETS (DEFICIT) | |||
-(continued) | |||
Net assets (deficit) are comprised of the following (in thousands): | |||
Fiscal Year Fiscal Year June 30, 2008 2009 Activity June 30, 2009 2010 Activity June 30, 2010 GAAP items not included in billings to participants Depreciation of plant Nuclear fuel amortization Decommissioning expense Amortization of bond discount, debt issue costs, and loss on refundings Interest expense Loss on defeasance of bonds Derivatives and related charges Bond requirements included in billings to participants Operations and maintenance, net of investment income Costs of acquisition of capacity Billings to amortize costs recoverable Reduction in debt service billings due to transfer of excess funds Principal repayments Other Multiple Project Fund net assets Projects' Stabilization Fund net assets$ (1,124,267) | |||
$(5,860)(188,104)(687,521)(64,836)(85,827)(10,303)313,130 13,362 382,050 (67,19U)(8,572)(24,674)7,845 (16,457)398 (1,466)$(1,191,457) | |||
$(5,860)(196,676)(712,195)(56,991)(85,827)(26,760)313,528 11,896 382,050 (68,689) $(5,296)(19,318)171 (8,720)(5,824)(1,322)(1,260,146) | |||
(5,860)(201,972)(731,513)(56,820)(85,827)(35,480)307,704 10,574 382,050 (90,020) -(90,020) -(90,020)1,148,351 82,173 1,230,524 102,640 1,333,164 159,334 8,713 168,047 31,430 199,477 (240,511) | |||
(19,230) (259,741) 25,072 (234,669)2,729 (1,348) 1,381 (1,255) 126 86,870 2,285 89,155 12,882 102,037$ (150,912) | |||
$ (18,293) $ (169,205) | |||
$ 36,699 $ (132,506)NOTE 10 -COMMITMENTS AND CONTINGENCIES Industry Restructuring | |||
-Since the passage of Assembly Bill 1890 (the "Bill") in September 1996, the electric industry in California continues to remain uncertain. | |||
The deregulation experiment has, for the most part, been abandoned. | |||
The public power participants of SCPPA were not required to comply with the Bill's provisions. | |||
Public Benefits -The members continue to collect the public benefit charge through existing rate structures and have instituted in excess of $1 billion of programs to benefit their customers. | |||
More than $390 million has been spent on conservation and energy efficiency programs, public educational programs, research and development, and low income rate subsidies. | |||
The decisions on how these funds are allocated are made by the local governing authority, in most cases this is the city council.86 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES | |||
-(continued) | |||
Executive Action and State Legislation | |||
-The California Legislature approved several bills that affected the electric utility industry. | |||
In general, these bills provide for reduced greenhouse gas emission standards and greater investment in energy-efficient and environmentally friendly generation alternatives through more stringent renewable resource portfolio standards. | |||
The following is a brief summary of certain of these bills: Greenhouse Gas Emissions | |||
-Executive Order S-3-05 placed an emphasis on efforts to reduce greenhouse gas emissions by establishing statewide greenhouse gas reduction targets. The targets are: (i) a reduction to 2000 emissions levels by 2010; (ii) a reduction to 1990 levels by 2020; and (iii) a reduction to 80% below 1990 levels by 2050.Assembly Bill 32, the Global Warming Solutions Act of 2006 (the "GWSA") became effective as law on January 1, 2007. The GWSA prescribed a statewide cap on global warming pollution with a goal of reaching 1990 greenhouse gas emission levels by 2020. In addition, the GWSA establishes a mandatory reporting program for all investor-owned utilities (IOUs), municipal utilities and other load-serving utilities to inventory and report greenhouse gas emissions to the California Air Resources Board (CARB) and requires CARB to adopt regulations for significant greenhouse gas emission sources (allowing CARB to design a "cap-and-trade" system) and gives CARB the authority to enforce such regulations beginning in 2012. CARB adopted a "scoping plan" to reduce greenhouse gas emissions which includes a mixed approach; market structures, regulation, fees and voluntary measures. | |||
The scoping plan includes a cap-and-trade system that covers 85% of all California greenhouse gas emissions and will be implemented in coordination with the Western Climate Initiative regime, which is a regional zone consisting of seven states and three Canadian provinces that is in the process of establishing a greenhouse gas trading framework. | |||
CARB has begun developing regulations for greenhouse gas emissions limits and reduction measures. | |||
The regulations will go into effect and be enforceable beginning January 1, 2012.However, a proposed initiative has qualified for the November 2, 2010 California ballot, which, if passed, will suspend the GWSA until the unemployment rate in California is 5.5% or less for four consecutive calendar quarters.The Project Participants will likely be adversely affected in the event an auction type cap-and-trade system is ultimately implemented, which system would require the Project Participants to purchase carbon credits to offset the higher than average carbon emissions of their respective resource portfolios, the cost of which could be substantial. | |||
Renewable Portfolio Standard (RPS) -Senate Bill 1078 (SB 1078), which became law on January 1, 2003, requires that the IOUs adopt a Renewable Portfolio Standard ("RPS") to meet a minimum of 1% of retail energy sales needs each year from renewable resources and to meet a goal of 20% of their retail energy needs from renewable energy resources by the year 2017. SB 1078 also directed the State's municipal electric utilities to implement and enforce an RPS that recognizes the intent of the Legislature to encourage development of renewable resources, taking into consideration the impact on a utility's standard on rates, reliability, financial resources, and the goal of environmental improvement. | |||
Senate Bill 107, which became law on January 1, 2007, requires IOUs to have 20% of their electricity come from renewable sources by 2010 and prescribes that municipal utilities meet the intent of the legislation. | |||
SCPPA participants have embraced the objective of increasing renewable resources within their portfolios. | |||
However, the costs of renewable generation, infrastructure, including transmission upgrades and additions, and other requirements will have additional significant financial implications on SCPPA participants. | |||
87 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES | |||
-(continued) | |||
Solar Power -Senate Bill 1 (also known as the "California Solar Initiative"), which became law on January 1, 2007, requires municipal utilities, including SCPPA participants, to establish a program supporting the stated goal of the legislation to install 3,000 MW of photovoltaic energy in California. | |||
Municipal utilities are also required to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer funded incentives. | |||
Each of the Project Participants has established programs in accordance with the requirements of the California Solar Initiative. | |||
The effect of these developments in the California energy markets on SCPPA participants cannot be fully ascertained at this time. Most of the SCPPA participants have made investments in gas-fired peaking or base-load generation located in Southern California. | |||
Also, volatility in energy price in California may return due to a variety of factors which affect both the supply and demand for electric energy in the western United States. This price volatility may contribute to greater volatility in the revenues of their respective electric systems from the sale (and purchase) of electric energy and, therefore, could materially affect each of SCPPA's participants financial condition. | |||
The very competitive prices for a portion of gas supply and additional services provided by SCPPA are intended to maintain and improve the competitive position of the participants. | |||
Also, each participant undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure.Federal Energy Legislation | |||
-The Energy Policy Act of 2005 ("EPAct 2005") addresses a wide array of energy matters that could affect the entire electric utility industry, including the electric system of certain SCPPA participants. | |||
EPAct 2005 requires the creation of an electric reliability organization (ERO) to establish and enforce, under FERC supervision, mandatory reliability standards to increase system reliability and minimize blackouts. | |||
Failure to comply with such mandatory standards exposes a utility to significant fines and penalties by the ERO.Neither SCPPA nor any of certain participants is able to predict at this time the impact that EPAct 2005 will have on the operations and finances of their respective electric systems or the electric utility industry generally. | |||
Other Legislation | |||
-Numerous bills have been under consideration in Congress addressing United States energy policies and various environmental matters, including those related to energy supplies, global warming and water quality. Many of these bills, if enacted into law, could have a material impact on the Authority and the Project Participants and the electric utility industry generally. | |||
ISO FERC FILINGS MRTU -The ISO's Market Redesign and Technology Upgrade (MRTU) tariff amendment includes provisions intended to perform effective congestion management in the ISO day-ahead market by enforcing all transmission constraints so as to establish feasible forward transmission schedules, create a day-ahead market for energy, automate real-time dispatch so as to balance the system and manage congestion in an optimal manner; and ensure consistency in the allocation of transmission resources to grid users and the pricing of transmission service and energy. The ISO has continued to file numerous amendments to the MRTU tariff which was implemented on April 1, 2009. No assurances can be given by the Authority that unforeseen events will not occur under MRTU;thus, it is impossible to predict at this time the ultimate impact of MRTU on the Authority, the Project Participants and the California electric utility industry generally. | |||
88 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES | |||
-(continued) | |||
American Recovery and Reinvestment Act of 2009 -The American Recovery and Reinvestment Act of 2009 (the "Act) is an economic stimulus bill which includes a number of investments and tax incentives for certain energy-related projects. | |||
SCPPA has issued Build America Bonds, which were created under the Act and carry special tax credits and federal subsidies for either the bond issuer or the bondholder. (See Note 6)The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. | |||
Any factors including those mentioned above could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways. The Authority is unable to predict what impact such factors will have on the business operations and financial condition of its members but the impact could be significant. | |||
Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources of public domain.Nuclear Spent Fuel and Waste Disposal -Under the Nuclear Waste Policy Act, the Department of Energy (DOE) was to develop the facilities necessary for the storage and disposal of spent fuel and to have the first such facility in operation by 1998. DOE collected a fee of 0.1 cents/kwh of electric generation from the nuclear plant operators to fund the development and operation of the disposal facility.In July 2002, a measure was signed into law designating the Yucca Mountain in the state of Nevada as the nation's high-level nuclear waste repository. | |||
This meant that the DOE could then file a construction and operation plan for Yucca Mountain with the Nuclear Regulatory Commission (NRC). Due to a series of setbacks including scientific challenges by the National Academy of Science, falsified research data by consultants, delays in submitting the construction application to the Nuclear Regulatory Commission, the operation date of the repository was pushed back several times.In June 2008, the DOE submitted to the NRC a license application to construct the repository. | |||
In 2009, the federal government, under the new administration, decided to cut off all the appropriated funds for the development of the repository at Yucca Mountain at the urge of the Congress except a small budget allocation for the closing of the project. DOE subsequently submitted a request to the NRC to withdraw the license application. | |||
The withdrawal request was denied by the NRC due to a lack of valid reasons. Concurrently, an independent commission was formed by the DOE to find a solution for the nuclear waste disposition that would include Yucca Mountain among the different options. There are questions among utilities as well as public utility commissions nationwide about the continued collection of disposal fees by DOE for the Nuclear Waste Fund recognizing that there is a lack of spent fuel disposal policy from the federal government. | |||
The Palo Verde Operating Agent on behalf of the co-owners has litigated DOE to recover the costs of storing spent fuel at Palo Verde because DOE failed to honor the contract to remove and dispose spent fuel as scheduled. | |||
In 2010, the federal court ruled in favor of Palo Verde and granted a compensation of $30 million.89 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES | |||
-(continued) | |||
The spent fuel storage in the wet pool at Palo Verde exhausted its capacity in 2003. A Dry Cask Storage Facility (the "Facility"), also called the Independent Spent Fuel Storage Facility, was built and completed in 2003 at a total cost of $33.9 million (about $2 million for the Authority). | |||
In addition to the Facility, the costs also include heavy lift equipment inside the units and at the yard, railroad track, tractors, transporter, transport canister, and surveillance equipment. | |||
The Facility has the capacity to store all the spent fuel generated by the Palo Verde plant until the end of its operating license in 2027. To date, over 74 casks, each containing 24 spent fuel assemblies were placed in the Facility. | |||
The current plan calls for the transfer of about 240 fuel assemblies from the wet pool to the Facility every year. The costs incurred by the procurement, packing, preparation and transportation of the casks are accounted as part of the fuel expenses, and are estimated at approximately | |||
$13 million a year (about$760,000 for the Authority). | |||
Storing spent fuel at Palo Verde is now considered indefinite with undetermined costs until spent fuel is removed from the plant site.Nuclear Insurance | |||
-The Price-Anderson Act (the "Act") requires that all utilities with nuclear generating facilities share in payment for claims resulting from a nuclear incident. | |||
The Act limits liability from third-party claims to approximately | |||
$12.6 billion per incident. | |||
Participants in the Palo Verde Nuclear Generating Station currently insure potential claims and liability through commercial insurance with a $375 million limit; the remainder of the potential liability is covered by the industry-wide retrospective assessment program provided under the Act. This program limits assessments to $117.5 million per reactor for each licensee for each nuclear incident occurring at any nuclear reactor in the United States; payments under the program are limited to $17.5 million per reactor, per incident, per year to be indexed for inflation every 5 years. Based on the Authority's 5.9 1% interest in Palo Verde, the Authority would be responsible for a maximum assessment of $20.8 million per incident for all 3 units, limited to payments of $3.1 million per incident, per year.In addition to the above, the Authority may be subject to retroactive insurance assessments for its participation in the Neil Property Insurance Program in the amount of $2.3 million.Other Legal Matters -Claims and a lawsuit for damages have been filed with the Authority, Intermountain Power Authority (the "IPA"), and LADWP seeking $100 million in special damages and a like amount in general damages. The claimants allege, among other things, that due to improper grounding of the transmission line of STS, their dairy herds were damaged and the value of their land was diminished. | |||
The Authority believed these claims were substantially without merit as to itself because the Authority has no ownership or operational control over the subject transmission lines, and merely acted as a financing agency with respect to STS. SCPPA moved the Utah court to dismiss the action as to SCPPA. This motion resulted in the dismissal of certain of the causes of action in the complaint against SCPPA however other causes of action still remain. The ultimate outcome of this litigation cannot be predicted at this time. No provision for this litigation matter has been included in the accompanying financial statements. | |||
90 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES | |||
-(continued) | |||
On February 12, 2009, SCPPA was served in the case of Wakefield | |||
: v. Devon Energy Production Company, L.P., Collins & Young holdings L.P.; Southern California Public Power Authority; and Turlock Irrigation District arising out of its non-operating working interest in oil and gas production property situated in the Barnett Shale in certain Texas counties including Hood County, Texas. Devon Energy Production Company (Devon) acts as SCPPA's operator with respect to all oil and gas operations upon this property. | |||
The plaintiff in this lawsuit has alleged that Devon entered into certain pooling arrangements with adjacent property owners, through which it combined the lease pertaining to the plaintiffs property with other less productive leases, resulting in an increase in royalties to these adjacent property owners and a corresponding diminution of plaintiffs royalties. | |||
The complaint does not specify the amount of damages sought. It cannot be predicted how this case may be resolved at the current time, however, SCPPA has been advised that these cases are not uncommon and usually settle. No provision for this litigation matter has been included in the accompanying financial statements. | |||
SCPPA possesses an ownership interest in Unit 3 of the San Juan Generating Station (SJGS) in New Mexico. The operator of the SJGS, on behalf of SCPPA and the other SJGS participants was and is Public Service Company of New Mexico (PNM) which is also a co-owner of the plant. Fuel for the SJGS is provided from the San Juan coal mine which is located near the SJGS. The San Juan Coal mine (Mine) is operated by the San Juan Coal Company (Company) which carries out mining operations at this site and provides the fuel to the plant pursuant to agreements entered into for this purpose with PNM. On April 8, 2010, the Sierra Club filed a lawsuit in the United states District Court for the District of New Mexico against PNM Resources, the parent company of PNM, PNM as the operator of the SJGS, BHP Billiton Limited and the Company, as the operator of the Mine, over alleged surface and groundwater contamination stemming from coal ash placement in the mine and from plant operations. | |||
At the current time it cannot be predicted with any level of certainty how these matters will evolve in the future litigation of this action.The Authority is also involved in various other legal actions. In the opinion of management, the outcome of such litigation or claims will not have a material effect on the financial position or the results of operations of the Authority or the respective separate Projects.NOTE 11 -SUBSEQUENT EVENTS Linden Wind Energy Project Revenue Bond -On September 28, 2010, SCPPA issued $138.3 million of Linden Wind Energy Project Revenue Bonds, consisting of $96.8 million principal amount of 2010 Series A Bonds, and $41.5 million 2010 Series B, Taxable Build America Bonds, together the "2010 Bonds". These fixed rate bonds were issued to refund the Linden 2009 Series A Notes, finance additional cost of acquiring the Linden Wind Energy Project, fund a debt serve reserve, and pay cost of issuance relating to the 2010 Bonds. The refunded notes will be redeemed on October 1, 2010, the maturity date of the Linden 2009 Series A Notes.The Project achieved commercial operation on June 30, 2010, and on September 14, 2010, the Authority completed the acquisition of the Project from North Wind Partners, LLC in accordance with the Asset Purchase Agreement dated June 23, 2009.91 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 11 -SUBSEQUENT EVENTS -(continued) | |||
Windy Point/Windy Flats Project -Issuance of Revenue Bonds to Prepay Generation Costs -Pursuant to a power sales agreement, dated June 24, 2009, the Authority agreed to purchase from Windy Flats Partners, LLC a supply of energy from the Windy Point Project output for an initial delivery term of 20 years. The Authority also entered into power sales agreements with the Los Angeles Department of Water and Power and City of Glendale to sell 100% of its entitlement to capacity and energy in the Project on a "take-or-pay" basis.On September 9, 2010, SCPPA issued $514.2 million Windy Point/Windy Flats Project, Revenue Bonds, 2010-1.These fixed rate bonds were issued to finance the prepayment of a specified supply of electricity from the Windy Point/Windy Flats Facility pursuant to a Power Purchase Agreement dated June 24, 2009; to pay certain other costs of the Project; to fund a deposit to the 2010-1 Debt Service Reserve Fund; and to pay costs of issuance related to the 2010-1 Bonds.The Windy Point/Windy Flats Project is a facility with a 262.2 MW nameplate capacity wind farm comprised of 114 wind turbines located in the Columbia Hills area of Klickitat County, Washington near the city of Goldendale (the "Windy Point Project"). | |||
The Windy Point Project is owned by Windy Flats Partners, LLC, a limited liability company organized and existing under the laws of the State of Delaware. | |||
The initial delivery term began on the commercial operation date of the first of two phases of the Facility. | |||
The first phase commenced operations on January 25, 2010 and the second phase on March 1, 2010.Tieton Hydropower Project Revenue Refunding Bonds -On August 10, 2010, SCPPA issued $52.7 million of Tieton Hydropower Project, Revenue Refunding Bonds, consisting of $36.3 million principal amount of 2010 Series A Bonds, and $16.4 million principal amount of 2010 Series B, Taxable Bonds, together the "2010 Bonds".These fixed rate bonds were issued to retire the outstanding Tieton Hydropower Project Revenue Notes, 2009 Series A&B, to fund a deposit to the Debt Service Reserves for each Series of the 2010 Bonds, and to pay costs of issuance related to the 2010 Bonds.92 SUPPLEMENTAL INFORMATION SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Decom- General Debt Service missioning Escrow Reserve Issue Operating Reserve & Revenue Fund Trust Fund Account Account Account Account Contingency Fund Total-$ 155,317 S 238,345 $ 5,945 $ 13,128 $ 81,326 $ 24,553 $ $ 518,614 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from power sales Distribution of revenue and interest payments Total Deductions Construction expenditures Operating expenditures Bond issue costs Fuel costs Payment of principal Interest paid -non escrow escrow Total 4,244 8,984 9 4 (13)1 2,688 19 (19)5 (311)617 (617)960 16,543 28 U- --66,00 o6,uou-(4,640) 13,833 43,917 13,910 (67,020) -3,704 -(21,131) 17,427 ---3,704 4,244 (12,147) (4,640) 31,261 46,299 13,910 82,631 15,608 3 44,975 50 15,608 44,978 50-18,039 18,039-10,360 -10,360--1,108 21 1,129 3,704 -17,384 --21,088 3,704 3 --28,852 63,085 15,608 111,252$ $ 159,558 $ 226,198 $ 1,305 $ 15,537 S 64,540 $ 22,855 $ $ 489,993 Balance at June 30, 2010 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $57 and $66 held in the revolving fund at June 30, 2010 and 2009, respectively. | |||
93 OUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SAN JUAN PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Debt Service Reserve &Debt Service Reserve Revenue Operating Contingency Escrow Fund Account Fund Fund Fund Account Total$ 4,133 $ 21,323 $ $ 2,642 $ 9,877 $ 74,683 $ 112,658 Balance at June 30, 2009 Additions Investment earnings Discount on investments Distribution of investment earnings Revenue from power sales Distribution of revenues Other Total Deductions Operating expenses Construction expenses Payment of principal and interest -escrow Payment of principal Interest paid -non-escrow Total 5 1,104 10 (15)(1,104)9 323 3,049 5 (9) (324)4,493 15 1,452-98,983 --98,983 18,232 (100,438) 63,656 18,550 -3,772 --(3,772) -22,004 63,656 18,554 (723) 103,491-57,820 --57,820---14,846 14,846 3,772 ---3,772 11,115 --11,115 7,699 ----7,699 22,586 --57,820 14,846 -95,252$ 3,551 $ 21,323 $ $ 8,478 $ 13,585 $ 73,960 $ 120,897 Balance at June 30, 2010 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $29 and $28 held in the revolving fund at June 30, 2010 and 2009, respectively. | |||
94 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MAGNOLIA POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Debt Service General Debt Service Reserve Project Operating Reserve and Operating Revenue Reserve Account Account Fund Reserve Fund Contingency Fund Fund Fund Escrow Fund Total$ 12,331 $ 30,332 $ 3,792 $ 4,919 $ 11,428 $ 3,280 $ -$ 9,597 $ 213,901 $ 289,580 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Transfer of funds for debt service payment Receipt from participants Distribution of revenues Other Total Deductions Construction expenditures Operating expenses Liquidity | |||
& Remarketing Fees Interest paid Payment of principal Debt issuance costs Total Balance at June 30, 2010 12 818 58 7 (19)2 82 4 (86)194 5 1 174 9,707 11,051 15 2 (196)(818)296 1,123 (300)10,119 -(10,119) -----60,909 60,909 25,769 598 3,237 32,779 (62,142) (241) -(88) 2 --109 (2) (21) -35,800 660 3,237 33,080 -(369) (433) 71,975-(176) 1,169 ----993---33,022 --33,022 2,407 ----2,407 23,008 ----23,008 8,695 -----8,695-446 ------446 34,110 270 -1,169 33,022 --68,571 S 14,021 $ 30,332 S 4,182 $ 4,919 $ 13,496 $ 3,338 $ -$ 9,228 $ 213,468 $ 292,984 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $26 and $35 held in the revolving fund at June 30, 2010 and 2009, respectively. | |||
95 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY CANYON POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Debt Service Debt Service Cost of Issuance Fund Reserve Fund Project Fund Fund Escrow Fund Total-$ -$ 37,834 $ $ -$ 37,834 Balance at June 30, 2009 Additions Investment earnings Note Proceeds 2009A Bond Proceeds 2010A Transfer to Escrow Other Total 479 479 Deductions Construction expenses Debt issue costs 2008A Notes Redemption | |||
& Interest Payment-Escrow Total-65,000 812 106,535 172,347 15,771 19,506 133,194 2,518 142,374 313,363-(30,436) -30,436 --25 (25) --15,771 19,506 168,262 3,305 279,345 486,189-79,217 --79,217-2,568 -2,568--106,535 106,535-79,217 2,568 106,535 188,320$ 15,771 $ 19,506 $ 126,879 $ 737 $ 172,810 $ 335,703 Balance at June 30, 2010 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable or unrealized gain (loss) on investments, and $16 held in the revolving fund at June 30, 2010.96 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVER UPRATING PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Debt Service General Reserve Fund Fund Operating Fund Revenue Fund Total$ 1,302 $ 1,703 $ 1,300 $ -$ 4,305 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from power sales Distribution of revenue Other Total (1)17 1 (18)9 26 2 2,347 (9)130 28 2,347 (2,375)2,245 Deductions Operating expenses Payment of principal Interest paid Total Balance at June 30, 2010 1 -4 5 2,246 -134 2,380--235 235 1,480 --1,480 738 --738 2,218 235 -2,453$ 1,330 $ 1,703 $ 1,199 $ $ 4,232 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $13 and $16 held in the revolving fund at June 30, 2010 and 2009, respectively. | |||
97 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY TIETON HYDROPOWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Reserve &Contingency Cost of Issuance Revenue Fund Operating Fund Fund Project Fund Fund Total$ -$ 926 $ -$ -$ $ 926 Balance at June 30, 2009 Additions Investment earnings Note proceeds 2009A Receipt from participants Distribution of revenues Total Deductions Acquisition costs Operating expenses Debt issue costs Total Balance at June 30, 2010 4 500 47,113 561 4 48,174 589 2,002 -2,591 (589) 589 -----2,591 500 47,117 561 50,769 311 -47,096 -47,407 2,945 --2,945--526 526 3,256 -47,096 526 50,878$ $ 261 $ 500 $ 21 $ 35 $ 817 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $6 held in the revolving fund at June 30, 2010.98 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MILFORD 1 WIND PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Cost of Revenue Operating Debt Service Debt Service General Operating Issuance Fund Fund Fund Reserve Fund Reserve Fund Reserve Fund Project Fund Fund Total$ $ -$ -$ -$ -$ -$ -$ -$ -Balance at June 30, 2009 Additions Investment earnings-Discount on investments Distribution of investment earnings Bond proceeds 2010-1 Receipt from participants Distribution of revenues Other Total 5 I 2 1 (2)10 I 7 (1)(1)(2)(1)Deductions Prepaid Energy Operating expenses Debt issue costs Total Balance at June 30, 2010--10,0o/- Juuu ISXOJ IZ.L. I I, ou 9,478 4,297 --13,775 (9,485) 5,037 4,448 ---- --2,520 -2,520 9,338 4,448 18,874 2,520 3,000 233,585 2,227 273,992-----233,569 -233,569 4,696 --4,696--2,201 2,201 4,696 ----233,569 2,201 240,466$ $ 4,642 $ 4,448 $ 18,874 $ 2,520 $ 3,000 $ 16 $ 26 $ 33,526 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $7 held in the revolving fund at June 30, 2010.99 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY LINDEN WIND ENERGY PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Revenue Fund Project Fund Cost of Issuance Total$ $ -$ -$Balance at June 30, 2009 Additions Investment earnings Discount on investments Distribution of investment earnings Bond Proceeds 2009A Other Total I 63 27 1 64 27 (1)Deductions Construction expenses Debt issue costs Total Balance at June 30, 2010 141,373 254 141,627 (631) 631 140,833 885 141,718 134,285 -134,285-867 867 134,285 867 135,152$ $ 6,548 $ 18 $ 6,566 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $6 held in the revolving fund at June 30, 2010.100 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN TRANSMISSION SYSTEM PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS 1IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Upgrade General Reserve Construction Fund Issue Fund Fund Operating Fund Revenue Fund Total$ 4,639 $ 88,417 $ 89,910 $ 7,093 $ -$ 190,059 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from transmission sales Distribution of revenue Other transfers Total Deductions Construction expenses Operating expenses Payment of principal Interest paid Arbitrage rebate Liquidity | |||
& remarketing fees Debt issuance costs Total Balance at June 30, 2010 87 (87)2,839 91 (2,930)72,605 1,280 6 41 9 (50)3 4,250 106 84,672 3,067 84,672 (87,813)15,208 (71) --71 -72,534 1,286 15,208 89,028 45,382 13,894 30,585 46,205 45,382 13,894 30,585 46,205 17 877 17 877 10 --10-77,677 45,382 13,911 136,970$ 4,639 $ 83,274 $ 45,814 $ 8,390 $ $ 142,117 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $26 and $41 held in the revolving fund at June 30, 2010 and 2009, respectively. | |||
101 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-PHOENIX PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Debt Service Reserve & Cost of Revenue Debt Service Reserve Operating Contingency Issuance Fund Account Account Fund Fund Surplus Fund Fund Total$ $ 3,012 $ 7,072 $ 212 $ 1,227 $ 2 $ -$ 11,525 Balance at June 30, 2009 Additions Investment earnings Discount on investment earnings Distribution of investment earnings Transmission revenue Distribution of revenues Other receipts Total 5 409 91 505 1.1 505 8,334 (8,840)(5) (409)8,157 (91)(797)8,334 1,112 (2) 370 Deductions Construction expenditures Operating expenses Principal payment Interest paid Debt issuance costs Total Balance at June 30,2010--568 -568 8,157 1,112 (229) (2) 370 9,408---278 -278--1,178 -1,178 2,870 --2,870 2,992 --2,992---360 360 5,862 -1,178 278 360 7,678$ $ 5,307$ 7,072$ 146 $ 720 $ $ 10$ 13,255 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $13 held in the revolving fund at June 30, 2010 and 2009.102 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-ADELANTO PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Cost of Debt Service Debt Service Operating Reserve & Revenue Issuance Account Reserve Fund Fund Contingency Fund Surplus Fund Fund Total$ 10,612 $ 22,066 $ 272 $ 6,384 $ -$ 4,829 $ S 44,163 Balance at June 30, 2009 Additions Investment earnings Discount on investment earnings Distribution of investment earnings Transmission revenue Other Bond Proceeds 2008A&B Total Deductions Principal payment Interest paid Remarketing | |||
& Commitment Fee O&M, A&G expenses Total Balance at June 30, 2010 12 1,327 469 4 (16)(1,327)(469)1,819 4 3 (7)1,812 7--19,837 -19,837 23,581 1,681 4 (21,656) (4,828) 1,218 --5,060 -5,060 23,581 6 6,741 4 (4,828) 1,218 26,716 9,480 --9,480 9,224 -9,224-- 1,192 1,192 6,353 -6,353 18,704 -6,353 -1,192 26,249$ 15,489 S 22,066 $ 660 $ 6,388 $ $ 1 S 26 $ 44,630 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $13 held in the revolving fund at June 30, 2010 and 2009.103 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS PINEDALE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
General Reserve Revenue Fund Operating Fund Debt Service Fund Fund Project Fund Capital Fund Total$ -$ 12,926 $ 2,154 $ 47 $ 15,478 $ 23,218 $ 53,823 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Receipt from participants Sales of natural gas Distribution of revenues Other receipts Other transfer Total 151 2 3 (3)394 536 22 1,084 21 4 4 Deductions Construction expenditures Operating expenses Payment of principal Interest paid Total Balance at June 30, 2010 5,465 8,421 13,886 561 5,333 ---5,894-(5,939) 4,860 603 6,509 6,033 2 2 (6,030) 86 801 (801) -(5,944)8,054 5,661 196 7,069 20,980---11,402 11,402 12,433 --12,433-1,956 -1,956 1 1,955 6 1,962 12,434 3,911 -11,408 27,753$ $ 8,546 $ 3,904 $ 47 $ 15,674 $ 18,879 $ 47,050 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $41 held in the revolving fund at June 30, 2010 and 2009.104 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS BARNETT PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
General Reserve Revenue Fund Operating Fund Debt Service Fund Fund Project Fund Capital Fund Total$ $ 535 $ 6,980 $ 230 $ 46,322 $ (2,175) $ 51,892 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Receipt from participants Sales of Natural Gas Distribution of revenues Total I 2 8 2 (10)I 1,125 13 1 1,150 3 1 11 Deductions Construction expenditures Operating expenses Payment of principal Interest paid Total Balance at June 30, 2010 12,812 627 13,439 4,657 1,036 ---5,693 (17,481) 5,985 11,470 (121) -146 (1)7,650 11,470 (120) 1,125 160 20,285----2,508 2,508 6,109 --6,109-4,638 4,638-4,607 -4,607 6,109 9,245 2,508 17,862$ $ 2,076 $ 9,205 $ 110 $ 47,447 $ (4,523) $ 54,315 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in'the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $19 and $25 held in the revolving fund at June 30, 2010 and 2009, respectively. | |||
105 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PREPAID NATURAL GAS PROJECT No. 1 SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Revenue Fund Operating Fund Debt Service Fund Project Fund Total$ -$ 10,014 $ 4,448 $ 24 $ 14,486 Balance at June 30, 2009 Additions Investment earnings Distribution of investment earnings Receipt from gas sales Distribution of revenues Commodity swap settlement Other receipts Total 1 484 12,556 (29,377)489 (484)4,698 307 797 12,556 1 24,704 (24)Deductions A & G expenses Payment of Principal Payment of interest Debt Issuance Cost Total Balance at June 30, 2010 16,336 --16,336-8 1,553 -1,561 4,711 26,564 (24) 31,251 450 --450-5,625 -5,625-18,642 18,642 191 -191 641 24,267 24,908$ $ 14,084 $ 6,745 $ $ 20,829 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $16 and $22 held in the revolving fund at June 30, 2010 and 2009, respectively. | |||
106 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MULTIPLE PROJECT FUND SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS) | |||
Balance at June 30, 2009 Additions Investment earnings Distribution of investment earnings Transfer for debt service payment Total Proceeds Debt Service Earnings Account Account Account Total$ 58,577 $ 10,445 $ 83 $ 69,105 4,230 838 -5,068 (4,230) 2,115 2,115 -(1,035) 3,233 (2,198) -(1,035) 6,186 (83) 5,068 3,389 -3,389 3,389 3,389$ 57,542 $ 13,242 $ $ 70,784 Deductions Interest paid Total Balance at June 30, 2010 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable. | |||
107 V I X P- =M--G.LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Financial Statements and Required Supplementary Information June 30, 2010 and 2009 (With Independent Auditors' Report Thereon) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Table of Contents Page(s)Independent Auditors' Report 1-2 Management's Discussion and Analysis 3 -12 Financial Statements: | |||
Balance Sheets 13-14 Statements of Revenues, Expenses, and Changes in Fund Net Assets 15 Statements of Cash Flows 16-17 Notes to Financial Statements 18-50 Required Supplementary Information 51 KPMG LLP Suite 700 20 Pacifica Irvine, CA 92618-3391 Independent Auditors' Report The Board of Water and Power Commissioners Department of Water and Power City of Los Angeles: We have audited the accompanying balance sheets of City of Los Angeles' Department of Water and Power Water Revenue Fund (Water System), an enterprise fund of the City of Los Angeles, California, as of June 30, 2010 and 2009, and the related statements of revenues, expenses, and changes in fund net assets and cash flows for the years then ended. These financial statements are the responsibility of the Los Angeles Department of Water and Power's (the Department) management. | |||
Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. | |||
An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Water System's internal control over financial reporting. | |||
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. | |||
We believe that our audits provide a reasonable basis for our opinion.As discussed in note 1, the financial statements of the Water System are intended to present the financial position, and the changes in financial position and, cash flows of only that portion of the business-type activities and each major fund of the City of Los Angeles, California that is attributable to the transactions of the Water System. They do not purport to, and do not, present fairly the financial position of the City of Los Angeles, California as of June 30, 2010 and 2009, the changes in its financial position or, where applicable, its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. | |||
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Water System as of June 30, 2010 and 2009, and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. | |||
In accordance with Government Auditing Standards, we have also issued our report dated December 20, 2010 on our consideration of the Water System's internal control on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative I KPMG International"), a Swiss entity. | |||
on compliance. | |||
That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.The management's discussion and analysis included on pages 3 through 12 and the schedules of funding progress for the pension plan and postemployment healthcare plan on page 51 are not a required part of the basic financial statements but are supplementary information required by U.S. generally accepted accounting principles. | |||
We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. | |||
However, we did not audit the information and express no opinion on it.O LLP December 20, 2010 2 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 The following discussion and analysis of the financial performance of the City of Los Angeles' (the City)Department of Water and Power's (the Department) | |||
Water Revenue Fund (Water System) provides an overview of the financial activities for the fiscal years ended June 30, 2010 and 2009. Descriptions and other details pertaining to the Water System are included in the notes to the financial statements. | |||
This discussion and analysis should be read in conjunction with the Water System's financial statements, which begin on page 13.Using This Financial Report This annual financial report consists of the Water System's financial statements and required supplementary information and reflects the self-supporting activities of the Water System that are funded primarily through the sale of water to the public it serves.Balance Sheets, Statements of Revenues, Expenses, and Changes in Fund Net Assets, and Statements of Cash Flows The financial statements provide an indication of the Water System's financial health. The balance sheets include all of the Water System's assets and liabilities using the accrual basis of accounting, as well as an indication about which assets can be utilized for general purposes, and which assets are restricted as a result of bond covenants and other commitments. | |||
The statements of revenues, expenses, and changes in fund net assets report all of the revenues and expenses during the time periods indicated. | |||
The statements of cash flows report the cash provided and used by operating activities, as well as other cash sources and uses such as investment income and cash payments for bond principal and capital additions and betterments. | |||
3 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 The following table summarizes the financial condition and changes in fund net assets of the Water System as of and for the fiscal years ended June 30, 2010, 2009, and 2008: Table 1 -Condensed Schedule of Assets, Liabilities, and Fund Net Assets (Amounts in millions)Assets Utility plant, net Investments Other noncurrent assets Current assets Liabilities and Fund Net Assets Long-term debt, net of current portion Other long-term liabilities Current liabilities Fund net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total fund net assets 2010$ 4,449 33 297 655$ 5,434 2,708 19 371 3,098 1,824 351 161 2,336 5,434 As of June 30 2009 4,098 33 258 447 4,836 2,193 14 361 2,568 1,893 309 66 2,268 4,836 2008 3,826 37 220 556 4,639 2,098 14 388 2,500 1,831 268 40 2,139 4,639 4 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Table 2 -Condensed Schedule of Revenues, Expenses, and Changes in Fund Net Assets (Amounts in millions)Operating revenues: Residential Multiple-dwelling units Commercial and industrial Other Total operating revenues Operating expenses: Purchased water Maintenance and other Depreciation and amortization Total operating expenses Operating income Nonoperating revenues (expense): | |||
Investment income Other nonoperating revenue and expenses, net Debt expense Total nonoperating expense Income before capital contributions, and transfers Capital contributions Transfers from (to) the reserve fund of the City of Los Angeles Increase in fund net assets Beginning balance of fund net assets Ending balance of fund net assets 2010$ 315 253 193 51 812 (163)(421)(97)(681)131 12 5 (104)(87)Year ended June 30 2009 311 232 186 55 784 (216)(366)(83)(665)119 10 (1)(92)(83)2008 300 216 171 57 744 (189)(335)(76)(600)144 27 (99)(72)44 24 36 30 72 26 68 2,268$ 2,336 63 129 2,139 2,268 (33)65 2,074 2,139 Assets Utility Plant During fiscal years 2010 and 2009, the Water System placed in service asset additions and betterments in the amount of $506 million and $362 million, respectively. | |||
In 2010, $176 million, or 35%, was capitalized for source of water supply primarily due to the additions and betterments in the Owens Lake Dust Control Project and improvements to canals and conduits. | |||
The value of assets in distribution utility plant, such as structures, mains, 5 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 services, meters, and fire hydrants increased by $148 million. The remaining | |||
$182 million, or 36%, additions included assets in the pumping stations, purification stations, and general plant facilities. | |||
In 2009, $193 million, or 53%, was placed in service for distribution utility plant assets, such as structures, mains, services, meters, and fire hydrants. | |||
The value of assets in the source of water supply increased by$79 million, or 22%, primarily due to the additions and betterments in the Owens Lake Dust Control Project and improvements to canals and conduits. | |||
The remaining | |||
$90 million, or 25%, additions included assets in the pumping stations, purification stations, and general plant facilities. | |||
The Water System utility plant assets fall into five major categories: | |||
source of water supply, pumping, purification, distribution, and general. Each category of assets is important to providing water services and has a specific purpose. Source of water supply assets are the assets that the Department has constructed and/or purchased to help ensure an adequate supply of water. The Department has four major sources of water. These include: " Los Angeles Aqueduct and Second Los Angeles Aqueduct supply imported water from the Owens Valley and the Mono Basin;" Local groundwater supply (with pumping rights in the San Fernando, Sylmar, and Central and West Coast Basins);* Purchased supply from Metropolitan Water District; and* Recycled water.All sources of water, except for recycled water, are supplied for potable use; that is, the water from these sources is of drinkable quality. Table 3 below shows the percentage of potable water delivered from the major sources.Table 3 -Sources of Potable Water Supplied During Fiscal Years 2010 and 2009 Fiscal year 2010 Fiscal year 2009 Millions of Millions of gallons Percentage gallons Percentage Source: Aqueduct 65,017 38% 35,221 18%Wells 21,966 13 19,987 10 Purchases 85,551 49 142,136 72 172,534 100% 197,344 100%Water storage during low demand, cold, or wet periods is essential for conservation to supply the extra water needed during warm weather or emergency situations. | |||
The Water System's 108 tanks and reservoirs, ranging in size from 10 thousand to 60 billion gallons, have a current capacity of approximately 315,765 acre-feet, or 102.89 billion gallons. Eight aqueduct reservoirs provide 95% of the Water System's storage capacity; major and minor distribution reservoirs provide the remaining 5%.6 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Further information regarding the Water System's utility plant can be found in note 3 to the accompanying financial statements. | |||
Liabilities and Fund Net Assets Long-Term Debt As of June 30, 2010, Water System's total outstanding long-term debt balance was approximately | |||
$2.77 billion.This is an increase of $519.3 million over the prior year, resulting from the sale of $487.3 million in Water System revenue bonds and $43.5 million in loans from the California Department of Water Resources (CDWR), offset by scheduled maturities of $27.1 million.As of June 30, 2009, Water System's total outstanding long-term debt balance was approximately | |||
$2.25 billion.This is an increase of $92 million over the prior year, resulting from the sale of $150 million in Water System revenue bonds, offset by scheduled maturities of $23.3 million and the current refunding of $34.4 million of Water System taxable bonds.Outstanding principal, plus scheduled interest and amortization as of June 30, 2010, is shown in the chart below: Chart: Debt Service Requirements | |||
$900,000$800,000$700,000$600,000 U)D $500,000 C $400,000$300,000$200,000$100,000 2015~ ~ 200 22N03 00 24 2015 2020 2025 2030 Five-year period ending 2035 2040 2045 In November 2010, Standard & Poor's Rating Services, Moody's Investors Service, and Fitch Ratings affirmed the Water System's bond rating of AA, Aa2, and AA+, respectively. | |||
Additional information regarding the Water System's long-term debt can be found in note 6.7 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Changes in Fund Net Assets Revenues The operating revenues of the Water System are generated from selling water to its customers. | |||
The current water rate has two types of components, a base rate and adjustable rates, which are referred to as pass-through rates.The pass-through rates are in place to recover the cost of specific expenses. | |||
These specific expenses include purchased water, water quality, reclaimed water, demand-side management (or conservation expense), water security, Owens Valley regulatory, and low-income subsidy credits. As a result of the inclusion of pass-through rates in the water rates, revenue can increase or decrease from one year to the next based on the Water System incurring greater or smaller expenses in these categories. | |||
The Water System has five major customer categories. | |||
These categories include residential, multiple-dwelling units, commercial, industrial, and other. Table 4 summarizes the percentage contribution of revenues from each customer category during fiscal years 2010 and 2009: Table 4 -Revenue and Percentage of Revenue by Customer Class (Amounts in thousands) | |||
Fiscal year 2010 Fiscal year 2009 Revenue Percentage Revenue Percentage Type of customer: Residential Multiple-dwelling units Commercial Industrial Other$ 315,422 39% $ 310,649 40%253,019 31 232,530 30 160,931 20 151,574 19 32,389 4 34,644 4 50,599 6 54,567 7$ 812,360 100% $ 783,964 100%8 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Residential customers provided approximately 40% of the Water System's 2010 and 2009 revenue representing the largest class of customers. | |||
As of June 30, 2010, the Water System had approximately 659,000 customers. | |||
As shown in Table 5, 467,000, or 71%, of total customers were in the residential customer class as of June 30, 2010.Table 5 -Number of Customers and Percentage of Customers by Customer Class (Numbers in thousands) | |||
Fiscal year 2010 Fiscal year 2009 Number Percentage Number Percentage Type of customer: Residential 467 71% 473 71%Multiple-dwelling units 121 18 122 18 Commercial 57 9 58 9 Industrial 6 1 6 1 Other 8 1 7 1 659 100% 666 100%During fiscal year 2010, operating revenues increased by $28.4 million, or 3.6%, from fiscal year 2009 revenues while sales of water decreased by 33.6 million hundred cubic feet. The decrease in sales is due to greater conservation requirements imposed on customers. | |||
The increase in revenue is primarily due to the shortage year rates applied to Tier 2 usage, changes in other pass-through factor revenues, and the recording of the base revenue shortfall declared for fiscal year 2009 and 2010.During fiscal year 2009, operating revenues increased by $40 million, or 5%, from fiscal year 2008 revenues while sales of water decreased by 9.2 million hundred cubic feet. The decrease in sales is due to greater conservation requirements imposed on customers. | |||
The increase in revenue is primarily due to an increase in purchased water expense of $33.6 million. The remaining | |||
$6.4 million increase was due to various smaller changes in the base rate revenue offset by changes in other pass-through factor revenues.9 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Operating Expenses Purchased water expense is the single largest expense that the Water System incurs each fiscal year. Purchased water expense represents the cost of buying water, primarily from the Metropolitan Water District (MWD). For fiscal years 2010 and 2009, 49% and 72%, respectively, of the potable water supplied to the Water System's customers was purchased water. Table 6 summarizes the Water System's operating expenses for fiscal years 2010 and 2009: Table 6 -Operating Expenses and Percentage of Expense by Type of Expense (Amounts in thousands) | |||
Fiscal year 2010 Fiscal year 2009 Expenses Percentage Expense Percentage Type of expense: Purchased water $ 163,248 24% $ 215,864 33%Other operating expenses 303,913 45 244,280 36 Maintenance 117,221 17 121,443 18 Depreciation and amortization 97,034 14 83,141 13$ 681,416 100% $ 664,728 100%Fiscal Year 2010 Fiscal year 2010 operating expenses were $17 million higher as compared to the prior year. The increase was due to an increase in other operating costs of $59.6 million and an increase in depreciation expense of $14 million, offset by a $57 million decrease in purchased water costs and maintenance expenses. | |||
The increase in other operating expenses was attributed to higher demand side management, miscellaneous general expenses and employees' benefit costs. The decrease in purchase water costs was due to lower demand for water from customers and an 85% increase in the water supplied by the L.A. Aqueduct.Fiscal Year 2009 Fiscal year 2009 operating expenses were $65 million higher as compared to the prior year. The increase was due to increased purchased water costs of $27 million, an increase in other operating costs of $12 million, an increase in maintenance costs of $19 million, and an increase in depreciation expense of $7 million.The Water System purchased 5.0 billion more gallons of water during 2009. The increase was due to drier than normal weather conditions, resulting in increased demand for purchased water. These additional purchases caused purchased water costs to increase by $27 million over fiscal year 2008.Overall maintenance expense increase of $18 million mostly related to maintenance of mains, dams, reservoirs, wells, canals, and conduits.10 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Nonoperating Revenue and Expenses and Transfers Fiscal Year 2010 Fiscal year 2010 nonoperating revenues were $4.0 million higher as compared to the prior year while nonoperating expenses were $3.7 million lower as compared to the prior year. The higher nonoperating revenues can be attributed to the federal government interest payment subsidy for the Water System Revenue Bonds, 2009 Series C, Build America Bonds. The lower nonoperating expenses are attributed to lower interest credited to customers for deposits held by the Water System. The interest rate used to credit customer deposits was changed from 4.12% to 1.00%.Debt expenses increased | |||
$12.0 million, and capital contributions decreased | |||
$6.6 million.The increase in debt expense is attributed to the $15.3 million increase in interest expense related to the issuance of $487.3 million Water System Revenue Bonds during fiscal year 2010 offset by a $3.5 million increase in allowance for funds used during construction. | |||
The $6.6 million decrease in capital contributions from fiscal year 2009 is due to the slowdown in economic activities and new business developments. | |||
Fiscal Year 2009 The major nonoperating activities of the Water System for fiscal year 2009 included reversing the 2008 and 2007 transfers of $33.4 million and $29.9 million, respectively, to the reserve fund of the City of Los Angeles,$92.0 million. in debt expenses, net of allowance for funds used during construction of $2 million, and capital contributions of $30.6 million.The 2008 transfer of $33.4 million was rescinded by the Board of Commissioners in May 2009 based on the financial position of the Water System and the 2007 transfer was deemed illegal by the courts in July 2009. See further discussion in note 10(a) to the financial statements. | |||
The decrease in debt expense is due to the defeasance of $34.4 million in variable rate debt during the year offset by the issuance of $150 million in new debt issued in February 2009. The variable rate bonds' daily and weekly rate range decreased from 1.60% to 2.60% as of June 30, 2008 to 0.23% to 0.30% as of June 30, 2009.Capital contributions increased | |||
$5.0 million from fiscal year 2008 mostly due to donated properties. | |||
I1I (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Currently Known Facts, Decisions, or Conditions The July 1, 2010 actuarial study for the Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) noted the market value of the Plan's assets were approximately | |||
$6.27 billion and the unfunded actuarial accrued liability was approximately | |||
$1.6 billion. The Plan had unrecognized investment losses of $1.0 billion as of June 30, 2010. The Plan employs a five-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in "smoothed" assets that are lower or higher than the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. If the unrecognized investment losses were recognized immediately, required contributions to the Plan would increase from approximately 38.45% of covered payroll to 51.93% of covered payroll. Additionally, if the unrecognized investment losses were recognized immediately in the actuarial value of assets, the funded ratio of the Plan would decrease from 81% to 70%.12 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Balance Sheets June 30, 2010 and 2009 (Amounts in thousands) | |||
Assets Noncurrent assets: Utility plant: Source of water supply Pumping Purification Distribution General Accumulated depreciation Construction work in progress Investments Net pension asset Net postemployment asset Total noncurrent assets 2010 1,126,461 244,219 474,219 3,413,047 500,958 5,758,904 (1,912,058) 3,846,846 601,790 4,448,636 32,680 50,935 246,286 4,778,537 170,685 260,790 5,027 104,208 64,049 21,470 29,073 655,302 5,433,839 2009 950,808 236,492 341,783 3,270,387 463,219 5,262,689 (1,816,457) 3,446,232 651,538 4,097,770 32,678 48,407 209,737 4,388,592 120,375 143,334 79,727 11,707 52,726 18,293 20,918 447,080 4,835,672 Current assets: Cash and cash equivalents | |||
-unrestricted Cash and cash equivalents | |||
-restricted Cash collateral received from securities lending transactions Customer and other accounts receivable, net of $5,500 and $5,000 allowance for losses for 2010 and 2009, respectively Under recovered costs Accrued unbilled revenue Materials and supplies Prepayments and other current assets Total current assets Total assets (Continued) 13 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Balance Sheets June 30, 2010 and 2009 (Amounts in thousands) | |||
Fund Net Assets and Liabilities 2010 2009 Fund net assets: Invested in capital asset, net of related debt Restricted: | |||
Debt service Other postemployment benefits Pension benefits Other purposes Unrestricted Total fund net assets Long-term debt, net of current portion Other noncurrent liabilities: | |||
Accrued workers' compensation claims Total other noncurrent liabilities Current liabilities: | |||
Current portion of long-term debt Accounts payable and accrued expenses Due to Power System Accrued employee expenses Accrued interest Obligations under securities lending transactions Over recovered costs Customer deposits Total current liabilities Total liabilities Total fund net assets and liabilities | |||
$ 1,824,212 31,220 246,286 50,935 22,167 160,831 2,335,651 2,708,150 18,916 18,916 63,018 107,895 7,276 43,822 60,595 5,027 15,946 67,543 371,122 3,098,188$ 5,433,839 1,892,944 30,012 209,737 48,407 21,169 66,080 2,268,349 2,193,338 13,474 13,474 58,512 132,822 9,903 39,752 45,065 74,457 360,511 2,567,323 4,835,672 See accompanying notes to financial statements. | |||
14 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Statements of Revenue, Expenses, and Changes in Fund Net Assets Years ended June 30, 2010 and 2009 (Amounts in thousands) | |||
Operating revenues: Residential Multiple dwelling units Commercial and industrial Other Uncollectible accounts Operating expenses: Purchased water Maintenance and other operating expenses Depreciation and amortization Operating income Nonoperating revenues (expenses): | |||
Investment income Other nonoperating income Other nonoperating expenses 2010$ 315,422 253,019 193,320 56,571 (5,972)812,360 163,248 421,134 97,034 681,416 130,944 11,848 6,831 18,679 (2,458)16,221 109,483 (5,521)103,962 43,203 24,099 67,302 2,268,349$ 2,335,651 2009 310,649 232,530 186,218 59,520 (4,953)783,964 215,864 365,723 83,141 664,728 119,236 9,657 5,043 14,700 (6,107)8,593 93,975 (2,008)91,967 35,862 30,603 63,356 129,821 2,138,528 2,268,349 Debt expenses: Interest on debt Allowance for funds used during construction Income before capital contributions and transfers Capital contributions Transfer from the reserve fund of the City of Los Angeles Increase in fund net assets Fund net assets: Beginning of period End of period See accompanying notes to financial statements. | |||
15 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Statements of Cash Flows Years ended June 30, 2010 and 2009 (Amounts in thousands) | |||
Cash flows from operating activities: | |||
Cash receipts: Cash receipts from customers Cash receipts from customers for other agency services Cash receipts from interfund services provided Other cash receipts Cash disbursements: | |||
Cash payment to employees Cash payment to suppliers Cash payment for interfund services used Cash payment to other agencies for fees collected Other cash payments Total cash flows provided by operating activities Cash flows from capital and related financing activities: | |||
Additions to plant and equipment Capital contributions Principal payments and maturities on long-term debt Proceeds from issuance of bonds Proceeds from California Department of Water Resources loan Payment of California Department of Water Resources loan Debt interest payments Total cash flows used for capital and related financing activities Cash flows from investing activities: | |||
Purchases of investment securities Sale of investment securities Investment income Total cash flows provided by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents: | |||
Cash and cash equivalents at July 1 (including | |||
$143,334 and $252,231 reported in restricted accounts, respectively) | |||
Cash and cash equivalents at June 30 (including | |||
$260,790 and $143,334 reported in restricted accounts, respectively) 2010 830,160 472,190 353,531 (247,862)(367,568)(410,893)(473,539)(3,975)152,044 (442,087)23,807 (25,281)500,002 43,471 (802)(94,388)4,722 (143,330)143,330 11,000 11,000 167,766 263,709$ 431,475 2009 785,372 476,868 342,015 4,633 (233,591)(365,248)(343,272)(477,059)189,718 (301,738)17,897 (57,630)150,676 (784)(90,353)(281,932)(73,913)77,804 13,265 17,156 (75,058)338,767 263,709 16 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Statements of Cash Flows Years ended June 30, 2010 and 2009 (Amounts in thousands) | |||
Reconciliation of operating income to net cash provided by operating activities: | |||
Operating income Adjustments to reconcile operating income to net cash provided by operating activities: | |||
Depreciation and amortization Provision for losses on customer and other receivables Changes in assets and liabilities: | |||
Customer and other accounts receivable Accrued unbilled revenue Overrecovered costs Due from Power System Due to Power System Materials and supplies Net pension asset Accounts payable and accrued expenses for operating Prepayment and other current assets Net postemployment asset Accrued employee expenses Under-over recovered costs Accrued workers' compensation claims and other Net cash provided by operating activities Supplemental disclosure of noncash capital and related financing activity: Capital contributions 2010$ 130,944 97,034 5,972 (29,606)(11,323)11,707 (2,627)(3,177)(2,528)(24,927)(5,794)(36,549)4,070 15,946 2,902$ 152,044 2009 119,236 83,141 4,953 (8,536)8,947 (11,707)18,450 9,903 (3,346)(2,576)15,912 (34,985)6,131 (15,528)(277)189,718 (12,112)$(292)See accompanying notes to financial statements. | |||
17 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (1) Summary of Significant Accounting Policies The Department of Water and Power of the City of Los Angeles (the Department) exists as a separate proprietary department of the City of Los Angeles (the City) under and by virtue of the City Charter enacted in 1925 and as revised effective July 2000. The Department's Water Revenue Fund (Water System) is responsible for the procurement, quality, and distribution of water for sale in the City. The Water System is operated as an enterprise fund of the City.(a) Method of Accounting The accounting records of the Water System are maintained in accordance with U.S. generally accepted accounting principles (GAAP) for governmental entities. | |||
The financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting. | |||
The Water System is accounted for as an enterprise fund and applies all applicable Governmental Accounting Standards Board (GASB) pronouncements in its accounting and reporting. | |||
In addition, the Water System follows Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. | |||
The Department's rates are determined by the Board of Water and Power Commissioners (the Board) and are subject to review and approval by the City Council. As a regulated enterprise, the Department utilizes Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71), which requires that the effects of the rate-making process be recorded in the financial statements. | |||
Such effects primarily concern the time at which various items enter into the determination of changes in fund net assets. Accordingly, the Water System records various regulatory assets and liabilities to reflect the Board's actions.Management believes that the Water System meets the criteria for continued application of SFAS No. 71, but will continue to evaluate its applicability based on changes in the regulatory and competitive environment.(b) Use of Estimates The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.(c) Utility Plant The costs of additions to utility plant and replacements of retired units of property are capitalized. | |||
Costs include labor, materials, an allowance for funds used during construction (AFUDC), and allocated indirect charges such as engineering, supervision, transportation and construction equipment, retirement plan contributions, healthcare costs, and certain administrative and general expenses. | |||
The costs of maintenance, repairs, and minor replacements are charged to the appropriate operations and maintenance expense accounts.18 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (d) Impairment of Long-Lived Assets The Department follows GASB No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (GASB No. 42). Governments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. | |||
A capital asset is considered impaired when its service utility has declined significantly and unexpectedly. | |||
Under GASB No. 42, impaired capital assets that will no longer be used by the government should be reported at the lower of carrying value or fair value. Impairment losses on capital assets that will continue to be used by the government should be measured using the method that best reflects the diminished service utility of the capital asset.(e) Depreciation and Amortization Depreciation expense is computed using the straight-line method based on service lives. The Department uses the composite method of depreciation and, therefore, groups assets into composite groups for purposes of calculating depreciation expense. Estimated service lives range from 5 to 70 years. Amortization expense for computer software is computed using the straight-line method over 5 years. Depreciation and amortization expense as a percentage of average depreciable utility plant in service was 1.8% and 1.7% for fiscal years ended June 30, 2010 and 2009, respectively. | |||
(9 Cash and Cash Equivalents As provided for by the State of California Government Code (the Code), the Water System's cash is deposited with the City Treasurer in the City's general investment pool for the purpose of maximizing interest earnings through pooled investment activities. | |||
Cash and cash equivalents in the City's general investment pool are reported at fair value, and changes in unrealized gains and losses are recorded in the statements of revenues, expenses, and changes in fund net assets. Interest earned on such pooled investments is allocated to the participating funds based on each fund's average daily cash balance during the allocation period. The City Treasurer invests available funds of the City and its independent operating departments on a combined basis. The Water System classifies all cash and cash equivalents that are restricted either by creditors, the Board, or by law as restricted cash and cash equivalents on the balance sheets. The Water System considers its portion of pooled investments in the City's pool to be cash and cash equivalents. | |||
At June 30, 2010 and 2009, restricted cash and cash equivalents include the following (amounts in thousands): | |||
June 30 2010 2009 Bond redemption and interest funds $ 91,879 75,142 Construction funds 146,744 47,024 Self-insurance fund 22,167 21,168$ 260,790 143,334 19 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (g) Materials and Supplies Materials and supplies are recorded at average cost.(h) Investments The Water System's investments consist of investments held in the Water Expense Stabilization Fund to stabilize water rates. Such investments include U.S. government and governmental agency securities. | |||
Investments are reported at fair value, and changes in unrealized gains and losses are recorded in the statement of revenues, expenses, and changes in fund net assets. The stated fair value of investments is generally based on published market prices or quotations from major investment dealers.(i) Accrued Employee Expenses Accrued employee expenses include accrued payroll and an estimated liability for vacation leave, sick leave, and compensatory time, which is accrued when employees earn the rights to the benefits.Below is a schedule of accrued employee expenses as of June 30, 2010 and 2009: June30 2010 2009 Type of expense: Accrued payroll $ 9,868 7,816 Accrued vacation 23,170 21,771 Accrued sick time 5,772 5,401 Compensatory time 5,012 4,764 Total $ 43,822 39,752 (]) Debt Expenses Debt premium, discount, and issue expenses are deferred and amortized to debt expense using the effective-interest method over the lives of the related debt issues. Gains and losses on refundings related to bonds redeemed by proceeds from the issuance of new bonds are amortized to debt expense using the effective-interest method over the shorter of the life of the new bonds or the remaining term of the bonds refunded.(k) Accrued Workers' Compensation Claims Liabilities for unpaid workers' compensation claims are recorded at their net present value.(1) Accrued Unbilled Revenue Accrued unbilled revenue is the receivable for estimated water sales during the period at the base rate for which the customer has not been billed.20 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (in) Customer Deposits Customer deposits represent deposits collected from customers upon opening new accounts. | |||
These deposits are obtained when the customer does not have a previously established credit history with the Department. | |||
Original deposits plus interest are paid to the customer once a satisfactory payment history is maintained, generally after one to three years.The Water System is responsible for collection, maintenance, and refunding of these deposits for all Department customers, including those of the Power System. As such, the Water System's balance sheets include a deposit liability of $68 million and $74 million as of June 30, 2010 and 2009, respectively, for all customer deposits collected.(n) Revenues The Water System's rates are established by a rate ordinance, which is approved by the City Council.The Water System sells water to other City departments at rates provided in the ordinance. | |||
The Water System recognizes water costs in the period incurred and accrues for estimated water sold but not yet billed.Revenues consist of billings to customers for water consumption at rates specified in the water rate ordinance. | |||
These rates include a cost adjustment factor that provides the Water System with full recovery of purchased water costs. The Water System is also authorized to collect approved demand-side management, water reclamation, a portion of the operation and maintenance costs related to the pumping of in-City groundwater, water quality improvement expenditures, and water security costs. Management estimates these costs to establish the cost recovery component of customer billings and any difference between billed and actual costs is adjusted in subsequent billings. | |||
This difference is reflected as $15.9 million of over recovered costs on the balance sheet as of June 30, 2010, and $11.7 million of under recovered costs on the balance sheet as of June 30, 2009.During fiscal years 2010 and 2009, the Water System also incurred costs of $181 million and$117 million, respectively, related to water quality improvement projects in excess of billing limits.Since the rates charged to customers are insufficient to recover all of these specific costs, the capital portion of these costs has not been recorded as underrecovered costs and is funded through the issuance of debt.(o) Current Rate Ordinance A conservation-based water rate ordinance has been in effect since February 16, 1993 with periodic amendments approved by the City Council. The last amendment was approved in April 2008 and was effective July 1, 2008. The ordinance incorporates marginal cost pricing through a two-tiered rate structure' The upper block rate is established at the estimated marginal cost for water. The lower block rate is established to generate the revenue required for efficient operations. | |||
As a result of concerns expressed about the rate structure's impact on larger volume single-family residential customers, the first-tier allowances were revised effective June 1, 1995. The revisions established five lot size 21 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 categories and three temperature zones (as the basis for the first-tier usage blocks for each category). | |||
Extra units (one unit equals 100 cubic feet or 748 gallons) at the first-tier rate are available based on household sizes. The rates also reflect equity considerations for water-intensive businesses, large turf customers, and other customers having high seasonal variation in their water usage. Fixed monthly service availability charges apply only to private fire service.The Water System's rate ordinance contains a water procurement adjustment factor, a water quality improvement adjustment factor, a water security adjustment factor, an Owens Valley regulatory adjustment factor, and a low-income subsidy adjustment factor. The water procurement adjustment factor under which the cost of purchased water, including water purchased from the Metropolitan Water District (MWD), demand-side management programs, reclaimed water projects, and the operation and maintenance costs required to operate the in-City groundwater and booster pumping, is recovered by direct adjustments to customers' bills. The water quality improvement adjustment factor recovers expenditures to upgrade and equalize water quality throughout the City and to construct facilities to meet state and federal water quality standards, including the payment of debt service on bonds issued for such purposes. | |||
The water security adjustment factor recovers expenditures to secure and protect the water supply, storage, conveyance infrastructure, and related facilities. | |||
The Owens Valley regulatory adjustment factor recovers expenditures to operate and maintain infrastructure and related facilities for the Owens Lake Dust Mitigation Project and the Lower Owens River Project. The low-income subsidy adjustment factor recovers the cost of credits provided to lifeline and low-income customers. | |||
The ordinance currently limits to $0.50 per billing unit the recovery of combined expenditures for the demand-side management and water reclamation components of the water procurement factor, water quality improvement, and water security.The Water System's rate ordinance also contains a revenue adjustment mechanism in the form of a surcharge that is designed to assure a minimum level of base rate revenue each fiscal year. The annual revenue target for years since June 30, 2002 was $294 million. This amount is adjusted annually for increases in interest expense and shall not exceed $325 million per fiscal year; provided, however, the annual revenue target limit of $325 million shall be increased in proportion to any increases in the commodity charge. The revenue adjustment factor becomes effective upon a determination by the Board that the surcharge is needed. The rate ordinance limits the surcharge to$0.18 per billing unit, unless a higher amount is approved by the Board and the City Council.Due to drought conditions in California over the past several years and cutbacks in the allocation of water supply to municipalities by the Metropolitan Water Districts, the Department found that water conservation was urgently needed. As a result, the Board approved a resolution declaring a 15%shortage year. Effective June 1, 2009, shortage year rates were applied to all Department customers. | |||
Under the shortage year rates, the amount of water LADWP customers are able to purchase at the Tier 1 rate was reduced by 15%. Shortage year rates will remain in effect until the Board determines they are no longer necessary. | |||
22 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Operating revenues are revenues generally derived from activities that are billable in accordance with the water rate ordinance established by the City Council. Other types of revenues are generally considered nonoperating.(p) Capital Contributions Capital contributions and other grants received by the Department for constructing utility plant and other activities are recognized as nonoperating revenues when all applicable eligibility requirements, including time requirements, are met., (q) Allowance for Funds Used during Construction Allowance for funds used during construction represents the cost of borrowed funds used for the construction of utility plant. Capitalized AFUDC is included as part of the cost of utility plant and as a reduction of debt expenses. | |||
The average AFUDC rates used by the Water System were 4.3% and 3.8% for fiscal years 2010 and 2009, respectively.(r) Use of Restricted and Unrestricted Resources The Water System's policy is to use unrestricted resources prior to restricted resources to meet expenses to the extent that it is prudent from an operational perspective. | |||
Once it is not prudent, restricted resources will be utilized to meet intended obligations. | |||
(2) Recent Accounting Pronouncements (a) GASB Statement No. 49 In fiscal year 2009, the Department adopted GASB Statement No. 49, Accounting and Financial Reporting for Pollution and Remediation Obligations (GASB No. 49). This statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups.The scope of the statement excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as landfill closure and postclosure care and nuclear power plant decommissioning. | |||
Prior to adopting this statement, the Department followed Statement of Position 96-1, Environmental Remediation Liabilities. | |||
The Water System has identified underground storage tanks that require remediation work and is working with the Los Angeles Regional Water Quality Control Board, and the Lahontan Regional Quality Control Board which have jurisdiction over these sites. The Water System's estimated liability for these sites is approximately | |||
$3 million and includes remediation and ongoing operation and maintenance costs where estimable. | |||
There are no estimated recoveries. | |||
This liability is recorded as part of the Water System's accrued expenses. | |||
There was no impact to net assets as of July 1, 2008 as a result of implementation of this pronouncement. | |||
23 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (b) GASB Statement No. 51 In June 2007, the GASB issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB No. 51). This statement establishes accounting and financial reporting standards for intangible assets. Intangible assets include, but are not limited to, easements, water rights, timber rights, patents, trademarks, and computer software. | |||
The Department adopted GASB No. 51 effective July 1, 2009. There was no impact to net assets as of July 1, 2009 as a result of implementation of this pronouncement.(c) GASB Statement No. 53 In June 2008, the GASB issued Statement No. 53, Accounting and Financial Reporting for Derivative Instruments (GASB No. 53). This statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments. | |||
This statement is effective for the Department beginning fiscal year 2010. The Water System does not have any derivative instruments, and therefore, there was no financial statement impact from the adoption of this new statement. | |||
24 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (3) Utility Plant The Water System had the following activity in utility plant during fiscal year 2010 (amounts in thousands): | |||
Nondepreciable utility plant: Land and land rights Construction work in progress Total nondepreciable utility plant Depreciable utility plant: Source of water supply Pumping Purification Distribution General Balance, July 1, 2009$ 109,317 651,538 760,855 863,577 234,394 340,879 3,255,985 458,536 5,153,371 (179,574)(96,004)(133,587)(1,166,387) | |||
(240,904)(1,816,456) | |||
Additions 472 330,677 331,149 491 5,121 13,214 72,584 34,088 125,498 (21,664)(4,321)(8,829)(52,105)(18,862)Retirements and disposals Transfers (380,425)(380,425)Balance, June 30, 2010 109,789 601,790 711,579 1,039,231 242,120 472,845 3,398,644 496,275 5,649,115-- 175,163 2,605 118,752 (5,544) 75,619 (4,635) 8,286 Total depreciable utility plant (10,179)380,425 Accumulated depreciation: | |||
Source of water supply Pumping Purification Distribution General-(201,238)-(100,325)-- (142,416)-(1,212,948) | |||
-(255,131)5,544 4,635 Total accumulated depreciation Total utility plant, net (105,781) 10,179 (1,912,058) 4,448,636$ 4,097,770 350,866 -Depreciation and amortization expense during fiscal year 2010 was $97.0 million.Land and land rights are included in the balance sheet as utility plant assets in their functional category.25 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The Water System had the following activity in utility plant during fiscal year 2009 (amounts in thousands): | |||
Nondepreciable utility plant: Land and land rights Construction work in progress Total nondepreciable utility plant Depreciable utility plant: Source of water supply Pumping Purification Distribution General Total depreciable utility plant Accumulated depreciation: | |||
Source of water supply Pumping Purification Distribution General Total accumulated depreciation Total utility plant, net Balance, July 1, 2008$ 108,344 636,620 744,964 784,846 204,210 308,064 3,075,107 431,270 4,803,497 (163,784)(92,188)(126,444)(1,114,731) | |||
(225,339)(1,722,486) | |||
Additions 973 183,407 Retirements and disposals Transfers Balance, June 30, 2009--- 109,317-(168,489) 651,538 184,380 14,034 21,721 26,593 115,691 15,813 193,852 (15,790)(3,816)(7,143)(63,396)(16,292)(106,437)(168,489)64,697 8,463 6,222 76,927 12,180 168,489 (11,740)(727)(12,467)760,855 863,577 234,394 340,879 3,255,985 458,536 5,153,371 (179,574)(96,004)(133,587)(1,166,387) | |||
(240,904)(1,816,456) 11,740 727 12,467$ 3,825,975 271,795--- 4,097,770 Depreciation and amortization expense during fiscal year 2009 was $83.1 million.Land and land rights are included in the balance sheet as utility plant assets in their functional category.26 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (4) Cash, Cash Equivalents, and Investments (a) Investments A summary of the Water System's investments is as follows (amounts in thousands): | |||
Description Investments: | |||
Water Expense Stabilization Fund Total June 30 2010 2009$ 32,680$ 32,680 32,678 32,678 All investments are to be used for a designated purpose as follows: i. Water Expense Stabilization Fund The Water Expense Stabilization Fund was established under the Master Bond Resolution and can be withdrawn upon and applied to any lawful purpose in connection with the Water System.As of June 30, 2010, the Water System's investments and their maturities are as follows (amounts in thousands): | |||
Investment maturities 1 tO 30 31 to 0 Oto ibt 365 days to Type of investments Fair value U.S. government agencies $ 23,637 Commercial paper 5,498 Negotiable CDs 2,040 Bankers' acceptances 1,499 Money market funds 6$ 32,680 days days days 5 years 2,999 6 3,005 1,000 2,040 1,000 4,040 1,499 499 1,998 23,637 23,637 27 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 As of June 30, 2009, the Water System's investments and their maturities are as follows (amounts in thousands): | |||
Investment maturities 1 to 30 31 to 60 61 to 365 Type of investments Fair value days days days U.S. government agencies $ 23,997 11,000 9,998 2,999 Commercial paper 2,999 2,000 -999 Negotiable CDs 3,000 2,000 -1,000 Money market funds 2,682 2,682 -- --32,678 17,682 9,998 4,998 Interest Rate Risk The Department's investment policy limits the maturity of its investments to a maximum of 30 years for U.S. government agency securities; 270 days for commercial paper; 397 days for negotiable certificates of deposit; and 180 days for bankers' acceptances. | |||
iii. Credit Risk Under its investment policy and the Code, the Department is subject to the prudent investor standard of care in managing all aspects of its portfolios. | |||
The prudent investor standard requires that the Department "shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency." The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government. | |||
As of June 30, 2010 and 2009, the U.S. government agency securities in the portfolio carried the highest possible credit ratings by the Nationally Recognized Statistical Rating Organizations (NRSROs) that rated them.The Department's investment policy specifies that commercial paper must be of the highest ranking or of the highest letter and number rating as provided for by at least two NRSROs. As of June 30, 2010 and 2009, all of the Water System's investments in commercial paper were rated with at least the highest letter and number rating as provided by at least two NRSROs.The Department's investment policy specifies that municipal obligations, which may include commercial paper, issued by California local agencies must be rated in a rating category of"A" or its equivalent or better by a NRSRO. As of June 30, 2010, all of the Water System's investments in municipal commercial paper were rated with at least the highest letter and number rating as provided by at least two NRSROs.28 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The Department's investment policy specifies that negotiable certificates of deposit must be of the highest ranking or letter and number rating as provided for by at least two NRSROs. As of June 30, 2010 and 2009, all of the Water System's investments in negotiable certificates of deposit were rated with at least the highest letter and number rating as provided by at least two NRSROs.The Department's investment policy specifies that bankers' acceptances must be of the highest ranking or letter and number rating as provided for by at least two NRSROs. As of June 30, 2010, all of the Water System's investments in bankers' acceptances were rated with the highest letter and number rating as provided by three NRSROs.The Department's investment policy specifies that money market funds may be purchased as allowed under the Code, which requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two NRSROs or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience managing money market mutual funds with assets under management in excess of five hundred million dollars. As of June 30, 2010 and 2009, the money market fund in the portfolio had attained the highest possible ratings by three NRSROs, specifically AAAm by Standard and Poor's (S&P), Aaa by Moody's Investors Service (Moody's), and AAA by Fitch Ratings.iv. Concentration of Credit Risk The Department's investment policy specifies that there is no percentage limitation on the amount that can be invested in U.S. government agency securities, except that a maximum of 30% of the cost value of the portfolio may be invested in the securities of any single U.S. government agency issuer.Of the Water System's total investments as of June 30, 2010, $8,040,099 (25%) was invested in securities issued by the Federal Home Loan Mortgage Corporation; | |||
$8,004,515 (24%) was invested in securities issued by the Federal National Mortgage Association; and $7,592,281 (23%) was invested in securities issued by the Federal Home Loan Bank.Of the Water System's total investments as of June 30, 2009, $8,000,000 (24%) was invested in securities issued by the Federal Home Loan Bank; $7,999,000 (24%) was invested in securities issued by the Federal National Mortgage Association; and $7,998,100 (24%) was invested in securities issued by the Federal Home Loan Mortgage Corporation.(b) Pooled Investments The Water System's cash, cash equivalents, and its collateral value of the City's securities lending program (SLP) are included within the City Treasury's general and special investment pool (the Pool). As of June 30, 2010 and 2009, the Water System's share of the City's general and special investment pool was $436,502,000 and $263,709,000, which represents approximately 5.9% and 4.7% of the Pool, respectively. | |||
29 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The cash balances of substantially all funds on deposit in the City Treasury are pooled and invested by the City Treasurer for the purpose of maximizing interest earnings through pooled investment activities but safety and liquidity still take precedence over return. Interest earned on pooled investments is allocated to the participating funds based on each fund's average daily deposit balance during the allocation period with all remaining Interest allocated to the General Fund. Investments in the City Treasury are stated at fair value based on quoted market prices except for money market investments that have remaining maturities of one year or less at time of purchase, which are reported at amortized cost.Pursuant to California Government Code Section 53607 and the Los Angeles City Council File No. 94-2160, the City Treasury shall render to the City Council a Statement of Investment Policy (the Policy) annually. | |||
City Council File No. 09-3050 was adopted on January 27, 2010 as the City's investment policy for calendar year 2010. The Policy governs the City's pooled Investment practices. | |||
The Policy addresses soundness of financial institutions in which the Treasurer will deposit funds and types of investment instruments permitted by California Government Code Sections 53600-53635 and 16429.1.Examples of investments permitted by the Policy are obligations of the U.S. Treasury and government agencies, commercial paper notes, certificates of deposit placement service, banker's acceptances, medium-term notes, mutual funds, money market mutual funds, and the State of California Local Agency Investment Fund.At June 30, 2010, the investments held in the City Treasury's General and Special Investment Pool Programs and their maturities are as follows (in thousands): | |||
Investment maturities 1 to 30 31 to 60 61 to 365 366 Days Type of Investments Amount Days Days Days to 6 years U.S. Treasury notes S 1,977,346 | |||
---1,977,346 U.S. Treasury bills 1,002,601 474,965 288,831 238,805 -U.S. Sponsored Agency Issues 2,830,258 474,135 590,834 693,595 1,071,694 Medium-term notes 735,133 --20,036 715,097 Commercial paper 594,181 322,519 117,918 153,744 -Certificates of deposit 9,000 --9,000 Short-Term Investment Funds 41,770 41,770 ---Securities Lending Cash Collateral U.S. Treasury notes 54,031 ---54,031 U.S. Sponsored Agency Issues 111,068 ---111,068 Total general and special pools S 7,355,388 1,313,389 997,583 1,115,180 3,929,236 Interest Rate Risk: The Policy limits the maturity of its Investments to a maximum of five years for the U.S. Treasury and government agency securities, medium-term notes, CD placement service, collateralized bank deposits, mortgage pass-through securities, and bank/time deposits; one year for repurchase agreements; 270 days for commercial paper; 180 days for bankers' acceptances, and 92 days for reverse repurchase agreements. | |||
30 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Credit Risk: The Policy establishes minimum credit ratings requirement for investments. | |||
There is no credit quality requirement for local agency bonds, U.S. Treasury Obligations, State of California Obligations, California Local Agency Obligations, and U.S. Agencies (U.S. government-sponsored. | |||
enterprises) securities in the Policy. The City's $2.83 billion investments in U.S. government-sponsored enterprises consist of securities issued by the Federal Home Loan Bank -$887.3 million, Federal National Mortgage Association | |||
-$763.7 million, Federal Home loan Mortgage Corporation | |||
-$476.2 million, Federal Farm Credit Bank -$164.1 million, Tennessee Valley Authority | |||
-$38.5 million, and Freddie Mac -$500.5 million. Of the City's $2.83 billion investments in U.S. agencies securities, $1,041.8 million are rated "AAA" by S&P and "Aaa" by Moody's: $1,788.5 million are not rated by the NRSRO, but have an implied highest rating in the market.Medium-term notes must be issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Medium-term notes must have at least an "A" rating. The City's $735.1 million investments in medium-term notes consist of securities issued by banks and corporations that comply with these requirements and were rated "A" or better by S&P and "A3" or better by Moody's.Commercial paper issues must have a minimum of "A-I" or equivalent rating. If the issuer has issued long-term debt, it must be rated "A" without regard to modifiers. | |||
Issuing corporation must be organized and operating within the United States and have assets in excess of $500 million. The City's $594.2 million investments in commercial paper comply with these requirements and were rated A-I+/A-1 by S&P and P-1 by Moody's.The issuers of the certificates of deposit were not rated.Concentration of Credit Risk: The Policy does not allow more than 40% of its investment portfolio be invested in commercial paper and bankers' acceptances, 30% in certificates of deposit and medium-term notes, 20% in mutual funds and money market mutual funds, and mortgage pass-through securities. | |||
The Policy further provides for a maximum concentration limit of 10% in any one issuer of commercial paper as well as in any one mutual fund, and 30% in bankers'acceptances of any one commercial bank. There is no percentage limitation on the amount that can be invested in the U.S. government agencies. | |||
The City's pooled investments comply with these requirements. | |||
GAAP requires disclosure of certain investments in any one issuer that represent 5%or more of total investments. | |||
Of the City's total pooled investments as of June 30, 2010,$887.3 million (12%) was invested in securities issued by the Federal Home Loan Bank,$476.2 million (6%) was invested in securities issued by Federal Home Loan Mortgage Corporation,$763.7 million (10%) was invested in securities issued by Federal National Mortgage Association, and $500.5 million (7%) was invested in securities issued by Freddie Mac.31 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 At June 30, 2009, the investments held in the City Treasury's general and special investment pool programs and their maturities are as follows (in thousands): | |||
Investment maturities 1 to 30 31 to 60 61 to 365 366 days Type of investments Amount days days days to 5 years U.S. Treasury notes $ 1,613,049 | |||
---1,613,049 U.S. Treasury bills 44,984 -44,984 --U.S. sponsored agency issues 1,428,909 164,842 82,201 182,052 999,814 Medium term notes 1,047,781 | |||
-25,153 125,866 896,762 Commercial paper 1,348,312 992,287 235,582 120,443 -Guaranteed investment contracts 70,081 70,081 --Certificates of deposit 9,000 --9,000 Short-term investment funds 3 3 ---Total general and special pools $ 5,562,119 1,227,213 387,920 437,361 3,509,625 Interest Rate Risk. The City's pooled investment policy limits the maturity of its investment to a maximum of five years for U.S. Treasury and federal agency securities, medium term corporate notes, and bonds issued by local agencies; 270 days for commercial paper, and 32 days for repurchase agreements. | |||
Credit Risk. The City's pooled investment policy requires that for all classes of investment, except linked banking program certificates of deposits, the issuers' minimum credit ratings shall be Standard and Poor's Corporation (S&P) A-I/A or Moody's Investor Services (Moody's) | |||
P-l/A2 and, if available, Fitch IBCA Fl/A. In addition, domestic banks are limited to those with a current Fitch Ratings Bank Watch of "B/C" or better and an A-1 short-term rating. The City Treasurer is granted the authority to specify approved California banks with Fitch Rating Bank Watch of "C" of better and an A-2 rating where appropriate. | |||
In addition to a "AAA" rating for country risk, foreign banks with domestic licensed offices must be rated "B" or better and TBW-i short-term rating by Fitch Rating Bank Watch. Domestic savings better must be rated "B/C" or better and a TBW-i short-term rating by Fitch Ratings Bank Watch.Medium term notes must be issued by corporations operating within the United States and having total assets in excess of $500 million. Commercial paper issuers must meet the preceding requirement or must be issued by corporations organized in the United States as a special purpose corporation, trust or limited liability company having program-wide credit enhancements. | |||
At June 30, 2009, the City's $1.43 billion investment in U.S. government sponsored enterprises consist of securities issued by the Federal Home Loan Bank -$472.7 million, Federal National Mortgage Association | |||
-$272.4 million, Federal Home Loan Mortgage Corporation | |||
-$398.9 million, Federal Farm Credit Bank -$126.0 million, Tennessee Valley Authority | |||
-$37.1 million, Freddie Mac Discount Note -$69.3 million, and Farmer Mac Federal Agricultural | |||
-32 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009$52.6 million, As of June 30, 2009, these securities carried the highest ratings of AAA (S&P) and Aaa (Moody's). | |||
The City's $1.05 billion investments in medium-term notes consist of securities issued by banks and corporations that comply with the requirements discussed above and were rated "A" or better by S&P and "A3" or better by Moody's.The City's $1.35 billion investments in commercial paper comply with the requirements discussed above and were rated A-I+A-1 by S&P and P-1 by Moody's.The issuers of the certificates of deposits are not rated.(5) Securities Lending Transactions The Water System participates in a securities lending program. As of June 30, 2010 and 2009, amounts held in the City of Los Angeles Program are as follows (collateral amounts in thousands): | |||
June 30 Program 2010 2009 City of Los Angeles Program $ 5,027 (a) Department Program The Department's securities lending program is managed by its custodial bank. The bank lends up to 20% of the investments held in the Water System's plan assets held in the Water Expense Stabilization Fund for securities, cash collateral, or letters of credit equal to 102% of the fair value of the loaned securities and interest, if any. The Department can sell securities received as collateral only in the event of borrower default. Both the investments purchased with the collateral received and the related liability to repay the collateral are reported on the balance sheets.The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during fiscal years 2010 and 2009.Management participates in the securities lending programs to maximize earnings from investments and believes that participation in these securities lending programs results in minimal credit risk exposure to the Department because the amounts owed to the borrowers exceed the amounts that are on loan.(b) General In vestment Pool Program The Water System also participates in the City's securities lending program through the pooled investment fund. The City's program has substantially the same terms as the Department's direct securities lending program. The Department recognizes its proportionate share of the cash collateral received for securities loaned and the related obligation for the general investment pool. Securities lending is permitted and limited under provisions of California Government Code Section 53601.33 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The City Council approved the Securities Lending Program (the SLP) on October 22, 1991 under Council File No. 91-1860, which complies with the California Government Code. The objectives of the SLP in priority order are: safety of loaned securities and prudent investment of cash collateral to enhance revenue from the investment program. The SLP is governed by a separate policy and guidelines. | |||
The City's custodial bank acts as the securities lending agent. In the event a counterparty defaults by reason of an act of insolvency, the bank shall take all actions which it deems necessary or appropriate to liquidate permitted investment and collateral in connection with such transaction and shall make a reasonable effort for two business days (Replacement Period) to apply the proceeds thereof to the purchase of securities identical to the loaned securities not returned. | |||
If during the Replacement Period the collateral liquidation proceeds are insufficient to replace any of the loaned securities not returned, the bank shall, subject to payment by the City of the amount of any losses on any permitted investments, pay such additional amounts as necessary to make such replacement. | |||
Under the provisions of the SLP, and in accordance with the California Government Code, no more than 20% of the market value of the General Investment Pool is available for lending. The City receives cash as collateral on loaned securities, which is reinvested in securities permitted under the Policy, In accordance with the California Government Code, the securities lending agent marks to market the value of both the collateral and the reinvestments daily. Except for open loans where either party can terminate a lending contract on demand, term loans have a maximum life of 92 days.Earnings from securities lending accrue to the Pool and are allocated on a pro-rata basis to all Pool participants. | |||
The City's SLP that was temporarily suspended in November 2008 due to the extreme volatility in the financial markets was resumed on April 22, 2010, At June 30, 2010, the assets and liabilities arising from the reinvested cash collateral were recognized in the respective participants' financial statements. | |||
During the fiscal year 2010, collateralizations on all loaned securities were compliant with the required 102% of the market value. The City can sell collateral securities only in the event of borrower default. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during the year. There was no credit risk exposure to the City because the amounts owed to the borrowers exceeded the amounts borrowed. | |||
Loaned securities are held by the City's agents in the City's name and are not subject to custodial credit risk.At June 30, 2010 and 2009, the assets and liabilities arising from the reinvested cash collateral were recognized in the respective participants' financial statements. | |||
During the fiscal year, collateralizations on all loaned securities were within the required 102% of market value. The City can sell collateral securities only in the event of borrower default. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during the year. There was no credit risk exposure to the City as of June 30, 2009 because the amounts owed to the borrowers exceeded the amounts borrowed. | |||
Loaned securities are held by the City's agents in the City's name and are not subject to custodial credit risk.34 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (6) Long-Term Debt Long-term debt outstanding as of June 30, 2010 and 2009 consists of revenue bonds and refunding revenue bonds due serially in varying annual amounts,' | |||
and other long-term debt, as follows (amounts in thousands): | |||
Fiscal year of last Effective Bond issues Date of issue interest scheduled Principal outstanding rate maturity 2010 2009 Revenue bonds: Issue of 2001, Series A Issue of 2001, Series B Issue of 2001, Series C Issue of 2003, Series A Issue of 2003, Series B Issue of 2004, Series C Issue of 2006, Series Al Issue of 2006, Series A2 Issue of 2007, Series Al Issue of 2007, Series A2 Issue of 2009, Series A Issue of 2009, Series B Issue of 2009, Series C 02/01/01 02/28/01 11/15/01 01/07/03 03/06/03 07/29/04 02/07/06 02/07/06 06/26/07 06/26/07 02/04/09 12/03/09 12/03/09 5.245%Variable 4.788 5.083 4.014 4.902 4.600 4.650 4.764 4.909 5.118 3.252 3.844 2042 2036 2017 2044 2031 2034 2041 2036 2038 2044 2039 2021 2040$ 291,165 325,000 2,274 300,000 128,165 200,000 222,245 241,085 93,815 197,450 150,000 141,200 346,090 2,638,489 294,395 325,000 2,307 300,000 136,975 200,000 232,960 241,085 96,315 197,450 150,000 2,176,487 6,331 Total principal amount Unamortized premiums, discounts, and debt-related costs (including net loss on refundings) | |||
Debt due within one year (including current portion of variable rate debt)Other long-term debt: Loans payable to California Department of Water Resources (CDWR)Amount due within one year 20,977 (58,290) (57,755)2,601,176 2,125,063 12/27/01 06/28/07 09/11/07 06/28/07 2.320 2.600 2.452 2.292 2024 2030 2030 2030 12,853 25,336 34,829 38,684 (4,728)106,974$ 2,708,150 13,655 20,549 34;828 (757)68,275 2,193,338 Revenue bonds generally are callable 10 years after issuance. | |||
The Department has agreed to certain covenants with respect to bonded indebtedness. | |||
Significant covenants include the requirement that Water System's net income, as defined, will be sufficient to pay certain amounts of future annual bond interest 35 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 and of future annual aggregate bond interest and principal maturities. | |||
Revenue bonds and refunding bonds are collateralized by the future revenues of the Water System.(a) Long-Term Debt Activity Water System had the following activity in long-term debt during fiscal year 2010 (amounts in thousands): | |||
Balance, Balance, Current July 1, 2009 Additions Reductions June 30, 2010 portion Revenue bonds $ 2,182,818 502,906 (26,258) 2,659,466 58,290 Loan from CDWR 69,032 43,471 (801) 111,702 4,728 Total $ 2,251,850 546,377 (27,059) 2,771,168 63,018 Balance, Balance, Current July 1, 2008 Additions Reductions June 30, 2009 portion Revenue bonds $ 2,087,754 151,492 (56,428) 2,182,818 57,755 Loan from CDWR 69,816 -- (784) 69,032 757 Total $ 2,157,570 151,492 (57,212) 2,251,850 58,512 (b) New Issuances i Fiscal Year 2010 In December 2009, the Water System issued $141.20 million and $346.09 million of Water System Revenue Bonds, 2009 Series B and 2009 Series C, respectively. | |||
The net proceeds of$156.08 million (net of issue premium and underwriter's discount of $14.88 million) and$343.92 million (net of underwriter's discount of $2.17 million) from the 2009 Series B and 2009 Series C transactions, respectively, were deposited into the construction fund to be used for capital improvements. | |||
Water 2009, Series C Bonds, designated as "Build America Bonds" under the American Recovery and Reinvestment Act of 2009 has an average life of 20.16 years and an average coupon rate of 5.867%. The reported 3.844% effective interest rate is net of the premium, underwriter's discount and the cash subsidy payments to be received by the Department directly from the United States Treasury equal to 35% of the interest payable on the bonds.In June 2007, the Department entered into a loan agreement with CDWR. The loan agreement allows a total maximum loan of $38.7 million, at a fixed interest rate of 2.29%. In March 2010, the Department received the full $38.7 million under the agreement. | |||
The proceeds are being used to fund water quality capital improvements. | |||
The Water System is required to begin making principal payments under this agreement beginning in October 2010.36 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 ii Fiscal Year 2009 In February 2009, the Water System issued $150 million of Water System Revenue Bonds, 2009 Series A. The net proceeds of $150.7 million from the transaction, net of $700,000 issue premium and underwriters' discount, were deposited into the construction fund to be used for capital improvements.(c) Outstanding Debt Defeased The Water System defeased certain revenue bonds in prior years by placing cash or the proceeds of new revenue bonds in irrevocable trusts to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in Water System's financial statements. | |||
At June 30, 2010, the following revenue bonds outstanding are considered defeased (amounts in thousands): | |||
Principal Bond issues outstanding Issue of 1998 R $ 72,690 (d) Variable Rate Bonds The variable rate bonds currently bear interest at daily and weekly rates ranging from 0.24% to 0.26% as of June 30, 2010 and 0.23% to 0.30% as of June 30, 2009. The Department can elect to change the interest rate period of the bonds, with certain limitations. | |||
The bondholders have the right to tender the bonds to the tender agent on any business day with seven days' prior notice. The Department has entered into standby agreements with a syndicate of commercial banks in an initial amount of $225 million, and $100 million to provide liquidity for these bonds. The initial and extended standby agreements expire in February 2012 and October 2013, respectively. | |||
The bonds that would be issued under the standby agreements would bear interest that is payable quarterly at the greater of (a) 8.00% per annum, (b) Fed Funds plus 2.50% per annum, (c) the Prime Rate plus 2.50% per annum, and (d) 150% of the yield on actively traded 30-year United States Treasury Bonds. The unpaid principal of bonds is payable in 10 equal semiannual installments, commencing after the termination of the agreement. | |||
At its discretion, the Department has the ability to convert the outstanding bonds to fixed-rate obligations, which cannot be tendered by the bondholders. | |||
The variable rate bonds have been classified as long-term on the balance sheets as the liquidity facilities give the Department the ability to refinance on a long-term basis and the Department intends to either renew the facilities or exercise its right to tender the debt as a long-term financing. | |||
That portion, which would be due in the next fiscal year in the event that the outstanding variable rate bonds were tendered and purchased by the commercial banks under the standby agreements, has been included in the current portion of long-term debt and remains unchanged at $32.5 million as of June 30, 2010 and 2009.37 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (e) Scheduled Principal Maturities and Interest Scheduled annual principal maturities and interest are as follows (amounts in thousands): | |||
Fiscal years ending June 30: 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2045 Total requirements Principal$ 30,503 28,969 34,060 34,454 37,352 254,620 316,141 393,292 491,275 624,140 505,385$ 2,750,191 Interest and amortization 126,845 125,613 124,116 122,593 121,050 576,974 515,368 431,407 332,274 195,635 47,740 2,719,615 The maturity schedule presented above reflects the scheduled debt service requirements for all of the Water System's long-term debt. The schedule is presented assuming that the tender options on the variable rate bonds, as discussed on the previous page, will not be exercised. | |||
Should the bondholders exercise the tender options, the Water System could be required to redeem the $325 million in variable rate bonds outstanding over the next six fiscal years as follows: $32.5 million in fiscal year 2011, $65 million in each of the fiscal years 2012 through 2015, and $32.5 million in fiscal year 2016. Accordingly, the balance sheets recognize the possibility of the exercise of the tender options and reflect the $32.5 million that could be due in fiscal year 2011 as a current portion of long-term debt payable.Interest and amortization presented in the above schedule include interest requirements for the variable rate debt over the regularly scheduled maturity period at the interest rate in effect at June 30, 2010 of 0.21% for tax-exempt bonds. Should the tender options be exercised, the interest would be payable at the rate in effect at the time the standby agreements are activated. | |||
(7) Retirement, Disability, and Death Benefit Insurance Plan The Department has a funded contributory retirement, disability, and death benefit insurance plan covering substantially all of its employees. | |||
The Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) operates as a single-employer defined benefit plan to provide pension benefits to eligible Department employees and to provide disability and death benefits from the respective insurance funds. Plan benefits are generally based on years of service, age at retirement, and the employee's highest 12 consecutive months of salary before retirement. | |||
Active participants who joined the plan on or after June 1, 1984 are required to contribute 6% of their annual covered payroll. Participants 38 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 who joined the plan prior to June 1, 1984 contribute an amount based upon an entry-age percentage rate.The Department contributes | |||
$1.10 for each $1.00 contributed by participants plus an actuarially determined annual required contribution (ARC) as determined by the Plan's independent actuary. The required contributions are allocated between the Water System and the Power System based on the current year labor costs.The Retirement Board of Administration (the Retirement Board) is the administrator of the Plan. The Plan is subject to provisions of the Charter of the City of Los Angeles and the regulations and instructions of the Board. The Plan is an independent pension trust fund of the City.Plan amendments must be approved by both the Retirement Board and the Board. The Plan issues separately available financial statements on an annual basis. Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 N. Hope Street, Room 357, Los Angeles, CA 90012.The annual pension cost (APC) and net pension asset for the Department's Plan consist of the following (amounts in thousands): | |||
Annual required contribution Interest on net pension asset Adjustment to annual required contribution APC (including | |||
$68.0 million and $44.3 million of amounts capitalized in fiscal years 2010 and 2009, respectively) | |||
Department contributions Change in net pension asset Net pension asset at beginning of year Net pension asset at end of year Year ended June 30 2010 2009 210,341 143,698 (11,113) (11,175)16,559 16,652 215,787 (201,002)14,785 (119,051)$ (104,266)149,175 (144,916)4,259 (123,310)(119,051)39 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The Water System's allocated share of the Plan's APC and net pension asset consists of the following (amounts in thousands): | |||
Annual required contribution Interest on net pension asset Adjustment to annual required contribution APC (including | |||
$29.7 million and $19.2 million of amounts capitalized in fiscal years 2010 and 2009, respectively) | |||
Department contributions Change in net pension asset Net pension asset at beginning of year Net pension asset at end of year Year ended June 30 2010 2009 67,309 45,983 (3,556) (3,576)5,299 5,329 69,052 (71,580)(2,528)(48,407)(50,935)47,736 (50,312)(2,576)(45,831)(48,407)ARCs are determined through actuarial valuations using the entry-age normal actuarial cost method. The actuarial value of assets in excess of the Department's actuarial accrued liability (AAL) is being amortized by level contribution offsets over rolling 15-year periods effective July 1, 2000.In accordance with actuarial valuations, the Department's required contribution rates are as follows: Fiscal year Deficit Contribution Normal cost amortization rate 12.94% 12.18 26.12%12.68 6.82 20.28 2010 2009 The significant actuarial assumptions include an investment rate of return of 8.00%, projected inflation-adjusted salary increases of 4.25%, and postemployment benefit increases of 3.00%. The actuarial value of assets is determined using techniques that smooth the effects of short-term volatility in the market value of investments over a five-year period. Plan assets consist primarily of corporate and government bonds, common stocks, mortgage-backed securities, and short-term investments. | |||
40 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Trend information for fiscal years 2010, 2009, and 2008 for the Water System is as follows (amounts in thousands): | |||
Non-Profit Percentage Organization of APC (asset) contribution APC Year ended June 30: 2010 $ (50,935) 104% $ 69,052 2009 (48,407) 105 47,736 2008 (45,831) 100 47,967 (a) Disability and Death Benefits The Water System's allocated share of disability and death benefit plan costs and administrative expenses totaled $8.4 million and $8.7 million for fiscal years 2010 and 2009, respectively.(b) Funded Status and Funding Progress As of July 1, 2009, the Department's actuarial value of assets was $7.2 billion and AAL for benefits was $8.1 billion resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $808.3 million.The covered payroll (annual payroll of active employees covered by the Plan) was $805.1 million, and the ratio of the UAAL to the covered payroll was 100%.As of July 1, 2008, the Department's actuarial value of assets was $7.2 billion and AAL for benefits was $7.6 billion resulting in a UAAL of $371.2 million. The covered payroll (annual payroll of active employees covered by the Plan) was $708.7 million, and the ratio of the UAAL to the covered payroll was 52%.Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the salary increases. | |||
Amounts determined regarding the funded status of the Plan and the ARCs of the Department are subject to continual revision as actual results are compared with past expectations and new estimates are made for the future. The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.(c) Current Status of Plan The July 1, 2010 actuarial study for the Plan noted the market value of the Plan's assets were approximately | |||
$6.27 billion and the UAAL was approximately | |||
$1.65 billion. The Plan had unrecognized investment losses of $1.0 billion as of June 30, 2010. The Plan employs a five-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in "smoothed" assets that are lower or higher than the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. If the 41 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 unrecognized investments losses were recognized immediately, required contributions to the Plan would increase from approximately 38.45% of covered payroll to 51.93% of covered payroll.Additionally, if the unrecognized investment losses were recognized immediately in the actuarial value of assets, the funded ratio of the Plan would decrease from 81% to 70%.(8) Other Postemployment Benefit (Healthcare) | |||
Plan (a) Plan Description The Department provides certain healthcare benefits to active and retired employees and their dependents. | |||
The healthcare plan is administered by the Department. | |||
The Retirement Board and the Board have the authority to approve provisions and obligations. | |||
Eligibility for benefits for retired employees is dependent on a combination of age and service of the participants pursuant to a predetermined formula. Any changes to these provisions must be approved by the Retirement Board and the Board. The total number of active and retired Department participants entitled to receive benefits was approximately 16,701 and 16,170 for the fiscal years ended June 30, 2010 and 2009, respectively. | |||
The health plan is a single-employer defined benefit plan. During fiscal year 2007, the Retiree Health Benefits Fund (the Fund) was created to fund the postemployment benefits of the Department. | |||
The Fund is administered as a trust and has its own financial statements. | |||
Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 N. Hope Street, Room 357, Los Angeles, CA 90012.(b) Funding Policy The Department pays a monthly maximum subsidy of $1,195 for medical and dental premiums depending on the employee's work location and benefits earned. Participants choosing plans with a cost in excess of the subsidy they are entitled to are required to pay the difference. | |||
Although no formal funding policy has been established for the future benefits to be provided under this plan, the Department has made significant contributions into the Fund. In fiscal year 2010, the Department transferred | |||
$100 million into the Fund and paid an additional | |||
$60.5 million in retiree medical premiums. | |||
In fiscal year 2009, the Department transferred | |||
$100 million in cash into the Fund and paid an additional | |||
$59.2 million in retiree medical premiums. | |||
The Water System's portion of these amounts was $51.4 million and $51.0 million for 2010 and 2009, respectively.(c) Annual Other Post Employment Benefits Cost and Net (OPEB) Obligation The annual OPEB cost (expense) is calculated based on the ARC of the employer, an amount actuarially determined in accordance with the parameters of GASB No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost under each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.42 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The following table shows the components of the Department's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the net other postretirement benefit asset (amounts in thousands): | |||
Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Contributions made Change in net OPEB asset Net OPEB asset -beginning of year Net OPEB asset -end of year Year ended June 30 2010 2009 58,503 60,976 (54,996) (46,027)42,893 35,089 46,400 50,038 (160,460)(114,060)(665,698)(779,758)(159,522)(109,484)(556,214)(665,698)The following table shows the components of the Water System's share in annual OPEB cost for the year, the amount actually paid in premiums, and changes in the net OPEB asset (amounts in thousands): | |||
Year ended June 30 Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB costs Contributions made Change in net OPEB asset Net OPEB asset -beginning of year Net OPEB asset -end of year 2010$ 18,721 (17,599)13,725 14,847 (51,396)(36,549)(209,737)$ (246,286)2009 19,512 (14,729)11,229 16,012 (50,997)(34,985)(174,752)(209,737)43 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The Department's annual OPEB costs, the percentage of annual required contribution contributed to the Plan, and the net postemployment obligation for fiscal years 2010, 2009, and 2008 were as follows (amounts in thousands): | |||
2010 2009 2008 Annual OPEB costs $ 46,400 50,038 31,077 Percentage of the ARC contributed 346% 319% 504%Net postemployment asset $ 779,758 665,698 556,214 The Water System's share in the annual OPEB costs, the percentage of annual required contribution contributed to the Plan, and the net postretirement obligation for fiscal years 2010, 2009, and 2008 were as follows (amounts in thousands): | |||
2010 2009 2008 Annual OPEB costs $ 14,847 16,012 9,945 Percentage of the ARC contributed 346% 318% 503%Net postemployment asset $ 246,286 209,737 174,752 (d) Funded Status and Funding Progress As of July 1, 2009, the Department's actuarial value of assets was $850 million, and AAL for benefits was $1.4 billion, resulting in a UAAL of $541 million. The covered payroll (annual payroll of active employees covered by the Plan) was $805.1 million, and the ratio of the UAAL to the covered payroll was 67%.As of July 1, 2008, the Department's actuarial value of assets was $719.6 million, and AAL for benefits was $1.4 billion, resulting in a UAAL of $638 million. The covered payroll (annual payroll of active employees covered by the Plan) was $708.7 million, and the ratio of the UAAL to the covered payroll was 90%.Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the Department are subject to continual revision as actual results are compared with past expectations and new estimates are made for the future. The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.(e) Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the Department 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 44 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Department and the 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 AAL and the actuarial value of assets, consistent with the long-term perspective of the calculations. | |||
In the July 1, 2009 actuarial valuation, the entry-age normal cost method was used. The actuarial assumptions include 8.00% discount rate, which represents the expected long-term return on plan assets, and an annual healthcare cost trend rate of 9.00% initially, reduced by decrements to an ultimate rate of 5.00% after eight years. Both rates include a 3.75% inflation assumption. | |||
The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a 26-year period.In the July 1, 2008 actuarial valuation, the entry-age normal cost method was used. The actuarial assumptions include 8.00% discount rate, which represents the expected long-term return on plan assets, and an annual healthcare cost trend rate of 9.00% initially, reduced by decrements to an ultimate rate of 5.00% after eight years. Both rates include a 3.75% inflation assumption. | |||
The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a 27-year period.(9) Other Long-Term Liabilities In addition to long-term debt, the Water System had the following other long-term liabilities: | |||
Accrued Workers' Compensation Claims Liabilities for unpaid workers' compensation claims are recorded at their net present value when they are probable of occurrence and the amount can be reasonably estimated. | |||
The liability is actuarially determined, based on an estimate of the present value of the claims outstanding and an amount for claim-events incurred but not reported based upon the Department's loss experience, less the amount of claims and settlements paid to date. The discount rate used to calculate this liability at its present value was 4% at June 30, 2010 and 2009. The Department has third-party insurance coverage for workers' compensation claims over $1 million.Overall indicated reserves for workers' compensation claims, for both the Water System and the Power System, undiscounted, have increased from $53 million as of June 30, 2009 to $69.7 million as of June 30, 2010. This increase is mainly attributable to an increase in the number of open cases filed at the Department. | |||
The decrease in the June 30, 2009 liability was due to a downward trend in the number of cases filed at the Department and the utility industry. | |||
As the claims typically take longer than one year to settle and close out, the entire discounted liability is shown as long-term on the balance sheets as of June 30, 2010 and 2009.45 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Changes in the Department's undiscounted liability since June 30, 2008 are summarized as follows (amounts in thousands): | |||
Year ended June 30 2010 2009 2008 Balance at beginning of year $ 53,037 57,757 49,669 Current year claims and changes in estimates 34,771 15,053 28,238 Payments applied (18,116) (19,773) (20,150)Balance at end of year , $ 69,692 53,037 57,757 The Water System's portion of the discounted reserves as of June 30, 2010 and 2009 is $18.9 million and$13.5 million, respectively. | |||
(10) Commitments and Contingencies (a) Transfers to the Reserve Fund of the City of Los Angeles In prior fiscal years, under the provisions of the City Charter, the Board authorized transfers of funds from the Water System to the reserve fund of the City. Such transfers were made at the Board's discretion. | |||
Pursuant to covenants contained in the bond indentures, the transfers could not be in excess of the increase in fund net assets before transfers to the reserve fund of the City of the prior fiscal year. Such payments were not in lieu of taxes and were recorded as a transfer in the statements of revenues, expenses, and changes in fund net assets.As of June 30, 2008, the Water System had a liability due to the reserve fund of the City of Los Angeles of $63.3 million consisting of a transfer declared in fiscal year 2007 of $29.9 million and a transfer declared in fiscal year 2008 of $33.4 million. Both transfers had been conditioned by ordinance to be effective only upon a final judgment rendered in a validation lawsuit or other legal action proceeding by a court of competent jurisdiction. | |||
The 2007 transfer was presented and approved by City Council in 2008, but the 2008 transfer was not presented to City Council for consideration. | |||
Because of changes in the Water System's financial position and the lack of action taken by the City Council, in May 2009, the Board rescinded the 2008 transfer of $33.4 million and reversed the respective liability. | |||
In July 2009, the Department received a final judgment on the 2007 transfer. | |||
The court declared the 2007 Water System transfer illegal based on Proposition 218 and allowed the Water System to retain the $29.9 million and use it for water-related activities. | |||
As a result of the court decision, the 2007 transfer liability was also reversed.(b) Operating Lease The Water System utilizes an advanced wastewater treatment facility owned by the Water System but is operated by and located on property leased by a separate department of the City. The use of this facility is accounted for as an operating lease. During fiscal year 2010, the Water System spent 46 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 approximately | |||
$2.1 million to operate and maintain this asset. There are no minimum rental payments that the Department has to make. However, the Water System is obligated to reimburse the other City department for the department's operating and maintenance costs to operate the facility, estimated to be about $2.3 million per year, for a term of 25 years. The Water System will also pay additional amounts to the other City department, if revenues generated by the Water System exceed the costs of operation and maintenance as defined by the agreement. | |||
The Water System does not expect to pay such additional amounts as it does not expect that a net operating profit will be achieved based on current demand for recycled water.(c) Surface Water Treatment Rule The State of California Surface Water Treatment Rule (SWTR) imposed increased filtration requirements at any open distribution reservoir exposed to surface water runoff. The Department had four major reservoirs in its system subject to SWTR: Upper and Lower Hollywood, Lower Stone Canyon, and Encino. To comply with SWTR, the Department designed projects to remove these reservoirs from regular service through construction of larger pipelines and alternate covered storage facilities. | |||
The Hollywood Water Quality Improvement Project was completed in July 2002. Upper and Lower Hollywood Reservoirs were removed from service and functionally replaced by two 30 million gallon tanks and additional pipelines. | |||
Construction of the Encino project was completed in December 2007. Construction of the Lower Stone Canyon Water Quality Improvement Project was completed in November 2008. The Department is now in compliance with the SWTR.(d) Stage 2 Disinfectants and Disinfection Byproduct Rule In January 2006, the Environmental Protection Agency (EPA) published the Stage 2 Disinfectants and Disinfection Byproduct Rule (Stage 2 DBP Rule) in the federal register. | |||
The Stage 2 DBP Rule strengthens public health protection for customers by tightening compliance monitoring. | |||
requirements for two groups of disinfection byproducts, trihalomethanes (TTHM), and haloacetic acids (HAA5). Disinfection Byproducts (DBPs) form when naturally occurring materials in water (e.g., decomposing plant material) combine with chemicals added to disinfect the water. DBPs are associated with cancer.In order to comply with the requirements of the Stage 2 DBP Rule, the Department must change its primary disinfectant from chlorine to chloramines, a less reactive disinfectant, by April 1, 2014. In order to convert to chloramines, the Department is proposing the construction of several chloramination stations, ammoniation stations, and the installation of mixers in tanks and reservoirs. | |||
The cost of Stage 2 DBP compliance-related engineering studies and construction activities on the remaining 10 projects is expected to be approximately | |||
$202 million at completion. | |||
The actual expenditures to date are $97 million.(e) Long-Term 2 Enhanced Surface Water Treatment Rule In January 2006, the EPA published the Long-Term 2 Enhanced Surface Water Treatment Rule (LT2) in the federal register. | |||
The LT2 builds upon the Safe Drinking Water Act and other earlier 47 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 water quality rules to strengthen protection against microbial contaminants, especially Cryptosporidium. | |||
Cryptosporidium is a significant concern in drinking water because it contaminates most watersheds used for the collection of drinking water and can cause gastrointestinal illness. The Department has six reservoirs in its system subject to LT2: Ivanhoe, Silver Lake, Elysian, Upper Stone Canyon, Santa Ynez, and Los Angeles. In order to comply with the requirements of the LT2, the Department is proposing to cover, bypass, or build alternate covered storage for the aforementioned reservoirs and to install additional pipelines and related facilities. | |||
All these projects are in different stages of planning, design, and construction. | |||
The cost of LT2 compliance-related engineering studies and construction activities is expected to reach $1.5 billion at completion in 2026. The actual cost spent to date has been $167 million.I0) Owens Lake During 1997, the Great Basin Unified Air Pollution Control District (the District) adopted an initial State Implementation Plan, as amended, and an implementing order requiring the Department to initiate pollution control measures to control particulate matter emitting from the Owens Dry Lake bed. The Department disputed the remediation measures imposed by the original order; however, in July 1998, the Department and the District entered into a Memorandum of Agreement (MOA) to mitigate the dust problem. The MOA delineated the dust-producing areas on the lakebed that needed to be controlled, specified what measures must be used to control the dust, and specified a timetable for implementation of the control measures. | |||
The MOA called for phased implementation to permit the effectiveness of the control measures to be evaluated and modifications to be made as the control measures were being installed. | |||
The MOA was incorporated into a formal air quality State Implementation Plan (SIP) by the District.This SIP was approved by the EPA on October 4, 1999. The District revised and adopted the SIP in November 2003. The revised SIP defines the additional boundaries and areas required to be controlled on the lakebed. The Department was allowed to examine the District's methodology to determine the additional areas to be controlled. | |||
As a result of those efforts, the District ordered in the revised SIP that 29.8 square miles required control including the areas the Department agreed to and completed. | |||
The revised SIP demonstrated that upon completion of the Department's work, emissions from Owens Lake bed should be reduced so that the Owens Valley Planning Area would attain and maintain the Federal Clean Air Act ambient air quality standards for particulate matter. The Federal Clean Air Act requires that Owens Lake meet ambient air quality standards by the end of 2006.The MOA specified that the Department must choose from among three control measures the District has certified as Best Available Control Measures for Owens Lake. The three measures are Shallow Flooding, Managed Vegetation, and Gravel. The first phase of dust control implementation, completed in December 2001, consists of 13.5 square miles of Shallow Flooding. | |||
Shallow Flooding involves flooding the area to be controlled until either it is inundated with a few inches of water or the soil becomes thoroughly saturated to the surface with water. The second phase of dust control implementation, completed in July 2002, consists of about four square miles of Managed Vegetation. | |||
Managed Vegetation involves growing native vegetative cover that will hold the shifting and emissive lakebed in place, locking up the dust. The third and fourth phases of dust control implementation, completed in March 2003 and September 2005, respectively, consist of a total of 48 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June,30, 2010 and 2009 5.6 square miles of additional Shallow Flooding. | |||
The fifth phase completed the remainder of the required 29.8 square miles of dust control in December 2006 with Shallow Flooding.The total capital-related costs of implementing the 29.8 square miles of dust control measures through 2008 are approximately | |||
$413 million.In November 2006, the Department and the District entered into an agreement to settle their disputes arising from supplemental dust control measures proposed to be ordered upon the Department by the District (Settlement Agreement). | |||
The Settlement Agreement largely defines the Department's activities moving forward in terms of new dust control measure development and air quality regulatory and research activities. | |||
The essence of the agreement calls for the City to construct 12.7 square miles of dust control measures by April 2010, 9.2 square miles must be Shallow Flooding and the remaining 3.5 square miles can be of the City's own choosing, including a new low to zero water using method called moat and row. Following a successful demonstration project, the Department moved forward with plans to implement moat and row on 3.5 square miles. In turn, the agreement allows for new opportunities for water savings and a marked improvement as to how the Department will be regulated in the future.The District issued a new revised SIP in February 2008 that included an order to control the additional dust control areas agreed to in the Settlement Agreement. | |||
The Department completed construction of 9.2 square miles of shallow flooding at a cost of $120 million in April 2010. The Department is now diverting up to 95,000 acre feet per year of water from the Los Angeles Aqueduct for dust mitigation activities on Owens Lake. Due to concerns expressed by the California State Lands Commission and the California Department of Fish and Game, construction of moat and row on 3.5 square miles was delayed with a new required completion date of October 1, 2010 in order to conduct additional environmental analysis. | |||
This additional environmental analysis was completed in August 2009. However, the California State Lands Commission would only issue a lease for 0.4 square miles leaving 3.1 square miles unmitigated. | |||
The Department is working with the District to develop an alternative dust control solution for the remaining 3.1 square miles. Additionally, on September 7, 2010, the Department completed a Mitigated Negative Declaration for Phase 8 of the Owens Lake Dust Mitigation Program for construction of 2 square miles of Gravel Cover, a District-approved waterless dust control measure.(g) Litigation A number of claims and suits are pending against the Department for alleged damages to persons and property and for other alleged liabilities arising out of its operations. | |||
In the opinion of management, any ultimate liability, which may arise from these actions, is not expected to materially impact the Water System's financial position, changes in fund net assets, or cash flows as of June 30, 2010 and 2009.49 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (h) Risk Management The Water System is subject to certain business risks common to the utility industry. | |||
The majority of these risks are mitigated by external insurance coverage obtained by the Water System. For other significant business risks, however, the Water System has elected to self-insure. | |||
Management believes that exposure to loss arising out of self-insured business risks will not materially impact the Water System's financial position, changes in fund net assets, or cash flows as of June 30, 2010.(i) Credit Risk Financial instruments, which potentially expose the Water System to concentrations of credit risk, consist primarily of retail receivables. | |||
The Water System's retail customer base is concentrated among commercial, industrial, residential, and governmental customers located within the City.Although the Water System is directly affected by the City's economy, management does not believe significant credit risk exists at June 30, 2010, except as provided in the allowance for losses. The Water System manages its credit exposure by requiring credit enhancements from certain customers and through procedures designed to identify and monitor credit risk.50 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Required Supplementary Information (Unaudited) | |||
June 30, 2010 Pension Plan -Schedule of Funding Progress The following schedule provides information about the Department's overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands): | |||
Actuarial valuation date July 1 Actuarial value of assets Actuarial accrued liability (AAL)8,893,618 8,057,061 7,619,103 Unfunded AAL (UAAL)1,649,189 808,340 371,250 Funded Covered ratio payroll UAAL as a percentage of covered payroll 193%100%52%2010 2009 2008$ 7,244,430 7,248,721 7,247,853 81% $90 95 856,090 805,138 708,732 Postemployment Healthcare Plan -Schedule of Funding Progress The following schedule provides information about the Department's overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands): | |||
Actuarial valuation date July 1 2010 2009 2008 Actuarial value of assets$ 987,476 849,955 719,637 Actuarial accrued liability (AAL)1,631,916 1,390,811 1,358,103 Unfunded AAL (UAAL)644,440 540,855 638,467 Funded Covered ratio payroll UAAL as a percentage of covered payroll 75%67 90 61% $61 53 856,090 805,138 708,732 See accompanying independent auditors' report.51 ENCLOSURE 2 PALO VERDE NUCLEAR GENERATING STATION 2009 ANNUAL FINANCIAL REPORTS Salt River Project Southern California Public Power Authority Los Angeles Department of Water and Power SALT RIVER PROJECT COMBINED FINANCIAL STATEMENTS AS OF APRIL 30,2010 AND 2009 TOGETHER WITH REPORT OF INDEPENDENT AUDITORS SALT RIVER PROJECT COMBINED BALANCE SHEETS APRIL 30, 2010 AND 2009 (Thousands) | |||
Utility Plant Plant in Service -Electric Irrigation Common Total plant in service Less -Accumulated depreciation on plant in service Plant held for future use Construction work in progress Nuclear fuel, net Other Property and Investments Non-utility property and other investments Segregated funds, net of current portion Current Assets Cash and cash equivalents Temporary Investments Current portion of segregated funds Receivables, net of allowance for doubtful accounts Fuel stocks Materials and supplies Current derivative assets Other current assets Deferred Charges and Other Assets Regulatory assets Non-cu rrent derivative assets Other deferred charges and other assets 2010$10,653,944 312,388 520,139 11,486,471 (5,305,370) 6,181,101 5,960 790,256 123,310 7,100,627 183,354 799,760 983,114 235,029 290,307 241,609 202,225 43,486 131,192 26,873 19,110 1,189,831 789,268 13,026 76,988 879,282$10,152,854 2009$ 9,299,342 304,032 505,524 10,108,898 (4,988,868) 5,120,030 3,883 1,559,300 111,515 6,794,728 206,825 1,039,178 1,246,003 379,482 145,664 211,498 183,680 44,622 133,868 60,193 19,163 1,178,170 779,299 5,790 69,313 854,402$10,073,303 The accompanylng notes are an integral part of these combined financial statements. | |||
1 SALT RIVER PROJECT COMBINED BALANCE SHEETS APRIL 30,2010 AND 2009 (Thousands) | |||
CAPITALIZATION AND LIABILITIES 2010$ 4,051,931 2009$ 3,831,657 Long-term Debt Accumulated Net Revenues 3,962,788 3,591,813 Total Capitalization 8,014,719 Current Uabilities Current portion of long-term debt Commercial paper Accounts payable Accruced taxes and tax equivalents Accrued interest Customers' deposits Current derivative liabilities Other current liabilities 147,180 200,672 72,339 67,407 81,446 64,441 290,822 924,307 7,423,470 132,645 375,000 248,454 62,686 63,779 80,010 162,286 285,998 1,410,858 792,328 187,801 39,511 219,335 1,238,975 Deferred Credits and Other Non-current Uabilities Accrued post-retirement liability Asset retirement obligations Non-current derivative liabilities Other deferred credits and other non-current liabilities 754,650 199,348 32,025 227,805 1,213,828 Commitments and Contingencies (Notes 7, 9, 10, 13, and 14)$ 10,152,854 | |||
$ 10,073,303 The accompanying notes are an integral part ofthese combined financial statements. | |||
2 SALT RIVER PROJECT COMBINED STATEMENTS OF NET REVENUES FOR THE YEARS ENDED APRIL 30, 2010 AND 2009 (Thousands) | |||
Operating Revenues Retail electric Water Other Total operating revenues Operating Expenses Power purchased Fuel used in electric generation Other operating expenses Maintenance Depreciation and amortization Taxes and tax equivalent Total operating expenses Net operating revenues (expenses) 2010$ 2,361,274 14,373 325,966 2,701,613 403,093 554,113 565,259 287,541 408,525 102,092 2,320,623 380,990 140,787 (12,412)128,375 509,365 186,429 (52,938)(8,995)13,894 138,390 370,975 2009$ 2,318,582 14,107 434,335 2,767,024 581,731 948,335 499,643 270,678 384,848 92,840 2,778,075 (11,051)(99,669)(3,828)(103,497)(114,548)160,747 (44,643)(6,174)22,544 132,474 (247,022)Other Income Investment income (loss), net Other income (deductions), net Total other income, net Net revenues (expenses) before financing costs Financing Costs Interest on bonds Capitalized interest Amortization of bond discount/premium and issuance expenses Interest on other obligations Net financing costs Net Revenues (Expenses) | |||
The accompanying notes are an integral part of these combined financial statements. | |||
3 SALT RIVER PROJECT COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30,2010 AND 2009 (Thousands) | |||
Cash Flows from Operating Activities Net Revenues Adjustments to reconcile net revenues to net cash provided by operating activities: | |||
Depreciation, amortization and accretion Amortization of bond discount (premium) and issuance expenses Change in fair value of derivative instruments Change in fair value of investment securities (Loss) gain on sale of capital assets Decrease (increase) in: Fuel stocks and materials and supplies Receivables, including unbilled revenues, net Other current assets Deferred charges and other assets Increase (decrease) in: Accounts payable Accrued taxes and tax equivalents Accrued interest Current liabilities Deferred credits and other non-current liabilities Net cash provided by operating activities Cash Flows from Investing Activities Additions to utility plant, net Proceeds from disposition of assets Purchases of investments Sales and maturities of investments Net change in short-term investments related to segregated funds Net cash used for investing activities 2010 2009$ 370,975 $ (247,022)408,525 (8,995)(79,076)(112,483)(231)3,812 (18,545)53 24,508 (70,799)9,653 3,628 (8,662)(95,764)426,599 (685,954)4,483 (945,442)991,248 225,094 (410,571)296,000 (325,000)(131,481)(160,481)384,848 (6,174)327,769 92,271 (643)(16,501)57,946 (47,256)(188,624)(99,726)(9,914)14,657 9,971 171,471 443,073 (955,457)5,176 (1,083,979) 999,617 62,768 (971,875)760,606 (100,000)(166,750)493,856 Cash Flows from Financing Activities Proceeds from issuance of revenue bonds Retirement of commercial paper Repayment of long-term debt, including refundings Net cash (used for)/ provided by financing activities Net Increase (Decrease) in Cash and Cash Equivalents Balance at Beginning of Year In Cash and Cash Equivalents Balance at End of Year In Cash and Cash Equivalents Supplemental Information Cash paid for interest (net of capitalized interest)(144,453)(34,946)379,482 414,428$ 235,029 $ 379,482=ZEMM.$ 143,757$ 124,526 The accompanying notes are an integral part of these combined financial statements. | |||
4 SALT RIVER PROJECT NOTES TO COMBINED FINANCIAL STATEMENTS APRIL 30, 2010 AND 2009 (1) BASIS OF PRESENTATION: | |||
The Company The Salt River Project Agricultural Improvement and Power District (the District) is an agricultural improvement district organized in 1937 under the laws of the State of Arizona. It operates the Salt River Project (the Project), a federal reclamation project, under contracts with the Salt River Valley Water Users' Association (the Association), by which it has assumed the obligations and assets of the Association, including its obligations to the United States of America for the care, operation and maintenance of the Project. The District owns and operates an electric system that generates, purchases, transmits and distributes electric power and energy, and provides electric service to residential, commercial, industrial and agricultural power users in a 2,900 square mile service territory in parts of Maricopa, Gila and Pinal Counties, plus mine loads in an adjacent 2,400 square mile area in Gila and Pinal Counties. | |||
The Association, incorporated under the laws of the Territory of Arizona in 1903, operates an irrigation system as the agent of the District. | |||
The District and the Association are together referred to as SRP.Principles of Combination The accompanying combined financial statements reflect the combined accounts of the Association and the District. | |||
The District's financial statements are consolidated with its three wholly-owned taxable subsidiaries: | |||
SRP Captive Risk Solutions, Limited (CRS), Papago Park Center, Inc. (PPC) and New West Energy Corporation (New West Energy). CRS is a domestic captive insurer incorporated primarily to access property/boiler and machinery insurance coverage under the Federal Terrorism Risk Insurance Act of 2002 for certified acts of terrorism. | |||
PPC is a real estate management company. New West Energy was used to market, at retail, energy available to the District that was surplus to the needs of its retail customers, and energy that might have been rendered surplus in Arizona by retail competition in the supply of generation, but is now largely inactive. | |||
All material inter-company transactions and balances have been eliminated. | |||
Possession and Use of Utility Plant The United States of America retains a paramount right or claim in the Project that arises from the original construction and operation of certain of the Project's electric and water facilities as a federal reclamation project. Rights to the possession and use of, and to all revenues produced by, these facilities are evidenced by contractual arrangements with the United States of America.Basis of Accounting The accompanying combined financial statements are presented in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of financial statements in compliance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingencies. | |||
Actual results could differ from the estimates. | |||
5 By virtue of SRP operating a federal reclamation project under contract, with the federal government's pre-emptive rights, asset ownership and certain approval rights, SRP is subject to accounting standards as set forth by the Federal Accounting Standards Advisory Board (FASAB). Entities reporting in accordance with the standards issued by the Financial Accounting Standards Board (FASB) prior to October 19, 1999 (the date the American Institute of Certified Public Accountants (AICPA) designated the FASAB as the accounting standard setting body for entities under the federal government) are permitted to continue to report in accordance with those standards. | |||
Consequently, SRP's financial statements are reported in accordance with FASB standards. | |||
Regulation and Pricing Policies Under Arizona law, the District's publicly elected Board of Directors (Board) has the authority to establish electric prices. The District is required to follow certain public notice and special Board meeting procedures before implementing any changes in the standard electric price plans. The financial statements reflect the pricing policies of the District's Board. The District's electric operations apply authoritative guidance for regulated enterprises. | |||
(2) SIGNIFICANT ACCOUNTING POUCIES: Regulatory Accounting The District accounts for the financial effects of the regulated portion of its operations in accordance with the provisions of authoritative guidance for regulated operations, which requires cost-based, rate-regulated utilities to reflect the impacts of regulatory decisions in their financial statements. | |||
The District records regulatory assets, which represent probable future recovery of certain costs from customers through the pricing process, and regulatory liabilities, which represent probable future credits to customers through the ratemaking process. Based on actions of the Board, the District believes the future collection of costs deferred through regulatory assets is probable. | |||
If events were to occur making full recovery of these regulatory assets no longer probable, the District would be required to write off the remaining balance of such assets as a one-time charge to net revenues. | |||
None of the regulatory assets earn a rate of return.The District includes the following regulatory assets in the accompanying Combined Balance Sheets as of April 30: 2010 2009 Pension and other postretirement benefits (Note 9) $ 658,895 $ 609,390 Bond defeasance 74,101 78,280 Mohave Generating Station 44,203 52,004 Nudear decommissioning 12,069 39,625 Total regulatory assets $ 789,268 $ 779,299 The pension and other postretirement benefits regulatory asset is adjusted as changes in actuarial gains and losses, prior service costs and transition assets or obligations are recognized as components of net periodic pension costs each year and is recovered through prices charged to customers. | |||
Bond defeasance regulatory assets are recovered over the remaining original amortization period of the reacquired debt ending in fiscal year 2031.The Mohave Generating Station regulatory asset is being recovered on a straight-line basis over a ten-year period ending in fiscal year 2016.6 The nuclear decommissioning regulatory asset is being deferred over the life of Palo Verde Nuclear Generating Station (PVNGS) and is being recovered through a component of the system benefits charge. Any difference between current year costs and revenues associated with nuclear decommissioning are deferred in accordance with authoritative guidance for regulated enterprises and has no impact to the District's earnings.Utility Plant Utility plant is stated at the historical cost of construction, less any impairment losses. Capitalized construction costs include labor, materials, services purchased under contract, and allocations of indirect charges for engineering, supervision, transportation and administrative expenses and capitalized interest or an allowance for funds used during construction (AFUDC). The cost of property that is replaced, removed or abandoned, together with removal costs, less salvage, is charged to accumulated depreciation. | |||
Depreciation expense is computed on the straight-line basis over the estimated useful lives of the various classes of plant assets. The following table reflects the District's average depreciation rates on the average cost of depreciable assets, for the fiscal years ended April 30: 2010 2009 Average electric depreciation rate 3.60% 3.67%Average irrigation depreciation rate 2.02% 2.02%Average common depreciation rate 6.14% 6.54%Allowance for Funds Used During Construction AFUDC is the estimated cost of funds used to finance plant additions and is recovered in prices through depreciation expense over the useful life of the related asset. AFUDC is capitalized during certain plant construction and included in capitalized interest in the accompanying Combined Statements of Net Revenue. Composite rates of 5.02% and 4.52% were used in fiscal years 2010 and 2009 to calculate interest on funds used to finance construction work in progress, resulting in $52.9 million and $44.6 million of interest capitalized, respectively. | |||
Nuclear Fuel The District amortizes the cost of nuclear fuel using the units-of-production method. The units-of-production method is an amortization method based on actual physical usage. The nuclear fuel amortization and accrued expenses for both the interim and permanent disposal of spent nuclear fuel are components of fuel expense. Accumulated amortization of nuclear fuel at April 30, 2010 and 2009 was $471.8 million and $447.0 million, respectively. (See Note (14) CONTINGENCIES, Spent Nuclear Fuel for additional information). | |||
Asset Retirement Obligations SRP accounts for its asset retirement obligations in accordance with authoritative guidance which requires the recognition and measurement of liabilities for legal obligations associated with the retirement of tangible long-lived assets. Liabilities for asset retirement obligations are recognized at fair value as incurred and capitalized as part of the cost of the related tangible long-lived assets.Accretion of the liabilities, due to the passage of time, is an operating expense and the capitalized cost is depreciated over the useful life of the long-lived asset. Retirement obligations associated with long-7 lived assets are those for which a legal obligation exists under enacted laws, statutes, and contracts, including obligations arising under the doctrine of promissory estoppel.The District has identified retirement obligations for the PVNGS, Navajo Generating Station (NGS), Four Corners Generating Station (Four Corners) and certain other assets. Amounts recorded for asset retirement obligations are subject to various assumptions and determinations, such as determining whether an obligation exists to remove assets, estimating the fair value of the costs of removal, estimating when final removal will occur, and determining the credit-adjusted, risk-free interest rates to be utilized on discounting future liabilities. | |||
Changes that may arise over time with regard to these assumptions and determinations will change amounts recorded in the future as expense for asset retirement obligations. | |||
A summary of the asset retirement obligation activity of the District at April 30 is included below (in thousands): | |||
Z010 Z009 Beginning balance, May 1 $ 187,801 $ 177,331 Changes in estimate -(415)Accretion expense 11,547 10,885 Ending balance, April 30 $ 199,348 $ 187,801 Investments in Debt and Equity Securities SRP invests in various debt and equity securities. | |||
Debt securities that SRP has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. | |||
SRP has adopted the fair value option for all debt and equity securities other than those classified as held-to-maturity securities. | |||
All such securities are reported at fair value, with unrealized gains and losses included in earnings. | |||
SRP does not classify any securities as available-for-sale. (See Note (3) FAIR VALUE OF FINANCIAL INSTRUMENTS.) | |||
Nuclear Decommissioning In accordance with regulations of the Nuclear Regulatory Commission, the District maintains a trust for the decommissioning of PVNGS. The Nuclear Decommissioning Trust (NDT) funds are invested in debt and equity securities. | |||
The District has elected the fair value option for all NDT securities and such securities are reported as trading securities. | |||
The NDT funds, stated at fair value, as of April 30, 2010 and 2009, were $211.4 million and $152.1 million, respectively. | |||
The NDT funds are classified as segregated funds in the accompanying Combined Balance Sheets and are exempt from federal and state income taxes. (See Note (3) FAIR VALUE OPTION for additional information about the NDT.)8 Segregated Funds The District sets aside funds that are segregated due to management intent and to support various purposes. | |||
The District also has certain funds that are legally restricted. | |||
The following amounts are included in segregated funds in the accompanying Combined Balance Sheets at April 30 (in thousands): | |||
2010 2009 Segregated funds -legally restricted Nuclear Decommissioning Trust $ 211,374 $ 152,111 Collateral investment pool 136,710 112,499 Debt Reserve Fund (see "Revenue Bonds" in Note 7) 80,598 80,598 Other 20,271 11,363 Construction Fund (see "Capital Improvement Program" in Note 13) 1 421,856 Total segregated funds -legally restricted 448,954 778,427 Segregated funds -other Benefits funds 483,428 372,455 Debt Service Fund (see "Revenue Bonds" in Note 7) 104,899 99,000 Other 4,088 794 Total segregated funds -other 592,415 472,249 Total segregated funds, including current portion $ 1,041,369 | |||
$ 1,250,676 Securities Lending The District's pension plan, NDT and other postretirement benefits plans participate in a securities lending program with the trustees of the investments. | |||
The program authorizes the trustee of the particular investments to lend securities, which are assets of the plans, to approved borrowers. | |||
The trustees require borrowers, pursuant to a security lending agreement, to deliver collateral to secure each loan. The loaned securities are required to be collateralized. | |||
Under the program, the borrowers deliver collateral having a market value not less than 102% of the market value of the loaned securities. | |||
The cash collateral received is invested in a collateral pool made up of fixed income securities. | |||
The District's pension plan, NDT and other postretirement benefits plans bear the risk of loss with respect to unfavorable changes in fair value of the invested collateral. | |||
For loaned securities related to the NDT and the other postretirement benefits plans, the District records an obligation for the collateral received as other current liabilities and records the collateral investment pool, at fair value, in current portion of segregated funds, both in the accompanying Combined Balance Sheets. The pension plan's participation in the securities lending program is contained within the pension plan. (See Note (5) FAIR VALUE MEASUREMENTS and Note (9) EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS, Fair Value of Plan Assets for more information related to collateral pool investments.) | |||
Cash Equivalents Cash equivalents include money market funds and highly liquid short-term investments with original maturities of three months or less, excluding those short-term investments included as part of the segregated funds and investments included in non-utility property and other investments in the accompanying Combined Balance Sheets. (For further discussion of financial instruments see Note (5)FAIR VALUE MEASUREMENTS.) | |||
9 Rate Stabilization Fund In accordance with Board action taken on March 11, 2010, SRP transferred | |||
$45.7 million into the Rate Stabilization Fund (RSF) in July 2010. The funds may be used to stabilize future prices or for any other corporate purpose approved by the Board.Allowance for Doubtful Accounts The District has provided for an allowance for doubtful accounts of $10.1 million and $9.3 million as of April 30, 2010 and 2009, respectively. | |||
Materials and Supplies, and Fuel Stocks Materials and supplies are stated at lower of market or average cost. Fuel stocks are stated at lower of market or weighted average cost.Bond Expense Bond discount, premium and issuance expenses are deferred and amortized using the effective interest method over the terms of the related bond issues.Voluntary Contributions In Lieu of Taxes In accordance with Arizona law, the District makes voluntary contributions each year to the State of Arizona, school districts, cities, counties, towns and other political subdivisions of the State of Arizona, for which property taxes are levied and within whose boundaries the District has property included in its electric system. As a political subdivision of the State of Arizona, the District is exempt from property taxation. | |||
The amount paid is computed on the same basis as ad valorem taxes paid by a private utility corporation with allowance for certain water-related deductions. | |||
Contributions based on the costs of construction work in progress are capitalized, and those based on plant-in-service are expensed.Revenue Recognition The District recognizes revenue when billed and accrues estimated revenue for electricity delivered to customers that has not yet been billed. The estimated revenue for electricity delivered but not yet billed is included in retail electric revenue and was $63.7 million and $62.1 million at April 30, 2010 and 2009, respectively. | |||
The District changed the method of estimating electricity delivered but not yet billed in fiscal year 2010 to incorporate meter data that was not previously available. | |||
The change in estimate resulted in $10.0 million increase in electricity delivered but not yet billed as compared to the previous methodology and is reflected in retail electric revenues and receivables, net of doubtful accounts in the accompanying combined financial statements at April 30, 2010. The change in estimate also resulted in a $10.0 million increase in total operating revenues and net revenues (expenses) at April 30, 2010. Other operating revenue consists primarily of revenue from marketing and trading electricity. | |||
The electric industry engages in an activity called "book-out" under which some energy purchases are netted against sales and power does not actually flow in settlement of the contract. | |||
The District presents the impacts of these financially settled contracts on a net basis, which resulted in a net 10 reduction to revenue and purchase power expense of $27.8 million and $115.1 million for fiscal years 2010 and 2009, respectively, but which did not impact net revenues or cash flows.Sales and Use Taxes The District is required by various government authorities, including states and municipalities, to collect and remit taxes on certain retail sales. Such taxes are presented on a net basis and excluded from revenues and expenses in the accompanying combined financial statements. | |||
Income Taxes The District is exempt from federal and Arizona state income taxes. The Association is not exempt from federal and Arizona state income taxes. However, the Association is not liable for income taxes on operations relating to its acting as an agent for the District on the basis of a settlement with the Commissioner of Internal Revenue in 1949 which was approved by the Secretary of the Treasury. | |||
The Association is liable for income taxes on activities where it is not acting as an agent of the District. | |||
The tax effect of the District's wholly-owned taxable subsidiaries' operations is immaterial to the accompanying combined financial statements. | |||
Accounting for Energy Risk Management Activities The District has an energy risk management program to limit exposure to risks inherent in normal energy business operations. | |||
The goal of the energy risk management program is to measure and manage exposure to market risks, credit risks and operational risks. Specific goals of the energy risk management program include reducing the impact of market fluctuations on energy commodity prices associated with customer energy requirements, excess generation and fuel expenses, in addition to meeting customer pricing needs, and maximizing the value of physical generating assets. The District employs established policies and procedures to meet the goals of the energy risk management program using various physical and financial instruments, including forward contracts, futures, swaps and options.Certain of these transactions are accounted for as derivatives and are recorded in the balance sheet as either an asset or liability measured at their fair value. Changes in the fair value of derivatives are recognized each period in current earnings or other comprehensive income depending on the purpose for using the derivative and/or its qualification, designation and effectiveness as a hedging transaction. | |||
Many of the District's contractual agreements qualify for the normal purchases and normal sales exception and are not recorded at market value. This exception applies to physical sales and purchases of power or fuel where it is probable that physical delivery will occur; the pricing provisions are clearly and closely related to the contracted prices; and the documentation requirements are met. (For further explanation of the effects of derivatives on SRP's financial results, see Note (4), DERIVATIVE INSTRUMENTS.) | |||
Concentrations of Credit Risk Financial instruments that potentially subject SRP to credit risk consist of cash and cash equivalents, temporary and other investments, and segregated funds. Certain balances exceed Federal Deposit Insurance Corporation (FDIC) insured limits or are invested in money market accounts with investment banks that are not FDIC insured. SRP's cash and cash equivalents, temporary and other investments, and segregated funds are placed in credit-worthy financial institutions and certain money market accounts invest in U.S. Treasury Securities or other obligations issued or guaranteed by the U.S.Government, its agencies or instrumentalities. | |||
11 The use of contractual arrangements to manage the risks associated with changes in energy commodity prices creates credit risks resulting from the possibility of nonperformance by counterparties pursuant to the terms of their contractual obligations. | |||
In addition, volatile energy prices can create significant credit exposure from energy market receivables and mark-to-market valuations. | |||
The District has a credit policy for wholesale counterparties, continuously monitors credit exposures, and routinely assesses the financial strength of its counterparties. | |||
The District minimizes credit risk by dealing primarily with creditworthy counterparties, entering into standardized agreements which allow netting of exposures to and from a single counterparty, and requiring letters of credit, parent guarantees or other collateral when it does not consider the financial strength of a counterparty sufficient. | |||
Prior Year Revisions During fiscal year 2010, SRP determined that pension plan contributions had been improperly reported in the fiscal year 2009 cash flow statement. | |||
SRP revised the previously issued financial statements to properly report the contributions, resulting in a $50 million increase in net cash provided by operating activities, with a corresponding increase in cash used by investing activities in the accompanying Combined Statements of Cash Flows.Recently Issued Accounting Standards Accounting Standards Codification In June 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-01, "Topic 105 -Generally Accepted Accounting Principles." The update provides authoritative guidance replacing the previous hierarchy of U.S. GAAP and establishing the FASB Accounting Standards Codification (ASC) as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities. | |||
This guidance modifies the U.S. GAAP hierarchy to include two levels: authoritative and nonauthoritative. | |||
SRP adopted this standard effective October 31, 2009. The adoption did not impact the accompanying combined financial statements since the FASB Codification is not intended to change or alter existing U.S GAAP.Pension and Other Postretirement Benefit Plan Disclosures In December 2008, the FASB issued authoritative guidance incorporated into ASC No. 715-20-50,"Compensation | |||
-Retirement Benefits, Defined Benefit Plans -General," that requires employers to provide new disclosures about investments and other assets set aside to fund their pension and other postretirement benefit obligations. | |||
This guidance requires employers to disclose information about fair value measurements of plan assets, the investment policies and strategies for the major categories of plan assets, and significant concentrations of risk within plan assets. This guidance became effective for SRP as of April 30, 2010. As this guidance provides only disclosure requirements, the adoption of this standard did not impact SRP's accompanying combined financial statements. | |||
See Note (9), EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS.Fair Value Measurements In September 2009, the FASB issued ASU No. 2009-12, "Fair Value Measurements and Disclosures (Topic 820) -Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." The update provides further clarification for measuring the fair value of investments in entities that meet the FASB's definition of an investment company. This guidance permits a company to estimate the fair value of an investment using the net asset value (NAV) per share of the investment 12 if the NAV is determined in accordance with the FASB's guidance for investment companies as of the company's measurement date. This creates a practical expedient to determining a fair value estimate and allows certain attributes of the investment (such as redemption restrictions) to be excluded from the fair value measurement. | |||
Additionally, companies with investments within the scope of this guidance must disclose additional information related to the nature and risks of the investments. | |||
This guidance became effective for SRP as of January 31, 2010, and is required to be applied prospectively. | |||
SRP's segregated funds and pension plan assets contain certain investments, including alternative investments and commingled funds, which are within the scope of this guidance. | |||
As a result of the issuance of this guidance, SRP reclassified certain commingled funds from Level 3 in the fair value hierarchy to Level 2 in the fair value hierarchy. | |||
However, as the fair value of these investments was already determined based on NAV per fund share, this guidance did not have a material impact on SRP's accompanying combined financial statements. | |||
See Note (5), FAIR VALUE MEASUREMENTS and Note (9), EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS.Subsequent Events In May 2009, the FASB issued ASC No. 855, "Subsequent Events," that sets forth the period subsequent to the balance sheet date during which management of a reporting entity should evaluate events or transactions that might occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize these events or transactions; and the disclosures that an entity should make.In February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure requirements," that requires an entity such as SRP to evaluate subsequent events through the date that the financial statements are issued. The amendment also requires an entity to disclose the date through which the subsequent events have been evaluated and the date the financial statements were issued. SRP will adopt the subsequent event guidance effective April 30, 2011.Consolidation of Variable Interest Entities In December 2009, the FASB issued ASU No. 2009-17, "Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities," that changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. | |||
Under the new guidance, the determination of whether a company is required to consolidate an entity is based on, among other things, an ability to direct the activities of the entity that most significantly impact the entity's economic performance and whether the entity has an obligation to absorb losses. This guidance requires a company to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. | |||
SRP will adopt this guidance effective May 1, 2010, and is evaluating the impact, if any, that the adoption will have on the accompanying combined financial statements. | |||
Transfers of Financial Assets In December 2009, the FASB issued ASU No. 2009-16, "Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets," which eliminates the qualifying special purpose entity concept and the relation exception from consolidation, limits derecognition of financial assets when control still exists, and requires enhanced disclosures. | |||
SRP will adopt this update effective May 1, 2010, and is evaluating the impact, if any, that the adoption will have on the combined financial statements. | |||
13 Fair Value Measurements Disclosures In January 2010, the FASB issued ASU No. 2010-06, "Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements." The update requires entities to disclose significant transfers in and out of fair value hierarchy levels and the reasons for the transfers and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010. SRP adopted the new standard effective February 1, 2010, except that the new Level 3 activity disclosures will be effective prospectively beginning May 1, 2010. The adoption of the standard impacts disclosures only.(3) FAIR VALUE OF FINANCIAL INSTRUMENTS: | |||
SRP invests in U.S. government obligations, certificates of deposit and other marketable investments. | |||
Such investments are classified as cash and cash equivalents, temporary investments, other investments, and segregated funds in the accompanying Combined Balance Sheets depending on the purpose and duration of the investment. | |||
Fair Value Option SRP adopted authoritative guidance which permits an entity to choose to measure many financial instruments and certain other items at fair value. SRP has elected the fair value option for all investment securities other than those classified as held-to-maturity. | |||
Election of the fair value option requires the security to be reported as a trading security.The fair value option was elected because management believes that fair value best represents the nature of the investments. | |||
While the investment securities held in these funds are reported as trading securities, the investments continue to be managed with a long-term focus. Accordingly, all purchases and sales within these funds are presented separately in the accompanying Statement of Cash Flows as investing cash flows, consistent with the nature and purpose for which the securities are acquired.The following table provides detail regarding the impact of the initial adoption of the fair value option by combined balance sheet line as of May 1, 2008 (in thousands): | |||
Carrying Value Transition Galn(Loss) | |||
Adjusted Carrying of Financial Instruments Recorded In Accumulated Value of Finandal as of May 1, 2008 Net Revenues Instruments as of May 1, 2008 Cash and cash equivalents | |||
$ 404,091 $ -$ 404,091 Segregated funds, net of current portion 827,993 11,616 839,609 Cumulative effect of adoption of fair value option S 1,232,084 | |||
$ 11,616 $ 1,243,700 14 The adoption of the fair value option for investments held in the NDT had no impact on the earnings, cash flows, or financial condition of the District as all gains and losses, whether realized or unrealized, are recorded in the nuclear decommissioning regulatory asset or liability as authorized by the Board.Investments in Marketable Debt and Equity Securities The following table summarizes SRP's investments in debt and equity securities accompanying Combined Balance Sheets at April 30 (in thousands): | |||
presented in the 2010 2009 Cash and cash equivalents Cash 14,672 $ 21,652 Money market funds 220,357 347,859 Held-to-maturity investments 9,971 Total cash and cash equivalents 235,029 379,482 Non-utility property and other investments Money market funds 3,825 5,343 Trading investments 29,158 19,709 Held-to-maturity investments 70,080 103,535 Total non-utility property and other investments 103,063 128,587 Segregated funds, net of current portion Cash 4,088 798 Money market funds 33,176 280,147 Trading investments 691,872 514,277 Held-to-maturity investments 70,624 243,956 Total segregated funds, net of current portion 799,760 1,039,178 Temporary investments Held-to-maturity investments 290,307 145,664 Total temporary investments 290,307 145,664 Current portion of segregated funds Money market funds 49,427 20,270 Trading investments 136,710 112,499 Held-to-maturity investments 55,472 78,729 Total current portion of segregated funds 241,609 211,498 Total cash, cash equivalents and investments | |||
$ 1,669,768 | |||
$ 1,904,409 SRP's investments in debt securities are measured and reported at amortized cost when there is positive intent and ability to hold the security to maturity. | |||
SRP's amortized cost and fair value of held-to-maturity securities were $486.5 million and $489.7 million, respectively, at April 30, 2010 and $581.9 million and $587.7 million, respectively, at April 30, 2009. At April 30, 2010, SRP's investments in debt securities have maturity dates ranging from May 17, 2010, to March 14, 2014.15 SRP's trading investments are measured at fair value with unrealized trading gains and losses included in earnings. | |||
The following table summarizes unrealized gains (losses) from fair value changes included in earnings and presented in the accompanying combined financial statements at April 30 (in thousands): | |||
2010 2009 Segregated funds, net of current portion $ 101,287 $ (85,695)Current portion of segregated funds 5,233 (6, 576)Non-utility property and other investments 5,963 -Investment income (loss), net $ 112,483 $ (92,271)SRP elected the fair value option on all securities, excluding those classified as held-to-maturity and evaluates the held-to-maturity securities for other-than-temporary impairment on a quarterly basis considering numerous factors. At April 30, 2010, and 2009, SRP did not hold any other-than-temporarily impaired securities. | |||
(4) DERIVATIVE INSTRUMENTS: | |||
Commodity Derivatives The District enters into contracts for electricity, natural gas and other energy commodities to meet the expected needs of its retail customers and, for the benefit of its electrical customers, to mitigate risk in connection with changes in commodity prices. The District sells excess capacity during periods when it is not needed to meet retail requirements. | |||
The District's energy risk management program uses various physical and financial contracts to economically hedge exposures to fluctuating commodity prices. The District examines contracts at inception to determine the appropriate accounting treatment. | |||
If a contract qualifies for the normal purchases and normal sales scope exception, the District accounts for the contract using settlement accounting (costs and revenues are recorded when physical delivery occurs).Contracts that qualify as derivative instruments, including forward contracts, futures, swaps and options are recorded in the accompanying Combined Balance Sheets at fair value. Changes in fair value are recognized in earnings and included in the accompanying Combined Statements of Net Revenues and classified as part of operating cash flows in the accompanying Combined Statements of Cash Flows.Interest Rate Derivatives At April 30, 2009, the District had a fixed-receive-floating interest rate swap transaction with Morgan Stanley Capital Services with a remaining notional value of $25 million which expired December 1, 2009. The floating rate on the swap was based on the Securities Industry and Financial Markets Association (SIFMA) Municipal Index of 0.63% at April 30, 2009, and the fixed-receiver rate on the swap is 3.001%. The District did not have any interest rate derivatives at April 30, 2010.16 Derivative Volumes The District has the following gross derivative volumes, by commodity type, at April 30, 2010: Unit of Sales Pu Commodity Measure Volumes Vo-chases lumes Natural gas options, swaps and forward arrangements Electricity options, swaps and forward arrangements Liquefied fuel swaps MMBTU MWH Gallon 6,617,500 4,057,565 107,437,500 5,632,000 2.824,734 The District has the following gross derivative volumes, by commodity type, at April 30, 2009: Commodity Natural gas options, swaps and forward arrangements Electricity options, swaps and forward arrangements Liquefied fuel swaps Unit of Measure MMBTU MWH Gallon Sales Volumes 7,305,000 4,226,890 Purchases Volumes 83,210,000 2,065,475 2,005,914 Presentation of Derivative Instruments in the Financial Statements The following table provides information about the gross fair values, netting, and collateral and margin deposits for derivatives not designated as hedging instruments in the accompanying Combined Balance Sheets (in thousands): | |||
April 30,2010 Non- Non-Current current Current current Derivative Derivative Derivative Derivative Long-term Total Assets Assets Assets Uabilities Liabilities Debt (Uabilities) | |||
Commodities | |||
$ 26,313 $ 16,757 $ (73,722) $(35,756) | |||
$ -$ (66,408)Netting (11,786) (3,731) 11,786 3,731 --Collateral and margin deposits 12,346 -(2,505) -9,841 Total balance sheet $ 26,873 $ 13,026 $ (64,441) $ (32,025) $ -$ (56,567)April 30, 2009 Non- Non-Current current Current current Derivative Derivative Derivative Derivative Long-term Assets Assets Liabilities Liabilities Debt Total Assets Commodities | |||
$ 43,316 $ 10,661 $ (173,423) | |||
$ (44,948) $ -$ (164,394)Interest rate swap -566 --172 738 Netting (11,137) (5,437) 11,137 5,437 --Collateral and margin deposits 28,014 ----28,014 Total balance sheet $ 60,193 $ 5,790 $ (162,286) | |||
$ (39,511) $ 172 $ (135,642)17 The following table summarizes the District's unrealized gains (losses) associated with derivatives not designated as hedging instruments in the accompanying Combined Statements of Net Revenues (in thousands): | |||
April 30, 2010 Fuel Used in Interest on Net Operating Power Electric Other Unrealized Revenues Purchased Generation Obligations Gain (Loss)Commodities | |||
$ (6,650) $ 32,848 $ 61,559 $ -$ 87,757 Total $ (6,650) $ 32,848 $ 61,559 $ -$ 87,757 April30, 2009 Fuel Used in Interest on Net Operating Power Electric Other Unrealized Revenues Purchased Generation Obligations Gain (Loss)Commodities | |||
$ (31,403) $ (89,503) $ (206,186) | |||
$ $ (327,092)Interest rate swap -(442) (442)Total $ (31,403) $ (89,503) $ (206,186) | |||
$ (442) $ (327,534)Credit Related Contingent Features Certain of the District's derivative instruments contain provisions that require the District's debt to maintain an investment grade credit rating from each of the major credit rating agencies. | |||
If the District's debt were to fall below investment grade, it would violate these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. | |||
The aggregate fair value of all derivative liabilities with credit-risk-related contingent features as of April 30, 2010, was $80.7 million for which the District has not posted collateral in the normal course of business. | |||
If the credit-risk-related contingent features underlying these agreements were triggered on April 30, 2010, the District could be required to post an additional | |||
$80.7 million of collateral to its counterparties. | |||
(5) FAIR VALUE MEASUREMENTS: | |||
SRP adopted authoritative guidance which defines fair value, establishes methods for measuring fair value by applying one of three observable market techniques (market approach, income approach or cost approach) and expands required disclosures about fair value measurements. | |||
This standard defines fair value as the price that would be received for an asset, or paid to transfer a liability, in the most advantageous market for the asset or liability in an arms-length transaction between willing market participants at the measurement date.SRP has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. | |||
The fair value hierarchy gives the highest priority to 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 are as follows: Level 1 -Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.Level 2 -Financial assets and liabilities whose values are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active 18 markets, pricing models whose inputs are observable for substantially the full term of the asset or liabilities and pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means.Level 3 -Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. | |||
These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability. | |||
The following table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2010 (in thousands): | |||
Level 1 Level 2 Level 3 Netting and Total Collateral Assets Cash and cash equivalents: | |||
Money market funds $ $ 220,357 $ -$ -$ 220,357 Total cash and cash equivalents 220,357 --220,357 Non-utility property and other investments: | |||
Money market funds 3,825 --3,825 Mutual funds 29,158 ---29,158 Total non-utility property and other investments 29,158 3,825 --32,983 Segregated funds, net of current portion: Money market funds -33,176 --33,176 Mutual funds 234,485 ---234,485 Commingled funds -226,449 4,118 -230,567 Common stocks 223,568 3,252 --226,820 Total segregated funds, net of current portion 458,053 262,877 4,118 -725,048 Current portion of segregated funds: Money market fund -49,427 --49,427 Collateral pool investments | |||
-136,710 -136,710 Total current portion of segregated funds -49,427 136,710 -186,137 Derivative Instruments: | |||
Commodities 15,554 7,527 19,989 (3,171) 39,899 Total assets $ 502,765 $ 544,013 $ 160,817 $ (3,171) $1,204,424 Liabilities Derivative Instruments: | |||
Commodities | |||
$ (23,971) $ (71,120) $ (14,387) $ 13,012 $ (96,466)Total liabilities | |||
$ (23,971) $ (71,120) $ (14,387) $ 13,012 $ (96,466)19 The following table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2009 (in thousands): | |||
Level 1 Level 2 Level 3 Netting and Total Collateral Assets Cash and cash equivalents: | |||
Money market funds $ -$ 347,859 $ $ -$ 347,859 Total cash and cash equivalents | |||
-347,859 -347,859 Non-utility property and other Investments: | |||
Money market funds -5,343 -5,343 Mutual funds 19,709 -19,709 Total non-utility property and other investment. | |||
19,709 5,343 -25,052 Segregated funds, net of current portion: Money market funds -280,147 -280,147 Mutual funds 204,640 --204,640 Commingled funds --156,043 -156,043 Common stocks 153,594 ---153,594 Total segregated funds, net of current portion 358,234 280,147 156,043 -794,424 Current portion of segregated funds: Money market fund -20,271 --20,271 Collateral pool Investments | |||
-112,499 -112,499 Total current portion of segregated funds -20,271 112,499 -132,770 Derivative Instruments: | |||
Commodities 949 10,674 42,354 11,440 65,417 Interest rate swap -566 --566 Total derivative instruments 949 11,240 42,354 11,440 65,983 Total assets $ 378,892 $ 664,860 $ 310,896 $ 11,440 $1,366,088 Uabilitles Derivative Instruments: | |||
Commodities | |||
$ (33,307) $ (169,710) | |||
$ (15,354) $ 16,574 $ (201,797)Interest rate swap 172 -172 Total derivative instruments (33,307) (169,538) | |||
(15,354) 16,574 (201,625)Total liabilities | |||
$ (33,307) $ (169,538) | |||
$ (15,354) $ 16,574 $ (201,625)Valuation Methodologies Securities Money market funds -Investments with maturities of three months or less when purchased, including certain short-term fixed-income securities, are considered cash equivalents. | |||
The fair value of shares in money market funds are priced based on inputs obtained from Bloomberg, a pricing service, whose prices are obtained from direct feeds from exchanges, that are either directly or indirectly observable. | |||
Mutualfunds | |||
-The fair values of shares in mutual funds are based on inputs that are quoted prices in active markets for identical assets and, therefore, have been categorized in Level 1 in the fair value hierarchy. | |||
Equities are priced using active market exchanges. | |||
20 Corporate stocks -The fair values of shares in preferred and common corporate stocks are based on inputs that are quoted prices in active markets for identical assets and, therefore, have been categorized in Level 1 in the fair value hierarchy. | |||
Equities are priced using active market exchanges. | |||
Preferred and common corporate stocks are valued based on quoted prices in active markets and are categorized in Level 1. Equity securities held individually are primarily traded on exchanges which contain only actively traded securities due to the volume trading requirements imposed by these exchanges. | |||
Common stocks that are valued based on quoted prices from less active markets, such as over the counter stocks, are categorized as Level 2 in the fair value hierarchy. | |||
Commingled funds -Commingled funds are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives, which are consistent with SRP's overall investment strategy. | |||
For equity and fixed-income commingled funds, the fund administrator values the fund using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities. | |||
Where adjustments to the NAV are required with respect to interests in funds subject to restrictions on redemption (such as lock-up periods or withdrawal limitations) and/or observable activity for the fund investment is limited, investments are classified within level 2 or 3 of the valuation hierarchy. | |||
If the ability to redeem the investment is unknown or the investment cannot be redeemed in the near term at NAV, the fair value measurement of the investment will be categorized as a Level 3 in the valuation hierarchy. | |||
Collateral pool investments | |||
-These commingled funds are maintained and invested by the administrator of SRP's securities' lending program. The pools are primarily invested in short-term fixed income securities, but may also be invested in assets with maturities that match the duration of the loan of the related securities. | |||
These commingled funds are valued daily by the administrator and the underlying fixed income securities are priced using a primary price source that is identified based on asset type, class or issue for each security. | |||
SRP has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. The fair values of fixed income securities are based on evaluated prices that reflect observable market information. | |||
However, these funds are categorized as level 3 because the value that SRP would be able to exit at is not the unit value derived from the underlying prices.Corporate bonds -For fixed income securities, multiple prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider validations in addition to checks for unusual daily movements. | |||
A primary price source is identified based on asset type, class or issue for each security. | |||
SRP has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, SRP selectively corroborates the fair values of securities by comparison to other market-based price sources. The fair values of fixed income securities are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized as Level 2.Real Estate -Real estate commingled funds are funds with a direct investment in a pool of real estate properties. | |||
These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications. | |||
Since these valuation inputs are not highly observable, real estate investments have been categorized as Level 3 investments. | |||
21 Derivative Instruments The fair value of gas swaps and power swaps that are priced based on inputs using quoted prices of similar exchange traded items have been categorized in Level 1 in the fair value hierarchy. | |||
These include gas swaps traded on the New York Mercantile Exchange (NYMEX) and power swaps traded on the Intercontinental Exchange.The fair value of gas swaps, power swaps, gas options, power options and power deals that are priced based on inputs obtained through pricing agencies and developed pricing models, using similar observable items in active and inactive markets, are classified as Level 2 in the valuation hierarchy. | |||
The fair value of derivatives assets and liabilities which are valued using pricing models with significant unobservable market data traded in less active or underdeveloped markets are classified as Level 3 in the valuation hierarchy. | |||
Level 3 items include gas swaps, power swaps, gas options, power options and power deals. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include long-dated or complex derivatives). | |||
All of the assumptions above include adjustments for counterparty credit risk, using credit default swap data, bond yields, when available, or external credit ratings.Investments Calculated at Net Asset Value As of April 30, 2010, the fair value measurement of investments calculated at net asset value per share (or its equivalent), as well as the nature and risks of those instruments, are as follows: Fair Value Unfunded Redemption Redemption (in thousands) | |||
Commitments Frequency Notice Period Mutual funds $ 263,643 None Daily N/A Commingled funds: Fixed Income funds 123,369 None Daily N/A International equity funds 103,080 None Monthly 2 days Domestic long-short equity fund of funds 4,118 None Annual 100 days Mutual Funds -These are funds invested in either equity or fixed income securities. | |||
They are actively managed funds that seek to outperform their respective benchmarks. | |||
The equity funds may invest in large and/or small capitalization stocks and/or growth or, value styles, as dictated by their prospectuses. | |||
The fixed income funds will invest in a broad array of securities including treasuries, agencies, corporate debt, mortgage-backed securities, and some non-U.S. debt.International Equity Commingled Fund -The fund is an actively managed fund that invests in primarily non-U.S. securities. | |||
The funds may invest in small and/or large capitalization stocks, as well as developing country securities. | |||
The fund seeks to outperform their respective benchmarks. | |||
Fixed Income Commingled Fund -The fund is an actively managed fund of funds that primarily invests in managers that invest in domestic and some non-U.S. equities. | |||
As a long-short fund, the fund's goal is to neutralize market risk by balancing between managers that buy (go long) securities and managers who sell (go short) securities. | |||
The fund seeks to outperform a broad equity index over long periods, with less risk.22 Domestic Long-Short Equity Fund of Funds -The fund is an actively managed fund of funds that primarily invests in managers that invest in domestic and some non-U.S. equities. | |||
As a long-short fund, the fund's goal is to neutralize market risk by balancing between managers that buy (go long) securities and managers who sell (go short) securities. | |||
The fund seeks to outperform a broad equity index over long periods, with less risk.Collateral and Margin Deposits Margin and collateral deposits include cash deposited with counterparties and brokers as credit support under energy contracts. | |||
The amount of margin and collateral deposits generally varies based on changes in the fair value of the positions. | |||
The District presents a portion of its margin and cash collateral deposits net with its derivative position on the accompanying Combined Balance Sheets.Amounts recognized as margin and collateral provided to others are included in derivative assets in the accompanying Combined Balance Sheets and totaled $9.8 million at April 30, 2010.Changes in Level 3 Fair Value Measurements The table below includes the reconciliation of changes to the balance sheet amounts for the years ended April 30 (in thousands) for financial instruments classified within Level 3 of the valuation hierarchy; this determination is based upon unobservable inputs to the overall fair value measurement: | |||
2010 2009 Beginning balance at May 1 $ 295,542 $ 424,257 Transfers into Level 3 Transfers out of Level 3* (218,818) | |||
(6,585)Net realized and unrealized gain/(loss) included in earnings 35,240 (65,471)Net realized and unrealized gain/(loss) recorded as regulatory assets 19,307 (17,713)Net purchases and settlements 15,159 (38,946)Balance at April 30 $ 146,430 $ 295,542 For instruments held at April 30: Net unrealized gain/(loss) included in earnings $ 10,576 $ (2,993)Net unrealized gain/(loss) recorded in regulatory assets $ 4,055 $ (12,843)* In fiscal year 2010, SRP transferred | |||
