ML081770333
| ML081770333 | |
| Person / Time | |
|---|---|
| Site: | Rancho Seco, 07200011 |
| Issue date: | 06/17/2008 |
| From: | Rosalyn Jones Sacramento Municipal Utility District (SMUD) |
| To: | Document Control Desk, NRC/FSME |
| References | |
| NQA 08-018 | |
| Download: ML081770333 (77) | |
Text
SACRAMENTO MUNICIPAL UTILITY DISTRICT The Power To Do More.
P.O. Box 15830, Sacramento, CA 95852-1830; 1-888-742-SMUD (7683)
NQA 08-018 June 17, 2008 U.S. Nuclear Regulatory Commission Document Control Desk Washington, DC 20555 Docket No. 50-312 Rancho Seco Nuclear Generating Station License No. DPR-54 Docket No. 72-11 Rancho Seco Independent Spent Fuel Storage Installation License No. SNM-2510 ANNUAL FINANCIAL REPORT Attention: John Hickman and Randy Hall In accordance with 10 CFR 50.71(b) and 10 CFR 72.80(b), we are submitting the 2007 annual financial report for the Sacramento Municipal Utility District. If you or members of your staff have questions requiring additional information or clarification, please contact me at (916) 732-4843.
Sinc Roo ert E. J es Supervisi Kguality Engin'eer Cc: NRC, Region VI
..~ ~ L RANCHO SECO NUCLEAR PLANT e 14440 Twin Cities Road, Herald,CA 95638-9799; (209) 333-2935
SACRAMENTO MUNICIPAL UTILITY DISTRICT 2007 Annual Report Compact with the Customer N 2
Statistics 2007 Service area population: Total operating revenue: Employees (year end):
1.4 million $1.31 billion 2,226 Number of customers Record peak demand: Credit Rating:
(year end):
3,299 megawatts A Standard & Poor's July 24, 2006 589,599 Al Moody's A Fitch Executive Management SMUD Service Area and Board Member Wards Jan E.Schori SMUD generates, transmits and distributes electric power to a 9oo-square-General Manager and mile territory that includes California's capital city, Sacramento County and Chief Executive Officer a small portion of Placer County. As a municipal utility, SMUD is governed James R. Shetler by a seven-member board of directors elected by the voters to staggered Assistant General Manager, four-year terms. The SMUD Board of Directors determines policy for the Energy Supply District and appoints the general manager, who is responsible for the John DiStasio District's operations.
Assistant General Manager, Energy Delivery & Customer Services Betty Masuoka Assistant General Manager, Administrative Services Arlen Orchard General Counsel and Secretary James A. Tracy Chief Financial Officer Noreen Roche-Carter Treasurer Cary M. Nethaway Controller Linda Carey Johnson Chief Information Officer Table of contents General Manager's Message ............. 1 SMUD Board of Directors Year in Review ............................... 3 El Renee Taylor El Howard Posner 7l Peter R. Keat Compact with the Customer ............ 6 Ward i Ward 3 Ward 5 Listening to Customers ...................8 Vice President 2007 El Susan Patterson 7] Larry Carr Using Energy More Efficiently ......... 10 Ward 2 Vice President 2008 Ward 6 Shining Exam ples ........................... 12 President 2007 El Genevieve Shiroma President 2008 Matching Words with Actions ........ 14 Ward 4 El Bill Slaton Oak Park CFL Exchange ............. 16 Ward 7 Here Comes the Sun ................... 18 Green is the Online Theme ............. 20 40%
, te irithý SA oi fc~y, 6f~
rjicr Financial Statem ents ................. 24 55I 6'.
In 2007, SMUD laid the groundwork for a new way of doing business. To meet the Sacramento region's growing energy needs while safe-guarding the environment, the SMUD Board of Directors initiated a process to develop a new "Compact with the Customer."
Sacramento County is expected to grow by nearly i million residents by 2050. SMUD's Jan Schori load-serving capability must grow as well, SMUD General Manager particularly during the peak hours of summer use. But Sacramento's air quality is already among the worst in the country. Siting new fossil-fuel power plants will be extremely General Manager's Message difficult if not impossible. The developing greenhouse gas reduction regulations soon to be promulgated by the State of California use, high cost periods. Large commercial In both 2007 and 2008, will also significantly constrain traditional customers have such rates now; SMUD SMUD received the fossil generation solutions to meeting wants to partner with all customers to highest commercial customers' peak load needs. improve energy efficiency and conservation customer satisfaction with the goal of helping them to save money The Compact with the Customer tackles score of any electric utility and the environment. We started the process these issues head on. To help better reflect in the country from of educating our customers about energy the high cost of serving energy use on peak J.D. Power and Associates.
efficiency and pricing options by holding and its environmental consequences, the numerous focus groups with residential and Board of Directors is considering implemen-commercial customers.
tation of time-differentiated rates that match the actual cost of electricity. These rates While it's clear there's a need for extensive should encourage customers to shift use customer education to develop the under-to off-peak hours and conserve during high standing necessary to achieve the goal of
) _ *__) I ",' i1 General Manager's Message 1
For 2008, the Board has approved a new financial target based customer in Northern California, with on cash flow. The new rates for 2008 - a 7-percent increase approximately 30 percent of the CVP's output.) The regional economy also slowed on Jan. 1 - were set by the Board to meet this new target and down measurably. As a result, SMUD posted cover the new efficiency and solar programs.
a net loss of $4.6 million in 2007.
peak use reduction, customers are open to Looking forward to 2008, the Board has SMUD's proposal and willing to partner with approved a new financial target based on SMUD to address the community's needs cash flow. The new rates for 2008 -
in an environmentally responsible way. The a 7-percent increase on Jan. i - were set by Board adopted the most aggressive energy the Board to meet this new target and cover efficiency goal in the state - helping our cus- the new efficiency and solar programs.
tomers reduce their energy consumption by In both 2007 and 2o08, SMUD received 15 percent over the next lo years - exceeding the highest commercial customer the state requirements by 5o percent.
satisfaction score of any electric utility in SMUD remains one of the cleanest electric the country from J.D. Power and Associates.
utilities in the country. In 2007, we took several We continue to have a strong relationship significant steps toward meeting California's with our customers. But the health of the renewable energy requirements. Our wind organization and our community demands farm in Solano County now generates more that we move beyond the traditional metrics than loo megawatts of green power, and we're of customer satisfaction - affordable, on track to meet the standards set forth in reliable electricity - to increased customer the state solar PV initiative. We are well ahead engagement and a new partnership to meet of schedule in making progress towards our our future needs. This report looks at some 2011 renewable portfolio goal of 23 percent of the ways we're doing precisely that.
(excluding large hydro).
Sincerely, 2007 was a below-average year for hydro-electric generation, both from SMUD's Upper American River Project and the federal government's Central Valley Project. Jan Schori (SMUD remains the largest federal power 2 Compact with the Customer
January Year inRvew20L In becoming SMUD's first Solar Partner, the city of Elk Grove made it easier for residential customers February to install solar systems on their Construction began on a hydro-homes. Elk Grove agreed to waive gen fueling station on SMUD's permit fees and review residential downtown campus. Funded by solar applications in one day. SMUD and BP, the refueling By the end of the year, each of station was completed in early the county's other jurisdictions- 2008. Photovoltaic panels the cities of Sacramento, Gait, provide renewable electricity to Folsom, Rancho Cordova, Citrus produce the hydrogen for the Heights, along with the county of demonstration cars.
Sacramento - followed Elk Grove's lead and became SMUD Solar Partners.
March SMUD scored No.1 in the nation in the J.D. Power and Associates survey measuring business customers' satisfaction with April large electric utilities. SMUD's The American Public Powdr overall satisfaction score climbed Association awarded SMUD its
.nearly-io percent from the "Reliable Public Power Provider" previous survey. platinum award. APPA, the national service organization for SMUD and Lennar Homes entered more than 2,000 community-into the largest solar new home owned electric utilities, rates partnership in the country. More utilities in four vital areas:
than 1,200 super energy-efficient, reliability, safety, training and solar-powered Lennar homes system improvement. SMUD After more than five years will be built in SMUD's service scored 98.5 points out of a of research and negotiation, territory by 2010. possible ioo.
SMUD and more than a dozen organizations endorsed a SMUD became the first utility settlement agreement regarding in the country to receive top how SMUD will run its honors in Leadership in Energy hydroelectric power plants on and Environmental Design from the upper American River for the the U.S. Green Building Council.
next 30 to 50 years. The Upper SMUD's Customer Service Center American River Project generates received platinum designation for about 15 percent of SMUD's its energy-efficient design.
electricity in a normal water year.
Year in Review 07 3
August SMUD again scored higher than any other electric utility in California in an annual J.D.
Power and Associates survey of residential customers. SMUD's score was the third best in the nation, up from fifth best in 2006.
July It marked the seventh time in May More low-income customers eight years that SMUD was the highest scoring electric utility in SMUD's Board of Directors voted became eligible for SMUD's California in this survey.
to approve energy efficiency goals Energy Assistance Program Rate.
that exceed state requirements Families with household incomes by 50 percent. SMUD will that don't exceed 200 percent of SMUD's interactive voice help customers reduce energy the federal poverty level can save response (IVR) system ranked consumption by 15 percent over more than 30 percent on their first in the West and fourth the next io years. The higher monthly electric bills. nationally in a benchmark study level of efficiency would conducted by E Source,.an reduce peak generation independent energy analyst.
requirements by 570 r I E Source assessed the IVR megawatts by 2017. systems of 1O3 gas and electric utilities. SMUD received 836 out of a possible 1,ooo points in the survey.
June 1 Four local high schools will share
$25,00.0 to develop solar projects 0 0 --
as part of SMUD's Energize SMUD's Ena ,nWome C)0, Wnds for Minds for Solar Design grant program. The annual grants will sdar Deen P0 sm", 0 nt PrOpm 0 Im help educate the next generation hdp0 educate the mom Bomar-of energy consumers and spur 0 students' interest in science. awn of eneruo cansum(_Wso 4 Compact with the Customer
I Jan Schad ammounced that she VOURd redre after 14 dnoodagan'shad Fears (Of sermce as SMUD's Foard manager, E=November The SMUD Board appointed December Renee Nunes Taylor to fill the SMUD General Manager Jan Schori Ward 1 vacancy left open after announced that she will retire Linda Anderson Davis resigned following the Board's appointment in October. Ward 1 includes the September communities of Fair Oaks, of a successor in 2008. Schori served 14 years as general manager, The SMUD Board approved a Citrus Heights, Orangevale the longest tenure of any GM since pilot program in which SMUD and Foothill Farms. SMUD began serving Sacramento customers will be able buy blocks in 1946.
of photovoltaic power, giving them a "virtual" solar system.
The "SolarShares" program is the first of its kind in California.
October SMUD launched OurGreenCommunity.org, a A<
Web site that includes a carbon calculator and carbon offset program. The interactive site provides customers with valuable information on energy efficiency, renewable resources and "Climate Challenge," an cleaner-running vehicles. educational DVD produced for Sacramento-area students, is distributed to more than 1,200 teachers throughout SMUD's service territory. The video provides an overview of global warming and suggests ways for students to reduce their energy use.
Year in Review 07 5
SMUD's vision is to empower our customers with solutions and options that imncrease energy effi-caiencym protect the en costrtnntent reduce global warming and ]lower the to serve our regnoono By 2050, Sacramento County's population is projected to increase by i million residents.
SMUD and its 59o,ooo electric customers f
don't have to look that far ahead, however, to see the effects of growth on Sacramento's 7- energy use and air quality.
To balance the region's growing energy needs while protecting the environment and reducing global warming, the SMUD Board
-3 of Directors is developing a "Compact with the Customer."
Curbing energy use during the hottest hours of summer is the major impetus. SMUD currently needs an extra 400 megawatts of power to satisfy peak energy use during the 40 hottest hours of the summer. If trends continue, SMUD would need an extra 650 megawatts of power to meet the summer peak in 2050.
It's going to be a challenge to get customers to be more aware of how they use energy and convince them to change old habits.
But society needs to do this in order to have a more sustainable environment.
The objectives of the Compact with the Customer can be summed up in the vision statement that the SMUD Board adopted in 2oo6: SM-UD's vision is to empower our customers with solutions and options that increase energy efficiency, protect the environ-ment, reduce global warming and lower the cost to serve our region.
6 Compact with the Customer
By tackling peak energy use and carbon emissions head on, SMUD's Compact with The Compact with the Customer takes a the Customer will help ensure variety of approaches. SMUD will boost its a more sustainable world for supplies of renewable energy and become future generations.
one of the most energy-efficient regions in the state through new programs and rate signals. SMUD is taking a broad look at rates and how it can use two-way meters to give price signals to customers and encourage them to reduce their energy use.
Studies have found a link between time-of-use pricing and reduced energy use. A Compact with the Customer California Energy Commission study found that peak demand went down 16 percent By offering new and redesigned energy with time-of-use pricing. efficiency programs, SMUD can also help customers reduce their peak use.
Whether they're motivated by environmental concerns or simply want to save money, The Compact with the Customer is not a customers need to become active managers big-bang initiative. It will be rolled out over of their energy use. That's why the SMUD the next several years, involving customers Board chose to steer a new path. The Board each step of the way. The Compact with the recognized that our current pricing structures Customer is just that - a mutually beneficial SMUD needs an extra 400 don't reflect what it costs to provide power agreement with the people SMUD has megawatts of power to satisfy peak energy use during the during those peak hours of summer. served for more than 6o years.
40 hottest hours of summer.
The chart below shows the dramatic spike in energy use on the most energy-intensive Pea Poe- sg SMUD Peak Days 2004 - 2007 days of the last four years.
3,500 3,000 -
2,500 t 2,000 C13 1,500 -
June 24, 2006 1,000 1- - June 5, 2007
.- June 15, 2005 500 .... August 11, 2004
~~1~~ I 12AM 2AM 4AM 6AM 8AM 10AM Noon 2 PM 4PM 6PM 8 PM 10 PM 12 AM Hour of Day Compact with the Customer 7
As part of the Compact with the Customer, SMUD organnozed appmm'm*ate~y 30 focu*s gmu~ps across all customer segments from September to December. The main purpose of the meetings was to gather customer reactions to new pricing and service concepts.
Ulk'UM M@ 1~xý@
8 Compact with the Customer
While they're willing MoG to reduce their energy use, most customers
% N Mn floý~ WOM On.
1 .. I. -Moft expressed a desire to retain control of their thermostats.
As part of the Compact with the Customer, I SMUD organized approximately 30 focus groups across all customer segments from Listening to Customers September to December. The main purpose of the meetings was to gather customer Most residential customers in the focus reactions to new pricing and service concepts. groups understood that the cost of supplying energy is higher in the hot summer months Many local businesses said they understand when air conditioners work overtime.
the challenges SMUD faces, and these com-While willing to reduce their energy use, mercial customers expressed a willingness to most wanted to retain control of their air work with their utility to find mutual solutions conditioners and thermostats.
to Sacramento's growing energy needs.
Commercial customers expressed a Rather than having to choose between willingness to partner with SMUD in making "bundled" packages of options, business Sacramento a more sustainable community.
customers said they'd prefer to customize Commercial customers favored options in their selection of billing concepts, energy choosing the pricing and programs that best Custoinrler service representatives efficiency measures and demand-response suit their businesses. perforr n a valuable service in keeping programs. Facility managers representing SMUD customers informed.
large commercial customers were skeptical The information obtained from the focus about making changes not driven by the groups will be used to design programs for bottom line. energy efficiency. In general, customers said they want to learn more about their best While some business owners said they energy-saving options, and SMUD will work might be able to shift energy use away from toward educating them in the next year the "super peak" hours in the summer -
and beyond.
4 p.m. to 7 p.m. - others expressed doubts given the nature of their businesses.
Listening to Customers 9
SMUD plans to exceed the state's energy effi-ciency requirements by 50 percent0 California is requiring that electric utilities redutce enrgy consumptn'o Ta I percen n' each of the nezt 110 e*o Switching to compact fluorescent light bulbs is one of the cheapest, easi-est ways to reduce energy use.
@- ý 10 Compact with the Customer
I ,
~A.+A~ii~-
Am SMUD offers rebates on a wide range of energy-efficient appliances.
SMUD plans to exceed the state's energy efficiency requirements by 50 percent.
California is requiring that electric utilities Using Energy More Efficiently reduce energy consumption by 1 percent in each of the next 1o years. house fans and photovoltaic systems. SMUD customers have planted more than 430,000 SMVlUD will help customers reduce total free shade trees, reducing air conditioning Awhole-house fan is an energy consumption by 15 percent over the excellent way to reduce costs while improving the region's air quality. home cooling costs.
next io years. The higher level of efficiency will reduce peak generation by 570 mega- Cost-effective energy efficiency is the watts by 2017 - an amount greater than the cheapest and cleanest resource for meeting capacity ofSMUD's Cosumnes Power Plant. the Sacramento region's increasing demand for energy.
To reach this ambitious target, SMUD is ramping up energy efficiency programs over the next two years. Spending for energy efficiency programs will climb to $34 million in 2oo8 and $40 million in 2009.
Fortunately, SMUD is on familiar ground here, having invested more than $300 million in energy efficiency since 1994. The payoff is significant- SMUD customers saved more than $55o million during that time frame while making significant contributions to a cleaner environment.
SMUD offers rebates on energy-efficient appliances such as compact fluorescent lamps, clothes washers, air conditioning and heating systems, dishwashers, whole-Using Energy More Efficiently 11
.Many Sacramento-area businesses are already doing their part to reduce their energy use and help the environment. 5MUDIs Communh Energy Awards honr comerecnaR custoeres who share 5MUD's enm'ronmentaR phn'Rsophy and are talkn'n ac*Oon 12 Compact with the Customer
2007 SMUD Community Award Winners Many Sacramento-area businesses are The Albert Einstein Residence Center com-already doing their part to reduce their energy pleted a comprehensive lighting retrofit of use and help the environment. SMUD's the facility and replaced inefficient heating Community Energy Awards honor commercial and air-conditioning equipment. Les Schwab customers who share SMUD's environmental Tires retrofitted all its stores in the SMUD philosophy and are taking action. service area with energy-efficient lighting and occupancy sensors to automatically turn off The 2007 SMUD Community Energy Award lights when not in use.
winners all managed their energy usage, low-As these businesses have shown, energy E' -
ered their electric bills and reduced the need The Albert Einstein Residence Center to generate significant amounts of energy. efficiency is not only good for the environ-received a Community Energy Reward ment - it's good for the bottom line. for retrofitting its lighting system, For instance, Mervyn's reduced its energy among other energy-saving measures.
needs by 13o kilowatts by retrofitting the lighting systems in its Sacramento-area stores. Lowe's experienced similar savings Shining Examples with a lighting retrofit of its stores.
United Stationers implemented a ware- Les Schwab retrofitted house-wide "intelligent" conveyor system all its tire stores in the that uses photo eyes, long-range sensors SMUD service area with and foot pedals to allow timed operation of energy-efficient lighting all 126 motor and conveyor drives. and occupancy sensors RagingWire, an enterprise data center, pur- to automatically turn off chased 216,ooo kilowatt-hours of renewable lights when not in use.
energy through SMUD's Greenergy program. The change resulted in Aerojet replaced its standard, energy-intensive peak demand savings of ultraviolet technology for groundwater 78.3 kilowatts and energy extraction and treatment by implementing savings of 419,946 a new technology known as HiPOx. kilowatt-hours.
Lowe's Home Improvement Warehouse shares SIM U D's commitment to energy efficiency. Lowe's retrofitted stores in Citrus Heights, Folsom and Elk Grove with energy-efficient, T8 fluorescent hi-bay lighting.
Shining Examples 13
While -SMUD talks about reducing the region's carbon footprint, it's equally important to walk the talk. Sure enough, customers participating in focus groups often asked, ` 5UhaLIMUD don'ng to he~p the enm'ronmient?"
Li Tft oM m*@ fo 14 Compact with the Customer
The short answer:-Quite a bit.
SMUD is committed to obtaining 23 percent SMUD incorporates a number of earth-friendly of its power from renewable energy sources practices in its daily operations, from using by 2011. SMUD currently receives about soy-based oil in distribution transformers 17 percent of its power from renewable to using recycled paper for 95 percent of its The U.S. Green Building Council energy sources - not including the clean printing. Utility poles made of Western Red developed Leadership in Energy power it receives from the Upper American Cedar are treated at the base end only, reducing and Environmental Design (LEED)
River Project. the use of chemicals by 20,000 gallons. standards to encourage sustainable building design and construction.
