ML20134B676

North Carolina Municipal Power Agency,1984 Annual Rept. Saluda River Electric Cooperative,Inc & Piedmont Municipal Power Agency Financial Statements Encl

ML20134B676
Person / Time
Site:	Mcguire, Catawba, McGuire, 05000000
Issue date:	12/31/1984
From:	Bobo J, Clay G NORTH CAROLINA MUNICIPAL POWER AGENCIES
To:
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ML20134B666	List: ML20134B664 ML20134B676 ML20134B696 ML20134B710
References
NUDOCS 8508160034
Download: ML20134B676 (61)

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1984: First Full Year of Operation . . . . .J A Brief History. .. 2,3 Organization and Management . 4 Board of Commissioners and Alternates . 5 The Participants . ... .. 6,7 Operations. 8,9 Construction. . . 10 Finance . . . . . 11,12 Auditors' Opinion . . . . .. 13 Financial Statements.. .. 14-24 Management Staff, Consultants, Trustees, ig Paying Agents. .. . . <mr

1984:firstfullyear ofoperation e have faced another n this, my first report as general p g. .^ ~

year of change and '

r- manager of North Carolina challenge, which is the lot -

Municipal Power Agency not just of municipal power agencies, .

c Number I, I would be remiss if I i

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did not thank the agency's Board 1984 marked our agency's first >

of Commissioners for their vote full year of operation, and also saw of confidence in appointing me the retirement of Ralph W. Shaw -

to succeed Ralph Shaw.

and the appointment of James T. It is an opportunity I Bobo to succeed Shaw as general s welcome, and I promise you a manager. ,- dedicated effort to continue the We have been indeed fortunate, ,

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} ' 7' progress and the success that both in having Ralph to see our i s have brought your agency to its organization through its formative ,' fully operational phase.

years, and in having on our staff Jim > The work ahead of us is, of Bobo, who is a man with the / e course, as important as all that experience, capaaty and talent to _

which has gone before. It will manage our agency dunng its require the combined, cooperative operational phase and to take us

• ; efforts of the officers, board soundly irno the future. ~- members and alternates, the Our agency was founded to meet the demands of enhghtened ."

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~v officials of the participating muniapalities, and our professional communities that recognize the '1i staff and consultants to maintain vital relationship between the -E our organization's enviabL oosition economic prospenty of our region in the first rank of the naticds and a reliable source of electricity public power agencies.

that is competitively priced. By continuing to work The challenge was to meet our responsibihties to together, it is a goal we can achieve, of that I have no future generations. We accepted that challenge and we doubt. It is to that goal that I pledge myself.

are meeting it successfully.

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• NCMPA I Chartered - On January 13, 1976,

• First Bonds Sold - On November 16, 1978, NCMPA I was chartered as a municipal corpora- NCMPA I sold a $400 million electric revenue tion under the enabling act passed by the NC. bond issue at a net interest cost of 6.812 percent.

General Assembly in May 1975 (the joint Municipal it was, at the time, the second largest issue of its Electric Power and Energy Act). kind ever offered by a public power agency in this country.

• Catawba Project Approved - On February 27, 1978, after 2M years of negotiations between

• Purchase Closed - On November 29,1978, the NCMPA i and Duke Power Company, the agency and Duke closed on the agency's purchase NCMPA I Board of Commissioners approved the of a 75 percent undivided cwnership interest in Catawba project and authorized execution of joint Unit 2 of Catawba Nuclear Station.

ownership contracts with Duke.

• Additional Financing - NCMPA I has issued electric

• Municipalities Approve Contracts - By July 10, revenue bonds since 1978, and will continue 1978,19 of the agency's 20 member cities had periodically through 1988 to issue debt to finance approved the essential contracts between each city its share of the construction of Catawba Unit 2.

and the agency. The City of Concord, an agency member, voted not to participate in the project. 7L ,

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• Management Services -In October 1978. NCMPA I Jam E c.m! 39/

- along with the state's other power agencies - .: a W b %t a contracted with ElectriCities of North Carolina, x M Cv w / 9 /"

Inc. to provide the agency, at cost, with staff and e u d a csc 9 Ci; /m c.

professional management services needed to N C Sm / W NCMPA /

operate its business. The arrangement avoided the A , c u n , 75 rcrav o f unnecessary duplication that separate agency staffs Carm M U m 2. A B would have entailed. d'cdo'e! for ccmmercia/

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• Construction Schedule - Catawba Unit I is N N ,.. '

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scheduled to begin commercial operation in June A j7-.

. .IG [Jj 1985, and Catawba Unit 2 in June 1987, As of . p .-pf l $ p p .f .f j' :f- .

December 1984, the plant was ahead of that .#. r i[J ~,w . ' 2~

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Catawba, began commercial operation in December 1981. Unit 2 at McGuire began com-

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North Carolina Eastern Municipal Power Agency Q (NCEMPA) was chartered in December 1976, under .

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the state's 1975 enabling act, It has 32 member - {M' '( S. "W V e'~v 4 ~ ' ~

municipalities. all of which are partiapants in a joint project involving ownership interests in six generating

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Power & Light Company (CP&L). ( gg '; .74.g.,  ? f .y .f .; .7 ..

On December 30,1981, NCEMPA became the all- jh. -Qf3 .

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requirements power supplier for its 11 participating q:'.;< g municipalities that had previously been wholesale customers of Virginia Electnc and Power Company. hm '

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Then on April 22,1982, the agency became the all- " .<

requirements power supplier for its other 21 par-

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ticipants that had previously been served by CP&L. D o v , ,

Like NCMPA I, NCEMPA has contracted with Electri-Cities of North Carolina, Inc., to provide it with pro- ' -

e fessional management staff and services.

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myanisatimt and managannit he governing body of NCMPA I is a board of The NCMPA 1 Board of Commissioners has commissioners, one member of which is authorized plans for jcint ownership of a parcel of land appointed by each member municipality. Each with North Carolina Eastern Municipal Power Agency municipality also appoints an alternate commissioner (NCEMPA), the state's other municipal power agency, who represents the city at board meetings when the and initiated the development of plans and specifica-regular commissioner cannot. The board elects its own tions for an administration building, also to be jointly officers who together with six at-large representatives owned by both power agencies.

also elected by the board, comprise the agency's The board also authorized the joint purchase with executive committee. NCEMPA of a central computer to support the power During the 1984 elections, held in December, the agencies' business activities. The agencies have been board re-elected as officers: Chairman George W. Clay, receiving computer services through timesharing, a Jr., mayor of Shelby; Vice Chairman Earle E. Riddle, more costly arrangement.

former utilities commission chairman of Lexington; and The agency's role as power supplier requires SecretaryTreasurer David E. Lowe, city manager of integrated computer systems to support its various Lincolnton. activities. During 1984, the agency continued to Elected as at-large members of the executive develop, enhance and refine its computer systems committee were: Molly M. Darwin, council member, which relate to planning and budgeting, accounting, Morganton; J. E. Hinkel, oty manager, Monroe; Jack F. load and energy forecasting verification of Duke bills to Neel, city manager, Albemarle; R. Duke Whisenant, the agency, collection and reporting of monthly load city manager, Newton; Judith P. Mendenhall, council statistics, tax-exempt commercial paper, and rate member, High Point; and William T. Gill, counal studies and analyses.

member, Statesville.

Ralph W. Shaw retired, effective September I, after more than five years as general manager of NCMPA 1.

He was succeeded by Finance and Administration Director James T. Boba During the December 1984 elections, Bobo was also reappointed as an assistant secretary treasurer for the agency, as was Engineering Director William G. Wemhoff.

The management services staff of ElectriCities of North Carolina, Inc. carries out the agency's daily operations, including the financing and accounting, bill-ing, planning and budgeting programs. In addition, it closely administers the project agreements and monitors the performance of Duke with regard to the utihty's fulfillment of obligations in the project.

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,1_ +, g . g ,, .h C. Jack Horton Front Row (Seated, lef t to rght): LWam T. G:!! Will,arn M. Ed,nrds, McHy M Dar mn, Manager, Huntersvdle R Dui<c Whisnant Back Row ti eft to right) J E. H:nkel. A W. Huffman. Jr . Mar:aa Cnartes Venneth Barnes Sparraw, Gecrge W Clay. jr. Daud R Wacr, Morrn Bah r. lack F Nee! Earic E R.ddie Atderm n, Land s Belvin B. Beck, Jr.

• jack F. Neel A. W. Huffman, Jr. Manager, Lemngton

• J E. H<nkel Manager, Albemarle Mayor, Granite Fa!!s Manager, Monroe A. E. Tarr H. Max Gunter

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James L. Dorton Margaret S. W ngate Andrew M. Kist!er,11 Ak'erman. Concord W. C. Deadmon Pinevde Mayor, Morganton Director of Pubhc

. George W. Clay. Jr. Wayne Delhnger Commissioner, Cornebus Utihttes. Land.s Mayor, Sheby Mayor. Newton

• E arle E. R:dd:e Morns Baker .Wakam T. Gdi Joseph E. Baker, Jr.

Lemngton Manager. Drexel Counal Member, Manager, PinevWe

' David E. Lowe Statesvfe Ronnie E. Ransom Stephen Royster Counal Member, Manager, Lincointon Alderman, She:by Gastonia Dav.d R. Wa:ker Manager Marden Peter T. Connet Manager, Statesvme

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arge portions of a 14-county area in North Carchna's Piedmont section are provided e!ectricity 9 Hunted -

by the 19 municipakties participating in NCMPA 1.

10 Landis That service area,571 square miles in size, is home to about 280.000 residents. In 1984, sales of power from the lI Lexington 19 "electnc oties" to their customers generated approx-imately $147.4 million in electric revenues.

12 Lincointon The NCMPA I partiopating cities range in size from High Point, the state's sixth largest city with a service area 13 Maiden population of nearly 67,000, to Bostic, with a service area population of 370.

g4 A 40-county region that stretches from the foothills of the Blue Ridge Mountains east to Raleigh, the state capital, L 15 : %"~- - =~ ~ ,

makes up the state's Piedmont section. The area, which 16 Neween geographically comprises 45 percent of the state, is North Carolina's leading area in grcwth, population and wealth.

-17. Pineven The Piedmont has more residents than the Coastal and Mountain regions combined.

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the4 <espm t. se ' ovt es TFe 9 oc:ude some o' tre d;;.1 states cidost e st ny e: ectr c ut t.es Three o' these k.1['%_

muns pa, ut . t es ne e estao'sFed or or to 900 anc e grt *i$.?; [

oere operat r g oj M a.though none c' tre :9 noa . .I, . ( ', _

onns any independent generat.or' #acH ty . ,-

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partic'pating <n the Cata Aba project the Tun'C paht.es y .l.._. t-hase returned to the<r h stcric role as fu i partner ,n  :' . _ i North Caronna s e ectr.c cov.er supp y commun tv J ., (?!

