ML023100363
| ML023100363 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 10/30/2002 |
| From: | Bauer S Arizona Public Service Co |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| 102-04859-SAB/TNW/CJJ | |
| Download: ML023100363 (44) | |
Text
Value to the Valley Salt River Project 2001 Annual Report
Energy 6
Water 12 Community 16 Letter from the President
& Vice President 3
Message from the General Manager 4
Financial Section 20 SRP Boards and Councils 38 Delivering Value to the Valley is as important to SRP today as it was in our early years nearly a century ago. Today, the greater Phoenix metropolitan area is one of the fastest-growing in the country.
SRP delivers Value to the Valley by improving the quality of life for the people we serve. For our customers, this means low-cost, reliable power. For our shareholders, it means time-tested water management. For our communities, it means strong support.
SRP is two companies: the Salt River Project Agricultural Improvement and Power District, and the Salt River Valley Water Users Association.
The District, a public power system, provides electricity to more than 745,000 customers representing about 1.75 million people in Maricopa, Gila and Pinal counties in central Arizona. The District is an integrated utility, providing generation, transmission and distribution services.
The Association, a private corporation, manages a system that delivers 1 million acre-feet of water annually to agricultural, urban and municipal water users in the Phoenix area.
Value to the Valley SRP received the Award for Excellence in Corporate Community Service for 2000 from the Points of Light Foundation. The award is one of the worlds highest and most distinguished honors for community service.
Financial Data ($000) 2001 2000 1999 Total operating revenues
$3,026,787
$1,797,745
$1,714,158 Electric revenues 3,014,205 1,784,554 1,701,486 Water & irrigation revenues 12,582 13,191 12,672 Total operating expenses 2,612,036 1,556,706 1,424,678 Total other income, net 65,485 50,047 48,719 Net financing costs 170,540 172,406 171,979 Net revenues for the year 309,696 118,680 111,519 Taxes and tax equivalents 82,335 90,931 91,819 Utility plant, gross 6,968,803 6,662,945 6,435,177 Long-term debt 3,098,273 3,164,866 3,235,386 Electric revenue contributions to support water operations 47,469 40,924 42,987 Selected Data Total energy sources (million kWh)*
40,004 36,262 33,663 Total electric sales (million kWh) 36,323 32,801 31,615 Total resources peak month (kW)*
6,340,000 5,892,000 5,740,000 Peak-SRP retail customers (kW) 5,002,000 4,653,000 4,666,000 Peak-Total system (kW) 6,205,000 5,725,000 5,534,000 Water deliveries (acre-feet)**
998,972 1,030,584 Runoff (acre-feet)**
456,937 471,875 Debt service coverage ratio 4.72 3.35 3.20 Debt ratio (percent) 57.3 60.8 63.0 Employees at year-end 4,096 4,050 4,025 Customers at year-end 746,368 727,070 701,196
- Includes SRP participation in jointly owned projects.
- Water data is by calendar year, all other data is by fiscal year ending April 30.
Three-Year Financial & Operational Review 2
2001 SRP ANNUAL REPORT
2001 SRP ANNUAL REPORT 3 We continue to bring value to our customers, shareholders and communities in the Phoenix area, the hub of the second-fastest-growing state in the nation. Overall, our services this year benefited more people - in more ways
- than ever before.
We are pleased to share the news of yet another successful financial year for SRP, due to a strong Arizona economy and despite the challenges of a volatile energy market. Our total revenues grew to $3 billion, with net revenues of
$310 million. These results help to ensure stable, competitive pricing for our retail customers, and provide the resources we need to make capital investments necessary for the future.
Of the many accomplishments during the year, the approvals of two SRP urban generating stations take the spotlight. An additional 1,075 megawatts of electricity will be available to serve our retail customers once both plants are on line. Employees worked long and hard to help us achieve these approvals, and we again offer our appreciation to SRPs dedicated and talented workforce. We also extend our appreciation to the many community leaders and others who supported the planning and permitting processes of these two facilities.
SRPs tradition of community commitment continues to grow. Of particular note, the Points of Light Foundation recognized SRP this year with the coveted Excellence in Corporate Community Service Award. This honor demonstrates, once again, that the efforts of our employees shine beyond expectations.
As the Valleys primary water steward, SRP manages surface water and groundwater supplies for municipalities, agriculture and other water systems. Supporting us again this year in A Letter to Our Customers, Bondholders and Shareholders reducing groundwater pumping was the Central Arizona Project, which provided excess water from the Colorado River to SRP for the second straight year.
We also acknowledge the strong working relationship that continues between SRP elected officials and management. Together, as a team, we were able to keep the years initiatives moving forward toward shared goals.
At SRP, our mission is always to deliver the best value to the Valley. We are focused on doing so again in the new fiscal year.
William P. Schrader President John M. Williams Jr.
Vice President John M. Williams Jr. William P. Schrader
improve our ability to serve our customers.
We learned through deregulation that enhancements to our core businesses and services are what our customers need, expect and appreciate the most. Therefore, SRPs focus remains on providing the best reliability, lowest cost and highest value to our customers.
For example, SRP this year developed personalized annual reports for our largest residential energy customers, with tips for saving money and suggestions on SRP programs.
The response was extremely positive. We dramatically improved the terms of our bill equalization plan, providing better service to those who participate. We also enhanced our time-of-use price plans for even-greater savings to customers, which helped boost customer participation by more than 10 percent.
We expanded what is already the nations largest network of automated pay stations, and rolled out the second generation of a pre-payment technology we jointly developed with Motorola.
Upgrades to our phone center, with the latest communication technology, help us provide the best service possible. In addition, we are working on other innovations to provide better and timelier information It is a pleasure to report that SRP had a remarkably good year in all respects.
Financial results are very favorable, as are customer service results. Our safety record is exemplary, and our community service is at an all-time high. We have maintained our high level of reliability, and have secured the incremental resources necessary to keep it that way. And, we have successfully completed the opening of our service territory, though only a handful of customers have switched to other providers.
The contrast to other situations in the industry could not be more dramatic.
Blackouts and price spikes are widely publicized and discussed daily, so it is not necessary to discuss them A Message from the General Manager here. However, it is worthwhile to note that for SRP in Arizona, deregulation did not require divestiture or discourage long-term supply contracts, nor did it adopt a single-point market structure. These factors are allowing a temperate transition to competition, which we believe is in the best interest of our customers.
SRP recorded a banner year, marked by strong retail sales and wholesale prices.
Robust customer growth and warmer weather boosted sales, and wholesale prices throughout the West (not limited to California) resulted in higher-than-projected wholesale revenues. Our net revenues will permit debt retirement and infrastructure investment to enhance our financial viability, and will 4
2001 SRP ANNUAL REPORT
to help our customers manage their electricity use. We look forward to these exciting innovations in the coming year.
This past year, we dedicated our efforts to adding new generating resources.
Some new resources will come on line soon, others are under construction, and still others are in the planning stages. All are necessary to meet our continuing obligation to serve our retail customers. We remain confident in our ability to do so, though the process of siting generating plants and transmission lines grows increasingly complex and challenging.
While the levels of energy reserves are low in the West and are not expected to rise significantly for the next two years, SRPs reserve levels will satisfy our requirements in the short term. Last summers requirement to operate generating units more than usual resulted in enhanced maintenance requirements this past winter. This investment in extensive plant maintenance will help ensure our facilities operate at peak performance this year.
The significance of transmission investment cannot be overstated.
Historically, transmission lines have been designed to move a utilitys generation resources to its customers. In the new environment, transmission is an interstate highway.
Merchant power plant owners simply interconnect to the nearest transmission system and have no obligation to move generation to a particular load center.
Independent transmission system operation is still evolving in the Southwest, and crucial decisions will be made in upcoming months. As well, a significant transmission study for substantial portions of Arizona is underway and is expected to identify needed transmission.
SRP has developed a plan to assist small public power entities in Arizona who have suffered under the volatile wholesale market. The Arizona Public Power Pool was introduced this past year to help smaller public systems manage their price risk and reduce costs. The pool is essentially a mutual fund of energy that allows the participants to determine the level of market price volatility that they are able to manage.
The pool has proven to be a convenient and beneficial tool for the participants.
In our water business, runoff this past year was adequate but still below normal. However, thanks to supplemental water purchased from the Central Arizona Project, we are in a comfortable situation with respect to water in storage.
It is imperative that we recognize the tremendous accomplishments of our employees. We are in a successful position today due to the dedication of SRPs workforce. And, as always, SRPs hardworking elected officials continue to provide the stability that has been a hallmark of SRP for almost 100 years. Given this winning team, we feel confident as we look to what the future holds for SRP.
Richard H. Silverman General Manager We learned through deregulation that enhancements to our core businesses and services are what our customers need, expect and appreciate the most. Therefore, SRPs focus remains on providing the best reliability, lowest cost and highest value to our customers.
2001 SRP ANNUAL REPORT 5
In high-growth states like Arizona, an adequate supply of electricity is essential.
During a year when talk about electricity - especially supply and price - reached a fever pitch across the country, SRP moved ahead with plans to meet the ever-increasing energy demand in our 2,900-square-mile electric service area.
Generation Resources To understand generation planning, a look at the past 20 years provides perspective.
The 1980s were boom years for SRPs low-cost, reliable power serves as a catalyst for the Valleys continued economic success. Its the value we bring to our region, and our mission is to keep it that way.
Energy the growth of energy resources in Arizona and in the Western U.S. In fact, by the late 80s, the West had an oversupply of base load resources (coal and nuclear generating facilities) from the build-out of the prior years.