SMUD daily business practices mirror its Nationally, SMUD is recognized as one green policies.
of the cleanest electric utilities. But while SMUD works to reduce the region's carbon emissions, it's equally important to walk the talk. In fact, customers participating in SMUD Matches Words with Actions recent focus groups often asked, "What's SMUD doing to help the environment?"
In 2007, SMUD became the first utility in the country to win top honors for Leadership in Energy and Environmental Design. LEED standards were developed by the U.S. Green Building Council to encourage energy efficiency.
SMUD's Customer Service Center incorporates cutting-edge technology.
The building was designed to be 35 percent SMUD's Customer Service Center (below) received platinum designation, the highest LEED rating, more energy efficient than California's for its energy-efficient design. SMUD utility poles already stringent Title 24 building standards. made of Western Red Cedar (right) are treated at For instance, water use in the Customer the base end only, greatly reducing the need for chemical treatment.
Service Center is nearly 30 percent below code requirements.
SMUD Matches Words with Actions 15
SMUD has long encouraged customers to unscrew their incandescent light bulbs and replace them with energy.saving compact fluorescent light bulbs, or CFLs. On a pReasantu faR afternoon nn the Calk Park nen'ghhdrhood, 5MUD ýonned students from Sacramento H*n'g SchooR n' talknog Rts message door to door.
16 Compact with the Customer
liveGtE withSMUD SMUD has long encouraged customers to unscrew their incandescent light bulbs and replace them with energy-saving compact fluorescent light bulbs, or CFLs. On a Saturday morning in Sacramento's Oak Park neighborhood, SMUD delivered its message.
Thirty SMUD volunteers and ioo Sacramento Oak Park CFL Exchange High School students went door to door offering free CFLs to Oak Park residents in exchange for their less-efficient incandescent 8oo,ooo cars. CFLs also last eight to lo Sacramento High School bulbs. SMUD distributed nearly i,ooo CFLs times longer than old-fashioned bulbs. students joined SMUD through the Oak Park'exchange. volunteers in distributing Each of the participating Sac High students If every American home replaced just one received free CFLs and were educated in the nearly 1,000 free compact light bulb with an ENERGY STAR-qualified benefits of energy efficiency. In this particular fluorescent light bulbs to CFL, it would prevent greenhouse gases instance, a few small steps for SMUD resulted Oak Park residents.
equivalent to the emissions of more than in energy savings of 3o,ooo kilowatt-hours.
Oak Park CFL Exchange 17
In addition to exceeding 10 megawatts in solar capacity for the first time, 2007 was a ladmdark year efor MUD nzn ters of mappn'pg n'nto the su' energy.
18 Compact with the Customer
Sacramento is a hotbed for rooftop solar installations.
In addition to exceeding lo megawatts in I
solar capacity for the first time, 2007 was a landmark year for SMUD in terms of tapping into the sun's energy.
SMUD signed partnerships with nine Here Comes the Sun homebuilders in 2007 to construct more than 2,6oo SolarSmart homes throughout SMUD also worked with local jurisdictions the region. SMUD's partnership with to make it easier for residential customers to Lennar Homes to build more than 1,200 install photovoltaic systems on their homes.
homes was the largest solar partnership in Elk Grove became SMUD's first Solar the United States. SMUD's alliance with Partner, joined later in the year by the county Lennar Homes was the In SolarSmart communities, SMUD provides of Sacramento and the cities of Sacramento, largest solar partnership incentives to buy down the cost of the solar Gait, Folsom, Rancho Cordova and Citrus electric systems and provides rebates for Heights. The jurisdictions agreed to waive in the United States.
energy efficiency upgrades. These rebates and. permit fees and review residential incentives, along with attractive tax credits, solar applications in one day. _ __
make solar electric systems more affordable than ever.
Here Comes the Sun 19
To provide an online gathering place for local environmental groups and environmentally minded individuals, SMUD launched www.
OurGreenCommunity.org. The interactive Web site includes articles and videos, blogs and a carbon calculator.
~SMUD I~e~AL OurGreenCommunity.org includes a carbon calculator that helps SMUD customers determine their greenhouse gas emissions and decide whether they want to buy carbon offsets.
20 Compact with the Customer
Offset Your Emissions With its carbon calculator, SMUD uses the information customers provide about their energy consumption to estimate how Join SMUD's Carbon Offset Program today and much carbon dioxide (C02) and become carbon neutral other greenhouse gases they contribute to the atmosphere.
To provide an online gathering place for local environmental groups and environ-mentally minded individuals, SMUD Green is the Online Theme launched www.OurGreenCommunity.org.
The interactive Web site includes articles production of their food and other consumer and videos, blogs and a carbon calculator. goods. The calculator includes energy-efficiency recommendations. Those without The carbon calculator on OurGreenCom- computer access can take a paper survey or munity.org lets users calculate their "carbon get help from SMUD staff to calculate their footprint," the sum of all the greenhouse-gas carbon footprint.
emissions associated with their home energy use, fuel burned in their transportation, and Customers who want to take a step further, or do all they can to compensate for emissions they cannot eliminate, they can enroll in SMUD's Carbon Offset program. Their dollars Carbon Calculator Report go to build local emission reduction projects.
Your Total Emissions The cost to offset emissions is $1o per ton of carbon dioxide.
24.7 tons 172 0~
13.0 tons tons World Sacramento You Average Average Category Breakdown N Home N Cars N Products Air Travel 47%
6%
7%
40%
Green is the Online Theme 21
Due to a dry winter, SMUD had to replace lost hydroelectric generation with wholesale power purchases in 2007.5 owfa Rand sop g un*f£f nn t*he Upper Amerkan Rn'Ver Prq~ect were weRR~
below averageo 22 Compact with the Customer
Due largely to a below-average hydro- Pond received 41.8 inches of precipitation, or electric year and a sharp downturn in the 73 percent of the historical water-year average.
local housing market, SMUD recorded a Runoff into SMUD's storage reservoirs was net loss of $4.6 million in 2007. It marked only about 65 percent of the historical average. With $91 million just the third time in the last 20 years that in its rate stabili-The volume of electricity SMUD received from SMUD posted a net loss. zation fund, SMUD the federal Central Valley Project also declined With $91 million in its rate stabilization fund, by about 30 percent due to dry conditions remains on solid SMUD remains on solid financial footing, throughout the Sierra. SMUD had to replace financial footing.
but steps were taken to rectify the situation. the lost hydro generation with wholesale In 2007, the Board of Directors passed a rate power purchases.
increase that took effect Jan. 1, 2008. The 7-percent increase included a solar surcharge that will help SMUD fulfill the California solar Challenges Ahead energy requirements set forth in Senate Bill 1.
SMUD started to feel the collapse of the SMUD started to feel the housing market and a slowing economy last collapse of the housing year. The effects became pronounced in the market and a slowing fourth quarter, when growth in the customer economy in 2007.
base stalled. The effects became Snowfall and spring runoff in SMUD's Upper pronounced in the fourth American River Project were well below aver- quarter, when growth in age in the water year that ended Oct. 1. Fresh the customer base stalled.
Challenges Ahead 23
2007 Financial Statements 24 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report 5 YEAR
SUMMARY
(UNAUDITED)
Operating Statistics (i) 2007 2006 2005 2004 2003 Customers at year-end ...................... 589,599 585,221 577,946 567,176 553,337 KWH Sales (thousands)
Sales to customers -
Residential .................................... 4,608,170 4,760,391 4,534,276 4,446,117 4,372,111 Commercial, industrial & other .................. 6,209,689 6,038,839 5,951,447 5,790,984 5,547,617 Su bto ta l ....... ......................... 10,817,859 10,799,230 10,485,723 10,237,101 9,919,728 Sales of surplus power ........ ............ 2,427,964 3,964,326 1,496,569 858,234 1,547,595 To ta l .. .. ... ... ... . ............. ....... . ...... 13,245,823 14,763,556 11,982,292 11,095,335 11,467,323 Revenues (thousands of dollars)
Sales to customers -
Residential ........................ $ 493,910 $ 515,025 $ 480,100 $ 442,704 $ 444,713 Commercial, industrial & other ............. 589,922 566,851 557,305 527,828 516,562 Subtotal ........................... 1,083,832 1,081,876 1,037,405 970,532 961,275 Sales of surplus pow er ............................ 134,002 191,931 73,475 23,856 62,382 Sales of surplus gas .............. 78,292 112,719 114,313 62,022 65,279 Total (ii) ..................... $ 1,296,126 $ 1,386,526 $ 1,225,193 $ 1,056,410 $ 1,088,936 Average kWh sales per residential customer .... 8,841 9,202 8,909 8,927 8,998 Average revenue per residential kWh sold (cents) 10.49 10.60 10.41 9.91 10.11 Power supply (thousands of kWh)
Hyd roelectric ... ...... . ........... .......... 1,056,893 2,804,704 2,236,818 1,259,570 1,575,534 C o gen eratio n ............ ........................ 5,886,579 4,775,933 2,196,055 2,417,533 2,292,179 Win dp ow er ...... ........................... .. 117,197 73,887 36,828 41,644 27,376 P hotovoltaic ......................... 2,235 2,323 2,341 2,201 2,380 G as.tu rb in e .... ... ................. ......... 181 7,918 2,225 13,445 2,568 P u rch ases ... ........ ...... ..... ......... ... 6,724,160 7,679,518 7,968,762 7,853,322 8,067,294 Net system peak demond 1-hour (kW) ...... 3,099,000 3,280,000 2,959,000 2,672,000 2,809,000 Equivalent Full Time Employees at year-end 2,226 2,213 2,279 2,209 2,219 Financial Statistics (thousands of dollars)
Operating revenues ....... ............ $ 1,312,083 $ 1,354,427 $ 1,225,193 $ 1,068,727 $ 1,032,867 Operating expenses -
Purchased and interchanged power .............. 385,021 388,714 463,710 373,362 387,985 Operation and maintenance ...................... 666,661 620,002 461,229 398,696 386,423 Depreciation and amortization ................. 133,603 125,937 107,751 99,754 138,881 D ecom m issioning ............ ... ............... 31,620 30,894 29,408 29,166 29,708 Total operating expenses ............. 1,216,905 1,165,547 1,062,098 900,978 942,997 O perating incom e ............................ 95,178 188,880 163,095 167,749 89,870 Other income ................. ........... 47,340 47,421 26,591 24,972 29,828 Income before interest charges .......... 142,518 236,301 189,686 192,721 119,698 In terest ch arges .... ... ... ...... ... ........... .. 147,101 128,895 106,414 108,860 119,698 Net increase (decrease) in net assets ...... $ (4,583) $ 107,406 $ 83,272 $ 83,861 $ Funds available for revenue bond debt service $ 245,604 $ 345,293 $ 310,257 $ 310,739 $ 254,036 Revenue bond debt service ................ $ 181,706 $ 174,121 $ 160,036 $ 136,929 $ 119,238 Revenue bond debt service coverage ratio ....... 1.35 1.98 1.94 2.27 2.13 Electric utility plant - net ............. $ 2,882,321 $ 2,734,776 $ 2,662,311 $ 2,493,785 $ 2,239,073 Capitalization Long-term deb t .. ................... ........... $ 3,173,216 $ 2,518,309 $ 2,303,188 $ 2,406,325 $ 2,358,710 Custom er's equity ....................... $ 488,411 $ 492,994 $ 385,588 $ 302,316 $ 218,455 i Financial information is consolidated (except the debt service information).
ii Prior to the net deferral/transfer of revenues to/from the Rate Stabilization Fund and deferral of Public Good revenue.
SMUD 2007 AR 25
Sacramento Municipal Utility District I 2007 Annual Report TABLE OF CONTENTS Report of Independent Auditors 27 Management's Discussion and Analysis 28 Financial Statements 36 Notes to Financial Statements Note , Organization 41 Note 2. Summary of Significant Accounting Policies 41 Note 3. Accounting Change 49 Note4- Utility Plant 49 Note 5. Investment in Joint Powers Agency 50 Note 6 Component Units 51 Note 7. Cash, Cash Equivalents, and Investments 52 Note 8. Regulatory Deferrals 55 Note 9- Derivative Financial Instruments 56 Noteio. Long-term Debt 57 Note,,. Commercial Paper Notes 6o Note 12. Fair Value of Financial Instruments 6o Note 13. Rancho Seco Decommissioning Liability 61 Note 14. Pension Plans 62 Note i5. Other Post-Employment Benefits 64 Note 6. Insurance Programs and Claims 66 Note 17. Commitments 66 Note g. Claims and Contingencies 68 Note 19. Subsequent Event 72 Required Supplementary Information (Unaudited) 72 26 Compact with the Customer
Sacramento Municipal Utility Diatrict 1 2007 Annual Report Virchow Krause INDEPENDENT AUDITORS' REPORT &company To the Board of Directors of Sacramento Municipal Utility District, Sacramento, California We have audited the accompanying consolidated balance sheets of Sacramento Municipal Utility District and its blended component units as of December 31, 2007 and 2006, and the related consolidated statements of revenues, expenses, and changes in net assets and cash flows for the years then ended. These consolidated financial statements are the responsibility of Sacramento Municipal Utility District's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sacramento Municipal Utility District and its blended component units at December 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 15, the Sacramento Municipal Utility District adopted the provisions of GASB Statement No. 45 - Accounting and FinancialReporting by Employers for Postemployment benefits other than Pensions (OPEB) effective January 1, 2007.
The management's discussion and analysis on pages 28 through 35 and the Schedules of Funding Progress are not a required part of the consolidated financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
V& I<4raQ )i LLP Madison, Wisconsin February 21, 2008 SMUD 2007 AR 27
Sacramento Municipal Utility District I 2007 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis of the Sacramento Municipal Utility District and its component units (District) financial performance provides an overview of the District's financial activities for the years ended December 31, 2007 and 2006. This discussion and analysis should be read in conjunction with the District's financial statements and accompanying notes, which follow this section.
BACKGROUND The District was formed by a vote of the electors in 1923, under provisions of the State of California Municipal Utility District Act, and began electric operations in 1947. The District is governed by an elected Board of Directors and has the rights and powers to fix rates and charges for commodities or services furnished, to incur indebtedness and issue bonds or other obligations, and, under certain circumstances, to levy and collect ad valorem property taxes. The District is responsible for the acquisition, generation, transmission, and distribution of electric power to its service area, which includes most of Sacramento County and a small adjoining portion of Placer County.
Setting of Rates The District's Board of Directors (Board) has autonomous authority to establish the rates charged for all District services.
Changes in such rates require formal action, after public hearing, by the Board.
In June 2007, the Board approved an average system rate increase of approximately seven percent that was effective in rates beginning January 1, 2008.
Financial Reporting The District's accounting records are maintained in accordance with generally accepted accounting principles for proprietary funds as prescribed by the Governmental Accounting Standards Board (GASB) and, where not in conflict with GASB pronouncements, accounting principles prescribed by the Financial Accounting Standards Board. The District's accounting records generally follow the Uniform System of Accounts for Public Licensees prescribed by the Federal Energy Regulatory Commission, except as it relates to the accounting for contributions of utility property in aid of construction.
In accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation", the Board has taken various regulatory actions for ratemaking purposes that result in the deferral of expense or revenue recognition. As of December 31, 2007, the District had total regulatory costs for future recovery of
$176 million, which is a net decrease of $36 million from 2006. The decrease is due primarily to a decrease in the deferred decommissioning liability due to continued decommissioning progress, a decrease in deferred operation costs for the Transmission Agency of Northern California (TANC), and a decrease for the decommissioning of nuclear enrichment facilities due to the ongoing payment in 2007. These decreases were partially offset by an increase in the U.S. Bureau of Reclamation deferred liability as a result of an increase in the valuation of the liability. The District also had regulatory credits of $392 million as of December 31, 2007, which is a net increase of $57 million from 2006. The increase is primarily due to the change in value of derivative financial instruments, an increase in the deferral of gains from contribution in aid of construction and deferred estimated gains from precipitation hedges reflecting low precipitation from October 1, 2007 through December 31, 2007. These increases have been partially offset by the reduction of the Rate Stabilization Fund as a result of transfers to revenue to cover low Western Area Power Administration energy deliveries and costs related to energy efficiency and other Board-approved programs. The regulatory costs and regulatory credits will be recognized in the consolidated Statement of Revenues, Expenses and Changes in Net Assets in future periods as determined by the Board for ratemaking purposes.
28 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS Using This Financial Report This financial annual report consists of management's discussion and analysis and the consolidated financial statements, including notes to the consolidated financial statements. The financial annual report reflects the activities of the District primarily funded through the sale of energy, transmission, and distribution services to its customer-owners.
Consolidated Balance Sheets, Statements of Revenues, Expenses and Changes in Net Assets, and Statements of Cash Flows The consolidated financial statements provide both short-term and long-term information about the District's financial status. The consolidated Balance Sheets include all of the District's assets and liabilities, using the accrual method of accounting, as well as an indication about which assets can be utilized for general purposes, and which assets are restricted as a result of bond covenants, Board action and other commitments. The consolidated Balance Sheets provide information about the nature and amount of resources and obligations at a specific point in time. The consolidated Statements of Revenues, Expenses and Changes in Net Assets report all of the District's revenues and expenses during the periods indicated.
The consolidated Statements of Cash Flows report the cash provided and used by operating activities, as well as other cash sources such as investment income, debt financing, and other cash uses such as payments for bond principal and capital additions and betterments.
SMUD 2007 AR 29
Sacramento Municipal Utility District I 2007 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL HIGHLIGHTS Condensed Consolidated Balance Sheets (millions)
December 31, Assets 2007 2006 2005 Electric U tility Plant - net .............................. .......... .......... $ 2,882 $ 2,735 $ 2,662 Restricted and Designated Assets ................................................... 273 286 243 C u rren t A ssets ............................................................................. 73 4 78 1 9 50 Noncurrent Assets and Deferred Charges ................. .............. 1,077 331 577
$ 4,966 $ 4,133 $ 4,432 Liabilities and Net Assets Long-Term Debt - net .... ............. ...................................... $ 3,173 $ 2,518 $ 2,303 Current Liabilities and Deferred Credits ........................... ............ 724 542 877 Noncurrent Liabilities and Deferred Credits ............................ ..... . 580 580 866 Net Assets:
Invested in capital, net of related debt .... ................................ . 321 252 200 Restricted .................................. ......... 95 89 53 Unrestricted ................ ......................... 73 152 133
$ 4,966 $ 4,133 $ 4,432 ASSETS Utility Plant - net 2007 Compared to 2006 The District has invested approximately $2.9 billion in utility plant assets and construction work in progress net of accumulated depreciation at December 31, 2007. Net utility plant makes up about 58 percent of the District's assets,approximately 8 percent less than the previous year. The percentage reduction was primarily due to the addition of a prepaid gas supply contract of $722 million in the Noncurrent Assets and Deferred Charges category. During 2007, the District capitalized approximately $287 million of additions to utility plant, including additions to construction work in progress in the District's consolidated financial statements. This was a resultof routine capital additions for generation, transmission, distribution, and general plant.
2006 Compared to 2005 The District has invested approximately $2.7 billion in utility plant assets and construction work in progress net of accumulated depreciation at December 31, 2006. Net utility plant makes up about 66 percent of the District's assets, approximately 6 percent more than the previous year. During 2006, the District capitalized approximately
$203 million of additions to utility plant, including additions to construction work in progress in the District's consolidated financial statements. This was a result of routine capital additions for generation, transmission, distribution, and general plant.
The District entered into a contract with Fru-Con Construction Corporation (Fru-Con) to construct the Cosumnes Power Plant project. Unable to resolve the disputes over costs and delays to the satisfaction of the District, the contract was terminated in February 2005. The District is currently in litigation with Fru-Con to resolve these disputes. The District assumed the construction management responsibilities for the completion of the Cosumnes Power Plant project. See Note 6 for additional details.
30 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NlAN6Fxw\N.',I ', L)t.v(svION ý\Ni) A I,\ui ihe following charts show the breakdown of net utilitv plant by major plant category --
Gencration (Gcln ), Transmission (Trans), I)istribution I )istr), and Other:
December 31, 2007 December 31, 2oo6 December 31, 2005 2%23% 23%-G 3V 37% 37%38 E Trans
[l Distr 36% 5% 35% 5% 34% 5% [1 Other Restricted and Designated Assets 2007 Compared to 2006 [fle l)istrict's level of Restriý ted and Designated Assets decreased by S13 million during 20017 primarily due to a reduction of the Nuclear D)ecommissioning frost Fund reflecting continued progress on decommissioning the Rancho Seco nuclear power plant, a decrease in the Ratc Stabilization Fund as a result of recognizing Sf6 million in current rear revenues, and an increase in the current portion of Restricted and I)esignated Assets. These decreases were partially offset by an increase of Revenue Bond Reserve funds as a result of the issuance of debt by the Northern California Gas Authority No. I (NC(GA), a component unit of the 1)istrict.