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"~"~"7 CMPA I has a 75 percent ownership interest ,f ~p ]

in Unit 2 of Catawba, which is still under .

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construction. When both Catawba units are operational, the agency's ownership entitlemer,t in the I -x gll NWh.

project will be approximately 860 megawatts ci capacity.

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resources in essentially equal amounts from each of the r four units of the Catawba and McGuire nudear stations.

4 ggq The agency was able to begin full operation c,n July gg -2 S sq I,1983, by receiving 215 megawatts of project pt wer 1 from McGuire through the McGuire reliability enhange.

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North Carolina,17 miles north of Charlotte. Cor.struc- -

"L' tion began in April 1971. The two McGuire ursts .tre A3sbrenLac Sono, Throva em cf an rated at 1180 megawatts each. Unit I at McGuire began Norman endes pm the a clnoge arreM :nt im cIv commeraal operation in December 1981, and Urit 2 on me!$n16 war og McGurrc. NCNFA /

March I,1984. mLurn 8 M6re ,m & w pro w c encrp' Under the agency's contracts with Duke, the etility Nuclear Srmen a 's s:cr to is / 9 parnoparu c clocs will build, fuel and operate the Catawba plant, ar.d will plam m Cauda Ndar- n of My l. I983.

supply NCMPA I additional (supplemental) powe- to meet the needs ofits 19 participants.

Each of the 19 municipalities has executed a pr oject 1984 Operating Statistics power sales agreement with the agency. In those con-tracts, the cities have agreed to pay for an aggreg te In its first full year of operation, the agency supplied

'ts cities with 2,894,769,000 kilowatt-hours of efectric 100 percent of the cost of the agency's project. Tt,ose agreements are "take-or-pay" contracts and form the power, which produced revenues of $109,970,000. An security for the agency's bonds. add;tional $33,000 in revenues was produced from Each participating municipality has also signed i sales of surplus energy to Duke. For the penod, the supplemental power sales agreement with the ag, ncy agency had an excess of revenues over expenses of

$2,399.000.

by which it has agreed to purchase all of its electr<

power and energy from the agency, over and abcse The average monthly power purchases by the cities that provided by the agency's ownership entitlement from the agency were 241,230,000 kilowatt-hours. The and excluding any power and energy made available by average monthly bilhng to the aties was $9,164,000.

the Southeastern Power Administration, the regir nal NCMPA I ended the year with a fund balance of

$9,254,000. Of that amount, 55,613,000 was marketing agent for federal hydroelectnc power. Those agreements are in the form of "take-and-pay" appropnated to meet 1985 expenses. The remaining contracts. 53,641,000 is available as additional working capital.

Peak Demand The agency's peak bdling demand dunng 1984 was approximately 605 megawatts, which was less than the projected demand of 627 megawatts. That demand was met with 215 megawatts of capaaty from I

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E tal power costs, and other special obligations. The rates

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' ticipants, and to help the municipalities maintain their competitive retail rate position. That policy involves the

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power costs in future periods. The policy is expected

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J: 9 / ' b~~ The board adopted the agency's first rate schedule k;%:s'.: f.IIk Y[ ' ; .( on June 16,1983, which became effective July I,1983.

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. f rate increase, which became effective February I,1984.

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t, , in addition, the agency approved a 2.87 percent rate decrease, effective January 1,1985. The purpose of in July I984.108 tons cf each are on r!acc. Every the reduction was to reflect the effect of a change in uranium fuel acre loaded fuel rod carries 272 the treatment of the state gross-receipts tax collected ento the reactor vessel at enetched uran:om fuel in all-requirements rates. A portion of the gross-Unit / of Catawba Nuclear pc!! cts about the we of a receipts tax was converted to a sales tax. The change Station lo this photo. fingerna s/ Each pellet has was mandated by legislation adopted by the North nearly a!! of the 193 fuc' an energv capab icty c.; cal Carolina General Assembly to allow retail customers to assemb!;es of 204 fuct rods to nere than a ten of coal itemize sales tax on electricity, along with other sales taxes, on federal tax forms.

the agency's ownership interest (through the McGuire exchange), and 390 megawatts of supplemental capacity purchased by the agency from Duke.

Bulk Power Rates NCMPA l's bulk power rates are recommended by '*##Y ##9 . I9EJ ' "

a six-member agency rate committee (all of whom are .h%@M@MMN@Mg r > AW 9{, , ..p members of the board) and must be approved by the 'gggppg , 3g; : : "

agency's full board of commissioners, on which board every member city is represented. The rates are not g

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.4 subject to review by any other regulatory body. NWM U ^b 9

constniction he scheduled operation dates for Catawba are Duke Power Company June 1985 for Unit I, and June 1987 for Unit 2. Duke Power Company was established in 1904. It is the unit in which NCMPA I has a 75 percent an investor-owned electric utility serving approximately ownership interest. The stations construction was 1.4 million customers in North and South Carolina. Its ahead of schedule at the end of 1984. As of December power is produced by a balanced generation mix of 1984. Duke estimated construction to be 100 percent primarily coal and nuclear plants.

complete for Unit I and 87 percent complete for Unit 2. During the 12 months ended December 31,1984 Duke applied to the U.S. Nuclear Regulatory Com' Duke's electric revenues amounted to approximately mission (NRC) for authorization to operate each unit of $2.71 billion, of which approximately 70 percent was the Catawba station for 40 years, which is the unit,s derived from North Carolina customers. Among intended minimum useful operating life. In October investor-owned utilities, the company ranks eighth in 1983, hearings began on that application, with vanous the United States in kilowatt-hour sale:

parties petitioning to intervene. Additional heanngs were held in May, June, September and October 1984.

On December 6,1984, the NRC issued a five-percent power license for Catawba, allowing nudear start-up and testing at the unit. A full-power license was granted by the NRC on January 17, 1985.

NCMPA i Power, Supply Program The Catawba Station @ 3I' The Catawba station is located on Lake Wylie in d. " . TLyhg York County, South Carolina,19 miles southwest of [L[

1" "aWi$;[%g"tpQ"",

, "M'. y"%f ' ' " " #g ^yh*Mhyl ~

Charlotte, North Carolina. Construction of the Catawba station began in May 1974.

Catawba is a two-unit station, with an expected maximum net dependable capaaty of l145 megawatts  ;.; y

y -m.ppppgg ~4 3 .

y , W g pgg.g AgeA for each unit. Each unit contains a Westinghouse W i n a i d M l'J r : 4* ;W .

pressurized water reactor system that will provide steam to a General Electric turbine-generator. The ' .

nuclear steam supply system is substantially similar in

} * ~ g g.gg"A[N power rating and general design to the system ' ~ ", , ' " '^

. . . f.y "

l

^

employed in 21 other Westinghouse units with l construction permits and six others with operating licenses, including Duke's McGuire Units I and 2. - m em--

3y g a joint Owners Subsequent to NCMPA l's purchase of a 75 percent ownership interest in Catawba Unit 2 (and a 374 per- - - - - -

7 I

cent interest in the Catawba station's support facilities),

in February 1981 Duke sold a 75 percent interest in Catawba Unit I to a group of rural electric cooperatives located in North and South Carolina, and in December 1984, sold the remaining 25 percent of Catawba Unit 2 to Piedmont Municipal Power Agency, which represents Wl #lE *M* " " * " *-Mb "*"

1. 9 Wl IS 10 South Carolina municipalities. E I 10

f q > +;; #a x l finance

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/ l! A Ahas w.&

MCMPA1 y - ( .--en

-r--.

p ,r N {/

CMPA I accomplished two significant paper dealer, and the Long Term Credit Bank of Japan financing goals in 1984. The first was the supports the program with its letter of credit.

advance refunding of its high-interest-rate As of December 31, NCMPA I had $1.532 billion in -

bonds and certain other previously issued bonds. bonds outstanding. It expects to issue an additional in January 1984 NCMPA I sold $432 million in $808 million of bonds from 1985 to 1988 to complete tax-exempt electric revenue bonds at a true interest finanong of the agency's project.

cost of 10.77 percent and net interest cost of 10.21 Also important was the investment of idle funds by percent. This issue made it possible to refund the the agency, a total of 967 transactions totalling $3.491 entire $100 million 1980 Series and $175 million of the billion. The investments earned $46,466,000 for 198lA Series which had interest rates of 14% percent NCMPA I at an average yield of 10.69 percent. As of and 14% percent.respectively, and provided a por- December 31,1984, the investment portfolio balance of tion of funds needed to repay the $100 million in all NCMPA I accounts was $551,561,000.

bond anticipation notes that matured July 1,1984. During 1984, NCMPA I centinued its efforts to The second goal was reached when NCMPA I inform investors and the financial community about -

initiated a $200 million tax-exempt commercial paper agency activities. Special emphasis was placed on the program and went to market on November 27. solid security behind NCMPA I bonds, made possible On the first day, $92.92 by the state statute giving the agency's participating million of the agency's com-mercial paper was sold at an average maturity of 61 days and an average interest rate of 5.7 percent. ,

As of December 31, the agency had $196 million of commercial paper out-standing, with an average

~

matunty of 61 days and an average interest rate of ,

5.99 percent. The First

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Boston Corporation acts as I the agency's commercial J~",

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cities the specific authority to enter into take-or-pay contracts with NCMPA 1. These contracts are essential for projects

financed by the sale of revenue bonds, as the contracts '

guarantee that participants will .

.. , .. . E ' ' . Q < g.V ' (

provide the money needed to i . . . t s ; 3 Ll, # =?' '

meet the agency's financial '  %' ? * ' ~

obligations, whether or not .

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'"E the expected amount of elec- .-

%l tric power is received from . .

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the agency's project.

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Another essentialingredient - "4 lAg' ,Q ir. the bond sale process is the .

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involvement of the North *

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4s.WjM- 1 . ; g M. $s Carchna Local Government

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J. J.. [f f ' j.Y Commission. This unique state .- .c..~. .

body, a division of the .( ' ' ~ ' ', '

Department of the State .?

j' ' t '

. -M Treasurer, is involved in all ', 1 [( -,

phases of the agency's financ- ~

s 7: . .: . j.t . .. a - .. g-ing. The commission actually ,4 l_ *. : .g

.M.;d 4 7 ,.

sells the agency's bonds and jlg,:!. ' . .

has statutory authonty to *C f.gv Jy' jyk require partiopating oties to . . w: . - .

f. :ss.4- . S $'

k y's' set electric rates at levels suf- '.

o - $h ficient to meet the,ri obhga- y ' PW*b ~

-4 O'".H J 4J >

tions under the agency's M # -

take-or pay contracts. J.

