ML14113A471
| ML14113A471 | |
| Person / Time | |
|---|---|
| Site: | La Crosse File:Dairyland Power Cooperative icon.png |
| Issue date: | 04/22/2014 |
| From: | Berg W Dairyland Power Cooperative |
| To: | Document Control Desk, NRC/FSME |
| References | |
| LAC-14305 | |
| Download: ML14113A471 (30) | |
Text
WILLIAM L. BERG President and CEO DAIRYLAND POWER COOP E RATIVE April 22. 2014 10 CFR 50.71 (b)
In reply, please refer to LAC-14305 DOCKET NO. 50-409 ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Washington, DC 20555-0001
SUBJECT:
Dairyland Power Cooperative La Crosse Boiling Water Reactor (LACBWR)
Possession-Only License DPR-45 Financial Statement and Auditors' Report
REFERENCE:
In accordance with the requirements of Reference 1, we are forwarding three (3) copies of the Financial Statements and Independent Auditors' Reports for Dairyland Power Cooperative as of December 31, 2013 and 2012. We will forward our 2013 Annual Report to you as soon as it is completed.
Sincerely, William L. Berg President and CEO WLB:pls Enclosures cc: Cynthia D. Pederson, Regional Administrator Marlayna Vaaler, FSME Ed Bowen, DPC Don Egge, LACBWR U- *q A Touchstone Energy' Cooperative 01..
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3200 East Ave. S. - PO Box 817 o La Crosse, WI 54602-0817 o 608-787-1235 o 608-787-1321 fax o www.dairynet.com Dairyland Power Cooperative is an equal opportunity provider and employer.
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COUNTY OF LA CROSSE Personally came before me this 1.L day of 6
.2014, the above named, William L. Berg, to me known to be the person who executed the foregoing instrument and acknowledged the same.
NotairPublic, La Crosse County W,(sconsin My commission expires 5"- ý 5 - iz:/
LAURIE A. ENGEN Notary Public State of Wisconsin
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Dairyland Power Cooperative and Subsidiary Consolidated Financial Statements as of and for the Years Ended December 31, 2013 and 2012, and Independent Auditors' Report
Deloitteo 50 South Sixth Street Suite 2800 Minneapolis. MN 55402-1538 USA Tel: +1 612 397 4000 Fax: +1 612 397 4450 www.deloitte.com INDEPENDENT AUDITORS' REPORT Board of Directors Dairyland Power Cooperative La Crosse, Wisconsin We have audited the accompanying consolidated financial statements of Dairyland Power Cooperative and subsidiary (the "Cooperative"), which comprise the consolidated balance sheets as of December 3 I, 2013 and 2012, and the related consolidated statements of revenues, expenses, and comprehensive income, member and patron equities, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Cooperative's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Cooperative's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Cooperative as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
March 27, 2014 Member of Deloitte Touche Tohmatsu Limited
DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2013 AND 2012 (In thousands) 2013 2012 ASSETS ELECTRIC PLANT:
Plant and equipment -
at original cost Less accumulated depreciation
$1,544,037 (547,584)
Net plant and equipment Construction work in progress Total electric plant 996,453 OTHER ASSETS:
Nuclear decommissioning funds Investments under debt agreements -
marketable securities Other property and investments Investments in capital term certificates of National Rural Utilities Cooperative Finance Corporation Regulatory assets (Note 1)
Investment for deferred compensation Deferred charges (Note 1)
Total other assets 92,593 1,089,046 91,398 3,774 38,217 9,176 20,462 1,481 26,785 191,293 30,318 39,122 2,428 42,425 20,166 8,326 142,785
$1,423,124
$1,499,195 (516,241) 982,954 67,898 1,050,852 112,867 3,769 10,420 9,176 18,811 1,431 7,895 164,369 31,213 38,263 2,484 54,635 19,516 5,146 151,257
$1,366,478 (Continued)
CURRENT ASSETS:
Cash and cash equivalents Accounts receivable:
Energy sales -
net of allowance for doubtful accounts of
$10 for 2013 and 2012 Other Inventories:
Fossil fuels Materials and supplies Prepaid expenses and other Total current assets TOTAL DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2013 AND 2012 (In thousands) 2013 2012 CAPITALIZATION AND LIABILITIES CAPITALIZATION:
Member and patron equities:
Membership fees Patronage capital Accumulated other comprehensive income (loss) 15 211,742 3,098 15 192,856 (1,576 Total member and patron equities 214,855 191,295 Long-term obligations Total capitalization OTHER LIABILITIES:
Estimated decommissioning liabilities Asset retirement obligations Postretirement health insurance obligation Accrued benefits Deferred compensation Obligations under capital leases Other deferred credits Total other liabilities 826,114 1,040,969 90,468 4,297 3,613 5,145 1,481 1,035 8,906 114,945 790,992 982,287 76,471 4,264 7,830 1,728 1,431 771 8,920 101,415 COMMITMENTS AND CONTINGENCIES (Note 10)
CURRENT LIABILITIES:
Current maturities of long-term obligations and obligations under capital leases Line of credit Advances from member cooperatives Advances from Great River Energy Accounts payable Accrued expenses:
Payroll, vacation, and benefits Interest Property and other taxes Other 44,596 159,000 11,416 11,972 26,269 7,701 398 2,903 2,955 267,210
$1,423,124 39,506 186,800 9,421 8,805 26,709 7,413 487 2,575 1,060 282,776
$1,366,478 (Concluded)
Total current liabilities TOTAL See notes to consolidated financial statements.
DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (In thousands) 2013 2012 UTILITY OPERATIONS:
Operating revenues:
Sales of electric energy Other
$425,981
$402,889 17,114 17,252 443,095 420,141 Total operating revenues Operating expenses:
Fuel Purchased and interchanged power Other operating expenses Depreciation and amortization Maintenance Property and other taxes Total operating expenses Operating margin before interest and other Interest and other:
Interest expense Allowance for funds used in construction -
equity Other -
net 151,024 66,945 88,545 41,580 27,361 8,053 383,508 59,587 41,714 (1,187) 794 119,093 73,768 85,214 41,879 34,932 7,796 362,682 57,459 41,068 (583) 133 Total interest and other 41,321 40,618 Operating margin Nonoperating margin NET MARGIN AND EARNINGS 18,266 3,750 16,841 3,369 20,210 22,016 OTHER COMPREHENSIVE INCOME -
Postretirement health insurance obligation adjustments 4,674 912
$ 26,690
$ 21,122 COMPREHENSIVE INCOME See notes to consolidated financial statements.
DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLIDATED STATEMENTS OF MEMBER AND PATRON EQUITIES FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (In thousands)
Membership Fees
$15 Accumulated Other Comprehensive Income (Loss)
$ (2,488)
BALANCE - December 31, 2011 Net margin and earnings Postretirement health insurance obligation adjustments Retirement of capital credits Total comprehensive income 2012 BALANCE - December 31, 2012 Net margin and earnings Postretirement health insurance obligation adjustments Retirement of capital credits Total comprehensive income 2013 BALANCE -
December 31, 2013 See notes to consolidated financial statements.
Patronage Capital
$175,507 20,210 (2,861)
Total Member and Patron Equities
$173,034 20,210 912 (2,861) 912 15 (1,576) 192,856 22,016 191,295 22,016 4,674 (3,130) 4,674 (3,130)
$15
$ 3,098
$211,742
$214,855 DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (In thousands) 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES:
Net margin and earnings Adjustments to reconcile net margin and earnings to net cash provided by operating activities:
Depreciation and amortization:
Charged to operating expenses Charged through other operating elements such as fuel expense Allowance for funds used in construction -
equity Changes in operating elements:
Accounts receivable Inventories Prepaid expenses and other assets Accounts payable Accrued expenses and other liabilities Deferred charges and other
$ 22,016
$ 20,210 41,580 1,854 (1,187)
(803) 11,109 (26,661)
(52) 961 17,647 41,879 2,058 (583) 2,497 1,334 (1,592) 6,912 (14,373)
(963)
Total adjustments 44,448 37,169 Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES:
Electric plant additions Advances to nuclear decommissioning funds Purchase of investments Proceeds from sale of investments and economic development loans Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit Repayments under line of credit Borrowings under long-term obligations Repayments of long-term obligations Retirement of capital credits Borrowings of advances from member cooperatives Repayments of advances from member cooperatives Net cash provided by (used in) financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS -
Beginning of year CASH AND CASH EQUIVALENTS -
End of year SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest Electric plant additions funded through accounts payable and accrued expenses See notes to consolidated financial statements.
66,464 (80,345)
(1,581)
(211,221) 211,344 57,379 (66,597)
(160)
(264,022) 264,959 (81,803)
(65.820) 116,000 (143,800) 129,640 (89,428)
(3,130) 256,905 (251,743) 14,444 100,440 (52,840) 22,529 (64,314)
(2.861) 238,241 (244,187)
(2,992)
(895)
(11,433) 31,213 42,646 S 30,318
$ 31,213
$ 43,514
$ 52.188 6,629 6,241 DAIRYLAND POWER COOPERATIVE AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (All dollar amounts in thousands)
- 1.
NATURE OF BUSINESS AND ORGANIZATION Business -
Dairyland Power Cooperative and subsidiary ("Dairyland" or the "Cooperative") is an electric generation and transmission cooperative organized under the laws of the states of Wisconsin and Minnesota. The Cooperative, whose principal offices are located in Wisconsin, provides wholesale electric service to class A members engaged in the retail sale of electricity to member consumers located in Wisconsin, Minnesota, Iowa, and Illinois, and provides electric and other services to class C, D, and E members.
Principles of Consolidation -
The consolidated financial statements include the accounts of Dairyland and Dairyland's wholly owned subsidiary, Genoa FuelTech, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
Accounting System and Reporting -
The accounting records of the Cooperative are maintained in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission as adopted by the Rural Utilities Service (RUS), the Cooperative's principal regulatory agency.
Electric Plant -
The cost of renewals and betterments of units of property (as distinguished from minor items of property) includes contract work, direct labor and materials, allocable overhead, and allowance for funds used during construction, and is charged to electric plant accounts. Included in accumulated depreciation are nonlegal or noncontractual costs of removal components. As a result, the cost of units of property retired, sold, or otherwise disposed of, plus removal costs, less salvage, is charged to accumulated depreciation and no profit or loss is recognized in connection with ordinary retirements of property units. A provision for these nonlegal or noncontractual costs of removal components is recognized based on depreciation rates determined by a third-party depreciation study completed in July 2011 and approved by RUS in 2012. The Cooperative is unable to obtain the information to separate the cumulative removal costs as of December 31, 2013 and 2012. Maintenance and repair costs and replacement and renewal of minor items of property are charged to operations.
Depreciation -
Depreciation, which is based on the straight-line method at rates that are designed to amortize the original cost of properties over their estimated useful lives, includes a provision for the cost of removing and decommissioning the properties. The provision for depreciation averaged 2.9% and 3%
of depreciable plant balances for 2013 and 2012, respectively.
Allowance for Funds Used during Construction -
Allowance for funds used during construction (AFUDC) represents the cost of external and internal funds used for construction purposes, and is capitalized as a component of electric plant by applying a rate (3.04% in 2013 and 3.06% in 2012) to certain electric plant additions under construction. The amount of such allowance was $2,116 in 2013 and $1,188 in 2012. The borrowed funds component of AFUDC for 2013 and 2012, was $929 and $605, respectively (representing 1.33% and 1.53% in 2013 and 2012, respectively). The equity component of AFUDC for 2013 and 2012 was $1,187 and $583, respectively, (representing 1.71% and 1.54% in 2013 and 2012, respectively). The borrowed funds components were included as a reduction of interest expense in the consolidated statements of revenues and expenses.
Deferred Charges -
Deferred charges represent future revenue to the Cooperative associated with costs that will be recovered from customers through the rate-making process. As of December 31, 2013, the Cooperative's deferred charges are being reflected in rates charged to customers. If all or a separable portion of the Cooperative's operations become no longer subject to the provisions of regulatory accounting, a write-off of deferred charges would be required, unless some form of transition recovery (refund) continues through rates established and collected for the Cooperative's remaining regulated operations. In addition, the Cooperative would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets. The noncurrent portion of deferred charges as of December 31, 2013 and 2012, include the following:
2013 2012 Premiums on debt refinancing 675 S 876 Renewable energy power purchase agreements 1,069 1,260 Deferred billings and collections 212 773 Environmental mitigation projects 4,500 Pension prepayment 21,519 Deferred litigation expenses 3,282 434 Other 28 52 Total deferred charges
$26,785 S 7,895 Premiums on debt refinancing are being amortized over approximately 20 years (the remaining life of related original debt). Renewable energy power purchase agreements are being amortized over the 20-year term of the agreements. Deferred billings and collections include project costs to be billed to others during or upon completion of the projects, and noncurrent receivables. The deferred charges for environmental mitigation projects required under the consent decree referenced in Note 10 were expensed during 2013. As discussed in Note 11, the Cooperative made a voluntary prepayment in 2013 to its multiemployer defined-benefit pension plan to reduce future funding amounts. This prepayment will be amortized to benefits expense over ten years beginning in 2013 as prescribed by RUS. Litigation expenses from the second nuclear contract damages claim with the United States government and the U.S. Department of Energy (DOE), as discussed in Note 15, are being deferred pending the outcome of that litigation.
