ML14195A027
ML14195A027 | |
Person / Time | |
---|---|
Site: | Rancho Seco, 07200011 |
Issue date: | 06/19/2014 |
From: | Ronningen E Sacramento Municipal Utility District (SMUD) |
To: | Allen C, John Hickman Document Control Desk, NRC/FSME, Office of Nuclear Material Safety and Safeguards |
References | |
DPG 14-122 | |
Download: ML14195A027 (91) | |
Text
Powering forward. Together.
- SMUDM DPG 14-122 June 19, 2014 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 Chris Allen In accordance with 10 CFR 50.71(b) and 10 CFR 72.80(b), we are submitting the 2013 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) 732-4817.
Sincerely, Einar T. Ronningen Superintendent, Rancho Seco Assets Cc: NRC, Region IV 7 ,2-0 Rancho Seco Nuclear Generating Station 114440 Twin Cities Road I Herald, CA 95638-9799 I 1.209.333.2935 I smud.org C,
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- SMUD" OVERVIEW 2013 Service Area Population Total Authorized Budget Credit Rating 1.4 million $1.35 billion AA- Standard & Poor's Record Peak Demand Number of Customers [YFAR END] Ai Moody's 3,299 megawatts 610,185 A+ Fitch on July 24, 2006 Employees MARI[ND 2,073 Executive Management SMUD Service Area and Board Member Wards John Di Stasio The Sacramento Municipal Utility District generates, transmits and distributes General Manager & electricity to a 9oo-square-mile territory that includes California's capital city, Chief Executive Officer Sacramento County and a small portion of Placer County. As a municipal utility, Arlen Orchard SMUD is governed by a seven-member of Board Directors selected by the voters General Counsel to staggered four-year terms. The SMUD Board of Directors determines policy and appoints the chief executive officer/general manager, who is responsible for James A. Tracy SMUD's day-to-day operations.
Chief Financial Officer Paul Lau Board of Directors Assistant General Manager, Power Supply &Grid Operations " Ren6e Taylor Ward 1 Frankie McDermott Chief Customer Officer " Nancy Bui-Thompson Ward 2 Gary King
" Howard Posner Chief Workforce &Technology Officer Ward 3 Michael Gianunzio
" Genevieve Shiroma Chief Legislative Ward 4
&Regulatory Affairs Officer Vice President 2013 President 2014 Noreen Roche-Carter Treasurer " Michael Picker Ward 5 (Picker resigned Sandra Moorman seat inearly 2014; Board Controller appointed Rob Kerth to fill vacancy)
" Larry Carr Ward 6 N Vice President 2014
- Bill Slaton Ward 7 President 2013 V :d~ima~ ~ lafnaray ~ In:
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-hSGnra ang ./E In many respects, 2013 was a transformational year at SMUD.
From reaping the benefits of the SmartSacramentoý initiative to laying the groundwork for time-differentiated electric rates, we set a strong foundation that will serve our customers well in the years ahead.
SMUD's finances are in good order. It helped that for the first time in several years, the economic news was positive. A long-awaited upturn meant the Sacramento region began recovering its financial footing. SMUD's increase in net income in 2013 was $69.7 million, $30 million higher than planned. Standard &
Poor's raised SMUD's credit rating to AA-, the third upgrade we've received from one of the major credit agencies in the last three years.
SMUD's two most visible achievements in 2013 were a move to the new East Campus - Operations Center and the successful completion of the $308 million SMUD's two n lost visible achievements SmartSacramento project. These developments are closely connected and will help SMUD provide in 2013 were aa move to the new East customers with more energy options and efficient Campus - OFperations Center and the service. The state-of-the-art control room at the successful conipletion of the $308 million East Campus features technology funded in part SmartSacram. ento*project. by the $127.5 million smart grid infrastructure grant SMUD received from the U.S. Department of Energy.
SmartSacramento encompassed more than 40 projects in seven areas and was a success on all fronts. Federal energy officials are particularly interested in the continued SMUD ANNUAL REPORT 2013 Leading 1 theWay
continued Letter from the General Manager/CEO results of SMUD's smart-pricing pilot. More than 8,000 customers participated in the largest study of its kind in the country.
In August, the SMUD Board of Directors voted unanimously to phase out tiered rates over the next four years and to begin preparing for time-of-use rates.
The completion of residential rate restructuring will have long-lasting benefits for SMUD and the community. By aligning our costs with the true value of serving customers, we fundamentally changed the way we price our product. Extensive outreach efforts preceded the rate restructuring, and our customers were supportive of the changes.
SMUD continued in 2013 to increase its supply of renewable resources, keeping us on track to meet the state mandate of 33 percent by 2020. As part of our effort to integrate renewable resources such as wind and solar into the optimal operation of SMUD's distribution system, the SMUD Board approved a $35 million contract to perform geotechnical and engineering testing on a possible pumped-storage reservoir at Iowa Hill in our Upper American River Project. SMUD is investigating other storage options as well. SMUD received the highest J.D. Power and Associates Last but certainly not least, I'm pleased customer satisfaction scores of any California utility to note that SMUD received the highest for the 12th straight year.
J.D. Power and Associates customer satisfaction scores of any California utility for the 12th straight year. We ranked second among large utilities nationally. Please take a few moments to read about the work we do to maintain our customers' trust.
This is the last annual report issued during my tenure as I will be retiring in April 2014. It has been an honor to serve our community and to lead this organization for the last five and a half years.
Sincerely, John Di Stasio General Manager/CEO ISacramento Municipal Utility District
The E~ ~0 nmes adu Year in review I 1 million THENUMBER OFCALLSFIELDED BY SMUD experienced a banner year on several fronts in 2013. SMUDCUSTOMER REPRESENTATIVES IN2013 More than 95 percent of the SmartSacramento work associated with the $127.5 million federal smart grid grant was completed. One-third of SMUD's work force moved to the expansive East Campus -
THENUMBER OFEMAILSANSWEREDBY Operations Center. SMUD received a credit upgrade from one of the SMUDCUSTOMER REPRESENTATIVES IN2013 major rating agencies and remained the top-ranked California utility in terms of customer satisfaction. And even with a record-setting heat wave in late June and July that generated a high demand for 65,000 --
- 610,000 THENUMBER OFSMUDCUSTOMERS IN1946 VS.
electricity, SMUD exceeded its reliability targets for 2013. THENUMBER OFSMUDCUSTOMERS IN2013 These developments, and others, ensure that SMUD is on solid financial and organizational footing heading into the future.
A look at some of the highlights: 96%of customers SMUD'S CUSTOMER SATISFACTION RATING IN2013 Strong financial showing ASTRACKED EVALUATOR BYANINDEPENDENT With the regional economy beginning to rebound from the recession, electric sales were up, and SMUD finished 2013 with a change in net position of $69.7 million, $30 million more than planned. SMUD's fixed charge debt ratio for 2013 was 1.8o, exceeding the target established Senior Mechanical Engineer Karen Case inspects the turbine by the Board of Directors. More good financial news came when shut-off valve inside the Jaybird Standard & Poor's raised SMUD's credit rating to AA-. powerhouse in SMUD's Upper American River Project.
continued Year in review )
SmartSacramento Three and a half years after receiving a $127.5 million smart grid infrastructure grant, the largest awarded to any California utility, SMUD met the U.S. Department of Energy's deadline for installing nearly all of the authorized smart-grid equipment.
East Campus - Operations Center More than 650 SMUD employees moved into the East Campus - Operations Center in the late spring. Located on the corner of Kiefer Boulevard and Bradshaw Road, the East Campus replaced the outdated corporate yard on 59th Street.
Construction of the East Campus generated more than 300 local jobs.
Rate restructuring After conducting extensive community outreach, the SMUD Board of Directors voted in August to approve 2.5-percent rate increases in 2014 and 2015 and to begin phasing out residential billing tiers.
The rate increase was necessitated by renewable energy costs and increased enrollment in SMUD's discounted rate Approximately one-third of SMUD's work force for low-income customers. Even with " moved into the East Campus - Opeirations the increase taking effect on Jan. 1, 2014, Center (above). Construction of the n ew facility SMUD's residential rates remain among generated more than 300 local jobs the lowest in the state.
The residential rate restructuring is part of an effort to better align charges with the true cost of serving customers. Under the current rates, kilowatt-hour pricing for base energy use does not fully cover SMUD's
-Ue.adahafy costs, while the base-plus price covers more than the full cost.
As a result, SMUD will reduce the
$17. milo0 m rt grid i price difference between base and base-plus energy use from 2014 to 2016.
grnt *gs th awardede to any California The tiers will be eliminated in 2017, the U.S.' Department to be replaced, pending a decision by utility, SM e SMUD's Board of Directors, by time-of Enrg' 0 *a. Sfor ins n nbased residential rates.
al of the auhr d smat-ri equpm nt I Leading theWay I SMUD ANNUAL REPORT 2013
Renewable power and proposed Iowa Hill project SMUD stayed on track to meet the state mandate requiring utilities to receive 33 percent of their power supply from renewable resources by 202o. The challenge in coming years will be to integrate intermittent generation such as wind and solar into an electric grid that continues providing customers with reliable, around-the-clock service.
To that end, the SMUD Board approved in 2013 a $35 million contract authorizing a geotechnical study to determine the feasibility of building the Iowa Hill pumped-storage facility in SMUD's Upper In addition to leading the sta te, SMUD American River Project. A grant from the U.S. had the second-highest cust omer Department of Energy covers up to $s million of the geotechnical work. satisfaction score of any larg e electric The Iowa Hill proposal involves construc- utility in the United States.
tion of a new reservoir above the Slab Creek Reservoir. During off-peak hours, when power is inexpensive - or when SMUD has surplus renewable generation - water would be pumped up to the new reservoir for storage. During peak hours, when electricity is most expensive, water would be released from the bottom of the upper reservoir to flow into a new powerhouse.
Approving the geotechnical work doesn't mean the SMUD Board will approve the Iowa Hill project. The Board will assess the study and determine whether to proceed or not.
Handling the heat SMUD's electric system and employees were up to the Monthly Average challenge when a record six straight los-degree days in Residential Electric Bill late June and early July led to high customer demand.
The succession of high temperatures caused transformers % HIGHER UTILITY MONTHLY BILL ,
to overheat and caused a number of heat-related outages, THAN SMUD but overall, system upgrades and the dedicated work of SMUD $ 91.96 SMUD's field crews kept customer disruption to a minimum.
Roseville $ 109.88 + 19.5%
Customer satisfaction LADWP* $ 115.6o
- 25.7%
For the 12th straight year, SMUD had the highest residential Modesto $ 134.15
- 45.9%
customer satisfaction score of any California utility in the J.D. Power and Associates study. SMUD scored 692 out SCE** $ 138.51 + 50.6%
of a possible 1,ooo points, well above the industry average PG&E $ 142.06
- 54.5%
of 639. In addition to leading the state, SMUD had the second-highest score of any large electric utility in the SDG&E** $ 152.73
- 66.1%
United States. -Los Angeles Department of Water & Power
- Southern California Edison
..* San Diego Cas& Electric SMUD ANNUAL REPORT 2013 Leading 1 theWay I
- - - . S S 6.I The electric grid delivered power in the same fashion for From installing 620,000 smart meters that provide more than a century. two-way communication between SMUD and its customers, Not anymore. Change is occurring, relatively speaking, to installing electric vehicle charging stations on local in the blink of an eye. college campuses, SmartSacramento brought many of the The $308 million invested in SMUD's SmartSacramento benefits of the smart grid to SMUD customers earlier than initiative is a major step forward in the transformation would have been possible otherwise.
toward a smarter, more Those benefits include the ability to identify outages efficient electric grid. Just and restore power to customers more quickly from the three and a half years after smart grid's nerve center - the modernized Control Room receiving a $127.5 million at SMUD's new East Campus - Operations Center.
smart grid infrastructure In applying for the federal grant, SMUD emphasized a SSmut grant, the largest federal collaborative, end-to-end approach. SMUD formed partner-grant awarded to any ships with some of the region's biggest organizations -
California utility, Sacramento State, the California Department of General SMUD met the U.S. Department of Energy's deadline for installing nearly all of the authorized smart-grid equipment.
SmartSacramento featured more than "It transit ions our system from a 40 separate projects in seven sectors: produce*r-controlled network to Smart meters a consur ner-controlled network.
Distribution automation We're sI lowing the way to the
" Smart pricing options rest of tIhe nation."
" Demand response
- U.S. Congresswoman a Customer applications Doris Matsui (above left)
Technology infrastructure a Cyber security the Eas Capu - Oprtin Cete (r0i00 t)
V.-* - .
powe 6*nto@~*
c0sor r mor quickly REPORT 2013
ý SMUD ANNUAL I Leading theWay
Services, the County of Sacramento, the Los Rios Community opening of SMUD's East Campus - Operations Center.
College District, the Sacramento City Unified School District, Rep. Doris Matsui also applauded SMUD for laying the and the Elk Grove Unified School District. groundwork for a smarter grid.
"This project exemplifies everything we're trying to "This is one of the largest infrastructure commitments achieve," said Patricia Hoffman, assistant secretary at the in our region," Matsui said. "It will completely change the U.S. Department of Energy. "What SMUD has done is pull the way we think, use and interact with our energy grid. It community together. This is the business model for the future." transitions our system from a producer-controlled network Hoffman's remarks were made during a 2013 event marking to a consumer-controlled network. We're showing the way the completion of the SmartSacramento initiative and the to the rest of the nation."
0411 The $308 million invested in SMUD's SmartSacramento initiative is a major
- af&V step forward in the transformation toward a smarter, more efficient electric grid.
As SMUD continues building a smarter grid for its For example, customers participating in "critical customers, the lessons learned in the SmartSacramento peak pricing" were charged 75 cents per kilowatt-hour from initiative will be used to design successful programs. 4 to 7 p.m. on 12 separate days during the summer months.
To put it another way, evaluating those lessons will help Customers received notifications a day in advance that the SMUD give customers the most bang for their buck. higher price would kick in. The off-peak price was 8.5 cents One of the most valuable SmartSacramento projects per kilowatt-hour.
was Smart Pricing Options. Results from the pilot study The results were unequivocal: Customers will reduce were so encouraging that the SMUD Board set up a rate their peak energy use significantly- up to 26 percent under structure that could transition the critical peak pricing option. One of the biggest surprises residential customers to time- of the study was that the vast majority of the customers who of-use rates beginning in 2018. were automatically enrolled in the pilot program agreed to SMUD's smart pricing pilot - participate rather than exercise their right to opt out.
which showed that customers are willing to reduce their peak energy use if hourly rates are designed to encourage off-peak use - received national attention.
"It was a very complex study, and no one has achieved the success, and the depth, and the quality of work that SMUD has done in this effort," said U.S.
Department of Energy Assistant Secretary Patricia Hoffman.
The idea behind the study was to encourage customers to reduce their energy use during the peak hours of summer usage, when the cost of the electricity SMUD buys is [ AU ' sm r prcn plt- hc at its highest. The study tested three different S owe tha cutmr ar wiln to pricing plans with approximately 11,000 customers divided among seven test groups. duc thi pea energ us if hourly es are desiged to enorg off-pa
-e ~recive~ nainlatnin I.a One of the biggest surprises of the study was that the vast majority of the customers who were automatically enrolled in the pilot program agreed to participate rather than exercise their right to opt out.
Leading theWay I SMUD ANNUAL REPORT 2013
Buying extra power on the open market during the sizzling days of summer is not just financially costly. Summer peak is also harmful to the environment because SMUD and other utilities have to fire up less-efficient plants to meet the increased demand for peak electricity.
By encouraging customers to reduce their peak energy use through time-differentiated rates, SMUD can avoid having to buy extra power on the open market while also improving the region's air quality.
The results were unequivocal: Customers will reduce their peak energy use significantly -
up to 26 percent under the critical peak pricing option.
SMUD ANNUAL REPORT 2013 1Leading theWay I
Ground was broken on SMUD's East Campus - The most noticeable feature of the East Campus is the Operations Center in September 2011. A different 1.1-megawatt photovoltaic system built above the employee sort of ground was broken when the innovative project parking lot. LED lighting throughout the facility will greatly was completed in 2013. reduce energy and maintenance costs. Many of the innova-In addition to providing nearly one-third of SMUD's tions occur out of sight, from a geothermal heat pump work force with a modern, expansive place to work, the system to radiant cooling and heating inside concrete slabs.
East Campus offers a blueprint of what's possible in energy efficiency.
The one-time gravel mine provided SMUD a broad canvas to work with. The East Campus was built to be I N t US Ge a net-zero-energy site, meaning it's capable of producing as much energy as it consumes on an annual basis. Bmud Cmou ilL anJounce that In November, the U.S. Green Building Council announced that SMUD's new campus received LEED Platinum status. LEED stands for Leadership in Energy
& Environmental Design, and platinum represents the highest level of achievement in the council's rating system. The Green Building Council looks for efficient use of energy, water, recycled materials and other factors.
Leading the Way I SMUD ANNUAL REPORT 2013
One of SMUD's primary objectives in building the East Campus was to The administration building, the site's six-story, provide a model for other customers 203,000-square-foot centerpiece, uses less than half the energy consumed in traditional office buildings.
to follow. The facility offers a blueprint One of SMUD's primary objectives in building the of what's possible in energy efficiency.
East Campus was to provide a model for other customers to follow. Large buildings consume large amounts of energy, and the measures SMUD took at the East Campus can be affordably replicated elsewhere.
In many respects, the move to the East Campus was long overdue. The 19-acre corporate yard on 59th Street opened in 1946, when SMUD had just 60,000 customers.
With SMUD now serving 610,000 customers, the 51-acre East Campus site provides much more space, and its location is favorable since the Highway 50 corridor will be one of the region's greatest areas of population growth. The operational efficiencies at the East Campus are expected to save SMUD about
$3 million a year.
The operational efficiencies at the East Campus are expected to save SMUD about $3 million a year.
SMUD ANNUAL REPORT 2013 ýLeading theWay I
Milking a prdgiu enrg sorc The typical dairy cow produces six to seven gallons of When most people think of renewable power, they milk each day. She also generates 12o pounds of manure generally think of wind and solar. But biomass accounts and urine every day. for roughly 50 percent of SMUD's renewable portfolio.
Neither product nor byproduct goes to waste at the SMUD is leading the way to have more small-scale New Hope Van Warmerdam dairies in Gait. With SMUD's biomass projects built. The Galt dairies are producing assistance, the dairies installed anaerobic digesters that what's known in the business as "base load" renewable convert cow manure into clean, renewable electricity. energy - power that's not contingent on the sun shining SMUD received approximately $5.5 million from the or the wind blowing.
U.S. Department of Energy and the California Energy With SMUD's assista nce, the dairies installed anaerobic digesters Commission to help fund the that convert cow maraure into clean, renewable electricity.
construction of the digesters at the local dairies.
At the New Hope dairy, the collected manure is pumped into a concrete and steel tank, where biogas (primarily methane) accumulates and is then transferred to an engine- generator that produces clean electricity.
New Hope also uses a scrape system rather than a flush system to collect the manure, greatly reducing the use of fresh water at the dairy. At the Van Warmerdam dairy, the waste decomposes in a covered lagoon rather than in an above-ground tank.
Together, the two dairy digesters are capable of producing 4.3 gigawatt-hours of electricity annually -
enough to power roughly 450 single-family homes.
There are now four dairy digesters operating in SMUD's service territory, representing about 31 percent of California's total. The benefits are numerous. Dairy digesters keep climate-changing greenhouse gases out of the atmosphere while creating a revenue source for the farmers and supplying renewable energy to SMUD.
The digesters also reduce odors and flies compared to conventional open lagoon storage. The effluent is used as liquid fertilizer for crops.
I Leading theWay I SMUD ANNUAL REPORT 2013
Dar d e r k clmt- greenhouse0 gases ou of th a p0i c t 0. a sour fo the an suplin00rer ree al enryt 5 Also in 2013, SMUD teamed with the Sacramento County Regional Sanitation District to build a "leftover to lights" biogas facility that converts fats, oils, grease and liquid food waste into clean energy.
Arlin Van Groningen's dairy cows at New Hope Dairy produce more than just milk.
SMUD ANNUAL REPORT 2013 i Leading theWay I
A - - - S -I Perhaps it's no surprise that SMUD, a community- On Thanksgiving, SMUD's 90-person team participated owned utility, has employees who care about their in the Run to Feed the Hungry event at the same time community. another loo employees and family members were delivering What might come as a surprise is just how deep that holiday meals and gifts for Meals on Wheels.
commitment runs among SMUD's 2,000 employees. SMUD's Community Relations & Events group is Eighty-five percent of SMUD employees volunteered responsible for handling the hundreds of sponsorship, volunteer and trade show requests that come in each year.
In 2013, SMUD partnered with more than 250 organizations on 630 community events, investing almost $1 million in time and funds.
In December, representatives from 200 community and non-profit groups attended the Sponsorship Orientation and Community Breakfast, where they learned about SMUD's guidelines for considering sponsorship and volunteer requests.
These partnerships help SMUD, too. Community events boost public awareness of SMUD programs and services, advance the economic development of the for at least one event or cause in 2013. SMUD employees Sacramento region, and connect with thousands of participate in numerous fundraising w alks and runs, customers on a personal basis.
neighborhood events, community clean -ups and Earth Day For more information, visit www.smud.org/sponsorships.
celebrations. They help Habitat for Hun nanity build homes in disadvantaged neighborhoods.
More than 40 employees carried the SMUD banner in the Martin I2013 SM D patee0it oeta Luther King Jr. Day event.
250 oraiatin on 60 co mnt evns investing alos $1 milo intm0ndfn s Eighty-five percent of SMUD employees volunteered for an event or cause in 2013.
LeadingtheWay SMUD ANNUAL REPORT 2013
SMUD ANNUAL REPORT 2013 1 Leading the Way SMUD serves about 30,000 small- and mediium-sized expert, who then helps the customer select a certified business customers. Every SMUD customer intleracts with contractor to perform the energy-saving improvements.
these businesses on a daily basis - at grocery s tores, gas When Christian Brothers High School participated stations, restaurants, auto repair shops, movie t]heaters, in the Complete Energy Solutions program, an energy schools and hair salons. audit recommended interior and exterior lighting Since these businesses are an integral part c f the upgrades as well as refrigeration improvements. The community and the regional economy, SMUD r ecognizes lighting upgrades will save Christian Brothers $6,500 the need to help them manage their energy cost s. Because a year, and SMUD provided a rebate that covered small businesses have vastly different energy n eeds and a substantial portion of the project cost.
are often too busy running their day-to-day ope'rations to closely analyze their electricity use, SMUD exp*anded its program offerings in 2013.