.".,. $%fPeeW% i Censsrussion Amiedesreese h Casas Ceses

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(Thousands W Deters) (*W "hM- M)

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y.

q  ;..+

IM644 Gaelssenes .* ,

Constructen Costs ll.023.s79 1 854.270 Nuclear Fuel Costs 138 870 82.870 -e;~

Cm founce Costs t.168.310 s31,052 - Fust Cesss (50%)

Mmentratw Cost 9.24i 7.063 (6%)

12140 G)0 11.475 255 Actual 12

auditors' ofEnson i

ToudeRoss & G).

Board of Commissioners North Carolina Municipal Power Agency Number i Raleigh, North Carolina We have examined the balance sheets of North Carolina Municipal Power Agency Number I as of December 31,1984 and 1983, and the related statements of changes in financial position for the years then ended and the statements of revenues and expenses and changes in fund balance for the year ended December 31,1984 and for the period from July 1,1983 (date revenue-producing operations commenced) through December 31,1983. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements referred to above present fairly the financial position of North Carolina Municipal Power Agency Number I at December 31,1984 and 1983, the changes in its financial position for the years then ended and the results cf its operations for the year ended December 31,1984 and for the period from July 1, 1983 through December 31,1983, in conformity with generally accepted accounting principles applied on a consistent basis.

Our examination was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The information on pages 22, 23 and 24 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the examination of the basic financial statements and, in our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Y tGe Certified Public Accountants Raleigh, North Carolina March 1,1985 13

balancesheets I

($000s)

December 31, 1984 1983 ASSETS ELECTRIC UTILITY PLANT (Notes B and C):

Construction work in progress $1,214,546 $ 945,845 Nuclear fuel 88,515 71,093 1,303,041 1,016,938

' SPECIAL FUNDS INVESTED (Notes B and D):

Construction fund 114,580 305,210 Bond fund 240,470 225,824 Reserve and contingency fund 17,084 15,299 Decommissioning fund 2,270 613 Special reserve fund 1,136 1,027 l- Commercial paper account 128,029 CURRENT ASSETS:

l Funds invested (Notes B and D):

! Revenue fund 13,821 3.881 Operating fund 2,468 2,245 Supplemental fund 31,703 27,297 47,992 33,423 Participant accounts receivat:le 9,845 8,383 Prepaid expenses 99 58 57,936 41,864 DEFERRED COSTS (Note B):

Unamortized debt issuance costs 34,432 33,020 Development costs 20 51,899,218 $1,639,795 s , ,,p w -- . 14

cRseliNa municipal

^

pawi RAeNCV riumber1

($000s)

December 31, 1984 1983 LIABILITIES AND FUND BALANCE LONG-TERM DEBT.

$1,532,000 $1,375,000 Bonds (Notes C and D)

Bond anticipation notes (Note E) 100,000 100,000 Unamortized discount (37,382) (27,384)

I,594,688 1,447,616 SPECIAL FUNDS LIABILITIES:

Tax-exempt commercial paper (Note F) 196,000 Bond anticipation notes (Note E) 100,000

. Construction fund payables 6,523 4,009 Accrued interest on bond anticipation notes 3,250 9,000 Accrued interest on bonds 69,218 65,483 Accrued interest on commercial paper 896

= Commercial paper payables 284 276,171 178,492 CURRENT UABILITIES:

9,734 6,318 Accounts payable Accrued taxes 91 230 9,825 6,548 9,350 284 DEFERRED REVENUES (Note H)

COMMITMENTS AND CONTINGENCIES (Notes C, I and j) 9.254 6,855 FUND BALANCE

$1,899,218 $1.639,795 15

statements ofrevenues andexpensesand changes infund balance (5000s)

Period from July 1, Year Ended 1983 through December 31,1984 December 31,1983 OPERATING REVENUES:

Sales of electricity to participants $109,970 $ 51,716 Sales of electricity to utilities 33 110,003 51,716 OPERATING EXPENSES:

Interconnection services:

Purchased power 79,144 35,243 Transmission and distribution 12,491 5,709 Other 347 152 91,982 41,104 Administrative and general I,477 498 Gross receipts tax 6,488 3,043 99,947 44,645 l NET OPERATING INCOME 10,056 7,071 l

l INTEREST CHARGES (CRFDITS):

Interest expense 146,359 144.867 Amortization of debt discount and issuance costs 2,674 2.754 investment income (46,464)- (62,521) l Net interest capitalized (Note C) (103,976) (85,168) l

! (1,409) (68) 1 .

DEFERRED REVENUES (Note H) 9,066 284 EXCESS OF REVENUES OVER EXPENSES 2,399 6,855 FUND BALANCE. beginning of period 6,855 FUND BALANCE end of period $ 9,254 5 6.855 t

se .ep a.:,e. ~ , 16

p...,..

statements ofchanges north carvlina I

"""5*5?"I

$N hN#NC545 $0S5t$0K power anency

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number 1

($000s)

Year Ended December 31, 1984 1983 SOURCE OF FUNDS:

Operations:

Excess of revenues over expenses $ 2,399 $ 6,855 Amortization of debt discount and issuance costs 2,674 2,7M Deferred revenues 9,066 284 Funds provided by operations 14,139 9,893 Proceeds from sale of bonds 432,000 200,000 Increase in special funds liabilities 97,679 124,550 Dicrease in special funds invested 44,404 5,303 Proceeds from sale of bond anticipation notes 100,000 588,222 439,746 APPLICATION OF FUNDS:

Additions to electric utility plant 286,123 220,511 R: funding of bonds 275,000 Additions to unamortized debt discount and issuance costs 14,284 14,680 Provision for retirement of bond anticipation notes 100,000 Retirement of revolving credit notes 75,000 Increase in development costs 20

$75,427 410,I91 I

INCREASE IN WORKING CAPITAL $ 12,795 $ 29,555 CHANGES IN COMPONENTS OF WORKING CAPITAL:

Increase in current assets:

Funds invested $ 14,569 $ 27,662 Participant accounts receivable 1,462 8,383 Prepaid expenses 41 58 16,072 36,103 (Increase) decrease in current liabilities:

Accounts payable (3,416) (6,318)

Accrued taxes 139 (230)

(3,277) (6,548)

INCREASE IN WORKING CAPITAL $ 12,795 $ 19,555 a e w , -,,. 17

twtes to

$nancialstatements l l

Years Ended December 31,1984 and 1983 l l

l GENERAL MATTERS A General Statutes of North Carolina (act), adopted by the Ge North Carolina Municipal Power Agency Number 1 (agency) was organized on January 13,1976, pursuant to Chapter IS9B of the palities owning electric distribution systems to create joint agencies with authority to finance, construct, operate and maintain electric generation and transmission facilities. The agency has twenty members, nineteen (participants) which receive power through the agency and one which receives

, ower from Duke Power Company (Duke).

The agency has entered into several agreements with Duke which govern the purchase, ownership, construction, operation and maintenance of the project:

The Purchase Construction and Ownership Agreement provides, among other things, for the agency to purchase a 75% undivided ownership interest in Unit 2 of the Catawba Nuclear Station and a 37.5% undivided ownership interest in certain support facihties of the station. This facihty is presently under construction by Duke. The acquisition is being financed by the issuance of electric revenue bonds pursuant to Resolu-tion No. R 16-78, as amended (resolution) of the Board of Commissioners of the agency. The resolution establishes special funds to hold proceeds from debt issuance, such proceeds to be used for costs of acquisition and construction of the project and to establish certain reserves. The resolution also establishes special funds in which project revenues from participants are to be deposited and from which operating costs, debt service, and other specified payments are made.

The Interconnection Agreement provides for the interconnection between Duke's electric power system and the agency's project and for the a change of power between Unit I and Unit 2 of the Catawba Nuclear Station and between the Catawba units and Duke's McGuire Nuclear Station. The agreement also provides for the purchase and sale of capacity and energy, and the transmission of energy to the agency's participants.

The Operating and Fuel Agreement provides for Duke to operate, maintain and fuel the facility, to make renewals, replacements and capital additions as approved by the agency, and for the ultimate decommissioning of the facility at the end of its usefullife.

The agency has entered into a Project Power Sales Agreement and a Supplemental Power Sales Agreement with each of the participants. These agreements provide for each participant to purchase its all requirements bulk power supply, in excess of power allotments from Southeastern Power Administration (SEPA), which includes its total share of project output (as defined by the Project Power Sales Agreement) from the agency, The agen-cy is obligated to provide all electric power required by each participant at the respective delivery points. Each participant is obligated to pay its share c.f the operating and debt service costs of the project.

On July 1,1983, the agency's participants began receiving their total electric power and energy, exclusive of power allotments from SEPA, from the agency. Such power and energy is provided by project output together with supplemental purchases of power and energy from Duke. Pursuant to two "Reliabihty Exchanges" contained in the Interconnection Agreement, project output will be provided in essentially equal amounts from Catawba Unit 2 and three other nuclear units (Catawba Unit 1, McGuire Unit I and McGuire Unit 2)in operation or under construction on the Duke system, all cf which are of similar size and capacity. The reliabihty exchanges are intended to make more reliable the supply of capacity and energy to the agen-cy in the amount to which the agency is entitled pursuant to its ownership interest in Catawba Unit 2 and to mitigate potential adverse economic ef-fects on the agency and the participants imm unscheduled outages of Catawba Unit 2. Correspondingly, the agency bears nsks resulting from unscheduled outages of any Catawba or McGuire unit.

SIGNIFICANT ACCOUNTING POLICIES B Basis of Accounting The accounts of the agency are maintained in accordance with the Uniform System of Accounts of the Federal Energy Regulatory Commission, and are in conformity with generally accepted accounting principles (GAAP).

Construction Work in Progress All direct and indirect expenditures associated with the development and construction of the project, including interest expense net of investment carnings on funds not yet expended, are capitalized as construction work in progress until such time as the plant becomes operational. Depreciation cxpense will be recognized on the facility when operations commence, currently scheduled for June 1987.

Nuclear Fuel All direct and indirect expenditures related to the purchase and construction of nuclear fuel cores, including interest expense net of investment carnings on funds not yet expended, are capitahred until such time as the cores are placed in the reactor and the reactor becomes operational, at which time they wdl be amortized and charged to fuel expense.

Investments investments included in the funds invested categories are stated at amortized cost, which approximtres market value, plus accrued interest. Investments include securities of the U.S. Government and governmental agencies and securities collateralized by securities of the U S.

Government and governmental agencies.

Deferred Costs Costs of issuance of debt, shown net of accumulated amortization, are deferred and amortized on a straight 4ne basis over the term of the related debt.

