ML20195H857
| ML20195H857 | |
| Person / Time | |
|---|---|
| Site: | Rancho Seco |
| Issue date: | 12/31/1998 |
| From: | Delezenski J, Schori J SACRAMENTO MUNICIPAL UTILITY DISTRICT |
| To: | Dudley D NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| NQA-99-065, NQA-99-65, NUDOCS 9906180009 | |
| Download: ML20195H857 (43) | |
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SACRAMENTO MUNICIPAL UTIUTY DISTRICT O P. O. Box 15830, Sacramento CA 95852-1830, (916) 452-3211 AN ELECTRIC SYSTEM SERVING THE HEART OF CALIFORNIA NQA 99-065 June 9,1999 U.S. Nuclear Regulatory Commission Attn: Document Control Desk
- Washington, DC 20555 Docket No. 50-312 Rancho Seco Nuclear Generating Station License No. DPR-54 ANNUAL FINANCIAL REPORT l 1
Attention: Mr. Dick Dudley )l In accordance with 10 CFR 50.71(b), the District provides the attached 1998 Annual Report for the Sacramento Municipal Utility District. If you, or members of your staff, have any questions requiring additional information or clarification, please contact Bob l Jones at (916) 732-4843.
l Sincerely '
w , Xl2/ d lezenski Superintendent, quality Assurance / Licensing / Administration I
cc: E.W. Merschoff, NRC, Region IV, Arlington l I.
O O ,
9906190009 981231 PDR ADOCK 05000312 1 PDR ,_
RAAICHO SECO NUCLEAR GENERATING STATION O 14440 Twin Cities Road. Herald. CA 95638-9799; (209) 333-2935 s
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A A Message From SMUD'S 1998 has been a icwarding year for $NIUI), a - lT t General Manager ar en m b(pn to see the results of many f , of our internal and external customer sersice - improvement programs. With the continued
.' -ll reengineering of key service areas, the Call j
dal Center Improsement Project and the formation *- of the Enterprise Itesoun e Planning project, we R are furthering our goals of improving sersice I. and reliability to our customers. O Dar commitment to reduce power outages continued in 1998 with a comprehensise tree trimming program. liy increasing the maintenance around our distribution wires, customers w ill experience a higher quality of service and reliability during the storm season. Ihis equates to fewer calls to SMUI) and a decrease i.i sosts to restore power. Our economic development programs brought new jobs to the area in 1998 through special business retention and expansion program rates. In addition, n Account Sersices signed several large customers to long-term contracts. A number of new companies also agreed to locate in our service area, thanks in large part to 5Ml' Irs ; attractive rate packag s. 1998 was a very hot year for SMUI). llecords were stt for peak demand on three consecutise days. On August 6, we topped out at 2,603 megawatts. 'l he system, despite the l l scaring temperatures, responded very well. We know that meeting our customers' needs and expectati ms in the areas of service, reliability and value will be the key to our success in the competitise world of electricity services. In 1998 we significantly improved our organization to ensure that we O more than satisfy our custoniers now, and into the future. a a aa i.' N JAN SCHORI GENERAL MANAGER c I e
? b eeting ustomer eeds , Bringing About A 1998 was a year of transformation in the electne utility industry. California utilities started Culture Change serving customers outside their decades-old boundaries, marking the first step towards a truly competitive energy market. As a customer-owned utility, SN1UI)is not mandated to allow customers a choice in who supplies their energy. lint, the S.N1UI) lioard of I brectors voted to offer choices to all customers by 2002.To achiese this SNIUl> began implementing a series of system-wide technological and organizational programs in 1998 to prepare for full competition. These programs are designed to bring about a complete culture thange to transform SN1UI) into a market-dnven organi/ation focusing on meeting customer needs - responsive service, continuous reliability and proven value. Some of the programs are internal, such as the I nterprise Resourte Planning project, an integrated computer system that will allow employees to work closely onane with the took and informanon they need to serve customers better. Another is S.NIUI)'s debt reduction program, which will reduce paymen,s by 580 million annually by 2002. Other programs are external and more highly visible to the community we serse. laamples include S.NICI)'s comprehensive tree trimming program to reduce power outages in stormy weather, and the Community Solar' Program, which installed solar projects at the Sacramento Zoo and the I ftie Yeaw Nature Center, fly the end of 1998, many of our initial goals had been met, and some were exceeded. All of these programs, both internal and external, are designed to keep SNICl) on the cutting edge of the new energy marketplace and to make SN1UI) the customer's first choice. 1 1 An impressive 1998 Even with the many changes under way, SN1UI)'s performance in 1998 was impressise. 0 There were many highlights. Record peak demands w1re set on three straight days in I a August. The all-time record was set Thursday, August 6,1998, at 5 p.m., when 5N1UI) D { delis cred 2,603 megawatts. SNIUI)'s economic des elopment efforts were rewarded as various 2 new mmpanies relosated to the area, bringmg new jobs to hasramento. Stai,y custing c D T
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W' , customers expanded their operations, keeping their jobs in the community as well, thanks 4 . . to SMUD's efforts.The Rancho Seco decommissioning program cleared some major' hurdles '
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SMUD, Sacramento's customer-owned utility company, emerged from 1998 stronger,
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leaner and better positioned to serve our cm. comers now, and into the future, f1 _ : I i MEETtNG CUSTOMER NEED$= Meeting the service needs of SMUD customers continues to be a top priority. The Call Center Improvement Project (CCIP), a two-year project to deliver changes in hardware, software and the overall organization of the Call Center, began in 1998. In addition to improving customer service, the goals of the CCIP will improve efficiency for quicker customer response and increase employee satisfaction. Toward the achievement of those goals, the customer service representatives have been organized into 10- to 12-member teams and now work in a configuration that makes the team kader and supervisor more accessible. Plans were developed and set into motion that will further augment the team approach, making better tools available to the customer service representatives. More phone lines were ar.inor ced and SMUD will be able to control and adjust the number of lines dedicated t( either customer service or power outages to meet customer demands. Two teams were formed this past summer for a two-month pilot project. With little of the new technology available, the teams still were able to register a 29 percent increase in the number of calls they were handling per hour, helping to reduce the average on-hold waiting time for the customer. The system-wide implementation of the team structure went into effect in the fall. On the technological side, a series of improvements was developed and approved. 0 A more user-friendly Interactive Voice Response unit will direct many customers to the a information they need without consulting a customer service representative.The representatives a 3 i will be further aided by a new system for viewing customer accounts. This new system, called C Customer Service Representative Assistant, will give representatives a better presentation of a 3 I en
O tustonwr intiirmation and will display on-screen information to help them esplain SMUI) programs. To provide faster response and more information during power outages, SMUI) implemented a high volume answering system that can handle 100,000 calls per hour. ERP Program Will Create Enterprise liesource Planning (EltP) was begun in 1998 to increase service and response Operational Efficiencies times system-wide through imprmed technology. The goal of ERP is to link all SMUI) business applications with compatible software. This will allow people in financial accounting, human resources, customer service, materials management, sales, distribution and p;- I maintenance to share information quickh and easily. The software and vendors for ERP l were approved by the lloard in 1998. When the software is fully implemented by year-end 2000, customers will benefit through quid er response times during power outages and more knowledgeable staff. Reengineering Projects SMUD's reengineering projects made maior striJes towards process streamlining in 1998. Me Effect in 1)istribution Sen ices,a wmbination of Transmission and I)istribution Sen ices, Electric System 1)esign and Energy Operations, new job classifications were created. The department began the transition into process-oriented teams with more focus on the end result. 1)istribution Services will ultimately become an organization of employee teams with many skills, rather than separate employee groups, each focused on one skill. Improvements in speed, efficiency and customer service are already being realized with the new approach. However, much of the success of the proiect depends on the new technology that will become available through ERP. Supply chain reengineering and strategic sourcing were another part of the program. The results are new approaches to purchasing using master contracts with suppliers,
.a contractors and professionals to build more cost-efficient relationships and to simplify the ;
O purchasing process that had been in place. Customers will see significant reductions in i e the amount of time it takes for service requests. SMUI) will benefit from better pricing, # 2 z just-in-time deliveries, online ordering, har code receiving and automated accounts z payable. Vendors will be contracted for 'bree- to tive-year periods. A third reengineering f a D I s
- l project was also introduted in 1998 that targets the energy supply process - operanon and ;
maintenance of all generation plants and the gas pipeline, emergency response, and licensing
- and compliance. The goal is to streamline decision making.
Customized Services By retaining our larges; customers, our key auounts, SNil'l)'s fhed costs are distributed for Kay Accounts over a larger base. The benetit is lower energy prices for all of our customers. As a result, personal, responsive sen ice to SNIUI)'s key accounts has been expanded.1.arge companies are under increasing pressure to demonstrate the economics and benetits of their energy providers. SNIUI) key actount managers are working dosely with our largest customers to ensure that all of their needs are being met. As a result of these efforts, SNIUl) has been able to sign a number of key accounts to long-term agreements. Alost notably in 1998, SNIUI) reached separate tive ) car agreements with both the City and County of 5acramento to provide electrical energy. llistorically, the City and County have been two of SNIUI)'s three largest customers. MEETING CUSTOMER NEEDS= SMUD's Most Ou: customers, both commercial and residential, rely on an uninterrupted supply of elet trical Comprehensive r. SNIUI) had an@ power throughout the year to meet customer demands, esen on Tree-Trimming the scorthing days of summer on three consecutive days in August, peak demand records Program Ever were set. At 5 p.m. on Wednesday, August 6, that demand reathed 2,605 megawatts. Summer heat is a fact oflife in Sacramenn Ior years Sat ramentans base responded to the heat naturally by planting hundreds of thousands of shade trees. $NICl) has partnered witli the Sacramento Tree l'oundation to assist customes who wish to plant trees to shade their [ homes to save energy during hot summer days. Sitice 14 i t , the Shade Tree Program has plated O 250,000 trees in customers' yards. Today these niature trets gise a distinttive beauty to the urban areas and residential neighborhoods throughout the reg'on. In fact,Sacrarnento may z be honic to the second largest urban forest in the woild, ranking behind only Paris,I rante. m Yet these Altne trees that provide so inuth aesthetic sliarni and natura: relief from the heat O can play hasoc with the power system during the stormy seasons.