With SMUD's Complete Energy Solutions pr ogram, small- and medium-sized business customers arre able to save up to 80 percent of the cost of installing higrh-efficiency lighting, heating, air conditioning, refrigeration and more.
Participants receive a free analysis and recommaendations for better managing their electricity use from ai n energy Ashwani Mayer (right), the ow'ner of Vic's Supermarket in South Land Park, participated in SMUD's Complete Energy Solutions program. By retro-fitting the store's lighting and refrigeration motors, SMUD helped him save valuable energy and money.
i Leading theWay I SMUD ANNUAL REPORT 2013
For more energy-savvy business customers, SMUD's Economic Development (SEED) program helps them Express Energy Solutions program offers rebates across increase their revenues. The SEED program offers a wide range of energy efficiency measures through more incentives for small businesses to participate in SMUD's of a "do-it-yourself" approach. competitive bid process. In 2013, 25 percent of SMUD's While these programs help business customers reduce contracting business went to certified small businesses -
their energy costs, SMUD's Supplier Education and more than $55 million.
Because small businesses have vastly different energy needs and are often too busy running their day-to-day operations to closely analyze their electricity 41?
use, SMUD expanded its program offerings in 2013.
ecoomy SMU recgnze th need to hel them I
C hrg n ah a on e elg ct i transp o t t o I Sacramento's heavy traffic, urban driving conditions In addition, SMUD expanded parking places at the and poor air quality make California's capital region an 49er Travel Plaza Electrified Truck Stop from 16 electrified optimal environment for plug-in electric vehicles, or PEVs. stalls to 30. Plugging in the big rigs helps reduce carbon SMUD has supported electric transportation for more than emissions and air pollution.
20 years as part of its commitment to improve the region's Most recently, SMUD opened a fast-charging station air quality. next to its headquarters building on S Street. The DC Fast Over the past year, SMUD took several significant Charger allows most electric vehicles to get fully charged steps forward on the PEV front. SMUD launched an EV Innovators pilot rate program in which electric-vehicle owners could choose between two pricing plans: a whole house plan and a dedicated meter plan. The pilot program filled up quickly, with more than 200 customers registering.
The whole house plan was designed to integrate the customer's home and vehicle electricity use into one pricing plan. Under this plan, customers are rewarded for charging their electric vehicle during off-peak times such as late night. The dedicated meter plan requires a sub-meter and rewards customers for off-peak charging. Both plans offer the lowest EV charging rates charged by any California utility.
The pilot programs run through 2014, at which point SMUD will evaluate its PEV program and further develop low-cost pricing plans that encourage off-peak charging.
The pricing plans remained available after registration for the pilot program closed, and there are currently about 400 SMUD customers taking advantage of PEV pricing plans.
0 SMUD supports electric transportation in a variety of ways, including the installation of public charging stations, increasing the number of electric vehicles in its transporta-tion fleet, and giving truck drivers the option to plug in while they idle their rigs.
Leading theWay SMUD ANNUAL REPORT 2013
in less than 30 minutes. Funding for the station came gasoline combustion engines. As SMUD's electricity mix from the sale of SMUD's carbon credits in California's gets cleaner and cleaner with more renewable resources cap-and-trade market. Three more fast-charging stations added in, the difference becomes even more pronounced.
will be installed through this pilot program. Plus, electricity is a cheaper transportation fuel than Greenhouse gas emissions from an electric car gasoline. The electric-to-gasoline comparison is about are typically 70 percent lower than those released from $2 per gallon at the fast-charging station.
- eice 0 00l chrg inles than minutes 00 I -----
2013 FINANCIAL STATEMENTS I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report 5 YEAR
SUMMARY
(Unaudited)
Operating Statistics (i) 2013 2012 2011 2010 2009 Custom ers at year-end ....................... 610,185 604,053 599,826 597,097 595,076 KWH Sales (thousands)
Sales to customers -
R esidential ................................ 4,651,219 4,640,238 4,587,205 4,486,241 4,707,104 Commercial, industrial & other ............... 5,795,408 5,814,531 5,797,808 5,798,569 5,984,803 S u bto ta l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,446,627 10,454,769 10,385,013 10,284,810 10,691,907 Sales of surplus power ...................... 2,072,396 2,442,090 2,492,975 1,836,957 2,133,049 12,519,023 12,896,859 12,877,988 12,121,767 12,824,956 T ota l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues (thousands of dollars)
Sales to customers -
R esid en tial .... ............................ $ 572,701 $ 569,210 $ 559,424 $ 526,860 $ 514,320 Commercial, industrial & other ............... 696,439 695,379 692,959 669,489 631,251 S u bto ta l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,269,140 1,264,589 1,252,383 1,196,349 1,145,571 Sales of surplus power ...................... 78,316 60,033 70,370 59,493 58,626 Sales of surplus gas ......................... 52,814 48,679 88,202 59,998 61,331 T ota l (ii) .. .. ... . .. .. .. .. ... . ... .. .. .. .. . $1,400,270 $1,373,301 $ 1,410,955 $ 1,315,840 $1,265,528 Average kWh sales per residential customer .... 8,634 8,699 8,652 8,497 8,955 Average revenue per residential kYVvh sold (cents) 12.47 12.38 12.33 11.91 11.07 Power supply (thousands of kWh) .............
Hydroelectric ............................ 1,018,659 1,425,443 2,823,979 1,926,783 1,442,015 C ogeneration ............................ 5,880,239 5,276,572 4,762,183 5,468,825 5,166,669 Windpow er .............................. 237,410 230,149 221,067 236,352 173,775 P hotovoltaic ............................. 51 295 1,627 1,952 2,236 P urchases ............................... 5,846,971 6,440,277 5,599,183 5,013,814 6,534,376 Net system peak demand - 1 hour1.157407e-5 days <br />2.777778e-4 hours <br />1.653439e-6 weeks <br />3.805e-7 months <br /> (kW) ....... 3,014,000 2,954,000 2,840,000 2,990,000 2,848,001 Equivalent Full Time Employees at year-end .... 2,073 2,028 2,034 2,064 2,113 Financial Statistics (thousands of dollars)
O perating revenues ......................... $1,428,395 $1,382,274 $ 1,360,008 $ 1,323,288 $ 1,293,337 Operating expenses - . .... . .. - .... ..
Purchased and interchanged power ............ 273,596 241,847 237,360 255,523 339,310 Operation and maintenance .................. 794,728 735,201 744,446 733,377 687,558 Depreciation and amortization ................ 180,718 165,460 169,987 162,708 150,811 Regulatory amounts collected in rates ......... 6,140 10,574 10,047 4,704 421 Total operating expenses ................... 1,255,182 1,153,082 1,161,840 1,156,312 1,178,100 Operating incom e ........................ 173,213 229,192 198,168 166,976 115,237 O ther incom e .............................. 22,441 57,319 12,797 3,843 (16,428)
Income before interest charges ............. 195,654 286,511 210,965 170,819 98,809 Interest charges ............................ 125,956 126,453 140,837 140,069 110,594 Change in net position before extraordinary income ............. $ 69,698 $ 160,058 $ 70,128 $ 30,750 $ (11,785)
Extraordinary Income ..................... $ $ $ 134 $ 3 Change in net position .................... $ 69,698 $ 160,058 $ 70,262 $ 30,753 $ 5,385 Funds available for revenue bond debt service .. $ 437,414 $ 521,627 $ 472,367 $ 336,451 $ 257,011 Revenue bond debt service ................... $ 176,270 $ 160,757 $ 167,271 $ 170,318 $ 164,355 Revenue bond debt service coverage ratio ...... 2.48 3.24 2.82 1.98 1.56 Electric utility plant - net .................... $ 3,322,977 $ 3,339,709 $ 3,248,294 $ 3,004,216 $2,978,623 C ap italization ..............................
Long-term debt .......................... $3,075,802 $3,091,405 $ 3,012,935 $ 3,156,447 $3,007,908 N et Position ............................. $ 846,705 $ 777,007 $ 616,949 $ 546,687 $ 515,934 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 net deferral/recognition of Public Good, Senate Bill 1, and Assembly Bill 32 revenues.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report TABLE OF CONTENTS Report of Independent Auditors .................................... 23 Management's Discussion and Analysis .............................. 25 Financial Statem ents ............................................. 34 Notes to Financial Statements Note 1. O rganization ............................................ 39 Note 2. Summary of Significant Accounting Policies ..................... 39 Note 3. Accounting Change ....................................... 49 Note 4. U tility Plant ............................................. 51 Note 5. Investment in Joint Powers Agency ........................... 52 Note 6. Com ponent Units ......................................... 54 Note 7. Cash, Cash Equivalents, and Investments ....................... 58 Note B. Regulatory Deferrals ...................................... 60 Note 9. Derivative Financial Instruments .............................. 63 Note 10. Long-term Debt ......................................... 69 Note 11. Commercial Paper Notes .................................. 74 Note 12. Fair Value of Financial Instruments ........................... 74 Note 13. Rancho Seco Decommissioning Liability ....................... 75 Note 14. Pension Plans ........................................... 77 Note 15. Other Postemployment Benefits ............................. 79 Note 16. Insurance Programs and Claims ............................. 81 Note 17. Com m itm ents ........................................... 82 Note 18. Claims and Contingencies .................................. 84 Required Supplementary Information (unaudited) ...................... 86 Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report INDEPENDENT AUDITORS' REPORT BAKER TILLY To the Board of Directors of Sacramento Municipal Utility District, Sacramento, California Report on the Financial Statements We have audited the accompanying consolidated financial statements of Sacramento Municipal Utility District and its blended component units, which comprise the Consolidated Statements of Net Position as of December 31, 2013 and 2012, and the related Consolidated Statements of Revenues, Expenses and Changes in Net Position, and Consolidated Statements of Cash Flows for the years then ended and the related notes to the financial statements.
Management's Responsibility for the FinancialStatements 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 the 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 and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control over financial reporting relevant to the Sacramento Municipal Utility District'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 Sacramento Municipal Utility District'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 Sacramento Municipal Utility District and its blended component units at December 31, 2013 and 2012, and the changes in their financial position and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
continued SMUD ANNUAL REPORT 2013 1 Leading theWay
INDEPENDENT AUDITORS' REPORT continued Emphasis of Matter As discussed in Note 3, Sacramento Municipal Utility District and its blended component units adopted the provisions of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities,effective January 1, 2013.
The prior year has been restated for this change. Our opinion is not modified with respect to this matter.
Other Matter Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and Schedule of Funding Progress information as listed in the table of contents be presented to supplement the financial statements. Such information, although not a part of the consolidated financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the consolidated financial statements, and other knowledge we obtained during our audit of the consolidated financial statements.
We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we will also issue a report on our consideration of Sacramento Municipal Utility District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance.
That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Sacramento Municipal Utility District's internal control over financial reporting and compliance.
Madison, Wisconsin February 21, 2014 I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited)
This management discussion and analysis provides a summary of the financial performance of the Sacramento Municipal Utility District (SMUD) and its component units for the years ending December 31, 2013 and 2012.
Please read this discussion in conjunction with the consolidated financial statements and notes, which begin on page 34.
BACKGROUND Under provisions of California's Municipal Utility District Act, the citizens of Sacramento voted in 1923 to form their own electric utility - SMUD. The community-owned utility began operations on December 31, 1946.
Governed by an elected board of directors (Board), SMUD has the rights and powers to fix rates and charges for commodities and services it furnishes, incur indebtedness, and issue bonds or other obligations. SMUD is responsible for the acquisition, generation, transmission and distribution of electric power to its service area -
most of Sacramento County and small, adjoining portions of Placer and Yolo counties.
Setting Rates The Board has independent authority to set SMUD's rates and charges. Changes in rates require a public hearing and formal action by the Board.
In August 2013, the Board approved the following average system rate increases:
- 2.5 percent, effective January 1, 2014
- 2.5 percent, effective January 1, 2015 In the years 2014 through 2017, the two-tiered rate structure shall converge by modifying the Base Usage kWh allowance to reduce the price spread between the two tiers. By 2017, the increase in Base Usage allowance will cover all usage and therefore a single price per kWh will apply to residential customers.
In June 2009, the Board approved an average system rate increase of 2.25 percent starting January 2011.
In August 2011, the Board approved a revenue-neutral rate restructuring that would
" encourage energy efficiency,
- promote the development of renewable energy resources, and
- equitably allocate costs across and within customer classes Effective January 2012, various components of the rates were adjusted to achieve the Board's objectives.
The impact of the changes covers the years 2012 through 2017.
In April 2013 and 2012, $6.6 million and $6.4 million, respectively, were transferred from the Hydro Rate Stabilization Fund (HRSF) to revenue as a resuirof lower precipitation.
In December 2013 and 2012, $1.8 million and $0.6 million, respectively, were transferred to the Rate Stabilization Fund (RSF) due to increased energy deliveries by the Western Area Power Administration (Western).
Financial Reporting SMUD maintains its accounting records in accordance with Generally Accepted Accounting Principles (GAAP) for proprietary funds as prescribed by the Governmental Accounting Standards Board (GASB). SMUD's accounting records generally follow the Uniform System of Accounts for Public Utilities and Licensees prescribed by the Federal Energy Regulatory Commission, except as it relates to accounting for contributions of utility property in aid of construction.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District 1 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited)
In accordance with GASB Statement No. 63, "FinancialReporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position," the Statements of Net Position present SMUD's assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position for the years ended December 31, 2013 and 2012.
GASB Concept Statement No. 4, "Elements of FinancialStatements." defines deferred outflows of resources as the consumption of net assets in one period that are applicable to future periods. Deferred inflows of resources are defined as the acquisition of net assets that are applicable to future reporting periods. The Statements of Net Position report net position as the difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources. The components of net position are classified as investments in capital assets, net of related debt, restricted, and unrestricted. Unrestricted indicates the funds are available for operations. As of December 31, 2013 and 2012, there were $149.1 million and $222.8 million, respectively, of deferred outflows of resources for hedging derivatives and unamortized bond losses, and $691.0 million and
$715.0 million, respectively, of deferred inflows of resources for hedging derivatives, regulatory credits, and financing obligations reported in the Statements of Net Position.
In accordance with GASB No. 62, "RegulatedOperations." the Board has taken regulatory actions for ratemaking that result in the deferral of expense or revenue recognition.
As of December 31, 2013, SMUD had total regulatory costs for future recovery of $192.2 million, a net decrease of $35.1 million from 2012. The decrease is due primarily to a decrease in the valuation of derivative financial instruments of $27.7 million, deferred TANC operations costs of $8.3 million, and an adjustment of the U.S.
Bureau of Reclamation costs of $6.2 million, offset by a $7.7 million increase in Senate Bill 1 deferred costs for investments in solar.
As of December 31, 2013, SMUD also had Regulatory Credits of $403.2 million, a net increase of $3.6 million from 2012. The increase is primarily due to the $11.5 million deferral of precipitation hedges, $1.8 million transfer to the RSF due to increased energy deliveries by Western offset by a $6.6 million transfer from the HRSF due to lower precipitation, $1.1 million reduction in deferred revenues for AB-32 programs, and a $3.0 million reduction in Senate Bill I (SB-1) deferred revenue for investments in solar.
The regulatory costs and regulatory credits will be recognized in the Consolidated Statements of Revenues, Expenses and Changes in Net Position in future periods as determined by the Board for ratemaking purposes.
Contents of this report This annual financial report reflects SMUD activities that are funded primarily through the sale of energy, transmission, and distribution services to its customer-owners and is divided into the following sections.
- Management discussion and analysis.
- The consolidated financial statements, which offer both short-term and long-term information on SMUD's financial status.
- The Consolidated Statements of Net Position 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 Position report all of SMUD's revenues and expenses for the periods shown.
- 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 and debt financing. They also report other cash uses such as payments for bond principal and capital additions and improvements.
- Notes to the consolidated financial statements.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited)
FINANCIAL HIGHLIGHTS December 31, Condensed Consolidated Statements of Net Position 2013 2012 (Restated)* 2011 (millions of dollars)
Assets Electric U tility Plant - net ................................... $ 3,323 $ 3,340 $ 3,248 Restricted and Designated Assets ............................. 174 233 241 C urrent A ssets ............ .. ............................... 1,052 911 694 N oncurrent A ssets .......................................... 794 862 754 To ta l A ssets .. . . .. . .. . . . . . .. . . . .. .. . .. .. .. . .. . . .... . . . . $ 5,343 $ 5,346 $ 4,937 Deferred Outflows of Resources .............................. 149 223 216 Total Assets and Deferred Outflows of Resources ................ $ 5,492 $ 5,569 $ 5,153 Liabilities Long-Term D ebt - net ......... ............................ S 3,076 $ 3,092 $ 3,013 C urrent L iab ilities .................................... ..... 584 643 737 N oncurrent L iabilities ...................................... 294 342 786 To tal L iab ilities .................. .................... .. $ 3,954 $ 4,077 $ 4,536 Defcrrcd Inflows of Resources ............................... 691 715 Net Position:
Net Investm ent in Capital Assets .............................. 345 412 414 R e stric te d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 127 110 U nrestricted .............................. ............. 386 238 93 Total Liabilities, Deferred Inflows of Resources, and N et Position ......................................... $ 5,492 $ 5,569 $ 5,153
- See Note 3 of the financial statementsfor discussion on the restatement of the December 31, 2012 Statement of Net Positionfor comparativepurposes.
ASSETS & DEFERRED OUTFLOWS OF RESOURCES Utility Plant - net 2013 compared to 2012 SMUD has invested approximately $3,323.0 million in electric utility plant assets and construction work in progress (CWIP) after accumulated depreciation at December 31, 2013. Electric Utility Plant -
net makes up about 62 percent of SMUD's Total Assets, which is the same percentage as the previous year. In 2013, SMUD capitalized approximately $171.0 million of additions to electric utility plant in SMUD's Consolidated Statements of Net Position. The additions were primarily due to distribution line work, hardware and software upgrades, the East Campus Operations Center, and distribution and transmission substation upgrades and modifications.
2012 compared to 2011 SMUD has invested approximately $3,339.7 million in electric utility plant assets and construction work in progress (CWIP) after accumulated depreciation at December 31, 2012. Electric Utility Plant -
net makes up about 62 percent of SMUD's Total Assets, approximately 4 percent less than the previous year. In 2012, SMUD capitalized approximately $270.0 million of additions to electric utility plant in SMUD's Consolidated Statements of Net Position. The capital additions were primarily for the Solano Wind Phase 3 project, East Campus Operations Center and Smart Grid projects such as smart meters, distribution automation, and AMI software, as well as the purchase of line trucks, and the Microgrid project.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited)
The following charts show the breakdown of Electric Utility Plant - net by major plant category -
Generation (Gen), Transmission (Trans), Distribution (Distr), and Other:
December 31, 2013 December 31, 2012 December 31, 2011 39%
6%
<-7' 3 n 38%
it 2%
36%
39%
E E4%
Gen U Trans
]Distr it
] Other Restricted and Designated Assets 2013 compared to 2012 SMUD's restricted and designated assets decreased by $58.7 million during 2013.
The decrease was due to $28.7 million related to the component units' overhaul and operating funds, $14.5 million in the nuclear decommissioning fund, $11.0 million in the revenue bond reserves due to the refunding of Series R03 and S03, and $4.8 million in the RSF (including the HRSF) as a result of lower precipitation and higher energy deliveries from Western. These decreases were offset by a $0.3 million increase in the escrow fund.
2012 compared to 2011 SMUD's restricted and designated assets decreased by $7.2 million during 2012.
There was a decrease of $5.7 million in the RSF (including the HRSF) as a result of lower precipitation and higher energy deliveries from Western. The year also ended with a higher current portion of restricted and designated assets. This was offset by a $7.6 million increase in Revenue bond, debt service, and construction reserves due to a $9.0 million transfer from unrestricted funds for payment of debt service and $8.7 million from operations, offset by a $10.1 million decrease in reserve funds due to the bond refunding of Series Q02 and R03 with the issuance of 2012 Series Y Electric Revenue Refunding Bonds.
Current Assets 2013 compared to 2012 Current assets increased by $141.1 million in 2013 primarily due to increases in the following: $249.5 million in unrestricted investments, $32.5 million in the current portion of restricted and designated cash and $10.6 million in the current portion of prepayments. This is partially offset by decreases in the following: $71.5 million in unrestricted cash and cash equivalents, $71.4 million in net receivables,
$5.0 million in the current portion of regulatory costs, and $5.0 million in credit support collateral deposits.
2012 compared to 2011 Due to the implementation of GASB No. 65 in 2013, some items were reclassified for comparative purposes. Current assets increased by $216.4 million in 2012 mainly due to increases in the following: $106.5 million in unrestricted cash and cash equivalents, $56.3 million in net receivables, $55.8 million in unrestricted investments, $11.7 million in inventories and prepayments, and $9.6 million in the current portion of restricted and designated cash, cash equivalents and investments. This is partially offset by a decrease of $20.0 million in credit support collateral deposits and $3.5 million in regulatory costs to be recovered within one year.
REPORT 2013 ISMUD ANNUAL I Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited)
Noncurrent Assets 2013 compared to 2012 Total noncurrent assets decreased by $69.0 million mainly due to the following decreases: $30.2 million in regulatory costs for future recovery, $25.0 million in gas, power and other prepaid costs, $10.5 million in hedging derivative instruments, and $3.3 million in energy efficiency loans - net.
2012 compared to 2011 Total noncurrent assets increased by $108.4 million mainly due to the following increases: $142.8 million of prepaid power and capacity, $42.9 million in prepayments and other, and $7.5 million in regulatory costs for future recovery. These increases were partially offset by the following decreases:
$29.2 million in credit support and collateral deposits, $26.9 million of unamortized-debt issuance costs reclassified to a regulatory asset due to the implementation of GASB 65, $21.6 million in prepaid gas, and
$9.1 million in energy efficiency loans - net.