18

nOVYJ carolina municipal pwer agency number 1 SIGNIFICANT ACCOUNTING POLICIES (continued)

B Taxes income of the agency is exempt from Federal income tax under Section ll5 of the internal Revenue Code. Chapter 159B of the General Statutes of North Carolina exempts the agency from property and franchise or other privilege taxes. In lieu of property taxes, the agency pays an amount which would otherwise be assessed on the real and personal property of the agency. In lieu of a franchise or privilege tax, the agency pays an amount equal to 6% of the gross receipts from sales of electric power, less such like amounts included in payments to vendors for electric power or related servicss. Effective January 1,1985, the gross receipts tax rate is reduced to 3.22%.

Reclassifications Certain reclassifications have been made to the prior year's financial statements to conform to classifications used in the current year.

The agency has substantial commitments in connection with the construction of the Catawba facility. The agency's direct costs of C CONSTRUCTION PROGRAM construction, including nuclear fuel, are presently estimated to be $1,162,449,000. These costs, together with provisions for working capital and debt service costs during the construction period, will require the use of the proceeds from the issuance of up to an estimated

$2,340,000,000 of Catawba Electric Revenue Bonds (bonds). Any future changes in the construction schedule may affect the cost of such facilities and therefore affect the amount of bonds to be issued.

Interest costs of $146,093,000 and $146.151,000 were capitalized as part of the cost of power plants under construction during 1984 and 1983, r;spectively. The capitalized interest costs were offset by $42,ll7,000 and $60,983,000 in interest earned on related unexpended bond proceeds for 1984 and 1983, respectively.

The agency has been authonzed to issue bonds in accordance with the terms, conditions and limitations of the resolution. The total to D BONDS be issued is to be sufficient to pay the costs of acquisition and construction of the project, as defined, and/or for other purposes set forth in the resolution. On May 3,1983, the Local Government Commission of the State of North Carchna (LGC) approved the issuance of such bonds up to a maximum principal amount of $2.390,000,000; additional LGC approval must be obtained for the issuance of bonds in excess of this amount.

As of December 31,1983, the agency has issued $1.375,000,000 of the total authorized bonds. During 1984, an additional $432,000,000 was issued (Series 1984) with $275,000,000 (Series 1980 and a portion of Series 198l A) refunded, bringing the total outstanding bonds at December 31, 1984 to $1,532,000,000, as follows (in thousands of dollars):

SEllES 1978 SERIES l982 5.20% to 6 45% maturing annua. y from 1986 to 2000 $ 77,905 11% maturing in 2003 with annual sink ng fund requirements beginning in 199i $ 14,700 6.60% maturing in 2003 with annual sinking fund requirements beginning in 2001 25.870 7.50% matunng in 2018 with annual sinking fund requirements beginning in 2009 25,000 6.70% matunng 6n 2008 with annual sinking fund requirements beginning in 2004 55,935 11.25% maturing in 2020 with annual sinking fund requirements beginning in 2004 160.300 6 875% maturing in 2020 with annual sinking fund requirements beginning h 2009 240,290 200.000 400.000 SERIES 1983 8% to 9.25% maturing annually from 1991 to 1996 7,300 SE!!ES 1979 5 75% to 6.90% matunng annually from 1986 to 2000 27,200 10 25% maturing in 2003 with annual sinking fund requirements begmning in 2002 10.000 7.10% maturing in 2004 with annual sinking fund rrquirements begmning in 2001 12.905 7% matunng in 2018 with annual smking fund requirements begmning in 2009 25,000 7.375% maturing in 2020 with annual sinking fund requirements begmning in 2005 109 895 10 625% maturing in 2020 with annuat sinking fund requirements begmning in 2004 157,700 150.000 200.000 SETIES 1981 9.40% ta 10.50% matunng annually from 1991 to 1998 ' 11,125 SERIES 1984 8.50% to 10 25% maturing annuaffy from 1991 to 1999 44,l85 10 75% maturing in 2001 with annual sinkeg fund requirements begmmng in 1999 9.875 10.375% matunng in 2004 with annual sinking fund requirements begmnmg in 2000 35,725 8.50% maturing in 2017 with annual sinking fund requirements begmnmg in 2011 25,000 10% maturing in 20!4 with annual smking fund requirements beg nning in 201f 50,000 il 125% matunng in 2020 with annual sinking fund requirements begmning 6n 2002 79,000 7.50% maturing in 2019 with annual sinking fund requirements beginning in 2017 50.000 125.000 10 625% matunng in 2020 with annual sinkmg fund SEllES 1981 A requirements beg nning in 2000 252.090 11% maturmg in 20l5 with annual s nking fund 432,000 requirements begmnmg in 2012 25.000

$l.532.000 19

notes to jnancialstatements Years Ended December 31,1984 and 1983 BONDS (continued)

D Series 1980 Bonds and $175,000,000 of Series 1981A Bonds.

Upon issuance of the Series 1984 Bonds, the agency entered into a Refunding Trust Agreement for the refunding of $100,000,000 of Under the Refunding Trust Agreement, obligations of or guaranteed by the United States of America have been placed in an irrevocable Refunding Trust maintained by the Bond Fund Trustee. These government obligations, along with the interest earnings on such obhgations, will be sufficient to pay all interest on the refunded bonds when due, to redeem the Series 1980 Bonds annually at their maturities from 1986 though 2010 and to redeem the Series 1981A Bonds in 1991, their first call date, at a redemption price of 103%. The Refunding Trust Fund, including the interest earnings on the government obligations, is pledged solely for the benefit of the holders of the bonds refunded. Since establishment of the, Refunding Trust Fund, the bonds refunded are no longer considered outstanding obligations of the agency.

Under GAAP, the agency is required to recognize a $45,632.000 loss on refunding of the bonds. This amount has been capitalized as construction work in progress. Pursuant to the refunding, the agency is to benefit from reduced debt service costs over the hfe of the Series 1984 Bonds.

Interest on the bonds is payable semi-annually on January I and July 1. The bonds are subject to redemption prior to maturity at the option of the agency, on or after the following dates at a maximum of 103% of the respective principal amounts: '

Series 1978 january I,1989 Series 1979 january 1,1990 Series 1981 january 1,1991 Series 1981 A January 1,1991 Series 1982 january 1,1993 Series 1983 january l,1993 Series 1984 January 1,1994 These bonds are special obligations of the agency, payable solely from and secured solely by (1) revenues (as defined by the resolution) after payment of operating expenses (as defined by the resolution) and (2) other monies and securities pledged for payment thereof by the resolution.

The resolution requires the agency to deposit into special funds all proceeds of bonds issued and all revenues (as defined by the resolution) gen 1 rated as a result of the Project Power Sales Agreements and interconnection Agreement. The purpose of the individual funds is specifically defined in the resolution.

Maturities of outstanding bonds through 1989 and thereafter are as follows (in thousands of dollars):  !

1986 $ 4.590 1987 4,840 1988 5.100 ,

1989 5,385 l

1990 and thereafter 1,512,085 l

$1,532.000 l BOND ANTICIPATION NOTES E Bond an per annum,ticipation notes in the aggregate principal amount of $100,000,000 dated February 1,1983, bearing an intere will mature January 1,1986. Interest is payable semi-annually on January I and July 1.

The notes are payable from proceeds of subsequently issued bonds and are additionally secured by a tien on revenues, junior in right of payment to the bonds (Note D).

Bond anticipation notes in the aggregate principal amount of $100.000,000 dated October I,1981 matured and were repaid on July I,1984.

TAX-EXEMPT COMMERCIAL PAPER F The agency has authorized the issuance of tax-exempt commercial paper (TECP) to provide interim financing in an amount not to exceed $200,000.000. As of December 31,1984, the agency had $l96,000,000 TECP outstanding with an average maturity of 60 days, and an average interest rate of 6%. The agency has a letter of credit with a bank to provide funds to pay principal and interest on the TECP when due, for which the agency pays a fee of approximately $625,000 per year. There were no borrowings against the letter of credit at December 31,1984.

(

[

REVOLVING CREDIT NOTES In 1980, the agency and a group of four banks entered into a revolving credit agreement which allowed the agency to borrow up to

$75,000,000. These notes were retired during 1983 from proceeds of the Series 1983 Bonds.

20

north carolina municipal ,

power ^ j ajvency

~

l number 1 l

i DEFERRED REVENUES H Agreements, and (3) the Supplemental Power Sales Agreements Rates for power billings to participants are designed to cover the " costs" as defined by (1) the resolution, (2) the Project Power Sales requirements, operating funds and reserves as specified by the resolution and power sales agreements. Those " expenses" according to GAAP, which are not included as " costs," are deferred to such period as they are intended to be covered by rates. Those " revenues," under the resolution and the power sales agreements, which are collected to cover " costs," which are not " expenses," are deferred to such period as they are intended to cover "apenses."

All rates must be approved by the board. Rates are designed on an annual basis and are reviewed quarterly. If determined to be inadequate, rates may be revised and must be approved by the board.

Revenues deferred to offset future billings to participants include the following (in thousands of dollars):

Year Ended inception to December 31,1984 December 31,1984 Bond Resolution Requirements included in Billings to the

Participants:

Special fund deposits $ 11,334 $13,077 Investment income not available for operating purposes 672 683 12,066 13,760 GAAP ltems Not included in Billings to the

Participants:

Interest costs (2,940) (4.410)

Deferred Revenues S 9,066 $ 9,350 COMMITMENTS The agency has a contractual agreement with Electricities of North Carolina Inc. whereby Electricities provides, at cost, general management services to the agency. This agreement is for three years continuing through December 31,1986, and shall be automatically renewed for successive three-year periods unless terminated by one year's notice by either party prior to the end of the contract term.

j For the years ended December 31,1984 and 1983, the agency paid ElectriCities of North Carolina Inc. $1,463.000 and $1,274,000, respectively, cf which $231,000 and $921,000, respectively, has been capitalized as construction work in progress.

f CONTINGENCIES Duke has applied to the Nuclear Regulatory Commission (NRC) for an operating license for the Catawba Nuclear Station. The license is expected to be received prior to the end of the construction period. However, there is no assurance that the NRC willissue such license and the facility cannot be placed into service without it.

The Price. Anderson Act limits the public liability for a nuclear ir cident at a nuclear generating unit to $620,000,000, which amount is to be covered by private insurance and agreements of indemnity with the NRC. Such private insurance and agreements of indemnity are carried by Duke on behalf of all co-owners of the Catawba Nuclear Station. The terms of this coverage require the owners of alllicensed facilities to provide up to

$5,000,000 per year per unit in the event of any nuclear incident involving any licensed facility in the nation with a maximum of $10,000,000 per year l per unit owned in the event of more than one incident. If any such payments are requimd after the Catawba Nuclear Station has received its operating license, the agency would be liable for 37.5% of those payments applicable to the Station.