2oo6 Compared to 2005 The Dfistrict's level of Restricted and Designated Assets increased by S43 million during 2006 primarily due to an increase in Reserve Bond funds as a result ofi the Sacramento Municipal Utility D)istrict Financing Authority (SFA) financing, deposits into the Rate Stabilization Fund, and ati increased level of collateral for securities lending, partially offset by an increase iti the current portion of Restricted and I )esignated Assets.
Current Assets 2007 Compared to 2006 (Itrrent Assets decreased by S47 million in 2007 due to a decrease in Unrestricted Cash, Restricted and I )esignated Investments, receivables for both retail and wholesale custotmers, Regulatory Costs to be recovered within one rear, and Derivative Financial Instruments. These decreases were partially offset br an increase in Restricted and Designated Cash, Conservation loans due within one year, Accrued Interest and Other, and the current portion of Prepaid (Gas.
2006 Compared to 2005 Current Assets decreased bh 169 million in 2006 due to a decrease in Unrestricted Cash, a decrease in wholesale receivables, a decrease in the deferred precipitation hedge liability, and a decrease in the value of the current portion of Derivative Financial Instrutments mainly d(ie to more energy contracts being exclIded as normal purchases and sales contracts and lower gas prices. These decreases were partially offset by an increase in Restricted and Designated Cash and Cash Equivalents, an increase in Restricted and Designated Investnents, an increase in retail receivables, and an increase in Materials and Supplies.
Noncurrent Assets and Deferred Charges 2007 Compared to 2006 Fotal Noncurrent Assets and I )efcrred Charges increased by S746 million. This reflects the prepayment of a 20-year natural gas supplr agreement with tile Morgan Stanley C(apital ( rotp, an increase in the value of' D)erivative Financial Itist ruments, and an increase itt (Coniservation Loans made to cuLsttomers. The increase was partially offset br the continued progress of decommissioning the Rancho Seco nuclear power plant, 2006 Compared to 2005 Tbtal Noncurrent Assets and I )eferrecd Charges decreased by S246 million. This reflects the exclusion oftmore energy contracts as normal purchases and sales contracts and lower gas prices, the continued decomtissioning of the Rancho Seco nuclear powVer plant, and the assignrtetnt of a portion of the liability to the Bureau.
SMUD 2007 AR 31
Sacramento Municipal Utility District I 2007 Annual Report Mi \ NA(; LN I FNI )ISt C, SSI,(ON AN t A N\tAIYS S LIABILITIES Long-Term Debt 2007 Compared to 2006 In ?day 207, the NC(GA, a component unit of the l)istriet, issted $89 million of fixed rate (As Project Revente Bonds atd SO8 million of nidex rate ( ,AsProuict Revenue Bonds. The proceeds were used to fund the prepaymelnt o* a 211--ear natural gan supply\ agreement.
2006 Compared to 2005 In January 200(6 the S-A, a component unit of the I)istrict, issued S300 million of 20106 Series SFA (Aounmnes Proljct Revenue Bhods. In uly 20(11, the (,entral Valley Finaneieg Authority (C\'[A), a componelm t utit of the I)istrit, redeemed $1.9 miliion of (CAFA Bonds reducing future debt service.
The following table shows te Ilistrict's future debt service requirements through 2012 as of D)ecember 31, 2007:
Debt Service Requirements U7 j22 2008 2009 2010 2011 2012 D Interest Principal As of l)ecether 31, 2007, the D)istrict had an underlying rating of'A' from botlh Standard S, Poor's and Fitch, and a higher raling of"At" from Moody's. Most of the l)istrict's bonds are insured and are therefire rated by the rating agencies at a level similar to that of the insurers.
Current Liabilities and Deferred Credits 2007 Compared to 2006 Current I.iabilities and 1)elerred (redits increased by apprnximately $102 milion dung 2007.
During 07, te I )istrict issued Sf110 million of Cominrcial Paper Notes to finance or reimhurse capital expenditures.
tther increases were in Accounts PaVable including $13 million for the unfunded Other Post-Emphoyment Benefit liability; long-lervrl 1)eht due withio one e car and accrued interest due to the issuance of debt by NCGA; the Current portion of Relgulatotry rCdits mainly due to the deferred estimate of the preciphiation hedge liability and (Uistomner Deposits and Other. The intlcreascs werc partialy Offset h, lower Ace -rued I))ecomnlisSmihil g an d the current portione of Denrisative Financial Ins7tlruments.
2oo6 Compared to 2005 (;urrent Iiabilities and l)eFerred (redits decreased by approximately 5333 million duriog 2(01,.
In 20115, the Il)istrict had issued >2S0 million of (* omemrcial Paper Notes primarily to provide short-term financing for the co1strutctinm of the (oVstumnes power PIant. I )uring 204l5.1 th IM istrict sold the (Iosumncs Power Plant to SFA and redeemed he Notes ith a partion of the p1oceeds. Purchased Power payabte decreased sigoiicatnty Reom 2(11 reccting losswer power costs. [he turrell polrtion of Credit Support Corlateratl fo energy purchases decreased to S110 milliot. Addditionally the current portion f(rdils decreased as a resuh 0f excluding mow enrgy contracts as normal purchases and sales contracts.
32 Compact with the Custorync
Sacramento Municipal Utility District I 2007 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS Noncurrent Liabilities and Deferred Credits 2007 Compared to 2oo6 Noncurrent Liabilities and Deferred Credits remained about the same as in 2006. Regulatory Credits increased due to increased Contributions In Aid of Construction, the increased value of Derivative Financial Instruments reflecting increased natural gas values, partially offset by the reduction of the Rate Stabilization Fund. The increases in Noncurrent Liabilities and Deferred Credits were offset by a decrease in the Accrued Decommissioning liability as the District continues with decommissioning of the Rancho Seco nuclear power plant.
2006 Compared to 2005 Noncurrent Liabilities and Deferred Credits decreased by $286 million as a result of excluding more energy contracts as normal purchases and sales contracts, a decrease in the non-current portion of Credit Support Collateral for energy purchases, and a decrease in the decommissioning liability as the District continues with decommissioning of the Rancho Seco nuclear power plant.
Condensed Statement of Consolidated Revenues, Expenses and Changes in Net Assets (millions)
December 31, 2007 2006 2005 Operating revenues ....... ............. ........... $ 1,312 $ 1,354 $ 1,225 O p eratin g exp en ses ....... ................................. ............. .......... . (1,2 17) (1,165) (1,062)
O p eratin g incom e ... ......... ................ ...... .......... ... . 95 189 163 Interest and other incom e .............................. .......... ........... . 47 47 26 Interest charges ... .... . (147) (129) (106)
Increase/(decrease) in net assets ... ........... ........ ........ ...... . (5) $ 107 $ 83 CHANGES IN NET ASSETS Operating Revenues 2007 Compared to 2006 Operating Revenues were $1,312 million in 2007, a decrease from 2006 of $42 million. Sales to retail customers were $1,071 million in 2007, a decrease of $13 million as compared to 2006 sales. The District sold 0.2 percent more energy to its retail customers, which grew from 585,221 customers in 2006 to 589,599 customers in 2007, at an average revenue per kilowatt hour that decreased by 1.4 percent. The District transferred $16 million from the Rate Stabilization Fund as compared to a transfer to the Rate Stabilization Fund of $32 million in 2006.
Wholesale revenues are comprised of both surplus energy and gas sales. In 2007, surplus gas sales were $78 million as compared to $113 million in 2006. The amount of surplus gas sold was lower, although at slightly higher average prices.
Surplus energy sales in 2007 were $58 million lower than in 2006. The decrease is due to lower volume (39 percent) although at higher average prices (11.7 percent) than in 2006. Lower surplus energy sales are a result of a number of factors, including lower hydro generation and the timing of hydro generation for reservoir management.
2006 Compared to 2005 Operating Revenues were $1,354 million in 2006, an increase from 2005 of $129 million even though
$32 million was transferred to the Rate Stabilization Fund in 2006 versus no transfer to or from the Rate Stabilization Fund in 2005. Sales to retail customers were $1,084 million in 2006, an increase of $56 million over 2005 sales. The District sold 3.0 percent more energy to its retail customers, which grew from 577,946 customers in 2005 to 585,221 customers in 2006, at an average revenue per kilowatt hour that increased by 2.4 percent, reflecting a full year of the April 2005 rate increase.
Wholesale revenues are comprised of both surplus energy and gas sales. In 2006, surplus gas sales were $113 million as compared to $114 million in 2005. The amount of surplus gas sold was higher, although at significantly lower average prices.
Surplus energy sales in 2006 were $118 million higher than in 2005. The increase is due to higher volume (160 percent)
SMUD 2007 AR 33
Sacramento Municipal Utility District I 2007 Annual Report MNAN(6t A[ N FI'" L)l 'S I()N ANDI) ANAI'SI S and slightly higher average prices (0.6 percent) than in 2005. Higher surplus energy sales are a resut of a number of factors, including higher hydro generation and the timing of hvdro generation for reservoir maniagement.
The following charts show thie percentage of niegawatt hour (NIWh) sales and sales revenue in 2007, 2006, and 200)5 1 surplus energy sales (SurplusI), commercial and iniid ustrial (C&I) and residential (Res) customers:
MWh Sales Sales Revenues 100% 10o%
90% 90% -
8o% 8o%
70% 70%
6o% 6o%
60% 650%
40% 40%
30% 30%n 0% Surplus % El Surplus 10% Sps0%
C&l C&I o%1 Res 0% Res 2007 2oo6 2005 2007 2006 2005 Operating Expenses 2007 Compared to 2006 Operating Expenses were $1,217 million in 2007 as compared to $1,165 million in 2006. [he District's Purchased Power expense was $4 million lower in 2007 than in 2006. The District spent $S10million more for power purchases in 21007 mainly due to higher market prices, partially offset by less energy purchased as compared to 2006. Approximately 12.4 percent less energy was purchased in 2007 at average prices that were 13.1 percent higher than in 2006. The District reduced Purchased Power expense by $8 million for a settlement from the Automated Power exchange (APX) related to the California Market refund case and ,I million for precipitation hedge receipts. In 2007, fuel costs for generation, a component of Production Costs, were approximately $234 million, or $52 million higher than 2006. More fuel was used in 2007 (7.5 million decatherms), primarily due to a full year of production at the Cosumnes Power Plant and higher generation production for CVFA and SPA. Average fuel prices were 7.5 percent higher in 2007 as compared to 2006.
Transmission and l)istribution operations expense was S5 million higher in 2007 as compared to 2006 due to increased costs for TANC transmission as a result f TANC implementing an Open Access Transmission Thriff for its memnbers and California Independent System Operator transmission charges.
The District's expenses for Administrative, General, and Customer were Sit million higher in 2007 due to the expense for the D)istrict's Other Post-Employment Benefits unfunded accrued liability, improvements to custominer service, and a higher provision for uncollectible conservation loans to customers. These increases were partially offset by lower litigation expenses related to the contract dispute with Fru-Con.
Public Good expenses increased during 2007 as a result of more energy efficiency expenditures and cuistonier incentive payments.
Depreciation expense increased due to a change in the remaining service life for meters as the I)istrict transitions to advanced metering technology. Additionally, the service life for certain steam turbine assets at SFA has been reduced to more closely match the overhaul schedule and useful lives of the assets.
In 2007, power supply costs made Lip approximately 62 percent of total Operating Expenses as compared to 04 percent for 2006.
34 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report MANAGENIENT'S DISCUSSION ANM) ANALYSIS 2oo6 Compared to 2005 Operating Expenses were $1,165 million in 2006 as compared to $1,062 million in 2005. The District's Purchased Power expense was $75 million lower in 2006 than in 2005. The District spent $87 million less for power purchases in 2006 mainly due to lower market prices and less energy purchased as compared to 2005. The District also reduced Purchased Power expense by $17 million for a judgment in the Scheduling Coordinator Service (SCS) dispute with PG&E. This was partially offset by an increase to expense of $28 million for precipitation hedge payments in 2006 as a result of the excellent hydro conditions. Approximately 4.6 percent less energy was purchased in 2006 at average prices that were 12.1 percent lower than in 2005. In 2006, fuel costs for generation, a component of production costs, were approximately
$182 million, or $10)4 million higher than 2005. More fuel was used in 20t6 (18.6 million decatherms), primarily due to the addition of the Cosumnes Power Plant, at average prices that were 19.0 percent higher than in 2005.
Transmission and Distribution operations expense was S3 million higher in 2006 as compared to 2005 due to higher transmission costs relating to the District performing its own control area and scheduling coordinator functions.
The District had higher expenses for Administrative, General, and Other due to litigation expenses related to the contract disputes with Fru-Con, higher costs due to improvements to customer service, and higher expenditures for Public Good activities, primarily for energy efficiency.
Depreciation expense increased due to the completion of the Cosumnes Power Plant and additions to Plant In Service, primarily for general and distribution plant.
In 2006, power supply costs made tip approximately 64 percent of total Operating Expenses as compared to 66 percent for 2005.
The following charts compare the relative cost of Purchased Power, Production expenses, and depletion of the Rosa gas field (power supply costs) to all other Operating Expenses in 2007, 2006, and 2005:
2007 Operating Expenses 2006 Operating Expenses 2005 Operating Expenses 38% ~~~36% 3%0 _
6 D
[E Power X 66% Supply 62% .. /64% -Other Interest and Other Income 2007 Compared to 2006 Interest and Other Income was approximately the same in 2007 as compared to 2006. Revenues were lower in 2007 due to lower Interest Income, lower grant revenues, and because 2006 revenues included the one-time sale of water rights. This was offset by lower expenses in 2007 because 2006 expenses included the write-off of deferred annexation costs.
2006 Compared to 2005 Interest and Other Income was higher by $21 million in 2006 as compared to 2005. Interest Income was higher due to higher cash balances and higher interest rates in 2006 as compared to 2005, and interest on the SCS tariff settlement in 2006. Other Income was approximately the same in 2006 as in 2005.
Interest Charges 2007 Compared to 2006 Interest Charges in 2007 were $18 million higher than in 2006, which is due primarily to higher Interest on Debt as a result of the NCGA financing for the prepayment of the natural gas supply agreement.
20o6 Compared to 2005 Interest Charges in 2006 were $23 million higher than in 2005, which is due primarily to higher Allowance for Funds Used During Construction in 2005 as a result of the progress on the Cosumnes Power Plant project and by higher Interest on Debt as a result of the SEA financing for the Cosumnes Power Plant.
SMUD 2007 AR 35
- Sacramento Municipal Utility District I 2007 Annual Report CONSOLIDATED BALANCE SHEETS December 31, Assets 2007 2006 (thousands otdollars)
Electric Utility Plant Plant in service ......................... ................................... $ 4,002,026 $ 3,774,843 Less accumulated depreciation and depletion ........ ...... ................. ........ (1,369,030) (1,264,646)
P lant in service - net ......................................................... ........ ..... 2,632,996 2,510,197 C onstruction w ork in progress .............................. ........... ........ ... ..... ....... 249,325 224,579 Total electric utility plant - net ...................... ....................................... 2,882,321 2,734,776 Restricted and Designated Assets Revenue bond, debt service and construction reserves ......... ............. ........ 243,347 231,943 Nuclear decom m issioning trust fund ................. .................... 69,865 82,315 Rate stabilization fund ........... .............. ............ .... 91,143 107,100 Securities lending collateral........... .............. ................ 75,284 76,086 O th er fu nd s ............ ....... ................................................... 803 1,18 1 Less current portion .......... ........................ ............................. (207,74 1) (213,065)
Total restricted and designated assets ..................... ........................... - 272,701 285,560 Current Assets Unrestricted cash and cash equivalents ................. .... .........-.......... 169,922 202,944 Restricted and designated cash and cash equivalents ........................................ 129,803 103,118 Un restricted investm ents ............. ........ ......... 11,7929.....2......................
Restricted and designated investm ents ........... ............ ........... .................. ... 77,938 109,947 Receivables - net:
Retail custo m ers ....... .......... ....... ....... ............. . 137,622 142,178 1.........................
Wh o lesale .............. .......... .................... ........ ..................... . 4 0,0 0 21 4 1,7 99 Conservation loans due within one year, accrued interest and other ... . .......... 39,076 23,204 Regulatory costs to be recovered within one year ............................................. 39,464 57,763 Derivative financial instruments maturing within one year ........................ 22,870 35,503 M aterials and supplies ........... ..................................... ........... 44,110 40,983 P rep aid G as ... ..........-........ ............................. ...... 22 ,220 P repaym en ts ..... ............. ....... 10,952 1.......2..........................
12,155 Total cu rrent assets ........ ........................ .......... .............. 733,998 78 1,386 Noncurrent Assets and Deferred Charges Regulatory costs for future recovery .................... ............................. ....... 136,762 154,134 P re p a id .Ga s .. .......... .. ........... ................... ... ................................. 7 2 1,806 Advance capacity payments. ...... .. ............................ 31,548 36,467 Derivative financial instruments ... . .................................................. 88,054 48,126 Unamortized debt issuance costs .................................................. 35,671 33,231 C onservation loan s ...... ........... ................................... . ...................... 52,6 15 45,54 1 Preliminary project studies and other .......... . ...................................... 10,265 13,444 Total noncurrent assets and deferred charges .......................................... 1,076,721 330,943 Total assets ...................................................... $ 4,965,74 1 $ 4,132,665 The accompanying notes are an integral part of these consolidated financial statements.
36 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report CONSOLIDATED BALANCE SHEETS December 31, Liabilities 2007 2oo6 (thousands of dollars)
Long-Term D ebt - net ......... ...... ... ..... ... ..... ..... ..... ........ .. 3,173,216 $ 2,518,309 Current Liabilities and Deferred Credits Com m ercial paper notes ............ .......... ... .... 150,000 A cco u n ts p ayab le .... .............. .... ... ... ........ ... ..... ... .......... ........ .... 112,6 52 88,875 Purchased power payable ... ............. ........... ........ ........... ........ ... 73,022 70,562 Credit support collateral obligation ......................................... ....... . .. .. 9,650 9,650 Long-term debt due w ithin one year ......... ......................................... 106,365 98,080 Accrued decom m issioning .......... ........... ................................. 42,292 54,839 A ccru ed in terest ....... .............. ............. ........... ........ ........ ....... 52 ,118 4 3,0 82 Accrued salaries and com pensated absences ........... ................................ 29,111 28,836 Derivative financial instruments maturing within one year .............................. 10,344 25,725 Regulatory credits to be recognized within one year .. . ............. ....... ........... 31,037 18,879 Securities lending collateral obligation ... ...................................................... 75,284 76,086 C ustom er deposits and other ................. ............................. .... 32,198 27,364 Total current liabilities and deferred credits ................................................ 724,073 541,978 Noncurrent Liabilities and Deferred Credits A ccrued decom m issioning ........ ... ........ ... ........ ..... ... ..................... .... 155,135 197,939 D erivative financial instrum ents . .......... ...... ... ...... ..... ..... ..... ........... ..... 18,202 22,054 Regulatory credits ........ . .. 360,986 316,198 Credit support collateral obligation ........ .................... ...................... 22,500 18,100 D ue to affi liated entity .............. .......... .................... ..... ............ 6,571 8,856 Due to U.S. Bureau of Reclam ation .......................... ........ 6,200 5,790 Self insurance, deferred credits and other ........ .................. ................ ....... 10,447 10,447 Total noncurrent liabilities and deferred credits ....................... 580,041 579,384 Total liabilities ...... ....... ........ . ........ ... 4,477,330 3,639,671 Net Assets Invested in capital assets, net of related debt .............. ................. 320,700 251,988 R estr ic te d ............ ........... .. ... ..... ... .... . ..... ............. ..... .............. ... 9 4,516 89,1 19 U n restricted ............... ........ .... ....... ......... ..... ............. ... ........... 73 ,19 5 15 1,887 Total n et assets ........ ........ ........ ........ ..... ............ ...... ... 488,4 11 492,994 Commitments and Contingencies (Notes 17 and 8g)
Total liabilities and net assets . . ....................................... ......... .... $ 4,965,741 $ 4,132,665 The accompanying notes are an integral part of these consolidated financial statements.
SMUD 2007 AR 37
Sacramento Municipal Utility District I 2007 Annual Report CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Year Ended December 31,
,2007 2006 (thousands of'dollars)
Operating Revenues R esid en tia l ..... .......... ........ .. ................. ........... ............. ..................... $ 49 3,910 $ 5 15,0 25 C om m ercial and industrial .... ........ ... ............. .............. ........ .... ......... .. . 580,489 572,018 Street lighting an d other .... .......... ...................................... .... 9,433 8,61.......1...