Deferred Outflows of Resources 2013 compared to 2012 Total deferred outflows of resources decreased $73.6 million due to $61.9 million in the fair value of hedging derivative instruments and $11.7 million in unamortized bond losses.
2012 compared to 2011 There was a $7.0 million increase due to reclassified unamortized bond losses of
$58.5 million due to the implementation of GASB No. 65, offset by a $51.5 million decrease in the fair value of hedging derivatives.
LIABILITIES Long-term debt - net 2013 compared to 2012 In May 2013, SMUD issued $118.6 million of 2013 Series B Electric Revenue Refunding Bonds. The proceeds from the issuance along with $6.7 million of available funds were used to refund $141.5 million of the outstanding 2003 Series R and 2004 Series T revenue bonds through a legal defeasance. In August 2013, SMUD issued $57.8 million of 2013 Series C Electric Revenue Refunding Bonds.
The proceeds from the issuance along with $4.3 million of available funds were used to refund $65.9 million of the outstanding 2003 Series S bonds through a legal defeasance.
2012 compared to 2011 Unamortized bond losses were reclassified to Deferred Outflows of Resources in the Statement of Net Position due to the implementation of GASB No. 65. In May 2012, SMUD issued
$196.9 million of 2012 Series Y Electric Revenue Refunding Bonds. The proceeds from the issuance along with $10.0 million of available funds were used to refund $219.9 million of the outstanding 2002, 2003, and 2004 revenue bonds through a legal defeasance.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District 1 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited)
The following table shows SMUD's future debt service requirements through 2018 as of December 31, 2013:
Debt Service Requirements 300 . . . --..
250 .
- 200 CF1 Interest
= 150
.5U Principal 100 50 0
2014 2015 2016 2017 2018 As of December 31, 2013, SMUD had an underlying rating of "AA-" from Standard & Poor's, "A+" from Fitch, and "AI" from Moody's. Some of SMUD's bonds are insured and are rated by the rating agencies at the higher of the insurer's rating or SMUD's underlying rating.
Current Liabilities 2013 compared to 2012 Current liabilities decreased by $59.0 million during 2013. The decrease is primarily due to the following: investment and hedging derivative instruments maturing within one year of $77.5 million,
$11.5 million in customer deposits and other, and $3.7 million in accounts payable. These decreases were partially offset by $18.4 million increase in long-term debt due within a year and $13.5 million in accrued decommission costs.
2012 compared to 2011 Current liabilities decreased by $94.0 million during 2012. The decrease is primarily due to the following: $67.3 million in accounts payable, $36.4 million in hedging derivative instruments maturing within one year, and $18.5 million in regulatory credits due within one year reclassified to Deferred Inflows of Resources due to the implementation of GASB 65. These decreases were offset by a $10.5 million increase in customer deposits and other and a $16.7 million in long-term debt due within one year.
Noncurrent Liabilities 2013 compared to 2012 Noncurrent liabilities decreased by $48.0 million during 2013. The decrease was due to $14.0 million in accrued decommissioning costs, $14.9 million in investment derivative instruments, $8.3 million due to affiliated entity, $6.2 million due to U.S. Bureau of Reclamation, and $7.8 million in self-insurance. These decreases were offset by a $3.2 million increase in hedging derivative instruments.
2012 compared to 2011 Noncurrent liabilities decreased by $443.6 million during 2012. The decrease was mainly due to reclassification of regulatory credits and deferred credits to Deferred Inflows of Resources due to the implementation of GASB No. 65.
Deferred Inflows of Resources 2013 tompared to 2012 Total deferred inflows of resources decreased $24.0 million due to a decrease of
$18.6 million in financing obligations and $9.0 million in accumulated increase in fair value of hedging derivatives.
These decreases were offset by a $3.6 million increase in regulatory credits.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited) 2012 compared to 2011 Due to the implementation of GASB No. 65 in 2013, some items were reclassified to Deferred Inflows of Resources in the Statement of Net Position for comparative purposes, including financing obligations, accumulated increase in fair value of hedging derivatives, and regulatory credits. These reclassifications account for the increase from 2012 compared to 2011.
Condensed Consolidated Statements of Revenues, Expenses and Changes in Net Position December 31, 2013 2012 (Restated)* 2011 (millions of dollars)
O perating revenues .......................................... $ 1,428 $ 1,382 $ 1,360 O perating expenses .......................................... (1,255) (1,153) (1,162 O perating incom e ........................................... 173 229 198 O ther revenues .............................................. 22 57 13 Interest charges ............................................. (125) (126) (14 1)
C hange in net position ....................................... 70 160 70 Net position - beginning of year ............................... 777 617 547 Net position - end of year .................................... $ 847 $ 777 $ 617
- See Note 3 of the financialstatementsfor discussion on the restatement of the December 31, 2012 ConsolidatedStatements of Revenues, Expenses and Changes in Net Position.
CHANGES IN NET POSITION Operating Revenues 2013 compared to 2012 Operating revenues were $1,428.4 million in 2013, an increase of $46.1 million from 2012. Sales to retail customers were $1,252.4 million in 2013, an increase of $6.9 million, which was about 1 percent higher than 2012. The number of customers increased from 604,053 in 2012 to 610,185 at the end of 2013, at an average revenue per kilowatt hour that remained flat.
SMUD transferred $1.8 million to the RSF in 2013 as compared to a $0.6 million transfer to the fund in 2012. SMUD also transferred $6.6 million from the HRSF during 2013 as compared to a $6.4 million transfer from the fund in 2012.
Additionally, SMUD spent more than it collected in SB-1 revenues and has recorded a regulatory asset of $7.7 million.
Wholesale revenues are composed of both surplus gas and energy sales. In 2013, surplus gas sales were $52.8 million as compared to $48.7 million in 2012. Surplus gas sales were 8 percent higher and the average sales price was higher than the previous year. Surplus energy sales in 2013 were $18.3 million higher than in 2012 as a result of higher prices offset by lower volumes.
2012 compared to 2011 Operating revenues were $1,382.3 million in 2012, an increase of $22.3 million from 2011. Sales to retail customers were $1,245.5 million in 2012, an increase of $8.0 million, which was about 1 percent higher than 2011. The number of customers increased from 599,826 in 2011 to 604,053 at the end of 2012, at an average revenue per kilowatt hour that remained flat.
SMUD transferred $0.6 million to the RSF in 2012 as compared to a transfer to the RSF of $10.1 million in 2011.
SMUD also transferred $6.4 million from the HRSF during 2012 as compared to a $40.4 million transfer to the fund in 2011. Additionally, SMUD spent more than it collected in SB-I revenues and has reduced the regulatory credit by $3.2 million.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District 1 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited)
Wholesale revenues are composed of both surplus gas and energy sales. In 2012, surplus gas sales were $48.7 million as compared to $88.2 million in 2011. The amount of surplus gas sold was 45 percent lower and was sold at lower average prices than previous year. Surplus energy sales in 2012 were $10.3 million lower than in 2011 due to lower volumes and lower prices.
The following charts show the megawatt hour (MWh) sales, and sales revenue in 2013, 2012, and 2011, by surplus energy sales (Surplus), commercial and industrial (C&I) and residential (Res) customers.
MWh Sales Sales Revenues
- 0 N Res 0 Res 0
- c&l
- C&l LI Surplus F- Surplus 2011 2013 2012 2011 Operating Expenses 2013 compared to 2012 Operating expenses were $1,255.2 million in 2013, an increase of $102.1 million from 2012. Purchased power expense was $31.7 million higher in 2013, mainly due to higher average prices offset by lower volume as compared to 2012. Approximately 9 percent less energy was purchased in 2013 at prices that averaged 24 percent higher than in 2012.
In 2013, net fuel costs for generation, a component of production costs, were approximately $257.2 million (inclusive of ineffective hedges reported as investment expense), or $12.6 million lower than 2012. Fuel usage increased 10 percent primarily due to higher production at the component unit generation plants. Average net fuel prices were lower by 14 percent in 2013 as compared to 2012. In both 2013 and 2012, respectively, power supply costs made up approximately 54 percent of total operating expenses.
Depreciation expense increased by $15.3 million due to higher depreciation related to software and hardware, general structures and improvements, Solano Wind plant, and distribution assets. The $4.4 million decrease in regulatory amounts collected in rates is due to the final year of amortization of North City Substation remediation obligations offset by higher decommissioning costs.
Administrative, general, and customer expenses were $14.6 million higher in 2013 than in 2012, mainly due to higher expense in various customer programs.
2013 ISMUD ANNUAL REPORT I Leading theWay
Sacramento Municipal Utility District 1 2013 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited) 2012 compared to 2011 Operating expenses were $1,153.1 million in 2012, a decrease of $8.8 million from 2011. Purchased power expense was $4.5 million higher in 2012, mainly due to higher volumes offset by lower average prices as compared to 2011. Approximately 15 percent more energy was purchased in 2012 at prices that averaged 11 percent lower than in 2011.
In 2012, net fuel costs for generation, a component of production costs, were approximately $269.7 million (inclusive of ineffective hedges reported as investment expense), or $11.2 million lower than 2011. Fuel usage increased 11 percent primarily due to higher production at the component unit generation plants. Average net fuel prices were lower by 13 percent in 2012 as compared to 2011. In 2012, power supply costs made up approximately 54 percent of total operating expenses as compared to 56 percent for 2011.
Depreciation expense decreased by $4.5 million due to fully depreciated meters and a reduction in the component units' plant in service due to the Fru-Con settlement (see Note 2).
Administrative, general and customer expense, were $9.3 million higher in 2012 than in 2011, .mainly due to higher expense in various customer programs and reclassification of some items due to implementation of GASB 65.
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 2013, 2012, and 2011:
2013 2012 2011 Operating Expenses Operating Expenses Operating Expenses 0 Power Supply UU Other U U Other Revenues (Expenses) 2013 compared to 2012 Other revenues were $38.9 million lower in 2013 as compared to 2012. Interest income is lower by $29.7 million mainly due to the Fru-Con settlement related to the Cosumnes Power Plant litigation (see Note 2). Grant revenue net of pass through expenditures is lower by $13.0 million due to lower costs from grant programs, and other income - net was lower by $4.8 million. In addition, there was a $12.6 million decrease in investment expense related to ineffective hedges.
2012 compared to 2011 Other revenues were $44.5 million higher in 2012 as compared to 2011. Interest income and Other Income - net was higher by $19.2 million and $14.8 million, respectively, mainly due to the Fru-Con settlement related to the Cosumnes Power Plant litigation (see Note 2). Also Grant revenue and pass through expenditures increased $6.1 million and there was a $4.4 million decrease in investment expense related to ineffective hedges.
Interest Charges 2013 compared to 2012 Total interest charges were $0.5 million lower in 2013 compared to 2012.
2012 compared to 2011 Due to the implementation of GASB No. 65, some items were reclassified for comparative purposes. Total interest charges were $14.4 million lower in 2012 compared to 2011.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report CONSOLIDATED STATEMENTS OF NET POSITION Year Ended December 31, (Restated)
Assets 2013 2012 (thousands of dollars)
Electric Utility Plant P lan t in se rv ic e . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ $ 5,353,712 $ 5,006,208 Less accumulated depreciation and depletion ....................... ........ (2,166,120) (2,000,987)
P lant in serv ice - net .......................................... ........ 3,187,592 3,005,221 Construction work in progress .................................... ........ 135,385 334,488 Total electric utility plant - net ............................... ........ 3.322,977 3,339,709 Restricted and Designated Assets Revenue bond and debt service reserves ........................... 133,472 126,383 Nuclear decomm issioning trust fund ............................... 31,137 31,077 Rate stabilization fund .......................................... 81,474 86,231 O th e r fu nd s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,773 84,115 L ess curren t po rtion ............................................ (127,524) (94,773)
Total restricted and designated assets .......................... 174,332 233,033 Current Assets Unrestricted cash and cash equivalents ............................. 296,679 368,186 U nrestricted investm ents ......................................... 305,296 55,809 Restricted and designated cash and cash equivalents ................. 42,425 42,189 Restricted and designated investments ............................. 85,099 52,584 Receivables - net:
R etail cu stom ers ............................................. 152,821 152,450 W ho le sa le . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,390 9,311 O th e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,464 110,284 Regulatory costs to be recovered within one year .................... 12,483 17,389 Investment derivative instruments maturing within one year ........... 279 19 Hedging derivative instruments maturing within one year ............. 5,799 4,293 Inv e n to rie s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,866 51,752 Prepaid gas to be delivered within one year ......................... 22,720 21,626 Credit support collateral deposits ................................. 4,873 P rep ay m en ts . . . ... .. . . .. .... .. . . . . ..... .. . . . . . .... . . . . . . .... .. . 30,475 19,890 Total current assets ......................................... 1,051,796 910,655 Noncurrent Assets Regulatory costs for future recovery .............................. .... 179,755 209,945 Pre p a id g a s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 340,504 363,225 Prepaid pow er and capacity .................................... .... 145,362 154,637 Investm ent derivative instrum ents ................................ .... 147 35 H edging derivative instrum ents ................................... .... 29,784 40,310 Energy efficiency loans - net ..................................... .. i. 36,378 39,722 Credit support collateral deposits ................................. 27 Prepaym ents and other .......................................... .... 61,568 54,605 Total noncurrent assets ...................................... .... 793,498 862,506 To ta l A ssets . . . ...... . . . . .. ..... . . . . . .. ... . . . . . . ..... . . .... 5,342,603 5,345,903 Deferred Outflows of Resources Accumulated decrease in fair value of hedging derivatives ............ ............ 102,356 164,267 U namortized bond losses ........................................ ............ 46,790 58,527 Total deferred outflows of resources ........................... ............ 149,14 6 222,794 Total Assets and Deferred Outflows of Resources ............ ............ $ 5,491,749 $ 5,568,697 The accompanying notes are an integral part of these consolidated financial statements I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report CONSOLIDATED STATEMENTS OF NET POSITION Year Ended December 31, (Restated)
Liabilities 2013 2012 (thousands of dollars)
Long-Term Debt - net ........................ $ 3,075,802 $ 3,091,405 Current Liabilities Com m ercial paper notes ..................................................... 200,000 200,000 A ccounts payable ........................................................... 72,0 12 75,685 Purchased pow er payable .................................................... 19,448 20,894 Credit support collateral obligation ............................................ 160 160 Long-term debt due within one year ........................................... 137,600 119,210 A ccrued decom m issioning ................................................... 19,759 6,300 Interest payable ............................................................ 44 ,34 5 42,86 1 Accrued salaries and compensated absences .................................... 36,089 34,226 Investment derivative instruments maturing..within one year ....................... 3,878 16,236 Hedging derivative instruments maturing within one year ......................... 16,212 81,368 Custom er deposits and other ................................................. 34,512 46,035 Total current liabilities .................................................. 584,0 15 642,975 Noncurrent Liabilities A ccrued decomm issioning .................................................. 158,807 172,828 Investm ent derivative instrum ents .............................................. 20,874 35,846 Hedging derivative instrum ents ............................................... 86,144 82,899 D ue to aff iliated entity ...................................................... 84 1 9,186 Due to U.S. Bureau of Reclam ation ........................................... 391 6,576 Self insurance, unearned revenue and other ..................................... 27,213 34,981 Total noncurrent liabilities ............................................... 294,270 342,316 Total L iabilities ...................................................... 3,954,087 4,076,696 Deferred Inflows of Resources Accumulated increase in fair value of hedging derivatives ......................... 35,583 44,604 Regulatory credits .......................................................... 403,197 399,602 Financing obligation and other ............................................... 252,177 270,788 Total deferred inflows of resources ........................................ 690,957 714,994 Net Position N et investm ent in capital assets ............................................... 345,493 411,545 Restricted ................................................................ 115,632 12 7,149 U nrestricted ............................................................... 385,580 2 38,3 13 Total N et Position .................................................... 846,705 777,007 Commitments and Contingencies (Notes 17 and 18)
Total Liabilities, Deferred Inflows of Resources, and Net Position .................. $5,491,749 $5,568,697 The accompanying notes are an integral part of these consolidated financial statements.
SMUD ANNUAL REPORT 2013 1 Leading the Way
Sacramento Municipal Utility District I 2013 Annual Report CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Year Ended December 31, (Restated) 2013 2012 (thooLoads of dollams)
Operating Revenues R esidential ........................... ................................ ..... 572,701 $ 569,210 Commercial and industrial .............. ................................ ..... 663,356 662,026 Street lighting and other ................ ................................ ..... 33,083 33,353 W ho lesale ........................... ................................ ..... 131,130 108,712 Senate Bill - 1 revenue ................. ................................ ..... 10,711 3,240 A B-32 revenue ........................ ................................ ..... 12,656 Rate stabilization fund transfers ......... ................................ ..... 4,758 5,733 Total operating revenues .......... .............................. ..... 1,428,395 1,382,274 Operating Expenses Operations:
Purchased power .................... .. ... .. .. . ... .. .. .. .. . ... . .. .. .. .. ... 2 73 ,59 6 241,847 Production ......................... .. ... .. .. . ... .. .. .. .. . ... . .. .. .. .. ... 3 88 ,13 9 362,346 Transmission and distribution ......... .. ... .. .. . ... .. .. .. . .. ... . .. .. .. .. ... 57 ,3 12 54,515 Administrative, general and customer ..... .. ... .. .. . ... .. .. .. . .. ... . . .". . .. .. ... 16 8 ,52 2 153,895 Public good .......................... .. .. .. .. .. .. ... .. .. . .. .. .. .. .. .. .. ... 77 ,0 9 8 68,675 M aintenance .......................... .. .. .. .. .. .. ... .. .. . .. ... . .. .. .. .. ... 9 2 ,57 3 80,997 D epreciation .......................... .. .. ... . .. ... .. .. .. . .. .. .. .. .. .. .. ... 18 0 ,7 18 165,460 D ep letion ........................... .. .. ... .. . ... .. .. .. . .. ... . .. .. .. .. ... 11,0 8 4 14,773 Regulatory amounts collected in rates .... .. .. ... .. . ... .. .. .. . .. ... . .. .. .. .. ... 6 ,14 0 10,574 Total operating expenses .......... .. .. .. ... . ... .. .. .. . .. ... . .. .. .. .. ... 1,2 55 ,18 2 1,153,082 Operating Incom e ..................... .. ... .. .. . ... .. .. .. . .. ... . .. .. .. .. ... 173 ,2 13 229,192 Non-Operating Revenues and Expenses Other revenues and (expenses) .................... ............................
Interest incom e .............................. ............................ 7,457 37,115 Investm ent expense ........................... ............................ (21,678) (34,296)
Revenue - Grants ............................ .........I.................. 16,323 34,567 Pass through expenditures - Grants .............. ............................ (8,308) (13,524)
O ther incom e - net ........................... ............................ 28,647 33,457 Total other revenues and (expenses) ......... ............................ 22,441 57,319 Interest charges ... ............ . . . . ............................
Interest on debt .............................. ............................ 128,959 134,909 Allowance for funds used during construction ..... ............................ (3,003) (8,456)
Total interest charges ..................... ............................ 125,956 126,453 C hange in N et Positio n ....................................... 69,698 160,058 Net Position - Beginning of Year ................................... 777,007 616,949 N et Position - End of Year ........................................ $ 846,705 $ 777,007 The accompanying notes are an integral part of these consolidated financial statements.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (Restated) 2013 2012 (thousands of dollars)
Cash Flows From Operating Activities Receipts from retail customers ............................................. $1,264,147 $ 1,258,903 Receipts from surplus power sales ............................................ 80,569 59,036 Receipts from surplus gas sales .............................................. 52,432 49,361 R eceipts from steam sales ................................................... 5,411 7,189 Settlement proceeds ....................................................... 36,345 O ther receipts .............................................................. 19 ,282 12,2 73 Payments/receipts for credit support collateral .................................. 4,900 48,950 Issuance/repayment of energy efficiency loans, net .............................. 3,413 10,315 Payments to employees - payroll and other ..................................... (229,287) (218,345)
Payments for wholesale power ................................................ (274,952) (233,202)
Payments for gas purchases ................................................ (273,386) (278,631)
Paym ents to vendors/others .................................................. (258,482) (262,071)
Paym ents for decom m issioning ............................................... (15,036) (4,362)
Net cash provided by operating activities ................................... 379,011 485,761 Cash Flows From Noncapital Financing Activities R epaym ent of debt ......................................................... (21,795) (21,975)
Receipts from federal and state grants ......................................... 23,011 82,277 Pass through payments for federal and state grants ............................... (9,424) (13,050)
Interest on debt ............................................................ (15,977) (16,829)
Net cash provided by (used in) noncapital financing activities ................. (24,185) 30,423 Cash Flows From Capital and Related Financing Activities Proceeds from Solano Wind Phase 3 financing obligation ........................ 63,147 20,869 Construction expenditures ................................................. (184,046) (333,866)
Settlem ent proceeds ........................................................ 34,394 Contributions in aid of construction ........................................... 8,523 12,955 Net proceeds from bond issues ............................................... 353,521 375,833 Repayments and refundings of debt .......................................... (309,763) (314,525)
Interest on debt ........................................................... (1 18,425) (120,875)
Net cash used in capital financing activities ................................ (187,043) (325,215)
Cash Flows From Investing Activities Sales and m aturities of securities .............................................. 199,382 78,296 Purchases of securities ............................................. ....... (431,509) (217,712)
Interest and dividends received .............................................. 6,313 7,665 Investment revenue/expenses, net ............................................ (21,677) (34,293)
Net cash used in investing activities ..................................... (247,491) (166,044)
Net increase (decrease) in cash and cash equivalents ........................... (79,708) 24,925 Cash and cash equivalents at the beginning of the year ........................ 468,248 443,323 Cash and cash equivalents at the end of the year .............................. $ 388,540 $ 468,248 Cash and cash equivalents included in: ......................................