Prooerty damage insurance coverage presently available for the entire Catawba Nuclear Station has a maximum benefit limited to $585,000,000.

Such availabic coverage has been obtained. This coverage will be increased to $l.085,000,000 effective April I,1985.

21

schedule ofchangesin anets offundsinvested For the Years Ended December 31,1984 and 1983

($000s)

Funds Inv(sted Bond and Power januaryI, Note Billing investment Disburse-1983 Proceeds Receipts Earnings ments CONSTRUCTION FUND:

Construction account $l13,330 $ 99,030 $ $15,990 $(207,799 Construction interest account 131,109 149,447 20,569 Construction revolving account 101 8 Note interest amount 27,913 2,306 (11,500 Note interest 1983 account 18,958 1,322 (2,708 272,453 267,4b 40,195 (222,007 BOND FUND:

Interest account 44,712 290 (110.235 Reserve account 142,550 19,531 17,405 187,262 19,531 17,695 (ll0,235 RESERVE AND CONTINGENCY FUND 12,003 1,953 1,343 DECOMMISSIONING FUND 10 SPECIAL RESERVE FUND 52 COMMERCIAL PAPER ACCOUNT REVOLVING CREDIT FUND 81.558 1,611 (2,024; REVENUE FUND:

Revenue account 4,048 52 Rate stabilization account ,

10 4.048 62 OPERATING FUND 5.761 425 (3.032 SUPPLEMENTAL FUND 39,335 1,128 (35,166

$559,037 $ 268,919 $43,383 $62,521 $(372,464 I

N

l north 1 carolina l municipal power

^

^

aACNCV n' umber 1 Funds Funds invested Bond and Power Invested December 31, Note Billing Investment Disburse- December 31, Transfers 1983 Proceeds Receipts Earnings ments Transfers 1984

$100,322 $120,873 $ 86,859 $ $ 7,733 $(234,856) $ 38,423 $ 19,032 (149,370) 151,755 2,032 10,694 (80,248) 84,233 (7) 102 9 (2) (5) 104 (3,811) 14,908 457 (ll,500) (3,865) 17,572 1,169 (6,500) (1,030; 11,2ll (52,866) 305,210 88.891 20,062 (252,858) (46,725) 114,580 130,857 65,624 5,440 491 (134,70T 132,466 69,319 (19,286) 160,200 8,612 18,194 (15,855) 171,151 111,571 225,824 14,052 18,685 (134,702) 116,611 240,470 15,299 861 1,716 (792) 17,084 603 613 150 1,507 2,270 975 1,027 109 1,136 196,000 1,583 (210) (69,344) 128,029 l (81,145)

(882) 3,218 22,037 413 (377) (21,954) 3,337 653 663 672 9,149 10.484

- (229) 3,881 22.037 1,085 (377) (12,805) 13,8 21 (909) 2,245 171 (11.496) 11,548 2,468 22,000 27,297 86.566 2,905 (85,065) 31,703

$ $581,396 $299,804 $108,603 $46,466 $(484,708) $ $551,56l 23

schedule ofrevenuesand Cbna municipal expensesper bond wsolution power ^

anenev

~

and otheragreements

($000s)

Period from July 1,1983 Year Ended through December 31,1984 December 31,1983 Supplemental Supplemental Project and other Total Project and other Total REVENUES:

Sales of electricity to participants $22,880 $87,084 $109,964 $4,537 $47,153 $51,690 Sales of electricity to utilities 33 33 investment revenue available for operations 770 2,907 3,677 399 1,128 1,527 Other revenues I 5 6 26 26 23,684 89,996 113,680 4,936 48,307 53,243 EXPENSES:

Interconnection services:

Purchased power 10,307 68,837 79,144 2,803 32,440 35,243 Transmission and distribution 12,491 12.491 5,709 5,709 Other 347 347 152 152 10,307 81,675 91.982 2,803 38,301 41,104 Administrative and general-agency 670 807 1,477 118 380 498 Gross receipts tax 1,373 5,115 6,488 272 2,771 3,043 Special funds deposits:

Decommissioning 1,507 1,507 604 604 Revenue 171 171 356 356 Rate stabilization 9,656 9,656 783 783 11,334 11.334 1,743 1,743 23,684 87,597 111,281 4,936 41,452 46,388 EXCESS OF REVENUES OVER EXPENSES $ $ 2,399 $ 2,399 $ $ 6,855 $ 6,855 24

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CONTENTS 1

REPORT OF CERTIFIED PUBLIC ACCOUNTANTS PAGE FINANCIAL STATEMENTS Balance Sheet 2 -

Statement of Operations and Patronage Capital 3 Statement of Changes in Financial Position 4 Notes to Financial Statements 6-13 SUPPLEMENTAL INFORMATION I.

List of Officers and Trustees Schedule of Construction Work in Process Cash Investments Accounts Receivable Patronage Capital Assigned Schedule of Federal Financing Bank Notes Accounts Payable O

r _ _

f.

. 4 w

A MEMBER OF ARTHUR YOUNG INTERNATIONAL i

l fl ny le h rolina 29602 l

The Board of Trustees Saluda River Electric Cooperative, Inc.

We have examined the accompanying balance sheet of Saluda River Electric Cooperative, Inc. at December 31, 1984 and the related statements of operations and patronage capital, and changes in r-financial position for the year then ended. Our examination was l

made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting rec 6rds and such other auditing procedures as we considered necessary in the circumstances.

P In our opinion, fairly the the financial statements mentioned above present financial position of Saluda River Electric Cooperative, Inc. at December 31, 1984, and the results of operations and changes in financial position for the year then ended, in . conformity l with generally accepted principles applied on a basis consistent with that of accounting the preceding year.

Our examination has been made primarily for the purpose of i expressing an opinion on the . financial statements referred to above taken as a whole. The accompanying supplemental

' information is presented for purposes of additional analysis and is not a required part of the basic financial statements.

additional information Such has been subjected to the auditing

, procedures applied in the examination of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

L i

(. February , 1985 L

t L

E 5] -

~ .

~ SALUDA RIVER El.ECTRIC COOPERATIVE, INC. 4 SALANCE SHEET DECEMBER 31, 1984-LIABILITIES ASSETS I. Patronage capital (Notes 7 and 10) 8 5,612,368 I Utility plant: .

8 232,352 Electric plant in service (Note 23 '

construction work in process (Notes 1 358,795,446 and 33 359,027,798 36,145 l

i Less accumulated deprecistion (Note 2) 356,991,653 Long Tore Debt-(Note 7):

Net utility plant Mortgage notes payable 343,365.000 Note payable 6.150,931 l

. Current assets: Pollution control bonds 4,628,045 payable 44,200,000 Cash and cash equivalents-general fund i

256.642 393.715,931 Cash and cash equivalents-loan fund (Note 75 l Cash and cash equivalents-pollution 25.064.221 t control fund (Note 73 4.221,206 Accounts receivable 259,199 Current liabilities Interest receivable 34,429.913 Accounts payable 3,573,520 Interest payable 395.286 3,958.606

! 48,296 Investments (Note 4) .

Debt service reserve funds-pollution control bonds 9,172,730 ENote 53 ,

644,513 Deferred charges (Note 6) 5403.2 M.105 5403_.26_7.105 see Accompanying notes.

r

=

i P-

___ _________r - , _ _. - -- - -

~

SALUDA RIVER ELECTRIC COOPERATIVE, INC.

STATEMENT OF OPERATIONS AND PATRONAGE CAPITAL FOR YEAR ENDED DECEMBER 31, 1984 Operating revenues:

Electrical revenues $43,303,866 Operating expenses (Note 3):

Cost of power 39,774,335 Administrative expense 14,695 Office expense 10,645 Salaries 24,779 Employee benefits 6,798 Miscellaneous expense 3,619 Depreciation and amortization (Notes 2 and 6) 14,892 39,849,763 Net operating margins 3,454,103 l t

Non-operating margins:

Net interest income (Note 3) 238,960 '

Net margina for period 3,693,063 Patronage capital, beginning of the year 1,919,305 Patronage capital, end of the year $ 5.612.368 See accompanying notes.

~3-

SALUDA RIVER ELECTRIC COOPERATIVE STATEMENT OF CHANGES IN FINANCIAL POSITION ,

FOR YEAR ENDED DECEMBER 31, 1984 Funds were provided by:

-, Net margin $ 3,693,063 Items not affecting working capital in the current period:

Depreciation and amortization 14,892 Working capital provided by

~.. operations 3,707,955 Increase in mortgage notes 53,170,000

", Proceeds from pollution control

- bond issue 44,200,000

~

Amortization of discount on notes payable 638,859 101,716,814 Funds were applied to

~'

Additions to construction work

- in process 69,279,249 Additions to electric plant in

• process 21,742 Purchase of investments 48,296

, Establishment of reserve funds es

- pollution control 9,172,730 t Increase in deferred charges 618,142 79,140,159 l Increase in working capital $ 22,576.655 See accompanying notes.

i G -

u

D.

SA$UDA RIVER ELECTRIC COOPERATIVE, INC.

STATEMENT OF CHANGES IN FINANCIAL POSITION FOR YEAR ENDED DECEMBER 31, 1984 i

(continued)

Changes in components of working capital:

Increase (decrease) in current assets Cash-general fund $ 4,081,282 Cash-loan fund (5,898,175)

Cash-pollution control fund 25,064,221 Accounts receivable (166,958)

Interest receivable 259,799 23,340,169

' Increase (decrease) in current liabilities Accounts payable 378,228 Interest payable 385,286 763,514 Increase in working capital $22.576,655 4

See accompanying notes.

e SALUDA RIVER ELECTRIC COOPERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984 1.,

Description of the entity

. The accounting records of Saluda River Electric Cooperative, Inc. (the Cooperative) conform to the Uniform System of Accounts, prescribed by the U.S. Department of Agriculture as modified for electric borrowers of the Rural Electrification Administration (REA).

The Cooperative was formed in 1958 and is composed of five rural electric cooperatives located in South Carolina. The Cooperative represents the member cooperatives in dealings with Duke Power Company (Duke). Since November 1, 1983, the Cooperative has purchased wholesale power from Duke for sale to the member cooperatives.

In order to secure a reliable source of power for their consumers, these members, through the Cooperative, purchased an 18.75% undivided ownership interest in Duke's Catawba Nuclear Station Unit No. 1 and a 9.375% undivided ownership interest in the support facilities for Catawba Nuclear Station Units No. 1 and No. 2, including land and related assets. This agreement was executed on October 14, 1980 and Saluda River began payments on its construction in February of 1981 The preliminary estimates of final costs are

$578,000,000.