11 Wh o lesa le ........ ..... ........ .......... ........... .................... I .................. 2 12 ,294 30 4,651 Test Po w er .... ............. ...................... ...................... ............... ( 13,778)
Rate stabilization fund transfers ... ......... :.... ................................ 15,957 (32,100)
Total operating revenues ...................................... 1,312,083 1,354,427 Operating Expenses Operations:
Purchased power ...................... .............................. ................. 385,02 1 388,7 14 P ro d uctio n ............ .......... .......... ........... . .. .. 364,467 3......................
346,586 Transm ission and distribution .. ................................... .... ...... 50,880 45,424 Adm inistrative, general and custom er....................................................... 135,639 125,498 P u blic go o d ..... ...................... ......... ................... ........ ............ 3 7,4 19 29 ,0 0 9 M ain ten ance ................ ..................................................... 68 ,80 5 65 ,118 D ep reciatio n ........ ........ ........... .............. ........................... 13 2,38 7 124 ,745 D eple tio n .... ............... ..................... .. .. ........... ........... ...................... 9 ,4 5 1 8 ,36 7 Deco m m ission in g ............ .................. ...... ........ ........... ................... 3 1,620 30 ,894 Regulatory deferrals collected in rates .... ................. ........ ............. . ......... 1,216 1,192 Total operating expenses ..... ........ ........... ............................... 1,216,905 1,165,547 O p erating Incom e .. ........... ......... ......... .................................. 95,178 188,880 Nonoperating Revenues and Expenses Other revenues Interest incom e ............. ............................. 41,064 42,773 O ther incom e - net ...... ........ ............ ........ ......................... 6,276 4,648 To tal oth er reven ues ................ .............. .............. ..................... ...... 47,340 47,42 1 Interest charges In terest o n d eb t ..... ......... ................. .................... ................ ......... 15 1,6 50 13 2 ,19 8 Allowance for funds used during construction ................................... ....... (4,549) (3,303)
Total interest charges ......... ............................... ..... ......... . ... 147,10 1 128,895 Increase (decrease) in N et A ssets .... ............. ... ........................................ (4,583) 107,406 Net Assets - Beginning of Year .............. ................................ . 492,994 385,588 Net Assets - End of Year .. ........ ............ ............................ $ 488,411 $ 492,994 The accompanying notes are an integral part of these consolidated financial statements.
38 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2007 2006 (thousands of dollars)
Cash Flows from Operating Activities Receipts from retail custom ers ....................... .......... ............................ $ 1,081,945 $ 1,075,824 Receipts from surplus pow er sales ............................. .......... . 1.......
. . ........ 137,002 196,271 R eceipts from surplus gas sales .............. ........... ......... ...... ...................... 78,384 120,451 Receipts from federal and state grants ........... 598 2,648 Receipts from steam sales ................................ ....... 9,4299,42...........................
9,429 9,427 O the r re c eip ts . ............ ....... ..... .......... ... ...... .......... ...... ..... ...... .... 18 0 1,2 8 6 Repaym ent/receipts for credit support collateral, net ...... ............ ...... ..... ...... .... 4,400 (120,850)
Issuance/repaym ent of conservation loans, net ..... ................................. ... .... . (9,733) (9,218)
Paym ents to em ployees - payroll and other .. ........... ............. ..... ........ ...... ... (218,084) (206,564)
Payments for wholesale pow er .................... ........ ..................... ........ .... (378,507) (369,869)
Paym ents for gas purchases ............ ........... .......................... (304,372) (285,486)
Paym ents to vendors/others ...................................... ............................. (121,064) (116,182)
Payments/receipts for weather hedge/insurance ......................... ................ 1,181 (26,879)
Paym ents for decom m issioning ...... ........ .............. ...................... (56,189) (35,987)
Net cash provided by operating activities .................. ..... 225,170 234,872 Cash Flows from Investing Activities Sales and m aturities of securities ............................. 363,471 337,853 Purchases of securities .................... " .............. ..... . ..... (274,077) (428,729)
Interest and dividends received ...... .................................... ............. . ... . ... 40,617 41,007 Securities lending collateral - net ................................. .......... (802) 9,950 Net cash provided by (used in) investing activities . ........ .......................... 129,209 (39,919)
Cash Flows from Capital and Related Financing Activities C onstruction expenditures .............................. ... ... ..... .......................... (267,443) (236,178)
C ontributions in aid of construction ........ ........ ..... ... .... ..... ........ ........ ..... 24,421 23,706 N et proceeds from bond issues ................... ... ......... ...... ....... ... ..... ...... . 754,198 306,482 Repaym ent and defeasance of debt ... ....... ......... ........ ........ .......... ... ... ......... (98,080) (84,240)
Prepaid gas supply expenditures ... ...... ............ ........ ..................... ..... (754,107) Issuance of com m ercial paper ...... ............... ............. ... 150,000 Repaym ent of com m ercial paper ....... ........... ............. ........ ............... (200,000)
Interest on debt .... .................... ...............
- (137,602) (120,787)
Net cash used in capital and related financing activities ................ .......... (328,613) (311,017)
Net increase (decrease) in cash and cash equivalents ................ .................... .... 25,766 (116,064)
Cash and cash equivalents at the beginning of the year ............. ...... ..... 354,024 470,088 Cash and cash equivalents at the end of the year .......... ........... ........... $ 379,790 $ 354,024 Cash and cash equivalents included in:
Unrestricted cash and cash equivalents ........ ............... $ 169,922 $ 202,944 Restricted and designated cash and cash equivalents .............................. 129,803 103,118 Revenue bond, debt service and construction reserves (a component of the total of
$243,347 and $231,943 at December 31, 2007 and 2006, respectively) ............... 80,065 47,962 Cash and cash equivalents at the end of the year .. .......................... $ 379,790 $ 354,024 The accompanying notes are an integral part of these consolidated financial statements.
SMUD 2007 AR 39
Sacramento Municipal Utility District I 2007 Annual Report SUPPLEMENTAL CASH FLOW INFORMATION A reconciliation of the consolidated statements of cash flows operating activities to operating income is as follows:
Year Ended December 31, 2007 2006 (thousands of dollars)
O p era tin g inc o m e ... .................. .............. ........ ............. ............. $ 95,178 $ 188,880 Adjustments to reconcile operating income to net cash provided by operating activities:
De p r e c iatio n ... .... .............. .................... ... ....... .......... .......... 132,387 124,745 Depletion ......................... 9,451 8,367 Regulatory deferrals collected in rates, including decommissioning ............... 32,836 32,086 Am ortization of advance capacity & other . ............................................. 4,991 4,993 Revenue (recognized from) deferred to regulatory credits ............................. (17,207) 33,685 Test power revenue capitalized ............................................ 13,778 Federal and State grants reven ue ....................................................... 598 2,648 O t h er ......... .......... ... ...... ............ ........ .. .................... (2,649) (1,191)
Changes in operating assets and liabilities:
Customer and wholesale receivables ......... ........................... 8,662 3,392 C onservation loans ...... ..... ............... .......... ............... (9,733) (9,218)
O ther assets ................................... .... . . 8,503 (7,223)
P ayab les an d accru als ........................................... 18,342 (124,083)
D ecom m issioning ................ ............ (56,189) (35,987)
N et cash provided by operating activities ........... ........... ........... ..........
I $ 225,170 $ 234,872 The supplemental disclosure of noncash financing and investing activities is as follows:
Year Ended December 31,
.2007 2006 (thousands of dollars)
Loss on defeasance of debt......... (12)
Amortization of debt related costs ...... (5,069) (5,336)
Unrealized holding gain .................... 659 778 Change in valuation of derivative financial instruments .... .......... ...... 46,527 (182,990)
Assets contributed in aid of construction ......... 7,637 6,950 Allowances for funds used during construction ........................ ........ 4,549 3,303 Construction costs included in accounts payable ....... .......................... 47,903 27,305 The accompanying notes are an integral part of these consolidated financial statements.
40 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE,. ORGANIZATION The Sacramento Municipal Utility District (District) was formed and operates under the State of California Municipal Utility District Act (Act). The Act confers upon the District the rights and powers to fix rates and charges for commodities or services furnished, to incur indebtedness and issue bonds or other obligations, and under certain circumstances, to levy and collect ad valorem property taxes. As a public utility, the District is not subject to regulation or oversight by the California Public Utilities Commission. The District is responsible for the acquisition, generation, transmission, and distribution of electric power to its service area, which includes most of Sacramento County and a small adjoining portion of Placer County.
The Board of Directors (Board) determines the District's rates. The District is exempt from payment of federal and state income taxes and real and personal property taxes.
NOTE 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting. The District's accounting records are maintained in accordance with generally accepted accounting principles for proprietary funds as prescribed by the Governmental Accounting Standards Board (GASB) and, where not in conflict with GASB pronouncements, accounting principles prescribed by the Financial Accounting Standards Board (FASB).
The District's accounting records generally follow the Uniform System of Accounts for Public Utilities and Licensees prescribed by the Federal Energy Regulatory Commission (FERC), except as it relates to the accounting for contributions of utility property in aid of construction (CIAC). The District's consolidated financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Electric revenues and costs that are directly related to generation, purchase, transmission, and distribution of electricity are reported as operating revenues and expenses. All other revenues and expenses are reported as non-operating revenues and expenses.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Financial Reporting Entity. These consolidated financial statements include the District and its component units.
Although the component units are legally separate from the District, they are blended into and reported as part of the District because of the extent of their operational and financial relationships with the District. All significant inter-component transactions have been eliminated in consolidation.
Component Units. The component units include the Central Valley Financing Authority (CVFA), the Sacramento Cogeneration Authority (SCA), the Sacramento Power Authority (SPA), the Sacramento Municipal Utility District Financing Authority (SFA), and the Northern California Gas Authority No. 1 (NCGA). The primary purpose of CVFA, SCA, SPA and SFA is to own and operate electric utility plants that supply power to the District. The primary purpose of NCGA is to prepay for natural gas and to sell the natural gas to the District. The District's Board comprises the Commissions that govern these entities.
Plant in Service. The cost of additions to Plant in Service and replacement property units is capitalized. Repair and maintenance costs are charged to expense when incurred. When the District retires portions of its Electric Utility Plant, retirements are recorded against Accumulated Depreciation and the retired portion of Electric Utility Plant is removed from Plant in Service. The costs of removal and the related salvage value, if any, are charged or credited as appropriate to SMUD 2007 AR 41
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accumulated Depreciation. The District generally computes depreciation on Plant in Service on a straight-line, service-life basis. The consolidated average annual composite depreciation rates for 2007 and 2006 were 3.54 percent. Depreciation is calculated using the following estimated lives:
Generation.... 2.25 to 90 years Transmission and Distribution ............. 5 to 50 years G en eral .............. ........................... 2 to 45 years Investments in Joint Power Agency (JPA). The District's investment in the Transmission Agency of Northern California (TANC) is accounted for under.the equity method of accounting and is reported as a component of Plant in Service.
The District's share of the TANC debt service costs and operations and maintenance expense, inclusive of depreciation, is included in Transmission and Distribution expense in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets.
Investments in Gas Properties. The District has an approximate 22 percent non-operating ownership interest in the Rosa Unit gas properties in New Mexico of which, the District's portion of the extracted gas is transported for use in its natural gas-fired power plants (see Note 6). The District uses the successful efforts method of accounting for-its investment in gas producing properties. Costs to acquire mineral interests in gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are. capitalized as a component of Plant in Service on the Consolidated Balance Sheets. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed. Capitalized costs of producing gas properties, after considering estimated residual salvage values, are depleted by the unit-of-production method based on the estimated future production of the proved developed producing wells. The District's investment in gas properties is reported as a component of Plant in Service.
Restricted and Designated Assets. Cash, cash equivalents and investments, which are restricted under terms of certain agreements for payments to third parties or Board actions limiting the use of such funds, are included as restricted assets.
Restricted Bond Funds. The District's Indenture Agreements and Bond Resolutions require the maintenance of minimum levels of reserves for debt service and certain construction costs intended by the related debt offerings.
Nuclear Decommissioning Trust Fund. The District makes annual contributions to its Nuclear Decommissioning Trust Fund (Trust Fund) to cover the cost of its primary decommissioning activities associated with the Rancho Seco facility. Primary decommissioning excludes activities associated with the spent fuel storage facility after 2008 and most non-radiological decommissioning tasks. The District annually evaluates its contribution rate to ensure the Trust Fund will fully fund primary decommissioning by the end of 2008, the same year in which active decommissioning is planned to be complete (see Note 13). The annual contribution rate is determined in advance of each year, during the budget process, based on calculation of the planned expenditure rate over the remaining number of years estimated to complete the primary decommissioning activities. Changes in the estimate of the decommissioning liability serve to increase the contribution rate in future years (not in the year the estimate is updated, if changed).
Interest earnings on the Trust Fund assets are recorded as Interest Income and are accumulated in the Trust Fund. Annual Decommissioning expense comprises the District's annual contribution to the Trust Fund and the interest earnings on Trust Fund assets during the year.
42 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accrued Decommissioning. The District accrues decommissioning costs related to Utility Plant when an obligation to decommission facilities is legally required. Adjustments are made to such liabilities based on estimates by District staff in accordance with Statement of Financial Accounting Standards (SFAS) No. 143, "Accountingfor Asset Retirement Obligations" (ARO). For active plants, such costs are included in the Utility Plant's cost and included as a component of Depreciation Expense over the Utility Plant's life. Expenditures for decommissioning activities are recorded as reductions to Accrued Decommissioning liability. Changes in Rancho Seco decommissioning liability estimates arising from inflation, annual accretion, and other changes to the cost assumptions are recorded directly to Accrued Decommissioning with a corresponding adjustment to the related regulatory deferral. The current portion of the Accrued Decommissioning liability represents the District's estimate of actual expenditures in the next year, generally as set forth in the annual budget.
The District has identified potential retirement obligations related to certain generation, distribution and transmission facilities. The District's non-perpetual leased land rights generally are renewed continuously because the District intends to utilize these facilities indefinitely. Since the timing and extent of any potential asset retirements are unknown, the fair value of any obligations associated with these facilities cannot be reasonably estimated. Accordingly, a liability has not been recorded.
At December 31, 2007 and 2006, the District's Accrued Decommissioning balance in the Consolidated Balance Sheets relating to Rancho Seco was $191.7 million and $247.5 million, respectively (see Note 13). The Accrued Decommissioning balance in the Consolidated Balance.Sheets relating to other electricity generation and gas production facilities totaled $5.7 million and $5.3 million as of December 31, 2007 and 2006, respectively.
Securities Lending Transactions. The District lends its securities to broker-dealers and other entities for collateral with a simultaneous agreement to return the collateral for the same securities in the future. District policy requires cash collateral of 102 percent of the market value of the loaned securities. Both the investments purchased, with the collateral received, and the related liability to repay the collateral are included in the Consolidated Balance Sheets.
Cash and Cash Equivalents. Cash and cash equivalents include all debt instruments purchased with an original maturity of 90 days or less, all investments in the Local Agency Investment Fund (LAIF), and money market mutual funds. LAIF has an equity interest in the State of California (State) Pooled Money Investment Account (PMIA). PMIA funds are on deposit with the State's Centralized Treasury System and are managed in compliance with the California Government Code according to a statement of investment policy which sets forth permitted investment vehicles, liquidity parameters, and maximum maturity of investments. The District's deposits with LAIF comprise cash representing demand deposits up to $40.0 million maximum, and cash equivalents representing amounts above $40.0 million which may be withdrawn after a thirty-day period. The debt instruments and money market mutual funds are reported at amortized cost which approximates fair value, and the LAIF is reported at the value of its pool shares.
Investments. The District's investments are reported at fair value. Realized and unrealized gains and losses are included in Interest and Other Income in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets. Premiums and discounts on zero coupon bonds are amortized using the effective interest method. Premiums and discounts on other securities are amortized using the straight-line method, which approximates the effective interest method.
Electric Operating Revenues. Electric revenues are billed on the basis of monthly cycle bills and are recorded as revenue when the electricity is delivered. The District records an estimate for unbilled revenues earned from the dates its retail customers were last billed to the end of the month. At December 31, 2007 and 2006, unbilled revenues were $61.2 million and $65.1 million, respectively.
SMUD 2007 AR 43
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Purchased Power Expenses. A portion of the District's power needs are provided through power purchase agreements.
Expenses from such agreements, along with associated transmission costs paid to other utilities, are charged to Purchased Power expense on the Consolidated Statements of Revenues, Expenses and Changes in Net Assets in the period the power is received. The costs, or credits, associated with energy swap agreements (gas and electricity)or other arrangements that affect the net cost of Purchased Power are recognized in the period in which the underlying power delivery occurs. Contract termination payments and adjustments to prior billings are included in Purchased Power expense once the payments or adjustments can be reasonably estimated.
Advanced Capacity Payments. Some long-term agreements to purchase energy from other providers call for up-front payment. Such costs are generally recorded as an asset and amortized over the length of the contract.
Credit and Market Risk. The District enters into forward purchase and sales commitments for physical delivery of gas and electricity with utilities and power marketers. The District is exposed to credit risk related to nonperformance by its wholesale counterparties under the terms of these contractual agreements. In order to limit the risk of counterparty default, the District has a wholesale counterparty evaluation policy which includes the assignment of internal credit ratings to the District's counterparties based on counterparty and/or debt ratings, the requirement for credit enhancements for counterparties that do not meet an acceptable risk level, and the use of standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty. The District is also subject to similar requirements for many of its gas and electricity purchase agreements. As of December 31, 2007 and 2006, the District held $32.2 million and $27.8 million, respectively, on deposit by counterparties. The amount is recorded as unrestricted cash with an associated short-term and long-term liability. On January 23, 2007, the District entered into a $50 million letter of credit facility to support collateral requirements under the Districts various energy and natural gas purchase, sale and swap agreements.
Accounts Receivable and Allowance for Doubtful Accounts. Accounts Receivable are recorded at the invoiced amount and do not bear interest, except for accounts related to energy loans. The District recognizes an estimate of uncollectible accounts for its receivables related to electric service, wholesale activities, and conservation loans based upon its historical experience with collections and current energy market conditions. For large wholesale receivable balances, the District determines its bad debt reserves based on the specific credit issues for each account. The District records bad debts for its estimated uncollectible accounts related to electric service and wholesale activities as a reduction to the related operating revenues in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets. The District records bad debts for its estimated uncollectible accounts related to energy loans in Administrative, General and Customer expense in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets.
44 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The summarized activity of the changes in the allowance for doubtful accounts during 2007 and 2006 is presented below (thousand of dollars):
Balance at Write-offs Balance at beginning of and end of Year Additions Recoveries Year California ISO and PX:
December 31, 2007 ............................... $ 24,577 $ 424 $ 759 $ 24,242 December 31, 2006. $ 24,274 $ 303 $ $ 24,577 Wholesale power and other:
December 31, 2007,. $ 1,305 $ 333 $ 389 $ 1,249 Decem ber 31, 2006 ............................... $ 913 $ 484 $ 92 $ 1,305 Retail Customers:
December 31, 2007 .................... ...... $ 2,989 $ 6,707 $ 5,517 $ 4,179 December 31, 2006 ......................... . $ 2,556 $ 5,320 $ 4,887 $ 2,989 Conservation Loans:
December 31, 2007 ............... ....... $ 1,370 $ 1,405 $ 1,046 $ 1,729 D ecem ber 31, 2006 ................................ $ 1,113 $ 396 $ 139 $ 1,370 Regulatory Deferrals. The Board has the authority to establish the level of rates charged for all District services. As a regulated entity, the District's financial statements are prepared in accordance with SFAS No. 71, "Accountingfor the Effects of Certain Types of Regulation",which requires that the effects of the rate-making process be recorded in the financial statements.
Accordingly, certain expenses and credits, normally reflected in Net Increase (Decrease) in Net Assets as incurred, are recognized when included in rates and recovered from, or refunded to, customers. The District records various regulatory assets and credits to reflect rate-making actions of the Board.
Materials and Supplies. Materials and supplies are stated at average cost, which approximates the first-in, first-out method.
Unamortized Debt Issuance Costs. The costs incurred in connection with the issuance of debt obligations, principally underwriters fees and legal costs, are recorded as Unamortized Debt Issuance Costs in the consolidated balance sheets and are amortized over the terms of the related obligations using the bonds outstanding method, which approximates the effective interest method.