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To coniba this ploblenn SNIUI) began the most coniprehe' isis e tree-trintrning cainpaign ever. In 1998 and 1999, the 1)istrict is spending an additional $10 million to clear trees anay from power lines. This expenditure represents an increase of 60 percent in the current annual tree triruming budget. SNIUI) contracted with two private companies to work in coniunction with SNIUI) tree trimmers. The method used for pruning is the directional pruning method approsed by the International Society of Arborculture. Niany trees will appear to base a V- or l'-shape running through them. This method is much healthier for trees than the traditional method of topping off or rounding over. In some cases pruning is not an option because the tree has grown too tall and shouki not hase been planted under a power line. SNIUI) has implemented the "Itight Tree in the Right Place" program to educate customers about proper tree selection and to replate inappropriately placed trees with ones better suited to the location. The results of these programs will be healthy trees throughout the city and a maior reduction in power outages caused by tree limbs. Year 2000 Readiness SMUD has taken the Y2K issue seriously for many years. In 1998 approsimately 1,500 1 Disclosure- Powering items were invertoried and assessed. Niost were found to hase no significant Y2K issues. Up For Y2K Plans are in place to repair, retire or replace items that will be atTected by the rollover to the Year 2000, lly October 1999, all mission critical hardware and software systems are expected to have been tested and remediated. SNIUI) is optimistic that its Y2K ef forts will culminate in the smooth operation of SNIUlfs electrital system and reliable supply of power as the new millennium begins. I MEETING CUSTOMER NEEDS - 1 Value will be the determining factor for the market. driven energy customer of the future. 1)ifferent customers will measure salue in different ways. Ior many, prite will be the sole I indicator of value. Some will factor in service and reliability. Still others will shoose their
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supplier based on corporate citi/ellship, eilViro!1lnental responsibilit) or municipal participation. Whateser the measure, SMl'l) InJde sig!)ilicant stlities in 1998 to increase value to our customers. {
Energy notes Remain in 1998, for the eighth consecutive year, a no rate increase budget was approved and Unchanged implemented at SNIUI). Niany factors contributed to this success, induding low interest ' rates and an excellent hydro year. Ilowever,it was SN1UI) employees who made the biggest differenc_. Their hard work toward des eloping and implementing new operational efficiency programs put SN1Ul) on track to reali/c sasings well into the future despite economic or weather conditions. As testimony to the success of those efforts,on November 30 the lloard of ()irectors approved another no-: ate-increase budget for 1999. Refinancing Debt The 1)istrict's strategy is to maintain rates of at least tise percent less than our competition. Soves District Money The 1)istrict forecasts the average price of power in Northern California to be between And Keeps Rates Low 7 cents and 7.5 cents per kilowatt-hour in 2002. SN1Ulfs current system average rate is l 7.8 cents. As a way of achieving those goals, SN1UI) took advantage of low interest rates in 1998 to reduce its debt payments. S.\lUI) was able to save 535 million in today's dollars by locking into lower interest rates for $200 million of its resenue bonds and other bonds l issued to build the cogeneration plants at Carson Ice and Procter & Gamble. The 1)istrict's { oserall debt reduction program aims to gradually decrease debt sers ice on other obligations so that by 2002, payments will be 580 million per sear less. SMUDGEO Sold in another mose to trim operational costs, the lloard of I)irectors approved the sale of the SN1UI)GEO plant in The Geysers area of Sonoma. Output from the plant had been declining in recent years due to dropping steam pressure. Calpine Corporation, whith owns the supplying steam tields as well as other geothermal facilities in the area, bought the plant with the agreement that SN1UI) will continue to buy power supplied f rom the facility. l The transaction will be a win / win / win deal for SNICI), Calpine and proponents of renewable l l energy. The value to SNIUI) could exceed $50 million - considering the selling price of o a about 513 million, the avoided costs of buying steam under a costly contract and the avoided I
- expense of decommissioning the power plant. I conomies of scale allow Calpine to a
f 4 efficiently manJge this facility along with others in the area thereby extending the life of this tenewable resource. O D I +
l l ftoncho Seco is A major step in the decommissioning plan for Rancho Seco was achieved in September one Step Closer when the Nuclear Regulatory Commission issued a license for a transportable spent fuel To Decommissioning storage canister system that would allow SMUD to transport a storage canister to a Department of Energy repository. The remaining approvals needed before the fuel can be moved from Rancho Seco's spent fuel pool are expected to be issued in 1999. General decommissioning work has been underway for some time now, and the turbine and ancillary equipment will be completely removed by the end of 1999. Customer Choice As a way of bringing the benefits of competition to its customers, the District voluntarily Program Offers opened up some of its electrical service to competition in late 1997. SMUD's Customer An Option Choice program was the first by any utility in California - SMUD offered up to 100 megawatts to competitive suppliers, This represents about five percent of the total load. However, only 35 megawatts had been ordered and by November the competitors dropped l g out of the program, citing difficulties with the structure of the California direct access
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j (p program in general and barriers caused by differences between SMUD's program and ) a ' 3 3* the state's program. The Customer Choice program has been tremendously beneficial for SMUD. It has
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offered a glimpse of the competitive future and provided SMUD with valuable experience in
,_. 7 metering, billing and marketplace issues. It was one of the reasons Standard and Poor's upgraded the District's bond ratings from "A? to "A".
Th; Board of Directors approved expanding the program to 300 megawatts in 1999 and working to ease the difliculties affecting the suppliers. Public Goods in 1998 SMUD dedicated more than $24 million to the Public Goods Program. The areas are energy efficiency projects; renewable energy resources and technologies; research, development and demonstration programs to advance science or technology; and services to limited income and special needs customers. SMUD's commitment to these programs is j o so strong that it exceeded the State's mandate by nearly $6 million. l There were many highlights to the Public Goods Program in 1998. SMUD worked with builders to add efficiencies to new homes, and 1,400 homes were certified as SMUD o r I
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e Advantage llomes. Other energy efficiency programs sased customers a total of 3-'.6 million kilowatt-hours in 1998, repie eming 133 percent of the District's goal. In e%rts to help imprme air quality, SMUD partnered with the Sacramento Sletropolitan Air Quality Ntanagement District to promote the sale of 1,000 electric lawnmowers to replace gas-powered mowers. A Commitment To SMUD's commitment to cleaner energy took maior strides in 1998. The Greenergy" A Cleaner future program grew to ;,400 customers, or 1.2 percent of ShlUI rs customer base. 'l his percentage of participation makes Greenergy"' one of the most successful, customer.drisen renewable energy programs in the country. The Greenergy"' program received some exciting news early in 1998 when the SNIUD lloard agreed to buy power produced by a plant planned for the County's Kiefer landtill. The proposed 8.3 megawatt power plant will burn methane gas produced naturally by the landfill. Yesterday's trash will be turned into todav's cleaner-burning renewable energy source.
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SMUD customers also voluntarily contributed to the Community Solar" program. l l 1998 saw the completion of two customer-funded solar proiet ts at the Saciamento Zoo and the I flie Yeaw Nature Center. In etTorts to help improve air quality, SMUD ab,o acquired 16 electric schides in 1998. llalf of these are being used to promote electric transportation throughout the Sacramento l region. In addition, ShlUD installed another 30 public I V tharging stations, bringing the I total to more than 100. Economic Development One of the values that a community-ow ned utility such as SMUD offers is the potential for Still A Priority At SMUD nomic devdopment. In 1998 SMUD worked with many businesses to expand or to relocate jobs to the area. Some of the highly visible companiu expanding with SMUlfs help included Wal-Mart, Pennysaver and Electronic Data Systems. SMUD, together with the Sacramento
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Area Commerce and Trade Organization and other economic development groups, E u successfully recruited new companies to the area : uch as: Cardinal Glass, Valspar and Trace ;
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Iloidings. Additionally, SMUD has worked with the Sacramento flousing and 5 Redevelopment Agency and other des elopment groups to make loan:. to small businesses that otter the promise of employment expansion. The .iobs treated by these and other $ MUD g i
i i programs stimulate the county's economy, increase resenues for community imprmement ) l i and benefit the quality of life for all Sacramento area residents. SN!UI) has dsed its + } 1 Economic I)eselopment Rate 1)iscount services and outreach programs to help bring 19,000 jobs to the Sacramento area in the past tise years. Another example of SN!Ulfs commitment to economic development is the work done in 1998 at AlcClellan Air Force llase. SNIUI) teams combed the soon-to-be-retired base, identifying and rewiring the facility for high-tech use. Additionally, $N1Ul) is working aggressively to attract companies to the site, helping to establish the NIcClellan Advanced
'Iransportation Technology Center - a business incubator. SNIUI) has also created a loan program for com. panics locating there.
A Value Decision At its October i meeting, the SNil'l) lioard of I)irectors approved changes to the ForThe Community I)iorict's Fqual Bminew Opponunity Program RBOP) that provide a price advantage for minority- and women-owned businesses bidding on I)istrict ser ice contracts where statistically significant disparity exists. This decision should not be in conflict with the state's new mandate resulting from the passage of Proposition 209 since that law prmides an exemption for recipients of federal funding. The Board felt that although SNIUI) has made vast 1 improvements in contracting with women- and minority-owned businesses since 199.1, a l significant disparity in some areas still exists. lieing a community-owned utihty, SNIUl) feels a responsibility to be inclusive in all of ituontracting. A Strong Body The past year has prmen that SNIUl) can reiment itself to compete in the world of electric With A Big Heart utility deregulation. At the same time, SNIUl> has re:ained the municipal values that have I made the utility such an integral part of the community. Ily focusing on customers' needs - , service, reliability and salue - SN1UI) has created a powerful entity that is in sync woh the E O a needs of SacramcHlo, m G g The interests of Sacramento customers, from residential to key accounts, tome first in 2 l cvery decision made at SNil'l). As a result, SNil'I)is gising customers esery reason to make { SN1UI) their hrst choice for electric power. 3 I + i
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e Five-Year Summary (unoudited) OPERATING STATISTICS (i) 1998 1997 1996 1995 1794 Customeri at har4 nd , 498,794 491.646 486,146 480.303 475.090 KWil Saled thousands) Sales to Customers . Residential. 3,969,302 3,b23,697 3.851.fo3 3,567,584 3,680.243 Commercial, industrial & Other . 5,169,105 1 5.152,254 5.037,656 4,891,304 4.778.913 Subtotal . 9,138,407.; 8,975.451 8,889,261 8,458,888 8,459,156 Sales of Surplus Power /Fnergy llank Deposits. . 886,117 2r,6,679 3 9,108 l 51,647 g 2,678 Total. . 10,024,524 9.182,630 9,224.369 8.610.5B 8,471.834 Revenues t thousands of dollary Sale $ to Customer 5
- I Residential. _' $ 342,406 : $ 319.260 5 319404 5 290,896 5 299,095 Commercial. industrial & Other . 379,711 370,287 368.237 358,921 M5,955 Subiotal . 722,1U 689,547 l 687.861 649,817 ~655.050 l Sales of Surplus Power . 17,633 3,576 1,525 992 31 I Total t ni . $ 739,780 5 693,l:3 5 689.386 5 650.809 5 655,081 Average KWil Sales per Residential Customer . 1 9,0# - 8,829 8,982 8.412 8.810 Ascrape Resenue per Residentui KWil Sold kentst 8.53 8.B 8.30 8.15 8.13 Power Suppit (Thousands of KWili livJn clect ic. '2,816,644 2.180,302 2,557,145 3.039,067 738,745 Geothermal . '177,145 471,152 464.756 447,024 332.370 Copeneration . 2,059,131 1,079.401 322,324 99.900 -0 Windpower . , 2,592 5.875 10,023 13,088 7,450 E woltaiu 1,573 2,286 1.622 2,84n 2.452 has Tt rbineel uct Cells . . 10,005 5,570 8.089 5.950 3,858 Purchases . 5,492,779 5.978.408 6,366,520 3.532,892 7.877,380 Net $ntem Peak Demand I hour < KWt . 2,605,000 2,442,000 2.392,000 2,223 mo 2,044w 1.mplovces i Permanent & Otherl at Year i nd . 2,029 2,152 2.289 2,340 2,437 FINANCIAL STATISTICS (thomands of dollars) (i)
Operatmp Resenues . $ 765,681 5 714.159 5 670,283 5 613.896 5 644.342 Operatmg i penses Purchased and Intershanged Power . 168,720 158,272 220,056 230.517 290,843 Operanon anJ Mamtenanse. , 244,318 236,071 176.651 198,149 137,683 Deprecution and Amortuanon . 216,897 182.226 123,786 96,773 88,B9
!)ecommissionmg. 25,901 24,003 22,421 2iA49 20.426 Total Operatmg hpenses. 655,836 600,572 542.914 547,088 537.291 Operatmg income, 109,845 l 13.587 127,369 66,808 107.051 Other Income , 56,783 48,329 31.027 39.414 52,4n9 income Ilciore Interest Charges , 166,628 161,916 158,396 106,222 159,460 Interest Charges , 159,227 159,499 148,329 140,711 13n,463 1.oss on Deteasanse of Debt . 7,401 -
0-OU Net income iloss) , $ 0- 5 2.417 5 10.067 5 I34 489: 5 22,997 p f unds Aailable for Resenue Ilond Debt Service, ' $ ' 324,185 S 314.473 5 300,237 5 264.950 5 269.451 Revenue llond Debt Scrvice . ,$ 189,009 5 185,138 5 159.6l l 5 156,137 5 159,342 g Revenue Ilond Debt $crvhc Onerage Rauo . ' 1,72 1.70 1.88 1.70 1.69 m Total Allllonds Repaid. $ 144,425 5 9 t,7E 37,360 42,940 5 5 34.563 5 y llectrit Utility Pl.mt Net . $ 1,670,342 5 1.744,586 5 1 653,975 5 1,511,14; 5 1,465,534 j Capitalization z long-term Debt , $ 2,253,660. 5 2,395.729 5 2,403,410 5 2,374.162 5 2.085,773 Costamers'i.quity. $ 219,652 5 219,652 5 217.235 5 215,720 5 225,54; i iinancial information is consohdated (except the debt senice informanon).