Consequently, many utilities in the West, including SRP, purchased low-cost wholesale power from other markets to meet increasing retail peak loads. This strategy worked well for several years.
By the late 1990s, however, excess supplies began to dwindle as local and regional SRP lineman Ruben Cardenas, a 25-year employee, is one of hundreds of linemen who work around the clock to repair distribution wires and re-energize neighborhoods after outages from summer monsoon storms, other weather incidents, and accidents.
6 2001 SRP ANNUAL REPORT
addition of environmentally responsible generation in a stair-step fashion that balances capital costs with customer demand. The addition of two urban generating facilities by 2005 will bring 1,075 megawatts (MW) in new SRP resources, a healthy step toward the additional resources we will need to meet future demand.
Other resources may be acquired by increasing SRP ownership percentage in participation plants, and by long-term purchases of generation from plants owned by others.
Transmission SRPs plans for new high-voltage transmission lines depend upon generation facilities. The location of generation affects the siting of new transmission lines. SRP owns major transmission lines growth accelerated. When the decade ended, reserve margins had dropped substantially and demand for power had increased beyond projections.
Today, generation supply is not only tight in the SRP service area, but throughout Arizona and the West. SRP is planning for reserve levels of about 12 percent for the remainder of this decade. At the same time, the wholesale market has become a less-reliable source for short-term power purchases, due to the decrease in excess supply and the uncertainties throughout the West and Southwest.
For SRP, a vertically integrated public power utility, new resources are needed to continue to keep prices at affordable levels and meet customer demand. SRPs generation planning for the next decade includes the Value to the Valley While energy costs climb in neighboring states, SRP prices have been reduced three times over the past six years and are on average 10 percent less than a decade ago.
8 2001 SRP ANNUAL REPORT
that move power from our generating stations to our service area and transport it across the region as needed.
The SRP transmission system is at capacity, due to energy demand growth in our service area and a directive by the Federal Energy Regulatory Commission (FERC) that allows the use of SRP transmission by other suppliers wishing to sell power to the region.
With major system improvements, we can maintain our low-price, reliable supply. SRP has a six-year transmission plan that calls for a series of projects to upgrade existing facilities and build new ones, again contingent upon the location of new generation resources.
This past year, SRP completed the Browning Substation in the growing eastern region of the service area. This triple-function substation will help maintain reliability while supporting SRPs load serving capability and increasing import capacity.
The substation is named for the late Ronald D. Browning, a 25-year SRP employee.
More than 20,000 MW of new generation from merchant plants either is approved or being sited in Arizona.
Transmission upgrades could bring some of this power into the Valley as well as export it to other regional areas. A new 500 kilovolt (kV) switchyard near Palo Verde Nuclear Generating Station is under construction by SRP for just this purpose.
SRP and another utility are building the Southwest Valley 500kV Transmission Project to provide another connection from Palo Verde to the Valley.
This project will bring an additional 1,200 MW of power to the Valley and protect the Valley load during major line outages. The most significant transmission project tied to Helping customers achieve success is SRPs goal. SRP customer Executive Door of Glendale creates custom wood doors for homes and businesses throughout the country. Dana Dayden, controller for Executive Door, says that SRPs reliable and low-cost power helps the company to maintain uninterrupted production and contain electric costs. As a time-of-use customer, Executive Door saved nearly 8 percent on its electricity bill last year by shifting power use to off-peak hours.
2001 SRP ANNUAL REPORT 9
resource import since the late 1980s, it is expected to be in service by mid-2003.
Statewide and regional transmission planning and expansion also are issues.
Several efforts are underway to establish cooperative planning that best serves the intercon-nected power superhighway of the West. One such effort in which SRP is involved is the Central Arizona Transmission System Study, a three-phase process to identify the best locations for new major trans-mission, desired in-service dates, and joint efforts for construction of the facilities.
SRP also is working with other utilities in Arizona, New Mexico, Colorado, eastern Wyoming and western Texas to develop a regional transmission organization (RTO) known as Desert STAR (Southwest Transmission and Reliability Operator). This is in response to FERC orders for utilities to voluntarily form RTOs that will be independent transmission system operators.
The RTOs are to focus on ensuring reliability and non-discriminatory access to transmission to help develop robust energy markets as the industry transitions to both deregulated wholesale and retail marketplaces.
Distribution As SRPs service area continues its dramatic growth, maintenance and construction on the SRP distribution system increases. The capital plan for distribution projects inside the service area focuses on infill needs, consistent with the past several growth years.
Nearly 50 distribution substations are planned in the next five years, as well as multiple receiving station transformers, due to load growth resulting from a continued strong local economy.
Distribution system reliability is critical for customers. This past year, SRPs reliability index shows the distribution systems performance at its best ever recorded. This success can be attributed in great part to an aggressive underground cable upgrade program, as well as systematic replacements of wood distribution poles.
Renewables To complement SRPs generation mix, and to further demonstrate our commitment to the environment, SRP this year constructed a 200 kilowatt solar generation facility, which doubled our solar portfolio. A 4 MW landfill-gas-energy facility 10 2001 SRP ANNUAL REPORT
also began operation, and next year, SRPs canal system will be the location for a new hydroelectric generating plant.
Using these new sources of renewable energy, SRP launched a green power program for retail customers.
Customers can support the production of renewable energy at $3 per 100-kilowatt-hour block. Earthwise Energy' is the product of a $29 million SRP initiative to fund renewable energy options for electric customers.
Energy Efficiency As the focus sharpens on energy supply and demand, SRP is stepping up efforts to encourage customers to increase the efficiency of their energy use. Our energy efficiency campaign promotes a wide range of options to reduce consumption and electric bills. By working together, SRP and electricity consumers can ensure that SRP remains one of the best energy values in the West.
Customer Service SRPs service efforts all aim to make it easy and convenient to do business with us while providing value through reduced costs and increased efficiency.
This year, we boosted enrollment on our time-of-use price plans. Benefits of the plan are twofold: customers save on their electric bills, and peak demand is reduced. Another voluntary program for customers is SRPs M-Power,'
the largest prepaid electricity program in North America. The program helps participants save as well as reduces consumption on the SRP system.
Our energy efficiency campaign promotes a wide range of options to reduce consumption and electric bills. By working together, SRP and electricity consumers can ensure that SRP remains one of the best energy values in the West.
Fuel Mix Coal 40%
Purchased Power 32%
Hydro 1%
Nuclear 14%
Natural Gas 13%
SRP also provides a large and expanding base of freestanding, self-service pay stations, located at popular shopping locations for customer convenience. Other value-enhancing offers include an expanded menu of programs and services for our customers that can be accessed on our Web site at www.srpnet.com.
Coal and nuclear comprise the majority of SRP generating resources. Purchased power increased this year due to favorable wholesale market conditions.
2001 SRP ANNUAL REPORT 11
municipalities and other water entities.
Groundwater Management SRPs water stewardship is reflected in many ways, none more important than groundwater recharge efforts.
A major SRP underground storage facility in the Salt River bed is one of the largest recharge projects in the country and will provide water to the Valley in the event of a shortage in surface water supplies.
Across the SRP water service area are majestic mountains and arid desert, little towns and booming cities.
Water is critical to this beautiful and diverse environment, where SRP manages a system of dams, reservoirs, canals and underground facilities.
Our water stewardship ranges from storage to delivery. Even during this past year, the seventh driest on record, we delivered the water needed by our shareholders, As the Valleys largest water supplier, SRP provides more than 1 million acre-feet of water every year to towns, cities, agriculture and other water systems.
Thats enough to cover the city of San Francisco in water 35 feet deep.
Water Don Whitmer, environmental resource specialist, and Cindy Murray, environmental laboratory technician, both SRP employees, sample water of the Salt River just below Stewart Mountain Dam. Such testing is just one of the many water management responsibilities for SRP, the Valleys largest water supplier.
12 2001 SRP ANNUAL REPORT
This past year, the recharge project continued its record-setting pace for water storage, and in the past seven years, 500,000 acre-feet of water from the Central Arizona Project has been recharged.
This allowed Arizona to maximize its Colorado River allotment, and reduced the need for groundwater pumping in the drier-than-normal past three years. To meet anticipated needs, we are planning to increase recharge capacity, and a similar project is under consideration at another Valley location.
Preservation of the Valleys groundwater supply is a constant concern. SRP is participating in the governors Water Management Commission, which is expected to make recommendations later this year on modifications to the states 20-year-old Groundwater Management Code. The code provides the framework for conserving water in Arizonas populous areas, and SRP works in concert with regulators and policymakers to ensure a secure water supply for the future.
Water Rights SRPs service area continues to experience robust population growth, as do other areas of the state. To support the Valleys water requirements, we continue to maintain the surface water and ground-water rights that are the foundation of SRPs 100-year water history.
As such, we are participating in various watershed-planning groups to Value to the Valley The mountains of eastern and northern Arizona make up a 13,000-square-mile watershed for the Valley and provide about two-thirds of SRPs water supply.
14 2001 SRP ANNUAL REPORT
study water resources and develop supply proposals for the benefit of all stakeholders.
In particular, SRP has provided funding to establish a research and education program at Northern Arizona University that will explore ways to satisfy the unprecedented demand placed on water supplies in three counties in the Verde River watershed. That watershed and the Salt River watershed are the two major water supply sources for SRP and the Valley.
Conservation In our role as water steward, SRP provides many services in the interest of conservation.