Compensated Absences. The District accrues vacation leave and compensatory time when employees earn the rights to the benefits. The District does not record sick leave or other leave as a liability until it is taken by the employee, since there are no cash payments for sick leave or other leave made when employees terminate or retire. At December 31, 2007 and 2006, the total estimated liability for vacation and other compensated absences was $22.6 million and $21.1 million, respectively.
Public Good. Public Good expenses consist of non-capital expenditures for energy efficiency programs, low income subsidies, renewable energy resources and technologies research and development.
SMUD 2007 AR 45
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gains/Losses on Bond Refundings. Gains and losses resulting from bond refundings are included as a component of Long-Term Debt on the Consolidated Balance Sheets and amortized as a component of Interest on Debt in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets over the shorter of the life of the refunded debt or the new debt using the bonds outstanding method, which approximates the effective interest method.
Gains/Losses on Bond Defeasances. Gains and losses resulting from bond defeasances that were not financed with the issuance of new debt are included as a component of Interest on Debt in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets.
Allowance for Funds Used During Construction. The District capitalizes, as an additional cost of Construction Work In Progress (CWIP), an Allowance for Funds Used During Construction (AFUDC), which represents the cost of borrowed funds used for such purposes. The amount capitalized is determined by a formula prescribed by FERC. The AFUDC rates for 2007 and 2006 were 4.2 percent and 3.9 percent, respectively, of eligible CWIP.
Derivative Financial Instruments. The District records derivative financial instruments (interest rate swap and.gas price swap agreements, certain wholesale sales agreements, certain electricity purchase agreements and option agreements) at fair value on its Consolidated Balance Sheets. The District generally does not enter into agreements for trading purposes. However, the District does not elect hedge accounting. Fair market value is estimated by comparing contract prices to forward market prices quoted by third party market participants and/or provided in relevant industry publications. The Board defers recognition of the unrealized gains or losses from such instruments for rate-making purposes. The District is exposed to risk of nonperformance if the counterparties default or if the swap agreements are terminated. The District reports derivative financial instruments with remaining maturities of one year or less and the portion of long-term contracts with scheduled transactions over the next twelve months as current on the. Consolidated Balance Sheets.
Interest Rate Swap Agreements. The District enters into interest rate swap agreements to modify the effective interest rates on outstanding debt. Interest expense is reported net of the swap payments received or paid as a component of Interest on Debt in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets.
Gas and Electricity Price Swap and Option Agreements. The District uses forward contracts to hedge the impact of market volatility on gas commodity prices for its gas-fueled power plants and for energy prices on purchased power for the District's retail load. Net cash payments or receipts incurred under the price swap and option agreements are reported as a component of Production for fuel related contracts and Purchased Power for electricity contracts in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets over the periods of the agreements.
Precipitation Hedge Agreements. The District enters into non-exchange traded precipitation hedge agreements to hedge the increased cost of power caused by low precipitation years (Precipitation Agreements). The District records the intrinsic value of the Precipitation Agreements on the Consolidated Balance Sheets. Settlement of the Precipitation Agreements is not performed until the end of the period covered (water year ended September 30). The intrinsic value of a Precipitation Agreement is the difference between the expected results from a monthly allocation of the cumulative rainfall amounts, in an average rainfall year, and the actual rainfall during the same period.
Insurance Programs. The District records liabilities for unpaid claims at their present value when they are probable of occurrence and the amount can be reasonably estimated. The District records a liability for unpaid claims associated with general, auto, workers' compensation, and short-term and long-term disability based upon estimates derived by the District's claims administrator or District staff. The liability comprises the present value of the claims outstanding, and includes an amount for claim events incurred but not reported based upon the District's experience.
46 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net Assets. The District classifies its net assets into three components as follows:
" Invested in capital assets, net of related debt - This component of net assets consists of capital assets, net of Accumulated Depreciation reduced by the outstanding debt balances, net of unamortized debt expenses.
- Restricted - This component consists of net assets with constraints placed on their use, either externally or internally.
Constraints include those imposed by debt indentures (excluding amounts considered in net capital, above), grants or laws and regulations of other governments, or by law through constitutional provisions or enabling legislation or by the Board.
" Unrestricted - This component of net assets consists of net assets that do not meet the definition of "invested in capital, net of related debt" or "restricted."
Contributions in Aid of Construction. The District records CIAC from customer contributions, primarily relating to expansions to the District's distribution facilities, as Nonoperating Revenues in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets. Contributions of capital are valued at estimated market cost. For rate-making purposes, the Board does not recognize such revenues when received; rather, CIAC is included in revenues as such costs are amortized over the estimated useful lives of the related distribution facilities.
Grants. The District receives grant proceeds from federal and state assisted programs for its advanced and renewable technologies, electric vehicle, and energy efficiency programs. The District also periodically receives grant proceeds from federally assisted programs as partial reimbursements for costs it has incurred as a result of storm damages. When applicable, these programs may be subject to financial and compliance audits pursuant to regulatory requirements. The District considers the possibility of any material disallowances to be 'remote. During 2007 and 2006, the District recognized grant proceeds of $0.5 million and $2.8 million, respectively, as a component of Interest and Other Income, in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets.
Recent Accounting Pronouncements. In June 2004, GASB issued Statement of Government Accounting Standards (SGAS)
No. 45, "Accountingand FinancialReporting by Employers for Postemployment Benefits other than Pensions" (OPEB)
(GASB No. 45), which establishes standards of accounting and financial reporting for OPEB expense and related OPEB liabilities or assets. OPEB arises from an exchange of salaries and benefits for employee services rendered. It refers to postemployment benefits other than pension benefits such as postemployment healthcare benefits. This Statement is effective for the District beginning in 2007. See Note 15.
In November 2006, GASB issued SGAS No. 49, "Accountingand FinancialReportingfor Pollution Remediation Obligations" (GASB No. 49). GASB No. 49 requires local governments to provide the public with better information about the financial impact of environmental cleanups. A government would have to estimate its expected outlays for pollution remediation if it knows a site is polluted and if certain events have occurred. This Statement is effective for the District beginning in 2008.
The District is currently assessing the financial statement impact of adopting the new Statement, but does not believe that its impact will be material.
In June 2007, GASB issued SGAS No. 51, "Accountingand FinancialReportingfor Intangible Assets" (GASB No. 51). GASB No. 51 provides guidance regarding how to identify, account for and report intangible assets. Intangible assets are defined as assets that lack physical substance, are nonfinancial in nature, and have an initial useful life extending beyond a single reporting period. GASB No. 51 provides that intangible assets be classified as capital assets, except for items explicitly excluded from the scope of the standard. This Statement is effective for the District beginning in 2010. The District is currently assessing the financial statement impact of adopting the new Statement, but does not believe that its impact will be material.
SMUD 2007 AR 47
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In September 2006, FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (FASB No. 157). FASB No. 157 provides guidance for using fair value to measure assets and liabilities. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability.
The standard also establishes a fair value hierarchy that prioritizes the information used to develop these assumptions. This Statement is effective for the District beginning in 2008. The District is currently assessing the financial statement impact of adopting the new Statement, but does not believe that its impact will be material.
GASB 47. Effective January 1, 2006, the District adopted SGAS No. 47, "Accountingfor Termination Benefits" (GASB No. 47).
GASB No. 47 establishes standards of accounting and financial reporting for termination benefits. Termination benefits are benefits provided to employees as an incentive to hasten the termination of services, as a result of a voluntary early termination, or as a consequence of involuntary early termination. Under the standard, all termination benefits, including voluntary and involuntary benefits, must be recorded as a liability and expense. Upon initial recognition, a liability is recorded for voluntary termination benefits when employees accept the offer, and amounts can be estimated. Involuntary termination benefits should be recognized when the plan has been communicated to employees and amounts can be estimated. Measurement of the liability should be updated over future service periods.
The District has identified a termination benefit liability related to certain employees at the Rancho Seco Decommissioning
- site, which will complete non-radiological decommissioning in 2008. There are voluntary separation programs and retention agreements for certain employees, and if required reductions have not been achieved, an involuntary separation program will be instituted. Benefits provided include up to six months of paid Consolidated Omnibus Reconciliation Act of 1985 (COBRA) medical benefits, outplacement services, and severance, based on length of service and type of termination agreement. Employees with sufficient length of service areeligible for OPEB after termination. As of December 31, 2007, 22 employees had retention agreements totaling $1.4 million, recorded as a component of Customer Deposits and Other on the Consolidated Balance Sheets. Prior to the new standard, the District had recorded termination benefits; therefore, no initial amount was reported as an adjustment to net assets.
Customer Sales and Excise Taxes. The District is required by various governmental authorities, including states and municipalities, to collect and remit taxes on. certain. customer sales. Such taxes are presented on a net basis and excluded from revenues and expenses in the Consolidated Statements of Revenues, Expenses and Changes in Net Assets.
Reclassifications. Certain amounts in the 2006 consolidated financial statements have been reclassified in order to conform to the 2007 presentation.
48 Compact-with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE3- ACCOUNTING CHANGE EITF Issue No. 06-03. Effective January 1,2007, the District adopted the Emerging Issues Task Force (EITF) Issue No. 06-03, "How Taxes Collectedfrom Customers and Remitted to GovernmentalAuthorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation)".Included in the scope of this issue are any taxes assessed by a governmental authority that are imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added and some excise taxes. The EITF concluded that the presentation of such taxes on a gross basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that should be disclosed pursuant to Accounting Principles Board Opinion No. 22, "Disclosure of Accounting Policies".
The accounting policy disclosures required by this consensus are included in Note 2 under the heading "Customer Sales and Excise Taxes."
NOTE 4 . UTILITY PLANT The summarized activity of the District's utility plant during 2007 is presented below (thousands of dollars):
Balance Transfers Balance December 31, and December 31, 2oo6 Additions Deletions 2007 Nondepreciable Utility Plant:
Land ................. $ 87,122 $ 3,128 $ $ 90,250 CW IP ................................................ 224,579 288,377 (263,631) 249,325 Total nondepreciable utility plant ................. 311,701 291,505 (263,631) 339,575 Depreciable Utility Plant:
Generation ..... ............. .......... 1,275,139 109,971 (11,566) 1,373,544 Transmission ........ ......... 194,812 6,314 37 201,163 Distribution .................... 1,326,003 87,437 (15,372) 1,398,068 Investment in gas properties .... ........... 160,031 11,984 172,015 Investment in JPAs ....... 9,985 338 10,323 G eneral ....................... ........ 721,751 43,161 (8,249) 756,663 3,687,721 259,205 (35,150) 3,911,776 Less: accumulated depreciation and depletion ......... ................... (1,261,750) (141,599) 37,528 (1,365,821)
Less: accumulated amortization on JPAs .................. ........ ............. (2,896) (313) (3,209)
(1,264,646) (141,912) 37,528 (1,369,030)
Total depreciable plant 2,423,075 117,293 2,378 2,542,746 Total Utility Plant - net $ 2,734,776 $ 408,798 $ (261,253) $ 2,882,321 SMUD 2007 AR 49
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The summarized activity of the District's utility plant during 2006 is presented below (thousands of dollars):
Balance Transfers Balance December 31, and December 31, 2005 Additions Deletions 2006 Nondepreciable Utility Plant:
Land ..... ................................... $ 73,477 $ 13,645 $ $ 87,122 CW IP ................. ........ . ... 682,160 189,238 (646,819) 224,579 Total nondepreciable utility plant . ... 755,637 202,883 (646,819) 311,701 Depreciable Utility Plant:
Generation .. ............... ........................ 811,072 465,705 (1,638) 1,275,139 Transm ission . ............................ ... 188,169 11,566 (4,923) 194,812 Distribution ................... ....... ...... 1,241,704 90,477 (6,178) 1,326,003 Investment in gas properties ................. 144,777 15,254 160,031 Investm ent in JPAs ............................... 9,649 336 9,985 General ...................... 664,399 64,055 (6,703) 721,751 3,059,770 647,393 (19,442) 3,687,721 Less: accumulated depreciation and depletion ............................... (1,150,513) (132,873) 21,636 (1,261,750)
Less: accumulated amortization on JPAs ........... ............... (2,583) (313) (2,896)
(1,153,096) (133,186) 21,636 (1,264,646)
Total depreciable plant .............................. 1,906,674 514,207 2,194 2,423,075 Total Utility Plant - net ......................... $ 2,662,311 $ 717,090 $ (644,625) $ 2,734,776 In 2002, the District began active development of the Cosumnes Power Plant (CPP Project), a 500 megawatt (MW) natural gas-fueled generation facility located on the Rancho Seco site. The CPP Project became operational on February 24, 2006 (see Note 6 for component unit information and Note 18 relating to construction contract issues). Included in Utility Plant and CWIP at December 31, 2007 and 2006, are cumulative capitalized costs of $480.2 million and $469.4 million, respectively, relating to the CPP Project construction and development, including the related natural gas pipeline.
NOTE 5 . INVESTMENT IN JOINT POWERS AGENCY TANC. The District and fourteen other California municipal utilities are members of TANC, a JPA. TANC, along with the other California municipal utilities, own and operate the California-Oregon Transmission Project (COTP), a 500-kilovolt transmission line between central California and southern Oregon. The District is obligated to pay 27.1 percent of TANC's COTP debt service and operations costs in exchange for ownership of 339 MW of TANC's 1,269 MW transfer capability.
Additionally, the District has a 46 MW share of TANC's 300 MW firm, bi-directional transmission over Pacific Gas and Electric's (PG&E) system between PG&E's Tesla and Midway substations. The District recorded transmission expenses related to TANC of $13.2 million and $11.4 million in 2007 and 2006, respectively.
50 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary financial information for TANC is presented below:
December 31, 2007 2006 (Unaudited) (Unaudited)
(thousands of dollars)
Total assets ....................................................... $ 436,804 $ 437,963 Total liab ilities ............................................... ............... $ 434,224 $ 436,63 1 To tal n et assets .......................... ..................................... 2 ,580 1,3 32 Total liabilities and net assets ........................................ $ 436,804 $ 437,963 Changes in net assets for the six months ended December 31 ................. $ (458) $ 951 The long-term debt of TANC, which totals $371.7 million (unaudited) at December 31, 2007, is collateralized by a pledge and assignment of net revenues of TANC supported by take-or-pay commitments of the District and other members.
Should other members default on their obligations to TANC, the District would be required to make additional payments to cover a portion of such defaulted payments, up to 25 percent of its current obligation of 27.1 percent.
In October 2007, TANC entered into a sales and purchase agreement with the City of Vernon (Vernon) whereby TANC will purchase entitlement, rights, title and interest in Vernon's COTP transmission assets (approximately 121 MW North-to-South).
TANC expects the assignment and transfer of Vernon's COTP entitlement to occur within the first quarter of 2008. The District has not yet determined the impact on its entitlement share, transmission expenses, or debt obligation.
Copies of the TANC annual financial reports may be obtained from the District at 6201 S Street, P.O. Box 15830, Sacramento, California 95852.
NOTE6. COMPONENT UNITS CVFA Carson Cogeneration Project. CVFA is a JPA formed by the District and the Sacramento Regional County Sanitation District. CVFA operates the Carson Project, a 57 MW (net) natural gas-fired cogeneration facility and a 43 MW (net) natural gas-fired simple cycle peaking plant, which is financed primarily by CVFA non-recourse revenue bonds.
SFA Cosumnes Power Plant Project. SFA is a JPA formed by the District and the Modesto Irrigation District. SFA operates the CPP Project, a 500 MW (net) natural gas-fired, combined cycle facility, which is financed primarily by SFA non-recourse revenue bonds.
SCA Procter & Gamble Cogeneration Project. SCA is a JPA formed by the District and the SFA. SCA operates the Procter &
Gamble Project, a 120 MW (net) natural gas-fired cogeneration facility and a 44 MW (net) natural gas-fired simple cycle peaking plant, which is financed primarily by SCA non-recourse revenue bonds.
SPA Campbell Soup Cogeneration Project. SPA is a JPA formed by the District and the SFA. SPA operates the Campbell Soup Project, a 160 MW (net) natural gas-fired cogeneration facility, which is financed primarily by SPA non-recourse revenue bonds.
NCGA Northern California Gas Authority No. 1. NCGA is a JPA formed by the District and the SFA. NCGA has a twenty-year prepaid gas contract with Morgan Stanley Capital Group (MSCG), which is financed primarily by NCGA non-recourse revenue bonds. The District has contracted with NCGA to purchase all of the gas delivered to NCGA pursuant to the gas contract with MSCG. NCGA is obligated to pay the principal and interest on the Bonds. The District is obligated to purchase and pay for gas tendered for delivery by NCGA at market prices and is not obligated to make payments in respect to debt service on the Bonds.
SMUD 2007 AR 51
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As described in Note 2, all of the activities and balances of the component units are blended into and reported as part of the District because of the extent of their operational and financial relationships with the District. Copies of CVFA's, SCA's, SPA's, SFA's and NCGA's annual financial reports may be obtained from their Executive Office at 6201 S Street, P.O. Box 15830, Sacramento, California 95852.
NOTET7. CASH, CASH EQUIVALENTS, AND INVESTMENTS Cash Equivalents and Investments. The District's investment policies are governed by the California State and Municipal Codes and its Indenture, which restricts District investment securities to obligations which are unconditionally guaranteed by the United States (U.S.) Government or its agencies or instrumentalities; direct and general obligations of the State or any local agency within the State; bankers' acceptances; certificates of deposit; repurchase agreements; and taxable government and tax-exempt money market portfolios. The District's investment policy includes restrictions for investments relating to maximum amounts invested as a percentage of total portfolio and with a single issuer, maximum maturities, and minimum credit ratings.
Credit Risk. To mitigate the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment, the District limits investments to those rated, at a minimum, "A-1" or equivalent for commercial paper and "A' or equivalent for medium-term corporate notes by a nationally recognized rating agency.
Custodial Credit Risk. This is the risk that, in the event of the failure of a depository financial institution or counterparty to a transaction, the District's deposits may not be returned or the District will not be able to recover the value of its deposits, investments or collateral securities that are in the possession of another party. The District does not have a deposit policy for custodial credit risk. As of December 31, 2007, $4.2 million in deposits were uninsured. Additionally, at December 31, 2007 and 2006, $75.3 million and $76.1 million, respectively, in commercial paper and repurchase agreements were held by a counterparty that was acting as the District's agent in securities lending transactions.
Concentration of Credit Risk. This is the risk of loss attributed to the magnitude of an entity's investment in a single issuer.
The District places no limit on the amounts invested in any one issuer for repurchase agreements and federal agency securities.
The following are the concentrations of risk greater than 5 percent in either year:
December 31, 2007 2006 Investment Type:
Federal National Mortgage Association (Fannie Mae) ...................... ....... 9% 16%
Federal H om e Loan Banks ............................ .... ............ ...... 22% 15%
Federal Home Loan Mortgage Corporation (Freddie Mac) ...... ....... 5% 10%
M organ Stanley Repurchase Agreem ents ....... ........ -.. ........ ...... ............. 8% 7%
Interest Rate Risk. This is the risk of loss due to the fair value of an investment falling due to interest rates rising. Though the District has restrictions as to the maturities of some of the investments, it does not have a formal policy that limits investment maturities as means of managing its exposure to fair value losses arising from increasing interest rates.
Securities Lending Transactions. The District is authorized by its investment policy and by California Government Code to enter into securities lending agreements for up to 20 percent of its investment portfolio, not to exceed $75.0 million, only with counterparties that are primary dealers of the Federal Reserve Bank of New York. There have been no violations of the provisions of the authorization during 2007 or 2006. The maturities of the investments made, which are repurchase agreements and commercial paper, match the maturities of the securities loaned, which are U.S. Treasuries and Agencies.
At December 31, 2007 and 2006, the District had no credit risk exposure to borrowers because the amount the District owes the borrowers exceeds the amounts the borrowers owe the District. The contract with the District's custodial bank 52 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS requires it to indemnify the District if the borrowers fail to return the securities (and the collateral is inadequate to replace the securities lent), or fail to pay the District for income distributions by the securities' issuers while the securities were on loan. The District cannot pledge or sell collateral securities without borrower default. The District receives cash collateral and invests in certain securities allowed for in the securities lending agreement. These investments were in Repurchase Agreements and Commercial Paper in the amount of $69.1 million and $6.2 million, respectively, as of December 31, 2007.
The fair market value equals the carrying amount for the both the Repurchase Agreements and Commercial Paper.