2. Electric plant in service Major classes of the Cooperative's electric plant in service as of December 31, 1984 are as follows:

Mobile substation $156,455 Office furniture and fixtures 50,230 Vehicles 25,667

$232,352 The Cooperative depreciates electric plant in service on a straight-line basis using the following rates as specified by the REA: 3.2% -

mobile substation, 7% -

furniture and fixtures, 17% - vehicles.

i I

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SALUDA RIVER ELECTRIC COOPERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984

3. Construction work ~in process The construction work in process is for the Catawba Nuclear Station explained in Note 1. In addition to capitalizing all construction related expenditures, the Cooperative capitalizes 80% of certain operating expenditures that contribute indirectly to the construction. The amount of operating expenses capitalized was $218,172 for 1984.

The Cooperative also capitalizes net interest cost on borrowings used to finance the construction. Total net interest cost capitalized for 1984 was $37,100,595.

4. Investments in associated organizations Investments in associated organizations at December 31, 1984 consisted of $48,296 of Capital Term Certificates (CTC) with the Cooperative Finance Corporation (CFC). The CTC's are presently earning 3% interest and will be kept by the CFC until 2080. The Cooperative is obligated to acquire additional CTC's in future years based on a percentage of the preceding year's gross revenue. Determination of the amount resulting from gross revenue for the year ended December 31, 1984 has not yet been completed by CFC.

5. Debt service reserve funds - pollution control bonds The reserve funds-pollution control bonds are restricted funds with the CFC and had the following balances at December 31, 1984:

a Reserve Fund-Pollution Control Bonds (PCB) $3,978,000

~ Reserve Fund-Pollution Control Bonds-Construction (PCBC) 2,984,730 Subordinated Term Certificates (STC) 2,210,000

$9,172,730 a

t

9 SAL'UDA RIVER ELECTRIC COOPERATIVE, INC.

] NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984 2

5. Debt service reserve funds - pollution control bonds (Continued)

The PCB Reserve Fund bears a variable interest rate (8.5% at December 31, 1984) and was established to make up s deficiencies in the amount . available to pay the principal and interest on the bonds and to provide for the final payments of principal and interest an the bonds. The PCBC Reserve Fund was established to pay remaining pollution control expenditures for the Catawba Nuclear Station and bears a variable interest rate (8.55% as of December 31, 1984). The STC's represent a 5% compensating balance of the Cooperative's Pollution Control Bonds, earn interest at 11.118% and are outstanding for the life of the bond issue.

6. Deferred charges Deferred charges consisted of the following at December 31, 1984:

, Unamortized Debt Expense-Federal Financing Bank (FFB) notes $ 41,807 Unamortized Debt Expense-

> Pollution Control Bonds (PCB) 602,706

$_644,513 t

The $41,807 is being amortized based on the mortgage notes outstanding. The $602,706 consists primarily of underwriters and legal fees associated with the issuance of

. the Pollution Control Bonds and is being amortized based on bonds outstanding.

7. Long term debt Long Term Debt consisted of the following at December 31, 1984:

Mortgage Notes-FFB $343,365,000

, Note Payable-Duke Power 6,150,931 Pollution Control Bonds 44,200,000 393,715,931 t

f

SALUDA RIVER ELECTRIC COOPERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984

7. Long term debt (Continued)

Mortgage Notes - PFB These Bank are mortgage notes payable to the Federal Financing (FFB). The debt functions basically as a line-of-credit and funds are borrowed as needed for construction of the Catawba Nuclear Station. At December 31, 1984, unadvanced loan funds of $165,905,000 were available to the Cooperative under the current agreements.

Interest rates vary from 9.28% to 13.20%. Substantially all assets of the Cooperative are pledged as security for this debt and, under the terms of the debt agreement, the Cooperative is restricted as to the amount of patronage credit which can be distributed and certain investment and capital activities are restricted also.

Maturity dates on this debt range from February, 1985 to December, 2016. The Cooperative has the ability and intent to extend the maturity dates of the FFB notes which are due in 1985 and 1986. The note maturity dates may be extended for varying lengths of time at the interest rates prevailing on the date extended. The Cooperative will not be required

, to make principal payments on the mortgage notes until 1988.

' The cash proceeds of the mortgage notes are restricted for the purchase of the Cooperative's interest in the Catawba Nuclear Station.

Note Payable - Duke Power

. On February 6, 1981, the Cooperative executed an unsecured note payable to Duke Power Company in the amount of

$18,928,353, which represents the Cooperative's share of the negotiated cost of transferred assets of the Catawba Nuclear Station at that date.

The note was recorded by the Cooperative in 1983 at its face value. The note is non-interest bearing until June, 1995 and should have been recorded at its present value in 1983.

In 1984, the recorded amount of the note was adjusted to reflect the present value, resulting in a $13,416,281 SALUDA RIVER ELECTRIC COOPERATIVE, INC.

NOTES TO PINANCIAL STATEMENTS DECEMBER 31, 1984

7. Long term debt (Continued)

Note Payable - Duke Power (Continued) decrease in construction work in process and in notes payable. At December 31, 1984, the note and related discount, which is amortized using the interest method, were as follows:

Note payable $18,928,353 Less discount (deferred interest) 12,777,422

$ 6.150,931 This note is to be paid in one h~ndred equal quarterly payments consisting of principal and interest over a term of twenty-five years. The first installment will be payable on a date ten years after the date on which the first Catawba Nuclear Station, whether Unit 1 or Unit 2, goes into commercial operation. The expected completion date of the Catawba Plant is June, 1985.

Interest shall only accrue after the due date of the first installment on the principal amount and interest shall -

accrue on the remaining unpaid balance at a rate equivalent to an interest rate in the first long-term loan agreement between the Cooperative and any other lender with regard to the Catawba Nuclear Station. That rate has been determined to be 11.118%, the equivalent of a long-term note executed with the Federal Financing Bank with a maturity date of December 31, 2015.

Pollution Control Bonds On November 29, 1984, the Cooperative issued $44,200,000 of 30 year pollution control bonds. The funds are restricted to pay or refinance the costs associated with certain pollution control facilities at the Catawba Nuclear Station.

i

'The bonds bear a variabic semi-annual interest rate (6.375%

at December 31, 1984). The bonds are structured with principal payments to be made each year beginning in 1994 l

e

SALUDA RIVER ELECTRIC COOPERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984

7. Long term debt (Continued)

Pollution control Bonds (Continued) for $650,000 and escalating each year until $4,000,000 is due on the maturity date in 2014.

Assets in construction work in process are pledged as security for the bonds.

Under the terms of the bond issuance, the Cooperative was required to expend all of the bond proceeds prior to February 27, 1985 by prepaying certain of the FFB mortgage notes payable. As a result of the prepayment of the notes, the Cooperative will incur a prepayment penalty of approximately $145,000.

The Cooperative also has unadvanced loan funds of

$12,000,000 available relating to commitments from the National Rural Utilities Cooperative Finance Corporation.

The funds may be borrowed at any time during the twelve months ended November 28, 1985. As of December 31, 1984, no proceeds have been borrowed by the Cooperative under this agreement.

In accordance with industry practice, portions of long-term debt due within one year have not been segregated and included under current liabilities.

8. Pension plan

, The Cooperative participates in a defined benefit retirement program sponsored by the National Rural Electrification Association. The Cooperative's contribution for 1984 was

$18,794.

9. Operating lease The Cooperative has a non-cancellable operating lease on the land and building used for office premises. The original lease term expires in June, 1985 but the Cooperative has r

I SALUDA RIVER ELECTRIC COOPERATIVE, INC.

NOTES TO PINANCIAL STATEMENTS DECEMBER 31, 1984

9. Operating lease (Continued)

' notified the lessor of its intention to exercise a five year renewal option that is effective at the end of the original term. The following is a schedule of estimated future

. minimum rental payments on the lease which include payments l to be paid during the renewal period.

l l, Year ending December 31:

L 1985 $ 25,200 l 1986 $ 25,200 l 1967 $ 25,200 1988 5 25,200 1989 $ 25,200 Thereafter 5 12,600 t $138,600 I Total lease payments for 1984 were $27,700 of which 80% was L capitalized in construction work in process and 20% was l

included in office expense.

l

10. Patronage Capital Net margins are allocated to patronage capital accounts in accordance with guidelines established by the Board of .

. Directors for each class of member.

In 1984, patronage capital of $3,693,063 was allocated to the five member cooperatives on the basis of electric revenues received from p each member in 1984 compared to total electrical revenues for the year. Patronage capital credits may be paid to the ,

r Cooperative members at the discretion of the Board of l Directors except as restricted by the debt agreements described in Note 7.

11. Taxable Status South Carolina law exempts all electric cooperatives from l state income taxes; consequently, the Cooperative is exempt from state income taxes. Whether or not a cooperative is I

i l

T

SALUDNRIVERELECTRICCOOPERATIVE, INC.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984

11. Taxable Status (Continued) exempt from federal income taxes is a function of certain ,

tests under Internal Revenue Service Code Section 501(c) (12), ,

relating to the sources of revenue and is determined annually. For the year ended December 31, 1984 Saluda River is exempt from federal income taxes. .

\ '

F G m

0 Uk a

y SUPPLEMENTAL INFORMATION I

( -

l

(

c

SALUDA RIVER ELECTRIC COOPERATIVE, INC.

OFFICERS AND TRUSTEES At December 31, 1984 J.A. Darby, President Route 1 Box 63, Rock Hill, South Carolina 29730 J. David Wasson, Jr., Secretary-Treasurer Route 3 Box 345, Laurens, South Carolina 29360 Joseph W. Mulholland, Manager 106 Wilderness Lane, Laurens, South Carolina 29360 Robert C. Carroll, Trustee 119 liillside Drive, Gaffney, South Carolina 29340 Jack M. Gantt, Trusteo Route 2 Box 40A, McCormick, South Carolina 29835 Ralph Hendrix, Trustee Route 15, Greenville, South Carolina 29607 Charles E. Dalton, Trustee 117 East Baker Street, Pickens, South Carolina 29671 D. W. Stribling, Trustee Walnut 11111, Westminster, South Carolina 29693 Conway B. Sutton, Trustee Route 8 Box 25411, Inman, South Carolina 29349 Joe L. White, Trustee, Vice President 200 Summit Drive, Abbeville, South Carolina 29620 R. O. Williams, Trustee 201 Oak Street; York, South Carolina 29745 Charles L. Compton, Attorney Leftbank, Laurens, South Carolina 29360 h

.l

I SALUDA RIVER ELECTRIC COOPERATIVE, INC.

