ML19114A104
| ML19114A104 | |
| Person / Time | |
|---|---|
| Site: | La Crosse File:Dairyland Power Cooperative icon.png |
| Issue date: | 12/31/2017 |
| From: | Dairyland Power Cooperative |
| To: | Office of Nuclear Material Safety and Safeguards |
| Shared Package | |
| ML19114A114 | List: |
| References | |
| LAC-14428 | |
| Download: ML19114A104 (36) | |
Text
- COMMITMENT DAIRYLAND POWER COOPERATIVE A Touchstone Energy'"Cooperative ~T -
AT A GLANCE 262,542 TOTAL MEMBERS S2'7million MARGINS l,000.4MW*
Peak demand (reported to MISO 7 /6/17) 548EMPLOYEES lnde~ndent Auditors' Financial Statements....................... 20-23 Notes to Consolidated Financial Statements...... 24-31 Members & Facilities/Generating
OUR RENEWED COMMITMENT Decades ago, cooperative leaders unified with the vision to ensure reliable electricity would always be available in their rural communities. In 1941, they made a long-term commitment to each other and created their own power provider, Dairyland Power Cooperative.
Today, Dairyland remains steadfast in its vision to provide safe, sustainable, reliable and competitively-priced electricity to members in Wisconsin, Minnesota, Iowa and Illinois. From densely wooded forests to lush river valleys and thriving corn fields, the landscape throughout the Dairyland system is as diverse as its members. Each cooperative serves unique communities and memberships.
Cooperatives with the foresight to create Dairyland remain committed to the common goal to improve the quality of life in the region. Dairyland and cooperative members renew their commitment to achieve that goal each and every day.
DAIRYLAND POWER COOPERATIVE A Touchstone Energy* Cooperative ~f-"
COMMITTED TO OUR MEMBERS Barhara A. Nick President and CEO ifhrough power P.urchase ~reements, we have added major renewable energy; resources from the Barton System growth a.'uas fiaancial s1renglh I
EXECUTIVE COMMITTEE Roger Tjarks, Chairman Heartland Power Cooperative Greg Socia, Vice Chairman Riverland Energy Cooperative Eugene Miller, Treasurer People's Cooperative Services Jennifer Scharmer, Secretary MiEnergy Cooperative MEMBERS-AT-LARGE Charles Bena Clark Electric Cooperative Jerry Huber Jackson Electric Cooperative Larry Lamborn Allamakee-Clayton Electric Cooperative Barry Radloff Bayfield Electric Cooperative Laurie Engen, Assistant Secretary Dairyland Power Cooperative Niles Berman, General Counsel Wheeler, Van Sickle & Anderson
BOARD OF DIRECTORS Michael Baker Barron Electric Cooperative Clarence Boettcher Eau Claire Energy Cooperative Sandra Davidson Scenic Rivers Energy Cooperative Ed Gullickson Polk-Burnett Electric Cooperative Francis Gwinn Price Electric Cooperative Edward Hass Pierce Pepin Cooperative Services Robert Hess Oakdale Electric Cooperative Daniel Korn Vernon Electric Cooperative Burt Magnuson Freeborn-Mower Cooperative Services Joseph Mattingley Jo-Carroll Energy Jeff Monson Richland Electric Cooperative David Orf St. Croix Electric Cooperative John Petska Chippewa Valley Electric Cooperative Jane Reich Jump River Electric Cooperative Dean Tesch Taylor Electric Cooperative Tom Zwiefelhofer Dunn Energy Cooperative
CAPACITY SOURCE PROJECTION
Big wind joins Dairyland portfolio I 2017 was a windy year in the Dairyland system. In the spring, Dairyland began purchasing 80 MW of renewable energy from the Barton Wmd Farm (Kensett, Iowa), in partnership with Avangrid Renewables.
In the fall, Dairyland celebrated the 98 MW Quilt Block Wmd Farm's dedication. Dairyland purchases all the wind energy produced &om the new facility, which is owned by EDP Renewables and located near Darlington, Wis. The wind furn has a "crop" of 49 wind turbines. This project created 10 new fu.mily-supporting jobs in the community.
Approximately 40,000 homes can be powered by the wind energy produced by Barton and Quilt Block. Dairyland also purchases the output from several smaller wind fums.
Up with the sun I Dairyland reaffirmed its reputation as a solar energy leader with the spring 2018 announcement of three more utility-scale solar generation sites. Together, the 18 solar sites will be able to produce 25 MW of renewable energy, enough to power 4,000 homes.
The solar facilities are located in the service areas of Dairyland's member electric cooperatives. Dairyland has power purchase agreements with SoCore Energy for 17 of the sites, and CMS Energy for one.
Many of Dairyland's member cooperatives multiplied their local renewable energy benefit by piggybacking onto Dairyland's projects with community solar gardens.
Although these 18 sites represent Dairyland's largest and most recent solar investments, Dairyland also purchases energy from rwo other major solar installations. In addition, there are over 1,200 consumer-owned distributed generation solar installations in Dairyland's service area.
Pollinator gardens sustain vulnerable populations I The solar projects have created a domino effect of good results for members and the environment, beyond the energy produced. All sites include pollinator gardens that sustain bee and butterfly populations. Dairyland also plans to create pollinator gardens at substation locations.
The power behind the power I Resource Diversification is a strategic imperative at Dairyland. As generation resources evolve, system reliability continues to be a focus.
In June 2017, Dairyland and Mirmesota Power/ALLETE armounced plans for the Nemadji Trail Energy Center, a renewable-enabling 525-550 MW combined-cycle natural gas facility. The site is in Superior, Wis., adjacent to the service territories of both co-owners. The flexible facility will be responsive to intermittent solar and wind generation, assisting the transition to a more sustainable power supply.
Boosting Evergreen benefits I Evergreen is a long-standing, voluntary program offered by Dairyland's member cooperatives to consumers who wish to support renewable energy. Costs for Evergreen have been significantly reduced and the program is being modified to maximize beneficial opportunities for members. As a cooperative, cost savings are passed directly on to the member-consumer.
Stewardship is a core commihnent I Dairyland's Sustainability Initiative focuses on business and operational opportunities to reduce environmental and social impacts, while encouraging efficiency and cost savings. Environmental stewardship is key to sustainability. Every year, Dairyland renews its commitment to stewardship by broadening already successful activities--such as the beneficial reuse of power plant byproducts for road construction-and embracing new ideas.
Employees support pollinator gardens, lead e-recycling drives, nurture bird and fish habitats and find new ways to reduce environmental waste at work
assist in power recovecy, efforts following Hurricane Irma.
was on full displar. as cooP.eratives workers safelra bro~t Infrastructure essential for power delivery I the reliable delivery; of energY; D~land's !Transmission Construction crews work to safelr. rebuild, construct and up~de apP.roxirnately. 50 miles of 69 kV, transmission
Safety: Dairyland's most important commitment I President and CEO Barbara Nick leads Dairyland with the belief that there is no success in business without safety. T101e, schedule, costs... all those business factors take second place to operational safety. It takes constant vigilance, open communication and mutual accountability of every Dairyland team member to ensure safety remains in first place.
Everyone Home Safe Every Day emphasiz.es Dairyland's commitment to safe practices in and out of the workplace.
We are pleased that safety metrics show continual improvement, but also know the work on safety is never done. Continuous Improvement Teams at Dairyland focus on specific "in-house" goals toward our aim of zero disabling incidents.
In addition to on-the-job safety training and meetings, general safety education is emphasized at Dairyland.
Classes and seminars are planned with an eye toward maintaining a safe environment at work, home and in the community. Employees become CPR/AED certified, learn defensive driving skills and build skills for effective communications through the Speak Up!
Listen Up! program.
Employees: Dairyland's most important asset I Attracting and retaining talented employees is one part of planning for a successful future for Dairyland and its member cooperatives. Leadership and succession planning are pivotal for continued positive growth for any organization. Developing leaders within Dairyland's talent pool today will launch tomorrow's trailblazers, with a focus on exceeding member expectations.
Leaders listen. Based on employee feedback, Dairyland's annual Performance Development Discussions now include a new assessment process that encourages positive and productive conversations. "DPC Essential Series" courses are offered to employees on core cooperative topics, including financial, project and change management. All courses are tied to Dairyland's Vision, Mission and Values.
Over 150 union and nonunion employees have graduated from Dairyland's Leadership Development Program. The nine-month educational program strengthens individual skills and promotes positive collaborations to develop leaders within the cooperative.
Powering your life I Dairyland's generation resources include coal-fired units in Genoa and Alma, Wis., a 30 percent share in Wisconsin Public Service's Weston 4 power plant in Wausau, the Elk Mound natural gas units, the Flambeau Hydro Station in Ladysmith and a significant number of renewable energy investments.