Interest Rate Swap Agreement. The District has a variable-to-variable rate swap agreement with an initial notional amount of $100.0 million for the purpose of exchanging earnings on short-term assets in the investment portfolio for earnings based on a longer term investment rate without sacrificing liquidity. The swap agreement expires in June 2016. Under the terms of the swap agreement, the District pays a variable rate equal to the 90-day LIBOR rate and receives a variable rate of the 10-year LIBOR minus .347 percent. The Standard and Poor's (S&P) credit rating of the counterparty is AA-.
This swap was terminated by the District on January 3, 2008. The District received a $3.7 million termination payment.
The following schedules indicate the credit and interest rate risk at December 31, 2007 and 2006. The credit ratings listed are from S&P. N/A is defined as not applicable to the rating disclosure requirements.
At December 31, 2007, the District's cash, cash equivalents and investments consist of the following:
Remaining Maturities (in years)
Credit Less More Total Fair Description Rating Than 1 1-5 than 5 Value Cash and Cash Equivalents:
L A IF .... ..................... Not Rated $ 43,395 $ $ $ 43,395 Money market mutual funds ....... AAAm 81,162 81,162 Certificates of Deposits... A-liAAA/A-I+ 100,000 100,000 Fannie M ae ................ A-I+ 12,141 12,141 Federal Home Loan Banks ....... A-1+ 18,682 18,682 Commercial paper.. A-1/A-i+ 55,279 55,279 Repurchase agreements ... Not Rated 69,131 69,131 Total cash and cash equivalents 379,790 379,790 Investments:
Fannie M ae ................ AAA/A-1+ 27,264 14,986 4,988 47,238 Federal Farm Credit Bonds ............. AAA 6,586 2,256 8,842 Federal Home Loan Banks ............ AAA 89,925 34,927 124,852 Freddie M ac ................ AAA 997 30,936 31,933 Guaranteed Investment Contract. ... .......... . Not Rated 10,698 10,698 United States Treasuries... N/A 32,122 32,122 Corporate Note ...... AAA 9,877 5,012 14,889 Total investments ..... 124,772 125,104 20,698 270,574 Total cash, cash equivalents and investments ... $ 504,562 $ 125,104 $ 20,698 $ 650,364 SMUD 2007 AR 53
Sacramento Municipal Utility District 1 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2006, the District's cash, cash equivalents and investments consist of the following:
Remaining Maturities (in years)
Credit Less More Total Fair Description Rating Than 1 1-5 than 5 Value Cash and Cash Equivalents:
L AIF .......................... Not Rated $ 470 $ $ $ 470 Money market mutual funds ....... AAAm 113,571 113,571 Certificates of Deposits ... A-1/AA+IA-l+/- 125,000 125,000 Commercial paper ......... A-1/A-l+ 41,897 41,897 Repurchase agreements... Aaa 73,086 73,086 Total cash and cash equivalents 354,024 354,024 Investments:
Fannie Mae .......... AAA 53,815 55,450 4,859 114,124 Federal Farm Credit Bonds ............. AAA 2,232 2,232 Federal Home Loan Banks ............. AAA 44,865 61,069 105,934 Freddie M ac ................ AAA 31,935 40,046 71,981 Guaranteed Investment Contract .................. Not Rated 10,698 10,698 United States Treasuries ... N/A 10,845 22,524 33,369 Corporate Note ............ Ak+/AA-/AAA 14,034 4,992 19,026 Commercial paper ......... A-l/A-l+ 1,973 1,973 Total investments ....... 143,433 195,355 20,549 359,337 Total cash, cash equivalents and investments... $ 497,457 $ 195,355 $ 20,549 $ 713,361 At December 31, 2007 and 2006, the District reported its book overdraft of $0.1 million and $0.8 million,.respectively, as a component of Accounts Payable on the Consolidated Balance Sheets.
The District's cash, cash equivalents, and investments are classified in the Consolidated Balance Sheets as follows:
December 31, 2007 2006 (thousands ofdollars)
Total Cash, Cash Equivalents and Investments:
Revenue bond reserve, debt service and construction funds:
Revenue bond reserve fund .......................................................... $ 73,428 $ 76,551 D eb t service fun d ...................... ................... 53,636 5...............................
58,90 1 Component unit bond reserve and construction funds ............................... 116,283 96,491 Total revenue bond reserve, debt service and construction funds ................. 243,347 231,943 Nuclear decommissioning trust fund 69,865 82,315 R ate stab ilizatio n fu n d ............................................... ............. ........ 9 1,143 107,100 Securities lending collateral ................................... ............................ 75,284 76,086 O th er restricted fu n d s .................................... ........................ ..... ..... 80 3 1,18 1 Un restricted fun d s ...................................... 169,922 214,736 Total cash, cash equivalents and investments $ 650,364 $ 713,361 54 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. REGULATORY DEFERRALS The Board has taken various regulatory actions that result in differences between the recognition of revenues and expenses for rate-making purposes and their treatment under generally accepted accounting principles for non-regulated entities.
These actions result in regulatory assets and liabilities, which are summarized in the tables below. Changes to these balances, and their inclusion in rates, occur only at the direction of the Board.
Regulatory Assets Decommissioning. The District's regulatory asset relating to the unfunded portion of its decommissioning liability is being collected in rates and through interest earnings on the Trust Fund through 2008, when radiological decommissioning is expected to be complete. Subsequently, nuclear fuel storage costs and non-radiological decommissioning costs are to be collected in rates commencing in 2009.
Wholesale Power Receivables. The District's regulatory asset relates to its wholesale receivables that were fully reserved as uncollectible in 2001. These wholesale receivable reserves relate to amounts due from the California PX totaling $24.2 million and $24.6 million at December 31, 2007 and 2006, respectively. The ultimate recovery of these amounts is dependent on numerous factors and cannot be determined at this time. This regulatory asset will be reversed concurrent with the reasonable certainty of collections, or by inclusion in rates in future periods.
TANC Operations Costs. The District's regulatory asset relating to deferred TANC costs comprises the difference between its cash payments made to TANC and its share of TANC's accrual-based costs of operations. This regulatory asset is being collected in rates over the life of TANC's assets during the period that cash payments to TANC exceed TANC's accrual-based costs.
U.S. Bureau of Reclamation. In December 2004, the District established a regulatory asset to defer recognizing the expense related to the settlement with the U.S. Bureau of Reclamation (Bureau) on a billing dispute. The District will make increased payments in future rates to settle the dispute (see Note 18). This regulatory asset will be collected in rates for future water service over the twenty-five year period the District is committed to making the increased rate payments to the Bureau.
Enrichment Facility Decommissioning Assessment. The District's regulatory asset relating to obligations associated with the federal nuclear fuel enrichment program is being collected in rates, based on cash payments made, through 2008.
Precipitation Hedges. Settlements of Precipitation Agreements are included in rates in the year settled and accordingly, the intrinsic value of open precipitation hedges is deferred as regulatory assets or liabilities.
The District's total regulatory costs for future recovery are presented below:
December 31, 2007 2oo6 (thousands of dollars)
Regulatory Costs for Future Recovery:
D ecom m issioning .......... ............................ .............. ...... $ 137,998 $ 170,243 W holesale power receivables ...... ............. .............. ......... 24,242 24,577 TANC operations costs ........ ................. 6,571 8,856 U.S. Bureau of Reclam ation ........................... 6,200 5,790 Enrichment facility decom m issioning assessm ent ................ ............... ........ 1,215 2,431 Precip itatio n h ed ges ............. . ............. ................ ... .......... ............ Total regu lato ry costs ............ ...... ......... .... ... ............. .... ........... ,. ... 176,226 2 11,897 Less: regulatory costs to be recovered within one year .... ............................. (39,464) (57,763)
Total regulatory costs for future recovery -- net . ........................ ....... $ 136,762 $ 154,134 SMUD 2007 AR 55
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Regulatory Liabilities CIAC. In 2007 and 2006, the District capitalized CIAC totaling $24.4 million and $23.7 million, respectively, in Plant in Service in the Consolidated Balance Sheets and recorded $7.6 million and $7.0 million, respectively, of Depreciation Expense in the Consolidaied Statements of Revenues, Expenses and Changes in Net Assets. The District's regulatory credit relating to CIAC is intended to offset the revenue and expense associated with this accounting treatment. Thus, this regulatory credit is being amortized into rates over the depreciable lives of the related contributed distribution plant assets in order to offset the earnings effect of these nonexchange transactions.
Derivative Financial Instruments. The District's regulatory credit relating to derivative financial instruments is intended to defer the net difference between the fair value of derivative instruments and their cost basis, if any. Derivatives are reflected in rates at contract cost and as such, the balance is charged or credited into rates as the related asset or liability is utilized.
Rate Stabilization. The District's regulatory credit relating to Rate Stabilization is intended to defer the need for future rate increases when costs exceed existing rates. At the direction of the Board, amounts may be either transferred into this fund (which reduces revenues), or amounts are transferred out of this fund (which increases revenues). The Board authorizes Rate Stabilization Fund transfers on an event driven basis.
Public Good. The District's regulatory credit relating to Public Good comprises the amounts collected in rates for specifically identified Public Good programs that have not been fully expended. These regulatory deferrals are credited to revenue in the period when the expenditures on identified projects occur.
The District's total regulatory credits for future revenue recognition are presented below:
December 31, 2007 2006 (thousands of dollars)
Regulatory Credits for Future Revenue Recognition:
C IA C ........................................... ........ ....... $ 208,733 $ 19 1,949 D erivative financial instrum ents ..... ....... ................. ................... .... 79,354 32,645 R ate stab ilizatio n ... ..... ....... . ..... .... . .................... ................ ............ 9 1,14 3 10 7,10 0 P recip itatio n h ed ges .......... .................. ......................................... .... 10 ,6 96 36 Pu b lic g o o d ......... ............................. ....... ........ . ................ 2,0 97 3,34 7 3...
Total regulatory credits for future revenue recognition ................................. 392,023 335,077 Less: regulatory credits to be recognized within one year ............................ (31,037) (18,879)
Total regulatory credits - net .... ........ .................................... $ 360,986 $ 316,198 NOTEg9 DERIVATIVE FINANCIAL INSTRUMENTS The District enters into contracts for electricity and natural gas to meet the expected needs of its retail customers. The District sells excess capacity during periods when it is not needed to meet its retail requirements. The District's energy risk management program uses various physical and financial contracts to hedge exposure to fluctuating commodity prices.
The District also enters into interest rate swap agreements to reduce interest rate risk, or to enhance the relationship between the risk and return regarding the District's assets or debt obligations. During 2007 and 2006, the District executed numerous new gas related and power related purchase agreements, some of which are recorded as derivative financial instruments and are included in the table below.
56 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of the District's derivative financial instruments are as follows:
December 31, 2007 2006 (thousands of dollars)
Derivative Financial Instrument Assets:
Gas related agreements ........ .......... $ 81,806 $ 59,897 Electric related agreem ents ........................ ................. ...................... 2,068 Treasury related agreem ents ........................ ................................. 27,050 23,732 Total derivative financial instrument assets .......................... ..... 110,924 83,629 Less: derivative financial instruments maturing within one year . ........... (22,870) (35,503)
Total derivative financial instrument assets - net ................ ................ $ 88,054 $ 48,126 Derivative Financial Instrument Liabilities:
G as related agreem ents ... . ................ ................ ...... $ 5,319 $ 34,122 Electric related agreem ents ... ................ ........... ..... .......... .............. 3,307 Treasury related agreem ents .................. ........... . . .......... ..... ... ..... ... . .... 19,920 13,657 Total derivative financial instruments liabilities ........................ .......... 28,546 47,779 Less: derivative financial instruments maturing within one year ....................... (10,344) (25,725)
Total derivative financial instrument liabilities - net....... .......... $ 18,202 $ 22,054 The Board has deferred recognition of the effects of reporting the fair value of derivative financial instruments for rate-making purposes, and maintains regulatory accounts to defer the accounting impact of these accounting adjustments (see Note 8).
Market values may have changed significantly since December 31, 2007.
NOTE O. LONG-TERM DEBT The District's total long-term debt is presented below:
December 31, 2007 2006 (thousands of dollars)
Electric Revenue Bonds:
Electric revenue bonds, 2.5% -6.5% , 2008-2033 ...... ................................. $ 1,544,425 $ 1,603,590 Subordinated electric revenue bonds, 2.9%-8.0%, 2008-2028 ...... 443,400 469,425 Total electric revenue bonds ...... ........ ......................... 1,987,825 2,073,015 Component unit project revenue bonds, 3.0%-5.5%, 2008-2030 ............. 541,390 554,280 Gas supply prepayment bonds 3.85%-5.0%, 2008-2027 .................................... 757,055 Total long-term debt outstanding ........... .......... ........ ........... .... 3,286,270 2,627,295 Bond prem ium s - net ............................................ 73,074 79,221 Deferred losses on bond refundings - net .... ............................. ...... (79,763) (90,127)
Total long-term debt .... . ........... .......... ................................. 3,279,581 2,616,389 Less: am ounts due within one year .... ........ ............................... (106,365) (98,080)
Total long-term debt - net ..... ....................... ....... $ 3,173,216 $ 2,518,309 SMUD 2007 AR 57
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The summarized activity of the District's long-term debt during 2007 is presented below (thousands of dollars):
Amounts December 31, Payments or December 31, Due Within 2oo6 Additions Amortization 2007 One Year Electric revenue bonds.. $ 1,603,590 $ $ (59,165) $ 1,544,425 $ 61,825 Subordinate electric revenue bonds ........... 469,425 (26,025) 443,400 12,450 Component unit project revenue bonds ............ 554,280 (12,890) 541,390 13,425 Gas supply prepayment b on ds .............. 757,055 757,055 18,665 To tal .. .... ..... ........ 2,627,295 757,055 (98,080) 3,286,270 $ 106,365 Unamortized premiums - net ... .79,221 2,618 (8,765) 73,074 Deferred losses on bond refundings - net ......... (90,127) 10,364 (79,763)
Total long-term debt ....... $ 2,616,389 $ 759,673 $ (96,481) $ 3,279,581 The summarized activity of the District's long-term debt during 2006 is presented below (thousands of dollars):
Amounts December 31, Payments or December 31, Due Within 2005 Additions Amortization 2006 One Year Electric revenue bonds ..... $ 1,669,250 $ $ (65,660) $ 1,603,590 $ 59,165 Subordinate electric revenue bonds ...... 478,425 (9,000) 469,425 26,025 Component unit project revenue bonds ......... 263,485 300,375 (9,580) 554,280 12,890 To tal .... ............. 2,411,160 300,375 (84,240) 2,627,295 $ 98,080 Unamortized premiums - net.. 75,813 13,129 (9,721) 79,221 Deferred losses on bond refundings - net ........ (101,445) 11,318 (90,127)
Total long-term debt ....... $ 2,385,528 $ 313,504 $ (82,643) $ 2,616,389 At December 31, 2007, scheduled annual principal maturities and interest are as follows (thousands of dollars):
Principal Interest Total 2008 ..... .................... ................................... 10 6,36 5 15 5,18 6 261,551 2009 ......... ............................................... ....... 10 8,60 5 15 0,4 36 259,041 2010 ....................... ................ ........... ................ 13 7,15 0 14 5,04 7 282,197 2011.................................................... ... 14 3,970 13 7,2 16 281,186 2012 ......... ............................................................ ...... 1 8,855 14 13 0,0 24 278,879 20 13 - 20 17 . ....................................................... 838,625 539,239 1,377,864 20 18 - 2022 .... ............................. .......................... 813,380 340,253 1,153,633 2023 - 2027 ................................. ........................ 764,160 157,747 921,907 2028 - 2032 .... ............................................ 209,7 10 25,112 234,822 2033 .. ....... ........ ............. .. . ......................... .......... 15,45....
50 772 16,222 Total Requirem ents .. ......................... ........................... $ 3,286,270 $ 1,781,032 $ 5,067,302 58 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest in the preceding table includes interest requirements for variable rate debt using the debt interest rate of 4.03 percent in effect at December 31, 2007 for the issue.
2007 Revenue Bonds. On May 16, 2007, NCGA issued $757.1 million of 2007A and 2007B Series NCGA Revenue Bonds.
The proceeds of the offering were used to finance the prepayment for a twenty-year supply of natural gas. As discussed in Note 6, NCGA is obligated to pay the debt service on the Bonds. The District's obligation is limited to the purchase and payment for gas tendered for delivery by NCGA.
2006 Revenue Bonds, On January 19, 2006, SFA issued $300.4 million of 2006 Series SFA Revenue Bonds. The proceeds of the offering were used to purchase the CPP Project from the District.
2006 Revenue Bonds Refunding and Redemptions. In July 2006, CVFA redeemed $1.9 million of CVFA Bonds 1993 Series due in July 2009 at a cost of $1.9 million. This bond redemption resulted in a current accounting loss of $12 thousand, which is included in Interest on Debt in the Consolidated Staterments of Revenues, Expenses and Changes in Net Assets. Redeeming the bonds will reduce the aggregate future debt service payments by $2.2 million.
Interest Rate Swap Agreements. A summary of the Districts four swap agreements are as follows:
Initial Notional Counterparty Amount District Fixed Floating Termination Credit (060's) Pays Rate Rate Date Rating (S&P)
$ 269,095 Fixed 4.345% 70% of LIBOR 08/15/18 AAA 131,030 Variable 5.154% BMA 07/01/24 AA-111,900 Fixed 2.894% 63% of LIBOR 08/15/28 AA-39,470 Fixed 4.500% 65% of LIBOR 07/01/10 AA-The District has a fixed-to-variable interest rate swap agreement with an initial notional amount of $131.0 million, which is equivalent to the principal amount of the District's 1997 Series K Electric Revenue Bonds. Under this swap agreement, the District pays a variable rate equivalent to the Bond Market Association (BMA) Index (3.42 percent at December 31, 2007) and receives fixed rate payments of 5.154 percent. In connection with the swap agreement, the District has a put option agreement, also with an initial notional amount of $131.0 million, which gives the counterparty the right to sell to the District, at par, either the 1997 Series K Bonds, or a portfolio of securities sufficient to defease the 1997 Series K Bonds. The exercise of the option terminates the swap at no cost to the District. The term of both the swap and the put is equal to the maturity of the 1997 Series K Bonds.
Additionally, the District has three variable-to-fixed interest rate swap agreements with a combined initial notional amount of $420.5 million for the purpose of fixing the effective interest rate associated with certain of its Subordinated Bonds. The notional values of all three swaps are amortized over the life of the respective swap agreements. The District can terminate all swap agreements at any time, with payment or receipt of the fair market value, of the swaps as of the date of termination.
In September 2005, the District entered into a variable-to-fixed swap agreement with a counterparty to hedge interest rate risk on the CPP Project financing, which subsequently funded on January 19, 2006. The swap had a notional amount of
$257.0 million and was scheduled to amortize through 2030. Although the agreement was scheduled to become effective March 1, 2006, the intent was to terminate and cash settle the swap upon funding of the CPP Project. Consequently, on January 19, 2006 the swap cash settled with a $2.0 million payment from the counterparty.
Subordinated Electric. Revenue Bonds. Payment of and interest on the Subordinated Electric Revenue Bonds is subordinate to the payment of the principal and interest on the District's Electric Revenue Bonds.
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Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Variable Rate Bonds. The District's Variable Rate Bonds bear interest at daily, weekly, and monthly rates, ranging from 3.50 percent to 3.80 percent at December 31, 2007. The District can elect to change the interest rate period or fix the interest rate, with certain limitations. The District's Variable Rate Bonds cannot be put to the District by the bondholders. Accordingly, the District has recorded such bonds as Long-Term Debt, less amounts scheduled for redemption within one year.
Component Unit Bonds. The component units of the District have each issued bonds to finance their respective projects.
These bonds have limited recourse to the District. Principal and interest associated with these bonds are paid solely from the component units' revenues and receipts collected in connection with the operation of the projects. Most operating revenues earned by the component units are collected from the District in connection with the sale of gas or electricity to the District.
The ability of the component units to service the debt is dependent upon the successful operation of the respective projects (see Note 6).
Callable Bonds. The District has $214.4 million of fixed rate Electric System Revenue Bonds that are currently callable and $699.8 million of bonds that become callable from 2011 through 2014. These bonds can be called until maturity. In addition, all $418.8 million of the District's Variable Rate Subordinated Bonds are currently callable.
Collateral. The principal and interest on the District's bonds are payable exclusively from, and are collateralized by a pledge of, the net revenues of the electric system of the District. Neither the credit nor the taxing power of the District is pledged to the payment of the bonds and the general fund of the District is not liable for the payment thereof.
Covenants. The District's bond resolutions contain various covenants that include requirements to maintain minimum debt service coverage ratios, certain other financial ratios, stipulated minimum funding of revenue bond reserves, and various other requirements.