Unrestricted cash and cash equivalents ....................................... $ 296,679 $ 368,186 Restricted and designated cash and cash equivalents .......................... 42,425 42,189 Revenue bond and debt service reserves (a component of the total of $133,472 and $126,383 at December 31, 2013 and 2012, respectively) ........ 49,436 57,873 Cash and cash equivalents at the end of the year .............................. $ 388,540 $ 468,248 The accompanying notes are an integral part of these consolidated financial statements.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 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, (Restated) 2013 2012 (thousands of dollars)
O perating incom e .......................................................... $ 173,213 $ 229,192 Adjustments to reconcile operating income to net cash provided by operating activities:
De p rec iatio n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,718 165,460 De p le tion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,084 14,773 R egulatory am ortization ................................................. 6,140 10,574 Amortization of advance capacity & other .................................. 1,972 2,769 Am ortization of prepaid gas supply ....................................... 21,627 21,194 Revenue (recognized from) deferred to regulatory credits, net ................. (16,579) (4,422)
Settlem ent proceeds .................................................... 36,345 Paym ents for credit support collateral, net .................................. 4,900 48,950 Other receipts/paym ents ................................................. 5,976 (431)
Changes in operating assets and liabilities: .................................
Custom er and wholesale receivables ..................................... 1,500 1,310 Energy efficiency loans ............................................... 3,413 10,315 O the r a sse ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,417) (41,169)
Payables and accruals ................................................. 8,500 (4,737)
D ecom mission ing .................................................... (15,036) (4,362)
Net cash provided by operating activities ............................... $ 379,011 $ 485,761 The supplemental disclosure of noncash financing and investing activities is as follows:
Year Ended December 31, (Restated) 2013 2012 (thousodsof dollars)
Am ortization of debt related costs ............................................. (6,787) (4,265)
Unrealized holding gain or (loss) ............................................. (389) 302 Change in valuation of derivative financial instruments ........................... 80,593 103,627 Amortization of revenue for assets contributed in aid of construction ............... 16,156 14,194 Allowance for funds used during construction ................................... 3,003 8,456 Construction costs included in accounts payable ................................. 20,216 30,531 Solano Wind Phase 3 financing obligation ..................................... (229,158)
The accompanying notes are an integral part of these consolidated financial statements.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION The Sacramento Municipal Utility District (SMUD) was formed and operates under the State of California Municipal Utility District Act (Act). The Act gives SMUD the rights and powers to fix rates and charges for commodities or services it furnishes, and to incur indebtedness and issue bonds or other obligations.
As a community-owned utility, SMUD is not subject to regulation or oversight by the California Public Utilities Commission.
SMUTD is responsible for the acquisition, generation, transmission, and distribution of electric power to its service area, which includes most of Sacramento County and small adjoining portions of Placer and Yolo Counties. The Board of Directors (Board) determines SMUD's rates.
SMUD is exempt from payment of federal and state income taxes and, under most circumstances, real and personal property taxes. SMUD is not exempt from real and personal property taxes on assets it holds outside of California.
In addition, SMUD is responsible for the payment of a portion of the property taxes associated with its real property in California that lies outside of its service area.
NOTE 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting. SMUD's accounting records are maintained in accordance with Generally Accepted Accounting Principles (GAAP) for proprietary funds as prescribed by the Governmental Accounting Standards Board (GASB). SMUD'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. SMUD'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 the acquisition, generation, 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 SMUD and its component units. Although the component units are legally separate from SMUD, they are blended into and reported as part of SMUD because of the extent of their operational and financial relationships with SMUD. 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. I (NCGA). The primary purpose of CVFA, SCA, SPA and SFA is to own and operate electric utility plants that supply power to SMUD. The primary purpose of NCGA is to prepay for natural gas and to sell the natural gas to SMUD. SMUD's Board comprises the Commissions that govern these entities (see Note 6).
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 SMUD 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 Accumulated Depreciation. SMUD generally computes depreciation on Plant in Service on a straight-line, service-life basis. The consolidated average annual composite depreciation rates for 2013 and 2012 were 3.6 and 3.54 percent, respectively. Depreciation is calculated using the following estimated lives:
G eneration ............................. 7 to 80 years Transmission and Distribution ............ 7 to 50 years G as Pipeline ........................... 5 to 90 years G eneral ............................... 5 to 50 years At December 31, 2013 and 2012, capital assets are generally defined by SMUD as tangible assets with an initial, individual cost of more than three thousand dollars and one thousand dollars, respectively, and an estimated useful life in excess of two years.
Investments in Joint Power Agency (JPA). SMUD's investment in the Transmission Agency of Northern California (TANC) is accounted for under the equity method ofaccounting and is reported as a component of Plant in Service.
SMUD'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 Position.
SMUD's investment in Balancing Authority of Northern California (BANC) is accounted for under the equity method of accounting. SMUD's share of the BANC operations and maintenance expense is included in Transmission and Distribution expense in the Consolidated Statements of Revenues, Expenses and Changes in Net Position.
Investments in Gas Properties. SMUD has an approximate 20 percent non-operating ownership interest in the Rosa Unit gas properties in New Mexico of which, SMUD's portion of the extracted gas is transported for use in its component unit natural gas-fired power plants (see Note 6). SMUD 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 Statements of Net Position. 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. SMUD has purchased proven reserves and has not participated in exploratory drilling. 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. SMUD'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. When SMUD restricts funds for a specific purpose, and both restricted and unrestricted resources are available for use, it is SMUD's policy to use restricted resources first, then unrestricted resources as they are needed.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restricted Bond Funds. SMUD's Indenture Agreements (Indenture) 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. SMUD made annual contributions to its Nuclear Decommissioning Trust Fund (Trust Fund) through 2008 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. SMUD determined early in 2008 that there were enough funds in the trust to complete the radiological decommissioning of the Rancho Seco nuclear plant site, and stopped contributing to the Trust Fund (see Note 13).
Interest earnings on the Trust Fund assets are recorded as Interest Income and are accumulated in the Trust Fund.
Annual Decommissioning Expense is made up of the annual interest earned on the Trust Fund and fuel storage costs that cannot be taken from the Trust Fund.
Accrued Decommissioning. SMUD 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 SMUD staff in accordance with FASB ASC 410, Asset Retirement and Environmental Obligations (FASB ASC 410). For active plants, such costs are included in the Utility Plant's cost and included as a component of Operating Expense over the Utility Plant's life. Expenditures for decommissioning activities are recorded as reductions to Accrued Decommissioning liability. Changes in the Rancho Seco decommissioning liability estimates arising from inflation, annual accretion, and other changes to the cost assumptions are recorded to Accrued Decommissioning with a corresponding adjustment to the related regulatory deferral. The current portion of the Accrued Decommissioning liability represents SMUD's estimate of actual expenditures in the next year, as set forth in the annual budget.
SMUD has identified potential retirement obligations related to certain generation, distribution and transmission facilities. SMUD's non-perpetual leased land rights generally are renewed continuously because SMUD 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, 2013 and 2012, SMjUD's Accrued Decommissioning balance in the Consolidated Statements of Net Position relating to Rancho Seco was $169.1 million and $170.0 million, respectively (see Note 13). The Accrued Decommissioning balance in the Consolidated Statements of Net Position relating to other electricity generation and gas pro'duction facilities totaled $9.4 million and $9.1 million as of December 31, 2013 and 2012, respectively.
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. SMUD's deposits with LAIF comprise cash representing demand deposits up to $50.0 million maximum, and cash equivalents representing amounts above
$50.0 million which may be withdrawn once per month 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.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District 1 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Investments. SMUD's investments held for more than one year are reported at fair value. Realized and unrealized gains and losses are included in Other Income - net in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. 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. SMUD 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, 2013 and 2012, unbilled revenues were
$73.6 million and $69.1 million, respectively.
Purchased Power Expenses. A portion of SMUD'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 Position 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 or capacity 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. SMUD enters into forward purchase and sales commitments for physical delivery of gas and electricity with utilities and power marketers. SMUD 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, SMUD has a wholesale counterparty risk policy which includes using the credit agency ratings of SMIUD's counterparties, 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. SMUD is also subject to similar requirements for many of its gas and electricity purchase agreements.
SMUD uses a combination of cash, securities and a letter of credit facility to satisfy its collateral requirements to counterparties. SMUD has a $50 million letter of credit facility to support collateral requirements under SMUD's various energy and natural gas purchase, sale and swap agreements, with $50 million available at December 31, 2013 and $40 million available at December 31, 2012. The letter of credit facility will expire on January 17, 2014, at which time SMUD may continue to use cash and securities to satisfy collateral requirements. At December 31, 2013 and 2012, SMUD held $0.2 million on deposit by counterparties. The amount is recorded as unrestricted cash with an associated current liability. At December 31, 2013 and 2012, SMUD had $0 and $4.9 million, respectively, cash collateral posted with counterparties.
Accounts Receivable and Allowance for Doubtful Accounts. Accounts Receivable is recorded at the invoiced amount and does not bear interest, except for accounts related to energy efficiency loans. SMUD recognizes an estimate of uncollectible accounts for its receivables related to electric service, energy efficiency loans, and other non-electric billings, based upon its historical experience with collections and current energy market conditions. For large wholesale receivable balances, SMUD determines its bad debt reserves based on the specific credit issues for each account. SMUD records bad debts for its estimated uncollectible accounts related to electric service as a reduction to the related operating revenues in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. SMUD records bad debts for its estimated uncollectible accounts related to energy efficiency loans and other non-electric billings in Administrative, General and Customer expense in the Consolidated Statements of Revenues, Expenses and Changes in Net Position.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The summarized activity of the changes in the allowance for doubtful accounts during 2013 and 2012 is presented below:
Balance at Write-offs Balance at beginning of and end of Year Additions (Recoveries) Year (thousnds of dollar)
Other Non-Electric:
December 31, 2013. $ 1,239 $ 1,374 $ 267 $ 2,346 December 31, 2012. $ 1,376 $ 277 $ 414 $ 1,239 Retail Customers:
Decem ber 31, 2013 ...................... $ 3,310 $ 7,530 $ 6,646 $ 4,194 Decem ber 31, 2012 ...................... $ 3,903 $ 5,106 $ 5,699 $ 3,310 Energy Efficiency Loans:
D ecem ber 31, 2013 ...................... $ 2,362 $ (358) $ (100) $ 2,104 D ecem ber 31, 2012 ...................... $ 2,716 $ (573) $ (219) $ 2,362 Regulatory Deferrals. The Board has the authority to establish the level of rates charged for all SMUD services.
As a regulated entity, SMUD's financial statements are prepared in accordance with GASB No. 62, Regulated Operations, which requires that the effects of the rate-making process be recorded in the financial statements.
Accordingly, certain expenses and credits, normally reflected in Change in Net Position as incurred, are recognized when included in rates and recovered from, or refunded to, customers. SMUD records various regulatory assets and credits to reflect rate-making actions of the Board (see Note 8).
Materials and Supplies. Materials and supplies are stated at average cost, which approximates the first-in, first-out method.
Compensated Absences. SMUD accrues vacation leave and compensatory time when employees earn the rights to the benefits. SMUD does not record sick leave as a liability until it is taken by the employee, since there are no cash payments for sick leave made when employees terminate or retire. At December 31, 2013 and 2012, the total estimated liability for vacation and other compensated absences was $21.9 million and $22.0 million, respectively.
Public Good. Public Good expenses consist of non-capital expenditures for energy efficiency programs, low income subsidies, renewable energy resources and technologies, and research and development.
Gains/Losses on Bond Refundings. Gains and losses resulting from bond refundings are included as a component of Deferred Inflows of Resources or Deferred Outflows of Resources on the Consolidated Statements of Net Position and amortized as a component of Interest on Debt in the Consolidated Statements of Revenues, Expenses and Changes in Net Position over the shorter of the life of the refunded debt or the new debt using the effective interest method.
Gains/Losses on Bond Defeasances or Extinguishments. Gains and losses resulting from bond defeasances or extinguishments 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 Position.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Allowance for Funds Used During Construction (AFUDC). SMUD capitalizes, as an additional cost of Construction Work In Progress (CWIP), 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 rate for 2013 and 2012 was 3.5 percent and 3.7 percent, of eligible CWIP, respectively.
Derivative Financial Instruments. SMUD 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 Statements of Net Position. SMUD does not enter into agreements for speculative purposes. 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. SMUD is exposed to risk of nonperformance if the counterparties default or if the swap agreements are terminated. SMUD 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 Statements of Net Position (see Note 9).
Interest Rate Swap Agreements. SMUD enters into interest rate swap agreements to modify the effective interest rates on outstanding debt (see Notes 9 and 10).
Gas and Electricity Price Swap and Option Agreements. SMUD 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 SMUD's retail load (see Note 9).
Solano Wind Sale. SMUD entered into an agreement to sell the Solano Wind Phase 3 plant in December 2011 with a corresponding Power Purchase Agreement for all the output of the plant. In April 2012, under the terms of the Construction Management Agreement, SMUD, on behalf of the purchaser, completed construction of thd plant, with the revenue recognition from the transaction, which was accounted for as a financing agreement, to occur over the life of the contracts. Pursuant to the Facility Administration Agreement, SMUD will perform services at the facility under the direction and for the benefit of the purchaser. Pursuant to the ground and property lease, SMUD is leasing the site to the purchaser for a term of twenty years with an option to extend for five additional years.
The sale proceeds have been recorded as Deferred Inflows of Resources on the Consolidated Statements of Net Position and will be amortized as Purchased Power Expense on the Consolidated Statement of Revenues, Expenses, and Changes in Net Position over the life of the agreement. Sale proceeds in the amount of $63.1 million were received in 2013. The prepayment for purchased power over the life of the contract has been recorded as Prepaid Power and Capacity on the Consolidated Statements of Net Position and will be amortized as Purchased Power Expense on the Consolidated Statement of Revenues, Expenses, and Changes in Net Position over the life of the agreement (see Note 17 for language about the Power Purchase Agreement).
Precipitation Hedge Agreements. SMUD enters into non-exchange traded precipitation hedge agreements to hedge the cost of replacement power caused by low precipitation years (Precipitation Agreements). SMUD records the intrinsic value of the Precipitation Agreements on the Consolidated Statements of Net Position. 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.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District 1 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Insurance Programs. SMUD records liabilities for unpaid claims at their present value when they are probable in occurrence and the amount can be reasonably estimated. SMUD records a liability for unpaid claims associated with general, auto, workers' compensation, and short-term and long-term disability based upon estimates derived by SMUD's claims administrator or SMUD staff. The liability comprises the present value of the claims outstanding, and includes an amount for claim events incurred but not reported based upon SMUD's experience (see Note 16).
Assembly Bill 32. California Assembly Bill 32 (AB-32) is an effort by the State of California to set a 2020 greenhouse gas emissions reduction goal into law. The goal is to reach a statewide emission limit of 427 million metric tons of carbon dioxide equivalent of greenhouse gases (GHG). Central to this initiative is the implementation of a cap and trade program, which covers major sources of GHG emissions in the State including power plants.
The cap and trade program includes an enforceable emissions cap that will decline over time. The State will distribute allowances, which are tradable permits, equal to the emissions allowed under the cap. Sources under the cap will need to surrender allowances and offsets equal to their emissions at the end of each compliance period.
SMUD is subject to AB-32. SMUD participated in the first program auction in 2012 and subsequent auctions in 2013. SMUD expects its free allocation of allowances from the Air Resources Board will cover its compliance costs associated with electricity delivered to its retail customers. SMUD expects to recover compliance costs associated with wholesale power sales costs through its wholesale power sales revenues. SMUD is monitoring legislation and proposed programs that would impact AB-32 (see Note 8).
Net Position. SMUD classifies its net position into three components as follows:
" Net investment in capital assets - This component of net position consists of capital assets, net of Accumulated Depreciation, reduced by the outstanding debt balances, net of unamortized debt expenses. Deferred inflows and outflows of resources that are attributable to the acquisition, construction or improvement of those assets or related debt are also included.
" Restricted -This component of net position consists of 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. These restricted assets are reduced by liabilities and deferred inflows of resources related to those assets.
- Unrestricted - This component of net position consists of net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that do not meet the definition of "Net investment in capital assets" or "Restricted."
Contributions in Aid of Construction (CIAC). SMUD records CIAC from customer contributions, primarily relating to expansions to SMUD's distribution facilities, as Other Income - Net in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. 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.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenues and Expenses. SMUD distinguishes operating revenues and expenses from non-operating items.
Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with SMUD's principal ongoing operations. The principal operating revenues of SMUD are charges to customers for sales and services. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.
Grants. SMUD receives grant proceeds from federal and state assisted programs for its advanced and renewable technologies, electric vehicle, and energy efficiency programs. SMUD also periodically receives grant proceeds from federal or state assistance programs as partial reimbursements for costs it has incurred as a result of storm damages. Additionally, SMUD received several large American Recovery and Reinvestment Act (ARRA) grants in 2009. When applicable, these programs may be subject to financial and compliance audits pursuant to regulatory requirements. SMUD considers the possibility of any material disallowances to be remote. During 2013, SMUD recorded $5.0 million of grant proceeds and recognized $16.3 million as a component of Revenue - Grants, in the Consolidated Statements of Revenues, Expenses and Changes in Net Position, $6.4 million as a Regulatory Credit (Note 8), and a $17.7 million decrease in unearned revenue as a component of Customer Deposits and Other on the Consolidated Statements of Net Position. During 2012, SMUD recorded $59.9 million of grant proceeds and recognized $34.6 million as Revenue - Grants, in the Consolidated Statements of Revenues, Expenses and Changes in Net Position, $20.6 million as a Regulatory Credit (see Note 8), and $4.7 million as unearned revenues as a component of Self Insurance, Unearned Revenue and Other on the Consolidated Statements of Net Position.
In 2010, SMUD issued taxable Build America Bonds. SMUD receives an interest subsidy from the federal government equal to 35 percent of the interest paid (see Note 10). SMUD received a reduced subsidy payment in November 2013 due to budget sequestration by the federal government. In 2013 and 2012, SMUD recognized
$9.5 million and $9.8 million, respectively, in revenues for its Build America Bonds, as a component of Other Income - Net, in the Consolidated Statements of Revenues, Expenses and Changes in Net Position.
Pollution Remediation. In December 2009, SMUD identified a pollution remediation obligation at its North City Substation. This substation was built on a former landfill, and the site requires remediation. As part of the 2010 Budget Resolution, the Board authorized SMUD to defer the expense for rate-making purposes, and SMUD recorded a pollution remediation liability of $12.0 million and a corresponding regulatory asset for the remediation project. SMUD expensed $6.0 million, the remaining balance of the regulatory asset costs in 2012.
Customer Sales and Excise Taxes. SMUD 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 Position.
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.
I Leading theWay SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 SMUD did not have separation packages or retention programs with employees.
At December 31, 2012 various positions had separation packages and talent retention programs which were outlined with employees. Benefits provided included up to 12 weeks of paid leave, plus pay in lieu of benefits for up to 12 weeks. As of December 31, 2012, one employee had a retention agreement, and seven employees had termination benefits, the total of $0.3 million, was recorded as a component of Customer Deposits and Other on the Consolidated Statements of Net Position.
Fru-Con Settlement. In August 2003, SMUD entered into a contract with Fru-Con Construction Corporation (Fru-Con) to construct the Cosumnes Power Plant (CPP). In February 2005, SMUD terminated its contract with Fru-Con on the basis of breach of contract by Fru-Con and took steps to complete the CPP project. SMUD filed suit against Fru-Con. In January 2006, SFA issued bonds, which were used to purchase the plant from SMUD.
The total project cost of $417.7 million was transferred to SFA from SMUD, of which $127.2 million was contributed by SMUD. Under the Asset Sales agreement between SMUD and SFA, any Fru-Con litigation proceeds were to be kept by SMUD. In October 2012, SMUD received a $70.7 million settlement of the Fru-Con case, of which $28.8 million was recorded in Interest Income in the Consolidated Statements of Revenues, Expenses and Changes in Net Position, and $7.5 million was recorded as Other Income - Net in the Consolidated Statements of Revenues, Expenses and Changes in Net Position, and the remainder of $34.4 million was recorded as a reduction in member contributions to SFA. SFA rccorded the $34.4 million as a rcduction in Member Contribution, and a reduction in Plant in Service. On the Consolidated Statements of Net Position, the $34.4 million was recorded as a reduction to Plant in Service.
Subsequent events. Subsequent events for SMUD have been evaluated through February 21, 2014, which is the date that the financial statements were available to be issued.
Reclassifications. Certain amounts in the 2012 Consolidated Financial Statements have been reclassified in order to conform to the 2013 presentation.
Recent Accounting Pronouncements. In December 2009, GASB issued SGAS No. 57, "OPEB Measurements byAgent Employers andAgent Multiple - Employer Plans" (GASB No. 57). GASB No. 57 addresses issues related to the use of the alternative measurement method and the frequency and timing of measurements by employers that participate in agent multiple-employer OPEB plans. This statement amends previous GASB statements on OPEB plans, and will improve the consistency of reporting for OPEB plans. This statement was effective for SMUD for 2012. SMUD has assessed the financial statement impact of adopting this statement, and its impact is not material.
In June 2011, GASB issued SGAS No. 64, "Derivative Instruments:Application of Hedge Accounting Termination Provisions,An Amendment of GASB Statement No. 53" (GASB No. 64). GASB No. 64 provides clarification of whether an effective hedging relationship continues after the replacement of a swap counterparty or a swap counterparty's credit support provider. This statement was effective for SMUD for 2012. SMUD has assessed the financial statement impact of adopting this statement, and its impact is not material.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In June 2011, GASB issued SGAS No. 63, "FinancialReporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position" (GASB No. 63). GASB No. 63 provides a new statement of net position format to report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position (which is the net residual amount of the other elements). GASB 63 provides guidance on reporting deferred inflows and outflows of resources. This statement will standardize the presentation of deferred inflows and outflows of resources and their effect on a government's net position. The statement requires that deferred outflows of resources and deferred inflows of resources be reported separately from assets and liabilities, and to reflect the residual measure in the statement of financial position as net position, rather than net assets. This statement was effective for SMUD for 2012. The impact of adopting the new statement was limited to name changes to accounts and financial statements.