$ ii Prior to the net deferral / transfer of revenues to/from the Rate Stabihiation Iund and deferral of Pubhc (mod resenue.
I e
e l Report ofIndependent rebruary 12,1999 f i Accountanta To the Board of Directors of l Sacramento Municipal Utility District We have audited the accompanying consolidated balance sheets of Sacramento Municipal Utility District (the District) as of December 31,1998 and 1997, and the related consolidated statements ofincome and of cash flows for the years then ended. These financial statements are the resimnsibihty of the District's management. Our responsibility is to express an opinion on these financial statements based on our audits. Except as discussed in the following paragraph, we conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includ assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Governmental Accounting Standards lloard Technical Ilulletin 98-1, Disclosures about Year 2(o0 issues, requires dischnure of certain matters regarding the Year 2mK) issue.The District has included such disclosures in Note 15. Ilecause of the unprecedented nature ofIhe Year 2mx) issue,its potential etTects and the success of related remediation ethrts will not be fully determinable until the Year 7txx) and thereafter. Accordingly, insufficient audit evidence exists to support the District s disclosure with respect to the Year 2mo issue made in Note 15. Further,we do not provide assurante that (1) the District is or will be Year 2mXI ready, (2) that the District's Year 2tXK) remediation efforts will be succes> ful in whole or in part, or (3) that parties with which the District does business will be Year 2mK) ready, in our opinion, except for the etTects of such adjustments,if any, as might have been determined to be necessary had we been able to examine evidence regarding Year 2mo disclosures, the consolidated financial statements referred to in the first paragraph above present fairly,in all material respects, the financial position of the District as of December 31,1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, during 1998 the District adopted Governmental Accounting Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments and for ErrernalInvestruent Pools, which changed its method of accounting for investments retroactive to January 1,1997. Gy~ ne anjn y pricewaterhouseCoopers U.p Macias, Gini & Company U p K O EL W E J 4 3 Z Z 4 o 3 I e
e e Consolidated A55ETS Balance Sheets *****'l'. . (thousands ofdollars) . l998 - l997 l,rstateh Et.ECTRIC UTILITY PLANT Plant in service, at original cost . . ... .......... . , . I $2,192,5321 $ 2.226,975 1.ess - accumulated depreciation . . . .. .. .. i (645,070) (619.488) Plant in service - net . . . . ... . . . ... . ....... 1,547,462 : 1,607,487 Construction work in progress. . . . . . . ..... . . .. , .120,533- 134,722 Investment in joint powers agencies . . .. . '2,347: 2,377 j Total electric utility plant - net. . .. .. . ... I,670,342 1,744,586 RESTRICTED, DESIGNATED ANDTRUST FUND 5 Revenue bond reserve, debt service and construction funds. . ,'282,805 s 306,307 { Nuclear decommissioning trust fund. ... ..... .. 130,187 125,037 l Designated for rate stabilir.ation fund . . . . .. ... . ;104,5l0i 134,487 Designated for deferred compensation benefits . .. ....... - -0 . ' 47,269 Designated for CCPA No.1. . . . .., . . .. . 10,202 : 12,104 Securities lending collateral . . .. .. .... .... . .. . - 64,997 - 76,120 Less-current portion . . . .... .. .. '(181,806) (215.433) Total restricted, designated and trust funds . .. . . 410,895' 485,891 CURRENT ASSETS I' Cash and investments: Unrestricted . . . . . . . . . . . . . . . . . .... .. . ' 270,787f 220,909 Restricted, designated and trust funds . . . . . ... . , .. , 181,806 ' 215,433 Receivables- net: Customer revenues and other . . . . . . . . . . . . . . . ... . 104,288': 99,364 Conservation loans due within one year. . ... .... ... . 9,203 ' 10,347 Accrued interest . .. .. ... . . .. . .. . .. .. s . 7,610 S 12,699 Regulatory costs to be recovered within one year . . . ...... 151,239 140.487 l Materialt and supplies, at average cost . . .. .. .. . 17,199 . 19,904 Prepayments . . . . . . .. ... .. ;. 9,860 ' 13.946 Total current assets . . . . . .. . . ~ " 751,992 -- 733,089 I NONCURRENT ASSETS AND DEFERRED CHARGES Regulatory costs for future recovery. . . .. .... .. - $24,660 627,809 Advance capacity payments . . . . . . . . ... . . . . 81,894 + 88.081 Unamortired debt issuance costs . . . . . . . . . . . 32,004 ' 34,440 Conservation loans ~ net . . .. . ..... . .. 63,534- 71,323 Preliminary project studies and other . .. . = 3,619 ~ 8.685 Total noncurrent assets and deferred charges. . .. . 705,711 - 830,338 Total assets . . . .. . . $ 3,538,940 ' $ 3.793.904
, The accompanying notes are an integral part of these financial statements.
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e Censolidated CAPITALIZATION AND LIABILITIES December 31, Sofonce Sh,eets - (thousands ofdollars) 'l ppg g997 (rotated 1 CAPITAUZATION Customers' equity: , Balance, beginning of year. .. . . .. .... . i $ 219,652. $ 217,235 Net inconie for the year . . . .. . . . .... 0- 2,417 Total customers
- equity . . .. .... . .... .. .... 219,652 ; 219,652 long term debt. . . . . .. .. . 2,253,660 / 2,395,729 Total capitalization . .. . . 2,473,312 - 2.615.38i CURRENT WABiUTIES AND DEFERRED CREDIT $
Commercial paper notes. .. ........... , .. .. 188,000 175,300 Accounts payable . . . . . . ... . ..... .. . .. . .. . 56,237.- 60,771 Payable for power purchases. .. . .. .. . .. - 34,937 12,556 Long-term debt due within one year . . . . .. 75,462 117,803 Decommissioning accrual . . . ..... . .. ,,.. .. < 39,533 32A,3 Accrued interest . , .. ........ . ... ... . . 44,357 50,510 Customer deposits . . ..... . . . . . ... 9,648 9,162 l Accrued salaries and compensated absences . . . . . . . . , , 18,749 - 19,570 Regulatory deferrals - public good . . . . . . .. ... . . ' 4,076 l Securities lending collateral . . . . . . . . . .... .. .. . 64,997 - 76,120 Other. . . . . . . .
- 3,492 ' . 3,471 Total current liabilities and deferred credits. .
539,488 557,736 NONCURRENT WASILITIES AND DEFERRED CREDITS Decommissioning accrual . , ....... . ...... .... 388,632 - t )3.638 Deferred compensation benefits. ,...., ............... +0- . 47,269 Enrichment facility decommissioning assessment. ..... .. 7,264 : 8,169 Regulatory deferrals for future revenue recognition . . .. i L 104,510 134,487 Other. . . ... ... . .. . .. . . . 25,734 27,224 l Total noncurrent liabilities and deferred credits . .
'526,140 620.787 Totalliabilities . .. . . . .. 1,065,628 - 1,178,523 I
l I COMMITMENTS AND CONTINGENCIES (Notes 16 and 17). Total capitalization and liabilities . .
- $ 3,538,940 ' $ 3,793.904 h The accompanying notes are an integral part of these financial statements. ,
e O a. W K I
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e i i Consolidated December 31 Staterr>ents ofIncorne (thousands ofdollars) 1998' . l991 . (renawd) OPERATING REVENUES Residential. . . . . ... .. .. .... . ... .. ... $ 342,406 - $ 319.260 Commercial and industrial. . .. .. ... .. .... ' 367,890 ; 365,832 Street lighting, wholesale and other. . . . . .. . ' 29,484 l 13,662 Rate stabilization fund transfers. . .. . .... .. 29,977 i 21,036 Regulatory deferrals- public good . . ... .. > (4,076) Test power revenue. .. . . . (5.631) Total operating rsvenues. . . . 765,681 714.159 OPERATING EXPENSES Operations: Purchased power . . ... . . .. . . . . 168,720 ; 158,272 Production . . . . . . . . . ... . .. 74,606 ; 52,284 k Transmission and distribution. .. ... .. .. . .. 33,456 ; 31.235 Administrative. general and customer . ... . ... . . 178,514 j 93.145 1 Public good . . . . . . . . . , , .... .... . .. L 16,995 f 22.894 Maintenance . . . . . . . . . . . .. .. .. 40,747. 36,513 Depreciation . . . . . ... . .. ..... .. .... .. t 96,701 87,000 Decommissioning. . . . . . . . . . .. .. .. . . ... 25,901 24,003 Amortization of regulatory deferrals-plant and other. .. . '83,365 - 64.523 Amortization of regulatory deferrals-energy efficiency. . 36,831 ~ 30,703 Total operating expenses . . . .. . , 655,836 600.572 Operating income . . . . . .. 109,845 113.587 OTNER INCOME Interest and other income . . . . . . . . . . . . . . . . . . ..... 56,783 x 43.530 PERS surplus asset recognition . . . 4 4,799 Total other income . . . . 56,783 48.329 Income before interest charges . 166,628 161.916 INTEREST CHARGES Interest on debt. .. . . . .. . . .. . . . '161,088 ; 161,504 Allowance for borrowed funds used during construction. (1,861) (2.005) Total interest charges. . . . 159,227 159.499 LOS$ ON DEFE ASANCE OF DEBT. . . . . . . . . .... .... .. . 7.401 ~ NET INCOME. .. . .$ $ 2.417 The accompanying notes are an integral part of these financial statements. CC . O l S. W I Y I .J ( l a ' Z ' z ; 4 : I O r D l r i en
C:nsolidated December 31, Statements of Cash Flows Mousaruds ofdollars) 1998 1997 m,wwa , CASH FLOWS FROM OPERATING ACTlYlTIES Operating income. $ 109,845 $ 113,587 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation . 96,701 87,000 Amortization of regulatory assets. 146,097 119,229 Amortization of advance capacity . 6,187 8,089 Rate stabilit tion fund (29,977) (21,036) l Changes in operating assets and liabilities: Accounts receivable. 4,009 1,202 Accounts payable and other accruals . 23,142 13,584 Other. (10,622) (8.774) Net cash provided by operating activities. 345,382 312,881 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments, net. 77,284 (64,659) Securities lending collateral received . (11,123) 76,120 Interest income on investments . 58,707 - 51,782 Transfer of deferred compensation funds . (47,269) Nei cash provided by investing activities . 77,599 63,243 CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Construction expenditures. (74,473) (193,614) Proceeds from disposition of assets , 10,600 Energy efficiency program expenditures . (5,704) Net proceeds from bond issues 184,324 369,525 Repayment and refunding of bonds. (386,721) (334,095) Repayment and issuance of commercial paper, net. 12,700 (19,821) Interest on long-term debt . (147,662) (142,042) Interest on commercial paper. (6,599) (7,074) Other. 2.034 2,862 Net cash used in capital financing activities. (405,797) (329,963) Net i arease/(decrease) in cash and cash equivalents . 17,184 46,161 CaA .nd cash equivalents at the beginning of the year . 395,783 349,622 Cash and cash equivalents at the end of the year. $ 412,967 $ 395,783 SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCbNG ANDINVESTING ACTlYlTIES Loss on defeasann of debt and bond refundings . $ 26,234 $ h The accompanying notes are an integral part of these financial statements. E O I J 4 3 Z Z i O D I
+
Note 1. Organization Organization and Exemption from income and PropertyTaxes. The Sacramento Municipal l'tility District (District) was formed and operates under the State of California Municipal Utility Distric. Act (Act). The Act confers upon the District the rights and powers to fix rates and charges for commodities or services -
' furnished, to incur indebtedness and issue bonds or other obligations and, under certain circumstances, to levy and collect ad valorem property taxes.The District's power to levy property taxes is restricted by the California Constitution. Article Xill A, which places limits on the taxing power of all California public agencies. The District is exempt from payment of federal and state income taxes and real and personal property taxes.