Investments -
Investments in marketable debt and equity securities classified as available for sale are reported at fair value, with the interest, dividend income, and realized gains reported in nonoperating margin. The Cooperative continually monitors the difference between cost and estimated fair value of its investments. If any of the Cooperative's investments experience a decline in value that the Cooperative believes is other than temporary, the Cooperative will realize the loss as a reduction in investment income on decommissioning funds. In 2013 and 2012, the Cooperative realized $1,614 and $1,115, respectively, of losses on these investments as a result of other-than-temporary impairment (OTTI).
Regulatory Assets and Liabilities -
The Cooperative's accounting policies and the consolidated financial statements conform to accounting principles generally accepted in the United States of America applicable to electric cooperatives. During 2013, nuclear-related regulatory assets created from 2008 through 2012 were written-off against a regulatory liability of $37,659 created when the Cooperative received payment for the nuclear damage claim award described in Note 15. The remainder of that regulatory liability of $18,848 was refunded to class A members in 2013. Also in 2013, the Cooperative established a regulatory asset of $16,700 for increased estimated costs in the nuclear decommissioning methodology. The amortization of this regulatory asset will be deferred pending the outcome of the second nuclear contract damages claim with the U.S. government and DOE as described in Note 15. In addition, during 2013, the Cooperative created a regulatory asset related to the estimated costs of a special early retirement plan to be offered to certain age-eligible employees at specific Cooperative locations in 2014 as discussed in Note 11. This regulatory asset will be amortized through rates over 10 years beginning in 2014 with the expected 2014 portion included in other current assets.
The regulatory assets as of December 31, 2013 and 2012, include the following:
2013 2012 Nuclear decommissioning trust mark-to-market losses-2008
$ 5,398 Nuclear fuel storage transfer project costs-201 1 5,175 Nuclear fuel storage site decommissioning-201 1 1,440 Nuclear fuel storage transfer project costs-2012 6,798 Nuclear decommissioning methodology change-2013 16,700 Special Early Retirement Plan 3,762 Total regulatory assets
$ 20,462
$18,811 Cash and Cash Equivalents -
Cash equivalents include all highly liquid investments with original maturities of three months or less. Cash equivalents consist primarily of commercial paper, stated at cost, which approximates market.
Fossil Fuels and Materials and Supplies -
Coal inventories as well as materials and supplies inventories are stated at the lower of average cost or market prices.
Recoverability of Long-Lived Assets -
The Cooperative accounts for the impainnent or disposal of long-lived assets, such as property and equipment, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted cash flows expected to result from the use of the asset, plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on quoted market prices or other valuation techniques. To date, management has determined that no impairment of these assets exists.
Nitrogen Oxide Emission Allowances -
Beginning in 2009, the U.S. Environmental Protection Agency (EPA) requires power plants to hold sufficient allowances to cover emissions of nitrogen oxide.
Under these requirements, the Cooperative is required to surrender one emission allowance per ton of nitrogen oxide emitted. Actual emissions exceeded the allocation amounts, thereby requiring the Cooperative to purchase additional allowances. As of December 31, 2013 and 2012, they are recorded in inventory at lower of average cost or market prices at a total cost of $40 and $0, respectively. The obligation to EPA to meet 2013 and 2012 emissions are $40 and $0, respectively, and have been charged to plant expense. The transfer to EPA of the 2012 seasonal allowances occurred February 4, 2013, and the transfer to EPA for the 2013 annual allowances is expected to occur in May 2014. The remaining allowances in inventory as of December 31, 2013 will be surrendered to EPA under the terms of the consent decree described in Note 10.
Sales of Electric Energy -
Revenues from sales of electric energy are recognized when energy is delivered. The class A wholesale rates approved by the Cooperative's board of directors (the "Board of Directors") have a power cost adjustment that allows for increases or decreases in class A member power billings based upon actual power costs compared to plan. For 2013 and 2012, the power cost adjustment to the class A members resulted in charges to sales billed of $926 and $1,020, respectively.
These amounts are recorded in sales of electric energy in operating revenues on the consolidated statements of revenues, expenses, and comprehensive income.
Other Operating Revenue -
Other operating revenue primarily includes revenue received from transmission service and is recorded as services are provided.
Accounting for Energy Contracts -
Contracts that did not meet the accounting definition of a derivative are accounted for at historical cost. The Cooperative's energy contracts that qualify as derivatives continue to be accounted for at fair value, unless those contracts meet the requirements of and have been designated as "normal purchase/normal sale." The Cooperative does not have any energy contracts that are required to be accounted for at fair value as of December 31, 2013 and 2012.
Nonoperating Margin includes the following:
The nonoperating margin for the years ended December 31, 2013 and 2012, 2013 2012 Investment income Investment income on nuclear decommissioning funds:
Net earnings Realized gains Realized losses and losses due to OTTI Provision -
recorded as estimated deconmmissioning liabilities Other
$ 2,555
$ 1,467 1,074 9,280 (6,163)
(4,191) 1,195 1,029 6,366 (4,296)
(3,098) 1,901 Nonoperating margin
$ 3,750
$ 3,369 Use of Estimates -
The preparation of consolidated 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 the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates in the consolidated financial statements relate to inventory reserve, postretirement benefit obligations, asset retirement obligation liabilities, fixed-asset depreciable lives, and litigation and contingencies. Actual results could differ from those estimates.
Accumulated Other Comprehensive Income (Loss) -
Accumulated other comprehensive income (loss) is comprised solely of a postretirement health insurance obligation. See additional information in Note 11. The components for the years ended December 31, 2013 and 2012 are as follows:
2013 2012 Balance -
beginning of year Recognition in expense:
Amortization of prior service cost Amortization of unrecognized actuarial loss Actuarial assumption changes Plan changes Net other comprehensive income
$(1,576)
S(2,488)
(223) 175 5,540 (818) 4,674 39 106 (953) 1,720 912 Balance -
end of year
$ 3,098
$(1,576)
Concentration of Risk-During fiscal years 2013 and 2012, the Cooperative derived 9% of its revenue from a single customer.