$226.4 million of certain assets valued at NAV from Level 3 to Level 2 as allowed by authoritative guidance (ASU No. 2009-12).U.S GAAP requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Many but not all of the financial instruments are recorded at fair value on the accompanying Combined Balance Sheets.Financial instruments held by SRP are discussed below.Financial Instruments for Which Fair Value Approximates Carrying Value -Certain financial instruments that are not carried at fair value on the accompanying Combined Balance Sheets are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk. The instruments include receivables, accounts payable, customers' deposits, other current liabilities and commercial paper.Financial Instruments for Which Fair Value Does Not Approximate Carrying Value -The District presents long-term debt at carrying value on the accompanying Combined Balance Sheets. The collective fair value of the District's revenue bonds and the Desert Basin Lease-Purchase Agreement, including the current portion, was estimated by using pricing scales from independent sources. The carrying amount of commercial paper approximates fair value because of its short term maturity and pricing validated 23 confirmed through independent sources. As of April 30, 2010 and 2009, the carrying amounts, including accrued interest, were $4.1 billion and $3.9 billion, respectively, and the estimated fair values were $4.4 billion and $4.1 billion, respectively. (See Note (7) LONG-TERM DEBT for further discussion of these items.)(6) ACCUMULATED NET REVENUES AND OTHER COMPREHENSIVE INCOME: The following table summarizes accumulated net revenues and other comprehensive income (in thousands): | |||
Accumulated Net Revenues Other Comprehensive Income (Loss)Accumulated Net Revenues and Other Comprehensive Income Balance, April 30, 2008 $ 3,827,219 | |||
$ 11,616 $ 3,838,835 Cumulative effect of change in accounting principle | |||
-fair value option 11,616 (11,616)Balance, May 1, 2008, adjusted 3,838,835 3,838,835 Net Revenues (Expenses) | |||
(247,022) | |||
-(247,022)Balance, April 30, 2009 $ 3,591,813 | |||
$ $ 3,591,813 Net Revenues (Expenses) 370,975 370,975 Balance, April 30, 2010 $ 3,962,788 | |||
$ $ 3,962,788 24 (7) LONG-TERM DEBT: Long-term debt consists of the following at April 30 (in thousands): | |||
Interest Rate 2010 2009 Revenue bonds 1993 Series A (matured 1/1/2010)1993 Series C (mature 1/1/2011)1997 Series A (mature 2011 -2020)2001 Series A (mature 1/1/2011)2002 Series A (mature 2011 -2031)2002 Series 8 (mature 2016 -2032)2002 Series C (mature 2011 -2015)2004 Series A (mature 2011 -2024)2005 Series A (mature 2027 -2035)2006 Series A (mature 2033 -2037)2008 Series A (mature 2016 -2038)2009 Series A (mature 2011 -2039)2009 Series B (mature 2013 -2020)Total revenue bonds Unamortized bond (discount) premium Total revenue bonds outstanding 5.75%5.05%5.00-5.125% | |||
5.00%4.25-5.25% | |||
4.00- 5.00%5.00%4.00- 5.00%4.75-5.00% | |||
5.00%5.00%2.75 -5.00%3.00 -4.50%$15,800 38,990 11,420 431,110 570,000 184,635 114,410 327,090 296,000 816,650 744,180 296,375 3,846,660 86,656 3,933,316 215,795 50,000 4,199,111$ 4,000 58,845 43,990 54,080 432,560 570,000 202,385 116,360 327,090 296,000 816,650 744,180 3,666,140 65,749 3,731,889 232,585 3,964,474 (172)Finance lease Commercial paper Total long-term debt Unamortized interest rate swap 3.125 -5.25%Less: Current portion of long-term (147,180) | |||
(132,645)Total long-term debt, net of current $ 4,051,931 | |||
$ 3,831,657 The annual maturities of long-term debt (excluding unamortized bond discount/premium) as of April 30, 2010, due in fiscal years ending April 30, are as follows (in thousands): | |||
Revenue Bonds Finance Lease 2011 $ 127,230 $ 19,950 2012 122,180 17,455 2013 120,955 22,995 2014 113,740 17,500 2015 115,210 27,715 Thereafter 3,247,345 110,180 Total $ 3,846,660 | |||
$ 215,795 Revenue Bonds Revenue bonds are secured by a pledge of, and a lien on, the revenues of the electric system, after deducting operating expenses, as defined in the amended and restated bond resolution, effective in January 2003, as amended (Bond Resolution). | |||
Under the terms of the Bond Resolution, the District makes debt service deposits to a non-trusteed segregated fund. Included in segregated funds in the accompanying Combined Balance Sheets are $185.5 million and $179.6 million of debt service related funds as of April 30, 2010 and 2009, respectively. | |||
For the years ended April 30, 2010 and 2009, the debt service coverage ratio was 2.48 and 2.33, respectively. | |||
25 Interest and the amortization of the bond discount, premium and issue expense on the various issues results in an effective rate of 4.90% over the remaining term of the bonds.In January 2009, the District issued $744.2 million Electric System Revenue Bonds. A portion of the net proceeds was used to retire $100.0 million of Series B Commercial Paper and the balance was used to finance capital improvements to the Electric System pursuant to the District's Capital Improvement Plan.In October 2009, the District issued $296.4 million Electric System Revenue Bonds. The net proceeds were used to retire a portion of the $275.0 million of Series B Commercial Paper and $50.0 million of Series C Commercial Paper.The District has authorization to issue additional Electric System Revenue Bonds totaling $1.7 billion principal amount and Electric System Refunding Revenue Bonds totaling $5.9 billion principal amount.Finance Lease In December 2003, the District entered into a lease-purchase agreement (Desert Basin Lease-Purchase Agreement) with Desert Basin Independent Trust (DBIT) to finance the acquisition of the Desert Basin Generating Station (Desert Basin) located in central Arizona. In a concurrent transaction, $282.7 million in fixed-rate Certificates of Participation (COPs) were issued pursuant to a Trust Indenture, between Wilmington Trust Company, as trustee, and DBIT, to fund the acquisition of Desert Basin and other electric system assets of the District. | |||
Investors in the COPs obtained an interest in the lease payments made by the District to DBIT under the Desert Basin Lease-Purchase Agreement. | |||
Due to the nature of the Desert Basin Lease-Purchase Agreement, the District has recorded a lease-finance liability to DBIT with the same terms as the COPs.(8) COMMERCIAL PAPER AND CREDIT AGREEMENTS The District is authorized by the Board to issue up to $475.0 million in commercial paper. The District has $50.0 million Series C Commercial Paper outstanding at April 30, 2010. The District retired $275.0 million of Series B and $50.0 million of Series C Commercial Paper during fiscal year 2010 and $100.0 million of its Series B Commercial Paper during fiscal year 2009. At April 30, 2010, the Series C issue had an average weighted interest rate to the District of 0.31%. The commercial paper matures not more than 270 days from the date of issuance and is an unsecured obligation of the District.At April 30, 2009, the District had a $475.0 million revolving line-of-credit agreement supporting the$375.0 million of outstanding commercial paper. The District classified commercial paper in current liabilities in the accompanying Combined Balance Sheets at April 30, 2009, due to the December 7, 2009, pending expiration of the revolving line of credit agreement. | |||
In September 2009, the District replaced the $475.0 million revolving credit agreement with a three-year | |||
$50 million revolving credit agreement expiring September 16, 2012. The District has reclassified the commercial paper program as long-term debt in the accompanying Combined Balances Sheets at April 30, 2010.The $50 million revolving credit agreement contains various conditions precedent to borrowings that include, but are not limited to, compliance with the covenants set forth in the agreement, the continued accuracy of representations and warranties, no existence of default and maintenance of certain Investment grade ratings on the District's revenue bonds. The agreement has various covenants, with which management believes the District was in compliance at April 30, 2010. The 26 District has never borrowed under the agreement and management does not expect to do so in the future. Alternative sources of funds to support the commercial paper program include existing funds on hand or the issuance of alternative debt, such as revenue bonds.(9) EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS: Defined Benefit Pension Plan and Other Postretirement Benefits SRP's Employees' Retirement Plan (the Plan) covers substantially all employees. | |||
The Plan is funded entirely from SRP contributions and the income earned on invested Plan assets. The District made a contribution of $144.0 million in fiscal year 2010 and $50.0 million in fiscal year 2009.SRP provides a non-contributory defined benefit medical plan for retired employees and their eligible dependents (contributory for employees hired January 1, 2000 or later) and a non-contributory defined benefit life insurance plan for retired employees. | |||
Employees are eligible for coverage if they retire at age 65 or older with at least five years of vested service under the Plan (ten years for those hired January 1, 2000 or later), or any time after attainment of age 55 with a minimum of ten years of vested service under the Plan (20 years for those hired January 1, 2000 or later). The funding policy is discretionary and is based on actuarial determinations. | |||
FASB authoritative guidance requires employers to recognize the overfunded or underfunded positions of defined benefit pension and other postretirement plans in their balance sheets. Any actuarial gains and losses, prior service costs and transition assets or obligations must be recorded on the balance sheet with an offset to accumulated other comprehensive income until the amounts are amortized as a component of net periodic benefit costs.The Board has authorized the District to collect future amounts associated with the pension and other postretirement plan liabilities as part of the pricing process. The District established a regulatory asset for the portion of the total amounts otherwise chargeable to accumulated other comprehensive income that are expected to be recovered through prices in future periods. The changes in actuarial gains and losses, prior service costs and transition assets or obligations pertaining to the regulatory asset are recognized as an adjustment to the regulatory asset or liability accounts as these amounts are recognized as components of net periodic pension costs each year. The District's estimated amortization amounts for fiscal year 2010 are $3.1 million for transition obligation, $3.1 million for prior service cost and $7.9 million for net actuarial loss.Effective April 30, 2009, authoritative guidance required SRP to measure plan assets and benefit obligations at fiscal year end. SRP previously performed this measurement at January 31 of each year.In accordance with this standard, SRP eliminated the use of the three-month lag. As a result of implementing the measurement date provisions, and as authorized by the Board, the District recorded$16.9 million into the pension and post-retirement regulatory asset on the accompanying Combined Balance Sheets for the additional three months of pension and other postretirement benefits cost at April 30, 2009. The provisions of the guidance did not permit retrospective application. | |||
27 The following tables outline changes in benefit obligations, plan assets, the funded status of the plans and amounts included in the accompanying combined financial statements (in thousands): | |||
Pension Benefits Postretirement Benefits 2010 2009 2010 2009 Change In benefit obligation Benefit obligation at beginning of year $ 1,157,672 | |||
$ 1,166,141 | |||
$ 450,279 $ 533,342 Service cost 32,129 42,171 8,597 12,244 Interest cost 79,254 88,832 30,859 35,305 Actuarial gain (Loss) 145,809 (84,012) 39,801 (113,228)Benefits paid (49,258) (55,460) (16,158) (17,384)Benefit obligation at end of year $ 1,365,606 | |||
$ 1,157,672 | |||
$ 513,378 $ 450,279 Change in plan assets Fair value of plan assets at beginning of year $ 796,741 $ 1,082,180 | |||
-$ -Actual return on plan assets 213,969 (279,979)Employer contributions 144,000 50,000 16,158 21,539 Benefits paid (49,258) (55,460) (16,158) (21,539)Fair value of plan assets at end of year $ 1,105,452 796,741 Funded status at end of year $ (260,154) | |||
(360,931) | |||
$ (513,378) | |||
S (450,279)Amounts recognized In Combined Balance Sheets: Other current liabilities | |||
$ $ $ (18,882) $ (18,882)Accrued post-retirement liability (260,154) | |||
(360,931) | |||
(494,496) | |||
(431,397)Net asset (liability) recognized | |||
$ (260,154) | |||
$ (360,931) | |||
$ (513,378) | |||
$ (450,279)Amounts recognized as a regulatory asset: Transition obligation (asset) $ $ -$ (4) $ 11,698 Prior service cost (credit) 8,739 11,055 (7,193) 5,064 Net actuarial loss 533,863 510,984 123,490 53,722 Measurement date transition adjustment | |||
-5,417 -11,450 Net regulatory asset $ 542,602 $ 527,456 $ 116,293 $ 81,934 The following table represents the amortization amounts expected to be recognized or paid during the fiscal year ending April 30, 2011 (in thousands): | |||
Pension Benefits Net transition obligation/(asset) | |||
Prior service cost/(credit) | |||
Net actuarial$$ 2,315$ 20,597 Postretirement Benefits$ (1)$ (203)$ 5,576 The following table outlines the projected benefit obligation and accumulated benefit obligation in excess of Plan assets (in thousands): | |||
Projected benefit obligation Accumulated benefit obligation Fair value of Plan assets 2010$ 1,365,606$ 1,201,915$ 1,105,452 2009$ 1,157,672$ 1,009,364$ 796,741 SRP internally funds its other postretirement benefits obligation. | |||
At April 30, 2010 and 2009, $466.8 million and $352.9 million of segregated funds, respectively, were designated for this purpose.28 The weighted average assumptions used to calculate actuarial present values of benefit obligations at April 30 were as follows: Pension Benefits Postretirement Benefits 2010 2009 2010 2009 Discount rate 6.00% 7.00% 6.00% 7.00%Rate of compensation increase 4.00% 4.00% N/A N/A Weighted average assumptions used to calculate net periodic benefit costs were as follows: Pension Benefits Postretirement Benefits 2010 2009 2010 2009 Discount rate 7.00% 6.25% 7.00% 6.25%Expected return on Plan assets Rate of compensation increase 8.25%4.00%8.25%4.00%N/A N/A N/A N/A For employees who retire at age 65 or younger, for measurement purposes, an 8% annual increase before attainment of age 65 and an 8% annual increase on and after attainment of age 65 in per capita costs of health care benefits were assumed during 2010; these rates were assumed to decrease uniformly until equaling 5% in all future years.The components of net periodic benefit costs for the years ended April 30, are as follows (in thousands): | |||
Pension Benefits Postretirement Benefits 2010 2009 2010 2009 Service cost $ 32,129 $ 33,737 $ 8,597 $ 9,796 Interest cost 79,254 71,065 30,859 28,244 Expected return on Plan assets (91,982) (91,359) --Amortization of transition obligation | |||
--3,117 3,117 Amortization of net actuarial loss 6,360 5,909 1,556 3,874 Amortization of prior service cost 2,315 2,315 769 769 Net periodic benefit cost $ 28,076 $ 21,667 $ 44,898 $ 45,800 Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effect (in thousands): | |||
One Percentage Point Increase$ 5,600$ 66,882 One Percentage Point Decrease$ 4,900$ 58,595 Effect on total service cost and interest cost components Effect on postretirement benefit obligation Plan Assets The Board has established an investment policy for Plan assets and has delegated oversight of such assets to a compensation committee (the Committee). | |||
The investment policy sets forth the objective of providing for future pension benefits by targeting returns consistent with a stated tolerance of risk.29 The investment policy is based on analysis of the characteristics of the Plan sponsors, actuarial factors, current Plan condition, liquidity needs, and legal requirements. | |||
The primary investment strategies are diversification of assets, stated asset allocation targets and ranges, and external management of Plan assets. The Committee determines the overall target asset allocation ratio for the Plan and defines the target asset allocation ratio deemed most appropriate for the needs of the Plan and the risk tolerance of the District.The market value of investments (reflecting returns, contributions, and benefit payments) within the plan trust appreciated 26.6% during fiscal year 2010, compared to a decline of 25.7% during fiscal year 2009. Changes in the plan's funded status affect the assets and liabilities recorded on the balance sheet in accordance with FASB authoritative guidance. | |||
Due to the District's regulatory treatment, the recognition of funded status is offset by regulatory assets or liabilities and is recovered through prices.The Pension Protection Act of 2006 establishes new minimum funding standards and restricts plans underfunded by more than 20% from adopting amendments that increase plan liabilities unless they are funded immediately. | |||
In December 2008, the Worker, Retiree, and Employer Recovery Act (WRERA)was enacted. Among other provisions, the WRERA provides temporary funding relief to defined benefit plans during the current economic down-turn. | |||
WRERA will favorably impact the level of minimum required contributions for years after 2009.The Plan's weighted-average asset allocations are as follows: Target Allocations 2010 2009 Equity securities 65.0% 64.7% 53.6%Debt securities 25.0% 28.3% 34.4%Real estate 10.0% 7.0% 12.0%Total 100.0% 100.0% 100.0%The investment policy, as authorized by the Board, allows management to reallocate Plan assets at any time within a tolerance range up to plus or minus 5% from the target asset allocation which allows for flexibility in managing the assets based on prevailing market conditions and does not require automatic rebalancing if the actual allocation strays from the target allocation. | |||
Given the dislocations In the markets, the Plan's weighted-average asset allocations had deviated from the target allocations in fiscal year 2009. In fiscal year 2010, the actual allocation of the Plan is closer to its normalized state, driven by a combination of asset growth, rebalancing, and contributions. | |||
Management continues to monitor the allocations on a recurring basis.30 Fair Value of Plan Assets The following table sets forth the fair value of SRP's Plan assets, by asset category, at April 30, 2010 (dollars in thousands): | |||
Level I Level 2 Level 3 Total Money market funds $ $ 42,370 $ $ 42,370 U.S. government securities 31,703 31,703 Corporate bonds 215,033 215,033 Corporate stocks 535,429 -535,429 Commingled funds -147,710 56,416 204,126 Real Estate --76,791 76,791 Total Assets $ 535,429 $ 436,816 $ 133,207 $ 1,105,452 The fair value of the Plan assets, excludes $337.6 million payable for collateral on loaned securities in connection with the participation of the Plan in securities lending programs.For a description of the fair value hierarchy and for an explanation of the valuation methodologies used to determine fair value of the assets of the Plan, refer to Note (5) FAIR VALUE MEASUREMENTS. | |||
Changes In Level 3 Fair Value Measurements The table below includes the reconciliation of changes to the balance sheet amounts for the year ended April 30, 2010, (in thousands) for financial instruments classified within Level 3 of the valuation hierarchy; this determination is based upon unobservable inputs to the overall fair value measurement: | |||
Beginning balance at May 1, 2009 Actual return on plan assets relating to assets still held at end of period Net purchases, sales and settlements Net transfers in/out of Level 3 Plan Assets$ 95,965 (14,775)54,000 (1,983)Balance at April 30, 2010$ 133,207 Long-Term Rate of Return The expected return on Plan assets is based on a review of the Plan asset allocations and consultations with a third-party investment consultant and the Plan actuary, considering market and economic indicators, historical market returns, correlations and volatility, and recent professional or academic research.Employer Contributions The District expects to contribute | |||
$132.0 million to the Plan over the next valuation period.31 Benefits Payments SRP expects to pay benefits in the amounts as follows (in thousands): | |||
Pension Benefits Postretirement Benefits Before Subsidy* Net 2011 $ 56,463 $ 18,883 $ 18,308 2012 60,542 20,939 20,284 2013 65,670 22,930 22,172 2014 71,385 25,078 24,221 2015 77,049 27,132 26,194 2016 through 2020 $ 480,554 $ 161,642 $ 155,563*Estimated future benefit payments, including prescription drug benefits, prior to federal drug subsidy receipts expected as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.Defined Contribution Plan SRP's Employees' 401(k) Plan (the 401(k) Plan) covers substantially all employees. | |||
The 401(k) Plan receives employee pre-tax and post-tax contributions and partial employer matching contributions. | |||
Employees who have one year of service in which they have worked at least 1,000 hours and who are also contributing to the 401(k) Plan are eligible to receive partial employer matching contributions of$0.85 on every dollar contributed up to the first six-percent of their base pay that they contribute to the 401(k) Plan. Employer matching contributions to the 401(k) Plan were $14.0 million and $13.8 million during fiscal years 2010 and 2009, respectively. | |||
Employee Incentive Compensation Program For fiscal year 2009, SRP had an incentive compensation program covering substantially all regular employees. | |||
The incentive compensation was based on achievement of pre-established targets that were not met in fiscal year 2009. The Board did not approve an incentive compensation program for fiscal year 2010.(10) INTERESTS IN JOINTLY-OWNED ELECTRIC UTIUTY PLANTS: The District has entered into various agreements with other electric utilities for the joint ownership of electric generating and transmission facilities. | |||
Each participating owner in these facilities must provide for the cost of its ownership share. The District's share of expenses of the jointly-owned plants is included in operating expenses in the accompanying Combined Statements of Net Revenues.The following table reflects the District's ownership interest in jointly-owned electric utility plants as of April 30, 2010 (in thousands): | |||
Construction Ownership Plant In Accumulated Work Generating Station Share Service Depreciation In Progress Four Comers (NM) (Units 4 & 5) 10.00% $ 113,594 $ (98,688) $ 7,649 Mohave (NV) (Units 1 & 2) 20.00% 133,498 (129,760) | |||
-Navajo (AZ) (Units 1, 2 & 3) 21.70% 384,749 (333,344) 21,395 Hayden (CO) (Unit 2) 50.00% 119,297 (109,485) 5,021 Craig (CO) (Units 1 & 2) 29.00% 273,199 (210,123) 5,910 PVNGS (AZ) (Units 1, 2 & 3) 17.49% 1,284,975 (1,006,713) 53,898$ 2,309,312 | |||
$ (1,888,113) | |||
$ 93,873 32 The Mohave Generating Station (Mohave), in which the District owns 20%, ceased operations on December 31, 2005. Efforts to reopen or sell the plant as a coal-fired generation source were unsuccessful and the Participants are decommissioning the plant. There remains approximately | |||
$3.7 million in net plant value at Mohave for the switchyard and transmission line still used to route power to other inter-tied systems.(11) VARIABLE INTEREST ENTITIES: The FASB authoritative guidance defines a variable interest entity (VIE) as a legal entity whose equity owners do not have sufficient equity at risk or a controlling financial interest in the entity. This guidance identifies the primary beneficiary as the variable interest holder that absorbs the majority of the expected losses; if no variable interest holder meets this criterion, then it is the variable interest holder that receives the majority of the expected residual returns. The primary beneficiary is required to consolidate the VIE unless specific exceptions or exclusions are met. The District considers both qualitative and quantitative factors to form a conclusion whether it, or another interest holder, absorbs a majority of the risk of expected losses, receives a majority of the potential expected residual returns, or both. Beginning on May 1, 2010, new accounting guidance will change the approach for the determination of the primary beneficiary and will require the District to perform ongoing reassessment of its VIEs to determine the primary beneficiary. | |||
This change may result in future consolidation or deconsolidation of VIEs.Unconsolidated VIE While the District is not required to consolidate any VIE as of April 30, 2010, it held a significant variable interest in certain VIEs as described below: In May 2008, the District entered into a 20-year purchase power agreement to purchase energy from a 575 MW simple cycle natural gas peaking facility. | |||
Commercial operation is expected to begin in fiscal year 2012. Under the agreement, the District will pay a capacity charge, operation and maintenance costs and property taxes. The District is also obligated to provide the natural gas needed to operate the facility. | |||
The District has no obligation if the facility does not commence commercial operation unless certain termination clauses are invoked, by the District, in which case the District could be required to reimburse certain construction costs.The District has entered into various long-term purchase power agreements with developing renewable energy generation facilities that extend for periods of 20 to 30 years. One of the facilities, with a capacity of approximately 63 MW, began commercial operation in fiscal year 2010 and SRP is receiving the power and renewable energy credits from the facility. | |||
The remaining facilities are expected to begin commercial operation between fiscal year 2011 and fiscal year 2012. The expected capacity of all the facilities combined, once in operation, is approximately 190 MW. The District is only obligated to pay for actual energy delivered and has no obligation if the facilities do not start commercial operations. | |||
There are no minimum payment obligations under these agreements. | |||
SRP formed a partnership during fiscal year 2010 to market long-term water storage credits. SRP made capital contributions to the partnership in fiscal year 2010 totaling $448,000 and has a future maximum exposure of $25 million. SRP accounts for the partnership under the equity method of accounting. | |||
33 (12) REGULATORY MATTERS: The Electric Utility Industry The District historically operated in a highly regulated environment in which it had an obligation to deliver electric service to customers within its service area. In 1998, the Arizona Electric Power Competition Act (the Act) authorized competition in the retail sales of electric generation, recovery of stranded costs, and competition in billing, metering and meter reading.While retail competition was available to all customers by 2001, there were only a few customers who chose an alternative energy provider. | |||
Those customers have since returned to their incumbent utilities. | |||
At this time, there is no active retail competition within the District's service territory or, to the knowledge of the District, within the State of Arizona. However, during the past four years, two retail energy service providers, one meter reading service provider, and one meter service provider have applied to the Arizona Corporation Commission for authorization to sell energy in Arizona. In September 2008, the ACC suspended consideration of the one application for which a procedural order had been issued pending completion of public workshops on the policy issues underlying retail competition and receipt of ACC Staff's report and recommendations. | |||
The report to the ACC is expected in late summer 2010. The ACC has not yet addressed the other applications. | |||
In 1996, the Federal Energy Regulatory Commission (FERC), which regulates the wholesale electric utility industry under the authority of various statutes, issued Orders 888 and 889 requiring transmitting "public utilities" (as defined in the Federal Power Act), to provide nondiscriminatory transmission services to entities seeking to effect wholesale power transactions, and to grant equal access to information concerning the pricing and availability of transmission services. | |||
The District is not a public utility under the Federal Power Act but historically has complied with these requirements voluntarily. | |||
The Energy Policy Act of 2005 (Energy Policy Act) expanded FERC jurisdiction by granting FERC discretionary authority to regulate the non-rate terms and conditions, and to a lesser extent, rates, under which unregulated transmitting utilities (including the District) provide wholesale transmission services. | |||
The Energy Policy Act explicitly prohibits FERC from requiring unregulated transmitting utilities to take actions that would violate a private activity bond rule.The Changing Regulatory Environment The District has fully opened its service area to competition in generation and billing, metering and meter reading. The District's electric distribution area remains regulated by its Board, and the District will not provide distribution services in the distribution areas of other utilities. | |||
The District's price plans have been unbundled since 1999. In May 2002, the District implemented a Fuel &Purchased Power Adjustment Mechanism (FPPAM) to allow for semi-annual rate adjustments to recover increases in actual fuel costs. The District has had several increases in the price of fuel and purchased power since the FPPAM was implemented. | |||
In June 2004, the District introduced a Transmission Cost Adjustment Factor (TCAF) to recover costs the District would incur if the District were required to participate in regional transmission organizations. | |||
To date, no costs have been incurred or recovered through the TCAF. In November 2009, the District introduced an Environmental Programs Cost Adjustment Factor (EPCAF) to recover costs incurred by the District to comply with renewable-energy, energy efficiency and climate-change related requirements imposed by mandate. The EPCAF is applied to all retail customer energy sales at a single per-kWh price for all customer classes.34 On October 6, 2008, the District Board approved an annualized 5.9% system average increase for the FPPAM to address under-collected fuel and purchased power expenses, effective with the November 2008 billing cycle. To lessen the impact on customer bills, the increase was designed to recover the under-collection over an 18-month period.On October 1, 2009, the District Board approved a 2.5 percent system average decrease for the FPPAM, effective with the November 2009 billing cycle, to reflect lower anticipated fuel and purchased-power costs for the last six months of fiscal year 2010. The Board also approved a 2.5 percent system average increase for the EPCAF, effective with the November 2009 billing cycle. The decrease to the FPPAM was offset by the increase to the EPCAF, resulting in no additional revenue.On March 11, 2010, the District Board approved an overall 4.9% system average increase effective with the May 2010 billing cycle. The increase is expected to generate approximately | |||
$117.4 million in fiscal year 2011; $244 million of the increase is the result of adjustments to base prices and $26.5 million is related to an adjustment to the EPCAF, both of which are offset in part by a $153 million decrease in the FPPAM.Through a surcharge to the District's transmission and distribution customers, the District recovers the costs of programs benefiting the general public, such as discounted rates for the elderly or impoverished, and nuclear decommissioning, including the cost of spent fuel storage. This surcharge continues to be separately identified and included in the District's price plans for the regulated portion of its operations. | |||
(13) COMMITMENTS: | |||
Purchased Power and Coal Fuel Supply The District had various firm non-cancelable purchase commitments at April 30, 2010, which are not recognized in the accompanying Combined Balance Sheets. The following table presents information pertaining to firm purchase commitments with remaining terms greater than one year (in millions): | |||
Total Payments Purchase Commitments 2010 2009 2011 2012 2013 2014 2015 Thereafter Purchase powercontracts* | |||
$ 220.8 $ 237.5 $ 110.8 $ 107.7 $ 117.3 $ 118.5 $119.7 $ 2,287.2 Coal fuel supply contracts 249.3 487.5 264.3 264.8 246.2 193.8 193.8 511.5 Total $ 470.1 $ 725.0 $ 375.1 $ 372.5 $ 363.5 $ 312.3 $313.5 $ 2,798.7 Included in the purchase commitments are $25.2 million annually through fiscal year 2011 and $10.5 million in fiscal year 2012 that are unconditionally payable regardless of the availability of power.In conjunction with an impairment analysis performed on generation-related operations, in August 1998, the District recorded provisions of $163.7 million for losses on certain contracts included in the table above. The provisions are being amortized over the life of the contracts, commencing January 1, 1999, and will be fully amortized by May 2011. Amortization of $13.3 million has been reflected as a reduction in purchased power expense in fiscal years 2010 and 2009. The remaining liability at April 30, 2010 of $13.2 million is included in deferred credits and other non-current liabilities in the accompanying Combined Balance Sheets.35 Other Purchasý Power Agreements The District has entered into various long-term purchase power agreements with developing renewable energy generation facilities that extend for periods of 20 to 30 years. Total expected capacity is approximately 190 MW. (For further discussion of these agreements see Note (11) VARIABLE INTEREST ENTITIES.) | |||
Gas Purchase Agreement In October 2007, the District entered into a 30-year gas purchase agreement with Salt Verde Financial Corporation (SVFC), an Arizona nonprofit corporation formed for the primary purpose of supplying natural gas to the District. | |||
Under the agreement, the District is committed to purchase 4,750,000 MMBtus (million of British thermal units) of natural gas in fiscal year 2011, 9,820,000 MMBtus in fiscal year 2012, 10,120,000 MMBtus in fiscal year 2013, 10,425,000 MMBtus in fiscal year 2014, 10,425,000 MMBtus in fiscal year 2015 and 239,510,000 MMBtus over the balance of the term. These purchases are expected to supply approximately 20% of its projected natural gas requirements needed to serve retail customers over the remainder of the 30-year period. The District receives a discount off market prices and is obligated to pay only for gas delivered. | |||
Payments to SVFC under the agreement were$10.1 million and $36.4 million in fiscal year 2010 and fiscal year 2009, respectively. | |||
Operating Leases The District entered into various operating leases to facilitate the operations of Springerville Unit 4. Total payments under the agreements were $8.1 million and $1.6 million in fiscal year 2010 and 2009, respectively. | |||
Minimum payments under these agreements are estimated to be $13.0 million in fiscal year 2011, $13.2 million in fiscal year 2012 through fiscal year 2014, $13.0 million in fiscal year 2015 and $241.5 million thereafter. | |||
(14) CONTINGENCIES: | |||
Nuclear Insurance Under existing law, public liability claims arising from a single nuclear incident are limited to $12.5 billion.PVNGS Participants insure for this potential liability through commercial insurance carriers to the maximum amount available | |||
($300.0 million) with the balance covered by an industry-wide retrospective assessment program as required by the Price-Anderson Act. If losses at any nuclear power plant exceed available commercial insurance, the District could be assessed retrospective premium adjustments. | |||
The maximum assessment per reactor per nuclear incident under the retrospective program is $117.5 million including a 5% surcharge; applicable in certain circumstances, but not more than $17.5 million per reactor may be charged in any one year for each incident.Based on the District's ownership share of PVNGS, the maximum potential assessment would be $61.7 million, including the 5% surcharge, but would be limited to $9.2 million per incident in any one year.PVNGS participants also maintain "all risk" (including nuclear hazards) insurance for property damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.75 billion, a substantial portion of which must first be applied to stabilization and decontamination. | |||
The District has also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen accidental outage of any of the three units. The coverage for property damage, decontamination, and replacement power is provided by Nuclear Electric Insurance Limited (NEIL). The District is subject to retrospective assessments under all NEIL policies if 36 NEIL's losses in any policy year exceed accumulated funds. The maximum amount of retrospective assessments the District could incur under the NEIL policies totals approximately | |||
$12.6 million. The insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions and exclusions. | |||
Spent Nuclear Fuel Under the Nuclear Waste Policy Act of 1982, the District pays $0.001 per kWh on its share of net energy generation at PVNGS to the U.S. Department of Energy (DOE). The DOE was responsible for the selection and development of a repository for permanent storage and disposal of spent nuclear fuel not later than December 31, 1998. However, the DOE delayed submitting an application to construct a permanent repository at Yucca Mountain Nevada until June 2008 and the use of Yucca Mountain as a storage site remains uncertain. | |||
Because of the significant delays in the DOE's schedule, it cannot be determined when the DOE will accept waste from PVNGS or from the other owners of spent nuclear fuel. It is unlikely, due to PVNGS' position in DOE's queue for receiving spent fuel, that Arizona Public Service Company (APS), the operating agent of PVNGS, will be able to initiate shipments to DOE during the licensed life of PVNGS.Accordingly, APS has constructed an on-site dry cask storage facility to receive and store PVNGS spent fuel.The facility stored its first cask in March 2003. Seventy-three casks are now stored on site.The District's share of on-site interim storage at PVNGS is estimated to be $69.1 million for costs to store spent nuclear fuel from inception of the plant through fiscal year-end 2010, and $0.4 million per year going forward. These costs have been included in the District's price plans for transmission and distribution. | |||
At April 30, 2010 and 2009, the District's accrued spent fuel storage cost was $25.6 million and $24.5 million, respectively, and included in deferred credits and other non-current liabilities on the accompanying Combined Balance Sheets.Coal Supply Litigation Navajo Nation v. Peabody (U.S. District Court, D.C. District -RICO Case) -In 1999, the Navajo Nation filed a lawsuit in the United States District Court in Washington D.C. (the "U.S. District Court") in which the Hopi Tribe later joined as a plaintiff. | |||
The lawsuit arises out of negotiations culminating in 1987 with amendments to the coal leases and related agreements. | |||
The Navajo Nation and the Hopi Tribe allege that Peabody (the coal supplier for NGS and Mohave), Southern California Edison Company (operating agent for Mohave), the District (operating agent for NGS) and certain individual defendants, in violation of the federal racketeering statutes, had improperly induced the Department of the Interior to not approve the coal royalty rate proposed by the Navajo Nation. They further alleged that the Department of the Interior's failure to approve the rate caused the tribes to negotiate and settle upon a substantially lower royalty rate. The suit alleges $600.0 million in damages. The plaintiffs also seek treble damages against the defendants, measured by amounts awarded under the racketeering statutes. | |||
In addition, the plaintiffs claim punitive damages of not less than $1.0 billion. In 2001, the claims of both the Navajo Nation and the Hopi Tribe were dismissed in their entirety with respect to the District.In 2005, the U.S. District Court stayed the litigation to allow the parties an opportunity to settle. In 2008, the Court lifted the stay and the case was restored to the court's active docket.On April 12, 2010, the Navajo Nation filed an amended complaint that did not include any RICO claims or claims against the District or any individual defendants. | |||
The amended complaint continues to allege$600 million in damages and punitive damages in the amount of $1 billion and seeks to reform the coal leases to provide for a reasonable royalty rate, to dispossess the defendants of all interests in property on the Reservation and to permanently exclude the defendants from the Reservation. | |||
While the District is 37 not named as a defendant in the amended complaint, the earlier dismissal of the District could possibly be appealed at the conclusion of the case.Black Mesa Environmental Impact Statement In 2008, the Office of Surface Mining (OSM) issued an Environmental Impact Statement (EIS) to allow Peabody to include the Black Mesa Mine (which formerly served Mohave) to the permit for the Kayenta Mine (which serves NGS). Among other things, combining the two permits could eventually give Peabody access to shallower, high quality coal for NGS, which could reduce future costs to the NGS Participants and provide an additional source of coal. Under the administrative appeals process, numerous appeals of the permit decision were filed, and a decision was issued that the process OSM had followed to issue the permit was inadequate. | |||
Therefore OSM is redoing the EIS.The District is unable to predict the likely outcome of the coal supply litigation matters at this time but does not believe that the final resolution of these matters will have material adverse effects on its operations or financial condition. | |||
Navajo Mine Permit The Din6 Citizens Against Ruining Our Environment (Dine CARE) and the San Juan Citizens Alliance filed a lawsuit against the OSM in July 2007. The lawsuit alleges that the OSM erroneously renewed the permit of BHP for the Navajo Mine, which serves Four Corners, and in which the District owns 10% of Units 4 and 5. Specifically, the lawsuit alleges that the OSM wrongly excluded review of the permit under the National Environmental Policy Act (NEPA) and that the U.S. Environmental Protection Agency (EPA) insufficiently considered the impacts on tribal members and on the environment of the continued and expanded mining operations and the use of fly ash as mine fill. Although the plaintiffs do not seek or request injunctive relief to halt the mining operations, they do ask the court to stop any relocation of tribal members as a result of mine expansion, any disposal of fly ash in the mine, and any blasting operations near the homes of tribal members. In a subsequent amended complaint, the plaintiffs added an allegation that BHP conducted an ethnographic survey that should have been, but was not, considered in the OSM's NEPA analysis for the mine renewal and expansion permits. The potential implications of these allegations for Four Corners are significant. | |||
BHP passes environmental compliance costs through to the plant. If a court found that fly ash disposal indeed harms human health or the environment, BHP would look to Four Corners for funding any required investigation and remediation, and for any toxic tort claims. Furthermore, Four Corners operates its own fly ash disposal facilities, and any finding that fly ash disposal at the mine harms human health and the environment could be extended to the plant's disposal facilities as well. In addition, mine expansion is necessary to assure a continuing coal supply to the plant. Accordingly, APS, as operating agent, intervened on behalf of all the Four Corners Participants. | |||
This matter has been fully briefed and oral argument is scheduled for late July 2010. The District cannot predict an outcome at this time.Environmental SRP is subject to numerous legislative, administrative and regulatory requirements relative to air quality, water quality, hazardous waste disposal and other environmental matters. SRP conducts ongoing environmental reviews of its properties for compliance and to identify those properties it believes may require remediation. | |||
Such requirements have resulted, and will continue to result, in increased costs associated with the operation of existing properties. | |||
At April 30, 2010, and 2009, the District accrued $53.3 million and $89.1 million, respectively, for environmental issues, on a non-38 discounted basis, and is included in deferred credits and other non-current liabilities on the accompanying Combined Balance Sheets.In September 2003, the EPA notified the District that it might be liable under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) as an owner and operator of a facility within the Motorola 5 2 nd Street Superfund Site Operable Unit 3. The District investigated and found minimal contamination on the site. The District removed the contamination and the EPA has informed the District that no further work will be required at the facility. | |||
However, the District may be liable for past costs incurred and for future work to be conducted within the Superfund Site.The Roosevelt Irrigation District (RID) filed a lawsuit in the District Court of Arizona against the District and approximately 100 other defendants, asserting a claim for damages under CERCLA for costs associated with the remediation of groundwater and damage to RID's irrigation wells located within the West Van Buren Superfund Site, which is immediately to the west of the Motorola 52nd Street Superfund Site. The District has been identified as a potentially responsible party for the West Van Buren Site because of its involvement in the Motorola 52"d Street Superfund Site. RID has alleged that the costs associated with the remedlation could exceed $125 million. The District is unable at this time to predict the outcome of this matter but does not believe that the final resolution will have a material adverse effect on its operations or financial condition. | |||
Air Quality Electric utilities are subject to federal, state and local environmental regulations which continually change due to legislative, regulatory and judicial actions. Consequently, there is no assurance that facilities owned by the District will remain subject to the regulations currently in effect, will always be in compliance with future regulations, or will always be able to obtain all required operating permits. The need to comply with environmental regulations could result in additional capital expenditures to comply, reduced operating levels, or the complete shutdown of individual electric generating units not in compliance. | |||
In particular, the full significance to the District of air quality standards and emission reduction initiatives in terms of cost and operational problems is difficult to predict, but costly equipment may have to be added to units now in operation and that permit fees may increase significantly resulting in potentially material costs to the District.As a result of legislative and regulatory initiatives, the District is planning reductions in emissions of mercury and other hazardous air pollutants at its coal-fired power plants including plants located on the Navajo Reservation. | |||
The EPA issued regulations for the control of mercury emissions from coal-fired generating stations in 2005. Arizona subsequently imposed additional mercury emissions limitations which would require the District to install additional controls at CGS and Springerville Unit 4 to achieve 90%mercury removal. In addition, the District has been participating with the EPA in the development of a rule to regulate mercury emissions on the Navajo Reservation, where the District owns an interest in two generating stations, NGS and Four Corners. In 2008, the U.S. Court of Appeals, D.C. Circuit, vacated the EPA's 2005 rules, finding that the EPA had not followed proper procedures to develop the rules. As a result, the EPA will issue new rules. In the interim, the District and other utilities negotiated Consent Orders with the Arizona Department of Environmental Quality (ADEQ), pursuant to which the District will implement a control strategy designed to achieve a 70 percent reduction of mercury emissions at CGS on a facility-wide annual average basis by January 1, 2012. It is likely that additional controls will be required at all coal-fired plants in which the District has an interest when new EPA rules are issued in 2011. The District is evaluating compliance options and cannot yet estimate the associated costs.39 In June 2005, the EPA also issued final amendments to its July 1999 Regional Haze Rule. These amendments apply to the provisions of the regional haze rule that require emissions controls known as Best Available Retrofit Technology (BART) for coal-fired power plants and other industrial facilities that emit air pollutants that reduce visibility. | |||
The amendments include final guidelines for states and tribes to use in determining which facilities must install controls and the types of controls that facilities must use.States and tribes were required to complete BART determinations for eligible facilities by the end of 2007.Most states, including Arizona, did not meet that deadline, but Arizona is expected to complete its BART determination in 2010. BART controls must be installed five years after the EPA has approved a state's BART determination. | |||
The District has financial interests in several coal-fired power plants that are subject to the BART requirements. | |||
In August 2009, the EPA issued an Advanced Notice of Proposed Rulemaking seeking public comments on what constitutes BART for both NGS and Four Corners. Comments were due in March 2010 and the EPA is expected to issue proposed BART determinations sometime in late 2010 and final determinations in 2011.The District believes that BART for NGS requires the installation on all three units of low-NOx burners and separated over-fired air (LNB/SOFA). | |||
The LNB/SOFA equipment has been installed on two units and the third unit will be completed in early 2011. The total cost for this project is $45 million, of which the District's share will be $9.8 million. The EPA may also require the installation of selective catalytic reduction (SCR) as well as controls for sulfuric acid mist emissions and fine particulate matter, which would cost about $1.2 billion, of which the District's share would be approximately | |||
$260 million.APS believes that BART for Four Comers may require the installation of LNB/SOFA for Units 4 and 5 (in which the District owns a ten percent interest) at a total cost of $52 million, of which the District's share would be $5.2 million. Similar to NGS, the EPA may also require the installation of SCR, which could cost an additional | |||
$478 million, of which the District's share would be $48 million.The EPA recently disapproved the Colorado BART determinations, including determinations made for the Craig and Hayden Generating Stations. | |||
The EPA rejected the Colorado BART determination because it did not conform to the 2005 DART Guidelines. | |||
Colorado has until January 2011 to submit a revised plan to the EPA or the EPA will issue its own BART determination. | |||
The District believes that the revised BART will include a recommendation for SCRs on Craig and Hayden.On May 5, 2009, the National Parks Conservation Association (NPCA), Sierra Club, Grand Canyon Trust, San Juan Citizens Alliance (SJCA), To Nozhoni Ani, and Din6 CARE petitioned the U.S. Department of Interior -National Park Service (DOI) to certify to the EPA that visibility impairment in Grand Canyon National Park is"reasonably attributable" to oxides of nitrogen and particulate matter emissions from NGS (the NGS Petition). | |||
The NGS Petition asks the DOI to supplement a similar certification it made in 1986 that ultimately led to the installation of sulfur dioxide scrubbers at NGS. The petitioners allege that although the installation of the scrubbers improved visibility at the Grand Canyon, it did not adequately reduce NGS's impact on such visibility. | |||
In July 2009, the DOI responded to the NGS Petition, stating that it had been collaborating with the EPA regarding the BART determination for NGS, and that the agency would make a decision on the petition after the BART determination had been completed. | |||
On February 16, 2010, the NPCA, Earthjustice, Sierra Club, SJCA, Grand Canyon Trust, Center for Biological Diversity, Dind CARE, Dooda Desert Rock and Wild Earth Guardians filed a petition similar to the NGS Petition with both the DOI and the U.S. Department of Agriculture | |||
-U.S. Forest Service (DOA) with respect to Four Corners (the Four Corners Petition). | |||
The petitioners asked that the DOI and the DOA certify to the EPA that impairment of visibility in sixteen areas within 300 kilometers of Four Corners including the Grand Canyon National Park, among others, was reasonably attributable to pollutant emissions from Four Corners. APS, as the operating agent for Four Corners, has asked the DOI and the 40 DOA to defer action on the Four Corners Petition until the ongoing BART determination process for Four Corners has been completed. | |||
The EPA is continuing its national enforcement initiative under the new source review provisions of the Clean Air Act (CAA). This initiative is focused on determining whether companies had failed to disclose major repairs or alterations to facilities that, in the opinion of the EPA, would have required the installation of new pollution control equipment under the CAA. The EPA's pursuit of the initiative has resulted in the installation of expensive pollution control equipment at various facilities. | |||
As part of this initiative, the EPA contacted APS on April 6, 2009, seeking detailed information regarding projects at and operations of Four Corners. APS has provided initial responses to this request and is unable to predict the timing or content of the EPA's response or any resulting actions.On May 5, 2010, Earthjustice wrote to the EPA and the owners of Four Corners Units 4 and 5, in which the District owns a ten percent interest, providing notice of intent to sue the participants (the Notice)for violations of the CAA. Earthjustice sent the Notice on behalf of Dind CARE, To Nizhoni Ani, National Parks Conservation Association, and the Sierra Club. The Notice alleges two types of CAA violations: | |||
(1) Prevention of Significant Deterioration (PSD) (these have to do with New Source Review (NSR); PSD and NSR are essentially interchangeable); | |||
and (2) New Source Performance Standards. | |||
The EPA had 60 days to determine whether to file its own action against the plant, but failed to do so. Thus, Earthjustice could file suit at any time.The District is unable to predict the likely outcomes of these matters at this time.The District recognizes the growing importance of the issues concerning climate change (global warming) and the implications they could have on its operations, so it is closely monitoring climate change and other legislative and regulatory developments at the federal, state and regional levels.Congress is considering bills containing several significant provisions which would: (1) require utilities to meet a portion of their electricity demand through renewable energy sources and energy efficiency by the 2015 to 2020 timeframe; (2) establish a new cap-and trade program to reduce carbon emissions from major sources by over 80% by 2050; (3) mandate new energy efficiency codes for buildings and appliances; and (4) make investments in new energy technologies, resources and energy efficiency. | |||
It is unknown when Congress will complete its consideration of the climate change and energy issues or what the final provisions of any bill that is enacted into law will be.While congressional action remains in flux, the EPA has moved forward with its efforts to regulate emissions of greenhouse gases (GHG). On December 15, 2009, the EPA published its final endangerment finding under the CAA to the effect that emissions of GHG threaten both public health and welfare and that emissions of GHG from motor vehicles contribute to that threat. Although the endangerment finding itself did not trigger Prevention of Significant Deterioration (PSD) or Title V permitting requirements for stationary sources, the EPA's finalization of the GHG Motor Vehicle Emissions Standards in April 2010 did, allowing the EPA to regulate stationary sources for emissions of GHG such as power plants. Then, on May, 13, 2010, the EPA released its "tailoring" rule, which changes or "tailors" the existing pollutant applicability thresholds for GHG for the PSD and Title V Programs to avoid permitting of all sources that meet the current statutory applicability thresholds for these two programs. | |||
Regulation of GHG under the PSD and Title V Programs will affect permitting of new generation as well as permitting of modifications at existing plants. The District cannot predict the costs of compliance with such regulation until the EPA issues additional information on implementation, including guidance on possible options for controls or other efforts that might be required, but the costs could be substantial. | |||
41 Efforts to cap or tax emissions of carbon dioxide from fossil fuel power plants will substantially increase the cost of, and add to the difficulty of siting, constructing, and operating electric generating units. As a result of legislative and regulatory initiatives, the District is planning emission reductions at its coal-fired power plants. In particular, under the terms of a consent agreement with the EPA, the District has agreed to install additional pollution control equipment at CGS and negotiations are ongoing with the EPA for pollution control equipment additions at NGS and Four Corners. The full significance of air quality standards and emission reduction initiatives to the District in terms of costs and operational problems is difficult to predict, but it appears that costly equipment may have to be added to existing units and that permit fees may increase significantly resulting in potentially material cost to the District as well as reduced generation. | |||
The District is assessing the risk of policy initiatives on its generation assets and is developing contingency plans to comply with future laws and regulations restricting greenhouse gas emissions. | |||
There is no way to predict the impact of such initiatives on the District at this time.The California Legislature has enacted laws that could impact the District. | |||
Under one such law, the California Public Utilities Commission and the California Energy Commission have implemented a regulation that, among other things, prohibits long-term contracts, five years or more, for the procurement of electricity from coal-fired power plants and restricts investments in coal-fired plants.The Los Angeles Department of Water and Power (LADWP), one of the participants in NGS, and SCE, a participant in Four Corners Units 4 and 5, are subject to the regulations and may be precluded from approving certain expenditures at the plants. Also, the California Air Resource Board (CARB) is developing a program to reduce California emission of greenhouse gasses, including an economy-wide cap-and-trade program for greenhouse gases. The CARB regulations could impact the District's ability to sell excess generation into California. | |||
Based on available information, the District cannot estimate or predict the impact of the California laws on it at this time.California Energy Market Issues Numerous FERC proceedings are addressing various aspects of the California energy market crisis of 2000 through 2001. Several of these proceedings involve potential refunds. Because the District bought from and sold power to the California energy market, the District has been drawn into many of the proceedings. | |||
However, the District was a net buyer in the California market during the time periods being scrutinized, and believes it is entitled to refunds if any are ordered. The District has received approximately | |||
$32.7 million in refunds as of April 30, 2010.Indian Matters From time to time, SRP is involved in litigation and disputes with various Indian tribes on issues concerning regulatory jurisdiction, royalty payments, taxes and water rights, among others (see Coal Supply Litigation above and Water Rights below). Resolution of these matters may result in increased operating expenses.Water Rights The District and the Association are parties to a state water rights adjudication proceeding initiated in 1976 which encompasses the entire Gila River System (the Gila River Adjudication). | |||
This proceeding is pending in the Superior Court for the State of Arizona, Maricopa County, and will eventually result in the determination of all conflicting rights to water from the Gila River and its tributaries, including the Salt and Verde Rivers. The District and the Association are unable to predict the ultimate outcome of this proceeding. | |||
42 In 1978, a water rights adjudication was initiated in the Apache County Superior Court with regard to the Little Colorado River System. The District has filed its claim to water rights in this proceeding, which includes a claim for groundwater being used in the operation of CGS. The District is unable to predict the ultimate outcome of this proceeding, but believes an adequate water supply for CGS will remain available. | |||
The Cities of Prescott and Prescott Valley, together with the Town of Chino Valley, have plans to withdraw groundwater from the Big Chino Groundwater Sub-Basin and transport the water to their respective service areas for municipal and industrial uses. The District opposes these plans because it believes that such pumping would deplete the base flow of the Verde River, which is captured and stored by two reservoirs on the Verde River for delivery to Association shareholders. | |||
The District is negotiating agreements with the parties which will satisfy its concerns. | |||
However, in any case, the District does not believe the dispute will have a significant financial impact on the District or the Association. | |||
Other Litigation In the normal course of business, SRP is exposed to various litigations or is a defendant in various litigation matters. In management's opinion, the ultimate resolution of these matters will not have a material adverse effect on SRP's financial position or results of operations. | |||
Self-Insurance The District maintains various self-insurance retentions for certain casualty and property exposures. | |||
In addition, the District has insurance coverage for amounts in excess of its self-insurance retention levels.The District provides reserves based on management's best estimate of claims, including incurred but not reported claims. In management's opinion, the reserves established for these claims are adequate and any changes will not have a material adverse effect on the District's financial position or results of operations. | |||
The District records the reserves in deferred credits and other non-current liabilities in the accompanying Combined Balance Sheets.43 pCEWATERHOUS(CODPERS I PricewaterhouseCoopers LLP 350 South Grand Avenue Los Angeles CA 90071 Telephone (213) 356 6000 Facsimile (813) 637 4444 Report of Independent Auditors To the Board of Directors of the Salt River Project Agricultural Improvement and Power District and the Board of Governors of the Salt River Valley Water Users' Association In our opinion, the accompanying combined balance sheets and the related combined statements of net revenues and comprehensive income, and cash flows present fairly, in all material respects, the financial position of the Salt River Project Agricultural Improvement and Power District and its subsidiaries and the Salt River Valley Water Users' Association (collectively, "SRP") at April 30, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of SRP's management. | |||
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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 of material misstatement. | |||
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. | |||
We believe that our audits provide a reasonable basis for our opinion.July 21, 2010 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY INDEPENDENT AUDITOR'S REPORT AND COMBINED FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 TABLE OF CONTENTS Pages INDEPENDENT AUDITOR'S REPORT I MANAGEMENT'S DISCUSSION AND ANALYSIS 2-9 FINANCIAL STATEMENTS Combined Financial Statements 10-42 Notes to Combined Financial Statements 43-85 SUPPLEMENTAL INFORMATION Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenture for the Year Ended June 30, 2009 Palo Verde Project 86 Hoover Uprating Project 87 San Juan Project 88 Magnolia Power Project 89 Canyon Power Project 90 Southern Transmission System Project 91 Mead-Phoenix Project 92 Mead-Adelanto Project 93 Multiple Project Fund 94 Natural Gas Barnett Project 95 Natural Gas Pinedale Project 96 Prepaid Natural Gas Project No. 1 97 MOSS-A SAMSL INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Participants of Southern California Public Power Authority We have audited the accompanying combined and individual project's statements of net assets (deficit) of Southern California Public Power Authority (the Authority) as of June 30, 2009 and 2008 and the related combined and individual project's statements of revenues, expenses and changes in net assets (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Authority's management. | |||
Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. | |||
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. | |||
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. | |||
We believe that our audits provide a reasonable basis for our opinion.In our opinion, the combined and individual project's financial statements referred to above present fairly, in all material respects, the financial position of Southern California Public Power Authority and each of the Authority's projects: | |||
Palo Verde Project, Hoover Uprating Project, San Juan Project, Magnolia Power Project, Ormat Geothermal Energy Project, Southern Transmission System Project, Mead-Phoenix Project, Mead-Adelanto Project, Natural Gas Pinedale Project, Natural Gas Barnett Project, Prepaid Natural Gas Project No. 1, Canyon Power Project, Pebble Springs Wind Project, MWD Small Hydro Project, Tieton Hydropower Project, Multiple Project Fund, and Projects'Stabilization Fund as of June 30, 2009 and 2008 and the results of the Project's operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.The management's discussion and analysis preceding the combined financial statements is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. | |||
However, we did not audit the information and express no opinion on it.The additional supplemental information, as listed in the table of contents, following the combined financial statements and notes to combined financial statements is also not a required part of the basic financial statements but is supplementary information provided for purposes of additional analysis.We did not audit or perform any other procedures on this information and express no opinion on it.Portland, Oregon October 15, 2009 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis of the financial performance of Southern California Public Power Authority (the "Authority" or "SCPPA"), provides an overview of the Authority's financial activities for the fiscal years ended June 30, 2009 and 2008. Please read this discussion and analysis in conjunction with the Authority's Combined Financial Statements, which begin on page 10. Description and other details pertaining to the Authority are included in the Notes to Combined Financial Statements. | |||
The Authority is a joint powers authority whose primary purpose has been to provide joint financing and oversight for large joint projects for its member agencies that consist of eleven municipal electric utilities and one irrigation district in California. | |||
On a combined basis, these entities provide electricity to more than 2 million retail electric customers. | |||
A Board of Directors (the "Board") governs the Authority, which consists of one representative from each member agency.USING THIS FINANCIAL REPORT This annual financial report consists of a series of financial statements and reflects the self-supporting activities of the Authority that are funded primarily through the sale of energy, natural gas, and transmission services to member agencies under project specific "take or pay" contracts that require each member agency to pay its proportionate share of operating and maintenance expenses and debt service with respect to such projects. | |||
The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding. | |||
The Authority also established "take and pay" contracts for the participants of the prepaid natural gas project where the payments received from the sale of gas will be sufficient to pay debt service. In addition, the Authority has entered into various power purchase agreements. | |||
These agreements are substantially take-and-pay contracts but there may be other costs not associated with the delivery of energy that the participants may be obligated to pay.2 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Summary of Financial Condition and Changes in Net Assets (Deficit)(In Thousands) | |||
Assets Net utility plant Investments Cash and cash equivalents Prepaid and other Total assets Liabilities Noncurrent liabilities Current liabilities Total liabilities Net Assets (Deficit)Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net deficit Total liabilities and net assets (deficit)Revenues, Expenses and Changes in Net Assets (Deficit) for the year ended June 30 Operating revenues Operating expenses Operating income Investment income Debt expense Change in net assets 2009$ 1,070,203 828,151 143,671 602,916$ 2,644,941$ 2,513,439 273,947 2,787,386 (1,254,815) 1,022,837 89,533 (142,445)$ 2,644,941$ 464,286 (347,709)116,577 27,741 (145,965)(1,647)JUNE 30, 2008$ 1,009,331 558,619 230,000 592,450$ 2,390,400$ 2,310,261 220,748 2,531,009 (1,236,053) 996,901 98,543 (140,609)$ 2,390,400$ 476,865 (327,249)149,616 32,956 (108,062)74,510 2007$ 1,006,994 556,518 149,740 103,290$ 1,816,542$ 1,842,488 191,137 2,033,625 (742,312)429,686 95,543 (217,083)$ 1,816,542$ 390,005 (291,202)98,803 33,622 (113,028)19,397 Net Deficit, beginning of year (140,609)(217,083)(246,532)Net Contributions/(Withdrawals) | |||
By Participants (189)$ (142,445)1,964$ (140,609)10,052$ (217,083)Net Deficit, end of year 3 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued) | |||
Net Deficit -During fiscal year 2009 the Authority's net deficit increased by $2 million mainly due to the increase in assets of$254 million and the increase in liabilities of $256 million.The increase in the Authority's assets is due to the following: | |||
Utility Plant -increased by $61 million.This increase is primarily due to the $80 million ongoing construction costs in the Canyon Power Project (CPP), $28 million upgrade of two converter stations in the Southern Transmission System (STS); and$23 million ongoing capital improvements in the Palo Verde (PV or PVNGS), Mead Phoenix (MP), San Juan (SJ), Magnolia (MPP) and Natural Gas Barnett Projects; offset by $72 million of scheduled depreciation and amortization in all projects." Investments | |||
-increased by $270 million.This increase is largely due to the following additional inflows of cash: $92 million of bond proceeds from the issuance of the STS 2008 Series B Subordinate Bonds, $27 million of bond proceeds from the issuance of the 2008A Revenue Notes in the Canyon Power Project, $2 million of remaining bond proceeds and $3 million remaining from the suspension of the 2007 Swap in the Mead Adelanto Project;$49 million of accumulated overbillings and advances from the Palo Verde, STS, Mead Phoenix, Prepaid Gas, and Natural Gas Reserves -Pinedale and Barnett Projects; | |||
$90 million transfer of investment from cash and cash equivalents to long-term in the Palo Verde, Hoover, San Juan, Magnolia, Pinedale and Barnett Natural Gas Reserves, Multiple and Project Stabilization Fund (PSF); $12 million reinvestment of interest earnings in the Decommissioning Trust Fund, Multiple Project, and PSF. The increases were offset by the $5 million FSA Guaranteed Investment Contract (GIC) that reduces the notes payable due to the participants." Cash and cash equivalents | |||
-decreased by $86 million.This decrease is due to the $90 million transfer of investments from cash and cash equivalents to long-term in the Palo Verde, Hoover, San Juan, Magnolia, Natural Gas Pinedale and Barnett, Multiple and PSF Projects; | |||
$3 million payment of capital improvements in Mead Phoenix; $7 million advance payment of O&M in the San Juan Project; and $7 million payment of major maintenance in the Magnolia Power Project. The decreases were offset by $11 million bond proceeds from the issuance of the 2008A Revenue Notes in the Canyon Power Project; $6 million additional investment from the newly acquired Renewable Projects -Pebble Springs Wind Project, Tieton Hydropower Project, and MWD Small Hydro Project; and$3 million accumulated overbillings from Prepaid Natural Gas Project No.1, and Ormat Geothermal Energy Project." Prepaid and Other Assets -increased by $10 million.This increase is primarily due to the deferral of the $31 million payment for the termination of the Magnolia 2007 Interest Rate Swap which is related to the refunding of the Magnolia A Refunding Revenue Bonds, 2007-1. The payment is being amortized over the life of the new Magnolia Refunding Bonds Series 2009-1 and 2009-2. The increase was offset by $19 million of scheduled amortization costs in the Prepaid Natural Gas Project No. 1; and a $2 million decrease in the advances for capacity and energy balance in the Hoover Uprating Project.4 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued) | |||
The increase in the Authority's liabilities of $256 million is mainly due to the following: | |||
$104 million issuance of 2008 Series A Revenue Notes in the Canyon Power Project; $125 million issuance of 2008 Series B Subordinate Bonds in STS; $24 million from the issuance of Refunding Bonds Series 2009-1 and 2009-2 in the Magnolia Power Project; $40 million increase in accounts payable and accruals for all projects; | |||
$12 million increase in advances from the participants in the Natural Gas Pinedale Project; and $3 million of accrued interest. | |||
The increases were offset by $56 million of principal maturities and related amortizations for all projects.During fiscal year 2008, the Gas Project Revenue Bonds, Project No. 1, 2007 Series A & B were issued to acquire a prepaid 30-year supply of natural gas in the Natural Gas Prepaid Project No. 1; the Natural Gas Project Revenue Bonds Series 2008A were issued to payoff $76 million of bridge loans in the Natural Gas Projects; and the environmental upgrades for the San Juan Project were completed. | |||
As a result of these events and other ongoing transactions, such as the scheduled depreciation, the application of advances from over/under billings in all projects, and the additional drilling of wells in the Natural Gas Barnett Project, the Authority's assets increased by$573 million and its liabilities increased by $497 million resulting in a net deficit decrease of $76 million.Operating Income -The net decrease in operating income by $33 million is due to the following: | |||
A $13 million decrease in operating revenues and a $20 million increase in operating expenses were primarily due to a decrease of $24 million in the San Juan Project, because of the completion of the environmental upgrades and a decrease in depreciation expense resulting from a change in the estimated useful life of the plant; an $18 million decrease in Palo Verde Project for the completion of the steam generator replacement program and last year's replenishment of fuel inventory; a decrease of $4 million because of realized gain on the suspension of the 2007 Swap which was used to offset expenditures in the Mead Adelanto Project; and a $4 million decrease due to the lower price of gas in the Magnolia Power Project and the Natural Gas Barnett and Pinedale Projects. | |||
The decreases were mainly offset by a $12 million increase in operating income related to the commencement of the Prepaid Natural Gas No. 1 natural gas deliveries; and a $5 million increase in the STS Project due to the postponement of costs associated with the STS Upgrade.During fiscal year 2008, net operating income increased by $51 million primarily due to an increase in billings to participants for the steam generation replacement and fuel inventory replenishment in Palo Verde; environmental upgrades and major maintenance in San Juan; and an increase in MPP's fuel and operation and maintenance expenses.Investment Income -Investment income decreased by $5 million largely due to callable, high yield investment securities that were called and replaced with lower yielding securities in the Decommissioning Trust Fund, MPP, and PSF.5 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued) | |||
During fiscal year 2008, there were no significant changes in investment income.Debt Expense -Debt expense increased by $38 million mainly due to $26 million of interest related to the Prepaid Natural Gas Project No. 1 Series 2007 A&B Bonds that are expensed in the current fiscal year due to the commencement of natural gas deliveries; | |||
$6 million of additional interest expenses related to the remarketing of the STS variable interest rate bonds; $1 million of fees paid for the remarketing of the Magnolia Power Project A Refunding Revenue Bonds 2007-1; and $1 million of loss on refunding expense on the refunded PV 1996 Series B Bonds that had a remaining life of less than one year.During fiscal year 2008, debt expense decreased by $5 million primarily due to a net gain from swap related transactions and a decrease in arbitrage and other debt related obligations in the STS Project.Supplementary Information: | |||
The Linden Wind Energy Project -The Authority has entered into a contract for sale and purchase of the Linden Wind Energy Project. The project is a $139 million, 50MW wind project comprised of 25 wind turbines, located in Klickitat County, Washington. | |||
The Authority has sold entitlements to 100% of the facility output to two of its members; 90% or 45MW to LADWP and the remaining 10% or 5MW to the City of Glendale. | |||
A layoff agreement has been put in place with a 3-year buy-out option for the City of Glendale. | |||
Approval processes at LADWP and Glendale have been completed and the preliminary financing process has commenced for the issuance of Linden Wind Energy Revenue Notes, 2009 Series A ("2009 Notes"), which will provide interim financing for the payment of a portion of the costs of acquisition. | |||
Construction is expected to be completed by mid 2010 at which time, bonds will be issued to retire the 2009 Notes and provide long-term financing for the costs of the project. The participants were billed in August 2009 for the initial milestone payment of $13,995,000 that is due upon acceptance by the developer of the notice to proceed. The participants will be reimbursed for the payment from the proceeds of the 2009 Notes.The Windy Point/Windy Flats Energy Project -The Authority has entered into a Power Purchase Agreement for the sale and purchase of the Windy Point/Windy Flats Project (the "Facility") | |||
resources located in Klickitat County, Washington. | |||
The Facility when fully developed will entail a wind-powered electricity generating facility, including a primary facility with a planned initial installed capacity of approximately 202 MW (Phase 1)and a facility expansion with a planned installed capacity of approximately 60 additional MW (Phase 2).Depending on construction progress both phases could be completed at the same time. The Authority has sold 92% of the energy to be generated by the Facility to LADWP and the remaining 8% to the City of Glendale. | |||
A layoff agreement has been put in place with a 3-year buy-out option for the City of Glendale. | |||
The Power Purchase Agreement provides for the Authority to make a prepayment for a portion of the energy generated. | |||
The Authority expects to finance such prepayment by issuing bonds. Approval processes at LADWP and Glendale have been completed and the preliminary financing process has commenced. | |||
6 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Financial Outlook -The Authority's credit strength is based on a number of factors including: " The collective credit strengths of each project participant | |||
* The absence of concentration risk as evidenced by the lack of substantial reliance by one participant on the resources financed* The low cost power the Projects provide the participants and" Strong legal provisions. | |||
The Authority has take-or-pay power sales, natural gas sales and transmission service contracts that unconditionally require the Participants to pay for the cost of operating and maintaining the Projects, including debt service, whether or not the Projects are operating or operable. | |||
Although the contracts have not been court-tested, a municipal utility's authority to enter into such ýcontracts is rooted in the State's constitutional provisions for municipal electric utilities. | |||
The Participants of the Prepaid Natural Gas Project No. 1, however, are obligated only to purchase and pay for gas delivered by SCPPA at market-based prices in accordance with the prepaid gas sale agreements in take and pay contracts. | |||
The Authority has also entered into various power purchase agreements that are substantially take-and-pay contracts but there may be other costs not associated with the delivery of energy that the participants may be obligated to pay.Through the collaborative efforts of its members, the Authority has developed a comprehensive and dynamic strategic plan that provides a common vision for its members and a platform for joint action. SCPPA continues its involvement in legislative and regulatory affairs at both the state and federal levels to protect represented customers, by assuring resource adequacy, excellent reliability, and environmental stewardship. | |||
Backed by one of the strongest financial ratings in the utility industry, SCPPA maintains its traditional role of providing financing for its members' natural gas, generation, and transmission projects. | |||
In addition to the conventional areas of power, investments are also being made to provide customers with more renewable generation and energy efficiency. | |||
Energy efficiency and demand reduction programs are vital parts of public power's resource strategy and critical to balancing the portfolio's generation and load match. Since 1998, SCPPA members have spent more than $300 million on energy efficiency and demand reduction management programs.In addition to energy efficiency, AB 1890 requires all California electric utilities to commit a portion of their revenue to other Public Benefit Programs, including renewable energy, research, development and demonstration (RD&D), and low-income customer assistance. | |||
SCPPA members have a significant commitment to low-income customer assistance and RD&D public benefit programs. | |||
Since 1998, over $921 million has been spent to date to support local communities. | |||
7 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Renewable Projects -SCPPA members are committed to the use of renewable energy resources in the future.High Winds Energy Center -Energy from the High Winds Energy Center in Solano County, California, is now a part of the participating members' resource portfolios. | |||
SCPPA members, including the cities of Anaheim, Azusa, Colton, Glendale, and Pasadena contracted with PPM Energy (a division of Pacificorp Holdings) for 30 megawatts (MW) of the 150 MW wind facility. | |||
PPM also provides a firming service, which guarantees SCPPA members firm delivery of energy, at predetermined rates, regardless of the wind conditions at the site. Although the purchase contracts under the project were between the individual members and PPM, SCPPA played a key role in bringing this project to a reality through the issuance of the Renewable RFP and coordinating contract negotiations. | |||
Ameresco Chiquita Energy LLC -SCPPA has entered into a Power Purchase Agreement with Ameresco Chiquita Energy LLC for 100% of the electric generation from a landfill gas to energy facility to be located at the landfill site in Valencia, California (Ameresco Landfill Gas to Energy Project). | |||
The SCPPA participants in this project include the cities of Burbank and Pasadena. | |||
This project will initially be for 8 megawatts with an option to increase the output by an additional 8 megawatts in the future when additional gas becomes available. | |||
The Authority has entered into development agreements with its members for the purpose of investigating and performing due diligence on the following renewable resource options to be acquired on behalf of its members: Milford Wind Corridor Phase I Project -The Milford Wind Corridor Phase I Project is a 200 MW wind power project planned to be located in Beaver and Millard Counties, Utah. The wind power will be delivered to SCPPA through the Intermountain Power Project's switching station located in Delta, Utah. The term of the project is 20 years and the commercial operation date is expected to be in late 2009. An early buyout option is included in the agreement after the 10th contract year. Similar to other SCPPA projects, the Milford Wind Corridor Phase I project will be paid for entirely by the participants (LADWP, Burbank, and Pasadena). | |||
This project is under construction and the participant agreements have been finalized. | |||
Raser Geothermal Generation Project -A Utah geothermal project with a proposed nameplate capacity of approximately 111 MW located in Beaver and Iron Counties, Utah, which is currently being developed by Raser Technologies, Incorporated and will be initially administered, owned, and operated by affiliates of Raser Technologies, Incorporated. | |||
The Power Purchase Agreements are anticipated to provide various prepayment and purchase options. The Project is currently being developed in two separate phases, with phase one having three sub-phases. | |||
The estimated commercial operation date is December 2011.Milford Wind Corridor Phase II Project -A Utah wind energy project developed on 9,500 acres of land, with a proposed nameplate capacity of 103 MW, located in Beaver and Millard Counties, Utah, to be developed by First Wind Holding, Incorporated. | |||
This Project is initially contemplated to be owned and administered by Milford Wind Corridor Phase II, LLC, an affiliate of First Wind Holding, Incorporated. | |||
The Power Purchase Agreement relating to the facility is anticipated to provide for potential purchase options. The estimated commercial operation date is April 2010.8 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Renewable Projects (Continued) | |||
Miller Ranch Wind Project -A Washington state wind power generating facility project with a proposed nameplate capacity of approximately 150 MW is being developed by EnXco Development Corporation and affiliates of EnXco Development Corporation on 15,140 acres of land. The estimated commercial operation date is October 2010.Leaning Juniper II Wind Project -An Oregon wind energy project with a proposed nameplate capacity of approximately 201.3 MW currently under development by Iberdrola Renewable, Incorporated, located in Gilliam County, Oregon. The project is currently owned and administered by Leaning Juniper Wind Power II, LLC, an affiliate of Iberdrola Renewable, Incorporated. | |||
This project will be developed in two (2) phases, with Phase 1 of the project referred to as "Leaning Juniper 2a" and Phase 2 of the project being referred to as "Leaning Juniper 2b". Leaning Juniper 2a is a 90.3 MW wind energy generation facility comprised of approximately 8,000 acres.Leaning Juniper 2b is a 111 MW wind energy generation facility comprised of approximately 18,000 acres. The estimated commercial operation date is December 2010.Solar Mission Project -An Arizona Solar Tower project under development with a proposed nameplate capacity of approximately 200 MW located in western Arizona in La Paz County. The facility is being developed by SolarMission Technologies, Incorporated and EnviroMission (USA) Incorporated. | |||
The estimated commercial operation date is March 2013.Summary The management of the Authority is responsible for preparing the information in this management discussion and analysis, combined financial statements and notes to combined financial statements. | |||
The financial statements were prepared according to accounting principles generally accepted in the United States of America, and they fairly portray the Authority's financial position and operating results. The notes to the financial statements are an integral part of the basic financial statements and provide additional financial information. | |||
9 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF NET ASSETS (DEFICIT)(AMOUNTS IN THOUSANDS) | |||
JUNE 30, ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)2009$ 1,070,203 756,916 71,235 11,550 10,850 49,651 465,666 2,436,071 114,684 28,987 6,593 19,463 19,744 19,399 208,870$ 2,644,941$ 2,434,044 50,240 29,155 2,513,439 86,805 9,069 47,670 36,291 87,618 6,494 273,947 2,787,386 (1,254,815) 1,022,837 89,533 (142,445)$ 2,644,941 2008$ 1,009,331 493,557 65,062 11,550 12,381 19,940 482,291 2,094,112 185,709 44,291 6,541 20,168 20,416 19,163 296,288$ 2,390,400$ 2,227,915 52,050 30,296 2,310,261 84,835 6,176 41,675 33,587 47,284 7,191 220,748 2,531,009 (1,236,053) 996,901 98,543 (140,609)$ 2,390,400 10 See accompanying notes.10 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)(AMOUNTS IN THOUSANDS) | |||
YEAR ENDED JUNE 30, Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses 2009$ 293,817 111,712 58,757 464,286 262,313 67,190 9,634 8,572 347,709 116,577 27,741 (145,965)(118,224)2008$ 332,646 109,384 34,835 476,865 238,069 69,341 8,059 11,780 327,249 149,616 32,956 (108,062)(75,106)Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net contributions (withdrawls) by participants (1,647)74,510 (140,609)(217,083)(189)(142,445)1,964$ (140,609)Net assets (deficit) | |||
-end of year See accompanying notes.I1I See accompanying notes. 11 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) | |||
YEAR ENDED JUNE 30, Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 2009 404,398 16,500 (193,392)12,943 240,449 (13,632)(128,429)(121,586)852,809 (587,271)(662)(72,585)(37,285)(95,009)20,948 (487,975)248,890 (218,137)(86,329)230,000 S 143,671 2008 S 393,905 19,399 (189,572)7,657 231,389 4,756 (94,212)(480,648)(111,042)707,134 (125,950)10,039 (79,615)(8,092)(182,386)22,783 (373,958)377,676 26,501 80,260 149,740$ 230,000 S 116,577 S 67,190 8,572 2,736 9,634 149,616 69,341 11,780 2,629 8,059 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 1,170 26,886 7,684 240,449 S 114,684 28,987 S 143,671 (13,316)9,654 (6,374)S 231,389$ 185,709 44,291 5 230,000 12 See accompanying notes.12 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
GENERATION Hoover Magnolia Canyon Palo Verde Uprating San Juan Power Power ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets.Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 111,953 198,112 70,036$2,699 1,199$ 75,345 $ 269,945 $ 80,393 33,030 57,809 27,003-10,850 -577 139 980 380,678 14,887 109,355 33,448 179 361,202 107,575 9,315 4,101 1,288 1,807 308 117 2,457 2,670 14,509 3,280 194 2,346 10,960 176-45-4,268 7,804 -3,941 7,999 143 1,322 346 1,024 -24,458 1,747 13,727 29,352 11,136$ 405,136 $ 16,634 $ 123,082 $ 390,554 $ 118,711 82,426 $ 13,850 $ 139,830 $ 369,235 41,929 --1,273$ 104,627 124,355 13,850 139,830 370,508 104,627 10,360 5,232 23 30,956 1,500 1,480 11,115 8,695 1,341 192 66-15,525 3,849 4,644 3,663 2,061 240 -1,479 12,605 48,071 1,738 18,867 32,266 14,084 172,426 15,588 158,697 402,774 118,711 19,745' -141,405 (204)71,560 1,250 232,710 1,046$ 405,136 $ 16,634 (90,817) (67,816)31,681 44,281 23,521 11,315 (35,615) (12,220) -$ 123,082 $ 390,554 $ 118,711 See accompanying notes.13 See accompanying notes. 13 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
GENERATION Hoover Magnolia Palo Verde Uprating San Juan Power ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 122,974 163,930 64,502$1,068 560$ 77,463 $ 280,668 21,322 48,176-12,381 --494 176 1,181 3,264--64 -351,900 14,185 100,030 332,108 15,519 7,806 1,676 3,824 2,450 172 8 34 16,860 7,017 14 900 25,389 8,771 721 5,024 7,392 -149 1,257 36,366 3,921$ 388,266 $ 18,106 3,880 9,144 362 831 29,033 49,880$ 129,063 $ 381,988$ 78,175 $ 14,890 $ 150,942 $ 344,981 46,768 --1,451--34 124,943 14,890 150,942 346,466 12,250 4,998 420 11,654 1,602 1,425 10,550 206 65 4,133 7,504 233 7,930 1,178 22,090 9,003 4,752 30,924 1,696 22,420 44,953 155,867 16,586 173,362 391,419 33,043 -(82,848)128,847 810 34,062 70,509 710 4,487 232,399 1,520 (44,299)$ 388,266 $ 18,106 $ 129,063 (65,227)36,812 18,984 (9,431)$ 381,988 14 See accompanying notes.14 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)TRANSMISSION Southern Transmission Mead-System Mead- Phoenix Adelanto$ 274,297 $ 38,300 $ 113,508 158,425 8,283 31,534 11,550 5,976 692 1,498 450,248 47,275 146,540 29,062 4,095 410 5,010 3,031 225 241 568 6,247 12,357 285 832 17,180 38,577 10,312 30,654$ 488,825 $ 57,587 $ 177,194$ 816,294 2,247$55,660 684$ 175,837 4,107 818,541 56,344 179,944 30,585 749 12,765 16,995 2,870 86 1,020 596 9,480 1,661 3,024 4,483 61,094 879,635 4,572 18,648 60,916 198,592 (476,696) | |||
(20,308)96,771 16,773 (10,885) 206 (390,810) | |||
(3,329)$ 488,825 $ 57,587 (76,079)58,591 (3,910)(21,398)$ 177,194 See accompanying notes.15 See accompanying notes. 15 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission Mead-System Mead- Phoenix Adelanto ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted. | |||
Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 265,434 41,319 11,550 5,256$36,936 7,593$ 117,532 25,406 2,045 619 323,559 45,148 144,983 43,387 4,396 38 5,518 5,779 815 266 5,807 12,238 527 844 685 15,968 53,339$ 376,898$ 714,407 12,667 30,262$ 57,815 S 175,245$ 56,611 886$ 180,277 2,945 714,407 57,497 183,222 31,075 7,169 13,811 3,425 1,015 1,405 11,400 2,894 2,330 52,055 5,845 16,624 766,462 63,342 199,846 (474,791) | |||
(23,367) (75,045)89,125 17,618 49,237 (3,898) 222 1,207 (389,564) | |||
(5,527) (24,601)$ 376,898 $ 57,815 $ 175,245 16 See accompanvinz notes.16 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)44,114 42,992$62,348 46,212$11,901 1,036 1,058 4,068--465,666 88,142 109,618 481,635 6,475 4,422 249 1,370 5,172 536 95 1,785 7,588$ 117,206 2,207 401 50 2,309 16,012 20,979$ 502,614 552 13,068$ 101,210$ 38,082 $ 89,603 $ 503,498 18,670 10,485 -56,752 100,088 503,498 1,956 30,719 995 2,300 4,754 4,639 1,426 2,343 2,066 5,625 4,263 2,971 40,724 10,474 12,859 97,476 110,562 516,357 (13,558) (41,321) (487,965)18,501 47,710 476,792 (1,209) 255 (2,570)3,734 6,644 (13,743)$ 101,210 $ 117,206 $ 502,614 See accompanying notes.17 See accompanying notes. 17 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 45,216 15,126$63,108 45,013$10,887 1,273 1,299 4,333--482,227 61,615 109,420 497,447 16,307 12,129 40 831 7,367 709 102 3,352 20 265 44 16,012 16,341$ 513,788 552 -29,859 11,530$ 91,474 $ 120,950$ 40,038 $ 94,242 S 509,525 19,096 11,166 -59,134 105,408 509,525 2,015 4,765 19,149 436 -831 1,959 4,263 2,543 1,536 -5,356 -29,894 8,696 4,263 89,028 114,104 513,788 (14,500) (45,765) (487,553)11,879 50,085 487,288 5,067 2,526 265 2,446 6,846 -$ 91,474 $ 120,950 $ 513,788 18 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat MWD Geothermal Small Pebble Energy Hydro Springs Tieton ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$$S$2,673 1 1,286 3,970 926 2,674 1,286 3,970 926$ 2,674 $ 1,286 $ 3,970 $ 926$$S$2,674 1,286 3,970 926 2,674 1,286 2,674 1,286 3,970 926 3,970 926$ 2,674 $ 1,286 $ 3,970 $ 926 See accompanying notes.19 See accompanying notes. 19 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat Geothermal Energy ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$1,684 3 1,687$ 1,687$1,684 1,684 1,684 3 3$ 1,687 20 See accompanying notes.20 See aCcompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)MISCELLANEOUS Multiple Projects'Project Stabilization Total Fund Fund Total Eliminations Combined$ -$ -$ 1,070,203 | |||
$ -$ 1,070,203 68,986 69,930 756,916 -756,916--71,235 -71,235--11,550 -11,550--10,850 -10,850--49,651 -49,651-465,666 -465,666 68,986 69,930 2,436,071 | |||
-2,436,071 119 18,712 114,684 -114,684--28,987 -28,987 2,499 513 6,593 -6,593--19,463 -19,463 23,427 (23,427) -19,744 19,744-19,399 19,399 2,618 19,225 232,297 (23,427) 208,870$ 71,604 $ 89,155 $ 2,668,368 | |||
$ (23,427) $ 2,644,941$ 45,102 $ -$ 2,434,044 | |||
$ $ 2,434,044--50,240 50,240--29,155 29,155 45,102 2,513,439 2,513,439 86,805 86,805-9,069 -9,069--47,670 -47,670 1,694 -36,291 -36,291--87,618 -87,618--6,494 -6,494 23,427 -23,427 (23,427) -25,121 -297,374 (23,427) 273,947 70,223 -2,810,813 (23,427) 2,787,386--(1,254,815) | |||
(1,254,815) 1,381 89,155 1,022,837 1,022,837-89,533 89,533 1,381 89,155 (142,445) | |||
(142,445)$ 71,604 $ 89,155 $ 2,668,368 | |||
$ (23,427) $ 2,644,941 See accompanying notes.21 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
ASSETS Noncurrent assets Net utility plant Investments | |||
-restricted Investments | |||
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)MISCELLANEOUS Multiple Projects'Project Stabilization Total Fund Fund Total Eliminations Combined$ -$ -$ 1,009,331 | |||
$ $ 1,009,331 63,252 50,465 493,557 493,557--65,062 65,062-11,550 11,550-12,381 12,381-19,940 19,940--482,291 482,291 63,252 50,465 2,094,112 2,094,112 4,448 35,945 185,709 185,709--44,291 44,291 2,325 460 6,541 6,541--20,168 20,168-21,775 (21,775) --20,416 20,416--19,163 19,163 6,773 36,405 318,063 (21,775) 296,288$ 70,025 $ 86,870 $ 2,412,175 | |||
$ (21,775) $ 2,390,400$ 43,827 $ -$ 2,227,915 | |||
$ -$ 2,227,915--52,050 -52,050--30,296 -30,296 43,827 2,310,261 2,310,261 84,835 84,835-6,176 -6,176--41,675 -41,675 1,694 -33,587 -33,587--47,284 -47,284--7,191 -7,191 21,775 -21,775 (21,775) -23,469 -242,523 (21,775) 220,748 67,296 -2,552,784 (21,775) 2,531,009 4,268 86,870 (1,539) -2,729 86,870$ 70,025 $ 86,870 (1,236,053) | |||
(1,236,053) 996,901 996,901 98,543 98,543 (140,609) | |||
(140,609)$ 2,412,175 | |||
$ (21,775) $ 2,390,400 22 See accompanying notes.22 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year GENERATION Hoover Magnolia Canyon Palo Verde Uprating San Juan Power Power$ 78,060 $ 2,353 $ 82,568 $ 114,273 $ -78,060 2,353 82,568 114,273 42,178 2,918 60,451 87,925 19,083 -5,486 11,438 9,634 --7,029 -1,543 --77,924 2,918 67,480 99,363 -136 (565) 15,088 14,910 -8,141 80 1,782 1,677 -(7,966) 11 (8,186) (19,376) -175 91 (6,404) (17,699)311 (474) 8,684 (2,789)232,399 1,520 (44,299) (9,431)$ 232,710 $ 1,046 $ (35,615) $ (12,220) $See accompanying notes.23 See accompanying notes. 23 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
GENERATION Hoover Magnolia Palo Verde Uprating San Juan Power Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$ 94,732 $2,352 $ 102,735 $ 128,433 94,732 2,352 102,735 128,433 41,303 2,887 49,518 105,218 Operating income (loss)18,793 10,782 11,264 8,059 --8,667 -3,113 -76,822 2,887 63,413 116,482 17,910 (535) 39,322 11,951 10,264 186 2,433 3,287 (6,567) (99) (8,692) (16,918)3,697 87 (6,259) (13,631)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year 21,607 (448)33,063 (1,680)210,792 1,968 (77,362) (7,751)$ 232,399 $ 1,520 $ (44,299) $ (9,431)24 See accompanying notes.24 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission Mead-System Mead- Phoenix Adelanto Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
$$$86,228 7,709 17,775 86,228 7,709 17,775 15,272 18,708 1,026 1,406 1,680 4,503 33,980 2,432 6,183 52,248 5,277 11,592 3,513 584 1,888 (57,007) (3,663) (10,277)(53,494) (3,079) (8,389)Change in net assets (deficit)(1,246)2,198 3,203 Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year (389,564) | |||
(5,527) (24,601)$ (390,810) | |||
$ (3,329) $ (21,398)See accompanying notes.25 See accompanying notes. 25 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission Mead-System Mead- Phoenix Adelanto Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
$S 79,746 7,881 21,757 79,746 7,881 21,757 14,065 18,708 1,012 1,403 1,574 4,500 32,773 2,415 6,074 46,973 5,466 15,683 3,850 985 1,981 (48,023) (3,913) (12,053)(44,173) (2,928) (10,072)Change in net assets (deficit)2,800 2,538 5,611 Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year (392,364) | |||
(8,065) (30,212)$ (389,564) | |||
S (5,527) $ (24,601)26 See accompanying notes.26 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Pinedale Barnett Natural Gas Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$$$7,363 23,504 27,890 7,363 23,504 27,890 2,892 1,477 15,009 5,089 16,358 Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) 4,369 20,098 16,358 2,994 3,406 11,532 514 1,325 758 (2,220) (4,933) (26,033)(1,706) (3,608) (25,275)Change in net assets (deficit)1,288 (202) (13,743)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year 2,446 6,846$ 3,734 $ 6,644 $ (13,743)See accompanying notes.27 See accompanying notes. 27 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Pinedale Barnett Natural Gas Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$8,3 2590$8,933 25,902-8,933 25,902-3,334 1,611 14,727 2,280 Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year 4,945 17,007 -3,988 8,895 -262 459 -(1,895) (3,700) -(1,633) (3,241) -2,355 5,654 91 1,192$ 2,446 $ 6,846 $28 See accompanying notes.28 ee ccopayin noes SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year POWER PURCHASE AGREEMENTS Ormat MWD Small Geothermal Hydro Pebble Springs Tieton$ 6,599 $ 1,689 $ 7,234 $ 1,041 6,599 1,689 7,234 1,041 6,636 1,689 7,238 1,041 6,636 1,689 7,238 1,041 34 4 34 4 (3)3 See accompanying notes.29 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat Geothermal Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$4,394 4,394 4,431 4,431 (37)Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net assets (deficit) | |||
-end of year 38 38 1 2$ 3 30 See accompanyinQ notes.30 See accompanivin~ | |||
notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
Change in net assets (deficit)Net assets (deficit) | |||
-beginning of year Net withdrawals by participants Net assets (deficit) | |||
-end of year MISCELLANEOUS Projects'Multiple Stabilization Total Project Fund Fund Combined$ $ $ 293,817 111,712 58,757 464,286 262,313 67,190 9,634 8,572 347,709 116,577 4,967 2,474 27,741 (6,315) -(145,965)(1,348) 2,474 (118,224)(1,348) 2,474 (1,647)2,729 86,870 (140,609)-(189) (189)$ 1,381 $ 89,155 $ (142,445)See accompanying notes.31 See accompanying notes. 31 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses) | |||
Investment income Debt expense Net non operating revenues (expenses) | |||
MISCELLANEOUS Projects'Multiple Stabilization Total Project Fund Fund Combined$ $ -$ 332,646 S- 109,384 S- 34,835 S- 476,865-238,069-69,341-8,059--11,780--327,249-149,616 4,947 4,264 32,956 (6,202) -(108,062)(1,255) 4,264 (75,106)Change in net assets (deficit)(1,255)4,264 74,510 Net assets (deficit) | |||
-beginning of year Net contributions by participants Net assets (deficit) | |||
-end of year 3,984 80,642 (217,083)-1,964 1,964$ 2,729 86,870 $ (140,609)32 See accompanvinz notes.32 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for)investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted GENERATION Palo Verde Hoover Uprating San Juan Magnolia Power Canyon Power$ 88,269 $ 2,404 $ 75,981 S 64,856 S (43,290) (228) (60,027) (45,761)12,908 34 --57,887 2,210 15,954 19,095 (25,503)(2,548)99,830 (101,820)(742)(798)-(5,932) (265) (67,444)(796) (8,266) (21,690)-258,070 105,505 (223,933)(1,425) (10,550) (7,930)(32,319) (429)(31,581) (2,221) (24,748) (28,067) 37,632 1,283 (64,403)26,905 88 (5,603)3,329 1,545 2,257 201 (20,579) (73,060) (38,073)9,078 63,404 11,200 (36,215) (2,186) (9,956) (7,399) (26,672)(9,909)(2,197)(18,750)(16,371)10,960 23,325 2,622 23,877 34,160 _S 13,416 S 425 S 5,127 $ 17,789 S 10,960 136 $ (565) S 15,088 $ 14,910 S 19,083 7,029 9,634 2,035 19,743 5,486 1,543 2,736 11,438 2,484 (2,692)(7,045)S 19,095 S 34 (3,304)3 (2,814)227 2 (45)$ 57,887 S 2,210 S 15,954 S 9,315 S 308 $ 2,457 S 14,509 S 10,960 4,101 117 2,670 3,280 -S 13,416 S 425 S 5,127 $ 17,789 S 10,960 See accompanying notes.33 See accompanying notes. 33 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for)investing activities GENERATION Palo Verde Hoover Uprating San Juan Magnolia Power S 78,712 $ 2,262 $ 95,856 $ 74,935 (40,913) (260) (49,626) (46,672)7,634 4 -16 45,433 2,006 46,230 28,279 (41,972)(4,292)(852)(35,909)(8,769)(2,810)(21,948)10,119 (11,895) (1,370) (10,050) (7,450)(360)(58,159) (2,222) (54,728) (22,449)1,822 140 1,930 3,009 (37,102) (1,618) (26,171) (51,185)56,850 3,590 43,512 48,557 21,570 2,112 19,271 381 Net increase (decrease) in cash and cash equivalents 8,844 1,896 10,773 6,211 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuiel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 14,481 726 13,104 27,949$ 23,325 $ 2,622 $ 23,877 $ 34,160 S 17,910 $ (535) $ 39,322 $ 11,951 18,793 8,667 8,059 2,629 10,782 3,113 11,264 (3,141) (34) (748) (2,409)(4,426) (56) 3,519 2,732 (429) 2 (9,758) 4,741$ 45,433 $ 2,006 S 46,230 S 28,279 S 15,519 $ 2,450 $ 16,860 S 25,389 7,806 172 7,017 8,771$ 23,325 $ 2,622 $ 23,877 S 34,160 34 See accompanying notes.34 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission Mead- Mead-System Phoenix Adelanto Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net$ 85,128 $7,754 $ 22,581 (13,964)(1,145)(1,678)71,164 6,609 20,904 Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities InteTest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year (20,341)(41,113)243,674 (121,065)(3,339)(4,217)33,830 (32,200)(480)(7,859)111,900 (108,253)80 (31,075) (3,425) (11,400)(2,540) (499) (700)27,620 (9,850) (16,792)3,334 617 1,892 (147,730) | |||
(3,504) (20,247)30,986 2,790 14,120 (113,410) | |||
(97) (4,235)(14,626)(3,338)(123)47,783 6,594 12,765$ 33,157 $ 3,256 $ 12,642 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities | |||
$ 52,248 $18,708 5,277 $ 11,592 1,406 4,503 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 509 -685 (361) (89) 4,124 60 15 -$ 71,164 $ 6,609 $ 20,904$ 29,062 $ 3,031 $ 12,357 4,095 225 285$ 33,157 $ 3,256 $ 12,642 See accompanying notes.35 See accompanying notes. 35 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
TRANSMISSION Southern Transmission Mead- Mead-System Phoenix Adelanto Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net$ 87,917 $(18,173)8,452 $ 20,827 (896)(1,675)69,744 7,556 19,152 Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents (930)(40,508) (3,496) (10,756)50,047 (50,050)(80)(30,950) (3,350) (11,150)(290)(71,831) (7,776) (21,906)3,422 640 1,854 (34,182) (5,017) (8,948)51,953 4,875 6,280 21,193 498 (814)19,106 278 (3,568)Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 28,677 6,316 16,333$ 47,783 $ 6,594 $ 12,765$ 46,973 $ 5,466 $ 15,683 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 18,708 1,403 (4,145) -8,179 389 29 298$ 69,744 $ 7,556 4,500 (685)(354)8$ 19,152$ 12,238 527$ 12,765 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted | |||
$ 43,387 4,396$ 47,783$ 5,779 815$ 6,594 36 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities | |||
$ 3,887 1,041 (2,227)$10,791 9,706 (11,885)$22,756 5,753 (327)2,701 8,612 28,182 (16,189) 2,746 -(337)(1,820)(2,015)(4,172)476 (439)84 121 (4,788)(4,307)(25,581)(4,765)(13,860) (25,581)1,320 707 (6,467) (20,662)5,281 19,677 134 (278)Net increase (decrease) in cash and cash equivalents (17,539)(2,368)2,323 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 28,436 8,076 285$ 10,897 $ 5,708 $ 2,608$ 2,994 $ 3,406 $ 11,532 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 1,477 5,089 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted (531) 1,567 (2,309)(607) (540) 2,947 (632) (910) 16,012$ 2,701 $ 8,612 $ 28,182$ 6,475 $ 5,172 $ 2,207 4,422 536 401$ 10,897 $ 5,708 $ 2,608 See accompanying notes.37 See accompanying notes. 37 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities | |||
$ 11,765 $11,060 (18,714)9,031 $8,339 (8,539)3 4,114 8,831 885 1,907 (2,146)(1,035)42,053 (25,600)(10,445)(1,786)105,207 (50,300)(2,600) (800)(1,440) (1,470)9,232 40,406 (480,648)(14,212)509,827 (4,532)10,435 736 (25,098)14,212 (10,150)181 (15,116)50 (14,885)369 (46,298)1,285 (44,644)Net increase (decrease) in cash and cash equivalents (654)6,500 285 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 29,090 1,576 -$ 28,436 $ 8,076 $ 285 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities | |||
$ 3,988 $ 8,895 $1,611 2,280 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 141 (2,295)(776) 366 (850) (415)$ 4,114 $ 8,831 $ -$ 16,307 $ 7,367 $ 20 12,129 709 265$ 28,436 $ 8,076 $ 285 38 See accompanying notes.38 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS rnnat Geothermal MWD Small Energy Hydro Pebble Springs Tieton Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of finds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for)investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted | |||
$ 7,737 $ 1,956 $ 8,990 $1,308 (382)(6,784)(670)(5,024)953 1,286 3,966 926 36 4 36 4 989 1,286 3,970 926 1,684 2,673 _ 1286 $ 3970 $ 926$ (37) $(4) $990 1,286 3,970 926 S 953 $ 1_286 $ 3 966 $ 926$ $ $ $2,673 1,286 3,970 926$ 2,673 $_ 1,286 S _ 3970 S 926 See accompanying notes.39 See accompanying notes. 39 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
POWER PURCHASE AGREEMENTS Ormat Gjeothermal Energy Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for)investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted S 4,148 (4,104)44 43 43 87 1,597 S 1,684$(37)81 S 44 1,684$ 1,684 40 See accompanying notes.40 See accompanying notes. | |||
I SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents MISCELLANEOUS Projects'Multiple Stabilization Total Project Fund Fund Combined$ S $ 404,398 16,500 (193,392)12,943 240,449 (189) (13,632)S- (128,429)(3,389) (121,586)852,809 (587,271)(662)(72,585)(37,285)(3,389) (95,009)4,769 (8,449)2,740 (940)(4,329)2,419 20,948 (78,759) (487,975)59,296 248,890 (17,044) (218,137)(17,233) (86,329)Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 4,448 35,945 230,000$ 119 S 18,712 $ 143,671$ -$ $ 116,577--67,190 8,572 2,736 9,634 1,170 26,886 7,684$ -$ $ 240,449$ 119 $ 18,712 $ 114,684--28,987$ 119 $ 18,712 $ 143,671 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted See accompanVino notes.41 See accompanyin,~ | |||
notes. 41 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) | |||
Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities MISCELLANEOUS Projects'Multiple Stabilization Total Project Fund Fund Combined$ $ $ 393,905 19,399 (189,572)7,657 231,389 1,964 4,756 S- (94,212)(480,648)(3,388) (111,042)707,134 (125,950)10,039 (79,615)(8,092)(3,388) (182,386)4,449 (14,706)18,085 7,828 4,440 4,188 22,783 (108,517) | |||
(373,958)128,427 377,676 24,098 26,501 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 26,062 80,260 8 9,883 149,740$ 4,448 $ 35,945 $ 230,000$S S 149,616 69,341 11,780 2,629 8,059 (13,316)9,654 (6,374)$ -$ $ 231,389$ 4,448 $ 35,945 $ 185,709--44,291$ 4,448 $ 35,945 $ 230,000 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents | |||
-restricted Cash and cash equivalents | |||
-unrestricted 42 See accompanyinjZ notes.42 See accompanying notes. | |||
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose The Southern California Public Power Authority (the "Authority" or "SCPPA"), a public entity organized under the laws of the State of California, was formed by a Joint Powers Agreement dated as of November 1, 1980 pursuant to the Joint Exercise of Powers Act of the State of California. | |||
The Authority's participants consist of eleven Southern California cities and one public district of the State of California. | |||
The Authority was formed for the purpose of planning, financing, developing, acquiring, constructing, operating and maintaining projects for the generation, transmission, and procurement of electric energy and natural gas for sale to its participants. | |||
The Joint Powers Agreement has a term of fifty years.The Authority has interests in the following projects: Palo Verde Project -On August 14, 1981, the Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating Station (PVNGS), a 3,810 megawatt nuclear-fueled generating station near Phoenix, Arizona, a 5.56%ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard, and a 6.55% share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System (collectively, the "Palo Verde Project"). | |||
Units 1, 2 and 3 of the Palo Verde Project began commercial operations in January 1986, September 1986, and January 1988, respectively. | |||
Hoover Uprating Project -As of March 1, 1986, the Authority and six participants entered into an agreement pursuant to which each participant assigned its entitlement to capacity and associated firm energy to the Authority in return for the Authority's agreement to make advance payments to the United States Bureau of Reclamation (USBR) on behalf of such participants. | |||
The Authority has an 18.68% interest in the contingent capacity of the Hoover Uprating Project (HU).San Juan Project -Effective July 1, 1993, the Authority purchased a 41.80% interest in Unit 3 and related common facilities of the San Juan Generating Station (SJGS) from Century Power Corporation. | |||
Unit 3, a 497-megawatt unit, is one unit of a four-unit coal-fired power generating station in New Mexico.Magnolia Power Project -In March 2003, the Authority received approval from the California Energy Commission for construction of the Magnolia Power Project (MPP). The Project consists of a combined cycle natural gas-fired generating plant with a nominally rated net base capacity of 242 megawatts and was built on a site in the City of Burbank, California. | |||
The plant is the first that is wholly owned by the Authority and entitlements to 100% of the capacity and energy of the Project have been sold to six of its members. The City of Burbank, a Project participant, managed its construction and also serves as the operating agent for the Project.Commercial operations began September 22, 2005.Gas Supply and Services Agreement: | |||
SCPPA entered into an agreement with Occidental Energy Marketing, Inc. (OEMI) beginning January 2005. This agreement is renewed each year unless notification is given by either party prior to December 31, of each year. OEMI provides 100% of the natural gas plant requirements on a daily basis, and also includes an option for the participants to bring in their own gas supply. In addition, OEMI provides gas balancing services.43 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued)" Natural Gas Transportation: | |||
SCPPA has an agreement with Southern California Gas Company (SoGas) for intrastate transmission services. | |||
The agreement took effect in January 2005 and will expire in January 2011. SoGas provides transportation, storage, and balancing services of natural gas from the Southern California Border to the MPP Plant.* Parts and Special Services Agreement: | |||
SCPPA entered into an 18-year agreement with General Electric International (GE) in September 2005. Initially, the agreement covered only the gas turbine, but the agreement was amended in August 2007, to include coverage for the gas generator, the steam turbine, and the steam generator. | |||
GE provides planned and unplanned maintenance, including replacement parts, based on factored fired hours.Southern Transmission System Project -On May 1, 1983, the Authority entered into an agreement with the Intermountain Power Agency (IPA), to defray all the costs of acquisition and construction of the Southern Transmission System Project (STS), which provides for the transmission of energy from the Intermountain Generating Station in Utah to Southern California. | |||
STS commenced commercial operations in July 1986. The Department of Water and Power of the City of Los Angeles (LADWP), a member of the Authority, serves as project manager and operating agent of the Intermountain Power Project (IPP).Mead-Phoenix and Mead-Adelanto Projects -As of August 4, 1992, the Authority entered into an agreement to acquire an interest in the Mead-Phoenix Project (Mead-Phoenix), a transmission line extending between the Westwing substation in Arizona and the Marketplace substation in Nevada. The agreement provides the Authority with an 18.31% interest in the Westwing-Mead project component, a 17.76% interest in the Mead Substation project component and a 22.41% interest in the Mead-Marketplace project component. | |||
As of August 4, 1992, the Authority also entered into an agreement to acquire a 67.92% interest in the Mead-Adelanto Project (Mead-Adelanto), a transmission line extending between the Adelanto substation in Southern California and the Marketplace substation in Nevada. Funding for these projects was provided by a transfer of funds from the Multiple Project Fund and commercial operations commenced in April 1996. LADWP serves as the operations manager of Mead-Adelanto. | |||
I Natural Gas Pinedale Project -On July 1, 2005, the Authority, together with LADWP and Turlock Irrigation District (TID), acquired 42.5% of an undivided working interest in three natural gas leases located in the Pinedale Anticline region of the State of Wyoming. The Authority's individual share in these interests equals 14.9%. The purchase includes 38 operating oil and gas wells and associated lateral pipelines, equipment, permits, rights of way, and easements used in production. | |||
The natural gas field production is expected to increase for several more years as additional capital is invested on drilling new wells and then decline over a life expectancy greater than 30 years.* Joint Operating Agreement (JOA): In July 2005, SCPPA's purchase of the natural gas reserve interests at Pinedale, Wyoming ("Pinedale") | |||
included an underlying long-term JOA with the operator, Ultra Resources, Inc. SCPPA pays the operator for SCPPA's share of both operating and drilling/capital expenses on a monthly basis.44 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued) | |||
Gathering and Processing Agreements: | |||
SCPPA's purchase of Pinedale included underlying agreements with Jonah Gas Gathering Company, Questar Gas Management Company, and Mountain Gas Resources, Inc. for gathering and processing of the natural gas.Natural Gas Barnett Project -Natural gas resources in the Barnett shale geological formation in Texas were acquired from Collins and Young Holding, L.L.P (C&Y) for a total of $84 million with an effective production date of April 1, 2006. The acquisition settled on October 26, 2006 and was completed on December 7, 2006 when the participants, together with TID, exercised their option to purchase additional resources from C&Y. Two of the original participants, LADWP and the City of Glendale, made the decision not to participate but have agreed to pay their respective share of the development costs incurred through October 13, 2006. The Gas Sales Agreements have been revised accordingly to adjust the entitlement shares and product cost shares for the remaining participants. | |||
Joint Operating Agreement (JOA): In October 2006, SCPPA's purchase of the natural gas reserve interests in Barnett, TX ("Barnett") | |||
included an underlying long-term JOA with the operator, Devon Energy Production Company, L.P. SCPPA pays the operator for SCPPA's share of both operating and drilling/capital expenses on a monthly basis.Canyon Power Project -The Authority approved the construction of a new generating plant that will be located on approximately 10 acres of land within an industrial area of the City of Anaheim, California | |||
("Anaheim"). | |||
The Canyon Power Project ("the Project") | |||
will consist of a simple cycle natural gas-fired power generating plant, comprised of four General Electric LM 6000PC Sprint combustion turbines with a combined nominally rated net base capacity of 200 MW, and auxiliary facilities. | |||
The Project will be owned by the Authority and constructed, operated, and maintained by Anaheim. The cost of the Project is estimated to be $320 million of which $15 million was spent to obtain the necessary emission credits for the Project. In December 2008, the Authority issued notes to provide interim financing for the payment of a portion of the costs to develop, construct, and acquire the Project. An Application for Certification is on file with the California Energy Commission (CEC) and a CEC license is expected to be issued early 2010. The Project is expected to be substantially complete in July 2011.45 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued) | |||
Participant Ownership Interests | |||
-The Authority's participants may elect to participate in the projects. | |||
As of June 30, 2009, the members have the following participation percentages in the Authority's operating projects: GENERATION TRANSMISSION NATURAL GAS Southern Trans-Palo Hoover Magnolia Canyon mission Mead- Mead-Verde Uprating San Juan Power Power System Phoenix Adelanto Pinedale Barnett Participants Project Project Project Project Project Project Project Project Project Project City of Los Angeles City of Anaheim City of Riverside Imperial Irrigation District City of Vernon City of Azusa City of Banning City of Colton City of Burbank City of Glendale City of Cerritos City of Pasadena 67.0% ---59.5% 24.8% 35.7% ---42.6% 38.0% 100% 17.6% 24.2% 13.5% 35.7% 45.4%5.4% 31.9% --10.2% 4.0% 13.5% --6.5% -51.0% --4.9% ----1.0% 4.2% 14.7% 1.0% 2.2%1.0% 2.1% 9.8% 1.0% 1.3%1.0% 3.2% 14.7% 4.2% -1.0% 2.6% 7.1% 9.1%4.4% 16.0% -31.0% 4.5% 15.4% 11.5% 14.3% 27.3%4.4% -9.8% 16.5% 2.3% 14.8% 11.1% 28.6% ----4.2% -----4.4% 6.1% 5.9% 13.8% 8.6% 14.3% 18.2%100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%The Authority has entered into power sales, natural gas sales, and transmission service agreements with the above project participants. | |||
Under the terms of the contracts, the participants are entitled to power output, natural gas or transmission service, as applicable. | |||
The participants are obligated to make payments on a "take or pay" basis for their proportionate share of operating and maintenance expenses and debt service. The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding. | |||
The contracts expire as follows: Palo Verde Project Hoover Uprating Project San Juan Project Magnolia Power Project Canyon Power Project Southern Transmission System Project Mead-Phoenix Project Mead-Adelanto Project Natural Gas Pinedale Project Natural Gas Barnett Project 2030 2018 2030 2036 2030 2027 2030 2030 2030 2030 46 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued) | |||
The Authority's interests in natural gas, generation, and transmission projects are jointly owned with other utilities, except for the Magnolia Power Project and the Canyon Power Project, which are wholly owned by the Authority. | |||
Under these arrangements, a participating member has an undivided interest in a utility plant and is responsible for its proportionate share of the costs of construction and operation and is entitled to its proportionate share of the energy, available transmission capacity or natural gas produced. | |||
Each joint plant participant, including the Authority, is responsible for financing its share of construction and operating costs. The financial statements reflect the Authority's interest in each jointly owned project as well as the projects that it owns.Additionally, the Authority's share of expenses for each project is included in the statements of revenues, expenses, and changes in net assets (deficit) as part of operations and maintenance expenses.Prepaid Natural Gas Project No. 1 -On October 11, 2007, the Authority made a one-time prepayment of $481 million to acquire the right to receive approximately 135 billion cubic feet of natural gas from J. Aron &Company (J. Aron) to be delivered over a 30-year term, beginning July 1, 2008. On October 3, 2007, prior to the acquisition of the prepaid gas supply, the Authority entered into five separate Prepaid Natural Gas Sales Agreements (the Gas Sales Agreements) with J. Aron and simultaneously, five Prepaid Natural Gas Supply Agreements (the Gas Supply Contracts) in which the Authority sold its interest in the natural gas, on a "take-and-pay" basis, to the cities of Anaheim, Burbank, Colton, Glendale, and Pasadena (the Project No. 1 Participants). | |||
Through the Gas Supply Contracts, SCPPA has provided for the sale to the Project Participants, on a pay-as-you-go basis, of all of the natural gas to be delivered to SCPPA pursuant to the Gas Sales Agreements. | |||
The Natural Gas contracts expire in 2038.Under the Gas Supply Contracts, the approximate average Daily Quantity of gas to be purchased by each Project Participant is as follows: AVERAGE DAILY PERCENTAGE BY PROJECT PARTICIPANT QUANTITY (1) PARTICIPANT City of Anaheim 2,000 16.5%City of Burbank 4,000 33.0%City of Colton 1,375 11.0%City of Glendale 2,750 23.0%City of Pasadena 2,000 16.5%TOTAL 12,125 100%(1) The average Daily Quantity is in MmBtu's and is calculated over the term of the applicable Gas Supply Contract.47 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued) | |||
Ormat Geothermal Energy Project -The Authority entered into long-term Power Purchase Agreements in December 2005 with divisions of Ormat Technologies, Inc. for up to 20 MW of electric generation. | |||
The Project started delivery of approximately 5 MW in January 2006 from geothermal energy facilities located in Heber, California. | |||
In May 2008, the agreements were amended to substitute new wells as the source of the generation, and to increase the capacity to 14 MW and allows for excess capacity to 17 MW. The City of Anaheim acts as the scheduling coordinator on behalf of the project participants. | |||
Pebble Springs Wind Project -In December 2007, the Authority entered into a Power Purchase Agreement for the facility output of a wind project with 98.7 MW, located in Gilliam County, Oregon. SCPPA along with LADWP, Burbank, and Glendale are now scheduling the energy through transmission agreements which bring this renewable energy from the project substation to the project participants. | |||
The term of the Project is 18 years with a right of first offer to potentially purchase the entire project after the 10f contract year. Operations formally began on January 31, 2009.MWD Small Hydro Project -Consists of a Power Purchase Agreement for the output from four small hydroelectric plants on the MWD system in Southern California, having a total nameplate capacity of 17.04 MW, and a historical output of 40,130 MWH per year. Transmission is accomplished through the California Independent System Operator, with the City of Anaheim acting as scheduler. | |||
The term of the contract is 15 years and 2 months, expiring December 31, 2023. Operations began on November 1, 2008.Tieton Hydropower Project -On August 21, 2008, the Authority entered into a Power Purchase Agreement with Power Holdings, L.L.C. for purchase of facility energy output of the Tieton Hydropower Plant for a period of 20 years, with provisions for early termination. | |||
The Tieton Hydropower Plant is located in Yakima County, Washington and operates as a run-of-river facility in accordance with flow releases governed by the United States Bureau of Reclamation. | |||
Power Holdings, L.L.C. has the right to terminate the PPA anytime after December 31, 2011. There is no purchase option. Burbank is currently the sole Participant in this Project but other participants may decide to participate at a later date at which time reimbursement obligations to Burbank would be satisfied. | |||
Operations began in April 2009.48 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued) | |||
The Authority has entered into power purchase agreements with project participants as follows. These agreements are substantially take and pay contracts where there may be other obligations not associated with the delivery of energy.Participant Ownership Interests Power Purchase Agreements Ormat Geothermal Energy Project 17MW Participants Capacity Pebble Springs Wind Project 98.7 MW MWD Small Hydro Project 17.04MW Tieton Hydropower Project 19MW City of Los Angeles City of Anaheim City of Azusa City of Banning City of Colton City of Burbank City of Glendale City of Pasadena 69.6%60.0%10.0%56.4%21.8%21.8%10.1%20.3%100.0%15.0%15.0%100.0% 100.0% 100.0% 100.0%Contract Expires 2031 2025 2023 2028 Multiple Project Fund -During fiscal year 1990, the Authority issued Multiple Project Revenue Bonds for net proceeds of approximately | |||
$600 million to provide funds to finance costs of construction and acquisition of ownership interests or capacity rights in one or more, then unspecified, projects for the generation or transmission of electric energy. Certain of these funds were used to finance the Authority's interests in Mead-Phoenix and Mead-Adelanto. | |||
Projects' Stabilization Fund -In fiscal year 1997, the Authority authorized the creation of a Projects'Stabilization Fund. Deposits may be made into the fund from budget under-runs, after authorization of individual participants, and by direct contributions from the participants. | |||
Participants have discretion over the use of their deposits within SCPPA project purposes. | |||
This fund is not a project-related fund; therefore, it is not governed by any project Indenture of Trust. The members participate in the Projects' Stabilization Fund by making deposits to the fund at their discretion. | |||
49 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies Basis of accounting and presentation | |||
-The combined and individual financial statements of the Authority are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America issued by the Governmental Accounting Standards Board (GASB) applicable to governmental entities that use proprietary fund accounting and the Financial Accounting Standards Board (FASB)issued prior to November 30, 1989 that do not conflict with rules issued by the GASB. Revenues are recognized when earned and expenses are recognized when incurred. | |||
The format of the Statement of Net Assets (Deficit)follows the inverted approach which is consistent with the Federal Energy Regulatory Commission (FERC)." Invested in capital assets, net of related debt and advances from participants | |||
-This component of net assets consists of (a) capital assets, (b) net of accumulated depreciation, and (c) unamortized debt expenses, reduced by the outstanding balances of any bonds, other borrowings, and advances from participants that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net assets component as the unspent proceeds." Restricted | |||
-This component consists of net assets on which constraints are placed as to their use. Constraints include those imposed by creditors (such as through debt covenants), contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or through enabling legislation." Unrestricted | |||
-This component of net assets consists of net assets that do not meet the definition of"restricted" or "invested in capital assets, net of related debt and advances from participants." 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. | |||
Utility plant -The Authority's share of construction and betterment costs, natural gas reserves, intangibles, and nuclear fuel associated with PVNGS, STS, Mead-Phoenix, Mead-Adelanto, SJGS, Magnolia Power Project, the Natural Gas Projects, and Canyon Power Project are included as utility plant and recorded at cost. Costs include labor, materials, capitalized interest costs on funds used in construction, and allocated indirect charges such as engineering, supervision, transportation and construction equipment, retirement plan contributions, health care costs, and certain administrative and general expenses. | |||
The costs of routine maintenance, repairs, and minor replacements incurred to maintain the plant in operating condition are charged to the appropriate operations and maintenance expense accounts in the period incurred. | |||
The original cost of property retired, net of removal and salvage costs, is charged to accumulated depreciation. | |||
Depreciation expense is computed using the straight-line method based on the estimated service lives, principally thirty-five years for PVNGS, STS, Mead-Phoenix and Mead-Adelanto, thirty years for Magnolia, and thirty-seven years for SJGS which is a change in estimate from prior years. There is no depreciation expense for the Canyon Power Project which is currently under development. | |||
50 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies (Continued) | |||
Natural gas reserve depletion | |||
-Depletion expense for the Natural Gas Projects is computed using the unit of production method based on the future production of the proved developed producing wells, estimated at 42.5 years. The depletion rate for the Natural Gas Pinedale Project was $1.61/MMbtu and $1.87/MMbtu; and the estimated total net revenue volume was 27,629,287 MMbtu and 24,351,608 MMbtu up to the period ending 2060, for fiscal years 2009 and 2008, respectively. | |||
The depletion rate for the Natural Gas Barnett Project was$4.83/MMbtu and $1.91/MMbtu; and the estimated total net revenue volume was 13,077,737 MMbtu and 28,906,440 MMbtu up to the period ending 2060, for fiscal years 2009 and 2008, respectively. | |||
The decrease in reserve volume for the Natural Gas Barnett Project as of January 2009 as compared to the original Reserve Report in October 2006 is the result of the release and expiration of leases that were determined to be uneconomic, due to a combination of lower estimates of recoverable reserves for some undeveloped acreage, higher well drilling and completion costs, and lower commodity prices.Nuclear fuel -Nuclear fuel is amortized and charged to expense on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assesses each entity with nuclear operations, including the participants in PVNGS, $1 per megawatt hour of nuclear generation. | |||
The Authority records this charge as a current year expense. See Note 10 for information about spent nuclear fuel disposal.Nuclear decommissioning | |||
-Decommissioning of PVNGS is expected to commence subsequent to the year 2026.The total cost to decommission the Authority's interest in PVNGS is estimated to be $121.3 million in 2008 dollars ($275.6 million in 2022 dollars, assuming a 6% estimated annual inflation rate). This estimate is based on an updated site specific study prepared by an independent consultant in 2007. The Authority is providing for its share of the estimated future decommissioning costs over the remaining life of the nuclear power plant through annual charges to expense, which amounted to $7.0 million and $8.7 million in fiscal years 2009 and 2008. The decommissioning liability is included as a component of accumulated depreciation and was $227.0 million and$220.0 million at June 30, 2009 and 2008, respectively. | |||
The Authority contributes to external trusts set up in accordance with the Arizona Nuclear Power Plant participation agreement and Nuclear Regulatory Commission requirements. | |||
As of June 30, 2009, decommissioning funds totaled approximately | |||
$157.2 million, including approximately | |||
$1.0 million of interest receivable. | |||
Asset retirement obligation | |||
-Demolition of SJGS is projected to commence subsequent to the year 2030. Based upon the study performed by an independent engineering firm, the Authority's share of the estimated demolition costs is $47.4 million in 2008 dollars. The Authority is providing for its share of the estimated future demolition costs over the remaining life of the power plant through annual charges to expense of $1.5 million and $3.1 million for fiscal years 2009 and 2008, respectively. | |||
The expense for fiscal year 2009 reflects a change in estimate from prior years. The demolition liability is included as a component of accumulated depreciation and totaled$48.2 million and $46.7 million at June 30, 2009 and 2008, respectively. | |||
As of June 30, 2009, the Authority has not billed participants for the cost of demolition nor has it established a demolition fund.51 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies (Continued) | |||
Investments | |||
-Investments include United States government and governmental agency securities, guaranteed investment contracts, medium term notes and money market accounts. | |||
These investments are reported at fair value and changes in unrealized gains and losses are recorded in the statement of revenues, expenses and changes in net assets (deficit) with the exception of the guaranteed investment contracts which are recorded at amortized cost. Gains and losses realized on the sale of investments are generally determined using the specific identification method.The Bond Indentures for the Projects and the Multiple Project Fund require the use of trust funds to account for the Authority's receipts and disbursements. | |||
Cash and investments held in these funds are restricted to specific purposes as stipulated in the Bond Indentures. | |||
Accounts receivable | |||
-Accounts receivable consists primarily of participant receivables. | |||
As such no allowance is deemed necessary. | |||
Prepaid and other assets -Prepaid Natural Gas -SCPPA entered into a contract with the supplier for a 30-year gas supply at a fixed discount and simultaneously entered into a contract with each of the project participants for the delivery of natural gas. By prepaying the gas supply, the participants will be able to procure the gas delivery at a fixed discount from a monthly market index price, as determined by the Prepaid Natural Gas Agreements. | |||
SCPPA also entered into commodity swap agreements on behalf of each participant to hedge against reductions in its revenues resulting from changes in the monthly market index price. The payments received from the participants for natural gas, when delivered, will be sufficient to pay debt service.Advances for capacity and energy -Advance payments to the United States Bureau of Reclamation for the uprating of the 17 generators at the Hoover Power Plant are included in advances for capacity and energy. These advances are being reduced by the principal portion of the credits on billings to the Authority for energy and capacity. | |||
The current portion of these advances is recorded under Prepaid and Other Assets in the Current Assets Section of the Combined Statements of Net Assets (Deficit). | |||
Advance to IPA -Advance to IPA consists of cash transferred to IPA for reserve, contingency and self insurance funding.Unamortized premiums, discounts, debt expenses and losses on refunding | |||
-Debt premiums, discounts, and debt expenses are deferred and amortized to expense over the lives of the related debt issues. Losses on refunding related to bonds redeemed by refunding bonds are amortized over the shorter of the life of the refunding bonds, or the remaining term of bonds refunded. | |||
Unamortized issue costs are recorded as a non current asset. All other unamortized debt expenses are recorded as an offset or addition to long-term debt.Cash and cash equivalents | |||
-Cash and cash equivalents include cash and investments with original maturities of 90 days or less.Materials and supplies -Materials and supplies consist primarily of items for construction and maintenance of plant assets and are stated at the lower of cost or market.52 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies (Continued) | |||
Arbitrage rebate and yield restrictions | |||
-The unused proceeds from the issuance of tax-exempt debt have been invested in taxable financial instruments. | |||
The excess of earnings on investments, if any, over the amount that would have been earned if the investments had a yield equal to the bond yield or yield restricted rate, is payable to the IRS within five years of the date of the bond offering and each consecutive five years thereafter until final maturity of the related bonds.The recorded liability of the Multiple Project Fund of $23.4 million ($6.2 million payable to the Mead-Phoenix Project and $17.2 million payable to the Mead-Adelanto Project) is a result of the cumulative savings from the 1994 refunding of the 1989 Multiple Project Bonds. The partial refunding within five years of the original issuance triggered a recalculation of the arbitrage yield, reducing the Multiple Project Fund's rebate liability. | |||
During the fiscal year ended June 30, 2009, the Authority made rebate payments to the IRS of $0.03 million for the STS bonds, $0.1 million for Palo Verde bonds, $2.34 million for Mead-Adelanto bonds, and $0.78 million for Mead-Phoenix bonds.Recorded arbitrage rebate and yield restriction liabilities as of June 30, 2009, were $1.04 million for STS, $0.09 million for Mead-Phoenix, and $0.3 million for Mead-Adelanto. | |||
Revenues -Revenues consist of billings to participants for the sales of electric energy, natural gas and transmission service in accordance with the participation agreements. | |||
Generally revenues are fixed at a level to recover all operating and any debt service costs over the commercial life of the property.In September 1998, the Palo Verde participants approved a resolution authorizing the Authority to bill the participants an additional | |||
$65 million annually through June 30, 2004 to pay for increased debt service costs as a result of a refunding completed in October 1997. In addition, the participants resolved to transfer any over billings, renewal and replacement excess funds or surplus amounts through June 30, 2004 into the Palo Verde reserve account. On November 20, 2003, the Authority adopted a resolution to utilize the amounts on deposit in the reserve accounts to pay a portion of the operating and maintenance expenses of the Palo Verde Project starting July 1, 2004. Funds held in the reserve account as a result of this resolution totaled $50.3 million and $54.9 million as of June 30, 2009 and 2008, respectively. | |||
Transportation Costs -As a result of the sales and purchases agreements for natural gas entered into by SCPPA, the participants receive less volume than processed incurring embedded transportation costs. These costs are recorded as participants' revenue and expense to the Natural Gas Pinedale Project. At June 30, 2009 and 2008, transportation costs were approximately | |||
$26 thousand and $0.1 million, respectively, for the Natural Gas Pinedale Project.53 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies (Continued) | |||
In Kind Contribution | |||
-Each participant of the Magnolia Power Plant is responsible for their own share of natural gas. They may elect to bring fuel to the plant or purchase fuel from Occidental Energy Marketing, Inc.(OEMI). OEMI computes the daily imbalances of fuel volume per participant using the daily consumption data that the operating manager provides. | |||
Monthly, actual fuel burnt is reported together with the daily imbalances, participants' in kind contribution, and fuel purchases from OEMI.In kind contributions are valued at fair market value and recorded as participant revenue and fuel expense to the Magnolia Power Project. SCPPA values the participants' fuel contribution using monthly average pricing from the Project's OEMI fuel purchases. | |||
During the fiscal years ended June 30, 2009 and 2008 the participants' contribution in kind was approximately 8.7 million MMbtu and 7.2 million MMbtu and was valued at approximately | |||
$46.3 million and $56.9 million, respectively. | |||
In Kind Payment -The Natural Gas Pinedale Project pays federal royalties to Mineral Management Services (MMS). Beginning November 2007, SCPPA elected to pay its obligation in kind with approximately 0.9 million MMbtu and 0.6 million MMbtu for fiscal years 2009 and 2008, with a monetary value of approximately | |||
$0.9 million and $0.5 million for the fiscal years ended June 30, 2009 and 2008, respectively. | |||
Reclassification | |||
-Certain 2008 balances have been reclassified to conform with 2009 presentation. | |||
These reclassifications had no impact on previously reported change in net assets (deficit). | |||
54 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 3 -Utility Plant At June 30, 2009 and 2008 Utility Plant consisted of the following (amounts in thousands): | |||
June 30, 2009 GENERATION TRANSMISSION NATURAL GAS Hoover Southern Palo Verde Uprating San Juan Magnolia Canyon Power Trasrmaission Mead- Phoenix Mead. Adelanto Project Project Project Power Project Project Syster Project Project Project Pinedale Project Barnett Project Total Utility plant Production S 667,180 S S 229,332 S 281,757 $ $$ -$ -S -$ 1,178,269 Transaission 14,120 -15,239 674,606 50,967 172,798 927,730 General 2,908 21 7,413 15,237 18,911 2,644 473 1,217 48,824 Natural gas reseres ------50,492 65,889 116,381 604,208 21 236,745 312.233 693,517 53,611 173,271 51,709 65,889 2,271,204 Lessaccu-ulatd depeciation 629,516 21 168,359 42,357 446,791 19,047 59,763 7.971 7,870 1,381,695 54,692 68,386 269,876 246,726 34,564 113,508 43,738 58,019 889.509 Construction work in progress 20,574 6,959 69 80,393 27,571 3,736 376 4,329 144,007 Nuclear fuel, at amortized coat 36.687 -------36,697 Net utility plant S I 11,953 S S 75,345 S 269,945 $ 80.393 S 274,297 S 38,300 $ 113,508 S 44,114 S 62,348 S 1,070,203 GENERATION TRANSMISSION NATURAL GAS Hooer Southern Palo Verde Upanaig San Juan Magnolia Canyon Power Transminsion Meod- Phoenix Moad- Adelanto Project Prject Project Power Project Project Systea Project Project Project Pinedale Project Barnett Project Total Utility plant Production Transmision General Natural gas reserves Lot accu..ulated depreciation Constrcton work in progress Nuclear fuel, at amooized cost Net utility plant S 662,942 S 14,082 S 231.192 S 280,338 15,239$ .S .S 1,174,472 674,606 50,770 172,319 927,016 2.397 21 7,443 15,224 18,911 2,640 473 6,611 9,245 63,365----.44,747 46,340 91,087 679,821 21 238,635 310,801 693,517 53,410 172,792 51,358 55,585 2,255,940 606.123 21 164,644 30,919 428,083 17.640 55,260 6,494 2,781 1,311,965 73,698 73,991 279,882 265,434 35,770 117,532 44,864 52,804 943,975 15,065 3,472 786 -1,166 352 10,304 31,145 34A 211 --.---34.211 S 122,974 $ $ 77,463 $ 280,668 S S 265,434 S 36,936 $ 117,532 S 45,216 $ 63,108 S 1,009.331 55 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 3 -Utility Plant (Continued) | |||
A summary of changes in Utility Plant follows (amounts in thousands): | |||
Nondepreciable utility plant Land Construction work in progress Construction work in progress -gas Nuclear fuel*Total nondepreciable utility plant Depreciable utility plant Production Nuclear generation (Palo Verde Project)Coal-fired plant (San Juan Unit 3 Project)Gas-fired plant (Magnolia Power Project)Transmission General-Natural gas reserves Total depreciable utility plant Less accumulated depreciation Total utility plant, net Balance Balance July 1, 2008 Additions Disposals Transfers June 30, 2009$ 42,472 $ $ $ $ 42,472 20,488 128,976 (10,162) 139,302 10,657 4,704 (10,656) 4,705 34,211 9,672 (7,196) 36,687 107,828 143,352 (7,196) (20,818) 223,166 662,206 6,856 (2,620) 666,442 231,192 1,454 (3,314) -229,332 280,338 --1,420 281,758 885,281 781 (67) -885,995 48,726 119 (33) 12 48,824 105,725 --10,656 116,381 2,213,468 9,210 (6,034) 12,088 2,228,732 (1,311,965) | |||
(71,261) 6,034 (4,503) (1,381,695) | |||
$ 1,009,331 | |||
$ 81,301 $ (7,196) $ (13,233) $ 1,070,203*Nuclearfuel disposals represent amortization. | |||
Note 4 -Investments The Authority's investment function operates within a legal framework established by Sections 6509.5 and 53600 et. seq. of the California Government Code, Indentures of Trust, instruments governing financial arrangements entered into by the Authority to finance and operate Projects and the Authority's Investment Policy.Guaranteed investment contracts (GICs) are contracts that guarantee the owner principal repayment and a specified interest rate for a predetermined period of time. GICs are typically issued by insurance companies and marketed to institutions that qualify for favorable tax status under federal laws. These types of securities provide institutions with guaranteed returns. GICs are negotiated on a case-by-case basis.Based on SCPPA's Investment Policy, certain vehicles such as GICs, flexible repurchase agreements or forward debt service agreements, may be entered into only upon approval of the SCPPA Board. In addition, eligible securities and general limitations are derived from each Project's Indenture of Trust, the Government Code and SCPPA's evolving investment practices. | |||
56 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued) | |||
The operative Indentures of Trust in which securities are authorized for investment purposes relate to the Palo Verde Project Bonds, the Southern Transmission System Project Bonds, the Hoover Uprating Project Bonds, the Mead-Phoenix Project Bonds, the Mead-Adelanto Project Bonds, the Multiple Project Fund Bonds, the San Juan Project Bonds, the Magnolia Power Project Bonds, the Natural Gas Projects Bonds, Prepaid Natural Gas Project No. 1 and the Canyon Power Project Revenue Notes. Authorized investments for the Projects' Stabilization Fund are set forth in a resolution approved by the Board in 1996.Eligible securities include: " United States Treasury Securities, which are bonds or other obligations secured by the full faith and credit of the United States of America;* Federal Agency Obligations, which have the full financial backing of the U.S. Government;" Government Sponsored Enterprise Obligations, which are created by acts of Congress to provide liquidity for selected lending programs targeted by Congress;" Repurchase Agreements, which are collateralized loan contracts where the seller includes a written agreement to repurchase the securities at a later date for a specified amount;" Negotiable Certificates of Deposit, which are deposit liabilities issued by a nationally or state-chartered bank, a savings or a federal association or by a state-licensed branch of a foreign bank which has short-term ratings of at least "A-I" by S&P and at least "P-I" by Moody's;" Banker's Acceptances, a short-term draft or bill of exchange guaranteed for payment at face value to the holder of the instrument on its maturity date, which has a short-term rating of at least "A-I" by S&P and at least "P-I" by Moody's;* Commercial Paper, a short-term unsecured promissory note issued by non-financial or financial firms with a rating of at least "A-I" by S&P and at least "P-I" by Moody's;" Medium Term Notes rated "A" or better and only those issued by corporations organized and operating within the United States, or by depository institutions licensed by the United States or any state and operating within the United States;" Equity-Linked Notes, which are categorized as medium-term corporate notes and are subject to the constraints set forth in the Government code and the Authority's Investment Policy.As of June 30, 2009 the Authority held the following as cash and cash equivalents and investments: | |||
Carrying Value Weighted Average Investment Type (in thousands) | |||
Maturity (Years) Percent of Portfolio U.S. Agency Securities | |||
$ 470,009 2.59 48.4%U.S. Discount Notes 111,397 0.06 11.5%Guaranteed Investment Contracts 279,605 9.69 28.8%Money Market Funds 110,811 0.07 11.4%Total $ 971,822 4.06 100.0%The "weighted average maturity in years" calculation assumes that all investments are held until maturity.57 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued) | |||
Investments at June 30, 2009 are as follows (amounts in thousands): | |||
ý-- --nll-DT 1 --P 2fKIXT Hoover Urmat Ueo-Palo Verde Uprating San Juan Magnolia Canyon thermal Project Project Project Power Project Power Project Project MWD Small Hydro Pebble Springs Tieton U.S. Agencies Agency Discount Notes GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total U.S. Agencies Agency Discount Notes GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total$ 199,105 S -S 9,497 $ 45,558 S 27,003 S S S S 21,594 3,898 3,049 14,038 -50,308 -21,323 3,863 -10,557 425 4,288 12,139 10,960 2,673 1,286 3,970 926 S 281,564 S 4,323 $ 38,157 S 75,598 S 37,963 S 2,673 S 1,286 S 3,970 S 926 S 198,112 S 2,699 S 33,030 S 57,809 S 27,003 S -S -S -S -70,036 1,199 ---13,416 425 5,127 17,789 10,960 2,673 1,286 3,970 926$ 281,564 S 4,323 $ 38,157 S 75,598 S 37,963 S 2,673 S 1,286 S 3,970 S 926 TRANSMISSION NATURAL GAS MISCELLANEOUS Trans-mission Mead- Mead- Projects'System Phoenix Adelanto Pinedale Barnett Prepaid Multiple Stabilization Project Project Project Project Project Natural Gas Project Fund Fund Total S 83,400 $ 1,740 S 5,758 $ 27,520 S 498 $ $ -S 69,930 $ 470,009 48,657 1,330 11,150 1,280 5,400 1,000 -111,396 37,179 6,543 22,626 15,472 42,405 11,901 67,986 -279,606 22,346 1,926 4,642 9,617 3,617 2,608 119 18,712 110,811 S 191,582 S 11,539 $ 44,176 S 53,889 S 51,920 S 14,509 $ 69,105 S 88,642 S 971,822$ 158,425 $ 8,283 S 31,534 $ 42,992 $ 46,212 $ 11,901 S 68,986 S 69,930 $ 756,916 S ------71,235 33,157 3,256 12,642 10,897 5,708 2,608 119 18,712 143,671$ 191,582 $ 11,539 $ 44,176 $ 53,889 $ 51,920 $ 14,509 $ 69,105 S 88,642 $ 971,822 58 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued) | |||
Investments at June 30, 2008 are as follows (amounts in thousands): | |||
(~I5.JI~p ATTCSM TI? A,,Jgs.AtgetThJ U.S. Agencies Agency Discount Notes GIC's Negotiable CD's Commercial Paper Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total Southern Tram-Palo Verde Hoover San Juan Magnolia Power Ormat Geo- mission System Mead- Phoenix Mead- Adelanto Project Uprating Project Project Project thermal Project Project Project Project$ 158,137 $ 569 $ -$ 23,977$ $S -$ -$37,326 3,545 23,841 32,916 1,117 46,239 5,149 13,065 55,302 -21,323 20,449 -37,179 7,143 22,626--3,400 -3,400 -1,700----364 ---992 136 35 1,594 203 2,284 1,895 780 S 251,757 $ 4,250 S 45,199 $ 82,336 S 1,684 $ 89,102 S 14,187 $ 38,171$ 163,930 S 1,068 $ 21,322 $ 48,176 S -$ 41,319 $ 7,593 $ 25,406 64,502 560 -----23,325 2,622 23,877 34,160 1,684 47,783 6,594 12,765 S 251,757 S 4,250 $ 45,199 $ 82,336 $ 1,684 $ 89,102 $ 14,187 S 38,171 NATURAL GAS MISCELLANEOUS Projects'pie Project Stabilization Prepaid Natural Multip U.S. Agencies Agency Discount Notes GIC's Negotiable CD's Commercial Paper Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total Barnett Pro ject Pinedale Project Gas Fund Fund Total$ $$ S -S 50,465 $ 233,148 6,112 25,729 880 35,787 231,706 45,013 15,067 10,887 63,252 -298,241-60 -3,500 12,060-----364 1,964 2,706 285 68 158 13,100$ 53,089 $ 43,562 $ 11,172 $ 67,700 $ 86,410 S 788,619 S 45,013 $ 15,126 $ 10,887 $ 63,252 $ 50,465 $ 493,557-----65,062 8,076 28,436 285 4,448 35,945 230,000 S 53,089 $ 43,562 $ 11,172 S 67,700 $ 86,410 $ 788,619 Interest rate risk -The Authority's investment policy limits the maturity of its investments to a maximum of 5 years for investments in the United States Treasury, Federal Agency, and Government Sponsored Enterprise securities, excluding: | |||
investments held in Project Debt Service Reserve; long-term commitments or agreements approved by the Authority's Board; 5 years for medium term corporate notes; 270 days for commercial paper; 180 days for banker's acceptances; and one year for negotiable certificates of deposits.Credit risk -Under its investment policy and the State of California Government Code, the Authority is subject to the prudent investor standard of care in managing all aspects of its portfolios. | |||
As an investment standard, each investment shall be made with "judgment and care under circumstances then prevailing, which a person of prudence, discretion and intelligence would exercise in the management of his/her affairs, not in regard for speculation, but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of the capital to be invested." The Authority's investment policy does not preclude active management of the portfolio to address market opportunities. | |||
All transactions shall be undertaken in the best interest of the Authority and its participants. | |||
59 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued) | |||
The Authority's investment policy specifies that all project funds may be invested in shares of beneficial interest for temporary periods, pending disbursement or reinvestment as allowed under the state of California Government Code ("Code"). | |||
The Code requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations (NRSRO)or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience managing money market mutual funds with assets under management in excess of five hundred million dollars. As of June 30, 2008, each of the money market funds in the portfolio have attained the highest possible ratings by three NRSRO's, specifically AAA by Standard and Poor's, Aaa by Moody's Investors Service, and AAA by Fitch Ratings. As of June 30, 2009, money market funds in the portfolios with Bank of New York Mellon have attained the highest possible ratings by three NRSRO's, specifically AAA by Standard and Poor's, Aaa by Moody's Investors Service, and AAA by Fitch Ratings, while money market funds in the portfolios with US Bank have attained the following ratings: AA- by Standard and Poor's, Aal by Moody's Investors Service, and AA by Fitch Ratings.The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government. | |||
As of June 30, 2009 and 2008, the U.S.government agency securities in the portfolio carried the highest possible credit ratings by the NRSRO's that rated them.The Guaranteed Investment Contracts in the portfolio with American International Group (AIG) consist of securities issued by corporations and carry a rating of A- by Standard and Poor's, A3 by Moody's Investors Service and BBB by Fitch Rating. The Guaranteed Investment Contracts in the portfolio with PNC carry a rating of A+ by Standard and Poor's, Al by Moody's Investors Service, and AA- by Fitch Ratings.The Investment Agreement Contract in the portfolio with Financial Security Assurance (FSA) consists of securities issued by corporations and carries a rating of AAA by Standard and Poor's, Aa3 by Moody's Investors Service, and AA+ by Fitch Ratings.Concentration of credit risk -The Authority's investment policy specifies a 50% to 100% limitation on the amount that can be invested in U.S. government agency securities, except in certain issues of other Authority projects, such as the Southern Transmission System 1991 Series and the Mead-Adelanto and Mead-Phoenix projects.Of the Authority's total investments as of June 30, 2009, $182.4 million (19%) was invested in securities issued by the Federal Home Loan Bank; $142.2 million (15%) was invested with Farm Credit Bank; $128.3 million (13%) was invested in GIC's with AIG; $121.1 million (12%) was invested in securities issued by the Federal National Mortgage Association; | |||
$116.8 million (12%) was invested with Federal Home Loan Mortgage; | |||
$97.2 million (10%) was invested in GIC's with PNC Financial Securities Group.Of the Authority's total investments as of June 30, 2008, $214.2 million (27%) was invested in securities issued by the Federal Home Loan Bank; $125.0 million (16%) was invested in securities issued by the Federal National Mortgage Association; | |||
$75.8 million (10%) was invested in an investment agreement with Financial Security Assurance (FSA); $93.0 million (12%) was invested in GIC's with PNC Financial Securities Group; and $129.5 million (16%) was invested in GIC's with AIG.60 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued) | |||
SCPPA is aware that there are global pressures on the current financial markets. Based on the best available information at this time, SCPPA is vigilantly monitoring the developments in the markets and believes that it is positioned to deal with these developments should the market conditions persist.Note 5 -Derivative Instruments Objective of the swaps -An interest rate swap is the exchange of payments between SCPPA and a counterparty in order to potentially obtain a lower cost of funding than traditional fixed rate bonds, or to hedge interest rate exposure on SCPPA's assets or liabilities. | |||
The Authority has entered into eight separate pay-fixed, receive-variable interest rate swaps and two basis swaps to produce savings or to result in lower costs over the life of each transaction than what the Authority would have paid using fixed-rate debt. While these instruments carry additional risks, SCPPA's swap policy and favorable negotiations have helped to reduce such risks.Terms, fair values, and credit risk -The terms, including the fair values and credit ratings of the counterparties under the outstanding swaps as of June 30, 2009, are included below. In most cases, and with the exclusion of basis swaps, the notional amount of any swap matches the principal amount of the associated debt. Except as discussed under the rollover risk, and when associated with basis swaps, the Authority's swap agreements contain scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the associated "bonds payable" category.Notional Amount (in thousands) | |||
Effective Date Fixed Rate Paid Swap Fair Values Termination (in thousands) | |||
Date Counterparty Credit Rating Variable Rate Received MPP 2009-1 Swap (Citibank) | |||
MPP 2009-2 Swap (JPMorgan) | |||
MA 2007 Swap STS 2006 Amended Swap MP 2004 Amended Swap MA 2004 Amended Swap STS Swaption/Swap STS 2001 Swap STS 1991 Swap Prepaid Natural Gas 2007 Swap$ 111,670 4/21/2009 3.125%111,535 4/21/2009 3.129%SIFMA SIFMA 1011,000 11/1/2011 I-month LIBOR 100% of 10-yr LIBOR CMS rate less .414%100,000 5/1/2013 SIFMA 58.99% of 10-yr LIBOR CMS rate plus .664%28,700 10/2/2008 3.925%96,025 10/2/2008 3.921%125,000 2/6/2001 4.250%79,795 6/7/2001 4.240%250,300 4/17/1991 6.380%201,450 10/I 1/2007 5.0475%S 1,204,475 65% of LIBOR 65% of LIBOR 60% of LIBOR SIFMA less .40%7,441 7/1/2036 A+/AI/A+7,371 7/1/2036 AA-/Aal/AA-(392) 9/15/2030 AA-/Aal/AA-(3,201) 7/1/2023 AA-/Aal/AA-(3,676) 7/1/2020 A+/Aa2/A+(12,269) 7/1/2020 A+/Aa2/A+(27,283) 7/1/2022 A/A3/A+(13,987) 7/1/2021 A+/Aa2/A+(56,466) 6/30/2019 A-/A3/NA Bond variable coupon rate 67% of 3-Month LIBOR plus 1.47%$ (134,137)11/1/2038 A/Aa3/A+S&P/Moody's/Fitch ratings PNG 2007 Swap -In October 2007, SCPPA entered into an interest rate swap agreement in connection with the issuance of the Prepaid Natural Gas Project No. 1 Series 2007B Bonds. The swap hedges the interest-rate risk on the LIBOR Floating-rate bonds, where SCPPA pays a fixed rate of 5.0475% in exchange for receiving 67% of 3-month LIBOR plus 1.47%. The floating index on the swap exactly matches the coupon on the Bonds and therefore provides a hedge with no tax or basis risk. The swap expires on November 1, 2038.61 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued) | |||
PNG 2007 Commodity Swap -At the same time, SCPPA also entered into five commodity price swap agreements, on behalf of each of the Prepaid Natural Gas Project No. 1 Participants, in order to hedge against reductions to its gas sale revenues resulting from changes in monthly market index prices. SCPPA pays a floating natural gas price over a thirty-year period and receives specified fixed natural gas prices at an agreed pricing point as determined in the Prepaid Natural Gas No. 1 Agreements. | |||
The effective date of the swaps is July 1, 2008 and will expire on September 30, 2038." MPP 2009-1 Swap (Restated) | |||
-This swap transaction amends the MPP 2007-1 Swap, which had an original trade date of April 30, 2007. The transaction was amended and restated as of April 21, 2009. The Authority pays its counterparty a fixed rate of 3.125% in exchange for receiving 100% of the Securities Industry and Financial Markets Association Swap Index (SIFMA) on a notional amount of $111.7 million. In order to provide more favorable terms to the participants, SCPPA made a payment of $15.7 million to the counterparty which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. The amendment allowed the parties to recoupon the swaps, change the collateral posting requirements, and to move to uninsured swaps." MPP 2009-2 Swap (Restated) | |||
-This swap transaction amends the MPP 2007-1 Swap. The original transaction was novated from Bear Steams to JP Morgan on November 6, 2008 and was amended and restated on April 21, 2009. The Authority pays its counterparty a fixed rate of 3.129% in exchange for receiving 100% of the SIFMA Index on a notional amount of $111.5 million. In order to provide more favorable terms to the participants, SCPPA made a payment of $15.7 million to the counterparty which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. The amendment allowed the parties to recoupon the swaps, change the collateral posting requirements, and to move to uninsured swaps.* MPP 2007-1 Swap (Terminated) | |||
-In April 2007, the Authority entered into an interest rate swap in connection with the issuance of variable-rate Magnolia Power Project A, Refunding Revenue Bonds, Series 2007-1 ("2007-1 Bonds"). The Swap created synthetic fixed-rate debt which consisted of a $223.2 million 29-year floating-to-fixed interest rate swap allocated equally between two counterparties. | |||
The Authority paid each of the counterparties a fixed rate of 3.912% in exchange for receiving 98.9% of the SIFMA Index minus 6 basis points. The swap which became effective on June 13, 2007 was amended, restated, and novated to the MPP 2009-1 and the MPP 2009-2 Swaps on April 21, 2009. The MPP 2007-1 is no longer in effect." MA 2007 Swap (Amended) | |||
-In January 2007, the Authority entered into a Constant Maturity Swap (CMS)in connection with its outstanding Mead-Adelanto Project. The transaction consisted of a $100 million basis swap and does not relate to any single series of the Mead-Adelanto bonds. The amended swap terms became effective on February 1, 2008 and the Authority pays the swap counterparty 100% of the 1-month LIBOR in exchange for receiving 100% of the 10-year LIBOR minus 41.4 basis points. The swap expires on September 15, 2030. On November 5, 2008 the MA 2007 Swap was novated from Bear Steams to JP Morgan. In addition, the swap was suspended until November 1, 2010. As part of the novation, the credit terms of the existing swap agreements will be maintained and SCPPA received $4.1 million from JP Morgan as compensation for the suspension of the cash flows of the MA 2007 CMS. The $4.1 million was deferred to be amortized over the suspension term.62 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued) | |||
STS 2006 Swap (Amended) | |||
-In July 2006, the Authority executed an amendment to the STS $100 million, floating-to-floating fixed-spread basis swap entered into in November 2004. Under an amendment, which became effective on August 1, 2007, SCPPA continued to pay the swap counterparty the SIFMA index but began to receive 58.99% of the 10-Year LIBOR plus 66.4 basis points, instead of 65% of the 1-month LIBOR plus 66.4 basis points. In addition, the STS 2006 Constant Maturity Swap was suspended for 5 years effective May 7, 2008, for which SCPPA received $3.7 million as compensation for the suspension of the cash flows of the 2006 Basis Swap, which was deferred to be amortized over the suspension term. The notional amount of the Swap Agreement remains at $100 million. The swap expires on July 1, 2023.* MP 2004 Swap (Amended) | |||
-The MP 2004 Swap was amended and restated on October 2, 2008 to amend the fixed rate from 3.894% to 3.925% and to remove the insurance provisions and to adjust the collateral posting requirements. | |||
All other terms and provisions of the original agreement prevail. The amended swap was also transferred to the MP 2008 Refunding Bonds.In connection with the issuance of the 2004 Mead-Phoenix Project Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority. | |||
Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.894% and in exchange the Authority receives a floating rate index equal to 65% of the one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately | |||
$1.8 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The floating rate on the related bonds was 0.15% and 2.958% at June 30, 2009 and 2008 respectively. | |||
The MP 2004 bonds were refunded on October 2, 2008 and the related interest rate swap transferred to the MP 2008 Refunding Bonds." MA 2004 Swap (Amended) | |||
-The MA 2004 Swap was amended and restated on October 2, 2008 to amend the fixed rate from 3.89% to 3.921% and to remove the insurance provisions and to adjust collateral posting requirements. | |||
All other terms and provisions of the original agreement prevail. The amended swap was also transferred to the MA 2008 Refunding Bonds.In connection with the issuance of the 2004 Mead-Adelanto Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority. | |||
Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.89% for the swap and in exchange the Authority receives a floating rate index equal to 65% of the one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately | |||
$5.9 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. Approximately | |||
$45.1 million in Mead-Adelanto 2004 Project Revenue Bonds Series A are not swapped and remain floating-rate bonds. The average floating rate on the related bonds was 0.15% and 3.032% as of June 30, 2009 and 2008 respectively. | |||
The MP 2004 bonds were refunded on October 2, 2008 and the related interest rate swap transferred to the MA 2008 Refunding Bonds.63 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued)" STS 2003 Swap (Terminated) | |||
-The STS 2003 interest rate swap was terminated on May 7, 2008 and SCPPA paid the associated swap termination value of $1,287,000, when the STS 2003 Series Bonds were refunded on June 4, 2008. The termination payment was expensed in the year incurred." STS Swaption/Swap | |||
-In February 2001, the Authority entered into a transaction whereby it sold an option (the "Swaption") | |||
on a floating-to-fixed interest rate swap. The Swaption was exercised on April 1, 2002. The floating rate on the swap paid by the counterparty is 60% of the one-month LIBOR; the annual fixed rate on the swap paid by the Authority is 4.25%. In exchange for the right to exercise the Swaption, the counterparty paid the Authority a one-time up front option premium amount of $7.9 million which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The counterparty has the option to cancel the agreement at the counterparty's discretion. | |||
The swap expires on July 1, 2022.* STS 2001 Swap -In June 2001, the Authority entered into an interest rate swap agreement with a counterparty for the purpose of hedging against interest rate variations arising from the issuance of the 2001 Subordinate Refunding Series A Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. The Swap Agreement provides for the Authority to make payments to the counterparty at a fixed rate of 4.24%, and for the counterparty to make reciprocal payments based on a variable rate. The reset dates of the variable rate occur weekly and the rate for a reset date will be the rate determined by the SIFMA Index minus 40 basis points. The counterparty has the option to cancel the agreement on July 5, 2006 and on every Fixed Rate Payer Payment Date, thereafter, should the SIFMA index average more than 7% over a consecutive 180-day period. The floating rates on the bonds were 0.65% and 1.60% at June 30, 2009 and 2008, respectively. | |||
The swap expires on July 1, 2021." STS 1991 Swap -In fiscal year 1991, the Authority entered into an interest rate swap Agreement with a counterparty for the purpose of hedging against interest rate fluctuations arising from the issuance of the 1991 Subordinate Refunding Series Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 6.38%; in exchange, the Authority receives payments mirroring the bond variable coupon rate (1.18% and 3.50% at June 30, 2009 and 2008, respectively). | |||
The swap expires on June 30, 2019.Fair value -Fair values take into consideration the prevailing interest rate environment, the specific terms and conditions of a given transaction and any upfront payments that were received. | |||
All fair values were estimated using the zero-coupon discounting method. This method calculates the future payments required by the swap, assuming that the current forward rates implied by the yield curve are the market's best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. While some of SCPPA's current mark to market values are negative, this valuation would be realized only if the swaps were terminated at the valuation date and only SCPPA retains the right to optionally terminate most of the transactions. | |||
Credit risk -As of June 30, 2009, the net fair values of the Authority's applicable swaps for which payments were made were negative for each counterparty except for the MPP 2009-1 and MPP 2009-2 swaps. However, should interest rates change and the fair values of the swaps become positive, the Authority may be exposed to credit risk in the amount of the derivatives' fair value.64 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued) | |||
The swap agreements contain varying collateral agreements with the counterparties. | |||
The swaps require full collateralization of the fair value of the swap should the counterparty's (or if applicable, the guarantors of the counterparty's) credit rating fall below AA- as issued by Standard & Poor's or Aa3 as issued by Moody's Investors Service for the STS 1991 Swap, the Amended 2006, and the MA 2007 Swaps; A+/A1 for the STS 2001;A/A2 for the PNG 2007 Commodity Swap; and A-/A3 for the MPP 2009-1, MPP-2 and the STS Swaption/Swap. | |||
The MP 2004 and the MA 2004 Swaps, all require full collateralization if rating fall below A as issued by Fitch, and A2 as issued by Moody's. Collateral on all swaps is to be in the form of U.S. government securities held by a third-party custodian. | |||
The swap agreements provide that when the Authority has more than one derivative transaction with a given counterparty involving the same Authority project (and having the same swap/bond insurer), should one party become insolvent or otherwise default on its obligations, close-out netting provisions permit the non-defaulting party to accelerate and terminate all such related transactions and net the transactions' fair values so that a single sum will be owed by, or owed to, the non-defaulting party.Basis risk -Basis risk is the risk that the interest rate paid by the Authority on underlying variable rate bonds to bondholders exceeds the variable swap rate received from a counterparty, and the risk that both legs of a basis swap are not exactly equal. With the exception of the 1991 Swap and the PNG 2007 Swap, the Authority bears basis risk on each of its swaps. The 1991 Swap and the PNG 2007 Swap are perfectly hedged since the counterparty pays the Authority its actual variable bond rate on the related bonds. All the other swaps have a basis risk since under each of those swaps the Authority received a percentage of LIBOR or a percentage of, or spread to SIFMA to offset the actual variable bond rate or variable swap rate the Authority pays on any related bonds or on any basis swap. The Authority is exposed to basis risk should the floating rate that it receives on a swap be less than the actual variable rate the Authority pays on any related bonds; or in the case of the floating-to-floating fixed-spread basis swap, less than the variable rate paid to the swap counterparty. | |||
Depending on the magnitude and duration of any basis risk shortfall, the expected cost savings from a swap may not be fully realized. | |||
The 2001 swap is based on SIFMA rate minus 40 basis points (bps); similar to the LIBOR-based swaps, SIFMA minus 40 bps may not exactly hedge the underlying variable rate. As of June 30, 2009, the SIFMA rate was 0.356%; the SIFMA rate, minus 40 bps, was -0.046%; 60% of LIBOR was 0.192%; 65% of LIBOR was 0.208%; 100% of 10-Year LIBOR minus 41.4 bps was 3.910%; and 67% of 3-month LIBOR plus 147 bps was 2.1584%.The following is a summary of interest rates paid to and received from the counterparties as of June 30, 2009: Type of Derivative Swaption/ | |||
MP 2008 MA 2008 MA 2007 MAG 2009- MAG 2009- NGPrepay 1991 Swap Swap 2001 Swap Swap Swap Swap 1 Swap 2 Swap 2007 Swap Payments to counterparty 6.380% 4.250% 4.240% 3.925% 3.921% 3.720% 3.125% 3.129% 5.0475%Less, variable payments from counterparty 1.180% 0.192% -0.046% 0.208% 0.208% 3.910% 0.356% 0.356% 2.1584%Net interest rate swap payments 5.200% 4.058% 4.286% 3.717% 3.713% -0.190% 2.769% 2.773% 2.889%Add, variable-rate bond coupon payments 1.180% N/A 0.650% 0.150% 0.150% N/A 0.130% 0.240% 2.1584%Synthetic interest rate on bonds 6.380% 4.058% 4.936% 3.867% 3.863% -0.190% 2.899% 3.013% 5.048%65 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued) | |||
Termination risk -The Authority or the counterparty may terminate any of the swaps if the other party fails to perform under the terms of the contract. | |||
In addition, the Swap/Swaption provides the counterparty with an option to cancel the swap agreement if the consecutive 180-day averaged rate of the SIFMA index exceeds 7.0%. The counterparty for the 2001 Swap also has a cancellation option which can be executed by the counterparty at their discretion. | |||
If any of the swaps were terminated, any associated variable rate bonds would no longer be hedged to a fixed rate. If at the time of termination the swap has a negative fair value, the Authority would be liable to the counterparty for a payment equal to the swap's fair value.Rollover risk -Rollover risk is the risk that the swap contract is not co-terminus with the related bonds. The Authority is exposed to rollover risk on the Swap/Swaption and the 2001 Swap because the counterparty has the option to terminate the agreement prior to the maturity of the associated debt. In the event that this swap terminates, the Authority would be exposed to variable interest rates on the underlying bonds. The following debt is exposed to rollover risk: Associated Debt Issuance Debt Maturity Date Swap Termination Date STS 2001 Subordinate Refunding Series A July 1,2021 July 1, 2021 Swap payments and associated debt -Using rates as of June 30, 2009, debt service requirements of the Authority's outstanding variable rate debt and net swap payments are as follows. As rates vary, variable rate bond interest payments and net swap payments will vary.Variable-Rate Bon Principal In (Amounts in thousands) ds Interest Rate terest Swaps, Net Total Fiscal Year Ending June 30, 2010 2011 2012 2013 2014 2015-2019 2020-2024 2025-2029 2030-2034 2035-2039 28,790 18,495 41,120 42,440 74,770 274,690 132,395 61,975 108,560 267,520$ 1,050,755$ 5,792 5,578 5,028 4,463 3,418 9,720 2,372 1,779 4,796 6,335$ 49,281$ 32,407 31,465 29,593 27,654 24,389 86,356 36,096 27,764 22,940 12,182$ 330,846$ 38,199 37,043 34,621 32,117 27,807 96,076 38,468 29,543 27,736 18,517$ 380,127 66 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt Long-term debt outstanding at June 30, 2009 consisted of "new money" bonds, refunding bonds, and subordinate refunding bonds due in varying annual amounts through 2038. The new money bonds were issued to finance the purchase and construction or acquisition of the Authority's interest in each of the Projects. | |||
The subordinate refunding bonds were issued to refund specified new money bonds.In accordance with the bond indentures, the new money bonds and refunding bonds are special, limited obligations of the Authority. | |||
With the exception of the Magnolia Power Project B, Lease Revenue Bonds (City of Cerritos, California) 2003-1 ("Project B Bonds"), the bonds issued by each project are payable solely from and secured solely by interests in that project as follows:* Proceeds from the sale of bonds;" All revenues, incomes, rents and receipts attributable to that project and interest earned on securities held under the bond indenture or indentures; and" All funds established by the indenture or indentures. | |||
The Authority has agreed to certain covenants with respect to bonded indebtedness, including the requirement to enforce the natural gas, power, and transmission sales agreements with the participants. | |||
At the option of the Authority, all outstanding new money bonds and refunding bonds are subject to redemption prior to maturity, except for the 2006-1 Magnolia Revenue Bonds; the 2008A Canyon Power Revenue Notes; the 2002 Subordinate Refunding Series B Bonds, and portions of the 1988A Refunding Bonds, the 1992, the 2008A and the 2009A Subordinate Refunding Bonds issued for the Southern Transmission System; the 2002A San Juan Revenue Bonds; a total of $125.5 million of the Multiple Project Revenue Bonds; and the 2007 A & B Prepaid Natural Gas Project No. 1 Bonds.Variable rate debt includes debt with rates based on daily, weekly and long term rates as determined by a Remarketing Agent.The subprime mortgage problems led to the downgrade of bond insurers, the contraction of financial markets, and the loss of investor confidence resulting in uncertainty regarding the viability of the auction rate market and the variable debt market. The Authority implemented a refunding strategy in order to address the negative impact which these changes had on the marketplace and the Authority has successfully exited the failed Auction Rate Market and substantially reduced the risk on other financial transactions. | |||
Conditions continue to be challenging and no assurance can be given that that there will not be other issues that affect the financial markets.67 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued) | |||
A summary of changes in long-term debt follows (amounts in thousands): | |||
Total long-term debt at June 30, 2008 Total debt due within one year at June 30, 2008 Total debt at June 30, 2008 Principal payments Revenue bonds issued Bonds refuinded/defeased Refunding bonds issued Change in unamortized debt-related costs, net Total debt at June 30, 2009 Total debt due within one year at June 30, 2009 Total long-term debt at June 30, 2009 GENERATION TRANSMISSION Hoover Southern Palo Verde Uprating Magnolia Power Canyon Power Transnission Mead- Phoenix Mead- Adelanto Project Project San Juan Project Project Project System Project Project Project S 78,175 $ 14,890 $ 150,942 S 344,981 $ 714,407 $ 56,611 $ 180,277 12,250 1,425 10,550 7,930 31,075 3,425 11,400 90,425 16,315 161,492 352,911 745,482 60,036 191,677-(1,425) (10,550) (7,930) (31,075) (3,425) (11,400)104,000 125,005 (101,820) | |||
(223,205) | |||
-(121,065) | |||
(32,200) (107,750)99,830 258,070 -117,280 33,830 111,900 4,351 440 3 (1,916) 627 11,252 289 890 92,786 15,330 150,945 377,930 104,627 846,879 58,530 185,317 (10,360) (1,480) (11,115) (8,695) -(30,585) (2,870) (9,480)$ 82,426 S 13,850 S 139,830 S 369,235 S 104,627 S 816,294 $ 55.660 $ 175.837 NATURAL GAS MISC.Pinedale Prepaid Natural Multiple Project Barnett Project Project Gas Fond Total$ 94,242 $ 40,038 S 509,525 S 43,827 S 2,227,915 4,765 2,015 --84.835 99,007 42,053 509,525 43,827 2,312,750 (4,765) (2,015) --(72,585)229,005 (586,040)S- -620,910--(402) 1,275 16,809 94,242 40,038 509,123 45,102 2,520,849 (4,639) (1,956) (5,625) -(86,805)S 89,603 S 38,082 $ 503,498 $ 45,102 S 2,434,044 consists of subordinate refunding series bonds with variable interest rates and final Total long-teem debt at June 30, 2008 Total debt due within one year at June 30, 2008 Total debt at June 30, 2008 Principal payments Revenue bonds issued Bonds refunded/defeased Refunding bonds issued Change in unamrortized debt-related costs, net Total debt at June 30, 2009 Total debt due within one year at June 30, 2009 Total long-terem debt at June 30, 2009 Palo Verde Project -Debt maturities during 2017.The Palo Verde Escrow Restructure | |||
-In April 2009, the Palo Verde 1997B Deposit Installment Escrow was restructured and the proceeds from the sale of certain of its escrow securities were used to tender $94.8 million of the Palo Verde 1997B Refunded Bonds. The tender produced approximately | |||
$4.6 million of cash savings, net of accrued interest and transaction fees, which was distributed to the Palo Verde participants. | |||
The Palo Verde Project Refunding | |||
-In August 2008, the Authority issued the Palo Verde 2008 Subordinate Bonds in the aggregate principal amount of $99.8 million, consisting of $49.9 million principal amount of 2008 Series A Subordinate Refunding Bonds and $49.9 million of 2008 Series B Subordinate Refunding Bonds. The 2008 Subordinate Bonds were issued to provide funds, together with certain other available moneys, to refund all of SCPPA's outstanding 1996 Series B and C Bonds, remove the current bond insurance and replace them with variable rate debt obligations that are supported by a bank issued Letter of Credit. This transaction resulted in a net loss for accounting purposes of $11.6 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.68 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued) | |||
Hoover Uprating Project -Debt consists of refunding series bonds with fixed interest rates between 4.0% and 5.25% and a final maturity during 2017.San Juan Project -Debt consists of refunding series bonds with fixed interest rates between 5.0% and 5.5% and final maturities during 2020.Magnolia Power Project -Debt consists of revenue and refunding series bonds with variable and fixed interest rates between 3.0% and 5.25% with final maturities occurring in 2036.Magnolia Power Project Refunding | |||
-In April 2009, SCPPA issued $258.1 million of Magnolia Power Project A, Refunding Revenue Bonds, consisting of $146.5 million principal amount of Series 2009-1 and $111.5 million principal amount of Series 2009-2, together the "2009 Bonds". The 2009 bonds were issued to refund all of SCPPA's outstanding Magnolia Power Project A, Refunding Revenue Bonds, 2007-1; to make a payment to the counterparties of the 2007-1 Swap Agreements; and to pay the related costs of issuance. | |||
This transaction resulted in a net loss for accounting purposes of $14.2 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.In June 2007, the Authority issued $223.3 million of Magnolia Power Project A Refunding Revenue Bonds, Series 2007-1 as variable rate demand obligations that bore interest at a weekly interest rate. The bonds were issued to refund $202.4 million of the Magnolia Power Project A Bonds, Revenue Series 2003-1. The Authority also entered into two separate floating-to-fixed interest rate swap agreements allocated equally between two swap counterparties in connection with the Series 2007-1 Bonds which effectively fixed the rate of the 2007-1 Bonds.These Bonds were refunded in April 2009 by the 2009 Bonds and the related swaps amended and restated. (See Note 5)Of the outstanding Magnolia Power Project Revenue Bonds, $13.0 million of "Project B Bonds" are secured by lease rental payments to be made by the City of Cerritos (the "City") in connection with the lease of certain facilities and premises owned by the City to the Authority and the leaseback of such facilities and premises to the City. The Base Rental Payments will be equal to the principal and interest on the Project B Bonds. In accordance with the Assignment Agreement between the Authority and the Trustee, the Authority will assign certain of its rights under the Lease, including its right to receive the Base Rental Payments, to the Trustee for the benefit of the owners of the Project B Bonds.The City has covenanted to budget and appropriate sufficient funds to make all payments required to be made under the Lease. The Lease has a term of 55 years.Southern Transmission System Project -Debt consists of refunding and subordinate refunding series bonds with fixed interest rates ranging from 3.50% to 6.38% and final maturities occurring in 2027.69 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued) | |||
STS Project Refunding | |||
-On February 3, 2009, SCPPA issued $117.3 million of the Southern Transmission System Project Revenue Bonds, 2009 Subordinate Refunding Series A. These fixed rate bonds were issued to provide funds, together with other available funds, to refund the STS 1996 Subordinate Refunding Series B Bonds (the Refunded Bonds) and to pay the related costs of issuance for the 2009 Series A Bonds. These bonds will mature serially beginning July 1, 2019 with final maturity on July 1, 2023. The Refunded Bonds were redeemed on February 4, 2009. This transaction resulted in a net loss for accounting purposes of $21.9 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.On December 18, 2008, SCPPA issued $125.0 million of the Southern Transmission System Project 2008 Series B Subordinate Bonds. The bonds were issued for the purpose of financing the construction of certain improvements to the Intermountain Power Project -STS, specifically the upgrade of its two converter stations to increase the capacity of STS from its present rating of 1,920 MW to a new rating of 2,400 MW. These bonds will mature on July 1, 2027. The estimated true interest cost of the Revenue Bonds is 6.21%.On June 4, 2008, SCPPA issued $48.0 million of Southern Transmission Revenue Bonds, 2008 Subordinate Refunding Series A ("2008 Series A Bonds"). These fixed rate bonds were issued to refund $50.1 million of the Southern Transmission System Project Revenue Bonds, 2003 Subordinate Refunding Series A Bonds ("STS 2003 ARS") and to pay the related costs of issuance for the 2008 Series A Bonds. This transaction resulted in a net loss for accounting purposes of $6.6 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded. | |||
The associated 2003 interest rate swap was terminated on May 7, 2008. (See Note 5)Mead Phoenix/Mead Adelanto Projects -Debt consists of revenue and refunding series bonds with variable interest and fixed interest rates. Fixed interest rates range from 3.921% and 5.15% with final maturities occurring in 2020.MeadPhoenix/MeadAdelanto Project Refunding Bonds -On October 2, 2008, SCPPA issued the Mead-Adelanto | |||
& Mead-Phoenix 2008 Series A & B Revenue Bonds in the aggregate principal amount of $145.7 million, consisting of $104.8 million principal amount of Mead-Adelanto 2008 Series A, $7.1 million principal amount of Mead-Adelanto 2008 Series B, $31.3 million principal amount of Mead-Phoenix 2008 Series A, and $21 million principal amount of Mead-Phoenix 2008 Series B ("2008 Series A and B Bonds"). The bonds were issued to provide funds, together with other available funds, to refund the Mead-Adelanto Project Revenue Bonds, 2004 Series A and the Mead-Phoenix Project Revenue Bonds, 2004 Series A ("Refunded Bonds"), which consisted of insured auction rate bonds. These bonds will mature on July 1, 2020. The Refunded Bonds were redeemed from October 14 through October 17, 2008. This transaction resulted in a net loss for accounting purposes of $17.5 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.70 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued) | |||
Natural Gas Projects -Debt consists of revenue bonds with fixed interest rates ranging from 3.43% to 6.03%and final maturities occurring in 2032.Natural Gas Project Revenue Bonds -On February 6, 2008, SCPPA issued $141.1 million Natural Gas Project A Revenue Bonds, 2008 Series A in connection with the Natural Gas Projects. | |||
This fixed rate taxable bond transaction was issued to pay-off the outstanding | |||
$76 million of the expiring Natural Gas Project Revenue Bonds, Draw Down Series 2005A (the short-term bridge loan) and to provide for five years of capital drilling needs for both the Natural Gas Pinedale and Bamett Projects. | |||
Financing for the SCPPA Natural Gas Projects was executed as three separate transactions for each of the Project A Participants with final maturities in 2032.Prepaid Natural Gas Project No. 1 -Debt consists of revenue bonds with variable and fixed interest rates ranging from 5.0% to 5.25% and final maturity occurring in 2038.Gas Project Revenue Bonds Project No. 1 -In October 2007, SCPPA issued $504 million of Gas Project Revenue Bonds, Project No. 1, consisting of $303 million of Series 2007A Fixed Rate Bonds and $201 million of Series 2007B LIBOR Index Rate Bonds. These bonds were issued to finance prepayments for the purchase of a 30-year supply of natural gas under the Prepaid Natural Gas Sales Agreements, on behalf of the project participants. | |||
SCPPA also entered into an interest rate swap agreement with J. Aron in connection with the issuance of the Series 2007B Bonds to hedge the interest-rate risk on the LIBOR Floating-rate bonds. The Bonds are limited, no-recourse obligations of the Authority payable from and secured solely by the Trust Estate pledged under the Indenture, which includes payments to be made to the Authority by the project participants pursuant to the Gas Supply Contracts. | |||
The bonds are not subject to optional redemption by the Authority and final maturity will occur in November 2038. The estimated true interest cost is 5.02%.Canyon Power Project -Debt consists of revenue notes with a fixed interest rate of 2.50% which mature in December 2009. The Authority has the ability and the intent to refinance the 2008 Notes with long-term financing in fiscal year 2010.Canyon Power Project Revenue Notes -On December 11, 2008, SCPPA issued $104 million of the Canyon Power Project 2008 Series A Revenue Notes which matures on December 2, 2009. The 2008 Notes were issued to provide interim financing for the payment of a portion of the costs to develop, construct and acquire a peaking power plant with a generating capability of approximately 200 MW to be located in the City of Anaheim, California. | |||
These notes are not subject to optional or mandatory redemption prior to maturity. | |||
The estimated true interest cost of the Revenue Notes is 1.07%.Multiple Project Fund -Debt consists of revenue bonds with fixed interest rate of 6.75% and final maturity during 2013.71 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued) | |||
Debt Related Costs -Unamortized debt-related costs, net are as follows (amounts in thousands): | |||
Unamortized debt-related costs, net Palo Verde Project Southern Transmission System Project Hoover Uprating Project Mead-Phoenix Project Mead-Adelanto Project Multiple Project Fund San Juan Project Magnolia Power Project Canyon Power Project Prepaid Natural Gas Project No. 1 Loss on Refunding 7,044 73,224 809 4,297 12,732 2,851 14,074$ 115,031 Loss on Refunding June 30, 2009 (Premium)Discount$11,187 (164)683 1,871 5,098 (6,481)(3,559)(627)(4,678)$ 3,330 Total$ 7,044 84,411 645 4,980 14,603 5,098 (3,630)10,515 (627)(4,678)$ 118,361 Unamortized debt-related costs, net Palo Verde Project Southern Transmission System Project Hoover Uprating Project Mead-Phoenix Project Mead-Adelanto Project Multiple Project Fund San Juan Project Magnolia Power Project Prepaid Natural Gas Project No. 1 S 11,395 80,770 1,280 4,523 13,451 June 30, 2008 (Premium)Discount 14,893 (195)(140)(993)6,373 (7,796)(4,206)(5,080)Total S 11,395 95,663 1,085 4,383 12,548 6,373 (3,627)8,599 (5,080)4,169 12,805$ 128,393$ 2,946$ 131,339 Fair Value -The fair value of the Authority's long-term debt (including the current portion) is approximately | |||
$2.51 billion and $2.46 billion at June 30, 2009 and 2008, respectively. | |||
Management has estimated fair value based on the quoted market prices for the same or similar issues or on the current average rates offered to the Authority for debt of approximately the same remaining maturities, excluding the effect of a related interest rate swap agreement. | |||
Advance Refundings | |||
-The Authority has established irrevocable escrow trusts with the proceeds from issuance of subordinate refunding bonds. These investments will be used to pay specified revenue bonds called at scheduled redemption dates.72 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued) | |||
Defeasance of Debt -The Authority has defeased specified revenue bonds by placing the proceeds from the issuance of subordinate refunding bonds in irrevocable trusts to provide for all future debt service payments on the refunded bonds. The trust investments and related liability for bonds that are considered legally defeased are not included in the Authority's financial statements. | |||
At June 30, 2009 and 2008, $758.6 and $853.4 million, respectively, of revenue bonds outstanding are considered legally defeased.The refunded bonds constitute a contingent liability of the Authority only to the extent that cash and investments presently in the control of the refunding trustees are not sufficient to meet debt service requirements and are therefore excluded from the combined financial statements because the likelihood of additional funding requirements is considered remote.Debt Service -The scheduled debt service payments for future years ending June 30 are included in the table below. The variable rates used for the PV 2008 Subordinate Refunding Series A and B were 0.14% and 0.48%, respectively. | |||
The variable rates used for the MA and MP 2008 Subordinate Refunding Series A were 0.15%. The variable rates used for the MA and MP 2008 Subordinate Refunding Series B were 0.52% and 0.62%, respectively. | |||
The variable rates used for the STS 2000 and 2001 Subordinate Refunding Series A were 1.50% and 0.65%, respectively. | |||
The variable rates used for the MPP 2009-1 and MPP 2009-2 were 0.13% and 0.24%, respectively. | |||
All of the preceding variable rates were the rates at June 30, 2009. The variable rates are set by the bond-remarketing agent on a weekly basis based on economic conditions and bond ratings.73 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued)(Amounts in thousands) | |||
GENERATION TRANSMISSION 2010 Principal 2010 Interest 2011 Principal 2011 Interest 2012 Principal 2012 Interest 2013 Principal 2013 Interest 2014 Principal 2014 Interest 2015 -2019 Principal 2015 -2019 Interest 2020 -2024 Principal 2020 -2024 Interest 2025 -2029 Principal 2025 -2029 Interest 2030 -2034 Principal 2030 -2034 Interest 2035 -2039 Principal 2035 -2039 Interest Principal Interest Palo Verde$ 10,360 2,459 10,030 2,237 10,340 1,986 10,660 1,728 10,980 1,461 47,460 3,011 Hoover Uprating$ 1,480 738 1,540 678 1,600 614 1,670 537 1,755 455 7,930 858$San Juan 11,115 7,699 11,715 7,102 12,345 6,472 13,010 5,808 27,250 5,093 60,450 11,032 11,430 571$Magnolia Power 8,695 7,690 9,010 13,919 9,395 13,541 9,780 13,167 10,220 12,713 48,850 56,381 47,035 45,397 64,270 35,274 78,590 24,112 102,600 Canyon Power Project$ 104,000 2,535$Southern Trans-mission System 30,585 32,718 32,990 40,911 35,650 42,151 54,140 40,117 47,825 38,092 261,305 163,970 281,130 89,549 187,665 18,650$Mead-Phoenix 2,870 2,845 4,895 3,079 5,190 2,756 5,530 2,414 5,905 2,048 26,970 5,807 12,150 720$Mead-Adelanto 9,480 8,700 13,490 9,473 14,305 8,584 15,230 7,640 16,265 6,635 90,450 19,427 40,700 2,411---8,1U0 ----$ 99,830 $ 15,975 $ 147,315 $ 388,445 $ 104,000 $ 931,290 $ 63,510 $ 199,920$ 12,882 $ 3,880 $ 43,777 $ 230,303 $ 2,535 $ 466,158 $ 19,669 $ 62,870 74 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued) 2010 Principal 2010 Interest 2011 Principal 2011 Interest 2012 Principal 2012 Interest 2013 Principal 2013 Interest 2014 Principal 2014 Interest 2015 -2019 Principal 2015 -2019 Interest 2020 -2024 Principal 2020 -2024 Interest 2025 -2029 Principal 2025 -2029 Interest 2030 -2034 Principal 2030 -2034 Interest 2035 -2039 Principal 2035 -2039 Interest Principal Interest (Amounts in thousands) | |||