Note' 2. Sunwnery of Method of Accounting. The accountin6 records of the District are maintained in accordance with generally
' Significant Accounting . accepted accounting principles for proprietary funds as prescribed by the Governmental Accounting Standards floard (GASil) and, where not in conflict with GASil pronouncements, accounting principles prescribed by the Financial Accounting Standards lloard (FASil).These financial statements were prepared in conformity with generally accepted accounting principles and contain management's best estimates when no better information was available. The District's accounting records generally folksw the Uniform System of Accounts for Public Utilities and licensees prescribed by the Federal Energy Regulatory Commission (FERC).
The Financial Reporting Entity. These consolidated financial statements include the District and its component units. Although the component units are legally separate from the District, they are blended into and reported as if they were part of the District because of the extent of their operational and financial rela-tionships with the District. All significant inter-component transactions have been eliminated in consolidation. Component Units. The component units include the Central Valley Financing Authority (CVFA), the Sacrament.) Cogeneration Authority (SCA), and the Sacramento Power Authority (SPA). The primary purpose of the component units is to own and operate electric utility plants that supply power to the District. The District's Board of Directors (floard) comprise the commissions that govern the respective component unit's operations Electric utility Plant.The District generally provides for depreciation on the historical cost of Plant in Service on a straight-line, service-life basis, in May 1997, the District accelerated depreciation on geothermal. photovoltaic and certain other generation facilities no that they will be fully depreciated by December 31, 2001, All depreciation, including depreciation resulting from this change in service lives, are structured to be fully recovered in rates. The consolidated average annual composite depreciation rates for the years ended December 31,1998 and 1997 were 4.59 percent and 4.09 percent, respectively.The cost of replacement property units is capitalized. Repair and maintenance costs are charged to expense. When the District retires portions ofits El:ctric Utility Plant, retirements are recorded against Accumulated Depreciation and the retired portion of Electric Utility Plant is removed from Plant in Service. The costs of removal and the related salvage value,if any, are charged or credited as appropriate to Accumulated Depreciation. When electric plant constituting an operating unit or system is sold, the gain or loss on the sale is recorded as a O' gain (loss) on disposition of property unless regulatory action is taken by the 11oard. 'g- Investment in joint Powers Agencies. Investments in joint power agencies in which the District does
- j. not have a controlling interest are accounted for under the equity method of accounting. As discussed in E Note 9, the operations of Central California Power Agency No.1 (CCPA No.1) were suspended in 1996, at M' which time the District wrote off its investment in the agency and recorded a liability for the estimated
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z amount ofits share of the decommissioning cost. Subsequent to plant closure,the District records its share z
< ' of closure and decommissioning costs as a reduction to the decommissioning liability.The District records h its share of the Transmission Agency of Northern California (TANC) debt service costs and operations and
[ maintenance expense, indusive of depreciation, as wheeling expenses which are included in transmission
- $ and distribution operations costs, m
e e Nuclear Decommissioning Trust Fund. Interest earnings on the fund assets are recorded as interest income and are accumulated in the fund. Expenditures for decommissioning activities are recorded as reductions to the decommissioning liability. Changes in decommissioning liability estimates, arising from new studies or annual inflation adjustments, are recorded directly to the liability with a corresponding adjustment to the related regulatory deferral.The District annually evaluates its contribution rate to ensure the trust fund will remain fully funded through completion of active decommissioning. Cash and Cash Equivalents. Cash equivalents include all debt instruments purchased with an original maturity of three months or less and all investments in the local Agency Investment Fund (LAIF) and money market mutual funds. Investments and Restatement. All of the District's investments are reported at fair value. In 1998, the District adopted GASB Statement No. 31," Accounting and Financial Iteporting for Certain investments and for External Investment lbolsf This statemert requires that all investment income, including unrealized changes in the fair market value of investments, be recognized as revenue in the statements of income. Realized gains and losses are recognized in the period in which the individual securities are mld and are shown combined with the change in unrealized gains or kisses and presented as Interest income and Other in the statements of income. The District's prior year results of operations have been restated to reflect retroactive adoption of this pronouncement, resulting in an increase of $2.4 million to net income. Premiums and discounts on investments are amortized using the effective interest method over the term of the respective securities. Securities LendingTransactions.The District tends its securities to broker-dealers and other entities for collateral with a simultaneous agreement to return the collateral for the same securities in the future. District policy requires cash collateral of 102 percent of the market value of the loaned securities. Both the investments purchased with the collateral received and the related liability to repay the collateral are reported I in the balance sheet. Allowance for Doubtful Accounts. The District recognizes an estimate of uncollectable accounts for its receivables related to electric service and conservation hians based upon its historical experience with collections. At December 31,1998 and 1997,the District maintained an allowance for doubtful accounts of
$3.0 million and $2.8 million, respectively, related to its receivables fmm its customers for electric and other services. At December 31,1998 and 1997, the District also maintained an allowance for doubtful accounts for its receivables related to energy efficiency conservation loans of $5.6.million and $6.1 million, respectivelv Unbilled Revenues. The District records an estimate for unbilled revenues earned from the dates the customers were last billed to the end of the month. The accrual at December 31,1998 and 1997, for unbilled revenues was $38.3 million and $36.8 million, respectively.
Compensated Absences.The District accrues vacation leave and compensatory time earned as liabilities when the benefits are earned by the employees. The District does not record sick leave or other leave as a liability until such time as it is taken by the employee, since there are no cash payments for sick leave or other leave made when employees terminate or retire. The total estimated liability for vacation and other g] compensated absences at December 31,1998 and 199'7, was $15.4 million and $16.5 million, respectively. g o Regulatory Deferrals. The Board has the authority to establish the level of rates charged for all District g services. Certain expenses and credits, normally reflected in Net income as incurred, are recognized when ] l included in rates and recovered imm, or refunded to customers. In May 1997, the 1)istrict began an accelerated j recovery of certain regulatory deferrals so that they will be fully amortized by December 31,2001, j ,
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{ Public Good. Public Good expenses are wmprised of the District's expenditures for energy efficiency programs and investments in renewable energy resources and technologies, which until May 1997 were capitajized. Gains / Losses on Bond Refundings. Gains and losses resulting from bond refundings are induded as a component of long. Term Debt and amortized as a component of Interest Expense over the shorter of the life of the refunded debt or the new debt using the bonds outstanding method. Gains / Losses on Bond Defeasance, Gains and losses resulting from bond defcasance that were not financed with the issuante of new &bt are reported as gain or kiss on extinguishment of debt in the statements of income. Allowance for Funds Us ed During Construction. The District capitalizes, as an additional cost of Construction Work In progress (CWIP), an allowance for funds used during construction ( AFUDC), which represents the cost of borrowed funds used for such purposes. The amount capitalized is determined by a formula prescribed by ITRC. The total AFUDC for the years ended December 31,1998 and 1997, was approximately 6.6 percent and 6.7 percent, respectively, of eligible CWIP. Insurance Programs. The District and its component units record liabilities for unpaid claims at their present value when they are probable of occurrence and the amount can be reasonably estimated. The District records a liabihty for unpaid daims associated with general and auto hability, based upon an estimate derived by the Districti claims administrator, which comprises the present value of the daims outstanding, and includes an amount for daims incurred but not reported based upon the District's experiente,less the amount of daims and settlements paid. The liability for workers' compensation is based on the Districti historical exper.cnce for outstanding and incurred but not reported workers' compensation claims. Grants. The District receives monies from federally assisted grant programs for its aJvanced and renewable technologies and electric vehide programs. The District also receives monies from federally assisted grant programs as partial reimbursements for costs it has incurred as a result of storm damages. These programs may be subject to fmancial and comphante audits, such as the Single Audit, pursuant to regulatory requirements. The amount,if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although the District expects such amounts to be immaterial. The District records expenditure-driven grants as a reduction in CWIP when the funds are received, pursuant to IFRC guidehnes. For the years ended December 31,1998 and 1997, the District received expenditure-driven grants of $2.2 million and $1.6 million, respectively. Recent Accounting Pronouncement, in June 1998, the FASH issued a Statement of financial Accounting Standards (SEAS) 133 " Accounting for Derivative Instruments and Hedging Activities." This pronouncement will require the District to recognize derivatives on its balance sheets at fair value. Changes in fair values of derivatives that qualify as cash flow hedges will be recognized in income. The District has not quantified the effect early adoption of this pronouncement would have had on its financial statements. SI AS 133 is effective for fiscal years beginning after lune 15,1999 Reclassifications. Certain amounts in the 1997 consohdated financial statements have been redassified in order to conform with the 1998 presentation. s n o i g' Note 3. Deregulation in September 1996, the Governor signed Assembly liill 1890 ( All 1890), which provides for a broad. based l N of the Utility industry restructuring of Cahfornia's electric utihr y industry. In this new market, generation will be competitive, but $ transnussion and distribution will continue to be regulated. AB 1890 mandated all investor-owned utihties z a (100) to allow direct access to their customers beginning in 1998, with all customers participating by 2(KO. . ) O 3 I' in