Approximately 45% of the labor force for the Cooperative is under a collective bargaining agreement that expires January 31, 2017.
Subsequent Events -
The Cooperative considered events for recognition or disclosure in the consolidated financial statements that occurred subsequent to December 31, 2013, through March 27, 2014, the date the consolidated financial statements were available to be issued. All material subsequent events have been disclosed in these consolidated financial statements.
- 2.
RECENTLY ISSUED ACCOUNTING STANDARDS UPDATES In February 2013, the Financial Accounting Standards Board (FASB) issued an update to Accounting Standards Codification (ASC) 220, Comprehensive Income, to improve the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In general, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. Management does not expect adoption of the required amendments to have a significant impact on the Cooperative's consolidated financial position or results of operations.
In July 2013, the FASB issued an update to ASC 740, Income Taxes, to provide guidance for consistent financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in this update are effective for nonpublic entities for fiscal years beginning after December 15, 2014. Early adoption is permitted.
Management does not expect adoption of the required amendments to have any impact on the Cooperative's consolidated financial position or results of operations as the Cooperative is tax exempt as discussed in Note 3.
- 3.
INCOME TAXES The Internal Revenue Service has determined that Dairyland is exempt from federal income' taxes under Section 501(c)(12) of the Internal Revenue Code. Accordingly, the Cooperative's utility operations are generally exempt from federal and state income taxes, and, no provision for such taxes is recorded in the consolidated financial statements.
- 4.
AVAILABLE-FOR-SALE INVESTMENTS Investments in the nuclear decommissioning trust (NDT), under debt agreements and other holdings are classified as available-for-sale, recorded at fair value, and include the following as of December 3 1, 2013 and 2012:
Fair Value Debt NDT Agreements Other Total 2013 Cash and cash equivalents U.S. government securities Corporate bonds Common stocks Foreign obligations
$ 2,860 34,431 15,555 35,213 3,339
$3,774
$28,220
$ 34,854 34,431 15,555 35,213 3,339
$91,398
$3,774
$28,220
$ 123,392 Fair Value Debt NDT Agreements Other Total 2012 Cash and cash equivalents U.S. government securities Corporate bonds Common stocks Foreign obligations
$ 31,438 41,623 6,878 31,301 1,627
$112,867
$3,769
$ 35,207 41,623 6,878 31,301 1,627
$3,769
$116,636 Investments under debt agreements represent amounts arising from the sale of assets that are encumbered by mortgages and restricted by the RUS for use on future generation and transmission construction projects.
The contractual maturities of marketable debt securities, which include U.S. government securities, foreign obligations, and corporate bonds, as of December 31, 2013, are as follows:
Fair Value Cost Due within 1 year Due after 1 year through 5 years Due after 5 years through 10 years Due after 10 years 250 17,363 9,714 25,998 250 17,410 10,031 27,180
$53,325
$54,871 Information regarding the sale of available-for-sale marketable securities, including nuclear decommissioning trusts, for the years ended December 31, 2013 and 2012, is as follows:
2013 2012 Proceeds from sale of securities
$210,300
$261,966 Realized gains 4,731 3,187 For the purposes of determining realized gains and losses, the cost of securities sold is based upon specific identification.
Securities in the portfolio are reviewed to determine whether they have been other-than-temporarily impaired. The Cooperative has recorded impairment write-downs of its investments of $1,614 and
$1,115 in 2013 and 2012, respectively, as the Cooperative cannot represent that it has the intent and ability to hold securities until they recover in value, since that decision is outside of its sole control. In accordance with restrictions enacted by the Nuclear Regulatory Commission, the Cooperative does not control the day-to-day management of nuclear decommissioning trust fund investments. The nuclear decommissioning trust of the Cooperative is managed by independent investment managers with discretion to buy, sell, and invest to achieve the broad investment objectives set forth by the Cooperative.
Investment income included in nonoperating margin on the consolidated statements of revenues, expenses and comprehensive income is net of investment fees of approximately $432 and $398 for the years ended December 31, 2013 and 2012, respectively.
- 5.
LINES OF CREDIT To provide interim financing capabilities, the Cooperative has arranged committed lines of credit with availability aggregating approximately $300,000. On November 18, 2011, a syndicated credit facility was executed with CoBank acting as lead arranger. This facility has a five-year term and provides funds both for short-term working capital requirements and for capital projects until permanent financing can be obtained through RUS. Some capital projects will last longer than one year, but the intent is to pay down the line of credit as permanent funding is received. Compensating balance requirements and fees relating to the lines of credit were not significant in 2013 and 2012. Information regarding line of credit balances and activity for the years ended December 31, 2013 and 2012, is as follows:
2013 2012 Interest rate at year-end 1.11%
1.16%
Total committed availability at year-end
$300,000
$300,000 Total borrowings outstanding at year-end
$159,000
$186,800 Average borrowings outstanding during year
$128,277
$167,265 The Cooperative also allows member cooperatives to prepay their power bills and pays interest on these prepayments based on current short-term borrowing rates. Advances from member cooperatives totaled
$11,416 and $9,421 at December 3 1, 2013 and 2012, respectively. Interest expense on member cooperative advances were $96 and $105 during 2013 and 2012, respectively. These amounts have been included in interest expense in the consolidated statements of revenues, expenses, and comprehensive income.
- 6.
LONG-TERM OBLIGATIONS Long-term obligations as of December 31, 2013 and 2012, consist of the following:
2013 2012 Federal Financing Bank obligations -
1.93-4.46%
$273,076
$298,663 Federal Financing Bank obligations -
4.52-6.80%
425,273 473,389 Total Federal Financing Bank 698,349 772,052 RUS obligations -
4.125% and grant funds 5,982 6,331 CoBank notes -
2.6%, 2.9%, 4.3%, 6.2%, and 7.4%.
68,263 51,657 Private bonds placement obligations -
3.42%
97,500 Long-term debt 870,094 830,040 Less current maturities (43,980)
(39,048)
Total long-term obligations
$826,114
$790,992 Quarterly principal and interest payments on the long-term obligations to the Federal Financing Bank extend through 2040. Long-term obligations to the RUS are payable in equal monthly principal and interest installments through 2024. Payments on the CoBank 2.6%, 2.9%, 4.3%, 6.2%, and 7.4% notes are due monthly or quarterly through 2023. In March 2013, the Cooperative completed a $100,000 private bond placement with ten investors. The private bond placement is an amortizing 30-year term loan at an interest rate of 3.42%. Quarterly principal and interest payments on this obligation extend through 2043.