The Genoa and Alma power plants achieve the Electric Power Research lnstitute's "world class" status for minimal forced outage rates related to boiler tube failures. Periodic projects to overhaul and inspect facility equipment help establish continuing safe and efficient plant operations.
Environmental controls in Genoa and Alma are best-in-class and have greatly reduced emissions. Dairyland's progressive recycling program works to ensure that power plant byproducts are beneficially reused, frequently as a component of concrete for roadways.
COMMITTED TO OUR COMMUNITIES
2 0 1 7 REVENUE EXPENSE DOLLAR
Committed to system growth I Opportunities to enhance efficiency and provide competitive costs and service can be created through growth. In addition to supporting economic development and beneficial efficient electrification, Dairyland and its members seek growth opportunities that benefit the entire system.
The Dairyland system grew by about 10 percent in early 2018 with the addition of new Jo-Carroll Energy members. Jo-Carroll acquired additional service territory in 2007 and had agreements in place for the additional energy to be provided by another power supplier until 2023. Jo-Carroll worked closely with Dairyland to develop a win-win agreement and bring those members on to the Dairyland system five years earlier, effective April 1, 2018.
Competitive and financially strong I Maintaining competitive rates is important to the economic well-being of the region and long-term viability of the cooperative system. Dairyland worked with its members to incorporate the new system growth, while limiting wholesale rate increases for member cooperatives to an average of2 percent on May 1, 2018.
Dairyland continues to focus on managing controllable costs and risks, and efficient project management.
Prudent investments in regional transmission projects also add value while improving reliability.
To ensure long-term financial strength, the Dairyland Board has a Strategic Financial Plan to maintain "~'
ratings from Moody's and Standard & Poor's credit rating agencies. In February 2018, Standard & Poor's elevated Dairyland's rating to an A+ with a stable outlook in its annual credit opinion.
Local and regional transmission projects, purchased power and transmission costs all have significant impacts on the bottom line. However, fuel to operate its generating facilities continues to be Dairyland's largest annual expense, with barge and rail transportation of coal constimting a significant portion of that cost. Dairyland's plants used about 2.38 million tons of coal in 2017, including its 30 percent share of the Weston 4 power plant.
Net margins in 2017 were $27 million, compared to 2016 margins of $23.1 million. Dairyland's net generation and purchased power totals were up slightly at 6 billion kilowatt-hours (kWh), compared to 5.7 billion kWh in 2016. Class A member loads had a slight increase to 4.9 billion kWh from 4.8 billion kWh. Total operating revenues for 2017 increased to $441.4 million, compared to $414.8 million in 2016.
Committed to sustainable decommissioning I Projects are underway to complete decommissioning of the La Crosse Boiling Water Reactor (lACBWR), Alma Station (pictured) and the Seven Mile Creek landfill gas-to-energy. Public safety and compliance with all regulatory requirements is essential, while minimizing the cost impact on Dairyland's members and reducing fumre liabilities.
Dairyland has contracted with EnergySolutions, a national radioactive waste services contractor, for the final decommissioning oflACBWR. Under the agreement, La.CrosseSolutions LLC temporarily holds the license and assumes responsibility for the decommissioning of the lACBWR site. When completed, the license will remm to Dairyland.
II
DAIRYIAND POWER C OOPERATIVE A 'fouchstone Energ
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~J o~C Wall of ~~complishme_nts
Barbara Nick, President and CEO With the guidance ofDairyland's Board of Directors, responsible for directing Dairyland's overall strategic direction and leadership, building relationships with other key leaders, as well as maintaining strong relationships with members and employees.
Laurie Engen, Senior Executive Assistant Provides professional support and guidance to the President and CEO and serves as assistant secretary to the Board of Directors.
Deb Mirasola, Directer, Communications and Marketing Responsible for developing and leading strategic communications and marketing programs aligned with business initiatives to engage and educate employees, members and the public.
Rob Palmberg, Vice President, Strategic Planning Responsible for leading strategic and business planning, power supply diversification, business development, fuel procurement, energy marketing and trading. Also, safety and security, including training.
Brian Rude, Vice President, External and Member Relations Responsible for state and federal government relations, energy efficiency, conservation programs, communications and marketing, publication services and administrative services.
John Carr, Vice President, Generation Responsible for achieving operational excellence in power production including operations ofDairyland's traditional and renewable generation facilities and environmental aflairs.
Nate Melby, Chief Information Officer Responsible for cybersecurity and leading the implementation of information technology initiatives and systems that align and advance Dairyland's business/ operations strategies.
Phil Moilien, Vice President & CFO/CAO Responsible for accounting, finance, enterprise risk management, corporate budget, supply chain and financial activities of subsidiaries. Also for employee recruitment, retention and development, compensation/benefits, labor relations and business ethics.
Ben Porath, Vice President, Power Delivery Responsible for reliable system operations, transmission lines, substations, telecommunications and real estate/right-of-way. Also, business continuity, compliance and information technology.
Mary Lund Executive Vice President, Human Resources Retired March 2018
INDEPENDENT AUDITORS' REPORT To the Board of Directors of Dairyland Power Cooperative I We have audited the accompanying consolidated financial statements of Dairyland Power Cooperative and subsidiary (the "Cooperative"), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of revenues, expenses, and comprehensive income, member and patron equities, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements I Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility I Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Cooperative's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Cooperative's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion I In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Cooperative as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
March 28, 2018
- Minneapolis, Minnesota
- Deloitte & Touche LLP
CONSOLIDATED BALANCE SHEETS - ASSETS As of December 31, 2017 & 2016 (All dollar amounts in thousands)
Electric Plant:
Plant and equipment-at original cost........................................
Less accumulated depreciation..............................................
Net plant and equipment..............................................
Construction work in progress..............................................
Total electric plant...................................................
Other Assets:
Nuclear decommissioning funds (Note 4)
Investments under debt agreements-marketable securities (Note 4).................
Other property and investments.............................................
Investments in capital term certificates of National Rural Utilities Cooperative Finance Corporation...................................
Regulatory assets (Note 1).................................................
Investment for deferred compensation........................................
Deferred charges (Note 1).................................................
Total other assets Current Assets:
Cash and cash equivalents Accounts receivable:
Energy sales-net of allowance for doubtful accounts of
$10 for 2017 and 2016...............................................
Other................................................................
Inventories:
Fossil fuels............................................................
Materials and supplies...................................................
Prepaid expenses and other.................................................
Total current assets...................................................
Total....................................................................
See notes to the consolidated financial statements.
201 7 2016
$ 1,760,050
$ 1,691,311 (644,353)
(612,445) 1,115,697 1,078,866 66,775 109,556 1,182,472 1,188,422 23,114 74,343 2,631 3,783 11,627 11,721 9,176 9,176 24,939 29,995 1,890 1,603 17,546 16,909 90,923 147,530 30,731 27,278 40,793 37,362 2,678 1,942 55,075 59,863 21,324 19,769 15,295 21,078 165,896 167,292
$ 1,439,291
$ 1,503,244
CONSOLIDATED BALANCE SHEETS - CAPITALIZATION & LIABILITIES As of December 31, 2017 & 2016 (All dollar amounts in thousands)
Capitalization:
Member and patron equities:
Membership fees......................................................
Patronage capital......................................................
Accumulated other comprehensive income (Note 1)...........................
Total member and patron equities.....................................
Long-term obligations (Note 6).............................................
Total capitalization.................................................
Other Liabilities:
Decommissioning and asset retirement obligations (Note 14)......................
Postretirement health insurance obligation (Note 11).............................
Accrued benefits.........................................................
Deferred compensation...................................................
Obligations under capital leases.............................................
Other deferred credits (Note 1).............................................
Total other liabilities................................................
Commihnents and Contingencies (Note 10)
Current Liabilities:
Current maturities of long-term obligations and obligations under capital leases........
Line of credit (Note 5)....................................................
Advances from member cooperatives.........................................
Accounts payable........................................................
Accrued expenses:
Payroll, vacation, and benefits............................................
Interest..............................................................
Property and other taxes.................................................
Special refund to members (Note 15).......................................
Other...............................................................
Total current liabilities..............................................
Total....................................................................
See notes to the consolidated financial statements.
2017 2016 1
1 296,389 273,501 2,397 2,289 298,787 275,791 767,343 772,961 1,066,130 1,048,752 28,614 81,380 4,492 4,669 645 853 1,890 1,603 5,875 5,615 63,494 69,263 105,010 163,383 49,533 52,899 154,000 108,000 12,461 13,274 23,425 38,835 6,307 6,980 9,195 9,500 3,924 3,919 47,636 9,306 10,066 268,151 291,109
$1,439,291
$ 1,503,244
CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES & COMPREHENSIVE INCOME For the years ended December 31, 2017 & 2016 (All dollar amounts in thousands)
Utility Operations:
2017 2016 Operating revenues:
Sales of electric energy..................................................