NATURAL GAS MISC.Prepaid Multiple Pinedale Barnett Natural Gas Project Fund Total$ 1,956 $ 4,639 $ 5,625 $ -$ 190,805 1,956 4,606 25,440 3,389 100,775 2,929 6,941 5,715 11,400 110,655 1,871 4,405 25,157 3,389 112,221 3,368 7,972 5,295 12,100 117,560 1,756 4,132 24,881 2,619 109,492 2,549 6,016 4,805 12,900 136,290 1,640 3,857 24,628 1,802 103,338 2,253 5,302 4,065 13,800 145,620 1,539 3,619 24,407 932 96,994 10,492 24,593 22,215 -600,715 6,092 14,320 118,927 399,825 7,191 16,889 44,065 460,590 3,704 8,721 110,798 261,871 5,516 12,974 81,025 351,450 1,914 4,520 94,700 155,058 3,784 8,916 130,185 221,475 440 1,041 68,203 93,796--201,450 304,050--27,800 -35,909$ 40,038 $ 94,242 $ 504,445 $ 50,200 $ 2,639,210$ 20,912 $ 49,221 $ 544,941 $ 12,131 $ 1,469,279 Note 7 -Notes Payable and Deferred Credits Notes payable and deferred credits consist mainly of Palo Verde Participants' overbillings from prior periods, a note secured from GE Capital Public Finance, Inc., to lease purchased spare parts inventory for the Magnolia Power Project, and swap-related transaction fees received in STS, Mead Adelanto, and Mead Phoenix Projects.The notes payable in the Palo Verde Project are to be paid through June 2017. These notes are unsecured, bear an interest rate of 4.97%, and are due in monthly payments of $0.6 million. On June 30, 2009, the remaining balance is $47.2 million. The note payable in the Magnolia Power Project has a coupon rate of 4.1%, with principal payments due monthly through July 2010. On June 30, 2009, the remaining balance is $2.6 million.The Authority received approximately | |||
$1.8 million and $5.9 million in upfront payments in connection with the execution of the 2004 Mead Phoenix and Mead Adelanto Swaps, respectively, to be deferred through 2020. The deferred balance is $0.8 million and $2.5 million, respectively, as of June 30, 2009. The 5-year suspension of the 2006 STS Constant Maturity Swap (CMS) in May 2008 netted a compensation of $3.7 million. The deferred balance is $3.0 million as of June 30, 2009. The 3-year suspension of the 2007 Mead Adelanto CMS in November 2008 netted a compensation of $4.1 million. The deferred balance is $3.2 million as of June 30, 2009. (See Note 5)75 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 7 -Notes Payable and Deferred Credits (Continued) | |||
Notes Payable and Deferred Credits Rollforward (amounts in thousands): | |||
Description PV prior year overbillings MPP GE spare parts STS 2006 Swap suspension Mead Phoenix 2004 Swap upfront fees Mead Adelanto 2004 Swap upfront fees Mead Adelanto 2007 Swap Suspension Amortization Payments/ | |||
of Surplus June 30, 2008 Additions Amortization Fund June 30, 2009$ 51,766 $ $ (4,998) $ 393 $ 47,161 2,629 (15) -2,614-3,745 (749) -2,996 886 -(116) -770 2,945 -(384) -2,561-4,123 (916) -3,207$ 58,226 $ 7,868 $ (7,178) $ 393 $ 59,309 Note 8 -Advances from Participants Advances from participants consist mainly of billings to participants related to acquisition, capital drilling, and inventory wherein the matching operating expenses will be recognized at a future date. Also, and specific only to the Natural Gas Pinedale Project, advances held by the project are funds from LADWP and TID, both owners independent of SCPPA, are for their share of operating costs and capital expenditures pursuant to their respective Agency Agreements. | |||
Advances from participants rollforward (amounts in thousands): | |||
Description NG Pinedale advances from participants NG Barnett advances from participants MPP advances from participants June 30, 2008 Activity June 30, 2009$ 38,245 $ 11,144 $ 49,389 11,602 309 11,911 22,124 (6,599) 15,525$ 71,971 $ 4,854 $ 76,825 Note 9 -Net Assets (Deficit)The Authority's billing amounts to the participants are determined by its Board of Directors and are subject to review and approval by the participants. | |||
Billings to participants are designed to recover "costs" as defined by the power sales, natural gas sales, and transmission service agreements. | |||
The billings are structured to systematically provide for debt service requirements, operating funds and reserves in accordance with these agreements. | |||
The accumulated difference between billings and the Authority's expenses calculated in accordance with accounting principles generally accepted in the United States of America are presented as net assets (deficit). | |||
It is intended that this difference will be recovered in the future through billings for repayment of principal on the related bonds.76 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 9 -Net Assets (Deficit) (Continued) | |||
Net assets (deficit) are comprised of the following (in thousands): | |||
Fiscal Year Fiscal Year June 30, 2007 2008 Activity June 30, 2008 2009 Activity June 30, 2009 GAAP items not included in billings to participants Depreciation of plant Nuclear fuel amortization Decommissioning expense Amortization of bond discount, debt issue costs, and loss on refundings Interest expense Loss on defeasance of bonds Bond requirements included in billings to participants Operations and maintenance, net of investment income Costs of acquisition of capacity Billings to amortize costs recoverable Reduction in debt service billings due to transfer of excess funds Principal repayments Other Multiple Project Fund net assets Projects' Stabilization Fund net assets (1,054,926) | |||
$(19,548)(176,325)(670,005)(67,662)(85,827)305,039 14,773 382,050 (69,341) $ (1,124,267) | |||
$ (67,190) $ (1,191,457) 13,688 (5,860) (5,860)(11,779) (188,104) | |||
(8,572) (196,676)(17,516)2,826 8,091 (1,411)(687,521)(64,836)(85,827)313,130 13,362 382,050 (24,674)7,845 398 (1,466)(712,195)(56,991)(85,827)313,528 11,896 382,050 (90,020) -(90,020) -(90,020)1,060,723 87,628 1,148,351 82,173 1,230,524 100,019 59,315 159,334 8,713 168,047 (301,709) 71,501 (230,208) | |||
(2,773) (232,981)3,984 (1,255) 2,729 (1,348) 1,381 80,642 6,228 86,870 2,285 89,155$ (217,083) | |||
$ 76,474 $ (140,609) | |||
$ (1,836) $ (142,445)Note 10 -Commitments and Contingencies Industry Restructuring | |||
-Since the passage of Assermibly Bill 1890 (the "Bill") in September 1996, the electric industry in California continues to remain uncertain. | |||
The deregulation experiment has, for the most part, been abandoned. | |||
The public power participants of SCPPA were not required to comply with the Bill's provisions. | |||
Public Benefits -The members continue to collect the public benefit charge through existing rate structures and have instituted in excess of $921 million of programs to benefit their customers. | |||
More than $300 million has been spent on conservation and energy efficiency programs, public educational programs, research and development, and low income rate subsidies. | |||
The decisions on how these funds are allocated are made by the local governing authority, in most cases this is the city council.77 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued) | |||
Executive Action and State Legislation | |||
-During the 2005-06 California State Legislative Session, the Governor issued several Executive Orders and the Legislature approved several bills affecting the utility industry. | |||
In general, these bills provide for reduced greenhouse gas emission standards and greater investment in energy-efficient and environmentally friendly generation alternatives through more stringent renewable resource portfolio standards. | |||
The following is a brief summary of certain of these bills: Greenhouse Gas Emissions | |||
-Executive Order S-3-05 placed an emphasis on efforts to reduce greenhouse gas emissions by establishing statewide greenhouse gas reduction targets. The targets are: (i) a reduction to 2000 emissions levels by 2010; (ii) a reduction to 1990 levels by 2020; and (iii) a reduction to 80% below 1990 levels by 2050. The Executive Order also called for the California Environmental Protection Agency to lead a multi-agency effort to examine the impacts of climate change on California and develop strategies and mitigation plans to achieve the targets. Executive Order S-06-06 establishes the target of 20% for electricity generated from in-state biomass, an element in meeting 2010 and 2020 Renewable Portfolio Standard requirements and integral to the reduction of greenhouse gas emissions. | |||
Assembly Bill 32, the Global Warming Solutions Act of 2006 (the "GWSA") became effective as law on January 1, 2007. The GWSA prescribed a statewide cap on global warming pollution with a goal of reaching 1990 greenhouse gas emission levels by 2020. In addition, the GWSA establishes a mandatory reporting program for all investor-owned utilities (IOUs), municipal utilities and other load-serving utilities to inventory and report greenhouse gas emissions to the California Air Resources Board (CARB) and requires CARB to adopt regulations for significant greenhouse gas emission sources (allowing CARB to design a"cap-and-trade" system) and gives CARB the authority to enforce such regulations beginning in 2012.SCPPA participants may be adversely affected if CARB implements an auction type cap-and-trade system, which would require the participants to purchase carbon credits to offset the higher than average carbon emissions of their respective resource portfolios. | |||
CARB adopted a "scoping plan" to reduce greenhouse gas emissions which includes a mixed approach; market structures, regulation, fees and voluntary measures. | |||
The scoping plan includes a cap-and-trade system that covers 85% of all California greenhouse gas emissions and will be implemented in coordination with the Western Climate Initiative regime, which is a regional zone consisting of seven states and three Canadian provinces that is in the process of establishing a greenhouse gas trading framework. | |||
CARB has begun developing regulations for greenhouse gas emissions limits and reduction measures. | |||
The regulations will go into effect and be enforceable beginning January 1, 2012.In addition to the GWSA, Senate Bill 1368 also became effective as law on January 1, 2007 and provides for an emission performance standard, restricting new investments in baseload fossil fuel electric generating resources that exceed the rate of emissions for greenhouse gases for existing combined-cycle natural gas baseload generation and seeks to allow the California Energy Resources Conservation and Development Commission (CEC) to establish a regulatory framework necessary to enforce the greenhouse gas emission performance standard for publicly-owned utilities. | |||
The CPUC has the similar responsibility for the IOUs. The revised proposed CEC regulations were approved by the Office of Administrative Law on October 16, 2007.The regulations promulgated by the CEC prohibit any investment in baseload generation that does not meet the emission performance standard of 1,100 pounds of C02 per MWh of electricity, with the limited exceptions for routine maintenance, requirement of pre-existing contractual commitments, or threat of significant financial harm.78 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued) | |||
Meanwhile, Assembly Bill 1925 requires the CEC to develop a cost effective strategy for the geologic sequestration and management of industrial carbon dioxide. Also, Senate Bill 1686 authorizes the Wildlife Conservation Board (the "WCB") to take into account the potential of forestlands to beneficially reduce or sequester greenhouse gas emissions when it prioritizes funds available for proposed acquisitions. | |||
Senate Bill 1686 also specifies that the WCB may use policies, protocols and other relevant information developed by the California Climate Action Registry in determining a project's potential to reduce or sequester greenhouse gas emissions. | |||
Energy Procurement and Efficiency Reporting | |||
-Senate Bill 1037 requires that each municipal electric utility, including certain SCPPA participants, prior to procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and renewable resources that are cost effective, reliable and feasible. | |||
Senate Bill 1037 also requires each municipal electric utility to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction programs.Further, California Assembly Bill 2021 ("AB 2021") requires that the publicly-owned utilities establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a ten-year horizon. Future reporting requirements under AB 2021 include: (i) the identification of sources of funding for the investment in energy efficiency and demand reduction programs; ii) the methodologies and input assumptions used to determine cost-effective; and (iii) the results of an independent evaluation to measure and verify energy efficiency savings and demand reduction program impacts. The information obtained from the local publicly-owned utilities is being used by the CEC to present the progress made by the publicly-owned utilities on the State's goal of reducing electrical consumption by 10% in ten years and amelioration with the greenhouse gas targets presented in Executive Order S-3-05. In addition, the CEC will provide recommendations for improvement to assist each local publicly-owned utility in achieving cost-effective, reliable, and feasible savings in conjunction with the established targets for reduction." Renewable Portfolio Standard (RPS) -Senate Bill 1078 (SB 1078), which became law on January 1, 2003, requires that the IOUs adopt a Renewable Portfolio Standard ("RPS") to meet a minimum of 1% of retail energy sales needs each year from renewable resources and to meet a goal of 20% of their retail energy needs from renewable energy resources by the year 2017. SB 1078 also directed the State's municipal electric utilities to implement and enforce an RPS that recognizes the intent of the Legislature to encourage development of renewable resources, taking into consideration the impact on a utility's standard on rates, reliability, financial resources, and the goal of environmental improvement. | |||
Senate Bill 107, which became law on January 1, 2007, requires IOUs to have 20% of their electricity come from renewable sources by 2010 and prescribes that municipal utilities meet the intent of the legislation. | |||
Executive Order S-14-08, issued by Governor Schwarzenegger on December 18, 2008, provides that the Renewable Portfolio Standard target established for California shall require retail electricity sellers to serve 33% of their loads with eligible renewable energy resources by 2020. Legislative and regulatory proposals, including Senate Bill 14 and Assembly Bill 64 currently awaiting action by the Governor, could increase this mandate to 33% or higher for all utilities, including municipal utilities. | |||
SCPPA participants have embraced the objective of increasing renewable resources within their portfolios. | |||
However, the costs of renewable generation, infrastructure, including transmission upgrades and additions, and other requirements will have additional significant financial implications on SCPPA participants. | |||
79 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued) | |||
Since the implementation of Senate Bill 1078, the CPUC and the CEC have taken a number of actions that have had an impact on the renewable energy goals set by the legislation. | |||
In order to overcome the challenges associated with meeting accelerated RPS goals, the CPUC and the CEC supported the implementation of a renewable energy certificate (REC) trading system to meet the accelerated RPS goals. SB 107 allows this flexibility, with the condition that the energy is delivered to an in-state trading hub. In parallel, pursuant to Senate Bill 1078, the CEC, collaboratively with the Western Governors' Association and the Western Electricity Coordinating Council, has established the Western Renewable Energy Generation Information System (WREGIS), which is expected to ensure the integrity of RECs and prevent the double counting of the certificates. | |||
On October 28, 2008, a CPUC Administrative Law Judge in Rulemaking 06-02-012 issued a proposed decision, which if approved by the CPUC, would authorize the use of WREGIS in tracking, and approving the purchase and sale of, tradable renewable energy credits for the IOUs. SCPPA and certain participants have elected to use WREGIS to transfer and account for the RECs associated with renewable energy procured by SCPPA on behalf of certain participants. | |||
Solar Power -Senate Bill 1 (also known as the "California Solar Initiative"), which became law on January 1, 2007, requires municipal utilities, including SCPPA participants, to establish a program supporting the stated goal of the legislation to install 3,000 MW of photovoltaic energy in California. | |||
Municipal utilities are also required to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer funded incentives. | |||
The legislation gives a municipal utility the choice of selecting an incentive based on the installed capacity, starting at $2.80 per watt, or based on the energy produced by the solar energy system, measured in kilowatt-hours. | |||
Incentives would be required to decrease at a minimum average rate of 7% per year. Municipal utilities also have to meet certain reporting requirements regarding the installed capacity, number of installed systems, number of applicants, amount of awarded incentives and the contribution toward the program's goals. Total statewide expenditures for municipal utilities are expected to be approximately | |||
$22 million.The effect of these developments in the California energy markets on SCPPA participants cannot be fully ascertained at this time. Most of the SCPPA participants have made investments in gas-fired peaking or base-load generation located in Southern California. | |||
Also, volatility in energy price in California may return due to a variety of factors which affect both the supply and demand for electric energy in the western United States. This price volatility may contribute to greater volatility in the revenues of their respective electric systems from the sale (and purchase) of electric energy and, therefore, could materially affect each of SCPPA's participants financial condition. | |||
The very competitive prices for a portion of gas supply and additional services provided by SCPPA are intended to maintain and improve the competitive position of the participants. | |||
Also, each participant undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure.Federal Energy Legislation | |||
-The Energy Policy Act of 2005 ("EPACT 2005") addresses a wide array of energy matters that could affect the entire electric utility industry, including the electric system of certain SCPPA participants. | |||
EPACT 2005 requires the creation of an electric reliability organization (ERO) to establish and enforce, under FERC supervision, mandatory reliability standards to increase system reliability and minimize blackouts. | |||
Failure to comply with such mandatory standards exposes a utility to significant fines and penalties by the ERO.80 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued) | |||
EPACT 2005 contains provisions designed to increase imports of liquefied natural gas and incentives to support renewable energy technologies, including a new program for tax credit bonds for local governments, like a majority of SCPPA participants, to finance certain renewable energy facilities in addition to extending the Price-Anderson Act for 20 years which concerns nuclear power liability protection and provides incentives for the construction of new nuclear plants. Neither SCPPA nor any of certain participants is able to predict at this time the impact that EPACT 2005 will have on the operations and finances of their respective electric systems or the electric utility industry generally. | |||
NERC Reliability Standards | |||
-NERC Reliability Standards are mandatory and enforceable Reliability Standards which apply to users, owners and operators of the Bulk-Power System. Potential monetary sanctions include fines of up to $1 million per violation per day. Penalties assessed for violations of any Reliability Standards can be calculated without collecting the penalty if circumstances are warranted. | |||
ISO FERC FILINGS MRTU -The ISO's Market Redesign and Technology Upgrade (MRTU) tariff amendment includes provisions intended to perform effective congestion management in the ISO day-ahead market by enforcing all transmission constraints so as to establish feasible forward transmission schedules, create a day-ahead market for energy, automate real-time dispatch so as to balance the system and manage congestion in an optimal manner; and ensure consistency in the allocation of transmission resources to grid users and the pricing of transmission service and energy. The ISO has continued to file numerous amendments to the MRTU tariff which was implemented on April 1, 2009. Without a significant period of actual experience operating under MRTU, it is not known how the restructured ISO markets will ultimately affect SCPPA and certain participants. | |||
It is not possible to predict the actual level of costs before gaining more actual operational experience under MRTU.No adequate assurances can be given by SCPPA that unforeseen events will not occur under MRTU, particularly during the period of implementation and initial operation; thus, it is impossible to predict at this time the ultimate impact of MRTU on SCPPA, certain participants and the California electric utility industry generally. | |||
Resource Adequacy Requirements: | |||
AB 380, which became law on January 1, 2006, requires the CPUC to establish resource adequacy requirements for all load-serving entities (LSEs) within the CPUC's jurisdiction and requires publicly-owned utilities to procure adequate resources to meet their peak demands and reserves. | |||
In October 2005, the CPUC issued a decision stating that LSEs under its jurisdiction would be required to demonstrate that they have acquired capacity sufficient to serve their forecast retail customer load plus a 15-17%reserve margin.81 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued) | |||
The ISO filed a tariff amendment with FERC which incorporated most of the CPUC resource adequacy requirements in addition to providing significant deference to the local governing boards of municipal and cooperative entities in establishing qualifying reliability standards. | |||
These requirements were expanded by adding local capacity requirements to make certain that sufficient generating capacity is procured in particular areas where it is lacking. To the extent that a LSE fails to meet such a requirement, it is subject to payment of ISO procurement costs of replacement capacity. | |||
To the extent that shortfall cannot be attributed to a specific LSE, the costs will be spread as market uplift. While the magnitude of backup procurement costs are still subject to FERC order and to market conditions, these risks will apply in the same manner to all LSEs.The CPUC is currently studying the possibility of meeting future capacity needs by either extending the existing Resource Adequacy program with some modification or by instituting centralized capacity markets. It is premature to predict the outcome of that proceeding, although it is likely that any outcome will be extended to all LSEs through the ISO tariff. While either path carries some risk of increased costs for the market, it is too soon to predict what the decision will be or the details of implementation. | |||
American Recovery and Reinvestment Act of 2009 -The American Recovery and Reinvestment Act of 2009 is an economic stimulus bill which includes a number of investments and tax incentives for certain energy-related projects. | |||
SCPPA is reviewing the provisions of the Act to determine what impact it may have on future projects and its participants. | |||
The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. | |||
Any factors including those mentioned above could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways. SCPPA is unable to predict what impact such factors will have on the business operations and financial condition of SCPPA participants but the impact could be significant. | |||
Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources of public domain.Nuclear Spent Fuel and Waste Disposal -Under the Nuclear Waste Policy Act, the Department of Energy (DOE) was to develop the facilities necessary for the storage and disposal of spent fuel and to have the first such facility in operation by 1998. That facility was to be a permanent repository, but the DOE has announced that such a repository could not be completed before 2015. There is ongoing litigation with respect to the DOE's ability to accept spent nuclear fuel and no permanent resolution has been reached to date.In July 2002, a measure was signed into law designating the Yucca Mountain in the state of Nevada as the nation's high-level nuclear waste repository. | |||
This meant that the DOE could then file a construction and operation plan for Yucca Mountain with the Nuclear Regulatory Commission (NRC). Due to a series of setbacks including scientific challenges by the National Academy of Science, falsified research data by consultants, delays in submitting the construction application to the Nuclear Regulatory Commission, the DOE expected that the Yucca Mountain site would be open no earlier than 2015.82 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued) | |||
In June 2008, the Department of Interior submitted to the Nuclear Regulatory Commission a license application to construct the repository. | |||
In 2009, the federal government decided to cut off all the appropriated funds for the development of the repository at Yucca Mountain at the urge of the Congress except a small budget allocation for the closing of the project. The repository at Yucca Mountain was essentially declared defunct. A commission will be formed to search for an alternative to the repository at Yucca Mountain. | |||
There are questions about the continued collection of fees contributing to the Nuclear Waste Fund that currently has about $22 billion.The Palo Verde Operating Agent on behalf of the co-owners began litigation proceedings with the Department of Interior to recover the costs of storing spent fuel at Palo Verde because the federal government failed to honor the contract to take over and dispose spent fuel.The spent fuel storage in the wet pool at PVNGS exhausted its capacity in 2003. A Dry Cask Storage Facility (the "Facility"), also called the Independent Spent Fuel Storage Facility, was built and completed in 2003 at a total cost of $33.9 million (about $2 million for the Authority). | |||
In addition to the Facility, the costs also account for heavy lift equipment inside the units and at the yard, railroad track, tractors, transporter, transport canister, and surveillance equipment. | |||
The Facility has the capacity to store all the spent fuel generated by the PVNGS plant until 2026. To date, over 63 casks, each containing 24 spent fuel assemblies were placed in the Facility. | |||
The current plan calls for the removal of between 240 and 288 fuel assemblies from the units to the Facility every year. The costs incurred by the procurement, packing, preparation and transportation of the casks are included as part of the fuel expenses, and will cost approximately | |||
$13 million a year (about $760,000 for the Authority). | |||
Storing spent fuel at Palo Verde is now considered indefinite with undetermined costs until spent fuel is removed off site.Nuclear Insurance | |||
-The Price-Anderson Act (the "Act") requires that all utilities with nuclear generating facilities share in payment for claims resulting from a nuclear incident. | |||
The Act limits liability from third-party claims to approximately | |||
$12.5 billion per incident. | |||
Participants in the Palo Verde Nuclear Generating Station currently insure potential claims and liability through commercial insurance with a $300 million limit; the remainder of the potential liability is covered by the industry-wide retrospective assessment program provided under the Act. This program limits assessments to $117.5 million per reactor for each licensee for each nuclear incident occurring at any nuclear reactor in the United States; payments under the program are limited to $17.5 million per reactor, per incident, per year to be indexed for inflation every 5 years. Based on the Authority's 5.91% interest in Palo Verde, the Authority would be responsible for a maximum assessment of $20.8 million per incident for all 3 units, limited to payments of $3.1 million per incident, per year.In addition to the above, the Authority may be subject to retroactive insurance assessments for its participation in the Neil Property Insurance Program in the amount of $2.9 million.83 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued) | |||
Other Legal Matters -Claims and a lawsuit for damages have been filed with the Authority, Intermountain Power Authority (the "IPA") and LADWP seeking $100 million in special damages and a like amount in general damages. The claimants allege, among other things, that due to improper grounding of the transmission line of STS, their dairy herds were damaged and the value of their land was diminished. | |||
The claimants also seek injunctive relief. The Authority believed these claims were substantially without merit as to itself because the Authority has no ownership or operational control over the subject transmission lines, and merely acted as a financing agency with respect to STS. In July 2003, the Authority, IPA, and LADWP filed a motion to dismiss, or in the alternative, a motion to stay based upon forum non conveniens, in which the defendants argued that the case had little connection with California and should be heard in Utah. The Los Angeles Superior Court granted the motion and in a 2004 unpublished opinion the California Court of Appeal affirmed this matter on appeal. A Petition for Review was subsequently denied by the California Supreme Court.In February 2005, the remaining Utah plaintiffs filed a complaint in the Third Judicial District Court in and for Salt Lake County, Utah, which alleged facts similar to those alleged in California. | |||
The action was later transferred to the District Court in and for Millard County, Utah. SCPPA moved the Utah court to dismiss the action as to SCPPA. This motion resulted in the dismissal of certain of the causes of action in the complaint against SCPPA however other causes of action still remain. During May 2008, SCPPA and a number of other defendants filed several motions for summary judgment in the District Court of Millard County, Utah. These May 2008 motions were argued on July 1, 2008. However, the plaintiffs motion to disqualify the trial judge for allegedly showing bias against the plaintiffs, which was filed on July 22, 2008, caused the activity in the case to cease, as required under Utah law, until the motion could be heard by the Presiding Judge. The Presiding Judge of the Fourth Judicial District denied the disqualification motion on September 17, 2008, the trial judge issued rulings on the May 2008 motions, granting the motion to prohibit any award of punitive damages as against the Los Angeles Department of Water and Power (LADWP), the Intermountain Power Authority (IPA), and SCPPA, dismissing the claims of one plaintiff, dismissing a claim for negligence per se as against the LADWP, IPA, and SCPPA, denying without prejudice certain other motions for dismissal of certain other causes of action and certain plaintiffs, granting the motion of another defendant to be dismissed from the case, but denying SCPPA's motion for summary judgment.In June 2008, the defendants joined in motions to exclude the testimony of the plaintiffs' expert witnesses, and asked for an evidentiary hearing, given the importance of expert testimony to the case. The court heard this motion during June 2009. In August 2009, the court granted the motion to exclude certain parts of the plaintiffs expert testimony. | |||
At the current time, it is felt that this is an important element of the plaintiffs' case and that it may be difficult for the plaintiffs to carry this case through to conclusion before the jury without such testimony. | |||
However, notwithstanding this development, the ultimate outcome of this litigation cannot be predicted at this time. No provision for this litigation matter has been included in the accompanying financial statements. | |||
84 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued) | |||
On February 12, 2009, SCPPA was served in the case of Wakefield | |||
: v. Devon Energy Production Company, L.P., Collins & Young holdings L.P.; Southern California Public Power Authority; and Turlock Irrigation District arising out of its non-operating working interest in oil and gas production property situated in the Barnett Shale in certain Texas counties including Hood County, Texas. Devon Energy Production Company (Devon) acts as SCPPA's operator with respect to all oil and gas operations upon this property. | |||
The plaintiff in this lawsuit has alleged that Devon entered into certain pooling arrangements with adjacent property owners, through which it combined the lease pertaining to the plaintiffs property with other less productive leases, resulting in an increase in royalties to these adjacent property owners and a corresponding diminution of plaintiffs royalties. | |||
The complaint alleges that the pooling arrangement entered into by Devon violated the lease which had been entered into with the plaintiff and was done in bad faith. The complaint seeks declaratory relief to invalidate the pooling arrangement and seeks damages and attorney's fees. The complaint does not specify the amount of damages sought. The case is currently pending before the Hood County District Court and SCPPA has filed an answer denying the allegations of the plaintiff. | |||
At the current time, the case is proceeding through traditional pretrial proceedings and is currently going through the discovery stages of the proceedings. | |||
It cannot be predicted how this case may be resolved at the current time, however, SCPPA has been advised that these cases are not uncommon and usually settle. No provision for this litigation matter has been included in the accompanying financial statements. | |||
The Authority is also involved in various other legal actions. In the opinion of management, the outcome of such litigation or claims will not have a material effect on the financial position or the results of operations of the Authority or the respective separate Projects.85 SUPPLEMENTAL INFORMATION SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Decom- General Debt Service missioning Escrow Reserve Issue Operating Reserve & Revenue Fund Trust Fund Account Account Account Account Contingency Fund Total$ -$ 149,487 $ 311,546 $ S 4,457 $ 72,354 $ 25,502 $ -$ 563,346 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from power sales Distribution of revenue Bond proceeds 2008A&B 1997A bond tender proceeds Transfer from escrow fund for principal and interest payments Total Deductions Construction expenditures Operating expenditures Bond issue costs Fuel costs Payment of principal Interest paid -non escrow Premium and interest paid on investment purchases Payment of principal and interest paid escrow Total 5,757 12,245 113 -102,562 (1 (61,117) 6 1 65 3,000 22 12 64 (23) (72) (425)703 91 -(794) 1,31-88,26 12,299 (89,59 15,150 (3,242)116,381 61,339 7 21,778 302 4 69 88,269 0)98,230 62,138 641 3,704 -(24,373) -20,669 ---3,704 5,870 29,317 5,945 148,963 64,619 12,299 270,717 13,247.3 798 43,391 12,256 13,247 43,394 12,256 2,444 2,444 37 I 38 3,704 -102,518 137,050 243,272 3,704 40 102,518 140,292 55,647 13,248 314,651$ -$ 155,317 $ 238,345 $ 5,945 $ 13,128 $ 81,326 $ 24,553 $ $ 519,412 Balance at June 30, 2009 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $66 and $83 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
86 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVER UPRATING PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Debt Service General Fund Reserve Fund Operating Fund Revenue Fund Total S 1,078 $ 1,703 $ 1,438 $ -$ 4,219 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from power sales Distribution of revenue Other Total Deductions Operating expenses Payment of principal Interest paid Total Balance at June 30, 2009 3 8 35 11 34 5 73 24 2,404 2,404 2,445 115 (2,560) --(24) 58 34 2,445 90 2,535 228 228 1,425 -1,425 796 -796 2,221 -228 2,449$ 1,302 $ 1,703 $ 1,300 $ $ 4,305 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $16 and $18 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
87 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SAN JUAN PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Balance at June 30, 2008 Additions Investment earnings Discount on investments Distribution of investment earnings Revenue from power sales Distribution of revenues Other Total Deductions Operating expenses Construction expenses Payment of principal and interest -escrow Payment of principal Interest paid -non-escrow Total Debt Service Reserve & Cost of Acquisition Reserve Revenue Operating Contingency Issuance Escrow Account Account Fund Fund Fund Fund Account Total$ 4,135 $ 21,323 $ $ 6,988 $ 12,714 $ (1) $ 75,379 $ 120,538 53 1,080 9 14 265 3,076 4,497 48 -1 34 76 -159 (101) (1,080) 1,600 (48) (341) 30-75,981 --75,981 18,814 (77,591) 55,681 3,095 1 -3,772 --(3,772) -22,586 55,681 3,095 1 (696) 80,667-60,027 --60,027--5,932 5,932 3,772 -3,772 10,550 10,550 8,266 --8,266 22,588 -60,027 5,932 88,547$ 4,133 $ 21,323 $ $ 2,642 $ 9,877 $ $ 74,683 $ 112,658 Balance at June 30, 2009 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $28 and $27 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
88 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MAGNOLIA POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Debt Debt Service Operating General Service Reserve Project Reserve Reserve and Operating Revenue Reserve Account Account Fund Fund Contingency Fund Fund Fund Escrow Fund Total$ 15,606 $ 29,922 $ 3,725 $ 4,919 $ 9,888 $ 8,770 $ -$ 9,485 S 214,282 $ 296,597 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Transfer of funds for debt service payment Bond proceeds 2009-1 Bond proceeds 2009-2 Transfer from/to escrow fund for principal and interest payment Receipt from participants Distribution of revenues Total Deductions Construction expenditures Operating expenses Liquidity | |||
& Remarketing Fees Interest paid -non-escrow Premium and interest on investment purchases Payment of principal Debt issuance costs Payment of principal and interest -escrow Total Balance at June 30, 2009 49 87 (138)10,119 1,353 (1,067)9,647 7,348 75 20 228 1 (229)384 2 (371)8 26 (34)10 1,838 54 73 1 9,717 (10,119)119,256 86,707 11,878 209 111,535 17,632 17,480 (1,120) (16,871) -17,991 -----64,856 -64,856 25,138 -(600) 1,911 40,271 (66,704) (16) -34,135 410 34,607 1,926 40,271 112 223,552 335,013 (120)2,327 386 45,761 266 45,761 1,482 20,208 1,482 17,881 (2) 15 13 7,930 -7,930-32,318 -32,318 10,119 ----223,933 234,052 37,410 34,540 386 45,761 -223,933 342,030$ 12,331 $ 30,332 $ 3,792 $ 4,919 $ 11,428 $ 3,280 $ $ 9,597 $ 213,901 $ 289,580 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $35 and $34 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
89 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY CANYON POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Balance at June 30, 2008 Additions Investment earnings Discount on investments Bond Proceeds 2008A Total Deductions Construction expenses Debt issue costs Total Balance at June 30, 2009 Project Fund Total$ $199 199 3 3 105,505 105,505 105,707 105,707 67,444 67,444 429 429 67,873 67,873$ 37,834 $ 37,834 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable or unrealized gain (loss) on investments. | |||
90 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN TRANSMISSION SYSTEM PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Upgrade General Construction Escrow Fund Reserve Fund Issue Fund Fund Operating Fund Revenue Fund Total$ 80 $ 2,118 $ 81,183 $ -$ 4,395 $ -$ 87,776 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from transmission sales Distribution of revenue Bond proceeds 2008B Bond proceeds 2009A Transfer from/to escrow fund for principal and interest payment Other transfers Other receipts Total Deductions Construction expenses Operating expenses Payment of principal Interest paid Arbitrage rebate Liquidity | |||
& remarketing fees Debt issuance costs Payment of principal and interest -escrow Total 21 2,946 6 289 (27) (3,235)207 45 110,000 43 30 (73)16,712 3,488 119,811 (119,891)68,281 1,279 11,334 11 7 3,335 85,128 (88,481)1,250 (1,250)3,228 377 85,128 111,279 132,395 (1,254) 121,145 287 963 (80) 2,521 203,003 110,252 16,712 332,408 20,342 13,989 31,075 39,398 20,342 13,989 31,075 39,398 25 25 1,691 1,691 2,540 2,540 121,065 --121,065-195,769 20,342 14,014 230,125$ $ 4,639 $ 88,417 $ 89,910 $ 7,093 $ $ 190,059 Balance at June 30, 2009 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $41 and $49 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
91 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-PHOENIX PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Debt Debt Service Reserve & Cost of Revenue Service Reserve Operating Contingency Surplus Issuance Escrow Fund Account Account Fund Fund Fund Fund Issue Fund Fund Total$ -$ 4,068 $ 5,915 $ 799 $ 1,621 $ 1,749 $ -$ -$ -$ 14,152 Balance at June 30, 2008 Additions Investment earnings Discount on investment earnings Distribution of investment earnings Transmission revenue Distribution of revenues Transfer from/to escrow for principal and interest payment Bond proceeds 2008A and 2008B Other transfers Total Deductions Construction expenditures Operating expenses Principal payment Interest paid Debt issuance costs Principal and interest -escrow fund Premium and interest paid on investment purchase Total Balance at June 30, 2009 7 503 2 202 7,755 (8,129)14 (21)5,649 (68)2 (4)1,188 92 3-13 (92) (16)2,945 (1,747)I 608 29 7,755 (1)94 31,325 1,781 499 (33,830) 225-----33,830 -33,830 172 906 (1,035) 146 (225) --37,880 1,181 1,334 2,945 (1,747) 629 -42,222 3,339 1,921 3,425 3,311 32,200 3,339 1,921 3,425 3,441 499 32,200 130 499-24 ---24 38,936 24 1,921 3,339 629 44,849$ $ 3,012 $ 7,072 $ 212 $ 1,227 $ 2$ $ $ $ 11,525 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $13 and $15 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
92 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-ADELANTO PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Cost of Debt Service Debt Service Operating Reserve & Revenue Issuance Account Reserve Fund Fund Contingency Fund Surplus Fund Issue Fund Fund Total$ 11,734 $ 16,267 $ 511 $ 6,383 $ -S 3,189 $ -$ -$ 38,084 Balance at June 30, 2008 Additions Investment earnings Discount on investment earnings Distribution of investment earnings Transmission revenue Distribution of revenues Balance Transfer to / from escrow Swap suspension fee received Bond Proceeds 2008A&B Total Deductions Construction expenses Operating expenses Principal payment Interest paid Payment of principal and interest -escrow Cost of Issuance Total Balance at June 30, 2009 36 71 (107)22,434 101,184 1,345 (6)(224)(1,194)5,878 5 469 1 3 32 10 (6)380 22,581 12 (22,964)(42)2 1,892 76 (1)-22,581 305 -827 3,890 (112)(2,483)4,123 (111,900)4,138 -4,138-----111,900 -111,900 127,756 5,799 3,778 481 1,640 -1,133 140,587---480 --480-4,017 -4,017 11,400 --11,400 9,225 433 9,658 108,253 -108,253---700 700 128,878 -4,017 480 1,133 134,508$ 10,612 $ 22,066 $ 272 $ 6,384 $ $ 4,829 $ $ -$ 44,163 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $13 and $15 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
93 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MULTIPLE PROJECT FUND SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Proceeds Debt Service Earnings Account Account Account Total$ 61,938 $ 5,710 $ 49 $ 67,697 Balance at June 30, 2008 Additions Investment earnings Distribution of investment earnings Transfer for debt service payment Transfer from debt service account Total Deductions Interest paid Total Balance at June 30, 2009 4,291 (4,239)505 4,796 4,239 7,618 (7,618)(3,413) -3,413 -(3,361) 8,123 34 4,796 3,388 -3,388 3,388 3,388$ 58,577 $ 10,445 S 83 $ 69,105 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable. | |||
94 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS BARNETT PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Revenue Operating Debt Service General Fund Fund Fund Reserve Fund Project Fund Capital Fund Total$ -$ 709 $ 6,741 $ 245 $ 45,050 $ 313 $ 53,058 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment eamings Receipt from participants Sales of Natural Gas Advances from participants Distribution of revenues Total 7 1 43 13 13 25 3 1,272 1,316 26 (3) (39) (1)Deductions Construction expenditures Operating expenses Payment of principal Interest paid Total Balance at June 30, 2009 10,533 258 10,791 7,941 1,765 9,706-2,740 ---2,740 (18,525) 6,938 9,312 (17) -2,292 -11,711 9,311 (15) 1,272 2,300 24,579----4,788 4,788 11,885 --11,885-4,765 4,765-4,307 -4,307 11,885 9,072 --4,788 25,745$ $ 535 $ 6,980 $ 230 $ 46,322 $ (2,175) $ 51,892 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $25 and $18 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
95 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS PINEDALE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Revenue Operating Debt Service General Fund Fund Fund Reserve Fund Project Fund Capital Fund Total$ -$ 12,157 $ 2,853 $ 47 S 15,230 $ 13,222 $ 43,509 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Receipt from participants Sales of natural gas Advances from participants Distribution of revenues Other receipts Other transfer Total 20 2 12 6 2 440 15 3,671 594 (2) (11) (2)216 447 9 484 1 9 3,887-1,041 10,131 11,291 1,160 (4,281) 1,153 3,128 Deductions Construction expenditures Operating expenses Payment of principal Interest paid Total Balance at June 30, 2009--(192) 192 -2,996 3,135 248 10,333 16,712---337 337 2,227 --2,227-2,015 2,015-1,819 -1,819 2,227 3,834 -337 6,398$ $ 12,926 S 2,154 $ 47 $ 15,478 $ 23,218 $ 53,823 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $41 and $40 held in the revolving fund at June 30, 2009 and 2008, respectively. | |||
96 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PREPAID NATURAL GAS PROJECT No. 1 SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS) | |||
Revenue Operating Debt Service Fund Fund Fund Project Fund Total$ $ 9,879 $ 1,274 $ 24 $ 11,177 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Receipt from gas sales Distribution of revenues Commodity swap settlement Other receipts Total 5 486 216 707 1 I 370 22,756 (28,884)(370)346 22,756 28,538 5,753 -5,753--6,350 6,350 462 35,105 35,567 327 -327-31,931 31,931 327 31,931 32,258 Deductions A & G expenses Payment of interest Total Balance at June 30, 2009 $ -$ 10,014 $ 4,448 $ 24 $ 14,486 This ,hedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. | |||
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $22 and $0 held in the revolving fund at June 30, 2009 and 2008.97 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Financial Statements and Required Supplementary Information June 30, 2009 and 2008 (With Independent Auditors' Report Thereon)/ | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Table of Contents Page(s)Independent Auditors' Report 1-2 Management's Discussion and Analysis 3 -12 Financial Statements: | |||
Balance Sheets 13-14 Statements of Revenues, Expenses, and Changes in Fund Net Assets 15 Statements of Cash Flows 16-17 Notes to Financial Statements 18 -64 Required Supplementary Information 65 KPMG LLP Suite 2000 355 South Grand Avenue Los Angeles, CA 90071-1568 Independent Auditors' Report The Board of Water and Power Commissioners Department of Water and Power City of Los Angeles: k We have audited the accompanying balance sheets of the City of Los Angeles' Department of Water and Power Power Revenue Fund (Power System), an enterprise fund of the City of Los Angeles, California, as of June 30, 2009 and 2008, and the related statements of revenues, expenses, and changes in fund net assets and cash flows for the years then ended. These financial statements are the responsibility of the Los Angeles Department of Water and Power's (the Department) management. | |||
Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. | |||
An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Power System's internal control over financial reporting. | |||
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. | |||
We believe that our audit provides a reasonable basis for our opinion.As discussed in note 1, the financial statements of the Power System are intended to present the financial position, and the changes in financial position and, cash flows of only that portion of the business-type activities and each major fund of the City of Los Angeles, California that is attributable to the transactions of the Power System. They do not purport to, and do not, present fairly the financial position of the City of Los Angeles, California as of June 30, 2009 and 2008, the changes in its financial position or its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. | |||
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Power System as of June 30, 2009 and 2008 and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. | |||
In accordance with Government Auditing Standards, we have also issued our report dated November 16, 2009 on our consideration of the Power System's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal KPMG LLP, a U.S. limited liability partnership, is the U.S.member firm of KPMG International, a Swiss cooperative. | |||
control over financial reporting or on compliance. | |||
That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.The management's discussion and analysis included on pages 3 through 12 and the schedules of funding progress for the pension plan and postemployment healthcare plan on page 65 are not a required part of the basic financial statements but are supplementary information required by U.S. generally accepted accounting principles. | |||
We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. | |||
However, we did not audit the information and express no opinion on it.C LL-P November 17, 2009 2 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 The following discussion and analysis of the financial performance of the City of Los Angeles' (the City)Department of Water and Power's (the Department) | |||
Power Revenue Fund (the Power System) provides an overview of the financial activities for the fiscal years ended June 30, 2009 and 2008. Descriptions and other details pertaining to the Power System are included in the notes to the financial statements. | |||
This discussion and analysis should be read in conjunction with the Power System's financial statements, which begin on page 13.Using This Financial Report This annual financial report consists of the Power System's financial statements and required supplementary information and reflects the self-supporting activities of the Power System that are funded primarily through the sale of energy, transmission, and distribution services to the public it serves.Balance Sheets, Statements of Revenues, Expenses, and Changes in Fund Net Assets, and Statements of Cash Flows The financial statements provide an indication of the Power System's financial health. The balance sheets include all of the Power System's assets and liabilities, using the accrual basis of accounting, as well as an indication about which assets can be utilized for general purposes, and which net assets are restricted as a result of bond covenants and other commitments. | |||
The statements of revenues, expenses, and changes in fund net assets report all of the revenues and expenses during the time periods indicated. | |||
The statements of cash flows report the cash provided by and used in operating activities, as well as other cash sources and uses, such as investment income and cash payments for bond principal and capital additions and betterments. | |||
3 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 The following table summarizes the financial condition and changes in fund net assets of the Power System as of and for the fiscal years ended June 30, 2009, 2008, and 2007: Table 1 -Condensed Schedule of Assets, Liabilities, and Fund Net Assets (Amounts in millions)Assets Utility plant, net Restricted investments Other noncurrent assets Current assets Liabilities and Fund Net Assets Long-term debt, net of current portion Other long-term liabilities Current liabilities Fund net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total fund net assets 2009$ 6,617 722 1,882 1,771$ 10,992$ 5,242 542 651 6,435 1,251 1,461 1,845 4,557 10,992 As of June 30 2008 6,212 723 1,843 2,007 10,785 4,802 567 1,009 6,378 1,489 1,306 1,612 4,407 10,785 2007 5,923 669 1,843 1,535 9,970 4,183 756 763 5,702 1,582 1,166 1,520 4,268 9,970 4 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussi6n and Analysis June 30, 2009 and 2008 Table 2 -Condensed Schedule of Revenues, Expenses, and Changes in Fund Net Assets (Amounts in millions)Year ended June 30 200J9 Operating revenue: Residential Commercial and industrial Sales for resale Other Total operating revenues Operating expenses: Fuel for generation and purchased power Maintenance and other operating expenses Total operating expenses Operating income Nonoperating revenues (expenses): | |||
Investment income Other nonoperating revenues and expenses, net Debt expenses Total nonoperating expense Income before capital contributions and transfers Capital contributions Transfers to the reserve fund of the City of Los Angeles Increase in fund net assets Beginning balance of fund net assets Ending balance of fund net assets$888 1,781 51 36 2,756 (1,149)(1,187)(2,336)420 2008 884 1,771 90 36 2,781 (1,338)(1,120)(2,458)323 2007 818 1,643 103 36 2,600 (1,245)(1,021)(2,266)334 115 159 153 22 (201)(64)17 (195)(19)15 (191)(23)356 17 304 17 311 20 (223)150 4,407 4,557 (182)139 4,268 4,407 (175)156 4,112 4,268 Assets Utility Plant During fiscal years 2009 and 2008, the Power System capitalized | |||
$974 million and $434 million of additions, respectively, including transfers from construction work in progress to utility plant in service. Of the$974 million, $394 million, or 40% is mostly related to distribution plant assets including poles, towers, fixtures, replacement of transformers, underground conductors, and conduit. The increase is attributable to our Power 5 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 Reliability Program (PRP) to improve distribution system reliability. | |||
In addition, $423 million or 43% is primarily related to generation plant assets including the cost to construct the Pinetree Wind Project and capital improvements to various generating stations. | |||
Of the $434 million during fiscal year 2008, $312 million, or 72%is related to distribution plant assets. Furthermore, the Power System had capital improvements to its utility plant assets to maintain and support normal load growth of the distribution and transmission systems.Construction work in progress decreased by $280 million in fiscal year 2009 and increased by $116 million in fiscal year 2008. The 2009 decreases were mostly attributable to the capitalization of the Pinetree Wind Project, Towers and Overhead Transmission, Underground Transmission, and Distribution Facilities. | |||
The increase in 2008 was mostly attributable to the Pinetree Wind Project, Generation System, Underground Transmission, and Automated Meter Reading (AMR).Additional information regarding the Power System's utility plant assets can be found in note 4 to the accompanying financial statements. | |||
The Department's strategy is to have generating utility plant assets that can produce energy from a variety of fuel types. This is referred to as a hedged power supply. This is important in that if the costs related to a particular fuel type rise substantially in a short period of time, the Department can utilize its mix of generation assets to meet customer demand and to minimize increases in fuel expense. The Department is implementing a$2.5 billion, Integrated Resource Plan 2007 (IRP) focusing on renewable power, greenhouse gas reduction, and energy efficiency through fiscal year 2015. The IRP is an energy resource planning document that provides a framework for assuring that the future energy needs of customers are reliably met in a cost-effective manner, and are consistent with the City's commitment to environmental leadership. | |||
Through June 30, 2009, the Department has incurred $1.4 billion related to such upgrades.The tables that follow summarize the generating resources available to the Department as of June 30, 2009.These resources include those owned by the Department (either solely or jointly with other utilities) as well as resources available through long-term purchase agreements. | |||
Generating station capacity is measured in megawatts (MWs).Table 3 -Department-Owned Generation Facilities Net Net maximum dependable Number of Number of capability capability Type of fuel facilities units (MWs) (MWs)Natural Gas 4 (1) 22 3,415 3,339 Large Hydro 1 7 (2) 1,247 1,175 Renewables 33 90 (3) 227 (4) 153 Subtotal 38 119 4,889 4,667 CDWR -- -- (120) (5) (76)Total 38 119 4,769 4,591 6 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 (1) Consists of the following generating stations: | |||
Harbor Station, Haynes Station, Scattergood Station, and Valley Station.(2) The Castaic Plant currently has six (1,075 MWs) out of seven units available due to ongoing modernization work scheduled to be completed by 2014.(3) The Department-owned renewable resources in-service include the Los Angeles Aqueduct, Owens Valley, and Owens Gorge small hydro units that qualify under the Department's renewable resource definition. | |||
Also included are microturbine units at the Lopez Canyon Landfill and Department built photovoltaic solar installations. | |||
This number does not include two of the Scattergood gas-fueled units that partially burn digester gas in which the output related to the digester gas also qualifies under the Department's renewable resource definition. | |||
(4) Includes 16 MWs of renewable energy generated at the Scattergood Station by burning digester gas from the Hyperion Treatment Plant.(5) Energy payable to the California Department of Water Resources (CDWR) for energy generated at the Castaic Plant. This amount varies weekly up to maximum of 120 MWs.Table 4 -Jointly Owned and Contracted Facilities Net Net maximum dependable Number of capability capability Type facilities (MWs) (MWs)Large Hydro 1 491 (1) 446 Nuclear 1 387 (2) 381 Coal 3 1,679 (3) 1,679 Renewables/DG 1,645 (4) 356 112 Total 1,650 2,913 2,618 (1) The Department's Hoover Plant contract entitlement is 25.16% of the Hoover total contingent capacity of 1,951 MWs. Current reduced lake level has reduced available capacity to about 446 MWs annual average.(2) The Department's Palo Verde Station (PVNGS) entitlement is 9.66% of the maximum net plant capability of 4,008 MWs.(3) The Department's current Intermountain Station (IPP) entitlement is 66.79% of the maximum net plant capability of 1,800 MW. A portion of the IPP entitlement is subject to variable recall. The Department's Navajo Station entitlement is 21.20% of the maximum net plant capability of 2,250 MWs. The Mohave Station generating units were removed from service at the end of 2005.(4) The Department's contracted renewable resources in-service include landfill gas units at various landfills in the Los Angeles area, hydro units locally and in British Columbia, Canada, wind farms in Wyoming and 7 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 Oregon, customer solar photovoltaic installations locally, and Customer distributed generation (DG) units located in Los Angeles also provide energy resources. | |||
Liabilities and Fund Net Assets Long-Term Debt As of June 30, 2009, the Power System's total outstanding long-term debt balance was approximately | |||
$5.46 billion. The increase of $480 million from the June 30, 2008 balance resulted from the sale of $845 million of the Power System revenue bonds less the refunding of $306 million revenue bonds and scheduled maturities of $59 million.As of June 30, 2008, the Power System's total outstanding long-term debt balance was approximately | |||
$5.0 billion. The increase of $611 million over the prior year resulted from the sale of $654 million of the Power System revenue bonds and scheduled maturities of $43 million.Outstanding principal, plus scheduled interest as of June 30, 2009, is scheduled to mature as shown in the chart below: Chart: Debt Service Requirements | |||
$2,000,000 | |||
$1,800,000 | |||
-$1,600,000 | |||
$1,400,000 | |||
$1,200,000 | |||
$1,000,000 | |||
$800,000$600,000$400,000$200,000$-2014 2019 2024 2029 2034 2039 2044 Five-Year Period Ending As of June 30, 2009, $46 million principal amount of long-term debt is considered defeased and remains outstanding. | |||
As of June 30, 2008, $51 million principal amount of long-term debt is considered defeased and remains outstanding this debt, together with trust funds set aside for its full repayment at scheduled maturity dates, is not reflected on the balance sheet.8 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 In addition, the Power System had $547 million and $529 million on deposit in trust funds restricted for the use of debt reduction as of June 30, 2009 and 2008, respectively. | |||
In May 2009, Standard & Poor's Rating Services, Moody's Investors Service, and Fitch Ratings affirmed the Power System's bond rating of AA-, Aa3, and AA-, respectively, due to the Power System's broad revenue stream and a competitive power supply portfolio, approval of the rate increases, and the City Council authorizing the unfreezing of the energy cost adjustment factor, which allows the Power System to fully recover changes in purchased power costs, fuel costs, and renewable resource costs. Additional information regarding the Power System's long-term debt can be found in note 10 to the financial statements. | |||
Changes in Fund Net Assets Operating Revenues The operating revenues of the Power System are generated from wholesale and retail customers. | |||
There are four major customer categories of retail revenue. These categories include residential, commercial, industrial, and other, which includes public street lighting. | |||
Table 5 summarizes the percentage contribution of retail revenues from each customer segment in fiscal years 2009 and 2008: Table 5 -Revenue and Percentage of Revenue by Customer Class (Amounts in thousands) | |||
Fiscal year 2009 Fiscal year 2008 Revenue Percentage Revenue Percentage Type of customer: Residential | |||
$ 887,571 33% $ 883,503 33%Commercial 1,554,721 58 1,535,554 57 Industrial 225,958 8 235,502 9 Other 36,802 1 36,390 1$ 2,705,052 100% $ 2,690,949 100%9 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 While commercial customers consume the most electricity, residential customers represent the largest customer class. As of June 30, 2009 and 2008, the Power System had approximately 1.5 million customers. | |||
As shown in Table 6, 1.3 million, or 87%, of total customers were in the residential customer class.Table 6 -Number of Customers and Percentage of Customers by Customer Class (Numbers in thousands) | |||
Fiscal year 2009 Fiscal year 2008 Number Percentage Number Percentage Type of customer: Residential 1,258 87% 1,252 87%Commercial 179 12 179 12 Industrial 13 1 13 1 Other 2 1,452 100% 1,446 100%Fiscal Year 2009 Retail revenues increased by $14.1 million while wholesale revenues decreased by $39.5 million from fiscal year 2008. The increase in retail revenue is due to an increase in base rates approved by the City Council in April 2008, offset by a decrease in costs that are recoverable through the energy cost adjustment billing factor.The decrease in wholesale revenue, which is comprised of energy and transmission sales is due to lower energy sales caused by milder weather. During fiscal years 2009 and 2008, the Power System deferred wholesale revenue of $24.7 million and $23.6 million to the rate stabilization account.Fiscal Year 2008 Retail revenues increased by $193.9 million while wholesale revenues decreased | |||
$12.6 million from fiscal year 2007. The increase in retail revenue is due to a 1% increase in consumption, an increase in base rates approved by the City Council in April 2008, and an increase in costs that are recoverable through the energy cost adjustment billing factor. The decrease in wholesale revenue is due to the deferral of $23.6 million to the rate stabilization account.Operating Expenses Fuel for generation and purchased power are two of the largest expenses that the Power System incurs each fiscal year. Fuel for generation expense includes the cost of fuel that is used to generate energy. The majority of fuel costs include the cost of natural gas, coal, and nuclear fuel.Purchased power expense includes the cost of buying power on the open market and paying the current portion of the Power System's purchased power contracts. | |||
Under these purchase power contracts, the Department has an entitlement to the energy that is produced at various generating stations and an entitlement to the use of various transmission facilities. | |||
Most of these contracts require the Department to pay for these services regardless of whether the energy or transmission is used. These types of contracts are referred to as "take-or-pay" contracts. | |||
10 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 Depreciation expense is computed using the straight-line method based on service lives for all projects completed after July 1, 1973, and for all office and shop structures, related furniture and equipment, and transportation and construction equipment. | |||
Depreciation for facilities completed prior to July 1, 1973 is computed using the 5%sinking fund method based on estimated service lives. The Department uses the composite method of depreciation and, therefore, groups assets into composite groups for purposes of calculating depreciation expense. Estimated service lives range from 5 to 75 years. Amortization expense for computer software is computed using the straight-line method over five years.The table below summarizes the Power System's operating expenses during fiscal years 2009 and 2008: Table 7 -Operating Expenses and Percentage of Expense by Type of Expense (Amounts in thousands) | |||
Fiscal year 2009 Fiscal year 2008 Expense Percentage Expense Percentage Type of expense: Fuel for generation | |||
$ 449,612 19% $ 647,814 26%Purchased power 699,828 30 690,200 28 Other operating expenses 616,337 26 591,211 24 Maintenance 277,415 12 246,831 10 Depreciation and amortization 293,239 13 281,541 12$ 2,336,431 100% $ 2,457,597 100%Fiscal Year 2009 Fiscal year 2009 operating expenses were $121 million lower as compared to fiscal year 2008. Fuel for generation expenses were $198 million lower in fiscal year 2009 due to the decrease in the price of natural gas.Other operating costs increased by $25 million primarily in transmission expenses and hydraulic station expenses. | |||
Maintenance expense increased by $31 million as compared to fiscal year 2008 due to maintenance of steam plant, transmission plant, and distribution plant. Other increases include depreciation and amortization expense by $12 million, and purchased power increased by $10 million.Fiscal Year 2008 Fiscal year 2008 operating expenses were $191 million higher as compared to fiscal year 2007. Fuel for generation expenses were $103.0 million higher in fiscal year 2008 due to the increase in the price of natural gas.Other operating costs increased by $95 million with an offset in maintenance expense of $8 million decrease, and depreciation expense increased by $12 million as compared to fiscal year 2007. The increase in other operating costs was primarily due to $45 million in distribution expenses, $18 million in public benefits, $13 million in administrative and general expenses, $12 million in transmission expenses, and $6 million in other production expenses. | |||
The decrease in maintenance costs was mostly related to distribution plant.I1I (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 Nonoperating Revenues and Expenses Fiscal Year 2009 The major nonoperating activities of the Power System for fiscal year 2009 included the transfer of $223 million to the City's General Fund, interest income earned on investments of $115 million, and $201 million in debt expenses.The transfer to the City is based on 8% of the previous year's operating revenues. | |||
Operating revenues for fiscal year 2008 were $2.8 billion, which generated a city transfer of $223 million.Interest income decreased by $44 million due to less cash available for investing and a decline in the interest rates in fiscal year 2009 as compared to 2008.The increase in debt expense is due to having 7 months of interest on the 2008 Series Al debt that was issued in November 2008 offset by lower interest rates on variable rate debt. The variable rate bonds' daily and weekly rate range decreased from 1.55% to 1.65% as of June 30, 2008 to 0.27% to 0.30% as of June 30, 2009.Fiscal Year 2008 The major nonoperating activities of the Power System for fiscal year 2008 included the transfer of $182 million to the City's General Fund, interest income earned on investments of $159 million, and $196 million in debt expenses.The transfer to the City is based on 7% of the previous year's operating revenues. | |||
Operating revenues for fiscal year 2007 were $2.6 billion, which generated a city transfer of $182 million.Interest income increased by $6.4 million due to more cash available for investing in fiscal year 2008' as compared to 2007.The increase in debt expense is due to having 8.5 months of interest on the 2007 series debt that were issued October 2007 offset by lower interest rates on variable rate debt. The variable rate bonds' daily and weekly rate range decreased from 3.70% to 3.76% as of June 30, 2007 to 1.55% to 1.65% as of June 30, 2008.Currently known Facts, Decisions, or Conditions Although still subject to audit, the July 1, 2009 actuarial study for the Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) noted the market value of the Plan's assets were approximately | |||
$5.699 billion and the unfunded actuarial accrued liability was approximately | |||
$808 million. The Plan had unrecognized investment losses of $1.6 billion as of June 30, 2009. The Plan employs a 5-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in "smoothed" assets that are lower or higher then the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. If the unrecognized investments losses were recognized immediately, required contributions to the Plan would increase form approximately 26.12% of covered payroll to 48.57% of covered payroll. Additionally, if the unrecognized investments losses were recognized immediately in the actuarial value of assets, the funded ratio of the Plan would decrease from 90% to 70%.12 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Balance Sheets June 30, 2009 and 2008 (Amounts in thousands) | |||
Assets Noncurrent assets: Utility plant: Generation Transmission Distribution General Accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Natural gas field, net Restricted investments Long-term California wholesale energy receivable, net Long-term notes and other receivables, net of current portion Deferred debits Net pension asset Net postemployment asset Total noncurrent assets Current assets: Cash and cash equivalents | |||
-unrestricted Cash and cash equivalents | |||
-restricted Cash collateral received from securities lending transactions Customer and other accounts receivable, net of $14,000 and$14,555 allowance for losses in 2009 and 2008, respectively Current portion of long-term notes receivable Accrued unbilled revenue Due from Water System Under recovered costs Materials and fuel Prepayments and other current assets Total current assets Total assets 2009$ 3,935,518 952,730 5,146,367 1,112,554 11,147,169 (5,400,163) 5,747,006 609,115 36,904 223,617 6,616,642 722,074 116,333 1,079,866 160,000 70,644 455,961 9,221,520 444,676 409,863 8,591 310,908 31,166 145,676 9,903 130,367 153,218 126,243 1,770,611$ 10,992,131 2008 3,514,113 877,550 4,755,330 1,033,043 10,180,036 (5,119,238) 5,060,798 889,226 32,982 228,824 6,211,830 723,346 116,333 1,107,510 160,000 77,479 381,462 8,777,960 389,529 494,512 239,703 323,238 14,032 153,585 190,609 134,847 67,504 2,007,559 10,785,519 13 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Balance Sheets June 30, 2009 and 2008 (Amounts in thousands) | |||
Fund Net Assets and Liabilities Fund net assets: Invested in capital assets, net of related debt Restricted: | |||
Debt service Capital projects Other postemployment benefits Pension benefits Other purposes Unrestricted Total fund net assets Long-term debt, net of current portion Other noncurrent liabilities: | |||
Accrued liabilities Deferred credits Accrued workers' compensation claims Total other noncurrent liabilities Current liabilities: | |||
Current portion of long-term debt Accounts payable and accrued expenses Accrued interest Accrued employee expenses Due to Water System Obligation under securities lending transactions Total current liabilities 2009$ 1,251,426 650,303 113,923 455,961 70,644 170,262 1,844,792 4,557,311 5,241,853 23,760 488,821 29,128 541,709 217,882 235,922 101,721 87,142 8,591 651,258 6,434,820$ 10,992,131 2008 1,489,096 593,283 110,234 381,462 77,479 143,604 1,612,382 4,407,540 4,801,728 31,340 503,436 32,089 566,865 175,455 411,006 90,682 74,090 18,450 239,703 1,009,386 6,377,979 10,785,519 Total liabilities Total liabilities and fund net assets See accompanying notes to financial statements. | |||
14 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Revenues, Expenses, and Changes in Fund Net Assets Years ended June 30, 2009 and 2008 (Amounts in thousands) | |||
Operating revenues: Residential Commercial and industrial Sales for resale Other Uncollectible accounts Operating expenses: Fuel for generation Purchased power Maintenance and other operating expenses Depreciation and amortization Operating income Nonoperating revenues (expenses): | |||
Investment income Other nonoperating income Other nonoperating expenses 2009$ 887,571 1,780,679 50,883 52,865 (16,063)2,755,935 449,612 699,828 893,752 293,239 2,336,431 419,504 115,241 28,309 143,550 (6,291)137,259 215,447 (14,137)201,310 355,453 16,824 (222,506)149,771 4,407,540$ 4,557,311 2008 883,503 1,771,056 90,375 49,043 (12,653)2,781,324 647,814 690,200 838,042 281,541 2,457,597 323,727 159,334 22,035 181,369 (5,463)175,906 210,468 (14,894)195,574 304,059 17,601 (182,004)139,656 4,267,884 4,407,540 Debt expenses: Interest on debt Allowance for funds used during construction Income before capital contributions and transfers Capital contributions Transfers to the reserve fund of the City of Los Angeles Increase in fund net assets Fund net assets: Beginning of year End of year See accompanying notes to financial statements. | |||
15 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Cash Flows Years ended June 30, 2009 and 2008 (Amounts in thousands) | |||
Cash flows from operating activities: | |||
Cash receipts: Cash receipts from customers Cash receipts from customers for other agency services Cash receipts from interfund services provided Other cash receipts Cash disbursements: | |||
Cash payments to employees Cash payments to suppliers Cash payments for interfund services used Cash payments to other agencies for fees collected Other cash payments Total cash flows provided by operating activities Cash flows from noncapital financing activities: | |||
Payments to the reserve fund of the City of Los Angeles Payments to the Retiree Health Benefits Fund Interest paid on noncapital revenue bonds Total cash flows used for noncapital financing activities Cash flows from capital and related financing activities: | |||
Additions to plant and equipment Capital contributions Principal payments and maturities on long-term debt Proceeds from issuance of bonds and revenue certificates Debt interest payments Total cash flows used for capital and related financing activities Cash flows from investing activities: | |||
Purchases of investment securities Sales and maturities of investment securities Proceeds from notes receivable Investment income Total cash flows provided by investing activities Net increase (decrease) | |||
Cash and cash equivalents: | |||
Cash and cash equivalents at July 1 (including | |||
$494,512 and$196,959 reported in restricted accounts, respectively) | |||
Cash and cash equivalents at June 30 (including | |||
$409,863 and$494,512 reported in restricted accounts, respectively) 2009$ 2,828,194 524,672 367,072 97,209 (492,701)(1,779,634) | |||
(457,367)(529,651)(130,147)427,647 (222,506)(5,648)(228,154)(674,141)22,270 (364,902)845,446 (199,938)(371,265)(1,214,337) 1,215,609 14,032 126,966 142,270 (29,502)884,041$ 854,539 2008 2,553,451 463,001 416,442 23,603 (464,543)(1,622,551) | |||
(448,367)(451,848)469,188 (182,004)(68,000)(14,182)(264,186)(568,469)24,425 (43,033)674,136 (184,326)(97,267)(1,299,739) 1,245,102 31,778 153,389 130,530 238,265 645,776 884,041 16 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Cash Flows Years ended June 30, 2009 and 2008 (Amounts in thousands) | |||
Reconciliation of operating income to net cash provided by operating activities: | |||
Operating income Adjustments to reconcile operating income to net cash provided by operating activities: | |||
Depreciation and amortization Depletion expenses Amortization of nuclear fuel Provision for losses on customer and other accounts receivable Changes in assets and liabilities: | |||
Customer and other accounts receivable Accrued unbilled revenue Under recovered costs Due from Water System Materials and fuel Deferred debits Net pension asset Accounts payable and accrued expenses for operating Accrued liabilities Deferred credits Due to Water System Net other postemployment asset Workers' compensation liability and other Net cash provided by operating activities 2009$ 419,504 293,239 6,821 6,717 16,063 (24,426)7,909 60,242 (9,903)(18,372)6,835 (198,442)(7,580)(14,615)(18,450)(74,499)(23,396)$ 427,647 2008 323,727 281,541 7,411 5,668 12,653 (58,267)(6,250)(171,228)(16,497)68,181 7,231 212,170 (196,841)3,759 14,605 (17,409)(1,266)469,188 See accompanying notes to financial statements. | |||
17 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (1) Summary of Significant Accounting Policies The Department of Water and Power of the City of Los Angeles (the Department) exists as a separate proprietary department of the City of Los Angeles (the City) under and by virtue of the City Charter enacted in 1925 and as revised effective July 2000. The Department's Power Revenue Fund (the Power System) is responsible for the generation, transmission, and distribution of electric power for sale in the City. The Power System is operated as an enterprise fund of the City.(a) Method ofAccounting The accounting records of the Power System are maintained in accordance with U.S. generally accepted accounting principles (GAAP) for governmental entities. | |||
The financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting. | |||
Prior to fiscal year 2003, the Department applied all statements issued by the Governmental Accounting Standards Board (GASB) and all statements and interpretations issued by the Financial Accounting Standards Board (FASB), which are not in conflict with statements issued by the GASB.In fiscal year 2003, the Department changed its election under the guidance in GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting (GASB No. 20), to follow GASB statements and only FASB statements and interpretations issued on or before November 30, 1989.The Department's rates are determined by the Board of Water and Power Commissioners (the Board) and are subject to review and approval by the City Council. As a regulated enterprise, the Department utilizes Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, which requires that the effects of the rate-making process be recorded in the financial statements. | |||
Such effects primarily concern the time at which various items enter into the determination of changes in fund net assets. Accordingly, the Power System records various regulatory assets and liabilities to reflect the Board's actions. Regulatory liabilities are recorded in deferred credits and regulatory assets are included as deferred debits and under recovered costs on the balance sheets. Management believes that the Power System meets the criteria for continued application of SFAS No. 71, but will continue to evaluate its applicability based on changes in the regulatory and competitive environment (see notes 3 and 14(d)ii).(b) Use of Estimates The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.(c) Utility Plant The costs of additions to utility plant and replacements of retired units of property are capitalized. | |||
Costs include labor, materials, an allowance for funds used during construction (AFUDC), and allocated indirect charges, such as engineering, supervision, transportation and construction equipment, retirement plan contributions, healthcare costs, and certain administrative and general 18 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 expenses. | |||
The costs of maintenance, repairs, and minor replacements are charged to the appropriate operations and maintenance expense accounts.(d) Impairment of Long-Lived Assets The Department follows GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (GASB No. 42). Governments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. | |||
A capital asset is considered impaired when its service utility has declined significantly and unexpectedly. | |||
Under GASB No. 42, impaired capital assets that will no longer be used by the government should be reported at the lower of carrying value or fair value. Impairment losses on capital assets that will continue to be used by the government should be measured using the method that best reflects the cause of the diminished service utility of the capital asset.(e) Depreciation and Amortization Depreciation expense is computed using the straight-line method based on service lives for all projects completed after July 1, 1973, and for all office and shop structures, related furniture and equipment, and transportation and construction equipment. | |||
Depreciation for facilities completed prior to July 1, 1973 is computed using the 5.0% sinking fund method based on estimated service lives. The Department uses the composite method of depreciation and, therefore, groups assets into composite groups for purposes of calculating depreciation expense. Estimated service lives range from 5 to 75 years. Amortization expense for computer software is computed using the straight-line method over five years. Depreciation and amortization expense as a percentage of average depreciable utility plant in service was 2.8% for both fiscal years 2009 and 2008.(D) Nuclear Decommissioning The Department owns a 5.70% direct ownership interest in the Palo Verde Nuclear Generating Station (PVNGS). In addition, through its participation in the Southern California Public Power Authority (SCPPA), the Department is party to a contract for an additional 3.95% of the output of PVNGS. Nuclear decommissioning costs associated with the Power System's output entitlement are included in purchased power expense (see note 6).Decommissioning of PVNGS is expected to commence subsequent to the year 2024. The total cost to decommission the Power System's direct ownership interest in PVNGS is estimated to be$123 million in 2008 dollars. This estimate is based on an updated site-specific study prepared by an independent consultant in 2007. As of June 30, 2009 and 2008, the Power System has recorded$133.5 million and $129.8 million, respectively, to accumulated depreciation to provide for the decommissioning liability. | |||
Prior to December 1999, the Power System contributed | |||
$70.2 million to external trusts established in accordance with the PVNGS participation agreement and Nuclear Regulatory Commission requirements. | |||
During fiscal year 2000, the Department suspended contributing additional amounts to the trust funds, as management believes that contributions made, combined with reinvested earnings, 19 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 will be sufficient to fully fund the Department's share of decommissioning costs. The Department will continue to reinvest its investment income on the trust investments into the decommissioning trusts. The Department reinvested | |||
$3.7 million and $7.4 million of investment income in fiscal years 2009 and 2008, respectively. | |||
Decommissioning funds, which are included in restricted investments, totaled $113.9 million and $110.2 million as of June 30, 2009 and 2008 (at fair value), respectively. | |||
The Department's current accounting policy recognizes any realized and unrealized investment earnings from nuclear decommissioning trust funds as a component of accumulated depreciation.(g) Nuclear Fuel Nuclear fuel is amortized and charged to fuel for generation on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assesses each utility with nuclear operations, including the Power System, $1 per megawatt hour of nuclear generation. | |||
The Power System includes this charge as a current year expense in fuel for generation. | |||
See note 14 for discussion of spent nuclear fuel disposal.(h) Natural Gas Field In July 2005, the Power System acquired approximately a 74.5% ownership interest in gas properties located in Pinedale, Wyoming. The Power System uses the successful efforts method of accounting for its investment in gas producing properties. | |||
Costs to acquire the mineral interest in gas producing properties, to drill and equip exploratory wells that find proven reserves, and to drill and equip development wells are capitalized. | |||
Costs to drill exploratory wells that do not find proven reserves are expensed. | |||
Capitalized costs of gas producing properties are depleted by the unit-of-production method based on the estimated future production of the proved developed producing wells.Depletion expense related to the gas field is recorded as a component of fuel for generation expense.During fiscal years 2009 and 2008, the Power System recorded $6.8 million and $7.4 million of depletion expense, respectively.(i) Cash and Cash Equivalents As provided for by the State of California Government Code (the Code), the Power System's cash is deposited with the City Treasurer in the City's general investment pool for the purpose of maximizing interest earnings through pooled investment activities. | |||
Cash and cash equivalents in the City's general investment pool are reported at fair value and changes in unrealized gains and losses are recorded in the statements of revenues, expenses, and changes in fund net assets. Interest earned on such pooled investments is allocated to the participating funds based on each fund's average daily cash balance during the allocation period. The City Treasurer invests available funds of the City and its independent operating departments on a combined basis. The Power System classifies all cash and cash equivalents that are restricted either by creditors, the Board, or by law, as restricted cash and cash equivalents on the balance sheets. The Power System considers its portion of pooled investments in the City's pool to be cash and cash equivalents. | |||
20 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 At June 30, 2009 and 2008, restricted cash and cash equivalents include the following (amounts in thousands): | |||
June30 Bond redemption and interest funds Construction funds Self-insurance fund Other 2009$ 203,250 94,519 109,394 2,700$ 409,863 2008 153,485 254,449 83,878 2,700 494,512 (j') Materials and Fuel Materials and supplies are recorded at average cost. Fuel is recorded at lower of cost or market, on an average cost basis.(k) Accrued Unbilled Revenue Accrued unbilled revenue is the receivable for estimated energy sales during the period for which the customer has not been billed.(!) Restricted Investments Restricted investments include primarily commercial paper, U.S. government and governmental agency securities, and corporate bonds. Investments are reported at fair value and changes in unrealized gains and losses are recorded in the statements of revenues, expenses, and changes in fund net assets except for Nuclear Decommissioning Trust Funds. The stated fair value of investments is generally based on published market prices or quotations from major investment dealers (see note 7).(m) Accrued Employee Expenses Accrued employee expenses include accrued payroll and an estimated liability for vacation leave, sick leave, and compensatory time, which is accrued when employees earn the rights to the benefits.Below is a schedule of accrued employee expenses as of June 30, 2009 and 2008 (amounts in thousands): | |||
2009 2008 Type of expenses: Accrued payroll Accrued vacation Accrued sick leave Compensatory time Total$ 17,494 12,793 46,061 40,992 10,792 9,433 12,795 10,872$ 87,142 74,090 21 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (n) Debt Expenses Debt premium, discount, and issue expenses are deferred and amortized to debt expense using the effective-interest method over the lives of the related debt issues. Gains and losses on refundings related to bonds redeemed by proceeds from the issuance of new bonds are amortized to debt expense using the effective-interest method over the shorter of the life of the new bonds or the remaining term of the bonds refunded.(o) Gas and Electricity Option and Location Swap Agreements Gas and electricity option and location swap agreements are accounted for on a settlement basis (see note 9).(p) Accrued Workers' Compensation Claims Liabilities for unpaid workers' compensation claims are recorded at their net present value, (see note 13).(q) Customer Deposits Customer deposits represent deposits collected from customers upon opening of new accounts. | |||
These deposits are obtained when the customer does not have a previously established credit history with the Department. | |||
Original deposits plus interest are paid to the customer once a satisfactory payment history is maintained, generally after one to three years.The Water System is responsible for collection, maintenance, and refunding of these deposits for all the Department customers, including those of the Power System. As such, the Water System's balance sheets include a deposit liability of $74 million and $77 million as of June 30, 2009 and 2008, respectively, for all customer deposits collected. | |||
In the event that the Water System defaults on refunds of such deposits, the Power System would be required to pay amounts it owes its customers.(r) Revenues The Power System's rates are established by a rate ordinance, which is approved by the City Council. The Power System sells energy to the City's other departments at rates provided in the ordinance. | |||
The Power System recognizes energy costs in the period incurred and accrues for estimated energy sold but not yet billed.Effective October 1, 2006, the Energy Cost Adjustment Factor (ECAF), which is a billing factor defined in the electric rate ordinance was unfrozen. | |||
This change allows the Power System to increase or decrease the factor on a quarterly basis in compliance with the ordinance. | |||
While this change allows the Power System to fully recover fuel costs, purchased power costs, and other costs outlined in the ordinance, the difference between the amount billed to customers, and the value of the costs allowed to be recovered through the factor create an over/under recovered amount. Costs that are under recovered will be recovered in future periods. Amounts over recovered will be factored into future quarterly rates. As of June 30, 2009 and 2008, the amount of under recovered costs, including the ECAF and the Reliability Cost Adjustment Factor was $130.4 million and $190.6 million, respectively. | |||
These balances are recorded as current assets on the balance sheets.22 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Operating revenues are revenues derived from activities that are billable in accordance with the electric rate ordinance approved by the City Council.(s) Capital Contributions Capital contributions and other grants received by the Department for constructing utility plant and other activities are recognized when all applicable eligibility requirements, including time requirements, are met.(t) Allowance for Funds Used During Construction (AFUDC)An AFUDC charge represents the cost of borrowed funds used for the construction of utility plant.Capitalized AFUDC is included as part of the cost of utility plant and as a reduction of debt expenses. | |||
As of June 30, 2009 and 2008, the average AFUDC rates were 4.5% and 4.4%, respectively.(u) Use of Restricted and Unrestricted Resources The Power System's policy is to use unrestricted resources prior to restricted resources to meet expenses to the extent that it is prudent from an operational perspective. | |||
Once it is not prudent, restricted resources will be utilized to meet intended obligations. | |||
(2) Recent Accounting Pronouncements (a) GASB Statement No. 48 In September 2006, the GASB issued Statement No. 48, Board Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues (GASB No. 48). This statement establishes criteria that governments will use to ascertain whether the proceeds received from an exchange of an interest in expected cash flows for immediate cash payments should be reported as revenue or as a liability. | |||
The Department has determined that this statement and the expanded disclosures of pledged revenues does not apply to its stand-alone financial statements as its operations are financed primarily by a single major revenue source.(b) GASB Statement No. 49 In fiscal year 2009, the Department adopted GASB Statement No. 49, Accounting and Financial Reporting for Pollution and Remediation Obligations (GASB No. 49). This statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups.The scope of the statement excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as landfill closure and post closure care and nuclear power plant decommissioning. | |||
Prior to adopting this statement the Department followed Statement of Position 96-1, Environmental Remediation Liabilities. | |||
The Power System has identified sites that require remediation work and is working with the Department of Toxic Substances and the Los Angeles Regional Water Quality Control Board who have jurisdiction over these sites. The Power System's estimated liability for 23 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 these sites is approximately | |||
$15 million and includes remediation and ongoing operation and maintenance costs where estimable. | |||
This estimate includes recoveries of approximately | |||
$18 million.During fiscal year 2009, the Power System set up a restricted trust fund in the amount of $2.1 million to provide financial assurance for closure of one of its sites. The Power System's environmental liability is recorded as part of accrued expenses. | |||
There was no impact to Net Assets as of July 1, 2008 as a result of implementation of this pronouncement.(c) GASB Statement No. 50 In May 2007, the GASB issued Statement No. 50, Pension Disclosures, an amendment to GASB Statements No. 25 and No. 27 (GASB No. 50). This statement more closely aligns the financial reporting requirements for pensions with those for other postemployment benefits (OPEB)and, in doing so, enhances information disclosed in notes to the financial statements or presented as required supplementary information (RSI) by pension plans and by employers that provide pension benefits. | |||
The reporting changes required by this statement amend applicable note disclosures and RSI requirements of GASB Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers, to conform to requirements of GASB Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. | |||
The Department has implemented these disclosures in fiscal year 2008.(d) GASB Statement No. 51 In June 2007, the GASB issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB No. 51). This statement establishes accounting and financial reporting standards for intangible assets. Intangible assets include, but are not limited to, easements, water rights, timber rights, patents, trademarks, and computer software. | |||
This statement is effective for the Department beginning fiscal year 2010. The Department has not yet determined the financial statement impact of adopting this new statement.(e) GASB Statement No. 53 In June 2008, the GASB issued Statement No. 53, Accounting and Financial Reporting for Derivative Instruments (GASB No. 53). This statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments. | |||
Common types of derivative instruments used by the Department include electricity swaps, forward contracts, and financial natural gas hedges. Governments enter into derivative instruments as investments; as hedges of identified financial risks associated with assets or liabilities, or expected transactions (i.e., hedgeable items); or to lower cost of borrowings. | |||
Governments often enter into derivative instruments with the intention of effectively fixing cash flows or synthetically fixing prices. The changes in fair value of derivative instruments that are used for investment purposes or that are reported as investment derivative instruments because of ineffectiveness are reported within the investment revenue classification. | |||
Alternatively, the changes in fair value of derivative instruments that are classified as hedging derivative instruments are reported in the statements of net assets or deferrals on the balance sheets. This statement is effective for the 24 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Department beginning fiscal year 2010. The Power System has not yet determined the financial statement impact of adopting this new statement. | |||
(3) Regulatory Matters (a) Federal Regulation of Transmission Access The Energy Policy Act of 1992 (the Energy Policy Act) made fundamental changes in the federal regulation of the electric utility industry, particularly in the area of transmission. | |||
As amended by the Energy Policy Act, Sections 211, 212, and 213 of the Federal Power Act (FPA) provide Federal Energy Regulatory Commission (FERC) authority, upon application by any electric utility, federal power marketing agency, or other person or entity generating electric energy for sale or resale, to require a transmitting utility to provide transmission services (including any enlargement of transmission capacity necessary to provide such services) to the applicant at rates, charges, terms, and conditions set by FERC based on standards and provisions in the FPA. Under the Energy Policy Act, electric utilities owned by municipalities and other public agencies, which own or operate electric power transmission facilities that are used for the sale of electric energy at wholesale rates are "transmitting utilities" subject to the requirements of Sections 211, 212, and 213.FERC has encouraged in the past the voluntary formation of regional transmission organizations (RTOs) independent from owners of generation and other market participants that will provide transmission access on a nondiscriminatory basis to buyers and sellers of power. Investor-owned utilities (IOUs) and publicly owned utilities have been encouraged to participate in the formation and operation of RTOs, but are not, at this time, being ordered by FERC to participate. | |||
FERC has adopted a "go slow" approach to the issue of RTO formation in the western United States; it is contemporaneously engaged in a wholesale overhaul of the California market design, referred to initially as the Market Design 2002 proceeding and lately as the Market Redesign and Technology Update (MRTU) proceeding. | |||
These FERC proceedings will have potential impacts on every electric utility doing business in California. | |||
MRTU involves a comprehensive overhaul of the electricity markets administered by California Independent System Operator (CAISO), including the areas of transmission congestion management, trading and scheduling energy in the day ahead, or spot market, improved market power mitigation, and pricing transparency measures and system improvements to increase operational efficiency and enhance reliability, among other things. MRTU was implemented on April 1, 2009. It is not certain at this time what impact, if any, FERC's final decision on MRTU will have on the Power System. In addition, CAISO has announced its intention to implement further market changes over the next five years.(b) Federal Energy Legislation of 2005 On August 8, 2005, the Energy Policy Act of 2005 (the EP Act) was enacted, the first comprehensive energy legislation in over a decade. One of the most significant provisions of the EP Act empowers FERC to certify an Electric Reliability Organization (ERO) to improve the reliability of the nation's"bulk-power system" through mandatory and enforceable electric reliability standards (in contrast to the long-standing voluntary system). The definition of "bulk-power system" does not include facilities used in the local distribution of electric energy. The ERO will file any proposed reliability standard or modification with FERC. A "reliability standard" is a requirement that provides for 25 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 reliable operation of the bulk-power system. Such a standard includes requirements for the operation of existing transmission facilities or the design of planned additions or modifications to the extent necessary to provide for reliable operation. | |||
It does not include, and the ERO may not impose, any requirement to enlarge existing facilities or to construct new transmission or generation. | |||
All users, owners, and operators of the bulk-power system are required to comply with the electric reliability standards. | |||
The ERO may impose a penalty on a user, owner, or operator for violating a reliability standard, and FERC may order compliance with such a standard and impose a penalty if it finds that a user, owner, or operator is about to engage in an act that would violate a reliability standard.The EP Act authorizes FERC to require nondiscriminatory access to transmission facilities owned by municipal, cooperative, and other transmission companies not currently regulated by FERC, unless exercising this authority would violate a private activity bond rule for purposes of Section 141 of the Internal Revenue Code of 1986. FERC is prohibited from requiring any such entities to join RTOs.The EP Act also allows FERC to issue permits for the construction of new transmission facilities when states have been unable or unwilling to act and allows load-serving entities to use the firm transmission rights, or equivalent tradable or financial transmission rights, in order to deliver output or purchased energy to the extent required to meet its service obligations. | |||
The EP Act does not relieve a load-serving entity from any obligation under state or local law to build transmission or distribution facilities adequate to meet its service obligations, or to abrogate preexisting firm transmission service contracts. | |||
The EP Act directs FERC to establish, by rule, incentive-based rates for transmission no later than August 2006 and requires FERC to establish market transparency rules for the electric wholesale market (entities that have a de minimis market presence are exempt from the rules). The EP Act instructs that the market transparency rules must provide for the timely dissemination of information about the availability and prices of wholesale electric energy and transmission service to FERC, state commission, buyers and sellers of wholesale electric energy, users of transmission services, and the public. Within 180 days of the EP Act's enactment, FERC and the Commodity Futures Trading Commission are required to enter into a memorandum of understanding regarding information sharing pursuant to these rules.In addition, the EP Act prohibits any person from willfully and knowingly reporting false information to any federal agency on the price of wholesale electricity or availability of transmission capacity, or using (directly or indirectly) any manipulative device in contravention of any FERC rule. The EP Act increases civil and criminal penalties, modifies the procedures for review of FERC orders under the FPA, and changes the refund date under the FPA to be effective as of the date an applicable complaint is filed. The EP Act also establishes an entity's right to a refund if (i) it makes a short term sale of electric energy through an organized market in which the rates for the sale are set by a FERC-approved tariff (not by a contract) and (ii) the sale violates the terms of the tariff or applicable FERC rule in effect at the time of the sale.Based on the EP Act authority vested upon the FERC, the FERC approved the North American Electric Reliability Corporation (NERC) as the ERO, and last year made mandatory more than 80 NERC and Western Electricity Coordinating Council (WECC) reliability standards, all of which are subject to penalties ranging from $1,000 to $1,000,000, depending on the impact of the violation 26 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 to reliability and other factors. LADWP has implemented a NERC/WECC Reliability Standards Compliance Program to proactively prevent, monitor, and stop any potential violations to these standards. | |||
The overall impact of the EP Act on the Department cannot be predicted at this time.(c) Potential Federal Energy Legislation for 2009 As of August 2009, the 111 United States Congress is contemplating passing federal legislation that can make fundamental changes in the regulation of the electric utility industry. | |||
Under the House of Representatives' passed legislation (H.R. 2454 American Clean Energy and Security Act of 2009 -ACES), the following economy-wide reduction goals of GHGs (carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons, perfluorocarbons, and nitrogen hexafluoride) are being proposed: | |||
97% of the 2005 levels by 2012; 80% of the 2005 levels by 2020; 58% of the 2005 levels by 2038; 17% of the 2005 levels by 2050. The bill would delegate authority to FERC to promulgate regulations and enforce the reduction goals.ACES includes a GHG "Cap and Trade" regulatory program. Under the Cap and Trade program, the amount of GHGs emitted by certain industries will be limited, and emission allowances will be available for trading (one allowance is equal to 1 metric ton of GHGs emitted, measured in tons of carbon dioxide equivalent). | |||
The proposal establishes a prohibition of emissions beyond an entity's allowance holdings where penalties will be applied to noncomplying entities. | |||
The electricity sector is covered under this provision starting 2012. Approximately 44.6% of allowances are allocated to the electricity sector starting 2012, and any additional allowances needed may be bought in the market or through the auction process. The total amount of allowances allocated decline each year, and are phased out by 2030. At that time, the electricity sector would need to purchase allowances to cover its GHG emissions. | |||
ACES delegates authority to FERC to provide oversight and regulation of the new Energy Markets created for carbon allowances and offsets. FERC is expected to ensure market transparency and liquidity of allowances and offsets. It will also be in charge of protecting market participants from speculation and manipulation of carbon prices.On September 30, 2009, the Senate introduced its climate change bill entitled "Clean Energy Jobs and American Power Act" (S. 1733). The Senate Environment and Public Works Committee has held a number of hearings with panels on jobs and opportunities, national security, utilities, adaptation, transportation and the clean energy economy.In the Senate version of the bill (S. 1462 Energy Bill -Senate Bill), FERC is given the authority to order a change or suspension of any rate, term, or condition if a market emergency occurs, such as market manipulation or abuse, and may require an entity to cease and desist from committing such violations. | |||
ACES requires retail electric suppliers to meet a certain percentage of their load with electricity generated from renewable sources and savings. The percentages currently proposed are: 6% of electricity generated from renewables and electricity savings by 2012, and 20% by 2020. This legislation also authorizes FERC (upon petition of the governor of any state) to increase the 27 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 proportion of compliance that can be met with efficiency savings up to 2/5 for electric suppliers located within that state.With respect to transmission issues, the Senate Bill addresses planning, sitting, and cost allocation. | |||
FERC is to publish rules establishing planning principles for the development of interconnection-wide plans, which identify high-priority national transmission projects, and to lead coordination of such plans. FERC will have the authority to approve the construction of high-priority national transmission projects that it finds to be in the public interest, if the state rejects the application of the project. Furthermore, FERC is to establish rules governing cost allocation methodologies for high-priority transmission projects, and may allocate costs to Load Servicing Entities within all, or part of a region. The costs may not be allocated unless they are reasonably proportional to measurable economic and regional benefits. | |||
Also, costs may be allocated to generators of electricity connected by a high-priority national transmission project.Cyber assets security is also being addressed in the Senate Bill. If the Secretary of Energy determines that immediate action is necessary to protect critical electric infrastructure from a cyber security threat, the secretary may require, by order, with or without notice, people subject to the jurisdiction of FERC to take actions that the Secretary of Energy determines will best avert or mitigate the cyber security threat.The overall impact of the proposed legislation on the Department cannot be predicted at this time.28 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (4) Utility Plant The Power System had the following activities in utility plant during fiscal year 2009 (amounts in thousands): | |||
Nondepreciable utility plant: Land and land rights Construction work in progress Nuclear fuel Natural gas field Balance, July 1, 2008$ 155,707 889,226 32,982 228,824 Total nondepreciable utility plant Depreciable utility plant: Generation Transmission Distribution General Additions 21 371,182 10,639 1,614 383,456 7,541 5,829 236,305 73,230 Retirements and disposals (349)(6,717)(6,821)(13,887)(2,019)(2,205)(2,222)(291)(651,293)Transfers 1,306,739 3,487,385 797,845 4,711,830 1,027,269 (651,293)415,861 71,556 157,303 6,573 Balance, June 30, 2009 155,379 609,115 36,904 223,617 1,025,015 3,908,768 873,025 5,103,216 1,106,781 10,991,790 (2,244,648) | |||
(312,584)(2,145,666) | |||
(697,265)(5,400,163) 6,616,642 Total depreciable utility plant 10,024,329 322,905 (6,737) 651,293 Accumulated depreciation: | |||
Generation Transmission Distribution General (2,133,877) | |||
(298,689)(2,014,129) | |||
(672,543)(112,790)(16,100)(133,759)(25,013)2,019 2,205 2,222 291 Total accumulated depreciation Total utility plant, net (5,119,238) | |||
(287,662) 6,737$ 6,211,830 418,699 (13,887)Depreciation and amortization expense during fiscal year 2009 was $293.2 million.Land and land rights are recorded on the balance sheet as utility plant in their functional category.29 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The Power System had the following activities in utility plant during fiscal year 2008 (amounts in thousands): | |||
Nondepreciable utility plant: Land and land rights Construction work in progress Nuclear fuel Natural gas field Balance, July 1, 2007$ 143,513 773,694 18,311 235,163 Additions 12,194 306,635 20,340 1,071 Retirements and disposals (5,669)(7,410)(13,079)(29,727)(97,451)(1,587)(2,824)Transfers (191,103)Balance, June 30, 2008 155,707 889,226 32,982 228,824 1,306,739 3,487,385 797,845 4,711,830 1,027,269 Total nondepreciable utility plant Depreciable utility plant: Generation Transmission Distribution General 1,170,681 340,240 3,465,219 882,586 4,400,292 974,186 40,280 6,000 155,380 40,872 (191,103)11,613 6,710 157,745 15,035 Total depreciable utility plant 9,722,283 242,532 (131,589) 191,103 10,024,329 Accumulated depreciation: | |||
Generation Transmission Distribution General (2,049,213) | |||
(376,658)(1,893,791) | |||
(650,214)(114,391)(19,482)(121,925)(25,153)29,727 97,451 1,587 2,824 (2,133,877) | |||
(298,689)(2,014,129) | |||
(672,543)Total accumulated depreciation (4,969,876) | |||
(280,951) 131,589 -(5,119,238) | |||
Total utility plant, net$ 5,923,088 301,821 (13,079)6,211,830 Depreciation and amortization expense during fiscal year 2008 was $281.5 million.Land and land rights are recorded on the balance sheet as utility plant in their functional category.30 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (5) Jointly Owned Utility Plant The Power System has direct interests in several electricity generating stations and transmission systems, which are jointly owned with other utilities. | |||
As of June 30, 2009 and 2008, utility plant includes the following amounts related to the Power System's ownership interest in each jointly owned utility plant (amounts in thousands, except as indicated): | |||
Ownership interest Share of capacity (MWs)Utility plant in service June 30, 2009 Accumulated Cost depreciation Utility plant in service June 30, 2008 Accumulated Cost depreciation Palo Verde Nuclear Generating Station Navajo Generating Station Mohave Generating Station Pacific Intertie DC Transmission Line Other transmission systems 5.7%21.2 10.0 40.0 224 $ 564,654 477 316,560-57,913 332,324 284,486 57,852 567,538 315,978 57,913 318,491 269,955 56,851 1,240 170,808 44,599 161,623 40,678 Various 84,779 44,652 81,167 43,544$ 1,194,714 763,913 1,184,219 729,519 The Power System will incur operating costs related to the jointly owned facilities, regardless of the amount or its ability to take delivery of its share of energy generated. | |||
The Power System's proportionate share of the operating costs of the joint plants is included in the corresponding categories of operating expenses.(6) Purchase Power Commitments As of June 30, 2009, the Power System has entered into a number of energy and transmission service contracts, which involve substantial commitments as follows (amounts in thousands, except as indicated): | |||
The Power System's interest in agency's share Agency Capacity Outstanding Agency share Interest (MWs) principal Intermountain Power Project Palo Verde Nuclear Generating Station Mead-Adelanto Project Mead-Phoenix Project Southern Transmission System IPA SCPPA SCPPA SCPPA SCPPA 100.0%5.9 68.0 17.8-22.4 100.0 57.1%67.0 36.0 25.0 60.0 1,027 $ 1,087,209 151 291 148 1,142 66,886 71,383 15,793 554,434 IPA -The Intermountain Power Agency (IPA) is an agency of the state of Utah established to own, acquire, construct, operate, maintain, and repair the Intermountain Power Project (IPP). The Power System serves as the project manager and operating agent of IPP.SCPPA -The Southern California Public Power Authority, is a California Joint Powers Agency. SCPPA's interest in the Mead-Phoenix Project includes three components. | |||
31 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The above agreements require the Power System to make certain minimum payments, which are based primarily upon debt service requirements. | |||
In addition to average annual fixed charges of approximately | |||
$285 million during each of the next five years, the Power System is required to pay for operating and maintenance costs related to actual deliveries of energy under these agreements (averaging approximately | |||
$384 million annually during each of the next five years). The Power System made total payments under these agreements of approximately | |||
$496 million and $490 million in fiscal years 2009 and 2008, respectively. | |||
These agreements are scheduled to expire from 2027 to 2030.The Power System earned fees under the IPP project manager and operating agent agreements totaling$18.4 million and $16.0 million in fiscal years 2009 and 2008, respectively.(a) Long-Term Notes Receivable Under the terms of its purchase power agreement with IPA, the Department is charged for its output entitlements based on its share of IPA's costs, including debt service. During fiscal year 2000, the Department restructured a portion of this obligation by transferring | |||
$1.11 billion to IPA in exchange for long-term notes receivable. | |||
The funds transferred were obtained from the debt reduction trust funds and through the issuance of new variable rate debentures (see notes 7 and 10). IPA used the proceeds from these transactions to defease and to tender bonds with par values of approximately | |||
$618 million and $611 million, respectively. | |||
On September 7, 2000, the Department paid $187 million to IPA in exchange for additional long-term notes receivable. | |||
IPA used the proceeds to defease bonds with a face value of$198 million.On July 20, 2005, the Department paid $97 million to IPA in exchange for additional long-term notes receivable. | |||
IPA used the proceeds to defease bonds with a face value of $92 million.The IPA notes are subordinate to all of IPA's publicly held debt obligations. | |||
The Power System's future payments to IPA will be partially offset by interest payments and principal maturities from the subordinated notes receivable. | |||
The net IPA notes receivable balance totaled $1.11 billion and$1.12 billion as of June 30, 2009 and 2008, respectively. | |||
The IPA notes pay interest and principal monthly and mature on July 1, 2023. The interest rates range from 4.9% to 6.4%, subject to adjustments related to IPA bond refundings.(b) Energy Entitlement The Department has a contract through 2017 with the U.S. Department of Energy for the purchase of available energy generated at the Hoover Power Plant. The Power System's share of capacity at Hoover is approximately 500 MWs (maximum capability). | |||
The cost of power purchased under this contract was $16 million and $15 million as of June 30, 2009 and 2008, respectively. | |||
The Department has a contract through 2026 with SCPPA for the purchase of available energy generated at the Pebble Springs Wind Project located in Gilliam County, Oregon. The Power System's share of capacity at Pebble Springs is approximately 69 MWs (maximum capacity). | |||
The cost of power purchased under this contract was $5 million as of June 30, 2009.32 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (7) Cash, Cash Equivalents, and Investments (a) Restricted and Other Investments A summary of the Power System's restricted and other investments is as follows (amounts in thousands): | |||
June 30 Restricted and other investments: | |||
Restricted investments: | |||
Debt Reduction Trust Funds Nuclear Decommissioning Trust Funds Natural Gas Trust Fund Power Rate Stabilization Fund Hazardous Waste Treatment Trust Fund SCPPA Palo Verde investment Total restricted investments Other investments: | |||
Cash collateral received from securities lending transactions | |||
-Department program only*(see note 8)Total restricted and other investments 2009 2008$ 547,282 528,988 113,923 110,234 25,040 25,133-- 24,397 2,122 33,707 34,594 722,074 723,346 8,591 115,409$ 730,665 838,755* The Power System also has $0 and $124,294 of cash collateral received from securities lending transactions in the City's securities lending program as of June 30, 2009 and 2008, respectively (see notes 7(b) and 8).All restricted and other investments are to be used for a specific purpose as follows: Debt Reduction Trust Funds The debt reduction trust funds were established during fiscal year 1997 to provide for the payment of principal and interest on long-term debt obligations and purchased power obligations arising from the Department's participation in IPP and SCPPA (see note 6). The Department has transferred funds from purchased power precollections into these trust funds. Funds from operations may also be transferred by management as funds become available. | |||
Nuclear Decommissioning Trust Funds Nuclear decommissioning trust funds will be used to pay the Department's share of decommissioning PVNGS at the end of its useful life (see note 1).33 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Natural Gas Trust Fund The natural gas trust fund was established to serve as depository to pay for costs and to post margin or collateral in connection with contracts for the purchase and delivery of financial transactions for natural gas. These transactions are entered into to stabilize the natural gas portion of the Department's fuel for generation costs.Power Rate Stabilization Fund The power rate stabilization fund was established in accordance with the general provisions section of the Department's electric rates to offset any unexpected revenue losses. The fund was closed in June 2009.Hazardous Waste Treatment Storage and Disposal Trust Fund The hazardous waste treatment storage and disposal trust fund was established to provide financial assurance for closure of the Main Street treatment and disposal facility.SCPPA Palo Verde Investment The SCPPA Palo Verde investment is a fixed rate investment held by SCPPA to be drawn down over the next 8 years to pay for purchased power obligations arising from the Department's participation in the SCPPA Palo Verde project. The fixed interest rate is 4.97% and the maturity date is June 25, 2017.As of June 30, 2009, the Power System's securities lending cash collateral and restricted investments and their maturities are as follows (in thousands): | |||
1 to 30 Type of investment Fair value days U.S. government agencies $Medium-term notes Commercial paper Certificates of deposit California local agency bonds California state bonds Money market funds Securities lending cash collateral: | |||
Money market funds SCPPA Palo Verde investment | |||
$475,702 59,867 9,982 11,018 9,981 5,680 116,138 8,591 2,889 Investment maturiti 31 to 60 61 to 365 days days 1,216 98,743 8,333 34,818 4,993 4,989-11,018-- 1,036 311,674 13,827 64,069 366 days Over to 5 years 5 years 8,945 5,680 116,138 8,591 33,706 -730,665 142,243--- -33,706 14,542 150,604 325,501 97,775 34 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 As of June 30, 2008, the Power System's securities lending cash collateral and restricted investments and their maturities are as follows (in thousands): | |||
Investment maturities 1 to 30 31 to 60 61 to 365 366 days Over Type of investment Fair value days days days to 5 years 5 years U.S. government agencies $ 407,472 7,496 7,477 58,518 277,162 56,819 Medium-term notes 176,767 4,999 32,551 80,379 58,838 -Commercial paper 61,306 44,289 -17,017 -Certificates of deposit 39,208 11,200 1,000 27,008 -Bankers acceptances 999 999 ---Money market funds 3,000 3,000 ---Securities lending cash collateral: | |||
Repurchase agreements 86,000 86,000 ---Commercial paper 15,936 15,936 ---Money market funds 13,473 13,473 ---SCPPA Palo Verde investment 34,594 ----34,594$ 838,755 187,392 41,028 182,922 336,000 91,413 i. Interest Rate Risk The Department's investment policy limits the maturity of its investments to a maximum of 30 years for U.S. government agency securities; 5 years for medium-term corporate notes, California local agency obligations, and California state obligations and municipal bonds;270 days for commercial paper; 397 days for certificates of deposit; 180 days for bankers acceptances; and 45 days for repurchase agreements purchased with cash collateral from securities lending agreements. | |||
ii. Credit Risk Under its investment policy and the Code, the Department is subject to the prudent investor standard of care in managing all aspects of its portfolios. | |||
The prudent investor standard requires that the Department | |||
"...shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and in familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency." The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government. | |||
As of June 30, 2009 and 2008, the U.S. government agency securities in the portfolio carried the highest possible credit ratings by the Nationally Recognized Statistical Rating Organizations (NRSROs) that rated them.The Department's investment policy specifies that medium-term corporate notes must be rated in a rating category of "A" or its equivalent or better by a NRSRO. Of the Power System's 35 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 investments in corporate notes as of June 30, 2009, $33,861,542 (57%) was rated in the category of AA and $25,737,850 (43%) was rated in the category of A by at least one NRSRO.The remaining | |||
$267,713 (less than 1%) of investments in corporate notes were not rated. Of the Power System's investments in corporate notes as of June 30, 2008, $25,241,490 (15%)was rated in the category of AAA, $70,577,369 (38%) was rated in the category of AA, and$80,947,666 (47%) was rated in the category of A by at least one NRSRO.The Department's investment policy specifies that commercial paper must be of the highest ranking or of the highest letter and number rating as provided for by at least two NRSROs. As of June 30, 2009 and 2008, all of the Power System's investments in commercial paper were rated with at least the highest letter and number rating as provided by at least two NRSROs.The Department's investment policy specifies that negotiable certificates of deposit must be of the highest ranking or letter and number rating as provided for by at least two NRSROs and that for nonnegotiable certificates of deposit, the full amount of principal and interest is insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration. | |||
As of June 30, 2009, the Power System's investments in certificates of deposits included $10,018,030 of negotiable certificates of deposit of the highest ranking as provided by at least two NRSROs and $1,000,000 of nonnegotiable certificates of deposit fully insured by the FDIC. As of June 30, 2008, the Power System's investments in certificates of deposit were all negotiable certificates of deposits rated with at least the highest letter and number rating as provided for by at least two NRSROs.The Department's investment policy specifies that California local agency obligations must be rated in a rating category of "A" or its equivalent or better by a NRSRO. Of the Power System's investments in California local agency bonds as of June 30, 2009, $8,945,000 (90%)was rated in the category of AAA and $1,035,850 (10%) was rated in the category of AA by at least one NRSRO.The Department's investment policy does not establish a minimum credit rating for state of California obligations. | |||
As of June 30, 2009, the Power System's investments in State of California obligations were rated AAA by at least one NRSRO.The Department's investment policy specifies that banker's acceptances must be of the highest ranking or letter and number rating as provided for by at least two NRSROs. As of June 30, 2008, all of the Power System's investments in banker's acceptances were rated with the highest rating as provided by three NRSROs.The Department's investment policy specifies that money market funds may be purchased as allowed under the Code, which requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two NRSROs or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience in managing money market mutual funds with assets under management in excess of $500 million. As of June 30, 2009 and 2008, each of the money market funds in thel portfolio had the highest possible 36 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 ratings by three NRSROs, specifically AAAm by Standard and Poor's Corporation (S&P), Aaa by Moody's Investors Service (Moody's), and AAA by Fitch Ratings (Fitch).The Department's securities lending cash collateral investment policy specifies that repurchase agreement transactions shall be limited to broker/dealers or banks for which a securities lending line has been approved by the securities lending agent. Approved counterparties must be primary dealers in U.S. government securities that work directly with the Federal Reserve Bank of New York. Repurchase agreements must be adequately collateralized based on the margin requirements for the type of security listed in the investment policy. As of June 30, 2008, the counterparty to the repurchase agreement was an approved primary dealer rated with the highest short-term ratings as provided by two NRSROs. The collateral for the repurchase agreement consisted of mortgage-backed securities issued by U.S. government agencies that had minimum credit ratings of AAA with a margin of 102% of the repurchase agreements. | |||
The Department's securities lending cash collateral investment policy specifies that commercial paper must be of the highest ranking or of the highest letter and number rating as provided for by at least two NRSROs. As of June 30, 2008, all of the commercial paper purchased with cash collateral had the highest letter and number rating provided by two NRSROs.The Department's securities lending cash collateral investment policy specifies that money market funds may be purchased with cash collateral as allowed under the Code. As of June 30, 2009 and 2008, the money market funds purchased with cash collateral were in compliance with the Code by having either attained the highest possible ratings by at least two NRSROs or retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience in managing money market mutual funds with assets under management in excess of $500 million.iii. Concentration of Credit Risk The Department's investment policy specifies that there is no percentage limitation on the amount that can be invested in U.S. government agency securities, except that a maximum of 30% of the cost value of the portfolio may be invested in the securities of any single U.S. government agency issuer.Of the Power System's total investments as of June 30, 2009, $159,456,292 (22%) was invested in securities issued by the Federal Home Loan Bank; $154,727,884 (21%) was invested in securities issued by the Federal Home Loan Mortgage Corporation; and$140,307,268 (19%) was invested in securities issued by the Federal National Mortgage Association. | |||
Of the Power System's total investments as of June 30, 2008, $145,877,625 (17%) was invested in securities issued by the Federal Home Loan Mortgage Corporation; | |||
$128,932,312 (15%) was invested in securities issued by the Federal Home Loan Bank; and $103,799,161 (12%) was invested in securities issued by the Federal National Mortgage Association. | |||
37 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 For overnight or open repurchase agreements, the Department's securities lending policy does not limit the percentage of cash collateral that may be invested with one particular counterparty. | |||
Of the Power System's total investments as of June 30, 2008, cash collateral received from securities lending transactions of $85,000,000 (10%) was invested in an overnight repurchase agreement with Morgan Stanley. In addition, $4,980,630 (1%) was invested in a medium-term corporate note issued by Morgan Stanley, for a total of $89,980,630 (11%) invested in securities issued by Morgan Stanley.(b) Pooled In vestments The Power System's cash, cash equivalents, and its collateral value of the City's securities lending program are included within the City Treasury's general and special investment pool (the Pool). As of June 30, 2009 and 2008, the Power System's share of the Pool was $854,539,000 and$1,008,335,000, which represents approximately 15% and 14% of the Pool, respectively. | |||
At June 30, 2009, the investments held in the Pool's programs and their maturities are as follows (amounts in thousands): | |||
Investment maturities 1 to 30 days 31 to 60 days Type of investments Amount U.S. Treasury notes U.S. Treasury bills U.S. sponsored agency issues Medium term notes Commercial paper Guaranteed investment contracts Certificates of deposit Short term investment funds$ 1,613,049 44,984 1,428,909 1,047,781 1,348,312 70,081 9,000 3 164,842 992,287 70,081 44,984 82,201 25,153 235,582 61 to 365 days 182,052 125,866 120,443 9,000 366 days to 5 years 1,613,049 999,814 896,762 3 Total general and special pools $ 5,562,119 1,227,213 387,920 437,361 3,509,625 38 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 At June 30, 2008, the investments held in the Pool's programs and their maturities are as follows (amounts in thousands): | |||
Investment maturities 1 to 30 31 to 60 61 to 365 366 days Type of investment Amount days days days to 5 years U.S. Treasury notes $ 1,619,055 | |||
---1,619,055 U.S. government agencies 1,530,897 230,356 174,594 224,569 901,378 Medium-term notes 1,186,097 | |||
-352,990 833,107 Commercial paper 1,984,742 1,450,906 386,282 147,554 -Guaranteed investment contract 135,224 135,224 --Certificates of deposit 8,000 --8,000 State of California LAIF 1 1 --Short-term investment funds 38 38 ---Securities lending cash collateral: | |||
U.S. Treasury notes 918,758 ---918,758 U.S. government agencies 10,721 -- --- 10,721 Total general and special pools $ 7,393,533 1,816,525 560,876 733,113 4,283,019 Interest Rate Risk. The City's pooled investment policy limits the maturity of its investments to a maximum of five years for U.S. Treasury and federal agency securities, medium term corporate notes, and bonds issued by local agencies; 270 days for commercial paper, and 32 days for repurchase agreements. | |||
Credit Risk. The City's pooled investment policy requires that for all classes of investments, except linked banking program certificates of deposits, the issuers' minimum credit ratings shall be Standard and Poor's Corporation (S&P) A-i/A or Moody's Investor Services (Moody's) | |||
P-l/A2 and, if available, Fitch IBCA Fl/A. In addition, domestic banks are limited to those with a current Fitch Ratings BankWatch of "B/C" or better and an A-1 short-term rating. The City Treasurer is granted the authority to specify approved California banks with a Fitch Ratings BankWatch of "C" or better and an A-2 rating where appropriate. | |||
In addition to a "AAA" rating for country risk, foreign banks with domestic licensed offices must be rated "B" or better and TBW-1 short-term rating by Fitch Ratings BankWatch. | |||
Domestic savings banks must be rated "B/C" or better and a TBW- 1 short-term rating by Fitch Ratings BankWatch. | |||
Medium term notes must be issued by corporations operating within the United States and having total assets in excess of $500 million. Commercial paper issuers must meet the preceding requirement or must be issued by corporations organized in the United States as a special purpose corporation, trust or limited liability company having program-wide credit enhancements. | |||
At June 30, 2009, the City's $1.43 billion investments in U.S. government sponsored enterprises consist of securities issued by the Federal Home Loan Bank -$472.7 million, Federal National Mortgage Association | |||
-$272.4 million, Federal Home Loan Mortgage Corporation | |||
-$398.9 million, Federal Farm Credit Bank -$126.0 million, Tennessee Valley Authority | |||
-39 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008$37.1 million, Freddie Mac Discount Note -$69.3 million, and Farmer Mac Federal Agricultural | |||
-$52.6 million. As of June 30, 2009, these securities carried the highest ratings of AAA (S&P) and Aaa (Moody's). | |||
The City's $1.05 billion investments in medium-term notes consist of securities issued by banks and corporations that comply with the requirements discussed above and were rated "A" or better by S&P and "A3" or better by Moody's.The City's $1.35 billion investments in commercial paper comply with the requirements discussed above and were rated A-I+/A-1 by S&P and P-1 by Moody's.The issuers of the certificates of deposits are not rated.At June 30, 2008 the City's $1.53 billion investments in U.S. government-sponsored enterprises consist of securities issued by the Federal Home Loan Bank -$594.5 million, Federal National Mortgage Association | |||
-$293.8 million, Federal Home Loan Mortgage Corporation | |||
-$537.2 million, and Federal Farm Credit Bank -$105.5 million. As of June 30, 2008, these securities carried the highest ratings of AAA (S&P) and Aaa (Moody's). | |||
The City's $1.19 billion investments in medium-term notes consist of securities issued by banks and corporations that comply with the requirements discussed above and were rated "A" or better by S&P and "A3" or better by Moody's.The City's $1.98 billion investments in commercial paper comply with the requirements discussed above and were rated AAA/A-1/A-1+ | |||
by S&P and Aaa/P-1 by Moody's.The issuers of the guaranteed investment contracts, certificates of deposits, and the State of California Local Agency Investment Fund (LAIF) are not rated.Concentration of Credit Risk. The City's investment policy does not allow more than 10% of its investments portfolio, except U.S. Treasury and U.S. sponsored agency issues, to be invested in securities of a single issuer including its related entities. | |||
The City's investment policy further provides for a maximum concentration limit of 30% on any individual federal agency or government-sponsored entity. The City's pooled investments comply with these requirements. | |||
GAAP requires disclosure of certain investments in any one issuer that represent 5% or more of total investments. | |||
Of the City's total pooled investments as of June 30, 2009, $472.7 million (9%) was invested in securities issued by the Federal Home Loan Bank, $398.9 million (7%) was invested in securities issued by Federal Home Loan Mortgage Corporation, and $272.4 million (5%) was invested in securities issued by Federal National Mortgage Association. | |||
Of the City's total pooled investments as of June 30, 2008, $594.5 million (8%) was invested in securities issued by the Federal Home Loan Bank and $537.2 million (7%) was invested in securities issued by Federal Home Loan Mortgage Corporation. | |||
40 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (8) Securities Lending Transactions The Power System participates in a securities lending program as follows (collateral amounts in thousands): | |||
June 30 Program 2009 2008 Department Program $ 8,591 115,409 City of Los Angeles Program -124,294$ 8,591 239,703 (a) Department Program In December 1999, the Department initiated a securities lending program managed by its custodial bank to increase interest income. The bank lends up to 20% of the investments held in the debt reduction trust funds, decommissioning trust funds, postemployment healthcare benefits trust for securities, cash collateral or letters of credit equal to 102% of the market value of the loaned securities, and interest, if any. The Department can sell securities received as collateral only in the event of borrower default. Both the investments purchased with the cash collateral received and the related liability to repay the cash collateral are reported on the balance sheets. A summary of the Power System's portion of the Department's securities lending program as of June 30, 2009 and 2008 is as follows (amounts in thousands): | |||
June30 2009 2008 Fair value Fair value Securities lent of underlying Collateral of underlying Collateral for cash collateral securities book value securities book value U.S. government and agency securities | |||
$ 8,387 8,591 113,063 115,409 Cash collateral received is reinvested by the lending agent in open repurchase agreements, money market funds, and short-term commercial papers so that the maturities of reinvested cash collateral sufficiently match the maturities of the underlying securities lent. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during fiscal years 2009 and 2008.(b) General Investment Pool Program The Power System also participates in the City's securities lending program through the pooled investment fund. The City's program has substantially the same terms as the Department's direct securities lending program. The Department recognizes its proportionate share of the cash collateral received for securities loaned and the related obligation for the general investment pool. However, due to the extreme volatility in the financial markets over the past 12 months resulting from the 41 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 global financial crisis, and counterparty risks, the City temporarily suspended its securities lending program in November 2008. The City, however, continues to monitor the financial markets and will re-enter the securities lending market when deemed appropriate. | |||
As of June 30, 2009 and 2008, the Power System's attributed share of cash collateral and the related obligation from the City's program were $0 and $124.3 million, respectively. | |||
Securities lending is permitted and limited under provisions of the Code's Section 53601. The City Council approved the Securities Lending Program (the SLP) on October 22, 1991 under Council File No. 91-1860, which complies with the Code. The objectives of the SLP in priority order are: safety of loaned securities and prudent investment of cash collateral to enhance revenue from the investment program. The SLP is governed by a separate policy and guidelines, with oversight responsibility of the Investment Advisory Committee. | |||
The City's custodial bank acts as the securities lending agent. In the event a counterparty defaults by reason of an act of insolvency; the bank shall take all actions that it deems necessary or appropriate to liquidate permitted investment and collateral in connection with such transaction and shall make a reasonable effort for two business days (Replacement Period) to apply the proceeds thereof to the purchase of securities identical to the loaned securities not returned. | |||
If during the Replacement Period the collateral liquidation proceeds are insufficient to replace any of the loaned securities not returned, the bank shall, subject to payment by the City of the amount of any losses on any permitted investments, pay such additional amounts as necessary to make such replacement. | |||
Under the provisions of the SLP, and in accordance with the Code, no more than 20% of the market value of the General Investment Pool (the Pool) is available for lending. The City receives cash as collateral on loaned securities, which is reinvested in securities permitted under the policy. In accordance with the Code, the securities lending agent marks to market the value of both the collateral and the reinvestments daily. Except for open loans where either party can terminate a lending contract on demand, term loans have a maximum life of 90 days. Earnings from securities lending accrue to the Pool and are allocated on a pro rata basis to all Pool participants. | |||
At June 30, 2009 and 2008, the assets and liabilities arising from the reinvested cash collateral were recognized in the respective participants' financial statements. | |||
During the fiscal year, collateralizations on all loaned securities were within the required 102% of market value. The City can sell collateral securities only in the event of borrower default. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during the year. There was no credit risk exposure to the City as of June 30, 2008 because the amounts owed to the borrowers exceeded the amounts borrowed. | |||
Loaned securities are held by the City's agents in the City's name and are not subject to custodial credit risk.(9) Derivative Instruments In accordance with GASB Technical Bulletin 2003-01, the Power System does not record its derivative instruments on the balance sheets, but instead discloses the derivatives in the notes to the financial statements and records the impact upon settlement of the derivatives. | |||
The Power System had three main types of derivative instruments as of June 30, 2009 and 2008: electricity swaps, forward contracts, and 42 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 financial natural gas hedges. As of June 30, 2009 and 2008, the fair values of these outstanding derivative instruments were $(168.9) million and $213.4 million, respectively.(a) Objective of Electricity Swap and Forward Transactions In order to obtain the highest market value on energy that is sold into the wholesale market, the Department monitors the sales price of energy, which varies based on which hub the energy is to be delivered. | |||
There are three primary hubs within the Department's transmission region: Palo Verde, California Oregon Border, and Mead. The Department enters into various locational swap transactions with other electric utilities in order to effectively utilize its transmission capacity and to achieve the most economical exchange of energy purchased and sold.The Department enters into forward contracts in order to meet the electricity requirements to serve its customers. | |||
The Department does not enter into swap and forward transactions for trading purposes. | |||
The Department is exposed to risk of nonperformance if the counterparties default or if the swap agreements are terminated.(b) Objective of Financial Natural Gas Hedges The Department enters into natural gas hedging contracts in order to stabilize the cost of gas needed to produce electricity to serve its customers. | |||
As of June 30, 2009, the Power System had the following derivatives, which were not recorded on its balance sheet (amounts in thousands): | |||
Contract First Last Cash paid Derivative Total contract price range effective termination Fair at derivative description quantities | |||
$per unit date date value inception Electricity swaps: Purchases 902,598 MW $ 40.00- 74.95 07/01/09 12/31/09 (10,736) -Sales 902,598 MW 24.50 -48.70 07/01/09 12/31/09 1,106 -Forward contracts: | |||
Electricity 1,778,934 MW 37.52 -75.67 07/01/09 12/31/11 (42,668) -Natural gas 25,440,000 MMBtu 5.28-5.71 07/01/09 01/31/14 (3,981) -Financial natural gas: Hedges* 97,042,000 MMBtu 2.56-9.85 07/01/09 06/30/18 (112,586)* Financial hedges were variable to fixed rate swaps that serve to lock in a fixed cost of natural gas.43 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 As of June 30, 2008, the Power System had the following derivatives, which were not recorded on its balance sheet (amounts in thousands): | |||
Contract First Last Cash paid Derivative Total contract price range effective termination Fair at derivative description quantities | |||
$per unit date date value inception Electricity swaps: Purchases 309,120 MW $ 128.36 07/01/08 12/31/08 $ 193 -Sales 309,120 MW 130.71 07/01/08 12/31/08 529 -Forward contracts: | |||
Electricity 2,041,968 MW 69.30- 118.31 07/01/08 12/31/11 37,356 -Natural gas 584,000 MMBtu 8.91 -11.78 07/01/08 09/30/08 269 -Financial natural gas: Hedges* 78,738,500 MMBtu 4.30-9.85 07/01/08 06/30/17 175,060 (81)* Financial hedges were variable to fixed rate swaps that serve to lock in a fixed cost of natural gas.(c) Fair Value All fair values were estimated using forward market prices available from broker quotes and exchanges.(d) Credit Risk The Power System is exposed to credit risk related to nonperformance by its wholesale counterparties under the terms of contractual agreements. | |||
In order to limit the risk of counterparty default, the Department has implemented a Wholesale Marketing Counterparty Evaluation Policy, which was amended and renamed as Counterparty Evaluation Credit Policy (the Policy), and was approved by the Board on May 6, 2008. Under the new policy, the scope has been expanded beyond physical power to include transmission, physical natural gas, and financial natural gas. Also, the credit limit structure has been categorized into short-term and long-term structures where the short-term structure is applicable to transactions with terms of up to 18 months and the long-term structure to cover transactions beyond 18 months.The Policy includes provisions to limit risk including: | |||
the assignment of internal credit ratings to all Department's counterparties based on counterparty and/or debt ratings; the use of expected default frequency equivalent credit rating for short-term transactions; the requirement for credit enhancements (including advance payments, irrevocable letters of credit, escrow trust accounts, and parent company guarantees) for counterparties that do not meet an acceptable level of risk; and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. | |||
As of June 30, 2009, the 11 financial natural gas hedge counterparties were rated by Moody's as follows: one at Aaa, two at Aal, one at Aa2, two at Aa3, three at Al, and two at A2. The counterparties were rated by S&P as follows: two at AA, three at AA-, two at A+, and four at A. As of June 30, 2008, the 12 financial natural gas hedge counterparties were rated by Moody's as 44 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 follows: three at Aaa, five at Aal, two at Aa3, and two at Al. The counterparties were rated by S&P as follows: two at AA+, four at AA, three at AA-, one at A+, and two at A.Based on the International Swap Dealers Association agreements, the Department obtains collateral to support derivatives subject to credit risk in the form of cash, negotiable debt instruments (other than interest-only and principal-only securities), or eligible letters of credit. Collateral posted by a counterparty is held by a custodian. | |||
As discussed in note 14, during fiscal year 2001, the Power System experienced nonperformance and material counterparty default with the CAISO and the California Power Exchange (CPX). The Power System does not anticipate nonperformance by any other of its counterparties and has no reserves related to nonperformance at June 30, 2009 and 2008, respectively. | |||
Apart from the events discussed in note 14, the Power System did not experience any material counterparty default during fiscal year 2009 or 2008.(e) Basis Risk The Department mitigates basis risk through long-term physical transportation contracts.(D Termination Risk The Power System or its counterparties may terminate the contractual agreements if the other party fails to perform under the terms of the contract. | |||
No termination events have occurred and there are no out-of-the-ordinary termination events contained in contractual documents. | |||
45 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (10) Long-Term Debt Long-term debt outstanding as of June 30, 2009 and 2008 consists of revenue bonds and refunding revenue bonds due serially in varying annual amounts as follows (amounts in thousands): | |||
Fiscal year of last scheduled Principal outstanding maturity 2009 2008 Bond issues Issue of 2001, Series Al Issue of 2001, Series A2 Issue of 2001, Series B Issue of 2001, Series Cl Issue of 2002, Series A Issue of 2002, Series C2 Issue of 2003, Series Al Issue of 2003, Series A2 Issue of 2003, Series B Issue of 2004, Series C3 Issue of 2005, Series Al Issue of 2005, Series A2 Issue of 2006, Series C4 Issue of 2007, Series Al Issue of 2007, Series A2 Issue of 2007, Series B Issue of 2008, Series AI Issue of 2008, Series Al Issue of 2009, Series A Issue of 2009, Series B Date of issue 03/20/01 11/06/01 06/05/01 11/15/01 08/22/02 11/22/02 07/31/03 08/19/03 08/28/03 04/07/04 12/28/05 12/28/05 03/01/06 10/18/07 10/18/07 10/18/07 11/25/08 11/25/08 02/19/09 06/02/09 Effective-interest rate 4.931%5.109 Variable 4.788 Variable 4.375 3.409 4.662 5.013 4.298 4.700 4.700 4.040 4.659 4.638 Variable 5.583 5.039 4.773 4.563 2025 2022 2035 2017 2036 2018 2017 2032 2036 2020 2041 2031 2017 2040 2033 2042 2039 2033 2040 2025$ 813,055 109,095 580,800 3,040 388,500 8,688 307,655 515,830 196,495 9,905 601,895 315,195 7,973 337,630 191,125 200,000 350,000 123,120 172,125 5,232,126 993,895 109,095 580,800 3,117 388,500 8,931 347,675 515,830 200,000 10,038 616,895 315,195 8,056 337,630 191,125 125,000 Total principal amount Revenue certificates Unamortized premiums, discounts, and debt-related costs (including net loss on refundings), net Debt due within one year (including current portion of variable rate debt)200,000 27,609 4,751,782 200,000 25,401 (217,882) | |||
(175,455)$ 5,241,853 4,801,728 46 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Revenue bonds generally are callable 10 years after issuance. | |||
The Department has agreed to certain covenants with respect to bonded indebtedness. | |||
Significant covenants include the requirement that the Power Systems' net income, as defined, will be sufficient to pay certain amounts of future annual bond interest and of future annual aggregate bond interest and principal maturities. | |||
Revenue bonds and refunding bonds are collateralized by the future revenues of the Power System.(a) Long-Term Debt Activity The Power System had the following activity in long-term debt for the fiscal years ended June 30, 2009 and 2008 (amounts in thousands): | |||
Balance, Balance Current July 1, 2008 Additions Reductions June 30, 2009 portion Long-term debt: Bonds $ 4,777,183 850,459 (367,907) 5,259,735 197,882 Revenue certificates 200,000 -- -- 200,000 20,000 Total $ 4,977,183 850,459 (367,907) 5,459,735 217,882 Balance, Balance Current July 1, 2007 Additions Reductions June 30, 2008 portion Long-term debt: Bonds $ 4,141,883 678,946 (43,646) 4,777,183 155,455 Revenue certificates 200,000 --- 200,000 20,000 Total $ 4,341,883 678,946 (43,646) 4,977,183 175,455 (b) New Issuances Fiscal Year 2009 In November 2008, the Power System issued $550 million of Power System Revenue Bonds, 2008 Series A. The net proceeds of $540 million from the transaction, which included a net issue discount and underwriters' discount of $10 million, were deposited into the construction fund to be used for capital improvements. | |||
In February 2009, the Power System issued $123.12 million of Power System Revenue Bonds, 2009 Series A. The net proceeds of $125 million from the transaction, net of $1.9 million issue premium and underwriters' discount, were used to redeem the $125 million Power System Variable Rate Revenue Bonds, 2007 Series B. This transaction resulted in a $157.6 million net present value savings and a net loss for accounting purposes of $953 thousand which was deferred and is being amortized over the life of the new bonds.In June 2009, the Power System issued $172.125 million of Power System Revenue Bonds, 2009 Series B. The net proceeds of $181 million from the transaction, net of $8.7 million issue premium and. underwriters' discount, were used to refund the Power System Revenue Bonds, 2001 Series A, 47 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Subseries A-1 maturing on July 1, 2024. This transaction resulted in a $7.28 million net present value savings and a net loss for accounting purposes of $3.2 million which was deferred and is being amortized over the life of the new bonds.(c) Outstanding Debt Defeased The Power System defeased certain revenue bonds in prior years by placing cash or the proceeds of new revenue bonds in irrevocable trusts to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the Power System's financial statements. | |||
At June 30, 2009, the following revenue bonds outstanding are considered defeased (amounts in thousands): | |||
Principal Bond issues outstanding Second issue of 1993 $ 8,340 Refunding issue of 1994 31,775 Issue of 1994 5,590$ 45,705 (d) Variable Rate Bonds As of June 30, 2009 and 2008, the Power System had $969.3 million in variable rate bonds.The variable rate bonds currently bear interest at weekly and daily rates ranging from 0.27% to 0.30% as of June 30, 2009 and 1.55% to 1.65% as of June 30, 2008. The Power System can elect to change the interest rate period of the bonds with certain limitations. | |||
The bondholders have the right to tender the bonds to the tender agent on any business day with seven days' prior notice. The Power System has entered into standby and line of credit agreements with a syndicate of commercial banks in an initial amount of $580.8 million and $388.5 million to provide liquidity for the variable rate bonds. The extended standby agreements expire in January 2010 for the $580.8 million issue and in June 2010 for the $388.5 million issue.The bonds that would be issued under the agreements will bear interest that is payable quarterly at the greater of the Federal Funds Rate plus 0.50% or the bank's announced base rate, as defined. The unpaid principal of bonds purchased is payable in 10 equal semiannual installments, commencing after the termination of the agreement. | |||
At its discretion, the Power System has the ability to convert the outstanding bonds to fixed rate obligations, which cannot be tendered by the bondholders. | |||
The variable rate bonds have been classified as long term on the balance sheets as the liquidity facilities give the Power System the ability to refinance on a long term basis and the Power System intends to either renew the facility or exercise its right to tender the debt as a long term financing. | |||
The portion that would be due in the next fiscal year in the event that the outstanding variable rate bonds were tendered and purchased by the commercial banks under the standby agreements has been 48 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 included in the current portion of long term debt and was $96.9 million at both June 30, 2009 and 2008.(e) Revenue Certificates As of June 30, 2009 and 2008, the Power System has outstanding | |||
$200 million of commercial paper bearing interest at an average rate of 0.33%. The commercial paper matures not more than 270 days from the date of issuance.Effective September 6, 2007, the Department entered into a letter of credit and reimbursement agreement (the Agreement) with a commercial bank in the amount of $200 million to provide liquidity and credit support for the Department's commercial paper program. The agreement secures the payment when due of the principal and interest on commercial paper issued on or after September 6, 2007. Drawings on the agreement will represent advances to the Department and will bear interest that is payable monthly at the Federal Funds Rate plus 0.5% of the banks announced base rate as defined. The unpaid principal of each advance is payable in ten equal semi-annual installments, commencing on the date six months after the advance. The Agreement terminates on September 5, 2010.The revenue certificates have been classified as long term debt on the balance sheets as the Agreement gives the Power System the ability to refinance on a long term basis and the Power System intends to either renew the Agreement or exercise its option to draw on the Agreement. | |||
The portion that would be due in the next fiscal year in the event that the outstanding revenue certificates were advanced by the commercial bank under the Agreement has been included in the current portion of long term debt and was $20 million at both June 30, 2009 and 2008.(j9 Scheduled Principal Maturities and Interest Scheduled annual principal maturities and interest are as follows (amounts in thousands): | |||
Fiscal year(s) ending June 30: 2010 2011 2012 2013 2014 2015-2019 2020 -2024 2025 -2029 2030 -2034 2035 -2039 2040 -2044 Total requirements Principal$ 100,952 122,205 135,794 143,091 146,990 756,884 846,670 988,890 1,155,040 764,680 70,930$ 5,232,126 Interest and amortization 236,569 230,450 224,291 217,285 209,978 938,755 739,009 519,979 290,997 76,622 938 3,684,873 49 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The maturity schedule presented above reflects the scheduled debt service requirements for all of the Power System's long-term debt. The schedule is presented assuming that the tender options on the variable rate bonds, as discussed on the previous page, will not be exercised and that the full amount of the revenue certificates will be renewed. Should the bondholders exercise the tender options and the Power System convert all of the revenue certificates under the line of credit, the Power System would be required to redeem the $1,169.3 million in variable rate bonds outstanding over the next six years, as follows: $116.93 million in fiscal year 2010, $233.86 million in each of the fiscal years 2011 through 2014, and $116.93 million in fiscal year 2015. Accordingly, the balance sheets recognize the possibility of the exercise of the tender options and reflect the $116.93 million that could be due in fiscal year 2010 as a current portion of long-term debt payable. Interest and amortization include interest requirements for variable rate bonds, using the variable debt interest rate in effect at June 30, 2009 of 0.15%.(11) Retirement, Disability, and Death Benefit Insurance Plan The Department has a funded contributory retirement, disability, and death benefit insurance plan covering substantially all of its employees. | |||
The Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) operates as a single-employer defined benefit plan to provide pension benefits to eligible department employees and to provide disability and death benefits from the respective insurance funds. Plan benefits are generally based on years of service, age at retirement, and the employee's highest 12 consecutive months of salary before retirement. | |||
Active participants who joined the Plan on or after June 1, 1984 are required to contribute 6% of their annual covered payroll. Participants who joined the Plan prior to June 1, 1984 contribute an amount based upon an entry-age percentage rate.The Department contributes | |||
$1.10 for each $1.00 contributed by participants plus an actuarially determined annual required contribution (ARC) as determined by the Plan's independent actuary. The required contributions are allocated between the Power System and the Water System based on the current year labor costs.The Retirement Board of Administration (the Retirement Board) is the administrator of the Plan. The Plan is subject to provisions of the Charter of the City of Los Angeles and the regulations and instructions of the Board. The Plan is an independent pension trust fund of the City.Plan amendments must be approved by both the Retirement Board and the Board. The Plan issues separately available financial statements on an annual basis. Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 N. Hope, Room 357, Los Angeles, CA 90012.50 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The annual pension cost (APC) and net pension asset for the Department's Plan consist of the following (amounts in thousands): | |||
Annual required contribution Interest on net pension asset Adjustment to annual required contribution APC (including | |||
$44.3 million and $42.1 million of amounts capitalized in fiscal years 2009 and 2008, respectively) | |||
Department contributions Change in net pension asset Net pension asset at beginning of year Net pension asset at end of year Year ended June 30 2009 2008 143,698 144,744 (11,175) (10,514)16,652 15,667 149,175 (144,916)4,259 (123,310)(119,051)149,897 (142,874)7,023 (130,333)(123,310)The Power System's allocated share of the Plan's APC and net pension asset consists of the following (amounts in thousands): | |||
Annual required contribution Interest on net pension asset Adjustment to annual required contribution APC (including | |||
$26.6 million and $25.0 million of amounts capitalized in fiscal years 2009 and 2008, respectively) | |||
Power System contributions Change in net pension asset Net pension asset at beginning of year Net pension asset at end of year Year ended June 30 2009 2008$ 97,714 98,426 (7,599) (7,149)11,324 10,653 101,439 (94,604)6,835 (77,479)$ (70,644)101,930 (94,699)7,231 (84,710)(77,479)Annual required contributions are determined through actuarial valuations using the entry-age normal actuarial cost method. The actuarial value of assets in excess of the Department's Actuarial Accrued Liability (AAL) is being amortized by level contribution offsets over rolling 15-year periods effective July 1, 2000.51 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 In accordance with actuarial valuations, the Department's required contribution rates are as follows: Deficit Contribution Fiscal year Normal cost amortization rate 2009 12.68% 6.82 20.28%2008 10.26 10.50 21.59 The significant actuarial assumptions include an investment rate of return of 8.00%, projected inflation adjusted salary increases of 4.25%, and cost-of-living increases of 3.75%. The actuarial value of assets is determined using techniques that smoothen the effects of short-term volatility in the market value of investments over a five-year period. Plan assets consist primarily of corporate and government bonds, common stocks, mortgage-backed securities, and short-term investments. | |||
Trend information for fiscal years 2009, 2008, and 2007 for the Power System is as follows (amounts in thousands): | |||
Percentage NPO of APC Year ended June 30 asset contributed APC 2009 $ (70,644) 93% $ 101,439 2008 (77,479) 93 101,930 2007 (84,710) 85 100,156 (a) Disability and Death Benefits The Power System's allocated share of disability and death benefit plan costs and administrative expenses totaled $18 million and $16 million for fiscal years 2009 and 2008, respectively.(b) Funded Status and Funding Progress As of July 1, 2008, the Department's actuarial value of assets was $7.2 billion and Actuarial Accrued Liability (AAL) for benefits was $7.6 billion, resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $371.2 million. The covered payroll (annual payroll of active employees covered by the Plan) was $708.7 million, and the ratio of the UAAL to the covered payroll was 52%.As of July 1, 2007, the Department's actuarial value of assets was $6.9 billion, and Actuarial Accrued Liability (AAL) for benefits was $7.5 billion, resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $603.0 million. The covered payroll (annual payroll of active employees covered by the Plan) was $670.4 million, and the ratio of the UAAL to the covered payroll was 90%.Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the salary increases. | |||
Amounts determined regarding the funded status of the Plan and the annual required contributions of the Department are 52 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 subject to continual revision as actual results are compared with past expectations and new estimates are made for the future.- The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.(c) Current Status of Plan (Unaudited) | |||
Although still subject to audit, the July 1, 2009 actuarial study for the Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) noted the market value of the Plan's assets were approximately | |||
$5.699 billion and the unfunded actuarial accrued liability was approximately | |||
$808 million. The Plan had unrecognized investment losses of $1.6 billion as of June 30, 2009. The Plan employs a 5-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in "smoothed" assets that are lower or higher then the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. If the unrecognized investments losses were recognized immediately, required contributions to the Plan would increase form approximately 26.12% if covered payroll to 48.57% of covered payroll. Additionally, if the unrecognized investments losses were recognized immediately in the actuarial value of assets, the funded ratio of the Plan would decrease from 90% to 70%.(12) Other Postemployment Benefit (Healthcare) | |||
Plan (a) Plan Description The Department provides certain healthcare benefits to active and retired employees and their dependents. | |||
The healthcare plan is administered by the Department. | |||
The Retirement Board and the Board have the authority to approve provisions and obligations. | |||
Eligibility for benefits for retired employees is dependent on a combination of age and service of the participants pursuant to a predetermined formula. Any changes to these provisions must be approved by the Retirement Board and the Board. The total number of active and retired department participants entitled to receive benefits was approximately 16,170 and 15,875 for the year ended June 30, 2009 and 2008, respectively. | |||
The health plan is a single-employer defined benefit plan. During fiscal year 2007, the Retiree Health Benefits Fund (the Fund) was created to fund the postemployment benefits of the Department. | |||
The fund is administered as a trust and has its own financial statements. | |||
Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 N Hope, Room 357, Los Angeles, CA 90012.(b) Funding Policy The Department pays a monthly maximum subsidy of $1,212 for medical and dental premiums depending on the employee's work location and benefits earned. Participants choosing plans with a cost in excess of the subsidy they are entitled to are required to pay the difference. | |||
Although no formal funding policy has been established for the future benefits to be provided under this plan, the Department has made significant contributions into the Fund. In fiscal year 2009, the 53 (Continued) | |||
'LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Department transferred | |||
$100 million into the Fund and paid an additional | |||
$59.5 million in retiree medical premiums. | |||
In fiscal year 2008, the Department transferred | |||
$100 million in investments and cash into the Fund and paid an additional | |||
$56.5 million in retiree medical premiums. | |||
The Power System's portion of these amounts was $108.5 million and $106.5 million for 2009 and 2008, respectively.(c) Annual OPEB Cost and Net OPEB Obligation The annual OPEB cost (expense) is calculated based on the employer ARC, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost under each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.The following table shows the components of the Department's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the net OPEB asset (amounts in thousands): | |||
Year ended June 30 Annual required contribution Interest on net OPEB asset Adjustment to annual required contribution Annual OPEB costs Contributions made Change in net OPEB asset Net OPEB asset -beginning of year Net OPEB asset -end of year 2009$ 60,976 (46,027)35,089 50,038 (159,522)(109,484)(556,214)$ (665,698)2008 40,145 (35,720)26,652 31,077 (156,546)(125,469)(430,745)(556,214)54 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The following table shows the components of the Power System's share in annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the net OPEB asset (amounts in thousands): | |||
Annual required contribution Interest on net OPEB asset Adjustment to annual required contribution Annual OPEB costs Contributions made Change in net OPEB asset Net OPEB asset -beginning of year Net OPEB asset -end of year Year ended June 30 2009 2008$ 41,464 27,298 (31,299) (24,290)23,861 18,124 34,026 21,132 (108,525) | |||
(106,541)(74,499) (85,409)(381,462) | |||
(296,053)$ (455,961) | |||
(381,462)The Department's annual OPEB cost, the percentage of annual required contribution contributed to the Plan, and the net postemployment asset for fiscal years 2009, 2008, and 2007 were as follows (amounts in thousands): | |||
Annual OPEB cost Percentage of the ARC contributed Net postemployment asset 2009 2008 2007$ 50,038 31,077 81,670 319% 504% 834%$ 665,698 556,214 430,745 The Power System's share in the annual OPEB cost, the percentage of annual required contribution contributed to the Plan, and the net retirement asset for fiscal years 2009, 2008, and 2007 were as follows (amounts in thousands): | |||
Annual OPEB cost Percentage of the ARC contributed Net postemployment asset 2009$ 34,026 319%$ 455,961 2008 21,132 504%381,462 2007 55,535 833%296,053 (d) Funded Status and Funding Progress As of July 1, 2008, the Department's actuarial value of assets was $719.6 million, and Actuarial Accrued Liability (AAL) for benefits was $1.4 billion, resulting in a Unfunded Actuarial Accrued Liability (UAAL) of $638 million. The covered payroll (annual payroll of active employees covered by the Plan) was $708.7 million, and the ratio of the UAAL to the covered payroll was 90%.55 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 As of July 1, 2007, the Department's actuarial value of assets was $649.1 million, and Actuarial Accrued Liability (AAL) for benefits was $1.0 billion, resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $393 million. The covered payroll (annual payroll of active employees covered by the Plan) was $670.4 million, and the ratio of the UAAL to the covered payroll was 58%.Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the Department are subject to continual revision as actual results are compared with past expectations and new estimates are made for the future. The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.(e) Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the Department 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 Department and the 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 AAL and the actuarial value of assets, consistent with the long-term perspective of the calculations. | |||
In the July 1, 2008 actuarial valuation, the entry-age normal cost method was used. The actuarial assumptions include 8.00% discount rate, which represents the expected long-term return on plan assets, an annual healthcare cost trend rate of 9.0% initially, reduced by decrements to an ultimate rate of 5.00% after eight years. Both rates include a 3.75% inflation assumption. | |||
The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a 27-year period.In the July 1, 2007 actuarial valuation, the entry-age normal cost method was used. The actuarial assumptions include 8.00% discount rate, which represents the expected long-term return on plan assets, an annual healthcare cost trend rate of 8.5% initially, reduced by decrements to an ultimate rate of 5.00% after eight years. Both rates include a 3.75% inflation assumption. | |||
The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a 28-year period.56 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (13) Other Long-Term Liabilities (a) Other Long-Term Liabilities The Power System has the foliowing other long-term liabilities: | |||
Accrued liabilities Deferred credits: Purchased power Public benefits Rate stabilization Other Accrued workers' compensation claims Balance, July 1, 2008$ 31,340$ 382,654 69,633 48,128 3,021$ 503,436$ 32,089 Balance, July 1, 2007$ 228,181$ 457,629 38,215 3,833$ 499,677$ 28,368 Additions Reductions | |||
-- (7,580)12,949 24,702 37,651 (50,812)(1,454)(52,266)(2,961)Balance, June 30, 2009 23,760 331,842 82,582 72,830 1,567 488,821 29,128 Balance, June 30, 2008 31,340 382,654 69,633 48,128 3,021 503,436 32,089 Additions Reductions Accrued liabilities Deferred credits: Purchased power Public benefits Rate stabilization Other-- (196,841)31,418 48,128 79,546 3,721 (74,975)(812)(75,787)Accrued workers' compensation claims No portion of these liabilities is automatically due within one year.(b) Accrued Liabilities In June 2007, a tentative decision was awarded to certain public entities against the Department that claimed that they were charged more than their proportional share of the Department's capital costs in violation of Section 54999 of the Code. The Department accrued a liability of $228.2 million as of June 30, 2007 relative to the court's tentative decision. | |||
However, in October 2008, the Department settled the case with the public entities, agreeing to pay them $160 million through a combination of cash payments over a three-year period and bill credits over a 10-year period. As of June 30, 2009 and 2008, the Department has recorded $7.6 million and $128.7 million as accounts payable and$31.3 million and $23.4 million under long-term accrued liabilities, respectively. | |||
57 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 In addition, a long-term deferred debit for the settlement amount has been recognized since these costs will be recovered in the future (see note 14(d)ii).Effective January 1, 2007, the California Legislature has amended Section 54999 of the Code, et seq., to clarify that, consistent with past practices, public agencies providing public utility service, such as the Department, may impose a reasonable fee, including a rate, charge, or other surcharge for any product, commodity, or service provided to a public agency and any public agency receiving service from such public agency providing public utility services will pay the imposed fee.(c) Deferred Credits The Department has deferred credits that are related to revenues collected from customers, but have not been fully earned. These funds are deferred and recognized as costs related to these deferrals are incurred.Purchased Power Deferrals During fiscal year 2006, the Board approved the suspension of deferring precollected purchased power costs and the reversal of the precollected purchased power costs recorded in prior years. The amount reversed is the cost of energy from IPP less the amount designated in rates for out-of-market purchased power costs. The reversal of the deferred credit is credited to retail sales. During fiscal years 2009 and 2008, the Power System reversed $50.8 million and $75.0 million, respectively, related to precollected purchase power costs. At June 30, 2009 and 2008, $331.8 million and$382.6 million, respectively, remain as part of deferred credits related to precollected purchased power costs.Public Benefits In accordance with Assembly Bill 1890, as amended by Assembly Bill 995 and pursuant to direction from the Board, a percentage of the Department's retail revenue is designated for use for qualifying public benefit programs. | |||
Qualifying programs include cost-effective demand side management services to promote energy efficiency and energy conservation, new investment in renewable energy resources and technologies, development and demonstration programs to advance science and technology, and services provided for low-income electricity customers. | |||
In accordance with current legislation and the Department's plans, the program is currently expected to cease on January 1, 2012.The Department defers public benefits revenue from customers in excess of costs incurred under qualifying programs and defers qualifying expenses in excess of collections pursuant to approval received from the Board. During fiscal years 2009 and 2008, the Department spent $52.2 million and$33.1 million, respectively, on qualified public benefits programs. | |||
These programs include tree programs, investments in electric buses and vehicles, photovoltaics or solar power and other alternative energy sources, and support for low-income and life support customers. | |||
As of June 30, 2009 and 2008, the Department has recorded a deferred credit in the amount of $82.6 million, and$69.6 million due to public benefit expenses below revenues. | |||
Regulatory liabilities are reduced when 58 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 adequate public benefit expenses are incurred, and regulatory assets are recovered when the corresponding revenue is earned.Rate Stabilization Account In April 2008, the City Council approved an amendment to the electric rate ordinance, which required the balance of the Rate Stabilization Account to be maintained separately from the Energy Cost Adjustment Account. The ordinance also directed that the deferred amount within the Energy Cost Adjustment Account be the beginning balance of the Rate Stabilization Account. As a result,$24.5 million was reclassified from the Energy Cost Adjustment Account to the Rate Stabilization Account and $23.6 million was deferred in fiscal year 2008. During fiscal year 2009, $24.7 million was deferred from current year sales for resale. As of June 30, 2009 and 2008, the balance in the rate stabilization fund was $72.8 million and $48.1 million, respectively.(d) Accrued Workers' Compensation Claims Liabilities for unpaid workers' compensation claims are recorded at their present value when they are probable of occurrence and the amount can be reasonably estimated. | |||
The liability is actuarially determined, based on an estimate of the present value of the claims outstanding and an amount for claim events incurred but not reported based upon the Department's loss experience, less the amount of claims and settlements paid to date. The discount rate used to calculate this liability at its present value was 4% at June 30, 2009 and 2008. The Department has third-party insurance coverage for workers' compensation claims in excess of $1 million.Overall indicated reserves for workers' compensation claims, for both the Water System and the Power System, undiscounted, have decreased from $57.7 million as of June 30, 2008 to$53.0 million as of June 30, 2009. This decrease is mainly attributable to a downward trend in the number of cases filed at the Department and the utility industry. | |||
The increase in the June 30, 2008 liability was due to a significant number of cases that were reopened during fiscal year 2007 -2008.As the claims typically take longer than one year to settle and close out, the entire discounted liability is shown as long-term on the balance sheets as of June 30, 2009 and 2008.Changes in the Department's undiscounted liability since June 30, 2007 are summarized as follows (amounts in thousands): | |||
June 30 2009 2008 2007 Balance at beginning of year $ 57,757 49,669 61,173 Current year claims and changes in estimates 15,053 28,238 7,409 Payments applied (19,773) (20,150) (18,913)Balance at end of year $ 53,037 57,757 49,669 59 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The Power System's portion of the discounted reserves as of June 30, 2009 and 2008 is $29.1 million and $32.1 million, respectively. | |||
(14) Commitments and Contingencies (a) Transfers to the Reserve Fund of the City of Los Angeles Under the provisions of the City Charter, the Power System transfers funds at its discretion to the reserve fund of the City. Pursuant to covenants contained in the bond indentures, the transfers may not be in excess of the increase in fund net assets before transfers to the reserve fund of the City of the prior fiscal year. Such payments are not in lieu of taxes and are recorded as a transfer in the statements of revenues, expenses, and changes in fund net assets.The Department authorized total transfers of $223 million and $182 million in fiscal years 2009 and 2008, respectively, from the Power System to the reserve fund of the City.(b) Palo Verde Nuclear Generating Station (PVNGS) Matters As a joint project participant in PVNGS, the Department has certain commitments with respect to nuclear spent fuel and waste disposal. | |||
Under the Nuclear Policy Act, the Department of Energy (the DOE) is to develop facilities necessary for the storage and disposal of spent fuel and to have the first such facility in operation by 1998; however, the DOE has announced that such a repository cannot be completed before 2010. There is an ongoing litigation with respect to the DOE's ability to accept spent nuclear fuel; however, no permanent resolution has been reached. Capacity in existing fuel storage pools at PVNGS was exhausted in 2003. A Dry Cask Storage Facility (also called the Independent Spent Fuel Storage Facility) was built and completed in 2003 at a total cost of$33.9 million (about $3.3 million for the Department). | |||
The facility has the capacity to store all the spent fuel generated by the plant until the end of its life in 2026. The Department accrues for current nuclear fuel storage costs as a component of fuel expense as the fuel is burned. The Department's share of spent nuclear fuel costs related to its indirect interest in PVNGS is included in purchased power expense.The Price-Anderson Act (the Act) requires that all utilities with nuclear generating facilities share in payment for claims resulting from a nuclear incident. | |||
Participants in PVNGS currently insure potential claims and liability through commercial insurance with a $300 million limit; the remainder of the potential liability is covered by the industry wide retrospective assessment program provided under the Act. This program limits assessments to a maximum of $100.6 million for each licensee for each nuclear incident occurring at any nuclear reactor in the United States; payments under the program are limited to $10 million per incident, per year. Based on the Department's 5.70% direct interest and its 3.95% indirect investment interest through SCPPA, the Department would be responsible for a maximum assessment of $9 million per incident, limited to payments of $1 million per incident annually.(c) Environmental Matters Numerous environmental laws and regulations affect the Power System's facilities and operations. | |||
The Department monitors its compliance with laws and regulations and reviews its remediation 60 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 obligations on an ongoing basis. The following topics highlight some of the major environmental compliance issues affecting the Power System: Air Quality -Nitrogen Oxide (NOx) Emissions The Power System's generating station facilities are subject to the Regional Clean Air Incentives Market (RECLAIM) | |||
NOx emission reduction program adopted by the South Coast Air Quality Management District (SCAQMD). | |||
In accordance with this program, SCAQMD established annual NOx allocations for NOx RECLAIM facilities based on historical emissions and type of emission sources operated. | |||
These allocations are in the form of RECLAIM trading emission credits (RTCs).Facilities that exceed their allocations may buy RTCs from other companies that have emissions below their allocations. | |||
The Department has a program of installing emission controls and purchasing RTCs, as necessary, to meet its emission requirements. | |||
As a result of the installation of NOx control equipment and the repowering of existing units, the Department has sufficient RTCs to meet its native load requirements for normal operations. | |||
Air Quality -Greenhouse Gas Emissions In September 2006, Governor Schwarzenegger signed into law Assembly Bill 32, the California Global Warming Solutions Act of 2006 (Nunez, Chapter 488, Statutes of 2006). The bill requires the California Air Resources Board to develop regulations and market mechanisms that will ultimately reduce California's greenhouse gas emissions to 1990 levels by 2020, or approximately 30% from business-as-usual emission levels for 2020. Mandatory declining greenhouse gas emission caps will begin in 2012 for significant sources and be gradually reduced to meet the 2020 goals. As specified in the bill, all emissions from electricity that is consumed in the state, whether it is generated in California or in other states, will be subject to the cap. As a result, the Power System's share of emissions from IPP and other facilities outside California will be subject to this program. In December 2008, the California Air Resources Board adopted a Climate Change Scoping Plan, pursuant to AB 32. The Scoping Plan includes a number of strategies that will apply to the electricity sector, including | |||
: 1) California cap-and-trade program linked to the Western Climate Initiative, 2) energy efficiency, and 3) renewable energy.At the federal level, H.R. 2454, the American Clean Energy and Security Act was passed by the U.S.House of Representatives in June 2009. H.R. 2454 proposes a federal greenhouse gas cap-and-trade program, a national renewable energy standard, and energy efficiency requirements, among other measures to reduce greenhouse gas emissions across the economy. The U.S. Senate released similar climate change legislation on September 30, 2009. A federal cap-and-trade program may be established in the same time frame (2012) as a state cap-and-trade program, and may or may not include a moratorium that prohibits implementation of a state program prior to 2017. As such, it is possible that there may be a state program combined with or superseded by a federal program.It is uncertain at this time what impact a state program and/or federal program will have on the Power System's operations. | |||
If a state and/or federal cap-and-trade program is established, the primary issue will be the relationship between the declining cap and how allowances will be allocated to the Department and other power producers or auctioned. | |||
The target date for the Air 61 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Resources Board to adopt regulations is January 1, 2011. The goal of the regulations would be to"achieve the maximum technologically feasible and cost-effective reductions in greenhouse gas, including provisions for using both market mechanisms and alternative compliance mechanisms." The Department is actively participating in the rule making process.SB 1368 was signed into law on September 29, 2006 and requires the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) to establish a greenhouse gases emissions performance standard and implement regulations for all long-term financial commitments in base load generation made by load serving entities (LSEs) and local publicly owned electric utilities (POUs), respectively. | |||
The greenhouse gas emissions performance standard is not to exceed the rate of greenhouse gases emitted per MW hour associated with combined-cycle, gas turbine base load generation. | |||
The regulations have been adopted by the CPUC for investor-owned utilities and by the CEC for publicly owned utilities and establish an emissions performance standard of 1,100 pounds of carbon dioxide per MW hour of electricity. | |||
Power Plant Once-Through Cooling Water Systems Once-through cooling (OTC) is the process where water is drawn from a source, pumped through equipment to provide cooling, and then discharged. | |||
Some type of cooling process is necessary for nearly every type of traditional electrical generating station, and the once-through cooling process is utilized by many electrical generating stations located next to large bodies of water. Typically, the water used for cooling is not chemically changed in the process although its temperature is increased. | |||
Due to the Second Circuit Court's decision to remand most of Environmental Protection Agency's (EPA) 316(b) Rule finalized in July 2004, EPA suspended this Rule and is in the process of drafting a new rule. In the absence of EPA's 316(b) Rule, the California State Water Resources Control Board decided to move forward and is in the process of developing their own state-wide once-through cooling policy. The State wide draft policy was released in June 2009 and is expected to be adopted in December 2009. This rule will require OTC plants to reduce OTC by 93% -equivalent to wet cooling towers using seawater. | |||
This is referred to as the Track 1 compliance path.If the Track 1 compliance path is found to be infeasible, with concurrence from the Regional Board, a Track 2 compliance path can be pursued which requires that the cooling water intake structure (CWIS) achieve an impingement mortality and entrainment (IM/E) reduction level of 90% of the Track 1 compliance standard or 84.7%. The track 2 compliance standard requires the protection of aquatic organisms 200 microns and larger, and currently there is only technology available that can control aquatic life 500 microns or larger. A cost-benefit variance is available for those repowered units meeting a certain heat rate, if the cost of compliance is wholly disproportionate to the environmental benefits to be gained. Variance approval by the Regional Board allows a facility to install the best performing IM/E control technology whose costs are not wholly disproportionate to the environmental benefits. | |||
Any difference between technology performance and the state standard (84.7%) must be fully mitigated. | |||
The compliance deadline stated in the Stated wide draft policy for LADWP facilities are: HnGS 2015: HGS and SGS 2017. Beginning in 2015, interim measures must be in place till the facility is in compliance with the Policy. In addition, other regulatory changes have been made that could significantly impact operations at the Haynes, Scattergood, and Harbor Generating Stations. | |||
The Regional Water Quality Control Board reclassified the body of water that 62 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 the once-through cooling water is discharged to for the Harbor Generating Station, and sent a letter of intent to reclassify the body of water for the Haynes Generating Station discharge. | |||
Even though the Haynes Generating Station will be repowering existing units, should there be a reclassification for the water body discharges at the Haynes Generating Station, there will be requirements that cannot be met with its existing cooling or future repowered configuration. | |||
The Department is in the process of reviewing the regulations and conducting studies. Once the studies are reviewed, the Department will determine an appropriate course of action.(d) Litigation | |||
: i. California Receivables and Refund Hearings During fiscal year 2001, the Power System made sales to two California agencies that were formed by Assembly Bill 1890 to facilitate the purchase and sale of energy and ancillary services in the state of California. | |||
Through June 30, 2009, these agencies, the CAISO and the CPX, have made minimal payments since April 2001 on amounts outstanding to counterparties, including the Power System, for certain energy purchases in fiscal years 2000 and 2001. The CPX filed for protection under Chapter 11 of the Federal Bankruptcy Statute in January 2001. Two utilities with significant amounts due to these agencies have paid all amounts due to the CPX; however, the amounts remain in an escrow account pending the resolution of disbursement of the funds.As of June 30, 2009 and 2008, a total of $166.3 million was due to the Power System from the CAISO and the CPX. Claims have been filed questioning whether amounts charged for energy sold to the CAISO and the CPX during 2000 and 2001 represent "unlawful profits" that should be subject to refund. The Courts have opined that FERC has no jurisdiction over the Department; however, the Courts have stated that the California parties seeking the refund may have a cause of action. As such, the litigation in this area is continuing. | |||
The Power System has recorded a $50.0 million liability as of June 30, 2009 and 2008 against the $166.3 million receivable, for potential refunds pertaining to its wholesale sales during 2000 and 2001. Management believes that this is the most probable amount that will be refunded by the Power System and is based on the most recent formula disclosed by FERC.While management has recorded its estimate of the most probable amounts that will be refunded, management does believe that it is entitled to all amounts due from sales to counterparties in California, including those named above. Furthermore, management believes that interest may be due to it on those amounts but any potential receivable is not estimable at this time. In addition, management does not believe that the Power System's exposure to any additional losses with respect to these receivable balances is currently estimable. | |||
If final settlement of these receivables results in an amount less than the recorded balance, net of the$50.0 million liability recorded, the Department will be required to record a loss in future periods.63 (Continued) | |||
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 ii. Capital Facilities Fee Claims In June 2007, the Department received a tentative decision in favor of the state and a number of local government agencies that are electric customers of the Department that claimed that the Department has rates that include a capital facilities' charge that violates the state's statute.However, in October 2008, the Department settled the case and recorded the $160 million settlement amount. Additionally, as permitted by SFAS No. 71, the Board approved to defer all potential costs associated with the resolution of this litigation and establish a corresponding long-term deferred debit to be recovered through future revenues over a period of up to 10 years, if necessary (see note 13(b)).iii. Other, A number of claims and suits are also pending against the Department for alleged damages to persons and property and for other alleged liabilities arising out of its operations. | |||
In the opinion of management, any ultimate liability, which may arise from these actions, is not expected to materially impact the Power System's financial position, results of operations, or cash flows as of June 30, 2009.(e) Risk Management The Power System is subject to certain business risks common to the utility industry. | |||
The majority of these risks are mitigated by external insurance coverage obtained by the Power System. For other significant business risks, however, the Power System has elected to self-insure. | |||
Management believes that exposure to loss arising out of self-insured business risks will not materially impact the Power System's financial position, results of operations, or cash flows as of June 30, 2009.(0) Credit Risk Financial instruments, which potentially expose the Power System to concentrations of credit risk, consist primarily of retail and wholesale receivables. | |||
The Power System's retail customer base is concentrated among commercial, industrial, residential, and governmental customers located within the City. Although the Power System is directly affected by the City's economy, management does not believe significant credit risk exists at June 30, 2009, except as provided in the allowance for losses. The Power System manages its credit exposure by requiring credit enhancements from certain customers and through procedures designed to identify and monitor credit risk.64 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Required Supplementary Information June 30, 2009 Pension Plan -Schedule of Funding Progress The following schedule provides information about the Department's overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands): | |||
Actuarial Actuarial valuation value date July 1 of assets Actuarial accrued liability (AAL)7,619,103 7,467,285 7,046,571 Unfunded AAL (UAAL)371,250 603,201 598,808 Funded Covered ratio payroll UAAL as a percentage of covered payroll 52%90 94 2008 2007 2006$ 7,247,853 6,864,084 6,447,763 95% $92 92 708,732 670,373 635,728 Postemployment Healthcare Plan -Schedule of Funding Progress The following schedule provides information about the Department's overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands): | |||
Actuarial Actuarial valuation value date July 1 of assets Actuarial accrued liability (AAL)1,358,103 1,041,722 1,053,853 Unfunded AAL (UAAL)638,467 392,606 1,053,853 Funded Covered ratio payroll 53% $ 708,732 62 670,400-635,700 UAAL as a percentage of covered payroll 90%58 166 2008 2007 2006$ 719,637 649,116 65}} | |||
Revision as of 20:01, 2 August 2018
| ML11285A325 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 09/30/2011 |
| From: | Weber T N Arizona Public Service Co |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| 102-06417-TNW/RKR | |
| Download: ML11285A325 (422) | |
Text
10 CFR 50.71 (b)10 CFR 72.80(b)L AW A subsidiary of Pinnacle West Capital Corporation Thomas N. Weber Mail Station 7636 Palo Verde Nuclear Department Leader Tel. 623-393-5764 PO Box 52034 Generating Station Regulatory Affairs Fax 623-393-5442 Phoenix, Arizona 85072-2034 102-06417-TNW/RKR September 30, 2011 ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Washington, DC 20555-0001
Dear Sirs:
Subject:
Palo Verde Nuclear Generating Station (PVNGS)Units 1, 2, and 3 Docket Nos. STN 50-528/529/530 Submittal of Annual Financial Reports Pursuant to 10 CFR 50.71(b) and 10 CFR 72.80(b), in Enclosure 1 please find copies of the 2010 Annual Financial Reports for the Participants who jointly own PVNGS and do not file a Form 10-Q with the Securities and Exchange Commission or a Form 1 with the Federal Energy Regulatory Commission.