In March 2012, GASB issued SGAS No. 66 "Technical Corrections-2012 -An Amendment of GASB Statements No. 10 and No. 62" (GASB No. 66). GASB No. 66 requires governments to base their decisions about fund type classification on the nature of the activity to be reported. This statement also modifies the specific guidance on accounting for (1) operating lease payments that vary from a straight-line basis, (2) the difference between the initial investment (purchase price) and the principal amount of a purchased loan or group of loans, and (3) servicing fees related to mortgage loans that are sold when the stated service fee rate differs significantly from a current (normal) servicing fee rate. This statement is effective for SMUD for 2013. SMUD has assessed the financial statement impact of adopting this statement, and its impact is not material.
In June 2012, GASB issued SGAS No. 68 "Accountingand FinancialReportingfor Pensions -An Amendment of GASB Statement No. 27" (GASB No. 68). The primary objective of GASB No. 68 is to improve accounting and financial reporting by state and local governments for pensions. This statement establishes standards for measuring and recognizing liabilities, deferred outflows and deferred inflows of resources, and expenses. For defined benefit pensions, this statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about pensions also are addressed. This statement is effective for SMUD for 2015. SMUD is currently assessing the financial statement impact of adopting this statement.
In January 2013, GASB issued SGAS No. 69, "Government Combinations and Disposals of Government Operations" (GASB No. 69). GASB No. 69 establishes accounting and financial reporting standards related to government combinations and disposals of government operations. As used in this statement, the term government combinations includes a variety of transactions referred to as mergers, acquisitions, and transfers of operations.
This statement is effective for SMUD in 2014. SMUD is currently assessing the financial statement impact of adopting this statement, but does not believe that its impact will be material.
In April 2013, GASB issued SGAS No. 70, "Accounting and FinancialReportingfor Nonexchange Financial Guarantees" (GASB No. 70). The objective of GASB No. 70 is to improve accounting and financial reporting by state and local governments that extend and receive nonexchange financial guarantees. GASB No. 70 requires a government that extends a nonexchange financial guarantee to recognize a liability when qualitative factors and historical data, if any, indicate that it is more likely than not that the government will be required to make a payment on the guarantee. This statement requires a government that has issued an obligation guaranteed in a nonexchange transaction to report the obligation until legally released as an obligor. This statement specifies the information required to be disclosed by governments that extend nonexchange financial guarantees. In addition, GASB No. 70 requires new information to be disclosed by governments that receive nonexchange financial guarantees. This statement is effective for SMUD in 2014. SMUD is currently assessing the financial statement impact of adopting this statement, but does not believe that its impact will be material.
I Leading theWay ISMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In November 2013, GASB issued SGAS No. 71, "Pension Transitionfor ContributionsMade Subsequent to the Measurement Date, an amendment of GASB Statement No. 68" (GASB No. 71). GASB No. 71 addresses an issue regarding application of the transition provisions of GASB No. 68. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government's beginning net pension liability. GASB No. 71 amends paragraph 137 of GASB No. 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. This statement is effective for SMUD in 2015, to be applied simultaneously with the provisions of GASB No. 68. SMUD is currently assessing the financial statement impact of adopting this statement.
NOTE 3. ACCOUNTING CHANGE In November 2010, GASB issued SGAS No. 61, "The FinancialReporting Entity - Omnibus -An Amendment of GASB Statements No. 14 and No. 34" (GASB No. 61). GASB No. 61 modifies requirements for inclusion of component units and amends criteria for reporting of component units. This statement also clarifies the reporting of equity interests in legally separate organizations. This statement is effective for SMUD for 2013. SMUD has revised its footnotes to disclose the rationale for including each component unit in SMUD's financial statements.
SMUD has also added the Condensed Statements of Net Position, Statements of Revenues, Expenses, and Changes in Net Position, and Statements of Cash Flows to Note 6. Component Units.
In March 2012, GASB issued SGAS No. 65, "Items Previously Reported asAssets and Liabilities" (GASB No. 65).
GASB No. 65 establishes accounting and financial reporting standards that reclassify certain items previously reported as assets and liabilities as deferred outflows of resources or deferred inflows of resources or as outflows of resources or inflows of resources. This statement also limits the use of the term deferred in financial statement presentations. This statement is effective for SMUD for 2013.
At December 31, 2012 SMUD had $23.3 million in unamortized debt issuance costs which included prepaid insurance costs. The statement requires debt issuance costs, except any portion related to prepaid insurance costs to be recognized as an expense in the period incurred. The prepaid bond insurance portion of debt issuance costs was reclassified to a prepaid asset. SMUD elected to follow accounting for regulated operations and recorded the debt issuance costs as a regulatory asset. The prepaid bond insurance and the regulatory asset will be amortized using the straight line method over the remaining life of the associated bonds and recorded in Administrative, General and Customer and Regulatory Amounts Collected in Rates, respectively, in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. The implementation also impacted the Statement of Net Position, as certain assets and liabilities were reclassified as deferred outflows or deferred inflows. SMUD restated the December 31, 2012 Consolidated Statement of Net Position and Consolidated Statement of Revenues, Expenses and Changes in Net Position for comparative purposes.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The reclassifications to SMUD's 2012 financial statements are presented below:
Consolidated Statements of Net Position December 31, (Restated) 2012 2012 (thouands of dollars)
Assets Current Assets Regulatory costs to be recovered within one year .............................. $ 17,389 $ 16,363 P rep aym ents ............................................................. 19 ,890 19,2 59 Noncurrent Assets Regulatory costs for future recovery ......................................... 209,945 194,727 U nam ortized debt issuance costs ............................................ 23,307 Prepaym ents and other .................................................... 54,605 45,768 Deferred Outflows of Resources Accumulated decrease in fair value of hedging derivatives ...................... 164,267 119,663 U nam ortized bond losses .................................................. 58,527 Liabilities Long-Term Debt - net .................................................... 3,091,405 3,030,485 Current Liabilities Regulatory credits to be recognized within one year ............................ 17,233 C ustom er deposits and other ............................................... 46,035 56,797 Noncurrent Liabilities R egulatory credits ....................................................... 382,369 Self insurance, unearned revenue and other ................................... 34,981 295,007 Deferred Inflows of Resources Accumulated increase in fair value of hedging derivatives ....................... 44,604 R egulatory credits ........................................................ 399,602 Financing obligation and other ............................................. 270,788 Net Position N et investm ent in capital assets ............................................. 411,545 435,596 R estricted ............................................................... 12 7,14 9 122,268 U nrestricted ............................................................. 2 38,3 13 2 19,13 1 I Leading the Way I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Revenue, Expenses and Changes in Net Position December 31, (Restated) 2012 2012 (thoosands of dollars)
Operating Expenses Adm inistrative, general and custom er ...................................... $ 153,895 $ 152,109 Regulatory am ounts collected in rates ..................................... 10,574 9,611 Non-Operating Revenues and Expenses In tere st on de bt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,909 137,670 Change in N et Position ...................................................... 160,058 160,046 NOTE 4. UTILITY PLANT The summarized activity of SMUD's utility plant during 2013 is presented below:
Balance Transfers Balance December 31, and December 31, 2012 Additions Disposals 2013 ithousands of dollars)
Nondepreciable Utility Plant:
Land ................... $ 117,051 $ 1,549 $ (68). $ 118,532 CWIP .............................. 334,488 168,869 (367,972) 135,385 Total nondepreciable utility plant ............ 451,539 170,418 (368,040) 253,917 Depreciable Utility Plant:
G eneration .......................... . . 1,629,761 28,390 (3,836) 1,654,315 Transm ission .................. . . .... 287,990 2,023 418 290,431 D istribution ................... 1,839,348 104,619 (750) 1,943,217 Investment in gas properties ...... 204,951 1,207 206,158 Investment in JPAs ............. 13,100 1,741 14,841 Intangibles ................... ... . 210,519 26,795 237,314 G e ne ral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703,488 203,995 (18,579) 888,904 4,889,157 368,770 (22,747) 5,235,180 Less: accumulated depreciation and depletion... (1,996,213) (194,184) 29,365 (2,161,032)
Less: accumulated amortization on JPAs ...... (4,774) (314) (5,088)
(2,000,987) (194,498) 29,365 (2,166,120)
Total depreciable plant ............ 2,888,170 174,272 6,618 3,069,060 Total Utility Plant - net ........... ...... $3,339,709 $ 344,690 $ (361,422) $3,322,977 SMUD ANNUAL REPORT 2013 1Leading theWay I
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The summarized activity of SMUD's utility plant during 2012 is presented below:
Balance Transfers Balance December 31, and December 31, 2011 Additions Disposals 2012 (thousands of dollars)
Nondepreciable Utility Plant:
Land .................................. $ 116,221 $ 830 $ $ 117,051 CW IP .................................. 417,819 266,020 (349,351) 334,488 Total nondepreciable utility plant ............. 534,040 266,850 (349,351) 451,539 Depreciable Utility Plant:
Generation .............................. 1,439,938 202,713 (12,890) 1,629,761 Transmission ............................ 270,705 17,889 (604) 287,990 Distribution ............................. 1,831,281 83,850 (75,783) 1,839,348 Investment in gas properties ................ 200,730 4,221 204,951 Investment in JPAs ....................... 12,770 330 13,100 Intangibles .............................. 191,338 19,023 158 210,519 General ................................. 684,931 24,556 (5,99 ) 703,488 4,631,693 352,582 (95,118) 4,889,157 Less: accumulated depreciation and depletion ... (1,912,978) (179,994) 96,759 (1,996,213)
Less: accumulated amortization on JPAs ....... (4,461) (313) (4,774)
(1,917,439) (180,307) 96,759 (2,000,987)
Total depreciable plant ...................... 2,714,25 172,275 1,641 2,888,170 Total Utility Plant - net ..................... $3,248,294 $ 439,125 $ (347,710) $3,339,709 NOTE 5. INVESTMENT IN JOINT POWERS AGENCY TANC. SMUD 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. SMUD is obligated to pay approximately 30.0 percent of TANC's COTP debt service and operations costs in exchange for entitlement to approximately 419 megawatts (MW) of TANC's 1,390 MW transfer capability. Additionally, SMUD has a 48 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 (SOT).
In December 2009, SMUD entered into a long-term reallocation agreement with TANC and the City of Santa Clara.
Effective January 2010 through July 1, 2013, SMUD had an additional 30 MW entitlement share of the SOT.
This agreement expired July 1, 2013.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The long-term debt of TANC, which totals $343.2 million (unaudited) at December 31, 2013, is collateralized by a pledge and assignment of net revenues of TANC supported by take or pay commitments of SMUD and other members. Should other members default on their obligations to TANC, SMUD would be required to make additional payments to cover a portion of such defaulted payments, up to 25 percent of its current obligation.
Copies of the TANC annual financial reports may be obtained from SMUD at 6201 S Street, P.O. Box 15830, Sacramento, California 95852.
SMIUD recorded transmission expenses related to TANC of $18.9 million and $17.9 million in 2013 and 2012, respectively.
Summary financial information for TANC is presented below:
December 31, 2013 2012 (Unaudited) (Unaudited)
(thousands of dollars)
Tota l A sse ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 415,468 $ 450,348 Tota l L iab ilitie s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 399,353 $ 438,985 Total N et P o sitio n .. . .. . . .. . .. . .. .. . . .. . .. . . . . . .. . . . . . . .. .. . .. . .. .. . .. .. .. . . 16,115 11,363 Total L iabilities and N et Position ........................................... $ 415_468 $ 450,348 Changes in Net Position for the Six Months Ended December 31 .................. $ 2 $ 6 Balancing Authority of Northern California (BANC). SMUD, City of Redding, City of Roseville, Modesto Irrigation District and Trinity Public Utilities District are members of BANC, a JPA formed in 2009. In 2011, operational control of Balancing Authority (BA) operations was transferred from SMUD to BANC. BANC performs FERC approved BA reliability functions that are managed by North American Electric Reliability Corporation (NERC), nationally, and by Western Electricity Coordinating Council functions (WECC) in the west.
Copies of the BANC annual financial reports may be obtained from SMUD at 6201 S Street, P.O. Box 15830, Sacramento, California 95852.
SMUD recorded expenses related to BANC of $0.7 million in 2013 and $0.7 million in 2012.
Summary financial information for BANC is presented below:
December 31, 2013 2012 (Unaudited) (Audited)
(thousands of dollars)
To ta l A sse ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 392 $ 304 To ta l L iab ilitie s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 392 $ 304 Total N et P o sition ........................ .................................. Total L iabilities and N et Position ........................................... $ 392 $ 304 Changes in Net Position for the Year Ended December 31 ......................... $ $ SMUD ANNUAL REPORT 2013 1Leading theWay I
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. COMPONENT UNITS CVFA Carson Cogeneration Project. CVFA is a JPA formed by SMUD and the Sacramento Regional County Sanitation District. CVFA operates the Carson Project, a 65 MW (net) natural gas-fired cogeneration facility and a 43 MW (net) natural gas-fired simple cycle peaking plant. The revenue stream to pay the CVFA bonds' debt service is provided by a take or pay purchase power agreement between SMUD and CVFA.
SCA Procter & Gamble Cogeneration Project. SCA is a JPA formed by SMUD and the SFA. SCA operates the Procter & Gamble Project, a 136 MW (net) natural gas-fired cogeneration facility and a 50 MW (net) natural gas-fired simple cycle peaking plant. The revenue stream to pay the SCA bonds' debt service is provided by a take or pay purchase power agreement between SMUD and SCA.
SFA Cosumnes Power Plant Project. SFA is a JPA formed by SMUD and the Modesto Irrigation District.
SFA operates the Cosumnes Power Plant Project (CPP Project), a 501 MW (net) natural gas-fired, combined cycle facility. The revenue stream to pay the SFA bonds' debt service is provided by a take and pay power purchase agreement between SMUD and SFA.
SPA Campbell Soup Cogeneration Project. SPA is a JPA formed by SMUD and the SFA. SPA operates the Campbell Soup Project, a 160 MW (net) natural gas-fired cogeneration facility, and the McClellan Project, a 72 MW (net) natural gas-fired simple cycle peaking plant. The revenue stream to pay the SPA bonds' debt service is provided by a take and pay power purchase agreement between SMUD and SPA.
NCGA. NCGA is a JPA formed by SMUD and the SFA. NCGA has a prepaid gas contract with Morgan Stanley Capital Group (MSCG) expiring in 2027, which is financed primarily by NCGA revenue bonds. SMUD has contracted with NCGA to purchase all of the gas delivered by MSCG to NCGA, based on market prices. NCGA is obligated to pay the principal and interest on the bonds. Neither SMUD nor SFA is obligated to make debt service payments on the bonds. NCGA can terminate the prepaid gas contract under certain circumstances, including a failure by MSCG to meet its gas delivery obligation to NCGA or a drop in MSCG's credit rating below a specified level. If this occurs, MSCG will be required to make a termination payment to NCGA based on the unamortized prepayment proceeds received by MSCG.
As described in Note 2, all of the activities and balances of the component units are blended into and reported as part of SMUD because of the extent of their operational and financial relationships with SMUD. Copies of CVFA's, SCA's, SFA's, SPAs and NCGA's annual financial reports may be obtained from their Executive Office at 6201 S Street, P.O. Box 15830, Sacramento, California 95852.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The summarized activity of SMUD's component units for 2013 is presented below:
CONDENSED STATEMENTS OF NET POSITION December 31, 2013 (thousands of dollars)
CVFA SCA SFA SPA NCGA Electric Utility Plant - Net ............. $ 63,014 $ 90,446 $ 269,117 $ 83,832 $ Restricted and Designated Assets ....... 56,383 14,652 C urrent Assets ....................... 14,788 22,058 52,755 25,371 40,958 N oncurrent Assets .................... 193 258 3,708 920 342,009 Total Assets ....................... 77,995 112,762 381,963 124,775 382,967 Deferred Outflows of Resources ........ 1,463 1,832 1,988 Total Assets and Deferred Outflows of Resources ...................... $ 79,458 $ 114,594 $ 381,963 $ 126,763 $ 382,967 Liab ilities .. . . . . . . .. . . . . . . .. . .. .. ... .
Long-term Debt - Net ................ $ 30,156 $ 42,229 $ 239,652 $ 72,956 $ 342,480 Current Liabilities .................... 11,184 15,766 47,723 20,318 26,219 Noncurrent Liabilities ................. 7,890 Total L iabilities .................... 49,230 57,995 287,375 93,274 368,699 N et Position ......................... 30,228 56,599 94,588 33,489 14,268 Total Liabilities and Net Position ....... $ 79,458 $ 114,594 $ 381,963 $ 126,763 $ 382,967 CONDENSED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION December 31, 2013 (thousands of dollars)
CVFA SCA SFA SPA NCGA Operating Revenues .................. $ 40,269 $ 66,725 $ 242,511 $ 65,310 $ 37,912 Operating Expenses ................... 39,566 62,308 220,460 58,168 21,826 Operating Income ............. 703 4,417 22,051 7,142 16,086 Non-Operating Revenues and Expenses Other Revenues ...................... 53 5 143 26 611 Interest Charges and Other ............. (1,725) (2,296) (11,295) (4,024) (15,767)
Change in Net Position Before Distributions and Contributions .................. (969) 2,126 10,899 3,144 930 Distribution to Member ............... (3,000) (7,500) (37,000) (2,000) (672)
Member Contributions and Adjustments . 75 Change in Net Position ................ (3,969) (5,374) (26,101) 1,144 333 Net Position - Beginning of Year ....... 34,197 61,973 120,689 32,345 13,935 Net Position - End of Year ............ $ 30,228 $ 56,599 $ 94,588 $ 33,489 $ 14,268 SMUD ANNUAL REPORT 2013 1Leading theWay I
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF CASH FLOWS December 31, 2013 (thousands of dollars)
CVFA SCA .SFA SPA NCGA Net Cash Provided by Operating A ctiv ities ........................ $ 6,588 $ 10,819 $ 38,273 $ 12,930 $ 37,950 Net Cash Used by Noncapital Financing Activities ................ (1,825) (7,500) (37,000) (2,000) (38,444)
Net Cash Used by Capital Financing Activities ................ (5,710) (7,033) (34,023) (11,308) Net Cash Provided (Used) by Investing Activities .............. 2 6 20,258 610 Net Increase (Decrease) in Cash and Cash Equivalents ............... (945) (3,708) (12,492) (450) 116 Cash and Cash Equivalents at the Beginning of the Year ............... 5,700 10,446 65,793 14,256 14,594 Cash and Cash Equivalents at the End of the Year .................... $ 4,754 $ 6738 $ 53,31 $ 1,80$6 14]J10 The summarized activity of SMUD's component units for 2012 is presented below:
CONDENSED STATEMENTS OF NET POSITION December 31, 2012 (thousands of dollars)
CVFA SCA SFA SPA NCGA Assets Electric Utility Plant - Net ........... $ 68,379 $ 97,163 277,826 $ 89,941 $ Restricted and Designated Assets ...... 85,512 14,258 Current A ssets ..................... 17,637 27,576 56,159 24,169 39,788 Noncurrent Assets .................. 225 297 3,939 1,038 364,851 Total A ssets .................... 86,241 125,036 423,436 129,406 404,639 Deferred Outflows of Resources ...... 1,877 2,275 2,415 Total Assets and Deferred Outflows of R esources ..................... $ 88,118 $ 127,311 $ 423,436 $ 131,821 $ 404,639 L iab ilities .. . . . . . .. . . . . . . .. . .. .. . . ..
Long-term Debt - Net ............... $ 34,604 $ 47,429 $ 249,958 $ 80,522 $ 364,860 Current Liabilities .................. 11,958 17,909 52,789 18,954 25,844 Noncurrent Liabilities ............... 7,359 Total Liabilities ................. 53,921 65,338 302,747 99,476 390,704 N et Position ....................... 34,197 61,973 120,689 32,345 13,935 Total Liabilities and Net Position ...... $ 88,118 $ 127,311 $ 423,436 $ 131,821 $ 404,639 I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION December 31, 2012 (thousands of dollars)
CVFA SCA SFA SPA NCGA Operating Revenues ............. $ 38,994 $ 70,792 $ 261,893 $ 57,916 $ 38,493 Operating Expenses .................. 38,178 67,257 239,734 49,262 21,398 Operating Incom e ................... 816 3,535 22,159 8,654 17,095 Non-Operating Revenues and Expenses O ther Revenues ..................... 1,127 7 361 72 620 Interest Charges and Other ............ (1,861) (2,570) (11,668) (4,664) (16,618)
Change in Net Position Before Distributions and Contributions ...... 82 972 10,852 4,062 1,097 Distribution to Member .............. (1,500) (4,700) (1,700) (704)
Member Contributions and Adjustments (34,380) 80 Change in Net Position ............... 82 (528) (28,228) 2,362 473 Net Position - Beginning of Year ...... 34,115 62,501 148,917 29,983 13,462 Net Position - End of Year ............ $ 34,197 $ 61,973 $ 120,689 $ 32,345 $ 13,935 CONDENSED STATEMENTS OF CASH FLOWS December 31, 2012 (thousands of dollars)
CVFA SCA SFA SPA NCGA Net Cash Provided by Operating A ctivities ........................ $ 6,389 $ 11,023 $ 42,051 $ 14,906 $ 38,580 Net Cash Used by Noncapital Financing Activities ............... (1,571) (4,700) (1,700) (39,508)
Net Cash Used by Capital Financing Activities ............... (5,733) (6,910) (25,731) (11,316) Net Cash Provided by Investing A ctivities ........................ 4 8 373 40 627 Net Increase (Decrease) in Cash and Cash Equivalents .............. 660 2,550 11,993 1,930 (301)
Cash and Cash Equivalents at the Beginning of the Year .............. 5,040 7,897 53,800 Cash and Cash Equivalents at the End of the Year ................... $ 5,700 $ 1044j7 $ 6,79 $ 1,2 $ 1j4ý54 SMUD ANNUAL REPORT 2013 Leading 1 theWay I
Sacramento Municipal Utility District 1 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. CASH, CASH EQUIVALENTS, AND INVESTMENTS Cash Equivalents and Investments. SMUD's investment policy is governed by the California State and Municipal Codes and its Indenture, which allow SMUD's investments to include: 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; commercial paper; certificates of deposit; repurchase agreements; corporate notes; and taxable government and tax-exempt money market portfolios. SMIUD'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, SMUD limits investments to those rated, at a minimum, "A-I" 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, SMUD's deposits may not be returned or SMUD will not be able to recover the value of its deposits, investments or collateral securities that are in the possession of another party. SMUD does not have a deposit policy for custodial credit risk.