414,194 392,123 Other...............................................................
27,192 22,709 Total operating revenues.............................................
441,386 414,832 Operating expenses:
Fuel................................................................
120,471 107,746 Purchased and interchanged power.........................................
66,664 61,651 Other operating expenses................................................
94,438 92,693 Depreciation and amortization............................................
55,000 48,989 Maintenance.........................................................
37,839 40,198 Property and other taxes.................................................
8,842 8,230 Total operating expenses.............................................
383,254 359,507 Operating margin before interest and other..............................
58,132 55,325 Interest and other:
Interest expense.......................................................
40,679 39,817 Allowance for funds used in construction-equity.............................
(1,024)
(1,591)
Other-net..........................................................
203 1,639 Total interest and other..............................................
39,858 39,865 Operating margin..........................................................
18,274 15,460 Nonoperating margin (Note 1)................................................
8,724 7,686 Net Margin and Earnings....................................................
26,998 23,146 Other Comprehensive Income (Loss):
Postretirement health insurance obligation adjustments...........................
108 (126)
Comprehensive Income......................................................
27,106 23,020 CONSOLIDATED STATEMENTS OF MEMBER & PATRON EQUITIES For the years ended December 31, 2017 & 2016 (All dollar amounts in thousands)
Accumulated Other Tora] Member Membership Comprehensive Fees Income Patronafe and Parron Capita Equities Balance-December 31, 2015............................
1 2,415
$ 254,265
$ 256,681 Net margin and earnings..............................
23,146 23,146 Postretirement health insurance obligation adjustments.......
(126)
(126)
Retirement of capital credits............................
(3,910)
(3,910)
Balance-December 31, 2016............................
1 2,289 273,501 275,791 Net margin and earnings..............................
26,998 26,998 Postretirement health insurance obligation adjustments.......
108 108 Retirement of capital credits............................
(4,110)
(4,110)
Balance-December 31, 2017............................
1 2,397
$ 296,389
$ 298,787 See notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2017 & 2016 (All dollar amounts in thousands)
Cash Flows from Operating Activities:
Net margin and earnings..................................................
Adjustments to reconcile net margin and earnings to net cash provided by operating activities:
Depreciation and amortization:
Charged to operating expenses..........................................
Charged through other operating elements such as fuel expense.................
Allowance for funds used in construction-equity.............................
Unrealized gains on nuclear decommissioning crust investments..................
Changes in operating elements:
Accounts receivable..................................................
Inventories.........................................................
Prepaid expenses and other assets........................................
Accounts payable....................................................
Accrued expenses and other liabilities.....................................
Deferred charges and ocher.............................................
Total adjustments..................................................
Net cash provided by operating activities................................
Cash Flows from Investing Activities:
Electric plant additions....................................................
Advances to nuclear decommissioning funds...................................
Purchase of investments...................................................
Proceeds from sale of investments and economic development loans.................
Net cash used in investing activities....................................
Cash Flows from Financing Activities:
Borrowings under line of credit.............................................
Repayments under line of credit.............................................
Borrowings under long-term obligations......................................
Repayments of long-term obligations.........................................
Retirement of capital credits................................................
Borrowings of advances from member cooperatives..............................
Repayments of advances from member cooperatives..............................
Net cash provided by (used in) financing activities.........................
Net Increase in Cash and Cash Equivalents........................................
Cash and Cash Equivalents-Beginning of year...................................
Cash and Cash Equivalents-End of year........................................
Supplemental Cash Flow Information:
Cash paid for interest.....................................................
Electric plant additions funded through accounts payable and accrued expenses........
Electric plant additions under capital leases....................................
See notes to the consolidated financial statements.
2017 26,998 55,000 1,798 (1,024)
(1,046)
(4,167) 2,728 5,783 (20,117)
(55,518) 1,377 (15,186) 11,812 (37,490)
(190,454) 190,247 (37,697) 182,000 (136,000) 21,665 (33,404)
(4,110) 255,562 (256,375) 29,338 3,453 27,278 30,731 42,274 9,470 3,015 2016 23,146 48,989 1,754 (1,591)
(1,538)
(10,812)
(4,853) 12,727 42,668 38,743 126,087 149,233 (56,283)
(8)
(547,107) 546,278 (57,120) 79,000 (167,000) 99,090 (100,917)
(3,910) 219,173 (216,657)
(91,221) 892 26,386 27,278 32,575 4,764 4,062 II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of and for the years ended December 31, 2017 & 2016 (All dollar amounts in thousands)
ONE NATURE OF BUSINESS & ORGANIZATION Business I Dairyland Power Cooperative and subsidiary ("Dairyland" or che "Cooperative") is an electric generation and transmission cooperative organized under the laws of the states of Wisconsin and Minnesota. The Cooperative, whose principal offices are located in Wisconsin, provides wholesale electric service to class A members engaged in the retail sale of electricity to member consumers located in Wisconsin, Minnesota, Iowa and Illinois, and provides electric and ocher services to class C, D and E members.
Principles of Consolidation I The consolidated financial statements include the accounts of Dairyland and Dairyland's wholly owned subsidiary, Genoa FuelTech, Inc. All incercompany balances and transactions have been eliminated in consolidation.
Accounting System and Reporting I The accounting records of che Cooperative are maintained in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission as adopted by the Rural Utilities Service (RUS), the Cooperacive's principal regulatory agency.
Electric Plant I The cost of renewals and betterments of units of property (as distinguished from minor items of property) includes contract work, direct labor and materials, allocable overhead, and allowance for funds used during construction, and is charged co electric plane accounts. Included in accumulated depreciation are nonlegal or nonconcraccual coses of removal components. As a result, che cost of units of property retired, sold or otherwise disposed of, plus removal costs, less salvage, is charged to accumulated depreciation and no profit or loss is recognized in connection with ordinary retirements of property units. A provision for these nonlegal or nonconcracrual coses of removal components is recognized based on depreciation rates determined by a third-parry depreciation study completed in November 20 16 and approved by RUS in 2017 for races effective in 20 17. T he Cooperative is unable to obtain the information to separate the cumulative removal coses as of December 31, 2017 and 2016. Maintenance and repair costs and replacement and renewal of minor items of property are charged to operations.
Depreciation I Depreciation, wh ich is based on the straight-line method at races chat are designed co an1ortize the original cost of properties over their estimated useful lives, includes a provision for che cost of removing and decommissioning the properties. The provision for depreciation averaged 3.3% of depreciable plant balances for 2017 and 3.1 % for 2016.
Allowance for Funds Used During Construction I Allowance for funds used during construction (AFUDC) represents the cost of external and internal funds used for construction purposes, and is capitalized as a component of electric plane by applying a rate (3.715% in 2017 and 4.120% in 2016) to certain electric plant additions under construction. The amount of such allowance was $1,847 in 20 17 and $3,055 in 2016. The borrowed funds component of AFUDC for 2017 and 2016, was $823 and $1,464, respectively (representing 1.656% and 1.990%
in 2017 and 2016, respectively). The equity component of AFUDC for 2017 and 2016 was $ 1,024 and $1,591, respectively, (representing 2.059% and 2. 130% in 2017 and 2016, respectively). The borrowed funds components were included as a reduction ofinceresc expense in the consolidated statements of revenues, expenses and comprehensive income.
Recoverability of Long-Lived Assets I The Cooperative accounts for che impairment or disposal of long-lived assets, sucli as property and equipment, whenever events or clianges in circumstances indicate the carrying value of an asset may not be recoverable.
An impairment loss is recognized when estimated undiscounted cash flows expected to result from the use of the asset, plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estiniaced fair value based on quoted market prices or ocher valuation techniques. To date, management has determined that no impairment of these assets exists.
Investments I Investments in marketable debt and equity securities classified as available for sale are reported at fair value, with the interest, dividend income and realized gains reported in nonoperating margin. The Cooperative continually monitors the difference between cost and estimated fair value of its investments.
If any of che Cooperative's investments experience a decline in value that the Cooperative believes is other than temporary, the Cooperative will realize the loss as a reduction in investment income on decommissioning funds. In 2017 and 2016, the Cooperative realized $167 and $1,189, respectively, of losses on these investments as a result of ocher-than-temporary impairment (OTTI).
Regulatory Assets and liabilities I The Cooperacive's accounting policies and the consolidated financial statements conform to accounting principles generally accepted in the United States of America applicable to electric cooperatives. During 20 17, the Cooperative established a regulatory asset for the unrecovered plane balance and termination of gas purchase agreement related to the discontinuation of landfill operations at the Seven Mile Creek site. The amount is being amortized through rates over 36 months beginning in July 2017. During 2015, the Cooperative established a regulatory asset for a contract termination fee related to a power purchase agreement. This is being amortized to purchased power expense over the five-year remaining term of the original contract beginning November 2015. During 2014, the Cooperative established a regulatory asset related to unrecovered plane balances upon closure of the Alma 4 & 5 generating stations.