Our water-use specialists regularly consult with agricultural and municipal users to help them manage their water consumption, and we upgrade our system to improve measurement and minimize water delivery losses.
Conservation also includes the use of alternative water supplies such as municipal effluent. For example, at two power plant expansions, SRP plans to exchange surface water for effluent for cooling purposes. This would reduce fresh water use at the plants and provide the cities with a new surface water source for their customers.
In addition, SRP this year launched - with several municipalities in the Valley - a public campaign on water conservation called Water: Use It Wisely. This educational program helps consumers identify specific and simple ways to save water without affecting quality of life.
Valley residents Suzanne Breitenstein and Dan Corredor are among the countless runners, walkers and cyclists who enjoy the appeal of SRPs canal banks throughout the Phoenix area. From sunup to sundown, the canal banks are a recreational oasis in urban areas. More and more, SRP is working with Valley cities to develop these unique areas for neighborhood recreational purposes. For more information about SRP canals, and a map of canal routes for running and other activities, check out www.srpnet.com/water/canals.
2001 SRP ANNUAL REPORT 15
It starts as a commitment:
Service to others. It continues every day, week, month and year at SRP, through organized volunteer initiatives, educational programs and environmental efforts that reach across our communities.
This year, we received the coveted Excellence in Corporate Community Service Award by the Points of Light Foundation.
As one of six companies worldwide to be so recognized, SRP is attracting attention as a national leader in community involvement and volunteerism.
Such best practices recognition A companys value to the community should be measured along with the business products and services delivered. We have a responsibility as a corporate citizen to be a good neighbor.
Community means we are able to help more business and community leaders in developing the tools, skills and resources for collaborative solutions to community issues.
Volunteering is a core SRP business value. Volunteering takes many forms at SRP, including hands-on projects, board involvement, community leadership programs, company-sponsored events and financial support of non-profit organizations. More than 85 percent of SRP employees participate in community outreach activities.
Second-graders at Maryland Elementary School in Phoenix became junior agriculturalists last year, thanks to an SRP Project RESOURCE grant to fund their garden project. The children raised a full vegetable garden, a project that brought them a cross-curriculum lesson in science, math and social studies.
16 2001 SRP ANNUAL REPORT
Educational Outreach Our Project RESOURCE education grants close a gap for schools by providing funding for special projects such as science equipment, reading workshops for parents, and other learning-skills enhancement efforts.
This year, as we approach our centennial celebration, SRP funded several museum and cultural projects that will result in exhibits to educate the public about SRPs historic connections to the Valley.
Our educational outreach also includes a volunteer component, with a literacy program for children and a mentorship program for homeless students. In addition, because safety education is always a concern, SRP has launched a comprehensive public safety program, SRP Safety Connection, with season-specific messages that build awareness of safe practices at home, work and play.
Environmental Stewardship Protecting and improving the environment is a critical community commitment, and SRP often pairs such efforts with education for greater results.
At our annual Fresh Air Science Fair, for example, urban students develop creative ways of reducing air pollution with assistance from SRP engineers.
Other initiatives include the water resources mentor program, in which students work with SRP water experts to learn conservation strategies, and a micro-society program for schoolchildren that provides water and energy lessons.
Our annual Mowing Down Pollution campaign scoops up polluting lawn equipment Value to the Valley More than 75 percent of Valley residents say SRP is heavily involved in the local community. This is particularly compelling in view of the fact that nearly one-third of all residents have lived in the area for five years or less.
18 2001 SRP ANNUAL REPORT
across the Valley and replaces it with cleaner electric-powered machines. Nearly 13,000 gas-powered lawnmowers have been collected and recycled as a result, permanently removing several thousand tons of air pollutants. Proceeds from the sale of the resulting scrap metal are donated to the American Lung Associations Open Airways for Schools program, which benefits asthmatic children in elementary schools. Over six years, these donations exceed
$25,000.
Family Enrichment SRP actively supports the Valleys Hispanic community with volunteer services, community events, student mentoring and cultural education.
In addition, SRPs customer assistance program helps hundreds of families who are in a crisis by helping to pay their electric bills. SRP customers can voluntarily contribute to this fund, which raised more than $350,000 last year including matching funds from SRP.
Volunteer efforts also regularly result in returns for non-profit groups that help families. For example, Hospice of the Valley received $40,000 from the Scottsdale Arabian Horse Show, which was staffed by volunteers including SRP employees.
Other family outreach efforts by SRP employees include holiday gift programs, neighborhood clean-ups and home building.
Financial Contributions As well as our corporate-funded community activities, SRP and its employees last year donated $1.2 million to the United Way and other health and human service organizations. Beyond that, SRP provides $2 million in funding support for other community-based efforts including the arts, environment and recreation.
This year, SRP volunteers helped to build their fifth Habitat for Humanity home in Phoenix, providing a permanent residence for another family in need. Michael Krause, an SRP operations manager, worked with more than 100 SRP volunteers and others to make the home complete.
2001 SRP ANNUAL REPORT 19
Debt Service Coverage Ratio 99 00 01 4.72 3.35 3.20 99 00 01 172.4 172.0 170.5 Net Financing Costs
($Millions) 63.0 60.8 57.3 Debt Ratio (Percent) 99 00 01 Financial Section Managements Financial and Operational Summary 21 Combined Financial Statements 22 Notes to Combined Financial Statements 26 Report of Independent Public Accountants 37 We continue to realize significant financing cost savings as a result of prior years debt reductions and refundings.
Reductions in debt, combined with operational cost controls, create a positive trend in SRPs debt service coverage ratio.
A steady decline in SRPs debt ratio is the result of continued emphasis on reduction of debt capitalization.
20 2001 SRP ANNUAL REPORT
Managements Financial and Operational Summary Fiscal year 2001 was an exceptional one for SRP, with continued economic growth in the metropolitan Phoenix area, increased in-territory retail sales and increased wholesale sales.
Operating revenues of
$3.0 billion grew 68 percent over the prior year with contributions from retail customer growth, more energy usage per customer due to the building of larger homes, wholesale sales, and higher-than-expected retail sales from our affiliate, New West Energy.
Customer growth and sales were better than expected for our residential and commercial customers. Wholesale sales were higher than expected due to the increased demand, and thus prices, for power in the Southwest. Favorable wholesale results help SRP provide low-cost, reliable energy to its retail customers, and this year was particularly noteworthy in that regard.
Total operating expenses increased 68 percent, mostly due to increased production costs. Purchased power costs increased 148 percent from the prior year and fuel expenses were up 85 percent. Also included in operating expenses are the usual and standard allowances taken to offset amounts at risk from counter parties in the power business.
Financing costs held steady, maintaining our progress to reduce and refinance company debt.
In water operations, delivery revenues were
$12.6 million, compared with
$13.2 million the previous year.
Water-related operating expenses were slightly higher than the prior year. SRPs reservoir storage was below normal with 1.2 million acre-feet stored at the end of the fiscal year, up about 25 percent from the previous year.
Overall, SRPs net revenues for this fiscal year were
$309.7 million. All of SRPs net revenues are recommitted and reinvested into the company for the benefit of our customers, shareholders and bondholders.
Operating Code of Conduct In accordance with the requirements of the 1998 Arizona Electric Power Competition Act, SRP has developed and implemented a Code of Conduct.
The underlying principles of the Code are to protect the public interest and provide all competitors a fair opportunity to compete in the electric generation and other competitive services markets. Effective January 1, 2001, SRP amended the Code of Conduct to more-clearly isolate the distribution functions and services provided by SRP and to simplify the Code.
We are subject to an annual independent audit of our adherence to the Code. Our second audit covering calendar year 2000 was completed in February 2001. The audit report confirmed that SRP has complied in all material respects with the Codes requirements.
2001 SRP ANNUAL REPORT 21
Combined Balance Sheets As of April 30 2001 2000 ASSETS (Thousands)
Utility Plant Plant in service Electric 5,948,320 5,765,976 Irrigation 234,392 227,423 Common 391,698 396,627 Total plant in service 6,574,410 6,390,026 Less accumulated depreciation on plant in service (3,102,243)
(2,926,142) 3,472,167 3,463,884 Plant held for future use 31,134 31,134 Construction work in progress 326,215 200,805 Nuclear fuel,net 37,044 40,980 3,866,560 3,736,803 Other Property and Investments Non-utility property and other investments 87,573 103,762 Segregated funds,net of current portion 352,302 557,642 439,875 661,404 Current Assets Cash and cash equivalents 636,954 88,935 Temporary investments 348,031 366,858 Current portion of segregated funds 72,312 74,294 Receivables,net of allowance for doubtful accounts 348,307 180,370 Fuel stocks 25,480 27,610 Materials and supplies 60,500 62,669 Other current assets 39,519 29,136 1,531,103 829,872 Deferred Charges and Other Assets 516,410 747,545 6,353,948 5,975,624 The accompanying notes are an integral part of these combined balance sheets.
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As of April 30 2001 2000 CAPITALIZATION AND LIABILITIES (Thousands)
Long-Term Debt 3,098,273 3,164,866 Accumulated Net Revenues and Other Comprehensive Income 2,312,014 2,038,893 Total Capitalization 5,410,287 5,203,759 Current Liabilities Current portion of long-term debt 71,940 74,255 Accounts payable 207,129 112,427 Accrued taxes and tax equivalents 31,551 32,772 Accrued interest 52,279 53,029 Customersdeposits 23,336 22,082 Other current liabilities 159,148 92,686 545,383 387,251 Deferred Credits and Other Non-Current Liabilities 398,278 384,614 Commitments and Contingencies (Notes 3, 5, 7, 8, 9 and 10) 6,353,948 5,975,624 The accompanying notes are an integral part of these combined balance sheets.