The bill also called for the creation of a power Exchange, responsible for managing the dispatch of IOU generation, and an independent System Operator (ISO) responsible for managing the transmission grid in Cahforma, both of which became operational on March 31,1998. Additionally,it authorized the recovery of certain "tramition costs"(CTC) which would not be recovered through market. based revenues, a public good charge to fund research and development, low-income assistance and energy esiency programs. Although AB 1890 applies primarily to 10Us,it strongly encourages customer-owned utilitiec to participate in the competitive framework and contains certain other provisions relating to their participation. Customer-owned utilities selling electricity to the retail customers of anc..her utility must permit direct accea to their retail customers. While AB 1090 provides for CTC recovery by California lOUs thmugh December 2001, management believes that certain Cahfornia lOUs may fully recover their CTC cost before that date. This would facilitate acceleration of competition, generally, in the Cahfornia marketplace. Direct Access. The Board has adopted a " Competitive Business Strategy" which is designed to balance the competing goals of competitive rates and providing municipal services that District customers value. The business strategy reflects various policies including taking advantage of low cost market surpluses of electric power; maintaining the competitiveness of District-owned generation; freezing rates through the transition period; funding public good and related activities at a level at least to $24.2 million annually; expensing public good charges in the perical incurred; offering customers the ability to support products and programs that improve the environment; accelerating the repayment of outstanding debt to minimize debt service payments by the end of the transition period; instituting a competitive transition charge for all customers; reducing discretionary expenditures, and allowing an early phase-in of direct access, for up to 300 megawatts (MW) of customer load. As of December 31,1998, there were no customers being supplied by alternative providers for their energy in connection with the District's direct access program. Possible Restructuring of Federal Power Marketing Administrations (PMA). The federal government is attempting to reform some of the federal power marketing administrations, including the Western Area Power Administs ation (Western), to meet the changes of the electricity industry as it moves to an open, competitive market. In January 1999, United States Senator Moynihan introduced a bill in Congress that would provide for the full cost recovery for power sold by Federal PMAs with a transition to market-based rates.These new rates would apply to new contracts and to any existing contracts, to the maximum extent permitted by contract. l The District has a contractual entitlement to 462 MW of total long-term, firm purchased power from Wectern, which is approximately 20 percent of the District's power resource portfolio. Under the District's I comract, as amended, ti e District is entitled to receive power at cost-based rates thmugh the year 2014. Although management twlieves the District has an excellent claim to preserving existing contractual rights, rates could increase as r. result of the government restructuring. The District could incur additional costs of between 31';.0 million and $20.0 million annually if the District had to replace Western power with new power sources.The possible restructuring of Western and other Federal PMAs will be monitored closely by the District to ensure its concerns are considered and its contract rights are preserved. The District is unable to predict the final outcome and impact on its financial position or results of operations from the h restructuring of power marketing administrations. E o Potential Effects of Restructuring. While the District is actively participating in the restructuring effort of i a the California utility industry to protect its interests,it has chosen not to participate in the ISO at this time. a The effects of electric utility industry restructuring on the District and other utilities are uncertain. 3 z Z 4 E o 3 I e
e Note 4. Regulatory iterns Based on regulatory actions taken by the Ikiard, the Di6taict has recorded the following regulatory assets, which will be included in the ratemaking process and recovered in future periods. , Deferred Nuclear Plant Costs.The District established a regulatory asset for the unrecovered debt-financed portion of abandoned nuclear pbat costs (see Note i I) for ratemaking purposes, which is being amortized and collected in rates through 2001. i Decommissioning. The District has established a regulatory asset for the unfunded portion of the decom-missioning liat ility that is to be collected in rates and through interest earnings on the Decommissioning Irust Fund through the year 2008, when pria.ary decommissioning is expected to be completed. Subsequently, site restoration and fuel storage cost are to be collected in rates commencing 2009 Energy Efficiency Investment. The Dktrict deferred as a regulatory asset certain energy efficiency investment expenditures incurred before May 1,1997. Through that date, these energy efficiency investments l were amortized and collected in rates over the expected benefit period of the investment, up to a maximum period of fifteen years. Effective May 1,1997 the maximum amortization period was reduced to 56 months to coincide with the District's Competitive Business Strategy. , 1 Enrichment Facility Decommissioning Assessment. The District has established a regulatory asset for the decontamination and decommissioning of federal nuclear fuel enrichment facilities as a result of the Energy Policy Act of 1992,which is being amortized basedon cash payments made and collected in rates through 2008. l TANC Operations Costs.The District defers as a regulatory asset. the difference between its cash payments j made to TANC and its share of TANC's costs of operations. This regulatory asset will be amortized when 1 the District's cash payments made to TANC exceed the District's share of TANC's costs of operations. j l Impairment of Investment in CCPA No. I Project. The District has established a regulatory asset for the unrecovered debt-financed portion of its investment in CCPA No. I and the related impairment of CCPA No. I's power plant and steam field. The District is amortizing the regulatory asset thrc.ngh 2001. Sale of SMUDGEO. In July 1998, the District sold its SMUDGEO plant to the plant's steam provider. The loss on disposition of the plant of $35.3 million was recorded as a regulatory asset and is being smortized through 2001. The District's total regulatory costs for future recovery are presented below: December 31, (thousands ofdollars) - l998 : l991 Regulatory Costs for Future Recovery: 1 1 Plant and other ' Deferred nuclear plant costs . . .. . . . ' $ 183,493 $ 243,291 Ennchment facility decommissioning assessment . . .. . 9,221 11,136 TANC operations costs . . . .. . 10,977: 7,384 Impairment ofinvestment in CCPA No. I project . .. 49,490 65,986 = SMUDGE 0 deferral. . 30,284 L $ Total plant and other . . . .. . . .... ... .. . . 283,465'. 327,797 [ Decommissioning . . . . . . . .. . . 285,400 296,353 E Energy efficiency investment. 107,034 ' 144.146 j Total regulatory costs . . . . .. . 675,899 1 768.296
$ less: regulatory costs to be recovered within one year. ' (151,239) (140.487) j Total regulatory costs for future recoverv. $ 524,660 7627.809 O
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e e l Based on regulatory actions taken by the Board, the District has recorded the following regulatory liabilities which were deferred as part of the ratemaking process, and will be recognized as revenues in future periods. Rate Stabiliration Fund. The District defers revenues and designates them to the Rate Stabilization Fund which is used to defer the need for future rate increases. The funds in this account are transferred to Operating Revenues and the cash unrestricted upon direction from the Board. In 1998 and 1997 the District transferred $30.0 million and $21.0 million, respectively to revenues that had been deferred into the Rate Stabilization Fund in prior years. Regulatory Deferrals - Public Good. The Board approved the regulatory deferral of $4.1 million of 1998 revenues that were collected for the purpose of funding 1998 public good programs, but were not spent in 1998. These regulatory deferrals will be recognized as revenue in the period that the Board authorizes their expenditure and the expenses are actually incurred. The District's total regulatory deferrals for future revenue recognition are presented below: 1 December 31, (thousands ofdollars) ' l998 ? l997 i I Regulatory Deferrals For Future Revenue Recognition: Rate stabilization fund. . . . ... . . ... i $ 104,510 ' $ 134,487 Public good . . . . . . 4,076 : Total regulatory defersals for future revenue recognition. . t 510s,586 - $ 134.487
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Note 5. Commerclol As of December 31,1998 and 1997, the total principal amount outstanding of the District's commercial p4 er notes (N tes) was $188.0 million and $175.3 million, respectively. The effective interest rate for the Notes Paper Notes outstanding during the years ended December 31,1998 and 1997, was 3.57 percent and 3.83 percent, respectively, and the average term was 41 days and 67 days. respectively. The District maintains a letter of credit in the amount of $192.6 million to support the sale of these outstanding Notes.There has not been a term advance tmder the letter of credit agreement. Interest Rate Swap Agmement. The District has entered into a variable to fixed rate swap agreement with Smith Barney Capital Services. inc., to hedge interest risk associated with $28.9 million of Notes. The Notes were issued to refund Series R and S Electric Revenue bonds due in 1999,2000 and 2001. The initial I notional amount of the swap was $30.0 million,and will step down in conjunction with retirement of the commercial paper,to $20.0 million on February 1,1999, to $10.0 million on February 1,2000 and to 50 on February 1,2001. Under the terms of the swap, the District pays a fixed rate of 4.039 percent, and receives a variable rate equal to the Bond Market Association (BMA)Index. G
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- Note 6. The District's total long-term debt is presented below:
l 1 Long-Term Debt December 31, , (thousands ofdollars) 1998: l997 ' Electric Revenue Bonds:
$ 1,998,405 2 Electric Revenue Bonds.4.146.8% 1999-2024 . . . .... . . $ 2,142,830 Subordinated Electric Revenue Bonds,8.0% 2010. ' 24,575 24,575 Total electric revenue bonds. . .. ... .. . . 2,022,900 ' 2,167,405 Component Unit Cogeneration Project Revenue flonds, 3.8%7.0% 1999-2022. . . . . . . . .. . ... .. ;. 424,660 : 459,100 Other Notes and Bonds . . . . . . U' 8,121 13.641 Total long-term debt outstanding . . . . .. . 2,455,761 ; 2.640,146 Bond discou nts-net . . . . . . . . . , , . . . . . . .. ... . < - (18,629) ~ (25,161)
Losses on bond refundings-net . . . . . . J(108,010f (;01,453) Subtotal . . . . . . , , . ... .. . .. ; 2,329,122. 2,513.532 Less - amount due within one year. . . . . (75,462)- (117,803) Totallong-term debt.noncurrent portion . . $ 2,253,660 7 $ 2,395,729 The annual debt service payments for 1999 through 2003 are as follows: (thousands ofdollars) Principal Interest Total 1999 . .. . . . . . . .. ... $ 75,462 $ 138,111 $ 213,573 2000 o ,. .. . .. .. . .. .. 116,666 134,141 250,807 2001. . ... ... .. . 129,328 128,903 258,231 2002. .... . . ... .. .. . . . . . 91,314 120,886 212,200 2003. .. . .... . 58,770 115,724 174.494 Totals . . $ 471,540 $ 637,765 $ 1,109.305 Refunding of debt. In 1998.the District refunded,on a current basis, $44.0 million of Electric Revenue Bonds, with maturities thtuugh 2001 and with interest rates of 6.3 percent to 7.6 percent. Funds were provided through the issuance of Notes and resulted in an estimated economic gain of $1.5 million. These current refundings resulted in the recognition of an accounting loss of $2.8 million, which is being amortized through 2001.The refunding reduced the District's aggregate debt-service payments by approximately $1.9 million over t'. l ricxt 3 years. Defeasance of debt. In March 1998, the District defeased all $31.5 million of Electric Revenue Bonds due in 2003 with an it.terest rate of 5.1 percent by depositing U.S. Treasury securities in an irrevocable trust with an escrow agent to provide for all remaining future debt service payments on the defeased bonds. Securities for the trust were purchased at a cost of $31.3 million with unrestricted cash. As a result, the bonds have been legally defeased, and the liability for those bonds have been removed from long-Term Debt. The defeasance resulted in an accounting loss of $2.6 million, which is included as loss on extinguishment of debt
, in the statements of income. The defeasance reduced the District's aggregate debt-service payments by
$39.5 million over the next 5 years.