This is being amortized through races over l O years beginning in 2015. The expected following year's portion of these regulatory assets is included in prepaid expenses and other at December 31, 20 17 and 2016, respectively.
The noncurrenc portion of regulatory assets as of December 31, 2017 and 2016, include the following:
2017 2016 Power purchase contract termination fee **************
.. $ 10,023
$ 15,49[
Alma 4 & 5 unrecovercd plant balances...
12,432 14,504 Seven Mile unrecovered plant balance and termination fee.
2,484 Total regulatory assets
- * ******.$ 24,939
$ 29,995 Deferred Charges I Deferred charges represent future revenue to the Cooperative associated with coses that wi ll be recovered from customers through the race-making process. As of December 31, 20 17 and 20 16, the Cooperacive's deferred charges are being reflected in rates charged to customers, except the deferred nuclear litigation as noted below. If all or a separable portion of the Cooperacive's operarions become no longer subject to the provisions of regulatory accounting, a write-off of deferred charges would be requi red, unless some form of transition recovery (refund) continues through races established and collected for the Cooperacive's remaining regulated operations. In addition, the Cooperative would be required to determine any impairment to the carrying coses of deregulated plane and inventory assets. The noncurrent portion of deferred charges as of December 31, 2017 and 2016, include the following:
Pension prepayment..
Deferred nuclear litigation.
Ocher.....
Total deferred charges............. *.*.*.*.*.*....
2017 10,759 105 6,682 17,546 2016 13,449 3,460 16,909
The voluntary prepayment co the Cooperative's mulriemployer defined-benefit pension plan to reduce future funding amounts is being amortized to benefits expense over 10 years beginning in 2013 as prescribed by RUS. Litigation expenses from the third nuclear contract damages claim against the United States government, are being deferred pending the outcome of that litigation.
Cash and Cash Equivalents I Cash equivalents include all highly liquid investments with original maturities of three months or less. Cash equivalents consist primarily of commercial paper, stated at cost, which approximates marker.
Fossil Fuels and Materials and Supplies I Coal inventories, as well as materials and supplies inventories, are stated at the lower of average cost or net realizable value.
Nitrogen Oxide Emission Allowances I Beginning in 2009, the U.S.
Environmental Protection Agency (EPA) requires power plants co hold sufficient allowances co cover emissions of nitrogen oxide. Under these requirements, the Cooperative is required to surrender one emission allowance per con of nitrogen oxide emitted. Actual emissions during 2017 and 2016 did not require the Cooperative co purchase additional allowances beyond what was allocated under the program. As of December 31, 2017 and 2016, allowances are recorded in inventory at lower of average cost or nee realizable value.. The obligations co EPA co meet 2017 and 2016 emissions are $0. The transfer to EPA for the 2016 annual allowances occurred in June 2017. The transfer co EPA for the 2017 annual allowances is expected to occur in May or June 2018. The remaining allowances in inventory as of December 31, 2017, will be surrendered co EPA, as applicable, under the terms of the consent decree.
Deferred Credits I Deferred credits represent both future revenue to the Cooperative associated with customer prepayments and noncurrent obligations and reserves related co operations. As of December 31, 2017, the Cooperative's deferred credits are being considered when determining rates charged co customers.
The noncurrent portion of deferred credits as of December 31, 2017 and 2016, include the following:
Unearned revenue--contract prepayment.,..
Other....
Total deferred credits............
2017 2016
... $ 63,015
$ 68,744 479 519
............ _$_ 63 __,4_9_4 ____
$ _6 __ 9, __ 26
__ 3_
Unearned Revenue-Contract Prepayment-Revenue from the settlement payment received from Great River Energy (GRE) as discussed in Nore 13, is being recognized into revenue through 2029.
Sales of Electric Energy I Revenues from sales of electric energy are recognized when energy is delivered. The class A wholesale rares approved by the Cooperative's board of directors (the "Board of Directors") have a power cost adjustment that allows for increases or decreases in class A member power billings based upon actual power costs compared to plan. For 2017 and 2016, che power cost adjustment co che class A members resulted in credits to sales billed of$(1,188) and $(5,450), respectively. These amounts are recorded in sales of electric energy in operating revenues on the consolidated statements of revenues, expenses and comprehensive income.
Other Operating Revenue I Ocher operating revenue primarily includes revenue received from transmission service and is recorded as services are provided.
Accounting for Energy Contracts I Contracts that did not meet che accounting definition of a derivative are accounted for at historical cost. The Cooperative's energy contracts that qualify as derivatives continue to be accounted for at fair value, unless those contracts meet the requirements of and have been designated as "normal purchase/normal sale." The Cooperative does not have any energy contracts char are required to be accounted for at fair value as of December 31, 2017 and 2016.
Nonoperating Margin I The nonoperating margin for the years ended December 31, 2017 and 2016, includes the following:
2017 Investment income 7,841 Invesonenc income on nuclear decommissioning funds:
Net earnings.
Realized gains.
Realized losses and losses due to OTT!....
Provision-recorded as estimated decommissioning liabilities.
Other..
2,225 671 (1,798)
(1,098) 883 2016 6,722 3, 153 5,703 (9,070) 214 964 Nonoperacing margin................*............
8,724 7,686 Use of Estimates I The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates in the consolidated financial statements relate to inventory reserve, postretirement benefit obligations, asset retirement obligation liabilities, fixed-asset depreciable lives, and litigation and contingencies. Actual results could differ from those estimates.
Accumulated Other Comprehensive Income I Accumulated other comprehensive income is comprised solely of a postretirement health insurance obligation. See additional information in Nore 11. The components for the years ended December 31, 2017 and 2016, are as follows:
2017 2016 Balance-beginning of year............,.*.........,.,.*.,....... $
2,289 2,415 Recognition in expense:
Amortization of prior service cost......
(102)
(102)
Amortization of unrecognized actuarial gain.............
(126)
(131)
Actuarial assumption changes.............
...*......... --===-----'-"'-
336 107 Net other comprehensive gain (loss).........,...,...........
108 (126)
Balance-end of year.
.......,.,.........*.*.,........ $;.,,_= ;.;....-.......;;;.:.;;.;;.;;..
2,397 2,289 Concentration of Risk I Approximately 45% of the labor force for the Cooperative is under a collective bargaining agreement that expires January 31, 2019.
Subsequent Events I The Cooperative considered events for recognition or disclosure in the consolidated financial statements that occurred subsequent to December 31, 2017, through March 28, 2018, the date the consolidated financial statements were available to be issued. All material subsequent events have been disclosed in these consolidated financial statements.
TWO RECENTLY ISSUED ACCOUNTING STANDARDS UPDATES Issued I In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue co depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-1, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year for all entities and permits early adoption on a limited basis. ASU 2014-09 is effective for the Cooperative in 2019. Management is in the process of evaluating the guidance and has not yet determined if the adoption of chis guidance will have a material impact on the Cooperative's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.
The Cooperative is still in the process of evaluating the impact this guidance will have on the consolidated financial statements. This guidance is effective for the Cooperative in 2020.
In March 2017, the FASB issued new accounting guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost in financial statements. The new guidance requires components of net periodic pension cost and net periodic postrecirement benefit coses chat are currently aggregated and reported as part of compensation be disaggregated and reported separately. Only the service cost component may be reported as part of compensation, be included in income from operations and be eligible for capitalization. The other cost components must be reported separately in the income statement. The new guidance will be effective for the Cooperative in 2019. Management believes the adoption of chis new guidance will not have a material impact on the consolidated financial statements and disclosures.
THREE INCOME TAXES The Internal Revenue Service has determined that Dairyland is exempt from federal income taxes under Section 50l(c)(l2) of the Internal Revenue Code.
Accordingly, the Cooperative's utility operations are generally exempt from federal and state income taxes and no provision for such taxes is recorded in the consolidated financial statements.
FOUR AVAILABLE-FOR-SALE INVESTMENTS Investments in the nuclear decommissioning trust (NDT) and under debt agreements are classified as available-for-sale, recorded at fair value, and include the following as of December 31, 2017 and 2016:
Fair Value 2017 Debt NOT Ai,eements Total Cash and cash equivalents.
2,450 2,631 5,081 U.S. government securities..
5,922 5,922 Corporate bonds..
14,541 14,541 Foreign obligations........
201 201
$ 23, 11 4 2,63 1
$ 25,745 Fair Value 2016 Debt NOT Ai,eements Total Cash and cash equivalents.