These Participants are Salt River Project, Southern California Public Power Authority and Los Angeles Department of Water and Power. In addition, the 2009 Annual Financial Reports for these participants were not submitted in 2010 and are included in Enclosure
- 2. This was entered in the PVNGS corrective action program and appropriate corrective actions have been identified.
The remaining Participants who jointly own PVNGS file a Form 10-Q with the Securities and Exchange Commission or a Form 1 with the Federal Energy Regulatory Commission and are thereby exempt from filing an Annual Financial Report. These Participants are El Paso Electric Company, Arizona Public Service Company, Southern California Edison Company and Public Service Company of New Mexico.No commitments are being made to the NRC by this letter.A member of the STARS (Strategic Teaming end Resource Sharing) Alliance *WlCre Callaway -Comanche Peak -Diablo Canyon
- Palo Verde
- San Onofre
- South Texas -Wolf Creek ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Annual Financial Reports Page 2 Should you need further information regarding this submittal, please contact Russell A.Stroud, Licensing Section Leader, at (623) 393-5111.Sincerely, tbJ6o.TNW/RAS/RKR/gat Enclosures
- 1. PALO VERDE NUCLEAR GENERATING STATION 2010 ANNUAL FINANCIAL REPORTS, Salt River Project, Southern California Public Power Authority, Los Angeles Department of Water and Power 2. PALO VERDE NUCLEAR GENERATING STATION 2009 ANNUAL FINANCIAL REPORTS, Salt River Project, Southern California Public Power Authority, Los Angeles Department of Water and Power cc: E. E. Collins Jr.L. K. Gibson J. R. Hall M. A. Brown NRC Region IV Regional Administrator NRC NRR Project Manager for PVNGS NRC NRR Senior Project Manager NRC Senior Resident Inspector for PVNGS ENCLOSURE 1 PALO VERDE NUCLEAR GENERATING STATION 2010 ANNUAL FINANCIAL REPORTS Salt River Project Southern California Public Power Authority Los Angeles Department of Water and Power SALT RIVER PROJECT COMBINED FINANCIAL STATEMENTS AS OF APRIL 30,2011 AND 2010 TOGETHER WITH REPORT OF INDEPENDENT AUDITORS SALT RIVER PROJECT COMBINED BALANCE SHEETS APRIL 30, 2011 AND 2010 (Thousands)
ASSETS Utility Plant Plant in Service -Electric Irrigation Common Total plant in service Less -Accumulated depreciation on plant in service Plant held for future use Construction work in progress Nuclear fuel, net Other Property and Investments Non-utility property and other investments Segregated funds, net of current portion Current Assets Cash and cash equivalents Temporary investments Current portion of segregated funds Receivables, net of allowance for doubtful accounts Fuel stocks Materials and supplies Current commodity derivative assets Other current assets Deferred Charges and Other Assets Regulatory assets Non-current commodity derivative assets Other deferred charges and other assets 2011$ 10,790,019 337,748 540,021 11,667,788 (5,538,097) 6,129,691 30,434 799,055 133,441 7,092,621 255,085 1,080,542 1,335,627 443,002 214,066 317,535 231,499 58,339 137,329 8,713 15,554 1,426,037 768,419 11,087 62,996 842,502$ 10,696,787 2010$ 10,653,944 312,388 520,139 11,486,471 (5,305,370) 6,181,101 5,960 790,256 123,310 7,100,627 183,354 799,760 983,114 235,029 290,307 241,609 202,225 43,486 131,192 26,873 19,110 1,189,831 789,268 13,026 76,988 879,282$ 10,152,854 The accompanying notes are an integral part of these combined financial statements.
1 SALT RIVER PROJECT COMBINED BALANCE SHEETS APRIL 30, 2011 AND 2010 (Thousands)
CAPITALIZATION AND LIABILITIES 2011$ 4,419,099 2010$ 4,051,931 Long-term Debt Accumulated Net Revenues 4,267,341 3,962,788 Total Capitalization 8,686,440 8,014,719 Current Liabilities Current portion of long-term debt Accounts payable Accrued taxes and tax equivalents Accrued interest Customers' deposits Current commodity derivative liabilities Other current liabilities 139,635 221,895 77,142 73,170 86,461 19,551 340,828 958,682 147,180 200,672 72,339 67,407 81,446 64,441 290,822 924,307 Deferred Credits and Other Non-current Liabilities Accrued postretirement liability Asset retirement obligations Non-current commodity derivative liabilities Other deferred credits and other non-current liabilities 673,453 100,212 36,092 241,908 1,051,665 754,650 199,348 32,025 227,805 1,213,828 Commitments and Contingencies (Notes 7, 9, 10, 12, and 13)$ 10,696,787
$ 10,152,854 The accompanying notes are an integral part of these combined financial statements.
2 SALT RIVER PROJECT COMBINED STATEMENTS OF NET REVENUES FOR THE YEARS ENDED APRIL 30, 2011 AND 2010 (Thousands)
Operating Revenues Retail electric Other electric Wholesale Water Total operating revenues Operating Expenses Power purchased Fuel used in electric generation Other operating expenses Maintenance Depreciation and amortization Taxes and tax equivalents Total operating expenses Net operating revenues Other Income Investment income, net Other income (deductions), net Total other income, net Net revenues before financing costs 2011$ 2,463,007 69,355 216,000 14,169 2,762,531 365,500 570,134 599,174 282,972 436,750 105,054 2,359,584 402,947 82,446 (21,441)61,005 463,952 193,507 (32,540)(12,293)10,725 159,399$ 304,553 2010$ 2,361,274 64,646 261,320 14,373 2,701,613 403,093 554,113 565,259 287,541 408,525 102,092 2,320,623 380,990 140,787 (12,412)128,375 509,365 186,429 (52,938)(8,995)13,894 138,390 370,975 Financing Costs Interest on bonds, net Capitalized interest Amortization of bond discount/premium and issuance expenses Interest on other obligations Net financing costs Net Revenues The accompanying notes are an integral part of these combined financial statements.
3 SALT RIVER PROJECT COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30, 2011 AND 2010 (Thousands)
Cash Flows from Operating Activities Net Revenues Adjustments to reconcile net revenues to net cash provided by operating activities:
Depreciation and amortization Amortization of nuclear fuel Amortization of bond discount/premium and issuance expenses Change in fair value of derivative instruments Change in fair value of investment securities Other Decrease (increase) in: Fuel stocks and materials and supplies Receivables, net of allowance for doubtful accounts Other current assets Deferred charges and other assets Increase (decrease) in: Accounts payable Accrued taxes and tax equivalents Accrued interest Current liabilities Deferred credits and other non-current liabilities Net cash provided by operating activities 2011 2010$ 304,553 $ 370,975 436,750 35,826 (12,293)(20,724)(18,197)28,424 (20,990)(29,274)3,556 27,195 2,752 4,803 8,925 31,649 (56,561)726,394 408,525 24,800 (8,995)(79,076)(112,483)6,819 3,812 (18,545)53 24,508 (70,799)9,653 3,628 (8,662)(95,764)458,449 (710,754)4,483 (952,492)991,248 225,094 (442,421)296,000 (325,000)(131,481)(160,481)Cash Flows from Investing Activities Additions to utility plant, net Proceeds from disposition of assets Purchases of investments Sales and maturities of investments Net change in short-term investments related to segregated funds Net cash used for investing activities Cash Flows from Financing Activities Proceeds from issuance of revenue bonds Retirement of commercial paper Repayment of long-term debt, including refundings Net cash provided by (used for) financing activities Net Increase (Decrease) in Cash and Cash Equivalents Balance at Beginning of Year in Cash and Cash Equivalents (563,617)1,953 (2,009,615) 1,925,142 (221,938)(868,075)496,834 (147,180)349,654 207,973 (144,453)235,029 379,482 Balance at End of Year in Cash and Cash Equivalents
$ 443,002$ 235,029 Supplemental Information Cash paid for interest$ 165,929 $ 143,757 The accompanying notes are an integral part of these combined financial statements.
4 SALT RIVER PROJECT NOTES TO COMBINED FINANCIAL STATEMENTS APRIL 30, 2011 AND 2010 (1) BASIS OF PRESENTATION:
The Company The Salt River Project Agricultural Improvement and Power District (the District) is an agricultural improvement district organized in 1937 under the laws of the State of Arizona. It operates the Salt River Project (the Project), a federal reclamation project, under contracts with the Salt River Valley Water Users' Association (the Association), by which it has assumed the obligations and assets of the Association, including its obligations to the United States of America for the care, operation and maintenance of the Project. The District owns and operates an electric system that generates, purchases, transmits and distributes electric power and energy, and provides electric service to residential, commercial, industrial and agricultural power users in a 2,900 square mile service territory in parts of Maricopa, Gila and Pinal Counties, plus mine loads in an adjacent 2,400 square mile area in Gila and Pinal Counties.
The Association, incorporated under the laws of the Territory of Arizona in 1903, operates an irrigation system as the agent of the District.
The District and the Association are together referred to as SRP.Principles of Combination The accompanying combined financial statements reflect the combined accounts of the Association and the District.
The District's financial statements are consolidated with its wholly-owned taxable subsidiaries:
SRP Captive Risk Solutions, Limited (CRS), Papago Park Center, Inc. (PPC) and New West Energy Corporation (New West Energy). CRS is a domestic captive insurer incorporated primarily to access property/boiler and machinery insurance coverage under the Federal Terrorism Risk Insurance Act of 2002 for certified acts of terrorism.
PPC is a real estate management company. New West Energy was used to market, at retail, energy available to the District that was surplus to the needs of its retail customers, and energy that might have been rendered surplus in Arizona by retail competition in the supply of generation, but is now largely inactive.
All material inter-company transactions and balances have been eliminated.
Possession and Use of Utility Plant The United States of America retains a paramount right or claim in the Project that arises from the original construction and operation of certain of the Project's electric and water facilities as a federal reclamation project. Rights to the possession and use of, and to all revenues produced by, these facilities are evidenced by contractual arrangements with the United States of America.Basis of Accounting The accompanying combined financial statements are presented in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of financial statements in compliance with U:S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingencies.
Actual results could differ from the estimates.
5 By virtue of SRP operating a federal reclamation project under contract, with the federal government's pre-emptive rights, asset ownership and certain approval rights, SRP is subject to accounting standards as set forth by the Federal Accounting Standards Advisory Board (FASAB). Entities reporting in accordance with the standards issued by the Financial Accounting Standards Board (FASB) prior to October 19, 1999 (the date the American Institute of Certified Public Accountants (AICPA) designated the FASAB as the accounting standard setting body for entities under the federal government) are permitted to continue to report in accordance with those standards.
As permitted, SRP has elected to report its financial statements in accordance with FASB standards.
(2) SIGNIFICANT ACCOUNTING POLICIES: Utility Plant Utility plant is stated at the historical cost of construction.
Capitalized construction costs include labor, materials, services purchased under contract, and allocations of indirect charges for engineering, supervision, transportation and administrative expenses and an allowance for funds used during construction (AFUDC). The cost of property that is replaced, removed or abandoned, together with removal costs, less salvage, is charged to accumulated depreciation.
The District is the recipient of various federal grants under the American Recovery and Reinvestment Act of 2009 (ARRA) and accounts for the majority of these funds as a reduction to the related assets included in utility property in the accompany Combined Balance Sheets and as an investing activity in the Statements of Cash Flows. The remaining funds are recorded as a reduction to other operating expenses in the Combined Statements of Net Revenues and as operating activities in the Statements of Cash Flows. During the years ended April 30, 2011 and 2010 the amounts recorded related to federal grants were $17.1 and $7.6 million, respectively.
Depreciation expense is computed on a straight-line basis over recovery periods of the various classes of plant assets. The recovery periods are established to recover costs through the District's price plans and may differ from the assets' estimated useful lives. The following table reflects the District's average depreciation rates on the average cost of depreciable assets, for the fiscal years ended April 30: 2011 2010 Average electric depreciation rate 3.59% 3.60%Average irrigation depreciation rate 1.93% 2.02%Average common depreciation rate 5.51% 6.14%In April 2011, the Nuclear Regulatory Commission (NRC) approved a 20-year license extension of the Palo Verde Nuclear Generating Station (PVNGS). In response to the license extension, effective May 1, 2011, the District's Board of Directors (Board) approved the extension of the recovery period for PVNGS resulting in an average depreciation rate change from 2.74% to 0.50%. The Board also approved an average depreciation rate change for the Coronado Generating Station (CGS) from 3.07%to 1.14%, for the Navajo Generating Station (NGS) from 4.62% to 0.15% and the Hayden Generating Station (Hayden) from 5.13% to 0.09% to enable the recovery of expected future costs associated with these plants.For the years ended April 30, 2011 and 2010, there was $18.5 million and $23.0 million of non-cash investing activities related to property, plant and equipment purchases within accounts payable.6 Allowance for Funds Used During Construction AFUDC is the estimated cost of funds used to finance plant additions and is recovered in prices through depreciation expense over the useful life of the related asset. AFUDC is capitalized during certain plant construction and included in Capitalized interest in the accompanying Combined Statements of Net Revenue. Composite rates of 4.86% and 5.02% were applied in fiscal years 2011 and 2010 to calculate interest on funds used to finance construction work in progress, resulting in $32.5 million and $52.9 million of interest capitalized, respectively.
Nuclear Fuel The District amortizes the cost of nuclear fuel using the units-of-production method. The units-of-production method is an amortization method based on actual physical usage. The nuclear fuel amortization and accrued expenses for both the interim and permanent disposal of spent nuclear fuel are components of fuel expense. Nuclear fuel amortization was $35.8 million and $24.8 million in fiscal years 2011 and 2010, respectively.
Accumulated amortization of nuclear fuel at April 30, 2011 and 2010 was $507.6 million and $471.8 million, respectively. (See Note (13) CONTINGENCIES, Spent Nuclear Fuel for additional information).
Asset Retirement Obligations SRP accounts for its asset retirement obligations in accordance with authoritative guidance which requires the recognition and measurement of liabilities for legal obligations associated with the retirement of tangible long-lived assets. Liabilities for asset retirement obligations are recognized at fair value as incurred and capitalized as part of the cost of the related tangible long-lived assets.Accretion of the liabilities, due to the passage of time, is an operating expense and the capitalized cost is depreciated over the useful life of the long-lived asset. Retirement obligations associated with long-lived assets are those for which a legal obligation exists under enacted laws, statutes, and contracts, including obligations arising under the doctrine of promissory estoppel.The District has identified retirement obligations for the PVNGS, NGS, Four Corners Generating Station (Four Corners) and certain other assets. Amounts recorded for asset retirement obligations are subject to various assumptions and determinations, such as determining whether an obligation exists to remove assets, estimating the fair value of the costs of removal, estimating when final removal will occur, and determining the credit-adjusted, risk-free interest rates to be utilized on discounting future liabilities.
Subsequent to the initial recognition, the liability is adjusted for any revisions to the estimated future cash flows associated with the asset retirement obligation (with corresponding adjustments to property, plant and equipment), which can occur due to a number of factors including, but not limited to, cost escalation, changes in technology applicable to the assets to be retired, changes in federal, state and local regulations and changes to the estimated decommissioning date of the assets, as well as for accretion of the liability due to the passage of time until the obligation is settled.During fiscal year 2011, a new decommissioning study with updated cash flow estimates was completed for PVNGS. This study reflects the twenty-year license extension approved by the NRC on April 21, 2011, which extends the commencement of decommissioning to 2045. The new study resulted in a $111.4 million decrease to the liability for asset retirements, primarily due to the change in timing of the cash flows.7 A summary of the asset retirement obligation activity of the District at April 30 is included below (in thousands):
2011 2010 Beginning balance, May 1 $ 199,348 $ 187,801 Revisions in estimated cash flows (111,405)Accretion expense 12,269 11,547 Ending balance, April 30 $ 100,212 $ 199,348 Investments in Debt and Equity Securities SRP invests in various debt and equity securities.
Debt securities that SRP has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in Investment income, net. SRP has adopted the fair value option for all debt and equity securities other than those classified as held-to-maturity securities.
All such securities are reported at fair value, with unrealized gains and losses included in Investment income, net. SRP does not classify any securities as available-for-sale. (See Note (4) FAIR VALUE OF FINANCIAL INSTRUMENTS.)
Segregated Funds The District sets aside funds that are segregated due to management intent and to support various purposes.
The District also has certain segregated funds that are legally restricted.
The following amounts are included in segregated funds in the accompanying Combined Balance Sheets at April 30 (in thousands):
2011 2010 Segregated funds -legally restricted Nuclear Decommissioning Trust $ 252,092 $ 211,374 Collateral investment pool 161,981 136,710 Debt Reserve Fund (see "Revenue Bonds" in Note 7) 80,598 80,598 Construction Fund 182,966 1 Other 23,387 20,271 Total segregated funds -legally restricted 701,024 448,954 Segregated funds -other Benefits funds 538,821 483,428 Debt Service Fund (see "Revenue Bonds" in Note 7) 109,854 104,899 Rate Stabilization Fund 45,700 Other 2,678 4,088 Total segregated funds- other 697,053 592,415 Total segregated funds, including current portion $ 1,398,077
$ 1,041,369 Nuclear Decommissioning In accordance with regulations of the NRC, the District maintains a trust for the decommissioning of PVNGS. The Nuclear Decommissioning Trust (NDT) funds are invested in debt and equity securities.
The District has elected the fair value option for all NDT securities and such securities are reported as trading securities.
Changes in fair value related to the NDT securities are included in the nuclear decommissioning regulatory asset or liability with no impact to net income. (See Note (3) REGULATORY MATTERS for additional information about the nuclear decommissioning regulatory asset or liability.)
8 The NDT funds, stated at fair value, as of April 30, 2011 and 2010, were $252.1 million and $211.4 million, respectively.
The NDT funds are classified as segregated funds in the accompanying Combined Balance Sheets and are exempt from federal and state income taxes. (See Note (4) FAIR VALUE OF FINANCIAL INSTRUMENTS for additional information about the NDT.)Securities Lending The District's pension plan, NDT and other postretirement benefits plans participate in a securities lending program with the trustee of the investments.
The program authorizes the trustee of the particular investments to lend securities, which are assets of the plans, to approved borrowers.
The trustee requires borrowers, pursuant to a security lending agreement, to deliver collateral to secure each loan. The loaned securities are required to be collateralized.
Under the program, the borrowers deliver collateral having a market value not less than 102% of the market value of the loaned securities.
The cash collateral received is invested in a collateral pool made up of fixed income securities.
The District's pension plan, NDT and other postretirement benefits plans bear the risk of loss with respect to unfavorable changes in fair value of the invested collateral.
For loaned securities related to the NDT and the other postretirement benefits plans, the District records an obligation for the collateral received as other current liabilities and records the collateral investment pool, at fair value, in current portion of segregated funds, both in the accompanying Combined Balance Sheets. The securities lending program is a non-cash activity for the District on the Combined Statements of Cash Flows. The pension plan's participation in the securities lending program is contained within the pension plan. (See Note (6) FAIR VALUE MEASUREMENTS and Note (9)EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS, Fair Value of Plan Assets for more information related to collateral pool investments.)
Cash Equivalents Cash equivalents include money market funds and highly liquid short-term investments with original maturities of three months or less, excluding those short-term investments included as part of the segregated funds and investments included in non-utility property and other investments in the accompanying Combined Balance Sheets. (For further discussion of financial instruments see Note (6)FAIR VALUE MEASUREMENTS.)
Allowance for Doubtful Accounts Allowance for doubtful accounts is provided for electric customer accounts and other non-energy receivables balances based upon a historical experience rate of write-offs of accounts receivable as compared to accounts receivable balances.
The allowance account is adjusted monthly for this experience rate and is maintained until either receipt of payment or the likelihood of collection is considered remote, at which time the allowance account and corresponding receivable balance are written off. The District has provided for an allowance for doubtful accounts of $3.0 million and $10.1 million as of April 30, 2011 and 2010, respectively.
Fuel Stocks and Materials and Supplies Fuel stocks and Materials and supplies are stated at lower of weighted average cost or market.9 Other Current Liabilities The accompanying Combined Balance Sheets include the following other current liabilities as of April 30: 2011 2010 Securities lending $ 162,609 $ 139,237 Sick, vacation and holiday (SVHL) accrual 60,901 59,993 Managed payment plan 51,689 35,467 Other 65,629 56,125 Total other current liabilities
$ 340,828 $ 290,822 Other Income (Deductions), Net Other income (deductions), net includes non-operating income and expense items. In fiscal year 2011 and 2010, this line includes a loss on the retirement of mechanical meters of $14.7 million and $7.2 million, respectively.
The mechanical meters were retired early due to the accelerated installation of smart meters funded by the Smart Grid Investment Grant Program established pursuant to the ARRA.Financing Costs Bond discount, premium and issuance expenses are deferred and amortized using the effective interest method over the terms of the related bond issues.Voluntary Contributions in Lieu of Taxes In accordance with Arizona law, the District makes voluntary contributions each year to the State of Arizona, school districts, cities, counties, towns and other political subdivisions of the State of Arizona, for which property taxes are levied and within whose boundaries the District has property included in its electric system. As a political subdivision of the State of Arizona, the District is exempt from property taxation.
The amount paid is computed on the same basis as ad valorem taxes paid by a private utility corporation with allowance for certain water-related deductions.
Contributions based on the costs of construction work in progress are capitalized, and those based on plant-in-service are expensed.Revenue Recognition The District recognizes revenue when billed and accrues estimated revenue for electricity delivered to customers that has not yet been billed. The estimated revenue for electricity delivered but not yet billed is included in retail electric revenue and was $69.6 million and $63.7 million at April 30, 2011 and 2010, respectively.
Other operating revenue consists primarily of revenue from marketing and trading electricity.
The electric industry engages in an activity called "book-out" under which some energy purchases are netted against sales and power does not actually flow in settlement of the contract.
The District presents the impacts of these financially settled contracts on a net basis, which resulted in a net reduction to revenue and purchase power expense of $34.6 million and $27.8 million for fiscal years 2011 and 2010, respectively, but which did not impact net revenues or cash flows.10 Sales and Use Taxes The District is required by various government authorities, including states and municipalities, to collect and remit taxes on certain retail sales. Such taxes are presented on a net basis and excluded from revenues and expenses in the accompanying combined financial statements.
Income Taxes The District is exempt from federal and Arizona state income taxes. The Association is not exempt from federal and Arizona state income taxes. However, the Association is not liable for income taxes on operations relating to its acting as an agent for the District on the basis of a settlement with the Commissioner of Internal Revenue in 1949 which was approved by the Secretary of the Treasury.
The Association is liable for income taxes on activities where it is not acting as an agent of the District.
The tax effect of the District's wholly-owned taxable subsidiaries' operations is immaterial to the accompanying combined financial statements.
Concentrations of Credit Risk Financial instruments that potentially subject SRP to credit risk consist of cash and cash equivalents, temporary and other investments, and segregated funds. Certain balances exceed Federal Deposit Insurance Corporation (FDIC) insured limits or are invested in money market accounts with investment banks that are not FDIC insured. SRP's cash and cash equivalents, temporary and other investments, and segregated funds are placed in credit-worthy financial institutions and certain money market accounts invest in U.S. Treasury Securities or other obligations issued or guaranteed by the U.S.Government, its agencies or instrumentalities.
The use of contractual arrangements to manage the risks associated with changes in energy commodity prices creates credit risks resulting from the possibility of nonperformance by counterparties pursuant to the terms of their contractual obligations.
In addition, volatile energy prices can create significant credit exposure from energy market receivables and mark-to-market valuations.
The District has a credit policy for wholesale counterparties, continuously monitors credit exposures, and routinely assesses the financial strength of its counterparties.
The District minimizes credit risk by dealing primarily with creditworthy counterparties, entering into standardized agreements which allow netting of exposures to and from a single counterparty, and requiring letters of credit, parent guarantees or other collateral when it does not consider the financial strength of a counterparty sufficient.
Accumulated Net Revenues As of April 30, 2011 and 2010, the balance of accumulated net revenues was $4.267 billion and $3.963 billion, respectively.
Prior Year Revisions During fiscal year 2011, SRP determined that the classification of amortization of fuel expense and loss on impairment of fixed assets had been improperly reported in the fiscal year 2010 Combined Statements of Cash Flows. SRP revised the previously issued financial statement to properly report amortization of fuel expense and loss on impairment of fixed assets resulting in a $31.9 million increase in net cash provided by operating activities, with a corresponding increase in net cash used by investing activities in the accompanying Combined Statements of Cash Flows.11 Recently Issued Accounting Standards Consolidation of Variable Interest Entities In December 2009, the FASB issued ASU No. 2009-17, "Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities," that changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.
Under the new guidance, the determination of whether a company is required to consolidate an entity is based on, among other things, an ability to direct the activities of the entity that most significantly impact the entity's economic performance and whether the entity has an obligation to absorb losses. This guidance requires a company to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement.
SRP adopted this guidance effective May 1, 2010. The guidance had no effect on the accompanying combined financial statements, but did result in additional disclosures.
See Note (11), VARIABLE INTEREST ENTITIES.Subsequent Events In February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure requirements," that requires an entity such as SRP to evaluate subsequent events through the date that the financial statements are either issued or available to be issued. The amendment also requires an entity to disclose the date through which the subsequent events have been evaluated and whether that date represents the date the financial statements were issued or the date they were available to be issued. SRP adopted the subsequent event guidance effective May 1, 2010. Subsequent events for SRP have been evaluated through July 21, 2011, which is the date that the financial statements were issued.(3) REGULATORY MATTERS: The Electric Utility Industry The District operates in a highly regulated environment in which it has an obligation to deliver electric service to customers within its service area. In 1998, Arizona enacted the Arizona Electric Power Competition Act (the Act), which authorized competition in the retail sales of electric generation, recovery of stranded costs, and competition in billing, metering and meter reading. While retail competition was available to all customers by 2001, only a few customers chose an alternative energy provider and those customers have since returned to their incumbent utilities.
At this time, there is no active retail competition within the District's service territory or, to the knowledge of the District, within the State of Arizona, and the District's Direct Access Program is suspended.
However, since 2006, two retail energy service providers, one meter reading service provider, and one meter service provider have applied to the Arizona Corporation Commission (ACC) for authorization to sell energy in Arizona, but the ACC has not ruled on any of the applications.
In addition, large industrial customers and merchant power plant owners have been urging State leaders to reinstate some form of retail competition and one major utility in Arizona has proposed a buy-through pilot program whereby a limited number of large industrial customers would be allowed to purchase generation from other retail providers.
12 The ACC Staff issued a report in August 2010 indicating that while some form of retail electric competition may be in the public interest, further analysis and discussion of the issue was warranted.
The ACC has not yet considered or acted upon the report and no timetable has been established.
If the ACC were to decide to reinstitute retail competition, the existing rules would require significant revision.Regulation and Pricing Policies Under Arizona law, the District's publicly elected Board of Directors has the authority to establish electric prices. The District is required to follow certain public notice and special Board meeting procedures before implementing any changes in the standard electric price plans. The financial statements reflect the pricing policies of the District's Board.The District's price plans include a base price component, a Fuel & Purchased Power Adjustment Mechanism (FPPAM) and an Environmental Programs Cost Adjustment Factor (EPCAF). Base prices recover costs for generation, transmission, distribution, customer services, metering, meter reading, billing and collections and system benefits charges that are not otherwise recovered through the FPPAM or the EPCAF. The FPPAM was implemented in May 2002 to adjust for increases and decreases in fuel costs. The EPCAF was implemented in November 2009 to cover costs incurred by the District to comply with renewable-energy, energy efficiency and climate-change related requirements imposed by mandate. Through a System Benefits surcharge to the District's transmission and distribution customers, the District recovers the costs of programs benefiting the general public, such as discounted rates for low income customers and nuclear decommissioning, including the cost of spent fuel storage.On March 11, 2010, the District Board approved an overall 4.9 percent system average increase effective with the May 2010 billing cycle. This overall increase was comprised of a 10.3 percent base increase and a 1.1 percent EPCAF increase that were partially offset by a 6.4 percent decrease in the FPPAM.Rate Stabilization Fund In accordance with Board action taken on March 11, 2010, SRP transferred
$45.7 million into the Rate Stabilization Fund (RSF) in July 2010. The funds may be used to stabilize future prices or for any other corporate purpose approved by the Board.Regulatory Accounting The District accounts for the financial effects of the regulated portion of its operations in accordance with the provisions of authoritative guidance for regulated enterprises, which requires cost-based, rate-regulated utilities to reflect the impacts of regulatory decisions in their financial statements.
The District records regulatory assets, which represent probable future recovery of certain costs from customers through the pricing process, and regulatory liabilities, which represent probable future credits to customers through the ratemaking process. Based on actions of the Board, the District believes the future collection of costs deferred through regulatory assets is probable.
If events were to occur making full recovery of these regulatory assets no longer probable, the District would be required to write off the remaining balance of such assets as a one-time charge to net revenues.
None of the regulatory assets earn a rate of return.13 The accompanying Combined Balance Sheets include the following regulatory assets and liabilities as of April 30: Assets 2011 2010 Pension and other postretirement benefits (Note 9) $ 646,348 $ 658,895 Bond defeasance 85,668 74,101 Mohave Generating Station 36,403 44,203 Nuclear decommissioning
-12,069 Total regulatory assets $ 768,419 $ 789,268 Liabilities 2011 2010 Nuclear decommissioning
$ 28,991 $ -Total regulatory liabilities
$ 28,991 $The pension and other postretirement benefits regulatory asset is adjusted as changes in actuarial gains and losses, prior service costs and transition assets or obligations are recognized as components of net periodic pension costs each year and is recovered through prices charged to customers.
Bond defeasance regulatory assets are recovered over the remaining original amortization period of the reacquired debt ending in fiscal year 2031.The Mohave Generating Station regulatory asset is being recovered on a straight-line basis over a ten-year period ending in fiscal year 2016.The nuclear decommissioning regulatory asset or liability is being deferred over the life of PVNGS and is being recovered through a component of the system benefits charge. Any difference between current year costs, revenues associated with nuclear decommissioning and earnings (losses) on the NDT are deferred in accordance with authoritative guidance for regulated enterprises and has no impact to the District's earnings.(4) FAIR VALUE OF FINANCIAL INSTRUMENTS:
SRP invests in U.S. government obligations, certificates of deposit and other marketable investments.
Such investments are classified as cash and cash equivalents, temporary investments, other investments, and segregated funds in the accompanying Combined Balance Sheets depending on the purpose and duration of the investment.
Fair Value Option SRP adopted authoritative guidance which permits an entity to choose to measure many financial instruments and certain other items at fair value. SRP has elected the fair value option for all investment securities other than those classified as held-to-maturity.
Election of the fair value option requires the security to be reported as a trading security.The fair value option was elected because management believes that fair value best represents the nature of the investments.
While the investment securities held in these funds are reported as trading securities, the investments continue to be managed with a long-term focus. Accordingly, all purchases and sales within these funds are presented separately in the accompanying Statement of Cash Flows as investing cash flows, consistent with the nature and purpose for which the securities are acquired.14 The following table summarizes line items included in the accompanying Combined Balance Sheets at April 30 that include amounts recorded at fair value pursuant to the fair value option: Measurement (in thousands)
Attribute*
2011 2010 Cash and cash equivalents Cash N/A $ 13,686 $ 14,672 Money market funds Fair value 429,316 220,357 Total cash and cash equivalents 443,002 235,029 Non-utility property and other investments Money market funds Fair value 3,802 3,825 Trading investments Fair value 32,166 29,158 Held-to-maturity investments Amortized cost 136,119 70,080 Non-utility property N/A 82,998 80,291 Total non-utility property and other investments 255,085 183,354 Segregated funds, net of current portion Cash N/A 2,679 4,088 Money market funds Fair value 180,774 33,176 Trading investments Fair value 766,360 691,872 Held-to-maturity investments Amortized cost 130,729 70,624 Total segregated funds, net of current portion 1,080,542 799,760 Temporary investments Held-to-maturity investments Amortized cost 214,066 290,307 Total temporary investments 214,066 290,307 Current portion of segregated funds Money market funds Fair value 95,734 49,427 Trading investments Fair value 161,981 136,710 Held-to-maturity investments Amortized cost 59,820 55,472 Total current portion of segregated funds 317,535 241,609*N/A- Asset category not eligible for fair value option.SRP's investments in debt securities are measured and reported at amortized cost when there is positive intent and ability to hold the security to maturity.
SRP's amortized cost and fair value of held-to-Maturity securities were $540.7 million and $545.2 million, respectively, at April 30, 2011 and $486.5 million and $489.7 million, respectively, at April 30, 2010. At April 30, 2011, SRP's investments in debt securities have maturity dates ranging from May 09, 2011, to December 11, 2015.SRP evaluates the held-to-maturity securities for other-than-temporary impairment on a quarterly basis considering numerous factors. At April 30, 2011 and 2010, SRP did not hold any impaired securities.
SRP's trading investments are measured at fair value with unrealized trading gains and losses included in Investment income, net. The following table summarizes unrealized gains from fair value changes related to investments still held at April 30 (in thousands):
2011 2010 Segregated funds, net of current portion $ 15,757 $ 101,287 Current portion of segregated funds 963 5,233 Non-utility property and other investments 2,441 5,963 Investment income, net $ 19,161 $ 112,483 15 (5) DERIVATIVE INSTRUMENTS:
Energy Risk Management Activities The District has an energy risk management program to limit exposure to risks inherent in normal energy business operations.
The goal of the energy risk management program is to measure and manage exposure to market risks, credit risks and operational risks. Specific goals of the energy risk management program include reducing the impact of market fluctuations on energy commodity prices associated with customer energy requirements, excess generation and fuel expenses, in addition to meeting customer pricing needs, and maximizing the value of physical generating assets. The District employs established policies and procedures to meet the goals of the energy risk management program using various physical and financial instruments, including forward contracts, futures, swaps and options.Certain of these transactions are accounted for as commodity derivatives and are recorded in the accompanying Combined Balance Sheets as either an asset or liability measured at their fair value.Changes in the fair value of commodity derivatives are recognized each period in current earnings and included in the accompanying Combined Statements of Net Revenues and classified as part of operating cash flows in the accompanying Combined Statements of Cash Flows. Some of the District's contractual agreements qualify and are designated for the normal purchases and normal sales exception and are not recorded at market value. This exception applies to physical sales and purchases of power or fuel where it is probable that physical delivery will occur; the pricing provisions are clearly and closely related to the contracted prices; and the documentation requirements are met. If a contract qualifies for the normal purchases and normal sales scope exception, the District accounts for the contract using settlement accounting (costs and revenues are recorded when physical delivery occurs).Segregated Funds Investments During fiscal year 2011, the District restructured the investments within certain of the Segregated funds. As part of the restructuring, the District entered into non-commodity derivative transactions either as a way to gain exposure to certain sectors and countries without having to physically buy securities in that sector or country or as a hedge against downside risk. When the District seeks to gain exposure to certain financial market sectors, it may enter into exchange traded futures or forward contracts that provide the desired exposure.
The contracts may be long or short term, and serve as a risk management tool for the portfolio.
Similarly, the District may enter into option contracts on certain securities or sectors to minimize downside risk in the portfolio.
The District enters into a variety of non-commodity derivative instruments including futures, forwards, swaps and options primarily for trading purposes, with each instrument's primary risk exposure being interest rate, credit, and foreign exchange.
The fair value of these non-commodity derivative instruments is included within the Segregated funds, net of current portion in the accompanying Combined Balance Sheets with changes in fair value reflected as Investment income, net within the Combined Statements of Net Revenues and are classified as part of investing cash flows in the accompanying Combined Statements of Cash Flows.16 Derivative Volumes The District has the following gross derivative volumes, by type, at April 30, 2011: Unit of Sale Commodity Measure Volunr S nes Natural gas options, swaps and forward arrangements Electricity options, swaps and forward arrangements Liquefied fuel swaps MMBTU MWH Gallon 2,517,500 3,393,269 Purchases Volumes 131,770,000 5,137,200 3,618,643 Non-commodity Unit of Measure Shares Shares Sales Volumes 21,700,000 61,080,413 Purchases Volumes 28,400,000 390,333,983 Fixed income contracts Foreign exchange contracts The District has the following gross derivative volumes, by commodity type, at April 30, 2010: Unit of Sales Pu Commodity Measure Volumes Vi Natural gas options, swaps and forward arrangements Electricity options, swaps and forward arrangements Liquefied fuel swaps MMBTU MWH Gallon 6,617,500 4,057,565 10;5, 2, rchases olumes 7,437,50 632,000 ,824,734 Presentation of Derivative Instruments in the Financial Statements The following tables provide information about the gross fair values, netting, and collateral and margin deposits for derivatives not designated as hedging instruments in the accompanying Combined Balance Sheets (in thousands):
April 30, 2011 Segregated Current Non-current Current Non-current Funds, net Commodity Commodity Commodity Commodity of Current Derivative Derivative Derivative Derivative Total Assets Portion Assets Assets Liabilities Liabilities (Liabilities)
Commodities
$ -$ 17,079 $ 14,498 $ (28,549) $ (39,503) $ (36,475)Fixed income contracts (73) --(73)Foreign exchange contracts 7,696 --7,696 Netting -(8,998) (3,411) 8,998 3,411 -Collateral and margin deposits -632 ---632 Total $ 7,623 $ 8,713 $ 11,087 $ (19,551) $ (36,092) $ (28,220)April 30, 2010 Current Non-current Current Non-current Commodity Commodity Commodity Commodity Derivative Derivative Derivative Derivative Total Assets Assets Assets Liabilities Liabilities (Liabilities)
Commodities
$ 26,313 $ 16,757 $ (73,722) $(35,756)
$ (66,408)Netting (11,786) (3,731) 11,786 3,731 -Collateral and margin deposits 12,346 -(2,505) -9,841 Total $ 26,873 $ 13,026 $ (64,441) $ (32,025) $ (56,567)17 The following tables summarize the District's unrealized gains (losses) associated with derivatives not designated as hedging instruments in the accompanying Combined Statements of Net Revenues (in thousands):
April 30, 2011 Fuel Used in Net Operating Power Electric Investment Unrealized Revenues Purchased Generation Income, net Gain (Loss)Commodities
$ (12,136) $ 13,875 $ 27,765 $ -$ 29,504 Fixed income contracts
--(73) (73)Foreign exchange contracts
--7,696 7,696 Total $ (12,136) $ 13,875 $ 27,765 $ 7,623 $ 37,127 April 30, 2010 Fuel Used in Net Operating Power Electric Unrealized Revenues Purchased Generation Gain (Loss)Commodities
$ (6,650) $ 32,848 $ 61,559 $ 87,757 Credit Related Contingent Features Certain of the District's derivative instruments contain provisions that require the District's debt to maintain an investment grade credit rating from each of the major credit rating agencies.
If the District's debt were to fall below investment grade, it would violate these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions.
The aggregate fair value of all derivative liabilities with credit-risk-related contingent features as of April 30, 2011, was $53.6 million for which the District has not posted collateral in the normal course of business.
If the credit-risk-related contingent features underlying these agreements were triggered on April 30, 2011, the District could be required to post an additional
$53.6 million of collateral to its counterparties.
(6) FAIR VALUE MEASUREMENTS:
SRP accounts for fair value in accordance with authoritative guidance which defines fair value, establishes methods for measuring fair value by applying one of three observable market techniques (market approach, income approach or cost approach) and expands required disclosures about fair value measurements.
This standard defines fair value as the price that would be received for an asset, or paid to transfer a liability, in the most advantageous market for the asset or liability in an arms-length transaction between willing market participants at the measurement date.SRP has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.
The fair value hierarchy gives the highest priority to 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 are as follows: Level 1 -Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.18 Level 2 -Financial assets and liabilities whose values are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets, pricing models whose inputs are observable for substantially.
the full term of the asset or liabilities and pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means.Level 3 -Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The following table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2011 (in thousands):
Level 1 Level 2 Level 3 Netting and Toa Collateral oa Assets Cash and cash equivalents:
Money market funds $ -$ 429,316 $ -$ -$ 429,316 Total cash and cash equivalents
-429,316 -- 429,316 Non-utility property and other investments:
Money market funds -3,802 -- 3,802 Mutual funds 32,166 --- 32,166 Total non-utility property and other investments 32,166 3,802 -- 35,968 Segregated funds, net of current portion: Money market funds -180,774 -- 180,774 Mutual funds 98,649 --98,649 Commingled funds -221,697 4,043 -225,740 Common stocks 273,176 3,353 --276,529 Preferred stocks 168 ---168 Corporate bonds -62,986 -- 62,986 U.S. government securities
-94,665 -- 94,665 Fixed income derivative assets 116 1 --117 Fixed income derivative liabilities (190) --- (190)Foreign exchange derivative assets 7,696 45 -7,741 Foreign exchange derivative liabilities (2) (43) --(45)Total segregated funds, net of current portion 379,613 563,478 4,043 -947,134 Current portion of segregated funds: Money market fund -95,734 -95,734 Collateral pool investments
-- 161,981 -161,981 Total current portion of segregated funds -95,734 161,981 -257,715 Derivative instruments:
Commodities 7,926 10,248 13,403 (11,777) 19,800 Total $ 419,705 $ 1,102,578
$ 179,427 $ (11,777) $ 1,689,933 Liabilities Derivative instruments:
Commodities
$ (3,761) $ (45,558) $ (18,733) $ 12,409 $ (55,643)Total $ (3,761) $ (45,558) $ (18,733) $ 12,409 $ (55,643)19 The following table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2010 (in thousands):
Level 1 Level 2 Level 3 Netting and Total Collateral Assets Cash and cash equivalents:
Money market funds $ $ 220,357 $ $ $ 220,357 Total cash and cash equivalents 220,357 220,357 Non-utility property and other investments:
Money market funds 3,825 3,825 Mutual funds 29,158 -29,158 Total non-utility property and other investments 29,158 3,825 32,983 Segregated funds, net of current portion: Money market funds -33,176 33,176 Mutual funds 234,485 -234,485 Commingled funds -226,449 4,118 230,567 Common stocks 223,568 3,252 -226,820 Total segregated funds, net of current portion 458,053 262,877 4,118 725,048 Current portion of segregated funds: Money market fund -49,427 -49,427 Collateral pool investments
-136,710 136,710 Total current portion of segregated funds -49,427 136,710 186,137 Derivative instruments:
Commodities 15,554 7,527 19,989 (3,171) 39,899 Total $ 502,765 $ 544,013 $ 160,817 $ (3,171) $1,204,424 Liabilities Derivative instruments:
Commodities
$ (23,971) $ (71,120) $ (14,387) $ 13,012 $ (96,466)Total $ (23,971) $ (71,120) $ (14,387) $ 13,012 $ (96,466)Valuation Methodologies Securities Money market funds -Investments with maturities of three months or less when purchased, including certain short-term fixed-income securities, are considered cash equivalents.
The fair value of shares in money market funds are priced based on inputs obtained from Bloomberg, a pricing service, whose prices are obtained from direct feeds from exchanges, that are either directly or indirectly observable.
Mutualfunds
-The fair values of shares in mutual funds are based on inputs that are quoted prices in active markets for identical assets and, therefore, have been categorized in Level 1 in the fair value hierarchy.
Equities are priced using active market exchanges.
20 Corporate stocks -The fair values of shares in preferred and common corporate stocks are based on inputs that are quoted prices in active markets for identical assets and, therefore, have been categorized in Level 1 in the fair value hierarchy.
Equities are priced using active market exchanges.
Preferred and common corporate stocks are valued based on quoted prices in active markets and are categorized in Level 1. Equity securities held individually are primarily traded on exchanges which contain only actively traded securities due to the volume trading requirements imposed by these exchanges.
Common stocks that are valued based on quoted prices from less active markets, such as over the counter stocks, are categorized as Level 2 in the fair value hierarchy.
U.S. Government securities
-The fair value of U.S. government securities is derived from quoted prices on similar assets in active or non-active markets, pricing models whose inputs are observable for the substantially full term of the asset, or from pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means; therefore, these securities have been categorized as Level 2 in the fair value hierarchy.
Commingled funds -Commingled funds are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives, which are consistent with SRP's overall investment strategy.
For equity and fixed-income commingled funds, the fund administrator values the fund using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities.
Where adjustments to the NAV are required with respect to interests in funds subject to restrictions on redemption (such as lock-up periods or withdrawal limitations) and/or observable activity for the fund investment is limited, investments are classified within level 2 or 3 of the valuation hierarchy.
If the ability to redeem the investment is unknown or the investment cannot be redeemed in the near term at NAV, the fair value measurement of the investment will be categorized as a Level 3 in the valuation hierarchy.
Collateral pool investments
-These commingled funds are maintained and invested by the administrator of SRP's securities' lending program. The pools are primarily invested in short-term fixed income securities, but may also be invested in assets with maturities that match the duration of the loan of the related securities.
These commingled funds are valued daily by the administrator and the underlying fixed income securities are priced using a primary price source that is identified based on asset type, class or issue for each security.
SRP has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. The fair values of fixed income securities are based on evaluated prices that reflect observable market information.
However, these funds are categorized as level 3 because the value that SRP would be able to exit at is not the unit value derived from the underlying prices.Corporate bonds -For fixed income securities, multiple prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider validations in addition to checks for unusual daily movements.
A primary price source is identified based on asset type, class or issue for each security.
SRP has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, SRP selectively corroborates the fair values of securities by comparison to other market-based price sources. The fair values of fixed income securities are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized as Level 2.21 Non-Commodity Derivatives
-Non-commodity derivatives include fixed income and foreign exchange contracts that are exchange traded derivatives or over-the-counter (OTC) derivatives.
Exchange traded derivatives are priced based on inputs using quoted prices in the active markets using observable inputs. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Therefore, these investments have been categorized as Level 1. OTC derivatives are priced based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Therefore, these investments have been categorized as Level 2.Commodity Derivative Instruments The fair values of gas swaps and power swaps that are priced based on inputs using quoted prices of similar exchange traded items have been categorized in Level 1 in the fair value hierarchy.
These include gas swaps traded on the New York Mercantile Exchange (NYMEX) and power swaps traded on the Intercontinental Exchange.The fair values of gas swaps, power swaps, gas options, power options and power deals that are priced based on inputs obtained through pricing agencies and developed pricing models, using similar observable items in active and inactive markets, are classified as Level 2 in the valuation hierarchy.
The fair values of derivatives assets and liabilities which are valued using pricing models with significant unobservable market data traded in less active or underdeveloped markets are classified as Level 3 in the valuation hierarchy.
Level 3 items include gas swaps, power swaps, gas options, power options and power deals. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include long-dated or complex derivatives).
All of the assumptions above include adjustments for counterparty credit risk, using credit default swap data, bond yields, when available, or external credit ratings.Investments Calculated at Net Asset Value As of April 30, 2011, the fair value measurement of investments calculated at net asset value per share (or its equivalent), as well as the nature and risks of those instruments, are as follows: Fair Value Unfunded Redemption Redemption (in thousands)
Commitments Frequency Notice Period Mutual funds $ 130,815 None Daily N/A Commingled funds: Fixed income funds 97,427 None Daily N/A International equity funds 124,270 None Monthly 2 days Domestic long-short equity fund of funds 4,043 None Annual 100 days Mutual Funds -These are funds invested in either equity or fixed income securities.
They are actively managed funds that seek to outperform their respective benchmarks.
The equity funds may invest in large and/or small capitalization stocks and/or growth or value styles, as dictated by their prospectuses.
The fixed income funds will invest in a broad array of securities including treasuries, agencies, corporate debt, mortgage-backed securities, and some non-U.S. debt.22 Fixed Income Commingled Funds -The fund is an actively managed fund of funds that primarily invests in managers that invest in domestic and some non-U.S. equities.
As a long-short fund, the fund's goal is to neutralize market risk by balancing between managers that buy (go long) securities and managers who sell (go short) securities.
The fund seeks to outperform a broad equity index over long periods, with less risk.International Equity Funds -The fund is an actively managed fund that invests in primarily non-U.S.securities.
The funds may invest in small and/or large capitalization stocks, as well as developing country securities.
The fund seeks to outperform their respective benchmarks.
Domestic Long-Short Equity Fund of Funds -The fund is an actively managed fund of funds that primarily invests in managers that invest in domestic and some non-U.S. equities.
As a long-short fund, the fund's goal is to neutralize market risk by balancing between managers that buy (go long) securities and managers who sell (go short) securities.
The fund seeks to outperform a broad equity index over long periods, with less risk.Collateral and Margin Deposits Margin and collateral deposits include cash deposited with counterparties and brokers as credit support under energy contracts.
The amount of margin and collateral deposits generally varies based on changes in the fair value of the positions.
The District presents a portion of its margin and cash collateral deposits net with its derivative position on the accompanying Combined Balance Sheets.Amounts recognized as margin and collateral provided to others are included in derivative assets in the accompanying Combined Balance Sheets and totaled $0.6 million at April 30, 2011.Changes in Level 3 Fair Value Measurements The tables below include the reconciliation of changes to the balance sheet amounts (in thousands) for the years ended April 30 for financial instruments classified within Level 3 of the valuation hierarchy; this determination is based upon unobservable inputs to the overall fair value measurement:
Segregated Commodity Funds, net of Current Portion of Fiscal Year 2011 Derivatives Current Portion Segregated Funds Total Beginning balance at May 1 $ 5,602 $ 4,118 $ 136,710 $ 146,430 Transfers out of Level 3 1,552 --1,552 Net realized and unrealized gain/(loss) included in earnings (8,285) (75) 963 (7,397)Net realized and unrealized gain recorded as regulatory assets or liabilities
--936 936 Purchases 2,602 830,789 833,391 Settlements (6,801) -(807,417)
(814,218)Balance at April 30 $ (5,330) $ 4,043 $ 161,981 $ 160,694 23 Segregated Commodity Funds, net of Current Portion of Fiscal Year 2010 Derivatives Current Portion Segregated Funds Total Beginning balance at May 1 $ 27,000 $ 156,044 $ 112,498 $ 295,542 Transfers out of Level 3 7,631 (226,449)
-(218,818)Net realized and unrealized gain/(loss) included in earnings (6,094) 36,100 5,234 35,240 Net realized and unrealized gain recorded as regulatory assets -15,252 4,055 19,307 Purchases 8,793 23,986 737,315 770,094 Settlements (31,728) (815) (722,392)
(754,935)Balance at April 30 $ 5,602 $ 4,118 $ 136,710 $ 146,430 Fair Value Disclosures U.S GAAP requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Many but not all of the financial instruments are recorded at fair value on the accompanying Combined Balance Sheets.Financial instruments held by SRP are discussed below.Financial Instruments for Which Fair Value Approximates Carrying Value -Certain financial instruments that are not carried at fair value on the accompanying Combined Balance Sheets are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk. The instruments include receivables, accounts payable, customers' deposits, other current liabilities and commercial paper.Financial Instruments for Which Fair Value Does Not Approximate Carrying Value -The District presents long-term debt at carrying value on the accompanying Combined Balance Sheets. The collective fair value of the District's revenue bonds and the Desert Basin Lease-Purchase Agreement, including the current portion, was estimated by using pricing scales from independent sources. The carrying amount of commercial paper approximates fair value because of its short term maturity and pricing validated confirmed through independent sources. As of April 30, 2011 and 2010, the carrying amounts, including current portion and accrued interest, were $4.632 billion and $4.266 billion, respectively, and the estimated fair values were $4.634 billion and $4.412 billion, respectively. (See Note (7) LONG-TERM DEBT for further discussion of these items.)24 (7) LONG-TERM DEBT: Long-term debt consists of the following at April 30 (in thousands):
Interest Rate 2011 2010 Revenue bonds 1993 Series C (matured 1/1/2011)1997 Series A (matured 1/1/2011)2001 Series A (matured 1/1/2011)2002 Series A (mature 2012 -2031)2002 Series B (mature 2016 -2032)2002 Series C (mature 2012 -2015)2004 Series A (mature 2012 -2024)2005 Series A (mature 2027 -2035)2006 Series A (mature 2033 -2037)2008 Series A (mature 2016 -2038)2009 Series A (mature 2012 -2039)2009 Series B (mature 2013 -2020)2010 Series A (mature 2041)2010 Series B (mature 2014 -2027)Total revenue bonds Unamortized bond discount/premium Total revenue bonds outstanding Finance lease Commercial paper Total long-term debt Less: Current portion of long-term 5.05%5.00 -5.125%5.00%4.75- 5.25%4.00- 5.00%5.00%4.00- 5.00%4.75- 5.00%5.00%5.00%2.75- 5.00%3.00- 4.50%4.839%2.00- 5.00%309,280 468,400 140,800 104,450 327,090 296,000 816,650 725,430 296,375 500,000 216,785 4,201,260 111,629 4,312,889 195,845 50,000 4,558,734 (139,635)$ 4,419,099$ 15,800 38,990 11,420 431,110 570,000 184,635 114,410 327,090 296,000 816,650 744,180 296,375 3.375 -5.25%3,846,660 86,656 3,933,316 215,795 50,000 4,199,111 (147,180)$ 4,051,931 Total long-term debt, net of current The annual maturities of long-term debt (excluding unamortized bond discount/premium) as of April 30, 2011, due in fiscal years ending April 30, are as follows (in thousands):
Revenue Bonds Finance Lease 2012 $ 122,180 $ 17,455 2013 120,955 22,995 2014 113,740 17,500 2015 114,730 27,715 2016 108,155 16,075 Thereafter 3,621,500 94,105 Total $ 4,201,260
$ 195,845 Revenue Bonds Revenue bonds are secured by a pledge of, and a lien on, the revenues of the electric system, after deducting operating expenses, as defined in the amended and restated bond resolution, effective in January 2003, as amended (Bond Resolution).
The Bond Resolution requires the District to charge and collect revenues sufficient to fund the debt reserve account and pay operating expenses, debt service, and all other charges and liens payable out of revenues and income. Under the terms of the Bond Resolution, the District makes debt service deposits to a non-trusteed segregated fund. Included in segregated funds in the accompanying Combined Balance Sheets are $190.5 million and $185.5 million of debt service related funds as of April 30, 2011 and 2010, respectively.
Additionally, the Bond 25 Resolution requires the District to maintain a debt service coverage ratio of 1.1 or greater on outstanding revenue bonds. To be eligible to issue additional revenue bonds, the District must anticipate sufficient revenues to maintain that ratio post-issuance.
For the years ended April 30, 2011 and 2010, the debt service coverage ratio was 2.78 and 2.48, respectively.
In October 2010, the District issued $500 million 2010 Series A Electric System Revenue Bonds as federally taxable, direct payment "Build America Bonds." Subject to the District's compliance with certain provisions of the ARRA, the District expects to receive cash subsidy payments from the United States Treasury equal to 35% of the interest payable on the 2010 Series A Bonds over the term of the 2010 Series A Bonds. The District accrued $4.8 million for cash subsidy payments earned from the United States Treasury for the year ending April 30, 2011. The accrued cash subsidy payments are included in the Combined Statements of Net Revenues as a reduction to Interest on bonds, net.Interest, Build America Bonds subsidy payments, and the amortization of the bond discount, premium and issue expense on the various issues result in an effective rate of 4.52% over the remaining term of the bonds.In October 2010, the District also issued $216.8 million 2010 Series B Electric System Revenue Bonds, the proceeds of which were used with $0.8 million of available funds to fund an externally trusteed irrevocable escrow to defease $235.0 million of outstanding Revenue Bonds (the Refunding Bonds).The funds in the escrow will be applied to interest payments occurring after the sale and the redemption price of the Refunded Bonds upon their respective call dates of November 1, 2010, January 1, 2012 and January 1, 2013. The bond defeasance is a non-cash activity on the Combined Statements of Cash Flows and the Refunded Bonds have been removed from the District's balance sheet.The District has authorization to issue additional Electric System Revenue Bonds totaling $1.168 billion principal amount and Electric System Refunding Revenue Bonds totaling $5.684 billion principal amount.Finance Lease In December 2003, the District entered into a lease-purchase agreement (Desert Basin Lease-Purchase Agreement) with Desert Basin Independent Trust (DBIT) to finance the acquisition of the Desert Basin Generating Station (Desert Basin) located in central Arizona. In a concurrent transaction, $282.7 million in fixed-rate Certificates of Participation (COPs) were issued pursuant to a Trust Indenture, between Wilmington Trust Company, as trustee, and DBIT, to fund the acquisition of Desert Basin and other electric system assets ofthe District.
Investors in the COPs obtained an interest in the lease payments made by the District to DBIT under the Desert Basin Lease-Purchase Agreement.
Due to the nature of the Desert Basin Lease-Purchase Agreement, the District has recorded a lease-finance liability to DBIT with the same terms as the COPs.(8) COMMERCIAL PAPER AND CREDIT AGREEMENTS The District is authorized by the Board to issue up to $475.0 million in commercial paper. The District had $50.0 million Series C Commercial Paper outstanding at April 30, 2011. The District retired $275.0 million of Series B and $50.0 million of Series C Commercial Paper during fiscal year 2010. At April 30, 2011, the Series C issue had an average weighted interest rate to the District of 0.30%. The commercial paper matures not more than 270 days from the date of issuance and is an unsecured obligation of the District.26 The District has a $50.0 million revolving line-of-credit agreement supporting the $50.0 million of outstanding commercial paper. The revolving credit agreement expires September 16, 2012. The District has classified the commercial paper program as long-term debt in the accompanying Combined Balances Sheets at April 30, 2011 and 2010.The $50.0 million revolving credit agreement contains various conditions precedent to borrowings that include, but are not limited to, compliance with the covenants set forth in the agreement, the continued accuracy of representations and warranties, no existence of default and maintenance of certain investment grade ratings on the District's revenue bonds. The agreement has various covenants, with which management believes the District was in compliance at April 30, 2011. The District has never borrowed under the agreement.
Alternative sources of funds to support the commercial paper program include existing funds on hand or the issuance of alternative debt, such as revenue bonds.(9) EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS: Defined Benefit Pension Plan and Other Postretirement Benefits SRP's Employees' Retirement Plan (the Plan) covers substantially all employees.
The Plan is funded entirely from SRP contributions and the income earned on invested Plan assets. The District made a contribution of $132.0 million in fiscal year 2011 and $144.0 million in fiscal year 2010.SRP provides a non-contributory defined benefit medical plan for retired employees and their eligible dependents (contributory for employees hired January 1, 2000 or later) and a non-contributory defined benefit life insurance plan for retired employees.
Employees are eligible for coverage if they retire at age 65 or older with at least five years of vested service under the Plan (ten years for those hired January 1, 2000 or later), or any time after attainment of age 55 with a minimum of ten years of vested service under the Plan (20 years for those hired January 1, 2000 or later). The funding policy is discretionary and is based on actuarial determinations.
U.S. GAAP requires employers to recognize the overfunded or underfunded positions of defined benefit pension and other postretirement plans in their balance sheets. Any actuarial gains and losses, prior service costs and transition assets or obligations must be recorded on the balance sheet with an offset to accumulated other comprehensive income until the amounts are amortized as a component of net periodic benefit costs.The Board has authorized the District to collect future amounts associated with the pension and other postretirement plan liabilities as part of the pricing process. The District established a regulatory asset for the amounts otherwise chargeable to accumulated other comprehensive income that are expected to be recovered through prices in future periods. The changes in actuarial gains and losses, prior service costs and transition assets or obligations pertaining to the regulatory asset are recognized as an adjustment to the regulatory asset or liability accounts as these amounts are recognized as components of net periodic pension costs each year. The District's estimated amortization amounts for fiscal year 2011 are $2.1 million for prior service cost and $26.2 million for net actuarial loss.27 The following tables outline changes in benefit obligations, plan assets, the funded status of the plans and amounts included in the accompanying combined financial statements (in thousands):
Pension Benefits Postretirement Benefits 2011 2010 2011 2010 Change in benefit obligation Benefit obligation at beginning of year $ 1,365,606
$ 1,157,672
$ 513,378 $ 450,279 Service cost 38,307 32,129 10,287 8,597 Interest cost 80,243 79,254 30,236 30,859 Actuarial gain 56,031 145,809 26,895 39,801 Benefits paid (53,879) (49,258) (19,349) (16,158)Benefit obligation at end of year $ 1,486,308
$ 1,365,606
$ 561,447 $ 513,378 Change in plan assets Fair value of plan assets at beginning of year $ 1,105,452
$ 796,741 $ -$Actual return on plan assets 169,356 213,969 --Employer contributions 132,000 144,000 19,350 16,158 Benefits paid (53,879) (49,258) (19,350) (16,158)Fair value of plan assets at end of year 1,352,929 1,105,452 Funded status at end of year $ (133,379)
$ (260,154)
$ (561,447)
$ (513,378)Amounts recognized in Combined Balance Sheets: Other current liabilities
$ $ -$ (21,104) $ (18,882)Accrued post-retirement liability (133,379)
(260,154)
(540,343)
(494,496)Net asset (liability) recognized
$ (133,379)
$ (260,154)
$ (561,447)
$ (513,378)Amounts recognized as a regulatory asset: Transition obligation (asset) -$ -$ (3) $ (4)Prior service cost (credit) 6,424 8,739 (6,990) (7,193)Net actuarial loss 502,109 533,863 144,808 123,490 Net regulatory asset $ 508,533 $ 542,602 $ 137,815 $ 116,293 The following table represents the amortization amounts expected to be recognized or paid during the fiscal year ending April 30, 2012 (in thousands):
Pension Benefits Net transition obligation/(asset)
Prior service cost/(credit)
Net actuarial$$ 2,315$ 24,708 Postretirement Benefits$ (1)$ (203)$ 6,349 The following table outlines the projected benefit obligation and accumulated benefit obligation in excess of Plan assets (in thousands):
2011 Projected benefit obligation Accumulated benefit obligation Fair value of Plan assets$ 1,486,308$ 1,297,244$ 1,352,929 2010$ 1,365,606$ 1,201,915$ 1,105,452 SRP internally funds its other postretirement benefits obligation.
At April 30, 2011 and 2010, $533.7 million and $466.8 million of segregated funds, respectively, were designated for this purpose.28 The weighted average assumptions used to calculate actuarial present values of benefit obligations at April 30 were as follows: Pension Benefits Postretirement Benefits 2011 2010 2011 2010 Discount rate 5.69% 6.00% 5.69% 6.00%Rate of compensation increase 4.00% 4.00% N/A N/A Weighted average assumptions used to calculate net periodic benefit costs were as follows: Pension Benefits Postretirement Benefits 2011 2010 2011 2010 Discount rate 6.00% 7.00% 6.00% 7.00%Expected return on Plan assets Rate of compensation increase 8.25%4.00%8.25%4.00%N/A N/A N/A N/A For employees who retire at age 65 or younger, for measurement purposes, a 7.5% annual increase before attainment of age 65 and a 7.5% annual increase on and after attainment of age 65 in per capita costs of health care benefits were assumed during 2011; these rates were assumed to decrease uniformly until equaling 5% in all future years.The components of net periodic benefit costs for the years ended April 30, are as follows (in thousands):
Pension Benefits Postretirement Benefits 2011 2010 2011 2010 Service cost $ 38,307 $ 32,129 $ 10,287 $ 8,597 Interest cost 80,243 79,254 30,236 30,859 Expected return on Plan assets (102,168)
(91,982) --Amortization of transition obligation
--(1) 3,117 Amortization of net actuarial loss 20,597 6,360 5,576 1,556 Amortization of prior service cost 2,315 2,315 (203) 769 Net periodic benefit cost $ 39,294 $ 28,076 $ 45,895 $ 44,898 Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effect (in thousands):
One Percentage Point Increase$ 6,143$ 99,316 One Percentage Point Decrease$ (5,492)$ (66,961)Effect on total service cost and interest cost components Effect on postretirement benefit obligation Plan Assets The Board has established an investment policy for Plan assets and has delegated oversight of such assets to a compensation committee (the Committee).
The investment policy sets forth the objective of providing for future pension benefits by targeting returns consistent with a stated tolerance of risk.The investment policy is based on analysis of the characteristics of the Plan sponsors, actuarial factors, 29 current Plan condition, liquidity needs, and legal requirements.
The primary investment strategies are diversification of assets, stated asset allocation targets and ranges, and external management of Plan assets. The Committee determines the overall target asset allocation ratio for the Plan and defines the target asset allocation ratio deemed most appropriate for the needs of the Plan and the risk tolerance of the District.The market value of investments (reflecting returns, contributions, and benefit payments) within the plan trust appreciated 15.4% during fiscal year 2011, compared to an increase of 26.6% during fiscal year 2010. Changes in the plan's funded status affect the assets and liabilities recorded on the balance sheet in accordance with FASB authoritative guidance.
Due to the District's regulatory treatment, the recognition of funded status is offset by regulatory assets or liabilities and is recovered through prices.The Pension Protection Act of 2006 establishes new minimum funding standards and restricts plans underfunded by more than 20% from adopting amendments that increase plan liabilities unless they are funded immediately.
In December 2008, the Worker, Retiree, and Employer Recovery Act (WRERA)was enacted. Among other provisions, the WRERA provides temporary funding relief to defined benefit plans during the current economic down-turn.
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PACMBPRA) was signed into law during fiscal year 2011.WRERA and PACMBPRA will favorably impact the level of minimum required contributions.
The Plan's weighted-average asset allocations are as follows: Target Allocations 2011 2010 Equity securities 65.0% 65.1% 64.7%Debt securities 25.0% 27.7% 28.3%Real estate 10.0% 7.2% 7.0%Total 100.0% 100.0% 100.0%The investment policy, as authorized by the Board, allows management to reallocate Plan assets at any time within a tolerance range up to plus or minus 5% from the target asset allocation which allows for flexibility in managing the assets based on prevailing market conditions and does not require automatic rebalancing if the actual allocation strays from the target allocation.
Fair Value of Plan Assets The following table sets forth the fair value of SRP's Plan assets, by asset category, at April 30, 2011 (dollars in thousands):
Level 1 Level 2 Level 3 Total Money market funds $ 654 $ 54,520 $ $ 55,174 Mutual funds 127,227 -127,227 U.S. government securities
-46,031 46,031 Corporate bonds -215,161 215,161 Corporate stocks 500,853 2,751 503,604 Commingled funds -239,719 65,549 305,268 Real estate -97,485 97,485 Exchange traded derivatives 845,159 --845,159 OTC derivatives
-31,442 31,442 Exchange traded derivative liabilities (842,177)
-(842,177)OTC derivative liabilities
-(31,445) (31,445)Total assets $ 631,716 $ 558,179 $ 163,034 $ 1,352,929 30 The fair value of the Plan assets, excludes $307.2 million payable for collateral on loaned securities in connection with the participation of the Plan in securities lending programs.The following table sets forth the fair value of SRP's Plan assets, by asset category, at April 30, 2010 (dollars in thousands):
Level 1 Level 2 Level 3 Total Money market funds $ $ 42,370 $ $ 42,370 U.S. government securities 31,703 31,703 Corporate bonds 215,033 215,033 Corporate stocks 535,429 -535,429 Commingled funds -147,710 56,416 204,126 Real Estate -76,791 76,791 Total assets $ 535,429 $ 436,816 $ 133,207 $ 1,105,452 The fair value of the Plan assets, excludes $337.6 million payable for collateral on loaned securities in connection with the participation of the Plan in securities lending programs.For a description of the fair value hierarchy, refer to Note (6) FAIR VALUE MEASUREMENTS.
Valuation Methodologies Real Estate -Real estate commingled funds are funds with a direct investment in a pool of real estate properties.
These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications.
Since these valuation inputs are not highly observable, real estate investments have been categorized as Level 3 investments.
Exchange traded derivatives
-The fair values of exchange traded options and futures are priced based on inputs using quoted prices ih active markets using observable inputs. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Therefore, these investments have been categorized as Level 1.OTC derivatives
-The fair values of OTC options, forwards, swaptions, and swaps are priced based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Therefore, these investments have been categorized in Level 2 in the fair value hierarchy.
For an explanation of the valuation methodologies used to determine fair value of the assets of the Plan that are not listed above, refer to Note (6) FAIR VALUE MEASUREMENTS.
31 Changes in Level 3 Fair Value Measurements The table below includes the reconciliation of changes to the balance sheet amounts for the years ended April 30 for financial instruments classified within Level 3 of the valuation hierarchy; this determination is based upon unobservable inputs to the overall fair value measurement:
Plan Assets (in thousands) 2011 2010 Beginning balance at May 1 $ 133,207 $ 95,965 Actual return on plan assets relating to assets still held at end of period 19,087 (14,775)Purchases 10,740 54,000 Net transfers in/out of Level 3 -(1,983)Balance at April 30 $ 163,034 $ 133,207 Long-Term Rate of Return The expected return on Plan assets is based on a review of the Plan asset allocations and consultations with a third-party investment consultant and the Plan actuary, considering market and economic indicators, historical market returns, correlations and volatility, and recent professional or academic research.Employer Contributions The District expects to contribute
$132.0 million to the Plan over the next valuation period.Benefits Payments SRP expects to pay benefits in the amounts as follows (in thousands):
Pension Benefits Postretirement Benefits Before Subsidy* Net 2012 $ 59,406 $ 21,104 $ 20,442 2013 64,098 22,895 22,142 2014 69,359 24,966 24,123 2015 74,607 26,928 26,006 2016 80,478 28,866 27,853 2017 through 2021 $ 496,204 $ 168,140 $ 161,704*Estimated future benefit payments, including prescription drug benefits, prior to federal drug subsidy receipts expected as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.Defined Contribution Plan SRP's Employees' 401(k) Plan (the 401(k) Plan) covers substantially all employees.
The 401(k) Plan receives employee pre-tax and post-tax contributions and partial employer matching contributions.
Employees who have one year of service in which they have worked at least 1,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> and who are also contributing to the 401(k) Plan are eligible to receive partial employer matching contributions of$0.85 on every dollar contributed up to the first six-percent of their base pay that they contribute to the 401(k) Plan. Employer matching contributions to the 401(k) Plan were $14.0 million during each of fiscal years 2011 and 2010.32 Employee Performance Incentive Compensation Program During fiscal year 2011, a new Emplo(yee Performance Incentive Compensation program (EPIC) was approved by the Board. EPIC covers substantially all regular employees and the incentive compensation is based on the achievement of pre-established targets for fiscal years 2011 and 2012 combined.
The Board did not approve an incentive compensation program for fiscal year 2010.(10) INTERESTS IN JOINTLY-OWNED ELECTRIC UTILITY PLANTS: The District has entered into various agreements with other electric utilities for the joint ownership of electric generating and transmission facilities.
Each participating owner in these facilities must provide for the cost of its ownership share. The District's share of expenses of the jointly-owned plants is included in operating expenses in the accompanying Combined Statements of Net Revenues.The following table reflects the District's ownership interests in jointly-owned electric utility plants as of April 30, 2011 (in thousands):
Construction Ownership Plant in Accumulated Work Generating Station Share Service Depreciation In Progress Four Corners (NM) (Units 4 & 5) 10.00% $ 118,226 $ (99,913) $ 3,238 Navajo (AZ) (Units 1, 2 & 3) 21.70% 390,381 (349,309) 24,890 Hayden (CO) (Unit 2) 50.00% 120,539 (115,696) 15,135 Craig (CO) (Units 1 & 2) 29.00% 274,682 (221,839) 11,045 PVNGS (AZ) (Units 1, 2 & 3) 17.49% 1,320,262 (1,044,411) 46,277$ 2,224,090
$ (1,831,168)
$ 100,585 As of April 30, 2011, the District's ownership interests in transmission facilities include $310.0 million in plant in service, $26.8 million in accumulated depreciation and $88.8 million in construction work in progress.(11) VARIABLE INTEREST ENTITIES: On May 1, 2010, the District adopted ASU No. 2009-17, "Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities." The newly adopted FASB authoritative guidance defines a variable interest entity (VIE) as a legal entity whose equity owners do not have sufficient equity at risk or lack certain characteristics of a controlling financial interest in the entity.This guidance identifies the primary beneficiary as the variable interest holder that has the power to direct the activities that most significantly impact the VIE's economic performance (power criterion) and has the obligation to absorb losses or right to receive benefits from the VIE (losses/benefits criterion).
The primary beneficiary is required to consolidate the VIE unless specific exceptions or exclusions are met. The District considers both qualitative and quantitative factors to form a conclusion whether it, or another interest holder, meets the power criterion and the losses/benefits criterion.
The District performs ongoing reassessments of its VIEs to determine if the primary beneficiary changes each reporting period.Unconsolidated VIEs While the District is not required to consolidate any VIE as of April 30, 2011 or 2010, it held variable interests in certain VIEs as described below: In May 2008, the District entered into a 20-year purchase power agreement to purchase energy from a 575 MW simple cycle natural gas peaking facility.
The commercial operation date of the facility was May 1, 33 2011. Under the agreement, the District will pay a capacity charge, operation and maintenance costs and property taxes. The District is also obligated to provide the natural gas needed to operate the facility.
The capacity charge is paid monthly and will total approximately
$57.5 million yearly, which is included in the Purchased Power and Fuel Supply table in Note (12) COMMITMENTS.
The District has concluded that it is not the primary beneficiary of this VIE since it does not control operations and maintenance, which it believes are the primary activities that most significantly impact the economic activities of the entity. The District has concluded that this purchase power agreement is a capital lease. Accordingly, a capital lease asset and corresponding liability were recorded on May 1, 2011.The District has entered into various long-term purchase power agreements with developing renewable energy generation facilities that extend for periods of 20 to 30 years. Two of the facilities, with capacities of approximately 64 MW and 63 MW, began commercial operation in fiscal years 2011 and 2010, respectively.
The District is receiving the power and renewable energy credits from both facilities and the amounts that the District paid to these projects were $17.5 million and $6.4 million for the fiscal years 2011 and 2010, respectively.
The remaining facilities are expected to begin commercial operation between fiscal year 2012 and fiscal year 2013. The expected capacity of all the facilities combined, once in operation, is approximately 311 MW. The District is only obligated to pay for actual energy delivered and will have no obligation with respect to any facilities that do not start commercial operations.
There are no minimum payment obligations under these agreements.
The District has concluded that it is not the primary beneficiary of these VIEs since it does not control operations and maintenance, which it believes are the primary activities that most significantly impact the economic activities of the entity.The District formed a partnership during fiscal year 2010 to market long-term water storage credits.The District made capital contributions to the partnership in fiscal years 2011 and 2010 totaling $1.0 million and $0.4 million, respectively.
The District has a future maximum exposure up to a $25 million contribution limit. The District has concluded that it is not the primary beneficiary of this VIE since it does not have power to direct the activities related to the marketing of the long-term water storage credits, which represent the most significant economic activities of the VIE.(12) COMMITMENTS:
Purchased Power and Coal Fuel Supply The District had various firm non-cancelable purchase commitments at April 30, 2011, which are not recognized in the accompanying Combined Balance Sheets. The following table presents information pertaining to firm purchase commitments with remaining terms greater than one year (in millions):
Total Payments Purchase Commitments 2011 2010 2012 2013 2014 2015 2016 Thereafter Purchase power contracts*
$200.8 $ 220.8 $ 109.5 $ 119.2 $, 120.6 $ 122.1 $ 123.5 $ 2,276.1 Fuel supply contracts 369.6 293.7 327.2 306.6 253.9 253.9 228.2 818.2 Total $ 570.4 $ 514.5 $ 436.7 $ 425.8 $ 374.5 $ 376.0 $ 351.7 $ 3,094.3* Included in the purchase commitments is $10.5 million in fiscal year 2012 that is unconditionally payable regardless of the availability of power.In conjunction with an impairment analysis performed on generation-related operations, in August 1998, the District recorded provisions of $163.7 million for losses on certain contracts included in the table above. The provisions were being amortized over the life of the contracts, commencing January 1, 1999, 34 and are fully amortized as of May 2011. Amortization of $13.3 million has been reflected as a reduction in purchased power expense in fiscal years 2011 and 2010.Gas Purchase Agreement In October 2007, the District entered into a 30-year gas purchase agreement with Salt Verde Financial Corporation (SVFC), an Arizona nonprofit corporation formed for the primary purpose of supplying natural gas to the District.
Under the agreement, the District is committed to purchase 9,820,000 MMBtus (million of British thermal units) of natural gas in fiscal year 2012, 10,120,000 MMBtus in fiscal year 2013, 10,425,000 MMBtus in fiscal year 2014, 10,425,000 MMBtus in fiscal year 2015, 10,270,000 MMBtus in fiscal year 2016 and 229,240,000 MMBtus over the balance of the term. These purchases are expected to supply approximately 20% of its projected natural gas requirements needed to serve retail customers over the remainder of the 30-year period. The District receives a discount off market prices and is obligated to pay only for gas delivered.
Payments to SVFC under the agreement were$14.6 million and $10.1 million in fiscal year 2011 and fiscal year 2010, respectively.
Operating Leases The District entered into various operating leases to facilitate the operations of Springerville Unit 4. Total payments under the agreements were $13.0 million and $8.1 million in fiscal year 2011 and 2010, respectively.
Minimum payments under these agreements are estimated to be $13.2 million in fiscal year 2012 through fiscal year 2014, $12.9 million in fiscal year 2015, $9.4 million in fiscal year 2016 and $232.0 million thereafter.
(13) CONTINGENCIES:
Nuclear Insurance Under existing law, public liability claims arising from a single nuclear incident are limited to $12.595 billion. PVNGS Participants insure for this potential liability through commercial insurance carriers to the maximum amount available
($375.0 million) with the balance covered by an industry-wide retrospective assessment program as required by the Price-Anderson Act. If losses at any nuclear power plant exceed available commercial insurance, the District could be assessed retrospective premium adjustments.
The maximum assessment per reactor per nuclear incident under the retrospective program is $117.5 million including a 5% surcharge; applicable in certain circumstances, but not more than $17.5 million per reactor may be charged in any one year for each incident.
Based on the District's ownership share of PVNGS, the maximum potential assessment would be $61.7 million, including the 5% surcharge, but would be limited to $9.2 million per incident in any one year.PVNGS Participants also maintain "all risk" (including nuclear hazards) insurance for property damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.750 billion, a substantial portion of which must first be applied to stabilization and decontamination.
The District has also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen accidental outage of any of the three units. The coverage for property damage, decontamination, and replacement power is provided by Nuclear Electric Insurance Limited (NEIL). The District is subject to retrospective assessments under all NEIL policies if NEIL's losses in any policy year exceed accumulated funds. The maximum amount of retrospective assessments the District could incur under the NEIL policies totals approximately
$10.6 million. The insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions and exclusions.
35 Spent Nuclear Fuel Under the Nuclear Waste Policy Act of 1982, the District pays $0.001 per kWh on its share of net energy generation at PVNGS to the U.S. Department of Energy (DOE). However, to date, for various reasons, the DOE has not constructed a site for the storage of spent nuclear fuel. Accordingly, APS has constructed an on-site dry cask storage facility to receive and store PVNGS spent fuel. PVNGS has sufficient capacity at its on-site spent fuel storage installation to be able to store all of the nuclear fuel that will be spent during the first operating license period which ends in December 2027. In addition, PVNGS has sufficient capacity to store a portion of the fuel that will be spent during the period of extended operation, which will end in December 2047. Potentially, and depending on how the NRC rules on the future unloading of spent fuel pools, PVNGS could use high capacity storage casks to store the balance of any fuel spent during the extended license period.The District's share of on-site interim storage at PVNGS is estimated to be $79.3 million for costs to store spent nuclear fuel from inception of the plant through fiscal year-end 2011, and $0.8 million per year going forward. These costs have been included in the District's price plans for transmission and distribution.
At April 30, 2011 and 2010, the District's accrued spent fuel storage cost was $25.3 million and $25.6 million, respectively, and included in deferred credits and other non-current liabilities on the accompanying Combined Balance Sheets.Coal Supply Litigation Navajo Nation v. Peabody (U.S. District Court, D.C. District -RICO Case) -In 1999, the Navajo Nation filed a lawsuit in the United States District Court in Washington D.C. (U.S. District Court) in which the Hopi Tribe later joined as a plaintiff.
The lawsuit arises out of negotiations culminating in 1987 with amendments to the coal leases and related agreements.
The Navajo Nation and the Hopi Tribe allege that Peabody Western Coal Company (Peabody) (the coal supplier for NGS and Mohave), Southern California Edison Company (operating agent for Mohave), the District (operating agent for NGS) and certain individual defendants, in violation of the federal racketeering statutes, had improperly induced the Department of the Interior (DOI) to not approve the coal royalty rate proposed by the Navajo Nation. They further alleged that the DOI's failure to approve the rate caused the tribes to negotiate and settle upon a substantially lower royalty rate. The suit alleges $600.0 million in damages. The plaintiffs also seek treble damages against the defendants, measured by amounts awarded under the racketeering statutes.
In addition, the plaintiffs claim punitive damages of not less than $1.000 billion. In 2001, the claims of both the Navajo Nation and the Hopi Tribe were dismissed in their entirety with respect to the District.On April 12, 2010, the Navajo Nation filed an amended complaint that did not include any RICO claims or claims against the District or any individual defendants.
The amended complaint continues to allege$600.0 million in damages and punitive damages in the amount of $1.000 billion and seeks to reform the coal leases to provide for a reasonable royalty rate, to dispossess the defendants of all interests in property on the Reservation and to permanently exclude the defendants from the Reservation.
While the District is not named as a defendant in the amended complaint, the earlier dismissal of the District could possibly be appealed at the conclusion of the case.On October 15, 2010, Peabody, the NGS Owners and the Mohave Owners agreed to settle the case with respect to the Hopi Tribe. This ends the matter in regard to the claims of the Hopi Tribe.Settlement negotiations with the Navajo Nation continued and a tentative settlement has been reached.36 The District believes it has recorded adequate reserves related to future coal mine reclamation and settlements related to mine related issues to cover any liability it may incur, including any liability if the settlement with the Navajo Nation is ultimately approved.
At April 30, 2011 and 2010, the District has recorded approximately
$57.7 million and $49.7 million, respectively, for these various issues, which amounts are included in deferred credits and current liabilities.
Black Mesa Environmental Impact Statement In 2008, the Office of Surface Mining (OSM) issued an Environmental Impact Statement (EIS) to allow Peabody to include the Black Mesa Mine (which formerly served Mohave) in the permit for the Kayenta Mine (which serves NGS). Among other things, combining the two permits could eventually give Peabody access to shallower, high quality coal for NGS, which could reduce future costs to the NGS Participants and provide an additional source of coal. Under the administrative appeals process, numerous appeals of the permit decision were filed, and a decision was issued that the process OSM had followed to issue the permit was inadequate.
Peabody is working with OSM on a permit revision and the District anticipates that OSM will comply with applicable environmental requirements.
Navajo Mine Permit BHP Billiton Limited (BHP) operates the Navajo Coal Mine, which supplies the Four Corners Generating Station, in which the District owns 10% of Units 4 and 5. Several environmental groups have filed lawsuits challenging the mining permit and expanded operations.
If these lawsuits were successful, they would result not only in increased cost of mining operations, which would be passed to the owners of the generating station, but could result in the suspension or termination of mining activities.
APS, as operating agent of Four Corners, is working with BHP and other defendants to allow the expansion and continuation of the mine. The District cannot predict the outcome of these lawsuits at this time.Environmental SRP is subject to numerous legislative, administrative and regulatory requirements at the federal, state and local levels as well as lawsuits relative to air quality, water quality, hazardous waste disposal and other environmental matters. Such requirements have resulted, and will continue to result, in increased costs associated with the operation of existing properties.
At April 30, 2011, and 2010, the District accrued $38.2 million and $40.5 million, respectively, for environmental issues, on a non-discounted basis, which is included in deferred credits and other non-current liabilities on the accompanying Combined Balance Sheets. The following topics highlight some of the major environmental compliance issues affecting SRP.Water Quality. Due to the nature of its business, from time to time the District is involved in various state and federal superfund matters. In September 2003, the EPA notified the District that it might be liable under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) as an owner and operator of a facility within the Motorola 5 2 nd Street Superfund Site Operable Unit 3. The District completed the remedial investigation at the site but may be liable for past costs incurred and for future work to be conducted within the Superfund Site with regard to groundwater.
At the adjacent West Van Buren Superfund site, a state superfund site, the Roosevelt Irrigation District (RID) has sued the District and numerous other parties claiming that as a result of groundwater contamination, RID has been damaged in excess of $125.0 million. While the District is unable at this time to predict the outcome of these and other superfund matters, it believes it has 37 recorded adequate reserves as part of its environmental reserves to cover known liabilities related to these issues.Air Quality. Efforts to reduce carbon dioxide and other emissions from fossil fuel power plants will substantially increase the cost of, and add to the difficulty of siting, constructing, and operating electric generating units. As a result of legislative and regulatory initiatives, the District is planning emission reductions at its coal-fired power plants. In particular, under the terms of a consent agreement with the EPA, the District agreed in 2008 to install additional pollution control equipment at CGS at a projected cost of approximately
$539.0 million, with work expected to be complete in approximately June 2014.The full significance of air quality standards and emission reduction initiatives to the District in terms of costs and operational problems is difficult to predict, but it appears that costly equipment may have to be added to existing units and that permit fees may increase significantly resulting in potentially material cost to the District as well as reduced generation.
The District is assessing the risk of policy initiatives on its generation assets and is developing contingency plans to comply with future laws and regulations restricting greenhouse gas emissions.
There is no way to predict the impact of such initiatives on the District at this time.The District has negotiated a Consent Order with the Arizona Department of Environmental Quality (ADEQ), pursuant to which the District will delay compliance with the current Arizona limitations on mercury emissions until 2016, and instead will implement a control strategy designed to achieve a 70 percent reduction of emissions at CGS on a facility-wide annual average basis by January 1, 2012. Annual costs of the mercury control system are estimated at $2.4 million.In March 2011, the EPA issued proposed new emissions standards for hazardous air pollutants for existing and new coal- and oil-fired power plants under the Clean Air Act (CAA), including emissions of mercury and particulate matter. Final rules are expected to be issued in November 2011 and additional controls may be required at all coal-fired plants in which the District has an interest.
The District is analyzing the proposed rule and potential effects on future operations at its coal-fired plants and cannot yet estimate the associated costs.Provisions of the EPA's Regional Haze Rule require emissions controls known as Best Available Retrofit Technology (BART) for coal-fired power plants and other industrial facilities that emit air pollutants that reduce visibility in Class I areas such as national parks. The District has financial interests in several coal-fired power plants that are subject to the BART requirements.
The EPA is expected to propose a BART determination for NGS in early 2012, with a final determination expected later. The District believes that BART for NGS requires the installation on all three units of low-NOx burners and separated over-fired air (LNB/SOFA).
The LNB/SOFA equipment has been installed on all three units at a total cost of approximately
$45.0 million, of which the District's share was $9.8 million.Nevertheless, the EPA may also require the installation of post-combustion controls such as selective catalytic reduction (SCR) as well as controls for sulfuric acid mist emissions and fine particulate matter, which would cost about $1.200 billion, of which the District's share would be approximately
$260.0 million.The EPA's proposed BART determination for Four Corners would require the installation of SCRs on all five units, or the closure of Units 1, 2 and 3 and SCRs on Units 4 and 5. The comment period expired on May 2, 2011 and it is not known when a final determination will be issued. SCRs for Units 4 and 5 could cost$530.0 million, of which the District's share would be $53.0 million. Depending on the final determination, the installation date could be as early as 2016.38 The BART determinations for District-owned generating stations in Colorado include recommendations for installation of new emission control equipment on Craig Unit 1, Craig Unit 2 and Hayden Unit 2. Tri-State, the operating agent for Craig, has provided the EPA with an estimate of approximately
$213.1 million to install the emission control equipment at Craig Units 1 and 2, of which the District's share for the two units would be $62.0 million. According to Xcel Energy, the operating agent for Hayden, installation of SCR on Hayden Unit 2 would cost approximately
$72.0 million, of which the District's share would be $36.0 million. The BART determinations are expected to be finalized by September 2012. If required, the new emission control equipment would have a required in-service date of no later than January 1, 2018, and would take five to six years to implement.
In May 2009, the National Parks Conservation Association (NPCA) and other environmental and tribal groups, petitioned the U.S. Department of Interior -National Park Service (DOI) to certify to the EPA that visibility impairment in Grand Canyon National Park was "reasonably attributable" to oxides of nitrogen and particulate matter emissions from NGS (the NGS Petition).
On February 16, 2010, the groups filed a similar petition with both the DOI and the U.S. Department of Agriculture
-U.S. Forest Service (DOA) with respect to Four Corners, asking the DOI and the DOA to certify to the EPA that impairment of visibility in sixteen areas within 300 kilometers of Four Corners, including the Grand Canyon National Park, among others, was reasonably attributable to pollutant emissions from Four Corners. However, the DOI and the DOA deferred action on the petitions pending completion of the BART determinations for the plants.On January 20, 2011, the groups sued both DOI and the DOA, asserting that the agencies failed to act without unreasonable delay. The defendants filed a motion to dismiss the suit and both the District (on behalf of the NGS Owners) and APS (on behalf of Four Corners Owners) successfully intervened in the suit.On June 30, 2011, the U.S. District Court dismissed the suit. The decision could still be appealed or refiled on other grounds. If successful, the suit could force the agencies to issue a "reasonably attributable visibility impairment" finding, which could trigger an alternative process for BART for the two plants. It is too early to predict an outcome of this matter.On May 5, 2010, Earthjustice, on behalf of various environmental groups, wrote to the EPA and the owners of Four Corners Units 4 and 5, in which the District owns a ten percent interest, providing notice of intent to sue the participants for violations of the CAA. The EPA had 60 days to determine whether to file its own action against the plant, but failed to do so. Thus, Earthjustice could file suit at any time. APS has proposed to the EPA that these and other potential liabilities be resolved as part of the BART determination for Four Corners.In December 2009, the EPA found that emissions of greenhouse gases (GHG) endanger public health and welfare. In April 2010, the EPA issued a rule which allowed the EPA to regulate emissions of GHG by stationary sources such as power plants. Thereafter, the EPA issued the "tailoring rule" which specifies thresholds that trigger permitting requirements for sources of GHG emissions.
The rule applied to power plants on January 2, 2011. Several groups have filed lawsuits challenging the EPA's endangerment finding and tailoring rule. The EPA also intends to propose new standards under the CAA for greenhouse gas emissions from power plants and other industrial facilities by September 2011 and to finalize them by May 2012. Altogether, the rules could apply to both gas- and coal-fired electric generating stations and would establish emission guidelines for new, modified, and existing plants. The District cannot predict the impact of these rules on its operations or finances at this time.The California Legislature has enacted GHG Laws that have indirectly affected the District.
As a result of these laws, the Los Angeles Department of Water and Power (LADWP), one of the participants in NGS, and SCE, a participant in Four Corners Units 4 and 5, are or will be selling their interests in those 39 plants. Also, the California Air Resource Board (CARB) is developing a program to reduce California emissions of GHG, including an economy-wide cap-and-trade program for GHG. The CARB regulations could impact the District's ability to sell excess generation into California.
Based on available information, the District cannot estimate or predict the impact of the California laws on it at this time.Hazardous Waste. The EPA has issued a proposed rule seeking comments on regulatory options governing the handling and disposal of coal combustion residuals (CCRs), such as fly ash, bottom ash and flue gas desulfurization sludge (FGD). The District disposes of CCRs in dry landfill storage areas at CGS and NGS, with the exception of wet surface impoundment disposal of FGD sludge at CGS. Both CGS and NGS sell a portion of their fly ash for beneficial reuse as a constituent in concrete production.
The District also owns interests in joint participation plants, such as Four Corners, Craig, Hayden and Springerville, which dispose of CCRs in dry storage areas and in ash ponds. The regulated community, including utilities, strongly opposes regulation of CCRs as hazardous waste and Congress is considering legislation that would prohibit the EPA from regulating CCRs as hazardous waste. The EPA is expected to issue a final rule in late 2012 or in 2013. At this time, it is too early to definitively estimate projected costs, but the costs could be substantial depending on the approach taken in the final rules.Endangered Species. Several species listed as threatened or endangered under of the Endangered Species Act (ESA) have been discovered in and around reservoirs on the Salt and Verde Rivers, as well as C.C. Cragin Reservoir operated by SRP. Potential ESA issues also exist along the Little Colorado River in the vicinity of the Coronado and Springerville Generating Stations.
The District obtained Incidental Take Permits (ITPs) from the United States Fish and Wildlife Service (USFWS), which allow full operation of Roosevelt Dam on the Salt River and Horseshoe and Bartlett Dams on the Verde River. The ITPs, and associated Habitat Conservation Plans (HCPs), identify the obligations, such as mitigation and wildlife monitoring, the District must undertake to comply with the ESA. The District has established trust funds to pay mitigation and monitoring expenses related to the implementation of both the Roosevelt HCP and Horseshoe-Bartlett HCP and believes it has recorded adequate reserves as a part of its environmental reserves to cover its related obligations.
The District continues to assess the potential ESA liabilities along the Little Colorado River and at C.C. Cragin, and is working closely with the USFWS and other state and federal agencies to address potential species concerns as necessary, but cannot predict the ultimate outcome at this time.Indian Matters From time to time, SRP is involved in litigation and disputes with various Indian tribes on issues concerning regulatory jurisdiction, royalty payments, taxes and water rights, among others (see Coal Supply Litigation above and Water Rights below). Resolution of these matters may result in increased operating expenses.Water Rights The District and the Association are parties to a state water rights adjudication proceeding initiated in 1976 which encompasses the entire Gila River System (the Gila River Adjudication).
This proceeding is pending in the Superior Court for the State of Arizona, Maricopa County, and will eventually result in the determination of all conflicting rights to water from the Gila River and its tributaries, including the Salt and Verde Rivers. The District and the Association are unable to predict the ultimate outcome of this proceeding.
In 1978, a water rights adjudication was initiated in the Apache County Superior Court with regard to the Little Colorado River System. The District has filed its claim to water rights in this proceeding, which 40 includes a claim for groundwater being used in the operation of CGS. The District is unable to predict the ultimate outcome of this proceeding, but believes an adequate water supply for CGS will remain available.
Other Litigation In the normal course of business, SRP is exposed to various litigations or is a defendant in various litigation matters. In management's opinion, the ultimate resolution of these matters will not have a material adverse effect on SRP's financial position or results of operations.
Self-Insurance The District maintains various self-insurance retentions for certain casualty and property exposures.
In addition, the District has insurance coverage for amounts in excess of its self-insurance retention levels.The District provides reserves based on management's best estimate of claims, including incurred but not reported claims. In management's opinion, the reserves established for these claims are adequate and any changes will not have a material adverse effect on the District's financial position or results of operations.
The District records the reserves in deferred credits and other non-current liabilities in the accompanying Combined Balance Sheets.41 JL pwc Report of Independent Auditors To the Board of Directors of the Salt River Project Agricultural Improvement and Power District and the Board of Governors of the Salt River Valley Water Users' Association In our opinion, the accompanying combined balance sheets and the related combined statements of net revenues and comprehensive income, and cash flows present fairly, in all material respects, the financial position of the Salt River Project Agricultural Improvement and Power District and its subsidiaries and the Salt River Valley Water Users' Association (collectively, "SRP") at April 30, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of SRP's management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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 of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.?vi6tvd§~
14 ac-DylDý( LAI-July 21, 2011 PricewaterhouseCoopers LLP, 35o South Grand Avenue, Los Angeles CA 90o71 T: (213)356 6000, F: (813) 6374444, www.pwc.com/us S C- TPýAI SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY INDEPENDENT AUDITOR'S REPORT AND COMBINED FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 MOSS-ADAMSLL Certified Pubtic Accountants I Business Consuttants Acumen. Agility. Answers.
TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS 2-7 FINANCIAL STATEMENTS Combined Financial Statements 8 -46 Notes to Combined Financial Statements 47 -92 SUPPLEMENTAL INFORMATION Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenture for the Year Ended June 30, 2010 Palo Verde Project 93 San Juan Project 94 Magnolia Power Project 95 Canyon Power Project 96 Hoover Uprating Project 97 Tieton Hydropower Project 98 Milford 1 Wind Project 99 Linden Wind Energy Project 100 Southern Transmission System Project 101 Mead-Phoenix Project 102 Mead-Adelanto Project 103 Natural Gas Pinedale Project 104 Natural Gas Barnett Project 105 Prepaid Natural Gas Project No. 1 106 Multiple Project Fund 107
.... ... ... *1,: * :--.WWW.MOS5ADAMS;COM INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Participants of Southern California Public Power Authority We have audited the accompanying combined and individual project's statements of net assets (deficit) of Southern California Public Power Authority (the Authority) as of June 30, 2010 and 2009 and the related combined and individual project's statements of revenues, expenses and changes in net assets (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Authority's management.
Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America.Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.In our opinion, the combined and individual project's financial statements referred to above present fairly, in all material respects, the financial position of Southern California Public Power Authority and each of the Authority's projects:
Palo Verde Project, San Juan Project, Magnolia Power Project, Canyon Power Project, Hoover Uprating Project, Tieton Hydropower Project, Milford I Wind Project, Linden Wind Energy Project, Southern Transmission System Project, Mead-Phoenix Project, Mead-Adelanto Project, Natural Gas Pinedale Project, Natural Gas Barnett Project, Prepaid Natural Gas Project No. 1, Ormat Geothermal Energy Project, MWD Small Hydro Project, Pebble Springs Wind Project, Windy Point Project, Multiple Project Fund, Project Development Fund and Projects'Stabilization Fund as of June 30, 2010 and 2009 and the results of the Project's operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.As discussed in Note 2 to the financial statements, the Authority adopted the provisions of Governmental Accounting Standards Board Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, effective July 1, 2009. The financial statements for the year. ended June 30, 2009 were restated to reflect the adoption of Governmental Accounting Standards Board Statement No. 53.The management's discussion and analysis preceding the combined financial statements is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.The additional supplemental information, as listed in the table of contents, following the combined financial statements and notes to combined financial statements is also not a required part of the basic financial statements but is supplementary information provided for purposes of additional analysis.
We did not audit or perform any other procedures on this information and express no opinion on it.Portland, Oregon November 5, 2010 Praxit :.GLOBA.L ALLIANCr OF INIlEPE11DEN7 FIlMS SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis of the financial performance of Southern California Public Power Authority (the "Authority" or "SCPPA"), provides an overview of the Authority's financial activities for the fiscal years ended June 30, 2010 and 2009. Please read this discussion and analysis in conjunction with the Authority's Combined Financial Statements, which begin on page 9. Description and other details pertaining to the Authority are included in the Notes to Combined Financial Statements.
The Authority is a joint powers authority whose primary purpose has been to provide joint financing and oversight for large joint projects for its member agencies that consist of eleven municipal electric utilities and one irrigation district in California.
On a combined basis, these entities provide electricity to more than 2 million retail electric customers.
A Board of Directors (the "Board") governs the Authority, which consists of one representative from each member agency.USING THIS FINANCIAL REPORT This annual financial report consists of a series of financial statements and reflects the self-supporting activities of the Authority that are funded primarily through the sale of energy, natural gas, and transmission services to member agencies under project specific "take or pay" contracts that require each member agency to pay its proportionate share of operating and maintenance expenses and debt service with respect to such projects.
The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding.
The Authority also established "take and pay" contracts for the participants of the prepaid natural gas project where the payments received from the sale of gas will be sufficient to pay debt service. In addition, the Authority has entered into various power purchase agreements.
These agreements are substantially take-and-pay contracts but there may be other costs not associated with the delivery of energy that the participants may be obligated to pay.2 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Summary of Financial Condition and Changes in Net Assets (Deficit)(In Thousands)
Assets Net utility plant Investments Cash and cash equivalents Prepaid and other Total assets Liabilities Noncurrent liabilities Current liabilities Total liabilities Net Assets (Deficit)Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net deficit Total liabilities and net assets (deficit)Revenues, Expenses and Changes in Net Assets (Deficit) for the year ended June 30 Operating revenues Operating expenses Operating income Investment and other income Derivative gain (loss)Debt expense Change in net assets 2010$ 1,364,717 870,322 245,390 783,001$ 3,263,430$ 3,073,274 322,662 3,395,936 (746,931)606,563 7,862 (132,506)$ 3,263,430$ 516,088 (388,129)127,959 36,212 (8,720)(128,545)26,906 JUNE 30, 2009 As Restated$ 1,070,203 828,151 143,671 732,168$ 2,774,193$ 2,669,451 273,947 2,943,398 (768,276)547,675 51,396 (169,205)$ 2,774,193$ 464,286 (347,709)116,577 27,741 (16,457)(145,965)(18,104)2008 As Restated$ 1,009,331 558,619 230,000 682,405$ 2,480,355$ 2,410,519 220,748 2,631,267 (1,236,053) 996,901 88,240 (150,912)$ 2,480,355$ 476,865 (327,249)149,616 32,956 (10,303)(108,062)64,207 Net Deficit, beginning of year (169,205)(150,912)(217,083)Net Contributions/(Withdrawals)
By Participants 9,793$ (132,506)(189)$ (169,205)1,964$ (150,912)Net Deficit, end of year 3 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued)
Net Deficit -During fiscal year 2010 the Authority's net deficit decreased by $37 million mainly due to the increase in assets of $489 million offset by the increase in liabilities of $452 million.The increase in the Authority's assets is due to the following:
Utility Plant -increased by $295 million.This increase is primarily due to the $145 million payment of acquisition costs for the Linden Wind Energy Project; $79 million ongoing construction costs in the Canyon Power Project (CPP); $48 million payment of acquisition costs for the Tieton Hydropower Project, $53 million ongoing costs for the upgrade of two converter stations in the Southern Transmission System (STS); and $35 million ongoing capital improvements in Palo Verde (PV), San Juan (SJ), and Natural Gas Pinedale and Barnett Projects;offset by $66 million of scheduled depreciation and amortization in all projects." Investments
-increased by $42 million.This increase is largely due to $100 million remaining proceeds from the issuance of the CPP Revenue Bonds, 2010, Series A&B; $20 million remaining proceeds from the issuance of the Milford 1 Wind Revenue Bonds, 2010-1; and $3 million remaining proceeds from the issuance of the Linden Wind Energy Project Revenue Notes 2009, Series A; offset by $33 million transfer of funds from long term investments to cash and cash equivalents in the Palo Verde, STS, Magnolia, Hoover, Mead Adelanto, PSF, Pinedale and Barnett Natural Gas Projects; and $45 million of payments for the ongoing construction for the STS upgrade." Cash and cash equivalents
-increased by $102 million.This increase is mainly due to $42 million remaining bond proceeds from the issuance of CPP Revenue Notes 2010 Series A&B, from Milford 1 Wind Revenue Bonds Series 2010-1, and from Linden Wind Energy Revenue Notes 2009 Series A; $33 million transfer of investments from long term to cash and cash equivalents in the Palo Verde, Hoover, STS, Magnolia, Mead Adelanto, PSF, Pinedale and Barnett Natural Gas Projects;
$22 million accumulated overbillings and advances from San Juan, Magnolia, Barnett, and Pebble Spring Projects; and $5 million in advances from the participants of various projects." Prepaid and Other Assets -increased by $51 million.This increase is primarily due to the $221 million prepayment of a supply of energy for the participants of the Milford 1 Wind Project; $6 million net increase in fair value of the derivative instruments.
The increases were offset by $172 million reduction in the unamortized costs of the prepaid gas due to the restructuring of the agreements relating to the Prepaid Natural Gas Project; and by the amortization of bond issue costs in various projects.4 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued)
The increase in the Authority's liabilities of $452 million is mainly due to the following:
$237 million issuance of the Milford 1 Revenue Bonds, 2010-1; $140 million issuance of the Linden Wind Revenue Notes, 2009 Series A; $48 million Tieton Hydropower, Revenue Notes, 2009 Series A and B; $301 million from the issuance of the CPP Revenue Bonds 2010 Series A and B and $170 million issuance of the CPP Revenue Notes, 2009 Series A. The increases were offset by $165 million of debt reduction resulting from the restructure of the Prepaid Natural Gas Revenue Bonds, 2007 Series B; and the redemption of the $104 million CPP Notes, 2008 Series A and the $170 million CPP Notes, 2009 Series A.During fiscal year 2009, the Canyon Power Project Revenue Notes, Series A, were issued to provide interim financing for a portion of the costs to construct the Canyon Power Project; the STS 2008 Series B Subordinate Bonds were issued to provide financing for the upgrade of two converter stations to increase the capacity of the STS Transmission line; and the Magnolia Power Project A, Refunding Revenue Bonds, Series 2009-1 and 2009-2 were issued to make a payment to the counterparties of the 2007-1 Magnolia Swap Agreements in addition to refunding the Magnolia Power Project A, Refunding Bonds, 2007-1. As a result of these events and other ongoing transactions, such as the scheduled depreciation, and the payment for capital improvements in all projects, in 2009 the Authority's assets increased by $294 million and its liabilities increased by $312 million resulting in an increase to net deficit of $18 million.Operating Income -The net increase in operating income of $11 million is due to $51 million increase in operating revenues offset by$40 million of operating expenses.
The increase in operating revenue and operating expense is largely due to the additional transactions generated from the new projects:
Milford 1, and Windy Points/Flats Project; and an $11 million increase in billings to the participants for the costs related to major maintenance outages in the San Juan Project.During fiscal year 2009, the environmental upgrades in San Juan, and the steam generator replacement program in Palo Verde were completed; the estimated useful life of the San Juan Plan was increased; there was a decrease in realized gain on the suspension of the 2007 Swap which was used to offset the expenditures in the Mead Adelanto Project; and the lower price of gas in the Magnolia, Pinedale and Barnett Natural Gas Reserve Project all resulted in a $13 million decrease in operating revenues.
The decreases were offset by a $20 million increase in operating income related to the commencement of the deliveries of natural gas in the Prepaid Natural Gas Project and the postponement of the expenditures related to the STS upgrades.
The net effect was a $33 million decrease in operating income in 2009.5 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued)
Investment and Other Income -Investment income increased
$8 million largely due to the $11 million realized gain relating to the restructuring of the Prepaid Natural Gas Revenue Bonds 2007 Series B; offset by the $3 million decrease in interest earnings due to callable, high yield investment securities that were called and replaced with lower yielding securities in the Decommissioning Trust Fund, and Palo Verde Project.During fiscal year 2009, there was a $5 million decrease in investment income because of high yield investment securities that were called and replaced by lower yielding securities.
Derivative Gain (Loss) -In June 2008, GASB issued Statement No 53, Accounting and Financial Reporting for Derivative Instruments, effective for financial statements for periods beginning after June 15, 2009. GASB 53 requires that the fair value of derivative instruments be reported in the financial statements as investment income or loss if the derivative fails to effectively hedge the risk of rising or falling cash flows or fair values. SCPPA engaged an independent party to perform the valuation and required tests on the derivatives held by the Authority.
$9 million and $16 million were charged to expense related to the Authority's derivative instruments that were deemed investment instruments as of June 30, 2010 and 2009, respectively. (See Note 2 and Note 5)Debt Expense -Debt expense decreased by $17 million mainly due to $6 million reduction in debt expense because of the restructure of the Gas Project Revenue Bonds, Project No. 1, 2007 Series A, $7 million decrease in the interest payments of the variable rate bonds in the STS, Palo Verde, and Mead Adelanto Projects due to improved performance of these bonds in the variable interest rate market; and $4 million decrease due to the loss in refunding that was fully amortized in the Palo Verde Revenue Bonds, 2008 Series A and in the San Juan Revenue Bonds, 2002 Series A.During fiscal year 2009, debt expense increased
$38 million primarily due to the interest related to the Prepaid Natural Gas Project Revenue Bonds, 2007 A and B that were expensed due to the commencement of natural gas deliveries and increased expenses related to the remarketing of the variable interest rate bonds in the STS and Magnolia Projects.6 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Financial Outlook -The Authority's credit strength is based on a number of factors including: " The collective credit strengths of each project participant" The absence of concentration risk as evidenced by the lack of substantial reliance by one participant on the resources financed* The low cost power the Projects provide the participants and* Strong legal provisions.
The Authority has take-or-pay power sales, natural gas sales and transmission service contracts that unconditionally require the Participants to pay for the cost of operating and maintaining the Projects, including debt service, whether or not the Projects are operating or operable.
Although the contracts have not been court-tested, a municipal utility's authority to enter into such contracts is rooted in the State's constitutional provisions for municipal electric utilities.
The Participants of the Prepaid Natural Gas Project No. 1, however, are obligated only to purchase and pay for gas delivered by SCPPA at market-based prices in accordance with the prepaid gas sale agreements in take and pay contracts.
The Authority has also entered into various power purchase agreements that are substantially take-and-pay contracts but there may be other costs not associated with the delivery of energy that the participants may be obligated to pay.Through the collaborative efforts of its members, the Authority has developed a comprehensive and dynamic strategic plan that provides a common vision for its members and a platform for joint action. SCPPA continues its involvement in legislative and regulatory affairs at both the state and federal levels to protect represented customers, by assuring resource adequacy, excellent reliability, and environmental stewardship.
Backed by one of the strongest financial ratings in the utility industry, SCPPA maintains its traditional role of providing financing for its members' natural gas, generation, and transmission projects.
In addition to the conventional areas of power, investments are also being made to provide customers with more renewable generation and energy efficiency.
Energy efficiency and demand reduction programs are vital parts of public power's resource strategy and critical to balancing the portfolio's generation and load match. Since 1998, SCPPA members have spent more than $390 million on energy efficiency and demand reduction management programs.In addition to energy efficiency, AB 1890 requires all California electric utilities to commit a portion of their revenue to other Public Benefit Programs, including renewable energy, research, development and demonstration (RD&D), and low-income customer assistance.
SCPPA members have a significant commitment to low-income customer assistance and RD&D public benefit programs.
Since 1998, over one billion has been spent to date to support local communities.
Renewable Projects -SCPPA members are committed to the use of renewable energy resources in the future and are considering several renewable projects including Ameresco Chiquita Energy LLC, Milford Wind Corridor Phase II Project and Miller Ranch Wind Project.Summary The management of the Authority is responsible for preparing the information in this management discussion and analysis, combined financial statements and notes to combined financial statements.
The financial statements were prepared according to accounting principles generally accepted in the United States of America, and they fairly portray the Authority's financial position and operating results. The notes to the financial statements are an integral part of the basic financial statements and provide additional financial information.