As of December 31, 2013 and 2012, $5.7 million and $8.3 million in deposits were uninsured, respectively.
The bank balance is also, per a depository pledge agreement between SMUD and SMUD's bank, collateralized at 124 percent and 829 percent of the collective funds on deposit (increased by the amount of accrued but uncredited interest, reduced by deposits covered by FDIC) at December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, SMUD had money market deposit accounts and mutual funds of $101.3 million and $111.9 million which were uninsured, respectively. SMUD's investments and money market mutual funds are held in SMUD's name.
Concentration of Credit Risk. This is the risk of loss attributed to the magnitude of an entity's investment in a single issuer. SMUD 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 five percent in either year:
December 31, 2013 2012 Investment Type:
Federal National Mortgage Association (Fannie Mae) .............................. 11% 9%
Federal Hom e Loan Banks ..................................................... 10% 11%
F reddie M ac ................................................................. 8% 3%
Federal Farm Credit Bank ..................................................... 7% 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 SMUD has restrictions as to the maturities of some of the investments, it does not have a formal policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.
The following schedules indicate the credit and interest rate risk at December 31, 2013 and 2012. The credit ratings listed are from Standard & Poors (S&P). (N/A is defined as not applicable to the rating disclosure requirements).
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2013, SMUD'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 (thousands ofdolla)
Cash and Cash Equivalents:
C a sh . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Rated $ 4,358 $ S $ 4,358 L A IF . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Rated 270,749 270,749 Money Market Mutual Funds ...... AAAm/N/A 94,317 94,317 Money Market Deposit Account ............... N/A 6,990 6,990 Deposit at Notice ................. N/A 1,414 1,414 Commercial Paper ................ A-1 10712 10,712 Total cash and cash equivalents.. 388,540 388,540 Investments:
Fannie M ae ...................... AA+ 10,650 85,606 96,256 Federal Farm Credit Bank ......... AA+ 30,032 37,577 67,609 Federal Home Loan Bank .......... AA+ 65,995 27,813 93,808 Freddie M ac ..................... AA+ 2,005 71,658 73,663 U S Treasury ..................... N/A 25,059 3,103 28,162 Corporate Notes .................. AA+/A+/A 1/A/A- 52,714 48,588 101,302 M unicipal Bonds ................. AI/SP-I+ 8,067 2,508 10,575 Commercial Paper ................ A-I 43,916 43,916 Total investments ................. 238,438 276,853 515,291 Total cash, cash equivalents, and investments ............ $ 626,978 $ 276,853 $ $ 903,831 At December 31, 2012, SMUD'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 (thousands of dollars)
Cash and Cash Equivalents:
C a sh . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Rated $ 3,616 $ $ $ 3,616 L AIF . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Rated 337,341 337,341 Money Market Mutual Funds ...... AAAm/N/A 111,906 111,906 Commercial Paper ................ A- I+/A-I 15,385 15,385 Total cash and cash equivalents. 468,248 468,248 Investments:
Fannie M ae ...................... AA+ 65,314 65,314 Federal Farm Credit Bonds ......... AA+ 50,091 50,091 Federal Home Loan Banks ......... AA+ 81,964 81,964 Freddie M ac .............. ...... AA+ 21,079 21,079 U S Treasuries ............. ...... N/A 50,124 50,124 Commercial Paper ................ AA+ 14,981 14,981 Total investments .......... ...... 65,105 218,448 283,553 Total cash, cash equivalents, and investments ............ $ 533,353 $218,448 $ $ 751,801 SMUD ANNUAL REPORT 2013 Leading 1 theWay I
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SMUD's cash, cash equivalents, and investments are classified in the Consolidated Statements of Net Position as follows:
December 31, 2013 2012 (thousands of dollars)
Total Cash, Cash Equivalents, and Investments:
Revenue bond reserve and debt service funds:
Revenue bond reserve fund .............................................. $ 9,844 $ 20,859 Debt service fund ...................................................... 69,815 51,707 Component unit bond reserve and debt service funds ......................... 53,813 53,817 Total revenue bond reserve and debt service funds ......................... 133,472 126,383 Nuclear decomm issioning trust fund ........................................ 31,137 31,077 R ate stabilization fund .................................................... 81,474 86,23 1 Component unit other restricted funds ....................................... 54,519 83,161 Other restricted funds ..................................................... 1,254 954 U nrestricted funds ........................................................ 60 1,975 423,995 Total cash, cash equivalents, and investments ............................. $ 903,831 $ 751,801 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 (Costs)
Decommissioning. SMUD's regulatory asset relating to the unfunded portion of its decommissioning liability is being collected through interest earnings on the Trust Fund. Nuclear fuel storage costs and non-radiological decommissioning costs have been collected in rates since 2009.
TANC Operations Costs. SMUD'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, SMUD established a regulatory asset to defer recognizing the expense related to the U.S. Bureau of Reclamation (Bureau). This regulatory asset will be collected in rates over the period SMUD is committed to making rate payments to the Bureau.
Derivative Financial Instruments. SMUD's regulatory costs and/or credits relating to Investment Derivative Instruments are intended to defer the net difference between the fair value of derivative instruments and their cost basis, if any. Investment Derivative Instruments 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 (see Note 9).
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Senate Bill 1. SMUD implemented a per kilowatt hour solar surcharge, effective January 1, 2008 in order to fund investments in solar required by Senate Bill 1 (SB-1). The difference between the surcharge revenues received and the funds spent on solar initiatives will be recognized or deferred into future years. In 2013, SMUD spent more than it collected in SB-1 revenues, and has recorded a regulatory asset.
Debt Issuance Costs. SMUD established a regulatory asset for costs incurred in connection with the issuance of debt obligations, principally underwriter fees and legal costs. The regulatory asset will be collected in rates over the life of the bonds. Debt issuance costs after December 31, 2013 will be expensed.
SMUD's total regulatory costs for future recovery are presented below:
December 31, 2013 2012 (thousands of dollars)
Regulatory Costs for Future Recovery:
D ecomm issioning ........................................................ $ 142,485 $ 143,300 TA N C operations costs ................................................... 841 9,186 U .S. Bureau of Reclam ation ............................................... 391 6,576 Derivative financial instrum ents ............................................ 24,326 52,029 S en ate B ill 1. . .. . .. .. . .. ... .. .. .. . . .. . .. . . .. . . . . . . . .. . . .. ... .. . .. . .. . .. .. 7 ,7 2 9 D ebt Issuance C osts ...................................................... 16,466 16,243 Total regulatory costs ................................................... 192,238 227,334 Less: regulatory costs to be recovered within one year .......................... (12,483) (17,389)
Total regulatory costs for future recovery - net ............................ $ 179,755 $ 209,945 Regulatory Credits CIAC. In 2013 and 2012 SMUD added CIAC totaling $10.6 million and $13.0 million, respectively, to Regulatory Credits in the Consolidated Statements of Net Position and recorded $10.0 million and $9.4 million of amortization, respectively, to Other Income - Net in the Consolidated Statements of Revenues, Expenses and Changes in Net Position. SMUD'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 assets in order to offset the earnings effect of these non-exchange transactions.
Rate Stabilization. SMUD'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 (RSF) transfers on an event driven basis. In 2013, $1.8 million was transferred from revenue to the RSF as a result of higher than budgeted energy deliveries from Western Area Power Administration (Western).
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Hydro Rate Stabilization. The Hydro Rate Stabilization Fund (HRSF) was established through the Hydro Generation Adjustment (HGA) mechanism, which helps manage volatility in energy costs. The HGA mechanism applies a formula based on precipitation and wholesale electricity prices to calculate needed withdrawals from or deposits to the HRSF. The maximum balance of the HRSF is 5 percent of the budgeted retail revenue and the maximum annual transfer in or out of the HRSF is 4 percent of budgeted retail revenue. If the HRSF is depleted SMUD will apply a hydro rate surcharge to customers' bills up to 4 percent. When the HRSF is fully replenished, a wet year can trigger a hydro rebate or credit on the customers' bills. In 2013, $6.6 million was transferred from the HRSF to revenue as a result of below average precipitation. No additional rate adjustments were necessary.
Assembly Bill 32. In 2012, SMUD participated in the first carbon allowance auction under AB-32, the Global Warming Solutions Act (see Note 2). In 2012, the Board authorized the deferral of AB-32 auction proceeds to match the revenue recognition with the related expenses. The difference between the auction proceeds received and the funds spent on AB-32 programs will be deferred into future years. In 2013, SMUD spent less than it collected in AB-32 revenues, and has recorded a regulatory credit.
Grant Revenues. In 2009, SMUD was awarded several large grants under the ARRA, which provided large amounts of reimbursements for capital expenditures. In 2010, the Board authorized the deferral of grant income for capital expenditures as regulatory liabilities. Thus, this regulatory credit will be deferred to match the depreciable lives of the related capital assets in order to offset the earnings effect of these non-exchange transactions.
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.
SMUD's total regulatory credits for future revenue recognition are presented below:
December 31, 2013 2012 (thousands of dollars)
Regulatory Credits:
C IA C .................... $ 231,612 $ 230,971 Rate stabilization ......... ..... 54,070 52,224 Hydro rate stabilization .... ..... 27,404 34,008 Assembly Bill 32 .......... .... 3,441 4,551 Grant revenues ........... ..... 75,123 74,867 Precipitation hedge ........ ..... 11,547 Senate B ill 1 ............. 2,981 Total regulatory credits 403,197 $ 399,602 I Leading theWay ý SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS To help provide stable electric rates and to meet the forecasted power needs of its retail customers reliably, SMUD enters into various physical and financial fixed price purchase contracts for electricity and natural gas.
These fixed price contracts and swap agreements are intended to hedge the exposure due to highly volatile commodity prices. SMUD also enters into interest rate swap agreements to reduce interest rate risk, or to enhance the relationship between the risk and return regarding SMUD's assets or debt obligations. SMUD utilizes these derivative financial instruments to mitigate its exposure to certain market risks associated with ongoing operations. SMUD has established policies set by an executive committee for the use of derivative financial instruments for trading purposes. These contracts are evaluated pursuant to GASB No. 53 to determine whether they meet the definition of derivative instruments, and if so, whether they effectively hedge the expected cash flows associated with interest rate and commodity price risk exposures.
SMUD applies hedge accounting for derivatives that are deemed effective hedges. Under hedge accounting, the increase or (decrease) in the fair value of a hedge is reported as a Deferred Inflow or Deferred Outflow on the Consolidated Statements of Net Position. Derivatives that do not meet the effectiveness tests are deferred for rate-making purposes as regulatory assets or liabilities on the Consolidated Statements of Net Position (see Note 8).
SMUD implemented GASB No. 53 in 2010. During 2013 and 2012, SMUD executed numerous new gas and power related purchase agreements, some of which are recorded as hedging or investment derivatives and are therefore included in the table below. All hedging or investment derivatives are recorded at fair value on the Consolidated Statements of Net Position.
For electricity and gas derivatives, fair values are estimated by comparing contract prices to forward market prices quoted by an independent external pricing service. When external quoted market prices are not available for derivative contracts, SMUD uses an internally developed valuation model utilizing short term observable inputs. For interest rate derivatives, SMUD subscribes to a financial information service that it uses to verify fair value estimates obtained from its counterparties.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a summary of the fair values, changes in fair value and notional amounts of derivative instruments, grouped by trading strategy, outstanding at December 31, 2013 (amounts in thousands; gains shown as positive amounts, losses as negative):
2013 Changes in Fair Value Fair Value at December 31, 2013 Current NonCurrent Current NonCurrent Cash Flow Hedges: Amount Amount Amount Amount Notional (thousands of dollas) (thousands of Dekatherms (Dlh)
Asset: Investment Derivative Instruments Gas - Commodity .............. $ 272 $ 112 $ 272 $ 147 3,235 Dth Gas - Storage .................. (12) 7 78 Dth Total Investment Derivative Instruments ........ $ 260 $ 112 $ 279 $ 147 Asset: Hedging Derivative Instruments Gas - Basis ................ $ 523 $ 655 $ 523 $ 655 10,950 Dth Gas - Transportation ............ 335 975 335 975 16,425 Dth Gas - Commodity .............. 1,975 ) (677) 1,975 176 13,373 Dth Gas - Storage .................. (514)) 21 148 Dth Interest Rate ................... (813) (11,479) 2,945 27,978 $ 131,030 Total Hedging Derivative Instruments ........ $ 1,506 $ (10,526) $ 5,799 $ 29,784 Liability: Investment Derivative Instruments Gas - Transportation ............ $ 7 $ $ $ Gas - Commodity .............. 10,994 19 37 314 2,938 Dth Gas - Storage .................. 4 2 78 Dth Interest Rate ................... 1,353 14,953 3,839 20,560 S 380,995 Total Investment Derivative Instruments ........ $ 12,358 $ 14,972 $ 3,878 $ 20,874 Liability: Hedging Derivative Instruments Gas - Basis ................. $ 85 $ $ $ Gas - Transportation ............ 88 Gas - Commodity .............. 65,367 (3,245) 15,818 86,144 111,618 Dth Gas - Storage .................. (384) 394 1,428 Dth Total Hedging Derivative Instruments ........ $ 65,156 $ (3,245) $ 16,212 $ 86,144 I LeadingtheWay ISMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District 1 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a summary of the fair values, changes in fair value and notional amounts of derivative instruments outstanding at December 31, 2012 (amounts in thousands; gains shown as positive amounts, losses as negative):
2012 Changes in Fair Value Fair Value at December 31, 2012 Current NonCurrent Current NonCurrent Cash Flow Hedges: Amount Amount Amount Amount Notional ithousands of dollars) (thoosands of Dth)
Asset: Investment Derivative Instruments Gas - Commodity ............. $ (634) $ 35 $ $ 35 645 Dth Gas - Storage .................. (105) 19 75 Dth Total Investment Derivative Instruments ........ $ (739) $ 35 $ 19 $ 35 Asset: Hedging Derivative Instruments Gas - Commodity ............. $ (591) ) $ 853 $ $ 853 12,330 Dth Gas - Storage .................. 429 (74) 535 1,537 Dth Interest Rate ................... 424 1,121 3,758 39,457 $ 131,030 Total Hedging Derivative Instruments ........ $ 262 $ 1,900 $ 4,293 $ 40,310 Liability: Investment Derivative Instruments Gas - Transportation ............ $ 7) $ $ 7 $ 225 Dth Gas - Commodity .............. (1,069) 4,290 11,031 333 6,287 Dth Gas - Storage .................. 206 6 148 Dth Interest Rate ................... 100 4,737 5,192 35,513 $ 380,995 Total Investment Derivative Instruments ........ $ (756) $ 9,027 $ 16,236 $ 35,846 Liability: Hedging Derivative Instruments G as - Basis .................. $ (10) ) $ 85 $ 1,980 Dth Gas - Transportation ............ 224 88 3,825 Dth Gas - Commodity .............. 36,077 57,504 81,185 82,899 106,796 Dth Gas - Storage .................. 103 10 903 Dth Total Hedging Derivative Instruments ........ $ 36,394 $ 57,504 $ 81,368 $ 82,899 SMUD ANNUAL REPORT 2013 1Leading theWay I
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Objectives and terms of hedging derivative instruments. The objectives and terms of SMUD's hedging derivative instruments that were outstanding at December 31, 2013 are summarized in the table below. The table is aggregated by the trading strategy. Credit ratings of SMUD's counterparties can be found in the table under Credit Risk. Details of SMUD's interest rate derivative instruments can be found in Note 10.
Notional Beginning Ending Minimum Maximum Amount Dth Date Date Price/Dth Price/Dth G as - B asis ................... 10,950 01/01/14 12/31/15 $ (0.74) $ (0.62)
Gas - Commodity .............. 130,293 01/01/08 12/31/22 3.83 7.17 Gas - Storage .................. 1,576 01/01/14 03/31/14 .17 4.71 Gas - Transportation ............ 16,425 01/01/14 12/31/15 (0.36) (0.10)
The objectives and terms of SMUD's hedging derivative instruments that were outstanding at December 31, 2012 are summarized in the table below. The table is aggregated by the trading strategy.
Notional Beginning Ending Minimum Maximum Amount Dth Date Date Price/Dth Price/Dth Gas - B asis ................... 1,980 01/01/13 03/31/13 $ (0.25) $ (0.25)
Gas - Commodity .............. 126,058 01/01/08 12/31/22 3.36 7.65 Gas - Storage .................. 2,663 01/01/13 04/30/13 0.32 4.32 Gas - Transportation ............ 4,050 01/01/13 03/31/13 (0.08) 0.05 SMUD hedges its interest costs. The interest rate swaps are designed to synthetically fix the cash flows associated with variable rate bonds (see Note 10).
SMUD hedges its power and natural gas costs so that it can offer predictable rates to its retail electric customers and support its credit rating. SMUD maintains a risk management program to control the price, credit, and operational risks arising from its power and natural gas market activities. Under the program, authorized SMUD employees assemble a portfolio of swaps, futures, and forward contracts over time with the goal of making SMUD's purchased power and fuel budget more predictable.
These hedged risks include those related to interest rate and commodity price fluctuations associated with certain forecasted transactions, including interest rate risk on long-term debt, and forward purchases of gas and electricity to meet load.
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Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Derivatives not designated as hedging instruments Gas and Electric Contracts. SMUD utilizes certain gas swap and electric swap agreements under GASB No. 53 not designated as hedging derivative instruments to mitigate exposure to changes in the market price of natural gas and electricity. The fair value of each agreement, excluding the actual settlements to be paid or received as of the end of the period, is recorded in either Current or Noncurrent Assets, Investment Derivative Instruments on the Consolidated Statements of Net Position if in an asset position or Current or Noncurrent Liabilities, Investment Derivative Instruments on the Consolidated Statements of Net Position if in a liability position. An offsetting amount is included in Current or Noncurrent Regulatory Costs or Regulatory Credits for future recovery in the Consolidated Statements of Net Position. The actual settlement payable is recorded in Accounts Payable on the Consolidated Statements of Net Position, and the actual settlement receivable is recorded in Receivables - Net -
Other on the Consolidated Statements of Net Position. The payments and receipts of the actual settlement are recorded as Investment Expense in the Consolidated Statements of Revenues, Expenses and Changes in Net Position.
Interest Rate Contracts. SMUD utilizes certain interest rate swap agreements not designated as hedging derivative instruments under GASB No. 53 to mitigate exposure to changes in the fair value of variable rate debt resulting from fluctuations in interest rates. The fair value of each agreement, excluding the balance of interest to be paid or received as of the end of the period, is recorded in either Current or Noncurrent Assets, Investment Derivative Instruments on the Consolidated Statements of Net Position if in an asset position or Current or Noncurrent Liabilities, Investment Derivative Instruments on the Consolidated Statements of Net Position if in a liability position. An offsetting amount is included in Current or Noncurrent Regulatory Costs or Deferred Outflows or Inflows of Resources in the Consolidated Statements of Net Position. The interest receivable is recorded in Receivables - Net - Other on the Consolidated Statements of Net Position, and the accrued interest is recorded in Interest Payable on the Consolidated Statements of Net Position. The payments or receipts of the actual settlement are recorded as Investment Expense in the Consolidated Statements of Revenues, Expenses and Changes in Net Position.
The Board has deferred recognition of the effects of reporting the fair value of Investment Derivative 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, 2013.
Interest rate risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair values of SMUD's interest rate swaps. SMUD is exposed to interest rate risk on its interest rate swaps.
Basis risk. Basis risk is the risk that arises when a hedged item and a derivative that is attempting to hedge that item are based on different indices. SMUD is exposed to basis risk when it hedges its natural gas purchases, which are priced at various locations, with NYMEX futures contracts, which settle based on the price in Henry Hub, Louisiana. SMUD enters into basis swaps to hedge against this risk.
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Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Termination risk. Termination risk is the risk that a derivative will terminate prior to its scheduled maturity due to a contractual event. Contractual events include bankruptcy, illegality, default, credit events upon merger, and other events. One aspect of termination risk is that SMUD would lose the hedging benefit of a derivative that becomes subject to a termination event. Another aspect of termination risk is that, if at the time of termination the mark to market value of the derivative was a liability to SMUD, SMUD could be required to pay that amount to the counterparty. Termination risk is associated with all of SMUD's derivatives up to the fair value amounts.
Credit Risk. Credit risk is the risk of loss resulting when the counterparty is unable or unwilling to fulfill its present and future financial obligations. SMUD can be exposed to significant counterparty credit risk on all derivative instruments. SMUD seeks to minimize credit risk by transacting with creditworthy counterparties. SMUD has established and maintained strict counterparty credit guidelines. SMUD continuously monitors counterparty credit risk and utilizes numerous counterparties to diversify the exposure to potential defaults. Under certain conditions as outlined in SMUD's credit risk management policy, SMUD may require additional credit support under its trading agreements.
Some of SMUD's derivative master agreements contain credit contingent provisions that enable SMUD to maintain unsecured credit as a result of positive investment quality credit ratings from each of the major credit rating agencies. If SMUD's debt were to be downgraded, there could be a step-down in SMUD's unsecured credit thresholds, and SMUD's counterparties would require additional collateral. If SMUD's debt were to decrease below investment grade, SMUD's unsecured credit thresholds would be reduced to zero, and counterparties to the derivative instruments would demand ongoing full collateralization on derivative instruments in net out of the money positions (See Note 2).
The counterparties' current credit rating at December 31, 2013 is shown in the table below.