SCHEDULE OF CONSTRUCTION WORK IN PROCESS

[

1 As of December 31, 1984 Duke Power, Purchase of l Nuclear Facilities $242,865,538 Duke Power, Preliminary Costs 18,928,353 Less discount of Duke Note Payable (12,777,422)

L Documentary Stamps on Deed 78,220 o Interest Expense '

Capitalized 109,775,439 Interest Earned on Loan Fund Investments (581,610)

Interest Earned on l- Investments and Reserves (73,940)

. Interest Earned on

, Pollution Control Fund Investnients (262,316)

~

Administrative Expense 95,467 Engineering Fees 197,331 Management Salaries 280,650 g E*mployee Benefits 116,197 Employee Payroll Taxes 15,489 Legal Fees 32,844

• Office and Telephone 96,116 Insurance 8,972 Miscellaneous 118 Total Construction Work in Proceso $358,795.446

i.

i ShLUDA RIVER ELECTRIC COOPERATIVE, INC.

CASH INVESTMENTS

• l AS OF. DECEMBER 31, 1984 t

~

i GENERAL FUND INVESTMENTS:

The Palmetto Bank, Laurens, S.C. SWEEP ACCOUNT, 7.0% $1,200,200

, The Palmetto Bank, Laurens, S.C., Certificate of l Deposit fl9844, 9 8.60%, Due 3/31/85 _2,000,000

The Palmetto Bank, Laurens, S.C. , Certificate of I

Deposit fl9653, 9 11.00%, Due 4/29/85 1,000,000 Security Federal Savings and Loan, Laurens, S.C.,

• Certificate of Deposit #1069-6519 9 11.354, Due l 4/25/85 300,000 Security Federal Savings and Loan, Laurens, S.C.,

Certificate of Deposit #10645021 9 9.25%, Due l

1/22/85 100,000 l

Security Federal Savings and Loan, Laurens, S.C.,

Passbook #190135-5 0 5.50% 6,035 l TOTAL GENERAL FUND INVESTMENTS 4,606,235

!" Other General Fund Cash not invested 21,810

TOTAL GENERAL FUND CASH $ 4.628.045 5

LOAN FUMD T.NVESTMENTS:

L The Palmetto Bank, Laurens, S.C., SWEEP ACCOUNT, '

7.00% $_ 252,526 TOTAL LOAN FUND INVESTMENTS 252,576 Other Loan Fund Cash not invested 4,'116 f-TOTAL LOAN FUND CASH $ 256.642 1

i

r e

• 4 SALUDA RIVER ELECTRIC COOPERATIVE, INC.

i CASH INVESTMENTS AS OF DECEMBER.31, 1984 (Continued) -

POLLUTION CONTROL BOND FUND INVESTMENTS:

Cooperative Finance Corporation, Washington,

. . D.C., Certificate #84334151 9 8.45%,

I e Due 1/31/85 $10,440,294 i

The Palmetto Bank, Laurens, S.C., SWEEP ACCOUNT 8 7.001 546,816 C & S National Bank, Atlanta, GA, Certificate

1. 12A 1985 0228 9 8.66%, Due 2/28/85 10,003,492 TOTAL POLLUTION CONTROL BOND FUND INVESTMENTS 20,990,602 Other Pollution Control Fund Cash not invested 4,073,619 TOTAL POLLUTION CONTROL BOND FUND CASH $25.064,221 m

k s

b.

4

L.

~

I SA'LUDA RIVER ELECTRIC COOPERATIVE, INC.

ACCOUNTS RECEIVABLE i

AS OF DECEMBER 31, 1984 i

Blue Ridge Electric Cooperative, Inc. $1,374,391 Broad River Electric Cooperative, Inc. 513,111 York Electric Cooperative, Inc. 963,891 l

Little River Electric Cooperative, Inc. 307,145 Laurens Electric Cooperative, Inc. 1,062,668

TOTAL $4,221,206 i

I I

t l

I

~

SALUDA RIVER ELECTRIC COOPERATIVE, INC. ,

PATRONAGE CAPITAL AS OF DECEMBER 31, 1984 -

BLUE BROAD LITTLE .

RIDGE LAURENS YORK RIVER RIVER TOTAL

• i .

Patronage Capital at 12/31/83 $ 664,079 $ 480,594 $ 390,579 $237,034 $147',019 $1,919,305 Add Net Margin for 1984 1,224,214 950,483 821,152 467,099 230,115 3,693,063 Patronage Capital at 12/31/84 $1,888,293 $1,431,077 $1,211,731 $704,133 $377,134 $5,612,368 Allocation % of 1984 ~

net margin 33.2% 25.8% 22.2% 12.6% 6.2% 100%

The 1984 net margin was allocated based on each cooperatives' share of 1984 electric revenue.-

e 2

9

SALUDA RIVER ELECTRIC COOPERATIVE, INC.

v ('

SUMMARY

OF FEDERAL FINANCING BANK NOTES AS OF DECEMBER 31, 1984 Note Date of Interest Interest Number Note Term Due Date Rate Principal F0130 2/01/83 Variable 2/01/85 9.590% $2,100,000 F0135 2/15/83 Variable 2/15/85 9.785% 1,810,000 F0140 3/01/83 Variable 3/01/85 9.326% 1,670,000 F0016 3/02/83 ' Variable 3/02/85 9.277% 2,812,638 F0145 3/31/83 Variable 3/31/85 9.883% 9,782,000 F0021" 4/01/83 Variable 4/01/85 9.873% 4,354,000 F0026 5/01/83 Variable 5/01/85 9.365% 740,000 F0150 6/01/83 Variable 6/30/85 10.020% 1,270,000 F0155 6/30/83 Variable 6/30/85 10.263% 10,225,000 F0160 8/01/83 Variable 8/01/85 11.004% 3,415,000 F0041 .8/03/83 Variable 8/03/85 11.111% 1,900,000 F0046 9/01/83 Variable 9/01/85 11.150% 3,610,000 F0165 9/01/83 Variable 9/01/85 11.150% 5,637,000

- F0051 9/30/83 Variable 9/30/85 10.624% 7,000,000 F0170 9/30/83 Variable 9/30/85 10.624% -11,150,000 F0175 11/01/83 Variable 11/01/85 10.604% 3,454,000

i. , s F0056 11/02/83 Variable 11/02/85 10.634% 1,728,000 F0061 12/01/83 Variable 12/01/85 10.653% 1,000,000 F0180 .12/01/83 Variable 12/01/85 10.653% 2,811,000 F0185 12/29/83 Variable 12/29/85 10.828% 11,760,000 F0066 1/03/84 Variable 1/03/86 10.838% 8,610,000 F0190 1/31/84 Variable 1/31/86 10.565% 1,106,000 F0071 2/01/84 Variable 2/01/86 10.565% 960,000 F0076 3/01/84 Variable 3/01/86 10.965% 2,565,000

t. F0195 3/02/84 Variable 3/02/86 11.023% 4,907,000 F0081 4/02/84 Variable 4/02/86 11.558% 7,042,000

) F0085 5/03/84 Variable 5/03/86 11.869% 1,793,900 F0090 6/01/84 Variable 6/30/86 12.955% 2,915,000 F0200 4/02/84 ' Variable 6/30/86 11.616% 11,700,000 F0095 7/02/84 Variable 7/02/86 13.081% 8,646,000 F0100 8/02/84 Variable 9/30/06 12.451% 2,350,000 F0105 9/04/84 Variable 9/30/86 12.490% 4,367,000 F0110 9/30/84 Variable 9/30/86 12.024% 8,892,000 F0205 5/01/84 Variable 9/30/86 11.947% 2,330,000 F0210 6/01/84 Variable 9/30/86 13.042% 3,095,000 F0215 7/02/84 Variable 9/30/86 13.197% 12,427,000 F0220 8/08/84 Variable 9/30/86 12.364% 700,000 F0225 9/04/84 Variable 9/30/86 12.490% 3,525,000

.' F0023 10/02/84 Variable 12/31/86 12.083% 9,400,000 F0115 ,11/01/84 Variable 12/31/86 11.150% 2,250,000 -

-F0235 -11/01/84 Variable 12/31/86 11.150% 900,000 F0240 12/03/84 Variable 12/31/86 10.536% 3,080,000 F0011 2/06/83 Fixed 12/31/2015 11.118% 132,087,362 f F0031 6/01/83 Fixed 12/31/2015 10.980% 930,000

/ F0036 -

"6/30/83 Fixed 12/31/2015 11.092% 6,460,000 F0120 12/01/82 Fixed 12/31/2016 10.719% 1,500,000 F0125 12/30/82 Fixed 12/31/2016 10.535% 10,569,000' TOTAL AMOUNT ADVANCED $_3_4,3,_3_65,,_0_0_0

i SALUDA RIVER ELECTRIC COOPERATIVE, INC.

ACCOUNTS PAYABLE AS OF DECEMBER 31, 1984 ALLOCATED TO ALLOCATED CONSTRUCTION TO WORK 1.4 OPERATING PROCESS EXPENSE TOTAL Duke Power Company, Purchased Power $ -

$3,501,209 $3,501,209 S.C. Electric & Gas, Purchased Power -

68,975 68,975 L& L Office Supply, Office Expense 417 105 522 Lloyd's of Laurens, Office Expense 399 100 499 NRUCFC, Administrative Expense 1,594 -

1,594 Piedmont Rural Telephone Coop.,

Office Expense 423 106 529 General Telephone, Office Expense 154 38 192 TOTAL ACCOUNTS PAYABLE $24981 $3.570.533 $3.573.520 s

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l CONTENTS OF AUDITED FINANCIAL STATEMENTS i

f PAGE Auditor's Report 1 l Balance Sheet 2 I

Statement of Revenues and Expenses and Changes in Retained Earnings 3 Statement of Changes'in Financial Position 4 Notes to Financial Statements 5-9 s

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[1 e f I .

l 1 - - . . - - . . - - - - - . . .. . _ . .. ___-__

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b A MEMBER OF ARTHUR YOUNG INTERNATIONAL I

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1900 Daniel Building Greenville, South Carolina 29602 i: The Board of Directors Piedmont Municipal Power Agency

.J '

We have examined the accompanying balance sheet of Piedmont l Municipal Power Agency at December 31, 1984 and the related statements of revenues and expenses and changes in retained earnings, and changes in financial position for the month then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion,*the financial statements mentioned above present

, fairly the financial position of Piedmont Municipal Power Agency at December 31, 1984, and the results of its operations and changes in financial position for the month then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding period.

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. April 19, 1985 e

as 9

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a PIEDt10NT HUNIC1F71. POWER ACEPCY BALANCE SHEET DECEHkEk 31, 1964 (5 in thousands) 1 ASSETS RETAINED LARNIHCS AND LIABILITIES

• Utility plant (Notes 2 and 7): Retained earnings (Note 7) $ 101 Electric plant in service $ 2 Construction work in process 461,945 Long-term debt (Note 4):

1 Nuclear fuel in process 13,488 475,435 Electric Revenue Bonds-Series 1984 530,000 Less: accumulated depreciation 1 Unamortized discount 23 443 Net utility plant 475,434 Electric Revenue Notes Serlec 1984 (M) .