7 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF NET ASSETS (DEFICIT)(AMOUNTS IN THOUSANDS)
JUNE 30, ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)2010 1,364,717 810,042 60,280 11,550 9,544 135,436 49,142 507,135 2,947,846 192,773 52,617 6,403 15,167 19,796 28,828 315,584$ 3,263,430$ 2,823,415 170,916 49,702 29,241 3,073,274 110,655 8,556 43,377 39,200 116,123 4,751 322,662 3,395,936 (746,931)606,563 7,862 (132,506)3,263,430 2009 As Restated$ 1,070,203 756,916 71,235 11,550 10,850 129,252 49,651 465,666 2,565,323 114,684 28,987 6,593 19,463 19,744 19,399 208,870 2,774,193 2,434,044 156,012 50,240 29,155 2,669,451 86,805 9,069 47,670 36,291 87,618 6,494 273,947 2,943,398 (768,276)547,675 51,396 (169,205)2,774,193 See accompanying notes.8 See accompanying notes. 8 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)(AMOUNTS IN THOUSANDS)
YEAR ENDED JUNE 30, Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses 2010$ 346,848 113,914 55,326 516,088 2009 As Restated$ 293,817 111,712 58,757 464,286 303,138 262,313 Operating income (loss)68,689 11,006 5,296 388,129 127,959 36,212 (8,720)(128,545)(101,053)67,190 9,634 8,572 347,709 116,577 27,741 (16,457)(145,965)(134,681)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year, as previously reported 26,906 (18,104)(140,609)(169,205)Prior period adjustments Net assets (deficit)
-beginning of year, as restated Net contributions (withdrawls) by participants (169,205)9,793$ (132,506)(10,303)(150,912)(189)$ (169,205)Net assets (deficit)
-end of year 9 See accompanying notes 9 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
YEAR ENDED JUNE 30, Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 2010 451,526 6,675 (229,721)29,629 258,109 21,392 (592,027)(113,020)933,197 (279,345)(86,805)(6,608)(144,608)20,394 (705,840)652,272 (33,174)101,719 143,671$ 245,390 2009$ 404,398 16,500 (193,392)12,943 240,449 (13,632)(128,429)(121,586)852,809 (587,271)(662)(72,585)(37,285)(95,009)20,948 (487,975)248,890 (218,137)(86,329)230,000$ 143,671$127,959 $68,689 5,296 2,744 11,006 116,577 67,190 8,572 2,736 9,634 3,268 14,622 24,525$ 258,109$ 192,773 52,617$ 245,390 1,170 26,886 7,684$ 240,449$ 114,684 28,987$ 143,671 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted See accompanying notes.10 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
GENERATION Magnolia Palo Verde San Juan Power Canyon Power ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 109,904 185,157 54,287 437$84,107 31,525 5,993$ 259,095 55,229$ 159,339 127,563 2,503-1,673 800 31,546 349,785 122,425 347,543 289,405 18,843 7,080 1,218 2,287 6,991 2,521 23 190 21,500 3,363 272 2,477 7,912 3,913 7,971 234 395 1,621 37,574 14,033 37,204$ 387,359 S 136,458 $ 384,747$ 74,157 $ 127,268 $ 360,291 11,211 35,341 6 35,347$ 324,752$ 312,998 36,871 3,928 111,028 127,268 375,430 312,998 10,030 5,431 19 23,705 1,500 11,715 3,551 8,514 282 9,010 16,763 4,393 4,002 1,035 10,719 40,685 24,062 151,713 151,330 26,153 (54,077)148,222 34,987 61,271 4,218 235,646 (14,872)$ 387,359 $ 136,458 34,168 11,754 409,598 324,752 (69,083) (34,995)46,267 34,995 (2,035) -(24,851) -$ 384,747 $ 324,752 I1I See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
GENERATION Magnolia Palo Verde San Juan Power Canyon Power ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)111,953 198,112 70,036 577$75,345 33,030$ 269,945 57,809 S 80,393 27,003-14,812 980 33,448 179 380,678 109,355 376,014 107,575 9,315 4,101 1,288 1,807 2,457 2,670 45 4,268 14,509 3,280 194 2,346 10,960 176 7,804 3,941 7,999 143 346 1,024 -24,458 13,727 29,352 11,136$ 405,136 $ 123,082 $ 405,366 $ 118,711$ 82,426 $ 139,830 $ 369,235 $ 104,627 41,929 124,355 139,830 14,812 1,273 385,320 104,627 10,360 5,232 23 30,956 1,500 11,115 3,849 3,663 240 8,695 1,341 15,525 4,644 2,061 1,479 12,605 48,071 18,867 172,426 158,697 32,266 14,084 417,586 118,711 19,745 (90,817) (67,816) -141,405 31,681 44,281 -71,560 23,521 11,315 -232,710 (35,615) (12,220) -$ 405,136 $ 123,082 $ 405,366 $ 118,711 See accompanying notes.12 See accompanying notes. 12 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
GREEN POWER Hoover Tieton Linden Wind Uprating Hydropower Milford I Wind Energy ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)S 2,266 9,544$ 46,896 $-$ 145,159 19,965 2,999 108 -2,091-50 209,540 11,918 46,946 231,596 237 148,395 3,575 3 1,971 13 8 106 562 261 110 9,015 4,650 164 1,306 -11,401 -3,404 933 25,230 3,578 15,322 $ 47,879 $ 256,826 $ 151,973 12,752 $ 47,705 $ 253,813 $ 140,211 12,752 47,705 253,813 140,211 1,540 ---177 34 209 627 88 257 4,448 4,393 1,862 9,900 1,751 924 9,098 11,762 14,503 48,629 262,911 151,973-(237) --734 -85 (513) (6,085)819 (750) (6,085) -$ 15,322 $ 47,879 $ 256,826 $ 151,973 13 See accompanying notes.13 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
GREEN POWER Hoover Tieton Uprating Hydropower ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Derivatives and related deferrals Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$2,699 1,199$10,850-139-14,887-308 117 926 1,322 -1,747 926$ 16,634 $ 926$ 13,850 $ -13,850 1,480 192 66 926 1,738 926 15,588 926 1,046 1,046 -$ 16,634 $ 926 See accompanying notes.14 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission System Mead- Phoenix Mead- Adelanto ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 308,795 98,169$37,214 $8,920 108,994 31,265 11,550 69,543 4,724 15,777 5,324 605 1,309 493,381 51,463 157,345 39,420 5,892 181 1,770 4,192 159 227 6,717 12,714 674 865 784 18,472 47,263 11,295 33,509$ 540,644 $ 62,758 $ 190,854$ 793,763 95,840 1,498$51,428 4,724 598$164,275 15,422 6,807 891,101 56,750 186,504 32,990 749 11,309 17,987 4,895 86 1,018 421 63,035 6,420 954,136 63,170 13,490 2,290 3,018 2,128 20,926 207,430 (76,558)59,638 344 (16,576)$ 190,854 (466,815)92,192 (38,869)(413,492)$ 540,644 (19,188)19,012 (236)(412)$ 62,758 15 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission System Mead- Phoenix Mead- Adelanto ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 274,297 $ 38,300 158,425 8,283$11,550 66,821 5,976 113,508 31,534 12,268 1,498 3,676 692 517,069 50,951 158,808 29,062 4,095 410 5,010 38,577$ 555,646$ 816,294 93,189 2,247 3,031 225 241 568 6,247 10,312$ 61,263 12,357 285 832 17,180 30,654$ 189,462$55,660 3,676 684$175,837 12,660 4,107 911,730 60,020 192,604 30,585 749 12,765 16,995 2,870 86 1,020 596 9,480 1,661 3,024 4,483 61,094 4,572 18,648 972,824 64,592 211,252 (476,696)
(20,308) (76,079)96,771 16,773 58,591 (37,253) 206 (4,302)(417,178)
(3,329) (21,790)$ 555,646 $ 61,263 $ 189,462 See accompanying notes.16 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 45,584 29,949$59,630 41,981$18,252--43,719 848 865 2,469--297,326 76,381 102,476 361,766 13,054 4,167 33 1,329 5,625 6,733 94 1,079 2,596 61 1,962 552 -13,319 19,135 13,531 17,938 95,516 $ 116,007 $ 379,704$ 35,153 $ 82,662 $ 331,963--43,719 19,412 9,829 -54,565 92,491 375,682 2,929 20,188 961 7,551 2,969 6,941 1,594 2,263 2,926 5,715 2,825 5,723 34,598 13,724 14,263 89,163 106,215 389,945 (11,581) (40,550) -22,917 45,436 (4,983) 4,906 (10,241)6,353 9,792 (10,241)$ 95,516 $ 116,007 $ 379,704 17 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 44,114 42,992$62,348 46,212$11,901--31,675 1,036 1,058 4,068--465,666 88,142 109,618 513,310 6,475 4,422 249 1,370 5,172 536 95 1,785 2,207 401 50 2,309 16,012 20,979$ 534,289 552 -13,068 7,588 101,210 S 117,206 38,082 S 89,603 $ 503,498--31,675 18,670 10,485 -56,752 100,088 535,173 1,956 30,719 995 2,300 4,754 40,724 97,476 4,639 1,426 2,343 2,066 5,625 4,263 2,971 10,474 12,859 110,562 548,032 (13,558) (42,747)18,501 49,136 (1,209) 255 (13,743)3,734 6,644 (13,743)$ 101,210 $ 117,206 $ 534,289 See accompanying notes.18 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat Geothermal MWD Small Windy Point Energy Hydro Pebble Springs Project ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$$--219--219 511 1,541 6,196 8,856 2 2,057 1,016 1,527 1,541 6,196 10,915 1,527 $ 1,541 $ 6,196 $ 11,134$$$$860 667 500 1,041 6,196 1,006 10,128 1,527 1,541 6,196 11,134 1,527 1,541 6,196 11,134$ 1,527 $ 1,541 $ 6,196 $ 11,134 19 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat Geothermal MWD Small Energy Hydro Pebble Springs ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$$$2,673 1 1,286 3,970 2,674 1,286 3,970$ 2,674 $ 1,286 $ 3,970$$S 2,674 1,286 3,970 2,674 1,286 3,970 2,674 1,286 3,970$ 2,674 $ 1,286 $ 3,970 See accompanying notes.20 See accompanying notes. 20 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
MISCELLANEOUS Project Projects, Multiple Development Stabilization Project Fund Fund Fund Total Eliminations Total Combined ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$70,784-$ 1,364,717
$86,018 810,042-60,280 11,550 1,364,717 810,042 60,280 11,550 9,544 9,544 135,436 135,436 49,142 49,142---507135 507,135 70=784 86,018 2,947,846
-947,846-2,000 15,374 192,773 192,773---52,617 52,617 2,601 645 6,403 6,403--15,167 15,167 25,189 (25,189) -19,796 19,796--28,828 28,828 2,601 2,000 16,019 340,773 (25,189) 315,584$ 73,385 $ 2,000 $ 102,037 $ 3,288,619
$ (25,189) $ 3,263,430$ 34,976 $ -$ $ 2,823,415
$ $ 2,823,415-170,916 170,916 49,702 49,702 29,241 29,241 34r-976 3,073,274 3,073,274 11,400 110,655 110,655 8,556 8,556-2,000 1,694 -25,189 38,283 2,000 73,259 2,000 43,377 43,377 39,200 39,200 116,123 116,123 4,751 4,751 25,189 (25,189) -347,851 (25,189) 322,662 3,421,125 (25,189) 3,395,936 (746,931)
(746,931)606,563 606,563 7,862 7,862 (132,506)
(132,506)126 102,037 126 102,037$ 73,385 $_ 2,000 $ 102037 $_3328g,619
$ (25,189) $ 3263430 21 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
MISCELLANEOUS Multiple Projects'Project Stabilization Fund Fund Total Eliminations Total Combined ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Derivatives and related deferrals Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Derivatives and related deferrals Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$6898 68,986 69,930$ 1,070,203
$ $ 1,070,203 756,916 756,916 71,235 71,235 11,550 11,550 10,850 10,850 129,252 129,252 49,651 49,651 465,666 465,666 2,565,323 2,565,323 68,986 69,930 119 18,712 114,684--28,987 2,499 513 6,593--19,463 23,427 19,744--19,399 2,618 19,225 232,297$ 71,604 $ 89,155 $ 2,797,620$ 45,102 S -$ 2,434,044--156,012 50,240--29,155 45,102 2,669,451 114,684 28,987 6,593 19,463 (23,427)19,744 19,399 (23,427) 208,870$ (23,427) $ 2,774,193$ -$ 2,434,044 156,012 50,240 29,155 2,669,451 86,805 9,069 47,670 36,291 87,618 6,494 86,805 9,069 47,670 36,291 87,618 6,494 1,694 23,427 23,427 (23,427) -25,121 297,374 (23,427) 273,947 70,223 2,966,825 (23,427) 2,943,398--(768,276)
(768,276)1,381 89,155 547,675 547,675--51,396 51,396 1,381 89,155 (169,205)
-(169,205)$ 71,604 89,155 $ 2,797,620
$ (23,427) $ 2,774,193 See accompanying notes.22 See accompanying notes. 22 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
GENERATION Magnolia Palo Verde San Juan Power Canyon Power$ 77,847 $ 93,438 $ 95,533 $77,847 93,438 95,533 43,371 60,213 70,421 19,224 5,553 11,454 11,006 --3,753 1,543 -77,354 67,309 81,875 493 26,129 13,658 5,465 1,348 1,949 ---(9,538) -(3,022) (6,734) (18,700) -2,443 (5,386) (26,289) -Change in net assets (deficit)2,936 20,743 (12,631)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year 232,710 (35,615) (12,220)$ 235,646 $ (14,872) $ (24,851) $23 See accompanying notes.23 ee ccopayin noes SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
GENERATION Magnolia Palo Verde San Juan Power Canyon Power Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year, as previously reported Prior period adjustments Net assets (deficit)
-beginning of year, as restated Net assets (deficit)
-end of year$ 78,060 $ 82,568 $ 114,273 S 78,060 82,568 114,273 42,178 60,451 19,083 5,486 9,634 -7,029 1,543 77,924 67,480 136 15,088 87,925 11,438 99,363 14,910 8,141 1,782 1,677 (7,966) (8,186) (19,376)175 (6,404) (17,699)311 8,684 (2,789)232,399 (44,299) (9,431)232,399 (44,299) (9,431)S 232,710 $ (35,615) $ (12,220) $See accompanying notes.24 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
GREEN POWER Hoover Tieton Linden Wind Uprating Hydropower Milford I Wind Energy$ 2,486 S 2,686 $ 9,758 $2,486 2,686 9,758 2,978 2,344 12,387 829 2,978 3,173 12,387 (492) (487) (2,629)40 371 272 225 (634) (3,728) -265 (263) (3,456) -Change in net assets (deficit)(227)(750)(6,085)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year 1,046 -$ 819 $ (750) $ (6,085) $25 See accompanying notes.25 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses GREEN POWER Hoover Tieton Uprating Hydropower
$ 2,353 $ 1,041 2,353 1,041 2,918 1,041 Operating income (loss)2,918 1,041 (565) -80 11-Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)91 (474)Net assets (deficit)
-beginning of year, as previously reported Prior period adjustments 1,520 1,520$ 1,046 $Net assets (deficit)
-beginning of year, as restated Net assets (deficit)
-end of year See accompanying notes.26 Seacmanyngnoes 2
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission System Mead- Phoenix Mead- Adelanto Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$$$8,480 19,123 86,311 86,311 8,480 19,123 18,064 18,708 1,012 1,406 2,124 4,514 Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) 36,772 2,418 6,638 49,539 6,062 12,485 2,923 495 1,859 71 -747 (48,847) (3,640) (9,877)(45,853) (3,145) (7,271)Change in net assets (deficit)3,686 2,917 5,214 Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year (417,178)
(3,329) (21,790)S (413,492)
$ (412) $ (16,576)27 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission System Mead- Phoenix Mead- Adelanto Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and.amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
$$$86,228 7,709 17,775 86,228 7,709 17,775 15,272 1,026 1,680 18,708 1,406 4,503 33,980 2,432 6,183 52,248 5,277 11,592 3,513 584 1,888 (13,152) -(3,305)(57,007) (3,663) (10,277)(66,646) (3,079)' (11,694)Change in net assets (deficit)(14,398)2,198 (102)Net assets (deficit)
-beginning of year, as previously reported Prior period adjustments (389,564)
(5,527) (24,601)(13,216) -2,913 (402,780)
(5,527) (21,688)$ (417,178)
$ (3,329) $ (21,790)Net assets (deficit)
-beginning of year, as restated Net assets (deficit)
-end of year See accompanying notes.28 See accompanying notes. 28 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$-$-$7,345 22,355 25,626 7,345 22,355 25,626 1,853 1,210 9,854 5,791 13,396 3,063 15,645 13,396 4,282 6,710 12,230 Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) 447 1,157 11,605 (2,110) (4,719) (20,333)(1,663) (3,562) (8,728)Change in net assets (deficit)2,619 3,148 3,502 Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year 3,734 6,644 (13,743)6,353 $ 9,792 $ (10,241)29 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Natural Pinedale Bamett Gas Operating revenues Sales of electric energy $ $ $Sales of transmission services Sales of natural gas 7,363 23,504 27,890 Total operating revenues 7,363 23,504 27,890 Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year, as previously reported Prior period adjustments Net assets (deficit)
-beginning of year, as restated Net assets (deficit)
-end of year 2,892 1,477 15,009 5,089 16,358 4,369 20,098 16,358 2,994 3,406 11,532 514 1,325 758 (2,220) (4,933) (26,033)(1,706) (3,608) (25,275)1,288 (202) (13,743)2,446 6,846 2,446 6,846 -$ 3,734 $ 6,644 S (13,743)See accompanying notes.30 See accompanying notes. 30 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat MWD Small Windy Point Geothermal Hydro Pebble Springs Project Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses S 9,173 $2,998 $ 16,488 $ 36,441 9,173 2,998 16,488 36,441 9,180 2,999 16,489 36,453 9,180 2,999 16,489 36,453 (7) (1) (1) (12)Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year 7 I I 12 7 1 1 12$ -$ -$ -$31 See accompanying notes.31 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat MWD Small Geothermal Hydro Pebble Springs Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$ 6,599 $1,689 $7,234 6,599 1,689 7,234 6,636 1,689 7,238 6,636 1,689 7,238 (37) -(4)Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses) 34 4 34 4 Change in net assets (deficit)(3)Net assets (deficit)
-beginning of year, as previously reported Prior period adjustments 3-3-$- $ -$Net assets (deficit)
-beginning of year, as restated Net assets (deficit)
-end of year See accompanying notes.32 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net withdrawals by participants Net assets (deficit)
-end of year MISCELLANEOUS Project Projects'Multiple Project Development Stabilization Fund Fund Fund Total Combined$ $ $ $ 346,848 113,914 55,326 516,088 303,138 68,689 11,006 5,296 388,129 S- 127,959 5,171 3,089 36,212--(8,720)(6,426) -(128,545)(1,255) 3,089 (101,053)(1,255) 3,089 26,906 1,381 -89,155 (169,205)-9,793 9,793$ 126 $ $ 102,037 $ (132,506)33 See accompanying notes.33 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 AS RESTATED (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses MISCELLANEOUS Projects'Multiple Project Stabilization Fund Fund Total Combined$ $ 293,817 111,712 58,757 464,286 262,313 Operating income (loss)67,190 9,634 8,572 347,709--116,577 4,967 2,474 27,741--(16,457)(6,315) -(145,965)(1,348) 2,474 (134,681)Non operating revenues (expenses)
Investment and other income Derivative gain (loss)Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year, as previously reported (1,348)2,729 2,474 86,870 (18,104)(140,609)Prior period adjustments Net assets (deficit)
-beginning of year, as restated--(10,303)2,729 86,870 (150,912)-(189) (189)$ 1,381 $ 89,155 $ (169,205)Net contributions by participants Net assets (deficit)
-end of year See accompanying notes.34 See accompanying notes. 34 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
GENERATION Palo Verde San Juan Magnolia Power Canyon Power Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 66,060 $98,983 $60,909 $(44,975) (57,820) (33,022)7,634 -20 28,719 41,163 27,907 (33,648)(1,179)(10,360)(14,846)(7,699)(11,115)(994)(15,296)(79,217)485,710 (279,345)(8,695)(446) (2,568)(45,187) (33,660) (25,431) 124,580 973 1,445 (44,762) (31,655)72,764 27,092 1,343 489 (52,689) (192,568)55,944 91,880 28,975 (3,118) 4,598 (100,199)12,507 4,385 7,074 24,381 13,416 5,127 17,789 10,960$ 25,923 $ 9,512 $ 24,863 $ 35,341$493 $26,129 $5,553 1,543 13,658 $11,454 19,224 3,753 11,006 -(526) 4,078 (1,183)(5,031) 3,881 2,443 (200) (21) 1,535$ 28,719 $ 41,163 $ 27,907$ 18,843 $ 6,991 $ 21,500 $ 35,341 7,080 2,521 3,363 -$ 25,923 $ 9,512 $ 24,863 $ 35,341 35 See accompanying notes.35 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
GENERATION Palo Verde San Juan Magnolia Power Canyon Power Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net 88,269 $75,981 $64,856 $(43,290) (60,027) (45,761)12,908 --57,887 15,954 19,095 Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year (25,503)(2,548)99,830 (101,820)(742)(5,932)(8,266)(265)(21,690)258,070 (223,933)(67,444)105,505 (10,550) (7,930) -(798) (32,319) (429)(31,581) (24,748) (28,067) 37,632 1,283 (64,403)26,905 1,545 2,257 201 (20,579) (73,060) (38,073)9,078 63,404 11,200 (36,215) (9,956) (7,399) (26,672)(9,909)(18,750)(16,371)10,960 23,325 23,877 34,160 -13,416 $ 5,127 $ 17,789 $ 10,960 Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 136 $19,083 7,029 15,088 $5,486 1,543 14,910 $11,438 9,634 2,035 (3,304)19,743 (2,814)227 (45)2,484 (2,692)(7,045)-$ 57,887 $ 15,954 $ 19,095 $ -$ 9,315 $ 2,457 $ 14,509 $ 10,960 4,101 2,670 3,280 -$ 13,416 $ 5,127 $ 17,789 $ 10,960 See accompanying notes.36 See accompanying notes. 36 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted GREEN POWER Tieton Linden Wind Hoover Uprating Hydropower Milford I Wind Energy$ 2,347 $ 2,591 $ 13,525 (235) (2,945) (4,696)3 2,115 (354) 8,829--250 (738)(47,408)48,174 (231,049)257,686 (134,285)141,627 (1,480) ---(526) (2,201) (867)(2,218) 240 24,436 6,475 26 11 18 81 (5,079) -(19,868) (92,981)6,715 -90,000 1,662 11 (19,850) (2,900)1,559 (103) 13,665 3,575 425 926 --$ 1,984 $ 823 $ 13,665 $ 3,575 (492) $(487) $(2,629) $829 2,744 (106) (110) -(31) (586) 4,392--7,066$ 2,115 $ _3541 $ 8,829 $ -$ 1,971 $ 562 $ 9,015 $ 3,575 13 261 4,650 -$ 1,984 $ 823 $ 13,665 $ 3,575 37 See accompanying notes.37 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
GREEN POWER Tieton Hoover Uprating Hydropower Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net 2,404 $1,308 (228) (382)34 2,210 926 Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted (796)(1,425)(2,221) _____ ___88 (5,603)3,329 _________(2,186) __________
(2,197)926 2,622 _425 $ 926$ (565) $ -2,736 34 3 926 2$ 2,210 $ 926$ 308 $ -117 926$ 425 $ 926 See accompanying notes.38 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
TRANSMISSION Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Southern Transmission System$ 84,672 (13,894)Mead- Phoenix Mead- Adelanto$8,334 $19,837 (1,178) (6,353)568 5,060 Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities 70,778 7,724 18,544 (45,381)(47,110)(30,585)(279)(3,352)(2,870)(10,416)(9,480)(123,076)
(6,501) (19,896)Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments 4,249 505 (101,948)
(3,573)162,152 2,940 1,814 (11,726)12,010 Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 64,453 (128) 2,098 12,155 1,095 746 33,157 3,256 12,642$ 45,312 $ 4,351 $ 13,388 49,539 $18,708 6,062 $1,406 12,485 4,514 3,239 568 (784)(732) (312) (2,692)24 -5,021$ 70,778 $ 7,724 $ 18,544$ 39,420 $ 4,192 $ 12,714 5,892 159 674$ 45,312 $ 4,351 $ 13,388 39 See accompanying notes.39 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY Did yoCOMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
TRANSMISSION Souther Transmission System Mead- Phoenix Mead- Adelanto Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities
$ 85,128 $(13,964)7,754 $(1,145)22,581 (1,678)71,164 6,609 20,904 (20,341)(41,113)243,674 (121,065)80 (31,075)(2,540)(3,339)(4,217)33,830 (32,200)(480)(7,859)111,900 (108,253)(3,425) (11,400)(499) (700)27,620 (9,850) (16,792)Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments 3,334 617 (147,730)
(3,504)30,986 2,790 1,892 (20,247)14,120 Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted (113,410)
(97) (4,235)(14,626)(3,338)(123)47,783 6,594 12,765$ 33,157 $ 3,256 $ 12,642 52,248 $18,708 5,277 $1,406 11,592 4,503 509 -685 (361) (89) 4,124 60 15$ 71,164 $ 6,609 $ 20,904$ 29,062 $ 3,031 $ 12,357 4,095 225 285$ 33,157 $ 3,256 $ 12,642 See accompanying notes.40 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 5,522 $982 12,893 $5,693 12,556 (1,765) (5,971) (450)-16,344 4,739. 12,615 28,450 6,684 405 -(2,412)(1,955)(1,956)(2,508)(4,606)(4,639)(17,280)(5,625)(6,323) (11,753) (22,905)397 1,145 791 (393) (1,924) (27,816)1,220 6,162 21,468 1,224 5,383 (5,557)6,324 6,650 (12)10,897 5,708 2,608 17,221 $ 12,358 $ 2,596 4,282 $1,210 112 (336)(529)6,710 $12,230 5,791 706 347 675 2,759 (1,267) 13,114$ 4,739 $ 12,615 $ 28,450$ 13,054 $ 5,625 $ 2,596 4,167 6,733 -17,221 $ 12,358 $ 2,596 41 See accompanying notes.41 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year 3,887 $1,041 (2,227)10,791 $9,706 (11,885)22,756 5,753 (327)2,701 8,612 28,182 (16,189) 2,746 -(337)(1,820)(2,015)(4,788)(4,307)(4,765)(25,581)(4,172) (13,860) (25,581)476 1,320 707 (439) (6,467) (20,662)84 5,281 19,677 121 134 (278)(17,539)(2,368)2,323 28,436 8,076 285 10,897 5,708 $ 2,608 Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 2,994 $1,477 (531)(607)(632)3,406 $11,532 5,089 1,567 (2,309)(540) 2,947 (910) 16,012$ 2,701 $ 8,612 $ 28,182$ 6,475 $ 5,172 $ 2,207 4,422 536 401$ 10,897 $ 5,708 $ 2,608 See accompanying notes.42 See accompanying notes. 42 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted POWER PURCHASE AGREEMENTS Ormat Geothermal Energy MWD Small Hydro Pebble Springs Windy Point Project$ 6,110 $ 2,893 $ 19,084 $ 35,210 (9,140) (3,039) (16,868) (27,370)(3,030) (146) 2,216 7,840 860 400 -1,000 8 10 16 8 1 10 16 (2,162)255 2,226 8,856 2,673 1,286 3,970 -$ 511 $ 1,541 $ 6,196 $ 8,856 (7) $(1) $(1) $(12)(1,016) --(2,057)(2,007) (145) 2,217 10,127 S- -(218)$ (3,030) $ (146) $ 2,216 $ 7,840$ 5 $ 15 $ 6 $511 1,541 6,196 8,856$ 511 $ 1,541 $ 6,196 $ 8,856 43 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat Geothermal Energy MWD Small Hydro Pebble Springs Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted
$ 7,737 $(6,784)1,956 $(670)8,990 (5,024)953 1,286 3,966 36 4 36 4 989 1,286 3,970 1,684 --2,673 $ 1,286 $ 3,970$(37) $-$(4)990 1,286 3,970 953 $ 1,286 $ 3,966$ 12$ 39$2,673 1,286 3,970$ 2,673 $ 1,286 $ 3,970 See accompanying notes.44 See accompanying notes. 44 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted MISCELLANEOUS Project Multiple Project Development Projects'Fund Fund Stabilization Fund Total Combined-$ 451,526 6,675 (229,721)29,629 258,109 2,000 9,793 21,392--(592,027)(3,389) (113,020)933,197 (279,345)(86,805)(6,608)(3,389) -(144,608)5,068 2,004 20,394 (2,798) (116,060)
(705,840)1,000 100,925 652,272 3,270 -(13,131) (33,174)(119) 2,000 (3,338) 101,719 119 -18,712 143,671$ -2,000 15,374 $ 245,390$$$127,959 68,689 5,296 2,744 11,006 3,268 14,622 24,525$ $ -$ -$ 258,109$ $ 2,000 $ 15,374 $ 192,773--52,617$ $ 2,000 $ 15,374 $ 245,390 45 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant and prepaid projects, net Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted MISCELLANEOUS Multiple Project Projects'Fund Stabilization Fund Total Combined$ $ $ 404,398 16,500 (193,392)12,943 240,449 (189) (13,632)-(128,429)(3,389) (121,586)852,809 (587,271)(662)(72,585)(37,285)(3,389) -(95,009)4,769 2,419 20,948 (8,449) (78,759) (487,975)2,740 59,296 248,890 (940) (17,044) (218,137)(4,329)(17,233)(86,329)4,448 35,945 230,000$ 119 $ 18,712 $ 143,671$$-$ 116,577 67,190 8,572 2,736 9,634 1,170 26,886 7,684$ -$ -$ 240,449$ 119 $ 18,712 $ 114,684 S- 28,987$ 119 $ 18,712 $ 143,671 See accompanying notes.46 See accompanying notes. 46 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE The Southern California Public Power Authority (the "Authority" or "SCPPA"), a public entity organized under the laws of the State of California, was formed by a Joint Powers Agreement dated as of November 1, 1980 pursuant to the Joint Exercise of Powers Act of the State of California.
The Authority's participants consist of eleven municipal electric utilities and one irrigation district in the State of California.
The Authority was formed for the purpose of planning, financing, developing, acquiring, constructing, operating and maintaining projects for the generation, transmission, and procurement of electric energy and natural gas for sale to its participants.
The Joint Powers Agreement has a term of fifty years or until all bonds and notes of the Authority and the interest thereon have been paid in full or adequate provision for payments have been made.The Authority has interests in the following projects: Palo Verde Project -On August 14, 1981, the Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating Station (PVNGS), a 3,810 megawatt nuclear-fueled generating station near Phoenix, Arizona, a 5.56%ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard, and a 6.55% share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System (collectively, the "Palo Verde Project").
Units 1, 2 and 3 of the Palo Verde Project began commercial operations in January 1986, September 1986, and January 1988, respectively.
San Juan Project -Effective July 1, 1993, the Authority purchased a 41.80% interest in Unit 3 and related common facilities of the San Juan Generating Station (SJGS) from Century Power Corporation.
Unit 3, a 497-megawatt unit, is one unit of a four-unit coal-fired power generating station in New Mexico.Magnolia Power Project -The Magnolia Power Project (MAG) consists of a combined cycle natural gas-fired generating plant with a nominally rated net base capacity of 242 megawatts and was built on a site in Burbank, California.
The plant is the first that is wholly owned by the Authority and entitlements to 100% of the capacity and energy of the Project have been sold to six of its members. The City of Burbank, a Project participant, managed its construction and also serves as the operating agent for the Project. Commercial operations began on September 22, 2005.* Gas Supply and Services Agreement:
SCPPA entered into an agreement with Occidental Energy Marketing, Inc. (OEMI) beginning January 2005. This agreement is renewed each year unless notification is given by either party prior to December 31, of each year. OEMI provides 100% of the natural gas plant requirements on a daily basis, and also includes an option for the participants to bring in their own gas supply. In addition, OEMI provides gas balancing services." Natural Gas Transportation:
SCPPA has an agreement with Southern California Gas Company (SoGas) for intrastate transmission services.
The agreement took effect in January 2005 and will expire in January 2011. SoGas provides transportation, storage, and balancing services of natural gas from the Southern California Border to the MAG Plant.47 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued)
Parts and Special Services Agreement:
SCPPA entered into an 18-year agreement with General Electric International (GE) in September 2005. Initially, the agreement covered only the gas turbine, but the agreement was amended in August 2007, to include coverage for the gas generator, the steam turbine, and the steam generator.
GE provides planned and unplanned maintenance, including replacement parts, based on factored fired hours.Canyon Power Project -The Authority approved the construction of a new generating plant that will be located on approximately 10 acres of land within an industrial area of the City of Anaheim, California
("Anaheim").
The Canyon Power Project ("the Project")
will consist of a simple cycle natural gas-fired power generating plant, comprised of four General Electric LM 6000PC Sprint combustion turbines with a combined nominally rated net base capacity of 200 MW, and auxiliary facilities.
The Project will be owned by the Authority and constructed, operated, and maintained by Anaheim. The cost of the Project is estimated to be $320 million of which $15 million was spent to obtain the necessary emission credits for the Project. The Project is expected to be substantially complete in July 2011.Hoover Uprating Project -As of March 1, 1986, the Authority and six participants entered into an agreement pursuant to which each participant assigned its entitlement to capacity and associated firm energy to the Authority in return for the Authority's agreement to make advance payments to the United States Bureau of Reclamation (USBR) on behalf of such participants.
The Authority has an 18.68% interest in the contingent capacity of the Hoover Uprating Project (HU).Tieton Hydropower Project -On November 30, 2009, the Authority acquired the Tieton Hydropower Plant pursuant to an Asset Purchase Agreement, dated as of October 19, 2009. The Tieton Hydropower Project (the"Project")
consists of a 13.6 MW nameplate capacity "run-of-the reservoir" hydroelectric generation facility, comprised of: a powerhouse located in Yakima County, Washington; a 21 mile 115 kV transmission line; other related assets, property, and contractual rights. Prior to acquisition of the Project, the Authority was entitled to purchase the energy output of the facility for a period of 20 years through a power purchase agreement dated August 21, 2008. (See Note 11)* Contractor Service Agreement:
SCPPA entered into a 2-year agreement on December 1, 2009, with an independent contractor to direct the operations of the Tieton Hydropower facility and to provide certain technical services with respect to the operation and maintenance of the facility.Milford 1 Wind Project -On February 9, 2010, the Authority financed the prepayment of a specified supply of electricity from a wind farm located in Milford Utah (the Facility).
The Facility is a 203.5 megawatt nameplate capacity wind farm comprised of 97 wind turbines located near Milford, Utah, together with a 90-mile transmission line, and other related facilities.
Under the related Power Purchase Agreements by and between SCPPA and Milford Wind Corridor Phase I, LLC (the "Seller"), SCPPA will receive 6.7 million megawatt hours over a 20-year delivery term. SCPPA has also agreed to make monthly payments to the Seller for any energy delivered in each year that exceeds the guaranteed annual quantity of 338,215 Megawatt hours. Commercial operation began on November 16, 2009.48 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued)
Linden Wind Energy Project -On August 1, 2009 the Authority entered into a contract for the sale and purchase of the Linden Wind Energy Project (the "Project").
The Project is an approximately 50 MW nameplate capacity wind farm comprised of 25 wind turbines and related facilities, located in Klickitat County, Washington, developed and constructed by Northwest Wind Partners, LLC. During the period of construction, the Authority is obligated to make certain installment payments to Northwest Wind towards the purchase price of the Project pursuant to an Asset Purchase Agreement, dated as of June 23, 2009. The Authority has also entered into power sales agreements with LADWP and the City of Glendale to sell 100% of its entitlement to capacity and energy in the Project on a "take-or-pay" basis. Completion of construction and commercial operation occurred at the end of June 2010. The Authority expects to complete its obligations to Northwest Wind in September 2010. (See Note 11)Southern Transmission System Project -On May 1, 1983, the Authority entered into an agreement with the Intermountain Power Agency (IPA), to defray all the costs of acquisition and construction of the Southern Transmission System Project (STS), which provides for the transmission of energy from the Intermountain Generating Station in Utah to Southern California.
STS commenced commercial operations in July 1986.Currently, construction is underway to upgrade two AC/DC converter stations and increase their combined rating from 1,920 MW to 2,400 MW. The Department of Water and Power of the City of Los Angeles (LADWP), a member of the Authority, serves as project manager and operating agent of the Intermountain Power Project (IPP).Mead-Phoenix and Mead-Adelanto Projects -As of August 4, 1992, the Authority entered into an agreement to acquire an interest in the Mead-Phoenix Project (Mead-Phoenix), a transmission line extending between the Westwing substation in Arizona and the Marketplace substation in Nevada. The agreement provides the Authority with an 18.31% interest in the Westwing-Mead project component, a 17.76% interest in the Mead Substation project component and a 22.41% interest in the Mead-Marketplace project component.
As of August 4, 1992, the Authority also entered into an agreement to acquire a 67.92% interest in the Mead-Adelanto Project (Mead-Adelanto), a transmission line extending between the Adelanto substation in Southern California and the Marketplace substation in Nevada. Funding for these projects was provided by a transfer of funds from the Multiple Project Fund and commercial operations commenced in April 1996. LADWP serves as the operations manager of Mead-Adelanto.
Natural Gas Pinedale Project -On July 1, 2005, the Authority, together with LADWP and Turlock Irrigation District (TID), acquired 42.5% of an undivided working interest in three natural gas leases located in the Pinedale Anticline region of the State of Wyoming. The Authority's individual share in these interests equals 14.9%. The purchase includes 38 operating oil and gas wells and associated lateral pipelines, equipment, permits, rights of way, and easements used in production.
The natural gas field production is expected to increase for several more years as additional capital is invested on drilling new wells and then decline over a life expectancy greater than 30 years.Joint Operating Agreement (JOA): In July 2005, SCPPA's purchase of the natural gas reserve interests at Pinedale, Wyoming ("Pinedale")
included an underlying long-term JOA with the operator, Ultra Resources, Inc. SCPPA pays the operator for SCPPA's share of both operating and drilling/capital expenses on a monthly basis.49 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued)
Gathering and Processing Agreements:
SCPPA's purchase of Pinedale included underlying agreements with Jonah Gas Gathering Company, Questar Gas Management Company, and Mountain Gas Resources, Inc. for gathering and processing of the natural gas.Natural Gas Barnett Project -Natural gas resources in the Barnett shale geological formation in Texas were acquired from Collins and Young Holding, L.L.P (C&Y) for a total of $84 million with an effective production date of April 1, 2006. The acquisition settled on October 26, 2006 and was completed on December 7, 2006 when the participants, together with TID, exercised their option to purchase additional resources from C&Y.Joint Operating Agreement (JOA): In October 2006, SCPPA's purchase of the natural gas reserve interests in Barnett, TX ("Barnett")
included an underlying long-term JOA with the operator, Devon Energy Production Company; L.P. SCPPA pays the operator for SCPPA's share of both operating and drilling/capital expenses on a monthly basis.Participant Ownership Interests
-The Authority's participants may elect to participate in the projects.
As of June 30, 2010, the members have the following participation percentages in the Authority's operating projects: GENERATION TRANSMISSION Southern Trans-Magnolia Canyon mission Mead- Mead-Palo Verde San Juan Power Power System Phoenix Adelanto Participants Project Project Project Project Project Project Project City of Los Angeles City of Anaheim City of Riverside Imperial Irrigation District City of Vernon City of Azusa City of Banning City of Colton City of Burbank City of Glendale City of Cerritos City of Pasadena 67.0%5.4%6.5%4.9%1.0%1.0%1.0%4.4%4.4%38.0%-59.5%100% 17.6%-10.2%24.8%24.2%4.0%51.0%14.7%9.8%14.7%9.8%35.7%13.5%13.5%2.2%1.3%2.6%11.5%11.1%4.2%31.0%16.5%1.0%1.0%1.0%4.5% 15.4%2.3% 14.8%4.2% ---4.4% -6.1% -5.9% 13.8% 8.6%100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%50 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued)
GREEN POWER NATURAL GAS Hoover Tieton Linden Uprating Hydro- Milford I Wind Pinedale Barnett Participants Project power Wind Energy Project Project City of Los Angeles -92.5% 90.0% --City of Anaheim 42.6% --35.7% 45.4%City of Riverside 31.9% --Imperial Irrigation District -City of Vernon ----City of Azusa 4.2% ----City of Banning 2.1% -----City of Colton 3.2% ---7.1% 9.1%City of Burbank 16.0% 50.0% 5.0% -14.3% 27.3%City of Glendale -50.0% -10.0% 28.6% -City of Cerritos -----City of Pasadena --2.5% -14.3% 18.2%100.0% 100.0% 100.0% 100.0% 100.0% 100.0%The Authority has entered into power sales, natural gas sales, and transmission service agreements with the above project participants.
Under the terms of the contracts, the participants are entitled to power output, natural gas or transmission service, as applicable.
The participants are obligated to make payments on a "take or pay" basis for their proportionate share of operating and maintenance expenses and debt service. The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding.
The contracts expire as follows: Palo Verde Project 2030 San Juan Project 2030 Magnolia Power Project 2036 Canyon Power Project 2040 Hoover Uprating Project 2018 Tieton Hydropower Project 2040 Milford I Wind Project 2030 Linden Wind Energy Project 2035 Southern Transmission System Project 2027 Mead-Phoenix Project 2030 Mead-Adelanto Project 2030 Natural Gas Pinedale Project 2032 Natural Gas Barnett Project 2032 51 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued)
The Authority's interests or entitlements in natural gas, generation, and transmission projects are jointly owned with other utilities, except for the Magnolia Power Project, Canyon Power Project, Tieton Hydropower Project, and the Linden Wind Energy Project which are wholly owned by the Authority.
Under these arrangements, a participating member has an undivided interest in a utility plant and is responsible for its proportionate share of the costs of construction and operation and is entitled to its proportionate share of the energy, available transmission capacity or natural gas produced.
Each joint plant participant, including the Authority, is responsible for financing its share of construction and operating costs. The financial statements reflect the Authority's interest in each jointly owned project as well as the projects that it owns. Additionally, the Authority's share of expenses for each project is included in the statements of revenues, expenses, and changes in net assets (deficit) as part of operations and maintenance expenses.Prepaid Natural Gas Project No. 1 -On October 11, 2007, the Authority made a one-time prepayment of $481 million to acquire the right to receive approximately 135 billion cubic feet of natural gas from J. Aron &Company (J. Aron) to be delivered over a 30-year term, beginning July 1, 2008. On October 3, 2007, prior to the acquisition of the prepaid gas supply, the Authority entered into five separate Prepaid Natural Gas Sales Agreements (the Gas Sales Agreements) with J. Aron and simultaneously, five Prepaid Natural Gas Supply Agreements (the Gas Supply Contracts) in which the Authority sold its interest in the natural gas, on a "take-and-pay" basis, to the cities of Anaheim, Burbank, Colton, Glendale, and Pasadena (the Project No. 1 Participants).
Through the Gas Supply Contracts, SCPPA has provided for the sale to the Project Participants, on a pay-as-you-go basis, of all of the natural gas to be delivered to SCPPA pursuant to the Gas Sales Agreements.
The Natural Gas contracts expire in 2038.On October 22, 2009, the Prepaid Natural Gas Sales Agreements and certain other agreements were restructured to reduce risk, provide an acceleration of a portion of the long-term savings, reduce the remaining volumes of gas to be delivered from 135 billion to 90 billion cubic feet, and shorten the term of the agreements from 30 years to 27 years. As a result of the restructuring, $165.5 million principal of the 2007 Natural Gas Project Bonds were terminated. (See Note 6)52 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued)
Under the Gas Supply Contracts, the approximate average Daily Quantity of gas to be purchased by each Project Participant is as follows: PROJECT PARTICIPANT City of Anaheim City of Burbank City of Colton City of Glendale City of Pasadena TOTAL AVERAGE DAILY QUANTITY (1)REVISED ORIGINAL PARTICIPANT VOLUMES VOLUMES PERCENTAGE
(%)1,467 2,000 16.5%2,924 4,000 33.0%1,007 1,375 11.0%2,015 2,750 23.0%1,464 2,000 16.5%8,877 12,125 100.0%(1) The average Daily Quantity is in MMBtu and is calculated over the term of the applicable Gas Supply Contracts.
The contracts were restructured and volumes revised in October 2009.Ormat Geothermal Energy Project -The Authority entered into long-term Power Purchase Agreements in December 2005 with divisions of Ormat Technologies, Inc. for up to 20 MW of electric generation.
The Project started delivery of approximately 5 MW in January 2006 from geothermal energy facilities located in Heber, California and the agreements were amended to allow for excess capacity in May 2008. The City of Anaheim acts as the scheduling coordinator on behalf of the project participants.
MWD Small Hydro Project -Consists of a Power Purchase Agreement for the output from four small hydroelectric plants on the MWD system in Southern California, having a total nameplate capacity of 17.04 MW, and a historical output of 40,130 MWH per year. Transmission is accomplished through the California Independent System Operator, with the City of Anaheim acting as scheduler.
The term of the contract is 15 years and 2 months, expiring December 31, 2023. Operations began on November 1, 2008.Pebble Springs Wind Project -In December 2007, the Authority entered into a Power Purchase Agreement for the facility output of a wind project with 98.7 MW, located in Gilliam County, Oregon. SCPPA along with LADWP, Burbank, and Glendale are now scheduling the energy through transmission agreements which bring this renewable energy from the project substation to the project participants.
The term of the Project is 18 years with a right of first offer to potentially purchase the entire project after the 10th contract year. Operations formally began on January 31, 2009.53 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued)
Windy Point/Windy Flats Project -Pursuant to a power purchase agreement, dated June 24, 2009, the Authority has agreed to purchase a supply of energy from the Windy Point/Windy Flats Project (the "Project")
output for an initial delivery term of 20 years. The Authority also entered into power sales agreements with LADWP and the City of Glendale to sell 100% of its entitlement to capacity and energy in the Project on a "take-or-pay" basis. (See Note 11 -Subsequent Events)The Project is a facility with a 262.2 MW nameplate capacity wind farm comprised of 114 wind turbines located in the Columbia Hills area of Klickitat County, Washington near the city of Goldendale.
The Project is owned by Windy Flats Partners, LLC, a limited liability company organized and existing under the laws of the State of Delaware.
The initial delivery term began on the commercial operation date of the first of two phases of the Facility.
The first phase commenced operations on January 25, 2010 and the second phase on March 1, 2010.The Authority has entered into power purchase agreements with project participants as follows. These agreements are substantially take and pay contracts where there may be other obligations not associated with the delivery of energy.Participant Ownership Interests Power Purchase Agreements Ormat Geothermal Energy Participants Project Pebble Springs Wind Project 98.7 MW 69.6%MWD Small Hydro Project Windy Point Project Capacity City of Los Angeles City of Anaheim City of Azusa City of Banning City of Colton City of Burbank City of Glendale City of Pasadena 17MW 60.0%10.0%15.0%15.0%17.04MW 262.2MW-92.4%56.4% -21.8%21.8%-7.6%10.1%20.3%100.0% 100.0% 100.0% 100.0%Contract Expires 2031 2025 2023 2030 Multiple Project Fund -During fiscal year 1990, the Authority issued Multiple Project Revenue Bonds for net proceeds of approximately
$600 million to provide funds to finance costs of construction and acquisition of ownership interests or capacity rights in one or more, then unspecified, projects for the generation or transmission of electric energy. Certain of these funds were used to finance the Authority's interests in Mead-Phoenix and Mead-Adelanto.
54 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -ORGANIZATION AND PURPOSE -(continued)
Project Development Fund -Holds funds related to projects in the development phase.Projects' Stabilization Fund -In fiscal year 1997, the Authority authorized the creation of a Projects'Stabilization Fund. Deposits may be made into the fund from budget under-runs, after authorization of individual participants, and by direct contributions from the participants.
Participants have discretion over the use of their deposits within SCPPA project purposes.
This fund is not a project-related fund; therefore, it is not governed by any project Indenture of Trust. The members participate in the Projects' Stabilization Fund by making deposits to the fund at their discretion.
NOTE 2 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting and presentation
-The combined and individual financial statements of the Authority are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America issued by the Governmental Accounting Standards Board (GASB) applicable to governmental entities that use proprietary fund accounting and the Financial Accounting Standards Board (FASB)issued prior to November 30, 1989 that do not conflict with rules issued by the GASB. Revenues are recognized when earned and expenses are recognized when incurred.
The format of the Statement of Net Assets (Deficit)follows the inverted approach which is consistent with the Federal Energy Regulatory Commission (FERC)." Invested in capital assets, net of related debt and advances from participants
-This component of net assets consists of (a) capital assets, (b) net of accumulated depreciation, and (c) unamortized debt expenses, reduced by the outstanding balances of any bonds, other borrowings, and advances from participants that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net assets component as the unspent proceeds.* Restricted
-This component consists of net assets on which constraints are placed as to their use. Constraints include those imposed by creditors (such as through debt covenants), contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or through enabling legislation.
- Unrestricted
-This component of net assets consists of net assets that do not meet the definition of"restricted" or "invested in capital assets, net of related debt and advances from participants." 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
55 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -(continued)
Utility plant.- The Authority's share of construction and betterment costs, natural gas reserves, intangibles, and nuclear fuel associated with PVNGS, STS, Mead-Phoenix, Mead-Adelanto, SJGS, Magnolia Power Project, the Natural Gas Projects, Canyon Power, Tieton Hydropower Project, and Linden Wind Energy Project are included as utility plant and recorded at cost. Costs include labor, materials, capitalized interest costs on funds used in construction, and allocated indirect charges such as engineering, supervision, transportation and construction equipment, retirement plan contributions, health care costs, and certain administrative and general expenses.
The costs of routine maintenance, repairs, and minor replacements incurred to maintain the plant in operating condition are charged to the appropriate operations and maintenance expense accounts in the period incurred.
The original cost of property retired, net of removal and salvage costs, is charged to accumulated depreciation.
Depreciation expense is computed using the straight-line method based on the estimated service lives, principally thirty-five years for PVNGS, STS, Mead-Phoenix and Mead-Adelanto, thirty years for Magnolia, thirty-seven years for SJGS, and fifty years for the Tieton Hydropower Project. There is no depreciation expense for the Canyon Power Project, currently under development, or Linden Wind Energy Project which achieved commercial operation on June 30, 2010. (See Note 11)Natural gas reserve depletion
-Depletion expense for the Natural Gas Projects is computed using the unit of production method based on the future production of the proved developed producing wells, estimated at 42.5 years. The estimate is based on site specific studies prepared by independent consultants as of January 2009. The depletion rate for the Natural Gas Pinedale Project was $1.59/MMbtu and $1.61/MMbtu; and the estimated total net revenue volume was 27,239,718 MMbtu and 27,629,287 MMbtu up to the period ending 2060, for fiscal years 2010 and 2009, respectively.
The depletion rate for the Natural Gas Bamett Project was $4.95/MMbtu and$4.83/MMbtu; and the estimated total net revenue volume was 12,599,884 MMbtu and 13,077,737 MMbtu up to the period ending 2060, for fiscal years ended June 20, 2010 and 2009, respectively.
Nuclear fuel -Nuclear fuel is amortized and charged to expense on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assesses each entity with nuclear operations, including the participants in PVNGS, $1 per megawatt hour of nuclear generation.
The Authority records this charge as a current year expense. See Note 10 for information about spent nuclear fuel disposal.Nuclear decommissioning
-Decommissioning of PVNGS is expected to commence subsequent to the year 2026. The total cost to decommission the Authority's interest in PVNGS is estimated to be $121.3 million in 2008 dollars ($275.6 million in 2022 dollars, assuming a 6% estimated annual inflation rate). This estimate is based on an updated site specific study prepared by an independent consultant in 2007. The Authority is providing for its share of the estimated future decommissioning costs over the remaining life of the nuclear power plant through annual charges to expense, which amounted to $3.8 million and $7.0 million in fiscal years 2010 and 2009. The decommissioning liability is included as a component of accumulated depreciation and was $230.9 million and$227.0 million at June 30, 2010 and 2009, respectively.
The Authority contributes to extemal trusts set up in accordance with the Arizona Nuclear Power Plant participation agreement and Nuclear Regulatory Commission requirements.
As of June 30, 2010, decommissioning funds totaled approximately
$161.9 million, including approximately
$1.0 million of interest receivable.
56 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -(continued)
Asset retirement obligation
-Demolition of SJGS is projected to commence subsequent to the year 2030. Based upon the study performed by an independent engineering firm, the Authority's share of the estimated demolition costs is $47.4 million in 2008 dollars. The Authority is providing for its share of the estimated future demolition costs over the remaining life of the power plant through annual charges to expense of $1.5 million. The demolition liability is included as a component of accumulated depreciation and totaled $49.8 million and $48.2 million at June 30, 2010 and 2009, respectively.
As of June 30, 2010, the Authority has not billed participants for the cost of demolition nor has it established a demolition fund.Investments
-Investments include United States government and governmental agency securities, guaranteed investment contracts, medium term notes and money market accounts.
These investments are reported at fair value and changes in unrealized gains and losses are recorded in the statement of revenues, expenses and changes in net assets (deficit) with the exception of the guaranteed investment contracts which are recorded at amortized cost. Gains and losses realized on the sale of investments are generally determined using the specific identification method.The Bond Indentures for the Projects and the Multiple Project Fund require the use of trust funds to account for the Authority's receipts and disbursements.
Cash and investments held in these funds are restricted to specific purposes as stipulated in the Bond Indentures.
Accounts receivable
-Accounts receivable consists primarily of participant receivables.
As such no allowance is deemed necessary.
Prepaid and other assets -SCPPA entered into a prepaid gas contract with a supplier for a 30-year gas supply at a fixed discount and simultaneously entered into a contract with each of the project participants for the delivery of natural gas. SCPPA has also entered into prepaid contracts for all of the energy generated by the Milford Wind Facility for a 20-year term and from the Windy Point/Windy Flats Facility, with corresponding power sales contracts with each project participant. (See Note 1)Advances for capacity and energy -Advance payments to the United States Bureau of Reclamation for the uprating of the 17 generators at the Hoover Power Plant are included in advances for capacity and energy. These advances are being reduced by the principal portion of the credits on billings to the Authority for energy and capacity.
The current portion of these advances is recorded under Prepaid and Other Assets in the Current Assets Section of the Combined Statements of Net Assets (Deficit).
Advance to IPA -Advance to IPA consists of cash transferred to IPA for reserve, contingency and self insurance funding.Unamortized premiums, discounts, debt expenses and losses on refunding
-Debt premiums, discounts, and debt expenses are deferred and amortized to expense over the lives of the related debt issues. Losses on refunding related to bonds redeemed by refunding bonds are amortized over the shorter of the life of the refunding bonds, or the remaining term of bonds refunded.
Unamortized issue costs are recorded as a non current asset. All other unamortized debt expenses are recorded as an offset or addition to long-term debt.57 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -(continued)
Cash and cash equivalents
-Cash and cash equivalents include cash and investments with original maturities of 90 days or less.Materials and supplies -Materials and supplies consist primarily of items for construction and maintenance of plant assets and are stated at the lower of cost or market.Arbitrage rebate and yield restrictions
-The unused proceeds from the issuance of tax-exempt debt have been invested in taxable financial instruments.
The excess of earnings on investments, if any, over the amount that would have been earned if the investments had a yield equal to the bond yield or yield restricted rate, is payable to the IRS within five years of the date of the bond offering and each consecutive five years thereafter until final maturity of the related bonds.The recorded liability of the Multiple Project Fund of $25.2 million ($6.7 million payable to the Mead-Phoenix Project and $18.5 million payable to the Mead-Adelanto Project) is a result of the cumulative savings from the 1994 refunding of the 1989 Multiple Project Bonds. The partial refunding within five years of the original issuance triggered a recalculation of the arbitrage yield, reducing the Multiple Project Fund's rebate liability.
During the fiscal year ended June 30, 2010, the Authority made rebate payments to the IRS of $0.02 million for the STS bonds, $0.02 million for Palo Verde bonds.Recorded arbitrage rebate and yield restriction liabilities as of June 30, 2010, were $1.4 million for STS, $0.2 million for Mead-Phoenix, and $0.7 million for Mead-Adelanto, and $0.08 million for Magnolia.Revenues -Revenues consist of billings to participants for the sales of electric energy, natural gas and transmission service in accordance with the participation agreements.
Generally revenues are fixed at a level to recover all operating and any debt service costs over the commercial life of the property.In September 1998, the Palo Verde participants approved a resolution authorizing the Authority to bill the participants an additional
$65 million annually through June 30, 2004 to pay for increased debt service costs as a result of a refunding completed in October 1997. In addition, the participants resolved to transfer any over billings, renewal and replacement excess funds or surplus amounts through June 30, 2004 into the Palo Verde reserve account. On November 20, 2003, the Authority adopted a resolution to utilize the amounts on deposit in the reserve accounts to pay a portion of the operating and maintenance expenses of the Palo Verde Project starting July 1, 2004. Funds held in the reserve account as a result of this resolution totaled $45.1 million and $50.3 million as of June 30, 2010 and 2009, respectively.
Transportation Costs -As a result of the sales and purchases agreements for natural gas entered into by SCPPA, the participants receive less volume than processed incurring embedded transportation costs. These costs are recorded as participants' revenue and expense to the Natural Gas Pinedale Project. At June 30, 2010 and 2009, transportation costs were approximately
$133 thousand and $26 thousand, respectively, for the Natural Gas Pinedale Project.58 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -(continued)
In Kind Contribution
-Each participant of the Magnolia Power Plant is responsible for their own share of natural gas. They may elect to bring fuel to the plant or purchase fuel from Occidental Energy Marketing, Inc.(OEMI). OEMI computes the daily imbalances of fuel volume per participant using the daily consumption data that the operating manager provides.
Monthly, actual fuel burnt is reported together with the daily imbalances, participants' in kind contribution, and fuel purchases from OEMI.In kind contributions are valued at fair market value and recorded as participant revenue and fuel expense to the Magnolia Power Project. SCPPA values the participants' fuel contribution using monthly average pricing from the Project's OEMI fuel purchases.
During the fiscal years ended June 30, 2010 and 2009 the participants' contribution in kind was approximately 9.5 million MMbtu and 8.7 million MMbtu and was valued at approximately
$41.1 million and $46.3 million, respectively.
In Kind Payment -The Natural Gas Pinedale Project pays federal royalties to Mineral Management Services (MMS). Beginning November 2007 through October 2010, SCPPA elected to pay its obligation in kind with approximately 0.3 million MMbtu and 0.9 million MMbtu for fiscal years 2010 and 2009, with a monetary value of approximately
$84 thousand and $0.9 million for the fiscal years ended June 30, 2010 and 2009, respectively.
Build America Bonds ("BABs") -Build America Bonds are taxable municipal bonds, that were created under the American Recovery and Reinvestment Act of 2009, and carry special tax credits and federal subsidies for either the bond issuer or the bondholder.
BABs provide for a subsidy payment from the Department of the Treasury to be paid directly to the issuer (Direct Payment) or the bondholder (Tax Credit BABs) in an amount equal to 35% of the bond's interest.
These Bonds must be issued before January 1, 2011. On June 9, 2010, SCPPA issued $191 million of Canyon Power 2010 Series B, Direct Payment BABs. (See Note 6 and Note 11)59 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -(continued)
Recently Issued and Adopted Accounting Principles Derivative Instruments
-Effective July 1, 2009, the Department adopted GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, which requires that changes in fair values of investment derivative instruments be recorded on the income statement and that the fair value of hedging derivative instruments be recorded as deferrals on the balance sheet, except as provided by the normal purchase and normal sales exception to that standard.
The effect of implementing Statement No. 53 was to restate the fiscal year 2009 financial statements.
The effect of this restatement on the 2009 financial statements is as follows (in thousands):
2009 Reclassified in 2010 Report 2009 Reported BALANCE SHEET ASSETS Derivatives and related deferrals
$ 129,252 $LIABILITIES Derivatives and related deferrals 156,012 NET ASSETS Unrestricted net assets (deficit) 51,396 89,533 INCOME STATEMENT NON OPERATING REVENUES (EXPENSES)
Derivative gain(loss)
(16,457)60 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 3 -UTILITY PLANT At June 30, 2010 Utility Plant consisted of the following (amounts in thousands):
June 30,2010 GENERATION GREEN POWER Magnolia Canyon Hoover Linden Palo Verde San Juan Power Power Uprating Tieton Hydro- Wind Project Project Project Project Project power Energy Utility plant Production Transmission General Natural gas reserves Less accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Net utility plant$ 679,322 $ 239,417 $ 281,833 $$$ 47,714 $14,018 2,876-15,237 7,168 15,395 21 11 696,216 246,585 312,465 21 47,725 648,899 171,220 53,811 21 829 47,317 75,365 258,654 -46,896 -18,744 8,742 441 159,339 -145,159 43,843 -----$ 109,904 $ 84,107 $ 259,095 $ 159,339 $ $ 46,896 $ 145,159 TRANSMISSION NATURAL GAS Southern Transmission Mead- Mead-System Phoenix Adelanto Pinedale Barnett Project Project Project Project Project Total Utility plant Production Transmission General Natural gas reserves Less accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Net utility plant$-$ -$ -$$674,606 18,911 54,390 172,798 2,721 473$ 1,248,286 931,049 48,830 1,254---50,831 70,218 121,049 693,517 57,111 173,271 52,085 70,218 2,349,214 465,499 20,454 64,277 9,181 13,661 1,447,852 228,018 36,657 108,994 42,904 56,557 901,362 80,777 557 -2,680 3,073 419,512----43,843$ 308,795 $ 37,214 $ 108,994 $ 45,584 $ 59,630 $ 1,364,717 61 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 3 -UTILITY PLANT -(continued)
At June 30, 2009 Utility Plant consisted of the following (amounts in thousands):
June 30, 2009 GENERATION GREEN, POWER Palo Magnolia Canyon Hoover Verde San Juan Power Power Uprating Project Project Project Project Project Tieton Linden Utility plant Production Transmission General Natural gas reserves Less accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Net utility plant$ 667,180 $ 229,332 $ 281,757 $ $ $14,120 -15,239-$2,908 7,413 15,237 21 684,208 236,745 312,233 21 629,516 168,359 42,357 21 54,692 68,386 269,876 -20,574 6,959 69 80,393 36,687 ---$ 111,953 $ 75,345 $ 269,945 $ 80,393 $ $ $TRANSMISSION NATURAL GAS Southern Transmission Mead-Mead-System Phoenix Adelanto Pinedale Barnett Project Project Project Project Project Total Utility plant Production Transmission General Natural gas reserves Less accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Net utility plant$ -$ -$ -$674,606 50,967 172,798 18,911 2,644 473$$ 1,178,269 927,730 48,824 1,217---50,492 65,889 116,381 693,517 53,611 173,271 51,709 65,889 2,271,204 446,791 19,047 59,763 7,971 7,870 1,381,695 246,726 34,564 113,508 43,738 58,019 889,509 27,571 3,736 -376 4,329 144,007-----36,687$ 274,297 $ 38,300 $ 113,508 $ 44,114 $ 62,348 $ 1,070,203 62 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 3 -UTILITY PLANT -(continued)
A summary of changes in Utility Plant follows (amounts in thousands):
Nondepreciable utility plant Land Construction work in progress Construction work in progress -gas Nuclear fuel*Total nondepreciable utility plant Depreciable utility plant Production Nuclear generation (Palo Verde Project)Coal-fired plant (San Juan Unit 3 Project)Gas-fired plant (Magnolia Power Project)Green power Transmission General Natural gas reserves Total depreciable utility plant Less accumulated depreciation Total utility plant, net Balance Balance July 1, 2009 Additions Disposals Transfers June 30, 2010$ 42,472 $ 186 $ $ $ 42,658 139,302 307,868 (33,413) 413,757 4,705 5,754 (4,704) 5,755 36,687 15,856 (8,700) 43,843 223,166 329,664 (8,700) (38,117) 506,013 666,442 15,466 (3,506) 678,402 229,332 14,053 (3,968) 239,417 281,758 -74 281,832-34,425 --34,425 885,995 16,660 (52) (2) 902,601 48,824 117 (307) 196 48,830 116,381 --4,668 121,049 2,228,732 80,721 (7,833) 4,936 2,306,556 (1,381,695)
(69,472) 7,829 (4,514) (1,447,852)
$ 1,070,203
$ 340,913 $ (8,704) $ (37,695) $ 1,364,717*Nuclear fuel disposals represent amortization.
NOTE 4 -INVESTMENTS The Authority's investment function operates within a legal framework established by Sections 6509.5 and 53600 et. seq. of the California Government Code, Indentures of Trust, instruments governing financial arrangements entered into by the Authority to finance and operate Projects and the Authority's Investment Policy.Guaranteed investment contracts (GICs) are contracts that guarantee the owner principal repayment and a specified interest rate for a predetermined period of time. GICs are typically issued by insurance companies and marketed to institutions that qualify for favorable tax status under federal laws. These types of securities provide institutions with guaranteed returns. GICs are negotiated on a case-by-case basis.Based on SCPPA's Investment Policy, certain vehicles such as GICs, flexible repurchase agreements or forward debt service agreements, may be entered into only upon approval of the SCPPA Board. In addition, eligible securities and general limitations are derived from each Project's Indenture of Trust, the Government Code and SCPPA's evolving investment practices.
63 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 4 -INVESTMENTS
-(continued)
The operative Indentures of Trust in which securities are authorized for investment purposes relate to the Palo Verde Project Bonds, the Southern Transmission System Project Bonds, the Hoover Uprating Project Bonds, the Mead-Phoenix Project Bonds, the Mead-Adelanto Project Bonds, the Multiple Project Fund Bonds, the San Juan Project Bonds, the Magnolia Power Project Bonds, the Natural Gas Projects Bonds, Prepaid Natural Gas Project No. 1 and the Canyon Power Project Bonds, Milford Wind Phase 1 Project Bonds, Linden Wind Project Notes, and the Tieton Project Bonds. Authorized investments for the Projects' Stabilization Fund are set forth in a resolution approved by the Board in 1996.Eligible securities include:* United States Treasury Securities, which are bonds or other obligations secured by the full faith and credit of the United States of America;* Federal Agency Obligations, which have the full financial backing of the U.S. Government;" Government Sponsored Enterprise Obligations, which are created by acts of Congress to provide liquidity for selected lending programs targeted by Congress;* Repurchase Agreements, which are collateralized loan contracts where the seller includes a written agreement to repurchase the securities at a later date for a specified amount;* Negotiable Certificates of Deposit, which are deposit liabilities issued by a nationally or state-chartered bank, a savings or a federal association or by a state-licensed branch of a foreign bank which has short-term ratings of at least "A-I" by S&P and at least "P-I," by Moody's;* Banker's Acceptances, a short-term draft or bill of exchange guaranteed for payment at face value to the holder of the instrument on its maturity date, which has a short-term rating of at least "A-I" by S&P and at least "P-I" by Moody's;" Commercial Paper, a short-term unsecured promissory note issued by non-financial or financial firms with a rating of at least "A-I" by S&P and at least "P-I" by Moody's;* Medium Term Notes rated "A" or better and only those issued by corporations organized and operating within the United States, or by depository institutions licensed by the United States or any state and operating within the United States;" Equity-Linked Notes, which are categorized as medium-term corporate notes and are subject to the constraints set forth in the Government code and the Authority's Investment Policy.64 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 4 -INVESTMENTS
-(continued)
As of June 30, 2010 the Authority held the following as cash and cash equivalents and investments:
Investment Type U.S. Agency Securities Guaranteed Investment Contracts Money Market Funds Commercial Paper Negotiable CDs U.S. Discount Notes Banker's Acceptance Total Carrying Value Weighted Average (in thousands)
Maturity (Years) Percent of Portfolio$ 383,122 3.24 34.3%278,599 8.97 25.0%227,015 0.08 20.3%119,118 1.30 10.7%52,076 0.18 4.7%46,018 0.16 4.1%9,764 0.17 0.9%$ 1,115,712 3.52 100.0%T he "weighted average maturity in years" calculation assumes that all investments are held until maturity.Investments at June 30, 2010 are as follows (amounts in thousands):ER 1 POWE TRA Southern Magnolia Hoover Tieton Linden Transmission Mead-Palo Verde San Joan Power Canyon Power Uprating Hydro- Milford I Wind System Mead- Phoenix Adelantu Project Project Project Project Project power Wind Energy Project Project Project$ 174,119 $ 4,204 $ 51366 $ 6,102 $ 1,706 $ $ 18,966 $ S 28,995 $ 1,758 $ 5,808 7,994 I,500 -1,330 999 15,498 900 10,800 3,997 9,663 1 -19,638 1,000 2,000 660 -5,198 --U.S. Agencies Agency Discount Notes Negotiable CDs Bankers Acceptance Conmmercial Paper GIC's Money Market Fuods Total Restricted investments Unrestricted investments Cash and cash equivalents Total-111,798 2,999 45,056 21,323 3,863 35,392 9,512 22,703----37,179 6,409 23,457 35,341 1,214 823 13,665 3,575 36,973 4,104 12,488 U.S. Agencies Agency Discount Notes Negotiable CDs Bankers Acceptance Commercial Paper GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total$ 265,367 $ 47,030 $ 80,092 $ 162,904 $ 4,250 $ 823 $ 33,630 $ 6,574 $ 143,481 $ 13,271 $ 44,653$ 185,157 $ 31,525 $ 55,229 S 127,563 $ 2,266 S -$ 19,965 $ 2,999 $ 98,169 $ 8,920 $ 31,265 54,287 5,993 -.----25,923 9,512 24,863 35,341 1,984 823 13,665 3,575 45,312 4,351 13,388$ 265,367 $ 47,030 $ 80,092 $ 162,904 S 4,250 $ 823 S 33,630 $ 6,574 $ 143,481 $ 13,271 $ 44,653 POWER PURCHASE AGREEMENTS NATURAL GAS MISCELLANEOUS Ormat Geo- Project Projects'thermal MWD Small Pebble Windy Point Pinedale Barnet Prepaid Multiple Development Stabilization Project Hydr Springs Project Project Project Natural Gas Project Fund Fund Fund Total$ $ $ $ $ 3,577 $ 503 $ $ $ $ 86,018 $ 383,122 4,000 4,599 5,600 3,598 -46,018-3,499 1,480 -52,077 3,407 500 9,765 4,322 -119,119-14,644 41,478 14,654 70,784 -278,847 511 1,541 2,196 8,856 13,122 4,778 2,596 -2,000 15,374 226,764$ 511 S 1,541 $ 6,196 $ 8,856 $ 47,170 $ 54,339 $ 20,848 $ 70,784 S 2,000 $ 101,392 $ 1,115,712$ $ $ S $ 29,949 $ 41,981 $ 18,252 $ 70,704 $ -$ 86,018 $ 810,042 S ------60,280 511 1,541 6,196 8,856 17,221 12,358 2,596 -2,000 15,374 245,390$ 511 $ 1,541 $ 6,196 $ 8,856 $ 47,170 $ 54,339 $ 20,848 $ 70,784 $ 2,000 $ 101,392 $ 1,115,712 65 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 4 -INVESTMENTS
-(continued)
Investments at June 30, 2009 are as follows (amounts in thousands):
U.S. Agencies Agency Discount Notes GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total U.S. Agencies Agency Discount Notes GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total GENERATION POWER PURCHASE AGREEMENTS Ormat Hoover Magnolia Canyon Geo-Palo Verde Uprating San Juan Power Power thermal MWD Small Project Project Proiect Project Project Project Hydro Pebble Springs Tieton$ 199,105 $ $ 9,497 $ 45,558 $ 27,003 $ $ $ $21,594 3,898 3,049 14,038 50,308 -21,323 3,863 -10,557 425 4,288 12,139 10,960 2,673 1,286 3,970 926$ 281,564 $ 4,323 $ 38,157 $ 75,598 $ 37,963 $ 2,673 $ 1,286 $ 3,970 $ 926$ 198,112 $ 2,699 $ 33,030 $ 57,809 $ 27,003 $ -$ -$ -$ -70,036 1,199 -------13,416 425 5,127 17,789 10,960 2,673 1,286 3,970 926$ 281,564 $ 4,323 $ 38,157 $ 75,598 $ 37,963 $ 2,673 $ 1,286 $ 3,970 S 926 TRANSMISSION NATURAL GAS MISCELLANEOUS Southern Transmission Mead- Mead- Projects'System Phoenix Adelanto Pinedale Barnett Prepaid Multiple Stabilization Project Project Project Project Project Natural Gas Project Fund Fund Total$ 83,400 $ 1,740 $ 5,758 $ 27,520 $ 498 $ $ -$ 69,930 $ 470,009 48,657 1,330 11,150 1,280 5,400 1,000 -111,396 37,179 6,543 22,626 15,472 42,405 11,901 67,986 -279,606 22,346 1,926 4,642 9,617 3,617 2,608 119 18,712 110,811$ 191,582 $ 11,539 $ 44,176 $ 53,889 $ 51,920 $ 14,509 $ 69,105 $ 88,642 $ 971,822$ 158,425 $ 8,283 $ 31,534 $ 42,992 $ 46,212 $ 11,901 $ 68,986 $ 69,930 $ 756,916--------71,235 33, 157 3,256 12,642 10,897 5,708 2,608 119 18,712 143,671$ 191,582 $ 11,539 $ 44,176 $ 53,889 $ 51,920 $ 14,509 $ 69,105 $ 88,642 $ 971,822 Interest rate risk -The Authority's investment policy limits the maturity of its investments to a maximum of 5 years for investments in the United States Treasury, Federal Agency, and Government Sponsored Enterprise securities, excluding:
investments held in Project Debt Service Reserve; long-term commitments or agreements approved by the Authority's Board; 5 years for medium term corporate notes; 270 days for commercial paper; 180 days for banker's acceptances; and one year for negotiable certificates of deposits.Credit risk -Under its investment policy and the State of California Government Code, the Authority is subject to the prudent investor standard of care in managing all aspects of its portfolios.
As an investment standard, each investment shall be made with "judgment and care under circumstances then prevailing, which a person of prudence, discretion and intelligence would exercise in the management of his/her affairs, not in regard for speculation, but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of the capital to be invested." The Authority's investment policy does not preclude active management of the portfolio to address market opportunities.
All transactions shall be undertaken in the best interest of the Authority and its participants.
66 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 4 -INVESTMENTS
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The Authority's investment policy specifies that all project funds may be invested in shares of beneficial interest for temporary periods, pending disbursement or reinvestment as allowed under the state of California Government Code ("Code").
The Code requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations (NRSRO)or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience managing money market mutual funds with assets under management in excess of five hundred million dollars. As of June 30, 2010, money market funds in the portfolios with Bank of New York Mellon have attained the highest possible ratings by three NRSRO's, specifically AAA by Standard and Poor's, Aaa by Moody's Investors Service, and AAA by Fitch Ratings, while money market funds in the portfolios with US Bank have attained the following ratings: AA- by Standard and Poor's, Aal by Moody's Investors Service, and AA by Fitch Ratings.The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government.
As of June 30, 2010 and 2009, the U.S.government agency securities in the portfolio carried the highest possible credit ratings by the NRSRO's that rated them.The Guaranteed Investment Contracts in the portfolio with American International Group (AIG) consist of securities issued by corporations and carry a rating of A- by Standard and Poor's, A3 by Moody's Investors Service and BBB by Fitch Rating. The Guaranteed Investment Contracts in the portfolio with PNC carry a rating of A+ by Standard and Poor's, Al by Moody's Investors Service, and AA- by Fitch Ratings.The Investment Agreement Contract in the portfolio with Financial Security Assurance (FSA) consists of securities issued by corporations and carries a rating of AAA by Standard and Poor's, Aa3 by Moody's Investors Service, and AA+ by Fitch Ratings.Concentration of credit risk -The Authority's investment policy specifies a 50% to 100% limitation on the amount that can be invested in U.S. government agency securities, except in certain issues of other Authority projects, such as the Southern Transmission System 1991 Series and the Mead-Adelanto and Mead-Phoenix projects.Of the Authority's total investments as of June 30, 2010, $142.0 million (13%) was invested in securities issued by the Federal Home Loan Bank; $78.6 million (7%) was invested with Farm Credit Bank; $129.3 million (12%)was invested in GIC's with AIG; $128.5 million (12%) was invested in securities issued by the Federal National Mortgage Association;
$65.1 million (6%) wa's invested with Federal Home Loan Mortgage;
$100.4 million (9%)was invested in GIC's with PNC Financial Securities Group.Of the Authority's total investments as of June 30, 2009, $182.4 million (19%) was invested in securities issued by the Federal Home Loan Bank; $142.2 million (15%) was invested with Farm Credit Bank; $128.3 million (13%) was invested in GIC's with AIG; $121.1 million (12%) was invested in securities" issued by the Federal National Mortgage Association;
$116.8 million (12%) was invested with Federal Home Loan Mortgage;
$97.2 million (10%) was invested in GIC's with PNC Financial Securities Group.67 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS Objective of the swaps -SCPPA uses derivative instruments to hedge its exposure to changing interest rates through the use of interest rate swaps and also to manage its exposure to fluctuating natural gas prices through the use of natural gas hedge contracts.
An interest rate swap is the exchange of payments between SCPPA and a counterparty in order to potentially obtain a lower cost of funding than traditional fixed rate bonds, or to hedge interest rate exposure on SCPPA's assets or liabilities.
The Authority has entered into eight separate pay-fixed, receive-variable interest rate swaps and four basis swaps to produce savings or to result in lower costs over the life of each transaction than what the Authority would have paid using fixed-rate debt. While these instruments carry additional risks, SCPPA's swap policy and favorable negotiations have helped to reduce such risks.Effective July 1, 2009, the Authority adopted Statement No. 53 of the GASB, Accounting and Financial Reporting for Derivative Instruments.
This Statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments.
In accordance with Statement No. 53, SCPPA recognizes the changes in fair values of effective hedging derivative instruments as either assets or liabilities on the Authority's balance sheet and includes changes in the fair value of an investment derivative instrument in eamings.For fiscal year ending June 30, 2009, the balance for the swaps deemed to qualify for hedge accounting under GASB 53 was a net liability of $99.6 million. During fiscal year ending June 30, 2010, the liability increased by$32.3 million for an ending net liability balance of $131.9 million. For the swaps that were deemed investment instruments under GASB 53, the changes were reported in the statement of operations.
The net liability balance for fiscal year ending June 30, 2009 for the investment instruments was $26.8 million, and the liability increased during fiscal year ending June 30, 2010 by $8.7 million for an ending net liability balance of $35.5 million.Terms, fair values, and credit risk -The terms, including the fair values and credit ratings of the counterparties under the outstanding swaps as of June 30, 2010, are included on the following page. In most cases, and with the exclusion of basis swaps, the notional amount of any swap matches the principal amount of the associated debt.Except as discussed under the rollover risk, and when associated with basis swaps, the Authority's swap agreements contain scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the associated "bonds payable" category.68 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS
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Notional Amount Effective (in thousands)
Date Fixed Rate Paid$ 100,000 5/11/2010 SIFMA 100,000 5/12/2010 SIFMA Swap Fair Values Termination Counterparty Variable Rate Received (in thousands)
Date Credit Rating*MPP 2010-1 Swap MPP 2010-2 Swap MPP 2009-1 Swap 80.4% of 3-month LIBOR 81% of 3-month LIBOR MPP 2000-2 Swap STS 2006 Amended Swap STS Swaption/Swap STS 2001 Swap STS 1991 Swap MP 2004 Amended Swap MA 2007 Swap MA 2004 Amended Swap Prepaid Natural Gas 2007 Swap 111,419 4/21/2009 3.125%111,290 4/21/2009 3.129%100,000 5/1/2013 SIFMA 125,000 2/6/2001 4.250%79,795 6/7/2001 4.240%234,000 4/17/1991 6.380%28,700 10/2/2008 3.925%SIFMA SIFMA 58.99% of 10-yr LIBOR CMS rate plus .664%60% of LIBOR (4,934) 7/l/2036 AA-/Aa3/AA-(4,604) 7/1/2036 AA-/Aaa/AA 869 7/l/2036 A+/AI/A+804 7/1/2036 AA-/Aal/AA-173 7/1/2023 AA-/Aal/AA-(32,708) 7/l/2022 A/A3/A+(15,715) 7/1/2021 A+/Aa3/A+(55,148) 6/30/2019 A-/A3/NA (4,724) 7/l/2020 A+/Aa3/A+355 9/15/2030 AA-/Aal/AA-(15,777) 7/1/2020 A+/Aa3/A+SIFMA less .40%Bond variable coupon rate 65% of LIBOR 100,000 6/1/2018 I-month LIBOR 100% of 10-yr LIBOR CMS rate lens .414%96,025 10/2/2008 3.921%201,450 10/I 1/2007 5.0475%$ 1,387,679 65% of LIBOR 67% of 3-Month LIBOR plus 1.47%(43,719)$(175,128) 11/1/2038 A/Aa3/A+n S&P/Moody's/Fitch ratings MAG 2010-1 Swap -In May 2010, SCPPA executed $100,000,000 SIFMA/LIBOR floating-to-floating basis swap related to Magnolia Power Project A Refunding Bonds 2009-1. SCPPA pays the 6-month average of the weekly reset SIFMA Municipal Swap Index semi-annually on an Actual/Actual basis in exchange for receiving 80.4% of average 3-Month LIBOR, reset quarterly and paid semi-annually on an Actual/360 day basis. The swap expires on July 1, 2036.MAG 2010-2 Swap -In May 2010, SCPPA executed $100,000,000 SIFMA/LIBOR floating-to-floating basis swap related to Magnolia Power Project A Refunding Bonds 2009-2. SCPPA pays the 6-month average of the weekly reset SIFMA Municipal Swap Index semi-annually on an Actual/Actual basis in exchange for receiving 81.0% of average 3-Month LIBOR, reset quarterly and paid semi-annually on an Actual/360 day basis. The swap expires on July 1, 2036.MAG 2009-1 Swap (Restated)
-This swap transaction amends the MAG 2007-1 Swap, which had an original trade date of April 30, 2007. The transaction was amended and restated as of April 21, 2009. The Authority pays its counterparty a fixed rate of 3.125% in exchange for receiving 100% of the Securities Industry and Financial Markets Association Swap Index (SIFMA) on a notional amount of $111.7 million. In order to provide more favorable terms to the participants, SCPPA made a payment of $15.7 million to the counterparty which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. The amendment allowed the parties to recoupon the swaps, change the collateral posting requirements, and to move to uninsured swaps.69 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS
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MAG 2009-2 Swap (Restated)
-This swap transaction amends the MAG 2007-1 Swap. The original transaction was novated from Bear Steams to JP Morgan on November 6, 2008 and was amended and restated on April 21, 2009. The Authority pays its counterparty a fixed rate of 3.129% in exchange for receiving 100%of the SIFMA Index on a notional amount of $111.5 million. In order to provide more favorable terms to the participants, SCPPA made a payment of $15.7 million to the counterparty which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. The amendment allowed the parties to recoupon the swaps, change the collateral posting requirements, and to move to uninsured swaps.* MAG 2007-1 Swap (Terminated)
-In April 2007, the Authority entered into an interest rate swap in connection with the issuance of variable-rate Magnolia Power Project A, Refunding Revenue Bonds, Series 2007-1 ("2007-1 Bonds"). The Swap created synthetic fixed-rate debt which consisted of a $223.2 million 29-year floating-to-fixed interest rate swap allocated equally between two counterparties.
The Authority paid each of the counterparties a fixed rate of 3.912% in exchange for receiving 98.9% of the SIFMA Index minus 6 basis points. The swap which became effective on June 13, 2007 was amended, restated, and novated to the MAG 2009-1 and the MAG 2009-2 Swaps on April 21, 2009. The MAG 2007-1 is no longer in effect." STS 2006 Swap (Amended)
-In July 2006, the Authority executed an amendment to the STS $100 million, floating-to-floating fixed-spread basis swap entered into in November 2004. Under an amendment, which became effective on August 1, 2007, SCPPA continued to pay the swap counterparty the SIFMA index but began to receive 58.99% of the 10-Year LIBOR plus 66.4 basis points, instead of 65% of the 1-month LIBOR plus 66.4 basis points. In addition, the STS 2006 Constant Maturity Swap was suspended for 5 years effective May 7, 2008, for which SCPPA received $3.7 million as compensation for the suspension of the cash flows of the 2006 Basis Swap, which was deferred to be amortized over the suspension term. The notional amount of the Swap Agreement remains at $100 million. The swap expires on July 1, 2023.* STS Swaption/Swap
-In February 2001, the Authority entered into a transaction whereby it sold an option (the "Swaption")
on a floating-to-fixed interest rate swap. The Swaption was exercised on April 1, 2002. The floating rate on the swap paid by the counterparty is 60% of the one-month LIBOR; the annual fixed rate on the swap paid by the Authority is 4.25%. In exchange for the right to exercise the Swaption, the counterparty paid the Authority a one-time up front option premium amount of $7.9 million which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The counterparty has the option to cancel the agreement at the counterparty's discretion.
The swap expires on July 1, 2022.* STS 2001 Swap -In June 2001, the Authority entered into an interest rate swap agreement with a counterparty for the purpose of hedging against interest rate variations arising from the issuance of the 2001 Subordinate Refunding Series A Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. The Swap Agreement provides for the Authority to make payments to the counterparty at a fixed rate of 4.24%, and for the counterparty to make reciprocal payments based on a variable rate. The reset dates of the variable rate occur weekly and the rate for a reset date will be the rate determined by the SIFMA Index minus 40 basis points. The counterparty has the option to cancel the agreement on July 5, 2006 and on every Fixed Rate Payer Payment Date, thereafter, should the SIFMA index average more than 7% over a consecutive 180-day period. The floating rates on the bonds were 0.37% and 0.65% at June 30, 2010 and 2009, respectively.
The swap expires on July 1, 2021.70 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS
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STS 1991 Swap -In fiscal year 1991, the Authority entered into an interest rate swap Agreement with a counterparty for the purpose of hedging against interest rate fluctuations arising from the issuance of the 1991 Subordinate Refunding Series Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 6.38%; in exchange, the Authority receives payments mirroring the bond variable coupon rate (0.25% and 1.18% at June 30, 2010 and 2009, respectively).
The swap expires on June 30, 2019.* MP 2004 Swap (Amended)
-The MP 2004 Swap was amended and restated on October 2, 2008 to amend the fixed rate from 3.894% to 3.925% and to remove the insurance provisions and to adjust the collateral posting requirements.
All other terms and provisions of the original agreement prevail. The amended swap was also transferred to the MP 2008 Refunding Bonds.In connection with the issuance of the 2004 Mead-Phoenix Project Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority.
Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.894% and in exchange the Authority receives a floating rate index equal to 65% of the one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately
$1.8 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The floating rate on the related bonds was 0.12% and 0.15% at June 30, 2010 and 2009, respectively.
The MP 2004 bonds were refunded on October 2, 2008 and the related interest rate swap transferred to the MP 2008 Refunding Bonds." MA 2007 Swap (Amended)
-In January 2007, the Authority entered into a Constant Maturity Swap (CMS)in connection with its outstanding Mead-Adelanto Project. The transaction consisted of a $100 million basis swap and does not relate to any single series of the Mead-Adelanto bonds. The amended swap terms became effective on February 1, 2008 and the Authority pays the swap counterparty 100% of the 1-month LIBOR in exchange for receiving 100% of the 10-year LIBOR minus 41.4 basis points. The swap expires on September 15, 2030. On November 5, 2008 the MA 2007 Swap was novated from Bear Steams to JP Morgan. In addition, the swap was suspended until November 1, 2010. As part of the novation, the credit terms of the existing swap agreements will be maintained and SCPPA received $4.1 million from JP Morgan as compensation for the suspension of the cash flows of the MA 2007 CMS. The $4.1 million was deferred to be amortized over the suspension term.In June 2010, the MA 2007 CMS Agreement was amended to extend the suspension period from November 1, 2010 to June 1, 2018. SCPPA received $5 million as compensation for the suspension of the cash flows of the swap, which was deferred and is being amortized over the suspension term. The credit terms of the existing swap agreements remains unchanged.
71 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS
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MA 2004 Swap (Amended)
-The MA 2004 Swap was amended and restated on October 2, 2008 to amend the fixed rate from 3.89% to 3.921% and to remove the insurance provisions and to adjust collateral posting requirements.
All other terms and provisions of the original agreement prevail. The amended swap was also transferred to the MA 2008 Refunding Bonds.In connection with the issuance of the 2004 Mead-Adelanto Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority.
Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.89% for the swap and in exchange the Authority receives a floating rate index equal to 65% of the one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately
$5.9 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. Approximately
$45.1 million in Mead-Adelanto 2004 Project Revenue Bonds Series A are not swapped and remain floating-rate bonds. The average floating rate on the related bonds was 0.12% and 0.15% as of June 30, 2010 and 2009 respectively.
The MP 2004 bonds were refunded on October 2, 2008 and the related interest rate swap transferred to the MA 2008 Refunding Bonds." PNG 2007 Swap -In October 2007, SCPPA entered into an interest rate swap agreement in connection with the issuance of the Prepaid Natural Gas Project No. 1 Series 2007B Bonds. The swap hedges the interest-rate risk on the LIBOR Floating-rate bonds, where SCPPA pays a fixed rate of 5.0475% in exchange for receiving 67% of 3-month LIBOR plus 1.47%. The floating index on the swap exactly matches the coupon on the Bonds and therefore provides a hedge with no tax or basis risk. The swap expires on November 1, 2035.* PNG 2007 Commodity Swap -At the same time, SCPPA also entered into five commodity price swap agreements, on behalf of each of the Prepaid Natural Gas Project No. I Participants, in order to hedge against reductions to its gas sale revenues resulting from changes in monthly market index prices. SCPPA pays a floating natural gas price over a thirty-year period and receives specified fixed natural gas prices at an agreed pricing point as determined in the Prepaid Natural Gas No. 1 Agreements.
The swaps became effective on July 1, 2008 and will all expire on September 30, 2035.Fair value -Fair values take into consideration the prevailing interest rate environment, the specific terms and conditions of a given transaction and any upfront payments that were received.
All fair values were estimated using the zero-coupon discounting method. This method calculates the future payments required by the swap, assuming that the current forward rates implied by the yield curve are the market's best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. While some of SCPPA's current mark to market values are negative, this valuation would be realized only if the swaps were terminated at the valuation date and only SCPPA retains the right to optionally terminate most of the transactions.
Interest rate risk -Interest rate risk is the risk that changes in interest rates will adversely affect the fair values of SCPPA's financial instruments or cash flows. SCPPA is exposed to interest rate risk on its pay-fixed, receive variable interest rate swaps. As the LIBOR or the Securities Industry and Financial Markets Association
("SIFMA")
swap index decreases, SCPPA's net payment on swaps increases.
In addition, SCPPA is exposed to interest rate risk if the counterparty to the swap defaults or if the swap is terminated.
72 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS
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Market access risk -Market access risk is the risk that SCPPA will not be able to enter credit markets or that credit will become more costly. SCPPA's financial rating is tied to the credit strength of the major participants of the specific project for which each financial instrument is issued. SCPPA is also exposed to market access risks caused by disruptions in the municipal bond market.Credit risk -As of June 30, 2010, the net fair values of the Authority's applicable swaps for which payments were made were negative for each counterparty except for the STS 2006, MA 2007, MAG 2009-1 AND MAG 2009-2 swaps. However, should interest rates change and the fair values of the swaps become positive, the Authority may be exposed to credit risk in the amount of the derivatives' fair value.The swap agreements contain varying collateral agreements with the counterparties.
The swaps require full collateralization of the fair value of the swap should the counterparty's (or if applicable, the guarantors of the counterparty's) credit rating fall below AA- as issued by Standard & Poor's or Aa3 as issued by Moody's Investors Service for the STS 1991 Swap, the Amended 2006, and the MA 2007 Swaps; A+/Al for the STS 2001;A/A2 for the PNG 2007 Commodity Swap; and A-/A3 for the MAG 2010-1, MAG 2010-2, MAG 2009-1, MAG 2009-2 and the STS Swaption/Swap.
The MP 2004 and the MA 2004 Swaps, all require full collateralization if rating fall below A as issued by Fitch, and A2 as issued by Moody's. Collateral on all swaps is to be in the form of U.S. government securities held by a third-party custodian.
The swap agreements provide that when the Authority has more than one derivative transaction with a given counterparty involving the same Authority project (and having the same swap/bond insurer), should one party become insolvent or otherwise default on its obligations, close-out netting provisions permit the non-defaulting party to accelerate and terminate all such related transactions and net the transactions' fair values so that a single sum will be owed by, or owed to, the non-defaulting party.Basis risk -Basis risk is the risk that the interest rate paid by the Authority on underlying variable rate bonds to bondholders exceeds the variable swap rate received from a counterparty, and the risk that both legs of a basis swap are not exactly equal. With the exception of the 1991 Swap and the PNG 2007 Swap, the Authority bears basis risk on each of its swaps. The 1991 Swap and the PNG 2007 Swap are perfectly hedged since the counterparty pays the Authority its actual variable bond rate on the related bonds. All the other swaps have a basis risk since under each of those swaps the Authority received a percentage of LIBOR or a percentage of, or spread to SIFMA to offset the actual variable bond rate or variable swap rate the Authority pays on any related bonds or on any basis swap. The Authority is exposed to basis risk should the floating rate that it receives on a swap be less than the actual variable rate the Authority pays on any related bonds; or in the case of the floating-to-floating fixed-spread basis swap, less than the variable rate paid to the swap counterparty.
Depending on the magnitude and duration of any basis risk shortfall, the expected cost savings from a swap may not be fully realized.
The 2001 swap is based on SIFMA rate minus 40 basis points (bps); similar to the LIBOR-based swaps, SIFMA minus 40 bps may not exactly hedge the underlying variable rate. As of June 30, 2010, the SIFMA rate was 0.295%; the SIFMA rate, minus 40 bps, was -0.113%; 60% of LIBOR was 0.212%; 65% of LIBOR was 0.230%; and 67% of 3-month LIBOR plus 147 bps was 1.701%.73 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS
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The following is a summary of interest rates paid to and received from the counterparties as of June 30, 2010: Type of Derivative MAG MAG MAG MAG Swaption/
2001 MP 2008 MA 2008 2009-1 2009-2 2010-1 2010-2 NGPrepay 1991 Swap Swap Swap Swap Swap Swap Swap Swap Swap 2007 Swap Payments to counterparty 6.380% 4.250% 4.240% 3.925% 3.921% 3.125% 3.129% 0.295% 0.295% 5.048%Less, variable payments from counterparty 0.250% 0.534% -0.113% 0.230% 0.230% 0.295% 0.295% 0.429% 0.432% 1.701%Net interest rate swap payments 6.130% 3.716% 4.353% 3.695% 3.691% 2.830% 2.834% -0.134% -0.137% 3.347%Add, variable-rate bond coupon payments 0.250% N/A 0.370% 0.150% 0.150% 0.200% 0.200% N/A N/A 1.701%Synthetic interest rate on bonds 6.380% 3.716% 4.723% 3.845% 3.841% 3.030% 3.034% -0.134% -0.137% 5.048%Termination risk -The Authority or the counterparty may terminate any of the swaps if the other party fails to perform under the terms of the contract.
In addition, the Swap/Swaption provides the counterparty with an option to cancel the swap agreement if the consecutive 180-day averaged rate of the SIFMA index exceeds 7.0%. The counterparty for the 2001 Swap also has a cancellation option which can be executed by the counterparty at their discretion.
If any of the swaps were terminated, any associated variable rate bonds would no longer be hedged to a fixed rate. If at the time of termination the swap has a negative fair value, the Authority would be liable to the counterparty for a payment equal to the swap's fair value.Rollover risk -Rollover risk is the risk that the swap contract is not co-terminus with the related bonds. The Authority is exposed to rollover risk on the STS Swap/Swaption and the STS 2001 Swap because the counterparty has the option to terminate the agreement prior to the maturity of the associated debt. In the event that this swap terminates, the Authority would be exposed to variable interest rates on the underlying bonds. The STS 2001 Subordinate Refunding Series Bond is exposed to rollover risk. The final maturity date and the swap termination dated for the STS 2001 Bonds is July 1, 2021.74 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 5 -DERIVATIVE INSTRUMENTS
-(continued)
Swap payments and associated debt -Using rates as of June 30, 2010, debt service requirements of the Authority's outstanding variable rate debt and net swap payments are as follows. As rates vary, variable rate bond interest payments and net swap payments will vary.Variable-Rate Bonds Principal Int (Amounts in thousands) s Interest Rate cerest Swaps, Net Fiscal Year Ending June 30, 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2040$ 18,495 41,120 42,440 74,770 45,495 298,855 74,165 164,495 146,790 149,890$ 1,056,515$ 2,058 1,919 1,775 1,498 1,347 4,582 2,415 1,875 1,452 128$ 19,049$ 32,967 30,998 28,951 25,672 23,447 75,057 32,835 25,532 16,366 1,819$ 293,644 Total$ 35,025 32,917 30,726 27,170 24,794 79,639 35,250 27,407 17,818 1,947$ 312,693 The following table shows the changes in fair value of derivative instruments (amounts in thousands):
Description Assets Magnolia -Derivative instruments STS -Deferred debits STS -Derivative instruments Mead Phoenix -Deferred debits Mead Adelanto -Deferred debits Prepaid Natural Gas -Deferred debits Liabilities Magnolia -Deferred credits Magnolia -Derivative instruments STS -Derivative instruments Mead Phoenix -Derivative instruments Mead Adelanto -Derivative instruments Prepaid Natural Gas -Derivative instruments June 30, 2009 Change in Fair Value$ 14,812 $ (13,139)66,821 2,549 173 3,676 1,048 12,268 3,509 31,675 12,044$ 129,252 $ 6,184$ 14,812 $ (13,139)-9,538 93,189 2,651 3,676 1,048 12,660 2,762 31,675 12,044$ 156,012 $ 14,904 June 30, 2010$ 1,673 69,370 173 4,724 15,777 43,719$ 135,436$ 1,673 9,538 95,840 4,724 15,422 43,719$ 170,916 75 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT Long-term debt outstanding at June 30, 2010 consisted of "new money" bonds, refunding bonds, and subordinate refunding bonds due in varying annual amounts through July 1, 2040. The new money bonds were issued to finance the purchase and construction or acquisition of the Authority's interest in each of the Projects.
The subordinate refunding bonds were issued to refund specified new money bonds.In accordance with the bond indentures, the new money bonds and refunding bonds are special, limited obligations of the Authority.
With the exception of the Magnolia Power Project B, Lease Revenue Bonds (City of Cerritos, California) 2003-1 ("Project B Bonds"), the bonds issued by each project are payable solely from and secured solely by interests in that project as follows: " Proceeds from the sale of bonds;" All revenues, incomes, rents and receipts attributable to that project and interest earned on securities held under the bond indenture or indentures; and* All funds established by the indenture or indentures.
The Authority has agreed to certain covenants with respect to bonded indebtedness, including the requirement to enforce the natural gas, power, and transmission sales agreements with the participants.
At the option of the Authority, all outstanding new money bonds and refunding bonds are subject to redemption prior to maturity, except for the 2006-1 Magnolia Revenue Bonds; the 2009A Linden Wind Energy Revenue Notes; 2009 A&B Tieton Hydropower Revenue Notes; the 2002 Subordinate Refunding Series B Bonds, and portions of the 1988A Refunding Bonds, the 1992, the 2008A and the 2009A Subordinate Refunding Bonds issued for the Southern Transmission System; the 2002A San Juan Revenue Bonds; a total of $125.5 million of the Multiple Project Revenue Bonds; the 2007 A&B Prepaid Natural Gas Project No. 1 Bonds; portions of the 2010 A&B Canyon Power Revenue Bonds; and portions of the 2010-1 Milford 1 Wind Revenue Bonds.Variable rate debt includes debt with rates based on daily, weekly and long term rates as determined by a Remarketing Agent.76 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued)
A summary of changes in long-term debt follows (amounts in thousands):
GENERATION GREEN POWER Total long-teem debt at June 30, 2009 Total debt due within ooe year at June 30, 2009 Total debt at June 30, 2009 Principal payments Revenue bonds issued Bonds refunded/defeased Refunding bonds issued Change in unamortized debt-related costs, net Total debt at June 30, 20 10 Total debt due within one year at June 30, 2010 Total long-teem debt at June 30, 2010 Total long-teem debt at June 30, 2009 Total debt due within one year at June 30, 2009 Total debt at June 30, 2009 Principal payments Revenue bonds issued Bonds refunded/defeased Refunding bonds issued Change in unatnortized debt-related costs, net Total debt at June 30, 2010 Total debt due within one year at June 30, 2010 Total long-term debt at June 30, 2010 Palo Verde Project -Debt maturities during 2017.Hoover Magnolia Power Canyon Power Uprating Tieton Hydro- Milford I Linden Wind Palo Verde Project San Juan Project Project Project Project power Wind Energy S 82,426 $ 139,830 $ 369,235 $ 104,627 $ 13,850 $ $ $10,360 11,115 8,695 -1,480 92,786 150,945 377,930 104,627 15,330 (10,360) (11,115) (8,695) -(1,480)47,655 237,235 139,680 (274,435)---471,905 1,761 (847) 66 10,901 442 50 16,578 531 84,187 138,983 369,301 312,998 14,292 47,705 253,813 140,211 (10,030) (11,715) (9,010) -(1,540) --S 74,157 S 127,268 $ 360,291 S 312,998 S 12,752 $ 47,705 S 253,813 $ 140,211 TRANSMISSION NATURAL GAS MISC.Southern Transmission Mead- Phoenix Mead- Adelanto Pinedale Prepaid Natural Multiple System Project Project Project Barnett Project Project Gas Project Fund Total$ 816,294 S 55,660 $ 175,837 S 89,603 $ 38,082 $ 503,498 $ 45,102 $ 2,434,044 30,585 2,870 9,480 4,639 1,956 5,625 -86,805 046,879 58,530 185,317 94,242 40,038 509,123 45,102 2,520,849 (30,585) (2,870) (9,480) (4,639) (1,956) (5,625) -(86,805)424,570 (165,450)
(439,885)--471,905 10,459 663 1,928 --(370) 1,274 43,436 826,753 56,323 .177,765 89,603 38,082 337,678 46,376 2,934,070 (32,990) (4,895) (13,490) (6,941) (2,929) (5,715) (11,400) (110,655)$ 793,763 $ 51,428 S 164,275 $ 82,662 $ 35,153 S 331,963 $ 34,976 S 2,823,415*
consists of subordinate refunding series bonds with variable interest rates and final The Palo Verde Escrow Restructure
-In April 2009, the Palo Verde 1997B Deposit Installment Escrow was restructured and the proceeds from the sale of certain of its escrow securities were used to tender $94.8 million of the Palo Verde 1997B Refunded Bonds. The tender produced approximately
$4.6 million of cash savings, net of accrued interest and transaction fees, which was distributed to the Palo Verde participants.
The Palo Verde Project Refunding
-In August 2008, the Authority issued the Palo Verde 2008 Subordinate Bonds in the aggregate principal amount of $99.8 million, consisting of $49.9 million principal amount of 2008 Series A Subordinate Refunding Bonds and $49.9 million of 2008 Series B Subordinate Refunding Bonds. The 2008 Subordinate Bonds were issued to provide funds, together with certain other available moneys, to refund all of SCPPA's outstanding 1996 Series B and C Bonds, remove the current bond insurance and replace them with variable rate debt obligations that are supported by a bank issued Letter of Credit. This transaction resulted in a net loss for accounting purposes of $11.6 million.San Juan Project -Debt consists of refunding series bonds with fixed interest rates between 5.0% and 5.5% and final maturities during 2020.77 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued)
Magnolia Power Project -Debt consists of revenue and refunding series bonds with variable and fixed interest rates between 3.0% and 5.25% with final maturities occurring in 2036.Magnolia Power Project Refunding
-In April 2009, SCPPA issued $258.1 million of Magnolia Power Project A, Refunding Revenue Bonds, consisting of $146.5 million principal amount of Series 2009-1 and $111.5 million principal amount of Series 2009-2, together the "2009 Bonds". The 2009 bonds were issued to refund all of SCPPA's outstanding Magnolia Power Project A, Refunding Revenue Bonds, 2007-1; to make a payment to the counterparties of the 2007-1 Swap Agreements; and to pay the related costs of issuance.
This transaction resulted in a net loss for accounting purposes of $14.2 million.Of the outstanding Magnolia Power Project Revenue Bonds, $13.0 million of "Project B Bonds" are secured by lease rental payments to be made by the City of Cerritos (the "City") in connection with the lease of certain facilities and premises owned by the City to the Authority and the leaseback of such facilities and premises to the City. The Base Rental Payments will be equal to the principal and interest on the Project B Bonds. In accordance with the Assignment Agreement between the Authority and the Trustee, the Authority will assign certain of its rights under the Lease, including its right to receive the Base Rental Payments, to the Trustee for the benefit of the owners of the Project B Bonds.The City has covenanted to budget and appropriate sufficient funds to make all payments required to be made under the Lease. The Lease has a term of 55 years.Canyon PowerProject
-As of June 30, 2010, debt consists of revenue bonds with fixed interest rates ranging from 4.0% to 5.943% and final maturity occurring in 2040.Canyon Power Project Revenue Bonds -On June 9, 2010, SCPPA issued $301.5 million of the Canyon Power Project Revenue Bonds consisting of $110.5 million of 2010 Series A Fixed rate Bonds and $191.0 million of the Series B, Taxable Build America Bonds (the "2010 Series B Bonds"), together the 2010 Bonds. The 2010 Bonds were issued to retire the $170.4 million outstanding Canyon Power Project Revenue Notes, 2009 Series A; to provide additional costs of development, construction, and acquisition of the Canyon Power Project (including a portion of the interest accruing on the 2010 Bonds through October 1, 2011; to fund a debt service reserve for each Series of the 2010 Bonds; and to pay costs of issuance related to the 2010 Bonds. The 2010A Bonds due on or before 7/1/2019 are not subject to redemption prior to maturity.
Final maturity will occur in July 2040. The 2010 Bonds were issued at a true interest cost of 3.90%. This transaction resulted in a net refunding loss for accounting purposes of $0.4 million.The 2010 Series B Bonds were issued as Build America Bonds that are "qualified bonds" under the provisions of the American Recovery and Reinvestment Act of 2009. The interest on these bonds will not be excluded from gross income for federal income purposes, but will be exempt from the State of California personal income taxes.As such, the Authority expects to receive a cash subsidy from the United States Treasury equal to 35% of the interest payable on the 2010 Series B Bonds which will be applied to offset the interest costs of the 2010 Series B Bonds.78 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued)
Canyon Power Project Revenue Notes -On November 18, 2009, SCPPA issued $170.4 million of the Canyon Power Project 2009 Series A Revenue Notes, which matured on August 3, 2010. The 2009 Notes were issued to refund all of the $104 million outstanding Canyon Power Project, Revenue Notes, 2008 Series A and to fund the remaining costs of construction.
These notes are not subject to optional or mandatory redemption prior to maturity.
The true interest cost of the Revenue Notes was 0.67%.Canyon Power Project Revenue Notes -On December 11, 2008, SCPPA issued $104 million of the Canyon Power Project 2008 Series A Revenue Notes which matures on December 2, 2009. The 2008 Notes were issued to provide interim financing for the payment of a portion of the costs to develop, construct and acquire a peaking power plant with a generating capability of approximately 200 MW to be located in the City of Anaheim, California.
These notes are not subject to optional or mandatory redemption prior to maturity.
The true interest cost of the Revenue Notes was 1.07%..Hoover Uprating Project -Debt consists of refunding series bonds with fixed interest rates between 4.0% and 5.25% and a final maturity during 2017.Tieton Hydropower Project -As of June 30, 2010, debt consists of revenue notes with fixed interest rate of 2.0% and expected to mature on August 16, 2010.Tieton Hydropower Project Revenue Notes -On November 24, 2009, SCPPA issued $33.4 million and $14.3 million of the Tieton Hydropower Project, Revenue Notes, 2009 Series A and B, respectively, in the aggregate principal amount of $47.7 million. The 2009 Notes were issued to provide interim financing for the costs of acquisition of the Tieton Hydropower Project, a 13.6 MW nameplate capacity hydroelectric plant and an approximately 21-mile, 115 kV transmission line from the plant to the point of interconnection with the electrical grid and related assets, property and contractual rights. The 2009 Notes are also being issued to fund a Reserve and Contingency Fund and costs of issuance relating to the 2009 Notes. These notes are not subject to optional or mandatory redemption prior to maturity.
The true interest cost of the Revenue Notes was 0.76%.Milford 1 Wind Project -As of June 30, 2010, debt consists of revenue bonds with fixed interest rates ranging from 2.0% to 5.0% and final maturity occurring in 2030.Milford Wind Corridor Phase 1 Revenue Bonds -On February 9, 2010, SCPPA issued $237.2 million Milford Wind Corridor Phase 1 Project, Revenue Bonds, 2010-1. These fixed rate bonds were issued for the purpose of financing the prepayment of a specified supply of electricity from a wind farm located in Milford Utah (the"Facility");
to fund a deposit to the 2010-1 Debt Service Reserve Account; and to pay the related costs of issuance of the 2010-1 Bonds. The 2010-1 Bonds maturing on or before July 1, 2019 are not subject to redemption prior to maturity, while the 2010-1 Bonds maturing on or after July 1, 2020 are subject to optional redemption, without premium, at the option of SCPPA. The 2010 Bonds were issued at a true interest cost of 4.16%.Linden Wind Energy Project -As of June 30, 2010, debt consists of revenue notes with fixed interest rate of 2.0% and expected maturity of October 1, 2010.79 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued)
Linden Wind Energy Project Revenue Notes -On November 10, 2009, SCPPA issued $139.7 million of the Linden Wind Energy Project, Revenue Notes, 2009 Series A. The 2009 notes were issued to provide interim financing for the costs of acquisition of the Linden Wind Energy Project, and to pay related costs of issuance.These notes are not subject to optional or mandatory redemption prior to maturity.
The true interest cost of the Revenue Notes was 0.63%.Southern Transmission System Project -Debt consists of refunding and subordinate refunding series bonds with fixed interest rates ranging from 3.50% to 6.38% and final maturities occurring in 2027.STS Project Refunding
-On February 3, 2009, SCPPA issued $117.3 million of the Southern Transmission System Project Revenue Bonds, 2009 Subordinate Refunding Series A. These fixed rate bonds were issued to provide funds, together with other available funds, to refund the STS 1996 Subordinate Refunding Series B Bonds (the Refunded Bonds) and to pay the related costs of issuance for the 2009 Series A Bonds. This transaction resulted in a net loss for accounting purposes of $21.9 million.On December 18, 2008, SCPPA issued $125.0 million of the Southern Transmission System Project 2008 Series B Subordinate Bonds. The bonds were issued for the purpose of financing the construction of certain improvements to the Intermountain Power Project -STS, specifically the upgrade of its two converter stations to increase the capacity of STS from its present rating of 1,920 MW to a new rating of 2,400 MW.Mead Phoenix/Mead Adelanto Projects -Debt consists of revenue and refunding series bonds with variable interest and fixed interest rates. Fixed interest rates range from 3.921% and 5.15% with final maturities occurring in 2020.MeadPhoenix/MeadAdelanto Project Refunding Bonds -On October 2, 2008, SCPPA issued the Mead-Adelanto
& Mead-Phoenix 2008 Series A & B Revenue Bonds in the aggregate principal amount of $145.7 million, consisting of $104.8 million principal amount of Mead-Adelanto 2008 Series A, $7.1 million principal amount of Mead-Adelanto 2008 Series B, $31.3 million principal amount of Mead-Phoenix 2008 Series A, and $2.5 million principal amount of Mead-Phoenix 2008 Series B ("2008 Series A and B Bonds"). The bonds were issued to provide funds, together with other available funds, to refund the Mead-Adelanto Project Revenue Bonds, 2004 Series A and the Mead-Phoenix Project Revenue Bonds, 2004 Series A ("Refunded Bonds"), which consisted of insured auction rate bonds. This transaction resulted in a net loss for accounting purposes of $17.5 million.Natural Gas Projects -Debt consists of revenue bonds with fixed interest rates ranging from 3.43% to 6.03%and final maturities occurring in 2032.Prepaid Natural Gas Project No. 1 -Debt consists of revenue bonds with variable and fixed interest rates ranging from 5.0% to 5.25% and final maturity occurring in 2035.80 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued)
In October 2009, the Series 2007A Fixed Rate Bonds, the Prepaid Natural Gas Agreements and certain other agreements were restructured to reduce risk, realize savings, provide an acceleration of the long-term savings, reduce the remaining volumes of gas to be delivered from 135 billion to 90 billion cubic feet, and shorten the term of the agreements from 30 to 27 years. As a result of the restructure
$165.5 million principal amount of the bonds were canceled, leaving $333.4 million of total bonds outstanding subsequent to the November 1, 2009 principal maturity.Multiple Project Fund -Debt consists of revenue bonds with fixed interest rate of 6.75% and final maturity during 2013.Debt Related Costs -Unamortized debt-related costs, net are as follows (amounts in thousands):
Unamortized Debt-related Costs, Net Palo Verde Project San Juan Project Magnolia Power Project Canyon Power Project Southern Transmission System Project Mead-Phoenix Project Mead-Adelanto Project Hoover Uprating Project Tieton Hydropower Project Milford I Wind Project Linden Wind Energy Project Prepaid Natural Gas Project No. 1 Multiple Project Fund Loss on Refunding$ 5,283 2,481 13,421 301 65,293 3,695 10,974 339 101,787 Loss on Refunding 7,044 2,851 14,074 73,224 4,297 12,732 809$ 115,031 June 30, 2010 (Premium)Discount (5,264)(2,972)(11,829)8,659 622 1,701 (136)(50)(16,578)(531)(4,308)3,824$ (26,862)Total$ 5,283 (2,783)10,449 (11,528)73,952 4,317 12,675 203 (50)(16,578)(531)(4,308)3,824 S$ 74,925 Unamortized Debt-related Costs, Net Palo Verde Project San Juan Project Magnolia Power Project Canyon Power Project Southern Transmission System Project Mead-Phoenix Project Mead-Adelanto Project Hoover Uprating Project Prepaid Natural Gas Project No. 1 Multiple Project Fund June 30, 2009 (Premium)Discount$(6,481)(3,559)(627)11,187 683 1,871 (164)(4,678)5,098$ 3,330 Total$ 7,044 (3,630)10,515 (627)84,411 4,980 14,603 645 (4,678)5,098$ 118,361 81 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued)
Fair Value -The fair value of the Authority's long-term debt (including the current portion) is approximately
$3.04 billion and $2.51 billion at June 30, 2010 and 2009, respectively.
Management has estimated fair value based on the quoted market prices for the same or similar issues or on the current average rates offered to the Authority for debt of approximately the same remaining maturities, excluding the effect of a related interest rate swap agreement.
Advance Refundings
-The Authority has established irrevocable escrow trusts with the proceeds from issuance of subordinate refunding bonds. These investments will be used to pay specified revenue bonds called at scheduled redemption dates.Defeasance of Debt -The Authority has defeased specified revenue bonds by placing the proceeds from the issuance of subordinate refunding bonds in irrevocable trusts to provide for all future debt service payments on the refunded bonds. The trust investments and related liability for bonds that are considered legally defeased are not included in the Authority's financial statements.
At June 30, 2010 and 2009, $758.1 million and $758.6 million, respectively, of revenue bonds outstanding are considered legally defeased.The refunded bonds constitute a contingent liability of the Authority only to the extent that cash and investments presently in the control of the refunding trustees are not sufficient to meet debt service requirements and are therefore excluded from the combined financial statements because the likelihood of additional funding requirements is considered remote.Debt Service -The scheduled debt service payments for future years ending June 30 are included in the table on the following page. The variable rates used for the PV 2008 Subordinate Refunding Series A and B were 0.21%and 0.25%, respectively.
The variable rates used for the MA and MP 2008 Subordinate Refunding Series A were 0.15%. The variable rates used for the MA and MP 2008 Subordinate Refunding Series B were 0.32%. The variable rates used for the STS 2000 and 2001 Subordinate Refunding Series A were 0.42% and 0.37%, respectively.
The variable rates used for the MAG 2009-1 and MAG 2009-2 were 0.20%. All of the preceding variable rates were the rates at June 30, 2010. The variable rates are set by the bond-remarketing agent on a weekly basis based on economic conditions and bond ratings.82 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6 -LONG-TERM DEBT -(continued) 2011 Principal 2011 Interest 2012 Principal 2012 Interest 2013 Principal 2013 Interest 2014 Principal 2014 Interest 2015 Principal 2015 Interest 2016 -2020 Principal 2016 -2020 Interest 2021 -2025 Principal 2021 -2025 Interest 2026 -2030 Principal 2026 -2030 Interest 2031 -2035 Principal 2031 -2035 Interest 2036 -2040 Principal 2036 -2040 Interest 2041 Principal 2041 Interest Principal Interest GENERATION GREEN POWER Magnolia Canyon Power Hoover Tieton Hydro- Miltord I Linden Wind Palo Verde San Juan Power Proiect Uprating power Wind Energy$ 10,030 $ 11,715 $ 9,010 $ -$ 1,540 $ 47,655 $ -$ 139,680 2,237 7,102 13,919 9,388 678 694 4,448 2,561 10,340 12,345 9,395 -1,600 -7,595 -1,986 6,472 13,541 16,732 614 11,277 10,660 13,010 9,780 -1,670 7,860 1,728 5,808 13,167 16,732 537 11,014 10,980 27,250 10,220 -1,755 8,135 1,461 5,093 12,713 16,732 455 10,739 11,330 13,200 10,650 -1,835 8,450 1,187 3,594 12,297 16,732 368 10,423 36,130 58,680 46,475 28,740 6,095 48,265 1,824 8,009 54,010 81,226 490 46,091--50,605 44,155 -61,140 43,324 72,056 33,213 66,905 56,440 77,815 33,200 59,228 16,542 81,815 69,440 17,975 21,609 41,138 898 84,895 83,915 -4,833 18,425-- 18,780---558 ----$ 89,470 $ 136,200 $ 379,750 $ 301,470 $ 14,495 $ 47,655 $ 237,235 $ 139,680$ 10,423 $ 36,078 $ 222,613 $ 348,947 $ 3,142 $ 694 $ 144,645 $ 2,561 TRANSMISSION NATURAL GAS MISC.2011 Principal 2011 Interest 2012 Principal 2012 Interest 2013 Principal 2013 Interest 2014 Principal 2014 Interest 2015 Principal 2015 Interest 2016 -2020 Principal 2016 -2020 Interest 2021 -2025 Principal 2021 -2025 Interest 2026 -2030 Principal 2026 -2030 Interest 2031 -2035 Principal 2031 -2035 Interest 2036 -2040 Principal 2036 -2040 Interest 2041 Principal 2041 Interest Principal Interest Southern Trans-mission Mead- Mead- Prepaid Multiple System Phoenix Adelanto Barnet Pinedale Natural Gas Proiect Fund Total$ 32,990 $ 4,895 $ 13,490 $ 6,941 $ 2,929 $ 5,715 $ 11,400 $ 297,990 43,099 3,079 9,473 4,405 1,871 16,806 3,389 123,149 35,650 5,190 14,305 7,972 3,368 5,295 12,100 125,155 41,134 2,756 8,584 4,132 1,756 16,530 2,619 128,133 54,140 5,530 15,230 6,016 2,549 4,805 12,900 144,150 38,722 2,414 7,640 3,857 1,640 16,278 1,802 121,339 47,825 5,905 16,265 5,302 2,253 4,065 13,800 153,755 36,629 2,048 6,635 3,619 1,539 16,056 932 114,651 49,470 5,000 17,135 5,211 2,219 3,875 -128,375 35,181 1,658 5,560 3,384 1,439 15,858 107,681 282,550 27,920 93,240 23,200 9,900 24,785 685,980 141,658 4,626 15,463 13,070 5,560 75,989 448,016 301,685 6,200 20,775 15,894 6,766 50,470 557,690 64,139 243 815 7,802 3,312 66,563 291,467 96,395 --12,474 5,301 89,970 405,300 8,900 3,766 1,594 48,531 171,761 6,593 2,797 126,445 305,065 580 245 20,027 84,497--17,945 186,755 453 23,711 18,780----558 89,603 $ 38,082 $ 333,370 $ 50,200 $ 3,008,995 44,615 $ 18,956 $ 293,091 $ 8,742 $ 1,614,963 83$ 900,705 $ 60,640 $ 190,440 $$ 409,462 $ 16,824 $ 54,170 $83 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 7 -NOTES PAYABLE AND DEFERRED CREDITS Notes payable and deferred credits consist mainly of Palo Verde Participants' overbillings from prior periods; a note secured from GE Capital Public Finance, Inc., to lease purchased spare parts inventory and an allowance for future major maintenance expenses for the Magnolia Power Project; and swap-related transaction fees received in STS, Mead Adelanto, and Mead Phoenix Projects.
The participant's overbillings in the Palo Verde Project are to be paid through June 2017. These notes are unsecured, bear an interest rate of 4.97%, and are due in monthly payments of $0.6 million. On June 30, 2010, the remaining balance is $42.3 million. The note payable in the Magnolia Power Project has a coupon rate of 4.1%, with principal payments due monthly through July 2010. On June 30, 2010, the remaining balance is $3.9 million.The Authority received approximately
$1.8 million and $5.9 million in upfront payments in connection with the execution of the 2004 Mead Phoenix and Mead Adelanto Swaps, respectively, to be deferred through 2020. The deferred balance is $0.7 million and $2.3 million, respectively, as of June 30, 2010. The 5-year suspension of the 2006 STS Constant Maturity Swap (CMS) in May 2008 netted a compensation of $3.7 million. The deferred balance is $2.2 million as of June 30, 2010. The 3-year suspension of the 2007 Mead Adelanto CMS (the CMS Swap) in November 2008 netted a compensation of $4.1 million. In June 2010, the suspension was extended to June 2018 for net compensation of $5.0 million. The total deferred balance of the CMS is $6.8 million as of June 30, 2010. (See Note 5)Notes Payable and Deferred Credits Rollforward (amounts in thousands):
Description PV prior year overbillings MPP GE spare parts & major maintenance STS 2006 Swap suspension Mead Phoenix 2004 Swap upfront fees Mead Adelanto 2004 Swap upfront fees Mead Adelanto 2007 Swap Suspension Amortization Payments/
of Surplus June 30, 2009 Additions Amortization Fund June 30, 2010$ 47,161 $ $ (5,252) S 393 $ 42,302 2,614 2,655 (1,341) -3,928 2,996 -(749) -2,247 770 (86) -684 2,561 -(287) -2,274 3,207 5,027 (1,411) -6,823$ 59,309 $ 7,682 $ (9,126) $ 393 $ 58,258 84 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 8 -ADVANCES FROM PARTICIPANTS Advances from participants consist mainly of billings to participants related to acquisition, capital drilling, and inventory wherein the matching operating expenses will be recognized at a future date. Also, and specific only to the Natural Gas Pinedale Project, advances held by the project are funds from LADWP and TID, both owners independent of SCPPA, are for their share of operating costs and capital expenditures pursuant to their respective Agency Agreements.
Advances from participants rollforward (amounts in thousands):
Description MAG advances from participants Tieton advances from participants Milford I advances from participants NG Pinedale advances from participants NG Barnett advances from participants Ormat advances from participants MWD advances from participants Windy Point advances from participants PDF advances from participants June 30, 2009$ 15,525 49,389 11,911$ 76,825 Activit,$ 1,238 209 257 (9,789)(488)860 500 1,006 2,000$ (4,207)June 30, 2010$ 16,763 209 257 39,600 11,423 860 500 1,006 2,000$ 72,618 NOTE 9 -NET ASSETS (DEFICIT)The Authority's billing amounts to the participants are determined by its Board of Directors and are subject to review and approval by the participants.
Billings to participants are designed to recover "costs" as defined by the power sales, natural gas sales, and transmission service agreements.
The billings are structured to systematically provide for debt service requirements, operating funds and reserves in accordance with these agreements.
The accumulated difference between billings and the Authority's expenses calculated in accordance with accounting principles generally accepted in the United States of America are presented as net assets (deficit).
It is intended that this difference will be recovered in the future through billings for repayment of principal on the related bonds.85 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 9 -NET ASSETS (DEFICIT)
-(continued)
Net assets (deficit) are comprised of the following (in thousands):
Fiscal Year Fiscal Year June 30, 2008 2009 Activity June 30, 2009 2010 Activity June 30, 2010 GAAP items not included in billings to participants Depreciation of plant Nuclear fuel amortization Decommissioning expense Amortization of bond discount, debt issue costs, and loss on refundings Interest expense Loss on defeasance of bonds Derivatives and related charges Bond requirements included in billings to participants Operations and maintenance, net of investment income Costs of acquisition of capacity Billings to amortize costs recoverable Reduction in debt service billings due to transfer of excess funds Principal repayments Other Multiple Project Fund net assets Projects' Stabilization Fund net assets$ (1,124,267)
$(5,860)(188,104)(687,521)(64,836)(85,827)(10,303)313,130 13,362 382,050 (67,19U)(8,572)(24,674)7,845 (16,457)398 (1,466)$(1,191,457)
$(5,860)(196,676)(712,195)(56,991)(85,827)(26,760)313,528 11,896 382,050 (68,689) $(5,296)(19,318)171 (8,720)(5,824)(1,322)(1,260,146)
(5,860)(201,972)(731,513)(56,820)(85,827)(35,480)307,704 10,574 382,050 (90,020) -(90,020) -(90,020)1,148,351 82,173 1,230,524 102,640 1,333,164 159,334 8,713 168,047 31,430 199,477 (240,511)
(19,230) (259,741) 25,072 (234,669)2,729 (1,348) 1,381 (1,255) 126 86,870 2,285 89,155 12,882 102,037$ (150,912)
$ (18,293) $ (169,205)
$ 36,699 $ (132,506)NOTE 10 -COMMITMENTS AND CONTINGENCIES Industry Restructuring
-Since the passage of Assembly Bill 1890 (the "Bill") in September 1996, the electric industry in California continues to remain uncertain.
The deregulation experiment has, for the most part, been abandoned.
The public power participants of SCPPA were not required to comply with the Bill's provisions.
Public Benefits -The members continue to collect the public benefit charge through existing rate structures and have instituted in excess of $1 billion of programs to benefit their customers.
More than $390 million has been spent on conservation and energy efficiency programs, public educational programs, research and development, and low income rate subsidies.
The decisions on how these funds are allocated are made by the local governing authority, in most cases this is the city council.86 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES
-(continued)
Executive Action and State Legislation
-The California Legislature approved several bills that affected the electric utility industry.
In general, these bills provide for reduced greenhouse gas emission standards and greater investment in energy-efficient and environmentally friendly generation alternatives through more stringent renewable resource portfolio standards.
The following is a brief summary of certain of these bills: Greenhouse Gas Emissions
-Executive Order S-3-05 placed an emphasis on efforts to reduce greenhouse gas emissions by establishing statewide greenhouse gas reduction targets. The targets are: (i) a reduction to 2000 emissions levels by 2010; (ii) a reduction to 1990 levels by 2020; and (iii) a reduction to 80% below 1990 levels by 2050.Assembly Bill 32, the Global Warming Solutions Act of 2006 (the "GWSA") became effective as law on January 1, 2007. The GWSA prescribed a statewide cap on global warming pollution with a goal of reaching 1990 greenhouse gas emission levels by 2020. In addition, the GWSA establishes a mandatory reporting program for all investor-owned utilities (IOUs), municipal utilities and other load-serving utilities to inventory and report greenhouse gas emissions to the California Air Resources Board (CARB) and requires CARB to adopt regulations for significant greenhouse gas emission sources (allowing CARB to design a "cap-and-trade" system) and gives CARB the authority to enforce such regulations beginning in 2012. CARB adopted a "scoping plan" to reduce greenhouse gas emissions which includes a mixed approach; market structures, regulation, fees and voluntary measures.
The scoping plan includes a cap-and-trade system that covers 85% of all California greenhouse gas emissions and will be implemented in coordination with the Western Climate Initiative regime, which is a regional zone consisting of seven states and three Canadian provinces that is in the process of establishing a greenhouse gas trading framework.
CARB has begun developing regulations for greenhouse gas emissions limits and reduction measures.
The regulations will go into effect and be enforceable beginning January 1, 2012.However, a proposed initiative has qualified for the November 2, 2010 California ballot, which, if passed, will suspend the GWSA until the unemployment rate in California is 5.5% or less for four consecutive calendar quarters.The Project Participants will likely be adversely affected in the event an auction type cap-and-trade system is ultimately implemented, which system would require the Project Participants to purchase carbon credits to offset the higher than average carbon emissions of their respective resource portfolios, the cost of which could be substantial.
Renewable Portfolio Standard (RPS) -Senate Bill 1078 (SB 1078), which became law on January 1, 2003, requires that the IOUs adopt a Renewable Portfolio Standard ("RPS") to meet a minimum of 1% of retail energy sales needs each year from renewable resources and to meet a goal of 20% of their retail energy needs from renewable energy resources by the year 2017. SB 1078 also directed the State's municipal electric utilities to implement and enforce an RPS that recognizes the intent of the Legislature to encourage development of renewable resources, taking into consideration the impact on a utility's standard on rates, reliability, financial resources, and the goal of environmental improvement.
Senate Bill 107, which became law on January 1, 2007, requires IOUs to have 20% of their electricity come from renewable sources by 2010 and prescribes that municipal utilities meet the intent of the legislation.
SCPPA participants have embraced the objective of increasing renewable resources within their portfolios.
However, the costs of renewable generation, infrastructure, including transmission upgrades and additions, and other requirements will have additional significant financial implications on SCPPA participants.
87 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES
-(continued)
Solar Power -Senate Bill 1 (also known as the "California Solar Initiative"), which became law on January 1, 2007, requires municipal utilities, including SCPPA participants, to establish a program supporting the stated goal of the legislation to install 3,000 MW of photovoltaic energy in California.
Municipal utilities are also required to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer funded incentives.
Each of the Project Participants has established programs in accordance with the requirements of the California Solar Initiative.
The effect of these developments in the California energy markets on SCPPA participants cannot be fully ascertained at this time. Most of the SCPPA participants have made investments in gas-fired peaking or base-load generation located in Southern California.
Also, volatility in energy price in California may return due to a variety of factors which affect both the supply and demand for electric energy in the western United States. This price volatility may contribute to greater volatility in the revenues of their respective electric systems from the sale (and purchase) of electric energy and, therefore, could materially affect each of SCPPA's participants financial condition.
The very competitive prices for a portion of gas supply and additional services provided by SCPPA are intended to maintain and improve the competitive position of the participants.
Also, each participant undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure.Federal Energy Legislation
-The Energy Policy Act of 2005 ("EPAct 2005") addresses a wide array of energy matters that could affect the entire electric utility industry, including the electric system of certain SCPPA participants.
EPAct 2005 requires the creation of an electric reliability organization (ERO) to establish and enforce, under FERC supervision, mandatory reliability standards to increase system reliability and minimize blackouts.
Failure to comply with such mandatory standards exposes a utility to significant fines and penalties by the ERO.Neither SCPPA nor any of certain participants is able to predict at this time the impact that EPAct 2005 will have on the operations and finances of their respective electric systems or the electric utility industry generally.
Other Legislation
-Numerous bills have been under consideration in Congress addressing United States energy policies and various environmental matters, including those related to energy supplies, global warming and water quality. Many of these bills, if enacted into law, could have a material impact on the Authority and the Project Participants and the electric utility industry generally.
ISO FERC FILINGS MRTU -The ISO's Market Redesign and Technology Upgrade (MRTU) tariff amendment includes provisions intended to perform effective congestion management in the ISO day-ahead market by enforcing all transmission constraints so as to establish feasible forward transmission schedules, create a day-ahead market for energy, automate real-time dispatch so as to balance the system and manage congestion in an optimal manner; and ensure consistency in the allocation of transmission resources to grid users and the pricing of transmission service and energy. The ISO has continued to file numerous amendments to the MRTU tariff which was implemented on April 1, 2009. No assurances can be given by the Authority that unforeseen events will not occur under MRTU;thus, it is impossible to predict at this time the ultimate impact of MRTU on the Authority, the Project Participants and the California electric utility industry generally.
88 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES
-(continued)
American Recovery and Reinvestment Act of 2009 -The American Recovery and Reinvestment Act of 2009 (the "Act) is an economic stimulus bill which includes a number of investments and tax incentives for certain energy-related projects.
SCPPA has issued Build America Bonds, which were created under the Act and carry special tax credits and federal subsidies for either the bond issuer or the bondholder. (See Note 6)The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities.
Any factors including those mentioned above could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways. The Authority is unable to predict what impact such factors will have on the business operations and financial condition of its members but the impact could be significant.
Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources of public domain.Nuclear Spent Fuel and Waste Disposal -Under the Nuclear Waste Policy Act, the Department of Energy (DOE) was to develop the facilities necessary for the storage and disposal of spent fuel and to have the first such facility in operation by 1998. DOE collected a fee of 0.1 cents/kwh of electric generation from the nuclear plant operators to fund the development and operation of the disposal facility.In July 2002, a measure was signed into law designating the Yucca Mountain in the state of Nevada as the nation's high-level nuclear waste repository.
This meant that the DOE could then file a construction and operation plan for Yucca Mountain with the Nuclear Regulatory Commission (NRC). Due to a series of setbacks including scientific challenges by the National Academy of Science, falsified research data by consultants, delays in submitting the construction application to the Nuclear Regulatory Commission, the operation date of the repository was pushed back several times.In June 2008, the DOE submitted to the NRC a license application to construct the repository.
In 2009, the federal government, under the new administration, decided to cut off all the appropriated funds for the development of the repository at Yucca Mountain at the urge of the Congress except a small budget allocation for the closing of the project. DOE subsequently submitted a request to the NRC to withdraw the license application.
The withdrawal request was denied by the NRC due to a lack of valid reasons. Concurrently, an independent commission was formed by the DOE to find a solution for the nuclear waste disposition that would include Yucca Mountain among the different options. There are questions among utilities as well as public utility commissions nationwide about the continued collection of disposal fees by DOE for the Nuclear Waste Fund recognizing that there is a lack of spent fuel disposal policy from the federal government.
The Palo Verde Operating Agent on behalf of the co-owners has litigated DOE to recover the costs of storing spent fuel at Palo Verde because DOE failed to honor the contract to remove and dispose spent fuel as scheduled.
In 2010, the federal court ruled in favor of Palo Verde and granted a compensation of $30 million.89 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES
-(continued)
The spent fuel storage in the wet pool at Palo Verde exhausted its capacity in 2003. A Dry Cask Storage Facility (the "Facility"), also called the Independent Spent Fuel Storage Facility, was built and completed in 2003 at a total cost of $33.9 million (about $2 million for the Authority).
In addition to the Facility, the costs also include heavy lift equipment inside the units and at the yard, railroad track, tractors, transporter, transport canister, and surveillance equipment.
The Facility has the capacity to store all the spent fuel generated by the Palo Verde plant until the end of its operating license in 2027. To date, over 74 casks, each containing 24 spent fuel assemblies were placed in the Facility.
The current plan calls for the transfer of about 240 fuel assemblies from the wet pool to the Facility every year. The costs incurred by the procurement, packing, preparation and transportation of the casks are accounted as part of the fuel expenses, and are estimated at approximately
$13 million a year (about$760,000 for the Authority).
Storing spent fuel at Palo Verde is now considered indefinite with undetermined costs until spent fuel is removed from the plant site.Nuclear Insurance
-The Price-Anderson Act (the "Act") requires that all utilities with nuclear generating facilities share in payment for claims resulting from a nuclear incident.
The Act limits liability from third-party claims to approximately
$12.6 billion per incident.
Participants in the Palo Verde Nuclear Generating Station currently insure potential claims and liability through commercial insurance with a $375 million limit; the remainder of the potential liability is covered by the industry-wide retrospective assessment program provided under the Act. This program limits assessments to $117.5 million per reactor for each licensee for each nuclear incident occurring at any nuclear reactor in the United States; payments under the program are limited to $17.5 million per reactor, per incident, per year to be indexed for inflation every 5 years. Based on the Authority's 5.9 1% interest in Palo Verde, the Authority would be responsible for a maximum assessment of $20.8 million per incident for all 3 units, limited to payments of $3.1 million per incident, per year.In addition to the above, the Authority may be subject to retroactive insurance assessments for its participation in the Neil Property Insurance Program in the amount of $2.3 million.Other Legal Matters -Claims and a lawsuit for damages have been filed with the Authority, Intermountain Power Authority (the "IPA"), and LADWP seeking $100 million in special damages and a like amount in general damages. The claimants allege, among other things, that due to improper grounding of the transmission line of STS, their dairy herds were damaged and the value of their land was diminished.
The Authority believed these claims were substantially without merit as to itself because the Authority has no ownership or operational control over the subject transmission lines, and merely acted as a financing agency with respect to STS. SCPPA moved the Utah court to dismiss the action as to SCPPA. This motion resulted in the dismissal of certain of the causes of action in the complaint against SCPPA however other causes of action still remain. The ultimate outcome of this litigation cannot be predicted at this time. No provision for this litigation matter has been included in the accompanying financial statements.
90 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 10 -COMMITMENTS AND CONTINGENCIES
-(continued)
On February 12, 2009, SCPPA was served in the case of Wakefield
- v. Devon Energy Production Company, L.P., Collins & Young holdings L.P.; Southern California Public Power Authority; and Turlock Irrigation District arising out of its non-operating working interest in oil and gas production property situated in the Barnett Shale in certain Texas counties including Hood County, Texas. Devon Energy Production Company (Devon) acts as SCPPA's operator with respect to all oil and gas operations upon this property.
The plaintiff in this lawsuit has alleged that Devon entered into certain pooling arrangements with adjacent property owners, through which it combined the lease pertaining to the plaintiffs property with other less productive leases, resulting in an increase in royalties to these adjacent property owners and a corresponding diminution of plaintiffs royalties.
The complaint does not specify the amount of damages sought. It cannot be predicted how this case may be resolved at the current time, however, SCPPA has been advised that these cases are not uncommon and usually settle. No provision for this litigation matter has been included in the accompanying financial statements.
SCPPA possesses an ownership interest in Unit 3 of the San Juan Generating Station (SJGS) in New Mexico. The operator of the SJGS, on behalf of SCPPA and the other SJGS participants was and is Public Service Company of New Mexico (PNM) which is also a co-owner of the plant. Fuel for the SJGS is provided from the San Juan coal mine which is located near the SJGS. The San Juan Coal mine (Mine) is operated by the San Juan Coal Company (Company) which carries out mining operations at this site and provides the fuel to the plant pursuant to agreements entered into for this purpose with PNM. On April 8, 2010, the Sierra Club filed a lawsuit in the United states District Court for the District of New Mexico against PNM Resources, the parent company of PNM, PNM as the operator of the SJGS, BHP Billiton Limited and the Company, as the operator of the Mine, over alleged surface and groundwater contamination stemming from coal ash placement in the mine and from plant operations.
At the current time it cannot be predicted with any level of certainty how these matters will evolve in the future litigation of this action.The Authority is also involved in various other legal actions. In the opinion of management, the outcome of such litigation or claims will not have a material effect on the financial position or the results of operations of the Authority or the respective separate Projects.NOTE 11 -SUBSEQUENT EVENTS Linden Wind Energy Project Revenue Bond -On September 28, 2010, SCPPA issued $138.3 million of Linden Wind Energy Project Revenue Bonds, consisting of $96.8 million principal amount of 2010 Series A Bonds, and $41.5 million 2010 Series B, Taxable Build America Bonds, together the "2010 Bonds". These fixed rate bonds were issued to refund the Linden 2009 Series A Notes, finance additional cost of acquiring the Linden Wind Energy Project, fund a debt serve reserve, and pay cost of issuance relating to the 2010 Bonds. The refunded notes will be redeemed on October 1, 2010, the maturity date of the Linden 2009 Series A Notes.The Project achieved commercial operation on June 30, 2010, and on September 14, 2010, the Authority completed the acquisition of the Project from North Wind Partners, LLC in accordance with the Asset Purchase Agreement dated June 23, 2009.91 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 11 -SUBSEQUENT EVENTS -(continued)
Windy Point/Windy Flats Project -Issuance of Revenue Bonds to Prepay Generation Costs -Pursuant to a power sales agreement, dated June 24, 2009, the Authority agreed to purchase from Windy Flats Partners, LLC a supply of energy from the Windy Point Project output for an initial delivery term of 20 years. The Authority also entered into power sales agreements with the Los Angeles Department of Water and Power and City of Glendale to sell 100% of its entitlement to capacity and energy in the Project on a "take-or-pay" basis.On September 9, 2010, SCPPA issued $514.2 million Windy Point/Windy Flats Project, Revenue Bonds, 2010-1.These fixed rate bonds were issued to finance the prepayment of a specified supply of electricity from the Windy Point/Windy Flats Facility pursuant to a Power Purchase Agreement dated June 24, 2009; to pay certain other costs of the Project; to fund a deposit to the 2010-1 Debt Service Reserve Fund; and to pay costs of issuance related to the 2010-1 Bonds.The Windy Point/Windy Flats Project is a facility with a 262.2 MW nameplate capacity wind farm comprised of 114 wind turbines located in the Columbia Hills area of Klickitat County, Washington near the city of Goldendale (the "Windy Point Project").
The Windy Point Project is owned by Windy Flats Partners, LLC, a limited liability company organized and existing under the laws of the State of Delaware.
The initial delivery term began on the commercial operation date of the first of two phases of the Facility.
The first phase commenced operations on January 25, 2010 and the second phase on March 1, 2010.Tieton Hydropower Project Revenue Refunding Bonds -On August 10, 2010, SCPPA issued $52.7 million of Tieton Hydropower Project, Revenue Refunding Bonds, consisting of $36.3 million principal amount of 2010 Series A Bonds, and $16.4 million principal amount of 2010 Series B, Taxable Bonds, together the "2010 Bonds".These fixed rate bonds were issued to retire the outstanding Tieton Hydropower Project Revenue Notes, 2009 Series A&B, to fund a deposit to the Debt Service Reserves for each Series of the 2010 Bonds, and to pay costs of issuance related to the 2010 Bonds.92 SUPPLEMENTAL INFORMATION SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Decom- General Debt Service missioning Escrow Reserve Issue Operating Reserve & Revenue Fund Trust Fund Account Account Account Account Contingency Fund Total-$ 155,317 S 238,345 $ 5,945 $ 13,128 $ 81,326 $ 24,553 $ $ 518,614 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from power sales Distribution of revenue and interest payments Total Deductions Construction expenditures Operating expenditures Bond issue costs Fuel costs Payment of principal Interest paid -non escrow escrow Total 4,244 8,984 9 4 (13)1 2,688 19 (19)5 (311)617 (617)960 16,543 28 U- --66,00 o6,uou-(4,640) 13,833 43,917 13,910 (67,020) -3,704 -(21,131) 17,427 ---3,704 4,244 (12,147) (4,640) 31,261 46,299 13,910 82,631 15,608 3 44,975 50 15,608 44,978 50-18,039 18,039-10,360 -10,360--1,108 21 1,129 3,704 -17,384 --21,088 3,704 3 --28,852 63,085 15,608 111,252$ $ 159,558 $ 226,198 $ 1,305 $ 15,537 S 64,540 $ 22,855 $ $ 489,993 Balance at June 30, 2010 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $57 and $66 held in the revolving fund at June 30, 2010 and 2009, respectively.
93 OUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SAN JUAN PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Debt Service Reserve &Debt Service Reserve Revenue Operating Contingency Escrow Fund Account Fund Fund Fund Account Total$ 4,133 $ 21,323 $ $ 2,642 $ 9,877 $ 74,683 $ 112,658 Balance at June 30, 2009 Additions Investment earnings Discount on investments Distribution of investment earnings Revenue from power sales Distribution of revenues Other Total Deductions Operating expenses Construction expenses Payment of principal and interest -escrow Payment of principal Interest paid -non-escrow Total 5 1,104 10 (15)(1,104)9 323 3,049 5 (9) (324)4,493 15 1,452-98,983 --98,983 18,232 (100,438) 63,656 18,550 -3,772 --(3,772) -22,004 63,656 18,554 (723) 103,491-57,820 --57,820---14,846 14,846 3,772 ---3,772 11,115 --11,115 7,699 ----7,699 22,586 --57,820 14,846 -95,252$ 3,551 $ 21,323 $ $ 8,478 $ 13,585 $ 73,960 $ 120,897 Balance at June 30, 2010 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $29 and $28 held in the revolving fund at June 30, 2010 and 2009, respectively.
94 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MAGNOLIA POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Debt Service General Debt Service Reserve Project Operating Reserve and Operating Revenue Reserve Account Account Fund Reserve Fund Contingency Fund Fund Fund Escrow Fund Total$ 12,331 $ 30,332 $ 3,792 $ 4,919 $ 11,428 $ 3,280 $ -$ 9,597 $ 213,901 $ 289,580 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Transfer of funds for debt service payment Receipt from participants Distribution of revenues Other Total Deductions Construction expenditures Operating expenses Liquidity
& Remarketing Fees Interest paid Payment of principal Debt issuance costs Total Balance at June 30, 2010 12 818 58 7 (19)2 82 4 (86)194 5 1 174 9,707 11,051 15 2 (196)(818)296 1,123 (300)10,119 -(10,119) -----60,909 60,909 25,769 598 3,237 32,779 (62,142) (241) -(88) 2 --109 (2) (21) -35,800 660 3,237 33,080 -(369) (433) 71,975-(176) 1,169 ----993---33,022 --33,022 2,407 ----2,407 23,008 ----23,008 8,695 -----8,695-446 ------446 34,110 270 -1,169 33,022 --68,571 S 14,021 $ 30,332 S 4,182 $ 4,919 $ 13,496 $ 3,338 $ -$ 9,228 $ 213,468 $ 292,984 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $26 and $35 held in the revolving fund at June 30, 2010 and 2009, respectively.
95 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY CANYON POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Debt Service Debt Service Cost of Issuance Fund Reserve Fund Project Fund Fund Escrow Fund Total-$ -$ 37,834 $ $ -$ 37,834 Balance at June 30, 2009 Additions Investment earnings Note Proceeds 2009A Bond Proceeds 2010A Transfer to Escrow Other Total 479 479 Deductions Construction expenses Debt issue costs 2008A Notes Redemption
& Interest Payment-Escrow Total-65,000 812 106,535 172,347 15,771 19,506 133,194 2,518 142,374 313,363-(30,436) -30,436 --25 (25) --15,771 19,506 168,262 3,305 279,345 486,189-79,217 --79,217-2,568 -2,568--106,535 106,535-79,217 2,568 106,535 188,320$ 15,771 $ 19,506 $ 126,879 $ 737 $ 172,810 $ 335,703 Balance at June 30, 2010 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable or unrealized gain (loss) on investments, and $16 held in the revolving fund at June 30, 2010.96 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVER UPRATING PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Debt Service General Reserve Fund Fund Operating Fund Revenue Fund Total$ 1,302 $ 1,703 $ 1,300 $ -$ 4,305 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from power sales Distribution of revenue Other Total (1)17 1 (18)9 26 2 2,347 (9)130 28 2,347 (2,375)2,245 Deductions Operating expenses Payment of principal Interest paid Total Balance at June 30, 2010 1 -4 5 2,246 -134 2,380--235 235 1,480 --1,480 738 --738 2,218 235 -2,453$ 1,330 $ 1,703 $ 1,199 $ $ 4,232 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $13 and $16 held in the revolving fund at June 30, 2010 and 2009, respectively.
97 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY TIETON HYDROPOWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Reserve &Contingency Cost of Issuance Revenue Fund Operating Fund Fund Project Fund Fund Total$ -$ 926 $ -$ -$ $ 926 Balance at June 30, 2009 Additions Investment earnings Note proceeds 2009A Receipt from participants Distribution of revenues Total Deductions Acquisition costs Operating expenses Debt issue costs Total Balance at June 30, 2010 4 500 47,113 561 4 48,174 589 2,002 -2,591 (589) 589 -----2,591 500 47,117 561 50,769 311 -47,096 -47,407 2,945 --2,945--526 526 3,256 -47,096 526 50,878$ $ 261 $ 500 $ 21 $ 35 $ 817 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $6 held in the revolving fund at June 30, 2010.98 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MILFORD 1 WIND PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Cost of Revenue Operating Debt Service Debt Service General Operating Issuance Fund Fund Fund Reserve Fund Reserve Fund Reserve Fund Project Fund Fund Total$ $ -$ -$ -$ -$ -$ -$ -$ -Balance at June 30, 2009 Additions Investment earnings-Discount on investments Distribution of investment earnings Bond proceeds 2010-1 Receipt from participants Distribution of revenues Other Total 5 I 2 1 (2)10 I 7 (1)(1)(2)(1)Deductions Prepaid Energy Operating expenses Debt issue costs Total Balance at June 30, 2010--10,0o/- Juuu ISXOJ IZ.L. I I, ou 9,478 4,297 --13,775 (9,485) 5,037 4,448 ---- --2,520 -2,520 9,338 4,448 18,874 2,520 3,000 233,585 2,227 273,992-----233,569 -233,569 4,696 --4,696--2,201 2,201 4,696 ----233,569 2,201 240,466$ $ 4,642 $ 4,448 $ 18,874 $ 2,520 $ 3,000 $ 16 $ 26 $ 33,526 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $7 held in the revolving fund at June 30, 2010.99 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY LINDEN WIND ENERGY PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Revenue Fund Project Fund Cost of Issuance Total$ $ -$ -$Balance at June 30, 2009 Additions Investment earnings Discount on investments Distribution of investment earnings Bond Proceeds 2009A Other Total I 63 27 1 64 27 (1)Deductions Construction expenses Debt issue costs Total Balance at June 30, 2010 141,373 254 141,627 (631) 631 140,833 885 141,718 134,285 -134,285-867 867 134,285 867 135,152$ $ 6,548 $ 18 $ 6,566 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $6 held in the revolving fund at June 30, 2010.100 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN TRANSMISSION SYSTEM PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS 1IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Upgrade General Reserve Construction Fund Issue Fund Fund Operating Fund Revenue Fund Total$ 4,639 $ 88,417 $ 89,910 $ 7,093 $ -$ 190,059 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from transmission sales Distribution of revenue Other transfers Total Deductions Construction expenses Operating expenses Payment of principal Interest paid Arbitrage rebate Liquidity
& remarketing fees Debt issuance costs Total Balance at June 30, 2010 87 (87)2,839 91 (2,930)72,605 1,280 6 41 9 (50)3 4,250 106 84,672 3,067 84,672 (87,813)15,208 (71) --71 -72,534 1,286 15,208 89,028 45,382 13,894 30,585 46,205 45,382 13,894 30,585 46,205 17 877 17 877 10 --10-77,677 45,382 13,911 136,970$ 4,639 $ 83,274 $ 45,814 $ 8,390 $ $ 142,117 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $26 and $41 held in the revolving fund at June 30, 2010 and 2009, respectively.
101 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-PHOENIX PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Debt Service Reserve & Cost of Revenue Debt Service Reserve Operating Contingency Issuance Fund Account Account Fund Fund Surplus Fund Fund Total$ $ 3,012 $ 7,072 $ 212 $ 1,227 $ 2 $ -$ 11,525 Balance at June 30, 2009 Additions Investment earnings Discount on investment earnings Distribution of investment earnings Transmission revenue Distribution of revenues Other receipts Total 5 409 91 505 1.1 505 8,334 (8,840)(5) (409)8,157 (91)(797)8,334 1,112 (2) 370 Deductions Construction expenditures Operating expenses Principal payment Interest paid Debt issuance costs Total Balance at June 30,2010--568 -568 8,157 1,112 (229) (2) 370 9,408---278 -278--1,178 -1,178 2,870 --2,870 2,992 --2,992---360 360 5,862 -1,178 278 360 7,678$ $ 5,307$ 7,072$ 146 $ 720 $ $ 10$ 13,255 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $13 held in the revolving fund at June 30, 2010 and 2009.102 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-ADELANTO PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Cost of Debt Service Debt Service Operating Reserve & Revenue Issuance Account Reserve Fund Fund Contingency Fund Surplus Fund Fund Total$ 10,612 $ 22,066 $ 272 $ 6,384 $ -$ 4,829 $ S 44,163 Balance at June 30, 2009 Additions Investment earnings Discount on investment earnings Distribution of investment earnings Transmission revenue Other Bond Proceeds 2008A&B Total Deductions Principal payment Interest paid Remarketing
& Commitment Fee O&M, A&G expenses Total Balance at June 30, 2010 12 1,327 469 4 (16)(1,327)(469)1,819 4 3 (7)1,812 7--19,837 -19,837 23,581 1,681 4 (21,656) (4,828) 1,218 --5,060 -5,060 23,581 6 6,741 4 (4,828) 1,218 26,716 9,480 --9,480 9,224 -9,224-- 1,192 1,192 6,353 -6,353 18,704 -6,353 -1,192 26,249$ 15,489 S 22,066 $ 660 $ 6,388 $ $ 1 S 26 $ 44,630 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $13 held in the revolving fund at June 30, 2010 and 2009.103 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS PINEDALE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
General Reserve Revenue Fund Operating Fund Debt Service Fund Fund Project Fund Capital Fund Total$ -$ 12,926 $ 2,154 $ 47 $ 15,478 $ 23,218 $ 53,823 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Receipt from participants Sales of natural gas Distribution of revenues Other receipts Other transfer Total 151 2 3 (3)394 536 22 1,084 21 4 4 Deductions Construction expenditures Operating expenses Payment of principal Interest paid Total Balance at June 30, 2010 5,465 8,421 13,886 561 5,333 ---5,894-(5,939) 4,860 603 6,509 6,033 2 2 (6,030) 86 801 (801) -(5,944)8,054 5,661 196 7,069 20,980---11,402 11,402 12,433 --12,433-1,956 -1,956 1 1,955 6 1,962 12,434 3,911 -11,408 27,753$ $ 8,546 $ 3,904 $ 47 $ 15,674 $ 18,879 $ 47,050 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $41 held in the revolving fund at June 30, 2010 and 2009.104 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS BARNETT PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
General Reserve Revenue Fund Operating Fund Debt Service Fund Fund Project Fund Capital Fund Total$ $ 535 $ 6,980 $ 230 $ 46,322 $ (2,175) $ 51,892 Balance at June 30, 2009 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Receipt from participants Sales of Natural Gas Distribution of revenues Total I 2 8 2 (10)I 1,125 13 1 1,150 3 1 11 Deductions Construction expenditures Operating expenses Payment of principal Interest paid Total Balance at June 30, 2010 12,812 627 13,439 4,657 1,036 ---5,693 (17,481) 5,985 11,470 (121) -146 (1)7,650 11,470 (120) 1,125 160 20,285----2,508 2,508 6,109 --6,109-4,638 4,638-4,607 -4,607 6,109 9,245 2,508 17,862$ $ 2,076 $ 9,205 $ 110 $ 47,447 $ (4,523) $ 54,315 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in'the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $19 and $25 held in the revolving fund at June 30, 2010 and 2009, respectively.
105 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PREPAID NATURAL GAS PROJECT No. 1 SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Revenue Fund Operating Fund Debt Service Fund Project Fund Total$ -$ 10,014 $ 4,448 $ 24 $ 14,486 Balance at June 30, 2009 Additions Investment earnings Distribution of investment earnings Receipt from gas sales Distribution of revenues Commodity swap settlement Other receipts Total 1 484 12,556 (29,377)489 (484)4,698 307 797 12,556 1 24,704 (24)Deductions A & G expenses Payment of Principal Payment of interest Debt Issuance Cost Total Balance at June 30, 2010 16,336 --16,336-8 1,553 -1,561 4,711 26,564 (24) 31,251 450 --450-5,625 -5,625-18,642 18,642 191 -191 641 24,267 24,908$ $ 14,084 $ 6,745 $ $ 20,829 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss)on investments, and $16 and $22 held in the revolving fund at June 30, 2010 and 2009, respectively.
106 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MULTIPLE PROJECT FUND SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2010 (AMOUNTS IN THOUSANDS)
Balance at June 30, 2009 Additions Investment earnings Distribution of investment earnings Transfer for debt service payment Total Proceeds Debt Service Earnings Account Account Account Total$ 58,577 $ 10,445 $ 83 $ 69,105 4,230 838 -5,068 (4,230) 2,115 2,115 -(1,035) 3,233 (2,198) -(1,035) 6,186 (83) 5,068 3,389 -3,389 3,389 3,389$ 57,542 $ 13,242 $ $ 70,784 Deductions Interest paid Total Balance at June 30, 2010 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable.
107 V I X P- =M--G.LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Financial Statements and Required Supplementary Information June 30, 2010 and 2009 (With Independent Auditors' Report Thereon)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Table of Contents Page(s)Independent Auditors' Report 1-2 Management's Discussion and Analysis 3 -12 Financial Statements:
Balance Sheets 13-14 Statements of Revenues, Expenses, and Changes in Fund Net Assets 15 Statements of Cash Flows 16-17 Notes to Financial Statements 18-50 Required Supplementary Information 51 KPMG LLP Suite 700 20 Pacifica Irvine, CA 92618-3391 Independent Auditors' Report The Board of Water and Power Commissioners Department of Water and Power City of Los Angeles: We have audited the accompanying balance sheets of City of Los Angeles' Department of Water and Power Water Revenue Fund (Water System), an enterprise fund of the City of Los Angeles, California, as of June 30, 2010 and 2009, and the related statements of revenues, expenses, and changes in fund net assets and cash flows for the years then ended. These financial statements are the responsibility of the Los Angeles Department of Water and Power's (the Department) management.
Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Water System's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.As discussed in note 1, the financial statements of the Water System are intended to present the financial position, and the changes in financial position and, cash flows of only that portion of the business-type activities and each major fund of the City of Los Angeles, California that is attributable to the transactions of the Water System. They do not purport to, and do not, present fairly the financial position of the City of Los Angeles, California as of June 30, 2010 and 2009, the changes in its financial position or, where applicable, its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Water System as of June 30, 2010 and 2009, and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued our report dated December 20, 2010 on our consideration of the Water System's internal control on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative I KPMG International"), a Swiss entity.
on compliance.
That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.The management's discussion and analysis included on pages 3 through 12 and the schedules of funding progress for the pension plan and postemployment healthcare plan on page 51 are not a required part of the basic financial statements but are supplementary information required by U.S. generally accepted accounting principles.
We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.O LLP December 20, 2010 2 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 The following discussion and analysis of the financial performance of the City of Los Angeles' (the City)Department of Water and Power's (the Department)
Water Revenue Fund (Water System) provides an overview of the financial activities for the fiscal years ended June 30, 2010 and 2009. Descriptions and other details pertaining to the Water System are included in the notes to the financial statements.
This discussion and analysis should be read in conjunction with the Water System's financial statements, which begin on page 13.Using This Financial Report This annual financial report consists of the Water System's financial statements and required supplementary information and reflects the self-supporting activities of the Water System that are funded primarily through the sale of water to the public it serves.Balance Sheets, Statements of Revenues, Expenses, and Changes in Fund Net Assets, and Statements of Cash Flows The financial statements provide an indication of the Water System's financial health. The balance sheets include all of the Water System's assets and liabilities using the accrual basis of accounting, as well as an indication about which assets can be utilized for general purposes, and which assets are restricted as a result of bond covenants and other commitments.
The statements of revenues, expenses, and changes in fund net assets report all of the revenues and expenses during the time periods indicated.
The statements of cash flows report the cash provided and used by operating activities, as well as other cash sources and uses such as investment income and cash payments for bond principal and capital additions and betterments.
3 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 The following table summarizes the financial condition and changes in fund net assets of the Water System as of and for the fiscal years ended June 30, 2010, 2009, and 2008: Table 1 -Condensed Schedule of Assets, Liabilities, and Fund Net Assets (Amounts in millions)Assets Utility plant, net Investments Other noncurrent assets Current assets Liabilities and Fund Net Assets Long-term debt, net of current portion Other long-term liabilities Current liabilities Fund net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total fund net assets 2010$ 4,449 33 297 655$ 5,434 2,708 19 371 3,098 1,824 351 161 2,336 5,434 As of June 30 2009 4,098 33 258 447 4,836 2,193 14 361 2,568 1,893 309 66 2,268 4,836 2008 3,826 37 220 556 4,639 2,098 14 388 2,500 1,831 268 40 2,139 4,639 4 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Table 2 -Condensed Schedule of Revenues, Expenses, and Changes in Fund Net Assets (Amounts in millions)Operating revenues: Residential Multiple-dwelling units Commercial and industrial Other Total operating revenues Operating expenses: Purchased water Maintenance and other Depreciation and amortization Total operating expenses Operating income Nonoperating revenues (expense):
Investment income Other nonoperating revenue and expenses, net Debt expense Total nonoperating expense Income before capital contributions, and transfers Capital contributions Transfers from (to) the reserve fund of the City of Los Angeles Increase in fund net assets Beginning balance of fund net assets Ending balance of fund net assets 2010$ 315 253 193 51 812 (163)(421)(97)(681)131 12 5 (104)(87)Year ended June 30 2009 311 232 186 55 784 (216)(366)(83)(665)119 10 (1)(92)(83)2008 300 216 171 57 744 (189)(335)(76)(600)144 27 (99)(72)44 24 36 30 72 26 68 2,268$ 2,336 63 129 2,139 2,268 (33)65 2,074 2,139 Assets Utility Plant During fiscal years 2010 and 2009, the Water System placed in service asset additions and betterments in the amount of $506 million and $362 million, respectively.
In 2010, $176 million, or 35%, was capitalized for source of water supply primarily due to the additions and betterments in the Owens Lake Dust Control Project and improvements to canals and conduits.
The value of assets in distribution utility plant, such as structures, mains, 5 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 services, meters, and fire hydrants increased by $148 million. The remaining
$182 million, or 36%, additions included assets in the pumping stations, purification stations, and general plant facilities.
In 2009, $193 million, or 53%, was placed in service for distribution utility plant assets, such as structures, mains, services, meters, and fire hydrants.
The value of assets in the source of water supply increased by$79 million, or 22%, primarily due to the additions and betterments in the Owens Lake Dust Control Project and improvements to canals and conduits.
The remaining
$90 million, or 25%, additions included assets in the pumping stations, purification stations, and general plant facilities.
The Water System utility plant assets fall into five major categories:
source of water supply, pumping, purification, distribution, and general. Each category of assets is important to providing water services and has a specific purpose. Source of water supply assets are the assets that the Department has constructed and/or purchased to help ensure an adequate supply of water. The Department has four major sources of water. These include: " Los Angeles Aqueduct and Second Los Angeles Aqueduct supply imported water from the Owens Valley and the Mono Basin;" Local groundwater supply (with pumping rights in the San Fernando, Sylmar, and Central and West Coast Basins);* Purchased supply from Metropolitan Water District; and* Recycled water.All sources of water, except for recycled water, are supplied for potable use; that is, the water from these sources is of drinkable quality. Table 3 below shows the percentage of potable water delivered from the major sources.Table 3 -Sources of Potable Water Supplied During Fiscal Years 2010 and 2009 Fiscal year 2010 Fiscal year 2009 Millions of Millions of gallons Percentage gallons Percentage Source: Aqueduct 65,017 38% 35,221 18%Wells 21,966 13 19,987 10 Purchases 85,551 49 142,136 72 172,534 100% 197,344 100%Water storage during low demand, cold, or wet periods is essential for conservation to supply the extra water needed during warm weather or emergency situations.
The Water System's 108 tanks and reservoirs, ranging in size from 10 thousand to 60 billion gallons, have a current capacity of approximately 315,765 acre-feet, or 102.89 billion gallons. Eight aqueduct reservoirs provide 95% of the Water System's storage capacity; major and minor distribution reservoirs provide the remaining 5%.6 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Further information regarding the Water System's utility plant can be found in note 3 to the accompanying financial statements.
Liabilities and Fund Net Assets Long-Term Debt As of June 30, 2010, Water System's total outstanding long-term debt balance was approximately
$2.77 billion.This is an increase of $519.3 million over the prior year, resulting from the sale of $487.3 million in Water System revenue bonds and $43.5 million in loans from the California Department of Water Resources (CDWR), offset by scheduled maturities of $27.1 million.As of June 30, 2009, Water System's total outstanding long-term debt balance was approximately
$2.25 billion.This is an increase of $92 million over the prior year, resulting from the sale of $150 million in Water System revenue bonds, offset by scheduled maturities of $23.3 million and the current refunding of $34.4 million of Water System taxable bonds.Outstanding principal, plus scheduled interest and amortization as of June 30, 2010, is shown in the chart below: Chart: Debt Service Requirements
$900,000$800,000$700,000$600,000 U)D $500,000 C $400,000$300,000$200,000$100,000 2015~ ~ 200 22N03 00 24 2015 2020 2025 2030 Five-year period ending 2035 2040 2045 In November 2010, Standard & Poor's Rating Services, Moody's Investors Service, and Fitch Ratings affirmed the Water System's bond rating of AA, Aa2, and AA+, respectively.
Additional information regarding the Water System's long-term debt can be found in note 6.7 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Changes in Fund Net Assets Revenues The operating revenues of the Water System are generated from selling water to its customers.
The current water rate has two types of components, a base rate and adjustable rates, which are referred to as pass-through rates.The pass-through rates are in place to recover the cost of specific expenses.
These specific expenses include purchased water, water quality, reclaimed water, demand-side management (or conservation expense), water security, Owens Valley regulatory, and low-income subsidy credits. As a result of the inclusion of pass-through rates in the water rates, revenue can increase or decrease from one year to the next based on the Water System incurring greater or smaller expenses in these categories.
The Water System has five major customer categories.
These categories include residential, multiple-dwelling units, commercial, industrial, and other. Table 4 summarizes the percentage contribution of revenues from each customer category during fiscal years 2010 and 2009: Table 4 -Revenue and Percentage of Revenue by Customer Class (Amounts in thousands)
Fiscal year 2010 Fiscal year 2009 Revenue Percentage Revenue Percentage Type of customer: Residential Multiple-dwelling units Commercial Industrial Other$ 315,422 39% $ 310,649 40%253,019 31 232,530 30 160,931 20 151,574 19 32,389 4 34,644 4 50,599 6 54,567 7$ 812,360 100% $ 783,964 100%8 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Residential customers provided approximately 40% of the Water System's 2010 and 2009 revenue representing the largest class of customers.
As of June 30, 2010, the Water System had approximately 659,000 customers.
As shown in Table 5, 467,000, or 71%, of total customers were in the residential customer class as of June 30, 2010.Table 5 -Number of Customers and Percentage of Customers by Customer Class (Numbers in thousands)
Fiscal year 2010 Fiscal year 2009 Number Percentage Number Percentage Type of customer: Residential 467 71% 473 71%Multiple-dwelling units 121 18 122 18 Commercial 57 9 58 9 Industrial 6 1 6 1 Other 8 1 7 1 659 100% 666 100%During fiscal year 2010, operating revenues increased by $28.4 million, or 3.6%, from fiscal year 2009 revenues while sales of water decreased by 33.6 million hundred cubic feet. The decrease in sales is due to greater conservation requirements imposed on customers.
The increase in revenue is primarily due to the shortage year rates applied to Tier 2 usage, changes in other pass-through factor revenues, and the recording of the base revenue shortfall declared for fiscal year 2009 and 2010.During fiscal year 2009, operating revenues increased by $40 million, or 5%, from fiscal year 2008 revenues while sales of water decreased by 9.2 million hundred cubic feet. The decrease in sales is due to greater conservation requirements imposed on customers.
The increase in revenue is primarily due to an increase in purchased water expense of $33.6 million. The remaining
$6.4 million increase was due to various smaller changes in the base rate revenue offset by changes in other pass-through factor revenues.9 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Operating Expenses Purchased water expense is the single largest expense that the Water System incurs each fiscal year. Purchased water expense represents the cost of buying water, primarily from the Metropolitan Water District (MWD). For fiscal years 2010 and 2009, 49% and 72%, respectively, of the potable water supplied to the Water System's customers was purchased water. Table 6 summarizes the Water System's operating expenses for fiscal years 2010 and 2009: Table 6 -Operating Expenses and Percentage of Expense by Type of Expense (Amounts in thousands)
Fiscal year 2010 Fiscal year 2009 Expenses Percentage Expense Percentage Type of expense: Purchased water $ 163,248 24% $ 215,864 33%Other operating expenses 303,913 45 244,280 36 Maintenance 117,221 17 121,443 18 Depreciation and amortization 97,034 14 83,141 13$ 681,416 100% $ 664,728 100%Fiscal Year 2010 Fiscal year 2010 operating expenses were $17 million higher as compared to the prior year. The increase was due to an increase in other operating costs of $59.6 million and an increase in depreciation expense of $14 million, offset by a $57 million decrease in purchased water costs and maintenance expenses.
The increase in other operating expenses was attributed to higher demand side management, miscellaneous general expenses and employees' benefit costs. The decrease in purchase water costs was due to lower demand for water from customers and an 85% increase in the water supplied by the L.A. Aqueduct.Fiscal Year 2009 Fiscal year 2009 operating expenses were $65 million higher as compared to the prior year. The increase was due to increased purchased water costs of $27 million, an increase in other operating costs of $12 million, an increase in maintenance costs of $19 million, and an increase in depreciation expense of $7 million.The Water System purchased 5.0 billion more gallons of water during 2009. The increase was due to drier than normal weather conditions, resulting in increased demand for purchased water. These additional purchases caused purchased water costs to increase by $27 million over fiscal year 2008.Overall maintenance expense increase of $18 million mostly related to maintenance of mains, dams, reservoirs, wells, canals, and conduits.10 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Nonoperating Revenue and Expenses and Transfers Fiscal Year 2010 Fiscal year 2010 nonoperating revenues were $4.0 million higher as compared to the prior year while nonoperating expenses were $3.7 million lower as compared to the prior year. The higher nonoperating revenues can be attributed to the federal government interest payment subsidy for the Water System Revenue Bonds, 2009 Series C, Build America Bonds. The lower nonoperating expenses are attributed to lower interest credited to customers for deposits held by the Water System. The interest rate used to credit customer deposits was changed from 4.12% to 1.00%.Debt expenses increased
$12.0 million, and capital contributions decreased
$6.6 million.The increase in debt expense is attributed to the $15.3 million increase in interest expense related to the issuance of $487.3 million Water System Revenue Bonds during fiscal year 2010 offset by a $3.5 million increase in allowance for funds used during construction.
The $6.6 million decrease in capital contributions from fiscal year 2009 is due to the slowdown in economic activities and new business developments.
Fiscal Year 2009 The major nonoperating activities of the Water System for fiscal year 2009 included reversing the 2008 and 2007 transfers of $33.4 million and $29.9 million, respectively, to the reserve fund of the City of Los Angeles,$92.0 million. in debt expenses, net of allowance for funds used during construction of $2 million, and capital contributions of $30.6 million.The 2008 transfer of $33.4 million was rescinded by the Board of Commissioners in May 2009 based on the financial position of the Water System and the 2007 transfer was deemed illegal by the courts in July 2009. See further discussion in note 10(a) to the financial statements.
The decrease in debt expense is due to the defeasance of $34.4 million in variable rate debt during the year offset by the issuance of $150 million in new debt issued in February 2009. The variable rate bonds' daily and weekly rate range decreased from 1.60% to 2.60% as of June 30, 2008 to 0.23% to 0.30% as of June 30, 2009.Capital contributions increased
$5.0 million from fiscal year 2008 mostly due to donated properties.
I1I (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Management's Discussion and Analysis June 30, 2010 and 2009 Currently Known Facts, Decisions, or Conditions The July 1, 2010 actuarial study for the Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) noted the market value of the Plan's assets were approximately
$6.27 billion and the unfunded actuarial accrued liability was approximately
$1.6 billion. The Plan had unrecognized investment losses of $1.0 billion as of June 30, 2010. The Plan employs a five-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in "smoothed" assets that are lower or higher than the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. If the unrecognized investment losses were recognized immediately, required contributions to the Plan would increase from approximately 38.45% of covered payroll to 51.93% of covered payroll. Additionally, if the unrecognized investment losses were recognized immediately in the actuarial value of assets, the funded ratio of the Plan would decrease from 81% to 70%.12 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Balance Sheets June 30, 2010 and 2009 (Amounts in thousands)
Assets Noncurrent assets: Utility plant: Source of water supply Pumping Purification Distribution General Accumulated depreciation Construction work in progress Investments Net pension asset Net postemployment asset Total noncurrent assets 2010 1,126,461 244,219 474,219 3,413,047 500,958 5,758,904 (1,912,058) 3,846,846 601,790 4,448,636 32,680 50,935 246,286 4,778,537 170,685 260,790 5,027 104,208 64,049 21,470 29,073 655,302 5,433,839 2009 950,808 236,492 341,783 3,270,387 463,219 5,262,689 (1,816,457) 3,446,232 651,538 4,097,770 32,678 48,407 209,737 4,388,592 120,375 143,334 79,727 11,707 52,726 18,293 20,918 447,080 4,835,672 Current assets: Cash and cash equivalents
-unrestricted Cash and cash equivalents
-restricted Cash collateral received from securities lending transactions Customer and other accounts receivable, net of $5,500 and $5,000 allowance for losses for 2010 and 2009, respectively Under recovered costs Accrued unbilled revenue Materials and supplies Prepayments and other current assets Total current assets Total assets (Continued) 13 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Balance Sheets June 30, 2010 and 2009 (Amounts in thousands)
Fund Net Assets and Liabilities 2010 2009 Fund net assets: Invested in capital asset, net of related debt Restricted:
Debt service Other postemployment benefits Pension benefits Other purposes Unrestricted Total fund net assets Long-term debt, net of current portion Other noncurrent liabilities:
Accrued workers' compensation claims Total other noncurrent liabilities Current liabilities:
Current portion of long-term debt Accounts payable and accrued expenses Due to Power System Accrued employee expenses Accrued interest Obligations under securities lending transactions Over recovered costs Customer deposits Total current liabilities Total liabilities Total fund net assets and liabilities
$ 1,824,212 31,220 246,286 50,935 22,167 160,831 2,335,651 2,708,150 18,916 18,916 63,018 107,895 7,276 43,822 60,595 5,027 15,946 67,543 371,122 3,098,188$ 5,433,839 1,892,944 30,012 209,737 48,407 21,169 66,080 2,268,349 2,193,338 13,474 13,474 58,512 132,822 9,903 39,752 45,065 74,457 360,511 2,567,323 4,835,672 See accompanying notes to financial statements.
14 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Statements of Revenue, Expenses, and Changes in Fund Net Assets Years ended June 30, 2010 and 2009 (Amounts in thousands)
Operating revenues: Residential Multiple dwelling units Commercial and industrial Other Uncollectible accounts Operating expenses: Purchased water Maintenance and other operating expenses Depreciation and amortization Operating income Nonoperating revenues (expenses):
Investment income Other nonoperating income Other nonoperating expenses 2010$ 315,422 253,019 193,320 56,571 (5,972)812,360 163,248 421,134 97,034 681,416 130,944 11,848 6,831 18,679 (2,458)16,221 109,483 (5,521)103,962 43,203 24,099 67,302 2,268,349$ 2,335,651 2009 310,649 232,530 186,218 59,520 (4,953)783,964 215,864 365,723 83,141 664,728 119,236 9,657 5,043 14,700 (6,107)8,593 93,975 (2,008)91,967 35,862 30,603 63,356 129,821 2,138,528 2,268,349 Debt expenses: Interest on debt Allowance for funds used during construction Income before capital contributions and transfers Capital contributions Transfer from the reserve fund of the City of Los Angeles Increase in fund net assets Fund net assets: Beginning of period End of period See accompanying notes to financial statements.
15 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Statements of Cash Flows Years ended June 30, 2010 and 2009 (Amounts in thousands)
Cash flows from operating activities:
Cash receipts: Cash receipts from customers Cash receipts from customers for other agency services Cash receipts from interfund services provided Other cash receipts Cash disbursements:
Cash payment to employees Cash payment to suppliers Cash payment for interfund services used Cash payment to other agencies for fees collected Other cash payments Total cash flows provided by operating activities Cash flows from capital and related financing activities:
Additions to plant and equipment Capital contributions Principal payments and maturities on long-term debt Proceeds from issuance of bonds Proceeds from California Department of Water Resources loan Payment of California Department of Water Resources loan Debt interest payments Total cash flows used for capital and related financing activities Cash flows from investing activities:
Purchases of investment securities Sale of investment securities Investment income Total cash flows provided by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents:
Cash and cash equivalents at July 1 (including
$143,334 and $252,231 reported in restricted accounts, respectively)
Cash and cash equivalents at June 30 (including
$260,790 and $143,334 reported in restricted accounts, respectively) 2010 830,160 472,190 353,531 (247,862)(367,568)(410,893)(473,539)(3,975)152,044 (442,087)23,807 (25,281)500,002 43,471 (802)(94,388)4,722 (143,330)143,330 11,000 11,000 167,766 263,709$ 431,475 2009 785,372 476,868 342,015 4,633 (233,591)(365,248)(343,272)(477,059)189,718 (301,738)17,897 (57,630)150,676 (784)(90,353)(281,932)(73,913)77,804 13,265 17,156 (75,058)338,767 263,709 16 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Statements of Cash Flows Years ended June 30, 2010 and 2009 (Amounts in thousands)
Reconciliation of operating income to net cash provided by operating activities:
Operating income Adjustments to reconcile operating income to net cash provided by operating activities:
Depreciation and amortization Provision for losses on customer and other receivables Changes in assets and liabilities:
Customer and other accounts receivable Accrued unbilled revenue Overrecovered costs Due from Power System Due to Power System Materials and supplies Net pension asset Accounts payable and accrued expenses for operating Prepayment and other current assets Net postemployment asset Accrued employee expenses Under-over recovered costs Accrued workers' compensation claims and other Net cash provided by operating activities Supplemental disclosure of noncash capital and related financing activity: Capital contributions 2010$ 130,944 97,034 5,972 (29,606)(11,323)11,707 (2,627)(3,177)(2,528)(24,927)(5,794)(36,549)4,070 15,946 2,902$ 152,044 2009 119,236 83,141 4,953 (8,536)8,947 (11,707)18,450 9,903 (3,346)(2,576)15,912 (34,985)6,131 (15,528)(277)189,718 (12,112)$(292)See accompanying notes to financial statements.
17 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (1) Summary of Significant Accounting Policies The Department of Water and Power of the City of Los Angeles (the Department) exists as a separate proprietary department of the City of Los Angeles (the City) under and by virtue of the City Charter enacted in 1925 and as revised effective July 2000. The Department's Water Revenue Fund (Water System) is responsible for the procurement, quality, and distribution of water for sale in the City. The Water System is operated as an enterprise fund of the City.(a) Method of Accounting The accounting records of the Water System are maintained in accordance with U.S. generally accepted accounting principles (GAAP) for governmental entities.
The financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting.
The Water System is accounted for as an enterprise fund and applies all applicable Governmental Accounting Standards Board (GASB) pronouncements in its accounting and reporting.
In addition, the Water System follows Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements.
The Department's rates are determined by the Board of Water and Power Commissioners (the Board) and are subject to review and approval by the City Council. As a regulated enterprise, the Department utilizes Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71), which requires that the effects of the rate-making process be recorded in the financial statements.
Such effects primarily concern the time at which various items enter into the determination of changes in fund net assets. Accordingly, the Water System records various regulatory assets and liabilities to reflect the Board's actions.Management believes that the Water System meets the criteria for continued application of SFAS No. 71, but will continue to evaluate its applicability based on changes in the regulatory and competitive environment.(b) Use of Estimates The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.(c) Utility Plant The costs of additions to utility plant and replacements of retired units of property are capitalized.
Costs include labor, materials, an allowance for funds used during construction (AFUDC), and allocated indirect charges such as engineering, supervision, transportation and construction equipment, retirement plan contributions, healthcare costs, and certain administrative and general expenses.
The costs of maintenance, repairs, and minor replacements are charged to the appropriate operations and maintenance expense accounts.18 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (d) Impairment of Long-Lived Assets The Department follows GASB No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (GASB No. 42). Governments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred.
A capital asset is considered impaired when its service utility has declined significantly and unexpectedly.
Under GASB No. 42, impaired capital assets that will no longer be used by the government should be reported at the lower of carrying value or fair value. Impairment losses on capital assets that will continue to be used by the government should be measured using the method that best reflects the diminished service utility of the capital asset.(e) Depreciation and Amortization Depreciation expense is computed using the straight-line method based on service lives. The Department uses the composite method of depreciation and, therefore, groups assets into composite groups for purposes of calculating depreciation expense. Estimated service lives range from 5 to 70 years. Amortization expense for computer software is computed using the straight-line method over 5 years. Depreciation and amortization expense as a percentage of average depreciable utility plant in service was 1.8% and 1.7% for fiscal years ended June 30, 2010 and 2009, respectively.
(9 Cash and Cash Equivalents As provided for by the State of California Government Code (the Code), the Water System's cash is deposited with the City Treasurer in the City's general investment pool for the purpose of maximizing interest earnings through pooled investment activities.
Cash and cash equivalents in the City's general investment pool are reported at fair value, and changes in unrealized gains and losses are recorded in the statements of revenues, expenses, and changes in fund net assets. Interest earned on such pooled investments is allocated to the participating funds based on each fund's average daily cash balance during the allocation period. The City Treasurer invests available funds of the City and its independent operating departments on a combined basis. The Water System classifies all cash and cash equivalents that are restricted either by creditors, the Board, or by law as restricted cash and cash equivalents on the balance sheets. The Water System considers its portion of pooled investments in the City's pool to be cash and cash equivalents.
At June 30, 2010 and 2009, restricted cash and cash equivalents include the following (amounts in thousands):
June 30 2010 2009 Bond redemption and interest funds $ 91,879 75,142 Construction funds 146,744 47,024 Self-insurance fund 22,167 21,168$ 260,790 143,334 19 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (g) Materials and Supplies Materials and supplies are recorded at average cost.(h) Investments The Water System's investments consist of investments held in the Water Expense Stabilization Fund to stabilize water rates. Such investments include U.S. government and governmental agency securities.
Investments are reported at fair value, and changes in unrealized gains and losses are recorded in the statement of revenues, expenses, and changes in fund net assets. The stated fair value of investments is generally based on published market prices or quotations from major investment dealers.(i) Accrued Employee Expenses Accrued employee expenses include accrued payroll and an estimated liability for vacation leave, sick leave, and compensatory time, which is accrued when employees earn the rights to the benefits.Below is a schedule of accrued employee expenses as of June 30, 2010 and 2009: June30 2010 2009 Type of expense: Accrued payroll $ 9,868 7,816 Accrued vacation 23,170 21,771 Accrued sick time 5,772 5,401 Compensatory time 5,012 4,764 Total $ 43,822 39,752 (]) Debt Expenses Debt premium, discount, and issue expenses are deferred and amortized to debt expense using the effective-interest method over the lives of the related debt issues. Gains and losses on refundings related to bonds redeemed by proceeds from the issuance of new bonds are amortized to debt expense using the effective-interest method over the shorter of the life of the new bonds or the remaining term of the bonds refunded.(k) Accrued Workers' Compensation Claims Liabilities for unpaid workers' compensation claims are recorded at their net present value.(1) Accrued Unbilled Revenue Accrued unbilled revenue is the receivable for estimated water sales during the period at the base rate for which the customer has not been billed.20 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (in) Customer Deposits Customer deposits represent deposits collected from customers upon opening new accounts.
These deposits are obtained when the customer does not have a previously established credit history with the Department.
Original deposits plus interest are paid to the customer once a satisfactory payment history is maintained, generally after one to three years.The Water System is responsible for collection, maintenance, and refunding of these deposits for all Department customers, including those of the Power System. As such, the Water System's balance sheets include a deposit liability of $68 million and $74 million as of June 30, 2010 and 2009, respectively, for all customer deposits collected.(n) Revenues The Water System's rates are established by a rate ordinance, which is approved by the City Council.The Water System sells water to other City departments at rates provided in the ordinance.
The Water System recognizes water costs in the period incurred and accrues for estimated water sold but not yet billed.Revenues consist of billings to customers for water consumption at rates specified in the water rate ordinance.
These rates include a cost adjustment factor that provides the Water System with full recovery of purchased water costs. The Water System is also authorized to collect approved demand-side management, water reclamation, a portion of the operation and maintenance costs related to the pumping of in-City groundwater, water quality improvement expenditures, and water security costs. Management estimates these costs to establish the cost recovery component of customer billings and any difference between billed and actual costs is adjusted in subsequent billings.
This difference is reflected as $15.9 million of over recovered costs on the balance sheet as of June 30, 2010, and $11.7 million of under recovered costs on the balance sheet as of June 30, 2009.During fiscal years 2010 and 2009, the Water System also incurred costs of $181 million and$117 million, respectively, related to water quality improvement projects in excess of billing limits.Since the rates charged to customers are insufficient to recover all of these specific costs, the capital portion of these costs has not been recorded as underrecovered costs and is funded through the issuance of debt.(o) Current Rate Ordinance A conservation-based water rate ordinance has been in effect since February 16, 1993 with periodic amendments approved by the City Council. The last amendment was approved in April 2008 and was effective July 1, 2008. The ordinance incorporates marginal cost pricing through a two-tiered rate structure' The upper block rate is established at the estimated marginal cost for water. The lower block rate is established to generate the revenue required for efficient operations.
As a result of concerns expressed about the rate structure's impact on larger volume single-family residential customers, the first-tier allowances were revised effective June 1, 1995. The revisions established five lot size 21 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 categories and three temperature zones (as the basis for the first-tier usage blocks for each category).
Extra units (one unit equals 100 cubic feet or 748 gallons) at the first-tier rate are available based on household sizes. The rates also reflect equity considerations for water-intensive businesses, large turf customers, and other customers having high seasonal variation in their water usage. Fixed monthly service availability charges apply only to private fire service.The Water System's rate ordinance contains a water procurement adjustment factor, a water quality improvement adjustment factor, a water security adjustment factor, an Owens Valley regulatory adjustment factor, and a low-income subsidy adjustment factor. The water procurement adjustment factor under which the cost of purchased water, including water purchased from the Metropolitan Water District (MWD), demand-side management programs, reclaimed water projects, and the operation and maintenance costs required to operate the in-City groundwater and booster pumping, is recovered by direct adjustments to customers' bills. The water quality improvement adjustment factor recovers expenditures to upgrade and equalize water quality throughout the City and to construct facilities to meet state and federal water quality standards, including the payment of debt service on bonds issued for such purposes.
The water security adjustment factor recovers expenditures to secure and protect the water supply, storage, conveyance infrastructure, and related facilities.
The Owens Valley regulatory adjustment factor recovers expenditures to operate and maintain infrastructure and related facilities for the Owens Lake Dust Mitigation Project and the Lower Owens River Project. The low-income subsidy adjustment factor recovers the cost of credits provided to lifeline and low-income customers.
The ordinance currently limits to $0.50 per billing unit the recovery of combined expenditures for the demand-side management and water reclamation components of the water procurement factor, water quality improvement, and water security.The Water System's rate ordinance also contains a revenue adjustment mechanism in the form of a surcharge that is designed to assure a minimum level of base rate revenue each fiscal year. The annual revenue target for years since June 30, 2002 was $294 million. This amount is adjusted annually for increases in interest expense and shall not exceed $325 million per fiscal year; provided, however, the annual revenue target limit of $325 million shall be increased in proportion to any increases in the commodity charge. The revenue adjustment factor becomes effective upon a determination by the Board that the surcharge is needed. The rate ordinance limits the surcharge to$0.18 per billing unit, unless a higher amount is approved by the Board and the City Council.Due to drought conditions in California over the past several years and cutbacks in the allocation of water supply to municipalities by the Metropolitan Water Districts, the Department found that water conservation was urgently needed. As a result, the Board approved a resolution declaring a 15%shortage year. Effective June 1, 2009, shortage year rates were applied to all Department customers.
Under the shortage year rates, the amount of water LADWP customers are able to purchase at the Tier 1 rate was reduced by 15%. Shortage year rates will remain in effect until the Board determines they are no longer necessary.
22 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Operating revenues are revenues generally derived from activities that are billable in accordance with the water rate ordinance established by the City Council. Other types of revenues are generally considered nonoperating.(p) Capital Contributions Capital contributions and other grants received by the Department for constructing utility plant and other activities are recognized as nonoperating revenues when all applicable eligibility requirements, including time requirements, are met., (q) Allowance for Funds Used during Construction Allowance for funds used during construction represents the cost of borrowed funds used for the construction of utility plant. Capitalized AFUDC is included as part of the cost of utility plant and as a reduction of debt expenses.
The average AFUDC rates used by the Water System were 4.3% and 3.8% for fiscal years 2010 and 2009, respectively.(r) Use of Restricted and Unrestricted Resources The Water System's policy is to use unrestricted resources prior to restricted resources to meet expenses to the extent that it is prudent from an operational perspective.
Once it is not prudent, restricted resources will be utilized to meet intended obligations.
(2) Recent Accounting Pronouncements (a) GASB Statement No. 49 In fiscal year 2009, the Department adopted GASB Statement No. 49, Accounting and Financial Reporting for Pollution and Remediation Obligations (GASB No. 49). This statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups.The scope of the statement excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as landfill closure and postclosure care and nuclear power plant decommissioning.
Prior to adopting this statement, the Department followed Statement of Position 96-1, Environmental Remediation Liabilities.
The Water System has identified underground storage tanks that require remediation work and is working with the Los Angeles Regional Water Quality Control Board, and the Lahontan Regional Quality Control Board which have jurisdiction over these sites. The Water System's estimated liability for these sites is approximately
$3 million and includes remediation and ongoing operation and maintenance costs where estimable.
There are no estimated recoveries.
This liability is recorded as part of the Water System's accrued expenses.
There was no impact to net assets as of July 1, 2008 as a result of implementation of this pronouncement.
23 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (b) GASB Statement No. 51 In June 2007, the GASB issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB No. 51). This statement establishes accounting and financial reporting standards for intangible assets. Intangible assets include, but are not limited to, easements, water rights, timber rights, patents, trademarks, and computer software.
The Department adopted GASB No. 51 effective July 1, 2009. There was no impact to net assets as of July 1, 2009 as a result of implementation of this pronouncement.(c) GASB Statement No. 53 In June 2008, the GASB issued Statement No. 53, Accounting and Financial Reporting for Derivative Instruments (GASB No. 53). This statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments.
This statement is effective for the Department beginning fiscal year 2010. The Water System does not have any derivative instruments, and therefore, there was no financial statement impact from the adoption of this new statement.
24 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (3) Utility Plant The Water System had the following activity in utility plant during fiscal year 2010 (amounts in thousands):
Nondepreciable utility plant: Land and land rights Construction work in progress Total nondepreciable utility plant Depreciable utility plant: Source of water supply Pumping Purification Distribution General Balance, July 1, 2009$ 109,317 651,538 760,855 863,577 234,394 340,879 3,255,985 458,536 5,153,371 (179,574)(96,004)(133,587)(1,166,387)
(240,904)(1,816,456)
Additions 472 330,677 331,149 491 5,121 13,214 72,584 34,088 125,498 (21,664)(4,321)(8,829)(52,105)(18,862)Retirements and disposals Transfers (380,425)(380,425)Balance, June 30, 2010 109,789 601,790 711,579 1,039,231 242,120 472,845 3,398,644 496,275 5,649,115-- 175,163 2,605 118,752 (5,544) 75,619 (4,635) 8,286 Total depreciable utility plant (10,179)380,425 Accumulated depreciation:
Source of water supply Pumping Purification Distribution General-(201,238)-(100,325)-- (142,416)-(1,212,948)
-(255,131)5,544 4,635 Total accumulated depreciation Total utility plant, net (105,781) 10,179 (1,912,058) 4,448,636$ 4,097,770 350,866 -Depreciation and amortization expense during fiscal year 2010 was $97.0 million.Land and land rights are included in the balance sheet as utility plant assets in their functional category.25 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The Water System had the following activity in utility plant during fiscal year 2009 (amounts in thousands):
Nondepreciable utility plant: Land and land rights Construction work in progress Total nondepreciable utility plant Depreciable utility plant: Source of water supply Pumping Purification Distribution General Total depreciable utility plant Accumulated depreciation:
Source of water supply Pumping Purification Distribution General Total accumulated depreciation Total utility plant, net Balance, July 1, 2008$ 108,344 636,620 744,964 784,846 204,210 308,064 3,075,107 431,270 4,803,497 (163,784)(92,188)(126,444)(1,114,731)
(225,339)(1,722,486)
Additions 973 183,407 Retirements and disposals Transfers Balance, June 30, 2009--- 109,317-(168,489) 651,538 184,380 14,034 21,721 26,593 115,691 15,813 193,852 (15,790)(3,816)(7,143)(63,396)(16,292)(106,437)(168,489)64,697 8,463 6,222 76,927 12,180 168,489 (11,740)(727)(12,467)760,855 863,577 234,394 340,879 3,255,985 458,536 5,153,371 (179,574)(96,004)(133,587)(1,166,387)
(240,904)(1,816,456) 11,740 727 12,467$ 3,825,975 271,795--- 4,097,770 Depreciation and amortization expense during fiscal year 2009 was $83.1 million.Land and land rights are included in the balance sheet as utility plant assets in their functional category.26 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (4) Cash, Cash Equivalents, and Investments (a) Investments A summary of the Water System's investments is as follows (amounts in thousands):
Description Investments:
Water Expense Stabilization Fund Total June 30 2010 2009$ 32,680$ 32,680 32,678 32,678 All investments are to be used for a designated purpose as follows: i. Water Expense Stabilization Fund The Water Expense Stabilization Fund was established under the Master Bond Resolution and can be withdrawn upon and applied to any lawful purpose in connection with the Water System.As of June 30, 2010, the Water System's investments and their maturities are as follows (amounts in thousands):
Investment maturities 1 tO 30 31 to 0 Oto ibt 365 days to Type of investments Fair value U.S. government agencies $ 23,637 Commercial paper 5,498 Negotiable CDs 2,040 Bankers' acceptances 1,499 Money market funds 6$ 32,680 days days days 5 years 2,999 6 3,005 1,000 2,040 1,000 4,040 1,499 499 1,998 23,637 23,637 27 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 As of June 30, 2009, the Water System's investments and their maturities are as follows (amounts in thousands):
Investment maturities 1 to 30 31 to 60 61 to 365 Type of investments Fair value days days days U.S. government agencies $ 23,997 11,000 9,998 2,999 Commercial paper 2,999 2,000 -999 Negotiable CDs 3,000 2,000 -1,000 Money market funds 2,682 2,682 -- --32,678 17,682 9,998 4,998 Interest Rate Risk The Department's investment policy limits the maturity of its investments to a maximum of 30 years for U.S. government agency securities; 270 days for commercial paper; 397 days for negotiable certificates of deposit; and 180 days for bankers' acceptances.
iii. Credit Risk Under its investment policy and the Code, the Department is subject to the prudent investor standard of care in managing all aspects of its portfolios.
The prudent investor standard requires that the Department "shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency." The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government.
As of June 30, 2010 and 2009, the U.S. government agency securities in the portfolio carried the highest possible credit ratings by the Nationally Recognized Statistical Rating Organizations (NRSROs) that rated them.The Department's investment policy specifies that commercial paper must be of the highest ranking or of the highest letter and number rating as provided for by at least two NRSROs. As of June 30, 2010 and 2009, all of the Water System's investments in commercial paper were rated with at least the highest letter and number rating as provided by at least two NRSROs.The Department's investment policy specifies that municipal obligations, which may include commercial paper, issued by California local agencies must be rated in a rating category of"A" or its equivalent or better by a NRSRO. As of June 30, 2010, all of the Water System's investments in municipal commercial paper were rated with at least the highest letter and number rating as provided by at least two NRSROs.28 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The Department's investment policy specifies that negotiable certificates of deposit must be of the highest ranking or letter and number rating as provided for by at least two NRSROs. As of June 30, 2010 and 2009, all of the Water System's investments in negotiable certificates of deposit were rated with at least the highest letter and number rating as provided by at least two NRSROs.The Department's investment policy specifies that bankers' acceptances must be of the highest ranking or letter and number rating as provided for by at least two NRSROs. As of June 30, 2010, all of the Water System's investments in bankers' acceptances were rated with the highest letter and number rating as provided by three NRSROs.The Department's investment policy specifies that money market funds may be purchased as allowed under the Code, which requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two NRSROs or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience managing money market mutual funds with assets under management in excess of five hundred million dollars. As of June 30, 2010 and 2009, the money market fund in the portfolio had attained the highest possible ratings by three NRSROs, specifically AAAm by Standard and Poor's (S&P), Aaa by Moody's Investors Service (Moody's), and AAA by Fitch Ratings.iv. Concentration of Credit Risk The Department's investment policy specifies that there is no percentage limitation on the amount that can be invested in U.S. government agency securities, except that a maximum of 30% of the cost value of the portfolio may be invested in the securities of any single U.S. government agency issuer.Of the Water System's total investments as of June 30, 2010, $8,040,099 (25%) was invested in securities issued by the Federal Home Loan Mortgage Corporation;
$8,004,515 (24%) was invested in securities issued by the Federal National Mortgage Association; and $7,592,281 (23%) was invested in securities issued by the Federal Home Loan Bank.Of the Water System's total investments as of June 30, 2009, $8,000,000 (24%) was invested in securities issued by the Federal Home Loan Bank; $7,999,000 (24%) was invested in securities issued by the Federal National Mortgage Association; and $7,998,100 (24%) was invested in securities issued by the Federal Home Loan Mortgage Corporation.(b) Pooled Investments The Water System's cash, cash equivalents, and its collateral value of the City's securities lending program (SLP) are included within the City Treasury's general and special investment pool (the Pool). As of June 30, 2010 and 2009, the Water System's share of the City's general and special investment pool was $436,502,000 and $263,709,000, which represents approximately 5.9% and 4.7% of the Pool, respectively.
29 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The cash balances of substantially all funds on deposit in the City Treasury are pooled and invested by the City Treasurer for the purpose of maximizing interest earnings through pooled investment activities but safety and liquidity still take precedence over return. Interest earned on pooled investments is allocated to the participating funds based on each fund's average daily deposit balance during the allocation period with all remaining Interest allocated to the General Fund. Investments in the City Treasury are stated at fair value based on quoted market prices except for money market investments that have remaining maturities of one year or less at time of purchase, which are reported at amortized cost.Pursuant to California Government Code Section 53607 and the Los Angeles City Council File No. 94-2160, the City Treasury shall render to the City Council a Statement of Investment Policy (the Policy) annually.
City Council File No. 09-3050 was adopted on January 27, 2010 as the City's investment policy for calendar year 2010. The Policy governs the City's pooled Investment practices.
The Policy addresses soundness of financial institutions in which the Treasurer will deposit funds and types of investment instruments permitted by California Government Code Sections 53600-53635 and 16429.1.Examples of investments permitted by the Policy are obligations of the U.S. Treasury and government agencies, commercial paper notes, certificates of deposit placement service, banker's acceptances, medium-term notes, mutual funds, money market mutual funds, and the State of California Local Agency Investment Fund.At June 30, 2010, the investments held in the City Treasury's General and Special Investment Pool Programs and their maturities are as follows (in thousands):
Investment maturities 1 to 30 31 to 60 61 to 365 366 Days Type of Investments Amount Days Days Days to 6 years U.S. Treasury notes S 1,977,346
---1,977,346 U.S. Treasury bills 1,002,601 474,965 288,831 238,805 -U.S. Sponsored Agency Issues 2,830,258 474,135 590,834 693,595 1,071,694 Medium-term notes 735,133 --20,036 715,097 Commercial paper 594,181 322,519 117,918 153,744 -Certificates of deposit 9,000 --9,000 Short-Term Investment Funds 41,770 41,770 ---Securities Lending Cash Collateral U.S. Treasury notes 54,031 ---54,031 U.S. Sponsored Agency Issues 111,068 ---111,068 Total general and special pools S 7,355,388 1,313,389 997,583 1,115,180 3,929,236 Interest Rate Risk: The Policy limits the maturity of its Investments to a maximum of five years for the U.S. Treasury and government agency securities, medium-term notes, CD placement service, collateralized bank deposits, mortgage pass-through securities, and bank/time deposits; one year for repurchase agreements; 270 days for commercial paper; 180 days for bankers' acceptances, and 92 days for reverse repurchase agreements.
30 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Credit Risk: The Policy establishes minimum credit ratings requirement for investments.
There is no credit quality requirement for local agency bonds, U.S. Treasury Obligations, State of California Obligations, California Local Agency Obligations, and U.S. Agencies (U.S. government-sponsored.
enterprises) securities in the Policy. The City's $2.83 billion investments in U.S. government-sponsored enterprises consist of securities issued by the Federal Home Loan Bank -$887.3 million, Federal National Mortgage Association
-$763.7 million, Federal Home loan Mortgage Corporation
-$476.2 million, Federal Farm Credit Bank -$164.1 million, Tennessee Valley Authority
-$38.5 million, and Freddie Mac -$500.5 million. Of the City's $2.83 billion investments in U.S. agencies securities, $1,041.8 million are rated "AAA" by S&P and "Aaa" by Moody's: $1,788.5 million are not rated by the NRSRO, but have an implied highest rating in the market.Medium-term notes must be issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Medium-term notes must have at least an "A" rating. The City's $735.1 million investments in medium-term notes consist of securities issued by banks and corporations that comply with these requirements and were rated "A" or better by S&P and "A3" or better by Moody's.Commercial paper issues must have a minimum of "A-I" or equivalent rating. If the issuer has issued long-term debt, it must be rated "A" without regard to modifiers.
Issuing corporation must be organized and operating within the United States and have assets in excess of $500 million. The City's $594.2 million investments in commercial paper comply with these requirements and were rated A-I+/A-1 by S&P and P-1 by Moody's.The issuers of the certificates of deposit were not rated.Concentration of Credit Risk: The Policy does not allow more than 40% of its investment portfolio be invested in commercial paper and bankers' acceptances, 30% in certificates of deposit and medium-term notes, 20% in mutual funds and money market mutual funds, and mortgage pass-through securities.
The Policy further provides for a maximum concentration limit of 10% in any one issuer of commercial paper as well as in any one mutual fund, and 30% in bankers'acceptances of any one commercial bank. There is no percentage limitation on the amount that can be invested in the U.S. government agencies.
The City's pooled investments comply with these requirements.
GAAP requires disclosure of certain investments in any one issuer that represent 5%or more of total investments.
Of the City's total pooled investments as of June 30, 2010,$887.3 million (12%) was invested in securities issued by the Federal Home Loan Bank,$476.2 million (6%) was invested in securities issued by Federal Home Loan Mortgage Corporation,$763.7 million (10%) was invested in securities issued by Federal National Mortgage Association, and $500.5 million (7%) was invested in securities issued by Freddie Mac.31 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 At June 30, 2009, the investments held in the City Treasury's general and special investment pool programs and their maturities are as follows (in thousands):
Investment maturities 1 to 30 31 to 60 61 to 365 366 days Type of investments Amount days days days to 5 years U.S. Treasury notes $ 1,613,049
---1,613,049 U.S. Treasury bills 44,984 -44,984 --U.S. sponsored agency issues 1,428,909 164,842 82,201 182,052 999,814 Medium term notes 1,047,781
-25,153 125,866 896,762 Commercial paper 1,348,312 992,287 235,582 120,443 -Guaranteed investment contracts 70,081 70,081 --Certificates of deposit 9,000 --9,000 Short-term investment funds 3 3 ---Total general and special pools $ 5,562,119 1,227,213 387,920 437,361 3,509,625 Interest Rate Risk. The City's pooled investment policy limits the maturity of its investment to a maximum of five years for U.S. Treasury and federal agency securities, medium term corporate notes, and bonds issued by local agencies; 270 days for commercial paper, and 32 days for repurchase agreements.
Credit Risk. The City's pooled investment policy requires that for all classes of investment, except linked banking program certificates of deposits, the issuers' minimum credit ratings shall be Standard and Poor's Corporation (S&P) A-I/A or Moody's Investor Services (Moody's)
P-l/A2 and, if available, Fitch IBCA Fl/A. In addition, domestic banks are limited to those with a current Fitch Ratings Bank Watch of "B/C" or better and an A-1 short-term rating. The City Treasurer is granted the authority to specify approved California banks with Fitch Rating Bank Watch of "C" of better and an A-2 rating where appropriate.
In addition to a "AAA" rating for country risk, foreign banks with domestic licensed offices must be rated "B" or better and TBW-i short-term rating by Fitch Rating Bank Watch. Domestic savings better must be rated "B/C" or better and a TBW-i short-term rating by Fitch Ratings Bank Watch.Medium term notes must be issued by corporations operating within the United States and having total assets in excess of $500 million. Commercial paper issuers must meet the preceding requirement or must be issued by corporations organized in the United States as a special purpose corporation, trust or limited liability company having program-wide credit enhancements.
At June 30, 2009, the City's $1.43 billion investment in U.S. government sponsored enterprises consist of securities issued by the Federal Home Loan Bank -$472.7 million, Federal National Mortgage Association
-$272.4 million, Federal Home Loan Mortgage Corporation
-$398.9 million, Federal Farm Credit Bank -$126.0 million, Tennessee Valley Authority
-$37.1 million, Freddie Mac Discount Note -$69.3 million, and Farmer Mac Federal Agricultural
-32 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009$52.6 million, As of June 30, 2009, these securities carried the highest ratings of AAA (S&P) and Aaa (Moody's).
The City's $1.05 billion investments in medium-term notes consist of securities issued by banks and corporations that comply with the requirements discussed above and were rated "A" or better by S&P and "A3" or better by Moody's.The City's $1.35 billion investments in commercial paper comply with the requirements discussed above and were rated A-I+A-1 by S&P and P-1 by Moody's.The issuers of the certificates of deposits are not rated.(5) Securities Lending Transactions The Water System participates in a securities lending program. As of June 30, 2010 and 2009, amounts held in the City of Los Angeles Program are as follows (collateral amounts in thousands):
June 30 Program 2010 2009 City of Los Angeles Program $ 5,027 (a) Department Program The Department's securities lending program is managed by its custodial bank. The bank lends up to 20% of the investments held in the Water System's plan assets held in the Water Expense Stabilization Fund for securities, cash collateral, or letters of credit equal to 102% of the fair value of the loaned securities and interest, if any. The Department can sell securities received as collateral only in the event of borrower default. Both the investments purchased with the collateral received and the related liability to repay the collateral are reported on the balance sheets.The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during fiscal years 2010 and 2009.Management participates in the securities lending programs to maximize earnings from investments and believes that participation in these securities lending programs results in minimal credit risk exposure to the Department because the amounts owed to the borrowers exceed the amounts that are on loan.(b) General In vestment Pool Program The Water System also participates in the City's securities lending program through the pooled investment fund. The City's program has substantially the same terms as the Department's direct securities lending program. The Department recognizes its proportionate share of the cash collateral received for securities loaned and the related obligation for the general investment pool. Securities lending is permitted and limited under provisions of California Government Code Section 53601.33 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The City Council approved the Securities Lending Program (the SLP) on October 22, 1991 under Council File No. 91-1860, which complies with the California Government Code. The objectives of the SLP in priority order are: safety of loaned securities and prudent investment of cash collateral to enhance revenue from the investment program. The SLP is governed by a separate policy and guidelines.
The City's custodial bank acts as the securities lending agent. In the event a counterparty defaults by reason of an act of insolvency, the bank shall take all actions which it deems necessary or appropriate to liquidate permitted investment and collateral in connection with such transaction and shall make a reasonable effort for two business days (Replacement Period) to apply the proceeds thereof to the purchase of securities identical to the loaned securities not returned.
If during the Replacement Period the collateral liquidation proceeds are insufficient to replace any of the loaned securities not returned, the bank shall, subject to payment by the City of the amount of any losses on any permitted investments, pay such additional amounts as necessary to make such replacement.
Under the provisions of the SLP, and in accordance with the California Government Code, no more than 20% of the market value of the General Investment Pool is available for lending. The City receives cash as collateral on loaned securities, which is reinvested in securities permitted under the Policy, In accordance with the California Government Code, the securities lending agent marks to market the value of both the collateral and the reinvestments daily. Except for open loans where either party can terminate a lending contract on demand, term loans have a maximum life of 92 days.Earnings from securities lending accrue to the Pool and are allocated on a pro-rata basis to all Pool participants.
The City's SLP that was temporarily suspended in November 2008 due to the extreme volatility in the financial markets was resumed on April 22, 2010, At June 30, 2010, the assets and liabilities arising from the reinvested cash collateral were recognized in the respective participants' financial statements.
During the fiscal year 2010, collateralizations on all loaned securities were compliant with the required 102% of the market value. The City can sell collateral securities only in the event of borrower default. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during the year. There was no credit risk exposure to the City because the amounts owed to the borrowers exceeded the amounts borrowed.
Loaned securities are held by the City's agents in the City's name and are not subject to custodial credit risk.At June 30, 2010 and 2009, the assets and liabilities arising from the reinvested cash collateral were recognized in the respective participants' financial statements.
During the fiscal year, collateralizations on all loaned securities were within the required 102% of market value. The City can sell collateral securities only in the event of borrower default. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during the year. There was no credit risk exposure to the City as of June 30, 2009 because the amounts owed to the borrowers exceeded the amounts borrowed.
Loaned securities are held by the City's agents in the City's name and are not subject to custodial credit risk.34 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (6) Long-Term Debt Long-term debt outstanding as of June 30, 2010 and 2009 consists of revenue bonds and refunding revenue bonds due serially in varying annual amounts,'
and other long-term debt, as follows (amounts in thousands):
Fiscal year of last Effective Bond issues Date of issue interest scheduled Principal outstanding rate maturity 2010 2009 Revenue bonds: Issue of 2001, Series A Issue of 2001, Series B Issue of 2001, Series C Issue of 2003, Series A Issue of 2003, Series B Issue of 2004, Series C Issue of 2006, Series Al Issue of 2006, Series A2 Issue of 2007, Series Al Issue of 2007, Series A2 Issue of 2009, Series A Issue of 2009, Series B Issue of 2009, Series C 02/01/01 02/28/01 11/15/01 01/07/03 03/06/03 07/29/04 02/07/06 02/07/06 06/26/07 06/26/07 02/04/09 12/03/09 12/03/09 5.245%Variable 4.788 5.083 4.014 4.902 4.600 4.650 4.764 4.909 5.118 3.252 3.844 2042 2036 2017 2044 2031 2034 2041 2036 2038 2044 2039 2021 2040$ 291,165 325,000 2,274 300,000 128,165 200,000 222,245 241,085 93,815 197,450 150,000 141,200 346,090 2,638,489 294,395 325,000 2,307 300,000 136,975 200,000 232,960 241,085 96,315 197,450 150,000 2,176,487 6,331 Total principal amount Unamortized premiums, discounts, and debt-related costs (including net loss on refundings)
Debt due within one year (including current portion of variable rate debt)Other long-term debt: Loans payable to California Department of Water Resources (CDWR)Amount due within one year 20,977 (58,290) (57,755)2,601,176 2,125,063 12/27/01 06/28/07 09/11/07 06/28/07 2.320 2.600 2.452 2.292 2024 2030 2030 2030 12,853 25,336 34,829 38,684 (4,728)106,974$ 2,708,150 13,655 20,549 34;828 (757)68,275 2,193,338 Revenue bonds generally are callable 10 years after issuance.
The Department has agreed to certain covenants with respect to bonded indebtedness.
Significant covenants include the requirement that Water System's net income, as defined, will be sufficient to pay certain amounts of future annual bond interest 35 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 and of future annual aggregate bond interest and principal maturities.
Revenue bonds and refunding bonds are collateralized by the future revenues of the Water System.(a) Long-Term Debt Activity Water System had the following activity in long-term debt during fiscal year 2010 (amounts in thousands):
Balance, Balance, Current July 1, 2009 Additions Reductions June 30, 2010 portion Revenue bonds $ 2,182,818 502,906 (26,258) 2,659,466 58,290 Loan from CDWR 69,032 43,471 (801) 111,702 4,728 Total $ 2,251,850 546,377 (27,059) 2,771,168 63,018 Balance, Balance, Current July 1, 2008 Additions Reductions June 30, 2009 portion Revenue bonds $ 2,087,754 151,492 (56,428) 2,182,818 57,755 Loan from CDWR 69,816 -- (784) 69,032 757 Total $ 2,157,570 151,492 (57,212) 2,251,850 58,512 (b) New Issuances i Fiscal Year 2010 In December 2009, the Water System issued $141.20 million and $346.09 million of Water System Revenue Bonds, 2009 Series B and 2009 Series C, respectively.
The net proceeds of$156.08 million (net of issue premium and underwriter's discount of $14.88 million) and$343.92 million (net of underwriter's discount of $2.17 million) from the 2009 Series B and 2009 Series C transactions, respectively, were deposited into the construction fund to be used for capital improvements.
Water 2009, Series C Bonds, designated as "Build America Bonds" under the American Recovery and Reinvestment Act of 2009 has an average life of 20.16 years and an average coupon rate of 5.867%. The reported 3.844% effective interest rate is net of the premium, underwriter's discount and the cash subsidy payments to be received by the Department directly from the United States Treasury equal to 35% of the interest payable on the bonds.In June 2007, the Department entered into a loan agreement with CDWR. The loan agreement allows a total maximum loan of $38.7 million, at a fixed interest rate of 2.29%. In March 2010, the Department received the full $38.7 million under the agreement.
The proceeds are being used to fund water quality capital improvements.
The Water System is required to begin making principal payments under this agreement beginning in October 2010.36 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 ii Fiscal Year 2009 In February 2009, the Water System issued $150 million of Water System Revenue Bonds, 2009 Series A. The net proceeds of $150.7 million from the transaction, net of $700,000 issue premium and underwriters' discount, were deposited into the construction fund to be used for capital improvements.(c) Outstanding Debt Defeased The Water System defeased certain revenue bonds in prior years by placing cash or the proceeds of new revenue bonds in irrevocable trusts to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in Water System's financial statements.
At June 30, 2010, the following revenue bonds outstanding are considered defeased (amounts in thousands):
Principal Bond issues outstanding Issue of 1998 R $ 72,690 (d) Variable Rate Bonds The variable rate bonds currently bear interest at daily and weekly rates ranging from 0.24% to 0.26% as of June 30, 2010 and 0.23% to 0.30% as of June 30, 2009. The Department can elect to change the interest rate period of the bonds, with certain limitations.
The bondholders have the right to tender the bonds to the tender agent on any business day with seven days' prior notice. The Department has entered into standby agreements with a syndicate of commercial banks in an initial amount of $225 million, and $100 million to provide liquidity for these bonds. The initial and extended standby agreements expire in February 2012 and October 2013, respectively.
The bonds that would be issued under the standby agreements would bear interest that is payable quarterly at the greater of (a) 8.00% per annum, (b) Fed Funds plus 2.50% per annum, (c) the Prime Rate plus 2.50% per annum, and (d) 150% of the yield on actively traded 30-year United States Treasury Bonds. The unpaid principal of bonds is payable in 10 equal semiannual installments, commencing after the termination of the agreement.
At its discretion, the Department has the ability to convert the outstanding bonds to fixed-rate obligations, which cannot be tendered by the bondholders.
The variable rate bonds have been classified as long-term on the balance sheets as the liquidity facilities give the Department the ability to refinance on a long-term basis and the Department intends to either renew the facilities or exercise its right to tender the debt as a long-term financing.
That portion, which would be due in the next fiscal year in the event that the outstanding variable rate bonds were tendered and purchased by the commercial banks under the standby agreements, has been included in the current portion of long-term debt and remains unchanged at $32.5 million as of June 30, 2010 and 2009.37 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (e) Scheduled Principal Maturities and Interest Scheduled annual principal maturities and interest are as follows (amounts in thousands):
Fiscal years ending June 30: 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2045 Total requirements Principal$ 30,503 28,969 34,060 34,454 37,352 254,620 316,141 393,292 491,275 624,140 505,385$ 2,750,191 Interest and amortization 126,845 125,613 124,116 122,593 121,050 576,974 515,368 431,407 332,274 195,635 47,740 2,719,615 The maturity schedule presented above reflects the scheduled debt service requirements for all of the Water System's long-term debt. The schedule is presented assuming that the tender options on the variable rate bonds, as discussed on the previous page, will not be exercised.
Should the bondholders exercise the tender options, the Water System could be required to redeem the $325 million in variable rate bonds outstanding over the next six fiscal years as follows: $32.5 million in fiscal year 2011, $65 million in each of the fiscal years 2012 through 2015, and $32.5 million in fiscal year 2016. Accordingly, the balance sheets recognize the possibility of the exercise of the tender options and reflect the $32.5 million that could be due in fiscal year 2011 as a current portion of long-term debt payable.Interest and amortization presented in the above schedule include interest requirements for the variable rate debt over the regularly scheduled maturity period at the interest rate in effect at June 30, 2010 of 0.21% for tax-exempt bonds. Should the tender options be exercised, the interest would be payable at the rate in effect at the time the standby agreements are activated.
(7) Retirement, Disability, and Death Benefit Insurance Plan The Department has a funded contributory retirement, disability, and death benefit insurance plan covering substantially all of its employees.
The Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) operates as a single-employer defined benefit plan to provide pension benefits to eligible Department employees and to provide disability and death benefits from the respective insurance funds. Plan benefits are generally based on years of service, age at retirement, and the employee's highest 12 consecutive months of salary before retirement.
Active participants who joined the plan on or after June 1, 1984 are required to contribute 6% of their annual covered payroll. Participants 38 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 who joined the plan prior to June 1, 1984 contribute an amount based upon an entry-age percentage rate.The Department contributes
$1.10 for each $1.00 contributed by participants plus an actuarially determined annual required contribution (ARC) as determined by the Plan's independent actuary. The required contributions are allocated between the Water System and the Power System based on the current year labor costs.The Retirement Board of Administration (the Retirement Board) is the administrator of the Plan. The Plan is subject to provisions of the Charter of the City of Los Angeles and the regulations and instructions of the Board. The Plan is an independent pension trust fund of the City.Plan amendments must be approved by both the Retirement Board and the Board. The Plan issues separately available financial statements on an annual basis. Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 N. Hope Street, Room 357, Los Angeles, CA 90012.The annual pension cost (APC) and net pension asset for the Department's Plan consist of the following (amounts in thousands):
Annual required contribution Interest on net pension asset Adjustment to annual required contribution APC (including
$68.0 million and $44.3 million of amounts capitalized in fiscal years 2010 and 2009, respectively)
Department contributions Change in net pension asset Net pension asset at beginning of year Net pension asset at end of year Year ended June 30 2010 2009 210,341 143,698 (11,113) (11,175)16,559 16,652 215,787 (201,002)14,785 (119,051)$ (104,266)149,175 (144,916)4,259 (123,310)(119,051)39 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The Water System's allocated share of the Plan's APC and net pension asset consists of the following (amounts in thousands):
Annual required contribution Interest on net pension asset Adjustment to annual required contribution APC (including
$29.7 million and $19.2 million of amounts capitalized in fiscal years 2010 and 2009, respectively)
Department contributions Change in net pension asset Net pension asset at beginning of year Net pension asset at end of year Year ended June 30 2010 2009 67,309 45,983 (3,556) (3,576)5,299 5,329 69,052 (71,580)(2,528)(48,407)(50,935)47,736 (50,312)(2,576)(45,831)(48,407)ARCs are determined through actuarial valuations using the entry-age normal actuarial cost method. The actuarial value of assets in excess of the Department's actuarial accrued liability (AAL) is being amortized by level contribution offsets over rolling 15-year periods effective July 1, 2000.In accordance with actuarial valuations, the Department's required contribution rates are as follows: Fiscal year Deficit Contribution Normal cost amortization rate 12.94% 12.18 26.12%12.68 6.82 20.28 2010 2009 The significant actuarial assumptions include an investment rate of return of 8.00%, projected inflation-adjusted salary increases of 4.25%, and postemployment benefit increases of 3.00%. The actuarial value of assets is determined using techniques that smooth the effects of short-term volatility in the market value of investments over a five-year period. Plan assets consist primarily of corporate and government bonds, common stocks, mortgage-backed securities, and short-term investments.
40 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Trend information for fiscal years 2010, 2009, and 2008 for the Water System is as follows (amounts in thousands):
Non-Profit Percentage Organization of APC (asset) contribution APC Year ended June 30: 2010 $ (50,935) 104% $ 69,052 2009 (48,407) 105 47,736 2008 (45,831) 100 47,967 (a) Disability and Death Benefits The Water System's allocated share of disability and death benefit plan costs and administrative expenses totaled $8.4 million and $8.7 million for fiscal years 2010 and 2009, respectively.(b) Funded Status and Funding Progress As of July 1, 2009, the Department's actuarial value of assets was $7.2 billion and AAL for benefits was $8.1 billion resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $808.3 million.The covered payroll (annual payroll of active employees covered by the Plan) was $805.1 million, and the ratio of the UAAL to the covered payroll was 100%.As of July 1, 2008, the Department's actuarial value of assets was $7.2 billion and AAL for benefits was $7.6 billion resulting in a UAAL of $371.2 million. The covered payroll (annual payroll of active employees covered by the Plan) was $708.7 million, and the ratio of the UAAL to the covered payroll was 52%.Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the salary increases.
Amounts determined regarding the funded status of the Plan and the ARCs of the Department are subject to continual revision as actual results are compared with past expectations and new estimates are made for the future. The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.(c) Current Status of Plan The July 1, 2010 actuarial study for the Plan noted the market value of the Plan's assets were approximately
$6.27 billion and the UAAL was approximately
$1.65 billion. The Plan had unrecognized investment losses of $1.0 billion as of June 30, 2010. The Plan employs a five-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in "smoothed" assets that are lower or higher than the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. If the 41 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 unrecognized investments losses were recognized immediately, required contributions to the Plan would increase from approximately 38.45% of covered payroll to 51.93% of covered payroll.Additionally, if the unrecognized investment losses were recognized immediately in the actuarial value of assets, the funded ratio of the Plan would decrease from 81% to 70%.(8) Other Postemployment Benefit (Healthcare)
Plan (a) Plan Description The Department provides certain healthcare benefits to active and retired employees and their dependents.
The healthcare plan is administered by the Department.
The Retirement Board and the Board have the authority to approve provisions and obligations.
Eligibility for benefits for retired employees is dependent on a combination of age and service of the participants pursuant to a predetermined formula. Any changes to these provisions must be approved by the Retirement Board and the Board. The total number of active and retired Department participants entitled to receive benefits was approximately 16,701 and 16,170 for the fiscal years ended June 30, 2010 and 2009, respectively.
The health plan is a single-employer defined benefit plan. During fiscal year 2007, the Retiree Health Benefits Fund (the Fund) was created to fund the postemployment benefits of the Department.
The Fund is administered as a trust and has its own financial statements.
Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 N. Hope Street, Room 357, Los Angeles, CA 90012.(b) Funding Policy The Department pays a monthly maximum subsidy of $1,195 for medical and dental premiums depending on the employee's work location and benefits earned. Participants choosing plans with a cost in excess of the subsidy they are entitled to are required to pay the difference.
Although no formal funding policy has been established for the future benefits to be provided under this plan, the Department has made significant contributions into the Fund. In fiscal year 2010, the Department transferred
$100 million into the Fund and paid an additional
$60.5 million in retiree medical premiums.
In fiscal year 2009, the Department transferred
$100 million in cash into the Fund and paid an additional
$59.2 million in retiree medical premiums.
The Water System's portion of these amounts was $51.4 million and $51.0 million for 2010 and 2009, respectively.(c) Annual Other Post Employment Benefits Cost and Net (OPEB) Obligation The annual OPEB cost (expense) is calculated based on the ARC of the employer, an amount actuarially determined in accordance with the parameters of GASB No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost under each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.42 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The following table shows the components of the Department's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the net other postretirement benefit asset (amounts in thousands):
Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Contributions made Change in net OPEB asset Net OPEB asset -beginning of year Net OPEB asset -end of year Year ended June 30 2010 2009 58,503 60,976 (54,996) (46,027)42,893 35,089 46,400 50,038 (160,460)(114,060)(665,698)(779,758)(159,522)(109,484)(556,214)(665,698)The following table shows the components of the Water System's share in annual OPEB cost for the year, the amount actually paid in premiums, and changes in the net OPEB asset (amounts in thousands):
Year ended June 30 Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB costs Contributions made Change in net OPEB asset Net OPEB asset -beginning of year Net OPEB asset -end of year 2010$ 18,721 (17,599)13,725 14,847 (51,396)(36,549)(209,737)$ (246,286)2009 19,512 (14,729)11,229 16,012 (50,997)(34,985)(174,752)(209,737)43 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 The Department's annual OPEB costs, the percentage of annual required contribution contributed to the Plan, and the net postemployment obligation for fiscal years 2010, 2009, and 2008 were as follows (amounts in thousands):
2010 2009 2008 Annual OPEB costs $ 46,400 50,038 31,077 Percentage of the ARC contributed 346% 319% 504%Net postemployment asset $ 779,758 665,698 556,214 The Water System's share in the annual OPEB costs, the percentage of annual required contribution contributed to the Plan, and the net postretirement obligation for fiscal years 2010, 2009, and 2008 were as follows (amounts in thousands):
2010 2009 2008 Annual OPEB costs $ 14,847 16,012 9,945 Percentage of the ARC contributed 346% 318% 503%Net postemployment asset $ 246,286 209,737 174,752 (d) Funded Status and Funding Progress As of July 1, 2009, the Department's actuarial value of assets was $850 million, and AAL for benefits was $1.4 billion, resulting in a UAAL of $541 million. The covered payroll (annual payroll of active employees covered by the Plan) was $805.1 million, and the ratio of the UAAL to the covered payroll was 67%.As of July 1, 2008, the Department's actuarial value of assets was $719.6 million, and AAL for benefits was $1.4 billion, resulting in a UAAL of $638 million. The covered payroll (annual payroll of active employees covered by the Plan) was $708.7 million, and the ratio of the UAAL to the covered payroll was 90%.Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the Department are subject to continual revision as actual results are compared with past expectations and new estimates are made for the future. The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.(e) Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the Department 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 44 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Department and the 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 AAL and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2009 actuarial valuation, the entry-age normal cost method was used. The actuarial assumptions include 8.00% discount rate, which represents the expected long-term return on plan assets, and an annual healthcare cost trend rate of 9.00% initially, reduced by decrements to an ultimate rate of 5.00% after eight years. Both rates include a 3.75% inflation assumption.
The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a 26-year period.In the July 1, 2008 actuarial valuation, the entry-age normal cost method was used. The actuarial assumptions include 8.00% discount rate, which represents the expected long-term return on plan assets, and an annual healthcare cost trend rate of 9.00% initially, reduced by decrements to an ultimate rate of 5.00% after eight years. Both rates include a 3.75% inflation assumption.
The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a 27-year period.(9) Other Long-Term Liabilities In addition to long-term debt, the Water System had the following other long-term liabilities:
Accrued Workers' Compensation Claims Liabilities for unpaid workers' compensation claims are recorded at their net present value when they are probable of occurrence and the amount can be reasonably estimated.
The liability is actuarially determined, based on an estimate of the present value of the claims outstanding and an amount for claim-events incurred but not reported based upon the Department's loss experience, less the amount of claims and settlements paid to date. The discount rate used to calculate this liability at its present value was 4% at June 30, 2010 and 2009. The Department has third-party insurance coverage for workers' compensation claims over $1 million.Overall indicated reserves for workers' compensation claims, for both the Water System and the Power System, undiscounted, have increased from $53 million as of June 30, 2009 to $69.7 million as of June 30, 2010. This increase is mainly attributable to an increase in the number of open cases filed at the Department.
The decrease in the June 30, 2009 liability was due to a downward trend in the number of cases filed at the Department and the utility industry.
As the claims typically take longer than one year to settle and close out, the entire discounted liability is shown as long-term on the balance sheets as of June 30, 2010 and 2009.45 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 Changes in the Department's undiscounted liability since June 30, 2008 are summarized as follows (amounts in thousands):
Year ended June 30 2010 2009 2008 Balance at beginning of year $ 53,037 57,757 49,669 Current year claims and changes in estimates 34,771 15,053 28,238 Payments applied (18,116) (19,773) (20,150)Balance at end of year , $ 69,692 53,037 57,757 The Water System's portion of the discounted reserves as of June 30, 2010 and 2009 is $18.9 million and$13.5 million, respectively.
(10) Commitments and Contingencies (a) Transfers to the Reserve Fund of the City of Los Angeles In prior fiscal years, under the provisions of the City Charter, the Board authorized transfers of funds from the Water System to the reserve fund of the City. Such transfers were made at the Board's discretion.
Pursuant to covenants contained in the bond indentures, the transfers could not be in excess of the increase in fund net assets before transfers to the reserve fund of the City of the prior fiscal year. Such payments were not in lieu of taxes and were recorded as a transfer in the statements of revenues, expenses, and changes in fund net assets.As of June 30, 2008, the Water System had a liability due to the reserve fund of the City of Los Angeles of $63.3 million consisting of a transfer declared in fiscal year 2007 of $29.9 million and a transfer declared in fiscal year 2008 of $33.4 million. Both transfers had been conditioned by ordinance to be effective only upon a final judgment rendered in a validation lawsuit or other legal action proceeding by a court of competent jurisdiction.
The 2007 transfer was presented and approved by City Council in 2008, but the 2008 transfer was not presented to City Council for consideration.
Because of changes in the Water System's financial position and the lack of action taken by the City Council, in May 2009, the Board rescinded the 2008 transfer of $33.4 million and reversed the respective liability.
In July 2009, the Department received a final judgment on the 2007 transfer.
The court declared the 2007 Water System transfer illegal based on Proposition 218 and allowed the Water System to retain the $29.9 million and use it for water-related activities.
As a result of the court decision, the 2007 transfer liability was also reversed.(b) Operating Lease The Water System utilizes an advanced wastewater treatment facility owned by the Water System but is operated by and located on property leased by a separate department of the City. The use of this facility is accounted for as an operating lease. During fiscal year 2010, the Water System spent 46 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 approximately
$2.1 million to operate and maintain this asset. There are no minimum rental payments that the Department has to make. However, the Water System is obligated to reimburse the other City department for the department's operating and maintenance costs to operate the facility, estimated to be about $2.3 million per year, for a term of 25 years. The Water System will also pay additional amounts to the other City department, if revenues generated by the Water System exceed the costs of operation and maintenance as defined by the agreement.
The Water System does not expect to pay such additional amounts as it does not expect that a net operating profit will be achieved based on current demand for recycled water.(c) Surface Water Treatment Rule The State of California Surface Water Treatment Rule (SWTR) imposed increased filtration requirements at any open distribution reservoir exposed to surface water runoff. The Department had four major reservoirs in its system subject to SWTR: Upper and Lower Hollywood, Lower Stone Canyon, and Encino. To comply with SWTR, the Department designed projects to remove these reservoirs from regular service through construction of larger pipelines and alternate covered storage facilities.
The Hollywood Water Quality Improvement Project was completed in July 2002. Upper and Lower Hollywood Reservoirs were removed from service and functionally replaced by two 30 million gallon tanks and additional pipelines.
Construction of the Encino project was completed in December 2007. Construction of the Lower Stone Canyon Water Quality Improvement Project was completed in November 2008. The Department is now in compliance with the SWTR.(d) Stage 2 Disinfectants and Disinfection Byproduct Rule In January 2006, the Environmental Protection Agency (EPA) published the Stage 2 Disinfectants and Disinfection Byproduct Rule (Stage 2 DBP Rule) in the federal register.
The Stage 2 DBP Rule strengthens public health protection for customers by tightening compliance monitoring.
requirements for two groups of disinfection byproducts, trihalomethanes (TTHM), and haloacetic acids (HAA5). Disinfection Byproducts (DBPs) form when naturally occurring materials in water (e.g., decomposing plant material) combine with chemicals added to disinfect the water. DBPs are associated with cancer.In order to comply with the requirements of the Stage 2 DBP Rule, the Department must change its primary disinfectant from chlorine to chloramines, a less reactive disinfectant, by April 1, 2014. In order to convert to chloramines, the Department is proposing the construction of several chloramination stations, ammoniation stations, and the installation of mixers in tanks and reservoirs.
The cost of Stage 2 DBP compliance-related engineering studies and construction activities on the remaining 10 projects is expected to be approximately
$202 million at completion.
The actual expenditures to date are $97 million.(e) Long-Term 2 Enhanced Surface Water Treatment Rule In January 2006, the EPA published the Long-Term 2 Enhanced Surface Water Treatment Rule (LT2) in the federal register.
The LT2 builds upon the Safe Drinking Water Act and other earlier 47 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 water quality rules to strengthen protection against microbial contaminants, especially Cryptosporidium.
Cryptosporidium is a significant concern in drinking water because it contaminates most watersheds used for the collection of drinking water and can cause gastrointestinal illness. The Department has six reservoirs in its system subject to LT2: Ivanhoe, Silver Lake, Elysian, Upper Stone Canyon, Santa Ynez, and Los Angeles. In order to comply with the requirements of the LT2, the Department is proposing to cover, bypass, or build alternate covered storage for the aforementioned reservoirs and to install additional pipelines and related facilities.
All these projects are in different stages of planning, design, and construction.
The cost of LT2 compliance-related engineering studies and construction activities is expected to reach $1.5 billion at completion in 2026. The actual cost spent to date has been $167 million.I0) Owens Lake During 1997, the Great Basin Unified Air Pollution Control District (the District) adopted an initial State Implementation Plan, as amended, and an implementing order requiring the Department to initiate pollution control measures to control particulate matter emitting from the Owens Dry Lake bed. The Department disputed the remediation measures imposed by the original order; however, in July 1998, the Department and the District entered into a Memorandum of Agreement (MOA) to mitigate the dust problem. The MOA delineated the dust-producing areas on the lakebed that needed to be controlled, specified what measures must be used to control the dust, and specified a timetable for implementation of the control measures.
The MOA called for phased implementation to permit the effectiveness of the control measures to be evaluated and modifications to be made as the control measures were being installed.
The MOA was incorporated into a formal air quality State Implementation Plan (SIP) by the District.This SIP was approved by the EPA on October 4, 1999. The District revised and adopted the SIP in November 2003. The revised SIP defines the additional boundaries and areas required to be controlled on the lakebed. The Department was allowed to examine the District's methodology to determine the additional areas to be controlled.
As a result of those efforts, the District ordered in the revised SIP that 29.8 square miles required control including the areas the Department agreed to and completed.
The revised SIP demonstrated that upon completion of the Department's work, emissions from Owens Lake bed should be reduced so that the Owens Valley Planning Area would attain and maintain the Federal Clean Air Act ambient air quality standards for particulate matter. The Federal Clean Air Act requires that Owens Lake meet ambient air quality standards by the end of 2006.The MOA specified that the Department must choose from among three control measures the District has certified as Best Available Control Measures for Owens Lake. The three measures are Shallow Flooding, Managed Vegetation, and Gravel. The first phase of dust control implementation, completed in December 2001, consists of 13.5 square miles of Shallow Flooding.
Shallow Flooding involves flooding the area to be controlled until either it is inundated with a few inches of water or the soil becomes thoroughly saturated to the surface with water. The second phase of dust control implementation, completed in July 2002, consists of about four square miles of Managed Vegetation.
Managed Vegetation involves growing native vegetative cover that will hold the shifting and emissive lakebed in place, locking up the dust. The third and fourth phases of dust control implementation, completed in March 2003 and September 2005, respectively, consist of a total of 48 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June,30, 2010 and 2009 5.6 square miles of additional Shallow Flooding.
The fifth phase completed the remainder of the required 29.8 square miles of dust control in December 2006 with Shallow Flooding.The total capital-related costs of implementing the 29.8 square miles of dust control measures through 2008 are approximately
$413 million.In November 2006, the Department and the District entered into an agreement to settle their disputes arising from supplemental dust control measures proposed to be ordered upon the Department by the District (Settlement Agreement).
The Settlement Agreement largely defines the Department's activities moving forward in terms of new dust control measure development and air quality regulatory and research activities.
The essence of the agreement calls for the City to construct 12.7 square miles of dust control measures by April 2010, 9.2 square miles must be Shallow Flooding and the remaining 3.5 square miles can be of the City's own choosing, including a new low to zero water using method called moat and row. Following a successful demonstration project, the Department moved forward with plans to implement moat and row on 3.5 square miles. In turn, the agreement allows for new opportunities for water savings and a marked improvement as to how the Department will be regulated in the future.The District issued a new revised SIP in February 2008 that included an order to control the additional dust control areas agreed to in the Settlement Agreement.
The Department completed construction of 9.2 square miles of shallow flooding at a cost of $120 million in April 2010. The Department is now diverting up to 95,000 acre feet per year of water from the Los Angeles Aqueduct for dust mitigation activities on Owens Lake. Due to concerns expressed by the California State Lands Commission and the California Department of Fish and Game, construction of moat and row on 3.5 square miles was delayed with a new required completion date of October 1, 2010 in order to conduct additional environmental analysis.
This additional environmental analysis was completed in August 2009. However, the California State Lands Commission would only issue a lease for 0.4 square miles leaving 3.1 square miles unmitigated.
The Department is working with the District to develop an alternative dust control solution for the remaining 3.1 square miles. Additionally, on September 7, 2010, the Department completed a Mitigated Negative Declaration for Phase 8 of the Owens Lake Dust Mitigation Program for construction of 2 square miles of Gravel Cover, a District-approved waterless dust control measure.(g) Litigation A number of claims and suits are pending against the Department for alleged damages to persons and property and for other alleged liabilities arising out of its operations.
In the opinion of management, any ultimate liability, which may arise from these actions, is not expected to materially impact the Water System's financial position, changes in fund net assets, or cash flows as of June 30, 2010 and 2009.49 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Notes to the Financial Statements June 30, 2010 and 2009 (h) Risk Management The Water System is subject to certain business risks common to the utility industry.
The majority of these risks are mitigated by external insurance coverage obtained by the Water System. For other significant business risks, however, the Water System has elected to self-insure.
Management believes that exposure to loss arising out of self-insured business risks will not materially impact the Water System's financial position, changes in fund net assets, or cash flows as of June 30, 2010.(i) Credit Risk Financial instruments, which potentially expose the Water System to concentrations of credit risk, consist primarily of retail receivables.
The Water System's retail customer base is concentrated among commercial, industrial, residential, and governmental customers located within the City.Although the Water System is directly affected by the City's economy, management does not believe significant credit risk exists at June 30, 2010, except as provided in the allowance for losses. The Water System manages its credit exposure by requiring credit enhancements from certain customers and through procedures designed to identify and monitor credit risk.50 LOS ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM Required Supplementary Information (Unaudited)
June 30, 2010 Pension Plan -Schedule of Funding Progress The following schedule provides information about the Department's overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands):
Actuarial valuation date July 1 Actuarial value of assets Actuarial accrued liability (AAL)8,893,618 8,057,061 7,619,103 Unfunded AAL (UAAL)1,649,189 808,340 371,250 Funded Covered ratio payroll UAAL as a percentage of covered payroll 193%100%52%2010 2009 2008$ 7,244,430 7,248,721 7,247,853 81% $90 95 856,090 805,138 708,732 Postemployment Healthcare Plan -Schedule of Funding Progress The following schedule provides information about the Department's overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands):
Actuarial valuation date July 1 2010 2009 2008 Actuarial value of assets$ 987,476 849,955 719,637 Actuarial accrued liability (AAL)1,631,916 1,390,811 1,358,103 Unfunded AAL (UAAL)644,440 540,855 638,467 Funded Covered ratio payroll UAAL as a percentage of covered payroll 75%67 90 61% $61 53 856,090 805,138 708,732 See accompanying independent auditors' report.51 ENCLOSURE 2 PALO VERDE NUCLEAR GENERATING STATION 2009 ANNUAL FINANCIAL REPORTS Salt River Project Southern California Public Power Authority Los Angeles Department of Water and Power SALT RIVER PROJECT COMBINED FINANCIAL STATEMENTS AS OF APRIL 30,2010 AND 2009 TOGETHER WITH REPORT OF INDEPENDENT AUDITORS SALT RIVER PROJECT COMBINED BALANCE SHEETS APRIL 30, 2010 AND 2009 (Thousands)
Utility Plant Plant in Service -Electric Irrigation Common Total plant in service Less -Accumulated depreciation on plant in service Plant held for future use Construction work in progress Nuclear fuel, net Other Property and Investments Non-utility property and other investments Segregated funds, net of current portion Current Assets Cash and cash equivalents Temporary Investments Current portion of segregated funds Receivables, net of allowance for doubtful accounts Fuel stocks Materials and supplies Current derivative assets Other current assets Deferred Charges and Other Assets Regulatory assets Non-cu rrent derivative assets Other deferred charges and other assets 2010$10,653,944 312,388 520,139 11,486,471 (5,305,370) 6,181,101 5,960 790,256 123,310 7,100,627 183,354 799,760 983,114 235,029 290,307 241,609 202,225 43,486 131,192 26,873 19,110 1,189,831 789,268 13,026 76,988 879,282$10,152,854 2009$ 9,299,342 304,032 505,524 10,108,898 (4,988,868) 5,120,030 3,883 1,559,300 111,515 6,794,728 206,825 1,039,178 1,246,003 379,482 145,664 211,498 183,680 44,622 133,868 60,193 19,163 1,178,170 779,299 5,790 69,313 854,402$10,073,303 The accompanylng notes are an integral part of these combined financial statements.
1 SALT RIVER PROJECT COMBINED BALANCE SHEETS APRIL 30,2010 AND 2009 (Thousands)
CAPITALIZATION AND LIABILITIES 2010$ 4,051,931 2009$ 3,831,657 Long-term Debt Accumulated Net Revenues 3,962,788 3,591,813 Total Capitalization 8,014,719 Current Uabilities Current portion of long-term debt Commercial paper Accounts payable Accruced taxes and tax equivalents Accrued interest Customers' deposits Current derivative liabilities Other current liabilities 147,180 200,672 72,339 67,407 81,446 64,441 290,822 924,307 7,423,470 132,645 375,000 248,454 62,686 63,779 80,010 162,286 285,998 1,410,858 792,328 187,801 39,511 219,335 1,238,975 Deferred Credits and Other Non-current Uabilities Accrued post-retirement liability Asset retirement obligations Non-current derivative liabilities Other deferred credits and other non-current liabilities 754,650 199,348 32,025 227,805 1,213,828 Commitments and Contingencies (Notes 7, 9, 10, 13, and 14)$ 10,152,854
$ 10,073,303 The accompanying notes are an integral part ofthese combined financial statements.
2 SALT RIVER PROJECT COMBINED STATEMENTS OF NET REVENUES FOR THE YEARS ENDED APRIL 30, 2010 AND 2009 (Thousands)
Operating Revenues Retail electric Water Other Total operating revenues Operating Expenses Power purchased Fuel used in electric generation Other operating expenses Maintenance Depreciation and amortization Taxes and tax equivalent Total operating expenses Net operating revenues (expenses) 2010$ 2,361,274 14,373 325,966 2,701,613 403,093 554,113 565,259 287,541 408,525 102,092 2,320,623 380,990 140,787 (12,412)128,375 509,365 186,429 (52,938)(8,995)13,894 138,390 370,975 2009$ 2,318,582 14,107 434,335 2,767,024 581,731 948,335 499,643 270,678 384,848 92,840 2,778,075 (11,051)(99,669)(3,828)(103,497)(114,548)160,747 (44,643)(6,174)22,544 132,474 (247,022)Other Income Investment income (loss), net Other income (deductions), net Total other income, net Net revenues (expenses) before financing costs Financing Costs Interest on bonds Capitalized interest Amortization of bond discount/premium and issuance expenses Interest on other obligations Net financing costs Net Revenues (Expenses)
The accompanying notes are an integral part of these combined financial statements.
3 SALT RIVER PROJECT COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30,2010 AND 2009 (Thousands)
Cash Flows from Operating Activities Net Revenues Adjustments to reconcile net revenues to net cash provided by operating activities:
Depreciation, amortization and accretion Amortization of bond discount (premium) and issuance expenses Change in fair value of derivative instruments Change in fair value of investment securities (Loss) gain on sale of capital assets Decrease (increase) in: Fuel stocks and materials and supplies Receivables, including unbilled revenues, net Other current assets Deferred charges and other assets Increase (decrease) in: Accounts payable Accrued taxes and tax equivalents Accrued interest Current liabilities Deferred credits and other non-current liabilities Net cash provided by operating activities Cash Flows from Investing Activities Additions to utility plant, net Proceeds from disposition of assets Purchases of investments Sales and maturities of investments Net change in short-term investments related to segregated funds Net cash used for investing activities 2010 2009$ 370,975 $ (247,022)408,525 (8,995)(79,076)(112,483)(231)3,812 (18,545)53 24,508 (70,799)9,653 3,628 (8,662)(95,764)426,599 (685,954)4,483 (945,442)991,248 225,094 (410,571)296,000 (325,000)(131,481)(160,481)384,848 (6,174)327,769 92,271 (643)(16,501)57,946 (47,256)(188,624)(99,726)(9,914)14,657 9,971 171,471 443,073 (955,457)5,176 (1,083,979) 999,617 62,768 (971,875)760,606 (100,000)(166,750)493,856 Cash Flows from Financing Activities Proceeds from issuance of revenue bonds Retirement of commercial paper Repayment of long-term debt, including refundings Net cash (used for)/ provided by financing activities Net Increase (Decrease) in Cash and Cash Equivalents Balance at Beginning of Year In Cash and Cash Equivalents Balance at End of Year In Cash and Cash Equivalents Supplemental Information Cash paid for interest (net of capitalized interest)(144,453)(34,946)379,482 414,428$ 235,029 $ 379,482=ZEMM.$ 143,757$ 124,526 The accompanying notes are an integral part of these combined financial statements.
4 SALT RIVER PROJECT NOTES TO COMBINED FINANCIAL STATEMENTS APRIL 30, 2010 AND 2009 (1) BASIS OF PRESENTATION:
The Company The Salt River Project Agricultural Improvement and Power District (the District) is an agricultural improvement district organized in 1937 under the laws of the State of Arizona. It operates the Salt River Project (the Project), a federal reclamation project, under contracts with the Salt River Valley Water Users' Association (the Association), by which it has assumed the obligations and assets of the Association, including its obligations to the United States of America for the care, operation and maintenance of the Project. The District owns and operates an electric system that generates, purchases, transmits and distributes electric power and energy, and provides electric service to residential, commercial, industrial and agricultural power users in a 2,900 square mile service territory in parts of Maricopa, Gila and Pinal Counties, plus mine loads in an adjacent 2,400 square mile area in Gila and Pinal Counties.
The Association, incorporated under the laws of the Territory of Arizona in 1903, operates an irrigation system as the agent of the District.
The District and the Association are together referred to as SRP.Principles of Combination The accompanying combined financial statements reflect the combined accounts of the Association and the District.
The District's financial statements are consolidated with its three wholly-owned taxable subsidiaries:
SRP Captive Risk Solutions, Limited (CRS), Papago Park Center, Inc. (PPC) and New West Energy Corporation (New West Energy). CRS is a domestic captive insurer incorporated primarily to access property/boiler and machinery insurance coverage under the Federal Terrorism Risk Insurance Act of 2002 for certified acts of terrorism.
PPC is a real estate management company. New West Energy was used to market, at retail, energy available to the District that was surplus to the needs of its retail customers, and energy that might have been rendered surplus in Arizona by retail competition in the supply of generation, but is now largely inactive.
All material inter-company transactions and balances have been eliminated.
Possession and Use of Utility Plant The United States of America retains a paramount right or claim in the Project that arises from the original construction and operation of certain of the Project's electric and water facilities as a federal reclamation project. Rights to the possession and use of, and to all revenues produced by, these facilities are evidenced by contractual arrangements with the United States of America.Basis of Accounting The accompanying combined financial statements are presented in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of financial statements in compliance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingencies.
Actual results could differ from the estimates.
5 By virtue of SRP operating a federal reclamation project under contract, with the federal government's pre-emptive rights, asset ownership and certain approval rights, SRP is subject to accounting standards as set forth by the Federal Accounting Standards Advisory Board (FASAB). Entities reporting in accordance with the standards issued by the Financial Accounting Standards Board (FASB) prior to October 19, 1999 (the date the American Institute of Certified Public Accountants (AICPA) designated the FASAB as the accounting standard setting body for entities under the federal government) are permitted to continue to report in accordance with those standards.
Consequently, SRP's financial statements are reported in accordance with FASB standards.
Regulation and Pricing Policies Under Arizona law, the District's publicly elected Board of Directors (Board) has the authority to establish electric prices. The District is required to follow certain public notice and special Board meeting procedures before implementing any changes in the standard electric price plans. The financial statements reflect the pricing policies of the District's Board. The District's electric operations apply authoritative guidance for regulated enterprises.
(2) SIGNIFICANT ACCOUNTING POUCIES: Regulatory Accounting The District accounts for the financial effects of the regulated portion of its operations in accordance with the provisions of authoritative guidance for regulated operations, which requires cost-based, rate-regulated utilities to reflect the impacts of regulatory decisions in their financial statements.
The District records regulatory assets, which represent probable future recovery of certain costs from customers through the pricing process, and regulatory liabilities, which represent probable future credits to customers through the ratemaking process. Based on actions of the Board, the District believes the future collection of costs deferred through regulatory assets is probable.
If events were to occur making full recovery of these regulatory assets no longer probable, the District would be required to write off the remaining balance of such assets as a one-time charge to net revenues.
None of the regulatory assets earn a rate of return.The District includes the following regulatory assets in the accompanying Combined Balance Sheets as of April 30: 2010 2009 Pension and other postretirement benefits (Note 9) $ 658,895 $ 609,390 Bond defeasance 74,101 78,280 Mohave Generating Station 44,203 52,004 Nudear decommissioning 12,069 39,625 Total regulatory assets $ 789,268 $ 779,299 The pension and other postretirement benefits regulatory asset is adjusted as changes in actuarial gains and losses, prior service costs and transition assets or obligations are recognized as components of net periodic pension costs each year and is recovered through prices charged to customers.
Bond defeasance regulatory assets are recovered over the remaining original amortization period of the reacquired debt ending in fiscal year 2031.The Mohave Generating Station regulatory asset is being recovered on a straight-line basis over a ten-year period ending in fiscal year 2016.6 The nuclear decommissioning regulatory asset is being deferred over the life of Palo Verde Nuclear Generating Station (PVNGS) and is being recovered through a component of the system benefits charge. Any difference between current year costs and revenues associated with nuclear decommissioning are deferred in accordance with authoritative guidance for regulated enterprises and has no impact to the District's earnings.Utility Plant Utility plant is stated at the historical cost of construction, less any impairment losses. Capitalized construction costs include labor, materials, services purchased under contract, and allocations of indirect charges for engineering, supervision, transportation and administrative expenses and capitalized interest or an allowance for funds used during construction (AFUDC). The cost of property that is replaced, removed or abandoned, together with removal costs, less salvage, is charged to accumulated depreciation.
Depreciation expense is computed on the straight-line basis over the estimated useful lives of the various classes of plant assets. The following table reflects the District's average depreciation rates on the average cost of depreciable assets, for the fiscal years ended April 30: 2010 2009 Average electric depreciation rate 3.60% 3.67%Average irrigation depreciation rate 2.02% 2.02%Average common depreciation rate 6.14% 6.54%Allowance for Funds Used During Construction AFUDC is the estimated cost of funds used to finance plant additions and is recovered in prices through depreciation expense over the useful life of the related asset. AFUDC is capitalized during certain plant construction and included in capitalized interest in the accompanying Combined Statements of Net Revenue. Composite rates of 5.02% and 4.52% were used in fiscal years 2010 and 2009 to calculate interest on funds used to finance construction work in progress, resulting in $52.9 million and $44.6 million of interest capitalized, respectively.
Nuclear Fuel The District amortizes the cost of nuclear fuel using the units-of-production method. The units-of-production method is an amortization method based on actual physical usage. The nuclear fuel amortization and accrued expenses for both the interim and permanent disposal of spent nuclear fuel are components of fuel expense. Accumulated amortization of nuclear fuel at April 30, 2010 and 2009 was $471.8 million and $447.0 million, respectively. (See Note (14) CONTINGENCIES, Spent Nuclear Fuel for additional information).
Asset Retirement Obligations SRP accounts for its asset retirement obligations in accordance with authoritative guidance which requires the recognition and measurement of liabilities for legal obligations associated with the retirement of tangible long-lived assets. Liabilities for asset retirement obligations are recognized at fair value as incurred and capitalized as part of the cost of the related tangible long-lived assets.Accretion of the liabilities, due to the passage of time, is an operating expense and the capitalized cost is depreciated over the useful life of the long-lived asset. Retirement obligations associated with long-7 lived assets are those for which a legal obligation exists under enacted laws, statutes, and contracts, including obligations arising under the doctrine of promissory estoppel.The District has identified retirement obligations for the PVNGS, Navajo Generating Station (NGS), Four Corners Generating Station (Four Corners) and certain other assets. Amounts recorded for asset retirement obligations are subject to various assumptions and determinations, such as determining whether an obligation exists to remove assets, estimating the fair value of the costs of removal, estimating when final removal will occur, and determining the credit-adjusted, risk-free interest rates to be utilized on discounting future liabilities.
Changes that may arise over time with regard to these assumptions and determinations will change amounts recorded in the future as expense for asset retirement obligations.
A summary of the asset retirement obligation activity of the District at April 30 is included below (in thousands):
Z010 Z009 Beginning balance, May 1 $ 187,801 $ 177,331 Changes in estimate -(415)Accretion expense 11,547 10,885 Ending balance, April 30 $ 199,348 $ 187,801 Investments in Debt and Equity Securities SRP invests in various debt and equity securities.
Debt securities that SRP has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.
SRP has adopted the fair value option for all debt and equity securities other than those classified as held-to-maturity securities.
All such securities are reported at fair value, with unrealized gains and losses included in earnings.
SRP does not classify any securities as available-for-sale. (See Note (3) FAIR VALUE OF FINANCIAL INSTRUMENTS.)
Nuclear Decommissioning In accordance with regulations of the Nuclear Regulatory Commission, the District maintains a trust for the decommissioning of PVNGS. The Nuclear Decommissioning Trust (NDT) funds are invested in debt and equity securities.
The District has elected the fair value option for all NDT securities and such securities are reported as trading securities.
The NDT funds, stated at fair value, as of April 30, 2010 and 2009, were $211.4 million and $152.1 million, respectively.
The NDT funds are classified as segregated funds in the accompanying Combined Balance Sheets and are exempt from federal and state income taxes. (See Note (3) FAIR VALUE OPTION for additional information about the NDT.)8 Segregated Funds The District sets aside funds that are segregated due to management intent and to support various purposes.
The District also has certain funds that are legally restricted.
The following amounts are included in segregated funds in the accompanying Combined Balance Sheets at April 30 (in thousands):
2010 2009 Segregated funds -legally restricted Nuclear Decommissioning Trust $ 211,374 $ 152,111 Collateral investment pool 136,710 112,499 Debt Reserve Fund (see "Revenue Bonds" in Note 7) 80,598 80,598 Other 20,271 11,363 Construction Fund (see "Capital Improvement Program" in Note 13) 1 421,856 Total segregated funds -legally restricted 448,954 778,427 Segregated funds -other Benefits funds 483,428 372,455 Debt Service Fund (see "Revenue Bonds" in Note 7) 104,899 99,000 Other 4,088 794 Total segregated funds -other 592,415 472,249 Total segregated funds, including current portion $ 1,041,369
$ 1,250,676 Securities Lending The District's pension plan, NDT and other postretirement benefits plans participate in a securities lending program with the trustees of the investments.
The program authorizes the trustee of the particular investments to lend securities, which are assets of the plans, to approved borrowers.
The trustees require borrowers, pursuant to a security lending agreement, to deliver collateral to secure each loan. The loaned securities are required to be collateralized.
Under the program, the borrowers deliver collateral having a market value not less than 102% of the market value of the loaned securities.
The cash collateral received is invested in a collateral pool made up of fixed income securities.
The District's pension plan, NDT and other postretirement benefits plans bear the risk of loss with respect to unfavorable changes in fair value of the invested collateral.
For loaned securities related to the NDT and the other postretirement benefits plans, the District records an obligation for the collateral received as other current liabilities and records the collateral investment pool, at fair value, in current portion of segregated funds, both in the accompanying Combined Balance Sheets. The pension plan's participation in the securities lending program is contained within the pension plan. (See Note (5) FAIR VALUE MEASUREMENTS and Note (9) EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS, Fair Value of Plan Assets for more information related to collateral pool investments.)
Cash Equivalents Cash equivalents include money market funds and highly liquid short-term investments with original maturities of three months or less, excluding those short-term investments included as part of the segregated funds and investments included in non-utility property and other investments in the accompanying Combined Balance Sheets. (For further discussion of financial instruments see Note (5)FAIR VALUE MEASUREMENTS.)
9 Rate Stabilization Fund In accordance with Board action taken on March 11, 2010, SRP transferred
$45.7 million into the Rate Stabilization Fund (RSF) in July 2010. The funds may be used to stabilize future prices or for any other corporate purpose approved by the Board.Allowance for Doubtful Accounts The District has provided for an allowance for doubtful accounts of $10.1 million and $9.3 million as of April 30, 2010 and 2009, respectively.
Materials and Supplies, and Fuel Stocks Materials and supplies are stated at lower of market or average cost. Fuel stocks are stated at lower of market or weighted average cost.Bond Expense Bond discount, premium and issuance expenses are deferred and amortized using the effective interest method over the terms of the related bond issues.Voluntary Contributions In Lieu of Taxes In accordance with Arizona law, the District makes voluntary contributions each year to the State of Arizona, school districts, cities, counties, towns and other political subdivisions of the State of Arizona, for which property taxes are levied and within whose boundaries the District has property included in its electric system. As a political subdivision of the State of Arizona, the District is exempt from property taxation.
The amount paid is computed on the same basis as ad valorem taxes paid by a private utility corporation with allowance for certain water-related deductions.
Contributions based on the costs of construction work in progress are capitalized, and those based on plant-in-service are expensed.Revenue Recognition The District recognizes revenue when billed and accrues estimated revenue for electricity delivered to customers that has not yet been billed. The estimated revenue for electricity delivered but not yet billed is included in retail electric revenue and was $63.7 million and $62.1 million at April 30, 2010 and 2009, respectively.
The District changed the method of estimating electricity delivered but not yet billed in fiscal year 2010 to incorporate meter data that was not previously available.
The change in estimate resulted in $10.0 million increase in electricity delivered but not yet billed as compared to the previous methodology and is reflected in retail electric revenues and receivables, net of doubtful accounts in the accompanying combined financial statements at April 30, 2010. The change in estimate also resulted in a $10.0 million increase in total operating revenues and net revenues (expenses) at April 30, 2010. Other operating revenue consists primarily of revenue from marketing and trading electricity.
The electric industry engages in an activity called "book-out" under which some energy purchases are netted against sales and power does not actually flow in settlement of the contract.
The District presents the impacts of these financially settled contracts on a net basis, which resulted in a net 10 reduction to revenue and purchase power expense of $27.8 million and $115.1 million for fiscal years 2010 and 2009, respectively, but which did not impact net revenues or cash flows.Sales and Use Taxes The District is required by various government authorities, including states and municipalities, to collect and remit taxes on certain retail sales. Such taxes are presented on a net basis and excluded from revenues and expenses in the accompanying combined financial statements.
Income Taxes The District is exempt from federal and Arizona state income taxes. The Association is not exempt from federal and Arizona state income taxes. However, the Association is not liable for income taxes on operations relating to its acting as an agent for the District on the basis of a settlement with the Commissioner of Internal Revenue in 1949 which was approved by the Secretary of the Treasury.
The Association is liable for income taxes on activities where it is not acting as an agent of the District.
The tax effect of the District's wholly-owned taxable subsidiaries' operations is immaterial to the accompanying combined financial statements.
Accounting for Energy Risk Management Activities The District has an energy risk management program to limit exposure to risks inherent in normal energy business operations.
The goal of the energy risk management program is to measure and manage exposure to market risks, credit risks and operational risks. Specific goals of the energy risk management program include reducing the impact of market fluctuations on energy commodity prices associated with customer energy requirements, excess generation and fuel expenses, in addition to meeting customer pricing needs, and maximizing the value of physical generating assets. The District employs established policies and procedures to meet the goals of the energy risk management program using various physical and financial instruments, including forward contracts, futures, swaps and options.Certain of these transactions are accounted for as derivatives and are recorded in the balance sheet as either an asset or liability measured at their fair value. Changes in the fair value of derivatives are recognized each period in current earnings or other comprehensive income depending on the purpose for using the derivative and/or its qualification, designation and effectiveness as a hedging transaction.
Many of the District's contractual agreements qualify for the normal purchases and normal sales exception and are not recorded at market value. This exception applies to physical sales and purchases of power or fuel where it is probable that physical delivery will occur; the pricing provisions are clearly and closely related to the contracted prices; and the documentation requirements are met. (For further explanation of the effects of derivatives on SRP's financial results, see Note (4), DERIVATIVE INSTRUMENTS.)
Concentrations of Credit Risk Financial instruments that potentially subject SRP to credit risk consist of cash and cash equivalents, temporary and other investments, and segregated funds. Certain balances exceed Federal Deposit Insurance Corporation (FDIC) insured limits or are invested in money market accounts with investment banks that are not FDIC insured. SRP's cash and cash equivalents, temporary and other investments, and segregated funds are placed in credit-worthy financial institutions and certain money market accounts invest in U.S. Treasury Securities or other obligations issued or guaranteed by the U.S.Government, its agencies or instrumentalities.
11 The use of contractual arrangements to manage the risks associated with changes in energy commodity prices creates credit risks resulting from the possibility of nonperformance by counterparties pursuant to the terms of their contractual obligations.
In addition, volatile energy prices can create significant credit exposure from energy market receivables and mark-to-market valuations.
The District has a credit policy for wholesale counterparties, continuously monitors credit exposures, and routinely assesses the financial strength of its counterparties.
The District minimizes credit risk by dealing primarily with creditworthy counterparties, entering into standardized agreements which allow netting of exposures to and from a single counterparty, and requiring letters of credit, parent guarantees or other collateral when it does not consider the financial strength of a counterparty sufficient.
Prior Year Revisions During fiscal year 2010, SRP determined that pension plan contributions had been improperly reported in the fiscal year 2009 cash flow statement.
SRP revised the previously issued financial statements to properly report the contributions, resulting in a $50 million increase in net cash provided by operating activities, with a corresponding increase in cash used by investing activities in the accompanying Combined Statements of Cash Flows.Recently Issued Accounting Standards Accounting Standards Codification In June 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-01, "Topic 105 -Generally Accepted Accounting Principles." The update provides authoritative guidance replacing the previous hierarchy of U.S. GAAP and establishing the FASB Accounting Standards Codification (ASC) as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities.
This guidance modifies the U.S. GAAP hierarchy to include two levels: authoritative and nonauthoritative.
SRP adopted this standard effective October 31, 2009. The adoption did not impact the accompanying combined financial statements since the FASB Codification is not intended to change or alter existing U.S GAAP.Pension and Other Postretirement Benefit Plan Disclosures In December 2008, the FASB issued authoritative guidance incorporated into ASC No. 715-20-50,"Compensation
-Retirement Benefits, Defined Benefit Plans -General," that requires employers to provide new disclosures about investments and other assets set aside to fund their pension and other postretirement benefit obligations.
This guidance requires employers to disclose information about fair value measurements of plan assets, the investment policies and strategies for the major categories of plan assets, and significant concentrations of risk within plan assets. This guidance became effective for SRP as of April 30, 2010. As this guidance provides only disclosure requirements, the adoption of this standard did not impact SRP's accompanying combined financial statements.
See Note (9), EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS.Fair Value Measurements In September 2009, the FASB issued ASU No. 2009-12, "Fair Value Measurements and Disclosures (Topic 820) -Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." The update provides further clarification for measuring the fair value of investments in entities that meet the FASB's definition of an investment company. This guidance permits a company to estimate the fair value of an investment using the net asset value (NAV) per share of the investment 12 if the NAV is determined in accordance with the FASB's guidance for investment companies as of the company's measurement date. This creates a practical expedient to determining a fair value estimate and allows certain attributes of the investment (such as redemption restrictions) to be excluded from the fair value measurement.
Additionally, companies with investments within the scope of this guidance must disclose additional information related to the nature and risks of the investments.
This guidance became effective for SRP as of January 31, 2010, and is required to be applied prospectively.
SRP's segregated funds and pension plan assets contain certain investments, including alternative investments and commingled funds, which are within the scope of this guidance.
As a result of the issuance of this guidance, SRP reclassified certain commingled funds from Level 3 in the fair value hierarchy to Level 2 in the fair value hierarchy.
However, as the fair value of these investments was already determined based on NAV per fund share, this guidance did not have a material impact on SRP's accompanying combined financial statements.
See Note (5), FAIR VALUE MEASUREMENTS and Note (9), EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS.Subsequent Events In May 2009, the FASB issued ASC No. 855, "Subsequent Events," that sets forth the period subsequent to the balance sheet date during which management of a reporting entity should evaluate events or transactions that might occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize these events or transactions; and the disclosures that an entity should make.In February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure requirements," that requires an entity such as SRP to evaluate subsequent events through the date that the financial statements are issued. The amendment also requires an entity to disclose the date through which the subsequent events have been evaluated and the date the financial statements were issued. SRP will adopt the subsequent event guidance effective April 30, 2011.Consolidation of Variable Interest Entities In December 2009, the FASB issued ASU No. 2009-17, "Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities," that changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.
Under the new guidance, the determination of whether a company is required to consolidate an entity is based on, among other things, an ability to direct the activities of the entity that most significantly impact the entity's economic performance and whether the entity has an obligation to absorb losses. This guidance requires a company to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement.
SRP will adopt this guidance effective May 1, 2010, and is evaluating the impact, if any, that the adoption will have on the accompanying combined financial statements.
Transfers of Financial Assets In December 2009, the FASB issued ASU No. 2009-16, "Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets," which eliminates the qualifying special purpose entity concept and the relation exception from consolidation, limits derecognition of financial assets when control still exists, and requires enhanced disclosures.
SRP will adopt this update effective May 1, 2010, and is evaluating the impact, if any, that the adoption will have on the combined financial statements.
13 Fair Value Measurements Disclosures In January 2010, the FASB issued ASU No. 2010-06, "Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements." The update requires entities to disclose significant transfers in and out of fair value hierarchy levels and the reasons for the transfers and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010. SRP adopted the new standard effective February 1, 2010, except that the new Level 3 activity disclosures will be effective prospectively beginning May 1, 2010. The adoption of the standard impacts disclosures only.(3) FAIR VALUE OF FINANCIAL INSTRUMENTS:
SRP invests in U.S. government obligations, certificates of deposit and other marketable investments.
Such investments are classified as cash and cash equivalents, temporary investments, other investments, and segregated funds in the accompanying Combined Balance Sheets depending on the purpose and duration of the investment.
Fair Value Option SRP adopted authoritative guidance which permits an entity to choose to measure many financial instruments and certain other items at fair value. SRP has elected the fair value option for all investment securities other than those classified as held-to-maturity.
Election of the fair value option requires the security to be reported as a trading security.The fair value option was elected because management believes that fair value best represents the nature of the investments.
While the investment securities held in these funds are reported as trading securities, the investments continue to be managed with a long-term focus. Accordingly, all purchases and sales within these funds are presented separately in the accompanying Statement of Cash Flows as investing cash flows, consistent with the nature and purpose for which the securities are acquired.The following table provides detail regarding the impact of the initial adoption of the fair value option by combined balance sheet line as of May 1, 2008 (in thousands):
Carrying Value Transition Galn(Loss)
Adjusted Carrying of Financial Instruments Recorded In Accumulated Value of Finandal as of May 1, 2008 Net Revenues Instruments as of May 1, 2008 Cash and cash equivalents
$ 404,091 $ -$ 404,091 Segregated funds, net of current portion 827,993 11,616 839,609 Cumulative effect of adoption of fair value option S 1,232,084
$ 11,616 $ 1,243,700 14 The adoption of the fair value option for investments held in the NDT had no impact on the earnings, cash flows, or financial condition of the District as all gains and losses, whether realized or unrealized, are recorded in the nuclear decommissioning regulatory asset or liability as authorized by the Board.Investments in Marketable Debt and Equity Securities The following table summarizes SRP's investments in debt and equity securities accompanying Combined Balance Sheets at April 30 (in thousands):
presented in the 2010 2009 Cash and cash equivalents Cash 14,672 $ 21,652 Money market funds 220,357 347,859 Held-to-maturity investments 9,971 Total cash and cash equivalents 235,029 379,482 Non-utility property and other investments Money market funds 3,825 5,343 Trading investments 29,158 19,709 Held-to-maturity investments 70,080 103,535 Total non-utility property and other investments 103,063 128,587 Segregated funds, net of current portion Cash 4,088 798 Money market funds 33,176 280,147 Trading investments 691,872 514,277 Held-to-maturity investments 70,624 243,956 Total segregated funds, net of current portion 799,760 1,039,178 Temporary investments Held-to-maturity investments 290,307 145,664 Total temporary investments 290,307 145,664 Current portion of segregated funds Money market funds 49,427 20,270 Trading investments 136,710 112,499 Held-to-maturity investments 55,472 78,729 Total current portion of segregated funds 241,609 211,498 Total cash, cash equivalents and investments
$ 1,669,768
$ 1,904,409 SRP's investments in debt securities are measured and reported at amortized cost when there is positive intent and ability to hold the security to maturity.
SRP's amortized cost and fair value of held-to-maturity securities were $486.5 million and $489.7 million, respectively, at April 30, 2010 and $581.9 million and $587.7 million, respectively, at April 30, 2009. At April 30, 2010, SRP's investments in debt securities have maturity dates ranging from May 17, 2010, to March 14, 2014.15 SRP's trading investments are measured at fair value with unrealized trading gains and losses included in earnings.
The following table summarizes unrealized gains (losses) from fair value changes included in earnings and presented in the accompanying combined financial statements at April 30 (in thousands):
2010 2009 Segregated funds, net of current portion $ 101,287 $ (85,695)Current portion of segregated funds 5,233 (6, 576)Non-utility property and other investments 5,963 -Investment income (loss), net $ 112,483 $ (92,271)SRP elected the fair value option on all securities, excluding those classified as held-to-maturity and evaluates the held-to-maturity securities for other-than-temporary impairment on a quarterly basis considering numerous factors. At April 30, 2010, and 2009, SRP did not hold any other-than-temporarily impaired securities.
(4) DERIVATIVE INSTRUMENTS:
Commodity Derivatives The District enters into contracts for electricity, natural gas and other energy commodities to meet the expected needs of its retail customers and, for the benefit of its electrical customers, to mitigate risk in connection with changes in commodity prices. The District sells excess capacity during periods when it is not needed to meet retail requirements.
The District's energy risk management program uses various physical and financial contracts to economically hedge exposures to fluctuating commodity prices. The District examines contracts at inception to determine the appropriate accounting treatment.
If a contract qualifies for the normal purchases and normal sales scope exception, the District accounts for the contract using settlement accounting (costs and revenues are recorded when physical delivery occurs).Contracts that qualify as derivative instruments, including forward contracts, futures, swaps and options are recorded in the accompanying Combined Balance Sheets at fair value. Changes in fair value are recognized in earnings and included in the accompanying Combined Statements of Net Revenues and classified as part of operating cash flows in the accompanying Combined Statements of Cash Flows.Interest Rate Derivatives At April 30, 2009, the District had a fixed-receive-floating interest rate swap transaction with Morgan Stanley Capital Services with a remaining notional value of $25 million which expired December 1, 2009. The floating rate on the swap was based on the Securities Industry and Financial Markets Association (SIFMA) Municipal Index of 0.63% at April 30, 2009, and the fixed-receiver rate on the swap is 3.001%. The District did not have any interest rate derivatives at April 30, 2010.16 Derivative Volumes The District has the following gross derivative volumes, by commodity type, at April 30, 2010: Unit of Sales Pu Commodity Measure Volumes Vo-chases lumes Natural gas options, swaps and forward arrangements Electricity options, swaps and forward arrangements Liquefied fuel swaps MMBTU MWH Gallon 6,617,500 4,057,565 107,437,500 5,632,000 2.824,734 The District has the following gross derivative volumes, by commodity type, at April 30, 2009: Commodity Natural gas options, swaps and forward arrangements Electricity options, swaps and forward arrangements Liquefied fuel swaps Unit of Measure MMBTU MWH Gallon Sales Volumes 7,305,000 4,226,890 Purchases Volumes 83,210,000 2,065,475 2,005,914 Presentation of Derivative Instruments in the Financial Statements The following table provides information about the gross fair values, netting, and collateral and margin deposits for derivatives not designated as hedging instruments in the accompanying Combined Balance Sheets (in thousands):
April 30,2010 Non- Non-Current current Current current Derivative Derivative Derivative Derivative Long-term Total Assets Assets Assets Uabilities Liabilities Debt (Uabilities)
Commodities
$ 26,313 $ 16,757 $ (73,722) $(35,756)
$ -$ (66,408)Netting (11,786) (3,731) 11,786 3,731 --Collateral and margin deposits 12,346 -(2,505) -9,841 Total balance sheet $ 26,873 $ 13,026 $ (64,441) $ (32,025) $ -$ (56,567)April 30, 2009 Non- Non-Current current Current current Derivative Derivative Derivative Derivative Long-term Assets Assets Liabilities Liabilities Debt Total Assets Commodities
$ 43,316 $ 10,661 $ (173,423)
$ (44,948) $ -$ (164,394)Interest rate swap -566 --172 738 Netting (11,137) (5,437) 11,137 5,437 --Collateral and margin deposits 28,014 ----28,014 Total balance sheet $ 60,193 $ 5,790 $ (162,286)
$ (39,511) $ 172 $ (135,642)17 The following table summarizes the District's unrealized gains (losses) associated with derivatives not designated as hedging instruments in the accompanying Combined Statements of Net Revenues (in thousands):
April 30, 2010 Fuel Used in Interest on Net Operating Power Electric Other Unrealized Revenues Purchased Generation Obligations Gain (Loss)Commodities
$ (6,650) $ 32,848 $ 61,559 $ -$ 87,757 Total $ (6,650) $ 32,848 $ 61,559 $ -$ 87,757 April30, 2009 Fuel Used in Interest on Net Operating Power Electric Other Unrealized Revenues Purchased Generation Obligations Gain (Loss)Commodities
$ (31,403) $ (89,503) $ (206,186)
$ $ (327,092)Interest rate swap -(442) (442)Total $ (31,403) $ (89,503) $ (206,186)
$ (442) $ (327,534)Credit Related Contingent Features Certain of the District's derivative instruments contain provisions that require the District's debt to maintain an investment grade credit rating from each of the major credit rating agencies.
If the District's debt were to fall below investment grade, it would violate these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions.
The aggregate fair value of all derivative liabilities with credit-risk-related contingent features as of April 30, 2010, was $80.7 million for which the District has not posted collateral in the normal course of business.
If the credit-risk-related contingent features underlying these agreements were triggered on April 30, 2010, the District could be required to post an additional
$80.7 million of collateral to its counterparties.
(5) FAIR VALUE MEASUREMENTS:
SRP adopted authoritative guidance which defines fair value, establishes methods for measuring fair value by applying one of three observable market techniques (market approach, income approach or cost approach) and expands required disclosures about fair value measurements.
This standard defines fair value as the price that would be received for an asset, or paid to transfer a liability, in the most advantageous market for the asset or liability in an arms-length transaction between willing market participants at the measurement date.SRP has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.
The fair value hierarchy gives the highest priority to 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 are as follows: Level 1 -Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.Level 2 -Financial assets and liabilities whose values are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active 18 markets, pricing models whose inputs are observable for substantially the full term of the asset or liabilities and pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means.Level 3 -Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The following table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2010 (in thousands):
Level 1 Level 2 Level 3 Netting and Total Collateral Assets Cash and cash equivalents:
Money market funds $ $ 220,357 $ -$ -$ 220,357 Total cash and cash equivalents 220,357 --220,357 Non-utility property and other investments:
Money market funds 3,825 --3,825 Mutual funds 29,158 ---29,158 Total non-utility property and other investments 29,158 3,825 --32,983 Segregated funds, net of current portion: Money market funds -33,176 --33,176 Mutual funds 234,485 ---234,485 Commingled funds -226,449 4,118 -230,567 Common stocks 223,568 3,252 --226,820 Total segregated funds, net of current portion 458,053 262,877 4,118 -725,048 Current portion of segregated funds: Money market fund -49,427 --49,427 Collateral pool investments
-136,710 -136,710 Total current portion of segregated funds -49,427 136,710 -186,137 Derivative Instruments:
Commodities 15,554 7,527 19,989 (3,171) 39,899 Total assets $ 502,765 $ 544,013 $ 160,817 $ (3,171) $1,204,424 Liabilities Derivative Instruments:
Commodities
$ (23,971) $ (71,120) $ (14,387) $ 13,012 $ (96,466)Total liabilities
$ (23,971) $ (71,120) $ (14,387) $ 13,012 $ (96,466)19 The following table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2009 (in thousands):
Level 1 Level 2 Level 3 Netting and Total Collateral Assets Cash and cash equivalents:
Money market funds $ -$ 347,859 $ $ -$ 347,859 Total cash and cash equivalents
-347,859 -347,859 Non-utility property and other Investments:
Money market funds -5,343 -5,343 Mutual funds 19,709 -19,709 Total non-utility property and other investment.
19,709 5,343 -25,052 Segregated funds, net of current portion: Money market funds -280,147 -280,147 Mutual funds 204,640 --204,640 Commingled funds --156,043 -156,043 Common stocks 153,594 ---153,594 Total segregated funds, net of current portion 358,234 280,147 156,043 -794,424 Current portion of segregated funds: Money market fund -20,271 --20,271 Collateral pool Investments
-112,499 -112,499 Total current portion of segregated funds -20,271 112,499 -132,770 Derivative Instruments:
Commodities 949 10,674 42,354 11,440 65,417 Interest rate swap -566 --566 Total derivative instruments 949 11,240 42,354 11,440 65,983 Total assets $ 378,892 $ 664,860 $ 310,896 $ 11,440 $1,366,088 Uabilitles Derivative Instruments:
Commodities
$ (33,307) $ (169,710)
$ (15,354) $ 16,574 $ (201,797)Interest rate swap 172 -172 Total derivative instruments (33,307) (169,538)
(15,354) 16,574 (201,625)Total liabilities
$ (33,307) $ (169,538)
$ (15,354) $ 16,574 $ (201,625)Valuation Methodologies Securities Money market funds -Investments with maturities of three months or less when purchased, including certain short-term fixed-income securities, are considered cash equivalents.
The fair value of shares in money market funds are priced based on inputs obtained from Bloomberg, a pricing service, whose prices are obtained from direct feeds from exchanges, that are either directly or indirectly observable.
Mutualfunds
-The fair values of shares in mutual funds are based on inputs that are quoted prices in active markets for identical assets and, therefore, have been categorized in Level 1 in the fair value hierarchy.
Equities are priced using active market exchanges.
20 Corporate stocks -The fair values of shares in preferred and common corporate stocks are based on inputs that are quoted prices in active markets for identical assets and, therefore, have been categorized in Level 1 in the fair value hierarchy.
Equities are priced using active market exchanges.
Preferred and common corporate stocks are valued based on quoted prices in active markets and are categorized in Level 1. Equity securities held individually are primarily traded on exchanges which contain only actively traded securities due to the volume trading requirements imposed by these exchanges.
Common stocks that are valued based on quoted prices from less active markets, such as over the counter stocks, are categorized as Level 2 in the fair value hierarchy.
Commingled funds -Commingled funds are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives, which are consistent with SRP's overall investment strategy.
For equity and fixed-income commingled funds, the fund administrator values the fund using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities.
Where adjustments to the NAV are required with respect to interests in funds subject to restrictions on redemption (such as lock-up periods or withdrawal limitations) and/or observable activity for the fund investment is limited, investments are classified within level 2 or 3 of the valuation hierarchy.
If the ability to redeem the investment is unknown or the investment cannot be redeemed in the near term at NAV, the fair value measurement of the investment will be categorized as a Level 3 in the valuation hierarchy.
Collateral pool investments
-These commingled funds are maintained and invested by the administrator of SRP's securities' lending program. The pools are primarily invested in short-term fixed income securities, but may also be invested in assets with maturities that match the duration of the loan of the related securities.
These commingled funds are valued daily by the administrator and the underlying fixed income securities are priced using a primary price source that is identified based on asset type, class or issue for each security.
SRP has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. The fair values of fixed income securities are based on evaluated prices that reflect observable market information.
However, these funds are categorized as level 3 because the value that SRP would be able to exit at is not the unit value derived from the underlying prices.Corporate bonds -For fixed income securities, multiple prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider validations in addition to checks for unusual daily movements.
A primary price source is identified based on asset type, class or issue for each security.
SRP has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, SRP selectively corroborates the fair values of securities by comparison to other market-based price sources. The fair values of fixed income securities are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized as Level 2.Real Estate -Real estate commingled funds are funds with a direct investment in a pool of real estate properties.
These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications.
Since these valuation inputs are not highly observable, real estate investments have been categorized as Level 3 investments.
21 Derivative Instruments The fair value of gas swaps and power swaps that are priced based on inputs using quoted prices of similar exchange traded items have been categorized in Level 1 in the fair value hierarchy.
These include gas swaps traded on the New York Mercantile Exchange (NYMEX) and power swaps traded on the Intercontinental Exchange.The fair value of gas swaps, power swaps, gas options, power options and power deals that are priced based on inputs obtained through pricing agencies and developed pricing models, using similar observable items in active and inactive markets, are classified as Level 2 in the valuation hierarchy.
The fair value of derivatives assets and liabilities which are valued using pricing models with significant unobservable market data traded in less active or underdeveloped markets are classified as Level 3 in the valuation hierarchy.
Level 3 items include gas swaps, power swaps, gas options, power options and power deals. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include long-dated or complex derivatives).
All of the assumptions above include adjustments for counterparty credit risk, using credit default swap data, bond yields, when available, or external credit ratings.Investments Calculated at Net Asset Value As of April 30, 2010, the fair value measurement of investments calculated at net asset value per share (or its equivalent), as well as the nature and risks of those instruments, are as follows: Fair Value Unfunded Redemption Redemption (in thousands)
Commitments Frequency Notice Period Mutual funds $ 263,643 None Daily N/A Commingled funds: Fixed Income funds 123,369 None Daily N/A International equity funds 103,080 None Monthly 2 days Domestic long-short equity fund of funds 4,118 None Annual 100 days Mutual Funds -These are funds invested in either equity or fixed income securities.
They are actively managed funds that seek to outperform their respective benchmarks.
The equity funds may invest in large and/or small capitalization stocks and/or growth or, value styles, as dictated by their prospectuses.
The fixed income funds will invest in a broad array of securities including treasuries, agencies, corporate debt, mortgage-backed securities, and some non-U.S. debt.International Equity Commingled Fund -The fund is an actively managed fund that invests in primarily non-U.S. securities.
The funds may invest in small and/or large capitalization stocks, as well as developing country securities.
The fund seeks to outperform their respective benchmarks.
Fixed Income Commingled Fund -The fund is an actively managed fund of funds that primarily invests in managers that invest in domestic and some non-U.S. equities.
As a long-short fund, the fund's goal is to neutralize market risk by balancing between managers that buy (go long) securities and managers who sell (go short) securities.
The fund seeks to outperform a broad equity index over long periods, with less risk.22 Domestic Long-Short Equity Fund of Funds -The fund is an actively managed fund of funds that primarily invests in managers that invest in domestic and some non-U.S. equities.
As a long-short fund, the fund's goal is to neutralize market risk by balancing between managers that buy (go long) securities and managers who sell (go short) securities.
The fund seeks to outperform a broad equity index over long periods, with less risk.Collateral and Margin Deposits Margin and collateral deposits include cash deposited with counterparties and brokers as credit support under energy contracts.
The amount of margin and collateral deposits generally varies based on changes in the fair value of the positions.
The District presents a portion of its margin and cash collateral deposits net with its derivative position on the accompanying Combined Balance Sheets.Amounts recognized as margin and collateral provided to others are included in derivative assets in the accompanying Combined Balance Sheets and totaled $9.8 million at April 30, 2010.Changes in Level 3 Fair Value Measurements The table below includes the reconciliation of changes to the balance sheet amounts for the years ended April 30 (in thousands) for financial instruments classified within Level 3 of the valuation hierarchy; this determination is based upon unobservable inputs to the overall fair value measurement:
2010 2009 Beginning balance at May 1 $ 295,542 $ 424,257 Transfers into Level 3 Transfers out of Level 3* (218,818)
(6,585)Net realized and unrealized gain/(loss) included in earnings 35,240 (65,471)Net realized and unrealized gain/(loss) recorded as regulatory assets 19,307 (17,713)Net purchases and settlements 15,159 (38,946)Balance at April 30 $ 146,430 $ 295,542 For instruments held at April 30: Net unrealized gain/(loss) included in earnings $ 10,576 $ (2,993)Net unrealized gain/(loss) recorded in regulatory assets $ 4,055 $ (12,843)* In fiscal year 2010, SRP transferred
$226.4 million of certain assets valued at NAV from Level 3 to Level 2 as allowed by authoritative guidance (ASU No. 2009-12).U.S GAAP requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Many but not all of the financial instruments are recorded at fair value on the accompanying Combined Balance Sheets.Financial instruments held by SRP are discussed below.Financial Instruments for Which Fair Value Approximates Carrying Value -Certain financial instruments that are not carried at fair value on the accompanying Combined Balance Sheets are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk. The instruments include receivables, accounts payable, customers' deposits, other current liabilities and commercial paper.Financial Instruments for Which Fair Value Does Not Approximate Carrying Value -The District presents long-term debt at carrying value on the accompanying Combined Balance Sheets. The collective fair value of the District's revenue bonds and the Desert Basin Lease-Purchase Agreement, including the current portion, was estimated by using pricing scales from independent sources. The carrying amount of commercial paper approximates fair value because of its short term maturity and pricing validated 23 confirmed through independent sources. As of April 30, 2010 and 2009, the carrying amounts, including accrued interest, were $4.1 billion and $3.9 billion, respectively, and the estimated fair values were $4.4 billion and $4.1 billion, respectively. (See Note (7) LONG-TERM DEBT for further discussion of these items.)(6) ACCUMULATED NET REVENUES AND OTHER COMPREHENSIVE INCOME: The following table summarizes accumulated net revenues and other comprehensive income (in thousands):
Accumulated Net Revenues Other Comprehensive Income (Loss)Accumulated Net Revenues and Other Comprehensive Income Balance, April 30, 2008 $ 3,827,219
$ 11,616 $ 3,838,835 Cumulative effect of change in accounting principle
-fair value option 11,616 (11,616)Balance, May 1, 2008, adjusted 3,838,835 3,838,835 Net Revenues (Expenses)
(247,022)
-(247,022)Balance, April 30, 2009 $ 3,591,813
$ $ 3,591,813 Net Revenues (Expenses) 370,975 370,975 Balance, April 30, 2010 $ 3,962,788
$ $ 3,962,788 24 (7) LONG-TERM DEBT: Long-term debt consists of the following at April 30 (in thousands):
Interest Rate 2010 2009 Revenue bonds 1993 Series A (matured 1/1/2010)1993 Series C (mature 1/1/2011)1997 Series A (mature 2011 -2020)2001 Series A (mature 1/1/2011)2002 Series A (mature 2011 -2031)2002 Series 8 (mature 2016 -2032)2002 Series C (mature 2011 -2015)2004 Series A (mature 2011 -2024)2005 Series A (mature 2027 -2035)2006 Series A (mature 2033 -2037)2008 Series A (mature 2016 -2038)2009 Series A (mature 2011 -2039)2009 Series B (mature 2013 -2020)Total revenue bonds Unamortized bond (discount) premium Total revenue bonds outstanding 5.75%5.05%5.00-5.125%
5.00%4.25-5.25%
4.00- 5.00%5.00%4.00- 5.00%4.75-5.00%
5.00%5.00%2.75 -5.00%3.00 -4.50%$15,800 38,990 11,420 431,110 570,000 184,635 114,410 327,090 296,000 816,650 744,180 296,375 3,846,660 86,656 3,933,316 215,795 50,000 4,199,111$ 4,000 58,845 43,990 54,080 432,560 570,000 202,385 116,360 327,090 296,000 816,650 744,180 3,666,140 65,749 3,731,889 232,585 3,964,474 (172)Finance lease Commercial paper Total long-term debt Unamortized interest rate swap 3.125 -5.25%Less: Current portion of long-term (147,180)
(132,645)Total long-term debt, net of current $ 4,051,931
$ 3,831,657 The annual maturities of long-term debt (excluding unamortized bond discount/premium) as of April 30, 2010, due in fiscal years ending April 30, are as follows (in thousands):
Revenue Bonds Finance Lease 2011 $ 127,230 $ 19,950 2012 122,180 17,455 2013 120,955 22,995 2014 113,740 17,500 2015 115,210 27,715 Thereafter 3,247,345 110,180 Total $ 3,846,660
$ 215,795 Revenue Bonds Revenue bonds are secured by a pledge of, and a lien on, the revenues of the electric system, after deducting operating expenses, as defined in the amended and restated bond resolution, effective in January 2003, as amended (Bond Resolution).
Under the terms of the Bond Resolution, the District makes debt service deposits to a non-trusteed segregated fund. Included in segregated funds in the accompanying Combined Balance Sheets are $185.5 million and $179.6 million of debt service related funds as of April 30, 2010 and 2009, respectively.
For the years ended April 30, 2010 and 2009, the debt service coverage ratio was 2.48 and 2.33, respectively.
25 Interest and the amortization of the bond discount, premium and issue expense on the various issues results in an effective rate of 4.90% over the remaining term of the bonds.In January 2009, the District issued $744.2 million Electric System Revenue Bonds. A portion of the net proceeds was used to retire $100.0 million of Series B Commercial Paper and the balance was used to finance capital improvements to the Electric System pursuant to the District's Capital Improvement Plan.In October 2009, the District issued $296.4 million Electric System Revenue Bonds. The net proceeds were used to retire a portion of the $275.0 million of Series B Commercial Paper and $50.0 million of Series C Commercial Paper.The District has authorization to issue additional Electric System Revenue Bonds totaling $1.7 billion principal amount and Electric System Refunding Revenue Bonds totaling $5.9 billion principal amount.Finance Lease In December 2003, the District entered into a lease-purchase agreement (Desert Basin Lease-Purchase Agreement) with Desert Basin Independent Trust (DBIT) to finance the acquisition of the Desert Basin Generating Station (Desert Basin) located in central Arizona. In a concurrent transaction, $282.7 million in fixed-rate Certificates of Participation (COPs) were issued pursuant to a Trust Indenture, between Wilmington Trust Company, as trustee, and DBIT, to fund the acquisition of Desert Basin and other electric system assets of the District.
Investors in the COPs obtained an interest in the lease payments made by the District to DBIT under the Desert Basin Lease-Purchase Agreement.
Due to the nature of the Desert Basin Lease-Purchase Agreement, the District has recorded a lease-finance liability to DBIT with the same terms as the COPs.(8) COMMERCIAL PAPER AND CREDIT AGREEMENTS The District is authorized by the Board to issue up to $475.0 million in commercial paper. The District has $50.0 million Series C Commercial Paper outstanding at April 30, 2010. The District retired $275.0 million of Series B and $50.0 million of Series C Commercial Paper during fiscal year 2010 and $100.0 million of its Series B Commercial Paper during fiscal year 2009. At April 30, 2010, the Series C issue had an average weighted interest rate to the District of 0.31%. The commercial paper matures not more than 270 days from the date of issuance and is an unsecured obligation of the District.At April 30, 2009, the District had a $475.0 million revolving line-of-credit agreement supporting the$375.0 million of outstanding commercial paper. The District classified commercial paper in current liabilities in the accompanying Combined Balance Sheets at April 30, 2009, due to the December 7, 2009, pending expiration of the revolving line of credit agreement.
In September 2009, the District replaced the $475.0 million revolving credit agreement with a three-year
$50 million revolving credit agreement expiring September 16, 2012. The District has reclassified the commercial paper program as long-term debt in the accompanying Combined Balances Sheets at April 30, 2010.The $50 million revolving credit agreement contains various conditions precedent to borrowings that include, but are not limited to, compliance with the covenants set forth in the agreement, the continued accuracy of representations and warranties, no existence of default and maintenance of certain Investment grade ratings on the District's revenue bonds. The agreement has various covenants, with which management believes the District was in compliance at April 30, 2010. The 26 District has never borrowed under the agreement and management does not expect to do so in the future. Alternative sources of funds to support the commercial paper program include existing funds on hand or the issuance of alternative debt, such as revenue bonds.(9) EMPLOYEE BENEFIT PLANS AND INCENTIVE PROGRAMS: Defined Benefit Pension Plan and Other Postretirement Benefits SRP's Employees' Retirement Plan (the Plan) covers substantially all employees.
The Plan is funded entirely from SRP contributions and the income earned on invested Plan assets. The District made a contribution of $144.0 million in fiscal year 2010 and $50.0 million in fiscal year 2009.SRP provides a non-contributory defined benefit medical plan for retired employees and their eligible dependents (contributory for employees hired January 1, 2000 or later) and a non-contributory defined benefit life insurance plan for retired employees.
Employees are eligible for coverage if they retire at age 65 or older with at least five years of vested service under the Plan (ten years for those hired January 1, 2000 or later), or any time after attainment of age 55 with a minimum of ten years of vested service under the Plan (20 years for those hired January 1, 2000 or later). The funding policy is discretionary and is based on actuarial determinations.
FASB authoritative guidance requires employers to recognize the overfunded or underfunded positions of defined benefit pension and other postretirement plans in their balance sheets. Any actuarial gains and losses, prior service costs and transition assets or obligations must be recorded on the balance sheet with an offset to accumulated other comprehensive income until the amounts are amortized as a component of net periodic benefit costs.The Board has authorized the District to collect future amounts associated with the pension and other postretirement plan liabilities as part of the pricing process. The District established a regulatory asset for the portion of the total amounts otherwise chargeable to accumulated other comprehensive income that are expected to be recovered through prices in future periods. The changes in actuarial gains and losses, prior service costs and transition assets or obligations pertaining to the regulatory asset are recognized as an adjustment to the regulatory asset or liability accounts as these amounts are recognized as components of net periodic pension costs each year. The District's estimated amortization amounts for fiscal year 2010 are $3.1 million for transition obligation, $3.1 million for prior service cost and $7.9 million for net actuarial loss.Effective April 30, 2009, authoritative guidance required SRP to measure plan assets and benefit obligations at fiscal year end. SRP previously performed this measurement at January 31 of each year.In accordance with this standard, SRP eliminated the use of the three-month lag. As a result of implementing the measurement date provisions, and as authorized by the Board, the District recorded$16.9 million into the pension and post-retirement regulatory asset on the accompanying Combined Balance Sheets for the additional three months of pension and other postretirement benefits cost at April 30, 2009. The provisions of the guidance did not permit retrospective application.
27 The following tables outline changes in benefit obligations, plan assets, the funded status of the plans and amounts included in the accompanying combined financial statements (in thousands):
Pension Benefits Postretirement Benefits 2010 2009 2010 2009 Change In benefit obligation Benefit obligation at beginning of year $ 1,157,672
$ 1,166,141
$ 450,279 $ 533,342 Service cost 32,129 42,171 8,597 12,244 Interest cost 79,254 88,832 30,859 35,305 Actuarial gain (Loss) 145,809 (84,012) 39,801 (113,228)Benefits paid (49,258) (55,460) (16,158) (17,384)Benefit obligation at end of year $ 1,365,606
$ 1,157,672
$ 513,378 $ 450,279 Change in plan assets Fair value of plan assets at beginning of year $ 796,741 $ 1,082,180
-$ -Actual return on plan assets 213,969 (279,979)Employer contributions 144,000 50,000 16,158 21,539 Benefits paid (49,258) (55,460) (16,158) (21,539)Fair value of plan assets at end of year $ 1,105,452 796,741 Funded status at end of year $ (260,154)
(360,931)
$ (513,378)
S (450,279)Amounts recognized In Combined Balance Sheets: Other current liabilities
$ $ $ (18,882) $ (18,882)Accrued post-retirement liability (260,154)
(360,931)
(494,496)
(431,397)Net asset (liability) recognized
$ (260,154)
$ (360,931)
$ (513,378)
$ (450,279)Amounts recognized as a regulatory asset: Transition obligation (asset) $ $ -$ (4) $ 11,698 Prior service cost (credit) 8,739 11,055 (7,193) 5,064 Net actuarial loss 533,863 510,984 123,490 53,722 Measurement date transition adjustment
-5,417 -11,450 Net regulatory asset $ 542,602 $ 527,456 $ 116,293 $ 81,934 The following table represents the amortization amounts expected to be recognized or paid during the fiscal year ending April 30, 2011 (in thousands):
Pension Benefits Net transition obligation/(asset)
Prior service cost/(credit)
Net actuarial$$ 2,315$ 20,597 Postretirement Benefits$ (1)$ (203)$ 5,576 The following table outlines the projected benefit obligation and accumulated benefit obligation in excess of Plan assets (in thousands):
Projected benefit obligation Accumulated benefit obligation Fair value of Plan assets 2010$ 1,365,606$ 1,201,915$ 1,105,452 2009$ 1,157,672$ 1,009,364$ 796,741 SRP internally funds its other postretirement benefits obligation.
At April 30, 2010 and 2009, $466.8 million and $352.9 million of segregated funds, respectively, were designated for this purpose.28 The weighted average assumptions used to calculate actuarial present values of benefit obligations at April 30 were as follows: Pension Benefits Postretirement Benefits 2010 2009 2010 2009 Discount rate 6.00% 7.00% 6.00% 7.00%Rate of compensation increase 4.00% 4.00% N/A N/A Weighted average assumptions used to calculate net periodic benefit costs were as follows: Pension Benefits Postretirement Benefits 2010 2009 2010 2009 Discount rate 7.00% 6.25% 7.00% 6.25%Expected return on Plan assets Rate of compensation increase 8.25%4.00%8.25%4.00%N/A N/A N/A N/A For employees who retire at age 65 or younger, for measurement purposes, an 8% annual increase before attainment of age 65 and an 8% annual increase on and after attainment of age 65 in per capita costs of health care benefits were assumed during 2010; these rates were assumed to decrease uniformly until equaling 5% in all future years.The components of net periodic benefit costs for the years ended April 30, are as follows (in thousands):
Pension Benefits Postretirement Benefits 2010 2009 2010 2009 Service cost $ 32,129 $ 33,737 $ 8,597 $ 9,796 Interest cost 79,254 71,065 30,859 28,244 Expected return on Plan assets (91,982) (91,359) --Amortization of transition obligation
--3,117 3,117 Amortization of net actuarial loss 6,360 5,909 1,556 3,874 Amortization of prior service cost 2,315 2,315 769 769 Net periodic benefit cost $ 28,076 $ 21,667 $ 44,898 $ 45,800 Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effect (in thousands):
One Percentage Point Increase$ 5,600$ 66,882 One Percentage Point Decrease$ 4,900$ 58,595 Effect on total service cost and interest cost components Effect on postretirement benefit obligation Plan Assets The Board has established an investment policy for Plan assets and has delegated oversight of such assets to a compensation committee (the Committee).
The investment policy sets forth the objective of providing for future pension benefits by targeting returns consistent with a stated tolerance of risk.29 The investment policy is based on analysis of the characteristics of the Plan sponsors, actuarial factors, current Plan condition, liquidity needs, and legal requirements.
The primary investment strategies are diversification of assets, stated asset allocation targets and ranges, and external management of Plan assets. The Committee determines the overall target asset allocation ratio for the Plan and defines the target asset allocation ratio deemed most appropriate for the needs of the Plan and the risk tolerance of the District.The market value of investments (reflecting returns, contributions, and benefit payments) within the plan trust appreciated 26.6% during fiscal year 2010, compared to a decline of 25.7% during fiscal year 2009. Changes in the plan's funded status affect the assets and liabilities recorded on the balance sheet in accordance with FASB authoritative guidance.
Due to the District's regulatory treatment, the recognition of funded status is offset by regulatory assets or liabilities and is recovered through prices.The Pension Protection Act of 2006 establishes new minimum funding standards and restricts plans underfunded by more than 20% from adopting amendments that increase plan liabilities unless they are funded immediately.
In December 2008, the Worker, Retiree, and Employer Recovery Act (WRERA)was enacted. Among other provisions, the WRERA provides temporary funding relief to defined benefit plans during the current economic down-turn.
WRERA will favorably impact the level of minimum required contributions for years after 2009.The Plan's weighted-average asset allocations are as follows: Target Allocations 2010 2009 Equity securities 65.0% 64.7% 53.6%Debt securities 25.0% 28.3% 34.4%Real estate 10.0% 7.0% 12.0%Total 100.0% 100.0% 100.0%The investment policy, as authorized by the Board, allows management to reallocate Plan assets at any time within a tolerance range up to plus or minus 5% from the target asset allocation which allows for flexibility in managing the assets based on prevailing market conditions and does not require automatic rebalancing if the actual allocation strays from the target allocation.
Given the dislocations In the markets, the Plan's weighted-average asset allocations had deviated from the target allocations in fiscal year 2009. In fiscal year 2010, the actual allocation of the Plan is closer to its normalized state, driven by a combination of asset growth, rebalancing, and contributions.
Management continues to monitor the allocations on a recurring basis.30 Fair Value of Plan Assets The following table sets forth the fair value of SRP's Plan assets, by asset category, at April 30, 2010 (dollars in thousands):
Level I Level 2 Level 3 Total Money market funds $ $ 42,370 $ $ 42,370 U.S. government securities 31,703 31,703 Corporate bonds 215,033 215,033 Corporate stocks 535,429 -535,429 Commingled funds -147,710 56,416 204,126 Real Estate --76,791 76,791 Total Assets $ 535,429 $ 436,816 $ 133,207 $ 1,105,452 The fair value of the Plan assets, excludes $337.6 million payable for collateral on loaned securities in connection with the participation of the Plan in securities lending programs.For a description of the fair value hierarchy and for an explanation of the valuation methodologies used to determine fair value of the assets of the Plan, refer to Note (5) FAIR VALUE MEASUREMENTS.
Changes In Level 3 Fair Value Measurements The table below includes the reconciliation of changes to the balance sheet amounts for the year ended April 30, 2010, (in thousands) for financial instruments classified within Level 3 of the valuation hierarchy; this determination is based upon unobservable inputs to the overall fair value measurement:
Beginning balance at May 1, 2009 Actual return on plan assets relating to assets still held at end of period Net purchases, sales and settlements Net transfers in/out of Level 3 Plan Assets$ 95,965 (14,775)54,000 (1,983)Balance at April 30, 2010$ 133,207 Long-Term Rate of Return The expected return on Plan assets is based on a review of the Plan asset allocations and consultations with a third-party investment consultant and the Plan actuary, considering market and economic indicators, historical market returns, correlations and volatility, and recent professional or academic research.Employer Contributions The District expects to contribute
$132.0 million to the Plan over the next valuation period.31 Benefits Payments SRP expects to pay benefits in the amounts as follows (in thousands):
Pension Benefits Postretirement Benefits Before Subsidy* Net 2011 $ 56,463 $ 18,883 $ 18,308 2012 60,542 20,939 20,284 2013 65,670 22,930 22,172 2014 71,385 25,078 24,221 2015 77,049 27,132 26,194 2016 through 2020 $ 480,554 $ 161,642 $ 155,563*Estimated future benefit payments, including prescription drug benefits, prior to federal drug subsidy receipts expected as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.Defined Contribution Plan SRP's Employees' 401(k) Plan (the 401(k) Plan) covers substantially all employees.
The 401(k) Plan receives employee pre-tax and post-tax contributions and partial employer matching contributions.
Employees who have one year of service in which they have worked at least 1,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> and who are also contributing to the 401(k) Plan are eligible to receive partial employer matching contributions of$0.85 on every dollar contributed up to the first six-percent of their base pay that they contribute to the 401(k) Plan. Employer matching contributions to the 401(k) Plan were $14.0 million and $13.8 million during fiscal years 2010 and 2009, respectively.
Employee Incentive Compensation Program For fiscal year 2009, SRP had an incentive compensation program covering substantially all regular employees.
The incentive compensation was based on achievement of pre-established targets that were not met in fiscal year 2009. The Board did not approve an incentive compensation program for fiscal year 2010.(10) INTERESTS IN JOINTLY-OWNED ELECTRIC UTIUTY PLANTS: The District has entered into various agreements with other electric utilities for the joint ownership of electric generating and transmission facilities.
Each participating owner in these facilities must provide for the cost of its ownership share. The District's share of expenses of the jointly-owned plants is included in operating expenses in the accompanying Combined Statements of Net Revenues.The following table reflects the District's ownership interest in jointly-owned electric utility plants as of April 30, 2010 (in thousands):
Construction Ownership Plant In Accumulated Work Generating Station Share Service Depreciation In Progress Four Comers (NM) (Units 4 & 5) 10.00% $ 113,594 $ (98,688) $ 7,649 Mohave (NV) (Units 1 & 2) 20.00% 133,498 (129,760)
-Navajo (AZ) (Units 1, 2 & 3) 21.70% 384,749 (333,344) 21,395 Hayden (CO) (Unit 2) 50.00% 119,297 (109,485) 5,021 Craig (CO) (Units 1 & 2) 29.00% 273,199 (210,123) 5,910 PVNGS (AZ) (Units 1, 2 & 3) 17.49% 1,284,975 (1,006,713) 53,898$ 2,309,312
$ (1,888,113)
$ 93,873 32 The Mohave Generating Station (Mohave), in which the District owns 20%, ceased operations on December 31, 2005. Efforts to reopen or sell the plant as a coal-fired generation source were unsuccessful and the Participants are decommissioning the plant. There remains approximately
$3.7 million in net plant value at Mohave for the switchyard and transmission line still used to route power to other inter-tied systems.(11) VARIABLE INTEREST ENTITIES: The FASB authoritative guidance defines a variable interest entity (VIE) as a legal entity whose equity owners do not have sufficient equity at risk or a controlling financial interest in the entity. This guidance identifies the primary beneficiary as the variable interest holder that absorbs the majority of the expected losses; if no variable interest holder meets this criterion, then it is the variable interest holder that receives the majority of the expected residual returns. The primary beneficiary is required to consolidate the VIE unless specific exceptions or exclusions are met. The District considers both qualitative and quantitative factors to form a conclusion whether it, or another interest holder, absorbs a majority of the risk of expected losses, receives a majority of the potential expected residual returns, or both. Beginning on May 1, 2010, new accounting guidance will change the approach for the determination of the primary beneficiary and will require the District to perform ongoing reassessment of its VIEs to determine the primary beneficiary.
This change may result in future consolidation or deconsolidation of VIEs.Unconsolidated VIE While the District is not required to consolidate any VIE as of April 30, 2010, it held a significant variable interest in certain VIEs as described below: In May 2008, the District entered into a 20-year purchase power agreement to purchase energy from a 575 MW simple cycle natural gas peaking facility.
Commercial operation is expected to begin in fiscal year 2012. Under the agreement, the District will pay a capacity charge, operation and maintenance costs and property taxes. The District is also obligated to provide the natural gas needed to operate the facility.
The District has no obligation if the facility does not commence commercial operation unless certain termination clauses are invoked, by the District, in which case the District could be required to reimburse certain construction costs.The District has entered into various long-term purchase power agreements with developing renewable energy generation facilities that extend for periods of 20 to 30 years. One of the facilities, with a capacity of approximately 63 MW, began commercial operation in fiscal year 2010 and SRP is receiving the power and renewable energy credits from the facility.
The remaining facilities are expected to begin commercial operation between fiscal year 2011 and fiscal year 2012. The expected capacity of all the facilities combined, once in operation, is approximately 190 MW. The District is only obligated to pay for actual energy delivered and has no obligation if the facilities do not start commercial operations.
There are no minimum payment obligations under these agreements.
SRP formed a partnership during fiscal year 2010 to market long-term water storage credits. SRP made capital contributions to the partnership in fiscal year 2010 totaling $448,000 and has a future maximum exposure of $25 million. SRP accounts for the partnership under the equity method of accounting.
33 (12) REGULATORY MATTERS: The Electric Utility Industry The District historically operated in a highly regulated environment in which it had an obligation to deliver electric service to customers within its service area. In 1998, the Arizona Electric Power Competition Act (the Act) authorized competition in the retail sales of electric generation, recovery of stranded costs, and competition in billing, metering and meter reading.While retail competition was available to all customers by 2001, there were only a few customers who chose an alternative energy provider.
Those customers have since returned to their incumbent utilities.
At this time, there is no active retail competition within the District's service territory or, to the knowledge of the District, within the State of Arizona. However, during the past four years, two retail energy service providers, one meter reading service provider, and one meter service provider have applied to the Arizona Corporation Commission for authorization to sell energy in Arizona. In September 2008, the ACC suspended consideration of the one application for which a procedural order had been issued pending completion of public workshops on the policy issues underlying retail competition and receipt of ACC Staff's report and recommendations.
The report to the ACC is expected in late summer 2010. The ACC has not yet addressed the other applications.
In 1996, the Federal Energy Regulatory Commission (FERC), which regulates the wholesale electric utility industry under the authority of various statutes, issued Orders 888 and 889 requiring transmitting "public utilities" (as defined in the Federal Power Act), to provide nondiscriminatory transmission services to entities seeking to effect wholesale power transactions, and to grant equal access to information concerning the pricing and availability of transmission services.
The District is not a public utility under the Federal Power Act but historically has complied with these requirements voluntarily.
The Energy Policy Act of 2005 (Energy Policy Act) expanded FERC jurisdiction by granting FERC discretionary authority to regulate the non-rate terms and conditions, and to a lesser extent, rates, under which unregulated transmitting utilities (including the District) provide wholesale transmission services.
The Energy Policy Act explicitly prohibits FERC from requiring unregulated transmitting utilities to take actions that would violate a private activity bond rule.The Changing Regulatory Environment The District has fully opened its service area to competition in generation and billing, metering and meter reading. The District's electric distribution area remains regulated by its Board, and the District will not provide distribution services in the distribution areas of other utilities.
The District's price plans have been unbundled since 1999. In May 2002, the District implemented a Fuel &Purchased Power Adjustment Mechanism (FPPAM) to allow for semi-annual rate adjustments to recover increases in actual fuel costs. The District has had several increases in the price of fuel and purchased power since the FPPAM was implemented.
In June 2004, the District introduced a Transmission Cost Adjustment Factor (TCAF) to recover costs the District would incur if the District were required to participate in regional transmission organizations.
To date, no costs have been incurred or recovered through the TCAF. In November 2009, the District introduced an Environmental Programs Cost Adjustment Factor (EPCAF) to recover costs incurred by the District to comply with renewable-energy, energy efficiency and climate-change related requirements imposed by mandate. The EPCAF is applied to all retail customer energy sales at a single per-kWh price for all customer classes.34 On October 6, 2008, the District Board approved an annualized 5.9% system average increase for the FPPAM to address under-collected fuel and purchased power expenses, effective with the November 2008 billing cycle. To lessen the impact on customer bills, the increase was designed to recover the under-collection over an 18-month period.On October 1, 2009, the District Board approved a 2.5 percent system average decrease for the FPPAM, effective with the November 2009 billing cycle, to reflect lower anticipated fuel and purchased-power costs for the last six months of fiscal year 2010. The Board also approved a 2.5 percent system average increase for the EPCAF, effective with the November 2009 billing cycle. The decrease to the FPPAM was offset by the increase to the EPCAF, resulting in no additional revenue.On March 11, 2010, the District Board approved an overall 4.9% system average increase effective with the May 2010 billing cycle. The increase is expected to generate approximately
$117.4 million in fiscal year 2011; $244 million of the increase is the result of adjustments to base prices and $26.5 million is related to an adjustment to the EPCAF, both of which are offset in part by a $153 million decrease in the FPPAM.Through a surcharge to the District's transmission and distribution customers, the District recovers the costs of programs benefiting the general public, such as discounted rates for the elderly or impoverished, and nuclear decommissioning, including the cost of spent fuel storage. This surcharge continues to be separately identified and included in the District's price plans for the regulated portion of its operations.