The Cooperative executed, filed, and recorded an indenture of mortgage, security agreement, and financing statement, dated as of September 13, 2011 (the "Indenture"), between the Cooperative, as grantor, and U.S. Bank National Association, as trustee. The perfected lien of the Indenture on substantially all of the Cooperative's assets secured equally and ratably all of the Cooperative's long-term debt with the exception of unsecured notes to CoBank (balances of $41,354 and $19,997 at December 31, 2013 and 2012, respectively). The Cooperative is required to maintain and has maintained certain financial ratios related to earnings in accordance with the covenants of its loan agreements as of December 31, 2013.
Scheduled maturities of the Cooperative's long-term obligations as of December 31, 2013, were as follows:
Years Ending December 31 2014 2015 2016 2017 2018 Thereafter Total
$ 43,980 43,770 37,185 44,196 39,849 661,114
$870,094
- 7.
LEASES Operating Leases -
The Cooperative has entered into lease agreements under which it is the lessee on an operating lease for a Caterpillar coal dozer, six rail cars, and fleet vehicles. These transactions are covered in the master lease agreement and have lease terms ranging from four to 15 years. At the end of the leases, the Cooperative can either purchase the equipment at fair market value, continue to lease the assets, or return the equipment to the lessor. Rent expense was $820 and $570 in 2013 and 2012, respectively. The schedule of future minimum lease payments as of December 31, 2013, is as follows:
Years Ending December 31 2014 2015 2016 2017 2018 Thereafter
$ 732 511 334 105 47 44
$1,773 Total
-15
Capital Leases -
The Cooperative has entered into several capital lease agreements for work equipment and computer equipment. The transactions are covered in the master lease agreement with lease terms of four, five, or nine years. At the end of the lease, the Cooperative can purchase the equipment for a bargain purchase price. The gross amount of the leases was $1,120 and $740 as of December 31, 2013 and 2012, respectively. The accumulated amortization of the capital leases was $659 and $365 as of December 31, 2013 and 2012, respectively. The principal and interest payments were
$691 and $495 in 2013 and 2012, respectively. The schedule of future minimum lease payments as of December 31, 2013, is as follows:
Years Ending December 31 2014 2015 2016 2017 2018 2019 2020
$ 629 389 319 154 146 91 28 Total minimum lease payments 1,756 Amounts representing interest (105)
Present value of minimum lease payments 1,651 Current maturities (616)
$1,035 Long-term capital lease obligations
- 8.
FINANCIAL INSTRUMENTS The fair value of the Cooperative's financial instruments other than marketable securities and short-term borrowings, based on the rates for similar securities and present value models using current rates available as of December 31, 2013 and 2012, is estimated to be as follows:
2013 2012 Recorded Value Fair Value Recorded Value Fair Value Assets:
Other property and investments Investments in capital term certificates of NRUCFC Liabilities -
long-term obligations
$ 38,217 38,217
$ 10,420 10,420 9,176 870,094 9,176 1,025,101 9,176 830,040 9,176 1,059,836 Assets and Liabilities Measured at Fair Value -
Accounting principles generally accepted in the United States of America establish a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and provides for required disclosures about fair value measurements. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange.
A description of the inputs used in the valuation of assets and liabilities are as follows:
Level 1 inputs utilize observable market data in active markets for identical assets or liabilities. Level 2 inputs consist of observable market data, other than that included in Level 1, that are either directly or indirectly observable. Level 3 inputs consist of unobservable market data, which are typically based on an entity's own assumptions of what a market participant would use in pricing an asset or liability as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest-level input that is significant to the fair value measurement in its entirety. The Cooperative's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
There were no significant transfers between Levels 1, 2, and 3 in 2013. The following table summarizes the Cooperative's assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and 2012, aggregated by the level in the fair value hierarchy within which those measurements fall:
Quoted Prices in Significant Active Markets for Other Significant Identical Assets Observable Unobservable and Liabilities Inputs Inputs Fair Value (Level 1)
(Level 2)
(Level 3) 2013 Assets -
investments:
Nuclear decommissioningfunds
$ 91,398
$ 91,398 Investments under debt agreements marketable securities 3,774 3,774 Other property and investments 38,217 29,495 8,722 Investments in capital term certificates of National Rural Utilities Finance Corporation 9,176 9,176 Investment for deferred compensation 1,615 1,615
$144,180
$120,893
$5,389 S 17,898 Fair Value Measurements Using Quoted Prices in Significant Active Markets for Other Significant Identical Assets Observable Unobservable and Liabilities Inputs Inputs Fair Value (Level 1)
(Level 2)
(Level 3) 2012 Assets-investments:
Nuclear decommissioning funds
$112,867
$ 112,867 Investments under debt agreements -
marketable securities 3,769 3,769 Other property and investments 10,420 1,348 9,072 Investments in capital term certificates of National Rural Utilities Finance Corporation 9,176 9,176 Investment for deferred compensation 1,431 1.431
$137,663
$114,215
$5,200
$18,248 The changes in Level 3 recurring fair value measurements using significant unobservable inputs for the years ended December 31, 2013 and 2012, are as follows:
2013 2012 Other property and investments:
Balance -
beginning of year
$9,072
$10,211 New investment and loans made 350 1,163 Loan repayments received and current maturities (321)
(212)
Patronage capital allocations 246 523 Refunds of deposits (625)
(2,613)
Balance -
end of year
$8,722
$ 9,072 The valuation of these assets involved management's judgment after consideration of market factors and the absence of market transparency, market liquidity, and observable inputs. Interest income on economic development loans included above was $32 and $46 during 2013 and 2012, respectively.
Those amounts and the patronage capital allocations have been recognized in nonoperating margin in the consolidated statements of revenues, expenses, and comprehensive income. None of the changes in values impact accumulated other comprehensive income.
- 9.