The credit ratings listed are from S&P or Moody's:
Counterparty Counterparty Credit Rating Gas Contracts:
B arclays B ank PL C ....................................................... A2 Bank of M ontreal ........................................................ A+
BN P Paribas Energy Trading GP ........................................... A+
C itigro up Inc ............................................................. B aa2 D eutsche B ank A G ....................................................... A2 EDF Trading North Am erica LLC ........................................... A+
J.R M organ Ventures Energy Corp ........................................... A3 M acquarie B ank Lim ited .................................................. A B ank of A merica Corp .................................................... Baa2 M organ Stanley Capital Group, Inc .......................................... Baa2 Pow erex Corp ............................................................ A aa Interest Rate Contracts:
Goldm an Sachs Capital M arkets, L.P ........................................ A-Goldman Sachs Mitsui Marine Derivative Products L.P....................... AA+
Morgan Stanley Capital Services, Inc ....................................... A-I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. LONG-TERM DEBT SMUD's total long-term debt is presented below:
December 31, 2013 2012 (thousands of dollars)
Electric revenue bonds, 3.0% -5.9% , 1997-2041 ................................. $1,971,390 $ 1,943,130 Subordinated electric revenue bonds, index rates, 2008-2041 ...................... 347,850 347,850 Total electric revenue bonds .............................................. 2,319,240 2,290,980 Component unit project revenue bonds, 2.25%-5.50%, 2005-2030 ................. 399,295 423,915 Gas supply prepayment bonds, index rates, 2007-2027 ........................... 364,860 386,655 Total long-term debt outstanding .......................................... 3,083,395 3,101,550 B ond p rem ium s - n et ....................................................... 130,007 109,065 Total long-term debt .................................................... 3,213,402 3,210,615 Less: am ounts due w ithin one year ............................................ (137,600) (119,210)
Total long-term debt - net ................................................... $3,075,802 $3,091,405 The summarized activity of SMUD's long-term debt during 2013 is presented below:
Amounts December 31, Payments or December 31, Due Within 2012 Additions Amortization 2013 One Year (thousands of dollars)
Electric revenue bonds .......... $ 1,943,130 $ 308,415 $ (280,155) $ 1,971,390 $ 89,595 Subordinate electric revenue bonds 347,850 347,850 Component unit project revenue bonds ............... 423,915 (24,620) 399,295 25,625 Gas supply prepayment bonds .... 386,655 (21,795) 364,860 221380 To ta l . . . . . . . . . . . . . . . . . . . . . 3,101,550 308,415 (326,570) 3,083,395 S 137,600 Unamortized premiums - net ..... 109,065 45,106 (24,164) 130,007 Total long-term debt ............ $3,210,615 $ 353,521 $ 350,734) $3,213,402 The summarized activity of SMUD's long-term debt during 2012 is presented below:
Amounts December 31, Payments or December 31, Due Within 2011 Additions Amortization 2012 One Year (thousands of dollars)
Electric revenue bonds .......... $2,022,995 $ 196,945 $ (276,810) $1,943,130 $ 72,795 Subordinate electric revenue bonds 197,850 150,000 347,850 Component unit project revenue bonds ............... 447,520 (23,605) 423,915 24,620 Gas supply prepayment bonds .... 408,630 (21,975) 386,655 21,795 To ta l . . . . . . . . . . . . . . . . . . . . . 3,076,995 346,945 (322,390) 3,101,550 $ 119,210 Unamortized premiums - net ..... 103,972 28,888 (23,795) 109,065 Total long-term debt ............ $3,180,967 $ 375,833 $ 346,185) $3,210,615 SMUD ANNUAL REPORT 2013 Leading 1 theWay I
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2013 scheduled annual principal maturities and interest are as follows:
Principal Interest Total (thousands of dollars) 20 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .. .. .. ... . . $ 137,600 $ 137,061 $ 274,661 20 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... .. .. ... . . 141,200 131,223 272,423 20 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .. ... . ... . . 148,390 125,206 273,596 20 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .. ... . ... . . 156,680 118,320 275,000 2 0 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. ... .. .. .. . 156,770 110,917 267,687 2019 - 2023 (com bined) ..................................... 797,265 460,206 1,257,471 2024 - 2028 (com bined) ..................................... 745,790 300,735 1,046,525 2029 - 2033 (com bined) ..................................... 371,730 163,013 534,743 2034 - 2038 (com bined) ..................................... 342,855 50,561 393,416 2039 - 204 1 (com bined) ..................................... 85,115 6,638 91,753 Total R equirem ents ......................................... $ 3,083,395 $ 1,603,880 $ 4,687,275 Interest in the preceding table includes interest requirements for fixed rate debt at their stated rates, variable rate debt covered by interest rate swaps at their fixed rate, and variable rate debt not covered by interest rate swaps using the debt interest rate of 0.03 percent and 0.04 percent in effect at December 31, 2013 for the issues.
The following bonds have been issued and are outstanding at December 31, 2013:
Final Interest Original Outstanding Date Issue Maturity Rate Amount Amount Electric Revenue Bonds:
06/15/1997 1997 Series K Bonds 07/01/2024 5.25%-5.9% $ 131,030,000 $ 131,030,000 06/04/2003 2003 Series R Bonds 08/15/2015 3.25% - 5.0% 481,275,000 49,345,000 05/26/2004 2004 Series T Bonds 05/15/2024 5.0% - 5.25% 130,950,000 13,095,000 06/09/2008 2008 Series U Bonds 08/15/2028 3.125% - 5.0% 521,730,000 507,090,000 05/15/2009 2009 Series V Bonds 05/15/2036 6.322% 200,000,000 200,000,000 07/29/2010 2010 Series W Bonds 05/15/2036 6.156% 250,000,000 250,000,000 10/04/2011 2011 Series X Bonds 08/15/2028 3.0% - 5.0% 325,550,000 317,245,000 05/31/2012 2012 Series Y Bonds 08/15/2033 3.0% - 5.0% 196,945,000 195,170,000 05/21/2013 2013 Series A Bonds 08/15/2041 3.75% - 5.0% 132,020,000 132,020,000 05/21/2013 2013 Series B Bonds 08/15/2033 3.0%-5.0% 118,615,000 118,615,000 08/20/2013 2013 Series C Bonds 08/15/2017 5.0% 57,780,000 57,780,000 JPA Electric Revenue Bonds:
08/19/2009 2009 CVFA Bonds 07/01/2020 3.5% - 5.25% $ 48,920,000 33,260,000 08/19/2009 2009 SCA Bonds 07/01/2021 5.0% - 5.25% 57,530,000 44,790,000 01/19/2006 2006 SFA Bonds 07/01/2030 3.75% - 5.25% 300,375,000 242,765,000 04/20/2005 2005 SPA Bonds 07/01/2022 3.75% - 5.5% 122,960,000 78,480,000 05/31/2007 2007B NCGA#1 Bonds 07/01/2027 Index Rate 668,470,000 364,860,000 Subordinated Electric Revenue Bonds:
08/14/2008 2008 Series J Bonds 08/15/2028 Index Rate $ 120,000,000 $ 120,000,000 08/14/2008 2008 Series K Bonds 08/15/2028 Index Rate 77,850,000 77,850,000 02/29/2012 2012 Series L Bonds 08/15/2041 Index Rate 75,000,000 75,000,000 02/29/2012 2012 Series M Bonds 08/15/2041 Index Rate 75,000,000 75,000,000 I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2013 Bond Refundings and Redemptions. In May 2013, SMUD issued $118.6 million of 2013 Series B Electric Revenue Refunding Bonds (2013 Series B bonds). Proceeds from the 2013 Series B bonds and $6.7 million of available funds were used to refund $141.5 million of the outstanding 2003 Series R, and 2004 Series T bonds through a legal defeasance, and accordingly, the liability for the defeased bonds has been removed from Long-Term Debt in the Consolidated Statements of Net Position. The refunding resulted in the recognition of a deferred accounting gain of $2.0 million, which is being amortized over the life of the refunding issue. The 2013 Series B refunding reduced future aggregate debt service payments by $33.8 million and resulted in a total economic gain of $22.5 million, which is the present value of the difference between the old and new debt service payments.
In August 2013, SMUD issued $57.8 million of 2013 Series C Electric Revenue Refunding Bonds (2013 Series C bonds). Proceeds from the 2013 Series C bonds and $4.3 million of available funds were used to refund $65.9 million of the outstanding 2003 Series S bonds through a legal defeasance, and accordingly, the liability for the defeased bonds has been removed from Long-Term Debt in the Consolidated Statements of Net Position. The refunding resulted in the recognition of a deferred accounting loss of $0.3 million, which is being amortized over the life of the refunding issue. The 2013 Series C refunding reduced future aggregate debt service payments by $12.1 million and resulted in a total economic gain of $6.2 million, which is the present value of the difference between the old and new debt service payments.
2012 Bond Refundings and Redemptions. In May 2012, SMUD issued $196.9 million of 2012 Series Y Electric Revenue Refunding Bonds. Proceeds from the 2012 bonds and $10.0 million of available funds were used to refund
$219.9 million of the outstanding 2002, 2003, and 2004 revenue bonds through a legal defeasance, and accordingly, the liability for the defeased bonds has been removed from Long-Term Debt in the Consolidated Statements of Net Position. The refunding resulted in the recognition of a deferred accounting loss of $6.9 million, which is being amortized over the life of the refunding issue. The 2012 Series Y refunding reduced future aggregate debt service payments by $36.3 million and resulted in a total economic gain of $21.5 million, which is the net present value of the difference between the old and new debt service payments.
Interest Rate Swap Agreements. A summary of SMUD's three interest rate swap agreements are as follows.
The credit ratings listed are from S&P:
Initial Notional Counterparty Amount SMUD Fixed Floating Termination Credit (thousands) Pays Rate Rate Date Rating
$ 131,030 Variable 5.154% SIFMA 07/01/24 A-269,095 Fixed 4.345% 70% of LIBOR 08/15/18 AA+
111,900 Fixed 2.894% 63% of LIBOR 08/15/28 A-SMUD 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 SMUD's 1997 Series K Electric Revenue Bonds. Under this swap agreement, SMUD pays a variable rate equivalent to the SIFMA Index (0.06 percent at December 31, 2013) and receives fixed rate payments of 5.154 percent. In connection with the swap agreement, SMUD has a put option agreement, also with an initial notional amount of $131.0 million, which gives the counterparty the right to sell to SMUD, 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 SMUD. The term of both the swap and the put is equal to the maturity of the 1997 Series K Bonds.
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Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additionally, SMUD has two variable-to-fixed interest rate swap agreements with a combined initial notional amount of $381.0 million originally entered into for the purpose of fixing the effective interest rate associated with certain of its subordinated bonds that were refunded during 2008. The notional values of the two swaps are amortized over the life of the respective swap agreements. SMUD 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. The obligations of SMUD under the swap agreements are not secured by a pledge of revenues of SMUD's electric system or any other property of SMUD.
Component Unit Interest Rate Swap Agreements. NCGA has three interest rate swap agreements, which are summarized as follows. The credit ratings listed are from S&P:
Credit Support Initial Notional Provider Amount NCGA Fixed Floating Termination Credit (thousands) Pays Rate Rate Date Rating
$ 100,385 Fixed 4.062% 67% of LIBOR +.60% 07/01/17 A-65,865 Fixed 4.144% 67% of LIBOR +.63% 07/01/19 A-198,610 Fixed 4.304% 67% of LIIBOR +.72% 07/01/27 A-At December 31, 2013 NCGA has three variable-to-fixed interest rate swap agreements with a counterparty for the purpose of fixing the effective interest rate associated with the 2007 Series B Bonds. NCGA pays the counter-party a fixed rate on the notional amount and receives a floating rate equal to 67 percent of the three month LIBOR (0.25 percent at December 31, 2013) plus an interest rate spread, as specified in each swap agreement.
The total notional amount of the three swaps at December 31, 2012 was $364.9 million and was equivalent to the outstanding principal balance on the NCGA Bonds. The swaps are amortized over the life of their respective swap agreements in a manner corresponding to the principal repayment schedule of the NCGA Bonds. Early termination of the swaps would occur upon termination of the prepaid agreement for any reason. Upon early termination, the swaps would have no value to either party.
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 SMUD's Electric Revenue Bonds.
Variable Rate Bonds. SMUD's Variable Rate Bonds bear interest at weekly rates, ranging from 0.03 percent to 0.04 percent at December 31, 2013. SMUD can elect to change the interest rate period or fix the interest rate, with certain limitations. SMUD's Variable Rate Bonds can be put to SMUD's Trustee by the bondholders; however, SMUD has in place a reimbursement agreement with Bank of America to enable SMUD to pay off the bonds over five years if the bonds are put. Accordingly, SMUD has recorded such bonds as Long-Term Debt, less amounts scheduled for redemption within one year.
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Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Component Unit Bonds. The component units of SMUD have each issued bonds to finance their respective projects. The revenue stream to pay the SPA, NCGA and SFA bonds' debt service is provided by a take and pay purchase agreement. 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 SMUD in connection with the sale of gas or electricity to SMUD.
The ability to service debt for SPA and SFA is dependent upon the successful availability of operations, and for NCGA is dependent on various parties (particularly MSCG, as gas supplier) meeting their contractual obligations.
The ability of SCA and CVFA to service their debt is not dependent upon the successful operation of the project, as SMUD is required, under a "take or pay" contract to make payments sufficient to pay principal and interest and all other payments required to be made under CVFA and SCA's indenture of trust, regardless of the continued successful operation of the Project.
Callable Bonds. SMUD has $797.9 million of Electric System Revenue Bonds that are currently callable,
$450.0 million of which are fixed rate Build America Bonds debt and $347.9 million of subordinate Variable Rate Demand Notes (VRDN's). SMUD also has $1,078.5 million of bonds that become callable from 2014 through 2024, and these bonds can be called until maturity.
Collateral. The principal and interest on SMUD's bonds are payable exclusively from, and are collateralized by a pledge of, the net revenues of SMUD's electric system. Neither the credit nor the taxing power of SMUD is pledged to the payment of the bonds and the general fund of SMUD is not liable for the payment thereof.
Covenants. SMUD'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 including a rate covenant to raise rates to maintain minimum debt service coverage.
SMUD has pledged future net electric revenues, component unit net project revenues, and net gas supply prepayment revenues to repay, in electric revenue, component unit project revenue, and gas supply prepayment revenue bonds issued from 1993 through 2013. Proceeds from the bonds provided financing for various capital improvement projects, component unit capital projects, and the prepayment of a twenty-year supply of natural gas. The bonds are payable solely from the net revenues generated by SMUD's electrical sales, component unit project revenues, and gas supply prepayment revenues and are payable through 2041 at December 31, 2013.
GASB Statement No. 48, "Sales and Pledges of Receivables and FutureRevenues and Intra-Entity Transjersof Assets and Future Revenues," disclosures for pledged revenues are as follows:
December 31, 2013 2012 (Lhousandsofdollars)
Pledged future revenues ..................................................... $3,083,395 $ 3,101,550 Principal and interest payments for the year ended ............................... $ 253,612 $ 240,224 Total net revenues for the year ended .......................................... $ 893,158 $ 951,132 Total remaining principal and interest to be paid ................................. $4,687,275 $ 4,694,432 Annual principal and interest payments as a percent of net revenues For the year ended ........................................................ 28% 25%
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Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. COMMERCIAL PAPER NOTES SMUD issues Commercial Paper Notes (Notes) to finance or reimburse capital expenditures. At December 31,2013 and 2012 Notes outstanding totaled $200.0 million. The effective interest rate for the Notes outstanding at December 31, 2013 was 0.1 percent and the average term was 90 days. SMUD has a $204.9 million letter of credit agreement, and there have not been any term advances under it.
The summarized activity of SMUD's Notes during 2013 and 2012 is presented below:
Balance at Balance at beginning of end of Year Additions Reductions Year (thousands of dollars)
December 31,2013 ......................... $ 200,000 $ $ $ 200,000 December 31, 2012 ......................... $ 200,000 $ $ $ 200,000 NOTE 12. 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 for all fixed rate debt by determining the present value of each individual maturity's cash flow using a discount rate from a representative yield curve. All yield curves were obtained from Bloomberg, L.P. or calculated using linear interpolation from data obtained from the Bloomberg yield curves. With the exception of SMUD's Build America Bonds (BABS) both insured and uninsured SMUD debt was valued using the yield curve for "A" rated municipal power bonds. SMUD's rating is higher than the bond insurers and therefore the yield curve for insured municipal bonds was not used for insured SMUD debt. SMUD's BABS bonds are "A+" rated and therefore use the "A" rated BABS yield curve, the closest, conservative yield curve available. Both SCA and CVFA bonds are rated at the same level as SMUD and were valued at the yield curve for "A" rated municipal power bonds. SFA and SPA are both "BBB" rated and therefore use the "BBB" rated Muni Revenue yield curve, the closest, conservative yield curve available. The SMUD 2008 Series J and K, the SMUD 2012 Series L and M, and the NCGA 2007B bonds are included in the fair value total at par as they are variable rate obligations.
Interest Rate Swap and Put Agreements. The fair values of interest rate swap and put agreements are based on values provided by counterparties.
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.
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Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Asset Retirement Obligation. SMUD values its ARO for Rancho Seco based on significant unobservable inputs (Level 3). During 2013, the ARO was updated to reflect new information and revise the estimated costs.
The information used to develop the inputs was a combination of actual historical costs and published data with contingencies to account for uncertainties in future costs. There was no change in the methodology used from the prior estimate.
The estimated fair values of SMUD's financial instruments are presented below. Of the items listed below, all are required to be recorded at fair market value except for the long-term debt. Market values may have changed significantly since December 31, 2013.
December 31, 2013 Recorded Value Fair Value (thousands of dollars)
Investments, including cash and cash equivalents ................................ $ 903,997 $ 903,997 Long-term debt ............... (3,083,395) (3,434,819)
Interest rate swap and put agreements - net ..................................... 6,524 6,524 Gas and electricity related derivatives - net ..................................... (97,623) (97,623)
A sset Retirem ent O bligation ................................................. (169,124) (169,124)
December 31, 2012 Recorded Value Fair Value (thousands of dollars)
Investments, including cash and cash equivalents ................................ $ 751,801 $ 751,801 L o n g-term deb t . . . .. . . .. . . .. .. .. . .. .. .. . . . .. . . . .. . . . . . .. .. .. . . . . . ... .. .. . .. (3,101,550) (3,571,833)
Interest rate swap and put agreem ents - net ..................................... 2,510 2,510 Gas and electricity related derivatives - net ..................................... (174,202) (174,202)
A sset R etirem ent O bligation ................................................. (169,980) (169,980)
NOTE 13. 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 and the separately licensed Independent Spent Fuel Storage Facility (ISFSI). 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 SMUD's decommissioning plan for the nuclear power plant, which delineates a phased process, and the first phase of physical work was completed in 2008. Decommissioning of the ISFSI will occur after the Department of Energy (DOE) removes the spent nuclear fuel and high level waste from the site.
In 2009, the NRC released all of the land under the Part 50 license for unrestricted use with the exception of the I acre fenced area around the Interim Onsite Storage Building that houses the stored class B and C wastes. This waste is scheduled for disposal by the end of 2014. The facility operating license will be terminated after the waste is removed and the decommissioning process is completed for the storage facility.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District 1 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The DOE, under the Nuclear Waste Policy Act of 1982, is responsible for permanent disposal of spent nuclear fuel and high-level radioactive waste which are currently in storage at the ISFSI. SMUD 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.
All of SMUD's spent fuel and GTCC waste are currently stored in sealed canisters in the ISFSI. However, the date when fuel and GTCC waste removal will be complete is uncertain. In 2010, the DOE formally withdrew the application for licensing of Yucca Mountain as a high-level waste repository, essentially removing Yucca Mountain as an option for disposal of SMUD's used nuclear fuel. The DOE also announced in January 2010 the creation of a Blue Ribbon Commission to study alternatives for developing a repository for the nation's used nuclear fuel. The Commission provided a final report on alternatives in January 2012. The DOE evaluated the recommendations and published the report "Strategy for the Management and Disposal of Used Nuclear Fuel and High-Level Radioactive Waste" in January 2013. The next phase of the process will be for Congress and the President of the United States to consider the recommendations and enact legislation to implement the recommendations. At this time, there is no credible information available to determine when the DOE would remove the used nuclear fuel from the Rancho Seco facility. The ISFSI will remain under the regulation of the NRC until the nuclear fuel and GTCC radioactive waste are removed and the site is decommissioned.
Asset Retirement Obligations. These financial statements reflect SMUD's current estimate of its obligation for the cost of decommissioning (including the cost of managing the Storage Facility until it can be decommissioned) under the requirements of FASB ASC 410, based on studies completed each year. Each year, SMUD evaluates the estimate of costs of decommissioning and there was a decrease in costs in the 2013 study. The ARO estimate assumes all spent nuclear fuel will be removed from the site by 2028.
Rancho Seco's ARO is presented below:
December 31, 2013 2012 (thousands of dollars)
A ctive decom missioning .................................................... $ 33,872 $ 35,250 Spent fuel managem ent ..................................................... 135,252 134,730 To ta l A RO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 169,124 $ 169,980 L ess: current portion ....................................................... (19,759) (6,300)
Total N on-current portion of A RO ............................................ $ 149,365 $ 163,680 The summarized activity of the Rancho Seco ARO during 2013 and 2012 are presented below. 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 SMUD performing the decommissioning activities.
December 31, 2013 2012 (thousands of dollars)
AR O at beginning of year .................................................... $ 169,980 $ 168,633 Ac c re tio n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,331 8,253 E xp e n d itu res . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,160) (3,553)
C han g e in S tu dy .. .. . . . . . .. ... . . . . . .... .. . . . ... .. . . . . . .. . .. . . .. .. . .. . .. . . . . (1,967) 22 Annual adju stm ents ........................................................ (2,060) (3,375)
A R O at end o f year ......................................................... $ 169,124 $ 169,980 I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. PENSION PLANS Defined Benefit Pension Plan. SMUD participates in the California Public Employees' 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 SMUD policies. The pension plan provides retirement benefits, survivor benefits, and death and disability benefits based upon employees 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 seven percent of their annual covered salary.
SMUD makes partial contributions required of SMUD employees on their behalf and for their account. SMUD is currently required to contribute 11 percent of payroll to the plan. The contribution requirements of plan members and SMUD are established by PERS. On January 1, 2013, the public Employee's Pension Reform Act of 2013 (PEPRA) took effect, requiring a public employer's contribution to a defined benefit plan, in combination with employee contributions to that defined benefit plan, shall not be less than the normal cost rate.