E Interest Rate Swap Agreements. In July 1997, the District entered into a fixed to variable interest rate swap y agreement with Goldman Sachs Capital Markets, LP. for a total notional amount of $131.0 million, which is
'$ equivalent to the principal amount of the 1997 Series K bonds. Under this swap, the District pays a variable rate z
< equivalent to the BMA Municipal SWAP Index (the BM A Index) (formerly the PSA Municipal SWAP Index),
'Ee published weekly by the llMA. The District receives a series of fixed rate payments for each of the Series K
{s maturities. In connection with the swap,the District sold a put option to Goldman Sachs & Co. (Goldman), Z m
, 4 aim in the amount of $131.0 million. This put option gives Goldman the right to sell to the District the Series K bonds, or a portfolio of"AAA" rated Municipal bonds sufficient to defcase the Series K bonds, at some point in the future. In the event that Goldman exercises the right to sell the Series K (or other equivalent) Imnds to the District, the price that the District would pay would be the par value of the imnds and the swap is terminated with no cost to the District. The total fees receRed by the District from the interest rate swap and the sale of the put are equal to the coupon payments on Series V., plus 8 basis points (.08 percent).The combination of these financial transactions brings the District's net cost ofImrrowing to the BMA Index less 8 basis points. The term ofimth the swap and the put is equal to the maturity of the Series K bonds. On March 12,1998 the District entered into a variable to fixed rate forward swap agreement with Goldman Sachs, & Co. for the purpose of hedging against interest rate fluctuations arising from the future i.ssuance of variable rate debt, which may be issued in connection with refundmg certain of the District's fixed rate debt. The notional amount of the swap agreement is $39.5 million. Beginning on the effective date of July 1,2001, the District will pay a fixed rate of 4.50% on the notional amount, and will receive a variable rate equal to the BMA Index. The termination date of the swap is July 1,2010, but may be terminated by the District at an earlier date, at the District's discretion. On June 26,1998 the District entered into a variable to fixed rate forward swap agreement with Goldman Sachs Mitsui Marine Derivative Products, LP. for the purpose of hedging against interest rate fluctuations arising from the future issuance of variable rate debt which may be issued in connection with refunding certain of the District's fixed rate debt. Th notional amount of the swap agreement is $269.1 million. Beginning on the effective date of August 15,2002, the District will pay a fixed rate of 4.345% on the notional amount, and will receive a variable rate equal to the 70% times the one month inndon Interbank Offered Rate for U.S. dollar deposits.The termination date of the swap is August 15,2018, but may be terminated by the District prior to that, at the District's discretion. Component Unit Cogeneration Bonds. The comptment units of the District have cach issued bonds to finance the development, engineering and construction of the respective cogeneration projects. These bonds are non-recourse to the District. Principal and interest associated with these bonds are paid solely from the component units' revenues and receipts derived in connection with the operation of the cogeneration projects. The ability of the component units to service the debt is depende ,t upon the successful operation of the respective cogeneration projects (see Note 10). In September 1998, the District's component units issued $187.2 million of 1998 Series Cogeneration Project Revenue Reftmding Bonds to refund $208.9 million of previously issued Project Revenue Bonds. The net proceeds plus an additional $64.3 million of cash including $14.8 million of bond reserve fund and debt service monies applicable to the refunded bonds were used to fund the reserve and debt service funds of the new 1998 Series Revenur Refunding Bonds ($22.5 million) and to purchase United States, State and local government securities ($224.0 million). The securities were deposited in an irrevocable trust with an escrow agent to provide for all remaining future debt service payments on the refunded Imnds to their respective first call dates. As a result, the refunded imnds have been legally defeased and the liability for these bonds has been removed from long-Term Debt.The refunding resulted in the recognition of an accounting loss of $20.9 million, which was , alkicated proportionately between a current loss on extinguishment of debt ($4.8 million) and a defeasance i K loss ($16.1 million) based on the amounts of cash and refunding debt used to finance the transactions. The a defeasance loss was deferred and is being amortized over the life of the refunding issue. The refunding reduced $ z future aggregate debt service payments by $131.6 million and resulted in an economic gain of $10.8 rmilion, z et the difference between the prescot values of the old and new debt service payments. . E O 3 I e
Note 7. Cosh, A summary of the District's cash,investmer.ts and securities lending is presented below: Investments and December 31, . Securities Lending (thousands ol dollars) l998' 8997 Cash and Cash Equivalents: Cash. . . . .. ... . .. .. .. . 4 $ ~- 67,852 - $ 51.921 local agency investment fund . . . . .. . I18,221- 100.615 Repurchase Agreements . . ... . ... . . . . . 64,997 ! 76,120 U.S. Government Securities . ... .. . . . .. '43,387 6,867 Commercial paper . . . . ..... .. ... .. .. . ,81,879 16,887 Certificates of deposit. . . . ... .. . .. .. . 20,000 - 26.500 Ilanker's Acceptance . . . . . . ... .. .
- 9,999 Money market mutual funds . . . . . . . . . . .. .,. 16,631s 69,711 Guaranteed investment contracts. . . . . .. - 37,163 Total cash and cash equivalents. . . . . 412,967- 395.783 Investments - Category 1 (IIeld by the District's agent in the District's name):
U.S. government securities. . . . . .. . . 251,502 ; 248,517 Corporate securities . . . . . . 76,923 59,990 Commercial paper . . . . . . '0^
- 26,972 Certificates of deposit. .. . . . ... 56,000 ' 116,959 Municipal Bonds. . . 3,062i 0-Total Category 1 investments. . . .. . 387,487 452,438 lovestments - Not categorized Investments held by broker-dealers / agents under securities loans with cash collateral:
U.S. government securities. . . . .... . .. 63,034 ' 74.012 Total non-categorized investments . . . . .. .. 63,034' 74.012 Totalinvestments. . . . . . 450,521 ' 526.450 lotal cash, cssh equivalents and investments. . i $ 863,488 $ 922.233 Total Cash, Cash Equivalents and Investments: Revenue bond reserve, debt service and construction funds: Revenue bond reserve fund . .. ... .. . . $ ' 115.147 f $ 122,859 Debt service fund. . ...... . . ... .. 50,360 62,310 Component Unit bond reserve and construction funds. 117,298 - 121,138 Total revenue bond reserve, debt service and construction funds . . . .. . 282,805 L 306,307 Nuclear decommissioning trust fund. . . . . .. .. 130,187 1 125,037 Designated for rate stabilization fund . . . .. .. ... 104,510( 134,487 Designated for deferred compensation benefits . 1 -0 ' 47,269 Securities lending collateral . , . . ... . ... 64,997 76,120 l Designated for CCl% No.1. . . . . . . 10,202 12,104 ) Unrestricted funds . . . .. . 270,787 220.909 -p Total cash, cash equivalents and investments. - $ 863,488 $ 922.233 a O L 64 i 1
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s Cash and investments. Cash deposits are held in institutions insured by the Federal Deposit Insurance Corporation and, as required by the District's bond resolutions,in a bank, savings and loan asmciation or trust company of the U.S. or national banking association having capital stock, surplus and undivided earnings segregated of at least $10.0 million. Depmits to the extent possible are invested. In accordance with state laws and the District's bond resolutions, the District is authorized to invest in the following types of instruments: obligations which are unconditionally guaranteed by the U.S. or its agencies or instrumentalities; direct and general obligations of the State of California or any kical district within the State; bankers' acceptances; certificates of deposit; repurchase agreements; reverse repurchase agreements; interest rate swap agreements; securities lending agreements; and corporate indebtedness, including commercial paper and medium term notes with a maximum term of five years. Investments in corporate indebtedness must be rated *A-l"or its equivalent for commercial paper, and"A"or equivalent for medium term notes by a nationally recogni/cd rating agency. The component units' bond indentures a..sw investing in various other securities in addition to the ones mentioned earlier. The District's custodial agent maintains records showing the securities are , s wiely owned by the District, or by one ofits component units, where applicable. The District and its component units' deposits and investments are insured or collateralized with securities held by the District or by its agent,in the District's name or in the name of one ofits component units, where applicable. ) LAIF is a component of the Pooled Money Investment Account Portfolio managed by the State Treasurer, in accordance with Government Code Sections 16430 and 16480.The local lnvestment Advisory Board has oversight responsibility for the LAIF. The fair value of the District's investments is equal to the value of its pool shares. The District and its wmponent units' total investment in I.AIF at December 31,1998 was
$118.2 million. The Pooled Money Investment Account Portfolio includes apprmimate!y 4.6 percent in certain derivative-type pmducts. These products which are in the form of structuwd notes and asset-backed securities, derive their value from one or more indices or are dependent upon cash flows from receivable payments. LAIF's (and the District's) exposure to risk (credit, market or legal) is not currently available.
Investments in LAIF and Money Market funds are not insured or collaterali/ed However, due to the stringent investment policies of these funds, management considers the risk of lon ut pipal to be remote. Securities LendingTransactions. The District may enter into securities . mhng agreements,up to $75.0 million,only with counterparties that have senior debt credit rating in the ' " category or better by either Standard & Poors Corporation or Moody's Investors Services, at the time of Ae agreement. All securities lending transactions during 1998 were collaterali2ed in the form of cash at 102 peunt of the loaned securities value. Securities on loan at year-end are presented as unclassified in the preceding whedule. At December 31,1998, the Di.itrict had no credit risk exposure to borrowers because the anmunt the District owes the borrowers exceeds the amounts the borrowers owe the District. The contract with the District's custodial bank requires it to indemnify the District if the borrowers fail to return the securities (and the collateral is i inadequate to replace the securities lent) or fail to pay the District for income distributions by the securities
- issuers while the securities were on loan. All securities loans can be termin.ited on den.snd by either the District or the borrower, although the average term of the loans is one day. Cash collateral is invested in accordance with District investment policies and reported in the preceding schedule. s a
O Repurchase Agreements. The District occasionally enters into repurchaw agreements. No transactions were n. m entered into during 1998 except for repurchase agreements with securities lending proceeds. 3 2 Z 4 i e I e-Q 3 I sn
1 l 1 Note 8. Fair Value of The following methods and assumptions were used to estimate the fair value of each class of financial financial Instrurnents instruments for which it is practicable to estimate the value: , investments. The fair values of investments are based upon quoted market prices. Long-Term Debt. The fair value of Long-Term Debt (lionds), which includes the short-term portion, was calculated by determining the value of each iAvidual series using a standard bond pricing formula and market yicids from representative yield curves. District bonds were priced using Bloomberg's fair market j curve for insured municipal revenue bonds at year-end while the District's taxable Series F bonds were priced using the tauble general obligation bond curve. A similar fair value calculation was performed for l l the component units' bonds except that all uninsured component unit debt was priced using the yield j 1 curve for "IlllB" rated municipal reve nue bonds. Insured component debt was calculated using the yield curve for"A" rated municipal power issues. All yield curves were obtained from Bhiomberg as of year-end. Swap Agreements. The Series K swap and put agreements are linked to the underlying Series K bonds, 1 and effectively convert Series K bonds from a fixed to a floating interest rate.The fair market values of the 1
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swap and put together are equal to the difference between the fair market value and the carrying cost of the Series K bonds. The fair market values of other swap agreements are based on quoted market prices. The estimated fair value of the District's financial instruments are presented below: December 31,1998 (thousanJs of dollars) Recorded Value Fair Value Total investments. 5 450,521 $ 450.521 1.ong-term debt . (2,329,122) (2,647,450) Interest rate swaps and put agreements . 2,607 December 31,1997 (thousands ofdollars) Recorded Value Fair Value l Total investments. 5 526,450 $ 526,450 long-term debt . (2,513,532) (2,780,009) Interest rate swaps and put agreements . 4.912 l 1 Note 9. Invertrnent in CCPA No.1. The District owns a 50 percent undivided interest in CCPA No. I, a joint powers agency, Joint Powers Agencies f rmed for the purpose of participating in the exploration, development and production of electricity from geothermal resources. In June 1996, CCPA No. I ceased operations and placed its power plant and steam field in a lay-up condition pending a possible sale or dismantlement. The CCPA No. I closure plan was approved by the California Energy Commission in 1998. In connection with the plant closure, the District i em recorded a provision to reduce its carrying value below its 50 percent equity in CCPA No.1. b 41 O l A W de
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1 Summary financial information for CCPA No. I as of December 31,1998 and 1997, is presented below:
,
- December 31 (thousands ofdollars) -l998 l997 :
~ $ 23,491 ' $ 25.413
)
Total assets . . -. . l Totalliabilities. . .... . .. .. ... . . . . . . , $ 13,433 $ 15,143 ' Total members' equity . . . C '10.058- 10,270 Total liabilities and members' equity. . . .. 4 $ 23,491C $ 25.413 Net income /(loss) for the year . . . . . F$ -0. J $ -0 Transmission Agency of Northern California. The District and fourteen other California municipal utilities are members of the TANC, a joint powers agency, TANC, along with other California utilities. own and operate the California-Oregon Transmission Project (COTP), a 500-kilovolt transmission line between central California and southern Oregon. The District is obligated to pay approximately 27.1 percent of TANC's COTP financing and operations costs in exchange for ownership of 339 MW of TANC's 1,269 MW transfer capability. Additionally, the District has a 46 MW share of TANC's 300 MW firm. bi-directional transmission over Pacific Gas and Electric Company's (PG&E's) system between PG&E's Tesla and Midway l substatior,s.The District recorded wheeling expenses related to TANC of $11.0 m liion and $9.5 million in 1998 and 1997, respectively. Summary financial information for TANC as of December 31,1998 and 1997,is presented below: December 31 (thousands ofdollars) I l998 i- l997 6 Total assets . . . . . .