3,427 3,783 7,210 U.S. government securities..
19,016 19,016 Corporate bonds.......................
49,759 49,759 Foreign obligations *** * * ** ***
2,141 2,141
$ 74,343 3,783
$ 78,126 Investments under debt agreements represent amounts arising from the sale of assets that are encumbered by mortgages and restricted by the RUS for use on future generation and transmission construction projects.
The contractual maturities of marketable debt securities, which include U.S.
government securities, foreign obligations and corporate bonds, as of December 31, 2017, are as follows:
Fair Value Due within l year.......
434 Due after I year through 5 years...
Due after 5 years through IO years.....,. *. *. *. *...
Due after l O years...........
9,276 6,554 4,400
$ 20,664 Cost 890 9,287 6,533 4,519
$ 21,229 Information regarding the sale of available-for-sale marketable securities, including nuclear decommissioning crusts, for the years ended December 31, 2017 and 2016, is as follows:
2017 Proceeds from sale of securities......................,...,... *.... $ J 88,543 Realized losses............
(960) 2016
$543,732 (2,178)
For the purposes of determining realized gains and losses, the cost of securities sold is based upon specific identification.
Securities in the portfolio are reviewed to determine whether they have been other-than-temporarily impaired. The Cooperative has recorded impairment write-downs of its investments of$167 and $1,189 in 2017 and 2016, respectively, as the Cooperative cannot represent that it has the intent and ability co hold securities until they recover in value, since that decision is outside of its sole control.
In accordance with restrictions enacted by the Nuclear Regulatory Commission, the Cooperative does not control the day-to-day management of nuclear decommissioning trust fund investments. The nuclear decommissioning trust of the Cooperative is managed by independent investment managers with discretion to buy, sell and invest to achieve the broad investment objectives set forth by the Cooperative. The Cooperative's policy is to provide additional funding of the nuclear decommissioning crust, as necessary, through rates and with future earnings, to ensure that the trust will be sufficient to cover final decommissioning expenses. Earnings on the nuclear decommissioning funds and the equivalent provision for nuclear decommissioning coses are recorded as nonoperacing margins, since the plant is no longer in service.
Investment income included in nonoperating margin on the consolidated statements of revenues, expenses and comprehensive income is net of investment fees of approximately $101 and $298 for the years ended December 31, 2017 and 2016, respectively.
FIVE LINES OF CREDIT To provide interim financing capabilities, the Cooperative has arranged committed lines of credit with availability aggregating approximately $350,000. On November 30, 2015, a syndicated credit facility was execured with CoBank acting as lead arranger. This facility has a five-year term and provides funds both for short-term working capital requirements and for capital projects until permanent financing can be obtained. Some capital projects wiU last longer than one year, but the intent is to pay down the line of credit as permanent funding is received. Compensating balance requirements and fees relating ro the lines of credit were not significant in 2017 and 2016. Information regarding line of credit balances and activity for che years ended December 31, 2017 and 2016, is as foUows:
Interest rate at year-end.
Total committed availabiliry at year-end.
Total borrowings outstanding at year-end..
Average borrowings outstanding during year...
2017 2016 2.56%
1.76%
$350,000
$350,000
$154,000
$ 108,000
........... _.$_1"'5;;.:l,;;;;23;.;;J_
...;$:;..:.:17..::8!;:,3.::;08;:..
The Cooperative also allows member cooperatives to prepay rheir power bills and pays interest on rhese prepayments based on current short-term borrowing rates. Advances from member cooperatives totaled $12,461 and $13,274 at December 31, 2017 and 2016, respectively. Interest expense on member cooperative advances was $194 and $111 at December 31, 2017 and 2016, respectively. These amounts have been included in interest expense in rhe consolidated statements of revenues, expenses, and comprehensive income.
SIX LONG-TERM OBLIGATIONS Long-term obligations as of December 31, 2017 and 2016, consist of the following:
2017 Federal Financing Bankobligacions-1.93% to 4.46%..........*.*.... $393,223 Federal Financing Bank obligacions--4.52% to 6.80%..........*....
Total Federal Financing Bank........
RUS obligacions--4.125% and grant funds.
CoBank notes-2.6%, 2.9%, 4.3%, 6.2%, and 7.4%............ *....
Private bonds placement obligacions-3.42%................
Long-term debt.....
Less current maturities..
307,675 700,898 4,423 25,123 84,166 814,610 (47,267)
Total long-term obligations.....*................................ $ 767,343 2016
$380,833 315,128 695,961 4,839 35,801 87,500 824,101 (51,140)
$ 772,961 Quarterly principal and interest payments on rhe long-term obligations to the Federal Financing Bank (FFB) extend rhrough 2048. Long-term obligations to FFB are net of deposits in the RVS debt prepayment program of $195,657 and
$214,581 as of December 31, 2017 and 2016, respectively. These deposits earn 5% interest and are available solely for future principal and interest payments.
Long-term obligations to rhe RVS are payable in equal monthly principal and interest installments rhrough 2024. Payments on the CoBank 2.6%, 2.9%,
4.3%, 6.2%, and 7.4% notes are due monthly or quarterly rhrough 2023. The private bond placement is an amortizing 30-year term loan at an interest rate of 3.42%. Quarterly principal and interest payments on this obligation extend through 2043.
The Cooperative executed, filed and recorded an indenture of mortgage, security agreement and financing statement, dated as of September 13, 2011 (the "Indenture"), between rhe Cooperative, as grantor and U.S. Bank National Association, as trustee. The perfected lien of the Indenture on substantially all of rhe Cooperative's assets secured equally and ratably all of the Cooperative's long-term debt wirh rhe exception of unsecured notes to CoBank (balances of$14,794 and $21,989 at December 31, 2017 and 2016, respectively). The Cooperative is required to maintain and has maintained certain financial ratios related to earnings in accordance wirh the covenants of its loan agreements as of December 31, 2017.
Scheduled maturities of the Cooperative's long-term obligations as of December 31, 2017, were as follows:
Years Ending December 31 2018.................................*... *...
2019 2020.
2021...........................*.................................
2022 Thereafter Total..
$ 47,267 46,737 46,922 46,280 45,469 581,935
$814,610 SEVEN LEASES Operating Leases I The Cooperative has entered into lease agreements under which it is rhe lessee on an operating lease for a Caterpillar coal dozer, six rail cars, and fleet vehicles. These transactions are covered in the master lease agreement and have lease terms ranging from four to 15 years. At the end of rhe leases, the Cooperative can eirher purchase rhe equipment at fair market value, continue to lease the assets, or return rhe equipment to rhe lessor. Rent expense was $500 and $590 in 2017 and 2016, respectively. The schedule of future minimum lease payments as of December 31, 2017, is as follows:
Years Ending December 31 2018...
2019......*. *. *. *.*.*......... * * * * * * * * * *
- 2020........*.......*...*..................
2021...... *.*.*.*.*............... *.*.*..... *.....
2022............*. *.*...................
Thereafter.... *. *.*. *.*.............,.*.......
Tocal..
444 345 180 49 39 33 1,090 Capital Leases I The Cooperative has entered into several capital lease agreements for work equipment and computer equipment. The transactions are covered in rhe master lease agreement with lease terms of four, five or nine years. At rhe end of rhe lease, the Cooperative can purchase rhe equipment for a bargain purchase price. The gross amount of the leases was $3,305 and $4,137 as of December 31, 2017 and 2016, respectively. The accumulated amortization of rhe capital leases was $1,376 and $2,360 as of December 31, 2017 and 2016, respectively. The principal and interest payments were $2,461 and $1,991 in 2017 and 2016, respectively. The schedule of future minimum lease payments as of December 31, 2017, is as follows:
Years Ending December 31 2018 2019....
2020 2021 2022.
Thereafter Total minimum lease payments..
Amounts representing interest......
Present value of minimum lease payments.
Current maturities..
Long-term capital lease obligations..
EIGHT FINANCIAL INSTRUMENTS 2,519 2,178 1,837 1,259 676 231 8,700 (559) 8,141 (2,266)
.......... -~~~
5,875 The fair value of the Cooperative's financial instruments other rhan marketable securities and short-term borrowings, based on the rates for similar securities and present value models using current rates available as of December 31, 2017 and 2016, is estimated to be as follows:
2017 2016 Recorded Fair Recorded Fair Value Value Value Value Assets:
Other properry and investmenrs.
11,627 $
11,627 11,721 $
11,721 lnvestmenrs in capital term certificates ofNRUCFC..
9,176 9,176 9,176 9,176 Liabiliries-long-term obligations.
814,610 1,110,071 824,101 1,149,059
Assets and Liabilities Measured at Fair Value I Accounting principles generally accepted in the United States of America establish a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and provides for required disclosures about fair value measurements. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange.