Restricted funds (Note 3):

Construction fund 95,673 Restricted fund liabilities:

• Construction interest fund 55,180 Bond reserve fund 60,717 Construction funds Note fund 17,540 Accounts payable 282 j Working capital fund M

313 Refunds due member municipalities (Note 7)

Note payable, met (Note 5) 2,169 12,968

^

Current assets - cash 6

• j Accrued interests 3 Electric Revenue Bonds-Series 1984 4,587 Unamortised debt issuance costs, net of Electric Pavenue Notes-Series 1984 1 458 accumulated amortization of $148 (Note 2) 22,095 21'.464 I Organization costs net of accumulated amortization of $2 (Notes 2 and 7) 1,164

$ 22L.U2 s22L.122 1

1 1 See accompanying notes.

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3

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l PIEDMONT MUNICIPAL POWER AGENCY STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN RETAINED EARNINGS FOR MONTH ENDED DECEMBER 31, 1984

($ in thousands)

Revenues (Note 2) $ -

Expenses (Note 2)

Amortization of organization costs 2 Net income (loss)

(2)

Retained earnings (deficit),

beginning of the period $ (287)

Correction of advances from members (Note 7) (2,169)

Correction of expenditures (Note 7) 2,559 390 Adjusted beginning retained earnings 103 Retained earnings end of the period $$

f

=

See accompanying notes. .

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l PIEDMONT MUNICIPAL POWER AGENCY STATEMENT OF CHANGES IN FINANCIAL POSITION FOR MONTH ENDED DECEMBER 31, 1984

($ in thousands)

Funds were provided by:

Net loss $ (2)

Item not affecting working capital in the current period:

Amortization 2 m Working capital provided by operations -

Proceeds from issuance of electric

' revenue bonds and notes 730,000 Increase in restricted liabilities 20,144

, 750,144 Funds were applied to:

Additions to construction in process 460,574 s Additions to nuclear fuel in process 13,488 Increase in restricted funds 229,423 Debt issuance costs, net 22,058

, Additions to organization costs 15 Discount on bonds, net 23,443

, Discount on note, net 848 a

749,849 Increase in working capital 5 295 a

Changes in components of working capital:

, Increase (decrease) in current assets:

, Cash $ 9 Increase (decrease) in current liabilities:

Accounts payable (304) a Increase in working capital $ 295 d

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i l PIEDMONT MUNICIPAL POWER AGENCY

] NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984

( $ in thousands)

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1. Description of the entity

] Piedmont Municipal Power Agency (the Agency) was incorporated in 1979 under the South Carolina Joint Municipal Electric Power and Energy Act. The Act was adopted in April, 1978 to enable municipalities in northwestern South Carolina to form a

- joint agency to plan, finance, develop, own and operate electric generation and transmission facilities. The Agency is composed of ten member municipalities located in

, northwestern South Carolina and represents the member municipalities in dealings with Duke Power Company (Duke). It

, is estimated that in June, 1985, the Agency will begin to receive power from its generating resources and to purchase power from Duke for sale to the member municipalities.

In order to secure a reliable source of power for their consumers, these members, through the Agency, purchased a 25%

undivided ownership interest in Duke's Catawba Nuclear Station Unit 2 and its initial fuel core. The preliminary estimate of

,' the total cost to the Agency is $526,564 and the estimated completion date is June, 1987.

2. Significant accounting policies Basis of accounting - The accounting records of the Agency are s

maintained on an accrual basis in conformance with the Federal Energy Regulatory Commission's Uniform System of Accounts and i generally accepted accounting principles.

s Utility plant - The construction work in process and nuclear

, fuel in process are for the Catawba Nuclear Station Unit 2 explained in Note 1. In addition to capitalizing all construction related expenditures, the Agency capitalizes all operating expenditures that contribute indirectly to the construction. The Agency also capitalizes net interest cost d

on borrowings used to finance the construction. Total net interest cost capitalized for the month ended December 31, 1984 was $1,813. Electric plant in service is recorded at

cost and depreciated on the straight-line basis over its estimated useful life.

Unamortized debt issuance costs - Unamortized debt issuance costs are amortized on the bonds outstanding method.

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s' PIEDMONT MUNICIPAL POWER AGENCY NOTES TO FINANCIAL STATEMENT DECEMBER 31, 1984 i'

($ in thousands) l,

2. Significant accounting policies (Continued) h' organization costs - Organization costs are amortized on the *

, straight-line method over a period of 40 years.

Discount on bonds payable - The discount on the bonds payable is being amortized on the bonds outstanding method.

(' ,

4, Income taxes -

The Agency is exempt from federal and state income taxes.

3. Restricted funds

, 1 '.

Restricted funds were established by the Agency, in accordance with the respective bond and note resolutions, to account for l'

' proceeds of the bond and note issuance and are restricted by the resolutions, for payment of construction costs, debt

., service, and other specified purposes.

lk' The restricted funds consist of the following assets stated at

, j' l

cost, which approximates market:

l<

g Accrued I

4 Short-term Interest Cash Investments Receivable Total I Construction fund $ 36 $ 95,411 $ 226 $ 95,673 I

la]

'k' Construction interest fund -

55,044 135 55,179 Bond reserve fund 17 58,259 2,442 60,718 Note fund -

17,500 40 17,540 4

Working capital fund 313 - -

313

-~

$ 266 $226,214 $2,843 $229,423 i., The Agency is required by the bond resolution to maintain

)' minimum balances in each of the restricted funds.

31, 1984, the amounts in each of the restricted funds were At December

,, greater than or equal to the required minimum bala'nces.

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1-1 PIEDMONT MUNICIPAL POWER AGENCY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984

($ in thousands)

4. Long-term Electric Revenue Bonds

• In December, 1984, the Agency issued $530,000 of Electric Revenue Bonds, Series 1984 at an original issue discount of

$23,500 for the purpose of financing the Agency's investment

.j in Catawba Nuclear Station Unit No. 2, described in Note 1.

The bonds are special obligations of the Agency and are I secured by future revenues as defined by the bond resolution and other monies and securities pledged under the bond resolution, including the Bond Reserve Fund. Under the terms

)E of an existing insurance policy, the payment of principal and interest on the bonds maturing on January 1, 2019 is guaranteed.

The bonds bear a semi-annual interest rate ranging from 7% to 11% with maturity dates ranging from January 1, 2004 to January 1, 2025. The bonds are redeemable at the option of l.l l

the Agency at prices ranging from 103% of the bond principal amount in 1995 to 100% in 1998 and thereafter.

1 The following is a summary of the principal debt and sinking l ]5 fund requirements for the bonds payable at December 31, 1984:

Year Ended Year Ended 1 December 31 Principal December 31 Principal 1996 5 3,165 2011 $12,880 1997

,j 1998 1999 3,510 3,890 4,315 2012 2013 2014 13,950 15,115 16,430 2000 4,785 2015 18,290  ;

,I 2001 5,305 2016 20,210 l 2002 5,880 2017 22,330 2003 6,520 2018 24,675 J 2004 7,230 2019 26,960 l E 2005 8,015 2020 32,285 2006 8,670 2021 35,835 2007 9,380 2022 39,775

-l 2008 10,150 2023 44,155 2009 10,990 2024 49,010 2010 11,895 2025 54,400 1

1 PIEDMONT MUNICIPAL POWER AGENCY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1984

($ in thousands) 1 4. Long-term debt (Continued)

Electric Revenue Notes 1 In December, 1984, the Agency issued $200,000 of Electric Revenue Bond Anticipation Notes, Series 1984 for the purpose of financing the Catawba Nuclear Station Unit No. 2,

, 1 described in Note 1.

The notes are special obligations of the Agency and are 1' secured by a lien on future revenues as defined under the note resolution.

The lien on revenues securing the notes is subordinate to the 1- lien on revenues securing payments required under the bond resolution. The notes are further secured by irrevocable letters of credit which are in amounts sufficient to pay the 1 principal of the notes plus 7 months' accrued interest. No borrowings under the letters of credit have occurred as of December 31, 1984.

The notes consist of two principal amounts of $100,000 which bear semi-annual interest rates of 8.5% and 9% and mature on January 1, 1988 and 1990, respectively. These notes are not subject to optional redemption by the Agency prior to maturity.

5. Note payable - Duke Power On December 20, 1984, the Agency executed an unsecured, 1 non-interest bearing note payable to Duke Power Company in the amount of $13,817 which has been discoented using an assumed interest rate of 12%. The original discount of

'1 $920 has been amortized to a balance of $849 ct December 31, 1984. The note represents the Agency's share of the negotiated cost of assets transferred (as defined) from Duke

. Power to the Agency of the Catawba Nuclear Station Unit 2 at

'1 that date and is to be paid in full on the date on which the first Catawba Nuclear Station, whether Unit 1 or Unit 2, goes

'l into commercial operation. The expected operational date of

.I Catawba Nuclear Station Unit 1 is June, 1985.

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PIEDMONT MUNICIPAL POWER AGENCY 1 NOTES TO FINANCIAL STATEMENTS 1 DECEMBER 31, 1984

($ in thousands)

6. Commitments Prior to the date of commercial operation of Catawba Nuclear Station Unit 1 or Unit 2, whichever first occurs, the Agency

• 1 is required to establish and deposit into a Reserve and Contingency Fund 50% ($3,027) of the Reserve and Contingency Fund Requirement. The balance of the requirement ($3,027) will be deposited prior to commercial operation of the second unit of the Catawha Nuclear Station. The proceeds of current or future bond issuances will be used to fund the Reserve and Contingency Fund.

The Agency has entered into various agreements with Duke Power Company and the Agency's members for the purchase and 1 sale of electric power, the exchange of capacity, and the operation of The Agency's interest in Catawba Nuclear Station Unit 2. The commitments under these agreements will become effective when commercial operation of the Catawba Nuclear Station Unit 1 begins.

7. Correction of prior period accounts During the period from inception to December 1, 1984, the 1 Agency received $2,169 from the ten member municipalities.

These advances and related expenditures were recognized as i

revenues and expenses in the financial statements covering

, that period. Retained earnings as of December 1, 1984 have l been restated to reflect the advances as a liability of the Agency.

1 The expenditures relating to the advances were for organization of the Agency or construction of Catawba Nuclear i} Station Unit 2. As of December 1, 1984, construction work in ls process, debt issuance costs, organization costs, and retained earnings were adjusted to reflect the capitalization of these

,g expenditures. The expenditures- were capitalized in 3 organization costs, debt issuance costs and construction work in process at amounts of $1,151, $37 and $1,372 respectively.

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