'$ 488,038 5 482.797 Total liabilities. . . . ... . ... .... . . . .... .. . .$j 487,506 j $ 482,301 Total members' equity . . . . . . .. . .. .. '" 5324 496 Total liabilities and members' equity. ... .
$ 488,038 i $ 482,797 Net income for the year . . . $- '36 i $ 17 Note 10. Component CVFA Carson Ice-Gon Project. CVFA was fonned by a joint powers agreement between the District -
and the Sacramento Regional County Sanitation District. CVFA constructed the Carson ice-Gen project, a Units 99 MW natural gas-fired cogeneration facility, which became commercially operable in October 1995 and was financed primarily by CVFA non-recourse revenue bonds. SCA Proctor & Gamble Project. The Eacramento Municipal Utility District Financing Authority (SMUDFA) was formed by a joint powers agreem ween the District and the Modesto Irrigation District. SCA was formed by the execution of two -= .te joint power agreements between the District and SMUDFA. SCA constructed the Procter A Gamble project, a 117 MW natural gas-fired cogeneration facility, which became commercially operable in March 1997 and was financed primarily through SCA non-recourse revenue bonds. g ;I
>I SPA Campbell Soup Project. SPA was formed by the execution of two separate joint powers agreements g between the District and SMUDFA. SPA constructed the Campbell Soup project, a 159 MW natural gas-fired i e
cogeneration facility, which became commercially operable in December 1997 and was financed primarily a through SPA non-recourse revenue bonds. $ z a Z ! 4 h O ( 3 I m L
s e Note il. Rancho Seco History. Rancho Seco, a 913 MW nuclear power plant, was placed in service in 1974. In lune 1989, voters Nuclear Power Plant rejected an advisory referendum permitting continued operation of Rancho Seco by the Ibtrict, and as a , result,the District began the process of shutting down Rancho Seco and abandoned the plant as an operating nuclear generating facility. Decommissioning. The District obtained Nuclear Regulatory Commission (NRC) approval of its decom-missioning plan in 1995 and will be subject to continuing regulation by the NRC until the decommissioning of Rancho Seco is complete. Under the approved decommissioning plan, tLe District is proceeding with tl.e decommissioning of Rancho Seco in two phases - a storage phase follou ' by a decontamination phase. During the storage phase, the plant will be maintained to the extent necessary to protect the fuel and other radioactive materiah before active decontamination occurs in 2008. Also, during the storage phase some of the plant's low level radioactive material is being removed and disposed of at a privately owed disposal site. The District presently plans to continue this
- incremental decommissioning" of low level radioactive material through 2000. At the end of the storage phase in 2008, the plant will be decontaminated by removing all remaining radioactive materials and radioactive plant components to otkite h> cations yet to be deteimined.
Decontamination of the plant and its site will be completed when the remaining detectable radioactivity has been reduced below the pre-approved release criteria, at which time the Rancho Seco plant will be released from regulation by the NRC. The nuclear fuel will be stored in dry canisters at a new on-site independent spent fuels storage facility (ISFSI) until it is removed by the U.S. Department of Energy (DOE) at a date yet to be determined by DOE.The ISFSI will remain under the regulation of NRC until such time as the nuclear fuel is removed by the DOE and the ISFSI is decommissioned. Rancho Seco is one of the first large commercial nuclear power plants to be removed from service. Due to the substantial technical, regulatory and legal issues being faced in connection with the decommissioning, the District cannot predict with certainty how long various decommissioning actions will take nor the eventual cost of decommissioning. These financial statements reflect the District's current estimate of its obligation for the cost of decommissioning.
'Ihe District has experienced problems with a vendor's efforts to license its dry fuel storage system with the NRC.
The problems resulted in a NRC Demand For Information letter and the vendor terminating fabrication activities on the dry fuel storage system in January 1997 and filing for bankruptcy protection. In October 1997, the vendor sold its nuclear fuel business to TransNuclear of New York in accordance with the bankruptcy settlement, which established it as a new subsidiary- Transnuclear West (TNW). A contract with the new owner was established in October 1998.TNW has resolved all of the NRCi Demand For Information concerns and has received the Transportation 1.icense for the dry fuel system. Other NRC licensing activities are being pursued. Manufacturing ahedules are being finalized with a target to support completion of fuel off-load by the third quarter of 2000. a Financial Effects, in November 1989, the ficard approved the recovery of $661.9 million of abandoned d Rancho Seco costs through future rates to be charged to customers over a period of seventeen years. The
> Board's rate action addressed $499.2 million of Rancho Seco assets that had been written-off and $162.7 g million of unfunded decommissioning liability. Several studies and updates of the cost of decommissioning i have been conducted since 1989, which have resulted in adjustments to the decommissioning liability in
-a a addition to annual adjustnwnts for inflation. At December 31,1998, the remaining decommissioning liability
<t a totaled $414.8 million. The $7.1 million decrease in the decommissioning fund liability for the year is due z
z to the payment of decommission activities performed during the year of $22.1 million, partially offet by the
<t g annual cost of living adjustment of $8.1 million and other net adjustments increasing future cost estimates ! by 16.9 million. The District funded the decommissioniag liability at a rate of $17.5 million for 1998. This $ amount will be increased to $18.5 million per year in 1999.
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Note 12. Pension Plons Defined Bene 6t Pension Plan.The District contributes to the California Public Employee's Retirement System (PERS), an agent muhiple-employer public employee defined benefit pension plan, and in 1998, adopted the provisions of GASB Statement No. 27" Accounting for Pensions by State and local Government Employers." PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statue and District policies. Copies of PERS* annual financial report may be obtained from their Executive Office at 400 P Street, Sacramento CA 95814. Funding Policy. Participants are required to contribute approximately 7% of their annual covered salary. The District makes the contributions required of District employees on their behalf and for their account. The District is not currently required to contribute to the plan. The contribution requirements of plan members and the District are established and may be amended by PERS. Annual Pension Cost. For 1998, the District's annual pension cost was $0 for PERS since it was not required to make and did not make contributions. The lack of required contribution was determined as part of the lune 30,1997 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 8.5% investment rate of return (net of administrative expenses), (b) projected annual salary increases that vary by duration of service, and (c) 5.0% per year cost-of-living adjustments. Both (a) and (b) included an inflation component of 4.5%.The actuarial value of PERS assets was determined using techniques that smooth the effects of shorterm volatility in the market value of investments over a four-year period (smoothed market value). THREE.YEARTREND INFORMATION FOR PERS ($ Amount in Thousands) FylYear Annual Pension Cost ( APC) Percentage of APC Contributed 06/30,'96 $4,991 100 % 06/30/97 100 06/30/98 100 I;EQUIRED SUPrLEMENTARY INFORMATION ($ Amountin Thousands) Actuarial Entry Age At tuarial Annual Funding Valuation Normal Valw of Funding - Funded Covered As a % Date Liabihty Assets Excess Status Payroll Of Payroll 6/30/95 $ 484,972 5 528,664 $ 43,692 109.0 % $ 122,826 35.572 % 6/30/96 552,720 6 6 6?7 52,907 109.6 122.766 43.096 6/3C/97 543,104 734,3 4 191,230 135.2 121,434 157.476 \ t Deaned contehtion Plans. The Distric provides a cash deferred compensation plan pursuant to Internal Revenue Code (IRC) Section 401(k) [401(k) Pen) in which all of its eligible full-time or permanent part-time employees may participate. The 401(k) Plan is a cortributory plan in which the funds are primarily contributed h by the District's employees and are held by a Trustee o trust for the employees upon retirement from District service and accordingly are not subject to the general chims of the District's creditors. The District makes e o annual contributions to the District's 401(k) Plan on behalf of some of its employees pursuant to a b
- memorandum of understanding with one of its collective bargJning units. District employees participating [
in the 401(k) Plan are considered vested once enrolled and are respo.,sible for determining how their funds are $ to be invested. The District is responsible for ensuring compliance with IPC requirements concerning the 401(k) !< Plan and not for market variations in the 401(k) Plan asset values. Currendy, the District does not match any , contributions. Ilowever, commencing in 1999, pursuant to a collective bargaidng agreement, the District will b Q 3 I e
s s ' I match employee contributions on a dollar for dollar basis up to a specified dollar limit for the employees covered under the particular collective bargaining agreement who are participating in the 401(k) lllan. The District employees participating in the 401(k) Plan pay all ongoing fees related to the 401(k) Plan.The 40l f k) Plan is a governmental plan and is currently not subject to discrimination testing or the requirements of the Employee Retirement inwme Security Act of 1974.The District employees participating in the 401(k) Plan are allowed to contribute up to 20 percent of their gross income not to exceed the annual dollar limits prescribed by the IRC. The District also offers its employees a defined contribution plan created in accordance with IRC Section 457 (457 Plan). The 457 Plan is a contributory plan in which the funds are primarily contributed by the District's employees. Effective December 1,1998 :he iLtrict adopted GASil Statement No. 32 " Accounting and Financial Reporting for IRC Section 457 Deferred Compensation Plans" and no longer reports the deferred compensation funds as they are held by a Trustee in trust for the employees upon retirement from District service and accordingly are not subject to the general claims of the IEtricthreditors. The District t has the duty of reasonable care in the selection of investment alternatives, but neither the District nor its directors or offkers have any liability for losses under the 457 Plan. The District does not match employee contributions not make contributions on behalf of its employees to the 457 Plan. Note 13. Other in addition to the employee pension benefits described in Note 12, the District provides post-employment Post-Employrnent health care benefits in accordance with District policy and negotiated agreements with employee represen-tation groups to all employees who retire from the District on or after attaining age 50 wah at least 5 years Benefits of service.The District also provides post-employment health care benefits to covered employees who are eligible for disability retirement. Currently,1,738 participants, including retirees, spouses of retirees and surviving spouses participate in the District':, health care benefits program. The District contributes the full mst of coverage for employees hired before January 1,1991, and a portion of the cost based on credited years of service for employees hired after January 1,1991.The District also contributes a portion of the wst for dependent coverage. The District records post. employment health care benefit expenses on a pay-as-you go basis. During the years ended December 31,1998 and 1997, post employ ment health care benefit expenditures wer $2.7 million and $2.8 million, respectively.The District estimates that the net present velue of its pou-employment benefit obligation was approximately $94.9 milhon and $80.9 million at December 31,1998 and 1997, respectively. Note 14. Insurance The District and its component units are exposed to various risks of I- .ss related to torts. theft of and Programs destruction to assets, errors and omissions, and natural disasters. In addition, the District is exposed to risks of loss due to injuries to, and illnesses of, its employees. The District and its component units purchase o
! 4 commercial insurance mverage to mver most claims in excess of specific dollar thresholds, whish range V from $0.2 million to 11.0 million per claim. Excess liability insurance coverage for most claims for the g District and its component units is $100.0 million. District property insurance coverages are based on a
o replacement value of the awet.There have been no sign ficant reductior,. m insurante coverage as wmpared I h g to December 31,1997; and for the years ended December 31,1998 and 1997, the insurance policies in effect y have adequately covered all settlements of the claims against the District and its component units. The j claims liabihty is rewrded in Other Noncurrent liabihties and Deferred Credits. Z o 3 I m