Combined Balance Sheets 2001 SRP ANNUAL REPORT 23
For the Years Ended April 30 2001 2000 (Thousands)
Operating Revenues 3,026,787 1,797,745 Operating Expenses Power purchased 914,646 368,628 Fuel used in electric generation 514,049 278,263 Other operating expenses 471,670 304,237 Maintenance 156,002 146,631 Depreciation and amortization 473,334 368,016 Taxes and tax equivalents 82,335 90,931 Total operating expenses 2,612,036 1,556,706 Net operating revenues 414,751 241,039 Other Income (Expenses)
Interest income 68,147 55,699 Other expenses,net (2,662)
(5,652)
Total other income (expenses),net 65,485 50,047 Net revenues before financing costs 480,236 291,086 Financing Costs Interest on bonds,net of capitalized interest 141,578 146,070 Amortization of bond discount and issuance expenses 4,951 5,449 Interest on other obligations 24,011 20,887 Net financing costs 170,540 172,406 Net Revenues 309,696 118,680 Other Comprehensive Income Unrealized gain (loss) on securities (36,575) 21,279 Comprehensive Income 273,121 139,959 The accompanying notes are an integral part of these combined financial statements.
Combined Statements of Net Revenues & Comprehensive Income 24 2001 SRP ANNUAL REPORT
For the Years Ended April 30 2001 2000 (Thousands)
Cash Flows from Operating Activities Net revenues 309,696 118,680 Adjustments to reconcile net revenues to net cash provided by operating activities:
Depreciation and amortization 473,334 368,016 Post-retirement benefits expense 23,800 18,000 Amortization of provision for loss on long-term contracts (13,281)
(13,281)
Amortization of bond discount and issuance expenses 4,951 5,449 Amortization of spent nuclear fuel storage 1,333 1,222 Loss on sale of property 99 952 Decrease (increase) in -
Fuel stocks and materials & supplies 4,299 (6,482)
Receivables,including unbilled revenues,net (167,937)
(21,491)
Other assets (11,620)
(8,795)
Increase (decrease) in -
Accounts payable 94,702 (20,857)
Accrued taxes and tax equivalents (1,221)
(4,041)
Accrued interest (750)
(495)
Other liabilities,net 70,861 (14,029)
Net cash provided by operating activities 788,266 422,848 Cash Flows from Investing Activities Additions to utility plant,net (372,962)
(271,702)
Decrease (increase) in investments 228,138 (78,575)
Net cash used for investing activities (144,824)
(350,277)
Cash Flows from Financing Activities Repayment of long-term debt,including refundings (73,859)
(73,349)
Increase in segregated funds (21,564)
(23,337)
Net cash used for financing activities (95,423)
(96,686)
Net Increase (Decrease) in Cash and Cash Equivalents 548,019 (24,115)
Balance at Beginning of Year in Cash and Cash Equivalents 88,935 113,050 Balance at End of Year in Cash and Cash Equivalents 636,954 88,935 Supplemental Information Cash Paid for Interest (Net of Capitalized Interest) 166,339 167,452 The accompanying notes are an integral part of these combined financial statements.
Combined Statements of Cash Flows 2001 SRP ANNUAL REPORT 25
26 2001 SRP ANNUAL REPORT N O T E 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 UsersAssociation (the Association) by which it has assumed the obligations of the Association 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 and distributes electric power and energy.
The Association operates an irrigation system as the Districts agent.
On May 1,1997,the District established a wholly-owned,taxable subsidiary,New West Energy Corporation (New West Energy),
to market,at retail,energy available to the District that is surplus to the needs of its retail customers,and energy that may be rendered surplus by retail competition in Arizona in the supply of generation.In addition,New West Energy provides other retail energy related services to current and prospective energy customers as part of its program to market surplus energy.
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 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.
PRINCIPLES OF COMBINATION The accompanying combined financial statements reflect the combined accounts of the Association and the District (together referred to as SRP).The Districts financial statements are consolidated with its two wholly-owned taxable subsidiaries,New West Energy and Papago Park Center,Inc.(PPC).PPC is a real estate management company.
All material intercompany transactions and balances have been eliminated.
REGULATION AND PRICING POLICIES Under Arizona law,the Districts publicly elected Board of Directors (the Board) serves as its regulatory body and has the exclusive authority to establish electric prices.The District is required to follow certain procedures,including public notice requirements and special Board meetings,before implementing changes in standard electric price schedules.
N O T E 2 Significant Accounting Policies BASIS OF ACCOUNTING The accompanying combined financial statements are presented in conformity with accounting principles generally accepted in the United States (GAAP) and reflect the pricing policies of the Board.The Districts regulated operations apply Statement of Financial Accounting Standards (SFAS) No.71,Accounting for the Effects of Certain Types of Regulation(SFAS No.71),while non-regulatedoperations follow GAAP for enterprises in general.Classification of regulated and non-regulated operations is determined in accordance with applicable GAAP accounting guidelines.
The preparation of financial statements in compliance with 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.
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).AFUDC is the estimated cost of debt and equity funds used to finance regulated plant additions and is recovered in prices through depreciation expense over the useful life of the related asset.The cost of property that is replaced, removed or abandoned,together with removal costs,less salvage,is charged to accumulated depreciation.
A composite rate of 5.54% and 5.41% was used in fiscal years 2001 and 2000 to calculate interest on funds used to finance construction work in progress,resulting in $6.0 million and $5.3 million of interest capitalized,respectively.
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 Districts average depreciation rates on the average cost of depreciable assets,for the fiscal years ended April 30:
2001 2000 Average electric depreciation rate 3.58%
3.34%
Average irrigation depreciation rate 2.20%
1.97%
Average common depreciation rate 5.84%
6.81%
BOND EXPENSE Bond discount and issuance expenses are being amortized using the effective interest method over the terms of the related bond issues.
Notes to Combined Financial Statements April 30, 2001 and 2000
2001 SRP ANNUAL REPORT 27 ALLOWANCE FOR DOUBTFUL ACCOUNTS
The District has provided for an allowance for doubtful accounts of
$76.4 million and $1.7 million as of April 30,2001 and 2000,respectively.
NUCLEAR FUEL The District amortizes the cost of nuclear fuel using the units of production method.The nuclear fuel amortization and the disposal expense are components of fuel expense.Accumulated amortization of nuclear fuel at April 30,2001 and 2000 was $301.0 million and $283.2 million,respectively.
NUCLEAR DECOMMISSIONING The total cost to decommission the Districts 17.49% share of Palo Verde Nuclear Generating Station (PVNGS) is estimated to be $271.8 million,in 1998 dollars.This estimate is based on a site specific study prepared by an independent consultant,assuming the prompt removal/dismantlement method of decommissioning authorized by the Nuclear Regulatory Commission (NRC).This study is updated as required,every three years,and was last updated in the fall of 1998.Based on the 1998 site study,the District estimates its share of ultimate decommissioning expenditures will be $1.9 billion.The estimate assumes earnings on the decommissioning funds of 7.65%,as well as a future annual escalation rate of 5.92% in decommissioning costs.The actual decommissioning costs may vary from the estimate.Expenditures for decommissioning activities are anticipated over a fourteen-year period beginning in 2024.Estimated decommissioning costs are accrued over the estimated useful life of PVNGS.The liability associated with decommissioning is included in deferred credits and other non-current liabilities in the accompanying Combined Balance Sheets and amounted to $84.9 million and $76.8 million as of April 30,2001 and 2000, respectively.Decommissioning expense,net of earnings on trust fund assets,of $4.3 million and $4.1 million was recorded in fiscal years 2001 and 2000,respectively.The District contributes to a trust set up in accordance with the NRC requirements.
Decommissioning funds of $113.5 million and $122.1 million,stated at market value,as of April 30,2001 and 2000,respectively, are held in the trust and are classified as segregated funds in the accompanying Combined Balance Sheets.Unrealized gains on decommissioning fund assets of $30.2 million and $46.6 million at April 30,2001 and 2000,respectively,are included in accumulated comprehensive income as a component of accumulated net revenues.
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 minimize exposure to price risks,credit risks,and control 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,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.These activities are accounted for primarily using hedge accounting methods with gains and losses on these transactions initially deferred and classified as other current assets or liabilities in the accompanying Combined Balance Sheets and then recognized as a component of fuel or purchased power expense when the hedged transaction occurs.
Financial instruments that do not qualify for hedge accounting are minimal and resulting gains and losses are immaterial.
The Districts contractual commitments to purchase and sell energy are accounted for using the aggregate lower of cost or market method of accounting.
CONCENTRATIONS OF MARKET AND CREDIT RISK Market risk is the risk that changes in market prices or customer demand will adversely affect earnings and cash flows.Industry movements towards competition in electric generation subject the District to market risk associated with energy commodities such as electric power and natural gas.Recovery of costs to produce electricity in a non-regulated environment will be affected by changes in competitive market prices for both production resources and the market price of energy sales to ultimate customers.
The use of contractual arrangements to manage the risks associated with changes in energy commodity prices creates credit risk exposure 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.The District has a Credit Policy for wholesale counterparties,and monitors credit exposures continuously,routinely assesses the financial strength of its counterparties,and minimizes credit risk by dealing primarily with creditworthy counterparties and by requiring letters of credit,parent guarantees or other collateral when it does not consider the financial strength of a counterparty sufficient.