RETIREMENT OF CAPITAL CREDITS The Cooperative's Board of Directors has adopted a policy of retiring capital credits allocated to members on a first-in, first-out basis. As part of an equity development strategy adopted in 2003, patronage capital retired will be limited to no greater than 2% of the total assigned patronage capital balance as of December 31 of the prior year. Accordingly, $3,130 and $2,861 were retired in 2013 and 2012, respectively. This policy is subject to annual review and approval by the Board of Directors and the RUS, and no cash retirements are to be made which would impair the financial condition of the Cooperative or violate any terms of its agreements. Since 2003, the amount of nonoperating margins assigned to members each year is at the discretion of the Board of Directors. Any unassigned nonoperating margins will become unallocated reserves and part of permanent equity. Patronage capital as of December 31, 2013, includes 2013 margins assignable of $17,079 and unallocated reserves of
$4,937. Patronage capital as of December 31, 2012, includes 2012 margins assignable of $16,258 and unallocated reserves of $3,952.
- 10.
COMMITMENTS AND CONTINGENCIES The Cooperative's estimated 2014 construction program expenditures, including Weston 4, are $140,027 with financing expected to be provided by borrowings and internally generated funds.
The Cooperative is a party to a number of generation, transmission, and distribution agreements, under which costs and/or revenues are recognized currently based upon the Cooperative's interpretations of the provisions of the related agreements. Differences between the estimates used in the consolidated financial statements and the final settlements are recorded in the year of settlement.
The Cooperative has entered into various coal purchase contracts with one-to four-year terms. The estimated commitments under these contracts as of December 31, 2013, were $94,872 in 2014, $90,726 in 2015, $8,043 in 2016, and $975 in 2017.
On August 27, 2012, a consent decree (CD) between the Cooperative, the EPA, and the Sierra Club was entered by the U.S. District Court concluding litigation regarding alleged violations of New Source Review and other provisions of the Clean Air Act. Under the CD, the Cooperative will install new and operate existing pollution control equipment at its coal generation stations or cease burning coal at certain facilities, and achieve required reductions in sulfur dioxide, nitrogen oxide, and particulate emissions. The CD requires the Cooperative to pay a civil penalty of $950 to EPA and to spend $5,000 on environmental mitigation projects within five years of EPA's April 2013 approval of the projects which will include participation in major solar projects. During 2012, the Cooperative paid the civil penalty in full and spent $500 of the funds required for environmental mitigation projects. During 2013, the $4,500 cost of the remaining environmental mitigation projects in deferred charges was charged to expense. Also during 2013, the $4,500 obligation in deferred credits for the remaining environmental mitigation projects was reduced by $84 spent on approved projects and for the estimated $816 cost of 2014 solar and other projects participation included in accrued expenses. In addition, the Cooperative announced plans to indefinitely suspend operations at its Alma #4 and #5 coal stations by February 2015. On March 10, 2014, the EPA agreed to extend by eight months the time for the Cooperative to comply with the CD's 30-day rolling average sulfur dioxide emission rate for one of the units at the Alma/J.P. Madgett plant if the Cooperative offsets additional emissions caused by the delay by reducing overall pollution from the Alma/J.P. Madgett plant beyond the levels required by the original CD. As part of the proposed CD modification, the Cooperative will cease burning coal in the Alma#4 and #5 boilers by December 31, 2014. Approval of the CD modifications is required by the U.S. District Court and is expected in early 2014.
The Cooperative has been named as a defendant in various lawsuits and claims arising in the nonnal course of business. Although the outcome of these matters cannot be determined at the present time, management and legal counsel believe these actions can be successfully defended or resolved without a material effect on the consolidated financial position, results of operations, or cash flows of the Cooperative.
- 11.
EMPLOYEE BENEFITS Multiemployer Defined-Benefit Pension Plan -
Pension benefits for substantially all employees are provided through participation in the National Rural Electric Cooperative Association (NRECA)
Retirement Security Plan ("RS Plan"). This is a defined benefit pension plan qualified under Section 401 and tax-exempt under Section 501(a) of the Internal Revenue Code. Pension benefits are funded in accordance with the provisions of the RS Plan and are based on salaries, as defined, of each participant.
The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendment Act of 1980, imposes certain liabilities on employers who are contributors to multiemployer plans in the event of a plan termination or an employer's withdrawal. These plans have not been terminated, nor has the Cooperative undertaken any plans to withdraw from participation. Since the RS Plan is a multiemployer plan for accounting purposes, all plan assets are available to pay benefits of any plan participant. Separate asset accounts are not maintained for participating employers. This means that assets contributed by one employer may be used to provide benefits to employees of other participating employers. The Cooperative may be contingently liable for its share of the RS Plans' unfunded vested liabilities.
The Cooperative's contributions to the RS Plan in 2013 and 2012 represented less than 5% of the total contributions made to the plan by all participating employers. In 2013, the Cooperative made a voluntary prepayment of $26,899 to this plan to reduce future contribution amounts. Expense for this pension plan was $10,970 in 2013 and $10,367 in 2012. The 2013 expense includes contributions to the plan of
$8,280 and $2,690 of prepayment amortization. The 2012 expense includes only contributions to the plan.
In the RS pPlan, a "zone status" determination is not required, and therefore not determined, under the Pension Protection Act (PPA) of 2006. In addition, the accumulated benefit obligations and plan assets are not determined or allocated separately by individual employer. In total, the RS Plan was over 80%
funded on January 1, 2013, and between 65% and 80% funded on January 1, 2012, based on the PPA funding target and PPA actuarial value of assets on those dates.
Because the provisions of the PPA do not apply to the RS Plan, funding improvement plans and surcharges are not applicable. Future contribution requirements are detennined each year as part of the actuarial valuation of the plan and may change as a result of plan experience.
Postretirement Health Insurance Obligation -
Certain employees of the Cooperative retiring at or after age 55 are eligible to participate in a postretirement health care plan through age 65. Eligible dependents of the retired Cooperative employees are also eligible to participate in this plan through age 65. Retirees pay 100% of the premium amount for this coverage. The premium is based upon the combined medical claims experiences of all active employees and retirees. If premiums were determined based upon the medical claims experience of retirees only, the resulting premium for retirees would be higher. The difference between the premium paid by retirees and the potential actual premium amount is the basis for the postretirement benefit obligation.
The Cooperative uses a December 31 measurement date for its plan. The postretirement health care plan is unfunded. During 2013, a plan change included the addition of a lower cost high-deductible health plan as an option of available plans to union employees effective for 2014. During 2012, a plan change included the addition of a lower cost high-deductible health plan as an option of available plans to administrative employees effective for 2013.