(13) COMMITMENTS:
Purchased Power and Coal Fuel Supply The District had various firm non-cancelable purchase commitments at April 30, 2010, which are not recognized in the accompanying Combined Balance Sheets. The following table presents information pertaining to firm purchase commitments with remaining terms greater than one year (in millions):
Total Payments Purchase Commitments 2010 2009 2011 2012 2013 2014 2015 Thereafter Purchase powercontracts*
$ 220.8 $ 237.5 $ 110.8 $ 107.7 $ 117.3 $ 118.5 $119.7 $ 2,287.2 Coal fuel supply contracts 249.3 487.5 264.3 264.8 246.2 193.8 193.8 511.5 Total $ 470.1 $ 725.0 $ 375.1 $ 372.5 $ 363.5 $ 312.3 $313.5 $ 2,798.7 Included in the purchase commitments are $25.2 million annually through fiscal year 2011 and $10.5 million in fiscal year 2012 that are unconditionally payable regardless of the availability of power.In conjunction with an impairment analysis performed on generation-related operations, in August 1998, the District recorded provisions of $163.7 million for losses on certain contracts included in the table above. The provisions are being amortized over the life of the contracts, commencing January 1, 1999, and will be fully amortized by May 2011. Amortization of $13.3 million has been reflected as a reduction in purchased power expense in fiscal years 2010 and 2009. The remaining liability at April 30, 2010 of $13.2 million is included in deferred credits and other non-current liabilities in the accompanying Combined Balance Sheets.35 Other Purchasý Power Agreements The District has entered into various long-term purchase power agreements with developing renewable energy generation facilities that extend for periods of 20 to 30 years. Total expected capacity is approximately 190 MW. (For further discussion of these agreements see Note (11) VARIABLE INTEREST ENTITIES.)
Gas Purchase Agreement In October 2007, the District entered into a 30-year gas purchase agreement with Salt Verde Financial Corporation (SVFC), an Arizona nonprofit corporation formed for the primary purpose of supplying natural gas to the District.
Under the agreement, the District is committed to purchase 4,750,000 MMBtus (million of British thermal units) of natural gas in fiscal year 2011, 9,820,000 MMBtus in fiscal year 2012, 10,120,000 MMBtus in fiscal year 2013, 10,425,000 MMBtus in fiscal year 2014, 10,425,000 MMBtus in fiscal year 2015 and 239,510,000 MMBtus over the balance of the term. These purchases are expected to supply approximately 20% of its projected natural gas requirements needed to serve retail customers over the remainder of the 30-year period. The District receives a discount off market prices and is obligated to pay only for gas delivered.
Payments to SVFC under the agreement were$10.1 million and $36.4 million in fiscal year 2010 and fiscal year 2009, respectively.
Operating Leases The District entered into various operating leases to facilitate the operations of Springerville Unit 4. Total payments under the agreements were $8.1 million and $1.6 million in fiscal year 2010 and 2009, respectively.
Minimum payments under these agreements are estimated to be $13.0 million in fiscal year 2011, $13.2 million in fiscal year 2012 through fiscal year 2014, $13.0 million in fiscal year 2015 and $241.5 million thereafter.
(14) CONTINGENCIES:
Nuclear Insurance Under existing law, public liability claims arising from a single nuclear incident are limited to $12.5 billion.PVNGS Participants insure for this potential liability through commercial insurance carriers to the maximum amount available
($300.0 million) with the balance covered by an industry-wide retrospective assessment program as required by the Price-Anderson Act. If losses at any nuclear power plant exceed available commercial insurance, the District could be assessed retrospective premium adjustments.
The maximum assessment per reactor per nuclear incident under the retrospective program is $117.5 million including a 5% surcharge; applicable in certain circumstances, but not more than $17.5 million per reactor may be charged in any one year for each incident.Based on the District's ownership share of PVNGS, the maximum potential assessment would be $61.7 million, including the 5% surcharge, but would be limited to $9.2 million per incident in any one year.PVNGS participants also maintain "all risk" (including nuclear hazards) insurance for property damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.75 billion, a substantial portion of which must first be applied to stabilization and decontamination.
The District has also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen accidental outage of any of the three units. The coverage for property damage, decontamination, and replacement power is provided by Nuclear Electric Insurance Limited (NEIL). The District is subject to retrospective assessments under all NEIL policies if 36 NEIL's losses in any policy year exceed accumulated funds. The maximum amount of retrospective assessments the District could incur under the NEIL policies totals approximately
$12.6 million. The insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions and exclusions.
Spent Nuclear Fuel Under the Nuclear Waste Policy Act of 1982, the District pays $0.001 per kWh on its share of net energy generation at PVNGS to the U.S. Department of Energy (DOE). The DOE was responsible for the selection and development of a repository for permanent storage and disposal of spent nuclear fuel not later than December 31, 1998. However, the DOE delayed submitting an application to construct a permanent repository at Yucca Mountain Nevada until June 2008 and the use of Yucca Mountain as a storage site remains uncertain.
Because of the significant delays in the DOE's schedule, it cannot be determined when the DOE will accept waste from PVNGS or from the other owners of spent nuclear fuel. It is unlikely, due to PVNGS' position in DOE's queue for receiving spent fuel, that Arizona Public Service Company (APS), the operating agent of PVNGS, will be able to initiate shipments to DOE during the licensed life of PVNGS.Accordingly, APS has constructed an on-site dry cask storage facility to receive and store PVNGS spent fuel.The facility stored its first cask in March 2003. Seventy-three casks are now stored on site.The District's share of on-site interim storage at PVNGS is estimated to be $69.1 million for costs to store spent nuclear fuel from inception of the plant through fiscal year-end 2010, and $0.4 million per year going forward. These costs have been included in the District's price plans for transmission and distribution.
At April 30, 2010 and 2009, the District's accrued spent fuel storage cost was $25.6 million and $24.5 million, respectively, and included in deferred credits and other non-current liabilities on the accompanying Combined Balance Sheets.Coal Supply Litigation Navajo Nation v. Peabody (U.S. District Court, D.C. District -RICO Case) -In 1999, the Navajo Nation filed a lawsuit in the United States District Court in Washington D.C. (the "U.S. District Court") in which the Hopi Tribe later joined as a plaintiff.
The lawsuit arises out of negotiations culminating in 1987 with amendments to the coal leases and related agreements.
The Navajo Nation and the Hopi Tribe allege that Peabody (the coal supplier for NGS and Mohave), Southern California Edison Company (operating agent for Mohave), the District (operating agent for NGS) and certain individual defendants, in violation of the federal racketeering statutes, had improperly induced the Department of the Interior to not approve the coal royalty rate proposed by the Navajo Nation. They further alleged that the Department of the Interior's failure to approve the rate caused the tribes to negotiate and settle upon a substantially lower royalty rate. The suit alleges $600.0 million in damages. The plaintiffs also seek treble damages against the defendants, measured by amounts awarded under the racketeering statutes.
In addition, the plaintiffs claim punitive damages of not less than $1.0 billion. In 2001, the claims of both the Navajo Nation and the Hopi Tribe were dismissed in their entirety with respect to the District.In 2005, the U.S. District Court stayed the litigation to allow the parties an opportunity to settle. In 2008, the Court lifted the stay and the case was restored to the court's active docket.On April 12, 2010, the Navajo Nation filed an amended complaint that did not include any RICO claims or claims against the District or any individual defendants.
The amended complaint continues to allege$600 million in damages and punitive damages in the amount of $1 billion and seeks to reform the coal leases to provide for a reasonable royalty rate, to dispossess the defendants of all interests in property on the Reservation and to permanently exclude the defendants from the Reservation.
While the District is 37 not named as a defendant in the amended complaint, the earlier dismissal of the District could possibly be appealed at the conclusion of the case.Black Mesa Environmental Impact Statement In 2008, the Office of Surface Mining (OSM) issued an Environmental Impact Statement (EIS) to allow Peabody to include the Black Mesa Mine (which formerly served Mohave) to the permit for the Kayenta Mine (which serves NGS). Among other things, combining the two permits could eventually give Peabody access to shallower, high quality coal for NGS, which could reduce future costs to the NGS Participants and provide an additional source of coal. Under the administrative appeals process, numerous appeals of the permit decision were filed, and a decision was issued that the process OSM had followed to issue the permit was inadequate.
Therefore OSM is redoing the EIS.The District is unable to predict the likely outcome of the coal supply litigation matters at this time but does not believe that the final resolution of these matters will have material adverse effects on its operations or financial condition.
Navajo Mine Permit The Din6 Citizens Against Ruining Our Environment (Dine CARE) and the San Juan Citizens Alliance filed a lawsuit against the OSM in July 2007. The lawsuit alleges that the OSM erroneously renewed the permit of BHP for the Navajo Mine, which serves Four Corners, and in which the District owns 10% of Units 4 and 5. Specifically, the lawsuit alleges that the OSM wrongly excluded review of the permit under the National Environmental Policy Act (NEPA) and that the U.S. Environmental Protection Agency (EPA) insufficiently considered the impacts on tribal members and on the environment of the continued and expanded mining operations and the use of fly ash as mine fill. Although the plaintiffs do not seek or request injunctive relief to halt the mining operations, they do ask the court to stop any relocation of tribal members as a result of mine expansion, any disposal of fly ash in the mine, and any blasting operations near the homes of tribal members. In a subsequent amended complaint, the plaintiffs added an allegation that BHP conducted an ethnographic survey that should have been, but was not, considered in the OSM's NEPA analysis for the mine renewal and expansion permits. The potential implications of these allegations for Four Corners are significant.
BHP passes environmental compliance costs through to the plant. If a court found that fly ash disposal indeed harms human health or the environment, BHP would look to Four Corners for funding any required investigation and remediation, and for any toxic tort claims. Furthermore, Four Corners operates its own fly ash disposal facilities, and any finding that fly ash disposal at the mine harms human health and the environment could be extended to the plant's disposal facilities as well. In addition, mine expansion is necessary to assure a continuing coal supply to the plant. Accordingly, APS, as operating agent, intervened on behalf of all the Four Corners Participants.
This matter has been fully briefed and oral argument is scheduled for late July 2010. The District cannot predict an outcome at this time.Environmental SRP is subject to numerous legislative, administrative and regulatory requirements relative to air quality, water quality, hazardous waste disposal and other environmental matters. SRP conducts ongoing environmental reviews of its properties for compliance and to identify those properties it believes may require remediation.
Such requirements have resulted, and will continue to result, in increased costs associated with the operation of existing properties.
At April 30, 2010, and 2009, the District accrued $53.3 million and $89.1 million, respectively, for environmental issues, on a non-38 discounted basis, and is included in deferred credits and other non-current liabilities on the accompanying Combined Balance Sheets.In September 2003, the EPA notified the District that it might be liable under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) as an owner and operator of a facility within the Motorola 5 2 nd Street Superfund Site Operable Unit 3. The District investigated and found minimal contamination on the site. The District removed the contamination and the EPA has informed the District that no further work will be required at the facility.
However, the District may be liable for past costs incurred and for future work to be conducted within the Superfund Site.The Roosevelt Irrigation District (RID) filed a lawsuit in the District Court of Arizona against the District and approximately 100 other defendants, asserting a claim for damages under CERCLA for costs associated with the remediation of groundwater and damage to RID's irrigation wells located within the West Van Buren Superfund Site, which is immediately to the west of the Motorola 52nd Street Superfund Site. The District has been identified as a potentially responsible party for the West Van Buren Site because of its involvement in the Motorola 52"d Street Superfund Site. RID has alleged that the costs associated with the remedlation could exceed $125 million. The District is unable at this time to predict the outcome of this matter but does not believe that the final resolution will have a material adverse effect on its operations or financial condition.
Air Quality Electric utilities are subject to federal, state and local environmental regulations which continually change due to legislative, regulatory and judicial actions. Consequently, there is no assurance that facilities owned by the District will remain subject to the regulations currently in effect, will always be in compliance with future regulations, or will always be able to obtain all required operating permits. The need to comply with environmental regulations could result in additional capital expenditures to comply, reduced operating levels, or the complete shutdown of individual electric generating units not in compliance.
In particular, the full significance to the District of air quality standards and emission reduction initiatives in terms of cost and operational problems is difficult to predict, but costly equipment may have to be added to units now in operation and that permit fees may increase significantly resulting in potentially material costs to the District.As a result of legislative and regulatory initiatives, the District is planning reductions in emissions of mercury and other hazardous air pollutants at its coal-fired power plants including plants located on the Navajo Reservation.
The EPA issued regulations for the control of mercury emissions from coal-fired generating stations in 2005. Arizona subsequently imposed additional mercury emissions limitations which would require the District to install additional controls at CGS and Springerville Unit 4 to achieve 90%mercury removal. In addition, the District has been participating with the EPA in the development of a rule to regulate mercury emissions on the Navajo Reservation, where the District owns an interest in two generating stations, NGS and Four Corners. In 2008, the U.S. Court of Appeals, D.C. Circuit, vacated the EPA's 2005 rules, finding that the EPA had not followed proper procedures to develop the rules. As a result, the EPA will issue new rules. In the interim, the District and other utilities negotiated Consent Orders with the Arizona Department of Environmental Quality (ADEQ), pursuant to which the District will implement a control strategy designed to achieve a 70 percent reduction of mercury emissions at CGS on a facility-wide annual average basis by January 1, 2012. It is likely that additional controls will be required at all coal-fired plants in which the District has an interest when new EPA rules are issued in 2011. The District is evaluating compliance options and cannot yet estimate the associated costs.39 In June 2005, the EPA also issued final amendments to its July 1999 Regional Haze Rule. These amendments apply to the provisions of the regional haze rule that require emissions controls known as Best Available Retrofit Technology (BART) for coal-fired power plants and other industrial facilities that emit air pollutants that reduce visibility.
The amendments include final guidelines for states and tribes to use in determining which facilities must install controls and the types of controls that facilities must use.States and tribes were required to complete BART determinations for eligible facilities by the end of 2007.Most states, including Arizona, did not meet that deadline, but Arizona is expected to complete its BART determination in 2010. BART controls must be installed five years after the EPA has approved a state's BART determination.
The District has financial interests in several coal-fired power plants that are subject to the BART requirements.
In August 2009, the EPA issued an Advanced Notice of Proposed Rulemaking seeking public comments on what constitutes BART for both NGS and Four Corners. Comments were due in March 2010 and the EPA is expected to issue proposed BART determinations sometime in late 2010 and final determinations in 2011.The District believes that BART for NGS requires the installation on all three units of low-NOx burners and separated over-fired air (LNB/SOFA).
The LNB/SOFA equipment has been installed on two units and the third unit will be completed in early 2011. The total cost for this project is $45 million, of which the District's share will be $9.8 million. The EPA may also require the installation of selective catalytic reduction (SCR) as well as controls for sulfuric acid mist emissions and fine particulate matter, which would cost about $1.2 billion, of which the District's share would be approximately
$260 million.APS believes that BART for Four Comers may require the installation of LNB/SOFA for Units 4 and 5 (in which the District owns a ten percent interest) at a total cost of $52 million, of which the District's share would be $5.2 million. Similar to NGS, the EPA may also require the installation of SCR, which could cost an additional
$478 million, of which the District's share would be $48 million.The EPA recently disapproved the Colorado BART determinations, including determinations made for the Craig and Hayden Generating Stations.
The EPA rejected the Colorado BART determination because it did not conform to the 2005 DART Guidelines.
Colorado has until January 2011 to submit a revised plan to the EPA or the EPA will issue its own BART determination.
The District believes that the revised BART will include a recommendation for SCRs on Craig and Hayden.On May 5, 2009, the National Parks Conservation Association (NPCA), Sierra Club, Grand Canyon Trust, San Juan Citizens Alliance (SJCA), To Nozhoni Ani, and Din6 CARE petitioned the U.S. Department of Interior -National Park Service (DOI) to certify to the EPA that visibility impairment in Grand Canyon National Park is"reasonably attributable" to oxides of nitrogen and particulate matter emissions from NGS (the NGS Petition).
The NGS Petition asks the DOI to supplement a similar certification it made in 1986 that ultimately led to the installation of sulfur dioxide scrubbers at NGS. The petitioners allege that although the installation of the scrubbers improved visibility at the Grand Canyon, it did not adequately reduce NGS's impact on such visibility.
In July 2009, the DOI responded to the NGS Petition, stating that it had been collaborating with the EPA regarding the BART determination for NGS, and that the agency would make a decision on the petition after the BART determination had been completed.
On February 16, 2010, the NPCA, Earthjustice, Sierra Club, SJCA, Grand Canyon Trust, Center for Biological Diversity, Dind CARE, Dooda Desert Rock and Wild Earth Guardians filed a petition similar to the NGS Petition with both the DOI and the U.S. Department of Agriculture
-U.S. Forest Service (DOA) with respect to Four Corners (the Four Corners Petition).
The petitioners asked that the DOI and the DOA certify to the EPA that impairment of visibility in sixteen areas within 300 kilometers of Four Corners including the Grand Canyon National Park, among others, was reasonably attributable to pollutant emissions from Four Corners. APS, as the operating agent for Four Corners, has asked the DOI and the 40 DOA to defer action on the Four Corners Petition until the ongoing BART determination process for Four Corners has been completed.
The EPA is continuing its national enforcement initiative under the new source review provisions of the Clean Air Act (CAA). This initiative is focused on determining whether companies had failed to disclose major repairs or alterations to facilities that, in the opinion of the EPA, would have required the installation of new pollution control equipment under the CAA. The EPA's pursuit of the initiative has resulted in the installation of expensive pollution control equipment at various facilities.
As part of this initiative, the EPA contacted APS on April 6, 2009, seeking detailed information regarding projects at and operations of Four Corners. APS has provided initial responses to this request and is unable to predict the timing or content of the EPA's response or any resulting actions.On May 5, 2010, Earthjustice wrote to the EPA and the owners of Four Corners Units 4 and 5, in which the District owns a ten percent interest, providing notice of intent to sue the participants (the Notice)for violations of the CAA. Earthjustice sent the Notice on behalf of Dind CARE, To Nizhoni Ani, National Parks Conservation Association, and the Sierra Club. The Notice alleges two types of CAA violations:
(1) Prevention of Significant Deterioration (PSD) (these have to do with New Source Review (NSR); PSD and NSR are essentially interchangeable);
and (2) New Source Performance Standards.
The EPA had 60 days to determine whether to file its own action against the plant, but failed to do so. Thus, Earthjustice could file suit at any time.The District is unable to predict the likely outcomes of these matters at this time.The District recognizes the growing importance of the issues concerning climate change (global warming) and the implications they could have on its operations, so it is closely monitoring climate change and other legislative and regulatory developments at the federal, state and regional levels.Congress is considering bills containing several significant provisions which would: (1) require utilities to meet a portion of their electricity demand through renewable energy sources and energy efficiency by the 2015 to 2020 timeframe; (2) establish a new cap-and trade program to reduce carbon emissions from major sources by over 80% by 2050; (3) mandate new energy efficiency codes for buildings and appliances; and (4) make investments in new energy technologies, resources and energy efficiency.
It is unknown when Congress will complete its consideration of the climate change and energy issues or what the final provisions of any bill that is enacted into law will be.While congressional action remains in flux, the EPA has moved forward with its efforts to regulate emissions of greenhouse gases (GHG). On December 15, 2009, the EPA published its final endangerment finding under the CAA to the effect that emissions of GHG threaten both public health and welfare and that emissions of GHG from motor vehicles contribute to that threat. Although the endangerment finding itself did not trigger Prevention of Significant Deterioration (PSD) or Title V permitting requirements for stationary sources, the EPA's finalization of the GHG Motor Vehicle Emissions Standards in April 2010 did, allowing the EPA to regulate stationary sources for emissions of GHG such as power plants. Then, on May, 13, 2010, the EPA released its "tailoring" rule, which changes or "tailors" the existing pollutant applicability thresholds for GHG for the PSD and Title V Programs to avoid permitting of all sources that meet the current statutory applicability thresholds for these two programs.
Regulation of GHG under the PSD and Title V Programs will affect permitting of new generation as well as permitting of modifications at existing plants. The District cannot predict the costs of compliance with such regulation until the EPA issues additional information on implementation, including guidance on possible options for controls or other efforts that might be required, but the costs could be substantial.
41 Efforts to cap or tax emissions of carbon dioxide from fossil fuel power plants will substantially increase the cost of, and add to the difficulty of siting, constructing, and operating electric generating units. As a result of legislative and regulatory initiatives, the District is planning emission reductions at its coal-fired power plants. In particular, under the terms of a consent agreement with the EPA, the District has agreed to install additional pollution control equipment at CGS and negotiations are ongoing with the EPA for pollution control equipment additions at NGS and Four Corners. The full significance of air quality standards and emission reduction initiatives to the District in terms of costs and operational problems is difficult to predict, but it appears that costly equipment may have to be added to existing units and that permit fees may increase significantly resulting in potentially material cost to the District as well as reduced generation.
The District is assessing the risk of policy initiatives on its generation assets and is developing contingency plans to comply with future laws and regulations restricting greenhouse gas emissions.
There is no way to predict the impact of such initiatives on the District at this time.The California Legislature has enacted laws that could impact the District.
Under one such law, the California Public Utilities Commission and the California Energy Commission have implemented a regulation that, among other things, prohibits long-term contracts, five years or more, for the procurement of electricity from coal-fired power plants and restricts investments in coal-fired plants.The Los Angeles Department of Water and Power (LADWP), one of the participants in NGS, and SCE, a participant in Four Corners Units 4 and 5, are subject to the regulations and may be precluded from approving certain expenditures at the plants. Also, the California Air Resource Board (CARB) is developing a program to reduce California emission of greenhouse gasses, including an economy-wide cap-and-trade program for greenhouse gases. The CARB regulations could impact the District's ability to sell excess generation into California.
Based on available information, the District cannot estimate or predict the impact of the California laws on it at this time.California Energy Market Issues Numerous FERC proceedings are addressing various aspects of the California energy market crisis of 2000 through 2001. Several of these proceedings involve potential refunds. Because the District bought from and sold power to the California energy market, the District has been drawn into many of the proceedings.
However, the District was a net buyer in the California market during the time periods being scrutinized, and believes it is entitled to refunds if any are ordered. The District has received approximately
$32.7 million in refunds as of April 30, 2010.Indian Matters From time to time, SRP is involved in litigation and disputes with various Indian tribes on issues concerning regulatory jurisdiction, royalty payments, taxes and water rights, among others (see Coal Supply Litigation above and Water Rights below). Resolution of these matters may result in increased operating expenses.Water Rights The District and the Association are parties to a state water rights adjudication proceeding initiated in 1976 which encompasses the entire Gila River System (the Gila River Adjudication).
This proceeding is pending in the Superior Court for the State of Arizona, Maricopa County, and will eventually result in the determination of all conflicting rights to water from the Gila River and its tributaries, including the Salt and Verde Rivers. The District and the Association are unable to predict the ultimate outcome of this proceeding.
42 In 1978, a water rights adjudication was initiated in the Apache County Superior Court with regard to the Little Colorado River System. The District has filed its claim to water rights in this proceeding, which includes a claim for groundwater being used in the operation of CGS. The District is unable to predict the ultimate outcome of this proceeding, but believes an adequate water supply for CGS will remain available.
The Cities of Prescott and Prescott Valley, together with the Town of Chino Valley, have plans to withdraw groundwater from the Big Chino Groundwater Sub-Basin and transport the water to their respective service areas for municipal and industrial uses. The District opposes these plans because it believes that such pumping would deplete the base flow of the Verde River, which is captured and stored by two reservoirs on the Verde River for delivery to Association shareholders.
The District is negotiating agreements with the parties which will satisfy its concerns.
However, in any case, the District does not believe the dispute will have a significant financial impact on the District or the Association.
Other Litigation In the normal course of business, SRP is exposed to various litigations or is a defendant in various litigation matters. In management's opinion, the ultimate resolution of these matters will not have a material adverse effect on SRP's financial position or results of operations.
Self-Insurance The District maintains various self-insurance retentions for certain casualty and property exposures.
In addition, the District has insurance coverage for amounts in excess of its self-insurance retention levels.The District provides reserves based on management's best estimate of claims, including incurred but not reported claims. In management's opinion, the reserves established for these claims are adequate and any changes will not have a material adverse effect on the District's financial position or results of operations.
The District records the reserves in deferred credits and other non-current liabilities in the accompanying Combined Balance Sheets.43 pCEWATERHOUS(CODPERS I PricewaterhouseCoopers LLP 350 South Grand Avenue Los Angeles CA 90071 Telephone (213) 356 6000 Facsimile (813) 637 4444 Report of Independent Auditors To the Board of Directors of the Salt River Project Agricultural Improvement and Power District and the Board of Governors of the Salt River Valley Water Users' Association In our opinion, the accompanying combined balance sheets and the related combined statements of net revenues and comprehensive income, and cash flows present fairly, in all material respects, the financial position of the Salt River Project Agricultural Improvement and Power District and its subsidiaries and the Salt River Valley Water Users' Association (collectively, "SRP") at April 30, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of SRP's management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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 of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.July 21, 2010 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY INDEPENDENT AUDITOR'S REPORT AND COMBINED FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 TABLE OF CONTENTS Pages INDEPENDENT AUDITOR'S REPORT I MANAGEMENT'S DISCUSSION AND ANALYSIS 2-9 FINANCIAL STATEMENTS Combined Financial Statements 10-42 Notes to Combined Financial Statements 43-85 SUPPLEMENTAL INFORMATION Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenture for the Year Ended June 30, 2009 Palo Verde Project 86 Hoover Uprating Project 87 San Juan Project 88 Magnolia Power Project 89 Canyon Power Project 90 Southern Transmission System Project 91 Mead-Phoenix Project 92 Mead-Adelanto Project 93 Multiple Project Fund 94 Natural Gas Barnett Project 95 Natural Gas Pinedale Project 96 Prepaid Natural Gas Project No. 1 97 MOSS-A SAMSL INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Participants of Southern California Public Power Authority We have audited the accompanying combined and individual project's statements of net assets (deficit) of Southern California Public Power Authority (the Authority) as of June 30, 2009 and 2008 and the related combined and individual project's statements of revenues, expenses and changes in net assets (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Authority's management.
Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.In our opinion, the combined and individual project's financial statements referred to above present fairly, in all material respects, the financial position of Southern California Public Power Authority and each of the Authority's projects:
Palo Verde Project, Hoover Uprating Project, San Juan Project, Magnolia Power Project, Ormat Geothermal Energy Project, Southern Transmission System Project, Mead-Phoenix Project, Mead-Adelanto Project, Natural Gas Pinedale Project, Natural Gas Barnett Project, Prepaid Natural Gas Project No. 1, Canyon Power Project, Pebble Springs Wind Project, MWD Small Hydro Project, Tieton Hydropower Project, Multiple Project Fund, and Projects'Stabilization Fund as of June 30, 2009 and 2008 and the results of the Project's operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.The management's discussion and analysis preceding the combined financial statements is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.The additional supplemental information, as listed in the table of contents, following the combined financial statements and notes to combined financial statements is also not a required part of the basic financial statements but is supplementary information provided for purposes of additional analysis.We did not audit or perform any other procedures on this information and express no opinion on it.Portland, Oregon October 15, 2009 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis of the financial performance of Southern California Public Power Authority (the "Authority" or "SCPPA"), provides an overview of the Authority's financial activities for the fiscal years ended June 30, 2009 and 2008. Please read this discussion and analysis in conjunction with the Authority's Combined Financial Statements, which begin on page 10. Description and other details pertaining to the Authority are included in the Notes to Combined Financial Statements.
The Authority is a joint powers authority whose primary purpose has been to provide joint financing and oversight for large joint projects for its member agencies that consist of eleven municipal electric utilities and one irrigation district in California.
On a combined basis, these entities provide electricity to more than 2 million retail electric customers.
A Board of Directors (the "Board") governs the Authority, which consists of one representative from each member agency.USING THIS FINANCIAL REPORT This annual financial report consists of a series of financial statements and reflects the self-supporting activities of the Authority that are funded primarily through the sale of energy, natural gas, and transmission services to member agencies under project specific "take or pay" contracts that require each member agency to pay its proportionate share of operating and maintenance expenses and debt service with respect to such projects.
The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding.
The Authority also established "take and pay" contracts for the participants of the prepaid natural gas project where the payments received from the sale of gas will be sufficient to pay debt service. In addition, the Authority has entered into various power purchase agreements.
These agreements are substantially take-and-pay contracts but there may be other costs not associated with the delivery of energy that the participants may be obligated to pay.2 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Summary of Financial Condition and Changes in Net Assets (Deficit)(In Thousands)
Assets Net utility plant Investments Cash and cash equivalents Prepaid and other Total assets Liabilities Noncurrent liabilities Current liabilities Total liabilities Net Assets (Deficit)Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net deficit Total liabilities and net assets (deficit)Revenues, Expenses and Changes in Net Assets (Deficit) for the year ended June 30 Operating revenues Operating expenses Operating income Investment income Debt expense Change in net assets 2009$ 1,070,203 828,151 143,671 602,916$ 2,644,941$ 2,513,439 273,947 2,787,386 (1,254,815) 1,022,837 89,533 (142,445)$ 2,644,941$ 464,286 (347,709)116,577 27,741 (145,965)(1,647)JUNE 30, 2008$ 1,009,331 558,619 230,000 592,450$ 2,390,400$ 2,310,261 220,748 2,531,009 (1,236,053) 996,901 98,543 (140,609)$ 2,390,400$ 476,865 (327,249)149,616 32,956 (108,062)74,510 2007$ 1,006,994 556,518 149,740 103,290$ 1,816,542$ 1,842,488 191,137 2,033,625 (742,312)429,686 95,543 (217,083)$ 1,816,542$ 390,005 (291,202)98,803 33,622 (113,028)19,397 Net Deficit, beginning of year (140,609)(217,083)(246,532)Net Contributions/(Withdrawals)
By Participants (189)$ (142,445)1,964$ (140,609)10,052$ (217,083)Net Deficit, end of year 3 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued)
Net Deficit -During fiscal year 2009 the Authority's net deficit increased by $2 million mainly due to the increase in assets of$254 million and the increase in liabilities of $256 million.The increase in the Authority's assets is due to the following:
Utility Plant -increased by $61 million.This increase is primarily due to the $80 million ongoing construction costs in the Canyon Power Project (CPP), $28 million upgrade of two converter stations in the Southern Transmission System (STS); and$23 million ongoing capital improvements in the Palo Verde (PV or PVNGS), Mead Phoenix (MP), San Juan (SJ), Magnolia (MPP) and Natural Gas Barnett Projects; offset by $72 million of scheduled depreciation and amortization in all projects." Investments
-increased by $270 million.This increase is largely due to the following additional inflows of cash: $92 million of bond proceeds from the issuance of the STS 2008 Series B Subordinate Bonds, $27 million of bond proceeds from the issuance of the 2008A Revenue Notes in the Canyon Power Project, $2 million of remaining bond proceeds and $3 million remaining from the suspension of the 2007 Swap in the Mead Adelanto Project;$49 million of accumulated overbillings and advances from the Palo Verde, STS, Mead Phoenix, Prepaid Gas, and Natural Gas Reserves -Pinedale and Barnett Projects;
$90 million transfer of investment from cash and cash equivalents to long-term in the Palo Verde, Hoover, San Juan, Magnolia, Pinedale and Barnett Natural Gas Reserves, Multiple and Project Stabilization Fund (PSF); $12 million reinvestment of interest earnings in the Decommissioning Trust Fund, Multiple Project, and PSF. The increases were offset by the $5 million FSA Guaranteed Investment Contract (GIC) that reduces the notes payable due to the participants." Cash and cash equivalents
-decreased by $86 million.This decrease is due to the $90 million transfer of investments from cash and cash equivalents to long-term in the Palo Verde, Hoover, San Juan, Magnolia, Natural Gas Pinedale and Barnett, Multiple and PSF Projects;
$3 million payment of capital improvements in Mead Phoenix; $7 million advance payment of O&M in the San Juan Project; and $7 million payment of major maintenance in the Magnolia Power Project. The decreases were offset by $11 million bond proceeds from the issuance of the 2008A Revenue Notes in the Canyon Power Project; $6 million additional investment from the newly acquired Renewable Projects -Pebble Springs Wind Project, Tieton Hydropower Project, and MWD Small Hydro Project; and$3 million accumulated overbillings from Prepaid Natural Gas Project No.1, and Ormat Geothermal Energy Project." Prepaid and Other Assets -increased by $10 million.This increase is primarily due to the deferral of the $31 million payment for the termination of the Magnolia 2007 Interest Rate Swap which is related to the refunding of the Magnolia A Refunding Revenue Bonds, 2007-1. The payment is being amortized over the life of the new Magnolia Refunding Bonds Series 2009-1 and 2009-2. The increase was offset by $19 million of scheduled amortization costs in the Prepaid Natural Gas Project No. 1; and a $2 million decrease in the advances for capacity and energy balance in the Hoover Uprating Project.4 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued)
The increase in the Authority's liabilities of $256 million is mainly due to the following:
$104 million issuance of 2008 Series A Revenue Notes in the Canyon Power Project; $125 million issuance of 2008 Series B Subordinate Bonds in STS; $24 million from the issuance of Refunding Bonds Series 2009-1 and 2009-2 in the Magnolia Power Project; $40 million increase in accounts payable and accruals for all projects;
$12 million increase in advances from the participants in the Natural Gas Pinedale Project; and $3 million of accrued interest.
The increases were offset by $56 million of principal maturities and related amortizations for all projects.During fiscal year 2008, the Gas Project Revenue Bonds, Project No. 1, 2007 Series A & B were issued to acquire a prepaid 30-year supply of natural gas in the Natural Gas Prepaid Project No. 1; the Natural Gas Project Revenue Bonds Series 2008A were issued to payoff $76 million of bridge loans in the Natural Gas Projects; and the environmental upgrades for the San Juan Project were completed.
As a result of these events and other ongoing transactions, such as the scheduled depreciation, the application of advances from over/under billings in all projects, and the additional drilling of wells in the Natural Gas Barnett Project, the Authority's assets increased by$573 million and its liabilities increased by $497 million resulting in a net deficit decrease of $76 million.Operating Income -The net decrease in operating income by $33 million is due to the following:
A $13 million decrease in operating revenues and a $20 million increase in operating expenses were primarily due to a decrease of $24 million in the San Juan Project, because of the completion of the environmental upgrades and a decrease in depreciation expense resulting from a change in the estimated useful life of the plant; an $18 million decrease in Palo Verde Project for the completion of the steam generator replacement program and last year's replenishment of fuel inventory; a decrease of $4 million because of realized gain on the suspension of the 2007 Swap which was used to offset expenditures in the Mead Adelanto Project; and a $4 million decrease due to the lower price of gas in the Magnolia Power Project and the Natural Gas Barnett and Pinedale Projects.
The decreases were mainly offset by a $12 million increase in operating income related to the commencement of the Prepaid Natural Gas No. 1 natural gas deliveries; and a $5 million increase in the STS Project due to the postponement of costs associated with the STS Upgrade.During fiscal year 2008, net operating income increased by $51 million primarily due to an increase in billings to participants for the steam generation replacement and fuel inventory replenishment in Palo Verde; environmental upgrades and major maintenance in San Juan; and an increase in MPP's fuel and operation and maintenance expenses.Investment Income -Investment income decreased by $5 million largely due to callable, high yield investment securities that were called and replaced with lower yielding securities in the Decommissioning Trust Fund, MPP, and PSF.5 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Combined Financial Statements (Continued)
During fiscal year 2008, there were no significant changes in investment income.Debt Expense -Debt expense increased by $38 million mainly due to $26 million of interest related to the Prepaid Natural Gas Project No. 1 Series 2007 A&B Bonds that are expensed in the current fiscal year due to the commencement of natural gas deliveries;
$6 million of additional interest expenses related to the remarketing of the STS variable interest rate bonds; $1 million of fees paid for the remarketing of the Magnolia Power Project A Refunding Revenue Bonds 2007-1; and $1 million of loss on refunding expense on the refunded PV 1996 Series B Bonds that had a remaining life of less than one year.During fiscal year 2008, debt expense decreased by $5 million primarily due to a net gain from swap related transactions and a decrease in arbitrage and other debt related obligations in the STS Project.Supplementary Information:
The Linden Wind Energy Project -The Authority has entered into a contract for sale and purchase of the Linden Wind Energy Project. The project is a $139 million, 50MW wind project comprised of 25 wind turbines, located in Klickitat County, Washington.
The Authority has sold entitlements to 100% of the facility output to two of its members; 90% or 45MW to LADWP and the remaining 10% or 5MW to the City of Glendale.
A layoff agreement has been put in place with a 3-year buy-out option for the City of Glendale.
Approval processes at LADWP and Glendale have been completed and the preliminary financing process has commenced for the issuance of Linden Wind Energy Revenue Notes, 2009 Series A ("2009 Notes"), which will provide interim financing for the payment of a portion of the costs of acquisition.
Construction is expected to be completed by mid 2010 at which time, bonds will be issued to retire the 2009 Notes and provide long-term financing for the costs of the project. The participants were billed in August 2009 for the initial milestone payment of $13,995,000 that is due upon acceptance by the developer of the notice to proceed. The participants will be reimbursed for the payment from the proceeds of the 2009 Notes.The Windy Point/Windy Flats Energy Project -The Authority has entered into a Power Purchase Agreement for the sale and purchase of the Windy Point/Windy Flats Project (the "Facility")
resources located in Klickitat County, Washington.
The Facility when fully developed will entail a wind-powered electricity generating facility, including a primary facility with a planned initial installed capacity of approximately 202 MW (Phase 1)and a facility expansion with a planned installed capacity of approximately 60 additional MW (Phase 2).Depending on construction progress both phases could be completed at the same time. The Authority has sold 92% of the energy to be generated by the Facility to LADWP and the remaining 8% to the City of Glendale.
A layoff agreement has been put in place with a 3-year buy-out option for the City of Glendale.
The Power Purchase Agreement provides for the Authority to make a prepayment for a portion of the energy generated.
The Authority expects to finance such prepayment by issuing bonds. Approval processes at LADWP and Glendale have been completed and the preliminary financing process has commenced.
6 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Financial Outlook -The Authority's credit strength is based on a number of factors including: " The collective credit strengths of each project participant
- The absence of concentration risk as evidenced by the lack of substantial reliance by one participant on the resources financed* The low cost power the Projects provide the participants and" Strong legal provisions.
The Authority has take-or-pay power sales, natural gas sales and transmission service contracts that unconditionally require the Participants to pay for the cost of operating and maintaining the Projects, including debt service, whether or not the Projects are operating or operable.
Although the contracts have not been court-tested, a municipal utility's authority to enter into such ýcontracts is rooted in the State's constitutional provisions for municipal electric utilities.
The Participants of the Prepaid Natural Gas Project No. 1, however, are obligated only to purchase and pay for gas delivered by SCPPA at market-based prices in accordance with the prepaid gas sale agreements in take and pay contracts.
The Authority has also entered into various power purchase agreements that are substantially take-and-pay contracts but there may be other costs not associated with the delivery of energy that the participants may be obligated to pay.Through the collaborative efforts of its members, the Authority has developed a comprehensive and dynamic strategic plan that provides a common vision for its members and a platform for joint action. SCPPA continues its involvement in legislative and regulatory affairs at both the state and federal levels to protect represented customers, by assuring resource adequacy, excellent reliability, and environmental stewardship.
Backed by one of the strongest financial ratings in the utility industry, SCPPA maintains its traditional role of providing financing for its members' natural gas, generation, and transmission projects.
In addition to the conventional areas of power, investments are also being made to provide customers with more renewable generation and energy efficiency.
Energy efficiency and demand reduction programs are vital parts of public power's resource strategy and critical to balancing the portfolio's generation and load match. Since 1998, SCPPA members have spent more than $300 million on energy efficiency and demand reduction management programs.In addition to energy efficiency, AB 1890 requires all California electric utilities to commit a portion of their revenue to other Public Benefit Programs, including renewable energy, research, development and demonstration (RD&D), and low-income customer assistance.
SCPPA members have a significant commitment to low-income customer assistance and RD&D public benefit programs.
Since 1998, over $921 million has been spent to date to support local communities.
7 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Renewable Projects -SCPPA members are committed to the use of renewable energy resources in the future.High Winds Energy Center -Energy from the High Winds Energy Center in Solano County, California, is now a part of the participating members' resource portfolios.
SCPPA members, including the cities of Anaheim, Azusa, Colton, Glendale, and Pasadena contracted with PPM Energy (a division of Pacificorp Holdings) for 30 megawatts (MW) of the 150 MW wind facility.
PPM also provides a firming service, which guarantees SCPPA members firm delivery of energy, at predetermined rates, regardless of the wind conditions at the site. Although the purchase contracts under the project were between the individual members and PPM, SCPPA played a key role in bringing this project to a reality through the issuance of the Renewable RFP and coordinating contract negotiations.
Ameresco Chiquita Energy LLC -SCPPA has entered into a Power Purchase Agreement with Ameresco Chiquita Energy LLC for 100% of the electric generation from a landfill gas to energy facility to be located at the landfill site in Valencia, California (Ameresco Landfill Gas to Energy Project).
The SCPPA participants in this project include the cities of Burbank and Pasadena.
This project will initially be for 8 megawatts with an option to increase the output by an additional 8 megawatts in the future when additional gas becomes available.
The Authority has entered into development agreements with its members for the purpose of investigating and performing due diligence on the following renewable resource options to be acquired on behalf of its members: Milford Wind Corridor Phase I Project -The Milford Wind Corridor Phase I Project is a 200 MW wind power project planned to be located in Beaver and Millard Counties, Utah. The wind power will be delivered to SCPPA through the Intermountain Power Project's switching station located in Delta, Utah. The term of the project is 20 years and the commercial operation date is expected to be in late 2009. An early buyout option is included in the agreement after the 10th contract year. Similar to other SCPPA projects, the Milford Wind Corridor Phase I project will be paid for entirely by the participants (LADWP, Burbank, and Pasadena).
This project is under construction and the participant agreements have been finalized.
Raser Geothermal Generation Project -A Utah geothermal project with a proposed nameplate capacity of approximately 111 MW located in Beaver and Iron Counties, Utah, which is currently being developed by Raser Technologies, Incorporated and will be initially administered, owned, and operated by affiliates of Raser Technologies, Incorporated.
The Power Purchase Agreements are anticipated to provide various prepayment and purchase options. The Project is currently being developed in two separate phases, with phase one having three sub-phases.
The estimated commercial operation date is December 2011.Milford Wind Corridor Phase II Project -A Utah wind energy project developed on 9,500 acres of land, with a proposed nameplate capacity of 103 MW, located in Beaver and Millard Counties, Utah, to be developed by First Wind Holding, Incorporated.
This Project is initially contemplated to be owned and administered by Milford Wind Corridor Phase II, LLC, an affiliate of First Wind Holding, Incorporated.
The Power Purchase Agreement relating to the facility is anticipated to provide for potential purchase options. The estimated commercial operation date is April 2010.8 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS Renewable Projects (Continued)
Miller Ranch Wind Project -A Washington state wind power generating facility project with a proposed nameplate capacity of approximately 150 MW is being developed by EnXco Development Corporation and affiliates of EnXco Development Corporation on 15,140 acres of land. The estimated commercial operation date is October 2010.Leaning Juniper II Wind Project -An Oregon wind energy project with a proposed nameplate capacity of approximately 201.3 MW currently under development by Iberdrola Renewable, Incorporated, located in Gilliam County, Oregon. The project is currently owned and administered by Leaning Juniper Wind Power II, LLC, an affiliate of Iberdrola Renewable, Incorporated.
This project will be developed in two (2) phases, with Phase 1 of the project referred to as "Leaning Juniper 2a" and Phase 2 of the project being referred to as "Leaning Juniper 2b". Leaning Juniper 2a is a 90.3 MW wind energy generation facility comprised of approximately 8,000 acres.Leaning Juniper 2b is a 111 MW wind energy generation facility comprised of approximately 18,000 acres. The estimated commercial operation date is December 2010.Solar Mission Project -An Arizona Solar Tower project under development with a proposed nameplate capacity of approximately 200 MW located in western Arizona in La Paz County. The facility is being developed by SolarMission Technologies, Incorporated and EnviroMission (USA) Incorporated.
The estimated commercial operation date is March 2013.Summary The management of the Authority is responsible for preparing the information in this management discussion and analysis, combined financial statements and notes to combined financial statements.
The financial statements were prepared according to accounting principles generally accepted in the United States of America, and they fairly portray the Authority's financial position and operating results. The notes to the financial statements are an integral part of the basic financial statements and provide additional financial information.
9 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF NET ASSETS (DEFICIT)(AMOUNTS IN THOUSANDS)
JUNE 30, ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)2009$ 1,070,203 756,916 71,235 11,550 10,850 49,651 465,666 2,436,071 114,684 28,987 6,593 19,463 19,744 19,399 208,870$ 2,644,941$ 2,434,044 50,240 29,155 2,513,439 86,805 9,069 47,670 36,291 87,618 6,494 273,947 2,787,386 (1,254,815) 1,022,837 89,533 (142,445)$ 2,644,941 2008$ 1,009,331 493,557 65,062 11,550 12,381 19,940 482,291 2,094,112 185,709 44,291 6,541 20,168 20,416 19,163 296,288$ 2,390,400$ 2,227,915 52,050 30,296 2,310,261 84,835 6,176 41,675 33,587 47,284 7,191 220,748 2,531,009 (1,236,053) 996,901 98,543 (140,609)$ 2,390,400 10 See accompanying notes.10 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)(AMOUNTS IN THOUSANDS)
YEAR ENDED JUNE 30, Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses 2009$ 293,817 111,712 58,757 464,286 262,313 67,190 9,634 8,572 347,709 116,577 27,741 (145,965)(118,224)2008$ 332,646 109,384 34,835 476,865 238,069 69,341 8,059 11,780 327,249 149,616 32,956 (108,062)(75,106)Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net contributions (withdrawls) by participants (1,647)74,510 (140,609)(217,083)(189)(142,445)1,964$ (140,609)Net assets (deficit)
-end of year See accompanying notes.I1I See accompanying notes. 11 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
YEAR ENDED JUNE 30, Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 2009 404,398 16,500 (193,392)12,943 240,449 (13,632)(128,429)(121,586)852,809 (587,271)(662)(72,585)(37,285)(95,009)20,948 (487,975)248,890 (218,137)(86,329)230,000 S 143,671 2008 S 393,905 19,399 (189,572)7,657 231,389 4,756 (94,212)(480,648)(111,042)707,134 (125,950)10,039 (79,615)(8,092)(182,386)22,783 (373,958)377,676 26,501 80,260 149,740$ 230,000 S 116,577 S 67,190 8,572 2,736 9,634 149,616 69,341 11,780 2,629 8,059 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 1,170 26,886 7,684 240,449 S 114,684 28,987 S 143,671 (13,316)9,654 (6,374)S 231,389$ 185,709 44,291 5 230,000 12 See accompanying notes.12 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
GENERATION Hoover Magnolia Canyon Palo Verde Uprating San Juan Power Power ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets.Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 111,953 198,112 70,036$2,699 1,199$ 75,345 $ 269,945 $ 80,393 33,030 57,809 27,003-10,850 -577 139 980 380,678 14,887 109,355 33,448 179 361,202 107,575 9,315 4,101 1,288 1,807 308 117 2,457 2,670 14,509 3,280 194 2,346 10,960 176-45-4,268 7,804 -3,941 7,999 143 1,322 346 1,024 -24,458 1,747 13,727 29,352 11,136$ 405,136 $ 16,634 $ 123,082 $ 390,554 $ 118,711 82,426 $ 13,850 $ 139,830 $ 369,235 41,929 --1,273$ 104,627 124,355 13,850 139,830 370,508 104,627 10,360 5,232 23 30,956 1,500 1,480 11,115 8,695 1,341 192 66-15,525 3,849 4,644 3,663 2,061 240 -1,479 12,605 48,071 1,738 18,867 32,266 14,084 172,426 15,588 158,697 402,774 118,711 19,745' -141,405 (204)71,560 1,250 232,710 1,046$ 405,136 $ 16,634 (90,817) (67,816)31,681 44,281 23,521 11,315 (35,615) (12,220) -$ 123,082 $ 390,554 $ 118,711 See accompanying notes.13 See accompanying notes. 13 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
GENERATION Hoover Magnolia Palo Verde Uprating San Juan Power ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 122,974 163,930 64,502$1,068 560$ 77,463 $ 280,668 21,322 48,176-12,381 --494 176 1,181 3,264--64 -351,900 14,185 100,030 332,108 15,519 7,806 1,676 3,824 2,450 172 8 34 16,860 7,017 14 900 25,389 8,771 721 5,024 7,392 -149 1,257 36,366 3,921$ 388,266 $ 18,106 3,880 9,144 362 831 29,033 49,880$ 129,063 $ 381,988$ 78,175 $ 14,890 $ 150,942 $ 344,981 46,768 --1,451--34 124,943 14,890 150,942 346,466 12,250 4,998 420 11,654 1,602 1,425 10,550 206 65 4,133 7,504 233 7,930 1,178 22,090 9,003 4,752 30,924 1,696 22,420 44,953 155,867 16,586 173,362 391,419 33,043 -(82,848)128,847 810 34,062 70,509 710 4,487 232,399 1,520 (44,299)$ 388,266 $ 18,106 $ 129,063 (65,227)36,812 18,984 (9,431)$ 381,988 14 See accompanying notes.14 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)TRANSMISSION Southern Transmission Mead-System Mead- Phoenix Adelanto$ 274,297 $ 38,300 $ 113,508 158,425 8,283 31,534 11,550 5,976 692 1,498 450,248 47,275 146,540 29,062 4,095 410 5,010 3,031 225 241 568 6,247 12,357 285 832 17,180 38,577 10,312 30,654$ 488,825 $ 57,587 $ 177,194$ 816,294 2,247$55,660 684$ 175,837 4,107 818,541 56,344 179,944 30,585 749 12,765 16,995 2,870 86 1,020 596 9,480 1,661 3,024 4,483 61,094 879,635 4,572 18,648 60,916 198,592 (476,696)
(20,308)96,771 16,773 (10,885) 206 (390,810)
(3,329)$ 488,825 $ 57,587 (76,079)58,591 (3,910)(21,398)$ 177,194 See accompanying notes.15 See accompanying notes. 15 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission Mead-System Mead- Phoenix Adelanto ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted.
Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 265,434 41,319 11,550 5,256$36,936 7,593$ 117,532 25,406 2,045 619 323,559 45,148 144,983 43,387 4,396 38 5,518 5,779 815 266 5,807 12,238 527 844 685 15,968 53,339$ 376,898$ 714,407 12,667 30,262$ 57,815 S 175,245$ 56,611 886$ 180,277 2,945 714,407 57,497 183,222 31,075 7,169 13,811 3,425 1,015 1,405 11,400 2,894 2,330 52,055 5,845 16,624 766,462 63,342 199,846 (474,791)
(23,367) (75,045)89,125 17,618 49,237 (3,898) 222 1,207 (389,564)
(5,527) (24,601)$ 376,898 $ 57,815 $ 175,245 16 See accompanvinz notes.16 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)44,114 42,992$62,348 46,212$11,901 1,036 1,058 4,068--465,666 88,142 109,618 481,635 6,475 4,422 249 1,370 5,172 536 95 1,785 7,588$ 117,206 2,207 401 50 2,309 16,012 20,979$ 502,614 552 13,068$ 101,210$ 38,082 $ 89,603 $ 503,498 18,670 10,485 -56,752 100,088 503,498 1,956 30,719 995 2,300 4,754 4,639 1,426 2,343 2,066 5,625 4,263 2,971 40,724 10,474 12,859 97,476 110,562 516,357 (13,558) (41,321) (487,965)18,501 47,710 476,792 (1,209) 255 (2,570)3,734 6,644 (13,743)$ 101,210 $ 117,206 $ 502,614 See accompanying notes.17 See accompanying notes. 17 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$ 45,216 15,126$63,108 45,013$10,887 1,273 1,299 4,333--482,227 61,615 109,420 497,447 16,307 12,129 40 831 7,367 709 102 3,352 20 265 44 16,012 16,341$ 513,788 552 -29,859 11,530$ 91,474 $ 120,950$ 40,038 $ 94,242 S 509,525 19,096 11,166 -59,134 105,408 509,525 2,015 4,765 19,149 436 -831 1,959 4,263 2,543 1,536 -5,356 -29,894 8,696 4,263 89,028 114,104 513,788 (14,500) (45,765) (487,553)11,879 50,085 487,288 5,067 2,526 265 2,446 6,846 -$ 91,474 $ 120,950 $ 513,788 18 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat MWD Geothermal Small Pebble Energy Hydro Springs Tieton ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$$S$2,673 1 1,286 3,970 926 2,674 1,286 3,970 926$ 2,674 $ 1,286 $ 3,970 $ 926$$S$2,674 1,286 3,970 926 2,674 1,286 2,674 1,286 3,970 926 3,970 926$ 2,674 $ 1,286 $ 3,970 $ 926 See accompanying notes.19 See accompanying notes. 19 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat Geothermal Energy ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)$1,684 3 1,687$ 1,687$1,684 1,684 1,684 3 3$ 1,687 20 See accompanying notes.20 See aCcompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)MISCELLANEOUS Multiple Projects'Project Stabilization Total Fund Fund Total Eliminations Combined$ -$ -$ 1,070,203
$ -$ 1,070,203 68,986 69,930 756,916 -756,916--71,235 -71,235--11,550 -11,550--10,850 -10,850--49,651 -49,651-465,666 -465,666 68,986 69,930 2,436,071
-2,436,071 119 18,712 114,684 -114,684--28,987 -28,987 2,499 513 6,593 -6,593--19,463 -19,463 23,427 (23,427) -19,744 19,744-19,399 19,399 2,618 19,225 232,297 (23,427) 208,870$ 71,604 $ 89,155 $ 2,668,368
$ (23,427) $ 2,644,941$ 45,102 $ -$ 2,434,044
$ $ 2,434,044--50,240 50,240--29,155 29,155 45,102 2,513,439 2,513,439 86,805 86,805-9,069 -9,069--47,670 -47,670 1,694 -36,291 -36,291--87,618 -87,618--6,494 -6,494 23,427 -23,427 (23,427) -25,121 -297,374 (23,427) 273,947 70,223 -2,810,813 (23,427) 2,787,386--(1,254,815)
(1,254,815) 1,381 89,155 1,022,837 1,022,837-89,533 89,533 1,381 89,155 (142,445)
(142,445)$ 71,604 $ 89,155 $ 2,668,368
$ (23,427) $ 2,644,941 See accompanying notes.21 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS (DEFICIT)JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
ASSETS Noncurrent assets Net utility plant Investments
-restricted Investments
-unrestricted Advance to IPA -restricted Advances for capacity and energy, net -restricted Unamortized debt expenses Prepaid and other assets Total noncurrent assets Current assets Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted Interest receivable Accounts receivable Due from other project -restricted Materials and supplies Prepaid and other assets Total current assets Total assets LIABILITIES Noncurrent liabilities Long-term debt Notes payable and deferred credits Advances from participants Total noncurrent liabilities Current liabilities Debt due within one year Notes payable and deferred credits due within one year Advances from participants due within one year Accrued interest Accounts payable and accruals Accrued property tax Due to other projects Total current liabilities Total liabilities NET ASSETS (DEFICIT)Invested in capital assets, net of related debt and advances from participants Restricted net assets (deficit)Unrestricted net assets (deficit)Total net assets (deficit)Total liabilities and net assets (deficit)MISCELLANEOUS Multiple Projects'Project Stabilization Total Fund Fund Total Eliminations Combined$ -$ -$ 1,009,331
$ $ 1,009,331 63,252 50,465 493,557 493,557--65,062 65,062-11,550 11,550-12,381 12,381-19,940 19,940--482,291 482,291 63,252 50,465 2,094,112 2,094,112 4,448 35,945 185,709 185,709--44,291 44,291 2,325 460 6,541 6,541--20,168 20,168-21,775 (21,775) --20,416 20,416--19,163 19,163 6,773 36,405 318,063 (21,775) 296,288$ 70,025 $ 86,870 $ 2,412,175
$ (21,775) $ 2,390,400$ 43,827 $ -$ 2,227,915
$ -$ 2,227,915--52,050 -52,050--30,296 -30,296 43,827 2,310,261 2,310,261 84,835 84,835-6,176 -6,176--41,675 -41,675 1,694 -33,587 -33,587--47,284 -47,284--7,191 -7,191 21,775 -21,775 (21,775) -23,469 -242,523 (21,775) 220,748 67,296 -2,552,784 (21,775) 2,531,009 4,268 86,870 (1,539) -2,729 86,870$ 70,025 $ 86,870 (1,236,053)
(1,236,053) 996,901 996,901 98,543 98,543 (140,609)
(140,609)$ 2,412,175
$ (21,775) $ 2,390,400 22 See accompanying notes.22 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year GENERATION Hoover Magnolia Canyon Palo Verde Uprating San Juan Power Power$ 78,060 $ 2,353 $ 82,568 $ 114,273 $ -78,060 2,353 82,568 114,273 42,178 2,918 60,451 87,925 19,083 -5,486 11,438 9,634 --7,029 -1,543 --77,924 2,918 67,480 99,363 -136 (565) 15,088 14,910 -8,141 80 1,782 1,677 -(7,966) 11 (8,186) (19,376) -175 91 (6,404) (17,699)311 (474) 8,684 (2,789)232,399 1,520 (44,299) (9,431)$ 232,710 $ 1,046 $ (35,615) $ (12,220) $See accompanying notes.23 See accompanying notes. 23 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
GENERATION Hoover Magnolia Palo Verde Uprating San Juan Power Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$ 94,732 $2,352 $ 102,735 $ 128,433 94,732 2,352 102,735 128,433 41,303 2,887 49,518 105,218 Operating income (loss)18,793 10,782 11,264 8,059 --8,667 -3,113 -76,822 2,887 63,413 116,482 17,910 (535) 39,322 11,951 10,264 186 2,433 3,287 (6,567) (99) (8,692) (16,918)3,697 87 (6,259) (13,631)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year 21,607 (448)33,063 (1,680)210,792 1,968 (77,362) (7,751)$ 232,399 $ 1,520 $ (44,299) $ (9,431)24 See accompanying notes.24 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission Mead-System Mead- Phoenix Adelanto Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
$$$86,228 7,709 17,775 86,228 7,709 17,775 15,272 18,708 1,026 1,406 1,680 4,503 33,980 2,432 6,183 52,248 5,277 11,592 3,513 584 1,888 (57,007) (3,663) (10,277)(53,494) (3,079) (8,389)Change in net assets (deficit)(1,246)2,198 3,203 Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year (389,564)
(5,527) (24,601)$ (390,810)
$ (3,329) $ (21,398)See accompanying notes.25 See accompanying notes. 25 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission Mead-System Mead- Phoenix Adelanto Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
$S 79,746 7,881 21,757 79,746 7,881 21,757 14,065 18,708 1,012 1,403 1,574 4,500 32,773 2,415 6,074 46,973 5,466 15,683 3,850 985 1,981 (48,023) (3,913) (12,053)(44,173) (2,928) (10,072)Change in net assets (deficit)2,800 2,538 5,611 Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year (392,364)
(8,065) (30,212)$ (389,564)
S (5,527) $ (24,601)26 See accompanying notes.26 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Pinedale Barnett Natural Gas Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$$$7,363 23,504 27,890 7,363 23,504 27,890 2,892 1,477 15,009 5,089 16,358 Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses) 4,369 20,098 16,358 2,994 3,406 11,532 514 1,325 758 (2,220) (4,933) (26,033)(1,706) (3,608) (25,275)Change in net assets (deficit)1,288 (202) (13,743)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year 2,446 6,846$ 3,734 $ 6,644 $ (13,743)See accompanying notes.27 See accompanying notes. 27 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Pinedale Barnett Natural Gas Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$8,3 2590$8,933 25,902-8,933 25,902-3,334 1,611 14,727 2,280 Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year 4,945 17,007 -3,988 8,895 -262 459 -(1,895) (3,700) -(1,633) (3,241) -2,355 5,654 91 1,192$ 2,446 $ 6,846 $28 See accompanying notes.28 ee ccopayin noes SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year POWER PURCHASE AGREEMENTS Ormat MWD Small Geothermal Hydro Pebble Springs Tieton$ 6,599 $ 1,689 $ 7,234 $ 1,041 6,599 1,689 7,234 1,041 6,636 1,689 7,238 1,041 6,636 1,689 7,238 1,041 34 4 34 4 (3)3 See accompanying notes.29 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat Geothermal Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses$4,394 4,394 4,431 4,431 (37)Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net assets (deficit)
-end of year 38 38 1 2$ 3 30 See accompanyinQ notes.30 See accompanivin~
notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
Change in net assets (deficit)Net assets (deficit)
-beginning of year Net withdrawals by participants Net assets (deficit)
-end of year MISCELLANEOUS Projects'Multiple Stabilization Total Project Fund Fund Combined$ $ $ 293,817 111,712 58,757 464,286 262,313 67,190 9,634 8,572 347,709 116,577 4,967 2,474 27,741 (6,315) -(145,965)(1,348) 2,474 (118,224)(1,348) 2,474 (1,647)2,729 86,870 (140,609)-(189) (189)$ 1,381 $ 89,155 $ (142,445)See accompanying notes.31 See accompanying notes. 31 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
Operating revenues Sales of electric energy Sales of transmission services Sales of natural gas Total operating revenues Operating expenses Operations and maintenance Depreciation, depletion and amortization Amortization of nuclear fuel Decommissioning Total operating expenses Operating income (loss)Non operating revenues (expenses)
Investment income Debt expense Net non operating revenues (expenses)
MISCELLANEOUS Projects'Multiple Stabilization Total Project Fund Fund Combined$ $ -$ 332,646 S- 109,384 S- 34,835 S- 476,865-238,069-69,341-8,059--11,780--327,249-149,616 4,947 4,264 32,956 (6,202) -(108,062)(1,255) 4,264 (75,106)Change in net assets (deficit)(1,255)4,264 74,510 Net assets (deficit)
-beginning of year Net contributions by participants Net assets (deficit)
-end of year 3,984 80,642 (217,083)-1,964 1,964$ 2,729 86,870 $ (140,609)32 See accompanvinz notes.32 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for)investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted GENERATION Palo Verde Hoover Uprating San Juan Magnolia Power Canyon Power$ 88,269 $ 2,404 $ 75,981 S 64,856 S (43,290) (228) (60,027) (45,761)12,908 34 --57,887 2,210 15,954 19,095 (25,503)(2,548)99,830 (101,820)(742)(798)-(5,932) (265) (67,444)(796) (8,266) (21,690)-258,070 105,505 (223,933)(1,425) (10,550) (7,930)(32,319) (429)(31,581) (2,221) (24,748) (28,067) 37,632 1,283 (64,403)26,905 88 (5,603)3,329 1,545 2,257 201 (20,579) (73,060) (38,073)9,078 63,404 11,200 (36,215) (2,186) (9,956) (7,399) (26,672)(9,909)(2,197)(18,750)(16,371)10,960 23,325 2,622 23,877 34,160 _S 13,416 S 425 S 5,127 $ 17,789 S 10,960 136 $ (565) S 15,088 $ 14,910 S 19,083 7,029 9,634 2,035 19,743 5,486 1,543 2,736 11,438 2,484 (2,692)(7,045)S 19,095 S 34 (3,304)3 (2,814)227 2 (45)$ 57,887 S 2,210 S 15,954 S 9,315 S 308 $ 2,457 S 14,509 S 10,960 4,101 117 2,670 3,280 -S 13,416 S 425 S 5,127 $ 17,789 S 10,960 See accompanying notes.33 See accompanying notes. 33 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for)investing activities GENERATION Palo Verde Hoover Uprating San Juan Magnolia Power S 78,712 $ 2,262 $ 95,856 $ 74,935 (40,913) (260) (49,626) (46,672)7,634 4 -16 45,433 2,006 46,230 28,279 (41,972)(4,292)(852)(35,909)(8,769)(2,810)(21,948)10,119 (11,895) (1,370) (10,050) (7,450)(360)(58,159) (2,222) (54,728) (22,449)1,822 140 1,930 3,009 (37,102) (1,618) (26,171) (51,185)56,850 3,590 43,512 48,557 21,570 2,112 19,271 381 Net increase (decrease) in cash and cash equivalents 8,844 1,896 10,773 6,211 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuiel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 14,481 726 13,104 27,949$ 23,325 $ 2,622 $ 23,877 $ 34,160 S 17,910 $ (535) $ 39,322 $ 11,951 18,793 8,667 8,059 2,629 10,782 3,113 11,264 (3,141) (34) (748) (2,409)(4,426) (56) 3,519 2,732 (429) 2 (9,758) 4,741$ 45,433 $ 2,006 S 46,230 S 28,279 S 15,519 $ 2,450 $ 16,860 S 25,389 7,806 172 7,017 8,771$ 23,325 $ 2,622 $ 23,877 S 34,160 34 See accompanying notes.34 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission Mead- Mead-System Phoenix Adelanto Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net$ 85,128 $7,754 $ 22,581 (13,964)(1,145)(1,678)71,164 6,609 20,904 Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities InteTest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year (20,341)(41,113)243,674 (121,065)(3,339)(4,217)33,830 (32,200)(480)(7,859)111,900 (108,253)80 (31,075) (3,425) (11,400)(2,540) (499) (700)27,620 (9,850) (16,792)3,334 617 1,892 (147,730)
(3,504) (20,247)30,986 2,790 14,120 (113,410)
(97) (4,235)(14,626)(3,338)(123)47,783 6,594 12,765$ 33,157 $ 3,256 $ 12,642 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities
$ 52,248 $18,708 5,277 $ 11,592 1,406 4,503 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 509 -685 (361) (89) 4,124 60 15 -$ 71,164 $ 6,609 $ 20,904$ 29,062 $ 3,031 $ 12,357 4,095 225 285$ 33,157 $ 3,256 $ 12,642 See accompanying notes.35 See accompanying notes. 35 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
TRANSMISSION Southern Transmission Mead- Mead-System Phoenix Adelanto Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net$ 87,917 $(18,173)8,452 $ 20,827 (896)(1,675)69,744 7,556 19,152 Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents (930)(40,508) (3,496) (10,756)50,047 (50,050)(80)(30,950) (3,350) (11,150)(290)(71,831) (7,776) (21,906)3,422 640 1,854 (34,182) (5,017) (8,948)51,953 4,875 6,280 21,193 498 (814)19,106 278 (3,568)Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 28,677 6,316 16,333$ 47,783 $ 6,594 $ 12,765$ 46,973 $ 5,466 $ 15,683 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 18,708 1,403 (4,145) -8,179 389 29 298$ 69,744 $ 7,556 4,500 (685)(354)8$ 19,152$ 12,238 527$ 12,765 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted
$ 43,387 4,396$ 47,783$ 5,779 815$ 6,594 36 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities
$ 3,887 1,041 (2,227)$10,791 9,706 (11,885)$22,756 5,753 (327)2,701 8,612 28,182 (16,189) 2,746 -(337)(1,820)(2,015)(4,172)476 (439)84 121 (4,788)(4,307)(25,581)(4,765)(13,860) (25,581)1,320 707 (6,467) (20,662)5,281 19,677 134 (278)Net increase (decrease) in cash and cash equivalents (17,539)(2,368)2,323 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 28,436 8,076 285$ 10,897 $ 5,708 $ 2,608$ 2,994 $ 3,406 $ 11,532 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 1,477 5,089 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted (531) 1,567 (2,309)(607) (540) 2,947 (632) (910) 16,012$ 2,701 $ 8,612 $ 28,182$ 6,475 $ 5,172 $ 2,207 4,422 536 401$ 10,897 $ 5,708 $ 2,608 See accompanying notes.37 See accompanying notes. 37 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
NATURAL GAS Prepaid Natural Pinedale Barnett Gas Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities
$ 11,765 $11,060 (18,714)9,031 $8,339 (8,539)3 4,114 8,831 885 1,907 (2,146)(1,035)42,053 (25,600)(10,445)(1,786)105,207 (50,300)(2,600) (800)(1,440) (1,470)9,232 40,406 (480,648)(14,212)509,827 (4,532)10,435 736 (25,098)14,212 (10,150)181 (15,116)50 (14,885)369 (46,298)1,285 (44,644)Net increase (decrease) in cash and cash equivalents (654)6,500 285 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 29,090 1,576 -$ 28,436 $ 8,076 $ 285 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities
$ 3,988 $ 8,895 $1,611 2,280 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 141 (2,295)(776) 366 (850) (415)$ 4,114 $ 8,831 $ -$ 16,307 $ 7,367 $ 20 12,129 709 265$ 28,436 $ 8,076 $ 285 38 See accompanying notes.38 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS rnnat Geothermal MWD Small Energy Hydro Pebble Springs Tieton Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of finds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for)investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted
$ 7,737 $ 1,956 $ 8,990 $1,308 (382)(6,784)(670)(5,024)953 1,286 3,966 926 36 4 36 4 989 1,286 3,970 926 1,684 2,673 _ 1286 $ 3970 $ 926$ (37) $(4) $990 1,286 3,970 926 S 953 $ 1_286 $ 3 966 $ 926$ $ $ $2,673 1,286 3,970 926$ 2,673 $_ 1,286 S _ 3970 S 926 See accompanying notes.39 See accompanying notes. 39 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
POWER PURCHASE AGREEMENTS Ormat Gjeothermal Energy Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for)investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted S 4,148 (4,104)44 43 43 87 1,597 S 1,684$(37)81 S 44 1,684$ 1,684 40 See accompanying notes.40 See accompanying notes.
I SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Cash flows from operating activities Receipts from participants Receipts from sale of oil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Debt interest and swap payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities Net increase (decrease) in cash and cash equivalents MISCELLANEOUS Projects'Multiple Stabilization Total Project Fund Fund Combined$ S $ 404,398 16,500 (193,392)12,943 240,449 (189) (13,632)S- (128,429)(3,389) (121,586)852,809 (587,271)(662)(72,585)(37,285)(3,389) (95,009)4,769 (8,449)2,740 (940)(4,329)2,419 20,948 (78,759) (487,975)59,296 248,890 (17,044) (218,137)(17,233) (86,329)Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 4,448 35,945 230,000$ 119 S 18,712 $ 143,671$ -$ $ 116,577--67,190 8,572 2,736 9,634 1,170 26,886 7,684$ -$ $ 240,449$ 119 $ 18,712 $ 114,684--28,987$ 119 $ 18,712 $ 143,671 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted See accompanVino notes.41 See accompanyin,~
notes. 41 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS)
Cash flows from operating activities Receipts from participants Receipts from sale ofoil and gas Payments to operating managers Other disbursements and receipts Net cash flows from operating activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net Prepaid natural gas Debt interest payments Proceeds from sale of bonds Payment for defeasance of revenue bonds Transfer of funds from (to) escrow Principal payments on debt Payment for bond issue costs Net cash used for capital and related financing activities Cash flows from investing activities Interest received on investments Purchases of investments Proceeds from sale/maturity of investments Net cash provided by (used for) investing activities MISCELLANEOUS Projects'Multiple Stabilization Total Project Fund Fund Combined$ $ $ 393,905 19,399 (189,572)7,657 231,389 1,964 4,756 S- (94,212)(480,648)(3,388) (111,042)707,134 (125,950)10,039 (79,615)(8,092)(3,388) (182,386)4,449 (14,706)18,085 7,828 4,440 4,188 22,783 (108,517)
(373,958)128,427 377,676 24,098 26,501 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation, depletion and amortization Decommissioning Advances for capacity and energy Amortization of nuclear fuel Changes in assets and liabilities Accounts receivable Accounts payable and accruals Other Net cash provided by operating activities 26,062 80,260 8 9,883 149,740$ 4,448 $ 35,945 $ 230,000$S S 149,616 69,341 11,780 2,629 8,059 (13,316)9,654 (6,374)$ -$ $ 231,389$ 4,448 $ 35,945 $ 185,709--44,291$ 4,448 $ 35,945 $ 230,000 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)Cash and cash equivalents
-restricted Cash and cash equivalents
-unrestricted 42 See accompanyinjZ notes.42 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose The Southern California Public Power Authority (the "Authority" or "SCPPA"), a public entity organized under the laws of the State of California, was formed by a Joint Powers Agreement dated as of November 1, 1980 pursuant to the Joint Exercise of Powers Act of the State of California.
The Authority's participants consist of eleven Southern California cities and one public district of the State of California.
The Authority was formed for the purpose of planning, financing, developing, acquiring, constructing, operating and maintaining projects for the generation, transmission, and procurement of electric energy and natural gas for sale to its participants.
The Joint Powers Agreement has a term of fifty years.The Authority has interests in the following projects: Palo Verde Project -On August 14, 1981, the Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating Station (PVNGS), a 3,810 megawatt nuclear-fueled generating station near Phoenix, Arizona, a 5.56%ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard, and a 6.55% share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System (collectively, the "Palo Verde Project").
Units 1, 2 and 3 of the Palo Verde Project began commercial operations in January 1986, September 1986, and January 1988, respectively.
Hoover Uprating Project -As of March 1, 1986, the Authority and six participants entered into an agreement pursuant to which each participant assigned its entitlement to capacity and associated firm energy to the Authority in return for the Authority's agreement to make advance payments to the United States Bureau of Reclamation (USBR) on behalf of such participants.
The Authority has an 18.68% interest in the contingent capacity of the Hoover Uprating Project (HU).San Juan Project -Effective July 1, 1993, the Authority purchased a 41.80% interest in Unit 3 and related common facilities of the San Juan Generating Station (SJGS) from Century Power Corporation.
Unit 3, a 497-megawatt unit, is one unit of a four-unit coal-fired power generating station in New Mexico.Magnolia Power Project -In March 2003, the Authority received approval from the California Energy Commission for construction of the Magnolia Power Project (MPP). The Project consists of a combined cycle natural gas-fired generating plant with a nominally rated net base capacity of 242 megawatts and was built on a site in the City of Burbank, California.
The plant is the first that is wholly owned by the Authority and entitlements to 100% of the capacity and energy of the Project have been sold to six of its members. The City of Burbank, a Project participant, managed its construction and also serves as the operating agent for the Project.Commercial operations began September 22, 2005.Gas Supply and Services Agreement:
SCPPA entered into an agreement with Occidental Energy Marketing, Inc. (OEMI) beginning January 2005. This agreement is renewed each year unless notification is given by either party prior to December 31, of each year. OEMI provides 100% of the natural gas plant requirements on a daily basis, and also includes an option for the participants to bring in their own gas supply. In addition, OEMI provides gas balancing services.43 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued)" Natural Gas Transportation:
SCPPA has an agreement with Southern California Gas Company (SoGas) for intrastate transmission services.
The agreement took effect in January 2005 and will expire in January 2011. SoGas provides transportation, storage, and balancing services of natural gas from the Southern California Border to the MPP Plant.* Parts and Special Services Agreement:
SCPPA entered into an 18-year agreement with General Electric International (GE) in September 2005. Initially, the agreement covered only the gas turbine, but the agreement was amended in August 2007, to include coverage for the gas generator, the steam turbine, and the steam generator.
GE provides planned and unplanned maintenance, including replacement parts, based on factored fired hours.Southern Transmission System Project -On May 1, 1983, the Authority entered into an agreement with the Intermountain Power Agency (IPA), to defray all the costs of acquisition and construction of the Southern Transmission System Project (STS), which provides for the transmission of energy from the Intermountain Generating Station in Utah to Southern California.
STS commenced commercial operations in July 1986. The Department of Water and Power of the City of Los Angeles (LADWP), a member of the Authority, serves as project manager and operating agent of the Intermountain Power Project (IPP).Mead-Phoenix and Mead-Adelanto Projects -As of August 4, 1992, the Authority entered into an agreement to acquire an interest in the Mead-Phoenix Project (Mead-Phoenix), a transmission line extending between the Westwing substation in Arizona and the Marketplace substation in Nevada. The agreement provides the Authority with an 18.31% interest in the Westwing-Mead project component, a 17.76% interest in the Mead Substation project component and a 22.41% interest in the Mead-Marketplace project component.
As of August 4, 1992, the Authority also entered into an agreement to acquire a 67.92% interest in the Mead-Adelanto Project (Mead-Adelanto), a transmission line extending between the Adelanto substation in Southern California and the Marketplace substation in Nevada. Funding for these projects was provided by a transfer of funds from the Multiple Project Fund and commercial operations commenced in April 1996. LADWP serves as the operations manager of Mead-Adelanto.
I Natural Gas Pinedale Project -On July 1, 2005, the Authority, together with LADWP and Turlock Irrigation District (TID), acquired 42.5% of an undivided working interest in three natural gas leases located in the Pinedale Anticline region of the State of Wyoming. The Authority's individual share in these interests equals 14.9%. The purchase includes 38 operating oil and gas wells and associated lateral pipelines, equipment, permits, rights of way, and easements used in production.
The natural gas field production is expected to increase for several more years as additional capital is invested on drilling new wells and then decline over a life expectancy greater than 30 years.* Joint Operating Agreement (JOA): In July 2005, SCPPA's purchase of the natural gas reserve interests at Pinedale, Wyoming ("Pinedale")
included an underlying long-term JOA with the operator, Ultra Resources, Inc. SCPPA pays the operator for SCPPA's share of both operating and drilling/capital expenses on a monthly basis.44 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued)
Gathering and Processing Agreements:
SCPPA's purchase of Pinedale included underlying agreements with Jonah Gas Gathering Company, Questar Gas Management Company, and Mountain Gas Resources, Inc. for gathering and processing of the natural gas.Natural Gas Barnett Project -Natural gas resources in the Barnett shale geological formation in Texas were acquired from Collins and Young Holding, L.L.P (C&Y) for a total of $84 million with an effective production date of April 1, 2006. The acquisition settled on October 26, 2006 and was completed on December 7, 2006 when the participants, together with TID, exercised their option to purchase additional resources from C&Y. Two of the original participants, LADWP and the City of Glendale, made the decision not to participate but have agreed to pay their respective share of the development costs incurred through October 13, 2006. The Gas Sales Agreements have been revised accordingly to adjust the entitlement shares and product cost shares for the remaining participants.
Joint Operating Agreement (JOA): In October 2006, SCPPA's purchase of the natural gas reserve interests in Barnett, TX ("Barnett")
included an underlying long-term JOA with the operator, Devon Energy Production Company, L.P. SCPPA pays the operator for SCPPA's share of both operating and drilling/capital expenses on a monthly basis.Canyon Power Project -The Authority approved the construction of a new generating plant that will be located on approximately 10 acres of land within an industrial area of the City of Anaheim, California
("Anaheim").
The Canyon Power Project ("the Project")
will consist of a simple cycle natural gas-fired power generating plant, comprised of four General Electric LM 6000PC Sprint combustion turbines with a combined nominally rated net base capacity of 200 MW, and auxiliary facilities.
The Project will be owned by the Authority and constructed, operated, and maintained by Anaheim. The cost of the Project is estimated to be $320 million of which $15 million was spent to obtain the necessary emission credits for the Project. In December 2008, the Authority issued notes to provide interim financing for the payment of a portion of the costs to develop, construct, and acquire the Project. An Application for Certification is on file with the California Energy Commission (CEC) and a CEC license is expected to be issued early 2010. The Project is expected to be substantially complete in July 2011.45 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued)
Participant Ownership Interests
-The Authority's participants may elect to participate in the projects.
As of June 30, 2009, the members have the following participation percentages in the Authority's operating projects: GENERATION TRANSMISSION NATURAL GAS Southern Trans-Palo Hoover Magnolia Canyon mission Mead- Mead-Verde Uprating San Juan Power Power System Phoenix Adelanto Pinedale Barnett Participants Project Project Project Project Project Project Project Project Project Project City of Los Angeles City of Anaheim City of Riverside Imperial Irrigation District City of Vernon City of Azusa City of Banning City of Colton City of Burbank City of Glendale City of Cerritos City of Pasadena 67.0% ---59.5% 24.8% 35.7% ---42.6% 38.0% 100% 17.6% 24.2% 13.5% 35.7% 45.4%5.4% 31.9% --10.2% 4.0% 13.5% --6.5% -51.0% --4.9% ----1.0% 4.2% 14.7% 1.0% 2.2%1.0% 2.1% 9.8% 1.0% 1.3%1.0% 3.2% 14.7% 4.2% -1.0% 2.6% 7.1% 9.1%4.4% 16.0% -31.0% 4.5% 15.4% 11.5% 14.3% 27.3%4.4% -9.8% 16.5% 2.3% 14.8% 11.1% 28.6% ----4.2% -----4.4% 6.1% 5.9% 13.8% 8.6% 14.3% 18.2%100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%The Authority has entered into power sales, natural gas sales, and transmission service agreements with the above project participants.
Under the terms of the contracts, the participants are entitled to power output, natural gas or transmission service, as applicable.
The participants are obligated to make payments on a "take or pay" basis for their proportionate share of operating and maintenance expenses and debt service. The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding.
The contracts expire as follows: Palo Verde Project Hoover Uprating Project San Juan Project Magnolia Power Project Canyon Power Project Southern Transmission System Project Mead-Phoenix Project Mead-Adelanto Project Natural Gas Pinedale Project Natural Gas Barnett Project 2030 2018 2030 2036 2030 2027 2030 2030 2030 2030 46 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued)
The Authority's interests in natural gas, generation, and transmission projects are jointly owned with other utilities, except for the Magnolia Power Project and the Canyon Power Project, which are wholly owned by the Authority.
Under these arrangements, a participating member has an undivided interest in a utility plant and is responsible for its proportionate share of the costs of construction and operation and is entitled to its proportionate share of the energy, available transmission capacity or natural gas produced.
Each joint plant participant, including the Authority, is responsible for financing its share of construction and operating costs. The financial statements reflect the Authority's interest in each jointly owned project as well as the projects that it owns.Additionally, the Authority's share of expenses for each project is included in the statements of revenues, expenses, and changes in net assets (deficit) as part of operations and maintenance expenses.Prepaid Natural Gas Project No. 1 -On October 11, 2007, the Authority made a one-time prepayment of $481 million to acquire the right to receive approximately 135 billion cubic feet of natural gas from J. Aron &Company (J. Aron) to be delivered over a 30-year term, beginning July 1, 2008. On October 3, 2007, prior to the acquisition of the prepaid gas supply, the Authority entered into five separate Prepaid Natural Gas Sales Agreements (the Gas Sales Agreements) with J. Aron and simultaneously, five Prepaid Natural Gas Supply Agreements (the Gas Supply Contracts) in which the Authority sold its interest in the natural gas, on a "take-and-pay" basis, to the cities of Anaheim, Burbank, Colton, Glendale, and Pasadena (the Project No. 1 Participants).
Through the Gas Supply Contracts, SCPPA has provided for the sale to the Project Participants, on a pay-as-you-go basis, of all of the natural gas to be delivered to SCPPA pursuant to the Gas Sales Agreements.
The Natural Gas contracts expire in 2038.Under the Gas Supply Contracts, the approximate average Daily Quantity of gas to be purchased by each Project Participant is as follows: AVERAGE DAILY PERCENTAGE BY PROJECT PARTICIPANT QUANTITY (1) PARTICIPANT City of Anaheim 2,000 16.5%City of Burbank 4,000 33.0%City of Colton 1,375 11.0%City of Glendale 2,750 23.0%City of Pasadena 2,000 16.5%TOTAL 12,125 100%(1) The average Daily Quantity is in MmBtu's and is calculated over the term of the applicable Gas Supply Contract.47 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued)
Ormat Geothermal Energy Project -The Authority entered into long-term Power Purchase Agreements in December 2005 with divisions of Ormat Technologies, Inc. for up to 20 MW of electric generation.
The Project started delivery of approximately 5 MW in January 2006 from geothermal energy facilities located in Heber, California.
In May 2008, the agreements were amended to substitute new wells as the source of the generation, and to increase the capacity to 14 MW and allows for excess capacity to 17 MW. The City of Anaheim acts as the scheduling coordinator on behalf of the project participants.
Pebble Springs Wind Project -In December 2007, the Authority entered into a Power Purchase Agreement for the facility output of a wind project with 98.7 MW, located in Gilliam County, Oregon. SCPPA along with LADWP, Burbank, and Glendale are now scheduling the energy through transmission agreements which bring this renewable energy from the project substation to the project participants.
The term of the Project is 18 years with a right of first offer to potentially purchase the entire project after the 10f contract year. Operations formally began on January 31, 2009.MWD Small Hydro Project -Consists of a Power Purchase Agreement for the output from four small hydroelectric plants on the MWD system in Southern California, having a total nameplate capacity of 17.04 MW, and a historical output of 40,130 MWH per year. Transmission is accomplished through the California Independent System Operator, with the City of Anaheim acting as scheduler.
The term of the contract is 15 years and 2 months, expiring December 31, 2023. Operations began on November 1, 2008.Tieton Hydropower Project -On August 21, 2008, the Authority entered into a Power Purchase Agreement with Power Holdings, L.L.C. for purchase of facility energy output of the Tieton Hydropower Plant for a period of 20 years, with provisions for early termination.
The Tieton Hydropower Plant is located in Yakima County, Washington and operates as a run-of-river facility in accordance with flow releases governed by the United States Bureau of Reclamation.
Power Holdings, L.L.C. has the right to terminate the PPA anytime after December 31, 2011. There is no purchase option. Burbank is currently the sole Participant in this Project but other participants may decide to participate at a later date at which time reimbursement obligations to Burbank would be satisfied.
Operations began in April 2009.48 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 -Organization and Purpose (Continued)
The Authority has entered into power purchase agreements with project participants as follows. These agreements are substantially take and pay contracts where there may be other obligations not associated with the delivery of energy.Participant Ownership Interests Power Purchase Agreements Ormat Geothermal Energy Project 17MW Participants Capacity Pebble Springs Wind Project 98.7 MW MWD Small Hydro Project 17.04MW Tieton Hydropower Project 19MW City of Los Angeles City of Anaheim City of Azusa City of Banning City of Colton City of Burbank City of Glendale City of Pasadena 69.6%60.0%10.0%56.4%21.8%21.8%10.1%20.3%100.0%15.0%15.0%100.0% 100.0% 100.0% 100.0%Contract Expires 2031 2025 2023 2028 Multiple Project Fund -During fiscal year 1990, the Authority issued Multiple Project Revenue Bonds for net proceeds of approximately
$600 million to provide funds to finance costs of construction and acquisition of ownership interests or capacity rights in one or more, then unspecified, projects for the generation or transmission of electric energy. Certain of these funds were used to finance the Authority's interests in Mead-Phoenix and Mead-Adelanto.
Projects' Stabilization Fund -In fiscal year 1997, the Authority authorized the creation of a Projects'Stabilization Fund. Deposits may be made into the fund from budget under-runs, after authorization of individual participants, and by direct contributions from the participants.
Participants have discretion over the use of their deposits within SCPPA project purposes.
This fund is not a project-related fund; therefore, it is not governed by any project Indenture of Trust. The members participate in the Projects' Stabilization Fund by making deposits to the fund at their discretion.
49 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies Basis of accounting and presentation
-The combined and individual financial statements of the Authority are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America issued by the Governmental Accounting Standards Board (GASB) applicable to governmental entities that use proprietary fund accounting and the Financial Accounting Standards Board (FASB)issued prior to November 30, 1989 that do not conflict with rules issued by the GASB. Revenues are recognized when earned and expenses are recognized when incurred.
The format of the Statement of Net Assets (Deficit)follows the inverted approach which is consistent with the Federal Energy Regulatory Commission (FERC)." Invested in capital assets, net of related debt and advances from participants
-This component of net assets consists of (a) capital assets, (b) net of accumulated depreciation, and (c) unamortized debt expenses, reduced by the outstanding balances of any bonds, other borrowings, and advances from participants that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net assets component as the unspent proceeds." Restricted
-This component consists of net assets on which constraints are placed as to their use. Constraints include those imposed by creditors (such as through debt covenants), contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or through enabling legislation." Unrestricted
-This component of net assets consists of net assets that do not meet the definition of"restricted" or "invested in capital assets, net of related debt and advances from participants." 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Utility plant -The Authority's share of construction and betterment costs, natural gas reserves, intangibles, and nuclear fuel associated with PVNGS, STS, Mead-Phoenix, Mead-Adelanto, SJGS, Magnolia Power Project, the Natural Gas Projects, and Canyon Power Project are included as utility plant and recorded at cost. Costs include labor, materials, capitalized interest costs on funds used in construction, and allocated indirect charges such as engineering, supervision, transportation and construction equipment, retirement plan contributions, health care costs, and certain administrative and general expenses.
The costs of routine maintenance, repairs, and minor replacements incurred to maintain the plant in operating condition are charged to the appropriate operations and maintenance expense accounts in the period incurred.
The original cost of property retired, net of removal and salvage costs, is charged to accumulated depreciation.
Depreciation expense is computed using the straight-line method based on the estimated service lives, principally thirty-five years for PVNGS, STS, Mead-Phoenix and Mead-Adelanto, thirty years for Magnolia, and thirty-seven years for SJGS which is a change in estimate from prior years. There is no depreciation expense for the Canyon Power Project which is currently under development.
50 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies (Continued)
Natural gas reserve depletion
-Depletion expense for the Natural Gas Projects is computed using the unit of production method based on the future production of the proved developed producing wells, estimated at 42.5 years. The depletion rate for the Natural Gas Pinedale Project was $1.61/MMbtu and $1.87/MMbtu; and the estimated total net revenue volume was 27,629,287 MMbtu and 24,351,608 MMbtu up to the period ending 2060, for fiscal years 2009 and 2008, respectively.
The depletion rate for the Natural Gas Barnett Project was$4.83/MMbtu and $1.91/MMbtu; and the estimated total net revenue volume was 13,077,737 MMbtu and 28,906,440 MMbtu up to the period ending 2060, for fiscal years 2009 and 2008, respectively.
The decrease in reserve volume for the Natural Gas Barnett Project as of January 2009 as compared to the original Reserve Report in October 2006 is the result of the release and expiration of leases that were determined to be uneconomic, due to a combination of lower estimates of recoverable reserves for some undeveloped acreage, higher well drilling and completion costs, and lower commodity prices.Nuclear fuel -Nuclear fuel is amortized and charged to expense on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assesses each entity with nuclear operations, including the participants in PVNGS, $1 per megawatt hour of nuclear generation.
The Authority records this charge as a current year expense. See Note 10 for information about spent nuclear fuel disposal.Nuclear decommissioning
-Decommissioning of PVNGS is expected to commence subsequent to the year 2026.The total cost to decommission the Authority's interest in PVNGS is estimated to be $121.3 million in 2008 dollars ($275.6 million in 2022 dollars, assuming a 6% estimated annual inflation rate). This estimate is based on an updated site specific study prepared by an independent consultant in 2007. The Authority is providing for its share of the estimated future decommissioning costs over the remaining life of the nuclear power plant through annual charges to expense, which amounted to $7.0 million and $8.7 million in fiscal years 2009 and 2008. The decommissioning liability is included as a component of accumulated depreciation and was $227.0 million and$220.0 million at June 30, 2009 and 2008, respectively.
The Authority contributes to external trusts set up in accordance with the Arizona Nuclear Power Plant participation agreement and Nuclear Regulatory Commission requirements.
As of June 30, 2009, decommissioning funds totaled approximately
$157.2 million, including approximately
$1.0 million of interest receivable.
Asset retirement obligation
-Demolition of SJGS is projected to commence subsequent to the year 2030. Based upon the study performed by an independent engineering firm, the Authority's share of the estimated demolition costs is $47.4 million in 2008 dollars. The Authority is providing for its share of the estimated future demolition costs over the remaining life of the power plant through annual charges to expense of $1.5 million and $3.1 million for fiscal years 2009 and 2008, respectively.
The expense for fiscal year 2009 reflects a change in estimate from prior years. The demolition liability is included as a component of accumulated depreciation and totaled$48.2 million and $46.7 million at June 30, 2009 and 2008, respectively.
As of June 30, 2009, the Authority has not billed participants for the cost of demolition nor has it established a demolition fund.51 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies (Continued)
Investments
-Investments include United States government and governmental agency securities, guaranteed investment contracts, medium term notes and money market accounts.
These investments are reported at fair value and changes in unrealized gains and losses are recorded in the statement of revenues, expenses and changes in net assets (deficit) with the exception of the guaranteed investment contracts which are recorded at amortized cost. Gains and losses realized on the sale of investments are generally determined using the specific identification method.The Bond Indentures for the Projects and the Multiple Project Fund require the use of trust funds to account for the Authority's receipts and disbursements.
Cash and investments held in these funds are restricted to specific purposes as stipulated in the Bond Indentures.
Accounts receivable
-Accounts receivable consists primarily of participant receivables.
As such no allowance is deemed necessary.
Prepaid and other assets -Prepaid Natural Gas -SCPPA entered into a contract with the supplier for a 30-year gas supply at a fixed discount and simultaneously entered into a contract with each of the project participants for the delivery of natural gas. By prepaying the gas supply, the participants will be able to procure the gas delivery at a fixed discount from a monthly market index price, as determined by the Prepaid Natural Gas Agreements.
SCPPA also entered into commodity swap agreements on behalf of each participant to hedge against reductions in its revenues resulting from changes in the monthly market index price. The payments received from the participants for natural gas, when delivered, will be sufficient to pay debt service.Advances for capacity and energy -Advance payments to the United States Bureau of Reclamation for the uprating of the 17 generators at the Hoover Power Plant are included in advances for capacity and energy. These advances are being reduced by the principal portion of the credits on billings to the Authority for energy and capacity.
The current portion of these advances is recorded under Prepaid and Other Assets in the Current Assets Section of the Combined Statements of Net Assets (Deficit).
Advance to IPA -Advance to IPA consists of cash transferred to IPA for reserve, contingency and self insurance funding.Unamortized premiums, discounts, debt expenses and losses on refunding
-Debt premiums, discounts, and debt expenses are deferred and amortized to expense over the lives of the related debt issues. Losses on refunding related to bonds redeemed by refunding bonds are amortized over the shorter of the life of the refunding bonds, or the remaining term of bonds refunded.
Unamortized issue costs are recorded as a non current asset. All other unamortized debt expenses are recorded as an offset or addition to long-term debt.Cash and cash equivalents
-Cash and cash equivalents include cash and investments with original maturities of 90 days or less.Materials and supplies -Materials and supplies consist primarily of items for construction and maintenance of plant assets and are stated at the lower of cost or market.52 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies (Continued)
Arbitrage rebate and yield restrictions
-The unused proceeds from the issuance of tax-exempt debt have been invested in taxable financial instruments.
The excess of earnings on investments, if any, over the amount that would have been earned if the investments had a yield equal to the bond yield or yield restricted rate, is payable to the IRS within five years of the date of the bond offering and each consecutive five years thereafter until final maturity of the related bonds.The recorded liability of the Multiple Project Fund of $23.4 million ($6.2 million payable to the Mead-Phoenix Project and $17.2 million payable to the Mead-Adelanto Project) is a result of the cumulative savings from the 1994 refunding of the 1989 Multiple Project Bonds. The partial refunding within five years of the original issuance triggered a recalculation of the arbitrage yield, reducing the Multiple Project Fund's rebate liability.
During the fiscal year ended June 30, 2009, the Authority made rebate payments to the IRS of $0.03 million for the STS bonds, $0.1 million for Palo Verde bonds, $2.34 million for Mead-Adelanto bonds, and $0.78 million for Mead-Phoenix bonds.Recorded arbitrage rebate and yield restriction liabilities as of June 30, 2009, were $1.04 million for STS, $0.09 million for Mead-Phoenix, and $0.3 million for Mead-Adelanto.
Revenues -Revenues consist of billings to participants for the sales of electric energy, natural gas and transmission service in accordance with the participation agreements.
Generally revenues are fixed at a level to recover all operating and any debt service costs over the commercial life of the property.In September 1998, the Palo Verde participants approved a resolution authorizing the Authority to bill the participants an additional
$65 million annually through June 30, 2004 to pay for increased debt service costs as a result of a refunding completed in October 1997. In addition, the participants resolved to transfer any over billings, renewal and replacement excess funds or surplus amounts through June 30, 2004 into the Palo Verde reserve account. On November 20, 2003, the Authority adopted a resolution to utilize the amounts on deposit in the reserve accounts to pay a portion of the operating and maintenance expenses of the Palo Verde Project starting July 1, 2004. Funds held in the reserve account as a result of this resolution totaled $50.3 million and $54.9 million as of June 30, 2009 and 2008, respectively.
Transportation Costs -As a result of the sales and purchases agreements for natural gas entered into by SCPPA, the participants receive less volume than processed incurring embedded transportation costs. These costs are recorded as participants' revenue and expense to the Natural Gas Pinedale Project. At June 30, 2009 and 2008, transportation costs were approximately
$26 thousand and $0.1 million, respectively, for the Natural Gas Pinedale Project.53 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 -Summary of Significant Accounting Policies (Continued)
In Kind Contribution
-Each participant of the Magnolia Power Plant is responsible for their own share of natural gas. They may elect to bring fuel to the plant or purchase fuel from Occidental Energy Marketing, Inc.(OEMI). OEMI computes the daily imbalances of fuel volume per participant using the daily consumption data that the operating manager provides.
Monthly, actual fuel burnt is reported together with the daily imbalances, participants' in kind contribution, and fuel purchases from OEMI.In kind contributions are valued at fair market value and recorded as participant revenue and fuel expense to the Magnolia Power Project. SCPPA values the participants' fuel contribution using monthly average pricing from the Project's OEMI fuel purchases.
During the fiscal years ended June 30, 2009 and 2008 the participants' contribution in kind was approximately 8.7 million MMbtu and 7.2 million MMbtu and was valued at approximately
$46.3 million and $56.9 million, respectively.
In Kind Payment -The Natural Gas Pinedale Project pays federal royalties to Mineral Management Services (MMS). Beginning November 2007, SCPPA elected to pay its obligation in kind with approximately 0.9 million MMbtu and 0.6 million MMbtu for fiscal years 2009 and 2008, with a monetary value of approximately
$0.9 million and $0.5 million for the fiscal years ended June 30, 2009 and 2008, respectively.
Reclassification
-Certain 2008 balances have been reclassified to conform with 2009 presentation.
These reclassifications had no impact on previously reported change in net assets (deficit).
54 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 3 -Utility Plant At June 30, 2009 and 2008 Utility Plant consisted of the following (amounts in thousands):
June 30, 2009 GENERATION TRANSMISSION NATURAL GAS Hoover Southern Palo Verde Uprating San Juan Magnolia Canyon Power Trasrmaission Mead- Phoenix Mead. Adelanto Project Project Project Power Project Project Syster Project Project Project Pinedale Project Barnett Project Total Utility plant Production S 667,180 S S 229,332 S 281,757 $ $$ -$ -S -$ 1,178,269 Transaission 14,120 -15,239 674,606 50,967 172,798 927,730 General 2,908 21 7,413 15,237 18,911 2,644 473 1,217 48,824 Natural gas reseres ------50,492 65,889 116,381 604,208 21 236,745 312.233 693,517 53,611 173,271 51,709 65,889 2,271,204 Lessaccu-ulatd depeciation 629,516 21 168,359 42,357 446,791 19,047 59,763 7.971 7,870 1,381,695 54,692 68,386 269,876 246,726 34,564 113,508 43,738 58,019 889.509 Construction work in progress 20,574 6,959 69 80,393 27,571 3,736 376 4,329 144,007 Nuclear fuel, at amortized coat 36.687 -------36,697 Net utility plant S I 11,953 S S 75,345 S 269,945 $ 80.393 S 274,297 S 38,300 $ 113,508 S 44,114 S 62,348 S 1,070,203 GENERATION TRANSMISSION NATURAL GAS Hooer Southern Palo Verde Upanaig San Juan Magnolia Canyon Power Transminsion Meod- Phoenix Moad- Adelanto Project Prject Project Power Project Project Systea Project Project Project Pinedale Project Barnett Project Total Utility plant Production Transmision General Natural gas reserves Lot accu..ulated depreciation Constrcton work in progress Nuclear fuel, at amooized cost Net utility plant S 662,942 S 14,082 S 231.192 S 280,338 15,239$ .S .S 1,174,472 674,606 50,770 172,319 927,016 2.397 21 7,443 15,224 18,911 2,640 473 6,611 9,245 63,365----.44,747 46,340 91,087 679,821 21 238,635 310,801 693,517 53,410 172,792 51,358 55,585 2,255,940 606.123 21 164,644 30,919 428,083 17.640 55,260 6,494 2,781 1,311,965 73,698 73,991 279,882 265,434 35,770 117,532 44,864 52,804 943,975 15,065 3,472 786 -1,166 352 10,304 31,145 34A 211 --.---34.211 S 122,974 $ $ 77,463 $ 280,668 S S 265,434 S 36,936 $ 117,532 S 45,216 $ 63,108 S 1,009.331 55 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 3 -Utility Plant (Continued)
A summary of changes in Utility Plant follows (amounts in thousands):
Nondepreciable utility plant Land Construction work in progress Construction work in progress -gas Nuclear fuel*Total nondepreciable utility plant Depreciable utility plant Production Nuclear generation (Palo Verde Project)Coal-fired plant (San Juan Unit 3 Project)Gas-fired plant (Magnolia Power Project)Transmission General-Natural gas reserves Total depreciable utility plant Less accumulated depreciation Total utility plant, net Balance Balance July 1, 2008 Additions Disposals Transfers June 30, 2009$ 42,472 $ $ $ $ 42,472 20,488 128,976 (10,162) 139,302 10,657 4,704 (10,656) 4,705 34,211 9,672 (7,196) 36,687 107,828 143,352 (7,196) (20,818) 223,166 662,206 6,856 (2,620) 666,442 231,192 1,454 (3,314) -229,332 280,338 --1,420 281,758 885,281 781 (67) -885,995 48,726 119 (33) 12 48,824 105,725 --10,656 116,381 2,213,468 9,210 (6,034) 12,088 2,228,732 (1,311,965)
(71,261) 6,034 (4,503) (1,381,695)
$ 1,009,331
$ 81,301 $ (7,196) $ (13,233) $ 1,070,203*Nuclearfuel disposals represent amortization.
Note 4 -Investments The Authority's investment function operates within a legal framework established by Sections 6509.5 and 53600 et. seq. of the California Government Code, Indentures of Trust, instruments governing financial arrangements entered into by the Authority to finance and operate Projects and the Authority's Investment Policy.Guaranteed investment contracts (GICs) are contracts that guarantee the owner principal repayment and a specified interest rate for a predetermined period of time. GICs are typically issued by insurance companies and marketed to institutions that qualify for favorable tax status under federal laws. These types of securities provide institutions with guaranteed returns. GICs are negotiated on a case-by-case basis.Based on SCPPA's Investment Policy, certain vehicles such as GICs, flexible repurchase agreements or forward debt service agreements, may be entered into only upon approval of the SCPPA Board. In addition, eligible securities and general limitations are derived from each Project's Indenture of Trust, the Government Code and SCPPA's evolving investment practices.
56 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued)
The operative Indentures of Trust in which securities are authorized for investment purposes relate to the Palo Verde Project Bonds, the Southern Transmission System Project Bonds, the Hoover Uprating Project Bonds, the Mead-Phoenix Project Bonds, the Mead-Adelanto Project Bonds, the Multiple Project Fund Bonds, the San Juan Project Bonds, the Magnolia Power Project Bonds, the Natural Gas Projects Bonds, Prepaid Natural Gas Project No. 1 and the Canyon Power Project Revenue Notes. Authorized investments for the Projects' Stabilization Fund are set forth in a resolution approved by the Board in 1996.Eligible securities include: " United States Treasury Securities, which are bonds or other obligations secured by the full faith and credit of the United States of America;* Federal Agency Obligations, which have the full financial backing of the U.S. Government;" Government Sponsored Enterprise Obligations, which are created by acts of Congress to provide liquidity for selected lending programs targeted by Congress;" Repurchase Agreements, which are collateralized loan contracts where the seller includes a written agreement to repurchase the securities at a later date for a specified amount;" Negotiable Certificates of Deposit, which are deposit liabilities issued by a nationally or state-chartered bank, a savings or a federal association or by a state-licensed branch of a foreign bank which has short-term ratings of at least "A-I" by S&P and at least "P-I" by Moody's;" Banker's Acceptances, a short-term draft or bill of exchange guaranteed for payment at face value to the holder of the instrument on its maturity date, which has a short-term rating of at least "A-I" by S&P and at least "P-I" by Moody's;* Commercial Paper, a short-term unsecured promissory note issued by non-financial or financial firms with a rating of at least "A-I" by S&P and at least "P-I" by Moody's;" Medium Term Notes rated "A" or better and only those issued by corporations organized and operating within the United States, or by depository institutions licensed by the United States or any state and operating within the United States;" Equity-Linked Notes, which are categorized as medium-term corporate notes and are subject to the constraints set forth in the Government code and the Authority's Investment Policy.As of June 30, 2009 the Authority held the following as cash and cash equivalents and investments:
Carrying Value Weighted Average Investment Type (in thousands)
Maturity (Years) Percent of Portfolio U.S. Agency Securities
$ 470,009 2.59 48.4%U.S. Discount Notes 111,397 0.06 11.5%Guaranteed Investment Contracts 279,605 9.69 28.8%Money Market Funds 110,811 0.07 11.4%Total $ 971,822 4.06 100.0%The "weighted average maturity in years" calculation assumes that all investments are held until maturity.57 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued)
Investments at June 30, 2009 are as follows (amounts in thousands):
ý-- --nll-DT 1 --P 2fKIXT Hoover Urmat Ueo-Palo Verde Uprating San Juan Magnolia Canyon thermal Project Project Project Power Project Power Project Project MWD Small Hydro Pebble Springs Tieton U.S. Agencies Agency Discount Notes GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total U.S. Agencies Agency Discount Notes GIC's Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total$ 199,105 S -S 9,497 $ 45,558 S 27,003 S S S S 21,594 3,898 3,049 14,038 -50,308 -21,323 3,863 -10,557 425 4,288 12,139 10,960 2,673 1,286 3,970 926 S 281,564 S 4,323 $ 38,157 S 75,598 S 37,963 S 2,673 S 1,286 S 3,970 S 926 S 198,112 S 2,699 S 33,030 S 57,809 S 27,003 S -S -S -S -70,036 1,199 ---13,416 425 5,127 17,789 10,960 2,673 1,286 3,970 926$ 281,564 S 4,323 $ 38,157 S 75,598 S 37,963 S 2,673 S 1,286 S 3,970 S 926 TRANSMISSION NATURAL GAS MISCELLANEOUS Trans-mission Mead- Mead- Projects'System Phoenix Adelanto Pinedale Barnett Prepaid Multiple Stabilization Project Project Project Project Project Natural Gas Project Fund Fund Total S 83,400 $ 1,740 S 5,758 $ 27,520 S 498 $ $ -S 69,930 $ 470,009 48,657 1,330 11,150 1,280 5,400 1,000 -111,396 37,179 6,543 22,626 15,472 42,405 11,901 67,986 -279,606 22,346 1,926 4,642 9,617 3,617 2,608 119 18,712 110,811 S 191,582 S 11,539 $ 44,176 S 53,889 S 51,920 S 14,509 $ 69,105 S 88,642 S 971,822$ 158,425 $ 8,283 S 31,534 $ 42,992 $ 46,212 $ 11,901 S 68,986 S 69,930 $ 756,916 S ------71,235 33,157 3,256 12,642 10,897 5,708 2,608 119 18,712 143,671$ 191,582 $ 11,539 $ 44,176 $ 53,889 $ 51,920 $ 14,509 $ 69,105 S 88,642 $ 971,822 58 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued)
Investments at June 30, 2008 are as follows (amounts in thousands):
(~I5.JI~p ATTCSM TI? A,,Jgs.AtgetThJ U.S. Agencies Agency Discount Notes GIC's Negotiable CD's Commercial Paper Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total Southern Tram-Palo Verde Hoover San Juan Magnolia Power Ormat Geo- mission System Mead- Phoenix Mead- Adelanto Project Uprating Project Project Project thermal Project Project Project Project$ 158,137 $ 569 $ -$ 23,977$ $S -$ -$37,326 3,545 23,841 32,916 1,117 46,239 5,149 13,065 55,302 -21,323 20,449 -37,179 7,143 22,626--3,400 -3,400 -1,700----364 ---992 136 35 1,594 203 2,284 1,895 780 S 251,757 $ 4,250 S 45,199 $ 82,336 S 1,684 $ 89,102 S 14,187 $ 38,171$ 163,930 S 1,068 $ 21,322 $ 48,176 S -$ 41,319 $ 7,593 $ 25,406 64,502 560 -----23,325 2,622 23,877 34,160 1,684 47,783 6,594 12,765 S 251,757 S 4,250 $ 45,199 $ 82,336 $ 1,684 $ 89,102 $ 14,187 S 38,171 NATURAL GAS MISCELLANEOUS Projects'pie Project Stabilization Prepaid Natural Multip U.S. Agencies Agency Discount Notes GIC's Negotiable CD's Commercial Paper Money Market Funds Total Restricted investments Unrestricted investments Cash and cash equivalents Total Barnett Pro ject Pinedale Project Gas Fund Fund Total$ $$ S -S 50,465 $ 233,148 6,112 25,729 880 35,787 231,706 45,013 15,067 10,887 63,252 -298,241-60 -3,500 12,060-----364 1,964 2,706 285 68 158 13,100$ 53,089 $ 43,562 $ 11,172 $ 67,700 $ 86,410 S 788,619 S 45,013 $ 15,126 $ 10,887 $ 63,252 $ 50,465 $ 493,557-----65,062 8,076 28,436 285 4,448 35,945 230,000 S 53,089 $ 43,562 $ 11,172 S 67,700 $ 86,410 $ 788,619 Interest rate risk -The Authority's investment policy limits the maturity of its investments to a maximum of 5 years for investments in the United States Treasury, Federal Agency, and Government Sponsored Enterprise securities, excluding:
investments held in Project Debt Service Reserve; long-term commitments or agreements approved by the Authority's Board; 5 years for medium term corporate notes; 270 days for commercial paper; 180 days for banker's acceptances; and one year for negotiable certificates of deposits.Credit risk -Under its investment policy and the State of California Government Code, the Authority is subject to the prudent investor standard of care in managing all aspects of its portfolios.
As an investment standard, each investment shall be made with "judgment and care under circumstances then prevailing, which a person of prudence, discretion and intelligence would exercise in the management of his/her affairs, not in regard for speculation, but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of the capital to be invested." The Authority's investment policy does not preclude active management of the portfolio to address market opportunities.
All transactions shall be undertaken in the best interest of the Authority and its participants.
59 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued)
The Authority's investment policy specifies that all project funds may be invested in shares of beneficial interest for temporary periods, pending disbursement or reinvestment as allowed under the state of California Government Code ("Code").
The Code requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations (NRSRO)or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience managing money market mutual funds with assets under management in excess of five hundred million dollars. As of June 30, 2008, each of the money market funds in the portfolio have attained the highest possible ratings by three NRSRO's, specifically AAA by Standard and Poor's, Aaa by Moody's Investors Service, and AAA by Fitch Ratings. As of June 30, 2009, money market funds in the portfolios with Bank of New York Mellon have attained the highest possible ratings by three NRSRO's, specifically AAA by Standard and Poor's, Aaa by Moody's Investors Service, and AAA by Fitch Ratings, while money market funds in the portfolios with US Bank have attained the following ratings: AA- by Standard and Poor's, Aal by Moody's Investors Service, and AA by Fitch Ratings.The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government.
As of June 30, 2009 and 2008, the U.S.government agency securities in the portfolio carried the highest possible credit ratings by the NRSRO's that rated them.The Guaranteed Investment Contracts in the portfolio with American International Group (AIG) consist of securities issued by corporations and carry a rating of A- by Standard and Poor's, A3 by Moody's Investors Service and BBB by Fitch Rating. The Guaranteed Investment Contracts in the portfolio with PNC carry a rating of A+ by Standard and Poor's, Al by Moody's Investors Service, and AA- by Fitch Ratings.The Investment Agreement Contract in the portfolio with Financial Security Assurance (FSA) consists of securities issued by corporations and carries a rating of AAA by Standard and Poor's, Aa3 by Moody's Investors Service, and AA+ by Fitch Ratings.Concentration of credit risk -The Authority's investment policy specifies a 50% to 100% limitation on the amount that can be invested in U.S. government agency securities, except in certain issues of other Authority projects, such as the Southern Transmission System 1991 Series and the Mead-Adelanto and Mead-Phoenix projects.Of the Authority's total investments as of June 30, 2009, $182.4 million (19%) was invested in securities issued by the Federal Home Loan Bank; $142.2 million (15%) was invested with Farm Credit Bank; $128.3 million (13%) was invested in GIC's with AIG; $121.1 million (12%) was invested in securities issued by the Federal National Mortgage Association;
$116.8 million (12%) was invested with Federal Home Loan Mortgage;
$97.2 million (10%) was invested in GIC's with PNC Financial Securities Group.Of the Authority's total investments as of June 30, 2008, $214.2 million (27%) was invested in securities issued by the Federal Home Loan Bank; $125.0 million (16%) was invested in securities issued by the Federal National Mortgage Association;
$75.8 million (10%) was invested in an investment agreement with Financial Security Assurance (FSA); $93.0 million (12%) was invested in GIC's with PNC Financial Securities Group; and $129.5 million (16%) was invested in GIC's with AIG.60 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 -Investments (Continued)
SCPPA is aware that there are global pressures on the current financial markets. Based on the best available information at this time, SCPPA is vigilantly monitoring the developments in the markets and believes that it is positioned to deal with these developments should the market conditions persist.Note 5 -Derivative Instruments Objective of the swaps -An interest rate swap is the exchange of payments between SCPPA and a counterparty in order to potentially obtain a lower cost of funding than traditional fixed rate bonds, or to hedge interest rate exposure on SCPPA's assets or liabilities.
The Authority has entered into eight separate pay-fixed, receive-variable interest rate swaps and two basis swaps to produce savings or to result in lower costs over the life of each transaction than what the Authority would have paid using fixed-rate debt. While these instruments carry additional risks, SCPPA's swap policy and favorable negotiations have helped to reduce such risks.Terms, fair values, and credit risk -The terms, including the fair values and credit ratings of the counterparties under the outstanding swaps as of June 30, 2009, are included below. In most cases, and with the exclusion of basis swaps, the notional amount of any swap matches the principal amount of the associated debt. Except as discussed under the rollover risk, and when associated with basis swaps, the Authority's swap agreements contain scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the associated "bonds payable" category.Notional Amount (in thousands)
Effective Date Fixed Rate Paid Swap Fair Values Termination (in thousands)
Date Counterparty Credit Rating Variable Rate Received MPP 2009-1 Swap (Citibank)
MPP 2009-2 Swap (JPMorgan)
MA 2007 Swap STS 2006 Amended Swap MP 2004 Amended Swap MA 2004 Amended Swap STS Swaption/Swap STS 2001 Swap STS 1991 Swap Prepaid Natural Gas 2007 Swap$ 111,670 4/21/2009 3.125%111,535 4/21/2009 3.129%SIFMA SIFMA 1011,000 11/1/2011 I-month LIBOR 100% of 10-yr LIBOR CMS rate less .414%100,000 5/1/2013 SIFMA 58.99% of 10-yr LIBOR CMS rate plus .664%28,700 10/2/2008 3.925%96,025 10/2/2008 3.921%125,000 2/6/2001 4.250%79,795 6/7/2001 4.240%250,300 4/17/1991 6.380%201,450 10/I 1/2007 5.0475%S 1,204,475 65% of LIBOR 65% of LIBOR 60% of LIBOR SIFMA less .40%7,441 7/1/2036 A+/AI/A+7,371 7/1/2036 AA-/Aal/AA-(392) 9/15/2030 AA-/Aal/AA-(3,201) 7/1/2023 AA-/Aal/AA-(3,676) 7/1/2020 A+/Aa2/A+(12,269) 7/1/2020 A+/Aa2/A+(27,283) 7/1/2022 A/A3/A+(13,987) 7/1/2021 A+/Aa2/A+(56,466) 6/30/2019 A-/A3/NA Bond variable coupon rate 67% of 3-Month LIBOR plus 1.47%$ (134,137)11/1/2038 A/Aa3/A+S&P/Moody's/Fitch ratings PNG 2007 Swap -In October 2007, SCPPA entered into an interest rate swap agreement in connection with the issuance of the Prepaid Natural Gas Project No. 1 Series 2007B Bonds. The swap hedges the interest-rate risk on the LIBOR Floating-rate bonds, where SCPPA pays a fixed rate of 5.0475% in exchange for receiving 67% of 3-month LIBOR plus 1.47%. The floating index on the swap exactly matches the coupon on the Bonds and therefore provides a hedge with no tax or basis risk. The swap expires on November 1, 2038.61 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued)
PNG 2007 Commodity Swap -At the same time, SCPPA also entered into five commodity price swap agreements, on behalf of each of the Prepaid Natural Gas Project No. 1 Participants, in order to hedge against reductions to its gas sale revenues resulting from changes in monthly market index prices. SCPPA pays a floating natural gas price over a thirty-year period and receives specified fixed natural gas prices at an agreed pricing point as determined in the Prepaid Natural Gas No. 1 Agreements.
The effective date of the swaps is July 1, 2008 and will expire on September 30, 2038." MPP 2009-1 Swap (Restated)
-This swap transaction amends the MPP 2007-1 Swap, which had an original trade date of April 30, 2007. The transaction was amended and restated as of April 21, 2009. The Authority pays its counterparty a fixed rate of 3.125% in exchange for receiving 100% of the Securities Industry and Financial Markets Association Swap Index (SIFMA) on a notional amount of $111.7 million. In order to provide more favorable terms to the participants, SCPPA made a payment of $15.7 million to the counterparty which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. The amendment allowed the parties to recoupon the swaps, change the collateral posting requirements, and to move to uninsured swaps." MPP 2009-2 Swap (Restated)
-This swap transaction amends the MPP 2007-1 Swap. The original transaction was novated from Bear Steams to JP Morgan on November 6, 2008 and was amended and restated on April 21, 2009. The Authority pays its counterparty a fixed rate of 3.129% in exchange for receiving 100% of the SIFMA Index on a notional amount of $111.5 million. In order to provide more favorable terms to the participants, SCPPA made a payment of $15.7 million to the counterparty which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. The amendment allowed the parties to recoupon the swaps, change the collateral posting requirements, and to move to uninsured swaps.* MPP 2007-1 Swap (Terminated)
-In April 2007, the Authority entered into an interest rate swap in connection with the issuance of variable-rate Magnolia Power Project A, Refunding Revenue Bonds, Series 2007-1 ("2007-1 Bonds"). The Swap created synthetic fixed-rate debt which consisted of a $223.2 million 29-year floating-to-fixed interest rate swap allocated equally between two counterparties.
The Authority paid each of the counterparties a fixed rate of 3.912% in exchange for receiving 98.9% of the SIFMA Index minus 6 basis points. The swap which became effective on June 13, 2007 was amended, restated, and novated to the MPP 2009-1 and the MPP 2009-2 Swaps on April 21, 2009. The MPP 2007-1 is no longer in effect." MA 2007 Swap (Amended)
-In January 2007, the Authority entered into a Constant Maturity Swap (CMS)in connection with its outstanding Mead-Adelanto Project. The transaction consisted of a $100 million basis swap and does not relate to any single series of the Mead-Adelanto bonds. The amended swap terms became effective on February 1, 2008 and the Authority pays the swap counterparty 100% of the 1-month LIBOR in exchange for receiving 100% of the 10-year LIBOR minus 41.4 basis points. The swap expires on September 15, 2030. On November 5, 2008 the MA 2007 Swap was novated from Bear Steams to JP Morgan. In addition, the swap was suspended until November 1, 2010. As part of the novation, the credit terms of the existing swap agreements will be maintained and SCPPA received $4.1 million from JP Morgan as compensation for the suspension of the cash flows of the MA 2007 CMS. The $4.1 million was deferred to be amortized over the suspension term.62 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued)
STS 2006 Swap (Amended)
-In July 2006, the Authority executed an amendment to the STS $100 million, floating-to-floating fixed-spread basis swap entered into in November 2004. Under an amendment, which became effective on August 1, 2007, SCPPA continued to pay the swap counterparty the SIFMA index but began to receive 58.99% of the 10-Year LIBOR plus 66.4 basis points, instead of 65% of the 1-month LIBOR plus 66.4 basis points. In addition, the STS 2006 Constant Maturity Swap was suspended for 5 years effective May 7, 2008, for which SCPPA received $3.7 million as compensation for the suspension of the cash flows of the 2006 Basis Swap, which was deferred to be amortized over the suspension term. The notional amount of the Swap Agreement remains at $100 million. The swap expires on July 1, 2023.* MP 2004 Swap (Amended)
-The MP 2004 Swap was amended and restated on October 2, 2008 to amend the fixed rate from 3.894% to 3.925% and to remove the insurance provisions and to adjust the collateral posting requirements.
All other terms and provisions of the original agreement prevail. The amended swap was also transferred to the MP 2008 Refunding Bonds.In connection with the issuance of the 2004 Mead-Phoenix Project Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority.
Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.894% and in exchange the Authority receives a floating rate index equal to 65% of the one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately
$1.8 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The floating rate on the related bonds was 0.15% and 2.958% at June 30, 2009 and 2008 respectively.
The MP 2004 bonds were refunded on October 2, 2008 and the related interest rate swap transferred to the MP 2008 Refunding Bonds." MA 2004 Swap (Amended)
-The MA 2004 Swap was amended and restated on October 2, 2008 to amend the fixed rate from 3.89% to 3.921% and to remove the insurance provisions and to adjust collateral posting requirements.
All other terms and provisions of the original agreement prevail. The amended swap was also transferred to the MA 2008 Refunding Bonds.In connection with the issuance of the 2004 Mead-Adelanto Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority.
Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.89% for the swap and in exchange the Authority receives a floating rate index equal to 65% of the one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately
$5.9 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. Approximately
$45.1 million in Mead-Adelanto 2004 Project Revenue Bonds Series A are not swapped and remain floating-rate bonds. The average floating rate on the related bonds was 0.15% and 3.032% as of June 30, 2009 and 2008 respectively.
The MP 2004 bonds were refunded on October 2, 2008 and the related interest rate swap transferred to the MA 2008 Refunding Bonds.63 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued)" STS 2003 Swap (Terminated)
-The STS 2003 interest rate swap was terminated on May 7, 2008 and SCPPA paid the associated swap termination value of $1,287,000, when the STS 2003 Series Bonds were refunded on June 4, 2008. The termination payment was expensed in the year incurred." STS Swaption/Swap
-In February 2001, the Authority entered into a transaction whereby it sold an option (the "Swaption")
on a floating-to-fixed interest rate swap. The Swaption was exercised on April 1, 2002. The floating rate on the swap paid by the counterparty is 60% of the one-month LIBOR; the annual fixed rate on the swap paid by the Authority is 4.25%. In exchange for the right to exercise the Swaption, the counterparty paid the Authority a one-time up front option premium amount of $7.9 million which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The counterparty has the option to cancel the agreement at the counterparty's discretion.
The swap expires on July 1, 2022.* STS 2001 Swap -In June 2001, the Authority entered into an interest rate swap agreement with a counterparty for the purpose of hedging against interest rate variations arising from the issuance of the 2001 Subordinate Refunding Series A Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. The Swap Agreement provides for the Authority to make payments to the counterparty at a fixed rate of 4.24%, and for the counterparty to make reciprocal payments based on a variable rate. The reset dates of the variable rate occur weekly and the rate for a reset date will be the rate determined by the SIFMA Index minus 40 basis points. The counterparty has the option to cancel the agreement on July 5, 2006 and on every Fixed Rate Payer Payment Date, thereafter, should the SIFMA index average more than 7% over a consecutive 180-day period. The floating rates on the bonds were 0.65% and 1.60% at June 30, 2009 and 2008, respectively.
The swap expires on July 1, 2021." STS 1991 Swap -In fiscal year 1991, the Authority entered into an interest rate swap Agreement with a counterparty for the purpose of hedging against interest rate fluctuations arising from the issuance of the 1991 Subordinate Refunding Series Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 6.38%; in exchange, the Authority receives payments mirroring the bond variable coupon rate (1.18% and 3.50% at June 30, 2009 and 2008, respectively).
The swap expires on June 30, 2019.Fair value -Fair values take into consideration the prevailing interest rate environment, the specific terms and conditions of a given transaction and any upfront payments that were received.
All fair values were estimated using the zero-coupon discounting method. This method calculates the future payments required by the swap, assuming that the current forward rates implied by the yield curve are the market's best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. While some of SCPPA's current mark to market values are negative, this valuation would be realized only if the swaps were terminated at the valuation date and only SCPPA retains the right to optionally terminate most of the transactions.
Credit risk -As of June 30, 2009, the net fair values of the Authority's applicable swaps for which payments were made were negative for each counterparty except for the MPP 2009-1 and MPP 2009-2 swaps. However, should interest rates change and the fair values of the swaps become positive, the Authority may be exposed to credit risk in the amount of the derivatives' fair value.64 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued)
The swap agreements contain varying collateral agreements with the counterparties.
The swaps require full collateralization of the fair value of the swap should the counterparty's (or if applicable, the guarantors of the counterparty's) credit rating fall below AA- as issued by Standard & Poor's or Aa3 as issued by Moody's Investors Service for the STS 1991 Swap, the Amended 2006, and the MA 2007 Swaps; A+/A1 for the STS 2001;A/A2 for the PNG 2007 Commodity Swap; and A-/A3 for the MPP 2009-1, MPP-2 and the STS Swaption/Swap.
The MP 2004 and the MA 2004 Swaps, all require full collateralization if rating fall below A as issued by Fitch, and A2 as issued by Moody's. Collateral on all swaps is to be in the form of U.S. government securities held by a third-party custodian.
The swap agreements provide that when the Authority has more than one derivative transaction with a given counterparty involving the same Authority project (and having the same swap/bond insurer), should one party become insolvent or otherwise default on its obligations, close-out netting provisions permit the non-defaulting party to accelerate and terminate all such related transactions and net the transactions' fair values so that a single sum will be owed by, or owed to, the non-defaulting party.Basis risk -Basis risk is the risk that the interest rate paid by the Authority on underlying variable rate bonds to bondholders exceeds the variable swap rate received from a counterparty, and the risk that both legs of a basis swap are not exactly equal. With the exception of the 1991 Swap and the PNG 2007 Swap, the Authority bears basis risk on each of its swaps. The 1991 Swap and the PNG 2007 Swap are perfectly hedged since the counterparty pays the Authority its actual variable bond rate on the related bonds. All the other swaps have a basis risk since under each of those swaps the Authority received a percentage of LIBOR or a percentage of, or spread to SIFMA to offset the actual variable bond rate or variable swap rate the Authority pays on any related bonds or on any basis swap. The Authority is exposed to basis risk should the floating rate that it receives on a swap be less than the actual variable rate the Authority pays on any related bonds; or in the case of the floating-to-floating fixed-spread basis swap, less than the variable rate paid to the swap counterparty.
Depending on the magnitude and duration of any basis risk shortfall, the expected cost savings from a swap may not be fully realized.
The 2001 swap is based on SIFMA rate minus 40 basis points (bps); similar to the LIBOR-based swaps, SIFMA minus 40 bps may not exactly hedge the underlying variable rate. As of June 30, 2009, the SIFMA rate was 0.356%; the SIFMA rate, minus 40 bps, was -0.046%; 60% of LIBOR was 0.192%; 65% of LIBOR was 0.208%; 100% of 10-Year LIBOR minus 41.4 bps was 3.910%; and 67% of 3-month LIBOR plus 147 bps was 2.1584%.The following is a summary of interest rates paid to and received from the counterparties as of June 30, 2009: Type of Derivative Swaption/
MP 2008 MA 2008 MA 2007 MAG 2009- MAG 2009- NGPrepay 1991 Swap Swap 2001 Swap Swap Swap Swap 1 Swap 2 Swap 2007 Swap Payments to counterparty 6.380% 4.250% 4.240% 3.925% 3.921% 3.720% 3.125% 3.129% 5.0475%Less, variable payments from counterparty 1.180% 0.192% -0.046% 0.208% 0.208% 3.910% 0.356% 0.356% 2.1584%Net interest rate swap payments 5.200% 4.058% 4.286% 3.717% 3.713% -0.190% 2.769% 2.773% 2.889%Add, variable-rate bond coupon payments 1.180% N/A 0.650% 0.150% 0.150% N/A 0.130% 0.240% 2.1584%Synthetic interest rate on bonds 6.380% 4.058% 4.936% 3.867% 3.863% -0.190% 2.899% 3.013% 5.048%65 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 -Derivative Instruments (Continued)
Termination risk -The Authority or the counterparty may terminate any of the swaps if the other party fails to perform under the terms of the contract.
In addition, the Swap/Swaption provides the counterparty with an option to cancel the swap agreement if the consecutive 180-day averaged rate of the SIFMA index exceeds 7.0%. The counterparty for the 2001 Swap also has a cancellation option which can be executed by the counterparty at their discretion.
If any of the swaps were terminated, any associated variable rate bonds would no longer be hedged to a fixed rate. If at the time of termination the swap has a negative fair value, the Authority would be liable to the counterparty for a payment equal to the swap's fair value.Rollover risk -Rollover risk is the risk that the swap contract is not co-terminus with the related bonds. The Authority is exposed to rollover risk on the Swap/Swaption and the 2001 Swap because the counterparty has the option to terminate the agreement prior to the maturity of the associated debt. In the event that this swap terminates, the Authority would be exposed to variable interest rates on the underlying bonds. The following debt is exposed to rollover risk: Associated Debt Issuance Debt Maturity Date Swap Termination Date STS 2001 Subordinate Refunding Series A July 1,2021 July 1, 2021 Swap payments and associated debt -Using rates as of June 30, 2009, debt service requirements of the Authority's outstanding variable rate debt and net swap payments are as follows. As rates vary, variable rate bond interest payments and net swap payments will vary.Variable-Rate Bon Principal In (Amounts in thousands) ds Interest Rate terest Swaps, Net Total Fiscal Year Ending June 30, 2010 2011 2012 2013 2014 2015-2019 2020-2024 2025-2029 2030-2034 2035-2039 28,790 18,495 41,120 42,440 74,770 274,690 132,395 61,975 108,560 267,520$ 1,050,755$ 5,792 5,578 5,028 4,463 3,418 9,720 2,372 1,779 4,796 6,335$ 49,281$ 32,407 31,465 29,593 27,654 24,389 86,356 36,096 27,764 22,940 12,182$ 330,846$ 38,199 37,043 34,621 32,117 27,807 96,076 38,468 29,543 27,736 18,517$ 380,127 66 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt Long-term debt outstanding at June 30, 2009 consisted of "new money" bonds, refunding bonds, and subordinate refunding bonds due in varying annual amounts through 2038. The new money bonds were issued to finance the purchase and construction or acquisition of the Authority's interest in each of the Projects.
The subordinate refunding bonds were issued to refund specified new money bonds.In accordance with the bond indentures, the new money bonds and refunding bonds are special, limited obligations of the Authority.
With the exception of the Magnolia Power Project B, Lease Revenue Bonds (City of Cerritos, California) 2003-1 ("Project B Bonds"), the bonds issued by each project are payable solely from and secured solely by interests in that project as follows:* Proceeds from the sale of bonds;" All revenues, incomes, rents and receipts attributable to that project and interest earned on securities held under the bond indenture or indentures; and" All funds established by the indenture or indentures.
The Authority has agreed to certain covenants with respect to bonded indebtedness, including the requirement to enforce the natural gas, power, and transmission sales agreements with the participants.
At the option of the Authority, all outstanding new money bonds and refunding bonds are subject to redemption prior to maturity, except for the 2006-1 Magnolia Revenue Bonds; the 2008A Canyon Power Revenue Notes; the 2002 Subordinate Refunding Series B Bonds, and portions of the 1988A Refunding Bonds, the 1992, the 2008A and the 2009A Subordinate Refunding Bonds issued for the Southern Transmission System; the 2002A San Juan Revenue Bonds; a total of $125.5 million of the Multiple Project Revenue Bonds; and the 2007 A & B Prepaid Natural Gas Project No. 1 Bonds.Variable rate debt includes debt with rates based on daily, weekly and long term rates as determined by a Remarketing Agent.The subprime mortgage problems led to the downgrade of bond insurers, the contraction of financial markets, and the loss of investor confidence resulting in uncertainty regarding the viability of the auction rate market and the variable debt market. The Authority implemented a refunding strategy in order to address the negative impact which these changes had on the marketplace and the Authority has successfully exited the failed Auction Rate Market and substantially reduced the risk on other financial transactions.
Conditions continue to be challenging and no assurance can be given that that there will not be other issues that affect the financial markets.67 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued)
A summary of changes in long-term debt follows (amounts in thousands):
Total long-term debt at June 30, 2008 Total debt due within one year at June 30, 2008 Total debt at June 30, 2008 Principal payments Revenue bonds issued Bonds refuinded/defeased Refunding bonds issued Change in unamortized debt-related costs, net Total debt at June 30, 2009 Total debt due within one year at June 30, 2009 Total long-term debt at June 30, 2009 GENERATION TRANSMISSION Hoover Southern Palo Verde Uprating Magnolia Power Canyon Power Transnission Mead- Phoenix Mead- Adelanto Project Project San Juan Project Project Project System Project Project Project S 78,175 $ 14,890 $ 150,942 S 344,981 $ 714,407 $ 56,611 $ 180,277 12,250 1,425 10,550 7,930 31,075 3,425 11,400 90,425 16,315 161,492 352,911 745,482 60,036 191,677-(1,425) (10,550) (7,930) (31,075) (3,425) (11,400)104,000 125,005 (101,820)
(223,205)
-(121,065)
(32,200) (107,750)99,830 258,070 -117,280 33,830 111,900 4,351 440 3 (1,916) 627 11,252 289 890 92,786 15,330 150,945 377,930 104,627 846,879 58,530 185,317 (10,360) (1,480) (11,115) (8,695) -(30,585) (2,870) (9,480)$ 82,426 S 13,850 S 139,830 S 369,235 S 104,627 S 816,294 $ 55.660 $ 175.837 NATURAL GAS MISC.Pinedale Prepaid Natural Multiple Project Barnett Project Project Gas Fond Total$ 94,242 $ 40,038 S 509,525 S 43,827 S 2,227,915 4,765 2,015 --84.835 99,007 42,053 509,525 43,827 2,312,750 (4,765) (2,015) --(72,585)229,005 (586,040)S- -620,910--(402) 1,275 16,809 94,242 40,038 509,123 45,102 2,520,849 (4,639) (1,956) (5,625) -(86,805)S 89,603 S 38,082 $ 503,498 $ 45,102 S 2,434,044 consists of subordinate refunding series bonds with variable interest rates and final Total long-teem debt at June 30, 2008 Total debt due within one year at June 30, 2008 Total debt at June 30, 2008 Principal payments Revenue bonds issued Bonds refunded/defeased Refunding bonds issued Change in unamrortized debt-related costs, net Total debt at June 30, 2009 Total debt due within one year at June 30, 2009 Total long-terem debt at June 30, 2009 Palo Verde Project -Debt maturities during 2017.The Palo Verde Escrow Restructure
-In April 2009, the Palo Verde 1997B Deposit Installment Escrow was restructured and the proceeds from the sale of certain of its escrow securities were used to tender $94.8 million of the Palo Verde 1997B Refunded Bonds. The tender produced approximately
$4.6 million of cash savings, net of accrued interest and transaction fees, which was distributed to the Palo Verde participants.
The Palo Verde Project Refunding
-In August 2008, the Authority issued the Palo Verde 2008 Subordinate Bonds in the aggregate principal amount of $99.8 million, consisting of $49.9 million principal amount of 2008 Series A Subordinate Refunding Bonds and $49.9 million of 2008 Series B Subordinate Refunding Bonds. The 2008 Subordinate Bonds were issued to provide funds, together with certain other available moneys, to refund all of SCPPA's outstanding 1996 Series B and C Bonds, remove the current bond insurance and replace them with variable rate debt obligations that are supported by a bank issued Letter of Credit. This transaction resulted in a net loss for accounting purposes of $11.6 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.68 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued)
Hoover Uprating Project -Debt consists of refunding series bonds with fixed interest rates between 4.0% and 5.25% and a final maturity during 2017.San Juan Project -Debt consists of refunding series bonds with fixed interest rates between 5.0% and 5.5% and final maturities during 2020.Magnolia Power Project -Debt consists of revenue and refunding series bonds with variable and fixed interest rates between 3.0% and 5.25% with final maturities occurring in 2036.Magnolia Power Project Refunding
-In April 2009, SCPPA issued $258.1 million of Magnolia Power Project A, Refunding Revenue Bonds, consisting of $146.5 million principal amount of Series 2009-1 and $111.5 million principal amount of Series 2009-2, together the "2009 Bonds". The 2009 bonds were issued to refund all of SCPPA's outstanding Magnolia Power Project A, Refunding Revenue Bonds, 2007-1; to make a payment to the counterparties of the 2007-1 Swap Agreements; and to pay the related costs of issuance.
This transaction resulted in a net loss for accounting purposes of $14.2 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.In June 2007, the Authority issued $223.3 million of Magnolia Power Project A Refunding Revenue Bonds, Series 2007-1 as variable rate demand obligations that bore interest at a weekly interest rate. The bonds were issued to refund $202.4 million of the Magnolia Power Project A Bonds, Revenue Series 2003-1. The Authority also entered into two separate floating-to-fixed interest rate swap agreements allocated equally between two swap counterparties in connection with the Series 2007-1 Bonds which effectively fixed the rate of the 2007-1 Bonds.These Bonds were refunded in April 2009 by the 2009 Bonds and the related swaps amended and restated. (See Note 5)Of the outstanding Magnolia Power Project Revenue Bonds, $13.0 million of "Project B Bonds" are secured by lease rental payments to be made by the City of Cerritos (the "City") in connection with the lease of certain facilities and premises owned by the City to the Authority and the leaseback of such facilities and premises to the City. The Base Rental Payments will be equal to the principal and interest on the Project B Bonds. In accordance with the Assignment Agreement between the Authority and the Trustee, the Authority will assign certain of its rights under the Lease, including its right to receive the Base Rental Payments, to the Trustee for the benefit of the owners of the Project B Bonds.The City has covenanted to budget and appropriate sufficient funds to make all payments required to be made under the Lease. The Lease has a term of 55 years.Southern Transmission System Project -Debt consists of refunding and subordinate refunding series bonds with fixed interest rates ranging from 3.50% to 6.38% and final maturities occurring in 2027.69 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued)
STS Project Refunding
-On February 3, 2009, SCPPA issued $117.3 million of the Southern Transmission System Project Revenue Bonds, 2009 Subordinate Refunding Series A. These fixed rate bonds were issued to provide funds, together with other available funds, to refund the STS 1996 Subordinate Refunding Series B Bonds (the Refunded Bonds) and to pay the related costs of issuance for the 2009 Series A Bonds. These bonds will mature serially beginning July 1, 2019 with final maturity on July 1, 2023. The Refunded Bonds were redeemed on February 4, 2009. This transaction resulted in a net loss for accounting purposes of $21.9 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.On December 18, 2008, SCPPA issued $125.0 million of the Southern Transmission System Project 2008 Series B Subordinate Bonds. The bonds were issued for the purpose of financing the construction of certain improvements to the Intermountain Power Project -STS, specifically the upgrade of its two converter stations to increase the capacity of STS from its present rating of 1,920 MW to a new rating of 2,400 MW. These bonds will mature on July 1, 2027. The estimated true interest cost of the Revenue Bonds is 6.21%.On June 4, 2008, SCPPA issued $48.0 million of Southern Transmission Revenue Bonds, 2008 Subordinate Refunding Series A ("2008 Series A Bonds"). These fixed rate bonds were issued to refund $50.1 million of the Southern Transmission System Project Revenue Bonds, 2003 Subordinate Refunding Series A Bonds ("STS 2003 ARS") and to pay the related costs of issuance for the 2008 Series A Bonds. This transaction resulted in a net loss for accounting purposes of $6.6 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.
The associated 2003 interest rate swap was terminated on May 7, 2008. (See Note 5)Mead Phoenix/Mead Adelanto Projects -Debt consists of revenue and refunding series bonds with variable interest and fixed interest rates. Fixed interest rates range from 3.921% and 5.15% with final maturities occurring in 2020.MeadPhoenix/MeadAdelanto Project Refunding Bonds -On October 2, 2008, SCPPA issued the Mead-Adelanto
& Mead-Phoenix 2008 Series A & B Revenue Bonds in the aggregate principal amount of $145.7 million, consisting of $104.8 million principal amount of Mead-Adelanto 2008 Series A, $7.1 million principal amount of Mead-Adelanto 2008 Series B, $31.3 million principal amount of Mead-Phoenix 2008 Series A, and $21 million principal amount of Mead-Phoenix 2008 Series B ("2008 Series A and B Bonds"). The bonds were issued to provide funds, together with other available funds, to refund the Mead-Adelanto Project Revenue Bonds, 2004 Series A and the Mead-Phoenix Project Revenue Bonds, 2004 Series A ("Refunded Bonds"), which consisted of insured auction rate bonds. These bonds will mature on July 1, 2020. The Refunded Bonds were redeemed from October 14 through October 17, 2008. This transaction resulted in a net loss for accounting purposes of $17.5 million, consisting primarily of unamortized debt expenses associated with the refunded bonds. The loss on refunding was deferred and is being amortized in accordance with GASB 23, over the shorter of the life of the new bonds or the remaining life of the bonds refunded.70 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued)
Natural Gas Projects -Debt consists of revenue bonds with fixed interest rates ranging from 3.43% to 6.03%and final maturities occurring in 2032.Natural Gas Project Revenue Bonds -On February 6, 2008, SCPPA issued $141.1 million Natural Gas Project A Revenue Bonds, 2008 Series A in connection with the Natural Gas Projects.
This fixed rate taxable bond transaction was issued to pay-off the outstanding
$76 million of the expiring Natural Gas Project Revenue Bonds, Draw Down Series 2005A (the short-term bridge loan) and to provide for five years of capital drilling needs for both the Natural Gas Pinedale and Bamett Projects.
Financing for the SCPPA Natural Gas Projects was executed as three separate transactions for each of the Project A Participants with final maturities in 2032.Prepaid Natural Gas Project No. 1 -Debt consists of revenue bonds with variable and fixed interest rates ranging from 5.0% to 5.25% and final maturity occurring in 2038.Gas Project Revenue Bonds Project No. 1 -In October 2007, SCPPA issued $504 million of Gas Project Revenue Bonds, Project No. 1, consisting of $303 million of Series 2007A Fixed Rate Bonds and $201 million of Series 2007B LIBOR Index Rate Bonds. These bonds were issued to finance prepayments for the purchase of a 30-year supply of natural gas under the Prepaid Natural Gas Sales Agreements, on behalf of the project participants.
SCPPA also entered into an interest rate swap agreement with J. Aron in connection with the issuance of the Series 2007B Bonds to hedge the interest-rate risk on the LIBOR Floating-rate bonds. The Bonds are limited, no-recourse obligations of the Authority payable from and secured solely by the Trust Estate pledged under the Indenture, which includes payments to be made to the Authority by the project participants pursuant to the Gas Supply Contracts.
The bonds are not subject to optional redemption by the Authority and final maturity will occur in November 2038. The estimated true interest cost is 5.02%.Canyon Power Project -Debt consists of revenue notes with a fixed interest rate of 2.50% which mature in December 2009. The Authority has the ability and the intent to refinance the 2008 Notes with long-term financing in fiscal year 2010.Canyon Power Project Revenue Notes -On December 11, 2008, SCPPA issued $104 million of the Canyon Power Project 2008 Series A Revenue Notes which matures on December 2, 2009. The 2008 Notes were issued to provide interim financing for the payment of a portion of the costs to develop, construct and acquire a peaking power plant with a generating capability of approximately 200 MW to be located in the City of Anaheim, California.
These notes are not subject to optional or mandatory redemption prior to maturity.
The estimated true interest cost of the Revenue Notes is 1.07%.Multiple Project Fund -Debt consists of revenue bonds with fixed interest rate of 6.75% and final maturity during 2013.71 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued)
Debt Related Costs -Unamortized debt-related costs, net are as follows (amounts in thousands):
Unamortized debt-related costs, net Palo Verde Project Southern Transmission System Project Hoover Uprating Project Mead-Phoenix Project Mead-Adelanto Project Multiple Project Fund San Juan Project Magnolia Power Project Canyon Power Project Prepaid Natural Gas Project No. 1 Loss on Refunding 7,044 73,224 809 4,297 12,732 2,851 14,074$ 115,031 Loss on Refunding June 30, 2009 (Premium)Discount$11,187 (164)683 1,871 5,098 (6,481)(3,559)(627)(4,678)$ 3,330 Total$ 7,044 84,411 645 4,980 14,603 5,098 (3,630)10,515 (627)(4,678)$ 118,361 Unamortized debt-related costs, net Palo Verde Project Southern Transmission System Project Hoover Uprating Project Mead-Phoenix Project Mead-Adelanto Project Multiple Project Fund San Juan Project Magnolia Power Project Prepaid Natural Gas Project No. 1 S 11,395 80,770 1,280 4,523 13,451 June 30, 2008 (Premium)Discount 14,893 (195)(140)(993)6,373 (7,796)(4,206)(5,080)Total S 11,395 95,663 1,085 4,383 12,548 6,373 (3,627)8,599 (5,080)4,169 12,805$ 128,393$ 2,946$ 131,339 Fair Value -The fair value of the Authority's long-term debt (including the current portion) is approximately
$2.51 billion and $2.46 billion at June 30, 2009 and 2008, respectively.
Management has estimated fair value based on the quoted market prices for the same or similar issues or on the current average rates offered to the Authority for debt of approximately the same remaining maturities, excluding the effect of a related interest rate swap agreement.
Advance Refundings
-The Authority has established irrevocable escrow trusts with the proceeds from issuance of subordinate refunding bonds. These investments will be used to pay specified revenue bonds called at scheduled redemption dates.72 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued)
Defeasance of Debt -The Authority has defeased specified revenue bonds by placing the proceeds from the issuance of subordinate refunding bonds in irrevocable trusts to provide for all future debt service payments on the refunded bonds. The trust investments and related liability for bonds that are considered legally defeased are not included in the Authority's financial statements.
At June 30, 2009 and 2008, $758.6 and $853.4 million, respectively, of revenue bonds outstanding are considered legally defeased.The refunded bonds constitute a contingent liability of the Authority only to the extent that cash and investments presently in the control of the refunding trustees are not sufficient to meet debt service requirements and are therefore excluded from the combined financial statements because the likelihood of additional funding requirements is considered remote.Debt Service -The scheduled debt service payments for future years ending June 30 are included in the table below. The variable rates used for the PV 2008 Subordinate Refunding Series A and B were 0.14% and 0.48%, respectively.
The variable rates used for the MA and MP 2008 Subordinate Refunding Series A were 0.15%. The variable rates used for the MA and MP 2008 Subordinate Refunding Series B were 0.52% and 0.62%, respectively.
The variable rates used for the STS 2000 and 2001 Subordinate Refunding Series A were 1.50% and 0.65%, respectively.
The variable rates used for the MPP 2009-1 and MPP 2009-2 were 0.13% and 0.24%, respectively.
All of the preceding variable rates were the rates at June 30, 2009. The variable rates are set by the bond-remarketing agent on a weekly basis based on economic conditions and bond ratings.73 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued)(Amounts in thousands)
GENERATION TRANSMISSION 2010 Principal 2010 Interest 2011 Principal 2011 Interest 2012 Principal 2012 Interest 2013 Principal 2013 Interest 2014 Principal 2014 Interest 2015 -2019 Principal 2015 -2019 Interest 2020 -2024 Principal 2020 -2024 Interest 2025 -2029 Principal 2025 -2029 Interest 2030 -2034 Principal 2030 -2034 Interest 2035 -2039 Principal 2035 -2039 Interest Principal Interest Palo Verde$ 10,360 2,459 10,030 2,237 10,340 1,986 10,660 1,728 10,980 1,461 47,460 3,011 Hoover Uprating$ 1,480 738 1,540 678 1,600 614 1,670 537 1,755 455 7,930 858$San Juan 11,115 7,699 11,715 7,102 12,345 6,472 13,010 5,808 27,250 5,093 60,450 11,032 11,430 571$Magnolia Power 8,695 7,690 9,010 13,919 9,395 13,541 9,780 13,167 10,220 12,713 48,850 56,381 47,035 45,397 64,270 35,274 78,590 24,112 102,600 Canyon Power Project$ 104,000 2,535$Southern Trans-mission System 30,585 32,718 32,990 40,911 35,650 42,151 54,140 40,117 47,825 38,092 261,305 163,970 281,130 89,549 187,665 18,650$Mead-Phoenix 2,870 2,845 4,895 3,079 5,190 2,756 5,530 2,414 5,905 2,048 26,970 5,807 12,150 720$Mead-Adelanto 9,480 8,700 13,490 9,473 14,305 8,584 15,230 7,640 16,265 6,635 90,450 19,427 40,700 2,411---8,1U0 ----$ 99,830 $ 15,975 $ 147,315 $ 388,445 $ 104,000 $ 931,290 $ 63,510 $ 199,920$ 12,882 $ 3,880 $ 43,777 $ 230,303 $ 2,535 $ 466,158 $ 19,669 $ 62,870 74 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 -Long-Term Debt (Continued) 2010 Principal 2010 Interest 2011 Principal 2011 Interest 2012 Principal 2012 Interest 2013 Principal 2013 Interest 2014 Principal 2014 Interest 2015 -2019 Principal 2015 -2019 Interest 2020 -2024 Principal 2020 -2024 Interest 2025 -2029 Principal 2025 -2029 Interest 2030 -2034 Principal 2030 -2034 Interest 2035 -2039 Principal 2035 -2039 Interest Principal Interest (Amounts in thousands)
NATURAL GAS MISC.Prepaid Multiple Pinedale Barnett Natural Gas Project Fund Total$ 1,956 $ 4,639 $ 5,625 $ -$ 190,805 1,956 4,606 25,440 3,389 100,775 2,929 6,941 5,715 11,400 110,655 1,871 4,405 25,157 3,389 112,221 3,368 7,972 5,295 12,100 117,560 1,756 4,132 24,881 2,619 109,492 2,549 6,016 4,805 12,900 136,290 1,640 3,857 24,628 1,802 103,338 2,253 5,302 4,065 13,800 145,620 1,539 3,619 24,407 932 96,994 10,492 24,593 22,215 -600,715 6,092 14,320 118,927 399,825 7,191 16,889 44,065 460,590 3,704 8,721 110,798 261,871 5,516 12,974 81,025 351,450 1,914 4,520 94,700 155,058 3,784 8,916 130,185 221,475 440 1,041 68,203 93,796--201,450 304,050--27,800 -35,909$ 40,038 $ 94,242 $ 504,445 $ 50,200 $ 2,639,210$ 20,912 $ 49,221 $ 544,941 $ 12,131 $ 1,469,279 Note 7 -Notes Payable and Deferred Credits Notes payable and deferred credits consist mainly of Palo Verde Participants' overbillings from prior periods, a note secured from GE Capital Public Finance, Inc., to lease purchased spare parts inventory for the Magnolia Power Project, and swap-related transaction fees received in STS, Mead Adelanto, and Mead Phoenix Projects.The notes payable in the Palo Verde Project are to be paid through June 2017. These notes are unsecured, bear an interest rate of 4.97%, and are due in monthly payments of $0.6 million. On June 30, 2009, the remaining balance is $47.2 million. The note payable in the Magnolia Power Project has a coupon rate of 4.1%, with principal payments due monthly through July 2010. On June 30, 2009, the remaining balance is $2.6 million.The Authority received approximately
$1.8 million and $5.9 million in upfront payments in connection with the execution of the 2004 Mead Phoenix and Mead Adelanto Swaps, respectively, to be deferred through 2020. The deferred balance is $0.8 million and $2.5 million, respectively, as of June 30, 2009. The 5-year suspension of the 2006 STS Constant Maturity Swap (CMS) in May 2008 netted a compensation of $3.7 million. The deferred balance is $3.0 million as of June 30, 2009. The 3-year suspension of the 2007 Mead Adelanto CMS in November 2008 netted a compensation of $4.1 million. The deferred balance is $3.2 million as of June 30, 2009. (See Note 5)75 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 7 -Notes Payable and Deferred Credits (Continued)
Notes Payable and Deferred Credits Rollforward (amounts in thousands):
Description PV prior year overbillings MPP GE spare parts STS 2006 Swap suspension Mead Phoenix 2004 Swap upfront fees Mead Adelanto 2004 Swap upfront fees Mead Adelanto 2007 Swap Suspension Amortization Payments/
of Surplus June 30, 2008 Additions Amortization Fund June 30, 2009$ 51,766 $ $ (4,998) $ 393 $ 47,161 2,629 (15) -2,614-3,745 (749) -2,996 886 -(116) -770 2,945 -(384) -2,561-4,123 (916) -3,207$ 58,226 $ 7,868 $ (7,178) $ 393 $ 59,309 Note 8 -Advances from Participants Advances from participants consist mainly of billings to participants related to acquisition, capital drilling, and inventory wherein the matching operating expenses will be recognized at a future date. Also, and specific only to the Natural Gas Pinedale Project, advances held by the project are funds from LADWP and TID, both owners independent of SCPPA, are for their share of operating costs and capital expenditures pursuant to their respective Agency Agreements.
Advances from participants rollforward (amounts in thousands):
Description NG Pinedale advances from participants NG Barnett advances from participants MPP advances from participants June 30, 2008 Activity June 30, 2009$ 38,245 $ 11,144 $ 49,389 11,602 309 11,911 22,124 (6,599) 15,525$ 71,971 $ 4,854 $ 76,825 Note 9 -Net Assets (Deficit)The Authority's billing amounts to the participants are determined by its Board of Directors and are subject to review and approval by the participants.
Billings to participants are designed to recover "costs" as defined by the power sales, natural gas sales, and transmission service agreements.
The billings are structured to systematically provide for debt service requirements, operating funds and reserves in accordance with these agreements.
The accumulated difference between billings and the Authority's expenses calculated in accordance with accounting principles generally accepted in the United States of America are presented as net assets (deficit).