INCOME TAXES The District is exempt from federal and Arizona state income taxes.Accordingly,no provision for income taxes has been recorded for the District in the accompanying combined financial statements.
New West Energy recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in its financial statements or tax returns.Deferred tax liabilities and assets are determined based on differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.Since its inception in May 1997,the tax effect of New West Energys results of operations has been immaterial.
CASH EQUIVALENTS The District treats short-term temporary cash investments with original maturities of three months or less as cash equivalents.
Notes to Combined Financial Statements April 30, 2001 and 2000
28 2001 SRP ANNUAL REPORT REVENUE RECOGNITION The District recognizes revenue when billed and estimates and accrues revenue for electricity delivered to customers that has not yet been billed.
MATERIALS AND SUPPLIES, AND FUEL STOCKS Material and supplies are stated at average cost.Fuel stocks are stated at cost using the last-in,first-out method.
RECENTLY ISSUED ACCOUNTING STANDARDS Effective May 1,2001,the District adopted SFAS No.133,Accounting for Derivative Instruments and Hedging Activities (SFAS No.133).SFAS No.133 establishes accounting and reporting standards requiring that every derivative instrument,including certain derivative instruments embedded in other contracts,be recorded in the balance sheet as either an asset or liability measured at its fair value.It also requires that changes in the fair value of the derivative be 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.The statement requires a formal documentation of hedge designation and assessment of the effectiveness of transactions that receive hedge accounting.Any change in the fair value resulting from ineffectiveness,as defined by SFAS No.133,is recognized currently in earnings.Adoption of the new standard did not result in a material impact on the Districts earnings,as most derivative activities qualified for hedge accounting under SFAS No.133.
Subsequent to April 30,2001,the Financial Accounting Standards Board (FASB) reached a tentative conclusion regarding an interpretation of SFAS No.133 dealing with extending the eligibility of qualifying for the normal purchases and sales exception to option contracts for the purchase and sale of electricity by public electric utilities.The tentative conclusion reached allows these types of contracts to qualify for the normal purchases and sales exception if certain criteria are met.The conclusion also applies to power purchase or sale agreements,even if they are subject to being booked out (subject to unplanned netting of transactions).
Contracts of this type entered into by the District generally meet the above criteria and would therefore qualify under the normal purchases and sales exception.If the FASB reverses its position in its tentative conclusion,the District may be required to mark its electricity option purchase contracts to fair market value,which could have either a positive or negative material impact on the Districts financial statements.
N O T E 3 Regulatory Issues:
FUNDAMENTAL CHANGES IN 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 May 1998,the Arizona Electric Power Competition Act (the Act) authorized competition in the retail sale of electric generation,recovery of stranded costs,and competition in billing,metering and meter reading.
The Act allows a temporary surcharge on electric distribution service prices to pay for all or a portion of unmitigated stranded costs of electric generation service that were incurred as a direct result of the onset of competition.Such costs must have been incurred to serve customers in Arizona before December 26,1996.This surcharge may not continue past December 31,2004,and must not cause prices to exceed the prices that were in effect on December 30,1998.
Since 1999,the Arizona Corporation Commission (the Commission),which regulates public service corporations,has been entering into settlement agreements with each of its regulated utilities,establishing terms and conditions precedent to a framework for stranded cost recovery and unbundled tariffs.Beginning January 1,2001,all customers may select an alternative generation provider.
The Federal Energy Regulatory Commission (FERC) regulates the electric utility industry under the authority of various statutes.
FERC issued rules in 1996 mandating,among other things,open nondiscriminatory access to transmission lines.The rules require comparable transmission service in order to use the transmission systems of public utilities.The District has filed a comparable open access transmission tariff to ensure reciprocal access,pursuant to rules FERC developed for nonjurisdictional entities like the District.In addition,FERC issued its Order No.2000 in December 1999,requiring all jurisdictional public utilities that own, operate or control interstate transmission to attempt to develop proposals for regional transmission organizations (RTO).The District is participating in the development of an RTO for the Southwest region and parts of the Rocky Mountain region.
SRPS RESPONSE TO THE CHANGING REGULATORY ENVIRONMENT The Board passed resolutions in August 1998 and December 1998 to open 20% of the Districts 1995 retail load to competition for the retail sale of electric generation on December 31,1998.During the first two years of competition,customers who elected competitive electric services could also choose billing, collection and meter reading services on a competitive basis if their demand exceeded one megawatt.In April 2000,the Board passed a resolution opening the Districts entire service area to generation competition to electricity suppliers approved by the Commission.The service area was opened to generation competition beginning June 1,2000,and to competition in billing, metering and meter reading beginning December 31,2000.The Districts electric distribution area will remain regulated by its Board and the District will not provide distribution services in the distribution areas of other utilities.
Notes to Combined Financial Statements April 30, 2001 and 2000
2001 SRP ANNUAL REPORT 29 Also in 1998,the District approved unbundled pricing plans effective December 31,1998.For retail customers who were unable to choose competitive electric generation,prices reflected a decrease of at least 10% over a 10-year period,apportioned among customer classes.On April 10,2000,the District approved a price plan redesign that resulted in an overall average 1.0% further price reduction.The new price plans more closely align the components of the unbundled price plans to costs.In almost all cases the energy price (shopping credit) has been increased,further promoting competition.The new price plans were effective May 15,2000.The District prices its electric generation based upon market and cost induced factors.The new price plans do not affect the level of competitive transition charge (CTC) to be collected.
In connection with the August 1998 and December 1998 resolutions,the Board authorized the District to recover a non-bypassable CTC of $795.0 million.In June 2001,the Board passed an additional resolution which stated the District would stop collecting the CTC effective June 1,2004.As a result of this resolution,management has determined,based upon projections using current economic conditions,it is no longer probable that the full CTC amount may be collected.Management has,therefore,reduced the amount of the CTC asset and taken a charge to depreciation and amortization expense of $85.0 million as of April 30,2001.
In addition,through a surcharge to the Districts transmission and distribution customers,the Board also allowed for recovery of the cost of programs that benefit the general public,such as discounted rates for the elderly or impoverished,efficiency programs, demand-side management measures,renewable energy programs,economic development,research and development and nuclear decommissioning,including the cost of spent fuel storage.These surcharges have been separately identified and included in the Districts price plans for the regulated portion of its operations.
The Board has provided mechanisms for evaluation of the CTC during the transition period,with respect to actual market price variances from the 2.6 cent market price per kWh used to determine the CTC,and with respect to activities to mitigate operation and maintenance costs.If the CTC is fully recovered before the end of the planned collection period,the District will cease collection of the CTC.Additionally,if cost mitigation exceeds certain targets,some of the savings from mitigation will be used to reduce the CTC charge.
REGULATORY ACCOUNTING The District accounts for the financial effects of the regulated portion of its operations in accordance with the provisions of SFAS No.71,which requires cost-based,rate-regulated utilities to reflect the impacts of regulatory decisions in their financial statements.
As a result of the Board actions in August 1998,the District discontinued the application of SFAS No.71 for its electric generation operations in fiscal year 1999.From that time forward,the provisions of SFAS No.101,Regulated Enterprises:Accounting for the Discontinuation of Application of FASB Statement No.71,have been applied to the portion of its business which no longer meets the provisions of SFAS No.71.
In fiscal year 1999,the District evaluated the carrying amounts of its generation operations in relation to future cash flows expected to be generated from their use in a competitive environment and determined that $850.2 million of these assets were impaired.Impairment of $631.8 million was attributable to generation operations,and $163.7 million was attributable to long-term energy contracts.Of the total impairment,a maximum of $795.0 million may be recovered through the CTC,and such amount was recorded as a regulatory asset (CTC asset).The CTC asset will be recovered through the competitive transition charge over the period that began December 31,1998,and will continue through May 31,2004.Since December 31,1998,the District has amortized or charged $403.4 million of CTC asset to depreciation and amortization and recovered $312.0 million through CTC revenue.
Regulatory assets for spent nuclear fuel storage are being amortized over the life of the nuclear plant.Other regulatory assets are being amortized over an eight-year period,which began in fiscal year 1997.Regulatory assets are included in deferred charges and other assets on the accompanying Combined Balance Sheets.
Deferred charges and other assets consist primarily of the following at April 30 (in thousands):
2001 2000 CTC regulatory asset 392,097 608,900 Bond defeasance regulatory asset 36,600 50,815 Spent nuclear fuel storage regulatory asset 21,974 21,565 Prepaid pension benefits 32,700 22,100 Other 33,039 44,165 516,410 747,545 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.