The accumulated postretirement benefit obligation (APBO) and the amounts recognized in the consolidated financial statements as of and for the years ended December 31, 2013 and 2012, are as follows:
2013 2012 Amount recognized in the consolidated balance sheets:
Total accrued qualified and nonqualified benefit obligation
$ 3,779
$ 8,077 Less current portion included in accrued expenses other (166)
(247)
Long-term portion S 3,613
$ 7,830 Change in benefit obligation:
APBO -
beginning ofyear S 8,077
$ 8,314 Service cost 413 400 Interest cost 258 328 Plan changes 818 (1,720)
Actuarial (gain) loss (5,540) 953 Benefits paid (247)
(198)
APBO-- end of year
$ 3,779
$ 8,077 Funded status of plan -
December 31 S (3,779)
$ (8,077)
Accrued postretirement health insurance obligations recorded at year-end
$ 3,779
$ 8,077 (Continued) 2013 2012 Change in plan assets:
Fair value of plan assets -
beginning of year Employer contribution 247 198 Benefits paid (247)
(198)
Fair value of plan assets -
end of year Change in accumulated other comprehensive income (loss):
Net loss at prior measurement date S (1,576)
$ (2,488)
Plan changes (818) 1,720 Actuarial assumption changes 5,540 (953)
Recognition in expense:
Amortization of prior service cost (223) 39 Amortization of unrecognized actuarial loss 175 106 Accumulated other comprehensive income (loss)
S 3,098
$ (1,576)
Components of net periodic postretirement benefit cost:
Service cost -
benefits attributed to service during the year 413 400 Interest cost on accrued postretirement health insurance obligation 258 328 Amortization of prior service cost (223) 39 Amortization of unrecognized actuarial loss 175 106 Net periodic postretirement benefit expense 623 873 (Concluded)
Employer cash contributions expected to be made to the plan during the fiscal year ending December 31, 2014, is $166. The amount of accumulated other comprehensive income expected to be recognized during the fiscal year ending December 31, 2014, is an actuarial gain of $183 and amortization of prior service cost of $102.
For measurement purposes, a 3.25% and 3.99% discount rate was assumed for 2013 and 2012, respectively, to determine net periodic benefit cost. The 2013 and 2012 annual health care cost increase assumed is 8.10% and 8.60%, respectively, decreasing gradually to 4.50% for 2030 and thereafter. A one percentage point increase in the assumed health care cost trend rates would increase the total of service and interest cost components by $106 and the end-of-year APBO by $378. A one percentage point decrease in the assumed health care cost trend rates would decrease the total of service and interest cost components by $88 and the end-of-year APBO by $329.
Estimated future benefit payments from the plan as of December 31, 2013, are as follows:
Years Ending December 31 2014 166 2015 217 2016 219 2017 243 2018 270 2019-2023 1,615 Defined-Contribution Plan -
Dairyland has a qualified tax-deferred savings plan for eligible employees. Eligible participants may make pretax contributions, as defined, with the Cooperative matching up to 2.5% of the participants' annual compensation. Contributions to this plan by the Cooperative were $1,071 and $1,091 for 2013 and 2012, respectively.
Accrued Sick Leave Benefit -
Certain employees are eligible to receive amounts at the time of retirement related to a discontinued sick leave policy. Eligible employees will be paid for a fixed number of sick leave hours at the wage rate in effect at retirement. The total liability was $1,590 and $1,941 as of December 31, 2013 and 2012, respectively. The cost for this sick leave benefit was $23 in 2013 and
$561 in 2012.
Other Plans -
The Cooperative offers key employees deferred compensation plans available through NRECA. The plans permit qualifying employees to defer a portion of their salary until future years. The accumulated deferred compensation balance is not available to employees until termination, retirement, or death.
All amounts of compensation deferred under the plans and all income attributable to those amounts (until paid or made available to the employee or other beneficiary) are solely the property and rights of the Cooperative (not restricted to the payment of benefits under the plan), subject only to the claim of general creditors. Participants' rights under the plans are equal to those of general creditors of the Cooperative in an amount equal to the fair market value of the deferred account for each participant. The related assets and liabilities, totaling $1,615 and $1,431 as of December 31, 2013 and 2012, respectively, are reported at contract value, which approximates fair value.
The Cooperative also provides employees with medical insurance coverage, short-term and long-term disability, and life insurance, which are funded by employer and employee contributions. The Cooperative's costs related to these benefits were $8,687 and $9,452 for 2013 and 2012, respectively.
The Cooperative announced a special early retirement plan to be offered to certain age-eligible employees at specific Cooperative locations. Participation in this plan will be effective June 2014.
Provisions of the plan include waiving the discount that is otherwise applied to pension benefits for employees electing retirement between ages 55 and 62, as well as a supplemental monthly payment to the employees for a minimum of 18 months or through age 65. The estimated cost of this plan is $3,960.
As discussed in Note 1, the expense of the plan is included in regulatory assets. The obligation for the plan is included in accrued benefits in Other Liabilities.
- 12.
RELATED-PARTY TRANSACTIONS The Cooperative provides electric and other services to its class A members. The Cooperative received revenue of $343,327 and $334,176 in 2013 and 2012, respectively, for these services. The Cooperative has accounts receivable from its class A members of $33,008 and $32,174 as of December 31, 2013 and 2012, respectively.
The Cooperative has advances from class A members of $11,416 and $9,421 as of December 31, 2013 and 2012, respectively, related to the prepayment program. Class A members have the option of paying their electric bill in advance, and in turn, the Cooperative pays the members' interest income. The Cooperative's interest expense related to the prepayment program was $96 and $105 in 2013 and 2012, respectively.
The Cooperative has interest-bearing loan receivables from class A members of $797 and $852 as of December 31, 2013 and 2012, respectively. These loan receivables, which are recorded as part of other assets, are related to the economic development program, wherein class A members can borrow funds from the Cooperative, which the members, in turn, loan to economic development projects in their service territories. These loans are typically repaid to the Cooperative over 10 years. The Cooperative recorded interest income related to the economic development program of $30 and $38 in 2013 and 2012, respectively.
- 13.
LONG-TERM POWER AGREEMENTS The Cooperative has a power agreement with Great River Energy (GRE) to share costs and benefits of a 345-megawatt coal-fired generating unit ("Genoa Station #3") located in Genoa, Wisconsin. Under the agreement, GRE will pay for 50% of the costs of operating the plant and GRE is entitled to take 50% of the output of the plant. This agreement remains in effect until the retirement of the unit from service or until the payment in full of all obligations arising from the construction of the unit, whichever is later.