A description of the inputs used in rhe valuation of assets and liabilities are as follows:
Level 1 inputs utilize observable market data in active markets for identical assets or liabilities. Level 2 inputs consist of observable market data, ocher than chat included in Level 1, char are either directly or indireccly observable. Level 3 inputs consist of unobservable market data, which are typically based on an entity's own assumptions of what a market participant would use in pricing an asset or liability as there is liccle, if any, related market activity. In instances where che determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on che lowest-level input that is significant co the fair value measurement in its entirety. The Cooperacive's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to che asset or liability.
The following table summarizes the Cooperative's assets and liabilities measured ar fair value on a recurring basis as of December 31, 2017 and 2016, aggregated by the level in the fair value hierarchy within which chose measurements fall:
2017 Assets-investments:
Nuclear decommissioning funds.
Investments under debt agreements marketable securities.....
Other property and invescmentS.
lnvescmems in capital term certificates of Nacional Rural Utilicies Finance Corporacion..
Investment for deferred compensation....
2016 Assecs-invescmencs:
Nuclear decommissioning funds.
Investments under debt agreements marketable securities....
Other property and investments...
Investments in capiraJ term certificates of National Rural Ucilicies Finance Corporation..
lnvesanent for deferred compensation.
Fair Value Measurements Using Fair Value 23,114 2,631 11,627 9,176 1,955 48,503 Quoted Prices in Active Markets for Identical Assets and Liabilities (Level l)
$ 23, 114 l,113
$ 24,227 Significant Orher Significant Observable Unobservable Inputs Inputs (Level 2)
(Level 3) 2,631 10,514 9,176 1,955
$ 4,586
$ 19,690 Fair Value Measurements Using Quo[cdPriccs Significant in Active Markets Other Signi6ca.nt for Identical Observable Unobservable Assets and Liabilities Inputs Inputs Fair Value (Levell)
(Level 2)
(Level 3)
$ 74,343
$ 74,343 3,783 3,783 11,721 1,373 10,348 9, 176 9,176 1,679 1,679
$ 100,702
$ 75,716
$ 5,462
$ 19,524 There were no significant transfers between Levels 1, 2 and 3 in 2017. The changes in Level 3 recurring fair value measurements using significant unobservable inputs for the years ended December 31, 2017 and 2016, are as follows:
2017 2016 Other property and investments:
Balance-beginning of year............. *.*.*. *.*.............. $ I 0,348 9,740 New investment and loans made...
l,400 2,850 Loan repayments received and current maturities..
43 (259)
Patronage capital allocations......
223 267 Refunds of depositS.............
...,_(1:..c,5c.:,Oc::,0)'----"(2"',2"'5-'-'--0)
Balance-end of year
...... *. *.*.... *. *. *. *...................;;$....a:.l o""';;..;5 I;.;4_
...;$c.....J..;..o,_34_s_
The valuation of these assets involved management's judgment after consideration of market factors and rhe absence of market transparency, market liquidity and observable inputs.
NINE RETIREMENT OF CAPITAL CREDITS The Cooperative's Board of Directors has adopted a policy of retiring capital credits allocated to members on a first-in, first-our basis. As part of an equity development strategy adopted in 2003, patronage capital retired will be limited co no greater than 2% of the coca! assigned patronage capital balance as of December 31 of the prior year. This policy is subject co annual review and approval by the Board of Directors and the RUS, and no cash retirements are co be made which would impair the financial condition of the Cooperative or violate any terms of its agreements. Since 2003, the amount of nonoperating margins assigned co members each year is at the discretion of the Board of Directors. Any unassigned nonoperaring margins will become unallocated reserves and part of permanent equity. Patronage capital amounts for the years ended December 31, 2017 and 2016, are as follows:
Assi~ed Unassi~ed Total Balance-December 31, 2015.
$ 195,525 58,740 $ 254,265 Retirement of capital credits........... ~.....,....
(3,910)
(3,910)
Current year margins 13,869 9,277 23,146 Balance-December 31, 2016....
205,484 68,017 273,501 Retirement of capital credits....
(4,110)
(4,110)
Current year margins...........
17,250 9,748 26,998 Balance-December 31, 2017.
$ 218,624
$ 77,765
$ 296,389 TEN COMMITMENTS & CONTINGENCIES The Cooperative is a party co a number of generation, transmission and distribution agreements, under which coses and/or revenues are recognized currencly based upon the Cooperative's interpretations of the provisions of the related agreements.
Differences between che estimates used in the consolidated financial statements and the final settlements are recorded in the year of serclement.
The Cooperative has entered into various coal purchase concraccs with one-co three-year terms. The estimated commirmen rs w1der these contracts as of December 31, 2017, were $84,420 in 2018, $63,217 in 2019, and $61,198 in 2020.
A consent decree (CD) between the Cooperative, the EPA, and the Sierra Club entered by the U.S. Disuicc Court in 2012 was modified in 2014. The CD requires the Cooperative co spend $5,000 on environmental mitigation projects within five years of EPA'.s April 2013 approval of the projects and includes participation in major solar projects. The Cooperative reflected the obligation of this requirement in deferred credits. During 2016, the remaining $2,210 obligation for environmental mitigation projects was reduced by $1,441 spent on approved solar and other projects. During 2017, the remaining $769 obligation for environmental mitigation projects was reduced by $755 spent on approved solar and other projecrs. The estimated $14 cost for 2018 solar and other projects participation is included in accrued expenses.
The Cooperative has been named as a defendant in various lawsuits and claims arising in the normal course of business. Although the outcome of these matters cannot be determined at the present time, management and legal counsel believe these actions can be successfully defended or resolved without a material effect on the consolidated financial position, results of operations or cash flows of the Cooperative.
ELEVEN EMPLOYEE BENEFITS Multiemployer Defined-Benefit Pension Pion I Pension benefits for substantially all employees are provided through participation in the National Rural Elecuic Cooperative Association (NRECA) Retirement Security Plan ("RS Plan"). This is a defined benefit pension plan qualified under Section 40 I and tax-exempt under Section 501 (a) of the I ntemal Revenue Code. Pension benefits are funded in accordance with the provisions of the RS Plan and are based on salaries, as defined, of each participant. The Employee Retirement [ncome Security Act of 1974, as amended by the Multiemployer Pension Plan Amendment Ace of 1980, imposes certain liabilities on employers who are conuibutors to multiemployer plans in the event of a plan termination or an employer's withdrawal. These plans have not been terminated, nor has the Cooperative undertaken any plans to withdraw from participation. Since the RS Plan is a mulciemployer plan for accounting purposes, all plan assets are available to pay benefits of any plan participant. Separate asset accounts are not maintained for participating employers. This means that assets contributed by one employer may be used to provide benefits to employees of ocher participating employers. The Cooperative may be contingently liable for its share of the RS Plans' unfunded vested liabilities.
The Cooperative's contributions to the RS Plan in 2017 and 2016 represented less than 5% of the total conuibucions made to the plan by all participating employers.
[n 2013, the Cooperative made a voluntary prepayment of$26,899 to chis plan ro reduce future contribution amounts. Expense for chis pension plan was $11,619 in 2017 and $11,071 in 2016.The2017 expense includes contributions to the plan of$8,929 and $2,690 of prepayment amortization. The 2016 expense includes conuibutions to cl1e plan of $8,381 and $2,690 of prepayment amortization. There have been no significant changes chat affect the comparability of2017 and 2016 contributions.
In the RS Plan, a "wne status" determination is not required, and therefore not determined, under the Pension Protection Act (PPA) of 2006. In addition, cl1e accumulated benefit obligations and plan assets are not determined or allocated separately by individual employer. In total, the RS Plan was over 80% funded on both January I, 2017 and 2016, based on the PPA funding target and PPA actuarial value of assets on chose dates.
Because the provisions of the PPA do not apply to the RS Plan, funding improvement plans and surcharges are not applicable. Future conuiburion requirements a.re determined each year as part of the actuarial valuation of the plan and may change as a result of plan experience.
Postretirement Health Insurance Obligation I Certain employees of the Cooperative retiring at or after age 55 are eligible ro participate in a postretiremenr health care plan through age 65. Eligible dependents of the retired Cooperative employees are also eligible to participate in this plan through age 65. Retirees pay I 00% of the premium amount for this coverage. The premium is based upon the combined medical claims experiences of all active employees and retirees. If premiums were determined based upon the medical claims experience of retirees only, the resulting premium for retirees would be higher. The difference between the premium paid by retirees and the potential actual premium amounr is the basis for the postretiremenr benefit obligation. The Cooperative uses a December 31 measurement date for its plan. The postretirement health care plan is unfunded.