Notes to Combined Financial Statements April 30, 2001 and 2000
30 2001 SRP ANNUAL REPORT Deferred credits and other non-current liabilities consist primarily of the following at April 30 (in thousands):
2001 2000 Provision for contract losses 132,741 146,021 Accrued post-retirement benefit liability 113,200 96,400 Accrued decommissioning costs 84,946 76,862 Accrued spent nuclear fuel storage 24,915 23,173 Other 42,476 42,158 398,278 384,614 Operating results from the separable portion of the Districts operations that do not meet the provisions of SFAS No.71 are as follows (in thousands):
Fiscal Fiscal Year Ended Year Ended April 30, 2001 April 30, 2000 Operating revenues 2,277,240 1,019,144 Operating expenses 1,770,065 899,072 Net operating revenues from non-regulated operations 507,175 120,072 Assets used in the separable portion of the Districts operations that no longer meet the provisions of SFAS No.71 are as follows at April 30 (in thousands):
2001 2000 Electric plant in service 3,460,089 3,115,865 Less accumulated depreciation (1,985,330)
(1,797,266)
Net assets used in non-regulated operations 1,474,759 1,318,599 N O T E 4 Accumulated Net Revenues and Other Comprehensive Income:
The following table summarizes accumulated net revenues and other comprehensive income (in thousands):
Accumulated Accumulated Net Revenues Accumulated Other
& Other Net Comprehensive Comprehensive Revenues Income Income BALANCE,April 30,1999 1,817,415 81,519 1,898,934 Net revenues 118,680
118,680 Net unrealized gain on available-for-sale securities
21,279 21,279 BALANCE,April 30,2000 1,936,095 102,798 2,038,893 Net revenues 309,696
309,696 Net unrealized loss on available-for-sale securities
(36,575)
(36,575)
BALANCE,April 30,2001 2,245,791 66,223 2,312,014 The majority of unrealized gain (loss) originates from decommissioning trust and segregated fund investments.Net unrealized gain (loss) on available-for-sale securities consists of gross unrealized gain (loss) on equity funds of $(41.1) million and $24.1 million and gross unrealized gain (loss) on debt funds of $4.5 million and $(2.8) million at April 30,2001 and 2000,respectively.
Notes to Combined Financial Statements April 30, 2001 and 2000
2001 SRP ANNUAL REPORT 31 N O T E 5 Long-Term Debt:
Long-term debt consists of the following at April 30 (in thousands):
Interest Rate 2001 2000 Revenue bonds (mature through 2031) 4.3 - 7.0%
2,713,999 2,787,589 Unamortized bond discount (68,786)
(73,468)
Total revenue bonds outstanding 2,645,213 2,714,121 Commercial paper 2.9 - 4.3%
525,000 525,000 Total long-term debt 3,170,213 3,239,121 Less - current portion (71,940)
(74,255)
Total long-term debt net of current portion 3,098,273 3,164,866 The annual maturities of long-term debt (excluding commercial paper and unamortized bond discount) as of April 30,2001,due in the fiscal years ending April 30,are as follows (in thousands):
2002 71,940 2003 94,812 2004 100,102 2005 113,253 2006 107,237 Thereafter 2,226,655 2,713,999 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 bond resolution.Under the terms of the bond resolution,the District is required to maintain a debt service fund for the payment of future principal and interest.Included in segregated funds in the accompanying Combined Balance Sheets is $283.7 million and $346.9 million of debt service related funds as of April 30,2001 and 2000,respectively.
The District has $80.4 million of mini-revenue bonds outstanding which can be redeemed at the option of the bondholder under certain circumstances.The District has a $25.0 million revolving line-of-credit agreement available to refinance these bonds if significant redemption requests occur.Based on historical redemptions made on these bonds,management believes that these credit agreements are more than sufficient.
The debt service coverage ratio,as defined in the bond resolution,is used by bond rating agencies to help evaluate the financial viability of the District.For the years ended April 30,2001 and 2000,the debt service coverage ratio was 4.72 and 3.35,respectively.
Interest and the amortization of the bond discount and issue expense on the various issues results in an effective rate of 5.88% over the remaining term of the bonds.
The District has authorization to issue additional Electric System Revenue Bonds totaling $497.7 million principal amount and Electric System Refunding Revenue Bonds totaling $2.9 billion principal amount.On March 1,2001,the District filed an application with the Commission for authorization to issue an additional $500.0 million Electric System Revenue Bonds and
$550.0 million Electric System Refunding Revenue Bonds.This application was amended June 11,2001 requesting an additional
$175.0 million Electric System Revenue Bonds and $200.0 million Electric System Refunding Revenue Bonds.
COMMERCIAL PAPER
The District has issued $525.0 million of tax-exempt commercial paper consisting of $375.0 million Series B Issue and $150.0 million Series A Issue,initiated in fiscal year 1998.The issues have an average weighted interest rate to the District of 3.3%.The commercial paper matures not more than 270 days from the date of issuance and is an unsecured obligation of the District.The commercial paper has been classified as long-term debt in the accompanying Combined Balance Sheets in connection with refinancing terms under two revolving line-of-credit agreements that support the commercial paper.
Under the terms of these agreements,the District may borrow up to $525.0 million through May 6,2003.
While the revolving credit agreements contain covenants that could prohibit borrowing under certain conditions,management believes that financing would be available.The District has never borrowed under the two agreements 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.
GENERAL OBLIGATION BONDS In 1984,the District refunded its then-outstanding general obligation bonds.Although the refunding constituted an in-substance defeasance of the prior lien on revenues which secured the bonds,the general obligation bonds continue to be general obligations of the District,secured by a lien upon the real property of the District,the authority of the District to assess taxes,and a guarantee by the Association.As of April 30,2001,the amount of defeased general obligation bonds outstanding was $4.4 million.
Notes to Combined Financial Statements April 30, 2001 and 2000
32 2001 SRP ANNUAL REPORT LINE-OF-CREDIT ARRANGEMENTS The District has $525.0 million in revolving line-of-credit agreements that support the commercial paper program.These agreements have various covenants,with which the District is in compliance at April 30,2001.
N O T E 6 Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments identified in the following items in the accompanying Combined Balance Sheets.
INVESTMENTS IN MARKETABLE SECURITIES
The District invests in U.S.government obligations,certificates of deposit and other marketable investments.Such investments are classified as other investments,segregated funds,cash and cash equivalents or temporary investments in the accompanying Combined Balance Sheets depending on the purpose and duration of the investment.The fair value of marketable securities with original maturities greater than one year is based on published market data.The carrying amount of marketable securities with original maturities of one year or less approximates their fair value because of their short-term maturities.
LONG-TERM DEBT
The fair value of the Districts revenue bonds,including the current portion,was estimated by using pricing scales from independent sources.The carrying amount of commercial paper approximates the fair value because of its short-term maturities.
OTHER CURRENT ASSETS AND LIABILITIES
The carrying amounts of receivables,accounts payable,customers deposits and other current liabilities in the accompanying Combined Balance Sheets approximate fair value because of their short-term maturities.
The estimated carrying amounts and fair values of the Districts financial instruments,at April 30,are as follows (in thousands):
2001 2000 Carrying Fair Carrying Fair Amount Value Amount Value Investments in marketable securities:
Other investments 13,000 13,117 30,000 29,332 Segregated funds 424,614 422,788 631,936 633,385 Temporary investments 348,031 348,060 366,858 366,858 Long-term debt 3,170,213 3,342,096 3,239,121 3,309,597 ACCOUNTING FOR DEBT AND EQUITY SECURITIES The Districts investments in debt securities are reported at amortized cost if the intent is to hold the security to maturity. At April 30,2001,the Districts investments in debt securities have maturity dates ranging from May 1,2001 to November 15,2010.Other debt and equity securities are reported at market,with unrealized gains or losses included as a separate component of Accumulated Net Revenues and Other Comprehensive Income.
The Districts investments in debt and equity securities are included in temporary investments,segregated funds and non-utility plant and other investments in the accompanying Combined Balance Sheets.
N O T E 7 Employee Benefit Plans, Incentive Program and Severance Plans:
DEFINED BENEFIT PENSION PLAN AND OTHER POST-RETIREMENT BENEFITS SRPs 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.No contributions were required in fiscal years 2001 or 2000.
The Plan assets consist primarily of stocks,U.S.government obligations,corporate bonds and real estate funds.The unrecognized net transition asset is being amortized over 15 years,beginning in 1988.
SRP provides a non-contributory defined benefit medical plan for retired employees and their eligible dependents 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,or any time after attainment of age 55 with a minimum of ten years of vested service.The funding policy is discretionary and is based on actuarial determinations.The unrecognized transition obligation is being amortized over 20 years,beginning in 1994.
The following tables outline changes in benefit obligations,plan assets,the funded status of the plans,and amounts included in SRPs combined financial statements as of April 30,based on January 31 valuation dates (in thousands):
Notes to Combined Financial Statements April 30, 2001 and 2000
2001 SRP ANNUAL REPORT 33 Pension Benefits Other Benefits 2001 2000 2001 2000 Change in benefits obligation:
Benefit obligation at beginning of year 510,800 575,900 170,400 142,500 Service cost 14,300 17,400 4,400 3,700 Interest cost 40,100 36,800 13,400 9,100 Amendments 8,400
Actuarial loss (gain) 17,700 (96,600) 34,200 21,500 Benefits paid (24,000)
(22,700)
(7,000)
(6,400)
Benefit obligations at end of year 567,300 510,800 215,400 170,400 Change in plan assets:
Fair value of plan assets at beginning of year 699,100 672,600
Actual return on plan assets 30,000 49,200
Employer contributions
7,000 6,400 Benefits paid (24,000)
(22,700)
(7,000)
(6,400)
Fair value of plan assets at end of year 705,100 699,100
Funded status 137,800 188,300 (215,400)
(170,400)
Unrecognized transition obligation (asset)
(4,000)
(8,000) 67,900 73,600 Unrecognized net actuarial (gain) loss (111,000)
(160,200) 32,500 (1,200)
Unrecognized prior service cost 9,900 2,000
Post January 31 contributions
1,800 1,600 Net asset (liability) recognized 32,700 22,100 (113,200)
(96,400)
Prepaid benefit cost 32,700 22,100
Accrued benefit liability
(113,200)
(96,400)
Net amount recognized 32,700 22,100 (113,200)
(96,400)
The pension plan was amended effective January 1,2001 to provide a retiree pension enhancement,as well as enhanced benefits for selected employees.