NOTE,,. COMMERCIAL PAPER NOTES The District issues Commercial Paper Notes (Notes) to finance or reimburse capital expenditures. At December 31, 2007, Notes outstanding totaled $150.0 million, and as of December 31, 2006, there were no Notes outstanding. The effective interest rate for the Notes outstanding at December 31, 2007 was 2.97 percent and the average term was 87 days. On January 23, 2007, a new $204.9 million letter of credit went into effect with fees of 0.1 percent on undrawn balances and 0.16 percent on drawn balances. There has not been a term advance under the letter of credit agreement.
The summarized activity of the District's Notes during 2007 and 2006 is presented below (thousands of dollars):
Balance at Balance at beginning of end of Year Additions Reductions Year December 31, 2007 . ......................... $ $ 150,000 $ $ 150,000 December 31, 2006............................... $ 200,000 $ $ . 200,000 $ NOTE12. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value:
Investments. The fair values of investments, including cash equivalents, are based upon quoted market prices.
Long-Term Debt. The fair value of Long-Term Debt, which includes the short-term portion, was calculated by determining the value of each individual series using a standard bond pricing formula and market yields from representative yield curves. For debt with a stepped interest rate, the fair market value of debt was calculated by discounting future interest and 60 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS principal payments using a market yield from a representative yield curve. The District's electric revenue bonds, including subordinated bonds, were priced using the fair market curve for insured municipal revenue bonds. A similar fair value calculation was performed for the insured component units' bonds using the yield curve for "A"rated municipal power bonds. All yield curves were obtained from Bloomberg L.P.
Interest Rate Swap and Put Agreements. The fair values of interest rate swap and put agreements are based on quoted market prices.
Gas and Electricity Related Derivatives. The fair values of gas and electricity price swap agreements and electricity option agreements are based on forward prices from established indexes for the applicable regions. The fair values of gas and electricity purchase agreements are based on forward prices from established indexes from applicable regions and discounted using established interest rate indexes.
Market values may have changed significantly since December 31, 2007. The estimated fair values of the District's financial instruments are presented below:
December 31, 2007 Recorded Value Fair Value (thousands of dollars)
Investments, including cash and cash equivalents ........... ............. ................ $ 650,364 $ 650,364 L o n g-term d ebt .. ........ ......................... .................. ............. (3,279,58 1) (3,430,54 7)
Interest rate swap and put agreements ........ . . . ........ 7,130 7,130 Gas and electricity related derivatives - net ................ . .... 75,248 75,248 December 31, 2006 Recorded Value Fair Value (thousands of dollars)
Investments, including cash and cash equivalents ..................... $ 713,361 $ 713,361 Lo n g-term d eb t ........ ... ... ........... ... ........ ..... ... ..... ... .......... .................. (2,6 16 ,389 ) (2,80 3,4 66 )
Interest rate sw ap and put agreem ents .................................................. .... 10,075 10,075 Gas and electricity related derivatives - net ......... ... ........ .......... ............... 25,775 25,775 NOTE13. RANCHO SECO DECOMMISSIONING LIABILITY Background. The Rancho Seco decommissioning liability relates to the nuclear decommissioning of the former 913 MW nuclear power plant, which terminated commercial operations in 1989. Nuclear decommissioning is the process of safely removing nuclear facilities from service and reducing residual radioactivity to a level that permits termination of the Nuclear Regulatory Commission (NRC) license, and release of the property for unrestricted use. The NRC has approved the District's decommissioning plan, which provides for removing low-level radioactive material beginning in 1997 and completing active decommissioning in 2008. The plant license will be terminated in phases. The license for the main areas of the Rancho Seco power plant site is expected to be terminated in 2008 after removal of waste, most of which is being sent to licensed disposal sites or licensed radioactive waste processors. The remaining waste will be stored on site for an unspecified period after 2008 pending availability of appropriate disposal sites. The license for the storage facilities will be terminated after the waste is removed.
The Department of Energy (DOE), under the Nuclear Waste Policy Act of 1982, is responsible for permanent disposal of spent nuclear fuel and high-level radioactive waste. The District has a contract with the DOE for the removal and disposal of spent nuclear fuel and high-level (greater than class "C": GTCC) radioactive waste. However, the date when fuel and GTCC waste removal will be complete is uncertain. The DOE has announced that it will not meet the projected optimistic opening date of 2017 for the Yucca Mountain nuclear fuel waste site and has not estimated a new estimated opening date.
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Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The rate at which DOE will remove fuel is also uncertain. The District maintains a separately licensed on-site independent spent fuel storage facility (Storage Facility) which stores all of the District's spent fuel and GTCC waste in sealed canisters.
The Storage Facility will remain under the regulation of NRC until such time as it is decommissioned after the DOE removes the nuclear fuel and GTCC radioactive waste.
Asset Retirement Obligations. These financial statements reflect the District's current estimate of its obligation for the cost of decommissioning under the requirements of SFAS No. 143 based on studies completed each year. Each year, the District evaluates the estimate of costs of decommissioning and there was no increase in cost in the 2007 study. The asset retirement obligation estimate assumes all spent nuclear fuel will be removed from the site by 2028.
Rancho Seco's asset retirement obligation is presented below (thousands of dollars):
December 31, 2007 2006 Active decom missioning .......... .......................................... .................... $ 75,547 $ 134,620 Spent fuel m anagem ent ........... ................................... . 1 116,1979 1.......................
112,859 To tal A RO ........................ .......... ......................... ............................. $ 19 1,74 4 $ 24 7,4 7 9 L ess: cu rren t p o rtio n .............................................. ............................ (42,292) (54,839)
Total Non-current portion of ARO ........................ ............................... $ 149,452 $ 192,640 The summarized activity of the Rancho Seco asset retirement obligation during 2007 and 2006 are presented below (thousands of dollars). The annual adjustments include a savings computed as the difference between the fair value of the obligation as if the decommissioning activities were performed by a third party and the amount actually incurred by the District performing the decommissioning activities.
December 31, 2007 2006 AR O at beginning of year ...................................................................... $ 247,479 $ 284,942 A cc retio n . . ....... ....... ........ ......... 10 ,367 , 1 ,77..................9..........
13 90 E xp en d itures .. ..................................................... ....... .. ...................... (.0 (5 5,10 9 ) (33 ,398 )
A n n u al adju stm en ts (1...................................................................
(10,993) (17,855)
To tal AR O .................... ........... ......... ........................................ $ 19 1,744 $ 24 7 ,4 79 The District contributed $27.0 million to the Trust Fund in 2007 and 2006.
NOTE 14. PENSION PLANS Defined Benefit Pension Plan. The District participates in the California Public Employee's Retirement System (PERS), an agent multiple-employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State. Benefit provisions and all other requirements are established by State statute and District policies. The pension plan provides retirement benefits, survivor benefits, and death and disability benefits based upon employee's years of credited service, age, and final compensation. Copies of PERS' annual financial report may be obtained from their Executive Office at 400 Q Street, Sacramento, California 95814.
Funding Policy. Participants are required to contribute approximately 7 percent of their annual covered salary. The District makes either the full or partial contributions required of District employees on their behalf and for their account. The District is currently required to contribute 7.4 percent of payroll to the plan. The contribution requirements of plan members and the District are established and may be amended by PERS.
62 Compact with the Customer
Sacramento Municipal Utility District 1 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Pension Cost. PERS payments made by the District in 2007 were $24.8 million. The Annual Pension Cost for 2007 was $24.2 million, and $0.6 million was paid by employees for purchase of additional service credits. Overall, the District paid $23.4 million, and employees paid $1.4 million. PERS payments made by the District in 2006 were $21.6 million. The Annual Pension Cost for 2006 was $20.8 million, and $0.8 million was paid by employees for purchase of additional service credits. Overall, the District paid $20.8 million, and employees paid $0.8 million. Contributions are determined by actuarial valuations which are performed based on the entry age normal actuarial cost method. The contribution for the first half of 2007 was determined by PERS as part of the annual actuarial valuation as of June 30, 2004; the contribution for the second half of 2007 was determined by PERS as part of the annual actuarial valuation as of June 30, 2005. The actuarial assumptions included: (a) a 7.75 percent investment rate of return (net of administrative expenses), (b) projected annual salary increases that vary by duration of service, and (c) 3.0 percent per year cost-of-living adjustments. Both (a) and (b) also included an inflation component of 3.0 percent. The actuarial value of PERS' assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a three-year period (smoothed market value).
Three-year trend information for PERS is presented below (dollars in thousands):
Annual Pension Percentage of Fiscal Year Cost (APC) APC Contribution 6/30/05 $ 8,209 100%
6/30/06 $ 20,825 100%
6/30/07 $ 24,225 100%
Funded Status and Funding Progress. As of June 30, 2006, the most recent actuarial valuation date, the plan was 99 percent funded. The actuarial accrued liability for benefits was $1,226 million, and the actuarial value of assets was $1,213 million, resulting in an unfunded actuarial accrued liability (UAAL) of $12.7 million. The covered payroll (annual payroll of active employees covered by the plan) was $163.7 million, and the ratio of the UAAL to the covered payroll was 7.8 percent.
The schedule of funding progress, presented as RSI following the notes to the financial statements, prese .ntsmultiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.
Other Plans. The District provides its employees with two cash deferred compensation plans; one pursuant to Internal Revenue Code (IRC) Section 401(k) [401(k) Plan] and one pursuant to IRC Section 457 (457 Plan) (collectively, the Plans). The Plans are contributory plans in which the District's employees contribute the funds. Each of the District's eligible full-time or permanent part-time employees may participate in either or both Plans, and amounts contributed are vested immediately. Such funds are held by a Trustee in trust for the employees upon retirement from District service and, accordingly, are not subject to the general claims of the-District's creditors. The District is responsible for ensuring compliance with IRC requirements concerning the Plans and has the duty of reasonable care in the selection of investment alternatives, but neither the District, nor its Board or officers have any liability for market variations in the Plans' asset values.
District employees are responsible for determining how their funds are to be invested and pay all ongoing fees related to the Plans. The Plans are currently not subject to discrimination testing, nor the requirements of the Employee Retirement Income Security Act of 1974. The District employees participating in the Plans are allowed to contribute a portion of their gross income not to exceed the annual dollar limits prescribed by the IRC.
The District makes annual contributions to the 401 (k) Plan on behalf of certain employees pursuant to a memorandum of understanding with both of its collective bargaining units. The District does not match employee contributions, nor make contributions on behalf of its employees to the 457 Plan. Participating employees and the District made contributions into the Plans totaling $15.9 million and $1.5 million in 2007, respectively, and $15.5 million and $0.8 million in 2006, respectively.
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Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE15. OTHER POSTEMPLOYMENT BENEFITS The District provides postemployment healthcare benefits, in accordance with District policy and negotiated agreements with employee representation groups in a single employer defined benefit plan, to all employees who retire from the District, and their dependents, on or after attaining age 50 with at least 5 years of service. The District also provides postemployment healthcare benefits to covered employees who are eligible for disability retirement. The District contributes the full cost of coverage for employees hired before January 1, 1991, and a portion of the cost based on credited years of service for employees hired after January 1, 1991. The District also contributes a portion of the costs of coverage for these employees' dependents.
Plan members are required to contribute the portion that is not paid by the District. The benefits, benefit levels, employee contributions and employer contributions are governed by the District and can be amended by the District through its personnel manual and union contracts. At December 31, 2007, 2,466 postemployment participants, including retirees, spouses of retirees, surviving spouses, and eligible dependents, participated in the District's healthcare benefits program.
In June 2004, GASB issued GASB No. 45, which establishes standards of accounting and financial reporting for OPEB expense and related OPEB liabilities or assets. OPEB arises from an exchange of salaries and benefits for employee services rendered, and refers to postemployment benefits other than pension benefits such as post employment healthcare benefits.
The District considers the following benefits to be OPEB: Medical, Dental and Long-Term Disability. This Statement is effective for the District beginning in 2007 and the District has implemented GASB No. 45 prospectively.
GASB 45 states that funding of a plan occurs when the following events take place: the employer makes payments of benefits directly to or on behalf of a retiree or beneficiary, the employer makes premium payments to an insurer, or the employer irrevocably transfers assets to a trust or other third party acting in the role of trustee for the sole purpose of the payments of the plan benefits, and creditors of the government do not have access to those assets.
Funding Policy. During 2007 and 2006, the District recorded postemployment health care benefit contributions based on when the payment was made. During 2007 and 2006, postemployment health care benefit contributions were $9.8 million and $11.5 million, respectively. As of December 31, 2007, the District had not established an irrevocable trust or designated a trustee for the payment of plan benefits. As such, there is no separately issued report of the plan. The funding policy is currently pay-as-you-go.
Funding Status and Funding Progress. At December 31, 2007 and 2006, the District estimates that the actuarially determined accumulated postemployment benefit obligation was approximately $248.7 million and $262.5 million, respectively. There were no assets as of that date, thus the entire amount is unfunded.
The District contracted with PERS to administer OPEB benefits effective January 18, 2008 and made a deposit on February 1, 2008 for the net Annual Required Contribution (ARC) for 2007 and 2008. See Note 19.
The covered payroll (annual payroll of active employees covered by the plan) is $192.0 million. The ratio of the unfunded actuarially accrued liabilities (UAAL) to covered payroll is 130 percent.
Annual OPEB Cost. The annual OPEB cost (expense) is calculated based on the ARC of the employer, an amount actuarially determined in accordance with the parameters of GASB No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost under each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. For 2007, the District's annual OPEB Cost (expense) of $23.7 million was equal to the ARC. The payment of current health insurance premiums, which totaled $9.8 million for retirees and their beneficiaries resulted in a Net OPEB obligation of $13.9 million for the year ended December 31, 2007.
64 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows the components of the Districts annual OPEB cost for the year, the amount actually paid in premiums, and changes in the net OPEB obligation:
Year Ended December 31, 2007 Annual required contribution . ................... ..... .................................... $ 23,695 In terest on n et O P EB ob ligation ........................................................................ Adjustm ent to annual required contribution ...................................- I.................... 0-..............
An n ual O PEB cost (exp en se) .......... ........................... .......................................... 23,695 C on trib u tion s m ad e .......................... ..................................................... 99.,,83.......
30 In crease in n et O P EB obligation .............. ................... ........... .. ..................... 13,865 N et O PEB obligation, beginning of year ....-........................................... ............... N et O P E B obligation , en d of year ............. ......................... ........... ....... ... . 13,865 6....5..............
The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2007 is as follows:
Percentage of Annual Net OPEB Year Ending Annual OPEB Cost OPEB Cost Contributed Obligation December 31, 2007 $23,695 41% 13,865 Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing the benefit costs between the employer and plan members to that point.
The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
The entry age normal was used in the December 31, 2007 actuarial valuation. Actuarial assumptions used a 7.75 percent investment rate of return (net of administrative expenses), and a 3.25 percent inflation assumption. This was a new method required for entry into PERS California Employers' Retiree Benefit Trust (CERBT). For the December 31, 2006 calculation, the projected unit cost method was used, with an actuarial assumption of a 7.1 percent investment rate of return (net of administrative expenses), and a 3 percent inflation assumption. For both years, the actuarial assumptions for an annual healthcare cost trend growth of 12 percent for the current year and declining 1 percent per year until 5 percent is reached.
The 5 percent growth is used on a go forward basis. The UAAL will be amortized as a percentage of payroll over an open 30-year period. The actuarial value of assets was not determined as the District has not advance funded its obligation.
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the ARC of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
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Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE,6. INSURANCE PROGRAMS AND CLAIMS The District is exposed to various risks of loss related to torts, theft of and destruction to assets, errors and omissions, and natural disasters. In addition, the District is exposed to risks of loss due to injuries to, and illnesses of, its employees. The District carries commercial insurance coverage to cover most claims in excess of specific dollar thresholds, which range from
$0.1 million to $2.5 million per claim with total excess liability insurance coverage for most claims of $100.0 million. District property insurance coverage is based on the replacement value of the asset. There have been no significant reductions in insurance coverage in 2007. In 2007, 2006 and 2005, the insurance policies in effect have adequately covered all settlements of the claims against the District. No claims have exceeded the limits of property or liability insurance in any of the past three years. In 2006, earthquake and terrorism insurance limits decreased from the 2005 limits, but no other property and related insurance limits had significant reductions in coverage compared to the prior year. The claims liability is included as a component of Self Insurance, Deferred Credits and Other in the Consolidated Balance Sheets.
The District's total claims liability, comprising claims received and claims incurred but not reported, at December 31, 2007, 2006, and 2005 is presented below:
2007 2006 2005 (thousands of dollars)
Workers' compensation claims ................................. $ 6,434 $ 5,862 $ 4,741 General and auto claim s .... . ...................... 1,410 2,004 2,940 Short- and long-term disability claims ......... . ..... 1,621 1,247 1,691 Claim s liability ........ ...... ........ ............................... $ 9,465 $ 9,113 $ 9,372 Changes in the District's total claims liability during 2007, 2006 and 2005 is presented below:
2007 2006 2005 (thousands of'dollars)
Claims liability, beginning of year .... ............. .......... $ 9,113 $ 9,372 $ 11,999 Add: provision for claims, current year .............................. 2,123 2,180 3,690 Increase/(Decrease) in provision for claims in prior years ........ 2,264 2,032 (882)
Less: payments on claims attributable to current & prior years ..... (4,035) (4,471) (5,435)
Claim s liability, end of year ................................................ $ 9,465 $ 9,113 $ 9,372 NOTE17. COMMITMENTS Electric Power Purchase Agreements. The District has numerous power purchase agreements with other power producers to purchase capacity and associated energy to supply a portion of its load requirements. The District has minimum take-or-pay commitments for energy on most contracts. Certain contracts allow the District to exchange energy, received primarily in the summer months, when the District most needs the energy and to return energy during the winter months, or other subsequent periods.
At December 31, 2007, the approximate minimum obligations for these contracts over the next five years are as follows:
Year ending: Amount (thousands of dollars) 2008 ......... ........................ $ 20 3,180 20 09 ......................... ....... ............. 19 5,23 2 20 10 ... ...... .............. 169,898 20 1 1 ................ ...... ............. 13 3,0 0 0 20 12 .. . ....................... .................... 10 8,4 7 4 66 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contractual Commitments beyond 2012. Several of the District's purchase power contracts extend beyond the five-year summary presented above. These contracts expire between 2013 and 2026 and provide for power under various terms and conditions. The District estimates its annual minimum commitments under these contracts range between $95.1 million in 2013 and $0.7 million in 2026. The District's largest purchase power source is the Western Area Power Administration (Western) Base Resource contract, whereby the District receives 31.25 percent of the amount of energy made available by Western, after meeting Central Valley Project (CVP) use requirements, in any given year at a 31.25 percent share of their revenue requirement. On January 1, 2015, the District's percentage share changes to approximately 25 percent. The Western contract expires on December 31, 2024.
Electric Power Price Swap Agreements. The District has entered into numerous variable to fixed rate swaps with notional amounts totaling 1,315,800 megawatt hours (MWh) for the purpose of fixing the rate on the District's electric power purchases.
These electric power price swap agreements result in the District paying fixed rates ranging from $52.20 to $66.45 per MWh.
The swap agreements expire periodically from January 2008 through December 2009.
Gas Supply Agreements. The District has numerous long-term natural gas supply agreements with Canadian and U.S.
companies to supply a portion of the consumption needs of the District's natural gas-fired power plants, which expire through 2015.
Gas Transport Capacity Agreements. The District has numerous long-term natural gas transport capacity agreements with Canadian and U.S. companies to transport natural gas to the District's natural gas-fired power plants from the supply basins in Alberta to the California-Oregon border and from supply basins in the southwest and Rocky Mountains to the Southern California border. These gas transport capacity agreements provide for the delivery of gas into District-owned pipeline capacity within California. The gas transport capacity agreements provide the District with 64,000 dekatherms (Dth) per day (Dth/d) of natural gas pipeline capacity to the Canadian Basins through 2023 and 66,000 Dth/d to the Southwest or Rocky Mountain Basins through at least 2018.
Gas Storage Agreements. The District also has an agreement for the storage of up to 2.25 million Dth of natural gas at a regional facility. The gas storage agreement expires in 2009.
At December 31, 2007, the approximate minimum obligations for these natural gas related contracts over the next five years are as follows:
Year ending: Amount (thousands of dollars) 2008 ...... $ 79,983 2009 266,652 2010 ........ ........ ........ ............. 230 ,773 2011 ........ ........ ..................... 222,812 2012 .. .............. ..................... 220,962 Contractual Commitments beyond 2012. Several of the District's gas transport and gas storage contracts extend beyond the five-year summary presented above. These contracts expire between 2013 and 2023 and provide for transportation and storage under various terms and conditions. The District estimates its annual minimum commitments under these contracts to be between $221.0 million in 2013 and $5.0 million in 2023.