The accumulated posuetirement benefit obligation (APBO) and the a.mounts recognized in the consolidated financial statements as of and for the years ended December 31, 2017 and 2016, are as follows:
2017 2016 Amount recognized in the consolidated balance sheers:
Total a=ued qualified and nonqualified benefit obligation............ $
4,769 4,956 (277)
Less current portion induded in accrued expenses--other............. --~~-
(287) 4,492 l..ong-term portion.......................................
... *...:$'---'-'-'=-
Change in benefit obligation:
APBO-bcginning of year......*.*.*. *.... *.*.*.*.*... *. *..... $
Service cost..................................................
lnterest cost.......... *... *..................................
Actuarial loss.................*.*.*.*....*.*.*.*.*....
Participant contributions.................................
Benefirs paid.
4,956 262 175 (336)
(288) 4,769 APBO-end of year.
.. *~$-~--
Funded status of plan-December 3 1.....
(4,769) 4,669 4,744 248 174 (107) 381 (484) 4,956
$ (4,956) 4,769 4,956 Accrued postretirement health insurance obligations recorded at year-end.... _$ _ _... _ ___..... _
Change in plan assers:
Employer contribution.........
Benefirs paid.
Change in accumulated other comprehensive income:
Net income at prior measurement dare.........
AcruariaJ assumption changes..
Recognition in expense:
Amortization of prior service cost (288) 288 2,289 336 (102)
(126)
(484) 484 2,415 107 (102)
(1 3 1)
Amortization of unrecognized actuarial gain AccumuJaced ocher comprehensive income.
2~,3_9_7 __
2~,2_8_9 Components of nee periodic poscretirement benefit cost:
Service cost-bcnefirs attributed to service during the year............ $
Lnteresc cost on accrued postretirement health insurance obligation.
Amortization of prior service cost....
Amorci1.ation of unrecognized actuarial gain.........
Net periodic poscrecirement benefit expense 262 175 (102)
(126) 209 248 174 (102)
(131) 189 Employer cash contributions expected to be made ro the plan during the fiscal year ending December 31, 20 I 8, is $277. The amount of accumulated other comprehensive income expected to be recognized during the fiscal year ending December 31, 2018, is an actuarial gain of $139 and amortization of prior service cost of $1 02.
For measurement purposes, a 3.32% and 3.64% discount rare was assumed for 2017 and 2016, respectively, to determine net periodic benefit cost. The 2017 and 20 I 6 annual healrh care cost increase assumed is 6.80% and 6.90%,
respectively, decreasing gradually to 4.95% for 2040 and thereafter. A one percentage point increase in the assumed health care cost rrend rates would increase the rota! of service and interest cost components by $73 and the end-of-year APBO by $514. A one percentage point decrease in the assumed health ca.re cost trend rates would decrease the total of service and interest cost components by $60 and the end-of-year APBO by $439.
Estimated future benefit payments from the plan as of December 31, 2017, a.re as follows:
Years Ending December 31 2018 2019............
2020......... *....
2021 2022......
2023-2027.
277 337 325 302 282 1,582
Defined-Contribution Pion I Dairyland has a qualified tax-deferred savings plan for eligible employees. Eligible participants may make pretax contributions, as defined, with the Cooperative marching up to 2.5% of the participants' annual compensation. Contributions to this plan by the Cooperative were $1,242 and
$1,098 for 2017 and 2016, respectively.
Other Plans I The Cooperative offers key employees deferred compensation plans available through NRECA. The plans permit qualifying employees to defer a portion of their salary until future years. The accumulated deferred compensation balance is not available to employees until termination, retirement or death.
All amounts of compensation deferred under the plans and all income attributable to those amounts (until paid or made available to rhe employee or other beneficiary) are solely the property and rights of the Cooperative (not restricted to rhe payment of benefits under the plan), subject only to the claim of general creditors. Participants' rights under the plans are equal to those of general creditors of the Cooperative in an amount equal to the fair market value of the deferred account for each participant. The related assets and liabilities, totaling $1,955 and $1,678 as of December 31, 2017 and 2016, respectively, are reported at contract value, which approximates fair value.
The Cooperative also provides employees with medical insurance coverage, vision and dental insurance coverage, short-term and long-term disability, and life insurance, which are funded by employer and employee contributions.
The Cooperative's costs related to these benefits were $9,248 and $9,077 for 2017 and 2016, respectively. The liability for these plans of $45 and $848 as of December 31, 2017 and 2016, respectively, are recorded in accrued expenses.
TWELVE RELATED-PARTY TRANSACTIONS The Cooperative provides electric and other services to its Class A members.
The Cooperative received revenue of$363,603 and $351,49 1 in 2017 and 2016, respectively, for these services. The Cooperative has accounts receivable from its Class A members of $37,892 and $34,420 as of December 31, 2017 and 2016, respectively.
The Cooperative has advances from Class A members of $12,444 and $13,274 as of December 31, 2017 and 20 J 6, respectively, related to the prepayment program. Class A members have the option of paying their electric bill in advance, and in turn, rhe Cooperative pays the members interest income. The Cooperative's interest expense related to the prepayment program was $194 and $111 as of December 31, 2017 and 2016, respectively.
The Cooperative bas interest-bearing loan receivables from Class A members of$132 and $246 as of December 31, 2017 and 2016, respectively. These loan receivables, which are recorded as part of other assets, are related to the economic development program, wherein Class A members can borrow funds from the Cooperative, which the members, in turn, loan to economic development projects in their service territories. These loans are rypically repaid to rhe Cooperative over l O years. The Cooperative recorded interest income related to the economic development program of $6 and $16 as of December 31, 2017 and 2016, respectively.
THIRTEEN LONG-TERM POWER AGREEMENTS During 2015, the Cooperative and GRE reached sertlement terms an1ending a power agreement which shared costs and benefits of the Cooperative owned 345-megawarr coal fired generating unit ("Genoa Station #3") located in Genoa, Wisconsin. The settlement terms allowed GRE to end its purchase of power and energy under the agreement as of June l, 2015, upon prepayment by GRE of
$83,543 for certain obligations under the agreement. GRE is no longer entitled to any output from the unit. GRE will remain responsible for its share of eventual decommissioning costs and of any liability for disposal of coal combustion byproducts. The transaction received required approval from RUS during 2015.
The prepayment by GRE was recorded in deferred credits and is being recognized into operating revenues on a straight-line basis through 2029, the approximate time frame over which the prepayment amounts would have been billed. The amounts recognized as revenue were $5,729 during both 2017 and 2016. Energy charges to GRE under the original agreement were $17,411 during 2015. Advances from GRE for required deposits under the original agreement were refunded as part of the settlement terms.
FOURTEEN ASSET RETIREMENT OBLIGATIONS An asset retirement obligation (ARO) is the result oflegal or contracrual obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, or development and/or the normal operation of a long-lived asset. The Cooperative determines these obligations based on an estimated asset retirement cost adjusted for inflation and projected to the estimated settlement dates and discounted using a credit-adjusted risk-free interest rate. Upon initial recognition of a liability for ARO, the Cooperative capitalizes the asset retirement cost by increasing the carrying amount of the related long lived asset by the same amount as the liability. The Cooperative allocates that asset retirement cost to expense using the straight-line method over the remaining useful life of the related long-lived asset. The accretion of the obligation is recognized over time up to the settlement date. Any future change in estimate will be recognized as an increase or a decrease in the carrying amount of the liability for an ARO and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset.
The Cooperative determined that it has AROs related to future removal and disposal of asbestos at its power plants. There are no assets legally restricted for purpose of settling the ARO related to future removal and disposal of asbestos.
The Cooperative has established a decommissioning trust to accumulate the estimated amounts necessary to decommission a nuclear power plant that the Cooperative formerly operated and the related Independent Spent Fuel Storage Installation (ISFSI). The assets of this trust in the amount of $23,114 and $74,343 as of December 31, 2017 and 2016, respectively, are outside the Cooperative's administrative control and are available solely to satisfy the future costs of decommissioning.
Nuclear decommissioning and other asset retirement obligations as of December 31, 2017 and 2016, are as follows:
Nuclear Other Total Balance--December 31, 2015.
$ 88,114
$ 9,116
$ 97,230 Accretion in ARO. **************** * * *
- 33 33 (Decrease) in estimated obligation (2,444)
(2,444)
Incurred costs on projects.... ******** ***** ** ******
(11,327)
(2,1 12)
(13,439)
Balance--December 31, 2016.
$ 74,343 s 7,037
$ 81,380 Accretion in ARO....
19 19 l.ncrease in estimated obligacion 1,265 1,265 Incurred coses on projects.
(52,494)
(1,556)
(54,050)
Balance--December 31, 201 7...,.,.,.,...