The District internally funds its other benefits obligation.At April 30,2001 and 2000,$148.0 million and $151.7 million of segregated funds,respectively,are designated for this purpose.
Weighted average assumptions used to calculate actuarial present values of benefit obligations were as follows:
Pension Benefits Other Benefits 2001 2000 2001 2000 Discount rate 7.5%
8.0%
7.5%
8.0%
Expected return on plan assets 9.0%
9.5%
N/A N/A Rate of compensation increase 4.0%
4.0%
4.0%
4.0%
For employees who retire at age 65 or younger,for measurement purposes,an 8.0% annual increase before attainment of age 65 and a 10.0% annual increase on and after attainment of age 65 in per capita costs of health care benefits were assumed during 2001; these rates were assumed to decrease 0.5% per year until equaling 6.0% in all future years.
Components of net periodic benefit (gain) costs for the years ended April 30,are as follows (in thousands):
Pension Benefits Other Benefits 2001 2000 2001 2000 Service cost 14,300 17,400 4,400 3,700 Interest cost 40,100 36,800 13,400 9,100 Expected return on plan assets (59,100)
(44,600)
Amortization of transition obligation (asset)
(4,000)
(4,000) 5,700 5,700 Recognized net actuarial (gain) loss (2,400)
300 (800)
Amortization of prior service cost 400 400
Net periodic benefit (gain) cost (10,700) 6,000 23,800 17,700 Notes to Combined Financial Statements April 30, 2001 and 2000
34 2001 SRP ANNUAL REPORT 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 effects (in thousands):
One-One-Percentage-Percentage-Point Point Increase Decrease Effect on total service cost and interest cost components 2,100 (1,600)
Effect on post-retirement benefit obligation 23,000 (20,700)
DEFINED CONTRIBUTION PLAN SRPs Employees' 401(k) Plan (the 401(k) Plan) covers substantially all employees.
The 401(k) Plan receives employee contributions and partial employer matching contributions.Employer matching contributions to the 401(k) Plan were $5.9 million and $5.4 million during fiscal years 2001 and 2000,respectively.
EMPLOYEE INCENTIVE COMPENSATION PROGRAM SRP has an incentive compensation program that covers sub-stantially all regular employees.The incentive compensation amount is based on achievement of pre-established targets.An accrual of $28.2 million and $25.9 million for fiscal years ended April 30,2001 and 2000,respectively,is included in other current liabilities in the accompanying Combined Balance Sheets.This liability is stated net of a receivable from participants in jointly owned electric utility plants of $3.3 million and $3.0 million at April 30,2001 and 2000,respectively.
N O T E 8 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 Districts 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 Districts ownership interest in jointly owned electric utility plants as of April 30,2001 (in thousands):
Construction Generating Station Ownership Plant in Accumulated Work in Share Service Depreciation Progress Four Corners (NM) (Units 4 & 5) 10.00%
102,564 (75,638) 1,776 Mohave (NV) (Units 1 & 2) 10.00%
63,668 (42,481) 3,120 Navajo (AZ) (Units 1,2 & 3) 21.70%
345,099 (186,058) 1,142 Hayden (CO) (Unit 2) 50.00%
110,939 (55,210) 1,876 Craig (CO) (Units 1 & 2) 29.00%
238,490 (140,637) 5,253 PVNGS (AZ) (Units 1,2 & 3) 17.49%
1,095,272 (748,342) 24,494 1,956,032 (1,248,366) 37,661 The District acts as the operating agent for the participants in the Navajo Generating Station (NGS).
N O T E 9 Commitments:
SUBSIDIARY GUARANTEES The District acts as guarantor for New West Energys contractual obligations as necessary to satisfy performance security requirements under agreements with utility distribution companies,brokers and counterparties for financial hedge transactions,and power purchasers and sellers.
IMPROVEMENT PROGRAM
The improvement program represents SRPs six-year plan for major construction projects and capital expenditures for existing generation,transmission,distribution and irrigation assets.For the 2002-2007 period,SRP estimates capital expenditures of approximately $3.2 billion.Major construction projects include generation expansion at the Kyrene and Santan Generating Stations,as well as other key strategic distribution and transmission projects.The six-year improvement program also provides for future increased ownership in the Mohave Generating Station.
LONG-TERM POWER CONTRACTS The District entered into three contracts,collectively,with the United States Bureau of Reclamation (United States),the Western Area Power Administration and the Central Arizona Water Conservation District (CAWCD) for the long-term sale,through September 2011 to the District,of power and energy associated with the United States entitlement to NGS.The amount of energy available to the District varies annually and is expected to decline over the life of the contracts.The District pays a fixed amount under the contracts,pays the cost of NGS generation and other related costs,and supplies energy at cost to CAWCD for Central Arizona Project facilities.The fixed portion of the Districts payment obligations under the three contracts totals $47.0 million annually through fiscal year 2006,and $254.3 million thereafter.Of the total obligation,$25.2 million annually through fiscal year 2006 and $136.5 million thereafter are unconditionally payable regardless of the availability of power.Payments under these contracts totaled $76.5 million and $84.7 million in fiscal years 2001 and 2000, respectively.
Notes to Combined Financial Statements April 30, 2001 and 2000
2001 SRP ANNUAL REPORT 35 The District entered into two other long-term power purchase agreements to obtain a portion of its projected load requirements through 2011.Minimum payments under these contracts are $38.9 million annually through fiscal year 2006,and $187.0 million thereafter.Total payments under these two contracts,including the minimum payments,were $62.9 million and $57.9 million in fiscal years 2001 and 2000,respectively.In conjunction with the impairment analysis performed on generation-related operations, the District has recorded provisions for losses on these contracts.The provisions recorded in August 1998,of $163.7 million,are being amortized over the life of the contracts,commencing January 1,1999.Amortization of $13.3 million has been reflected as a reduction in fuel expense in fiscal years 2001 and 2000.The remaining liability at April 30,2001 of $132.7 million is included in deferred credits and other non-current liabilities in the Combined Balance Sheets.
In fiscal year 2001,the District entered into a ten-year contract for the long-term exclusive purchase of power and energy produced at a generating facility (Facility) located in Southern Arizona.The amount of energy available to the District is approximately 596 MW annually and payments are fixed at $65.5 million for fiscal year 2002,$61.3 million in each of fiscal years 2003 through 2006,and $285.5 million thereafter.These payments include costs for both capacity and operation and maintenance of the Facility.
Upon inception of the contract,the present value of the fixed payment attributable to capacity costs meets the requirement for accounting for this contract as a capital lease; therefore,the District will record the present value of the capacity payments as utility plant and capital lease obligation in the Combined Balance Sheet in fiscal year 2002.The cost recorded to utility plant will be depreciated over the term of the contract and payments under the contract attributable to the capacity cost will be amortized to the capital lease obligation and interest expense.
Under the above Facility contract,the District exercised an option to supply all natural gas required to operate the Facility.
In connection with exercising this option,the District entered into a ten-year gas index basis swap agreement with the Facility operator which provides that both parties will share equally,based on the volume of natural gas purchased daily,in the price differential between the SoCal Gas Daily Index and the Permian Basin Gas Daily Index.To mitigate its exposure to fluctuations in the market prices of natural gas under the swap,the District has purchased natural gas financial swaps on both the SoCal Gas Daily Index and the Permian Basin Gas Daily Index to hedge a portion of the estimated natural gas requirements.The natural gas swaps expire annually through December 2005.
FUEL SUPPLY
At April 30,2001,minimum payments under long-term coal contract commitments are estimated to be
$121.7 million annually in fiscal years 2002 and 2003,$121.4 million in fiscal year 2004,$117.9 million in fiscal year 2005,
$107.9 million in fiscal year 2006,and $427.6 million thereafter.
N O T E 10 Contingencies:
NUCLEAR INSURANCE
Under existing law,public liability claims that could arise from a single nuclear incident are limited to $9.5 billion.PVNGS participants insure for this potential liability through commercial insurance carriers to the maximum amount available ($200.0 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 $88.1 million including a 5% surcharge,which could be applicable in certain circumstances,but not more than $10.0 million per reactor may be charged in any one year for each incident.
Based on the Districts ownership share in PVNGS,the maximum potential assessment would be $46.2 million,including the 5%
surcharge,but would be limited to $5.2 million per incident in any one year.
SPENT NUCLEAR FUEL
Under the Nuclear Waste Policy Act of 1982,the District pays 1/10 of one cent per kWh on its share of net energy generation at PVNGS to the Department of Energy (DOE).The DOE was responsible for the selection and development of repositories for permanent storage and disposal of spent nuclear fuel not later than December 31,1998.However, the DOE has not yet accepted spent nuclear fuel and high-level radioactive waste from operators of any nuclear power plants.
Because of the significant delays in the DOEs schedule,it is not certain when the DOE will accept PVNGSwaste or waste from the other owners of nuclear power plants.Extended delays or default by the DOE would lead to consideration of costly alternatives involving serious siting and environmental issues.
The United States Court of Appeals for the District of Columbia Circuit has ruled that the DOE had an obligation to begin accepting used nuclear fuel in 1998.However,the court refused to issue an order compelling the DOE to begin accepting used fuel.The Court ruled that any damages incurred by utilities should be sought under the standard contract between the DOE and affected utilities.This ruling is under appeal and the final determination is pending.
PVNGS has capacity in existing fuel storage pools to accommodate spent fuel discharges from normal operations through 2002.