Gas Price Swap Agreements. The District has entered into numerous variable to fixed rate swaps with notional amounts totaling 175,030,000 million British Thermal Units (mmbtu) for the purpose of fixing the rate on the District's natural gas purchases for its gas-fueled power plants and gas indexed electric contracts. These gas price swap agreements result in the District paying fixed rates ranging from $4.63 to $9.64 per mmbtu. The swap agreements expire periodically from January 2008 through December 2022.
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Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE18. CLAIMS AND CONTINGENCIES U.S. Bureau of Reclamation Water Service Contract Billing Dispute. The District entered into a 40-year water service contract with the Bureau, which expires in 2012, for the delivery of up to 75,000 acre-feet of water per year to originally meet the District's needs at Rancho Seco. This amount includes 60,000 acre-feet of municipal and industrial (M&I) water from the CVR Over time, Bureau revenues have been insufficient to cover actual CVP operations and maintenance (O&M) costs; CVP contractor payments have been insufficient to cover amortization of their respective shares of CVP capital costs and, in the case of M&I contractors, have been insufficient to cover interest on unpaid capital. Although the District's contract contains a specific rate methodology, the Bureau maintained that the District and other M&I contractors are running substantial O&M deficits which, by the Bureau's definition, includes as O&M costs both unpaid interest on capital and interest on the O&M deficit. The District, in concert with the M&I contractors, filed their complaint against the Bureau in March 2003 in the U.S. District Court. Under the guidance of a federal magistrate, negotiations were held and a settlement was reached with the Department of the Interior in March 2005.
In general, the settlement reduces each contractor's obligation based on a combination of lower interest rates and simple interest; and the contractors commit to repayment of under-recovered capital and O&M costs. The contractors can either pay off the obligation or retire it in rates. In December 2004, the Board approved the settlement and deferred the obligation as a Regulatory item (see Note 8) to be recovered in future rates as the obligation is repaid to the Bureau. This amount is included in Due to U.S. Bureau of Reclamation in the balance sheet. In July 2006, the District entered into an agreement with the Sacramento County Water Agency (SCWA) to assign 30,000 acre feet of CVP water. SCWA paid the District $3.0 million and SCWA agrees to pay one half of the District's M&I deficit at September 30, 2006. The District estimates that its obligation is $6.2 million and $5.8 million at December 31, 2007 and 2006.
California Energy Market Refund Dispute. In 2001, the FERC issued an order establishing evidentiary hearings for the purpose of determining the amount of refunds, if any, due to customers of the California Independent System Operator (ISO) and California Power Exchange (PX) spot markets from market participants selling into those markets for the period October 2, 2000 through June 20, 2001. During this time period, the District was both a seller and a buyer in the California spot markets. This matter has been the subject of various proceedings with the FERC and court filings with the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) since 2001.
In July 2001, the FERC issued an order asserting refund authority over municipal entities, including the District. The District filed a request for rehearing of the order on the grounds that the FERC exceeded its jurisdiction by seeking to impose refund authority over non-jurisdictional utilities. In January 2002, the District filed a Petition for review of the FERC's orders with the Ninth Circuit, arguing among other things that the FERC lacks the authority under the Federal Power Act to assess refund liability against non-jurisdictional entities. The Ninth Circuit divided the pending appeals into two phases. Phase 1 addressed the question of jurisdiction and Phase 2 addressed the scope of the refund period and the types of transactions subject to refund.
On September 6, 2005, the Ninth Circuit issued its Phase 1 opinion finding that the FERC does not have refund authority over wholesale power sales made by governmental entities and other non-public utilities, including the District. On August 2, 2006, the Ninth Circuit issued its Phase 2 decision on the scope/transaction issues. Of particular significance to the District, the Ninth Circuit upheld the FERC's decision that bilateral transactions between the California Energy Resource Scheduler (CERS) and other entities that occurred outside of the ISO and PX markets should not be mitigated. Other conclusions reached by the Court include: (1) the FERC properly established October 2, 2000 as the refund effective date for the Section 206 proceeding; (2) the FERC erred in excluding Section 309 relief for tariff violations that occurred prior to October 2, 2000; (3)the FERC erred in limiting refund liability to spot market sales i.e. the 24-hour sales period, as opposed to forward sales (day-ahead, multi-day sales, etc.) in the ISO and PX markets; and (4) the FERC erred in excluding energy exchange transactions in the ISO and PX markets. The likely result of the Court's expansion of the refund proceedings is that the District will receive a greater amount of refunds for purchases made during this timeframe. It remains unclear, however, whether this decision will necessarily result in an indefinite delay in the refund calculations currently ongoing at the FERC.
On October 19, 2007, the FERC issued an Order on Remand in compliance with the September 6, 2005 by the Ninth Circuit.
In this order, the FERC vacates each of its California Refund orders to the extent they subject non-public utility sellers to the FERC's section 206 refund authority. Accordingly, the FERC requires the ISO and the PX to refund the approximately
$18 million in principal amounts of receivables for sales by the District, plus the District's collateral held by the PX. The 68 Compact with the Customer
Sacramento Municipal Utility District 1 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS District will also receive an unknown amount of refunds for the purchases from the ISO and PX markets plus interest.
Rehearing requests on the FERC's order of remand were due by November 19, 2007. On December 10, 2007, the Supreme Court of the United States denied the writ of cert previously filed by PG&E. Accordingly, the Ninth Circuits' finding that the FERC did not have refund jurisdiction over municipal utilities for sales made during the California energy crisis is now final. As the Ninth Circuit decision stands, the District has no refund liability. The District had not accrued any liability in this matter.
Replacement Reserves Dispute. In August 2003, PG&E issued invoices totaling $2.2 million for replacement reserve charges purportedly incurred by PG&E for energy scheduled through its Rancho Seco intertie point from July 2000 through June 2002. In September 2003, the District provided PG&E notice of dispute of the invoices due to the fact that the billing was inconsistent with the Restated Interim Agreement, the primary agreement between the parties governing such transactions and, therefore, there should never have been any Replacement Reserve charges incurred in connection with the power deliveries at issue. PG&E functioned as the Scheduling Coordinator on the District's behalf for transactions with the ISO at this intertie point until June 2002, when the District became its own control area. These Replacement Reserve charges purportedly relate to power purchased by the ISO to cover deviations between actual load and forecasted load. The District believes that, even if the charges were appropriate, PG&E's delay in hilling within a reasonable timeframe compromised the District's ability to modify its operations or scheduling procedures to eliminate or mitigate the charges. In October 2003 the District and PG&E entered into a tolling agreement, which among other things, tolls any applicable statute of limitations and may be terminated by either party upon thirty days written notice. District management believes that it is likely that it will not be found liable for any charges in this matter, and therefore no liability has been recorded.
COTP II Arbitration. The ISO filed to pass through charges on transactions involving the COTP, the District and Western control area. The ISO is seeking to pass through $9.0 million in new charges to PG&E as the COTP's and Western's control areas proxy scheduling coordinator. These charges include emissions costs, start-up costs, and minimum load costs (Must Offer costs). PG&E disputes the ISO's authority to impose any charges on it as the Scheduling Coordinator for COIP and filed for arbitration in July 2004. The District filed its intervention in the arbitration in July 2004.
Arbitration hearings were conducted in July 2005. In September 2005, the arbitrator issued an award finding that the ISO improperly assessed PG&E the Must Offer Costs related to the COTP and related transactions involving municipal utilities within California. Accordingly, the arbitrator ordered the ISO to adjust the, billings to reflect a full refund of all Must Offer Costs for transactions on the COTP and Western transactions through the close of the record. However, the arbitrator's order did not award PG&E interest on the refunded amount based on his belief that PG&E did not request interest. In October 2005, the ISO filed a petition for review of the arbitrator's award with the FERC. PG&E filed a petition for review on that same day raising as its sole issue the arbitrator's failure to provide PG&E with interest on the refunded amount. In November 2005, the District and the other joint Interveners filed a motion to intervene, motion to reject the ISO's petition for review, and, in the alternative, motion to consolidate PG&E's petition for review with that of the ISO's. On January 12, 2006, the FERC issued an order denying the motion to reject, consolidating the proceedings, and establishing a procedural schedule. The parties completed briefing in April 2006 and are awaiting the commission's decision.
The District believes that the ISO will not prevail in its attempts to pass charges through to the COTP and the District and the Western control area. The District believes that previous COTP arbitration and subsequent FERC orders confirmed that such a pass through was in violation of the ISO Tariff. Should the ISO ultimately prevail, the District estimates that its share of the $14.0 million that the ISO seeks to charge may be as much as $3.0 million. The District believes that it will prevail in this matter and, therefore, no liability has been recorded at December 31, 2007.
Claims for 2000 and 2001 Power Sales. On December 6, 2005, Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company and the Electricity Oversight Board (collectively, the California Parties) filed a claim for damages pursuant to California Government Code § 910.4 (Tort Claims Act) and in March 2006 filed complaints -against the District and other governmental entities (Governmental Entities) for damages and/or restitution and declaratory relief in Federal District Court in the eastern District of California. The California Parties' claim arises from the District's power sales from May 1, 2000 through June 20, 2001 in the wholesale electricity markets operated by the ISO and the PX under tariffs filed with the FERC. The California Parties allege that the District is contractually obligated under the PX Participation Agreement to reimburse the California Parties for any amounts that the FERC might find were SMUD 2007 AR 69
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS unjust under the California Refund Proceedings. In March 2007, the federal court dismissed the complaints for lack of subject matter jurisdiction. The California Parties appealed the judge's decision in the Ninth Circuit. In April 2007, the California Parties filed a breach of contract claim in Los Angeles Superior Court against the Governmental Entities, who filed demurrers on August 24, 2007, which were denied on December 4, 2007. The Governmental Entities filed a petition for writ of mandate in mid-January 2008 with respect to the statute of limitation defense. In this state court action, the California Parties are seeking damages from the Governmental Entities in the amount that the Entities would have been required to refund to the California market had the Governmental Entities been subject to refund authority at the FERC.
The complaints allege that the Governmental Entities are contractually obligated to reimburse the California Parties for the difference between the rates paid to the Governmental Entities for sales into the ISO/PX markets during the Refund Period and the mitigated rates as determined by FERC.
Although the California Parties' claim and complaint does not specify the amount of damages that the California Parties seek, the District expects that this amount would parallel the refund that the District would owe to the market if it were subject to refund liability. Accordingly, the District estimates that its potential refund liability ranges between no liability and approximately $14.0 million plus interest. Ultimately, the District does not believe that the California Parties will be successful in pursuing the claim.
On January 3, 2006, the Attorney General of the State of California and the California Department of Water Resources (collectively, the State Entities) filed a claim for damages pursuant to the Tort Claims Act. The State Entities' claim arises out of the District's power sales into the ISO/ PX markets from May 1, 2000 through June 20, 2001, as well as the District's bilateral power sales to the Department of Water Resources (DWR) through the CERS. The District returned the claim as untimely in mid-January 2006.
On June 14, 2006, the State Entities filed a complaint for damages in the Sacramento Superior Court of California. Similar to the California Parties' claim, discussed above, the State Entities allege that the District is contractually obligated under the PX Participation Agreement to reimburse the State Entities for any amounts that the FERC might find were unjust under the California Refund Proceedings. With respect to the District's bilateral sales to CERS, the State Entities claim that the District is contractually obligated to reimburse the State Entities for the difference between the rates received for any sales made under the Western Systems Power Pool (WSPP) Agreement and a lawful rate as determined by the FERC.
The District believes that the claim is untimely filed under the one-year statute of limitations under the Tort Claims Act, if applicable, and the four-year statute of limitations for contract claims. With respect to the District's bilateral sales to the DWR, the FERC has already refused to mitigate bilateral power sales to CERS, which has been upheld by the Ninth Circuit.
In addition, the Ninth Circuit's recent decision that the FERC lacks refund authority over wholesale power sales made by governmental entities, like the District, imposes further obstacles that the State Entities must overcome to prevail in litigation.
On December 19, 2006, the State Entities filed a request for dismissal without prejudice with respect to the cause of action and related allegations that pertain to the bilateral purchases of energy by DWR.
On January 11, 2007, the State Entities filed its amended complaint and served it on the District on January 18, 2007.
The amended complaint, similar to the original complaint, attempts to recover damages for breach of contract, unjust enrichment, and money received. It further states that it arises out of the District's voluntary power sales to DWR and the ISO, for which DWR paid, from May 1, 2000 through June 20, 2001. The complaint further provides that the sales transactions occurred in wholesale markets governed by the ISO and PX and the tariffs those entities filed with the FERC.
Significantly, the amended complaint does not state that it seeks recovery for the District's bilateral sales to CERS that were made pursuant to the WSPP Agreement. The amended complaint suggests, however, that DWR intends to recover those monies by now characterizing those sales as having been made pursuant to the ISO Tariff. On February 23, 2007, the District entered into a tolling agreement with the State Entities, under which the State Entities agreed to dismiss without prejudice its claim against the District on or before March 1, 2007. The tolling agreement serves to put a temporary hold on all future action in the State Entities' prosecution of its lawsuits, and in any lawsuit the District may bring against the State Entities, until the parties have a better understanding of the progress of other related proceedings.
Similar to the California Parties" the State Entities seek the difference between the market price paid to the District and the FERC-mitigated price. Accordingly, the District estimates that its liability for these market sales ranges between no liability and $13.5 million. Further, while the State Entities do not specify the amount of damages that they seek for the sales, the District estimates that this amount is approximately $72.0 million based on the FERC-mitigated price as of 70 Compact with the Customer
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 2004. Ultimately, the District does not believe that either party will be successful in pursuing the claims. Consequently, District management believes that the outcome of these matters will not have a material adverse impact on the District's financial position or results of operations.
Fru-Con Construction Corporation Construction Matters. In August 2003, the District entered into a contract with Fru-Con Construction Corporation (Fru-Con) to construct the District's 500 MW CPP Project. St. Paul Travelers Casualty Company (Travelers) is obligated, under a Performance Bond, to guarantee Fru-Con's performance under the contract. The original construction schedule for the CPP Project called for commercial operation in September 2005. The CPP Project became operational on February 24, 2006.
Though Fru-Con has previously made claims for comparably smaller amounts that have been resolved through negotiation, in October 2004, Fru-Con asserted additional claims totaling $26.0 million. Beginning in October 2004 and continuing until early February 2005, the District and Fru-Con participated in negotiations to resolve disputes over both cost and delays in the CPP Project schedule. The parties were unable to resolve the disputes to the satisfaction of the District and in February 2005, the District terminated its contract with Fru-Con on the basis of breach of contract by Fru-Con.
On February 28, 2005, the District filed suit in the Sacramento County Superior Court against Fru-Con and one of its sub-contractors alleging breach of contract and violation of the California False Claims Act.
On March 24, 2005, Fru-Con filed its complaint against the District in Federal Court, alleging breach of contract. Then, on March 29, 2005, Fru-Con attempted to remove the State Court Action to federal court. On May 23, 2005, the federal court granted the District's motion to remand, and transferred the State Court Action back to the Sacramento County Superior Court. On August 10, 2005, the federal court denied without prejudice the District's motion to stay the Federal Court Action.
Upon remand to state court, Fru-Con moved to stay the State Court Action in favor of its later-filed federal court action.
On August 19, 2005, the Superior Court denied Fru-Con's motion to stay the State Court Action. Both parties have filed estimates of damages, with the District estimating its claims at $60.0 million or more. Fru-Con estimates that its claims will be more than $20.0 million, plus fees.
Since January 2005, the District has also been pursuing a claim against Travelers under the performance bond. On September 28, 2005, Travelers denied the District's claim and filed a declaratory relief action in the same federal court as the Fru-Con Federal Court Action. The District filed a counterclaim in response to Travelers' lawsuit. In general, the District is seeking to recover from Travelers all of the damages it claims against Fru-Con plus attorneys' fees related to the Traveler's suit.
Discovery took place in 2006 and 2007. In June 2007, the Sacramento County Superior Court issued a summary adjudication order upholding SMUD's right to terminate the contract, leaving for trial only the issue of the amount of damages owed by Fru-Con to the District. Fru-Con appealed the Superior Court order, but on September 25, 2007, the California Supreme Court denied the appeal. The trial is now scheduled to start in Superior Court in April 2008.
In Federal District Court, a hearing was held in January 2008 on the District's and Travelers motions for summary judgment; the parties are awaiting a decision. At this time, no federal trial date has been set.
District management believes it is reasonably likely to be successful in refuting, at a minimum, a majority of Fru-Con's claims and it is reasonably likely to prevail in a majority of its claims against Fru- Con and Travelers. District management also believes that the outcome of this matter will not have a material adverse impact on the District's financial position or results of operations. No liability or receivable has been recorded by the District in connection with these disputes.
Other Construction Matters. The District contracts with various other firms to design and construct facilities for the District.
Currently, the District is party to various claims, legal actions and complaints on some of these construction projects. District management believes that it will be successful in refuting these allegations, and estimates that the ultimate resolution of these matters will not have a material adverse effect on the District's financial position or results of operations.
Environmental Matters. The District is one of many potentially responsible parties that have been named in a number of actions relating to environmental claims and/or complaints. Due to the nature of these claims, legal actions or complaints, the District is unable to predict the range of costs for resolution of these actions and intends to take all actions necessary to defend its position. Some of these matters name the District along with other electric utilities as potentially responsible parties.
SMUD 2007 AR 71
Sacramento Municipal Utility District I 2007 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The District has estimated its exposure to such costs based on its proportionate share of the potential claim and recorded its share as a liability; in most instances this is a relatively small percentage. However, should other named responsible parties become insolvent and unable to pay their share of the claims, the District's share of these contingent liabilities would increase and could be material. District management does not believe this will occur, and accordingly, management believes that the outcome of these environmental claims will not have a material adverse impact on the District's financial position or results of operations.
Other Matters. In the normal operation of business, the District is party to various claims, legal actions and complaints.
Management and the District's legal counsel believe that there are no other material loss contingencies that would have a material adverse impact on the District's financial position or results of operations.
NOTE19. SUBSEQUENT EVENT In October 2007, the Governor signed Assembly Bill 554 (AB 554) into law. AB 554 allows California public employers to join the CERBT to prefund their OPEB obligations after January 1, 2008. On December 6, 2007 the Board approved a participation agreement with PERS for PERS to be the plan administrator for the District's OPEB trust. The participation agreement was submitted to PERS on January 16, 2008 and became effective on January 18, 2008. On February 1, 2008, the District contributed $22.9 million to the PERS CERBT fund.
Plan Description. The plan is CERBT Fund, which is an IRC Section 115 Trust set up for the purpose of receiving employer contributions to prefund health and other postemployment benefits for retirees and their beneficiaries. The plan is an agent multiple employer plan and will be administered by PERS. It will provide medical, dental and long term disability benefits for retirees and their beneficiaries. Any changes to these benefits would be approved by the District's Board and union contracts. To obtain a CERBT report, please contact PERS at 888-CALPERS.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
Schedules of Funding Progress PERS Pension. The schedule of funding progi'ess for PERS is presented below for the three most recent years for which the District has available data (dollars in thousands):
UAAL Unfunded (Excess of Actuarial AAL Assets over Accrued (UAAL) AAL) as a Actuarial Liability (Excess of Percentage Actuarial Value of (AAL) - Assets over Funded Covered of Covered Valuation Assets Entry Age AAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) 6/30/04 $ 1,087,532 $ 1,054,410 $ (33,122) 103.1% $ 155,289 (21.3%)
6/30/05 $ 1,143,666 $ 1,141,187 $ (2,478) 100.2% $ 158,557 (1.6%)
6/30/06 $ 1,213,295 $ 1,226,029 $ 12,734 99.0% $ 163,744 7.8%
OPEB. The schedule of funding progress for the other post-employment benefit health care plan is presented below for the two most recent years for which the District has available data (dollars in thousands):
Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL) - AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio - Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) 1/1/2008 $ $ 248,691 $ 248,691 0% $ 192,045 130%
1/1/2007 $ $ 262,546 $ 262,546 0% $ 186,000 141%
72 Compact with the Customer
OSMUD SACRAMENTO MUNICIPAL UTILITY DISTRICT The Power To Do More.P Main Office:
6201 S Street Sacramento, CA 95817-1899 Mailing Address:
P.O. Box 15830 Sacramento, CA 95852-1830
.916.452.3211 1
-] www.smud.org