Annual Pension Cost. PERS payments made by SMUD in 2013 were $34.1 million. The Annual Pension Cost for 2013 was $31.1 million, and $0.6 million was paid by employees for purchase of additional service credits and $2.4 million was paid by employees for their contribution to PERS. Overall, SMUD paid $31.1 million, and employees paid $3.0 million. PERS payments made by SMUD in 2012 were $33.5 million. The Annual Pension Cost for 2012 was $32.0 million, and $0.5 million was paid by employees for purchase of additional service credits and $1.0 million was paid by employees for their contribution to PERS. Overall, SMUD paid
$32.0 million, and employees paid $1.5 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 2013 was determined by PERS as part of the annual actuarial valuation as of June 30, 2011; the contribution for the second half of 2013 was determined by PERS as part of the annual actuarial valuation as of June 30, 2012. The actuarial assumptions included: (a) a 7.5 percent investment rate of return (net of administrative expenses) for 2013 and 2012, (b) projected annual salary increases that vary by duration of service, and (c) a 3.0 percent per year payroll growth. Both (a) and (b) also included an inflation component of 2.75 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 different periods. All changes in liability due to plan amendments, and changes in actuarial assumptions or methodology are amortized separately over a 20-year period. All gains or losses are amortized over a rolling 30-year period, with the exception of special gains and losses for the 2009, 2010, and 2011 annual valuations. These fiscal years gains and losses will be amortized over fixed and declining 30-year periods. If a plan's accrued liability exceeds the actuarial value of assets, the annual contribution with respect to the total unfunded liability may not be less than the amount produced by a 30-year amortization of the unfunded liability.
Three-year trend information for PERS is presented below:
Annual Pension Percentage of Fiscal Year Cost (APC) APC Contribution (thousands of dollars) 06/30/13 $ 31,215 100%
06/30/12 $ 32,064 100%
06/30/11 $ 30,217 100%
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Funded Status and Funding Progress. As of June 30, 2012, the most recent actuarial valuation date, the plan was 92.2 percent funded. The actuarial accrued liability for benefits was $1,693.6 million, and the actuarial value of assets was $1,561.6 million, resulting in an unfunded actuarial accrued liability (UAAL) of $132.0 million.
The covered payroll (annual payroll of active employees covered by the plan) was $177.8 million, and the ratio of the UAAL to the covered payroll was 74.2 percent. The schedule of funding progress, presented as Required Supplementary Information (RSI) following the notes to the financial statements, presents multiyear 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, SMUD 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 SMUD's employees contribute the funds.
Each of SMUD'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 SMUD service and, accordingly, are not subject to the general claims of SMUD's creditors.
SMUD 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 SMUD, nor its Board or officers have any liability for market variations in the Plans' asset values. SMUD 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.
SMUD 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.
SMUD makes annual contributions to the 40 1(k) Plan on behalf of certain employees pursuant to a memorandum of understanding with both of its collective bargaining units. SMUD does not match employee contributions, nor make contributions on behalf of its employees to the 457 Plan. Participating employees made contributions into the Plans totaling $16.2 million in 2013 and $16.0 million in 2012. SMUD made contributions into the Plans of
$1.6 million in 2013 and $1.1 million 2012.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District 1 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15. OTHER POSTEMPLOYMENT BENEFITS SMUD provides postemployment healthcare benefits, in accordance with SMUD policy and negotiated agreements with employee representation groups in a single employer defined benefit plan, to all employees who retire from SMUD, and their dependents. SMUD also provides postemployment healthcare benefits to covered employees who are eligible for disability retirement. SMUD contributes the full cost of coverage for retirees hired before January 1, 1991, and a portion of the cost based on credited years of service for retirees hired after January 1, 1991. SMUD also contributes a portion of the costs of coverage for these retirees' dependents. Retirees are required to contribute the portion that is not paid by SMUD. The benefits, benefit levels, retiree contributions and employer contributions are governed by SMUD and can be amended by SMUD through its personnel manual and union contracts. At June 30, 2013, 5,068 postemployment participants, including retirees, spouses of retirees, surviving spouses, and eligible dependents, were eligible to participate in SMUD's healthcare benefits program.
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. SMUD considers the following benefits to be OPEB: Medical, Dental and Long-Term Disability.
Plan Description. SMUD is a member of the California Employers Retiree Benefit Trust (CERBT) for prefunding of OPEB obligations. The CERBT Fund 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 administered by PERS, which provides medical, dental and long-term disability benefits for retirees and their beneficiaries. Any changes to these benefits would be approved by SMUD's Board and union contracts. To obtain a CERBT report, please contact PERS at 888-CALPERS.
The 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, where the plan assets are dedicated to the sole purpose of the payments of the plan benefits, and creditors of the government do not have access to those assets.
Funding Policy. SMUD has elected to net fund to PERS, so the contributions are the Annual Required Contribution (ARC) less the estimated cash flow for retiree benefit costs for each year. SMUD can elect to put in additional contributions into the trust, and in 2012 funded an additional $35.0 million to the CERBT, which consisted of $4.8 million related to the restated ARC, and $30.2 million in additional contributions. In 2013 and 2012, the net ARC contribution to the CERBT was $8.6 and $4.0 million, respectively. During 2013 and 2012, SMUD made the following healthcare benefit contributions by paying actual medical costs of $22.2 million and
$20.9 million, respectively.
Funding Status and Funding Progress. At June 30, 2013 and 2012, SMUD estimates that the actuarially determined accumulated postemployment benefit obligation was approximately $492.7 and $424.7 million, respectively. At June 30, 2013 and 2012, the plan was 21.0 and 12.4 percent funded, respectively. The covered payroll (annual payroll of active employees covered by the plan) at June 30, 2013 and 2012, was $179.7 and
$174.6 million, respectively. The ratio of the UAAL to covered payroll was 216.7 percent at June 30, 2013.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 SGAS No. 45, "Accounting and FinancialReporting by Employersfor PostemploymentBenefits Other Than Pensions."The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. For 2013, SMUD's annual OPEB Cost (expense) was $29.1 million.
The following table shows the components of SMUD's annual OPEB cost for the year, the amount actually paid in premiums, and changes in the net OPEB obligation:
Year Ended December 31, 2013 2012 (thousands of dollars)
A nnual required contribution ................................................. $ 29,665 $ 26,123 Interest on net O PEB obligation .............................................. (2,671) Annual required contribution adjustm ent ....................................... 2,153 A nnu al O P E B co st .................. ....................................... 29,147 26,123 C o ntrib ution s m ad e ......... ........ ........................................ (30,788) (59,911)
Increase/(Decrease) in net OPEB obligation .................................... (1,641) (33,788)
N et O PEB (asset), beginning of year .......................................... (35,101) (1,313)
N et O PEB (asset), end of year ................................................ $ 36742) $ 35,101)
SMUD's Net OPEB Obligation (asset) is recorded for 2013 as a component of Prepayments and other on the Consolidated Statements of Net Position.
SMUD's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2013 and the two preceding years is as follows:
Percentage of Annual Net OPEB Year Ending Annual OPEB Cost OPEB Cost Contributed (Asset)
(thousands of dollars)
December 31, 2013 $29,147 106% (36,742)
December 31, 2012 $26,123 229% (35,101)
December 31, 2011 *restated $ 25,423 96% (1,313)
- All amounts in 2011, except for contributions made, have been restated to match the revised Actuary report I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 June 30, 2013 and 2012 actuarial valuation. Actuarial assumptions used a 7.36 percent investment rate of return (net of administrative expenses), and a 3.0 percent inflation assumption. For 2013, the actuarial assumptions for an annual healthcare cost trend growth rate ranged from 6.01 to 27.69 percent for the current year, 8.0 to 8.5 percent for 2014, and 7.5 to 8.0 percent for 2015. The UAAL will be amortized as a percentage of payroll over an open 30-year period. At June 30, 2013 and 2012 the actuarial value of the assets was
$103.3 and $52.7 million, respectively.
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 trends. 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 RSI 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.
NOTE 16. INSURANCE PROGRAMS AND CLAIMS SMUD is exposed to various risks of loss related to torts, theft of and destruction to assets, errors and omissions, and natural disasters. In addition, SMUD is exposed to risks of loss due to injuries to, and illnesses of, its employees. SMUD carries commercial insurance coverage to cover most claims in excess of specific dollar thresholds, which range from $5 thousand to $2.5 million per claim with total excess liability insurance coverage for most claims of $120.0 million. SMUD's property insurance coverage is based on the replacement value of the asset. There have been no significant reductions in insurance coverage, and in some cases, certain coverages increased. In 2013, 2012 and 2011, the insurance policies in effect have adequately covered all settlements of the claims against SMUD. No claims have exceeded the limits of property or liability insurance in any of the past three years.
The claims liability is included as a component of Self Insurance, Unearned Revenue and Other in the Consolidated Statements of Net Position.
SMUD ANNUAL REPORT 2013 [ Leading theWay
Sacramento Municipal Utility District 1 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SMUD's total claims liability, comprising claims received and claims incurred but not reported, at December 31, 2013, 2012 and 2011 is presented below:
2013 2012 2011 Ithousands of dollars)
Workers' compensation claims ................................ $ 11,291 $ 9,352 $ 9,454 General and auto claim s ..................................... 669 573 626 Short- and long-term disability claims ......................... 391 168 185 C laim s liability ............................................ $ 12,351 $ 10,093 $ 10,265 Changes in SMUD's total claims liability during 2013, 2012, and 2011 is presented below:
2013 2012 2011 (thousands of dollars)
Claim s liability, beginning of year ............................. $ 10,093 $ 10,265 $ 12,685 Add: provision for claims, current year ........................ 4,105 1,941 1,943 Increase in provision for claims in prior years ................... 3,433 4,205 1,804 Less: payments on claims attributable to current & prior years ..... (5,280) (6,318) (6,167)
Claim s liability, end of year .................................. $ 12,351 $ 10,093 $ 10,265 NOTE 17. COMMITMENTS Electric Power and Gas Supply Purchase Agreements. SMUD has numerous power purchase agreements with other power producers to purchase capacity, transmission, and associated energy to supply a portion of its load requirements. SMUD has minimum take-or-pay commitments for energy on some contracts. Certain contracts allow SMUD to exchange energy received primarily in the summer months, when SMUD most needs the energy and to return energy during the winter months, or other subsequent periods. SMUD has numerous long-term natural gas supply, gas transportation and gas storage agreements with Canadian and U.S. companies to supply a portion of the consumption needs of SMUD's natural gas-fired power plants, which expire through 2040.
At December 31, 2013, the approximate minimum obligations for the take or pay contracts over the next five years are as follows:
Electric Gas (thousads of dollars) 20 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,912 $ 16,533 2 0 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,006 16,727 2 0 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,774 16,993 2 0 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,266 17,287 20 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,266 17,933 At December 31, 2013, the approximate minimum obligations for the remaining contracts, assuming the energy or gas is delivered over the next five years, are as follows:
Electric Gas (thousands ofdollaos) 2 0 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,677 $ 147,272 20 15 . .. .. .. .. .. .. .. .. .. .. .. . ... . .. .. ... .. .. .. .. .. ... .. . .. .. .. .. .. .. .. .. .. 116,745 121,136 2016 .................................. 108,908 100,688 2017 ..................... 109,906 116,241 20 18 . .. .. .. ... . .. .. .. .. .. .. . ... . .. .. ... .. .. .. .. .. .. ... . .. .. .. .. .. .. . ... .. 101,747 99,462 I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contractual Commitments beyond 2018 - Electricity. Several of SMUD's purchase power and transmission contracts extend beyond the five-year summary presented above. These contracts expire between 2019 and 2033 and provide for power under various terms and conditions. SMUD estimates its annual minimum commitments under the take or pay contracts range between $31.3 million in 2019 and $5.3 million in 2033. SMUD estimates its annual minimum commitments under the remaining contracts, assuming the energy is delivered, range between
$85.5 million in 2019 and $10.4 million in 2032. SMUD's largest purchase power source is the Western Base Resource contract, whereby SMUD receives 31.25 percent of the amount of energy made available by Western, after meeting Central Valley Project use requirements, in any given year at a 31.25 percent share of their revenue requirement. On January 1, 2015, SMUD's percentage share changes to approximately 25 percent. The Western contract expires on December 31, 2024.
Contractual Commitments beyond 2018 - Gas. Several of SMUD's natural gas supply, gas transportation and gas storage contracts extend beyond the five-year summary presented above. These contracts expire between 2019 and 2040 and provide for transportation and storage under various terms and conditions. SMUD estimates its annual minimum commitments under the take or pay contracts range between $17.9 million in 2019 and $7.2 million in 2040. SMUD estimates its annual minimum commitments under the remaining contracts, assuming the gas is delivered, range between $86.5 million in 2019 and $19.7 million in 2040.
Additional Contracts. SMUD has entered into one additional power contract that has phase two excluded from the table above due to an unknown start date. Phase two of this contract is based on generation that has not been built and is expected online between 2015 and 2016. Because of the uncertainty of the start date, it has been excluded from the table above.
Solano Wind. In December 2011, SMUD entered into an agreement to sell the Solano Wind Phase 3 project (see Note 2). SMUD will buy all output from the plant under the terms of the Power Purchase Agreement. The plant began commercial operation in April 2012 and SMUD receives all output generated. Under the terms of the various agreements, SMUD has the option to buy the plant back at certain discrete future dates.
Gas Price Swap Agreements. SMUD has entered into numerous variable to fixed rate swaps with notional amounts totaling 158,180,000 Dth for the purpose of fixing the rate on SMUD's natural gas purchases for its gas-fueled power plants and gas indexed electric contracts. These gas price swap agreements result in SMUD paying fixed rates ranging from $3.83 to $7.17 per Dth. The swap agreements expire periodically from January 2014 through December 2022.
Gas Transport Capacity Agreements. SMUD has numerous long-term natural gas transport capacity agreements with Canadian and U.S. companies to transport natural gas to SMUD'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 SMUD-owned pipeline capacity within California. The gas transport capacity agreements provide SMUD with 56,000 Dth per day (Dth/d) of natural gas pipeline capacity from the North, including the Canadian Basins through 2023 and 54,000 Dth/d from the Southwest or Rocky Mountain Basins through at least 2018.
Gas Storage Agreements. SMUD also has an agreement for the storage of up to 2.0 million Dth of natural gas at regional facilities through March 2014, dropping to 1.0 million Dth through March 2015.
SMUD ANNUAL REPORT 2013 J Leading theWay
Sacramento Municipal Utility District I 2013 Annual Report REQUIRED SUPPLEMENTARY INFORMATION (unaudited)
NOYTE 18. CLAIMS AND CONTINGENCIES
]FIERC Administrative Proceedings. SMUD is involved in a number of FERC administrative proceedings related tc the deregulation of the California electric utility industry. While these proceedings are complex and numerous, they generally fall into three categories: (i) filings initiated by the California Independent System Operator (CEAISO) (or other market participants) to adopt/modify the CAISO Tariff and/or establish market design and Eb4ehavior rules; (ii) filings initiated by existing transmission owners (i.e. PG&E and the other Investor Owned Utilities (IOUs)) to pass-through CAISO related costs to their existing wholesale transmission customers; and (iii) filings initiated by FERC on market participants to establish market design and behavior rules or to complain about or investigate market behavior by certain market participants.
Ci*onstruction Matters. SMUD contracts with various firms to design and construct facilities for SMUD.
4Cxirrently, SMUD is party to various claims, legal actions and complaints relating to such construction projects.
S3MUD's management believes that the ultimate resolution of these matters will not have a material adverse effect on SMUD's financial position, liquidity or results of operations.
Uunivironmental Matters. SMUD was one of many potentially responsible parties that had been named in a number of actions relating to environmental claims and/or complaints. SMUD has resolved these environmental claims anrid/or complaints and entered into settlement agreements and/or consent orders. These settlement agreements and conrisent orders have statutory reopener provisions which allow regulatory agencies to seek additional funds for ernvironmental remediation under certain limited circumstances. While SMUD believes it is unlikely that any of the prior settlement agreements or consent orders will be reopened, the possibility exists. If any of the settlement agreements or consent orders is reopened, SMUD management does not believe that the outcome will have a m-iaterial adverse impact on SMUD's financial position, liquidity or results of operations.
1N4orth City Remediation. In 1950, SMUD purchased property (North City Site) from the City of Sacramento and the Western Railroad Company. Portions of the North City Site prior to the sale had been operated as a municipal landfill by the City of Sacramento. SMUD currently operates a bulk substation on the North City Site. SMUD intends to assure compliance with State standards at closed landfill sites and is in the process of determining the appropriate remediation for the North City Site. In 2009, SMUD established a regulatory asset to defer recognition cf the expense related to the investigation, design and remediation necessary for the North City Site, and recorded a liability for the full $12.0 million estimated for the project. At December 31, 2012, the regulatory asset was fully axnortized (See Note 8). As the owner of the North City Site, SMUD will have a role in the remediation selection ainid activities, as may those who operated or used the North City Site for landfill purposes. SMUD has estimated its exposure to such costs based on its proportionate share of the remedy. However, should others become unable to participate due to insolvency or otherwise unable to pay their share of the costs, SMUD's share of remediation costs would increase. SMUD's management does not believe this will occur. Even if SMUD were to ultimately be rxesponsible for all remediation costs associated with the North City Site, SMUD management believes that the ouitcome of these remediation costs will not have a material adverse impact on SM1UD's financial position, liquidity c>r results of operations.
I Leading theWay I SMUD ANNUAL REPORT 2013
Sacramento Municipal Utility District I 2013 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Former Community Linen Rental Services (Community) Property. In 1981, SMUD purchased property from Community located at 1824 and 1826 61st Street (Site). That same year, Community sold its linen business and equipment to Mission Laundry (Mission). SMUD continued to lease portions of the property to Mission until 1985.
SMUD settled with these businesses and waived a potential future legal claim for cleanup funding. The property to the north of the Site was owned by Kramer Carton Company (Kramer) and used for 60 years as a carton manufacturing facility. In 2009, Kramer filed for bankruptcy protection from its creditors. The Kramer property was encumbered by a first and second deed of trust, where the second deed of trust was held by Willamette Capital Management, Ltd. (Willamette). Willamette purchased the note on the first deed of trust. In 2011, Willamette foreclosed on the Kramer property and now holds title to the Kramer property. Based on environmental investigations, it has been determined that there is contamination at the Kramer property, at the Site, and at areas south of the Kramer property. The contamination appears to emanate primarily from the Site, with some contribution from the Kramer property. Preliminary environmental investigations of the Kramer property, the Site and areas south of the Kramer property indicate that total remediation costs may exceed $3.0 million. SMUD does not believe that it is the source of the contamination. Nonetheless, since Kramer is bankrupt and Willamette contends it is exempt from liability under a secured creditor exemption, it is unclear whether it would be beneficial for SMUD to take legal action for contribution. SMUD has estimated its exposure to such costs based on its proportionate share of the remedy.
However, should others become unable to participate due to insolvency or otherwise refuse to pay their entire share of the costs, SMUD's share of remediation costs would increase; alternatively, SMUD could potentially acquire the Kramer property at a nominal or greatly reduced cost, giving SMUD an asset with value that will materialize after the cleanup. Even if SMUD were to ultimately be responsible for all remediation costs associated with the Site, SMUD's management believes that the remediation of the Site will not have a material adverse impact on SMUD's financial position, liquidity or results of operations.
East Campus - Operations Center Dispute (Turner Construction Company). In December 2010, SMUD entered into the East Campus - Operations Center Design-Build Agreement (Agreement) for $112.0 million with Turner Construction Company (Turner) to construct the East Campus - Operations Center (EC-OC) design-build project (Project). In April 2013, SMUD provided Turner with notice of substantial completion of the Project.
Section 18.4(a) of the Agreement requires SMUD to purchase a project errors and omissions policy (Project E&O Policy) for the Project. Turner has alleged that SMUD has breached the Agreement because the Project E&O Policy purchased by SMUD does not comply with Section 18.4(a) of the Agreement for two reasons: (1) the Project E&O Policy does not cover "all claims" for design defects, because the Project E&O Policy's insured vs. insured exclusion prohibits Turner from recovering under the policy for design defects on the part of other insureds, and (2) SMUD purchased extended (tail) coverage for only five, rather than the required ten years. Turner asserts claims arising from the breach of the Agreement total $3.5 million. Thus far, Turner and SMUD are in discussion regarding potential resolution; though neither party has triggered the dispute resolution process within the Agreement. SMUD's management believes the claims are without merit. In any event, SMUD's management believes that the outcome of this matter will not have a material adverse impact on SMUD's financial position, liquidity or results of operations.
Other Matters. Currently, SMUD is party to various claims, legal actions and complaints relating to its operations, including but not limited to: property damage and personal injury, contract disputes, torts, and employment matters.
SMUD's management believes that the ultimate resolution of these matters will not have a material adverse effect on SMUD's financial position, liquidity or results of operations.
SMUD ANNUAL REPORT 2013 1 Leading theWay
Sacramento Municipal Utility District 1 2013 Annual Report REQUIRED SUPPLEMENTARY INFORMATION (unaudited)
Schedules of Funding Progress PERS Pension. The schedule of funding progress for PERS is presented below for the three most recent years for which SMUD has available data:
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)
(thouS~ds of dollar) 06/30/2012 $ 1,561,647 $ 1,693,613 $ 131,966 92.2% $ 177,772 74.2%
06/30/2011 $ 1,528,294 $ 1,634,178 $ 105,884 93.5% $ 182,872 57.9%
06/30/2010 $ 1,469,218 $ 1,577,200 $ 107,982 93.2% $ 185,018 58.4%
OPEB. The schedule of funding progress for the other post-employment benefit healthcare plan is presented below for the three recent years for which SMUD has available data:
Actuarial UAAL as a Actuarial Accrued Unfunded Percentage Actuarial Value of Liability AAL Funded Covered of Covered Valuation Assets (AAL) (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c)
(thosands of dolls) 06/30/2013 $ 103,251 $ 492,651 $ 389,400 21.0% $ 179,733 216.7%
06/30/2012 $ 52,724 $ 424,738 $ 372,014 12.4% $ 174,618 213.0%
06/30/2011 $ 47,843 $ 362,469 $ 314,626 13.2% $ 171,411 183.6%
I Leading theWay I SMUD ANNUAL REPORT 2013
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Sacramento Municipal Utility District Main office I 6201 S Street, Sacramento, CA 95817-1899 Mailing address I P.O. Box 15830, Sacramento, CA 95852-0830 916-452-3211 smud.org