It is intended that this difference will be recovered in the future through billings for repayment of principal on the related bonds.76 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 9 -Net Assets (Deficit) (Continued)
Net assets (deficit) are comprised of the following (in thousands):
Fiscal Year Fiscal Year June 30, 2007 2008 Activity June 30, 2008 2009 Activity June 30, 2009 GAAP items not included in billings to participants Depreciation of plant Nuclear fuel amortization Decommissioning expense Amortization of bond discount, debt issue costs, and loss on refundings Interest expense Loss on defeasance of bonds Bond requirements included in billings to participants Operations and maintenance, net of investment income Costs of acquisition of capacity Billings to amortize costs recoverable Reduction in debt service billings due to transfer of excess funds Principal repayments Other Multiple Project Fund net assets Projects' Stabilization Fund net assets (1,054,926)
$(19,548)(176,325)(670,005)(67,662)(85,827)305,039 14,773 382,050 (69,341) $ (1,124,267)
$ (67,190) $ (1,191,457) 13,688 (5,860) (5,860)(11,779) (188,104)
(8,572) (196,676)(17,516)2,826 8,091 (1,411)(687,521)(64,836)(85,827)313,130 13,362 382,050 (24,674)7,845 398 (1,466)(712,195)(56,991)(85,827)313,528 11,896 382,050 (90,020) -(90,020) -(90,020)1,060,723 87,628 1,148,351 82,173 1,230,524 100,019 59,315 159,334 8,713 168,047 (301,709) 71,501 (230,208)
(2,773) (232,981)3,984 (1,255) 2,729 (1,348) 1,381 80,642 6,228 86,870 2,285 89,155$ (217,083)
$ 76,474 $ (140,609)
$ (1,836) $ (142,445)Note 10 -Commitments and Contingencies Industry Restructuring
-Since the passage of Assermibly Bill 1890 (the "Bill") in September 1996, the electric industry in California continues to remain uncertain.
The deregulation experiment has, for the most part, been abandoned.
The public power participants of SCPPA were not required to comply with the Bill's provisions.
Public Benefits -The members continue to collect the public benefit charge through existing rate structures and have instituted in excess of $921 million of programs to benefit their customers.
More than $300 million has been spent on conservation and energy efficiency programs, public educational programs, research and development, and low income rate subsidies.
The decisions on how these funds are allocated are made by the local governing authority, in most cases this is the city council.77 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued)
Executive Action and State Legislation
-During the 2005-06 California State Legislative Session, the Governor issued several Executive Orders and the Legislature approved several bills affecting the utility industry.
In general, these bills provide for reduced greenhouse gas emission standards and greater investment in energy-efficient and environmentally friendly generation alternatives through more stringent renewable resource portfolio standards.
The following is a brief summary of certain of these bills: Greenhouse Gas Emissions
-Executive Order S-3-05 placed an emphasis on efforts to reduce greenhouse gas emissions by establishing statewide greenhouse gas reduction targets. The targets are: (i) a reduction to 2000 emissions levels by 2010; (ii) a reduction to 1990 levels by 2020; and (iii) a reduction to 80% below 1990 levels by 2050. The Executive Order also called for the California Environmental Protection Agency to lead a multi-agency effort to examine the impacts of climate change on California and develop strategies and mitigation plans to achieve the targets. Executive Order S-06-06 establishes the target of 20% for electricity generated from in-state biomass, an element in meeting 2010 and 2020 Renewable Portfolio Standard requirements and integral to the reduction of greenhouse gas emissions.
Assembly Bill 32, the Global Warming Solutions Act of 2006 (the "GWSA") became effective as law on January 1, 2007. The GWSA prescribed a statewide cap on global warming pollution with a goal of reaching 1990 greenhouse gas emission levels by 2020. In addition, the GWSA establishes a mandatory reporting program for all investor-owned utilities (IOUs), municipal utilities and other load-serving utilities to inventory and report greenhouse gas emissions to the California Air Resources Board (CARB) and requires CARB to adopt regulations for significant greenhouse gas emission sources (allowing CARB to design a"cap-and-trade" system) and gives CARB the authority to enforce such regulations beginning in 2012.SCPPA participants may be adversely affected if CARB implements an auction type cap-and-trade system, which would require the participants to purchase carbon credits to offset the higher than average carbon emissions of their respective resource portfolios.
CARB adopted a "scoping plan" to reduce greenhouse gas emissions which includes a mixed approach; market structures, regulation, fees and voluntary measures.
The scoping plan includes a cap-and-trade system that covers 85% of all California greenhouse gas emissions and will be implemented in coordination with the Western Climate Initiative regime, which is a regional zone consisting of seven states and three Canadian provinces that is in the process of establishing a greenhouse gas trading framework.
CARB has begun developing regulations for greenhouse gas emissions limits and reduction measures.
The regulations will go into effect and be enforceable beginning January 1, 2012.In addition to the GWSA, Senate Bill 1368 also became effective as law on January 1, 2007 and provides for an emission performance standard, restricting new investments in baseload fossil fuel electric generating resources that exceed the rate of emissions for greenhouse gases for existing combined-cycle natural gas baseload generation and seeks to allow the California Energy Resources Conservation and Development Commission (CEC) to establish a regulatory framework necessary to enforce the greenhouse gas emission performance standard for publicly-owned utilities.
The CPUC has the similar responsibility for the IOUs. The revised proposed CEC regulations were approved by the Office of Administrative Law on October 16, 2007.The regulations promulgated by the CEC prohibit any investment in baseload generation that does not meet the emission performance standard of 1,100 pounds of C02 per MWh of electricity, with the limited exceptions for routine maintenance, requirement of pre-existing contractual commitments, or threat of significant financial harm.78 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued)
Meanwhile, Assembly Bill 1925 requires the CEC to develop a cost effective strategy for the geologic sequestration and management of industrial carbon dioxide. Also, Senate Bill 1686 authorizes the Wildlife Conservation Board (the "WCB") to take into account the potential of forestlands to beneficially reduce or sequester greenhouse gas emissions when it prioritizes funds available for proposed acquisitions.
Senate Bill 1686 also specifies that the WCB may use policies, protocols and other relevant information developed by the California Climate Action Registry in determining a project's potential to reduce or sequester greenhouse gas emissions.
Energy Procurement and Efficiency Reporting
-Senate Bill 1037 requires that each municipal electric utility, including certain SCPPA participants, prior to procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and renewable resources that are cost effective, reliable and feasible.
Senate Bill 1037 also requires each municipal electric utility to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction programs.Further, California Assembly Bill 2021 ("AB 2021") requires that the publicly-owned utilities establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a ten-year horizon. Future reporting requirements under AB 2021 include: (i) the identification of sources of funding for the investment in energy efficiency and demand reduction programs; ii) the methodologies and input assumptions used to determine cost-effective; and (iii) the results of an independent evaluation to measure and verify energy efficiency savings and demand reduction program impacts. The information obtained from the local publicly-owned utilities is being used by the CEC to present the progress made by the publicly-owned utilities on the State's goal of reducing electrical consumption by 10% in ten years and amelioration with the greenhouse gas targets presented in Executive Order S-3-05. In addition, the CEC will provide recommendations for improvement to assist each local publicly-owned utility in achieving cost-effective, reliable, and feasible savings in conjunction with the established targets for reduction." Renewable Portfolio Standard (RPS) -Senate Bill 1078 (SB 1078), which became law on January 1, 2003, requires that the IOUs adopt a Renewable Portfolio Standard ("RPS") to meet a minimum of 1% of retail energy sales needs each year from renewable resources and to meet a goal of 20% of their retail energy needs from renewable energy resources by the year 2017. SB 1078 also directed the State's municipal electric utilities to implement and enforce an RPS that recognizes the intent of the Legislature to encourage development of renewable resources, taking into consideration the impact on a utility's standard on rates, reliability, financial resources, and the goal of environmental improvement.
Senate Bill 107, which became law on January 1, 2007, requires IOUs to have 20% of their electricity come from renewable sources by 2010 and prescribes that municipal utilities meet the intent of the legislation.
Executive Order S-14-08, issued by Governor Schwarzenegger on December 18, 2008, provides that the Renewable Portfolio Standard target established for California shall require retail electricity sellers to serve 33% of their loads with eligible renewable energy resources by 2020. Legislative and regulatory proposals, including Senate Bill 14 and Assembly Bill 64 currently awaiting action by the Governor, could increase this mandate to 33% or higher for all utilities, including municipal utilities.
SCPPA participants have embraced the objective of increasing renewable resources within their portfolios.
However, the costs of renewable generation, infrastructure, including transmission upgrades and additions, and other requirements will have additional significant financial implications on SCPPA participants.
79 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued)
Since the implementation of Senate Bill 1078, the CPUC and the CEC have taken a number of actions that have had an impact on the renewable energy goals set by the legislation.
In order to overcome the challenges associated with meeting accelerated RPS goals, the CPUC and the CEC supported the implementation of a renewable energy certificate (REC) trading system to meet the accelerated RPS goals. SB 107 allows this flexibility, with the condition that the energy is delivered to an in-state trading hub. In parallel, pursuant to Senate Bill 1078, the CEC, collaboratively with the Western Governors' Association and the Western Electricity Coordinating Council, has established the Western Renewable Energy Generation Information System (WREGIS), which is expected to ensure the integrity of RECs and prevent the double counting of the certificates.
On October 28, 2008, a CPUC Administrative Law Judge in Rulemaking 06-02-012 issued a proposed decision, which if approved by the CPUC, would authorize the use of WREGIS in tracking, and approving the purchase and sale of, tradable renewable energy credits for the IOUs. SCPPA and certain participants have elected to use WREGIS to transfer and account for the RECs associated with renewable energy procured by SCPPA on behalf of certain participants.
Solar Power -Senate Bill 1 (also known as the "California Solar Initiative"), which became law on January 1, 2007, requires municipal utilities, including SCPPA participants, to establish a program supporting the stated goal of the legislation to install 3,000 MW of photovoltaic energy in California.
Municipal utilities are also required to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer funded incentives.
The legislation gives a municipal utility the choice of selecting an incentive based on the installed capacity, starting at $2.80 per watt, or based on the energy produced by the solar energy system, measured in kilowatt-hours.
Incentives would be required to decrease at a minimum average rate of 7% per year. Municipal utilities also have to meet certain reporting requirements regarding the installed capacity, number of installed systems, number of applicants, amount of awarded incentives and the contribution toward the program's goals. Total statewide expenditures for municipal utilities are expected to be approximately
$22 million.The effect of these developments in the California energy markets on SCPPA participants cannot be fully ascertained at this time. Most of the SCPPA participants have made investments in gas-fired peaking or base-load generation located in Southern California.
Also, volatility in energy price in California may return due to a variety of factors which affect both the supply and demand for electric energy in the western United States. This price volatility may contribute to greater volatility in the revenues of their respective electric systems from the sale (and purchase) of electric energy and, therefore, could materially affect each of SCPPA's participants financial condition.
The very competitive prices for a portion of gas supply and additional services provided by SCPPA are intended to maintain and improve the competitive position of the participants.
Also, each participant undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure.Federal Energy Legislation
-The Energy Policy Act of 2005 ("EPACT 2005") addresses a wide array of energy matters that could affect the entire electric utility industry, including the electric system of certain SCPPA participants.
EPACT 2005 requires the creation of an electric reliability organization (ERO) to establish and enforce, under FERC supervision, mandatory reliability standards to increase system reliability and minimize blackouts.
Failure to comply with such mandatory standards exposes a utility to significant fines and penalties by the ERO.80 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued)
EPACT 2005 contains provisions designed to increase imports of liquefied natural gas and incentives to support renewable energy technologies, including a new program for tax credit bonds for local governments, like a majority of SCPPA participants, to finance certain renewable energy facilities in addition to extending the Price-Anderson Act for 20 years which concerns nuclear power liability protection and provides incentives for the construction of new nuclear plants. Neither SCPPA nor any of certain participants is able to predict at this time the impact that EPACT 2005 will have on the operations and finances of their respective electric systems or the electric utility industry generally.
NERC Reliability Standards
-NERC Reliability Standards are mandatory and enforceable Reliability Standards which apply to users, owners and operators of the Bulk-Power System. Potential monetary sanctions include fines of up to $1 million per violation per day. Penalties assessed for violations of any Reliability Standards can be calculated without collecting the penalty if circumstances are warranted.
ISO FERC FILINGS MRTU -The ISO's Market Redesign and Technology Upgrade (MRTU) tariff amendment includes provisions intended to perform effective congestion management in the ISO day-ahead market by enforcing all transmission constraints so as to establish feasible forward transmission schedules, create a day-ahead market for energy, automate real-time dispatch so as to balance the system and manage congestion in an optimal manner; and ensure consistency in the allocation of transmission resources to grid users and the pricing of transmission service and energy. The ISO has continued to file numerous amendments to the MRTU tariff which was implemented on April 1, 2009. Without a significant period of actual experience operating under MRTU, it is not known how the restructured ISO markets will ultimately affect SCPPA and certain participants.
It is not possible to predict the actual level of costs before gaining more actual operational experience under MRTU.No adequate assurances can be given by SCPPA that unforeseen events will not occur under MRTU, particularly during the period of implementation and initial operation; thus, it is impossible to predict at this time the ultimate impact of MRTU on SCPPA, certain participants and the California electric utility industry generally.
Resource Adequacy Requirements:
AB 380, which became law on January 1, 2006, requires the CPUC to establish resource adequacy requirements for all load-serving entities (LSEs) within the CPUC's jurisdiction and requires publicly-owned utilities to procure adequate resources to meet their peak demands and reserves.
In October 2005, the CPUC issued a decision stating that LSEs under its jurisdiction would be required to demonstrate that they have acquired capacity sufficient to serve their forecast retail customer load plus a 15-17%reserve margin.81 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued)
The ISO filed a tariff amendment with FERC which incorporated most of the CPUC resource adequacy requirements in addition to providing significant deference to the local governing boards of municipal and cooperative entities in establishing qualifying reliability standards.
These requirements were expanded by adding local capacity requirements to make certain that sufficient generating capacity is procured in particular areas where it is lacking. To the extent that a LSE fails to meet such a requirement, it is subject to payment of ISO procurement costs of replacement capacity.
To the extent that shortfall cannot be attributed to a specific LSE, the costs will be spread as market uplift. While the magnitude of backup procurement costs are still subject to FERC order and to market conditions, these risks will apply in the same manner to all LSEs.The CPUC is currently studying the possibility of meeting future capacity needs by either extending the existing Resource Adequacy program with some modification or by instituting centralized capacity markets. It is premature to predict the outcome of that proceeding, although it is likely that any outcome will be extended to all LSEs through the ISO tariff. While either path carries some risk of increased costs for the market, it is too soon to predict what the decision will be or the details of implementation.
American Recovery and Reinvestment Act of 2009 -The American Recovery and Reinvestment Act of 2009 is an economic stimulus bill which includes a number of investments and tax incentives for certain energy-related projects.
SCPPA is reviewing the provisions of the Act to determine what impact it may have on future projects and its participants.
The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities.
Any factors including those mentioned above could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways. SCPPA is unable to predict what impact such factors will have on the business operations and financial condition of SCPPA participants but the impact could be significant.
Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources of public domain.Nuclear Spent Fuel and Waste Disposal -Under the Nuclear Waste Policy Act, the Department of Energy (DOE) was to develop the facilities necessary for the storage and disposal of spent fuel and to have the first such facility in operation by 1998. That facility was to be a permanent repository, but the DOE has announced that such a repository could not be completed before 2015. There is ongoing litigation with respect to the DOE's ability to accept spent nuclear fuel and no permanent resolution has been reached to date.In July 2002, a measure was signed into law designating the Yucca Mountain in the state of Nevada as the nation's high-level nuclear waste repository.
This meant that the DOE could then file a construction and operation plan for Yucca Mountain with the Nuclear Regulatory Commission (NRC). Due to a series of setbacks including scientific challenges by the National Academy of Science, falsified research data by consultants, delays in submitting the construction application to the Nuclear Regulatory Commission, the DOE expected that the Yucca Mountain site would be open no earlier than 2015.82 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued)
In June 2008, the Department of Interior submitted to the Nuclear Regulatory Commission a license application to construct the repository.
In 2009, the federal government decided to cut off all the appropriated funds for the development of the repository at Yucca Mountain at the urge of the Congress except a small budget allocation for the closing of the project. The repository at Yucca Mountain was essentially declared defunct. A commission will be formed to search for an alternative to the repository at Yucca Mountain.
There are questions about the continued collection of fees contributing to the Nuclear Waste Fund that currently has about $22 billion.The Palo Verde Operating Agent on behalf of the co-owners began litigation proceedings with the Department of Interior to recover the costs of storing spent fuel at Palo Verde because the federal government failed to honor the contract to take over and dispose spent fuel.The spent fuel storage in the wet pool at PVNGS exhausted its capacity in 2003. A Dry Cask Storage Facility (the "Facility"), also called the Independent Spent Fuel Storage Facility, was built and completed in 2003 at a total cost of $33.9 million (about $2 million for the Authority).
In addition to the Facility, the costs also account for heavy lift equipment inside the units and at the yard, railroad track, tractors, transporter, transport canister, and surveillance equipment.
The Facility has the capacity to store all the spent fuel generated by the PVNGS plant until 2026. To date, over 63 casks, each containing 24 spent fuel assemblies were placed in the Facility.
The current plan calls for the removal of between 240 and 288 fuel assemblies from the units to the Facility every year. The costs incurred by the procurement, packing, preparation and transportation of the casks are included as part of the fuel expenses, and will cost approximately
$13 million a year (about $760,000 for the Authority).
Storing spent fuel at Palo Verde is now considered indefinite with undetermined costs until spent fuel is removed off site.Nuclear Insurance
-The Price-Anderson Act (the "Act") requires that all utilities with nuclear generating facilities share in payment for claims resulting from a nuclear incident.
The Act limits liability from third-party claims to approximately
$12.5 billion per incident.
Participants in the Palo Verde Nuclear Generating Station currently insure potential claims and liability through commercial insurance with a $300 million limit; the remainder of the potential liability is covered by the industry-wide retrospective assessment program provided under the Act. This program limits assessments to $117.5 million per reactor for each licensee for each nuclear incident occurring at any nuclear reactor in the United States; payments under the program are limited to $17.5 million per reactor, per incident, per year to be indexed for inflation every 5 years. Based on the Authority's 5.91% interest in Palo Verde, the Authority would be responsible for a maximum assessment of $20.8 million per incident for all 3 units, limited to payments of $3.1 million per incident, per year.In addition to the above, the Authority may be subject to retroactive insurance assessments for its participation in the Neil Property Insurance Program in the amount of $2.9 million.83 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued)
Other Legal Matters -Claims and a lawsuit for damages have been filed with the Authority, Intermountain Power Authority (the "IPA") and LADWP seeking $100 million in special damages and a like amount in general damages. The claimants allege, among other things, that due to improper grounding of the transmission line of STS, their dairy herds were damaged and the value of their land was diminished.
The claimants also seek injunctive relief. The Authority believed these claims were substantially without merit as to itself because the Authority has no ownership or operational control over the subject transmission lines, and merely acted as a financing agency with respect to STS. In July 2003, the Authority, IPA, and LADWP filed a motion to dismiss, or in the alternative, a motion to stay based upon forum non conveniens, in which the defendants argued that the case had little connection with California and should be heard in Utah. The Los Angeles Superior Court granted the motion and in a 2004 unpublished opinion the California Court of Appeal affirmed this matter on appeal. A Petition for Review was subsequently denied by the California Supreme Court.In February 2005, the remaining Utah plaintiffs filed a complaint in the Third Judicial District Court in and for Salt Lake County, Utah, which alleged facts similar to those alleged in California.
The action was later transferred to the District Court in and for Millard County, Utah. SCPPA moved the Utah court to dismiss the action as to SCPPA. This motion resulted in the dismissal of certain of the causes of action in the complaint against SCPPA however other causes of action still remain. During May 2008, SCPPA and a number of other defendants filed several motions for summary judgment in the District Court of Millard County, Utah. These May 2008 motions were argued on July 1, 2008. However, the plaintiffs motion to disqualify the trial judge for allegedly showing bias against the plaintiffs, which was filed on July 22, 2008, caused the activity in the case to cease, as required under Utah law, until the motion could be heard by the Presiding Judge. The Presiding Judge of the Fourth Judicial District denied the disqualification motion on September 17, 2008, the trial judge issued rulings on the May 2008 motions, granting the motion to prohibit any award of punitive damages as against the Los Angeles Department of Water and Power (LADWP), the Intermountain Power Authority (IPA), and SCPPA, dismissing the claims of one plaintiff, dismissing a claim for negligence per se as against the LADWP, IPA, and SCPPA, denying without prejudice certain other motions for dismissal of certain other causes of action and certain plaintiffs, granting the motion of another defendant to be dismissed from the case, but denying SCPPA's motion for summary judgment.In June 2008, the defendants joined in motions to exclude the testimony of the plaintiffs' expert witnesses, and asked for an evidentiary hearing, given the importance of expert testimony to the case. The court heard this motion during June 2009. In August 2009, the court granted the motion to exclude certain parts of the plaintiffs expert testimony.
At the current time, it is felt that this is an important element of the plaintiffs' case and that it may be difficult for the plaintiffs to carry this case through to conclusion before the jury without such testimony.
However, notwithstanding this development, the ultimate outcome of this litigation cannot be predicted at this time. No provision for this litigation matter has been included in the accompanying financial statements.
84 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 -Commitments and Contingencies (Continued)
On February 12, 2009, SCPPA was served in the case of Wakefield
- v. Devon Energy Production Company, L.P., Collins & Young holdings L.P.; Southern California Public Power Authority; and Turlock Irrigation District arising out of its non-operating working interest in oil and gas production property situated in the Barnett Shale in certain Texas counties including Hood County, Texas. Devon Energy Production Company (Devon) acts as SCPPA's operator with respect to all oil and gas operations upon this property.
The plaintiff in this lawsuit has alleged that Devon entered into certain pooling arrangements with adjacent property owners, through which it combined the lease pertaining to the plaintiffs property with other less productive leases, resulting in an increase in royalties to these adjacent property owners and a corresponding diminution of plaintiffs royalties.
The complaint alleges that the pooling arrangement entered into by Devon violated the lease which had been entered into with the plaintiff and was done in bad faith. The complaint seeks declaratory relief to invalidate the pooling arrangement and seeks damages and attorney's fees. The complaint does not specify the amount of damages sought. The case is currently pending before the Hood County District Court and SCPPA has filed an answer denying the allegations of the plaintiff.
At the current time, the case is proceeding through traditional pretrial proceedings and is currently going through the discovery stages of the proceedings.
It cannot be predicted how this case may be resolved at the current time, however, SCPPA has been advised that these cases are not uncommon and usually settle. No provision for this litigation matter has been included in the accompanying financial statements.
The Authority is also involved in various other legal actions. In the opinion of management, the outcome of such litigation or claims will not have a material effect on the financial position or the results of operations of the Authority or the respective separate Projects.85 SUPPLEMENTAL INFORMATION SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Decom- General Debt Service missioning Escrow Reserve Issue Operating Reserve & Revenue Fund Trust Fund Account Account Account Account Contingency Fund Total$ -$ 149,487 $ 311,546 $ S 4,457 $ 72,354 $ 25,502 $ -$ 563,346 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from power sales Distribution of revenue Bond proceeds 2008A&B 1997A bond tender proceeds Transfer from escrow fund for principal and interest payments Total Deductions Construction expenditures Operating expenditures Bond issue costs Fuel costs Payment of principal Interest paid -non escrow Premium and interest paid on investment purchases Payment of principal and interest paid escrow Total 5,757 12,245 113 -102,562 (1 (61,117) 6 1 65 3,000 22 12 64 (23) (72) (425)703 91 -(794) 1,31-88,26 12,299 (89,59 15,150 (3,242)116,381 61,339 7 21,778 302 4 69 88,269 0)98,230 62,138 641 3,704 -(24,373) -20,669 ---3,704 5,870 29,317 5,945 148,963 64,619 12,299 270,717 13,247.3 798 43,391 12,256 13,247 43,394 12,256 2,444 2,444 37 I 38 3,704 -102,518 137,050 243,272 3,704 40 102,518 140,292 55,647 13,248 314,651$ -$ 155,317 $ 238,345 $ 5,945 $ 13,128 $ 81,326 $ 24,553 $ $ 519,412 Balance at June 30, 2009 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $66 and $83 held in the revolving fund at June 30, 2009 and 2008, respectively.
86 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVER UPRATING PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Debt Service General Fund Reserve Fund Operating Fund Revenue Fund Total S 1,078 $ 1,703 $ 1,438 $ -$ 4,219 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from power sales Distribution of revenue Other Total Deductions Operating expenses Payment of principal Interest paid Total Balance at June 30, 2009 3 8 35 11 34 5 73 24 2,404 2,404 2,445 115 (2,560) --(24) 58 34 2,445 90 2,535 228 228 1,425 -1,425 796 -796 2,221 -228 2,449$ 1,302 $ 1,703 $ 1,300 $ $ 4,305 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $16 and $18 held in the revolving fund at June 30, 2009 and 2008, respectively.
87 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SAN JUAN PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Balance at June 30, 2008 Additions Investment earnings Discount on investments Distribution of investment earnings Revenue from power sales Distribution of revenues Other Total Deductions Operating expenses Construction expenses Payment of principal and interest -escrow Payment of principal Interest paid -non-escrow Total Debt Service Reserve & Cost of Acquisition Reserve Revenue Operating Contingency Issuance Escrow Account Account Fund Fund Fund Fund Account Total$ 4,135 $ 21,323 $ $ 6,988 $ 12,714 $ (1) $ 75,379 $ 120,538 53 1,080 9 14 265 3,076 4,497 48 -1 34 76 -159 (101) (1,080) 1,600 (48) (341) 30-75,981 --75,981 18,814 (77,591) 55,681 3,095 1 -3,772 --(3,772) -22,586 55,681 3,095 1 (696) 80,667-60,027 --60,027--5,932 5,932 3,772 -3,772 10,550 10,550 8,266 --8,266 22,588 -60,027 5,932 88,547$ 4,133 $ 21,323 $ $ 2,642 $ 9,877 $ $ 74,683 $ 112,658 Balance at June 30, 2009 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $28 and $27 held in the revolving fund at June 30, 2009 and 2008, respectively.
88 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MAGNOLIA POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Debt Debt Service Operating General Service Reserve Project Reserve Reserve and Operating Revenue Reserve Account Account Fund Fund Contingency Fund Fund Fund Escrow Fund Total$ 15,606 $ 29,922 $ 3,725 $ 4,919 $ 9,888 $ 8,770 $ -$ 9,485 S 214,282 $ 296,597 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Transfer of funds for debt service payment Bond proceeds 2009-1 Bond proceeds 2009-2 Transfer from/to escrow fund for principal and interest payment Receipt from participants Distribution of revenues Total Deductions Construction expenditures Operating expenses Liquidity
& Remarketing Fees Interest paid -non-escrow Premium and interest on investment purchases Payment of principal Debt issuance costs Payment of principal and interest -escrow Total Balance at June 30, 2009 49 87 (138)10,119 1,353 (1,067)9,647 7,348 75 20 228 1 (229)384 2 (371)8 26 (34)10 1,838 54 73 1 9,717 (10,119)119,256 86,707 11,878 209 111,535 17,632 17,480 (1,120) (16,871) -17,991 -----64,856 -64,856 25,138 -(600) 1,911 40,271 (66,704) (16) -34,135 410 34,607 1,926 40,271 112 223,552 335,013 (120)2,327 386 45,761 266 45,761 1,482 20,208 1,482 17,881 (2) 15 13 7,930 -7,930-32,318 -32,318 10,119 ----223,933 234,052 37,410 34,540 386 45,761 -223,933 342,030$ 12,331 $ 30,332 $ 3,792 $ 4,919 $ 11,428 $ 3,280 $ $ 9,597 $ 213,901 $ 289,580 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $35 and $34 held in the revolving fund at June 30, 2009 and 2008, respectively.
89 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY CANYON POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Balance at June 30, 2008 Additions Investment earnings Discount on investments Bond Proceeds 2008A Total Deductions Construction expenses Debt issue costs Total Balance at June 30, 2009 Project Fund Total$ $199 199 3 3 105,505 105,505 105,707 105,707 67,444 67,444 429 429 67,873 67,873$ 37,834 $ 37,834 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable or unrealized gain (loss) on investments.
90 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN TRANSMISSION SYSTEM PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Upgrade General Construction Escrow Fund Reserve Fund Issue Fund Fund Operating Fund Revenue Fund Total$ 80 $ 2,118 $ 81,183 $ -$ 4,395 $ -$ 87,776 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Revenue from transmission sales Distribution of revenue Bond proceeds 2008B Bond proceeds 2009A Transfer from/to escrow fund for principal and interest payment Other transfers Other receipts Total Deductions Construction expenses Operating expenses Payment of principal Interest paid Arbitrage rebate Liquidity
& remarketing fees Debt issuance costs Payment of principal and interest -escrow Total 21 2,946 6 289 (27) (3,235)207 45 110,000 43 30 (73)16,712 3,488 119,811 (119,891)68,281 1,279 11,334 11 7 3,335 85,128 (88,481)1,250 (1,250)3,228 377 85,128 111,279 132,395 (1,254) 121,145 287 963 (80) 2,521 203,003 110,252 16,712 332,408 20,342 13,989 31,075 39,398 20,342 13,989 31,075 39,398 25 25 1,691 1,691 2,540 2,540 121,065 --121,065-195,769 20,342 14,014 230,125$ $ 4,639 $ 88,417 $ 89,910 $ 7,093 $ $ 190,059 Balance at June 30, 2009 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $41 and $49 held in the revolving fund at June 30, 2009 and 2008, respectively.
91 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-PHOENIX PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Debt Debt Service Reserve & Cost of Revenue Service Reserve Operating Contingency Surplus Issuance Escrow Fund Account Account Fund Fund Fund Fund Issue Fund Fund Total$ -$ 4,068 $ 5,915 $ 799 $ 1,621 $ 1,749 $ -$ -$ -$ 14,152 Balance at June 30, 2008 Additions Investment earnings Discount on investment earnings Distribution of investment earnings Transmission revenue Distribution of revenues Transfer from/to escrow for principal and interest payment Bond proceeds 2008A and 2008B Other transfers Total Deductions Construction expenditures Operating expenses Principal payment Interest paid Debt issuance costs Principal and interest -escrow fund Premium and interest paid on investment purchase Total Balance at June 30, 2009 7 503 2 202 7,755 (8,129)14 (21)5,649 (68)2 (4)1,188 92 3-13 (92) (16)2,945 (1,747)I 608 29 7,755 (1)94 31,325 1,781 499 (33,830) 225-----33,830 -33,830 172 906 (1,035) 146 (225) --37,880 1,181 1,334 2,945 (1,747) 629 -42,222 3,339 1,921 3,425 3,311 32,200 3,339 1,921 3,425 3,441 499 32,200 130 499-24 ---24 38,936 24 1,921 3,339 629 44,849$ $ 3,012 $ 7,072 $ 212 $ 1,227 $ 2$ $ $ $ 11,525 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $13 and $15 held in the revolving fund at June 30, 2009 and 2008, respectively.
92 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-ADELANTO PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Cost of Debt Service Debt Service Operating Reserve & Revenue Issuance Account Reserve Fund Fund Contingency Fund Surplus Fund Issue Fund Fund Total$ 11,734 $ 16,267 $ 511 $ 6,383 $ -S 3,189 $ -$ -$ 38,084 Balance at June 30, 2008 Additions Investment earnings Discount on investment earnings Distribution of investment earnings Transmission revenue Distribution of revenues Balance Transfer to / from escrow Swap suspension fee received Bond Proceeds 2008A&B Total Deductions Construction expenses Operating expenses Principal payment Interest paid Payment of principal and interest -escrow Cost of Issuance Total Balance at June 30, 2009 36 71 (107)22,434 101,184 1,345 (6)(224)(1,194)5,878 5 469 1 3 32 10 (6)380 22,581 12 (22,964)(42)2 1,892 76 (1)-22,581 305 -827 3,890 (112)(2,483)4,123 (111,900)4,138 -4,138-----111,900 -111,900 127,756 5,799 3,778 481 1,640 -1,133 140,587---480 --480-4,017 -4,017 11,400 --11,400 9,225 433 9,658 108,253 -108,253---700 700 128,878 -4,017 480 1,133 134,508$ 10,612 $ 22,066 $ 272 $ 6,384 $ $ 4,829 $ $ -$ 44,163 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $13 and $15 held in the revolving fund at June 30, 2009 and 2008, respectively.
93 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MULTIPLE PROJECT FUND SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Proceeds Debt Service Earnings Account Account Account Total$ 61,938 $ 5,710 $ 49 $ 67,697 Balance at June 30, 2008 Additions Investment earnings Distribution of investment earnings Transfer for debt service payment Transfer from debt service account Total Deductions Interest paid Total Balance at June 30, 2009 4,291 (4,239)505 4,796 4,239 7,618 (7,618)(3,413) -3,413 -(3,361) 8,123 34 4,796 3,388 -3,388 3,388 3,388$ 58,577 $ 10,445 S 83 $ 69,105 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable.
94 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS BARNETT PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Revenue Operating Debt Service General Fund Fund Fund Reserve Fund Project Fund Capital Fund Total$ -$ 709 $ 6,741 $ 245 $ 45,050 $ 313 $ 53,058 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment eamings Receipt from participants Sales of Natural Gas Advances from participants Distribution of revenues Total 7 1 43 13 13 25 3 1,272 1,316 26 (3) (39) (1)Deductions Construction expenditures Operating expenses Payment of principal Interest paid Total Balance at June 30, 2009 10,533 258 10,791 7,941 1,765 9,706-2,740 ---2,740 (18,525) 6,938 9,312 (17) -2,292 -11,711 9,311 (15) 1,272 2,300 24,579----4,788 4,788 11,885 --11,885-4,765 4,765-4,307 -4,307 11,885 9,072 --4,788 25,745$ $ 535 $ 6,980 $ 230 $ 46,322 $ (2,175) $ 51,892 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $25 and $18 held in the revolving fund at June 30, 2009 and 2008, respectively.
95 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS PINEDALE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Revenue Operating Debt Service General Fund Fund Fund Reserve Fund Project Fund Capital Fund Total$ -$ 12,157 $ 2,853 $ 47 S 15,230 $ 13,222 $ 43,509 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Receipt from participants Sales of natural gas Advances from participants Distribution of revenues Other receipts Other transfer Total 20 2 12 6 2 440 15 3,671 594 (2) (11) (2)216 447 9 484 1 9 3,887-1,041 10,131 11,291 1,160 (4,281) 1,153 3,128 Deductions Construction expenditures Operating expenses Payment of principal Interest paid Total Balance at June 30, 2009--(192) 192 -2,996 3,135 248 10,333 16,712---337 337 2,227 --2,227-2,015 2,015-1,819 -1,819 2,227 3,834 -337 6,398$ $ 12,926 S 2,154 $ 47 $ 15,478 $ 23,218 $ 53,823 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $41 and $40 held in the revolving fund at June 30, 2009 and 2008, respectively.
96 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PREPAID NATURAL GAS PROJECT No. 1 SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2009 (AMOUNTS IN THOUSANDS)
Revenue Operating Debt Service Fund Fund Fund Project Fund Total$ $ 9,879 $ 1,274 $ 24 $ 11,177 Balance at June 30, 2008 Additions Investment earnings Discount on investment purchases Distribution of investment earnings Receipt from gas sales Distribution of revenues Commodity swap settlement Other receipts Total 5 486 216 707 1 I 370 22,756 (28,884)(370)346 22,756 28,538 5,753 -5,753--6,350 6,350 462 35,105 35,567 327 -327-31,931 31,931 327 31,931 32,258 Deductions A & G expenses Payment of interest Total Balance at June 30, 2009 $ -$ 10,014 $ 4,448 $ 24 $ 14,486 This ,hedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements.
The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, and $22 and $0 held in the revolving fund at June 30, 2009 and 2008.97 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Financial Statements and Required Supplementary Information June 30, 2009 and 2008 (With Independent Auditors' Report Thereon)/
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Table of Contents Page(s)Independent Auditors' Report 1-2 Management's Discussion and Analysis 3 -12 Financial Statements:
Balance Sheets 13-14 Statements of Revenues, Expenses, and Changes in Fund Net Assets 15 Statements of Cash Flows 16-17 Notes to Financial Statements 18 -64 Required Supplementary Information 65 KPMG LLP Suite 2000 355 South Grand Avenue Los Angeles, CA 90071-1568 Independent Auditors' Report The Board of Water and Power Commissioners Department of Water and Power City of Los Angeles: k We have audited the accompanying balance sheets of the City of Los Angeles' Department of Water and Power Power Revenue Fund (Power System), an enterprise fund of the City of Los Angeles, California, as of June 30, 2009 and 2008, and the related statements of revenues, expenses, and changes in fund net assets and cash flows for the years then ended. These financial statements are the responsibility of the Los Angeles Department of Water and Power's (the Department) management.
Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Power System's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.As discussed in note 1, the financial statements of the Power System are intended to present the financial position, and the changes in financial position and, cash flows of only that portion of the business-type activities and each major fund of the City of Los Angeles, California that is attributable to the transactions of the Power System. They do not purport to, and do not, present fairly the financial position of the City of Los Angeles, California as of June 30, 2009 and 2008, the changes in its financial position or its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Power System as of June 30, 2009 and 2008 and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued our report dated November 16, 2009 on our consideration of the Power System's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal KPMG LLP, a U.S. limited liability partnership, is the U.S.member firm of KPMG International, a Swiss cooperative.
control over financial reporting or on compliance.
That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.The management's discussion and analysis included on pages 3 through 12 and the schedules of funding progress for the pension plan and postemployment healthcare plan on page 65 are not a required part of the basic financial statements but are supplementary information required by U.S. generally accepted accounting principles.
We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.C LL-P November 17, 2009 2 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 The following discussion and analysis of the financial performance of the City of Los Angeles' (the City)Department of Water and Power's (the Department)
Power Revenue Fund (the Power System) provides an overview of the financial activities for the fiscal years ended June 30, 2009 and 2008. Descriptions and other details pertaining to the Power System are included in the notes to the financial statements.
This discussion and analysis should be read in conjunction with the Power System's financial statements, which begin on page 13.Using This Financial Report This annual financial report consists of the Power System's financial statements and required supplementary information and reflects the self-supporting activities of the Power System that are funded primarily through the sale of energy, transmission, and distribution services to the public it serves.Balance Sheets, Statements of Revenues, Expenses, and Changes in Fund Net Assets, and Statements of Cash Flows The financial statements provide an indication of the Power System's financial health. The balance sheets include all of the Power System's assets and liabilities, using the accrual basis of accounting, as well as an indication about which assets can be utilized for general purposes, and which net assets are restricted as a result of bond covenants and other commitments.
The statements of revenues, expenses, and changes in fund net assets report all of the revenues and expenses during the time periods indicated.
The statements of cash flows report the cash provided by and used in operating activities, as well as other cash sources and uses, such as investment income and cash payments for bond principal and capital additions and betterments.
3 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 The following table summarizes the financial condition and changes in fund net assets of the Power System as of and for the fiscal years ended June 30, 2009, 2008, and 2007: Table 1 -Condensed Schedule of Assets, Liabilities, and Fund Net Assets (Amounts in millions)Assets Utility plant, net Restricted investments Other noncurrent assets Current assets Liabilities and Fund Net Assets Long-term debt, net of current portion Other long-term liabilities Current liabilities Fund net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total fund net assets 2009$ 6,617 722 1,882 1,771$ 10,992$ 5,242 542 651 6,435 1,251 1,461 1,845 4,557 10,992 As of June 30 2008 6,212 723 1,843 2,007 10,785 4,802 567 1,009 6,378 1,489 1,306 1,612 4,407 10,785 2007 5,923 669 1,843 1,535 9,970 4,183 756 763 5,702 1,582 1,166 1,520 4,268 9,970 4 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussi6n and Analysis June 30, 2009 and 2008 Table 2 -Condensed Schedule of Revenues, Expenses, and Changes in Fund Net Assets (Amounts in millions)Year ended June 30 200J9 Operating revenue: Residential Commercial and industrial Sales for resale Other Total operating revenues Operating expenses: Fuel for generation and purchased power Maintenance and other operating expenses Total operating expenses Operating income Nonoperating revenues (expenses):
Investment income Other nonoperating revenues and expenses, net Debt expenses Total nonoperating expense Income before capital contributions and transfers Capital contributions Transfers to the reserve fund of the City of Los Angeles Increase in fund net assets Beginning balance of fund net assets Ending balance of fund net assets$888 1,781 51 36 2,756 (1,149)(1,187)(2,336)420 2008 884 1,771 90 36 2,781 (1,338)(1,120)(2,458)323 2007 818 1,643 103 36 2,600 (1,245)(1,021)(2,266)334 115 159 153 22 (201)(64)17 (195)(19)15 (191)(23)356 17 304 17 311 20 (223)150 4,407 4,557 (182)139 4,268 4,407 (175)156 4,112 4,268 Assets Utility Plant During fiscal years 2009 and 2008, the Power System capitalized
$974 million and $434 million of additions, respectively, including transfers from construction work in progress to utility plant in service. Of the$974 million, $394 million, or 40% is mostly related to distribution plant assets including poles, towers, fixtures, replacement of transformers, underground conductors, and conduit. The increase is attributable to our Power 5 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 Reliability Program (PRP) to improve distribution system reliability.
In addition, $423 million or 43% is primarily related to generation plant assets including the cost to construct the Pinetree Wind Project and capital improvements to various generating stations.
Of the $434 million during fiscal year 2008, $312 million, or 72%is related to distribution plant assets. Furthermore, the Power System had capital improvements to its utility plant assets to maintain and support normal load growth of the distribution and transmission systems.Construction work in progress decreased by $280 million in fiscal year 2009 and increased by $116 million in fiscal year 2008. The 2009 decreases were mostly attributable to the capitalization of the Pinetree Wind Project, Towers and Overhead Transmission, Underground Transmission, and Distribution Facilities.
The increase in 2008 was mostly attributable to the Pinetree Wind Project, Generation System, Underground Transmission, and Automated Meter Reading (AMR).Additional information regarding the Power System's utility plant assets can be found in note 4 to the accompanying financial statements.
The Department's strategy is to have generating utility plant assets that can produce energy from a variety of fuel types. This is referred to as a hedged power supply. This is important in that if the costs related to a particular fuel type rise substantially in a short period of time, the Department can utilize its mix of generation assets to meet customer demand and to minimize increases in fuel expense. The Department is implementing a$2.5 billion, Integrated Resource Plan 2007 (IRP) focusing on renewable power, greenhouse gas reduction, and energy efficiency through fiscal year 2015. The IRP is an energy resource planning document that provides a framework for assuring that the future energy needs of customers are reliably met in a cost-effective manner, and are consistent with the City's commitment to environmental leadership.
Through June 30, 2009, the Department has incurred $1.4 billion related to such upgrades.The tables that follow summarize the generating resources available to the Department as of June 30, 2009.These resources include those owned by the Department (either solely or jointly with other utilities) as well as resources available through long-term purchase agreements.
Generating station capacity is measured in megawatts (MWs).Table 3 -Department-Owned Generation Facilities Net Net maximum dependable Number of Number of capability capability Type of fuel facilities units (MWs) (MWs)Natural Gas 4 (1) 22 3,415 3,339 Large Hydro 1 7 (2) 1,247 1,175 Renewables 33 90 (3) 227 (4) 153 Subtotal 38 119 4,889 4,667 CDWR -- -- (120) (5) (76)Total 38 119 4,769 4,591 6 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 (1) Consists of the following generating stations:
Harbor Station, Haynes Station, Scattergood Station, and Valley Station.(2) The Castaic Plant currently has six (1,075 MWs) out of seven units available due to ongoing modernization work scheduled to be completed by 2014.(3) The Department-owned renewable resources in-service include the Los Angeles Aqueduct, Owens Valley, and Owens Gorge small hydro units that qualify under the Department's renewable resource definition.
Also included are microturbine units at the Lopez Canyon Landfill and Department built photovoltaic solar installations.
This number does not include two of the Scattergood gas-fueled units that partially burn digester gas in which the output related to the digester gas also qualifies under the Department's renewable resource definition.
(4) Includes 16 MWs of renewable energy generated at the Scattergood Station by burning digester gas from the Hyperion Treatment Plant.(5) Energy payable to the California Department of Water Resources (CDWR) for energy generated at the Castaic Plant. This amount varies weekly up to maximum of 120 MWs.Table 4 -Jointly Owned and Contracted Facilities Net Net maximum dependable Number of capability capability Type facilities (MWs) (MWs)Large Hydro 1 491 (1) 446 Nuclear 1 387 (2) 381 Coal 3 1,679 (3) 1,679 Renewables/DG 1,645 (4) 356 112 Total 1,650 2,913 2,618 (1) The Department's Hoover Plant contract entitlement is 25.16% of the Hoover total contingent capacity of 1,951 MWs. Current reduced lake level has reduced available capacity to about 446 MWs annual average.(2) The Department's Palo Verde Station (PVNGS) entitlement is 9.66% of the maximum net plant capability of 4,008 MWs.(3) The Department's current Intermountain Station (IPP) entitlement is 66.79% of the maximum net plant capability of 1,800 MW. A portion of the IPP entitlement is subject to variable recall. The Department's Navajo Station entitlement is 21.20% of the maximum net plant capability of 2,250 MWs. The Mohave Station generating units were removed from service at the end of 2005.(4) The Department's contracted renewable resources in-service include landfill gas units at various landfills in the Los Angeles area, hydro units locally and in British Columbia, Canada, wind farms in Wyoming and 7 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 Oregon, customer solar photovoltaic installations locally, and Customer distributed generation (DG) units located in Los Angeles also provide energy resources.
Liabilities and Fund Net Assets Long-Term Debt As of June 30, 2009, the Power System's total outstanding long-term debt balance was approximately
$5.46 billion. The increase of $480 million from the June 30, 2008 balance resulted from the sale of $845 million of the Power System revenue bonds less the refunding of $306 million revenue bonds and scheduled maturities of $59 million.As of June 30, 2008, the Power System's total outstanding long-term debt balance was approximately
$5.0 billion. The increase of $611 million over the prior year resulted from the sale of $654 million of the Power System revenue bonds and scheduled maturities of $43 million.Outstanding principal, plus scheduled interest as of June 30, 2009, is scheduled to mature as shown in the chart below: Chart: Debt Service Requirements
$2,000,000
$1,800,000
-$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000$600,000$400,000$200,000$-2014 2019 2024 2029 2034 2039 2044 Five-Year Period Ending As of June 30, 2009, $46 million principal amount of long-term debt is considered defeased and remains outstanding.
As of June 30, 2008, $51 million principal amount of long-term debt is considered defeased and remains outstanding this debt, together with trust funds set aside for its full repayment at scheduled maturity dates, is not reflected on the balance sheet.8 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 In addition, the Power System had $547 million and $529 million on deposit in trust funds restricted for the use of debt reduction as of June 30, 2009 and 2008, respectively.
In May 2009, Standard & Poor's Rating Services, Moody's Investors Service, and Fitch Ratings affirmed the Power System's bond rating of AA-, Aa3, and AA-, respectively, due to the Power System's broad revenue stream and a competitive power supply portfolio, approval of the rate increases, and the City Council authorizing the unfreezing of the energy cost adjustment factor, which allows the Power System to fully recover changes in purchased power costs, fuel costs, and renewable resource costs. Additional information regarding the Power System's long-term debt can be found in note 10 to the financial statements.
Changes in Fund Net Assets Operating Revenues The operating revenues of the Power System are generated from wholesale and retail customers.
There are four major customer categories of retail revenue. These categories include residential, commercial, industrial, and other, which includes public street lighting.
Table 5 summarizes the percentage contribution of retail revenues from each customer segment in fiscal years 2009 and 2008: Table 5 -Revenue and Percentage of Revenue by Customer Class (Amounts in thousands)
Fiscal year 2009 Fiscal year 2008 Revenue Percentage Revenue Percentage Type of customer: Residential
$ 887,571 33% $ 883,503 33%Commercial 1,554,721 58 1,535,554 57 Industrial 225,958 8 235,502 9 Other 36,802 1 36,390 1$ 2,705,052 100% $ 2,690,949 100%9 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 While commercial customers consume the most electricity, residential customers represent the largest customer class. As of June 30, 2009 and 2008, the Power System had approximately 1.5 million customers.
As shown in Table 6, 1.3 million, or 87%, of total customers were in the residential customer class.Table 6 -Number of Customers and Percentage of Customers by Customer Class (Numbers in thousands)
Fiscal year 2009 Fiscal year 2008 Number Percentage Number Percentage Type of customer: Residential 1,258 87% 1,252 87%Commercial 179 12 179 12 Industrial 13 1 13 1 Other 2 1,452 100% 1,446 100%Fiscal Year 2009 Retail revenues increased by $14.1 million while wholesale revenues decreased by $39.5 million from fiscal year 2008. The increase in retail revenue is due to an increase in base rates approved by the City Council in April 2008, offset by a decrease in costs that are recoverable through the energy cost adjustment billing factor.The decrease in wholesale revenue, which is comprised of energy and transmission sales is due to lower energy sales caused by milder weather. During fiscal years 2009 and 2008, the Power System deferred wholesale revenue of $24.7 million and $23.6 million to the rate stabilization account.Fiscal Year 2008 Retail revenues increased by $193.9 million while wholesale revenues decreased
$12.6 million from fiscal year 2007. The increase in retail revenue is due to a 1% increase in consumption, an increase in base rates approved by the City Council in April 2008, and an increase in costs that are recoverable through the energy cost adjustment billing factor. The decrease in wholesale revenue is due to the deferral of $23.6 million to the rate stabilization account.Operating Expenses Fuel for generation and purchased power are two of the largest expenses that the Power System incurs each fiscal year. Fuel for generation expense includes the cost of fuel that is used to generate energy. The majority of fuel costs include the cost of natural gas, coal, and nuclear fuel.Purchased power expense includes the cost of buying power on the open market and paying the current portion of the Power System's purchased power contracts.
Under these purchase power contracts, the Department has an entitlement to the energy that is produced at various generating stations and an entitlement to the use of various transmission facilities.
Most of these contracts require the Department to pay for these services regardless of whether the energy or transmission is used. These types of contracts are referred to as "take-or-pay" contracts.
10 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 Depreciation expense is computed using the straight-line method based on service lives for all projects completed after July 1, 1973, and for all office and shop structures, related furniture and equipment, and transportation and construction equipment.
Depreciation for facilities completed prior to July 1, 1973 is computed using the 5%sinking fund method based on estimated service lives. The Department uses the composite method of depreciation and, therefore, groups assets into composite groups for purposes of calculating depreciation expense. Estimated service lives range from 5 to 75 years. Amortization expense for computer software is computed using the straight-line method over five years.The table below summarizes the Power System's operating expenses during fiscal years 2009 and 2008: Table 7 -Operating Expenses and Percentage of Expense by Type of Expense (Amounts in thousands)
Fiscal year 2009 Fiscal year 2008 Expense Percentage Expense Percentage Type of expense: Fuel for generation
$ 449,612 19% $ 647,814 26%Purchased power 699,828 30 690,200 28 Other operating expenses 616,337 26 591,211 24 Maintenance 277,415 12 246,831 10 Depreciation and amortization 293,239 13 281,541 12$ 2,336,431 100% $ 2,457,597 100%Fiscal Year 2009 Fiscal year 2009 operating expenses were $121 million lower as compared to fiscal year 2008. Fuel for generation expenses were $198 million lower in fiscal year 2009 due to the decrease in the price of natural gas.Other operating costs increased by $25 million primarily in transmission expenses and hydraulic station expenses.
Maintenance expense increased by $31 million as compared to fiscal year 2008 due to maintenance of steam plant, transmission plant, and distribution plant. Other increases include depreciation and amortization expense by $12 million, and purchased power increased by $10 million.Fiscal Year 2008 Fiscal year 2008 operating expenses were $191 million higher as compared to fiscal year 2007. Fuel for generation expenses were $103.0 million higher in fiscal year 2008 due to the increase in the price of natural gas.Other operating costs increased by $95 million with an offset in maintenance expense of $8 million decrease, and depreciation expense increased by $12 million as compared to fiscal year 2007. The increase in other operating costs was primarily due to $45 million in distribution expenses, $18 million in public benefits, $13 million in administrative and general expenses, $12 million in transmission expenses, and $6 million in other production expenses.
The decrease in maintenance costs was mostly related to distribution plant.I1I (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management's Discussion and Analysis June 30, 2009 and 2008 Nonoperating Revenues and Expenses Fiscal Year 2009 The major nonoperating activities of the Power System for fiscal year 2009 included the transfer of $223 million to the City's General Fund, interest income earned on investments of $115 million, and $201 million in debt expenses.The transfer to the City is based on 8% of the previous year's operating revenues.
Operating revenues for fiscal year 2008 were $2.8 billion, which generated a city transfer of $223 million.Interest income decreased by $44 million due to less cash available for investing and a decline in the interest rates in fiscal year 2009 as compared to 2008.The increase in debt expense is due to having 7 months of interest on the 2008 Series Al debt that was issued in November 2008 offset by lower interest rates on variable rate debt. The variable rate bonds' daily and weekly rate range decreased from 1.55% to 1.65% as of June 30, 2008 to 0.27% to 0.30% as of June 30, 2009.Fiscal Year 2008 The major nonoperating activities of the Power System for fiscal year 2008 included the transfer of $182 million to the City's General Fund, interest income earned on investments of $159 million, and $196 million in debt expenses.The transfer to the City is based on 7% of the previous year's operating revenues.
Operating revenues for fiscal year 2007 were $2.6 billion, which generated a city transfer of $182 million.Interest income increased by $6.4 million due to more cash available for investing in fiscal year 2008' as compared to 2007.The increase in debt expense is due to having 8.5 months of interest on the 2007 series debt that were issued October 2007 offset by lower interest rates on variable rate debt. The variable rate bonds' daily and weekly rate range decreased from 3.70% to 3.76% as of June 30, 2007 to 1.55% to 1.65% as of June 30, 2008.Currently known Facts, Decisions, or Conditions Although still subject to audit, the July 1, 2009 actuarial study for the Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) noted the market value of the Plan's assets were approximately
$5.699 billion and the unfunded actuarial accrued liability was approximately
$808 million. The Plan had unrecognized investment losses of $1.6 billion as of June 30, 2009. The Plan employs a 5-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in "smoothed" assets that are lower or higher then the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. If the unrecognized investments losses were recognized immediately, required contributions to the Plan would increase form approximately 26.12% of covered payroll to 48.57% of covered payroll. Additionally, if the unrecognized investments losses were recognized immediately in the actuarial value of assets, the funded ratio of the Plan would decrease from 90% to 70%.12 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Balance Sheets June 30, 2009 and 2008 (Amounts in thousands)
Assets Noncurrent assets: Utility plant: Generation Transmission Distribution General Accumulated depreciation Construction work in progress Nuclear fuel, at amortized cost Natural gas field, net Restricted investments Long-term California wholesale energy receivable, net Long-term notes and other receivables, net of current portion Deferred debits Net pension asset Net postemployment asset Total noncurrent assets Current assets: Cash and cash equivalents
-unrestricted Cash and cash equivalents
-restricted Cash collateral received from securities lending transactions Customer and other accounts receivable, net of $14,000 and$14,555 allowance for losses in 2009 and 2008, respectively Current portion of long-term notes receivable Accrued unbilled revenue Due from Water System Under recovered costs Materials and fuel Prepayments and other current assets Total current assets Total assets 2009$ 3,935,518 952,730 5,146,367 1,112,554 11,147,169 (5,400,163) 5,747,006 609,115 36,904 223,617 6,616,642 722,074 116,333 1,079,866 160,000 70,644 455,961 9,221,520 444,676 409,863 8,591 310,908 31,166 145,676 9,903 130,367 153,218 126,243 1,770,611$ 10,992,131 2008 3,514,113 877,550 4,755,330 1,033,043 10,180,036 (5,119,238) 5,060,798 889,226 32,982 228,824 6,211,830 723,346 116,333 1,107,510 160,000 77,479 381,462 8,777,960 389,529 494,512 239,703 323,238 14,032 153,585 190,609 134,847 67,504 2,007,559 10,785,519 13 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Balance Sheets June 30, 2009 and 2008 (Amounts in thousands)
Fund Net Assets and Liabilities Fund net assets: Invested in capital assets, net of related debt Restricted:
Debt service Capital projects Other postemployment benefits Pension benefits Other purposes Unrestricted Total fund net assets Long-term debt, net of current portion Other noncurrent liabilities:
Accrued liabilities Deferred credits Accrued workers' compensation claims Total other noncurrent liabilities Current liabilities:
Current portion of long-term debt Accounts payable and accrued expenses Accrued interest Accrued employee expenses Due to Water System Obligation under securities lending transactions Total current liabilities 2009$ 1,251,426 650,303 113,923 455,961 70,644 170,262 1,844,792 4,557,311 5,241,853 23,760 488,821 29,128 541,709 217,882 235,922 101,721 87,142 8,591 651,258 6,434,820$ 10,992,131 2008 1,489,096 593,283 110,234 381,462 77,479 143,604 1,612,382 4,407,540 4,801,728 31,340 503,436 32,089 566,865 175,455 411,006 90,682 74,090 18,450 239,703 1,009,386 6,377,979 10,785,519 Total liabilities Total liabilities and fund net assets See accompanying notes to financial statements.
14 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Revenues, Expenses, and Changes in Fund Net Assets Years ended June 30, 2009 and 2008 (Amounts in thousands)
Operating revenues: Residential Commercial and industrial Sales for resale Other Uncollectible accounts Operating expenses: Fuel for generation Purchased power Maintenance and other operating expenses Depreciation and amortization Operating income Nonoperating revenues (expenses):
Investment income Other nonoperating income Other nonoperating expenses 2009$ 887,571 1,780,679 50,883 52,865 (16,063)2,755,935 449,612 699,828 893,752 293,239 2,336,431 419,504 115,241 28,309 143,550 (6,291)137,259 215,447 (14,137)201,310 355,453 16,824 (222,506)149,771 4,407,540$ 4,557,311 2008 883,503 1,771,056 90,375 49,043 (12,653)2,781,324 647,814 690,200 838,042 281,541 2,457,597 323,727 159,334 22,035 181,369 (5,463)175,906 210,468 (14,894)195,574 304,059 17,601 (182,004)139,656 4,267,884 4,407,540 Debt expenses: Interest on debt Allowance for funds used during construction Income before capital contributions and transfers Capital contributions Transfers to the reserve fund of the City of Los Angeles Increase in fund net assets Fund net assets: Beginning of year End of year See accompanying notes to financial statements.
15 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Cash Flows Years ended June 30, 2009 and 2008 (Amounts in thousands)
Cash flows from operating activities:
Cash receipts: Cash receipts from customers Cash receipts from customers for other agency services Cash receipts from interfund services provided Other cash receipts Cash disbursements:
Cash payments to employees Cash payments to suppliers Cash payments for interfund services used Cash payments to other agencies for fees collected Other cash payments Total cash flows provided by operating activities Cash flows from noncapital financing activities:
Payments to the reserve fund of the City of Los Angeles Payments to the Retiree Health Benefits Fund Interest paid on noncapital revenue bonds Total cash flows used for noncapital financing activities Cash flows from capital and related financing activities:
Additions to plant and equipment Capital contributions Principal payments and maturities on long-term debt Proceeds from issuance of bonds and revenue certificates Debt interest payments Total cash flows used for capital and related financing activities Cash flows from investing activities:
Purchases of investment securities Sales and maturities of investment securities Proceeds from notes receivable Investment income Total cash flows provided by investing activities Net increase (decrease)
Cash and cash equivalents:
Cash and cash equivalents at July 1 (including
$494,512 and$196,959 reported in restricted accounts, respectively)
Cash and cash equivalents at June 30 (including
$409,863 and$494,512 reported in restricted accounts, respectively) 2009$ 2,828,194 524,672 367,072 97,209 (492,701)(1,779,634)
(457,367)(529,651)(130,147)427,647 (222,506)(5,648)(228,154)(674,141)22,270 (364,902)845,446 (199,938)(371,265)(1,214,337) 1,215,609 14,032 126,966 142,270 (29,502)884,041$ 854,539 2008 2,553,451 463,001 416,442 23,603 (464,543)(1,622,551)
(448,367)(451,848)469,188 (182,004)(68,000)(14,182)(264,186)(568,469)24,425 (43,033)674,136 (184,326)(97,267)(1,299,739) 1,245,102 31,778 153,389 130,530 238,265 645,776 884,041 16 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Cash Flows Years ended June 30, 2009 and 2008 (Amounts in thousands)
Reconciliation of operating income to net cash provided by operating activities:
Operating income Adjustments to reconcile operating income to net cash provided by operating activities:
Depreciation and amortization Depletion expenses Amortization of nuclear fuel Provision for losses on customer and other accounts receivable Changes in assets and liabilities:
Customer and other accounts receivable Accrued unbilled revenue Under recovered costs Due from Water System Materials and fuel Deferred debits Net pension asset Accounts payable and accrued expenses for operating Accrued liabilities Deferred credits Due to Water System Net other postemployment asset Workers' compensation liability and other Net cash provided by operating activities 2009$ 419,504 293,239 6,821 6,717 16,063 (24,426)7,909 60,242 (9,903)(18,372)6,835 (198,442)(7,580)(14,615)(18,450)(74,499)(23,396)$ 427,647 2008 323,727 281,541 7,411 5,668 12,653 (58,267)(6,250)(171,228)(16,497)68,181 7,231 212,170 (196,841)3,759 14,605 (17,409)(1,266)469,188 See accompanying notes to financial statements.
17 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (1) Summary of Significant Accounting Policies The Department of Water and Power of the City of Los Angeles (the Department) exists as a separate proprietary department of the City of Los Angeles (the City) under and by virtue of the City Charter enacted in 1925 and as revised effective July 2000. The Department's Power Revenue Fund (the Power System) is responsible for the generation, transmission, and distribution of electric power for sale in the City. The Power System is operated as an enterprise fund of the City.(a) Method ofAccounting The accounting records of the Power System are maintained in accordance with U.S. generally accepted accounting principles (GAAP) for governmental entities.
The financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting.
Prior to fiscal year 2003, the Department applied all statements issued by the Governmental Accounting Standards Board (GASB) and all statements and interpretations issued by the Financial Accounting Standards Board (FASB), which are not in conflict with statements issued by the GASB.In fiscal year 2003, the Department changed its election under the guidance in GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting (GASB No. 20), to follow GASB statements and only FASB statements and interpretations issued on or before November 30, 1989.The Department's rates are determined by the Board of Water and Power Commissioners (the Board) and are subject to review and approval by the City Council. As a regulated enterprise, the Department utilizes Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, which requires that the effects of the rate-making process be recorded in the financial statements.
Such effects primarily concern the time at which various items enter into the determination of changes in fund net assets. Accordingly, the Power System records various regulatory assets and liabilities to reflect the Board's actions. Regulatory liabilities are recorded in deferred credits and regulatory assets are included as deferred debits and under recovered costs on the balance sheets. Management believes that the Power System meets the criteria for continued application of SFAS No. 71, but will continue to evaluate its applicability based on changes in the regulatory and competitive environment (see notes 3 and 14(d)ii).(b) Use of Estimates The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.(c) Utility Plant The costs of additions to utility plant and replacements of retired units of property are capitalized.
Costs include labor, materials, an allowance for funds used during construction (AFUDC), and allocated indirect charges, such as engineering, supervision, transportation and construction equipment, retirement plan contributions, healthcare costs, and certain administrative and general 18 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 expenses.
The costs of maintenance, repairs, and minor replacements are charged to the appropriate operations and maintenance expense accounts.(d) Impairment of Long-Lived Assets The Department follows GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (GASB No. 42). Governments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred.
A capital asset is considered impaired when its service utility has declined significantly and unexpectedly.
Under GASB No. 42, impaired capital assets that will no longer be used by the government should be reported at the lower of carrying value or fair value. Impairment losses on capital assets that will continue to be used by the government should be measured using the method that best reflects the cause of the diminished service utility of the capital asset.(e) Depreciation and Amortization Depreciation expense is computed using the straight-line method based on service lives for all projects completed after July 1, 1973, and for all office and shop structures, related furniture and equipment, and transportation and construction equipment.
Depreciation for facilities completed prior to July 1, 1973 is computed using the 5.0% sinking fund method based on estimated service lives. The Department uses the composite method of depreciation and, therefore, groups assets into composite groups for purposes of calculating depreciation expense. Estimated service lives range from 5 to 75 years. Amortization expense for computer software is computed using the straight-line method over five years. Depreciation and amortization expense as a percentage of average depreciable utility plant in service was 2.8% for both fiscal years 2009 and 2008.(D) Nuclear Decommissioning The Department owns a 5.70% direct ownership interest in the Palo Verde Nuclear Generating Station (PVNGS). In addition, through its participation in the Southern California Public Power Authority (SCPPA), the Department is party to a contract for an additional 3.95% of the output of PVNGS. Nuclear decommissioning costs associated with the Power System's output entitlement are included in purchased power expense (see note 6).Decommissioning of PVNGS is expected to commence subsequent to the year 2024. The total cost to decommission the Power System's direct ownership interest in PVNGS is estimated to be$123 million in 2008 dollars. This estimate is based on an updated site-specific study prepared by an independent consultant in 2007. As of June 30, 2009 and 2008, the Power System has recorded$133.5 million and $129.8 million, respectively, to accumulated depreciation to provide for the decommissioning liability.
Prior to December 1999, the Power System contributed
$70.2 million to external trusts established in accordance with the PVNGS participation agreement and Nuclear Regulatory Commission requirements.
During fiscal year 2000, the Department suspended contributing additional amounts to the trust funds, as management believes that contributions made, combined with reinvested earnings, 19 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 will be sufficient to fully fund the Department's share of decommissioning costs. The Department will continue to reinvest its investment income on the trust investments into the decommissioning trusts. The Department reinvested
$3.7 million and $7.4 million of investment income in fiscal years 2009 and 2008, respectively.
Decommissioning funds, which are included in restricted investments, totaled $113.9 million and $110.2 million as of June 30, 2009 and 2008 (at fair value), respectively.
The Department's current accounting policy recognizes any realized and unrealized investment earnings from nuclear decommissioning trust funds as a component of accumulated depreciation.(g) Nuclear Fuel Nuclear fuel is amortized and charged to fuel for generation on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assesses each utility with nuclear operations, including the Power System, $1 per megawatt hour of nuclear generation.
The Power System includes this charge as a current year expense in fuel for generation.
See note 14 for discussion of spent nuclear fuel disposal.(h) Natural Gas Field In July 2005, the Power System acquired approximately a 74.5% ownership interest in gas properties located in Pinedale, Wyoming. The Power System uses the successful efforts method of accounting for its investment in gas producing properties.
Costs to acquire the mineral interest in gas producing properties, to drill and equip exploratory wells that find proven reserves, and to drill and equip development wells are capitalized.
Costs to drill exploratory wells that do not find proven reserves are expensed.
Capitalized costs of gas producing properties are depleted by the unit-of-production method based on the estimated future production of the proved developed producing wells.Depletion expense related to the gas field is recorded as a component of fuel for generation expense.During fiscal years 2009 and 2008, the Power System recorded $6.8 million and $7.4 million of depletion expense, respectively.(i) Cash and Cash Equivalents As provided for by the State of California Government Code (the Code), the Power System's cash is deposited with the City Treasurer in the City's general investment pool for the purpose of maximizing interest earnings through pooled investment activities.
Cash and cash equivalents in the City's general investment pool are reported at fair value and changes in unrealized gains and losses are recorded in the statements of revenues, expenses, and changes in fund net assets. Interest earned on such pooled investments is allocated to the participating funds based on each fund's average daily cash balance during the allocation period. The City Treasurer invests available funds of the City and its independent operating departments on a combined basis. The Power System classifies all cash and cash equivalents that are restricted either by creditors, the Board, or by law, as restricted cash and cash equivalents on the balance sheets. The Power System considers its portion of pooled investments in the City's pool to be cash and cash equivalents.
20 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 At June 30, 2009 and 2008, restricted cash and cash equivalents include the following (amounts in thousands):
June30 Bond redemption and interest funds Construction funds Self-insurance fund Other 2009$ 203,250 94,519 109,394 2,700$ 409,863 2008 153,485 254,449 83,878 2,700 494,512 (j') Materials and Fuel Materials and supplies are recorded at average cost. Fuel is recorded at lower of cost or market, on an average cost basis.(k) Accrued Unbilled Revenue Accrued unbilled revenue is the receivable for estimated energy sales during the period for which the customer has not been billed.(!) Restricted Investments Restricted investments include primarily commercial paper, U.S. government and governmental agency securities, and corporate bonds. Investments are reported at fair value and changes in unrealized gains and losses are recorded in the statements of revenues, expenses, and changes in fund net assets except for Nuclear Decommissioning Trust Funds. The stated fair value of investments is generally based on published market prices or quotations from major investment dealers (see note 7).(m) Accrued Employee Expenses Accrued employee expenses include accrued payroll and an estimated liability for vacation leave, sick leave, and compensatory time, which is accrued when employees earn the rights to the benefits.Below is a schedule of accrued employee expenses as of June 30, 2009 and 2008 (amounts in thousands):
2009 2008 Type of expenses: Accrued payroll Accrued vacation Accrued sick leave Compensatory time Total$ 17,494 12,793 46,061 40,992 10,792 9,433 12,795 10,872$ 87,142 74,090 21 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (n) Debt Expenses Debt premium, discount, and issue expenses are deferred and amortized to debt expense using the effective-interest method over the lives of the related debt issues. Gains and losses on refundings related to bonds redeemed by proceeds from the issuance of new bonds are amortized to debt expense using the effective-interest method over the shorter of the life of the new bonds or the remaining term of the bonds refunded.(o) Gas and Electricity Option and Location Swap Agreements Gas and electricity option and location swap agreements are accounted for on a settlement basis (see note 9).(p) Accrued Workers' Compensation Claims Liabilities for unpaid workers' compensation claims are recorded at their net present value, (see note 13).(q) Customer Deposits Customer deposits represent deposits collected from customers upon opening of new accounts.
These deposits are obtained when the customer does not have a previously established credit history with the Department.
Original deposits plus interest are paid to the customer once a satisfactory payment history is maintained, generally after one to three years.The Water System is responsible for collection, maintenance, and refunding of these deposits for all the Department customers, including those of the Power System. As such, the Water System's balance sheets include a deposit liability of $74 million and $77 million as of June 30, 2009 and 2008, respectively, for all customer deposits collected.
In the event that the Water System defaults on refunds of such deposits, the Power System would be required to pay amounts it owes its customers.(r) Revenues The Power System's rates are established by a rate ordinance, which is approved by the City Council. The Power System sells energy to the City's other departments at rates provided in the ordinance.
The Power System recognizes energy costs in the period incurred and accrues for estimated energy sold but not yet billed.Effective October 1, 2006, the Energy Cost Adjustment Factor (ECAF), which is a billing factor defined in the electric rate ordinance was unfrozen.
This change allows the Power System to increase or decrease the factor on a quarterly basis in compliance with the ordinance.
While this change allows the Power System to fully recover fuel costs, purchased power costs, and other costs outlined in the ordinance, the difference between the amount billed to customers, and the value of the costs allowed to be recovered through the factor create an over/under recovered amount. Costs that are under recovered will be recovered in future periods. Amounts over recovered will be factored into future quarterly rates. As of June 30, 2009 and 2008, the amount of under recovered costs, including the ECAF and the Reliability Cost Adjustment Factor was $130.4 million and $190.6 million, respectively.
These balances are recorded as current assets on the balance sheets.22 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Operating revenues are revenues derived from activities that are billable in accordance with the electric rate ordinance approved by the City Council.(s) Capital Contributions Capital contributions and other grants received by the Department for constructing utility plant and other activities are recognized when all applicable eligibility requirements, including time requirements, are met.(t) Allowance for Funds Used During Construction (AFUDC)An AFUDC charge represents the cost of borrowed funds used for the construction of utility plant.Capitalized AFUDC is included as part of the cost of utility plant and as a reduction of debt expenses.
As of June 30, 2009 and 2008, the average AFUDC rates were 4.5% and 4.4%, respectively.(u) Use of Restricted and Unrestricted Resources The Power System's policy is to use unrestricted resources prior to restricted resources to meet expenses to the extent that it is prudent from an operational perspective.
Once it is not prudent, restricted resources will be utilized to meet intended obligations.
(2) Recent Accounting Pronouncements (a) GASB Statement No. 48 In September 2006, the GASB issued Statement No. 48, Board Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues (GASB No. 48). This statement establishes criteria that governments will use to ascertain whether the proceeds received from an exchange of an interest in expected cash flows for immediate cash payments should be reported as revenue or as a liability.
The Department has determined that this statement and the expanded disclosures of pledged revenues does not apply to its stand-alone financial statements as its operations are financed primarily by a single major revenue source.(b) GASB Statement No. 49 In fiscal year 2009, the Department adopted GASB Statement No. 49, Accounting and Financial Reporting for Pollution and Remediation Obligations (GASB No. 49). This statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups.The scope of the statement excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as landfill closure and post closure care and nuclear power plant decommissioning.
Prior to adopting this statement the Department followed Statement of Position 96-1, Environmental Remediation Liabilities.
The Power System has identified sites that require remediation work and is working with the Department of Toxic Substances and the Los Angeles Regional Water Quality Control Board who have jurisdiction over these sites. The Power System's estimated liability for 23 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 these sites is approximately
$15 million and includes remediation and ongoing operation and maintenance costs where estimable.
This estimate includes recoveries of approximately
$18 million.During fiscal year 2009, the Power System set up a restricted trust fund in the amount of $2.1 million to provide financial assurance for closure of one of its sites. The Power System's environmental liability is recorded as part of accrued expenses.
There was no impact to Net Assets as of July 1, 2008 as a result of implementation of this pronouncement.(c) GASB Statement No. 50 In May 2007, the GASB issued Statement No. 50, Pension Disclosures, an amendment to GASB Statements No. 25 and No. 27 (GASB No. 50). This statement more closely aligns the financial reporting requirements for pensions with those for other postemployment benefits (OPEB)and, in doing so, enhances information disclosed in notes to the financial statements or presented as required supplementary information (RSI) by pension plans and by employers that provide pension benefits.
The reporting changes required by this statement amend applicable note disclosures and RSI requirements of GASB Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers, to conform to requirements of GASB Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.
The Department has implemented these disclosures in fiscal year 2008.(d) GASB Statement No. 51 In June 2007, the GASB issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB No. 51). This statement establishes accounting and financial reporting standards for intangible assets. Intangible assets include, but are not limited to, easements, water rights, timber rights, patents, trademarks, and computer software.
This statement is effective for the Department beginning fiscal year 2010. The Department has not yet determined the financial statement impact of adopting this new statement.(e) GASB Statement No. 53 In June 2008, the GASB issued Statement No. 53, Accounting and Financial Reporting for Derivative Instruments (GASB No. 53). This statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments.
Common types of derivative instruments used by the Department include electricity swaps, forward contracts, and financial natural gas hedges. Governments enter into derivative instruments as investments; as hedges of identified financial risks associated with assets or liabilities, or expected transactions (i.e., hedgeable items); or to lower cost of borrowings.
Governments often enter into derivative instruments with the intention of effectively fixing cash flows or synthetically fixing prices. The changes in fair value of derivative instruments that are used for investment purposes or that are reported as investment derivative instruments because of ineffectiveness are reported within the investment revenue classification.
Alternatively, the changes in fair value of derivative instruments that are classified as hedging derivative instruments are reported in the statements of net assets or deferrals on the balance sheets. This statement is effective for the 24 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Department beginning fiscal year 2010. The Power System has not yet determined the financial statement impact of adopting this new statement.
(3) Regulatory Matters (a) Federal Regulation of Transmission Access The Energy Policy Act of 1992 (the Energy Policy Act) made fundamental changes in the federal regulation of the electric utility industry, particularly in the area of transmission.
As amended by the Energy Policy Act, Sections 211, 212, and 213 of the Federal Power Act (FPA) provide Federal Energy Regulatory Commission (FERC) authority, upon application by any electric utility, federal power marketing agency, or other person or entity generating electric energy for sale or resale, to require a transmitting utility to provide transmission services (including any enlargement of transmission capacity necessary to provide such services) to the applicant at rates, charges, terms, and conditions set by FERC based on standards and provisions in the FPA. Under the Energy Policy Act, electric utilities owned by municipalities and other public agencies, which own or operate electric power transmission facilities that are used for the sale of electric energy at wholesale rates are "transmitting utilities" subject to the requirements of Sections 211, 212, and 213.FERC has encouraged in the past the voluntary formation of regional transmission organizations (RTOs) independent from owners of generation and other market participants that will provide transmission access on a nondiscriminatory basis to buyers and sellers of power. Investor-owned utilities (IOUs) and publicly owned utilities have been encouraged to participate in the formation and operation of RTOs, but are not, at this time, being ordered by FERC to participate.
FERC has adopted a "go slow" approach to the issue of RTO formation in the western United States; it is contemporaneously engaged in a wholesale overhaul of the California market design, referred to initially as the Market Design 2002 proceeding and lately as the Market Redesign and Technology Update (MRTU) proceeding.
These FERC proceedings will have potential impacts on every electric utility doing business in California.
MRTU involves a comprehensive overhaul of the electricity markets administered by California Independent System Operator (CAISO), including the areas of transmission congestion management, trading and scheduling energy in the day ahead, or spot market, improved market power mitigation, and pricing transparency measures and system improvements to increase operational efficiency and enhance reliability, among other things. MRTU was implemented on April 1, 2009. It is not certain at this time what impact, if any, FERC's final decision on MRTU will have on the Power System. In addition, CAISO has announced its intention to implement further market changes over the next five years.(b) Federal Energy Legislation of 2005 On August 8, 2005, the Energy Policy Act of 2005 (the EP Act) was enacted, the first comprehensive energy legislation in over a decade. One of the most significant provisions of the EP Act empowers FERC to certify an Electric Reliability Organization (ERO) to improve the reliability of the nation's"bulk-power system" through mandatory and enforceable electric reliability standards (in contrast to the long-standing voluntary system). The definition of "bulk-power system" does not include facilities used in the local distribution of electric energy. The ERO will file any proposed reliability standard or modification with FERC. A "reliability standard" is a requirement that provides for 25 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 reliable operation of the bulk-power system. Such a standard includes requirements for the operation of existing transmission facilities or the design of planned additions or modifications to the extent necessary to provide for reliable operation.
It does not include, and the ERO may not impose, any requirement to enlarge existing facilities or to construct new transmission or generation.
All users, owners, and operators of the bulk-power system are required to comply with the electric reliability standards.
The ERO may impose a penalty on a user, owner, or operator for violating a reliability standard, and FERC may order compliance with such a standard and impose a penalty if it finds that a user, owner, or operator is about to engage in an act that would violate a reliability standard.The EP Act authorizes FERC to require nondiscriminatory access to transmission facilities owned by municipal, cooperative, and other transmission companies not currently regulated by FERC, unless exercising this authority would violate a private activity bond rule for purposes of Section 141 of the Internal Revenue Code of 1986. FERC is prohibited from requiring any such entities to join RTOs.The EP Act also allows FERC to issue permits for the construction of new transmission facilities when states have been unable or unwilling to act and allows load-serving entities to use the firm transmission rights, or equivalent tradable or financial transmission rights, in order to deliver output or purchased energy to the extent required to meet its service obligations.
The EP Act does not relieve a load-serving entity from any obligation under state or local law to build transmission or distribution facilities adequate to meet its service obligations, or to abrogate preexisting firm transmission service contracts.
The EP Act directs FERC to establish, by rule, incentive-based rates for transmission no later than August 2006 and requires FERC to establish market transparency rules for the electric wholesale market (entities that have a de minimis market presence are exempt from the rules). The EP Act instructs that the market transparency rules must provide for the timely dissemination of information about the availability and prices of wholesale electric energy and transmission service to FERC, state commission, buyers and sellers of wholesale electric energy, users of transmission services, and the public. Within 180 days of the EP Act's enactment, FERC and the Commodity Futures Trading Commission are required to enter into a memorandum of understanding regarding information sharing pursuant to these rules.In addition, the EP Act prohibits any person from willfully and knowingly reporting false information to any federal agency on the price of wholesale electricity or availability of transmission capacity, or using (directly or indirectly) any manipulative device in contravention of any FERC rule. The EP Act increases civil and criminal penalties, modifies the procedures for review of FERC orders under the FPA, and changes the refund date under the FPA to be effective as of the date an applicable complaint is filed. The EP Act also establishes an entity's right to a refund if (i) it makes a short term sale of electric energy through an organized market in which the rates for the sale are set by a FERC-approved tariff (not by a contract) and (ii) the sale violates the terms of the tariff or applicable FERC rule in effect at the time of the sale.Based on the EP Act authority vested upon the FERC, the FERC approved the North American Electric Reliability Corporation (NERC) as the ERO, and last year made mandatory more than 80 NERC and Western Electricity Coordinating Council (WECC) reliability standards, all of which are subject to penalties ranging from $1,000 to $1,000,000, depending on the impact of the violation 26 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 to reliability and other factors. LADWP has implemented a NERC/WECC Reliability Standards Compliance Program to proactively prevent, monitor, and stop any potential violations to these standards.
The overall impact of the EP Act on the Department cannot be predicted at this time.(c) Potential Federal Energy Legislation for 2009 As of August 2009, the 111 United States Congress is contemplating passing federal legislation that can make fundamental changes in the regulation of the electric utility industry.
Under the House of Representatives' passed legislation (H.R. 2454 American Clean Energy and Security Act of 2009 -ACES), the following economy-wide reduction goals of GHGs (carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons, perfluorocarbons, and nitrogen hexafluoride) are being proposed:
97% of the 2005 levels by 2012; 80% of the 2005 levels by 2020; 58% of the 2005 levels by 2038; 17% of the 2005 levels by 2050. The bill would delegate authority to FERC to promulgate regulations and enforce the reduction goals.ACES includes a GHG "Cap and Trade" regulatory program. Under the Cap and Trade program, the amount of GHGs emitted by certain industries will be limited, and emission allowances will be available for trading (one allowance is equal to 1 metric ton of GHGs emitted, measured in tons of carbon dioxide equivalent).
The proposal establishes a prohibition of emissions beyond an entity's allowance holdings where penalties will be applied to noncomplying entities.
The electricity sector is covered under this provision starting 2012. Approximately 44.6% of allowances are allocated to the electricity sector starting 2012, and any additional allowances needed may be bought in the market or through the auction process. The total amount of allowances allocated decline each year, and are phased out by 2030. At that time, the electricity sector would need to purchase allowances to cover its GHG emissions.
ACES delegates authority to FERC to provide oversight and regulation of the new Energy Markets created for carbon allowances and offsets. FERC is expected to ensure market transparency and liquidity of allowances and offsets. It will also be in charge of protecting market participants from speculation and manipulation of carbon prices.On September 30, 2009, the Senate introduced its climate change bill entitled "Clean Energy Jobs and American Power Act" (S. 1733). The Senate Environment and Public Works Committee has held a number of hearings with panels on jobs and opportunities, national security, utilities, adaptation, transportation and the clean energy economy.In the Senate version of the bill (S. 1462 Energy Bill -Senate Bill), FERC is given the authority to order a change or suspension of any rate, term, or condition if a market emergency occurs, such as market manipulation or abuse, and may require an entity to cease and desist from committing such violations.
ACES requires retail electric suppliers to meet a certain percentage of their load with electricity generated from renewable sources and savings. The percentages currently proposed are: 6% of electricity generated from renewables and electricity savings by 2012, and 20% by 2020. This legislation also authorizes FERC (upon petition of the governor of any state) to increase the 27 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 proportion of compliance that can be met with efficiency savings up to 2/5 for electric suppliers located within that state.With respect to transmission issues, the Senate Bill addresses planning, sitting, and cost allocation.
FERC is to publish rules establishing planning principles for the development of interconnection-wide plans, which identify high-priority national transmission projects, and to lead coordination of such plans. FERC will have the authority to approve the construction of high-priority national transmission projects that it finds to be in the public interest, if the state rejects the application of the project. Furthermore, FERC is to establish rules governing cost allocation methodologies for high-priority transmission projects, and may allocate costs to Load Servicing Entities within all, or part of a region. The costs may not be allocated unless they are reasonably proportional to measurable economic and regional benefits.
Also, costs may be allocated to generators of electricity connected by a high-priority national transmission project.Cyber assets security is also being addressed in the Senate Bill. If the Secretary of Energy determines that immediate action is necessary to protect critical electric infrastructure from a cyber security threat, the secretary may require, by order, with or without notice, people subject to the jurisdiction of FERC to take actions that the Secretary of Energy determines will best avert or mitigate the cyber security threat.The overall impact of the proposed legislation on the Department cannot be predicted at this time.28 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (4) Utility Plant The Power System had the following activities in utility plant during fiscal year 2009 (amounts in thousands):
Nondepreciable utility plant: Land and land rights Construction work in progress Nuclear fuel Natural gas field Balance, July 1, 2008$ 155,707 889,226 32,982 228,824 Total nondepreciable utility plant Depreciable utility plant: Generation Transmission Distribution General Additions 21 371,182 10,639 1,614 383,456 7,541 5,829 236,305 73,230 Retirements and disposals (349)(6,717)(6,821)(13,887)(2,019)(2,205)(2,222)(291)(651,293)Transfers 1,306,739 3,487,385 797,845 4,711,830 1,027,269 (651,293)415,861 71,556 157,303 6,573 Balance, June 30, 2009 155,379 609,115 36,904 223,617 1,025,015 3,908,768 873,025 5,103,216 1,106,781 10,991,790 (2,244,648)
(312,584)(2,145,666)
(697,265)(5,400,163) 6,616,642 Total depreciable utility plant 10,024,329 322,905 (6,737) 651,293 Accumulated depreciation:
Generation Transmission Distribution General (2,133,877)
(298,689)(2,014,129)
(672,543)(112,790)(16,100)(133,759)(25,013)2,019 2,205 2,222 291 Total accumulated depreciation Total utility plant, net (5,119,238)
(287,662) 6,737$ 6,211,830 418,699 (13,887)Depreciation and amortization expense during fiscal year 2009 was $293.2 million.Land and land rights are recorded on the balance sheet as utility plant in their functional category.29 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The Power System had the following activities in utility plant during fiscal year 2008 (amounts in thousands):
Nondepreciable utility plant: Land and land rights Construction work in progress Nuclear fuel Natural gas field Balance, July 1, 2007$ 143,513 773,694 18,311 235,163 Additions 12,194 306,635 20,340 1,071 Retirements and disposals (5,669)(7,410)(13,079)(29,727)(97,451)(1,587)(2,824)Transfers (191,103)Balance, June 30, 2008 155,707 889,226 32,982 228,824 1,306,739 3,487,385 797,845 4,711,830 1,027,269 Total nondepreciable utility plant Depreciable utility plant: Generation Transmission Distribution General 1,170,681 340,240 3,465,219 882,586 4,400,292 974,186 40,280 6,000 155,380 40,872 (191,103)11,613 6,710 157,745 15,035 Total depreciable utility plant 9,722,283 242,532 (131,589) 191,103 10,024,329 Accumulated depreciation:
Generation Transmission Distribution General (2,049,213)
(376,658)(1,893,791)
(650,214)(114,391)(19,482)(121,925)(25,153)29,727 97,451 1,587 2,824 (2,133,877)
(298,689)(2,014,129)
(672,543)Total accumulated depreciation (4,969,876)
(280,951) 131,589 -(5,119,238)
Total utility plant, net$ 5,923,088 301,821 (13,079)6,211,830 Depreciation and amortization expense during fiscal year 2008 was $281.5 million.Land and land rights are recorded on the balance sheet as utility plant in their functional category.30 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (5) Jointly Owned Utility Plant The Power System has direct interests in several electricity generating stations and transmission systems, which are jointly owned with other utilities.
As of June 30, 2009 and 2008, utility plant includes the following amounts related to the Power System's ownership interest in each jointly owned utility plant (amounts in thousands, except as indicated):
Ownership interest Share of capacity (MWs)Utility plant in service June 30, 2009 Accumulated Cost depreciation Utility plant in service June 30, 2008 Accumulated Cost depreciation Palo Verde Nuclear Generating Station Navajo Generating Station Mohave Generating Station Pacific Intertie DC Transmission Line Other transmission systems 5.7%21.2 10.0 40.0 224 $ 564,654 477 316,560-57,913 332,324 284,486 57,852 567,538 315,978 57,913 318,491 269,955 56,851 1,240 170,808 44,599 161,623 40,678 Various 84,779 44,652 81,167 43,544$ 1,194,714 763,913 1,184,219 729,519 The Power System will incur operating costs related to the jointly owned facilities, regardless of the amount or its ability to take delivery of its share of energy generated.
The Power System's proportionate share of the operating costs of the joint plants is included in the corresponding categories of operating expenses.(6) Purchase Power Commitments As of June 30, 2009, the Power System has entered into a number of energy and transmission service contracts, which involve substantial commitments as follows (amounts in thousands, except as indicated):
The Power System's interest in agency's share Agency Capacity Outstanding Agency share Interest (MWs) principal Intermountain Power Project Palo Verde Nuclear Generating Station Mead-Adelanto Project Mead-Phoenix Project Southern Transmission System IPA SCPPA SCPPA SCPPA SCPPA 100.0%5.9 68.0 17.8-22.4 100.0 57.1%67.0 36.0 25.0 60.0 1,027 $ 1,087,209 151 291 148 1,142 66,886 71,383 15,793 554,434 IPA -The Intermountain Power Agency (IPA) is an agency of the state of Utah established to own, acquire, construct, operate, maintain, and repair the Intermountain Power Project (IPP). The Power System serves as the project manager and operating agent of IPP.SCPPA -The Southern California Public Power Authority, is a California Joint Powers Agency. SCPPA's interest in the Mead-Phoenix Project includes three components.
31 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The above agreements require the Power System to make certain minimum payments, which are based primarily upon debt service requirements.
In addition to average annual fixed charges of approximately
$285 million during each of the next five years, the Power System is required to pay for operating and maintenance costs related to actual deliveries of energy under these agreements (averaging approximately
$384 million annually during each of the next five years). The Power System made total payments under these agreements of approximately
$496 million and $490 million in fiscal years 2009 and 2008, respectively.
These agreements are scheduled to expire from 2027 to 2030.The Power System earned fees under the IPP project manager and operating agent agreements totaling$18.4 million and $16.0 million in fiscal years 2009 and 2008, respectively.(a) Long-Term Notes Receivable Under the terms of its purchase power agreement with IPA, the Department is charged for its output entitlements based on its share of IPA's costs, including debt service. During fiscal year 2000, the Department restructured a portion of this obligation by transferring
$1.11 billion to IPA in exchange for long-term notes receivable.
The funds transferred were obtained from the debt reduction trust funds and through the issuance of new variable rate debentures (see notes 7 and 10). IPA used the proceeds from these transactions to defease and to tender bonds with par values of approximately
$618 million and $611 million, respectively.
On September 7, 2000, the Department paid $187 million to IPA in exchange for additional long-term notes receivable.
IPA used the proceeds to defease bonds with a face value of$198 million.On July 20, 2005, the Department paid $97 million to IPA in exchange for additional long-term notes receivable.
IPA used the proceeds to defease bonds with a face value of $92 million.The IPA notes are subordinate to all of IPA's publicly held debt obligations.
The Power System's future payments to IPA will be partially offset by interest payments and principal maturities from the subordinated notes receivable.
The net IPA notes receivable balance totaled $1.11 billion and$1.12 billion as of June 30, 2009 and 2008, respectively.
The IPA notes pay interest and principal monthly and mature on July 1, 2023. The interest rates range from 4.9% to 6.4%, subject to adjustments related to IPA bond refundings.(b) Energy Entitlement The Department has a contract through 2017 with the U.S. Department of Energy for the purchase of available energy generated at the Hoover Power Plant. The Power System's share of capacity at Hoover is approximately 500 MWs (maximum capability).
The cost of power purchased under this contract was $16 million and $15 million as of June 30, 2009 and 2008, respectively.
The Department has a contract through 2026 with SCPPA for the purchase of available energy generated at the Pebble Springs Wind Project located in Gilliam County, Oregon. The Power System's share of capacity at Pebble Springs is approximately 69 MWs (maximum capacity).
The cost of power purchased under this contract was $5 million as of June 30, 2009.32 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (7) Cash, Cash Equivalents, and Investments (a) Restricted and Other Investments A summary of the Power System's restricted and other investments is as follows (amounts in thousands):
June 30 Restricted and other investments:
Restricted investments:
Debt Reduction Trust Funds Nuclear Decommissioning Trust Funds Natural Gas Trust Fund Power Rate Stabilization Fund Hazardous Waste Treatment Trust Fund SCPPA Palo Verde investment Total restricted investments Other investments:
Cash collateral received from securities lending transactions
-Department program only*(see note 8)Total restricted and other investments 2009 2008$ 547,282 528,988 113,923 110,234 25,040 25,133-- 24,397 2,122 33,707 34,594 722,074 723,346 8,591 115,409$ 730,665 838,755* The Power System also has $0 and $124,294 of cash collateral received from securities lending transactions in the City's securities lending program as of June 30, 2009 and 2008, respectively (see notes 7(b) and 8).All restricted and other investments are to be used for a specific purpose as follows: Debt Reduction Trust Funds The debt reduction trust funds were established during fiscal year 1997 to provide for the payment of principal and interest on long-term debt obligations and purchased power obligations arising from the Department's participation in IPP and SCPPA (see note 6). The Department has transferred funds from purchased power precollections into these trust funds. Funds from operations may also be transferred by management as funds become available.
Nuclear Decommissioning Trust Funds Nuclear decommissioning trust funds will be used to pay the Department's share of decommissioning PVNGS at the end of its useful life (see note 1).33 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Natural Gas Trust Fund The natural gas trust fund was established to serve as depository to pay for costs and to post margin or collateral in connection with contracts for the purchase and delivery of financial transactions for natural gas. These transactions are entered into to stabilize the natural gas portion of the Department's fuel for generation costs.Power Rate Stabilization Fund The power rate stabilization fund was established in accordance with the general provisions section of the Department's electric rates to offset any unexpected revenue losses. The fund was closed in June 2009.Hazardous Waste Treatment Storage and Disposal Trust Fund The hazardous waste treatment storage and disposal trust fund was established to provide financial assurance for closure of the Main Street treatment and disposal facility.SCPPA Palo Verde Investment The SCPPA Palo Verde investment is a fixed rate investment held by SCPPA to be drawn down over the next 8 years to pay for purchased power obligations arising from the Department's participation in the SCPPA Palo Verde project. The fixed interest rate is 4.97% and the maturity date is June 25, 2017.As of June 30, 2009, the Power System's securities lending cash collateral and restricted investments and their maturities are as follows (in thousands):
1 to 30 Type of investment Fair value days U.S. government agencies $Medium-term notes Commercial paper Certificates of deposit California local agency bonds California state bonds Money market funds Securities lending cash collateral:
Money market funds SCPPA Palo Verde investment
$475,702 59,867 9,982 11,018 9,981 5,680 116,138 8,591 2,889 Investment maturiti 31 to 60 61 to 365 days days 1,216 98,743 8,333 34,818 4,993 4,989-11,018-- 1,036 311,674 13,827 64,069 366 days Over to 5 years 5 years 8,945 5,680 116,138 8,591 33,706 -730,665 142,243--- -33,706 14,542 150,604 325,501 97,775 34 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 As of June 30, 2008, the Power System's securities lending cash collateral and restricted investments and their maturities are as follows (in thousands):
Investment maturities 1 to 30 31 to 60 61 to 365 366 days Over Type of investment Fair value days days days to 5 years 5 years U.S. government agencies $ 407,472 7,496 7,477 58,518 277,162 56,819 Medium-term notes 176,767 4,999 32,551 80,379 58,838 -Commercial paper 61,306 44,289 -17,017 -Certificates of deposit 39,208 11,200 1,000 27,008 -Bankers acceptances 999 999 ---Money market funds 3,000 3,000 ---Securities lending cash collateral:
Repurchase agreements 86,000 86,000 ---Commercial paper 15,936 15,936 ---Money market funds 13,473 13,473 ---SCPPA Palo Verde investment 34,594 ----34,594$ 838,755 187,392 41,028 182,922 336,000 91,413 i. Interest Rate Risk The Department's investment policy limits the maturity of its investments to a maximum of 30 years for U.S. government agency securities; 5 years for medium-term corporate notes, California local agency obligations, and California state obligations and municipal bonds;270 days for commercial paper; 397 days for certificates of deposit; 180 days for bankers acceptances; and 45 days for repurchase agreements purchased with cash collateral from securities lending agreements.
ii. Credit Risk Under its investment policy and the Code, the Department is subject to the prudent investor standard of care in managing all aspects of its portfolios.
The prudent investor standard requires that the Department
"...shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and in familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency." The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government.
As of June 30, 2009 and 2008, the U.S. government agency securities in the portfolio carried the highest possible credit ratings by the Nationally Recognized Statistical Rating Organizations (NRSROs) that rated them.The Department's investment policy specifies that medium-term corporate notes must be rated in a rating category of "A" or its equivalent or better by a NRSRO. Of the Power System's 35 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 investments in corporate notes as of June 30, 2009, $33,861,542 (57%) was rated in the category of AA and $25,737,850 (43%) was rated in the category of A by at least one NRSRO.The remaining
$267,713 (less than 1%) of investments in corporate notes were not rated. Of the Power System's investments in corporate notes as of June 30, 2008, $25,241,490 (15%)was rated in the category of AAA, $70,577,369 (38%) was rated in the category of AA, and$80,947,666 (47%) was rated in the category of A by at least one NRSRO.The Department's investment policy specifies that commercial paper must be of the highest ranking or of the highest letter and number rating as provided for by at least two NRSROs. As of June 30, 2009 and 2008, all of the Power System's investments in commercial paper were rated with at least the highest letter and number rating as provided by at least two NRSROs.The Department's investment policy specifies that negotiable certificates of deposit must be of the highest ranking or letter and number rating as provided for by at least two NRSROs and that for nonnegotiable certificates of deposit, the full amount of principal and interest is insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration.
As of June 30, 2009, the Power System's investments in certificates of deposits included $10,018,030 of negotiable certificates of deposit of the highest ranking as provided by at least two NRSROs and $1,000,000 of nonnegotiable certificates of deposit fully insured by the FDIC. As of June 30, 2008, the Power System's investments in certificates of deposit were all negotiable certificates of deposits rated with at least the highest letter and number rating as provided for by at least two NRSROs.The Department's investment policy specifies that California local agency obligations must be rated in a rating category of "A" or its equivalent or better by a NRSRO. Of the Power System's investments in California local agency bonds as of June 30, 2009, $8,945,000 (90%)was rated in the category of AAA and $1,035,850 (10%) was rated in the category of AA by at least one NRSRO.The Department's investment policy does not establish a minimum credit rating for state of California obligations.
As of June 30, 2009, the Power System's investments in State of California obligations were rated AAA by at least one NRSRO.The Department's investment policy specifies that banker's acceptances must be of the highest ranking or letter and number rating as provided for by at least two NRSROs. As of June 30, 2008, all of the Power System's investments in banker's acceptances were rated with the highest rating as provided by three NRSROs.The Department's investment policy specifies that money market funds may be purchased as allowed under the Code, which requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two NRSROs or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience in managing money market mutual funds with assets under management in excess of $500 million. As of June 30, 2009 and 2008, each of the money market funds in thel portfolio had the highest possible 36 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 ratings by three NRSROs, specifically AAAm by Standard and Poor's Corporation (S&P), Aaa by Moody's Investors Service (Moody's), and AAA by Fitch Ratings (Fitch).The Department's securities lending cash collateral investment policy specifies that repurchase agreement transactions shall be limited to broker/dealers or banks for which a securities lending line has been approved by the securities lending agent. Approved counterparties must be primary dealers in U.S. government securities that work directly with the Federal Reserve Bank of New York. Repurchase agreements must be adequately collateralized based on the margin requirements for the type of security listed in the investment policy. As of June 30, 2008, the counterparty to the repurchase agreement was an approved primary dealer rated with the highest short-term ratings as provided by two NRSROs. The collateral for the repurchase agreement consisted of mortgage-backed securities issued by U.S. government agencies that had minimum credit ratings of AAA with a margin of 102% of the repurchase agreements.
The Department's securities lending cash collateral investment policy specifies that commercial paper must be of the highest ranking or of the highest letter and number rating as provided for by at least two NRSROs. As of June 30, 2008, all of the commercial paper purchased with cash collateral had the highest letter and number rating provided by two NRSROs.The Department's securities lending cash collateral investment policy specifies that money market funds may be purchased with cash collateral as allowed under the Code. As of June 30, 2009 and 2008, the money market funds purchased with cash collateral were in compliance with the Code by having either attained the highest possible ratings by at least two NRSROs or retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience in managing money market mutual funds with assets under management in excess of $500 million.iii. Concentration of Credit Risk The Department's investment policy specifies that there is no percentage limitation on the amount that can be invested in U.S. government agency securities, except that a maximum of 30% of the cost value of the portfolio may be invested in the securities of any single U.S. government agency issuer.Of the Power System's total investments as of June 30, 2009, $159,456,292 (22%) was invested in securities issued by the Federal Home Loan Bank; $154,727,884 (21%) was invested in securities issued by the Federal Home Loan Mortgage Corporation; and$140,307,268 (19%) was invested in securities issued by the Federal National Mortgage Association.
Of the Power System's total investments as of June 30, 2008, $145,877,625 (17%) was invested in securities issued by the Federal Home Loan Mortgage Corporation;
$128,932,312 (15%) was invested in securities issued by the Federal Home Loan Bank; and $103,799,161 (12%) was invested in securities issued by the Federal National Mortgage Association.
37 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 For overnight or open repurchase agreements, the Department's securities lending policy does not limit the percentage of cash collateral that may be invested with one particular counterparty.
Of the Power System's total investments as of June 30, 2008, cash collateral received from securities lending transactions of $85,000,000 (10%) was invested in an overnight repurchase agreement with Morgan Stanley. In addition, $4,980,630 (1%) was invested in a medium-term corporate note issued by Morgan Stanley, for a total of $89,980,630 (11%) invested in securities issued by Morgan Stanley.(b) Pooled In vestments The Power System's cash, cash equivalents, and its collateral value of the City's securities lending program are included within the City Treasury's general and special investment pool (the Pool). As of June 30, 2009 and 2008, the Power System's share of the Pool was $854,539,000 and$1,008,335,000, which represents approximately 15% and 14% of the Pool, respectively.
At June 30, 2009, the investments held in the Pool's programs and their maturities are as follows (amounts in thousands):
Investment maturities 1 to 30 days 31 to 60 days Type of investments Amount U.S. Treasury notes U.S. Treasury bills U.S. sponsored agency issues Medium term notes Commercial paper Guaranteed investment contracts Certificates of deposit Short term investment funds$ 1,613,049 44,984 1,428,909 1,047,781 1,348,312 70,081 9,000 3 164,842 992,287 70,081 44,984 82,201 25,153 235,582 61 to 365 days 182,052 125,866 120,443 9,000 366 days to 5 years 1,613,049 999,814 896,762 3 Total general and special pools $ 5,562,119 1,227,213 387,920 437,361 3,509,625 38 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 At June 30, 2008, the investments held in the Pool's programs and their maturities are as follows (amounts in thousands):
Investment maturities 1 to 30 31 to 60 61 to 365 366 days Type of investment Amount days days days to 5 years U.S. Treasury notes $ 1,619,055
---1,619,055 U.S. government agencies 1,530,897 230,356 174,594 224,569 901,378 Medium-term notes 1,186,097
-352,990 833,107 Commercial paper 1,984,742 1,450,906 386,282 147,554 -Guaranteed investment contract 135,224 135,224 --Certificates of deposit 8,000 --8,000 State of California LAIF 1 1 --Short-term investment funds 38 38 ---Securities lending cash collateral:
U.S. Treasury notes 918,758 ---918,758 U.S. government agencies 10,721 -- --- 10,721 Total general and special pools $ 7,393,533 1,816,525 560,876 733,113 4,283,019 Interest Rate Risk. The City's pooled investment policy limits the maturity of its investments to a maximum of five years for U.S. Treasury and federal agency securities, medium term corporate notes, and bonds issued by local agencies; 270 days for commercial paper, and 32 days for repurchase agreements.
Credit Risk. The City's pooled investment policy requires that for all classes of investments, except linked banking program certificates of deposits, the issuers' minimum credit ratings shall be Standard and Poor's Corporation (S&P) A-i/A or Moody's Investor Services (Moody's)
P-l/A2 and, if available, Fitch IBCA Fl/A. In addition, domestic banks are limited to those with a current Fitch Ratings BankWatch of "B/C" or better and an A-1 short-term rating. The City Treasurer is granted the authority to specify approved California banks with a Fitch Ratings BankWatch of "C" or better and an A-2 rating where appropriate.
In addition to a "AAA" rating for country risk, foreign banks with domestic licensed offices must be rated "B" or better and TBW-1 short-term rating by Fitch Ratings BankWatch.
Domestic savings banks must be rated "B/C" or better and a TBW- 1 short-term rating by Fitch Ratings BankWatch.
Medium term notes must be issued by corporations operating within the United States and having total assets in excess of $500 million. Commercial paper issuers must meet the preceding requirement or must be issued by corporations organized in the United States as a special purpose corporation, trust or limited liability company having program-wide credit enhancements.
At June 30, 2009, the City's $1.43 billion investments in U.S. government sponsored enterprises consist of securities issued by the Federal Home Loan Bank -$472.7 million, Federal National Mortgage Association
-$272.4 million, Federal Home Loan Mortgage Corporation
-$398.9 million, Federal Farm Credit Bank -$126.0 million, Tennessee Valley Authority
-39 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008$37.1 million, Freddie Mac Discount Note -$69.3 million, and Farmer Mac Federal Agricultural
-$52.6 million. As of June 30, 2009, these securities carried the highest ratings of AAA (S&P) and Aaa (Moody's).
The City's $1.05 billion investments in medium-term notes consist of securities issued by banks and corporations that comply with the requirements discussed above and were rated "A" or better by S&P and "A3" or better by Moody's.The City's $1.35 billion investments in commercial paper comply with the requirements discussed above and were rated A-I+/A-1 by S&P and P-1 by Moody's.The issuers of the certificates of deposits are not rated.At June 30, 2008 the City's $1.53 billion investments in U.S. government-sponsored enterprises consist of securities issued by the Federal Home Loan Bank -$594.5 million, Federal National Mortgage Association
-$293.8 million, Federal Home Loan Mortgage Corporation
-$537.2 million, and Federal Farm Credit Bank -$105.5 million. As of June 30, 2008, these securities carried the highest ratings of AAA (S&P) and Aaa (Moody's).
The City's $1.19 billion investments in medium-term notes consist of securities issued by banks and corporations that comply with the requirements discussed above and were rated "A" or better by S&P and "A3" or better by Moody's.The City's $1.98 billion investments in commercial paper comply with the requirements discussed above and were rated AAA/A-1/A-1+
by S&P and Aaa/P-1 by Moody's.The issuers of the guaranteed investment contracts, certificates of deposits, and the State of California Local Agency Investment Fund (LAIF) are not rated.Concentration of Credit Risk. The City's investment policy does not allow more than 10% of its investments portfolio, except U.S. Treasury and U.S. sponsored agency issues, to be invested in securities of a single issuer including its related entities.
The City's investment policy further provides for a maximum concentration limit of 30% on any individual federal agency or government-sponsored entity. The City's pooled investments comply with these requirements.
GAAP requires disclosure of certain investments in any one issuer that represent 5% or more of total investments.
Of the City's total pooled investments as of June 30, 2009, $472.7 million (9%) was invested in securities issued by the Federal Home Loan Bank, $398.9 million (7%) was invested in securities issued by Federal Home Loan Mortgage Corporation, and $272.4 million (5%) was invested in securities issued by Federal National Mortgage Association.
Of the City's total pooled investments as of June 30, 2008, $594.5 million (8%) was invested in securities issued by the Federal Home Loan Bank and $537.2 million (7%) was invested in securities issued by Federal Home Loan Mortgage Corporation.
40 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (8) Securities Lending Transactions The Power System participates in a securities lending program as follows (collateral amounts in thousands):
June 30 Program 2009 2008 Department Program $ 8,591 115,409 City of Los Angeles Program -124,294$ 8,591 239,703 (a) Department Program In December 1999, the Department initiated a securities lending program managed by its custodial bank to increase interest income. The bank lends up to 20% of the investments held in the debt reduction trust funds, decommissioning trust funds, postemployment healthcare benefits trust for securities, cash collateral or letters of credit equal to 102% of the market value of the loaned securities, and interest, if any. The Department can sell securities received as collateral only in the event of borrower default. Both the investments purchased with the cash collateral received and the related liability to repay the cash collateral are reported on the balance sheets. A summary of the Power System's portion of the Department's securities lending program as of June 30, 2009 and 2008 is as follows (amounts in thousands):
June30 2009 2008 Fair value Fair value Securities lent of underlying Collateral of underlying Collateral for cash collateral securities book value securities book value U.S. government and agency securities
$ 8,387 8,591 113,063 115,409 Cash collateral received is reinvested by the lending agent in open repurchase agreements, money market funds, and short-term commercial papers so that the maturities of reinvested cash collateral sufficiently match the maturities of the underlying securities lent. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during fiscal years 2009 and 2008.(b) General Investment Pool Program The Power System also participates in the City's securities lending program through the pooled investment fund. The City's program has substantially the same terms as the Department's direct securities lending program. The Department recognizes its proportionate share of the cash collateral received for securities loaned and the related obligation for the general investment pool. However, due to the extreme volatility in the financial markets over the past 12 months resulting from the 41 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 global financial crisis, and counterparty risks, the City temporarily suspended its securities lending program in November 2008. The City, however, continues to monitor the financial markets and will re-enter the securities lending market when deemed appropriate.
As of June 30, 2009 and 2008, the Power System's attributed share of cash collateral and the related obligation from the City's program were $0 and $124.3 million, respectively.
Securities lending is permitted and limited under provisions of the Code's Section 53601. The City Council approved the Securities Lending Program (the SLP) on October 22, 1991 under Council File No. 91-1860, which complies with the Code. The objectives of the SLP in priority order are: safety of loaned securities and prudent investment of cash collateral to enhance revenue from the investment program. The SLP is governed by a separate policy and guidelines, with oversight responsibility of the Investment Advisory Committee.
The City's custodial bank acts as the securities lending agent. In the event a counterparty defaults by reason of an act of insolvency; the bank shall take all actions that it deems necessary or appropriate to liquidate permitted investment and collateral in connection with such transaction and shall make a reasonable effort for two business days (Replacement Period) to apply the proceeds thereof to the purchase of securities identical to the loaned securities not returned.
If during the Replacement Period the collateral liquidation proceeds are insufficient to replace any of the loaned securities not returned, the bank shall, subject to payment by the City of the amount of any losses on any permitted investments, pay such additional amounts as necessary to make such replacement.
Under the provisions of the SLP, and in accordance with the Code, no more than 20% of the market value of the General Investment Pool (the Pool) is available for lending. The City receives cash as collateral on loaned securities, which is reinvested in securities permitted under the policy. In accordance with the Code, the securities lending agent marks to market the value of both the collateral and the reinvestments daily. Except for open loans where either party can terminate a lending contract on demand, term loans have a maximum life of 90 days. Earnings from securities lending accrue to the Pool and are allocated on a pro rata basis to all Pool participants.
At June 30, 2009 and 2008, the assets and liabilities arising from the reinvested cash collateral were recognized in the respective participants' financial statements.
During the fiscal year, collateralizations on all loaned securities were within the required 102% of market value. The City can sell collateral securities only in the event of borrower default. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during the year. There was no credit risk exposure to the City as of June 30, 2008 because the amounts owed to the borrowers exceeded the amounts borrowed.
Loaned securities are held by the City's agents in the City's name and are not subject to custodial credit risk.(9) Derivative Instruments In accordance with GASB Technical Bulletin 2003-01, the Power System does not record its derivative instruments on the balance sheets, but instead discloses the derivatives in the notes to the financial statements and records the impact upon settlement of the derivatives.
The Power System had three main types of derivative instruments as of June 30, 2009 and 2008: electricity swaps, forward contracts, and 42 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 financial natural gas hedges. As of June 30, 2009 and 2008, the fair values of these outstanding derivative instruments were $(168.9) million and $213.4 million, respectively.(a) Objective of Electricity Swap and Forward Transactions In order to obtain the highest market value on energy that is sold into the wholesale market, the Department monitors the sales price of energy, which varies based on which hub the energy is to be delivered.
There are three primary hubs within the Department's transmission region: Palo Verde, California Oregon Border, and Mead. The Department enters into various locational swap transactions with other electric utilities in order to effectively utilize its transmission capacity and to achieve the most economical exchange of energy purchased and sold.The Department enters into forward contracts in order to meet the electricity requirements to serve its customers.
The Department does not enter into swap and forward transactions for trading purposes.
The Department is exposed to risk of nonperformance if the counterparties default or if the swap agreements are terminated.(b) Objective of Financial Natural Gas Hedges The Department enters into natural gas hedging contracts in order to stabilize the cost of gas needed to produce electricity to serve its customers.
As of June 30, 2009, the Power System had the following derivatives, which were not recorded on its balance sheet (amounts in thousands):
Contract First Last Cash paid Derivative Total contract price range effective termination Fair at derivative description quantities
$per unit date date value inception Electricity swaps: Purchases 902,598 MW $ 40.00- 74.95 07/01/09 12/31/09 (10,736) -Sales 902,598 MW 24.50 -48.70 07/01/09 12/31/09 1,106 -Forward contracts:
Electricity 1,778,934 MW 37.52 -75.67 07/01/09 12/31/11 (42,668) -Natural gas 25,440,000 MMBtu 5.28-5.71 07/01/09 01/31/14 (3,981) -Financial natural gas: Hedges* 97,042,000 MMBtu 2.56-9.85 07/01/09 06/30/18 (112,586)* Financial hedges were variable to fixed rate swaps that serve to lock in a fixed cost of natural gas.43 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 As of June 30, 2008, the Power System had the following derivatives, which were not recorded on its balance sheet (amounts in thousands):
Contract First Last Cash paid Derivative Total contract price range effective termination Fair at derivative description quantities
$per unit date date value inception Electricity swaps: Purchases 309,120 MW $ 128.36 07/01/08 12/31/08 $ 193 -Sales 309,120 MW 130.71 07/01/08 12/31/08 529 -Forward contracts:
Electricity 2,041,968 MW 69.30- 118.31 07/01/08 12/31/11 37,356 -Natural gas 584,000 MMBtu 8.91 -11.78 07/01/08 09/30/08 269 -Financial natural gas: Hedges* 78,738,500 MMBtu 4.30-9.85 07/01/08 06/30/17 175,060 (81)* Financial hedges were variable to fixed rate swaps that serve to lock in a fixed cost of natural gas.(c) Fair Value All fair values were estimated using forward market prices available from broker quotes and exchanges.(d) Credit Risk The Power System is exposed to credit risk related to nonperformance by its wholesale counterparties under the terms of contractual agreements.
In order to limit the risk of counterparty default, the Department has implemented a Wholesale Marketing Counterparty Evaluation Policy, which was amended and renamed as Counterparty Evaluation Credit Policy (the Policy), and was approved by the Board on May 6, 2008. Under the new policy, the scope has been expanded beyond physical power to include transmission, physical natural gas, and financial natural gas. Also, the credit limit structure has been categorized into short-term and long-term structures where the short-term structure is applicable to transactions with terms of up to 18 months and the long-term structure to cover transactions beyond 18 months.The Policy includes provisions to limit risk including:
the assignment of internal credit ratings to all Department's counterparties based on counterparty and/or debt ratings; the use of expected default frequency equivalent credit rating for short-term transactions; the requirement for credit enhancements (including advance payments, irrevocable letters of credit, escrow trust accounts, and parent company guarantees) for counterparties that do not meet an acceptable level of risk; and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty.
As of June 30, 2009, the 11 financial natural gas hedge counterparties were rated by Moody's as follows: one at Aaa, two at Aal, one at Aa2, two at Aa3, three at Al, and two at A2. The counterparties were rated by S&P as follows: two at AA, three at AA-, two at A+, and four at A. As of June 30, 2008, the 12 financial natural gas hedge counterparties were rated by Moody's as 44 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 follows: three at Aaa, five at Aal, two at Aa3, and two at Al. The counterparties were rated by S&P as follows: two at AA+, four at AA, three at AA-, one at A+, and two at A.Based on the International Swap Dealers Association agreements, the Department obtains collateral to support derivatives subject to credit risk in the form of cash, negotiable debt instruments (other than interest-only and principal-only securities), or eligible letters of credit. Collateral posted by a counterparty is held by a custodian.
As discussed in note 14, during fiscal year 2001, the Power System experienced nonperformance and material counterparty default with the CAISO and the California Power Exchange (CPX). The Power System does not anticipate nonperformance by any other of its counterparties and has no reserves related to nonperformance at June 30, 2009 and 2008, respectively.
Apart from the events discussed in note 14, the Power System did not experience any material counterparty default during fiscal year 2009 or 2008.(e) Basis Risk The Department mitigates basis risk through long-term physical transportation contracts.(D Termination Risk The Power System or its counterparties may terminate the contractual agreements if the other party fails to perform under the terms of the contract.
No termination events have occurred and there are no out-of-the-ordinary termination events contained in contractual documents.
45 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (10) Long-Term Debt Long-term debt outstanding as of June 30, 2009 and 2008 consists of revenue bonds and refunding revenue bonds due serially in varying annual amounts as follows (amounts in thousands):
Fiscal year of last scheduled Principal outstanding maturity 2009 2008 Bond issues Issue of 2001, Series Al Issue of 2001, Series A2 Issue of 2001, Series B Issue of 2001, Series Cl Issue of 2002, Series A Issue of 2002, Series C2 Issue of 2003, Series Al Issue of 2003, Series A2 Issue of 2003, Series B Issue of 2004, Series C3 Issue of 2005, Series Al Issue of 2005, Series A2 Issue of 2006, Series C4 Issue of 2007, Series Al Issue of 2007, Series A2 Issue of 2007, Series B Issue of 2008, Series AI Issue of 2008, Series Al Issue of 2009, Series A Issue of 2009, Series B Date of issue 03/20/01 11/06/01 06/05/01 11/15/01 08/22/02 11/22/02 07/31/03 08/19/03 08/28/03 04/07/04 12/28/05 12/28/05 03/01/06 10/18/07 10/18/07 10/18/07 11/25/08 11/25/08 02/19/09 06/02/09 Effective-interest rate 4.931%5.109 Variable 4.788 Variable 4.375 3.409 4.662 5.013 4.298 4.700 4.700 4.040 4.659 4.638 Variable 5.583 5.039 4.773 4.563 2025 2022 2035 2017 2036 2018 2017 2032 2036 2020 2041 2031 2017 2040 2033 2042 2039 2033 2040 2025$ 813,055 109,095 580,800 3,040 388,500 8,688 307,655 515,830 196,495 9,905 601,895 315,195 7,973 337,630 191,125 200,000 350,000 123,120 172,125 5,232,126 993,895 109,095 580,800 3,117 388,500 8,931 347,675 515,830 200,000 10,038 616,895 315,195 8,056 337,630 191,125 125,000 Total principal amount Revenue certificates Unamortized premiums, discounts, and debt-related costs (including net loss on refundings), net Debt due within one year (including current portion of variable rate debt)200,000 27,609 4,751,782 200,000 25,401 (217,882)
(175,455)$ 5,241,853 4,801,728 46 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Revenue bonds generally are callable 10 years after issuance.
The Department has agreed to certain covenants with respect to bonded indebtedness.
Significant covenants include the requirement that the Power Systems' net income, as defined, will be sufficient to pay certain amounts of future annual bond interest and of future annual aggregate bond interest and principal maturities.
Revenue bonds and refunding bonds are collateralized by the future revenues of the Power System.(a) Long-Term Debt Activity The Power System had the following activity in long-term debt for the fiscal years ended June 30, 2009 and 2008 (amounts in thousands):
Balance, Balance Current July 1, 2008 Additions Reductions June 30, 2009 portion Long-term debt: Bonds $ 4,777,183 850,459 (367,907) 5,259,735 197,882 Revenue certificates 200,000 -- -- 200,000 20,000 Total $ 4,977,183 850,459 (367,907) 5,459,735 217,882 Balance, Balance Current July 1, 2007 Additions Reductions June 30, 2008 portion Long-term debt: Bonds $ 4,141,883 678,946 (43,646) 4,777,183 155,455 Revenue certificates 200,000 --- 200,000 20,000 Total $ 4,341,883 678,946 (43,646) 4,977,183 175,455 (b) New Issuances Fiscal Year 2009 In November 2008, the Power System issued $550 million of Power System Revenue Bonds, 2008 Series A. The net proceeds of $540 million from the transaction, which included a net issue discount and underwriters' discount of $10 million, were deposited into the construction fund to be used for capital improvements.
In February 2009, the Power System issued $123.12 million of Power System Revenue Bonds, 2009 Series A. The net proceeds of $125 million from the transaction, net of $1.9 million issue premium and underwriters' discount, were used to redeem the $125 million Power System Variable Rate Revenue Bonds, 2007 Series B. This transaction resulted in a $157.6 million net present value savings and a net loss for accounting purposes of $953 thousand which was deferred and is being amortized over the life of the new bonds.In June 2009, the Power System issued $172.125 million of Power System Revenue Bonds, 2009 Series B. The net proceeds of $181 million from the transaction, net of $8.7 million issue premium and. underwriters' discount, were used to refund the Power System Revenue Bonds, 2001 Series A, 47 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Subseries A-1 maturing on July 1, 2024. This transaction resulted in a $7.28 million net present value savings and a net loss for accounting purposes of $3.2 million which was deferred and is being amortized over the life of the new bonds.(c) Outstanding Debt Defeased The Power System defeased certain revenue bonds in prior years by placing cash or the proceeds of new revenue bonds in irrevocable trusts to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the Power System's financial statements.
At June 30, 2009, the following revenue bonds outstanding are considered defeased (amounts in thousands):
Principal Bond issues outstanding Second issue of 1993 $ 8,340 Refunding issue of 1994 31,775 Issue of 1994 5,590$ 45,705 (d) Variable Rate Bonds As of June 30, 2009 and 2008, the Power System had $969.3 million in variable rate bonds.The variable rate bonds currently bear interest at weekly and daily rates ranging from 0.27% to 0.30% as of June 30, 2009 and 1.55% to 1.65% as of June 30, 2008. The Power System can elect to change the interest rate period of the bonds with certain limitations.
The bondholders have the right to tender the bonds to the tender agent on any business day with seven days' prior notice. The Power System has entered into standby and line of credit agreements with a syndicate of commercial banks in an initial amount of $580.8 million and $388.5 million to provide liquidity for the variable rate bonds. The extended standby agreements expire in January 2010 for the $580.8 million issue and in June 2010 for the $388.5 million issue.The bonds that would be issued under the agreements will bear interest that is payable quarterly at the greater of the Federal Funds Rate plus 0.50% or the bank's announced base rate, as defined. The unpaid principal of bonds purchased is payable in 10 equal semiannual installments, commencing after the termination of the agreement.
At its discretion, the Power System has the ability to convert the outstanding bonds to fixed rate obligations, which cannot be tendered by the bondholders.
The variable rate bonds have been classified as long term on the balance sheets as the liquidity facilities give the Power System the ability to refinance on a long term basis and the Power System intends to either renew the facility or exercise its right to tender the debt as a long term financing.
The portion that would be due in the next fiscal year in the event that the outstanding variable rate bonds were tendered and purchased by the commercial banks under the standby agreements has been 48 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 included in the current portion of long term debt and was $96.9 million at both June 30, 2009 and 2008.(e) Revenue Certificates As of June 30, 2009 and 2008, the Power System has outstanding
$200 million of commercial paper bearing interest at an average rate of 0.33%. The commercial paper matures not more than 270 days from the date of issuance.Effective September 6, 2007, the Department entered into a letter of credit and reimbursement agreement (the Agreement) with a commercial bank in the amount of $200 million to provide liquidity and credit support for the Department's commercial paper program. The agreement secures the payment when due of the principal and interest on commercial paper issued on or after September 6, 2007. Drawings on the agreement will represent advances to the Department and will bear interest that is payable monthly at the Federal Funds Rate plus 0.5% of the banks announced base rate as defined. The unpaid principal of each advance is payable in ten equal semi-annual installments, commencing on the date six months after the advance. The Agreement terminates on September 5, 2010.The revenue certificates have been classified as long term debt on the balance sheets as the Agreement gives the Power System the ability to refinance on a long term basis and the Power System intends to either renew the Agreement or exercise its option to draw on the Agreement.
The portion that would be due in the next fiscal year in the event that the outstanding revenue certificates were advanced by the commercial bank under the Agreement has been included in the current portion of long term debt and was $20 million at both June 30, 2009 and 2008.(j9 Scheduled Principal Maturities and Interest Scheduled annual principal maturities and interest are as follows (amounts in thousands):
Fiscal year(s) ending June 30: 2010 2011 2012 2013 2014 2015-2019 2020 -2024 2025 -2029 2030 -2034 2035 -2039 2040 -2044 Total requirements Principal$ 100,952 122,205 135,794 143,091 146,990 756,884 846,670 988,890 1,155,040 764,680 70,930$ 5,232,126 Interest and amortization 236,569 230,450 224,291 217,285 209,978 938,755 739,009 519,979 290,997 76,622 938 3,684,873 49 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The maturity schedule presented above reflects the scheduled debt service requirements for all of the Power System's long-term debt. The schedule is presented assuming that the tender options on the variable rate bonds, as discussed on the previous page, will not be exercised and that the full amount of the revenue certificates will be renewed. Should the bondholders exercise the tender options and the Power System convert all of the revenue certificates under the line of credit, the Power System would be required to redeem the $1,169.3 million in variable rate bonds outstanding over the next six years, as follows: $116.93 million in fiscal year 2010, $233.86 million in each of the fiscal years 2011 through 2014, and $116.93 million in fiscal year 2015. Accordingly, the balance sheets recognize the possibility of the exercise of the tender options and reflect the $116.93 million that could be due in fiscal year 2010 as a current portion of long-term debt payable. Interest and amortization include interest requirements for variable rate bonds, using the variable debt interest rate in effect at June 30, 2009 of 0.15%.(11) Retirement, Disability, and Death Benefit Insurance Plan The Department has a funded contributory retirement, disability, and death benefit insurance plan covering substantially all of its employees.
The Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) operates as a single-employer defined benefit plan to provide pension benefits to eligible department employees and to provide disability and death benefits from the respective insurance funds. Plan benefits are generally based on years of service, age at retirement, and the employee's highest 12 consecutive months of salary before retirement.
Active participants who joined the Plan on or after June 1, 1984 are required to contribute 6% of their annual covered payroll. Participants who joined the Plan prior to June 1, 1984 contribute an amount based upon an entry-age percentage rate.The Department contributes
$1.10 for each $1.00 contributed by participants plus an actuarially determined annual required contribution (ARC) as determined by the Plan's independent actuary. The required contributions are allocated between the Power System and the Water System based on the current year labor costs.The Retirement Board of Administration (the Retirement Board) is the administrator of the Plan. The Plan is subject to provisions of the Charter of the City of Los Angeles and the regulations and instructions of the Board. The Plan is an independent pension trust fund of the City.Plan amendments must be approved by both the Retirement Board and the Board. The Plan issues separately available financial statements on an annual basis. Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 N. Hope, Room 357, Los Angeles, CA 90012.50 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The annual pension cost (APC) and net pension asset for the Department's Plan consist of the following (amounts in thousands):
Annual required contribution Interest on net pension asset Adjustment to annual required contribution APC (including
$44.3 million and $42.1 million of amounts capitalized in fiscal years 2009 and 2008, respectively)
Department contributions Change in net pension asset Net pension asset at beginning of year Net pension asset at end of year Year ended June 30 2009 2008 143,698 144,744 (11,175) (10,514)16,652 15,667 149,175 (144,916)4,259 (123,310)(119,051)149,897 (142,874)7,023 (130,333)(123,310)The Power System's allocated share of the Plan's APC and net pension asset consists of the following (amounts in thousands):
Annual required contribution Interest on net pension asset Adjustment to annual required contribution APC (including
$26.6 million and $25.0 million of amounts capitalized in fiscal years 2009 and 2008, respectively)
Power System contributions Change in net pension asset Net pension asset at beginning of year Net pension asset at end of year Year ended June 30 2009 2008$ 97,714 98,426 (7,599) (7,149)11,324 10,653 101,439 (94,604)6,835 (77,479)$ (70,644)101,930 (94,699)7,231 (84,710)(77,479)Annual required contributions are determined through actuarial valuations using the entry-age normal actuarial cost method. The actuarial value of assets in excess of the Department's Actuarial Accrued Liability (AAL) is being amortized by level contribution offsets over rolling 15-year periods effective July 1, 2000.51 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 In accordance with actuarial valuations, the Department's required contribution rates are as follows: Deficit Contribution Fiscal year Normal cost amortization rate 2009 12.68% 6.82 20.28%2008 10.26 10.50 21.59 The significant actuarial assumptions include an investment rate of return of 8.00%, projected inflation adjusted salary increases of 4.25%, and cost-of-living increases of 3.75%. The actuarial value of assets is determined using techniques that smoothen the effects of short-term volatility in the market value of investments over a five-year period. Plan assets consist primarily of corporate and government bonds, common stocks, mortgage-backed securities, and short-term investments.
Trend information for fiscal years 2009, 2008, and 2007 for the Power System is as follows (amounts in thousands):
Percentage NPO of APC Year ended June 30 asset contributed APC 2009 $ (70,644) 93% $ 101,439 2008 (77,479) 93 101,930 2007 (84,710) 85 100,156 (a) Disability and Death Benefits The Power System's allocated share of disability and death benefit plan costs and administrative expenses totaled $18 million and $16 million for fiscal years 2009 and 2008, respectively.(b) Funded Status and Funding Progress As of July 1, 2008, the Department's actuarial value of assets was $7.2 billion and Actuarial Accrued Liability (AAL) for benefits was $7.6 billion, resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $371.2 million. The covered payroll (annual payroll of active employees covered by the Plan) was $708.7 million, and the ratio of the UAAL to the covered payroll was 52%.As of July 1, 2007, the Department's actuarial value of assets was $6.9 billion, and Actuarial Accrued Liability (AAL) for benefits was $7.5 billion, resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $603.0 million. The covered payroll (annual payroll of active employees covered by the Plan) was $670.4 million, and the ratio of the UAAL to the covered payroll was 90%.Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the salary increases.
Amounts determined regarding the funded status of the Plan and the annual required contributions of the Department are 52 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 subject to continual revision as actual results are compared with past expectations and new estimates are made for the future.- The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.(c) Current Status of Plan (Unaudited)
Although still subject to audit, the July 1, 2009 actuarial study for the Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (the Plan) noted the market value of the Plan's assets were approximately
$5.699 billion and the unfunded actuarial accrued liability was approximately
$808 million. The Plan had unrecognized investment losses of $1.6 billion as of June 30, 2009. The Plan employs a 5-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in "smoothed" assets that are lower or higher then the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. If the unrecognized investments losses were recognized immediately, required contributions to the Plan would increase form approximately 26.12% if covered payroll to 48.57% of covered payroll. Additionally, if the unrecognized investments losses were recognized immediately in the actuarial value of assets, the funded ratio of the Plan would decrease from 90% to 70%.(12) Other Postemployment Benefit (Healthcare)
Plan (a) Plan Description The Department provides certain healthcare benefits to active and retired employees and their dependents.
The healthcare plan is administered by the Department.
The Retirement Board and the Board have the authority to approve provisions and obligations.
Eligibility for benefits for retired employees is dependent on a combination of age and service of the participants pursuant to a predetermined formula. Any changes to these provisions must be approved by the Retirement Board and the Board. The total number of active and retired department participants entitled to receive benefits was approximately 16,170 and 15,875 for the year ended June 30, 2009 and 2008, respectively.
The health plan is a single-employer defined benefit plan. During fiscal year 2007, the Retiree Health Benefits Fund (the Fund) was created to fund the postemployment benefits of the Department.
The fund is administered as a trust and has its own financial statements.
Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 N Hope, Room 357, Los Angeles, CA 90012.(b) Funding Policy The Department pays a monthly maximum subsidy of $1,212 for medical and dental premiums depending on the employee's work location and benefits earned. Participants choosing plans with a cost in excess of the subsidy they are entitled to are required to pay the difference.
Although no formal funding policy has been established for the future benefits to be provided under this plan, the Department has made significant contributions into the Fund. In fiscal year 2009, the 53 (Continued)
'LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Department transferred
$100 million into the Fund and paid an additional
$59.5 million in retiree medical premiums.
In fiscal year 2008, the Department transferred
$100 million in investments and cash into the Fund and paid an additional
$56.5 million in retiree medical premiums.
The Power System's portion of these amounts was $108.5 million and $106.5 million for 2009 and 2008, respectively.(c) Annual OPEB Cost and Net OPEB Obligation The annual OPEB cost (expense) is calculated based on the employer ARC, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost under each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.The following table shows the components of the Department's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the net OPEB asset (amounts in thousands):
Year ended June 30 Annual required contribution Interest on net OPEB asset Adjustment to annual required contribution Annual OPEB costs Contributions made Change in net OPEB asset Net OPEB asset -beginning of year Net OPEB asset -end of year 2009$ 60,976 (46,027)35,089 50,038 (159,522)(109,484)(556,214)$ (665,698)2008 40,145 (35,720)26,652 31,077 (156,546)(125,469)(430,745)(556,214)54 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The following table shows the components of the Power System's share in annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the net OPEB asset (amounts in thousands):
Annual required contribution Interest on net OPEB asset Adjustment to annual required contribution Annual OPEB costs Contributions made Change in net OPEB asset Net OPEB asset -beginning of year Net OPEB asset -end of year Year ended June 30 2009 2008$ 41,464 27,298 (31,299) (24,290)23,861 18,124 34,026 21,132 (108,525)
(106,541)(74,499) (85,409)(381,462)
(296,053)$ (455,961)
(381,462)The Department's annual OPEB cost, the percentage of annual required contribution contributed to the Plan, and the net postemployment asset for fiscal years 2009, 2008, and 2007 were as follows (amounts in thousands):
Annual OPEB cost Percentage of the ARC contributed Net postemployment asset 2009 2008 2007$ 50,038 31,077 81,670 319% 504% 834%$ 665,698 556,214 430,745 The Power System's share in the annual OPEB cost, the percentage of annual required contribution contributed to the Plan, and the net retirement asset for fiscal years 2009, 2008, and 2007 were as follows (amounts in thousands):
Annual OPEB cost Percentage of the ARC contributed Net postemployment asset 2009$ 34,026 319%$ 455,961 2008 21,132 504%381,462 2007 55,535 833%296,053 (d) Funded Status and Funding Progress As of July 1, 2008, the Department's actuarial value of assets was $719.6 million, and Actuarial Accrued Liability (AAL) for benefits was $1.4 billion, resulting in a Unfunded Actuarial Accrued Liability (UAAL) of $638 million. The covered payroll (annual payroll of active employees covered by the Plan) was $708.7 million, and the ratio of the UAAL to the covered payroll was 90%.55 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 As of July 1, 2007, the Department's actuarial value of assets was $649.1 million, and Actuarial Accrued Liability (AAL) for benefits was $1.0 billion, resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $393 million. The covered payroll (annual payroll of active employees covered by the Plan) was $670.4 million, and the ratio of the UAAL to the covered payroll was 58%.Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the Department are subject to continual revision as actual results are compared with past expectations and new estimates are made for the future. The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.(e) Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the Department 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 Department and the 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 AAL and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2008 actuarial valuation, the entry-age normal cost method was used. The actuarial assumptions include 8.00% discount rate, which represents the expected long-term return on plan assets, an annual healthcare cost trend rate of 9.0% initially, reduced by decrements to an ultimate rate of 5.00% after eight years. Both rates include a 3.75% inflation assumption.
The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a 27-year period.In the July 1, 2007 actuarial valuation, the entry-age normal cost method was used. The actuarial assumptions include 8.00% discount rate, which represents the expected long-term return on plan assets, an annual healthcare cost trend rate of 8.5% initially, reduced by decrements to an ultimate rate of 5.00% after eight years. Both rates include a 3.75% inflation assumption.
The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a 28-year period.56 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 (13) Other Long-Term Liabilities (a) Other Long-Term Liabilities The Power System has the foliowing other long-term liabilities:
Accrued liabilities Deferred credits: Purchased power Public benefits Rate stabilization Other Accrued workers' compensation claims Balance, July 1, 2008$ 31,340$ 382,654 69,633 48,128 3,021$ 503,436$ 32,089 Balance, July 1, 2007$ 228,181$ 457,629 38,215 3,833$ 499,677$ 28,368 Additions Reductions
-- (7,580)12,949 24,702 37,651 (50,812)(1,454)(52,266)(2,961)Balance, June 30, 2009 23,760 331,842 82,582 72,830 1,567 488,821 29,128 Balance, June 30, 2008 31,340 382,654 69,633 48,128 3,021 503,436 32,089 Additions Reductions Accrued liabilities Deferred credits: Purchased power Public benefits Rate stabilization Other-- (196,841)31,418 48,128 79,546 3,721 (74,975)(812)(75,787)Accrued workers' compensation claims No portion of these liabilities is automatically due within one year.(b) Accrued Liabilities In June 2007, a tentative decision was awarded to certain public entities against the Department that claimed that they were charged more than their proportional share of the Department's capital costs in violation of Section 54999 of the Code. The Department accrued a liability of $228.2 million as of June 30, 2007 relative to the court's tentative decision.
However, in October 2008, the Department settled the case with the public entities, agreeing to pay them $160 million through a combination of cash payments over a three-year period and bill credits over a 10-year period. As of June 30, 2009 and 2008, the Department has recorded $7.6 million and $128.7 million as accounts payable and$31.3 million and $23.4 million under long-term accrued liabilities, respectively.
57 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 In addition, a long-term deferred debit for the settlement amount has been recognized since these costs will be recovered in the future (see note 14(d)ii).Effective January 1, 2007, the California Legislature has amended Section 54999 of the Code, et seq., to clarify that, consistent with past practices, public agencies providing public utility service, such as the Department, may impose a reasonable fee, including a rate, charge, or other surcharge for any product, commodity, or service provided to a public agency and any public agency receiving service from such public agency providing public utility services will pay the imposed fee.(c) Deferred Credits The Department has deferred credits that are related to revenues collected from customers, but have not been fully earned. These funds are deferred and recognized as costs related to these deferrals are incurred.Purchased Power Deferrals During fiscal year 2006, the Board approved the suspension of deferring precollected purchased power costs and the reversal of the precollected purchased power costs recorded in prior years. The amount reversed is the cost of energy from IPP less the amount designated in rates for out-of-market purchased power costs. The reversal of the deferred credit is credited to retail sales. During fiscal years 2009 and 2008, the Power System reversed $50.8 million and $75.0 million, respectively, related to precollected purchase power costs. At June 30, 2009 and 2008, $331.8 million and$382.6 million, respectively, remain as part of deferred credits related to precollected purchased power costs.Public Benefits In accordance with Assembly Bill 1890, as amended by Assembly Bill 995 and pursuant to direction from the Board, a percentage of the Department's retail revenue is designated for use for qualifying public benefit programs.
Qualifying programs include cost-effective demand side management services to promote energy efficiency and energy conservation, new investment in renewable energy resources and technologies, development and demonstration programs to advance science and technology, and services provided for low-income electricity customers.
In accordance with current legislation and the Department's plans, the program is currently expected to cease on January 1, 2012.The Department defers public benefits revenue from customers in excess of costs incurred under qualifying programs and defers qualifying expenses in excess of collections pursuant to approval received from the Board. During fiscal years 2009 and 2008, the Department spent $52.2 million and$33.1 million, respectively, on qualified public benefits programs.
These programs include tree programs, investments in electric buses and vehicles, photovoltaics or solar power and other alternative energy sources, and support for low-income and life support customers.
As of June 30, 2009 and 2008, the Department has recorded a deferred credit in the amount of $82.6 million, and$69.6 million due to public benefit expenses below revenues.
Regulatory liabilities are reduced when 58 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 adequate public benefit expenses are incurred, and regulatory assets are recovered when the corresponding revenue is earned.Rate Stabilization Account In April 2008, the City Council approved an amendment to the electric rate ordinance, which required the balance of the Rate Stabilization Account to be maintained separately from the Energy Cost Adjustment Account. The ordinance also directed that the deferred amount within the Energy Cost Adjustment Account be the beginning balance of the Rate Stabilization Account. As a result,$24.5 million was reclassified from the Energy Cost Adjustment Account to the Rate Stabilization Account and $23.6 million was deferred in fiscal year 2008. During fiscal year 2009, $24.7 million was deferred from current year sales for resale. As of June 30, 2009 and 2008, the balance in the rate stabilization fund was $72.8 million and $48.1 million, respectively.(d) Accrued Workers' Compensation Claims Liabilities for unpaid workers' compensation claims are recorded at their present value when they are probable of occurrence and the amount can be reasonably estimated.
The liability is actuarially determined, based on an estimate of the present value of the claims outstanding and an amount for claim events incurred but not reported based upon the Department's loss experience, less the amount of claims and settlements paid to date. The discount rate used to calculate this liability at its present value was 4% at June 30, 2009 and 2008. The Department has third-party insurance coverage for workers' compensation claims in excess of $1 million.Overall indicated reserves for workers' compensation claims, for both the Water System and the Power System, undiscounted, have decreased from $57.7 million as of June 30, 2008 to$53.0 million as of June 30, 2009. This decrease is mainly attributable to a downward trend in the number of cases filed at the Department and the utility industry.
The increase in the June 30, 2008 liability was due to a significant number of cases that were reopened during fiscal year 2007 -2008.As the claims typically take longer than one year to settle and close out, the entire discounted liability is shown as long-term on the balance sheets as of June 30, 2009 and 2008.Changes in the Department's undiscounted liability since June 30, 2007 are summarized as follows (amounts in thousands):
June 30 2009 2008 2007 Balance at beginning of year $ 57,757 49,669 61,173 Current year claims and changes in estimates 15,053 28,238 7,409 Payments applied (19,773) (20,150) (18,913)Balance at end of year $ 53,037 57,757 49,669 59 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 The Power System's portion of the discounted reserves as of June 30, 2009 and 2008 is $29.1 million and $32.1 million, respectively.
(14) Commitments and Contingencies (a) Transfers to the Reserve Fund of the City of Los Angeles Under the provisions of the City Charter, the Power System transfers funds at its discretion to the reserve fund of the City. Pursuant to covenants contained in the bond indentures, the transfers may not be in excess of the increase in fund net assets before transfers to the reserve fund of the City of the prior fiscal year. Such payments are not in lieu of taxes and are recorded as a transfer in the statements of revenues, expenses, and changes in fund net assets.The Department authorized total transfers of $223 million and $182 million in fiscal years 2009 and 2008, respectively, from the Power System to the reserve fund of the City.(b) Palo Verde Nuclear Generating Station (PVNGS) Matters As a joint project participant in PVNGS, the Department has certain commitments with respect to nuclear spent fuel and waste disposal.
Under the Nuclear Policy Act, the Department of Energy (the DOE) is to develop facilities necessary for the storage and disposal of spent fuel and to have the first such facility in operation by 1998; however, the DOE has announced that such a repository cannot be completed before 2010. There is an ongoing litigation with respect to the DOE's ability to accept spent nuclear fuel; however, no permanent resolution has been reached. Capacity in existing fuel storage pools at PVNGS was exhausted in 2003. A Dry Cask Storage Facility (also called the Independent Spent Fuel Storage Facility) was built and completed in 2003 at a total cost of$33.9 million (about $3.3 million for the Department).
The facility has the capacity to store all the spent fuel generated by the plant until the end of its life in 2026. The Department accrues for current nuclear fuel storage costs as a component of fuel expense as the fuel is burned. The Department's share of spent nuclear fuel costs related to its indirect interest in PVNGS is included in purchased power expense.The Price-Anderson Act (the Act) requires that all utilities with nuclear generating facilities share in payment for claims resulting from a nuclear incident.
Participants in PVNGS currently insure potential claims and liability through commercial insurance with a $300 million limit; the remainder of the potential liability is covered by the industry wide retrospective assessment program provided under the Act. This program limits assessments to a maximum of $100.6 million for each licensee for each nuclear incident occurring at any nuclear reactor in the United States; payments under the program are limited to $10 million per incident, per year. Based on the Department's 5.70% direct interest and its 3.95% indirect investment interest through SCPPA, the Department would be responsible for a maximum assessment of $9 million per incident, limited to payments of $1 million per incident annually.(c) Environmental Matters Numerous environmental laws and regulations affect the Power System's facilities and operations.
The Department monitors its compliance with laws and regulations and reviews its remediation 60 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 obligations on an ongoing basis. The following topics highlight some of the major environmental compliance issues affecting the Power System: Air Quality -Nitrogen Oxide (NOx) Emissions The Power System's generating station facilities are subject to the Regional Clean Air Incentives Market (RECLAIM)
NOx emission reduction program adopted by the South Coast Air Quality Management District (SCAQMD).
In accordance with this program, SCAQMD established annual NOx allocations for NOx RECLAIM facilities based on historical emissions and type of emission sources operated.
These allocations are in the form of RECLAIM trading emission credits (RTCs).Facilities that exceed their allocations may buy RTCs from other companies that have emissions below their allocations.
The Department has a program of installing emission controls and purchasing RTCs, as necessary, to meet its emission requirements.
As a result of the installation of NOx control equipment and the repowering of existing units, the Department has sufficient RTCs to meet its native load requirements for normal operations.
Air Quality -Greenhouse Gas Emissions In September 2006, Governor Schwarzenegger signed into law Assembly Bill 32, the California Global Warming Solutions Act of 2006 (Nunez, Chapter 488, Statutes of 2006). The bill requires the California Air Resources Board to develop regulations and market mechanisms that will ultimately reduce California's greenhouse gas emissions to 1990 levels by 2020, or approximately 30% from business-as-usual emission levels for 2020. Mandatory declining greenhouse gas emission caps will begin in 2012 for significant sources and be gradually reduced to meet the 2020 goals. As specified in the bill, all emissions from electricity that is consumed in the state, whether it is generated in California or in other states, will be subject to the cap. As a result, the Power System's share of emissions from IPP and other facilities outside California will be subject to this program. In December 2008, the California Air Resources Board adopted a Climate Change Scoping Plan, pursuant to AB 32. The Scoping Plan includes a number of strategies that will apply to the electricity sector, including
- 1) California cap-and-trade program linked to the Western Climate Initiative, 2) energy efficiency, and 3) renewable energy.At the federal level, H.R. 2454, the American Clean Energy and Security Act was passed by the U.S.House of Representatives in June 2009. H.R. 2454 proposes a federal greenhouse gas cap-and-trade program, a national renewable energy standard, and energy efficiency requirements, among other measures to reduce greenhouse gas emissions across the economy. The U.S. Senate released similar climate change legislation on September 30, 2009. A federal cap-and-trade program may be established in the same time frame (2012) as a state cap-and-trade program, and may or may not include a moratorium that prohibits implementation of a state program prior to 2017. As such, it is possible that there may be a state program combined with or superseded by a federal program.It is uncertain at this time what impact a state program and/or federal program will have on the Power System's operations.
If a state and/or federal cap-and-trade program is established, the primary issue will be the relationship between the declining cap and how allowances will be allocated to the Department and other power producers or auctioned.
The target date for the Air 61 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 Resources Board to adopt regulations is January 1, 2011. The goal of the regulations would be to"achieve the maximum technologically feasible and cost-effective reductions in greenhouse gas, including provisions for using both market mechanisms and alternative compliance mechanisms." The Department is actively participating in the rule making process.SB 1368 was signed into law on September 29, 2006 and requires the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) to establish a greenhouse gases emissions performance standard and implement regulations for all long-term financial commitments in base load generation made by load serving entities (LSEs) and local publicly owned electric utilities (POUs), respectively.
The greenhouse gas emissions performance standard is not to exceed the rate of greenhouse gases emitted per MW hour associated with combined-cycle, gas turbine base load generation.
The regulations have been adopted by the CPUC for investor-owned utilities and by the CEC for publicly owned utilities and establish an emissions performance standard of 1,100 pounds of carbon dioxide per MW hour of electricity.
Power Plant Once-Through Cooling Water Systems Once-through cooling (OTC) is the process where water is drawn from a source, pumped through equipment to provide cooling, and then discharged.
Some type of cooling process is necessary for nearly every type of traditional electrical generating station, and the once-through cooling process is utilized by many electrical generating stations located next to large bodies of water. Typically, the water used for cooling is not chemically changed in the process although its temperature is increased.
Due to the Second Circuit Court's decision to remand most of Environmental Protection Agency's (EPA) 316(b) Rule finalized in July 2004, EPA suspended this Rule and is in the process of drafting a new rule. In the absence of EPA's 316(b) Rule, the California State Water Resources Control Board decided to move forward and is in the process of developing their own state-wide once-through cooling policy. The State wide draft policy was released in June 2009 and is expected to be adopted in December 2009. This rule will require OTC plants to reduce OTC by 93% -equivalent to wet cooling towers using seawater.
This is referred to as the Track 1 compliance path.If the Track 1 compliance path is found to be infeasible, with concurrence from the Regional Board, a Track 2 compliance path can be pursued which requires that the cooling water intake structure (CWIS) achieve an impingement mortality and entrainment (IM/E) reduction level of 90% of the Track 1 compliance standard or 84.7%. The track 2 compliance standard requires the protection of aquatic organisms 200 microns and larger, and currently there is only technology available that can control aquatic life 500 microns or larger. A cost-benefit variance is available for those repowered units meeting a certain heat rate, if the cost of compliance is wholly disproportionate to the environmental benefits to be gained. Variance approval by the Regional Board allows a facility to install the best performing IM/E control technology whose costs are not wholly disproportionate to the environmental benefits.
Any difference between technology performance and the state standard (84.7%) must be fully mitigated.
The compliance deadline stated in the Stated wide draft policy for LADWP facilities are: HnGS 2015: HGS and SGS 2017. Beginning in 2015, interim measures must be in place till the facility is in compliance with the Policy. In addition, other regulatory changes have been made that could significantly impact operations at the Haynes, Scattergood, and Harbor Generating Stations.
The Regional Water Quality Control Board reclassified the body of water that 62 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 the once-through cooling water is discharged to for the Harbor Generating Station, and sent a letter of intent to reclassify the body of water for the Haynes Generating Station discharge.
Even though the Haynes Generating Station will be repowering existing units, should there be a reclassification for the water body discharges at the Haynes Generating Station, there will be requirements that cannot be met with its existing cooling or future repowered configuration.
The Department is in the process of reviewing the regulations and conducting studies. Once the studies are reviewed, the Department will determine an appropriate course of action.(d) Litigation
- i. California Receivables and Refund Hearings During fiscal year 2001, the Power System made sales to two California agencies that were formed by Assembly Bill 1890 to facilitate the purchase and sale of energy and ancillary services in the state of California.
Through June 30, 2009, these agencies, the CAISO and the CPX, have made minimal payments since April 2001 on amounts outstanding to counterparties, including the Power System, for certain energy purchases in fiscal years 2000 and 2001. The CPX filed for protection under Chapter 11 of the Federal Bankruptcy Statute in January 2001. Two utilities with significant amounts due to these agencies have paid all amounts due to the CPX; however, the amounts remain in an escrow account pending the resolution of disbursement of the funds.As of June 30, 2009 and 2008, a total of $166.3 million was due to the Power System from the CAISO and the CPX. Claims have been filed questioning whether amounts charged for energy sold to the CAISO and the CPX during 2000 and 2001 represent "unlawful profits" that should be subject to refund. The Courts have opined that FERC has no jurisdiction over the Department; however, the Courts have stated that the California parties seeking the refund may have a cause of action. As such, the litigation in this area is continuing.
The Power System has recorded a $50.0 million liability as of June 30, 2009 and 2008 against the $166.3 million receivable, for potential refunds pertaining to its wholesale sales during 2000 and 2001. Management believes that this is the most probable amount that will be refunded by the Power System and is based on the most recent formula disclosed by FERC.While management has recorded its estimate of the most probable amounts that will be refunded, management does believe that it is entitled to all amounts due from sales to counterparties in California, including those named above. Furthermore, management believes that interest may be due to it on those amounts but any potential receivable is not estimable at this time. In addition, management does not believe that the Power System's exposure to any additional losses with respect to these receivable balances is currently estimable.
If final settlement of these receivables results in an amount less than the recorded balance, net of the$50.0 million liability recorded, the Department will be required to record a loss in future periods.63 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2009 and 2008 ii. Capital Facilities Fee Claims In June 2007, the Department received a tentative decision in favor of the state and a number of local government agencies that are electric customers of the Department that claimed that the Department has rates that include a capital facilities' charge that violates the state's statute.However, in October 2008, the Department settled the case and recorded the $160 million settlement amount. Additionally, as permitted by SFAS No. 71, the Board approved to defer all potential costs associated with the resolution of this litigation and establish a corresponding long-term deferred debit to be recovered through future revenues over a period of up to 10 years, if necessary (see note 13(b)).iii. Other, A number of claims and suits are also pending against the Department for alleged damages to persons and property and for other alleged liabilities arising out of its operations.
In the opinion of management, any ultimate liability, which may arise from these actions, is not expected to materially impact the Power System's financial position, results of operations, or cash flows as of June 30, 2009.(e) Risk Management The Power System is subject to certain business risks common to the utility industry.
The majority of these risks are mitigated by external insurance coverage obtained by the Power System. For other significant business risks, however, the Power System has elected to self-insure.
Management believes that exposure to loss arising out of self-insured business risks will not materially impact the Power System's financial position, results of operations, or cash flows as of June 30, 2009.(0) Credit Risk Financial instruments, which potentially expose the Power System to concentrations of credit risk, consist primarily of retail and wholesale receivables.
The Power System's retail customer base is concentrated among commercial, industrial, residential, and governmental customers located within the City. Although the Power System is directly affected by the City's economy, management does not believe significant credit risk exists at June 30, 2009, except as provided in the allowance for losses. The Power System manages its credit exposure by requiring credit enhancements from certain customers and through procedures designed to identify and monitor credit risk.64 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Required Supplementary Information June 30, 2009 Pension Plan -Schedule of Funding Progress The following schedule provides information about the Department's overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands):
Actuarial Actuarial valuation value date July 1 of assets Actuarial accrued liability (AAL)7,619,103 7,467,285 7,046,571 Unfunded AAL (UAAL)371,250 603,201 598,808 Funded Covered ratio payroll UAAL as a percentage of covered payroll 52%90 94 2008 2007 2006$ 7,247,853 6,864,084 6,447,763 95% $92 92 708,732 670,373 635,728 Postemployment Healthcare Plan -Schedule of Funding Progress The following schedule provides information about the Department's overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands):
Actuarial Actuarial valuation value date July 1 of assets Actuarial accrued liability (AAL)1,358,103 1,041,722 1,053,853 Unfunded AAL (UAAL)638,467 392,606 1,053,853 Funded Covered ratio payroll 53% $ 708,732 62 670,400-635,700 UAAL as a percentage of covered payroll 90%58 166 2008 2007 2006$ 719,637 649,116 65