e The claims liability at December 31,1998 and 1997 is presented below: December 3l, (thomands ofdollars) l998 l997 Workers' compcnsation claims. . . ... . .. . . : $ 4,805 $ 5,467 General and auto daims. .. . . . . . . . .... . . ,, 2,963 2,125 Short- and long-term disability claims . . . . 1,173 640 Claims liability, end of year . . $ 8,941 : $ 8,232 Changes in the claims liability balance during 1998 and 1997 were as follows: December 31, (thousands ofda!!ars) '1996 l991 Claims liability, beginning of year . . . . . . .. . .. . ... l 8 L8,232 : $ 9,503 Add: Pnwisions for claims incurred in current and previous years . . ' 6,7217 6,590
- 1. css: Payments on claims attributable to current and previous years. I " (6,012h (7,861) l Claims liability,end of year . ' $ 8,941: $ 8,232 l
l Nate 15. Computer Every organization in the country is faced with a potential situation on January 1,2000 when the calendars on the millions of computers and microprocessors change from the year 99 to 00 and certain other dates M:difications For Year (Y2K Situation).The Y2K Situation has the potential to affect any computer system, including hardware 2000 (Unaudited) that is microprocessor based (embedded software), software and databases. District management has implemented a Y2K program that provides for the: (1) maintenance of an inventory of hardware, software, real-time systems and miscellaneous devices; (2) determination of whether identified items are Y2K compliant; (3) creation and execution of a plan to remedy non-compliant items before l December 31,1999; (4) testing of systems for validating compliance; (5) insurance that key bur.iness partners, induding members of the Western United States electrical grid,are aware of the Y2K Situation and are taking ; steps to remedy any problems; and (6) preparation of contingency plans for Y2K impacts to protect life and l property and maintain service. l Management considers its primary financial risks relating to its Y2K program to be associated with: the j I sustained operations of its distribution system; the sustained operations ofits customer service billing system; and the stability of the national power grid.11ecause of the interconnected nature of the national power grid, the District cannot guarantee that no interruptions in power will occur, even if the District's own system is Year 2000 compliant. However, the District is working with the National Energy Reliability Council the t Western Systems Coordinating Council, the 150, and pG&E to mitigate any impact that interruptions within the national power grid would have on the District's system. Additionally, the District is contacting its own c!cctrical suppliers, in order to assess their Y2K readiness. The District will continue to assess its suppliers' Y2K readiness through the end of 1999. To avoid potential negative impacts from supplier interruptions, contingency plans will include actions to deal with interrupted supply chain events. I e Significant personnel and financial resources have been devoted to the Y21( Situation. The District has ' o L spent approximately $0.5 million in direct cost for the Y2K compliance project through December 31,1998 g and expects to spend an additional $4.0 million to complete its, remediation efforts. These costs and the j completion of the Y2K modification and testing process by December 31,1999 are management's best $ estimates, which are based on numerous assumptions about future events, including availability of certain j resources, third party modification plans and other factors. There can be no guarantee that these estimates ! O 3 I
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- e i will prove true and actual results could differ significantly. Because of the unprecedented nature of the Y2K Situation,its effects and the success of related remediation efforts will not be fully determinable until the year 2000 and thereafter. Management cannot assure that the District will be Y2K ready; however,'
management believes the District will not incur significant business interruption that would have a material effect on the District's financial position or results of operations. Noto 16. Commitments Pacificorp (PAC) Power Sale Agreement. The District has entered into a series of agreements with PAC providing for the purchase by the District of 100 MW of firm power through 2015. The District has a minimum take-or-pay commitment for this energy of approximately $5.2 million annually through the term of the agreement. Public Utility District No. I of Snohomish County (Snohomish) Power Sale Agreement. The District has agreed to purchase up to 36 MW from a wood-fired cogeneration plant built by Snohomish and Scott Paper Company. The District provides Snohomish energy during the winter months when Snohomish needs the energy, and in return the District can schedule up to 42 h!W in the summer months when the District needs the energy i sect its load requirements. Prices for capacity and energy are fixed. and the minimum annual capacity a tor is 60 percent. The District will pay Snohomish a minimum of approximately $10.8 million annually through 2007. Western Power Sale Agreement. The District has long. term contract with Western that allows the District to purchase 361 MW of capacity and associ . ..crEy from the Central Valley Project (CVP). In i addition to the long-term capacity, the District aho has access to an additional 100 MW during June, July and August. The total annual minimum obligation under this contract is approximately $45.5 million for capacity and energy, subject to rate changes. The District has the right to reduce its energy obligation with six months advance notice and to reduce its capacity obligation with eighteen months advance notice. Calpine Corporation (Calpine) Power Sales Agreement. The District has entered into a long-term contract wi.h Calpine to purchase up to 50 MW of energy on peak and 10 MW off peak from the geothermal plant. SMUDGEOs!, that the District sold to Calpine in July 1998. The District pays the California Power Exchange price plus $5/MWh provided such price does not exceed $35 MWh. Based on the terms of this contract, the District's will pay approximately $8.7 million annually through 2001. Transwestern, NOVA, Alberta Natural Gas (ANG) and Pacific Gas Transport (PGT) Capacity Agreement. The District has entered into long-term contracts to reserve capacity of 12,101 million Dekatherms per day (Dth/d) on the NOVA, ANG and PGT natural gas pipelines. The NOVA contract expires in 2007 and the ANG and PGT contracts expire in 2023.The three capacity segments reach from . the California / Oregon border up to the gas supply basins in Alberta, Canada. The Transwestern Agreement is for 10,000 Dth/d that expires in 2006. This contract goes from the Southern California border to supply basins in the southwest.The current annual cost for each contract is: Transwestern 50.6 million: NOVA $0.4 million; ANG $0.3 million and PGT $1.5 million.
$ American Public Energy Agency (APEA) Gas Supply Contract. The District has entered into a four o
g year contract with APEA effective May 1,1999 to purchase 15,000 Dth/d of gas at one of several delivery
] points avaliable to the District. The price is to be five cents below the monthly I idweek price index from j various publications specified in the contract. Enron Capital and Trade will administer the contract.
- j. Assuming an average discounted price of approximately $2.20 Dth over the four-year term, the District will
[ pay approximately $12.0 million per year. O 3 I e
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r The District's total purchased power, gas purchases, and transportation commitments for the years 1999 through 2003 are $113.9 million, $40.1 million, $40.3 million, $31.7 million and $19.8 million, respectively. Capital Expenditurws.The District's budget for capital expenditures (excluding AFUDC) for 1999 total
$113.2 million. Approximately $40.8 million is for power supply projects, $37.9 million is for transmission and distribution projects and the remaining $34.5 million is for other construction. Budgeted capital expenditures for component units for 1999 total $2.6 milhon.
N:te 17. U.S. sureau of nectarnation (sureau) Water Service Contract silling Dispute. The District entered into a 40-year water service contract with the Bureau, which expires in 2012, for the delivery of up Ccntingencies I to 75,000 acre-feet of water per year to meet the Dietrict's needs at Rancho Seco. This amount includes 60,000 acre-feet of municipal and industrial (M&I) water from CVP.Over time, Bureau revenues have been insufficient to cover actual CVP operations and maintenance (O&M ) costs: contractor payments have been insufficient to cover amortization of their respective shares of CVP capital costs and,in the case of M&I contractors, have been insufficient to cover interest on unpaid capital. Although the District's contract contains a specific rate methodology, the Bureau now n sintains that the District and other M&l contractors are running substantial O&M deficits which, by the Bureau's definition, includes as O&M costs toth unpaid interest on capital and interest on the O&M deficit. The Bureau claims interest charges on these unpaid capitalinterest and O&M deficits. As a result, the Bureau's 1999 Rate Book lists a deficit of approximately
$12.3 million for the District. Since this figure is based on financial data from fiscal year 1997, the actual deficit claimed by the Bureau will be somewhat larger. Management believes the District complied fully with the terms and conditions of its contract, which contains specific rate methodology for recovery of O&M costs, and will continue to vigorously oppose any action by the Bureau to recover its purported billing deficit from the District. Further, management believes the ultimate outcome of the matter will not result in a material settlement or liability due to the Bureau and accordingly, no liability has been recorded. 1 1
Southern California Edison (Edison) Power Sale Agreement. The District's Power Sale Agreement } with Edison provides for year round capacity of 200 MW and additional capacity of 200 MW in certain months j through December 1999. It is the District's contention that Edison's divestiture of its gas-fired generation plants,in conjunction with certain restrictions placed upon Edison as a result of restructuring, have rendered I Edison incapable of performing the Agreement in the manner contemplated by the parties.The District has l notified Edison that, effective May 1,1998, the District will not be making any further payments under the contract. The payments since May 1998 have been expensed and the amount in dispute is included as a liability in the District's balance sheets. T and Front Streets Hazardous Contarnination Site (Site).The Site was acquired by SMUD in the mid 1960's from the California Department of Transportation (CalTrans). Until 1994, a SM UD transformer substation was located at the Site. In 1995, the Department of Toxic Substances Control (DTSC) issued a g Remedial Action Order (Order) requiring SMUD to take action to remediate soil and ground water contam- W ination at the Site.The District investigation indicates that District activities at the Site did not contribute y to the contamination and the District management believes that any such contamination occurred prior to o the District acquiring the Site or is the result of migration of contaminates from the adjacent properties h owned by CalTrans, PG&E and the Sacramento llousing and Redevelopment Authority (SHRA). p 3 Z Z g( E O 3 I e
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The District has filed suit against SilRA, CalTrans, the California Department of General Senices and PG&E alleging nuisance and trespass and seeks statutory and contributions indemnincation of a!! cost,s under th.e , llazardous Substance Control Act. f.ach of the defendants have cross-claimed against the District. A trial on the merits is expected in the last quarter of 1999. SM UD and CalTrans began joint remediation activities in the last quarter of 1998. Soil remediation is scheduled l l to extend through the first quarter of 1999. To cover the costs of the soil remediation, CalTrans and SMUD i executed a Cost. Sharing Agreement SMUDi share of soil remediation costs is expected to be in the range of I
$0.8 million to $1.0 inillion, which has been accrued as a liability. SMUD expects to recoup a significant portion of its site-related costs through the litigation.
Other Environmental Matters. The District is one of many potentially responsible parties that have been } named in a r. umber of actions relating to environmental claims and/oc complaints. Due to the nature of i these claims, legal actions or complaints, the District is unable to predict the range of an ts fer resolution l of these actions and intends to do all things necessary to defend its position.1he District does not believe that the outcome of any of these environmental actions will have a material adverse impact on the District's Gnancial position or resuhs of operatioris. Other Matters. In the normal operation of business, the District is party to various daims, legal actions and complaints. Management and the Distric6 legal counsel are of the opinion that there are no other material loss contingencies that would have a material adverse impact on the Gnancial position of the District, except as disclosed within the footnotes to these Gnancial statements. 1 l c. 1) C 0 L w Lc
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