Existing wet storage is being augmented with new facilities for on-site dry cask storage of spent fuel for at least the balance of the currently licensed life beyond 2002,subject to obtaining any required government approvals.The Districts share of on-site interim storage at PVNGS is estimated to be $24.9 million for costs to store spent nuclear fuel from inception of the plant to date,and
$1.9 million per year going forward.These costs have been included in the Districts regulated operations price plans for transmission and distribution.
Notes to Combined Financial Statements April 30, 2001 and 2000
36 2001 SRP ANNUAL REPORT NAVAJO NATION LAWSUIT
In June 1999,the Navajo Nation filed a lawsuit in the United States District Court in Washington D.C.,naming Peabody Coal Company,Southern California Edison Company,the District,and other defendants,for allegedly causing the United States to breach its fiduciary duty to the Navajo Nation and for violating federal racketeering statutes.
The lawsuit arises out of the renegotiations in 1987 of coal royalty and lease agreements to mine coal for the Navajo and Mohave Generating Stations.The suit alleges $600.0 million in damages and seeks treble damages along with punitive damages of not less than $1.0 billion.The District denies all charges and is vigorously defending itself.On March 15,2001,the court granted the motion of the Hopi Tribe to intervene in the suit.However,on May 16,2001,the court granted the Districts earlier motions to dismiss in their entirety. An appeal by the Navajo Nation is probable. In addition,the court has not yet addressed the Districts motions to dismiss the Hopi Tribes claims.Because this litigation is still in preliminary stages,the District is unable to assess the extent of its potential liability,if any,or the potential impact of the lawsuit to the Districts financial position or results of operations.
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.
AIR QUALITY
The federal Clean Air Act (CAA),as amended,among other things,requires reductions in sulfur dioxide and nitrogen oxide emissions from electric generating stations and regulates emissions of hazardous air pollutants by generating stations.Pollution control equipment has already been installed at both the Navajo Generating Station and the Hayden Generating Station.
In December 1999,the participants in Mohave Generating Station agreed to a settlement in a lawsuit alleging numerous and continuing violations of opacity and sulfur dioxide standards.Under the terms of the settlement,the participants must install by January 1,2006,a sulfur dioxide scrubber and other pollution control equipment.Capital costs are estimated at $300.0 million,of which the Districts share would be $30.0 million.These costs are included in the capital contingencies portion of the 2002-2007 Improvement Program.
In January 2001,the participants in the Craig Generating Station agreed to settle a lawsuit alleging,among other things,numerous violations of opacity standards by Craig Units 1 and 2.Under the terms of the settlement,the participants must install fabric filter baghouses and other equipment on Units 1 and 2 by December 31,2003 and June 30,2004,respectively.Capital costs are estimated at $123.0 million,of which the Districts share would be $35.6 million.These costs are included in the capital contingencies portion of the 2002-2007 Improvement Program.
COAL MINE RECLAMATION
In managements opinion,there are sufficient accruals in the accompanying combined financial statements for the Districts obligation to reimburse certain coal providers for amounts due for certain coal mine reclamation costs.However,the District is contesting certain other coal mine reclamation costs.Neither the Districts responsibility or the ultimate amount of liability,if any,can be determined at this time.Management does not believe that the outcome of these matters will have a material adverse effect on the Districts financial position or results of operations.
CALIFORNIA ENERGY MARKET ISSUES
In 1996,California adopted a restructuring program for the electric utility industry that combined generation divestiture and reliance on wholesale spot markets with rigid retail price controls.The situation was further compounded by significant increases in fuel costs,transmission constraints between northern and southern California,and a relatively dry period in the northwest,which has significantly reduced the amount of hydroelectric power available.The result has been a dysfunctional energy market,exponentially high wholesale prices,bankruptcy of Californias largest investor owned utility (Pacific Gas and Electric Company),and inadequate resources to serve customers.
Because of the Districts close ties to the California energy market,both as a seller and buyer of wholesale energy,the activities of New West Energy in marketing energy and related energy services in California and the role of Southern California Edison as operator of the Mohave Generating Station and a participant in other jointly owned facilities,the District is closely monitoring developments in California and their potential impact on the District.Nevertheless,based upon transactions to date,the District does not believe that the foregoing matters will have a material adverse effect on its financial position or liquidity.However,the District cannot predict with certainty the impact that any future resolution,or attempted resolution,of the California energy market situation may have on it,New West Energy,or the regional energy market in general.
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 Navajo Nation Lawsuit above).
Resolution of these matters may result in increased operating expenses.
OTHER LITIGATION
In the normal course of business,SRP is exposed to various litigation or is a defendant in various litigation matters.In managements opinion,the ultimate resolution of these matters will not have a material adverse effect on SRPs 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 for reserves based on managements best estimate of claims,including incurred but not reported claims.In managements opinion, the reserves established for these claims are adequate and any changes will not have a material adverse effect on the Districts financial position or results of operations.
Notes to Combined Financial Statements April 30, 2001 and 2000
2001 SRP ANNUAL REPORT 37 Report of Independent Public Accountants To the Board of Directors, Salt River Project Agricultural Improvement and Power District,and Board of Governors, Salt River Valley Water UsersAssociation:
We have audited the accompanying combined balance sheets of the SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT AND SUBSIDIARIES,and the SALT RIVER VALLEY WATER USERS ASSOCIATION (collectively,the Company) as of April 30,2001 and 2000,and the related combined statements of net revenues and comprehensive income and cash flows for the years then ended.These financial statements are the responsibility of the Companys 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.
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.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 financial statements referred to above present fairly,in all material respects,the financial position of the Company as of April 30,2001 and 2000,and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP Phoenix,Arizona June 11,2001
SRP Boards The two Boards of Salt River Project work with management to establish policies to further the business affairs of SRP.
The 10 members of the Salt River Valley Water Users Association Board of Governors serve staggered four-year terms and are elected from voting districts by the landowners within the water service territory. The Association is SRPs private water corporation, which administers the water rights of SRPs 240,000-acre area, and operates and maintains the irrigation and drainage system.
The 14 members of the Salt River Project Agricultural Improvement and Power District Board of Directors serve staggered four-year terms. Ten District Board members are elected from voting divisions and four are elected at-large by landowners within the Districts boundaries.
The District is SRPs public power utility and a political subdivision of Arizona. Most often, candidates seek election to both Boards.
SRP Councils The two Councils of Salt River Project enact and amend bylaws relating to business affairs of SRP and serve as liaisons to District electors and Association shareholders.
As with the SRP Boards, there is one Council for the District and one for the Association.
The 30 District Council members are elected to staggered four-year terms from 10 divisions.
The 30 Association Council members are elected to staggered four-year terms from 10 districts.
Most often, candidates seek election to both Councils.
Boards Association & District Larry D. Rovey District/Division 1 Clarence C. Pendergast Jr.
District/Division 2 Elvin E. Gene Fleming District/Division 3 Gilbert R. Rogers District/Division 4 Carl E. Weiler District/Division 5 James L. Diller District/Division 6 Keith Woods District 7 Ann Maitland Burton Division 7 Robert G. Kempton District/Division 8 Dale C. Riggins Jr.
District/Division 9 Dwayne E. Dobson District/Division 10 Eldon Rudd Director-at-large, Seat 11 William W. Arnett Director-at-large, Seat 12 Fred J. Ash Director-at-large, Seat 13 James R. Marshall Director-at-large, Seat 14 1
2 4
6 5
7 9
8 10 3
Phoenix Scottsdale Tempe Mesa Gilbert Chandler Peoria Glendale District and Association voting districts 38 2001 SRP ANNUAL REPORT
Councils Association & District left to right District/Division 1 John R. Starr Kevin J. Johnson Robert L. Cook District/Division 2 John A. Vanderwey Paul E. Rovey Wayne A. Hart left to right District/Division 3 Robert T. Van Hofwegen Mario J. Herrera John E. Anderson District/Division 4 Lloyd E. Banning Leslie C. Williams Charles D. Coppinger left to right District/Division 5 Stephen Williams Wayne A. Weiler Roy W. Cheatham District/Division 6 Robert W. Warren (District only)
David Rousseau (Chairman)
Ben A. Butler (Division only)
Clarence J. Duncan left to right District/Division 7 Mark A. Lewis Harmen Tjaarda Jr.
Keith Woods (Division only)
Ann Maitland Burton (District only)
District/Division 8 John R. Hoopes Deborah Hendrickson Mark V. Pace left to right District/Division 9 Arthur L. Freeman W. Curtis Dana Edward E. Johnson District/Division 10 Lawrence P. Schrader Orland R. Hatch C. Dale Willis 2001 SRP ANNUAL REPORT 39
Corporate Officers President William P. Schrader Vice President John M. Williams Jr.
Secretary Terrill A. Lonon Treasurer Cynthia J. Baker Executive Management General Manager Richard H. Silverman Associate General Managers David G. Areghini Mark B. Bonsall D. Michael Rappoport John F. Sullivan L.J. URen Corporate Counsel Jane D. Alfano Manager Richard M. Hayslip Corporate Headquarters Street address Mailing address SRP SRP 1521 N. Project Drive P.O. Box 52025 Tempe, Arizona 85281-1298 Phoenix, AZ 85072-2025 SRP on the Internet Visit SRPs home page at www.srpnet.com for an electronic version of our annual report.
Inquiries Dean Yee, Manager, SRP Financial Services (602) 236-5319 Requests for Annual Reports For additional copies of this report, or SRP quarterly reports, call (602) 236-2598. Or send a request to investor@srpnet.com.
Bondholder Information Regarding all bond information, contact the SRP Treasury Department, (602) 236-2222.
40 2001 SRP ANNUAL REPORT