$ 23,1 14 5,500
$ 28,614 The Cooperative did not record a conditional ARO related to the dismantlement of the dam and drainage reservoir for the hydro generation plant at Flambeau, rhe restoration of land to preexisting condition at Genoa Station #3 site related to the land rights permit, and the removal of transmission lines in various corridors, because the Cooperative does not have sufficient information to estimate the fair value of the ARO.
FIFTEEN NUCLEAR REACTOR Llcense I The La Crosse Boiling Water Nuclear Reactor (IACBWR) was voluntarily removed from service by the Cooperative effective April 30, 1987. The intent was to terminate operation of the reactor, and a possession-only license was obtained from the Nuclear Regulatory Commission (NRC) in August 1987. lACBWR will remain in safe storage status (SAFSTOR) unril the final stage of decommissioning oflACBWR, involving dismantlement and decontamination, can be completed.
In May 2016, the NRC approved transfer of the license ro La CrosseSolutions LLC (Solutions), a subsidiary ofEnergySolutions ll.C. Solutions will temporarily hold the license and assumes responsibility fur the decommissioning of the sire. The license will revert back to the Cooperative following completion of decommissioning activities. While Solutions undertakes decommissioning, the Cooperative retains a license for its continued ownership of the spent fuel.
Nuclear Waste Policy Act of 1982 (NWPA) I Under the NWPA, the United States government is responsible for the storage and disposal of spent nuclear fuel removed from nuclear reactors. By stature and under contract, the Uni red Stares government was to have begun accepting spent fuel in January 1998, but has nor yer licensed and established a repository.
The Cooperative filed an initial breach of contract damages claim against the United States government in the United States Coun of Federal Claims to recover its costs generally incurred after 1998 through 2006 related to spent fuel remaining at lACBWR. In January 2013, the Cooperative received a damages award payment of
$37,659 from the government for this claim.
~
The Cooperative filed a second contract damages claim in December 2012 to recover its costs generally incurred from 2007 through 2012. The Cooperative and the government agreed ro settle rhe second claim in October 2016. Settlement proceeds of
$73,500 were received from the government in November 2016, and at the direction of the Board of Directors, were recorded as a regulatory liability due the Class A members. The nuclear related regulatory asset of $16,700 and deferred charges fur nuclear related litigation and plant costs of $9,164 were recovered from the regulatory liability as these amounts had not been collected in rares yet. The remaining net amount of$47,636 was refunded to Class A members in February 2017.
Subsequent damages claims will be filed to recover the continuing costs arising &om the presence of the spent fuel.
lSFSI I The Cooperative completed the temporary dry storage facility project located on the lACBWR site and completed the move of the LACBWR spent nuclear fuel to this ISFSI facility in September 2012. The spent nuclear fuel will remain at the ISFSI unril it is able to be transferred to the government. Annual ISFSI costs are recorded on an as incurred basis and incorporated into the annual budget and rare making process.
Decommissioning I The Solutions decommissioning plan anticipates completion of decommissioning lACBWR, not including the ISFSI, by the end of 2019. The estimated costs of decommissioning the nuclear generating facility are based on the Solutions cost study and decommissioning plan filed with the NRC as part of the license transfer. Costs incurred for decommissioning projects are charged against the decommissioning liability. As costs are incurred, Solutions submits requests for withdrawals to the Cooperative for release of funds from the nuclear decommissioning uusr.
LACROSSESOLUTIONS I
CLASS A MEMBERS Wisconsin Barron Electric Cooperative/Barron Bayfield Electric Cooperative/Iron River Chippewa Valley Electric Cooperative/Cornell Clark Electric Cooperative/Greenwood Dunn Energy Cooperative/Menomonie Eau Claire Energy Cooperative/Fall Creek Jackson Electric Cooperative/Black River Falls Jump River Electric Cooperative/Ladysmith Oakdale Electric Cooperative/Oakdale Pierce Pepin Cooperative Services/Ellsworth Polk-Burnett Electric Cooperative/Centuria Price Electric Cooperative/Phillips Richland Electric Cooperative/Richland Center Riverland Energy Cooperative/Arcadia St. Croix Electric Cooperative/Hammond Scenic Rivers Energy Cooperative/Lancaster Taylor Electric Cooperative/Medford Vernon Electric Cooperative/Westby Iowa/ Minnesota MiEnergy Cooperative/Cresco & Rushford (Merger of Hawkeye REC and Tri-County Electric Cooperative on Jan. I, 2017.)
Iowa Allamakee-Clayton Electric Cooperarive/Poscville Heartland Power Cooperative/Thompson & St. Ansgar Minnesota Freeborn-Mower Cooperative Services/ Albert Lea People's Energy Cooperative/Oronoco Illinois Jo-Carroll Energy/Elizabeth SPECIAL SERVICES MEMBERS Adams-Columbia Electric Cooperative/Friendship, Wis.
Central Wisconsin Electric Cooperative/Iola, Wis.
Oconto Electric Cooperacive/Oconro Falls, Wis.
Rock Energy Cooperative/Janesville, Wis.
CLASS C MEMBERS Great River Energy/Maple Grove, Minn.
Minnkota Power Cooperative/Grand Forks, N.D.
CLASS D MEMBERS City of Arcadia, Wis.
Village of Argyle, Wis.
Village ofCashron, Wis.
City of Cumberland, Wis.
City of Elroy, Wis.
City of Fennimore, Wis.
City of Forest City, Iowa Village of La Farge, Wis.
City of Lake Mills, Iowa City of Lanesboro, Minn.
McGregor Municipal Uriliries, Iowa Village of Merrillan, Wis.
City of ew Lisbon, Wis.
Osage Municipal Utilities, Iowa City of Sr. Charles, Minn.
City of Strawberry Point, Iowa Village of Viola, Wis.
CLASS E MEMBERS DAIRYLAND SOLAR FACILITIES Alliant Energy/Madison, Wis.
Northwestern Wisconsin Electric Co./Frederic, Wis.
NSP-Minnesora/St. Paul, Minn.
NSP-Wisconsin/Eau Claire, Wis.
Wisconsin: Arcadia, Centuria, Conrath, Hallie, Hillsboro, Liberty Pole, Medford, Menomonie, Mc. Hope, Necedah, New Auburn, Phillips, Roberts, Viola & Westby Southern Minnesota Municipal Power Agency/
Rochester, Minn.
FACILITIES ON MAP Headquarters/La Crosse, Wis.
Adams Wind/Adams, Minn.
Alma Generating Sire/Alma, Wis.
Barron Wind/Kensett, Iowa*
Minnesota: Albert Lea & Oronoco Illinois: Thomson Iowa: Decorah & Strawberry Point FACILITIES NOT SHOWN Central Disposal Landfill/Lake Mills, Iowa**'*
Timberline Trail Landfill/Weyerhaeuser, Wis.****
Elk Mound Generating Scacion/Elk Mound, Wis.
Flambeau Hydro Srarion/Ladysmich, Wis.
Genoa Generating Sire/Genoa, Wis.
Gundersen Wind/Lewisron, Minn.
Prairie Scar Wind/Austin, Minn.
Quilt Block Wind/Darlington, Wis.**
Sarrell Hydro Station/Sartell, Minn.""
Weston 4 Generating Station/Wausau, Wis.
Winnebago Wind/Thompson, Iowa
- Avangrid Renewables Facility
- EDP Renewables Facility
- "*Eagle Creek Renewable Energy, LLC Facility
- '*Waste Management, Inc., Facilities FACILITIES GENERATING RESOURCES GENERATING STATIONS Type Coal (Steam)
Combustion Turbine (Gas/Oil)
Hydro Total Dairyland Capacity UNDER CONTRACT Diesels Digesters (Biogas)
Landfill Gas Solar Hydro Wind Total Under Contract Total Capacity in Service Station Year-end Capacity in Megawatts (MW)
John P. Madgett.......................... 387 Genoa #3............................... 305 Weston #4*.............................. 165 Elk Mound 1-2............................ 80 Flambeau................................ 22
................................. 959 Municipals.............................. 124 Multiple Sites.......................*...... 3 Timberline Trails........................... 5 Central Disposal............................ 5 Multiple Sires............................ 21.5 Sartell Hydro.............................. 10 Adams Wind.............................. 17 Barron Wind.............................. 80 Gundersen Wind........................... 5 Prairie Scar Wind**.......................... 5 Quilt Block Wind.......................... 98 Winnebago Wind Farm..................... 20 Small Wind(< 5 MW)...................... 2.5
................................. 396
................................ 1,355
' Dairyland Share of Weston #4
- 5% Share of I 00 MW Wind Farm
MEMBER & SYSTEM MAP SARTEU HYDRO MINNESOTA IOWA WESTON4 WISCONSIN ILLINOIS
DAIRYLAND POWER COOPERATIVE