The Cooperative provided substantially all the financing for the construction of the unit and GRE does not guarantee any portion of any debt of the Cooperative. As a result, the Cooperative records the assets, debts, and operating costs of Genoa 3 on the consolidated financial statements. Energy charges to GRE under the agreement were $41,381 and $37,576 during 2013 and 2012, respectively. As of December 31, 2013, GRE had $11,972 on deposit with the Cooperative for its share of the 2013 estimated operating coal inventory at Genoa 3.
The Cooperative and GRE have entered arbitration over three contract issues. The first two issues involve the application of contract provisions related to transmission costs and unit scheduling once the Cooperative became a member of the regional transmission organization in 2010. Arbitration of these two issues is scheduled during 2014. The third issue involves exit and termination rights. Arbitration on the third issue is scheduled to occur subsequent to the arbitration of the first two issues. Although the outcome of the arbitration cannot be determined at the present time, management and legal counsel believe it can be resolved without a material effect on the consolidated financial position, results of operations, or cash flows of the Cooperative.
- 14.
ASSET RETIREMENT OBLIGATIONS An asset retirement obligation (ARO) is the result of legal or contractual obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, or development and/or the normal operation of a long-lived asset. The Cooperative determines these obligations based on an estimated asset retirement cost adjusted for inflation and projected to the estimated settlement dates and discounted using a credit-adjusted risk-free interest rate. Upon initial recognition of a liability for ARO, the Cooperative capitalizes the asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability. The Cooperative allocates that asset retirement cost to expense using the straight-line method over the remaining useful life of the related long-lived asset. The accretion of the obligation is recognized over time up to the settlement date. Any future change in estimate will be recognized as an increase or a decrease in the carrying amount of the liability for an ARO and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset.
The Cooperative determined that it has AROs related to future removal and disposal of asbestos at its power plants. The Cooperative recorded no additional liability to its discounted liability in 2013 and 2012 related to this obligation. There are no assets legally restricted for purpose of settling the ARO related to future removal and disposal of asbestos. This ARO is recorded in other noncurrent liabilities in the consolidated balance sheets.
The Cooperative has established a decommissioning trust to accumulate the estimated amounts necessary to decommission a nuclear power plant that the Cooperative formerly operated and the related Independent Spent Fuel Storage Installation (ISFSI). The assets of this trust in the amount of $91,398 as of December 31, 2013, and $84,330 as of December 31, 2012, are outside the Cooperative's administrative control and are available solely to satisfy the future costs of decommissioning. The assets of a second fund, a supplemental reserve of $0 as of December 31, 2013, and $28,537 as of December 31, 2012, are designated to be used for such decommissioning efforts or for removal and temporary storage for the spent nuclear fuel pending permanent storage by the DOE. These amounts are recorded as other noncurrent assets in the consolidated balance sheets. The assets in the supplemental reserve were released to general funds in 2013 to repay fuel removal project costs incurred out of general funds for that project which was completed in 2012. The nuclear decommissioning obligation is recorded in the consolidated balance sheets in other noncurrent liabilities.
A reconciliation of the beginning and ending aggregate carrying amount of the obligations as of December 31, 2013 and 2012, is as follows:
2013 2012 Balance -
beginning of year
$ 80,735
$ 84,079 Accretion in ARO 32 64 Incurred costs on decommissioning projects (5,880)
(13,881)
Provision recorded as decommissioning liabilities 19,877 10,473 Balance -
end of year
$94,764
$ 80,735 The Cooperative did not record a conditional ARO related to the dismantlement of the dam and drainage reservoir for the hydro generation plant at Flambeau, the restoration of land to preexisting condition at Genoa Station #3 site related to the land rights permit, and the removal of transmission lines in various corridors, because the Cooperative does not have sufficient information to estimate the fair value of the ARO.
- 15.
NUCLEAR REACTOR The La Crosse Boiling Water Nuclear Reactor (LACBWR) was voluntarily removed from service by the Cooperative effective April 30, 1987. The intent was to terminate operation of the reactor, and a possession-only license was obtained from the Nuclear Regulatory Commission in August 1987.
Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the storage and disposal of spent nuclear fuel removed from nuclear reactors. LACBWR will remain in safe storage status (SAFSTOR) until the final stage of decommissioning of LACBWR, involving dismantlement and decontamination, can be completed. By statute, the DOE was to have begun accepting spent fuel in January 1998, but has not yet licensed and established a repository. The Cooperative filed an initial breach of contract damages claim against the United States government in the United States Court of Federal Claims to recover its costs generally incurred after 1998 through 2006 related to spent fuel remaining at LACBWR. The Cooperative filed a second contract damages claim in December 2012 to recover its costs generally incurred from 2007 through 2012. The trial for the second claim is expected to be scheduled in 2014. Subsequent suits will be brought to recover the continuing costs arising from the presence of the spent fuel. The initial claim was tried in July 2008 and resulted in a damages award in December 2009. That award decision was appealed by the government. All appeals efforts concluded during 2012. In January 2013, the Cooperative received payment of $37,659 from the government for the damage award. For 2013, as discussed in Note 1, a regulatory liability for this amount was created to reflect the obligation to the class A members who had paid these costs as part of their rates during 1999-2006. For 2012, none of the award damages are reflected in the consolidated balance sheets or consolidated statements of revenues, expenses, and comprehensive income.
The Cooperative completed the temporary dry storage facility project located on the LACBWR site and completed the move of the spent fuel to this ISFSI facility in September 2012. Dismantlement of nonessential LACBWR plant systems is proceeding on an ongoing basis. The LACBWR decommissioning plan calls for completion of decommissioning no later than 2025. The estimated costs of decommissioning the nuclear generating facility are based on a decommissioning cost study. Annual SAFSTOR costs incurred through the September 2012 fuel transfer were incorporated into the annual budget and rate making process. Annual ISFSI costs are recorded on an as incurred basis and incorporated into the annual budget and rate making process. Costs incurred for decommissioning projects are charged against the decommissioning liability. The Cooperative's policy is to provide additional funding of the nuclear decommissioning trust, as necessary, through rates or through transfers from the supplemental reserve, and with future earnings, to ensure that the trust will be sufficient to cover final decommissioning expenses. The annual decommissioning expense, SAFSTOR, and ISFSI costs are recovered from the class A members. Earnings on the nuclear decomnissioning funds and the equivalent provision for nuclear decommissioning costs are recorded as nonoperating margins, since the plant is no longer in service.
I